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Page 1: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

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Page 2: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

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Page 3: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Introduction Dear client, We are proud to present the first edition of our Andean Equities Guide, which covers 71 companies across Chile, Colombia and Peru and includes our 2014 investment strategy for each market as well as for the region as a whole. While we expect to expand our coverage in upcoming releases, we are hopeful that this guide can be a good reflection of our goal to become the “go to” financial institution providing the best service in detecting investment opportunities in the region, through independent, timely, and value added research. Constituted early this year, Credicorp Capital is a regional financial services group combining the wealth of experience, market position and expertise of three leading institutions: BCP Capital in Peru, Correval in Colombia, and IM Trust in Chile. We are confident that the combination of these institutions has and will continue to deliver substantial value to our clients, investors and issuers alike, as we expand our scope and capabilities to a region that is increasingly becoming the “new extended home turf” of many Chilean, Colombian and Peruvian companies. In this guide you will find plenty of examples of companies that operate in two or three of these markets. Our substantial local presence in each of them provides us with an edge to better understanding their business models and expansion plans. We also recognize that in the asset management community, these countries are considered to be one big market, which combines a total market capitalization in excess of USD650 billion. We believe that matching our clients’ scope of analysis will more closely align our capabilities with their needs. We hope that you will find this report useful. It is the result of the work of a team of 23 equity analysts and economists located in Bogota, Lima and Santiago. As locals, we truly aim at becoming your eyes and ears across the Andes, a region which we can confidently say is known by no one better than by ourselves. Best regards,

Christian Laub CEO Credicorp Capital

3 Andean Equities Guide, October 25th 2013

Page 4: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Contents

Andean Equities Guide

The Andrean Region: a mixed bag 5Andean Top Picks 6A word on correlations and diversification 8Changes in Recommendations 9

Chile: Chile Equity Strategy - Summary 10Economy driven by domestic consumption 11Corporate Earnings to grow, at last! 13Market Valuations and Upside Estimation 14Politics: Bachelet, vintage 2014 16The Regulatory Agenda 17Investment Flows 18ECM activity charging a toll 19Stocks we like in Chile 20

Colombia: Colombia Equity Strategy - Summary 21Macro 22Elections 2014: increasing risks? 24Peace talks have a difficult path ahead 26Infrastructure: waiting for the start of the economy’s long term engine 27Market Valuations and Upside Estimation 28Investment Flows 30Upcoming ECM Activity 31Volume reduction: Colombia losing some stamina? 32Strategy and Top Picks 33

Peru: Peru Equity Strategy - Summary 34Macro: waiting for the infrastructure boost 35Rebound in corporate earnings / Market valuations and IGBVL upside 36Administrative bottlenecks and regional elections in 2014 38Investment Flows and ETF volatility 39Our stock selection in Peru 40

Quantitative Summary 41

Company Snapshot

Aceros Arequipa Peru 50 El Brocal Peru 122AES Gener Chile 52 Embonor-B Chile 124Aguas-A Chile 54 Endesa Chile 126AIH Peru 56 Enersis Chile 128Alicorp Peru 58 Enersur Peru 130Andina-B Chile 60 Entel Chile 132Atacocha Peru 62 Falabella Chile 134Austral Peru 64 Ferreycorp Peru 136Bancolombia Colombia 66 Forus Chile 138Banco de Chile Chile 68 Graña y Montero Peru 140Banmedica Chile 70 Grupo Argos Colombia 142BCI Chile 72 Grupo Aval Colombia 144Besalco Chile 74 Grupo Sura Colombia 146Buenaventura Peru 76 Habitat Chile 148CAP Chile 78 ILC Chile 150Casa Grande Peru 80 ISA Colombia 152CCU Chile 82 Isagen Colombia 154Celsia Colombia 84 Latam Chile 156Cemargos Colombia 86 Luz del Sur Peru 158C. Pacasmayo Peru 88 Masisa Chile 160Cemex Latam Holdings Colombia 90 Milpo Peru 162Cencosud Chile 92 Minsur Peru 164Cerro Verde Peru 94 Nutresa Colombia 166CMPC Chile 96 Pacific Rubiales Colombia 168Colbun Chile 98 Parauco Chile 170Concha y Toro Chile 100 Ripley Corp. Chile 172Copec Chile 102 Salfacorp Chile 174Corficolombiana Colombia 104 Santander Chile 176Corpbanca Chile 106 Siderperu Peru 178Cruz Blanca Chile 108 SK Chile 180Davivienda Colombia 110 SM Chile B Chile 182E-CL Chile 112 Sonda Chile 184Ecopetrol Colombia 114 SQM-B Chile 186Edegel Peru 116 Unacem Peru 188Edelnor Peru 118 Volcan Peru 190EEB Colombia 120

Page 5: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

The Andean Region: a mixed bag

Heinrich Lessau #56-2-2446 1704

[email protected] After some time looking at our markets, meeting with the companies mentioned in this report, contacting regulators and talking to many investors, big and small, we finally think this report is ready to be published. This is far from saying it is finished and we expect to improve in future releases. We hope you enjoy it and we thank you for your feedback! These are some of our findings:

• The global economic turmoil hurt Chile, Colombia and Peru, with lower commodity prices being the main contagion vehicle. Economic growth, however has remained resilient in the three countries. High global liquidity levels, flexible exchange rates and sound fiscal and private balance sheets have allowed domestic demand to remain solid.

• Colombia and Peru are mildly accelerating, on the back of strong consumption and mostly reflecting much-needed catch-ups in infrastructure. Chile is in a slight decelerating path in which private consumption (fueled by record-low unemployment) is compensating the slowdown in investments and fiscal spending.

• Consistently, inflationary pressures are lowest in Chile, whose Central Bank is entering a loosening phase, while CBs in Colombia and Peru are more hawkish.

• A recovering global economy may fuel exports. We believe higher commodity prices and stabilized Chinese demand for raw materials are already priced in in most commodity plays in the region. Some Peruvian mining companies, Copec in Chile and Pacific Rubiales in Colombia are the main exceptions.

• Unlike what has happened in recent history in the region, politics are causing the most noise in Chile, with presidential elections taking place next November and with the upcoming government expected to make a shift to the left. In Peru, the government is dealing with low approval rates, but with no major election in sight, it is focusing on unleashing investments through cutting red tape and dealing with bureaucracy. Most Colombians are skeptical on the peace talks which seem to be the straw at which the government is clutching at, in order to gain popularity.

• Recovering from weak commodity prices, cost pressures, and also on the back of the maturation of investments, corporate earnings will grow across the three countries in 2014, with companies in Peru posting the strongest recovery (25%) as it is mostly exposed to commodities through its mining components. Profits in Chile and Colombia will grow at 19% and 13%, respectively.

• Valuations in the three markets are mostly in line with their historic averages. We do not have a strong preference for any of the three, with bottom-up analysis really driving our suggested allocations. We highlight, however, that we see the biggest downside risk to our forecasts in Chile, coming from a potential hike in corporate taxes next year. We see upsides of 13% in Chile and Peru, and 12% in Colombia.

• YTD flows from foreign investors have been negative in Chile and in Peru, while Colombia has enjoyed continuous inflows.

5 Andean Equities Guide, October 25th 2013

Page 6: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Performance of Andean Markets (Oct- 2009, to date) . Sources: Bloomberg and Credicorp Capital

Andean top picks Our stock selection process is favoring companies exposed to the domestic cycle, taking advantage of strong consumption patters in the three markets. At a sector level, in Chile we like retailers, banks and utilities. Colombian banks are among our favorite sectors. In Peru we see opportunities in some mining companies which are delivering margin improvements but we still prefer to put our main bets on companies exposed to the expected infrastructure boom. Our favorite names are:

• Cementos Pacasmayo (Buy; TP: PEN 7.9) We like the company’s medium-term strategy of expanding its capacity to cope with higher cement demand in a fast-growing market. Pacasmayo is poised to remain the unchallenged leader in the cement and related-products industry in the Northern Peruvian market and it falls within our strategy of favoring names with exposure to the local economy.

• Davivienda (Buy; TP: COP 30,560). We are overweighting the Colombian banking

sector, based on attractive valuations, estimates on loans’ growth for 2014 and improving NIMs. Davivienda is our high conviction play in the industry as we expect it to deliver the highest earnings growth in the next 5 years with the lowest dilution risk.

• Enersis (Buy; TP: CLP 200). We like the company’s extremely low valuations,

compared to its history and its peers, combined with a diversified business model and stable cash generation. In addition, we expect potential M&A activity to provide medium term catalysts.

• Falabella (Buy; TP: CLP 6,000): is amongst our preferred retail stocks across the Andean as we see it as the quality asset in the sector. We expect the company to post the highest average EPS growth over the medium term, boosted by growth in consumption, increased sales space and margin improvements. We like the company’s recent entrance into Brazil, which should provide additional upside to our long term estimates.

114

130

105

161

87

60

80

100

120

140

160

180

Oct-

09

Oct-

10

Oct-

11

Oct-

12

Oct-

13

CHILE COLOMBIA PERU S&P EQUITIES LATAM

6 Andean Equities Guide, October 25th 2013

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• Graña y Montero (Buy; TP: PEN 13.8). has the knowledge, people and scale (after

its recent IPO) to take advantage of the next investment boom to reduce Peru’s infrastructure and housing gaps, supported by the organization of the Pan-American Games in Lima in 2019. The consolidation in Chile and Colombia would transform GyM in a Top company in Latin America.

Andean Picks .

Sources: Bloomberg, Company Reports and Credicorp Capital a Simple average, excluding Market Capitalization b Prices in local currencies

About our stock selection Our rating system (Buy; Hold; Underperform) is aimed at identifying stocks with the potential to outperform, perform in line and underperform their respective local indices. As a regional financial services group, we serve an array of different investors, ranging from local retail to global institutional funds. We truly believe they all want to hear from us! In order to accommodate our ideas to different needs, we have come up with a two-tiered stock selection process, with regional and local top picks. For investors dealing with diversified portfolios in either Chile, Colombia or Peru, we suggest a list of five locally listed stocks. These names reflect our preferences in local companies in each of the three markets and since they are mostly intended for domestic or dedicated foreign investors, they will tend to be less demanding in terms of traded volumes. In the sections on Chile, Colombia and Peru you will find our 5 local picks for each respective market. We also realize that a list of 15 names across the Andes could be of little use for investors running emerging or global portfolios. Hence an extra effort to boil down those ideas to a list of no more than five names is necessary. We will call these ideas our Andean Top Picks which are shown in the previous section. We apologize for the inconveniences that this rather complex stock selection process may produce. After spending some time on it, we concluded that it is the best approach to serve our diverse customer base.

Price Target Mkt. 12-18 Month

oct-22 Price b Upside (USD mn) 2012 2013E 2014E 2012 2013E 2014E P/BV Div Yield Tot. Upside

Cementos Pacasmayo 6.4 7.9 23% 1,302 26.4 23.7 19.7 14.7 10.8 9.8 2.0 2.1% 26%

Davivienda 25,100 30,560 22% 5,932 15.4 15.9 11.6 nm nm nm 2.0 2.3% 24%

Enersis 168 200 19% 16,546 16.2 12.3 12.1 5.8 5.7 5.5 1.0 2.2% 21%

Falabella 5,023 6,000 19% 24,196 32.0 27.8 22.6 21.0 18.9 15.8 3.3 1.4% 21%

Graña y Montero 11.4 13.8 21% 2,730 18.7 25.0 20.5 8.8 10.7 9.4 5.2 2.3% 23%

Andean Picks a 21% 50,707 21.7 21.0 17.3 12.6 11.5 10.1 2.7 2.1% 23%

P/E FV/EBITDA

7 Andean Equities Guide, October 25th 2013

Page 8: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

A word on correlations and diversification Latin American equity markets have historically shown high correlations between them and also with developed markets. Without attempting to argue in favor of the out of fashion theory of decoupling, we notice that over the last 12 months there has been a substantial reduction in the correlation between most Latam markets and the S&P500. Using weekly data, the 10 and 1-year correlations between the S&P500 and the IPSA (0.63 and 0.37, respectively), the IGBVL (0.50 and 0.21), the COLCAP (0.53 and 0.30), and the IBOV (0.75 and 0.46) all show huge drops which are explained by the significant outperformance of developed markets with respect to emerging markets YTD. Interestingly though, there is no single 12-months period over the last 10 years that shows such a drop in these correlations. If we look at the correlations among Latam markets, we find a similar pattern. The 10 and 1-year correlations (again weekly) between the IGBVL and the IPSA (0.57 and 0.50, respectively), between the IGBVL and the COLCAP (0.43 and 0.28) or between the IPSA and the COLCAP (0.53 and 0.41) have diminished. The benign explanation to this is that investors are becoming more aware of the differences between these markets. Certainly, prices in these three markets have been driven by very different forces with metal prices driving the IGBVL, oil prices moving the COLCAP and domestic cost pressures (energy, labor, merger costs), along with volatility in some commodities (pulp, iron ore, nitrates) and political noise charging a toll on the IPSA. Along these lines, we believe the idea of diversifying a portfolio across these three markets is becoming increasingly appealing. As we have learned better while preparing this report, these markets may share the same region, but are very different. Andean Markets Breakdown by Sector .

Chile Colombia Peru Sources: Stock exchanges and Credicorp Capital

Mining41%

Cement & Construction

24%

Utilities6%

Fishing1%

Conglomerates7%

Oil & Gas6%

Food & Beverages

6%

Banks4%

Retail3%

Sugar Mills2%

Banks14%

Cement & Construction

5%

Conglomerates6%

Financial Services

3%Food &

Beverages11%

Health Services

6%Materials

6%Mining

3%

Pulp & Paper6%

Retail14%

Telecom & Media

6%

Transport3%

Utilities17%

Oil & Gas25%

Conglomerates25%

Banks18%

Utilities11%

Cement & Construction

8%

Retail6%

Food & Beverages

6%

Others1%

8 Andean Equities Guide, October 25th 2013

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Changes in Recommendations

Company Country

Current

Rating

Previous

Rating Company Country

Current

Rating

Previous

Rating

Austral Peru Hold Buy Endesa Chile Buy Hold

Banco de Chile Chile Hold Buy Enersur Peru Hold Buy

Banmedica Chile Buy Hold Falabella Chile Buy Hold

Buenaventura Peru Underperform Hold Forus Chile Buy Hold

CAP Chile Hold U.R. Grupo Aval Colombia Hold Underperform

Casa Grande Peru Hold Buy Grupo Sura Colombia Hold Buy

Celsia Colombia Hold Buy Habitat Chile Buy Hold

Cencosud Chile Underperform Hold LATAM Chile Hold Buy

Cerro Verde Peru Underperform Hold Masisa Chile Underperform U.R.

