Companhia Brasileira de Distribuicao (CBD) – Spin-Off – 20%+ Upside

Current Price: $3.03

Target Price: $3.67

Upside: 20%+

Expiration Date: Q2 2023

This idea was shared by Povilas.

 

This is an interesting spin-off situation in LATAM with an unusually large discount to the sum of the parts (SOTP) valuation. I got intrigued by this situation after reading this Twitter thread. The case includes multiple moving parts and exposure to risky sectors/businesses with limited information available as well as the involvement of some shady parties. Despite these risks, the valuation gap here is so extreme that even with conservative assumptions I land at 20% upside. The setup is likely to play out shortly, most likely in this current quarter. I present my analysis below and will be glad to hear feedback from SSI members with more experience in the retail sector of LATAM.

Companhia Brasileira de Distribuicao is a Latin American retail consortium that trades as an ADR on NYSE under the ticker CBD. CBD operates several supermarket banners in Brazil and also owns large stakes in two publicly listed companies – French e-commerce platform Cnova (34% stake) and Columbian grocery retailer Almacenes Exito (96.5% stake). The key catalyst here is the spin-off of CBD’s Exito stake (83.2%) to shareholders. As part of the transaction, shareholders will receive 4 Exito shares (also in US ADRs) for each CBD share. At current Exito prices, the spin-off distribution is worth significantly more than the whole market cap of CBD – $3.64 per CBD share vs $3.03 current trading price. Even assuming 15%-20% decline in Exito’s share price post-spin-off, investors would still be getting the remaining CBD’s Brazilian retail operations as well as other balance sheet investments for free.

The transaction has already been approved by shareholders and is set to close in Q2 2023. Only customary approvals from SEC and Columbian security regulators remain.

CBD Exito valuation

The valuation gap is vast and there are two key risks that at least partially explain it.

  • Potential hard sell-off of Exito stock after the spin-off. Despite the already low valuation multiple of 3x EBITDA, the market seems to be pricing in a material discount for the Columbian retailer. Exito is currently listed only on the on Colombia Securities Exchange (ticker EXITO.CL) and trades with limited liquidity. The spin-off transaction will create ADR shares and a high number of current CBD investors/arbitrageurs might dump the newly-received shares post-spinoff. Who in their clear head would want to own a Columbian retailer?
  • Uncertainty around the RemainCo valuation. The RemainCo will have a substantial amount of leverage and the ‘true value’ 34% in Cnova might be materially lover vs Cnova’s current market cap (ticker CNV.PA) which is based on the limited float and almost non-existent trading liquidity.

I think the market is overestimating both of these risks and at these prices, the margin of safety is sufficient to accommodate very large discounts to all of the moving parts in CBD’s SOTP valuation.

Below, I provide some discussion on these points as well as share a couple of SOTP valuation scenarios. TLDR, at 20% Exito sell-off, you’re buying the RemainCo for $0.12/share, whereas it is likely worth somewhere between $0.48-$1.26/share.

 

How much will Exito stock drop after the spin-off?

The market is definitely expecting a monstrous sell-off of Exito shares after the distribution. CBD’s shareholder base is centered around investors from Brazil, including Brazil’s largest investment bank BTG Pactual which is CBD’s second-largest shareholder and owns a 7% stake. Many Brazilian shareholders might not want to hold Columbian stock. Management has also mentioned this, “Obviously, there are going to be some investors, especially Brazilian investors who are not going to have or want to have a position in Colombia for reasons of management policy”. The same applies to ADR holders in US.

While it’s definitely possible that Exito shares will sell off to some extent, there are arguments suggesting that at current prices this risk is overblown.

Exito valuation already looks relatively ‘undemanding’. The stock currently trades at 2.8x 2022 adj. EBITDA vs 2.3x-4.1x multiple range during 2018-2023. Exito has grown its top line by 39% since 2018 and runs on 25% gross and 9% adj. EBITDA margins. There are no direct listed Columbian peers available. A somewhat comparable LATAM peer Cencosud (operates supermarkets, department stores, shopping centers, and home improvement stores in Colombia, Peru, Chile, Brazil, and Argentina) trades at 5.2x 2022 adj. EBITDA. However, Cencosud has been growing faster both in revenue and adj. EBITDA basis (some of that is non-organic, but same-store sales info is not provided) and operates on a bit higher margins – 29% gross and adj. EBITDA at 11%.

