Rousseff $66 Billion Stimulus Plan Sparks Rally in OHL
Obrascon Huarte Lain Brasil SA (OHLB3), CCR SA (CCRO3) and EcoRodovias Infraestrutura & Logistica SA are beating global transportation and infrastructure stocks on speculation the companies will win contracts from Brazil’s $66 billion stimulus plan.
CCR, Brazil’s biggest highway operator, has rallied 44 percent since the start of the year in Sao Paulo trading, and EcoRodovias has gained 17 percent. The MSCI World Transportation Index (MXWO0TI) has added 4.8 percent.
President Dilma Rousseff, seeking to solve infrastructure challenges that stem from a decade without investment, announced on Aug. 15 that Brazil will auction licenses to run 7,500 kilometers (4,660 miles) of roads and 10,000 kilometers of railways. Inadequate road and rail infrastructure has limited Brazilian growth as the country prepares to host the 2014 World Cup soccer tournament and the 2016 Olympic Games.
“Brazil has thousands of kilometers of roads to be built, and that will be done in a way that will be attractive to companies,” Joaquim Levy, a former Brazilian treasury secretary who now manages 275 billion reais ($136 billion) at Bradesco Asset Management, said in an interview at the bank’s office in Sao Paulo. “So CCR, EcoRodovias will continue to have space to grow.”
Curitiba, Brazil-based ALL America Latina Logistica SA (ALLL3), the largest rail operator in South America, and OHL, as the Sao Paulo-based toll-road operator is known, are also set to benefit from the government’s road and railway investment plans, Luiz Otavio Broad, an analyst at Agora CTVM SA brokerage, said in a telephone interview from Rio de Janeiro.
CCR, whose headquarters are in Sao Paulo, climbed 0.7 percent to 17.57 reais today. EcoRodovias, also based in Sao Paulo, gained 0.2 percent to 16.33 reais. ALL dropped 0.1 percent to 9.84 reais, bringing its year-to-date gain to 5.9 percent, while OHL is up 55 percent this year.
CCR trades at 17.5 times its reported earnings, which compares with a ratio of 14.9 for OHL, 33.3 for ALL and 451 for TPI Triunfo Participacoes e Investimentos SA. The Bovespa index trades at 17.7 times earnings.
Rousseff’s government may unveil similar concession plans for airports and ports, as well as extensions of licenses for electric utilities, in an attempt to lower energy costs. The press offices at the presidential palace and transportation ministry didn’t respond to requests for comments.
“This program will really reactivate the economy,” billionaire Eike Batista, whose logistics company LLX Logistica SA (LLXL3) is building the Acu industrial port complex in Rio de Janeiro state, told journalists in Brasilia on Aug. 15. “Brazilians have a lot of debt, so using lower interest rates as an instrument to boost growth may not work anymore. It’s time to turn to infrastructure.”
Brazil started auctioning its first contracts for airports last year. Triunfo, the only publicly traded infrastructure operator to win contracts in the $12 billion airport auction on Feb. 6, plunged 10 percent the next day on concern the premium it paid for the contract to expand and operate the Campinas airport was too high. The Sao Paulo-based company teamed up with French airport operator Egis Avia to win the license.
“You have to invest in infrastructure, and the government acknowledged that -- they know the problem, but we don’t think they are executing the plan well,” Paulo Corchaki, chief investment officer of Itau Asset Management, said in an interview at the bank’s office in Sao Paulo. The investment plan “is for some sectors, and in the end if you give benefits to one sector and not the other, it’s not a good equilibrium for the economy.”
EcoRodovias said it’s still waiting for further details on the licenses auctions before deciding about bidding on any contract, an official with knowledge of the matter who asked not to be named said by phone from Sao Paulo. Triunfo and CCR declined to comment. The press office at OHL, which is owned by Obrascon Huarte Lain SA (OHL), the Spanish builder, didn’t respond to calls and e-mails seeking comment.
Infrastructure companies such as CCR and EcoRodovias will likely continue to outperform the Bovespa index as investment in the sector increases and Brazil prepares for the World Cup and Olympics, Bradesco’s Levy said.
“Those are stocks that are much more driven by fundamentals than some of those on the Bovespa index,” he said. “While the Bovespa has been flat this year, I think those stocks can still appreciate.”