Lead Portfolio Manager
A two-week trip to Latin America, travelling through Argentina, Chile and Peru, gives our fund management team food for thought as change is underway in the region.
Piura is located about 400km north of Lima with a population of 500,000 people. We came to Piura to visit Cementos Pacasmayo’s brand-new cement plant and Ferreycorp’s workshop.
Our day began early, and we woke up at the crack of dawn to avoid the sweltering heat, with our journey taking us through the city’s main retail artery. It was mostly populated by local retail operations characterised as simple stores, though the regional behemoth and a holding in our fund Grupo Falabella, was well represented with Tottus, its supermarket operation, and Falabella, its department store.
Driving out of the city involved dodging the swarm of three-wheeler taxi cabs, which we learned was the most popular taxi type and an easy alternative for self-employment. Upon exiting the city we were surrounded by the desert environment of Piura, a perfect location for a cement plant due to the expansive and uninhabited location.
The plant took 3 years to build costing US$ 370million. Using the most advanced German technology the plant was built with the goal of limiting its environmental impact. It sources its raw material from a nearby quarry, avoiding having to import clincker (a critical binding agent for cement).
The 1 million square meter operation was truly impressive. Health and safety procedures were evident from the moment we entered the facility as each one of us had to pass a breathalyser test to ensure we would not put anyone at risk. Cementos Pacasmayo has been on our watchlist since the launch of the fund, as a high quality company benefiting from a local dominance and high barriers to entry.
By the time we ended our visit the temperature had risen to 30C, so a good time to make our way in an air-conditioned minivan to Ferreycorp’s regional offices. We were welcomed by the group treasurer, who travelled especially to Piura to host our visit, and the local sales and operations team.
The sales team presented the firm’s positioning in Piura, which is endowed with a high level of industrial diversity in the form of agricultural, mining, fishing and infrastructure activity. The past few years have been lean years for the sector, with many players exiting and/or lacking commitment to the local market. Ferreycorp’s long term commitment and strategy led to them increasing their regional market share to 70%. The presentation was followed by a visit to their parts supply room, not only was this a superbly organised meeting, it also showed their adherence to ‘just in time’ practices with carrying parts that they know will be in demand according to their programmed maintenance schedule of the regional fleet of machines. One of their key comparative advantages is having highly skilled personnel that undergo significant amount of training throughout their Ferreycorp careers. Being a 5-star rated Caterpillar dealer is one of the major reasons why companies select Ferreycorp and reinforces their market leading position. We currently have 2.9% of the fund in Ferreycorp and we estimate it is currently selling at a 35% discount to intrinsic value.
We left Piura with a better understanding of Pacasmayo’s long term vision and Ferreycorp’s regional opportunity. Continuation of the city’s development will come through the development of its natural resources, both in the soft commodity and bulk materials area. Its low cost profile and high productivity potential will continue to attract entrepreneurial investment, which we believe will lead to a strong and sustainable level of growth.