Morningstar | Petrobras Demonstrates Improvement Is On Track With Strong 2Q Results
Petrobras reported strong second-quarter results, alleviating concerns regarding what government price controls for refined product during the quarter might have done to profitability. Adjusted EBITDA increased to BRL 30.1 billion during the quarter, compared with BRL 19.1 billion a year ago. The upstream segment was largely responsible for the gain, with adjusted EBITDA rising to BRL 26.9 billion from BRL 15.0 billion a year ago, as higher oil prices offset a nearly 5% decline in production (due in part to divestments) and higher production taxes. Despite the product price freezes, refining and marketing adjusted EBITDA actually increased during the quarter to BRL 8.8 billion, compared with BRL 6.7 billion a year ago and BRL 5.9 billion in the first quarter. Volumes were higher compared with the first quarter, but lower compared with a year ago. Sales of inventories created at lower prices benefited earnings, while prices during the quarter were higher than in both the first quarter and the year-ago quarter. Operating cash flow increased, while capital spending fell compared with a year ago, increasing free cash flow to BRL 16.4 billion from BRL 9.4 billion a year ago and BRL 13.0 billion in the first quarter. Net debt/EBITDA fell to 3.23 from 3.52 in the first quarter but remained flat against last year. Excluding charges associated with a class-action lawsuit, net debt/EBITDA fell to 2.86 from 3.07 in the first quarter. Given its profitability, Petrobras announced a BRL $0.05 per local share dividend for the second quarter, its second in a row. Our fair value estimate and moat rating are unchanged.We view the quarter as evidence that Petrobras remains on track to improve, regardless of the negative headlines during the quarter. Government intervention remains a continual source of risk, but ultimately, we believe the continued growth in cash flow from upcoming high-margin production growth and stabilization of the downstream segment is not reflected in the share price because of concerns about further intervention. With shares still well below their highs of the year and trading at a 20% discount to our fair value estimate, we still see opportunity.
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