Central Puerto (CEPU): Despite the sharp drop, uncertainty remains. Market Performer
The unexpected defeat of the ruling party (Juntos por el Cambio) in the primary elections, which hit deeply in investor’s confidence due to a dramatically changed economic outlook towards 2020.
The peso fell 25% against the dollar and risk spreads widened to more than 2,000bps. In order to control economic damages, the government set capital controls, “postponed” short term debt payments and moved forward towards expansionary fiscal policies that compromised the deal signed with the IMF.
Despite the selloff in domestic assets has been across the board, utilities and bank stocks have been hit harder.
The opposition candidate with the greatest chance of winning the elections next October 27, Alberto Fernandez, expressed his intention about de-dollarizing energy tariffs. The most vulnerable sector to this change is energy generation. Both transport and electrical distribution are already pesified.
In the case of a Fernandez victory, we believe that the tariffs "will be stepped upon" as much as possible during 2020, in order to control inflation and let real wages recover.
Central Puerto (CEPU) could face two negative constraints: the “pesification” of the prices they receive for GW/h and the VOSA credit payments they receive from CAMMESA that are in dollar terms.
Considering the described distress, we contemplate various events for our valuation.