Brazil's largest company, Petroleo Brasileiro (NYSE:PBR), also known as Petrobras, just released what struck many as surprising operating results. With oil prices skyrocketing, Petrobras revenue decreased 2% and net income fell 28%.
In Brazil, where the government sets fuel prices, oil was last "adjusted" in April 2003, and prices were lowered. This sounds bad until you realize the company is solidly profitable and enjoys operating margins of 31%. BP (NYSE:BP), ChevronTexaco (NYSE:CVX), Royal Dutch (NYSE:RD), and Total S.A. (NYSE:TOT) all have operating margins below 12%.
Petrobras diesel prices are estimated to be at least 5% below world rates. Gasoline prices are 20% lower. For investors looking for a socially responsible company, here is one trying to provide stable fuel prices -- and in the process, help Brazil control inflation. Don't the words "socially responsible" seem out of place when discussing an oil company?
Petrobras' responsibility extends to investors, too. The company's 29-page quarterly report is a pleasure to read -- even if it does take a significant amount of time. Want to know net debt, gross margins, operating margins, and the host of other measures used to determine a company's performance? They are all there -- already computed and in tables so you can compare results quarter to quarter. If there was ever an example of a model quarterly report, this is it.
For those saying, "Forget the report, how's production?" there is good news. Production in the latest quarter was up 5%, mainly because of a $1 billion acquisition of 58.6% of Argentina's Perez Companc. This, coupled with the earlier acquisition of some of Repsol YPF's (NYSE:REP) Argentinean assets, is part of a strategic plan to buy South American assets when they appear attractive.
With fuel price controls in effect, you might think that the stock would be down. Guess again. It is up 35% over the past year. At six times earnings, the stock still trades at a gigantic discount. And while most oil giants trade at a discount due to a concern that oil prices could fall sharply, in Petrobras case, prices more in balance with price controls could actually be a good thing.
Petrobras is doing its part and trading at a discount. For that, it warrants a closer look.
If you would like to talk to other investors about petroleum, check out our Oil and Gas discussion board.
Fool contributor W.D. Crotty owns stock in ChevronTexaco.
