CELSIA
ANALYSIS BANCOLOMBIA: COLOMBIAN EQUITY RESEARCH – Cover Update
Utilities I March 24, 2015
Beyond Borders
BUY
In this report we update our coverage of Celsia based on the latest available financial
information and the inclusion of the assets acquired from GDF in Central America. As a
result we adjust the target price for 2015 from COP6,860/share to COP6,650/share (-3%),
which implies a 30% upside potential from the current market price and leads us to
maintain our BUY recommendation.
Summary
It is important to note that the reduction in the target price is mainly due to changes in the
assumptions for some operational variables and has nothing to do with the incorporation
of the assets acquired from GDF in Central America, which in addition to providing value
strategically contribute to the company’s generation portfolio. The drop in the TP is mainly
due to: i) EPSA’s lower projected generation, from an average of 3,989GWh/year to
3,441GWh/year, more in line with the company’s average power generation, ii) lower
projected generation for Celsia’s and Zona Franca Celsia’s assets, from an average of
2,534GWh/year to 1,808GWh/year on expectations of lower thermo activity in the energy
market due to the increased participation of hydropower in the National Interconnected
System (Sistema Interconectado Nacional, SIN) given the start of operation of projects
like Sogamoso (820MW), El Quimbo (400MW) and Ituango (2,400MW), and iii) lower
operating margins in Celsia and Zona Franca Celsia due to fuel costs, both natural gas
and liquid fuel.
52-Week Range (COP)
Market Cap. (COPmn)
Outstanding Shares (mn)
Float (excluding AFPs) (mn)
12-Month Average Daily Volume (COPmn)
Expected Return
Dividend Return
Total Return
Bloomberg
Free Option: Extra Growth via Porvenir II
The valuation does not include the Porvenir II hydroelectric project (352 MW) since the
approval of the environmental permit is not ready yet and therefore there’s no green light
for the construction or the closing of the transaction to purchase Proesas’ shares, which
owns the rights for the project. Thus, it is noted that Celsia has opportunities for organic
growth via Porvenir II, while their continued inorganic expansion in either Colombia or
region can’t be ruled out.
Fundamental Strength
We confirm our positive view on Celsia because of: i) the interesting and diversified asset
portfolio, which allows them to balance business, generation technology, geography and
foreign exchange risks, ii) balance in their generation technologies (48% hydro , 50%
thermal and 2% wind) which offers the flexibility needed in case of extreme weather
conditions, iii) integrated energy portfolio that offers stability in cash flows generation and
greater efficiency, iv) growth potential, and v) attractive upside potential.
Multiples (COP mn)
Revenues
Operating income
EBITDA
Net Income
P/E
EV/EBITDA
Price/BV
Dividend yield
2014
2015E
2016E
2017E
2018E
2,588,781
745,530
894,289
170,528
3,197,293
763,483
950,505
218,745
2,897,016
633,559
834,670
174,044
3,073,794
729,352
934,630
208,343
3,218,618
800,518
1,007,997
269,674
24.8
10.1
1.2
1.9%
16.4
9.3
1.0
2.3%
20.7
10.4
1.0
2.4%
17.3
9.2
1.0
2.5%
13.3
8.4
1.0
2.5%
Source: Bancolombia
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Target Price (COP)
Previous Price (COP)
Closing Price (COP) Mar 20, 2015
Upside Potential
6,650
6,860
5,100
30%
4,585 – 6,620
3,669,881
719.6
322.4
284.5
30.4%
2.2%
32.6%
CELSIA CB
CELSIA vs. COLCAP (Dec. 2013=base 100)
120
110
100
90
80
70
Dec-13
Mar-14
Jun-14
CELSIA
Aug-14
Nov-14
COLCAP
Source: Bancolombia, Bloomberg
Analysts
Name:
Phone:
E-mail:
Juan Camilo Dauder
(574) 6049821
[email protected]
Name:
Phone:
E-mail:
Diego Alexander Buitrago
(571) 7463984
[email protected]
Feb-15
CELSIA | Utilities
March 24, 2015
Valuation Summary
Figure 1 – EPSA’s Power Generation (GWh)
Our valuation is based on a Sum-of-the-Parts model in which each of Celsia’s assets
(EPSA, ZF CELSIA, Celsia Individual and Central America) was individually assessed
through a DCF model.
4.500
4.000
Table 1 – Valuation Summary SOTP (COPmn)
Assets
EPSA (COP mn)
Celsia Individual+ZF Celsia (COP mn)
Central America Assets (COP mn)
Equity Value (COP mn)
Outstanding shares
Price per share (COP)
Previous
Current
2,685,843
2,251,138
4,936,981
2,314,911
1,522,563
948,588
4,786,063
719,584,500
6,860
719,584,500
6,650
WACC
3.500
g%
9.9%
10.0%
8.5%
3.5%
3.5%
3.0%
3.000
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Previous
Current
Source: Bancolombia
Source: Bancolombia.
