Brazil’s Eletrobras may create up to US$6.5 billion in value with concession renewal – Goldman Sachs

RIO DE JANEIRO, BRAZIL – Goldman Sachs forecasts net present value (NPV) creation of R$28 billion to R$33 (US$6.5) billion for Eletrobras with the renewal of concessions. Eletrobras is the largest electric power company in Latin America.

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The bank’s report, signed by analysts Flávia Sounis and Pedro Manfredini, highlights that in another step towards the company’s privatization, the Ministry of Mines and Energy has set the compensation value for the hydroelectric plants included in the process at R$62.5 billion.

Of this total, R$23.2 billion will go to the federal government. However, analysts evaluate that a change in energy prices can represent a risk for the prices of these assets.

According to them, some points are not considered in the government’s calculation of the indemnity value for these assets, such as the incidence of tax benefits in some of them.

They reinforce that the government’s goal is to accomplish the privatization of Eletrobras in February next year, despite the challenges brought by the complexity of the process. “The elections in October may increase market volatility,” says the report.

Sounis and Manfredini point out that the company will have stable, low-risk cash flow over the next nine years, with an average free cash flow yield to equity of 12% between 2021 and 2029.

Goldman Sachs has a buy recommendation, with a target price of R$48 per common share, 27.6% above yesterday’s price of R$37.63. At this moment, the ON shares of Eletrobras are up almost 3%, at R$ 38.74.