Latin American Equity Research
Company Update
Mexico, July 27, 2009
Mexico – Conglomerates and Industrials
ALFA
HOLD
Impressive Results and Impressive Rally; Downgrading to Hold
Luis Miranda*, CFA
Banco Santander, S.A.
(5255) 5269-1926
[email protected]
(7/23/09)
CURRENT PRICE: M$49.50/US$3.72
TARGET PRICE: M$60.00/US$4.60
What’s Changed
Rating
Price Target (US$)
EBITDA Estimates
(US$ Mn)
To Hold from Buy
Introducing YE2010: M$60.00
’09 to 928 from 900
’10 to 983 from 962
’11 to 1,055 from 1,032
Company Statistics
Bloomberg
52-Week Range (M$)
2009E P/E Rel. to the IPC (x)
2009E P/E Rel. to Congs. (x)
IPC
3-Yr. EBITDA CAGR (08-11E)
Market Capitalization (US$ Mn)
Float (%)
3-Mth Avg Daily Vol (US$ Mn)
Shares Outst – Mn
Net Debt/Equity (x)
Book Value per Share (US$)
ALFAA MM
16.50-67.45
NM
NM
26,805
3.2
2,160
45
2,140
559
1.2
3.85
Estimates and Valuation Ratios
Net Earn (M$ Mn)
Current EPS
2008 2009E
(9,513)
414
(17.01)
0.74
Net Earn (US$ Mn)
Current EPS/EPADR
P/E (x)
P/Sales (x)
P/CE (x)
FV/EBITDA (x)
FV/Sales (x)
FCF Yield (%)
Div per Share (US$)
Div Yield (%)
(756)
(1.23)
NM
0.1
(2.2)
4.3
0.4
NM
0.11
2.1
38
0.06
NM
0.3
6.3
5.7
0.7
3
0.06
3.9
2010E
2,138
3.82
2011E
2,875
4.13
163
0.29
13.3
0.3
4.1
5.5
0.6
5
0.06
3.6
216
0.31
12.4
0.2
3.7
5.2
0.6
6
0.07
3.9
NM = not meaningful. Sources: Bloomberg, company reports, and
Santander estimates.
Investment Thesis: We are downgrading Alfa to Hold from Buy and
introducing our YE2010 target price of M$60.00 per share (US$4.60),
replacing our YE2009 target price of M$34.50 (US$2.50). After the
recent rally, 73% since the beginning of 2009 in peso terms and 226%
from its 52-week low, the stock offers a potential total return of 24.8%
in peso terms, including a dividend yield of 3.6% for 2010, compared
with our benchmark of 28.5%, and thus we are downgrading the stock.
We are factoring into our model the impressive 2Q09 results, which
now lead us to expect a better second half of 2009. The 2Q09 results
included stronger margins in the three main divisions, Alpek
(petrochemicals), Sigma (food), and Nemak (aluminum casting). The
impact on our estimates is an increase of 70 bps in our estimated
operating margin for 2009 and a 3.1% increase in EBITDA for 2009 to
US$928 million, which remains within the company’s guidance of
US$900 million-US$940 million.
For 2010, we estimate a healthier EBITDA of US$983 million, which
implies 6% growth, after the 4% decline we expect for 2009. For 2011,
we expect 7% growth, as we estimate that the world economic
environment should be more benign, leading to healthier demand in the
industrial sectors.
Although we are increasing our estimates, we believe that valuation has
become fair after the recent rally. The stock is currently trading at 5.7
times our 2009 FV/EBITDA estimate and 5.5 times our 2010 estimate.
This compares with our estimated 5.5 times five-year average forward
FV/EBITDA multiple. In terms of NAV, we estimate that the stock
trades at a 30% discount, and our target price implies a 17/% discount.
In terms of P/E, the stock trades at 13.3 times our 2010 estimate, which
we believe is not compelling.
Valuation: Our YE2010 target price is based on a DCF methodology,
considering a WACC of 9.12%, debt-to-capitalization of 55%, a beta of
1.0, and perpetuity growth of 2%. Our target price implies that the stock
would be trading at a forward FV/EBITDA of 5.4 times by year-end 2010
and 5.9 times trailing. Main risks include: (1) weaker-than-expected
growth in the U.S. and Mexican economies; (2) customer base
concentration in the automotive-aluminum casting division; (3) higher-thanexpected prices of key raw materials; (4) disruption of supply of key raw
materials; (4) sharp fluctuations in currency and interest rates; and (5)
refinancing risk.
Important disclosures/certifications are in the “Important Disclosures” section of this report.
U.S. investors’ inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629/ (212) 350-3918.
* Employed by a non-US affiliate of Santander Investment Securities Inc. and is not registered/qualified as a research analyst under FINRA rules.
