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Femsa is the leader company in Latin America among the convenience stores industry, also, it operates pharmacy stores, gas stations and KOF, the largest TCCC bottling company in the world. We like: i) Defensive portfolio, wide and resilient services/products offer. ii) Presence in Brazil, through KOF and the Raizen convenience stores JV. iii) Growth expectations, we project an 8% CAGR 2018-2024 for both sales and EBITDA. iv) Profitability estimates, EBITDA margin, expanding from 14.6% to 18.6% in the next 5 years (2019-2023). v) Finally, we foresee the recent entrance to the Brazilian market through the convenience stores business as one of the company’s main drivers.
FUNO is the largest and most diversified Mx REIT offering an appealing TSR. We like its: i) strong positioning in Mexico’s core RE markets through its 559 properties; ii) “bullet-proof” balance sheet, with a prudent debt profile (34% LTA), LT debt maturities (82% at 49+ months), naturally hedged 33% US$-debt, and 69% at a fixed rate; iii) high growth potential in NAVPS2 (+10%E CAGR ‘18-’22); iv) sound div. yield at 8%+; v) improved corporate governance with anti-dilutive mechanisms; vi) defensiveness on competitive rents, 4.3-year avg. lease expiry & solid tenant base; vii) organic NOI3 growth potential (+10% CAGR ‘18- ’21); and viii) attractive valuation.
GFNorte is a well-diversified financial holding. It is the second largest financial institution in Mexico, with over 1,100 branches and 8,500 ATMs. The Group's strategy focuses in organic growth & operating efficiencies through the exploitation of its sound 25 million-customer base (e.g., cross-selling). GFNORTE's share is trading at historically low P/E multiples (1 st. dev. below historical avg.). At current price levels, the market is not only overlooking the company's higher profitability levels achieved (ROE of 20%+), but also its unique capabilitites to continue benefiting through the management of its large network and client base.
It is one of the most diversified Mexican business groups, with a very low exposure to the Mexican economy and significant long-term growth prospects in the area of irrigation and water systems. Despite this, Orbia is trading at a 34% discount with respect to the weighted average of its peers in terms of the 2019 EV / EBITDA multiple. We consider that the stock has been punished in the markets for uncertainty regarding the long-term business plan of the company, which should be resolved in the coming months with the disclosure of this plan.
Leading telecom provider in Latin America and one of the largest in the world. Wide geographic diversification with ~70% of consolidated EBITDA coming from outside Mexico. We estimate a 7.2% CAGR for postpaid subscribers and 2.4% for fixed subs for the following five years, where growth will be boosted by increasing data consumption, especially in mobile services. Moreover, cost-cutting initiatives should drive margins up to levels around ~33% vs. current ~30%. Current valuation stands at 5.2x EV/EBITDA; well below international peers (6.4x). Lastly, the possibility of a Pay TV license to be granted could be a short-term catalyst for the share price.
The small & medium enterprises (SME) is our preferred niche to invest in Mexico given its highest growth potential & profitability. BBajio is the leading financial institution in this segment, with the highest organic growth track-record in the country. It has a healthy loan portfolio with the lowest funding cost. It has an experienced management team, with more than 30 years of experience, working together since BBajio's foundation. We find an appealing investment opportunity on BBAJIO's share, trading at discount vs. its Mexican peers, at 6.7x P/E 2020E.
The third-largest self-service retailer in Mexico and poised to become the second-largest chain just behind Walmart in the following 5 years. We like CHEDRAUI’s: i) appealing valuation, the share price trades at 50% of its value (USD) since the IPO, while it has almost tripled its EBITDA and has doubled its number of stores under operation; ii) discount in terms of sales floor area, its current EV per m2 (USD$1,722) trades at an 11% discount vs. the current cost per m2 (USD$1,932); iii) EBITDA margin expansion potential in the U.S up to 7.0%, through strong costs and expenses efficiencies, 3.9% in 2018, 5.6% in the first 9 months of 2019, and 6.1% in 2020E; iv) revaluation of its EV/EBITDA from 5.7x (current) to 6.5x (2020E); v) sustained growth prospects through new store openings & a diversified store portfolio in terms of price & size, CAGRs (2020-2025E) of 7% for both revenues & EBITDA.
