Yesterday before market opened, Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (SBS), one of the largest water and sewage service providers in the world based on the number of customers, announced encouraging results for the third quarter of 2009.
During the quarter, net operating revenue totaled R$ 1.6 billion, a 2.3% increase compared to the same quarter in 2008. Costs and expenses stood at R$ 1.2 billion, 11.1% higher than the same period in the previous quarter.
EBITDA dropped 11.5% year over year to R$ 617.1 million from R$ 697.4 million in the third quarter of 2008. Earnings before financial expenses (EBIT) decreased 30.2% year over year, from R$ 662.5 million to R$ 462.6 million in the quarter. During the quarter, gross operating revenue grew R$ 31.9 million, or 1.9%, from R$ 1.72 billion in the same period of 2008 to R$ 1.75 billion in the third quarter of 2009.
The main reasons for this increase were the 0.2% tariff adjustment as of September 2009 and the 0.7% growth in total billed volume. We are keeping our Outperform recommendation on SABESP ADRs unchanged at this stage. The short-term outlook for the company is solid, due to the September 2009 tariff adjustment and the recent appreciation of the Brazilian real.
The more relaxed monetary policy in Brazil is also very encouraging. Moreover, the company’s non-cyclical and relatively low risk business model are also positive. The overall regulatory regime for water and sewage utilities in Brazil has improved considerably in recent times, reducing the regulatory risk of the industry in general and SABESP in particular.
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