A freak accident by finding this… I was looking to tell someone in Mexico another investment that they could add to their retirement portfolio. Due to the need for income at a retirement age, I immediately went towards the high dividend stocks and naturally gravitated towards the names that I recognized.
I immediately found out that most Mexican equities are quite volatile; either experiencing a large EPS growth due to financing their balance sheet or by merging with another OR they were feeling the impacts of a global recession with a constant decline over the last 12-24 months or so. Despite this, I wanted to look for some deals.
But I found a common trend that was unexpected, especially given that Mexico is not particularly a financially-oriented country. The largest companies trading in Mexico City (by market cap and volume) have a debt that drastically outweighs their cash holding and their yearly net income. With shareholder equity falling, a pullback in revenues and often high operational expenses (not to mention the extortion-level taxes they pay in Mexico), it’s difficult to see how they pull free from this to manage their debts.
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Megacable (Huge Telephone, Television and Internet company)
Megacable is profitable, but it's in decline and has extreme debt. Its operating expenses are high, so prepare for service cuts if you're using them
33K employees
ALPEK
Alpek SAB de CV is a petrochemical company. It operates through the following business segments: Polyester, Plastics and Chemicals, and Others. The Polyester segment refers to products made of polyethylene terephthalate (PET), purified terephthalic acid (PTA), recycled PET (rPET), and polyester fibers. The Plastics and Chemicals segment provides polypropylene (PP), expandable styrene, fertilizers, and other chemicals
A company now in the middle of a spin-off this year… looks to be in a bad situation to say the least. Their stock price has fallen constantly, their net income and free cash flow is negative and as you’ll see their debt trumps their ability to earn their way out or pay it down with cash equivalents. 5.51K employees
Grupo Palacio
Grupo Palacio de Hierro SAB de CV engages in operation of a chain of department stores. It operates through the following business segments: Commercial and Real Estate.
Still running a positive net income… but with 13.31K employees to pay and any contraction in credit lending or spending habits by the public, their 10% operating income margin will take a hit.
GMexico Transportes
GMéxico Transportes SAB de CV engages in the transportation of products in rail cars and intermodal containers for international shipments. The firm operates through the following segments: Agricultural, Intermodal, Minerals, Chemicals & Fertilizers, Automotive, Energy, Industrial, Metals, and Cement.
Bajio Bank
Banco del Bajío SA provides commercial banking services to individuals, corporate and government institutions, and to small and medium enterprises. It also provides financing services to agribusiness.
Banks, operate a little different, but the trend is the same… the net loans far exceed the number of total deposits available to them for the last many quarters and many years. The loan loss provisions has increased a significant amount since 2020.
WALMEX
Wal Mart de Mexico SAB de CV engages in operating self-service stores and warehouse membership clubs. The Company’s segments include Mexico and Central America.
They’ve also missed their earnings target for 4 quarters in a row now. 241K employees at a market cap of 979.96 B MXN
Jose Cuervo
Becle, S.A.B. de C.V. is a alcoholic beverage producing company. It is engaged in the manufacturing, distribution, export, import, bottling, and marketing of distilled alcoholic and non-alcoholic beverages including tequila, whiskey, and rum. The company was founded in 1758 and is headquartered in Mexico City.
The beloved famous Tequila company! That too… is hammered with debt!
This has worsened steadily since 2020 and while cash and net income has increased, it hasn’t caught up. 9K employees.
Elektra
Grupo Elektra SA de CV engages in providing financial and retail services. It also offers non-bank short-term loans in U.S. The firm operates its business through two segments: Financial Business and Commercial Business.
Elektra’s Operating Expense alone completely ate up all revenues and net margins took a steep dive in the last couple of quarters. It’s so bad, shareholders want out from public trading…
Kimberly-Clark
Kimberly-Clark de México SAB de CV engages in the manufacture and commercialization of disposable products. It operates through the following segments: Consumer Products, Professionals and Exports.
10K employees
Sinaloa is in a civil war right now. Mining companies don’t want you to know that truth
FEMSA
Fomento Economico Mexicano SAB de CV operates as a holding company, which engages in the production, distribution, and marketing of beverages. The firm also produces, markets, sells, and distributes Coca-Cola trademark beverages, including sparkling beverages.