On the opposite spectrum, the new ADR listing in the US and significantly improved liquidity/free float (from 3.5% now to 53%) might also create substantial new demand for the stock and might absorb a large part of the initial selling pressure. CBD’s management has also talked about this and noted that Exito should get materially higher interest from the US and Columbian investors (especially pension funds) after the spin-off.

And this movement of sales — in this movement, we understand that’s going to be offset on the other side by Colombian investors and especially North American investors. So we hope to see a redefinition of the investors with fewer resilience and more Colombians and more Americans. We don’t know what’s going to happen in the next step, but we have made a very important move considering the quotations that we made in the regions, Bogota, Sao Paulo, New York. So we can see that there’s a very broad base of investors that will be able to absorb this sale. And we see that our other investors interested in this Colombian asset.

I would like to add saying that those investors need to think about the pension funds in Colombia, seems we are going to have a higher level of floating, and it’s inevitable that they are going to have Exito in their portfolio, and there will be natural buyers of our shares.

CBD currently has two US-based major shareholders – asset managers Nuveen (owns 5%) and Moerus Capital Management (owns 5%).

It’s also important to note, that the largest CBD shareholder Casino Group, which will own 34% of Exito after the spin-off, will not sell its stake right after the distribution. CBD management has specifically indicated (quote below) that Casino does not intend to immediately dispose of the shares and will take time to look for the best moment to sell. I think the dynamic here might be similar to CBD’s ASSAI spin-off in March 2021, where Casino sold its 30% stake much later through secondary offerings years later – in Nov’22 and Mar’23.

In relation to the second question in relation to the sale of Casino. We still do not have this information. We have no estimate. Exito is an asset that is valuable with the potential to grow to increase its profitability. The financial performance of the past years was exceptional. Its financial structure is very solid as well, very sound. So Casino will continue accompanying Exito in terms of value. And then we will check what will be the best moment to sell the equity of Casino.

I think it’s conservative enough to assume that after distribution Exito will sell off by 20%. At that level, the Columbian retailer would trade at just 2.2 adj. EBITDA – the lower limit of the valuation range over the last 5 years. This is really only a guesstimate on my side based on the points above and the eventual sell-off could turn out to be lower. But I would expect a larger than 20% share price drop to be only temporary.

 

CBD RemainCo

The assumed 20% sell-off in the post-spinoff Exito shares leaves the CBD RemainCo valued at only $0.12/share (or c. $33m). The RemainCo will consist of:

  • GPA, core Brazilian supermarkets business – worth $265m at 5x EBITDA;
  • 34% stake in publicly listed Cnova, worth $482m at current prices;
  • 13% stake in Exito – worth $196m at current prices;
  • less $452m in net debt.

This would sum up to total RemainCo equity value of $491m or $1.82 per CBD share. However, that assessment for teh SOTP value would be way too optimistic.

Cnova

The biggest uncertainty in the valuation of the RemainCo is the stake in Cnova. Cnova is an e-commerce platform business (think of Amazon) with operations in France (Cdiscount) and Brazil (Cnova Brazil). The company is listed on Euronext Paris. At the current share price, CBD’s stake would be worth $480m or $1.78 per CBD share. However, the stock is extremely illiquid (just 1.4k shares trade daily on average) and has a free float of just 1%. Aside from the 34% ownership by CBD stake, most of the remaining shares are in the hands of Casino Group. Due to this illiquidity, I do no think market is valuing Cnova correctly and the actual valuation should probably be much lower.

At the current market price, Cnova trades at 1x 2022 sales and 32x 2022 adj. EBITDA (96x adj. EBITDA after deducting rent). Meanwhile, both the operational performance of the business and, especially, the balance sheet are in dire straits. The business is not growing. Net sales were flat for multiple years except for a very minor/insignificant boost from COVID, whereas in 2022 the top line crashed by 20%, and adj. EBITDA fell by 50%. The company rapidly burns cash (€136m last year and €131m in 2021) and is basically living off the financial lifeline provided by the Casino Group. The remaining unused credit lines from Casino Group stood at €330m at the end of 2022. Cnova is already quite levered and has €372m net debt vs just €52m adj. EBITDA (before deducting €35m in rent expense). Cnova was already forced to divest assets last year and also in Q2’22 started a transformation plan to cut costs by €75m, however, the impact of the plan has clearly not been sufficient so far. If the current business performance continues, it seems quite unlikely that Casino will just continue to indefinitely burn hundreds of millions EUR on this business.

