Opportunities open up for Bachoco due to good performance

As reported in the newspaper Reforma, "Industrias Bachoco had an increase of 27 percent in profitability compared to a year ago, and the best performing company among the 10 largest food packers in Latin America, according to Bloomberg data".


According to Bloomberg, the profitability of Bachoco is the highest since 2013, while the average margin of 108 global competitors has fallen to its lowest level since 2005. However, Bachoco's shares are undervalued in the Mexican stock market, though the company has recorded the highest increase in profits among producers in Latin America.


Strong demand for chicken and low grain prices


The company benefits from a strong demand for chicken and low prices for corn and grains in general, both in Mexico and in the US, according to a statement from Mauricio Martinez, securities analyst at Corporativo GBM, to Reforma.


Low chicken prices in Mexico and the US, and the focus of Bachoco in poultry, benefits the company at a time when the price of pork and beef are high, according to Kenneth Shea, food and beverage analyst at Bloomberg Intelligence. "The way consumers are buying reveals that they see chicken as a healthier and economic choice," he said.


Daniel Salazar, finance director at Bachoco, said the factors helping the company are the high level of demand for poultry products in Mexico and the US, as well as a reduction in the costs of raw materials. According to analysts surveyed by Bloomberg, Bachoco has six recommendations to buy and one to maintain, in addition shares could rise to about 14 percent in a year.


Bachoco has a 35 percent market share of chicken in Mexico and 5 percent in eggs, according to Reforma. Plus, the demand for chicken in Mexico rose 4 percent last year. "The company generates 84 percent of its revenue from poultry,” said Fernanda Simon, analyst at Intercam Casa de Bolsa, in a recent report.


Future investments


According to analysts at Intercam, the company plans to invest up to US$130 million in plant expansions this year, three times more than previous years. "The company is in a very good position to take advantage of synergies and consider a potential acquisition," said Martinez, GBM. "The company continues to generate a lot of cash that would allow them to make a significant purchase in the short or medium term," he added.