Alpargatas

UPDATE
Alpargatas
BBI Equity Research
Tuesday, August 19, 2014
A Buy Opportunity with Improving Earnings Momentum
Adjusting our forecasts after new guidance and meeting with management. After
the 2Q14 earnings release, which brought new guidance for 2014, and our meeting with
several top executives today, we are confident that Alpargatas’ results will improve
considerably in the coming quarters. We expect ALPA4 to begin positive earnings
momentum, and after updating our numbers, we forecast EPS growth of 24% YoY in the
next 12 months (the company reported a 14% drop in EPS in 1H14). The stock has
underperformed in recent weeks, but we believe the better outlook should help change
this situation. We continue to like Alpargatas’ long-term potential, maintaining our
Outperform rating, mainly due to: (i) greater flexibility arising from the new manufacturing
facility (Montes Claros); (ii) the roll-out of Havaianas’ apparel products; and (iii)
continued expansion and increasing profitability in the US and European operations.
New estimates and impact on our target price. We have updated our forecasts for
Alpargatas, incorporating the company’s guidance for the year and some insights from
talks with management. A weak 1H14 has led us to lower our EPS estimates by 10% on
average for 2014-2016, despite improvement forecasted for 2H14. However, we have
also rolled forward our target price to YE15. On the whole, our new target price of
R$14.00 for ALPA4 is 2% below the previous one.
COMPANY REPORT
Analyzing feasibility of Alpargatas’ guidance. Alpargatas’ guidance for volume
growth in Brazil’s flip-flop division of 5%-7% looks feasible. Despite a 2% YoY decline
in 1H14, July’s performance of 29% and easy comps in 3Q13 (volumes down 5% YoY)
give confidence of a strong 3Q14. If 20ish percent growth in 3Q14 is confirmed, 4Q14
growth would have to be just in line with the annual guidance for ALPA to deliver its
target. It is worth noting that management mentioned 10% growth in Brazil flip-flop
volumes in today’s meeting. Regarding Argentina (+6%-8% volumes), it seems an easy
target, as it implies 11% YoY volume contraction in 2H14. In the case of consolidated
net revenues, growing 10%-12% (guidance) means just a slight acceleration from the
9% reported for 1H14. The volume growth guidance of 5% for sporting goods in Brazil
looks a little harder to achieve, although not impossible. Considering the steep 18%
decline in 1H14, we should see an average of 25% in 2H14 for the year’s target to be
met. This is possible with improvement in Mizuno product lines (see more on page 4)
and normalization of the market for non-World-Cup-related items. The most challenging
part of the guidance seems to be maintaining EBITDA margin flat, but considering the
acceleration in volume growth and less pressure from the Montes Claros plant’s ramp-up
and World Cup-related marketing expenses, it seems to be an achievable target.
Alpargatas
(ALPA4)
Consumer & Retail
Outperform
Target Price: R$14.00
Upside: 33%
%
130
120
110
100
90
80
70
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Ibovespa
Jun-14
Aug-14
Alpargatas
Ricardo Boiati - 55 11 2178 5326
[email protected]
Pedro Bueno - 55 11 2178 4272
[email protected]
Valuation looks attractive among local and global peers. ALPA4 is trading at 14.8x
P/E for 2014 and 12.4x for 2015. Its valuation is 31% below the average for local
consumer and retail players. Compared to international peers, it is trading at a 32%
discount (see Figure 2 inside this report).
(BRL m n)
2012A
2013A
2014E
2015E
EPS (R$)
0.61
0.67
0.71
0.85
Local price
Net earnings
281
310
330
394
ADR
Adjusted EBITDA
395
419
482
593
Price range - 52 w eeks (R$)
Shareholders' equity
1,656
1,834
1,978
2,207
Shares out. (mn)
ROE %
17%
17%
17%
18%
3-month ADTV (R$mn)
P/E
17.4
15.8
14.8
12.4
Market cap (R$mn)
EV/EBITDA
11.7
11.2
10.1
8.1
EV (R$mn)
P/BV
3.0
2.7
2.5
2.2
Net debt R$mn
1.6%
2.5%
2.9%
3.4%
Dividend yield %
Key Figures
Net debt/EBITDA (LTM)
19-Aug-14
10.54
n.a
9.66 - 14.52
463.7
5.9
4,887
4,618
1
-269*
-0.5
Bradesco Corretora – Av. Paulista, 1.450 – 7th floor – Sao Paulo – Brazil – 55 11 3556-3001
Bradesco S.A. Corretora de Títulos e Valores Mobiliários (Bradesco Corretora) does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
Bradesco Corretora and its affiliates may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
For full disclaimer and definitions, please refer to the end of this report.
COMPANY REPORT
BBI Equity Research – Tuesday, August 19, 2014
Figure 1: Alpargatas’ Guidance and Implicit 2H14 Results
Implicit 2H14E
Low
High
1H14A
Brazil Sandals (volumes)
Change YoY
96
94
-2%
111
124
11%
128
15%
218
5%
222
7%
Brazil's Sporting Goods (volumes)
Change YoY
10
8
-18%
11
14
25%
n.a.
n.a.
22
5%
n.a.
n.a.
