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Petrobras: The Best Oil Stock Remains Hidden In The South

Baronport Capital profile picture
Baronport Capital


  • The Brazilian state-owned integrated oil and gas giant is a dividend powerhouse and a free cash flow machine that is a worthy addition to any income-oriented investor's portfolio.
  • Petrobras seems to be trading at a discount, being undervalued both in terms of the industry and the broader market.
  • Investors are eagerly awaiting the government's decision as the speculation about the privatization of the company is getting louder.

Bolsonaro Considers Privatization of Oil State Company Petrobras

Wagner Meier/Getty Images News

Petróleo Brasileiro S.A. - Petrobras (NYSE:PBR) - is a dividend powerhouse and a free cash flow machine that has a lot to offer to its potential investors.

The company seems to be undervalued both in

This article was written by

Baronport Capital profile picture
Baronport Capital offers independent equity research through a bottom-up fundamental approach from a long-term oriented value investor. He is passionate about investing and finance. He embraced the concepts and principles of value investing, an investment philosophy shaped by the written works and lives of Charlie Munger, Howard Marks, Seth Klarman, and other figures. Occasionally contributes to Quiver Quantitative.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (59)

party2998 profile picture
What's the difference between PBR and PBR.A? The latter is trading 9% lower. How different is the market liquidity of both tickers? Thanks for your help.
Prezzo giusto profile picture
@party2998 : Don't be lazy and read this article, then you 'll know :
Prezzo giusto profile picture
Other divestment :
Rio de Janeiro, December 23, 2020 - Petróleo Brasileiro S.A. – Petrobras, following up on the release disclosed on 02/19/2021, informs that it signed today with Carmo Energy S.A. a contract for the sale of all its stakes in a set of 11 concessions of onshore production fields, with integrated facilities,
located in the state of Sergipe, jointly denominated Carmópolis Cluster.
The sale price is US$ 1.1 billion, of which (a) US$ 275 million as a down payment; (b) US$ 550 million at the closing of the transaction and (c) US$ 275 million 12 months after the closing. The amounts do not consider adjustments due until the closing of the transaction, which is subject to compliance with
certain precedent conditions, such as approval by the National Petroleum, Natural Gas and Biofuels Agency (ANP).
OffSiteLocation profile picture
Enjoyed the nice 10% dividend check yesterday!
Crevalon profile picture
@OffSiteLocation how much per share did you recieve?
OffSiteLocation profile picture
@Crevalon a little leas than $1.10 I recall.
Crevalon profile picture
@OffSiteLocation likewise 1.08 USD net per share

Brazil hiking rates.
crrj profile picture
What if communist and Lula win next year???? Communist oversaw regulating VALE dams that burst-----
@crrj That's why you pay attention to what's going on and make a call on whether PBR is a trade to make a quick buck, or a long term hold. We should have a better idea in the next few months which it will be.
Liberum Mercator profile picture
"The world is on a slow but steady shift away from oil to renewable sources of energy. This process is probably going to take longer in South America, but it is a fact nonetheless."

It is not. What is actually happening is that for some reason the world is hell bent on making practical and economic energy sources (broadly speaking nuclear and fossil fuels) illegal and replacing them with unreliable and utterly impractical meme technologies. This will either come to an end, or it will destroy our entire civilization.

Good article other than that. An introduction of the alphabet soup of financial ratios might be a good addition for clarity. E.g. "NTM TEV/REV" = ?
31 Dec. 2021
@Liberum Mercator Total Enterprise Value/ Next Twelve Months Revenue
OffSiteLocation profile picture
What holds pbr back is uncertainty. Govt uncertainty in terms of taxation, ownership, and dividends payable. Sadly I don’t see this changing. But am am long as the discount relative to uncertainty is more than there should be imo.
I can make a case the Dems and Biden are more dangerous for US oil than Brazil’s government is to PBR. They are making substantial debt reduction at the same time returning 50% of free cash flow. Very cheap. Brazil should use their dividends to give a break at the pump. Should be elated getting the $$$. But you never hear of them doing that only whining about the dividends everyone else gets…lol
PianoCat profile picture
@huskers123 Gasoline futures closed at $1.96/gallon yet gasoline costs $5/gallon in California. Some are due to transportation cost but most of the difference is due to taxes, fees and environmental regulations.

