BRAZIL: Minerva rated 'buy' as Goldman starts protein coverage

Minerva, the Brazilian beef exporter, has been handed a 'buy' rating on its shares as Goldman Sachs kicks off coverage of the country's largest meat processors.

In a 53-page report, Goldman analysts Gustavo Wigman and Claudio Lensing launched their coverage of Minerva, Brazilian meat giants JBS and Marfrig and processed food maker Brasil Foods.

Wigman and Lensing gave Marfrig's stock a 'sell' rating and handed a 'neutral' rating to JBS and Brasil Foods.

The analysts argued that Minerva was being overlooked by investors and that the current 33% discount on its shares compared to its local peers was "excessive".

"As a pure player and large exporter of beef, Minerva stands to benefit from the upcoming recovery we expect in both beef exports - starting early 2010 - and the Brazilian cattle cycle (later in 2010)," the analysts wrote.

"Revenues should also benefit from the ramp-up of Minerva Dawn Farms, its processed meat, foodservice-focused unit, currently at the very early stage of operations but picking up with the strong domestic demand."

Wigman and Lensing said Marfrig was a "well-run" company but said that, unlike other analysts, they believed the company was trading above its "fair multiple".

They wrote: "On a fundamental basis, we think Marfrig is a well-run company and management’s diversification strategy resonates with our long-term view for the sector. Our concern, however, is on the cattle and grain cycle in 2010, and the ambitiousness of the company’s targets for recent acquisitions."

The analysts, meanwhile, handed JBS, the world's largest meat processor, a 'neutral' rating due to the short-term challenges the company is likely to face following last year's acquisition of US poultry group Pilgrim's Pride and merger with local conglomerate Bertin.

"Nevertheless, we believe history will show that this timing of transactions was right. We think global exposure to all key producing countries works as a hedge against changes in beef trading flow, which will prove important in the long run," Wigman and Lensing wrote.

Brasil Foods, formed last year through the merger of Sadia and Perdigao, should benefit from a "powerful brand portfolio" and "sizeable synergies", the analysts said.

"The year remains challenging for poultry exports (confirmed by the company’s guidance of only 3%-5% volume growth in 2010), and upside for the stock relies on synergies that investors will price fully only once the first flows are delivered," they wrote.