Tags: ENI | EOC | ELE | Enersis | Chile | Latin America | energy

Enersis: A Strong Latin Energy Play

By    |   Tuesday, 24 May 2011 02:44 PM

Emerging markets are popular with investors these days but, until recently, Asian countries like China and India got most of the attention. Latin America has been mostly ignored, but that is changing as the region’s strong growth is turning heads.

And what could be better than a utility with solid fundamentals and a diversified portfolio that minimizes risk?

The power utility that fits the bill is Enersis (ENI), headquartered in Chile and owned by Spain’s Endesa (ELE), which is in turn owned by Italian energy giant Enel SpA (ENEL).

Enersis is one of the largest private-sector power utilities in the region in terms of operating revenues, with generation, transmission and distribution assets in Chile, Argentina, Brazil, Colombia and Peru.

As these economies continue to outpace global growth rates, their demand for electricity is projected to rise. Enersis, which serves 13 million customers in the region, is positioned to cash in.

Enersis plans to invest $6 billion through 2015, about half of which will be spent on new generation capacity, CEO Ignacio Antonanzas said in a recent conference call.

Enersis’ generation business is run through its subsidiary Endesa Chile (EOC), which has close to 15,000 megawatts (MW) of capacity in the region, a third of which is in Chile.

Endesa Chile is partnering with fellow generator Colbún to develop the 2,750 MW HidroAysen project in southern Chile, which was recently approved by local environmental authorities, although the transmission line that will transport power to Santiago has yet to be approved.

Enersis reported net profits of $205 million in the first quarter of 2011, up 4.3 percent year-on-year due to lower non-operational expenses, partially offset by higher generation costs in Chile and Argentina and a tax increase in Colombia.

Operational revenues were 7 percent higher year-on-year, at $3.3 billion, on higher revenues from all three businesses — distribution, generation and transmission.

In Chile alone, revenues were up 13.3 percent, as a drop in physical sales due to lower hydroelectric generation was more than compensated by higher average energy prices.

Chile recently endured a severe drought that forced the government to reduce voltages and extend daylight saving time by a couple of months to stop reservoirs from drying up.

The drought shrank Endesa Chile’s sales in the first quarter but its under-contracted commercial policy and generation mix, split roughly evenly between hydro and thermoelectric capacity, has reduced its exposure.

Bullish outlook

Despite retreating in the first quarter, Enersis’ ADR has gained more than 15 percent in the last 12 months and is trading at a discount of around 30 percent compared to analysts' target price of $30.02.

Tomas Gonzalez, an analyst at Chilean investment bank Celfin Capital, recommends the stock: “We maintain our positive view on Enersis, and our buy recommendation. We believe it is strongly positioned for the coming years.”

He is not alone in his enthusiasm. Marcelo Catalán of local brokerage Bci Estudios also recommends investors load up on Enersis.

“The company’s solid fundamentals and its stable cashflow are based on a conservative commercial policy and a favorable geographic diversification,” he said.

The share price has not fully internalized the company’s growth prospects, he added.

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Emerging markets are popular with investors these days but, until recently, Asian countries like China and India got most of the attention. Latin America has been mostly ignored, but that is changing as the region s strong growth is turning heads. And what could be better...
ENI,EOC,ELE,Enersis,Chile,Latin America,energy,utility,stocks,investing
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2011-44-24
Tuesday, 24 May 2011 02:44 PM
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