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FEMSA Recovery Attests Positive Outlook @Analisis Fundam Equity Research M exico FEMSA Quarterly Report March 2, 2021 www.banorte.com Recovery attests positive outlook @analisis_fundam ▪ Femsa’s report positively surprised, on the back of a sound sequential Consumer and Telecom recovery across all of its business units, except for Fuels; thus beating our operating estimates. Yet the company reported a net loss Valentín Mendoza Senior Strategist, Equity [email protected] ▪ Results point towards an imminent recovery this year, a view also shared by the company’s management on its earnings call. However, Juan Barbier, CFA Femco’s valuation still does not incorporate such outlook Analyst [email protected] Oxxo not as weak as expected and a strong performance in Health and Kof. Regardless new confinement measures put in place back in December (~45% BUY of company’s units faced restrictions), consolidated revenues declined only Current Price $143.75 1.5% y/y to MXN 130.329 billion. The main highlight of the quarter was the PT $190.00 Dividend $3.3 vigorous sequential recovery posted in Proximity (TS: -2.4%; SSS: -4.3%), on Dividend Yield (%) 2.3% the back of economy’s reopening (traffic +510bps q/q to -16.9%). Furthermore, Upside Potential 34.5% ADR Price US$69.53 a sound momentum on its pharmacies in Mexico and Chile drove Health sales PT ADR US$96.00 (TS: +15.4%; SSS: +15.3%), while recent acquisitions bolstered those of Shares per ADR 10 Max – Mín LTM ($) 171.0 – 112.5 Strategic Businesses 60.9%, offsetting weakness in Fuels (TS: -30.7%; LfL Market Cap (US$m) 22,955.5 sales: -31.1%) and Kof (TS: -5.1%). Meanwhile, EBITDA remained fairly Shares Outstanding (m) 3,578.2 Float 60% unchanged (-0.8% y/y to MXN 20.938 billion), managing to improve respective Daily Turnover US$m 500.9 margin by 10bps to stand at 16.1%, as profitability gains in Kof (+220bps), Valuation metrics TTM FV/EBITDA 10.1x Health (+20bps) and Fuels (+80bps) compensated for pressures in Proximity P/E N.A. (-170bps) owing to Oxxo’s operating deleverage. Finally, a 90% y/y increase in A CFC (on the back of larger interest expenses and FX losses), a loss on its stake in Heineken, and an unusually high effective tax rate (94.4%) hurt the Relative performance to Mexbol company’s bottom line, and translating into a MXN 1.245 billion net loss. LTM 20% Valuation still is quite attractive. Implicitly, Femco trades at 11.1x 10% FV/EBITDA (-18% vs the three-year average), which in our view, does not 0% -10% incorporate company’s imminent recovery outlook (on which management -20% optimistically agreed). All in all, Femsa remains one of our top picks. -30% -40% mar.-20 jun.-20 ago.-20 nov.-20 mar.