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