CMPC Chile Hold U.R. Parauco Chile Buy Hold

Copec Chile Buy U.R. Salfacorp Chile Hold U.R.

Corpbanca Chile Hold U.R. Siderperu Peru Underperform Hold

Cruz Blanca Chile Hold Buy SK Chile Buy U.R.

Edelnor Peru Hold Buy SQM- B Chile Underperform U.R.

EEB Colombia Hold Buy Unacem Peru Hold Buy

El Brocal Peru Underperform Hold

9 Andean Equities Guide, October 25th 2013

Page 10: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Chile Equity Strategy

The IPSA offers an upside of 13% through December 2014. Our Chilean picks are Enersis, Entel, Falabella, Parauco and SM Chile B. GDP to continue to be driven by private consumption. Highest earnings growth since 2010. Valuations mostly in line with historical averages. Ms. Bachelet is by far the most likely winner in the upcoming elections.

Summary

We remain neutral on Chile in the context of the Andean Region. Slightly decelerating GDP growth and political/regulatory risks stemming from the ongoing Presidential election process imply a downward risk to our otherwise positive view on corporate earnings growth. In this sense, we could expect higher volatility in Chile’s equity market going into the elections. Also, there is very limited room for market-multiples expansion. We are introducing a YE 2014 target for the IPSA index of 4,410 points, for an upside potential of 13%. Our top-picks for Chile are mostly exposed to the domestic economy, where we see higher earnings visibility (retail, financials and utilities). Our strategy on Chile is summarized in the following points, which we further elaborate on the following pages:

Resilient macro picture. Consensus GDP growth figures for Chile have been revised downward during the year. Still, economic output should grow at healthy 4.5% this year and next year. Inflation remains largely under control and private consumption will remain the main driver of growth, fueled by a very strong labor market.

Accelerating corporate earnings. The second half of 2013 should mark a sharp acceleration in corporate earnings in Chile, which should benefit from a low comparative base. We expect results to be driven by financials, transport and electric utilities sectors. Improved profitability should also drive results in 2014. We are looking for aggregate corporate earnings to grow by 14% and 19% in 2013 and 2014, respectively and aggregate EBITDA to grow by 9% and 10% in 2013 and 2014, respectively.

Fair valuations. According to our corporate sample (98% of the IPSA), the market is trading at 16.2x and 9.5x 2014E price/earnings and 2014E FV/EBITDA, respectively. These multiples are mostly in line with the IPSA’s 5-year averages and also imply a moderation of the premium with respect to Latam, which in our view is fair, considering the uncertainty related to the upcoming presidential elections. This picture results in limited room for multiple expansion.

Regulatory uncertainties, stemming from a likely shift to the left in public

policies during the next presidential term. Ms. Bachelet is the most likely next President, and in her agenda there are plans to increase taxation on corporations, and to introduce new regulation in sectors such as health insurance and health provision, pension funds and to tax the use of water rights of hydroelectric plants, among other. We highlight that our numbers do not factor in a hike in corporate taxation. Thus our forecasts have this significant downside risk.

Negative flows. Outflows from Chilean equities continue, with domestic (AFPs, Mutual Funds) and foreign institutional investors accumulating net divestments over the last 12 months.

ECM activity. Although in lower amounts than in previous years, the market should be prepared to “digest” about US$3,000 million in announced capital increases over the remainder of the year and in 2014. This compares to total equity offerings for US$3,900 and 11,000 million in 2012 and YTD 2013 respectively.

Francisca Manuschevich #56-2-2446 1798

[email protected]

10 Andean Equities Guide, October 25th 2013

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Despite solid consumption levels, the economy has slowed down due to a decline in investment. Estimated GDP growth rate of 4.5% for 2013.

Economy driven by domestic consumption

During 2013, we have observed a slowdown in economic activity compared to previous years. Although consumption has continued to show great dynamism, a decline in investment has dragged down GDP growth rates. The slowdown in domestic demand was partially offset by better figures in the external sector, driven primarily by an increase in mining production. Chile - Private Consumption (YoY%) Chile – Investment (YoY%) . Sources: Central Bank of Chile and Credicorp Capital The deceleration in investment can be primarily explained by two reasons: (1) there has been a natural weakening of the growth cycle of gross capital formation, after three years of double-digit growth rates; and (2) a decline in future expectations due to a deterioration of the terms of trade (decrease in copper prices) and the uncertainty regarding possible tax reforms weighed on investment. We believe most of the slowdown was concentrated in the second quarter of 2013. In fact, the leading investment indicators, which continue to show a moderation in dynamism, have improved over the last months compared to 2Q13 data. Part of this recovery has been due to better investment sentiment after a recovery in China’s activity (and its consequential impact on Chilean terms of trade), and lower uncertainty regarding the potential political reforms of the next government. In contrast, consumption has remained buoyant throughout the year. The strong consumption has been evident in double digit growth rates in retail sales observed YTD. This consumption dynamism has been supported by an increase in real wages, which has resulted from a tight labor market and controlled inflation levels. Despite the general slowdown in economic activity, the labor market continues to gain momentum, reaching figures not seen since before the Asian crisis in the 90s. In line with the above, growth expectations for 2013 and 2014, as well as business confidence indicators have both declined during the year. Growth forecasts for the end of 2013 have fallen from 5.1% at the beginning of the year, to 4.3% as of the last economic survey of expectations conducted by the Central Bank of Chile. After incorporating these new data, we have corrected our estimated GDP growth rate for 2013 from 4.7% to 4.5%, primarily due to a greater slowdown compared to our base scenario. Our estimates remain above those of the market.

5.7 5.3

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

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-15

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11 Andean Equities Guide, October 25th 2013

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2014 GDP growth rate still led by consumption, driven by a tight labor market. Inflation should start converging to mid levels of target range.

For 2014, we forecast a GDP growth below potential, due to a slower pace in domestic demand; however, the recovery of economic activity in developed economies, particularly those which are important trading partners for the country, should partially offset the domestic slowdown. We are estimating a GDP growth of 4.5% for 2014, still led by consumption, despite its deceleration compared to 2013. In line with this, we expect the labor market to continue to show dynamism, reaching unemployment rates of around 6%. This is consistent with real wages growth converging to 2.0% by year end. Chile – GDP (YoY%) Chile – Unemployment (%) . Sources: Central Bank of Chile and Credicorp Capital During the first part of the year, inflation remained below target range (2.0% - 4.0%), with the price index evolving below market consensus and the base scenario of the Central Bank of Chile. The difference between tradable and non-tradable inflation has decreased due to higher prices of tradable goods and a drop in non-tradable inflation due to a slowdown in economic activity. It is noteworthy that the market expectations for the next 24 months remain anchored to the Central Bank’s target range. Inflation should start to converge to levels closer to the middle of the target range, reaching 2.5% by the end of 2013 and 2.8% in 2014, as prices of tradable goods continue to recover. In terms of foreign exchange rate, we view current levels as consistent with medium term fundamentals, and do not expect significant variations from current levels. Chile – Inflation (YoY%) Chile - Exchange Rate . Sources: Central Bank of Chile and Credicorp Capital

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

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485500

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

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8

9

10

11

12

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

12 Andean Equities Guide, October 25th 2013

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We are expecting further moves in the reference rate for next year, i.e. a new 25 bp cut, in line with a normalization of monetary policy. Growth in corporate earnings after 9 consecutive quarters of weak results.

All this has left the Central Bank of Chile with a higher space for maneuvering. In fact, in its last meeting (October 17th) the BCCh lowered the reference rate by 25bp, for the first time in 20 months. As in its previous minutes , the central bank explicitly mentioned that it will be monitoring inflation expectations and the trend in domestic demand, and also added the U.S. fiscal situation and implicitly the exchange rate. The latest move in monetary policy has surprised the market, as it was expecting two cuts in the following 12 months, but not as early as this meeting. We are expecting further moves in the reference rate for next year, most probably a new cut of 25 bp, in line with a normalization of monetary policy. We believe there is a very low probability that this expected cut takes please before yearend, ceteris paribus.

Corporate earnings to grow, at last!

After nine quarters of negative growth in corporate earnings, our sample of companies (98% of the IPSA), will finally start showing growth in 3Q 2013. While a weak YoY comparative base will be the main booster of 2H13 results, we also expect some positive trends in cost controls and margin improvements in sectors such as banks, utilities and retail. Corporate earnings in our sample will grow by 14% in 2013, and will accelerate to a pace of 19% in 2014 (in U.S. dollars). Growth in 2014 will be led by the retail (growth in consumption, maturation of new stores, increases in sales space and improvement in margins), financials (higher inflation and a reduction in overnight interest rate, which will positively impact NIMs) and utilities sectors (lower costs and entrance of new, more efficient capacity). Chile – Quarterly Corporate Earnings (YoY%) . Source: Company Reports and Credicorp Capital

30%

-2%

-21%-11% -9%

-32% -32%

-9% -5%

2%

54%

19% 15%

39%

9% 11%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13E 4Q13E 1Q14E 2Q14E 3Q14E 4Q14E

13 Andean Equities Guide, October 25th 2013

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We are setting a YE 2014 target for the IPSA of 4,410 points. Valuations offer limited room for multiple expansions.

Market Valuations and Upside Estimation

We have determined a 2014E year-end target for the IPSA index of 4,410 points, which implies a 13% upside from current levels. Our target combines a bottom-up approach, resulting from weighting the upside potentials for the companies under coverage in Chile, mixed with a top-down, FED-model type of approach, which checks for consistency between the fixed income and the equity markets. The IPSA is trading at 16.2x 2014E earnings and 9.5x 2014E FV/EBITDA, which is virtually in line with its historical average (see below). With limited room for multiple expansions, valuations suggest that the anticipated acceleration in earnings starting in 2H 2013 should be largely priced in. With respect to the region, the IPSA is driving a 21% premium on a LTM P/E basis, down from a 5-year historical average of 40%. We believe reduced premiums are justified due to ongoing regulatory concerns and the impact of recent and upcoming equity offerings. Chile – P/E 12 M Forward . Sources: Bloomberg and Credicorp Capital Chile – FV/EBITDA 12 M Forward . Sources: Bloomberg and Credicorp Capital Our bottom-up IPSA-weighted market upside calculation suggest 13% upside for the market through December 2014. This implies target 2014 P/E and FV/EBITDA multiples for the market, within historical levels.

9.5

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Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

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Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

14 Andean Equities Guide, October 25th 2013

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To check for the sustainability of our index target in the context of adjusting fixed income markets, we look at the Earnings Yield Ratio (EYR) calculated as the ratio between 10-year US treasuries yields + Chile’s country risk (CDS), and the inverse of the 12-month forward looking P/E of the market. Over the last 10 years that ratio has been 0.63x (see below). Chile - Earnings Yield Ratio . Sources: Bloomberg and Credicorp Capital Our Economics team is looking for T-10 rates to be at 3.20% by year end 2014, while we see Chile’s 10-year CDS largely unchanged at current levels of 115 bp. With those values, and considering our earnings growth expectations as well as the historical average of the EYR, the IPSA could sustain a 2015E P/E between 13.2 and 16.0 (within a +- 1SD range). Our December 2014 IPSA target implies a 2015E P/E ratio of 15.9x, within that range. Chile – FED – Type Model_ .

Optimistic Base Negative

T-10 Rates (Dec 2014E) 3.60% 3.20% 2.80%

Chile CDS (bp) (Dec 2014E) 100 115 150

Range of Sustainable P/E 2015E

Min -0,5 SD (0,57) 12.4 13.1 13.3

Average EYR (0,63) 13.7 14.5 14.7

Max +0,5 SD (0,70) 15.2 16.1 16.2

Earnings Growth

2013E 16% 14% 12%

2014E 24% 19% 14%

2015E 18% 13% 8%

P/E (@ current prices)

2013E 17.1 19.5 22.8

2014E 13.0 16.2 19.6

2015E 10.6 14.1 18.0

Market Upside

Dec 2014 IPSA Target 5,137 4,410 3,425

Upside 35% 13% -10%

Target 2015E P/E (@ Dec 2014 IPSA target) 14.3 15.9 16.2

Scenario

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Ms. Bachelet is by far the most likely winner in the upcoming elections. Bachelet 2014, reloaded to the left.

Politics: Bachelet, vintage 2014

Chile will face Presidential and Congress elections in November 17th, 2013, with a likely run-off in December 15th, 2013. Legislative elections will also take place on November 17th, in which the entire lower house and half the Senate will be renewed. With the Piñera administration suffering from endemic low popularity, with all the difficulties the ruling center-right coalition had to establish a credible Presidential candidate and with political parties facing their lowest-ever levels of support, it is not surprising that former President Michelle Bachelet (who left office in 2010 with about a 70% popularity) is the clear frontrunner, based on her very own and personal prestige. She is supported by an array of parties including all the members of the former Concertación and the Communist Party. The inclusion of the latter is a novelty in Chilean modern politics, which is generating many interesting phenomena. On one it is a red-flag for conservative and moderate voters, and on the other, the reflection of a shift in power within the Concertación (who quite successfully ruled Chile from 1990 until 2010). Chile – Opinion polls on presidential elections, support by candidate . Source: Pulso Electoral IPSOS The inclusion of the Communist Party into the former Concertación, now called Nueva Mayoría (New Majority) could be seen as largely anecdotal, as this party should have a limited role in a potential new term of Ms. Bachelet. Interestingly, however, is the fact that Ms. Bachelet would have likely been a comfortable front-runner even without the support of the communists and would have no doubt, received their (limited but historically decisive) votes in a potential run-off election against a conservative candidate. Despite that, the communists were invited to be official partners in Nueva Mayoría, which is (literally) a red flag for many moderate voters. In our view, this costly and apparently unnecessary decision, is a reflection of a deep shift in power among the current opposition, and the emergence of left-wing leadership with which Ms. Bachelet seems to feel comfortable. Considering the above, it is reasonable to expect that in Ms. Bachelet’s likely new government, left-wing policy makers will play a bigger role than in her prior one.

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Reforms will have to be negotiated in Congress. Corporate taxes likely to be increased. Shareholders to be taxed on accrued earnings, not on dividends.

