BUY GRUMA S.A.B. DE C.V. RE-INITIATION OF COVERAGE BUY, TP MP November 21, 2012

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1 GRUMA S.A.B. DE C.V. RE-INITIATION OF COVERAGE BUY, TP MP We are re-initiating coverage of Gruma S.A.B. de C.V. (Gruma) with a BUY rating on the stock and a YE 2013 Price Target of MP (USD for the ADR) for an implied potential return of 19% in pesos. Our price target was derived with consideration of P/E, EV/EBITDA, and DCF valuations after adjusting for a potential expropriation of Gruma s Venezuelan assets. We are projecting improved results for with net earnings increases of 41% in 2013, 18% in 2014 and 14% in These gains, we estimate, will come from a combination of volume and price gains, as well as operating margin improvement. November 21, 2012 BUY Local Ticker GRUMAB Target Price Last Price Div.Yield 0% Expected Return 19.2% Market Cap. (million) 20,810 Ent. Value (million) 32,220 LTM Price Range ( ) The company s balance sheet, as well, has strengthened substantially with the sale of Gruma s stake in Banorte in 2011, with proceeds fully applied to the reduction of debt. In addition to the Venezuelan expropriation risk, another major factor currently hanging over the company is the announcement by Archer Daniels on October 22 of the sale of its 23.22% stake in Gruma to Fernando Chico Pardo, a wellknown Mexican investor. Gruma and/or majority shareholders have the right of first refusal and must exercise this right by December 22nd or lose it. Grain price volatility is the company s largest operating risk with grain price increases in corn and wheat in the past two years affecting margins. Gruma is well hedged at present but the situation presents an ongoing challenge requiring continuous hedging techniques. Relative Performance Nov-11 Dec-11 Jan-12 Feb-12 Source: Bloomberg Mar-12 Apr-12 GRUMA May-12 Jun-12 Jul-12 IPC Aug-12 Sep-12 Oct-12 We take this opportunity to reiterate our BUY rating for GIMSA (MASECA) with a YE 2013 price target of MP for a total return potential of 25%, including a 3.5% dividend yield. MULTIPLES L12M 2012E 2013E 2014E 2015E EV / EBITDA 8.0x 7.7x 7.0x 6.2x 6.4x 5.7x 5.3x 5.0x P/E 13.6x 38.7x 3.9x 12.2x 16.3x 11.4x 9.4x 8.2x Dividend Yield 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.9% 3.4% P/BV 3.0x 1.8x 1.5x 1.5x 1.4x 1.3x 1.2x 1.1x OPERATING INDICATORS L12M 2012E 2013E 2014E 2015E Sales 50,489 46,720 56,985 64,709 65,198 69,815 75,311 81,001 Operating Profit 3,657 2,083 3,307 2,693 3,893 4,537 5,188 5,797 EBITDA 5,377 4,243 5,253 5,914 5,694 6,554 7,354 8,114 Net Profit 1, ,271 1,706 1,280 1,832 2,203 2,539 EPS $ 2.71 $ 0.95 $ 9.35 $ 3.03 $ 2.27 $ 3.25 $ 3.91 $ 4.50 Net Debt 20,363 18,392 11,926 11,366 10,793 11,274 12,466 13,337 Sales Growth 14% (7%) 22% 19% 14% 7% 8% 8% EBITDA Growth 17% (21%) 24% 20% 8% 15% 12% 10% EBITDA Margin 10.6% 9.1% 9.2% 8.3% 8.7% 9.4% 9.8% 10.0% Net Debt / EBITDA 3.8x 4.3x 2.3x 1.9x 1.9x 1.7x 1.7x 1.6x ROE 14% 5% 36% 6% 7% 9% 10% 11% ROA 4% 1% 13% 2% 3% 4% 4% 5% Source: Company Data, Actinver Gustavo Teran Food, Beverages, Retail, Discretionary Consumption and Transport gteran@actinver.com.mx +52 (55) x 1193 Eduardo Fonseca Fons Food, Beverages &Transport efonseca@actinver.com.mx +52 (55) x 4122 Actinver Corporate Headquarters Guillermo González Camarena 1200, Piso 5, Centro de Ciudad Santa Fe México, D.F

2 INDEX Investment Thesis 3 Investment Positives 3 Investment Negatives 4 Financial Results Financial Results Valuation 8 Projections Industry 11 Company Description 13 Shareholder Structure 14 Management 14 Subsidiaries 15 Main Markets 16 Dividends 17 Financial Statements 18 2

3 Investment Thesis We are re-initiating coverage of Gruma with a BUY rating and a YE 2013 Price Target of MP (USD 13.50/ADR). We arrived at this price through a combination of valuations including PE and EV/EVITDA multiples, as well as DCF model. Investment Positives Facilities America United States 28 Mexico 34 Center-America 12 Venezuela 15 Europe United Kingdom 2 Holland 1 Italy 1 Ukraine 1 Russia 1 Turquia 1 Asia China 1 Malasia 1 Oceania Australia 1 Total 99 Source: Company Data, Actinver. Gruma is a global company with operations in 113 countries with 99 plants located in Mexico, US, Europe, Venezuela, Asia and Central America. With 40 years experience in international markets, Gruma has leading market shares in the production and sale of corn tortillas, corn and wheat flower. It also has an important presence in the bread and snack markets, especially in the US. It has well recognized brands including Maseca (in Mexico and US), and Mission, Guerrero and Calidad (in US market). We estimate the 2012 breakdown in revenues and operating income as follows: US and Europe (42%/38%), Mexico (35%/45%), Venezuela (16%/20%), Central America and other regions (7%/-3%). Gruma is growing organically, as well as through acquisitions. Consolidated volume growth was 4% in 2010, 5% in 2011 and will reach an estimated 4% in 2012 with net revenue gains of -7% in 2010, 22% in 2011 and an estimated 19% in In 2011 Gruma acquired four companies, two in the US and two in Europe, with a total investment of USD 57 million (44% of Capex) and with estimated sales of USD 78 million (2% of 2010 revenues). In 2010 Gruma acquired a small company in the Ukraine for USD 9 million and in 2006, Gruma acquired three companies, two in Australia and one in the UK, for a total of USD 50 million. Thus, the company has demonstrated its ability to capitalize from opportunities in the international marketplace. The company s balance sheet is now well structured. After a close encounter with derivative losses in 2008 and 2009 totaling USD 788 million, Gruma has restructured its balance sheet and is back on sounder footing. In 2011 Gruma sold its entire stake in Grupo Financiero Banorte for a total of MP 9.32 billion (USD 716 million) and applied the proceeds to reduce debt. At YE 2011 Net Debt/EBITDA stood at 2.3x, down from 4.3x at YE At 9/30/12 this ratio improved to 1.9x. 3

