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BWMX - Betterware de Mexico


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Just came across this company through fintwit.

 

Betterware is a direct-to-consumer company. The company focuses on the home organization segment with a product portfolio, including home organization, kitchen preparation, food containers, technology and mobility, and others. It serves approximately 3 million households through distributors and associates in approximately 800 communities throughout Mexico.

 

Betterware's products are designed and branded by itself, but manufactured by third party factories in China (89%) and in Mexico (11%). They've got an office in Ningbo, China and makes sure the quality of the produced products is high. After that, the products are imported to their warehouse facility in Manzanillo port. The products are then shipped to the Company’s distribution center in Guadalajara and sets up packages to be sent to the distributors (through 12 third parties) on a weekly basis. The distributor personally delivers orders to each of its associates, whom in turn deliver to final customers, eliminating last mile costs for the Company.

 

They expanded their operations into Guatemala and were profitable within one year. New possible markets are: Panama, Costa Rica, Columbia and Peru.

 

I haven't read into this company that well so I don't understand their operations etc. that well and don't exactly know it's competitive advantage.

 

Furthermore, the company has been growing at tremendous rates: CAGR(2015-20): 43% (with 2020 as an exceptional successful year). I think they will have a CAGR of 30% in the coming three years and would probably drift of to 20% by then. And are trading currently at 8-10x Forward P/E (2021).

Thoughts?

 

source: https://investorcloud.s3.amazonaws.com/betterware/InformacionFinanciera/Presentaciones/2020-09-PPT.pdf

 

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I didn't deep dive into it yet.. from what I read though looks like they are building a 'low price' moat. Maybe that's their competitive advntage?

That's hard to say because you've got the third parties who want to make money (the factories and the companies that delivers to the distributors) and you've got the distributors and the associates who want to make money.

Of course it's cheap to make things in China but with a lot of 'layers' who all want to make money will drive the price up.

 

'What do people stop to replicate this business?' is another question that comes to mind.

- A possible answer might be the network they have established (a lot of distributors and associates that are working with/for them) and I have read that they try to have and keep a strong relationship with these people.

 

Will dig deeper into that.

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I've been holding this one for a bit now. Its like tupperware...the moat is simply the network of direct sales associates. In other words, only good until it burns out. All MLM's burn out. Right now visibility is their biggest issue, as their IR is kind of weak. Hoping it improves soon. They plan to list in Mexico this year, hopefully helps with price discovery.

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At current 12.7x EV/EBIT and 2021 9.6x EV/EBIT, I think it's priced quite low.

 

Even as I don't know how many people will remain distributors or associates in 2021, I think BWMX will keep hold on 90% at least and with growth prospects in Guatemala and seeks to expand in the short term to Colombia and Peru.

 

Management predicts high double digit growth in 2021. This is the first time they predicts this massive growth, but of course don't know how trustworthy it is.

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