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1、20,16,12,8,Stock data,347.0,1.0,43,Deutsche BankMarkets Research,RatingBuyGlobal Emerging MarketsBrazil,CompanyMarfrig,Date30 August 2012Forecast Change,Food,Price at 30 Aug 2011(BRL)Target price,11.6925.00,ReutersMRFG3.SA,BloombergMRFG3 BS,Exchange TickerSAOMRFG3,52-week range,12.26-5.74,Market rem
2、ains overly pessimistic(maintain Buy)Trimming price target as poultry headwinds offset by stronger beef/weaker BRLWe have updated our model to reflect 2Q12 results and recent grains priceincreases,which should have a negative impact on the Brazil poultry businessin particular over the next 12 months
3、.But the positive margin surprise in thedomestic beef business(further evidence that this unit is entering a multi-yearperiod of higher profitability),combined with the positive impact of a weakerBRL on all exports,led us to lower our target by only 4%,to R$25.In our view,the large implied upside po
4、tential amply compensates investors for the debt,Jose YordanResearch Analyst(+1)212 250-Rebeca Sanchez SarmientoResearch Associate(+1)212 250-Key changes,refinancing risk that still exists;therefore we maintain a Buy rating on MRFG3.,Target price,26.00 to 25.00,-3.8%,Estimate revision reflects 2Q12
5、results,weaker BRL and recent grain cost hikesMarfrig reported 2Q12 results two weeks ago,and since then we have done aline-by-line review of our model to reflect the latest quarter as well as weakerBRL assumptions(R$1.95 for year-end 2012 and R$1.90 for 2013)and theimpact of higher grains cost on t
6、he Seara Foods division.We remain constructive regarding Marfrigs medium-and long-term outlookWhile the present grain cost pressures represent a near-term headwind,we,Price/price relative,continue to believe that Marfrig will deliver over 20%EBITDA growth through2014;which,combined with additional a
7、sset sales,should ease the perceivedrefinancing risk and in turn should drive substantial appreciation in the stock.,48/10,2/11 8/11MarfrigBOVESPA(Rebased),2/12,Still expect only a small re-rating;upside mostly from EBITDA growth/FCFAt 7.3x 12-month forward EBITDA,MRFG3 is trading slightly below our
8、 targetmultiple of 7.5x(which is applied to our EBITDA estimate for the 12-monthperiod beginning a year from now to derive our target),so its 114%upside is,Performance(%)AbsoluteBOVESPA,1m18.70.0,3m28.56.4,12m52.63.4,driven primarily by our projected growth in EBITDA/FCF and a resulting declinein ne
9、t debt.Downside risks include weaker domestic and/or global demand,FX,volatility,additional trade barriers,and any significant increase in feed and/orlive cattle costs.Company-specific risks relate mostly to its high leverage(refinancing risk)and its ability to extract synergies from the many acquis
10、itionsdone over the past few years(see page 3 for more on valuation and risks).Forecasts And Ratios,Market cap(USDm)Shares outstanding(m)ADR ratioFree float(%)Volume(30 Aug 2011),1,980.42,617,800,Year End Dec 31Revenue(BRLm)EBITDA(BRLm)EBITDA margin(%)EBIT(BRLm)Net Income(BRLm)EPS(BRL)P/E(x)EV/EBITD
11、A(x)DPS(BRL)Dividend yield(%),2011A21,8851,5687.2827-746-1.669.80.141.2,2012E24,3081,9097.91,088660.1579.08.50.000.0,2013E25,7542,3669.21,5182680.6019.66.90.000.0,2014E27,7092,79410.11,9435311.189.95.80.151.3,BOVESPAExchange rate(BRL/USD,57,2562.05,Source:Deutsche Bank estimates,company data_Deutsch
12、e Bank Securities Inc.All prices are those current at the end of the previous trading session unless otherwise indicated.Prices are sourcedfrom local exchanges via Reuters,Bloomberg and other vendors.Data is sourced from Deutsche Bank and subjectcompanies.Deutsche Bank does and seeks to do business
13、with companies covered in its research reports.Thus,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.DISCLOSURES ANDANALYST CERTIF
14、ICATIONS ARE LOCATED IN APPENDIX 1.MICA(P)072/04/2012.,0,0,0,0,0,0,16 May 2012FoodMarfrig,Model updated:30 August 2012,Fiscal year end 31-Dec,2009,2010,2011,2012E,2013E,2014E,Running the numbers,Financial Summary,Latin AmericaBrazilFoodMarfrig,DB EPS(BRL)Reported EPS(BRL)DPS(BRL)BVPS(BRL)Valuation M
