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BRAZILIAN ELECTRIC POWER CO 6-K Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Centrais Electricas Brasileiras
,

Filing date:

03/14/2025

TLDR:

Eletrobras releases its 4th quarter 2024 results, highlighting a 4.2% increase in regulatory net operating revenue and a proposed dividend distribution of R$ 4,000 million.

ELI5:

Eletrobras, a big power company in Brazil, made more money overall, but its profits from its main business didn’t grow as much because costs went up. They’re planning to give a lot of money back to shareholders, but they also face some risks from changing rules and managing their expenses.

Accession #:

0001292814-25-000918

Published on

Analyst Summary

  • Gross Revenue increased by 17.3% YoY, while Net Operating Revenue increased by 21.2% YoY.
  • Regulatory Net Operating Revenue increased by 4.2% YoY.
  • EBITDA increased significantly by 376.7% YoY, while Adjusted EBITDA increased by 22.8% YoY.
  • Adjusted Regulatory EBITDA decreased by 6.4% YoY, attributed to higher energy purchase costs, lower transmission revenue, and increased PMSO.
  • Net Income increased by 24.5% YoY, while Adjusted Net Income decreased by 54.7% YoY.
  • Investments decreased by 40.1% YoY due to the completion of the Coxilha Negra project and improved management of SPE contributions.
  • Proposed dividend distribution of R$ 4,000 million related to the 2024 results, marking the largest shareholder remuneration in its history.
  • Gross Profit Margin decreased by 9.1% to 37.8%, while Operating Profit Margin increased by 27.1% to 53.5%.
  • Net Profit Margin increased by 118.6% to 25.8%, and Return on Equity (ROE) increased by 117.9% to 8.5%.
  • The company is focused on reducing legacy legal liabilities, particularly related to compulsory loans.

Opportunities and Risks

  • Regulatory Risks: Changes in regulations, particularly related to tariff adjustments and concession contracts, can significantly impact revenue.
  • Litigation Risks: Ongoing legal proceedings, especially those related to compulsory loans, represent a substantial financial liability.
  • Cost Management: Rising energy purchase costs and PMSO expenses can erode profitability.
  • Investment Levels: Decreased investments may hinder future growth and competitiveness.
  • Generation Growth: Increasing energy demand and favorable pricing in the free market (ACL) present opportunities for revenue growth in the generation segment.
  • Liability Management: Successful reduction of legacy legal liabilities can improve financial stability.
  • Operational Efficiency: Optimizing PMSO expenses and improving cost management can enhance profitability.
  • ESG Initiatives: Continued focus on clean energy sources and ESG performance can attract investors and improve the company’s reputation.

Potential Implications

Company Performance

  • Cost optimization is crucial to offset the decrease in adjusted regulatory EBITDA.
  • Strategic investments are needed to ensure future growth and competitiveness.
  • Active management of regulatory risks is essential to maintain revenue stability.
  • Continued efforts to reduce legacy legal liabilities are necessary to improve financial stability.

Stock Price

  • The proposed dividend distribution could positively impact the stock price.
  • Concerns about cost management and decreased investments may negatively affect investor sentiment.
  • Successful resolution of legal proceedings and improved financial stability could boost investor confidence.
  • Positive developments in ESG initiatives may attract socially responsible investors.

Eletrobras 4Q24 Earnings Report Analysis

Executive Summary

This report analyzes the 6-K filing of Centrais Elétricas Brasileiras S.A. – Eletrobrás for the fourth quarter of 2024. The company experienced mixed results, with regulatory net operating revenue increasing slightly, but adjusted regulatory EBITDA declining. Investments decreased significantly year-over-year. A proposed dividend distribution represents a significant portion of the parent company’s net income. Overall, the company shows resilience in generation revenue but faces challenges in transmission and cost management. Further analysis is needed to assess the long-term impact of regulatory changes and investment strategies.

Company Overview

Centrais Elétricas Brasileiras S.A. – Eletrobrás is a Brazilian electric power company operating in generation and transmission. The company operates under both IFRS and regulatory accounting standards. Recent developments include the incorporation of Furnas and ongoing adjustments related to the privatization process.

Detailed Analysis

Financial Statement Analysis

Key Financial Highlights

  • Gross Revenue: Increased by 17.3% YoY to R$13,914 million.
  • Net Operating Revenue: Increased by 21.2% YoY to R$12,025 million.
  • Regulatory Net Operating Revenue: Increased by 4.2% YoY to R$10,704 million.
  • EBITDA: Increased significantly by 376.7% YoY to R$5,027 million.
  • Adjusted EBITDA: Increased by 22.8% YoY to R$4,672 million.
  • Regulatory EBITDA: Increased by 90.6% YoY to R$5,444 million.
  • Adjusted Regulatory EBITDA: Decreased by 6.4% YoY to R$5,089 million.
  • Net Income: Increased by 24.5% YoY to R$1,112 million.
  • Adjusted Net Income: Decreased by 54.7% YoY to R$517 million.
  • Investments: Decreased by 40.1% YoY to R$2,775 million.

