Banco Safra Upgrades Eneva to Buy on LRCAP Win as Power Play Reshapes

The Safra Eneva upgrade Monday confirmed what utility specialists have been pricing in since the March capacity auction. Brazil’s leading thermal generator has just secured the kind of long-dated revenue stream that re-rates the entire investment thesis.

Banco Safra analysts Daniel Travitzky, Carolina Carneiro, and Ricardo Bello argued in their Monday note that the LRCAP outcome was a structural change for Eneva rather than a one-off win. The auction locked in long-duration capacity contracts with fixed revenue that materially reduces uncertainty in Eneva’s free cash flow and unlocks new growth corridors for the company in the second half of the decade.

The Rio Times, the Latin American financial news outlet, reports that Eneva contracted 5.06 gigawatts in the certame, lifting its total portfolio above 10 gigawatts. The company itself is scheduled to release first-quarter results on May 13 after market close, with a conference call on May 14 that will be the first chance for the market to test the auction-driven thesis against actual operating numbers.

Why the Safra Eneva Upgrade Matters

Eneva is the dominant private-sector thermal generation player in Brazil and the only relevant integrated operator in the natural-gas-to-power chain. Until the March LRCAP, the bear case rested on contract expirations between 2026 and 2028 for the Parnaíba I and III gas thermal plants of 854 megawatts, the Itaqui and Pecém coal plants of 725 megawatts, and the Linhares, Povoação, and Viana gas plants of 143 megawatts.

Safra’s pre-auction model already assumed renewals at fixed revenues 50 to 60 percent above current levels. The actual auction outcome went further, adding 3.65 gigawatts of new contracts and effectively booking the production line for the next five years. Empiricus, a separate research house, raised its target to 32 reais per share earlier this year on similar logic; ENEV3 traded near 27.21 reais in late April.

Where the Sector Sits Today

In the broader sector review published with the Eneva upgrade, Safra kept outperform ratings on Equatorial and Alupar and held neutral on Taesa, CPFL, and Sanepar. Equatorial remained top pick on a combination of an internal-rate-of-return estimate of 11.6 percent and optionality from the Sabesp stake plus a possible Copasa privatization bid.

Alupar earned its outperform rating on the Latin America transmission diversification thesis, with active projects in Peru, Chile, and Colombia generating dollar-denominated revenue. The bank used a long-run power price assumption of 240 reais per megawatt-hour and discount rates of 13.7 percent for distribution, 13.1 percent for generation, and 12.5 percent for transmission.

What This Means for Investors

For utility investors, the upgrade reinforces the thesis that Brazilian power assets are entering a structurally re-rated phase as the regulatory framework for thermal reserve capacity stabilizes and the consolidation cycle in sanitation continues. The Equatorial-Eneva pair gives investors exposure to both the regulated cash flow story and the consolidation optionality through the Sabesp and Copasa angles.

For broader context, see our prior coverage of the Sabesp Copasa bid and our Brazilian market positioning file. The next LRCAP auction is scheduled for later this year, and Safra notes that Eneva is well positioned to compete for the Hub Sergipe and Ceará capacity slots that could add another 2.3 gigawatts to the portfolio.