Actinver’s Equity Research
April 17, 2015
The Top 10 Stocks Of Actinver
CONFIDENCIAL Y DE USO INTERNO 1 Methodology
Methodology for The Top 10 Stocks of Actinver
We present in this report The Top 10 Stocks of Actinver. With an investment horizon of 18 to 36 months, we present the companies that in our view will evidence significant value creation, either by growth in revenue, higher operating efficiencies and/or solid fundamentals.
This report will be updated weekly and distributed every Monday, with multiples based on closing share prices of the previous Friday. In addition, a review of each company will be conducted monthly, and every quarter companies’ financial results will be considered and, if necessary, adjustments will be made. If at any time a relevant event or news warrants a change, our analysis team will make the appropriate changes.
The valuation methodology used for this report is based on: a) Discounted Cash Flows (DCF); b) comparable multiples; and c) Sum of the Parts, among others.
The presentation of companies in this report is in alphabetical order and the main sources of information used are: a) Actinver’s Analysis; b) the Company itself; c) the Mexican Bolsa; and d) Bloomberg.
This report has a summary sheet, where the most relevant figures and multiples are presented for each company, followed by separate one-pagers per business. Click here for summary.
CONFIDENCIAL Y DE USO INTERNO 2 2 Index
1 AC* Page 5 6 GISSA Page 10
2 ALSEA Page 6 7 HERDEZ Page 11
3 ARA Page 7 8 LAMOSA Page 12
4 CEMEX Page 8 9 LIVEPOLC Page 13
5 GFREGIO Page 9 10 WALMEX Page 14
CONFIDENCIAL Y DE USO INTERNO 3 3 17 de junio de 2014 Las 10 FavoritasThe Top de Actinver10 Stocks Of Actinver April 17, 2015
Summary
Return Price Price Return Market EV/Sales EV/EBITDA P/E 12 M Today 2015 (e) Expected Cap Float 3-yr Avg. L12 M 2015 2016 3-yr Avg. L12 M 2015 2016 3-yr Avg. L12 M 2015 2016 AC* 20% 97.99 106.00 8% 157,888 20% 2.9 2.7 2.5 2.3 13.9 12.5 11.5 10.5 27.0 24.3 22.1 20.6 ALSEA* 1% 47.08 55.00 17% 39,435 66% 2.6 2.2 1.6 1.5 21.1 18.1 13.0 11.1 69.1 59.1 32.7 30.7 ARA* 17% 6.81 8.00 17% 8,940 58% 1.7 1.6 1.5 1.3 10.6 11.1 9.7 8.4 17.9 20.9 16.1 14.4 CEMEXCPO -7% 15.30 19.00 24% 190,300 95% 1.9 2.0 1.8 1.7 11.6 11.7 9.9 8.3 -13.6 -28.1 -221.4 51.8 GFREGIO 10% 83.05 95.00 14% 27,235 19% 3.9 3.6 3.2 2.7 NA NA NA NA 19.1 16.6 14.4 12.4 GISSAA 17% 31.48 38.00 21% 11,208 49% 1.0 1.0 0.9 0.8 8.0 8.5 7.9 6.6 7.8 25.0 15.8 15.1 HERDEZ* 11% 41.87 45.50 9% 17,832 25% 2.1 2.1 1.9 1.7 13.4 13.3 10.9 9.9 24.7 28.8 20.6 19.0 LAMOSA* 19% 33.79 38.00 12% 12,783 13% 2.0 1.9 1.7 1.6 9.7 8.5 8.4 7.5 22.5 28.9 30.0 25.9 LIVEPOLC 31% 178.84 193.00 8% 240,038 15% 3.4 3.1 2.7 2.4 20.3 19.4 16.5 14.2 31.8 30.9 26.9 23.4 WALMEX* 16% 38.63 42.00 9% 676,281 30% 1.6 1.5 1.4 1.3 16.2 15.5 14.2 12.8 26.5 22.2 25.7 23.6
Growth % Margins EBITDA EBITDA Net Inc. Net Inc. EBITDA EBITDA EBITDA Net Net Investment Thesis 2015 2016 2015 2016 L12 M 2015 2016 2015 2016 AC* 8% 7% 10% 7% 21.7% 21.6% 22.0% 10.7% 10.9% The first signs of a volume recovery on sight, spell a solid sales recovery going forward. ALSEA* 42% 16% 81% 6% 12.3% 12.5% 13.1% 3.8% 3.6% No more extraordinary expenses from Vips, and a smooth integration in Spain: time to harvest. ARA* 17% 16% 12% 12% 14.6% 15.5% 15.8% 8.1% 8.0% Great BUY opportunity in the housing sector’s inflection point CEMEXCPO 17% 15% -87% -528% 17.4% 18.6% 20.1% -0.4% 1.5% With U.S economic recovery and national infrastructure plan, EBITDA in 2017 will grow 70% vs. 2013. GFREGIO NA NA 15% 16% 0.0% 0.0% 0.0% 22.4% 21.8% Strong growth potential focusing on SMEs, high ROE and strong asset quality. GISSAA 13% 21% 67% 4% 11.9% 11.5% 12.0% 6.8% 6.2% Will specialize in auto parts, which will boost sales and expand margins. HERDEZ* 17% 12% 12% 9% 15.8% 17.1% 17.4% 5.2% 5.2% Ready to harvest Nutrisa’s shakedown, plus the incorporation of Nestlé’s Ice Cream. LAMOSA* 2% 12% -3% 16% 22.4% 20.5% 21.0% 4.3% 4.5% The company with the highest EBITDA margin in the ceramic industry LIVEPOLC 15% 13% 15% 15% 16.1% 16.5% 16.9% 9.8% 10.2% A lower delincuency rate will boost margins and a positive trend in the Departament stores. WALMEX* 11% 10% -14% 9% 9.7% 10.0% 10.2% 5.5% 5.6% Outstanding results in the 4Q14, even stripping non-recurring benefits
* Figures in million of pesos Methodology Note: NA = Not Aplicable Price 2015(e). Estimated price for year end 2015. NS = Not Significant For the selected companies, we are continually evaluating events and news stories that could significantly affect stock performance. Estimates for 2014 and 2015 years Source: Actinver and Bloomberg analysis
4 The Top 10 Stocks Of Actinver April 17, 2015
Current Price: MP 97.99 Figures in millions of pesos AC Liquidity High Price Objective 2015: MP 106.0 7.2% Return 2013 2014 2015e 2016e Sales 60,359 61,957 66,925 70,316 The first signs of a volume recovery on sight, following the application of special taxes on sugary EBITDA 12,418 13,429 14,461 15,482 drinks, spell a solid sales recovery going forward, now accompanied by improved profitability. Margin 20.6% 21.7% 21.6% 22.0% Growth YoY 14.1% 8.1% 7.7% 7.1% Net Profit 5,973 6,510 7,144 7,680 Emerging stronger following a complicated year Margin 9.9% 10.5% 10.7% 10.9% Growth YoY 18.4% 9.0% 9.7% 7.5% We rate AC a BUY and place it among Actinver’s Top 10 Stocks as we believe the company has weathered through a complicated year and is prepared to enjoy an upswing in demand during 2015, even if it won’t return to Total Assets 66,349 79,972 87,849 96,064 2013 levels yet. Current valuation is