Americanas (AMER3) shares open 76% down and return to auction after billionaire accounts ‘bomb’

After more than 4 hours of bidding, Americanas shares (AMER3) opened down 76.25%, at R$ 2.85, at 14:22 (Brasilia time) in this Thursday’s session (12). Subsequently, the goods soon returned to auction and negotiations were halted again.

The start of asset trading had been consistently postponed from 11am amidst the opening scenario with an extreme drop and material fact disclosure by the company. The assets hit a theoretical price of BRL 1.20 (down 90%) in the auction. B3 has released a low limit for 99% assets this trading session.

The downward movement for the equity comes after the disclosure on the eve of accounting inconsistencies in the amount of R$ 20 billion, which culminated in the dismissal of its president, Sergio Rial, and the director of investor relations, André Covre, from their positions after just 10 days of ownership.

Rial will also act as an advisor, supporting the company’s key shareholders in the investigation process into the incident. The former chief executive gave indications of the company’s next steps at an investor conference, amid several revisions of recommendations by market analysts, which highlight the great uncertainties following the announcement.

In a conference with the market, Rial stressed that the company will have to capitalize to deal with an accounting problem.

The operation will likely be a follow on, but the executive states that it is not possible to estimate the capital requirement. “No one has defined the value, also because the number has not been verified. But we know it won’t be a compounding of [apenas] million,” says Rial. The manager highlighted the commitment of the reference shareholders (3G) with the company. “But it cannot be the solution alone. ‘Give me a check and it’s paid,’ it doesn’t,” he pointed out.

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Rial explains that, upon taking up his role, he realized that there were problems reporting the “Supplier” account items in the company’s balance sheet. According to him, many payments to bank-financed suppliers were not considered debts. “It’s a theme that has persisted since the 1990s, a problem with the structuring of drawn risk that hasn’t been reported as bank debt,” he said.

During an explanation to the market, the former CEO states that the 20 billion reais reported by the company as “accounting inconsistency” are not off the company’s balance sheet, but he does not guarantee that the figure is definitive. “The BRL 20 billion is our best estimate of how much information we had in these nine days,” the executive said.

The former CEO acknowledged the news had pushed the company into a corner, but stressed that operating performance during the year will be important in overcoming the situation. “The more we sell, the less the problem,” Rial said.

When asked about the number of “convenants” — obligations the company assumes when it issues debt at lower interest rates — in Americanas’ debt structure, Rial says the number is small and more concentrated in the functioning of the Hortifruti market network.

In an analysis following Rial’s interventions on the market, XP highlighted the salient points and the possible impacts of the thesis on the company.

The company’s leverage is expected to increase, analysts estimate. The BRL 20 billion mentioned in the material fact as a potential impact of the reclassifications is a preliminary estimate by the company of the amount that should be recognized as bank debt on the balance sheet. The company had a gross debt of BRL 20.8 billion in 3Q22.

Rial specified that there should be no significant impact on the company’s treasury as a result of the adjustments to be made, but reiterated that this directly depends on the attitude and willingness of the banks to maintain the credit lines currently available to Americanas and its suppliers.

Operational efficiencies already mapped: Rial also said that he believes there are opportunities to reduce capital needs (capital investments) and working capital (inventories) by around R$1 billion each.

The house analysts stressed that, even after meeting with the company and clarifying the points brought in the material fact, they still do not have enough visibility to detail the financial impact that the revisions are expected to have on the company’s numbers, which should be published only after the verification process, as well as seeing that the event adds risk and uncertainty to the case for investments in AMER3. Therefore, they keep the recommendation “under scrutiny.”

After Rial’s conference with the market, Eleven highlighted maintaining an asset-neutral recommendation and put its price under scrutiny, as they measure the impact of that 20 billion reais on the company’s value.

“In our 3Q22 result, we changed our buy recommendation to neutral due to worsening company numbers, declining GMV (gross sales), onerous borrowing costs, worse working capital and cash burn. Facing the facts
presented yesterday and today, we reinforce our recommendation to stay out of the newspaper”, the Chamber pointed out.

Impact on the sector

The marketplace also monitors the impact on other retailers’ inventories. Anderson Meneses, CEO & Founder of Alkin Research, highlighted the day before that the news could favor some peers in the sector “because those looking for retail exposure now are unlikely to do so for Americans”. It should be noted that, in the New York Stock Exchange after market on Wednesday, shares of Mercado Livre (MELI34), considered the darling among e-commerce companies, posted gains of 7.17%, to $1,004. On Thursday, MELI34 BDRs rose 5.34% to R$42.15.

While Mercado Livre rallied strongly, Magazine Luiza (MGLU3) and Via (VIIA3) experienced a session of high volatility after several auctions in the opening moments of trading. At 11:28, MGLU3 was down 8.25% (BRL 2.78) and VIIA3 was down 9.23% (BRL 2.36).

However, the movement slowed and, as of 1:40 pm, MGLU3 activity was up 3.63% (R$3.14) and VIIA3 was down 1.92% (R$2.55).

For analysts at Genial Investimentos, the discovery of this inconsistency has the potential to cause a bad mood in relation to the retail e-commerce sector, as investors will question whether other companies are adopting the same accounting practices as Americanas,” which shows a risk (and right now it’s just a risk) of withholding material information in the financial statements of these companies.”

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