2023-10-02 14:06:43
The Brazilian small cap market offers a series of promising investment opportunities. With the aim of capturing the best performances in this segment, BTG Pactual presents the Recommended Stock Portfolio – Small Caps (BTG SMLL). This portfolio is made up of 10 assets selected by the BTG Pactual analysis and strategy team, taking into account companies with an informal market value of up to R$15 billion and using the Brazilian small cap index (SMLL) as a reference.
Main points
Our Small Caps portfolio has been expanded to 10 stocks, with the aim of offering our clients a more comprehensive range of choices. We have increased the number of small cap options listed, which have increased significantly over the past two years. In this way, we seek to guarantee a more diversified and attractive portfolio.
The New Arrivals
This month, two new products were added to our portfolio: PetroReconcavo and Tenda. These companies were selected because they present solid growth and profitability prospects.
Who Stays and Who Leaves
São Martinho, Allos, Smart Fit, GPS, Santos Brasil, Oncoclínicas, Desktop and BR Partners maintain their positions in the recommended Small Caps portfolio. These companies have demonstrated consistent results and present good investment opportunities. On the other hand, MRV and Inter leave the portfolio, being replaced by newcomers PetroReconcavo and Tenda.
Analysis of Selected Companies
Below, we present a detailed analysis of the companies that make up BTG Pactual’s Recommended Stock Portfolio – Small Caps.
Saint Martin (SMTO3)
São Martinho is a company in the agribusiness sector and has stood out in the sugarcane market. With the recovery of the company’s sugarcane yield, we expect solid margins in the business. Furthermore, we believe that ethanol prices have reached a bottom and should recover, driven by the increase in gasoline prices by Petrobras. SMTO is a buy recommendation, trading at an attractive valuation.
Allos (ALSO3)
Allos is a company in the shopping mall sector and has presented consistent results. The stock is trading at a discounted valuation relative to its peers, making it an attractive investment option. In addition, the company should benefit from better prospects for interest rates and a warmer market for real estate investment fund assets. Allos is also a purchase recommendation.
Smart Fit (SMFT3)
Smart Fit is a company in the retail and consumer sector, more specifically gyms. Following recent better-than-expected results and solid near-term momentum, we have updated our numbers and increased the price target for the end of 2024. The company is well positioned to grow its market share in Latin America, with large scale in the region and attractive unit economics of the academies. Despite a premium valuation, we see good growth prospects in the coming years.
GPS (GGPS3)
GPS is the largest labor outsourcing player in Brazil and has access to a vast and fragmented market. The company has shown exceptional operational performance since its IPO. With a robust mergers and acquisitions pipeline, GPS has attractive growth prospects. Despite the uncertainty regarding tax reform, the current valuation already prices this scenario. GPS is a purchase recommendation.
Santos Brazil (STBP3)
Santos Brasil is a company in the infrastructure sector and has stood out in the Port of Santos. The renewal of the contract with Maersk, with a 60% price increase, is a positive point for the company. Furthermore, ongoing discussions at the Port of Santos and the smallest version of the STS10 terminal increase the company’s strategic value. Trading at a real IRR of 11%, Santos Brasil is an attractive investment option.
PetroReconcavo (RECV3)
PetroReconcavo is a company in the oil and gas sector and has faced recent challenges. However, we believe that operational momentum will improve in the short term and that the company will experience rapid growth in oil production. Furthermore, multiples do not take into account opportunities in gas production and cash generation in 2024. With oil prices on the rise, we believe that PetroReconcavo is an excellent option for investors.
Desktop (DESK3)
Desktop is a company in the telecommunications and technology sector. Despite having already shown a significant increase year-to-date, we still see the stock as an attractive investment opportunity. Trading with a P/E below that of companies in the sector, the stock is trading at a discount. With an attractive valuation and solid value creation opportunities, Desktop is a buy recommendation.
Tent (TEND3)
Tenda is a company in the construction sector and is focused on the low-income housing market. With changes to the MCMV program and affordability for homebuyers, Tenda is positioned to capture stronger demand. With reduced leverage and consistent gross margins on new sales, we expect a substantial increase in the company’s profitability. Tenda is an attractive investment option.
BR Partners (BRBI11)
BR Partners is a company in the financial sector and has presented reasonable results. We believe that the numbers will improve in the coming quarters, supported by the higher level of activity in the capital markets in Brazil. Trading at an attractive valuation, BR Partners is a buy recommendation.
Oncoclinics (ONCO3)
Oncoclínicas is a company in the healthcare sector and has demonstrated solid results. With a winning business model and an attractive valuation, we believe the share is an interesting investment option. Furthermore, the stock’s liquidity has improved recently, which contributes to the attractiveness of the investment.
Performance Analysis
BTG Pactual’s Recommended Stock Portfolio – Small Caps showed a positive performance in September, with a drop of -1.4%. Although it was below the Ibovespa (+0.7%), the portfolio surpassed the SMLL (-2.8%). Since the beginning of the year, the portfolio has accumulated a return of 38.3%, against 6.2% for Ibovespa and 5.1% for SMLL. It is important to emphasize that past returns do not guarantee future results.
| Company | Ticker | Weight (%) |
|---|---|---|
| Saint Martin | SMTO3 | 10 |
| Allos | ALSO3 | 10 |
| Smart Fit | SMFT3 | 10 |
| GPS | GGPS3 | 10 |
| Santos Brazil | STBP3 | 10 |
| PetroReconcavo | RECV3 | 10 |
| Oncoclinics | ONCO3 | 10 |
| Desktop | DESK3 | 10 |
| Tent | TEND3 | 10 |
| BR Partners | BRBI11 | 10 |
Source: BTG Pactual and Economática
Conclusion
The BTG Pactual Recommended Stock Portfolio – Small Caps presents a selection of promising companies from the Brazilian small caps market. With detailed analyzes and a portfolio diversification strategy, the portfolio seeks to capture the best investment opportunities. It is important to emphasize that past performance does not guarantee future results, and it is essential to carry out an individual analysis of each company before making investment decisions. Count on the expertise of BTG Pactual to assist you in this process and take advantage of the opportunities in the small cap market.
Fonte: BTG Pactual Equity Research
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