Ambipar Group (AMBP3) has fundamentals and can deliver more results, says CFO; the stock rose by 1200% in 3 months

“I was on the other side of the table at Bank of America, and I came here because I truly believe in this new moment and the company’s purpose. I don’t see anything similar in the Brazilian Stock Exchange,” says the CFO (Image: LinkedIn/João Arruda).

Amid a stock market with hesitant performance, one company caught investors’ attention: the Ambipar Group (AMBP3), which mainly operates in waste treatment, and skyrocketed an incredible 1258% in three months.

According to data from Elos Ayta, on May 28, the stock hit its lowest at R$ 8.05, before soaring to R$ 109.98 on August 12. Those who invested or had R$ 1,000 in May ended up with a total gain of R$ 13,580.

Despite this, the stock realized some profits and has fallen 31% since its peak, but its performance remains enviable for the year, with a rise of 381%.

Such a leap led the market to question the company’s fundamentals and wonder what was behind the explosive increase. After all, what changed in such a short time?

According to some analysts, the rise was motivated by short covering. This occurs when a stock rises while there is a large amount of ‘shorted’ shares, meaning sold short. To limit losses, these investors seek to unwind their positions as quickly as possible, which fuels the surge.

In other words: suppose you bet that the ticket price for a show would drop. You sold 10 tickets at R$ 100 each. But instead of falling, the price rises to R$ 120. To avoid greater losses, you buy back the tickets at R$ 120 each. This act of buying back the tickets to close your position is short covering.

Data from XP in mid-June showed that AMBP3 had the highest ‘short interest’—the total number of a company’s shares that have been sold short—among the analyzed stocks, exceeding other companies like Americanas (AMER3).

A stock purchase by Ambipar’s founder, Tercio Borlenghi Júnior, could have triggered the movement, according to Guide, in a report published on July 24. The CEO’s stake increased from 66% to 73%.

“This significant increase [in shares] occurred without any changes to the company’s fundamentals. As the shares continue to rise, with an ever-decreasing number of short positions, the likelihood of a sharp decline in the coming days increases,” the firm wrote.

At the time, Guide strongly recommended that Ambipar investors consider selling their shares.

But could that alone explain the rise? Since the publication of the report, the stock has increased by 114%, according to data from Google Finance. And since September 3, it seems to have stabilized around R$ 60.

In search of answers, Money Times spoke with the company’s CFO, João Arruda.

Ambipar has fundamentals

The executive emphasizes that the growth is founded and that the company had good results in the second quarter.

There was a record in Ebitda, which measures operational results, in revenue and Ebitda margin across both verticals:

• Environment, which aims to reintegrate waste into production processes;
• Response, which focuses on crisis management and environmental emergency response.

“When I look at the current moment of the company, I see a new chapter, with a lot of internal focus and value generation. What we saw in the second quarter and also in the first quarter of the year is just the beginning. The focus will be very internal to extract more results with fewer resources,” he says.

The company is also in a process of reducing its debts, following an aggressive inorganic expansion, having acquired 76 companies since its IPO in 2020.

Among the measures announced so far is the renewal of the fleet by selling used vehicles and renting new ones and delivering company shares to executive partners of the acquired companies as a form of early payment.

Here are the key excerpts from the interview:

Money Times: Ambipar’s stock is one of the big highlights in 2024. However, analysts say this surge occurred without any changes to the company’s fundamentals. In other words, it is not sustainable. How do you see this? Are there reasons for the stock’s rise?

João Arruda: The company has been delivering consistent results with a strong foundation. I would like to emphasize this point.

If you look at our results from the second quarter, the acquisitions made back in the middle of last year were halted as the company was already ceasing the cycle of inorganic growth, and organic growth began to be captured internally.

In the second quarter’s results, there were record revenues, Ebitda, and Ebitda margins in both verticals and in the company’s consolidated results, with much less Capex (investments).

The company is indeed in a very constructive cycle of organic growth, as demonstrated by the numbers. In the second quarter of 2024, compared to the second quarter of 2023, the growth was 17.5%, 100% organic.

If we look at the accumulated six months of the year compared to last year, growth was 14.4%. The company is on a path of sustainable organic growth, with a strong foundation.

There was also a significant increase in revenue for the quarter, with a very low capital intensity compared to the company’s history. To give you an idea, in the accumulated six months of the year, revenue was delivered with a Capex to net revenue ratio of about 9.5%.

