Rumo SA (RAIL3.SA): Upgrading to Neutral on Encouraging FCF Focus, Still Alert for Agricultural and Capex Risks

Citi upgrades Rumo (RAIL3.SA) to Neutral from Sell and raises its target price to R$16/sh from R$12, implying 10.5% expected share price return and 11.3% total return. The higher TP mainly reflects the removal of the Mato Grosso phase 2 expansion from forecasts, which alone adds R$2/sh (R$3.7bn of equity value), and greater benefit of the doubt on management's planned capex reduction and FCF focus, materially improving the FCF outlook; with lower duration and a better cash profile more valuable under higher rates, the stock trades at a 12.9% real IRR with the spread to sovereign rates now at fair levels. On agriculture, soy seeding well ahead of the historical average supports the production outlook, but El Niño, domestic corn and soy consumption and external grain demand remain risks;