investment recommendation: overweight per 15.19 … · nutritional products for animals nicovita...

Investment Recommendation:

Share's Fair Value:

Business Units

i) Mass consumption goods - (63% of its income)

ii) Industrial products - (30% of its income)EQUITY RESEARCH DIVISION

Alberto [email protected] iii) Nutritional products for animals - (7% of its income)Phone: 511 627-5225

S/. 6.72

It includes prepared food for shrimps and fish.

Most notable products are industrial flour, cooking oil, Omega 3, and non-dairy butter.

It includes several mass consumption goods, most notable: margarines, mayonnaises, cookies,

pastas, juices, pet foods, soaps, detergents, shampoos, among others.

The company’s market capitalization is S/. 4,871 million and 2011’s estimated EBITDA is S/. 634.9

million. Between 2006 and 2010, the company’s income increased 100% due to organic growth and

several acquisitions that took place in Peru (Molinera Inca, Asa Alimentos) and in foreign countries

(Helados Eskimo in Ecuador, The Value Brands and Italo Manera in Argentina, Propersa in Colombia,

among others).

Alicorp is the leading Peruvian company in the production and commercialization of mass

consumption goods, and Andean Community’s second largest company in this industry. 75% of its

income is generated in Peru, while the remaining 25% comes from Argentina, Colombia, Ecuador,

Guatemala and Honduras, among other countries.

Kallpa Securities Sociedad Agente de Bolsa (Kallpa SAB) initiates coverage in Alicorp S.A.’s (Alicorp)

recommending to overweight the company’s common shares within the portfolio. Our fair value,

obtained using the DCF methodology, is S/. 6.72 per common share. This fair value is 17.9% higher

than its market price of S/. 5.7.

Alicorp’s main shareholders are Grupo Romero with a 46% stake and the Pension Funds

administrated by Administradoras de Fondos de Pensiones – AFPs (Pension Funds Administrators)

with a 33% stake. The remaining 21% is hold by several institutional and retail investors. The

company is highly recognized for its corporate government policies and its shares are often

compared as a proxy regarding domestic demand’s growth.

Overweight

Alicorp produces and commercializes three kinds of products: i) mass consumption goods, ii)

industrial products and iii) nutritional products for animals. This allows the company to have a

diversification on its business structure as shown in the following chart.

46%

33%

13%8%

Shareholders' structure

Grupo Romero

AFP's

Otros

Institucionales

Source: Alicorp

Others

2 brands directed tothe Fish and Seafood

Industry.

14 brands directed to the Food Industry.

106 brands in 16 different categories.

Mass Consumption Goods NutritionalProducts for

IndustrialProducts

PeruAndean Region & Central America

Mercosur Region

63%

30%

7%

Income by Product 2011

Consumer goods

Industrial products

Animal Nutritional Products

Source: Alicorp

ALICORP PEN

Equity's Fair Value (million) 5,738.51

Share's Fair Value 6.72

Market Capitalization (million) 4,871.11

Market Price (21.12.11) 5.70

Potencial Appraisal 17.9%

Exchange BVL

Range 52 weeks 4.95 / 6.80

Shares outstanding (million) 847.19

Financial Indicators 2011e 2012e 2013e

PER 15.19 17.50 16.20

Price/Book Value 2.67 2.46 2.25

Price/EBITDA 7.67 7.52 6.90

Gross Margin 32.00 31.00 30.50

Operating Margin 13.30 11.90 11.50

Net Margin 8% 6% 5.7%

ROE 18.2% 14.6% 14.5%

ROA 10.6% 8.1% 7.4%

EPS 0.38 0.33 0.35

Net Income (S/. million) 320.75 278.55 300.25

mailto:[email protected]

Peruvian Market: Great Competitive Advantages

1).

2).

Exclusive 3).Distributors

Storage Centers

Sales Offices

Industrial Factories

4).

5).

