EUR 850.00 For Business Accounts Only

Morningstar | Enel Americas' $3 Billion Capital Increase on Track for Third-Quarter Close

Enel Americas provides investors with an attractive yield and growth combination in a pure-play Latin American utility with total return potential greater than utilities in developed countries.After spinning off Enersis Chile in 2016, Enel Americas has utility operations in Argentina, Brazil, Colombia, and Peru. Although these economies have had a tough time since 2015, the recovery in Latin America is slowly gaining traction. This should lead to strong electricity demand and customer growth in all of Enel Americas' service territories.The company has a decent dividend, which we believe is secure, owing in large part to a solid balance sheet and conservative payout ratio of about 50%. Unlike U.S. utilities, Enel Americas adjusts its dividend up or down with prior-year earnings. Still, the company offers investors an attractive combination of growth and income with exposure to developing markets in Latin America. In addition to operations in developing countries, shareholders face risk due to their minority position. Enel Americas is approximately 56% owned by Enel S.p.A., an Italian energy holding company. Several years ago, Enel Americas' management, with approval of its board, was willing to significantly overpay for the assets its largest shareholder was contributing as its share of the capital increase. Pension fund managers, owners of about 14% of the company at that time, and regulators brought discipline to the process, hiring financial consultants, and through negotiation reduced the amount for the assets by $1.2 billion, approximately 25%.Enel S.p.A. remains in control of Enel Americas through its share ownership and a revolving door of senior management who usually have strong ties to Enel S.p.A. This remains a material concern and is the primary reason for our poor stewardship rating. However, terms of the planned $3 billion capital increase in 2019 require Enel S.p.A. to contribute cash for its portion of the new shares.