Make It A Very Happy New Year By Adding This Brazilian Stock To Your Christmas List
by Tony D’Altorio, Investment U Research
Wednesday, December 16, 2009
For years, the western world regarded Brazil as nothing more than a few wealthy elite ruling over a large population of have-nots. And they had good reason to think that way too… until now.
As I detailed back on June 16, the nation has made impressive gains over the past decade, including how it compiled $233 billion in foreign reserves and raised its sovereign debt to investment grade.
The first South American country to escape the recession, Brazil grew by 1.1% in the 2nd quarter and 1.3% in the third. And economists expect it to continue growing into 2010 at a steady 4.5 – 5% rate, unhindered by the rest of the world’s woes since only 13% of its GDP comes from exports.
Much of that strength comes from the 49% income increase Brazil’s poorest 10% experienced from 2001 to 2007. Out of a population of around 190 million, roughly 28 million citizens joined the consumer economy between 2003 and 2008, with extra money to spend for the first time in their lives.
That number boosted middle class numbers up to 52% of the country’s population, accounting for its high consumer sentiment levels as recorded in a recent global survey.
And Brazil should continue improving according to PriceWaterhouseCoopers consultants, who see Sao Paulo shifting from the forty-sixth wealthiest city in the world to the fifth… in a mere decade.
In addition, despite credit card usage having grown by 22% every year for the past decade, Brazil’s consumer spending boom still has a ways to go as more people pile into the middle class every day.
A Growing Giant
An excellent way to profit from Brazil’s successes is to own shares of its retailers… especially giants like Companhia Brasilieira de Distribuicao ADR (NYSE: CBD), the country’s #1 grocer.
Owned by the founding Diniz family and French food retailer Casino Guichard, it drew about 65% of its net sales revenue from food stores in the large Brazilian state of Sao Paulo last year.
More commonly known as Pao de Acucar, the store operates primarily as a retailer of food, clothing, electronics, home appliances and other products through its chain of supermarkets, hypermarkets, department stores, specialty stores, discount stores and food warehouses in Brazil.
And the company keeps growing, thanks to its strategy of acquiring regional retailers such as the 70% stake it bought of Globex Utilidades and the 40% stake it took in whole chain Assai earlier this year.
Most recently, it also agreed to acquire Casas Bahai, Brazil’s largest electrical and household goods retailer… a merger that will result in sales of 40 billion Brazilian real or $23 billion a year.
That deal should easily make the combined company the country’s largest retail chain, while also increasing Pao de Acucar’s lead over big multinationals such as Walmart and French retailer Carrefour, both of which have invested heavily in Brazil for years.
The Walmart of Brazil
When it purchased Globex earlier this year, Pao de Acucar instantly became the country’s second largest electrical goods and furniture retailers, even though it targeted higher-income consumers.
Now with Casas Bahai signing on, the larger corporation is set to explore a whole new world.
The proposed deal not only marks a further expansion into non-food retailing, but also a first large step into Brazil’s fast-growing, lower-income market, since Casas opened its very first store in one of Sao Paulo’s favelas or shantytowns last year.
That business quickly boomed, highlighting the larger potential hidden within neighboring favelas and gaining the attention of Pao de Acucar president Abilio Diniz in particular… hence the reason why he snapped it up.
“I felt very envious,” he said, “when I saw that Casas Bahis had opened a store [there].”
Now that Pao de Acucar owns Globex, you’d better believe the company will build more stores in the poorer sections of town, capitalizing on their improving conditions and Brazil’s larger potential.
As for investors, they would be wise to do the same.
Good investing,
Tony D’Altorio
Any investment contains risk. Please see our disclaimer.
2 Responses to “Make It A Very Happy New Year By Adding This Brazilian Stock To Your Christmas List”
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It’s “Casas Bahia”, not “Bahai”. Bahia is a state in Brasil, Bahai is a religion. Bahia is pronounce sort of like Bah – ee — ya.
“Pao de Acucar” –incorrectly rendered here because I can’t get a tilde or descender on the “c”– literally means “sugar loaf;” it is the name of the granite mountain that is the terminus of the famous cable car ride in Rio de Janeiro. It’s on almost every Rio postcard. The company is named for the landmark, not a sugary loaf of bread.
You guys need to do your homework.
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I would just like to take some time to thank the active “behind the scenes” Investment U crew for doing what you do and making this community great. I’m a long time reader and first time poster so i just wanted to say thanks.
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