After the Central Bank kept the basic Selić interest rate at 13.75% and stopped the (previous) increases, the market became more attentive to retail, directly related to the inflationary dynamics of the market. The question remains: is it worth the investment? in retail stock with the curb Selić?
Rodolfo Margato, economist at XP Investimentos, predicts that it will Selić feet remain at this level until June 2023, and thereafter, Central bankI have to find room to start a rate cut cycle, bringing the base rate to 10% by the end of 2023.
According to the economist, the continued improvement of the labor market at least until the beginning of 2023 speaks in support of this forecast.
In August 2022, the unemployment rate continued to fall, reaching 8.7% and 4.2 percentage points below the level recorded in the same period in 2021, according to IPEA (Institute for Applied Economic Research).
With the maintenance and possible drop of Selić’s rate next year, Margato believes that it will retail segments those who are better positioned are those related to income, such as wholesalers, while credit-sensitive retailers suffer more in the scenario of a tightening of monetary policy, i.e. higher interest rates.
The economist did not mention a single company in his analysis. But related sectors: “Vehicles, furniture, appliances, electronics, building materials: all these commodities are more sensitive to credit conditions,” he said.
The main retailers linked to the credit modality listed on the Exchange are: Luiza magazine (MGLU3), Over it (VIIA3) and American (AMER3).
Retail items that are most sensitive to income, such as food, beverages, medicine and personal care products and fuel, are supported by short-term fiscal stimulus, such as Auxílio Brasil, and economic factors such as falling fuel prices, the economist explains.
“The restart of the labor market leads to an increase in disposable income. It’s not about accelerated growth, but about an increase in disposable income, which ultimately supports some retail activities,” he concludes.
The main wholesalers of listed stocks are assay (ASAI3), Carrefour (CRFB3) and Sugar Loaf Group (PCAR3).
Premium category merchants: better performance
Margato pointed out that premium retail companies, which serve a higher-income audience and should perform better in this scenario, and wholesalers are more dependent on the middle and low-income sectors. in Brazil.
Retail companies with the “most premium” profile on B3 include Arezzo (ARZZ3), nature (NTCO3), A group of sums (SOMA3) and Vivara (VIVA3).
On the other hand, according to Gustavo Bertotti, Messem’s chief economist, the drop in interest rates should favor retail spending in general.
“Consumption tends to increase with Sexta-feira black, it will help, of course, retail,” said Bertotti. Look at the numbers: Black Friday should move R$6.05 billion in e-commerce this year, according to ABComm, with growth of 3.5% compared to 2021 .
Traders are watching Selić: when should the exchange rate fall?
Bertotti predicts that the Selic rate will remain at this high level, but it is possible that the reduction will begin in May, as the market expects.
In the decision of last Wednesday (26), Copom (the Monetary Policy Committee of the Central Bank, after announcing for the second time the maintenance of Selić at the level of 13.75%, at the seventh meeting in 2022, indicated the stability of the rate for a “sufficiently extended period ” after marking the end of the bullish cycle at a meeting in September. The committee warned, however, that it could continue monetary tightening if disinflation does not happen as planned.
The rate is at the same level as between December 2016 and January 2017, following the longest cycle of interest rate increases in Copom’s history, which began in March 2021. In that process of monetary tightening, there were 12 consecutive increases, with a cumulative increase of 11, 75 percentage points, which is the biggest interest rate shock since 1999.
Since then, inflation data continued to show moderation, as well as expectations for 2022 and 2023, although not enough to lead the “battle” against rising prices while winning. Activity, on the other hand, showed signs of weakening, but also marginal, while the international and fiscal scenario remained cloudy.
Risks of the political scenario
He’s in a meeting BC Board he said that he will assess whether maintaining it for a longer period will be able to ensure convergence with inflation rates: “The Commission will remain vigilant, assessing whether the strategy of maintaining the key interest rate for a sufficiently long period will be able to ensure convergence of inflation.”
The XP Report comments: “As of now, the projection is that this level of interest rates should be maintained until mid-2023, falling to 10% by the end of 2023. However, this rate cut will depend on fiscal risk going forward.”
XP analysts added: “During the past month, domestic risks associated with the political landscape have returned to investors’ radar. After several months with volatility at historically low levels, it rose again after the results of the 1st round of elections and tends to rise until the second round of elections. This is a much closer election than historically and the polls are still open, adding to the uncertainties of what to expect after this weekend.”
In this scenario, retail stocks will follow this volatility. This week, Itaú BBA met with 25 US financial institutions to discuss the outlook, opportunities and risks for Ibovespa shares.
“Most investors agreed that retail is one of the segments that will benefit the most from lower rates and government incentives to boost spending,” Itaú BBA analysts said. Investors outside the country only disagree with the assessment of Brazilian analysts retail supplies. Since interest rates are still high, consumer credit is difficult. There is also a greater risk of default, as consumers struggle to repay their debts. Companies are also struggling to get resources, vital to a segment that is always looking for working capital. Here are the bets of these investors:
- In wholesale, Assaí (ASAI3) is preferred, but some buyers are interested in Grupo Mateus (GMAT3);
- In retail, Renner (LREN3) and Arezzo (ARZZ3) were the top choices, but some mentioned Raia Drogasil (RADL3) and Grupo Soma (SOMA3).
- In e-commerce, Free market (MELI34) remains the top pick, with optimism about the company’s prospects;
- the outlook is very negative for performance Luiza magazine (MGLU3), Via (VIIA3) and Americanas (AMER3). It is an indication of caution for these shares, these investors say, due to the rise and fall of these shares on the Stock Exchange.
Genial Investimentos has analyzed the macroeconomic scenario for the retail and e-commerce sector for the coming years and the question that arises is: is it time to buy Magazin Luiza (MGLU3)?
Analysts have changed their recommendation on shares of Magazin Luiz and downgraded the stock to “hold”, similar to neutral. The estimated price target for 2023 is BRL 5.20, with a potential upside of 24% compared to Tuesday’s (27th) closing price.
The reasons that explain the change in classification are:
- Physical stores are still experiencing lower productivity than expected, which should impact the company’s margins;
- There is a discount on paper, on a portion of the yield curve, that should not be fully corrected in historical multiples.
In this second reason, Genial states that the correction should not occur entirely due to the price asymmetry which Luiza magazine it is taking on two other major players — Via (VIIA3) and Americanas (AMER3) — through its e-commerce.
This article about retail supplies It is not an investment recommendation.