Episode Details

SABESP (SBS) Q2 2026 — Q2 2026 (quarter ended June 30; the 6-K cleared EDGAR 18:55 ET Wednesday August 12, AFTER the close, so Thursday August 13 IS the reaction session: it opened -4.71 pct at USD4.86 and CLOSED -8.24 pct at USD4.68 on 5.05x normal volume.) Companhia de Saneamento Basico do Estado de Sao Paulo is the water and sewage utility for Sao Paulo state - 371 municipalities, privatised in 2024. Q2 adjusted EBITDA fell 3.2 pct. Adjusted net income fell 41.2 pct. The gap is the financial line. THE CALL: HOLD (3/5, MEDIUM - A GOOD ASSET, ALREADY PAID FOR) — base-case value ~$4.24 vs ~$4.60 today. KEY METRICS: - CALL: HOLD, 3/5. Fair value USD4.24 an ADS (R$22.09 a share) vs the USD4.60 close, -7.9 pct. Three roads weighted 50/20/30: 1.25x the concession base gives R$21.84, 10x trailing earnings of R$2.27 gives R$22.70, 8x annualised adjusted EBITDA gives R$22.10. BEAR USD3.42, BULL USD5.66. - THE ANGLE - THIS IS A RATES STORY, NOT A WATER STORY. Interest and charges on borrowings rose R$825.3M year on year while adjusted net revenue rose R$378M: 2.18x faster. Adjusted EBITDA fell just 3.2 pct but adjusted net income fell 41.2 pct, and 76 pct of the pre-tax decline is the financial line. - LONG INFLATION, SHORT THE REAL RATE. CDI-linked borrowings went from R$30.7bn to R$43.3bn in six months - 82 pct of the whole stack. Net of cash that is a R$26.4bn CDI liability costing R$3.7bn a year at 13.98 pct, against a R$17.0bn IPCA-linked concession asset earning R$693M a year. - THE REGULATED SPREAD IS 158 BASIS POINTS. ARSESP allows 7.86 pct real post-tax on the base. CDI money at 13.98 pct nominal, with IPCA at 4.07 pct, costs 6.28 pct real after 34 pct tax. Every debt-funded real of the R$20bn-a-year capex earns that point and a half, before any overrun. - THE PRINT: adjusted EPS R$0.33 vs R$0.57; reported IFRS R$0.41 vs R$0.62. Net revenue R$10,209M was a record but R$3,616M is IFRIC 12 construction revenue earning R$13.3M of margin. Q2 2025 also carried about R$200M of legal releases plus a R$280.3M financial credit - clean, the fall is 29.8 pct. - THE TARIFF WORKED, THE CUSTOMER DID NOT. The average rate rose 9.4 pct to R$6.01 a cubic metre but billed volume rose only 0.8 pct and mix took 3.1 pct back out as social tariffs expanded. Net price landed at 8.7 pct against a 9.9 pct schedule. Active water connections FELL 0.2 pct. - THE PRICE RECONCILES. 1 ADS = 1 ordinary share, unchanged; the 28 April 2026 EGM approved a 1:5 split and BNY Mellon issued four extra ADRs per ADR. 3,524,534,025 shares x USD4.60 = USD16.21bn. USD4.60 x 5.2132 = R$23.98 against SBSP3 near R$24.28. Screens quoting 683M shares are pre-split. What to watch: UP: a January 2027 ARSESP tariff adjustment materially above inflation (January 2026 delivered 6.5 pct); or Selic cuts below 13 pct, worth about R$264M a year per 100 bps on the net floating book. DOWN: one more quarter of services up 39 pct and chemicals up 97 pct. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision. Learn investing free in the Charged Alpha app: https://chargedalpha.com/app?source=youtube&ref=video Educational only. Not financial advice.