Eneva 's investment thesis is poised to gain momentum given the need to bolster the energy supply in the Brazilian electrical system to compensate for the intermittency of solar and wind power sources and the lower electricity generation during nighttime hours.
The assessment comes from UBS BB , which raised its recommendation for the shares of the natural gas-fired power generator. ENEV3 stock went from neutral to buy, and its target price was adjusted from R$16 to R$27. The new value represents an upside of almost 30% over the current market price of R$20.8.
"The Brazilian electrical system is entering a phase where dispatchable capacity is structurally necessary, driven by increasing net load volatility, midday solar saturation, and the need for rapid acceleration of generation at night," says an excerpt from the report signed by analysts Giuliano Ajeje, Henrique Simões, and Matheus Enfeldt.
For them, this scenario increases the system's dependence on thermal power plants to support the energy supply throughout the day. Therefore, UBS BB analysts are optimistic about the reserve capacity auction scheduled for March 18th.
According to experts, Eneva stands out as one of the few companies capable of converting capacity into effective megawatts. As a vertically integrated company, it is assessed that the company has cost advantages in gas transportation compared to most.
A strong performance in the auction is seen as the main catalyst for Eneva, reinforcing UBS BB's assessment that the company's thesis has transformed. "What was previously a story of rehiring and preserving capital is now an event-driven approach regarding pricing and capacity delivery," states an excerpt from the report.
Analysts estimate that Eneva could acquire the assets at auction for R$ 275 per megawatt-hour (MWh). They highlight that the price used as a reference by analysts for the competition, from the only capacity auction held in the country in 2021, adjusted for inflation, is R$ 130 per MWh.
However, they understand that this amount is too low to recoup the investment, considering that turbine prices have more than doubled, interest rates are in the double digits, and the exchange rate is at high levels.
Furthermore, the number of projects that can realistically be completed within the timeframe required by the auction is low, which should help push prices up, according to UBS BB analysts.
"At this level [of R$ 275 MWh], Eneva is able not only to renegotiate contracts for existing assets, but also to economically justify expansion into new facilities, particularly Celse," says an excerpt from the report.
This scenario led UBS BB analysts to raise their 2030 EBITDA projection by 71% compared to what they expected, to R$ 12.7 billion. The same movement occurred with revenue and net profit, which rose by 69% and 64%, to R$ 20.3 billion and R$ 6.1 billion, respectively.
Around 11:35 AM, Eneva's shares were up 4.28%, at R$ 21.70. In 12 months, the shares have registered an increase of almost 83%, bringing the market value to a total of R$ 41.9 billion.
