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4/3/08

Argentina's Merval index : an overview

I meant to do this note over last weekend, but time and stuff happened. But here we are, and the idea is to look at the new weighting of the Argentina Merval index that was announced late last week, and use the news to talk a little about some of the companies listed there.
The chart shows the company ticker and what % of the index it represents. The first thing to note about the Argentina headline index is that it isn't very Argentinian. Italian steel/seamless tube maker Tenaris (TS) is the top weighted company of 18.37%, then the two variations of Brazilian Petrobras (APBR) and (PBE) make up another 15.41%. Add in the other foreign owned companies on what's supposed to be "the Argentina index", and you find that 44.26% of the list is not Argentine! And even then I'm being generous by not including TECO (see below)

The other big block is banks. With five separate banks that make up another 17.94% of the index ((BMA) Banco Macro, (GGAL) Grupo Galicia, (BPAT) Banco Patagonia, (FRAN) Banco Frances, (BHIP) Banco Hipotecario), the actual chances of finding a bit of Argentina's industrial base gets even slimmer. Add em up, and 62.2% of the Merval is either a foreigner or a bank, which goes a long, long way to explaining why it is that the Merval trades in virtual lock-step with world markets. This is shown on the following chart that compares the Merval, the Dow and Brazil's Bovespa index....guess which play did you better for the LatAm boom?

As for truly Argentine plays, number one on the list is Pampa Holdings (PAMP), a holding company created a couple of years back by some smart guy who saw a gap. Basically he took a dilapidated meat packer named Pampa and stuffed it full of power generation assets, then floated the new vehicle and raised more capital on it with which to buy a few more energy plays. Not a bad idea, but up to its ears in debt and dependent on continued growth for survival. Management has also shown the tendency to dilute the share base heavily in order to raise money (a trick the bossman picked up from his time at the untouchable IRSA (IRSA) and Cresud (CRES) (CRESY), no doubt), so caveat emptor is the phrase for those considering a long term position in PAMP. However it's a good trading vehicle, with pretty strong moves both ways and plenty of call options available.

Aside from Banco Macro, the next two higher weighted plays that can be called Argentine are TECO and MOLI. Telecom Argentina (TECO) is in fact majority controlled by Telecom Italia, but it's fair to call them Argentine. It's also fair to call them a rocking buy right now, as they have growth, market share and earnings all on their side. It's cheap as chips right now and is my number one favourite Argentina pick, the cool kicker being it's also available as an ADR in the US markets, ticker TEO.

Food business Molinos Rio de la Plata (MOLI) is majority owned by the Perez Companc family, who made their money in the oil business. MOLI is a good company and has enjoyed a good run recently mainly thanks to the agro boom/agflation, but it's fairly priced right now and doesn't offer much value, methinks.

Further down the list we have a mixed bunch, but a few companies stand out right now. First is Grupo Clarin (GCLA) Argentina's biggest media business and owners of newspapers, cable TV distributors and internet service providers amongst other things. GCLA has recently floated part of the company in the London and Argentina bourses, and has only just made it to the headline Merval list this month. An interesting company and one for the long-term holder to consider.

The next worth mentioning is Ledesma (LEDE), a sugar processor that is expanding its ethanol production branch. Strong balance sheet, and very little debt on board makes it a play on LatAm agro that will ride out any financial storm.

The last one I like on the list is Mirgor (MIRG), a company i mentioned in a previous post here recently. Very good company, and looking to expand production in FY08 to meet heavy local auto parts demand.

Thus ends our little review. There's a ton more to say on this subject, of course, if any of you have any specific questions on any Argentina stock I'd be happy to get your mails*. Another place to get info on these is the Argentina stock market website, which has an English version too. Chau for now

UPDATE: A reader has written to ask if I can do the same kind of overview for the Peru stock market...sure, no problem. Look out for that one soon.


*Send to otto.rock1 (AT) gmail (DOT) com.