Fator shows positive outlook for ALL and Cosan Logística

With a favorable outlook for the two companies, Fator Corretora resumed and started, respectively, coverage of ordinary securities of the railroad group America Latina Logistica (ALL) and of Cosan Logística with an “overweight” recommendation (corresponding to above market average or purchase). The set target-price for ALL shares at R$ 6,20 represents a potential valuation of 67.1%, while the value for Cosan at R$ 4,50, represents possible increase of 110.3% over the closing value on Monday, 2.

Since its debut, on October 6, 2014, Cosan Logistica shares have dropped of as much as 49%. In the same period ALL’s have decreased 41.4%.

The favorable evaluation on the merger consolidation between ALL and Rumo Logistica, controlled by Cosan, is the starting point for the analysis by Fator technical team, in a report written by Artur Losnak e Yannick Bergamo. The analysts expect that newly formed company become more profitable than each of the firms individually.

As per Fator’s analysis, both ALL as Rumo benefit from a perspective of Strong agricultural exports, amid an increase in grain consumption in China and due to Brazilian logistics bottlenecks to transport the commodities to the main ports. In spite of this scenario, ALL faces problems with the railroad network conditions, which hinders its growth while Rumo has as challenge a restricted potential, considering conditions not so promising for sugar.

The analysts indicate that they believe that at the current stock price and considering the conditions announced for the merger this would be the best entry point for Cosan Logistica shares, due to a bigger discount.

For Fator, the main aspect to be solved in the merger is the conclusion of the billionaire litigation between the two companies regarding a sugar transportation contract signed in 2009. Alert to the agreement results, the broker firm points out that Rumo may be open to agricultural commodities other than sugar and expand to additional regions where ALL operates. The railroad group, in turn, may have better chances to renew concessions.

Judicial questions involving ALL answer for the main risk to Fator’s investment thesis, which includes outstanding issues from the old Brasil Ferrovias (bought by ALL), a reproach or an imposition of certain conditions by the Economic Defense Administrative Council (Cade) regarding the merger and the deverticalization of the railroad industry by the government, which could press tariffs downwards.

In December, Cade’s Superintendence-General denied the merger operation between ALL and Rumo as presented and defended the imposition of measures in order for the deal to receive final approval. In any case, the final word will come from the antitrust institution’s Tribunal.