Chilean Retail Stocks’ Upside Limited

After a run-up in stock prices and revenues during the second half of 2010, Chilean retailers may not have much upside left, according to Nick Robinson, a director at UK-based Aberdeen Asset Management. Aberdeen owns shares in Chilean retailers Falabella, La Polar and Parque Arauco. “These are actually decent investments over the long term, but they have had quite a high run-up and they are not cheap anymore,” he explains. He estimates that, in general, Chilean retail stocks are currently valued at around 30x earnings, while a fairer valuation would be around 20-25x earnings. Robinson says that retail valuations may fall slightly by the end of the year. Juan Pablo Correa, an analyst who covers retail equities at Chile’s IM Trust, agrees, saying that the Chilean Ipsa index rallied about 40% in 2010, helped in large part by retailers such as Falabella, which at $26.9bn has the highest market cap of the index. A report by Chilean research shop BCI shows that returns for the Ipsa index in the period between November 19, 2010 and the close of the year were -0.03%, while returns on Cencosud’s shares were 7.3%. The report also notes that in the full year 2010, Cencosud’s shares soared 112.2%, Falabella’s gained 75.6% and Ripley’s were up 53.0%. But this does not mean that equity analysts are not recommending any retail stocks. While IM Trust’s Correa is revising his recommendation on Falabella and Ripley, where he believes the companies’ growth has already been factored into their share price, he is recommending Cencosud and La Polar. He explains that these companies’ aggressive expansion plans could bring some upside to their stock. Cencosud’s performance depends on the company being able to achieve synergies with recent acquisitions in Brazil and Peru, he explains, while La Polar’s depends on the company’s success in Colombia and the performance of its credit card operations. BCI analysts, meanwhile, are neutral on Falabella and Ripley and underweight on Cencosud, given