LIGT3 stock closed 15.62% lower after CEO exit; Action plan will be maintained

the light (LIGT3) recorded a sharp decline in the Thursday (30) session, amid news of the departure of its CEO. LIGT3 assets decreased by 15.62% to R$ 5.78.

The day before, the company announced Raimundo Nonato Alencar de Castro’s resignation for personal reasons from the position of CEO of the electric company.

The resignation in question also covers all positions held by the aforementioned Director in the management bodies of other controlled or affiliated companies.

The position in question will be filled on a temporary basis by Wilson Martins Poet.

It was Castro of Equatorial Energia (EQTL3) and switched to Light in 2020, leading to market speculation. According to JPMorgan, the departure of a CEO may be an indication by the market of lack of confidence in the company’s recovery. The bank’s analysts have a sell recommendation for the asset, with a target price of R$9.

‘Lite case is one of the turn around [virada], largely on the basis of the company’s management ability to make necessary improvements. It adds to the fact that the day before there was a decision on returning the PIS / COFINS balances, which were negative for the company, assesses Alexander Kocak, an analyst at Eleven Financial.

Along the same lines, Ativa Investimentos highlighted the reading of the news as negative. “The figure for Raimundo Nonato, a recognized executive with experience in turnaround situations, was significant and conveyed reliability to the process that the company needs to implement over the coming quarters,” Aldar analysts wrote.

Following changes in management and uncertainties surrounding the company, UBS BB put its target price and recommendation for the paper, which until then had been a purchase, under review.

Analysts recall that Castro’s resignation came just months after Firmino Sampaio resigned as Chairman of the Board. “Both joined the company in 2020, with a promise to improve non-technical losses and were previously in Equatorial, which also has complex franchises “, this confirms Analysts.

Investors welcomed their entry into Light at the time, with shares up 20% on the news.

We have previously argued that non-technical losses are a structural problem with the franchise in Rio de Janeiro and not a problem for the company. Since the market considered them to be the team that could change the direction of the company, the market reaction was very negative,” they assessed.

Analysts still do not believe that the company can reduce non-technical losses without government support. Energy losses are one of the most sensitive and complex issues for light.

UBS BB estimates that for every 100 basis points (bps) change in non-technical energy losses in 2022, projected 2022 EBITDA will change by 300 basis points, or an additional R$80 million in cash flow. The excess amount paid by consumers of electricity by ICMS on the basis of the PIS/Cofins account.

This means that there will be a tariff reduction for consumers. However, we believe it may affect cash flow for energy distributors, since the tax credit registered, for companies under our coverage, is greater than the annual payment capacity for federal taxes,” they concluded.

The action plan is on-going

After concluding, Light stated in a note that he will continue to implement his board-approved business plan and focus on a loss control strategy.

“At this moment, the Chairman of the Board, Wilson Martins Poet, has taken over the leadership of the companies temporarily. He noted that the Board of Directors is already working on the search for a new CEO who will maintain focus and give continuity to the company’s business plan.

According to the electric company, the strategy adopted by the current administration to enhance loss control, improve service continuity indicators, and implement Light’s digital transformation has yielded results. He said that even in a challenging socio-economic context, in one year, the company improved its revenue by 1.2 percentage points (pp).

“Basic Zero Budget Transfers (OBZ) and cost reductions, currently underway, are proceeding as planned.”

Regarding the characteristics of its areas of operation, Light notes that the National Electric Energy Agency (Aneel) recognizes that the company faces challenges not found in other regions of the country. Therefore, during the tariff review, in March, the agency recognized a higher level of regulatory losses, rising from 36% to 40%, which is a gain for the company.

The Board approved the “Lite” business plan, which includes combating losses and improving revenues. The underpinnings of this plan have already been cemented into the management of Nonato de Castro and the Executive Board, who remains with the company. “The company’s recent results show that we are on the right track, facing unique challenges in our franchise region,” interim CEO Wilson Martins-Boet said in the memo.

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