Companhia Energetica de Minas Gerais (CIG), also known as CEMIG, through its wholly-owned subsidiary Cemig Geração e Transmissão S.A. (Cemig GT) will be acquiring a 49% stake in Lightger S.A, a special-purpose company controlled by Light. Lighter is responsible for the commercial operation of the Paracambi Small Hydro Plant.
The purchase price is fixed at approximately R$20.0 million in exchange for roughly 25.9 million common shares of Lightger. This equals to R$0.769482 per share. The acquisition has already been approved by ANEEL.
CEMIG is one of the largest integrated electric utilities in Brazil with more than 6,716 megawatts of installed generation capacity. Currently, the company is the fifth largest electricity generator in Brazil. Approximately 97% of the company’s installed generation capacity is hydroelectric power.
CEMIG has a strong balance sheet, proficiency in operations, a good market share position and attractive relative valuation compared with other international electric utilities. We believe the company also stands well positioned to benefit from the potential electricity demand in Brazil.
However, persistent interference from the state government, competitive pressures in the Brazilian market and high dependence on natural water resources tend to be problematic.
The company recently reported its second quarter 2010 financial results. Its earnings per share dipped to R$0.77 (US$0.43 per ADR) from the year-ago earnings of R$0.88 (US$0.42 per ADR) and the Zacks Consensus Estimate of US$0.47 per ADR.
Adjusted net income plummeted 13.0% year over year to R$477 million (US$265 million) due to higher operating expenses and lower revenues. Revenues fell 0.6% to R$2,954 million (US$1,641.1 million), while operating expenses surged 8% year over year to R$2,288 million. The company benefited from improved electricity sales, which improved 12.5% year over year to 16,768 GWh versus 14,905 GWh in the year-ago quarter due to higher consumption by all final customers.
We currently maintain a Neutral rating on the stock.
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