It’s actually very simple if they want to reduce gasoline prices - cut those taxes and fees. But Dems will never lower taxes. Instead they demonize American oil companies.
@PianoCat when was the last time you saw any politician cut fuel taxes? Never. Because they all love the regular, repeatable revenue that targets absolutely everybody.
Does anyone have thoughts on the talk of privitization. I realize it is political, but my sense is that it is more a political talking point than a real possibility. The government siphens off too much money from PBR to ever let it go private in my opinion. Thoughts anyone???
PianoCat profile picture
@Troutbum41 It’s too cheap to privatize. The government would be stupid to sell at such basement prices.
@Troutbum41 it is interesting to remember that not long after the massive corruption scandal of the Lula government, Lava Jato, had been uncovered, an opinion poll showed that a majority of Brazilians were still against a full privatization.
@PianoCat should the government announce that it plans to really privatize, the stock would take off because what is holding it back is governance concerns.
Ive got a pretty decent sized position in PBR. Amazing dividend and as long as Brazilian politics doesnt get too crazy, deeply undervalued. PBR is a buy so long as you watch the presidential race down there.
@asm12345 Put it another way, it is an interesting trade; it will become a long term buy IF it is fully privatized, which remains doubtful.
Oil an gas are the best forms of energy.
Russia is laughing her ass off right now.
Long PBR-A.
Chancer profile picture
@peter Mirkovic:

Thanks for article.

IMO, if leftist Lula is elected president in 2022, I doubt that privatization will occur, as he would definitely kill it regardless of the status.

For U.S. investors, most countries have tax treaties with the U.S. limiting withholding (WH) tax to 15%; and you can deduct a credit on your tax return for WH taxes paid.

With PBR there is considerable risk, but the dividend potential may be worth that risk as long as the prospect for higher oil prices continues. For me, uncertain government involvement in PBR is the greatest risk as politicians can act in irrational and often unpredicted ways.
@Chancer ,
In politic, crazy things will happen, everyone said Mrs. Clinton would win 100% too. I have not written off the present guy yet. Once a crook, always a crook, Lula is a crook, a corrupted crook.
Chancer profile picture

Corrupt. yes. However, the courts in Brasil over turned his criminal conviction. Bribery of judges in So America is often done. I know because I lived in So. America. Both sides bribe the judge, so he passes case to another judge, who also collects bribes from both sides.
@zip6485 Isn't saying that he is a politician and corrupt redundant?
I think that privatizing Petrobras is a lot more challenging than privatizing Electrobras: PBR makes a lot a profits which governments like to control, and even among the population, PBR strikes a emotional cord that EBR doesn’t.
PBR is a good bet but…..
by the last quarter of next year we have presidencial elections (governors pe and 1/3 of the senators) so forget of any new privatizations approvals which is a controvertial issue always)
If the criminal Lula is elected Petrobras CEO and the board of directors will be replaced and….????
Brazil is not late regarding environment friendless but ahead as half of the gasoline needs has been replaced by etanol and 10% of the diesel by biodiesel, while 70% of eletrical power is hydro, almost 17% is solar/wind, 5% is biomass and natural gas
Liberum Mercator profile picture
@Russom Is dispersed, dilute, land- and raw materials-hungry biomass, solar and wind harvesting actually more "environmental" than high-energy density fossil fuels and uranium?

Probably not.
@Liberum Mercator just keep telling yourself that and never, ever think that a pollution cost will land on a balance sheet.
Liberum Mercator profile picture
@mog123 I'm not telling myself anything. Unreliables consume many orders of magnitude more land and raw materials than fossil fuels or nuclear. This is reality.

What is the environmental value in destroying all that land and massively increasing the world demand for steel, concrete, copper and rare earths if it just makes electricity unaffordable and unreliable?
cenc profile picture
Yea, just keep one eye on the election coming up. latin american politicians like to raid state owned companies to buy votes.
Post debt reduction PBR is a giant cash machine.
@chali remember that real debt (banks and bonds) is only around 35bn, and the rest is purely ISFR-accounting from the long term lease agreements.
@chali yes, the question is how that cash will be spent.
PianoCat profile picture
@atlantic51 That cash can either go to dividends or capex/acquisitions since they don’t plan to reduce debt any further.
I believe there were mentions that the withholding tax bill was killed ?
PianoCat profile picture
@alextay Can you link it? 15% tax on dividend is tough to swallow with a stock yielding 20%+
@PianoCat ,
I know Canada withholds dividends tax for Ex-Canadians 15%,Israel withholds 25%. Since both countries have tax treaties with US, Uncle Sam
gives us back by tax time.
@PianoCat I saw it in one of the comments to the previous PBR article. Can’t confirm it, so am asking whether anyone has more robust information on this.. thanks
PianoCat profile picture
It looks like PBR will pay around $1/quarter of dividend if Brent stays above $70. PBR’s most recent presentation assumes that Brent gradually drops to $55 in the next 3 years, which I think is overly conservative. But even with that expectation they plan to pay out $60B to $70B of dividend in the next 5 years, giving a dividend yield of 20%.

I believe PBR is rated BB- because Brazil’s sovereign credit rating is BB-. So there’s no hope of ever getting to investment grade. Still, PBR gets to borrow at 5% interest rate for 30 year bonds which isn’t too bad.
@PianoCat If I remember, PBR had a higher debt rating than the country during the debt crisis of the 1980s.
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