Triunfo Auction Win Turns Stock Into Loser: Corporate Brazil

TPI - Triunfo Participacoes & Investimentos (TPIS3), the only publicly traded infrastructure operator to win contracts in Brazil’s $12 billion airport auction this year, is trailing its peers on investor concern the company is diversifying too much.

Triunfo teamed up with Paris-based Egis Avia to win the Feb. 6 contract to expand and operate the Campinas airport in Sao Paulo state. Since then, it has plunged 5.9 percent. CCR SA (CCRO3) and EcoRodovias Infraestrutura & Logistica SA, Brazil’s two biggest publicly traded transport infrastructure companies, have gained 34 percent and 24 percent, respectively.

Sao Paulo-based Triunfo, which also has contracts for toll roads, ports and railroads, bid 3.8 billion reais ($1.9 billion) for the Campinas contract, making it the third-most expensive concession since Brazil opened up its airports to private operators last year. Investors are concerned that Triunfo’s expansion into areas where it has little experience, such as airports, may hurt profit margins.

“There certainly are uncertainties related to the airport investment, because there’s nothing out there to compare their performance with,” Jacqueline Lison, an analyst at Banco Fator SA, said in phone interview from Sao Paulo on July 23. “There’s concern in the market that Triunfo’s excess diversification might be harmful to the company.”

World Cup, Olympics

Brazil’s government is auctioning off concessions for airports, roads and other infrastructure ahead of the 2014 World Cup and 2016 Olympic Games. For the February auction, Brazilian contractors teamed up with companies in Argentina, France and South Africa to bid 24.5 billion reais for leases for three facilities. President Dilma Rousseff’s government was seeking to raise a minimum of 5.5 billion reais from the auction for the rights to operate the airports that last year accounted for about a third of Brazil’s 179 million passengers and 57 percent of its air cargo.

Before today, CCR posted a total return of 34 percent this year, ranking it as the second-best performance in the sector, while Triunfo’s 21 percent drop makes it the worst. Infrastructure company Obrascon Huarte Lain Brasil SA (OHLB3) had the best total return with a 37 percent gain.

Diversification

“Diversification surely is one of the reasons for Triunfo’s recent performance,” Sandro Lima, the company’s chief financial officer and investor relations director, said in a telephone interview. “Our task now is to demonstrate this is not a problem, but what sets us apart.”

Fitch Ratings withdrew its negative outlook for Triunfo last month after the ratings company concluded that investments in the next three years won’t hurt its credit quality.

The airport in Campinas, known as Viracopos, “has reasonable chances to be profitable and deliver growing margins,” Fitch said in its report on June 28.

CCR and EcoRodovias’s press officers declined to comment when contacted by Bloomberg News.

CCR, EcoRodovias

Shareholders may look more favorably on EcoRodovias and CCR because the companies are sticking to their core businesses of toll-road operations and diversifying more slowly, said Felipe Vinagre, an analyst at Barclays Plc. EcoRodovias bid and lost in the February auction, while CCR’s offer was disqualified because it was considered too small.

Triunfo fell 0.6 percent to 7.95 reais at 3:08 p.m. in Sao Paulo trading, while the Bovespa index rose 0.3 percent. CCR and EcoRodovias lost 0.5 percent and 0.7 percent, respectively.

“CCR diversified a bit, but in a more restricted fashion, as did EcoRodovias,” Vinagre said in a telephone interview from Sao Paulo. “For these companies, which are big, it’s easier than for smaller company. Both have very mature concessions and their investments in other business were well received.”

To contact the reporters on this story: Jose Sergio Osse in Sao Paulo at josse1@bloomberg.net

To contact the editors responsible for this story: Jessica Brice at jbrice1@bloomberg.net; Helder Marinho at hmarinho@bloomberg.net.

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