15、etricsPrice/Sales(x),1.541.540.0010.870.5,0.330.330.2210.950.4,-1.66-1.660.149.160.2,0.150.150.008.850.2,0.600.600.008.750.2,1.181.180.159.240.1,Reuters:MRFG3.SABuyPrice(30 Aug 11)Target Price52 Week rangeMarket Cap(m),Bloomberg:MRFG3 BSBRL 11.69BRL 25.00BRL 5.74-12.26BRLm 4,056,P/E(DB)(x)P/E(Report
16、ed)(x)P/BV(x)FCF yield(%)Dividend yield(%)EV/SalesEV/EBITDAEV/EBIT,9.09.01.8nm0.00.79.917.7,54.954.91.4nm1.20.911.321.7,nmnm0.9nm1.20.79.818.5,79.079.01.3nm0.00.78.514.9,19.619.61.31.40.00.66.910.7,9.99.91.312.51.30.65.88.4,USDm 1,980,Income Statement(BRLm),Company ProfileMarfrig is one of the most
17、diversified food companies inBrazil.In addition to processing fresh and industrializedbeef,pork,lamb and poultry,the company also specializesin frozen vegetables,canned meat,fish,ready meals andpasta.Marfrig operates plants located in South America,North America,Asia,Africa and Europe.In the past 3y
18、ears,the company has made over 37 acquisitions(including the Brazilian unit of Cargill Alimentos S.A.)expanding its physical presence to 13 countries with,SalesEBITDAEBITPre-tax profitNet incomeCash Flow(BRLm)Cash flow from operationsNet CapexFree cash flow,9,624725404549534-134-535-670,15,8781,3106
19、84-272146472-1,119-647,21,8851,568827-1,277-746-568-913-1,481,24,3081,9091,088-33066-26-773-799,25,7542,3661,518244268850-79357,27,7092,7941,9435635311,339-831508,exports to more than 100 destinations.,Equity raised/(bought back),1,464,-4,Price Performance,Dividends paidNet inc/(dec)in borrowings,01
20、,442,-994,011,-621,318,0137,-670,2016128,Other investing/financing cash flowsNet cash flowChange in working capitalBalance Sheet(BRLm)Cash and cash equivalents,-2741,9626343,033,-2,418843-6593,876,-175-399-1503,477,-20-681-6292,796,-279-222-2812,573,-281160-2772,733,48 10,2 11Marfrig,8 11,2 12BOVESP
21、A(Rebased),Property,plant&equipmentGoodwillOther assetsTotal assets,3,65305,56812,255,6,686012,03822,600,7,095013,25123,823,7,434013,42023,650,7,647013,63323,853,7,878013,88424,496,Margin Trends1198,DebtOther liabilitiesTotal liabilitiesTotal shareholders equityNet debt,5,3433,1258,4693,7862,310,9,8
22、618,79818,6583,9415,984,11,9348,54620,4803,3448,457,12,2078,20820,4143,2359,411,12,1048,54020,6443,2099,531,12,2198,88921,1083,3889,485,653,09,10,11,12E,13E,14E,Key Company MetricsSales growth(%)DB EPS growth(%),55.1na,65.0-78.9,37.8na,11.1na,5.9303.1,7.698.2,EBITDA MarginGrowth&Profitability7060504
23、03020100,EBIT Margin,20100-10-20-30,Payout ratio(%)EBITDA Margin(%)EBIT Margin(%)ROE(%)Net debt/equity(%)Net interest cover(x)DuPont AnalysisEBIT margin(%),0.07.54.216.461.00.84.2,52.68.34.33.9151.80.74.3,nm7.23.8-21.4252.90.53.8,0.07.94.52.1290.90.84.5,0.09.25.98.8297.01.15.9,9.710.17.017.0280.01.5
24、7.0,09,10,11,12E,13E,14E,x Asset turnover(x),0.9,0.9,0.9,1.0,1.1,1.1,x Financial cost ratio(x),-0.2,-0.5,-0.8,-0.3,0.1,0.3,Solvency35030025020015010050,Sales growth(LHS),ROE(RHS),2211,x Tax and other effects(x)=ROA(post tax)(%)x Financial leverage(x)=ROE(%)annual growth(%)x NTA/share(avg)(x)=Reporte
25、d EPSannual growth(%),-5.75.03.316.4na9.41.54na,-0.40.84.63.9-76.58.40.33-78.9,1.1-3.26.7-21.4na7.8-1.66na,-0.20.37.62.1na7.00.15na,2.01.17.88.8312.46.80.60303.1,0.82.27.717.093.97.01.1898.2,0,0,Source:Company data,Deutsche Bank estimates,09,10,11,12E,13E,14E,Net debt/equity(LHS)Jose Yordan+1 212 25
26、0-5528Page 2,Net interest cover(RHS),Deutsche Bank Securities Inc.,16 May 2012FoodMarfrigInvestment ThesisOutlookWe rate MRFG3.SA(ADR:MRRTY)Buy because we believe that,after a multi-yearperiod of falling returns driven by M and after applyingthis discount,we arrive at a target multiple of 7.5x.Risks
27、Downside risks include stalling domestic and/or global demand,FX volatility,theerection of additional trade barriers by countries that currently trade with Brazil,and anysignificant increase in feed and/or live cattle costs.Animal protein companies are alsoexposed to the risk of disease(avian flu,H1
