According to bank analysts, lower prices for agricultural commodities should mark a new period for BrasilAgro (iStock.com/roman023)
O BTG Pactual reduced its target price to BrasilAgro (AGRO3) from R$43 to R$31 (potential increase of 19%), reflecting the lower prices of commodities.
Despite this, the bank that reinforces the purchase, explains that AGRO3 presents an interesting dividend yield (DY) and broad growth opportunities in an expanding sector.
The bank, which participated in the Investor Day The company's executive highlights the opportunities in land acquisitions, mainly due to the decline in grain prices, with BrasilAgro's strong balance sheet positioning the company well to capitalize. According to the company, of Brazil's 851 million hectares, 19% are for cattle and only 14% for agriculture.
“BrasilAgro emphasized that there are still many opportunities for growth in the crop business. They see cattle ranching areas as a major growth opportunity, estimating that 35-45 million hectares of pasture could be converted to farmland without deforestation,” explain Thiago Duarte, Guilherme Guttila and Pedro Soares.
For the fiscal year 2025, the institution projects an EBITDA of R$619 million, R$387 million from agricultural operations and R$232 million from land sales, driven by the early sale of the Alto Taquari farm, which should contribute R$180 million in EBITDA.
Will new growth cycle weigh on dividends?
BTG reinforces that after the pandemic, amid high commodity prices, BrasilAgro entered a divestment cycle, selling eight farms between 2021-2023, with an Internal Rate of Return (IRR) ranging from 14% to 57%.
In a high price environment where growth was more challenging, they chose to distribute significant dividends to shareholders, resulting in yields of 10% in 2022 and 13% in 2023 (up from 3-5% in previous years).
With commodity prices falling, BTG believes the company should shift into an investment cycle, but still expects a strong dividend yield of 11% for this year and around 7-8% in the coming years.
“Unlike what happened in the last investment cycle, when the company invested in low-cost assets that required significant transformations, which could take 6 to 7 years, generally involving Cerrado lands that required lengthy environmental approvals, BrasilAgro must now focus on conversion of pastures into productive agricultural land, allowing faster, albeit slightly smaller, returns,” they analyze.