Mexico Equity & Income Fund Inc · NYSE:MXE
Mexico Equity & Income Fund — Investor Presentation (September 2017)
43 slides from Mexico Equity & Income Fund's investor presentation, September 2017
Slide 1: Pichardo Asset Management: MXE Presentation for Fund Shareholders
Pichardo Asset Management An Independent Portfolio Management Firm MXE Closed-End, NYSE Listed Fund Presentation for Fund Shareholders 27-years track record investing in Mexican equities September 2017 Experience 1 Consistency Vision
Slide 2: Index
Index Index I. Summary ….…………………………………………………..…………….……….………………. 3 - 4 II. Review of the Mexican Economy ……………………………….…………………….….....………. 5 - 12 III. The Fund´s Portfolio: i. Sector Allocation, Contributors & Valuation ……….………...…….…………..….…… 13 – 16 ii. Sector Overweight / Underweight ……………………………………
Slide 3: I. Summary
I. Summary • The Mexican economy has consistently weathered strong external and internal shocks. Domestic consumption has remained strong, supported by solid fundamentals, such as stronger employment and credit. Investment has been somewhat lackluster because of the uncertainty surrounding the North
Slide 4: I. Summary
I. Summary • PAM’s adherence to maintaining positions in so-called discounted-oversold stocks, as mentioned early in the year, contributed to the Fund’s Net Asset U.S. Dollar Value per share, “NAV,” registering a 11.28% return for the Fund’s fiscal year ended July 31, 2017, according to U.S. Bancorp
Slide 5: II. The Mexican Economy - GDP & Production Activities
II. The Mexican Economy - GDP & Production Activities GDP (seasonally adjusted) 3.0 Year on Year 2.8 2.8 2.7 2.8 2017 Forecasts 2.6 2.5 2.5 2.5 2.3 2.3 2.3 2.2 2.2 2-2.5 2-2.5 2.0 2.0 2.0 1.9 1.9 1.8 1.8 1.8 1.8 1.8 1.7 1.7 1.6 1.6 1.5 1.4 1.1 1.0 1.0 0.5 0.0 Source : INEGI. The Fund holds no shares
Slide 6: II. The Mexican Economy - Mexico's Labor Market
II. The Mexican Economy - Mexico’s Labor Market 6.00 Unemployment Rate 8.0% Insured IMSS Workers 20,000 (%) 6.0% 5.50 18,000 4.0% 5.00 2.0% 16,000 4.50 0.0% 14,000 4.00 -2.0% 3.41 12,000 3.50 -4.0% YoY Total Insured Workers 3.00 -6.0% 10,000 Source: Bloomberg Source: IMSS Wages & Consumer Inflation
Slide 7: II. Mexican Economy - Trade Patterns with the U.S.
II. Mexican Economy - Trade Patterns with the U.S. United States International Commerce (to July 2017) Country Exports Imports Total Commerce Balance Country Exports Imports Total Commerce Balance China 74,054 291,017 365,071 -216,963 Taiwan 14,874 24,440 39,314.0 -9,566 % of Total 8.3% 21.5% 16.3%
Slide 8: II. The Mexican Economy - Trade Patterns with the U.S.
II. The Mexican Economy - Trade Patterns with the U.S. Total Exports from the United States to Mexico by State Exports (Million USD) 132,700 + 66,904 + 12,781 NJ 212,385 Mexico is the state’s 1st export destination Mexico is the state’s 2nd export destination Mexico is the state’s 3rd export destina
Slide 9: II. The Mexican Economy – Energy Reform
II. The Mexican Economy – Energy Reform ROUND ONE AUCTIONS, 2015-2016 Committed Estimated Production (Thousand Auctions Contractual Area Investment barrels per day) (Million Dollars) 1.1 Shallow waters in the Gulf of Mexico 2,709 79 1.2 Shallow waters in the Gulf of Mexico 3,148 124 1.3 Onshore area
Slide 10: II. Mexican Economy - Exchange Rate
II. Mexican Economy - Exchange Rate MXN/USD Spot Exchange Rate Aug 25, 2017 23 19-Jan-17, 21.96 22 -20.0% 21 20 19 18 70.6% 17 17.62 16 9-Mar-09, 15.57 15 24-Nov-11, 14.21 14 23.6% 13 57.9% 12 41788, 12.84 11 29-Apr-11, 11.50 10 4-Aug-08, 9.86 9 Source: Bloomberg The spot exchange rate has appreciat
Slide 11: II. The Mexican Economy – Public Finances
