Berko: Opportunities in foreign utilities
Thursday, February 27, 2014 7:00 AM
Dear Mr. Berko:
Could you recommend some unusual foreign utility issues? I am a utility investor because I think they’re safer and more dependable than most dividend-paying common stocks. I own 35 different American utility stocks, with a value of nearly $625,000. They have been in my portfolio for years. And I think I’d like to diversify my utility holdings.
M.R., Akron, Ohio
There may be some “unusual” utility opportunities in Venezuela, Somalia, Vanuatu, Libya, Qatar and Eritrea, but the U.S. embassies are discouraging investments there. So consider the following:
Energias do Brasil (ENBR3.SA-$8.67), founded in 1996, is based in Sao Paulo. This $3.4 billion-revenue Brazilian utility has 2,600 employees serving 3.1 million customers, and it earned $167 million in net income last year. The shares are down a tad from their all-time high, $14.30, and the 41-cent dividend (paid once a year in April) yields 4.7 percent. Revenues, earnings and the dividend are expected to improve nicely over the next few years. Wright Reports has a 42-page research piece on ENBR3.SA, but it will cost you $75 for a copy. The company trades on the Sao Paulo Stock Exchange, and the consensus projects an $11 share price in the coming 18 months. Barclays is bullish on ENBR3.SA.
Datang International Power Generation Co. Ltd. (0991.HK-$3.03), founded in 1994, is a $13 billion-revenue multisource power producer (wind, nuclear, coal, natural gas, solar, water) based in Beijing with 40.2 megawatts of installed capacity. Datang has 23,000 employees, who helped the company earn $1 billion, or 40 cents a share, last year, and it pays a 10-cent dividend yielding 3.3 percent. Revenues this year are expected to grow by 10 percent. Per-share earnings could rise by 18 percent, and the dividend may improve to 12 cents. Observers expect the share price to top $4. A Reuters report is bullish on the stock.
Veolia Environnement SA (VIE.PA-$12.31), based in Paris, has been serving Parisians since 1853 and the rest of the world (including the U.S.) for 80 years. This 318,000-employee company generates $30 billion in revenues from its worldwide waste collection services, its environmental water management and its transportation and wastewater management services. Veolia is nicely profitable. Its 70-cent dividend yields 5.7 percent, and its $16 per share book value is helped by $8 in cash per share. Back before the crash, VIE.PA traded in the $60s, and Credit Suisse believes that Veolia can steadily grow its revenues, earnings and dividend. Credit Suisse suggests that Veolia can trade in the mid-$10s in the coming 24 months and says management may increase the dividend to 85 cents.
National Grid PLC (NGG-$68.97) is a $24.7 billion-revenue London-based utility that also trades on the New York Stock Exchange. NGG has 25,000 employees, who help distribute electricity and gas to 4 million residential, commercial and industrial customers in New England and Canada, plus 11 million users in the U.K. Revenues of this utility will probably remain flat this year, but earnings should improve by 5 percent, to $4.50 a share, according to HSBC. HSBC says that NGG could move up to $74 and that the $2.32 dividend, currently yielding 3.4 percent, may be increased to $2.50 a share.
GDF Suez SA (GSZ.PA-$17.74), founded in 1880, is a $97 billion-revenue French utility with 138,000 employees. Typical of a French company, nearly half the employees are redundant. GSZ.PA produces and markets natural gas and electricity in France and internationally. The company generates electricity from biomass, solar, biogas, natural gas, wind, water, coal and nuclear sources. GSZ.PA also explores for and produces oil and gas in the Ivory Coast, Azerbaijan, Greenland, Indonesia, Algeria, Libya, Mauritania, Egypt and Australia. It is also involved in the collection, treatment and distribution of wastewater and drinking water. It has a $26 per share book value and more than $13 billion in cash flow, and before the crash, it traded in the mid-$40s. The current $1.50 dividend, yielding 8.5 percent, actually appears quite safe. Goldman “Sucks” believes that $24-$26 is a realistic trading price and expects revenue growth to exceed $100 million, but it doesn’t expect the dividend to increase this year.