Equatorial 1Q26: Mixed Ops, Positive Liability Management

Research evidence excerpt

Equatorial 1Q26: Mixed Ops, Positive Liability Management

Arthur Pereira, CFA AC Latin America Equity Research

(55-11) 4950-4101 13 May 2026 J P M O R G A N

arthur.pereira@jpmorgan.com

Investment Thesis, Valuation and Risks

Equatorial (Overweight; Price Target: R$51.00)

Investment Thesis

Equatorial is a corporation with a first-class management team oriented to growth via

acquisitions and turnaround of distressed assets. The company operates electricity

distribution concessions in states outperforming Brazil’s average electricity volume growth

and RAB expansion. In addition to the distribution division, Equatorial owns high-quality

transmission lines; a renewable energy and commercialization business; a 15% strategic

stake in SP-based sanitation company Sabesp, making it the operating partner, among other

smaller assets. We think the combination of appealing valuation and good growth prospects

warrants an OW rating for EQTL3. Other players offer similar features (volume growth,

RAB expansion, diversified cash flows, interest rate sensitivity), but EQTL3’s execution

has been second to none, in our view.

Valuation

Our Dec 2026 price target of R$51 is derived using a SOTP model with a 9% real cost of

equity and paying the net RAB at the end of concessions. Key assumptions: (i) regulatory

WACC of 8%; (ii) no additional M&A upside.

Risks to Rating and Price Target

Expensive M&A, growth in sanitation. New acquisitions that don’t make strategic and/or

economic sense, destroying value for shareholders, would pose downside risks to our

estimates and valuation. CAPEX, bonus grants and potential returns, as well as specific

auction dates, are still to be defined. Equatorial is actively monitoring these opportunities,