II. The Mexican Economy – Public Finances Public Deficit MXN Billion Balanced Budget 6000 200 5,348 100 4,846 5000 0 4000 -100 3,071 -200 3000 2,972 -300 2000 -400 -500 1000 -600 Public Balance Income Expenses 0 -700 Source: Mexico's Ministry of Finance The country’s public finances are in good heal
Slide 12: II. Mexican Economy – Public Finances
II. Mexican Economy – Public Finances MXN Billion Balanced Budget 6000 200 5,348 100 4,846 5000 0 4000 -100 3,071 -200 3000 2,972 -300 2000 -400 -500 1000 -600 Public Balance Income Expenses 0 -700 Source: Mexico's Ministry of Finance The country’s public finances are in good health thanks to sound
Slide 13: Sector Allocation
III. The Fund’s Portfolio – Sector Allocation Breakdown of the MXE Portfolio by Sector As of July 31 2017 Source: PAM, Bloomberg Experience 13 Consistency Vision
Slide 14: MXE's Sector Contributors
III. The Fund’s Portfolio - Contributors MXE’s Sector Contributors One-Year to July 31 2017 Sector Contributors as of July 31, 2017 % One-year % Average MEXBOL Sector contribution Weight %Ow/Uw Telecommunication Services 4.38 9.43 -23 Financials 2.91 16.32 10 Materials 1.89 17.07 -4 Consumer Staples
Slide 15: MXE's Industry Contributors
III. The Fund’s Portfolio - Contributors MXE’s Industry Contributors One-Year to July 31 2017 Source: PAM; U.S. Bancorp; Bloomberg Experience 15 Consistency Vision
Slide 16: Sector Allocation & Valuation
III. The Fund’s Portfolio – Sector Allocation & Valuation Materials are the largest overweight and Consumer Staples the largest underweight As of July 31, 2017 As of July 31, 2017 MXE´s MEXBOL Index Overweight / Forward 12M MXE´s Weighted % Allocation % Allocation Underweight EV/EBITDA P/E EV/EBITDA
Slide 17: Overweight / Underweight: Alpek
III. The Fund’s Portfolio – Overweight / Underweight Material Sector Allocation: Chemicals, Alpek 11.0x Monetization of Cogeneration Plants Plants EBITDA EV/EBITDA Monetization 9.5x Cosoleacaque Cogeneration 30 10.0x 300 8.0x Altamira Cogeneration 90 10.0x 900 Total Cogeneration 120 10.0x 1,200 6.5x
Slide 18: Overweight / Underweight: Mexchem
III. The Fund’s Portfolio – Overweight / Underweight Material Sector’s Allocation: Chemicals, Mexchem 14.0x 12.5x 11.0x 9.5x 8.0x 6.5x EV/Adjusted EBITDA Average + 1 Standard Deviation - 1 Standard Deviation Source: PAM, Bloomberg & MEXCHEM Experience 18 Consistency Vision
Slide 19: Overweight / Underweight: Grupo Alfa
III. The Fund’s Portfolio – Overweight / Underweight Industrial Sector Allocation: Industrial Conglomerates, Grupo Alfa 12.8x 11.8x 10.8x 9.8x 8.8x 7.8x 6.8x 5.8x Adjusted EV/EBITDA Average + 1 Standard Deviation - 1 Standard Deviation Source: PAM, Bloomberg & ALFA Experience 19 Consistency Vision
Slide 20: Overweight / Underweight: Banks
III. The Fund’s Portfolio – Overweight / Underweight Financial Sector’s Allocation: Banks Mexican Financials Last 12 months P/E As of 2Q17 22x 7.00% 20.0% 20x 15.0% 6.00% 18x 10.0% P/E 5.00% 16x 5.0% 4.00% 14x 0.0% 12x 3.00% -5.0% 2008/12 2009/05 2009/10 2010/03 2010/08 2011/01 2011/06 2011/11 2012/
Slide 21: Overweight / Underweight: Gfregio
III. The Fund’s Portfolio – Overweight / Underweight Financial Sector Allocation: Banks, Gfregio Banregio Historical Cost of Risk, Provisions / Loan Historical NPL Portfolio (3Q14-2Q17) 3.5% 3.5% 3.0% 3.0% 2.5% 2.0% 2.5% 1+Std 1.5% 2.0% Average 1.0% Cost of Risk 1.5% 0.5% 1-Std 0.0% 1.0% 3Q14 4Q14 1
Slide 22: Overweight / Underweight: America Movil
