Totvs (TOTS3) collapses more than 11% in post-swing session; BBA says reaction is exaggerated and sees buying opportunity

Totvs’ Q1 2022 results (TOTS3) had different assessments from market analysts, but varied across balance sheet overviews between slightly negative and slightly positive.

However, this Thursday’s session (5th) was strongly negative for the company’s shares, with the shares having losses of 12.37%, at R$ 28.20, and closing down 11.12%, at BRL 28.60.

However, in addition to the results, the risk aversion session for the Ibovespa and for the world stock exchanges, especially affecting the technology sector, of which Totvs is a part, influences the trading session for the company.

While the Ibovespa dropped more than 3%, the Nasdaq, with strong exposure to technology in the US, had losses of around 6% in the final stretch of the trading session.

Mega-cap growth stocks tumbled the index, a day after the Federal Reserve’s less aggressive tone sparked a market rally. The movement was more than reversed on this date, with interest rates going up again even amid signs that, even with the speech of Jerome Powell, Fed chairman, that the United States is not “actively” considering an increase in 0.75 percentage point in interest. This is because the interest rate tightening should continue to a level above neutral, that is, which slows down the economy.

Read more: How are the actions of big techs with the increase in interest rates in the US?

In times like these, with high inflation and the prospect of interest rate increases, the sector that is most often penalized is technology. As most of the market value of these companies is projected for the next few years and the increase in the rate slows the economy, the trend is that the growth of these companies will also be lower.

In addition to the high interest rates there, the Monetary Policy Committee (Copom) also raised interest rates the day before, by 1 point, as expected and signaled the extension of the cycle of advance in rates, although close to the end of the Selic increase. .

This ends up impacting the technology company Totvs. But, returning to the balance sheet, some numbers were also seen with reticence by analysts.

The financial services and management software maker posted modest first-quarter earnings growth as robust revenue growth across its core business lines was offset in part by higher employee compensation expenses.

The company announced this Wednesday that its net revenue from January to March reached R$ 981.1 million, an increase of 36.2% against a year earlier, with an increase of 25.5% in its core business of management revenue. , while the business performance unit grew 16 times and the financial services unit grew 48.6%.

However, selling expenses increased by 42.7%, while general and administrative expenses increased by 38%, the latter reflecting the application of collective bargaining over wages.

As a result, the company’s operating result measured by adjusted earnings before taxes, interest, amortization and depreciation (Ebitda) grew 17.5% year-on-year to R$223.3 million, but the EBITDA margin (Ebitda over net revenue ) adjusted fell 3.3 percentage points to 23.6%.

XP pointed out that, “on the positive side, the Management segment recorded a growth of 25.5% in net revenue, with record sales of licenses. However, both the Techfin and Business Performance segments showed a drop in contribution margin in the quarter”.

House analysts reiterated a buy recommendation for the stock, with a target price of BRL 48 per share for TOTS3, or up potential of 49% from Wednesday’s close.

As for Credit Suisse, the numbers were slightly negative. Analysts at the Swiss bank highlighted that net revenue was in line with expectations, while Ebitda was R$223 million, between 5% and 6% below expectations, driven by the TechFin and Business Performance segment, in addition to a strong impact of salary increases on general and administrative costs.

The bank, however, has an outperform recommendation (above average performance) for the stock, with a target price of R$36, or a 12% upside potential compared to the previous day’s close.

Bradesco BBI assessed that the numbers were solid. “We believe that the strong results of the core (management) can continue to drive the next quarters. Alternatively, the smoother performance of the BP and Techfin divisions may lead the market to be more conservative with regard to medium/long-term growth estimates,” the analysis reads.

The analysts’ recommendation for the stock is outperform (a performance above the market average), with a target price of R$ 40.00, with an upside of 24% compared to the last closing.

Itaú BBA also saw the numbers as good, driven by management software

In the analysts’ view, the software division more than made up for Techfin’s temporary negative result. Recurring revenue growth (a key metric) accelerated to 27% year-over-year, supporting the in-house analysts’ positive view of the stock going forward.

Thus, Itaú BBA reiterated Totvs as the sector’s favorite, with a price-something for the end of 2022 of R$ 39 per share, or a potential increase of 21%.

Later, in a new report, Itaú BBA highlighted what it saw as an “exaggerated reaction” by the market to Totvs shares (TOTS3) after the performance in the session.

“In our view, this reaction is linked to the lower-than-expected performance of Techfin, which represents only a part of the business and had its destiny defined by the joint venture with Itaú”, emphasizes BBA. “The most important thing continues to be the acceleration of organic growth in the Management Software business, which once again posted record ARR net additions and reinforces a positive outlook for the short and medium term”. For analysts the fall in the session is exaggerated and see the low as a buying opportunity.

(with Reuters)

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