Share analysis: EGI – diversified conglomerate

The Company

Empresa General de Inversiones (EGI) is a holding company listed on the Panama Stock Exchange (Bolsa de Valores de Panamá, BVP) under the ticker symbol EGIN. The holding company has investments in three operating companies: Empresa General de Capital (EGC), BG Financial Group and Empresa General de Petróleos (EGP), with each focusing on a different sector.

EGC primarily invests in the energy and telecommunications sectors, while BG Financial Group focuses on banking and financing activities through its ownership of the largest bank in both Panama and Central America – Banco General. For its part, EGP focuses on the distribution and sale of petroleum derivatives under its brand name Petróleos Delta.

BG Financial Group

EGI’s largest stake by assets is in BG Financial Group, with around 60.2% of common stock outstanding. BG Financial Group is publicly traded on the BVP and has assets of $13.4bn, accounting for 94% of EGI’s total assets.

BG Financial Group owns Banco General – the largest bank in Panama and Central America, with a loan book that was valued at $8.7bn as of December 31, 2014. Founded in 1955, Banco General currently has 68 branches and more than 465 ATMs across Panama, in addition to a bank in Costa Rica and representative offices in Central America, Mexico and Colombia. As a stand-alone company Banco General also has several subsidiaries, including brokerage firm BG Valores; insurance firm General de Seguros; Overseas Capital Markets, which handles offshore banking; and the pension fund administrator, Profuturo Administradora de Fondos de Pension y Cesantía, in addition to others.

Overall, BG Financial Group’s stock closed out 2014 trading at around $58.75 per share, with a price-to-book ratio of 2.7x and a price-to-earnings ratio of 16.1x. Meanwhile, Banco General benefits from investment-grade credit ratings from Fitch and Standard & Poor’s, at “BBB+” and “BBB”, respectively.

EGP

EGP owns 100% of Petróleos Delta, the country’s largest distributor of petroleum derivative products, including gasoline, diesel, asphalt, lubricants and aviation fuel. The sale of gasoline and diesel accounts for approximately 66% of Petróleos Delta’s total sales, and the company has more than 180 service stations throughout the country.

In 2010 EGP acquired Royal Dutch Shell’s operations in Panama and Costa Rica, helping the company to expand its business beyond Panama. As of December 2014, EGP reported $207.7m in total assets, as well as $116.6m in petroleum derivative sales and a net income of $26.1m, yielding an operating margin of approximately 22.4%.

EGC

As EGI’s strategic investment subsidiary, EGC holds a 61% stake in Plastiglas; a 100% stake in IGP Trading Corporation; and minority stakes in Telecarrier International and Panama Power Holdings. In total, EGC has around $161.2m in assets, representing 1.1% of EGI’s total assets. As of December 2014, the company had generated $13.8m in net income, equivalent to 2.9% of the group total. Plastiglas is focused on the production and distribution of plastic containers across Central America and the Caribbean, selling approximately 1bn units to its clients throughout the region, including bottlers for Pepsi, Coca-Cola and Nestlé. Meanwhile, IGP Trading Corporation imports gasoline, diesel and aviation fuel in order to supply Petróleos Delta. The company’s total imports are 412m gallons of fuel per year.

Performance

For the year ending December 31, 2014, EGI reported total revenues of $686.7m and net income of $358.6m. As of December 2014, the company had a market capitalisation of $3.8bn, with the share price closing at $89 per share – a 12-month high. The stock was trading at a price-to-book ratio of 2.8x on controlling common equity and a price-to-earnings ratio of 16.4x on net income controlling, outperforming the BVP index by 5.4%. The company paid out dividends of $110.9m in 2014.