Quality At Value

QAV AMERICA 62 CLUB VIDEO

[00:00:00]

Cameron: Welcome back to QAV America TK, episode 62. This is the 21st of July, 2026. How you doing?

Tony Kynaston: Very well. How are you?

Cameron: I’m good. I’m good. Um, I’m gonna do a great, fascinating deep dive pulled pork today for you. A lot of fun stories about Brazilian dictatorships.

Tony Kynaston: Mm-hmm.

Cameron: but before we get into that, quick checkup on state of the world.

Tony, US markets closed down yesterday as oil surges on the escalating conflict. Uh, how many ships are passing through the Strait of Hormuz at the moment, Tony?

Tony Kynaston: Uh, I’m gonna say 10

Cameron: Yeah, I don’t know. Your guess is as good as mine. But interesting, to, uh, John Mearsheimer this morning, a recent interview with him, like a day old or something. And he’s saying, so we know that, you know, there used to be 20 million [00:01:00] barrels a day go through, uh, the strait, which has stopped. But he said there’s some interesting things happening. He reckons there’s 7 million barrels that the Saudis are getting out through the Red Sea or through the Oman, um, you know, side of the strait, which we talked about last week. So he said there’s 7 million of that 20 million that are still getting out, although I know, uh, the Yemenis are gonna.

the Houthis are gonna start shutting down the Red Sea traffic again, the news is this week. Iran’s bombing stuff that tries to get through the Oman side of the strait. But he also talked about, and I’ve read about this in other places this week, uh, China has cut its requirement by 5 million barrels. So, um, no one really knows how, but, uh, one of the suggestions I read is that they were tapping into their own reserves that they had been building up. [00:02:00] Plus, the rest of the world has been tapping into their reserves, so he said probably accounts for another 3 million barrels. So of that 20 million, sounds like a good 15 million of it is being accounted for in other ways, either reduction in demand or reserves being provided.

Uh, so that might explain why we haven’t seen the panic that we kind of expect to see. Oil price is back up, I think, around about 80 bucks now. What do my notes say? Somewhere around that, I think. Uh, t- t- 80? 90. 90. Sorry, not 80, 90. WTI I think is about 83, Brent’s about 90. But, uh, know, could be a lot higher. so there you go.

Tony Kynaston: Well, I think the other thing that happened for, to, to rattle US markets was the release of Kimi, uh, the Chinese AI, which is, [00:03:00] uh, taking the value out of a lot of the, the US chip manufacturers at the moment.

Cameron: Have you used Kimi, Tony?

Tony Kynaston: No, but

Cameron: I downloaded the Kimi app, uh, which is equivalent, uh, at least on paper, to the Claude Co-work and the, um, OpenAI Codex app. So it, it’ll plug into all your files on your desktop, and it can do stuff for you. I try, I’ve tried it twice in the last, uh, three or four days since it came out, and both times it said, “Sorry, Kimi’s really busy right now.

Too many users. Come back later.” I’m like, “Oh, well, that’s not really working out for me.” And I did read last night that they’ve shut down registrations for new users.

Tony Kynaston: Hmm.

Cameron: struggling to handle the demand. But, uh,

Tony Kynaston: You didn’t tell him, you didn’t tell him who you were? You couldn’t get to the front of the red velvet rope?

Cameron: I did, but I told him in English, not in, uh, Mandarin or Cantonese apparently. no, but the fact that, uh, there are three [00:04:00] Chinese models now that are

Tony Kynaston: Mm-hmm.

Cameron: much according to the benchmarks, neck and neck with the state-of-the-art US models. You’ve got Kimi from Moonshot, you’ve got DeepSeek, and you’ve got Qwen from Alibaba. all pretty close to Claude and OpenAI’s ChatGPT, a little bit ahead of G- Google Gemini. So, you know, it’s, uh, it’s interesting, uh, what this means for the, uh, forecast business models and revenue potential of these US models.

Tony Kynaston: Correct.

