DNNGY - Eletrobras: A New Era; Buy While The Market Pays No Attention To This Giant
2024-03-25 14:22:27 ET
Summary
- Eletrobrás is a dominant player in the Brazilian energy market, and recently underwent privatization that changed the company's direction.
- The company stands out for a significant cost reduction, and an expectation of increased revenue after important regulatory changes were made in Brazil.
- Despite this, the analysis reveals that Eletrobrás operates with an EV/EBITDA discount compared to its peers, without a strong justification for this.
Investment Thesis
My recommendation is to buy Eletrobrás ( EBR ), which after privatization, not only demonstrated a strong cost reduction of 30% since 2016, but also has prospects of increase revenues 12% per year over the next three years, after the end of the quota system, which will be detailed in this report. Despite all this, the company trades at an EV/EBITDA of 7x, a 15% discount to the average of its international peers.
Introduction
Eletrobrás is the largest integrated energy company in Latin America, and until 2022 it was a Brazilian state-owned company. Its main businesses are in power generation and power transmission. With 50.4 GW of installed capacity, represents 28% of Brazil's energy generation capacity. When we talk about energy transmission, Eletrobrás represent around 40% of the total lines in Brazil.
Let’s look at the representation that Eletrobrás has in Brazil:
IR Company