Auren Energia (AURE3) saw its stock tumble by 2.70% on the Ibovespa on Tuesday, January 25, 2024, following the release of disappointing fourth-quarter financial results. The power generator reported a staggering net loss of R$ 363.6 million, down from R$ 220.2 million net profit recorded during the same period last year.
Analysts expressed disappointment with the report, seeing Auren's financial performance as weak but slightly above expectations. The company, which recently merged with AES Brasil, noted improved market pricing conditions for energy generation contracts, yielding R$ 321 million. Nevertheless, these factors weren't enough to offset the significant decline in energy generation from its solar and wind power plants, which dropped 10% and 19%, respectively, according to Citi analysts.
"The operational performance clearly fell short, affecting both earnings and overall market sentiment," remarked André Nogueira, financial analyst with Mantaro Capital. "Auren’s generation capabilities have contracted across the board, impacting hydro, wind, and solar outputs. The company’s EBITDA dropped to R$ 389 million, reflecting a staggering 58% year-on-year decline, which was significantly below market forecasts. This raised concerns among investors about the company's financial health and its ability to deliver value."
For 2025, Safra analysts project the expected dividends from Auren could yield returns of 10.9% per share. They maintained their recommendation to buy AURE3 shares, setting a target price of R$ 17. XP similarly gave Auren a buy recommendation, with a target of R$ 13.30, marking a potential upside of 53.22% from the last closing price.
The financial setbacks stemmed from unexpected increases in financial costs and structural issues. The elevated debt levels of R$ 19 billion—5.7 times its adjusted EBITDA—are particularly concerning for both Citi and Itaú BBA, who highlighted the risk this poses for the company's future performance. Analysts fear the debt may hinder Auren's maneuverability and growth prospects. "The leverage has reached alarming levels, which the market may react negatively to, demanding higher returns for the perceived added risk," added Nogueira.
Auren's operating environment faces headwinds as its generation output failed to meet potential and contractual obligations, leading to mounting costs from differences between energy generated versus contracted amounts. The company reported significant financial burdens with R$ 962 million related to contractual obligations. The overall ability to manage this debt is under scrutiny, and analysts doubt substantial quick fixes exist to resolve the issues quickly.
Looking toward the future, Citi pointed out risks associated with Auren's elevated leverage and emphasized the need for slow and steady recovery from its current financial predicament. They highlighted the necessity for strategic moves to decrease overall debt and optimize operations.
Despite the current turmoil, there is optimism among certain analysts about synergies from the merger with AES Brasil. The newly merged entity aims to realize operations efficiencies, reporting significant personnel and service cost reductions of R$ 43.5 million since the merger, with annualized savings projected at R$ 250 million.
"We expect Auren to experience challenges, but initiatives to realize synergies may eventually aid recovery over the long run," commented we analysts from BTG Pactual.
Nevertheless, immediate concerns continue to weigh heavily—market analysts have projected flat revenue growth for the coming three years against the broader renewable energy sector's growth forecast of 5.8% for the same period. Many have raised questions about Auren's capacity to rebound effectively, with criticisms centered around the integration of new business models and operational adjustments.
Despite current market pessimism, some investors see attractiveness potential from the stock's pricing relative to its yield predictions and opportunities for growth contingent on management's actions moving forward. Auren's strategy and capability to navigate these hurdles will play formative roles as the company strives to return to profitability.
Market analysts are cautiously observing future quarters, interested to see if Auren can restore its financial equilibrium and reputation after these disheartening results.