Petroleo Brasileiro S.A. - Petrobras (PBR)

[eastunder]

More on Chanos (link back) 10-21-14

http://www.bidnessetc.com/27667-petrobras-stock-plummets-on-comments-by-chanos/1/

Petrobras is down over 4.7% after founder of Kynikos Associates LP, Jim Chanos termed it “a scheme, not a stock”

Published: October 21, 2014 at 11:26 am EST
By: Micheal Kaufman


Jim Chanos, a renowned American hedge fund manager and also the founder and president of New York city-based Kynikos Associates, said that the investor optimism that Brazilian President Dilma Rousseff's losing the election would benefit Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR), is baseless. Kynikos Associates is an investment advisory firm that is renowned for short-selling stock.

In an interview to Bloomberg TV yesterday, Mr. Chanos said: “The economics are just so poor at Petrobras, that we really have called it a scheme, not a stock.” He further added: “If Neves wins, this is underwater. If Dilma wins, this is really underwater.” Mr. Chanos gained prominence by betting against Enron Corp. Following these comments, Petrobras stock is down 4.7% as of 11:20 am EDT.

Mr. Chanos’s recent speech and presentation at the Robin Hood Investors Conference in New York, showed that Petrobras has been continuously missing production guidance and has constantly posted negative cash flow from deepwater projects. Return on assets for Petrobras has dropped to 4.5% as compared to cost of debt of nearly 15%.

The hedge fun manager has also previously stated in November 2012, that Petroleo Brasileiro Petrobras SA (ADR) (PBR) (PBR.A) was one of his favorite shorts.

In the last two years, Petrobras’s refining and marketing (R&M) segment has recorded a loss of $15.4 billion because of discount on gasoline and diesel from international levels as "instrument of economic policy". Mr. Chanos also foresees that free cash flow (FCF) will remain in the red if the R&M segment of the business breaks-even. He further said that the company has been borrowing $20 billion every year to finance operations.

Since the constitutional amendment around 17 years ago, which allowed the Brazilian president to serve more than one term in a row, no Brazilian president has lost a re-election campaign. Furthermore, no incumbent has lost an election campaign since 1980.

According to a survey by Datafolha, Neves has 45% of the votes, meanwhile the current President, who is serving her second four-year term, has 43%. Datafolha polls have an accuracy margin of plus or minus two percentage points.

In recent news, Brazilian President Dilma Rousseff accepted for the first time before the second phase of election on Sunday that there have been instances of wrongdoings at Petrobras

The state-controlled oil company is facing pressure about its profitability. The company reported revenue of $36.90 billion at the end of its second quarter of fiscal year 2014 (2QFY14, ended June 30, 2014), signifying an increase of 11.8% year-over-year (YoY). However, the company reported net profit of $2.33 billion or 17 cents per share, compared to net income of $2.75 billion or 23 cents per share during same period last year. The company attributed the decline to foreign fluctuation and rising cost of exploration and production activities.

Petrobras is also expected to announce results for the third quarter of its fiscal year 2014 (3QFY14, ended September 30, 2014) on October 23. The company expects to report revenue of $34.13 billion, which would signify an increase of 40 basis points from same period last year and adjusted earnings per share (EPS) of 15 cents compared to 11 cents in 3QFY13.

Petrobras receives coverage from 22 analysts across the Street. Nine analysts rate the stock a Buy, while only two analysts recommend a Sell. The average 12-month price target is $18.42.

Recently, the company has faced significant changes in ratings and 12-month price target from numerous sell side firms. Yesterday, the company received downgrades from two sell-side institutions. John Herrlin, ananalyst at Societe Generale SA (ADR) (SCGLY) downgraded Petrobras from a Buy to a Hold and lowered the 12-month target price from $20 to $18. The second downgrade came from Neil Fonseca, analyst at Eva Dimensions, who downgraded the stock from Hold to Overweight with no 12-month target price assigned to the stock.

Earlier this month on October 10, Asit Sen, analyst at Cowen & Company reiterated his Outperform rating on the stock but lowered the 12-month target price by $1 to $22.