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By Ana Mano
SAO PAULO (Reuters) -Shares in Minerva, South America's largest beef exporter, rose sharply on Thursday as analysts cheered strong fourth-quarter operating results that allayed concerns about surging debt amid a downturn in Brazil's cattle cycle.
Goldman Sachs reiterated its "buy" rating on the stock, citing the potential for strong sales to China and steady demand in Brazil, where higher beef prices have partially compensated for scarcer cattle.
Minerva lost a net 1.57 billion reais ($277 million) in the fourth quarter, largely due to negative currency effects. However, operating profit measured by earnings before interest, taxes, depreciation and amortization (EBITDA) rose 56% from the same period a year earlier to 944 million reais, beating the average forecast in an LSEG poll of 840.6 million reais.
Minerva's shares rose more than 10% in Sao Paulo trading but later trimmed gains to close 8.7% higher before market adjustments, while those of rival JBS ended up 4.2% ahead of its earnings report next week.
Minerva's management said the company will be able to generate enough cash to reduce debt this year and next after paying for new slaughterhouses across South America, which increased its nominal slaughtering capacity by more than 50%.
Analysts have raised concerns for months about Minerva's rising debt, with some suggesting it had overpaid for Marfrig assets in Brazil, Chile, Argentina and Uruguay.
The 7.5 billion reais ($1.33 billion) deal was struck in 2023 but only closed in October last year due to slower-than-expected regulatory approvals.
Morgan Stanley analysts, which have an "equal weight" recommendation on the stock, praised Minerva's strong EBITDA, suggesting that its free cash flow would boost shares despite debt ratios that remain high because of the acquisition.
Net debt rose 76% year-on-year to end 2024 at 15.6 billion reais. Currency effects added almost 2 billion reais to gross debt in the fourth quarter, analysts at Genial Investimentos said. The analysts warned Minerva could breach its debt covenants, a risk dismissed by management which said that not all of the company's debt obligations are included in the covenant calculations.
Minerva's Chief Financial Officer Edison Ticle told analysts the company may be able to generate between 1 billion and 2 billion reais of free cash this year to reduce debt. He acknowledged cash expenses will reach around 2 billion reais due to the higher debt levels.
Ticle also forecast an additional 200 million reais of capital spending on the 13 former Marfrig plants, which will require additional working capital of up to 500 million reais.
BTG analysts, who have a "neutral" rating on the stock, said the acquired assets have performed in line with expectations, adding their margins are initially not as bad as some investors may have feared.
"However, there is still a considerable journey ahead," BTG said citing low capacity utilization at the new plants, which will continuously require more capital in a scenario of reduced cattle availability.
($1 = 5.6552 reais)
(Reporting by Ana Mano; Editing by Brad Haynes, Kirsten Donovan and Jamie Freed)