GCC has a unique business model focused on profitability. We like GCC because: i) its exposure to the center of the U.S., where there are no direct competitors; ii) GCC’s vertical integration with a wide distribution network; iii) business strategy focused on reducing expenses (use of AF continue increasing); iv) solid financial position, with low leverage and free cash flow generation, where EBITDA conversion to FCF is close to 70%; and v) a solid management team, with more than 28 years of average experience in the cement industry.
IEnova, a subsidiary of Sempra Enegy (U.S. company), is a leading company in the energy industry, focused on the development, construction and operation of energy infrastructure in Mexico. Its assets are distributed in 2 segments: gas and electricity. In the gas business, IEnova owns and operates distribution systems (123K customers), transport (+2,100 km of pipelines) and storage of natural gas, LP gas and ethane (~ 11 terminals). In the electricity segment, the company owns power generation projects (combined cycle, wind and solar) with a total of +1,500 MW. We are confident on the name, and its upside potential due to: i) its solid positioning to capture long-term growth in the local energy industry; ii) its relationship with local and international, public and private strategic partners (e.g., TC Energy, CFE, InterGen), for the development of new projects; iii) the defensive nature of the business, given its long-term dollarized contracts (10+ years); and iv) high dividend.
The largest rail operator in Mexico provides exposure to macro trends such as intermodal transportation, cross-border and light-fuel private sector growth. The company will continue to invest heavily, in order to reach efficiency to levels close to peers in the U.S., which will improve margins significantly. Exposure to macro risks is relatively modest, bearing in mind its product portfolio is centered on agricultural, industrial and commodity volumes. On the other hand, the company will be benefited by the USMCA ratification. Furthermore, the stock is trading at a 33% EV/EBITDA 2019 discount relative to its peers, and we expect it could grow EBITDA at an 8% pace for the following two years.
FMTY is the first 100% internally-mgd. Mx REIT, with the top Corporate Governance standards & fully aligned structure. It is a diversified Fibra, focused preponderantly in the office RE segment (50% of revenue). We like FMTY’s: i) proven & consistent growth model, based mostly on stabilized RE assets. Its portfolio’s value increased almost fivefold since IPO; ii) sustained DPS growth (9% CAGR 1Q15-1Q19); iii) efficient structure, delivering NOI & EBITDA margins of 90% and 81%, respectively; iv) anti-dilutive mechanisms; v) healthy leverage with a ~30% LTA (post-follow-on figure); vi) high growth potential through a tangible pipeline of acquisitions worth ~US$500+ M; vii) attractive div. yield at 9%+; viii) exposure to the U.S. dollar (70% of revenue); ix) long-term remaining weighted avg. lease term at 5.2 years; x) and competitive (below-market) rental rates.
Uniquely positioned to benefit from copper’s strong fundamentals in the long-term. It has the lowest costs per pound of copper produced. We estimate the outstanding portfolio of mines, as well as the attractive project pipeline could increase copper production at a 4.3% CAGR for the following five years. Additionally, the company is the largest rail operator in Mexico and Florida, where solid organic growth is expected for the following years. The current ~38% discount at which it trades vs. the fair value of its subsidiaries should correct back to levels close to 25-30% in the following periods. Furthermore, the start of construction of the attractive Tía María copper project could drive the stock.
A lodging C-Corp with a unique, profitable & scalable fully-integrated business model. It develops (low cost; 3rd parties), acquires, manages (efficient, standardized ops.), and franchises (own brands) hotels in the economy & budget limited-service segment, targeting the price/value-conscious business travelers (defensive). We like HCITY’s i) solid growth track record (+15% rooms CAGR since ‘13); ii) profitability (36% stabilized EBITDA margin; 12%-14% ROIC; 30% occ. breakeven); iii) diversification across Mexico’s most dynamic markets; iv) experienced & institutional mgmt. team; v) corporate governance; vi) growth prospects (+17% EBITDA CAGR ‘18-’22E); vii) operational & financial flexibility; viii) potential evolution towards an asset light business model through its Fibra STAY (enhanced value; sustainable asset recycling mechanism; liquidity); and ix) LT economies of scale at its OpCo.
