Auren (AURE3) could pay higher dividends in 2024, assesses BBI

Auren (AURE3) could pay higher dividends in 2024, assesses BBI
Auren (AURE3) could pay higher dividends in 2024, assesses BBI
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Bradesco BBI maintains a neutral recommendation for Auren (AURE3), with a target price of R$15, which implies a potential appreciation of 26% over last Thursday’s closing (28) of R$11.90, as it sees a balanced risk-return relationship, with reduced leverage and potential higher dividends.

The bank comments that the company’s investment cycle has practically ended and its financial leverage Net debt/Ebitda in 2024 should fall from 1.8 times to 1.5 times.

In this way, to reach an assumed target of 2.5 times Net Debt/EBITDA, Auren could pay additional dividends of R$1.6 billion, increasing the total dividend yield in 2024 from 5% to 18.5%, which which assumes a payment of 95%, or if the M&A opportunity arises, it could reduce the payment for fiscal year 24 to 25%, thus opening up space to invest R$2.0 billion in acquisitions.

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Regarding mergers and acquisitions, BBI highlights that Auren may be interested in AES Brasil, given the operational synergies and a high-quality hydroelectric asset. The company’s combined leverage in the year 2024 would be approximately 4.2x, so perhaps a follow-on offering may be necessary.

The bank’s research team also revised upwards Auren’s PMSO expense projections (payroll, materials, services and others) to R$618 million in 2024 and R$652 million next year. This level of operating expenses builds on the dynamics observed last year and is primarily driven by higher operating expenses. Earnings before interest, taxes, depreciation and amortization (EBITDA) are estimated at R$1.630 billion in 2024 and R$1.740 billion in 2025, 3% and 4% below the market consensus.

On the other hand, BBI comments that Auren’s thriving electricity trading business partially offsets the increase in operating expenses. From now on, conservatively, the bank expects to generate enough cash flow to mitigate its own OPEX of R$120 million per year (i.e., EBITDA at break-even point). However, there may be upside risk if Auren meets its guidance of trading at 2.5 times its firm capacity/year, gaining a trading margin of around R$10 to R$15 Megawatts hour (MWh). In the last scenario, EBITDA from trading could increase by R$200 to 280 million/year and, thus, add R$0.8 per share to our fair value.

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Finally, analysts comment that a point of attention in relation to Auren’s wind and solar assets (30% of NAV) is the reduction in non-refundable production, which should be a persistent problem in the future.

The article is in Portuguese

Tags: Auren AURE3 pay higher dividends assesses BBI

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