Friday, March 21, 2014

Seeking Alpha: CEMIG Walking A Fine Line In A Challenging Market

Older investors can likely remember a time when those who wanted to invest in emerging markets had few choices outside of telecom, bank, and utility companies. Nowadays there is a much larger menu of choices and sectors like utilities have had to do deal with the same sort of regulatory and growth issues that affect their developed market peers.

In the case of CEMIG (or "Cemig") (CIG), Brazil's second-largest utility has the advantage of a sizable distribution and transmission business to offset risks in the generation business, but the company is looking at the loss of sizable generating concessions and a much more aggressive regulatory environment. It also does not help matters that Brazil's electricity sector appears to be moving toward oversupply and that management is willing to allocate capital to projects with IRRs only basically in line with the company's cost of capital.

That said, the market's valuation of Cemig already reflects a lot of these challenges. Moreover, even if the future isn't likely to be as profitable as the past, this is a company with a good history of free cash flow generation and returns on capital relative to its sector. Management seems committed to paying a healthy dividend and these shares don't look very expensive today.

Read more here:
CEMIG Walking A Fine Line In A Challenging Market

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