Petrobras: what was the market’s surprise for a 10% drop in shares in one day

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Shares plummeted even after the company recorded its second highest historical profit last year, at R$124.6 billion. The market expected a payment of extraordinary dividends, which did not happen Economists explain the context of the fall in Petrobras shares Petrobras shares plummeted 10% on the Brazilian stock exchange this Friday (8), after the company frustrated analysts’ expectations with the proposed dividends — which are a portion of companies’ profits divided among shareholders — in the release of the 2023 results. The market expected a payment of extraordinary dividends, which did not occur. R$14.2 billion in dividends were announced for the quarter, within the company’s minimum model. If approved, the total dividends paid for 2023 will be R$72.4 billion. In 2022, R$194.6 billion were distributed. Thus, the shares plummeted even after the company recorded its second highest historical profit last year, of R$124.6 billion. Despite being solid, the value represents a reduction of 33.8% compared to the previous year. According to the company itself, this result was influenced by an 18% drop in the price of oil in international markets, but partially offset by the increase in the company’s sales volume. Petrobras loses R$55 billion in market value after the release of the 2023 financial statement See the details below. Petrobras loses R$55.3 billion in market value after 2023 results Why did Petrobras shares plummet? The company frustrated analysts’ expectations after recording a reduction in profits compared to the previous year on Thursday night (7), but analysts say that the market’s focus is on what was not announced by the oil company in the results statement: the distribution of extraordinary dividends. Petrobras adopted the minimum payment amount, which is 45% of the free cash flow (i.e., the money available at the company’s cash desk). “Even if [a distribuição de dividendos anunciada] is in line with the remuneration policy, [o número] It’s still a big disappointment”, assessed analysts Pedro Soares, Thiago Duarte and Henrique Péres, from BTG Pactual, in a report. BTG Pactual’s estimate was that Petrobras would pay an additional dividend of around US$4 billion (approximately R$20 billion), based on the company’s fiscal results last year. Instead of being distributed, the remaining profit for the year, which totals R$43.4 billion, will be fully allocated to the company’s capital remuneration reserve, which aims to ensure resources for shareholder remuneration and share buybacks. This Friday, the company’s financial director, Sergio Caetano, stated that the company can distribute the amount to shareholders “at any time”, if there is a future decision in this regard. “The calculation (of extraordinary dividends) continues to be at the end of the year each year. Another issue is the resource that is in reserve, which as (CEO) Jean Paul (Prates) said, remains under analysis and the determination may take place distribution at any time.” For analysts, the company’s investment history raises fears among investors that the company is taking a bad direction in terms of capital allocation. In Petrobras’ strategic plan from 2020 to 2024, during the previous administration, the company had announced its desire to carry out R$20 billion to R$30 billion in divestments (sale of assets, such as buildings, equipment, etc.) for the period . But this has already been reversed in planning until 2028. Economist analyzes Petrobras’ fall on the stock exchange after deciding not to pay extra dividends to shareholders In an interview with GloboNews, economist André Perfeito stated that what is on the table now are the market’s doubts regarding the what the company will do with the money that remained as a resource within the state-owned company. “It has already been seen in the market that Petrobras will focus on more investments. But what investments? In what way? Will it be an energy transition? How much profit will this generate? It is natural that […] the market and foreign investors want to know what will be done with this profit”, he stated. For XP Investimentos analysts André Vidal and Helena Kelm, this makes investors “rethink their view of Petrobras’ risks.” “We see the investment thesis now as a matter of assessing the likelihood of large M&A moves [sigla em inglês para fusões e aquisições] occur in the short term”, they assessed in a report. They claim that if this is what led to the Board of Directors’ decision, the stock will likely fall further, “due to a combination of poor capital allocation and lower dividends.” “On the other hand, if this was driven primarily by the government’s desire to maintain a ‘reserve plan’ in case the fiscal accounts deteriorate soon, then this stockpiled cash will eventually be paid back to investors and the shares could present a good total return performance in the future”, concluded the analysts in a report. XP Investimentos, in a report, said it expected a dividend distribution of R$19.2 billion, “for the minimum”, to R$27.1 billion, “for the extraordinary”. The Petrobras Board of Directors forwarded to the Ordinary General Meeting (AGO) a payment equivalent to approximately R$1.10 per share, divided into two installments of R$0.55 per share. “Such value implies a yield of 2.7% in 4Q23 and 10.8% in annualized terms – interesting, but not enough to justify a more aggressive positioning on paper”, points out Vitor Souza, Electrical and Sanitation Sector analyst at Genial Investimentos. In a report, Souza highlights that the numbers presented by the oil company are seen as “neutral”. “Although below consensus, it is important to mention that the quarterly result was pulled down due to a non-recurring and non-cash event (that is, specific situations that are not expected for the next quarters) of significant value: R $7.4 billion”, he comments. Petrobras shares plummet after earnings release What were the company’s results? Petrobras reported a net profit of R$124.6 billion in 2023, according to results released last Thursday (7). The amount represents a drop of 33.8% compared to 2022, when it registered R$188.3 billion. In the fourth quarter, the oil company’s result was positive at R$31 billion – a reduction of 28.4% compared to the same three months in 2022, but a growth of 16.6% compared to what was observed between July and September. The company reported that it faced challenges in 2023, mainly due to the 18% reduction in the international price of oil (Brent). Even so, Petrobras reported that it broke production records and increased investments. “Despite these challenges, it is worth highlighting that such negative impacts were partially mitigated by the increase in the volume of oil sold over the period, with emphasis on the growth in exports”, says the report. According to the report released by the state-owned company, US$ 12.7 billion (R$ 62.6 billion) were invested in investments last year. The total represents an increase of 29% compared to 2022.

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