Cemig Stays On The Sidelines
We prefer remaining on the sidelines for the Brazilian electric utility, Companhia Energetica de Minas Gerais (NYSE:CIG), also known as CEMIG, thus maintaining a Neutral recommendation on the stock.
The company is one of the largest integrated electric utilities in Brazil and has more than 6,896 megawatts of installed generation capacity. The company is the fifth largest electricity generator in Brazil and generates approximately 97% of electricity from hydroelectric sources.
Growth demand for electricity in Brazil looks promising as the country prepares to host two major sporting events in the coming years and the Government seems keen to invest heavily in infrastructure and power generation capabilities.
Moreover, 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 is expected to be within the R$5.3-6.1 billion range by 2015.
In the last reported quarter, Cemig’s net income plummeted marginally by 0.4% year over year despite an 11% escalation in total revenue. Operating expenses in the quarter rose by 7%, which still appears to be a significant hurdle to growth.
Furthermore, near-total dependence on natural water resources and interference from the state government tend to be detrimental to growth. Cemig also faces competitive pressures in the Brazilian market from its rivals like Companhia Paranaense de Energia (NYSE:ELP).
The current Zacks Consensus Estimates for the fiscal years 2011 and 2012 are $1.64 and $2.07, reflecting annual decline of 20.16% and growth of 26.17%, respectively.
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