Key Points in the Valuation
Figure 2 – Generation Celsia + ZF Celsia (GWh)
EPSA: EPSA’s valuation shows a 13.8% decrease compared to the previous
model as the generation of the company was adjusted downward 13.7%
annual on average, from an average of 3,989GWh/year to 3,441GWh/year.
This because the information source (XM MPODE Model) yielded for EPSA a
generation that significantly exceeded the expected average generation of
3,450GWh/year including the Cucuana project (55MW).
4.000
3.500
3.000
2.500
2.000
Additionally, an impact on margins is expected due to fuel costs, both gas and
liquid fuel. In this regard, it is anticipated that the quantities of gas to be
contracted by Celsia may decrease along with the use of their thermal plants,
but contracting costs of natural gas may increase given the characteristics of
this market. Moreover, the backup using liquid fuel will also increase costs.
2
2
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Previous
Current
Source: Bancolombia
Figure 3 – Projection of Consolidated Revenues (COPmn)
5.000.000
50%
4.000.000
40%
3.000.000
30%
2.000.000
20%
1.000.000
10%
Revenues
Source: Bancolombia
EBITDA Margin
2019E
2018E
2017E
2016E
2015E
2014
0%
2013
-
2012
Consequently, the lower projected generation has a direct implication in the
projection of the amount of energy sold, in both contracts and the spot market,
and therefore estimated revenues and earnings are affected. In this sense, it is
estimated that contract sales of Celsia + ZF Celsia will go up from 1,410GWh
in 2014 to 1,500GWh in 2017 and will remain stable in the long term, allowing
forecasting a ratio of power sales of 61% contracts and 39% spot market.
1.000
2011
Celsia + ZF Celsia: This block of valuation shows a decrease of 32% vs. the
previous model mainly because of declining cash (USD234mn) used to pay
part of the USD794mn of the acquisition made in 2014. However, discounting
this effect, the value falls only 7.4% because excluding this factor power
generation was adjusted downward 19% annual on average, from an average
of 2,534GWh/year to 1,808GWh/year. This is explained by the expectation of
lower activity of thermal plants in the energy market resulting from the greater
share of hydropower in the National Interconnected System (SIN) with projects
like Sogamoso (820MW), El Quimbo (400MW) and Ituango (2,400MW).
1.500
2010
Consequently, the lower projected generation has a direct implication in the
projection of the amount of energy sold, in both contracts and the spot market,
and therefore estimated revenues and earnings are affected. In this sense,
stability in contract sales is expected compared to that reported in 2014, and a
ratio of power sales of 59% contracts and 41% spot market is estimated.
CELSIA | Utilities
March 24, 2015
Assets acquired in Central America: The perfecting of the transaction took
place on December 1st, 2014, and therefore from that date only the operation
of the assets acquired was consolidated. Regarding the amount of the
transaction, Celsia transferred USD565mn to GDF Suez and prepaid a loan
worth USD229mn, for a total of USD794mn in resources used. This value was
funded with own resources for USD234mn and bank loans for USD560mn in
very favorable conditions for Celsia in terms of agreed interest rates (Libor 6M
+ 1.48%), taking the Net Debt/EBITDA indicator from 0.9x to 3.5x.
Regarding the business strategy of assets in Panama, we stress that they
exhibit a high level of contracting (80%-90%), which favors the predictability of
revenues but increases the risk before power shortages under extreme
drought events or unavailability of plants, a factor that would eventually force
to increase energy purchases.
Based on the information released by Celsia, a DCF model was ran from
which we highlight an annual compound growth of 2.6% for the projection
period, EBITDA margin of 25%, a WACC of 8.5% in COP which is lower than
EPSA’s 9.9% and Celsia’s and ZF Celsia’s 10% due to the lower debt cost and
the leverage with which the acquisition was structured in Central America.
Figure 4 – Installed Capac ity Pre-adquisition
Figure 5 – Installed Capac ity Post-adquisition
2%
44%
Hydro
48%
Thermal
50%
56%
Total: 1,777 MW
Total: 2,312 MW
Source: Bancolombia
Tax Reform: Regarding the wealth tax, the impact has been caused every
year in the income statement according to what the company said in the 4Q14
conference call.
Tariff revision: The valuation model does not consider any impact of the tariff
revision for the transmission and distribution activities proposed by the CREG
since the proposed comprehensive resolution isn’t out yet. However, we
reiterate not to be expecting a significant negative impact as revenues subject
to be affected represent about 10% of total.
