Itaú BBA analysts resumed coverage for GPA shares (PCAR3) with a buy recommendation and a new target price of BRL 32 at the end of 2022, seeing strong upside potential of 95% compared to the close of last Monday thursday (27th). At 12:00 pm (Brasília time) on Tuesday (28), PCAR3 assets rose 3.96%, to R$ 17.07.
According to analysts, the constructive view is mainly supported by a sum-of-the-parts analysis (SOTP), which indicates that, even with significant discounts for each business unit (Brazilian operation, Éxito and Cnova), the action offers a positive risk-return relationship.
Analysts point out that monetization of the group’s non-core assets has been a recurring topic of discussion.
among investors, particularly after the successful spin-off of Assaí (ASAI3).
However, when performing a sensitivity analysis on the current price of PCAR3 and possible monetization values for Éxito (retailer operating in Colombia) and Cnova (which brings together GPA’s e-commerce activities), in order to assess the value implied value of the Brazilian operation, the analysis team concluded that, even with a 50% discount on the current price of Éxito and Cnova shares, the implied value of the Brazilian operation of Grupo Pão de Açúcar is close to zero. “Therefore, we believe that potential monetization would generate value for PCAR3”, he points out.
On the other hand, analysts assess that growing fears about possible labor provisions may be partially responsible for the pressured valuation of the stock.
“While the sensitivity analysis clearly indicates that there is value to be unlocked for PCAR3, investors have raised some concerns, the main one being the sale of the Extra operation. The transaction included the closing of some stores and a distribution center (DC), as well as the dismissal of employees, which may require some labor provisions ahead”, they highlight.
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