Get In Before the Boom

 | Jul 25, 2012 | 1:00 PM EDT  | Comments
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Have you ever wanted to go back in time and invest in Wal-Mart (WMT), when it was just a spunky but determined midcap retail chain trying to prove itself in the world? Well, there is a likeminded company to consider south of the border.

Its name is Cencosud (CNCO), and at $13 billion in total market capitalization it is already one of the largest retailing conglomerates in Latin America. The company operates in Argentina, Brazil, Chile and Peru. Under its umbrella is a range of supermarkets, home centers, department stores, shopping malls and financial-services firms, and this all makes for one of the most diversified companies in the region.

Some of the company's brands include Jumbo hypermarkets, Santa Isabel supermarkets, Easy home improvement stores and Paris department stores. Its financial-services operations come largely from store-branded credit cards that offer consumers alternative payment methods.

Cencosud doesn't make any bones about why has listed its shares in the U.S.: It has told everyone who will listen that its main objective is to become the most profitable, most prestigious and largest retailer in Latin America. The company has more than 900 stores, of which 725 are supermarkets. Additionally, Cencosud dominates in virtually every market in which it operates, as it's the No. 1 or No. 2 supermarket in Peru, Chile and Argentina, while also being the No. 1 department store in Chile and the No. 1 home-improvement retailer in Argentina.

Horst Paulman Kemna founded the firm in 1976, and he has remained chairman for 35 years. The chief executive duties fall to Daniel Rodriguez, who has been with the firm for four years and was previously the CFO.

Cencosud started by opening the first Jumbo hypermarket in Santiago, Chile, and largely stayed under family management until 2000, when outside management was brought in to expand operations. Chile still represents about 40% of total revenue, but the last several acquisitions in Peru, Brazil and Argentina have helped to further diversify the company geographically.

The retailer has become more aggressive recently, acquiring an 85% stake in a chain called Johnson's last December. The deal added 39 stores throughout Chile under the Johnson's brand and another 13 stores under the FES brand. Although Cencosud has deep penetration in the Chilean market, there still remain tremendous growth opportunities in Peru, Colombia and Argentina.

In past years, the company has had a few stumbles in integrating some of its previous acquisitions. However, transferring its best practices across operations has been much smoother recently, leading to continued better margins and a streamlining of operations.

According to estimates from researchers at Banco Ita├║, there is potential for a total of more than 1,000 new department stores, 700 home improvement and 5,000 supermarkets that can be supported in these three countries alone. In order to take advantage of these growth opportunities, the company has committed to at least $1 billion in capital spending each year.

The supermarkets segment makes up 74% of the $15 billion in revenue, followed by home improvement at 12%, department stores at 9%, financial services at 3% and shopping centers at 2%. The company has been able to grow revenue by 18% annually the past few years, while the most recent quarter saw sales jump by an impressive 27% from a year earlier.

Cencosud (CNCO) -- Daily

Cencosud went public on Wall Street on June 22 with shares trading at $15.61. Each American depository shares represent three shares of common stock. After the initial buzz drove shares as high as $19.60, a gain of 25.5%, it has more recently fallen back to $16.75. This probably represents a good entry level already, but you may wish to wait until global markets take their usual nosedive in early- to mid-August before putting shares of this little-known but fast-growing retailer on your shelf.

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