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Is ITSA4 the new Berkshire Hathaway? What does the company’s meager profits say about its future

For years, Itaúsa (ITSA4) – an investment holding company that controls companies like Itaú and Alpargatas – was seen as synonymous with passive income by many investors. With the policy stipulating quarterly dividends, this has been a staple of dividend strategies. However, its status as a good motivator has been tested in recent times.

According to Comdinheiro data, in 2019, will be spent (Part of net income earmarked for dividends) reached 95%, but fell in the following years to approach the legal minimum of 25% – which, according to the holding’s CEO, Alfredo Setubal, should remain for the next three years.

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Dividend: Itaúsa (ITSA4) payments should return to historical average of 40% in 3 years, CEO says

The cut was unpleasant in and of itself, but it is gaining more evidence at the moment, when companies in other sectors – especially commodities – are beginning to pay out more generous dividends. While fixed income guarantees profits of 13.75% annually and there are companies that offer rates of return (profit return) of up to 30%, Itaúsa—which reported recurring net income of R$3 billion in the second quarter of 2022—will pay interest on equity (JCP) of R$0.12 per share on August 30 and over R$0.049 through December 2023. .

In the 12-month period, the holding company had a dividend yield of just 6.1%.

Although the amount announced on Monday (15th) is higher than the constant quarterly dividend of R$0.02 per share, stipulated in its bonus policy, the holding is losing space in its recommended dividend portfolios. In August, there was only one medium out of the ten they watched before Infomoney Leaves indicated.

The shareholder hasn’t lost volume in terms of volume – there were 921,000 in June, mostly individuals, versus 899,000 in March. But some investors’ discontent ended up punishing the measure, Setúbal noted on Tuesday (16), on-air for comment on the results. For him, the decrease in dividends is the reason for the excessive discount of the holding company in relation to the market value of the companies invested in it, which is currently at the level of 23.6%.

Some well-known names, such as Luiz Barsi Filho, who is considered one of the biggest investors in the stock exchange, have already given up assets for meager dividends.

If itaysa’s turnaround has upset dividend enthusiasts, then for market agents, itaisa is finally becoming a “radical ownership”, diversified and focused on value investments, less concerned with short-term dividends and more concerned with the long-term. Analysts portray the company as a “young start-up” for Berkshire Hathaway, the investment holding of Warren Buffett, one of the world’s most popular investors. Berkshire does not distribute dividends.

Buffett is notorious for saying that paying the dividend will admit he doesn’t see opportunities to reinvest the company’s profits. For analysts like Thiago Reyes, founder of Suno Research, Itaúsa’s current philosophy follows that line. According to Reese, it’s time for investors to understand that holding is no longer a dividend stock. “The rationale for Etosa is: She has opportunities, she invests. Tomorrow may not be, and then it pays off,” he explains. In his view, the date of the company’s capital allocation “deserves a vote of confidence”.

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Berkshire Hathaway wannabe…

Enrico Cozulino, an analyst at Levante Investimentos, explains that Berkshire Hathaway began investing in several companies in 1962, with a strategy Investment valueThat seeks to obtain the real value of the investing companies in the long term. “She’s famous buy and hold‘, she says.

Buffett Holdings currently invests in 44 companies from various sectors of the economy. The second-quarter data shows that the companies with the highest share of the portfolio are Apple (43%), Bank of America (11%), Coca-Cola (9%), Chevron Corp (7.13%), and American Express (7). %).

Itaúsa, with a history of 47 years, invests in leading companies in the financial field (such as Itaú Unibanco and XP), consumer goods (Alpargatas), civil building materials (Dexco), sanitation (Aegea), energy (Copa Energia) and Infrastructure (NTS). In July, it signed a contract to acquire 10.33% of CCR, one of the largest companies in the infrastructure sector, which operates in the highway and airport concession, among other things.