Cameron: Uh, speaking of models, our US model portfolio in the last month is down a little bit less than 1%, much neck and neck with the S&P 500, which is also down about 1% over the last month. Um, over the last one year, though, we’re up 35%, 36 nearly, versus 18 for the S&P 500. So 12 months, we’re doing roughly double market and all [00:05:00] time, which is, uh, for new listeners, September 23, our portfolio’s up about 113% versus the S&P up 67%. double market, but, uh, pretty damn close. Our light portfolio, on the other hand, last 30 days is also down about 0.3% versus 0.76, and it’s only been going since, uh, December last year.

Since then, it’s up about 6% versus the S&P up about 8%. So we’re lagging a little bit. And, uh, some of the pulled porks I’ve done recently have done, um, particularly poorly. Uh, actually some of them not too bad. F&G, which we did on the 7th of July, is up 8%. Kohl’s, KSS Retail is up 1%. Carter Bankshares is up six.

Aeromexico’s [00:06:00] down 10. that in the 18th of June. Northrim Bancorp, though, is up 13. Some nothings from a few others, bit u- bit up, bit down. Deutsche Bank’s up 11 since we talked about it. But one that’s relevant for today is PagSeguro Digital. Remember them? Brazilian fintech.

Tony Kynaston: Mm-hmm.

Cameron: since we talked about them back in April. Some of the big winners, Pitney Bowes is up sev- 70% since we talked about them at the end of March. insane. Bread Financial we talked about at the end of February. They’re up 40% since then. Uh, so a couple of big financials doing well. One that really fascinates me, you remember, uh, the Chinese watch company, uh, uh, what are they called again? Zepp Health Corporation. At one point, we talked about them in July last year, so a year ago. point they were up 380% or something. They’re now only up 77%. So I don’t know what that means.

Tony Kynaston: Oh, probably means the bubble’s [00:07:00] burst.

Cameron: Yeah, I don’t know who’s playing what games with that, but, uh, there you go. Still up. I’m not complaining about 80% in a year. It’s good. It’s not 380%, but you know. It is what it is. right. Let me, uh, let me talk about my pulled pork today, ’cause we’ve got a guy we gotta talk to in less, in a little bit over half an hour.

Tony Kynaston: Well, I’m interested in hearing about this one because I’ve been invited to a wedding in Brazil in February next year. Yeah, so.

Cameron: Your daughter’s, Alex?

Tony Kynaston: No. My nephew, Dylan, who did some work for us many years ago, yeah.

Cameron: Wow.

Tony Kynaston: He’s marrying a, marrying a lovely Brazilian girl who wants to get married in Brasilia, well, no, São Paulo, where she, uh, near where she comes from.

Cameron: Well, pay attention and you can, uh, amaze her family with your knowledge of 20th century Brazilian politics. So today, uh, I’m gonna be talking about [00:08:00] Petrobras, ticker PBR on the New York Stock Exchange. It’s a $116 billion company. I think it might be one of the biggest businesses we’ve done a pulled pork on.

Um, bigger than Ford, I think. Um, probably. Don’t know how big Ford is, I can’t remember. this company was ranked number 71 on the 2023 Fortune Global 500 list. 58th largest public company in the world. Not often we get to invest in companies this size. Usually they’re priced out of our, um, sort of range. But this one is looking good. We’ll see what you think. A bit similar to the Argentinian

Tony Kynaston: Mm-hmm.

Cameron: about last week though. It’s largely currency movements, I think, that has brought this onto the buy list. based in Rio. “When my baby looks at me, Tony, I go to [00:09:00] Rio De Janeiro, mama mio.” Uh, Australian hit song, 1975, I think.

Peter Allen, for people who don’t know that song. but I, I hadn’t listened to Peter Allen since he was still alive and I, I. When I was preparing my notes for this last night, I went and listened to a bunch of Peter Allen tracks. lie, dude had some good songs. You know? He, he knew how to write a song. Tragically died of AIDS, I think 1992. Was the first husband of Liza Minnelli. I’d forgotten that, too.

Tony Kynaston: Mm-hmm.

Cameron: he, he used to open for Judy Garland and, uh, she him and Liza Minnelli. Anyhoo, uh, this company does report in the Brazilian reais, uh, which I found out it’s pronounced, the, the ri- what I would call the real is

Tony Kynaston: Mm.

Cameron: haio. [00:10:00] So you can use that when you go to Brazil. Haio.

Tony Kynaston: Mm-hmm. I still have some reais sitting around home from the last time I was in Brazil.

