Cosan Authorizes 6.6M Share Buyback - Analyst Blog

Brazilian sugar and ethanol producer, Cosan S.A., has been authorized to repurchase approximately 6.6 million common shares, representing 1.6% of the total capital, within a year. The Board of Directors 'approval requires the shares repurchased to be held in treasury for future sale or cancellation.

Cosan Ltd. (CZZ) holds roughly 62.3% of the controlling share of Cosan S.A. The company recently reported its financial results for the second quarter of 2011 with net income up 20% year over year based on a 40.7% growth in total revenue.

 The company's bottom-line results were driven by an increase in volumes sold, higher prices and higher transportation revenue, which were partially offset by an escalation in the company's cost of sales and operating expenses. Cosan's total shareholders' equity, ending the second quarter rose 7% sequentially to US$2,474.6 million, with common stock  of US$2.7 million.

For fiscal year 2011, management anticipates that revenue would be in the range of R$16.5−R$18.5 billion, EBITDA in the range of R$2.0−R$2.4 billion, and capital expenditure in the range of R$1.9−R$2.3 billion.

Crushed cane volumes are expected to range within 54−58 million tons, down from Cosan's prior  expectations of 58-62 million tons, sugar volume sold within 4.1−4.5 million tons (prior expectation 4.7−5.1 million tons), and ethanol volume sold within 2.0−2.2 million liters (same as before). Dry weather conditions in the Brazilian Center South region that had adversely impacted sugarcane production, chiefly accounted for the downward revision.

We believe Cosan has been growing through acquisitions and other expansion strategies. Its joint venture with Royal Dutch Shell plc (RDS.A), a leading energy and petrochemical player, is expected to create better access to the ethanol consumer market. Enhanced competitiveness in biofuels and fuel distribution businesses offer greater scope for development of second generation technology with improved debt ratios through more capital and rise in cash profile, and superior growth prospects.

Cosan faces stiff competition from Archer Daniels Midland Company (ADM) and Copersucar - Cooperativa de Produtores. We currently maintain our Neutral recommendation on Cosan, supported by a Zacks #3 (Hold) Rank.

 
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