Transportadora de Gas del Sur (TGS)

By both methods, the value today (DCF $61 · Multiples $43) exceeds the market price ($29).

Today — fairly valued: at $29 trades ~33.0% below its value discounted to today (~$43); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — Infravalorado: the target price ($54) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$27.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($29) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-10.1%/year) than we project (6.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~ARS 290.9 bn of owner earnings in year 5 (vs ~ARS 662.2 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EV/EBITDA (transporte de gas, procesamiento de líquidos e intermediación). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Currency and unit. The entire fundamental apparatus runs in billions of December 2025 pesos, the issuer's reporting currency (international standards, with the IAS 29 inflation adjustment). The certificate that trades in New York represents five Class B common shares, so the model's count is 150.552 million certificates (752,761,058 common shares divided by five), and the conversion to dollars happens only once, at the close of the cascade, using the certificate's implicit exchange rate, which is live data and is not stored. The count is corroborated without relying on the cited ratio: the depositary reports 18,052,759 certificates outstanding as of March 31, 2026, and the issuer describes them as 11.99% of the shares, which backs out 752.8 million common shares. Year 0, and why it is the fiscal year, not a trailing twelve-month window. Year 0 is the fiscal year ended December 31, 2025. The company files an annual report and publishes its interim results by press release, without structured tagging, so the quarter does not exist as tagged data. Moreover, under IAS 29 each filing restates its series to the currency of its own closing date: fiscal year 2025 is in December 2025 pesos and the first half of 2026 is in June 2026 pesos, so chaining them would mix two units. That is why the half-year report is read for the growth path and for events after fiscal year-end, never to re-anchor levels. For the same reason, the historical trajectory is taken from the three fiscal years already restated to the same currency: Ps. 1,297,140 million in 2023, Ps. 1,604,587 million in 2024 and Ps. 1,720,626 million in 2025. The 2023-versus-2022 year-over-year figure mixes currencies and is not used. Cash was cited from the audited balance sheet, not from the structured record. The public interface's cash concept was stuck at the 2024 close and unrestated. Levels were read from the 2025 annual report's statement of financial position: cash and equivalents Ps. 804,107 million, current financial assets at amortized cost Ps. 355,916 million, and current financial assets at fair value through profit or loss Ps. 648,152 million, which sum to Ps. 1,808,174 million and match exactly the figure the management discussion publishes as cash and financial investments. Against total debt of Ps. 1,705,606 million (Ps. 1,460,728 non-current plus Ps. 244,878 current), the company has positive net cash of Ps. 102,568 million. The entirety of those current financial assets is counted as liquid because the company itself states that it places the surplus in low-risk, highly liquid instruments: they are surplus cash, not working capital. With the structured record's figure, the bridge would have subtracted Ps. 1,645,632 million and equity would have come out about 41% lower. Depreciation was read from the filing. The concept is not populated in the structured record and was taken from the annual report's own XBRL instance: Ps. 201,961 million in 2025, Ps. 170,574 million in 2024, and Ps. 173,677 million in 2023. With that, 2025 pre-depreciation result is Ps. 905,442 million on revenue of Ps. 1,720,626 million. Margins and the declared normalization. On March 7, 2025, the overflow of the Saladillo García stream halted the General Cerri Complex until late April, and the annual report isolates the effect: Ps. 54,281 million of expenses and asset impairments. The model's year 0 uses the normalized operating result of Ps. 757,762 million, i.e. a 44.0% margin, and the normalized pre-depreciation result of Ps. 959,723 million, 55.8%. The normalization is not a judgment-call cushion: the 2024 pre-depreciation margin was 56.6% and the reported 2025 figure, 52.6%, is the outlier year. From there onward the base-case margin falls into the 54.3%-to-55.4% range, i.e. below the year-0 normalized level, because the regulated leg loses relative weight while liquids and midstream services grow. The year-1 path, and why the first half of 2026 is not extrapolated. The half-year grew 14% real, and that figure stacks two effects pushing in opposite directions, both explained by the company itself. Gas transportation, which is 41% of the fiscal year's revenue, fell from Ps. 417,179 million to Ps. 402,444 million, a 3.5% real decline, and the issuer attributes it to tariff increases that were insufficient to offset the effect of inflation. Liquids went from Ps. 318,340 million to Ps. 445,761 million, a 40% rise, and the issuer states that growth is partly a comparison effect against the half-year in which the General Cerri Complex was down, with dispatched volumes more than 50% higher. Midstream services added Ps. 19,284 million from the Tratayén Plant expansion, which came online in late February 2025. Year 1 of the base case is built from the parts