Cameron: When were you in Brazil last?

Tony Kynaston: for the Soccer World Cup when it was there.

Cameron: Oh. did you watch the World Cup?

Tony Kynaston: I did, yeah.

Cameron: I didn’t, but I heard about it. Heard it was pretty good.

Tony Kynaston: Mm-hmm.

Cameron: Um, and the plural of reais is reais, R-E-A-I-S. So there you go. So I had to adjust a few numbers in the checklist to account for this, but it didn’t make any difference. Uh, still scored the same way it scored before, the IV1 and the IV2, and the, uh, double the, um, FCIV. But it, um, scored at us, scored z- scored its Brazilian ass off. So there you go. This company is controlled by the Brazilian federal government. The state holds just over half the voting shares directly, plus more through the National Development Bank, [00:11:00] and I’ll explain why as we get into it. So the origin story. Founded 3rd of October 1953, when Getúlio Vargas, the president of Brazil at the time, signed Law 2004 into being. Vargas served as the 14th and 17th of Brazil. First was from 1930 to 1945, and then from 1951 until his suicide in 1954. Never heard of this guy before, despite all the attention I’ve paid to Latin American politics over the years. I have to talk about him, though, in my Cold War show at some point. This guy, fascinating. Ran a dictatorship from 1937, the Estado Novo. Justified it with a faked communist plot, complete with censorship, a censorship ministry, and a personality cult that [00:12:00] branded him the Father of the Poor. a lot, a lot from fascism, but crushed Brazil’s actual fascists, the Green Shirts, the Integralists as they were known, who tried to storm his palace in 1938 and lost a shootout with Vargas and his daughter. Then he gave workers real rights, minimum wage, paid holidays, the 1943 labor code, and also banned strikes in the same breath. So it’s been portrayed as it was a gift from the state, not something you fought for, not, not something you could withhold. It was a gift. Then he sent 25,000 Brazilians to fight fascism in Italy while running a quasi-fascist dictatorship at home. Got him deposed in 1945, came back as elected president, democratically elected in 1951. Signed Petrobras into existence in October 1953, and then shot himself in the chest 10 [00:13:00] months later. His final words in his suicide note were, “I leave life to enter history.” So there you go.

There’s a lot more to that story, but we don’t have time. But it’s a good story, and I will tell it in full on the Cold War Show at some point. Now, the nationalization of oil came out of a genuine mass movement. It was called O Petróleo é Nosso. The oil is ours. Reminds me of, um, Al Pacino’s Scarface, “The world is mine.”

No, “The world is ours.” I think the world is ours. It was like the oil is ours. This was launched in 1948. There was a, um. It, it goes, it goes that. So before 1953, Brazil imported most of its oil, produced a little bit, but barely any. And then there was this guy called Monteiro Lobato. He was Brazil’s most famous children’s author, basically Roald Dahl, uh, the Roald Dahl of Brazil, but wrote books about how the government was lying about oil.

He was convinced that [00:14:00] Brazil was sitting on massive petroleum reserves and that the bureaucracy in league with foreign majors was deliberately suppressing exploration. In August 1936, he published O Escândalo do Petróleo, The Oil Scandal, sold out multiple, uh, editions and, um, his line was that the federal bureaucracy, “Não perfura nem deixa que se perfura,” doesn’t drill and won’t let anyone else drill. Vargas had him arrested. Uh, arrested, sentenced to six months, reportedly with a specific prohibition on sunbathing. I mean, you know, you can throw someone in the hole, but even worse is you leave them outside but prohibit them from sunbathing. Um, he censored, Vargas censored, uh, the book. [00:15:00] he was pardoned after three months, came out broken but right.

So 1938. Sorry, what?

Tony Kynaston: And he was pale.

Cameron: Pale.

Tony Kynaston: Yeah. Yeah.

