The house's estimates for M. Dias Branco's EBITDA are 8% below consensus; understand what moves the action (Photo: M. Dias Branco)
A XP Investimentos downgraded its recommendation to M. Dias Branco (MDIA3) from purchase to neutral (target price of R$31.30 and potential for an increase of 25%).
According to the broker, there is a negative asymmetry for short-term profits, driven by:
- significant uncertainty regarding the extent of the company's price pass-throughs and their potential impact on volumes as competitors have lagged behind;
- margin pressures due to increased import costs of raw materials (particularly wheat and palm oil) in a devalued BRL;
- persistently high SG&A expenses (administrative, sales and general expenses).
“We see no clear catalysts for a revaluation, despite the potential for upside at current price levels, given the heightened uncertainty surrounding near-term earnings and the recent share price volatility following the earnings release,” say Leonardo Alencar, Pedro Fonseca and Samuel Isaak
Ebida's estimates are 8% below the consensus of Bloomberg for the third quarter of 2024.
XP projects the company to trade at 10.6x P/E (price to earnings) for 2024, which is in line with its 2-year average.
MDIA3: Uncertainty in price and commodity dynamics as obstacles to margin recovery
The recent increase in wheat prices allowed M. Dias Branco to implement further price increases in 2Q24, which analysts expect will be partially reflected in 3Q24, considering the typical delay in transferring prices to retailers, coupled with the always uncomfortable temporary loss of market share.
However, this price movement is not yet reflected in the IPCA data so far, with competitors following at a slower pace, posing a potential risk to volumes in the second half of the year.
The XP MDIA Commodity Import Tracker shows higher import costs for July and August. Analysts estimate an average increase of 3.2% in wheat and 1.8% in palm oil in USD terms, which is likely to worsen in September due to the sharp rise in commodity prices.
“These increases represent short-term headwinds for margin dynamics, which are likely to be exacerbated by a high USD/BRL exchange rate, particularly as we have not yet identified a significant pass-through of these costs to final prices.”