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Biggest BRIC Buybacks Driven by Earnings Miss: Corporate Brazil

Biggest BRIC Buybacks Driven by Earnings Miss
JBS, the world’s biggest beef producer, this month said it would repurchase as many as 64 million shares, worth 359.7 million reais, after reporting second-quarter net income that fell short of analysts’ estimates. Photographer: Diego Giudice/Bloomberg

Brazilian companies from JBS SA to Banco do Brasil SA are planning to buy back 2.4 billion reais ($1.2 billion) of stock, the most among the world’s four largest emerging economies, after shares faltered and earnings disappointed investors.

Of the 430 companies that trade in Sao Paulo, at least 12 have announced repurchases since the end of the second quarter, compared with three in India, one in Russia and none in China, according to data compiled by Bloomberg. A year earlier, 10 Brazilian companies bought back shares in the period.

Thirty-six companies out of the 58 listed on the Bovespa index that are tracked by Bloomberg reported earnings that missed forecasts in the second quarter, while sales trailed estimates by the most since 2009. The index has plunged 13 percent from its 2012 intraday high on March 14.

“The perception is that the stocks are cheap,” Marcelo Mello, who helps manage 22.8 billion reais at SulAmerica Investimentos, said in a telephone interview from Sao Paulo. “Valuations have fairly recovered, but they are still far from their peak.”

Companies on the Bovespa are trading at 11.9 times analysts’ earnings estimates for the next year, down from a peak of 17.4 times in December 2009, Bloomberg data show. Companies on Russia’s Micex index trade at 3.7 times estimated earnings, compared with 9.5 in China and 14 in India.

Banco do Brasil

Banco do Brasil announced on July 13 it would buy back as many as 50 million shares, valued at 940 million reais based on the previous day’s closing price, the biggest repurchase program in Brazil this year, data compiled by Bloomberg show. Shares fell the following day by the most in 11 weeks after Chief Executive Officer Aldemir Bendine said the bank’s loan growth may be faster than previous forecasts.

At least six other companies have announced buybacks this month, including Magnesita Refratarios SA, Braskem SA and Localiza Rent a Car SA. JBS, the world’s biggest beef producer, this month said it would repurchase as many as 64 million shares, worth 359.7 million reais, after reporting second-quarter net income that fell short of analysts’ estimates.

“These companies have the cash and lack better uses for the capital,” Saulo Sabba, who helps manage 500 million reais as a director at Banco Maxima SA, said in a telephone interview from Rio de Janeiro. “Economic growth is not promising, so companies are investing in themselves rather than pushing investments in plants and equipment.”

‘Fair Value’

Brazil’s capital goods output, a barometer of investment, dropped 12.5 percent in the first half of the year, the national statistics agency said Aug 1. Analysts covering Brazil’s economy cut their 2012 growth forecast for a third consecutive week to 1.75 percent in a weekly survey the central bank released yesterday.

Companies are likely seeking to bolster their share values with the buybacks after the Bovespa plunged in the second quarter, according to Flavio Sznajder, who helps manage about 300 million reais at Rio de Janeiro-based Bogari Capital.

“Buybacks are about what these companies consider is the fair value,” Sznajder said in a telephone interview. “If they can boost returns to investors by increasing the dividends per share, why not?”

Banco do Brasil has gained 21 percent this quarter. QGEP, which announced a 22.5 million-real share buyback on July 9, has rallied 43 percent, while MRV Engenharia & Participacoes SA has climbed 28 percent. Of the 12 companies that have announced buybacks this quarter, six are trailing the Bovespa’s 10 percent gain in the period, including Trevisa Investimentos SA and OdontoPrev SA.

“Most of the time, the buybacks are positive,” Daniela Bretthauer, head of Latin American Research at Raymond James, said in a telephone interview from Sao Paulo. “But sometimes the companies create a buzz and then don’t end up executing the repurchase at all.”

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