3 Ways To Play Chile's Biggest Conglomerate
Ever since I became interested in investing more than 30 years ago, I've been fascinated by conglomerates. Especially interesting are companies with eccentric, disparate holdings and less than 100% control. In North America, names like Loews (NYSE:L), Leucadia National (NYSE:LUK) and Brookfield Asset Management (NYSE:BAM) come to mind. Countless more exist outside of North America. In Chile, the Luksic Group operates a conglomerate of holdings that includes mining, banking and beverages. Owned by Chile's wealthiest family, I'll discuss three ways to benefit from the family's business savvy.
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Antofagasta PLC (OTC:ANFGY)
The Luksic Group dates back to the early 1950s when Andronico Luksic Abaroa entered the mining business in Antofagasta, Chile. With a few bumps along the road, its structure was reorganized so that everything but its mining and railway investments was controlled by Quinenco. Today, Luksic owns 65% of the Chilean-based, London Stock Exchange traded copper miner. The value of its 65% stake is $11 billion. In 2011 its revenues were $6.1 billion with an EBITDA of $3.7 billion. In the first quarter ending March 31, its revenue increased 38.9% to $1.8 billion and EBITDA increased 35.4% to $1.1 billion. Much of this success in the quarter comes down to increased copper and gold volumes as well as higher gold prices. Financially solid, its net cash position is $1.14 billion, better than either Freeport-McMoran Copper & Gold (NYSE:FCX) or Southern Copper (NYSE:SCCO). Most importantly, it has outperformed both its peers and the S&P 500 over the past five years and will likely continue to do so. For those of you who aren't comfortable buying over-the-counter, you might want to look at the Wisdom Tree Global Natural Resources Fund (ARCA:GNAT), which has Antofagasta in its top 10 holdings.
Compania Cervecerias Unidas (NYSE:CCU)
CCU is the largest brewery and beverage producer in Chile. Quinenco owns 50% of Inversiones y Rentas S.A. and Heineken owns the other 50%. Together, they own 66.1% of CCU. The brewery's history dates all the way back to 1850, and with over 5700 employees in both Chile and Argentina it has an 80% market share for beer in Chile and 23% in Argentina. In 2011, revenues grew 15.7% to $1.9 billion with a 10.9% increase in net income to $236 million. Its revenues and EBITDA have increased in each of the past five years. Since 2006, it has increased net earnings 18.3% annually, yet its stocks only averaged an annual total return of 13.3%. Underperforming relative to its peers, I'd say the pace will pick up soon enough.
Banco de Chile (NYSE:BCH)
It too has a long history dating back to 1893. In terms of loans, it is the largest bank in the Chilean financial system with assets of $42 billion. In January 2008 it merged with Citibank's Chilean business. As a result of this merger, Citigroup (NYSE:C) and Quinenco each own 50% of LQ Inversiones Financieras, which in turn has a 39.5% economic interest and a 59.3% voting interest in the bank. In 2011, its operating income grew 4.7% to $2.4 billion and its net income increased 13.3% to $826 million. Its return on average equity in 2011 was 24.7%, better than any of its competitors in Chile including Banco Santander (NYSE:SAN). Banco de Chile is the seventh largest financial institution in Latin America by market capitalization with 1.6 million customers serviced by 421 branches across the country. In almost every way it appears to be one of Chile's strongest banks.
The Bottom Line
Chile's GDP growth rate in 2012 is forecasted at 4.7%, almost triple that of the United States and its unemployment rate is just 6.4% suggesting Chilean's will continue to support Quinenco's operations. I wouldn't have a problem owning any of these investments. My only complaint is that Quinenco only trades on Chilean Stock Exchanges and is unavailable as an exchange-traded fund as far as I'm aware. That's too bad because it has some other interesting investments not mentioned in this article.
At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.