3
4
24%
3
3
-11%
3
-7%
7
6%
7
8%
1,596
1,747
9%
1,830
2,021
10%
2,090
14%
3,768
10%
3,837
12%
EBITDA (R$mn)
Change YoY
254
212
-16%
241
331
38%
341
42%
544
10%
554
12%
Margem EBITDA
Change YoY
15.9%
12.2%
-373bps
13.2%
16.4%
323bps
16.3%
317bps
14.4%
0bps
14.4%
0bps
Argentina (volumes)
Change YoY
Consolidated Net Revenues (R$mn)
Change YoY
2H13A
Guidance
2014E
2014E
1H13A
Source: Company and Bradesco Corretora estimates
Figure 2: Alpargatas’ Valuation Relative to Local and Global Peers
Company Name
Mkt Cap
Ticker USDmn
Alpargatas
ALPA4
1
Grendene
Lojas Renner
Restoque
Arezzo&Co
Pão de Açúcar
Via Varejo
RaiaDrogasil
Hypermarcas
Natura
Lojas Americanas
Average
Nike 1
Adidas
1
13
P/E
14
15
8.1x
15.8x
14.8x
12.4x
11.1x
8.5x
7.6x
12.0x
10.3x
9.0x
16.1x
13.3x
11.5x
17.0x
13.1x
10.7x
8.5x
7.8x
6.7x
6.1x
5.1x
4.1x
20.3x
16.1x
11.9x
14.8x
12.7x
10.7x
11.7x
9.9x
8.9x
18.6x
15.2x
12.0x
13.4x
11.1x
9.2x
International Peers
12.0x
21.9x
24.5x
18.9x
13.9x
43.3x
46.6x
20.4x
38.8x
25.6x
10.0x
18.3x
42.8x
19.9x
20.3x
11.5x
39.8x
28.2x
17.0x
47.9x
24.6x
9.1x
16.1x
24.1x
16.2x
16.6x
9.0x
26.4x
20.3x
14.7x
31.4x
17.9x
13
Local Peers
11.2x
10.1x
2,157
GRND3 1,964
LREN3 3,959
LLIS3
696
ARZZ3 1,205
PCAR4 13,290
VVAR11 4,643
RADL3 3,183
HYPE3 5,320
NATU3 7,656
LAME4 8,025
4,736
EV/EBITDA
14
15
NKE
68,170
15.0x
15.4x
13.9x
26.3x
26.5x
23.2x
ADS
16,828
12.3x
10.0x
9.1x
24.2x
19.5x
16.7x
SHOO
2,207
10.0x
9.2x
8.1x
18.6x
16.7x
14.4x
CROX
1,337
9.6x
9.1x
7.4x
154.2x
28.9x
18.9x
Brown Shoe
BWS
Deckers Outdoor1 DECK
Average
1,297
7.5x
9.0x
8.3x
20.3x
21.5x
18.9x
3,252
15,515
10.8x
10.9x
10.9x
10.6x
9.4x
9.4x
20.1x
43.9x
19.8x
22.1x
16.9x
18.2x
Steven Madden1
Crocs
1
1
* GACR 12-15
1
Bloomberg Consensus
Source: Company and Bradesco Corretora estimates
Figure 3: New vs. Old Estimates
Net Revenues
2014
3,811
New
2015
4,358
2016
4,887
2014
4,002
Old
2015
4,641
2016
5,292
2014
-5%
Reported EBITDA
Reported EBITDA Margin
EBITDA
EBITDA Margin
Net Income
509
13.4%
482
12.7%
330
639
14.7%
593
13.6%
394
770
15.8%
719
14.7%
466
550
13.7%
550
13.7%
356
660
14.2%
660
14.2%
438
782
14.8%
782
14.8%
540
-7%
-37bps
-12%
-108bps
-7%
Change
2015
-6%
-3%
44bps
-10%
-61bps
-10%
2016
-8%
-2%
98bps
-8%
-6bps
-14%
Source: Company and Bradesco Corretora estimates
2
COMPANY REPORT
BBI Equity Research – Tuesday, August 19, 2014
Highlights from Meeting with Management
We participated today in a meeting with several of Alpargatas’ top executives, in which
we discussed different aspects of the business and the company’s strategy. Besides
Marcio Utsch (CEO), José Lettiere (CFO), and the IR team (Salvio Moraes and Mariane
Weger), Carla Schmitzberger (Head of the Flip-Flop Division), Fernando Beer (Chief
Sporting Goods Officer), Javier Goñi (CEO of Alpargatas Argentina) and Fabio Leite
(Chief Corporate Strategy and New Business Officer) were also present. We offer below
some of the highlights and main takeaways, divided by topic:
1) Havaianas (flip-flop business)
Our takeaways. Management seemed confident about flip-flop volume growth both in
Brazil and abroad. The introduction of apparel products has been successful, based on
the company’s planning, although it needs some fine-tuning (as expected). Management
also commented on a reversal of the Montes Claros plant’s impact in COGS due to its
ramp-up, as it should have easy comps in the coming quarters. They mentioned that flipflop volume growth in Brazil should be ~20% YoY in 2H14 and consequently ~10% in fullyear 2014. In our estimates, we have assumed a number closer to the upper end (6.7%)
of the official guidance released together with 2Q14 earnings results (5%-7%).
Main highlights:
 Growth in Brazil. Management said it is comfortable about volume growth in
Brazil for the coming years, despite already selling one pair per capita in the
country, aiming to incentivize consumers to have more pairs of Havaianas, either
in terms of colors/patterns or models (standard, slim, flat, etc.). They have
indicated 20% volume growth in 2H14, which would mean ~10% for full-year
2014 (above the official guidance of 5%-7%).
 Growth outside of Brazil. In this case, there is much more room to grow. The
key is to understand and correctly address each market’s needs and
peculiarities.
 Apparel. In the three stores that already have the products, apparel accounts for
~30% of sales. This level is very satisfactory, according to management,
although apparel gives the impression that it occupies a larger sales area in the
stores than just 30%. Although non-flip-flop categories, such as apparel, will
have smaller margins than flip-flops, the final outcome should be positive, as the
effect on brand equity should be largely favorable.
 Pricing strategy. Alpargatas prices its products (for all divisions) based on a
perceived value approach, not a cost-plus approach.
