Companhia de Saneamento Basico do Estado de Sao Paulo (Sabesp), a Value Fund holding, was featured in a May 1, 2010 Barron’s article.
Sabesp provides water distribution (23.2 million customers) and sewage services (19.5 million customers) in the state of Sao Paulo, Brazil. This is 60% of the urban population,and 364 of the 645 municipalities. The company also sells treated wholesale water to six municipalities (3.4 million people).
Approximately three quarters of Sabesp’s revenues come from the metropolitan area of the city of Sao Paul. There is potential to gain business from new urban areas, as the city expands geographically to accommodate population growth. Estimates suggest there are up to 16 million urban residents outside the city, but within the state of Sao Paulo. Through 2018, the company expects to increase water and sewer services by over 1.4 million and 1.6 million, respectively.
Sabesp has won rate increases in six of the past eight years and we believe this trend will continue. The State regulatory agency seems to understand the need for rate increases to keep pace with inflation, and the costs associated with providing better infrastructure. We believe this pricing power will support Sabesp’s ability to earn a positive return.
The writer of the Barron's article says it best; “Sabesp is a cheap way to play the growing global market for clean water.”
As of 3/31/10, Companhia de Saneamento Basico do Estado de Sao Paulo (Sabesp) was 2.07% of the Value Fund's total net assets.
Portfolio holdings and manager views are subject to change without notice, and discussions of portfolio holdings are intended as illustrations of investment strategy, not as recommendations.
The Value Fund invests primarily in small companies selected on a value basis. Such securities generally are more volatile and less liquid than those of larger companies and there is risk that their intrinsic values may not be recognized by the broad market.