Analysts Project PE Ratio To Exceed BR Renewable Energy Industry Average Despite Stable Share Count

Key Takeaways

• Completion and operation of new projects boost capacity and may enhance future revenue.
  
• ESG enhancements and market expansion signal strong strategic positioning, potentially increasing brand value and revenue stability.
  
• Strong operational performance, sustainable practices, and strategic financial positioning enhance Engie Brasil Energia's future revenue potential, market appeal, and financial stability.

Catalysts

Generates, sells, and trades in electrical energy in Brazil.

• Early completion and operation of new projects such as the Assú Sol Photovoltaic Complex and Assuruá led to increased installed capacity and power generation, potentially boosting revenue in the future.
  
• Inclusion in the Dow Jones Sustainability Emerging Markets Index and improvements in ESG practices could enhance Engie's brand value, attracting more investors and positively influencing earnings.
  
• The company's expansion into new markets and increased customer base in the free market demonstrate forward-looking commercial strategy changes that may lead to higher revenue stability and growth.
  
• Anticipated full operational status of significant projects like the Serra do Assuruá suggests future revenue boosters due to increased operational capacities.
  
• Strategically leveraging financials with careful management of debt and financial structure could optimize financing costs and net margins, supporting future earnings growth.

Engie Brasil Energia Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Engie Brasil Energia's revenue will decrease by 0.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 38.1% today to 21.4% in 3 years time.
• Analysts expect earnings to reach R$2.4 billion (and earnings per share of R$3.12) by about April 2028, down from R$4.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.2x on those 2028 earnings, up from 7.5x today. This future PE is greater than the current PE for the BR Renewable Energy industry at 21.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 18.05%, as per the Simply Wall St company report.

Engie Brasil Energia Future Earnings Per Share Growth

Risks

• Engie Brasil Energia has increased its gross energy production by 24% compared to '23, indicating strong operational performance that could positively impact future revenues and earnings.
  
• Fitch Ratings reaffirmed Engie Brasil Energia’s AAA long-term national rating, which positions the company favorably for new projects and could support stable or improved financials due to lower financing costs and increased capability to attract investment.
  
• The company became a component of the Dow Jones Sustainability Emerging Markets Index, reflecting its commitment to sustainability and strong ESG performance, which can enhance its appeal to environmentally conscious investors, potentially improving its stock valuation and market trust.
  
• Engie Brasil Energia reported significant adjusted EBITDA growth of over 18% for Q4 '24 and 20% for the year, primarily driven by higher contribution from generation and transmission segments, as well as equity income from acquisitions, suggesting robust operational efficiency and favorable impact on net profit and margins.
  
• With a strategic focus on short-term contracting in their commercial strategy to mitigate market volatility, Engie Brasil Energia protects its revenue streams from market downturns, which could help stabilize or enhance profit margins in the future.

Valuation

• The analysts have a consensus price target of R$39.786 for Engie Brasil Energia based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$44.7, and the most bearish reporting a price target of just R$33.92.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$11.2 billion, earnings will come to R$2.4 billion, and it would be trading on a PE ratio of 22.2x, assuming you use a discount rate of 18.0%.
• Given the current share price of R$39.4, the analyst price target of R$39.79 is 1.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.