Tuesday, January 12, 2010

GMK: Value south of the border

Is there a more stable business than having the #1 torilla brand in Mexico?

Has $3B USD in sales and is a market leader in the US, Mexico and a few other countries. They saw a 1% increase in revenue this year (excluding currency issues). Operating margin for the business increased in 2009 to 6.3% from 4.6% last year. Operating profits totaled close to $100m USD for 2009. YAWNN!!!!! Are you bored yet? Let's get to the real questions.

A year ago GMK was caught in a horrible hedging position as corn prices collapsed that caused an $800M+ USD loss for 2008. The GMK was saved by banks (most likely the same banks that sold them the derivatives) and now is liable for a $660m USD note which comes due in 2014. So why invest? Value.

The current market capitalization for GMK is $1B. At the current amortization rate (and assuming they once again refinance to a yet smaller debt position again in 2014) the company should still hold at least a $1.5B market cap. The credit crisis may not be over, but viable businesses like GMK are not likely to remain exposed in the same way as pre-2008. Let's take advantage of this painfully gained wisdom and buy GMK.

The author recommends buying at $8.50.


Lockstep said...

There is strong volume with this stock, I think a hedge fund or institutional investor sees value and his accumulating a position. Stay long.

Lockstep said...

Purchased at $8.50

All Mexican stocks have hit headwinds now that stocks have recovered to pre-crisis highs.

This company still is very much below any basic valuation measure.

Lockstep said...

All Mexican stocks seem to be enjoying a surge of popularity now. This stock has hit $12 and the earnings are close to $200m USD with an overall valuation of $1.75B USD. This one is still very very cheap.


Interesting stock