Fixed Income Analysis /

Marfrig Global Foods: Strong Q2; reiterate mix of Buys and Hold on valuation

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    19 August 2019
    Published by

    Marfrig Global Foods (MRFGBZ) reported strong Q2 19 results, on trend with other Brazilian protein credits. We reiterate our Buy recommendation on all but the US$21.55mn, 11.25% senior unsecured bond due 2021 (B1/BB-/BB-) on valuation as, given its short duration and high dollar price, this bond is yielding negative returns on a yield-to-worst level (-1.72%). The rest of the company’s family of bonds continue to be the among the cheapest in the sector. We believe that these bonds have further upside potential due to a positive business outlook for the sector and the company itself, which could lead to yield convergence between Marfrig’s bonds and the rest of the sector’s credits.

    Marfrig reported a solid top line with net revenues of US$2.988bn and an adjusted EBITDA of US$269.3mn, compared with US$2.67bn and US$151.6mn, respectively in Q1 19. On a yoy basis, Q2 19 compared with the company’s reported proforma Q2 18 with net revenues of US$2.76bn, and adjusted EBITDA of US$254.4mn.

    On the balance sheet, Marfrig reported cash and equivalents of US$1.67bn – flat from US$1.68bn in Q1 19; slightly lower than the US$1.86bn at end-18, but higher than the US$1.46bn in Q2 18 (proforma). Debt was US$4.46bn (US$807.2bn short-term), compared with US$4.31bn in Q1 19, US$3.98bn at end-18 and US$4.89bn a year ago. The sequential increase in debt was partially the result of new issues in the capital markets as Marfrig issued US$1.0bn in 7.0% bonds due 2026, while repurchasing a portion of its 11.25% 2021 bonds and 8.0% 2023 bonds.

    Marfrig bonds remain the most attractive in the sector in terms of yields, and we believe that there will be a convergence in yields with similar credits in the sector in the short and medium term. We base this assertion on the company’s strategic growth plan aimed at strengthening its portfolio of higher value products and organic and inorganic growth. These are factors that resulted in Marfrig reviewing upwards its guidance for the year with expected net revenues of BRL49bn (previous guidance BRL47bn), adjusted EBITDA margin of 9.5% (previously 8.7%), and estimated free cash flow of BRL1.5bn (previously BRL1.0bn).

    Thus, we reiterate our mix of Buys and one Hold on Marfrig’s family of bonds.