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Empresa Nacional de Chile - Utility Value in a ‘Green’ Generation Play

February 24, 2010 | About:
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.

About the author:

Dr. Paul Price
http://www.RealMoneyPro.com
http://www.TalkMarkets.com
http://www.MutualFunds.com

Visit Dr. Paul Price's Website


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