Traxion (BMV: TRAXIONA) Research Update

Highlights:

• Arrowhead is updating its coverage on Grupo Traxión S.A.B. de C.V. (“Traxion” or “the Group”) with a fair value bracket of MXN 43.6 – MXN 53.3 (Share Price on December 5, 2022: MXN 28.8) based on Discounted Cash Flow Valuation and Comparable Company Valuation.
• Grupo Traxión is a Mexico-based diversified transportation and logistics business with interests across freight, 3/4PL, personnel transportation, and last-mile logistics. It is the only publicly traded, institutional company in Mexico’s Transportation and Logistics sector, which is central to the efficient functioning of Mexico’s thriving Outsourced Manufacturing and Services industry and has successfully leveraged its first-mover advantage.
• Traxion has followed an inorganic growth strategy with an aim of becoming a one-stop-solution for logistics and transportation needs. The Group has made several acquisitions since 2011 to bring more services under the Traxion umbrella and benefit from developments in its client industries, such as the evolution of e-commerce in Mexico and the realignment of global supply chains. Some of the major brands the Group has brought under the Traxion banner through acquisitions include Grupo Mudancero, Autotransportes El Bisonte, AFN, Grupo SID, Redpack, and LIPU. Its most recent acquisitions include, MEDISTIK and V-MODAL, which it acquired in August and September, 2022, respectively.
• Traxion has been consistent with its objective of transitioning into an asset-light business and is also working on lowering its fixed asset base by partnering more with third parties for its warehousing, personnel transportation, cargo, and last-mile operations. As this transition accelerates, we see the Group’s investments in hard assets declining and being replaced by higher investments in technology assets, which the Group may develop internally or acquire inorganically.
• Traxion is better placed than most of its domestic competitors to leverage Mexico’s geo-economic advantage, which has got enhanced due to the USMCA, the US-China trade wars, and the post-Covid supply chain diversification. Thanks to these developments, Mexico has outpaced China as the US’s largest trading partner and has become the preferred outsourcing location for the US and Canadian companies.