Andean Retail Update

In-depth Report
Equity ● Stock
Andean Region
Retail
ANDEAN RETAIL UPDATE

Marko Kraljevic 16 October 2020
We maintain our preference for Cencosud over Falabella

We are maintaining our cautious view regarding the discretional retail sector’s performance,
as the rise in COVID cases in Europe and the United States indicates a growing likelihood that
the sanitary crisis could intensify throughout 1H21 in the Andean region. In this context, we
project: i) a sales mix weighted toward online and electronics will continue to hit department stores’
operational results during 2H20; and ii) supermarket sales will maintain momentum, because, as long
as restrictions remain on bar and restaurant capacities, the expense of going out will continue to be
transferred to staying in.
We project that retail operational results will face pressure in the short term, as a result of
these factors: i) the loss of momentum from the withdrawal of pension funds in Chile and Peru.
According to the Chilean Chamber of Commerce’s (CNC’s) figures for average weekly retail sales
in the country, the sales boom brought on by pension fund withdrawals is running out of steam: on
average, weekly retail sales were: -13% YoY in July, +35% YoY in August, and +13% YoY in September;
ii) Online sales are stabilizing at structurally higher levels. According to data on Google search
trends for online sales sites, searches are stabilizing at figures that are structurally higher—in Chile,
at ~33% above average levels reached between January and March of 2020, and in Peru, at +20%
higher; and iii) as a result of the foregoing, and also considering the expenses associated with
online sales, we project consolidated expenses will have less room to be diluted in the top line,
all of which will push down consolidated margins in the short term.
Argentina represents about CLP 120 per share of Cencosud. Argentina accounts for a not
inconsiderable 22% of Cencosud’s consolidated EBITDA, according to 2Q20 LTM figures. We expect
this figure to converge toward 14% in the medium term, mainly because of ARS depreciation. The
main assumptions of our evaluation include: i) Cencosud’s track record, with operational margins in
Argentina proving resilient over the past ten years, including through periods of high economic stress;
ii) WACC of ~20%, based on a CDS of 2000bps for operations in the country; and iii) stabilization of
adj. EBITDA (ex-IFRS 16) margin at ~7.8%.
Fixed income: Given the narrow spread, we recommend to HOLD for the entire curves of Falabella
and Cencosud.
This report and others are available at: www.larrainvialresearch.com
EMISPDF cl-matrix01 from 181.42.22.153 on 2021-04-26 22:04:58 BST. DownloadPDF.

Downloaded by cl-matrix01 from 181.42.22.153 at 2021-04-26 22:04:58 BST. EMIS. Unauthorized Distribution Prohibited.
In-depth Report
Equity  Stock
Andean Region
Retail
16 October 2020
WE MAINTAIN OUR PREFERENCE FOR CENCOSUD OVER

FALABELLA
We are maintaining our cautious view regarding the discretional retail sector’s
Marko Kraljevic
performance, as the rise in COVID cases in Europe and the United States indicates a
growing likelihood that the sanitary crisis could intensify throughout 1H21 in the mkraljevic@larrainvial.com
Andean region. In this context, we project: i) a sales mix weighted toward online and +562 2616 5603
electronics will continue to hit department stores’ operational results during 2H20; and Senior Analyst
ii) supermarket sales will maintain momentum, because, as long as restrictions remain on
bar and restaurant capacities, the expense of going out will continue to be transferred to CENCOSUD
staying in. Recommendation: OVERWEIGHT
We project that retail operational results will face pressure in the short term, as a result Target Price (CLP/Share): 1,450
of these factors: i) the loss of momentum from the withdrawal of pension funds in Chile Close Price (CLP/Share): 1,114
and Peru. According to the Chilean Chamber of Commerce’s (CNC’s) figures for average BBG Ticker (local): CENCOSUD CI
weekly retail sales in the country, the sales boom brought on by pension fund withdrawals
is running out of steam: on average, weekly retail sales were: -13% YoY in July, +35% YoY in FALABELLA
August, and +13% YoY in September; ii) Online sales are stabilizing at structurally higher Recommendation: NEUTRAL
levels. According to data on Google search trends for online sales sites, searches are
Target Price (CLP/Share): 2,500
stabilizing at figures that are structurally higher—in Chile, at ~33% above average levels
reached between January and March of 2020, and in Peru, at +21% higher; and iii) as a Close Price (CLP/Share): 2,170
result of the foregoing, and also considering the expenses associated with online sales, BBG Ticker (local): FALAB CI
we project consolidated expenses will have less room to be diluted in the top line, all of
which will push down consolidated margins in the short term.
Argentina represents about CLP 120 per share of Cencosud. Argentina accounts for a not
inconsiderable 22% of Cencosud’s consolidated EBITDA, according to 2Q20 LTM figures.
We expect this figure to converge toward 14% in the medium term, mainly because of ARS
depreciation. The main assumptions of our evaluation include: i) Cencosud’s track record,
with operational margins in Argentina proving resilient over the past ten years, including
through periods of high economic stress; ii) WACC of ~20%, based on a CDS of 2000bps
for operations in the country; and iii) stabilization of adj. EBITDA (ex-IFRS 16) margin at
~7.8%.
Cencosud—Equity: We maintain our OVERWEIGHT call, based on the following factors:
i) Future flows should be resilient thanks to high exposure to supermarkets, which we
expect to account for ~70% of EBITDA during the 2020 and 2021 period; ii) the alliance
with Cornershop, which should give traction to the company’s sales in online channels,
and grant Cencosud access to the know-how and technology developed by Cornershop; iii)
downgrade risk is in the past, which should allow the company to increase CAPEX above
the repositioning levels of recent years (avg. CAPEX/ D&A 2015-19 is ~97%); iv) expense
savings from closure of department stores in Peru (USD ~15mn) and of Johnsons in Chile
(USD ~15mn); and v) tailwinds from the punished valuation of Cencoshopp, for which we
estimate an upside of 42% compared to the current level.
Disclosures and certifications can be found in “Important Disclosures” on the last page of this report.
1
LVRS - Andean Retail Update: We maintain our preference for Cencosud over Falabella. 16 October 2020.
Falabella—Equity: We remain NEUTRAL, based on these factors: i) Falabella is currently going

