Petrobras May Trail Bovespa as BlackRock Favors Banks (Update1)
2010-12-22 15:51:11.945 GMT
(Updates trading starting in fourth paragraph.)
By Fabiola Moura and Eric Martin
Dec. 22 (Bloomberg) -- Petroleo Brasileiro SA, the biggest
drag on Brazil's benchmark stock index this year, may trail the
Bovespa in 2011 on investors' concern the oil producer's
investments will crimp profits, according to BlackRock Inc.
Will Landers, who oversees the $1.05 billion Latin America
Fund at the world's biggest asset-management firm, said he sold
Petrobras as the stock plunged 30 percent in 2010 and remains
"underweight" heading to next year. Banks and homebuilders are
the most attractive industries in Brazil, poised to benefit from
rising domestic demand, Landers, 41, said in an interview.
Petrobras "has become a bit of a show-me story," said
Landers, whose Latin America Fund returned an average 20 percent
a year over the past five years, better than 90 percent of
competitors, according to data compiled by Bloomberg. "For next
year, I think most of the overhang or most of the issues with
Petrobras are done in terms of its underperformance, but it
doesn't mean I think it is going to be an outperformer."
The Bovespa will probably climb 32 percent from yesterday's
close to a record 90,000 next year, Landers said at Bloomberg's
headquarters in New York yesterday. The index is down 1 percent
this year, the only decline among benchmark measures in the
Americas, data compiled by Bloomberg show. The Bovespa lost 0.5
percent to 67,909.84 at 10:38 a.m. New York time today.
Petrobras preferred shares dropped 0.3 percent to 25.52 reais.
Financials, Real Estate
Profit for companies in the Bovespa will probably rise 24
percent next year on a per-share basis, according to the average
projections of analysts surveyed by Bloomberg. The index trades
for 10.3 times analysts' 2011 earnings estimates as of Dec. 17,
less than the 11.3 price-to-earnings ratio for the MSCI Emerging
Markets Index, weekly data compiled by Bloomberg show.
Financial and real-estate stocks should benefit from the
country's economic growth even as interest rates climb in 2011,
as borrowing costs remain historically low, Landers said.
Brazil's benchmark Selic rate, currently at 10.75 percent, was
as high as 26.5 percent in 2003.
"Some sectors have been overly penalized with this
interest-rate concern," he said. "The homebuilders look very
attractive here, because they have come down quite a bit. The
banks have continued to underperform even though they make a lot
of money, they are very profitable during periods of interest
rates going up. Those are the two sectors within the domestic
side that we like the best for the beginning of the year."
Fiscal Outlook
Brazil's benchmark interest rate may be raised to 12.5
percent next year as the central bank tries to tame inflationary
pressures, Landers said.
"There are some headwinds," Landers said. "We have to
keep an eye on the Copom and see how much interest rates will go
up," he added, referring to Brazil's monetary policy committee.
Investors in Latin America's largest economy will also wait
to see the new administration's 2011 budget and how much
President-elect Dilma Rousseff is willing to cut spending,
including funds for state development bank BNDES, Landers said.
"They need to slow down growth to keep inflation under
control, to tighten up the fiscal side a little bit, get a lot
of credit from the market and eventually allow interest rates to
come down," he said.
The Brazilian financial system is liquid and the country's
regulators are "vigilant," Landers said. He considers the
bailout needed for Banco Panamericano SA a "one-case deal."
Petrobras Valuation
Panamericano, the country's 21st-largest bank by assets,
got a 2.5 billion-real ($1.5 billion) bailout loan last month
from its controlling shareholder, Silvio Santos, after the
central bank said it found accounting irregularities related to
sales of pools of loans. Prosecutors later began an
investigation into alleged fraud at Panamericano.
Panamericano doesn't comment on ongoing investigations,
said a spokesman at the bank's external press agency in Sao
Paulo.
"At the end of the day, if any company wants to be
fraudulent, it is very hard to catch until it comes out,'
Landers said. "There is not much you can do about it."
Petrobras, the world's third-biggest oil company by market
value, trades for 8 times estimated 2011 earnings, compared with
an average of 9 times profit for the 26 oil and gas companies in
the FTSE All-Share Oil & Gas Index, Bloomberg data show. Exxon
Mobil Corp., the largest oil company, fetches 11 times profits.