not cheap, but market ratios do stand at a discount to historical averages. Cash 2,566 9,039 11,170 14,942 Total Liabilities 25,165 30,617 31,189 31,465 YoY volume decreases have sequentially fallen over the year, with –5.4%, -4.1% and –1.1% for sparkling bever- Debt 14,078 15,777 15,773 15,777 ages in Mexico in 1Q, 2Q and 3Q, respectively. But during the 4Q, AC presented a solid report that included its Equity 41,184 49,355 56,660 64,599 first YoY increase in volumes (+0.7%), following the application of the sugary-drinks taxes that came into effect Majority 38,352 46,044 53,349 61,288 starting 2014. Multiples EBITDA margin (including non–recurring expenses) was up 30bp entirely reflecting AC’s expense-cutting pro- EV/Sales 2.9x 2.7x 2.5x 2.3x gram that limited expenses to a mere 1.8% YoY increase. EBITDA reached MP 3,311 mn, up 7.7% YoY. EV/EBITDA 13.9x 12.5x 11.5x 10.5x P/E 26.4x 24.3x 22.1x 20.6x Further development opportunities, beyond organic growth ROE 15.9% 16.0% 14.2% 13.3% Current beverage portfolio continues to evolve as energy drinks increase their significance within the sales mix ROA 9.3% 9.0% 8.4% 8.3% and already challenge for market-leader status. Also, water sales continue growing through diverse presentations Net Debt/ EBITDA 0.9x 0.5x 0.3x 0.1x Dividend Yield 3.2% 0.1% 1.0% 1.1% and an extended geographical coverage. AC vs. IPC (April 2014 = 100) AC continues to work on existing territories with improvements in existing capacity, strict controls of expenses 130.00 and enhancing client service through its RTM (Route to Market) and DTH (Direct to Home) models. The operating model is an ever-evolving unit that undergoes continuous analysis and adjustments in order to assure its efficien- 120.00 cy. AC has reached its MP 500 mn savings 2014 target by September; actual savings will be higher. 110.00 AC’s snack operations in North America and Tonicorp (Dairy, consolidated since 2Q14) in Ecuador both recorded solid results and combined represented 10.7% of the company’s revenues. 100.00 The company still expects improvements based on further synergies for Tonicorp and efficiencies in Wise (snacks), and could even explore new acquisitions if the opportunity arises. 90.00 Apr 14 Jun 14 Aug 14 Oct 14 Dec 14 Feb 15 Investment program to expand in 2015 AC* IPC Carlos Hermosillo José Cebeira AC commented a P$ 5.2 bn Capex program will be executed in 2015, following a relatively small P$ 4.1 bn pro- Retail, Food and Beverage. Retail, Food and Beverage. gram in 2014. [email protected] [email protected] Beyond the immediate cash-flow consideration, such planning gives a clear indication of a more optimistic ap- +52 (55) 1103 66 00 x 1394 proach for the year, which joins a 2% to 3% volume growth guidance. +52 (55) 1103 66 00 x 4134
5 The Top 10 Stocks Of Actinver April 17, 2015
Current Price: MP 47.08 Figures in millions of pesos ALSEA Liquidity High Price Objective 2015: MP 55.0 16.8% Return 2013 2014 2015e 2016e Sales 15,698 22,787 31,776 35,262 The integration of Vips impacts short-term results, but will eventually be a clear positive, while Grupo EBITDA 2,040 2,802 3,980 4,602 Zena will be an strategically important move that will add further value. Margin 13.0% 12.3% 12.5% 13.1% Growth YoY 26.8% 37.4% 42.1% 15.6% Benefits from VIps consolidation take longer than anticipated; Zena is a straightforward integration Net Profit 681 667 1,207 1,283 Margin 4.3% 2.9% 3.8% 3.6% While one-off expenses from the Vips integration have impacted short-term results (2Q and 3Q14), our invest- Growth YoY 86.6% -2.1% 81.0% 6.4% ment thesis remains unaffected, and expect the stock to take off once results offer a clearer picture of the post- acquisition Alsea Total Assets 12,416 29,048 31,876 34,517 Cash 663 1,113 (162) 381 The Zena acquisition was finalized in December, but is going to consolidate the whole 4Q14; we would expect Total Liabilities 7,905 19,313 20,168 20,663 only minor extraordinary charges to be included in 4Q results, if any. Debt 5,044 11,239 11,207 11,242 Entry to the European market, replicating Alsea’s current business model in Mexico Equity 4,511 9,735 11,707 13,854 Majority 4,271 8,800 10,773 12,919 We like the entrance to the European market though the acquisition of Grupo Zena as it represents a similar busi- Multiples ness platform to Alsea’s, and the timing (economy-wise) and valuation (8.1x EV/EBITDA) make sense. EV/Sales 2.4x 2.2x 1.6x 1.5x Alsea estimates Zena will add 21% revenues and 20% EBITDA proforma, on top of the Vips incorporation. EV/EBITDA 18.1x 18.0x 13.0x 11.1x Vips by itself added 37% to revenue and 46% to EBITDA, with a potential 80bp pro-forma margin expansion. P/E 47.5x 59.2x 32.7x 30.7x Execution risk is low ROE 15.9% 7.3% 11.9% 10.7% ROA 6.0% 3.0% 3.9% 3.9% Zena’s management will remain in place, Alsea will focus on strategic decisions. No backoffice increase. Net Debt/ EBITDA 2.1x 3.6x 2.9x 2.4x Synergies are foreseen by implementing Best Practices, leasing renegotiations and labor productivity; expect a Dividend Yield 1.1% 0.0% 0.0% 0.0% 2pp margin improvement that would bring Zena’s into 14% levels, similar to pre-acquisition Alsea. Alsea vs. IPC (March 2014 = 100) No changes in organic expansion are expected: € 15 mn capex program for 2015, centered in Domino’s. 120.00 Both Alsea and Zena will be FCF positive in 2015. 110.00 Expansion program in Latam also unchanged, based on Brasil, Colombia, and recent franchises in Mexico. 100.00 Leverage should be manageable 90.00 Alsea has ruled out a new equity offer to deleverage after Zena’s acquisition. Net debt to EBITDA is expected to 80.00 reach 2.5x at the end of 2015; we expected 2.7x in an initial estimate. Apr 14 Jun 14 Aug 14 Oct 14 Dec 14 Feb 15 Apr 15 ALSEA IPC We foresee a quick improvement afterwards, given the size the company has reached. Carlos Hermosillo José Cebeira Our latest PO revision at MP 50.0 offers a very attractive potential Retail, Food and Beverage. Retail, Food and Beverage. Our target for 2015 is based on a DCF approach, as we believe the multiples valuation is voided by the size of [email protected] [email protected] changes currently underway; once the operating platform is stabilized, we will witness an accelerated deprecia- +52 (55) 1103 66 00 x 1394 tion of market ratios, making sense (i.e. being comparable) only until 2016. +52 (55) 1103 66 00 x 4134
