Alicorp Stock – Investment Analysis

Common Stock: Alicorp (ALICORC1)

Current Market Price: $8.27 PEN

Market Capitalization: $ 7 billion PEN

*All values in this article are expressed in Peruvian Sols (PEN) unless otherwise noted.

**The bulk of this analysis is based on the company’s most recent audited financial report, which can be found by following this link.

Alicorp (ALICORC1) - Stock Chart
Alicorp (ALICORC1) – Stock Chart

Alicorp Stock – Summary of the Company

Alicorp is the largest consumer goods company is Peru. They have 4 distinct business lines;

-Consumer Goods – Food, home and personal care.

-B2B – Ingredients and inputs for bakery, food and large industries.

-Aquaculture – Food for shrimp, salmon, and other fish.

-Crushing Oil Seeds – Flour and refined oils from sunflower seeds and soybeans.

Alicorp has over 150 unique brands and is present throughout Latin America. The company was originally founded as an oil and soap manufacturer in 1956. Alicorp as it is constituted today was created in 1997 and is headquartered in Lima, Peru.

Alicorp - Locations
Alicorp – Locations

Revenue and Cost Analysis

Alicorp had total revenue of $9.9 billion in 2019, a significant increase from $8.3 billion in 2018. Their COGS in 2019 was $7.4 billion, representing a gross margin of 25%, equal to their gross margin in 2018.

The company was profitable in each of the last two years. In 2019 Alicorp had net income of $481.2 million, representing a profit margin of 5%, equal to their profit margin in 2018.

Balance Sheet Analysis

Alicorp has a solid, but leveraged balance sheet. The company has a base of long term assets, mainly property plant, and equipment, as well as sufficient near term liquidity. However they also have significant liabilities, including debt.

It is worth nothing that the company uses derivative instruments to hedge currency and commodity risk. Investors should analyze this derivatives book in detail before investing.

Alicorp – Debt Analysis

As of year-end 2019 the company has $948.4 million in total debt outstanding, $646.1 million of which is classified as current. A relevant portion of this debt is denominated in US Dollars, potentially exposing the company to the negative effects of a depreciating local currency.

Alicorp - Debt Table
Alicorp – Debt Table

All 3 major credit rating agencies rank the company’s debt as investment grade.

Alicorp - Credit Rating
Alicorp – Credit Rating

Alicorp Stock – Share Dynamics and Capital Structure

As of year-end 2019 the company has 847.2 million common shares outstanding. The company’s 5 largest shareholders own around 51% of the company’s outstanding shares.

Alicorp Stock - Share Structure
Alicorp Stock – Share Structure

Alicorp Stock – Dividends

The company paid total dividends of $0.24 cents per share in 2019. At the current market price this implies a dividend yield of 2.9%

Alicorp Stock – 3 Metrics to Consider

Debt to Equity Ratio

Total Liabilities/Total Share Holder Equity

$7.8 billion / $3.5 billion = 2.3

A debt to equity ratio of 2.3 indicates that Alicorp is leveraged and relies heavily on debt financing for funding.

Working Capital Ratio

Current Assets/Current Liabilities

$4.5 billion / $3.5 billion = 1.3

A working capital ratio of 1.3 indicates a sufficient, but not strong liquidity position. Alicorp should not have problems meeting its near term obligations.

Price to Book Ratio

Current Share Price/Book Value per Share.

$8.27 / $4.08 = 2

Alicorp has a book value per share of $4.08. At the current market price this implies a price to book ratio of 2, meaning Alicorp stock currently trades at a premium to the book value of the company.

Alicrop Stock – Summary and Conclusions

Alicorp stock is an intriguing investment opportunity. The company is the largest consumer product company in Peru, and is present throughout Latin America. They have a diversified product portfolio and continue to grow both organically and via acquisition.

The company is financially healthy, having been profitable in both 2019 and 2018. They have sufficient liquidity in the near term, and return capital to shareholders via dividends. However they are leveraged and have a significant amount of debt outstanding.

I am impressed by Alicorp and think it trades at a reasonable valuation. I will wait for the company’s full 2020 financials to be made available before making my investment decision. Investors can compare Alicorp stock to Colombian consumer goods company Productos Familia

Disclaimer

This is not investment advice. Nothing in this analysis should be construed as a recommendation to buy, sell, or otherwise take action related to the security discussed. If I own a position in the security discussed, I will clearly state it.

This is not intended to be a comprehensive analysis and you should not make an investment decision based solely on the information in this analysis. I hope this serves as a useful starting point for a more comprehensive analysis, and hopefully draws attention to aspects of the company that were overlooked or merit further investigation. This is by no means intended to be a complete analysis. Again, this is not investment advice, do your own research.

Patrick Flood, CFA