Argentina’s Merval Index: An Overview

The idea of this piece 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 below shows each company ticker and what percentage of the index it represents.

The first thing to note about the Argentina headline index is that it isn't very Argentinian. Italian Tenaris (TS) is the top weighted company of 18.37%, and then the two variations of Brazilian Petrobras (PBR) 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 (Banco Macro (BMA), Grupo Galicia [GGAL], Banco Patagonia [BPAT], Banco Frances [FRAN], Banco Hipotecario [BHIP]), the actual chances of finding a bit of Argentina's industrial base gets even slimmer. Add them up and 62.2% of the Merval is either a foreigner or a bank, which goes a long, long way in 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 (IRS) and Cresud (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 TEO and MOLI. Telecom Argentina (TEO) 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 favorite Argentina pick, the cool kicker being it's also available as an ADR in the US markets.

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 post recently. It's a very good company and is 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 take your comments. Another place to get info on these is the Argentina stock market website, which has an English version too.

Disclosure: long TEO

Comments

[Fred Swartz:]

Helpful summary. The "farm crisis" and falling confidence in Kirchner bring up memories of past Argentine economic problems. How much of a concern should these be to an investor?

2008 Apr 04 05:02 PM

[Argie 1:]

It'll be great if before writing or posting information it would be confirmed. Tenaris is not an italian company, is Argentinean. In any case, if you'd like to put where it is incorporated it should be Louxembourg not Italy. Its main shareholders and management are Argentinean, live in Argentina and work in Argentina; and its headquarters are located in Buenos Aires. Next time please confirm the information before posting it.

2008 Apr 04 11:56 PM

[ottorock:]

argie 1,

you need to get your head out of the sand and learn about the company. Dalmine in Italy, NKK in Japan, Silcotub in Macedonia, Tamsa in Mexico, Ternium in Venezuela, algoma tubes in Canada, confab in Mexico.

i suppose you think acindar is argentine too?

2008 Apr 05 10:05 AM

[jagor:]

Why do you dislike Cresud CRESY? The very savvy managers of the American holding company Leucadia National LUK bought 35 million shares of CRESY and, according to Morningstar, 22 American mutual funds own an estimated 900,000 shares. Full disclosure: I own a few shares of CRESY, too.

2008 Apr 09 03:42 AM

[Argie 1:]

Ottorock,

I believe that the one that has to take its head up from the sand and learn a little bit more is you. Your comment shows that you don't know the company at all nor its shareholders. Again, verify the information before posting it.

Acindar is a very different story (it's been bought by Arcelor Mittal), but in Tenaris or Ternium's (both companies belong to the same shareholder but are not the same) case the major and controlling shareholder are Argentinean, and bought all the other companies you've described.

cheers.

2008 Apr 15 08:49 PM

[ottorock:]

So what you're saying is that because the owner is the Argentine Rocca, the company is Argentine, is that right? It doesn't matter that the company originated in Italy (Dalmine), nor does it matter about where the vast majority of its works are (not Argentina), nor does it matter about its official domicile (Luxembourg), nor does it matter that only a tiny tiny slice of its shares are traded on the BCBA.

Techint is Techint, Siderar is Siderar, Siderca is Siderca, and Tenaris is Tenaris. I'm sorry if reality dents your nation pride.

2008 Apr 15 10:35 PM

[Argie 1:]

Far from denting my nation pride.......but once again, get your facts right before writting. Tenaris wasn't originated in Italy, but that is a common mistake for people that don't know it history. The company was founded by Agustin Rocca (Paolo's and Agostino Rocca's father) an italian inmigrant (that used to work in Damine Italy and left Italy due to Mussolini). He founded Dalmine Argentina, latter called Dalmine Siderca (no relationship whatsoever with Dalmine Italy) and later called Siderca (late 80's). During late 90's early 2000' Siderca bought Tamsa, made a holding company called Tenaris. Then they bought a portion of Dalmine Italy and other companies (Silcotub, Donasid, a portion of NKK Tubes, Hydril, Maverick, Algoma, etc, etc), making this huge multinational conglomerate. If you'd like to discuss this company, history, numbers, cost, margins, etc, etc, be my guess; I believe that I know it far much better than you.

At the end of the day my point is that Tenaris is not italian as you state in your article. And by the way it doesn't matter if a tini little bit of their shares float in the BCBA since only 39.5% of the company float.

2008 Apr 16 02:15 PM

[ottorock:]

You are now officially boring

1. Plain boring fact: the company goes back to Dalmine Italy 1907

2. Read this. It's the Tenaris SEC 6K filing. Learn something today instead of preaching nonsense.

www.sec.gov/Archives/e...

3. This is definitely the last time you'll hear from me.

2008 Apr 16 03:29 PM

[kildonan:]

Sorry ottorock, for this late rebuttal, but argie1 does appear to know more about TS. As someone who is in the same business as Tenaris, the world of pipe definitely views them as Argentinian, mind and management. While a truly Global company and a dominating force in the world of energy tubulars, their roots are in Buenos Aires. While the Rocca's came from Italian roots, the success of Tenaris/Techint are truly of Argentina. btw Confab is Brazilian.

2008 May 17 12:22 PM