through a process of transformation from physical retailer to an omni-channel experience,
with the most recent change being the creation of a last-mile division. In our opinion, this
transformation brings with it inherent execution risk, which we also expect will leave its mark
on the company’s operational results at least in 2020 and 21; ii) the current health crisis is
having a greater impact than expected, which is reflected in a sales mix weighted toward lower
gross margin categories such as electronics, to the detriment of higher-margin categories like
clothing, and with more exposure to online channels with intensified expenses; and iii) there
is growing pressure from pure online players like MELI, which recently inaugurated a 9000 m2
distribution center in Chile, for a total investment of USD 100mn. All of this should be partly
offset by tailwinds from a possible market re-valuation of Mall Plaza, for which we expect an
upside of 26%.
Fixed income: Given the narrow spread, we recommend to HOLD for the entire curves of
Falabella and Cencosud.
2
Pressure on retailers’ operational results will remain in 4Q20 and 1Q21.
We project that retail operational results will face pressure in the short term, as a result of
these factors: i) the loss of momentum from the withdrawal of pension funds in Chile and Peru.
ii) Online sales are stabilizing at structurally higher levels. And iii) as a result of the foregoing, and
also considering the expenses associated with online sales, we project consolidated expenses
will have less room to be diluted in the top line, all of which will push down consolidated
margins in the short term.
The boost in sales that came from the withdrawals of pension funds is running out. Sales figures
from the CNC reflect a sharp increase in YoY sales in the retail sector in August, accompanying
the withdrawal of pension funds and the end of lockdowns. However, the data also reflect a loss
of momentum as of September: average retail sales were -13% YoY in July, +35% YoY in August,
and +13% YoY in September. The fall is even sharper when we look at growth figures in terms of
week over week. As such, the momentum from pension fund withdrawals is slowing.
Table 1: Chile - Retail Sales Trend reflects loss of momentum

Jul-20 Aug-20 Sep-20
Avg. Retail Sales Var. (YoY) -13.3% 35.3% 12.8%
Avg. Retail Sales w/o Supermarkets Var. (YoY) -32.3% 34.5% 9.0%
Avg. Retail Sales Var. (WoW) 7.7% 20.9% -0.5%
Avg. Retail Sales w/o Supermarkets Var. (YoY) 10.4% 33.6% -2.0%
Source: LarrainVial and CNC
Search trends for online sales sites indicate that online penetration is stabilizing at structurally
higher levels. According to Google searches for online sales sites in Chile and Peru, searches of
online sites experienced an increase around the date when both countries approved withdrawal
of pension funds, to then begin a steady downward trend. But while the figures do show a
decrease, they are stabilizing at levels above those before the health emergency: +33% in Chile
and +21% in Peru.
Graph 1: Chile - Google search trends for main online sales sites
Approval of pension
fund withdrawals
Source: LarrainVial Research and Google Trends
3
Graph 2: Peru - Google search trends for main online sales sites
Approval of pension
fund withdrawals
Source: LarrainVial Research and Google Trends
4
Argentina represents around CLP 120/share of Cencosud

Value at risk? As of 2Q20 LTM, Argentina accounts for 22% of Cencosud’s EBITDA, which we
project will converge toward 14% in the medium term due mainly to depreciation of the Argentine
peso. For Falabella, on the other hand, Argentina represents less than 2% of EBITDA. As such,
Argentina will not have any material impact on our estimates for Falabella shares, but it will for
Cencosud, where we project the Argentine operation represents ~ CLP120/ share of Cencosud.
Main assumptions of our evaluation
WACC Argentina: 20%. Consensus estimates that Argentina’s GDP will perform among the
poorest in the region in 2020, contracting 11.7% YoY, to then expand 5.1% in 2021. As such,
Argentina’s 2021 GDP will be 93% of 2019’s. The Argentine peso, meanwhile, is showing rampant
depreciation: according to consensus data, the official USD/ARS exchange rate will close 2020 at
ARS 97 (vs. ARS 59 in 2019), reaching ARS 147 in 2021. Assuming net international reserves of
around USD 8bn, (2% of GDP), there is a risk that the government will not be able to contain an
even more pronounced depreciation if there are any additional shocks, especially considering
that the unofficial “dólar blue” is currently at ~ARS 167 (vs. official rate of ~ARS 77). For its part,
consensus estimates indicate that inflation should remain at ~40-45% in 2020 and 2021. In this
context, we are discounting operations in Argentina with a CDS of 2000bps and inflation in line
with the consensus in 2020 and 2021. In all, we estimate a WACC of ~20% for Argentine operations.
The health crisis has been supportive of EBITDA margin expansion, but we do not expect these
levels to be sustainable. During 1H20, Cencosud’s operational performance in Argentina was
favored by the operational deleveraging generated by exceptional tailwinds on supermarket sales
(LTM 2Q20, 64% sales vs. 60% LTM 2Q19), and home improvement (LTM 2Q20 Cencosud sales
in Argentina at 27%, vs. 29% LTM 2Q19), caused worldwide by quarantines. This process led the
operation’s SG&As ex D&A/revenues to 25.8% (vs. 2019 28.3%; var: -2.5p.p.), which was partly
offset by a gross margin decrease to LTM 2Q20 34.9% (vs. 2019 37%; var: -2.1p.p.), mainly because
of the fall in results for malls and supermarkets.
For 2021-22, we project the operation’s EBITDA margin will stabilize at ~7.8%, as a result of
these factors: i) the fading away of tailwinds on sales because of quarantines; ii) pressure on
expenses from the annual salary renegotiation that usually happens in March; and iii) margins to
stabilize in line with the historical average: gross margin at 35.6% and SG&A ex D&A/ revenues
at ~28%. All this is in line with the company’s historical operational performance in Argentina,
which has proved resilient in spite of temporary hits during periods of macro economic adversity.
We assumed a net financial debt for Cencosud Argentina in line with its share of the company's
consolidated liabilities
Table 2: Historical performance of Cencosud Argentina