This one is one of the largest market caps in the list at over 405 Billion Mexican Pesos (21B USD, mas o menos)
391.24K employees
Chedraui
Grupo Comercial Chedraui SAB de CV engages in the operation of retail stores and real state activities.
Note their declining net margin which has been significant in a short period of time. I have little sympathy for them as they went full Stalinesque during the stupid lockdowns. Face underwear was required to enter the store. Ironically, their profits are heading back to that time–but their debt… not good.
Mexican corporate debt issues surged in the first quarter of 2023, fuelled by the post-pandemic economic recovery, with new long-term debt securities totalling 87.1 billion pesos ($4.84 billion)
AMERICA MOVIL
America Movil SAB de CV engages in the provision of telecommunications services.
This is the largest Market Cap I could find on the BMV. Over 840B MXN (42B USD). It is huge throughout all of Latin America. 178.47K employees
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Gentera
Gentera SAB de CV is a holding company, which engages in the provision of banking and related services through its subsidiary, Banco Compartamos SA.
Their loan loss provision increases by about 1B every year.
Airports
Grupo Aeroportuario del Pacífico SAB de CV engages in the operation of a international airports in Mexico and Jamaica. It operates through the following segments: Guadalajara, Tijuana, Puerto Vallarta, San José del Cabo, Montego Bay, Hermosillo, Bajío, and Other Airports.
I’m not worried about Airports, but its worth noting that here is another with a considerable amount of debt on their balance sheet.
3.5K employees
Liverpool
El Puerto de Liverpool SAB de CV engages in the construction and operation of department stores. It operates through the following segments: Liverpool Commercial; Suburbia Commercial, Real Estate, and Credit. The Liverpool Commercial segment includes the sale of clothing and accessories for men, women and children, household goods, furniture, cosmetics, and other consumer products through department stores
I haven’t seen a Liverpool that wasn’t busy over the last 4 years…and they continue to beat earnings. In fact they’re launching a billion dollar bond looking for a Nordstrom buyout, bad timing with all this debt?
Exceptions:
A company that sells insurance, pension funds, investment management services. They were very conservative in their balance sheet (but, when interest rates are on the move… expect FIRE (Finance, Insurance, RealEstate to take a hit)).
Airports as I said have lots of cash, large margins and continued profits from tourism with operating expenses near zero.
Another Cement company looks very appealing too. I’ll share it with subscribers, if you're viewing this while it is still free and want to join please click the button below!
Points
The following is worth highlighting
- These are very high market cap companies. Some of them have been around for literally hundreds of years
- There are significant numbers of Mexicans working for these companies
- Some of these are part of Mexican culture given their intergenerational existence.
- Many of these remain to receive positive net income and demonstrate slight growth, but in almost every case the debt growth is higher
- Almost all of the photos shown demonstrate quarterly charts, but the same trend applies for annual too.
- On the side, but related indirectly is they (country) have a hardcore communist as President right now and criminal insurgency groups arguably have never been stronger
Closing
Oh what you can find on the internet if you waste enough time…
Could we be seeing that that Mexican companies are at the end of their life cycle? It’s important to remember that 90% of large businesses in Mexico are US multinational corporations. If these are the remaining 10% we’re looking at… Mexico’s economy and it’s [already restless, agitated employee] workers are in trouble. If job layoffs occur, I expect them to adopt some “it’s the rich people’s fault!” motto to only worsen matters. In fact, anecdotally, I know some layoffs have already begun.
While not all of the companies will be filing for bankruptcy soon, we can see in the case of Elektra (going private) and Alpek (breaking up) there are movements already occurring. There are simply too few companies on the Mexican stock exchange that are adequately capitalized to weather this global recession that we are all approaching. If we consider further criminal enterprises, more anti-mining rhetoric, more anti-business policies and now a number of tariffs on Mexican production, it’s easy to see strain on these companies.
I haven’t come across anybody mentioning this point, but perhaps somebody in the Trump Administration is aware of this. With a majority of US companies operating in Mexico, this doesn’t leave Mexico with much going for it if the US decides it would be to their advantage to harm the Mexican economy for its own end.
What do you think? Will they manage such debt levels? or will Mexico be in for a world of hurt in the years ahead? Find out what I think in the subscriber chat!
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