Visiting the Pucusana Plant
About 70 kilometers south of Lima, we toured Corporación Lindley’s state-of-the-art production facility in Pucusana. Back in Lima, we met with Lindley’s CEO and CFO, evaluated the viability of several new convenience store formats, and visited “mom and pop” stores, which remain the most important channel for bottlers in emerging markets. One store we visited had just completed an overnight conversion from Pepsi to Coca-Cola bannering (see the transformation below). The renovation included installation of specialty Coca-Cola refrigerators, new paint, advice on how to run the store, and relocation of merchandise. These upgrades will allow this store to better compete with the formal convenience stores that are entering the neighborhood.
Lindley is making progress across the board. Management is growing revenues, expanding margins significantly, improving its investment discipline, and boosting product innovation to meet changing consumer tastes. In fact, operating income margins have expanded nearly five percentage points since Arca took control of Lindley. Additionally, the most significant Lindley capital expenditures, such as the plant in Pucusana, are now complete. In combination, these dynamics have sharply grown the company’s free cash flows, and we expect increasing dividends to follow. These improvements are not properly reflected in the company’s stock price, which is trading at a significant discount to the intrinsic value of the business. In fact, Lindley trades at a 38% discount to the price Arca paid in 2018 for The Coca-Cola Company remaining ownership stake.