Published:
October 13, 2008
Based in Chile, Endesa Chile (NYSE:
EOC, $30.60) generates and sells
electric power in five South American countries: Chile,
Argentina, Columbia, Brazil and Peru. In total, EOC owns 51
plants with a total generating capacity of 12,899 megawatts.
Endesa Chile's biggest advantage over competitors is that 62% of
its generation capacity consists of hydroelectric power plants.
Unlike coal or gas-fired plants, there is no fuel cost with
hydroelectric facilities; therefore, the rising cost of most
energy commodities in recent years has had only a limited effect
on EOC's generation costs. Of course, drought conditions can
impact the company's ability to generate power.
In the U.S. and other developed countries, growth in electricity
demand is slow and steady. However, in emerging markets the
growth in demand is far faster. For example, in the
first half of 2008, Peruvian electricity demand jumped more than
+10% year-over-year while Brazilian demand was up just shy of
+4%.
To take advantage of continued strong growth in its core
markets, EOC has plans to expand its generating capacity by
roughly 2,000 megawatts over the next five years; nearly half
that new capacity is already under construction. That new
generation will be a combination of new hydroelectric
facilities, a handful of large wind power projects and, of
course, coal and gas-fired facilities.
My staff and I also like Endesa Chile's business mix between
regulated and unregulated power generation. The regulated
businesses offer the company a steady and dependable return on
capital. Meanwhile, spot power prices have been generally rising
in EOC's core markets in recent years due to strong demand and
insufficient generating capacity growth. Therefore, unregulated
sales of electricity give the company upside earnings potential.
Action to Take --> Endesa
Chile offers investors exposure to strong growth in electricity
demand in South America, but also offers defensive
characteristics. The stock looks like a solid "Buy" candidate
under $40 per share.
Paul Tracy
Editor
StreetAuthority
Market Advisor
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Virginia, has appeared as a guest expert on several prominent financial radio
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Paul graduated with a B.S. in Finance and Management from the McIntire School
of Commerce at the University of Virginia.
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