So far, Ms. Bachelet has announced a deep tax-reform, aimed at generating incremental revenues of about US$8 billion (3% of GDP). The market also expects that an array of sector-specific reforms will be announced, affecting primarily regulated industries such as education, health insurance and provision, and pension funds (see below). While such announcements are a source of concern, which we believe are mostly priced in, the most likely scenario is that reforms will require bilateral support. Given Chile’s binominal election system for Congress, which favors the building of large political alliances and rewards them with an almost ensured number of seats, it is virtually impossible that the current opposition will have a landslide victory in Congress such that would allow for control of the two Houses. While this will likely limit the potential market unfriendliness of some of the reforms, it may also delay their approval and extend regulatory uncertainties well into the second half of 2014.

The Regulatory Agenda

In hindsight, President Piñera’s 2012 tax reform, which increased fiscal revenues by about US$800 million per year (including turning the temporary increase in corporate taxes to 20% into a permanent one), looks like a failed attempt to diffuse growing public pressure to increase fiscal revenues at an even larger scale. We expect pressures for reforms from the population to remain high in the next years. There is a general perception of income inequality among the population, and the country has developed a solid middle class, which demands more political participation and government services. After three years of activism, particularly among students, public support for more fiscal spending in sensitive areas such as education, has significantly increased, to an extent that leads us to believe that regardless of the election results, any new administration will have to tackle this issue. Noteworthy though, in our forecasts we are leaving corporate taxes unchanged at 20%. For a detailed analysis on the potential impact of an increase in corporate taxes from 20% to 25%, please see our report Potential Tax Reform on Horizon, published on June18th, 2013. In this report we conclude that the potential change should have a marginal, negative effect on our valuation universe, pressuring long term earnings on average by 5.2% (ranging from 2% to 9%). We estimated that this impact should reduce the valuation of our universe by ~ 4%. As to be expected, our analysis concludes that the potential change should pressure sectors with primary asset exposure to Chile (banks, health insurance, construction, salmon). Another proposition by Ms. Bachelet is to shift from an indirect tax to shareholders via a tax on distributed earnings, to a tax on accrued earnings (elimination of the FUT). This proposition has been very controversial as it would change one of the fundamental aspects of Chile’s tax system, which today provides a tax credit to shareholders based on corporate taxes paid by companies. A corporate tax rate that is lower than the marginal personal income rate, plus taxing shareholders only on distributed corporate earnings, has historically been praised as a strong incentive for companies to reinvest and to delay distribution of dividends. However, the proposal would allow instant depreciation of investments; and therefore for tax purposes, investments could be expensed in the period they are carried out rather than being spread over many years. The balance is not clear with the information currently available.

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Potential new regulation on health insurance and provision. Pension Fund Managers (AFPs) to benefit from potential regulatory changes.

At this point we realize that such a change would involve a lot of technical complexities and in the event of an upcoming Bachelet administration, it would face strong opposition in Congress. In any case, raising corporate taxes to 25% and lowering personal taxes to a maximum marginal rate of 35%, down from the current 40% (also part of Ms. Bachelet tax proposal), would in itself diminish the incentive to reinvest by closing the gap between corporate and personal tax rates. Beyond the discussion on taxation, Ms. Bachelet has also announced sector specific regulations that would impact several industries that have presence in the local equity market. One of them is health insurance and provision sector. New regulation in this industry will likely aim at limiting the ability of private providers to price-discriminate on certain risk factors such as age and gender. Although there have been no concrete announcements on the matter, we believe share prices in the sector are largely reflecting the political willingness to introduce new regulation along the lines described above. Uncertainty will likely continue to put pressure on shares such as ILC, Cruz Blanca and Banmédica. The pension funds industry has also been subject to intense regulatory discussion, triggered by what is perceived as low repayment ratios for retirees in the current system. As we have mentioned before, the low levels of pensions of retirees has more to do with issues in the labor market. We believe it is likely that the new government could announce measures as the creation of a State-owned AFP (neutral for AFPs), the increase in the required contribution rates at the expense of employers (positive for AFPs), an increase in the country’s retirement age (positive), and a change in fee structure from a % of salary to % of AUM. In our view, all of the outlined changes are likely to have a neutral/benign effect on AFPs. Although less likely in our view, power generators may also face some changes on regulation. Ms. Bachelet has announced taxation on the use of water rights for hydro generators and taxes on emissions for thermal plants. There are no details available, but if done wisely (a big if!), we believe these potential new taxes could become part of the solution to the difficulties that utilities companies are having to approve and develop new generation capacity in Chile. If these proceeds are channeled to compensate local communities for the cost of living next to a power generator (not-in-my-backyard). Opposition of local communities and environmental groups has been the obstacle for the development of new efficient generation capacity in Chile over the last few years.

Investment Flows During 2013, the Chilean market has suffered from continued outflows by foreign investors, along with the rest of the region and emerging markets in general. This trend is clearly depicted by the evolution of the size of the ECH (i-shares Chile), which has seen net outflows of US$57.6 million over the last 12 months.

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ECH Net Flows .

Source: Bloomberg and Credicorp Capital Pension Funds Movements in Local Stocks .

Source: Bloomberg and Credicorp Capital Pension funds and domestic mutual funds have also been net sellers of Chilean equities. Despite AFPs current room of US$3,665 million to buy local shares, they have been systematically on the sell side, with the exception of March and June 2013, when they participated in the capital increases of Enersis and CMPC. Exposure of Pension Funds to local equities is at its lowest levels since 2003 (10.4% vs 14% 10-year average).

ECM activity charging a toll The Chilean market has swallowed substantial equity offerings since 2011, when the combined amount of primary and secondary offerings reached US$5,900 million. 2012 followed suit with US$3,918 million in offerings. The size of these offers has certainly been a negative factor, in our opinion, along with generally poor corporate delivery, explaining the performance of the market since 2011. So far in 2013 equity offerings have exceeded US$10 billion (US$6 billion in Enersis) and the pipeline that has been already announced reaches US$3,500 billion. This significant figure will likely have an impact as the transactions are executed in the upcoming months.

19 Andean Equities Guide, October 25th 2013

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Our Chilean picks are Entel, Enersis, Falabella, Parauco and SM Chile B.

Chile - Equity Offerings 2011 to date .

Source: Credicorp Capital

Stocks we like in Chile We are updating our top picks for Chile on the back of updates to our models, changes in share prices and the latest changes to our macro forecasts. Our top picks are: Enersis, Entel, Falabella, Parauco and SM Chile B. We are favoring cash generating business models and/or unique growth opportunities at attractive valuations. We are increasing weight of companies with exposure to the local economy, mainly consumption. Despite its deceleration compared to 2013, private consumption will still be the main driver of GDP growth in 2014. In line with this, we are including Entel, Falabella, Parauco and SM Chile B. We remain positive on banks. We continue to believe that macro fundamentals, such as increasing inflation and the decrease in overnight interest rate, which will positively impact NIMs, will anticipate solid 2H13 earnings growth. However, banks stocks have rallied during the last couple of months, and thus valuations seem fair, leaving less room for upward share rerating. We are only including SM Chile B in our top picks, as we still see interesting upside for investors based on the legal structure of SM Chile shares. For investors requiring higher liquidity, we recommend Banco de Chile, as we expect it to maintain the highest returns among the industry. Finally, we continue to be positive on utilities and our favorite stock in the sector is Enersis. We believe the company is currently trading at attractive valuations and expect potential M&A activity, which will be a clear short term catalyst for the stock. Chilean Picks . Sources: Bloomberg, Company Reports and Credicorp Capital a Simple average, excluding Market Capitalization

Price Target Mkt. 12-18 Month

oct-22 Price (CLP) Upside (USD mn) 2012 2013E 2014E 2012 2013E 2014E P/BV Div Yield Tot. Upside

Enersis 168 200 19% 16,546 16.2 12.3 12.1 5.8 5.7 5.5 1.0 2.2% 21%

Entel 7,911 10,200 29% 3,746 14.0 13.7 13.3 5.1 4.9 4.8 2.3 4.5% 33%

Falabella 5,023 6,000 19% 24,196 32.0 27.8 22.6 21.0 18.9 15.8 3.3 1.4% 21%

Parauco 981 1,240 26% 1,380 22.8 14.5 13.5 18.3 15.3 13.5 1.1 2.8% 29%

SM-ChileB 189 232 23% 4,995 nm nm nm nm nm nm nm 3.1% 26%

Chilean Picks a 23% 50,864 21.3 17.1 15.4 12.5 11.2 9.9 1.9 2.8% 26%

Chile Sample 4,410 13% 197,407 24.1 19.5 16.2 12.7 10.6 9.5 1.9 2.4% 16%

P/E FV/EBITDA

2011 2012 2013 YTD Announced

Size Size Size Size

Issuer (US$ Mils) Type Issuer (US$ Mils) Type Issuer (US$ Mils) Type Issuer (US$ Mils) Type

Aguas Andinas 978 Block Corpbanca 578 Follow On Australis 50 Follow On BCI 350 Follow On

Aquachile 373 IPO Cencosud 1,767 Follow On CCU 660 Follow On Carozzi 100 Follow On

Australis 70 IPO EISA 88 IPO Cencosud 1,635 Follow On CFR 750 Follow On

Bco de Chile 450 Follow On Hortifrut 67 IPO Corpbanca 624 Follow On Gener 450 Follow On

CFR 370 IPO ILC 470 IPO CMPC 434 Follow On Lan 1,000 Follow On

CGE 117 Follow On Ingevec 26 IPO Bco de Chile 530 Follow On Norte Grande 92 Follow On

Corpbanca 370 Follow On Nuevapolar 281 Follow On Enersis 6,019 Follow On Oro Blanco 120 Follow On

Cruz Blanca 236 IPO SK 440 Follow On Enjoy 136 Follow On Parauco 250 Follow On

Parauco 170 Follow On Sonda 157 Follow On Masisa 79 Follow On Salfacorp 48 Follow On

Quiñenco 403 Follow On Moller 89 IPO

Salfacorp 130 Follow On Security 143 Follow On

Security 146 Follow On Sonda 141 Follow On

Vapores 545 Follow On Vapores 330 Follow On

Vapores 1,022 Follow On

Total 5,380 3,874 10,870 3,160

20 Andean Equities Guide, October 25th 2013

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Colombia Equity Strategy

The COLCAP offers an upside of 12% through December 2014. Our Colombian top picks are Davivienda, Bancolombia, Ecopetrol, Grupo Sura, and Nutresa. GDP to continue to be driven by private consumption and investment. Valuations in line or above historical averages.

Summary

In spite of an expected return of 12%, we remain slightly negative on Colombian equities relative to the Andean Region for 2014. Even though we expect GDP growth of 4.6% for 2014, next year may post a turbulent political scenario with presidential and Congress elections, business confidence that could deteriorate as a consequence of continuing social distress and protests, and the uncertainty surrounding the peace talks. Also, we believe there is very limited room for market-multiples expansion and aggregate earnings should grow moderately, with only financials and a few real-sector firms showing double-digit improvements. We are introducing a YE 2014 target for the COLCAP index of 1,986 points, representing an upside potential of 12% (15% total return). Our top-picks for Colombia are mostly exposed to the domestic and/ or regional economy. Our strategy for Colombia is summarized in the following points, which we further elaborate on the subsequent pages:

Economic recovery to continue in 2014. We expect GDP growth figures for Colombia to remain positive for the short and medium terms. Economic output should grow at a healthy 4.5% and 4.6% this and next year, respectively. Inflation remains under control, as CPI should close 2013 at 2.5% and around 3.1% next year, in line with the BanRep’s target range (midpoint at 3%).

Uncertain political scene ahead. Presidential elections have no clear favorite and former president Uribe’s party has real chances of gaining numerous seats in Congress to (strongly) oppose a possible Santos second administration. The political and social contexts will also be seasoned with the evolution of farmer’s strikes and the entire country waiting for the results of the peace talks.

Earnings. 2H 2013 should mark an improvement in corporate earnings, mainly driven by financials recovering from the investment portfolio losses of 1H 2013. This good outlook for the banking sector should continue in 2014 led by organic growth (14%-15%) and a more restrictive monetary policy. However, we are forecasting very moderate growths for other sectors (e.g. utilities and oil&gas) and earnings should increase in the 10%-15% range for the aggregate of our corporate sample.

Little room for multiple expansion. According to our coverage universe (90% of the COLCAP), the market is trading at 23x 2014E price/earnings. This multiple implies a 4.3% premium to the COLCAP’s 5-year average, although it also implies a moderation of the premium with respect to Latam. This picture results in limited room for multiple expansion.

Positive flows. Even though local retail keeps selling Colombian equities, foreign investors remain the main net buyers with positive flows every single month since Feb-10, accumulating purchases of USD 4.6 bn. AFPs have been net sellers YTD and appear to have become more selective, although monthly net contributions to pension funds (~USD 260mn) support organic buys in the longer term.

Equity offerings and other major corporate events. Important players in the financial spectrum are expected to launch equity issuances that could amount as much as USD 2 bn. The sale of their stake in Isagen and EEB by the Government and Ecopetrol, respectively, can also generate downward pressures during 2014. Liquidity reductions is also a factor to consider.

21

Andean Equities Guide, October 25th 2013

Daniel Velandia / Cesar Cuervo # (571) 339 4400 Ext 1505 / Ext 1012

[email protected] [email protected]

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After a year and a half of deceleration, the Colombian economy started a recovery process in 2Q13 which should continue. During 2013, fixed investment has led the economic growth from the demand side.

Economic recovery under way

After a year and a half of deceleration, the Colombian economy started a recovery process in 2Q13 which should continue in coming quarters, supported by a favorable trend of private consumption and investment on both infrastructure and buildings. Hence, we expect GDP to grow 4.5% in 2013 and 4.6% next year from 4.2% in 2012, getting closer to its potential. Accordingly, we estimate inflation to continue the gradual upward trend observed from its historical low in Feb-13 until converging to the CB’s target of 3.0% in the first part of 2014 and reaching 3.1% by the end of the year. Hence, as we expect the closing of the output gap and an inflation rate achieving the mid-point of the CB’s target range next year, we foresee the gradual withdrawal of the monetary stimulus to begin in 1Q14. Colombia – GDP (YoY%) _ Colombia – Domestic Demand (YoY%)_________ .

