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Light Rises as Itau Says Buy on Valuation, Earnings Outlook

Light SA, Brazil’s second-cheapest power utility on a price-to-earnings basis, rallied as Itau BBA recommended buying the stock after the company increased its projection for earnings through 2016.

Shares rose 5.1 percent to 15.77 reais at the close of trading in Sao Paulo, the biggest one-day advance since June 13. The stock was the second-best performer on the MSCI Brazil/Utilities index, which added 2.8 percent.

Light’s decline this year is “exaggerated” by excessive pessimism on how much regulators will allow the company to charge its customers, Itau analysts Marcos Severine, Mariana Coelho and Gabriel Laera wrote in a research note to clients yesterday. “The stock seems to have reached an attractive point at which we believe a worst-case scenario is already more than priced in.”

The utility, which has dropped 29 percent this year, traded today at 5.92 times its estimated earnings in the next 12 months, about one-third the average of Brazilian electricity companies, according to data compiled by Bloomberg. That is the lowest level after Cia. Energetica de Sao Paulo.

Light said yesterday in a regulatory filing that it expects earnings before interest, taxes, depreciation and amortization to grow at an average annual pace of 8 percent and reach 1.98 billion reais ($900 million) in 2016. Ebitda rose 18 percent in 2012 to 1.46 billion reais. Itau projects Ebitda of 1 billion reais this year and 1.48 billion reais in 2014.

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