Cosan to Buyback $100M Stock - Analyst Blog
September 28 2011 - 2:37PM
Zacks
Brazilian sugar and ethanol producer Cosan
Limited (CZZ) recently received its Board of Directors’
approval for the renewal of its share buyback program. Pursuant to
the approval, Cosan can buyback shares to be held in treasury for
future sale or cancellation to the amount of $100 million from July
4, 2011 to July 4, 2012.
Cosan is the largest sugar and ethanol producer in Brazil and
ranks third in sugar and fifth in ethanol production in the world.
The company, apart from its core operations, engages in energy
production from sugarcane bagasse and fuel distribution.
We believe Cosan, over time, has been growing through
acquisitions and other expansion strategies. The company seems well
positioned to benefit from its Jataí mill, one of its Greenfield
projects. In the recently reported first quarter 2012 results, the
company fared well posting revenue increase of 29.7% year over year
and substantial net income growth due to the formation of
Raizen.
Raizen is the company’s joint venture with Shell. Formation of
Raizen would serve the purpose of enabling better access to ethanol
consumer market, ultimately leading to increased competitiveness in
biofuels and fuel distribution businesses. The joint venture will
be one of the largest ethanol producers in the world with 2.2
billion litres of annual production capacity.
However, headwinds from a highly cyclical industry, intensive
competition and sensitiveness of Cosan to domestic and
international changes in supply and demand restrict the positive
momentum of the company. Moreover, lowered guidance for Raizen
Energia coupled with fears over rise in cost of sales is
disconcerting.
Cosan faces stiff competition from its rivals like
Archer Daniels Midland Company(ADM) and
privately-held Copersucar - Cooperativa de Produtores.
The current Zacks Consensus Estimates for the fiscal years 2012
and 2013 are 90 cents and 73 cents per ADR, reflecting annual
decline of 18.18% and 18.89%, respectively.
We currently maintain an Underperform recommendation on Cosan,
apprehending that the company would perform below the market.
ARCHER DANIELS (ADM): Free Stock Analysis Report
COSAN LTD-A (CZZ): Free Stock Analysis Report
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