According to Suno’s Reese, this is the first similarity between the two owners: they both invest in mature, leading companies. With exceptions, such as Nubank, which occupies less than 1% of Berkshire’s portfolio, Buffett prefers traditional cash-generating companies, such as banks and oil companies, according to the expert.

Carlos Daltoso, head of research at Eleven Financial, highlights that the same is notable in Itaúsa. When it comes to acquisitions, the holding company only works with checks in excess of R$1 billion, and invests in companies with high market capitalization. But in a low liquidity scenario in Brazil, this could be a barrier to accelerating new business, he points out.

The second similarity lies in the amount of shares held in companies. Reese says Berkshire holds a controlling stake in some of its portfolio companies and minority stakes in others. This is the case with Apple, where the US holding company owns about 5% of the stock.

According to Reese, historically, Eitasa has preferred to control or be part of the controlling bloc over the investing companies. In Alpargatas, for example, Itaúsa has a total stake of 29.6%, but it owns 43.7% of common stock, which confers voting rights, the expert recalls. Partner Cambuhy Alpa Holding owns 35.1% of Alpargatas. Both are co-controllers,” he says.

But in recent acquisitions by Itaisa, what has been seen has been a Berkshire pattern, according to Reese, with the Brazilian holding company accepting minority stakes. In Aegea, for example, Itaúsa’s stake is 12.9%.

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…but with a personality of its own

Among the differences between the holdings, Reese cites the management style. While Berkshire prefers to acquire business and maintain leadership, Itaúsa chooses to propose changes to the board of directors, if necessary, or make board appointments.

Another difference is diversification. Of the 44 companies invested by Berkshire, Apple, which is the most represented, accounted for 43% of the portfolio. There are assets with a participation of only 0.01%.

In Itaúsa, the focus is much greater, despite the new acquisitions. According to a survey conducted by Felipe Paletta, co-founder and analyst at Monett, in the second quarter, Itaú accounted for 88% of the holding company’s share capital, while XP accounted for 6%, Alpargatas for 3%, Dexco for 2%, NTS for 1%, Igea for 2% and Cuba Energia 2%.

For Reese, it is not clear whether Itaisa’s priority is to reduce Itai’s stake. “My impression is that when Etai pays dividends, Etais buys the companies or pays the shareholders. And if they make purchases, the bank’s share in the capital of the holding company will decrease,” he says.

According to Daltozo, Itaú’s dependence on Itaú should not end in the short term, and the development of Itaú’s results also hampers the task, since it is the main source of profits.

Setúbal stated that even if the portfolio were to diversify, itaú would most often represent 80% or 90% of the capital. “We are creating a group of large companies, but Itaú will always be the main anchor. We do not intend to increase or decrease our participation in the bank.”

There are also differences between Itaúsa and Berkshire in terms of shareholder pay. Reese explains that Berkshire has never paid dividends and would rather reinvest the earnings in new companies. In recent years, the company has repurchased shares.

Itaúsa, per policy, pays quarterly dividends in January, April, July and October. Paletta states that in 2021, Itaúsa opened a buyback plan to acquire 4.5% of the outstanding shares.

In Paletta’s view, Itaúsa continues to pay dividends for the tax advantage, because in Brazil they are exempt from income tax – while in the United States dividends are taxed at 30%. “If Berkshire is here, it will probably pay off,” he says. This may change if there is a change in the tax on earnings in Brazil.

Setubal’s vision for ETAISA’s medium- and long-term strategy includes some characteristics that analysts have pointed out, but they differ in terms of earnings. The executive believes that the current scenario for Itisa is best defined as a combination of growth with dividends — even if no new acquisitions are expected in the short term. It’s time to allow the last five years’ investments to grow and reduce tenure debt.

Despite the similarities, analysts point out that there is a long way to go for Itaisa to become more like Berkshire Hathaway. However, Cozzolino, of Levante, sees the holding as an opportunity to invest with an emphasis on value, while at the same time ensuring recurring profits — albeit in cents.

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