Cosan Completes Comma Acq.


Brazil’s sugar and ethanol producer, Cosan (CZZ) recently announced successful completion of the acquisition of Comma Oil & Chemicals Limited for approximately $100 million. The deal was initially announced in March 2012.

Comma Oil & Chemicals Limited is based in Kent, England, and is a wholly-owned subsidiary of Esso Petroleum Company, Limited. It will continue to operate under its existing brands and will also supply some products in the UK and to ExxonMobil companies.

The acquisition will enhance Cosan’s presence in Europe, in particular its lubricant and specialties market. The company will be especially responsible for Comma’s finished lubricants and chemicals manufacturing and sales to third parties, in addition to assets located at Comma‘s Gravesend site in Kent, England, along with trademarks and brands.

We remain confident about Cosan’s long-term growth prospects. Strategic acquisitions like Comma’s growing sugar and ethanol demand, energy co-generation and transportation businesses seem to be the prime growth driving catalysts. Also, the company’s share buyback activities are an added advantage.

For fiscal year 2013, management anticipates that consolidated net revenue would be in the range of R$26.0-R$29.0 billion; EBITDA in the range of R$2.2-R$2.5 billion and capital expenditure in the range of R$2.1-R$2.4 billion.

However, near-term weakness keeps us on the sidelines. The company reported about a 66% fall in net earnings in the fourth quarter 2012 as higher cost of sales offset a 26% rise in revenue in the quarter. Sugar and ethanol sales were soft and adverse weather conditions caused nil crushed volumes from the 24 mills operated by the company.

The Zacks Consensus Estimates for the fiscal years 2013 and 2014 stand at 90 cents and $1.61 per ADR, respectively. These estimates reflect a year-over-year decline of 65.39% in 2013 and growth of 78.60% in 2014. 

We currently maintain a Neutral recommendation on Cosan. The stock also bears a Zacks #3 (Hold) Rank.

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