Cnova has already tried tapping into equity markets before – in June 2021 when the shares traded at €10 vs €3 now. At the time, it was rumored that Casino had been looking to sell part of its stake. Despite the much higher market value, a better financial standing of the company, and a much more favorable equity financing environment in 2021, the plans failed and the equity raise was called off in Oct’21 due to “challenging market conditions”.

My bottom line is that the fair value of Cnova is probably substantially lower than reflected by the current market price. This in turn also puts pressure on the CBD’s RemainCo valuation.

Core business – GPA

CBD’s supermarket business GPA is Brazil’s third largest food retailer with three supermarket banners that operate grocery stores, gas stations, and drugstores. 11% of sales come from e-commerce operations. The company’s operations are centered around Sao Paulo and several of Brazil’s Northeastern cities. Since the recent organizational changes initiated in 2021, GPA has been undergoing a shift towards the supermarket, proximity, and multichannel-focused operating model, with changes in the clustering of stores, pricing, and management of stock. In 2021, GPA/CBD spun off its cash and carry stores Assai, which was considered to be the best part of the overall business, a crown jewel asset of CBD. In 2021/2022, CBD sold/converted most of its Brazilian hypermarket stores (which was considered to be the worst part of the business).

There are no directly comparable peers in Brazil. Two somewhat similar companies are Grupo Mateus and Sendas Distribuidora (the same Assai that was divested in 2021). Both of these operate mostly cash and carry stores (cheaper wholesale warehouses targeted at business customers, e.g. hotels, and caterers, that buy in bulk). Cash and carry is considered a better quality business and a much faster-growing sub-sector in LATAM (partially due to the very large inflation of grocery prices). Both of these peers trade at around 9x adj. EBITDA after deducting rent. GPA will likely be worth a bit lower multiple.

 

How much might the RemainCo be worth?

My SOTP valuation scenarios for the RemainCo are presented in the table below. For all scenarios I assume a 20% sell-off for Exito after the spin-off.

  • Bull case – $1.16/share. I assume 40% discount for Cnova stake (see above for reasons), and a 6x EBITDA after leases multiple for GPA.
  • Base case – $0.78/share. Assumptions – 50% discount for Cnova stake, and 5x EBITDA after leases for GPA.
  • Bear case- $0.41/share. Assumptions – 60% discount for Cnova stake and 4x EBITDA after leases for GPA.

CBD valuation scenarios 1

I think my overall assumptions here are fairly conservative. 40%-60% discount for CBD would imply 0.5x-0.7x sales multiple. GPA valuation at 4-6x adj. EBITDA after lease expenses seems reasonable given the above-mentioned higher-quality peers at 9x.

Overall, the situation seems to have considerable upside potential even in the bear-case scenario. Adding up the Exito spin-off distribution and RemainCo SOTP valuation, here’s how the total upside potential looks like:

CBD valuation scenarios2 2

Even if one changes the assumptions for potential Exito sell-off to 30%, the bear/base/bull case upside changes to -2%/10%/22%. Hence, I think the downside is well protected at current levels if Exito stock does not decline by more than 30%, at which point the company would be valued under 2x EBITDA.

 

An additional risk of Casino Group’s involvement

Aside from macroeconomic/political risks associated with Brazil and Columbia, low valuations of CBD and Exito might be explained by investors’ caution with Casino Group, which is the parent/controlling company of CBD. Casino Group owns 41% of CBD and controls 5/9 board seats. After the Exito spin-off, it will also own 34% of the Columbian retailer.