Source: DANE Bottoming out in 1Q13, the Colombian economy started a recovery process implying GDP growth rates close to its potential (around 4.5%-4.7% according to our estimates). While GDP grew 2.7% y/y in 1Q13 (the slowest pace since 3Q09), the 2Q13 print was 4.2% y/y, the same figure observed for the whole 2012. During 2013, fixed investment has led the economic growth from the demand side, posting an increase of 5.1% in 1H13, which compares favorably with the 3.6% seen in the second half of 2012. The recovery on investment has been mainly explained by a positive dynamism in construction of both civil works (10% y/y) and buildings (9% y/y). This has occurred as a result of large amounts of resources committed to infrastructure by the national and regional governments, continuing high FDI inflows, and housing programs launched by the National Government (i.e. 100,000 free houses and a 2.5pp subsidy on mortgage rates). Government consumption has also contributed to the higher economic growth throughout the year with an expansion of 4.6% y/y in the first half, above its historical average of 4.2%. This performance is explained by higher spending in social programs and the electoral cycle as 2013 is a pre-electoral year. We highlight that in 1H13, the trade balance contributed positively to the GDP for the first time since 2009 as a result of a rebound in exports (+7.6% y/y in 2Q13, the highest growth pace since 1Q12) and a loss of momentum of capital goods imports (other than those to the construction sector). This behavior may be explained by the low confidence of the industrial and agricultural sectors as they continue facing a moderate demand for their products amid a low growth of the US economy (main trade partner with a 34% share) and the slowdown of economies like China, Venezuela, Brazil and Peru.

22 Andean Equities Guide, October 25th 2013

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We expect the recovery on private consumption to continue in the following quarters. Investment to keep expanding at high rates due to the expected positive performance of the construction sector. We expect a GDP growth of 4.5% in 2013 and 4.6% in 2014. Inflation to converge gradually to the mid-point of the target range in 2014.

Private consumption has decelerated since mid-2012, reaching 4% y/y growth rate in 1H13, the lowest since 1H10. However, there have been signs of recovery since April as consumption expanded 4.4% in 2Q13 from 3.5% 1Q13, above its historical average (4%). This suggests that the expansionary monetary policy adopted by the CB since Jul-12 has started to have the expected positive effect. In fact, retail sales grew 4.7% y/y between May and July, against 1.6% in the previous three rolling months. In general, we expect the recovery on private consumption to continue in the following quarters supported by high levels of consumer confidence, the systematic reduction of the unemployment rate (currently at a historical low of 9.3%), a good behavior of formal jobs creation (5.4% y/y as of June), and consumption credit that keeps growing at healthy rates (2x nominal GDP). At the same time, we expect investment to keep expanding at high rates in the short and medium terms due to the expected positive performance of the construction sector. The strong dynamics would continue to be supported by the Government housing programs that are under execution and the higher spending expected by regional governments, particularly with royalties. In this sense, it is important to recall that a new royalties system became effective in 2013, granting a more equitable distribution of resources among the regions and the participation of the central Government in the projects’ approval process. This reform, although strongly positive for the long term, has implied a longer period for deployment of the available resources; hence, we expect its effect on GDP to be observed in the remainder of 2013 and next year. Accordingly, we expect investment to reach 28.7% of GDP in 2014, a new historical high and one of the highest rates in Latam. National income would remain at high levels for historical standards next year as analysts forecast oil average prices to remain above USD 100 per barrel amid the expected higher US economic growth, the end of the recession in Europe, and the stabilization of China, implying favorable terms of trade. Thus, we expect FDI inflows towards the oil-mining sector to remain strong in the coming quarters. In line with the abovementioned, we expect a GDP growth of 4.5% in 2013 and 4.6% in 2014, which compares favorably with 4.2% in 2012. For the short term, the risks balance is biased to the downside. Business confidence deteriorated in recent months after a farmers’ strike that generated a very complex situation of public order in cities like Bogota for a couple of days, causing a tense social environment not seen in the last decade. Although we expect the fall in confidence to be temporary thanks to the measures taken by the Government to help tradable sectors (e.g. tariffs reduction, subsidies and more protection from foreign competition for some sectors) and the extraordinary resources devoted to the agricultural sector (increase of the Government budget in COP 3tr for 2014), its final effect is difficult to estimate. In terms of prices, we expect CPI to converge gradually to the mid-point of the BanRep’s target range (3.0%) such that after closing around 2.5% in 2013 (from the current level of 2.3%), it would reach 3.1% in December 2014. Accordingly, as both the GDP and inflation are converging gradually to the potential and the target, respectively, we wait for the BanRep to start the withdrawal of the monetary stimulus from 1Q14 onwards, carrying the repo rate from the current level of 3.25% to 4.50% at the end of next year.

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2014 GDP growth to be driven by investment and private consumption. The farmers’ strike that took place in August, had a strong negative impact on the approval rating of President Santos.

Colombia – GDP (y/y growth) Colombia - Private Consumption (y/y growth) Colombia – Investment (y/y growth) Colombia – Inflation (y/y change) Source: Credicorp Capital

Elections 2014: increasing risks?

The farmers’ strike that took place in August, had a strong negative impact on the approval rating of President Juan Manuel Santos, driving it to levels not seen since Andrés Pastrana’s (2001), whose very low support at that time was mainly explained by the failure of peace talks with the FARC guerrilla. Specifically, the farmers’ strike that was initially aimed at getting economic support from the Government due to the structural problems that the agricultural sector is facing, mainly in terms of competitiveness, turned into a complex public order situation that forced the Government to temporarily militarize Bogota (two days). According to the authorities, ‘dark forces’ would have infiltrated the protests, as a result of political interests due to the upcoming elections (Congress: Mar-14; Presidential: May-14) as well as some attempts to influence the current peace talks between the government and the FARC. Although these events did not affect the public order situation permanently, the way the Government handled the situation translated into a diminished perception on security, institutional stability, and strength of the Government. Thus, despite an expected improvement in the approval rating of President Santos in the coming months (at least slightly) after the resources commitment to the agricultural sectors for next year and other measures focused on lowering costs for the tradable sectors are implemented, voters are not fully identified with any of the current possible candidates. In fact, the latest electoral poll for presidential election shows that almost 20% of people do not know who they will vote for.

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Voters are not fully identified with any of the current possible candidates. The fall in Santos’ popularity has permitted left-wing forces to gain some ground.

Colombia – President’s Popularity . Source: Gallup

The majority of the population would vote for German Vargas Lleras if elections were today (25%). However, Vargas Lleras’ participation in the electoral race seems unlikely, at least for now, as the base-case scenario places Juan Manuel Santos running for the reelection (the deadline to make public his decision is November 24th). Vargas Lleras was Minister of the Interior and Justice and Minister of Housing under Santos’ administration and he is currently a key element of the Government’s team. In fact, Santos could take advantage of Vargas Lleras’ popularity, appointing him as a Minister in a key sector or even as Vice-president for an eventual second period at office. Colombia – Last Opinion Poll on Presidential Elections . Source: Semana In line with the above, the fall in Santos’ popularity and the social environment have permitted left-wing forces to gain some ground. Thus, Antonio Navarro and Clara Lopez currently have a similar support from voters to that of Francisco Santos (the strongest candidate of the ex-president Alvaro Uribe’s party) while it is not so far from that of president Santos’. However, we assign a low probability to the victory of a candidate with ideas that are contrary to the current macroeconomic model and that may threaten the rules and conditions that endorse investment. Thus, even though candidates from the left-wing could eventually seem strong in a first round of elections, they do not seem likely to succeed in the second round. Santos’ strongest contender would be the candidate elected in representation of Alvaro Uribe’s party. For now, voters support for the main option (Francisco Santos) is not particularly high, but the actual likelihood of Uribe’s party to achieve victory will surely be clearer in the coming months.

62

27

42

17

66

85

64

72

50

21

0 10 20 30 40 50 60 70 80 90

Dec

-94

Jan-

96

Dec

-96

Dec

-97

Oct

-98

Oct

-99

Oct

-00

Sep-

01

Apr-0

3 M

ar-0

4 M

ar-0

5 N

ov-0

5 Se

p-06

Ap

r-07

Jan-

08

Jul-0

8 Fe

b-09

N

ov-0

9 Ju

l-10

Dec

-10

Apr-1

1 Au

g-11

D

ec-1

1 Ap

r-12

Aug-

12

Dec

-12

Apr-1

3 Au

g-13

Samper Pastrana Uribe I Uribe II Santos

Germán Vargas

Lleras, 25%Juan Manuel Santos, 15%

Francisco Santos, 12%

Clara López, 11%

Antonio Navarro, 10%

Enrique Peñalosa, 9%

Undecided, 18%

25 Andean Equities Guide, October 25th 2013

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We consider that the risks on macro fundamentals and rules for investment are low. At the moment, the Government and the FARC have only agreed on one point out of the six included on the agenda. Thus, it seems unlikely that an eventual peace agreement will be signed before the end of the year. Should an agreement be achieved, it would have a strong positive impact on confidence and growth.

Some risks in terms of governability may emerge from Congress elections if Juan Manuel Santos is reelected. Specifically, former president Alvaro Uribe, now Santos’ main opponent, will run for the Senate and its party could win a considerable number of seats, making it slower and more difficult to approve structural reforms in the future. In any case, we consider that both Santos and Uribe look for the same goals although they defend different means to achieve them. Thus, we consider that even under this scenario, the risks on macro fundamentals and rules for investment are bounded.

Peace talks have a difficult path ahead At the moment, the Government and the FARC have only agreed on one point out of the six included on the agenda, namely, rural development policy. The most relevant and complex points will be addressed in the coming weeks, and FARC's participation in politics is one of the biggest challenges. The five points on the agenda are rural development, political participation, drugs, victims’ reparation and end of the conflict. The Colombian government has expressed its intention of ratifying the agreement by carrying out a referendum simultaneously with the presidential elections that will take place next May. On one hand, the terrorist group did not welcome the government decision as it was taken unilaterally and hence, there are still some doubts about the real possibility of holding a referendum. On the other hand, it is not clear if in the case of a referendum, Colombian society will approve every point of the accords, in particular allowing FARC members to serve in Congress. Accordingly, it must be considered that points such as the treatment of victims or the guerrillas' punishments have not yet been discussed. Thus, it seems unlikely that an eventual peace agreement will be signed before the end of the year. Even if the two sides do not reach a peace agreement, Santos could receive a boost in popularity if he demonstrates a steady hand against illogical and meaningless proposals by the FARC. Now, as mentioned before, the truth is that Santos' reelection might be compromised more by the current domestic situation than by the results of the peace talks. In summary, we are not particularly optimistic about having quick results from the negotiations and we believe that the probability of not reaching an agreement at all is not negligible. In fact, some political analysts consider that the fall of Santos’ popularity might threaten the peace process as the guerilla would not be willing to give a farewell to arms under a different administration. In any case, it is worth mentioning that should an agreement be achieved, it would have a strong positive impact on confidence and growth with a very favorable effect on the agricultural, transportation, and oil-mining sectors. Some estimations point towards an increase of 1pp in potential GDP in the long term resulting from peace.

26 Andean Equities Guide, October 25th 2013

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The lack of adequate infrastructure has deteriorated the competiveness of tradable sectors Law 1508 of 2012 changed the game rules in order to eliminate the problems of the past. We consider the reform will allow to achieve a higher GDP potential in the long term.

Infrastructure: waiting for the start of the economy’s long term engine The lack of adequate infrastructure has deteriorated the competiveness of the industry and agriculture sectors amid a scenario of a strong Colombian Peso appreciation during the last decade, an increasing number of FTAs, particularly those with the US and Europe that became effective in 2012 and 2013, respectively, and the close of the Venezuela’s border in 2009, main trade partner of domestic industrial products until that year (25%). The corruption during the last decades widely contributed to this deficit in infrastructure. According to OECD estimations, the additional costs of concession contracts against their initial value reached more than 50% on average since early 90s while there is evidence that extensions were above 100% in several cases compared to the initial estimated time to execute the contract. Law 1508 of 2012 changed the game rules in order to eliminate the problems of the past, specially focusing on avoiding corruption and the participation of private constructors with no financial buffer, while promoting the efficient and proper structuring of projects. Thus, among the main aspects of the law is the imposition of limits to additional costs and extensions on the initial value of the contract and the disbursement of financial contributions by the Government only once some stages of the works are finished. At the same time, the new law allows the structuring and execution of private initiative projects with a 100% financing from the private sector. Accordingly, we consider this reform to induce a higher GDP potential (around +1pp) when infrastructure projects launched by the government for COP 100tn for the next decade (COP 47tn in roads) start to be executed. We expect the impact on GDP from these projects to be observed from 2015 onwards as the first road public biddings will be carried out in 1Q14. Colombia – Infrastructure Legislation . Source: Colombia National Infrastructure Agency – ANI

Former Legislation New - Law 1508/12 (PPP)

Government would fund worksGovernment makes financial contributions once operating units

are finished

Concession holders / constructors were not binding their own

capital in projects

Concession holders / constructors must involve their own capital in

projects

No efficient risk allocation Risk allocation will be analyzed before the selection process

Government provided down payments in all concession projects No down payments will be provided during the construction phase

No differences were made between constructor and funderEnabling requirements are: legal and financial capacities, and

investment and project structuring experience

Projects were not designed for institutional or financial investorsThe new scheme is designed for institutional and financial

investors

Maximum term (including extensions): 30 years

Limit (max.) to extensions and cost overruns: 20%

Funds will be managed under special purpose vehicles

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We are setting a YE 2014 target for the COLCAP of 1,986 points. Valuations offer limited room for multiple expansions.

Market Valuations and Upside Estimation

We are setting a YE 2014 target for the COLCAP index of 1,986 points, which implies a 12% upside (12.6% in dollar terms), from current levels. We arrive at this target combining a bottom-up approach, resulting from weighting the upside potentials for the companies we cover in the Colombian market, and a top-down, FED-model type of approach to check for consistency between the fixed income and the equity markets. The COLCAP is trading at 23.1x 2014 earnings, above its historical average of 22x (see below). Even though the current level is significantly lower than a year ago (31x as of October 2012), today’s figure leaves little room for generalized multiple expansions. In fact, the recent contraction in multiples has been mainly driven by Ecopetrol’s and to a lesser extent, Bancolombia’s underperformance during 2013: while the market has fallen 3.23%, these two stocks (weighing roughly 30% of the index on a regular basis) have done so by 17% and 11%, respectively. Colombia – P/E 12 M Forward . Source: Credicorp Capital In terms of 12M forward FV/EBITDA, the market aggregate multiple has also receded from 9.9x a year ago to the current 9.0x. Furthermore, according to our estimates, the market is currently trading at 8.0x 2014 EBITDA. Our bottom-up COLCAP-weighted market upside calculation suggests 12% upside for the market through December 2014. Our target has implied valuation multiples of 23.2x P/E, 9.4x FV/EBITDA, and 1.7x P/BV, which are largely in line with current valuations. The Colombian market usually trades at higher multiples compared to its peers in the region, a recurrent phenomenon over the last five years. This is partly explained by the fact that investors have a small set of investment opportunities and in many cases, there is only one name per economic sector, making it difficult to perform proper relative valuation analyses. Multiples in Colombia should remain relatively high in the medium term. To check for the sustainability of our index target in the context of adjusting fixed income markets, we look at the Earnings Yield Ratio (EYR) calculated as the ratio between 10-year US treasuries yields + Colombia’s country risk (CDS), and the inverse of the 12-month forward looking P/E of the market. Over the last 10 years that ratio has been 1.04x.

