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Mexico Equity Strategy - The IPC will continue to trade at a discount

Lowering our 2022E target level for the IPC to 54,800 from 54,900. Although we are increasing our EBITDA forecast by 12% for 2021, and by 5% for 2022, the recent increase in government bond yield is causing a decrease in the target multiple at which we believe the index will trade. Therefore, although the index decreased from our last report, we have decided to maintain our 'CAUTION' stance on the local stock market. At current prices, the expected return to our target is barely 7%, equivalent to 6% in annual terms. At our target, the IPC would be trading at 19x earnings and 7.5x estimated EBITDA 2022. 
Expecting a strong earnings season in Q3 2021. We estimate that the companies that make up the index will increase their sales by 5% compared to the previous year and their EBITDA by 9%. The transportation sector will lead in growth figures; while it will face easy comparisons compared to last year, its operating figures should surpass pre-pandemic levels.
Suggested strategy. In this environment of greater volatility, in our recommended portfolio, we favor a balance between three strategies: i) stocks with a defensive profile that are still trading at a discount in valuation like GRUMA and BACHOCO; ii) companies that will continue to benefit from the economic reopening such as FEMSA, ALFA, and ALSEA; and iii) issuers that benefit from increases in interest rates such as BBAJIO.

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