Global Expansion Of Premium Tequila And Whiskey Will Drive Earnings Growth And Margin Expansion

Key Takeaways

• Becle's premiumization strategy and decreased agave costs are expected to boost sales growth and improve net margins.
  
• Expansion in EMEA and APAC regions, coupled with inventory optimization, points to enhanced revenue growth and financial health.
  
• Market pressures, distribution challenges, macroeconomic issues, and potential geopolitical tariffs could threaten revenue growth, profit margins, and earnings stability for Becle.

Catalysts

Manufactures and distributes spirits and other distilled beverages in Mexico, the United States, Canada, and internationally.

• The execution of Becle's premiumization strategy, particularly in tequila, is expected to continue driving sales growth and revenue, even in challenging markets such as the U.S. and Mexico. This is buoyed by strong brand equity and favorable product mix optimizations.
  
• As agave costs are becoming notably lower, there is potential for further gross margin expansion, positively impacting net margins. This benefits from strategic sourcing and timing of raw material purchases.
  
• Increasing focus on the high-growth EMEA and APAC regions, with particular strength in Asia for premium tequila and whiskey, suggests opportunities for enhanced revenue growth and market expansion.
  
• Optimization of inventory leading to increased cash flows indicates effective operational strategies that could improve overall financial health and potentially impact earnings positively.
  
• Sustained improvements in EBITDA margins, driven by a combination of reduced input costs, foreign exchange benefits, and distribution efficiencies, are likely to amplify earnings performance.

Becle. de Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Becle. de's revenue will grow by 10.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.9% today to 14.3% in 3 years time.
• Analysts expect earnings to reach MX$8.5 billion (and earnings per share of MX$2.36) by about December 2027, up from MX$4.4 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting MX$9.6 billion in earnings, and the most bearish expecting MX$6.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.3x on those 2027 earnings, up from 20.9x today. This future PE is lower than the current PE for the MX Beverage industry at 24.8x.
• Analysts expect the number of shares outstanding to grow by 0.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.23%, as per the Simply Wall St company report.

Becle. de Future Earnings Per Share Growth

Risks

• Market pressures, reduced consumer spending, and intensified competition in the U.S. and Canada could jeopardize revenue growth in these key regions.
  
• Shipping and depletion imbalances, along with trade destocking, indicate distribution challenges that may lead to lower revenues in both the U.S. and Mexico.
  
• Macroeconomic challenges in Europe and Latin America, including inflation and political uncertainty, pose risks to earnings stability and net margins.
  
• Reduced consumer spending across all price tiers and aggressive competitive pricing in the U.S. may erode profit margins despite strategic pricing adjustments.
  
• Potential tariffs from geopolitical developments, such as U.S. presidential election outcomes, could impact cost structures and overall earnings.

Valuation

• The analysts have a consensus price target of MX$37.98 for Becle. 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$49.0, and the most bearish reporting a price target of just MX$29.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be MX$59.7 billion, earnings will come to MX$8.5 billion, and it would be trading on a PE ratio of 23.3x, assuming you use a discount rate of 13.2%.
  
• Given the current share price of MX$25.4, the analyst's price target of MX$37.98 is 33.1% higher.
  
• 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.