23x

5

10

15

20

25

30

35

Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

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We are setting a YE 2014 target for the COLCAP of 1,986 points. Valuations offer limited room for multiple expansions.

Colombia-Earnings Yield Ratio . Our Economics team is looking for T-10 rates to be at 3.20% by year end 2014, while we see Colombia’s 10-year CDS largely unchanged at current levels of 160 bp. With those values, and considering our earnings growth expectations as well as the historical average of the EYR, the COLCAP could sustain a 12-month forward P/E between 17x and 27x (within a +- 1SD range). Our COLCAP target would fall within that range. Colombia – FED – Type Model_ .

0.3

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12

0.95x

Optimistic Base Negative

T-10 Rates (Dec 2014E) 3.60% 3.20% 2.80%

Colombia CDS (bp) (Dec 2014E) 105 160 210

Range of Sustainable P/E 2015 Fwd

Min -0,5 SD (0.94) 20.2 19.6 19.2

Average EYR (1.04) 22.4 21.7 21.2

Max +0,5 SD (1.15) 24.7 23.9 23.4

Earnings Growth

2013E 13% 6% 4%

2014E 15% 12% 10%

2015E 13% 12% 11%

P/E (@ current prices)

2013E 11.5 24.3 38.4

2014E 9.8 22.9 34.5

2015E 8.5 20.1 30.7

Market Upside

Dec 2014 COLCAP Target 2,128 1,986 1,596

Upside 20% 12% -10%

Target 2015 FWD P/E (@ Dec 2014 COLCAP target) 10.2 22.5 27.6

Scenario

29 Andean Equities Guide, October 25th 2013

25.4

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Investment Flows The Colombian market has been enjoying consistent flows from foreign investors for over three and a half years. After forty four consecutive months of net buys, foreigners have accumulated USD 4.6 billion of purchases. Their increasing relevance is also evident in terms of market share: coming from about 1% of total transactions (measured as buys + sales) back in 2006, today foreign investors represent slightly over 20% of daily traded volume. Even though we are not expecting a dramatic change in that trend that may turn foreign investors into structural net sellers, we do expect amounts to moderate in line with anticipated liquidity reductions from developed to emerging economies. Also, we believe the days of indiscriminate buys to get general country exposure given the structural and long-lived underweight in Colombia, are behind us. Current (high) valuation levels and the low number of investment options should lead foreign investors to focus on security selection and timing. Colombia – Foreign investors net buys (monthly) . Source: BVC After the necessary rebalancing to comply with the Multi-funds reform and the new investment regime in 1H 2011, Pension Funds were net buyers for about eighteen months. However, AFPs seem to have become more selective and responsive to valuation. In addition to that, significant losses in the fixed-income portion of the portfolios during the first half of 2013 led the funds to reduce the buys and actually sell for a few months. Even though monthly contributions of USD 260 million to the mandatory pension system suggest continuing organic buys and an increasing absorption capacity, we expect AFPs to remain cautious, making relevant bets only when fundamentals and relative valuations justify it. Colombia – Pension funds net buys (monthly) . Source: BVC

-

100

200

300

400

Feb-10 Feb-11 Feb-12 Feb-13

US

Dm

n

(300)

(200)

(100)

-

100

200

300

400

500

600

700

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

US

D m

n

30 Andean Equities Guide, October 25th 2013

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Upcoming ECM Activity The Colombian market has absorbed equity issuances for over USD 11.3 billion during the last four years. 2011 marked the historical high with 10 companies going to the market to raise capital for USD 7.2 billion, followed by two years of significantly lower, yet relevant amounts of USD 2.4 billion (2012) and USD 1.4 billion (2013 YTD). There are two sides to this story. On the one hand, record issuances might have explained part of the market’s lackluster performance in the recent past, particularly in 2011, when the COLCAP index fell 13.83%, albeit outperforming the region. On the other hand, IPOs and secondary offerings have improved the dynamics (liquidity and price formation) of a market known for a scarcity of names that has systematically hindered the portfolio managers’ ability to diversify. In fact, the increase in liquidity the market has experienced in the 2010-2013 period has been partly explained by the rise in ECM activity. We expect equity issuances to amount between USD 2bn and USD 3bn in the next twelve months, particularly from financials strengthening their capital adequacy ratios after two very dynamic years in terms of M&A activity. Banco de Bogotá already announced it will issue up to COP 1.3 tn (~ USD 700 mn) and Grupo Aval’s, its parent company, shouldn’t be too far away. From the real sector side, Avianca’s book-building process to raise ~USD 231 mn (and sell an even larger amount from controlling shareholders, significantly increasing the free-float) is being run as we write this report. The Government announced it will sell its stake in Isagen (57.7%) and that the auction process will be launched at a base price of COP 3,178/share, in a transaction that could reach the COP 5 tn (USD 2.7 bn) mark. In a similar but smaller announcement, Ecopetrol mentioned its interest in selling the 7% of EEB it owns, a divestiture that could amount COP 1 tn (USD 541 m) at current market prices. However, no new major offering is expected and the market, particularly on the institutional spectrum – both local and international, awaits hungry for investment opportunities. Colombia - Equity offerings 2011 to date .

Source: BVC, Credicorp Capital

2011 2012 2013 YTD Announced

IssuerSize

(USD mn)Type Issuer

Size

(USD mn)Type Issuer

Size

(USD mn)Type Issuer

Size

(USD mn)Type

Avianca (Pf) 271 IPO Bancolombia (Pf) 935 Follow-On Cemargos (Pf) 1,401 Follow-On Banco de Bogotá 703 Follow-OnGrupo Nutresa 283 Follow-On El Cóndor 91 IPO Avianca (ADS)* 231 Follow-OnGrupo Aval (Pf) 1,126 Follow-On Carvajal Empaques (P 109 IPOEcopetrol 1,290 Follow-On Cemex Latam Holding 1,150 IPOAlmacenes Éxito 1,355 Follow-On Conconcreto 136 Follow-OnEEB 418 Follow-OnDavivienda (Pf) 387 Follow-OnGrupoSura (Pf) 1,871 Follow-OnProtección 116 Follow-OnOccidente 108 Follow-On

Total 7,225 Total 2,421 Total 1,632 Total 703

* Book closes on 5 Nov 2013

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Volume reduction: Colombia losing some stamina? During 2013 daily traded volume and quantity of transactions have fallen 11% and 17%, respectively. Although we recognize that this liquidity reduction can be partially attributable to certain specific issues, such as the collapse of one of the biggest Colombian brokerage firms – with 30% market share -, in the current environment we consider extremely important to monitor liquidity and its possible further decline. The structural political and economic changes that have occurred in Colombia in the last decade have turned the country into a more appealing investment destination for foreign investors. Additionally, during the past three years new issuances and the growth of free-floats have increased liquidity, opening our market to those global and sophisticated investors who have gained an important role, currently representing 20% of traded volume. Considering that liquidity is a key factor for the international community (not to the same extent to locals) when analyzing their exposures, we identify further reductions in volume as a relevant source of market risk that could trigger important sells from foreign investors. Colombia – Average daily traded volume (monthly) .

Sources: BVC and Credicorp Capital

-

50

100

150

200

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

US

D m

n

2012 2013

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Strategy and Top Picks Based on attractive valuations, estimates on loans’ growth for 2014 and improving NIMs, we favor the banking sector. Davivienda is our high conviction play as we expect the highest earnings growth in the next 5 years with the lowest dilution risk. We also like Bancolombia, as recent market performance has opened significant room for upside. Dilution risk is non-negligible and efficiency is a huge challenge, but NIM improvement and cost control programs should increase ROAE. Consistent with our investment thesis on financials and our positive view on Andean economies and demographics, we highlight Grupo Sura’s solid fundamentals, based on its presence in high growth potential sectors and countries, and the profitability enhancement opportunities that lie ahead. With a moderate but consistent growth forecast, also supported in increasing consumption in Latin America, Nutresa continues to be one of our favorite stocks as we expect increasing margins; well delivered inorganic growth could continue opening room for gains in efficiency and further appreciations. Ecopetrol is the leading Oil&Gas company in Colombia and the first name in the Colombian stock market by capitalization and liquidity. Although current valuations don’t show significant upside potential to outperform, Ecopetrol is a bet on Colombia’s fastest growing industry and on the entire Colombian equity market. In the same sector, a skeptical public waits for positive results from Pacific Rubiales, the preemptive pure-E&P player that has experienced delivery issues in the past, but enjoys strikingly attractive valuations; recommended exclusively for those investors with higher risk profiles. Colombian Picks .

Sources: Bloomberg, Company Reports and Credicorp Capital a Simple average, excluding Market Capitalization

33 Andean Equities Guide, October 25th 2013

Price Target Mkt. 12-18 Month

oct-22 Price (COP) Upside (USD mn) 2012 2013E 2014E 2012 2013E 2014E P/BV Div Yield Tot. Upside

Davivienda 25,100 30,560 22% 5,932 15.4 15.9 11.6 nm nm nm 2.0 2.3% 24%

Bancolombia 26,620 32,440 22% 11,896 14.9 14.3 11.3 nm nm nm 1.9 3.0% 25%

Ecopetrol 4,535 4,810 6% 99,202 15.1 13.8 14.0 7.9 6.9 6.6 3.1 5.1% 11%

Grupo Sura 38,700 44,680 15% 11,587 40.1 33.1 31.8 nm nm nm 1.1 2.5% 18%

Nutresa 27,340 32,600 19% 6,693 33.7 38.5 36.9 18.0 15.6 13.2 1.7 1.4% 21%

Colombian Picks a 17% 135,308 23.8 23.1 21.1 13.0 11.3 9.9 2.0 2.9% 20%

Colombia Sample 1,980 12% 201,494 25.4 25.4 23.0 9.9 8.9 8.0 2.0 3.0% 15%

P/E FV/EBITDA

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Peru Equity Strategy

The IGBVL offers an upside of 14% through December 2014. Our Peruvian picks are Graña y Montero, Cementos Pacasmayo, Edegel, Volcan and Milpo. GDP to continue to be driven by domestic demand and volume-led exports in the mining sector. Valuations mostly in line with historical averages. Focus on the timing of concessions and the regional elections in 4Q 14.

Summary

We remain positive on Peru in the context of the Andean Region. Steady GDP growth rate close to its potential (~6%), the start up of mining projects that would double Peru’s copper production by 2016, and the Government’s efforts to promote private investment and cut red tape to reduce the infrastructure and housing gaps, will be the main drivers of a 25% growth in corporate earnings during 2014. In addition, Peru is showing cheaper valuations (12.8x 12M Fwd P/E) compared to its Latam and Andean peers. We are introducing a 2014YE target for the IGBVL index of 18,566 points, for an upside potential of 14%. Our top-picks for Peru are companies with exposure to domestic demand, where we see higher earnings visibility; and mining companies that have successfully controlled costs increases in 2013. We summarize our strategy on Peru in the following points: Solid macro fundamentals. In spite of the slight slowdown in 2013, GDP should

grow close to its potential rate (6%) in 2014-2016, based on strong domestic demand, mainly private and public investments; and volume-led rebound of mining exports due to the entrance of new mines and companies’ capacity expansions. The vulnerability to external shocks (growth shock in China and lower commodity prices) should be successfully addressed with fiscal and liquidity buffers built-up in recent years, as the 2008 crisis episode revealed.

Rebound of corporate earnings. After an estimated 31% decrease in 2013, we see

greater earnings visibility going into 2014, with net income of companies in our coverage universe (70% of the IGBVL) growing 25%. Growth should be led by the mining sector (60% of total earnings), which should benefit from a weak comparative base due to low commodity prices and cost pressures affecting the mining industry in 2013. We are looking for aggregate EBITDA to grow by 15% in 2014.

Fair valuations and lower regional discount. According to our corporate sample,

the Peruvian market is trading at 12.8x 2014E price/earnings. The multiple is within the +/- 1 SD range of the IGBVL 10-year average. During 2013, we have seen a reduction in the Peruvian market ‘s discount vis a vis other Latam markets.

Administrative bottlenecks and regional elections. The government plans to grant

infrastructure, mining and energy projects to the private sector for USD 14,000 mn in 2013-14. These projects include: the Line 2 of the Metro of Lima (USD 6,500 mn) and the Camisea gas pipeline to southern Peru (USD 2,430 mn); which could be delayed due to administrative bottlenecks in spite of recent measures to solve them. Also, regional elections will be held in 4Q2014 which could reassess the next investment phases of mining projects such as Conga.

Negative flows from Peruvian Pension funds and ETF volatility. Outflows from Peruvian equities continue, with Pension Funds accumulating net divestments over the last months. Also, the creation and destruction of EPU shares, the Peruvian ETF, will continue adding volatility to some of IGBVL’s smaller and less liquid stocks.

Alejandro Rabanal # (511) 205 9190 Ext 36070

[email protected]

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GDP growth to accelerate in 2014, fueled by copper exports. Current account deficit not an issue. Fiscal and liquidity buffers to address external shocks.

Macro: waiting for the infrastructure boost

In 2013, Peru reaffirmed its strong macroeconomic performance in spite of external shocks and emerged as one of the fastest growing economies in Latin America. Over the last decade the Peruvian economy doubled its size, and real GDP grew at above 6% per annum, the highest 10-year average growth in Peru’s history; with an annual inflation rate within the Central Bank target range (1%-3%). Peru – GDP (YoY%) Peru – Domestic Demand (YoY%) . Sources: BCRP and Credicorp Capital Our Economic team estimates a GDP growth of 5.8% for 2014 (5.5% for 2013), close to Peru’s potential GDP growth (~6%), supported by strong domestic demand, mainly private and public investment growth (8.9%). Exports will increase mainly due to the start up of the 275,000 MT copper mine, Toromocho (Chinalco), which will increase Peru’s copper production by 30%. By 2016, Peru should double its copper production when expansions at Las Bambas (Glencore Xstrata) and Cerro Verde are up and running. As to be expected, Peru’s current account deficit increased from 3.6% of GDP in 2012 to 5.0% 2013E, driven by lower commodities prices. While we see the deficit staying above 4.5% over the next two years, it should be largely financed by increased FDI, especially in mining. In 2016, the Central Bank estimates a reduction of the current account deficit to 3.7% of GDP, along with increases in mining exports. Peru is well-positioned to cope with possible external shocks such as capital outflows or lower demand for commodities from China. Public debt is only 18% of GDP and net debt is 2.1% of GDP (as of June 2013). Also, international reserves held by the Central Bank amount to 33% of GDP (among the highest in Latin America), a direct consequence of the CB’s efforts to stabilize the local currency, after net purchases in excess of USD15 bn during 2012 and 2013. Increased reserve requirements for banks could also be revised as a way to improve liquidity in case of a credit squeeze episode. Business confidence is expected to rebound after reaching its lowest levels in 2Q13, hit by deteriorated commodity prices and by local politics. The Government tried to increase its direct role in the economy with Petro Peru’s acquisition of Repsol’s oil refinery La Pampilla. Given the dynamics in local politics, the governments’ commitment to a healthy business environment is constantly being tested. Recent signals from the Humala administration suggest an increased focus on promoting concessions of public infrastructure and reducing administrative bottlenecks, which we view as positive.

0

2

4

6

8

10

mar-11 ago-11 ene-12 jun-12 nov-12 abr-13 3Q-13 4Q-140

2

4

6

8

10

12

14

mar-11 ago-11 ene-12 jun-12 nov-12 abr-13 3Q-13 4Q-14

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First gear: mining. Second gear: infrastructure. We are setting a 2014 YE target for the IGBVL of 18,566 points. Valuations offer limited room for multiple expansions.

Rebound in corporate earnings

We expect corporate earnings to fall by 31% in 2013 (in USD terms), based on our sample of companies (70% of IGBVL), being the second consecutive year of negative corporate performance (-29% in 2012). For 2014, we expect a 25% growth in corporate earnings, based on a recovery of the mining sector (60% of total earnings; 14% earnings growth), due to better operating margins and a weak comparative base. Also, we are looking for aggregate EBITDA to grow by 15% in 2014. In 2014 we expect growth to shift to the infrastructure and cement sectors, which should post a 69% expansion. Our stock selection aims at building exposure to the shorter term recovery in the mining sector (Milpo, Volcan) and to the medium term infrastructure expansion (Graña, Pacasmayo). Peru– Evolution of Corporate Earnings .

Market valuations and IGBVL upside

We are setting a YE 2014 target for the IGBVL index of 18,566 points, which implies a 14% upside from current levels. We arrive at this target combining a bottom-up approach, resulting from weighting the upside potentials for the companies under coverage in Peru, and a top-down, Fed-model type of approach to check for consistency between the fixed income and the equity markets. The IGBVL is trading at 12.8x 2014 earnings, which is in line +/- 1 SD with its 10-year historical average (see below). With respect to the Chilean and Colombian stock markets, the IGBVL is driving a ~9% discount on a 2014E P/E basis, down from its historical average. We believe that the “Peruvian story” of solid macro fundamentals justifies these lower discounts.

36%42%

16%

-29% -31%

25%

5%

36%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

2009 2010 2011 2012 2013 2014 2015 2016

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Peru– P/E 12M Forward . Sources: Bloomberg, Company Reports, Credicorp Capital Our base case scenario, bottom-up IGBVL-weighted market upside calculation suggest a 14% upside for the market through December 2014. This implies target 2015 P/E multiples for the market well within historical levels. To check for the sustainability of our index target in the context of adjusting fixed income markets, we look at the Earnings Yield Ratio (EYR) calculated as the ratio between 10-year US treasuries yields + Peru’s country risk (CDS), and the inverse of the 12-month forward looking P/E of the market. Over the last 10 years that ratio has been 0.80x (see below). Peru- Earnings Yield Ratio . Sources: Bloomberg, Company Reports, Credicorp Capital Our Economics team is looking for T-10 rates to be at 3.20% by year end 2014, while we see Peru’s 10-year CDS at 150 bp (2013 YTD average). With those values, and considering our earnings growth expectations as well as the historical average of the EYR, the IGBVL could sustain a 12-month forward P/E between 14.1x and 19.8x (within a +/- 0.5 SD range). Our IGBVL target falls within that range.

4,0

6,0

8,0

10,0

12,0

14,0

16,0

18,0

Jan-03 Nov-03 Sep-04 Jul-05 May-06 Mar-07 Jan-08 Nov-08 Sep-09 Jul-10 May-11 Mar-12 Jan-13 Nov-13

10.8x

0,2

0,4

0,6

0,8

1,0

1,2

1,4

1,6

1,8

2,0

Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

0.8x

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Mining & infrastructure projects sum up to USD 41,000 mn in the next three years Regional elections in 4Q14 to assess investment climate

Peru - FED - Type Model .

Administrative bottlenecks and regional elections in 2014

In addition to the private investment compromises in the mining sector for 2014-2016 (USD 27,000mn), the Government through its agency for promoting investments, Proinversion, has an ambitious plan to award to the private sector the concession of infrastructure, transport, mining and energy projects amounting to USD 14,000 mn. The most important projects in Proinversion’s portfolio are: (i) the Line 2 of the Metro of Lima (USD 6,500 mn, a 27-km underground metro line along the East-West axis of the city of Lima and a 8-km section in Callao, the port of Lima) and, (ii) the Camisea gas pipeline to southern Peru (USD 2,430 mn; ~1,000-km –long pipeline to transport natural gas from Peru’s jungle to the southern coast). The award dates for the Line 2 of the Metro of Lima and the Camisea gas pipeline are December 12th, 2013 and February 14th, 2014, respectively. The government is trying to honor these award dates but administrative bottlenecks in several local and regional offices could get Proinversion to postpone these international bids. We remain confident on the Line 2 award date but skeptical onthe Camisea gas pipeline since the former involves fewer decision agents and its completion would help the city of Lima to be on track to host the Pan-American Games in 2019.

Optimistic Base Negative

T-10 Rates (Dec 2014E) 3.60% 3.20% 2.80%

Perú CDS (bp) (Dec 2014E) 135 150 270

Range of Sustainable P/E 2015 Fwd

Min -0,5 SD (0,66) 13.4 14.1 12.0

Average EYR (0,80) 16.2 17.0 14.5

Max +0,5 SD (0,93) 18.8 19.8 16.9

Earnings Growth

2013E -18% -28% -30%

2014E 28% 23% 2%

2015E 10% 1% -36%

P/E (@ current prices)

2013E 14.3 9.2 8.6

2014E 10.3 12.8 8.4

2015E 9.3 12.7 11.5

Market Upside

Dec 2014 IGBVL Target 23,614 18,566 17,100

Upside 45% 14% 5%

Target 2015 FWD P/E (@ Dec 2014 IGBVL target) 13.5 14.5 12.0

Source: Credicorp Capital

Scenario

38 Andean Equities Guide, October 25th 2013

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Regional elections in 4Q2014 would be decisive to reassess the next investment phases of important mining projects such as Yanacocha’s Conga (USD 5,000 mn), included in our base scenario for Buenaventura. After social protests stopped building activities at the gold project in 2011, Buenaventura has been building water reservoirs to get locals support. The “social approval” of this emblematic mining project and others without Environmental Impact Studies in Peru is strongly related to the new political map that would emerge from regional elections, specially in Cajamarca (northern Peru) where Conga is located. If more investment-friendly regional presidents are elected, the Conga project could start production in 2019 (our base case scenario).

Investment Flows and ETF volatility Over the last months, the Peruvian market has suffered from continued outflows, specially local Pension Funds who have been net sellers of Peruvian equities (USD 341 mn YTD), partially explained by the high participation of AFPs in some equity offerings (12% limit imposed by the SBS, the local regulator), such as Graña y Montero, Ferreycorp, Volcan, Alicorp and Enersur. In 2014, the creation and destruction of units of EPUs, the Peruvian ETF, could continue to explain the volatility of some of the IGBVL’s stocks (Aceros Arequipa, Casa Grande, Atacocha, among others), given its lower liquidity relative to the creation/destruction unit basket liquidity requirements (three units approximately according to our estimates). Peru – Investment flows into the EPU (ETF) . Sources: Bloomberg and Credicorp Capital

Our stock selection in Peru The Peruvian market will have a comparative advantage to other Latam markets due to its solid, steady GDP growth and lower political risk in 2014 (next presidential election will take place in 2016). However, liquidity is (and will continue to be) an important issue in the market, reflected in its decreasing ADTV in the last years (USD 31.02 mn in 2011 vs USD 25.32 mn in September 2013). For this reason, our top pick selection privileges not only strong company fundamentals, but also higher liquidity standards to foreign investors (companies listed on the NYSE). In Peru, we are focused on infrastructure and cement companies due to stable private and public investment in the medium term, based on the existing housing and infrastructure gap (more than USD 90,000 mn) and the new investments needed to successfully held the Pan-American Games in 2019 (more than USD 700 mn only in sports infrastructure).

-150

-100

-50

0

50

100

150

Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13USD

mn

39 Andean Equities Guide, October 25th 2013

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Our top pick selection also include a power-generation company with a diversified hydro and thermoelectric capacity and important expansion plans to reap the benefits of higher electricity demand in the following years. We maintain our exposure to the mining sector due to more constructive view on commodity prices in the short term as well as efficiency gains by industry participants. Peruvian Picks . Sources: Bloomberg, Company Reports and Credicorp Capital a Simple average, excluding Market Capitalization

Price Target Mkt. 12-18 Month

oct-22 Price (PEN) Upside (USD mn) 2012 2013E 2014E 2012 2013E 2014E P/BV Div Yield Tot. Upside

Graña y Montero 11.4 13.8 21% 2,730 18.7 25.0 20.5 8.8 10.7 9.4 5.2 2.3% 23%

Cementos Pacasmayo 6.4 7.9 23% 1,302 26.4 23.7 19.7 14.7 10.8 9.8 2.0 2.1% 26%

Edegel 2.5 3.0 22% 2,031 16.8 16.8 13.3 8.8 10.2 8.3 2.4 5.2% 28%

Volcan 1.3 1.7 28% 2,486 21.1 12.9 13.1 10.2 7.2 6.2 1.7 2.7% 31%

Milpo 1.9 2.6 35% 774 64.4 7.4 4.9 6.7 3.3 2.9 1.4 4.1% 40%

Peruvian Picks a 26% 9,324 29.5 17.2 14.3 9.8 8.4 7.3 2.6 3.3% 29%

Peru Sample 18,400 13% 35,634 18.9 20.4 14.6 10.0 8.9 7.2 1.9 1.6% 14%

P/E FV/EBITDA

40 Andean Equities Guide, October 25th 2013

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Quantitative Summary

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Chile

Company Sector Px Last Px Target Upside Tot. Ret Rating Mkt. Cap ADTV

AESGener Utilities 307 380 24% 28% BUY 4,873 2.8

Aguas-A Utilities 349 370 6% 12% HOLD 4,156 4.7

Andina-B Food & Beverages 2,903 3,150 9% 12% HOLD 4,816 3.0

Banco de Chile Banks 77 83 8% 12% HOLD 14,424 5.5

Banmedica Health Serv ices 945 1,150 22% 26% BUY 1,522 0.7

BCI Banks 30,667 33,800 10% 13% HOLD 6,580 3.2

Besalco Cement & Construction 779 855 10% 11% HOLD 888 0.8

CAP Mining 10,732 12,300 15% 19% HOLD 3,211 7.1

CCU Food & Beverages 6,958 8,000 15% 17% HOLD 5,147 5.6

Cencosud Retail 2,163 2,300 6% 7% UPERF 12,153 17.0

CMPC Pulp & Paper 1,525 1,725 13% 15% HOLD 7,250 4.8

Colbun Utilities 131 153 17% 17% HOLD 4,605 2.3

Concha y Toro Food & Beverages 958 1,150 20% 22% BUY 1,433 1.7

Copec Pulp & Paper 7,470.3 8,900.0 19% 21% BUY 19,439 7.8

Corpbanca Banks 5.7 6.4 12% 15% HOLD 3,901 6.5

Cruz Blanca Health Serv ices 362 430 19% 20% HOLD 463 1.2

E-CL Utilities 787 860 9% 11% HOLD 1,660 3.0

Embonor-B Food & Beverages 1,290 1,510 17% 21% BUY 1,322 1.3

Endesa Utilities 755 900 19% 22% BUY 12,399 9.6

Enersis Utilities 168 200 19% 21% BUY 16,546 13.0

Entel Telecom, IT & Media 7,911 10,200 29% 33% BUY 3,746 7.4

Falabella Retail 5,023 6,000 19% 21% BUY 24,196 14.5

Forus Retail 2,840 3,400 20% 22% BUY 1,470 1.5

Habitat Financial Serv ices 839 974 16% 23% BUY 1,679 1.5

ILC Conglomerates 7,745 8,825 14% 20% HOLD 1,550 2.0

Latam Transport 8,106 9,000 11% 11% HOLD 7,847 13.8

Masisa Materials 37 39 5% 7% UPERF 594 0.4

Parauco Retail 981 1,240 26% 29% BUY 1,380 2.9

Ripley Retail 449 510 14% 15% HOLD 1,741 2.5

Salfacorp Cement & Construction 623 680 9% 12% HOLD 546 1.6

Santander Banks 32 35 8% 12% HOLD 12,257 9.3

SM-ChileB Banks 189 232 23% 26% BUY 4,995 1.7

SK Conglomerates 862 1,100 28% 32% BUY 1,854 1.5

Sonda Telecom, IT & Media 1,327 1,600 21% 23% BUY 2,313 4.4

SQM-B Materials 13,771 14,300 4% 6% UPERF 9,323 13.4

Chile Sample 3,895 4,410 13% 16% 197,407 177.7

42 Andean Equities Guide, October 25th 2013

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43 Andean Equities Guide, October 25th 2013

Div.

