(Image: REUTERS/Randall Hill)
O Itaú BBA raised its target price to SLC Agricola (SLCE3) from R$24 to R$25 (potential increase of 34.9%) at the end of the 2025 fiscal year, in addition to maintaining its purchase recommendation. In terms of valuation, analysts see a recurring generation of FCFE (Free Cash Flow to Net Equity) of R$685 million for 2025, implying a yield of 8.5%.
The bank continues to believe in the company's leadership position as the lowest-cost grain producer within a key sector in Brazil. The update incorporates the better planting intention in the 2024/2025 harvest, which is expected to grow 11.4%, the new lease contracts announced and the downward movement for commodities.
The company expects to increase its cotton, soybean and corn area by 2.5%, 19% and 25% in 24/25, respectively. As a result, the BBA consolidated forecast was revised upwards by 7%, mainly due to lease agreements.
“Weak momentum persists, leading to a downward adjustment in our commodity price curve for soybeans and cotton by 9% and 6% in 2025, respectively. However, we highlight that compressed grain prices may imply more opportunities for SLC to expand its operations through leases in the next window”, explain Gustavo Troyano and Bruno Tomazetto.
SLCE3: A long-term story
The current FCFE level of 8.5%, according to the BBA, may not be enough to justify increased enthusiasm in the short term, especially considering a compressed commodity price with positive asymmetry in the long term.
“We still consider SLC as a valuable asset to capitalize on the growing trend of structural agribusiness in Brazil, as the company is the leading operator in its segment. We maintain our favorable position on SLC primarily due to its reasonable generation of recurring FCFE for fiscal 2025 — although not exceptional at this time — while recognizing that current commodity prices are unlikely to decline significantly,” they point out.
For the bank, if the company allocates some cash flow to expand its land base through leasing, we could see a potential catalyst emerging before grain prices improve.
“This, combined with SLC’s strong track record and favorable environment for expansion, could act as potential drivers for stock performance as we move into 2025.”