the market of beers faces a busy week after the Petropolis Groupthe third largest manufacturer in the sector in Brazil, file a request for judicial recovery.
owner of brands Itaipava It is petra, the company was highlighted in the news by resorting to the protection of Justice while trying to deal with debts that add up to R$ 4.4 billion. The group claimed to owe BRL 2 billion with financial obligations and capital markets, while debts to third parties total BRL 2.2 billion.
Who seems to take advantage of the rival’s crisis situation is Ambev (ABEV3). The company’s shares closed at a high of 4.74% on Tuesday (28), the day in which Petrópolis’ request for judicial recovery began to fill the news.
In the evaluation of BTG Pactualinvestors seem to think that Petrópolis’ weaker-than-expected financial condition would lead to an even more benign competitive landscape.
In fact, the bank points out that companies undergoing judicial reorganization may be forced to adopt a more rational approach to operations in order to recover profitability. In addition, in many cases, difficulties in financing operations force these companies to reduce the size of the business.
However, in this case, BTG has reason to believe that judicial protection for Petrópolis could negatively affect Ambev.
Not so promising alternative scenario
In a report published this Thursday (30), the bank assesses that Petrópolis’ request for judicial recovery represents a medium-term threat to the recovery of market share by the company that has Skol It is Brahma in the portfolio, depending on how the judicial reorganization unfolds.
BTG points out that, while Petrópolis has been struggling in the sector for years, Ambev has probably been the main beneficiary in terms of market share.
“So, to some extent, having Petrópolis bleeding for as long as possible would actually be the best scenario for Ambev. Judicial recovery, on the other hand, puts an end to this and opens up a new range of possibilities”, ponder analysts Thiago Duarte, Henrique Brustolin and Bruno Lima.
They point out that Petrópolis’s problem seems to be one of liquidity, not a balance sheet. If the request for judicial recovery is granted by the Justice of Rio de Janeiro, the company would be able to postpone the payment of the debt (considered small by BTG, given the size of the brewery) and improve liquidity to compete again.
“As production capacity is not a constraint, it could be able to equalize cash flows now that industry margins should start to improve due to more normalized input costs.”
Petropolis can be bought
Like other institutions, BTG does not rule out the possibility of Petrópolis being the target of M&A (mergers and acquisitions). This is because the company is larger than the entire Chilean beer market and has an “interesting set of assets”.
“Its flagship brand, Itaipava (more than 10% market share at some point) has undoubtedly lost some steam in recent years, but it is also one of the only major brands that can still be labeled as mainstream and do not belong to Ambev. In addition, it has a relatively robust logistics platform”, say Duarte, Brustolin and Lima.
In the evaluation of analysts, an agreement with Heineken “It would make perfect sense.” Heineken would gain access to a new dominant brand and substantially increase its distribution and production capacity.
That way, if the judicial recovery forces Petrópolis to make divestments or is completely purchased, the beer industry in Brazil would change to the point of hindering Ambev, because the competition would be stronger, not weaker.
“The competitive scenario of recent years, in which Petrópolis is burning cash and Heineken is struggling to grow, is what seems to have been favorable. If both are resolved, it will no longer be favourable”, reinforce the analysts.
BTG’s recommendation remains “neutral” for the Ambev share, with a target price of BRL 16.
Source: Moneytimes
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