6 The Top 10 Stocks Of Actinver April 17, 2015
Last Price: MP 6.81 Figures in millions of pesos ARA Liquidity Medium Price Target 2015: MP 8.00 17% Return 2013 2014 2015e 2016e
Great BUY opportunity in the housing sector’s inflection point Sales 5,736 6,206 6,853 7,767 EBITDA 898 909 1,060 1,227 The most attractive option to play the housing sector in Mexico Margin 15.7% 14.6% 15.5% 15.8% Prudent growth strategy that has proven to be successful in the most complicated times of the sector Growth YoY -21.6% 1.2% 16.6% 15.8% Net Profit 464 494 555 620 Land reserves with more than 38 million sq. meters in 19 states that comply with the new housing policy. Margin 8.1% 8.0% 8.1% 8.0% Solid financial position, with a 1.2x net debt to EBITDA ratio. Growth YoY -20.4% 6.5% 12.2% 11.8%
Free cash flow generation of MP400 million on average for the period 2014-2016. Total Assets 15,676 16,276 16,941 17,948 Cash 643 1,076 1,050 1,350 Sales/EBITDA growth of 32%/33% YoY during 4Q14. Total Liabilities 5,493 5,537 5,640 6,019 Positive Outlook in the housing sector Debt 2,431 2,147 2,372 2,642 Equity 10,183 10,739 11,301 11,930 Housing demand will continue increasing in coming years supported by a demographic bonus. The housing defi- Majority 10,147 10,701 11,262 11,889 cit will reach approximately 11 million units during the next 20 years. Multiples Solid support driven by the government through subsidy programs and new financial schemes through EV/Sales 1.9x 1.6x 1.5x 1.3x INFONAVIT, FOVISSSTE and SHF. EV/EBITDA 12.0x 11.1x 9.7x 8.4x P/E 19.3x 18.1x 16.1x 14.4x Clear recovery signs with an annual increase of 22% in the registration of new houses. ROE 4.6% 4.6% 4.9% 5.2% Substantial lowering of multiples ROA 3.0% 3.0% 3.3% 3.5% Net Debt/ EBITDA 2.0x 1.2x 1.2x 1.1x ARA multiples will show an attractive reduction even as our estimates could be considered conservative. Dividend Yield 0.0% 0.0% 0.0% 0.0% The current P/E multiple of 20.9x improves to 14.4x in 2016. ARA vs IPC (Mar 2014 = 100) On the other hand, L12M EV/EBITDA of 11.1x lowers to 8.4x in 2016. 130 125 P/BV is currently at 0.8x with no assets of questionable value. 120 115 Attractive EBITDA growth potential with a 12% CAGR for the following years 110 105 At the top line we anticipate strong performance with an 11% CAGR for 2014-2016 periods, under an imminent 100 recovery of housing demand and higher economic growth. 95 90 EBITDA margin will expand on average 120 bps to conclude in 2016 at 15.8%, as a result of the implementation of cost reduction strategies. Jul-14 Apr-14 Oct-14 Jun-14 Jan-15 Mar-15 Feb-15 Aug-14 Sep-14 Nov-14 Dec-14 May-14 Strong and experienced Management Team ARA* IPC Source: Bloomberg With more than 30 years of experience, Mr. German Ahumada Russke, COB and CEO, and his top management team have proven to be very capable with a prudent strategy that has helped the company to continue its opera- tions with no major setbacks during the complicated moment the sector had gone through. Ramón Ortiz Cement, Concessions & Construction 7 [email protected] +52 (55) 1103 66 00 x 1835
The Top 10 Stocks Of Actinver April 17, 2015
Last Price: MP 15.30 Figures in millions of pesos CEMEX Liquidity High Price Target 2015: MP 19.00 24% Return 2013 2014 2015e 2016e
With U.S economic recovery and national infrastructure plan, EBITDA in 2016 will grow 34% vs. Sales 195,661 210,023 230,077 245,522 EBITDA 33,963 36,640 42,810 49,298 2013. Our recommendation, BUY Margin 17.4% 17.4% 18.6% 20.1% Growth YoY -1.2% 7.9% 16.8% 15.2% CEMEX’s top priority is recovering investment grade as soon as possible Net Profit (10,834) (6,783) (860) 3,677 Margin -5.5% -3.2% -0.4% 1.5% We estimate an EBITDA generation of US 3.5 billion by 2016 (vs. 2.7 billion L12M) supported by Cemex’s operat- Growth YoY N.A. N.A. N.A. N.A. ing leverage. Our estimate is lower than the company's guidance (US 4.7 billion). Total Assets 496,130 514,961 511,166 502,426 Based on our projections, the net debt to EBITDA ratio for 2016 will be 4.1x, improving substantially from the cur- Cash 15,176 12,589 12,850 13,150 rent level of 6.0x and a peak of 7.4x in 2010. Total Liabilities 347,812 366,790 363,854 351,437 Debt 221,758 233,267 230,967 216,754 Attractive EBITDA growth of 14% on average for the next years Equity 148,318 148,171 147,312 150,989 Majority 133,379 131,103 130,343 133,596 This expected result is supported by a strong performance in key markets such as US (15% of total) and Mexico (36% of total). Multiples EV/Sales 2.1x 2.0x 1.8x 1.7x In Europe (25% of EBITDA) and Asia (5%) we estimate marginal growth. EV/EBITDA 12.1x 11.7x 9.9x 8.3x Positive outlook in Mexico in the long term P/E N.A. N.A. N.A. 51.8x ROE -7.3% -4.6% -0.6% 2.4% The Mexican cement market was affected by the low levels of infrastructure spending. ROA -2.2% -1.3% -0.2% 0.7% A significant market recovery to greater investments in infrastructure and economic recovery is expected derived Net Debt/ EBITDA 6.1x 6.0x 5.1x 4.1x from structural reforms and implementation of the National Infrastructure Plan. Dividend Yield 0.0% 0.0% 0.0% 0.0% Energy reform will further increase cement demand and help to reduce production costs. CEMEX vs IPC (Mar 2014 = 100) 120 The US market will maintain its positive trend 115 110 The 4Q14 was the eleventh consecutive quarter of positive EBITDA generation. 