Mobius Proves Prescient by Avoiding Sanborns IPOJonathan Levin
A year after Mark Mobius labeled Mexican billionaire Carlos Slim’s latest initial public offering too expensive, investors have come to the same conclusion.
Slim’s Grupo Sanborns SAB, a chain of retail stores and restaurants, has declined 13 percent since its 11.35 billion-peso ($854 million) share sale in February 2013, underperforming Mexico’s benchmark IPC index, which fell 12 percent in the period. Mobius, executive chairman of Templeton Emerging Markets Group, said a few weeks after the IPO that the deal was “overpriced.” Sanborns debuted in Mexico with a price-to-earnings ratio of 22.5 times, exceeding the average of 19.1 times for the 35 companies in the IPC.
“The price was higher than it should have been,” Gerardo Copca, an analyst with Metanalisis SA, said in a telephone interview from Mexico City. “The company’s quarterly results haven’t been able to justify the valuation.”
Sanborns said in its third-quarter report that same-store sales fell in all business lines, including a 3.3 percent retreat at the namesake department stores and a 4 percent drop at Mixup and iShop outlets, which sell Apple Inc. products.
Mobius highlighted Mexico in a Jan. 6 post on Templeton’s website, saying that the nation’s legislative moves to open the economy will help government finances and could spur growth. Moody’s Investors Service yesterday raised the country’s credit rating by one level to A3, citing the economic boon from President Enrique Pena Nieto’s new laws. Those include breaking up the state’s monopoly on energy production and a law to increase bank lending.
Sanborns has plummeted 23 percent since Aug. 8, when a restriction on share sales by controlling stockholders and other insiders was lifted. It’s the worst-performing of Mexico’s nine IPOs in 2013, based on how each of the stocks has performed since their offering dates.
The stock rose 2 percent to 24.87 pesos in Mexico City trading today.
“It was very, very highly priced -- in our view overpriced -- which again you’ve got to congratulate him on,” Mobius said of the IPO on Feb. 27 in remarks to reporters in Mexico City.
A press official for Slim declined to comment on the IPO price and the stock’s performance. Bill Weeks, a spokesman for Templeton, declined to make Mobius available to update his view on Sanborns, saying the investor doesn’t typically comment on individual stocks.
Sanborns investor relations official Angelica Pina said in an Oct. 25 conference call on third-quarter results that consumption was “depressed,” with the slowdown exacerbated by bad weather and protests in the capital.
The Sanborns IPO contributed to a record year for Mexican equity issuance as Pena Nieto’s economic overhauls won praise from Pacific Investment Management Co.’s Bill Gross and BlackRock Inc.’s Laurence D. Fink.
Consumer confidence in the Latin American nation fell to 84.5 in January, the lowest level since April 2010 and below the 90.1 median estimate of 10 analysts in a Bloomberg survey, according to a report yesterday from the national statistics agency.
“It’s been the worst year for consumption in Mexico in several years,” Jorge Lagunas, a portfolio manager who oversees about $150 million at Grupo Financiero Interacciones SAB, said in a phone interview from Mexico City. “That’s what’s hurting the stock.”
Slim has had mixed results with recent listings. Minera Frisco SAB, the mining company he spun off from Grupo Carso SAB in January 2011, has fallen 47 percent from its initial price through yesterday. It’s down 66 percent from its February 2012 record. Inmuebles Carso SAB, the Slim real-estate company that joined the exchange as part of the same Carso spinoff, has climbed 18 percent since listing,
Luis Willard, an analyst with Corporativo GBM SAB, said demand is likely to improve in the second half of 2014. The economy will grow 3.42 percent this year, up from 1.28 percent in 2013, according to the median of 26 forecasts compiled by Bloomberg.
“We’re more positive about the second half of the year,” Willard, who rates the stock the equivalent of hold, said by phone from Mexico City. “The valuation looks cheap compared to the industry.”
At 15.2 times projected net income, Sanborns is now the cheapest retailer stock on Mexico’s benchmark IPC index.
Mexico instituted a new 8 percent levy on junk food Jan. 1 and increased a sales tax in regions bordering the U.S. to 16 percent from 11 percent. The economic activity indicator IGAE slid 0.04 percent in November from a year earlier, according to the statistics institute.
“The last few quarters have been disappointing, and spending might remain under pressure because of the tax issue,” Interacciones’s Lagunas said.