How to analyze Petrobras' first quarter report

· The performance of Q1 in 2024 declined compared with Q4 in 2023, mainly due to a 12% decrease in revenue. The company explained that it was mainly due to the reduction in sales prices, seasonal consumption and other miscellaneous items.

· Net profit was about US$4.79 billion, a sharp drop of 24.5% from 6.26 billion in 2023Q4

· The most important free cash flow was US$6.55 billion, a sharp drop of 19% from 8.07 billion in 2023Q4

· During the period, the average crude oil price was about 83.24, while 2023Q4 was 84.05. However, the company's oil product price was 96.13, a decrease of about 7.7% from 104.3 in 2023Q4

· ADR quarterly dividend is about US$0.4 per share. If the stock price is US$17, the quarterly dividend rate is about 2.35%, and the annualized rate is about 9.4%.

Personal analysis:

This time, PBR's 24Q1 performance is quite disappointing. The average oil price in Q1 is similar to that in 2023Q4, but the company's revenue has dropped significantly. The profit and free cash flow have dropped a lot. As for the sharp drop in revenue, the company explained that it was mainly due to the reduction in sales price, seasonal consumption and other miscellaneous factors. I don't quite understand this. There is no reason why the sales price would drop so much. After all, the average oil price in 23Q4 and 24Q1 was above 80. Would the sales price be so different? I don't understand this at the moment. The company will hold a conference call tonight and I believe there will be an explanation.

However, the market has long expected the company's revenue to decrease in Q1. I have seen on bloomberg or seeking alpha before that the revenue is expected to fall, and the interest rate must also fall. This may be because the company has communicated with analysts before, or the analysts are more familiar with the Brazilian market. But I believe that after the conference call tonight, we can understand more.

As for the most important free cash flow (FCF), 24Q1 is 6.55 billion US dollars. 45% dividend is 2.97 billion US dollars. Based on the market value of 110 billion, the return rate is about 10%. Of course, it is high for US oil stocks. But compared with 23 years, It is just a little lower. I just checked that the current interest rate in Brazil is 10.5%. In fact, investing in PBR is the same as the Brazilian interest rate. In the short term, it seems not attractive enough. Of course, Brazil is constantly reducing interest rates, and PBR still has special interest, so the return rate of investing in PBR is still higher than the Brazilian national interest rate.

This time, the 24Q1 performance is worse than expected, and the reason for the decline in performance is also operational, not a one-time thing. So we can assume that Q1 performance*4 is the 24-year performance. Here, it is assumed that the oil price remains unchanged and the company's operations have not improved. The company's annual EPS is about 0.74*4=2.96. Based on the stock price of 17, the PE is about 5.7 times. The valuation is still not high. Fortunately, PBR's valuation is low, so even if the performance is worse than expected, it will not fall much. After all, the dividend return rate is already 10% (excluding special interest). But it is estimated that the stock price will hardly perform well on Tuesday night.