Amid market turmoil/political risks, sector should gain traction (Feb. 2018)

16 February 2018BeveragesLatam Consumer MonthlyBeveragesIndustry UpdateLatin AmericaIndustryLatam ConsumerMonthlyDate16 February 2018Deutsche BankMarkets ResearchAmid market turmoil/political risks,sector should gain traction (Feb. 2018)Broad-based rally, but all subsectors underperformedIn January, the rising tide lifted most boats; but while 71% of our coveredstocks showed positive returns only 21% outperformed their respective indices.Several retail stocks from across the region had double-digit gains in USD terms(ARZZ3, LREN3, CHDRAUIB, LIVEPOLC1, IMI), as did VCO, BIMBOA, and NATU3in the staples side. Other stocks with high-single-digit gains included JBSS3,KOF, BTOW3 and SORIANAB. Notable decliners included BEEF3 and GRUMAB(both declined by 6.0% and are trading near 52-week lows). Year to date, allthe subsectors in LatAm consumer underperformed their respective indices withFood, Retail, HPC and Beverages trailing their respective country indices by13.1%, 4.6%, 3.6% and 3.2%, respectively, on average. But considering the recentincrease in volatility and correction in global equity markets, combined withongoing political risks, we would expect the more defensive Latin Consumerstocks to gain more traction in coming months.Kimberly-Clark de Mexico to propose flat (but all-cash) dividendKCM's Board met on 13 February to approve the proposals for this year's AGM.The most important among them was the dividend declaration for 2018: an all-cash dividend of P1.58/share. This is the first time in close to 40 years as apublic company that KCM has not raised its dividend by at least Mexican inflation(which would imply a declaration of P1.69 for 2018), but this has been wellcommunicated since mid-2017 during management conference calls. In the latestcall, in fact, management mentioned that the dividend would likely be flat versus2017 (given the current macro/political uncertainty and input cost headwinds)and that it might be partially paid in stock. Because they (wisely, in our view)abandoned that idea, income investors finally managed to exhale (and the stockreacted accordingly). KCM continues to have a comfortable cash position onwhich to draw and thus should be able to absorb another year of negative freecash flow (after dividends) while navigating the current uncertainty. For 2019, weexpect lower inflation and margin recovery to allow KCM's board to return to itslong-standing dividend policy (of raising dividend at least by Mexican inflation).Jose YordanResearch Analyst+1-212-250-5528Marcel MoraesResearch Analyst+1-904-271-2470Yusuf Jamal, CFAResearch AssociateKaila LopezResearch Associate+1-904-645-1197Deutsche Bank Securities Inc.Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should beaware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should considerthis report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONSARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017.Distributed on: 16/02/2018 21:50:20 GMT7T2se3r0Ot6kwoPa 16 February 2018BeveragesLatam Consumer MonthlyTable Of ContentsDB Related Research—January..........................................3Latin America: Latam Retail - 4Q17 preview; Question bank on Lata................3Global: European Beverages assumption of coverage, CEEMEA retail..............4DB LatAm Consumer Coverage Summaries.......................5Global Peer Valuation Tables.............................................. 9Historical Valuation Multiples...........................................21LatAm Food stocks.......................................................................................... 21LatAm Beverage stocks....................................................................................23LatAm Household & Personal Care stocks...................................................... 26LatAm Retail stocks......................................................................................... 27Input Cost Tracker.............................................................32Beverage raw materials: world sugar stabilizing near multi-year l...................32Grain prices rising slightly in............................................................................33Pulp still rising from multi-year lows; oil keeps rising amid glo.......................35Brazil Protein Update........................................................37Update on the Consumer (BR, MX, CL, CO).....................38Brazil: proceeding at a slightly higher pace, but political risks........................ 38Mexico: some positive signs, but NAFTA and the 2018 election rema............40Chile: recovery to pick up despite pause in easing cycle, as the.....................42Colombia: with oil rising, looks like the worst is over..................................... 43V