Value Investors Club / Grupo Famsa SAB de CV (GFAMSAA MM)

Grupo Famsa SAB de CV GFAMSAA MM S

May 27, 2016 - 1:37am EST by

chatham123

			2016	2017
Price:	7.33	EPS	0	0
Shares Out. (in M):	570	P/E	0	0
Market Cap (in $M):	4,177	P/FCF	0	0
Net Debt (in $M):	0	EBIT	0	0
TEV (in $M):	0	TEV/EBIT	0	0
Borrow Cost:	Available 0-15% cost

Description

Short Grupo Famsa debt (7 ¼ due 2020) and equity. Grupo Famsa (GFAMSAA MM) is a Mexican department store / consumer lender trading at 15.9x ev / consensus ’16 ebitda. Today the company announced a restatement of their 2015 EBITDA and loan reserves, triggering a 25% drop in the share price. Risk to the short is a controlling shareholder who owns 64% of the stock. The pitch here is fairly simple – I’ll list the bullet points I think most relevant.

- The Company trades at 15.9x EV/ ’16 consensus EBITDA

- The Company is unable to earn its cost of capital

- Multiple expansion over the past 5 years is unwarranted (see historical ev/consensus ebitda below)

- Famsa has grown sales via debt expansion, despite having a ROIC far below their cost of debt

- weighted average cost of debt is 8.46%

- 82% of the company’s retail sales are self-funded through its credit sales program.

- 79% of the loan book is consumer loans, which they grew 27.7% yoy in 1Q16

- Rolling the 2016 debt could prove difficult, and further weigh on the company’s cost of capital

- Grupo Famsa’s exposure is to low income, low credit quality borrowers

“Our target market in Mexico is primarily the middle and low-middle income segments of

the population. We consider these segments to comprise the adult working population

that earns a household monthly income of between $264 - $3,409.”

- Negative FCF for 9 of the past 10 years

- Working capital days deteriorating

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.

Catalyst

see above

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