SMTO3: QUEDA DE 40% NO LUCRO...E AGORA?

Let's go, everyone. Today, let's talk about São Martinho. It’s been a while since we talked about this stock. We can even observe here on the chart that it has this M-style pattern, right ? There are some cycles, some phases that I want to consider here in this report. Not to mention that I also want to show some of the effects of stock lending and the return rate on that lending, which might be holding the price back a bit. I also want to show you some other points. Fundamental analysis. Let's look at the buyback program, seeing as it ended in March 26 , and what we are projecting for the coming periods, especially for the next year. So, if you don't know me, my name is Bruno Quimarelles. If you like this type of content, I invite you to watch this video, and if it makes sense, leave a like and also consider subscribing to our channel. As stated, São Martinho has an M-style behavior or trajectory here in three phases. What does that mean? Phase one, August to December 25, which is structural. The stock pulls back to 5-year lows around R $ 13. In this period, XP cut the target price from 22 to R $ 18.90. Look at the size of that drop, right? And here it says, citing the supply and demand imbalance in the sector, right? That is, the pricing of ethanol, sugar, and also the amount of reserves, inventory, right? Often a large part of this production is stored waiting for a better price, but there is a limit to that, right? Another point, phase two here from January to April 26, a 55% rebound, recovering to a 52-week high, hitting 21.70, driven by the 25/26 harvest, which was operationally strong . Do you remember a bit about the rains in India? It helped the price of ethanol and sugar quite a lot, okay? So this was quite interesting. So much so that the unit ATR, which would be the amount of sugar produced by the cane here, jumped a lot, and sugar also rose . So this was an important catalyst for this rebound, and then it gave back the gains. Here we are already talking about May to August 26. It practically gave back the entire rally, closing at 15.12. Ethanol fell 13%since the fourth quarter of 26. Remembering that when a company is in the agricultural sector, they have quarters ahead, okay? So you see fourth quarter of 26, and here we are already in the first of 27, right? That they have quarters ahead of them. Citi projected the first quarter of '27 , right? A weak first quarter of '27. And the results released here confirmed this weakness, right? In other words, results released here on the 11th, the date of this video, confirmed this drop , right? Remember, they showed the results this past 11th. This ended up souring things for São Martinho. Although today, everything indicates the market had over-priced the loss. So much so that if you look at the chart here, let's see, zoom in a bit. It rose quite a bit, it went up almost 4%, now it's at 0.8%, right? But it did rise quite a bit. If you take a look here, look. Notice here it reached 27.90 BRL, right, here intraday. Continuing our analysis, what do we have here? A 12- month variation of a 12%drop and a 40% range. It's tough, right? Do you have the stomach for this? To be in a stock with a 40%range. See the results released here, look. Variation: 17%drop in consolidated revenue, 2.6 points in gross margin, operating margin fell 3.9 , and net income 39%. Look at that, 39% . Points of attention, the EBITDA of sugar production per ton fell about 60% annually and 57%below BTG's own estimate, right? But all of this, sometimes the news comes out bad, but it's not that bad for the market. Why? Because sometimes the market projects something even worse and it doesn't happen. Then it reprices this, which is what is happening with São Martinho. Comment below if you invest in São Martinho or other agricultural sector stocks, which one are you investing in today? Let's continue observing the results data. Heavier financial result, financial expenses went up. Indebtedness too. Leverage today is at 3.7 times, okay? So leverage has gone up quite a bit. Price to book value is below one. That is something we like. Quite a discount. Non-recurring item. Over 60 million in tax credits came in here, okay? Otherwise, it would have been even weaker. And inventory is high . The company has been postponing ethanol sales seeking a better price, right? Doing its own hedge there, trying to find a better price to be able to ship its inventory. Some points that might go unnoticed, the margin didn't fall due to poor execution. The company milled 4%more sugarcane and saw better productivity, both in TCH, which is tons of cane per hectare, and in overall productivity; the problem is 100%price, meaning fluctuation, the international market, and international pricing are what's hitting São Martinho today. I was at a sugarcane event just the other day and I was reflecting with some colleagues, you know? Have you ever stopped to think about the last time you bought a 5 kg bag of sugar at the supermarket? Regarding the issue of consumption productivity, the two lines on the chart aren't keeping up, right? Even with a decrease in the population growth rate, right? In other words, the curve is less effective, less pronounced. Sugar prices haven't gone up, so people are consuming less sugar, right? You can see this in your own home, can't you? Think about it, and then leave me a comment. Now let's move on to the point about stock lending. Let's look at the effects of this movement. We have two directions here. We can observe that there was a peak of 7%in loaned shares and then it retreated to 4.7%. It’s still at a level that isn't exactly comfortable. What could be causing this? Well, naked short selling, short movements, meaning even further drops in the stock, options structures, so market makers use lending to hedge themselves and to monetize long positions through lending fees. Did you know that if you let your shares be loaned out—just for you to observe—today São Martinho has about 4.5%of its shares loaned out, placed for lending. And the average being paid for you to let your shares be loaned out, for the market to use for naked short selling, is paying here, look, about 3.4%. This is per year, okay? It even reached 25%back in December. So, today the market wants the shares to borrow and is returning 3.5%per year to you. Of course, this is subject to income tax, B3 brokerage fees, and everything else. And you need to leave the shares there all year round to be able to get that margin. But there you go, companies or funds that have a lot of this, put this amount up for lending to at least earn some yield here. This could also put a bit of pressure on the price. What can we notice here, look? Non-obvious pattern: the 7%peak happened before the