BTG Revises Ratings for São Martinho, Jalles, and Adecoagro Stocks

BTG Bank has revised its recommendation for the shares of sugar-energy companies São Martinho, Jalles, and Adecoagro to 'neutral.' This adjustment is based on the bank's expectation that the Brazilian government will not allow the full impact of the observed increase in international oil prices to be passed on to gasoline prices at the pumps domestically. In a report released on Tuesday, the 7th, and signed by analysts Thiago Duarte and Guilherme Gutilla, BTG Bank posits that the government is likely to prefer reducing or even eliminating taxes on gasoline to offset any potential price adjustments by Petrobras. “In an election year, assuming the government will simply allow an increase that fully reaches consumers seems like a somewhat difficult bet,” the analysts wrote. They continued: “Ultimately, it is probable that they will try to smooth out the movement, especially given how unpopular fuel price increases tend to be. An obvious way to do this could be to reduce, or even eliminate, federal taxes on fuels, as was just done for diesel.” According to the analysts, the argument that there is insufficient fiscal space to prevent tax reductions is not strong, as Brazil is expected to generate additional revenue from oil exports. This could increase dividends paid to the government by Petrobras, as well as export taxes and royalties, among other sources. “In practice, these additional revenues could more than offset a cut in fuel taxes, creating fiscal room for such measures,” they concluded.