Group 1 - The core recommendation is to buy Cosan (NYSE: CSAN) shares despite a significant deterioration in the Brazilian economic scenario since the initial buy recommendation on April 1, 2024 [1] - The analyst acknowledges that the Brazilian economic conditions have worsened considerably, which poses a risk to the investment thesis for Cosan [1] Group 2 - The analyst has over 5 years of experience in equity analysis in Latin America, providing in-depth research and insights for informed investment decisions [1]

Financial Data and Key Metrics Changes - The company reported significant changes in financial metrics, including revenue growth and profit margins, which are critical for assessing overall performance [4]. Business Line Data and Key Metrics Changes - Each business line showed varying performance, with some segments outperforming others, indicating a need for strategic adjustments [4]. Market Data and Key Metrics Changes - The company highlighted changes in market dynamics, including shifts in demand and competitive positioning, which are essential for future planning [4]. Company Strategy and Development Direction - The management outlined strategic initiatives aimed at enhancing operational efficiency and expanding market share, reflecting a proactive approach to industry competition [4]. Management Comments on Operating Environment and Future Outlook - Management provided insights into the current operating environment, discussing challenges and opportunities that could impact future performance [4]. Other Important Information - Additional information regarding regulatory changes and their potential impact on operations was discussed, emphasizing the need for compliance and adaptability [4]. Q&A Session Summary Question: What are the expectations for revenue growth in the next quarter? - Management indicated a positive outlook for revenue growth, driven by increased demand in key markets [4]. Question: How is the company addressing competitive pressures? - The company is implementing strategic measures to enhance its competitive position, including innovation and cost management [4]. Question: What are the plans for capital expenditures in the upcoming year? - Management outlined plans for targeted capital expenditures aimed at supporting growth initiatives and improving infrastructure [4].

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |-------|-------|-------|-------|-------|-------|-------|-------|-------|----------|-------------------|-------|---------| | | | | | | | | | | Earnings | 3Q24 | | Results | | | | | | | | | | | | November 14, 2024 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Confidencial | --- | |--------------------------------------------------------------------------------------------------------------------------------------- ...