III. The Fund’s Portfolio – Overweight / Underweight Telecommunication Services Sector’s Allocation: Wireless Telecommunications, America Movil 6.5x 6.0x 5.5x 5.0x 4.5x EV/EBITDA 6.2x Average 5.7x + 1 Standard Deviation 6x - 1 Standard Deviation 5.3x Source: PAM, Bloomberg Experience 22 Consistency
Slide 23: Overweight / Underweight: Femsa
III. The Fund’s Portfolio – Overweight / Underweight Consumer Staple Sector’s Allocation: Beverages, Femsa 16.5x 15.5x 14.5x 13.5x 12.5x 11.5x EV/EBITDA Average +1Std σ -1Std σ 38.0x 35.0x 32.0x 29.0x 26.0x 23.0x 20.0x P/E Average +1Std σ -1Std σ Source: PAM, Bloomberg & FEMSA Experience 23 Consiste
Slide 24: Compound Annual Growth Rate (CAGR) Forecasts
III. The Fund’s Portfolio – Forecasts Compound Annual Growth Rate (CAGR) Forecasts As of July 31, 2017 As of July 31, 2017 MXE´s MEXBOL Index Overweight / CAGR 2016 - 2019 % Allocation % Allocation Underweight Revenues EBITDA Net Income SECTOR MATERIALS 21.15% 17.85% 330 bps 3.6% 8.2% 20.0% REAL EST
Slide 25: Issuer Allocation, Valuation & Upside Potential
III. The Fund’s Portfolio – Valuation Issuer Allocation, Valuation & Upside Potential PAM´s Historic Historic Issuer Last Price Weight OW/UW Upside EV/EBITDA Diference P/E Diference2 Target Price Average Average2 VESTA* 26.27 2.88% 100.0% 39.40 50.0% 15.1x 19.6x -23.0% 7.4x 30.2x -75.5% PINFRA* 195.
Slide 26: Issuer Allocation, Valuation & Upside Potential
III. The Fund’s Portfolio – Valuation Issuer Allocation, Valuation & Upside Potential PAM´s Historic Historic Issuer Last Price Weight OW/UW Upside P/BV Diference P/E Diference2 Target Price Average Average2 CREAL* 33.50 0.00% 0.0% 42.00 25.4% 1.6x 2.1x -24.8% 7.5x 9.5x -20.9% GENTERA* 27.23 0.81% -
Slide 27: Performance: Returns through July 31, 2017
III. The Fund’s Portfolio – Performance MXE’s Net U.S. Dollar Asset Value per Share Return with Dividends Reinvested Total Annual Average U.S. Dollar Return through July 31, 2017. As of July 31, 2017. (dividends reinvested) Fund 1 Month Y-T-D 1 Year 3 Years 5 Years 10 Years Since Inception in 8/30/9
Slide 28: Performance: Returns through June 30, 2017
III. The Fund’s Portfolio – Performance MXE’s Net U.S. Dollar Asset Value per Share Return with Dividends Reinvested Total Annual Average U.S. Dollar Return through June 30, 2017. As of June 30, 2017. (dividends reinvested) Fund 1 Month Y-T-D 1 Year 3 Years 5 Years 10 Years Since Inception in 8/30/9
Slide 29: Performance Returns in USD (Base 100)
III. The Fund’s Portfolio – Performance Returns in USD (Base 100) ( 12/31/2008 - 07/31/2017) 260 210 MXE NAV 201.91Pts 160 EWW * 174.47Pts MEXBOL 175.29Pts 110 MXF NAV 120.13Pts 60 Past performance does not guarantee future results Source: PAM; U.S. Bancorp; Bloomberg. Experience 29 Consistency Visi
Slide 30: MXE NAV Returns in USD (Base 100)
III. The Fund’s Portfolio – Performance MXE NAV Returns in USD (Base 100) ( 12/31/2008 - 07/31/2017) 350 GBMCRE* 249.19Pts 300 NTESEL 230.22Pts SCOT/RV 216.37Pts 250 MXE NAV 201.91Pts BMERPAT* 193.53Pts 200 FONBNM 191.77Pts HSBC 178.19Pts 150 MEXBOL 175.08Pts FONIBUR 122.18Pts 100 MXF NAV 120.13Pts
Slide 31: MXE Divergence & Excess Performance vs. Local Peers
III. The Fund’s Portfolio – Performance MXE Divergence & Excess Performance vs. Local Peers in USD ( 12/31/2008 - 07/31/2017) 1.4% GBMCRE 1.2% 1.0% MXF NTESEL Tracking Error 0.8% SCOT/RV Average 0.6% MXE 0.4% BMERPAT FONIBUR 0.2% FONBNM HSBCBOL 0.0% -80.0% -60.0% -40.0% -20.0% 0.0% 20.0% 40.0% 60.0%
Slide 32: Stock Picking
III. The Fund’s Portfolio – Stock Picking Stock picking matters, but percentage allocation matters more 96.65% Total Equity From Total Assets Under Management Source: PAM, Bloomberg Experience 32 Consistency Vision
Slide 33: Discount to NAV
