Cemig Downgraded to Neutral - Analyst Blog
February 28 2013 - 8:20AM
Zacks
We have downgraded our
recommendation on Brazilian electric utility, Companhia
Energetica de Minas Gerais (CIG), also known as CEMIG from
Outperform to Neutral.
Why the Downgrade?
We find the long-term growth prospects for this Brazilian
electricity utility very bright. It ranks fifth among the
electricity generators in the country and derives roughly 97% of
electricity from hydroelectric sources. The company is in a
constant pursuit to attain the position to benefit from the
expected growth in electricity demand in Brazil which is gearing up
to host two major sporting events in the coming years.
The Brazilian government, in a bid to improvise the electricity
industry through its Second Accelerated Growth Program (PAC 2), has
allocated approximately R$1.1 trillion. In Cemig’s area of
operation, according to the national Energy Research Institute,
EPE—average consumption growth is expected to be 4.5% from 2011 to
2021.
Cemig’s management, over the long term (2011-2015), expects total
energy distribution to reach a range of 48.8-53.8 TWh by 2015.
Energy generation in 2015 is estimated to be roughly 36.1 TWh while
EBITDA for 2015 would be within the R$5.3-6.1 billion range by
2015.
Despite these positives, it’s the near-term concerns that restrict
our view on the stock and keep us on the sidelines. Rising
operating expenses, governmental interference and dependence on
hydro sources for electricity pose serious threat to growth. In its
last quarterly results, the company reported 26.8% year-over-year
increase in operational costs and expenses, primarily due to rises
in personnel costs, material costs, electricity bought for resale,
infrastructure construction costs and gas bought for resale, among
others.
Other Stocks to Consider
Other stocks to watch out for in the industry are
Brookfield Infrastructure Partners L.P. (BIP),
Huaneng Power International, Inc. (HNP) and
Otter Tail Corporation (OTTR), each with a Zacks
Rank #1 (Strong Buy).
BROOKFIELD INFR (BIP): Free Stock Analysis Report
CEMIG SA -ADR (CIG): Free Stock Analysis Report
HUANENG POWER (HNP): Free Stock Analysis Report
OTTER TAIL CORP (OTTR): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Companhia Energetica de ... (NYSE:CIG)
Historical Stock Chart
From Jun 2024 to Jul 2024
Companhia Energetica de ... (NYSE:CIG)
Historical Stock Chart
From Jul 2023 to Jul 2024