We recently upgraded our recommendation on Companhia Paranaense de Energia (ELP), also known as COPEL, from Neutral to Outperform.
Copel is one of the leading Brazilian electric utility companies, which accounts for approximately 7.0% of total electricity production in the region with nearly 99% of its production derived chiefly from hydroelectric sources.
With the economy reviving gradually from the global crisis, demand for electricity is seen to be rising, especially in emerging countries like Brazil. Consequently, the country’s economy is also growing with large investments being made to improve its infrastructure and power generation capabilities.
According to the Ministry of Mines and Energy’s (MME) ten-year plan till 2019, energy consumption in Brazil is expected to rise by 5.9% annually with hydroelectric plants being the main source of power. A decision has been taken to raise Brazil’s total installed capacity for electricity generation from 112 megawatts to 167 megawatts by 2019 and contribution of hydroelectric power from 83 megawatts to 117 megawatts.
In accordance with the company’s recently announced capital investment plans for 2011, R$1,024.8 million were allocated for generation and transmission, R$933.3 million for distribution and R$102.4 million for telecommunications.
Moreover, we believe end of tariff discount policy is favorable for the company. Besides, uncertainties related to political interference have abated with the election of Beto Richa as the governor of Parana for the 2011-2014 term. The newly elected governor aims at improving management and operational practices of the company.
Growth momentum, however, can get restricted due to rising operating expenses, including a rise in electricity purchased for resale, costs for materials and supplies, and higher raw material and supplies for electricity generation.
Considering all these factors and expecting improvements and good performance in the quarters ahead, we upgrade Copel from Neutral to an Outperform recommendation.
COPEL-ADR PR B (ELP): Free Stock Analysis Report
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