South Afr.Budget Preview:Small slippage,but though lower debt ratio

4Q16 results were near disastrous with 70% yoy fall in EBITDA and big net lossBRF reported 4Q16 results after the market close today. While revenues wereonly 4% short of DBe and Bloomberg consensus, EBITDA fell 45% short of DBeand 34% below consensus, leading to a net loss of R$0.58 per share.

    Slow recovery in Brazil but huge margin declines elsewhereWhile margins did not recover sequentially as much as we expected in Brazil(only 20 bps instead of 140 bps), the real source of the operating disaster wasin export markets, where a combination of a strong BRL, increased productionin Eastern Europe and high inventories in key markets like Japan led to a largemargin contraction for BRF’s exports (ranging from 793 bps in Asia to 2,409bps in Europe, as we show in Fig. 1 below). Despite the weakness in the stockahead of the announcement, this massive shortfall should lead to significantStreet estimate reductions and weigh on the stock further, in our view.