105 100 The residential/industrial/commercial sectors remained as the main drivers. 95 90 Solid Senior Management Team 85 80 After the unfortunate death of Cemex’s Chairman of the Board and CEO, Mr. Lorenzo Zambrano, Cemex has demonstrated its high level of management institutionalization, keeping unchanged its long term strategy and Jul-14 Apr-14 Oct-14 Jun-14 Jan-15 Mar-15 Feb-15 Aug-14 Sep-14 Nov-14 Dec-14 continuity in its operations. May-14 CEMEXCPO IPC Rogelio Zambrano was appointed as the new Chairman of the Board and Fernando González as CEO, both with Source: Bloomberg career paths in excess of 20 years in Cemex. Ramón Ortiz Cement, Concessions & Construction [email protected] 8 +52 (55) 1103 66 00 x 1835
The Top 10 Stocks Of Actinver April 17, 2015
Last Price: MP 83.05 Figures in millions of pesos GFREGIO O High Liquidity Price Target 2015: MP 95.00 22% Return 2014 2015e 2016e 2017e
NIM 4.0% 4.2% 4.2% 4.3% High growth potential due to the company’s focus on SME’s, high ROE, solid asset quality and de- NIM after Provisions 3.5% 3.8% 3.8% 3.9% clining multiples. We recommend to add positions. Net Profit 1,644 1,886 2,189 2,610 ROE 18.8% 18.2% 18.0% 18.2% Low penetration of financial services in Mexico ROA 1.6% 1.8% 1.8% 1.8% Efficiency Ratio 45.1% 43.7% 42.1% 39.9% Commercial bank credit represents only 17% of GDP, which is lower than in other Latin American countries. NPL Ratio 1.5% 1.5% 1.5% 1.5% We expect commercial credit to expand at a 14% CAGR going forward. Coverage 170% 173% 175% 176% Operating Indicators Significant growth potential due to GFRegio’s focus on SME’s, which is an unattended segment Total Assets 99,612 117,146 135,543 154,373 Loan Portfolio 52,848 62,732 73,012 83,182 We expect net profits to increase 15% in 2015 and 16% in 2016. Past Due Loans 829 954 1,101 1,248 The loan portfolio will grow an estimated 19% and 16%, respectively, supported by a higher market share and the Reserve Against Credit Risk 1,408 1,656 1,927 2,195 network expansion (from the current 133 branches to 160 in 2017) Total Liabilities 90,060 105,930 122,375 138,846 Core Deposits 44,279 52,955 62,679 73,632 The ROE should reach 19.2% in 2015 and 19.4% in 2016 (compared with 18.8% in 2014). Total Capital 9,552 11,215 13,168 15,527 Multiples Excellent asset quality P / E 16.6x 13.6x 11.7x 9.8x In 4Q14, GFRegio registered an NPL ratio of only 1.5%, which is lower than the ratio of the large commercial P / BV 2.9x 2.3x 1.9x 1.7x banks, and a 1.7x coverage. Dividend Yield 0.0% 0.8% 0.8% 0.9% GFRegio O vs. IPC (April 2014 = 100) Excellent management 113 The Rivero Santos family, the controlling shareholder, is behind GFRegio’s high growth and solid asset quality 108
Fourth generation of commercial bankers. 103
GFRegio’s valuation compares favorably to its national peers’ 98 93 GFRegio shares trade at 2.9x P/BV vs. GFNorte’s 2.4x, Sanmex’s 2.2x and GFinter’s 2.1x. GFRegio’s multiple is only 2.3x based on our estimates for 2015. 88 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 IPC GFRegio O
Martín Lara Telecoms, Media & Financials [email protected] 9 +52 (55) 1103 66 00 x 1840 The Top 10 Stocks Of Actinver April 17, 2015
Last Price: MP 31.48 Figures in millions of pesos GISSA Liquidity Low Price Target 2015: MP 38.00 21% Return 2013 L12m 2014 2015e
GISSA is concentrating in auto parts, which will boost sales, expand margins and lower forward Sales 8,845 9,712 10,377 11,964 multiples. EBITDA 950 1,058 1,191 1,438 Margin 10.7% 10.9% 11.5% 12.0% NAFTA and U.S. economic recovery validate strategy of specialization in auto parts Growth YoY -13.4% 11.3% 12.5% 20.8% Net Profit 329 424 578 612 NAFTA’s over 20 years of existence, continues to benefit the economy of Mexico. In particular, the Mexican auto- Margin 3.7% 4.4% 5.6% 5.1% motive sector promises to grow 33% in production in the next three years. Growth YoY -89.9% 29.0% 36.3% 5.9% GIS’s strategy of specialization in auto parts makes it the best positioned company in Mexico to take advantage Total Assets 11,855 12,916 13,898 15,157 of this major boom. Cash 1,911 2,053 2,453 2,853 Total Liabilities 3,433 3,791 4,413 5,281 Specializing in auto parts will boost sales Debt 387 389 948 1,547 Instead of being mostly a construction business, GIS is turning into an auto parts business: Currently this busi- Equity 8,422 9,124 9,486 9,877 Majority 8,387 9,088 9,448 9,837 ness is equivalent to 37% of sales but we estimate it will rise to 60% by 2016. Multiples In the next 3 years the auto parts business will grow its installed capacity by 62%, because of the expansion of its EV/Sales 1.0x 1.1x 0.9x 0.8x Tisamatic plant and the JV with TRW. We estimate a growth in sales by 7% in 2015 and 15% in 2016. EV/EBITDA 9.8x 9.7x 7.8x 6.6x P/E 32.8x 23.1x 15.1x 14.5x Construction is a stable business and cash flow generator ROE 3.8% 5.3% 7.6% 7.7% Its construction business is primarily focused on self-construction; we expect an organic growth of 2-3% for the ROA 2.8% 3.8% 5.3% 5.1% following years. Net Debt/EBITDA (1.6x) (1.8x) (1.6x) (1.5x) Dividend Yield 5.8% 2.5% 3.1% 3.1% Its main products are very well positioned in the market. GISSA vs IPC (Apr. 2014 = 100) In 2016, auto parts will represent 70% of EBITDA with higher margins