2011 2012 2013 2014 2015 2016 2017 2018 2019 2Q20 LTM
Revenues (CLP bn) 2,196 2,489 2,578 2,644 3,261 2,529 2,600 2,029 1,735 1,795
As consolidated Revenues (%) 29.0 27.4 25.3 24.7 29.7 24.5 24.9 20.8 18.3 18.7
*Adj. EBITDA (CLP bn) 191 139 191 207 256 195 187 148 151 164
As consolidated EBITDA (%) 30.0 22.0 26.3 32.6 41.4 25.5 26.6 23.3 19.4 20.1
* Adj. EBITDA Margin (%) 8.7 5.6 7.4 7.8 7.8 7.7 7.2 7.3 8.7 9.1
Gross Margin (%) 32.4 33.4 34.7 35.1 36.0 36.9 36.7 37.8 37.0 34.9
Gross Margin SM (%) 30.6 31.0 30.8 30.7 31.3 31.9 32.0 31.6 30.1 29.5
Gross Margin HI (%) 37.7 39.1 39.4 39.5 38.3 39.2 37.0 38.9 40.5 42.5
SG&A ex D&A / Revenues 23.6 27.8 27.3 27.3 28.2 29.2 29.6 30.5 28.3 25.8
Argentina GDP YoY 6.4 -1.0 2.4 -2.5 2.7 -2.1 2.8 -2.6 -2.1 -7.1
Source: LarrainVial Research, Cencosud and INDEC
*Estimated ex IFRS - 16 for 2019 and 2020
5
Cencosud (BUY, target price CLP 1,450)
What has changed?

We are increasing our price target for the company from CLP 1,350 to CLP 1,450, equivalent to
a 28% upside from current levels. We maintain our OVERWEIGHT recommendation. Our new
estimates consider: (i) updated projections for economic growth, inflation, and FX rates in Chile,
Peru, Colombia, Argentina, and Brazil; (ii) an equity risk premium (ERP) decline from 6.5% to
6.0%, and CDS of 175bps in Chile and Peru, of 275bps in Colombia; of 2000bps in Argentina; and
350bps in Brazil; (iii) longer-than-projected tailwinds of the sanitary crisis over non-discretionary
consumption; (iv) the Cencosud - Cornershop partnership, which in our opinion: a) will allow
Cencosud to catch up quickly in online sales capacity with relatively limited investment, after
investing at maintenance levels; and b) is the direct consequence of an on-target growth
strategy in agreement with changing consumer trends and the transformation the retail sector
is experiencing.
Investment case
Our Overweight recommendation is based on these factors: i) Future flows should be resilient
thanks to high exposure to supermarkets, which we expect to account for ~70% of EBITDA during
the 2020 and 2021 period; ii) the alliance with Cornershop, which should give traction to the
company’s sales in online channels, and grant Cencosud access to the know-how and technology
developed by Cornershop; iii) downgrade risk is in the past, which should allow the company
to increase CAPEX above the repositioning levels of recent years (avg. CAPEX/ D&A 2015-19
is ~97%); iv) expense savings from closure of department stores in Peru (USD ~15mn) and of
Johnsons in Chile (USD ~15mn); and v) tailwinds from the punished valuation of Cencoshopp, for
which we estimate an upside of 26% compared to the current level.
Key risks:
(i) A slower-than-expected rebound in consumer confidence; (ii) a slower-than-anticipated
economic recovery, which would increase consumers’ price sensitivity; and iii) a new spike in
COVID-19 contagion and a greater impact on the macro context than expected.
Valuation:
FCFF, based on a WACC of 10.8%, equity risk premium (ERP) of 6.0%.
Table 3: Cencosud - Key financial figures

2019a 2020e (NEW) 2020e (OLD) 2021e (NEW) 2021e (OLD)
Revenues (CLP bn) 9,491 9,516 9,797 9,404 9,433
Adj. EBITDA (CLP bn) 777 871 836 851 828
EBITDA margin (%) 8.2 9.1 8.5 9.0 8.8
Adj. Net Income (CLP bn) 115 64 90 218 193
NFD/EBITDA (x) 3.5 2.9 2.9 2.9 2.9
Source: LarrainVial and company data
6
Falabella (NEUTRAL, target price CLP 2,500)
What has changed?

