Deutsche Bank Downgrades Petrobras (PBR) to Sell

Deutsche Bank downgraded Petrobras (NYSE: PBR) from Hold to Sell with a price target of BRL 8.60. Analyst Alexander Burgansky warned of deteriorating financial conditions and a reduced dividends outlook.

"Barring higher oil prices, we estimate Petrobras will face deteriorating financial conditions with net debt/EBITDA possibly exceeding 6.0 in 2016 at the same time that its funding needs accelerate to $16-20bn pa. This may necessitate further capex/growth reductions, particularly if Brazil's and/or Petrobras’s credit ratings are downgraded to below investment grade. At the same time, government/policy help has become less likely with a challenging macro environment in Brazil. We lower our target price by 30% and cut our dividend expectations for the ordinary shares to nil," said Burgansky.

"To fully fund its capex and interest in 2016, we estimate Petrobras needs a Brent oil price of $85/bbl and full parity pricing in Brazil – this would imply average increases in domestic gasoline and diesel prices of c.50% vs. current levels – a scenario that looks increasingly unlikely to us, despite the company’s stated commitment to parity pricing," added the analyst.

Burgansky added, "We now expect the company’s dividends to be reduced to the absolute minimum. We now do not expect an ordinary dividend until the Brent oil price exceeds $70/bbl. At the same time, we believe the company will revert to paying a dividend on the preferred shares for 2015, in line with its charter."

For an analyst ratings summary and ratings history on Petrobras click here. For more ratings news on Petrobras click here.

Shares of Petrobras closed at $6.05 yesterday.

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