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Focus Brazil Corporate Overview

Sebastian Davidson
Sebastian Davidson

Focus Brazil Research provides independent equity research on small and mid-cap Brazilian companies. It focuses on generating new investment ideas by exploring unconventional sources and under-researched sectors and companies. Key themes include plays on Brazil's emerging middle class through healthcare, education, and financial sector exposure, as well as infrastructure opportunities from privatization efforts and inflation hedges through toll road operators. The firm differentiates itself through its focus on forward-thinking research of undercovered companies and sectors.

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focus brazil research INDEPENDENT RESEARCH AND ECONOMIC STRATEGY Corporate overview
Disclaimer This Presentation of Focus Brazil Research Limited (the Company) has been prepared solely for information purposes. The content of the Presentation is strictly confidential to the person to whom it was given. Without the prior written consent of the Company no person who has received this Presentation is allowed to distribute or reproduce it. Neither the Company, nor its Board make any representation, warranty or undertaking, express or implied, as to the accuracy or completeness of this Presentation or of the information contained herein, and neither of such parties shall have any liability for the information contained in, or any omissions from, this Presentation, nor for any of the written, electronic or oral communication made to the recipient in the course of the recipients own investigation and assessment of the Company.
Table of contents Page Brazilian research opportunity 4 The investment opportunity 5 Brazil equity market overview 6 Why mid capitalisation stocks? 7 Research idea generation & subsequent analysis 8 Themes we are focusing on 9 Key Personnel & Contacts 10
Brazilian research opportunity Despite the current uncertainties surrounding the global macroeconomic backdrop, Brazil is increasingly in the global spotlight, and the international investment community are finding it harder to ignore for asset allocation purposes Sao Paulos BM&F Bovespa index, founded back in 1890, is now one of the most sophisticated exchanges in the world. In terms of listed companies, it hosts nearly 400 firms with varied levels of research coverage. There are >1000 firms with listing objectives, providing a significant pipeline of upcoming research and investment opportunities With an increasing number of firms listed in Brazil, and with the subsequent international investor attention, the demand for high quality institutional Brazilian focused equity research will increase going forward Focus Brazil Research specialises on researching small and mid cap listed companies with domestic focused business models where there is limited existing research, whilst also putting these companies in an international context for valuation purposes
The investment opportunity Consecutive annual events are set to place Brazil in the global spotlight over the coming years, each requiring significant improvements in domestic infrastructure, providing longer term benefits for the local and national economy Long term structural drivers are in place for the domestic economy including rising income levels and the emerging middle class, lower interest rates, buoyant commodity markets, and an evolving mortgage sector which is stimulating the real estate market Subsequently a number of pockets of thematic investment opportunities exist, providing investors access to firms exposed to the underlying domestic economy, backed by established business models with defensive growth characteristics Copa America Olympic World Cup Games (2015) (2016) (2014) Confederation Cup (2013) Rio +20 (2012)
