Goldman Sachs recommends buying Brazil’s Equatorial, Copel, Eletrobras, and Energisa, while selling Cemig shares.
The bank has set price targets of:
- R$54 for ELET3 and R$60 for ELET6 (representing a 39% upside from the previous closing), R$13.70 for CPLE6 (35% upside),
- R$65 for ENGI11 (36% upside),
- R$42.10 for EQTL3 (25% upside), and
- R$11.20 for CMIG4 (only 4% upside).
Key Recommendations:
- Eletrobras (ELET3; ELET6): Price targets R$54 and R$60 respectively, with 39% upside.
- Copel (CPLE6): Price target R$13.70, with 35% upside.
- Equatorial (EQTL3): Price target R$42.10, with 25% upside.
- Energisa (ENGI11): Price target R$65, with 36% upside.
- Cemig (CMIG4): Price target R$11.20, with only 4% upside.
Goldman Sachs sees attractive value (11.3% IRR) and strong investment opportunities, especially in energy distribution.
Recently privatized companies like Eletrobras and Copel are expected to cut costs and optimize portfolios, leading to higher dividends.
Specific Insights:
- Cemig: Despite recent efficiency gains, Cemig, still a state-owned company, is unlikely to significantly exceed regulatory EBITDA in energy distribution, limiting value creation.
- Copel and Equatorial: Copel is highlighted for its growing dividends supported by strong free cash flow prospects and cheap valuation (12.5% real internal rate of return). Equatorial is praised for capital allocation and reasonable valuation (9.7% real internal rate of return).
- Regulatory Environment: Goldman Sachs expects a healthy regulatory environment due to the 2016 State-Owned Companies Law, recent privatizations, a solid track record of Aneel, and the government’s need to promote private investment in the sector.
Investment Opportunities:
- Energy Distribution: A rising demand for quality energy distribution services represents an R$85 billion investment opportunity over the next five years, particularly benefiting Equatorial and Energisa.
- Transmission Lines: The need for new and improved transmission lines due to the development of distant solar and wind farms, with an estimated R$185 billion required over the next decade. Eletrobras stands to benefit significantly.
- Privatized Companies: Recently privatized companies like Copel and Eletrobras will reduce costs, optimize investments, and sell non-essential assets, boosting free cash flow and dividend potential.
Company-Specific Developments
- Equatorial: Successful in acquiring and rehabilitating energy distribution concessions, recently expanded into sanitation, requiring significant future investments.
- Energisa: Acquired several energy distribution concessions and entered the gas distribution market with the acquisition of ES Gás in 2023.
- Eletrobras: Positioned for significant capital allocation in transmission, with R$126 billion in gross assets and attractive returns due to regulatory frameworks.
Cash Flow and Dividends
- Energisa and Equatorial: Heavy investment in distribution limits short-term free cash flow, resulting in low single-digit dividend yields.
- Cemig: Not expected to generate positive free cash flow in the coming years but offers stable dividends around 7-8%, potentially increasing with recent asset sales.
- Copel: Cost-cutting initiatives and asset sales will boost dividends from 5% in 2024 to 9-13% in 2025-2026.
- Eletrobras: Significant free cash flow generation expected, leading to potential dividend increases, contingent on government agreements regarding CDE payments.
This article was produced by The Rio Times’ automated AI newsroom. Editorial responsibility: Matthias Camenzind, Publisher and Editor-in-Chief. The Rio Times also runs Ask Rio Times, which answers from 100,000+ of our own articles, the daily Latin America Power Map, and prediction-market odds on elections and markets.. How we use AI · Report an error
LatAm Markets: Live Signals → — real-time movers, turnover leaders and FX across Latin America.