Impressive Results and Impressive Rally; Downgrading to Hold
Alfa is a Mexican conglomerate with exposure to the petrochemical sector (via Alpek – 44% of sales and 31% of
EBITDA in 2008), aluminum casting (auto parts) (via Nemak – 28% of sales and 33% of EBITDA), consumer products
(through Sigma – with 22% of sales and 27% of EBITDA), and telecommunication (via Alestr – 4% of sales and 13% of
EBITDA). Alfa is the second largest producer of PTA (purified terephthalic acid) in NAFTA, the sole producer of PP
(polypropylene) in Mexico, and the largest manufacturer of aluminum engine heads and blocks worldwide. In addition,
it is a market leader in cold cuts and cheese in Mexico and the second largest player in the domestic yogurt market.
WHAT HAS CHANGED?
We have updated our estimates and lowered our rating due to two events. The first is the strongerthan-expected results in 2Q09, which point to better-than-expected margins for the three main
divisions, leading to a stronger EBITDA estimate for 2009. The second is the strong rally of the
stock, which has led to a revaluation, which, in our view, recognizes the strong business position
of the company’s core operations and the expected economic recovery.
SECOND QUARTER 2009 RESULTS
Alfa reported its 2Q09 results on July 16, which were solid and much stronger than we anticipated
at the operating level, mainly due to: (1) EBITDA at Nemak (aluminum casting), which was much
stronger than expected, driven mainly by productivity improvements; (2) EBITDA at Alpek
(petrochemicals) grew on a QoQ basis, whereas we expected a decline QoQ due to higher raw
material prices (while prices were higher, this was offset by better prices for Alfa’s final products
and strong demand); and (3) improvements in the profitability of Sigma (food), which attained an
operating margin of 10.3% in 2Q09, the highest since 4Q06. Although net income was lower than
expected, mainly due to higher taxes, it improved from the big net losses in 4Q08 and 1Q09.
Figure 1 summarizes 2Q09 operating results by division in U.S. dollar terms.
Net sales were in line with our estimate, and the 7.1% decline YoY in pesos was due to the
decline in volume in Nemak (-39% YoY and +12% QoQ) and lower prices at Nemak and Alpek.
We highlight that the company’s sales rose 12% QoQ, with improvements in all divisions. The
positive surprise came at the operating level, where improvements in productivity (especially at
Nemak), and better-than-expected profitability at Alpek, led to EBITDA growth of 25% YoY and
20% QoQ (+27% QoQ in dollars). We believe that a key number in the report was the EBITDA
per head at Nemak, which reached US$11.10/equivalent head, the strongest in the last 10 years
(which is especially impressive considering the YoY decline in volume). The only negative point
we see in the report is the increase in Nemak’s net debt, which increased from US$1.13 billion to
US$1.29 billion. Alfa’s total net debt reached US$2.55 billion (2.9 times net debt-to-EBITDA and
interest coverage of 4.4 times).
Figure 1. Alfa 2Q09 Operating Results by Division in U.S. Dollars
Sales
Operating Margin %
EBITDA
Division
2Q08
1Q09
2Q09
2Q08
1Q09
2Q09
2Q08
1Q09
2Q09
Alpek
Sigma
1,294
601
855
510
994
543
4.2
8.0
9.5
8.2
8.0
10.3
83
68
106
59
107
74
Nemak
880
384
419
5.7
(2.6)
6.4
90
22
61
Alestra
109
82
88
11.9
13.4
12.5
30
26
26
2,903
1,851
2,064
5.8
6.4
8.2
278
209
266
Total*
Total includes other and corporates. Sources: Company reports and Santander.
2
Important disclosures/certifications are in the “Important Disclosures” section of this report.
U.S. investors’ inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629/ (212) 350-3918.
STRONG RALLY: 73% YEAR TO DATE
The strong rally of the stock is even more impressive given the 226% return since its 52-week
low, which compares with the IPC index’s 20% return YTD and 63% from its 52-week low. We
also believe that, given Alfa’s diverse portfolio, we should compare the sectors in which the
company operates – chemicals, food, and auto parts – with those individual indexes. For this, we
use the S&P 500 sub-sectors (Diversified industrials, packaged food, auto parts, and industrial
diversified). As shown in Figure 2, year to date, the stock has outperformed all the sectors in
which it operates. We do not think that the stock’s valuation is rich, as it is trading close to its
five-year forward FV/EBITDA average of 5.5 times (5.7 times our 2009 estimate and 5.5 times
our 2010 estimate). This is because during 2008, the stock was an underperformer relative to this
sample, with a negative 67% decline during the year, versus the 54% and 50% decline of the
industrial diversified and chemical diversified sectors, respectively, in the S&P. In our view, this
strong rally has placed Alfa’s valuation at a more reasonable or normalized level, which we
believe is sustainable in the medium term.
