Petrobras receives investment from top Brazil hedge fund as they "buy low"

By Vinícius Andrade and Felipe Marques on 5/3/2019
Photo: Petrobras office.

(Bloomberg) -- One of Brazil’s best-performing hedge funds has been scooping up the shares of state-controlled oil giant Petroleo Brasileiro SA.

Joao Braga and Marcos Peixoto, who manage $1.3 billion (5 billion reais) at XP Asset Management, have increased their stake in Petrobras, as the company is known, making it the biggest holding of their XP Long Biased fund even as the oil producer’s rally has outpaced the benchmark.

“The stock is cheap,” Braga said in an interview at XP’s Sao Paulo offices. “Management is good, the company is deleveraging and there are the asset sales, which will be good for the company.”

XP’s increased bet was made in the aftermath of a controversy about the company’s diesel price policy. Shares fell as much as 8.7% the day after the government decided to halt a previously announced diesel price hike amid growing rumors of a new truckers’ strike, an episode that stoked fears of state intervention.

A few days later, Petrobras announced it would carry out the increase, which was seen as an initial step to regain the market’s confidence.

“In Brazil, we’ll always have a risk this happens again,” Peixoto said. “We cannot say that this is a risk-free position.”

The company’s asset-sale program will also help spruce up share prices, according to Braga. UBS estimates the company could raise between $15 billion and $20 billion by shedding assets, a process that might take up to 24 months to be concluded.

Fat to burn

The duo see Petrobras trading at less than four times enterprise value to earnings before interest, tax, depreciation and amortization at current oil levels, compared to six times historically.

“That means even if oil goes down, Petrobras doesn’t have to go down, because it has a lot of fat to burn,” Braga said.

The XP Long Biased fund, which has outperformed 99% of its peers in the past 3 years, with a 153.6% total return, also has large holdings in Qualicorp SA and Cia de Saneamento do Parana shares.

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