B3 (B3SA3): how the outcome of the elections can unlock value for the stock exchange

The Brazilian stock exchange behaved like a seesaw this October and the presidential race is seen as the main reason for this movement. The performance of the Ibovespa and its shares seems to have made investors’ preferences clear. The tight difference in the first round between Luiz Inácio Lula da Silva (PT) and the reelection candidate, Jair Bolsonaro (PL), left the market in euphoria in the first week of the month. Now, in the latter, with new controversies surrounding the current president and polls indicating Lula’s victory, he returned a good part of the gains.

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Those who invest in B3’s own shares (B3SA3) have been following these fluctuations and wondering whether or not the end of the presidential race can unlock value for the share. This is a question that many analysts and managers sought by the InfoMoney preferred not to respond until the decision at the polls on Sunday.

Pedro Gonzaga, partner and analyst at Mantaro Capital, a manager focused on variable income, admits that there is no single answer to the question. “It is possible to assume that only the passage of this milestone, which is the second round of elections, can be enough for a better flow in the capital market in Brazil”, he says.

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The effects tend to vary, yes, depending on the candidate who is elected. “As the current president has a more liberal tone, it is reasonable to assume greater optimism with federal state-owned companies if he is re-elected. This is relevant for B3 because Petrobras (PETR3;PETR4) is one of the most important stocks. An important repricing of paper can generate greater flow and tends to help the Exchange’s business”, says Gonzaga.

On the other hand, Lula’s election could be more advantageous in terms of attracting foreign capital.

“While it is difficult to assert the preference of the average foreign investor, some feedbacks Recent reports point to a greater receptivity to Lula’s election. So it is possible that, with it won, there will be a greater foreign flow to the Stock Exchange”, says the Mantaro partner.

Anyway, Gonzaga says that the picture of Brazil in relation to the world is good, with inflation cooling, the prospect of falling interest rates and growth of the Gross Domestic Product (GDP).

“One way to be directly exposed to all this is B3’s own share, which captures the appreciation of listed companies due to the growth in trading volume, whether in shares or in other markets it operates, fixed income and derivatives as well,” says Gonzaga.

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“The share is attractive and probably one of the best names to operate with the best feeling in the Brazilian markets in the coming months”, says BTG Pactual, which recently raised the share’s target price from R$14 to R$18 at the end. 2023, with buy recommendation.

The bank assesses that, after a weak month of July in terms of volume, there was a recovery in the following months. The capitalization of companies also ended the quarter above BTG’s projections, with the Ibovespa at around 110,000 points (the bank expected 102,000 points).

The movement of foreigners in the B3 markets gained momentum again in October. Until last Wednesday (26), the flow for the month was positive at R$ 10.533 billion. In September, this balance was barely negative – purchases exceeded sales by only R$ 585.3 million.

Goldman Sachs calculates that the conclusion of the elections could unlock up to $30 billion in assets under management from global funds and $20 billion from local funds.

Different views on the same paper

At the beginning of the month, after two consecutive days of bullishness on the stock market following the first round of the elections, Itaú BBA raised its B3SA3 stock recommendation from marketperform (performance in line with market average, equivalent to neutral recommendation) for outperform (above market average performance, equivalent to buy recommendation). The house set a target price of BRL 18 for the share at the end of 2023, compared to BRL 13 at the end of 2022.

The house justifies that it made the decision based on better expectations of the result and “positive revaluation of multiples ahead”. With the new assessment, BBA reported that it has increased B3’s revenue projections for this year and next year, by 1% and 5%, respectively. The house also forecasts a 9% profit next year, at R$ 5.8 billion.

Itaú BBA believes that there is room for the movement on the Stock Exchange, seen after the first round, to be repeated with the outcome of the elections. “Assuming the trend continues, B3 will have more business and our previous estimates (and the consensus) in this case were overly pessimistic,” says the house report, signed by Pedro Leduc, William Barranjard and Mateus Raffaelli.

“Additionally, in 2023, we also expect tighter cost control, with cost management becoming a central theme at B3. This increases operating leverage while the winds favor revenue,” the analysis reads.

Santander followed the same path and raised the rating of the paper to “buy”, also increasing the target price from R$13 to R$18. The house believes that a more constructive political environment in 2023 could increase the average volume of negotiations of the Stock Exchange, to R$ 33 billion per day.

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According to Santander’s calculations, every BRL 5 billion more in daily turnover implies an increase of BRL 2 in the target price of the paper.

Safra’s analysis team decided to downgrade B3SA3’s recommendation after the post-first round week rally. The house evaluated that the paper had a good performance throughout the year, with an appreciation close to 30%, surpassing the performance of the Ibovespa. In this way, the action would upside limited, according to Safra analysts.

despite the downgrade, the bank evaluates B3SA3 as a resilient investment, as the company has the hegemony in providing infrastructure for financial market operations, with a diversified business model. In view of this, the bank raised the target price of the paper from R$15 to R$16 at the end of 2022.

Safra also expects B3 to present cash flow generation and balance in its financial part, which allows the payment of good dividends.

“We expect B3 to pay dividend yield of 6.4% in 2022 and 5.7% in 2023″, says the bank report.

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B3 will release its quarterly results on November 10th. The average of the market projections of the refinitv points predicts reported net income of R$ 1.165 billion in the period, practically stable in relation to the one obtained a year earlier (R$ 1.176 billion).

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