Shares in Marfrig Global Foods, having soared on anticipation
a listing of its Keystone Foods division, wavered as the
flotation was unveiled – in the second announcement in hours by an ag major
over IPO plans.
Shares in Marfrig Global Foods initially fell in trading on
Friday, before recovering ground to stand at R$7.69 in afternoon deals, a gain
of 0.9% on the day.
The modest performance followed the Brazilian meatpackers'
announcement that it had "confidentially" registered its Pennsylvania-based
Keystone Foods division for stockmarket flotation in the US – expectations of which
are widely viewed as having spurred a surge in Marfrig shares.
"We believe investors' hopes that such an IPO could be underway
have fuelled much of the 40% stock price rally in the last 30 days," said Thiago
Duarte at Brazilian broker BTG Pactual.
Marfrig has the "has the potential to unlock substantial
value for Marfrig if it can float Keystone at a valuation close to global food
Marfrig stockmarket maths
Such thinking has been spurred by the acquisition last month
by Tyson Foods of AdvancePierre, a rival to Keystone, at a multiple pegged by Bradesco
at 14 times earnings before interest, tax, depreciation and amortisation
That is well above the multiple that the market attributes
to Marfig shares, even after their rally, with the group proscribed a discount
thanks largely to concerns over its debt levels.
Assuming Keystone Foods could be floated even at a multiple
of 10 times ebitda, the impact on pulling up Marfrig's overall valuation
creates further scope for share prices rises, said Bradesco, lifting its target
price for the stock by R$2 to R$10, with an "outperform" recommendation.
However, BTG Pactual stuck with a "neutral" rating, and a R$9.00
share price target, terming "weak" results for the January-to-March quarter
that Marfrig also unveiled.
The Keystone division , a major supplier to McDonalds, achieved an "excellent" start to the
year, with underlying ebitda adding 10% to $62m (R$196m), on revenues up 7% at
$667m, led by growth in Asia Pacific markets such as Australia, Malaysia and
However, underlying ebitda in Brazilian beef fell by 38% to R$222m,
on revenues down 17% at R$2.0bn, thanks to setbacks including the knock-on
effects of the Operation Weak Flesh police investigation into corruption among
food health officials.
"In addition to the seasonally weaker demand, the Weak Flesh
Operation, triggered in the second week of March, adversely affected the
operations of animal protein companies, poultry, beef, pork and processed foods,"
said Marfrig, which was itself not targeted by the probe .
"Consumer confidence was shaken and some important export
destinations, such as Chile and China, temporarily suspended imports from
Brazil," the group said, talking of "highly challenging" conditions in the
Marfrig's group losses more than doubled, to R$237.9m, on revenues
down 15.7% at R$4.16bn.
Wilmar reheats China
The IPO announcement for Keystone Foods - in which Marfrig
said it "currently intends to sell a portion of its holdings", which many investors
took to signal the sale of a minority stake – represented the second flotation
announcement in hours from an ag industry major.
Wilmar International, the Singapore-based agricultural
trading giant, on Wednesday said that it was "carrying out an internal
restructuring of its China operations with the possibility of a separate
The proposed flotation was "still at evaluation stage", said
the group, which in 2009 shelved plans for a listing of its Chinese unit in
Hong Kong, which at the time created talk of a $3bn valuation for the division,
which is one of China's biggest oilseeds crushers.
Shares in Wilmar, which also announced a 51% jump to $361.6m
in earnings for the January-to-March quarter, closed up 9.6% at Sing$3.76 on