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Signum Research

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Joaquín Sánchez

Joaquin Sanchez, CFA

Signum Perspectives


Total sales were up +24.7% in the fourth quarter of 2019 compared to the same year-earlier period.

Same-store sales rose +3.9% driven by an increase of +2.3% in same-store sales in Mexico, +1.7% growth in Europe, and +11.6% growth in South America.

The Ebitda margin rose +660 basis points due to the new IFRS16 accounting standard. Nevertheless, the margin rose +30 basis points in comparable terms, from 15.4% to 15.7%.

Total sales in Mexico grew +5% in the fourth quarter of the year, partially driven by same-store sales and partially by 63 corporate openings and 52 sub-franchises over the previous 12 months. During the same period, 195 Burger King outlets were closed in line with the company’s strategy of retaining only the most profitable ones.

Burger King, Starbucks, and Vips continue remain the best performers in Mexico and a pilot test has been initiated with Domino´s Pizza by introducing home delivery based on food aggregators in order with a view to boosting traffic.

The EBITDA margin rose 270 basis points, from 23% to 25.7%. While part of this increase can be attributed to the new IFRS16 accounting standard, much headway has been made in terms of expense savings as a result of COA (distribution center) efficiencies derived from better cost control and inventory turnover.

Total sales in Europe were up 112% in the fourth quarter, as they included new outlets acquired at the beginning of 2019.

The European operation has become more efficient. During the quarter 3.5 mn euros in synergies were achieved, although they continued to be offset by severance payments amounting to 4 mn euros in the same period. There will be no severance-related costs in 2020, so EBITDA should continue to reflect ongoing benefits from synergies

The EBITDA margin rose +180 basis points from 20.5% to 22.3%.

In South America, total sales dropped -15% y/y, due mainly to forex movements and the social and political situation in Chile and Argentina. Colombia’s performance was good.

The EBITDA margin decreased 1- basis points to 13.8%.

While Alsea’s debt had been a source of concern for the market, the company went beyond its initial guidance by lowering debt, such that at the end of 2019 its net debt to EBITDA ratio was 2.9x. This ratio is already below covenants included in other debt agreements.

A pending issue is the Revenue Administration Service (SAT)’s PS$3.881 bn suit lodged in relation to an alleged profit from the VIPS acquisition.

The company said that its external auditors reviewed the transaction and issued a tax report confirming Alsea’s compliance with its tax obligations.

Furthermore, with respect to sale agreements entered into with a company or group of companies, the buyer (Alsea in the case of the VIPS acquisition) is not under any obligation to pay related income tax.

External lawyers and advisors believe Alsea has enough elements to demonstrate that the SAT’s claim is inadmissible and therefore no provision has been made.

Final Remarks

In our view, Alsea delivered a positive report showing sales growth even in organic terms along with a much higher EBITDA margin.

We believe the share price is being moved by market perceptions, one being the company’s high level of debt, which has come down faster than expected.

While the SAT’s suit is definitely a source of concern, it could become drawn-out and Alsea’s lawyers are confident that the company is not liable for payment. Given the share price correction, we maintain our BUY rating with an end-2020 target price of PS$60 per share.

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