Colectora-Cuestecitas And Guayepo Solar Projects Will Expand Transmission And Renewable Capacity

Key Takeaways

• Strategic investments in infrastructure and completion of transmission projects will enhance operational capacity and drive long-term revenue growth.
  
• Expansion into under-served regions, along with diversifying energy sources, is set to boost revenue and improve net margins.
  
• Challenging macroeconomic conditions and high leverage expose the company to financial risks, including currency volatility and regulatory impacts on margins and revenues.

Catalysts

Operates in the electric energy and natural gas sectors in Colombia, Peru, Guatemala, and Brazil.

• The completion of key transmission projects, such as the Colectora-Cuestecitas and Refuerzo Suroccidental, will significantly enhance transmission capacity, potentially leading to increased revenue and improved operating efficiencies.
  
• Expansion into under-served regions, especially in Peru, with projects like the Cálidda initiative, could drive considerable growth in customer base and revenue from natural gas distribution.
  
• The Guayepo solar park projects (I, II, and III) are poised to bolster energy generation capacity with sustainable sources, likely driving future revenue growth and positively impacting net margins through diversification.
  
• Strategic investments in infrastructure, reflected in the projected 5-year CapEx increase, are expected to strengthen the group's operational capacity and long-term earnings through enhanced service delivery.
  
• The divestment or sale progress of underperforming assets, such as the Windpeshi power plant, and anticipated renegotiation benefits in sectors like Guatemala, are key to improving net margins and overall financial health.

Grupo Energía Bogotá E.S.P Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Grupo Energía Bogotá E.S.P's revenue will decrease by -4.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 30.8% today to 47.4% in 3 years time.
• Analysts expect earnings to reach COP 3222.7 billion (and earnings per share of COP 344.39) by about January 2028, up from COP 2433.9 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.7x on those 2028 earnings, up from 9.9x today. This future PE is greater than the current PE for the CO Gas Utilities industry at 7.3x.
• Analysts expect the number of shares outstanding to grow by 0.64% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.35%, as per the Simply Wall St company report.

Grupo Energía Bogotá E.S.P Future Earnings Per Share Growth

Risks

• The challenging macroeconomic environment, including water deficits and regulatory changes in Colombia's energy sector, could increase operational costs and impact net margins.
  
• A decrease in adjusted EBITDA due to lower dividends from Enel, affected by issues like the impairment of the Windpeshi power plant, highlights potential volatility in earnings.
  
• High leverage levels, with a significant portion of debt in USD, could expose the company to currency risk and impact net income if exchange rates fluctuate unfavorably.
  
• Regulatory interventions and an unprecedented increase in energy prices may create market instability, affecting revenue and financial health of some agents within the sector.
  
• Slow progress in resolving gas supply uncertainties in Colombia could limit the company’s ability to capitalize on gas distribution growth, potentially impacting revenue streams.

Valuation

• The analysts have a consensus price target of COP3150.0 for Grupo Energía Bogotá E.S.P 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 COP3800.0, and the most bearish reporting a price target of just COP2500.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be COP6797.0 billion, earnings will come to COP3222.7 billion, and it would be trading on a PE ratio of 13.7x, assuming you use a discount rate of 14.3%.
• Given the current share price of COP2625.0, the analyst's price target of COP3150.0 is 16.7% higher.
• 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.