Fixed Income Analysis /

JBS: Strong Q2, record EBITDA, positive outlook; reiterate Buy

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    19 August 2019
    Published byTellimer Research

    We reiterate our Buy recommendation on JBS S.A.’s (JBSSBZ) bond curve, based on the company’s strong Q2 results, which included record EBITDA, strong operational and financial metrics, the outcome of a successful balance sheet management strategy, and a positive outlook.

    JBS reported net revenues of US$12.965bn in Q2, compared with US$11.783bn in Q1 and US$12.518bn a year ago. The company reported record EBITDA, which reached US$1.300bn, from US$847.5mn in Q1 and US$1.174bn a year ago. This was the product of operational efficiencies, organic growth, favourable domestic and export business conditions, and increased demand in Asia as a result of the African swine fever outbreak.

    Regarding the balance sheet, JBS reported a strong cash position of US$1.634bn, slightly lower than the US$1.891bn of the previous quarter and much lower than the US$3.382bn a year ago. However, the company managed to lower its net debt by cUS$823mn, issued new debt totalling US$6.1bn (indicating strong demand from investors for JBS paper) and increased its debt profile to 7.0 years from 4.3 years, pre-paying its shorter and more expensive debt.

    Total debt at end-Q2 was US$14.492bn, compared with US$16.397bn a year ago. Net debt was US$12.858bn, compared with US$13.014bn at end-Q2 18. As a result of the combination of the company’s debt management and the higher EBITDA, leverage stood at 3.5x, compared with 4.1x a year ago. In BRL terms, net leverage at end-Q2 was 2.8x, against 3.5x a year ago.

    The company also reported free cash flow of cUS$965.35mn in Q2, compared with free cash flow of US$501.21mn a year ago.

    Going forward, the company is introducing new products with higher value-added in some of its most profitable markets. In addition, management stated that, given its strong financial position, JBS is analysing potential growth opportunities – hoping to find synergies without compromising its debt and leverage targets.

    Because of the above factors, we reiterate our Buy recommendation on the JBS family of bonds. We believe that yields remain attractive and that further operational and financial improvements could lead to additional upside, likely sparked by catalysts such as rating upgrades and even higher profitability numbers.