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dibble905 (91.07)

Grupo Casa Saba

Recs

4

June 28, 2010 – Comments (16) | RELATED TICKERS: SAB

Grupo Casa Saba ("Saba", "GCS", "the Company" or "the Group"), one of the leading Mexican distributors of pharmaceutical products, health and beauty aids, personal care and consumer goods, general merchandise, publications and other products.

Question for all of you,

Does anyone have any clue as to why this company (ticker: SAB) is down almost 40% from its YTD high?

Here are the results for Q1 2010 (In pesos; divide by approx. 12.3 for USD):

--  Net sales for the quarter rose 4.01% to reach $7,724.08 million
--  Gross income increased 6.49% compared to the same period of 2009
--  The gross margin for the quarter was 11.44%
--  Quarterly operating expenses as a percentage of sales were 7.30%,
    22 b.p. lower than reported during the first quarter of 2009
--  Operating income increased 17.96% versus 1Q09
--  The operating margin for the quarter was 4.14%
--  The CCF for the quarter decreased 12.26% compared to the first quarter
    of the previous year
--  Tax provisions were 54.62% lower than in 1Q09
--  Net profit for the quarter was $247.46 million, an increase of 37.52%
--  Cash and cash equivalents at the end of the quarter was $501.51 million

http://www.marketwatch.com/story/grupo-casa-sabas-net-income-rose-3752-2010-04-28?reflink=MW_news_stmp

So let me get this straight, as of March 31, 2010, this company was holding almost 40M USD in cash and earned 20M USD in Net Income?

Current Market Cap -- $331M USD.
+2% Dividend Yield (Albeit, unpredictable)

Am I missing something here, or is this an outright bargain?

16 Comments – Post Your Own

#1) On June 28, 2010 at 4:09 PM, dibble905 (91.07) wrote:

Disclosure: Currently hold a small position as part of a basket

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#2) On June 28, 2010 at 6:08 PM, MegaEurope (< 20) wrote:

They are buying Chilean pharmacy Farmacias Ahumada.  It looks to me like they are seriously overpaying - 50x P/E.  And they might have to dilute current shareholders in the deal since it is so big.

If it were not for that, I would agree they are extremely cheap.

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#3) On June 28, 2010 at 6:10 PM, MegaEurope (< 20) wrote:

Google Financial is a good place to look for company news.  And FT.com is the best for foreign stock listings.

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#4) On June 28, 2010 at 6:57 PM, Starfirenv (< 20) wrote:

I like it. Mex version of ABC which I own, but "spicier" Thanx.
Rec. Regards.

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#5) On June 30, 2010 at 3:13 PM, dibble905 (91.07) wrote:

Continued Weakness....

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#6) On June 30, 2010 at 3:24 PM, Starfirenv (< 20) wrote:

I like it better today at $10.71 - down 13%. Seeing a div of 3.7%.HMMMMM....

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#7) On June 30, 2010 at 4:34 PM, dibble905 (91.07) wrote:

I'm wondering if anyone has absolutely any news on this continued progressive drop.

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#8) On June 30, 2010 at 5:22 PM, Starfirenv (< 20) wrote:

Nothing fresher than Reuters 5.18.10.
Aquisition=USD 637.M is a lot of debt for a Co that nets 20M. Not sure what FASA brings home.
Not sure I would like it w/ no div.

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#9) On June 30, 2010 at 5:27 PM, leocitron (< 20) wrote:

No news. I have 800 shares at 13.50. should i hold? average down? any recomendations?

There is no relationship with the ADR (10 ordinary shares) and the price in pesos. $16.10 pesos per share x 10 shares = $160 pesos / 12.80  = $12.57 US and last trade was $10.50.

 am I missing something? 

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#10) On June 30, 2010 at 6:15 PM, Starfirenv (< 20) wrote:

#'s for FASA-
http://www.bloomberg.com/apps/quote?ticker=FASA%3ACC
Leo- No way Mx Peso is 16:1. But haven't ck'd today.

"Farmacias Ahumada S.A. (Fasa) is the largest drugstore chain in Latin America and one of the largest in the world in number of outlets, with a network of ..

http://www.fundinguniverse.com/company-histories/Farmacias-Ahumada-SA-Company-History.html

Could be a match made in Heaven. Well positioned to dominate
(OOH, ouch, faster!). No advice, but I'll watch. For now.

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#11) On June 30, 2010 at 7:41 PM, MegaEurope (< 20) wrote:

So after buying FASA, SAB should end up with about $800M of debt.  The combined company should make around $80M + $40M = $120M in EBIT per year.  Subtract interest of $75M and taxes of $15M and you are left with $30M.  So they might be trading at 11x future P/E.

Let me know if those calculations are off.

At this price I am starting to like it, but I still question management's decision making in paying this price for FASA.  They should be buying back their own shares instead since they are so cheap.

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#12) On June 30, 2010 at 9:51 PM, Starfirenv (< 20) wrote:

Mega- Haven't ck'd the calcs, but if the div went away, would you still like it?

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#13) On June 30, 2010 at 10:37 PM, MegaEurope (< 20) wrote:

I'm not much of a dividend investor but in this case it would bother me.  Growth and ROI do not seem particularly high, so I would rather have some of the profits myself than reinvest them in the company.

I see SAB as a "cigar butt" type value stock that one might want to hold until it returns to fair value, not hold for the long term.

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#14) On June 30, 2010 at 10:59 PM, Starfirenv (< 20) wrote:

Amen.

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#15) On July 01, 2010 at 1:09 AM, dibble905 (91.07) wrote:

The big if is, how will SAB make the FASA acquisition profitable given the enormous debt loan it is taking on?

Granted, at $4B USD in sales with 0.75% net income margin, it could earn a reasonable $30M USD in Net Income on a 280M market cap company. Mean reversion could send the P/E back towards 15 in the medium term, suggesting a share price of around $17 as fair value. Oddly, this is what the share price was before the acquisition was announced. The market reaction is that this acquisiton is not accretive but an unnecessary increase in risk through increased debt load.

Although this may be true from a purely quantitative perspective, the qualitative aspect of it would suggest a significant increase in power over suppliers as well as reduced competition. The low margins earned by both SAB and FASA most likely provoked this acquisition as a matter of not only survival but a significant reversal in power over the supply chain -- margin increase on the way (?). Given SAB's significant management experience and successful past acquisitions, this may be a blessing in disguise. At today's price, this is at worst a hold with potentially significant upside in a relatively safe retail space.

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#16) On July 01, 2010 at 12:17 PM, leocitron (< 20) wrote:

This is painful I sold my shares with a 20% loss.... That's what i get for buying shit stocks like this one...

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