Latam Consumer Monthly:Choppy waters continue (June 2017)
Sector performance in May was again mixed.
Just 36% of our covered stocks showed positive returns in May (while 43%outperformed their respective indices). Bottler KOF.N and parent FMX.N led theway (KOF rose 10%), but protein producers BRFS and BEEF3 also rallied (by7% and 6%, respectively). Notable decliners included Brazilian retailers LAME4,LREN3 and BTOW3 (down 15%, 13% and 8% respectively), but the steepestsell-offs belonged to JBSS3 (down 23%, versus a 6% decline in the IBOVESPAindex) and MRFG3 (down 15%). Year to date, Latam Food stocks are trailingtheir respective country indices by 17% on average, while the Beverage, Retailand HPC sectors are still outperforming (by 4%, 3% and 14% respectively).
Market uncertainty still high, especially in Brazil.
While expectations of economic recovery have improved in Chile (along withthe re-election hopes of ex-president Pi?era), the political uncertainty in Brazilcontinues to cast a shadow over the prospects of a recovery, with economistsnow talking about the potential for a “double dip” and increased vulnerabilityto external shocks. In Mexico, despite the PRI’s victory in the State of Mexicoelections (thus lowering the risk of an AMLO election in 2018), the focus hasgone back to the potential for high inflation (and thus a longer tightening cycle)to cause deterioration in GDP growth in 2H17 despite its unexpected level ofresilience year to date. And while fears of draconian changes in US-Mexicotrade have continued to recede as evidenced by an even stronger MXN and therecent relatively amicable resolution to the sugar trade dispute, we still believethat investors should “keep their guard up” considering the continued rally inMexican consumer equities.
Monthly Feature: notes from our Paris Global Consumer Conference.
Last week, Deutsche Bank held its 14th annual Global Consumer Conference inParis, with almost 100 (including 12 Latin American) companies and nearly 700investors in attendance. Among the themes discussed in presentations andone-on-one meetings were 1) the pace of economic recovery in the variousmarkets, 2) M&A opportunities (especially in the Coke bottling space) and 3)the impact of hedging policies on recent and future profitability.
Brazil protein exports followed recent trends, and remain on the mend.
On the back of the Carne Fraca scandal that broke in late March, May SECEXdata showed a pork export volume decline of 24.4% on still-difficult (+36%)year-on-year comparisons, while beef volumes fell by 10.5% (less than in April,and with much more difficult comparisons: +19% in May 2016). But pork andbeef pricing remained strong, rising (yoy) for the eighth time in 29 months, andat sustained rates (31.0% and 7.4%, respectively). Poultry volumes fell 9.8% onslightly easier (+21%) comps, but again with rising prices (up 10.4% yoy, theninth consecutive increase in 29 months). Despite the still-negative volumetrends, all producers appear to be back to normal operation, with no lastingdamage to their export business from the Federal Police probe.