We are slightly raising our target price from CLP 2,400 to CLP 2,500, equivalent to a 15% upside
from current levels. We maintain our NEUTRAL recommendation. Our new estimates consider:
(i) updated projections for economic growth, inflation, and FX rates in Chile, Peru, Colombia,
Argentina, and Brazil; (ii) an equity risk premium (ERP) decline from 6.5% to 6.0%, and CDSs
of 175bps in Chile and Peru, 275bps in Colombia; 2000bps in Argentina; and 350bps in Brazil;
(iii) longer-than-projected headwinds from the sanitary crisis over discretionary consumption,
which should lead to: a) higher participation of electro in the sales mix, to the detriment of
clothing, which has higher gross margins; b) more participation in online sales; and c) elevated
inventory levels and a resultant high promotional activity, an environment we expect will hit
results throughout the second half of 2020.
Investment case
Our NEUTRAL recommendation is based on: (i) Falabella is currently going through a process
of transformation from physical retailer to an omni-channel experience, with the most recent
change being the creation of a last-mile division. In our opinion, this transformation brings
with it inherent execution risk, which we also expect will leave its mark on the company’s
operational results at least in 2020 and 21; ii) the current health crisis is having a greater impact
than expected, which is reflected in a sales mix weighted toward lower gross-margin categories
such as electronics, to the detriment of higher-margin categories like clothing, and with more
exposure to online channels with more intense expenses; and iii) there is growing pressure from
pure online players like MELI, which recently inaugurated a 9000 m2 distribution center in Chile,
for a total investment of USD 100mn. All of this should be partly offset by tailwinds from a
possible market re-valuation of Mall Plaza, for which we expect an upside of 42%.
Key risks:
(i) A slower/faster-than-expected rebound in consumer confidence; (ii) a slower/faster-
than-anticipated economic recovery; (ii) a new spike in COVID-19 contagion that would force
authorities to restrict people’s movement once again; and (iii) increased competition in the
sector as new competitors enter.
Valuation:
FCFF, based on a WACC of 8.4%, equity risk premium (ERP) of 6.0%.
Table 4: Falabella - Key financial figures

2019a 2020e (NEW) 2020e (OLD) 2021e (NEW) 2021e (OLD)
Revenues (CLP bn) 9,411 8,870 8,912 9,376 9,305
Adj. EBITDA (CLP bn) 1,141 671 778 1,092 1,102
EBITDA margin (%) 12.1 7.6 8.7 11.6 11.8
Adj. Net Income (CLP bn) 295 -26 59 238 256
NFD/EBITDA (x) - Non banking 4.7 9.2 6.9 5.0 5.0
Source: LarrainVial and company data
7
Time to take profits. We maintain our HOLD on Cencosud and Falabella curves.
Cencosud: Time to take profits. HOLD CENSUD25 y CENSUD27. Since our BUY recommendation
on the CENSUD 27 bond, its z-spread contracted from 366bp to 250bp, for a total of 116bps.
This was thanks to the strengthening of leverage metrics in 1H20, mainly favored by increased
EBITDA, which in turn was based on strong supermarket sales growth during the health crisis
and the application of measures to reduce and contain expenses. As such, the Cencosud curve is
currently trading equal to Falabella. With this background, we estimate Cencosud will close 2020
and 2021 with an NFD/EBITDA of 2.9x and gross leverage of 3.1x, below the threshold of NFD/
EBITDA of 4x and gross leverage of 4.5x that Fitch indicated as potential triggers for a classification
downgrade. In this context, we consider the downgrade risk to be virtually nonexistent. As such,
we consider there to be limited room for spreads to compress even further, which leads us to
change our recommendation from BUY to HOLD.
Table 5: Cencosud
Bond Amount Coupon Rating Indicative YTW Z-Spread Mod Duration

(USD mn) Type Moody's/S&P/Fitch Price (%) (bp) (Years)
CENSUD 25 524 FIXED Baa3/n.a./BBB- 110.4 2.5 215 3.7
Source: LarrainVial Research
Falabella: Curve is trading in line with bonds of lower classification. We maintain a HOLD for
the whole curve, given the narrow spread. Falabella’s operational results were strongly affected
by the current sanitary crisis, mainly hit by: i) deterioration of the labor market and the macro
context; and ii) a change in the company’s sales mix to be more weighted toward online sales
and electronics products, both with lower operational margins. In this context, we project the
non banking’s NFD/EBITDA will end 2020 at a record ~9x (vs. 4.7x at the close of 2019), to later
converge to 5.1x in 2021. Given all of this, we do not rule out a rating downgrade for Falabella.
Table 6: Falabella
Bond Amount Coupon Rating Indicative YTW Z-Spread Mod Duration

(USD mn) Type Moody's/S&P/Fitch Price (%) (bp) (Years)
BFALA 23 500 FIXED n.a./BBB/BBB 104.6 1.6 163 2.4
Source: LarrainVial Research
8
Graph 3: Chile IG comparable curve
Source: LarrainVial Research and Bloomberg
Graph 4: Spread BFALA25 CENSUD25 Graph 5: Spread BFALA27 CENSUD27
Source: LarrainVial Research and Bloomberg Source: LarrainVial Research and Bloomberg
9
FALABELLA
Recommendation NEUTRAL Sector Retail Date 14-Oct-20

