“I was on the other side of the table, at Bank of America, and I came here because I really believe in this new moment and in the company's purpose. I don't see anything similar on the Brazilian Stock Exchange,” says the CFO (Image: Linkedin/João Arruda)
Amid a hesitant stock market performance, one company caught the attention of investors: Ambipar Group (AMBP3), which operates mainly in waste treatment, and shot up an incredible 1258% in three months.
According to data from Elos Aytaon May 28, the stock hit its lowest point, at R$8.05, before soaring to R$109.98 on August 12. Those who invested or had R$1,000 in May left with a total gain of R$13,580.
Despite this, the stock realized part of the profits and fell 31% since its peak, but the performance remains enviable for the year, with a 381% increase.
This jump made part of the market question the company's fundamentals and wonder what was behind the explosive increase. After all, what changed in such a short space of time?
In the view of some analysts, the rise was motivated by short covering. This occurs when the stock rises while there are a large number of 'shorts', that is, sellers of the stock. To limit losses, these investors try to get rid of the operations as quickly as possible, which fuels the surge.
In other words: suppose you bet that the price of tickets to a concert would fall. You sold 10 tickets at $100 each. But instead of falling, the price rose to $120. To avoid further losses, you bought the tickets back at $120 each. This act of buying back the tickets to close out your position is called short covering.
Data from XP from mid-June showed that AMBP3 had the largest 'short interest' — the total number of shares of a company that were sold short — among the stocks analyzed, above other companies, such as American (AMER3).
A purchase of shares from the founder of Ambipar, Tercio Borlenghi Juniorcould have triggered the movement, says the Guidein a report published on July 24. The CEO's share rose from 66% to 73%.
“This significant increase (in shares) occurred without any changes in the company’s fundamentals. As the shares continue to rise, with fewer and fewer shorts, the likelihood of a sharp decline in the coming days increases,” the firm wrote.
At the time, Guide strongly recommended that Ambipar investors consider selling their shares.
But is that the only explanation for the rise? Since the date the report was published, the stock has risen 114%, according to data from Google Finance. And since September 3, it seems to have stabilized in the R$60 range.
In search of answers, the Money Times spoke with the company's CFO, João Arruda.
Ambipar has a basis
The executive highlights that growth is well-founded and that the company had good results in the second trimester.
There was a record in Ebitdawhich measures the operating result, in revenue and Ebitda margin in the two verticals:
- Environmentwhich aims to reintegrate waste into production processes;
- Responsewhich focuses on crisis management and responding to environmental emergencies.
“When I look at the company’s current situation, I see a new chapter, with a lot of internal focus and value generation. What we saw in the second quarter and also in the first quarter of the year is just the beginning. The focus will be very internal to extract more results, with fewer resources”, he says.
The company is also in the process of reducing debt, after an aggressive inorganic expansion, with the purchase of 76 companies since the IPOem 2020.
Among the measures announced so far are the renewal of the fleet by selling used vehicles and renting new ones and the delivery of company shares to executive partners of the acquired companies as a means of advance payment.
See the main excerpts from the interview below:
Money Times: Ambipar's stock is one of the big highlights in 2024. However, analysts say that this surge happened without any changes in the company's fundamentals. In other words, it is not sustainable. How do you see this? Are there reasons for the stock to rise?
John Arruda: The company has been delivering results consistently, with a lot of foundation. I would like to reinforce this point.
If you look at our second quarter results, the acquisitions made back in the middle of last year were interrupted when the company was already ending its inorganic growth cycle, and organic growth began to be captured internally.
In the second quarter results, there was a record in revenue, EBITDA and EBITDA margin in both verticals and in the company's consolidated results, with much less Capex (investments).
The company is, in fact, in a very constructive cycle of organic growth, which is demonstrated by the numbers. In the second quarter of 2024, compared to the second quarter of 2023, growth was 17.5%, 100% organic.
If we analyze the accumulated six months of the year, compared to last year, growth was 14.4%. The company is on a sustainable organic growth path, with a good foundation.
There was also a significant increase in revenue in the quarter, with a very low capital intensity compared to the company's history. To give you an idea, in the six months of the year, revenue was delivered with a Capex on net revenue of around 9.5%.
It was the lowest Capex on net revenue in the company's history. There have been times in the past when this metric reached 20%.
