Minerva 1Q25: Integration and Deleveraging Underpin Outperformance View

Clear commitment to debt reduction and asset integration underpins constructive credit outlook, with ramp-up execution remaining key

Key Insights and Recommendations

We maintain our Outperform recommendation on Minerva (BB/BB), with a preference for the BEEFBZ 8.875% 2033 bonds, yielding 7.4% with a 4.5-year duration, as we find them more attractive than the BEEFBZ 4.375% 2031 bonds, which yield 6.9% with a 4.9-year duration

Minerva reported solid operating results in 1Q25, primarily driven by the ongoing integration of acquired assets from Marfrig. The company generated revenues of R$11.20 billion, reflecting a 4.5% QoQ and 55.8% YoY increase, but missing market expectations by 1.8%. The top line benefited from R$2.01 billion in revenue generated by newly acquired assets in Brazil and Argentina, which also contributed 79.0k tons in volume. Revenues were also supported by a 1.2% QoQ and 19.8% YoY increase in volumes sold to 415k tons, and a 3.0% QoQ and 29.5% YoY increase in average price to R$28.8/kg. This was mainly driven by a healthy domestic supply of raw materials and a favorable international environment that supported higher export prices. Adjusted EBITDA increased 2.0% QoQ and 53.1% YoY to R$963 million, but came in 1.9% below market expectations. The EBITDA margin contracted 21 bps QoQ and 15 bps YoY to 8.6% in the quarter. Management noted that the new assets were operating at EBITDA margins around 250 bps below consolidated levels, at approximately 6%, but improving sequentially.

We highlight that exports to NAFTA continue to gain share, now representing 26% of the company’s gross revenues in 1Q25, up from 19% in 4Q24 and 10% in 3Q24. This reflects Minerva’s strategy to capitalize on supply and demand imbalances in the US, where cattle supply remains limited while consumption stays strong. At the same time, Asia has maintained its relevance, contributing 18% of gross revenues, with China alone accounting for 11%, supported by ongoing domestic production constraints. This balanced export footprint underscores Minerva’s geographic diversification strategy, which has been instrumental in mitigating regional risks and optimizing price arbitrage across key international markets. Additionally, management expects Brazil and Argentina to soon gain access to the Japanese and Korean markets, further supporting export growth. Management also noted that geopolitical tensions and recent volatility in international trade are benefiting South American exporters like Minerva, as the region’s relative neutrality provides a competitive edge when trade barriers shift for other exporters such as the US and Australia.

Minerva guided 2025 consolidated revenues of R$50 billion to R$58 billion, which compares favorably to the current market consensus of R$49.6 billion. We believe the successful ramp-up of newly acquired assets will be key for the company to exceed consensus expectations. The new assets operated at an average capacity utilization of around 55%, but are expected to reach 75% by 3Q25. Early signs of SG&A dilution from the ramp-up are already visible, supporting margin improvement.

From a credit perspective, the results reflected a 10.7% increase in LTM EBITDA, an 8.8% reduction in total debt, and a 0.4% decrease in net debt, while LTM interest expense increased 3.0%. As a result, gross leverage decreased 1.7x sequentially to 7.9x as of March 2025, net leverage improved 0.5x QoQ to 4.5x, and interest expense coverage increased by 0.1x to 1.1x. Adjusting these metrics to include EBITDA generated from newly acquired assets, adjusted gross leverage improved 0.6x to 6.5x, adjusted net leverage remained stable at 3.7x, and adjusted interest expense coverage was unchanged at 1.4x. Minerva’s liquidity remained strong, with R$11.9 billion in total liquidity, covering short-term debt by 3.8x and sufficient to meet maturities through 2029. Despite improved EBITDA, significant interest expenses, capex, and working capital requirements kept cash generation negative. Management explained that working capital consumption was related to a tactical increase in inventories, aimed at boosting profitability.