 Price repositioning, through the launch of “Havaianas Flat” and the
repositioning of “Havaianas Slim”, has contributed to improving Alpargatas’
positioning in products in the R$14 to R$20 range. This has been contributing to
market share recovery.
 Alpargatas has a ~50% share of the Brazilian flip-flop market. However,
excluding the unbranded market (very popular in the Northeast and interior of
Brazil), its share would jump to above 70%.
 Changes in flip-flop production respond very quickly after a decision to increase
or reduce output (~30 days). Such changes in sporting goods usually take much
longer (7-8 months).
 The ramp-up of the Montes Claros plant should stop having a negative impact
on results starting in 3Q14.
2) Sporting Goods (Brazil)
3
COMPANY REPORT
BBI Equity Research – Tuesday, August 19, 2014
Our takeaways. The division’s results seem to have been significantly affected by a miss
in Mizuno’s last collection. It was a global issue, which also affected Mizuno in other
regions (such as the US). The new collection seems to have been fixed, but we should
still see some impact from the old collection’s inventories, which are being sold at
discounts.
Main highlights:
 Mizuno’s last fashion collection was problematic, with too many colorful products
and a design that, although being highly enhanced technologically, did not give
consumers the impression of good value for their price (lighter products, less
sticking, etc.).
 Inventories of finished sporting goods products are currently around 60 days
(having decreased from ~90 days). The company still has the old and
problematic collection in its inventories, and should continue giving discounts to
sell them, but the operations will gradually normalize.
 As cited before, changes in sporting goods production after a decision to increase
or reduce output take 7 to 8 months, as most of the products are imported.
3) US, Europe and Exports
Our takeaways. This division continues to be a good growth opportunity for Alpargatas,
with interesting potential in all regions. Europe is a more mature and profitable business,
but there are still some opportunities to be captured. In the United States, Alpargatas is
still ramping up, and should increase sales volumes and profitability over time.
Meanwhile, exports offer a huge opportunity, including the possibility of launching direct
operations in other regions and capturing huge margin improvement (although having to
invest more working capital).
Main highlights:
 The gross margin for direct operations (US and Europe) is 2x-3x larger than that
for exports.
 Asia. The company is determining the location for its office in Asia. Initially, it
should be related more to sourcing and marketing. It should not be a full, direct
operation modeled after its US and Europe divisions, at least not at first. Asia
represents a good opportunity, but we should be careful to avoid overstating it.
For example, China has a huge population, but very low temperatures in winter
(not good for flip-flop sales) and a large population with low average income
(Havaianas’ business is about brand and perceived value, not price). India has an
average consumer price of US$2 for flip-flops, making Havaianas too expensive
for the vast majority of its population. However, the potential market for
Havaianas in the country could reach 120mn people, which is not bad.
4) Argentina
Our takeaways. The restructuring process in Argentina was very successful in trimming
costs and expenses. The macroeconomic environment does not help market growth
much, but Topper seems well positioned in the local competitive environment, as it
sources its products locally and exports have become too expensive after depreciation of
the peso. Moreover, a presidential change there (elections are scheduled for October
2015) could improve the economic environment and consumer confidence.
4
COMPANY REPORT
BBI Equity Research – Tuesday, August 19, 2014
Main highlights:
 The market for sporting goods amounts to ~30mn pairs. The main categories
are running and casual (70% of the market).
 The company has developed good expertise in reading global trends and quickly
bringing them into Argentina.
 There is potential to improve EBITDA margin by 200-300bps.
 Labor accounts for ~50% of the division’s COGS.
 Investments in R&D are a key driver in this division, and should bring margin
expansion and better prices.
5) Osklen
Our takeaways. Management is still not giving many details about Osklen. One
interesting piece of news learned is that Alpargatas’ management expects EBITDA
growth of 13% in FY14 vs. the 12 months ended in February 2014, and 10% YoY growth
in 2015.
Main highlights:
 There are some synergies between Osklen and Havaianas apparel products in
terms of sourcing, but not much in design and channels. The intention is not to
use Osklen (or its main designer, Oskar Metsavath) to design products for
Havaianas, as the company does not want to create dependence or change the
brand’s identity.
 The 13x EV/EBITDA multiple paid in the acquisition (based on the last 12
months ended in Feb. 2014) should come down to 11.5x in 2014 and 10.5x in
2015. As a result, the implicit LTM EBITDA ended in Feb. 2014, of R$41mn,
should grow to R$46mn for FY14 and R$50mn for 2015.
6) Hedging
Our takeaways. Although there should be volatility in the quarterly hedging results, we
should expect a lesser impact than the one seen in 2Q14, as the accounting policy basis
normalizes (see more below). This is an important instrument to protect the company’s
cash flows from FX volatility, given Alpargatas’ COGS exposure to FX (~50% of its COGS
is denominated in USD), and should not be too relevant on a 12-month basis.
Main highlights:
 The company hedges 70% of its exposure for the next 3 months, 50% for the
next 6 months and 25% for the next 9 months.
 Since 3Q13, it has adopted hedging accounting, which recognizes the impact of
hedging when the contracts are actually settled. Previously, it recognized the full
impact every quarter through a mark-to-market approach. Therefore, the YoY
impact from the hedging instruments should be much less relevant than in 2Q14
(shifting from +R$29mn in 2Q13 to -R$6mn in 2Q14).