Expectations 2015: Celsia’s performance this year will depend largely on
exogenous factors such as: i) the occurrence of El Niño, due to the relevance
of their thermal assets in the Colombian electricity market, and the effect this
phenomenon may have on the price of energy (to date, the outlook is uncertain
given the changing weather conditions, although we highlight the decrease in
the probability of occurrence of El Niño, from 80% by mid-2014 to 55% in
February 2015, according to the IRI model), and ii) the behavior of oil prices
which has implications in the way the benchmark spot market price of energy
is defined in Panama.
3
Hydro
Thermal
Wind
3
CELSIA | Utilities
March 24, 2015
As for the company’s business strategy, the same levels of contracts seen in
2014 are expected, both in Celsia and EPSA, while the activity in the spot
market will depend on the opportunities that emerge. At this point, it must be
noted that the entry into operation of the Sogamoso hydroelectric project
(820MW) will be crucial to moderate the behavior of the spot market price.
Regarding the estimated 2015 capex, the company said investments will
depend on the decision made regarding the projects of the expansion plan
such as Porvenir II and interventions to assets in Central America. However,
consolidated investments are expected to reach COP230,000mn linked to
replacement, operation and maintenance in the normal course of business.
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CELSIA | Utilities
March 24, 2015
Multiples
Before analyzing the multiples is important to note there’s a distortion because the EV
considers the totality of assets acquired in Central America but earnings and EBITDA only
consolidate a month of operations so the EV/EBITDA and RPG multiples look enriched
vs. their peers. Importantly, the increase in net debt/EBITDA indicator should be noted
which went from 0.9x in 3Q14 to 3.5x at the end of 2014 due to the debt contracted to
fund the acquisition of assets in Central America.
Table 2 – Comparable Multiples
Company
EV / EBITDA
LIGHT
CPFL ENERGÍA
CEMIG
ELETROBRAS
COPEL
TRANSM ALIAN
ENERSIS
EEB
AVERAGE
CELSIA
5.4
10.8
5.1
N/A
6.0
9.0
6.2
10.5
8.0
9.2
P/E
P / BV
4.5
25.6
5.5
N/A
7.9
8.2
16.3
14.0
12.8
21.5
0.8
2.9
1.3
0.2
0.7
1.8
1.6
1.5
1.4
1.1
EBITDA
Margin
18.1%
20.2%
29.2%
-8.7%
15.7%
83.8%
31.7%
60.8%
33.3%
34.3%
ROE
18.7%
11.2%
21.9%
-11.9%
9.3%
21.2%
9.9%
10.9%
11.3%
4.9%
Net Debt to
EBITDA
3.6
4.3
1.9
N/A
2.1
3.0
0.8
2.3
2.4
3.5
Yield
12.3%
5.2%
25.4%
21.5%
6.8%
13.5%
3.0%
3.9%
10.7%
2.2%
Source: Bloomberg, Bancolombia
Figure 6 – EV /EBITDA Fw d 12M
Figure 7 – P/E Fw d 12M
13
50
40
11
30
9
20
7
10
5
Mar-11
Mar-12
EV/EBITDA Fwd
Mar-13
-1SD
Mar-14
Average
Mar-15
0
Mar-11
+1SD
Mar-12
RPG fwd
Source: Bancolombia
5
5
Mar-13
-1SD
Mar-14
Average
Mar-15
+1SD
CELSIA | Utilities
March 24, 2015
Equity Sales
Equity Research
Rupert Stebbings
Jairo Agudelo
Equity Markets Vice President
Head of equity research
[email protected]
[email protected]
+574 6045138
+574 6047048
Natalia Agudelo Parra
Juan Camilo Dauder Sánchez
Equity Sales
Head Energy Analyst
[email protected]
[email protected]
+574 6045144
+574 6049821
Maria Paula Cortés Durán
Fixed Income
Head Financial & Small Cap
[email protected]
Pablo Caicedo
+571 353 6600 ext. 37387
VP International Business
[email protected]
Diego Buitrago Aguilar
+571 488 6000
Energy Analyst
[email protected]
Economic Research
+571 7463984 ext. 37307
Juan Pablo Espinosa
German Zúñiga Saavedra
Head of Economic Research
Infrastructure and Industry Analyst
[email protected]
[email protected]
+571 7463991 ext. 37313
+574 6047045
Alexander Riveros
Federico Perez Garcia
Senior Economist
Oil & Gas Junior Analyst
[email protected]
[email protected]
+571 7463980 ext. 37303
+574 6048172
Research Assistant
Claudia Restrepo
Research Editor
[email protected]
+574 404 3809
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CELSIA | Utilities
March 24, 2015
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