Financial Performance - For the fiscal year ended December 31, 2023, net sales increased by 0.4% to R$39,468.5 million compared to R$39,322.8 million in 2022[871]. - Gross profit rose by 24.2% to R$10,918.6 million, up from R$8,766.0 million in the previous year[871]. - Profit for the year from continuing operations surged by 174.6% to R$4,839.3 million, compared to R$2,771.0 million in 2022[871]. - Profit attributable to owners of the Company decreased by 6.9% to R$1,094.4 million from R$1,176.0 million in the previous year[871]. - Other income, net increased significantly from R$1,752.2 million in FY 2022 to R$3,924.4 million in FY 2023, driven by fair value changes in investment properties and dividends from Vale[901]. - The company reported a profit for the year of R$4,026.4 million as of December 31, 2023[970]. Sales and Revenue - Rumo's net sales increased by 11.1% to R$10,937.7 million, driven by demand for key agricultural commodities[875]. - Compass's net sales decreased by 9.9% to R$17,767.3 million, primarily due to a decline in distributed natural gas volume[877]. - Moove's net revenue grew by 12.2% to R$10,078.6 million, attributed to acquisitions and increased sales volume[878]. - Rumo's net sales increased by R$2,401.8 million, or 32.3%, to R$9,841.5 million for the fiscal year ended December 31, 2022, driven by a 17% increase in tariffs and transported volume[924]. - Compass's net sales rose by 57.0%, or R$7,160.8 million, to R$19,719.2 million, primarily due to the acquisition of Sulgás and Commit, contributing R$2,504.8 million, and tariff adjustments averaging 14.5%[925]. - Moove's net revenue increased by R$2,867.6 million, or 46.9%, to R$8,980.1 million, mainly due to the acquisition of PetroChoice and Tirreno, which added R$1,368.8 million, and a 35.0% increase in lubricant sales volume[926]. - Radar's net sales surged to R$834.6 million from R$31.5 million, primarily due to acquisitions of land management companies contributing R$576.9 million and a full year of consolidated operations[927]. Costs and Expenses - Total cost of sales decreased by 6.6% to R$28,549.9 million from R$30,556.8 million in the prior year[882]. - The cost of sales for Compass decreased by 12.9% to R$14,256.0 million, mainly due to reduced natural gas distribution volume[883]. - Moove's cost of sales increased by 5.3% to R$7,359.6 million in FY 2023, primarily due to the acquisition of PetroChoice and Tirreno, which added R$395.8 million to costs[884]. - Radar's cost of sales decreased by R$406.8 million to R$153.5 million in FY 2023, mainly due to reduced costs associated with real estate sales[885]. - Cosan Corporate's cost of sales fell by 61.7% to R$3.6 million in FY 2023, attributed to the sale of Trizy in March 2023[886]. - Selling expenses increased by 5.8% to R$1,350.6 million, while general and administrative expenses rose significantly by 43.8% to R$2,528.0 million[871]. - Selling expenses for Moove rose by 6.8% to R$1,145.0 million in FY 2023, driven by the acquisition of PetroChoice and Tirreno and a 21.7% increase in freight expenses[892]. - General and administrative expenses for Moove surged by 85.8% to R$645.6 million in FY 2023, largely due to the consolidation of PetroChoice and Tirreno's results[898]. Financial Results - Finance results, net showed a significant increase in net financial expense to R$7,897.1 million in FY 2023, up 53.1% from R$5,157.9 million in FY 2022[906]. - The total cost of gross debt decreased by R$3,270.3 million, or 38.9%, primarily due to a decrease in the average SELIC interest rate and the depreciation of the U.S. dollar[909]. - Income from financial investments and exchange rate in cash and cash equivalents increased to R$2,057.4 million, a 15.0% increase from R$1,788.5 million[910]. - The expense from financial investment on listed entities amounted to R$3,147.0 million, related to losses from the adjustment at fair value based on the market value of Vale's shares[911]. - Other charges and monetary variations decreased by R$253.7 million, or 10.6%, from R$1,927.4 million to R$1,673.7 million[912]. - Income tax expenses amounted to R$274.4 million for the fiscal year ended December 31, 2023, compared to an income of R$118.4 million in the previous year[913]. - The effective tax rate was negative 5.4%, lower than the nominal corporate tax rate of 34% due to the recognition of a tax credit by Comgás[914]. Debt and Financing - The total debt as of December 31, 2023 was R$56,904.7 million, an increase of 7.4% from R$52,987.2 million in 2022, primarily due to the issuance of senior notes[978]. - The company’s short-term debt as of December 31, 2023 was R$4,882.4 million, part of the total outstanding debt[977]. - The company reported a total debt of $2,451.1 million as of December 31, 2023, down from $2,641.7 million in 2022, representing a decrease of approximately 7.2%[1009]. - The company has debentures totaling R$1,596.9 million with an annual interest rate of 9.13% due in February 2029, an increase from R$1,523.4 million in 2022[1011]. - The company’s total liabilities for senior notes due in 2027 amount to $1,928.9 million, down from $3,587.3 million in 2022, indicating a reduction of approximately 46.2%[1009]. - The company has a total of R$1,208.1 million in debentures with an annual interest rate of 14.61% due in August 2025[1011]. Cash Flow and Capital Expenditures - The net cash flows generated from operating activities for the fiscal year ended December 31, 2023 were R$10,276.4 million, an increase of R$304.2 million or 3.0% compared to R$9,972.2 million in 2022[971]. - Net cash flows used in investing activities decreased significantly to R$4,303.1 million in 2023 from R$20,726.6 million in 2022, representing a decrease of R$16,423.5 million or 79.2%[972]. - Cash flows used in financing activities were R$4,516.6 million in 2023, a decrease of R$12,802.8 million compared to net cash flows generated of R$8,286.3 million in 2022[976]. - Capital expenditures for the fiscal year ended December 31, 2023, totaled R$6,268.0 million, compared to R$4,531.4 million in 2022[1030]. Market and Economic Conditions - Key trends affecting the company include general economic conditions in Brazil and globally, including impacts from geopolitical conflicts[1039]. - Potential inflation increases could lead to higher interest rates and reduced lending growth, affecting the company's operations[1040]. - Market volatility and instability may adversely impact the company's revenues[1040]. - Currency fluctuations and exchange rate controls could negatively affect international investor confidence[1041]. Regulatory and Compliance - The company has no off-balance sheet arrangements to finance operations and no subsidiaries not included in consolidated financial statements[1037]. - The company is not subject to any regulatory commitment to purchase assets as of December 31 for the years 2023, 2022, and 2021[1038]. - No new accounting standards have materially impacted the consolidated financial statements for the years ended December 31, 2023, 2022, and 2021[1043].

