27 Apr 2011

Water services in Sao Paulo, Brazil

MS asks:
I was wondering what you think of the sanitation and water policies going on in Sao Paulo, Brazil. The organization handling infrastructure in this area in a private-public company called Sabesp (the government owns a majority stake in the company). Do you think it is doing a good job? Do you think that Sao Paulo needs to make some major investments in the area of sanitation, clean water, and access to potable water? For the record, I own some stock in Sabesp.
I've never been to Sao Paulo and I don't know anything about Sabesp, so what can I say to an investor?
  1. A company's share price reflects expectations of future profits. If that expectation is too high, than the price will go down.
  2. Profits at Sabesp will depend on its ability to meet performance targets, the government line on water prices, current and future service areas, the cost of debt and the balance between required and useful investments.
  3. The items in #2 will fluctuate with market AND political sentiments. It's possible to guess where they will be by looking at other infrastructure developments and political actions in Brazil. 
  4. President Rousseff, like Lula, appears to understand the benefits of political and legal stability.
How well is Sabesp doing?

Maybe you want to go visit The International Benchmarking Network for Water and Sanitation Utilities (IBNET, a project I have a small affiliation with) and get some data:

Bottom Line: Investing is about being smarter than the average person or willing to take more risks to get more rewards. Everything else is sales propaganda or fraud.