Executive Summary / Key Takeaways

• Diversified Growth Engine: Central Puerto S.A. ($CEPU) is strategically expanding its energy portfolio, with significant investments in thermal, solar, and wind projects, alongside new ventures into battery storage and mining-related transmission infrastructure, aiming to add approximately 300 megawatts of installed capacity by year-end 2025.
• Transformative Corporate Reorganization: The company is undergoing a major spin-off-merger with ECOGAS Inversiones S.A., effective October 1, 2025, streamlining its structure and focusing its core energy generation business while distributing gas distribution assets to shareholders.
• Navigating Regulatory Shifts: CEPU is actively adapting to Argentina's evolving electricity market, anticipating phased deregulation that could unlock new opportunities for private power purchase agreements (PPAs) and self-managed fuel procurement, potentially leading to improved remuneration for its efficient assets.
• Robust Financial Health: Despite macroeconomic volatility and significant capital expenditures, Central Puerto maintains a strong balance sheet with a net leverage ratio of 0.56x the last 12-month adjusted EBITDA as of Q2 2025, with operating cash flow fully financing its semester's CapEx.
• Operational Excellence and Efficiency: CEPU demonstrates a commitment to high operational standards through strategic maintenance and upgrades, ensuring the long-term reliability and availability of its generation fleet, which is crucial for its competitive positioning.

A Legacy of Powering Argentina: Evolution and Strategic Imperatives

Central Puerto S.A. (CEPU), incorporated in 1992, stands as a cornerstone of Argentina's electric power generation sector. The company has meticulously built a diversified portfolio encompassing conventional thermal, hydroelectric, and renewable energy sources, establishing itself as a critical provider of reliable electricity. This foundational strength, rooted in a long operational history, has enabled CEPU to adapt and thrive amidst Argentina's dynamic economic and regulatory landscape. The company's overarching strategy centers on enhancing operational efficiency, expanding its generation capacity, diversifying into high-growth segments like renewables and mining infrastructure, and optimizing its corporate structure to unlock shareholder value.

In the competitive Argentine energy market, CEPU operates alongside major players such as Pampa Energía (PAM), AES Argentina (AES), and Edenor (EDN). CEPU's diversified energy portfolio, which includes a mix of thermal, hydroelectric, and wind assets, provides a qualitative edge in ensuring stable and reliable power supply, particularly for industrial clients. This contrasts with Pampa Energía's broader integrated oil and gas operations, and AES Argentina's global focus on sustainable energy transitions. While Pampa Energía's diversified revenue streams might offer greater overall growth rates and cash flow generation, CEPU's specialized focus on power and steam for key industrial sectors carves out a distinct niche. Similarly, against AES Argentina, CEPU's established local presence and operational footprint could translate to a more favorable cost structure, though AES might leverage its global resources for faster technological adoption. Edenor, primarily a distribution company, presents a different competitive dynamic, where CEPU's generation expertise provides a distinct advantage in energy production, while Edenor excels in market reach through its extensive distribution networks.

Technological Edge and Operational Prowess

Central Puerto's competitive moat is significantly bolstered by its commitment to technological efficiency and operational excellence. The company's fleet of combined cycle power plants represents a core technological differentiator. These units are inherently more efficient than traditional open-cycle gas turbines, converting waste heat into additional electricity, thereby maximizing fuel utilization and reducing emissions per unit of output. This efficiency directly contributes to CEPU's profitability by lowering fuel costs, a critical factor in the Argentine market. The company's focus on maintaining these assets to high standards is evident; for instance, an extraordinary maintenance on the Central Costanera boiler in Q2 2025, costing an estimated $18 million to $20 million, was undertaken to ensure the unit operates at Central Puerto's standards of over 90-95% availability for the next two decades. This proactive investment, though not covered by insurance, underscores a long-term commitment to asset integrity and reliable generation.

