Concerned about the capacity of AES Brazil (AESB3) in consistently generating cash, UBS-BB, one of the largest investment banks in the world, downgraded the company to “sale” and cut the target price from R$12 to R$9 per share. In trading this Monday (1st), AES Brasil shares registered a significant drop in response to the news, ending the day with a drop of 6.37%, being traded at R$9.55. So far this year, the devaluation has already reached 22%.
“We are downgrading AES to sale due to high leverage, poor operating performance of AES assetsthe short useful life of the portfolio and the volatility driven by news of asset sales”, says the bank’s report.
In the text, the strategists state that, although they foresee operational growth for the company in the future, negative factors, such as the poor performance of the company’s assets, AES in addition to the restriction effect and high financial expenses, led to this change in classification. Currently, AES is trading with a real Internal Rate of Return (IRR) of 8.1%, while the average for companies like UBS-BB is 10.5%.
Financial changes impact AES Brasil’s prospects
The review of The company’s financial model brought a series of significant changes to its AES Brasil resultsaccording to the UBS-BB. Net revenue estimates have been adjusted to reflect higher assumptions regarding energy prices. However, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) was negatively impacted due to updated energy generation restrictions and assumptions.
The review also influenced the company’s net profit, driven by two main factors: a new tax rate assumed for the future and the incorporation of AES’ latest amortization schedule. As a result of these changes, analysts say, Earnings Per Share (EPS) is expected to increase in 2026 and 2027, despite the decline in Ebitda, mainly due to optimistic estimates of financial results.
Furthermore, projections indicate a drop in AES Brasil dividends per share (DPS) from this year until 2026, due to a lower dividend payment expected by the company, due to its high leverage. However, from 2027, strategists expect an increase in DPS, in line with projections of higher net profit.
One of the most notable changes in the revised financial model is the introduction of a 10% penalty for renewable energy generation. AES Brazil, attributed to the company’s operational inefficiency in its renewable assets, coupled with the effect of power generation restrictions. Comparison of AES’s 2023 physical guarantee with actual energy generated revealed a disparity of approximately 10%, leading to the assumption that this penalty will persist over time.
What happens to AES now?
With the downgrade to “sale”, the action of AES Brasil faces a challenging scenario. Investors are concerned about the company’s ability to handle its high leverage and improve the operational performance of its assets. Additionally, market volatility and the short lifespan of its portfolio add uncertainty to the company’s future.
It is not possible to determine when the AES Brazil should remain downgraded without ongoing analysis of factors such as the company’s operating performance, market conditions, regulatory changes and other relevant events. Rating downgrades are generally reviewed periodically by credit rating agencies or market analysts based on new information and developments in the company and the broader market.
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