Amid US investment rotation for the rest of the world and increased interest rates in Brazil, Bradesco BBI sees the investment thesis in value as a promising alternative.
The bank points out that, historically, investment in value tends to perform higher performance in high inflation and real rates. “This type of investment usually involves the purchase of shares considered undervalued by the market or with prices below its intrinsic value,” he explains. “The intrinsic value is determined through a detailed analysis of the company’s business and finance model.”
Given the high interest rates and current uncertainties, the BBI emphasizes the importance of the cost of equity (COE) and its impact on the profitability and intrinsic value of companies.
For the BBI, the increase in the COE has led to a reduction in the classification of Brazilian actions in the last 12 months, potentially creating a “value window”. Brazil’s monetary policy usually undergoes short and sudden cycles, resulting in significant variations in action markets. Thus, opportunities can arise within these value windows.
With this in mind, the bank developed a structure to identify actions with low evaluations, taking into account: (1) historical evaluation, (2) historical profitability and (3) potential evaluation and profitability. In the BBI’s view, actions that are not usually seen as names of value, but which meet most criteria, may be in a value window.
Methodology
The BBI has applied five filters to identify Ibovespa actions that may be in value windows.
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The first filter compares the current multiple of 12 months with the historical average of the last 10 years, attributing points according to the difference from the average and standard deviation.
The second filter evaluates future profitability regarding historical profitability, avoiding penalizing companies with increased profitability or rewarding those with less profitability.
Already the third filter compares the current assessment of the actions with that of the sector, assigning points if the multiple of an action is lower than the sector.
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The fourth filter compares the current multiple with the justified multiple, taking into account long -term profitability and the cost of capital.
The fifth filter, in turn, analyzes the long -term profitable spread, comparing the ROE (return on equity)/ROIC (return on invested capital) expected with the cost of capital and punctuating companies according to their performance.
Based on these criteria, the actions that entered the value portfolio include WEG (WEGE3), Cyrela (CYRE3) and RD Health (RADL3), Marcopolo (POMO4), Ultrapar (UGPA3), TIM (TIMS3), Itaú (ITUB4), Itausa (ITSA4), Santander (SANB11) and Multiplan (Mult3).
