Bank sees shares of retailers, car rental companies and real estate companies most affected by the rise in the basic interest rate and points out where to invest in this scenario
Since September 18th, when the Central Bank increased the Brazilian basic interest rate, the Selicby 25 basis points, Brazil entered a new cycle of monetary tightening.
The market today projects a cycle of 200 basis points increase in the Selic, which would end at the beginning of 2025 with the rate at 12.5% per year.
According to BTG Pactual, this cycle is due to the combination “of strong economic activity, a robust job market, uncertain political support for the economic reforms necessary to control expenses and a weaker real, which contributed to the unanchoring of expectations of inflation.”
As the rate has a direct impact on the performance of Brazilian shares, the investment bank wrote in a report last Monday (30) which securities should be most and least impacted by the new tightening cycle.
BTG highlighted that the leveraged companies and with large portion of debts linked to Selic suffer more. It is worth emphasizing that 35% of the debt of companies on the Brazilian stock exchange is linked to the rate.
“The increase in the Selic rate impacts the results of most of the companies we analyze. With the exception of banks, insurance companies and companies that have liquid cash, the profits of almost all other companies are reduced due to higher rates.”
Also according to analysts, companies that sell the majority of products and services in the domestic market have more debt linked to Selic than exporters of commoditieswhich, in general, have more debt linked to the dollar.
“In Brazil, 48% of the debt of national companies is indexed to the Selic, compared to 18% of commodity exporters. Some retailers, car rental companies and real estate agencies are more exposed.”
In the retail sector, the food, electronics and household appliances segment has relatively high leverage and is linked to the Selic.
“This is the case of food retailers Sugar Loaf (3.8x net debt/EBITDA; 96% indexed to Selic) and Assaí (3.4x and 91%). Among electronics and appliance retailers, Magazine Luiza (3.7x, 100% indexed to Selic) and Casas Bahia (3.3x and 91%) are the most leveraged.”
In the real estate sector, the bank emphasizes the relatively high leverage of high-end residential construction companies. “Companies like JHSF (5.7x; 76% linked to Selic) and Helbor (5.0x; 60%) are among the most leveraged in the sector.”
In the case of rental companies, BTG sees the three listed on the stock exchange (Localiza, Movida and Vamos) “leveraged” and with a large part of their debts linked to the Selic.
“The leverage of Locate is at 3.2x and 70% of its debt is linked to Selic, while the companies controlled by Grupo Simpar are all relatively leveraged – Moved is at 3.5x and has 70% of the debt linked to the Selic, the Let's go is at 3.2x and 88%, and JSL is 3.3x and 93%.”
On the other hand, banks, insurance companies and companies that have liquid cash – that is, companies that have more cash than debt on their balance sheets – tend to do relatively better in a monetary tightening scenario.
“Given the unique characteristics of these businesses, banks and insurance companies tend to benefit from a higher Selic (at least in the short term). Companies that have net cash also gain, as is the case with most technology names.”
Among the names with net cash, the bank highlights TOTVS, Intelbras, Locaweb, WEG, Ambev and B3.
The bank also highlights the balance sheets of low-income construction companies. “They have improved enormously.”
“Today, Cury and Plano & Plano have net cash, Direcional has basically no debt and Tenda is 1.1x leveraged, but should end 2025 with a net debt/EBITDA of just 0.5x.”
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