(Reuters) – Brazil’s state-run oil company Petrobras (PETR4.SA) has spent much of 2022 in turmoil, cycling through four chief executives as President Jair Bolsonaro hammered the company to bring down fuel prices.
Faced with that and the likely return of a left-wing government in next month’s election, some investors have moved to the sidelines. But of seven local fund managers who spoke with Reuters in recent weeks, five said they are standing pat or even adding to their positions as the tense election draws near.
Their guarded optimism highlights how many investors are reconciling themselves with the leading candidate, former President Luiz Inacio Lula da Silva, even when it comes to state firms whose profits suffered at times under his Workers Party (PT).
Part of the bull case is a bet that Lula is unlikely to repeat the policy excesses of his 2003-2010 term and his handpicked successor’s 2011-2016 tenure, when the state oil company became shorthand for mismanagement and corruption.
But it also reflects frustration among some investors with the right-wing government of Bolsonaro, who took office in 2019 promising orthodox policies and a possible privatization – only to take an aggressive hands-on approach to the company’s management and fuel pricing. read more
Those policies have weighed on the company’s valuation since he took office and, as a result, some investors see little difference with Lula’s more openly interventionist approach.
“There’s been no serious discussion regarding privatizing Petrobras. Lula is going to pressure fuel prices, but Bolsonaro has done the same,” said James Gulbrandsen, chief investment officer for Latin America at NCH Capital in Rio de Janeiro.
“What’s the difference? I don’t see a big one.”
Despite this year’s chaotic news flow, Petrobras has so far vindicated the bulls in the local market. Its preferred shares in Sao Paulo are up some 63% year-to-date, beating all global oil majors and far outperforming Brazil’s benchmark Bovespa equities index, (.BVSP) which is up about 7%. read more
Even so, several investors reckon the stock still has room to run.
“Petrobras shares are really cheap,” said one Sao Paulo fund manager with about 20 billion reais ($3.9 billion) under management. Like many interviewed for this article, he requested anonymity to talk frankly about the state firm amid a heated election.
“It’s reasonable to expect some changes (if Lula wins). But a regression to the policies of the (last) PT government is not expected. And even so, that regression is more than priced in.”
BEARS HANG BACK
While many investors remain relatively bullish, some are playing wait-and-see.
Under the PT governments of Lula and his successor Dilma Rousseff, Petrobras heavily subsidized Brazilians at the pump, incurring billions of dollars in losses due to policies that Lula has implied he may resume.
Though has Bolsonaro repeatedly fired CEOs when fuel prices rose, the company has at least formally operated under an apolitical pricing policy during his mandate, in which Petrobras tracks global energy markets with its domestic fuel prices.
“The attractive valuation makes a position in the company worth it. Still, that doesn’t justify increasing our stake in the company, given the risks tied to the election, which are extremely high,” said one fund manager.
“Among the worrying factors are the signs from Lula regarding how he will change the company’s pricing policy.”
In a June note to clients, Bradesco BBI analysts Vincente Falanga and Gustavo Sadka maintained that risks related to Petrobras “remain skewed to the upside.”
But in a fresh note this week, the same analysts said they now believed a Petrobras under Lula might embark on costly acquisitions of former state firms like power utility Eletrobras (ELET6.SA) and fuel distributor Vibra Energia .
“In contrast to our previous scenarios,” they wrote, such moves “would be detrimental for shareholders.”
($1 = 5.18 reais)