Companhia Paranaense Underperforms – Analyst Blog

Companhia Paranaense de Energia (ELP) posted an EPS of R$0.82 or EPADR of 46 cents per share for the first quarter of 2010, down from an EPS of R$0.99, or EPADR of 43 cents in the first quarter of 2009. Reported EPADR have missed the Zacks Consensus Estimate of 52 cents.

 

Net income for the quarter was R$224.0 million (US$125.4 million), down from R$272.1 million (US$117.0 million) in the same quarter of 2009, based on higher operating expenses.

 

Net revenues grew to R$1,500.9 million (US$840.5 million) from R$1,356.6 million (US$583.3 million) in the first quarter of 2009, an increase of 10.6% from the year-ago quarter. The growth was attributable to an increase in the average price per megawatt hour (MWh) and higher sales volume.

 

Sales volume to final consumers improved 17.2% year over year with residential volume increasing 17.8/%, industrial 16.4%, commercial 19.0% and rural 18.0%. The main reason for the increase was a higher demand.

 

Operating expenses as a percentage of revenues hiked 12.3% mainly due to higher cost of electricity. EBITDA dropped to R$323.8 million (US$181.3 million) from R$468.2 million (US$201.3 million) in the year-ago quarter. EBITDA margin dipped 12.9% and reached 21.6% from 34.5% in the first quarter of 2009.

 

As on March 31, 2010, the company’s net cash position was R$169 million (US$94.6 million) from R$23.0 million (US$13.3 million) at the end of the previous quarter.

 

Despite discouraging results during the first quarter, we remain optimistic based on the potential for electricity demand in Brazil. Despite the continued global economic downturn, we have a reasonably positive view of the Brazilian economy. However, the government’s intervention appears to be a problem. Moreover, the company faces competitive pressures in the Brazilian market and its revenues are highly dependent on natural water resources, which is risky. Thus, we reiterate the ADR as Neutral.