MEXICO CITY — Even as it raises its expectations for sales and earnings growth in 2021, the financial firm Actinver has downgraded its investment outlook for Grupo Bimbo SAB de CV to market perform.
“We expect stronger growth in revenues, thicker EBITDA margins and lower financial leverage,” said Enrique Mendoza, an analyst with Actinver, said in a Sept. 23 research update. “For the full year 2021, we estimate Bimbo sales to grow 1% in 2021. While we expect North America’s segment to reflect similar revenues to the previous year during the second half of 2021, Mexico, Latam and EEA sales should deliver double-digit growth figures in local currency.”
Looking forward to 2022, Actinver is projecting a 5% rise in Bimbo revenues, which includes 1.5% growth in North America and wider grains in the company’s other markets.
“The revenue growth should reflect recovery in the foodservice, traditional and snacks sales channels,” Mr. Mendoza said. “On the other hand, Bimbo’s profit margins exceeded our expectations during the first half of 2021. For the next quarters, while we expect cost increases to pressure Bimbo’s gross margins, the effect should be offset by further efficiency improvements and stronger operating leverage.”
The decision to downgrade Bimbo to market perform was precipitated by the company’s strong stock market performance year to date.
“While we like the company’s fundamentals, since Feb. 22, Bimbo’s stock has risen 57% vs. the IPC (Mexican Bolsa) index’s 14% return in the same period, and now the discount in valuation has disappeared,” Mr. Mendoza said. “At current prices, Bimbo trades at 8.1x EV/EBITDA, in line with its three-year average.”
Mr. Mendoza said Bimbo shares could outperform on the upside if wheat markets are not as strong as feared or if Bimbo’s hedging strategies beat expectations. Similarly, while he expects Bimbo to pick up market share in markets around the world, he said shares will respond positively if the company exceeds these expectations. Conversely, he said Bimbo shares could underperform the market if the United States and other developed markets become more competitive than anticipated or if there is a further rotation out of defensive sectors like food.
While global baking markets are highly competitive, Mr. Mendoza said Bimbo is focused on building brand equity, not just on winning in the marketplace based on competitive factors such as pricing.
“Bimbo seeks to continue developing a solid portfolio of brands, products, and categories that lead megatrends,” he said. “Through targeted marketing campaigns, Bimbo intends to increase its strategic global brands’ recognition and national and regional brands. Bimbo also plans to diversify its product portfolio further to add more value to its sales and distribution channels, creating additional consumption occasions. Bimbo expects to ensure that its brands are the global reference.”
Elaborating on the market environment in North America, Mr. Mendoza said sales in 2020 jumped 9.8% in dollar terms (up 22.5%, unadjusted for currency changes) thanks to strong branded product growth across categories that offset weak results in foodservice and convenience channels. Additionally, the North American business grew during the second quarter of 2021, despite tough comparisons with a year earlier.
“Bimbo Bakeries USA reflected market share gains across multiple categories,” he said. “In addition, the foodservice channel showed recovery. For the next quarters, we expect flat revenues in dollar terms. While branded business will reflect difficult comparisons, the effect should be fully offset by the recovery in the foodservice channel and further gains in market share.”