Eletropaulo Metropolitana Eletricidade de Sao Paulo SA fell the most among stocks in Brazil’s benchmark index on prospects that an electricity rate cut will curtail earnings and dividend payments.
Eletropaulo, the Brazilian distribution unit of AES Corp., tumbled 10 percent to an almost four-year-low of 22.96 reais. The Bovespa index rose 2 percent.
Brazil’s power regulator Aneel cut the amount Eletropaulo charges customers by 9.3 percent as President Dilma Rousseff’s government seeks to stem inflation and boost growth. The decrease means Eletropaulo probably won’t be able to pay dividends, said Ricardo Correa, an analyst at Rio de Janeiro-based brokerage Ativa SA.
“The cut is big and because it was delayed, the entire earnings of this past year will be impacted,” Correa said today by telephone. “That means there will be rather small cash generation this year.”
A regulatory audit had recommended an 8.8 percent reduction. The quadrennial review was delayed by a year as the regulator discussed a new system of revising prices.
The decrease comes into effect tomorrow, Aneel Director Nelson Hubner said in an interview yesterday in Brasilia. The average inflation-adjusted impact for consumers will be a 2.3 percent decline, Aneel said in a separate announcement today.
The ruling prompted Banco Santander SA to trim Eletropaulo’s 12-month share price estimate to 20.55 reais from 36.30 reais.
Santander forecast a 60 percent decline in earnings before interest, taxes, depreciation and amortization over the next year and kept its rating at underperform amid prospects that dividends will “almost disappear,” analysts Marcio Prado, Danilo Vitti and Carolina Carneiro, said in a client note today.
“Eletropaulo’s fundamentals have deteriorated significantly with the confirmation of a tough tariff revision,” the Santander analysts wrote.
The stock has lost 37 percent this year compared with the Bovespa’s 1.5 percent decline.
Eletropaulo, based in Sao Paulo, has the highest dividend yield among Brazilian companies worth $500 million or more, according to data compiled by Bloomberg.