Morningstar | Enel Generacion Chile's has substantial exposure to hydro conditions.
We think growth, solid free cash flow, and low-cost generation make Enel Generacion Chile worth consideration for investors seeking infrastructure exposure to Chile's relatively stable political environment despite setbacks from low hydrological conditions. A return to normalized weather conditions should drive earnings growth, but it is tough to predict when hydro conditions will improve.Enel Generacion Chile's structural advantages support a narrow economic moat. Its low-cost generation advantage and high barriers to entry should help safeguard future cash flows and returns on capital. Economies of scale also strengthen the firm's competitive position.All of Enel Generacion Chile profits come from Chile. The company sells power to three markets: regulated distributors, unregulated industrial customers, and electricity pools. Sales to distribution companies provide steady, inflation-indexed cash flow; electricity pools are spot markets; and contracts with unregulated customers are competitive. Enel Generacion Chile's large hydroelectric base gives it a cost edge over its thermal generation competitors. This advantage can prove risky, as low hydrological conditions can force the company to purchase higher cost energy on spot markets to meet its commitments.
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