4 Corn relative performance (Nov 2010=100) Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Source: Bloomberg Wheat relative performance (Nov 2010=100) Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Source: Bloomberg Venezuela E Sales 5,472 9,156 10,221 Gross Profit 1,365 2,410 2,721 Gross Margin 24.9% 26.3% 26.6% Operating Income Operating Margin 2.3% 7.4% 7.6% EBITDA EBITDA Margin 4.3% 9.0% 9.0% Source: Company Data, Actinver Investment Negatives Gruma is exposed to high volatility in corn and wheat prices, raw materials which represented a total of 51% of cost of goods sold in Corn soared by 45% in 2010 (4Q/4Q average in quarter), by a further 10.5% in 2011 and 24% so far in Wheat prices have also increased by 23% since 3Q10 when the new wheat contract was initiated in the Mercantile Exchange. The volatility in grain prices affects Gruma Corp. much more than GIMSA, the Mexican subsidiary, as the latter is able to more timely transfer grain price increases to its clients whose product (mainly tortillas) is much more price inelastic. Venezuela has price controls with infrequent price increases approved by the government. Gruma has in the past made good use of derivative strategies to cover the risk of grain price increases. Presently, it has full coverage of Gruma Corp s corn needs for at an average price of USD 5.60/bushel in 2012 and USD 5.70 in 2013 (vs. current price USD 7.22/bushel). In terms of wheat, Gruma has 100% of its 2012 wheat covered at USD 7.74/bushel and 30% of its 2013 wheat requirements at USD 6.80 (vs. current price of 8.56/ bushel). Protection against price increases in corn is obtained via the futures market (OTC or CBOT), whereas in the wheat market, Gruma Corp secures its needs via long term contracts directly with farmers. While the company has very detailed policies to manage its exposure and it undoubtedly learned a great deal from its losses, the risk is still there for error or lost opportunity when grain prices decline or currencies unexpectedly move in undesired directions. The Venezuela expropriation appears to be a matter of time with the recent re-election of Hugo Chavez for another 6 years. Government personnel has been on site since the expropriation decree was announced on May 12, 2010, though the company continues to be fully in control of management and its finances (though no dividend up-streaming has been allowed). Gruma Venezuela accounted for 16% of consolidated revenues and 20% of operating income in the first 9 months of 2012, and 18% of consolidated net worth at YE Should the Venezuelan assets be expropriated, Gruma expects it will receive compensation. It has protection in the sense that its Venezuelan subsidiaries are held through two Spanish companies that could benefit from a treaty between Venezuela and Spain under which investors may settle investment disputes by means of arbitration before the International Centre for Settlement of Investment Disputes ( ICSID ). 4

5 With the death of the company s scion and the Archer Daniels sale, rifts between family branches appear to be present. The various members of the Gonzalez family have, according to Gruma management, 50.03% of the capital with 54.4% of the vote. A number of newspaper articles, mainly from columnists, have pointed out that there are large differences between two branches of the family of Roberto Gonzalez Barrera. He married twice and established a trust for the control of Gruma in his absence. No details of the trust have been made available. One newspaper report indicates that the trust was invalidated with the post death reversal of the divorce decree of Mr. Barrera s second wife. We have been unable to confirm these news stories. More recent stories suggest that the family members are uniting and planning to exercise their right of first refusal. We estimate that it would take between USD 400 and 450 million for the Gonzalez family to exercise their right of first refusal. Archer Daniels holds 23.2% of Gruma (the holding company), 40% of Molinera de Mexico (wheat flour production in Mexico), 20% of Azteca Milling (corn flour production in US) and 3% each of two Venezuelan subsidiaries (MONACA and DEMASE- CA). Though Gruma could conceivably buy the Archer Daniels participations, it would entail taking on additional debt at a time that the company is still deleveraging. However, the Barrera family has the means to make these acquisitions, potentially with borrowings at the personal level, if necessary. In such a scenario, the Gonzalez family would end up with a total of 73.2% of the capital of Gruma and 77.6% of the vote. Another likely scenario next, in our view, is for Gruma to acquire the 17% interest in GIMSA held by small investors through a share exchange. GIMSA is the cash cow of the group and Gruma presently has access only to its 83% share of this subsidiary s dividends. With 100% ownership, Gruma would have total access to GIMSA s cash flow, not just dividends. It would take an estimated USD 217 million in Gruma stock to acquire GIM- SA s float, calculating a 15% premium. This means Gruma would have to issue an estimated million shares to GIMSA s shareholders, representing a 13.6% share dilution. However, based on our GIMSA projection, the incremental net income to Gruma from GIMSA would be 17% in 2012, and 20% in