III. The Fund’s Portfolio – Discount to NAV MXE Price Premium / Discount to NAV ( 12/31/2007 - 08/31/2017) 35 35 30 Market Price 12.02 NAV 13.71 30 25 25 20 20 15 15 10 10 5 5 0 0 0% -10% -20% Premium / Discount -12.3% -30% Avg. Discount -12.4% Source: PAM, Bloomberg The Fund's shares have traded in
Slide 34: I. Business Sentiment is More Constructive
IV. Equity Investment Thesis I. Business Sentiment is More Constructive Mexican CEOs’ Business confidence 59 ( INEGI, June 2011 - July 2017) 57 55 53 51 49 47 45 43 41 Growth Level CC - Manufacturing CC - Commerce CC - Construction 39 Mexican CEOs’ business Confidence 17% ( INEGI, June 2011 - July 2
Slide 35: II. 2Q17 Financial Results: Margins and Earnings at Inflection Point
IV. Equity Investment Thesis II. 2Q17 Financial Results: Margins and Earnings are at an Inflection Point Net Sales L12M Growth EBITDA L12M Growth EBITDA Margin 25.0% 20.0% 28.0% 20.0% 15.0% 27.0% 15.0% 26.0% 10.0% 10.0% 25.0% 5.0% 5.0% 24.0% 0.0% 0.0% 23.0% -5.0% -5.0% 22.0% -10.0% -10.0% 21.0% 2Q07
Slide 36: III. Positive trend in earnings growth estimates
10% 20% 30% 40% 50% -30% -20% -10% 0% 1,000 1,500 2,000 2,500 3,000 500 1T07 1Q07 2T07 2Q07 Experience 3T07 3Q07 4T07 4Q07 1T08 1Q08 2T08 2Q08 3T08 3Q08 4T08 4Q08 1T09 Consistency 1Q09 2T09 2Q09 3T09 3Q09 4T09 4Q09 1T10 1Q10 Vision 2T10 2Q10 3T10 3Q10 IV. Equity Investment Thesis 4T10 4Q10 1T11 1Q11
Slide 37: IV. And FCF generation
IV. Equity Investment Thesis IV. And FCF generation Forward Free Cash Flow Polinómica (Forward Free Cash Flow ) $2,700 R² = 0.8019 $2,200 $1,700 $1,200 $700 $200 2Q12 3Q12 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q1
Slide 38: V. Debt - Equity Ratios
0.0x 0.5x 1.0x 1.5x 2.0x 2.5x 3.0x 3.5x 0.0x 0.5x 1.0x 1.5x 2.0x 2.5x 3.0x 3.5x 4.0x 4.5x -0.5x 1Q07 1Q07 2Q07 2Q07 Experience 3Q07 3Q07 4Q07 4Q07 1Q08 1Q08 2Q08 2Q08 3Q08 3Q08 4Q08 4Q08 1Q09 2Q09 1Q09 Consistency 3Q09 2Q09 4Q09 3Q09 V. Debt - Equity Ratios 1Q10 4Q09 Mexbol Index Net Debt to EBITDA
Slide 39: VI. Better ROE & ROIC
IV. Equity Investment Thesis VI. Better ROE & ROIC LatAm Quarterly ROE L12M: As of 2Q17 Quarterly ROE L12M : As of 2Q17 30% 25% 25% 20% 15% Mexico 20% 1+Std Colombia 10% Brazil 15% Historical Chile Average 5% 10% Mexico -1% -6% 5% 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13
Slide 40: VI. Definitions
VI. Definitions • MEXBOL: Mexican Stock Exchange: The Mexican Bolsa Index, or the IPyC (Indice de Precios y Cotizaciones), is a capitalization-weighted index of the leading stocks traded on the Mexican Stock Exchange. The index was developed with a base level of 0.78 on October 30, 1978. It is not p
Slide 41: Disclosures
Disclosures To read about The Mexico Equity and Income Fund please access the Annual Report by calling (414) 765-4255 to receive a copy. To read about the Mexico Fund, Inc. please access the Annual Report on the phone’s website www.mexicofund.com, under the section caption investor reports. Investor
Slide 42: Disclosures
Disclosures THE MEXICO FUND, INC. (MXF) Closed-End Fund listed in the New York Stock Exchange in 1981. 1. Investment Objective: Long-term capital appreciation through investments in securities, primarily equity, listed on the Mexican Stock Exchange. 2. Expense ratio: 1.69% (For the semi-annual perio
Slide 43: Disclosures
Disclosures The information contained herein reflects the opinion of “Pichardo Asset Management” and as such should not be taken to be fundamental analysis or a decision-making model. Neither should the information be interpreted as a solicitation, offer or recommendation to buy or sell financial se
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