-21 MEXBOL FEMSAUBD 2019 2020 2021E 2022E 2019 2020 2021E 2022E Revenue 506,910 493,627 531,982 579,064 FV/EBITDA 9.4x 10.1x 9.1x 8.2x Operating Income 47,165 41,473 47,779 53,094 P/E 25.7x -265.7x 37.5x 23.6x EBITDA 75,483 72,017 81,168 89,488 P/BV 2.0x 2.2x 2.1x 2.1x EBITDA Margin 14.9% 14.6% 15.3% 15.5% Net Income 19,936 -1,927 13,662 21,671 ROE 6.0% -0.6% 4.3% 6.6% Net Margin 3.9% -0.4% 2.6% 3.7% ROA 3.1% -0.3% 2.0% 2.9% EBITDA/ interest 5.3x 4.1x 4.6x 4.9x Total Assets 637,541 684,638 700,492 734,898 Net Debt/EBITDA 1.6x 2.0x 1.8x 1.4x Cash 65,562 107,233 106,150 133,365 Debt/Equity 0.6x 0.8x 0.8x 0.8x Total Liabilities 311,790 377,451 379,394 396,465 This document is provided for the reader’s convenience Debt 187,257 253,124 252,248 260,677 only. The translation from the original Spanish version was Common Equity 325,751 307,187 321,099 338,433 made by Banorte’s staff. Discrepancies may possibly arise between the original document in Spanish and its English Source: Banorte translation. For this reason, the original research paper in Spanish is the only official document. The Spanish version was released before the English translation. The original document entitled “Recuperación confirma perspectiva positiva” was released on March 1, 2021. Document for distribution among public FEMSA – Results 4Q20 Revenue & EBITDA Margin MXN, million MXN, million Diff% vs Concept 4Q19 4Q20 Var % 4Q20e Estim. Revenue 132,289 130,329 -1.5% 124,090 5.0% 135,000 16.0% 18% Operating Income 13,618 13,145 -3.5% 11,947 10.0% 14.9% 16.1% 14.0% 13.2% 16% Ebitda 21,114 20,938 -0.8% 19,582 6.9% 130,000 Net Income 4,793 -1,245 N.A. 2,710 N.A. 14% Margins 125,000 12% 10% Operating Margin 10.3% 10.1% -0.2pp 9.6% 0.5pp 120,000 Ebitda Margin 16.0% 16.1% 0.1pp 15.8% 0.3pp 8% Net Margin 3.6% -1.0% -4.6pp 2.2% -3.1pp 115,000 6% 4% EPS $1.34 -$0.35 N.A. $0.76 N.A. 110,000 2% 105,000 0% 4Q19 1Q20 2Q20 3Q20 4Q20 Income Statement (Million pesos) Year 2019 2020 2020 Change Change Revenue EBITDA Margin Quarter 4 3 4 % y/y % q/q Net Revenue 132,289 126,501 130,329 -1.5% 3.0% Costs of goods sold 80,300 77,965 78,312 -2.5% 0.4% Gross profit 51,989 48,536 52,017 0.1% 7.2% General expenses 37,290 36,977 38,247 2.6% 3.4% Net Income & ROE Operating Income 13,618 11,354 13,145 -3.5% 15.8% MXN, million Operating Margin 10.3% 9.0% 10.1% (0.2pp) 1.1pp Depreciation 7,497 7,457 7,793 4.0% 4.5% EBITDA 21,114 18,811 20,938 -0.8% 11.3% 9.3% 10,000 10.0% EBITDA Margin 16.0% 14.9% 16.1% 0.1pp 1.2pp 7.9% Interest Income (Expense) net (5,156) (5,206) (9,791) 89.9% 88.1% 5,000 8.0% Interest expense 3,665 3,035 5,005 36.6% 64.9% 6.0% Interest income 702 528 261 -62.9% -50.6% 0 3.3% Other income (expense) 8 91 (113) N.A. N.A. 4.0% Foreign exchange gain (loss) (2,201) (2,790) (4,934) 124.1% 76.8% (5,000) 1.7% Unconsolidated subsidiaries 1,408 2,263 (1,572) N.A. N.A. 2.0% -0.8% Income before taxes 8,450 6,546 3,342 -60.4% -48.9% (10,000) 0.0% Income taxes 2,985 1,195 3,154 5.7% 163.9% Discontinued operations N.A. N.A. (15,000) -2.0% Consolidated Net Income 6,076 4,691 730 -88.0% -84.4% 4Q19 1Q20 2Q20 3Q20 4Q20 Non-controlling interest 1,283 1,468 1,975 53.9% 34.5% Net Income ROE Net Income 4,793 3,223 (1,245) N.A. N.A. Net Margin 3.6% 2.5% -1.0% (4.6pp) (3.5pp) EPS 