Fixed Income Analysis /

Marfrig Global Foods: Mixed Q1 results, but strong guidance for rest of 2019; reiterate Buys and Holds

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    20 May 2019
    Published by

    Marfrig Global Foods S.A. (MRFGBZ) reported mixed results in Q1 19 compared with proforma Q1 18, which the company only reported on a summarised basis. Net revenues in Q1 19 were US$2.676bn, compared with Q1 18 proforma of US$2.486bn; EBITDA in Q1 19 was US$172.2mn, compared with Q1 18 proforma of US$125.1mn; and adjusted EBITDA in Q1 19 was US$151.6mn, compared with Q1 18 proforma of US$130.9mn.

    Although the operational results were positive, on the balance sheet side the company reported cash of US$1.683bn at end-Q1 19, compared with US$1.856bn at end-18. Because of new accounting standards (adhering to IFRS, which now requires financial leases to be on-balance sheet), Marfrig reported short-term debt of US$1.173bn at end-Q1 19, compared with US$994.8mn at end-18. Total gross debt at end-Q1 19 was US$4.307bn, higher than the US$3.981bn at end-18. As a result of the EBITDA and adjusted EBITDA figures (using proforma numbers for Q1 18) debt/adjusted EBITDA in Q1 19 was 4.7x, from the 4.5x of 2018.

    However, the company revised its guidance for 2019 upwards for two main reasons: 1) it sees the headwinds that have affected the animal protein industry in Brazil and other countries in South America receding; and 2) the outbreak of African Swine Fever in Asia suggests an opportunity for Brazilian meatpackers to substitute their hogs or beef for the contaminated Asian pork. 

    As a result, Marfrig now estimates it will generate consolidated net revenue of cBRL49bn in 2019, compared with its previous guidance of BRL47bn, and that it will improve its EBITDA margin to 9.5% from its previous estimate of 8.7%. In addition, the company sees free cash flow rising to cBRL1.5bn in 2019, compared with its previous estimate of BRL1.0bn.

    Marfrig also reported its Q2 19 liability management action: in May, it raised US$1.0bn in 7.0% senior unsecured bonds due 2026 (BB-/BB-) through its subsidiary NBM US Holdings Inc., mainly to extend the company’s maturity schedule and to reduce its cost of debt.

    We see no reason to change our mix of Buy and Hold recommendations (see overleaf for details). We believe Marfrig’s bonds already reflect the guidance improvements as they trade higher (yields-wise) than most of their peers, and a few bonds trade in what we regard as a somewhat dislocated manner, due to factors such as low liquidity (due to small outstanding amounts) and short duration (near-term maturities).