The unexpected defeat of the ruling party (Juntos por el Cambio) in the primary elections 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 damage, the government set capital controls, postponed short term debt payments and moved forward to expansionary fiscal policies that compromised the deal reached with the IMF.
One of the sectors that has suffered the most was oil and gas, where the government had to “freeze” fuel prices for 90 days, in order to control CPI acceleration due to the peso depreciation.
The decree indicates that the reference exchange rate used in the industry will be AR$45.19 per dollar while the reference price of Brent oil is US$ 59 per barrel. To date, the “official” FX is at AR$57 and the Brent is at US$ 61.55, which represents a 26.1% and 4.3% gap respectively.
Given this situation, YPF (YPFD) disclosed it would negatively impact in US$100 million.
Even with this huge financial and economic stress, we believe that much of this damage is factored in the stock’s price. Now trading near the 2002 lows, without considering dividends, we see an opportunity at current prices.
Considering the described distress, we contemplate various events for our valuation.