(Image: iStock/caio acquesta)
The actions of commodities linked to iron ore They had quite a breather last week. It was enough that the China announced a package of incentives for the papers to move forward. THE CSN Mineração (CMIN3), which had been falling since the release of the second quarter results, soared 13% in the week.
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However, all this growth could be lost in the coming months. At least that is the view of the BB Investimentoswhich cut the recommendation from neutral to sell and target price of R$5.90, which represents a drop of 19%.
“After reviewing our financial model, we observed that aCMIN3 shares are being traded at a premium of 36% over the historical EV/Ebitda multiple and continue to experience high volatility”, writes analyst Mary Silva.
To support its 'pessimism', BB lists five points:
- strong fluctuation in the company's operational performance between quarters, which limits visibility into future results and contributes to increasing the volatility of CMIN3 quotes;
- uncertainties regarding the scenario for iron ore in the short term. Despite the recent announcement of new stimulus by the Chinese government, BB believes that the profound weakening of the real estate market should continue to limit domestic steel demand in China for the remainder of the year, which could once again weigh on iron ore prices;
- expectation of maintenance of maritime freight at high levels, which reinforces BB's caution regarding the company's operational profitability for the remainder of the year, since the company is heavily exposed to spot freight;
- delays in expansion projects, after successive schedule revisions, disbursements continue at a slow pace and may be postponed again, which reduces the attractiveness of the company's long-term investment thesis;
- potential impacts of the additional reduction in shares in circulation on the liquidity of the paper due to a new buyback program;
BB says that macroeconomic data from China show a slowdown in activity, and indicators in the steel sector indicate a sharp drop in steel production and consumption.
Around 1 pm, the stock fell 1.81%.
CSN Mineração: BB is not the only one
A Genial Investimentos also downgraded the recommendation for the shares of CSN Mineraçãofrom buy to “hold”, following a target price of R$6 – which represents a potential drop of around 5%.
For brokerage analysts, the valuation of paper has stretched too much in recent weeks, driven mainly by “a kind of short squeeze“, promoted by the share buyback program, combined with a lack of liquidity.
Furthermore, they cite pessimism about the Chinese economy. “The macro scenario does not make us comfortable making price assumptions more elastic (on the contrary)”, they said.
Genial uses US$98/t for the reference price of iron ore 62% Fe no 3T24E e US$95/t no 4T24E.
“It is possible that, if the price of commodity continues at this depreciated level, we revisit downwards our projection for the end of 2024 and for 2025, which is at an average of US$ 99/t 25E”.