Beyond conventional thermal assets, CEPU is strategically expanding its renewable energy footprint, embracing wind and solar technologies. The acquisition of the 80 MW "Proyecto Solar Cafayate" in August 2025, expected to generate 220 GWh, reaffirms this commitment to technology diversification and expanding its strategic participation in the renewable energy market. Furthermore, CEPU is actively participating in battery storage tender processes, submitting bids for 150 megawatts through Central Puerto and 55 megawatts through Central Costanera. This move into energy storage signifies a forward-looking approach to grid modernization and stability, leveraging emerging technologies to complement intermittent renewable generation. These technological advancements and strategic investments are crucial for CEPU to maintain its competitive edge, enhance financial performance through lower operating costs and higher asset utilization, and align with global energy transition trends.

Strategic Expansion and Corporate Reorganization

Central Puerto is in a period of significant strategic expansion and corporate restructuring, designed to optimize its business model and capitalize on new market opportunities. A pivotal development is the spin-off-merger with ECOGAS Inversiones S.A., authorized on May 22, 2025, and effective October 1, 2025. This reorganization involves ECOGAS receiving various equity stakes, including shares in Energía Sudamericana S.A. and Distribuidora de Gas del Centro S.A., along with $305.00 million in cash. In return, 80.97 million new Class D shares of ECOGAS will be issued to CEPU shareholders, with ECOGAS's new capital stock set at $250.22 million. This move streamlines CEPU's operations, divesting non-core gas distribution assets to sharpen its focus on electricity generation and related infrastructure.

The company's growth plan is robust, targeting the addition of approximately 300 megawatts of installed capacity. Key projects nearing completion include the Brigadier Lopez combined cycle, adding 140 megawatts, and the San Carlos solar project, contributing 15 megawatts, both approximately 80% complete by Q2 2025 and expected to be operational before year-end. Looking further ahead, the Alamitos wind project, planned for 130-150 megawatts with an estimated investment of $130 million to $150 million, is in the bidding phase, with construction slated for Q1 2026. Management has indicated a cautious two-year construction timeline for Alamitos, though it could be shorter. These capital expenditures, totaling $102.4 million in the first half of 2025, were fully financed by operating cash flow, demonstrating strong financial discipline.

Beyond generation, CEPU is venturing into new infrastructure, partnering with YPF Luz to develop a high-voltage transmission line in the Puna region to supply mining companies, particularly for lithium operations. This diversification into mining-related services and direct energy supply to industrial clients represents a strategic move to capture growth in a burgeoning sector.

Financial Performance and Liquidity

Central Puerto's financial performance in recent quarters reflects both the impact of its strategic initiatives and the challenging macroeconomic environment in Argentina, characterized by inflation and currency fluctuations. The company's accounting methodology, which involves inflation-adjusting peso-denominated items and converting them to U.S. dollars at period-end official exchange rates, can introduce non-cash impacts affecting comparability.

In the second quarter of 2025, adjusted EBITDA was $61.4 million, a 32% decrease quarter-over-quarter and a 35% decline year-over-year, primarily due to scheduled maintenance at Central Costanera and Central Puerto plants, coupled with seasonal capacity charges and lower volumes. Revenues for the quarter were $179.6 million, an 8% decrease quarter-over-quarter but a 7% increase year-over-year. Energy sales constituted 89.6% of total revenues. The first quarter of 2025 saw revenues of $196 million, a 31% increase year-over-year, with adjusted EBITDA rising 8% to $90 million. This growth was largely driven by a cash effect from the gap between currency devaluation and spot remuneration increases, alongside higher thermal generation.

For the full year 2024, annual revenue reached $738.17 billion, with an annual net income of $49.60 billion. The fourth quarter of 2024, however, saw a net loss of $28 million, primarily due to non-cash impacts, including an impairment of almost $100 million. Despite these fluctuations, CEPU maintains robust profitability margins, with a TTM Gross Profit Margin of 36.76%, Operating Profit Margin of 33.43%, and EBITDA Margin of 52.14%.

Central Puerto's liquidity and capital structure remain strong. As of Q2 2025, the company reported a net leverage ratio of 0.56x the last 12-month adjusted EBITDA. Total financial debt as of June 13, 2025, stood at $409 million, comprising bonds at the Central Puerto level, Central Costanera financing, and project finance loans at the subsidiary level.

