NUR May 2022 Edition

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Contents Page


Quick Take on Iberian Markets



World War 3.0


The owners behind public companies

8 Page

11 Page

14 Page

18 Page



Interview with: Tiago Lourenço

Business Deep Dive: Ambipar Group S.A. NIC-UD Fund: Monthly Performance


Quick Take on Iberian Markets Portugal and Spain reached an agreement with the European Commission to limit natural gas prices. The two countries, after intense weeks of work, have reached a 12-month deal to limit natural gas prices in the wholesale market at an average of €50 per MWh, while it is currently priced at around €90. The agreement was the next step after the decision of the European Council of allowing the Iberian countries to decouple the gas from the electricity market to avoid the impact of volatile gas prices on electricity bills (Iberian exception). IMF expects a decrease in the Portuguese deficit. The International Monetary Fund projected a deficit of 2.4% for 2022 and a public debt of 121.6% of GDP. These projections, however, are above the 1.9% deficit and 120.7% public debt forecasted by the Portuguese government for the same year. The institution also predicts more deficit reductions for the next years (at a slower pace) but does not expect a surplus in the budget balance in the near future. Portugal receives 64 million to host refugees from Ukraine. Following the invasion of Ukraine in February of 2022, the EU Commission managed resources to support civilians escaping from the war. The commission has paid about €3.2Bn in advance to the Member States to help them receive the Ukrainian refugees. Spain was one of the members with the higher incentive, receiving €430Mn, while Portugal received €63.7Mn from the total funds. Inflation in Spain is lower than expected. The consumer-price growth in the Iberian country was under the 9% estimated by Bloomberg, falling from 9.8% in March to 8.3% in April. The drop in the consumer price index happened after a decline in the gasoline market prices and a subsidizing policy done by the Spanish government on gasoline and diesel prices (0.20 per litter). The core CPI, however, achieved its highest level since 1995 with a 4.4% value. According to European Central Bank Vice President, Luis de Guindos, after consistent increases in inflation since the begging of 2022, the peak of Europe’s inflation is “very close”.

Mateus Hayashi Portugal and Spain remove restrictions on the use of masks in interior spaces. After two years of pandemic and several restrictions over activities and interactions, the Iberian countries decided to end the indoor face mask rule. According to authorities, this step was only possible due to the high vaccination levels and decrease in Covid-19 infections. The mask restrictions, however, continue mandatory in some situations, such as in public transportation and health centers. War in Ukraine caused cuts in Iberian countries’ growth forecast. The IMF recently revised the growth estimations for world economies due to the negative effects of the war in Ukraine. The forecast growth for Portugal is 4% for the year of 2022, which represents a significant downward revision when compared to the 5.1% previously expected for the same year. In Spain, the decrease in expected GDP growth was even sharper, changing from 7% to 4.3%. Golden Visa investment increased 16.6% in April. The investment raised by residence permit achieved €59.7 million in April, which represents an increase of 16.6% year-on-year or 72.5% compared to March of 2022. Of the total money invested, €48.3 million were destinated for real estate and €11.4 million to capital transfers. The golden visas were destinated for families from the United States, China, Turkey, India and Brazil (from bigger in number to lower). EDP Renováveis sells a portfolio valued at €298M to Mirova. In a statement sent to the Portuguese Securities Market Commission (CMVM), EDPR confirmed the conclusion of the sale. The buyer side of the deal is an affiliate of Natixis Investment Managers, who acquired 100% of the wind portfolio. It is composed of six wind farms located in Poland which generate a total of 149MW. The farms are already in operation and were evaluated at €298Mn (€2Mn per megawatt).

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World War 3.0 How a global cyber war may no longer be a conspiracy theory Introduction As of the beginning of May, the economic sanctions imposed on Russia are still taking place with no modifications from its earlier stages, meaning that its effect didn’t spread to the fuels trade. In a scenario where the war aggravates, countries are still debating whether they can undertake the economic costs necessary to put new sanctions into practice, which could foster a reaction from the already weakened Russian economy, given that its survival highly depends on their fuels. As Russia is not using nuclear weapons on its invasion and may not want to start a conflict with immeasurable implications, a solution for them could be employing cyber attacks. Hence, the importance of analysing how likely it is for this scenario to take place and what could be the possible aftermath, based on historical grounds.

Cyber securities The pandemic materialized a working from home environment that was rare to be found. By doing so, companies are increasingly performing their operations in a digital manner, making cyber security a higher and higher concern. In the context of a war, where one of the participants is one of the countries with the highest level of cyber power, the importance of cyber security becomes immeasurable. One may not be aware of the dangers that this entails, but countries do not use their cyber capabilities solely as a provider of national security. Instead, it can be used to perform espionage, steal intellectual property, tamper with democratic elections, and in some cases it can even be a threat to the regular functioning of a given country’s infrastructures, financial institutions, oil industries, nuclear plants and military operations. The possibilities for disruption are endless, and yet, these are the ones’ we are aware of, as the cyber

Patricia Coelho

power is not only accessible to nations, but also to terrorist groups, such as ISIS and Al-Qaeda. Furthermore, there may be a misconception of what can be perceived as a cyber attack. There are countries that highly invest in their capabilities, and while they have every resource to perform an attack, defence may be more out of their scope. Besides being hard to protect a country from it, the nature of the malfunctioning is not always consensual. There may be a poorly written part of the code or a regular software problem that could be interpreted as an attack and cause countries to “retaliate” unnecessarily, causing frictions in international relations that could be avoided.

Key Players The investment performed by each country is not publicly known and measurable, as it depends on each country’s strategy. By attempting to measure the amount of human capital allocated to this sector, it is possible to get an estimate of the relevance given to these operations. However, a problem arises with the scope of agencies that are being taken into account. While the majority of countries focus their forces fully on governmental agencies, Russia and Iran, for instance, tolerate and collude with private agents that pledge their alliance with the nation’s interests, making the amount invested even harder to gauge. Nevertheless, studies point the investments made by the US, China and Russia to be the most significant in this department. For the specific case of the United States, it has been a strategic goal since 1990s and have made considerable investments, besides possessing the CIA and a considerate amount of well regarded companies with large data access and usage. In addition, the US also has first movers advantage and close ties with other countries that also prioritize their cyber capabilities. Another reason why the US has a competitive advantage in comparison with China and Russia is that the former has always targeted military goooooooooooooooooooooooood

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operations to pursue their geopolitical strategies. In opposition, Russia and China have also concentrated a specific amount of their power in developing “weapons” to spread fake news and propaganda in their regimes, having, thus, less focus on the remaining operations than the US. It is still worth to note that the UK and Iran have also made significant efforts in this regard as a percentage of their GDP and that China and Russia still pose major threats to the US (and the rest of the globe) due to the sometimes untraceable and difficult to defend nature of cyber attacks. In fact, it is estimated (but not confirmed) that 32% of the attacks on the US came from China (mainly to steal intellectual property) and 9% from Russia, enforcing the idea that the lower capacity does not invalidate the damage they can impose. For this reason, in August, Joe Biden hosted a cybersecurity summit and proposed a $1tn infrastructure bill that allocates $2bn to improve a range of cybersecurity systems.

