I have been generally bullish on the turnaround plan underway at BRF SA (BRFS),
as management is bringing a great deal more operating discipline to a
company that has never had much of it. Add that enhanced discipline and a
greater focus on bottom line profits to a business with strong domestic
market share and an underrated Middle Eastern business, and that’s why
I’ve been consistent in saying that a successful turnaround could drive a
meaningfully higher share price for BRF down the road.
Along
the way, though, the company has picked up an unexpected tailwind from a
serious outbreak of African Swine Fever (or ASF) in China. This
outbreak has led to a dramatic increase in food imports into China,
boosting global prices, while BRF has also started seeing lower input
costs.
The ASF outbreak won’t last forever, but it
is effectively “free money” for BRF and will both accelerate the
turnaround process and give management more flexibility in its strategy.
The improved near-term outlook supports a fair value near the
double-digits, but I believe the ASF outbreak will have to get worse to
support a substantially higher near-term price, though the longer-term
fair value of a successful turnaround is still higher than today’s
price.
Read more here:
Sick Chinese Pigs Driving Healthier Profits For BRF
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