Figure 2. Alfa versus S&P 500 Sectors’ Performance, 2009 Year to Date
1.9
1.7
1.4
1.2
0.9
0.7
0.4
Jan-09
Feb-09
ALFA US$
Mar-09
Ind Cong
Apr-09
Pack Food
May-09
Jun-09
Autoparts
Jul-09
Chemicals
Source: Bloomberg.
Important disclosures/certifications are in the “Important Disclosures” section of this report.
U.S. investors’ inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629/(212) 350-3918.
3
Impressive Results and Impressive Rally; Downgrading to Hold
ESTIMATE REVISIONS AND NEW ESTIMATES
We updated our earnings outlook for the company in order to account for the aforementioned strongerthan-expected margins across the board. We also factor in our updated economic estimates.
Although we are increasing our EBITDA results for 2009-2011E, we are decreasing our net
income estimates, due to adjustments in the exchange rate. Also, for 2009, we are decreasing our
net income estimate due to the losses related to derivative instruments in 1Q09, which had a
material impact on our 2009 estimates.
Figure 3. Alfa – Estimate Revisions, 2009E–2011E (U.S. Dollars in Millions*)
2009E
Revenue
Op. Profit
Op. Margin
EBITDA
Net Income
EPS
Previous
8,235
501
6.10%
900
164
0.3
Current
7,769
542
7.0%
928
38
0.06
2010E
Change
-5.7%
8.1%
14.3%
3.1%
-77.0%
-81.0%
Previous
8,689
560
6.40%
962
200
0.35
Current
8,620
598
6.9%
983
163
0.29
2011E
Change
-0.8%
6.8%
8.4%
2.2%
-18.5%
-17.4%
Introducing
9,565
9,561
631
670
6.60%
7.0%
1,032
1,055
233
216
0.34
0.31
0.0%
6.2%
6.2%
2.3%
-7.2%
-8.3%
Except per share data. Source: Santander estimates.
Figure 4. Mexico – Selected Economic Projections, 2007–2010E
Real GDP ( Δ% YoY)
Industrial (Δ% YoY)
Manufacturing (Δ% YoY)
Services (Δ% YoY)
Exports (Δ% YoY)
Imports (Δ% YoY)
CPI Inflation (Δ% YoY)
US$ Exchange Rate (Year-End)
US$ Exchange Rate (Average)
Interest Rate (Year-End)
Interest Rate (Average)
2007
3.3%
2.5%
2.6%
4.0%
8.8%
2008
1.3%
-0.7%
-0.4%
2.1%
7.3%
2009E
-6.5%
-7.0%
-9.2%
-2.6%
-17.3%
2010E
2.3%
1.1%
0.6%
2.6%
7.4%
10.1%
3.8%
10.92
10.93
7.4%
7.2%
9.5%
6.5%
13.83
11.15
8.0%
7.7%
-13.0%
4.5%
13.00
13.52
4.5%
5.4%
6.0%
4.0%
13.20
13.11
5.0%
4.8%
Sources: Company reports and Santander estimates.
4
Important disclosures/certifications are in the “Important Disclosures” section of this report.
U.S. investors’ inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629/ (212) 350-3918.
Figure 5. Alfa – Consolidated Estimates by Division, 2008–2011E (U.S. Dollars in Millions)
Total*
Sales
Operating Margin
EBITDA
EBITDA Margin
Net Income
Alpek/Chemicals
Sales
Operating Margin
EBITDA
EBITDA Margin
Sigma/Food
Sales
Operating Margin
EBITDA
EBITDA Margin
Nemak/Auto Parts
Sales
Operating Margin
EBITDA
EBITDA Margin
Alestra/Telecom
Sales
Operating Margin
EBITDA
EBITDA Margin
2008
10,642
5.1%
964
9.1%
(756)
2009E
7,769
7.0%
928
11.9%
38
2010E
8,620
6.9%
983
11.4%
163
2011E
9,561
7.0%
1,055
11.0%
216
08/07
10.7%
(96)
-0.4%
(101)
-338.0%
09E/08E
-27.0%
189
-3.7%
289
-105.0%
10E/09E
10.9%
(4)
5.9%
(54)
332.6%
11E/10E
10.9%
7
7.4%
(37)
32.6%
4,708
3.9%
295
6.3%
3,657
8.1%
401
11.0%
4,307
8.2%
461
10.7%
4,986
8.2%
517
10.4%
17.0%
(56)
5.5%
(69)
-22.3%
422
36.0%
473
17.8%
11
15.0%
(28)
15.8%
(0)
12.1%
(34)
2,368
7.8%
261
11.0%
2,141
9.0%
263
12.3%
2,277
9.2%
280
12.3%
2,335
9.2%
286
12.2%
14.0%
(65)
8.8%
(58)
-9.6%
117
0.4%
125
6.4%
20
6.6%
3
2.5%
3
2.1%
(5)
3,026
5.3%
315
10.5%
1,579
3.7%
195
12.3%
1,711
5.3%
228
13.3%
1,914
5.2%
237
12.4%
4.0%
(49)
4.4%
10
-47.8%
(160)
-37.9%
181
8.3%
163
16.6%
105
11.9%
(10)
4.0%
(94)
426
12.3%
121
28.5%
298
12.6%
99
33.2%
232
12.4%
91
39.2%
235
12.4%
91
38.8%
-5.8%
331
1.1%
248
-30.1%
32
-18.4%
465
-22.2%
(22)
-8.1%
605
1.5%
0.5%
(40)
*Total includes corporate and other businesses. Sources: Company reports and Santander estimates.
