Topics: Mexico, Mexican cuisine, Cash flow / Pages: 101 (25050 words) / Published: Jan 18th, 2013
Equity Research
Latin America
Food Products
Sector Note
16 October 2012

Mexico Food & Beverage
Mexican Food: Rich but tasty – Initiating Coverage
Rafael Shin

Initiating coverage on the food sector
We are initiating coverage of Mexican food companies Grupo Herdez, Grupo Bimbo

and Gruma with BUY, NEUTRAL, and NEUTRAL ratings, respectively. This initiation +1 646 924 2472 brings our coverage of Mexico consumers to 9 stocks and of Mexico as a whole to 22.
Gordon Lee

Choose depending on five drivers
After an outperformance of 18% YTD vs IPC, we believe an improving outlook has been priced in. With valuations at record highs, investors should be highly selective—
+1 646 924 2473

in this report, we present a simple framework with which to evaluate a stock based on Thiago Duarte what we think are the 5 most important characteristics: pricing power, exposure to +55 11 3383 2366

Mexico, earnings momentum, valuation, and visibility of generated cash.
Herdez (Buy) our top pick in the sector. Premium is deserved
Grupo Herdez (Buy) is a success story that we believe will look even better as consumption in Mexico continues to strengthen. Its unique business model has enabled the company to enjoy one of the highest returns among food companies in Latin
America. Although valuations are rich we believe premiums are deserved, offering a
20% return from current prices. With a YTD ADTV of US$1 mn, liquidity is biggest issue. Bimbo (NEUTRAL) is a core holding, but we would wait for a better entry point
Bimbo (Neutral) is an attractive deleveraging story with upside from a restructuring effort, and potential industry consolidation in its international markets in the long run.
However, current valuations offer limited upside and we see a rocky road in the coming
6 months due to Sara Lee’s integration and rising input costs. We also take a deeper look at

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