Avian flu: slaughterhouse shares fall on the Stock Exchange – 05/23/2023 – Market

In the midst of a turbulent period for slaughterhouses, with weaker performances, the shares of companies in the sector were even more punished in the session this Tuesday (23) after the government declared a state of emergency due to records of cases of avian flu in Brazil.

This Monday (22), the Ministry of Agriculture and Livestock declared a state of zoosanitary emergency throughout the national territory due to cases of avian flu detected in wild birds.

According to the ministry, the measure aims to prevent the disease from reaching subsistence and commercial poultry production.

Even though it is just a preventive measure, investors are monitoring a possible reduction in the supply of commercial birds, according to market operators consulted by the Sheet.

The slaughterhouses that have chicken meat in their portfolio and that are publicly traded on the Stock Exchange are JBS, BRF and Marfrig.

Marfrig ended this Tuesday’s session down 5.18% on the B3, at R$6.59, the biggest drop in the trading session among the stocks that make up the Ibovespa. The BRF retreated 4.91%, to R$ 7.75, the third biggest drop of the day.

JBS, on the other hand, had a lighter drop, of 0.93%, worth R$ 16.98, after suffering a strong devaluation in past trading sessions due to its balance sheet for the first quarter.

NEGATIVE MOMENT

From January to March, JBS recorded margin compression in all its business units, amid an oversupply of protein in the foreign market and higher grain costs in Brazil. The company’s adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) was R$ 116 million, down 97.2% compared to the same period in 2022. In the year, the paper depreciates 22.78%.

In the short term, analysts expect the continuation of the negative market reaction.

“As JBS continues to weather this perfect storm, with a bearish protein cycle across all business units, we believe investors will ignore the cheap share price and remain on the sidelines, waiting for a better entry point,” said the Itaú BBA in a report on May 11th.

BRF also reported weak results in the first quarter, and although the adjusted Ebitda rose 300% compared to the same period last year, the number was lower than expected by the market.

“While we recognize that lower grain costs could significantly improve profitability going forward, we believe that recent cases of avian flu in Brazil could put a significant slice of BRF’s revenue at risk,” Goldman Sachs wrote in a report on the day 15th May.

Marfrig recorded adjusted Ebitda of BRL 1.5 billion in the first quarter, down 45% compared to the same period in 2022, mainly impacted by the company’s North American division. Despite envisioning a positive scenario for the company in Brazil, where the cattle cycle should be more benign in the coming quarters, Itaú BBA maintains a conservative view for the company in the medium term, “based on uncertainties regarding the normalization of the level of cash flow generation”.