World’s Richest Man Inflated by Most-Expensive Mexico StocksJonathan Levin
Carlos Slim is clinging to his title as the world’s richest person thanks to stakes in the priciest publicly traded companies in his native Mexico, even as his biggest holding plummets in value.
While Slim, 73, is best known as the majority owner of embattled wireless carrier America Movil SAB, his banking, mining and construction companies are so expensive that if they aligned with industry averages, he would relinquish the mantle to Microsoft co-founder Bill Gates.
The Mexican billionaire’s bank, Grupo Financiero Inbursa SAB, is trading at 26.1 times trailing earnings, the highest among five publicly-traded Mexican lenders, whose average valuation is 20.2 times earnings, according to data compiled by Bloomberg. His gold mining and construction companies each top peer valuations by at least as much.
“Some of his holdings have valuations that don’t reflect reality,” Carlos Fritsch, strategist and president of Prognosis, Economia, Finanzas e Inversiones SC, said in a telephone interview from Mexico City. Inbursa is “the difference between him and Bill Gates. With that alone he would cease to be in first place.”
Slim has a net worth of $69.1 billion, according to the Bloomberg Billionaires Index. He is $1.5 billion ahead of the 57-year-old Gates.
The allure of co-investing with Slim is combining with scarcity in his lesser-known shares to elevate their values across industries, according to Prognosis. Minera Frisco SAB, the mining company, and Inbursa have the first and third lowest ratings among 58 Mexican stocks tracked by three or more equity analysts, with most of Wall Street recommending selling the shares.
Arturo Elias, a spokesman for Slim, declined to comment on the valuations of the billionaire’s companies.
Slim, a Lebanese immigrant’s son whose investments include a Manhattan townhouse and a $120.6 million stake in New York Times Co., has lost $6.2 billion this year, according to the Bloomberg ranking, as President Enrique Pena Nieto’s government presented a bill to prevent dominance in the wireless industry, where his carrier America Movil controls about 70 of the market. Lawmakers are considering legislation that would create an agency with power to regulate competition and could force companies to sell assets.
America Movil, Latin America’s biggest wireless carrier, has tumbled 13 percent since the bill was unveiled March 11. The company accounts for $31.3 billion of his fortune, while Inbursa, holding company Grupo Carso SAB and Minera Frisco accounted for another $10 billion, $9.2 billion and $8.7 billion of his wealth, respectively. Inmuebles Carso SAB, his real-estate company, adds another $1.8 billion.
Slim’s fortune would fall $2.3 billion if the price-earnings ratio of Inbursa fell into line with peers, according to data compiled by Bloomberg.
Mark Mobius, executive chairman of Templeton Emerging Markets Group, told reporters Feb. 27 that Slim’s initial public offering last month of Grupo Sanborns SAB was also “overpriced.” The shares have dropped 6.7 percent since debuting at 28 pesos each, near the bottom of the 27 pesos to 32 pesos range projected in the prospectus.
America Movil is the most-traded stock in Mexico, with an average 1.93 billion pesos a day changing hands over the past month. The daily trading value of Inbursa and Minera Frisco -- measured by combining volume with share price -- is far less. Frisco and Inbursa had the first and second-lowest average daily traded values on the benchmark IPC index with respect to their market capitalizations.
Minera Frisco has a consensus stock rating of 1.25, reflecting the average recommendations of analysts compiled by Bloomberg, where strong sell recommendations are rated one and strong buys are rated five. Inbursa has a score of 1.57, and Grupo Carso has a rating of 2.17, putting all major non-America Movil Slim holdings in the bottom sixth of public Mexican companies with broad analyst coverage, according to the ranking.
Stocks like Inbursa and Frisco benefit from their roles on the market-cap weighted IPC index, because exchange-traded funds have to buy the shares to replicate the index, said Jose Miguel Garaicochea, a money manager who is helping set up operations in Mexico for Grupo BTG Pactual.
The Slim-company valuations show “inefficiencies in the market deriving from the little liquidity of the rest of those companies,” he wrote in an e-mailed response to questions. “It also has to do with purchases by trackers.”
Trackers refer to the ETFs that replicate indexes.
Inbursa assigns overweight positions to Slim companies in its actively-managed equity funds for clients that invest through the billionaire’s bank, providing additional demand. The $1.4 billion Fondo Dinamico de Inversiones Bursatiles, a mutual fund focused on Mexican stocks, assigns more than half its equity position to minor Slim companies.
The same is true of the $1.1 billion Fondo Inbursa and the $2.3 billion Ibuplus fund. In comparison, none of the funds hold Wal-Mart de Mexico SAB or Fomento Economico Mexicano SAB, the largest stocks on the benchmark index after America Movil.
Roberto Cavazos, a money manager with Value Casa de Bolsa SA, said Slim companies deserve a premium over their peers because of his record of generating profits for shareholders and maintaining sound balance sheets.
Inbursa has a capitalization index of 19.9 percent, compared with about 13.2 percent for peer Grupo Financiero Banorte SAB, according to data compiled by the National Banking and Securities Commission. The capitalization index expresses net capital as a portion of total risk-weighted assets.
“It’s justified by his reputation and the power he holds, as well as the economic sway that these companies have,” Cavazos, who oversees about 2 billion pesos ($162 million) in equities, said in a telephone interview from Mexico City.
Eric Conrads, a portfolio manager who oversees $750 million in Latin American stocks at ING Investment Management, said he’s avoiding Inbursa and Frisco. Still, Slim will probably stay among the world’s richest people because of his diverse portfolio, he said.
“He’s suffering, that’s for sure, but it’s not like he’s all of a sudden poor,” Conrads said. “If valuations are not there, why would you buy steep stuff?”
The Bloomberg Billionaires Index takes measure of the world’s wealthiest people based on market and economic changes and Bloomberg News reporting. Each net worth figure is updated every business day at 5:30 p.m. in New York and listed in U.S. dollars.