Zacks_Analysts' Blog : Cemig to Increase Stake in Gasmig - Analyst Blog

Companhia Energetica de Minas Gerais (CIG), also known as CEMIG, recently announced that the company has received its Board of Directors' approval for the acquisition of roughly 4.38% of total share capital of Companhia de Gás de Minas Gerais – Gasmig, from the State of Minas Gerais.

As per the terms of the agreement, the company will acquire roughly 10.8 million common shares and 7.1 million of preferred shares of Gasmig. The total consideration payable to the State of Minas Gerais amounts to R$67.2 million or R$3.75 per share.

Formed in 1986 as Cemig’s subsidiary, Gasmig primarily engages in  the acquisition, transportation, distribution and selling of natural gas. Ending fiscal year 2010, Gasmig accounted for roughly 5.3% of total natural gas distribution in Brazil.

Gasmig’s shareholding pie includes Cemig with its 55% share, Petrobras, through its subsidiary Gaspetro—Petrobras Gas S.A, with about 40% share and the Minas Gerais Participações S.A., or MGI with the remaining 5%. MGI is the investing arm of the State of Minas Gerais.

In the recently reported third quarter 2011 financial results, Cemig posted roughly an 11% year-over-year increase in revenue while consolidated net income in the quarter remained flat. Gasmig accounted for roughly 2.0% of Cemig’s total net income of R$657 million in the quarter.

The current Zacks Consensus earnings estimate for the fiscal years 2011 and 2012 are $1.64 and $2.07 per share. These represent a 20.16% year-over-year decline and 26.17% growth, respectively.

Cemig is one of the largest integrated electric utilities in Brazil, which gives tough competition to its peers like Companhia Paranaense de Energia (ELP).

We currently maintain a Neutral recommendation on the company.