Aug 19, 2011 - The newly announced investments of sugar and ethanol maker Sao Martinho (SAO:SMTO3) are seen to reflect positively on the company, analysts from Link Investimentos and Agora Corretora said yesterday, agreeing with the opinion voiced earlier by local brokerage Planner.
The investors market also mirrored positively the news given that Sao Martinho's shares closed up 2.68% at BRL 22.60 on Thursday, in contrast with the negative trend of the Sao Paulo stock exchange. The benchmark index, Ibovespa, for example dived 3.52%.
Nova Fronteira, the joint venture of Sao Martinho and Petrobras Biocombustivel, the biofuel subsidiary of Brazilian federal oil and gas giant Petrobras (SAO:PETR3; NYSE:PBR), will boost by four times its sugar crushing capacity as of crop year 2014/2015, with investments of BRL 755 million (USD 473.2m/EUR 328.6m).
The sum represents an attractive multiple of USD 83 (EUR 57.6) per tonne of sugar cane, compared to a multiple of USD 125 per tonne if it was a new project executed by Sao Martinho, Luiz Otavio Broad, analyst at Agora Corretora noted.
Also, this investment may be an indication for companies's grown interest in making investments in new production, Leonardo Alves, from Link Investimentos, noted. Currently Brazil's ethanol offer is insufficient and an expansion of the production of this magnitude is quite positive for a sugar and ethanol sector player, he added.
Alves kept his "market perform" recommendation for Sao Martinho, while Broad recommends "buy" for the shares, with a price target of BRL 36.70.
(USD 1 = EUR 0.694; BRL 1 = USD 0.627/EUR 0.435)
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