Eletrobras-Eletrobrás: Mixed Q2, But Shows Good Signs

Investment Thesis - Eletrobrás shares are recommended for purchase following the release of 2Q24 results, despite increased costs and reduced profits being viewed as isolated events [2][23] - The company is showing positive signs such as reduced operating expenses and a strategy focused on divesting non-core assets, which is expected to enhance its capital structure [2][19] Financial Performance - Eletrobrás reported a 9.1% annual increase in Regulatory Net Operating Revenue, reaching BRL 9.7 billion ( $1.74 billion), driven by revenue recognition from Amazonas Energy and a 10% increase in energy volume, despite an 11.8% drop in prices [4][10] - Total operating costs increased by 32.7% YoY to BRL 5.6 billion ($ 1 billion), primarily due to higher charges for electricity grid usage and increased costs for purchased energy [6][9] - The company experienced a 25.8% annual reduction in net income to BRL 61.5 million ( $110 million) due to higher operating costs and financial expenses [17][19] EBITDA and Margins - Eletrobrás achieved an adjusted EBITDA margin of 50.1%, reflecting a reduction of 9.1% compared to the previous year [9][11] - The EBITDA for 2Q24 was reported at BRL 4.43 billion, a decrease of 32.8% from the previous year [10][18] Debt and Capital Structure - The company ended 2Q24 with a net debt of BRL 45.2 billion, resulting in a leverage ratio of approximately 1.95x, which is considered healthy for its business model [12][14] - Proceeds from the sale of shares in ISA CTEEP, amounting to$ 403 million, are expected to further improve Eletrobrás' capital structure [14] Capital Expenditure - Eletrobrás announced a CapEx of BRL 2 billion ( $357 million) for 2Q24, with BRL 610 million ($ 109 million) allocated to the transmission segment, representing a 43% YoY increase [15][16] Valuation - Eletrobrás is currently trading at an EV/EBITDA multiple of 6.7x, below its historical average of 8.8x, indicating a potential appreciation of 31% [21]