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Brazil's JBS buys UK's Tulip; reiterate Buy on JBSSBZ bonds

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    28 August 2019
    Published byTellimer Research

    We reiterate our Buy recommendation on the JBSSBZ family of bonds in light of JBS's announcement today that it is buying Tulip – a UK-based pork producer – through its subsidiary, Pilgrim's Pride Corporation (PPC). 

    We believe the acquisition is a good use of JBS's cash, helping it diversify its product portfolio and granting it further access to an important European market – it should immediately boost the company's performance. In addition, it strengthens PPC by adding pork and processed foods to its product offering.

    We believe JBSSBZ bonds should be a core holding for investors invested in Brazilian credits, given the company's scale and scope, its product and market diversification, and what we regard as (still) attractive yields.

    JBS S.A. published a notice to the market as follows:

    "JBS S.A. ("JBS" or "Company" - B3: JBSS3; OTCQX: JBSAY) communicates to its shareholders and the market in general, that, pursuant to Article 12 of CVM's Instruction 358 of January 3, 2002, as amended, that Pilgrim´s Pride Corporation ("PPC" - NASDAQ: PPC), a controlled subsidiary, announced today that it has signed a contract to acquire Tulip Company ("Tulip"), a leading pork and prepared foods supplier with operations in the United Kingdom, in a transaction valuing Tulip at £290 million (or approximately US$354 million) to create a clear leader in protein and prepared foods in Europe by expanding its prepared foods portfolio to 21% of Pilgrim's global sales. The purchase price represents a multiple of 5.4x of expected EBITDA. The transaction will be fully funded by Pilgrim´s cash on hand."