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Sunday, October 2, 2022

Squadra sees cheaper exchanges, buys more MELI and XP and shorts IRB, Nubank and Eris

In a letter published this Saturday, Squadra Investimentos said the stock exchange is “cheap” and that it took advantage of the valuation effect to buy more Mercado Liver and XP, in addition to shorting its shorts in IRB, NuBank and Eris. Drop.

Guilherme Aché’s manager said the 12-month forward price/earnings ratio of his 20-stock portfolio was 10.6x at the end of June. Assuming that the portfolio has remained the same since 2018, the average multiplier over the period was 16.9x. Compression happened in just one year: at the end of June 2021, the portfolio multiplier was 16.7x.

Squadra said both valuations and net margins of companies linked to the domestic economy are below historical averages.

“This does not mean that it will not fall further in the short term, nor will it rise next year,” the letter reads. “However, it is a fundamental element for future returns to be better than those of the recent past.”

At this time, Squadra is betting on Mercado Livre and XP among the main positions of its fund. “These are the companies that are among the best deals available on the stock exchange and whose price has come down significantly over the past year.”

Squadra said it terminated the position at MELI in the second half of 2021 due to “discomfort”. Evaluation, which places a lot of value on a part of the business (fintech) on which we are less creative than the core market business,” the letter said. After the portfolio fell above average, Squadra bought the stock again.

The manager also increased his position in XP after a 55% drop in the previous 12 months – which was already important in the portfolio.

Squadra also maintains its position in Petrorio and Petrobras, but noted that the commodity sector’s net margin is still high (and therefore subject to sudden reversals), and that, when it comes to commodities, it is always ” Happens close to the “gate”, re-evaluating the possibilities of different scenarios and using price fluctuations more often than usual to enter and exit positions.

errors

Since last year, Squadra’s long-only fund has been underperforming major stock market indices — the long-biased strategy, thanks to its short position, has fallen short of Ibovespa over the period.

In the 12 months to June 30 of this year, Squadra Long-Only was down 33.2%, while the stock market was down 22.3%.

Compared to a 17% increase in its benchmark defined as IPCA+5.2% for the year 2022, Squadra long-biased lost 21.5% over the period.

In addition to the impact of higher interest rates on the stock exchange, Squadra said its performance was affected because it “made more mistakes than I expected.” And he gives Natura & Company as an example.

Manager Said She Sticks To The Central Thesis Of Success turn At the same time that other brands were progressing well – and failed to rigorously test alternative scenarios – and realized that the company had reached prices that gave little margin of safety for disappointments and fell short of expectations. gives results.

“When we consider where we failed in this investment, our most reasonable hypothesis is that mistakes kind of started” group idea” [quando investidores formam um consenso sem um raciocínio crítico ou avaliação das consequências ou alternativas]the letter says.

Squadra cuts its investment in Natura despite sharp drop in shares; “There are better options in terms of risk and return on the stock market.”

The manager also said that it has voided its positions in the recent two IPOs without naming anyone. Always heavily critical of IPOs and the asymmetry of information in these operations, Squadra again stated that it was wrong to assess that creating short positions in start-up companies would reduce risk.

“While we have exercised caution in analyzing the large number of companies that have gone public in recent years, time has shown us that our suspicions should have been (dispelled) higher.”

Shorts

In the short portfolio, Squadra said that after relevant gains in the first half, it reduced its short positions in IRB and NuBank; And also at Eris Energy, a brief that the manager revealed in the letter.

After seeing the Eris IPO in November 2020, Squadra disagreed with the high expectation of profitability and growth for an apparently arbitrage deal.

The manager’s attention was also drawn to the pre-offer equity value of R$172 million, which raised doubts about barriers to entry and replication of the business.

The IPO price before the offering was 20 times the book value, “rarely seen in companies with an industrial goods profile.” Two months after the offer, the stock was up 132%, and Squadra placed a short position.

“Despite the undeniable expansion potential of wind power in the world, we saw an overabundance of optimism from analysts about the growth of Eris. We were faced with domestic demand projections that ignored the combination effect of the end of wind-source subsidies. , which diverged from the front from the scenario envisioned by the Energy Research Company (EPE) at the launch of the Brazilian power system.

A few months later, the revision of expectations came after pressure on margins and lower-than-expected company growth.

Eris stock is down 65% in the past 12 months.

ana paula friends

World Nation News Desk
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