 Good day, fellow investors. As you know, I'm digging deep into Brazil because there are some opportunities opening and I'm digging deep into the Brazilian utilities sector this week. And one of those stocks that I want to discuss today, share with you my findings, is Electrobras, also to show you how I work. So this is the table that I'm looking at for the utilities. I'm going through each one of those every day to see which is the best risk reward investment opportunities and what are the earnings yields. The company I want to discuss today is Electrobras. It has 41% of Brazil's installed electric produce production capacity, so it's a must-watch company when investigating the sector. 48 gigawatts in capacity on what 160-170 gigawatts for the whole country. The key factors to watch for the company are the high debt levels, the company's and the country's debt rating, the company's owned by the government, privatization issues, which the company wants to sell and we'll discuss what's going on, the profitability is an issue because it wasn't profitable, divestitures and investments that the company is doing, risk reward investment analysis and the value of the assets, which is not what you might see on the book value. Let's go on the privatization. During the beginning of 2018 the company was likely to be privatized and that's why the stock price was also higher because the government was and the government was expecting about 3.6 billion in revenue for its share. To deal included 40-year renewed concessions, a golden government share, a max 10% vote in power for private shareholders and privatization through issues on new shares and secondary government placement. However, as you can see with the stock price, things haven't gone as planned, the political environment there isn't that stable and everything changes very quickly. The minister that worked on the deal changed in May, I think, the elections are in October, there have been delays, the congress will not be able to vote for the privatization bill. So the last blow came in June when the labor court suspended the privatization process requesting on study on how the privatization will impact the workers. So delays, delays, delays, this means that the privatization will not happen during 2019 as it was planned. However, let's look at those who run for office, those who are leading now, Silva and Bolsonaro, they are all for privatization. So this might happen if you have a longer term perspective 2-3 years on the company, which might lead to a good return, so that's the potential reward. But we'll also look at the business. The management's focus has been to lower its debt to EBITDA levels and that is going better, it was 6, now it's 3.7 and also the net debt has been lowered. The gross debt is 44 billion Reals or about 12 billion dollars and what are they planning is to do a lot of divestitures to lower that profile and improve efficiencies. So they are selling some companies, their shares in those companies plan to share, sell much more of that, about 70 special entities, 2.5 billion Reals in 2018, savings from tax optimizations, also 2.1 billion so the sales are expected to bring 5 billion over the next few years and the company will probably be slimmer and hopefully leaner if they can manage to deliver that. So they will have a lower number of companies to think about, hopefully mostly profitable and they want to make a nice company out of this and also prepare it for privatization. The issue with the company was always profitability. The company hasn't been profitable since 2012 when the government lowered electricity prices. This is a government company, the government regulated business so everything depends on political issues mostly. The management however expects to save 3 billion Reals from financing 2.5 billion per year from operationally efficiency which should turn these negative numbers into profits of about 3-4 billion Reals per year, also from operational efficiency the savings 3 billion per year. Adjusting for non-recurring items that will hopefully go away when the company stabilizes, we could see profitability improve, EBITDA improve and even a dividend in the future. The net margins are currently tied and any kind of improvement might significantly affect the bottom line. On 40 billion in revenue I expect 4 billion of net profit when things stabilize, let's say to be conservative 3 billion per year that would be profits of 2 Reals per share and perhaps a dividend. So the earnings per share 2 Reals divided by 4 which is my easy to calculate currency rate is 50 cents per share, 50 cents at the return earnings yield of 20% which we can find in Brazil now which leads to a price of 2.5 dollars. Net income might be higher from time to time but on 40 billion in revenue healthy net margin is I think 4 billion. Always think about the currency which is an interesting development but you never know where could that go so there are positive and negative risks but if 1 dollar goes down to 3 Reals we might see this company have profits of 1 dollar per share valuation of 10 we get to 10 dollar a 10 dollar stock so that's the upside. Just for the value you see price to book value is very low but then look at where the assets are. Do you know where nowhere is where electrobrasses assets are? A lot of them in the middle of it so these transmission lines those are very nice very expensive to build think that the government owns it so not every decision is made profitability from an economic standpoint but from a political standpoint developing standpoint so much of these assets are not really worth what they are on the books long term it costs a lot to service and keep operating such a long 71,000 kilometer transmission lines. Stable let's say comparable to other companies that I have analyzed we are at a 20 required yield 0.5 dollars EPS 2.5 would be my price with the risk reward that I would look and probably invest in electrobrass we are at 3.5 for now so a lot more downside there but with the turmoil with the elections coming in October we might even see that and then when and if things stabilize after the elections the stock might really spike to 6, 7 where it was just a few months ago in light of privatization maybe in 2020 so there is risk the risk volatility if you can handle it if you can stomach it the upside is also very very nice especially if the management delivers so that's also something to keep an eye on thank you for watching looking forward to your comments check my services in the link below and I'll see you in the next video