Empresa Nacional de Electricidad Chile: Utility Value in a ‘Green’ Generation Play
Paul Price submits:
Endesa Chile (EOC) is an electrical power producer in Chile that handles 36% of the installed base capacity covering 9% of the Chilean population. They also operate in Argentina, Peru, Columbia and Brazil. Production is environmentally friendly with hydroelectric production at 70.7% , geo-thermal at 28.9% with the small remainder coming from wind. 
2009 proved to be a record year with earnings rising from $3.11 to $4.11/share. In fact, last year was the seventh consecutive year-over-year improvement. Here are EOC’s per share (except revenues) numbers as reported by Standard and Poors:
|
Year
|
Sales($Billions)
|
Earnings
|
Dividends
|
Book Value
|
Avg. P/E
|
|
2002
|
1.366
|
0.01
|
0.03
|
7.55
|
NMF
|
|
2003
|
1.331
|
0.48
|
0.08
|
9.41
|
27.5x
|
|
2004
|
1.699
|
0.55
|
0.08
|
10.43
|
27.5x
|
|
2005
|
2.012
|
0.73
|
0.14
|
11.69
|
33.5x
|
|
2006
|
2.522
|
1.27
|
0.31
|
12.39
|
24.0x
|
|
2007
|
3.308
|
1.35
|
0.58
|
13.88
|
32.5x
|
|
2008
|
4.787
|
3.11
|
0.79
|
13.55
|
13.5x
|
|
2009
|
4.310
|
4.11
|
1.02
|
16.62
|
10.5x
|
As EOC’s fundamentals have improved their valuation has contracted. At yesterday’s close of $49.04 their multiple is < 12x trailing earnings and less than 11.6x consensus views of $4.24 – $4.39 for 2010. Preliminary estimates for 2011 now run $4.74 /share.
While I don’t expect to see 20+ P/E’s again I do think it’s likely that EOC can command at least the 13.5x multiple that was the previous low before the late 2008 – early 2009 market meltdown. A rebound to even that conservative level could bring these shares back up to $57.24 or 16.7% above the current quote.
Add in the $1.02 dividend and its 2.08% yield and this regulated utility play could see a total return of almost 20% by year end. While not spectacular, it looks pretty good in a world where short term rates are near zero.
Is my $57.24 goal attainable? EOC shares traded as high as $56.20 already in 2010 and peaked at $57.45 in September of 2008. If the expected growth continues into 2011, a thirteen and a half multiple would bring a share price of about $64 by early 2012.
Empresa Nacional de Chile looks like an environmentally sound play that can ‘generate’ solid total returns.
Disclosure: Author is long EOC shares.
Investing, Long Term Investment, stock market | admin February 24, 2010
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