Middle East And Halal Market Expansion And Efficiency Programs Will Define Future Operations

Key Takeaways

• Strategic focus on value-added portfolio and efficient execution aims to drive revenue and profitability growth.
  
• International market expansion and production capacity investments indicate potential for enhanced revenue and margins.
  
• Macroeconomic pressures, currency fluctuations, and export market uncertainties may impact BRF's profitability by influencing costs and revenue growth.

Catalysts

BRF S.A. raises, produces, and slaughters poultry and pork for processing, production, and sale of fresh meat, processed products, pasta, margarine, pet food, and other products.

• BRF's strategic focus on increasing the volume and market share of its Value-added portfolio, along with efficient commercial execution and expanding market destinations, is expected to drive higher revenue growth and profitability.
  
• The successful implementation of BRF+ program, which has captured significant operational efficiencies since its launch, suggests potential for continued margin enhancement and contribution to future earnings growth.
  
• Expansion in international markets, particularly the Middle East and Halal segments, with new products and increased export permits, indicates opportunities for higher revenue and potentially better net margins.
  
• Planned investments in expanding production capacity for processed products in Brazil signal expectations of capturing higher market demand, which could positively impact revenue and profit margins.
  
• Strong performance in international operations, driven by optimized export strategies and a potential rebound in swine prices, sets the stage for sustainable international EBITDA margins and earnings growth.

BRF Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming BRF's revenue will grow by 5.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 5.2% today to 3.2% in 3 years time.
• Analysts expect earnings to reach R$2.3 billion (and earnings per share of R$1.48) by about April 2028, down from R$3.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.9x on those 2028 earnings, up from 10.9x today. This future PE is greater than the current PE for the US Food industry at 10.9x.
• Analysts expect the number of shares outstanding to decline by 2.85% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.92%, as per the Simply Wall St company report.

BRF Future Earnings Per Share Growth

Risks

• The macroeconomic environment, including inflationary pressures and cost challenges, may impact BRF's operating costs, potentially affecting profitability and net margins.
  
• Currency exchange rate fluctuations could influence input costs, such as grain prices, affecting cost structure and possibly narrowing net margins.
  
• Potential cost increases, including labor and variable compensation provisions, may pressure profit margins if not adequately offset by revenue growth.
  
• The international segment remains sensitive to supply-demand balances, which, if disrupted, could lead to volatility in export prices and affect overall earnings.
  
• Although BRF is expanding export capabilities, uncertainties in gaining approvals for new markets, including restrictions on certain exports to China, could impact revenue growth from international markets.

Valuation

• The analysts have a consensus price target of R$27.508 for BRF based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$34.0, and the most bearish reporting a price target of just R$21.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$71.4 billion, earnings will come to R$2.3 billion, and it would be trading on a PE ratio of 28.9x, assuming you use a discount rate of 16.9%.
• Given the current share price of R$21.78, the analyst price target of R$27.51 is 20.8% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.