How will the improved working capital dynamics affect the company’s free cash flow and dividend policy?

Impact on free‑cash flow and dividend policy

Natura’s “improved working‑capital dynamics” – essentially faster turnover of inventories and receivables combined with a more disciplined pay‑ables schedule – directly lifts operating cash‑flow into the free‑cash‑flow (FCF) line. With cash‑generating countries already in “Wave 2” of the Natura‑Avon integration, the company is turning “integration‑related” sy‑savings into real cash, and the anticipated sale of Avon International within 12 months will add a non‑recurring cash boost. In practice this means that, after stripping out capital‑expenditure needs (which are modest given the already‑deployed integration assets), Natura’s FCF margin should expand from the current low‑single‑digit percentage to the high‑single‑digit/low‑double‑digit range in FY‑2025. That level of surplus cash gives the board real leeway to either raise the quarterly dividend, increase the payout ratio, or allocate a larger portion to share‑repurchase programs – all of which would be reflected in a higher dividend yield and/or price‑support in the coming quarters.

Trading implications

The market has already priced in a modest upside (sentiment 60, price trending above the 50‑day EMA). With the upcoming dividend‑policy decision likely to be announced after the Q2 results, a “dividend‑up” scenario could trigger a short‑term rally, especially on the B3 where dividend‑seekers gravitate toward high‑yielding Brazilian equities. A practical entry point is a pull‑back to the 20‑day EMA or a 1‑2% dip from the current high, with a stop just below the 20‑day EMA to limit downside. On the downside, watch for any guidance that flags higher cap‑ex or a delayed Avon sale; this would keep FCF constrained and could delay any dividend hike. In that scenario, a modest short‑term sell‑off into the 200‑day moving average would be a prudent exit. Overall, the stronger working‑capital profile supports an expectation of higher FCF and an upward‑biased dividend outlook, which makes a “buy on dip” stance with a focus on dividend‑capture strategies the most actionable approach.