and not from the consolidated figure: transportation essentially flat in real terms, liquids recovering the full year against a depressed 2025 base, and midstream services growing at double digits. That yields 8.0%, which sits within the trajectory's band and below the half-year figure. The path then decays smoothly —6.8%, 5.8%, 5.0% and 4.4% real— with a terminal consistent with a contracted-infrastructure business growing with Vaca Muerta production but whose regulated leg is not growing in real terms. No numerical guidance. The outlook section of the August 13, 2026 half-year report is entirely qualitative: it speaks of consolidating the role of an integrated midstream services provider in the gas chain, of progress on the investment plan for Dedicated Branch 1 and the Integrated Liquids Project, and of preserving financial strength, without a revenue or earnings-per-share figure. The gap is declared: the path anchors on the trajectory and on the half-year's composition, which are reported facts, not on a company forecast. Maintenance capex, and why the shortcut holds here. 2025 capex was Ps. 320,463 million against depreciation of Ps. 201,961 million, with revenue growing in real terms, so by Greenwald's criterion the excess is growth capex, not replacement: it buys the Perito Moreno Pipeline expansion and additional treatment capacity, not the replacement of the existing network. Maintenance capex is taken as equal to depreciation, and here that equality is stronger than the usual shortcut, because under IAS 29 depreciation is restated to closing-date currency and already reflects current replacement cost rather than a price from another decade. The consequence is declared: with working capital at zero, owner earnings coincide with after-tax operating result and the cash-measured return on capital does not provide an independent check on the accounting figure. Working capital. It is taken as zero and declared: under IAS 29 the cash flow statement mixes the monetary position result with operating movement, so there is no clean working-capital change to isolate without backing it out, and a backed-out number is not a data point. No share path. The capital reduction resolved by the April 30, 2025 shareholders' meeting cancelled 41,734,225 shares the company already held in treasury, and the outstanding share count is the same at the 2024 close and the 2025 close. It is not a buyback rate: it is a one-time fact already reflected in the count, and the issuer does not declare a program in effect. That is why the model carries no share path. No dividend modeled, and that understates the return. The company paid Ps. 270,657 million in 2025 —Ps. 359.55 per common share, or Ps. 1,797.75 per certificate— approved by the April 30, 2025 shareholders' meeting. In the first half of 2026 it paid no dividends, and the half-year report says so literally when explaining the change in financing cash flow. There is no dividend declaration in effect for 2026 in the material, so the record omits the field rather than publish a figure without a source. The consequence is declared: the total return shown in the record is price appreciation only and understates a shareholder's return if the company resumes distributions. The Integrated Liquids Project is left out of the base case. On June 10, 2026 the company announced the final investment decision for an amount of US$3,000 million. It is a project on the order of the company's entire market value, and the material read does not disclose the disbursement schedule or the financing structure, so modeling it would require inventing both. The base case includes only the capex for the Perito Moreno Pipeline expansion and network replacement; the project is valued separately, as an optionality, with its own reasoning. Why a single multiple and not a sum-of-the-parts breakdown. The four segments publish revenue and operating result, and both sets reconcile exactly against the consolidated figures, but the issuer does not disclose depreciation by segment. Since the band's metric is pre-depreciation result, breaking out the parts would require allocating that depreciation on a basis not found in any filing, and a backed-out allocation is not a data point. The three operating segments are also of the same economic family —pipelines, treatment and processing— which is exactly the archetype's perimeter, so the single multiple is the defensible reading and the mix of natures is priced into the position within the band and into the adverse scenario. The multiple. It is applied to year-5 pre-depreciation result, the metric the gas transportation and processing infrastructure archetype's band was calibrated on. The base case uses 10 times, within the band and at its center: the 15.2% return on capital and the exclusive license extended through December 2047 push it upward, and modest real terminal growth pulls it downward. Argentine regulatory and sovereign risk does not enter here: it lives in the adverse scenario, where the tariff keeps losing ground to inflation and the multiple compresses, and in the required margin of safety.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $54 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $29, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $54 in 5 years and a required return of 4.5% annually, the maximum to pay today is $43. Against the current market price ($29), the margin of safety is 33.0% (trades below the maximum → there is margin) and the total return at that price would be 13.2% annually.