6 Financial Results 2011 Percent of Revenues Molinera Mexico 8% Venezuela 16% Source: Company Data, Actinver. Percent of Operating Profit Molinera Mexico 1% Source: Company Data, Volumes (% increase) E 2013E Gruma Corp (US, EU, other) 6% 6% 10% 6% Mexico (incl. Molinera Mex.) 2% 4% 3% 2% Venezuela 14% 1% -1% 4% Central America -4% 13% -8% 1% Total Gruma 4% 5% 4% 4% Source: Company Data, Actinver. Central America 5% Gimsa 27% Venezuela 19% Gimsa 42% Central America -2% Other Subidiaries 2% Gruma Corp 42% Gruma Corp 36% Other Subidiaries 0% % Sales 46,720 56, % Operating Profit 2,083 3, % Operating Margin 4.5% 5.8% 1.3 pp EBITDA 4,243 5, % EBITDA Margin 9.1% 9.2% 0.1 pp Net Profit 538 5, % Net Margin 1.2% 9.2% 8.0 pp EPS % Source: Company Data, Actinver Gruma s revenues grew 22% in 2011 to MP 57.6 billion with net income up from MP 538 million to MP 5.27 billion, or MP 560 million net of the MP 4.7 billion gain from the sale of Banorte. Total volume was up 5% driven in large part by Gruma Corp s 6% gain. Within Gruma Corp, the European division (15% of its sales) was largely responsible for the increase, driven by acquisitions, as the US operation continued to be essentially flat. The 22% boost in revenues was largely the result of price increases and acquisitions. Gruma s consolidated gross profit margins declined by 2.2 percentage points to 30.5%. However, this big drop is in large part explained by a Gruma s early adoption of IFRS accounting even if it is not mandatory until 1/1/12. Adjusting 2010 numbers for IFRS produces an adjusted 2010 GPM of 31.7%, still a bit larger than 2011 s. The effect of grain price increases here clearly had its impact. At year end 2010 Gruma had no active derivative contracts in corn or wheat. As mentioned earlier, at present the company is covered through 2013 with corn futures and options at prices lower than current market prices, and the company has 30% of its 2013 wheat requirements covered also at prices below the current market price. Even with the gross profit margin decline, operating profit rose by 59% with help from lower G&A expenses in proportion to sales (down 2.9 percentage points). Net financial costs declined by 13% mainly due to the debt reduction from Banorte s sale proceeds. Net debt declined by MP 6.5 billion to MP 11.9 billion with the resulting ratio of Net Debt/EBITDA (LTM) down to 2.3x from 4.3x a year earlier. The debt reduction allowed Gruma to refinance most of its debt at much more favorable terms. Short term bank debt cost, for instance, averaged 8.43% in January 2010 and was down to 4.3% in December Net Revenues (% increase) E 2013E Gruma Corp (US, EU, other) 1% 14% 8% 8% Mexico (incl. Molinera Mex.) 12% 28% 14% 7% Venezuela -39% 67% 12% 9% Central America 0% 15% 7% 4% Total Gruma -8% 23% 13% 7% Source: Company Data, Actinver. Gross Profit margin E 2013E Gruma Corp (US, EU, other) 39.9% 35.6% 34.8% 35.0% Mexico (incl. Molinera Mex.) 25.1% 24.4% 22.9% 23.8% Venezuela 24.9% 26.3% 26.6% 27.3% Central America 26.9% 25.5% 27.7% 29.3% Total Gruma 32.7% 30.5% 29.7% 30.4% Source: Company Data, Actinver. Operating Profit margin E 2013E Gruma Corp (US, EU, other) 6.2% 4.2% 5.5% 5.4% Mexico (incl. Molinera Mex.) 8.2% 9.4% 7.9% 9.2% Venezuela 2.3% 7.4% 7.6% 7.4% Central America -2.5% -1.5% -2.2% -1.0% Total Gruma 5.0% 5.8% 6.1% 6.6% Source: Company Data, Actinver. 6

7 Financial Results 2012 In 2012 we expect net revenue growth of 14% (17% YTD to September) with net income at MP 1.27 billion, up from the MP 560 million in 2011 (adjusted for Banorte s gain). The acquisitions in Europe in 2011 will be a big factor here with Gruma Corp s performance more than offsetting weaker results from other subsidiaries. 9M11 9M12 % Sales 40,219 47, % Operating Profit 2,159 2, % Operating Margin 5.4% 5.6% 0.2 pp EBITDA 3,332 3, % EBITDA Margin 8.3% 8.3% 0.0 pp Net Profit 4, % Net Margin 10.8% 1.6% -9.2 pp EPS % Source: Company Data, Actinver We expect the consolidated gross profit margin in 2012 will compute at 29.7% (29.6% YTD) compared to 30.5% in 2011 with continued pressure from grain price increases, mostly evidenced at the Mexico operation. At the operating profit level, we expect an improvement of 30 bp s to 6.1% (+20 bp s YTD) with the big gains here coming at Gruma Corp. A 16% reduction in interest expense will also help boost the bottom line. In terms of the balance sheet, we are expecting additional improvement in leverage with Net Debt/EBITDA ending the year at 1.9x, down from 2.3x YE Netting out Venezuela s contribution to EBITDA produces an adjusted estimated ratio of 2.3x at YE Gruma restructured all but USD 300 million of its debt in 2011 substantially improving its financial flexibility. The USD 300 million not restructured is a perpetual bond paying 7.75% fixed which Gruma considers permanent capital. The most restrictive covenants in the company s credit agreements call for 1) a maximum leverage ratio of 3.0:1 (total debt/ebitda - 2.2x at 9/30/12); 2) interest coverage of at least 2.5x (EBITDA to interest - 4.9x at 9/30/12); and 3) consolidated NW of MP 240 million (vs. MP 14.2 billion at 9/30/12). The debt amortization schedule is well structured with no major payments due until E 2013E 2014E 2015E E 2013E 2014E 2015E Sales 56,985 65,198 69,815 75,311 81,001 22% 14% 7% 8% 8% Operating Profit 3,307 3,893 4,537 5,188 5,797 59% 18% 17% 14% 12% Operating Margin 5.8% 6.0% 6.5% 6.9% 7.2% 0% 0% 0% 0% 0% EBITDA 5,253 5,694 6,554 7,354 8,114 24% 8% 15% 12% 10% EBITDA Margin 9.2% 8.7% 9.4% 9.8% 10.0% 0% 0% 0% 0% 0% Net Profit 5,271 1,280 1,832 2,203 2, % (76%) 43% 20% 15% EPS MP 9.35 MP 2.27 MP 3.25 MP 3.91 MP % (76%) 43% 20% 15% Source: Company Data, Actinver 7

