On Jun 16, 2014, we issued an updated research report on Companhia Energetica de Minas Gerais (CIG), also known as CEMIG. The company’s earnings grew 7.0% in the past five years while yielding a return of 40.8% year-to-date. This Brazilian electric utility is an attractive investment option for long-term investors.
The electricity industry belongs to the promising sectors of Brazil. Energy consumption in the country rose 3.5% year over year in 2013, while an annual rise of 5.9% is expected till 2019, according to the Ministry of Mines and Energy's (MME) 10-year plan. To reap benefits from the growing electricity demand, CEMIG has invested in hydro plants as well as wind farms to improve its electricity generation capacity. It has also undertaken initiatives to develop its distribution services.
In Feb 2014, CEMIG acquired a controlling interest in Brasil PCH while in the first-week of Jun 2014, it acquired 12.4% interest in Madeira. Further, the company is in the process of acquiring 49.9% interest in Retiro Baixo Energética S.A. The latter operates the Retiro Baixo hydroelectric plant, which has an installed generation capacity of 83.7 MW.
Moreover, CEMIG fared well in first-quarter 2014. Net income increased 52.1% year over year while earnings came in at R$0.47 per American Depository Receipt (ADR). Revenues grew 30% backed by sales increase to end customers. Electricity sold to final consumers was up 10.7%.
Despite these positives, we believe certain near-term concerns might impede CEMIG’s growth momentum. Potential headwinds include rising operating expenses, governmental interference and dependence on hydro sources for electricity.
CEMIG has a $10.0 billion market capitalization and currently carries a Zacks Rank #3 (Hold). Some better-ranked companies in the electric utility industry include Companhia Paranaense de Energia (ELP), Entergy Corporation (ETR) and NRG Energy, Inc. (NRG). All these stocks sport a Zacks Rank #1 (Strong Buy).
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