SÃO PAULO – Still with a fall of 11.17% in the year, the stock of JBS (JBSS3) has a better performance than the Ibovespa (-14.35%), but registers a weak performance when compared to Marfrig (MRFG3), sector pair, which sees its shares rise more than 50% in the same period. This is despite the fact that both companies recorded strong results throughout 2020.
However, the last two sessions were of strong gains for JBSS3, with investors and analysts seeing a clearer path for the company after resolving several legal issues in the US that clouded the company’s course, despite operations going well. . In resolving these issues, plans for listing the company in the US may return to the radar, analysts note.
Only last Wednesday (14) did J&F, the parent company of JBS, and Pilgrim’s, an American subsidiary of JBS, release three agreement announcements that made the JBSS3 stock jump 9.20%, following the gains in the following session, when it rose 4.28%. As a result, in just two trading sessions, shares rose 13.88%.
The main one took place in the middle of the afternoon on Wednesday. J&F announced that it had entered into an agreement with the US Department of Justice (DOJ) to end the process that covers the same conduct that was the subject of an investigation and leniency agreement between the holding company and the Federal Public Ministry in Brazil.
The holding pleaded guilty to violating the US Foreign Corrupt Practices Act (FCPA) and a $ 128 million (R $ 716 million) fine was imposed to be paid by the holding company for terminating the lawsuit. The amount represents half of the original fine imposed by the DoJ, due to the credit received by J&F for the amount already agreed with the Brazilian court. JBS will not bear any responsibility for this agreement.
In the same document, it was reported that JBS entered into a civil agreement with the Securities Exchange Commission (SEC, or US CVM) on violations of securities laws for conduct that caused Pilgrim’s Pride, its US subsidiary, to fail to keep its books. accounts with accurate records. The agreement provides for a fine of US $ 26.8 million (about R $ 151 million) to be paid by JBS.
Earlier, Pilgrim’s Pride had said it agreed to pay a $ 110.5 million (R $ 618 million) fine for creating restrictions on competition that affected three contracts for the sale of broiler products to a customer in the United States.
As highlighted by Levante Ideias de Investimentos, the agreements entered into represent the resolution of the legal disputes carried out by both the holding company J&F and JBS in the USA, removing the uncertainty regarding the possible consequences arising from the facts disclosed on the day it became known in the market as ‘Joesley Day’ in May 2017, which triggered circuit breaker on the stock exchange.
“We see this set of announcements as being strongly positive for the company, mainly because the agreed values are insignificant in relation to JBS’s balance sheet, with positive impacts both in the short term and in the long term for the company’s actions, which now has a clear path for listing your assets on the American Stock Exchange. The market must price the positive results disclosed by the company in the recent balance sheets ”, evaluates the analysis team.
In the same vein, Morgan Stanley points out that, from now on, the company’s action should react more to the balance sheet than to concerns about the processes it faces.
“Overcoming any setbacks with the SEC and the DoJ represents a significant step in resolving such issues [de governança corporativa], so that investors can gradually focus more on the evolution of JBS business. In addition, although the agreements are not related to the possible listing in the United States by JBS, investors have asked us in the past whether, for example, DoJ approval was needed on that front or whether an investigation by the entity could be an obstacle to JBS plans, ”say Morgan analysts.
Based on recent conversations, analysts note that the U.S. listing project is now back as one of the company’s priorities, but more as an initiative for 2021.
Factors to monitor
However, there are still issues that can affect the company’s short term.
Levante points out that, with the resolution of these issues in the USA, the market’s attentions may turn to the sale of participation held by BNDESPar, investment arm of the National Bank for Economic and Social Development (BNDES) in JBS. BNDESPar has a 21.8% stake in the company and has already expressed interest in selling, which may still put pressure on stock prices in the short term.
The analysis house also recalls that BNDES has already sold its relevant stakes in Vale (VALE3), Suzano (SUZB3) and Petrobras (PETR3) this year, raising R $ 42 billion from operations.
Another issue on the radar is BNDESPar’s request for JBS to sue the Batista brothers. BNDESPar asks for compensation for the losses caused to the company by the unfolding of the corruption investigations, a topic that will be evaluated at the Shareholders’ Meeting on October 30th.
Added to this is the news that the Attorney General’s Office (PGR) on the same Wednesday reported to the Governor of Mato Grosso do Sul, Reinaldo Azambuja (PSDB), businessmen Joesley Batista and Wesley Batista, owners of the JBS, in addition to 21 other people. The group is accused of active and passive corruption, money laundering and criminal organization.
In the US, there is yet another important legal issue pending involving the company, as Morgan reinforces: the investigation by the United States Department of Agriculture (USDA) on the price discrepancy found in the beef market after a fire at a processing plant from Tyson Foods and the covid-19 pandemic. The report is part of an ongoing investigation by the USDA to see if there have been unfair practices by slaughterhouses. The U.S. Department of Justice is also investigating the issue.
The DoJ has already formally demanded information from the country’s four largest slaughterhouses (including JBS) on the subject. “However, we noted that, in July, and based on the analysis conducted by the USDA, the president of the US Meat Institute stated that“ the USDA found no irregularities and confirmed that what happened in the beef market was due to devastating events and unprecedented. Obviously, we note that this is an ongoing investigation and that the USDA report and analysis are based only on market dynamics, ”say Morgan analysts.
Thus, some factors still have the potential to generate pressure in the short term for the company’s shares, but most analysts remain positive with the case, mainly amid the good results and with one of the main legal issues for the company in the USA leaving the radar.
It is worth mentioning that, in the second quarter, the large Brazilian slaughterhouses had very solid results, being one of the most praised precisely by JBS. On the occasion, on August 13, the Credit Suisse analysis team asked the following question: “how can anyone not be optimistic?”
Swiss bank analysts Victor Saragiotto and Felipe Vieira stressed that they expected the company to deliver its best operating data in history, but could not anticipate how strong they would be. “Revenue grew 32.9% in the annual comparison to R $ 67.6 billion and the adjusted Ebitda had an impressive jump of 105.9% in relation to the second quarter of 2019, to R $ 10.5 billion”, they pointed out ( see more by clicking here), highlighting that the beef division of the slaughterhouse in the USA was the main responsible for the extraordinary performance.
In the analysis of analysts, the second quarter of 2020 was historic and will hardly be beaten, however, the momentum should last for much longer. “The most depreciated level of the real should help partially offset the cost pressure that is to come in the Seara and Friboi brands.”
Credit’s recommendation for assets at the time was – and still is – outperform (performance above the market average), with a target price of R $ 40, which represented an increase of 80.59% compared to the value of R $ 22.15 closing on that 13th of August. However, since then, the stock has barely moved: despite the sharp rise in the last two sessions, JBSS3 papers are still around R $ 22.
Bradesco BBI and Morgan Stanley also have a recommendation equivalent to the purchase for the company, both having a target price of R $ 33 for the assets, which represents a 47.32% appreciation potential in relation to the closing of this Thursday , of R $ 22.40. According to a compilation made by Refinitiv, of 13 houses that cover the paper, only one has a sale recommendation, while 12 recommend the purchase for the asset. The average target price is R $ 34.14 – or a projected increase of 52%.
As a result, despite the strong performance of the last two trading sessions and even with short-term challenges on the radar, analysts still see a good earning potential for the company’s stock – even more after the “turning page” in the USA.
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