8 Valuation Our MP Price target was derived from a combination of P/E, EV/ EBITDA and DCF valuations, adjusted for Venezuela s potential expropriation. We adjusted our EPS and EBITDA valuations to reflect a full expropriation of Venezuelan assets. For the DCF valuation we factored a 10% discount for expropriation. P/E Valuation - estimated YE EPS 3.78 Adjusted EPS - less Venezuela 3.10 Multiple used 14.0 Est. Valuation YE Based on our estimated P/E for 2013, our Price Target computes at MP Gruma has traded recently between 13x and 15x our estimated forward four quarters of earnings. We used a multiple of 14x to arrive at our price target. Based on our estimated EV/EBITDA for 2013, our Price Target computes at MP 45.81, EV/EBITDA Valuation - estimated YE EBITDA (Millions) 7,224 Adjusted EBITDA - less Venezuela 6,055 Multiple used 7.0 Projected EV YE ,385 Less Net Debt (YE 2013) (11,239) Less Minority Int. (YE 2013) (5,325) Estimated Market Cap. 25,821 Estimated share price YE ' DCF Valuation Theoretical share price per DCF less 10% discount Venezuela The average forward EV/EBITDA multiple since 2008 has been 6.0x, and has traded recently at between 5.8x and 6.1x based on our EBITDA estimates for the next four quarters. This multiple is much more stable than the P/E multiple as it does not incorpórate the volatility of FX and derivative gains and losses below the operating line. We used a 7.0 multiple instead of 6.0 to reflect greater certainty of cash flows after the expropriation and a multiple closer to peers. Our DCF valuation produces a Price Target of MP 42.18, net of a 10% discount for Venezuela s expropriation. The key factors in our valuation are a 7.3% WACC, a 2% perpetuity and a 40% effective tax rate (see table next page) Compared to peers in the food industry, Gruma trades at a 2013 EV/ EBITDA discount of 24% against Mexican food companies, and 36% compared to international food companies. (see table next page). 8

9 Discounted Cash Flow Model ( E) Millions of Pesos 2013E 2014E 2015E 2016E 2017E Perp. EBIT 4,537 5,188 5,797 5,843 6,147 6,454 Effective Tax rate 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% Tax Effect On EBIT (1,815) (2,075) (2,319) (2,337) (2,459) (2,582) NOPLAT 2,722 3,113 3,478 3,506 3,688 3,872 Depreciation 2,017 2,166 2,317 2,503 2,642 2,774 Working Capital Changes (1,065) (1,436) (1,264) (1,264) (1,264) (1,264) CAPEX (2,000) (2,120) (2,226) (2,404) (2,548) (2,676) FCFE 1,675 1,723 2,305 2,340 2,517 2,706 Perpetuity Grow th Rate 2.0% Present Value of Explicit Period ( E) 8,464 Perpetuity Value 51,267 Present Value of Perpetuity Value 33,632 Theoretical Firm Value 42,096 Net Debt 10,793 Minority Interest 4,877 Theoretical Market Value 26,425 Number of Shares (Mn) 564 Theoretical Price / Share $ Current Market Price $ Potential Return 26.4% Average Cost of Debt 6.0% Long Term Tax Rate 40.0% After-Tax Cost of Debt 3.6% Cost of Capital 9.7% Market Risk Premium 5.5% Risk Free Rate + Country Risk Premium 5.0% Beta - Adjusted MexBol 0.85 % Total Debt 39% % Capital 61% WACC 7.3% Source: Actinver Relative Valuation Food Peers Ticker Price Shares Mkt. Cap EV Return Return Net debt EV/EBITDA P/BV P/E (Local) Outsdng (Local) (USD) YTD YoY 2011E actual 2012E 2013E actual actual 2012E 2013E Domestic Gruma GRUMAB.MM ,539 36, , x 6.4x 5.8x 1.4x 12.0x 16.3x 11.7x Herdez HERDEZ.MM ,574 18, x 9.9x 9.1x 4.0x 20.2x 19.7x 16.5x Bimbo BIMBOA.MM , , , , x 10.5x 10.2x 3.1x 51.3x 21.6x 22.1x Bachoco BACHOCO.MM ,350 14, , x 4.5x 6.1x 0.9x 10.3x 8.8x 16.0x Median 8.0x 8.1x 7.6x 2.3x 16.1x 18.0x 16.3x Average 8.5x 7.8x 7.8x 2.4x 23.5x 16.6x 16.6x International M Dias BrancoMDIA3.BZ ,953 8, n.a. 13.1x n.a. 11.6x 3.4x 17.7x n.a. 14.6x Kraft Foods KRFT.US ,178 35, ,648 n.a. 10.5x 10.5x 3.5x n.a. 17.3x 16.4x Campbell CPB.US ,578 14, , x 9.0x 8.4x 12.7x 15.1x 14.5x 13.7x Tyson Foods TYSON.US ,110 7, , x 5.4x 5.1x 1.0x 10.6x 11.2x 10.7x Brasil Foods BRFOODS.BZ ,369 39, , x 11.5x 10.3x 2.3x 86.6x 22.4x 18.5x General Mills GIS.US ,673 33, , x 9.4x 9.1x 3.4x 15.4x 14.7x 13.8x Hormel FoodsHRL.US ,115 7, n.a. 8.6x 9.0x 8.6x 2.8x 17.2x 16.1x 15.9x Flowers FoodsFLO.US ,084 3, x 9.0x 8.9x 3.6x 24.3x 20.1x 19.7x Median 9.6x 9.0x 9.0x 3.4x 17.2x 16.1x 15.3x Average 9.8x 9.1x 9.1x 4.1x 26.7x 16.6x 15.4x National & International Median 9.4x 9.0x 9.0x 3.3x 17.2x 16.3x 16.0x Average 9.4x 8.6x 8.6x 3.5x 25.5x 16.6x 15.8x Source: Bloomberg 9

