We slightly underperformed in Brazil during February. The main negative contribution to this month’s performance was Lojas Renner (-8.9% in EUR), due to the worse than expected 4Q17 results. Despite healthy sales growth, operating expenses related to the company's future projects limited earnings growth. On the positive side, the main contributions were Gerdau (+15.3% in EUR), Itausa (+4.8% in EUR) and Magazine Luiza (+7.6% in EUR). In the case of Gerdau, the stock was supported by a combination of: (1) strong results in the 4Q17, with emphasis on the recovery of prices and margins in Brazil, (2) discussions about the implementations of tariffs on steel imports in the US, which would benefit the company’s operation in the country, and (3) the continuation of the divestment process with the sale of some plants in the US and non-core assets in Brazil that potentialized the ongoing deleveraging process.
We outperformed in Mexico during February. The main positive highlight was Alsea (+6.3% in EUR) following a better-than-expected 4Q17 report, delivering on its 2017 guidance, which the market had initially seen as optimistic. The results evidenced a recovery in Mexico Same-Store-Sales, which had been temporarily affected by September’s earthquake in the 3rd quarter. Continued unit expansion and resilient sales in all divisions should guarantee another year of double-digits operating earnings growth. We also saw gains from our underweight position in Televisa (-15.7% in EUR) as the company’s 4Q17 advertisement sales once again disappointed expectations falling by 14.7%; the lack of visibility on how this line will perform and their guidance of content cost growth for 2018 during the result’s conference call were also negatively received by the market.
In Chile we performed in in line with the index this month. The fund was positively impacted by our underweight positions in LTM (-3.0% in EUR), COPEC (-5.3% in EUR) and AESGENER (-3.7% in EUR), which were all trading at high multiples. LTM’s strong performance of the last three months came to a halt with the recovery in fuel prices, which could limit the company’s ability to continue its strong margin expansion. Copec, despite a continuous upwards trend in pulp price, was impacted by valuations above 25x P/E. Finally, Aesgener is still being affected by the negative performance of its Alto Maipo project, which has been delayed several times. However, the Fund was negatively impacted by our overweight positions in RIPLEY (-6.7% EUR), HITES (-4.4% EUR) and EMBONOB (-2.4% EUR). These three stocks suffered from their exposure to consumption, despite strong recovery in consumer confidence. We believe this is a short- term issue rather than a change in fundamentals.