Since Bradesco BBI gave Santos Brasil a ‘buy’ in May 2019 – arguing that the port terminal operator would be able to recover volumes and increase its prices – the stock has multiplied 3.5 times.
Now, the bank thinks it’s time to put the money in your pocket.
Analyst Victor Mizusaki downgraded his recommendation for the company to ‘neutral’, saying he saw an upside of just 9%.
In Bradesco’s accounts, Santos Brasil currently trades at 8.6x this year’s EBITDA, in line with global peers.
“To increase our target price we would have to assume an adjustment in the contract with Maersk of more than 10% in 2025, and leverage the balance sheet to invest in new concessions,” wrote Mizusaki.
According to the analyst, for every 5% increase in prices practiced by the company above the bank’s base scenario in 2025, it would be possible to increase Santos Brasil’s target price by R$0.40/share. For every R$1 billion allocated to concessions with a leveraged IRR of 12%, the target price could be increased by R$0.12/share.
The bank also downgraded its recommendation for Wilson Sons from ‘buy’ to ‘neutral.’
“Since June 2023, when the market began discussing Ocean Wilsons’ potential interest in divesting from Wilson Sons, the share has risen 68%,” wrote Mizusaki. “The current valuation is already in line with our target price of R$19, and additional upside is extremely dependent on the success of the M&A.”
The analyst notes that negotiations for the purchase of WIlson Sons have advanced, with reports that PSA International, from Singapore, would be a potential buyer.
“Even though M&A is progressing, it is not possible to know the price, and the risk-return is not attractive at current levels,” wrote the analyst. “The share price is assuming a 57% probability of the deal closing at R$23, but if the process is cancelled, the share could suffer a 22% correction back to the historical average of 7x EBITDA.” The stock trades today at R$17.60.
In the transport sector, Bradesco said it prefers rental company shares, as Localiza and Movida have seen sequential improvements in the discounts needed to sell their used cars.
“We expect depreciation rates to begin to fall in the middle of this year, leading to a re-rating of the sector.”
Bradesco sees Localiza and Movida trading at 16.6x and 9.4x next year’s profit — a discount of 27% and 35% in relation to their historical averages.