Main Products - Peruvian Market 2011

Mayonnaise Alacena

Soap Bolívar, Marsella, Jumbo, Trome

Detergent Bolívar, Opal, Marsella

Pasta Don Vittorio, Lavaggi, Nicolini, Alianza

Cooking Oil Primor, Primor Light, Capri, Cocinero, Cil

Margarine Sello de Oro, Manty

Flour Nicolini, Blanca Nieve, Inca

Cookies Casino, Tentación, Glacitas, Chomp

Powder Juice Yaps, Negrita, Kiribá, Kanú

Pet Food Mimaskot, NutriCan

Shampoo Anua, Plusbelle

Nutritional products for animals Nicovita

Growth through Mergers, Integrations and Acquisitions

Initial Coverage Alicorp (ALICORC1)

Alicorp is the Peruvian leading company in almost all of its products. In mayonnaises

(Alacena) it has a 95% market share, in laundry soaps (Bolivar, Marsella and Jumbo) 81%, in

detergents (Bolivar, Marsella, Opal) 49%, in margarines (Manty, Sello de Oro) 60%, and in

juices (Yaps, Negrita, Kanu) 55%. The company has several competitors, most notable

Unilever, Nestle, P&G, Kraft, Cogorno, among others.

A solid financial position, an aggressive acquisitions strategy, and Grupo Romero’s support,

the biggest Peruvian business group.

60%

49%

#1

#1

#1

95%

#1

81%

Alicorp has an unique distribution structure within the country. Alicorp has 27 exclusive

distributors (independent companies), 12 storage centers, 25 sales offices and 9 industrial

factories. The distribution structure constitutes barriers to entry for competence and allows

developing the sale of new products with no additional costs. In addition, the distributors are

constantly trained by the company and awarded on the basis of obtained results.

A skilled Management Team with years of experience in operations, marketing,

commercialization, and cost administration, that manages to increase income sustainably

and maintains the company’s operative margins.

Distribution Structure - Peru

Category Brands

45%

54%

#12

53%

32%

Alicorp’s brands have a high brand awareness and recall among the Peruvian people. There

is a close link between the products, brands and Alicorp.

As shown in the

table, Alicorp is the

leading company in

the Peruvian

Market.56%

38%

2%

70%

#1

#1

#1

#1

#1

#1

% Market Share Rank

#1

1995 1996 1997 2004 20102005 2006 2007 2008

CIPPSA

La Fabril

Consorcio Distribuidor

Molinera del Perú

Consorcio de Alimentos Fabril

Pacífico

2011

DetergentFactory

IndustriasPacocha

TVB

Propersa

AcquisitionsAcquisition Merger Alicorp S.A.A.

Consolidation in Peruvian Markets International Expansion

Source: Alicorp

Source: Alicorp

Source: Alicorp

ALICORP PEN




Market Price (21.12.11) 5.70


Exchange BVL

Range 52 weeks 4.95 / 6.80



PER 15.19 17.50 16.20



Gross Margin 32.00 31.00 30.50



ROE 18.2% 14.6% 14.5%

ROA 10.6% 8.1% 7.4%

EPS 0.38 0.33 0.35


www.kallpasab.com 2


ALICORP PEN




Market Price (21.12.11) 5.70


Exchange BVL

Range 52 weeks 4.95 / 6.80



PER 15.19 17.50 16.20



Gross Margin 32.00 31.00 30.50



ROE 18.2% 14.6% 14.5%

ROA 10.6% 8.1% 7.4%

EPS 0.38 0.33 0.35


International Markets: Catalyst for the next years

International Presence

Shampoo Plusbelle

Soap Limol, Plusbelle

Detergent Limzul, Zorro

Cookies Okebon

Pudding & Desserts Eurocake

Pasta Nutregal

Juice Dink-C

Pet Food Mimaskot

Mayonnaise Alacena

Pasta Don Vittorio

Shampoo Anua

Juice Kanú

Shampoo - Kids Anua, Baby Soft

Cookies Glacitas

Pet Food Mimaskot

Alicorp's Valuation and Estimations

Income and EBITDA

Home and personal care Other categories Food

900

2008

1,253

In 2011, 25% of Alicorp’s income were related to sales originated outside Peru. From this total of

foreign sales, 38% came from Argentina, 17% from Ecuador and 13% from Colombia (in these 3

countries Alicorp has own operations). It should be noted that Alicorp exports products to countries

in North America and Central America.

