Earnings Trends Cloud ECM Issuance Expectations

With earnings season in full swing in Brazil, public companies’ target revisions and below-forecast results have complicated the picture for both equity market performance and new issuance prospects through the rest of the year. “Revisions in Brazil have been among the worst in the region. The 53% rate [of companies beating earnings estimates] is in line with the average, but the expectations were much lower,” Francisco Schumacher, equity strategist at Deutsche Bank, tells LatinFinance. Only 35% beat sales forecasts, down from 49% in the first quarter. His shop has a 64,000 fair-value level on the Bovespa, and is marketweight rating on Brazil. Much of the trend reflects complications in Brazil’s economy, with lower GDP growth forecasts and lingering concerns about consumer credit and government intervention. “It is clear that this will remain a buyer’s market for some time,” says a Sao Paulo-based ECM banker, noting the quarterly results are neutral to negative for the equity markets going forward, depending on the company and sector. Some 30% of Brazilians have reported so far, with Vale and Oi among the bigger names making headlines with disappointing results. Mexico has mostly finished its earnings season, and the results paint a relatively brighter picture for potential public equity deals. “Earnings have been in line with our expectations,” Manuel Jimenez, equity analyst at Banorte-Ixe, tells LatinFinance, highlighting 14.2% Ebitda growth and 5.7% net income growth for the 43 companies his shop tracks. “With the rich valuation that the market has, there could be a window open for new issuance,” he says. Though Brazil has a full pipeline, five IPOs were postponed in July. “Mexico is going to differentiate itself from Brazil, and it will be reflected in the issuance pipeline, but there can be no mistakes,” says a Mexico City ECM banker, meaning transactions will be limited to the strongest. Mexicans including Santander Mexico and Pinfra, and additional issuers i