Enel Chile S.A. (ENIC)

I was on the earnings today and thought everyone would appreciate a synopsis.

Hydrological for 2022 looks much better as can be seen on the satellite pictures showing massive amounts of snow as compared to last year. Energy sales also increased by 10% vs last year. Q2/2022 vs. Q1/2021 EBITDA down by -54% from $203MN to $92MN due to +$100MN PPA sales + $12M ERNC, but more than offset by -$95M variable costs and -$147M spot prices of commodities. and +$21M gas margin and +$16M networks renumeration and demand and -$6M. other. It's really the higher commodity prices, exacerbated by CLP/USD exchange rate that is the root cause of a deteriorating EBITDA. But with spot prices expect to cool with the coming recession and exchange rate already improving, I am optimistic that H2/2022 will look better. With 2022 EBITDA guidance of $1.0 to $1.1B still maintained and reaffirmed. Net income for H1/2022 only down by -3% as the lower EBITDA was offset by +$59M financial result and +$49M taxes.

They will pay off their $1B debt 2023 maturity with the proceeds from the RIDICULOUS $1.345B (99.06%) sale of Enel Transmission at the end of this year and accelerate renewable energy investments, and so are comfortable with financial liquidity. The sale will be assessed a capital gains tax of about $350M to be paid next year but offset by about $110M loss carry-forward, the net tax liability should be about $240M. So the remaining $1.1B will be for payment of around $200M dividends on sale of Enel Transmission.

CFO states:

“We are optimistic on the second semester”.
“We are going to reduce our debt significantly”.

Dividend payout rate to remain at 30%, but dividend amount expected to increase to reflect the capital gain on the sale of Enel Transmission (about $200M dividends for this).

Of course, the ADR price is up exactly+50% since hitting its all-time low of $0.98 but on very thin trading of just about 692K ADRs 40mn before closing. Still today, any serious investor wanting to get in at this low price point should.

CEO stated they are going to “unlock the value” of the company and reduce debt which is still a little high. When asked if there was going to be a capital injection, CEO was uncomfortable and after hesitating, answered “Well…. Well…. The answer has to come from Enel SPA but for the moment, no capital injection is on the table” (…). Sounds to me like at some point they will just tender all of the shares.

I believe the current price of $1.76 (adjusted to $1.50 on Santiago exchange at the current exchange rate of 911 CLP) is still a very good entry price point. We might see a little profit taking on light volume tomorrow, but from here, it’s going to be up. Key indicators are finally starting to turn green.

I really liked the comment from the CEO that they are going to 'unlock the value' in the enterprise; this is a clear acknowledgement of what we have said on this board, that this company is being seriously undervalued by the stock market

They also clearly followed up on that 'unlock the value' theme with the sale of the 'transmission lines' for an amount equivalent to the entire company's recent market cap, which is perhaps the best indication of the degree of undervaluation

And finally, this acknowledgement by the management is also possibly signaling that if there is going to be a tender offer for the minority shares, it may not be at a low ball offer (as I have feared), and could account for the undervaluation of the share price

Sharing the answer I got from Enel Chile:

“Good morning, Mr.,
 
Thank you for your email.
What you point out is a decision of Enel Américas, a company completely independent from Enel Chile.
We are not aware of any such discussion for Enel Chile.
If you have any additional questions, please let us know.
 
Kind regards,
 
Investor Relations
Enel Chile”

Someone dumped a large number of shares on the market today and depressed ENIC to another new historical low of $.98, yes less than a dollar per share. It quickly recovered to $1.04/$1.05 and closed there. Still a very week price.I had orders in down to $1.01 and they were all executed.
It is not just ENIC. I purchased shares in 3 other South American companies today at new annual lows. As the saying goes, when the US snezzes, Latin America gets pneumonia. The US market is signaling that there are very bad times ahead.
The American media has been talking about Chile being on the cusp of being a failed state and recently has added Columbia to that column. They are looking at the left governments that have come to power recently.
An electric utility that has traded below $1.00 has to be a concern to all shareholders. The management needs to speak out to calm the rip tide that is taring into ENIC or this could become a rout.

ENEL Americas has applied to delist their ADRs from the NYSE as apparently only 2.5% of their total outstanding common shares are represented by the NYSE listed ADRs, and as such, the costs of maintaining the ADRs on NYSE far outweighs any benefits to investors; also the Italian parent ENEL spa now owns 85% of the total outstanding common shares of ENEL Americas (I recall there was a open market tender by the Italian parent, so this must be after that tender closed; would be great if anyone with the knowledge can confirm)

This is basically 'squeeze out' logic

I don't believe the situation applies directly to ENIC, as all of those criteria fall short, ie, the level of parent ownership, the lack of a recent tender offer, and the proportion of shares represented by the ADRs are all different in the case of ENIC

Nonetheless, I believe the ENEL delisting application may be weighing on ENIC
share price

The SEC can object to ENEL Americas delisting application; I would urge it to do so as the proposed delisting harms ADR investors

The USD is down hard against other major currencies today; seems we may be reaching a turning point on the currency after a period of inexplicable strength

Well managed emerging market currencies that are supported by positive real yields (CLP is a good candidate for this) and healthy balance of payments outlooks will become more attractive versus most of the developed world currencies

ENIC ADR should benefit from this dynamic, even though on days when the market breaks down (like today), sell programs do not make such nuanced distinctions, so ENIC still goes down with the market; but I believe ENIC will start to show outperformance over the next few weeks