The average target price of RECV3.SA is 20 and suggests 46% upside potential. Usually, this means a BUY recommendation among investment firms, or a recommendation to increase one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 26.0. This translates into 93% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 14.8. This suggests 10% upside potential. Even the most pessimistic analyst believes there will be stock growth. 

Petroreconcavo S.A. engages in the exploration and production of oil and natural gas in Brazil. The company was founded in 1999 and is based in Mata de Sao Joao, Brazil.

Brazil

Petroreconcavo S.A.

Energy

The company tries to pay dividends regularly but only sometimes does so. It has paid dividends in roughly half the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are somewhat mixed. In the past 12 months, the dividend yield has been outstanding and can be rated excellent compared to its peers. At the same time, the average five-year yield has been significantly higher and exceeded nearly all its peers. The company distributes nearly all its profit as dividends (payout ratio above 90%, a negative factor). It will not be easy to sustain such an extreme payout ratio. It may also indicate a company's lack of profitable growth opportunities, which suggests doubtful prospects. On average, the company pays dividends annually. 

RECV3.SA reported revenue of BRL 3 265mn in the last 12 months, up 16% from FY23. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS fell 39% from FY23 to BRL 1.49. Market expects EPS to reach BRL 2.19 in FY25.

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). It has underperformed this peer group by 13ppts over six months and grown 12ppts slower in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is 'fair'.

The company has reported very strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 39.7% in the last 12 months, a decline from 51.0% in FY23. 

Historically, RECV3.SA has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 13.4%, down from 25.2% in FY23. 

Petroreconcavo S.A. reported a return on equity (RoE) of 10.0% in the last 12 months, down from 17.0% in FY23. The market consensus projects an RoE of 14.9% in FY24, this time above its peers. 

Another important profitability metric, return on assets (RoA), amounted to 6.1% in the last 12 months, a decrease from 10.6% in FY23. The market analysts predict that RoA will be 9.9% in FY24, again stronger than its peers. 

In the last 12 months, the return on capital employed (RoCE) declined to 7.0%, above the peers. The consensus estimate for FY24 for RoCE is 13.8%, again ahead of the peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 2.2 in the past several years. This ratio implies a strong shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are close to minimal. In combination with rigorous business standards, shareholder rights are well protected.

RECV3.SA has above average trading liquidity. The average private investor can sell his common position in the stock almost immediately. Liquidity is usually very stable and remains extremely favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions. The stock has a small market capitalisation, which usually makes its trading liquidity erratic and unpredictable. 

No other major risks have been identified.

The risk of default is moderate. We note resilient historical revenue growth, robust profitability, solid return on capital, strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors and we point to weak positions in its industry, excessive margin volatility.

In highly turbulent market conditions, RECV3.SA is moderately volatile. In other words, the stock will fall more than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be moderate. 

In normal market circumstances, RECV3.SA is moderately volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will move slightly wider than the index. The stock's losses on its worst days (less than 1-5% of the time) will range from limited to average. 

Based on key historical and expected multiples, the stock is slightly undervalued relative to its peers. In particular, the stock is reasonably priced on P/E, 'cheap' on EV/EBITDA, undervalued on P/FCF. 

Petroreconcavo S.A.

R$ 13.11

6

Petroreconcavo S.A.

R$ 13.11

6

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

R$ 13.11

About

About

About

About