8%

#6

#7

#6

2%

2%

11%

5%

23%

14%

Ecuador #2

#2

#3

#4

#4

Total Income

(US$ million)

2006

646

2007

4%

2010

1,330

2009

1,233

11%

BrandsCategoryCountry

Argentina

We expect that between 2012 and 2016 Alicorp will invest approximately US$ 500 million in

acquisitions and that foreign income will represent 40% of total income (25% nowadays).

Colombia

% Market Share Rank

#230%

17%

9%

2%

12%

#2

#3

#9

During 2011-2016, we have assumed an annual average sales growth of 12.5% per year. We

estimate – in accordance with a guide presented by Management – that in the next five years

Alicorp will invest US$ 500 million in acquisitions outside Peru, therefore most of its income’ growth

will be originated by the purchase of assets. As for the sales growth in Peru, we assume that sales

will grow at GDP’s growth rate (we assume that Peru will grow 5% per year in the analysis period

and that there won’t be additional acquisitions in the industry. Given this, we estimate that the

company’s total income in 2015 would reach US$ 2,500 million, approximately in line with

Management’s estimations.

We assume that Alicorp’s EBITDA margin during 2012 – 2016 will be 13.6% in average, higher than

the 13.3% obtained during 2006 – 2011. Greater costs that may denote the increase in the price of

commodities, used as raw materials in some of the company’s mass consumption goods like soy

bean and wheat, will be offset by the increase in productivity and with the proper administration of

coverage policies using financial derivatives. It should be noted that 90% of Alicorp’s costs

correspond to raw materials (variable costs), 5% correspond to overhead expenses and 5% to other

expenses.

We believe that most of the company’s growth during the next 5 years will come from acquisitions

that Alicorp will undertake outside Peru. Management seems to be convinced that company’s

growth during the next five years will come from acquisitions and we believe that it will intend to do

it outside the country, in order to diversify its risk and to look for new market opportunities.

We believe that acquisitions would take place in Argentina (Alicorp already has 3 industrial factories

and nationwide distribution), where it is already the second, third and/or fourth company in several

of its products and most of its competitors are similar to those in Peru (although we do not discard

acquisitions in greater markets like Mexico and Brazil). We assume that 100% of these purchases will

be financed with debt.

Kallpa SAB has valued Alicorp using a model of discounted free cash flows to the firm during 2011 –

2016. In addition, we have applied a 4% constant growth rate to the free cash flows to the firm after

2017. These cash flows have been discounted using a weighted average cost capital (WACC) of 9.2%.

5%

83% 83% 82%

68% 69%

7% 9% 9%

11% 11%

10% 8% 9%21% 20%

2006 2007 2008 2009 2010

Home and personal care Other Categories Food

Product DiversificationTotal Income (%)

Source: Alicorp

Source: Alicorp

38%

17% 13%

11%

10%

6%

3%2%

Foreign Income - 2011

Argentina

Ecuador

Colombia

Canada

Others

USA

Honduras

Haiti

Source: Alicorp

83% 83% 82%68% 69%

7% 9% 9%

11% 11%

10% 8% 9%21% 20%

2006 2007 2008 2009 2010

Food Other Categories Home and personal care

Source: Alicorp

ALICORP PEN




Market Price (21.12.11) 5.70


Exchange BVL

Range 52 weeks 4.95 / 6.80



PER 15.19 17.50 16.20



Gross Margin 32.00 31.00 30.50



ROE 18.2% 14.6% 14.5%

ROA 10.6% 8.1% 7.4%

EPS 0.38 0.33 0.35


www.kallpasab.com 3


ALICORP PEN




Market Price (21.12.11) 5.70


Exchange BVL

Range 52 weeks 4.95 / 6.80



PER 15.19 17.50 16.20



Gross Margin 32.00 31.00 30.50



ROE 18.2% 14.6% 14.5%

ROA 10.6% 8.1% 7.4%

EPS 0.38 0.33 0.35


Net Profit

Acquisitions: CAPEX and Financing

Discount Rate and Perpetuity

Valuation and Sensitivity Analysis

Comparative Charts

US PEERS

Company

Nutresa Procter & Gamble

Grupo Bimbo Kraft

Gruma Colgate-Palmolive

Hypermarcas General Mills

M Dias Branco Kellog's

Average HJ Heinz

Ralcorp Holdings

Flowers Foods

Average

The average ROE between 2012 and 2016 is 14.8%, greater than the 13.6% obtained between 2007

and 2011.

