UBS BB recommends purchase for Raízen share (RAIZ4) and sees a 50% increase potential for the asset

Raízen (Photo: Disclosure)

SÃO PAULO – UBS BB began coverage of Raízen’s shares (RAIZ4) with a purchase recommendation, highlighting the prospect of favorable growth with renewable energies. The target price is R$9.60, or a potential increase of around 50% compared to the previous day’s closing.

Luiz Carvalho, Matheus Enfeldt and Tasso Vasconcellos, bank analysts, point out that Raízen operates in the distribution of fuels in Brazil and Argentina, in addition to renewable energy and sugar.

“On the last two, Raízen reached a scale that we consider difficult to match, allowing it to surf the favorable scenario and, in our view, structural, for sugar and ethanol”, they assess.

In addition, after its initial public offering (IPO) in August, which moved BRL 6.9 billion, Raízen seems determined to deliver strong growth in renewable energy, they point out. “While these returns may fall off the horizon of what the average equity investor tends to consider, we see this as a rare opportunity in advanced biofuels and renewable energy.”

In the sugar sector, they assess, the company is the biggest player in a stronger industry. “Raízen was already among the largest global sugar suppliers, but it has expanded its reach even further with the acquisition of Biosev. This was reflected in the company achieving better pricing conditions than other producers in the past, a trend we expect to accelerate, taking gross margins from 13% in 2020 to 23% in 2024.”

In addition, analysts also see a structurally tighter market for sugar in the short, medium and long term, supporting this new level of profitability.

In the case of renewables, this is a “long-term game”, supported by strong short-term prices, analysts say in a report.

“Raízen’s significant biomass supply capacity allows the company to supply renewable energy sources around the world, helping countries and companies to reach their emission reduction targets,” reinforce the analysts.

With 2 new factories being added per year, analysts estimate that this will add 1% to Raízen’s earnings before interest, taxes, depreciation and amortization (Ebitda) in 2024, 3% in 2025 and 4% in 2026 .

In the fuel distribution segment, they do not expect Raízen to have strong growth, but they believe it will remain stable and with a balance of margins and volume expansion. “We see growth potential for
possible changes in the Brazilian regulatory framework and with the expansion in Paraguay. But the solid business, with Raízen among the best operators in the sector, supports the expansion in the renewable segment”, they point out.

Discover XP’s action plan for you to transform the challenges of 2022 into investment opportunities.