SBS provides basic water and sewage services to customers in Sao Paulo, Brazil. They treat, process, and distribute water, and collect, treat, and reuse sewage. I like alot of firms from or working in Brazil, namely due to their increased use of ethenal and the consequential development from a better economy and infrastructure. They are on the brink of becoming an investment-grade country, which will further fuel their internal development and international status. Carlyle, Riverstone, and Goldman have all entered Brazil this year, most notably to acquire alternate energy producers.
Fundamentally, SBS appears to be average in the indsutry.
- ROA for TTM: 4.9 vs. 2.5 for industry
- ROA for Past 5 years: 2.6 vs. 3.3 for industry
- ROI for TTM: 5.5 vs. 2.7 for industry
- ROI for Past 5 years: 3.0 vs. 3.8 for industry
- Total Debt to Equity: 63.1 vs. 111.9 for industry
- Long-Term Debt to Equity: 52.8 vs. 96.8 for industry
For the past several years, SBS has been keeping its debt relatively low, building its infrastructure, and expanding operations deeper in Sao Paulo state. 50% stake owned by the State of Sao Paulo doesn't hurt either. Water Utilities will continue to be afforded adequate rate increases by their respective regulators.
BWTR, in Q4 2007, is expected to post its first positive EPS, after years of being in the red. EPS for FY07 is expected to be -.21, while EPS for FY08 is projected to be .11, and 2009, .43.
Perhaps, most compelling:
- Quick Ratio: 13.6 vs. 0.9 for industry
- Current Ratio: 13.8 vs. 1.2 for industry
- Total Debt to Equity: 0 vs. 111.9 for industry.
3 comments:
Thanks for the water picks. I see you were only linking and not necessarily so immediately negative re the overall markets. Excuse my confusion.
SBS is very appealing as I also like both water and Brazil. When comparing SBS with the Brazil Etf EWZ, there is a significant divergence since Sep 18 with SBS flat and EWZ rising. Makes SBS seem relatively cheap, but I notice a similar pattern with ERJ ("Brazil's Boeing" which I owned this summer) which remains flat after diverging from EWZ around July 1.
Big difference between airplanes and water but still makes me want to know why SBS is lagging recently. Also curious as how today's Petrobras announcement affects SBS in the short term. If the discovery pans out then lots more growth in Sao Paulo.
Marlowe: Appreciate the visit to my blog. WRT SBS v. EWZ, I see that divergence and am not quite sure as to its cause. Does seem to offer a pseudo-pairs trade for the future. I think EWZ has benefited from higher energy prices since most of its holdings seem to be related to ethanol in some form or fashion.
SBS was tempting on the morning drop. If intl markets stabilize that 46 would be a great price. I'm hoping for another plunge and leaving an order at 41.
Fwiw, I hope you keep writing on water. Not as much good internet info on water as for other hot spots, most of which should be going cold.
I hate to root for famine but it seems the water stocks that will do best are those that will thrive in drought and scarcity. Water stocks seem to have risen overall fueled by speculation rather than particulars, such as who will do well in times of in-your-face scarcity. If you can equate water to energy, a lot of energy stocks don't do well in times of true scarcity.
Also, good look with the GS short. I've been playing SKF and GS is next to it on my watch list. I've grown accustomed to them both being significantly green. I saw a table where for the last 12 months for the senior financials, all were down at least 5% except GS which was up over 13%. Nobody is that much better so there has to be some help from friends in high places, or at least the perception of that help.
If there is further fall in the financials, GS should fall furthest, but its those friends that keep me from shorting it specifically. I would probably change my mind if I saw the specifics of the trade (so don't post them), but I hope you do post the progress or results, particularly in comparison to your other financial trades.
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