Batista Exit Boosts Outlook for ‘X’ Companies: Corporate Brazil
Eike Batista’s exit from companies he founded during his quest to become the world’s richest man is fueling bets the shares will do better without him.
Analysts forecast the power utility formerly known as MPX Energia SA will more than double over the next year after Batista left as chairman, potentially the best performance among major Latin American stocks, according to data compiled by Bloomberg. Prumo Logistica SA, the port developer founded as LLX Logistica SA (LLXL3), rebounded 80 percent as EIG Global Energy Partners LLC took control in the second half of 2013.
Investors are bullish on the stocks after being burned by losses last year, when the former tycoon dropped off the list of the world’s billionaires after amassing a fortune that reached $34.5 billion in March 2012. The shares were excessively punished by the ties to Batista amid missed production targets and growing debt at companies from his EBX Group Co., according to Jorry Noeddekaer, a money manager who helps oversee $620 million of assets at Nordea Investment Management in Copenhagen.
“LLX was trading at a big discount compared to the huge opportunity, and Eike was one of the reasons,” Noeddekaer said in a telephone interview. “The new owners started with a new and improved balance sheet, and a new corporate structure where Eike is diluted. That makes us significantly more positive.”
MPX, which was renamed as Eneva SA (ENEV3) in September after Germany’s E.ON SE (EOAN) joined the company’s group of controlling shareholders, plunged 72 percent last year, while Prumo sank 46 percent. The benchmark Ibovespa fell 15 percent. Eneva trades at 0.85 times the value of its assets, up from 0.66 times last month, the lowest since 2009, according to data compiled by Bloomberg. Prumo’s price-to-book ratio has risen to 1.1 from a four-year low of 0.57 in July.
Eneva dropped 3.3 percent to 3.19 reais at the close of trading in Sao Paulo today. Prumo gained 1 percent to 1 real. The Ibovespa retreated 2 percent.
Nordea, Prumo’s sixth-biggest shareholder, has added 2.3 million shares as of Sept. 30, according to data compiled by Bloomberg. Noeddekaer said the firm started building its position while Batista was still in charge and made a “significant increase” in its stake when management changed.
Batista has taken public six interlinked companies focused on energy and commodities since 2006. All of them contained the letter X in their names to symbolize wealth multiplication.
Eneva will rise 124 percent in the next 12 months, the most among 237 companies in the region valued at $500 million or more, according to the median of nine analyst estimates compiled by Bloomberg.
The Rio de Janeiro-based utility’s plunge last year was excessive and driven largely by the company’s connection to Batista, according to Beatriz Nantes, an analyst at the equity research firm Empiricus in Sao Paulo.
“There was no reason for the stock to fall that much,” Nantes said in a telephone interview. “Part of it was the Eike effect, and also the company’s debt. Once Eike left and they renegotiated the debt, the market started believing it was different from the others.”
Officials at Eneva, Prumo and Batista’s holding company EBX declined to comment on the companies’ stock performance and analysts’ forecasts after Batista left management. E.ON directed questions about the company to Eneva, while a press official at EIG didn’t reply to e-mails and telephone calls seeking comment.
Batista ceded control of his flagship oil producer OGX Petroleo & Gas Participacoes SA to creditors last month in an agreement to renegotiate $3.6 billion of defaulted dollar bonds. OGX, which lost 95 percent of its market value last year amid missed production targets, filed for bankruptcy protection in October, followed by shipbuilder and sister company OSX Brasil SA. (OSXB3)
OGX has also dropped the X from its name, and is now known as Oleo & Gas Participacoes SA.
While a separation from Batista helps bolster prospects for companies such as Prumo, it probably won’t be enough to lift shares of OGX and OSX as they continue negotiating with creditors after the bankruptcy filings, according to Otavio Vieira, a partner at hedge fund Fides Asset Management.
“For OGX and OSX, things are more complicated,” Vieira, who helps manage 350 million reais at Fides including Prumo shares, said in a phone interview from Rio de Janeiro. “They have a lot of contracts with each other, and it’s hard to assess the value of these companies. They’re just at the beginning of a restructuring process.”
Press officials at OGX and OSX declined to comment on share performance and projected returns.
Batista also agreed in October to sell assets from his other companies, including a stake in an iron-ore port held by MMX Mineracao & Metalicos SA to Trafigura Beheer BV and Mubadala Development Co. and coal projects from CCX Carvao da Colombia SA to Yildirim Holding AS. The 57-year-old entrepreneur still controls both companies.
The entry of a new management team was a turning point for Prumo as it reduced the perception of risk, according to Nordea’s Noeddekaer. Cost reductions being implemented by Eneva’s new leaders will help that company rebound, according to Nantes.
“Eike was always a big spender, and they’ve already cut down on costs,” she said of the utility. “It’s a good company that is trading cheap. It’s better without him.”