Companies collect crumbs to put out fires – 05/14/2023 – Marcos de Vasconcellos

If your investment adviser or bank manager seems more distant lately, don’t be surprised. Funding by companies via the capital market this year through April was 40.5% lower than in the same period last year.

This includes the value of all types of securities: debentures, CRIs, CRAs, real estate funds, issue of new shares, etc.

The big numbers tell part of the story: the volume issued from January to April reached BRL 82.6 billion, compared to BRL 138.8 billion in the period in 2022. In the number of operations carried out, there are 503 against 643 (a drop of 21% ).

More troubling than the numbers, as always, are the whys. It is they who should interest investors. Ups and downs, either on the Stock Exchange or in the real economy, do not help you to make good decisions. Understanding the reasons for each move can help.

Do you know what companies will do with the money they raised this year? Expand? Increase revenue? Create new areas? Innovate? To look for? None of that.

Liability refinancing operations represent 31.6% of those carried out in 2023, compared to 19.2% at the end of last year, explains Anbima (Brazilian Association of Financial and Capital Market Entities). Working capital operations were the predominant ones, with 32.1%.

In summary: companies are avoiding going to the market after money and, when they are willing to go with the saucer in hand, it is to cover day-to-day bills or push debts.

Tight boxes usually lead to bad choices. In personal life and in corporate life. The sense of urgency in paying the bills makes the debtor accept proposals that he would not accept in better times.

Newer companies, which entered the market depending on growth with advertising or acquisition of other companies, are suffering – their actions show it. Companies like Enjoei (ENJU3); GetNinjas(NINJ3); and T4F (SHOW3, formerly Time For Fun) have seen their shares plummet 54%, 11% and 55% respectively over the past 12 months. The Ibovespa rose 2.3% in the period.

The most recent balance sheets of these three companies, released last week, show that they have more cash than market value (which would be worth, in hypothesis, the sale of all their existing shares).

There are those who say that a stock is cheap when the company’s cash would already cover its market value, but this is just futurism without meaning. What this actually shows is that, in the view of large investors, these companies are almost no longer capable of generating value. In other words, it points out that no one wants to catch the falling knife.

A change in the ease of access to new money (such as a drop in interest rates) or a drastic change in the direction of this type of company could change the scenario. Until then, however, there are more sad stories to serve as examples when money and senseless optimism pour back into the market.

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