VALUATION
DCF model: We are setting our year-end 2010 target price for Alfa at M$60.00, or US$4.60
per share. Our target price implies a WACC of 9.12%, with a risk-free rate of 6.40% and equity
risk premium of 6.5%, debt/capitalization ratio of 55%, beta of 1.0 times, and perpetuity growth
of 2.0%. Our target price implies that the stock would be trading at a forward FV/EBITDA
multiple of 5.5 times, which would be in line with its five-year average of 5.5 times. The
following table summarizes our DCF model highlights. In terms of NAV, we estimate that the
stock trades at a 30% discount, considering our 2009 estimates, a discount we see as attractive.
Figure 6. Alfa – DCF Model, 2011E–2020E (U.S. Dollars in Millions)
2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E
670
712
743
777
812
848
886
925
967 1,010
188
199
208
217
227
237
248
259
271
283
28% 28% 28% 28% 28% 28% 28% 28% 28% 28%
482
512
535
559
584
610
638
666
696
727
385
393
401
409
417
426
434
443
452
461
(172) (162) (160) (160) (160) (160) (170) (170) (170) (170)
(400) (450) (450) (450) (450) (450) (450) (450) (450) (450)
296
294
326
358
392
426
452
489
528
568
EBIT
Tax
Tax Rate
NOPLAT
D&A
Working Capital
Capex
FCF to Firm
Perpetuity Growth
Perpetuity Value
FCF (to Firm) + Perp.
Net Present Value
- (Net Debt+Min.)
Estimated Market Cap.
Premium/Discount
Fair Value (US$)
Fair Value (M$)
271
247
251
253
253
252
245
243
241
237
Perp.
2.00%
7,982
3,336
5,830
3,288
2,543
-15%
4.60
60.00
Sources: Company reports and Santander estimates.
Important disclosures/certifications are in the “Important Disclosures” section of this report.
U.S. investors’ inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629/(212) 350-3918.
5
Impressive Results and Impressive Rally; Downgrading to Hold
FORWARD FV/EBITDA
Alfa currently trades at 5.7 times our 2009 FV/EBITDA estimate and 5.5 times our 2010 estimate,
which compares with the five-year average forward FV/EBITDA multiple of 5.5 times. The
stock’s valuation has improved from its low levels of almost 4.0 times in early March 2009. This
has been driven by an outlook of moderate recovery in the U.S. economy in 2010 and the very
solid results ion 2Q09. This has supported the stock recent rally of almost 73% in peso terms year
to date and 226% from its 52-week low. In our view, if we see a stronger-than-expected recovery
in results, where the second half of 2009 is stronger than expected, the stock could surpass these
valuation levels. However, we believe that a reasonable assumption is that current valuation levels
are sustainable, considering the important operating improvements reached during the second half
of 2009, especially regarding Nemak (record high productivity per equivalent head).
Figure 7. Alfa – Forward FV/EBITDA with Five-Year Average/-2 Standard Deviations, 2006–2009
9
8
7.8
7
6.7
6
5.5
5
4.4
4
3.3
3
J-09
M-09
D-08
O-08
J-08
A-08
J-08
N-07
A-07
M-07
F-07
D-06
S-06
J-06
M-06
J-06
2
Sources: Company reports and Santander estimates.
NET ASSET VALUE
We estimate that Alfa’s stock is currently trading at a 30% discount to NAV. This is based
on our 2010 estimates and compares with our estimated three-year average discount of 35%. Our
target price implies that the stock would be trading at a 17% discount to NAV. In our view, the
target discount is not a conservative figure compared with its average and to the “almost” 60%
discount reached in mid 2008. However, in our view, it could be reachable when we crossreference the target FV/EBITDA multiple with the target price.
6
Important disclosures/certifications are in the “Important Disclosures” section of this report.
U.S. investors’ inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629/ (212) 350-3918.
Figure 8. Alfa – Net Asset Value, 2010E (U.S. Dollars in Millionsa)
Subsidiary
Alpek
OnexaSigma
Nemak
Others & Corp.