28、N1,BSE),which can cause confidencecrises among consumers and significantly curtail demand or lead to costly productrecalls.Company-specific risks relate mostly to its high leverage and its ability tointegrate and extract synergies from the multitude of acquisitions over the past fewyears.,Deutsche B
29、ank Securities Inc.,Page 3,Aug-02,Jan-03,Jun-03,Nov-03,Apr-04,Sep-04,Feb-05,Jul-05,Dec-05,May-06,Oct-06,Mar-07,Aug-07,Jan-08,Jun-08,Nov-08,Apr-09,Sep-09,Feb-10,Jul-10,Dec-10,May-11,Oct-11,Mar-12,Aug-12,3Q12E,1Q01,3Q01,1Q02,3Q02,1Q03,3Q03,1Q04,3Q04,1Q05,3Q05,1Q06,3Q06,1Q07,3Q07,1Q08,3Q08,1Q09,3Q09,1Q
30、10,3Q10,1Q11,3Q11,1Q12,16 May 2012FoodMarfrigRevised EstimatesAs mentioned earlier,this estimate revision reflects 2Q12 results(which were broadly inline with expectations),DBs latest FX forecast(which now calls for a year-end BRL of1.99 for 2012 and 1.90 for 2013),and our estimated impact of higher
31、 grains cost on theSeara Foods division.Seara FoodsThe 2H12 outlook for Seara Foods is a rather complicated one in light of rising feedcosts,integration of the Brasil Foods assets and a still-turbulent export market,and wehave lowered our margin expectations accordingly(taking into account the fact
32、thathigher feed costs have their greatest impact on the Brazilian business of Seara Foods,as the pork/poultry operations in other countries are not as exposed to corn and/or havebetter hedging mechanisms such as Keystones cost-plus arrangements).But we see amuch improved operating scenario for Seara
33、 Foods in 2013(despite higher grain costsexpected to continue through 1H13 in our view),as the asset swap should be accretiveto margins and the synergies from last years global reorganization(and associatedsynergies)should start to show.,Brazil pork and poultry feed costs have been on the rise since
34、 April 2012(Figures 1-2).While initially driven by rising soybean meal prices(sparked by a disappointing harvestin Brazil),corn prices turned sharply up in late June,thanks to persistent dryness andunseasonably hot weather which has slashed expectations for this years corn(andsoybean)harvest in the
35、United States.As a result,feed costs have surged(up 35%YoY so far in 3Q12)and we expect them to remain at elevated levels through mid-2013(although a strong Brazilian soybean crop in early 2013 may provide some relief).,Feed costs have surged(up35%YoY so far in 3Q12),Figure 1:Estimated dressed equiv
36、alent feed costs(R$/kg)R$2.0R$1.6R$1.2R$0.8R$0.4R$0.0Source:Deutsche Bank,Bloomberg Finance LP,Figure 2:YoY%change in feed costs60%50%40%30%20%10%0%-10%-20%-30%Source:Deutsche Bank,Bloomberg Finance LP,Complicating matters further,soft domestic demand and excess poultry inventory at thelocal(and int
37、ernational)levels resulted in limited producer pricing power for poultryproducers throughout 1H12(Figure 3).But following production cuts of about 10%inJuly and August,producers were finally able to pass through significant price increaseson chicken(as well as pork)products in August.It is still unc
38、lear whether these priceincreases will be enough to completely recover margins,but we hear that the pass-thruprocess has been relatively easy(as a result of the fact that all producers are underintense cost pressure),and therefore we are confident that previous levels ofprofitability will eventually
39、 be restored.Meanwhile,as seen in Figure 2,USD exportPage 4,but following productioncuts of about 10%in July andAugust,producers werefinally able to pass throughsignificant price increases onchicken(as well as pork)products in AugustDeutsche Bank Securities Inc.,Jan,Feb,Jun,Aug,May,Sep,Jul,Nov,Dec,A
40、pr,Mar,Oct,Apr,Jul,Sept,May,Aug,Nov,Jan,Feb,Jun,Oct,Dec,Mar,16 May 2012FoodMarfrigprices for fresh chicken remain soft though July(although a weaker BRL is providing anoffset thanks to the positive translation effect),largely as a result of excess inventoriesin some of the major poultry importers.Ho
41、wever,Marfrig management mentioned inthe 2Q12 conference call that the high inventory levels in importing countries have beencoming back to normal and as a result Brazilian export prices should begin to recoverover the next few months.,Figure 3:Brazil average domestic chicken prices(R$/Kg)R$3.50R$3.
