Afluente Geração de Energia Elétrica SA :AFLU3-BR: Earnings Analysis: Q4, 2016 By the Numbers : March 10, 2017

Afluente Geração de Energia Elétrica SA reports financial results for the quarter ended December 31, 2016.

Highlights

  • Summary numbers: Revenues of BRL 9.02 million, Net Earnings of BRL 3.42 million.
  • Gross margins widened from 23.48% to 36.13% compared to the same period last year, operating (EBITDA) margins now 52.70% from 26.99%.
  • Change in operating cash flow of -56.67% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 9.02 8.17 9.98 8.22 7.86
Revenue Growth (%YOY) 14.75 11.47 38.38 32.41 13.74
Earnings (mil) 3.42 2.9 6.86 -1.96 1.57
Earnings Growth (%YOY) 117.76 417.2 321.85 -371.05 279.47
Net Margin (%) 37.91 35.43 68.66 -23.82 19.98
EPS 0.18 0.15 0.36 -0.1 0.08
Return on Equity (%) 31.26 26.66 69.07 -20.4 16.14
Return on Assets (%) 28.8 23.64 55.84 -15.9 13.36

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, AFLU3-BR‘s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if AFLU3-BR‘s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 10.40% and earnings by 18.13% compared to the previous period.

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 23.48% to 36.13% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 26.99% to 52.70% compared to the same period last year. For comparison, gross margins were 39.20% and EBITDA margins were 42.85% in the last reporting period.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

AFLU3-BR‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 71.34, compared to last year’s level of 47.78 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

AFLU3-BR‘s year-on-year change in operating cash flow of -56.67% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 20.73% to 37.84% and (2) one-time items. The company’s pretax margins are now 41.48% compared to 23.92% for the same period last year.

EBIT Margin History
PreTax Margin History

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Company Profile

Afluente Geração de Energia Elétrica SA engages in the study, plan, design, construction, operation and maintenance of electric power generation and transmission of electric energy. The company was founded on August 31, 2005 and is headquartered in Rio de Janeiro, Brazil.

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