Companhia Sanea (SBS)

[jep]

great rain so far in sept, off to a very good month so far

[listner]

Thanks. My average is 6.55 and not willing to further average down since the loss is over $100K. Will wait for few years. I was going to get out on May 15, 2015 when it was just over 6.55 but was not able to get it filled. Hope you are right about your analysis. until today I was not thinking much but now under 4 and close of 3.85 is very concerning. Good Luck to you as well. Poorlistner.

[flatlander_60048]

Noticed that both graphs revert to shorter time windows. Choose mesal and max to see the time period I was discussing.

Thanks
FL

[flatlander_60048]

Hi listner

Sorry about bailing on Yahoo. I got pretty frustrated that they would not even allow me to cut and paste information from another site. I accepted the fact that they would not allow links but I thought they were making it impossible to support any statements.

I'm also pretty frustrated with the SBS share price drop. My average is around $5 but I've been averaging down today. My thesis is that the Brazilian Market and pretty much all other emerging markets are being hurt by 1) Quantitative Easing and 2) to a lesser extent the slowdown in China. However, the currency generally bends until it hits a breaking point, then rally's strongly. The attached chart shows the long term Real vs the $US dollar. The Real lows in 1998, late 2002, late 2008 and right now correspond to strong inflection points in the price of SBS (see Chart - unfortunately I could not find an index that allowed me to overlay the two). The ADRS for SBS are even worse since they are priced in dollars and the full brunt of the currency devaluation is apparent.

While I hate being down on this position, I'm comfortable adding for the following reasons: 1)it has a monopoly, 2) its procucts cannot be replaced, 3) it is getting tariff increases to recoup construction costs of dealing with the drought, 4) it's debt is denominated primarily in the Real and the Yen (both of which have been devalued extensively), therefore its operations are pretty immune from the currency weakness. 5) Most of SBS's debt does not come due until 2020 (see Morningstar). 6) Demographis support future growth - see Water Word Article about # of hook ups, and 7) Some very smart people are shareholders Baily and Grantham.

All that said the Fed, and Central bankers can extend this game longer than the average investor can hold out. Unfortunately the QE cycle is largely an attempt by older developed countries in the US, Europe and Japan to avoid sliding into a deflationary spiral. The problem is the debt in the developed world. The next step is likely to be even more weakening of the China currency. Eventually this race to the bottom will revive China's ability to export and Brazil'a ability to sell its commodities. If you beleive Ron Paul and his buddies at Stansberry Reseach, it will result in pronounced weakening of the $dollar. I'm not commenting on that, but I do beleive in the idea of reversion to the mean (both for share price and for currency) and I beleive that SBS will benefit from mean reversion. Whether this is the Dollar crisis that Paul predicts or just normal market fundementals, does not matter.

The market is trecherous everywhere right now. This is apparent since the stock market drop the last several weeks has not been accompanied by a corresponding flight to $US treasury bonds, probably indicating that China is selling treasuries. So for the time being the only place to hide out appears to be cash. If the dollar crisis plays out in the future, this will not be a good place to be.

What is interesting from the attached charts is the rate that SBS has pulled out of past recessionary periods. I'd encourage you to compare it to the SPY or the QQQ's to SBS. In an up period it will fly and might be hard to catch. I know my nature, and I hate buying stocks after a 20% up day. So I could see it geting away from me, since I'm afraid to chase. The long term trend line suggests a low just under $4.00. For these reasons, I've decided to ride it out and add to my position.

Good Luck

FL

PS- Welcome to IHUB, I posted a few times on the Natural resources- Global demographic tailwind board.

http://quotes2.enfoque.com.br/sabesp/flash/pt/index.asp


http://www.google.com/finance?q=CURRENCY:BRL

[listner]

Hello Flatlander: Credit risk is mentioned by Mood'y and so it is down by 7%, a multi-year low and dropping. I want to be optimistic with my investment here but I am beginning to doubt this optimism now. Poorlistner.