Money Times: There is talk in the market that the rise in shares was motivated by the purchase of the CEO himself, Tércio Borlenghi Junior. Doesn't this compromise the company's governance? How do you assess this move?
John Arruda: The controlling shareholder, Tercio, bought shares on the market, but this is nothing new. It is worth remembering that, before the company's IPO, Tercio bought half of the shares of his sisters, who were partners, when the company was still closed.
In the first half of last year, he bought the remaining shares from the sisters, something around R$10 to R$12 more than the price, totaling around R$13.
He bought the sisters' shares at the IPO price in early 2023 and put more money into the follow-on in November. The follow-on, which was 100% primary in November, received more investment from him. I can't speak directly for Tércio, but he obviously bought the shares at a time of great discount, increasing his position again.
I understand that this decision reflects a long-term vision for the company. He has never stopped being the controlling shareholder. In the past, he resumed his position as CEO to continue leading the company's operations, which shows that he is committed to the company's future and believes strongly in the business.
Money Times: Could the high volatility of stocks on the stock exchange scare investors?
John Arruda: I can't speak for the investor's subjectivity about what is risky or not for him. What I can say is that we are on the company's side, on a very constructive path, focused on future value generation. As I mentioned, the operating result is very solid, with a strong focus on this journey.
I have been with the company for almost two months, but I have been with it for almost 10 years, when I was working on the other side of the table, as a banker. I participated in several capital market operations for Ambipar, including the IPO, follow-on, bond and debt issuance.
When I look at the company's current situation, I see a new chapter, with a strong internal focus and value creation. What we saw in the second quarter and also in the first quarter of the year is just the beginning. The focus will be very internal to extract more results, with fewer resources, as I exemplified in the Capex metric.
Money Times: Analysts also highlight the company's high leverage, following a series of mergers and acquisitions. How is this merger process going? Will the company stop inorganic growth?
John Arruda: In fact, Tércio came to the market in his first interview after the IPO, at the beginning of this year, reinforcing the theme of no longer focusing on inorganic growth. The platform has already been built and expanded in the way we wanted, both in the Environment and Response areas. Therefore, this is no longer an objective.
When I mention that revenue growth in the quarter was very solid, it was 100% organic. This is the company's standard. We will extract more from the operation, do more cross-selling (offering products and services related to what the customer already buys) today, both in Environment and in Response.
The new focus is on gaining share of wallet (a company’s financial participation in a customer’s total spend) and generating more from our asset base. So inorganic growth has been off the agenda for some time.
Money Times: In June, you announced a large share buyback program; usually when these programs happen it is because the company believes the stock is cheap. Do you still think the company is cheap?
John Arruda: We are at a time of great value capture. The company is being traded on the stock exchange at a multiple of 9 times, while our global comparables are between 15, 17 and even 20 times, depending on the region and the market being analyzed. We see a lot of potential for value generation.
We are in a very constructive moment from a revenue standpoint. We had given guidance of 10% for the year, but in the first half of the year we are already at 15%, around 500 basis points above the guidance for the end of the year. We are exceeding what was initially promised, with EBITDA generation moving in the right direction.
We are expanding margin and had record margins in both verticals in the second quarter of 2024. The future is very promising, and we still see great potential for the company.
Money Times: One of Ambipar's major cases is ESG. How do you see this segment? What is Ambipar doing to generate value for its shareholders?
John Arruda: The company's ESG thesis remains very strong. The purpose is to decarbonize and regenerate the lives of customers, ensuring that all waste produced does not go to landfill, promoting the zero landfill concept. We are very focused on the reverse economy and the circular economy, transforming waste and reintegrating it into the economy. This is the company's purpose and what we offer to our customers.
We maintain this focus because, by generating value and differentiation for our customers, we also generate value for our shareholders. It is no surprise that the ESG vertical has achieved record revenue and EBITDA growth, and will continue to be a priority segment for us. We believe that this is a path of no return, with much to be done in the future, in collaboration with our customers.
The message I want to convey is that Ambipar is entering a new chapter, with an internal focus, cash generation and extraction of more results from the operation and the platform we have built. Our purpose is to decarbonize the lives of all our customers, and it is a unique and differentiated purpose.
I was on the other side of the table, at Bank of America, and I came here because I really believe in this new moment and in the company's purpose. I don't see anything similar on the Brazilian Stock Exchange.