tags: [analyst/clark-square-capital, thesis/sum-of-parts, thesis/undervalued] ...

https://clarksquarecapital.substack.com/p/companhia-brasileira-de-distribuicao

Thesis summary

CBD is a Brazilian holding company that is set to crystallize significant sum-of-the-parts value through the upcoming spin (on track for 2Q 2023) of its Colombian grocery chain, Grupo Exito. At the current price of $3.03/share (US ADR), shareholders are set to receive 4 shares of Grupo Exito, which trade on the Colombian stock exchange, worth $3.61 USD. In other words, the market is ascribing the remaining "stub" (GPA) a negative value, despite the fact that the stub cannot trade at less than 0 once it is separated; the stub includes multiple monetizable assets that should be worth >$0.50/share as well as the core GPA grocery chain that has c. 700 high-end grocery stores in Brazil. If you assume the stub trades at 0 and Exito is trading at the "correct" valuation, your upside from here is ~20%. At the current price, Exito is trading ~5.0x EBIT on 2023 numbers, which I believe is cheap relative to peers and where it has traded in the past. Ultimately, I believe that the stub and Exito should be worth at least >$6.00/share over time, which is at least a double from today’s price.