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Mexico: Retail: Walmex still the best place
to shop; downgrade Soriana to Sell
Macro outlook remains extremely difficult
Meetings with 15 Mexican companies from the consumer/retail sector in February support
our view that Mexican consumers are experiencing their toughest buying decisions of
recent years. For most companies “flat” will be as good as it gets in 2009. Consumer
confidence continues to deteriorate and reached a new record low at 78.9 points in
February, down from 81.9 this January and from 101.0 in February 2008. Further
contributing to an already depressed consumer sentiment scenario is the deterioration in
labor market indicators and credit conditions, which remain tight with an important
deceleration in consumer credit flows.
Buy Walmex on superior returns and attractive valuation
Walmex is probably one of the few companies that we estimate can achieve positive
growth in sales, EBITDA and earnings in 2009, thanks to: (1) its ability to quickly react to
customer needs, (2) its size, which allows it to enjoy strong bargaining power with
suppliers, and (3) its balance sheet which enables it to grow at an accelerated pace, when
most companies are either not growing or shrinking. We lower our 6-month target price
by 7% to P$40.10 for 20% potential upside from current levels.
Moving Soriana to Sell: priced for returns that it is yet to deliver
Soriana valuation rerated to new levels, following the Gigante acquisition in December
2007. However, it is yet to create value from this move and the expected margin recovery
could be delayed, in our view, even further out as macro conditions deteriorated and
competition with Walmex remains stiff. We cut our 6-month TP by 28% to P$21.00, for
no upside from current levels. We rate Soriana Sell relative to our coverage group, as we
expect its shares to underperform over the next 6-months on margin and execution
pressures.
Moving methodology to target EV/EBITDA away from DCF
Similar to our approach used in February for Brazilian retailers, and due to ongoing
market volatility, we change our target price methodology from DCF to target
EV/EBITDA multiples for Mexican retailers.
The Goldman Sachs Group Inc. does and seeks to do business with companies covered in
its research reports. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment
decision.
March 13, 2009 Analyst Comment
2 Goldman Sachs Global Investment Research