Petrobras Up on Lower Debt, Decline in US Oil Inventory

Petrobras Up on Lower Debt, Decline in US Oil Inventory
September 5, 2017

The world’s most leveraged (indebted) oil company Petroleo Brasileiro S.A. (NYSE: PBR) reported a lower than anticipated fiscal 2017 second quarter revenue and earnings. Petrobras, as the company is popularly known as, also recorded a slight decline in output. Still, on the basis of debt reduction, improvement in the overall financial strength, and stable oil prices, we anticipate the stock to turn bullish.

The Brazilian state owned company reported net income of R$316 million, or R$0.03 per share, on revenues of R$66.996 billion. In the second-quarter last year, net income was R$370 million, or R$0.03 per share, on revenues of R$71.320 billion. The Street analysts had expected Petrobras to post earnings of R$2.405 billion on revenues of $68.062 billion.

During the first-quarter, Petrobras had posted a net income of R$4.45 billion. The net income in the second-quarter declined considerably due to lower profit margins and a decline in sales volumes. An unfavourable ruling in a tax related case resulted in a charge of R$6.23 billion. Petrobras also incurred a charge of R$818 million due to a dispute involving an offshore drilling vessel.

The company recorded EBITDA of R$19.094 billion, down 6.63% from last year, and lower than R$21.926 forecast by analysts.
The overall output fell 1% y-o-y to 2.776 million BOE/D (barrels of oil equivalent per day). In Brazil, the production rose 1.8% to 2.658 million BOE/D. Likewise, oil and products imports declined 5.01% to 341,000 bpd in 2Q17, from 359,000 bpd in the same period last year.

Despite a considerably lower profit compared to the first quarter, Petrobras managed to decrease the total debt to $113.84, from $115.12 billion at the end of the prior quarter.

The company stated that it is interested in securing a credit line of R$2 billion from the government owned bank BNDES. Petrobras plans to use the credit line to buy equipment and refinance a part of the $9.6 billion debt maturing in 2018.

Signalling confidence, CFO Ivan Monteiro stated that all sources of funding are currently available to Petrobras. As it can be understood, barring the tax related charges, the overall quarterly performance of the company is appealing. Additionally, analysts believe that crude would soon rally due to a sharp decline in the US inventories during the past two weeks. Thus, fundamentally, the stock is expected to move up in the short-term.

The stock continues to move along the ascending trend line, as shown in the image below. Furthermore, the ascending RSI oscillator with a reading above 50 indicates bullishness in the scrip. Thus, we expect a rally in the stock of Petrobras.

Petrobras - Technical Analysis - 5th September 2017

To gain from the probable uptrend, we are looking at the possibility of investing in a high or above option. To go ahead with the investment, we prefer the binary contract to be active for a week and the stock should be trading near $8.70.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.



Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be

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