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What did we learn from 3Q20 Mexican corporate earnings?

Earnings in 3Q20 recovered on average from 2Q20 as lock down measures were eased, and the consumer recovered sequentially – but many sectors continued to struggle in the face of remaining mobility restrictions, unemployment, and a negative investment climate.

TMT: Mobile and Broadband did well in the pandemic times, while advertising was badly hit, with double digit declines YoY, although up QoQ. AMX gained share against AT&T and Telefonica in mobile, while Televisa gained share in broadband. AMX cut Capex, as investment is reined in.

Consumer: On the beverage side, volumes were a challenge, especially in on-premise sales. However profitability and cash flow improved as raw material costs declined and Capex was cut. Bimbo was again a stand-out as sales grew by 24% as home consumption went up during pandemic times. Femsa again disappointed as OXXO (SSS down 9%) suffered from mobility restrictions, and KOF suffered from weak volumes. Pharma related sales (Fragua) did exceptionally well. Ecommerce sales surged across the board (201% up YoY at WalMex).

Financials: Banks reported sharp declines in earnings (BSMX, BBajio, Regional, Inbursa, Gentera…) hit by provisions and lower NIM, but perhaps did better than expected as they were able to renegotiate troubled credits, and strong capital levels. GF Banorte ended the quarter with a 21% capitalization level and coverage ratio over 250%, and NPL level of just 0.8%, helped by previous write-offs. Overall the SME credit portfolio remains the most challenged, as shown by CREAL, Inbursa, BSMX and GF Banorte’s poor results in this field. Gentera reported its second successive quarterly loss but high capital levels (over 30%) provide a cushion.

Infrastructure and transport: Cemex raised its EBITDA guidance as government infrastructure projects boosted volumes and prices, reporting its highest FCF since 2016. Airlines and airports recovered from 2Q as mobility restrictions were lifted, and GMXT also saw improvements. Volaris saw a strong recovery, but cash burn was high.

FIBRAs: Industrials generally performed well, as nearshoring trends accelerated, whereas retail and office struggled due to mobility restrictions.

Mining: GMexico and Peñoles (especially) had a strong quarter, as commodity prices recovered and production levels grew.