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Rob Citrone's Mexican Bets
Posted by: fedezaldua (IP Logged)
Date: December 2, 2013 10:46AM
Rob Citrone, who belongs to the exclusive Tiger Club, is one of the best hedge fund managers in the street. His fund, Discovery Capital Management, is currently managing over $11 billion, and it has one of the best track records out there – its Discovery Global Opportunity Ltd. fund has a three-year compounded annual return of almost 12%. Citrone invests across all sectors and regions but his fund is famous for its emerging market related bets. Here is a look at the fund's biggest Mexican positions: Cemex (CX) and Televisa (TV).
A U.S. Recovery Related Play
Even though Cemex is based in Mexico, its future growth and a huge share of its revenues come from the U.S: The company generates 30% of its EBITDA in the U.S. The company's third quarter is proof of an improving picture for the still over-leveraged cement producer, as its net debt to EBITDA stands at 5.3 times. Cemex’s third quarter EBITDA was up by 2% year-over-year to $747 million. Revenues also came up by 3% and its EBITDA margin stayed flat at 18.6%. Yes, the company still suffered a $155 million net loss, but such loss can be explained through non-cash items such as the impairment of fixed assets.
Meanwhile, Cemex's business continues to outperform. Revenues and EBITDA continue to show signs of recovery. Cement volumes increased by 7% year over year and ready mix and aggregates posted a 2% year-over-year increase thanks to strong demand on the residential sector as well as favorable results in the industrial and commercial sectors. The company's guidance for its U.S. business also remains favorable at 5% year-over-year growth for cement and 9% and 5% for ready mix and aggregates, respectively.
All in all, with its U.S. business ameliorating fast and Latin America still outperforming above all its Colombian operations — I think Citrone is making the right call by staying long Cemex. The cement producer sells for 8.1 times 2014 EV/EBITDA, but this figure should go down fast as debt is repaid and EBITDA keeps recovering.
A Multiple Case Investment Idea
Citrone might have bought Televisa's shares for many reasons. Let's cite a few:
I am not surprised that both investments made by Citrone's fund make perfect sense. It's always a good practice to look at what great investors are buying and try to figure out the reasons behind every investment.
Stocks Discussed: CX, TV,
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