Total
- Net Debt/Holding*
= Net Asset Value
Number of Shares (Mn)
2010E FV/EBITDA
EBITDA
Multiple
461
5.7
91
4.5
280
6.1
228
6.0
-76
1.0
983
Firm
Value
2,627
409
1,707
1,367
-76
6,033
Net
%
Debt Ownership
570
85%
208
51%
552
100%
1,289
95%
0
100%
NAV per Share
Current Price
Prem/(Disc) to NAV
a
NAV
1,749
102
1,155
74
(76)
3,004
(70)
3,074
560.1
M$
M$59.97
M$51.15
% of
NAV
57%
3%
38%
2%
-2%
98%
2%
100%
US$
M$5.49
M$3.86
-30%
Except per share amounts. Sources: Santander and Thomson Analytics estimates.
MAIN RISKS
Weaker-than-expected economic growth in the U.S. and Mexican economies. Alfa has a 76%
exposure to Mexico and North America (40% and 36%, respectively), most of the North America
exposure going to the U.S: economy. Therefore, any change in the economic growth of these two
economies would have a material impact on the company’s results. We expect a modest
improvement in 2010. If this were not to happen, we would have to revisit our estimates.
Customer concentration in Nemak. In the automotive division, the U.S. OEMs still represent
close to 50% of its sales. Given the current changes in the industry and its restructuring, especially
for GM and Chrysler, we believe this concentration remains a material risk for the company.
Higher-than-expected prices of raw materials and disruption in the supply. Alpek and
Nemak, which represent almost 68% of total sales, have a high exposure to commodities as input
costs. Both companies work under long-term contracts in large parts of its business, which allow
them to pass through changes in raw material prices; however, steep changes lead to volatility in
margins. Also, the volatility in demand and natural disasters has led in the past to disruptions in
the supply of some key raw materials, especially for Alpek, which could translate either into
lower sales or higher cost of raw materials.
Exposure to the U.S. dollar. Alfa is a predominantly dollarized company, with approximately
80% of total consolidated sales denominated in U.S. dollars, with U.S. dollar-denominated costs
representing approximately 70%-75% of the total. As a result, a weak peso has a direct and
positive impact on the company’s operating margin and vice versa. However, a very steep
depreciation of the peso could lead to a reduction in demand, and would also affect the operating
results of Sigma and Alestra in U.S. dollars.
Refinancing risk. Although Alfa has a net debt-to-equity ratio of 1.2 times at the consolidated
level, and a net debt to EBITDA of 2.4 times (2Q09 figures), Nemak’s ratios are 1.4 times and 5.3
times, respectively. This division is currently restructuring its debt, given the automotive
industry’s difficult market conditions.
Important disclosures/certifications are in the “Important Disclosures” section of this report.
U.S. investors’ inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629/(212) 350-3918.
7
Impressive Results and Impressive Rally; Downgrading to Hold
FINANCIAL STATEMENTS
Figure 9. Income Statement, Balance Sheet, and CF Statement, 2008–2011E (U.S. Dollars in Millions)
Income Statement
Sales
Cost of Sales
Gross Profit
Oper. and Adm. Expenses
Operating Profit
Depreciation
EBITDA
Financing Costs
Interest Paid
Interest Earned
Monetary Gain/Loss
FX Gain/Loss
Other Financial Operations
Profit before Taxes
Tax Provision
Profit after Taxes
Subsidiaries
Extraordinary Items
Minority Interest
Net Profit
Balance Sheet
Assets
Short-Term Assets
