Summary
KOF fits well the value investing framework, since it is a business with a strong moat and predictable cash flows.
If KOF is able to deliver mid-single-digit growth in the next four years, there is a 16.5% upside in my opinion if you buy the stock today.
All in all, I think this could be a good investment for a dividend investor given the fact that the company pays has a 5% dividend yield.
Kwangmoozaa/iStock via Getty Images Investment Thesis
In this article, I have decided to take a look at Coca-Cola FEMSA, S.A.B. de C.V. (NYSE: KOF ). The stock performed very well between January 2021 and September 2021 being up more than 25%. However, the stock recently dropped by almost 20% and this has created a buying opportunity. In my opinion, KOF fits well the value investing framework, since it is a business with a strong moat and predictable cash flows. Given the high dividend yield compared to the S&P 500, I think it is a great buy for the dividend investor. Source: Google Finance Company Details
KOF commenced operations in 1979. It is the largest franchise bottler of Coca-Cola beverages in the world in terms of volume. The company has a broad portfolio of Coca-Cola beverages, from colas to flavored sparkling beverages such as Schweppes, Sprite, or Fanta and still beverages (Powerade, Monster, FUZE Tea). The company has operations in the following countries: Mexico
Guatemala.
Nicaragua.
Costa Rica.
Panama.
Colombia-most of the country.
Brazil
Argentina-Buenos Aires and surrounding areas.
Uruguay
Venezuela
In FY20, the company derived 58.2% of revenues from Mexico and Central America and 41.8% from South America. If we look at the gross profit, 63.9% comes from Mexico and Central America and only 36.1% comes from South America. Source: KOF FY20 10-K Business Strategy
KOF has a business strategy that relies on 4 main pillars: Accelerating revenue growth
Accelerating revenue growth has been a key priority for the company. Revenue growth has suffered in 2020 due to the pandemic and was down approximately $1.5 billion from 2019. Since then, the trend has reversed, and KOF is now on track to outpace FY19 revenues. As a matter of fact, the company reported pretty solid results during the last earnings call. The consolidated volumes increased 5.8% year-on-year and 1.5% is compared to the same period in 2019. Brazil, Columbia, Guatemala, and Argentina are driving results up with a better than expected performance in these markets. Moving on to our results for the quarter. Our consolidated volumes increased 5.8% year-on-year and 1.5% as compared to the same period of 2019. Once again, we saw an acceleration of the sequential recovery of most of our markets, with many growing, compared to our 2019 baseline. Notably, we are seeing remarkable performance in key markets of Brazil, Colombia, Guatemala, and Argentina. As consumers continue to look for more affordability, we leveraged our capabilities in both affordable one-way presentations and refillable bottles to address key price points, enabling us to gain share across markets and categories. In terms of revenue per product, it is good to see that all the categories are delivering strong results. The sparkling beverage category grew 3.6% year-on-year and 1.2% compared to 2019. The highest performing product category was personal water which is posting double-digit growth across most of the geographical areas. Personal water volumes are growing at a 24% year-on-year rate and are 15% ahead of the same period in 2019. To give you a sense, our sparkling beverage category grew 3.6% year-on-year, led by 2.7% volume growth in Brand Coca-Cola and 7.1% growth in Flavors. Importantly, when compared to 2019, our sparkling beverage category grew 1.2%, driven by growth across most of our territories, partially offset by a decline in Mexico that was mainly driven by challenging weather for most of the quarter. Holiday fuel beverage and personal water volumes continue to recover at an impressive pace. This is highlighted by our 24% year-on-year growth in stills, which are 15% ahead of the same period in 2019. Increasing the business scale and profitability across categories The company did a very good job at maintaining a high level of profitability despite supply chain headwinds. The gross margin for instance was near the historical level of 45%. This shows that KOF was able to hedge very effectively against the rise in commodity prices in the last quarter. On top of that, the company benefited from an 8.8% comparable total revenues increase in the […]
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