JBS SA (JBSAF, Financial) (JBSAY, Financial) is the largest protein processor and second-largest food company in the world. The company’s official headquarters are in Holland and there is a spinoff IPO in the works in the U.S. The stock is down in part because of currency issues in Brazil and the CEO being under investigation.
The stock trades for 11.4 Brazilian real ($3.50), there are 2.72 billion shares and the market cap is 31 billion real ($9.54 billion). It takes 3.25 real to buy one dollar. There will be a loss this year, but last year, earnings per share were 1.70 real. That would be a price-earnings (P/E) ratio of 6.7.
The asset side of the balance sheet shows 18.8 billion real in cash and 12.1 billion real in accounts receivables. The liability side shows 12.4 billion real in payables, 20.9 billion real in loans and 50 billion real in debt. JBS owns a 78% share of Pilgrim’s Pride (PPC, Financial) that is worth $3.37 billion, or 10.95 billion real. You can see that cash could be quickly raised by selling shares in Pilgrim’s Pride to pay debt. The debt is BB rated by S&P, which is junk. That might be a little harsh given the company’s liquid assets.
To come up with revenues and other numbers, I am going to take the first nine months and add another. Revenues for this year will be about 171.7 billion real. The revenue breakdown looks like this: 51% U.S., 15% Brazil, 12% Asia, 3% Canada, 3% Mexico, 3% South America, 5% Europe, 1% Russia, 3% Africa/Middle East and 4% Oceania. Of that, 32% is beef, 22% is poultry, 16% is pork and 30% is other prepared foods.
I will give a narrative of JBS’s activities throughout the world. In Brazil, there are 86 beef slaughterhouses. Under the name Seara, there are 52 poultry slaughterhouses. There are also leather tanners, beef jerky production and even power production plants in Brazil. The U.S. division of JBS has 215 slaughterhouses in the U.S. and several other countries. There are several other leather finishers and special types of animal handling in Argentina, Luxembourg, Paraguay, the U.K. and elsewhere. Seara operates four animal protein trading operations in Holland and 14 processing units in Europe under the name Moy Park.
According to an article from Bloomberg back in May, “JBS’s $750 million bond due in 2024, among its most-liquid notes, yields 6.99 percent, data compiled by Bloomberg show. While that is down about 1 percentage point since before JBS’s May 11 announcement, it is more than twice the 3 percent yield on Tyson’s 2024 bonds.” I find this very interesting. JBS had to move its corporate headquarters from Brazil to Holland to improve its image. Though Brazil is a lovely country, it is notorious for corruption, bankruptcy and nationalization of private companies. A New York Stock Exchange listing also will allow analysts to compare JBS with its competitors. We often invest in foreign companies for this very reason- they sell at a discount to their American peers. CEO Wesley Batista was recently caught up in a fraud investigation involving a pension.
The company hedges currencies, commodities and other things. Last year, JBS made a nice profit betting on the real but then lost quite a bit of it. This fellow at Seeking Alpha beat me to the punch and issued an article yesterday on JBS. The Brazilian state bank BNDES owns a 24% stake in JBS. This is the challenge with many Brazilian companies—the state owns shares and dictates the future of the company.
The stock is cheap but not without risks. I would like to learn more. Having said this, people have to eat and the company, other than farming, is vertically integrated.
Disclosure: We do not own shares.
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