Title: BRF’s Capital Raise Transforms Market Sentiment and Strengthens Financial Position
Introduction:
BRF (BRFS3), the owner of popular brands Sadia and Perdigão, recently completed a successful capital raise, generating R$ 5.4 billion. This move has brought relief to BRF’s capital structure, addressing a major concern in the market. The demand for the offering exceeded expectations by 20%, reflecting the market’s confidence in the company’s potential.
1. The Successful Capital Raise:
1.1. Higher-than-expected demand: BRF issued 600 million shares at R$ 9 per share, 5.7% lower than the closing price. The offering was oversubscribed, with demand surpassing expectations by 20%.
1.2. Relief for BRF’s capital structure: The raised funds are expected to decrease BRF’s leverage ratio by 1.3 times. This improvement is crucial for the company’s financial stability.
1.3. The participation of strategic investor Marfrig: Marfrig, BRF’s reference shareholder, retained a 33.3% stake in the company, contrary to expectations that it would increase its position to over one-third of the capital.
2. The Market’s Confidence in BRF’s Turnaround:
2.1. Trust in Marcos Molina’s leadership: BRF’s CEO, Marcos Molina, has successfully gained market trust since his investment in the company in mid-2021. The recent capital raise is the second subsequent offering initiated under his guidance.
2.2. Flight plan prioritizes operational strategy: BRF’s management focuses on returning to basics by optimizing inventory management and improving business execution. The company aims to improve its margins and increase profitability.
2.3. Positive financial indicators: BRF’s revenue increased by 9.4% to R$ 13.2 billion in the first quarter of 2022. Despite registering a net loss of R$ 1.02 billion, the company is taking steps to reduce leverage and interest expenses. The drop in cereal prices, coupled with the projected decrease in the Selic rate, further supports BRF’s positive outlook.
3. Impacts on BRF’s Divestment Plan:
3.1. Strengthened bargaining power: The injection of capital enhances BRF’s bargaining power in its divestment plan announced earlier this year. The company aims to attract an additional R$ 4 billion in divestment proceeds.
3.2. Pet food division sale: BRF’s pet food division, a key asset of the divestment plan, is currently in the due diligence stage of a bidding process. The transaction is expected to close in the third quarter of this year, with potential proceeds of around R$ 2 billion.
4. Salic’s Strategic Entry into BRF:
4.1. Significance of Salic as an investor: The entry of Saudi Arabia’s sovereign wealth fund for food security, Salic, into BRF is considered strategic for both parties. Salic aims to secure its supply of chicken meat, an essential protein for the Saudi market.
4.2. Harmony with Marfrig and Minerva: Despite Salic being a partner of Marfrig’s competitor, Minerva Foods, potential conflicts can be addressed. Both Salic and Minerva have successfully collaborated in the past, demonstrating the possibility of coexistence within the market.
Conclusion:
BRF’s successful capital raise not only alleviates concerns surrounding its capital structure but also signifies the market’s confidence in the company’s future. With the support of strategic investors and a clear operational strategy, BRF aims to improve its financial position, divest non-core assets, and enhance shareholder value. The entry of Salic adds further strategic importance, enabling BRF to secure its position in the Saudi market. These developments contribute to the positive outlook for BRF as it continues its journey towards growth and profitability.
Summary:
BRF, the owner of Sadia and Perdigão brands, achieved a successful capital raise of R$ 5.4 billion, surpassing market expectations by 20%. This raised capital bolsters BRF’s financial position and decreases its leverage ratio. With a clear operational strategy in place and the trust of the market, BRF is poised for a turnaround. The involvement of strategic investors, including Marfrig and Salic, strengthens the company’s position in the market and supports its future growth plans. BRF’s divestment plan is set to benefit from its improved bargaining power, with the sale of the pet food division expected to generate significant proceeds. The entry of Salic, despite its connection to Minerva Foods, is seen as a strategic move to secure the supply of chicken meat in the Saudi market. Overall, BRF’s successful capital raise marks a positive turning point for the company.
