While market agents have removed Petrobras from their dividend portfolios, due to the high risk of political interference, most analysts continue to flirt with Banco do Brasil (BBAS3), also considered a sensitive company in this respect.
The justification is that the governance is stronger than that of other state-owned companies, that the possible management of Tarciana Medeiros – appointed by Fernando Haddad, finance minister, to assume the presidency of Banco do Brasil – has not yet shown signs of policy change of dividends and, in the worst case scenario, the collateral damage would only be absorbed by the bank in 2024.
But basically what to expect from the Bank under the new management of Tarciana Medeiros? Is it worth keeping in your wallet? What would be a possible substitute action?
THE Money info consulted six analysts and a manager who have or have had Banco do Brasil shares in their portfolio. For 2023, four recommend buying. The rate of return on the dividend (dividend yield) estimated for BBAS3 ranges from 6.4% to 13.7%, still considered attractive.
Check the details below:
|Who advises?||Recommendation||dividend yield scheduled for 2023|
|Activate investments||To maintain||13.7%|
|Today’s research tip||Acquire||10.8% or R$3.77 per share|
|Suno Research||Acquire||Between 10% and 12% or BRL 3.50 to BRL 4 per share|
Source: InfoMoney survey
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Benefits and risks of managing Tarciana Medeiros
Tarciana Medeiros will be the first woman to lead the Banco do Brasil in its 214-year history. She has worked at the financial institution since 2000 and has been an executive manager for three years.
Her experience as a career bank clerk came as a pleasant surprise to the market. “His long and renowned banking experience (including several areas of retail banking and insurance) combined with his expertise in technology and data analytics should lead the bank to maintain its investments in innovation and technology, as well as support the its operational efficiency,” XP analysts highlighted in a report.
Read more: Prates at Petrobras (PETR4) and Tarciana Medeiros at BB (BBAS3): What were your market impressions in the first week after the announcement?
But there are caveats. Daniel Nigri, founder and analyst at Dica de Hoje Research, says Tarciana has not held director or vice-presidential positions. Another point highlighted is that the names who will occupy the vice-presidencies of at least eight strategic areas have not yet been disclosed.
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At first glance there are uncertainties, because there has been no public statement from the new administration or the government regarding the bank’s dividend policy, points out Tiago Reis, founder of Suno Research. “I do not believe it payment [parcela do lucro líquido destinada a proventos] it should change from 40%. The bank is capitalized and does not appear to have a propensity to offer or demand credit such as to require a reduction in dividends”, he assesses.
Instead, what worries analysts is the change of strategic areas. Haddad has already indicated that the candidate is “absolutely aligned with the government plan of President Luiz Inácio Lula da Silva, knows the challenges that arise in relation to the credit system in Brazil”, which could include a debt rescheduling project for the low debt – income households.
Banco do Brasil has benefited in recent years from a very strong position in the agri-food sector. Representing 30% of the expanded loan portfolio, or R$300 billion, the segment is one of the most defensive in the economy. But there is also room for private individuals, public administration and small and medium-sized enterprises.
Nigri points out that 2022 was a good year for the agro portfolio. The segment grew thanks to the increase in raw material prices and BB was one of those who provided a large part of Plano Safra’s financial resources. “We have the Fiagros industry [fundos que investem nas cadeias produtivas agroindustriais] which reached R$ 7 billion and the CRA [certificados de recebíveis de agronegócio] they are still crawling. But Banco do Brasil should continue to be very important for the sector”.
The problem may arise on other lines of credit. Ilan Arbetman, research analyst at Ativa Investimentos, explains that a reduction in rates for individual clients, who have a higher default rate, could have a qualitative impact on the company’s balance sheet.
This would be a way for the government to expand the consumption capacity of the population, explains Fernando Camargo Luiz, manager of Trópico Investimentos. According to him, in early 2012, “the government declared war on private banks that did not lower interest rates and used state-owned banks to provide low-interest loans.”
Arbetman also draws attention to lending for large companies and the role of the National Bank for Economic and Social Development (BNDES) in the segment. “With a more active BNDES, there may be credit competition for big companies, some cannibalism,” he says. With lower profitability for the bank, dividends would suffer.
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How does Banco o Brasil remunerate its shareholders?
Niels Tahara, head of fundamental analysis at Benndorf Research, explains that Banco do Brasil establishes in its statute a mandatory minimum dividend of 25% of net profit for each year. However, in recent years the payment it was between 30% and 40%.
