On Feb 25, 2015, we issued an updated research report on Companhia Energetica de Minas Gerais CIG, also known as CEMIG.
CEMIG is the fifth-largest electricity generator in Brazil. With improvement in the national economy, the need for electricity is gradually increasing in the country. The company is making concerted efforts to capitalize on the growing electricity demand, having planned investments for improving its generation and distribution capacities. For 2014−2018, the company expects to spend approximately R$4.4 billion for Cemig D and R$2.6 billion for Cemig GT.
In addition to organic plans, CEMIG considers closing meaningful acquisitions to enhance its reach in the Brazilian electricity industry. In first-half 2014, the company acquired a 49.9% stake in Retiro Baixo Energética and 12.4% interest in Madeira Energia. In Oct 2014, the company increased its stake in Renova to 27.37%, while also acquiring 40% equity interest in Gasmig.
Further, the company has diversified its portfolio in the wind energy sector. In third-quarter 2014, the company and Renova Energia agreed to participate in the construction of 25 wind farms, with an installed generation capacity of 676.2 MW.
Despite these long-term growth prospects, we believe certain near-term concerns, including rising operating expenses, governmental interference and dependence on hydro sources for electricity, might impede CEMIG’s growth momentum.
With a $5.3 billion market capitalization, CEMIG currently carries a Zacks Rank #4 (Sell). Some better-ranked companies in the electric utility industry include Abengoa Yield plc ABY, IdaCorp, Inc. IDA and MGE Energy Inc. MGEE. All these stocks sport a Zacks Rank #1 (Strong Buy).
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