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Signum Research

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Signum Research

Signum Research es una empresa independiente de análisis financiero y bursátil conformada por analistas y expertos de amplia experiencia en el medio y por un consejo de asesores integrado por personalidades de alto reconocimiento en los mercados financieros. Signum Research cuenta con la más avanzada tecnología y sistemas que le permiten realizar sus cálculos y modelos analíticos de manera eficiente, en tiempo real, y publicarlos oportunamente en su portal de análisis financiero.<br /> Nos hemos establecido como meta el producir el mejor análisis bursátil independiente: un análisis oportuno, sencillo, confiable, asequible e interesante, de manera que los mercados financieros puedan ser intelectualmente accesibles a una mayor parte de la población. Nuestro objetivo final es, a través de nuestro análisis, encontrar la señal detrás del ruido cotidiano en los mercados, una señal que fundamente sólidamente nuestras recomendaciones de inversión.<br /> En Signum Research sabemos que los mercados financieros son una importante herramienta de desarrollo, Signum Research busca contribuir en la difusión de una cultura financiera y de inversión que permita a quien carezca de experiencia –pero que tenga el interés- participar del progreso que brindan los mercados financieros.<br /> Signum Research se ha asociado con The Competitive Intelligence Unit, una empresa de consultoría estratégica especializada en áreas de análisis de oportunidades de negocio, telecomunicaciones, regulación y economía para desarrollar y publicar análisis sectoriales y en materia de regulación.
20.aug.19

Signum Perspectives

Grupo Rotoplas S.A.B. de C.V

Grupo Rotoplas (ticker symbol: AGUA)’s second quarter results fell short of our estimates as government programs slowed translating into lower revenues from school water fountain sales, which along with weak consumption overall, impacted the movement of products through the majority of the company’s sales channels.

Second quarter revenues totaled P$1.997 bn, increasing +1.83% y/y driven by Argentina, which offset the negative effect of Mexico and Others on results. It is important to mention that excluding the depreciation of the Argentine peso, growth in this heading would have been a much stronger +11.4% y/y

EBITDA came in at P$301 mn, a y/y decrease of -5.6%. Likewise, the EBITDA margin decreased -130 bp owing to a challenging environment in the Mexican construction sector, a very competitive environment in Brazil, and peso depreciation in Argentina.

Q219 operating profit rose +2.3% compared to the same year-earlier period driven by better sales prices and a raw material cost benefit, which should continue for the remainder of the year.

By region, Mexico stood out, accounting for 84% of the company’s EBITDA as of Q219. Revenues for the quarter amounted to P$1.090 bn, a decrease of -9.9% y/y and EBITDA totaled P$252 mn, decreasing -5.2% y/y.

These results can be attributed to lower revenues at the company’s Services division, as government programs slowed, reducing school water fountain sales. Furthermore, weak consumption overall impacted the flow of products at points of sale. Management expects water treatment and recycling plant revenues along with a gradual recovery in the construction sector to start having a positive effect on sales in the second half of the year; sales decreased -2.1% y/y in June, 2019.

As part of its service model diversification strategy, the main component of which are the treatment plants (which contributed around 90% of Q219 revenues), the company is entering into mining, lodging and petrochemical agreements for the construction of such assets. While it wasn’t possible to include those transactions in first-half financial statements because an agreement hadn’t yet been reached, the revenues they generate should be included in 2019 results and extend into 2020, so we expect the division to recover.

Performance in Argentina was favorable, with revenue growing +77.2% y/y, while EBITDA doubled on the year-earlier quarter reaching P$33 mn. However, given hyperinflation, after applying the current exchange rate, results were more moderate.

Given the impact of recent political events on purchasing power stability in Argentina, management is contemplating two effects: on the one hand, despite a more favorable comparison base, the effect of hyperinflation will be greater than expected. On the other, in view of the depreciation of the Argentina currency, exports should increase thus lessening the effect. It should be recalled that one of the main reasons why the company decided to have a presence in the region was its geographical position, which is strategic for exports.

Regarding leverage, the Q219 Net Debt to EBITDA ratio was 1.7x, which is within the range of indebtedness established by the company (2.0x). On July 8th, 2019, it was announced that as part of a U.S. operations simplification and e-commerce platform concentration strategy, the group would sell manufacturing assets comprising the three rotodmold factories located in California, Texas and Georgia through a cash transaction. This will strengthen its cash position by P$771 mn and take its Net Debt to EBITDA ratio to 1.0x as of next quarter.

It is important to point out that given low growth in Mexico, where the bulk of the operations are located, the Rotoplas opted to lower its net sales growth forecast to a single digit compared to 2018 and maintains its year-end EBITDA margin guidance of between 16.0% and 17.0%.

Final Remarks

We believe that Q219 revenue and EBITDA growth rates were lower than expected mainly due to structural factors. Also, as Rotoplas’s business model trends to be procyclical, impacts on its operating regions undermine results.

That said, we believe the company has solid fundamentals and therefore reiterate our BUY rating on the stock with an end-2019 target price of P$20.00 per share. We will be closely following the domestic policy environment and economic conditions, which will influence any changes.



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