Currently the auto parts business generates 50% of EBITDA, but we estimate its contribution will grow to 70% in 2016. 130
The EBITDA margin will increase from 10.9% L12m to a margin of 12.0% by 2016. Meanwhile, net margin also will expand from 4% to 5% in the same period. 110 Substantial lowering of multiples and potential return on investment 90 Jun Apr Aug Oct Dec GIS is trading at 2016E P/E multiple of 14.5x and EV/EBITDA multiple of 6.6x, which represents a 36% and 11% Feb ------14 14 14 15 discount compared with the historical average of the last 3 previous years. In addition the 2014 EV/EBITDA multi- 14 14 ple adjusted (without considering non recurrent effects) would be 9.0x instead of the 9.7x current level. GISSA IPC Proven management and solid company Federico Robinson Bours Top management has proven to be successful: It achieved a profound restructuring of liabilities after a major fi- Energy, Petrochemicals and Industrials nancial hit in 2008. GIS currently has a net debt to EBITDA of -1.6x vs. 2.9x in 2010. The company has a net [email protected] cash position of MP 1,800 mn, equivalent to 15% of current market cap. +52 (55) 1103 66 00 x 4127 10 The Top 10 Stocks Of Actinver April 17, 2015
Current Price: P$ 41.87 Figures in millions of pesos HERDEZ Liquidity High Price Objective 2015: P$ 45.50 8.7% Return 2013 2014 2015e 2016e We recently started coverage of Herdez, one of Mexico’s leading processed food companies, with a BUY Sales 13,180 14,319 16,534 18,202 recommendation and a 2015 PT of MP 45.5. We regard Herdez as an attractive mid-cap stock in a defen- EBITDA 2,050 2,415 2,834 3,162 sive industry best suited for mid and long-term investment horizons, while timing-wise, the stock’s un- Margin 15.6% 16.9% 17.1% 17.4% derperformance for the past 12 months has generated an attractive discount to its peers. Growth YoY 11.3% 17.8% 17.4% 11.5% Net Profit 608 771 864 939 An attractive play in a defensive industry, at a discounted price. Margin 4.6% 5.4% 5.2% 5.2% Growth YoY -23.1% 26.9% 12.1% 8.7% We regard Herdez as an attractive opportunity in the mid cap sector as it trades at a significant discount to its peers, but has the potential to outperform both comparable stocks and the domestic large-cap universe as the Total Assets 20,713 22,911 25,902 27,989 company rides the consumption recovery in coming quarters and additionally harvests results from the 2013 ac- Cash 905 2,451 2,654 3,344 Total Liabilities 8,583 9,735 10,976 11,092 quisition of Nutrisa and the incorporation of Nestlé’s Ice Cream assets. Debt 5,969 6,860 7,636 7,458 Organic and acquisition-driven expansions, an easy comparison base for 2014, and an awakening in consumer Equity 12,130 13,176 14,926 16,897 trends will aid for better performance in Herdez throughout 2015 and beyond, making it our favorite mid-cap Majority 5,665 6,309 6,717 7,604 stock. We consider Herdez’ risk profile as adequate, while financial improvement based on internal cash flow should Multiples generate a fast recovery following its two strategic acquisitions—Nutrisa and Nestle. EV/Sales 2.2x 2.1x 1.9x 1.7x EV/EBITDA 14.4x 12.2x 11.0x 10.0x Leading partners, leading brands, leading market shares. P/E 29.8x 23.5x 20.9x 19.3x
Though most of its business is conducted through 4 JV’s, with this scheme Herdez has attained market-leading ROE 24.8% 24.8% 26.2% 25.3% positions in its two key markets, Mexico and the US, along most of its product portfolio as it leverages proven ROA 6.6% 6.9% 6.7% 6.8% know-how, widely-known brands, and effective production/distribution schemes. Herdez partners with Barilla for Net Debt/ EBITDA 2.5x 1.8x 1.8x 1.3x its Pasta unit, with Hormel in processed foods, with McCormick in dressings, and with Kuo for its domestic Dividend Yield 6.0% 0.9% 1.4% 1.6% HERDEZ vs. IPC (April 2014 = 100) Herdez/Del Fuerte processed food unit. The downside to this structure is that a significant portion of net income (usually 45%) is normally shared with its 115. partners, notably diluting from the operating front’s size that is apparent on a first sight. 105. Let´s take the consumption ride for the first half of the year...and beyond. 95. We anticipate positive numbers in consumption-related indicators for 2015, specially in the first half of the year as we have already seen with Walmex and Antad’s SSS Jan/Feb figures. 85. Mar 14 May 14 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 While much of this has to do with the low comparison base posed by a 1H14 that was hit by fiscal changes and HERDEZ IPC eroded consumer confidence, we make the point for a rebound in consumption that should extend afterwards and Carlos Hermosillo José Cebeira even gain further traction on the back of better employment figures, tame inflation, advances in average wages, Retail, Food and Beverage. Retail, Food and Beverage. the bounce in the value of dollar-linked remittances and a resurgence in consumer confidence. [email protected] All of these indicators have already confirmed the start of a better trend, but their side-effects on consumer [email protected] +52 (55) 1103 66 00 x 1394 spending are yet not that clear; they shall be. +52 (55) 1103 66 00 x 4134
11 The Top 10 Stocks Of Actinver April 17, 2015
Last Price: MP 33.79 Figures in millions of pesos LAMOSA Liquidity Low Price Target 2015: MP 38.00 12% Return 2013 2014 2015e 2016e
