BRF (BRFS3) announces former CEO of Marfrig (MRFG3) as its new president;  The stock fell 1.10% as the market deteriorated

BRF (BRFS3) announces former CEO of Marfrig (MRFG3) as its new president; The stock fell 1.10% as the market deteriorated

BRF (BRFS3) and Marfrig (MRFG3) announced changes to their key executive positions this morning. The companies announced this Tuesday (30) that Miguel de Souza Gularte is leaving the position of CEO of Marfrig (MRFG3) to take over as the company’s global head.

The change in the leadership of the company follows the resignation request submitted on August 29, 2022 by Lorival Nogueira Luz Jr. The position of global CEO of BRF. Luz has been BRF’s longest-serving president since Perdigão’s acquisition of Sadia.

Currently, Marfrig owns 33.27% of BRF, as the company’s major shareholder. Shares of the two companies made gains: at 10:32 a.m. (Brazil time) this Tuesday (30), BRFS3 assets were up 4.46%, at R$17.10, while MRFG3 was up 3.92%, at R$14.57. However, as the market deteriorated, Marfrig turned bearish and closed down 3.78%, at R$13.49, BRF pared the gains and also closed down a more moderate 1.10%, at R$16.19. At its highest level on the day, BRFS3 rose 8.49% to R$17.76.

Gularte served as CEO of Marfrig Global Foods for over 4 years, having also resigned on August 29, 2022.

Miguel de Souza Gularte and Loreval Nogueira Luz Jr. A transition period will begin to end by 30 September.

To replace Goularte, Marfrig’s board of directors approved the election of Rui Mendonça Junior as CEO of the company.

Mendonça Junior is an Engineer by Training, MBA in Agribusiness and has been in the sector for over 40 years in different areas such as Operations, Production and Finance, and has international experience in operations in Australia and the United States. He has been with Marfrig since 2007, currently serving as the Director of Industrial Products for South America.

Finally, BRF reports that this indication does not indicate the intent, at this time, for a merger between the company and Marfrig Global Foods.

In the XP assessment, the appointment of Miguel Goularte as CEO of BRF was unexpected. “However, although his experience comes from the beef sector, in our view it is easier to move from a more volatile environment to a calm environment than the other way round,” analysts assess.

For them, Miguel should be able to make BRF more resilient, eliminating the uncomfortable deadlock that has been responsible for missed opportunities in BRF’s past. It can also increase the share of exports in its revenue, which we see as a positive thing. We await a more detailed strategy from BRF for the coming years. The CEO position at Marfrig (MRFG3) is not a challenge right now, but as the company announced, Roy Mendonca is taking over as Marfrig CEO and we look forward to a smooth transition.” They have a neutral recommendation for BRF and a buy recommendation for Marfrig.

Morgan Stanley, for its part, said she was not surprised to see the positive stock reaction in BRFS3 today, but feels it is too early to draw conclusions about whether BRF, under the new leadership, will truly deliver the long-awaited transformation of its operations and cash flow transformation.

To put this in context, BRF’s main competitor in Brazil, Seara, which is owned by JBS JBSS3, has gained a stake in key classes, while accelerating local investments. On the other hand, BRF’s recent comment focused on containing capital expenditures as the company continues to consume cash,” the analysts note.

For them, changing the CEO at BRF is definitely a big change; That could mean that a major shift in long-term strategy is coming, especially given that the new CEO is a direct candidate for the new parent company (Marfrig). So today’s announcement is really important.

However, we believe that it is too early to assess or quantify the long-term effects of the change. From an operational standpoint, our main caveat will be competition, given that Seara is bigger now, with more related brands, penetration and production capacity – and with a strong cash cushion from JBS to back it up. In terms of BRF operations, another point that can be made is that since the very difficult start of the year with its first-quarter results of 22, BRF has been very vocal in cutting costs and making changes,” analysts assess, citing news that the company will cut 25% of its management. / Senior positions with a view to a leaner and more flexible corporate structure.“Maybe this was a sign of the potential for bigger changes in management later on,” they add.

From a corporate structure point of view, one of the key questions investors have asked Morgan is whether Marfrig and BRF have indicated a path to merger.

“We have no knowledge of this, or whether the companies have discussed it. But it is a reasonable question, as Marfrig has become the largest shareholder and observer of BRF (with a 33% stake). The recent announcement of the CEO change is likely to keep investors asking the same questions. , but we simply do not have a basis for assessing whether companies are moving toward a final deal.”

According to analysts, the most important thing right now, also based on recent interactions with investors, is that the market will probably react favorably to the BRF today based on the perception that 1) a redefinition of the BRF strategic plan is overdue, and that 2) Marfrig is appointed to lead New to the BRF could indicate a long-term commitment on the part of the observer (remember, one of the BRF’s historical challenges has been management turnover).

Despite Morgan’s announcement today, it still has below average market exposure for BRF due to structural challenges (competition in Brazil, limited cash generation). “For Marfrig, today’s announcement is not nearly as important (as we see at the BRF level of course), partly because there may be some continuity of the existing strategy. At Marfrig, nothing has changed at the level of control, while the new CEO comes from within and has a lot of experience,” notes the bank, which has an overweight recommendation (exposure above the market average) for this role.

JPMorgan also has an under-rating of BRFS3 assets, but views the news as neutral. “The change in management was not surprising and gives the company a good breath of fresh air after a few turbulent quarters. In addition, investors are feeling optimistic about Golarty, who is also very close to Marcos Molina. Golarty has also been responsible for improving Marfrig’s operational level, efficiency and commercial strategy. In South America,” they say.

On the other hand, in JP’s assessment, Gularte’s experience focused primarily on the beef industry, “and we believe this move might frustrate some investors who thought someone had more experience with other proteins (pork and chicken),” they concluded. .

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