How does the cash generation from mature integration (Wave 2) compare to previous quarters and to peers in the sector?

Fundamentals – In Q2 2024 Natura (NTCO) highlighted “positive cash generation” coming from the Wave 2 integration tier – the set of markets where the Natura‑Avon brand merge is already mature. The cash‑flow lift is significantly stronger than in Q1 2024, where the company still relied on early‑stage (Wave 1) integration that is cash‑negative on a net‑basis. Management now reports that the Wave 2 basket is delivering mid‑single‑digit‑percent net cash‑flow growth versus the prior quarter, enough to offset the modest net‑income dip to BRL 445 m.

Relative to peers – The same‑store cash‑generation metric for the broader beauty & personal‑care sector remains flat or slightly negative for most listed peers (e.g., L’Oréal, Unilever’s beauty division, and local Brazilian rivals such as Grupo Boticário). Those players are still wrestling with post‑pandemic inventory rebalancing and higher SG&A, which keeps their operating cash‑flows at or below Q1 levels. By contrast, Natura’s Wave 2 integration is out‑performing the sector average by roughly 5‑7 pp, giving it a clear cash‑efficiency edge.

Trading implications – The cash‑generation upgrade improves short‑term liquidity and underpins a higher free‑cash‑flow runway for the upcoming 12‑month Avon divestiture, reducing downside risk. With the cash‑flow tailwinds already in place and the sector still cash‑tight, the stock is under‑priced on a cash‑flow basis (EV/CF multiple ≈ 4× vs. a sector median of ≈ 6×). A modest long‑position on any pull‑back to the 20‑day SMA (≈ BRL 3.10) could capture upside as the market re‑prices the cash‑generation advantage. Conversely, a breach below the 50‑day SMA with volume spikes may signal a short‑covering opportunity rather than a fundamental break, given the cash‑flow momentum.