Pampa Energía SA :PAM-US: Earnings Analysis: Q1, 2017 By the Numbers : June 26, 2017

Pampa Energía SA reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of Pampa Energía SA – Centrais Eletricas Brasileiras S.A. – Eletrobras Sponsored ADR Pfd Class B, Enel Generacion Chile S.A. Sponsored ADR, Edenor SA Sponsored ADR Class B, Enel Americas S.A. Sponsored ADR, Companhia Energetica de Minas Gerais SA Sponsored ADR, YPF SA Sponsored ADR Class D, Companhia Paranaense de Energia Sponsored ADR and CPFL Energia S.A. Sponsored ADR (EBR.B-US, EOCC-US, EDN-US, ENIA-US, CIG.C-US, YPF-US, ELPVY-US and CPL-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 973.35 million, Net Earnings of USD 122.01 million.
  • Gross margins widened from 21.26% to 30.02% compared to the same period last year, operating (EBITDA) margins now 23.57% from 7.13%.
  • Year-on-year change in operating cash flow of -1,383.31% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • One-time items weakened operating performance.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 973.35 833.61 656.7 289.8 288.6
Revenue Growth (%YOY) 237.27 386.98 220.45 48.26 48.13
Earnings (mil) 122.01 62.9 -61.84 -46.45 41.49
Earnings Growth (%YOY) 194.08 -67.96 -1527.79 -783.86 -59.87
Net Margin (%) 12.53 7.55 -9.42 -16.03 14.38
EPS 1.58 0.86 -0.91 -0.68 0.61
Return on Equity (%) 50.29 27.2 -33.14 -32.19 26.14
Return on Assets (%) 9.34 5.03 -6.69 -8.37 7.51

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Market Share Versus Profits

Revenues History
Earnings History

PAM-US‘s change in revenue this period compared to the same period last year of 237.27% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that PAM-US is holding onto its market share. Also, for comparison purposes, revenues changed by 16.76% and earnings by 93.98% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 21.26% to 30.02% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 7.13% to 23.57% compared to the same period last year. For comparison, gross margins were 25.67% and EBITDA margins were 15.29% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

PAM-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to -6.65 days from 12.41 days for the same period last year.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

PAM-US‘s change in operating cash flow of -1,383.31% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The expansion in operating (EBIT) margins from 0.04% to 15.31% has also impacted the company’s earnings growth. However, one-time items have been a drag on the operating performance. As a result, the company’s pretax margins contracted from 18.91% to 15.67%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Pampa Energía SA engages in the electricity generation, transmission, and distribution through its subsidiaries and joint ventures. It operates through the following segments: Gas Transportation; Production and Marketing of Gas Liquids; and Other Services. The Gas Transportation segment enabled transportation services. The Production and Marketing of Gas Liquids segment offers gas liquids production and selling activities. The Other Services segment consist of treatment, impurity separation, and gas compression. The company was founded on February 20, 1945 and is headquartered in Buenos Aires, Argentina.

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