3 reasons to sell stock now; “Prospects are not good”, says BB – Money Times

IRB
According to analysts Luan Calimerio and Rafael Reis, the reinsurer’s numbers are disappointing and the company’s recovery may take longer (Image: Reproduction/Youtube of the IRB)

O BB Investimentos downgraded the recommendation of IRB Brazil (IRBR3) from neutral to sale after the release of quarterly results.

According to analysts Luan Calimerio and Rafael Reis, the reinsurer’s numbers were disappointing and the company’s recovery may take longer than expected.

“Given the perception of an increase in the risk of carrying a position in the face of the company’s reality, which ultimately remains fragile, and considering that one of the alternatives implies the participation of minority shareholders in an eventual follow-on if they do not want to be diluted, we withdraw the recommendation ”, completes.

Here are three reasons that support the pessimism of the BB.

1 – Bad IRB results

In the duo’s view, the IRB delivered a negative result, with a net loss of R$373.3 million, 80% higher than the loss of R$206.9 million in 2Q21, mainly impacted by lower premium receipts and higher claims payments.

The volume of premiums written in the second quarter was R$1,685 billion (-22.0% y/y), mainly explained by:

  • in Brazil, for non-renewal of optional accounts and repositioning of equity interests;
  • abroad, due to adjustments made to the portfolio, lower global exposure, exit from contracts and reduced participation in certain risks;

The loss ratio was 124.2%, negatively impacted by atypical weather events that affected Rural Risk contracts.

2 – Regulatory issues

With one more loss on the table, the IRB will have to take measures to strengthen its capital structure, among which, but not limited to, possible:

  1. retrocession or portfolio transfer structured operations in run-off;
  2. sales of real estate and corporate interests; and
  3. subscription of new shares;

3 – Bad prospects

Finally, the BB states that the business sanitation plan and the rescue of regulatory liquidity implemented by the company in 2020 brought encouragement and the benefit of the doubt, at the time.

However, analysts maintain that after more than two years, and successive losses, there is little visibility as to the sustainability of the IRB’s own operation, with great pressure from the loss ratio on the result.

“We emphasize that our valuation finds its value based on the projection of an improvement in the loss ratio – from 83% in 2022, normalizing to 73% by 2028 – which we deem essential for the operational health and consequently liquidity of the company, but we recognize that such an assumption meets every less evidence-based. “, he completes.

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About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

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