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Mexico

Coca-Cola Femsa: Flash KOF: Beer distribution grows in Brazil

  • Kof has announced an agreement with Estrella Galicia for the distribution of its beers in Brazil

  • This will expand its brand portfolio ahead of the implementation of Heineken's new beer distribution agreement in Brazil

  • This time it is not an acquisition deal, as was the recent announcement of the Therezópolis craft beer brand

Juan Barbier
Juan Barbier

Equity Research Analyst

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Marissa Garza Ostos
Marissa Garza Ostos

Head of Equity Research

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Banorte
17 September 2021
Published byBanorte

Kof announced the signing of an agreement with Estrella Galicia brewery for the distribution of its products in Brazil, in conjunction with the Coca-Cola System. This brewer is a well-positioned producer with €479.1 million (~$547.1 million) of global revenue in 2020, has been present in the Brazilian market since 2008 (its largest market outside Spain) and in the past has shown interest in expanding its production capacities in the South American country with the construction of a plant. This agreement is part of the company's long-term strategy to increase its portfolio in the country, seeking a closer relationship with consumers by broadly meeting the market needs. However, this time it is not an acquisition deal, as was the recent announcement of the Therezópolis craft beer brand.

Positive implication: We believe this agreement will be positive for Kof, as it will help to expand its brand portfolio in the context of the implementation of Heineken's new beer distribution agreement. It is worth mentioning that the latter has been delayed throughout this year as a result of COVID-19, which will lead the Heineken and Amstel brands to migrate to the brewery's own distribution network, so it is important for the company to achieve an orderly transition, relying on recognized brands in the market. Considering that as of 2Q21 (LTM) beer revenues in Brazil amounted to MXN 15.337 billion, equivalent to 27.4% of its revenues in the country and 8.1% at the consolidated level, it is possible that this announcement will marginally contribute to stabilize Kof's beer revenues. Subject to further discussions with the company and the inclusion of the new contract, we maintain a favorable outlook for the business, as it has a healthy financial structure (1.0x ND/EBITDA) and a valuation level of 7.9x FV/EBITDA (vs. 3-year average at 8.2x).