SABESP Beats on Q4 Earnings

Zacks

Sao Paulo, Brazil-based Companhia de Saneamento Basico do Estado de Sao Paulo, or SABESP (SBS) reported a year-over-year decrease of 22.8% in its net earnings to R$590.7 million (US$260.2 million) or R$0.86 per share. Earnings per American Depository Receipt (:ADR) were 38 cents, ahead of the Zacks Consensus Estimate of 29 cents.

In 2013, earnings per share were R$2.81 (or $1.31 per ADR). The bottom-line result was better than the Zacks Consensus Estimate of $1.20 per ADR.

Revenue

SABESP generated net operating revenue of R$3,101.9 million (US$1,366.5 million) in the quarter, up 4.3% year over year. It was driven by demand for higher water supply, sewage collection and treatment.

Billed water and sewage volumes in fourth-quarter 2013 were up 3.5% year over year to 961.2 million cubic meters. Of the total volume reported, roughly 57.2% represented water variation and about 42.8% came from sewage. The increase in billed water and sewage volumes were due to higher number of connections and acceleration in consumption.

Water loss rate was 24.4% in 2013 versus 25.7% in 2012. Water volume produced decreased 0.2% year over year; water connections crept up 2.7% and sewage connections rose 3.5%.

In 2013, revenues generated were R$11,315.6 million (US$5,263.1 million), up 5.4% year over year.

Margins

SABESP’s costs, administrative, selling and construction expenses in fourth-quarter 2013 were R$2,241.8 million, up 4.3% year over year and as a percentage of revenue were 72.3%. Adjusted earnings before interest, tax, depreciation and amortization (:EBITDA) in the quarter was around R$1,131.8 million (US$498.6 million), up 11.4% year over year with a margin of 36.5%.

Balance Sheet

Exiting fourth-quarter 2014, SABESP had cash and cash equivalents of approximately R$1,782.0 million (US$758.3 million) versus R$1,828.8 million (US$820.1 million) in the previous quarter. Loans and financing increased 5.1% sequentially to R$8,809.1 million (US$3,748.6 million).

Cash Flow

In 2013, SABESP generated net cash from operating activities of R$2,777.2 million (US$1,291.7 million), up 18.5% year over year. Capital spent on purchase of property, plant and equipment increased 76.9% to R$30.7 million (US$14.3 million).

During 2014−2015, SABESP plans to invest R$12.8 billion, of which roughly 30.5% will be invested in water projects while the rest will be invested in sewage projects.

SABESP currently has a $6.2 billion market capitalization and holds a Zacks Rank #1 (Strong Buy). Following its fourth-quarter 2013 earnings announcement, the company has maintained its position as one of the largest water and sewage services providers in the world, serving roughly 24.6 million customers for water and 21.5 million for sewage.

Other companies to watch out for in the industry include Middlesex Water Co. (MSEX), American States Water Company (AWR) and Connecticut Water Service Inc. (CTWS). While Middlesex Water and American States Water carry the same rank as SABESP, Connecticut Water Service holds a Zacks Rank #2 (Buy).
 

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