Casino has a track record of highly self-interested related party transactions. For example, as part of corporate restructuring in 2019, CBD acquired its current 96.5% stake in Exito through a strange tender offer, which was done at a significant 24% premium to Exito’s pre-announcement levels. The major Exito shareholder at the time was, of course, Casino Group, which gladly participated in the offer. The strange aspect here is that despite acquiring a 96.5% stake in the tender, CBD did not proceed to fully privatize Exito and instead just left it hanging on the public markets with this negligible free float. This kind of suggests that the tender might’ve been mostly made to just cash out Casino at a premium. In 2021/2022 a similar thing happened when CBD sold its least attractive hypermarket stores to previously spun-off Assai (Sendas Distribuidora) at a high price of 0.6x EV/sales (vs CBD’s 0.4x multiple at the time). The valuation raised analysts’ concerns for Assai, including the lack of consultation with minority shareholders.

Besides that, Casino’s history has several other shady spots. The group is currently under investigation for financial manipulation and insider trading during 2018-2019 when the company became a target of short-sellers given its high levels of debt and complex ownership structure. One example is that at the time Casino misleadingly stated it was in merger talks with its rival Carrefour – this announcement boosted its share price but the talks were later denied by the peer. One of the key issues for short-sellers was Casino’s “discrepancies in cash balances between different sets of accounts”, however, Casino just explained it as “a tax-efficient way to transfer money around the group”.

Casino has been struggling with its very large debt burden amidst deteriorating financials. Debt stood at €4bn as of Q4’22 without the impact of CBD/LATAM businesses. The group is unprofitable and has started burning cash, while investors are concerned that Casino will not be able to meet its covenants and upcoming maturities – €1.3bn in Jan’24 and €2.3bn in Aug’25. Casino has been disposing of assets for several years now with €4.1bn in cumulative asset disposal proceeds from 2018 to 2022. It is quite likely that Exito’s spin-off was at least partially prompted by Casino’s deleveraging dynamics.

Nonetheless, it’s worth noting that the way Casino carried out Assai spin-off from CBD in 2021 was commendable. The transaction was a great success and Assai stock skyrocketed by 50%+ in the several months following the divestment. Meanwhile, Casino did not dump its shares in the open market and unloaded the stake only two years later through secondary market offerings.

29 Comments

29 thoughts on “Companhia Brasileira de Distribuicao (CBD) – Spin-Off – 20%+ Upside”

  1. Thanks for this one. The ‘original poster’ Clark Square had some additional assets and liabs in the RemainCo – cash still to come in from asset sales, tax on asset sales. Do think think those don’t exist, or are you just simplifying by cancelling them against each other? (TBH I couldn’t find evidence of either on a very cursory look at CBD accounts but I find them rather confusing).

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    • I will leave it for Povilas to respond on his calculations, but pro-forma net debt indicated by management for the spin-off transaction seems to be c. $400m (see slide 11, https://www.bamsec.com/filing/129281423000596?cik=1038572). Not sure if this fully includes all the items you referenced, but otherwise what would be the point of showing pro-forma figures in the presentation.

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    • I was expecting this question. I also found CBD’s/Exito filings quite confusing. The main unknown here is the proceeds from Hiper stores, which CBD sold to Sendas Distribuidora/Assai (66 stores, R$3.9bn) and real estate fund Barzel Properties (17 stores, R$1.2bn). In the end, it is still not clear to me whether the proceeds have been fully paid or not. 25th page of 2022 annual report suggests, that there are still R$1.9bn receivables left from Assai:

      “On August 17, 2022, the Company’s Board of Directors approved the execution of credit assignment agreements with financial institutions for the definitive assignment of these receivables, in the amount of up to R$2 billion related to the installments due by Assaí between 2023 and 2024. The residual installments in the amount of R$1.2 billion maturing in 2023 and R$700 million maturing in January 2024 adjusted by CDI +1.2% were definitively assigned, with Assai’s consent and without right of return during the third quarter of 2022.”

      However, at the end of the page the company then says that, “As of December 31, 2022, the Company has received and already anticipated the entire receivables from the Transaction”. CBD’s Q4 balance sheet has no receivables marked for Hiper store sales as well. https://www.bamsec.com/filing/129281423000605?cik=1038572

      Management’s comments on CBD’s Q4 conf. call also suggest there are no such large receivables planned for 2023 (Q4 net debt was R$2.2bn):

      “If Exito sale does not happen or net — our net debt is going to be below BRL 2 billion for this year and we hope to reach BRL 1.5 billion as we continue with the plan of selling assets.”

