Brazil's largest airliner, GOL Linhas Aereas Inteligentes (GOL 7.37, +0.96, +14.98%), is flying higher this morning on a mix of bullish catalysts.
First, from a macro
perspective, Brazil stocks in general are pushing higher following Brazil's
general election results. Jair Bolsonaro of the previously little-known Social
Liberal Party took 46% of the vote, compared to the 29% won by Worker’s Party
candidate, Fernando Haddad. However, since no candidate reached the needed
50% of the vote, there will be a run-off vote on October 28 between Bolsonaro
Leader of the Social Liberal Party, Mr. Bolsonaro is a right-wing candidate. Mr. Bolsonaro is sometimes likened to President Trump due to their similar rhetoric regarding race, gender, and violence. Mr. Bolsonaro is running on smaller government, lower taxes, an extremely hard-line stance towards crime, loosening gun restrictions, and criticism of the Paris climate agreement.
Mr. Haddad, meanwhile, has
focused his campaign on socio-economic issues such as unemployment,
infrastructure, and housing. He also has spoken about security solutions. He is endorsed by Luiz Inacio Lula de Silva, Brazil’s former president
who is serving a 12-year term after being imprisoned earlier this year after
being convicted on corruption and money laundering charges.
Brazil was under a military dictatorship from 1964 to 1985. After that period ended the country seemed like it was doing better until a recent spate of corruption scandals. The trade wars have also hurt Brazil's currency, the Real. The country's heavy debt burdens have also provided a significant headwind. These factors, among others, have kept a lid on GDP, which came in at a paltry 0.2% in the second quarter.
In addition to the geopolitical news, GOL also provided an investor update this morning, including some updated guidance. Although on a year/year comparison basis the outlook doesn't look overly bullish, investors may be viewing its guidance as better-than-feared, given all the macro-related pressures facing the company.
GOL is now expecting operating margin of 5.0-5.5%, down about 7 percentage points from last September when it achieved recurring operating margin of 12.0%. Passenger unit revenue (PRASK) is expected to increase by 4.5-5.0%, a slight decrease from last year's +8.0% jump to R$20.11 cents. Still, in light of the tough environment, the mid-single digit growth is a positive with the company crediting its revenue management strategies.
On the cost side, GOL is forecasting CASK ex-fuel to be lower by approximately 2.5% year/year. As a result of the above, the company expects to generate solid operating cash flow of R$450-$500 mln. Again, that is not quite as strong as 3Q17's cash flow of R$588.6 mln, but, GOL is still generating plenty of cash.
From a technical standpoint, shares of GOL found support along the $5.00-$5.50 zone and have been rebounding off of it over the past few weeks. In fact, the stock popped above its 50 and 100 day moving averages on Friday, for the first time since late-April. This signaled a notable swing in momentum was underway.
To conclude, GOL is benefiting from a few catalysts this morning, with the Presidential election results carrying the most weight. There is still plenty of political and economic uncertainty facing Brazil, but sentiment seems to be brightening at the moment.