After a precipitous drop of 87% from the highs reached in January 2020, the reinsurance company’s shares IRB Brazil (IRBR3) can they fall further? For the Rio fund manager Investments Squad, Yes.
The short position (shorts, in market jargon) in the company’s shares returned to bring results for the manager, who also profited from bets on the fall of the Cogna (COGN3) and of the vast, a subsidiary of the education company that went public last year on Nasdaq.
It’s always good to remember that the Squadra has the authority to talk about IRB. After all, it was a letter published by the manager in February of last year that paved the way for the discovery of billionaire accounting frauds at the reinsurer.
In a new letter, the manager again defended the reasons for maintaining the short position in IRB shares. This was once the fund’s main bet, but with the fall in shares, the relative exposure also decreased.
Since the Squadra pointed out the problems in the IRB numbers, the company has republished balance sheets and registered a accumulated accounting loss of R$1.7 billion. Along with the losses, the group made write-offs that reduced the value of equity.
Thus, even after the fall, the shares are still traded for an amount equivalent to 1.52 times the equity, according to the manager’s calculations. That is, not far from the level of 1.8 times 12 months ago.
The Squadra also highlights that a total of R$1.1 billion of IRB’s equity refers to tax credits that the company will probably not be able to take full advantage of.
“The table above ends up contributing to a perception of an effective premium for the book value [patrimônio líquido] even higher than previously commented, consequently improving the risk x return equation for our short position [vendida] in IRB, which we continue to hold in our Long-Biased strategy.”
On Monday’s trading session, IRB shares (IRBR3) were traded down 0.39% at around 11:20 am, quoted at R$5.14. Also read our full coverage of markets.
Another big gain of the Squadra in the last 12 months was with the short positions in shares of the Cogna (COGN3) and of the Vast (VSTA), a subsidiary of the group that provides teaching systems for basic education schools.
The manager was already betting on the fall of the shares of the private education network, and took advantage of the uproar with Vasta’s IPO, which took place in June of last year on the US Nasdaq stock exchange.
“We took advantage of what we thought was a distortion between price and value for the two assets, increasing our short position in Cogna and opening a short position in Vasta.”
The drop of more than 50% of both shares by the close of the first half helped boost the fund’s return Long Biased Squad, which recorded profitability of 8.3% from January to June, against 6.5% of the Ibovespa.
In 2020, the manager’s fund that can hold short positions returned 12.2%, against 2.9% for the main B3 index. Read the full Squadra letter.
The manager does not make it clear in the letter to investors whether the shorts in the shares of Cogna and Vasta. In today’s trading session, COGN3 was trading up 0.30% and Vasta’s rose 1.99%.