1.340 0.901 (0.348) N.A. N.A. Balance Sheet (Million pesos) Total Current Assets 172,579 227,444 201,033 16.5% -11.6% Net Debt & Net Debt to EBITDA ratio Cash & Short Term Investments 65,562 134,460 107,233 63.6% -20.2% MXN, million Long Term Assets 464,962 501,665 483,605 4.0% -3.6% Property, Plant & Equipment (Net) 114,513 114,200 113,106 -1.2% -1.0% Intangible Assets (Net) 104,483 104,067 107,456 2.8% 3.3% Total Assets 637,541 729,109 684,638 7.4% -6.1% 150,000 2.5x Current Liabilities 136,534 135,108 118,308 -13.3% -12.4% 145,000 2.0x Short Term Debt 35,737 27,080 16,703 -53.3% -38.3% 140,000 1.9x 2.0x 135,000 2.0x Accounts Payable 76,676 74,371 75,217 -1.9% 1.1% 1.7x Long Term Liabilities 175,256 274,656 259,143 47.9% -5.6% 130,000 1.6x Long Term Debt 151,520 250,184 236,421 56.0% -5.5% 125,000 Total Liabilities 311,790 409,764 377,451 21.1% -7.9% 120,000 1.5x 115,000 Stockholders’ Equity 325,751 319,345 307,187 -5.7% -3.8% 110,000 Non-controlling interest 73,762 72,732 69,546 -5.7% -4.4% 105,000 1.0x Total Equity 251,988 246,613 237,641 -5.7% -3.6% 4Q19 1Q20 2Q20 3Q20 4Q20 Liabilities & Equity 637,541 729,109 684,638 7.4% -6.1% Net Debt 121,695 142,804 145,891 19.9% 2.2% Net Debt Net Debt to EBITDA Cash Flow CF from Operating Activities 12,627 14,695 19,527 CF from Investing Activities (26,175) (5,309) (15,783) CF from Financing Activities (15,746) (13,614) (20,666) FX effect on cash (2,994) (1,552) (10,305) Change in Cash Balance (32,289) (5,780) (27,227) Source: Banorte, MSE. Performance by business unit Proximity Division 4Q19 3Q20 4Q20 % y/y % q/q Ticket $ 37.1 $ 42.30 $ 42.7 15.1% 0.9% Traffic 21.0 17.3 17.4 -17.1% 0.6% SSS $ 778 $ 732 $ 744 -4.4% 1.7% Revenue $ 47,941 $ 45,478 $ 46,769 -2.4% 2.8% EBITDA $ 8,655 $ 5,269 $ 7,688 -11.2% 45.9% EBITDA Margin 18.1% 11.6% 16.4% -1.6% 4.9% Health Division 4Q19 3Q20 4Q20 % y/y % q/q SSS $ 1,295.9 $ 1,418.8 $ 1,493.6 15.3% 5.3% Revenue $ 15,009 $ 16,932 $ 17,319 15.4% 2.3% EBITDA $ 1,509 $ 1,849 $ 1,773 17.5% -4.1% EBITDA Margin 10.1% 10.9% 10.2% 0.1% -0.7% Fuel Division 4Q19 3Q20 4Q20 % y/y % q/q Price per lt $ 17.8 $ 16.80 $ 16.40 -7.9% -2.4% Volume 421.6 309.5 313.6 -25.6% 1.3% SSS $ 7,486 $ 5,189 $ 5,156 -31.1% -0.6% Revenue $ 12,235 $ 8,568 $ 8,485 -30.6% -1.0% EBITDA $ 511 $ 540 $ 428 -16.2% -20.7% EBITDA Margin 4.2% 6.3% 5.0% 0.9% -1.3% Coca-Cola FEMSA 4Q19 3Q20 4Q20 % y/y % q/q Volume $ 889.6 $ 807.9 $ 902.2 1.4% 11.7% Revenue $ 51,735 $ 46,734 $ 49,116 -5.1% 5.1% EBITDA $ 9,391 $ 10,075 $ 9,998 6.5% -0.8% EBITDA Margin 18.2% 21.6% 20.4% 0.1% -1.2% Strategic Businesses Division 4Q19 3Q20 4Q20 % y/y % q/q Revenue $ 5,368 $ 8,789 $ 8,640 60.9% -1.7% EBITDA $ 950 $ 1,083 $ 2,048 115.6% 89.1% EBITDA Margin 17.7% 12.3% 23.7% 6.0% 11.4% Consolidated 4Q19 3Q20 4Q20 % y/y % q/q Revenue $ 132,289 $ 126,501 $ 130,329 -1.5% 3.0% EBITDA $ 21,114 $ 18,812 $ 20,938 -0.8% 11.3% EBITDA Margin 16.0% 14.9% 16.1% 0.1% 1.2% Certification of Analysts.
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