4 reasons to buy this small cap that is up 40% this year, according to Safra (Image: Getty Images/Canva Pro)
O Safra Bank started coverage of Marcopolo (POMO4), estimating a potential appreciation of 39% – target price of R$11.10. The bank reiterated its buy recommendation.
The company is currently the largest manufacturer of bus bodies in Brazil, with a market share of 49%.
According to Luisa Mussi, an analyst at the bank, Safra expects an increase in bus production, driven by the need to renew the Brazilian fleet.
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Mussi points out that Marcopolo should maintain healthy margins in the coming years. This reflects a combination of economies of scale, greater efficiency, a better sales mix and an improved competitive scenario, according to the analyst.
4 reasons to buy Small Cap
To justify the recommendation, the bank presented four pillars. The first is fleet renewal to support growing volumes.
“The average age of the Brazilian urban bus fleet has increased significantly, reaching
an all-time high of 11.3 years, up from 10 years in 2017,” he explained. “This indicates a clear need for fleet renewal, which we hope will increase the company’s volumes.”
The bank expects Marcopolo to maintain a healthy EBITDA margin following an improved sales mix, efficiency gains and a more rational competitive environment. “We assume an average EBITDA margin of 16.8%,” it says. The historical level of this margin is 10%.
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The third pillar, according to Safra, is the small cap's leadership position. “We believe that its premium quality products and constant investments in technology should support the company's leadership in the future,” explained the analyst.
For her, Marcopolo's geographic diversification is also a positive point for the company. The company is present in 9 countries and generates approximately 36% of its revenue abroad.
Main risks
Despite Marcopolo's 36% share appreciation this year, Safra highlighted that the company is currently trading at 5.6x EV/Ebitda 2025. This value represents a 39% discount to its six-year adjusted historical average of 9.1x and a 15% discount to its global peers.
Risks related to the government and the economy, given their high sensitivity to GDP, are also something to keep an eye on, according to the bank.
According to Safra, other risks are: bus transport losing market share; inflation in raw material prices; the workforce not working as expected; and a challenging competitive scenario.