TORONTO, ONTARIO, CANADA — Structural shifts, along with an improved operating model that could support sustained EBITDA in the mid-$2 billion range, have led Fitch Ratings to revise its outlook for St. Louis, Missouri, US-based Bunge Ltd. to “positive” from “stable.”

Fitch said the move also reflects significant paydown of nearly $3 billion since 2020, supported by divestiture proceeds and strong cash generation despite rising inventory levels.

“Like its peers, Bunge has benefited during the past couple years from good demand for food, fuel, and feed combined with tight supply conditions driven in part by the Ukraine/Russia war that has resulted in strong profit generation underpinned by a structural shift in both demand and crush margins, which includes increasing vegetable oil feedstock demand given growing renewable diesel production capacity,” Fitch said. “With expectations for commodity supplies to remain tight throughout 2023 and likely into 2024, Fitch expects profits for agribusiness companies to remain above mid-cycle levels. Risks to this view would be a change in renewable diesel mandates, which we do not view as likely given past strong government support. Other risks include geo-political tensions that materially affects demand and other market disruptions that could create adverse volatilities.”

In addition to structural shifts, another key driver prompting Fitch’s upward revision has been Bunge’s strong recent financial performance. After generating $1.5 billion in EBITDA in 2019, $2 billion in 2020 and $2.5 billion in 2021, expectations are for an increase to the upper $2 billion range in 2022, the ratings agency said.

“Factors supporting the improved profitability include fundamental structural shifts in the operating environment especially the oilseed market where Bunge has material oilseed concentration that generates roughly half of its core segment EBIT, Bunge’s simplified operating structure, enhanced utilization, lower downtime and portfolio actions,” Fitch said. “Consequently, margins in Bunge’s agribusiness segment have expanded for softseed/soy crush, oilseed origination and distribution, its merchandising operations and its Refined and Specialty Oils segment.”

Fitch noted that while it does not expect Bunge to sustain EBITDA in the upper $2 billion range in 2023, it does believe the company could generate EBITDA in the mid-$2 billion range thanks to structural crush margin shifts and an improved operating model.

“Over the medium term, with at least $3 billion in investments expected to strengthen Bunge’s oilseed platform, expand refined and specialty oils product solutions and increase exposure to renewable feedstock capacity, this should support increased EBITDA generation,” Fitch said. “As such, Fitch could upgrade Bunge on increased confidence of sustained EBITDA in the mid-$2 billion.”

Fitch said Bunge has taken “significant steps” to simplify its operating structure since it implemented a 2019 strategic review. Those steps included moving to a global operating model that has enabled streamlined decision-making and improved customer focus.

“This has simplified Bunge’s asset portfolio through divestitures, shuttering of facilities and joint venture partnerships and aligned its business around the oilseeds core operations to better focus on scalable businesses and improve returns on invested capital,” the ratings agency said. “Bunge’s improved risk management practices have also enabled quicker response to changing market conditions that benefited recent operating results. Over the medium term, Fitch expects Bunge will exit from a non-core Brazilian sugar and bioenergy joint venture transaction between BP PLC and Bunge.”