The outlook for Argentina’s energy companies has worsened as President Mauricio Macri’s rout in a primary election over the weekend has raised concerns about the return of more intervention in utility prices.
Analysts at Morgan Stanley and BTG Pactual cut their ratings on some of Argentina’s largest energy companies. Bruno Montanari and Miguel Rodrigues of Morgan Stanley downgraded Pampa Energía SA and Central Puerto to equal-weight from overweight and Transportadora de Gas del Sur SA to underweight from equal-weight. Their price targets are under review.
“Stocks will likely not trade on fundamentals or intrinsic value, but rather more on near term macro-political developments,” Montanari and Rodrigues wrote in a report from Monday. The bank still prefers state-owned oil producer YPF SA and Empresa Distribuidora Y Comercializadora Norte due to lower vulnerability risks.
BTG Pactual, meanwhile, cut Pampa Energía and Edenor to sell from neutral. The bank also double-downgraded Compañía de Transporte de Energía Eléctrica en Alta Tensión Transener SA (Transener) and TGS to sell from buy.
According to BTG, on average 98 percent of the Argentine energy companies’ total outstanding debt is linked to the US dollar, but most of their cash flow generation is fully exposed to local demand. “The expected hike in the funding cost will negatively weigh on valuations,” analysts Daniel Guardiola and Andres Moncada wrote in a report from Monday. Their rating on YPF remains neutral.
Separately, Itau BBA has eliminated exposure to Argentina and removed Pampa Energia from its Latin America portfolio, strategists led by Pablo Ordonez wrote in a report Monday.