TOTVS SA （TOTS3.SA） Updating Estimates Post~2Q24

Investment Rating - The investment rating for TOTVS SA is Neutral, maintained after updating estimates based on 2Q24 results and macroeconomic assumptions [1][2]. Core Insights - The 12-month price target for TOTVS SA has been raised to R$34.00 per share from R$33.00, reflecting a 15.3% upside from the current price of R$29.50 [1][2]. - The report highlights solid Annual Recurring Revenue (ARR) trends in 2Q24, supporting a positive outlook on revenue growth drivers [1][2]. - Margin scalability remains a significant topic of discussion, particularly following a slight margin miss in 2Q24 due to higher direct costs and general administrative expenses [1][2]. Financial Estimates Summary - Revenue estimates for 2024-2026 have been adjusted upwards, with 2024 revenue now projected at R$5,282 million, up from R$5,194.5 million [1][2]. - EBITDA for 2024 is estimated at R$1,249.7 million, reflecting a slight increase from previous estimates [1][2]. - Net income for 2024 is expected to be lower due to higher-than-expected amortization costs, but remains stable for 2025-2026 [1][2]. Valuation Methodology - The price target is based on a blend of discounted cash flow (DCF) and price-to-earnings (P/E) multiple valuations, with a nominal WACC of 13.9% and a terminal growth rate of 6% [1][12]. - The DCF component values the equity at R$33.00 per share, while the P/E-based component values it at R$35.00 per share, leading to the final price target of R$34.00 [1][12].