Bradesco BBI reaffirmed its neutral recommendation for shares of Copasa (CSMG3), as the Minas Gerais-based sanitation company has a share price target of R$56.
According to local media outlet InfoMoney, the valuation translates to a 35% rise from the stock’s closing price in November. Already up around 100% year-to-date, Copasa’s shares have been bolstered by rising privatization hopes.
The government of Minas Gerais has taken key moves towards a sale, which is projected to take place in 1Q 2026.
ARSAE’s regulatory changes, both implemented and expected, strengthen the investment case regardless of the exact timing of privatization.
In this context, the bank revised its estimates based on a 99% probability for the privatization of Copasa.
BBI anticipates strong operational enhancement in private ownership, supported by simplified cost bases and annual capex, which would flow back to the RAB regularly, similar to São Paulo’s Sabesp.
EBITDA and earnings growth under privatization assumptions
Assuming Copasa goes private, BBI predicts a compound annual growth rate (CAGR) of 17% for EBITDA and 16% for EPS between 2025 and 2030.
These forecasts are based on lower operational expenses and increased profitability as investments translate into regulated revenue sources.
With efficiency gains becoming crucial to the value argument, the bank believes Copasa is poised to significantly increase its earnings capacity in the second part of the decade.
Dividend possibilities are also improving under this forecast. Copasa is not expected to suffer bylaw limits on distributions, allowing BBI to maintain a consistent 75% yearly distribution.
Dividend yields could be around 7% in fiscal year 2026, rising to over 8% in 2027, 11% in 2028, and more than 12% from 2029 onward.
Despite the neutral rating, BBI believes that growing yields provide an appealing buffer for income-focused investors.
Valuation scenarios: from R$80 to R$32
BBI’s basic scenario assumes a target price of R$56 per share. However, the bank proposes two possible paths based on political and regulatory results.
In an optimistic scenario, a privatized Copasa may achieve R$80 per share by the end of 2026, representing a 92% increase.
This value implies the corporation achieves a deeper operating expense reduction of roughly 50% and benefits from a compression of the IRR or discount rate to 8.5%, which is only 100 basis points more than the real yield of NTN-B bonds.
These advantages would be boosted by higher dividend yields.
In a pessimistic scenario, in which privatization is cancelled or postponed, and Copasa remains state-controlled, the fair value falls to approximately R$32 per share, representing a 24% devaluation.
BBI observes that the drop in NPV is mitigated by regulatory actions that are likely to be confirmed soon and implemented regardless of ownership, particularly the yearly capex and RAB update.
Despite emphasizing the risk, the bank believes this scenario is unlikely given the recent political momentum.
Why Minas Gerais is accelerating the sale
The financial pressures confronting Minas Gerais are a main reason, according to gas analysts at BBI, for the state’s sense of urgency.
For decades, Minas Gerais has been mired in acute fiscal crises, including a R$150 billion debt to the federal government.
Negotiations, which continue, aim to lighten this load by means of concessions such as smaller interest rates and part of the payment made with national property.
While Copasa itself is not one of the assets flagged for federal transfer, the state still needs a significant amount to meet investment commitments related to the debt pact.
Minas Gerais, to meet these commitments, is offering to sell most of its 50.1% stake in Copasa, probably keeping 10%-15%, with 10%-vote rights.
BBI states these measures are key to restoring state accounts and help stabilize the accounts of the state.
In fact, recent legislative moves further point to the determination of the government.
Copasa’s privatization bill initially required a popular referendum before lawmakers could vote; this constitutional requirement was successfully negotiated out by Minas Gerais.
By skipping this step, there is less political blowback, which clears a huge obstacle to the proposed sale in 2026.
Key steps ahead: concessions, fees, and regulatory alignment
Before the privatization can be finalized, several milestones remain.
Copasa must secure approval from the State’s Court of Auditors for Transparency of Tax Credits (TCE) and negotiate a new concession contract with Belo Horizonte, which accounts for one-third of the company’s revenue.
The contract is expected to extend the city’s concession from 2034 to 2073 and may require Copasa to pay a fee estimated between R$1 billion and R$1.5 billion, which would likely be added to the RAB.
The other 636 municipalities served by Copasa typically follow Belo Horizonte’s lead and are unlikely to demand substantial additional concession fees due to their limited bargaining power.
While the updated BH contract is expected to incorporate improved regulatory provisions, BBI notes that the framework may not reach the same breadth as that seen with Sabesp.
Several milestones must be met before the privatization can be finalized.
Copasa must obtain clearance from the State Court of Auditors for Transparency of Tax Credits (TCE) and negotiate a new concession contract with Belo Horizonte, which generates one-third of the company’s revenue.
The contract is planned to extend the city’s concession from 2034 to 2073, and Copasa may be required to pay a price ranging from R$1 billion to R$1.5 billion, which will most likely be added to RAB.
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