SAO PAULO – After Credit Suisse revised its projections for airline shares, this time Bank of America revised its projections for Latin American airline shares. And the news, in the view of analysts at the American bank, is not positive for Brazilian companies.
Murilo Freiberger and Gustavo Tasso downgraded the recommendation for ADRs (American Depositary Receipts or, in practice, shares of companies traded on the New York Stock Exchange) and for shares traded on B3 from neutral to underperform (performance below the market average) Azul (BLUE4) and Gol (GOLL4). The target price for Azul’s share traded on the B3 is R$36 (potential for an increase of 2.5% compared to the last closing) and US$20.80 for the ADR. In the case of Gol, the target price is R$21 for GOLL4 (9% upside potential compared to the last closing) and US$8.10 for the ADR.
Murilo Freiberger and Gustavo Tasso emphasize that the two companies have done an “impressive job in adjusting operations, negotiating liabilities and sustaining liquidity”.
However, the analysts’ assessment is that there is limited potential for asset increases, taking into account the current valuation of the shares. In addition, the effects of Covid-19 should continue to be felt, with an impact on cash flow.
“We still see a sizeable ‘Covid bill’ to be paid, with liabilities for both rising by around $5 billion from pre-pandemic levels,” they point out. They also assess that the recent more positive dynamics for working capital have deteriorated.
Bank of America also assesses that, considering the international financial standards (IFRS), the total liabilities of Gol and Azul may be underestimated by investors, which also explains the more pessimistic posture.
Analysts point to two points for this: i) the debt renegotiation rules, making Azul use a higher discount rate for aircraft rental liabilities and ii) the lease duration with the older age of Gol’s aircraft fleet leading to a decrease in the volume of liabilities. If these numbers were adjusted, the debt multiples would be 20% to 30% higher, they point out.
Despite the downgrade, the day is a high for airline shares, on a positive day for the Brazilian stock exchange. At 12:50 pm (Brasilia time), the assets AZUL4 rose 2.95%, to R$ 35.95, while GOLL4 advanced 3.83%, to R$ 19.77.
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