Cameron: than being a pale Brazilian. Um, Vargas created the Conselho Nacional do Petróleo, the National Petroleum Council, in took control of who could explore. 1939, they struck oil Salvador in Bahia, but it wasn’t commercially viable, but there was proof that oil existed. promptly banned private companies from exploring within 60 kilometers of the strike. Then in 1948, President Dutra sent Congress the Estatuto do Petróleo, a petroleum statute that would have opened the sector to private and foreign capital, most of them American. This was the era of the Seven Sisters, and it was basically gonna hand Brazilian oil to the American cartel. And then something called [00:16:00] CEDPEN, C-E-D-P-E-N, which was basically a campaign group, was set up in 1948. Included army officers, uh, communists, students, all these people that were, like, joining together to stop foreigners from getting control of their oil. I guess they saw what was happening in Iran and Venezuela and places like that, and they acted up. They marched in the streets for years. That’s where “O petróleo é nosso” comes from, “The oil is ours”. Killed the statute, and five years later, Vargas was back in, and he signed Law 2004 in. And, uh, yeah, they, they took a, had a monopoly on Brazilian oil, which lasted for 44 years until a constitutional amendment finally broke it in 1995. Um, by the way, Brazil, named after a tree, the brazilwood, gives a deep red dye from the Portuguese [00:17:00] brasa, meaning an ember, a glowing coal. So the country that’s named after the color of burning wood, its biggest company is the stuff you burn made from fossilized wood. that nice? Gotta love that.

Tony Kynaston: The circle, yep.

Cameron: Yeah, it’s beautiful.

By the way, guess where Brazil nuts come from?

Tony Kynaston: Uh, I’m guessing not Brazil.

Cameron: Bolivia. 54% of Brazil nuts

Tony Kynaston: Mm-hmm.

Cameron: Bolivia. Brazil produces a lot too. But t-together they produce about 91% of the world output. Brazil nuts, Brazilians don’t call them Brazil nuts. They call them castanha-do-pará, the Pará nut, after the Amazonian state. a fun fact: you can’t farm Brazil nuts.

Tony Kynaston: In Brazil or anywhere?

Cameron: Anywhere. They, they I read this whole thing. I don’t have time. Don’t have time, but you have, they, they, they’re, they’re wild trees [00:18:00] standing in rainforests that have to be pollinated by a particular bee that, has to do something with, um, uh, uh, uh, what are those big flowers? Orchids. They’re an orchid bee.

Tony Kynaston: Mm-hmm.

Cameron: big enough to open an orchid, and there’s something with the orchid pollen and the Brazil nuts.

It’s this whole thing. They can’t farm it. It’s biz- it’s bizarre. never gonna eat Brazil nuts the same way again. Anyway, too expensive to eat Brazil nuts anyway. Too much fat. Fast-forward to back to oil. Stop distracting me. So where, where are we with time? I’m running out of time.

Tony Kynaston: Have you had too much coffee this morning, Cam?

Cameron: drinking

Tony Kynaston: Okay

Cameron: with cardamom and cinnamon in it. I don’t know where cardamom comes from, but I love it. It’s my new thing. Fast-forward to 2006. They drilled into the Santos Basin, punched through two kilometers of water, then a couple of kilometers of rock, then two kilometer layer of salt, underneath the [00:19:00] salt there was oil. Uh, do you wanna tell me about the connection between the Santos Basin and then the Australian oil company, Santos?

Tony Kynaston: Oh, I was just thinking, I’m just wondering what it was. No, I don’t know. Sorry.

Cameron: None. Santos, the

Tony Kynaston: wow

Cameron: is an acronym for the South Australian Northern

Tony Kynaston: Yeah. Okay

Cameron: that bizarre? And our Santos has been around since 1954. Their Santos Basin oil discovery was only 2006.

Tony Kynaston: Right

Cameron: How’s that? Somebody should have sued. Anyway

Tony Kynaston: It wasn’t made by Santos, was it, in Brazil?

Cameron: No.

Tony Kynaston: No. Okay.

Cameron: nice, but no.

Tony Kynaston: Okay

Cameron: it’s the name of a region off of, uh, Brazil.

Tony Kynaston: Right

Cameron: anyway, uh, they announced it to the world in 2007. They called the field the Tupi Field, named after the, uh, tribe. There was a tribe called the Tupi. Then in 2010, they renamed it Lula, some think after the president, but it’s actually after a mollusk. then there was a court case and they had to change it back to Tupi. [00:20:00] Long story, don’t have time to go into it. Anywho, core business is, uh, I mean, basically this is a behemoth of a company.

