In a relevant fact last Sunday (28), the Magazine Luiza (MGLU3) announced a increase in capital private sector of R$1.25 billion. The family Trajan will be responsible for placing R$1 billion and BTG Pactual has committed to the remaining R$250 million. The bank will have the family’s shares as collateral and the operation will mature in two and a half years.
The offering includes the private subscription of more than 641 million common shares. The paper will be issued to R$ 1,95which represents a 5% discount compared to last Friday’s closing (29).
If no minority shareholder follows the offer, the Trajanos’ stake will increase from 56% to 58%.
What does this capital increase mean for Magazine Luiza?
Second Ferrer, This capital injection is very important to improve Magazine Luiza’s financial structure. The retailer’s balance sheet has been suffering in recent quarters with debt, intensified mainly by the increase in the basic interest rate throughout 2022 and 2023.
“During the pandemic there was an explosion of e-commerce, which led Magalu to have a robust structure. However, after this period, sales did not keep up with the size of the retailer’s structure. One example is that currently around 40% of the company’s distribution centers are unoccupied”, explains Ferrer.
He explains that, with this capital increase, the company would go from a net debt/EBITDA level of 3.3 times to 2.3 times“a much more solid scenario“, in his words.
The analyst also reinforces that the fourth quarter usually has good seasonality for cash generation. “Possibly, when Magazine Luiza’s 4Q23 results are released in the coming weeks, its debt may even be below 2x net debt/EBITDA.”
Therefore, Ferrer considers the operation to be very positive for the company.
Is the operation good for MGLU3?
The analyst says that there are two possible narratives surrounding this decision: 1) “the Trajano family is so committed to the business to the point of injecting more capital than they already have”; 2) “the stock has already fallen by more than 90% and there will still be a dilution of 8.7% in the minority shareholders’ shareholding position”.
“For now, the market appears to be following the first narrative“, says Ferrer. At 1:55 pm this Monday (29), MGLU3 rises more than 5%.
Furthermore, he believes that the reduction of financial expenses by almost R$170 millionresulting from this capital increase, will encourage investors.
“The fact that it is a private capital increase brings more speed to the operation than a follow-on, for example, in addition to the fact that the family itself has committed, which can give more confidence [para o mercado]”.
Fall in Selic could be positive for the stock, but Amazon and Mercado Livre still do better
Ferrer estimates that for every 1% drop in the Selic rate, Magazine Luiza could see an increase of around 150 million in its profit before taxes.
On the other hand, the analyst highlights the challenging moment in the e-commerce market, due to low margins and the need for high investments.
“In the sector, we prefer Free market e Amazon, who have a lot of appetite. Mercado Livre alone gained 20% market share in three years.”
“In the short term, Magazine Luiza’s shares could have a ‘refreshment’ and rise, but in the long term I’m not so excited because of this very competitive retail environment. For now we have a neutral vision for the role”, he concludes.
Gerdau (GGBR4) can distribute 66% more dividends with asset sales
Os Gerdau dividends may increase due to the sale of a key company asset. This is what analysts believe Empiricus Research.
For them, Gerdau’s dividend yield could jump from 6% to something close to 2 digits (10% or more), with this operation.
Not surprisingly, the company was included in the ranking with the 5 Best Dividend Stocks Right Now. Check out the full selection of analysts FOR FREE here.