Examples of Cyber attacks Some publicly known cyber operations that occurred are from the US and Iran against each other; Russia against Estonia, Georgia and Ukraine and Chinese government attempts to steal intellectual property from other nations. The first cyber attack that is commonly known is perceived to have taken place in 1999. However, it was not until 2007 that the scale of the attacks started to get more concerning with the appearance of the first attack on an entire country. In opposition to what many may think, it was not driven by a geopolitical strategy or an attempt to steal intellectual property, but rather by historical motives. In fact, it was performed by Russia against Estonia on a retaliation for the removal of a Soviet Union monument in Tallin. They launched a series of DDOS (distributed denial of service) attacks that targeted state and commercial facilities and forced Estonia to close its digital borders and block all internet web traffic. In may 2017 there was a clear example that depicted how fallout of cyber attacks can proceed well beyond its scope. The WannaCry malware was created by North Korea targeting the globe, but particularly UK, that locked people out of their computers and only provided access to their data in return of a monetary exchange. In the beginning the

attackers demanded 300$ worth of bitcoin (used a lot in cyber crime activities in its earliest stages due to its untraceable nature), which later increased to 600$ and if the payment requirements were not met within 3 days all the data from the computers would be permanently deleted. Knowing that it affected approximately 230 000 computers globally and operated in 150 countries, is not the most worrying concern, as it also tampered severely with the UK National Health system. 19 000 NHS appointments were cancelled due to the situation, as it impacted a third of the NHS trusts and deviated the routes of several ambulances that were in service, costing not only £92ml to the NHS and $4bn across the world, but also ultimately people’s lives. Furthermore, cyber attacks can also spur purely from a geopolitical strategy as a gateway to have a wider control over international events. In 2016, the US accused Russia of tampering with their 2016 presidential elections by ordering a sustained information attack. The ultimate goal was to endorse Trump’s campaign while attacking Hillary’s and further created distrust and division in America, which can be observed in the poll below as Hillary and Trump’s supporters have severely distinct views on the authenticity of the attack. The strategy was conducted by an attempt to gain access to voters personal information and full access to the state’s systems, followed by hacking Clinton’s campaign officials emails and leaking them on multiple occasions, creating diversions and negative press.

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Cyber attacks from Russia against Ukraine On the same day of the invasion, several Ukrainian government websites were shut down in what resembled a cyber attack that happened a few years ago. In 2017, a malware named “NotPetya” blocked the access to an array of websites and wiped out databases, interfering with Ukrainian airports, banks and railways. Its impact transcended Ukraine, spreading globally and distressing multinational companies, among which are Maersk (a global shipping company), Merck and FedEx’s European counterparts. Maersk stated that, within the firm, 49 000 computers were destroyed and that more than half of their servers could not be recovered. Moreover, Ukraine has been a target or more concretely a test centre for Russia’s cyber operations with ongoing attacks since 2014. Since the beginning of the invasion, Russia has launched several DDOS operations on Ukraine, including threatening messages in the computer screens. Most of the damage, thus far, has been a result of the military operations, but there is an ongoing threat of further attacks that could destroy more facilities. As a response to Russia’s actions, Ukraine has won the support of most countries around the world and both hackers and multinational companies have joined forces to combat Russia in the cyber

space, even if there is still not a record of this policy’s impact on the country. In opposition, just as Ukraine has succeeded in collecting allies, several hackers have also pledged their loyalty to Russia and that they would retaliate if any threat was to launch into the country’s borders.

Future Outlook Given the current state of the war and the way that it is being conducted, it is not that farfetched to picture a cyber war occurring in the near future, even if it starts behind the scenes. In fact, the US has already reported having blocked some cyber offenses that are were, allegedly, orchestrated by Russia. In a response to this arising threat, the US government has partnered with Australian, Canadian, New Zealand, and UK cyber authorities to implement a joint cybersecurity advisory (CSA). The CSA pledges to notify other countries of the menace of gooooooooooo

Russia’s future plans against Ukraine as well as its allies, knowing that the state-lead cyber organizations and the groups that have pledged alliance with Russia have also stated that they could operate against any country that provides help to Ukraine. Regardless of their intentions, the scope and availability of their actions may be limited by Article 5 of NATO that specifies that an attack against a member country is condemned if it has a military base, otherwise it is only applicable if the consequences are similarto a military attack, implying that a cyber attack can occur without any retaliation on the condition of not having deathly repercussions. As aforementioned, Russia has a history filled with cyber attacks, which is also applicable to some of their allies, such as China and North Korea, only aggravating the situation. For this purpose, companies have also increased the investment in cyber security significantly. As of the end of February the amount invested in cyber security by venture gooooooooooo

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capitalists was of $3.2bn, in comparison with the $2bn in the same period of 2021, the year where there was the highest level of investment in cyber security documented, as it is depicted in the graph below. The surge in investment further validates the concerns that companies also have with strengthening their defense, given the current circumstances. Moreover, following the elections in South Korea, the tensions on the border escalated exponentially, with South Koreans fearing a missile attack from their counterparts. The previous president had successfully avoided tensions between North Korea and the US by arranging a meeting between both countries leaders to try and stop Kim Jong-Un from using nuclear weapons. Nevertheless, this relationship has since deteriorated not only with the US, but also with South Korea, as a consequence of the electoral result. While this conflict is not yet in motion and the major fear is of the usage of nuclear power, North Korea has performed several attacks against South Korea since their civil war. After overseeing the actions taken by the Russian government, it could be encouraged to take severe actions against South Korea, now that the entire world is focused on the Russia-Ukraine conflict, including the US (one of South Korea’s allies). Therefore, it is also relevant to pay close attention to how the tensions in between both countries escalate, as cyber attacks could be a form of attack that jeopardizes the country, while not spurring an immediate reaction from its allies, due to the other conflicts and the nature of the attack.

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The owners behind public companies Defining ownership in public companies through different dimensions and analysing potential effects on companies Introduction Some companies are public and are traded in financial markets, allowing them to raise funds through the issuance of shares. When we look at companies in financial markets, and we buy a stock, we become a shareholder, giving us the ability to have a residual claim on the present and future cashflows of a company. But who exactly are these investors, do they say anything about the companies they are invested in, and do they have power over decision-making processes? This article aims to answer those questions in a simplified and casual manner.

What is an Ownership structure? Before tackling the importance of company ownership structure, one should understand how companies can be owned. Ownership structure has many different dimensions, namely if the stake is direct/indirect, minority/majority, vertical/ horizontal, private/public, but our focus will be ownership concentration, identity, and power (extent of control).

Ownership concentration When considering shareholder concentration, ownership dispersed, structures can be: complex, or concentrated.

Benedita Velozo

Figure.1. Visual representation of ownership concentration in companies

Dispersed •

100% small shareholders

Complex • •

Several large block shareholders Several smaller shareholders

Concentrated • •

1 large block shareholder Few small shareholders

Source: Laeven & Levine

In corporate governance theory, fully dispersed companies are composed of 100% of small shareholders, and concentrated compares have one large shareholder (owner of least >5% of a company’s shares) and a few small shareholders with little decision making power. In the middle of the two, which we see quite often in today’s publiclylisted companies, are complex ownership structures, which have more than one large block holder. According to an OECD report, 1/3 of publicly listed firms are considered complex. Moreover, large block shareholders represent only 18% of market capitalisation, meaning that large companies tend to have more dispersed ownership (due to less large block holders).

