Fast Take Porto Seguro

Research evidence excerpt

Fast Take Porto Seguro

Forecast returns

Forecast price appreciation -2.2%

Forecast dividend yield 8.0%

Forecast stock return 5.8%

Market return assumption 18.6%

Forecast excess return -12.9%

Company Description

Porto Seguro is the leading auto insurance company in Brazil in terms of market share.

The company specializes in the auto segment, which accounts for more than 60% of its

written premiums. The company also offers insurance products in the health, P&C and

life segments. In 2009, the company merged its auto and residential insurance

operations with that of Itaú Unibanco. Aside from insurance, Porto Seguro has also

banking and credit operations through Porto Bank.

Valuation Method and Risk Statement

Brazilian healthcare companies’ performance is closely linked to local economic

conditions, with an enhanced sensitivity to formal employment rates. The sector is

particularly dependent on the regulatory framework, but has also been deeply affected

by competition dynamics in the past.

Oncoclínicas: We reach our price target of R$2.50 by applying a 12m fwd EV/EBITDA of

~5x, in line with historical levels. The main risks in our radar are: 1) Deteriorating

relations with paying sources; 2) Reduced bargaining power with suppliers; 3) Higher-

than-expected disbursements on investments abroad; and 4) Enhanced competition on

the higher-complexity procedures market.

Fleury: We reach our price target of R$17.50 by applying a 12m fwd P/E of ~11x, in line

with historical average. The main risks on our radar are: 1) Industry verticalization; 2)

Challenges involving the integration of previous acquisitions; 3) Changes in tax

environment; and 4) More aggressive competition dynamics.

Brazilian financials' (inc. Porto) performance is closely linked to the local economic