TRAVEL BOOK (January 31st) GemEquity Investing in emerging equities (I share) NAV : €142.36 (I) €136.51 (R) $113.59 (I USD) $124.63 (R USD)

Travel note - – January 2017 We spent one week in Mexico to assess the economic environment post Trump Protests against the oil price increase in Mexico DF election. In Mexico DF and in Yucatan, we visited a couple of manufacturing plants ( and Coca Cola Femsa), one of the largest distribution center of convenience stores chain OXXO REITs). In Cancùn (Sandanter conference gathering a hundred of Latin American companies and around 250 emerging and shopping markets investors),malls owned we listed met the fibras management (Mexican of 15 companies – from Mexico (, Femsa, , , Pinfra, Bimbo, Unifin, Santander Mexico), (Localiza, Hypermarcas), (Falabella, Antarchile), (Nutresa) and (San Miguel). On one hand, South American companies, especially Brazilian ones were quite optimistic regarding their outlook. On the other, Mexican corporates were more cautious. Our counterparts (be them corporate managers, economists or politicians) are undoubtedly cautious. The possible renegotiation of NAFTA and the introduction of a Border Adjustment Tax worry a lot. Also sources of worry are the low popularity of president Pena Nieto and the rise of Obrador, a populist politician (presidential elections

albeit showing a slight improvement, is still near 3% of GDP and the country could be downgraded by rating agency Moody’s. in 2018). Same for the recent oil price increase (+23%) which has put many people in the streets of Mexico DF. The budget deficit, Macro focus: Mexican economy and market Mexican exports towards USA “contain” 40% of imports opportunities from USA. Implemented in 1994, NAFTA is undoubtedly an economic integration success. To question it would obviously have negative impact for the American consumer. We assume Boosted by consumption, Mexican GDP rose by 2.2% in 2016. that Donald Trump is well aware of this matter. Taking into account the current uncertainties, forecasters

adjustment, weak Peso). Mexico real effective exchange rate expect a slowdown in 2017 and a hike in inflation (oil price Mexican real GDP growth (%)

Source : CLSA

However, when taking all uncertainties into account, one Source : Santander remains cautious on the country short term outlook. The currency seems undoubtedly undervalued: -56% according to A weaker Peso has increased Mexican industry the Big Max index from The Economist, but the stock market competitiveness (733,000 jobs created in 2016) and is still relatively expensive (around 16x earnings, ie. 10 year automatically increases the Peso value of overseas average). We would buy on weakness. remittances (immigrants sending money home). These

consumption and are likely to remain high. Besides, Mexicans Stock focus: Femsa (sales of $21bn, market cap. of aretransfers not much ($27bn indebted. in 2016, We 2.8% thus ofremain GDP) quite significantly optimistic boost on $26bn, 1.5% of GemEquity as of 31/01/2017)) staples consumption and concentrate our investment in this Based in Monterrey, Femsa (Fomento Económico Mexicano) is one of the largest consumer groups in Latin America. The field (see Femsa). In the current environment, exports towards USA (27% of group holds 100% of Femsa Comercio, the nb1 convenience GDP) remain uncertain. Let’s not forget that Mexico buys store network in Mexico (15,000 OXXO stores throughout the 26% of American exports (2nd behind Canada) and that country). A new store opens every 8 hours.

Gemway Assets - 10 rue de la Paix 75002 Paris, - French management company registered on 18/09/2012 under number GP-12000025 Contacts : Michel Audeban +331 86 95 22 98 / +336 85 83 26 73 - Clotilde Chanu +331 86 95 23 03 - [email protected] TRAVEL BOOK (January 31st) GemEquity Investing in emerging equities (I share) NAV : €142.36 (I) €136.51 (R) $113.59 (I USD) $124.63 (R USD)

Femsa is also involved in drug retailing and in gas distribution. Source : Unifin As of now, they own 2,200 pharmacies in Mexico, Colombia and Valuation is attractive: 12x earnings 2017. Chile and 350 oil stations in Mexico: two impressive growth

Stock focus: San Miguel (sales of $260M, market drivers. The group fully benefits from the emerging Mexican capitalization of $420M) Cocaconsumer Cola withFemsa sales, the growth largest of 28% and operating profit rise Cocaof 20% Cola over bottler the 3 infirst the quarters wor- 2016. Femsa also owns 48% of ld, (Mexico, rest of Latin Ame- Founded in 1954, San Miguel is the largest rica and Philippines). Las but lemon producer in the Southern hemisphere. not least, the company holds Located in Argentina, Uruguay and South a 20% stake in Heineken Africa, the company exports mainly in winter ($11bn). This asset can be to . This was the 2nd time we met its CFO and we remain very impressed by the growth potential of this small cap. The possible acquisition. In 2017, the market expects around 15% company aims to double its production (from 150,000 to sold at any time to finance a - 300,000T) by acquiring new lands and by improving the yield of its current plantations. Also in project the transformation distributionprofit growth. and The its high new valuation growth drivers (23x earnings (pharmacies 2017) and is jusgas capacity addition (juice, oil and zest). Thanks to the trade stations).tified by the company’s assets, its leading position in Mexican agreement between USA and Argentina, the American market should open to San Miguel. This agreement is frozen at the moment but should it be solved soon, this would be an amazing Stock focus: Unifin, leader in leasing in Mexico (market opportunity for San Miguel. The stock valuation is rather low capitalization of $835M) (EV/EBITDA is 4x) despite its big tangible assets. Liquidity is rather low as well but could improve if the company raises Founded in 1993 by its current president Rodrigo Lebois and money to finance its operation expansion.

listed in 2015, Unifin is the main competitor.leasing company Leasing in is not Mexico. much Withdeveloped $1.2bn in Mexico financed (0.04% assets, of the independent company is 4 times larger than its first core clients) only account for ¼ of loans to Mexican companies. WithGDP vs almost 0.15% 4,000 in Brazil clients and (out 1.1% of in 5 Colombia).million SMEs SMEs in (Unifin’sMexico), vehicles. Its portfolio exhibits good quality (around 3.5% bad Unifin finances mainly the acquisition of machines and utility local market and also securitizes a portion of its portfolio. Its signaturedebts). To isfinance well recognized its activity, and the itscompany interest raises margin funds is around on the 8%. We expect a very strong revenue growth: around 40% in 2016 and 25% in 2017. The return on equity is 25%.

Company names are presented to provide examples only, neither their presence in the portfolio or their performances are guaranteed. GemEquity is primarily invested in equities and presents a risk of capital loss. Past performances do not guarantee future performances. This document, intented for professional investors, is not of a contractual nature. It may not be reproduced, distributed or passed on to third parties in whole or in part without the prior written authorisation of Gemway Assets refer to the KIID or consult your usual contact. SAS.Gemway The purpose Assets of this- 10 document, rue de la whichPaix 75002 is commercial Paris, France in nature, - French is to inform management investors of companythe fund’s characteristics registered on in 18/09/2012 a simplified way. under For numberfurther information, GP-12000025 please Contacts : Michel Audeban +331 86 95 22 98 / +336 85 83 26 73 - Clotilde Chanu +331 86 95 23 03 - [email protected]