PetroBras (PBR) - LatAm Oil "Major" with a Brazil Discount

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PetroBras (PBR), the Brazilian state-owned oil giant, has been on the radar for a while, but first it seemed overpriced and then it fell because of politics. With a new CEO aligned with the President though, looks like things are calming down. I had drawn this trendline a while back, prices seem to have settled on it now. If oil prices go up again, this should catch a nice tailwind, and outperform other oil majors because it is rather undervalued at the moment.

Not a buy yet in my books, but one to keep an eye on.

Two things that might spoil the upside:

  • Things in Brazil is incredibly political, and there is a presidential election coming up in a few months. PBR is in the crosshairs. They have handled politics well enough in the past, and even surprised everyone with price appreciation under leftist governments, but unclear how they will fare in the future.
  • Of course, if oil prices keep going down, they will go down with it. In that case, just makes them a better buy for the future.
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Completely forgot to set a price alert for PBR like I normally do, and it ran 40% since. Big missed opportunity. Won’t chase, will look for a retracement to get in.

It’s cut oil prices a few times partly because of political pressure, although the official word is because of lower global prices.

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Lula won; we may see another bump in PBR as a result, as we saw a similar bump on Oct 3, after the first round showed Lula ahead. The outgoing president was hostile to PBR, and the new one, though a leftist, had managed to increase PBR’s valuation a few times over due to his policies last time around.

If we consider just the one month period after the gap up, we can see it track XLE and XOM pretty closely, until some poll data suggested Lula might be falling behind.

PBR also seems to track the stock market (as tracked by EWZ), but with much higher beta. The market also shows the Lula-preference. (Which is amusing because, again, he’s the leftist with a union background.)

I’ll probably be looking at getting some PBR unless it spikes too hard into the open.

One risk factor is earnings in a few days. Difficult to see them doing badly with current oil prices though.

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Does this seem like a headwind or tailwind…?

https://twitter.com/chigrl/status/1586872722528796672?s=20&t=qdvSltL-05cMtLjbIxhoDg

I’m thinking former.

Hmm, why so? It sounds like an “and” statement - “we’ll sell you all the commodities you want, and you better let us trade with you on other things too.

I did lol at Tracy’s deliberate wording though - she can come back to this in a month and be 100% correct, irrespective of whether things turn out bullish or bearish :slight_smile:See, [bullish|bearish] things happened! I told you to keep an eye out!

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not sure what this means with respect to the trade… BUT two things caught my attn.

image

Fact that Lula wants to control PBR probably means less returns for American shareholders – this was dated Feb 2022 but it finally happened and who knows what will happen to divvys.

Brazil Lula (the oil price) does trade at significant premium compared to WTI and I suspect this is for the same reason Brent trades at higher price – seaborne

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A day after Lula’s elections, Brazilian stock market seem to have retraced all their losses from the initial fall (EWZ in orange). PBR, however, seems to be lagging. So not doing anything for now. Still worth keeping an eye on though for the long term, as a major international oil producer with a rather stable currency relative to the USD.

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Funny thing is i bought into this PBR a bit after the drop. I have 15 contracts for 16$ call for 1/20. I wouldnt be surprised if Europe try to do a big deal with Lula & Brazilian oil.

I upped my holdings 20 contracts each on 1/20/23 - for 16 and 17

hmm??? https://www.reddit.com/r/worldnews/comments/z2cobz/bolsonaro_now_no_longer_conceding_election/

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Return of taxes and lower dividends probably.

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PBR has preserved dividends enough that it equates to a 37% annual yield. $1.10 quarterly dividend on a ~$10.75 base price. Seems very cheap by any metric. Like a Brazil political discount at play. The prez makes a lot of noise, but the government is a major shareholder and beneficiary so one opinion is they will get concessions but not drastic dividend cuts. And even if dividends are halved, that’s still about 20% yield.

Will probably watch for a few more days and take a bite. Ex-div date is still 1.5 months away, so no rush.

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Incidentally, the preferred shares, PBR.A, trades at a discount compared to the commons, PBR. $9.52 vs $10.76. Likely because preferreds don’t have voting rights, which we probably don’t care about, but do have precedence in getting paid. And PBR has to distribute 25% of its net income, by law. PBR.A therefore seems to be the better buy, as yield is 46% annualized.

This does seem too good to be true, so will look into this more closely over the weekend.

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I find myself owners of some PBR.A preferred stock as a result of buy orders executing over the last few days =P Avg price is $9.58, 7.7% below today’s. Have additional buy orders set for $8.5 and $8.0.

Sold some puts too - 10/20 10P for $1.99. Happy to own PBR (the commons - not the preferred) if it falls below $8, or keep the change otherwise.

Finally ended up getting some $EC - Ecopetrol is the Colombian kinda-oil major that has decent dividends too. Lot bought at $10, additional buy orders up for $9 and $8. Should probably make a thread about this one too, at some point, but for now, it’s a similar enough play to PBR, so parking it here.

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Accidentally fat-fingered and sold this for $1.05 … +47% return on premium, so shouldn’t complain… but that was unfortunate. Still holding PBR.A for dividends, but haven’t added more as price never fell enough.

Currently dancing right at that 11.50 line:

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