Ferreycorp's revenues exceeded expectations in the first quarter of 2013 due to strong sales growth to the mining and construction sectors, however margins declined slightly; while administrative expenses grew, earnings before interest, taxes, depreciation and amortization increased by 13.5% year-over-year and net income declined by 41.2% due to higher financial expenses. The analyst revised Ferreycorp's target price downward despite results being in line with expectations due to lowered growth projections for the mining sector, an important customer base.

1. 1
1Q13 Results: Ferreycorp
Margins better than expected
May 20th, 2013
Omar Avellaneda.
(+51 1) 416 3333 – Ext. 36065, eavellaneda@credicorpcapital.com
Although sales fell within our estimated range, Ferreycorp’s
EBITDA (+19.0%) and net income this Q exceeded our
expectations.
Income Statement
Ferreycorp’s revenues totaled PEN 1,207m (+19.0%) in 1Q13. This was
primarily attributable to significant growth in sales to clients in the
mining sector (+59.1%), which represented 52.1% of sales (39.0% in
1Q12), followed by the construction sector, which accounted for 21.7%
of total sales (29.5% in 1Q12). Additionally, the company reported
significant growth in sales at its subsidiaries (+189.9%), which was
primarily attributable to new business units (Tecseg in Peru and the
distribution of Exxon Mobil lubricants in Guatemala and Nicaragua).
The gross margin fell from 20.7% in 1Q12 to 19.2% in 1Q13. This was
due primarily to the fact that sales this quarter contemplated lower
margins (primarily in machinery for large-scale mining projects) and
discounts on parts for high-volume purchasers increased.
Administrative expenses and sales totaled PEN 170m (16% YoY);
nevertheless, as a percentage of sales, this amount was situated at
14.1% versus 14.5% in 1Q12. The increase observed was due primarily
to higher personnel expenses. EBITDA totaled PEN 115.7m (+13.5%
YoY). The EBITDA margin was situated at 9.6% (10.0% in 1Q12) given
that a high percentage of the sales made this quarter implied lower
margins (sales to large-scale mining).
Financial expenses totaled PEN 22.8m vs. PEN 18.9m in 1Q12, which
represents growth of +20.6% YoY. This expansion was due to a
decision to increase financial debt to finance operations. In this
context, Ferreycorp reported FX losses for PEN 17.0m, which
contrasted with the PEN 12.8 gain observed in 1Q12. Both factors
affected net income, which totaled PEN 26.4m (-41.2% YoY).
Balance Sheet
The company’s financial debt declined 6% QoQ but a YoY comparison
indicates that this component has increased 17.2% YoY. Regardless,
the debt-to-equity ratio remained stable (1.87x in 1Q13, 1.86x in 4Q12
and 1.85x in 1Q12). The current ratio fell from 1.39x in 4Q12 to 1.30x
due to a decrease in cash and inventory levels (fewer stock days) and
an increase in commercial accounts receivables.
Valuation
Although 1Q13’s results were in line with our expectations, the fact that
projections for growth in the mining sector, which accounts for a
significant portion of the company’s sales, have been lowered has led
us to revise our target price for Ferreycorp.
We estimate that sales will expand 35.2% in 2013 while EBITDA growth
will situate at 8.9%. On both counts, growth will be driven primarily by
demand from the mining and construction sectors.
Stock Data
Estimates
Comparables
1Q13 Results
Ferreycorp
Marcopolo
Randon
Finning Toromont
H&E Equipment
0x
2x
4x
6x
8x
10x
12x
14x
0x 4x 8x 12x 16x 20x
EV/EBITDA2013F
P/E 2013F
PENm 1Q13A 1T13E A/E 1Q12 Y/Y
Revenues 1,207 1,198 0.8% 1,014 19.0%
EBITDA 116 97 19.0% 102 13.5%
Net Income 26 24 11.6% 45 -41.2%
EPS (PEN) 0.03 0.03 11.6% 0.06 -41.2%
Margins
EBITDA Mg. 9.6% 8.1% 18.1% 10.0% -4.6%
Net Mg. 2.2% 2.0% 10.8% 4.4% -50.6%
PENm 2011 2012 LTM 2013E 2014E
Revenues 3,823 4,627 4,819 6,255 7,194
EBIT 272 302 310 278 319
EBITDA 387 434 453 472 603
Net Income 191 220 202 157 179
EPS (PEN) 0.24 0.27 0.25 0.20 0.22
Margins
EBIT Mg. 7.1% 6.5% 6.4% 4.4% 4.4%
EBITDA Mg. 10.1% 9.4% 9.4% 7.6% 8.4%
Net Mg. 5.0% 4.8% 4.2% 2.5% 2.5%
Multiples
EV/EBITDA 7.2x 7.6x 7.1x 6.8x 5.3x
P/E 7.3x 7.9x 8.6x 11.0x 9.7x
2013YET.P. (PEN) U.R.