Cash and Equivalents
Accounts Receivable
Inventories
Other Short-Term Assets
Long-Term Assets
Fixed Assets
Deferred Assets
Other Assets
Liabilities
Short-Term Liabilities
Suppliers
Short-Term Loans
Other Short-Term Liabilities
Long-Term Loans
Deferred Liabilities
Other Liabilities
Majority Net Worth
Minority Interest Worth
Cash Flow
Net Majority Earnings
D&A and Non-Cash Items
Change in Working Capital
Capital Increase / Dividends
Change in Debt
Capex
Others
Net Cash Flow
Previous Cash
Closing Cash
2008
10,642
8,870
1,772
1,231
541
423
964
509
276
59
(49)
(244)
78
(1,068)
(281)
(787)
0
(31)
(756)
2008E
8,022
3,138
521
1,257
960
400
6,876
3,942
1,146
5,513
2,801
989
1,046
766
2,185
526
2,136
2,510
374
2008E
(756)
129
(153)
(62)
1,190
(450)
(672)
(773)
782
521
%
100%
83.3%
16.7%
11.6%
5.1%
4.0%
9.1%
4.8%
2.6%
0.6%
-0.5%
-2.3%
0.7%
-10.0%
-2.6%
-7.4%
0.0%
0.0%
-0.3%
-7.1%
100%
39.1%
6.5%
15.7%
12.0%
5.0%
85.7%
49.1%
14.3%
100%
50.8%
17.9%
19.0%
13.9%
39.6%
0.0%
9.5%
85.1%
100%
14.9%
2009E
7,769
6,200
1,570
1,028
542
386
928
331
307
44
(92)
24
83
128
70
59
1
21
38
2009E
8,227
2,871
803
1,242
775
50
7,087
4,216
1,140
5,477
2,731
901
1,219
611
2,249
497
2,326
2,749
423
2009E
38
317
357
(34)
35
(311)
(605)
(203)
521
803
%
100%
79.8%
20.2%
13.2%
7.0%
5.0%
11.9%
4.3%
3.9%
0.6%
-1.2%
0.3%
1.1%
1.7%
0.9%
0.8%
0.0%
0.0%
0.3%
0.5%
100%
34.9%
9.8%
15.1%
9.4%
0.6%
86.1%
51.3%
13.9%
100%
49.9%
16.5%
22.3%
11.2%
41.1%
0.0%
9.1%
84.6%
100%
15.4%
2010E
8,620
6,854
1,766
1,168
598
385
983
278
318
66
(25)
40
280
78
202
38
163
2010E
8,546
2,850
637
1,332
832
50
7,423
4,573
1,122
5,507
2,795
983
1,210
602
2,222
490
2,571
3,039
467
2010E
163
360
(81)
(34)
16
(400)
(294)
(271)
803
637
%
100%
79.5%
20.5%
13.6%
6.9%
4.5%
11.4%
3.2%
3.7%
0.8%
0.0%
-0.3%
0.5%
3.2%
0.9%
2.3%
0.0%
0.0%
0.4%
1.9%
100%
33.4%
7.5%
15.6%
9.7%
0.6%
86.9%
53.5%
13.1%
100%
50.7%
17.9%
22.0%
10.9%
40.3%
0.0%
8.9%
84.6%
100%
15.4%
2011E
9,561
7,602
1,959
1,289
670
385
1,055
259
311
78
(27)
40
371
104
267
51
216
2011E
9,541
3,505
1,011
1,502
943
49
8,435
4,930
1,105
5,944
2,904
1,111
1,201
593
2,495
545
3,044
3,597
553
2011E
216
359
(81)
(36)
316
(400)
(294)
78
637
1,011
%
100%
79.5%
20.5%
13.5%
7.0%
4.0%
11.0%
2.7%
3.2%
0.8%
0.0%
-0.3%
0.4%
3.9%
1.1%
2.8%
0.0%
0.0%
0.5%
2.3%
100%
36.7%
10.6%
15.7%
9.9%
0.5%
88.4%
51.7%
11.6%
100%
48.9%
18.7%
20.2%
10.0%
42.0%
0.0%
9.2%
84.6%
100%
15.4%
Sources: Company reports and Santander estimates.
8
Important disclosures/certifications are in the “Important Disclosures” section of this report.
U.S. investors’ inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629/ (212) 350-3918.
Figure 10. Income Statement, Balance Sheet, and CF Statement, 2008–2011E (Millions of M$)
Income Statement
Sales
Cost of Sales
Gross Profit
Oper. and Adm. Expenses
Operating Profit
Depreciation
EBITDA
Financing Costs
Interest Paid
Interest Earned
Monetary Gain/Loss
FX Gain/Loss
Other Financial Operations
Profit before Taxes
Tax Provision
Profit after Taxes
Subsidiaries
Extraordinary Items
Minority Interest
Net Profit
Balance Sheet
Assets
Short-Term Assets
Cash and Equivalents
Accounts Receivable
Inventories
Other Short-Term Assets
Long-Term Assets
Fixed Assets
Deferred Assets
Other Assets
Liabilities
Short-Term Liabilities
Suppliers
Short-Term Loans
Other Short-Term Liabilities
Long-Term Loans
Deferred Liabilities
Other Liabilities
Majority Net Worth
Minority Interest
Cash Flow
Net Majority Earnings
D&A and Non-Cash Items
