Alimentos Mor - LATAM Stock Investment Analysis #8
This is an analysis of Alimentos Mor, an animal food manufacturer in El Salvador.
Dear LATAM Stocks Readers,
Thanks for reading another edition! This analysis is a little different compared to past editions. You may find the company covered and the reason I cover it a little obscure, but my hope is that you learn something about one of the most under followed and under invested countries in the world, even if you don’t consider the company investable.
Several weeks ago, in June 2021, the country of El Salvador adopted Bitcoin as legal tender. This is certain to have repercussions throughout the country’s entire economy, many of which are not fully understood. But I think it is fair to assume that the country will see an increase in investor interest in the future. So I asked myself, other than Bitcoin, how can investors get exposure to El Salvador?
El Salvador has a stock market. You can read a general overview of the El Salvador stock market in this Twitter thread. Almost all of the listed companies are financial services companies. Due to the uncertainty surrounding the countries new Bitcoin standard, I didn’t want to cover any banks or insurers. That left me with very few options. There are several electricity companies listed, a multinational telecom, and one manufacturer (with up to date financials).
The following analysis will cover Alimentos Mor, a Salvadoran animal food manufacturer. The company specific information comes from the company’s 2020 audited financials (search for the financials using the company’s legal name, Saram SA).
Information on the company, industry, and country are scarce. This was a difficult company to analyze. But none the less, I learned a lot doing the research and I hope you find this analysis interesting and useful.
As always, if you have any questions, doubts, or criticisms of this analysis, leave a comment at the end of the article!
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Common Stock: Alimentos Mor (Saram SA)
Current Market Price: $25.74 USD
Market Capitalization: $6.8 Million USD
*All values in this article are expressed in United States Dollars (USD) unless otherwise noted.
Summary of the Company
Alimentos Mor is a Salvadoran animal food manufacturer. They offer complete food product lines for eight species of animals including cows, pigs, horses, dogs, and chickens. These product lines include flours, pellets, and extruded products.
Alimentos Mor was founded in 1965 and is headquartered in La Libertad, El Salvador, just outside the capital city of San Salvador.
Overview of The El Salvador Economy
El Salvador is one of the poorest countries in Latin America. The country has a population of around 6.5 million people. Although it has a relatively small population, it also has the smallest land mass in the continental Americas, making it the most densely populated country in the continental Americas and in the 83rd percentile globally in terms of population density.
According to The World Bank, El Salvador had a GDP of $27 billion in 2019, implying GDP per capita of around $4,100. Remittances account for over 20% of the country’s GDP, benefitting over 360,000 households. Industrial activities account for around 25% of GDP and agriculture accounts for around 5%.
Exports
The country’s largest export destination is The United States, followed by other Central American countries Guatemala, Honduras, Nicaragua, and Costa Rica. El Salvador’s leading export product, by far, is knit apparel and fabrics. Other relevant exported products are plastics, paper, and electrical machinery, as well as foods such as sugar/confectionery and cereals, flour, and starch.
Imports
El Salvador’s leading import partner is The United States, followed by China. Other regional trading partners such as Guatemala, Mexico, Nicaragua, and Honduras make up a relevant amount of the country’s imports. Major imported products include fuels, industrial machinery, vehicles and pharmaceuticals.
Interestingly, according to the international trade organization, US imports to El Salvador may be significantly understated because they may be listed as imports from Guatemala. “ This is because many containers from the United States come through Guatemala’s Atlantic ports and although they are in-transit to El Salvador, customs officials may tally the products as Guatemalan imports.”
Economic Freedom
The Heritage Foundation ranks El Salvador 94th in the world in terms of economic freedom, implying that the country is “moderately free”. The country ranks poorly in terms of rule of law, as well as business and labor freedom. Monetary and investment freedom were already bright spots, and are likely to improve further given the country’s adoption of Bitcoin.
Agriculture in El Salvador
Less than 20% of El Salvador’s soils are suitable for agriculture. The country is not self-sufficient in food production and must import a relevant portion of its food. Wheat, rice, and corn are among the most heavily imported food products.
Sugar is the country’s most important crop, accounting for almost $200 million in annual exports and employing around 200,000 people. 18% of the countries sugar production is exported to China and 15% goes to The US.
Other relevant agricultural products include coffee, cotton, nuts, and some speciality fruits.
