Companhia de Saneamento Basico do Estado de Sao Paulo, or SABESP (SBS), reported encouraging results for the fourth quarter and full-year 2009.
During the quarter, net income increased to R$457.3 million (US$104.1 million) from R$113.3 million in the same quarter of 2008. EPS was R$2.01 (US$2.30), up from R$0.50 (US$0.44) in the year-ago quarter. Reported EPADR was well above the Zacks Consensus Estimate of $1.39.
During 2009, net income was R$1,373.9 million (US$785.1 million), up from R$63.6 million (US$34.6 million) earned during 2008. The company reported an EPS of R$6.03 (US$6.00), up from R$0.28 (US$0.30) in the previous year. EPADR surpassed the Zacks Consensus Estimate of $4.73.
Increase in net come was based on increase in revenue and decrease in total cost and expense.
During the fourth quarter, net operating revenues reached R$1,964.1 million (US$1,122.3 million), up from R$1,835.6 million (US$801.6 million) in the fourth quarter of 2008, representing a 7.0% increase year over year.
During full-year 2009, net operating revenues reached R$7,236.2 million (US$3,600.1 million), up from R$6,838.8 million (US$3,716.7 million) in the previous year, representing a 5.8% increase year over year.
During the fourth quarter, total water and sewage billed volumes increased 3.4% year over year. During 2009, water and sewage billed volumes increased 2.5%.
During the quarter, total costs and expenses decreased 5.2% year over year, attributable to 50.1% decrease in depreciation & amortization expense. However, during 2009, expense increased 10.2% due to 32.3% increase in services expense.
During fourth quarter, EBITDA increased 13.9% year over year to R$834.3 million (US$476.7 million). EBITDA margin also increased to 45.7% from 43.0% in the same period of 2008. However, during full year, EBITDA decreased 3.5% year over year to R$2,741.7 million (US$1,364.0 million) with a margin of 40.7 % from 44.7% in 2008.
At the end of 2009, net debt was R$ 5,790.6 million, down 7.3% against 2008. Due to the amortizations and, mainly, the dollar devaluation, the total debt net balance decreased by R$305 million.
The short-term outlook for the company is solid, due to the September 2009 tariff adjustment. The more relaxed monetary policy in Brazil is also very encouraging.
The company’s non-cyclical and relatively low risk business model are also positive. The overall regulatory regime for water and sewage utilities in Brazil has improved considerably recently, reducing the regulatory risk of the industry in general and SABESP in particular. Thus, we maintain our Outperform recommendation on the ADRs.