Pão de Açúcar and Casino Create a Giant Global E-Commerce Company: Cnova

Grupo Pão de Açúcar (aka Companhia Brasileira de Distribuição – CBD), Via Varejo (VVAR11:BR) and French group Casino Casino Guichard-Perrachon (OTC:CGUIF) (OTCPK:CGUSY) have announced a joint venture to create a giant new e-commerce company: Cnova.

CBD and Via Varejo will own 53.5% of the new company, while the remaining 46.5% will belong to Grupo Casino. The French group has already filled for an IPO of the new company in the US.

Cnova is born as one of the largest e-commerce companies in the world, with a volume of goods  nearly US$5 billion, based on data from 2013. The company will have a large presence in France, Colombia, Thailand and Vietnam through the Cdiscount websites, besides Brazil, with Extra.com, CasasBahia.com and Pontofrio.com, sites operated by Nova Pontocom, a company owned mainly by CBD and Via Varejo.

According to the companies’ release, the success of Cnova will be based on a business model of low cost operations, attractive prices, a wide variety of products and delivery solutions and highly differentiated payment.

Cnova will have two co-presidents, and one will probably be the current president of the Nova Pontocom, Germán Quiroga Pasquale, while the other will be the president of Cdiscount.

Moreover, the company’s board will consist of 9 members, 3 appointed by Casino, including Jean-Charles Naouri – president of Casino and who will be the chairman -, 2 members shall be appointed by Pão de Açúcar, 1 by Via Varejo, while the other two members will be independent. Finally, the two co-presidents will switch in the position that remains on the board.

While the news is positive in general, Via Varejo, the brick-and-mortar side of CBD, may end up with the worst part of it. If Cnova gets the same buying power that Via Varejo has and transfer this benefit to the end consumer, there may be serious cannibalization of the physical stores from Via Varejo. Casino has reportedly always wanted to do an IPO of its global operation with the intent of extracting value from Nova.com, the online arm of CBD, which Casino partly owns.

In 2013, Nova.com had a revenue of BRL 4.8 Billion (approximately US$ 2 Bi) versus BRL 25 Billion from Via Varejo. This number could change drastically in the mid to long term, which would be neutral for Casino and CBD but negative for Via Varejo.

Check out our analysis on Brazilian companies

CADE rejects Telefónica and Telecom Italia merge. Vodafone is arriving in Brazil?

Brazilian antitrust authority,  Administrative Council for Economic Defense (Cade) rejected Telefónica’s (TEF) embargoes and kept the fine of BRL 15 million that was imposed on the company for breach of the agreement signed in 2010, by which it should stay away from TIM (TSU), controlled by Telecom Italia (TI).

Official Announcement

With the negative for the embargoes, Telefónica must appeal of the decision. Therefore, it is necessary to wait for the posting in the “Diário Official”, the official newspaper.

The fine was imposed against Telefónica on December 4th, 2013, when the antitrust authority imposed conditions when judging the acquisition by the Company of shares of Telco, holding that controls Telecom Italia.

According to Cade, Telefónica will have to choose between seeking a new partner in Vivo (VIV), who would be entitled to have 50% of the control in this company, or selling the stakes it acquired in TIM through the purchase of shares of Telco.

Rumors have that Vodafone (VOD), who recently started operating in Brazil via enterprise services, is looking to expand into the consumer market and is interested in acquiring a stake in TIM, since it’s very unlikely that Telefónica would let got of the control on Vivo.

Check out our analysis on Brazilian companies

Long in Brazil? Then Cheer Against it in FIFA’s World Cup

Wait.. What does football has to do with economy or stock investment? And even worse, how come a negative result for the country can be positive for it’s economy?

NeymarFair questions. And to answer them, we have  to remind that this year is also election year in Brazil and that football is not just one sport here. It is THE sport everyone follows. It’s almost embarrassing for us that we pretty much have no other sport. But the reality is it can change the country’s mood.

The other thing to be aware is that no matter what happens within the field, one thing is a given for this world cup: There will be riots! Maybe only pacific ones maybe not. In fact, PCC, a criminal organization is allegedly arranging less-than-pacific protests with black block. Now, the population in general is against any violent protest and would support the government and police in containing them. The part that can really change the election scenario is actually the pacific protests. And the reason is that those are supported by the majority of the population and tend to be very negative on the government currently on power.

Still not making any sense? We’ll get there… Bare with me.

