CEPU: A Good Investment Amidst Argentina's Electoral Dynamics

Central Puerto (NYSE:CEPU) stands as one of Argentina's largest energy companies. They accounted for 12.7% of the total power generated by private sector generation companies in Argentina in the last twelve months ending on March 31, 2023.

In the past year, the company has faced challenges in improving its income. Despite experiencing a 20% decrease in revenue (without accounting for the 100% inflation rate) during the first quarter of 2023 compared to the previous quarter, and with expenses rising between 9% to 17%, the company managed to report a positive operating income. Notably, they had an unusually high CAPEX due to the acquisition of "Central Costanera," which contributes approximately 3% of Argentina's installed capacity.We all acknowledge that the Argentine energy sector has been an unattractive investment due to the government's restrictive regulatory framework, resulting in insufficient investments to meet the country's energy demands. However, there are promising signs of potential change in this regard.

Firstly, the outlook for Argentina's political future is highly optimistic. The recent announcements of presidential candidates from both major political parties, advocating a shift towards a free market economy and emphasizing the independence of the Argentine central bank from the treasury, have had a profound impact on the markets. As evidenced by the 30% surge in Argentine bonds in June, there is a growing positive sentiment and increased investor confidence in the potential direction of the country's economy.

Secondly, Argentina's recent agreement with the IMF will provide the country with an additional credit of 7.5 billion dollars. This new arrangement indicates that the IMF will likely impose conditions aimed at achieving fiscal surpluses and implementing monetary tightening, with the ultimate goal of reducing inflation rates.

My main idea is that given the political shift towards a free market economy and the challenging stagflation in the Argentine economy, the new president will likely be compelled to make a 180-degree turn in economic policies. This shift may involve measures to reduce the fiscal deficit and control inflation through some form of exchange rate stabilization. If this happens, CEPU will see a great opportunity to increase strategic investments, production, and its revenue.