Tony Kynaston: Yeah

Cameron: Three layers of the oil business, um, and they pr- pretty much have a functional monopoly in Brazil. Exploration and production, that’s the engine room of course. And a lot of this stuff, g- you know, the, the stuff that they’re getting out of Tupi. So they have a converted supertanker they call an

Tony Kynaston: Mm-hmm.

Cameron: FPSO, moors over the field, sucks the oil up, separates out the water and the gas on deck, stores it until a shuttle tanker comes up alongside it, put it in the shuttle tanker. You know this, you’re an ex-Shell guy.

Tony Kynaston: Well, yeah, we sh- and we’ve spoken about it with other stocks like Karoon who do this as well.

Cameron: yeah. No pipeline, no fixed platform, factory on a boat.

Tony Kynaston: Mm-hmm.

Cameron: they do about 3.23 million barrels of oil a day, did last quarter, which is up about 16% on a year ago. One [00:21:00] field, Buzios, does over a million on its own, more than Venezuela from one field.

Tony Kynaston: Mm-hmm.

Cameron: It’s Then they do the refining. They have about 10 refineries, about 79% of Brazil’s entire refining capacity they control. Basically every service station in the country is more or less downstream of these guys. third is they provide gas and power. They pipe the gas that comes up with the oil. They sell the electricity. So they find it, refine it, sell it a country of 210 million people. It’s, um, bonkers business

Tony Kynaston: Yeah. And very cheap too. I mean, the other thing I found out when I was researching this was because of the, the, what, what’s called the pre-salt layer, so where they’re drilling, uh, it’s, it’s actually very cost efficient and it’s high quality crude. So it costs them about US $25 a barrel to drill for oil and bring it to the surface, um, which is, which is very cheap compared to other places in the [00:22:00] world

Cameron: Right. So, uh, in r- Hay Ice, Ice Ice Baby, their first quarter revenue was 123.7 billion versus 123.1 billion a year earlier. So flat, um, more or less. Um, but in US dollars, the same quarter reads as revenue up 12%

Tony Kynaston: Mm-hmm.

Cameron: the real appreciated. Um, so why did the real appreciate? Well, remember when we talked about PagSeguro back in April, the Brazilian fintech. I talked about, uh, Tom Selick, the Selic rate, as they call it, Brazil’s equivalent of the Fed funds rate or Australia’s RBA cash rate, setting it around about 14 point something percent, 75, 25, somewhere around that, [00:23:00] versus I think the US Fed’s around about 3.5, 3.75. What’s Australia at now? 4.1, 4.6?

Tony Kynaston: Yep.

Cameron: around there, right.

Tony Kynaston: Mm-hmm

Cameron: So with the US, it’s about a 10 and a half point spread between the two. strip out inflation and the real policy rate is about 9%, one of the highest on earth. there’s this thing which you probably know, but I had to look it up. It’s called a carry trade. You

Tony Kynaston: Mm-hmm.

Cameron: trade is, Tony?

Tony Kynaston: Yeah, you borrow in a low interest environment and you invest in a high interest environment and you pocket the difference, basically

Cameron: S- sweet. Why aren’t we doing that?

Tony Kynaston: We could.

Cameron: we could.

Tony Kynaston: Yeah

Cameron: risk is that the currency

Tony Kynaston: moves, yeah.

Cameron: the other way

Tony Kynaston: Yeah. Mm-hmm.

Cameron: it can go both ways. so yeah, you borrow US dollars at 3.5%, you convert them to reais, and then you, uh, buy Brazilian government paper paying [00:24:00] 14.25%, collect the difference. The spread is the carry.

The catch is can go both ways, and you have to convert it back to dollars eventually. But, uh, so but apparently all of this happening, people need to buy the reais and what that’s doing is driving up the value of the currency at the same time. So, uh, it’s partly a dollar story as well. Um, the US to BRL, which is the, the currency code for the reais, fell 12.5% in 2025, uh, because Trump, the economic genius’ tariffs, Fed cuts, the One Big Beautiful Bill Act, which basically said, “Yeah, we’re gonna borrow a ton of money and not tax anyone.” rotating out of the dollar into gold, et cetera, et cetera. So the dollar, the US dollar is broadly weakened, the reais is one of the, uh, the [00:25:00] real is one of several currencies that looks pretty strong by comparison. And why this matters for Petrobras specifically, it cuts both ways. So they sell oil priced in dollars but report in reais.

