AXIA ENERGIA (AXIA3.SA): Model Update

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AXIA ENERGIA (AXIA3.SA): Model Update

rovements in asset and cost management, potentially leading to a more stable and predictable

earnings base. Furthermore, with its privatization and ongoing turnaround nearing completion, Eletrobras is well positioned to

become a significant dividend payer, enhancing shareholder returns in the coming years. On the bearish side, the company

faces exposure to the inherent volatility of power prices, a challenge magnified by Brazil’s growing dependence on renewables.

This volatility could impact revenue stability, particularly for uncontracted generation. However, we believe the bullish

catalysts will outweigh these risks in the medium term. As the company further strengthens its operational efficiency and

reduces its uncontracted exposure, the potential for value creation remains substantial. Therefore, we maintain our Buy rating,

expecting the bullish scenario to unfold first and make Eletrobras an attractive investment in Brazil's utility sector.

Valuation

We set our target price at R$67.0/share for AXIA3 based on a sum-of-the-parts analysis of its businesses. Generation and

transmission are valued through an FCFF methodology, which entails a real WACC (in R$) of 6.0%. The main minority stakes in

listed companies are valued at Citi’s target prices for covered companies (and at market prices otherwise). Other stakes are

valued at 1.0x book value. Liabilities and other obligation payments, as well as potential tax credits / judicial deposits related

to such payments, are valued through an FCFE methodology, entailing a real Ke (in R$) of 8.5%.

Risks

The main risks to our investment thesis and target price for AXIA3 include: (1) Power Price Volatility. AXIA3 is exposed to the