8.3X

9.3X

10.05X

10.6X

10.0X

11.2X

9.8X

As previously mentioned, we expect a US$ 730 million CAPEX in the next four years, of which US$

500 million will correspond to acquisitions. The CAPEX ex acquisitions/incomes is assumed

approximately in 2.5%, similar to what was observed during 2008 – 2011. We assume that the US$

500 million will be financed with debt, which will increase the Debt/EBITDA ratio from 1.03 (last

three years’ average) to 1.84 in 2016. In these levels, the Debt/Equity ratio is still manageable in

70%. Therefore, assuming that the US$ 500 million financing will be carried out uniformly between

2012 and 2015, we estimate that this financing will represent approximately US$ 8 million per year

in financial expenses (we estimate that 2011’s financial expenses will reach approximately US$ 14

million).

Kallpa SAB uses a discount rate (WACC) of 9.2% in local currency and a long – term free cash flows to

the firm’ growth of 4% per year.

Company Market Cap/EBITDA 2011e

10.5X

10.7X

In our opinion, Alicorp’s fair value is S/. 5,783.5 million. 99% of its shares are common shares and the remaining 1% are acciones de inversion. Therefore, the fundamental

value per common share is S/. 6.72. Performing a sensitivity analysis, we must highlight that if Peruvian economy growth increases to 7% per year during 2012 – 2016 rather

than our 5% assumption, the share’s fundamental value will increase to S/. 7.27. If we decrease the expected growth rate from 5% to 3% during the same period of time,

Alicorp’s fair value decreases to S/. 6.16.

Given our estimated fair value of S/. 6.72 per share, Fair Value/EBITDA ratio will be 7.7x, similar to comparable Latin-American companies’ average that is 9.4x and lesser than

US peers’average of 10.1x.

Emerging Markets

Market Cap/EBITDA 2011e

12.2X

5.3X

11.0X

9.5X

We expect that the company’s net profit will grow 5.2% per year in average, much lower than the

12% observed during 2006 – 2011. This is due to a lower growth in income that were 15.7% per year

during 2006 – 2011, versus our estimations of 12.5% per year for 2012 – 2016. This is explained by a

lower growth in the Peruvian economy estimated in 5% for the next five years versus 6.7% during

2006 – 2011, and by a strong increase in financial expenses caused by greater assumed debt during

the next five years in order to finance the purchases and acquisitions previously mentioned.

8.9X

9.38X

Source: Bloomberg

Source: Bloomberg

959

601563

641

2.68

1.090.91 1.03

2008 2009 2010 Last 12 M

Debt Debt/EBITDA

Debt & Debt/EBITDA(S/. million)

Source: Alicorp

98

8593

89

2008 2009 2010 Last 12 M

CAPEX CAPEX as a % of Income

CAPEX(In S/. million as a % of Total Income)

ALICORP PEN




Market Price (21.12.11) 5.70


Exchange BVL

Range 52 weeks 4.95 / 6.80



PER 15.19 17.50 16.20



Gross Margin 32.00 31.00 30.50



ROE 18.2% 14.6% 14.5%

ROA 10.6% 8.1% 7.4%

EPS 0.38 0.33 0.35


www.kallpasab.com 4


ALICORP PEN




Market Price (21.12.11) 5.70


Exchange BVL

Range 52 weeks 4.95 / 6.80



PER 15.19 17.50 16.20



Gross Margin 32.00 31.00 30.50



ROE 18.2% 14.6% 14.5%

ROA 10.6% 8.1% 7.4%

EPS 0.38 0.33 0.35


Conclusions

1.)

2.)

3.)

4.)

5.)

