Small but Promising Acquisition: Minerva Opens Two New Paths By Buying Sheep Meatpackers in Australia

Sheep farming (Photo: Wikimedia Commons)

SAO PAULO – Last Thursday Minerva Foods (BEEF3) celebrated its first investment initiatives in the Australian market, with the acquisition of slaughterhouses Sharke Lake and Great Eastern Abattoir, both specialized in sheep and located on the west coast of the country, he informed the company in a statement. As a result, the company has greater geographic diversification and also greater protein diversification.

According to Minerva, the largest exporter of beef in South America, the investments will be made and the plants will be explored through a joint venture in the final stages of formation with SALIC, in which the Brazilian company will hold a 65% share and SALIC the remaining 35% stake.

The joint venture’s total investment will be approximately US$35 million, including the acquisition of assets, contributions to improve plant structures and working capital, the company said.

Minerva added that the expectation is that the slaughterhouses are ready to start operating within 60 days.

When fully operational, the plants will be able to reach a slaughter capacity of 1 million heads per year.

“This initiative… uniquely complements our operations in South America, maximizing commercial opportunities and operational synergies, reducing risks and contributing to our consolidation strategy in the animal protein export market”, concluded the company.

Australia is currently the largest global exporter of processed sheep, with access to both high-growth destinations such as Asia and the Middle East, but also premium markets such as the United States, Europe, Japan, South Korea, among others.

Bank of America assesses that, even though it is a small investment for Minerva, at less than 3% of its market value, it is a first step towards a new country and a new protein.

“Although valuation metrics are still unknown, we believe the company could leverage Australian assets into its global platform as most of the country’s beef is exported to China and the US. At the same time, it diversifies the company’s regional concentration, even in South America”, say the bank’s analysts. Analysts have a neutral recommendation for the share, with a target price of BRL 12.50, although representing a 51% increase compared to Thursday’s closing.

Levante Ideias de Investimentos points out that the timing of the expansion of Minerva and the segment seems to be quite opportune for the company, which has already been aiming at an extension of its export operations, including the attention focused on Australia.

“The complementarity of the operations already held in the country, together with Salic, makes sense, even more in a moment of recovery of the lamb herd in the country after some periods of unfavorable weather, representing an excellent moment for the accelerated growth of the operations”, they state the analysts of the research house.

In this way, they see the movement as positive for the company, despite the potential results being
still small compared to the company’s total result (Minerva generates around R$24 billion in revenue annually), with positive impacts on the company’s actions in the short term.

This is because the acquisition becomes strategic with some important points such as geographic diversification, expansion of the addressable market, with lamb being an important opening of trade relations for other types of proteins for countries in the Middle East and some countries in Asia that consume higher value-added proteins (Japan and South Korea, for example).

Levante also emphasizes that one of the slaughterhouses acquired in this transaction has a small slaughter capacity and
cattle processing, a specialty of Minerva. This could pave the way in the future for a beef export from Australia. Although JBS is also the leader in beef there, Minerva’s expertise in the beef operation, in addition to protein trading, may open a new path for markets still infrequently accessed by the company, with a more premium bias than the exports originating in Latin America.

In this session, gains were modest on the Stock Exchange: BEEF3 assets rose 0.85%, to R$ 8.35, at 1:50 pm (Eastern time).

(with Reuters)

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