Investors ready to lap up ‘pricey’ Jose Cuervo IPO
MEXICO CITY (Reuters) – Mexican investors say they are eager to snap up shares of Jose Cuervo in its initial public offering, thanks to the world’s top tequila maker’s strong dollar earnings and global demand, even though it is seen as expensive compared with larger peer Diageo.
Cuervo, which aims to raise more than $700 million in its IPO, also faces risks from US President Donald Trump, who has threatened to slap hefty import taxes on Mexican-made products and ditch a joint trade deal with the country. The Cuervo IPO is the first in Mexico since Trump won the November 8 election.
The company, which originates in the western town of Tequila, has an enterprise multiple of about 15 – just below that of Diageo, the world’s largest distiller, according to two Mexican brokerages.
The enterprise multiple, calculated by dividing a company’s enterprise value, or market capitalization plus debt, by its EBITDA, or operating earnings, is a commonly used metric for valuing companies.
“If you compare Cuervo to other companies that produce and distribute alcohol... yes, the shares look pricey. But expectations are very positive,” said Juan Jose Ledon, an analyst at Financial Group Interacciones.
Despite the high valuation for Cuervo, consumer trends show tequila drinkers are loyal regardless of cost, he said.
“Even if prices go up, sales won’t change,” Ledon said.
Demand for tequila is among the least elastic of alcoholic beverages, according to Euromonitor.
Trump’s threats have also battered the Mexican peso. Still, with the United States and Canada accounting for 64% of Cuervo’s $1.165 billion 2015 annual revenue, foreign-exchange risk is limited, analysts say.
“It’s a global company,” one investor said. “It will depend much more on the fundamentals of the US [economy] than on Mexico’s.”
Started by Jose Antonio de Cuervo in 1758 before Mexican independence from Spain, Cuervo says it is North America’s oldest continuous producer of spirits.
Boasting 30% of the global tequila market, the business is now controlled by the Beckmann family, which will remain the majority shareholder after the IPO.
Cuervo put its IPO on hold twice last year after Trump’s bid for the presidency roiled markets and clouded the outlook for Mexico.
Aranda, a subsidiary of Singapore state investor Temasek Holdings Ltd., has said it will take a 20% stake in the listing of some 476.6 million shares priced between 30 and 34 pesos, lending certainty to the deal.
Some 15% of the offering will be an “overallotment option” for international investors based on demand. Proceeds will go toward general corporate purposes and potential acquisitions to fuel global expansion.
The pricing was slated to begin on Wednesday.