Retailer Femsa Emerges as Surprise Winner From Mexico Oil Plans
Puerto Vallarta.- While crude producers see delays in promised auctions that will end the state monopoly on drilling, retailer Fomento Economico Mexicano SAB is taking advantage of a low-profile change letting gas stations bypass Petroleos Mexicanos to market any gasoline of their choice.
Femsa surged the most since 2012 on Feb. 26 after agreeing to acquire 227 gas stations, and it’s seeking to add even more pumps to complement the Oxxo shops whose red-and-white signs are fixtures across the country. The shares are beating the benchmark IPC index in 2015 as well as Alfa SAB, which invests in drilling, and petrochemical supplier Mexichem SAB.
“No one saw this coming,” Jose Maria Flores, an analyst at Ve Por Mas SA, said in a telephone interview. “A beer seller is gaining from the energy reform.”
Alfa and Mexichem are falling this year as the global rout in crude prices slows the implementation of the privatization law. At the same time, controls are coming off of private ownership of gas stations.
Ironic Benefits
“It’s ironic that companies related to oil aren’t seeing benefits, and those that have nothing to do with the industry are benefiting directly,” Cristina Morales, a Signum Research analyst, said in a telephone interview. “We’re seeing an upside to the energy reform that wasn’t so obvious.”
Femsa gained 1.4 percent to 142.06 pesos at 9:49 a.m. in Mexico City. The shares had risen 7 percent this year through Monday, outpacing the 1.9 percent gain for the IPC index. Alfa had dropped 3.4 percent and Mexichem declined 6.4 percent. Ve Por Mas’s Flores doesn’t rate Femsa, while Morales has a buy recommendation.
Neither Monterrey-based Femsa nor Alfa would comment on the possible effect of the energy overhaul on their stocks. Mexichem didn’t respond to requests for comment.
An Energy Ministry press official, when reached for comment, pointed out a March 9 speech by Minister Pedro Joaquin Coldwell, who said that the energy law’s implementation was advancing with “efficacy and agility.”
Femsa already had operated some services in the 227 stations, which the company said generated 16.2 billion pesos ($1.1 billion) in sales of gasoline and related products in 2014.
“With the new regulatory framework resulting from the energy reform in Mexico, we will be able to open franchises ourselves,” Chief Financial Officer Javier Astaburuaga said on a Feb. 26 conference call.
Margin Pressure
Gas stations offer very profitable returns on investments, although they can lower operating margins for Femsa Comercio, the company’s convenience store arm, Astaburuaga said. Femsa’s fourth-quarter net income of 7.25 billion pesos beat analysts’ estimates of 5.95 billion pesos.
Mexico passed legislation in 2013 to end state-owned Pemex’s production monopoly, which dated to 1938, and allow foreign companies to develop fields. The government projects that opening up the industry will generate $62.5 billion in investments by 2018.
Oil and petrochemical producers in the country probably will still benefit from the influx of foreign cash once drilling is under way, while food companies will be helped as increased output cuts power costs, according to Veronica Uribe, an analyst at Monex Casa de Bolsa. She dropped her rating on Femsa to sell from hold in February after a 27 percent stock rally in a year pushed the shares close to her price target.
In the meantime, she sees a company whose beer and alcohol sales account for about 20 percent of its convenience-store revenue making off with the winnings.
“It’s very positive,” Uribe said. “The gas stations will generate traffic to Oxxo stores and Oxxos will generate traffic in gas stations.”
--With assistance from Adam Williams in Mexico City.