10 Projections We are projecting 7% annual net revenue gains for with volume increases of 4% in 2013 and 3% in the next two years. Our projection factors average anual volume gains of 4.3% for Gruma Corp, 2.5% for Gimsa, 4% each for Venezuela and Molinera de Mexico, and 1% in Central America. In terms of margin, our consolidated gross profit margin remains fearly steady averaging 30.6% in the three years, compared to 30.5% in 2011 and 29.8% in We do factor in a steady improvement in the operating profit margin, from 5.8% in 2011 to 6.9% in 2015 as a result of efficiencies in SG&A management. Financial expenses as a proportion of revenues remain fairly steady. Our effective tax rate is 35%, compared to recent unusually high levels of 45%. In terms of leverage, we estimate the Net Debt/EBITDA will ease to 1.8x in 2013 from 1.9x and stay at these levels with Capex growing 1-2% above inflation. We projected dividend payments starting in 2014; Gruma has not paid dividends since The resulting ROE s from our projection increase from 7% in 2012 to 9% in 2013 and 10% in The biggest risk to our projection is the volatility in grain prices. For 2013, at least, Gruma is well covered. OPERATING INDICATORS L12M 2012E 2013E 2014E 2015E Sales 50,489 46,720 56,985 64,709 65,198 69,815 75,311 81,001 Operating Profit 3,657 2,083 3,307 2,693 3,893 4,537 5,188 5,797 EBITDA 5,377 4,243 5,253 5,914 5,694 6,554 7,354 8,114 Net Profit 1, ,271 1,706 1,280 1,832 2,203 2,539 EPS $ 2.71 $ 0.95 $ 9.35 $ 3.03 $ 2.27 $ 3.25 $ 3.91 $ 4.50 Net Debt 20,363 18,392 11,926 11,366 10,793 11,274 12,466 13,337 Sales Growth 14% (7%) 22% 19% 14% 7% 8% 8% EBITDA Growth 17% (21%) 24% 20% 8% 15% 12% 10% EBITDA Margin 10.6% 9.1% 9.2% 8.3% 8.7% 9.4% 9.8% 10.0% Net Debt / EBITDA 3.8x 4.3x 2.3x 1.9x 1.9x 1.7x 1.7x 1.6x ROE 14% 5% 36% 6% 7% 9% 10% 11% ROA 4% 1% 13% 2% 3% 4% 4% 5% VE 42,926 32,760 37,017 36,949 36,481 37,420 39,010 40,340 Net Debt 18,392 8,098 11,926 11,366 10,793 11,274 12,466 13,337 Stockholder's Equity 6,896 11,354 13,431 14,245 14,632 16,006 17,202 18,579 Minorities 3,724 3,852 4,282 4,773 4,877 5,335 5,734 6,193 Dividends Source: Company Data, Actinver 10

11 Industry Production vs Consumtion of corn in 2011 (1,000's MT) 350,000 Consumption 300, , , , ,000 50,000 0 Source: USDA, Actinver Production USA China Brazil Mexico India Japan Egypt Canada SouthAfrica Indonesia The United States is the world s largest corn producer while Mexico is in the seventh position, after China and Brazil. Gruma s most important product is corn flour, a more efficient and cleaner method of producing corn tortillas. There are 2 main varieties of corn, white corn and yellow or forage. White corn is used for human consumption exclusively while yellow corn is for industrial processing or animal food. The US has the largest yield production with 9.2 tons per hectare, while Mexico has a yield of only 3 tons per hectare occupying the 11th position but it is the fourth largest corn consumer after US, China and Brazil. Mexico thus imports most of its needs primarily from the US. Corn flour method has many advantages over the traditional method of tortilla production. The main advantages are: i) higher production yield, ii) lower production costs, iii) uniform product quality, and iv) longer shelf-life. Gruma s corn flour method is clearly more efficient to produce tortillas as tortilla producers only have to add water to the company s corn flour. For instance, a kilo of corn produces 1.65 kilos of tortillas with the corn flour method compared to 1.37 kilos with the traditional one. In addition, corn flour commonly lasts up to three months, compared to only few days for corn meal. Yield (tons by hectare) Gruma Corp (US & Europe) USA Canada Egypt EU 27 Ukrain Argentina China Serbia Brazil Source: USDA, Actinver SouthAfrica Mexico Indonesia Philippines India 1.8 Nigeria 1.0 Japan The two main products of Gruma Corp in the US market (estimated 36% of total company revenues) are corn flour and tortilla/tortilla chips. Gruma estimates the size of these markets at USD 6.5 billion (tortilla/tortilla chips) and USD 1.3 billion (corn flour). The company has 30% of the market in tortilla production and 85% of the corn flour market. Though US sales have been essentially flat since 2008, there is big potential for growth from 1) Hispanic population growth, 2) popularity of Mexican food, and 3) increased consumption of tortillas in non-mexican dishes. Europe presently accounts for about 15% of Gruma Corp s sales and its main products are grits and flat breads. Growth here has relied on acquisitions. Europeans consume more wheat products than corn products. GIMSA /Molinera de Mexico Mexico represents the 35% of total sales. More of the 77% of the operations in Mexico come from GIMSA. Tortillas are one of Mexico s main staples and crucial for the Mexican diet. Mexicans consume ~74kg of tortilla per cápita per year, higher than the ~10kg. consumption in the US. There are two methods of tortilla production: 1) the corn flour method, where GIMSA has ~75% of market share and 2) the traditional method. 11

12 Tortilla price in self-service stores Jan 16-Jan 30-Jan 13-Feb 27-Feb 12-Mar 26-Mar 9-Apr 23-Apr 7-May 21-May 4-Jun 18-Jun 2-Jul 16-Jul 30-Jul 13-Aug 27-Aug 10-Sep 24-Sep 8-Oct 22-Oct 5-Nov Source: Sniim, Actinver Tortilla price in tortilla stores Jan 16-Jan 30-Jan 13-Feb 27-Feb 12-Mar 26-Mar 9-Apr 23-Apr 7-May 21-May 4-Jun 18-Jun 2-Jul 16-Jul 30-Jul 13-Aug 27-Aug 10-Sep 24-Sep 8-Oct 22-Oct 5-Nov Source: Sniim, Actinver In Mexico around 95% of tortilla sales are channeled through small tortilla stores call tortillerías which rely on both the traditional method and corn flour method. Overall fifty percent of tortillas consumed in Mexico come from corn flour. In Mexico, the current tortilla price is MP per kg on average in tortilla stores and MP 9.44 per kg in supermarkets, according to the Economy Ministry. We estimate that tortilla prices could reach MP per kg during the rest of the year in tortilla stores and MP in supermarkets as a result of higher international corn prices. Tortilla and corn flour consumption is price inelastic mainly, as mentioned, because tortillas are a main product in the Mexican diet. This means that any price increase is highly likely to be absorbed by the markets. No such advantage is seen in the US, where the Gruma has to deal with big institutional clients and US consumers can substitute breads and other products if tortilla prices increase. Venezuela Though its future remains uncertain, Venezuela still represents close to 20% of Gruma s business. Here government price controls are very prescient and the business tends to be lumpy with significant ups and downs. Our stock valuation takes into consideration the possible expropriation of the company. Corn 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Average Median YoY Average (1.7%) (12.6%) 28.8% 45.4% 80.8% 106.3% 65.2% 10.5% (4.5%) (15.6%) 12.3% 24.4% Median (3.3%) (11.9%) 25.4% 44.9% 84.3% 108.4% 71.3% 9.8% (4.5%) (16.4%) 13.4% 25.0% QoQ Average (3.8%) (4.4%) 18.8% 33.1% 19.5% 9.2% (4.9%) (11.0%) 3.3% (3.5%) 26.6% (1.4%) Median (6.2%) (2.5%) 14.3% 38.7% 19.3% 10.3% (6.1%) (11.1%) 3.7% (3.5%) 27.4% (2.0%) Wheat 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Average N.A. N.A Median N.A. N.A YoY Average % (10.7%) (19.7%) (24.5%) 9.3% 24.8% Median % (10.4%) (19.6%) (26.6%) 8.7% 23.7% QoQ Average % 9.6% 3.8% (10.3%) (12.5%) (1.4%) (2.4%) 29.8% (0.1%) Median % 8.2% 5.8% (10.7%) (12.3%) (2.9%) (3.5%) 32.3% (0.2%) Source: Bloomberg 12