5
COMPANY REPORT
BBI Equity Research – Tuesday, August 19, 2014
Key Figures - Alpargatas (Ticker: ALPA4)
Incom e Statem ent (R$m n)
Net revenues
Change YoY
COGS
Gross profit
SG&A Expenses
Other Operating Results
Amortization
EBIT
Change YoY
D&A
Adjusted EBITDA
Change YoY
Reported EBITDA
Change YoY
Equity income
Net Financial Result
Pretax incom e
Income taxes
Minority interest
Net incom e
Change YoY
EPS
Change YoY
% of Net Revenues
Gross Margin
SG&A expenses
EBIT Margin
Adjusted EBITDA Margin
Reported EBITDA Margin
Net Financial Results
Income tax rate (% of pre-tax income)
Net Margin
Balance Sheet (R$m n)
Current + long term assets
Cash + Cash Equivalents
Inventories
Net Receivables
Other
Perm anent assets
Total assets
Current + long term liabilities
Accounts Payable
Total debt ST + LT
Other
Minority interest
Shareholders' equity
Total liabilities
2012
2013
2014E
2015E
2016E
3,007
17%
(1,734)
1,273
(898)
(17)
(24)
335
5%
61
395
6%
414
2%
(43)
8
300
(19)
(0)
281
-9%
0.61
-9%
3,426
14%
(2,006)
1,420
(1,000)
(43)
(25)
352
5%
67
419
6%
494
20%
(27)
22
347
(38)
310
10%
0.67
10%
3,811
11%
(2,265)
1,545
(1,107)
(6)
(26)
407
15%
75
482
15%
509
3%
(30)
(5)
372
(42)
330
7%
0.71
7%
4,358
14%
(2,536)
1,821
(1,263)
(22)
(30)
507
25%
86
593
23%
639
25%
(31)
(32)
445
(51)
394
20%
0.85
20%
4,887
12%
(2,801)
2,085
(1,405)
(24)
(33)
622
23%
97
719
21%
770
20%
(34)
(35)
553
(87)
466
18%
1.00
18%
2012
2013
2014E
2015E
2016E
42.3%
-29.9%
11.1%
13.2%
13.8%
0.3%
-6.4%
9.3%
41.5%
-29.2%
10.3%
12.2%
14.4%
0.6%
-10.8%
9.0%
40.6%
-29.1%
10.7%
12.7%
13.4%
-0.1%
-11.3%
8.7%
41.8%
-29.0%
11.6%
13.6%
14.7%
-0.7%
-11.4%
9.0%
42.7%
-28.8%
12.7%
14.7%
15.8%
-0.7%
-15.7%
9.5%
2012
2013
2014E
2015E
2016E
2,030
504
513
885
128
1,398
3,428
1,450
422
473
556
1,978
3,428
2,312
595
578
1,010
128
1,453
3,765
1,558
475
528
556
2,207
3,765
2,624
737
629
1,130
128
1,564
4,189
1,678
523
600
556
2,510
4,189
1,839
617
444
694
84
902
2,741
1,080
359
360
361
5
1,656
2,741
2,184
814
468
802
101
1,178
3,362
1,528
384
608
536
1,834
3,362
Cash flow (R$m n)
2012
2013
2014E
2015E
2016E
EBIT (=)
Depreciation (+)
Taxes (-)
Changes in Working Capital (+/-)
Capex (-)
Free Cash Flow to the Firm (=)
Interest Expenses
Debt Variation
Free Cash Flow to Equity
335
61
(22)
(219)
(206)
(51)
8
188
145
352
67
(38)
(106)
(273)
2
22
(383)
(359)
407
75
(46)
(91)
(437)
(92)
(5)
190
93
507
86
(58)
(137)
(172)
226
(32)
18
212
622
97
(98)
(122)
(242)
257
(35)
14
235
Key Indicators
2012
2013
2014E
2015E
2016E
P/E
P/BV
FCF per share
P/Free cash flow
Free cash flow yield
EV/EBITDA
EV/Sales
ROE (final)
ROIC
Dividend per Share (R$)
Pay out
Dividend yield
Net debt (BRL million)
Net debt/ Shareholders' equity
Net debt/ EBITDA
EBITDA/ Net Interest Expenses
17.4
3.0
0.3
33.7
3.0%
11.7
1.5
17%
19%
0.21
34%
2.0%
(257)
-0.2
-0.7
-48.9
15.8
2.7
-0.8
-13.6
-7.3%
11.2
1.4
17%
15%
0.24
35%
2.2%
(207)
-0.1
-0.5
-19.0
14.8
2.5
0.2
52.6
1.9%
10.1
1.3
17%
15%
0.25
35%
2.4%
(31)
0.0
-0.1
105.3
12.4
2.2
0.5
23.1
4.3%
8.1
1.1
18%
18%
0.30
35%
2.8%
(68)
0.0
-0.1
18.8
10.5
1.9
0.5
20.8
4.8%
6.6
1.0
19%
19%
0.35
35%
3.3%
(137)
-0.1
-0.2
20.3
Operating Indicators
Consolidated
Volume (mn pairs/ pieces)
Avg. Price (R$)
Brazil
Volume (mn pairs/ pieces)
Avg. Price (R$)
Revenues
Gross Margin
EBITDA Margin
Argentina
Volume (mn pairs/ pieces)
Avg. Price (R$)
Revenues
Gross Margin
EBITDA Margin
US, Europe and Exports
Volume (mn pairs/ pieces)
Avg. Price (R$)
Revenues
Gross Margin
EBITDA Margin
2012
2013
2014E
2015E
2016E
263
11.4
268
12.8
284
13.4
313
13.9
333
14.7
227
9.5
2,162
44.8%
16.1%
228
10.6
2,418
43.7%
17.1%
243
11.4
2,773
39.7%
12.6%
267
11.9
3,179
40.2%
13.6%
280
12.6
3,522
40.7%
14.6%
6.1
85.4
524
24.9%
6.4%
6.4
94.2
604
19.9%
4.1%
6.8
79.6
539
24.5%
10.2%
7.1
75.7
538
26.3%
11.3%
7.8
74.2
580
26.8%
11.9%
30
10.5
320
54.2%
10.3%
34
12.0
404
60.2%
14.0%
34
14.5
498
62.9%
20.9%
39
16.3
641
63.0%
22.7%
45
17.5
785
63.5%
23.7%
6
COMPANY REPORT
BBI Equity Research – Tuesday, August 19, 2014
Analyst Certification
Each analyst responsible for the preparation and content of this report hereby certifies, pursuant to SEC Regulation AC and applicable law s and regulations of other jurisdictions, that:
(i)
the view s expressed herein accurately and exclusively reflect his or her personal view s and opinions about the subject company(ies) and its or their securities;
(ii)
no part of his or her compensation w as, is, or w ill be paid directly or indirectly, related to the specific recommendation or view s expressed by that analyst in this report; and
pursuant to Brazilian securities exchange commission (Comissão de Valores Mobiliários – CVM) Instruction 483/10:
(i)
the recommendations indicated in this report solely and exclusively reflect his or her personal opinions, and w ere prepared independently and autonomously, including in relation
to Bradesco Corretora and its affiliates ;
(ii)
his or her compensation is based on the profitability of Bradesco Corretora and its affiliates, w hich includes investment banking revenues;
Company disclosures pursuant to Brazilian securities exchange commission (Comissão de Valores Mobiliários – CVM) Instruction 483/10:
(i) Banco Bradesco S.A. beneficially ow ns 5% or more of equity securities issued by Cielo S.A.. Bradseg Participações Ltda., a subsidiary of Banco Bradesco, indirectly ow ns 5% or
more of equity securities issued by Fleury S.A.. BRADESPAR S.A., w hose controlling group is comprised of the same shareholders that control Banco Bradesco S.A., indirectly ow ns
5% or more of equity securities issued by VALE S.A.
