Sempra Unit Seen Cheap After Doubling in Value: Corporate Mexico

Infraestructura Energetica Nova SAB, the Mexican unit of Sempra Energy, has doubled since the company went public last year. Credit Suisse says the stock remains cheap with the company poised to supply pipelines as the country’s energy industry opens to foreign investment.

Ienova, as the Mexico City-based company is known, has surged 30 percent this year, the most on the benchmark IPC index of 35 Mexican stocks. The stock, which is IPC’s fourth-best performer since the company’s initial public offering last year, is forecast to rise as much as 36 percent this year, following a 53 percent stock gain in 2013, Credit Suisse analyst Vanessa Quiroga said in a March 20 report. Quiroga declined to comment further in a phone interview yesterday.

Ienova, the country’s only publicly traded energy company, joined the Mexican stock exchange months before landmark legislation opened the country’s energy and oil industry to private investment for the first time since 1938. The company, which is constructing part of a 1,200-kilometer (750-mile) gas conduit with partner Petroleos Mexicanos, is expected to be one of the main pipeline suppliers for energy and gas providers that buy into Mexico, said Federico Robinson, an analyst at Actinver SA.

“Mexico has the sixth-largest amount of shale gas reserves in the world and there will be a need for pipelines to transport it when exploration begins,” Robinson said yesterday in a phone interview from Mexico City. “Ienova’s stock price has been amazing, and there is more upside in the mid- to long-term as the energy sector opens.”

Investor Confidence

Ienova, which also builds storage tanks, saw its stock rise to as high as 69.60 pesos on March 21, exactly a year after pricing the stock at 34 pesos in its IPO. Ienova’s stock fell 0.7 percent to 67.22 pesos at 1:15 p.m. in Mexico City.

Robinson said he is reviewing the hold rating he has on the stock. Credit Suisse’s Quiroga rates it the equivalent of a buy with a target price of 71 pesos.

“The performance of the stock reflects the confidence that investors have in our team and our ability to develop and execute new energy infrastructure projects,” Tania Ortiz, vice president of external affairs and business development at Ienova, said in an e-mailed response to questions. “It also has had to do with the great expectation that has been generated about growth in the sector in Mexico.”

Ienova’s shares lead gains on Mexico’s stock exchange this year and have risen above the target price of seven of 10 analysts surveyed by Bloomberg. Jean-Baptiste Bruny, an equity analyst at BBVA Research in Mexico City, is revising a target price for Ienova as the stock has surpassed original forecasts, he said in an e-mailed response to questions.

Expensive Stock

Ienova shares trade at 30 times estimated profit, making it the most-expensive company in the Mexican benchmark index after miner Industrias Penoles SAB, which has a ratio of 32, according to data compiled by Bloomberg. The index average is 19, the data show.

Five analysts rate the stock a buy, four recommend holding and one recommends selling, according to data compiled by Bloomberg.

Mexican and international companies are seeking to reap the benefits from a potential surge in investment after President Enrique Pena Nieto passed a law last year to end Petroleos Mexicanos’s 75-year production monopoly and allow for private investment in oil and gas. The country expects new investment of as much as $30 billion a year as companies tap Mexico’s unexplored oil resources, Edgar Rangel, commissioner of the National Hydrocarbons Commission, said during a presentation at a Mexico City conference in March.

Doubling Demand

Mexico’s industrial gas demand is forecast to double by 2028, Alejandro Martinez Sibaja, chief executive officer of gas and petrochemicals at state-run Petroleos Mexicanos, known as Pemex, said April 2.

“It’s a great opportunity for us but also a large challenge,” Martinez Sibaja said. “It’s a challenge because we have to develop infrastructure to transport gas to the areas where it is consumed.”

Infrastructure to meet gas demand will favor domestic pipeline manufacturer Ienova, Ana Sepulveda, an analyst at Mexico City-based Invex Casa de Bolsa SA, said April 1 in a report to clients. Pipeline demand is expected to increase threefold over the next three years, Sepulveda said.

Approval of the country’s so-called secondary legislation has stalled as Mexico’s two largest parties debate the amount the state will retain, according to Marcelo Mereles, a partner at Mexico City-based energy consulting firm EnergeA.

Legislative Delays

The legislation, which could be delayed beyond the congressional session’s April 20 deadline, will determine royalties and tax rates for oil and energy companies setting up operations on Mexico.

Ienova’s profit slid 89 percent to $5 million in the fourth quarter, primarily on higher income taxes tied to a one-time charge of $36 million resulting from tax reform, the company said on Feb. 26. Ienova’s quarterly sales climbed 2.5 percent to $156.7 million from a year earlier.

“Ienova is well positioned to continue to achieve significant growth during a time of important change in the Mexican energy industry,” Chief Executive Officer Carlos Ruiz Sacristan said the day of the earnings report.

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