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3/29/17

Things that happen in The IKN Weekly, Graña y Montero (GRAM) edition

For most of the the third and fourth quarters of 2016 Graña y Montero, trading on the NYSE as GRAM, was a U$8 stock. Then came news of its involvement in the Odebrecht corruption and bribery scandal and the company went into free-fall, a drop we watched carefully at The IKN Weekly for the political angles in Peru.

But to last Sunday and the piece you see below the chart here, which wasn't an outright reco on the stock but was a rare non-mining long idea for subscribers. Since then...


...the stock's up 30% in two and a half days. Just sayin'. Here's the piece, as it appeared in IKN410 on Sunday evening.

Graña y Montero (GRAM): A heads up
It’s not really the normal remit of The IKN Weekly so it’s not going to be a long note, but I think it’s worth a few lines by way of a heads-up and perhaps a starting point for your own DD, so here goes.

As noted on several occasions in the last few weeks on these pages, particularly in the ‘Regional Politics’ sections, the big Peruvian construction and civil works company Graña y Montero (GRAM) has bit hit very hard by its connections to the Lava Jato/Odebrecht corruption scandal that’s been making waves all over South America. Just one look at its 12 month share price (it trades as GRAM on the NYSE) is enough to see the effect of being dragged into the corruption mess and being actively connected with the bribes paid by Odebrecht to high ranking individuals in Peru, up to and including ex-President Alejandro Toledo.

However, there’s now reason to believe GyM is going to survive this mess and as such, it may be a decent “blood on the streets” buy for consideration. The combination of factors:

1)      The El Niño weather crisis currently hitting Peru hard will need clean-up and plenty of reconstruction later. There is no better placed company to do that work than GyM.
2)      The corruption scandal is beginning to be yesterday’s news in Peru and the sensation that GyM isn’t going to collapse (the country’s own private “too big to fail”) is growing. The 10% rise in the stock on Friday bears testimony to that.
3)      The latest word, being reported in Peru this weekend (17), is that as well as the recent change at the very top of the company and the resignation of the three main company leaders, we’re about to get a complete change at the board of director level with new (and we assume uncontaminated) blood coming in to lead the company out of the hole it’s created for itself.

Up until this scandal hit, GyM was one of the most highly regarded companies of any type in Peru. With a direct employment roster of up to 40,000 people, as well as untold numbers of indirect jobs depending on it, it’s one of the biggest employers in the country too. The way in which the tide is turning, plus the “fortunate” arrival of the most severe and damaging storm period for the last two decades in Peru, may make the stock an interesting trade. You need to do your own DD on this one though and check the company numbers carefully, consider this a place to start, not a reco to buy.