Industrias Bachoco (IBA, Financial)
(All funds)
Industrias Bachoco, the Mexican poultry company, founded in 1952, is a roughly $2B market cap company that operates poultry production and distribution facilities primarily throughout Mexico, where it breeds, processes, and markets chicken, which accounts for the overwhelming bulk of its sales. It is the number one chicken producer and the number two egg producer in Mexico, with 35% and 5% market shares, respectively. While the chicken business is notoriously cyclical, with profitability varying significantly year-to-year based on the volatility of chicken prices, the company’s volumes steadily grow, and even in the company’s worst years, it has not lost money.
Over the last decade, the company has been able to compound its tangible book value per share, including dividends, by 11.5% per year. At purchase, Bachoco had net cash constituting over 40% of its market cap and was trading at 8 times current P/E, 6 times normalized EBIT, around tangible book value, with a dividend yield of a little under 2%. It also had a normalized owner earnings yield above 12%. In August, a US-based poultry company, Sanderson Farms, was acquired by a joint venture company owned by Cargill/Continental Grain in a 100% cash transaction. Other than having different geographic locations, Sanderson and Bachoco are directly comparable poultry businesses with similar long term records. In thinking about the value of Bachoco, if one were to ascribe the same multiples paid for Sanderson to Bachoco, it would imply an estimated intrinsic value for Bachoco that is more than double the average price the Funds paid for their shares.
From Tweedy Browne (Trades, Portfolio)'s 2021 semiannual report.