Oil Production
Petrobras, which is state controlled, had a "horrible
year" in corporate governance, Landers said, citing its sale of
$70 billion in stock on Sept. 24 to help finance $224 billion in
offshore field development and refining capacity growth through
2014. The company, based in Rio de Janeiro, is developing the
offshore Tupi field and may take a minimum stake of 30 percent
in the government's Libra field, the Americas' biggest oil
discoveries since Mexico's Cantarell in 1976.
Tupi and Libra, which may hold as much as 8 billion barrels
and 15 billion barrels, respectively, are in a deep-water region
known as the pre-salt along Brazil's coast. Petrobras Chief
Executive Officer Jose Sergio Gabrielli plans to double output
to 5.38 million barrels a day by 2020, from 2.7 million barrels
in 2010.
"The asset base that Petrobras has is terrific," Landers
said.
As part of the share sale, Petrobras issued about $42.5
billion of stock to Brazil's government in exchange for the
rights to develop 5 billion barrels of oil reserves.
Brazilian President Luiz Inacio Lula da Silva is tightening
the state's grip on the domestic oil industry after Tupi was
discovered. He says Brazil is relying on the country's oil
wealth to fight poverty in the nation of 192 million people.
"They have to prove that they can generate appropriate
rates of return," Landers said. "Their plans are very
ambitious, to double production of oil over the next 10 years.
If they can achieve that, it is going to be transformational for
Brazil. But it is going to be costly for Petrobras."
For Related News and Information:
Developed Market Monitors: DMMV <GO>
Emerging Market Monitors: EMMV <GO>
Top Emerging-Market News: TOP EM <GO>
Most-Read News on Brazil: MNI BRAZIL <GO>
Bloomberg News in Portuguese: NH PBN <GO>
--With assistance from Alexander Ragir in Rio de Janeiro.
Editor: Brendan Walsh
To contact the reporters on this story:
Fabiola Moura in New York at +1-212-617-5772 or
fdemoura@bloomberg.net;
Eric Martin in New York at +1-212-617-5383 or
emartin21@bloomberg.net
To contact the editor responsible for this story:
Alan Mirabella at 1-212-617-4149 or amirabella@bloomberg.net
2010-12-22 15:51:11.945 GMT
(Updates trading starting in fourth paragraph.)
By Fabiola Moura and Eric Martin
Dec. 22 (Bloomberg) -- Petroleo Brasileiro SA, the biggest
drag on Brazil's benchmark stock index this year, may trail the
Bovespa in 2011 on investors' concern the oil producer's
investments will crimp profits, according to BlackRock Inc.
Will Landers, who oversees the $1.05 billion Latin America
Fund at the world's biggest asset-management firm, said he sold
Petrobras as the stock plunged 30 percent in 2010 and remains
"underweight" heading to next year. Banks and homebuilders are
the most attractive industries in Brazil, poised to benefit from
rising domestic demand, Landers, 41, said in an interview.
Petrobras "has become a bit of a show-me story," said
Landers, whose Latin America Fund returned an average 20 percent
a year over the past five years, better than 90 percent of
competitors, according to data compiled by Bloomberg. "For next
year, I think most of the overhang or most of the issues with
Petrobras are done in terms of its underperformance, but it
doesn't mean I think it is going to be an outperformer."
The Bovespa will probably climb 32 percent from yesterday's
close to a record 90,000 next year, Landers said at Bloomberg's
headquarters in New York yesterday. The index is down 1 percent
this year, the only decline among benchmark measures in the
Americas, data compiled by Bloomberg show. The Bovespa lost 0.5
percent to 67,909.84 at 10:38 a.m. New York time today.
Petrobras preferred shares dropped 0.3 percent to 25.52 reais.
Financials, Real Estate
Profit for companies in the Bovespa will probably rise 24
percent next year on a per-share basis, according to the average
projections of analysts surveyed by Bloomberg. The index trades
for 10.3 times analysts' 2011 earnings estimates as of Dec. 17,
less than the 11.3 price-to-earnings ratio for the MSCI Emerging
Markets Index, weekly data compiled by Bloomberg show.
Financial and real-estate stocks should benefit from the
country's economic growth even as interest rates climb in 2011,
as borrowing costs remain historically low, Landers said.