42、25R$3.00R$2.75R$2.50R$2.25R$2.00R$1.75,Figure 4:Brazil average export chicken prices(R$/ton)$2,200$2,000$1,800$1,600$1,400$1,200,2008,2009,2010,2011,2012,2008,2009,2010,2011,2012,Source:IEA(Instituto de Economia Agrcola),Source:SECEX/MDIC,In this model review,we have toned down our expectations for
43、3Q12 and 4Q12 toreflect both the rising cost environment,which is primarily impacting the Brazilianoperations given that Keystone is fully hedged(as per McDonalds policy)and Moy Porkis exposed to wheat rather than corn,as well as the integration of BRF assets(whichshould prove to be most disruptive
44、to results in 3Q12 and show inproving returnsthereafter).While we understand that Brasil Foods and Seara(as well as the smallerplayers)are raising prices as much as 20%on average throughout 3Q12,the full impact/margin recovery should not be fully realized until 4Q12.Furthermore,we lowered our2H12 vo
45、lume estimates(versus previous estimates,but volumes should still show YoYgrowth as a result of the first-time consolidation of the Brasil Foods assets)to reflect thenegative impact of higher prices on near-term volume growth.Figure 5:Seara Foods Divisionoperating results and estimates,FY 2010 A,1Q1
46、1 A,2Q11 A,3Q11 A,4Q11 A,FY 2011 A,1Q12 A,2Q12 A,3Q12 E,4Q12 E,FY 2012 E,FY 2013 E,SalesYoY%ChangeVolumesYoY%ChangePrice/LBYoY%ChangeGross ProfitGross Profit MarginEBITEBIT MarginEBITDAEBITDA Margin,9,02181.4%2,289117.5%3.94-16.6%1,44916.1%3163.5%8099.0%,3,32880.9%84280.2%3.950.4%41312.4%290.9%1805.
47、4%,3,46185.3%84179.5%4.123.2%41211.9%-8-0.2%1384.0%,3,55177.2%84963.4%4.188.4%45812.9%872.4%2477.0%,3,89718.0%8684.1%4.4913.3%52613.5%1574.0%3168.1%,14,23757.8%3,40048.5%4.196.3%1,80912.7%2651.9%8816.2%,3,4955.0%832-1.2%4.206.3%43112.3%571.6%2096.0%,3,92213.3%817-2.9%4.8016.6%44311.3%751.9%2396.1%,4
48、,74033.5%96713.9%4.9017.1%53111.2%841.8%2645.6%,4,97627.7%1,00115.3%4.9710.7%64212.9%1733.5%3577.2%,17,13320.3%3,6176.4%4.7413.1%2,04712.0%3892.3%1,0686.2%,18,6328.8%3,8035.1%4.903.4%2,50613.5%7584.1%1,4797.9%,Source:Deutsche Bank estimates,company reportsBut as we indicated above,we see a much more
49、 constructive outlook for this businesssegment in 2013.Based on the information provided recently by Brasil Foods,wecalculate that on a historical,pro-forma basis the asset swap would have contributed atleast 44bps of EBITDA margin accretion to Searas 2011 results.When taking intoconsideration the a
50、dded capacity/economies of scale,the additional POS and theincreased sales force,we believe the impact should be even larger going forward.,Deutsche Bank Securities Inc.,Page 5,Jan,Feb,Jun,Aug,May,Sep,Jul,Nov,Dec,Apr,Mar,Oct,Jan,Apr,Jun,Aug,Sept,May,Nov,1Q11,3Q11,Feb,Mar,Jul,Oct,Feb-05,Jul-05,Aug-02
