Itaú BBA Slashes Oncoclínicas Target Price by 52%, Sees 85% Upside

Itaú BBA reduced its target price for Oncoclínicas (ONCO3) shares from R$ 23 to R$ 11, maintaining a buy recommendation.

This new target indicates an 85.5% potential increase from Monday’s close. By Tuesday afternoon, the shares had risen over 6%. Several developments have shaped this update.

The first quarter was challenging, with the company facing pressure from some health plan operators, which hurt its cash conversion cycle and increased financial leverage.

A major turning point was the announcement of a capital injection by Banco Master and Bruno Ferrari.

The analysts noted, “Considering the capital increase and the challenging first-quarter results, we revised our profit projection downward.”

Despite this, they emphasized that the shares remain attractive. This year, the stock has declined by about 51%, despite Tuesday’s rise.

The R$ 1.5 billion ($265.49 million) capital increase, through issuing 115.4 million new shares at R$ 13 ($2.30) each, will reduce financial leverage from 4.3 times to 2.8 times.

This is a significant factor in the investment thesis, according to BBA. Future cash flow generation remains a concern.

Optimistic Outlook for Financial Performance

However, the analysis team projects improvement in accounts receivable, particularly as the account linked to Unimed FERJ receivables becomes active again.

Gradual improvements in accounts receivable and lower financial expenses post-offering should enhance free cash flow.

Solid revenue growth trends are expected throughout the year. These are driven by strong growth in clinic volume, a strengthened partnership with Porto Seguro, and an agreement with Unimed Recife.

The projected earnings before interest, taxes, depreciation, and amortization (EBITDA) are R$ 1.22 billion ($216.81 million) in 2024 and R$ 1.55 billion ($274.34 million) in 2025.

Financial results benefit from the capital increase and a controlled effective tax rate. They forecast net profits of R$ 242 million ($42.83 million) in 2024 and R$ 473 million ($83.72 million) in 2025.

These figures are 33% and 15% below previous estimates but align with analyst consensus.

Despite significant downward revisions, the stock performance seems to reflect these updated projections.

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