Change in Working Capital
Capital Increase / Dividends
Change in Debt
Capex
Others
Net Cash Flow
Previous Cash
Closing Cash
2008
116,190
96,819
19,372
13,531
5,841
4,637
10,478
5,442
3,062
662
34
(3,076)
(862)
(13,381)
(3,438)
(9,943)
4
(430)
(9,513)
2008E
110,970
43,403
7,210
17,385
13,281
5,526
95,116
54,532
15,854
76,252
38,746
13,686
14,467
10,593
30,225
7,281
29,551
34,718
5,167
%
100.0%
83.3%
16.7%
11.6%
5.0%
4.0%
9.0%
4.7%
2.6%
0.6%
0.0%
-2.6%
-0.7%
-11.5%
-3.0%
-8.6%
0.0%
0.0%
-0.4%
-8.2%
100.0%
39.1%
6.5%
15.7%
12.0%
5.0%
85.7%
49.1%
14.3%
100.0%
50.8%
17.9%
19.0%
13.9%
39.6%
0.0%
9.5%
85.1%
100.0%
14.9%
(9,513)
1,592
2,123
(672)
16,459
(4,913)
9,292
5,076
8,535
7,210
2009E
105,703
84,365
21,338
13,967
7,371
5,253
12,624
4,669
4,196
602
(1,339)
263
(1,130)
1,586
899
687
13
273
414
2009E
106,947
37,320
10,440
16,149
10,077
654
92,131
54,811
14,816
71,205
35,509
11,717
15,848
7,944
29,240
6,456
30,244
35,742
5,498
414
4,164
(4,636)
(457)
455
(4,231)
7,864
(4,291)
7,210
10,440
%
100.0%
79.8%
20.2%
13.2%
7.0%
5.0%
11.9%
4.4%
4.0%
0.6%
-1.3%
0.2%
-1.1%
1.5%
0.9%
0.7%
0.0%
0.0%
0.3%
0.4%
100.0%
34.9%
9.8%
15.1%
9.4%
0.6%
86.1%
51.3%
13.9%
100.0%
49.9%
16.5%
22.3%
11.2%
41.1%
0.0%
9.1%
84.6%
100.0%
15.4%
2010E
113,020
89,862
23,157
15,319
7,839
5,052
12,891
3,643
4,174
862
(332)
(526)
3,670
1,027
2,642
505
2,138
2010E
112,804
37,624
8,406
17,581
10,983
654
97,988
60,364
14,816
72,696
36,893
12,980
15,969
7,944
29,329
6,474
33,938
40,108
6,170
2,138
4,721
1,075
(440)
210
(5,245)
3,886
2,459
10,440
8,406
%
100.0%
79.5%
20.5%
13.6%
6.9%
4.5%
11.4%
3.2%
3.7%
0.8%
0.0%
-0.3%
-0.5%
3.2%
0.9%
2.3%
0.0%
0.0%
0.4%
1.9%
100.0%
33.4%
7.5%
15.6%
9.7%
0.6%
86.9%
53.5%
13.1%
100.0%
50.7%
17.9%
22.0%
10.9%
40.3%
0.0%
8.9%
84.6%
100.0%
15.4%
2011E
127,179
101,120
26,059
17,148
8,911
5,127
14,038
3,450
4,132
1,041
(358)
(526)
4,935
1,382
3,554
679
2,875
2011E
127,881
46,981
13,550
20,137
12,640
654
113,065
66,085
14,816
79,669
38,923
14,887
16,092
7,944
33,441
7,305
40,795
48,212
7,416
%
100.0%
79.5%
20.5%
13.5%
7.0%
4.0%
11.0%
2.7%
3.2%
0.8%
0.0%
-0.3%
-0.4%
3.9%
1.1%
2.8%
0.0%
0.0%
0.5%
2.3%
100.0%
36.7%
10.6%
15.7%
9.9%
0.5%
88.4%
51.7%
11.6%
100.0%
48.9%
18.7%
20.2%
10.0%
42.0%
0.0%
9.2%
84.6%
100.0%
15.4%
2,875
4,769
2,306
(484)
4,235
(5,321)
495
8,380
8,406
13,550
Sources: Company reports and Santander estimates.
Important disclosures/certifications are in the “Important Disclosures” section of this report.
U.S. investors’ inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629/(212) 350-3918.
9
Impressive Results and Impressive Rally; Downgrading to Hold
IMPORTANT DISCLOSURES
Alfa – 12-Month Relative Performance (U.S. Dollars)
110
100
IPC
90
80
70
60
50
ALFA
40
30
J-09
J-09
M-09
A-09
M-09
F-09
J-09
D-08
N-08
O-08
S-08
A-08
J-08
20
Sources: Bloomberg and Santander.
Alfa – Three-Year Stock Performance (U.S. Dollars)
9.0
3,500
8.0
3,000
7.0
6.0
2,500
B $2.50
4/1/09
5.0
4.0
H $7.25
3/27/07
3.0
2.0
B $6.50
10/20/06
1.0
0.0
J-06
2,000
B $8.20
11/12/07
Analyst Recommendations
and Price Objectives
SB: Strong Buy
B: Buy
H: Hold
UP: Underperform
S: Sell
UR: Under Review
1,500
B $3.20
10/30/08
1,000
500
S-06 D-06 M-07
J-07
Alfa (L Axis)
S-07 D-07 M-08
J-08
S-08 D-08 M-09
J-09
IPC (R Axis)
Source: Santander.
10
Important disclosures/certifications are in the “Important Disclosures” section of this report.
U.S. investors’ inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629/ (212) 350-3918.
