The problem with "set it and forget it" businesses is that there's little-to-nothing that can be done by management to improve demand when business turns down, and often the cost structures don't lend themselves to meaningful short-term restructuring. That's basically the problem for PINFRA (OTCPK:PUODY) [PINFRA.MX] today, as this large Mexican toll road operator has no control whatsoever over traffic on its roads, and is basically in the passenger seat as the COVID-19 pandemic works itself out in Mexico.
The good news is that the pandemic won't last forever, and while it has done some serious harm to Mexico's already-weak economy, a large portion of PINFRA's most valuable toll roads are covered by concession agreements that contain clauses that extend the concession when traffic weakens. While delayed revenue and cash flow does impair short-term value, PINFRA isn't as vulnerable to this downturn as you might otherwise think. Moreover, Mexico's government has expressed an interest in adding even more roads, creating new long-term concession opportunities for the company.
These shares have not done especially well since my last update. While the local Mexican shares have basically kept pace with the broader Mexican market, the ADRs have been weaker (down 25%) on weaker currency. Although the recent performance underlines the reality that there is no such thing as a "safe" emerging market stock, I like PINFRA's leverage to an economic rebound and growth in Mexico.
Read more here:
PINFRA Only A Passenger In Downturns, But The Value Here Is Appealing
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