We set our target price at R$11.0/share for AURE3 valued through a FCFE methodology for 2025-2055 period. Key assumptions include a real Ke of 9.0% and conventional energy prices at R$150/MWh for 2025+ (for incentivized ones, we consider a +R$30/MWh premium). Besides that, we do model curtailments but don’t take them into consideration in setting our target price.

Key risks to our target price include the following:

(i) M&A Synergies. We believe the merger with AES Brasil should trigger substantial value creation through corporate, operational, and financial synergies – we estimate ~R$2bn in synergies gains. That said, if the company is not able to capture the projected synergies, it could pose a downside risk to our target price. 

(ii) Curtailment. As of 2024, there were significant generation cuts which were not uniformly distributed among the regions, with Ceará and Rio Grande do Norte being the most affected. While batteries and regulation don’t improve, we believe it will continue affecting generators, mainly those more exposed to the above regions, namely AES.