Sabesp shares rise on tariff hike approval

Published October 12th, 2017

Shares in listed Brazilian water concessionaire Sabesp initially outperformed the local iBovespa index earlier this week on news that the regulator in its home state of São Paulo had approved a tariff increase of 7.9%.

The hike is encouragingly higher than the 4.7% which had initially been proposed, and came alongside an incremental increase in the allowable weighted average cost of capital, to 8.11%.

Analysts believe there is still some steam left in the name, with BTG Pactual maintaining its target price of BRL36 on the stock, and Janney having recently upgraded the company to a ‘buy’.

“We keep our Buy rating, as we see potential value unlocking from: (i) the discussion with municipalities; (ii) RAB revision; (iii) passthrough of municipality costs (April 2018); and (iv) enhanced corporate governance if a new strategic shareholder partners up with São Paulo state in the HoldCo,” wrote BTG Pactual analyst João Pimentel.