Nearshoring Surge And Infrastructure Expansion To Drive Growth And Profitability In Key Sectors

Key Takeaways

• Development of oil fields and expansion in telecom and infrastructure projects is set to enhance revenue and profitability.
  
• Nearshoring and industrial growth in Mexico bolster Grupo Condumex, driving sustained revenue and margin improvements.
  
• Rising labor costs and decreased construction backlog may pressure Grupo Carso's profitability and revenue growth amid uncertainties in government projects and oil operations.

Catalysts

Engages in the commercial, industrial, infrastructure and construction, and energy sectors.

• The Ichalkil and Pokoch oil fields offer potential for significant revenue enhancement as they are developed, with futuresight of reaching production of up to 80,000 barrels per day. This long-term project is expected to reach profitability by late next year, positively impacting future earnings.
  
• Nearshoring trends are boosting demand in Grupo Condumex's automotive and construction cable sectors due to increasing industrial activity in Mexico. This ongoing trend is expected to increase revenues and capacity utilization, improving revenue streams.
  
• Grupo Carso’s industrial division, particularly Grupo Condumex, is experiencing robust growth driven by new automotive plants in Mexico and increased demand from industrial parks, potentially boosting revenue and profit margins in the medium to long term.
  
• Potential government projects with the new Mexican administration, especially in transportation and infrastructure, could expand the backlog significantly. Future contracts could support stable revenue streams and increase profitability in construction efforts moving forward.
  
• Expansion of telecommunications services and involvement in new large-scale infrastructure projects, including continued collaboration with Pemex, may contribute to increased revenues and improved working capital positions, enhancing overall financial health and margins.

Grupo Carso. de Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Grupo Carso. de's revenue will grow by 5.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.0% today to 9.8% in 3 years time.
• Analysts expect earnings to reach MX$23.0 billion (and earnings per share of MX$7.91) by about November 2027, up from MX$14.1 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.4x on those 2027 earnings, up from 19.3x today. This future PE is greater than the current PE for the MX Industrials industry at 12.9x.
• Analysts expect the number of shares outstanding to grow by 8.89% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.35%, as per the Simply Wall St company report.

Grupo Carso. de Future Earnings Per Share Growth

Risks

• Grupo Sanborns experienced a significant reduction in profitability due to higher labor costs, impacting the net income negatively. This indicates a potential sustained pressure on margins if labor costs remain high.
  
• The construction division’s backlog has decreased by 34.2%, limiting its revenue growth prospects in the near term unless new projects are secured, affecting future earnings.
  
• There is uncertainty regarding new government projects, as the current backlog only includes signed business without anticipated government contracts, potentially impacting future revenues if no new projects are secured.
  
• Zamajal’s oil operations are incurring losses at present, with uncertainties around future profitability given the startup costs and operational challenges, affecting Grupo Carso’s operating income.
  
• The increase in overdue receivables, particularly with significant customers like Pemex, could strain the company’s working capital and cash flow, impacting financial stability and future net margins.

Valuation

• The analysts have a consensus price target of MX$124.03 for Grupo Carso. de based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MX$178.1, and the most bearish reporting a price target of just MX$74.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be MX$234.0 billion, earnings will come to MX$23.0 billion, and it would be trading on a PE ratio of 23.4x, assuming you use a discount rate of 14.4%.
  
• Given the current share price of MX$120.27, the analyst's price target of MX$124.03 is 3.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.