This was the lowest Capex to net revenue ratio in the company’s history. There were times in the past when this metric reached 20%.

Money Times: There are rumors in the market that the rise in shares was motivated by the CEO’s own purchase, Tercio Borlenghi Junior. Doesn’t this compromise the company’s governance? How do you evaluate this movement?

João Arruda: The controller, Tercio, bought shares in the market, but this is nothing new. It’s worth noting that before the company’s IPO, Tercio purchased half of the shares from his sisters, who were partners when the company was still private.

In the first half of last year, he bought the remaining shares from his sisters, something around R$ 10 to R$ 12 above the price, totaling about R$ 13.

He bought the shares from his sisters at the IPO price, in early 2023, and invested more money in the follow-on in November. The follow-on, which was 100% primary in November, received more investment from him. I can’t speak directly for Tercio, but obviously, he bought the shares at a time of great discount, increasing his position again.

I understand that this decision reflects a long-term vision for the company. He has never stopped being the controller. In the past, he reassumed the position of CEO to continue leading the company’s operations, demonstrating his commitment to the future of the business and his strong belief in it.

Money Times: Can’t the stock’s high volatility scare off investors?

João Arruda: I can’t speak for the investors’ subjectivity regarding what is risky or not for them. What I can say is that we are alongside the company, on a very constructive trajectory, focused on future value generation. As I mentioned, the operational result is very solid, with a strong focus on this journey.

I have been with the company for almost two months, but I have followed it for almost 10 years, having worked on the other side of the table as a banker. I participated in several capital market operations for Ambipar, including the IPO, follow-on, bond issuance, and debt.

When I look at the current moment of the company, I see a new chapter, with a lot of internal focus and value generation. What we saw in the second quarter and also in the first quarter of the year is just the beginning. The focus will be very internal to extract more results with fewer resources, as exemplified by the Capex metric.

Money Times: Analysts also highlight the company’s high leverage following a series of mergers and acquisitions. How is this deleveraging process? Will the company halt inorganic growth?

João Arruda: In fact, Tercio came to the market in his first interview after the IPO, at the beginning of this year, reinforcing the theme of no longer focusing on inorganic growth. The platform has already been built and expanded as we desired, both in the Environment and Response areas. Therefore, that is no longer a goal.

When I mention that the revenue growth in the quarter was very solid, it was 100% organic. This is the company’s standard. We will extract more from operations, realizing more cross-sell (offering products and services related to what the customer already buys), which are present in both Environment and Response.

The new focus is to gain share of wallet and generate more from our asset base. Therefore, inorganic growth has been off the agenda for some time.

Money Times: In June, you announced a broad stock buyback program; usually, when such programs occur, it’s because the company believes the stock is undervalued. Do you still think the company is undervalued?

João Arruda: We are at a moment of significant value capture. The company is trading on the stock market with a multiple of 9 times, while our global comparables are between 15, 17, and even 20 times, depending on the region and the market being analyzed. We see a lot of potential for value generation.

We are in a very constructive moment from a revenue standpoint. We had provided guidance of 10% for the year, but for the semester, we are already at 15%, about 500 basis points above the guidance for the end of the year. We are exceeding what was initially promised, with EBITDA generation moving in the right direction.

We are expanding margins and achieved record margins in both verticals in the second quarter of 2024. The future looks quite promising, and we still see significant potential for the company.

Money Times: One of Ambipar’s major cases is ESG. How do you see this segment? What is Ambipar doing to generate value for its shareholders?

João Arruda: The company’s ESG thesis remains very strong. The purpose is to decarbonize and regenerate the lives of our clients, ensuring that all waste produced does not go to landfills, promoting the concept of zero waste. We are very focused on the reverse economy and the circular economy, transforming waste and reintegrating it into the economy. This is the company’s purpose and what we offer to our clients.

We maintain this focus because by generating value and differentiation for our clients, we also generate it for our shareholders. It is no coincidence that the ESG vertical has achieved record revenue and EBITDA growth, and it will continue to be a priority segment for us. We believe this is a path of no return, with much to be done in the future, in collaboration with our clients.

The message I want to convey is that Ambipar is entering a new chapter, with an internal focus, cash generation, and extracting more results from the operation and the platform we have built. Our purpose is to decarbonize the lives of all our clients, and it is a unique and differentiated purpose.

I was on the other side of the table at Bank of America, and I came here because I believe strongly in this new moment and in the company’s purpose. I see nothing similar on the Brazilian Stock Exchange.

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