      Meanwhile, in Sendas’ Q4 report (31st page), the buyer says that it paid R$1.85bn for the transaction so far and that the payable for 2023 will be R$956m (vs R$1.2bn mentioned by CBD). Even more confusing is the R$3.2bn Hiper store related payables on Sendas’ Q4 balance sheet. https://api.mziq.com/mzfilemanager/v2/d/ec14f0ab-c5d4-4b12-a413-b6cc7475ed98/ba840b71-7083-3c7a-eac2-01d7134874ca?origin=1

      Overall, I decided to keep it simple/conservative and just use the net debt figure from the 10K. As Dt pointed out, net debt in the 10K is larger than the figures management used in the presentation by $50m. So I think calculations should really be on the conservative side. If there were any large payments incoming, I assume management wouldn’t be silent about and would try to make it visible in the presentations/annual reports. However, if they will get any additional payments, then all the better – that would be a solid positive improvement for the thesis. Regarding additional taxation, there might be some in a liquidation scenario where Cnova and the remaining Exito stakes are sold. However, I am currently not looking at the liquidation scenario and doubt the company would be able to sell these taxes anywhere close to current prices (especially Cnova), so any estimates of likely taxation are abit of a moot point.

      I hope this helps.

      Reply
  2. Thank you for the idea. I don’t know if you have any statistical data regarding the share reaction of spinoffs?

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  3. A quick note: Exito valuation in the write-up tables was indicated on EBITDA basis before deducting lease expenses. I used this mostly to have an easier comparison to historical multiples. I have now an additional line to show valuation on basis of EBITDA after leases (Dt could you please update this, figures sent via email). It does not change the broad picture and Exito trades at a low multiple either way. On the same metric (adj. EBITDA after leases), peer Cencosud trades at 6.4x. My 20% sell-off assumption would land Exito multiple at 2.8x (after leases).

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  4. Thanks for the idea. I am a little confused about the Core GPA valuation. What number are you using to adjust for rent? The Q4 earnings presentation has PF EBITDA for GPA at 1.2b BRL, which is about 240m USD. This is in line with the Clark Square tweet which comes to 200m. You say the business is only worth 265m at 5x, implying 53m of EBITDA only. Is the difference solely attributable to the rent adjustment you are using?

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    • Yes, rent expense is very high for these businesses. GPA PF adj. EBITDA in 2022 was R$1.2bn. The lease payment expense for 2022 provided in 10K was R$933m. I think this lease figure more or less reflects normalized GPA rent expenses as Exito operations had already been discontinued. In 2022 the reported parent (non-consolidated) lease expense dropped by about 1/3rd vs consolidated CBD lease expense of R$1.5bn in 2021. The decline ratio is more or less equal to Exito’s lease liabilities as a % of the previous CBD’s consolidated balance sheet, e.g. see 9M 2022 balance sheet segmentation on page 38. https://www.bamsec.com/filing/129281422004273?cik=1038572

      Management received a similar question regarding high lease expenses on Q4 conf. call as well and the reply also suggests that the 2022 expense levels more or less reflects the normalized levels:

      Analyst
      And we see the occupation costs of the company when we eliminate the extra store, it seems high. When we see the payment of leasing is 4%, 5% of your revenue, I would like to know if there is some legacy payments regarding the extra operations. […].

      Unidentified Company Representative
      […]Now regarding the cost of occupation and 4.5%. There is no extra effect. It is highly connected of inflation and the valuation of leasings. Therefore, this is a revenue that grows below inflation, and this is why you can see this increase.

      Reply
      • Are you sure about these lease costs? If you consider the square meters of stores that GPA has, it gets me to an extremely high rent per sqm of around 30 USD / sqm / month. For Brazil this seems way too high.

      • Could you elaborate how do you get US$30/sq.m. per month? Using R$933m lease expense in 2022 and 1.456m sq.m of sales area (from 2021 annual, excluding Hyper stores and Exito), I get US$10.6/sq.m. of monthly rent costs. Grupo Mateus pays US$6.2/sq.m while Sendas Distribuidora pays R$10.9/sq.m. So I think it’s more or less fine?

      • Povilas, for some reason I cannot reply to your comment below so I will reply here. I am getting to that lease per sqm number using the ~650k sqm of sales area of GPA Brazil alone. I believe your sales area figure includes Exito. I am getting my number from the 2022 earnings release (page 19).

