Market Could Be Surprised With This Petrobras Number?

• Petroleo Brasileiro SA - Petrobras (ADR) PBR shares have lost 42 percent year-to-date, trading below the $5 mark since September 9.
• JP Morgan’s Marcos M Severine maintained a Neutral rating on the company.
• While stating that the price hikes announced by the company are positive, Severine added that they were insufficient to allay market concerns.

Petrobras has announced refinery gate price increases of 6 percent for gasoline and of 4 percent for diesel. Analyst Marcos Severine believes that the market would be “somewhat positively surprised” by this announcement, since investors were not expecting the company to hike prices right now.

An incremental raise of 100bps for gasoline and the incorporation of the diesel price hike takes the JP Morgan EBITDA estimate for 2016 higher by about 6 percent and the estimate for the cash position at the end of next year up by about 6 percent, Severine said.

Investors have been concerned about Petrobras’ financial situation and “what could be the exits to current crisis,” the analyst wrote, while adding, “In our view, there is no single solution as the answer passes through adopting several measures, as price increase to preserve Refining Margins, Cost Cutting, Capex resize and Asset Sales.”

Severine added that while the price hikes are positive, they are “somewhat inferior” to what is required by the company to contain its cash burn as well as to reestablish market’s confidence. “All in, we believe investors will praise price readjustments but considering the macroeconomic deterioration, tomorrow they will ask when comes the next one?”