Thu. Mar 21st, 2019

The Brazilian arms manufacturer entrusted to Bolsonaro | Economy

The Brazilian arms manufacturer entrusted to Bolsonaro | Economy

Before and during his triumphant presidential campaign, Jair Bolsonaro popularized among his followers a gesture: arms flexed and hands closed except for the thumb and forefinger, making improvised hammer and cannon of two separate revolvers. The pose reveals a campaign promise: the will to further liberalize the possession and carrying of firearms. On the 29th, three days before his inauguration, Bolsonaro tweeted his will to guarantee by decree the possession of firearms "for citizens without a criminal record". And, again, this triggered in the market Taurus, the largest Brazilian firearms manufacturer, representing 86% of its turnover.

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The company's stock, which had been flat for years on the São Paulo Stock Exchange, had already begun to shoot up as the far-right party consolidated itself in the polls. From 2.38 reais (47 cents) on August 30, the securities were quoted more than 11 on October 26, the last working day before the second round of the elections. And, after sinking at the same speed, they have risen again after the inauguration.

It is true that, with more than 250%, the company has been the most valued in the last 12 months on the Brazilian Stock Exchange; so is the fact that, with a capitalization of around 120 million euros and 18.2 million shares in circulation, the value is tremendously volatile, and its explosion in quotations seems merely speculative.

Especially because the data is far from showing a rosy picture. "It is true that the figures have improved," says Felipe Tadewald, from Suno Research. "But we value that they are far from optimal and that optimism is exaggerated."

In the first nine months of 2018, Taurus invoiced 623.5 million reais (145 million euros), 16% more than the previous year. But the losses amounted to 50 million reais. And what is more important: at the end of fiscal year 2017, the company's liabilities amounted to more than 1,200 million reais, 445 million more than the asset. The company claims to have achieved relief after a debt renegotiation that delays many of the pending maturities.

A huge potential

That of firearms is a market with immense potential in the South American country, thanks to the fear of the Brazilian middle classes to a violence that, in the first nine months of 2018, it killed 39,183 people, according to the Brazilian Forum of Public Security. This was one of the reasons why a proposal to restrict the legal possession of firearms and ammunition was loudly rejected (by more than 59 million votes, 63.9% of the total) in a plebiscite held in 2005, during the first term of Luiz Inácio Lula da Silva.

But the boom of Bolsonaro has given new vigor to the market and Taurus has risen without contemplations to the wave. He has put his helmet division for motorcycles on sale and has changed his historical name "Forjas Taurus" to "Taurus Armas".

The president of Taurus, Salesio Nuhs (right), poses with Jair Bolsonaro the day of the inauguration of the latter as president of Brazil.
The president of Taurus, Salesio Nuhs (right), poses with Jair Bolsonaro the day of the inauguration of the latter as president of Brazil.

Above all, he has publicly shown his alignment with the president's ideas. "Brazil is changing," announced a bombastic video presented to shareholders and analysts on December 14. "We believe in this new moment ... (...) We are ready for a new Brazil." "[Bolsonaro] It's going to be the 38th president, "joked the company's chief executive, Salesio Nuhs, during that same presentation," that's a good sign, "he said, referring to the popular 38-caliber revolver.

Nuhs, who also heads the management of the ANIAM sector, was present at the inauguration of Bolsonaro and the ministers attached to the presidency. The president has responded to that support by posing on a video with one of the firm's latest assault rifles and repeating his slogan: "An armed people will never be enslaved."

But even if Bolsonaro makes arms sales more flexible, "this does not mean that arms will be products with an accessible cost, and even less with cheap maintenance," said de Toro Investimentos. "This may limit the expected exponential growth." In addition, another of the objectives of the new president and the parliamentary group proarmas in Congress is to make more flexible the R-105, the 1936 regulation that restricts the importation of firearms from abroad if it competes with the national product. "The objective is to break the monopoly that Taurus has in certain markets," says Tadewald.

And the Brazilian business will have to do very well to counteract the problems that Taurus has in its largest market, the United States, which represents 68% of its turnover. Here, the company has taken fourth place in the sales ranking becoming the "king of cheap weapons". The Taurus 85, a version similar to the Smith & Wesson 60 but which is sold at half the price, has been one of the most sold weapons in the North American country for years.

But, paradoxically, the ascension of Donald Trump to the presidency has meant a drop in sales of firearms. Fueled by a catastrophic campaign by the industry and the National Rifle Association, the Americans rushed to acquire firearms during 2015 and 2016 in anticipation of a tightening of purchase conditions that, finally, has not occurred.

In addition, the killings of recent years (especially, the Stoneman Douglas Institute, in Parkland, Florida, in February last year) have triggered greater awareness and a growing activism of citizens against firearms, which has been reflected both in Wall Street (the fund manager Blackrock announced in 2018 that it will be stricter with companies in the sector) and in the retail sector (companies such as Walmart and Dick's have restricted sales).

As if that were not enough, the image of the firm in the North American country has been tainted by several quality problems. In 2016 Taurus closed an agreement for an estimated figure of 239 million dollars in which the firm offered to withdraw from circulation around one million pistols for a manufacturing defect; the guns went off even with the insurance on.


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