PBR - Petrobras: Losing Its Appeal On Lower Distributions Higher Capex
2024-03-14 16:55:36 ET
Summary
- Petrobras recently announced its new strategy and cash allocation framework through 2028, boosting total capex by 31% with projected investments in renewable power generation more than doubling.
- With the increase in Capex lowering implied shareholder returns by a quarter, I estimate PBR's new annualized distribution yield just slightly above Western peers at ~10%, down from ~14% previously.
- High debt and political risk remain key concerns with any surge in oil prices potentially forcing Petrobras to take on more debt to cover its new, government-mandated fuel pricing policy.
- With lower shareholder returns and a less attractive valuation gap after recent outperformance, I see an unfavorable risk/reward and initiate PBR at Underweight (PT $17.4).
Following strong recent trading and management announcing its new 2024-2028 strategy, I view Petrobras' equity story in terms of valuation and shareholder yields as significantly weakened. I further see a large degree of political risk associated with distributions and profit generation, with PBR having been being forced by the government to realize lower profits on fuel sales in the past, driving up leverage and putting the company in serious financial distress in the 2000s....
Petrobras: Losing Its Appeal On Lower Distributions, Higher Capex