UBS Neutral on D&S After Bid

UBS Pactual has given a neutral rating to DyS stock after Wal-Mart announced plans to acquire the company for about CLP259.4 per share, or $2.8bn. UBS believes that “revenue expansion is the most significant challenge for DyS . . . as penetration of supermarkets in Chile is high [and] non-organic expansion plans for the largest players appear limited by the country’s antitrust authorities and competition is very strong.” The shop also says DyS faces the challenge of expanding internationally to get exposure to less mature and faster growing markets, which supports expectations of a possible foray into the Peru market, where Wal-Mart does not have a presence. “DyS had already opened an office in Peru and had plans to open stores in a smaller format. But with Wal-Mart, it is possible they may decide to open larger format stores,” says Francisco Errandonea, head of equity research at Santander Investments in Chile. Meanwhile, Fitch has placed DyS ratings on rating watch evolving. The agency believes the acquisition would benefit DyS because of Wal-Mart’s operating expertise and financial profile. Fitch had placed DyS ratings on negative outlook on December 12.