Case Studies

Backus y Johnston

We initiated a new position in an outstanding South American consumer products company, Backus y Johnston.  We have long admired this business, which enjoys outstanding customer loyalty and greater than 95% share in its category thanks to some of the best brands of any product category in the country: Cusquena, Pilsen, and Cristal. In fact, one of the best Peru soccer franchises and winner of the 2018 Peruvian league is named Sporting Cristal after the beer and is owned by Backus.

Large scale billboards for Backus products in Peru

We have studied the company’s execution at the point of sale on a series of research trips over the past seven years. Backus is an excellent operator that benefits from terrific economies of scale thanks to a world-class distribution network that reaches all of the formal and informal corners of the country’s fragmented marketplace.  It was also recently named the best place to work in Peru and is a source of national pride.  In total, the company’s moat produces 40%+ returns on tangible assets, 70% returns on equity, and operating margins greater than 45%.  We expect the business to grow revenues and earnings for years to come as (1) the size and wealth of Peru’s middle class expands in both size and wealth, and (2) management executes its strategy of introducing Budweiser, Stella Artois, and Corona to the appropriate points of sale.  Backus roughly doubled the sales of these higher-margin premium products in 2017, and we expect strong results again this year.

Given the company’s limited free float, shares are thinly-traded.  Thanks to our network of contacts in the region, we were able to identify and acquire a block of shares at an attractive price as the broader market sold off.  We plan to incrementally add to our investment as additional shares become available at acceptable prices.  Backus is an incredible business that we would be happy to own for a long time.