Brazil equity market overview Brazil is ranked 28th in terms of the number of listed There are approximately 400 listed 7000 6408 stocks on its national exchange (2008) 6000 companies in Brazil, with massive 5179 5000 room for future growth 3700 3472 4000 3019 2792 3000 2335 Low number of listed companies by 1966 1788 2000 international standards: Brazil is the 1000 386 28th largest index by number of listed 0 firms Brazils index is the most highly Largest 5 companies in each stock market (31/12/2010) - % of total market capitalisation concentrated of the BRICs, with the 60 Brazil Russia China India US top 5 companies representing almost 50 50% of the market 40 Active promotion of new IPOs and 30 follow on capital raisings: 20 24 IPOs and follow ons in 2009 20 IPOs and follow ons in 2010 10 11 IPOs in 2011 0
Why mid-capitalisation stocks? Ability to exploit structural inefficiencies in the asset class: Increasingly large choice of investment opportunities Broker coverage is often limited and of poor quality Lack of interest from large fund management groups due to lower liquidity provides opportunities for focused managers Ability to exploit the advantages that smaller companies have: Pure Plays on new and high growth areas of the domestic economy (healthcare, education, infrastructure, consolidators in fragmented sectors) More nimble firms with fewer diseconomies of scale Opportunities of niche product markets or local geographical markets Less exposed to global macroeconomic shocks than their larger counterparts Management and key employees often have linked interests with external shareholders through equity ownership
Research idea generation & subsequent analysis Idea Generation (how we find our companies) Seek ideas from unconventional sources Filter a large number of ideas to search for significant valuation anomalies, focusing on companies with fair value over 30% higher than current share price Be alert to change at the company level (internal or external impacts) Competence of research do I really understand this business? Subsequent Analysis (what we focus on at the company level) Quality of company based on a number of factors, both quantitative and qualitative Durable earnings power look for companies with defensive growth prospects High operating margin and low asset intensity, including focus on cash flow generation Strong competitive position Structural growth markets or winning market share Low level of debt, minimal working capital, conservative accounting policies Controlled organic growth with existing track record (avoid jam to-morrow cases) Accessible, open and honest management with focus on face-to-face management meetings
Themes we are focusing on Structural plays on the emerging middle class Increased private healthcare plan penetration (medical & dental) Credit availability and shift from paper to card based transactions Infrastructure development opportunities Airports, roads, ports, all seeing long term investment Privatisation efforts (most recently airports) allow investors access to infrastructure plays through listed companies Inflation hedges Highway concession operators Asset backed investments and embedded value plays Niche operators with domestic focused business models Special situation companies with established business models Consolidators operating in highly fragmented sectors
Key Personnel & Contacts Sebastian Davidson: Sebastian has over 11 years experience in global equity research and fund management. Before founding Focus Brazil Research, Sebastian was a Fund Manager at North Bridge Capital Partners, a boutique corporate finance, alternative asset manager, and research advisory firm. Prior to North Bridge Capital Partners, Sebastian worked as an equity analyst and investment manager at Polar Capital Partners, a London based global asset manager running long only and long short funds (assets under management for the firm >US$3bn). About Focus Brazil Research: Focus Brazil Research aims to be the leading independent research provider for small to mid capitalisation companies listed in Brazil. We avoid unnecessary maintenance research and are in a distinct position of being able to deliver forward-thinking, impartial, and timely equity research to our clients. We think like Fund Managers and search for the most interesting companies to research across all sectors in our universe. Contact information: United Kingdom Brazil T: + 44 (0) 207 193 5920 T:+55 (11) 7471-0337 T: + 44 (0) 7974 728 590 E: seb@focusbrazilresearch.com
www.focusbrazilresearch.com