Tony Kynaston: Right

Cameron: So when the real strengthens, the same barrel converts into fewer reais. That’s why production is up, but revenue is flat, so the currency ate the volume growth. But they also carry about 28 US billion dollars worth of debt, of it is dollar denominated, plus they have leases. All the FPSOs, the ships, they lease

Tony Kynaston: Mm-hmm.

Cameron: and they pay US dollars for them apparently.

Tony Kynaston: Mm-hmm.

Cameron: So when the real appreciates, the value of the debt shrinks, you book a gain. It’s all very complicated, messy currency stuff that I’m not gonna pretend I understand. Bottom line is their numbers look good, um,

Tony Kynaston: Yeah

Cameron: of the weakening of the dollar and the strengthening of the reais and the [00:26:00] interest rates and all that kind of stuff.

Sorry, I gotta sneeze.

Tony Kynaston: But there were also some other reasons. I mean, the stock price is up dramatically this year, not the least of which is because the oil price was up at some stage. It’s gone back, but it’s up again now.

Cameron: Yeah

Tony Kynaston: but also too, there’s a few other things going on which you might get to, um, in terms of the, the, the way Wall Street views the government’s, um, holding in Petrobras and what that means

Cameron: Well, no, I’m not gonna get into that. You wanna talk about that? I’m gonna get into Operation Carwash

Tony Kynaston: Yeah. Well, it was that was gonna lead me to Operation Carwash for sure.

Cameron: okay. don’t you, you tell your bit, then I’ll talk about Operation Carwash

Tony Kynaston: Okay. Well, there’s a, there’s a, a lot of things going on, um, with, with this company and how Wall Street views it. So, uh, traditionally this company, uh, would yield sort of very high amount, 7 to 9%. Um, [00:27:00] and then last year, uh, there was a big expansion, um, because they’re always continuously exploring and, uh, they, they’re very successful at exploring and they found some new fields which, um, had a, a kind of windfall profit effect on the company.

Uh, and so Wall Street started buying into the stock expecting, um, that that windfall would be shared with the shareholders, but the government said, “No, we think we’d like to put it back into, uh, developing the c- the, the reserves and, um, the future of the company.” Basically trying to, uh, future-proof the company because eventually like any oil company, the oil will run out.

Um, even though this, uh, this country has a pretty good replacement rate. It’s running at about 175%, and that means that for every barrel they take out of the ground they’re finding another 1.75 barrels to replace it. But even given that, they’re still saying that it’s probably got about 13 years before it starts to deplete.

Um, so the government [00:28:00] said last year when they found these new reserves, “We’re gonna put them into a special fund and that’s gonna help us to reinvest in exploration, uh, or, you know, driving costs out of the business.” Wall Street said, “Hang on. We’ve bought into the stock thinking that the dividend yield is going to increase because you’re gonna pay out that.”

And there was a bit of a tussle so it, uh, went up and down. Um, the government did, did sort of walk away from that a little bit. New c- new CEO came in, um, and there’s been a kind of compromise deal reached so Wall Street, uh, fell back in love with the stock and with the oil price rising, um, they’ve done pretty well over the last 12 months.

But there is always this tussle between what’s in the best interests of Brazil as viewed by the government and what’s in the best interests of the investors. Um, and that’s probably even more so the case now that Lula is in power in, in, uh, Brazil. But the other interesting point about Lula being in power is that, um, even though he is, you know, a left wing leader of the [00:29:00] country, there’s still, um, there’s still a paradox that’s going on in terms of how they run Petrobras.

And, and one of the interesting issues is that, uh, ’cause, ’cause oil drilling is basically shunned by e- ecologists, um, and greenies, uh, who traditionally have voted for someone like Lula. But now he is, um, taking them on and saying, “No, no, we need to keep expanding our, um, oil drilling, uh, for this company in order to increase the welfare payments to, um, to members of society.”

