Mounting Regulatory And Demographic Pressures Will Dampen Future Upside

Key Takeaways

• Shifting consumer preferences and rising regulatory pressures threaten core spirits demand, challenging long-term revenue growth and profitability.
  
• Escalating competition from both non-alcoholic alternatives and larger industry players risks eroding Becle's market share, brand strength, and future earnings power.
  
• Premiumization, operational efficiencies, and geographic expansion are driving margin improvement, resilient sales, and positioning Becle for diversified, sustained earnings growth in a challenging environment.

Catalysts

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

• Global health consciousness is intensifying, and anti-alcohol sentiment is accelerating, particularly among younger generations worldwide, making it likely that Becle will face sustained declines in core spirits volume growth in its major markets, which would put persistent pressure on future revenues.
  
• Regulatory risk continues to escalate, with even stable periods threatened by the prospect of new taxes and increased scrutiny on alcohol sales in the U.S., Europe, and Latin America, which could lead to higher costs, forced pricing increases, suppressed demand, and ultimately significant margin compression over the medium to long term.
  
• Demographic headwinds are mounting as developed markets age and new cohorts of consumers are exhibiting lower alcohol consumption rates, directly undermining the long-term organic growth trajectory that previously fueled premiumization; this stagnating demand could flatten earnings power over the next decade.
  
• The rapid rise of premium non-alcoholic alternatives and substitutes poses a structural threat to core product lines, exposing Becle to a growing risk of category share erosion, with the potential for premium brands to lose pricing power and for gross margins to deteriorate as traditional spirits lose relevance.
  
• Increased industry consolidation will enable global conglomerates to outspend and out-innovate Becle across marketing, distribution, and ESG initiatives, making it increasingly difficult for the company to defend share, retain brand equity, and sustain profit growth, particularly in emerging markets where competitive pressures are highest and net income is most vulnerable.

Becle. de Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Becle. de compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Becle. de's revenue will grow by 3.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 12.5% today to 12.3% in 3 years time.
• The bearish analysts expect earnings to reach MX$6.1 billion (and earnings per share of MX$1.69) by about August 2028, up from MX$5.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 20.2x on those 2028 earnings, up from 15.0x today. This future PE is greater than the current PE for the MX Beverage industry at 15.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.12%, as per the Simply Wall St company report.

Becle. de Future Earnings Per Share Growth

Risks

• Becle's premiumization strategy is driving higher average selling prices and improving product mix, which has resulted in consecutive quarters of gross and EBITDA margin expansion; if this trend persists, it could continue to boost profitability and support earnings growth.
  
• Strong volume and sales growth in Mexico, as well as additional market share gains and consolidated leadership in the Tequila category, indicate resilience and potential for sustained top-line growth even in a difficult macroeconomic environment.
  
• The company benefits from lower Agave-related input costs and ongoing operational efficiencies in manufacturing and sourcing, which are supporting margin expansion and may continue to offset inflationary pressures, leading to improved net margins.
  
• Expansion and stabilization in international markets, especially emerging signs of sustained growth in Asia and opportunities in Africa and the Middle East, suggest potential for geographic revenue diversification and incremental growth in consolidated revenues.
  
• Becle's strong balance sheet, lower leverage, disciplined capital allocation, and willingness to pursue inorganic portfolio growth position the company to take advantage of strategic opportunities, which could enhance long-term earnings power.

Valuation

• The assumed bearish price target for Becle. de is MX$23.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Becle. de's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MX$40.71, and the most bearish reporting a price target of just MX$23.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be MX$49.4 billion, earnings will come to MX$6.1 billion, and it would be trading on a PE ratio of 20.2x, assuming you use a discount rate of 14.1%.
  
• Given the current share price of MX$23.42, the bearish analyst price target of MX$23.0 is 1.8% lower. The relatively low difference between the current share price and the analyst bearish 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.