[flatlander_60048]

A couple interesting SBS links.

https://en.wikipedia.org/wiki/Water_management_in_the_Metropolitan_Region_of_S%C3%A3o_Paulo

http://www.waterworld.com/articles/2011/09/brazil-s-water-sanitation.html

This suggests (Contrary to Moody's recent claims) that SBS in investing in improvements. It also discusses the debt structuring. Note Ms. Pena is on the Board of Directors but is no longer CEO.


FL

[flatlander_60048]

GMO's Grantham and Elliot Managements Paul Singer have established sizeable positions in SBS. Both have great records as value investors. Why? The cyclically adjusted PE (earnings averaged over a 10 yr period is 2.65 vs approximately 10 times higher (about 25) for the US. Noble Laureate Prof. Schiller is ringing the bell about this issue.

The market concensus is that Brazil is untouchable and that may be true for most of the Brazilian market. However, despite Moody's proclamation today, SBS's debt is very manageable. About $41 million (at 7.5%) comes due at the end of next year. The bulk of the debt $350 million does not come due until December 2020 (6.25%). Only 40% of the debt is denominated in non local currency (Japan being the largest non-Brazilian holder of debt-Japan also has a weak currency). Japan is embarked on QE which should further weaken their currency. Therefore, loans made in yen terms should not hurt SBS due to the weakening Real.

Moody's claims that SBS is not investing adequately in the water reservoirs and distribution systems. Yet this ignores the programs to reduce leakage/pilferage (by next yr it should be less than 28%) down from 40% in 2011. Much of this is Municipalities that have not paid and are in collections. Leakage from pipes are being repaired/replaced. A large river diversion project is under construction that will provide 5 m3/s of additional supply to the critical reservoirs. Look at "SBS and Sao Paulo Water distribution system in Wikipedia". While wikipedia may sometimes contain errors they provide links to referenced sources. SBS has received two Tariff increases in the past year to deal with the costs of the drought. So the evidence shows that Sao Paulo is moving to support capital improvements to the water supply system.

In other words Moody's seems to have an agenda with their credit downgrade and comparisons to the LA water works. They were at the crux of the 2008 real estate credit buble, so I don't think they should be considered creditable.

The currency crisis similarities to 1998 are striking (i.e., attributed to emerging markets). Review the charts and observe how SBS rebounded from the 1998 crisis. It far outperformed the S&P or the QQQ's. The currency weakness is a function of two factors 1) China slowdown and commodity weakness but even more importantly is that it is a side effect of QE. The evidence of this is that even emerging markets that are not commodity dependent (i.e., Turkey, Korea, Thailand, etc) have all experienced significant currency weakening. To me it looks like Moody's agenda is steming capital flight. Currency strengthening and weakening changes used to occur slowly. Now a year or more change may occur overnight. Witness the 20% overnight change earlier this year when the Swiss Franc unpegged from the Euro. These type of changes may make it extremely difficult to be nimble enough to establish a position once a major shift occurs.

Enough of a diatribe.

FL

[flatlander_60048]

http://www.zacks.com/stock/news/180025/looking-for-value-why-it-might-be-time-to-try-companhia-de-saneamento-sbs

td Ameritrade indicates that both Zacks and Ford research (two top rated analysts) both rate SBS strong buy. Here is the Zacks link. Unfortunately Ford is proprietary.

if emerging market currency stabilizes against the dollar this week I'll add to my position.

FL

[flatlander_60048]

Most importantly, I forgot to mention they have secured tariff increases which will enable SBS to recoup the costs of these capitol improvement projects. From what I can see the debt is largely denominated in local currency so SBS is not that susceptible to the currency markets. I'd appreciate it if anyone is better at translating the prospectuses on the company website to confirm my impressions about the debt structure. Google translate only goes so far.

FL

[flatlander_60048]

For some reason Yahoo would not let me post. So I'm moving to IHUB.