Profit & Loss Statement (S/. thousand)

Net Sales

Cost of Sales (excl D&A)

Administration Expenses (excl D&A)

Sales Expenses

EBITDA

Margin

Depreciation and Amortization

EBIT

Financial Income, Dividends and others

Financial Expenses

Profit before Taxes

Profit Sharing (Employees)

Income Tax

Net Profit

Cash Flow Statement (S/. thousand.)

Net Profit

Adjustment for differences in tax expenses and taxes paid

Depreciation and Amortization

Changes in Current Assets

Changes in Current Liabilities and in other Liabilities

Cash Flows from Operations

Capex (1)

Net Increase in Debt

Dividends

Net Increase/decrease in Cash and Cash Equivalents

(1) CAPEX includes US$ 500 million, as previously mentioned, for acquisition investments (see Acquisitions: CAPEX and Financing)

Balance Sheet

Total Current Assets

Total Non - Current Assets

Total Assets

Total Current Liabilities

Total Non - Current Liabilities

Total Liabilities

Total Equity

Definition of Valuation Ranges

Alicorp - Financial Statements

1,825,040 1,980,013 2,160,162 2,353,617 2,578,239 2,785,573

Kallpa Securities SAB has 5 valuation ranges: Overweight +, Overweight, Neutral, Underweight and Underweight - . The analyst will assign the coverage

one of these ranges.

The range assigned to each company covered by the analyst is based on the analysis/monitoring that Kallpa Security SAB has been developing for the

company. In some cases, the analyst can express his/her short-term point of view to traders, vendors and some Kallpa Securities SAB’s clients

nevertheless this point of view may differ in time by market volatility and other factors.

1,318,896 1,751,147 2,225,230 2,699,695 3,237,759 3,236,348

587,636 634,360

731,260 1,116,787 1,505,475

2,367,439

-145,279 -123,576

The fair value estimated by Kallpa SAB is based in one or more valuation methodologies commonly used by financial analysts, including but not limited to

discounted cash flows, In situ valuations or any other applicable methodology. It should be noted that the publication of a fair value does not imply any

guarantee that the value will be achieved.

Neutral -15% to 0% NeutralUnderweight -16% to -30% Overweight

3,731,161 4,385,392 5,053,312 5,815,998 6,021,921

719,755 802,681 942,355 1,037,450

Underweight - < - 31% Overweight +

90,716 88,588 110,288 85,530 -23,163

-137,710 -469,861 -485,516 -501,416 -527,284 -194,586

78,543 350,000 350,000 350,000 350,000 -150,000

-120,099 -128,970 -149,748 -207,333

163,794

46,059 46,480 83,059 83,059 139,987 95,338

368,240 334,153 344,203 390,674 412,562 528,756

70,845 96,352 107,591 129,253 151,849 167,318

-69,414 -122,999 -185,469 -185,469 -301,721 -201,818

320,750 278,549 300,247 322,425 374,371 414,667

- 35,771 38,557 41,406 48,076 53,251

2011 2012 2013 2014 2015 2016

542,420 498,921 537,786 577,509 670,552 742,727

320,750 278,549 300,247 322,425 374,371 414,667

-63,188 -58,121 -62,648 -67,275 -78,114 -86,522

-176,397 -162,251 -174,890 -187,808 -218,066 -241,538

13,029 9,116 10,931 12,702 14,908 16,619

-37,918 -61,210 -74,335 -100,585 -126,835 -134,335

70,845 96,352 107,591 129,253 151,849 167,318

564,094 551,015 601,190 665,392 782,479 860,443

634,940 647,368 708,781 794,645 934,329 1,027,761

15.0% 14.0% 13.5% 13.5% 13.5% 13.5%

-169,317 -184,962 -210,009 -235,450 -276,838 -304,522

-550,281 -601,127 -682,530 -765,213 -899,723 -989,696

-3,190,598 -3,648,909 -4,090,948

201620152014201320122011

-4,810,060 -5,291,066

4,232,932 4,624,055 5,250,229 5,886,256 6,920,950 7,613,045

-2,878,394

2011 2012 2013 2014 2015 2016

1,527,930 1,741,646 2,017,953 2,313,709 2,700,961 2,879,615

1,616,005 1,989,515

1,897,014 2,295,404 2,198,898

2,739,603 3,115,037 3,142,306

3,143,935

Alicorp’s net profit growth will depend on: i) GDP and domestic demand’s growth, ii) the success of the acquisitions outside Peru and, iii) the increase on its

margins and EBITDA.

