The average target price of RECV3.SA is 22 and suggests 59% 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 32.0. This translates into 131% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 16.0. This suggests 16% 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 pays dividends from time to time. It has paid dividends in less than 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.

Over the last six months, the stock performance has varied, with an increase following a drop. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Within the past six months, its performance has trailed this peer group's by 8ppts and its growth decelerated by 10ppts in the past month. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is neither favourable nor unfavourable.

The company has reported very strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 40.1% in the last 12 months, a decline from 49.5% 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 13.1%, again ahead of the peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 2.6 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. 

Considering past and projected metrics, the stock is 'cheaper' than its peers. Specifically, the stock is 'cheap' on P/E, undervalued on EV/EBITDA, underpriced on P/FCF. 

Petroreconcavo S.A.

R$ 13.53

6

Petroreconcavo S.A.

R$ 13.53

6

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

R$ 13.53

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