Subject: Re: To PZZA or not to PZZA?
I want to do a quick write-up (chat gpt makes writing so much easier - thank you AI community - my life is so much easier because of you all :-) )
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KOF
Strengths

Market Leadership: The largest Coca-Cola bottler worldwide by sales volume, representing 12.2% of the Coca-Cola system's global volume in 2023. The other big one is one in Europe. In US I am not sure if Coke wholly owns its bottler or what.

Operational Scale: KOF has 56 bottling plants and 251 distribution centers, distributing approximately 4 billion unit cases annually, a scale that creates significant barriers to entry for competitors in my opinion.

Financial Metrics:Total revenues of Ps. 245 billion in 2023 with a gross margin of 45%, operating margin of 14%, and net margin of 8%—indicative of an efficient and profitable business model. The revenue has been growing 10% range. I am not very clear on volume trends.

ROE: Being a capital-intensive business, I would have expected lower ROE/ROIC. KOF has maintained a ROE of 13-14% over the past few years, which is solid for a manufacturing company.

Economic Moat:
Gvien the scale and size I imagine someone trying to compete with this business will require financial heft, advanced manufacturing skills, and Coca-Cola's endorsement. This business has competitive advantages in the beverage industry that should be sustainable for next 10-20 years.
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Fair Value and Valuation

Morningstar puts fair value estimate to $92 per ADR (was reduced due to Mexican peso depreciation)
The current valuation implies a P/E of 15x and EV/EBITDA of around 7x based on 2024 estimates. Seems to be prices reasonably well for a good growing business.
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Market Share by Region


Mexico: 49.6% of total revenue
Brazil: 25.5%
Colombia: 7.4%
Guatemala: 6.0%
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Risks

Dependence on Coca-Cola Company:
KOF relies heavily on Coca-Cola for concentrate purchases and strategic decisions. Any adverse changes in this relationship or pricing structure is bad bad for business.

Shifting Consumer Preferences:
Health concerns regarding sugar-sweetened beverages and environmental issues, such as plastic waste is always something front and center. Though the zero calorie, water, energy drink is also picking up, but coke brand product itself is like 60% of the volumn.

Water Scarcity and Supply Chain Issues:
Water, essential to KOF's products, is increasingly scarce. Rising costs of raw materials like PET resin and sugar, as well as supply chain disruptions, could pressure margins. They report working on increasing warehouse coverage, but infrastructure risk is a big risk in number of these countries.

Currency Depreciation:
This is front and center. Currency Depreciation reduces reported profits for U.S.-based investors (revenues are all generated in foreign currencies.) Despite hedging efforts, currency remain a significant risk. Peso has fallen due to tariff threats and interest rates in US and all analyst believe it is not going back up anytime soon given the US interest rate is likely staying high for next 12 to 24 months at least. The fall in stock price is highly correlated to peso depreciation
About 17.6% of KOF’s cost of goods sold is tied to the U.S. dollar, reducing exposure to currency fluctuations in costs.
15.8% of KOF's debt is denominated in USD, so debt wise not a big deal

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I have started position around 15% of where i would want to end up. Started at $76. Currently at $74.5. I personally like the business as it is easy to understand and very competition proof.