Analysis of Petroleo Brasiliero: Can it maintain a 70% dividend and a P/E below 2?

Extremely high yield and low P/E of a Brazilian oil giant? What's going on here? And is it even sustainable?

PBR is in the business of extracting and transporting oil

I wrote about this company here fairly recently in connection with its high dividend. But it's been much discussed by investors and a lot has happened, so we'll take another look at it. First, a quick introduction.

You can read the last article here: Petroleo Brasileiro - 33% EXTREME dividend and great valuation, or dividend trap?

Petroleo Brasileiro S.A., $PBR+0.3% known as Petrobras, is a Brazilian state-owned company that operates in the energy sector, primarily in the extraction, processing and distribution of oil and gas. Petrobras was founded in 1953 by the Brazilian government with the aim of securing the country's energy independence by developing domestic oil and gas production. Since its founding, the company has grown to become one of the largest players in the global energy industry.

Petrobras is one of the largest oil and gas companies in the world, with a market capitalisation of over $65 billion. The company is the largest oil and gas producer in Latin America and is one of the largest oil producers in the world. Petrobras also owns and operates an extensive network of refineries, distribution stations and other facilities in Brazil and abroad.

According to Market Cap, it is the 17th largest oil company in the world. That makes it bigger than, say, Occidental. Source

Petrobras is a company with variable financial performance that depends on global oil prices and energy demand.

Petrobras focuses on several points:

  1. Portfolio optimization: the company is trying to optimize its asset portfolio to focus on the most profitable projects and increase efficiency.
  2. Improving operational performance: Petrobras focuses on improving its operational performance through investments in technology, cost management and productivity improvements.
  3. Sustainability and Social Responsibility: the company emphasizes sustainability and social responsibility, which includes investing in renewable energy, reducing greenhouse gas emissions and supporting social and environmental projects.
  4. Growth Opportunities: Petrobras seeks growth opportunities in oil and gas exploration, particularly in deepwater deposits in Brazil's frontier belt, which has great potential for new discoveries.
Background

Risks

Despite Petrobras' strong market position and strategic position in the Brazilian economy, there are still risks to which the company is exposed.

Risk of political interference: Petrobras is a state-owned company and is therefore exposed to political interference. This may affect the company's management and strategic decisions, which may negatively affect the company's performance and share value.

Risk of regulatory change: Oil is a strategic resource for Brazil and the government has a strong influence on the regulation of the oil industry. Changes in regulation may affect Petrobras' performance and profitability.

Oil price downside risk: Probably the most logical risk. Petrobras is heavily dependent on oil prices and changes in prices can have a significant impact on the company's profitability.

The price of oil is extremely volatile. Judge for yourself from the chart of price trends over the past year

Environmental disaster risk: Petrobras is exposed to the risk of environmental disasters such as oil spills and oil rig accidents. These disasters can affect the company's reputation and can lead to clean-up and compensation costs. Of course, environmental risk in general can also be included here. In the long term, oil is not a bed of roses.

Competition

Petróleo Brasileiro S.A. is in a competitive environment in the oil industry and has to deal with competition both in Brazil and abroad. Some interesting competitors include:

Royal Dutch Shell $SHEL-1.1%, ExxonMobil $XOM-0.7%, Chevron $CVX-0.9%, BP $BP-1.3%, Total $TTE-2.7%.

Competition in the oil industry is very strong and Petrobras has a number of other strong players breathing down its neck.

The current situation

PBR's EBIT margin is excellent at nearly 48%, which is significantly higher than the average of oil competitors, which is less than 20%. The company's net profit margin to date is around 30%, which is higher than the current average. In addition, Petrobras is an oil giant with cash from operations of approximately USD 44 billion, which is also above the industry average.

That does not sound bad. The good position allows the company to pay a high dividend. But 70%?! Where's the catch?

This dividend shot is very strange. Source
Currently 70%. We'll explain right away

The dividend frenzy may be over, assuming the new government focuses on building new refining capacity. Even if there is a dividend cut for one reason or another, shareholders would still be left with dividends well above the market average, it seems.

The company has recently been using its excellent earnings and excess cash flow to retire debt. The company is expected to reduce its debt further if it does not overspend on capital expenditures.

They have been successful in reducing debt. Source

The P/E ratio is particularly important here. This is because it is extremely low, currently at just over 1.8. Such a ratio is not just generally low. It is also low in the case of Petrobras, especially if we look at the company's P/E history charts. By the numbers, Petrobras is one of the largest companies with a record low P/E. It is indeed very difficult to find large, profitable and cheap companies these days.

When it comes to the state of the world economy and the future of oil prices, there are many reasons to be concerned. Investor concerns about Brazilian politics may also be justified. At the same time, PBR's financials, its excellent dividend yield and close ties to the Brazilian government can be seen as positives.

Personally, despite the unsustainable dividend situation, I like the company. however, this is an EXTREMELY risky bet and should be kept in mind.

Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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