We are initiating coverage of three
Brazilian integrated utility companies:
Cemig at Overweight (V), Copel at
Neutral (V), and Light at Neutral (V)
􀀗 In an environment of little visibility,
utilities stocks point to a defensive
route, derived from relatively stable
cash flows; however, different drivers
lead to distinct returns; we put the
companies on the map focusing on
what hurdles may arise
􀀗 All in, we call attention to Cemig for its
discounted valuation and growth
opportunities; Copel still requires
caution for political and governance
issues; Light seems to be fairly valued
How to avoid a crash. Looking at fundamentals, we believe
the utilities companies should deliver relatively better results in
2009 than the other industrial sectors. We restate the sturdiness
of the companies’ cash generation, as a result of relatively stable
revenues and costs, low exposure to foreign debt, and access to
funding provided by the BNDES – all coupled with high
dividend yields.
Anticipate moves but do not overreact to them. Though the
general fundamentals point to the sector as a defensive
alternative, a price revaluation appears to have been taking
place in order to discount specific, new concerns that arose
during the development of the economic crisis including: falling
demand, lower GDP, impact on generation prices, and weaker
inflation. However, in our view, the market overreacted to the
likely impact of the crisis on the companies’ performance – the
sector is underperforming the Ibovespa by 3.3% YTD.
Clear your field of vision. The outline of the companies’
remuneration should offer protection to the effects of the crisis:
distribution tariffs should increase in 2009 thereby improving
the margins compressed by the tariff reset. Also, consolidated
generating prices are unlikely to collapse given the contract
structures that set adjustments to inflation. The announced cut in
the Selic rate also should help the financial performance of the
sector.

目录

Defensive driving 4
Blind spots 8
Valuation 14
Company profiles 21
Cia. Energética de Minas
Gerais - Cemig 22
Valuation 35
Risks to our investment thesis 35
Financials 36
Companhia Paranaense
de Energia - Copel 37
Valuation 47
Risks to investment thesis 47
Financials 48
Light S.A. 49
Valuation 58
Risks to our investment thesis 58
Financials 59
Disclosure appendix 64
Disclaimer 67