Opinion – From Grain to Grain: Political noise destroys two thirds of Petrobras’ dividend in 2022

It was to be a year to go down in Petrobras’ history. Perhaps it still is, but for another reason. The profit of the Brazilian oil company in 2022, accumulated until the third quarter, reached a record R$ 145 billion. With this profit, the distribution of dividends opened the eyes of many shareholders. However, the political noise of recent weeks has erased two-thirds of these gains.

Petrobras preferred stock, traded under the ticker PETR4, ended today down 7.93% for the day.

The reason for the devaluation is the same that caused the stock to lose value in recent weeks.

On October 21, right before the elections, Petrobras shares traded at R$33.00 (prices already adjusted for dividends). The same stock ended today trading at R$21.47. Therefore, a devaluation of 34.9%.

As a comparison, in the same period, for example, the shares of the private oil company Petro Rio (PRIO3) appreciated 6.9%.

The reason for such a drop in share prices today was the approval, yesterday, in the Chamber of Deputies of the amendment to the State-Owned Companies Law. The concern is that, once again, the company will be used as a vehicle for fuel price manipulation.

I don’t think anyone is against needy people receiving public aid, for example with gas and energy subsidies. However, this subsidy must be explicit and the source of income defined.

Price manipulation brings distortions, because, for example, people who do not need it are benefited and results in imbalance for private companies. It also promotes a transfer of shareholder income to fuel consumers, which makes no sense.

The recent movement just proves what I said recently: investment in state-owned companies usually brings joy in just two moments, as soon as you buy and when you sell. It can be compared to the purchase of a beach house, that is, inefficient use of capital, quick depreciation, low return and high maintenance cost.

For investment in stocks, it is important to look for quality companies. According to MSCI, quality indicators would be: high shareholder return (ROE) over the years, stable and growing earnings and low financial leverage.

The misalignment between shareholders of state-owned companies, that is, between the government and minority shareholders, usually results in low shareholder returns, high volatility of earnings and greater financial leverage. Therefore, the opposite of what one should look for in a company to be a partner.

Michael Viriato is an investment advisor and founding partner of Investor House

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