Target Price (CLP/Share) 2,500 Close Price (CLP/Share) 2,170 Bloomberg Ticker (Local) FALAB CI
Target Price (USD/ADR) n.a. Close Price (USD/ADR) n.a. Bloomberg Ticker (ADR) n.a.
Valuation Method % We remain NEUTRAL, based on these factors: i) Falabella is currently going through a process of
transformation from physical retailer to an omni-channel experience, with the most recent change
SOTP DCF RETAIL @ 8.6% 100
nominal WACC being the creation of a last-mile division. In our opinion, this transformation brings with it inherent
execution risk, which we also expect will leave its mark on the company’s operational results at
Stock Information least in 2020 and 21; ii) the current health crisis is having a greater impact than expected, which is
52w High-Low (CLP/Share) 4,288-1,529 reflected in a sales mix weighted toward lower gross margin categories such as electronics, to the
Avg. Daily Volume (USD mn) 11.00 detriment of higher-margin categories like clothing, and with more exposure to online channels
Free Float (%) 40.0 with intensified expenses. All of this should be partly offset by tailwinds from a possible market
# Shares (million) 2,508 re-valuation of Mall Plaza, for which we expect an upside of 26%.
ADR Ratio n.a.
Market Cap (USD bn) 7,023 Year 2018 2019 2020e 2021e 2022e
Stores Breakdown (#)
Management Team (Jun-20) Chile 204 205 206 208 211
Chairman of the Board: Carlo Solari Peru 141 139 139 141 152
CEO: Gaston Bottazzini Argentina 20.0 19.0 16.0 16.0 16.0
CFO: Alejandro Gonzalez Others 120 118 119 124 129
IR: Juan Luis Carrasco Profit & Loss (CLP bn)
Total Revenues 9,237 9,411 8,870 9,376 9,917
Ownership Structure (Jun-20) Var. (%) 3.05 1.88 -5.74 5.70 5.76
Controlling Group 74% Gross Margin (%) 36.8 35.7 32.9 35.2 36.0
Pension Funds 5% Operating Income 879 705 213 633 789
Others 21% Op. Margin (%) 9.52 7.50 2.40 6.75 7.95
Adj.EBITDA 1,204 1,141 671 1,092 1,256
Var. YoY (%) -0.86 -5.22 -41.2 62.9 15.0
EBITDA Margin (%) 13.0 12.1 7.56 11.6 12.7
Revenues by Market (CLP mn) Adj. Net Income 478 295 -26.5 238 335
Var. YoY (%) -6.11 -38.2 n.a. n.a. 40.7
Net Margin (%) 5.18 3.14 -0.30 2.54 3.38
Balance Sheet (CLP bn)
Current Assets 4,131 4,770 5,372 5,341 5,441
Fixed Assets 5,698 6,109 6,515 6,611 6,684
Total Assets 15,879 18,334 20,649 20,528 20,913
Current Liabilities 2,533 2,924 3,294 3,274 3,336
Long Term Liabilities 3,510 4,052 4,564 4,537 4,622
Equity 5,068 5,259 5,230 5,397 5,632
Total Liabilities & Equity 15,879 18,334 20,649 20,528 20,913
Free Cash Flow (CLP bn)
P/E Net Income 544 356 -27.5 238 335
Minorities 65.3 60.7 17.4 51.3 72.2
D&A 325 436 460 459 468
Working Capital Var. -69.3 -92.9 4.15 83.2 -47.2
Other CFO -34.4 354 719 0.00 0.00
Cash Flow from Operations 831 1,114 1,172 831 828
CAPEX -643 -669 -485 -463 -450
Free Cash Flow to the Firm 188 445 687 368 378
Net debt issuance/ammortization -207 -285 1,257 0.00 0.00
Free Cash Flow to the Equity -19.1 160 1,944 368 378
Dividends Paid -154 -213 -119 -71.5 -101
Credit Metrics (x)
EBITDA Coverage 7.22 5.58 3.47 4.62 5.44
Comparables 2021e (by Market Cap) Net Debt / EBITDA - Non banking 3.06 4.69 9.16 4.95 4.08
Gross Debt / EBITDA - Non banking 3.51 5.34 13.6 7.74 6.72
Gross Debt / Equity 0.75 0.81 1.09 1.06 1.01
Valuation
Close Price (CLP/Share) 5,354 3,250 2,170 2,170 2,170
EPS (CLP/Share) 191 118 -10.6 95.0 134
P/E adj. (X) 27.2 27.6 n.a. 22.8 16.2
EV/EBITDA Adj. (X) 15.0 13.6 16.5 10.0 8.68
P/BV (X) 2.57 2.07 1.04 1.01 0.97
Div. Yield (%) 1.15 2.61 2.19 1.31 1.85
FCFE / Mkt Cap (%) -0.14 1.96 35.7 6.76 6.95
ROE adj. (%) 10.1 5.72 -0.51 4.48 6.08
ROIC (%) 6.31 3.16 -0.04 2.57 3.39
10
CENCOSUD
Recommendation Overweight Sector Retail Date 14-Oct-20