Cash, cash equivalents, and current financial assets totaled $235 million.

The company's capital expenditures for the first half of 2025 were fully financed by its operating cash flow, highlighting its financial flexibility. The TTM Debt/Equity ratio is a healthy 0.20, indicating a conservative approach to leverage.

Regulatory Landscape and Outlook

The Argentine electricity market is undergoing significant regulatory reforms, which present both opportunities and challenges for Central Puerto. The Energy Secretariat has allowed monthly adjustments to peso-denominated electricity spot prices to reflect inflation, with a compounded 5.1% increase in Q2 2025. This helps maintain revenue parity in a high-inflation environment.

Management anticipates a phased deregulation of the electricity market, starting with liquid fuels procurement under Resolution 21, which allows generators to manage their own fuel. This is seen as a positive step, potentially leading to cost efficiencies for CEPU as a large buyer. However, full natural gas liberalization is contingent on the Plan Gas contracts ending in 2028, which currently positions CAMMESA as the primary buyer. A new regulatory framework is expected by November 2025, aiming to rebuild spot and term markets and reinstate a marginal cost system, which could benefit CEPU's efficient combined cycles with improved remuneration.

The hydro concession auctions, including Piedra del Aguila, are a key area of focus. The Piedra del Aguila concession was extended for one year until August 12, 2025, with a national and international public tender for a new 30-year concession planned for 2025. However, management notes that current hydro prices, around US$13 per megawatt, are too low to attract new participants, necessitating discussions on new pricing schemes. A new thermal auction for capacity in critical grid points is also expected by year-end 2025 or early 2026.

Central Puerto's EBITDA for 2025 is expected to be similar to 2024 unless significant regulatory changes, such as the ability to sign private PPAs and deregulate fuel acquisition, are implemented. The recently introduced contingency plan for December 2024 to March 2026, designed to mitigate critical situations, is not expected to have a significant impact on EBITDA, estimated at less than $10 million, as it provides small additional remuneration for older units. The company anticipates higher dispatch levels for its units during the summer due to limited backup capacity in the AMBA region and expected high temperatures.

Risks and Challenges

Despite its strategic positioning, Central Puerto faces several risks inherent in the Argentine market and the energy sector. Operational risks include unplanned maintenance, such as the $18 million to $20 million cost incurred for the Central Costanera boiler, which was not covered by insurance. Regulatory and political risks are significant, with delays in hydro auctions attributed to ongoing adjustments with provincial governments. The lack of explicit guarantees for the gradual increase in private contract portions for hydro generation also presents a contractual risk.

Furthermore, the full deregulation of the electricity market is constrained by the existing Plan Gas contracts until 2028, limiting natural gas liberalization. Macroeconomic volatility, including currency devaluation, can distort financial comparisons and impact profitability. Environmental and climatic risks, such as reduced river flows, have already impacted hydro generation, with a 33% decline in Q3 2024 due to significant reductions in water levels across major rivers. Project execution risks are also present, as seen with initial delays in the San Carlos solar project.

Conclusion

Central Puerto S.A. is at a pivotal juncture, actively transforming its business to capitalize on Argentina's evolving energy landscape. The company's core investment thesis is underpinned by its diversified and efficient generation portfolio, strategic expansion into renewables and new infrastructure, and a proactive approach to corporate restructuring. The spin-off-merger with ECOGAS, coupled with significant investments in solar, wind, and battery storage projects, positions CEPU for sustained growth and enhanced operational focus.

While macroeconomic volatility and regulatory uncertainties in Argentina present ongoing challenges, Central Puerto's robust financial health, demonstrated by its low leverage and self-funded capital expenditures, provides a strong foundation. The company's commitment to operational excellence and its strategic pursuit of opportunities arising from market deregulation and the energy transition underscore its long-term potential. Investors should closely monitor the progress of regulatory reforms, particularly regarding hydro and thermal auctions and natural gas liberalization, as these will be critical determinants of CEPU's future earnings trajectory and its ability to fully leverage its technological advantages and strategic initiatives.