ELP Posts Impressive 3Q (ELP) (ENI)

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Companhia Paranaense de Energia (ELP), also known as COPEL, reported its financial results for the third quarter of 2011 on November 9. Net income in the quarter increased 22.1% year over year to R$341.2 million (US$209.3 million), or R$1.25 per share (US$0.76 per ADR).

Revenue

In the third quarter, net operating revenues surged 15.3% year over year to R$2,014.1 million (US$1,235.6 million) due to higher sales volume.

Revenue increased on a year-over-year basis in all the categories mentioned below: 4.0% for Electricity sales to final customers; 27.2% for sales to distributors; 23.7% for use of main transmission grid; 9.8% for construction revenue; 18.5% for telecommunications revenue and 21.9% for distribution of piped gas. However, revenue from other sources declined 25.5% year over year.

Expenses/Income

During the quarter, operating costs and expenses went up 15.6% year over year to R$1,649.0 million (US$1,011.7 million), due primarily to a rise in expenses in almost all the categories except for a 20.3% decline registered in material and supplies and 18.3% decline in raw material and supplies for electricity generation.

The company recorded hike in the following categories: 8.7% increase in electricity purchased for resale, 43.5% hike in personnel and management, 15.8% in the use of main transmission grid, 56.2% in natural gas and supplies for the gas business.

EBITDA increased by 10.2% year over year to R$503.2 million (US$308.7 million) with an EBITDA margin of 25.0% versus 26.2% in the year-ago quarter.

Balance Sheet

Exiting the third quarter of 2011, COPEL’s cash and cash equivalents plummeted 11.1% sequentially to R$1,490.5 million (US$814.5 million). Loans, financing and debentures, net of current portion surged 41.7% sequentially to R$2,070.9 million (US$1,131.6 million).

Cash Flow

Net cash flow from operating activities in the quarter was R$413.2 million (US$253.5 million), while capital spending was R$166.9 million (US$102.4 million).

For the fiscal year 2011, COPEL plans to spend approximately R$2,060.5 million, with roughly 49.7% on Generation and Transmission, 45.3% on Distribution and 5.0% on Telecommunications.

Companhia Paranaense de Energia is a fully integrated electric utility of Brazil engaged in the generation, transmission, and distribution of electricity to the State of Paraná. The provincial government of the State of Paraná controls 58.6% of the shares of COPEL. The company faces stiff competition from Cia Energetica de Minas Gerais (CIG) and Enersis S.A. (ENI).

We currently maintain a Neutral recommendation on the stock.

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