So, what could change the population’s humor against the world cup? A Brazilian victory. If Brazil wins the hexa, protests will lose its strength. Make no mistake: most people in Brazil say they are against the world cup happening here but they will definitely get involved once the ball starts to roll.

So, if Brazil wins, it’s very likely that the government will get a little bit of a break and therefore Dilma becomes stronger for reelection in October/ November.

And that is why you should cheer against Neymar and team, if you are long. It’s been very clear lately the inverse relation between Dilma’s performance in the election pools and the stock market. Why? Because their government sucks (sorry for the technical term) for the private sector. PT, the labor party Dilma belongs to, has strong social programs and a good record of getting people out of poverty (especially in Lula’s first 4 years), which is great of course! But they don’t do the necessary investments and reforms the country desperately needs.

So.. what’s left? Vamos España! 🙂

Check out our analysis on Brazilian companies

Itaú Unibanco: Largest Private-Controlled Bank in Latin America

Itaú is the second largest bank in Brazil. Only behind Banco do Brasil, which is a government-controlled bank, even though part of its equity is traded at Bovespa. We do not recommend exposure to government-controlled companies in Brazil so Itaú is the largest bank we cover in LATAM.


Itaú Unibanco was formed as the merge of two of Brazil’s largest banks: Itaú and Unibanco. When they merged, they were the 2nd and 3rd private-controlled banks respectively, created a huge institution and left Bradesco in second place.

There is a joke in Brazil that goes: “The three best businesses for you to have in Brazil are: 1st a well-managed bank, 2nd a bank and 3rd a badly-managed bank ”.

Ok. The joke may be an exaggeration. But the banking industry does have a lot going for it in Brazil. Unlike in most developed countries, where small banks and credit unions are always present and relatively strong, in Brazil, the bank industry has a well-established oligopoly, where the 4 major banks have together around 70% of the market share. This oligopoly along with the high switching-cost in the banking industry gives them a good pricing advantage.

The bank industry in Brazil is also conservatively regulated and highly lucrative, with spreads north of 10%. These two factors reduce considerably the risk for small investors in these banks.

Itaú Unibanco has over R$1.4 Trillion in assets (Approximately US$ 500 Billion). It provides retail banking, investment banking, real estate financing, leasing, consumer credit card, foreign exchange and foreign trade financing services.

Itau Unibanco Holding

Website https://www.itau.com.br/investor-relations
Industry* Banking, Insurance, Card Processing
Bovespa Ticker ITUB3, ITUB4
EBI Rating 5-star

Historical Moment for Brazil!

José Dirceu Escorted by Federal Police

Brazilian supreme court has mandated the immediate imprisonment of eleven politicians involved in curruption during the government Lula.

First of all, this topic should not be used by other parties for political purposes. The ones that are mostly celebrating the sentence, PSDB supporters, should remember that the CPI (parlamentary investigation) has determined that the mensalão has cost R$ 10 million to the country. It may have been more, however, only the propinoduto, operation to steal money from the state of São Paulo in the PSDB government, has cost the state US$ 50 million ( ~ R$ 110 million), according to investigations concluded in Europe, destination of great part of the stolen money

Having said that, the moment is definitely historic! It’s one of those few things that still gives us hope in Brazil: the independence of the three powers, even though it’s often debatable.

Impunity is THE biggest problem of Brazil as a nation! It’s the fuel for all of the curruption that criples the country and causes that no money is left to invest in areas with screaming needs, such as: healthcare, education, infrastructure, public transportation etc.

Curruption in Brazil is so widespread due to the complete awareness from politicians that they are never going to suffer any consequence like being caught and going to jail. In the worst case, they lose their term and come back in the next election. Or retire with a fat checking account.

For that reason, the moment is historic! The case sets a precedent and shows politicians that they can indeed go to jail. Now, that doesn’t mean everything is going to change and curruption is over in Brazil. Far from that. But they will think twice now before getting into ilicit behavior.

To get permanent results, we need more! We need serious investitgations also in the state and municipal levels so this doesn’t become just a flag for the next elections in 2014. The case brings hope of a Brazil with less curruption in the future. This is indeed something to fight for in the popular riots: the of impunity! It’s the best way to fight for a better Brazil for the next generations.

Translation from my original post at: http://www.pensamentoliberal.com/momento-historico-para-o-brasil/

Brazil Inflation

Below you will find the main Brazilian inflation indexes in the recent months, as well as the accumulated in the last two years and in the last 12 months.

