TGS: Buy, despite political turmoil. Huge long term value.
The unexpected defeat of the ruling party (Juntos por el Cambio) in the primaries hit deeply in investor’s confidence due to a dramatica change on Argentina's 2020 economic outlook.
The peso fell 25% against the dollar and risk spreads widened to more than 2,000bps. In order to control economic damage, the government set capital controls, “reprofiled” short term debt payments and moved forward to expansionary fiscal policies that compromised the deal signed with the IMF.
Despite the domestic assets´ selloff has been across the board, utilities and bank stocks have been harder hit.
The opposition candidate with the greatest chance of winning the elections next October 27, Alberto Fernandez, expressed his intention to boost Vaca Muerta oil & gas production, respecting the contracts´ legal terms. However, doubts remain over his energy policy in case he´s being elected.
Meanwhile, Macri’s government had to take some economic measures in order to contain inflation pressure, affecting oil and gas industry. Two of them were the freezing of fuel prices and capital controls. Both created several business distortions that must be attended by the next president.
Mid-term, either Macri or Fernandez, know that Vaca Muerta field is the best key the country has to attract new investment and create high quality payroll. To achieve it stable and predictable rules are needed, situation that TGS should take advantage.
Considering the described distress, we consider various events for our valuation.
Rating: Market Performer