2012 2013E 2014E 2012 2013E 2014E P/BV Yield 2012 2013E 2012 2013E Company

25.5 17.2 15.4 10.9 10.2 9.3 2.0 2.7% 8.1% 11.3% 3.5% 4.9% AESGener

16.7 17.8 16.0 11.8 12.1 11.3 3.5 5.8% 19.5% 18.9% 8.0% 7.5% Aguas-A

29.4 23.8 23.4 13.7 10.9 10.0 2.6 3.2% 13.5% 11.3% 7.7% 5.7% Andina-B

15.2 14.0 13.2 nm nm nm 3.4 4.5% 24.9% 24.6% 2.1% 2.1% Banco de Chile

20.3 15.3 13.9 12.3 9.4 8.3 4.1 3.9% 27.2% 26.7% 7.5% 7.3% Banmedica

12.9 11.9 10.9 nm nm nm 2.3 2.5% 20.5% 19.1% 1.6% 1.5% BCI

19.4 21.5 21.5 13.3 11.1 9.6 2.6 1.4% 15.9% 11.7% 5.9% 4.4% Besalco

21.7 13.6 11.9 11.1 8.1 7.2 1.7 3.7% 13.0% 12.5% 4.6% 4.3% CAP

21.3 20.3 17.6 12.5 12.2 10.8 4.0 2.5% 19.0% 19.5% 8.6% 9.1% CCU

22.6 28.8 19.9 14.2 12.6 11.3 1.5 0.7% 8.7% 5.5% 3.1% 2.2% Cencosud

40.6 21.9 18.3 12.3 10.0 8.8 0.9 1.4% 2.5% 4.0% 1.5% 2.3% CMPC

99.0 30.5 23.3 19.6 14.1 11.2 1.3 0.3% 1.4% 4.3% 0.8% 2.5% Colbun

23.2 23.8 17.2 16.7 16.5 12.9 1.6 1.7% 7.3% 6.9% 3.7% 3.5% Concha y Toro

45.0 24.1 20.2 16.5 13.1 12.0 1.9 1.7% 4.2% 7.9% 1.9% 3.6% Copec

15.7 13.4 10.2 nm nm nm nm 3.1% 14.4% 13.1% 1.1% 0.9% Corpbanca

22.0 19.7 18.3 12.7 10.0 9.1 1.3 1.5% 10.3% 6.5% 4.0% 2.4% Cruz Blanca

44.0 33.0 23.0 11.9 8.9 8.5 1.0 1.5% 3.3% 3.0% 2.0% 1.7% E-CL

16.9 19.1 15.8 10.5 9.6 8.6 2.4 3.9% 13.7% 12.2% 8.0% 6.8% Embonor-B

27.0 21.3 16.2 12.5 11.2 10.2 2.3 2.8% 9.1% 10.8% 3.6% 4.3% Endesa

16.2 12.3 12.1 5.8 5.7 5.5 1.0 2.2% 5.8% 8.2% 2.8% 4.5% Enersis

14.0 13.7 13.3 5.1 4.9 4.8 2.3 4.5% 21.1% 16.2% 10.3% 7.4% Entel

32.0 27.8 22.6 21.0 18.9 15.8 3.3 1.4% 13.2% 14.4% 4.5% 4.8% Falabella

22.2 20.4 17.2 16.3 14.8 12.7 5.7 1.8% 30.9% 29.8% 24.0% 24.4% Forus

12.4 11.4 10.4 nm nm nm nm 6.6% 33.9% 30.6% 28.3% 25.3% Habitat

11.2 12.7 10.5 8.6 9.5 8.2 1.3 5.6% 14.5% nm 8.1% nm ILC

867.5 66.2- 18.4 18.6 10.1 8.0 1.5 0.0% 0.4% -2.3% 0.1% -0.6% Latam

16.1 11.3 11.2 6.5 5.3 5.0 0.4 2.7% 3.2% 3.6% 1.7% 1.8% Masisa

22.8 14.5 13.5 18.3 15.3 13.5 1.1 2.8% 7.9% 9.8% 3.6% 4.2% Parauco

23.8 19.3 18.3 12.7 11.2 10.3 1.1 1.3% 5.0% 5.8% 2.1% 2.4% Ripley

18.5 11.5 10.8 13.9 14.8 13.7 1.0 2.6% 8.5% 8.1% 2.6% 2.5% Salfacorp

16.4 15.7 13.0 nm nm nm 2.7 3.8% 18.6% 17.3% 1.6% 1.5% Santander

nm nm nm nm nm nm nm 3.1% nm nm nm nm SM-ChileB

17.0 15.5 12.5 11.4 8.4 7.8 1.6 3.9% 14.1% 10.0% 4.5% 3.2% SK

29.0 20.1 20.9 11.8 9.9 9.0 2.5 2.5% 13.0% 13.3% 7.2% 7.7% Sonda

23.2 19.2 28.7 14.7 11.4 15.1 4.0 2.6% 32.9% 21.6% 15.7% 10.9% SQM-B

24.1 19.5 16.2 12.7 10.6 9.5 1.9 2.4% 9.8% 9.9% 2.7% 2.7% Chile Sample

P/E FV/EBITDA ROAE ROAA

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Peru

Company Sector Px Last Px Target Upside Tot. Ret Rating Mkt. Cap ADTV

Aceros Arequipa Cement & Construction 0.7 1.0 34% 34% BUY 358 0.1

AIH Transport 2.5 3.3 35% 35% BUY 120 0.0

Alicorp Food & Beverages 8.5 9.5 12% 13% HOLD 2,619 0.9

Atacocha Mining 0.1 0.1 -9% -9% UPERF 44 0.1

Austral Fishing 0.3 0.3 11% 19% HOLD 253 0.0

Buenaventura* Mining 14.3 14.0 -2% -2% UPERF 3,944 33.6

Casa Grande Sugar Mills 9.4 11.0 17% 19% HOLD 287 0.1

Cementos Pacasmayo Cement & Construction 6.4 7.9 23% 26% BUY 1,302 0.4

Cerro Verde* Mining 26.0 24.0 -8% -8% UPERF 9,101 0.3

Edegel Utilities 2.5 3.0 22% 28% BUY 2,031 0.2

Edelnor Utilities 4.8 5.2 8% 13% HOLD 1,108 0.2

El Brocal Mining 10.7 11.3 6% 6% UPERF 421 0.1

Enersur Utilities 25.5 28.9 13% 18% HOLD 2,058 0.2

Ferreycorp Cement & Construction 1.8 2.1 20% 22% BUY 598 1.3

Graña y Montero Cement & Construction 11.4 13.8 21% 23% BUY 2,730 1.1

Luz del Sur Utilities 9.7 10.1 5% 10% HOLD 1,699 0.3

Milpo Mining 1.9 2.6 35% 40% BUY 774 0.2

Minsur Mining 1.4 2.0 48% 54% BUY 1,407 0.3

Siderperú Cement & Construction 0.3 0.3 -7% -7% UPERF 138 0.1

Unacem Cement & Construction 3.6 4.2 16% 17% HOLD 2,154 0.6

Volcan Mining 1.3 1.7 28% 31% BUY 2,486 1.7

Peru Sample 16,286 18,400 13% 14% 35,634 41.7

Colombia

Company Sector Px Last Px Target Upside Tot. Ret Rating Mkt. Cap ADTV

Bancolombia Banks 26,620 32,440 22% 25% BUY 11,896 7.0

Celsia Utilities 6,360 7,120 12% 14% HOLD 2,435 1.3

Cemargos Cement & Construction 9,850 9,950 1% 3% UPERF 6,982 3.1

Cemex Latam Holdings Cement & Construction 14,640 15,287 4% 4% UPERF 4,331 3.8

Corficolombiana Conglomerates 39,160 41,660 6% 13% HOLD 4,328 2.0

Daviv ienda Banks 25,100 30,560 22% 24% BUY 5,932 2.5

Ecopetrol Oil & Gas 4,535 4,810 6% 11% HOLD 99,202 17.5

EEB Utilities 1,590 1,800 13% 18% HOLD 7,766 1.8

Grupo Argos Conglomerates 22,500 24,460 9% 10% HOLD 9,374 2.9

Grupo Aval Banks 1,380 1,580 14% 18% HOLD 13,584 3.2

Grupo Sura Conglomerates 37,660 44,680 19% 20% HOLD 11,587 3.9

ISA Utilities 9,660 9,220 -6% -3% UPERF 5,693 1.6

Isagen Utilities 3,160 3,060 -4% -2% UPERF 4,583 1.5

Nutresa Food & Beverages 27,340 32,600 19% 21% BUY 6,693 2.5

Pacific Rubiales Oil & Gas 41,300 57,100 38% 41% BUY 7,110 9.8

Colombia Sample 1,774 1,980 12% 15% 201,494 64.4

44 Andean Equities Guide, October 25th 2013

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Div.

2012 2013E 2014E 2012 2013E 2014E P/BV Yield 2012 2013E 2012 2013E Company

28.1 121.0- 11.5 16.3 10.8 6.2 0.8 0.0% 3.9% -0.6% 1.8% -0.3% Aceros Arequipa

20.5 26,569 13.8 9.6 8.1 7.7 0.3 0.0% 2.0% 0.0% 1.1% 0.0% AIH

20.1 25.1 18.2 14.0 12.6 11.1 3.4 1.6% 17.3% 12.9% 9.5% 5.7% Alicorp

14.5- 1.7- 5.4- nm 5.8- 2.2 0.5 0.0% -8.2% -30.8% -4.2% -14.8% Atacocha

8.1 40.2 8.8 4.7 10.7 6.1 1.2 7.4% 10.6% 2.8% 6.4% 1.7% Austral

14.5 18.3 18.8 7.4 5.5 5.1 1.1 0.4% 19.9% 5.5% 16.0% 4.6% Buenaventura*

12.6 22.8 13.8 5.8 7.5 7.0 0.7 2.6% 7.6% 2.8% 5.6% 2.0% Casa Grande

26.4 23.7 19.7 14.7 10.8 9.8 2.0 2.1% 11.2% 8.7% 7.7% 6.1% Cementos Pacasmayo

17.2 20.2 13.5 9.0 9.7 6.6 2.4 0.0% 25.2% 12.3% 21.3% 10.5% Cerro Verde*

16.8 16.8 13.3 8.8 10.2 8.3 2.4 5.2% 13.1% 13.7% 7.6% 8.3% Edegel

13.0 13.1 12.9 7.3 7.5 7.0 2.8 4.3% 20.8% 21.2% 8.0% 8.0% Edelnor

60.1 678.2- 6.7 23.9 11.2 3.3 1.1 0.0% 6.3% -0.1% 4.7% -0.1% El Brocal

17.5 17.8 15.7 12.4 9.9 8.1 3.6 5.1% 23.0% 19.9% 9.2% 8.2% Enersur

8.0 14.5 5.9 7.3 5.5 4.8 1.2 1.7% 17.7% 7.8% 5.9% 2.7% Ferreycorp

18.7 25.0 20.5 8.8 10.7 9.4 5.2 2.3% 22.5% 14.3% 6.6% 5.1% Graña y Montero

13.5 14.5 13.7 9.1 9.6 8.8 3.3 5.0% 22.9% 22.4% 11.3% 10.7% Luz del Sur

64.4 7.4 4.9 6.7 3.3 2.9 1.4 4.1% 3.7% 19.4% 2.3% 9.7% Milpo

10.6 4.5 9.4 7.5 2.9 5.8 0.7 5.5% 13.2% 13.3% 11.9% 11.9% Minsur

3.4- 68.0- 6.4 13.2- 8.3 6.0 0.3 0.0% -9.9% -0.5% -4.7% -0.3% Siderperú

14.8 25.7 17.0 12.8 11.8 10.9 1.8 1.2% 13.7% 6.9% 7.3% 3.7% Unacem

21.1 12.9 13.1 10.2 7.2 6.2 1.7 2.7% 15.1% 13.1% 9.1% 7.0% Volcan

18.9 20.4 14.6 10.0 8.9 7.2 1.9 1.6% 16.4% 9.2% 9.9% 5.5% Peru Sample

P/E FV/EBITDA ROAE ROAA

Div.

2012 2013E 2014E 2012 2013E 2014E P/BV Yield 2012 2013E 2012 2013E Company

14.9 14.3 11.3 nm nm nm 1.9 3.0% 16.5% 13.0% 1.9% 1.5% Bancolombia

16.6 17.2 21.1 9.2 8.9 9.9 1.5 1.7% 8.3% 8.9% 3.4% 3.8% Celsia

29.9 57.8 28.1 18.5 14.6 11.5 1.8 1.8% 4.5% 3.5% 2.9% 2.1% Cemargos

14.0 14.8 12.7 9.7 9.3 8.4 3.2 0.0% 22.5% 16.9% 8.7% 7.1% Cemex Latam Holdings

18.1 16.3 18.2 nm nm nm 2.4 6.9% 13.6% 15.2% 4.6% 5.3% Corficolombiana

15.4 15.9 11.6 nm nm nm 2.0 2.3% 13.7% 12.4% 1.7% 1.4% Daviv ienda

15.1 13.8 14.0 7.7 6.7 6.4 3.1 5.1% 24.7% 20.6% 14.3% 11.6% Ecopetrol

16.8 13.3 12.7 10.0 10.7 9.9 1.6 4.4% 8.0% 11.9% 4.8% 7.2% EEB

47.8 46.1 40.9 16.4 14.1 13.0 1.4 1.1% 3.1% 2.9% 1.3% 1.4% Grupo Argos

15.7 16.3 13.4 nm nm nm 2.9 3.9% 17.7% 16.7% 2.0% 1.9% Grupo Aval

40.1 33.1 31.8 nm nm nm 1.1 1.3% 2.8% 3.1% 2.5% 3.0% Grupo Sura

38.8 22.5 43.1 7.7 11.6 11.1 1.4 3.4% 4.4% 6.8% 1.0% 1.8% ISA

14.8 19.5 27.6 14.4 14.2 13.7 2.4 2.1% 13.2% 11.8% 7.3% 6.3% Isagen

33.7 38.5 36.9 18.0 15.6 13.2 1.7 1.4% 5.0% 4.3% 4.1% 3.3% Nutresa

13.0 8.3 6.1 3.9 3.2 2.5 1.7 3.0% 15.3% 19.7% 8.4% 10.1% Pacific Rubiales

25.4 25.4 23.0 9.9 8.9 8.0 2.0 3.0% 12.3% 11.1% 5.7% 5.1% Colombia Sample

P/E FV/EBITDA ROAE ROAA

45 Andean Equities Guide, October 25th 2013

Page 46: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Chilean Relative Valuation

Colombian Relative Valuation

AESGENER

AGUAS-A

ANDINA-B

BANMÉDICABCI

BESALCO

CAP

CCU

CENCOSUD

CHILE*

CMPC

COLBUN

CONCHA Y TORO

COPEC

CORPBANCA CRUZBLANCA

ECL

EMBONOR-B

ENDESAENERSIS

ENTEL

FALABELLA

FORUSHABITAT LATAM

MASISA

PARAUCO

RIPLEYSALFACORP

SANTANDER

SK

SONDA

SQM-B

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0

CO

mpa

ny P

/E 2

014E

/ 1

0 Y

ears

Com

pany

Avg

.