Wondering what each of indexes mean? Find out what they mean here. Or find more about the perspective for the Brazilian Inflation and interest rate moving forward

nov/17 oct/17 Acumulated in
2017 * 2016 12 meses *
IPCA (IBGE) 0,42 2,21 6,29 2,70
INPC (IBGE) 0,37 1,62 6,58 1,83
IPCA-15 (IBGE) 0,32 0,34 2,58 6,58 2,77
IPCA-E (IBGE) 1,90 6,58 2,56
IGP-DI (FGV) 0,10 -1,94 7,18 -1,07
Núcleo do IPC-DI (FGV) 0,24 2,59 6,76 3,44
IPA-DI -0,03 -4,57 7,73 -3,53
IPC-DI 0,33 2,64 6,18 3,16
INCC-DI 0,31 3,85 6,13 4,38
IGP-M (FGV) 0,20 -1,91 7,17 -1,41
IPA-M 0,16 -4,37 7,64 -3,86
IPC-M 0,28 2,54 6,25 3,01
INCC-M 0,19 3,59 6,35 4,15
IGP-10 (FGV) 0,24 0,49 -1,31 6,95 -1,11
IPA-10 0,21 0,67 -3,58 7,30 -3,37
IPC-10 0,32 0,18 2,94 6,44 3,03
INCC-10 0,30 0,11 3,83 5,84 4,15
IPC (FIPE) 0,32 1,42 6,54 2,30
ICV (DIEESE) 0,88 2,01 6,15 2,41

Sugar and Ethanol Producer? Cosan is much more than that nowadays!

Cosan’s most known business is indeed Ethanol and Sugar production. That’s how the company started and they are still the largest producer in Brazil and a major player worldwide. However, due to volatility in these commodities’ prices, Cosan’s management has been diversifying its activities in the last few years and now half of it’s EBITDA comes from other businesses.

Cosan today operates on production, transportation and distribution of renewable energy sources. They prospect land, grow and process sugarcane, distribute fuels, transport and sell sugar on the domestic and international markets and produce and sells lubrificants. It is the world’s first vertically integrated bioenergy company. The below image, shows the different parts of the company:

Cosan Group


In the fiscal year ending in March, 31st, 2013, the company reported only 20% of its EBITDA from Raízen Combustíveis, the traditional Sugar and Ethanol business. Revenue and EBITDA were distributed as follows:

Cosan Numbers 2013














Other Business above is composed of manufacturing and distribution activities for the Mobil and Comma brands, base oil distribution and the corporate structure of Cosan, except Raízen.

Exchange rate was around BRL 2 for US$ 1 at the end of FY2013.

Cosan Ltd.

The diversified and vertical business model adopted by Cosan provides a much more stable operating environment. Furthermore, Cosan operates with renewable energy and presentes several areas for growth in the next decade or two. Overall, the company deserves a 4-star EBI Rating.

ADR Ticker CZZ
Bovespa Ticker CSAN3, CZLT33
Investor Relations Website http://ri.cosan.com.br/Default.aspx?linguagem=en
Industry* Renewable Energy
EBI Rating 4-star

Brazilian GDP beats expectation in Q3 and grows 1.5% QoQ. But is that sustainable?

The result of the GDP may have shown some relief that the economy is still growing. However, this result is still not a guarantee that the situation is better and that the growth in the year will be higher than current expectations, around 2.5% YoY, the so called PIBinho, diminutive for GDP in Portuguese.

Manufacturing GDP should fall significantly this Q3, due to deceleration in the transformation industry and important slowdown in the building industry.

Inflation is also close to the top of the range targeted by the central bank: 2.5% – 6.5%. This is having them raise the interest rate index SELIC, which is already at 9% a year. The recent weakening of Brazilian real will cause inflationary pressures and will cause the central bank to keep raising rates and cooling down the economy growth.

Any military intervention in Syria would cause an even worse scenario for GDP growth, with investments flowing from emerging markets into US treasuries and other safe options in developed world. This will reduce the money available for investment in Brazil as well as get the Brazilian Real even weaker.

The good news is that sectors mainly focused on exports and sectors that compete heavily with imports are getting a relief from the current weaker Real. That is the case of steal, lumber, agriculture and manufacturing in general. This can in the mid-term help offset this down spiral caused by weak GDP/ High Inflation.

So, while the 1.5% QoQ growth was better than expected and a little bit of a relief, especially to the politicians, this number is looking at the rear-view mirror and should not continue to happen in the short term and even in the long term, if fiscal reforms are not adopted in the country.

