Just two weeks after assuming the presidency of BRF, Pedro Parente showed the one that came. And it would not be for less: he assumed the company with challenges as huge as those he had when he was at the head of Petrobras, his philosophy of putting order in the house also seems quite similar.
On Friday night, while all eyes were turned towards the World Cup, BRF called a news conference and announced the beginning of a strategy for the turn of Mrs. Sadia and Perdigão, who has been suffering a serious crisis for months in its business aggravated by Operation Meat Poor in March and by the dispute between shareholders. The company announced the decision to sell $ 5 billion in assets, moving to factories in Europe, Thailand and Argentina.
The sale of the units is part of a broad restructuring plan, which also includes the dismissal of more than 4,000 employees in Brazil and a reduction in managerial positions.
“Healthier is better than being bigger,” is how Credit Suisse analysts define the company’s new strategy of becoming leaner and more focused. The Swiss bank also upgraded underperform BRF3 from below-average to neutral, but focused on valuation by putting a target price of $ 18.00 (exactly the closing price of the last Friday before of the statement).
The announcement, in fact, greatly encouraged the market over BRF, which saw its shares jump 12.28%, to R $ 20.21, leading to a gain of market value of the company of almost R $ 2 billion only on Monday . However, there are still many issues to be addressed by the market – and that leaves many analysts wary.
After all, will the company be able to dispose of a billion dollar asset in the coming months at a fair price? Does the potential sale of European assets impact the company’s tax payment? Will the securitization of receivables be implemented with higher financial costs? And even more, are these measures sufficient if the [chicken meat] cycle does not improve in 2019?
These issues were highlighted by the Swiss bank in a report that highlight the company’s debt reduction targets by pointing out that BRF is committed to achieving a 4.35-fold ratio between net debt and EBITDA by 2018 and 3 times 2019, leading to an implicit Ebitda generation of R $ 2.7 billion and R $ 3.6 billion in 2018 and 2019, respectively.
“While the deleveraging process is a positive sign, we note that consensus estimates were somehow already expecting to leverage 3.4 times the ratio of net debt to “Ebitda” in 2019, without divestment. This shows that short-term results may be worse than expectations, which already incorporate a more challenging scenario, “Credit analysts say.
In this scenario, the sixth spot is seen as positive by the market given the sense of urgency in decreasing leverage and also focus on major markets such as Brazil, Muslim and Asia. “On the other hand, it is inevitable to say that the company is taking a step back in part from its internationalization plan (divesting about two-thirds of the acquisitions made since 2013),” BTG Pactual points out.
Thus, in the assessment of the bank’s analysts, the action remains without much appeal in the short term. Including, by incorporating the new ads into the model, they reduced the target price from $ 25 to $ 19, with a neutral recommendation maintained. For Credit analysts, despite the rather complicated scenario, the market seems to try to glimpse the scenario for 2019, while 2018 seems to be lost amid the non-recurring expenses caused by unit closures, high grain prices, import tariffs in China and Chinese ban.
“In this sense, the valuation presents an attractive risk-return relationship only in 2020, which shows that we think we are far from a bullish view on BRF, given the cyclical movement of the business,” they point out.
But there are also those who are more optimistic about BRF, in the case of XP Investimentos, which started coverage for BRF with a recommendation to buy and a target price of R $ 25.00, pointing out that the sixth ad removes the hypothesis of an increase of capital, in addition to leading to a gradual turnaround of the company in the roles after the period of turmoil. In addition, the restructuring plan should boost margins in the 2019-2020 biennium.
So will Monday’s shot be a chicken flight or the boost that BRF needed after being the worst action of the first half in 2018? Anyway, the road seems to be arduous. But this year, which before seemed lost to the company, may at least give signs that the company may react in the stock market.