João Braga

The Brazilian stock market is pricing in extreme pessimism, trading cheaper than during the COVID panic, the 2015-16 recession and the 2009 financial crisis. Institutional and retail positioning is at all-time lows, with local pension funds, allocators and individuals holding almost no equities. Meanwhile, the stock of money in fixed income (M4/CDI) exploded and a modest rotation of just a few percent would have a massive impact on market cap. On top of that, a third wave of dedicated foreign fund flows is forming, with global investors doing deep due diligence to re-enter Brazil after years of underweight. The combination of rock-bottom valuations, widespread under-allocation and an incoming cycle of foreign demand creates a highly asymmetric opportunity that will eventually become obvious.

SmartFit is a dominant low-cost high-value gym operator with a unique execution-driven model that replicates across Latin America. Its proprietary TotalPass aggregator platform acts as an 'iFood for gyms', growing at a blistering pace and improving bargaining power versus other networks. The company has no debt, returns on invested capital well above the cost of capital, and is increasing margins while opening 300+ units per year in a massive addressable market. Despite earnings growing 40% since the IPO, the stock has been compressed by forced selling (fund closures, redemptions), now trading at the lowest multiple in its history (9x forward earnings) when in a normal market it would command 18-20x. A turnaround in sentiment or a foreign buyer could quickly re-rate the stock.

Allos (formerly Aliansce Sonae) is led by Rafael Sales, one of the best capital allocators in Brazil, who arbitraged the BR Malls portfolio brilliantly and is now recycling capital to create a powerful recurring revenue engine. Hidden inside Allos is Hellow, an out-of-home media business that is winning major contracts for digital screens in airports and shopping malls, giving the company a high-margin advertising subsidiary that is not reflected in the stock. Additionally, Sales is structuring a real estate investment trust (FII) for a slice of the shopping center portfolio, which would generate perpetual management fees. The company is paying a dividend equivalent to ~14% yield, and even without multiple expansion the return from dividends alone is extraordinary. At 10x FFO, the shares are deeply mispriced versus global mall operators.