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Investors say goodbye to Petrobras’s dividend era

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Vincent

Analysts had a thorny task in the last few months: predicting the future of Brazilian listed companies, especially state-owned ones, before the tightest presidential election ever, with two antagonistic projects for the country. Now that fate is sealed, the time has come to redo the math.In general, the already consolidated understanding is that the retail, education, and low-income construction sectors will benefit most from the new federal administration. In particular, the correction of target prices and recommendations for winners and losers has begun. Petrobras, Brazil’s largest company by revenues and market capitalization, is clearly in the second group.The state-owned behemoth has the power to cause seismic tremors in the economy and investments. According to the most recent data from Exchange B3, the shares with the public are divided among about 718,000 individuals, 5,900 companies, and 2,900 institutional investors.This correction by banks and brokerages had already been happening more discreetly after the first round of voting, according to the events and the winds of the polls. With the definition on Sunday, it tends to become more explicit.On Monday morning, after the results were known, XP cut by 25% its price target for Petrobras, although keeping a buy recommendation, and took the opportunity to reallocate its bets on its private-sector competitors Prio, which it started covering, and PetroRecôncavo, whose coverage was resumed. BTG Pactual cut its price target by 10%, keeping the previous neutral recommendation, while J.P. Morgan made the most radical move, cutting by 30% the company’s price target and downgrading its recommendation to neutral from buy.Analysts have different views on what will happen with the oil company’s pricing policy but are unanimous about the change in investments - for example, the return of heavy allocations in refining - which means the end of the dividend bonanza."While we are confident that many mistakes of the past will not be repeated," BTG says in a report, "investors cannot underestimate the new government’s ability to use Petrobras as a vehicle to drive economic growth, investment, jobs, and energy security."Put into numbers, the bank calculates that a 50% increase in investments would reduce the dividend yield in 2023 to 15% from 21%, which would cause shares to fall 25%. If...

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