Compass SA: Carry & Convexity: initiate with OW

Research evidence excerpt

Compass SA: Carry & Convexity: initiate with OW

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

17 June 2026

Initiation

Compass SA Overweight

PASS3.SA, PASS3 BZ

Carry & Convexity: initiate with OW Price (16 Jun 26):R$24.99

Price Target (Dec-27):R$34.00

Carry...and Convexity: ~R$1.5bn/year dividends from regulatory returns LatAm Utilities

supporting a potentially exponential business with 20% EBITDA CAGR not AC Arthur Pereira, CFA

priced in. We initiate coverage on gas distribution & services Compass at OW. (55-11) 4950-4101

arthur.pereira@jpmorgan.com

Compass brings a rare combination to our Utilities coverage as the most exposed Banco J.P. Morgan S.A.

name to Brazil’s fast-growing gas sector: 1) Carry (gas distribution): low-risk

generating ~R$1.5bn/year dividends from regulatory allowed returns, supporting

2) Convexity (gas services): a business that could grow at 20% CAGR in the next Figure 1: PASS3 vs EQTL3 and SBSP3

five years, but the current share price seems to discount only a ~40% probability

of this materializing. We thus initiate coverage with an OW rating and R$34 Dec

2027 price target (36% upside potential and 12% real IRR).

Carry: cash flow visibility and reinvestment opportunity

Compass’s regulated business offers predictable cash flows and dividend stream

(JPMe ~R$1.5bn/year in 2026-30e), which we see as a valuation anchor for the

company (62% of our price target but ~80% of current market cap). Moreover, we

see growth potential both organic, due to low penetration of gas distribution and

attractive regulatory returns (~8% real, after tax), and 2) inorganic, through

potential M&A and privatizations.

Source: J.P. Morgan estimates

Convexity: unknown potential but known edges

The main unknown in Compass’s valuation is likely to be around its Edge