Ienova Rallies Among Latin IPOs in Infrastructure Boom

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Infraestructura Energetica Nova SAB is Latin America’s best performer among companies that began trading in the past two years. Given Mexico’s expanding appetite for infrastructure, the energy company’s rally is showing few signs of slowing.

Ienova, which is 81 percent owned by California-based Sempra Energy, more than doubled in its first 25 months on the Mexican Stock Exchange. The surge coincides with Mexico’s historic energy overhaul and the promise that allowing more foreigners into the sector could generate as much $62.5 billion in private investment by 2018.

The Mexico City-based pipeline and power plant owner started investing in the nation in 1996, one of the first non-state actors to distribute natural gas after that market was opened to outsiders. Now, as Mexico plans to add more power plants and expand its pipe network 75 percent by 2018, investors are betting its position as a first-mover will offer an advantage as infrastructure spending increases.

“The market expects the company to continue winning more pipeline projects,” Gerardo Cevallos, an analyst at Vector Casa de Bolsa SA, said in a phone interview from Mexico City. “The company is planning to participate in future bids and the more projects they win to develop, the more likely the shares will continue to rise.”

Los Ramones

Ienova and state-run oil producer Petroleos Mexicanos are developing the first phase of a 1,021-kilometer (635-mile) pipeline known as Los Ramones, the most important Mexican infrastructure project of the past 40 years, the government has said. The company also won a 25-year government contract to build and operate a 205-kilometer gas pipeline near the U.S. border in December.

“We are working with Pemex to identify new investment opportunities,” Ienova said in an e-mailed response to questions. “Mexico requires significant near-term investment in energy infrastructure across the sector and we are confident that Ienova will continue to play an important role in the growth of the industry.”

Ienova has outperformed all regional electricity peers, including Energias do Brasil SA and Peru’s Enersur SA, as well as U.S.-based pipeline companies Kinder Morgan Inc.and Energy Transfer Equity LP.

Global Comparisons

Its 170 percent climb through yesterday also eclipses France’s Engie, Italy’s Enel Green Power SpA and Power Grid Corp. of India, all of which also began trading in the past decade. The company has gained 23 percent this year, making it the best performer on Mexico’s benchmark IPC index.

The shares fell 2.4 percent today in Mexico City, the most since April 8.

Ienova should continue to benefit from Mexico’s energy overhaul with stronger growth in pipeline investments and more power-generation opportunities, BTG Pactual analysts including Antonio Junqueira wrote in a research note this month.

The company has benefited from its relationship with San Diego-based Sempra due to the close proximity of operations, according to Stacy Nemeroff, an analyst with Bloomberg Intelligence.

Sempra is building a liquefied natural gas terminal on the U.S. Gulf Coast and “Ienova could leverage this experience with the proposed construction of LNG export capability at its Energia Costa Azul LNG import terminal,” she said.

Sempra Project

Sempra and Pemex announced plans in February to build the first export facility for liquefied natural gas in Mexico at an under-utilized import terminal on the Pacific Coast. The two companies will collaborate on the development, structuring and financing of the project at Sempra’s Energia Costa Azul port terminal about 85 miles south of San Diego.

Ienova reported net income of $46 million in the first quarter, a 2 percent decrease from a year earlier. Earnings before interest, taxes, depreciation and amortization, or Ebitda, rose 13 percent in the same period, buoyed by the start of operations on segments of the Sonora and Los Ramones pipelines, Chairman and Chief Executive Officer Carlos Ruiz said on an April 23 earning conference call.

The stock is “expensive if you compare it with its international peers,” Ana Sepulveda, head of analysts at Mexico City-based Invex Casa de Bolsa SA, said in a phone interview. Its first-quarter results make it the most expensive company on the Mexican index based on price-to-Ebitda ratio.

“Ienova might be pressured by the current oil situation in things like gas distribution and sales,” said Sepulveda, who has a sell rating on the stock. “If this situation continues, investors’ attitudes toward Ienova could change.”

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