Citi raises target price for Sabesp (SBSP3) from R$84 to up to R$97

Citi increased the target price of the shares of the Basic Sanitation company of the State of São Paulo from R$84 to R$97, Sabesp (SBSP3), reiterating a “buy” recommendation, according to a report sent to the market this Wednesday (3). The price still considers the company to be state-owned, with potential appreciation of 18.2% compared to Tuesday’s closing (2).

In a scenario of company privatization, Citi analysts estimate the Sabesp target price in R$ 150. In the opposite view, they calculate it at R$ 71. Strategists say they have increased estimates for the company’s earnings before interest, taxes, depreciation and amortization (Ebitda), in 2024 and 2025, by 10% and 9 %, respectively.

The upward adjustment reflects the reduction of the long-term inefficiency assumption to R$1.5 billion per year, compared to R$2.2 billion previously. “A administration of Sabesp has done a good job in adjusting the company’s overall cost base and properly handling regulatory revenues, which can further reduce inefficiencies”, say analysts Antonio Junqueira and Guilherme Bosso in a report.

Citi’s new price target for Sabesp action takes into account the current condition of the state-owned basic sanitation company in the process of privatization from Sabesp, maintaining a purchase recommendation for the stock.

With privatization, the sanitation company should earn around R$15 billion

The offer of shares to reduce the São Paulo government’s stake in Sabesp is scheduled for June, with Bradesco estimates suggesting an amount of around R$15 billion, exceeding the company’s profit in 2023 by just over four times, which was R$3.5 billion.

Sabesp is planning a follow-on for the government to sell between 15% and 30% of the company’s shares, currently holding 50.3% of the shares. Although the Tarcísio de Freitas (Republican) administration has not yet determined the Sabesp’s share of salessources close to the negotiations indicate that the state is inclined to sell 30%, the maximum allowed by legislation approved by the Legislative Assembly the previous year, according to information from the newspaper Folha de S.Paulo.

To journalist Julia Moura, from Sheet, the vice-president of Bradesco BBI, Bruno Boetger, highlighted the magnitude of the offer, considering it significant for the Brazilian market, estimating around US$3 billion. He stated that there is a strong demand for the offer, with strategic and financial companies interested in Sabesp’s follow-on.

Bradesco also shows optimism regarding new share offerings from the Sabesp in the second half of this year on the Brazilian Stock Exchange, predicting five IPOs of quality companies in this period. The bank estimates that share offerings, including IPOs and follow-ons, could total between R$40 billion and R$60 billion this year. The company closed the Ibovespa this Wednesday (3) quoted at R$ 83.48, an increase of 1.76%.