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."