Great opportunity at inflection point for the residential sector Sales 8,624 8,971 10,009 10,991 EBITDA 1,809 2,011 2,057 2,308 Margin 21.0% 22.4% 20.5% 21.0% LAMOSA is the company with the highest EBITDA margin in the ceramic industry Growth YoY -12.4% 11.2% 2.3% 12.2% Net Profit 630 442 427 494 The company’s profitability is higher than its competitors, with an EBITDA margin of 22.4%, compared with 7.0% Margin 7.3% 4.9% 4.3% 4.5% on average for Interceramic and GISSA (construction division), the two main domestic competitors. Growth YoY -26.1% -29.8% -3.5% 15.8% In a comparison with international peers, LAMOSA’s EBITDA margin is higher by around 900 basis points. Total Assets 15,043 15,077 15,819 16,390 Substantial lowering of multiples Cash 627 290 520 450 Total Liabilities 9,290 9,105 9,516 9,687 LAMOSA’s forward multiples reflect significant growth potential despite conservative estimates. Debt 5,149 4,695 4,994 5,017 The current P/E multiple of 28.9x improves to 25.9x based on 2016 estimated EPS. Equity 5,753 5,972 6,304 6,703 Meanwhile, the L12M EV/EBITDA multiple of 8.5x lowers to 7.5x based on 2016 EBITDA. Majority 5,753 5,972 6,304 6,703 Multiples Positive outlook in Mexico in the long term EV/Sales 2.0x 1.9x 1.7x 1.6x EV/EBITDA 9.6x 8.5x 8.4x 7.5x In December 2014 the construction industry gained 7% YoY. The improved performance is related to an increase P/E 20.3x 28.9x 30.0x 25.9x in housing construction and in specialized works. ROE 10.9% 7.4% 6.8% 7.4% A significant market recovery to greater investments in infrastructure (private and federal) and economic recovery ROA 4.2% 2.9% 2.7% 3.0% is expected derived from structural reforms and better performance in the housing sector. Net Debt/ EBITDA 2.5x 2.2x 2.2x 2.0x Energy reform will help to reduce production costs. Div. Yield (Cash) 1.0% 1.0% 0.7% 0.7% Lamosa vs IPC (Mar 2014 = 100) Production with state-of-the-art technology 150 In the past ten years LAMOSA has invested around US$ 1.0 billion in technology and acquisitions (mainly in the 140 ceramic division representing 73% of total sales). 130 120 The company is one of the lowest cost producers in the industry. 110 Solid Senior Management Team 100 90 With more than 20 years of experience on average, LAMOSA’s top management led by Federico Toussaint
Elosua (CEO) and Tomas Garza de la Garza (CFO) have lead the company to position itself as one of the most Jul-14 Apr-14 Oct-14 Jun-14 Jan-15 Mar-15 Feb-15 Aug-14 Sep-14 Nov-14 Dec-14 May-14 important ceramics producers worldwide. LAMOSA* IPC Senior management team was able to reduce the company’s leverage from 6.8x in 2008 (Porcelanite acquisition) Source: Bloomberg to 2.2x in 2014, in an environment of high credit restrictions amidst the 2008 crisis. Ramón Ortiz Cement, Concessions & Construction [email protected] 12 +52 (55) 1103 66 00 x 1835
The Top 10 Stocks Of Actinver April 17, 2015
Current Price: P$ 178.84 Figures in millions of pesos LIVEPOL Liquidity High Price Objective 2015: P$ 193.00 8.0% Return 2013 2014 2015e 2016e An incipient consumer recovery, a re-focused commercial strategy that enhances the reach towards a Sales 74,105 81,027 91,256 101,119 growing middle-class, and a credit portfolio that is being effectively controlled make for an investment EBITDA 12,536 13,024 15,038 17,065 case that will continue to produce market-leading returns, in our view. Margin 16.9% 16.1% 16.5% 16.9% Growth YoY 6.5% 3.9% 15.5% 13.5% Consumer trends, setting a solid base Net Profit 7,702 7,763 8,933 10,275 Margin 10.4% 9.6% 9.8% 10.2% 2015 took off with solid statistics for the consumer front, with ANTAD’s aggregate Same-Store numbers growing Growth YoY 7.0% 0.8% 15.1% 15.0% 5.5%, and a stronger +9.0% hike among Department stores. While these figures are boosted by an easy YoY EPS 5.738 5.784 6.655 7.655 comparison due to last year’s fiscal reform hit, coming months might experience softer rates. Yet, we do look for Total Assets 94,937 103,438 116,075 130,162 Cash 603 570 5,846 11,108 a stronger showing this year as Consumer Confidence, employment and wage levels have made significant ad- Total Liabilities 40,110 40,772 46,024 50,557 vances that have yet to show clearly in consumer spending. Debt 14,933 13,344 13,303 13,348 ANTAD’s expectations for 2015 seem rather conservative, yet clarify the still outperforming trend for Department Equity 54,827 62,666 70,051 79,605 stores: Specialized retailers are expected to post +0.7% SSS, Self-Service retailers a modest retreat at –0.3%, Majority 54,825 62,663 70,048 79,602 but Department stores are projected to increase comparable sales by 4.0%. Our estimates call for a 2% to 3% overall expansion, 2% for Self Service, a leading 5% to 6% for Department. Multiples EV/Sales 3.4x 3.1x 2.7x 2.4x Management shows a strong hand over its credit portfolio EV/EBITDA 20.3x 19.4x 16.5x 14.2x P/E 31.2x 30.9x 26.9x 23.4x Following two consecutive quarters with NPL deterioration that was quickly translated into affected profit margins, Livepol’s efforts to rein in credit portfolio growth and delinquency rates have already yielded positive results, fall- ROE 14.8% 13.2% 13.6% 13.7% ing from a NPL rate of 4.9% to 4.0% at the end of 2014. ROA 8.6% 8.0% 8.3% 8.5% Net Debt/ EBITDA 1.1x 1.0x 0.5x 0.1x Credit Portfolio growth was limited to 2% in 2014, even if sales were up over 9% in the year. Just remaining at Dividend Yield 1.1% 0.0% 0.5% 0.6% such level should fuel a 50bp expansion in the company’s EBITDA margins during 2015. Livepol vs. IPC (April 2014 = 100) Expansion focused on lower middle-class segments 140 130 Livepol inaugurated two new Fabricas de Francia stores in the past twelve months, and in 2015 expects to open 120 5 more, out of a total 8 new stores. The shift in strategy recognizes the reach within middle-and higher income 110 segments that its footprint has attained following nearly a decade-long expansion in its traditional format. 