Terrafina is the largest pure play industrial Mx Fibra. Through accretive M&As, it has been able to expand its RE portfolio by 3.6 times since IPO (March 2013), reaching 289 properties with 41.8 M SQF. This proves the sound execution of its premier external advisor PGIM Real Estate. Different from its local industrial peers, it has an internal management subsidiary, with which it delivers the most profitable operations in the CRE sector (83% EBITDA margin). We also like its: i) top-notch Corporate Governance standards; ii) commitment to consider the issuance of new shares only if the share price trades at a premium to NAV; iii) transparency; and iv) attractive dividend yield.
A diversified Mx REIT (NOI 82% industrial; 18% retail) operating under a quality, institutional platform, preponderantly in the North region. It has a scalable internal property administration platform (MPA), supervised by MMREM (REIT’s external advisor, a MIRA’s subsidiary), with which it has reached high levels of profitability (83% EBITDA margin). Its portfolio provides highly stable & dollarized rents (~78%). The trust has a proven effective capital deployment strategy, focused in expansions & development projects (YTC at 12%). With the completion of its 2H19’s US$500 M refinancing plan, it significantly improved its debt profile, extending its maturity term to 6+ years. FIBRAMQ delivers the highest AFFO yield.
Arca Continental is the second largest Coca-Cola bottler in Latin America and the only one with a presence in the United States (South region). We like: i) ~45% of sales are dollarized. ii) growth expectations, EBITDA grows profitably, we estimate a CAGR 2018-2024 of 5% and 6% for sales and EBITDA, respectively. iii) further efficiencies ahead. We forecast and EBITDA margin expansion from 17.6% to 18.4% in the next 5 years (2019-2023); and iv) geographical diversification. It is important to note that AC operates in the northern region of Mexico, which has greater purchasing power, and we do not rule out territorial expansion in the United States.
While we acknowledge that the company will see a decline in earnings this year, the company is already trading at historically low multiple levels even considering this. Furthermore, the record-high discount vs. its sum-of-parts valuation is likely to attract investors interested in “deep-value” opportunities. Additionally, the conglomerate’s low exposure to the Mexican economy (less than 30% of revenues) makes it a defensive play against low economic growth in the country. It is also important to note that non-strategic asset sales (Axtel’s data centers/mass market business and Alpek’s power plants) will result in a meager 2.2% impact on EBITDA, while decreasing EV by 10%, improving the company’s trailing valuation in the process.
After three positive results, Unifin released a negative 4Q19
report in two fronts: i) the Non-Performing Loans index increased
to 4.1% from 3.1% i...
Bimbo continue with sequential improvements in all fronts and
specially in Mexico and Europe, Asia and Africa. We are positive in the
name after th...
Megacable’s 4Q19 results were mixed, with top-line slightly
surpassing expectations while EBITDA and EPS did not reach
consensus’ figures. We highl...
ARA’s financial figures were well below vs. our expectations; total revenues and EBITDA decreased 17% and 37% Y/Y to P$1.8 billion and P$187 millio...
UNIFIN (Outperform, PT P$38.70) The company announced an upcoming exchange of shares.
Unifin will make an exchange of shares, due to the two cancelation of shares made on January 22 and 24 of 2.5 and 5 million shares respectively.
Solid Results; Exceeding 2019’s Guidance. Fibra MTY released another positive quarter that led it to exceed its dividend per CBFI (DPS) guidance by...
After a sound quarterly report, due to the start of operations of the Sur de Texas-Tuxpan Marine pipeline and higher operating results at Ventika,...
The Report makes available to our clients investors in shares of the Mexican Stock Exchange a set of comparative tables, which contain valuable qua...
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