Brazil's benchmark Selic rate, currently at 10.75 percent, was
as high as 26.5 percent in 2003.
"Some sectors have been overly penalized with this
interest-rate concern," he said. "The homebuilders look very
attractive here, because they have come down quite a bit. The
banks have continued to underperform even though they make a lot
of money, they are very profitable during periods of interest
rates going up. Those are the two sectors within the domestic
side that we like the best for the beginning of the year."
Fiscal Outlook
Brazil's benchmark interest rate may be raised to 12.5
percent next year as the central bank tries to tame inflationary
pressures, Landers said.
"There are some headwinds," Landers said. "We have to
keep an eye on the Copom and see how much interest rates will go
up," he added, referring to Brazil's monetary policy committee.
Investors in Latin America's largest economy will also wait
to see the new administration's 2011 budget and how much
President-elect Dilma Rousseff is willing to cut spending,
including funds for state development bank BNDES, Landers said.
"They need to slow down growth to keep inflation under
control, to tighten up the fiscal side a little bit, get a lot
of credit from the market and eventually allow interest rates to
come down," he said.
The Brazilian financial system is liquid and the country's
regulators are "vigilant," Landers said. He considers the
bailout needed for Banco Panamericano SA a "one-case deal."
Petrobras Valuation
Panamericano, the country's 21st-largest bank by assets,
got a 2.5 billion-real ($1.5 billion) bailout loan last month
from its controlling shareholder, Silvio Santos, after the
central bank said it found accounting irregularities related to
sales of pools of loans. Prosecutors later began an
investigation into alleged fraud at Panamericano.
Panamericano doesn't comment on ongoing investigations,
said a spokesman at the bank's external press agency in Sao
Paulo.
"At the end of the day, if any company wants to be
fraudulent, it is very hard to catch until it comes out,'
Landers said. "There is not much you can do about it."
Petrobras, the world's third-biggest oil company by market
value, trades for 8 times estimated 2011 earnings, compared with
an average of 9 times profit for the 26 oil and gas companies in
the FTSE All-Share Oil & Gas Index, Bloomberg data show. Exxon
Mobil Corp., the largest oil company, fetches 11 times profits.
Oil Production
Petrobras, which is state controlled, had a "horrible
year" in corporate governance, Landers said, citing its sale of
$70 billion in stock on Sept. 24 to help finance $224 billion in
offshore field development and refining capacity growth through
2014. The company, based in Rio de Janeiro, is developing the
offshore Tupi field and may take a minimum stake of 30 percent
in the government's Libra field, the Americas' biggest oil
discoveries since Mexico's Cantarell in 1976.
Tupi and Libra, which may hold as much as 8 billion barrels
and 15 billion barrels, respectively, are in a deep-water region
known as the pre-salt along Brazil's coast. Petrobras Chief
Executive Officer Jose Sergio Gabrielli plans to double output
to 5.38 million barrels a day by 2020, from 2.7 million barrels
in 2010.
"The asset base that Petrobras has is terrific," Landers
said.
As part of the share sale, Petrobras issued about $42.5
billion of stock to Brazil's government in exchange for the
rights to develop 5 billion barrels of oil reserves.
Brazilian President Luiz Inacio Lula da Silva is tightening
the state's grip on the domestic oil industry after Tupi was
discovered. He says Brazil is relying on the country's oil
wealth to fight poverty in the nation of 192 million people.
"They have to prove that they can generate appropriate
rates of return," Landers said. "Their plans are very
ambitious, to double production of oil over the next 10 years.
If they can achieve that, it is going to be transformational for
Brazil. But it is going to be costly for Petrobras."
For Related News and Information:
Developed Market Monitors: DMMV <GO>
Emerging Market Monitors: EMMV <GO>
Top Emerging-Market News: TOP EM <GO>
Most-Read News on Brazil: MNI BRAZIL <GO>
Bloomberg News in Portuguese: NH PBN <GO>
--With assistance from Alexander Ragir in Rio de Janeiro.
Editor: Brendan Walsh
To contact the reporters on this story:
Fabiola Moura in New York at +1-212-617-5772 or
fdemoura@bloomberg.net;
Eric Martin in New York at +1-212-617-5383 or
emartin21@bloomberg.net
To contact the editor responsible for this story:
Alan Mirabella at 1-212-617-4149 or amirabella@bloomberg.net
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