Resultado BRF

A bump on the road

3Q13 review: Adjusted EBITDA was a 11% miss

BRF posted Q3 earnings of R$287mn and adjusted EBITDA of R$911mn, up a strong

210% and 61% y/y but still missing our expectations by 36% and 11%, respectively.

Sales grew 5% y/y (volumes -10% y/y; prices +15% y/y) to R$7.6bn, while adjusted

EBITDA margin was 12% (+420bps y/y but 80bps shy of forecast). On a positive note,

FCF generation came in at R$650mn (lower capex and better WK management),

while leverage fell to 1.9x LTM EBITDA.

Sales were an even bigger disappointment than margins

Sales grew a modest 5% y/y, as domestic market volumes slumped 16% y/y despite

supposedly easier comps from 3Q12 (although not necessarily a bad thing since it

shows some discipline). Elsewhere, prices (albeit flattish q/q) picked up nicely in y/y

terms, while on the margin front the domestic division reported EBIT margin of 10%

(+400bps y/y; +270bps q/q), already adjusting for expenses from BRF’s synergy plan.

The export business suffered from higher inventories in the Middle East and operating

issues (heavy rainfall) at the Itajaí port terminal, driving EBIT margin down 240bps q/q

to 4%. On a brighter note, dairy EBIT margin remained healthy at 4.5%, while the

food service division posted a slight slowdown to 9.3% (-90bps q/q).

Still a top pick; BRF isn’t just a 2013 story

Quarterly results are often a key tool for investors to assess future prospects and finetune

their estimates. Since announcing its Growth Acceleration Plan, we believe BRF

is no longer a 2013 earnings story but instead a call that more aggressive long-term

synergies are now feasible. An admittedly subpar Q3 doesn’t materially change our

long-term estimates or long-term view on the stock, which remains a BUY. A growing

risk to our call comes from the fact that the stock will probably be very volatile until it

starts posting results compatible with arguably demanding short-term multiples.

Valuation: R$66/share

Our TP is DCF derived and implies a 2015 P/E of 19x after incorporating 85% of the

R$1.9bn synergy guidance.

Valuation 12/2011 12/2012 12/2013E 12/2014E 12/2015E

RoIC (EBIT) % 12.8 8.5 14.8 17.6 21.1

EV/EBITDA 11.4 16.3 12.8 10.7 9.2

P/E 23.1 45.0 28.5 20.8 16.7

Net dividend yield % 0.0 0.6 0.9 1.2 1.5

Financials (R$mn) 12/2011 12/2012 12/2013E 12/2014E 12/2015E

Revenues 25,705 28,520 32,335 35,622 38,670