In the "one of these things is not like the others" game, Companhia de Saneamento Basico do Estado do Sao Paulo, or SABESP (and/or "Sabesp") (NYSE:SBS) is definitely different than other liquid Brazilian utility stocks like CEMIG (NYSE:CIG), COPEL (NYSE:ELP), and CPFL Energia (NYSE:CPL) - Sabesp is a water and sewage utility, not an electricity generation/distribution company. In fact, Sabesp is one of the largest water and sewer providers in the world, and it is well positioned to grow with Brazil's growing population and expanding infrastructure needs.
The problem with Sabesp is making the numbers work for a bullish
investment case. The local shares are up more than 40% over the past
year, trouncing not only the electrical utilities but also other
water/sanitation companies like Copasa and Sanepar. Some
of this outperformance is understandable, as the company's reservoir
situation has improved significantly and the company is looking forward
to stronger regulated earnings power. That said, if nearly 8% long-term
revenue growth projections and mid-teens FCF margins isn't enough to
drive a compelling fair value (never mind the risk of a debt load that
is about 50% foreign currency-denominated), how much value can be here?
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Despite Improving Conditions, It's Hard To Call Sabesp A Value Stock