Goldman Sachs started coverage of Enersis Chile SA – ADR ENIC with a Neutral rating and $6 price target of $6, implying estimated total returns (ETR) of 6.6 percent.
The initiation follows the conclusion of the separation of Enersis into two entities (Enersis Chile and Enersis Americas) and Endesa Chile into two entities (EndesaChile and Endesa Americas) as of April 2016.
Enersis Chile is the biggest power utility company in Chile with 6,352MW of installed capacity (32 percent market share of the generation market) and over 1.7 million clients in distribution (44 percent market share of the distribution segment).
"Our Neutral rating on ENIC is driven by (1) what we see as fairly priced-in growth at current levels (with average 2016E–18E FCF yield of 5.1 percent, growing from 2.6 percent in 2016E to 7.9 percent in 2018E), (2) its relatively unattractive valuation vs. its peer ENIA and (3) 2016E-2018E dividend yields of 1.0 percent (vs. 2.3 percent for ENIA and 4.3 percent for its Chilean peers)," analyst Bruno Pascon wrote in a note.
The analyst bets on a gradual recovery in the hydro load factors at its generation subsidiaries in Chile — from 42 percent in 2015 to estimated 43 percent in 2016, 47 percent in 2017E and 48 percent in 2018. Pascon's assumption is based on expectation of a steady recovery in reservoir levels on the back of the El Niño phenomenon.
ADRs of Enersis Chile closed Monday's trading at $5.51 and were up 1.27 percent early in Tuesday's regular trading session, trading at $5.59.
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