Alicorp has a skilled Management Team, it has a strong experience on its markets and Grupo Romero’s support, one of Peru’s most successful business groups in

Peru.

Holding Alicorp´s shares allows access to the benefits/costs that represent the adoption of Peruvian domestic demand’s risk, being Alicorp the leading company

in the mass consumption goods’ industry. 75% of the company’s incomes come from the sales of these products in Peru.

We recommend to hold Alicorp’s common shares since its fundamental value of S/. 6.72 is 17.9% higher that its market value of S/. 5.70.

The company’s great potential relies in the management of its acquisition policies, and that these acquisitions generate value for the shareholders.

Overpayment risks are always present in these cases.

+16% to +30% +15% to 0%

> + 31%

ALICORP PEN




Market Price (21.12.11) 5.70


Exchange BVL

Range 52 weeks 4.95 / 6.80



PER 15.19 17.50 16.20



Gross Margin 32.00 31.00 30.50



ROE 18.2% 14.6% 14.5%

ROA 10.6% 8.1% 7.4%

EPS 0.38 0.33 0.35


www.kallpasab.com 5


ALICORP PEN




Market Price (21.12.11) 5.70


Exchange BVL

Range 52 weeks 4.95 / 6.80



PER 15.19 17.50 16.20



Gross Margin 32.00 31.00 30.50



ROE 18.2% 14.6% 14.5%

ROA 10.6% 8.1% 7.4%

EPS 0.38 0.33 0.35


KALLPA SECURITIES SOCIEDAD AGENTE DE BOLSA

Management Position Phone EmailAlberto Arispe General Manager (511) 627 5225 [email protected]

Trading

Enrique Hernández Head Trader (511) 627 5221 [email protected]

Eduardo Fernandini Trader (511) 627 5223 [email protected]

Javier Frisancho Trader (511) 627 5222 [email protected]

Hernando Pastor Representative (511) 627 5224 [email protected]

Jose Antonio Avendaño Representative (511) 652 6452 [email protected]

Daniel Berger Representative (511) 652 6453 [email protected]

Corporate Finance

Ricardo Carrión Manager (511) 627 5226 [email protected]

Equity Research

María Belén Vega Senior Analyst (511) 627 5226 [email protected]

Dalmi Rivera Analyst (511) 627 5226 [email protected]

Ricardo Barrera Assistant (511) 627 5226 [email protected]

Operations

Elizabeth Cueva Manager (511) 627 5227 [email protected]

Alex Rodriguez Analyst - Securities (511) 627 5227 [email protected]

Alan Noa Analyst - Treasury (511) 627 5227 [email protected]

This document is for informative purposes only. Under no circumstances it should be used/be considered as an offering of sale or an application of purchase of shares

or other securities mentioned in this document. The information herein has been obtained from sources which are believed to be reliable, but KALLPA SAB does not

guarantee the trustfulness or accuracy of the content of this report, or the future market values of shares or other securities mentioned in this document. The views and

opinions expressed in this document constitute our opinion at the time of this report and are subject to change without notice. KALLPA SAB does not guarantee analysis

updates before any change in the circumstances of the market. This document accurately reflects the Investment Analyst’s points of view and no part of his/her salary

compensation was, is or will be related directly or indirectly to the recommendations and opinions expressed in this document. The products referred in this document

may not be available for purchase in some countries. KALLPA SAB may have positions and perform investment banking with securities mentioned in this document.

ALICORP PEN




Market Price (21.12.11) 5.70


Exchange BVL

Range 52 weeks 4.95 / 6.80



PER 15.19 17.50 16.20



Gross Margin 32.00 31.00 30.50



ROE 18.2% 14.6% 14.5%

ROA 10.6% 8.1% 7.4%

EPS 0.38 0.33 0.35


www.kallpasab.com 6














investment recommendation: overweight per 15.19 … · nutritional products for animals nicovita...

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