Officially formed less than two weeks ago, the Brazilian Food Giant MBRF () – the result of Marfrig’s fusion with the owner of Sadia and Perdigão brands – will continue to depend on the chicken meat business in the coming years (possibly until 2029).
Given the severe restriction of cattle in the United States, where the herd is the smallest in five decades and a recovery will surely take time, the profitability of Marcos Molina’s company will oscillate to the flavor of the chicken cycle (in other words, the businesses that came from BRF).
Over the past two and a half years, the margins of chicken meat have been lush around the world, combining genetic problems that made it difficult to expand bird supply to the cheapest cost of the grains used in animal feed.
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In Brazil, players like Seara and BRF have recorded the biggest margins of all time. A similar movement occurred in the American market, with exceptional results of Pilgrim Pride, a company listed at Nasdaq that is controlled by JBS, and Tyson Foods.
It seems that the positive cycle of the chicken will last longer, according to a recent interview by Gilberto Tomazoni, JBS Global CEO, Ao.
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But the fantastic margins of recent years should not be sustained forever, which can be a challenge for MBRF to achieve an appreciation of their actions in the stock market.
In a report sent to customers on Wednesday, the team of analysts led by Leonardo Alencar of XP Investimentos designed an accommodation of BRF business margins over the coming years.
After reaching an adjusted EBITDA margin of 17.1% last year, the business should register a slightly lower margin this year of 16.3%. For next year, analysts project 15.3%.
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Although they are still very positive margins, the gradual reduction of profitability (a reflection of the normalization of the chicken cycle) makes it difficult to appreciate MBRF actions.
“Over the next two years, we have estimated that BRF will represent almost 80% of MBRF EBITDA, which makes the pace of normalization of chicken margins a key factor for valuation and short -term results,” wrote XP analysts.
In this interval of two years, the National Beef – the MBRF beef business in the United States – should still suffer from compressed margins due to cattle scarcity.
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In the accounts of XP analysts, the EBITDA margin of National Beef is expected to follow close to zero at least next year. A substantial improvement should only occur in 2029.
In this scenario, any positive surprise in the results of MBRF should come from chicken meat, because the beef business of South America was little relevant in the whole (only 11% of the total).
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