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Petrobras: Inexpensive, Well-Positioned, Immense Cash Flow

Manuel Paul Dipold profile picture
Manuel Paul Dipold


  • Petrobras benefits from structural changes in the oil industry: less production in Western countries while consumption continues to rise.
  • The company has positioned itself better in recent years by reducing debt, which will allow it to increase exploration and production in the coming years.
  • Very strong cash flows are expected over the next years, probably decades, with currently two-digit dividends.
  • In addition, the valuation is very cheap compared to the broad market and the company's own history.

"npetrobras Tankstelle"n"noil Produktion

Joa_Souza/iStock Unreleased via Getty Images

Investment Thesis

Petrobras (NYSE:PBR) (NYSE:PBR.A), the largest Brazilian oil producer, has not been a good investment over the last 10 years but could become a money-printing machine in the future thanks to

This article was written by

Manuel Paul Dipold profile picture
My focus is on a total return style with long and short positions (10-30% short positions). My main expertise is the current technological and geopolitical shift with the amazing investment opportunities they offer. Therefore, I always try to find stocks or whole sectors with favorable risk-reward structures. My long investment style is a core-satellite strategy: The core consists of large caps and/or ETFs. The satellites around this core are small caps, potential 10-baggers, and undervalued stocks. In short selling, I focus on overvalued stocks that will fall back down sooner or later. My name is Manuel Paul Dipold. Born in Germany but lived 8 years in Asia. I am myself an entrepreneur and have many entrepreneur friends. I am not a professional investor but it´s a hobby I love. So I know Europe and Asia very well and seek undervalued or high-growth stocks - always with valuation, geopolitical and social shifts in mind.

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 (50)

Prezzo giusto profile picture
Another divestment coming, Braskem :
Jim Grantz profile picture
@Prezzo giusto What effect should this have on PBR stock price?
Prezzo giusto profile picture
@Jim Grantz Petrobras owns a considerable amount of shares of Braskem, so they will receive the proceeds of the sale of those shares. For the moment nothing seems to move the share price, not even the oil price rising, i think this is a golden opportunity....
ABC2030 profile picture
Agree with the thesis that oil in coming years needs to be part of your portfolio. Petrobas looks from many sides cheap and attractive, but a high dividend yield in an sales presentation of the board makes me always think. Why is the stock cheap? What am i missing? Risks are that these dividend promises are not being covered by earnings? (this is a red flag in the tool simply wall street as we speak). The average FCF 2016-2021 was 13 B USD, times 5 is 65. How realistic is it that they will deliver 175 in 2021-2026 taken in account their poor capital allocation trackrecord (fact). Another challenge for me is to grasp the elections, both camps can see PBR as a cashmachine again despite the improved regulations (culture is culture and we have extreme macro conditions going on as we speak globally governmenst looking for cash). Put on top of that risks like inflation, short term going down of oil price (I believe long term it will rise), forex impact , not being able to sell the refeneries in Brasil. The fact that Goldman is positive is never a good sign in my personal checklist, there are so many exampes of them being wrong in predicting the oil prices....I might open a small position to start learning. Advice is welcome on the topics.
Johnny Skyhook profile picture
@ABC2030 Fortunately, if it were not for the factors you mention, it would not be possible to acquire so cheaply a company that can produce oil for the next decades with a premium to Brent at below $20 cost.

While I could address the issues you raise, all of your doubts have been discussed in various threads throughout this site, and I invite you to join in those discussions, share your views, help refine our collective ideas, and hopefully make tremendous profits.

Live long and prosper!
ABC2030 profile picture
@Johnny Skyhook Thx, I will need to go through the most recent articles, especially the bears and investordata van Petrobas to develop my own thesis. Just read the morningstar report on it, their fair value is at 11 USD with no moat rating. I did put 2 USD FCF per share in my simple excel and found a range between 11-17-31. So looks like the downside is acceptable and uncertainty up high, sounds to good to be true. Just opened a very small start position order, this helps me building the case over 2022 perhaps becoming a high conviction bet for the coming years in my NOC strategy. Appreciate your feedback, if I find something that really adds will drop a note here.
@ABC2030 I would recommend to go to the Petrobras investor relations website and go through all the recent presentations and business updates. Especially worth attention the results from 2020 and other recent periods with poor oil price environment. That will give you a certain idea on the risks and the downside protection.

Also, I personally like to read some old analytical articles from 2014-2016 and the arguments being made there. That will give you a certain perspective on how much the company changed since then operationally and financially, but not much in valuations. Hope that helps!
Correct number of shares is 13,044,496,930 by 11/30/21 (7,442,454,142 common and 5,602,042,788 preferred).
@KornelKral He was probably talking ADRs where each ADR represents 2 shares so that 6.5 B ADRs represent 13 B shares
Been adding and adding. The political situation is more than reflected in the share price let’s say in normal times PBR should return 8% accounting for foreign taxes. Could say 7%, but I think 8% works for my projections. So what does that make PBR value per share if dividends are 20% or 30% (Goldman Sachs estimate for 2022.)? What happens when the election is over then, how much does it jump? I know it’s a little unnerving to buy the shares, but you will be kicking yourself if you don’t. That last dividend payment was sure nice!
Prezzo giusto profile picture
@huskers123 The same happens to me. Instead of feeling frustrated because the share price hardly moves in tandem with rising oil prices, i find it hard to stop adding PBR.A-shares -a discount of $1 to PBR is a sweet goody on top-.
Johnny Skyhook profile picture
@Prezzo giusto Petrobras is quite unique in this regard, a high dividend yield that also has potentially many multiples of valuation growth. I don't think I have ever seen anything quite like it -- most especially a company with the gravitas of Petrobras, scandals aside.

