Minerva Foods shares plunged to their lowest level in nearly 15 years on Thursday as investors remained skeptical that South America’s largest beef exporter can deliver a structural reduction in leverage and its heavy interest burden.
The stock declined as much as 9% in São Paulo, even after Minerva reported operating results broadly in line with expectations. The shares reached their lowest level since December 2011, according to Einar Rivero, founding partner at consultancy Elos Ayta.
The selloff underscores investor concerns about Minerva’s ability to deleverage, compounded by the exhaustion of its China export quota and rising cattle prices in Brazil. The shares have lost more than 40% this year.
On a conference call with analysts Thursday morning, Minerva said it expects its net debt-to-Ebitda ratio to decline during the second half.
Chief Financial Officer Edison Ticle said the company could release more than 3 billion reais (roughly $580 million) from inventories that accumulated in the second quarter, significantly reducing its working-capital needs.
The resulting cash generation could cut leverage by 0.5 to 0.6 turn by year-end, Ticle said. That would bring net debt-to-Ebitda to between 2.3 and 2.4 times, from 2.9 times at the end of the second quarter.
“I’m being quite conservative,” Ticle said, adding that Minerva could generate Ebitda of 5 billion reais ($970 million) or more this year.
The market reaction suggests investors wanted more.
For Minerva, improving the net debt-to-Ebitda ratio alone may not be enough. Investors are looking for a meaningful reduction in interest expenses tied to costly working-capital facilities, including supplier-financing arrangements and receivables advances, at a time when Brazil’s benchmark Selic rate stands at 14%.
In recent years, financial expenses have consumed most of Minerva’s Ebitda, limiting the value flowing to shareholders.
Minerva’s equity is currently valued at just 3.2 billion reais ($620 million) on the Brazilian stock exchange, compared with net debt of 14.3 billion reais ($2.8 billion). On an enterprise-value basis, creditors account for roughly 80% of the company’s capital structure, leaving about 20% attributable to shareholders.
Addressing that imbalance will require Minerva to substantially reduce gross debt, allowing it to rely less on borrowed money to finance operations.
For now, the company is still moving in the opposite direction on some measures. Minerva’s use of supplier-financing facilities reached a record in the second quarter, Citi analyst Renata Cabral wrote in a note to clients. Such facilities totaled 4.7 billion reais ($910 million) as of June 30, up almost 800 million reais ($155 million) in three months.
With the deleveraging path still lacking clarity, BTG Pactual analysts Thiago Duarte and Guilherme Guttilla reiterated their neutral stance on Minerva shares.
“We continue to wait for alternatives that reduce financial expenses and improve cash generation for shareholders,” they wrote.
Ticle acknowledged on the call that lowering debt is crucial to reviving stocks.
“Our main priority is deleveraging because interest rates are very high, and the best way to create value is to carry less debt and lower financial expenses,” he said.
To prioritize debt reduction, Minerva plans to keep its dividend payout at the statutory minimum of 25% of net income even if leverage falls below 2.5 times by year-end. At that level, the company could otherwise distribute 50% of earnings.
This story was translated from the original Portuguese with the assistance of artificial intelligence and reviewed by The AgriBiz editorial staff.