13 Contribution of total volume sold 2011 Company Description (from report dated 5/22/12 with updates) Molinera de México 11.9% Gruma Venezuela 11.1% Source: Company data, Actinver. Gruma Corp. 30.9% Gruma Centroamérica 4.8% GIMSA 41.3% The company was founded in 1949 by Don Roberto González Barrera and his father in the state of Monterrey and from the start began selling corn flour as an alternative method for the tortilla production in Mexico. The production of corn flour has facilitated the commercialization of tortillas through the expansion of corn flour and tortillas in Mexico, US, Central- America, Venezuela, Europe, Asia and Australia. In Mexico and Venezuela, Gruma has a diversified its product portfolio to include wheat flour among other products. Gruma is the leader in the production, commercialization and distribution of corn flour, wheat flour and tortillas worldwide. The company has a presence in 105 countries with 99 facilities of which 89 are located in the Americas. Origins 1949 GIMSA is founded by Don Roberto González. International Operations 1972 Starts centeramerica operations Starts operations in the US Starts operations in DEMASECA. Acquisitions and expansions 1994 Starts the packaged tortilla production Asociation with Archer-Daniels-Midland Ovis Boske and Nuova De Franceschi & Figli, S.P.A Construction of the Pennsylvania tortilla plant. Part of the assets of Cenex Harvest States (CHS). Small tortilla plant close to San Francisco, California. Agroindustrias Integradas del Norte and Agroinsa de México Two tortilla plants in Australia (Rositas Investments y OZ-Mex Foods). Opens the first producing plant of tortilla in Shangai, China. Pride Valley Foods (England) Sell the 40% of the participation in MONACA to DEMASECA investors Semolina, two tortilla plants in the US and Solntse México (Rusia). Source: Company data, Actinver. 13

14 Shareholders structure Gruma has 26% of free float. Most of its shares are owned by the Gonzalez Barrera Family, while Archer-Daniels-Midland owns 23% of the company shares; however, ADM only has the 18.87% of voting. Ownership Structure Shares (000's) % Gonzalez Barrera Family 282, % Archer Daniels Midland 130, % Float 150, % Total 563, % Source: Company data, Actinver. Board of Directors Name Tipe of counselor Joel Suárez Aldana Chairman of the board Alejandro Barrientos Serrano Related José de la Peña y Angelini Independent Juan Diez-Canedo Ruiz Wealth, Independent Bertha Alicia González Moreno Wealth, Related Juan Antonio González Moreno Related Federico Gorbea Quintero Independent Carlos Hank Rhon Related Mark Kolkhorst Independent Mario Martín Laborín Gómez Independent Juan Manuel Ley López Independent Bernardo Quintana Isaac Independent Juan Antonio Quiroga García Wealth, Related Alfonso Romo Garza Independent Adrián Sada González Independent Alejandro Valenzuela de Río Independent Javier Vélez Bautista Independent Source: Company Data, Actinver Management Gruma was founded by Don Roberto Gonzalez Barrera in 1949 and the family has control of the company. There are two members of the family working in the company. Roberto Jorge González Alcalá (CEO of Gruma) and Juan Antonio González Moreno (CEO of Gruma Asia and Oceania), both sons of the founder of the company. The CEO Joel Suárez Aldana has been with the company for 24 years. He was named CEO this past February. He has held important positions within the company including President and CEO of Gruma Corporation, CFO of Mission Foods and other administrative positions in the banking sector. The CFO Alejandro Barrientos Serrano has been with the company one year. He was director of BLADEX and CALYON in Mexico and a senior auditor with Ruiz, Urquiza and CIA (CPA firm). High Management Name Position Joel Suárez Aldana CEO of Gruma Alejandro Barrientos Serrano CFO of Gruma Nicolás Constantino Coppola CEO of Gruma Venezuela Roberto Jorge González Alcalá CEO of Gruma Mexico and Latin-america Juan Antonio González Moreno CEO of Gruma Asia and Oceania José Antonio Jaikel Aguilar CEO of Gruma Center-america Francisco Yong García CEO of Gruma Europe Source: Company data, Actinver. 14

15 The company subsidiaries are: Gruma Corp. (US and Europe). The operations of Gruma Corp. are mainly concentrated in the US (85%) and the rest in Europe. Europe still expanding through acquisitions of small companies that should increase its proportion. The corn flour business has 6 plants in US and 3 in Europe. The main brand is Maseca. All the European plants produce grits, used in the beer and cereal industry. In the tortilla market, the company has 23 plants in the US and 4 in Europe. The main tortilla brands are Mission, Guerrero and Calidad in the US. GIMSA (México). This company has more than 50 products of corn flour varieties for the elaboration of food products through the Maseca brand. It has 19 plants for the production of corn flour, one for wheat flour and other products. Gruma Venezuela. This division produces corn and wheat flour in 10 plants. It also produces other products such as rice, pasta and oats in 5 additional plants. The main brands are Juana in corn flour, Robin Hood in wheat flour, Monica for rice and Lassie in oat. Molinera de México. This company is one of the Mexican leaders in the production of wheat flour. It has 9 plants located in Mexico and caters to the market producing white flour and mixes. Its main brands are Reposada, Poderosa and Selecta. Gruma Central-America. This division produces and sells corn flour, tortilla and snacks. It also grows hearts of palm and processes rice. It has 12 plants to attend clients in Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Ecuador. Its main brands are Maseca for corn flour, TortiRicas, Mission for tortillas and Tosty for snacks. Other subsidiaries and eliminations. Within this group are the operations of Gruma Asia and Oceania. In this region, Gruma produces and distributes wheat flour tortillas, corn snacks and flat breads such as pitta, chapatti, naan and pizza breads through its 3 plants in China, Malasia and Australia. 15