100 The timing seems right to attend the lower-middle segments that have already shown purchasing power improve- ments, but that are also expected to be the fastest-growing segment of the population in coming years—both in 90 Apr 14 Jun 14 Aug 14 Oct 14 Dec 14 Feb 15 Apr 15 terms of people count and consumption power. LIVEPOL IPC Carlos Hermosillo José Cebeira Leverage is not an issue Retail, Food and Beverage. Retail, Food and Beverage. Livepol has a net debt to EBITDA ratio of 0.7x and interest coverage of 11.7x, very solid figures already , and [email protected] even with an aggressive capex program for 2015, it is expected that these numbers will improve notably in com- [email protected] +52 (55) 1103 66 00 x 1394 ing months. +52 (55) 1103 66 00 x 4134
13 The Top 10 Stocks Of Actinver April 17, 2015
Current Price: MP 38.63 Figures in millions of pesos WALMEX Liquidity High Price Objective 2015: MP 42.0 8.7% Return 2013 2014 2015e 2016e Sales 423,823 440,988 476,110 515,828 The accelerated expansion behind, Walmex still stands out among its comparable due to its higher EBITDA 40,305 42,854 47,777 52,650 profitability and better absolute growth rates, yet with a merely average valuation on its stock. Margin 9.5% 9.7% 10.0% 10.2% Growth YoY 2.1% 6.3% 11.5% 10.2% 2015 is looking up for consumer Stocks. Net Profit 22,717 30,426 26,268 28,685 Margin 5.4% 6.9% 5.5% 5.6% Even if the general economic panorama this year remains a challenging one, we believe the bases for a con- Growth YoY -2.4% 33.9% -13.7% 9.2% sumer recovery have been laid out as the January sales positive surprise. The still erratic, yet positive, trend in consumer confidence, employment levels and average wages shall gain traction in coming months; the spillover Total Assets 230,262 246,081 248,183 270,032 effect will turn up at a time when fiscal uncertainty has abated, adding to a positive shift in general consumer Cash 21,129 28,048 10,353 13,367 conditions. Total Liabilities 87,312 95,835 98,529 102,610 CA drives operating performance, but Mexico starts to look up. Debt 14,097 13,262 13,129 13,264 Equity 142,951 150,246 149,654 167,422 Pre-released sales figures showed CA as the main driver to Walmex’s 4Q14 figures, but the full 4Q14 release Majority 142,930 150,223 149,630 167,399 sets forth a notable contribution to the overall operating performance as CA’s EBITDA growth rate reaps the benefits of economies of scale long ago achieved in Mexico, but only now starting to accelerate (as-reported Multiples margins are 7.6% for CA, 12.1% for MX and 11.5% consolidated). EV/Sales 1.6x 1.5x 1.4x 1.3x EV/EBITDA 16.7x 15.5x 14.3x 12.9x At the time Mexico reported a 16% rise in EBITDA, CA did so at 35%, adding up to a consolidated +17% rate. Nonetheless, we believe a key aspect of this report is the fact that Mexico has started to perform better, begin- P/E 29.9x 22.3x 25.8x 23.7x ning with the fact that Sam’s and Suburbia are posting less-negative sales numbers to start with. ROE 16.3% 18.6% 16.1% 16.9% ROA 10.0% 11.0% 10.4% 10.9% Once Vips and Banco Walmart have been sold, there is still the possibility of another sale: Suburbia. Net Debt/ EBITDA (0.2x) (0.3x) 0.1x (0.0x) Performance at the Department Store Format has been lagging, albeit not as severely as Sam’s. The focus on Dividend Yield 2.4% 3.2% 4.7% 2.0% Self-Service retailing could drive the decision, possibly as soon as this year also. 130.00Walmex vs. IPC (April 2014 = 100)
This would mean a marginal decrease in sales (3.2%), but also an improved profitability and enhanced strategy 120.00 focus. As was the case with Vips, we would expect extraordinary dividends to be paid, an equivalent 0.7% yield pending from the Bank, and a somewhat smaller figure from Suburbia. 110.00 100.00 Premium profitability, average valuation. 90.00 While we should not expect the premium valuations that Walmex once commanded due to the accelerated growth pace that was consistently achieved up until just four years ago, we do believe the market-leading organ- 80.00 ic growth and, most of all, the better profitability when compared to its peers (EBITDA consistently above 9% vs. Apr 14 Jun 14 Aug 14 Oct 14 Dec 14 Feb 15 Apr 15 WALMEX IPC market 6%-7% range, ROE above 16% or double its peers’), calls for a premium to its comparable universe. Carlos Hermosillo José Cebeira Retail, Food and Beverage. While the report has prompted a revision to our estimates, the impact in terms of cash flow expectations has Retail, Food and Beverage. been modest; our target price stands at MP 42.0, on which we reiterate a BUY recommendation for Walmex [email protected] [email protected] after also considering a 5% dividend yield. +52 (55) 1103 66 00 x 1394 +52 (55) 1103 66 00 x 4134
14 Equity, Economic, Quantitative and Fixed Income Research Departments
Equity Research Gustavo Terán Durazo, CFA Head of EquityResearch (52) 55 1103-6600 x1193 [email protected] Senior Analysts Martín Lara Telecommunications, Media and Financials (52) 55 1103-6600 x1840 [email protected]
Carlos Hermosillo Bernal Consumption (52) 55 1103-6600 x4134 [email protected] Pablo Duarte de León FIBRAs (REITs) (52) 55 1103-6600 x4334 [email protected]