Target Price (CLP/Share) 1,450 Close Price (CLP/Share) 1,114 Bloomberg Ticker (Local) CENCOSUD CI
Target Price (USD/ADR) n.a. Close Price (USD/ADR) n.a. Bloomberg Ticker (ADR) n.a.
Valuation Method % Our Overweight recommendation is based on these factors: i) Future flows should be resilient
thanks to high exposure to supermarkets, which we expect to account for ~75% of EBITDA during
DCF @ 10.8% nominal WACC 100
the 2020 and 2021 period; ii) the alliance with Cornershop, which should give traction to the
company’s sales in online channels, and grant Cencosud access to the know-how and technology
Stock Information developed by Cornershop; iii) downgrade risk is in the past, which should allow the company to
52w High-Low (CLP/Share) 1,380-588 increase CAPEX above the repositioning levels of recent years (avg. CAPEX/ D&A 2015-19 is ~97%);
Avg. Daily Volume (USD mn) 6.20 iv) expense savings from closure of department stores in Peru (USD ~15mn) and of Johnsons in
Free Float (%) 48.2 Chile (USD ~15mn); and v) tailwinds from the punished valuation of Cencoshopp, for which we
# Shares (million) 2,864 estimate an upside of 26% compared to the current level.
ADR Ratio n.a.
Market Cap (USD bn) 4,032 Year 2018 2019 2020e 2021e 2022e
Revenues breakdown (CLP bn)
Management Team (Jun-20)
Chile 4,546 4,529 4,538 4,629 4,832
Chairman of the Board: Horst Paulmann Argentina 2,029 1,735 1,795 1,663 1,505
CEO: Matias Videla Peru 1,008 1,018 1,104 1,150 1,308
IR: Maria Soledad Fernandez Others 2,172 2,209 2,080 1,963 2,051
Profit & Loss (CLP bn)
Ownership Structure (Jun-20) Total Revenues 9,755 9,491 9,516 9,404 9,696
Var. (%) -6.71 -2.70 0.26 -1.18 3.10
Controlling Group 52% Gross Margin (%) 28.5 28.0 27.4 27.3 27.3
Pension Funds 20% Operating Income 405 466 524 542 555
Others 28% Op. Margin (%) 4.16 4.91 5.51 5.76 5.73
*Adj.EBITDA 636 777 871 851 870
Var. YoY (%) -9.6 22.2 12.1 -2.27 2.20
EBITDA Margin (%) 6.52 8.18 9.15 9.05 8.97
Revenues by Market (CLP mn)
Adj. Net Income 111 115 64.2 218 225
Var. YoY (%) -28.96 3.64 -44.0 240 3.17
Adj. Net Margin (%) 1.13 1.21 0.67 2.32 2.32
Balance Sheet (CLP bn)
Current Assets 2,650 2,719 2,457 2,518 2,590
Fixed Assets 7,985 9,530 8,611 8,827 9,077
Total Assets 10,635 12,248 11,068 11,346 11,666
Current Liabilities 2,623 2,135 1,841 1,875 1,919
Long Term Liabilities 3,766 5,671 4,889 4,980 5,098
Equity 4,246 4,443 4,338 4,491 4,649
Total Liabilities & Equity 10,635 12,248 11,068 11,346 11,666
Free Cash Flow (CLP bn)
P/E Adj.EBITDA 636 777 871 851 870
Taxes -152.5 -24.3 -99.7 -96.9 -101
Changes in Working Capital 179 251 0.58 -47.2 12.3
Cash Flow from Operations 479 764 477 707 781
CAPEX -195 546 -179 -277 -267
Free Cash Flow to the Firm 291 1,320 307 430 514
Interest Expenses -256 -299 -301 -226 -226
Free Cash Flow to the Equity 35 1,021 6.27 203 288
Dividends Paid -71.6 -28.6 -91.4 -65.5 -67.6
Credit Metrics (x)
EBITDA Coverage 2.63 2.80 3.09 4.20 4.35
Net Debt / EBITDA 4.29 3.52 2.92 2.92 2.69
Gross Debt / EBITDA 5.41 5.49 3.05 3.12 3.06
Comparables 2021e (by Market Cap) Gross Debt / Equity 0.81 0.73 0.61 0.59 0.57
Valuation
Close Price (CLP/Share) (CLP/Share) 1,250 1,000 1,114 1,114 1,114
Adj. EPS (CLP/Share) 38.6 40.0 22.4 76.2 78.7
P/E adj. (X) 32.5 25.1 53.5 14.7 14.2
EV/EBITDA Adj. (X) 9.94 7.87 7.27 7.39 7.09
P/BV (X) 0.85 0.65 0.74 0.71 0.69
Div. Yield (%) 2.00 1.00 2.86 2.05 2.12
FCF Equity / Mkt Cap (%) 0.99 35.5 0.20 6.35 8.98
ROE adj. (%) 2.60 2.58 1.48 4.86 4.85
ROIC (%) 6.53 6.97 4.58 5.29 5.38
*Cencosud's 2019 adjusted EBITDA excludes gains of CLP 92.48bn from the sale of the stake in Banco Cencosud Peru.
11
RESEARCH DEPARTMENT
Director of Research Co-Head of Research Co-Head of Research

Leonardo Suarez Utilities Financials
(562) 2339 8668 Alexander Varschavsky Florencia Stefani
lsuarez@larrainvial.com Senior Vice President Senior Vice President
Senior Analyst Senior Analyst
(562) 2339 8610 (562) 2339 8597
avarschavsky@larrainvial.com fstefani@larrainvial.com
EQUITY
Strategy Peru & Colombia Consumer Services Basic Materials Industrials

Luis Ramos Marko Kraljevic Leopoldo Silva Lucia Calvo Perez
Vice President Senior Associate Senior Associate Senior Associate
Senior Analyst Senior Analyst Senior Analyst Senior Analyst
(511) 611 4326 (562) 2616 5603 (562) 2519 5546 (511) 611 4335
lramos@larrainvial.com mkraljevic@larrainvial.com lsilva@larrainvial.com lcalvo@larrainvial.com
Utilities Financials
Pablo Etcheverry Magdalena Rosende
Associate Associate
Analyst Analyst
(562) 2829 8008 (562) 2616 5264
petcheverry@larrainvial.com mrosende@larrainvial.com
FIXED INCOME & CREDIT
Corporate Credit Strategy, Telco, Consumer Services,

Mining, O&G, Airlines Gas Distribution
Cristian Campos Juan Djivelekian
Vice President Vice President
Senior Analyst Senior Analyst
(562) 2339 8425 (562) 2339 8656
crcampos@larrainvial.com jdjivelekian@larrainvial.com
ECONOMICS
Chief Economist Economist

