Positive on COPEL

Last week, Companhia Paranaense de Energia - COPEL (ELP - Analyst Report), posted positive results for the second quarter with a 5.9% increase in revenues (in Brazilian reals). The company has a strong balance sheet with net debt of just R$136 million (US$28 million) at the end of the quarter.
 
Net income was down 18.9% year over year (in Brazilian reals). The result reflects the slower growth in the market in comparison to the year-ago period due to the impact of the economic crisis on industrial customers.
 
Residential consumption increased 5.1%, industrial consumption was down 4.8% in the captive market, commercial segment consumption rose 7.3% and rural consumption was up 7.8%. But, power consumption by free customers fell 16.9% year over year due to decrease in power demand from free customers.
 
Commercial, residential and rural data indicate a good economic environment in the State of Paraná. Moreover, the company’s results could improve in the medium term due to the continued investments in the generation segment as in-house generated energy is much cheaper than the energy purchased for resale.
 
The outlook for future growth in electricity consumption in Brazil remains positive. According to ANEEL (Brazilian National Agency for Electric Utilities), the demand for electricity in Brazil is expected to increase by 4.5% in the coming years. COPEL accounts for 6% of all the electricity produced in Brazil, and Paraná is a one of the most important states in terms of industrial and agricultural production. We believe COPEL and Companhia Energetica de Minas Gerais or CEMIG (CIG - Analyst Report) are among the best-positioned companies in the Brazilian electric utility sector and should benefit from the positive trends in the Brazilian economy in the medium- to long-term.
 
As an electric utility, we understand that COPEL will be less affected by the crisis due to its non-cyclical nature. Further, the dividend yield and strong cash flow generation make it attractive.

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