On Apr 10, 2014, we issued an updated research report on
Companhia de Saneamento Basico do Estado de São
AMER STATES WTR (AWR): Free Stock Analysis
CONN WATER SVC (CTWS): Free Stock Analysis
MIDDLESEX WATER (MSEX): Free Stock Analysis
SABESP -ADR (SBS): Free Stock Analysis Report
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Long-Term Growth Prospects
SABESP's performance in the last 5 years has been impressive as
evident by a nearly 194% increase in its share price. The company
appears to be a long-term gainer, well positioned to reap
benefits from economic developments in Brazil.
Over the 1995−2013 period, the company invested R$9.3 billion to
improve its water production capacities and services and plans to
spend 31% of the total capital expenditure planned (R$12.8
billion) for the 2014−2018 period. In 2009, the company started a
12-year Corporate Program for Reduction of Water Losses, which
aims to achieve a billing water loss ratio of 18% by 2020 on an
investment of R$5.9 billion. Until 2013, nearly R$1.5 billion was
spent on the program. Additionally, the company intends to spend
R$2.2 billion to improve its Sao Lourenco production system.
SABESP targets to achieve 100% water coverage ratio between 2013
and 2020 and add nearly 1.3 million new water connections. For
sewage services, the company aims nearly 95% coverage ratio by
adding 1.7 million new sewage connections by 2020. SABESP moved a
step forward toward its goal after it signed a 30-year agreement
to control the water and sewage services of Diadema in Aug 2013.
Rising expenses, potential losses from adverse movement of
foreign currencies, governmental interference and dependence on
electricity as a source of energy restrict the company's growth
Over the last 5 years, SABESP has recorded nearly 34% and 3%
increase in its cost of sales and services and operating expenses
(in local currency) respectively. Also, the company's mounting
debt levels cloud our view.
Furthermore, SABESP's fourth-quarter 2013 results were not
impressive. Net earnings were down 23% year over year despite a
4% increase in revenues in the quarter. Earnings per American
Depository Receipt (ADR) were $0.38.
SABESP offers a balanced risk-reward profile and is expected to
perform in line with the broader market in the next 6−12
months. The water and sewage service provider presently has
a $6.5 billion market capitalization and carries a Zacks Rank #4
Investors interested in the water supply utility industry can
American States Water Co.
Middlesex Water Co.
Connecticut Water Service Inc.
) to their portfolio. While American States Water and Middlesex
Water hold a Zacks Rank #1 (Buy), Connecticut Water Service
carries a Zacks Rank #2 (Buy).