Analysis: Among the electoral tensions in Brazil, Petrobras emerges as a surprise the darling of the market

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RIO DE JANEIRO, Sept. 22 (Reuters) – Brazilian state-owned oil company Petrobras (PETR4.SA) has spent much of 2022 in turmoil, going through four CEOs as President Jair Bolsonaro hammered the company to lower fuel prices. .

Faced with this and the likely return of a leftist government in next month’s elections, some investors have moved on the sidelines. But of seven local fund managers who spoke to Reuters in the past few weeks, five said they would stay on their feet or even increase their positions as tense elections approach.

Their cautious optimism highlights how many investors are reconciling with the lead candidate, former president Luiz Inacio Lula da Silva, even when it comes to state-owned companies whose profits have suffered at times under his Workers’ Party (PT).

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Part of the bull case is a bet that Lula is unlikely to repeat the political excesses of his 2003-2010 tenure and the tenure of his carefully chosen successor in 2011-2016, when the state-owned oil company became an abbreviation for bad. management and corruption.

But it also reflects some investors’ frustration with Bolsonaro’s right-wing government, which took office in 2019, promising orthodox policies and possible privatization, just to take an aggressive hands-on approach to company management and fuel prices. Read more

Such policies have weighed on the company’s valuation since taking office and, as a result, some investors see little difference with Lula’s more openly interventionist approach.

“There hasn’t been any serious discussion of Petrobras privatization. Lula will push fuel prices, but Bolsonaro has done the same,” said James Gulbrandsen, chief investment officer for Latin America at NCH Capital in Rio de Janeiro. .

“What’s the difference? I don’t see a big one.”

Despite this year’s chaotic news flow, Petrobras has so far claimed the bulls in the local market. Its preferred stock in São Paulo has risen approximately 63% year to date, beating all of the world’s oil majors and far outperforming Brazil’s benchmark Bovespa stock index, (.BVSP), which is up by about 7%. Read more

Even so, several investors believe the stock still has room to function.

“Petrobras shares are really cheap,” said a Sao Paulo fund manager with about 20 billion reais ($ 3.9 billion) under management. Like many interviewees for this article, he asked for anonymity to speak frankly about the state company during a heated election.

“It is reasonable to expect some changes (if Lula wins). But a regression to the policies of the (last) PT government is not expected. And even so, that regression comes at a more than discounted price.”


While many investors remain relatively bullish, some are playing wait and see.

Under the PT governments of Lula and his successor Dilma Rousseff, Petrobras heavily subsidized Brazilians at the pump, incurring billions of dollars in losses due to policies Lula has hinted that it could resume.

Although Bolsonaro has repeatedly fired CEOs when fuel prices have risen, the company has at least formally operated an apolitical pricing policy during his tenure, in which Petrobras tracks global energy markets with its national fuel prices.

“The attractive valuation asserts a position in the company. However, this does not justify increasing our stake in the company, given the extremely high risks associated with the elections,” said a fund manager.

“Among the worrying factors are Lula’s signals on how the company’s pricing policy will change.”

In a June note to clients, Bradesco BBI analysts Vincente Falanga and Gustavo Sadka said the risks related to Petrobras “remain on the upside”.

But in a new note this week, the same analysts said they now believe that a Petrobras under Lula could undertake costly acquisitions of former state-owned companies such as electric company Eletrobras (ELET6.SA) and petrol station Vibra Energia.

“In contrast to our previous scenarios,” they wrote, such moves “would be detrimental to shareholders.”

($ 1 = 5.18 reais)

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Reporting by Gram Slattery in Rio de Janeiro and Paula Laier in Sao Paulo Editing by Brad Haynes and Marguerita Choy

Our Standards: Thomson Reuters Trust Principles.

Gram Slattery

Thomson Reuters

Correspondent based in Rio de Janeiro specializing in the oil and gas sector, as well as white collar crime and corruption. Recent stories have shed light on criminal offenses by some of the largest commodity traders in the world and have revealed how organized crime groups have infiltrated Brazil’s largest fuel stations. Previously published in Sao Paulo and Santiago and also reported extensively from Argentina and Bolivia. He was born in Massachusetts and graduated from Harvard College.


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