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Cosan Limited (CZZ): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

Posted
12/4/2013 7:00:00 AM
By: Zacks.com
Referenced Stocks:CZZ

Summary:
Cosan's net results for the third quarter 2013, though improved from the losses of the previous quarter, failed to gain momentum and plummeted 26% year over year. Revenue grew 300% on the back of solid fuel, sugar and ethanol sales. However, sugar production was down 1% and crushed sugar volume decreased 2% due to unfavorable weather conditions. Radar revenue was down 23% due to lack of property sales during the quarter. Costs and expenses grew significantly to erode many of the benefits from revenue increases. Also, results were negatively impacted by foreign exchange variations losses, unrecorded deferred fiscal credits and higher financial expenses due to increase in debt levels. For 2013, management guided net revenue in the R$35.0-R$38.0 billion range. Besides the results, long-term growth prospects are bright on the back of Cosan's strategic acquisitions, growing sugar and ethanol demand, energy co-generation and transportation businesses. Considering the above, we maintain a Neutral recommendation on the stock.

Overview:

S o Paulo, Brazil-based Cosan Limited (CZZ) was incorporated in Bermuda in Aug 2007. The company was established as a result of a corporate restructuring of the Cosan Group in Brazil as the controlling shareholder of Cosan S.A., a Brazilian company. Cosan Limited currently holds roughly 62.3% of the controlling shares of Cosan S.A.

Cosan S.A. is engaged in the cultivation, harvesting and processing of sugarcane, which is the main raw material used to produce sugar and ethanol. Cosan is the largest grower and processor of sugarcane in the world, having crushed approximately 56.2 million tons of sugarcane during fiscal year 2012. It is not only the largest sugar producer in Brazil, but also the third-largest sugar producing company in the world. The company is also the largest ethanol producer in Brazil and the fifth largest in the world, besides being the largest exporter of ethanol.

Effective the quarter ended June 30, 2013, Cosan started reporting its financial results on a calendar year basis (accounting year ending Dec 31, 2013) and also adopted IFRS 11 to recognize Ra zen under the equity pick-up method.

Also, effective this quarter, Cosan started reporting its business under the following heads: Raizen Energia (Sugar, Ethanol and Cogeneration), Raizen Combustiveis (Fuels Distribution), Comgas (Distribution of Natural Gas), Rumo (Logistics Operations), Radar (Investments in Agricultural Land), Lubrificantes e Especialidades (Lubricants and Specialties) and Other Business (Corporate Structure, Other Investments).


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