Itaú cuts projection for Ibovespa in 2021, from 152 thousand to 120 thousand points, and adjusts portfolio in the midst of the “perfect storm”

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SAO PAULO – In view of the deterioration of the Brazilian macro scenario, with fiscal and political risks, in addition to inflationary pressure and rising interest rates, Itaú BBA chose to cut its projection for the Ibovespa at the end of 2021, from 152 thousand to 120 thousand points, in a report called “The Perfect Storm – Adjusting Our Purchasing Portfolio in Brazil” (in free translation). The estimate implies a potential increase of 3.3% compared to current levels.

In a report, the bank cites the worsening of financial market estimates regarding the Selic rate and inflation. In the Focus report, from the Central Bank, the expectation for the Extended National Consumer Price Index (IPCA) in 2021 rose from 5.44%, in June, to 8%, in the most recent survey. The Selic should end the year at 8%, compared to a projection of 5.75% in June.

Fiscal risks are also increasing, writes Itaú BBA, given the difficulty in reconciling the spending ceiling with spending on court orders, and the pressure to expand Bolsa Família. The bank also says that the water scenario should pressure energy tariffs, due to the use of thermoelectric plants.

A rationing this year, however, is not the home’s baseline scenario, just if rains continue at low levels; situation in 2022 will depend on the rainy season, which starts in November.

“Looking ahead, we expect investors to be more selective, given the increased perception of risk with the deterioration of the macro outlook,” write analysts Marcelo Sa and Matheus Marques, who signed the report.

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In this context, Itaú BBA adjusted its portfolio, reducing exposure to high-growth names and including companies considered more defensive. That said, the bank excluded from the selection Bradesco (BBDC4), Magazine Luiza (MGLU3) and Méliuz (CASH3), and included Energisa (ENGI11), Eneva (ENEV3) and WEG (WEGE3).

“Our recommended portfolio for Brazil was betting on a strong recovery in the Brazilian Gross Domestic Product (GDP) and that the Federal Reserve would take longer to start the bullish cycle [de juros]. We were more negative about the macro perspective of Brazil and now we are adjusting our portfolio”, justifies the pair.

While analysts agree with Meliúz’s strategic move to launch a new application with its own credit card in 2022, they estimate that the momentum for short-term earnings will be weak. “There is no incentive to offer new credit cards now, as you would be sharing earnings with your partners,” they write.

See also: XP Strategists reduce Ibovespa projection to 135,000 points in 2021

For Magalu, Itaú BBA’s perspective is that the company’s growth rate will substantially slow down, given the stronger bases for comparison in 2020.

At Bradesco, the analysis team downgraded the bank’s shares to market perform (in line with market performance) after weaker than expected results in the first half and a more challenging macro scenario.

New names in selection

With regard to new additions, WEG’s recommendation is based on its “impeccable track record of solid results and high returns driven by a clear long-term strategy”, as well as a healthy balance sheet that allows the company to pursue organic and inorganic growth opportunities.

According to the pair of analysts, the second quarter results follow the positive view of Itaú BBA, with significant growth year over year, even with little or no impact from the pandemic in the second quarter of 2021.

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“Looking to the future, we highlight the company’s performance abroad, with potential gains in market share in the US, Europe and Asia in the long term. Over a shorter horizon, investors should monitor the short- and long-cycle backlog and the impact of regulatory changes on the distributed solar generation business and acquisition-related news flow,” write Sa and Marques.

The thesis of Energisa’s recommendation, in turn, is based on the assessment that the company is a high-quality defensive name, traded to a valuation “very attractive”.

According to Itaú BBA, the company is in a positive moment due to the impact of the increase in the IGP-M on “parcel B”, in addition to the fact that the company is protected, from a regulatory point of view, from the rise in inflation.

“Energisa is negotiating at a large discount compared to Equatorial, its main competitor. We expect the discount to be reduced due to Equatorial’s recent move to the sanitation sector,” analysts write.

Finally, the team sees Eneva as the best vehicle to face the challenging water crisis. The bank raised on Tuesday (14) its recommendation for the company to performer (performance above the market average) and raised the target price for the company’s shares from R$15 to R$18.60. Read more here.

In Itaú BBA’s view, uncontracted electricity volumes will benefit from extremely high energy prices in 2021 and 2022 and from the “huge opportunities” for growth that the bank expects for the company, with relatively low competition.

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