Endesa Chile [NYSE:EOC - $49.04] is an electrical power producer in Chile that handles 36% of the installed base capacity covering 9% of the Chilean population. They also operate in Argentina, Peru, Columbia and Brazil. Production is environmentally friendly with hydroelectric production at 70.7% , geo-thermal at 28.9% with the small remainder coming from wind.
2009 proved to be a record year with earnings rising from $3.11 to $4.11/share. In fact, last year was the seventh consecutive year-over-year improvement. Here are EOC’s per share (except revenues) numbers as reported by Standard and Poors:
Year | Sales($Billions) | Earnings | Dividends | Book Value | Avg. P/E |
2002 | 1.366 | 0.01 | 0.03 | 7.55 | NMF |
2003 | 1.331 | 0.48 | 0.08 | 9.41 | 27.5x |
2004 | 1.699 | 0.55 | 0.08 | 10.43 | 27.5x |
2005 | 2.012 | 0.73 | 0.14 | 11.69 | 33.5x |
2006 | 2.522 | 1.27 | 0.31 | 12.39 | 24.0x |
2007 | 3.308 | 1.35 | 0.58 | 13.88 | 32.5x |
2008 | 4.787 | 3.11 | 0.79 | 13.55 | 13.5x |
2009 | 4.310 | 4.11 | 1.02 | 16.62 | 10.5x |
As EOC’s fundamentals have improved their valuation has contracted. At yesterday’s close of $49.04 their multiple is< 12x trailing earnings and less than 11.6x consensus views of $4.24 - $4.39 for 2010. Preliminary estimates for 2011 now run $4.74 /share.
While I don’t expect to see 20+ P/E’s again I do think it’s likely that EOC can command at least the 13.5x multiple that was the previous low before the late 2008 – early 2009 market meltdown. A rebound to even that conservative level could bring these shares back up to $57.24 or 16.7% above the current quote.
Add in the $1.02 dividend and its 2.08% yield and this regulated utility play could see a total return of almost 20% by year end. While not spectacular, it looks pretty good in a world where short term rates are near zero.
Is my $57.24 goal attainable? EOC shares traded as high as $56.20 already in 2010 and peaked at $57.45 in September of 2008. If the expected growth continues into 2011, a thirteen and a half multiple would bring a share price of about $64 by early 2012.
Empresa Nacional de Electricdad Chile looks like an environmentally sound play that can ‘generate’ solid total returns.
Disclosure: Author is long EOC shares.