Javier Salinas Francisco de la Cerda
Vice President Associate
(562) 2339 8531 (562) 2339 8289
jsalinas@larrainvial.com fdelacerda@larrainvial.com
ADMINISTRATION & SUPPORT
Head of Institutional Client Editing Design

Relationships David Arenas Paula Borquez
Consuelo Solis (562) 2616 5649 (562) 2616 5659
(562) 2339 8639 darenas@larrainvial.com pborquez@larrainvial.com
consuelo.solis@larrainvial.com
Av. El Bosque Norte 0177, 4th Floor, Santiago - Chile. Stay tuned to the Andean region at: www.larrainvialresearch.com
(562) 2339 8591 Contact us: research@larrainvial.com

IMPORTANT DISCLOSURES
This report has been prepared by LarraínVial S.A. Corredora de Bolsa (“LV Corredora”), Some of LarrainVial’s directors are or could eventually become directors of companies
a subsidiary of LarraínVial S.A. LarraínVial Securities US LLC (“LV US”), a broker-dealer whose stocks are monitored by the LarrainVial Research Department. The names of
registered with the U.S. Securities and Exchange Commission and a member of LarrainVial’s directors can be found in the company’s report on its website: www.
the Financial Industry Regulatory Authority and the Securities Investor Protection larrainvial.com. Regardless, the recommendations issued by the LarrainVial Research
Corporation, is distributing this report in the United States. LV US is not involved in Department regarding the stocks its analysts monitor respond exclusively to the
any way or form in the preparation of research reports. LV US assumes responsibility examination of their merits, and the market environment of the companies traded
for this research for purposes of U.S. law. Any U.S. person receiving this report and on the exchange. As such, the opinions of the Research Department are issued
wishing to effect any transaction in a security discussed in this report should do so independently of the interests and the condition of directorship in said companies of
with LV US at 56-2-23398562, El Bosque Norte 0177, 3rd Floor, Las Condes, Santiago, LarrainVial’s own directors.
Chile.
Larrain Vial Research Department issues its views pursuant to relevant factors
LarraínVial refers to Larraín Vial Securities US, LLC as well as LarraínVial S.A. and necessary to recommend an investment decision and independently of any
LarraínVial S.A. Corredora de Bolsa. instructions that the Corporate Finance Division and/for the Sales Desk might
have from any covered company with which it has a business relationship. The
This report is for distribution only under such circumstances as may be permitted by recommendations given by the Research Department with respect to the shares
applicable law. This report is not directed at you if LV US is prohibited or restricted by covered by its analysts respond exclusively to the analysis of the merits and the
any legislation or regulation in any jurisdiction from making it available to you. You market conditions in which the publicly traded companies operate.
should satisfy yourself before reading it that LV US is permitted to provide research
material concerning investments to you under relevant legislation and regulations. However, this does not guarantee their fulfillment. All of the recommendations or
Nothing in this report constitutes a representation that any investment strategy views contained herein can be modified without previous notice.
or recommendation contained herein is suitable or appropriate to a recipient’s
individual circumstances or otherwise constitutes a personal recommendation. It is Research will initiate, update and cease coverage solely at the discretion of
published solely for information purposes, it does not constitute an advertisement LarraínVial. The analysis contained herein is based on numerous assumptions.
and is not to be construed as a solicitation, offer, invitation, or inducement to buy Different assumptions could result in materially different results. The analyst(s)
or sell any securities or related financial instruments in any jurisdiction. Prices in responsible for the preparation of this report may interact with sales personnel and
this report are believed to be reliable as of the date on which this report was issued other constituencies for the purpose of gathering, synthesizing and interpreting
and are derived from one or more of the following: (i) sources as expressly specified market information. LarraínVial is under no obligation to update or keep current the
alongside the relevant data; (ii) the quoted price on the main regulated market for information contained herein, except when terminating coverage of the companies
the security in question; (iii) other public sources believed to be reliable; or (iv) LV discussed in the report. LarraínVial relies on information barriers to control the
US’s proprietary data or data available to LarraínVial. All other information herein is flow of information contained in one or more areas within LarraínVial, into other
believed to be reliable as of the date on which this report was issued and has been areas, units, groups or affiliates of LarraínVial. The compensation of the analyst who
obtained from public sources believed to be reliable. No representation or warranty, prepared this report is determined by research management and senior management
either express or implied, is provided in relation to the accuracy, completeness or (not including investment banking or sales and trading). Analyst compensation is not
reliability of the information contained herein, except with respect to information based on investment banking revenues; however, compensation may relate to the
concerning LV US, its subsidiaries and affiliates, nor is it intended to be a complete revenues of LarraínVial as a whole, of which investment banking, sales and trading
statement or summary of the securities, markets or developments referred to in the are a part.
report. In all cases, investors should conduct their own investigation and analysis of The securities described herein may not be eligible for sale in all jurisdictions or
such information before taking or omitting to take any action in relation to securities to certain categories of investors. Options, derivative products and futures are
or markets that are analyzed in this report. not suitable for all investors, and trading in these instruments is considered risky.
As of the end of the month immediately preceding the date of publication of this Mortgage and asset-backed securities may involve a high degree of risk and may
report, neither LarraínVial nor any of its affiliates beneficially own 1% or more of be highly volatile in response to fluctuations in interest rates and other market
any class of common equity securities of the companies analyzed in this report. In conditions. Past performance is not necessarily indicative of future results. If a
addition, neither LarraínVial nor its affiliates: (a) have managed or co-managed a financial instrument is denominated in a currency other than an investor’s currency,
public offering of securities for the companies; or (b) have received compensation for a change in exchange rates may adversely affect the value or price of or the income
investment banking services from the companies in the past 12 months. Exception for derived from any security or related instrument mentioned in this report, and the
AES Gener and Graña y Montero. reader of this report assumes any currency risk.
On the other hand Larrain Vial or its affiliates expect to receive or intends to seek This report does not take into account the investment objectives, financial situation
compensation for investment banking services from the companies within the next or particular needs of any particular investor. Investors should obtain independent
3 months. LV US did not engage in market-making activities in the subject company’s financial advice based on their own particular circumstances before making an
securities at the time this research report was published. investment decision on the basis of the information contained herein. For investment
advice, trade execution or other enquiries, clients should contact their local sales
The decision to cover an asset with analysis is the exclusive responsibility of the representative. Neither LarraínVial nor any of its affiliates, nor any of their respective
LarrainVial Research Department. A report’s content and its recommendation directors, employees or agents, accepts any liability for any loss or damage arising
regarding the price of an asset under analysis is strictly confidential until the date from the use of all or any part of this report.
of its publication, and only at that time do clients learn our opinion. Executives, the
Investment Banking Division, the Sales and Trading Desk and personnel of LarrainVial Any prices stated in this report are for information purposes only and do not
do not know the content, fundamentals, projections, or recommendations contained represent valuations for individual securities or other instruments. There is no
in reports before their publication and dissemination to clients. Investment Banking representation that any transaction can or could have been effected at those prices
Division, the Sales and Trading Desk and personnel of LarrainVial cannot be aware and any given prices do not necessarily reflect LarraínVial’s internal books and records
of the publication status of any report before it is publicly disseminated to the firm’s or theoretical model-based valuations, and may be based on certain assumptions.
clients. LarraínVial does not undertake that investors will obtain profits, nor will it Different assumptions, by LarraínVial or any other source, may yield substantially
share with investors any investment profits, nor accept any liability for any investment different results. This report may not be reproduced or redistributed to any other
losses. Investments involve risks, and investors should exercise prudence in making person, in whole or in part, for any purpose, without the prior written consent of
their investment decisions. LarraínVial accepts no fiduciary duties to recipients of LarraínVial, and LarraínVial accepts no liability whatsoever for the actions of third
this report and in communicating this report is not acting in a fiduciary capacity. The parties in this respect.
report should not be regarded by recipients as a substitute for the exercise of their Additional information relating to the financial instruments discussed in this report is
own judgment. Opinions, estimates, and projections expressed herein constitute the available upon request. REG (AC) Certifications
current judgment of the analyst responsible for the substance of this report as of the
date on which it was issued and are therefore subject to change without notice and a) The analyst (or analysts) signing this report certify that the views expressed in the
may differ or be contrary to opinions expressed by other business areas or groups of report accurately reflect his or her personal views about the subject securities and
LarraínVial as a result of using different assumptions and criteria. Any such opinions, issuers.
estimates, and projections must not be construed as a representation that the
b) The analyst (or analysts) signing this report certify that no part of his or her
matters referred to therein will occur. Prices and availability of financial instruments
compensation or other payments where, are, or will be directly or indirectly related
are indicative only and subject to change without notice.
to the specific recommendations or views contained in this research report.