(ii) Ágora, Bradesco Corretora, Bradesco BBI and Bradesco Group companies have relevant financial and commercial interests in relation to the subject company(ies) or the subject
security(ies).
(iii) Bradesco BBI S.A. is acting as an underw riter in a public offering of equity securities of JBS Foods S.A. and Companhia de Saneamento do Paraná - SANEPAR.
(iv) Bradesco BBI have managed or co-managed a public offering of equity and/or debt securities for the follow ing companies w ithin the past 12 months: Abril Educação, Banco BTG
Pactual, Banco do Brasil, BB Progressivo II - FII, BB Seguridade, Biosev, BHG, BNDESPAR, BR Malls, Bradespar, Brasil Telecom, CEDAE, Chemical VII, Chemical VIII, Colinas, Comgás,
CPFL Energias Renováveis, Daycoval, Ecovias, Embratel, Estácio, Fleury, Iguatemi, JBS, Marfrig, MPX, Multiplan, OAS, OI, Petropar, Raízen Energia, Restoque (Le Lis Blanc), Rodobens,
Sabesp, Smiles, Vale and Via Varejo.
(v) Ágora and/or Bradesco Corretora participated in the public offering of equity and/or debt securities for the follow ing companies w ithin the past 12 months: Abril Educação, Alupar,
Autoban, Brazilian Securities, BNDESPAR, Banco BTG Pactual, BB Progressivo II - FII, BB Seguridade, Biosev, BHG, Comgás, CPFL Energias Renováveis, CVC, Estácio, Fator IFIX - FII,
FII BTG Pactual Corporate Office Fund, FII - General Shopping Ativo e Renda, Fator Verità FII, Fibria, FII Brasil Plural Absoluto Fundo de Fundos, FII TB Office, FII TRX, Iguatemi, Iochpe
Maxion, GAEC Educação, Linx, Marfrig, Multiplan, OI, Rodovias do Tietê, Santander Agências FII, Senior Solution, SDI Logística Rio - FII, Ser Educacional, Smiles, SP Dow ntow n - FII,
Triângulo do Sol, Tupy, Vale, Via Varejo and XP Corporate Macaé - FII.
(vi) Bradesco Corretora receives compensation for making a market in the equity securities of Alpargatas (ALPA4), General Shopping (GSHP3) and Helbor (HBOR3). Bradesco receives
compensation for making a market in the in the fixed income securities of BNDESPAR and USIMINAS, and shares of Fundo Imobiliário BB Progressivo II.
Important Disclosures
Company-specific regulatory disclosures
1
Bradesco Corretora and/or its affiliates beneficially ow n one percent or more of any class of common equity securities of the subject company(ies). This position
reflects information available as of the business day prior to the date of this report;
X
2
Bradesco Corretora and/or its affiliates have managed or co-managed a public or Rule 144A offering of the subject company’s(ies’) securities in the tw elve months
preceding the date of this report;
X
3
Bradesco Corretora and/or its affiliates have received compensation for investment banking services from the subject company(ies) in the tw elve months preceding the
date of publication of the research report and/or expects to receive or intends to seek compensation for investment banking services from the subject company(ies) in the
three months follow ing the date of this report;
X
4
Bradesco Corretora and/or its affiliates w ere making a market in the subject company’s(ies’) equity securities at the date of this report;
5
Any other actual material conflict of interest of Bradesco Corretora and/or its affiliates know n at the date of this report.
X
Bradesco Corretora research ratings distribution
Rating
Definition
Coverage¹
BR²
Outperform
Expected to outperform the Ibovespa by more than 10%.
48%
100%
Market Perform
Expected to perform in the range of 10% above or below the Ibovespa.
45%
100%
Underperform
Expected to underperform the Ibovespa more than 10%.
0%
0%
Under Review
This indicates that both the target price and the rating are currently being revised.
7%
100%
Restricted
The analyst cannot express his/her view s on the company.
0%
0%
(1)
Percentage of companies under coverage globally w ithin this rating category. As of 08/19/14 Bradesco Corretora had 128 companies under coverage globally.
