Investment Climate in Brazil
Contrary to the public view on the great recession in Brazil that was widely reported last year, the capital net inflow of investment in Brazil for the latest quarter has turned positively. It indicates Brazil’s economic recovery is well underway. (See Figure 2)
Global Diversification Strategy
BRF S.A. is making every effort to diversify its portfolio globally as soon as possible.
In 2015, the company spent $496 million to buy assets in Thailand, Argentina and the UK. BRFS expected to grow annual revenue overseas by $600 million.
In June 2016, The European Union and six countries in Southern Africa signed a free trade agreement. According to the latest SEC filing in July, BRF S.A. appointed new directors for African and Middle East subsidiaries. Now it separates Africa’s division from the Middle East’s division and has focused more on the African market. Meanwhile, the company also established a new subsidiary targeting the global Muslim market.
Increase of Institutional Ownership
The recent changes on top owners are also positive. Although the largest shareholder Singapore government group reduced some stakes, T. Rowe Price, BlackRock and Renaissance have added more shares, which lead to a net increase of institutional ownership in the recent quarter.
BRF has P/E 16.8, P/B 3.1 and P/Cash Flow of 16.5 with Debt-to-Equity ratio of 1.02. Its current valuation is significantly lower than the consumer staple industry with strong positive cash flows. So far the stock trend line has formed a solid trough with strong support level around $13. The SMA 20 crossed above SMA 50, just broke above resistance level $15. The trend line has strong upside potential. (See Figure 1)
Considering profit margin improvement and global diversified strategies BRF S.A. has adopted to enhance its vertical integration and distribution capability, its earnings are expected to be significantly higher this quarter (will announce on July 28).
According to the latest news of Financial Times, BRF S.A. is projected to outperform the market in the following quarters. (See Figure 4 and Figure 5)
Using limit order around $15 to initial buy position would be a good approach to start investing in BRFS.
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