There are valid reasons for Brazilian utilities to still be trading well below past valuation levels. Electricity demand continues to fall in the weak economic climate, spot generation prices have plunged, and interbank interest rates in the mid-teens really hurt an industry that relies on debt for a substantial percentage of capital. Add in the risks that go with heavy state ownership, and I can understand why COPEL (NYSE:ELP) has been weak, falling about 14% from my last update on the company.
I believe this integrated generation, transmission, and distribution
company is undervalued today. Management has made some bad decisions and
let investors down with its execution recently, but the shares seem to
assume a level of future pricing that just doesn't make sense to me.
While there are near-term risks from weak spot prices and a mid-year
rate review, I believe the shares are undervalued below $11/ADR.
Read more here:
COPEL Will Take Its Licks In 2016, But The Future Is More Promising