      • pmgs, it seems that you’re correct on the sales area. I’ve made a mistake of looking into the wrong line. The rent does seem very high indeed. However, its hard to believe Exito was included in that R$933m figure when Exito operations had already been discontinued (that’s also clear when you look at the lease liability line). Anyways, if the lease expense turns out to be lower, that will be a nice bonus to the GPA valuation and the overall thesis. I’d be happy to take that.

  5. GPA seems to have a lot of legal and tax liabilities as per the latest annual report – around 2.7bn R$ recognized on the B/S and 12bn R$ in total related to ongoing proceedings per the auditor’s comments at the end of the annual report. Any thoughts on this? If I add this to the net debt it is significant.

    Reply
    • Well spotted. I leave it for Povilas to add any additional insight, but here is my quick take on it.

      The R$2.6bn Provision for Contingencies. This relates to various tax matters as the company seems to be regularly involved in litigation with numerous Brazilian tax authorities or potentially affected by various rulings. I assume this is a standard business practice in Brazil (not entirely sure if this is a correct assumption). Historically this non-current liability figure stood around $R1.5bn with new provisions regularly added, reversed, or paid. Although the provision liability is higher for the end of 2022 than previously, it is nothing out of the ordinary looking from the new provision additions.

      Historical figures for contingency provision:
      2022: additions +R$1.7bn, payments R$0.4bn.
      2021: additions +R$0.5bn, payments R$0.2bn.
      2020: additions +R$0.7bn, payments R$0.2bn.
      2019: additions +R$0.8bn, payments R$0.5bn.
      2018: additions +R$1.7bn, payments R$1.0bn.
      2017: additions +R$1.4bn, payments R$0.4bn.
      2016: additions +R$1.4bn, payments R$0.4bn.

      The impression I get from these numbers is that the company tries to record/pay less taxes and then litigates with tax authorities on these matters (again maybe that is standard in Brazil). A large part (R$0.6bn) of this year’s higher provision relates specifically to the federal court ruling requiring Social Contribution on Profits going back to 2007. No idea how soon will these new provision additions have to be paid, but assume it might take a few years and some of these charges might get reversed.

      All in all, I think these provisions should be considered as a working capital item, akin to fluctuating tax liability, part of which might need to be paid. From the SOTP perspective, to stay overly conservative one could assume the incremental R$1.2bn of provisions (compared to the historical average) would have to be paid shortly and deduct that from the valuation. That would be $240m of negative value and would result in zero upside in Povilas’ base case scenario.

      Having said that, I do not think this will have any effect on the outcome of this thesis. It is a tiny detail only and I doubt the market will pay too much attention in trying to position these contingent liabilities correctly from the valuation perspective. Cnova valuation discrepancy is a much more important factor. And in the end, I think this case makes or breaks depending on where Exito trades after the spin.

      And as for the large contingent liabilities not yet accrued on the balance sheet, I do not think these are of real concern. These contingencies have always been indicated at around R$10-R$12bn. Litigations regarding various tax matters seem to always be ongoing and do not seem like anything out of ordinary.

      Here is a history of (possible) contingent losses from previous annual reports:
      2022: R$12.5bn
      2021: R$12.1bn
      2020: R$10.1bn
      2019: R$10.9bn
      2018: R$12.3bn
      2017: R$11.8bn
      2016: R$12.2bn

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      Reply
      • dt, thanks for insightful response. I agree with your assessment.

  6. Bank of America downgraded CBD yesterday. BofA has significantly trimmed their EPS estimates for 2023-2025 and rerated CBD to ‘underperform’. The price target was cut from $5/share to $2.8/share. In the report, BofA drew attention to the potential contingency risk arising from CBD’s ongoing tax litigation with Brazilian authorities. While litigation risk has been relatively low thus far, BofA predicts that this could change under the new Brazilian administration, which is expected to prioritize the swift resolution of ongoing tax disputes. The BofA report also cited multiple operational headwinds for the company, including increasing competition and the loss of scale resulting from the spin-off of its Assai cash and carry unit.

    A piece of the BoA report in this Twiter post: https://twitter.com/nickffl/status/1651251972484509698/photo/1

    Reply
  7. CBD released Q123 results. Nothing unusual and the same trends witnessed before are continuing.

