r/stocks
SBS (Sabesp) seems like a good diversification value play for those seeking non-US non-AI/tech exposure to have
SBS is a profitable Brazilian water utility with strong growth, low leverage, and a regulatory tailwind for 2033 universal coverage.
- Strong financial growth with rising revenue, EBITDA, and net income, alongside a low PE ratio of 11.5 and high ROE of 17%.
- Favorable regulatory environment driven by Brazil's 2020 Sanitation Framework mandating universal coverage by 2033.
- Solid balance sheet with manageable leverage (2.4x), ample cash, and long-dated debt maturities minimizing refinancing risk.
The Brazilian utilities company Sabesp (SBS), Companhia de Saneamento Básico do Estado de São Paulo (good luck pronouncing that). It's a potentially very interesting value play.
It's a former state-owned utility that was privatized roughly 20 months ago
- Revenue: BRL 6B (up 11% YoY)
- EBITDA: BRL 3.8B (up 26% YoY, expected to grow by 27%, margin at 62.9%)
- PE ratio: 11.5
- Net Income: BRL 1.5B (up 32% YoY, growing faster than revenue)
- CapEx: BRL 3.7B in one quarter alone (up 31% YoY)
- Net Debt: BRL 32.5B (leverage at a comfortable 2.4x EBITDA)
- Cash: BRL 19.2B on hand (covers 5+ years of debt service)
- Debt Maturity: 64% maturing in 2031 or later (near-zero refinancing risk)
- ROIC: 11% trailing (ROE at 17%)
- Headcount: Down 13% YoY (structural cost base permanently lower)
- Energy: 86% of consumption now on the free market (cost tailwind ongoing)
Brazil passed the New Sanitation Framework law in 2020, which set a national deadline requiring all water and sewage concessions to achieve universal service coverage by 2033.
As the single largest water and sewage utility in the Western Hemisphere, SBS is positioned quite well to capture this transformation. Its already serving 30 million people in São Paulo, and that customer base is not going anywhere.
I like it as an investment because every dollar I invest goes into a regulated asset base that earns a contractually defined return. Don't need a Brazilian brokerage to buy the stock, since it trades on the NYSE under the ticker SBS.
Did a deep dive on the company, and identified \~21 specific targets and milestones going forward for management's bullish thesis to properly play out. Sharing here for anyone that might find it useful (seems like this sub doesn't allow images, so added a link to it)
Interesting setup, but I’d probably underwrite it less like a cheap utility and more like a regulated infrastructure turnaround. The two awkward bits are FX and politics/regulation — BRL cash flows can look great right until the dollar reminds everyone who owns the scoreboard, and sanitation tariffs are never purely spreadsheet math. If the capex actually earns the allowed return and leverage stays around that 2-3x EBITDA zone, though, it’s a much cleaner story than most of the AI confetti flying around.