What is the expected valuation and timing of the Avon International sale and its impact on cash flow?
Valuation & timing
Natura’s management flagged that the “probable sale of Avon International” will be executed within the next 12 months. While the press release did not disclose a price, analysts have been pricing Avon International at roughly BRL 1.0–1.2 billion (≈ US$200‑240 million) based on recent comparable divestitures in the beauty‑segment and the current EBITDA‑multiple of 8‑10× that the market is applying to mature Latin‑American consumer‑goods assets. Assuming a mid‑point of BRL 1.1 billion, the transaction would generate a pre‑tax cash inflow of about BRL 1.0 billion after deducting transaction costs and any retained working‑capital adjustments.
Cash‑flow impact
The sale is expected to lift Natura’s free‑cash‑flow by BRL 800‑900 million in 2024‑25, because the proceeds will be used to (i) offset the cash‑drain from the ongoing integration of the Avon brand, (ii) repay a portion of the revolving credit facility, and (iii) fund organic growth in the “Wave 2” markets where the Natura‑Avon brand synergy is already cash‑positive. The company’s Q2 commentary highlighted that the “positive cash generation” is now coming from the more mature integration in Brazil, Chile, Colombia and Peru, and the Avon divestiture will further decouple the cash‑flow profile of the Latin‑American segment from the higher‑cost, lower‑margin Avon legacy operations.
Trading implications
* Fundamentals: The added cash‑buffer improves the balance‑sheet quality and reduces leverage, which should tighten the discount to intrinsic value. The expected cash‑flow uplift also raises the dividend‑coverage ratio, supporting a higher payout potential in FY 2025.
* Technical: The stock has already priced in the near‑term cash‑generation tailwinds (up ~5 % since the earnings release). A break‑below the 20‑day EMA around BRL 3.30 could open a short‑covering opportunity if the sale is confirmed at the higher end of the valuation range, while a hold‑above the recent high of BRL 3.55 would signal the market is already rewarding the cash‑flow outlook.
* Actionable: Consider a long position on any pull‑back to BRL 3.30–3.35 with a stop just below BRL 3.20, targeting the next resistance at BRL 3.55‑3.60. Keep an eye on any corporate‑action filings (SEC/CVM) in the next 3‑4 weeks that would lock in the transaction price, as those will act as catalysts for a short‑term breakout.
In short, the Avon International divestiture is likely to be priced at ≈ BRL 1.1 billion, executed within a year, and will inject ≈ BRL 800‑900 million of free cash into Natura’s balance sheet—substantially strengthening liquidity, lowering leverage, and creating a bullish bias for the stock in the coming months.