Fixed Income Analysis /

Minerva: Soft Q2 results, but yields remain attractive; reiterate Buy

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    27 August 2019
    Published by

    Minerva Foods reported soft Q2 19 results in US$-terms, mainly from the Brazilian real exchange rate differential between Q2 19 and Q2 18, even as the company reported improvements in BRL-terms. We continue to see upside potential for the company as the business outlook for the Brazilian animal protein market remains positive and the sector is expected to have a strong H2. In addition, Minerva Luxembourg S.A. bonds (BEEFBZ) are among the highest-yielding credits in the sector, although this can be partially explained by the company’s smaller scale and scope, and that it is less diversified in terms of products. Still, the returns offered by Minerva bonds adequately reward investors given the company’s potential improvements on its balance sheet, especially from the Athena Foods subsidiary IPO, using at least a portion of the proceeds to pay out debt. We also think that Minerva has one of the best corporate governance in the sector. We reiterate our Buy recommendation on the company’s bonds.

    Minerva reported Q2 19 net revenues of US$1.026bn, slightly lower than the US$1.096bn in Q2 18, but higher than the US$990.0mn in Q1 19. EBITDA came in at US$92.8mn in Q2 19, versus US$97.9mn a year ago and US$87.3mn in Q1 19. For the last 12 months (LTM) to end-Q2 19, net revenues were US$4.32bn, compared with US$4.43bn at end-18 and US$3.79bn in 2017. EBITDA for LTM to end-Q2 19 was US$415.3mn, versus US$421.0mn at end-18 and US$396.5mn in 2017.

    Cash on the balance sheet was US$802.1mn, lower than the US$985.3mn in Q1 19 and US$1.083bn in Q2 18. Total debt was US$2.42bn, comparing favourably with the US$2.57bn reported in Q1 19 and US$2.86bn a year ago. As a result, leverage in Q2 19 was 5.8x, compared with 6.2x in Q1 19 and 6.8x in Q2 18.

    Of the company’s US-dollar denominated bonds: the US$1.303bn (from an originally-issued amount of US$1.35bn), 6.50% senior unsecured bonds due 2026 (BB-/BB-) are trading at cUS$103.499 (ALLQ) to yield c5.69% (g-spread 427bps; z-spread 431bps); the US$493.123mn (from an originally-issued US$500mn), 5.875% senior unsecured bonds due 2028 (BB-/BB-) are currently trading at cUS$99.24 (ALLQ) to yield c5.99% (g-spread 450bps; z-spread 458bps).

    We reiterate that the yields on the bonds compensate investors adequately, and see the potential for positive catalysts, particularly the IPO, which would lower the company’s leverage and provide the bonds spread compression and further upside.