FEMSA (FMX) REPORT by Gabelli Analyst Damian Witkowski (1-29-2018)

FEMSA (FMX) REPORT by Gabelli Analyst Damian Witkowski (1-29-2018)

For the full report click here:
http://www.gabelli.com/Gab_pdf/Research/Reports/FMX_20171204.pdf

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Transcript:
I'm recommending femsa as my best idea of 2018.

FEMSA is a diversified holding company based in Mexico.

The company operates convenience stores and drugstores throughout Mexico, Colombia and Chile, and owns interests in two publically traded companies: a 47% stake in Coca-Cola FEMSA and a 15% economic stake in Heineken.

There are about 358 million American Depository Shares outstanding trading for around $95 for a market cap of $33 billion.

FEMSA opened its first convenience store called Oxxo in Mexico 40 years ago and the concept has flourished to over 16 thousand stores today. All organic growth.

Over the next five years we expect square footage to grow around 7% per year, and Oxxo segment EBITDA to double.

In 2013, FEMSA set out to consolidate the drugstore industry across Latin America, and best utilize its small-box retail format expertise.

Drugstore EBITDA margins are typically half of those at Oxxo, but we believe FEMSA, can meaningfully close that gap over time.

The final value driver is fuel; it is small now, but with recent fuel retailing deregulation in Mexico, FEMSA is well positioned to participate.

At $95 per share, and assuming KOF and Heineken shares appreciate in-line with their projected EPS growth, you are paying around 7.5x our projected 2019P EBITDA.

We find that valuation attractive, but would note that currency fluctuations can make results volatile.



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