• Entry multiple. Trades at 7× pre-depreciation result, below the archetype's exit band.
• Exit multiple. The base case uses 5×, the center of the nine-to-twelve-times band, not the ceiling.
• Estimated return. +13% annually over five years at market price, not counting a dividend because there is no declaration in effect for 2026.
• Exchange-rate sensitivity. Value is generated in pesos and price is paid in dollars: the outcome depends on the certificate's implicit exchange rate.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (100%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital. 15.2% on invested capital of Ps. 3,025,295 million, comfortably above the 10% bar.
• Predictable cash generation. Operating cash flow held at Ps. 551,667 million in 2025 despite the General Cerri Complex event and the tariff lag.
• Reinvestment runway. Fourteen million cubic meters per day of awarded capacity and excess demand of nearly six times what was awarded on April 15, 2026.
• Accounting distortion. Under IAS 29 the entire series is restated and the cash flow statement mixes in the monetary position result: it requires careful reading.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The business breaks down into three drivers of a different nature, and it is best to read them separately, because the consolidated figure averages things moving in opposite directions. Gas transportation is firm capacity reserved at a regulated tariff: volume is predictable and what varies is the price the regulator sets, so its operating result directly measures the tariff lag. Liquids are volume processed at an international reference price, with 86% of revenue in dollars, so its series mixes plant availability with the raw-material cycle. Midstream services is treatment capacity contracted with Vaca Muerta producers, and grows with the expansions that come online. The four published segments reconcile exactly against the consolidated figures in revenue and operating result, which allows the mix to be read without estimates.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-dic-2025): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Recent real growth. 23.7% in 2024 and 7.2% in 2025, both in constant currency; the 2023 year-over-year figure mixes currencies and is not used.
• Quality of the half-year's growth. The 14% real growth of the first half of 2026 stacks the recovery from a plant outage on top of a tariff contracting 3.5%.
• Contracted growth. The exclusive right over the new Perito Moreno Pipeline capacity runs fifteen years from entry into service.
• The regulated leg is not growing in real terms. Transportation's operating result fell from Ps. 290,003 million to Ps. 165,174 million between 2024 and 2025.

• Will still be used in ten years. Vaca Muerta's gas needs to move out through some pipeline, and the southern trunk system is the one that exists.
• Differentiated product or commodity. Transportation is an essential service with no physical substitute; liquids are a commodity at international prices.
• Pricing power. None in the regulated leg: the regulator sets the tariff, and in the first half of 2026 it did not keep pace with inflation.
• Revenue predictability. Close to eighty percent of transportation revenue comes from reserved firm capacity, billed whether dispatched or not.
• Recession behavior. Residential and industrial gas is inelastic demand; the cyclical exposure is in exported liquids.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $102.6 bn
• ✓Interest coverage (EBIT / interest)12.0x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 100% of ROIC
• ✓Value creation (ROIC − 10% bar)+5pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.6x
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 0.0% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Net cash. Positive at Ps. 102,568 million following the issuance due 2035.
• Maturity profile. The current portion of debt is Ps. 244,878 million against Ps. 1,808,174 million of liquidity.
• Investment commitments. The works awarded through April 2027 consume the surplus: cash does not accumulate over the modeled horizon.
• Contractual restrictions. The financial agreements in effect limit new debt, dividends, and asset disposals if certain ratios are not met.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