Andean Retail Update

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Andean Retail Update

Uploaded by

Copyright:

Available Formats

In-depth Report

ANDEAN RETAIL UPDATE

We maintain our preference for Cencosud over Falabella

This report and others are available at: www.larrainvialresearch.com

EMISPDF cl-matrix01 from 181.42.22.153 on 2021-04-26 22:04:58 BST. DownloadPDF.

WE MAINTAIN OUR PREFERENCE FOR CENCOSUD OVER

Falabella—Equity: We remain NEUTRAL, based on these factors: i) Falabella is currently going

Pressure on retailers’ operational results will remain in 4Q20 and 1Q21.

Table 1: Chile - Retail Sales Trend reflects loss of momentum

Source: LarrainVial Research and Google Trends

Source: LarrainVial Research and Google Trends

Argentina represents around CLP 120/share of Cencosud

Table 2: Historical performance of Cencosud Argentina

Cencosud (BUY, target price CLP 1,450)

What has changed?

Table 3: Cencosud - Key financial figures

Falabella (NEUTRAL, target price CLP 2,500)

What has changed?

Table 4: Falabella - Key financial figures

Bond Amount Coupon Rating Indicative YTW Z-Spread Mod Duration

Bond Amount Coupon Rating Indicative YTW Z-Spread Mod Duration

Graph 3: Chile IG comparable curve

Source: LarrainVial Research and Bloomberg

Graph 4: Spread BFALA25 CENSUD25 Graph 5: Spread BFALA27 CENSUD27

Recommendation NEUTRAL Sector Retail Date 14-Oct-20

Recommendation Overweight Sector Retail Date 14-Oct-20

Director of Research Co-Head of Research Co-Head of Research

Strategy Peru & Colombia Consumer Services Basic Materials Industrials

FIXED INCOME & CREDIT

Corporate Credit Strategy, Telco, Consumer Services,

Chief Economist Economist

ADMINISTRATION & SUPPORT

Head of Institutional Client Editing Design

EMISPDF cl-matrix01 from 181.42.22.153 on 2021-04-26 22:04:58 BST. DownloadPDF.

EMISPDF cl-matrix01 from 181.42.22.153 on 2021-04-26 22:04:58 BST. DownloadPDF.

You might also like