(2)
Percentage of companies w ithin this rating category for w hich [investment banking] services w ere provided w ithin the past 12 months.
Bradesco Corretora ratings
Bradesco Corretora ratings are constantly revised and any temporary inconsistencies betw een the upside potential that gave rise to any such rating and the upside potential in
connection w ith the target price are at all times deliberate. The official rating shall prevail.
Any differences betw een the rating and the target price may occur especially due to the analyst’s expectations to the effect that any short/medium term factors that cannot be priced-in
yet might lead to inconsistencies betw een Bradeco Corretora valuation and the stock behavior. The factors Bradeco Corretora considered include, but are not limited to: Any
expectations in connection w ith quarterly results, market conditions, ow nership issues and any expectations involving mergers and acquisitions.
The ratings reflect only the analyst’s expectation on the future performance of the relevant stock. A “Outperform” rating does not necessarily represent that the analyst approves of
the company and its management w hilst a “Underperform” rating does not necessarily means that the analyst has a negative view on the company. Within Bradeco Corretora coverage
universe there are sound companies, w ith good fundamentals as per the market consensus, and fair priced stock, and w ould not be Bradeco Corretora investment pick.
Price target and rating history
Price target, rating history chart(s), valuation/method used to determine price target, and our policy for managing conflicts of interest in connection w ith investment research are
available upon request. You may obtain this information by contacting your representative or by sending an email to [email protected].
7
COMPANY REPORT
BBI Equity Research – Tuesday, August 19, 2014
Additional Disclosures
With the exception of investment company funds, Bradesco Corretora’s internal policy prohibits ow nership of securities in their respective area of coverage to analysts as w ell as to
the associates reporting to the analysts. Analysts are paid in part based on the profitability of Bradesco Corretora and its affiliates, w hich includes investment banking revenues.
Bradesco Corretora’ policy prohibits its analysts and associates reporting to the analysts from serving as an officer or director, advisory board member or employee of any company in
the analysts’ area of coverage.
The follow ing disclosures are required under or based on the law s of the jurisdiction indicated, except to the extent already made above w ith respect to United States law s and
regulations. Brazil: This report is distributed in Brazil by Bradesco Corretora. Any investor in Brazil w ho receives this report and w ishes to conduct transactions w ith stocks
analyzed herein should contact and request execution of orders through Bradesco Corretora at (55 11) 3556-3001.
United Kingdom and European Econom ic Area: In the United Kingdom and elsew here in the European Economic Area, this report may be made or communicated by Bradesco
Securities UK Limited ("Bradesco UK"). Bradesco UK is authorized and regulated by the Financial Services Authority and its registered office is at: 20-22 Bedford Row , London, WC1R
4JS. This report is for distribution only to persons w ho:
(i)
are persons that are eligible counterparties and professional clients of Bradesco UK;
(ii)
have professional experience in matters relating to investments falling w ithin Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as
amended, the "Financial Promotion Order");
(iii)
are persons falling w ithin Article 49 (2) (a) to (d) ("high net w orth companies, unincorporated associations etc") of the Financial Promotion Order;
(iv)
are outside the United Kingdom, or
(v)
are persons to w hom an invitation or inducement to engage in investment activity (w ithin the meaning of section 21 of the Financial Services and Markets Act 2000) in connection
w ith the issue or sale of any securities to w hich this report relates may otherw ise law fully be communicated or caused to be communicated (all such persons together being
referred to as "relevant persons").
This report is directed only at relevant persons and must not be acted on or relied on by persons w ho are not relevant persons. Any investment or investment activity to w hich this
report relates is available only to relevant persons and w ill be engaged in only w ith relevant persons. No public offer of any securities to w hich this report relates is being made by
Bradesco UK or Bradesco Corretora in the United Kingdom or elsew here in the European Economic Area.
United States: This report is distributed in the United States by Bradesco Securities Inc. Bradesco Securities Inc., a U.S. registered broker-dealer and a w holly-ow ned subsidiary of
Banco Bradesco S.A., is a member of FINRA/SIPC. All U.S. recipients of this report w ishing to effect transactions in securities discussed should contact and place orders through
Bradesco Securities Inc. at (212) 888-9141.
Bradesco Corretora has no officers (or persons performing similar functions) or employees in common w ith Bradesco Securities, Inc. In addition, Bradesco Securities, Inc. maintains
and enforces w ritten procedures reasonably designed to prevent Bradesco Securities, Inc., any controlling persons, officers (or persons performing similar functions), and employees
of Bradesco Securities, Inc. from influencing the activities of the analyst w ho prepared this research report and the content of this research report prepared by said analyst.
The non-US research analysts are not associated persons of Bradesco Securities, Inc. and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on
communications w ith a subject company, public appearances and trading securities held by a research analyst account.
Hong Kong: In Hong Kong, this report may be distributed by Bradesco Securities Hong Kong Limited (“Bradesco HK”). Bradesco HK is licensed by the Securities and Future
Commission (“SFC”) to carry on Type 1 and Type 4 regulated activities as defined in the Securities and Future Ordinance (Cap. 571 of the Law s of Hong Kong) (“SFO”) in Hong Kong,
subject to conditions published on the w ebsite of the SFC from time to time. Except for Bradesco HK, none of its affiliates, including Bradesco Corretora, carry out or is
licensed/authorized to carry out any regulated activities as defined in the SFO in Hong Kong and each of these affiliates is prohibited from carrying on any regulated activities, including
but not limited to dealing in securities and advising in securities (as defined in the SFO), in Hong Kong. This report is directed to you by Bradesco HK based on your interest and
preference in the relevant underlying securities that you have previously communicated to Bradesco HK. You agree that this report is not intended for the promotion of any services or
products of any of Bradesco HK’s affiliates in Bradesco group, including those of Bradesco Corretora. All Hong Kong recipients of this report w ishing to effect transactions in
securities discussed should contact and place orders through Bradesco HK at (852) 22518716 or (852) 22518718.
