Email of the day (1)
Comment of the Day

April 01 2011

Commentary by David Fuller

Email of the day (1)

On Petrobras:
"I want to ask about Petrobras (PBR) the state-owned brazilian oil company. It is one of the largest oil companies in the world, with an important portfolio of new discoveries near Brazilian coast. It had a very large IPO recently that diluted and disappointed investors and many institutional players, according to their research and papers. Being in the energy field, being in one of the fastest developing economies and having fell nearly 40% from top to bottom, and seeming to begin a recovery I would like to know, if possible, your opinion about it, at least from the chart standpoint. As usual, thank you for your time and your superb coaching."

David Fuller's view Thanks for your comments and a question likely to be of general interest.

Petrobras ticks several boxes in terms of Fullermoney secular themes but big IPOs are never digested quickly by markets, as you know. The company is also government controlled.

This latter factor presumably explains Petrobras' low dividend of only 0.42%, although modest increases in the payout are likely over time. The ultra-deep offshore Tupi oil field may hold up to 8 billion barrels of light crude but development costs will also be enormous and right at the cutting edge of known technology. BP's accident in the Gulf of Mexico last year has highlighted risks with these projects.

Nevertheless the share is not expensive at 10X future earnings and Petrobras' price action has begun to improve this year. Performance should benefit when the Bovespa Index breaks above its former highs, which I think it will do over the medium term. In conclusion, I view Petrobras as a safe but not particularly exciting investment. Depending on how you view the world, that may sound reassuring or dull.

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