CZZ Invests for Ethanol Growth - Analyst Blog

Cosan S.A. Indústria e Comércio (Cosan S.A.) announced its plans for formation of a company in association with Petróleo Brasileiro S.A. (Petrobras), Camargo Correa Óleo e Gás S.A. (Camargo Corrêa); Copersucar S.A. (Copersucar); Odebrecht Transport Participações S.A. (OTP) and Uniduto Logística S.A. (Uniduto).

These companies aim at establishing sound transportation and storage system of liquids specializing in ethanol. At its initial stage, the new company will have a capital base of R$1 million with Copersucar, Cosan, OTP and Petrobras; each receiving a 20% stake while Camargo Corrêa and Uniduto would obtain a 10% stake each.

Preliminary studies on the project were earlier conducted by PMCC Soluções Logísticas de Etanol S.A., Uniduto and OTP.

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 a net income up 20% year over year based on a 40.7% growth in total revenue.

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.

We appreciate Cosan's steady growth 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 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 Zacks #3 Rank (Hold).

 
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