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On Thursday, Citi research initiated coverage on shares of M Dias Branco SA (MDIA3:BZ), a leading company in Brazil’s pasta and biscuit market. The firm established a Neutral stock rating and set a 12-month price target of R$26.00 for the food manufacturer.
M Dias Branco, known for its strong brand presence, national distribution, and vertical integration, is currently trading at approximately 7 times forward EV/EBITDA. Citi analysts pointed out that while the company’s valuation seems fair, there are no immediate catalysts anticipated to significantly revalue the stock in the near term.
The analysts noted that M Dias Branco could benefit from a reduction in foreign exchange-linked input costs. Nevertheless, they also highlighted several structural challenges facing the company. These include underutilized production capacity, a slow recovery in sales volume, and a tough macroeconomic and competitive environment that may hinder the company’s ability to pass on cost increases through pricing.
For a potential re-rating of the company’s stock, Citi suggests that clear signs of improvement would be necessary. These signs include a rebound in sales volumes in key regions, margin growth through increased efficiency, and successful pricing strategies. Until such evidence emerges, the analysts consider M Dias Branco to be a resilient market participant that is in the process of a gradual reset.
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