Almacenes Exito: Largest Retailer On The Continent of South America

Amit Wadhwaney presented his in-depth investment thesis on Almacenes Exito (Colombia: EXITO) at Best Ideas 2017.

Almacenes Exito is a Colombian-listed retailer. With over 2,600 stores and over $10 billion of sales across Brazil, Colombia, Uruguay, and Argentina, Exito is the largest retailer on the continent of South America with a leading market share in each country, except Argentina, where it is the largest in the province in which it operates. The company’s stores sell a range of goods, but food-related items account for the majority of sales. Following a large transaction announced in July 2015, Exito was transformed from being the dominant retailer domestically in Colombia into the largest retailer in South America. Exito acquired control of Grupo Pão de Açúcar(“GPA”), a Brazilian retailer that was previously controlled by Exito’s parent company. GPA is the dominant retailer in Brazil, with leading market share and six brands across the country. By bringing GPA under the control of Exito, Casino (Exito’s parent company) has created the largest retailer in South America, with a footprint that serves 75% of the continent’s population. This combination of the businesses is further enhanced by Exito’s ability to extract cost savings and synergies across the different countries and brands under which it now operates. Because of a range of issues (corporate governance questions connected with the acquisition, a misalignment between the new business and the old shareholder base, a slowdown in both Colombia and Brazil, and being removed from the MSCI Colombia Index), Exito shares trade at what Amit considers to be a very modest valuation multiple. Interestingly, this valuation multiple is also being applied to a business that has seen significant challenges in both Brazil and Colombia over the past year. While many of the company’s issues are real, they are, in Amit’s opinion, largely solved, resolvable or transitory. To Amit, the combination of these two market-leading businesses into South America’s dominant retailer at prices reflecting a cyclical downturn, coupled with the business’ good financial position and cash-generating ability, positions Exito extremely well for the long term.

About the instructor:

Amit Wadhwaney is a Portfolio Manager at Moerus Capital Management, LLC and the manager of the Moerus Global Value Fund LP. Mr. Wadhwaney has over 25 years of experience researching and analyzing investment opportunities in developed, emerging, and frontier markets worldwide, and has managed global investment portfolios since 1996. Prior to founding Moerus, Mr. Wadhwaney was a Portfolio Manager and Partner at Third Avenue Management LLC, where he founded the international business and was the founding manager of the Third Avenue Global Value Fund, LP, the Third Avenue Emerging Markets Fund, LP, and the Third Avenue International Value Fund. Mr. Wadhwaney holds an M.B.A. in Finance from The University of Chicago. He also holds a B.A. with honors and an M.A. in Economics from Concordia University. He also holds B.S. degrees in Chemical Engineering and Mathematics from the University of Minnesota. He speaks English, French, Gujarati, Hindi, Sindhi, and Spanish.