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Tuesday, January 31, 2023

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Vale (VALE3) and Petrobras (PETR4) start the year well, but is it worth buying some shares? See what this bank says

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Goldman Sachs continues with a “neutral” recommendation for both Vale and Petrobras (Image: Reuters/Washington Alves)

OK (VOUCH3) and Petrobras (PETR4) entered 2023 on the right foot. The mining company’s shares continue to take advantage of the rally in the iron ore in international markets in view of the expectation of reopening the Chinese economy. The oil company, on the other hand, is experiencing a moment of correction on the Stock Exchange, after its shares have fallen by around 15% in the last three months, especially due to political risk issues.

Since the beginning of the year, Petrobras shares have accumulated an appreciation of almost 10%, while Vale has risen by around 6% and its share is currently traded at R$94.

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Despite the recent recovery, the Goldman Sachs continues with a “neutral” recommendation for both Vale and Petrobras, although I believe that the positive macro sentiment and seasonal resupply in times of limited supply may support the first company in the short term.

“Investors in Brazil continue to see the OK as an interesting name to have in times of high political uncertainty due to the exporting nature of its business”, evaluates the bank’s analysis team.

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The main reason for analysts not to recommend buying is the still high uncertainty surrounding the pace of recovery of the Chinese economy.

For the Goldman Sachs, investors are likely to be disappointed by the magnitude of the post-Lunar New Year Chinese demand recovery. Negative sentiment reaches the second quarter of 2023, with the situation in the real estate market in the country still deteriorating.

lack of visibility

In the case of PetrobrasGoldman Sachs reckons the news is likely to be more negative in the near term, including a payout in dividends potentially lower after the election of the new administration in the first quarter of 2023.

Bank analysts believe that the fact that the valuation not being expensive reflects the increase in uncertainties about the policies that will be adopted by the new administration — probably, lower payment of dividends and more capex (investments).

Another point raised by Goldman Sachs is the government’s intention to change the State Law, which defines the rules for positions of presidency of public companies. The proposal being studied would replace the text approved by the Chamber of Deputies at the end of last year.

According to Goldman Sachs, the revision of the law gives even less visibility to what could be done by the new administration regarding Petrobras’ future policies.

The institution has target prices of R$29.50 and R$26.90 for common and preferred Petrobras shares, respectively. For Vale’s ADR (American Depositary Receipt) (VALLEY), the 12-month price target is $12.

The analysis team Goldman Sachs is structurally more optimistic about the Petroleum than with iron ore.

The average Brent prices expected by the bank are US$97.50/barrel in 2023 and US$105/barrel and US$90/barrel in 2024 and in the long term, respectively. In addition to Chinese demand, oil prices should be supported by falling Russian production, analysts say.

Source: Moneytimes

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