The appeal of a post-Castro Cuba

published 16 August 2007

Since Fidel Castro fell ill last year and ceded authority to his brother Raul, the prospect of a liberalised, post-communist Cuba has begun to appear on investors' radar screens. Non-US firms have been active in Cuba for years there are 258 foreign joint ventures there while an end to the US trade embargo once Fidel's regime crumbles would give regional trade a huge boost. Given GDP per head of just $3,900, the post-embargo market for imported consumer products would be small; "it's the location and natural resources that attract", says Alex Davidson in Forbes. With two million visitors a year, Cuba will appeal to hotel firms and cruise operators, while five billion barrels of oil are thought to be lying offshore.

Two beneficiaries of a post-embargo Cuba would be Royal Caribbean (NYSE:RCL, $34) and Carnival (CCL, £2.10). About half of each cruise operator's revenue stems from the Caribbean, and Thomas Herzfeld of the Herzfeld Caribbean Basin Fund reckons that revenue would double if access to Cuba was granted.

But the best way to benefit from the inevitable end of Castro's 48-year "stranglehold" on Cuba's economy is Canada's Sherritt International (TSX:S, CAD16), says Dale Baker on The Motley Fool. The energy and mining group is already doing business in Cuba, with the focus on oil, gas and nickel. Cuba comprised 40% of revenue in 2006, giving it more exposure than "just about any other established company". Sherritt, which has just notched up record second-quarter profits, boasts established coal and gas interests in Canada and growing global metals exposure as well as its Cuban operations. It is on a p/e of just seven.