Group 1 - The recommendation is to buy Cosan (NYSE: CSAN) shares following the release of the 2nd quarter results [1] - The analysis is part of a broader coverage of Cosan's investment thesis that began on April 1st [1] - The analyst has over 5 years of experience in equity analysis in Latin America, providing in-depth research and insights for informed investment decisions [1]

Core Viewpoint - Cosan's shares have been negatively impacted by weaker commodity prices, adverse currency movements, and a complex business structure, leading to challenges in investor communication and capital allocation plans [1][2][8] Financial Performance - In Q2, Cosan's revenue increased by 15% year-over-year and approximately 8% sequentially, with Raizen showing 18% year-over-year growth [4] - Raizen's ethanol and sugar volumes rose by 19% and 26% respectively, while Rumo experienced a 29% year-over-year revenue growth [4] - EBITDA for Raizen declined by 29% as reported, but adjusted EBITDA was up 13%, while Rumo's EBITDA grew by about 49% year-over-year [4][6] Market Dynamics - The market for sugar and ethanol has become more challenging, with sugar prices dropping to around $0.177/lb and ethanol prices in Sao Paolo decreasing from R$ 3.08/liter to about R$ 3/liter [5] - Legislative efforts to increase ethanol fuel blend from 27.5% to 30% could drive a 4% increase in consumption, but progress has been slow [5] Structural Complexity - Cosan's complex structure and frequent changes in financial reporting make it difficult for investors to assess the company's health, particularly for retail investors [6] - The company has unwound its collar financing for its stake in Vale, converting 66 million shares into a direct ownership interest, which raises questions about strategic coherence [6] Long-term Outlook - Long-term revenue growth is expected to be around 3% to 4%, with EBITDA margins projected to improve to 13% this year and around 15% by FY'26 [7] - Despite significant reinvestment needs and low-margin operations, discounted cash flow suggests a fair value around $15, with an EV/EBITDA fair value above $17 [7] Investment Considerations - There is an argument that Cosan shares are undervalued, particularly with bearish sentiment already reflected in the share price [8] - However, the complexity of Cosan's corporate structure and capital allocation philosophy may deter potential investors from fully capitalizing on the value [8]

2Q24 Earnings Results August 15, 2024 Confidencial | --- | |-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ...

Financial Data and Key Metrics Changes - EBITDA under management increased from BRL 6.2 billion last year to BRL 7.1 billion in 2024 [4] - The company reported a negative net result of approximately BRL 200 million for the quarter [4] - The debt service coverage ratio improved from 1.1x to 1.3x in the second quarter of 2024 [5][9] Business Line Data and Key Metrics Changes - Rumo experienced higher transported volumes and significant increases in average tariffs, leading to improved EBITDA [5] - Compass saw lower volumes in the residential segment due to higher temperatures, but industrial demand increased, resulting in lower margins overall [6] - Moove maintained stable volumes while achieving significant margin expansion and EBITDA growth [6] - Raízen accelerated sugarcane crushing to 31 million tons, but faced delays in the commercialization of sugar and ethanol, impacting EBITDA [7] - Vale contributed BRL 800 million in EBITDA through the equity pickup method, with a reduction in stake to 4.1% [8] Market Data and Key Metrics Changes - The company noted market share gains in Santos Port, indicating a positive trend in operational results [5] - The fuel distribution margins in Brazil are reported to be healthier in 2024 compared to previous years [7] Company Strategy and Development Direction - The company is focused on capital discipline, managing leverage, and executing projects within its portfolio [3] - There is an emphasis on disciplined capital allocation and monitoring of subsidiary performance to optimize investments [15][25] - The management is not looking to increase its stake in Vale but will continue to monitor the situation closely [16][20] Management Comments on Operating Environment and Future Outlook - The management acknowledged the challenging interest rate environment and its impact on capital allocation strategies [3][38] - There is a focus on organic deleveraging and maintaining a sustainable debt service coverage ratio of 1.5x [21][22] - The management expressed a cautious yet disciplined approach to investments in the current economic climate [38] Other Important Information - The company highlighted the importance of safety standards, reporting a safety record of 0.24 LTIF [4] - The cash balance increased from BRL 2.6 billion to BRL 4 billion, supported by dividends from Moove and Compass [10] Q&A Session Summary Question: Discussion on liability management and potential IPO for Moove - Management emphasized capital allocation and leverage as priorities, with no significant updates on Subida da Serra [12][14] Question: Concerns about holdco discount and potential actions - Management acknowledged the holdco discount and is focused on deleveraging and executing projects to create value [17] Question: Future of Vale investment and its significance - Management confirmed that Vale remains a core asset, with no immediate changes expected in the investment strategy [19][20] Question: Challenges in CapEx execution and portfolio management - Management highlighted the complexities of CapEx execution in Brazil and the need for disciplined capital allocation [24][25] Question: Potential restructuring of preferred shares related to Vale - Management clarified that changes to preferred shares can only occur after four years and are not currently on the agenda [40][41] Question: Options for addressing the holdco discount - Management is open to exploring various options but noted the challenges in the Brazilian capital market [43]

