Brazilian utility Cemig (NYSE:CIG)
is a good case in point that emerging market utilities don't always
offer that higher growth/lower volatility mix that investors often seem
to expect. There are certainly a lot of company-specific challenges for
Cemig, including an ongoing fight over retaining concessions to three
sizable hydropower generating assets, aggressive cost reduction
guidance, and worries that management is pursuing low-return
investments. On top of those, Cemig faces hydrology risks, political
uncertainty, and economic risks in Brazil.
Since my last piece
on March 20, these shares have been pretty volatile - jumping almost
50% (for the local shares) before a nearly 25% sell-off. There would be
further upside from here if Cemig's legal efforts to retain its
hydropower concessions prevail and the company does have additional spot
exposure to the Brazilian electricity market, but with the valuation
close to a weighted average base case scenario I'm not thrilled about
the risk-reward balance.
Read more here:
Cemig's Wild Ride Continues
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