Monterrey, May 27 - Mexico's No. 2 supermarket chain Soriana is enjoying a share price honeymoon after buying more than 200 stores from a rival that made it the lone challenger to market leader Wal-Mart de Mexico.
Soriana stock has jumped about 21 percent since it announced last December it was buying 198 stores in Mexico and seven more in the United States from smaller rival Gigante in a $1.35 billion deal.
Shares of Walmart de Mexico, or Walmex on the other hand, have risen 4.6 percent in the same period, as the retail mammoth struggles with weaker sales in a cooling economy.
"Soriana is in fashion because of the Gigante acquisition," said analyst Raul Ochoa with Scotia Capital.
Soriana, based in the northern city of Monterrey, is in the process of adding the Gigante stores to its network in Mexico, a key move to win market share from Walmex particularly in new areas with better income per customer like Mexico City.
As part of that drive, Soriana has for the past few months been aggressively advertising its brand with customers to strengthen name recognition.
By mid-2008, Soriana will have integrated most of the Gigante store systems into its own and in the second half of the year the company will rebrand the stores with its name and investors are happy with how the merger is going.
Although Soriana has faced weakening consumption and rising inflation like the rest of the Mexican retailers -- forcing clients to be more selective about their purchases -- the market has rewarded the company's ability to absorb the Gigante deal quickly.
"Investors are willing to pay a higher price given the fast integration of the Gigante operation," said Marisol Huerta, an analyst with Actinver, who has a year-end target price of 44 pesos for Soriana, which traded above 39 pesos on Tuesday.
Despite the Gigante acquisition, Soriana still lags Walmex is size with a market capitalization about of $6.7 billion to Walmex's $35.9 billion, so a real challenge to jolt Walmex from the No. 1 position will require more market consolidation or huge expansion.
But it is comfortably ahead of smaller retailers like Comerci giving it more purchasing power with suppliers.
The difference in size between Walmex and Soriana is not lost on investors, with Walmex, the sector's top pick for years as a favorite in the long-term institutional camp and widely traded by foreign funds due to its strong input in the results of parent Wal-Mart Stores Inc
"Traditionally, those who invest in Walmex are not the same kind of investor who puts its money in Soriana. Because of the (gap between their) market caps, it is a different kind of player," said an analyst of a foreign brokerage who asked not to be named.
Investors in Soriana are more short-term oriented, and analysts say the supermarket chain will have to boost store traffic -- winning more shoppers who spend more money -- and significantly cut costs to keep its lure.