Brazil Utilities Won’t Be Hurt by Accounting Change, Itau Says

Brazilian utility stocks shouldn’t be hurt by regulators’ reported plans to adopt international accounting rules, according to Itau Unibanco Holding SA.

Aneel, Brazil’s electricity regulator, plans to adopt international accounting standards that may prevent certain assets from being booked on utilities’ balance sheets, Valor Economico said yesterday. The report spurred a 1.1 percent drop in utility companies in the MSCI Brazil Index, the biggest decline among the 10 industry groups.

The rules “may reduce or increase the value of the fixed assets, but it will not impact free cash flows, thus causing the valuation of utility companies to remain unaffected,” Itau analyst Sergio Tamashiro wrote in an note dated yesterday. “If investors in today’s trading session were upset about the potential negative effects of changing accounting procedures, we recommend them to buy utility stocks.

Sao Paulo-based Tamashiro said there are “good buy opportunities” among utility companies, including Companhia Energetica de Sao Paulo. Brazil’s third-largest electricity- generation utility, known as Cesp, slid 5.4 percent yesterday.

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