Pablo Abraham Peregrina Mining, Metals, Paper & Conglomerates (52) 55 1103-6600 x4334 [email protected]
Ramón Ortiz Reyes Cement, Construction and Concessions (52) 55 1103-6600 x1835 [email protected]
Federico Robinson Bours Carrillo Energy, Conglomerates, Industrial and Mining (52) 55 1103-6600 x4127 [email protected]
Junior Analysts
Juan Enrique Ponce Luiña Telecommunications, Media and Financials (52) 55 1103-6600 x1693 jponce@actinver,com.mx
Enrique Octavio Camargo Delgado Energy, Conglomerates, Industrial and Mining (52) 55 1103-6600 x1836 [email protected]
José Antonio Cebeira González Consumption (52) 55 1103-6600 x1394 [email protected]
Mauricio Arellano Sampson Mining, Metal, Paper, Conglomerates, Cement, Construction & Concessions (52) 55 1103-6600 x1835 [email protected]
Laura Elena Bosch Ramírez FIBRAs (REITs) (52) 55 1103-6600 x4136 [email protected] Economic and Quantitative Research Ismael Capistrán Bolio Head of Economic and Quantitative Research (52) 55 1103-6600 x1487 [email protected]
Jaime Ascencio Aguirre Economy and Markets (52) 55 1103-6600 x1100 [email protected]
Santiago Hernández Morales Quantitative Research (52) 55 1103-6600 x4133 [email protected]
Roberto Galván González Technical Research (52) 55 1103-6600 x5039 [email protected] Fixed Income Research
Araceli Espinosa Elguea Head of Fixed Income Research (52) 55 110 -6600 x6641 [email protected]
Roberto Ramírez Ramírez Fixed Income Research (52) 55 1103-6600 x1672 [email protected]
Jesús Viveros Hernández Fixed Income Research (52) 55 1103-6600 x6649 [email protected]
Raúl Márquez Pardinas Fixed Income Research (52) 55 1103-6600 x4132 [email protected]
1 CONFIDENCIAL Y DE USO INTERNO 15 Disclaimer
Important Statements. Of the Analysts: “The analysts in charge of producing the Analysis Reports: Jaime Ascencio Aguirre; Mauricio Arellano Sampson; Laura Elena Bosch Ramírez; Enrique Octavio Camargo Delgado; Ismael Capistrán Bolio; José Antonio Cebeira González; Pablo Enrique Duarte de León; Araceli Espinosa Elguea; Roberto Galván González; Carlos Hermosillo Bernal; Santiago Hernández Morales; Martín Roberto Lara Poo; Raúl Márquez Pardinas; Ramón Ortiz Reyes; Pablo Abraham Peregrina; Juan Enrique Ponce Luiña; Federico Robinson Bours Carrillo; Gustavo Adolfo Terán Durazo; Jesús Viveros Hernández, declare”:
"All points of view about the issuers under coverage correspond exclusively to the responsible analyst and authentically reflect his vision. All recommendations made by analysts are prepared independently of any institution, including the institution where the services are provided or companies belonging to the same financial or business group. The compensation scheme is not based or related, directly or indirectly, with any specific recommendation and the remuneration is only received from the entity which the analysts provide their services. "None of the analysts with coverage of the issuers mentioned in this report holds any office, position or commission at issuers underhis coverage, or any of the people who are part of the Business Group or consortium to which they belong. They have neither held any position during the twelve months prior to the preparation of this report. " "Recommendations on issuers, made by the analyst who covers them, are based on public information and there is no guarantee of their assertiveness regarding the performance that is actually observed in the values object of the recommendation" "Analysts maintain investments subject to their analysis reports on the following issuers: AC, ALFA, ALPEK, ALSEA, AMX, AZTECA, CEMEX, CHDRAUI, FEMSA, FIBRAMQ, FINDEP, FUNO, GENTERA, GFREGIO, GRUMA, ICA, IENOVA, KOF, LAB, LIVEPOL, MEXCHEM, OHLMEX, POCHTEC, TLEVISA, SORIANA, SPORTS, VESTA and WALMEX.
On Actinver Casa de Bolsa, S.A. de C.V. Grupo Financiero Actinver Actinver Casa de Bolsa, S.A. de C.V. Grupo Financiero Actinver, under any circumstance shall ensure the sense of the recommendations contained in the reports of analysis to ensure future business relationship. All Actinver Casa de Bolsa, SA de C.V. Grupo Financiero Actinver business units can explore and do business with any company mentioned in documents of analysis. All compensation for services given in the past or in the future, received by Actinver Casa de Bolsa, SA de C.V. Grupo Financiero Actinver by any company mentioned in this report has not had and will not have any effect on the compensation paid to the analysts. However, just like any other employee of Actinver Group and its subsidiaries, the compensation being enjoyed by our analysts will be affected by the profitability gained by Actinver Group and its subsidiaries. At the end of each of the previous three months, Actinver Casa de Bolsa, SA de C.V. Actinver Financial Group, has not held any investments directly or indirectly in securities or financial derivatives, whose underlying are Securities subject of the analysis reports, representing one percent or more of its portfolio of securities, investment portfolio, outstanding of the Securities or the underlying value of the question, except for the following: * AMXL, AEROMEX, BOLSA A, FINN 13, FSHOP 13, SMARTRC14. Certain directors and officers of Actinver Casa de Bolsa, SA de C.V. Grupo Financiero Actinver occupy a similar position at the following issuers: AEROMEX, MASECA, AZTECA, ALSEA, FINN, MAXCOM, SPORTS, FSHOP and FUNO. This report will be distributed to all persons who meet the profile to acquire the type of values that is recommended in its content.
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