Billionaire Del Valle Tries 87-Fold Return Plan on Pochteca

Billionaire Investor Antonio del Valle
Billionaire Investor Antonio del Valle said, “We went all in with the capital increase,” buying the maximum allowed to bring his family’s personal stake to about 28 percent. Photographer: Susana Gonzalez/Bloomberg

Antonio del Valle, the billionaire investor behind chemical maker Mexichem SAB’s 87-fold stock rally over the past decade, said he can turn around the biggest loser in his holdings by buying companies in the fragmented chemical distribution market.

Pochteca SAB, the Mexico City-based distributor of industrial greases and solvents that lost 47 percent since 2005, will pursue acquisition-driven growth, emulating the plan that made Mexichem the second best-performing stock in Latin America over the past decade, del Valle said. He invested in a 300 million peso ($22.5 million) capital increase, equal to 20 percent of Pochteca’s market value, in April after placing ex-Mexichem executives in key posts last year to strengthen the company.

“I don’t just think it; I’m doing it,” del Valle, 73, said in a June 21 telephone interview from Mexico City. “We went all in with the capital increase,” buying the maximum allowed to bring his family’s personal stake to about 28 percent, he said. “It has a big future ahead of it on the Mexican stock exchange.”

Pochteca has underperformed 65 percent of stocks on the nation’s main small-capitalization index over the past seven years. Del Valle said hidden liabilities including debts to suppliers and unpaid taxes plagued the chemicals distributor until last year, when it produced its first annual profit under the new ownership.

Share Rally

The stock has gained 53 percent since Oct. 21, when the company named Ricardo Gutierrez, an ex-Mexichem chief executive officer, as chairman of the board. The company also hired Armando Vallejo, a former head of finance at Mexichem, as chief financial officer reporting to Chief Executive Officer Armando Santacruz, who is del Valle’s son-in-law.

The shares surged 13 percent to 2.69 pesos today, the biggest jump since May 2009.

With del Valle’s backing, Pochteca is poised to benefit from a consolidation in Mexico’s chemical distribution industry, where no company holds more than 5 percent of the market, said Fernando Perez Lizardi, an analyst with Corporativo GBM SAB, the country’s largest brokerage by transactions.

“They want Pochteca to be a repeat of the Mexichem success story,” Perez Lizardi said in a telephone interview from Mexico City. “The chemical distribution market is very fragmented. That gives them a great opportunity to consolidate the market and buy different things.”

Family Empire

Mexichem, whose decade-long rally has only been topped in the region by Sao Paulo-based Raia Drogasil SA, used acquisitions to spark 17-fold revenue growth and a near doubling in profitability over the past decade, buying more than 15 companies since 2007. This year, it forecasts revenue will grow by another 30 percent.

The del Valle family, led by patriarch Antonio, owned 48 percent of Mexichem as of Dec. 31, worth $3.9 billion at today’s closing price of 58.34 pesos. Family members and their in-laws hold about 63 percent of Pochteca.

Del Valle got his start in banking. He served as CEO of Grupo Financiero Bital SA before HSBC Holdings Plc purchased it in 2002. HSBC made part of the payment for the bank by turning over shares in Mexichem, then known as Grupo Industrial Camesa, giving del Valle his start in the company.

Del Valle also owns closely held lender Grupo Financiero Ve Por Mas SA and Elementia SA, which makes copper and aluminum products and is part-owned by Carlos Slim, the world’s richest man according to the Bloomberg Billionaires Index. Del Valle controls all three stakes through his holding company, Grupo Empresarial Kaluz SA. He said Elementia will sell shares in an initial public offering as soon as this year.

Low Priority

Optimism that del Valle can turn any company he acquires into a winner has been blunted by the seven years it’s taken him to prop up Pochteca shares, said Gerardo Copca, an analyst with Metanalisis SA.

“Seven years is a long time,” Copca said in a telephone interview from Mexico City. “When you buy something you have to set a time goal for when you’re going to see a return on your investment.”

The company sold 167 million pesos of shares in April in part to bolster trading in the company and lure more investors. Average daily volume was about 450,000 shares in June, double the average in April, while the portion of Pochteca’s stock available to the market climbed to about 27 percent from 18 percent.

The company’s 1.7 billion peso market capitalization equals 1.6 percent that of Mexichem, which had a value of 1.1 billion pesos when del Valle took over in 2002. Pochteca’s sales were about 8.5 percent of Mexichem’s in 2011.

Aztec Merchants

The stock’s five-year slump compares with a 24 percent rally for Mexico’s benchmark index in the period. The IRT Small Capitalization index of Mexican equities added 22 percent.

Pochteca, named after a group of traveling merchants during the Aztec Empire in the 15th century, started as a paper company in 1988. In 2005, closely held Pochteca bought the publicly traded chemical distributor Dermet de Mexico and moved both businesses under the same name, eventually dropping the Dermet brand altogether.

“Dermet was a mess in every single sense of the word,” Pochteca’s CEO Santacruz said in an April 16 interview at the company’s headquarters in Mexico City. “We had quite a learning process there. We now have a pretty well-developed methodology to be able to incorporate new companies in the firm without major turbulence.”

Santacruz, 50, who earned an MBA at Harvard Business School in Cambridge, Mass., said smaller competitors are struggling to keep pace with increasing safety standards required for chemical distribution.

Kraft, Bombardier

Pochteca acquired Alcoholes Desnaturalizados y Diluentes, known as Adydsa, including its two solvent plants and 21 distribution centers, in 2008, and bought the exclusive rights to distribute Shell brand lubricants in Mexico in 2010. In April, Pochteca bought a plant to manufacture coolants and cleaning liquids under the Shell brand, and plans to buy more companies in the next year to expand its offerings and geographic reach, Santacruz said.

The company supplies chemicals to businesses including Bombardier Inc., the world’s biggest maker of business jets, and Kraft Foods Inc., the second-largest food producer. Pochteca has distribution in more than 500 Mexican cities, which Santacruz says gives it “the deepest penetration” in the market.

Pochteca’s earnings before interest, taxes, depreciation and amortization, a measure known as Ebitda, climbed 12 percent to 59 million pesos in the second quarter, according to preliminary results sent to the Mexican bourse on June 29. Sales rose 4 percent to 1 billion pesos while net debt dropped 53 percent to 260 million pesos, or 1.25 times trailing 12-month Ebitda, a record low.

“All they have to do is focus on growth, on making the business better,” del Valle said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE