Cemig Q2 2026 slides: EBITDA rises 9.3%, net income pressured by costs

Cemig’s Q2 2026 recurring EBITDA rose 9.3% YoY to R$ 2.5B, but recurring net income fell 15.6% to R$ 1.1B as debt costs increased; net debt climbed to R$ 19.4B and leverage rose to 2.58x vs 2.30x at YE25. The company is deploying R$ 3.3B in capital in 1H26 (49% of its R$ 6.7B plan), lifting distribution EBITDA 21.0% to R$ 1.5B and improving service quality (DEC/FEC below ANEEL limits), but trading results deteriorated (recurring EBITDA -R$ 180M) and customer migration to the free market continued (billed market -1.6%). Management expects trading to improve in 2H26 and target R$ 1.0B–R$ 1.8B of trading EBITDA in 2027–2028, while maintaining a 50% minimum payout policy and a ~10.85% dividend yield; shares fell 0.77% to $1.935.

Analysis

CIG is still an operating-quality story, but the equity is being priced on balance-sheet duration, not current EBITDA. In a high-rate Brazil, every incremental real of capex funded with debt creates a lagged drag on equity value because the regulated asset base only re-rates at the next tariff review; until then, the market tends to discount the cash flow twice: once for financing cost and again for uncertainty around renewal timing.

The second-order issue is that the company’s heavy distribution spend is defensive, not expansive. That means it protects service quality and should preserve allowed returns, but it also entrenches a treadmill where capex is required just to hold the franchise while distributed generation and free-market migration keep peeling away volume. The real winners are likely solar installers, storage vendors, and industrial customers that can arbitrage power procurement; the loser is the utility’s captive load growth and, by extension, dividend compounding.

Near term, the trading loss and higher debt expense are mostly sentiment negatives rather than cash-flow killers, so the market may already be close to pricing the bad news. The contrarian setup is that if Brazilian rates ease or management shows leverage peaking in the next 1-2 quarters, the stock can rebound sharply off a very depressed base. What would falsify that view is a further rise in net debt/EBITDA above ~2.8x, any delay in concession renewals, or a signal that free-market migration is accelerating faster than tariff adjustments can offset.

Key Decisions for Investors

• Short/underweight CIG on any bounce over the next 2-4 weeks; risk/reward favors a retest of the $1.88 low if Brazilian funding costs stay elevated. Cover if the stock closes above $2.15 or if management explicitly signals leverage has peaked.
• If using options and liquidity is adequate, buy 6-12 month CIG put spreads to express the financing-risk thesis with limited premium outlay. The thesis breaks if 3Q shows financial expense inflecting lower faster than expected.
• Relative-value idea: long EWZ / short CIG for a 1-3 month horizon to isolate CIG-specific leverage and regulatory risk while keeping Brazil macro beta partially hedged. This works best if rate-cut expectations rise but utility-specific rerating lags.
• Do not chase the dividend headline here; wait for confirmation in the next earnings print that trading losses were one-offs and that leverage stabilizes. If that happens, CIG becomes a 12-18 month hold into the 2028 tariff review rather than a near-term short.