IMPORTANT DISCLOSURES
Key to Investment Codes
Definition
Expected to outperform the local market benchmark by more than 10%.
Expected to perform within a range of 0% to 10% above the local market
benchmark.
Underperform/Sell Expected to underperform the local market benchmark.
Under review
Rating
Buy
Hold
% of
Companies
Covered with This
Rating
44.15%
% of Companies Provided
Investment Banking
Services in the Past 12
Months
46.15%
38.83%
42.31%
15.96%
1.06%
11.54%
–
The numbers above reflect our Latin American universe as of Monday, July 6, 2009.
For a discussion, if applicable, of the valuation methods used to determine the price targets included in this report and the risks to achieving
these targets, please refer to the latest published research on these stocks. Research is available through your sales representative and other
electronic systems.
Target prices are 2009 year-end unless otherwise specified. Recommendations are based on a total return basis (expected share price
appreciation + prospective dividend yield) unless otherwise specified.
Stock price charts and rating histories for companies discussed in this report are also available by written request to Santander Investment
rd
th
Securities Inc., 45 East 53 Street, 17 Floor (Attn: Research Disclosures), New York, NY 10022 USA.
Ratings are established when the firm sets a target price and/or when maintaining or reiterating the rating. Ratings may not coincide with the above
methodology due to price volatility. Management reserves the right to maintain or to modify ratings on any specific stock and will disclose this in the
report when it occurs. Valuation methodologies vary from stock to stock, analyst to analyst, and country to country. Any investment in Latin American
equities is, by its nature, risky. A full discussion of valuation methodology and risks related to achieving the target price of the subject security is included
in the body of this report.
The benchmark used for local market performance is the country risk of each country plus the 1-year U.S. Treasury yield plus 6.5% of equity risk
premium, unless otherwise specified. The benchmark plus the 10.0% differential used to determine the rating is time adjusted to make it comparable
with the total return of the stock over the same period. For additional information about our rating methodology, please call (212) 350 3974.
This research report (“report”) has been prepared by Santander Investment Securities Inc. ("SIS"; SIS is a subsidiary of Santander Investment I, S.A.
which is wholly owned by Banco Santander, S.A. ["Santander"]) on behalf of itself and its affiliates (collectively, Grupo Santander) and is provided for
information purposes only. This report must not be considered as an offer to sell or a solicitation of an offer to buy any relevant securities (i.e., securities
mentioned herein or of the same issuer and/or options, warrants, or rights with respect to or interests in any such securities). Any decision by the
recipient to buy or to sell should be based on publicly available information on the related security and, where appropriate, should take into account the
content of the related prospectus filed with and available from the entity governing the related market and the company issuing the security. This report
is issued in Spain by Santander Investment Bolsa, Sociedad de Valores, S.A. (“Santander Investment Bolsa”) and in the United Kingdom by Banco
Santander, S.A., London Branch. Santander London is authorized by the Bank of Spain. This report is not being issued to private customers. SIS,
Santander London and Santander Investment Bolsa are members of Grupo Santander.
The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed, that
their recommendations reflect solely and exclusively their personal opinions, and that such opinions were prepared in an independent and autonomous
manner, including as regards the institution to which they are linked, and that they have not received and will not receive direct or indirect compensation
in exchange for expressing specific recommendations or views in this report, since their compensation and the compensation system applying to Grupo
Santander and any of its affiliates is not pegged to the pricing of any of the securities issued by the companies evaluated in the report, or to the income
arising from the businesses and financial transactions carried out by Grupo Santander and any of its affiliates: Luis Miranda*.
*Employed by a non-US affiliate of Santander Investment Securities Inc. and not registered/qualified as a research analyst under FINRA rules, and is not
an associated person of the member firm, and, therefore, may not be subject to the FINRA Rule 2711 and Incorporated NYSE Rule 472 restrictions on
communications with a subject company, public appearances, and trading securities held by a research analyst account.
Grupo Santander receives non-investment banking revenue from the subject company.
In the next three months, Grupo Santander expects to receive or intends to seek compensation for investment banking services from Alfa.
The information contained within this report has been compiled from sources believed to be reliable. Although all reasonable care has been taken to
ensure the information contained within these reports is not untrue or misleading, we make no representation that such information is accurate or
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From time to time, Grupo Santander and/or any of its officers or directors may have a long or short position in, or otherwise be directly or indirectly
interested in, the securities, options, rights or warrants of companies mentioned herein.
Any U.S. recipient of this report (other than a registered broker-dealer or a bank acting in a broker-dealer capacity) that would like to effect any
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foregoing, accepts responsibility (solely for purposes of and within the meaning of Rule 15a-6 under the U.S. Securities Exchange Act of 1934) for this
report and its dissemination in the United States.
© 2009 by Santander Investment Securities Inc. All Rights Reserved.
2009