And one of the sort of, um- leading edges of that kind of movement is that they are getting closer and closer to the Amazon River basin with their exploration, and that’s caused a lot of consternation amongst the left-wing community in Brazil. And Lula’s been kind of fighting them off saying, “No, no, we need to keep drilling, keep making money, uh, putting it aside, and then I can, um, pay out, uh, high dividends back to the government to support the welfare state.”[00:30:00]

So just an interesting sort of paradox going on, uh, with, uh, this company and the government that, that has a controlling interest

Cameron: Yeah. Reminds me of, uh, Petro we talked about in a previous episode. Uh, Gustavo Petro, wasn’t that his name? Where is he the president of? Colombia. Colombia. And, uh, similarly, I think he’s like a left-wing, uh, president in Colombia, but they also have a lot of oil,

Tony Kynaston: Mm-hmm.

Cameron: do that dance. He s- he said, “We’re getting rid of, we’re, we’re getting rid of oil mining one day.

Right now we need the oil money.”

Tony Kynaston: Yeah. And that’s an interesting thing too when I, when I compared this company to some of the other oil majors. It’s about the size of BP in market cap sense, market cap sense, but it’s doing a lot less to, um, to get out of the oil industry. Like BP and Shell in particular in Europe are, are getting very heavily into alternative fuels, getting very heavily into EV [00:31:00] charging stations and electricity and things like that.

Whereas this company is doing very little. Um, it’s doing a bit on biofuels, but it’s not doing much to try and get a– wean itself off the oil industry

Cameron: Yeah. Well, uh, we’ve got 10 minutes left, Tony. I’m gonna quickly run through Operation Car Wash and then talk about the scoring and the numbers.

Tony Kynaston: Okay

Cameron: Operation Car Wash, like we love a good corruption scandal, a good scandal in these American stories and, um, this is one of the best. So the biggest corruption scandal in the hemisphere, um, is, uh, Operation Car Wash or Lava Jato, uh, kicked off in March 2014, got its name because the money laundering was first spotted running through a car wash in Brasilia and

Tony Kynaston: Yeah, one, one single car wash.

Cameron: one

Tony Kynaston: Just it’s just amazing, isn’t it?

Cameron: Ended up taking down [00:32:00] leading businessmen, congressmen, senators, state governors, federal government ministers, and former presidents, including Lula, who went to prison and,

Tony Kynaston: third of the Congress was indicted.

Cameron: crazy. Uh, I think Glenn Greenwald, when he was running The Intercept for Brazil, was part of this too, leaking stories about it. Um, yeah, basically the, the, the, the core of this was construction and engineering companies formed a cartel, agreed amongst themselves who’d win which Petrobras contract, inflated the price, kicked the difference back to various Petrobras executives and politicians, it was going on for years. The judge who sentenced Lula, by the way, Sergio Moro, announced he would resign from his position as a federal judge in 2019 and joined the administration of the right-wing president, Bolsonaro, as his [00:33:00] justice minister, Bolsonaro being Lula’s main political competition at the time. of course, Bolsonaro’s in jail and Lula’s the president again. Bolsonaro’s in jail after an attempted coup after he lost to Lula. The president, um, somewhere in there, uh, Dilma Rousseff, um, I can’t remember if she was. I think she was after Bolsonaro, before Lula came back maybe. She was the chair of the board of Petrobras from 2003 to 2010, but denied knowledge of any wrongdoing.

I think she got, uh, she got away with it. then on 19th January 2017, a small plane carrying Supreme Court Justice Zavascki crashed into the sea, uh, near the tourist city of Paraty in Rio de Janeiro, killing the magistrate and four other people. was the main guy, uh, [00:34:00] prosecuting the case. His plane crashed. Uh, in the end, Petrobras delayed reporting its annual financial results in 2014, and in April 2015 released financial statements showing $2.1 billion in and, and total of almost billion in write-downs due to graft and overvalued assets, which the company characterized as a conservative estimate. Uh, there was a 2.95 US billion dollar class action that they had to pay out, plus another 853 US million to the US Department of Justice and the Se- Securities Exchange Commission in 2018. Petrobras’ legal position throughout it was they were a victim of the cartel, not the author of it. And that’s broadly how the whole thing was framed. But, uh, recurring problem with the company isn’t fraud anymore, it’s that the [00:35:00] controlling shareholder has to win elections. Um, in May 2024, the previous chief ex- chief executive, Jean Paul Prates, was fired. fight was over how much cash went out as dividends versus how much got plowed back in, like you were talking about.

