Our ChP 395 /share target price for Aguas Andinas is derived from a DCF valuation. This is based upon a 10-year discounted cash flow with further years using a perpetuity. Our WACC (ChP nominal) is 8.15%, which considers a risk-free rate of 4.0% in USD, equity risk premium of 5.3%, country risk premium of 0.90% and an inflation difference of 1% between the United States and Chile.

Main risks to our investment thesis are:


(i) Hydrological outcome in the central part of Chile. This area has suffered the impact of the climate change, and for the last decade has been undergoing through the driest years in the records. Though previous years’ rainfall can affect water purchases for the current year, long-term outlook seems to remain unchanged.


(ii) Regulatory changes proposals. These can come in the form of changes to the Water Code, any law or rulings by the Superintendence or the government.  


(iii) Tariff adjustments in new processes. The CTLPN has to be negotiated between both parties, and the tariff is defined by a regulatory return rate floor. Any changes to previous considerations can significantly impact on the company’s revenues.