    No additional updates with regard to Exito spin-off either. The transaction is still expected to be completed in Q2 23, so within the next two months:

    “The effective implementation of the segregation still depends on the registration of Éxito’s Level II American Depositary Receipts (“ADRs”) program with the Securities and Exchange Commission (“SEC”) and the authorizations of the Colombian regulatory bodies for the effective transfer of Éxito’s ADRs and BDRs to GPA shareholders, which is expected to be completed in the 2Q23.”

    New GPA presentation: https://www.bamsec.com/filing/129281423002031?cik=1038572
    Exito presentation: https://www.grupoexito.com.co/es/1Q23-Presentation.pdf

    Reply
  8. Putting aside the possibility that this rallies significantly before spinoff – to my knowledge the only catalyst is the spinoff date announcement – what reassurance do we have that the spin won’t be sold off to prices lower than current value? I understand the parent “should” be worth more, but seen too many spins get obliterated just for spinning.

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    • “what reassurance do we have that the spin won’t be sold off to prices lower than current value?” – none, except for the valuation support, which I agree might not be relevant in the short term.

      As said in the comment above “And in the end, I think this case makes or breaks depending on where Exito trades after the spin.”

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  9. Is it crazy to consider CNOVA equity to be worth zero? If not, buying depressed post-spin Exito shares might be safer.

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    • I am unable to comment on the appropriate valuation of CNOVA – it’s a money-losing and non-growing e-commerce business. But it should have at least some option value. In the scenario above, I am taking a 60% discount to the market cap at the time of the pitch. Now CNOVA’s market cap is 10% higher than then, so I think my discount should be conservative enough. But I have no financial arguments to support it.

      As for buying after the split-off, you might be right. I have no idea how will the stocks trade and whether EXITO will tank be like 30% or more on the very first day of listing. So far the Columbian listing is holding up, but that is based on a very limited volume.

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  10. Letting fellow subscribers know, that I have exited my CBD position at current levels. The price is already very close to my target levels and it does not seem to be worth waiting for the actual spin to happen. I am not sure what has been driving the share price over the last two weeks, but happy to take this opportunity.

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  11. CBD stock is spiking today after the company announced receipt of non-binding offer for the 96.52% stake in Exito at $836m. This price tag is c. 35% below the current Exito trading prices (extremely illiquid).

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  12. If anyone still follows the situation, here are a couple of interesting tidbits regarding CBD. Firstly, the offer from Jaimi Galinski was rejected shortly after the deal was disclosed. Despite this, the stock price continues to remain elevated, likely in anticipation of a higher offer. This doesn’t come as a surprise, considering Gilinski’s track record and deep pockets. Gilinski is a Colombian billionaire who recently went through a takeover battle for Nutresa, the largest food maker in Colombia. In the takeover battle for Nutresa, he teamed up with the Abu Dhabi Royal Family. After the initial offer rejection, Galinski hounded Grupo Nutresa for 18 months until they finally caved, allowing him and the Abu Dhabi Royal Family to take over Nutresa. This alone is not enough for me to re-enter, but it is an interesting development to follow.

    For more context regarding Gilinski and his latest bids, please read these two articles:
    https://www.bloomberg.com/news/articles/2023-06-29/billionaire-gilinski-offers-836-million-for-gpa-s-exito-stake?sref=fjN7W1vF
    https://www.ft.com/content/b8b5e2de-24ac-4a3c-b77f-3016ba193c9f

    Offer rejection: https://www.bamsec.com/filing/129281423002866?cik=1038572

    Reply
    • This time a binding offer from Glinski for 51% of Exito, valuing the whole company at $1.15bn (roughly equivalent to today’s CBD market cap). The offer expires in two days. Not clear if CBD board will opt for a stake sell combined with the spin-off of the rest of the stake. Should be announced shortly.

      Povilas, this one was clearly closed prematurely. It seems that the assumption of Exito’s Columbian listing overvaluing the company was incorrect – private buyers seem to attach a significantly higher valuation to where Exito shares are currently trading.

      https://www.bamsec.com/filing/129281423003101?cik=1038572

      Reply
  13. If I had 250 CBD shares, how many EXITO stock should I receive? What is the future of CBD shares @ .97 USD?

    Reply

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