grupo elektra ELEKTRA* MM S
July 28, 2011 - 2:43pm EST by
heffer504
2011 2012
Price: 840.00 EPS $11.20 $12.70
Shares Out. (in M): 242 P/E 75.0x 66.0x
Market Cap (in $M): 204,000 P/FCF nm nm
Net Debt (in $M): 10,000 EBIT 5,500 6,100
TEV ($): 214,000 TEV/EBIT 39.0x 35.0x
Borrow Cost: NA

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Description

Grupo Elektra is a Mexican bank and retailer that is outrageously overvalued.  Just like in the past, where dislocation occurred due to technical factors (indexers forced to buy the stock despite the low float), there has been a temporary stock spike due to an equity swap roll-over. 

 

Here are the numbers.  The bank has a book value of 8 billion MXN, valued at 2.5x book is 20 billion value (around 20x after-tax profit).  A stake in TV Azteca is worth 5 billion, and Iusacell 3 billion, assuming no taxes.  Net debt of 10 billion means that the non-retail assets are worth around 18 billion, on a market cap of 206 billion.

 

So this retailer is being valued at 190 billion pesos, roughly $16 billion.  This division is expected to generate around 7 billion pesos of ebitda, so it is being valued at 27x ebitda.  Comparables- soriana, famsa  and walmex- trade at around 10x, with a range of 5-15x.  Analyst expectations are for the ebitda to grow from 7b to 9b by 2013, on roughly 9% revenue growth.

 

For full disclosure, I am still digging around to get more color on the terms of the equity swap, but it seems like an interesting opportunity so I thought I'd post it quickly.  The borrow is not tight, from my experience.

Catalyst

equity swap dislocation gets resolved
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