Minerva 4Q24: Acquisition Outlook and Market Tailwinds Support Credit Upgrade

Stronger post-acquisition scale, healthy FCF outlook, and export momentum reinforce the deleveraging path and outperformance case

Executive Summary

• We upgrade Minerva to Outperform, reflecting greater confidence in the company’s deleveraging trajectory, supported by expected cash generation despite integration costs and higher interest expenses. Favorable market conditions for Brazilian beef exports in 2025 and meaningful synergies from the recently acquired assets reinforce our view. A clear focus on debt reduction, coupled with higher EBITDA, should support balance sheet improvement. Taken together, solid operational performance, favorable market dynamics, and rising volumes from the acquired assets should support outperformance in Minerva’s bonds over the next 9–12 months.

  • We find Minerva’s (BB/BB) 8.875% 2033 bonds, yielding 7.5% with a 4.6-year duration, more attractive than the 4.375% 2031 bonds, which yield 7.0% with a 5.1-year duration. The 2033 notes are the only bonds in Minerva’s capital structure trading in line with EM BB curves, while other bonds remain tight to the benchmark. We acknowledge, however, that the 2033s are priced above par at $106.9, whereas the 2031s are priced below par at $87.2.

• Minerva reported strong 4Q24 results, with revenue up 26.0% QoQ and 73.8% YoY to R$10.7 billion, beating expectations by 6.7%, driven by robust regional performance and initial contributions from acquired assets. Adjusted EBITDA rose 16.1% QoQ and 55.8% YoY to R$944 million, exceeding expectations by 20.9%, though the margin narrowed to 8.8%. Export momentum to NAFTA markets continued, with revenue share rising to 19% as the company capitalizes on U.S. supply-demand imbalances.

• From a credit perspective, net debt increased by R$6.7 billion to R$15.7 billion, pushing net leverage to 5.0x as of December 2024, from 3.2x in September, following the acquisition of Marfrig’s assets. LTM EBITDA rose 12.1% sequentially to R$3.1 billion. On a pro forma basis, adjusting EBITDA to include expected contributions from the acquired assets, net leverage rises more modestly to 3.7x. Liquidity remains solid at R$14.5 billion, covering short-term debt by 2.8x and sufficient to meet all maturities through 2029.

• Minerva completed its R$7.2 billion acquisition of Marfrig’s assets in Brazil, Argentina, and Chile on October 28, 2024. The transaction included a R$1.5 billion initial payment in August 2023 and a R$5.7 billion closing payment for 13 industrial units and one distribution center. The company now operates 43 industrial facilities across seven countries, with a combined daily slaughter capacity of 41,789 cattle and 25,716 sheep.

• Brazil posted strong 4Q24 results, with gross revenue increasing 24.6% QoQ and 67.3% YoY to R$5.4 billion. Growth was driven by a 6.0% increase in volumes and a 17.5% rise in prices, with the weaker Real likely supporting exports. Results reflect two months of contributions from the new assets, which added R$647 million in revenue and 29.5k tons in volume. Excluding these, revenues still rose 9.6% QoQ and 47.2% YoY. The domestic market led performance, with revenue up 49.2% QoQ and 128.5% YoY to R$2.8 billion, supported by higher volumes and prices. Exports rose 6.0% QoQ and 30.2% YoY to R$2.6 billion, with stronger pricing offsetting volume declines.

• Revenues from LatAm operations excluding Brazil rose 27.6% QoQ and 90.2% YoY to R$4.7 billion in 4Q24, driven sequentially by a 10.9% increase in volumes and a 15.1% rise in prices. Compared to 4Q23, volumes were stable while prices surged 89.3%. Domestic revenues in these markets grew 23.7% QoQ and 107.7% YoY to R$1.3 billion, supported by higher volumes and firm pricing. Regional exports, which accounted for 70% of segment sales, rose 29.2% QoQ and 84.0% YoY to R$3.4 billion, driven by a 15.2% increase in prices and a 12.2% QoQ increase in volumes, despite a 9.8% YoY decline.

• We remain optimistic for the coming quarters, supported by a persistent global beef supply-demand imbalance that favors South American exporters like Minerva. The U.S. remains in a tight cattle cycle, lifting import demand, while China’s recovery in 2H24 has bolstered both prices and volumes. With expanded export capacity following the Marfrig acquisition, Minerva is well positioned to benefit. Exports accounted for 53% of 4Q24 gross revenue and 58% in full-year 2024, a share we expect to increase as new plants ramp up.