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Focus Brazil Corporate Overview

  • 1. focus brazil research INDEPENDENT RESEARCH AND ECONOMIC STRATEGY Corporate overview
  • 2. Disclaimer This Presentation of Focus Brazil Research Limited (the Company) has been prepared solely for information purposes. The content of the Presentation is strictly confidential to the person to whom it was given. Without the prior written consent of the Company no person who has received this Presentation is allowed to distribute or reproduce it. Neither the Company, nor its Board make any representation, warranty or undertaking, express or implied, as to the accuracy or completeness of this Presentation or of the information contained herein, and neither of such parties shall have any liability for the information contained in, or any omissions from, this Presentation, nor for any of the written, electronic or oral communication made to the recipient in the course of the recipients own investigation and assessment of the Company.
  • 3. Table of contents Page Brazilian research opportunity 4 The investment opportunity 5 Brazil equity market overview 6 Why mid capitalisation stocks? 7 Research idea generation & subsequent analysis 8 Themes we are focusing on 9 Key Personnel & Contacts 10
  • 4. Brazilian research opportunity Despite the current uncertainties surrounding the global macroeconomic backdrop, Brazil is increasingly in the global spotlight, and the international investment community are finding it harder to ignore for asset allocation purposes Sao Paulos BM&F Bovespa index, founded back in 1890, is now one of the most sophisticated exchanges in the world. In terms of listed companies, it hosts nearly 400 firms with varied levels of research coverage. There are >1000 firms with listing objectives, providing a significant pipeline of upcoming research and investment opportunities With an increasing number of firms listed in Brazil, and with the subsequent international investor attention, the demand for high quality institutional Brazilian focused equity research will increase going forward Focus Brazil Research specialises on researching small and mid cap listed companies with domestic focused business models where there is limited existing research, whilst also putting these companies in an international context for valuation purposes
  • 5. The investment opportunity Consecutive annual events are set to place Brazil in the global spotlight over the coming years, each requiring significant improvements in domestic infrastructure, providing longer term benefits for the local and national economy Long term structural drivers are in place for the domestic economy including rising income levels and the emerging middle class, lower interest rates, buoyant commodity markets, and an evolving mortgage sector which is stimulating the real estate market Subsequently a number of pockets of thematic investment opportunities exist, providing investors access to firms exposed to the underlying domestic economy, backed by established business models with defensive growth characteristics Copa America Olympic World Cup Games (2015) (2016) (2014) Confederation Cup (2013) Rio +20 (2012)
  • 6. Brazil equity market overview Brazil is ranked 28th in terms of the number of listed There are approximately 400 listed 7000 6408 stocks on its national exchange (2008) 6000 companies in Brazil, with massive 5179 5000 room for future growth 3700 3472 4000 3019 2792 3000 2335 Low number of listed companies by 1966 1788 2000 international standards: Brazil is the 1000 386 28th largest index by number of listed 0 firms Brazils index is the most highly Largest 5 companies in each stock market (31/12/2010) - % of total market capitalisation concentrated of the BRICs, with the 60 Brazil Russia China India US top 5 companies representing almost 50 50% of the market 40 Active promotion of new IPOs and 30 follow on capital raisings: 20 24 IPOs and follow ons in 2009 20 IPOs and follow ons in 2010 10 11 IPOs in 2011 0
  • 7. Why mid-capitalisation stocks? Ability to exploit structural inefficiencies in the asset class: Increasingly large choice of investment opportunities Broker coverage is often limited and of poor quality Lack of interest from large fund management groups due to lower liquidity provides opportunities for focused managers Ability to exploit the advantages that smaller companies have: Pure Plays on new and high growth areas of the domestic economy (healthcare, education, infrastructure, consolidators in fragmented sectors) More nimble firms with fewer diseconomies of scale Opportunities of niche product markets or local geographical markets Less exposed to global macroeconomic shocks than their larger counterparts Management and key employees often have linked interests with external shareholders through equity ownership
  • 8. Research idea generation & subsequent analysis Idea Generation (how we find our companies) Seek ideas from unconventional sources Filter a large number of ideas to search for significant valuation anomalies, focusing on companies with fair value over 30% higher than current share price Be alert to change at the company level (internal or external impacts) Competence of research do I really understand this business? Subsequent Analysis (what we focus on at the company level) Quality of company based on a number of factors, both quantitative and qualitative Durable earnings power look for companies with defensive growth prospects High operating margin and low asset intensity, including focus on cash flow generation Strong competitive position Structural growth markets or winning market share Low level of debt, minimal working capital, conservative accounting policies Controlled organic growth with existing track record (avoid jam to-morrow cases) Accessible, open and honest management with focus on face-to-face management meetings
  • 9. Themes we are focusing on Structural plays on the emerging middle class Increased private healthcare plan penetration (medical & dental) Credit availability and shift from paper to card based transactions Infrastructure development opportunities Airports, roads, ports, all seeing long term investment Privatisation efforts (most recently airports) allow investors access to infrastructure plays through listed companies Inflation hedges Highway concession operators Asset backed investments and embedded value plays Niche operators with domestic focused business models Special situation companies with established business models Consolidators operating in highly fragmented sectors
  • 10. Key Personnel & Contacts Sebastian Davidson: Sebastian has over 11 years experience in global equity research and fund management. Before founding Focus Brazil Research, Sebastian was a Fund Manager at North Bridge Capital Partners, a boutique corporate finance, alternative asset manager, and research advisory firm. Prior to North Bridge Capital Partners, Sebastian worked as an equity analyst and investment manager at Polar Capital Partners, a London based global asset manager running long only and long short funds (assets under management for the firm >US$3bn). About Focus Brazil Research: Focus Brazil Research aims to be the leading independent research provider for small to mid capitalisation companies listed in Brazil. We avoid unnecessary maintenance research and are in a distinct position of being able to deliver forward-thinking, impartial, and timely equity research to our clients. We think like Fund Managers and search for the most interesting companies to research across all sectors in our universe. Contact information: United Kingdom Brazil T: + 44 (0) 207 193 5920 T:+55 (11) 7471-0337 T: + 44 (0) 7974 728 590 E: seb@focusbrazilresearch.com