15 January 2009
Latam Retail
Seeking value- but still
defensive
Reinaldo Santana
Research Analyst
(52) 55 5201 8016
reinaldo.santana@db.com
Challenging consumer environment
We adjusted downward our estimates and TPs to adapt to the more challenging
consumer environment in Latam. We expect newsflow on industry growth and
consumer credit to deteriorate over the next quarters. Thus, we remain defensive
with our Buy recommendations (preferring food retailers + cosmetics) and our top
pick is CBD. However, we also see some interesting values in certain less
defensive names like Cencosud and B2W. On the other hand, Soriana is now our
main sell idea.
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LOCATED IN APPENDIX 1.
Forecast change
Top picks
B2W (BTOW3.SA),BRL23.29 Buy
CBD-Pao de Acucar (CBD.N),USD24.77 Buy
Cencosud (CEN.SN),CLP1,051.80 Buy
Soriana (SORIANAB.MX),MXN26.12 Sell
Companies featured
Wal-Mart de Mexico
(WALMEXV.MX),MXN33.21 Buy
2007A 2008E 2009E
P/E (x) 25.9 19.2 17.0
EV/EBITDA (x) 16.1 11.4 9.9
B2W (BTOW3.SA),BRL23.29 Buy
2007A 2008E 2009E
P/E (x) 137.3 29.5 18.9
EV/EBITDA (x) 26.0 6.6 5.4
CBD-Pao de Acucar (CBD.N),USD24.77 Buy
2007A 2008E 2009E
P/E (x) 34.9 21.4 16.4
EV/EBITDA (x) 7.7 5.4 4.8
Cencosud (CEN.SN),CLP1,051.80 Buy
2007A 2008E 2009E
P/E (x) 19.7 15.8 13.2
EV/EBITDA (x) 16.1 8.7 7.9
Distribucion y Servicio (DYS.N),USD24.44 Sell
2007A 2008E 2009E
P/E (x) 30.1 21.6 19.4
EV/EBITDA (x) 13.2 11.9 10.9
Falabella (FAL.SN),CLP1,754.60 Hold
2007A 2008E 2009E
P/E (x) 27.8 17.0 13.0
EV/EBITDA (x) 20.0 13.0 11.7
Grupo Famsa (GFAMSAA.MX),MXN7.89 Hold
2007A 2008E 2009E
P/E (x) 33.7 7.1 8.7
EV/EBITDA (x) 13.9 5.3 5.1
Lojas Americanas (LAME4.SA),BRL5.92 Hold
2007A 2008E 2009E
P/E (x) 111.0 33.9 25.7
EV/EBITDA (x) 17.1 6.3 5.1
La Polar (LAP.SN),CLP1,239.90 Hold
2007A 2008E 2009E
P/E (x) 20.9 7.7 6.8
EV/EBITDA (x) 13.3 6.1 6.2
Lojas Renner (LREN3.SA),BRL14.99 Hold
2007A 2008E 2009E
P/E (x) 26.5 10.7 10.1
EV/EBITDA (x) 13.8 5.4 5.2
Natura (NATU3.SA),BRL20.20 Buy
2007A 2008E 2009E
P/E (x) 22.3 15.1 13.2
EV/EBITDA (x) 14.9 10.3 8.8
Ripley (RIP.SN),CLP292.00 Hold
2007A 2008E 2009E
P/E (x) 87.6 14.7 11.2
EV/EBITDA (x) 17.4 9.4 8.3
Soriana (SORIANAB.MX),MXN26.12 Sell
2007A 2008E 2009E
P/E (x) 18.8 19.7 21.5
EV/EBITDA (x) 10.6 8.7 8.5
Global Markets Research Company
Earnings forecasts and TPs adapting to new reality
We see a deteriorating consumer environment in all three main markets vs our
previous update (especially in discretionary retailers) that prompted us to decrease
our estimates by an average of 12.5% in 2009 and our TPs by 8%. We have
incorporated slower organic growth, declining SSS and pressured margins. We
also factored a possible deterioration in NPLs (non-performing loans) due to
forecasted higher unemployment in all our main markets. However, we forecast
some relief in financing costs in 2009 (lower rates from high levels in 4Q08).
Favoring food retailers & cosmetics, CBD and Cencosud with largest upside
We continue to prefer food retailers as they should continue to show strong
resilience to the looming consumption environment. Although we maintain our
Buy ratings on Walmex and Natura, we see higher potential returns in other food
retailers like CBD and Cencosud. We believe CBD is well positioned given
possible market share gains, higher emphasis on lowering prices, diversified
formats and comfortable cash position. Cencosud might be better off positioned
than what the market expects in terms of its food retail brands in Chile and
Argentina; while we remain optimistic on the company’s operations in Peru and
Brazil. Further, we view as positive the company’s efforts to reduce leverage to
2.2x net debt/EBITDA by 2010 from 3.1x in 2008.
Among non-food retailers, we prefer B2W
The market looks challenging for discretionary retailers. The main risks to our
estimates reside on possible deterioration in NPLs and sharp slowdown in sales.
In turn, most non-food retailers are scaling down organic growth and becoming
more prudent on credit granting & receivables. We maintain our neutral stance on
non food retailers, but we view B2W’s 70% upside and 25% discount to peers as
attractive after factoring a much weaker top line growth scenario (+20%) in 2009.
We also see compelling opportunities in the Brazilian online retail segment as we
believe this segment would outperform the traditional non food retailers.
Downgrades: Soriana, Grupo Famsa and Lojas Americas.
We downgraded our recommendation on Soriana to Sell from Hold; Lojas
Americanas to Hold from Buy, and Grupo Famsa to Hold from Buy, mainly on
lower estimates. We have kept the remainder of our recommendations intact. Our
split from Buy/Hold/Sell is now at 5/6/2 from 7/5/1 before. Main industry risk
include worse than expected macro backdrop and further deterioration of credit
asset quality. To the upside, main risk relates to higher organic growth than
expected and more positive impact from expected cuts in interest rates

Table of Contents
Tougher retail outlook: best positioned players............................. 3
Defensive attributes + relative attractive valuations ................... 13
Forecast revisions............................................................................ 17
Walmex............................................................................................. 22
Soriana ............................................................................................. 24
Grupo Famsa.................................................................................... 26
CBD................................................................................................... 28
B2W................................................................................................... 30
Lojas Renner .................................................................................... 32
Lojas Americanas............................................................................. 34
Natura............................................................................................... 36
Cencosud.......................................................................................... 38
Falabella ........................................................................................... 40
Distribucion y Servicio .................................................................... 42
La Polar............................................................................................. 44
Ripley................................................................................................ 46