Brazilian Utilities Risk: Neither too little, Nor too much

Research evidence excerpt

Brazilian Utilities Risk: Neither too little, Nor too much

J P M O R G A N Latin America Equity Research

15 May 2026

Brazilian Utilities

Risk: Neither too little, Nor too much

Risk-off reshuffle: CPFE down to Neutral, keep UW SAPR LatAm Utilities

The recent selloff in Utilities stocks (-12% in past 30 days) has reshuffled risk Arthur Pereira, CFA AC

premia in the sector and we now see fast-growing quality names no longer with (55-11) 4950-4101

demanding valuations (Figure 7ImpliedInternalRateofReturns(IRs)). In this scenario, we think investors should arthur.pereira@jpmorgan.com

Banco J.P. Morgan S.A.

avoid either: 1) too-defensive: CPFE’s tight valuation despite lower expected

yields looks unjustified, reason why we downgrade CPFE to Neutral, and 2) too-

risky: risk-taking on high uncertainty theses like SAPR is less likely as long as

high-quality names trade at 300-400bp ERP (in-line with SAPR’s base-case).

CPFE: down to Neutral with R$52 PT (10.6% real IRR)

We see CPFE’s premium valuation as unjustified amidst current sector valuation,

as CPFE trades at 10.6% real IRR vs CPLE at 11.9% (Figure 7ImpliedInternalRateofReturns(IRs)) despite offering

lower yields and slower earnings growth. CPFE has outperformed most of its peers

over the past 12M (+15% EQTL, +7% ENGI, +7% CMIG), which we think was

driven by good yields and upside risks (e.g. R$5bn self-dealing regulatory

receivable and PIS/COFINS sales taxes). However, upside risks haven’t

materialized and expected yields are lower than names offering higher upside, like

OW-rated CPLE and AXIA. We thus downgrade CPFE to Neutral as we see a lack

of catalysts and a demanding valuation vs peers.

SAPR: keep UW with R$50 PT (11.2% real IRR)

Sanepar is one of the few state-owned utilities in our coverage, which often raises