Concentration around the

World When we consider ownership around the world, most countries are on the concentrated end, where the top 3 shareholders of each company own at least 50% of it. However, countries such as the United States, United Kingdom have much more dispersed ownership in comparison to the opposite end, Argentina, Russia, Indonesia, which have at least 60% of companies with the top shareholder owning majority stake of the company (>50% plus 1% ). high levels of These concentration in some countries can be due to weak investor protection rights, political (eg. increased government intervention) and financial reasons (eg. low levels of personal wealth). 8

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Table. 1. Ownership concentration by country % of ownership held by the top shareholder of publicly listed companies in 2017 per country 80% 70% 60% 50% 40% 30% 20% 10% Argentina Russia Indonesia Chile Turkey Sri Lanka Hong kong Italy Philipines Poland Singapore Austria Brazil Israel Me xico India Fra nce Pakistan Greece Ma laysia Germa ny Viet Nam China Thailand Saudi Arabia South Africa Korea Netherlands Norway Canada Sweden Finland Japan United Kingdom United States


Source: OECD

Ownership identity If we look at the identity (also known as investor category) of shareholders in ownership structures, they can be owned by private corporations, holdings, public sector (state), institutional, and other free-float investors. Free-float are the shares that are open to the public and can be traded in the secondary market, which is after they have initially been purchased by someone in the primary market (eg, after an IPO). In addition, institutional owners such as Vanguard, Blackrock, and State Street are the most prominent investor in financial markets, representing an average of 41% of the world’s market capitalisation. Following that, the second largest investor, is the public sector, owning around 14%.

Who owns the power?

& acquisitions), or administrative decisions (eg. executive compensation). They can do so at the General Annual meeting and if they hold shares with voting rights. Voting rights can be seen through the company’s share-structure, where instead of having a single type of share (known as single-class), they have dual-class or even multi-class share structures. Dual-class structures is a share structure with two types of shares. The conditions of each share class varies from company to company. By creating these multiple share classes, companies are able to protect the control of the company. Taking Alphabet (Google) as an example, the company has three share classes: Class A, B, and C. Class A and C are the only shares available for the public to buy, whereas Class B is available to the insiders and founders of the company. Table. 2. Alphabet’s share-structure (Google)

Considering ownership concentration and identity, these can have different impacts in the shareholder decision-making of the company, particularly through the type of shares they own. Shareholders can own shares with voting rights or no voting rights. If they have voting rights, they can vote on matters involving corporate decisions (eg. election of the board of directions, shifts in company goals, structural changes) and events that can occur to their ownership positions (eg. stock splits, mergers Source: Investopedia

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.The founders Larry Page and Sergey Brin, own most of Class B shares. Their stake represents less than 20% of outstanding shares, however, their voting power is of 51%, leaving them with a controlling stake, due to the “power” of Class B shares.

Effects of structures


changing its current ownership structure which deprives some shareholders of voting rights.

Ownership Source: mimiandeunice

Ownership structure is an internal corporate governance mechanism, used with the aim of creating value for shareholders through effective corporate governance. Good corporate governance is in a way, the ability to create a culture of transparency, awareness and clearness in regards to the working and operations of a company. So, if the ownership structure is too complex, this can bring about a few risks. However, if the ownership structure is too disperse or too concentrated, this can bring agency problems and other risks, which is what we will see now. Dispersed Ownership - A principal-agent problem

The dispersion of ownership, means that shareholders have little power that is proportionate to the wealth they have invested. This can easily generate a principal-agent problem. A principalagent problem refers to the misalignment in incentives between shareholders (principals) and company managers (agents). Principals could for example, prioritise company profitability, whilst agents could start acting on their own self-interest by engaging in projects that improve their selfimage, but do not improve company profitability. When ownership is dispersed, shareholders have little power to monitor these kinds of activities. Concentrated Ownership - A principal-principal problem

When ownership is concentrated, this can generate not only a principal-agent problem but also a principal-principal problem (also known as multiple principal problem). The principal-principal problem occurs between minority and controlling shareholders. As large stake shareholders can hold significant portions of the company, they can act in their own self-interest, abusing power as opposed to acting in the interest of the smaller shareholders. A recent news is that Schroders intends on

Increased monitoring and less risk

Additionally, if ownership is concentrated, few shareholders own a larger portion of the company, and thus are more exposed to the risks of its overall performance. Therefore, as to ensure the company stays on track, with incentives aligned, large block shareholders could bring more monitoring on agents (management), which could help to generate more value to shareholders overtime. Although there could be higher risk exposure from shareholders, there could be less overall risk due to the level of control held by each.

Final takeaways Complex company ownership is nowadays quite common in publicly-listed companies. On the one hand, this can be positive because it prevents several principal-agency problems. On the other hand, it can give rise to other issues such as lack of transparency due to it being hard to identify who controls the company. Nevertheless, companies are increasingly concentrated rather than dispersed, and different types of owners (eg. institutional, public, strategic etc.,) can have different impacts on company performance. Considering this background obtained on company ownership structure, it could be interesting to invest in companies that have at least two large block shareholders, and are placed in countries with good investor property rights. If the company to be invested in has significant institutional ownership, it could be useful to look into the level of activism they engage in. Passive investors could be less likely to monitor company performance but they could be more risk averse. Finally, companies use multiple share classes, as a method to protect company control, however, this can deem unfair for some shareholders because it can take away their power to vote on the direction of the company.

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Fearflation How inflation fears may undermine EU recovery and markets

Tomás Forte Vaz

Introduction Europe is currently at a crossroads, although Eurozone inflation currently stands at 7,5% and the US and UK have already begun hawkish rises in interest rates, the ECB has yet to alter interest rates, but why? The abandonment of inflation rate targets was based on inflation deriving from temporary catalysts, nonetheless, the interpretation for the duration of these factors has altered, so why the unwillingness to change and how will this impact the future of Europe and European Financial Markets?

Unprecedented times unprecedented measures



The policy response to the economic and social repercussions of the Covid pandemic had no doubt very close in memory the unsuccessful response to the financial crisis. It could mainly be divided into 3 main parts: a more extensive quantitative easing program, establishing an escape clause of the Stability and Growth Pact and the creation of 750 billion euro Next Generation EU recovery fund all whilst creating the first debt sharing mechanism in the EU’s history. Given the pre-existing lowinterest environment, the manoeuvre for central banks in general to intervene was limited, thus actions that promoted fiscal stimulus were preferred, as outlined by the removal of debt limits permitting health spending and lay-off programs and the Recovery and Resilience Plan targeted at boosting digital and environmental transition. On paper this seemed like an adequate response in the face of such an uncertain adversary, however, given the dynamic nature of economics, things quickly turned south. The unequal stages of recovery of its member states, prompted by structural divergences within the Eurozone variations in debt levels and success of vaccination programs to name a few coupled with the exogenous impact of the Ukraine Russian War, imply the need to alter the response to combat the repercussions.

The perfect storm The Covid pandemic create an ideal environment for inflation, an exogenous shock that led to strong fiscal and monetary intervention coupled with supply chain issues and the rising cost of production, or in more dramatic terms, a perfect storm. In response to recessionary threats, the ECB printed over $2 trillion in euros, increasing the supply of money, which would lead to a devaluation of the money already in circulation. Moreover, the rapid economic recovery provoked by large scale vaccination programs, strong expansionary fiscal policy and rise in household savings boosted demand as the mortality and infection rates fell. The third and most relevant factor, the disruption in supply chains and rises in commodities and energy prices had longer than expected impacts on the economy, reducing inventories and supply as a whole. These 3 main drivers, increase in money supply, recovery of demand and significant rises in the cost of production are the perfect formula to have large levels of inflation. The Eurozone’s current inflation rate of 7,5% is a record high and has well-exceeded expectations, not only in terms of scale but also in terms of duration much due to the prolonging of rising costs of production. The unprecedented nature of these conditions, not necessarily high inflation, but the specific macroeconomic climate the EU faces implies that the policy response has to be very goooooooood


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effective but also be wide in scope to aid each country in a one-size-fits-all strategy.

