CEMIG Upgraded to Neutral - Analyst Blog

We recently upgraded Companhia Energetica de Minas Gerais (CIG), also known as CEMIG, from an Underperform to a Neutral recommendation.

CEMIG is one of the largest integrated electric utilities in Brazil. It has more than 6,716 megawatts of installed generation capacity, deriving approximately 97% from hydroelectric power. 

We believe CEMIG is well positioned to benefit from the rising demand for electricity in Brazil. Its integrated nature of activity (generating and distributing energy) along with its aggressive expansion plan is making its presence felt among the industrial customers both in the south and southeast of Brazil.

The company's net revenue in the third quarter of 2010 jumped 6.5% year over year due to higher volumes sold. Sale of electricity improved 8.1% year over year to 16,478 GWh due to higher consumption by the final customers.

CEMIG has a strong balance sheet, efficient operations, a good market share position, and attractive relative valuation compared with other international electric utilities. Cash and cash equivalents at the end of the third quarter increased 11.3% sequentially to R$4,178 million (US$2,443.3 million).

However, growth momentum in the quarter was affected by higher operating and financial expenses as net results dipped 2.4% year over year. Moreover, rising debt levels, persistent interference from the state government, competitive pressures in the Brazilian market and high dependence on natural water resources tend to be problematic. The company faces stiff competition from Companhia Paranaense de Energia (ELP).

Considering all these factors and expecting further improvements and good performance in line with the market, we upgrade CEMIG from an Underperform to a Neutral recommendation.

 
CEMIG SA -ADR (CIG): Free Stock Analysis Report
 
COPEL-ADR PR B (ELP): Free Stock Analysis Report
 
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