rally to R $ 21, not after the drop to 14. This is a clear sign of excessive short positioning at the bottom of the cycle. When the strong Q4 '26 results came out , some of these short sellers were forced to buy back, right? And we can see that right here on the chart, right ? I mean, if we look here at the chart for the percentage of shares on loan, see, so they wouldn't exceed the fund's benchmark—that is, what they return to shareholders—they had to unwind their positions. It went from 6%to about 4%; they had to return millions of shares here because the price went up and it was blowing out the fund. So, it's an important movement. What should we watch now? Since April, the loan rate has been stable at 4.5, without repeating the peak, even with the price around R $ 15. This may indicate that the market has already priced in the weakness and that today's results haven't been fully digested yet. And current borrowing could rise again in the next few sessions, pressured in the short term. So, the market has cooled its pessimistic sentiment here. Now let's talk about the outlook for '26/ '27. What do we have? Sugar, structural supply pressure, the harvest. It's bigger, so it will put even more sugar into the market. Global surplus, producers are also recovering their production, throwing more sugar into the market. A technical floor at a historic price level and a 48%sugar mix is above the 44%breakeven point; in other words, there is plenty of supply, there is sugar to spare. Ethanol with no escape valve, see. A shift in the mix toward ethanol could also drive down that price, adding to the growth of corn ethanol. Conversions, many mills are making the conversion, right? There are even hybrid plants that can process sugarcane as well as produce from corn, right? Ethanol. And ethanol is down 13%since the fourth quarter of '26. Yeah, commodities really aren't easy right now. What could surprise in '27? A depreciated exchange rate could favor exports here. Another thing, the second phase of the corn ethanol project goes into operation in the second half of '27. This could add some good value, right? Better profitability . And the commodity cycle could come back to the scene here. We know that recently, back in '22, '23, commodity companies were highly valued, right? So we know that if you study Peter Lynch, he talks about investing in cyclical companies, especially when the P/E is distorted at this price ratio here, see . And this is where you make your big moves, right? That is, depreciated commodities, right? finding those depreciated commodity companies, at some point they bounce back and that's when you realize your profits, right? And normally these cycles last around 4 to 5 years, right? That is why investing is a medium to long-term game . Hmm. What else can we see here? Consensus divergence. The market itself doesn't know how to price it or lacks a consensus on valuation. The aggregate consensus says it's around R $ 21. XP says 13, BTG is neutral, and Citi is cautious, okay? So there isn't much, look. This alone represents a 50% difference. Now we can consider whether you want to invest or be cautious. Let's start with the investment thesis. What do we have here? Reasons to invest , right? Since it's showing up here, let's see how our chart looks. Let me place it here more or less, look. keep it here more or less in these last 12 months, right? Notice that it reached a low of R $ 12.90 here. See how well it's signaled, right? Cyclical stock here, right? And now it's more or less at half the price. I had marked this point here, which was R $ 18.24. São Martinho was in my investment thesis, but now with this zigzag, especially with the stock buildup and the fundamental side I've been studying, it has lost some meaning to me, right? Unless there's a broad recovery and the market truly signals that it will need ethanol and sugar, right? I'm staying out of this thesis for now, even though I know the case quite well, right? I study this case a lot, the sugar-energy sector, but for now, I'm just monitoring it, okay? So what do we have here as reasons for those who wish to invest? Discount to book value, debt is manageable. Diversification into ethanol and corn, milling capacity well above the market average. Stock buybacks. So much so that if you look at the fundamentals here, the last buyback was in January. There you go, you can even download the report here and take a look. There were modifications to the buyback program, spot purchases, they bought a lot of shares here. Even though the buyback program ends in March '26, right? Actually, look there at the execution deadline, closing, March '26, right? So , it's just that from February on, there's nothing else here. And also no insider movement, right? There is a difference between a buyback program and insider movement. Insider trading is when controllers, the board, or management buy their own shares, and a buyback is a purchase by the controller via treasury and cancellation. And that increases the equity stake of the shareholders, right? Very well, what else do we have here, and history of damming, right? Just look at what happened in 2022. Reasons for caution now, right? In other words, the other side, margin compression. Uh, sugar has a lot of supply, right? Over supply. Ethanol is losing its role as an escape valve, leverage is at 3.7 times, there's a very broad consensus divergence, and high inventories; it's waiting for price, okay? And this creates a risk of forced utilization of these inventories, right? Because they can't stay there for too long. Profile analysis here, if you are a buy-and-hold for 5, 10 years, it fits well with the thesis I explained in the chart. Dividends and income don't really work out well. The minimum policy is 25%of profit, 40%of solid cash. And it hasn't been paying that many dividends. Even if we look here, can I find it on Fundamentos? Let me see here. Details. What’s the dividend yield? It’s here, dividend yield is 1.4%, very little, right? Although it’s providing an ROE above 10%and a net margin also above 10%, the dividend is at 1.4%, meaning for a dividend profile. Hmm, and short-term trading carries a very high risk, high volatility, right? And finally, what is the overall score? 6 out of 10, a quality structural thesis, but with no clear catalyst in the short term, meaning not much going on. Guys, that was the video. I hope you enjoyed it. If you liked it, don't forget to subscribe to our channel, leave a like, and if you want a closer analysis, call me on WhatsApp and I can help you through personalized consulting, right? We offer consulting that is certified and approved by the CVM. If you have any questions or need help, feel free to call me on WhatsApp. Thank you very much for your attention. See you later.