Companhia Energetica Minas Gerais is not a walled city from the Lord of the Rings, its a Brazilian holding This company is complex enough that I need to go over a description of them before going on to my normal review format.
CIG is a holding company that owns 117 companies dealing with the generation, transmission, distribution and reselling of electricity generated by hydro and wind sources.
Finding information on this company has been exceedingly difficult. Each U.S. financial site shows different information. Yahoo finance shows 1.13b shares, 3.13 P/E. Goggle finance shows 1.25b shares, 2.93 P/E
The state government of Minas Gerais owns 51% of this holding company and it can pretty much dictate what the company does. This includes setting the rates the company is allowed to charge. Rates will never go up much as the politicians will want to keep their voters happy.
So why bother with this company? Because of their dividend policy...
Every year they will pay out 50% of their profit.
Every other year they will have an extraordinary dividend.
Last year they paid a 6.6% yield. They paid ot $2.86 in 2012. At the time that was a 35%. I am expecting big things in 2014.
The U.S. financial sites only show the regular semi annual dividends. They do not report the special dividends. These guys are a cash cow.
What about the state government causing problems? If they are using CIG as their cash cow they can keep taxes lower and keep their voters happy. I don't know of a government that wouldn't love getting income that would not piss off voters. I actually see this as a good thing.
The Brazilian economy is having major problems right now. No doubt about that.
However CIG has a 3 P/E ratio. Three.
Their P/B is 0.97. Less then 1.
This is a utility company. Not a start up with an untested product. Unless people stop using electricity they will continue to channel nearly every Brazilian Real in profit to shareholders.
In my opinion this is the sort of company that you read about in the Intelligent Investor and think "Wow it would be amazing to be investing in Benjamin Graham's time or when Warren Buffett first started out before computers and a lot more investors getting the good investments before you could."
Risks
Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.
CIG is a holding company that owns 117 companies dealing with the generation, transmission, distribution and reselling of electricity generated by hydro and wind sources.
Finding information on this company has been exceedingly difficult. Each U.S. financial site shows different information. Yahoo finance shows 1.13b shares, 3.13 P/E. Goggle finance shows 1.25b shares, 2.93 P/E
The state government of Minas Gerais owns 51% of this holding company and it can pretty much dictate what the company does. This includes setting the rates the company is allowed to charge. Rates will never go up much as the politicians will want to keep their voters happy.
So why bother with this company? Because of their dividend policy...
Every year they will pay out 50% of their profit.
Every other year they will have an extraordinary dividend.
Last year they paid a 6.6% yield. They paid ot $2.86 in 2012. At the time that was a 35%. I am expecting big things in 2014.
The U.S. financial sites only show the regular semi annual dividends. They do not report the special dividends. These guys are a cash cow.
What about the state government causing problems? If they are using CIG as their cash cow they can keep taxes lower and keep their voters happy. I don't know of a government that wouldn't love getting income that would not piss off voters. I actually see this as a good thing.
The Brazilian economy is having major problems right now. No doubt about that.
However CIG has a 3 P/E ratio. Three.
Their P/B is 0.97. Less then 1.
This is a utility company. Not a start up with an untested product. Unless people stop using electricity they will continue to channel nearly every Brazilian Real in profit to shareholders.
In my opinion this is the sort of company that you read about in the Intelligent Investor and think "Wow it would be amazing to be investing in Benjamin Graham's time or when Warren Buffett first started out before computers and a lot more investors getting the good investments before you could."
Companhia Energetica Minas Gerais (CIG)
Last Updated: Q3 2013
Note: Most information was obtained from their annual report filed with the SEC Form 20-F for 2012.
Description: Companhia Energetica de Minas Gerais Cemig is a Brazil-based holding company primarily engaged in the electricity sector. The Company is mainly active in the construction and operation of systems of production, transformation, transmission, distribution and commercialization of electric power. It is involved in the provision of telecommunication services, and purchase, transport and distribution of natural gas.
How do they make money: CIG owns other companies that make, trade, and deliver energy from solar, wind, and natural gas sources.
Key Brands: None
Company Overview
Holding company: CIG is a holding company that does no operations themselves. They generate profit through their subsidiaries.
117 companies, 17 consortia. Main subsidiaries are...
Cemig Generation and Transmission (Cemig Geracao e Transmissao S.A.) 100% owned
Cemig Distribution (Cemig Distribuicao S.A.) 100% owned.
Light S.A (Light Energia S.A.) 26.06% owned
Gasmig (Companhia de Gas de Minas Gerais) 59.57% owned
TAESA (Trasmissora Alianca de Energia Eletrica S.A.) 43.36% owned.
Power Plants: 70 plants in 5 states. CIG is not limited to Minas Gerais.
39 Hydroelectric plants
3 Thermoelectric plants
3 Wind farms
3 Light Hydroelectric plants
Transmission lines: 6,250 miles covering 13 states
EBITDA sources
48% Generation
27% Distribution
23% Transmission
2% Other
State owned company: The government of the state of Minas Gerais owns 51% of CIG. Possibly a risk if not for the fact that governments like money and CIG pays 50% of their profit as a dividend.
Capex: Up to 40% of EBITDA is allowed for capex and acquisitions.
Dividend Policy
CIG’s dividend policy is very confusing at first.
Ordinary dividend: Each year they pay out 50% of net income as a dividend. Its paid out in May and in December. It will fluctuate per year and is solely based on profit, not a standard rate like is common in the U.S.
However the State Government which controls CIG guarantees at least a 6% yield.
Extraordinary dividend: Every other year they will make extra dividend payments based upon retained profit.
Stock dividend: Roughly once per year in April, CIG will give out extra shares of stock as a dividend.
