Enersis SA: Financial Turnaround

by: Dylan Waller

Summary

Enersis SA has a strategic and dominant position in Latin America's utilities industry, which has had significant growth in electricity consumption.

2015 marks the beginning of a financial turnaround for the company, as the company had a significant increase in net income and net revenue; future growth through 2016 is projected.

The company is also a solid pick for value investors seeking a company with relative low valuation and a dominant position in Latin America.

Now is a strategic time to investigate the future potential of Chile based Enersis SA (ENI), which is the largest electricity provider in South America. Apart from its main area of operation, the company also operates in the telecommunications and real estate industries. The strengths of this opportunity are found both in the company and industry:

  • Electricity consumption in Latin America is on track for high growth, and is especially high in Chile, where the company is based; the company is present in 30 countries.
  • The company recently had excellent financial performance in 2015, a strategic recovery from past performance between 2012-2014.
  • The company is an excellent pick in its industry and sector, based on its extensive operations and valuation.

Company Growth

2012

2013

2014

Number of Generating Units

193

199

208

Installed Capacity

14,781

15,847

16,868

Generated Electricity (GWh)

57,405

60,083

60,299

Energy Sales (GWh)

65,913

69,368

69,230

Number of clients

14,013,882

14,381,085

14,767,818

The company has been able to achieve consistent growth in productivity between 2012 and 2014 in a wide variety of areas:

  • 7.8% growth in generating units
  • 14.1% growth in installed capacity
  • 5% growth in generated electricity
  • 5% growth in energy sales
  • 5.4% growth in clients

Source: 2014 Annual Report (Spanish)

Industry Outlook in Latin America

Latin America is a strategic place for companies in this industry to operate, as Latin America stands out based on past performance and future outlook, while there are concerns for other areas such as Italy and Eastern Europe. While Latin America holistically stands out as having high growth in electricity consumption, Chile specifically has the most positive outlook. Electricity consumption in Chile is projected to grow at an annual rate of 6 to 7% until 2021.

Industry/Sector Comparison

Company

Industry

Sector

P/E

13.3

14.09

10.81

P/B

1.51

1.33

1.77

P/S

1.25

1.52

1.74

Beta

0.74

1

0.78

Current Ratio

1.24

1.18

2.17

ROE

13.54%

12.82%

20.02%

ROA

7.61%

3.19%

8.69%

Dividend Yield

6%

2.88%

3.66%

Source: Reuters

Overall Enersis SA has a very favorable standing in its industry and sector, and can easily be classified as a solid pick for investors; the company's forward P/E of 10.83 further solidifies this opportunity. Its valuation is average for its industry, as well as its ROE and ROA. Its dividend yield of 6% is extremely impressive, even though there is a dividend withholding tax of 20.13%. The company is relatively volatile, and has fell by 17.19% during the past 52 weeks, despite excellent financial performance this year. The company can therefore be classified as having excellent financials, and is further solidified based on its dominant position in Latin America, a strategic geographical site for this industry.

Financial Performance: 2012-2014(Thousands of USD)

2012

2013

2014

Net Revenue

13,567,154

11,922,059

11,953,327

Net Income

1,865,106

2,118,947

1,594,291

Source: Yahoo Finance

Financial performance between 2012 has not been very impressive, with a consistent decline in net income and net revenue. The company's net revenue declined by 11.9% during this period, and its net income also declined by 14.5%. Despite this area of concern, the company fared much better during 2015, with substantial growth during the 1st quarter and 1st half of 2015:

A wide variety of positive drivers attributed to the growth that the company experienced during this year, representing a major reconciliation from past financial performance:

  • Improved operating performance and lower general taxation
  • Power generation increased by 2.6% and energy sales increased by 2.1%.
  • The company increased its customer base by 2.7%
  • Positive performance in Chile, in addition to the effects of taking over Gas Atacama last year.

2015 marks a significant financial turnaround point for the company, yet further growth is projected throughout 2016:

  • Reuters projects that EPS will increase by 14.3% by the end of this year, and will continue to increase by 8.3% at the end of 2016.
  • Sales are projected to increase by 4.8% between the end of 2015 and the end of 2016.
  • The company has a 1 year target estimate of 18.66, a far cry from its current price of 13.97

Conclusion

Enersis SA is a very strategic way to gain exposure to the utilities industry in South America, which has been a strategic geographical location for this industry. Moreover, the financial turnaround during 2015 further solidifies this as a solid pick for this industry; continued growth is projected until the end of 2016. The company is trading extremely close to its 52 week low, and has ample room for growth in the future; the 1 year target estimate of 18.66 represents a 33.6% increase in its current price.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.