Minerva S.A. plans to reduce debt after acquiring Marfrig’s assets, facing concerns regarding operational efficiency and cash flow generation. While shares rose 7.3%, net debt increased to 15.6 billion reais, raising worries about future financial restrictions. Investors are advised to monitor capital optimization strategies.
Minerva S.A., South America’s leading beef exporter, has announced intentions to reduce its debt following a significant acquisition. The company is confident in generating sufficient cash flow to manage its debt levels in the coming years. This announcement follows the acquisition of assets from competitor Marfrig for 7.5 billion reais ($1.33 billion). However, analysts remain concerned about the implications of this debt accumulation.
With the acquisition’s regulatory approval process taking longer than anticipated and challenges in the Brazilian cattle market, analysts are cautious regarding Minerva’s operational efficiencies and free cash flow generation. The company faced a net loss of 1.57 billion reais ($277.32 million) during the fourth quarter, the initial period it operated the newly acquired plants, raising further concerns.
Despite these challenges, Minerva’s shares increased by 7.3% in early trading. As of the end of the fourth quarter, the company’s net debt had surged to 15.6 billion reais, which is a 75.9% increase compared to the previous year, driven largely by borrowings associated with the acquisition. Analysts from Genial Investimentos have noted that adverse foreign exchange impacts added approximately 2 billion reais to the gross debt, heightening the risk of debt covenant breaches, potentially restricting dividends and new debt issuance.
Before the release of the fourth quarter results, XP analyst Lucas Alencar suggested that investors should await clarification on Minerva’s capital structure optimization plan prior to making investment decisions.
In summary, Minerva S.A. faces challenges in managing its increased debt following a substantial acquisition. While the company is optimistic about generating cash flow to reduce this debt, analysts express concern regarding operational efficiencies and market conditions. The significant rise in net debt and potential covenant breaches highlight the need for strategic financial management moving forward.
Original Source: www.marketscreener.com
