Brazilian meat group Marfrig has confirmed plans to push ahead with an initial public offering for its European meat business, Moy Park, next year.
“In 2015, if market conditions permit, we will carry out Moy Park’s IPO,” the company said in a statement last week.
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In its third quarter results, Marfig described Moy Park as an “unquestionable growth story”. During the period, Marfrig said Moy Park sales were up 10% year-on-year.
The company stressed: “Annual sales increased from GBP800m (US$1.3bn) in 2008 (at the time of its acquisition by Marfrig) to approximately GBP1.45bn estimated for 2014, which confirms the enormous potential of the European market, which remains promising.”
The company first suggested that it could float its international subsidiaries – Moy Park in Europe and Keystone in the US – last March. At the time, Marfrig suggested it would maintain majority ownership of the businesses.
Proceeds from any listing would be invested in further expansion in Europe and Asia. Cash would also be used to reduce Marfrig’s leverage. Reducing debt would improve Marfrig’s bottom line performance, which was hit by higher financing expenses as well as foreign exchange translation during its most recent quarter.
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By GlobalDataShore Capital analyst, Phil Carroll, noted that the firm has a number of levers that it can use to improve its debt profile, including improving cash generation and debt liability management. An IPO of its international subsidiaries would enable Marfrig to speed up this process.
“The investment case for Marfrig is centred around an improving and more consistent operating performance to drive cash generation,” Carroll wrote in an investor note. “Management confirm that subject to market conditions, it will look to IPO Moy Park in 2015… it would appear that management would be looking for a valuation for Moy Park in excess of the group EV/EBITDA ratio of 6x. Our analysis suggests this should be achievable.”
In fiscal 2013 to end-March last year, Moy Park generated EBITDA of around BRL303m (US$116.7m). Based on its 2013 result, this would give Moy Park an enterprise value somewhere north of BRL1.8bn. However, the company has seen strong EBITDA growth in the year-to-date. Moy Park EBITDA rose 24% in the third quarter and the company is forecasting continued improvements in the fourth quarter, which is a seasonally strong period for the group.