SBS is up again in local currency but down on the ADR's. The currency headwind has made this a very difficult investment. However, last night I looked at the currency charts and it is apparent that the dollar has strengthened relative to the real and is now approximately 2 stand dev above the long term ave. From what I can see of the long term graphs these types of conditions generally last less than 3 years. we are mor than two years into this cycle. The site I looked at "tradingeconomics" can be used to forecast future exchange rates. Their forecast is provided below. Unfortunately it does not break down the future projecteions on 1 or two year increments. Based on the forecast it looks like the real/dollar is hitting the trough now. However, this bottoming process could extend well into 2016. However, the long term trend is projects that the dollar will weaken relative to the Real (see below). In the short term, it does not appear that these types of 2+ standard deviation cycles generally last more than two years. In 2003 the peak was approximately a year in duration (this one appears to have started early in 2014). The market upheaval we are currently experiencing could very well trigger currency revaluation that would provide a lot of relief to SBS.


Forecast Actual Q3/15 Q4/15 Q1/16 Q2/16 2020 2030 2050 Unit
Currency 3.63 3.6 3.6 3.46 3.5 2.3 2.5 1.67

Brazilian Real Forecasts are projected using an autoregressive integrated moving average (ARIMA) model calibrated using our analysts expectations. We model the past behaviour of Brazilian Real using vast amounts of historical data and we adjust the coefficients of the econometric model by taking into account our analysts assessments and future expectations. The forecast for - Brazilian Real - was last predicted on Wednesday, August 26, 2016.

On the practical side I see SBS undertaking the steps to shore up the companies long term future. They have undertaken large problems to stem leakage and will complete a large water diversion project that will add 5 m3/s in 2017.

FL

[bigstocksnbonds]

I am thinking of getting into it-- recommended today by Wealth Daily as a good monopoly to get into!!

[bigstocksnbonds]

I am thinking of getting into it-- recommended today by Wealth Daily as a good monopoly to get into!!

[nnich19]

anyone here still following this thing? Just came across it and like the numbers I'm seeing.

[Tutu]

where going to move up big today. well i guess i'll move up big today since i'm alone here. I tried to tell people to buy

[Tutu]

SBS
They are out finally and look very very good.

http://www.sabesp.com.br/sabesp/filesmng...$File/SBS_4Q09.pdf

Sabesp announced 457.3M reais profits in Q4, or $2.30 USD per ADR at the 3/31 exchange rate of 1.745R$/USD. This is in fact so good that I need to go through the announcement carefully to find any one time gains (such as on the pension fund) before I really believe this is big

[frenchee]

negative--sorry...

[kmx_swing]

do you have any link to the financials? Thanks

This company looks strong.

[frenchee]

RECOMMENDATION

We rate CIA SANEAMENTO BASICO ESTADO (SBS) a BUY. This is driven by multiple strengths, which we
believe should have a greater impact than any weaknesses, and should give investors a better performance
opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its
solid stock price performance, robust revenue growth, attractive valuation levels, expanding profit margins
and good cash flow from operations. We feel these strengths outweigh the fact that the company has had
somewhat disappointing return on equity.

HIGHLIGHTS

Powered by its strong earnings growth of 90.66% and other important driving factors, this stock has surged by
29.93% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the
stock's future course, although almost any stock can fall in a broad market decline, SBS should continue to
move higher despite the fact that it has already enjoyed a very nice gain in the past year.
SBS's revenue growth trails the industry average of 60.5%. Since the same quarter one year prior, revenues
rose by 30.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
46.50% is the gross profit margin for CIA SANEAMENTO BASICO ESTADO which we consider to be strong. It
has increased from the same quarter the previous year. Along with this, the net profit margin of 20.40% is
above that of the industry average.
Net operating cash flow has increased to $307.91 million or 10.17% when compared to the same quarter last
year. Despite an increase in cash flow, CIA SANEAMENTO BASICO ESTADO's cash flow growth rate is still
lower than the industry average growth rate of 41.81%.

[frenchee]

Looks like it's going to test its 39-week MA...

[frenchee]

This water company has a superior long-term growth record relative to its peers. Great stock to pick up on the dips...