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BB’s dividend payment frequency is quarterly. But the bank paid investors at least eight times in 2022, totaling R$3.59 per share. “We do not understand that the government makes changes to the dividend policy, as it also receives part of this distribution,” the analyst points out.
The federal government holds a 50% stake in the common stock of Banco do Brasil. Nigri calculates that BB made a profit of R$27 billion in the past 12 months, of which R$12 billion went to dividends, and at least R$6 billion went to government coffers. “They will need that money to continue with social and expansionary policies in 2023,” he points out. In a second step, Nigri underlines that it will be necessary to evaluate the bank’s credit portfolio and the default.
Felipe Paletta, founding partner and analyst at Monett, has a pessimistic view. “It is not possible to say that dividends will fall in 2023, but this is the trend,” he comments. For him, the bank’s new perspective is to maximize the return for society, and not the generation of results.
Milton Rabelo, financial industry analyst at VG Research, believes the payment it will decrease at some point, given government dissatisfaction with the volume of SOE revenues, but stresses that the effects of this are not automatic and should only be felt from 2024 onwards.
Analysts point out that, compared to other state-owned companies, Banco do Brasil’s corporate governance is more robust. Reis, from Suno, recalls that it has already been tested in PT governments as well. “Banco do Brasil was very competitive during the Lula government, operating at profitability levels close to those of Itaú and Bradesco,” he says. “Dilma has lost competitiveness in the government, but she has not suffered losses like Petrobras and Eletrobras”.
According to Nigri, Article 5 of Banco do Brasil’s statute states that the Union can use the bank to finance and execute official government programs. However, the bank’s fee can never be less than the costs of the services rendered. “This clarifies that Banco do Brasil can be used for government programs, but the statute prohibits the bank from losing money with it,” he points out, noting that this mitigates the risk of the investment.
A possible reduction payment for 25% of the profit it wouldn’t be illegal, even if the market doesn’t like the idea. But the Bank cannot suffer losses, even if the loans are granted at the cost of the loan. “All of this is already in the share price and shows why Banco do Brasil has always traded at a price on book value lower than private peers such as Santander, Bradesco and Itaú,” he points out.
Rabelo reiterates that governance is relatively protected against political intervention, as he has long-term strategic planning followed independently of the bank’s presidency. The analyst also points out that 50% of the Board of Directors is made up of independent directors, who participate in advisory committees. “Most of the decisions are taken collectively and not only by the president of the institution”.
What to expect from dividends?
Four analysts surveyed recommend buying BBAS3 on dividend strategies. This is the case of Rabelo, of the VG, who expects a dividend yield by 10% in 2023. “Despite negative signals from the government, we continue to point to buy. However, we are cautiously watching how the relationship between Lula III and state-owned companies develops,” he says.
Another one who recommends the purchase is Tahara, from Benndorf, who designs a dividend yield by 13%, with a target price of 59 BRL. “The bank is trading near the lows, on a price-to-book (P/PV) basis, even with historical results. We understand that the governance risk is lower than in the years 2014 and 2015,” he points out.
Reis, of Suno, also recommends buying BBAS3 and believes the bank should pay between R$3.50 and R$4 in dividends per share this year, a dividend yield between 10% and 12%. “It would be among the largest dividends in the bank’s history.”
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Nigri, from Dica de Hoje, expects dividends of R$ 3.77 per share and a dividend yield by 10.8% for 2023, against a profit of R$ 27 billion. In the worst-case scenario, with profit falling to R$18.5 billion, dividends would be R$2.58 per share or 7.47% of the dividend yield.
Ativa is more cautious and prefers to keep the title, for those who already had the shares in their portfolio. Arbetman designs a dividend yield by 13.7%, but advises against the purchase for non-members.
The one who decided to stay out of it is Monett. Paletta believes the bank should deliver a 6.4% dividend in 2023, but recommends selling. He advises investors to switch to Itaú (ITUB4), with dividend yield expected 7%. “Itaú presented a rate of return on equity capital [ROE] by 20%, well above Selic and better than Banco do Brasil over time,” he says.
Camargo da Trópico also believes it is better to sell Banco do Brasil, although its dividend-focused fund has a small capital position, which has been reduced since the election. “Taesa, Alupar, TIM and Vibra are our favorite companies,” he says.
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