Category: Equity

MSCI Brazil is down 18.7% and underperforming GEM, but analysts remain constructive. Citi notes that the Bovespa is 21% lower than a late-May high of 73,516 and has broken below 50 and 200-day moving averages, but it is optimistic of an upside breakout. “We are positive long-term and expect the Bovespa to eventually break out of its 57,000-63,000 range to the upside; our end-2008 target is 66,000,” says Citi. The Bovespa slipped out of that band, closing 3.51% lower at 55,609 Monday. Citi stays overweight Brazil materials, utilities and consumer staples. UBS meanwhile remains constructive on commodity stocks, with 20% in Petrobras, 15% in CVRD, 15% in Gerdau, 5% in Magnesita, and 5% in Heringer. “We believe the sector was oversold in July, and we see a combination of attractive valuation, good 2Q results and supportive supply/demand,” says the Swiss shop. UBS is also raising exposure to real estate and consumer discretionary equity, following a sell-off, expressing the view via Rossi (10%) and B2W (15%). “Responsible monetary policy, large FX reserves, good balance of payments, low exports ratio as % of GDP, strong labor market, and under-leveraged companies provide a constructive environment for supportive domestic activity, sustainable GDP and earnings growth,” says UBS. “PE09E of 9.3x does not reflect these factors, and we see limited downside risks despite current global concerns.”

UBS has initiated Mexico’s Genomma with a buy rating and a MXP21.95 target, up from MXP15.40 Monday. Genomma Lab’s priced in June a $200m IPO at MXP16, the low end of a MXP16-20 target, in a deal managed locally by IXE and Santander, and internationally by UBS/Merrill Lynch. “At our price target, Genomma would be trading at a PE of 14.7 times our 2009 estimate, versus the current 2009E PE of 10.3 times,” says UBS. “This would still put Genomma at a significant valuation discount to most other global fast growing OTC/PC companies,” it adds, referring to over-the-counter drugs (OTC) and personal care products (PC), a universe it says trades at 16.1 times PE for 2009E. “We believe this company will enjoy rapid growth, high profitability, and low organic capex going forward thanks to a proven ability to select, brand and sell OTC/PC products, backed by highly effective advertising, complemented by largely outsourced manufacturing and R&D,” says UBS. The shop expects Genomma to use proceeds from the recent equity offering to buy brands and slowly expand internationally.

Investors have continued to pull out their cash from the Brazilian equity market with net foreign investment outflows totaling BRL14.4bn YTD, according to Itau which cites Bovespa figures. In the week ended July 29 BRL1.192bn exited the country’s exchange. In the week ended July 30, Brazil equity funds as tracked by EPFR lost a marginal $2.1m. LatAm outflows clocked in at a substantial $205.1m, in sync with GEM funds, which lost $652.9m says Itau, citing EPFR.

San Antonio Oil & Gas, the pan-regional drill servicing company formerly known as Pride International, is heard to be preparing an IPO, say people familiar with the sponsors’ plans. Executives at GP Investments, the company’s lead private equity sponsor, have apparently suggested to investors that the plan for San Antonio is to take it public and use part of IPO proceeds to pay down debt it took out to acquire the company. The equity listing is expected to happen in Brazil. GP led a consortium to buy the company in the Fall of 2007 for $1bn, $600m of which was paid for with a bridge from Citi and Calyon. San Antonio is now wrapping up syndication of a $575m multi-part loan to take out the bridge, over 80% of which is being distributed to lenders at rates of Libor plus 400bp over 3 and 5-year Argentine CDS, which amounts to more than 1,000bp over Libor all-in. A GP spokesman declines to comment on San Antonio’s plans.

Brazil’s Empresa de Investimento em Energias Renovaveis (ERSA) has unveiled further information about its upcoming offering of BDRs on the Bovespa. The company plans to issue units made up of one common and two preferred shares. It has not disclosed size of the offering through Bradesco BBI locally, with Credit Suisse as a co-lead and handling the international portion. In the prospectus the company acknowledges multiple relationships with Bradesco, including the fact that BBI FIP, an investment fund controlled by bank’s securities arm, is a holder of the company’s convertible debentures. Bradesco’s insurance arm is also the company’s main co-insurer. ERSA invests in renewable energy and its shareholders include Patria Investimentos with 35%, Eton Park with 33%, BBI with 7.3%, GMR Energy with 15% and DEG KFW Bankengruppe with 10%.

Shares of IronX and LLX, the mining and logistics companies belonging to Eike Batista’s EBX, soared Monday in their trading debuts. As part of a deal to sell MMX’s mining and logistics assets to Anglo American and Cleveland-Cliffs, holders of MMX saw each of their shares converted into three separate stocks: MMX, the original company that went public in 2006, IronX, the company holding the MMX mining assets that were not sold, and LLX, the logistics company that will transport ore for IronX, MMX and Anglo American. As holders of MMX sold into the market, the value of the newly listed IronX shares soared 29.3% to BRL27.03 on the Bovespa, while LLX jumped 21.9% to BRL4.85, according to the Brazilian exchange.

Empresa de Investimentos em Energias Renovaveis is planning an IPO through the sale of BDRs, it said. Ersa, as it is known, was formed in late 2006 by Patria Investimentos and other investment funds to build and acquire small hydroelectric, wind and biomass generation projects in Brazil. Ersa did not set any financial details of the operation, although it plans to sell shares both in Brazil and in international markets. The timing, it says, will depend on favorable conditions in the capital markets.

The Caribbean Exchange Network (CXN) is expected to start trading this year, according to Marlene Street-Forrest, general manager of the Jamaica Stock Exchange. “We are looking at the beginning of the last quarter [to start operating],” Street-Forrest says. Several targets for starting trade on the platform – which attempts to bring critical mass to a group of relatively insignificant markets – were missed last year. In June, the regulators of Trinidad, Jamaica and Barbados completed a review of documentation for the exchange and now the final review is on its way, Street-Forrest says. “I can report that they have indicated that we will be given that approval,” Street Forrest adds. The CXN aims to allow issuers in participating territories to be able to trade in other jurisdictions through their local exchanges. The first phase of this union will include Trinidad & Tobago, Jamaica and Barbados, while the second phase should include other exchanges in the Caribbean. The stock exchanges of the three participating countries submitted to their respective regulators rules for approval in October 2007. Slow progress leaves many observers skeptical that CXN will become a reality in the near term.

Peruvian fishmeal and oil producer Pesquera Diamante is counting an international bond issue as among its options to finance its expansion. Diamante had been considering an IPO, possibly in Norway, but will still look at other financing options before it decides, CEO Ricardo Bernales, tells LatinFinance. It must replace its short-term financing with something longer. He says it is still open to acquisitions in what is among Peru’s most rapidly consolidating industries. Diamante, however, is concentrating more on growing organically through developing new product areas, notes the executive.