The Metrogas stock (METR) has a solid performance throughout the last year on the leading panel of the Argentine stock market, with a rise that exceeds 450%, while only in the last six monthsthat is, of May to October, that green is close to 90% (+89.8%), against an inflation in that period of approximately 25.9%, if an estimate of the 3% for Octoberin line with private sector projections.
METR is the largest natural gas distribution company in Argentina, with more than 2.5 million customers in Buenos Aires and its surroundings. Established in 1992, after the privatization of Gas del Estado, Metrogas operates under a 35-year concession contract, with the option to renew it for another decade at the end of that term.
This Tuesday, Fiscal Oil Fields (YPF) announced the decision to sell its shareholding in METR as part of a strategy to reorient its resources towards the oil sector and, Although the shares rose almost 7% during the day, In the city, they rule out that it is only due to the impulse of that news, since that was already discounting in the market.
Metrogas, under the scrutiny of analysts
A report of Adcap Financial Group analyzed the financial health of Metrogas. The document showed that, when taking into account the numbers that the company presented at the end of the second quarter of 2024 on earnings before interest, taxes, depreciation and amortization (EBITDA) and that when projecting those numbers for all of 2024 “gives an annual EBITDA of about US$170 million“This, against the value of the company (Enterprise Value – EV) of US$762 million and which is a multiple of 4.5x (EV/EBITDA), “gives a price quite in line with what a gas distributor could pay“, indicates the document.
The report is clear in stating that, “based on an estimated EBITDA of US$140 million by the end of the yearwe believe that METR shares have appreciation potential given this quarter’s rate review,” the analysis states.
And, likewise, if we take into account that its peers have an average of 1.7 times the “price-to-book ratio” (P/B) or Book Value and METR multiplies that ratio by 1.3 times, the broker recognizes “an appreciation potential of 34% compared to the current price” of the paper, says the Adcap document.
Looking to the future, Metrogas plans to boost investment in its distribution network, with focus on modernization and expansion to meet growing demand. “A key area of focus for METR is digital transformation, advanced metering infrastructure, smart grid technologies, contractor control, automation and digital solutions for customer service,” the report adds.
Thus, for the broker, Metrogas has solid financial fundamentals and operates with a positive net cash position and improvements in their margins. Its low P/B and appreciation potential (34%) in a context of tariff adjustment It makes the stock look undervalued in the short term.
Consequently, from the perspective of the brokerage house Investing in this stock makes sense as a medium-term tactical buying position. It happens that the improvement in financial fundamentals, the discount in valuation and the adjustment of rates make this “trade” attractive.
Metrogas, what happens now that YPF will sell its part?
Diego Martínez Burzacocountry manager of Inviu -in dialogue with Scope– explains that, in line with the Government’s general policy of reducing the presence of the State in strategic companies and making way for private capital, interest was revived in several companies in the energy sector.
As indicated, this motivated increases “notable” in firms like Metrogas, Transportadora de Gas del Norte (TGN), Transportadora de Gas del Sur (TGS), Distribuidora de Gas Cuyana and Transenerwhere the State owns a 50% stake, while the other 50% is in the hands of Pampa Energía.
Martínez Burzaco maintains that, in general terms, public service companies (utilities) have a good performance this year thanks to the tariff recomposition and the Government’s intention to reduce state interference to a minimum“with a regulation that plans to focus more on control than on daily management.” And finally, he assures that, although these companies show good performance, “Their low volume of operations in the market makes them risky investment optionsnot suitable for all investor profiles.”
The recommended strategy
The investment advisor Gaston Lentini He agrees in his views with Martínez Burzaco and remembers in a conversation with this medium that, “since YPF, the operation of Metrogas and functioned as a channel to distribute subsidieswhich led to recurring losses when selling, for example, the bottles at subsidized prices.”
For the strategist, this directly affected YPF’s profitability in a negative way. Now, he assures that YPF’s interest in getting rid of Metrogas seems to be progress in the right direction“focused on exploiting and exporting gas instead of distributing it internally, and that is why they leave that part of the business aside,” he analyzes.
This change suggests that “A Metrogas with released prices and managed privately and professionally could reach a market value much higher than what it has today.””. That is to say, it has upside potential. Lentini slips that, if we extrapolate this logic to YPF, that is, if the oil company were free of state interference, its value could be three times greater than the current one, but, for now, the reality is different.
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Regarding METR’s purchase recommendation, The analyst recommends it to add to the portfolio, but “only for risky investors”. Their position is justified by the fact that, although these types of companies could see an increase in their market value under private management and with released prices, there are important risks for investors, since many of them have a low volume of operations in the market. , which implies greater risk and lower liquidity, so they are not suitable options for a conservative profile, for example.
In addition, there is a latent risk that the State regains control or adjusts its regulation, which may impact the future performance of these investments. So The verdict is that the low multiples and the improvement in financial results make Metrogas an attractive option to add to the portfolio, as long as, “the investor has the stomach to tolerate risk”.
Source: Ambito
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