Stagflation fears: When mandate is not enough



One fundamental difference between the policy response of the ECB and the Federal Reserve is whilst the ECB has one single mandate aimed at addressing solely price stability, the Federal Reserve has both price stability and full employment under their ‘dual’ mandate. This is particularly relevant in the context of cost-push inflation, under a dual mandate, it may be justified to not increase interest rates given the further worsening of the unemployment rate, yet what has happened in reality is the inverse, the US has increased interest rates and has been hawkish at that, yet the EU has not, especially after having removed the notion that the inflation is ‘temporary’. Given the devasting nature of rapid inflation, from eroding savings, damaging purchasing power and the historical snowball effect, why has the ECB maintained such a stance and what are the next steps.

Inflation: Not too much nor too little, just the right amount Taking into account the existence of this direct trade-off between controlling inflation and promoting economic growth, although the ECB has a single mandate, the existence of this trade-off as well as other consequences are weighted in the ECBs decision on whether to increase interest rates. Inflation is a very powerful phenomenon, driven by expectations, under a normal context should be aimed to be around the 2% target, given the nature of scarce resources and rising demand. Too little inflation or deflation can provoke a systematic cycle of postponing consumption, which can be very hard to overcome and detrimental to the sustainability of an economy. On the other hand, excessive inflation can be a sign of an overheating economy or in this case, of difficulty in managing increases in the cost of production. This will in turn harm the international competitiveness of member states as well as erode the value of savings. Excessive inflation may also disincentivize foreign direct investment given the greater level of uncertainty meaning that inflation should be controlled, so why has it not been?

One specific condition associated with how the Eurozone is run, is whilst there is a common monetary policy, each country has autonomy over its fiscal policy. Given the need for greater fiscal intervention, debt limits were temporarily removed, and several countries increased debt to finance themselves. With a rise in interest rates under this condition, it could be very problematic for countries such as Greece or Italy that have Debt-to-GDP ratios above 150%. This asymmetrical divergence between countries within the Euro area is relevant not just in the case of debt, but in terms of economic trends, many economies have not fully recovered, and anticipation of interest rate hikes could provoke severe consequences. Besides the structural differences in debt and economic cycle within the EU, the ECB maintained its stance of not increasing interest rates because, the main source of inflation, cost-push, appeared to be temporary. Given the potential consequences of increasing interest rates too early especially with high debt levels, for example, asset pricing, the ECB decided that it would seek to evade doing so with the hope inflation would stabilize. Unfortunately, inflation continues to grow, and as a result of the RussianUkraine war, this has further been aggravated, with a risk of a potential escalation having even more impact. Whilst the fear of interest rate hikes to control inflation not being worth the trade-off and worries of an escalation potentially being catastrophic remain, the ECB has finally opened the door for interest rates increasing in June. This change in stance comes at a time when the Euro has devalued 15% year-to-date with respect to the dollar and fears of an EU recession emerge. Nonetheless, the change in stance will have implications not only on the macroeconomic climate, but on the financial markets, and it is key to understand how to navigate this.

Market consequences The current market perceptions are quite bearish, with stagnation fears, interest rate hikes and the Russian-Ukraine War predominating in many investors' minds. Nonetheless, with the expected interest rate hike, it will likely lead to a downwards adjustment in market valuations. Under the context of inflation, especially given the risk of stagflation it becomes harder to navigate the financial markets and identify investment opportunities.

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Given the expected trade-off associated with a fall in economic growth to control inflation, equity markets are expected to fall on the back of higher cost of debt and lower demand from interest rates rises, where there is a disproportional fall toward cyclical growth stocks that trade for above-average multiples. In conjunction, yields will be expected to rise, since future bonds will have higher yields, and the ones already issued will be sold increasing current yields. In this scenario, in the short-term it may be more interesting to invest in bonds given the rise in yields, however, due to high levels of inflation (that will be expected to fall), the real yield remains negative. Under a scenario of potential stagflation and higher interest rates, commodities and gold appear to be the best historical performers. Alternatively, investing in companies with high pricing power and are more towards inputs, industries for example the Semiconductor, or more stable cash cows as interesting equity strategies. Furthermore, the inherent risks associated with an economic slowdown or a further escalation of the Ukraine-Russian war along with spill-over effects should also be factored in, making the equity market less attractive. In terms of the Euro, it is unclear to what extent its devaluation is associated with inflation and interest differential and to what extent it is due to a potential economic slowdown or recession, nonetheless given its significant fall, it seems it is more likely to rise then fall.

Overall markets are currently pricing 2 interest rate hikes by the 21st of June whilst the Euro Stoxx 50 is down 12,61% year-to-date but just above pre-pandemic levels outlining that this is already being factored into current pricings, to what extent these expectations will be in line with reality is another story. Nonetheless, the overall prospect for the European Financial Markets is not without a doubt gloomy and investors should aim to diversify their portfolio away from the Eurozone and be prudent in their strategy under such an uncertain macroeconomic climate.

Uncertain times After many debates on the best timing of an interest rate hike, given the apparent temporary nature of inflation and rise in debt levels in the EU, the ECB has finally suggested it is open to an interest rate hike in the next month, but with it, comes a bearish expectation for the future of European markets. The expected correction of asset valuations as well as economic slowdown will be the main price to pay to help stabilize price levels, whether this is the right path remains unclear, as well as the full extent of the Eurozone recovery. What does remain clear is that whilst the pandemic promoted a series of exogenous shocks and uncertainty, this uncertainty seems to be here for the apparent future, and we as investors will have to continue to try to navigate this uncertainty and try to find value.

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Interview with… Background Tiago Lourenço is an Investment Executive at Blantyre Capital, a London-based Special Situations focused Private Equity firm. He holds a bachelor in Economics and Master’s in Finance from Nova SBE, where he was also the President of Nova Investment Club and an Teaching Assistant, completing the latter in 2011.

Tiago Lourenço NIC President (Class of 2011) /in/tiagogl

After the Master’s, Tiago interned in Goldman Sachs in Sales & Trading, having changed desks to Commodities PE investing inside the firm after he found S&T was not his passion. Since then, he obtained the FT offer to work in the Global Commodity Principal Investments desk at GS, work his way up the rankings in Oaktree Capital to Vice President and, finally, moved to Blantyre at a more senior position. He also has a short experience in consulting at Bain & Co. at the Madrid office.

Education in Nova SBE

Q: How has your experience in Nova shaped and prepared you for a career in abroad? Do you feel the program was adequate? What did you feel that was missing? A: I think that choosing a foreign school was not even a possibility at that time. It would involve a considerable investment amount, and, for that, it was not even a consideration. The preparation and [Nova SBE’s] program was very good, specially on the more technical aspects of Economics and Finance. It depends on what you do with it. I did a lot of heavy course work that involved Excel, data handling, perhaps the most complicated subjects and I thought that was very good overall. It put me in a position where I was technically better prepared than the vast, vast majority of, for example, the intern class at Goldman, of 80 people. I was for sure, in technical terms, top 5, no comparison. What was missing, and I learnt this throughout my career wished I had paid more attention to it, was how to sell. Which is a key skill for everybody in your career, you are always selling something. And so, I believe I became very focused on the technical aspect on everything and, if you do a good technical job things will work out, but

that does not matter if you cannot sell your work to your colleagues, to your bosses, etc.