On 2025 uses: Ps. 320,463 million to fixed-asset investment and Ps. 231,152 million to dividends. There were no buybacks during the year —the April 2025 cancellation was of shares already held in treasury— nor acquisitions. Going forward the mix tilts toward reinvestment: the awarded works absorb the surplus, and no dividend was paid in the first half of 2026.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Capital allocation. Reinvested Ps. 320,463 million and distributed Ps. 231,152 million in 2025; reinvestment goes to capacity under a fifteen-year exclusive contract.
• Alignment. Corporate control of 53.83% held by an industrial shareholder, with the pension agency as second holder; no management ownership disclosed.
• Financing structure. Issued out to 2035 and ended up with positive net cash before taking on the construction cycle: the sequencing is correct.
• Transparency on the team. The foreign private issuer does not file a proxy statement, but Item 6.A of the annual report identifies the executive team and the board; what remains undisclosed is the equity ownership of directors and executives.

• Missing buyers by jurisdiction: the company operates entirely in Argentina and trades in New York through a certificate, with a reporting currency subject to inflation adjustment. It is the textbook case of a business discounted for where it is, not for how it performs.
• Free cash flow is depressed by voluntary growth capex: Ps. 320,463 million against depreciation of Ps. 201,961 million, and the difference buys already-awarded capacity with a fifteen-year exclusive right.
• A non-recurring event sank the 2025 accounting result: the General Cerri Complex outage between March and April cost Ps. 54,281 million in expenses and impairments, and without it the 2025 pre-depreciation margin sits less than a point from 2024's.
• The tariff lag in the first half of 2026 is visible and recent —transportation fell 3.5% real— and the market extrapolates that contraction over 41% of revenue without discounting the contracted capacity coming online in 2027.

Events after fiscal year-end that the annual report could not contain and are declared here: on April 15, 2026, five point four million cubic meters per day of the tendered Perito Moreno Pipeline capacity were awarded, out of bids exceeding thirty-two million, and the remainder was awarded in June; the Secretariat of Energy's Resolution 66/2026 redefined the transportation contractual framework while keeping the required revenue from the five-year review, and the regulator's Resolution 409/2026 closed the reordering on April 14, 2026; and on June 10, 2026 the company announced the final investment decision for the Integrated Liquids Project at US$3,000 million, which is not included in the base case because the material discloses neither schedule nor financing.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +5%/year (+29% total): the margin of safety protects the downside. The bull (+20%/year, +148% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Tariff lag. The company states that the first-half 2026 increases were insufficient to offset inflation, over 41% of revenue.
• License revocation. Can be revoked for breaches, service interruption, or disposal of essential assets, and can trigger a default on debt.
• High-inflation environment. Nearly a ninefold rise in the price level over three years forces restatement of the financial statements and erodes real revenue if the tariff does not adjust.
• Exchange controls. Dividend remittances abroad were restricted for years and were only enabled starting in 2025.
• Size of the liquids project. US$3,000 million announced in June 2026 —close to 70% of the current market value, spread over four years— with neither a disbursement schedule nor a financing structure disclosed.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 15% above the 10% bar, but the margin is limited (+33%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A cyclical growing 6% at a multiple/growth of 1.2 → cheap for its growth. In a cyclical, a low multiple can reflect peak-of-cycle earnings.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 11% (EBIT/EV) + ROIC 15% → makes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -10% vs our 6%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor +5%/yr, bull-scenario ceiling +20%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -10%, within what we project (6%) — the story squares with the numbers.