Key Ratios

  • EBITDA Margin: 41.8% (significant increase YoY).
  • Adjusted EBITDA Margin: 38.9% (slight increase YoY).
  • Net Debt/Adjusted LTM EBITDA: 1.5 (decreased from 2.1 YoY).

Trends

Revenue growth is evident across most segments, but profitability metrics show a mixed performance. The decrease in adjusted regulatory EBITDA despite revenue growth suggests rising costs. The significant decrease in investments could impact future growth.

Visual Aids

(Note: Due to the limitations of HTML-only output, actual charts cannot be rendered. The following are placeholders for where charts would be placed.)

[Placeholder for Chart: EBITDA Trend (Quarterly)]

[Placeholder for Chart: Net Debt/Adjusted EBITDA Ratio Trend]

Management’s Discussion and Analysis (MD&A) Insights

Key Takeaways

  • Management highlights the growth in generation revenue driven by higher prices and volumes.
  • The decrease in adjusted regulatory EBITDA is attributed to higher energy purchase costs, lower transmission revenue, and increased PMSO.
  • Investments decreased due to the completion of the Coxilha Negra project and improved management of SPE contributions.
  • The company is focused on reducing legacy legal liabilities, particularly related to compulsory loans.

Red Flags

  • The decrease in adjusted regulatory EBITDA despite revenue growth warrants further investigation into cost management.
  • The significant decrease in investments could impact future growth potential.
  • The ongoing legal proceedings related to compulsory loans represent a significant liability.

Uncommon Metrics

  • The report details energy sales in ACR, ACL, and Quotas, providing insights into the company’s contracting strategies.
  • The discussion of the Adjustment Portion (PA) in transmission revenue highlights the impact of regulatory mechanisms.
  • The detailed breakdown of PMSO expenses provides transparency into cost drivers.

Comparative & Trend Analysis

Historical Comparison

Compared to 4Q23, Eletrobras shows improved revenue and EBITDA figures. However, the decrease in adjusted regulatory EBITDA and investments raises concerns about long-term sustainability.

Peer Comparison

(Note: Without specific peer data, a general statement is provided.) Eletrobras’ performance should be benchmarked against other major Brazilian electric power companies to assess its relative position in the industry. Key metrics to compare include revenue growth, profitability margins, and investment levels.

Risk & Opportunity Assessment

Risks

  • Regulatory Risks: Changes in regulations, particularly related to tariff adjustments and concession contracts, can significantly impact revenue.
  • Litigation Risks: Ongoing legal proceedings, especially those related to compulsory loans, represent a substantial financial liability.
  • Cost Management: Rising energy purchase costs and PMSO expenses can erode profitability.
  • Investment Levels: Decreased investments may hinder future growth and competitiveness.

Opportunities

  • Generation Growth: Increasing energy demand and favorable pricing in the free market (ACL) present opportunities for revenue growth in the generation segment.
  • Liability Management: Successful reduction of legacy legal liabilities can improve financial stability.
  • Operational Efficiency: Optimizing PMSO expenses and improving cost management can enhance profitability.
  • ESG Initiatives: Continued focus on clean energy sources and ESG performance can attract investors and improve the company’s reputation.

Conclusion & Actionable Insights

Eletrobras’ 4Q24 results present a mixed picture. While revenue and EBITDA have improved, challenges remain in cost management and investment levels. The company’s focus on reducing legal liabilities is a positive sign, but regulatory risks and cost pressures need to be addressed. A Hold rating is appropriate at this time. Investors should monitor the company’s progress in cost optimization, investment strategies, and resolution of legal proceedings.

Recommendations:

  • Conduct a detailed analysis of cost drivers to identify areas for optimization.
  • Develop a clear investment strategy to ensure future growth and competitiveness.
  • Actively manage regulatory risks and engage with policymakers to advocate for favorable policies.
  • Continue efforts to reduce legacy legal liabilities and improve financial stability.

Financial Analysis

1. Commentary

Eletrobras’s financial performance in 4Q24 presents a mixed picture. Revenue increased, driven by strong performance in the free market and short-term energy sales. However, profitability metrics like Adjusted Regulatory EBITDA declined due to factors such as lower RAP and increased PMSO. The company proposed a significant dividend distribution, marking the largest shareholder remuneration in its history, while also managing to reduce its net debt.

2. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin

    • Metric: Gross Profit / Gross Revenue = 18,038.5 / 47,725 = 37.8% (using 12M24 data)
    • Trend: Previous year Gross Profit Margin = 18,485.4 / 44,475 = 41.6%. Change = (37.8 – 41.6) / 41.6 = -9.1%
    • Industry: The gross profit margin varies significantly across the utilities industry. A reasonable benchmark would be around 40-50% for integrated utilities. Eletrobras is slightly below this range.
  • Operating Profit Margin

    • Metric: EBIT / Net Operating Revenue = 21,500 / 40,182 = 53.5% (using 12M24 data)
    • Trend: Previous year Operating Profit Margin = 15,641 / 37,159 = 42.1%. Change = (53.5 – 42.1) / 42.1 = 27.1%
    • Industry: Operating profit margins for utilities typically range from 15% to 30%. Eletrobras is significantly above this range, likely due to regulatory remeasurements.
  • Net Profit Margin

    • Metric: Net Income / Net Operating Revenue = 10,381 / 40,182 = 25.8% (using 12M24 data)
    • Trend: Previous year Net Profit Margin = 4,395 / 37,159 = 11.8%. Change = (25.8 – 11.8) / 11.8 = 118.6%
    • Industry: Net profit margins for utilities are generally in the range of 5% to 15%. Eletrobras is above this range, indicating strong profitability.
  • Return on Assets (ROA)

    • Metric: Net Income / Total Assets = 10,381 / 289,871 = 3.6% (using 12M24 data)
    • Trend: Previous year ROA = 4,395 / 267,058 = 1.6%. Change = (3.6 – 1.6) / 1.6 = 125%
    • Industry: ROA for utilities typically ranges from 2% to 4%. Eletrobras is within this range.
  • Return on Equity (ROE)

    • Metric: Net Income / Total Shareholders’ Equity = 10,381 / 121,999 = 8.5% (using 12M24 data)
    • Trend: The filing states that the ROE for 12M23 was 3.9%. Change = (8.5 – 3.9) / 3.9 = 117.9%
    • Industry: ROE for utilities generally falls between 8% and 12%. Eletrobras is slightly below the average.
  • Earnings Per Share (EPS) – Basic and Diluted

    • Metric: Basic EPS = 4.56 (ON), 5.02 (PN) (using 12M24 data)
    • Trend: Previous year Basic EPS = 2.12 (ON), 2.34 (PN). Change ON = (4.56 – 2.12) / 2.12 = 115.1%. Change PN = (5.02 – 2.34) / 2.34 = 114.5%
    • Industry: EPS varies widely. It’s best compared to the company’s historical performance and competitor EPS.

Liquidity

  • Current Ratio

    • Metric: Current Assets / Current Liabilities = 64,451 / 31,630 = 2.04 (using 12/31/2024 data)
    • Trend: Previous year Current Ratio = 48,022 / 27,160 = 1.77. Change = (2.04 – 1.77) / 1.77 = 15.3%
    • Industry: A current ratio of 1.5 to 2.0 is generally considered healthy for utilities. Eletrobras is within this range.
  • Quick Ratio (Acid-Test Ratio)

    • Metric: (Current Assets – Inventory) / Current Liabilities = (64,451 – 441) / 31,630 = 2.02 (using 12/31/2024 data)
    • Trend: Previous year Quick Ratio = (48,022 – 427) / 27,160 = 1.75. Change = (2.02 – 1.75) / 1.75 = 15.4%
    • Industry: A quick ratio above 1.0 is generally considered acceptable. Eletrobras is well above this level.
  • Cash Ratio

    • Metric: (Cash & Cash Equivalents + Securities) / Current Liabilities = (26,573 + 8,952) / 31,630 = 1.12 (using 12/31/2024 data)
    • Trend: Previous year Cash Ratio = (13,046 + 5,920) / 27,160 = 0.70. Change = (1.12 – 0.70) / 0.70 = 60%
    • Industry: A cash ratio of 0.5 or higher is generally considered good. Eletrobras is above this level.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Metric: Total Liabilities / Total Shareholders’ Equity = (31,630 + 136,241) / 122,000 = 1.38 (using 12/31/2024 data)
    • Trend: Previous year Debt-to-Equity Ratio = (27,160 + 127,433) / 112,465 = 1.37. Change = (1.38 – 1.37) / 1.37 = 0.7%
    • Industry: A debt-to-equity ratio of 1.0 to 1.5 is common in the utilities sector. Eletrobras is within this range.
  • Debt-to-Assets Ratio

