Market Overview

Petrobras Shares Underperform Despite JPMorgan Upgrade

Petrobras Shares Underperform Despite JPMorgan Upgrade

ADRs of Petroleo Brasileiro SA Petrobras (ADR) (NYSE: PBR) have underperformed, despite a recent upgrade from JPMorgan.

Rating And Justification

JPMorgan upgraded the stock to Neutral from Underweight on potential for lower credit risk, asset sales momentum, favorable regulatory environment and foreign exchange gains.

"We estimate PBR's refinancing needs will decrease ~$4.7 billion in 2017 to ~$6.1 billion from $10.8 billion with the $6.7 billion debt exchange offer while the leftover value of $1.9 billion should be used to amortize '18/19 debt," analyst Felipe Dos Santos wrote in a note.

The company would benefit from ongoing asset sale plan targeting at least about $5 billion–$6 billion in additional transactions by 2016, which is backed-up by a $10 billion term-sheet buffer loan.

Related Link: Petrobras Shares Have More Than Doubled Since March; Barclays Expects Stock To Cool

Analyst Forecasts

"According to our forecasts, if PBR achieves a $5 billion asset sale, our NAV would increase by $0.7/ADR and this would reduce our Net Debt/EBITDA by 0.2x in '16 (non-producing asset)," Dos Santos highlighted.

Meanwhile, the analyst said a 5 percent appreciation in our BRL/USD base case increases his 2016 EBITDA estimate to $24.3 billion or +6 percent (+$1.4 billion). On the other hand, a $+10/bbl increase in Brent prices decreases EBITDA by 1 percent (about $0.3 billion), without changing diesel/gasoline prices.

"We expect PBR to continue selling diesel and gasoline at a premium to import parity despite the combination of FX rates and Brent price," the analyst continued.

"All in all, after incorporating some of these positives, we see PBR's '16/17 debt requirements as more balanced and this should enable the company to take a breath before facing significant debt payments of ~$12/17 billion in '18/19," Santos added.

At the time of writing, ADRs of Petrobras were up 0.81 percent at $6.20. The analyst has raised the price target to $7 from $5.5.

Latest Ratings for PBR

Jul 2019Initiates Coverage OnBuy
Jul 2019Initiates Coverage OnBuy
Apr 2019UpgradesNeutralOutperform

View More Analyst Ratings for PBR
View the Latest Analyst Ratings

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