Fixed Income Analysis /

Minerva: Mixed Q1 results, consistent with industry; Athena Foods IPO imminent; reiterate Buy

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    15 May 2019
    Published by

    Minerva S.A. (BEEFBZ) reported a mixed set of Q1 results, in line with the overall trend for Brazilian protein and foods credits. However, we expect the headwinds that the industry has been facing to reverse during the balance of the year; therefore, we reiterate our Buy recommendation on the BEEFBZ bonds. In addition, the company stated that the IPO of its subsidiary Athena Foods remains a priority – if and when that happens, we would expect it to result in a reduction of the company’s debt and a strengthening of its balance sheet.

    Minerva reported net revenue of US$989.9mn in Q1 19, slightly lower than the US$1.089bn of Q1 18. Negative factors included weaker supply of cattle, BRL depreciation (which all-but eliminated the growth in local currency when translated into dollars) and changes in consumption patterns among different animal proteins, driven by availability and prices. However, Minerva’s cost controls meant it maintained a relatively flat EBITDA number, reporting US$87.3mn in Q1 19, compared with US$87.9mn a year ago.

    Regarding its balance sheet, Minerva’s cash stood at US$985.3mn, lower than the US$1.134bn at end-18 and the US$1.173bn at end-Q1 18. Short-term debt at end-Q1 19 was US$737.1mn and total debt came in at US$2.57bn, compared with US$2.701bn at end-18 and US$2.959bn at end-Q1 18. This positive change resulted in improved leverage ratios, with debt/EBITDA at 6.1x at end-Q1 19, compared with 6.4x in 2018 and 7.0x in Q1 18, almost one turn lower in Q1 19 than during the same period the previous year. In addition, in April 2019, Minerva concluded the buyback of the remaining US$75mn perpetual bonds.

    On the company’s outlook, management stated that they feel “very optimistic” about the prospects for South American protein exporters, as they see a continuing imbalance between global beef supply and growing international demand, with the region accounting for c35% of global beef exports and Minerva capturing c20% of this volume. In addition, the African Swine Fever outbreak in Asia has cut into global animal protein production. Minerva expects that to continue for the next 24 months, giving Brazilian beef exporters an opportunity to take advantage of protein substitution in that region, to beef from pork.

    We believe Minerva’s bonds offer attractive yields relative to their peers, with the potential for credit metrics to improve (on the back of the helpful business environment) and for additional cash from the Athena IPO. Thus, we reiterate our Buy recommendation on the BEEFBZ bonds.