SABESP Q2 Earnings Beat Ests.

Zacks

Sao Paulo, Brazil-based Companhia de Saneamento Basico do Estado de Sao Paulo or SABESP (SBS) reported 23.5% year-over-year increase in its net earnings for the second quarter of 2013 on Aug 13, 2013.  Earnings in the quarter came in at R$0.53 per share (or 26 cents per ADR) versus R$0.43 per share (or 22 cents per ADR) in the year-ago quarter.

Result for the quarter was 52.9% above the Zacks Consensus Estimate of 17 cents per ADR.

Revenue

SABESP generated roughly R$2,796.3 million (US$1,357.4 million) in net revenue in the quarter, up 13.0% year over year, driven by higher water supply, sewage collection and treatment.

Billed water and sewage volume in the second quarter 2013 went up 3.5% year over year to 918.1 million cubic meters. Of the total volume reported, roughly 57.6% represented water variation and about 42.4% came from sewage. The increase in billed water and sewage volume was due to higher number of connections and acceleration in consumption.

Water loss rate was at 25.3% versus 25.9% in the prior year quarter. Water volume produced decreased 1.1% year over year; water connections crept up 2.7% and sewage connections rose 3.4%.

Margins

SABESP reported a 10.5% year-over-year increase in its cost of sales and services while as a percentage of revenues it stood at 61.9% versus 63.3% in the year-ago quarter. Gross margin in the quarter was at 38.1%. Operating expenses, including selling and administrative, increased 22.9% year over year and represented 12.5% of the total revenue.

Adjusted EBITDA in the quarter was around R$911.4 million (US$442.4 million), up 14.1% year over year with a margin of 32.6%.

Balance Sheet

Exiting the second quarter 2013, SABESP had a cash and cash equivalents balance of approximately R$1,669.1 million (US$748.5 million), down 21.5% from R$2,127.0 million (US$1,053.0 million) in the previous quarter. Loans and financing increased 3.4% sequentially to R$8,260.2 million (US$3,704.1 million).

Cash Flow

SABESP’s net cash generated in the quarter decreased 12.4% to R$761.5 million (US$369.7 million). Capitals spent on purchase of property, plant and equipment increased 71.0% to R$3.6 million (US$1.8 million).

Following its second quarter 2013 earnings announcement, SABESP maintained its position as one of the largest water and sewage services providers in the world, serving roughly 24.4 million customers for water and 21.2 million for sewage.

SABESP currently holds a Zacks Rank #5 (Strong Sell). While we advise investors to avoid SABESP, Consolidated Water Co. Ltd. (CWCO) with a Zacks Rank #1 (Strong Buy),  SJW Corp. (SJW) and Pure Cycle Corporation (PCYO), each with a Zacks Rank #2 (Buy), appear attractive.
 

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