16 Main Markets USA The potential growth of GRUMA is mainly explained by the growth in the operations in EEUU, with 75% retail sales and the remaining 25% in the Foodservice Sector. Gruma counts with the two main brands mentioned earlier. Mission is focused towards non-hispanic consumers, while Guerrero has the best position with Hispanic consumers. Maseca is also an important brand within the US and it is sold 15% through retail stores and the rest through tortilla and snacks producers. The 25% of revenues that is sold to the Foodservice Sector has an attractive growth potential. As well as traditional Mexican food chains, GRUMA has important clients who do not specialize in Mexican food; they consume other GRUMA products (chips, breads). The expansion in the restaurant sector is gaining speed and is anticipated that in 2012 this sector could reach record sales with a 3.5% growth compared to This growth, along with a bigger market share represents a potential that the company can easily exploit. Changing demographics in the US The Hispanic population is an important market for GRUMA s operations in the US. According to the last census, the Hispanic population was responsible for more than half of the growth in the US for the last decade, growing 43% compared to the total national growth of 9.7%. The Latinos now constitute 16% of the total population and the largest minority. Moreover, Latinos account for 1 of every 4 children born in USA, which has high potential for changing patterns of consumption in the future, as well as political and economic implications. Mexico Mexico is the main market of Gruma and represents 35% of the sales and up to 53% of the EBITDA, from which 90% comes from GIMSA. The opportunity of the elaboration with corn flour is to increase the potential growth for GRUMA in the Mexican market. The annual consumption of tortilla per capita in Mexico is 74kg and is much higher than the one in the US. Broadly speaking, an average Mexican consumes 7-10 tortillas daily. Considering that every tortilla weighs 20 grams, he consumes 0.2kg of tortilla daily, that if multiplied by 365 days results in the 74kg. An average non-hispanic consumer in the US consumes 8 tortillas a week. If we round up to 10, the maximum consumption in the US is 10kg per capita a year. 16

17 Dividends The company paid its last dividend in 2007 of MP 0.85 per share. Since 2008, Gruma has been focused on reducing debt levels and continuing capital investments. As a holding company, it depends on dividends of its subsidiaries to service debt and/or pay dividends. At the same time, the subsidiaries are limited by local laws and corporate by-laws. We do not expect Gruma will pay dividends for until

18 GRUMA, S.A.B. DE C.V. (Figures in Millions of Pesos) INCOME STATEMENT E 2013E 2014E 2015E E 2013E 2014E 2015E Sales 44,346 50,489 56,985 65,198 69,815 75,311 81,001 22% 14% 7% 8% 8% Operating Profit 3,064 3,657 3,307 3,893 4,537 5,188 5,797 59% 18% 17% 14% 12% Operating Margin 6.9% 7.2% 5.8% 6.0% 6.5% 6.9% 7.2% EBITDA 4,584 5,377 5,253 5,694 6,554 7,354 8,114 24% 8% 15% 12% 10% EBITDA Margin 10.3% 10.6% 9.2% 8.7% 9.4% 9.8% 10.0% Financial Gain (14,036) % (22%) (26%) 0% 0% Financial Cost (1,495) (1,450) (1,187) (1,235) (1,022) (1,053) (1,102) (13%) 4% (17%) 3% 5% Pre-Tax Profit (11,428) 3,219 7,579 3,242 3,947 4,566 5, % (57%) 22% 16% 12% Taxes and Profit Sharing (422) (1,108) (1,791) (1,387) (1,579) (1,826) (2,050) 113% (23%) 14% 16% 12% Tax and Profit Sharing Rate (3.7%) 34.4% 23.6% 45.0% 40.0% 40.0% 40.0% Profit from Continuing Operations (11,851) 2,110 5,788 1,856 2,368 2,740 3, % (68%) 28% 16% 12% Discontinued Operations n.a. n.a. n.a. n.a. n.a. Net Profit Before Minorities (11,851) 2,110 5,788 1,856 2,368 2,740 3, % (68%) 28% 16% 12% Minority Interest (489) (581) (517) (576) (536) (536) (536) 128% 11% (7%) 0% 0% Net Profit (12,340) 1,529 5,271 1,280 1,832 2,203 2, % (76%) 43% 20% 15% N of Shares % 0% 0% 0% 0% EPS (MP 23.17) MP 2.71 MP 9.35 MP 2.27 MP 3.25 MP 3.91 MP % (76%) 43% 20% 15% BALANCE SHEET E 2013E 2014E 2015E E 2013E 2014E 2015E TOTAL ASSETS 44,435 43,967 44,543 47,090 49,850 52,933 56,144 13% 6% 6% 6% 6% Current Assets 16,699 16,480 19,988 22,562 24,075 25,807 27,576 48% 13% 7% 7% 7% Cash and Temporary Investments 1,426 1,881 1,180 1,912 1,912 1,912 1,912 5,434% 62% 0% 0% 0% Long Term Assets 27,736 27,487 24,555 24,527 25,775 27,125 28,569 (5%) (0%) 5% 5% 5% Property, Plant & Equipment 20,653 19,958 20,516 20,785 21,988 23,287 24,678 15% 1% 6% 6% 6% Investment Properties n.a. n.a. n.a. n.a. n.a. LT Biological Assets n.a. n.a. n.a. n.a. n.a. Intangible Assets 3,031 3,009 2,615 2,462 2,462 2,462 2,462 (10%) (6%) 0% 0% 0% Other Long Term Assets % (16%) 0% 0% 0% TOTAL LIABILITIES 35,153 32,155 26,830 27,580 28,509 29,997 31,373 (6%) 3% 3% 5% 5% Current Liabilities 14,993 8,950 10,981 11,556 12,485 13,974 15,349 20% 5% 8% 12% 10% Long Term Liabilities 11,728 20,040 15,849 16,023 16,023 16,023 16,023 (2%) 1% 0% 0% 0% TOTAL DEBT 14,147 22,243 13,105 12,705 13,186 14,378 15,249 (29%) (3%) 4% 9% 6% NET DEBT 12,720 20,363 11,926 10,793 11,274 12,466 13,337 (35%) (9%) 4% 11% 7% TOTAL CAPITAL 9,282 11,812 17,713 19,510 21,342 22,936 24,772 67% 10% 9% 7% 8% Shareholder's Equity 5,639 7,701 13,431 14,632 16,006 17,202 18,579 95% 9% 9% 7% 8% Minority Interest 3,642 4,110 4,282 4,877 5,335 5,734 6,193 15% 14% 9% 7% 8% CASH FLOW STATEMENT E 2013E 2014E 2015E E 2013E 2014E 2015E PRE-TAX PROFIT (11,384) 3,219 7,622 3,237 3,947 4,566 5, % (58%) 22% 16% 12% Investment Activity Related Items (39) 1,228 (3,021) 1,831 2,091 2,244 2,399 (287%) (161%) 14% 7% 7% Financing Activities 16,369 1, % (15%) 6% 0% 0% Pre-Tax Cash Flow 21,619 8,338 5,362 4,711 2,963 3,352 3,701 (11%) (12%) (37%) 13% 10% Working Capital Changes (2,905) (610) (3,611) (1,541) (1,065) (1,436) (1,264) 340% (57%) (31%) 35% (12%) Cash Flow from Operations (2,958) (941) 1,751 3,170 1,898 1,917 2,437 (315%) 81% (40%) 1% 27% Cash Flow from Investment (2,958) (941) 6,779 (2,308) (1,743) (1,863) (1,969) (931%) (134%) (24%) 7% 6% Cash Flow from Financing 1,411 (3,609) (7,429) (121) (147) (45) (459) 89% (98%) 21% (69%) 918% Net Incr. (Decr.) in Cash and T.I , (163%) (33%) (99%) 0% 0% Net Cash and T.I. Beginning of Period 481 1, ,180 1,912 1,912 1,912 (99%) 5,434% 62% 0% 0% Net Cash and T.I. End of Period 1,426 1,881 1,180 1,912 1,912 1,912 1,912 5,434% 62% 0% 0% 0% Source: Company Data, Actinver 18

