LatAm Fuel Distribution: Improved fundamentals, valuation yet to catch up: Reiterating Buy on Ultrapar; Upgrading Vibra to Buy

Research evidence excerpt

LatAm Fuel Distribution: Improved fundamentals, valuation yet to catch up: Reiterating Buy on Ultrapar; Upgrading Vibra to Buy

Figure 2: New valuation summary Figure 3: Old valuation summary

New valu atio n summ ary Old valu atio n summ ary

Source: UBS estimates Source: UBS estimates

Figure 4: Ultrapar consensus' fwd P/E

P/E

s fwd

sensu

con

apar

Ultr

Source: Refinitiv, UBS

Since we reiterated our Buy on Ultrapar in late April, we first saw a narrowing of the

holding discount to c15%, followed by a rebuild to c25%, which we still view as

excessive. As a recap, we calculate Ultrapar’s bottom-up NAV as follows:

1. Applying global peer multiples of 6.5x for Ultragaz, 7.5x for Ultracargo, and

8.5x for holding costs (based on our DCF) to consensus estimates, we arrive at

an EV of cR$15bn for this portion of the portfolio;

2. Using the Comerc transaction EV and consensus estimates, we infer that the

market values Vibra ex-Comerc at C6x 2027E EV/EBITDA, which we apply to

Ipiranga, implying an EV of CR$28bn;

3. Subtracting net debt of Ultrapar ex-HBSA of cR$10bn, we reach Ultrapar’s NAV

ex-HBSA of cR$33bn;

4. Adding Hidrovias’ contribution at 60% of NAV based on market prices (cR$4bn

market cap).

All in, we estimate an NAV of cR$36bn versus a current market cap of cR$26bn,

implying a 26% discount.

Overall, we believe the market’s main concern on the thesis remains around

potential portfolio diversification moves, such as a stake acquisition in Rumo as

reported by the media. Despite that, we remain confident in Ultrapar’s capital

allocation strategy over the LT, supported by management positive track record,

although we acknowledge a mismatch with investors’ ST focus. Additionally,

potential stake sales in Ipiranga or Ultracargo, which has also being reported by the