    • Metric: Total Liabilities / Total Assets = (31,630 + 136,241) / 289,871 = 0.58 (using 12/31/2024 data)
    • Trend: Previous year Debt-to-Assets Ratio = (27,160 + 127,433) / 267,058 = 0.58. Change = (0.58 – 0.58) / 0.58 = 0%
    • Industry: A debt-to-assets ratio of 0.5 to 0.6 is typical for utilities. Eletrobras is within this range.
  • Interest Coverage Ratio (Times Interest Earned)

    • Metric: EBIT / Interest Expense = 21,500 / 6,117 = 3.51 (using 12M24 data)
    • Trend: Previous year Interest Coverage Ratio = 15,641 / 6,464 = 2.42. Change = (3.51 – 2.42) / 2.42 = 45%
    • Industry: An interest coverage ratio above 2.0 is generally considered healthy. Eletrobras is above this level.

Activity/Efficiency

  • Asset Turnover

    • Metric: Net Operating Revenue / Total Assets = 40,182 / 289,871 = 0.14 (using 12M24 data)
    • Trend: Previous year Asset Turnover = 37,159 / 267,058 = 0.14. Change = (0.14 – 0.14) / 0.14 = 0%
    • Industry: Asset turnover for utilities is typically low, ranging from 0.1 to 0.2. Eletrobras is within this range.

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Metric: Market Cap / Net Income = (7.03 * Outstanding Shares) / 10,381. Assuming outstanding shares remain consistent with previous filings, we can estimate a market cap. However, without the exact number of outstanding shares, a precise P/E ratio cannot be calculated.
    • Trend: Cannot be determined without previous P/E ratio.
    • Industry: P/E ratios for utilities vary widely. It’s best compared to the company’s historical performance and competitor P/E ratios.
  • Price-to-Book Ratio (P/B)

    • Metric: Market Cap / Total Shareholders’ Equity = (7.03 * Outstanding Shares) / 121,999. Similar to the P/E ratio, a precise P/B ratio cannot be calculated without the exact number of outstanding shares.
    • Trend: Cannot be determined without previous P/B ratio.
    • Industry: P/B ratios for utilities typically range from 1 to 2.
  • Price-to-Sales Ratio (P/S)

    • Metric: Market Cap / Total Revenue = (7.03 * Outstanding Shares) / 47,725. A precise P/S ratio cannot be calculated without the exact number of outstanding shares.
    • Trend: Cannot be determined without previous P/S ratio.
    • Industry: P/S ratios for utilities are generally low, often below 1.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Metric: (Market Cap + Net Debt) / EBITDA = ((7.03 * Outstanding Shares) + 37,671) / 26,237. A precise EV/EBITDA ratio cannot be calculated without the exact number of outstanding shares.
    • Trend: Cannot be determined without previous EV/EBITDA ratio.
    • Industry: EV/EBITDA ratios for utilities typically range from 6 to 12.

Growth Rates

  • Revenue Growth

    • Metric: (Current Year Revenue – Prior Year Revenue) / Prior Year Revenue = (47,725 – 44,475) / 44,475 = 7.3%
  • Net Income Growth

    • Metric: (Current Year Net Income – Prior Year Net Income) / Prior Year Net Income = (10,381 – 4,395) / 4,395 = 136.2%
  • EPS Growth

    • Metric: (Current Year EPS – Prior Year EPS) / Prior Year EPS = (4.56 – 2.12) / 2.12 = 115.1% (Using Basic EPS (ON))

Other Relevant Metrics

  • Adjusted Regulatory EBITDA

    • Description: A non-GAAP metric that adjusts regulatory EBITDA for specific items to provide a clearer picture of underlying operating performance.
    • Calculation: Regulatory EBITDA adjusted for PMSO, Voluntary Dismissal Plan (PDV) – Provision, Severance Costs, Success fee for legal consulting related to the contingency reduction strategy, Provisions, ECL – Loans and financing, Onerous contracts, Estimated losses on investments, Impairment, Provision for the Implementation of Lawsuits – Compulsory Loan, and Other revenues and expenses.
    • Significance: Provides insight into the core profitability of the regulated business segments.
    • Trend: Adjusted Regulatory EBITDA decreased by 6.4% YoY (5,089 vs 5,434).
  • Investments

    • Description: Capital expenditures on generation, transmission, and other infrastructure projects.
    • Significance: Indicates the company’s commitment to maintaining and expanding its asset base.
    • Trend: Investments decreased by 40.1% YoY in 4Q24 (2,775 vs 4,632).
  • Shareholders’ Remuneration

    • Description: Dividends and share buybacks.
    • Significance: Reflects the company’s ability to return value to shareholders.
    • Trend: Proposed dividend distribution of R$ 4,000 million related to the 2024 results.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️