A CIG-nificant Other

There's no economic input more basic than electricity. Take the juice away, and we're all still basically a bunch of cavemen pounding on rocks. So it's no great surprise that investments in basic infrastructure plays like power utilities have been a historically good way to profit from the growth in emerging economies. While Brazil isn't exactly "emerging" anymore, CompanhiaEnergetica de Minas Gerais (NYSE: CIG  ) , or CEMIG, could yet prove an interesting way to invest in a large economy with relatively few liquid stocks in America.

CEMIG is a state-owned power generator and transmitter focused on the Brazilian state of Minas Gerais, the second-most-populous state in Brazil, though not home to any cities well-known to most Americans. Not only does CEMIG have millions of customers at home to serve, but also it is increasingly investing in energy ventures serving other states, as well as an initial foray into transmission in Chile.

Admittedly, its first-quarter results don't look that great. Revenue was up just 5% despite a 13% boost in retail energy sales. Reported EBIT fell 24%, EBITDA dropped 19%, and net income fell 38%. Results were actually a bit better than that, though, because of the impact of deferred transmission costs and year-ago tariff readjustment. Subtract those items, and adjusted EBITDA more than doubled. In addition, the company was strongly free cash flow-positive this quarter.

Of course, there are risks to this story. More than 60% of the company's retail electricity goes to industrial customers, and roughly half of that to the metallurgy industry (like CVRD (NYSE: RIO  ) ). What's more, there is all manner of potential issues relating to rate increases, payments from government groups, and so on. But all in all, I think it's still fair to say that CEMIG is a credible play on the economic growth of Brazil. The huge percentage of CEMIG's power that comes from hydroelectric sources isn't a bad thing, either.

There are plenty of international energy plays, from China's HuanengPower (NYSE: HNP  ) to Europe's E.ON (NYSE: EON  ) to other Brazilian operators such as CPFL Energia (NYSE: CPL  ) , Energiasde Portugal (NYSE: EDP  ) , and COPEL (NYSE: ELP  ) . And while international investing, particularly in heavily regulated industries, will always carry an above-average risk, CEMIG's valuation might yet make it worth further exploration by foreign-minded Fools.

For more electrifying Foolishness:

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


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