Wednesday, February 3, 2016

Seeking Alpha: Cosan Ltd Looks Like Value The Hard Way

The shares of Cosan Ltd. (NYSE:CZZ) are hardly unique in being Brazilian shares that have done poorly over the past year, as Brazil's ongoing economic struggles and currency weakness have badly hurt many stocks. Cosan has a host of its own challenges, though, as investors wrestle with the prospects for Cosan SA's (CSAN3.SA) Raizen joint venture to improve profits and cash flow in the sugar and ethanol operators, as well Rumo's (RUMO3.SA) very weak share price and its prospects for raising much-needed capital on acceptable terms.

The positive spin on Cosan Ltd. is that it gives investors a one-stop exposure to one of the largest sugar and ethanol producers in the world, as well as a leading operator of gas stations in Brazil, a large natural gas distribution business, and a growing rail and port operator. The negative spin is that those sugar and ethanol operations have never generated great returns on capital and that the logistics operations need very large amounts of capital in the coming years. There's also a negative argument for complexity here - this is a tough business to model and the holding company structure creates risks and inefficiencies.

When it's all said and done, I believe that Cosan Ltd. is undervalued, but this is a good example of a stock where investors may find the return prospects significantly overshadowed by the risk and complexity. These shares can definitely outperform on a Brazilian economic recovery, but there are significant commodity, macroeconomic, and operational risks to consider.

Read the full article here:
Cosan Ltd Looks Like Value The Hard Way

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