Grazziotin: Opportunity or Value Trap in Brazil Retail?
B3: CGRA3, CGRA4
Today we are going to talk about a Brazilian company in the Retail sector with a foot in Commodities: Grazziotin S.A. (B3: CGRA3, CGRA4).
Who will I partner with?
The company has common (ON) and preferred (PN) shares listed on B3 (Brazilian Stock Exchange). As usual, preferred shares have greater liquidity. Both pay the same dividend.
If you don't have an account in Brazil, you can buy shares in B3 using Interactive Brokers or ask your brokerage house to open a custody account in Brazil for you.
The Grazziotin family holding company, V.R. Grazziotin S.A., controls the company with 68.10% of ON shares and 16.44% of PN shares.
The following are relevant minorities:
Ana Maria Grazziotin (0.26% of ON and 5.67% of PN). In addition to part of the shares in the holding company, she also holds shares in the individual.
Fia Vokin Aconcagua Master Long Only (0.00% of ON and 4.72% of PN). Fund based in Porto Alegre State, Brazil, result of the evolution of the Vontobel family family office.
Fia Vokin K2 Long Biased (0.00% of ON and 1.23% of PN). Same as above.
Click Master Fundo de Investimento em Ações (6.42% of ON and 14.74% of PN). Private fund belonging to Eduardo Brenner, one of the founders of Hedging-Griffo brokerage house, alongside with the myth Luís Stuhlberger.
Others (6.42% of ON and 14.74% of PN)
Grazziotin’s history:
The history of the Grazziotin family dates back to the 18th century in the Italian city of Venice, where they were prosperous merchants.
In 1879, Valentino Grazziotin leaves Italy and comes to Brazil fleeing wars.
In 1922, Valentin Grazziotin, grandson of Valentino Grazziotin and father of the founders of Grazziotin S.A., settled in what is now Flores da Cunha (Rio Grande do Sul), where he lives from commerce and subsistence agriculture.
Valentin Grazziotin directed his children to create businesses, lending them initial capital.
In 1950, four of these children created a wholesale and retail dry goods business in Passo Fundo, Rio Grande do Sul, a city handpicked because it was rich, well located and well served by transport.
What Grazziotin does:
After a few decades, the commercial house created in 1950 became a family holding company with several businesses in the states of Rio Grande do Sul, Santa Catarina and Paraná, mainly, but not only, in the clothing and housewares retail sector.
Retail (R$ 198.6mm of Revenue):
Pormenos Stores (47.0% of Sales). Sales of fashion, footwear, bed, table and bath products for the C and D public.
GZT Stores (34.0% of Sales). It brings together the product mix of Grazziotin, Pormenos, Tottal and Franco Giorgi stores in a single physical space.
Grazziotin Stores (12.0% of Sales). Sales of fashion, footwear, bed, table and bath products for the B and C public.
Total Stores (4.4% of Sales). Aimed at leisure, maintenance and home comfort for the B and C public.
Franco Giorgi Stores (2.6% of Sales). Men's fashion for the B and C public.
Grazziotin Financial (R$ 10.4mm in Revenue). It finances the sales of retail customers and offers consumer credit to good paying customers.
Grateful Agriculture (R$ 5.5mm in Revenue). Partnership with Todeschini, each with a 50% stake. Owner of 2 farms in Western Bahia, totaling 19,000 hectares. Cultivation mainly of soybeans, corn and cotton.
Shopping Center (R$ 0.5mm in revenue). Located in the Center of Porto Alegre, for the C and D public.
Grazziotin Forest (R$ 0.1mm in revenue). It has 1,645 hectares in Piratini, Rio Grande do Sul. Focus on cultivation and extraction of eucalyptus and pine for the domestic and foreign markets.
Note: data from 2Q23.
My Point of View:
Strengths:
Listed since 1979. Long track record.
Interesting business model. They sell in cities with less competition and greater exposure to agriculture, which is the strength of Brazil. Finance boosts retail profits. Agriculture business works as a hedge for retail as it has a mismatched cycle.
I'm not a fan of retail in general, but revenue growth of ~12% p.a. with a net margin of 20%, I like it. It's not a promise of crazy growth like many newcomers on the stock market.
Conservative financial management: they always work with no debt. Debt in retail usually cause problems sooner or later.
The ongoing fall in the SELIC (Brazil interest rate) should benefit retail in general.
Good payer of dividends, growing over time.
Weaknesses
Low liquidity of shares. Depending on the volume you are buying or selling, you will need to be a little patient, but it is feasible. For big funds, that's more complicated.
Small Cap belonging to Grazziotin family with a market cap of just ~ R$500mm. Many cases like this end in a delisting takeover bid. They haven't closed yet, so I believe it's unlikely that will happen.
Many complaints about “Corporate Governance”. They don't answer emails, answer phone calls and it's impossible to visit the company. The owners don't seem to care about the minority shareholders. I personally don't care much about it, if the business is good.
Is it cheap?
After all, is it to buy this stock or not?
What is the price to buy and sell CAGR4 after all?
I'll show you all the rationale, in detail.
Let's go.