As to the question of how soon after the elections the malaise will pass, I read an interesting analysis of stock values 6 months before and after the Brazilian elections -- typically there is not great movement either way. That might or might not apply specifically to Petrobras but it is interesting. I do think markets like certainty and while Lula may not be loved if he wins, at least the rules of the game going forward will be clearer.

Back to oil prices, if the stock doesn't move with oil most certainly cash flow does and I don't ever recall Petrobras doing a buyback (which might actually be quite favorable at these low stock prices). EDIT: the point being the most logical route for so much cash is dividends, given no buybacks and no obvious M&A acquisitions.
@Prezzo giusto Yes! I was actually a bit disappointed when the share price recovered ex-dividend in December before the dividend money arrived. Now PBR.A very attractive again at 9.75$. Using every opportunity to add under 10$.
Can someone please explain the difference between PBR and PBR/A besides the dividend?
I’m watching but haven’t jumped in yet.
Any advise?
@stackre plenty of advise here already.
Do you recommend PBR or PBR.A?
@colinichi if you are long term holder then PBR.A as you will get the same amount of dividends but the yield is higher because the share price is lower.
@colinichi PBR.A for me. They should be trading closely but aren't currently. Likely due to everyone looking at the insane yields and defaulting to PBR without realizing it has a cheaper, higher yielding twin in PBR.A. The prices will converge at some point as they always do. If you're holding PBR.A when that happens you're in better shape than you would be with PBR.
Chancer profile picture
@Manuel Paul Dipold:

Thanks for great article on PBR.

Many of these politically driven dates when renewables are supposed to takeover are just wishful thinking by climate change pushing politicians. Delaying 2035 to 2040 (or later) is probably more likely. I like oil and gas outside the USA, due to a hostile U.S. political environment, and because U.S. (and EU, too) big oil is moving toward renewables.
Manuel Paul Dipold profile picture
@Chancer yeah, thanks for your comment. I find it interesting that it´s even possible that renewables will decline again before they even really start. What I mean by that is there are a lot of developments with mini-nuclear reactors and atomic fusion (not sure if that´s the correct English word for what I mean) - I mean these reactors where the sun's way of working is replicated. Both could be very clean, reliable, and cheap in the future.
OffSiteLocation profile picture
@Manuel Paul Dipold Nuclear Fusion (the Sun process as you said), is so far off in the future it really can't be part of the clean energy mix. The world will need Brazil's oil for decades.
Manuel Paul Dipold profile picture
@OffSiteLocation yes I think so too, it´s still far away but advancements are made very quickly. One day it could be a game-changer. I can imagine a scenario where it´s possible to transmit directly from oil&gas to nuclear fusion power. On the other hand, I think energy is so important for our civilization, that it´s probably best to diversify: keep oil, build solar and wind and try to figure out at the same time how nuclear fusion can be done. That would be the safest for the supply and that is what gets done.
alex.c profile picture
What are the geopolitical risks in Brazil?
I honestly don't know....
Manuel Paul Dipold profile picture
@alex.c Well there are elections next year and this always gives uncertainty. It´s just a more chaotic area in general. I mean the country with the biggest reserves in this area is Venezuela but is in a horrible situation.
Dennis Soeren profile picture
Great read. Thanks a lot!
US oil production 11.2 Mil boe/day
aktien-boersen profile picture

Is there some currency risk with Petrobras?
Chancer profile picture

Definitely. Also, political risk (government meddling, and interference), and economic risk (because it is Brasil). One of the biggest risks right now is that leftist candidate, Lula, who just got out of prison, will likely win next year's election. You have to decide, if considering those risks, it is still worth the risk.

I decided, because I already own PBR.
Johnny Skyhook profile picture
@hsheikh There is probably some correlation over time, but its effects are minimized because of exports and the use of international reference prices in the formulae to adjust domestic wholesale prices.
Tellurium128 profile picture
Just a correction to your article. Petrobras is not a partly state owned company. It's a majority state owned company. There is political risk with this stock and president Bolsanaro made comments just this week alluding to corruption within the company. Unfortunately I don't know Portuguese, so if any one knows exactly the context and details of his remarks please let us know. Much appreciated.
Manuel Paul Dipold profile picture
@Tellurium128 Thanks for corrrecting that
Johnny Skyhook profile picture
@Tellurium128 In my opinion, this is election year political rhetoric aimed not at Petrobras but at Lula who is ahead in the polls by a large margin. The context is the Car Wash scandal, and Bolsonaro is seeking to link Lula with this corruption as well as high fuel prices, both of which are strong negatives politically.
Rational Bull profile picture
Great article. Some stocks are priced for perfection. Others are priced for, um, what word means the opposite of perfection? PBR is one of those stocks.

If everything goes wrong, PBR is fairly valued.

If even a little bit of the bull thesis pans out, investors are looking at an 20% IRR. Minimum.

You didn't even mention the case where oil goes to $100, which could easily happen this year. If that happens, PBR is an easy double this calendar year alone with potential to be a 10 bagger in the next decade.
Manuel Paul Dipold profile picture
@Rational Bull yeah you are right. Even long-lasting high oil prices are possible considering the underinvestment in exploration and the still rising demand. Thanks for adding that.
Rational Bull profile picture
@Manuel Paul Dipold Looks like oil is already up in the 80-85 range. Gonna add some more PBR tomorrow!
Manuel Paul Dipold profile picture
@Rational Bull already made a nice gain with Petro :)
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