The Long and Short
Minerva SA | Higher costs ahead tilt relative value
This material is a Marketing Communication and does not constitute Independent Investment Research.
Minerva SA, the Brazilian beef exporter, had looked like better value relative to industry peers and Brazilian ‘BB’ generally based on tariff positioning and export footprint, with the Latin-sourced product preferable to the US. But each of these factors now seems diminished or reversed. Minerva’s leverage does provide some cushion against fundamental weakness. But Minerva bonds have started looking rich to Marfrig, based on the companies’ 2026 and 2027 outlooks. The Marfrig/BRF combined reporting resulted in a higher consolidated net leverage, but Marfrig is increasingly likely to benefit from cycle turns. While the US cattle cycle remains depressed, US market technicals remain solid and investors look likely to seek more exposure to the US through names like Marfrig and JBS.
Minerva’s LTM EBITDA margin has been steadily declining since the first quarter of 2024 as integration challenges dragged down the average. More recently higher cattle costs offset the scale economies that were a positive byproduct of the M&A. Going forward, though SG&A for example, has dropped by over 2 percentage points of revenues to around 10.5%, continued pressure on cattle cost input is likely to challenge year-on-year comps as 2026 evolves. The geo-political volatility adds disruption to the supply channels and uncertainty to longer term macro demand. In the very near term, credit metrics remain in control, with the R$1.1 billion in EBITDA posting a 16% growth over the corresponding period last year, thus helping to alleviate the balance sheet pressure from the R$800 million in cash burn in the period. The majority of the cash outlay was driven by R$957 million in seasonal working capital cash consumption as the company normally resets contracts and makes related payments to its suppliers in the beginning of the year.
Minerva’s net leverage ticked up slightly to 2.7x, though it remains well below the recent year high of 3.7x, in connection with the asset purchase from Marfrig. While credit metrics are not likely to meaningfully improve in the near term, the sector remains a core holding for dedicated emerging markets investors. However, it looks likely the bond repurchase initiative of recent years will slow in 2026 as Minerva has reduced its cash level to a generally minimal operating balance of about R$10 billion.
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