National Electricity Company of Chile Inc. ADREOC

Morningstar Rating

Stock Research and Analysis

by Ryan McLean

We think strong growth, solid free cash flow, and low-cost generation make Endesa Chile worth keeping on the radar. Returns on invested capital have been strengthening, and we think they will surpass the firm's cost of capital in the years ahead.

Endesa Read more

Bulls Say

Two thirds of Endesa Chile's generation capacity corresponds to hydroelectric plants, conferring it a cost advantage over competitors that rely more heavily on thermal generation.

Contractual provisions partially mitigate the company's exposure to hydrological conditions by limiting its power obligations during droughts.

Major expansion projects (notably the Aysen hydro facility) should help fuel strong growth through the next decade.

Endesa Chile's geographic diversification across five South American countries helps mitigate country-specific risk.

More than one third of sales are to regulated customers, which helps Endesa Chile generate steady, inflation-indexed cash flows. Read more

Bears Say

Endesa Chile's ownership structure effectively gives Endesa control over company matters and the election of its board members, which puts minority shareholders in a relatively weak position.

Delays in the company's expansion program and ambitious projects in the next decade could stunt growth.

Endesa Chile has suffered natural gas supply challenges as a result of the Argentine government's decision to curtail gas exports to Chile.

Although the economic and political base of the company's Chilean domicile is relatively sound, more than half of operating income is derived from less-stable markets, such as Argentina, Colombia, and Peru. Read more

Strategy

Endesa Chile plans to seek more unregulated and spot-market sales, exploiting its low-cost advantage over competitors that depend more heavily on thermal generation. The company will continue to minimize Read more

Management

The board elected Joaquin Galindo Velez as CEO in late 2009. Mateo previously served as production manager at an Endesa subsidiary. In July 2009, Paolo Bondi became vice chairman of the board. Bondi previously worked in various finance roles outside Read more

Profile

Endesa Chile generates electricity for customers in Chile, Argentina, Brazil, Colombia, and Peru. Two thirds of its roughly 13,000 megawatts of generation capacity is from Read more

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