Alimentos Mor - Financial Analysis
Revenue and Cost Analysis
Alimentos Mor had total revenue of $32.7 million in 2020, a slight increase from $32 million in 2019, but a significant decrease compared to $33.9 million in 2018. Their COGS was $26.4 million in 2020, representing a gross margin of 19%, on par with gross margins of 20% and 17% in 2019 and 2018 respectively.
The majority of the company’s revenue comes from its livestock lines, which totaled $23.3 million in sales in 2020. Their dog and bird product are also relevant. Other product lines are not relevant to the company’s total revenues.
Alimentos Mor was profitable in each of the past 3 years. In 2020 the company had net income of $763 thousand, representing a profit margin of 2.3%, on par with profit margins of 2.8% and 1.3% in 2019 and 2018 respectively.
Balance Sheet Analysis
The company has a decent balance sheet. They have sufficient liquidity in the near term, and a solid long term property/plant asset valued at over $10 million. They are leveraged, but debt levels appear manageable.
I don’t see any red flags related to inventory or accounts receivable management. However investors should pay attention to the companies accounts payable, which increased significantly year over year, from $1.6 million in 2019 to $2.6 million in 2020. This appears to have normalized based on the company’s unaudited April 2021 disclosure, but it’s still worth keeping an eye on.
Debt Analysis
The company has $9.6 million in total debt outstanding, $4.4 million of which is classified as current. The debt has interest rates ranging from 5.5% to 6%.
Some of the company’s debt also trades on the El Salvador Stock Exchange. You can find more information about the company’s individual debt issues by following this link.
Share Dynamics and Capital Structure
As of year-end 2020 the company has 262,500 common shares outstanding. The accounting value was $25.74 per share as of year-end 2020.
Dividends
The company has paid dividends ranging between $2.00 and $2.50 per share for the past several years.
3 Metrics to Consider
Debt to Equity Ratio
Total Liabilities/Total Share Holder Equity
$13 million / $7 million = 1.9
A debt to equity ratio of 1.9 indicates that Alimentos Mor is leveraged and relies more heavily on debt financing to fund itself.
Working Capital Ratio
Current Assets/Current Liabilities
$9.3 million / $7.6 million = 1.2
A working capital ratio of 1.2 indicates a sufficient, but not strong liquidity position. Alimentos Mor should not have problems meeting its near term obligations.
Price to Book Ratio
Current Share Price/Book Value per Share.
$25.74 / $26.60 = .97
Based on the company’s 2020 financials, Alimentos Mor has a book value per share of $26.60. At the current accounting share price, this implies a price to book ratio of .97, meaning the company’s stock is currently valued at a very slight discount to the book value of the company.
Summary and Conclusions
Positives
Stable revenue in a stable industry. As GDP per capita rises, protein consumption also tends to rise. This implies this possibility of long term revenue growth for the companies livestock products.
Reasonably diversified product lines with livestock, dog, and bird products comprising almost all of the company’s revenue.
Quality factory that is well located to serve the whole country.
Consistently profitable.
Negatives
El Salvador is a highly risky jurisdiction and the El Salvador stock market is by no means a well-established trading venue.
The company is leveraged with relevant amounts of debt outstanding.
Margins are thin and any deterioration in operating performance will have a significant impact on equity holders. The company has little room for error.
Conclusion
Alimentos Mor is an interesting company, as it is the only publicly listed manufacturing company in El Salvador. The company is financially healthy, with sufficient liquidity and consistent profits. However leverage levels are relevant and margins are tight.
The company is simply too small and public information is too scarce to be investable for most investors, myself included. But that’s not to say it’s a bad company, in fact quite the opposite. From what I can see, Alimentos Mor has been a solid investment for both its debt and equity investors.
Even though I won’t invest in the company, I enjoyed analyzing the company and the country. Hopefully El Salvador can continue making positive progress and I can analyze more Salvadoran companies in the future.
I will continue to follow the country’s investment landscape and do my best to update subscribers on any relevant developments or opportunities.
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Disclaimer
This is not investment advice. Nothing in this analysis should be construed as a recommendation to buy, sell, or otherwise take action related to the security discussed. If I own a position in the security discussed, I will clearly state it.
This is not intended to be a comprehensive analysis and you should not make an investment decision based solely on the information in this analysis. I hope this serves as a useful starting point for a more comprehensive analysis, and hopefully draws attention to aspects of the company that were overlooked or merit further investigation. This is by no means intended to be a complete analysis. Again, this is not investment advice, do your own research.