2009 Outlook: When concession (re)calls…
􀂄 After a good end to 2008, 2009’s foursome…
Having acted as good defensive plays in the second half of 2008, as we look ahead
into 2009 we see a fairly benign outlook for Brazil’s utilities. In this report we look
at the four issues for 2009: (i) the slowdown in demand; (ii) changes to distribution
regulation that have been already flagged; (iii) the outlook for generation prices
(contract and spot) and (iv) the outlook for concession renewal news.
􀂄 We see a benign case for most of the drivers…
We believe we have a more positive outlook than the market on two of the issues,
demand slowdown and generation prices, and see the third, disco regulation, under
a positive light. If anything, we believe that if things play out as we are expecting
now, there is room for an improvement in investor sentiment towards the stocks on
all of these fronts.
􀂄 But are seriously concerned about the concession issue…
The catch comes on the concession renewal issue. We believe that investors are
either ignoring this issue or expecting a swift and positive solution for it. We
believe that a swift solution is likely, but that it is unlikely to fit with investor’s
perception of “positive.” Cesp, Eletrobras and, to a lesser extent, Cemig and Copel
are exposed to this issue.
􀂄 What do we like in the sector? Cemig, AES Tiete and Eletrobras ON
Cemig is our valuation / beta call in the sector, AES Tiete is our preferred dividend
play and Eletrobras ON vs. Eletrobras PNB is our relative value pick.