Equatorial now has potential for a 40% increase in the stock market

Bradesco BBI raised its recommendation for Equatorial EQTL3 from neutral to buy with a target price of R$43, which is equivalent to a potential upside of 40% until the close of last Friday. According to analysts, the internal rate of return is being negotiated at a value close to 11%. This is 4.60 percentage points, a high value above the yield on long-term debt securities in Brazil, and this is something attractive given Equatorial's high quality.

Quality of service tends to increase with updates

Alexandre Silveira, Minister of Mines and Energy, brought to light on the 20th the bases of the decree that will regulate new contracts for electricity distributors, which are expected to expire or involve intervention in companies that do not fulfill their obligations. Analysts updated their estimates so that they can incorporate opex/capex with investments made more quickly so that it is possible to improve the quality of services related to distribution networks, in addition to increasing sales volume in the short or medium term, resulting in positive trends in demand and stubbornly high temperatures.Finally, Equatorial has a history of good capital allocation and we note that the consolidation of the distribution sector in Brazil is not yet fully complete.”, says Alexandre Silveira, Minister of Mines and Energy.

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_{Electric power towers (Photo: Reproduction/Anton Petrus/Getty Images Embed)}

Analysts say Equatorial has a quality asset

Analysts also state that the company has a quality asset with an excellent position and the tendency for growth to continue to occur given better capital allocation discipline.

“In this scenario of uncertainty, in our opinion, the winners among public services companies will be those companies with high standards of corporate governance, which will be able to develop opportunities for organic growth.“, analysts say.

The recommendation takes into account Equatorial's stake in Sabesp (SBSP3). The electric company paid R$67 per share, equivalent to R$6.8 billion, for 15% in the company that will become the controlling shareholder of the basic sanitation company in São Paulo.

Featured photo: Electric Power Tower (Reproduction/Equatorial Energia Elétrica)