Tags: Endesa Chile | EOC | Enersis | ENI | Endesa | ELE | Chile

A Latin Utility Primed for Growth

By    |   Friday, 10 Jun 2011 02:49 PM

Utilities tend to do well in good times and bad — even in a recession people need light to read — but utilities in emerging markets offer the kind of high growth potential and low risk that gets investors buzzing. This is the case with the well-run Chilean utility Endesa Chile (EOC), which is an excellent opportunity to capitalize on strong economic growth in Latin America.

Endesa Chile is owned by local holding company Enersis (ENI) which is in turn owned by Spain’s Endesa (ELE). The Chilean unit has a market capitalization of $15.2 billion and nearly 15,000 megawatts (MW) of installed capacity in Chile, Colombia, Brazil, Peru, and Argentina.
With 5,611 MW of capacity in Chile, of which roughly 60 percent is hydroelectric and 40 percent is thermoelectric, Endesa is the largest generator in the country.

Demand is growing strongly in all markets where it operates, especially in Chile and Peru, which grew 9.1 percent and 7.7 percent respectively in the first quarter of 2011 versus the same period a year earlier.

A severe drought in central Chile has increased Endesa’s generation costs in recent months, but the company’s exposure is limited thanks to its under-contracted commercial policy, good generation mix, and a diversified portfolio in Latin America.

In the first quarter of 2011 Endesa’s net profit grew 3.3 percent to $207 million from the same period of 2010, due to lower non-operational expenses and higher generation costs, partially offset by a tax increase in Colombia.

Endesa Chile’s ADR price outperformed the Dow Jones Industrials and S&P indexes in the 12-month period between April 2010 and March 2011 with a return of 16.6 percent.

An energetic outlook

The outlook for long-term growth is good. The environmental study for the controversial 2,750 MW HidroAysen project in southern Chile, which Endesa is developing with fellow generator Colbún, was recently approved by local authorities despite local opposition.

The transmission line needed to transport power to Santiago has yet to be approved, but Endesa’s ADRs surged on the news to near their 52-week high of $58.42 per share.

Celfin Capital, a Chilean investment bank, rates Endesa’s stock a buy: “We expect Endesa Chile to continue reporting strong earnings growth, due to firm electricity prices in all the countries it operates in, as well as its own capacity increases.”

Endesa Chile is rated BBB+ by ratings agency Standard & Poor’s.

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Utilities tend to do well in good times and bad even in a recession people need light to read but utilities in emerging markets offer the kind of high growth potential and low risk that gets investors buzzing. This is the case with the well-run Chilean utility Endesa...
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Friday, 10 Jun 2011 02:49 PM
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