IPCA, IGP-M, IPC, INCC. How to make sense of Brazilian Inflation indexes?

In this article, we explain the difference between the many Brazilian inflation indexes and do some parallel to US equivalent indexes, where relevant.

Recent inflation information for brazil can be found here. Or find more about the perspective for the Brazilian Inflation and interest rate moving forward

IPCA (Índice Nacional de Preços ao Consumidor Amplo) – Broad National Consumer Price Index: Equivalent to the CPI in the US. This is the official consumer inflation index. Federal government uses it to set inflation goals. Current target is 4.5% with a margin of 2% higher or lower. The 2.5% – 6.5% IPCA range is targeted by the central bank when defining the interest rate, SELIC. The index is calculated by IBGE (federal geography and statistics institute) and tracks continuous and systematic variations in consumer prices for families with income of up to 40 minimum wages. Data is collected in the metropolitan areas of Belém, Recife, Fortaleza, Salvador, Belo Horizonte, Rio de Janeiro, São Paulo, Curitiba, Porto Alegre, Brasilia and Goiânia. Data is collected between the first and last day of the reference month, and is disclosed between the 8th and the 12th of the following month.

 IGP-M (Índice Geral de Preços do Mercado) – General Index of Market Prices: Considered equivalent to the PPI – Producer Price Index, in the US. From Fundação Getúlio Vargas (a private entity), it was created to correct some treasury securities and floating-rate bank deposits with maturities over one year. Later, it started to be used for corrections of contracts such as real estate rent and electricity. Disclosed at the end of the reference month since the collection is made from the 21st of the previous month and the 20th of the month to which it relates. It consists of IPA – Wholesale Price Index (60%), IPC – Consumer Price Index (30%) and INCC – National Index of Construction Cost(10%). Every 10 days, it is disclosed a partial number known as IGP-10.

IPC – aka IPC-FIPE – (Índice de Preços ao Consumidor) CPI – Consumer Price Index: This is the inflation index for the city of São Paulo, largest city in Brazil. FIPE (a foundation linked to USP – University of São Paulo) measures the IPC based on a consumer with income between 1 and 20 minimum wages. The basket of products and services tracked is based on the POF – Household Budget Survey from IBGE, constantly updated. The survey is conducted between the first and last day of the reference month and published between the 10th and 20th of the following month. It is the most traditional cost of living indicator for the families in São Paulo and one of the oldest in Brazil, since January 1939.

INCC-DI (Índice Nacional de Custo de Construção, Disponibilidade Interna) – National Index of Construction Cost, Internal Availability: From Fundação Getúlio Vargas (private entity) in partnership with Caixa Economica Federal (public company), measures the cost of new housing in 18 cities: Aracaju, Belem, Belo Horizonte, Brasilia, Campo Grande, Curitiba, Florianópolis, Fortaleza, Goiânia, João Pessoa, Maceio, Manaus, Porto Alegre, Recife, Rio de Janeiro, Salvador, Sao Paulo and Vitoria. This is one of three items that comprise the IGP – General Price Index, with 10% weight. It is measured between the first and last day of the month and released about 20 days later. There is another number (INCC-M), calculated between day 21 of the previous month and the 20th of the month in reference for the composition of the IGP-M.

Read More

Recent inflation information for brazil

Perspective for the Brazilian Inflation and interest rate moving forward

Braskem: Largest Petrochemical in Latin America

Braskem is Brazil’s largest integrated petrochemical cracker and thermoplastics maker. The company produces a portfolio of petrochemical products including ethylene, propylene, butadiene, toluene, xylene, benzene, gasoline, diesel oil, liquefied petroleum gas (LPG), as well as thermoplastic resins, such as polyethylene (PE), polypropylene (PP) and polyvinyl chloride (PVC). As of December 31, 2011, the Company had 35 industrial units, including 28 in Brazil, five in the United States and two in Germany. Additionally, it is engaged in the import and export of chemicals, petrochemicals and fuels. The Company divides its activities into five sectors: Basic Petrochemicals, Polyolefins, Vinyls, International Businesses and Chemical Distribution. As of December 31, 2011, the Company had a number of subsidiaries in Brazil, the United States, Argentina, Chile, Netherlands, Germany, Cayman Islands, Mexico, the British Virgin Islands, Bahamas and Uruguay.

ADR Ticker BAK
Website http://www.braskem.com.br/site.aspx/Investors-USA
Industry* Commodity Chemicals
Bovespa Ticker BRMK5
EBI Rating 3-star

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