Companhia de Saneamento Basico (SBS): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report
Summary:
We find the long-term growth prospects of SABESP very compelling. With population in Brazil increasing, the demand for better water and sewage services is on the rise. Exiting third-quarter 2014, the company recorded year over year growth of 2.9% and 4.2%, respectively, in population directly served for water and sewage services. Also, the company holds a 30-year contract for providing services to the Municipality of S o Paulo and the state government. By 2020, the company targets achieving 100% water and 95% sewage coverage ratio. Considering these positives, we upgrade our recommendation on SABESP from Underperform to Neutral. The upgrade was limited due to presence of near-term headwinds such as rising expenses, foreign currency translation risks and governmental interference.
Overview:
Companhia de Saneamento Basico do Estado de S o Paulo, or SABESP (SBS), provides public water and sewage services in the state of S o Paulo, Brazil, which includes S o Paulo, one of the largest cities in the world. Exiting third-quarter 2014, the company distributed water to approximately 25.2 million people and provided sewage services to more than 22.2 million people. SABESP's principal shareholder is the S o Paulo government, which owns nearly 50.3% of the company's shares.
At the end of third-quarter 2014, SABESP's water and sewage connections were approximately 8.2 million and 6.6 million, respectively. As for the company's total retail sales volume (water and sewage) in the third quarter, residential, commercial, industrial and public-sector customers accounted for 84.7%, 10%, 2.5% and 2.8% respectively. Geographically, metropolitan and regional businesses generated 65.4% and 34.6% of the company's retail sales volume.
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