Financial Data and Key Metrics Changes - The company's EBITDA under management for Q1 2024 was BRL 7.1 billion, a decrease compared to the first quarter of 2023, primarily due to the absence of tax credits recognized in Raizen in Q1 2023 [17] - Net income for Q1 2024 was negative BRL 192 million, an improvement from negative BRL 904 million in Q1 2023, mainly due to recognized tax liabilities and negative equity pickup from Raizen [17][18] - Net debt stood at BRL 22.7 billion, consistent with the previous quarter, while interest coverage improved from 1.0 times to 1.1 times over the last 12 months [18][20] Business Line Data and Key Metrics Changes - In Rumo, there was an increase in transported volumes and average tariffs, contributing positively to the overall performance [38] - Raizen achieved record sugarcane crushing levels of 84 million tons, indicating a significant recovery in productivity [38] - Moove reported stable lubricant sales volumes but with substantially higher EBITDA and healthier margins, reflecting successful integration efforts [38][59] Market Data and Key Metrics Changes - The Brazilian market remains challenging, impacting the company's strategic decisions regarding potential listings and capital allocation [4][51] - The company is closely monitoring regulatory discussions that could affect its operations and capital structure, particularly concerning Vale and Comgas [25][51] Company Strategy and Development Direction - The company is focused on capital discipline and liability management, especially in a high-interest-rate environment, to ensure sustainable growth and value creation [37][52] - There is an emphasis on portfolio recycling and seeking strategic partners for core projects to enhance operational efficiency and financial performance [28][49] - The company aims to maintain a healthy leverage ratio of 1.5 to 2 times interest coverage, allowing for organic deleveraging over time [41][52] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's ability to navigate current challenges, highlighting improved fundamentals and cash generation capabilities [6][19] - The focus remains on executing key projects and maintaining high safety standards, with a commitment to zero fatalities and accidents [18][37] - Future capital allocation decisions will be influenced by the performance of operating companies and the overall macroeconomic environment [63] Other Important Information - The company has unwound part of its collar financing structure to improve access to dividends and reduce complexity in its capital structure [19][54] - The fair market value of the land portfolio was assessed at BRL 16.3 billion, with Cosan's stake valued at around BRL 5 billion [38] Q&A Session All Questions and Answers Question: Can you provide more detail on leveraging and capital allocation? - The company does not have a set target for leveraging but aims for a healthy coverage ratio of 1.5 to 2 times interest coverage, allowing for organic deleveraging over time [41][52] Question: What is the current status of Vale's position and potential adjustments? - The company has made considerable adjustments to its position in Vale and will continue to monitor it closely, considering market conditions and capital structure [3][51] Question: How does the company view regulatory discussions affecting its operations? - The company is actively monitoring regulatory discussions and has strengthened its institutional relations to navigate these challenges effectively [25][51] Question: What is the strategy for capital allocation in the current market environment? - The company emphasizes capital discipline and is focused on executing its growth agenda while being mindful of the high-interest-rate environment [37][52]

aydinmutlu/E+ via Getty Images Investment Thesis My recommendation is to buy Cosan (NYSE:CSAN). Cosan is a holding company with diversified businesses that should be of vital importance for Brazil in the coming years with the energy transition that the world is expected to undergo. Despite the diversification and reduction of operational risks, the company is extremely discounted compared to national peers. The investment cycle carried out by the company is close to the end, as a result it should report bet ...