The government wants investments. Magda Chambriard replaced him in June 2024 and was reappointed in 2025. Her term runs through to, uh, 2027. uh, it’s. There’s a sort of messy fight going on still between executives and shareholders, and the government harkens back to what you were talking about. So there’s a

Tony Kynaston: Yeah

Cameron: coming up in October. Be interesting to see how that plays out.

Tony Kynaston: And that, that sort of tussle you talk about, the, the, all the corporate governance, um, hand-wringing that goes on for investors in this company is why it’s on our value buy list really. It tr- it trades at, it trades at, you [00:36:00] know, maybe up to half the value of its competitors in the oil industry, the large oil majors

Cameron: Well, I got a lot more notes, but I gotta wrap this up. Um, let me just run through some of the numbers, I guess, and, um, we can leave it at that. So let me see Current share price is, when I did the analysis, was around about $17.97. It was below our intrinsic value number one, which was $18.14, and below our intrinsic value number two, which was $38.99.

So it scored for both of those. Um, score for price to book. Price to book is about 1.33. Um, and even when I did book plus 30, it didn’t quite pass, but you can tell it was pretty close to passing for that. Price to operating cash flow was 3.04 for the 53rd largest publicly owned [00:37:00] in the planet, um, pretty low. Average daily trade volume sits at about $395 million. Um, nearly big enough for your portfolio, but big enough for the rest of us. Earnings per share, uh, was about $3.54. estimates for EPS are $3.76 for the next fif- fiscal year. P/E ratio is about 5.08. Has a stock rank on Stockopedia of 98 and a quality rank of 82, a Piotroski score of seven, so very strong on all of those metrics. positive shareholders’ equity growth. Doesn’t have a recent three-point upturn because it’s been going up for a while. Went down as the oil price dropped, but it’s ticked [00:38:00] back up. yield is about 7.04%, which is pretty good. Despite what you said about them paying out dividends versus keeping investments, they have some dividend yield

Tony Kynaston: Yeah. Well, they’ve, they’ve historically had a very high dividend yield. It’s just that they had that expansion into a new field

Cameron: Right

Tony Kynaston: when, uh, what was his name, the last guy that got– get the sack?

Cameron: Yeah

Tony Kynaston: Yeah. Um, that’s– So they had a large, um, cash windfall in terms of being able to write up the, uh, assets under the ground and then, um, that was when the government said, “No, we’ll keep that.”

Cameron: So that’s, uh, basically it. All up, got a QAV score of 100%, Tony, which is pretty good. Um

Tony Kynaston: Seems like a no-brainer, doesn’t it? I mean, from a political point of view, you’ve got a left-wing government in now with Lula, who faces elections in October. So [00:39:00] even if Lula gets back in, you wouldn’t think things would deteriorate, uh, much in terms of the investment profile for this company. But if the right-wing side of things, and there’s another Bolsonaro running because the Bolsonaro who was last in government’s in jail, um, and– or has been banned from standing for office.

If he’s out of jail, he can’t stand. Uh, but if they get in, it, it probably gets better, um, in terms of their policies for how this company’s run. So it, you know, it seems like a bit of a win-win going forward

Cameron: Depending on what happens with the oil price, maybe. Anyway, the, um, quality score was 100% and the QAV score was.329, which is pretty, pretty solid. So I added it to our portfolio. It’s the last stock. I’ve run out of cash now for our QAV Lite portfolio, so that will be the last official stock unless I have to sell something, which I haven’t had to this week yet.

But there you go, PBR, Petrobras. Hey, [00:40:00] bra

Tony Kynaston: Yeah, it was a good one. It was a good one to research too. All that, the car wash stuff going on was amazing. And the, and I couldn’t, I couldn’t help thinking, what if the US government worked like this when they had, uh, July, uh, January 6th and, pe- people being put in jail and refused, people being indicted so they couldn’t stand again for office.

Yeah, but, uh, but Trump, I mean. But I mean, Trump wasn’t put in jail or, and he wasn’t banned from holding political office for 30 years or whatever Bolsonaro was, happened, happened to him.

Cameron: Yeah.

Tony Kynaston: interesting.

Cameron: We, should go.

Tony Kynaston: Okay. Thank you