Priscila Araujo, partner and variable income manager at Macro Capital.
A few days before the Gamestop event, coincidentally, we recorded an episode of Stock Pickers (click here to listen) where I told you a little about one of the short positions we carried in our portfolio: M. Dias Branco (MDIA3).
In addition to being a particularly turbulent time to talk about shorts, it always ends up being a delicate situation to comment in public about a short position in a stock. It is worth mentioning that when we set up a short position, it is because we believe that the share price does not fully reflect the fundamentals and perspectives of the company.
Putting it in context, M. Dias Branco, the national leader in the sale of pasta and cookies, had a very strong sales performance in the first six months of the pandemic. Consumption in this period was driven by emergency aid, by the fact that people are eating at home and even by the sharp rise in the price of rice (which leads people to substitute rice for pasta).
I defended in that episode of Stock Pickers, disclosed at the end of January, that with strong cost pressure, a combination of rising wheat prices and currency devaluation (since wheat is quoted in dollars), greater competitive pressures, difficulty in passing on cost increases to prices and prospects for weaker volumes, the company could face difficulties in maintaining that level of volumes and profitability.
Yesterday, March 31, closing the fourth quarter results season, M. Dias released his fourth quarter figures. As we predicted, performance was disappointing. The volume sold in the last quarter was 15% less than a year earlier. The company raised prices to try to rebuild margins, and with that, once again, lost market share, both in pasta and biscuits. The sharp increase in costs, with the rise in the prices of wheat and palm oil, increased marketing expenses and the effects of operational deleveraging made the company reach the lowest level of gross margin in recent years.
A few hours of trading after the release of the result, the stock fell almost 7%. The accumulated loss of the share in the year is 15% more, against a 2% drop in the Ibovespa.
Despite the return of emergency aid, the scenario for 2021 still looks quite challenging, with competitive pressures, cost and doubts about the company’s commercial strategy, taking away visibility on volumes and profitability. We remain cautious with the action.
For now, we opted to maintain a portfolio of “low carb” shares, bought in protein and without macaroni or cookies.
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