Core Waterway Corridors And New Infrastructure Will Support Stronger Long Term Performance

Catalysts

About Hidrovias do Brasil

Hidrovias do Brasil operates logistics and transportation infrastructure focused on waterway corridors in Brazil and neighboring regions.

What are the underlying business or industry changes driving this perspective?

• Refocus on core waterway corridors after the sale of Coastal Shipping and renewed executive leadership is creating a simpler business model centered on the North, South and Santos operations, which can concentrate capital and management attention on contracts and assets that are most relevant for revenue and EBITDA.
• Record 2025 operating scale, with nearly 18.0 million tons transported and BRL 2.5b in net operating revenue, together with BRL 1.1b recurring adjusted EBITDA and 60% margin in the North Corridor and 43% margin in the South Corridor, points to meaningful operating leverage that can support earnings and margin resilience as volumes are sustained.
• Normalization of hydrological conditions in key rivers and ongoing maintenance dredging monitored with government agencies support more reliable barge operations in the North and South corridors, which can stabilize asset utilization and support EBITDA margins over time.
• New logistics infrastructure in the North Corridor, including paving of key uphill sections and the planned completion of a new highway solution for the transshipment area, together with coordination among regional operators and leased third party capacity, is aimed at easing bottlenecks and improving truck and barge flow, which can support higher effective throughput and revenue.
• Cabrea and related terminal projects entering full operations after commissioning, combined with record 2025 cash generation of BRL 1.1b and leverage reduced from roughly 7x to 2.3x net debt to EBITDA with elimination of foreign exchange exposure, give the company more room to fund growth projects that could support future revenue, EBITDA and potentially net income.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more optimistic perspective on Hidrovias do Brasil compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Hidrovias do Brasil's revenue will grow by 3.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 2.7% today to 24.2% in 3 years time.
• The bullish analysts expect earnings to reach R$605.4 million (and earnings per share of R$0.46) by about April 2029, up from R$60.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 29.1x on those 2029 earnings, down from 85.0x today. This future PE is lower than the current PE for the BR Shipping industry at 35.6x.
• The bullish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 20.13%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Hydrological conditions and dredging support from government agencies are critical to river depth and year round barge traffic, and the recent suspension of the Tapajos River auction together with political pressure around waterway concessions introduces long term regulatory uncertainty that could restrict volumes, weigh on net operating revenue and pressure recurring adjusted EBITDA.
• The company depends heavily on key corridors and transshipment infrastructure such as the ETC intake and Transportuaria, and recurring bottlenecks from truck congestion, heavy rainfall and delayed paving works, together with structural constraints that require a new highway solution, create an ongoing risk of lower effective throughput, additional client indemnities and weaker EBITDA margins.
• Competitive pressure in the North Corridor from railroad freight in routes such as Miritituba, along with tariff pressure that management already anticipates and a commercial model that may no longer be 100% contracted, could force pricing concessions and limit the company’s ability to pass through cost inflation, weighing on revenue growth and compressing net margins.
• Despite BRL 1.1b recurring adjusted EBITDA in 2025, the company still reported a net loss of BRL 141m for the year and a net loss of BRL 361m in the fourth quarter driven by nonrecurring items such as write offs and client indemnities, which shows that unexpected operational or contractual events and portfolio reshaping could continue to create accounting charges that delay any improvement at the net income level.
• The capital structure has been repositioned with leverage at 2.3x net debt to EBITDA after a capital increase and the sale of Coastal Shipping, but future growth projects such as Cabrea and other modular expansions, along with possible shifts in management’s target leverage, could require substantial capital deployment that increases financial risk again and constrains cash available for shareholders, affecting earnings per share and any potential distributions.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Hidrovias do Brasil is R$6.1, which represents up to two standard deviations above the consensus price target of R$4.6. This valuation is based on what can be assumed as the expectations of Hidrovias do Brasil's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$6.1, and the most bearish reporting a price target of just R$3.2.
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be R$2.5 billion, earnings will come to R$605.4 million, and it would be trading on a PE ratio of 29.1x, assuming you use a discount rate of 20.1%.
• Given the current share price of R$3.78, the analyst price target of R$6.1 is 38.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.