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Europe’s Taste for Tacos Supporting Mexico’s Best Stock

Gruma SAB is poised to extend the biggest rally among major Mexican stocks as it taps a growing appetite for tortillas in Europe, the U.S. and Asia.

Shares in the world’s biggest maker of the Mexican staple surged 163 percent in the past year, including a 21 percent jump in the last month. Gruma finalized a $15 million acquisition of Spain’s Mexifoods last week to increase its share of Europe’s third-largest tortilla market, Chief Executive Officer Juan Gonzalez said June 11 from Madrid.

“We continue to study possible acquisition opportunities in Europe, where we are convinced that our products still have great growth potential,” the San Pedro Garza Garcia, Mexico-based company said in an e-mailed response to questions.

Gruma will keep expanding in Mexico, the U.S., Europe and Asia with plans for the coming months including Russia and Turkey, a plant expansion in Madrid and Malaysia and a new plant in Tijuana for U.S. exports, it said. While the rally may become more subdued, growth prospects mean the stock remains attractive for new investors, ING Groep NV’s Eric Conrads said.

“There’s room to expand in areas of less tortilla consumption and it will allow the company to cater products to different types of consumers,” Conrads, who helps oversee $500 million in Latin American stocks, said by phone from New York.

Photographer: Susana Gonzalez/Bloomberg

Tortilla consumption has grown an average of more than 7 percent annually in the last four years in the U.S., Miguel Mayorga, a Latin America food company equity analyst at Corporativo GBM, said. Close

Tortilla consumption has grown an average of more than 7 percent annually in the last... Read More

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Photographer: Susana Gonzalez/Bloomberg

Tortilla consumption has grown an average of more than 7 percent annually in the last four years in the U.S., Miguel Mayorga, a Latin America food company equity analyst at Corporativo GBM, said.

Expansion in Spain and Europe -- where Gruma has operated since 2000 and has nine tortilla, chip and bread plants -- will drive the company’s growth, Alberto Carrillo, an analyst at Signum Research, said in a June 13 research note.

‘Aggressive’ Plans

“Gruma has an aggressive expansion plan that attacks new markets and is satisfying new niches of non-Hispanic foods based in corn,” Carrillo said.

Gruma’s planned $35 million investment in Europe seeks to capture market share in France, Italy, Portugal and Malta.

“Demand for tortilla and Mexican food is growing,” the company said in yesterday’s e-mailed response. “Our plans are to attack those European markets.”

Recovering from a 12.3 billion-peso loss in 2008 triggered by wrong-way bets on currency derivatives, Gruma leads gains on Mexico’s 35-member benchmark index over the past year, six months and three months. It’s also the best performer among 15 global peers tracked by Bloomberg in the past month. Shares rose 1.7 percent to 149.74 pesos at market close in Mexico City, while the benchmark index rose 0.04 percent.

The stock, which has exceeded the average 12-month price target by analysts tracked by Bloomberg, is trading at the most expensive levels in a year relative to the Mexican benchmark on an estimated earnings basis, the data show. It’s also the priciest on record versus the BI Global Food Manufacturing Competitive Peers Index, of which it is a member.

Hispanic Population

“The stock results are supported by the company’s performance, though it’s hard to say how high the shares will reach,” Raul Ochoa, an analyst at Interacciones Casa de Bolsa, said in a telephone interview from Mexico City.

Gruma’s surging shares have room to grow as consumption of tortillas in the U.S. increases, said Miguel Mayorga, a Latin America food company equity analyst at Corporativo GBM. Gruma, which produces Mission and Guerrero brands, is the largest supplier to the U.S.

Tortilla consumption has grown an average of more than 7 percent annually in the last four years in the U.S., Mayorga said by telephone from Mexico City. Gruma has cornered a niche market in North America, he said. Hispanics and Asians together accounted for 22 percent of the U.S. population in 2012, a 17 percent increase from 2001.

Debt Reduction

“Tortillas are more and more becoming a staple in the basic set of food choices in the U.S.,” Mayorga said. “Gruma provides a basic and essential product.”

The company received credit rating increases to BB+ from BB by Standard & Poor’s and Fitch in March and December, respectively.

Gruma agreed last week to sell its Molinera de Mexico SA unit and assets related to the production of wheat flour from another subsidiary for $200 million, proceeds of which will be used to pay down debt. Corn futures have plunged 33 percent in U.S. markets in the past year, cutting the price of the ingredient on which the company spends the most.

“Gruma has been a star in Latin America in recent years,” ING’s Conrads said. “The stock has been getting more expensive though remains on pace to continue to grow.”

To contact the reporter on this story: Adam Williams in Mexico City at awilliams111@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net Robin Saponar

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