Minerva aims to reduce its debt after a major acquisition despite recent losses and market challenges. Analysts express concerns regarding its operational efficiency and increasing debt levels, urging investors to wait for a solid capital optimization strategy.
Minerva, the largest beef exporter in South America, has announced its intention to generate sufficient cash flow to reduce its debt following a significant acquisition. The company is set to pay approximately 7.5 billion reais (around $1.33 billion) for specific assets from competitor Marfrig, which has raised concerns among analysts regarding its elevated debt levels.
Operational efficiency remains a critical concern for analysts, particularly regarding how well Minerva can utilize the newly acquired plants. They question whether the company will be able to produce enough free cash flow to manage the increased debt servicing costs in the future.
Analysts have indicated that delays in securing regulatory approvals for the acquisition, coupled with an unfavorable Brazilian cattle market cycle, may pose significant challenges for Minerva in the short term. Notably, the company recorded a loss of 1.57 billion reais ($277.32 million) in the fourth quarter of the year, the first quarter of operating the new facilities.
Despite these challenges, Minerva’s shares rose by 7.3% in early trading. The company’s net debt was reported at 15.6 billion reais by the end of the fourth quarter, reflecting a substantial 75.9% increase over the same period last year, primarily due to increased borrowings to finance the acquisition.
Furthermore, an adverse foreign exchange impact contributed nearly 2 billion reais to Minerva’s gross debt during the fourth quarter. The escalating debt levels may lead to potential breaches of debt covenants, which could restrict the company’s ability to pay dividends, issue new debt, or necessitate a capital call. Analysts suggest that investors should be patient and await the execution of a capital structure optimization plan before making investment decisions regarding Minerva.
In summary, while Minerva plans to reduce its debt following a significant acquisition, concerns persist over its operational efficiency and debt levels. The company experienced a notable loss in the last quarter and is facing unfavorable market conditions. Analysts recommend caution for investors until a clear capital optimization strategy is established.
Original Source: www.marketscreener.com
