Minerva, South America’s largest beef exporter, aims to reduce debt after a major acquisition from Marfrig, despite operational challenges and financial concerns. The company reported significant quarterly losses and increased debt levels, raising caution among analysts regarding its ability to generate cash flow needed to cover expenses. Minerva is seen as facing a tough road ahead amid uncertainty in the cattle market and potential breaches of debt covenants.
Minerva, the largest beef exporter in South America, announced plans to cut down its debt following a significant acquisition. The company recently agreed to pay approximately 7.5 billion reais ($1.33 billion) for assets from competitor Marfrig, raising concerns among analysts regarding the sustainability of its debt levels. Despite these worries, Minerva’s executives believe they can generate enough cash flow to manage this debt reduction in the upcoming years.
Analysts have also signaled potential operational challenges, particularly regarding how effectively Minerva can integrate and utilize the newly acquired plants. There are concerns about whether the company will be able to generate sufficient free cash flow to cover its increased debt expenses moving forward. Delays in obtaining the necessary regulatory approvals for the acquisition and a less favorable Brazilian cattle market have added pressure to Minerva’s operational strategy during this transition.
In the company’s fourth quarter, Minerva reported a loss of 1.57 billion reais ($277.32 million), marking the first period it operated the new facilities fully. However, its shares saw a rise of 7.3% in early trading despite these challenging circumstances. By the end of the fourth quarter, Minerva’s net debt reached 15.6 billion reais, a substantial increase of 75.9% year-over-year due to additional borrowings for the acquisition.
Analysts Igor Guedes and Luca Vello at Genial Investimentos noted that a negative foreign exchange effect had added nearly 2 billion reais to the gross debt for that quarter. They expressed that the rising borrowings could lead to a potential violation of debt covenants, which would restrict Minerva from paying dividends, issuing new debt, and might necessitate a capital call. Additionally, prior to the quarterly results, XP analyst Lucas Alencar suggested that investors should “wait for the company’s capital structure optimization plan before any stock positioning.”
Minerva is proactively looking to reduce its debt levels following a significant acquisition, although this move presents multiple challenges. Analysts are concerned about operational efficiency and cash flow generation in light of increased debt. The recent financial losses and rising net debt complicate matters further, pointing to a cautious outlook in the short term. Hence, proper management strategies will be critical for Minerva’s financial recovery and stability.
Original Source: www.marketscreener.com
