May 16, 2022

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Via (VIIA3): Profitability is a positive sign, but analysts remain cautious;  stock closing

Via (VIIA3): Profitability is a positive sign, but analysts remain cautious; stock closing

Among the biggest declines in Ibovespa in 2022 in a challenging macroeconomic scenario with high inflation and pressure from sales of electronic product categories, via (VIIA3They did their homework The first quarter of 2022 (1Q22), market analysts note. As a result, VIIA3 shares opened higher, rising 6.69% at an intraday high. However, in the midst of a scenario that remains challenging for the sector, shares tumbled during the first hour of the trading session and closed down 2.23% at R$2.63.

XP confirmed that the company delivered a solid result, with an emphasis on profitability. FIA’s adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) were 13% higher than expected by home analysts. Ebitda’s margin (Ebitda on net revenue) improved 1.4 points year-over-year to 9.1%, benefiting from greater control over selling, general and administrative expenses. Ebitda’s adjusted margin was 10.2%.

Net income of R$18 million was also above XP expectations, which was explained by stronger-than-expected operating results and tax subsidies, offsetting higher financial expenditures.

Profitability was also most notable in the first quarter for Itaú BBA, with Ebitda margin above expectations with lower expenses.

Gross online sales volume (GMV) grew 4% year-on-year, driven by market expansion (3P), while traditional stores showed some recovery in the quarter, but not enough to avoid a 2% year-over-year decline in net sales income, to 7.4 billion. Brazilian Real.

The company explained that the recovery in physical stores intensified in March, and maintained the trend in April, indicating positive news for the second quarter of 22.

For Bradesco BBI, the results were mixed because although Ebitda’s margin was a positive surprise, net income was only slightly above break-even and GMV growth (at 3% YoY) was low, below market rate (by 23 %) and Americanas (BBI forecasts 18% year-over-year growth), due in part to increased exposure to the electronics and home appliances category.

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In order to achieve higher than expected Ebitda margin, BBI highlights that Via (along with others in the sector) has reduced operating expenses (fewer stores) and increased market participation rates. “Therefore, we believe the key question is to what extent VIA will be able to re-accelerate growth towards the end of the year, or in 2023, while maintaining current levels of Ebitda’s profitability,” the BBI analysts assess.

They noted that another issue likely to affect the minds of investors throughout the year is non-performing loans. During the quarter, the 90-day delinquency increased to 9.0% of the portfolio from 7.9% in the first quarter of 21 and 8.7% in the fourth quarter of 21.” end of the year,” according to their assessment. They also noted that Across, has advanced on its promise to reduce working capital, while significantly reducing inventory days compared to the previous year.

While analysts view the results as mixed, they see them as marginally positive for the stock, given the valuation coupled with strong profitability and early signs of improving working capital.

“However, we believe there is little appetite among investors in the current market conditions to buy developing stocks, and e-commerce, especially when growth is low and interest rates are high, even if valuations seem low.” Thus, they continue with a neutral recommendation and a target price of R$5.00, with a huge upside potential of 86% compared to the previous day’s close.

XP and Itaú BBA also have an asset-neutral rating, with BBA having a target price of R$4.70, or a high of 75%.

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Morgan Stanley in turn remains below average (below average exposure, or equivalent selling), “pending a more favorable yield scenario, along with further improvement in net margin”. The target price is R$4, 48.7% higher than the previous day’s closing price.

According to Morgan, despite the positive general and administrative expense figures, analysts see a difficult scenario continuing for key VIA classes, especially for the electronics sector.

Goldman Sachs also highlights “surprisingly strong” Ebitda, as well as higher Ebitda margin (2.7 percentage points above consensus), while revenue was 4% lower than expected.

However, Goldman Sachs maintained a sell recommendation for Via, seeing a challenging and ongoing macro scenario as well as the company’s competitive operating environment. Analysts noted: “While we recognize the progress being made in managing expenses, we believe that scaling up the online business, and the 3P GVM in particular, will require a return from a deeper investment cycle.” Target price is R$3.70 (up 38%).

Thus, as Credit Suisse points out, the short term should remain a challenge for e-commerce companies in Brazil, given the challenges posed by the macroeconomic environment (such as high inflation, high interest rates, and persistently high unemployment) and difficult Q2 comparisons across major categories.

And while the first signs of a turn around in terms of growth are emerging, the results don’t change our view significantly. Investors remain skeptical of consumer companies, given skepticism along the way when it comes to interest rates not only in Brazil but also in the US, which affect stock markets around the world. It also has a neutral recommendation for this role.

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