Companhia de Saneamento Basico do Estado de Sao
or SABESP (
has been recently upgraded by us from Neutral to an Outperform
The company, over time, has retained its position as one of the
largest water and sewage services providers in the world, serving
primarily the State of São Paulo. Its non-cyclical regulated
utility business in the Brazilian emerging market is an attractive
and relatively low-risk investment opportunity.
We, therefore, appreciate the company's constant endeavor and
steady focus on the improvement of its services, which in turn will
help SABESP in improvising its business portfolio through strategic
The company has allocated approximately R$7.9 billion for up
gradation/maintenance of its services. Of the total, 40% has been
set aside for Sewage collection, 32% for Water supply and 28% for
Collected sewage treatment for the 2012-2015 time frame.
Moreover, financial results have been impressive for the
company, as in the first quarter 2012 SABESP posted a 169%
year-over-year increase in net income. EPADR settled at $2.44, much
above 96 cents in the year-ago quarter and the Zacks Consensus
Estimate of $1.62. Revenue improved 13% as billed water and sewage
volume rose by 3% due to an increase in the number of connections
and acceleration in consumption.
We believe the company will further grow and work assiduously to
achieve its long-term target of 1.3 million new water connections
and 1.7 million sewage connections by 2019.
However, risks arising from escalating cost of sales and
services, adverse weather conditions, political interference and
governmental delays, mounting debt levels and risk of forex losses
cannot be ignored. Moreover, competition remains intense from other
industry players including
Veolia Environnement S.A.
The stock has a Zacks #2 Rank, implying a short-term (1-3
months) Buy rating.
SABESP -ADR (SBS): Free Stock Analysis Report
VEOLIA ENVIRON (VE): Free Stock Analysis Report
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