Walmex reported in line with expectations; although improved profitability was a positive highlight, even with lower revenues due to the effect of panic buying a year ago
The current valuation at 14.7x FV/EBITDA 2021E is at historical averages, which together with a complicated comparative basis, limits the room for further appreciation, in our opinion
A good start of the year. As we expected, panic buying in 1Q20 represented a difficult comparable base for Walmex. Nevertheless, the omnichannel strategy on which it has focused its efforts continued to pay off, allowing to maintain its sales practically stable at MXN 170.757 billion (-0.3% y/y), and further strengthening its market positioning. This is explained by a 1.2% decline in consolidated SSS this quarter, a remarkable performance considering the 12.9% y/y increase in revenues a year ago, the digital channel growth (already representing 4.2% of the total), and a 1.7% expansion in the sales floor. By region, weakness in CA (-4.1% y/y), due to the challenging economic environment and increased sanitary restrictions, offset the 0.5% advance in Mexico's revenues (SSS: -0.6%; +310 bps versus a 3.7% decline in ANTAD selfservice). In contrast, EBITDA reached MXN 19.475 billion (+2.2% y/y) and the corresponding margin expanded 30 bps to 11.4%, despite lower revenues in Central America, price investments, and the payment of an extraordinary bonus to its associates. This was supported by efficiencies achieved through technological and logistical renovation, leading to a 10 bps improvement in our country, and a 100 bps increase in CA. Finally, net income totaled MXN 10.07 billion (+0.7% y/y), driven by operational progress. Valuation looks tight. While we believe Walmex and its omnichannel strategy should consolidate its leadership in the sector, with comparable figures looking less complicated going forward, the FV/EBITDA at 14.7x 2021E already incorporates much of this outlook, for which we reiterate our HOLD rating.