Q: What were your goals after the master’s graduation? Did you know which area you wanted to focus on? A: Yes, I was absolutely sure at the time that I wanted to be a trader, but I was completely wrong. It was definitely not what I wanted to do. I did not know that I would be in this career [Private Equity], that’s for sure.

Q: During this time, you had also the opportunity to be President of NIC, our sister organization. Could you tell us a bit about how was the experience, both as a president and as a member of the community? A: NIC was critical, absolutely critical in how my career pan out. At the time, we were the second year of NIC and we had learnt from the students of the year before, which tried a few things and they did a very good job, some of them are very good friends. What we did that was very important was three things: One is that everybody was really focused 100% of their time at that point in getting a finance job in London, everybody on that club wanted to do

that. Second, we took preparation really seriously because that was the second year of the Master’s and we knew we were behind, you should have started this in the undergraduate or the firstyear [of Master’s], we took it really seriously, we prepared the first job pack, it was like 50 pages, prepared our applications early and each of us applied to 30 different places and then, thirdly, we went to the London Field Trip and met some of the banks (it is questionable how much that helps). With all this, out of 10 [NIC] people, 8 had a finance job in London. In prior years, up until that year, the maximum that ever happened in Nova was 2. So it was really everybody working together with the same goal, with the same focus, all day, all night. So I’d say that [NIC] helped a lot, in fact, it was critical.

Q: The importance of networking is something widely mentioned in finance careers. Do you feel that it helped in your path? At the time there wasn’t a network, we were the second year. But the people from the prior year helped us a lot, we interviewed them all, we ask them “What questions are asked in the interviews?” and we collected all these tips. 14

NIC Undergrad Review

At least from the prior year, at least 5 or 6 guys are close friends, from my year they are all close friends still. And from the year next to me, 3 or 4 guys are close friends, so the network is real. But you get as much you put in it, it was real because we were working so hard to make it happen, if you didn’t work so hard to break in London, you made 3 applications and hoped for the best, I don’t remember this person, they most likely did not succeed in this. Working in Goldman Sachs

Q: After the Master’s, you were able to land a summer position at Goldman Sachs. How was the interviewing process? How did you prepare? What do you believe that gave you the edge over other candidates? A: The interviewing process is somewhat similar in all banks; You have a few interviews and then you have the Assessment Centre. The interviews are, like I said, somewhat similar, so what gave the edge was that, as I mentioned before, the technical preparation really comes across because they usually ask us some form of technical questions that Nova students would normally be well positioned to answer, specially if you study the job pack, because all interviews are there. It is some variation of the same thing, it all keeps coming, so you study really hard and there’s a lot of websites today (like Mergers and Inquisitions). So that was the edge. The lack of edge is that it is difficult to get interviews, that is the hard part, and you will most likely not succeed in every interview, you actually need 2, 3 or even 4. So, the edge was the technical preparation and the number of high quality applications we did. Not just filling the form, we set the rule that from August we were doing one application a day to be early and doing it right, to be complete. We were spending 4 to 6 hours in doing an application every day (and this is August summer vacation for most

people) to write a specific cover letter, to give specific answers to the questions and then, eventually we had between 25 to 30 applications, all the big banks, all the smaller banks, the boutiques, we all got more or less, 3 or 4 interviews out of that. Number is really important and highquality applications. And you couldn’t tell which bank you would be passing to the next step, because some banks did not interview me, rejected me, but interviewed some other guy, and then in another bank I got and he didn’t, so it is very random. Nova is better now, but at the time it didn’t really have the name yet, so maybe it is easier now. I would really encourage people to really put in the time, to do a lot of applications because it is a numbers game, eventually you’ll get something. And then in the interview, it is very unlikely that you’ll land it on the first one you got. You’ll be nervous, you won’t know what to expect, so you need a few, 2,3 or even 4 to make it happen. I don’t remember how many I had, maybe at least 4 or 5 interviews that I went to the Assessment Centre and, ultimately, it worked out.

Q: Regarding the position, can you tell us how is a normal day working at Goldman Sachs in London and explain in what functions you were doing at that time? Could you explain the different desks you

were assigned to? A: In the summer, you are allocated to a lot of desks, so you spend time on maybe 4 or 5 desks over the summer, a couple weeks at a time. You start really early like 6.30/7 and it is very market-driven, you got to read a lot, all the news, all the flows, understand exactly what’s happening.

“I would really encourage people to really put in the time, to do a lot of applications because it is a numbers game, eventually you’ll get something.” You got to add some value to the desks and at the time it was the sovereign crisis so you could bring some Portuguese perspective because they cannot read local newspapers (or most can’t). But ultimately, I realized that in Sales and Trading, you are just sitting in the middle of buyers and sellers, and you are trying to sell them a story, compel them to take some action. When I thought I wanted to be a trader, I thought I wanted to take some positions, make money for myself and making investment decisions and traders do not really do that anymore (but they did it in the past, they’re really just market makers for the most part). 15

NIC Undergrad Review

Eventually I figured there was a group there that was actually making investments and the one I landed in was the Private Equity group in the commodity space. I spent maybe 3 weeks there and then they wanted me back.

Q: What was the reason for them wanting you back? A: I think it was the technical preparation, for sure. And it was maturity because I was quite a bit older than most interns. Because when you are in the second year Master’s (and I did my internship after that), you know exactly where you want to work, in Goldman Sachs all the other big banks, and all the other interns were secondyear students from Oxford and that opens a lot of doors, but they have less experience and less maturity that is visible. They will “kill” you at public speaking and communicating and (as I mentioned) there’s where I struggled in, the sales part of the job. But they were nowhere near in technical terms, half of them did not even know what the bond yield even was, half of them hadn’t open Excel in their lives… I think there’s more Data Science related courses in Nova now (or, at least, I heard there were), take them. You want to be technically really strong and that gives you an edge. And certain things become easier you when you technically that strong.

Working in PE

Q: Next, having moved from GS and Bain, you started your career at Oaktree Capital Management. Leaving after for Blantyre Capital. What was the reason why you left GS to Oaktree Capital? A: It was essentially because I wanted to be a better investor and Oaktree had at the time the most flexible investment mandate in the world… they can do debt, equities, they can do publics, they can do privates. At GS I was only doing commodities Private Equity and the way you become better as an investor is by looking at a broad spectrum of things as early in your

career as possible. That’s the experience I wanted to have. For example, things Oaktree didn’t do (e.g., start-ups), I was doing a lot of that in my spare time. So, I was getting as much exposure to different kinds of investments as possible. It was reasonable long tenure that I had there, and I couldn’t recommend it more. It is not just Oaktree, it is a feature of what is called “Special Situations” fund, many tend to have a very broad mandate that just allow you to learn as much as possible with. The problem you have in traditional private equity is that they only do one thing. It is always the same thing. Buy the company, leverage it up and try to improve operations a little bit, and that becomes a little bit monotonous and repetitive and there are a lot of options that you lose, and you do not think creatively about the financing solutions. I would recommend that for anybody who wants to be an investor, some tenure in special situations is going to be helpful. So, the biggest Special Situation firms in London is Oaktree as the top player. All the big private equity firms do it, like Apollo, Blackstone, … then there’s others that are more specialized like Cerberus, Centerbridge, Oak Hill, … Sometimes they call it “Credit” or “Special Credit”, but all top PE firms have a “Special Situation” arm.