19 Research Pablo Adolfo Riveroll Sánchez Managing Director of Research and Risk (52) x5800 Jaime Ascencio Economy & Markets (52) x5032 Federico Robinson Conglomerates, Industrial & Mining (52) x4127 Gustavo Terán Food, Beverages & Retail (52) x1193 Martín Lara Telecoms, Media & Financials (52) x5033 Ramón Ortiz Concessions, Construction & Real Estate (52) x5034 Michel Gálvez Fixed Income Analysis (52) Roberto Galván Technical Analysis (52) x5039 Investment Strategy Ernesto O Farrill Head, Investment Strategy (52) eofarril@actinver.com.mx Sales & Trading Gerardo Román Head of Trading (52) groman@actinver.com.mx Julie Roberts US Institutional Sales (210) jroberts@actinversecurities.com María Antonia Gutiérrez US Institutional Sales (52) agutierrez@actinver.com.mx Tulio Chávez Institutional Sales (52) mchavez@actinver.com.mx José María Celorio Institutional Sales (52) jcelorio@actinver.com.mx Romina Amador US Institutional Sales (52) ramador@actinver.com.mx Luis Javier Basurto Institutional Sales (52) lbasurto@actinver.com.mx 19

20 Disclaimer Analyst Certification for the following Analysts: Pablo Adolfo Riveroll Sanchez Jaime Ascencio David Foulkes Eduardo Fonseca Martin Lara Pablo Duarte Ramón Ortiz Roberto Galván The analyst(s) responsible for this report, certifies(y) that the opinion(s) on any of the securities or issuers mentioned in this document, as well as any views or forecasts expressed herein accurately reflect their personal view(s). No part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this document. Any of the business units of Grupo Actinver or its affiliates may seek to do business with any company discussed in this research document. Any past or potential future compensation received by Grupo Actinver or any of its affiliates from any issuer mentioned in this report has not had and will not have any effect our analysts compensation. However, as for any other employee of Grupo Actinver and its affiliates, our analysts compensation is affected by the overall profitability of Grupo Actinver and its affiliates. Guide to our Rating Methodology Total Expected Return on any security under coverage includes dividends and/or other forms of wealth distribution expected to be implemented by the issuers, in addition to the expected stock price appreciation or depreciation over the next twelve months based on our analysts price targets. Analysts uses a wide variety of methods to calculate price targets that, among others, include Discounted Cash Flow models, models based on expected risk-adjusted multiples, Sum-of-Parts valuation techniques, break-up scenarios and relative valuation models. Changes in our price targets and/or our recommendations. Companies under coverage are under constant surveillance and as a result of such surveillance our analysts update their models resulting in potential changes to their price targets. Changes in general business conditions potentially affecting either the cost of capital and/or growth prospects of all companies under coverage, or a given industry, or a group of industries are typical triggers for revisions to our price targets and/or recommendations. Other micro- and macroeconomic events could materially affect the overall prospects of an individual company under coverage and, as a result, such event-driven factors could lead to changes in our price targets and/or recommendation of the company affected. Even if our overall expectations for a given company under coverage have not materially changed, our recommendations are subject to revision if the stock price has changed significantly, as it will affect total expected return. Terms such as "price targets, our price targets, total expected return, analyst's price targets or any other similar phrase are used in this document as complementary to our recommendation or as a condition that could change in our point of view and, according to article 188 of Securities Market Act, do not imply in any way that Actinver, its agents, or its related companies are in any form providing assurance or guarantee, nor assuming any responsibility for the risks associated with any investment in the discussed securities. Recommendations for companies, both in the Índice de Precios y Cotizaciones (IPyC) Index and also not belonging to the index. For stocks, we have three possible recommendations: a) BUY, b) HOLD or c) SELL. A stock classified as BUY is expected to yield returns at least 5% above than that of the IPyC Index. Stocks rated as HOLD are expected to yield returns similar to the IPyC Index, within a range of +5/-5%. Many of the companies within this range are often times solid companies which have reached their potential in a short amount of time and should still be considered as a good investment. Stocks rated as SELL are expected to yield returns below 5% of the IPyC Index. Rating Distribution as of June 8, 2012 All Companies in the BMV BUY: 71% HOLD: 23% SELL: 6% 20