Brazilian electric utility,
Companhia Energetica de Minas Gerais
), also known as CEMIG, was recently downgraded by us from
Outperform to a Neutral recommendation.
Cemig, the fifth largest electricity generator in Brazil,
generates approximately 97% of electricity from hydroelectric
sources. Demand for electricity seems to be on the rise as Brazil
prepares to host two major sporting events in the coming years. The
Government is also keen to invest heavily in infrastructure and
power generation capabilities.
The Brazilian government intends to improvise the electricity
industry through its Second Accelerated Growth Program (PAC 2).
Approximately R$1.1 trillion has been allocated for the electricity
industry under the PAC 2. 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.
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 would be within the R$5.3-6.1 billion
range by 2015.
In the recently announced second quarter 2012 results, Cemig
reported a net income increase of 15% in local currency and a 16%
revenue growth. Earnings came in at R$0.82 per share or US$0.42 per
Despite the company's bright long-term prospects, we have
downgraded Cemig from Outperform to a Neutral recommendation. The
company's rising operating expenses seem to be the major hurdle for
growth. Expenses in the last reported quarter increased roughly 16%
year over year.
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
The current Zacks Consensus Estimates for 2012 and 2013 are
US$2.04 and US$1.33 per ADR, reflecting annual growth of 7.4% and
decline of 34.8%, respectively.
The stock currently bears a Zacks #3 Rank, translating into a
short-term Hold rating.
CEMIG SA -ADR (CIG): Free Stock Analysis Report
COPEL-ADR PR B (ELP): Free Stock Analysis
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