Walmart de Mexico (WMMVF, Financial) has been putting up phenomenal growth numbers for years. The company has no debt, and the stock trades at a reasonable level. The only question is if fallout from bribery charges will affect growth.
There are 17.46 billion shares, and the market cap is 750 billion pesos ($37.9 billion). It takes 37.9 pesos to buy one dollar. The dividend is 1.62 pesos, and the stock yields 3.78%. Earnings were 1.56 pesos, and the price-earnings (P/E) ratio is 27.49.
It’s a growth stock, no doubt about it. Sales were 335 billion pesos in 2010 and 517 billion for the trailing 12 months. That’s growth! Earnings per share grew from 11.05 pesos to 15.58 pesos over that time frame. Free cash flow is 30.9 billion pesos, and the price to free cash flow yield is 4.1%. Return on equity is an astounding 20.21%.
I had to double check the balance sheet because I had a hard time believing it. At the end of 2015, cash was 24.8 billion pesos, and accounts receivables were 9.8 billion pesos. Accounts payables were 56 billion pesos. There is no long-term debt! Of course there are long-term liabilities but no debt.
Walmart de Mexico has a goal to double sales over the next 10 years. If it can do that, that is impressive. Not only is it in Mexico but also Central America. The Bodega Aurrera is akin to the smaller Walmart (WMT, Financial) branches that are popping up around the U.S. Sam’s Club also has a presence in Latin America. The company is one of the few to offer online grocery shopping in the region. Amazon (AMZN, Financial) is making inroads into Latin America, too, and could offer stiff competition.
According to the Annual Report, Walmex had 3,000 operating units. It opened 74 in Mexico last year and 23 in Central America. There are 23 distribution centers that feed these stores. It is the second-largest company publicly traded in Mexico behind America Movil (AMX, Financial). Walmart of America owns 70% of Walmart de Mexico.
The New York Times article from 2012 on Walmex’s bribery of an official is an interesting read. The Times article gives an example of a $52,000 bribe paid to an official to allow a store to be opened in an area where planning and zoning did not permit. Town officials did not want big box retailers to be too close to ancient pyramids, but Walmart did not let this get in its way.
A lawyer for Walmex notified executives in Bentonville, Arkansas. An internal investigation was started but then put to an end. The article goes on to state that it found 19 sites across Mexico where bribery was used to hasten the opening process. Eight bribes totaling $341,000 allowed the opening of a Sam’s Club in Mexico City. Nine bribes totaling $765,000 allowed the opening of a distribution center in Northern Mexico. The stock was down to 30 pesos in early 2015 but is now up to 43 pesos.
It was recently determined that investors may sue Walmart as executives may have known of the briberies since 2005. The company claims that it has spent $439 million on internal investigations looking into the matter.
Walmex recently sold off its Suburbia clothing stores for a little over $1 billion. Guilherme Loureiro was named CEO back in January. Previously, he was in charge of Brazilian operations. Loureiro plans to invest 17% more this year, $829 million total, than last on improving productivity. It seems to me that the company has to figure out what to do after all of the bribery charges. Slow down growth and focus on internal measures.
The peso has been really strong against the dollar. In early 2015, it took 7.5 pesos to buy five. This article on NAFTA is an interesting read on the economic block of the U.S., Mexico and Canada; 52% of exports and 34% of imports come from fellow NAFTA countries. What’s unfortunate is that when one Googles “Mexico Economy,” Donald Trump comes up in most articles. It’s unfortunate that the media overblows things like the election on Mexico and trade.
Walmex is an interesting company. The growth that it has put up has been awesome. Can it continue growth without bribery? Probably. My issue with Mexico is like that of China. The Mexican economy is dependent upon the U.S. economy. We catch a cold, and Mexico catches the flu. Personally, I’d own Walmex before I’d own Walmart.
Disclosure: We do not own shares in the companies mentioned.
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