We recently maintained a Neutral recommendation on Companhia Energetica de Minas Gerais (CIG), also known as CEMIG.
CEMIG is one of the largest integrated electric utilities in Brazil. It has more than 6,896 megawatts of installed generation capacity, deriving approximately 97% from hydroelectric power.
We believe the company stands at an advantageous position to benefit from the economic recovery in Brazil. In Brazil demand for electricity has been on a rising trend and is expected to get a boost as the country hosts two major sporting events in the years ahead.
Moreover, CEMIG’s location in the important state of Minas Gerais in south eastern Brazil as well as the company’s integrated nature of operation (generating and distributing energy) along with its aggressive expansion plan stands the company in good stead.
Over the long term, the company targets to achieve 20% market share in the various segments of the electricity market. Investments in the fiscal year 2011 and 2012 are expected to be approximately R$2.3 billion and R$1.1 billion, respectively.
Additionally, the company’s gas distribution business is also on the rise with Gasmig’s network now reaching 795 MW. Feasibility study is expected by 2012 for an additional 70 km pipeline in the Steel Valley project.
In spite of all these positive features, the strange rule by ANEEL and interference from the state government tend to be problematic. In addition, the company faces competitive pressures in the Brazilian market, especially from its peer Companhia Paranaense de Energia (ELP). Moreover, heavy dependence on natural water resources for top-line growth is risky.
Considering all these factors, we anticipate the company to perform in line with the market going forward.
CEMIG SA -ADR (CIG): Free Stock Analysis Report
COPEL-ADR PR B (ELP): Free Stock Analysis Report
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