This report is intended for distribution only to non-Hong Kong residents or professional investors as defined in the SFO. It is provided solely for informational purposes and do not
constitute an offer to buy or sell or a solicitation of an offer to buy or sell any security, product, service or investment to the public w ithin the meaning of the Companies Ordinance (Cap.
32 of the Law s of Hong Kong) or to professional investors w ithin the meaning of the SFO. It has not been review ed by the SFC or any regulatory authority in Hong Kong.
Other Countries: This report, and the securities discussed herein, may not be eligible for distribution or sale in all countries or to certain categories of investors. In general, this
report may be distributed only to professional and institutional investors.
General Disclosures
1)
This report has been prepared solely by Bradesco Corretora and is being provided exclusively for informational purposes. The information, opinions, estimates and projections
constitute the judgment of the author as of the current date and are subject to modifications w ithout prior notice. Bradesco Corretora has no obligation to update, modify or
amend this report and inform the reader accordingly, except w hen terminating coverage of the issuer of the securities discussed in this report.
2)
This report, including the estimates and calculations of Bradesco Corretora, is based on publicly available information that it consider reliable, but it do not represent it is
accurate or complete, and should not be relied upon as such.
3)
This report is not an offer or a solicitation for the purchase or sale of any financial instrument. It is not intended to provide personal investment advice and it does not take into
account the specific investment objectives, financial situation and the particular needs of any specific person w ho may receive this report. Investors should seek financial advice
regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this report and should understand that
statements regarding future prospects may not be realized.
4)
Investors should note that income from securities or other investments, if any, referred to in this report may fluctuate and that price or value of such securities and investments
may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Bradesco Corretora
and its affiliates do not accept responsibility for any direct or indirect loss arising due to use of this report. Investors should consider w hether any advice or recommendation in
this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. Exchange rate movements could have adverse
effects on the value or price of, or income derived from, certain investments.
5)
Bradesco Corretora’s and its affiliates’ salespeople, traders and other professionals may provide oral or w ritten market commentary or trading strategies to their clients and
their proprietary trading desks that reflect opinions that are contrary to the opinion expressed in this report. Such market commentary or trading strategies reflect the different
time frames, assumptions, view s and analytical methods of the persons w ho prepared them, and Bradesco Corretora and its affiliates are under no obligation to ensure that
such market commentary or trading strategies are brought to the attention of any recipient of this report.
6)
From time to time, Bradesco Corretora or its affiliates and officers, directors and employees, not including its analysts may, to the extent permitted by law , hold long or short
positions, or otherw ise be interested in transactions in assets directly or indirectly related to this report.
7)
Non-US research analysts w ho have prepared this report are not registered or qualified as research analysts w ith FINRA but instead have satisfied the registration and
qualification requirements or other research-related standards of a non-US jurisdiction.
Any additional information may be obtained by contacting your representative or by sending an email to [email protected]
No portion of this docum ent m ay be (i) copied, photocopied or duplicated in any form , or by any m eans, or (ii) redistributed w ithout prior consent from Bradesco
Corretora.
8
Bradesco Corretora Research Team
Econom ics & Research Director
Dalton Gardim am
55 112178 4275
dalto n@bradesco bbi.co m.br
(Chief Eco no mist)
Denis Blum
Tarik Migliorini
Head of Equity Research
Carlos Firetti, CFA
55 112178 5363
Banking and Insurance
Carlos Firetti, CFA
Bruno Chemmer, CFA
Rafael Frade, CFA
Gabriel Gusan, CFA
55 112178 4224
denis@bradesco bbi.co m.br
55 112178 4230
tarik.miglio rini@bradesco bbi.co m.br
(Senio r Eco no mist)
carlo sfiretti@bradesco bbi.co m.br
55 112178 5363
carlo sfiretti@bradesco bbi.co m.br
55 112178 4903
bruno .chemmer@bradesco bbi.co m.br
55 112178 4056
rafaelf@bradesco bbi.co m.br
55 112178 5329
gabriel.gusan@bradesco bbi.co m.br
Telecom , Media and Technology
Luis Azevedo
55 112178 5321
Tales Freire, CFA
55 112178 4527
luis.azevedo @bradesco bbi.co m.br
Education
Luis Azevedo
Tales Freire, CFA
55 112178 5321
luis.azevedo @bradesco bbi.co m.br
55 112178 4527
tales@bradesco bbi.co m.br
55 112178 5326
rbo iati@bradesco bbi.co m.br
Consum er Goods and Retail
Ricardo Boiati
tales@bradesco bbi.co m.br
Financial Services
Rafael Frade, CFA
Gabriel Gusan, CFA
55 112178 4056
rafaelf@bradesco bbi.co m.br
55 112178 5329
gabriel.gusan@bradesco bbi.co m.br
Oil & Gas, Petrochem icals and Sugar & Ethanol
Auro Rozenbaum
55 112178 5315
auro @bradesco bbi.co m.br
Healthcare
Rafael Frade, CFA
Gabriel Gusan, CFA
55 112178 4056
rafaelf@bradesco bbi.co m.br
55 112178 5329
gabriel.gusan@bradesco bbi.co m.br
Electric Utilities, Water & Sew age
Paulo Ferreira
55 112178 5323
Steel, Mining, Pulp & Paper
Alan Glezer, CFA
55 112178 5466
Arthur Suelotto, CFA
55 112178 6104
alanglezer@bradesco bbi.co m.br
arthur.suelo tto @bradesco bbi.co m.br
Transportation, Logistics and Capital Goods
Luiz Peçanha
5 5 11 2 17 8 5 3 2 4
pe c a nha @ bra de s c o bbi.c o m .br
Leandro Fontanesi
55 112178 4274
leandro .fo ntanesi@bradesco bbi.co m.br
Hom ebuilding and Real Estate
Luiz Mauricio Garcia
55 112178 4223
André Mazini
55 112178 5109
paulo .ferreira@bradesco bbi.co m.br
Food, Beverages, Tobacco & Agribusiness
Gabriel Lim a
55 112178 5313
Rodrigo Coelho
55 112178 5317
gabriel.lima@bradesco bbi.co m.br
Fixed Incom e
Altair Pereira
Caio Lombardi
55 112178 4279
altair@bradesco bbi.co m.br
55 112178 4225
lo mbardi@bradesco bbi.co m.br
ro drigo .co elho @bradesco bbi.co m.br
lmgarcia@bradesco bbi.co m.br
andre.mazini@bradesco bbi.co m.br
Each analyst w hose nam e is in bold print is the principal analyst responsible for the content of reports on the respective sector, as w ell as fulfillm ent of the
provisions of Art. 16 of CVM Instruction 483/10.
