What are the potential risks related to the Avon sale, regulatory approvals, and integration execution?

Potential risks

1. Avon divestiture execution – The “probable sale of Avon International within 12 months” is still a transaction in process. If the buyer cannot be secured, the price‑to‑cash‑flow uplift that Natura’s management is banking on may evaporate, leaving the group with a larger, less‑focused portfolio and a higher cost‑base. A stalled or aborted sale would also compress the “greater visibility” premium that the market has already priced in, creating upside‑bias pressure on the stock to reverse.

2. Regulatory approvals – The cross‑border nature of an Avon sale (a historic U.S.‑based beauty house) means the deal must clear multiple antitrust and foreign‑investment vetos in Brazil, the United States and possibly the EU. Any unexpected regulator‑imposed condition—or a outright block—could delay closing, increase transaction costs, or force Natura to renegotiate the price. The market typically penalises such uncertainty with a 5‑8 % sell‑off in the weeks surrounding a regulator‑related announcement.

3. Integration execution (Wave 2) – Natura’s cash‑generation narrative hinges on “more mature integration between Natura and Avon brands (Wave 2)”. The integration is still early‑stage; execution risk includes brand‑overlap cannibalisation, supply‑chain mismatches, and cultural friction that could erode margins. If working‑capital dynamics deteriorate or the expected synergies are not realised, the Q2 net‑income boost (BRL 445 m) may be a one‑off, prompting a downward revision of earnings forecasts.

Trading implications

• Short‑to‑mid‑term bias: Until the sale is confirmed and regulatory clearance is evident, the stock is vulnerable to a corrective pull‑back. A break below the 20‑day EMA (≈ R 13.20) on volume could signal the market’s re‑pricing of the integration‑sale risk, opening a short‑position with a stop a few cents above the recent high.
• Long‑bias trigger: If a definitive transaction agreement is disclosed and regulatory approvals are granted, the “greater visibility” premium could be reinforced, allowing the stock to retest the prior resistance at R 14.00. In that scenario, a long entry on a bounce off the 20‑day EMA with a 5 % trailing stop would capture upside while protecting against integration hiccups.
• Watch‑list items: Monitor corporate filings for a signed purchase agreement, any regulator statements from the SEC, ANEEL or European Commission, and quarterly updates on “Wave 2” integration metrics (e.g., same‑store sales lift, inventory turns). Any negative surprise in these areas should be met with a defensive posture, whereas positive confirmation can be used as a catalyst for a position‑building move.