Q: Could you tell us about a normal working day for you in the various steps of the PE hierarchy (as an associate or a VP)? What were your main tasks (financial modelling, commercial and financial due diligence, …)? A: It changes a little bit at the point you have 5–6-year experience. So, in the earlier years, you are doing a lot of modelling, grunt work, data handling, data importing, and data cleaning. You are reading a lot of materials about the company and industry, about what management is saying, about what managers of competitors are saying, so it is a lot of diligence and takes a lot of time looking at valuation and comparable valuations. It is a lot of NIC Undergrad Review

work, and you want to make sure all the adjustments are done… that is the analyst and associate work. At the VP level, it starts taking a different position, which is more leading the deal, so you are more actively involved in the negotiation, and legal document discussion. It is a much better role, that is where you want to be at. You want to be leading your own transactions, dealing directly with the other partners, and have someone else doing the more difficult or timeconsuming less rewarding work because you’ve already done it for many times and many years, and you know which questions to ask.

Q: Having a very high specialization on the area of Private Equity, what would be your advice to be able to land a position on these big funds (Oaktree, Apollo, EQT, …). Is the typical IB to PE path necessary? Will experience in Portuguese PE companies be valuable to the big funds? Is networking important? How are the recruitment processes for these firms structured? A: Yes, I would say it [typical IB to PE path necessary] is not necessary, but it is 9 out of 10 drops. They come from somebody who is doing M&A or structuring or whatever it might be on some investment bank. It is all to headhunters. Then, 1 out of 10 is some different path, like some guy who comes from some … consultancy or directly from business school … 9 out of 10 come some from investment banking to PE through headhunters, and you don’t even have to do anything. If are in the right place in the right bank doing a good job, they will call you … You get spotted and they introduce you to the opportunities. If you are not in such a good bank, then you should be working hard trying to move to a good bank. Networking is also important, but not at a level where you get a job because you know somebody. At a higher level, when you have 10 or more years of experience, I would say it is maybe 50/50 between headhunters and networking. 16

At a junior level, it is very difficult… it for sure helps but it is not how 9 out of 10 jobs are created. About recruitment, for real it is the headhunters. They call you to introduce themselves. After a year in banking, you get five to ten headhunters who call you, you don’t even have to do anything, you just make sure your LinkedIn is updated and they will find you. So, I got the opportunity, and the process was difficult. I had 15 interviews and a case study. They were extremely technical, and the case study is very hard, you had to be a good analyst to handle it, an average analyst won’t do it, it is too hard.

Finance-Related Book Picks

Q: Why is that too hard? A: It is extremely timing constraint. The case studies are all similar, like 3-4 hours… There is a funnel of people who did well in school, then people who get good jobs… they always want the best analyst, and that is why I was telling you to ignore work-life balance until you you’ve got into a seat where you see yourself in a position you stay years or more, maybe it is the PE seat. It is a little tricky because you always need to be at the absolute top of your game.

Final Tips

Q: What do you enjoy the most about life as an analyst? A: I would say, to me it is really exciting to do deals… There are so many dimensions that go into doing a deal, you got find it, source it, learn about it, analyze it, consider it, and conclude whether you are right or not. You got to execute it, negotiate with the other side with advisers involved… all of this or you are right, or you are wrong in doing that investment. To me, investing is like the most complicated videogame that I can think of, every single piece in the world affects the moves and every investment in the world.

Q: Any final message or tip for the people reading this interview that want to work in Private Equity at a big fund? A: I think you got to start really early (your preparation). It is reading these books and podcasts (“How I built this” and “Invest like the best”) I told you. It is getting those internships in the undergraduate, and the closer to PE the better. Maybe it is a Portuguese PE or a Portuguese IB… whatever it is, just do something, because you are at disadvantage and you need to outcompete and outwork all international students and make sure you are strong technically, always. Take the hard courses and make the math part of it easy for you, so you can focus on other things. The next advice is about determination, when it comes to the time, it is not making 2 applications, it is making 10, 20, 30 every day and, eventually, it lays out… One more I would recommend is, if you can do off-cycle internships, which use to be quite a few, you do that, because those positions have a lot less competition. By: Bermardo Patrício and Mateus Hayashi

17 NIC Undergrad Review

Business Deep Dive: Ambipar Group S.A.

Hugo Weber

Bernardo Patrício

Ambipar Group operates as a waste management company, offering B2B services to firms to reduce their processes’ environmental footprint (Ambipar Environment) and emergency services to firms in events that can lead to damages to the environment (Ambipar Response). Despite being based in the city of São Paulo, Brazil, it is a multinational company operating in 16 countries with a high presence in the American continent and the current leader in environmental management.

Markets The stock debuted public markets on July 2020, being valued at a Market Cap of 3.4bn BRL (roughly $700mn at the time’s exchange rates) while also being the first environmental management company to enter the Brazilian stock market. The IPO was executed at a offer price of 24.75 BRL with 38mn shares sold to investors (plus 5.7mn issued of the “greenshoe facility”, entailing an oversubscription of the shares offered) and raising north of 1bn BRL. In the first days of trading, the stock price increased over 25% to a and, currently, the 52-week range stands at 26.25 BRL for the low and 71.10 BRL for the high, showing that the price has maintained itself above the IPO offering price, albeit with large volatility in the last months, being today priced at 34.61 BRL (as of 5/5/2021).

A major share of the company is owned by the Borlenghi family, being Tércio Júnior, son of the company’s founder, the majority shareholder with a 56% stake on the company. During the pandemic, the stock price of Ambipar grew more than 100% in 2021 as the firm pursued an aggressive M&A strategy (acquiring 15 companies during 2021), but, as rates increased in Brazil, the sentiment has been much less positive since then. Company Data Price (BRL) YTD Performance 52-week Range (BRL) Shares Outstanding (mn) Market Cap (BRL bn / USD mn) Enterprise Value (USD mn)

34,61 -17,95% 26,25 – 71,10 112,9 3,9 / 777 5 986

Source: Bloomberg; Note: market data from 5/5/2022

Price Performance (Ambipar vs Ibovespa)


Source: Bloomberg;

NIC Undergrad Review

Introduction and Industry Analysis In this Business Deep Dive, we will be analyzing Ambipar, a multinational waste management firm from Brazil that deals with B2B solutions with the objective of decreasing process waste in several industries such as Oil & Gas, Pharmaceutical, Paper pulp, Automotive, Cosmetics… (for instance, using the residuals and waste from the paper pulp industry can be used to make “Ecosolo”, an organic soil that is rich in nutrients for agriculture), called Ambipar Environment, and a emergency-oriented services on all type of events that can have a material impact on the environment (be it a public health crisis or a small leak), a growing subsector with higher penalties for pollution and public pushbacks, called Ambipar Response. This is an industry that is growing by the day as countries grow more developed with higher amount of income, creating more rubbish and wasting finite resources, meaning that it is imperative to take active action.

