Bloomberg News

Eletrobras, CPFL Lead Utility Gains After Upgrades

December 01, 2009

Centrais Eletricas Brasileiras SA (ELET6), Latin America’s largest utility, and CPFL Energia SA (CPFE3) led gains for utility stocks in Sao Paulo after the shares were upgraded by analysts on the prospect of increased demand.

Common shares of Eletrobras, as the Rio de Janeiro-based utility is known, rose 6.1 percent to 30.78 reais, the most since June 19. CPFL increased 5.3 percent to 33.80 reais, the steepest gain in a year.

Goldman Sachs Group Inc. boosted Eletrobras to “buy” from “neutral,” citing the company’s measures to control costs at its subsidiaries.

The changes “are bringing investors’ attention back to Eletrobras,” analyst Francisco Navarrete wrote in a note. “Eletrobras’ discount in multiples versus peers is excessive. If at any stage, fundamental change occurs at the company, upside could be considerable.”

The value of Eletrobras’s enterprise value, or stock and debt minus cash, is about 3.6 times estimated earnings before interest, taxes, depreciation and amortization. That’s 42 percent less than that of Cia. Energetica de Minas Gerais, 29 below that of Cia. Paranaense de Energia and 33 percent less than that of Cia. Energetica de Sao Paulo, all of which are state-controlled electric companies.

CPFL Upgrade

CPFL, Brazil’s largest private-sector power distributor, was raised to “buy” from “hold” at Raymond James & Associates Inc., which cited the company’s outlook for growth and industry consolidation.

Residential and commercial demand “growth should be aided next year by strengthened sales in auto, real estate, and consumer related sectors; a stronger employment market; increased availability of credit at relatively low rates for historical standards, etc,” Ricardo Cavanagh wrote. The Raymond James’s analyst also estimates rising demand from the industrial segment as production tends to increase.

“We are seeing the recovery of the commercial, residential and industrial consumption, full water reservoirs and commitment by corporations to contract power supplies,” Filipe Lopez, analyst at Agora Corretora, said in a phone interview from Rio de Janeiro. “The scenario for the power utilities industry is positive, there’s nothing bad about it, and in addition to that the companies pay good dividends.”

CPFL pays about 95 percent of net profit in dividends, according to Cavanagh. Eletrobras will probably solve a 10 billion-real late dividend issue by March, Itau Securities analyst Marcos Severine said Nov. 27.

Cia. Energetica de Minas Gerais, Brazil’s second-largest electricity generator and distributor, rose 3 percent to 30.99 reais.

To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net Heloiza Canassa in Sao Paulo at hcanassa@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos in New York at papadopoulos@bloomberg.net


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