Compass Gas e Energia SA "Pipeline to growth - Initiating with Buy" (Buy) Ajeje

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Compass Gas e Energia SA "Pipeline to growth - Initiating with Buy" (Buy) Ajeje

Compass Gas e Energia SA UBS Research

UBS Research THESIS MAP Thesisa guideMapto our thinking and what´s where in this report

Pivotal Questions Q: Will Edge benefit from free market growth and grow volumes?

Yes. Main growth avenues should be monetizing thermoelectric demand,the B2B business expansion

and the free market. Across these vectors, we model total volumes for Edge reaching 19 mn m³/day,

against ~4.2 mn m³/day today resulting in an EBITDA CAGR (2030) of 35%.

Q: Will Compass' DisCos grow volumes?

We mainly believe distribution companies will struggle growing volumes because (i) non-

thermoelectric demand for distributors has historically decreased (ii) and most of the market growth

nowadays is captured outside the captive market. While our thesis is explicitly that regulated

distributors will not grow volumes in any meaningful way (for Comgas, Compass' biggest distribution

company, we model a volume growth of only 1% in the long term), we see the distributors (mainly

Comgas) as key anchors for Compass' valuation since their predictability offer interesting dividend

payouts and inflation linked cash flows. Our model implies a 26-30 EBITDA CAGR of 6% for Disco.

UBS VIEW We are Buy rated on Compass as we see growth to capture on Edge (13% of 2025 EBITDA) through

(i) the increase of the free market (with12.8 mn m³/day still captive and likely to migrate), (ii) the

demand from the LRCAP (we model Edge capturing 5 mn m³/day of this opportunity) and (iii) the off-

grid LNG business (which is envisioning Phase 2 expansion to 3-4 mn m³/day - a 10x scale-up from

current capacity). Across these vectors, we model total volumes for Edge reaching 19 mn m³/day ,