Industry Unsurprisingly and unfortunately, the waste industry is a growing one. Today, the World Bank estimates that 2bn tons of waste is produced in the worldwide, projecting also that this number will grow to 3.4bn tons in 2050. This is a very alarming number because landfills leak greenhouse emissions that contribute to climate change, being one the major sources of methane pollution, accounting for 15% of methane emissions in 2019 in the US (according to the Environmental Protective Agency), equivalent to more than 21.6

million cars driven per year. Out of the 2bn tons of waste produced, 33% (a conservative estimate) is not managed in an environmentally friendly manner and this number is poised to grow as emerging markets (like India, Brazil, …) grow more developed. According to the data, high income countries, despite accounting for 16% of the population, produce 34% of the waste, leading to a positive correlation between income and garbage production. Changing habits is not possible only through social awareness, for profit firms that use the waste of others to create value for the economy are the realistic way of moving forward with recycling, combing inner incentives of profit (Adam Smith’s invisible hand) and the desire to improve the environment, and Ambipar is exactly within the juxtaposition of these two. Waste generation and management is even more critical after a critical decision in 2018. China, a major importer of waste for developed economies, decided to pursue a waste import ban on several types of rubbish, including plastics. Since 1992, China had been importing 45% of plastic waste cumulatively and this import ban affected recycling industries worldwide, leading to diversion to other S.E. Asian economies but, according to Scrap Recycling Industries, “There is no single and frankly, probably not even a group of countries, that can take in the volume that China used to take”, leading to developed countries to use their own territory to dump the garbage they produce. This, of course, creates an opportunity for firms like Ambipar to grow and prosper.

Annual municipal solid waste generated per capita (kilograms/capita/day)

Waste generation projection by region

19 NIC Undergrad Review

Business model Formed by two synergic segments in the environmental management market "Environment" and "Response", the company has rooted in its operations the commitment to sustainable issues, working the ESG pillars within its businesses and supporting its customers, contributing directly to their own ESG ratings owing to sustainable commitments. With respect to both segments, Ambipar is present in 16 countries, with more than 350 bases worldwide, and more than 30% of its revenue in USD currency, an important factor given its better capability of dealing with phenomena that affect the Brazilian market when comparing to national competitors, that do not share this particularity. In the Environment segment, it operates throughout the national territory and Latin America offering total waste management, focusing on processes such as recovery, reuse, repair, and recycling of materials, aiming the full execution of the principles of circular economy by incorporating waste into production processes, reducing use of natural resources and financial costs, focusing on the stay of the business, and offering the necessary support to its customers for full engagement and improvements in its ESG indicators. The business lines of the Environment segment are plenty and include Total Waste Management and Recovery, by which the Company offers integrated solutions focused on zero landfill policy to minimize environmental impacts. Also, the company deals with reverse and post-consumption logistics, including personalized projects according to the operation of the client, the availability of collectors for packaging, collection, and recovery of waste. The expansion in Brazil and abroad is a part of the Environment segment growth plan based on a disruptive innovation strategy, with the use of state-of-the-art technology in R&D focused on the recovery of waste by applying the concepts of circular economy. In the Response segment, the company is specialist in Crisis Management and attendance to environmental, chemical and biological emergencies that affect people´s health, the environment, and the State. The company

deals with Accident Prevention in different transportations methods, industrial plants, dams, and port terminals, as well as offering an ample portfolio with several sorts of training focused on the emergency service specialization, prevention of occupational risks, and labor safety. There is also the focus on Response to Emergencies, which Ambipar works with the attendance of environmental emergencies that occur in highways, railways, airports, ports, terminal ports, industries, mining businesses, and pipelines. Dealing with Disinfection of Environments, providing Industrial Services and Fighting Fires are also a part of the company’s vast business model. Regarding the growth plans in the Response segme nt, the focus is on expansion in Brazil and abroad (L atam, North America and Europe), working in preve ntion, training, emergency care and industrial services, ensuring efficiency in response time, and mitigating possible environmental impacts.

Peers Analysis Waste management firms are not a new thing, in fact there are many of them currently trading in the US stock market, such as Waste Management, Republic Services, Waste Connections, Casella. The big difference is that these firms are much more invested in nonhazardous waste collection, meaning that, more often, these firms will collect domestic garbage from neighbourhoods, transfer them to the firm’s facilities and then be separated and properly disposed or transformed in new products. Moreover, some of these firms also have landfill services, something that is not part of Ambipar’s business model. Also, most of the peers are either a group of private individuals (a specific community, for instance) and governmental entities, where most of American waste is generated, but they do not have the focus that Ambipar has on B2B solutions.

Financial and strategic analysis Starting off with the Revenue, the company went from an increasing R$484mn in 2019 to R$1,916bn in 2021, representing a 3-year CAGR of approximately 40%. 20

NIC Undergrad Review

Most of this growth is associated with the growth plan that had been stipulated by Ambipar, which focused on acquisitions of companies that add value to the platform of the growth verticals and increase the group´s knowhow in new technologies and services, such as the six acquisitions made in Environment in 2021. The merits of this high growth rate were given to the successful result of the synergies of acquisitions captured in the period. Regarding the revenue from this same segment, it increased 226% from 2020 to 2021, driven by the Total Waste Management line, which was reported a growth of 255% in the period. It has also been reported a high growth rate on Post consumption line of 1266%, based on a revenue of R$10mn in 2020. Breaking the total revenue into the company operations, 57,1% of it came from the Environment segment, while 42,9% came from the Response segment, and the remaining 1,4% from the remaining early-stage operations. Cost of goods sold has also followed this growth in 2021, increasing 176% and reaching 1,295bn, also reflected by Ambipar Group´s growth strategy through acquisitions (M&A), with Personnel, Third-party services and Maintenance representing the largest weight on the total cost of goods sold. Thus, Net Income rose substantially between 2020 and 2021, from R$44,8mn to R$144,2mn, implying also an increase in Net Profit Margin to its current value of 7,52%. (Insert Income Statement Graph) After a decrease in Debt-to-Assets between 2019 and 2020, from 51,51% to 14,32%, it went back to the 50% mark, rising to 56,44% in 2021, outlining a tendency to increase dependency on debt to finance the company´s assets. In the same period, debt rose from R$235,4mn to R$2,743bn, an increase of 1066%, mainly: (I) by the capitation of R$450mn of working capital; (ii) by the issue, in June 2021, of debentures in the amount of R$900mn for acquisition of 100% of the shares of Disal Ambiental and 50% of the share capital of Suatrans Chile and (iii) for the 2nd issuance of debentures of R$500mn. Cash equivalents was reported at the value of R$793mn and a Net Debt of R$1,9bn at the end of 2021, opposed to R$591,6mn and –R$384,5 respectively in 2020. Debt/EBITDA ratio was 2,5x, meaning that the

company must operate 2 and a half years to pay off its debt, which is not a red flag because of the steady inflow of cash coming from long term contracts signed. Moreover, given the aggressive M&A strategy in 2021, cash flow from investment activities rose sharply from -R$196,5mn to -R$1,8bn an increase of approximately 834%. Also, cash flow from financing activities grew 171% given a debenture funding of R$1,4bn to finance acquisitions.

Source: Bloomberg

Source: Bloomberg

Source: Bloomberg

21 NIC Undergrad Review

Valuation overview


Going over to the valuation of Ambipar, we can observe that the stock is trading close to its 52week low. This is not relative to the firm’s performance, but rather the drawback can be traced to the inherent market risk of the stock (being a Brazilian equity). Recently, the Brazilian Central Bank has been increasing interest rates to fight inflation and currency depreciation, leading to a multiple revaluation in equities as the country’s “risk-free” rate rises. The firms chosen to create a public comps valuation were Clean Harbour, Waste Management, Republic Services, Waste Connections and Casella. All of these firms had similar EBITDA margins of 18%-30% compared to Ambipar’s 27% 2021 EBITDA margin, despite showing much more mature revenue growth (10%20% compared to Ambipar’s 173%, although highly driven by the aggressive M&A activity). It is important to remind that most of Ambipar’s revenues and profits are located in Brazil, meaning that using mainly US-based firms will lead to inflated valuations, hence a discount may be necessary. If the reader is concerned about this, he or she may look at the 25th percentile values. Using past year’s numbers, the drawback in the equity price has turned the stock into oversold territory, with all 25th percentile multiples showing implied returns of 30% to 60%, assuming that the firm does not grow in 2022. Using 2022 and 2023 estimates, we have EV/EBITDA multiples of 6.7x and 5.8x, compared to the 25th percentile of 15x. Point being, even with a country discount, the current valuation is still attractive.

