Bank of America reduced the recommendation for Ultrapar’s shares (UGPA3) from buy to neutral, with a reduction in the target price from BRL 23.15 to BRL 15.50, which still sets up a 16% upside potential. ahead of the closing of the day before. UGPA3 assets closed the session down 1.64%, at R$ 13.16.
According to the bank, the reduction is to “reflect a more cautious outlook on earnings and capital redistribution from recent asset sales.”
Analyst Frank McGann notes that while he continues to see solid potential for improvement in the company’s core fuel distribution business and growth opportunities in oil and gas infrastructure, he is concerned about reduced short-term earnings over the next 1 to 1 2 years.
The divestments already agreed from its area specializing in chemical products Oxiteno and its chain of drugstores Extrafarma are expected to yield US$ 1.6 billion, but the redistribution of this money could take time. And the company’s expansion plans seem less defined now that it has retreated from a takeover move in the refining sector, he says.
“The stock has been underperforming, which could further limit the decline here. But the continued lack of a clear strategy makes us take a more cautious view for now.”
The analyst at the American bank, in turn, maintained the buy recommendation for Petrobras (PETR4) and Braskem (BRKM5) shares, despite having reduced the target prices for the assets.
The bank, in turn, did not include the name of Petrobras among its preferences in the oil and gas sector because it is exposed “to pricing challenges in a year with potentially heated oil prices”.
For McGann, Petrobras and also Argentina’s YPF will likely face challenges in passing on higher oil prices to gasoline and diesel prices in an environment of rising commodity prices.
“Petrobras’ efforts to maintain import parity prices could be challenging as the October 2022 presidential elections approach,” he says. The target price dropped from BRL 43.50 to BRL 40.50, but still with an upside potential of 33.6% compared to Thursday’s close.
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As for the petrochemical sector, the bank highlights that it is optimistic about the names of the sector, “although an expected softening in the margins increases the risk in the next 12 months”. This is one of the reasons for keeping Braskem out of the main choices in the sector, even though the bank continues to recommend the purchase. The target price was cut from R$84 to R$80 (upside of 53.7% compared to the previous day’s closing).
The analysts’ top picks for the sector are Tenaris, belonging to the Italian-Argentine group Techint, based in Luxembourg, and Ecopetrol, from Colombia. According to McGann, they combine the clear benefits of positive business trends (high oil prices, recovery in demand) and an attractive valuation.