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Revising estimates and Price Targets
This report changes price targets and estimates for the Brazilian utility companies
under our coverage. For a detailed listing of these changes, please see page 2. DB
economists have made changes to their macro forecasts in Brazil, including: 1)
stronger GDP growth, and 2) stronger currency. Furthermore, country risk
assumptions have been reduced. We also made changes to our recommended
portfolio, and Tractebel Energia remains our top pick, followed by Energias do
Brasil and Cemig. We are downgrading AES Tiete to Hold.
Deutsche Bank Securities Inc.
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1. MICA(P) 106/05/2009
Forecast Change
Top picks
Tractebel Energia (TBLE3.SA),BRL22.28 Buy
Energias do Brasil (ENBR3.SA),BRL31.30 Buy
Cemig (CMIG4.SA),BRL28.83 Buy
Companies featured
Cemig (CMIG4.SA),BRL28.83 Buy
2008A 2009E 2010E
EPS FD(BRL) 3.80 2.88 3.40
P/E (x) 9.0 10.0 8.5
EV/EBITDA (x) 5.7 6.9 5.5
CPFL Energia (CPFE3.SA),BRL34.17 Hold
2008A 2009E 2010E
EPS FD(BRL) 2.66 2.41 3.23
P/E (x) 13.1 14.2 10.6
EV/EBITDA (x) 8.2 7.9 6.3
Copel (CPLE6.SA),BRL32.72 Buy
2008A 2009E 2010E
EPS FD(BRL) 3.94 4.07 3.85
P/E (x) 7.1 8.0 8.5
EV/EBITDA (x) 4.3 5.0 5.0
Eletrobras (ELET6.SA),BRL25.20 Hold
2008A 2009E 2010E
EPS FD(BRL) 5.43 -2.47 1.46
P/E (x) 11.7 6.4 10.1
EV/EBITDA (x) 4.5 6.9 5.5
Energias do Brasil (ENBR3.SA),BRL31.30 Buy
2008A 2009E 2010E
EPS FD(BRL) 2.50 4.53 4.62
P/E (x) 10.9 6.9 6.8
EV/EBITDA (x) 6.2 6.4 6.1
AES Tiete (GETI4.SA),BRL20.60 Hold
2008A 2009E 2010E
EPS FD(BRL) 1.85 2.19 2.14
P/E (x) 8.4 9.4 9.6
EV/EBITDA (x) 4.9 6.1 6.1
Tractebel Energia (TBLE3.SA),BRL22.28 Buy
2008A 2009E 2010E
EPS FD(BRL) 1.71 1.73 2.02
P/E (x) 12.3 12.9 11.0
EV/EBITDA (x) 7.5 7.6 6.8
CESP (CESP6.SA),BRL23.00 Hold
2008A 2009E 2010E
EPS FD(BRL) -7.18 4.11 1.35
P/E (x) – 5.6 17.0
EV/EBITDA (x) – 6.9 6.8
Global Markets Research Company
Sector strategy: favor good quality names: Tractebel, EdB
We continue to favor the high quality names in the sector, mainly the privately
controlled names, with a preference for the growth play in the generation
business. Tractebel Energia remains our top pick, followed by EdB. We continue
to prefer Cemig versus Copel in the short term due to relative stock performance.
Nonetheless, we agree that momentum should continue to benefit Copel as we
approach next year’s elections.
Downgrading AES Tiete to Hold
We are downgrading AES Tiete to Hold from Buy. Despite the total expected
return of 32%, including a 10.4% dividend yield, we believe that the stock should
not outperform the sector as the market now favors less the defensive, low beta
names. Moreover, as Deutsche Bank’s economists now expect the SELIC rate to
rise to 10.5% within the next 12 months, the attractiveness of AES Tiete’s
dividend yield decreases.
Main issues to watch
Over the short term, the recovery of the Brazilian economy and its impact on
demand should benefit both generators and distributors. Meanwhile, cost
management remains key for discos. M&A activity is expected to increase as
sector consolidates in both the distribution and generation segments. Next year’s
elections could have a meaningful impact on state and federal controlled
companies. Regulatory risk should remain in place, as we don’t anticipate a
resolution for the expiring generation concessions this year and we fear this topic
could be lost during next year’s election focus. Furthermore, regulatory risk could
affect distribution companies as well as government focus on lowering energy
costs for the end consumers.
Valuation / Risks
We arrive at our price targets for the Brazilian utility stocks using DCF models.
Risks to our ratings include: (1) lower GDP growth which could translate in lower
than expected distribution sales volumes, (2) poor hydrological conditions and its
effects on energy generation. Detailed discussion on valuation and risks for each
stock is found on each company’s section (pages 7 to 32).
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