Company Note BBG Ticker: FERREYC1 PE
Rating U.R.
Current Price (PEN) 2.15
Upside (%) U.R.
2013EDiv. Yield (%) 2.8%
Market Cap (USDm) 704
Max / Min LTM (PEN) 2.82 / 2.03
Avg. Vol. LTM (USDk) 769.3

2. 2
1Q13 Results: Ferreycorp
Margins better than expected
May 20th, 2013
Omar Avellaneda.
(+51 1) 416 3333 – Ext. 36065, eavellaneda@credicorpcapital.com
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CHILE PERÚ Hernán Arellano Marilyn Macdonald
Head of Equities Equity Sales International
Francisca Manu Alejandro Rabanal harellano@credicorpcapital.com mar_macdonald@btconnect.com
Head of Equity Research - Chile Head of Equity Research - Perú # (562) 2446 1706 # (4477) 7151 5855
fmanu arabanal@credicorpcapital.com
# (562) 2446 1798 # (511) 205 9190 Ext 36070 Roberto Salas Cristián Castillo
Equity Sales International Sales Trader International
Christopher DiSalvatore María Teresa Sarmiento rsalas@credicorpcapital.com ccastillo@credicorpcapital.com
Senior Analyst: Retail & Financials Senior Analyst: Infrastructure # (562) 2446 1732 # (786) 999 1633
cdisalvatore@credicorpcapital.com msarmientov@credicorpcapital.com
# (562) 2446 1724 # (511) 205 9190 Ext 33055 CHILE PERÚ
Felipe Etchegaray Fernando Pereda Rene Ossa Jorge Monsante
Senior Analyst: Telecom & Utilities Senior Analyst: Cement & Utilities Equity Sales International General Manager Credibolsa
fetchegaray@credicorpcapital.com fpereda@credicorpcapital.com reneossa@credicorpcapital.com jmonsante@credicorpcapital.com
# (562) 2446 1768 # (511) 205 9190 Ext 37856 # (562) 2651 9324 # (511) 313 2918
Ignacio Spencer Héctor Collantes Christian Munchmeyer Gonzalo Morales
Senior Analyst: Food & Beverages, Others Senior Analyst: Mining Sales & Trading International Head of Sales & Trading
ispencer@credicorpcapital.com hcollantes@credicorpcapital.com cmunchmeyer@credicorpcapital.com gmorales@credicorpcapital.com
# (562) 2450 1688 # (511) 205 9190 Ext 33052 # (562) 2450 1613 # (511) 313 2918 Ext 32901
Javier Günther Omar Avellaneda COLOMBIA Úrsula Mitterhofer
Analyst: Construction & Health Services Senior Analyst: Retail & Others Sales & Trading
jgunther@credicorpcapital.com oavellaneda@credicorpcapital.com Sergio Ortíz umitterhofer@credicorpcapital.com
# (562) 2450 1695 # (511) 205 9190 Ext 36065 Head of Equities Sales - Colombia # (511) 313 2918 Ext 32922
sortiz@credicorpcapital.com
José Manuel Edwards COLOMBIA # (571) 339 4400 Ext 273
Analyst: Natural Resources
jedwards@credicorpcapital.com Daniel Velandia Juan Antonio Jiménez
# (562) 2446 1761 Head of Research & Chief Economist Head of Equity Sales International
dvelandia@credicorpcapital.com jjimenez@credicorpcapital.com
Andrés Ossa # (571) 339 4400 Ext 505 # (571) 339 4400 Ext 466
Analyst: Telecom & Utilities
aossa@credicorpcapital.com Valeria Marconi Santiago Castro
# (562) 2651 9332 Senior Analyst: Oil & Gas Sales & Trading International
vmarconi@credicorpcapital.com scastro@credicorpcapital.com
Lourdes Alamos # (571) 339 4400 Ext 594 # (571) 339 4400 Ext 369
Assistant to Research
lalamos@credicorpcapital.com Jaime Pedroza
# (562) 2450 1609 Senior Analyst: Utilities
jpedroza@credicorpcapital.com
# (571) 339 4400 Ext 9139
Juan Camilo Domínguez
Senior Analyst: Banks
jcdominguez@credicorpcapital.com
# (571) 339 4400 Ext 572
Juliana Valencia
Analyst: GEA & BVC
jvalencia@credicorpcapital.com
# (571) 339 4400 Ext 365
EQUITY RESEARCH TEAM EQUITY SALES & TRADING
schevich
schevich@credicorpcapital.com