All in all, the firm will slowdown its M&A activity in 2022 in order to consolidate its +20 acquired businesses that allowed for both geographical and vertical expansion (by capturing the whole value chain of waste management services and emergency response). Like said before, the company is interesting due to the combination of the Environment and Response segment which allow for great crossselling opportunities to increase monetization with current clients and being the “one-stop shop” company for other ones looking into improving their ESG numbers. Being ESG an increasingly important metric for investors and clients, the firm is well positioned to take profit from the secular growth. When compared to the peers, most firms are mostly focused on waste management services, while Ambipar is much broader. To finalize, we foresee a bright future for this emergent company in a growing industry.

22 NIC Undergrad Review

NIC-UD Fund: Monthly Performance Markets took a toll after interest rate hikes stopped being a matter of speculation to a matter of anticipation. Global Markets April was a difficult month for global markets, after a first quarter riddled with concerns about inflation and interest rate hikes, alongside a war in Ukraine, April was no different with a realisation of these concerns which hurt investors´ confidence. Despite a 25bp increase in the interest rate in March. The US headline inflation still sat at 8.5%, a level not seen since 1981, meaning a half-point interest rate hike both in May as in June seems increasingly unavoidable. Consequently, expectations for higher interest rates led to a steep increase in Yields, with the US 10-year Treasury yields increasing 59bps during April, and approaching 3%, the highest level since the end of 2018.Regarding the equity market, despite a strong earnings season, the S&P 500 witnessed a 5.64% decrease. Growth stocks were hurt the most over the expectations of a tightening of monetary policy.

António Gouvêa

In Europe, despite record-high levels of inflation ( 7.4% in March) the war in Ukraine still casts a shadow on the strength of the European economy to face a rise in borrowing costs. The current difference in monetary policy between the FED and the ECB has pushed for a 4.85% valorisation of the dollar against the Euro during the month, with the currencies approximating parity. In China, the government´s Zero-Covid policy continues to take its toll on the economy, with wide-range lockdown policies causing factory lockdowns and supply bottlenecks. To counteract the economic damage, the People´s Bank of China has reinforced an expansionary monetary policy. Consequently, the Chinese 10-year bond yields moved below the US´s for the first time in a decade and the Chinese Renminbi depreciated 3.97% against the US dollar during the month. Despite the government´s measures to counteract the slowdown of the economy, the Shangai Composite still saw a -9.39% decrease in April.

Current Positions There was a change in the portfolio during the month, as A10 Networks was added to the fund. The worst performer was Sibanye Stillwater, with a 15.90% decrease, closely followed by Disney ,with a 15.85% decrease in the same period. The top performer during the month was Danone, having witnessed a 13.21% increase. Positions Weight on Total Equity

Entertainment US

5,90% 4,76% 3,04% 6,27%

Internet US Gami ng ETF Electric B atteri es ETF

8,55% 5,49%

2,34% 4,55%


1,28% 0,00%



4,92% 7,20%

3,94% 0,00%

2,86% 5,52%

6,96% 6,94%


Renewables US Consumer Products EU Gold Miner Pharma R etailer Chi nese Govt Bonds

Current Price

Open Price




Accounting Software

US Equity


67.05 $




US Equity


14.28 €






49.40 $



Consumer Products

EU Equity

57.64 €



EV Battery


15.41 €



Food & Beverages


84.45 €






32.21 $



Gold Miner

CND Equity


58.23 $



Holding Company

US Equity


322.83 $

286.23 23.00


Oil & Gas

US Equity


25.91 $

Tobacco UK Aerospace & Defense UK



US Equity


71.02 $


Oil & Gas US Accounti ng Software Food & Beverages ETF


Social Media/Internet

US Equity


200.47 $


13 Sovereign China Bonds

Bond ETF


5.44 $


14 Streaming/Entertainment

US Equity


111.63 €




UK Equity


33.52 £



Carbon Credit



30.09 €






13.33 $



Precious Metal Mining

ES Equity


13.74 $



Automotive industry

EU Equity

147.14 €


Holdi ng C ompany US Bi otechnology ETF Carbon Credit Commodi ties Precious Metal Mi ning Automotiv e indu stry Cybersecurity Cash

23 NIC Undergrad Review

NIC-UD Share Price (Inception Cumulative Returns) 6,0% 4,0% 2,0% 0,0% -2,0% -4,0% -6,0% 01/04










Benchmark Analysis

Monthly Performance 20% 10% 0%

Stock #13

Stock #12

ETF #6

Stock #11

ETF #5

ETF #4

Stock #10

Stock #9

Stock #8

Stock #7

ETF #3

Stock #6

Stock #5

Stock #4

ETF #2

Stock #3

ETF #1

Stock #2


Stock #1


Portfolio vs Benchmarks 0% -1% -2% -3% -4% -5% -6% -7% -8% -9% -10%


-3,76% -3,61%



-5,46% -5,64%






po si te

0 10 E an gh a



ik ke i2 25


Eu ro st ox x

In de x

50 0

IW or ld





(S ha re

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The war in Ukraine, lockdowns in China and prospects of a tighter monetary policy marked a negative month for our portfolio. The fund´s share price dropped 5.46% in April, only outperforming the S&P 500, the FANG+ and the Shangai Composite out of the list of benchmarks. The FANG+ index decreased by 6.48%, as in addition to the increase in interest rates, some of the growth companies ( such as Amazon and Apple) warned that factory lockdowns and supply bottlenecks in China are becoming a significant threat to the operations of the firms. In China, these harsh lockdowns continued to take their toll on the country´s economy and investors' confidence, with the Shangai Composite dropping -by 9.36% during the month, the worst performant out of the group. The top performants out of the group were the FTSE 100 and the PSI (formerly PSI20). However, both indexes still witnessed negative returns, having decreased 0.38% and 0.93%, respectively.

Corporate News Volkswagen has announced its plans to cut the production of dozens of combustion engine models in order to focus on fewer, more profitable, premium cars. The company's CFO stated: “We are [more focused] on quality and margins, rather than on volume and market share”. Danone suffered from a lot of speculation around a possible takeover bid for Danone by the French rivals Lactalis. The news came from the French journal Lettre A which indicated that the dairy product company could be interested in taking over all or parts of Danone. A full takeover solely by Lactalis is unlikely to happen given Lactalis´ dimension. However, a purchase of the more unperforming brands of Danone could be more realistic. Nonetheless, Danone´s stock rose 9.5% following the news. Lastly, Meta´s stocked spiked 18% following better-than-expected quarterly earnings. Despite missing analysis's estimates for revenue growth, the social network´s Daily Active Users (DAUs) were 1.96 billion, beating estimates and recovering from the decline in the fourth quarter of 2022. In addition, a 4% YoY Average Revenue per User also contributed to an improved investor outlook of Meta as it is still able to keep up monetisation growth despite stronger competition from alternative platforms like TikTok. 24 NIC Undergrad Review

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