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BRF (BRFS3) raised R$ 5.4 billion in the main follow-up carried out in the country this year so far. This Thursday (13), the owner of the Sadia and Perdigão brands reported that the demand for the offer was 20% higher than expected and issued 600 million shares at R$ 9 per share, value 5.7% lower than the closing price (R$ 9.54) in negotiations B3.
The resources bring relief to BRF’s capital structure, a recurring front of concern in the market. With the monitoring, the company estimates a decrease of 1.3 times in its leverage (ratio between net debt and Ebitda). At the end of the first quarter of the year, the index was 3.35 times.
“The follow-up demonstrated the confidence of the market and brought a strategic investor into the business,” said Miguel Gularte, general director of BRF, when infomoney.
With the extra demand in the operation, the reference shareholder Marfrig (MRFG3) was left with 33.3% of the capital of the owner of Sadia, against the market expectation that the company founded and controlled by Marcos Molina would mount a position above a third of the capital.
Saudi Arabia’s sovereign wealth fund for food security, Salic, had just over a 10% stake. In total, Marfrig and Salic invested just over R$ 3.4 billion in the operation. Previ, another relevant shareholder, accompanied the offer.
The day after’
The monitoring once again demonstrated that the market, especially the president Marcos Molina, trust him turn around the company. It was BRF’s second subsequent offer since Molina began investing in the company in mid-2021.
“We have a peaceful company ready to reap the rewards of our operating strategy,” reinforced Gularte, former CEO of Marfrig who took over from BRF at the end of August last year. In the Sadia owner’s flight plan, the Management has prioritized inventory management and efficiency in business execution.
Since the end of the third quarter of 2022, the BRF has defended a position”return to basic”, trying to improve their margins. In the first quarter of this year, the company increased its revenues by 9.4%, to R$ 13.2 billion. In addition, registered a net loss of R$ 1.02 billion and net debt of R$ 15.3 billion.
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BRF CFO Fábio Mariano stressed that the company, in addition to reducing leverage, is reducing its interest expense from now on. Another operating lever is the gradual recovery of margins with the drop in cereal prices, especially soybeans and corn. The prospect of a drop in the Selic rate starting in August reinforces the positive outlook. “This stimulates the consumption of our products,” recalled Mariano.
Fábio Mariano also stressed that the injection of resources gives BRF greater bargaining power in the divestment plan announced this year, with which the market estimates that it will be possible to attract another R$ 4 billion.
The sale of the division pet foodseen as the main asset of the plan, continues with a bidding process in the due diligence – The number of interested parties has not been revealed at this stage. The trend is for the deal to close during this third quarter, with the sell side estimating a potential of R$ 2 billion in the transaction.
The salic question
As announced at the end of May., key shareholder Marfrig and Saudi Arabia’s sovereign food wealth fund Salic anchored the offer. The foreign investor is considered strategic for BRF, since the Saudi market is very important for the company’s sales of chicken meat, one of the largest exporters of protein in the world.
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But Salic’s entry into the business cannot be considered trivial, since the fund is a relevant partner of Minerva Foods (MEAT3), a direct competitor of Marfrig in the beef market.
“I can’t speak for them (Salic), but all the communication to the market about Salic’s participation was very clear,” argued Miguel Gularte. The Saudis have not requested a seat on BRF’s board and indicate they will take a passive role in the business.
For an analyst who accompanies BRF, the Salic fund is based on food security and its portfolio lacked an investment in chicken meat, a protein that the country wants to guarantee its supply. “BRF has a strong brand in Saudi Arabia and an established operation there. Maybe the valuation it made sense to enter the business, since its logic is strategic and long-term,” he said.
About a possible conflict in relation to Minerva, the analyst understands that it is possible to live in harmony. “It is a strong company (Minerva and Salic) that has done well in recent years, even with a joint project in Australia. To date, I have not seen any assets left for Salic,” he said.
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