Following the suspension of the equity sale process four weeks ago, Isagen SA(ISAGY)’s shares underperformed competitors quite markedly. We consider the drop larger than merited and we are rising to “Sector Outperform”.
Even without considering a successful completion of the government stake sale process, our fair value forecast for company is COP 3,150per share. At recent prices, this represents upside of 13%, while resuming of the sale process remains a possibility. Along this line, our base case scenario is that the sale process will be resumed during 2015 and that company shares will finally be auctioned at a price partly ahead of the COP$3,399per share minimum. Under such conditions, the upside reaches an striking 23%.
On the fundamental side, company’s 2015 output stats have been very favorable considering the medium-strength El Niño conditions. A projected positive net spot exposure, stronger power pricing and good Sogamoso performance should all contribute to stronger second quarter results.
With first quarter numbers and two months of operational stats already baked in, 2015 estimate EBITDA consensus of COP 1,124 billion appears low. We have upped our 2015 estimate EBITDA estimate by 5% to COP 1,279 billion, stable with an appealing 8.6 times Enterprise value/EBITDA and 41% discount to replacement value.
We suggest to buy company’s quality assets at a discount, with upside from a sale process. Hydrology, regulation, share sale process are key risks to be considered before investing.