What's going on?- Renova Invest

2023-05-04 11:00:52

What we will see in this article:

Natura&Co (NTCO3) shares have fallen since the close of the sale of Aesop to L’Oréal for US$ 2.525 billion. The movement has attracted the attention of the market. As much as the assets have risen 7.52%, it closed down 3.39%. In the two trading sessions after the announcement of the billion dollar deal, the accumulated drop was 12.7%.

But if the sale was made for a higher value than expected, which can be interpreted positively, why have the shares not stopped falling since then? Some analysts explain that the company is undergoing a transformative movement, going from a leveraged balance sheet to a liquid cash position.

The sale of Aesop paves the way for future discussions on dividends, while the remaining operations continue to be traded at a multiple of 5 times EV/Ebitda, which is the value of the firm on earnings before interest, taxes, depreciation and amortization, expected to 2024.

Why are stocks falling?

Among the factors that may have led to Natura’s share falling is the fact that the assessment that Aesop was Natura&Co’s best asset, therefore, the uncertainties of the remaining assets remain. Many investors prefer to wait for signs of improvement before buying anything, as going forward, the visibility of trends may improve.

Another factor is that we are living in a bear market. For example, many bought NTCO3 just for the potential Aesop sell event and had no intention of carrying the stock because of the latest results. The company’s last quarter of 2022 was not encouraging at all.

The valuation of 18 times price over earnings (P/E) is also not seen as attractive, even with the relatively cheap EV/Ebitda of around 5 times, it is a lower indicator than the historical average of 11 times and international peers. The earnings forecast for 2024 are approximately 3 times what they would be if Aesop were not sold.

That’s because Aesop’s results were offsetting the drop in the company’s other business units. Natura paid US$100 million for the Australian subsidiary in 2013 and then sold it 10 years later for US$2.5 billion and with no debt. By the way, this value for the Australian brand represents 95% of all Natura’s gross debt at the end of December, which is R$ 13.3 billion.

In addition to all the operational challenges, the macroeconomic scenario contributed to this and caused negative impacts from the pandemic and a war. Such factors reflect on Natura’s cash and on the increase in indebtedness. Without many options, management had to dispose of Aesop to reinforce cash and pay off part of its debt.

For the coming months, Natura’s focus is to end its indebtedness more and more and implement the incorporation of operations with Avon. Another important point is that the company is also focused on concentrating investments in the Latin American market with the Avon and Natura brands, and internationally with Avon and The Body Shop (TBS).

Antônio Luiz Seabra: the story of Natura’s founder

Do you know Antônio Luiz Seabra? He is one of the biggest names in the Brazilian cosmetics industry. Among other achievements, the businessman made his company, Natura, recognized worldwide for its sustainable principles.

Thus, your company stands out among investors who consider social, environmental and governance aspects in their investments as criteria. In this sense, it is worth knowing the story of the person responsible for the success of one of the most sustainable companies in the world.

Check out the trajectory of Antônio Luiz Seabra, the founder of Natura!

Nature’s creation

As you have seen, in 1969, Antônio Seabra and the Berjeaut family became partners and formed a new company. But then the partnership came to an end. However, the son of the owner of the laboratory, Jean Pierre, made a counter-proposal to Seabra to start another industry together.

It was at that moment that the company Natura was born, headquartered at Oscar Freire, in São Paulo. It received that name a few months after the partnership, due to the presence of natural actives in the composition of the cosmetics.

The business went through some challenges — such as the difficulty of selling in the physical store. Faced with this scenario, Seabra adopted, in 1974, the door-to-door sales model. Attending personally, he began offering advice on his products and understanding the transforming power of cosmetics in the lives of customers.

Thus, Antônio Luiz Seabra realized the importance of not only selling the product itself, but the benefits it could provide for people, such as increasing self-esteem. This was one of the main reasons why Natura became a huge success.

Then, in 1974, Seabra and Berjeaut adopted door-to-door sales as their business model. In order to expand Natura’s participation in the market, they started looking for sellers to act as partners.

Years later, Berjeaut left the business and Guilherme Leal and Pedro Passos became new partners. They contributed to Natura’s expansion process. In 1982, its cosmetics were already sold in Chile, through a local distributor.

Over time, the company grew and became one of the largest direct selling cosmetics brands in the world — especially after the merger with Avon, in 2019. In 2004, it went public and its shares are available. on the Brazilian stock exchange, the B3, with the code NTCO3.

See the full story here.