Sempra’s Ienova Rallies on Likelihood of $2 Billion Pipeline Win

  • Ienova shares up 9.6% since May 19 announcement of bid plan
  • Most analysts recommend buying the shares, predict 14% rally

The prospect of building an underwater pipeline from Texas to Mexico is making Sempra Energy’s Ienova one of the top-performing stocks south of the border.

Infraestructura Energetica Nova SAB, as the unit is formally called, had the second-biggest gain on the Mexican Stock Exchange since announcing plans on May 19 to bid to develop the $2.1 billion project in a joint venture with TransCanada Corp. The venture was the sole bidder to qualify for a June 13 auction of the project, boosting optimism that Ienova, the country’s only publicly traded energy company, will sustain the rally throughout the year.

"It’s very likely that the Ienova and TransCanada bid will have a favorable outcome in the auction for the pipeline,” Jean-Baptiste Bruny, BBVA Research analyst, said in a telephone interview from Mexico City. "The company’s shares are likely to have a positive impact if they win rights to the project."

The 800-kilometer (497-mile) pipeline will run from the U.S.-Mexico border to the Tuxpan port, a shipping hub for tankers supplying petroleum products to state-run Petroleos Mexicanos, or Pemex. The line will transport natural gas to power plants in northern and central Mexico and is forecast to be completed in 28 months. Last year, TransCanada won a bid for a gas pipeline connecting Tula, where Pemex’s second-largest refinery is located, to Tuxpan.

Buy Ratings

Fifteen of 17 analysts surveyed by Bloomberg recommend buying Ienova shares, predicting it will rise about 14 percent in the next 12 months. Winning the bid for the underwater pipeline will add an estimated 6 pesos to its stock price, Vanessa Quiroga, Latin America equity analyst at Credit Suisse Group AG, wrote in a June 3 research note.

The stock has gained about 11 percent since announcing the pipeline plan, compared with an increase of less than 2 percent for the benchmark IPC index. It rose 0.8 percent to 76.64 pesos in Mexico City on Thursday.

Ienova will probably participate in other pipeline auctions this year, including an $800 million gas supply project in Baja California Sur next month, and receive the approval for a $1.3 billion acquisition of Gasoductos de Chihuahua from Pemex this year, Bruny said. A winning bid for the Texas-Tuxpan line might boost the chances Ienova will go ahead with a follow-on share offering it has been considering, he said.

The offering was being considered as a funding option for the Gasoductos de Chihuahua acquisition, which has been held back by antitrust regulators. Ienova Chief Financial Officer Arturo Infanzon, speaking on an April 27 earnings call with investors, said raising equity to pay for the acquisition was an alternative, and that the company would also look into options such as bridge loans.

"A follow-on is a financing option Ienova has also said it is open to," Bruny said. "If they are to consider it, it is likely they would do so when the share price is seen as appropriate."

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