Bradesco Corretora CTVM S.A. | São Paulo
Sales - 55 11 3556 3001
Juvenal Neves
Tiago Valent
Gabriel Takemoto
Sales - Fixed Incom e - 55 11 2178 6959
Fernanda Weber Bratz
Lucila Sakakura
Sales - Local Fixed Incom e - 55 11 3556 3005
Rogério Queiroz
Dauro Zaltman
Denise Chicuta
Patricia Cruz Bilezikjian, CFA
Traders
Agnaldo Ishikava
Douglas Vieira Corazza
Eduardo Tosin Bueno
Joao Batista Tamassia Santos Junior
Marcelo Matias Boneri
Paulo Silva do Carmo
Pedro Fonseca de Souza
Sandoval Marcos Iorio
juvenal@bradesco bbi.co m.br
tiago valent@bradesco bbi.co m.br
Sales Trading - 55 11 3556 3001
Head of Trading
Orlando Cardoso
o rlando cardo so @bradesco bbi.co m.br
gabriel.kenzo @bradesco bbi.co m.br
fernanda@bradesco bbi.co m.br
lucila@bradesco bbi.co m.br
ro gerio @bradesco bbi.co m.br
dauro @bradesco bbi.co m.br
denise.chicuta@bradesco bbi.co m.br
Traders
Cássio Garcia
Fábio Brisola
Gustavo Ize
Ingrid Amorim
Julio Cesar Rossi
Mauricio Sanchez
Peter Gil
Silene Zinhani
cássio @bradesco bbi.co m.br
fabio @bradesco bbi.co m.br
gustavo pereira@bradesco bbi.co m.br
ingrid@bradesco bbi.co m.br
cesarro ssi@bradesco bbi.co m.br
mauricio @bradesco bbi.co m.br
peter@bradesco bbi.co m.br
silene@bradesco bbi.co m.br
patricia.bile@bradesco bbi.co m.br
agnaldo @bradesco bbi.co m.br
Stock Loans Desk - 55 11 3556 3001
Marcio Aguiar
Wilson Pereira
marcio @bradesco bbi.co m.br
BM&F Trading Desk - 55 11 3556 3350
José Lázaro Ferreira - Head
Lilian Osti - Commercial Manager
lazaro @bradesco bbi.co m.br
wilso n@bradesco bbi.co m.br
do uglas.co razza@bradesco bbi.co m.br
eduardo .bueno @bradesco bbi.co m.br
jo ão .batista@bradesco bbi.co m.br
bo neri@bradesco bbi.co m.br
lilian.o sti@bradesco bbi.co m.br
paulo .carmo @bradesco bbi.co m.br
pedro .fo nseca@bradesco bbi.co m.br
sando val@bradesco bbi.co m.br
Institutional Sales Team - USA, UK & HK
Bradesco Securities, Inc. | New York (FINRA/SIPC Member)
Bradesco Securities Hong Kong Ltd.
Sales – 01 212 888 9141
Marcelo Cabral
Juan Briano
DeWayne Shaw
Paulo Pereira
Vielcka Mansukhani
Sales – (852) 2251 8716
mcabral@bradesco securities.co m
jbriano @bradesco securities.co m
paulo .pereira@bradesco securities.co m
Vielcka@bradesco securities.co m
brent@bradesco securities.co m
Leonardo Jafet
ljafet@bradesco securities.co m
jaecho i@bradesco securities.co m
Sales - Fixed Incom e – (852) 2251 8718
João Paulo Loyola
Amex Lee
jplo yo la@bradesco securities.co m
amexlee@bradesco securities.co m
Bradesco Securities UK, Ltd
Sales – 44 207 382 0070
Robert Hulme
rhulme@bradesco securities.co m
ro bert@bradesco securities.co m
cbarresi@bradesco securities.co m
sean@bradesco securities.co m
Syndicate Desk – 01 646 432 6642
Shin Fukui
David Pereira
luiz@bradesco securities.co m
dewayne@bradesco securities.co m
Sales - Fixed Incom e – 01 212 888 9143
Brent Matson
Sales Trading – 01 212 888 9141
Robert Vespa
Christopher Barresi
Sean Harte
Luiz Fernando Silva
Jae Choi
Sales - Fixed Incom e – 44 207 382 0074
Guilherme Zraick
Sebastian Almquist Tangen
Raymond Ressy
shin@bradesco securities.co m
david@bradesco securities.co m
Av. Paulista, 1450 7º andar
CEP: 01310-917 São Paulo – SP
gzraick@bradesco securities.co m
salmquist-tangen@bradesco securities.co m
ressy@bradesco securities.co m

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