2009: +25% stock dividend
2010: +10% stock dividend
2011: None
2012: +25% stock dividend
2013: +12.85% stock dividend
Brazil economy: Brazil is currently going through high levels of inflation.
Mitigation: None. CIG is a Brazilian holding company owning Brazilian power companies not much they can do to get around this.
EPS fluctuations: The EPS wildly fluctuates. Need to find out why this is happening.
Difficulty in getting accurate information: Due to CIG’s odd dividend and stock dividend policy, its hard to get accurate information on what exactly the share count is and what dividends were paid out. Their own website is not organized very well and they have no dividend history section.
Mitigation: None for the company. This will require the investor to do the research.
Labor Unions: Brazilian law allows for labor unions and CIG employees are in a union.
2010: 20 days of striking during contract negotiations
2011: 5 days
2012: 1 day
Mitigation: CIG has an Operational Emergency Committee. None of these strikes impacted electricity supply to customers.
Forex fluctuations drop Brazilian Real value vs US dollar: In 2012 the Brazilian Real dropped 9.93% value vs the USD giving a similar drop. However this can work both ways and the Real can rise. This is listed as a risk due to how volatile the Real is and given the Brazilian governments past efforts in devaluing their currency.
Mitigation: None. I am not aware of any forex hedging. Seeing as they are 51% owned by the Brazilian government I do not think the company places importance on this.
Competitors
Centrais Eletricas Brasileriras SA (EBR.B)
Company Fundamentals
Company Stats
|
2004
|
2005
|
2006
|
2007
|
2008
|
2009
|
2010
|
2011
|
2012
|
2013e
|
5y Avg
|
10y Avg
|
Share Price
|
$3.89
|
$6.21
|
$7.30
|
$9.33
|
$7.08
|
$11.50
|
$11.76
|
$12.61
|
$9.62
|
$8.64
|
$10.83
|
$8.79
|
EPS
|
0.68
|
0.8
|
0.33
|
0.92
|
0.78
|
2.06
|
2.51
|
2.4
|
3.85
|
3.85
|
2.934
|
1.818
|
EPS Growth
|
-
|
17.65%
|
-58.75%
|
178.79%
|
-15.22%
|
164.10%
|
21.84%
|
-4.38%
|
60.42%
|
0.00%
|
48.40%
|
40.49%
|
P/E
|
5.72
|
7.76
|
22.12
|
10.14
|
9.08
|
5.58
|
4.69
|
5.25
|
2.50
|
2.24
|
4.05
|
7.51
|
P/B
|
0.8
|
1.1
|
1.7
|
1.8
|
1.6
|
1.8
|
1.7
|
1.9
|
1.5
|
1.5
|
1.68
|
1.54
|
Dividend Stats
|
2004
|
2005
|
2006
|
2007
|
2008
|
2009
|
2010
|
2011
|
2012
|
2013e
|
5y Avg
|
10y Avg
|
Dividend
|
$1.24
|
$0.87
|
$0.53
|
$0.71
|
$0.60
|
$0.61
|
$1.29
|
$0.70
|
$0.23
|
$1.04
|
$0.95
| |
Dividend Yield
|
0.00%
|
19.97%
|
11.92%
|
5.68%
|
10.03%
|
5.22%
|
5.19%
|
10.23%
|
7.28%
|
22.92%
|
10.17%
|
9.84%
|
Share buyback %
|
0.00%
|
0.00%
|
0.00%
|
0.00%
|
0.00%
|
0.00%
|
0.00%
|
0.00%
|
0.00%
|
0.00%
|
0.00%
|
0.00%
|
Div Growth
|
-
|
-
|
-29.84%
|
-39.08%
|
33.96%
|
-15.49%
|
1.67%
|
111.48%
|
-45.74%
|
182.86%
|
46.95%
|
24.98%
|
EPS Payout Ratio
|
0.00%
|
155.00%
|
263.64%
|
57.61%
|
91.03%
|
29.13%
|
24.30%
|
53.75%
|
18.18%
|
51.43%
|
35.36%
|
74.41%
|
CIG dividend information above is to be considered unreliable. CIG does not have a dividend history section in their investor relations section. All the main dividend tracking financial sites show missing and conflicting information.
Earning Report Notes
Q3 2013
Consolidated net revenue: +3.2%
EBITDA: +3.8%
BRL 200m reduction in costs
Paid BRL 4.87 ($2.04) in dividends. That is a 20%+ yield
Lawsuit vs the government over pricing increase that government won’t let happen due to inflation.
Company and Industry specific commonly used acronyms and terms
ACL: Free market for reselling of energy. CIG primarily operates in this market for reselling.
ACR: Regulated contracting environment. The open auction market of reselling of energy.
Resources
Company Website: http://www.cemig.com.br/en-us/Pages/homepage.aspx
Investor Relations: http://cemig.infoinvest.com.br/?idioma=enu
Morningstar: http://quotes.morningstar.com/stock/cig/s?t=cig
Transcripts: http://seekingalpha.com/symbol/cig
Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.
I held some stock in VALE last year, a Brazilian mining company, and it payed out a dividend during that time. I was surprised to learn that the government of Brazil imposes a tax on dividends to people residing outside the country (so it would give part of your dividend to the government). Just an FYI you should look into how much that tax will lower your effective dividend rate. I can't remember exactly what it was for me but it was fairly significant.
ReplyDeleteCountries tax a dividend regardless of if its their citizen or another country's citizen. I believe the current tax rate is 15% for Brazilian dividends. That also means regardless of a tax sheltered US account (IRAs) you'll get a tax.
DeleteThe U.S. has treaties with many countries to make sure you don't get double taxed. Brazil is not one of them. However the yield imo is high enough that I don't mind a double tax.