TMM Grupo Tmm S.A. American Depositary Shares

Ken Nagy, CFA

Now is the Time for Grupo TMM

On May 2, 2011 Grupo TMM (TMM) reported weak results largely the result of the timing of cash flows from new contracts.  The Maritime segment had six new medium-term offshore contracts begin in the latter part of the first quarter. The bulk of the revenue from the contracts missed the first quarter time frame but will contribute to Maritimes’ results going forward. At product tankers, all six vessels that comprise the fleet are now working with contracts. Five of these tankers are owned, and their contracts extend through the end of this year, solidifying utilization through 2011.

For investors with a time frame of several quarters this may be the best entry point in years as the firm is set to embark on a growth strategy that will improve the capital structure, (now highly leveraged) continue impressive margin growth, and provide above average return on assets. When looking at several metrics (EV/EBITDA, P/B, P/S) the firm looks undervalued. From an operational standpoint the firm has made impressive strides. 2010 EBITDA and EBITDA margin were the highest in the last five years, despite a global recessionary economic climate. Grupo exits 2010 having grown its EBITDA for the 5th consecutive year.  EBITDA has grown at a lofty 182% or a compounded yearly growth rate (CYGR) of 29.6%. The firm was also Free Cash Flow positive for the year 2010 and Net Cash from Operating Activities was positive in the first quarter of 2011.  

The firm’s five-year growth plan includes two projects. The first project consists of the development of a container and liquids terminal at the Port of Tuxpan, Veracruz. The container terminal will meet increasing demand for capacity in the Gulf of Mexico, taking advantage of organic growth in the Mexican market. The liquids terminal will address current and projected increased demand for imported gasoline and diesel fuel through the construction of a pipeline and a berthing position.

Container and Liquids Terminal at Port of Tuxpan

•     Address increasing demand for capacity in Gulf of Mexico
•     Alleviate existing congestion at Veracruz and Altamira container terminals taking advantage of organic growth
•     Liquids terminal will replace existing buoy system through construction of pipeline and berthing position
•     Concession to operate and environmental permits in place

The second project consists of adding specialized offshore vessels to the Company’s fleet to meet the increasing demand for deep water exploration in Mexico.

Add specialized offshore vessels to TMM’s fleet
 

•     PEMEX business plan anticipates spending $29b annually over next several years to develop deepwater identified reserves
•     Approximately 78% of these investments will be allocated to deep water exploration

For a free copy of the full research report, please email scr@zacks.com with TMM as the subject.

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