Industrias Bachoco SA de CV (IBA, Financial) is a Mexico-based meat packer that focuses on chicken, eggs and pork. The company, which is more commonly known as Bachoco, has done well with inflation in meat and has a ton of cash on its balance sheet, but the stock has not done much. Tweedy Browne (Trades, Portfolio) is a major shareholder.
The stock trades for $41, there are 50 million shares outstanding and the market cap is a little over $2 billion. The stock trades at a price-earnings ratio of 8 and a dividend yield of a little over 2%. The stock is dirt cheap based on the price-earnings metric.
Sales grew from $2 billion in 2011 to almost $4 billion over the trailing 12 months. That’s nice growth.
The balance sheet is ridiculously strong. The company has $1 billion in cash and $236 million in receivables to a paltry $90.7 million in debt. Free cash flow is $275 million, so the free cash flow yield would be 13.75%. The tangible book value is $45.61.
I found Bachoco by reading Tweedy Browne (Trades, Portfolio)’s third-quarter commentary. According to the mutual fund manager, the company is the number one chicken producer and number two egg producer with a 35% and 5% share. The company has also been able to expand its tangible book value, including dividends, at 11% to 12% a year.
The Bours Robinson family owns 73.25% of Bachoco's shares. The company was founded in 1952 and went public in 1997. Many family members sit on the board.
Over the past nine months, sales increased 19.8% and Ebitda margins expanded 10.7% versus 6.4%. However, grain prices have jumped in 2021 and are about 50% higher. The third quarter has been a little tougher with chicken prices down 4%, too. Gas, labor and many other inputs have also increased.
During the quarterly conference call, Jay Hill of Tweedy Browne (Trades, Portfolio) asked why the board of directors had not installed a large share buyback program with the hoard of cash to help goose the stock price. Chief Financial Officer Daniel Salazar Ferrer replied Bachoco would rather sit and wait for merger and acquisiton deals. It is interesting to see the difference between the questions a shareholder asks versus an analyst. A shareholder has skin in the game and becomes frustrated when the stock doesn’t move.
The company has also been directly impacted by the pandemic as 234 employees at its plant in Ft. Smith, Arkansas were infected with Covid-19. As a result, Bachoco's O.K. Foods division was temporarily banned from exporting to China.
The Mexican stock market started the year off at 46,700 and is now at around 50,700. The Mexican peso has been pretty flat at about 20 pesos to one dollar. Bachoco’s stock fell to $34 in the spring of last year during the depths of the pandemic, then rose to $46 this spring, but has been headed downward and is trading around $41.
Bachoco has a lot going for it. It seems inflation is driving food prices. Though Bachoco has inflation affected inputs like grain and labor, perhaps meat prices will outpace. Management isn’t going to do anything with the cash hoard right now, which is a mixed blessing. It does not appear they will institute a share buyback—maybe a larger dividend.
