The Initial Price Offering
International retailer Cencosud (CNCO) began trading in the United States on Friday. The company is based in Chile, where it is the largest retailer in the South American country. With a presence in Brazil, Argentina, Colombia, and Peru, the company is also one of the largest in South America. Cencosud offered a total of 91 million shares split between stock markets in the United States and Chile. Over 15 million American Depository Shares were issued on the New York Stock Exchange, with each ADS representing three shares of common stock. Prior to the United States IPO, shares could be bought in Chile and on the pink sheets. Shares in Chile make up 7.5% of the iShares Chile ETF (ECH), where the company is the fourth-largest holding.
At the end of the company's recent fourth quarter, Cencosud owned 906 stores. The retailer is mainly an operator of supermarkets, but also has branches that include home improvement, financial services, department stores, and shopping centers. Below is how each branch ranks in percentage of the last 12 month's sales.
- Supermarkets: 74%
- Home Improvement: 12%
- Department Stores: 9%
- Financial Services: 3%
- Shopping Centres: 2%
Cencosud's store base broken down by business segment as of the first quarter:
- 726 Supermarkets
- 81 Home Improvement Stores
- 74 Department Stores
- 25 Shopping Centers
Cencosud operates supermarkets in four countries. The home improvement stores are in Argentina, Colombia, and Chile. The department stores are allocated in Chile. Cencosud's shopping centers are found in Argentina, Chile, and Peru. Along with the retail store base, Cencosud has a $1.5 billion portfolio of consumer loans.
The company is the largest home improvement retailer in Argentina with 48 stores. Cencosud's 29 home improvement stores in Chile make it the second-largest retailer in its home country. The company also has four home improvement stores in Colombia. Revenue for home improvement stores has grown from $1.2 billion in fiscal 2009 to a recent $2.0 billion in 2011.
Shopping centers make up the smallest portion of Cencosud's retail store portfolio. Revenue has grown from $194 million in 2009 to $268 million in fiscal 2011. Cencosud's shopping centers have the second-largest market share in Argentina, where the company has 14. In Chile, Cencosud is also number two in the country with its nine shopping centers. The retailer also has two shopping centers in Peru. Recent occupancy rates have remained high in Argentina (99%), Chile (98%) and Peru (95%). Cencosud owns the largest multi-purpose shopping center in Chile. The Costanera Center has 335 stores, a food court, 12 movie theater screens, a bowling court, medical center, and a gym. The shopping center opened in May of 2012 with over 150,000 square feet. The shopping center will also have two office towers and a hotel open by the end of 2013.
Cencosud's financial services branch has been its smallest for several years. Credit card penetration by countries Cencosud operates in:
- Chile - Department Stores: 47%, Home Improvement: 20%, Hypermarket: 18%, Supermarket: 8%
- Argentina - Home Improvement: 16%, Hypermarket/Supermarket: 8%
- Brazil - Hypermarket/Supermarket: 41%
- Peru - Hypermarket/Supermarket: 8%
Cencosud's department store business is only operated in Chile. In the retailer's home country, it operates 74 department stores under the Paris and Johnson brands. In 2011, Cencosud acquired the Johnson's brand to give the company a greater store count and a new brand to expand with.
Through its acquisition of Prezunic, Cencosud now has stores in eight Brazilian states. The company still has large expansion plans to compete with local retailers. With the acquisition, Cencosud now has as 3.9% market share in Brazil, versus rivals CBD (17.9%), Carrefour (14.4%), and the local Wal-Mart (WMT) (11.1%). Despite its fourth-largest market share, Cencosud is number one in the state of Minas Gerais (23% share), number two in the north east (34% share), and number three in Rio de Janeiro (13% share). Cencosud now has 189 supermarkets in the largest South American country. The company has plenty of opportunity in the region to grow the number of supermarkets while it could also introduce other types of retail shops as it has in other countries. The company has pointed out that there are 100 cities in Brazil with more than 250,000 people, making numerous growth possibilities.
The company has grown its full-year revenue from $9.9 billion in 2009 to $15.6 billion for the most recent fiscal 2011. Cencosud has plans to raise its revenue to $18 billion for fiscal 2012. For fiscal 2011, Chile made up almost half of the company's revenue base. Below is the impact of each South American country:
- Chile: 42%
- Argentina: 29%
- Brazil: 21%
- Peru: 8%
- Colombia: 1%
Cencosud has grown into a dominant retailer in South America with top-five positions in several countries across several retail platforms. The company has spent $2.2 billion over the last five years acquiring companies that expand its retail portfolio. Shares, which priced at $15.61, closed Friday's trading session at $16.25 each. The shares ranged from $15.10 to $16.60 throughout the day Friday. Demand was high for the stock from the start. Even American blue-chip stocks are getting hit with the European markets. Look to Latin America for a company like Cencosud. The retailer has a large base in several countries with plenty of room for expansion. This is a long-term trade and a great international play on the South American economy. Buying Cencosud stock is also an early way to play the 2014 World Cup and 2016 Summer Olympics, both held in Brazil.
Information was obtained from Cencosud's Investor Relations website.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CNCO over the next 72 hours.