Equatorial’s common shares (EQTL3) closed up 7.75%, quoted at R$ 26.97, after the electric company announced the purchase of Celg-D, energy distributor in Goiás, for R$ 7.5 billion, divided into BRL 5.7 billion of assumed debt and BRL 1.6 billion in payment to Enel.
The company shares go against the Ibovespa, with analysts seeing the operation in a positive way – the main index of the Brazilian stock exchange fell by more than 2%, in a session of generalized fall on the B3.
“At first glance, the deal looks positive, as Equatorial, which is paying, in our estimation, a multiple of 1, taking into account the company’s market value and regulatory asset base (RAB, in the acronym in English), with the buyer being traded at 1.7x”, wrote the Bradesco BBI analysis team, headed by Francisco Navarrete, mentioning a discount on the valuation from Celg-D.
According to them, the distributor, in its base scenario, should have an equity value between R$ 2.6 billion and R$ 3.5 billion.
“Our base case includes unearned capex billings [despesas de capital] of around 20% for investments made since the last tariff review in 2018, of approximately R$1.4 billion, classified as ‘other’ investments by Enel, which brings uncertainty about the inclusion in the RAB calculation for the October review of 2023”, they point out.
“In addition, we also take into account that there will be no significant cuts in opex [despesas operacionais]as we see Celg’s concession area similar to the distributor Energisa Mato Grosso”.
Credit Suisse also sees the movement as positive, saying that the consensus takes into account a RAB between BRL 6.7 billion and BRL 7.5 billion, with a multiple ranging from 1 to 1.3 – with 13% to 14 % of other earnings. The bank, however, says it awaits information on how the operation will be financed.
Equatorial recently made a follow on in which it raised BRL 2.8 billion and has more than BRL 10 billion in cash, which will likely be used to pay for the acquisition.
In general, the comments, outside the valuation, are that the acquisition is positive in the operational scope, as Equatorial makes its largest acquisition in a state that has repressed demand for energy and that grows above Brazil.
Equatorial (EQTL3) says debt payment is contracted
During a conference call with analysts, Augusto Miranda, CEO of Equatorial, said that the debt payment is already 100% contracted. “This mitigates the suitability of the operation in a scenario of macroeconomic volatility”, he said.
According to Equatorial, the debt will be paid within 12 months after closing of the operation. The remainder, of R$ 1.6 billion, will be paid with equity.
Enel, which sold the asset, had a difficult relationship with the government of Goiás due to the services provided and faced the risk of having the concession revoked. The Italian obtained the concession in 2018.
Miranda made a point of saying, in the presentation of the acquisition of Equatorial’s new asset, that the “priority will be to advance in the strengthening of the relationship with the government and community, and mainly in the quality of the energy supply”.
CELG-D major operation
CELG-D became Equatorial’s biggest asset in terms of number of customers: 3.3 million. Miranda highlighted the distributor’s high growth potential in Goiás, as it still has a long concession period (until 2045) “with attractive returns”.
The CEO pointed out that the proximity of the Goiás distributor to the tariff review (scheduled for October 2023) will bring significant growth in Ebitda to the company.
The start of operation of CELG-D should occur by the end of the year or beginning of 2023, according to Equatorial. This is the company’s first operation in the Midwest and the seventh distributor to enter the company’s portfolio.
“It will be the asset with the least commercial complexity”, said the executive. “We carried out the acquisition in perfect time, with mature transmission and distribution assets, with the exception of CEEE-D with turnaround”, he added.
“It was also the biggest acquisition move ever made by the company,” said the CEO. “This acquisition is a transformational move for our company,” he added.
He also said that the acquisition “strengthens the company’s role in the national system as a distributor”.