Company P/E 2014E / 10 year Market Avg.

ECOPETROL

PACIFIC

GRUPOSURA

CEMARGOS

GRUPOARGOS

NUTRESA

CELSIAISA

ISAGEN

EEB

BANCOLOMBIADAVIVIENDA

AVAL

CORFICOL

CLH

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0

Com

pany

P/E

201

4E /

10

Yea

rs C

ompa

ny A

vg.

Company P/E 2014E / 10 year Market Avg.

46 Andean Equities Guide, October 25th 2013

Page 47: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Peruvian Relative Valuation

ACEROS AREQUIPA

AIH

ALICORP

AUSTRAL

BUENAVENTURA

CASA GRANDE

CEMENTOS PACASMAYO

CERRO VERDE

EDEGEL

EDELNOR

ENERSUR

FERREYCORP

GRAÑA Y MONTEROLUZ DEL SUR

MINSURUNACEM

VOLCAN

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0

Com

pany

P/E

201

4E /

10

Yea

rs C

ompa

ny A

vg.

Company P/E 2014E / 10 year Market Avg.

47 Andean Equities Guide, October 25th 2013

Page 48: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero
Page 49: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Company Snapshots

Page 50: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Peru Industry:

Rating:

Buy Aceros Arequipa Showing continuous improvement

Omar Avellaneda +(511) 416 3333 - Ext: 37856

[email protected]

Investment Thesis Stock Data

• We are introducing a new 2014YE target price for Aceros Arequipa of PEN 1.0 and we reiterate our BUY rating on the shares. The company should benefit from the expected growth in Peru’s public and private investments over the next years. Attractive valuations are somewhat offset by low liquidity levels which limit our recommendation to investors that demand lower traded volumes.

• Being a component of the EPU, coupled with the shares’ scarce liquidity results in high share price volatility, especially when international investors become more active.

• New steel rolling capacity in the Pisco plant to reduce

dependence on imports of finished products. The company increased its steel rolling capacity from 0.8m TM/year to 1.35m MT/year. Shifting imports of finished products to imports of semi-finished products should have a positive effect on gross margins and inventory management, starting in 2014. Long-term gross margins should reach 19%, below pre-crisis levels of 29%.

• Risks to our thesis: Slowdown in public and private investment; volatility in main inputs (steel scrap, mainly, and billets); slowdown in the global economy may increase competition with imports.

Price Chart (PEN) and Volumes (USD mn)

Valuation • We estimated our 2014YE target price based on a 10-year DCF

model. Our valuation for the company implies a 2014YE P/E of 11.5x, below its peers level; and a 2014YE FV/EBITDA of 6.2x, above its comparables level.

• Investments in CELEPSA (hydro-electrical plant), Comercial del

Acero (steel products trader) and Transportes Barcino (transport) add PEN 0.23 to our target price.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

50

Ticker corarei1 pe

Price (PEN) 0.71

LTM Range 0.49 - 1.15

Target 1.0

Total Return 34%

Market Cap (USD, mn) 358

Shares Outstanding (mn) 201

Free Float 53%

ADTV (USD, mn) 0.1

0

0

0

1

1

1

1

1

0

20

40

60

80

100

120

Oct-12 Feb-13 Jun-13 Oct-13

US

D m

n

PE

N

CORAREI1 IGBVL

Grupo Simec

Gerdau

Cia Siderurgica

Nacional

Aceros Arequipa

Siderperú

Usiminas

Ternium

0

5

10

15

20

25

0 5 10

P/E

201

4E

FV/EBITDA 2014E

2012 2013E 2014E 2015E

FV/EBITDA 16.3 10.8 6.2 5.3

P/E 28.1 n.m 11.5 7.7

P/CF 7.6 -4.1 6.4 5.3

P/BV 1.0 0.8 0.7 0.7

Div . Yield 1.3% 0.0% 0.0% 2.0%

Sources: Company Reports and Credicorp Capital

Andean Equities Guide, October 25th 2013

(PEN)

(PEN)

0

10

20

30

40

50

Jun-01 Jun-04 Jun-07 Jun-10 Jun-130

10

20

30

40

50

60

Jun-01 Jun-04 Jun-07 Jun-10 Jun-13

Cement & Construction

Page 51: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Aceros Arequipa Company Description

Aceros Arequipa is the leading producer of steel products in Peru. The company has a steelmaking capacity of 750,000 MT/year and two steel and rolling mills located in Arequipa and Pisco (southern Peru) with a total capacity of 1,350,000 MT/year, and an estimated market share of 31% in long steel products.

Ownership Income Statement

Revenues Breakdown (by region) Balance Sheet

Revenues Breakdown (by product)

Cash Flow

Management

CEO: Ricardo Cillóniz CFO: Marco Donizetti IR Manager: - www.acerosarequipa.com.pe

51

PEN mn 2011 2012 2013E 2014E 2015E

Revenues 2,065 2,166 2,230 2,550 2,799

EBIT 257 82 133 205 269

EBITDA 331 128 187 329 386

Net Income 184 46 -8 86 129

EPS 0.9 0.2 0.0 0.4 0.6

EBIT Margin 12.5% 3.8% 6.0% 8.1% 9.6%

EBITDA Margin 16.0% 5.9% 8.4% 12.9% 13.8%

Net Margin 8.9% 2.1% -0.4% 3.4% 4.6%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 160 179 139 269 390

Total Current Assets 1,539 1,357 1,752 1,937 2,154

Total Assets 2,330 2,681 3,214 3,339 3,515

Current Liabilities 902 1,014 1,166 1,179 1,229

Financial Debt 890 982 1,506 1,564 1,603

Total Liabilities 1,244 1,396 1,937 1,976 2,043

Minority Interest 0 0 0 0 0

Shareholders Equity 1,086 1,285 1,277 1,363 1,472

Total Liabilities + Equity 2,330 2,681 3,214 3,339 3,515

EBITDA / Fin. Expenses 10.0 3.9 3.4 4.0 4.5

Financial Debt /EBITDA 2.7 7.6 8.0 4.8 4.2

Financial Debt /Equity 0.8 0.8 1.2 1.1 1.1

ROAE 17.6% 3.9% -0.6% 6.5% 9.1%

ROAA 8.3% 1.8% -0.3% 2.6% 3.8%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mn 2011 2012 2013E 2014E 2015E

Initial Cash 149 160 179 139 269

Cash from Operations 78 179 -311 135 178

CAPEX -100 -126 -56 -64 -76

Changes in Financial Debt 128 92 524 59 38

Div idends (Paid) Received -35 -22 0 0 -19

Financing, investing others -59 -105 -197 0 0

Changes in Equity 0 0 0 0 0

Final Cash 160 179 139 269 390

Change in Cash 11 18 -40 130 121

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Cillóniz family, 31.18%

Olesa Investme

nt Corporati

on, 10.36%

Transportes

Barcino S.A.,

5.24%

Others, 53.22%

Local, 90%

Exports, 10%

Long steel, 95%

Flat steel, 5%

Andean Equities Guide, October 25th 2013

Page 52: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

2012 2013E 2014E 2015E

FV/EBITDA 10.9 10.2 9.3 8.9

P/E 25.5 17.2 15.4 15.4

P/CF 50.2 19.2 -14.5 -11.3

P/BV 2.1 1.9 1.8 1.7

Div . Yield 2.6% 3.8% 4.2% 6.5%

Sources: Company Reports and Credicorp Capital

Chile Industry:

Utilities Rating:

Buy AES Gener Growth play in the electric sector

Andrés Ossa +(562) 2651 9332

[email protected]

Investment Thesis Stock Data

• We are updating our coverage on AES Gener, maintaining our BUY recommendation and introducing a 2014YE T.P. of CLP 380. In our view, the company is a growth play in the electric sector, with solid fundamentals and limited downside due to low exposure to hydro risks. After the capital increase announcement, the stock experienced a fall that provides an interesting entry point.

• The company recently announced a USD 450m capital increase. The use of proceeds will be to finance part of Cochrane (532 MW) and Alto Maipo (531 MW), which will represent an increment of 24% in installed capacity, with an estimated investment of USD 3,150 mn.

• With the start of operations of Ventanas IV during 1H 2013, the company completed its previous expansion plan, which started in 2006 and added ~1,700 MW to Gener’s installed capacity. We expect the stock to have a positive performance during the coming growth chapter, considering its performance in the previous one.

• Risks to our thesis: The prosecution of generation projects in Chile remains the main downside risk to our thesis. Despite this, we believe the risk is relatively small, since the company has proven its ability to effectively develop projects in the past.

Price Chart (CLP) and Volumes (USD mn)

Valuation • In terms of forward multiples, the company is trading at 15.4x P/E

and 9.3x FV/EBITDA 2014E, with an 11% discount to its P/E average and slightly in line with its FV/EBITDA average.

• When compared to local peers (excluding Enersis), Gener is

trading at a discount of 27% in terms of P/E and 8% in terms of FV/EBITDA 2014E.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

52 Andean Equities Guide, October 25th 2013

Ticker aesgener ci

Price (CLP) 307

LTM Range (CLP) 283 - 348

Target (CLP) 380

Total Return 28%

Market Cap (USD mn) 4,952

Shares Outstanding (mn) 8,070

Free Float 29%

ADTV (USD mn) 2.8

5

10

15

20

25

30

Jan/08 Jun/09 Nov/10 Apr/12 Sep/13

5

7

9

11

Jan/08 Jun/09 Nov/10 Apr/12 Sep/13

0

2

4

6

8

10

12

14

0

20

40

60

80

100

120

140

Oct-12 Feb-13 Jun-13 Oct-13

US

D m

n

CLP

AES Gener IPSA

COLBUNECL

CELSIA

ISAGEN

EDELNOR

ENERSISENDESA

AES GENER

EDEGEL

4

9

14

19

24

29

4 6 8 10 12 14 16

P/E

201

4E

FV/EBITDA 2014E

Page 53: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

AES Gener Company Description

AES Gener is the second largest electrical generation group in Chile. The company has an installed capacity of 3,474 MW between the SIC and SING grid, composed of 3,203 MW of thermo and 271 MW of hydro capacity. Additionally, AES Gener has 1,000 MW of hydro capacity in Colombia.

Ownership Income Statement

Revenues Breakdown LTM Balance Sheet

EBITDA Breakdown LTM

Cash Flow

Management

CEO: Luis Felipe Cerón CFO: Daniel Stadelmann Deputy CFO: Laurie Kelly IR Manager: Constanza López www.aesgener.cl

53 Andean Equities Guide, October 25th 2013

USD mn 2011 2012 2013E 2014E 2015E

Revenues 2,136 2,330 2,281 2,410 2,453

EBIT 540 444 462 518 551

EBITDA 735 658 685 748 785

Net Income 326 203 288 321 323

EPS 20.2 12.6 17.9 19.9 20.0

EBIT Margin 25.3% 19.0% 20.3% 21.5% 22.5%

EBITDA Margin 34.4% 28.2% 30.0% 31.0% 32.0%

Net Margin 15.3% 8.7% 12.6% 13.3% 13.2%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 556 415 366 387 394

Total Current Assets 1,087 856 863 911 940

Total Assets 5,829 5,831 5,928 6,738 7,642

Current Liabilities 514 491 502 530 552

Financial Debt 2,393 2,397 2,377 3,008 3,774

Total Liabilities 3,300 3,350 3,293 3,968 4,758

Minority Interest 0 3 3 4 4

Shareholders Equity 2,529 2,478 2,632 2,766 2,880

Total Liabilities + Equity 5,829 5,831 5,928 6,738 7,642

EBITDA / Fin. Expenses 7.5 6.1 6.6 6.4 5.3

Financial Debt /EBITDA 3.3 3.6 3.5 4.0 4.8

Financial Debt /Equity 0.9 1.0 0.9 1.1 1.3

ROAE 12.9% 8.1% 11.3% 11.9% 11.4%

ROAA 5.6% 3.5% 4.9% 5.1% 4.5%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Initial Cash 606 556 415 366 387

Cash from Operations 365 739 531 666 672

CAPEX -173 -421 -320 -970 -1,103

Changes in Financial Debt 194 4 -19 631 766

Div idends (Paid) Receiv ed -320 -317 -134 -187 -209

Tax es -110 -147 -107 -119 -119

Changes in Equity -6 0 0 0 0

Final Cash 556 415 366 387 394

Change in Cash -50 -141 -48 21 7

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

SIC36%

SING -SADI37%

SIN27%

AES Corp71%

Pension Funds16%

Others13%

SIC30%

SING -SADI36%

SIN34%

Page 54: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

2012 2013E 2014E 2015E

FV/EBITDA 11.8 12.1 11.3 11.0

P/E 16.7 17.8 16.0 16.7

P/CF 20.6 15.6 13.7 13.1

P/BV 3.3 3.4 3.3 3.3

Div . Yield 5.7% 5.8% 5.6% 6.2%

Sources: Company Reports and Credicorp Capital

Chile Industry:

Utilities Rating:

Hold Aguas Andinas Keep calm and hold

Andrés Ossa +(562) 2651 9332

[email protected]

Investment Thesis Stock Data

• We are updating our coverage on Aguas Andinas, maintaining our HOLD recommendation and introducing a new 2014YE T.P. of CLP 370. We see Aguas/A as an attractive alternative in times of volatility, with limited downside risk and an attractive dividend yield. Despite this, we believe the company is fairly priced and do not see an interesting entry point at current levels.

• After the startup of the Mapocho water treatment plant, Aguas reached 100% of coverage for water treatment in the metropolitan area (vs 87% in 2012). Higher costs due to a harder than expected set up of the plant are expected to last at least until 2013YE.

• Growth still remains the main challenge for the company. After the new sewage treatment project, we do not see big expansion plans in the company’s pipeline. New wells and storage plants – that would increase water autonomy – should concentrate the company’s investment plans for the coming years. We project a ~3% of increment in tariffs once these storage plants begin operating.

• Risks to our thesis: our valuation could be affected by extreme

variations in hydrological conditions and by excessive adjustments in 2015’s tariff revision.

Price Chart (CLP) and Volumes (USD mn)

Valuation • In terms of forward multiples, Aguas/A trades roughly in line with

its average since CORFO’s block sale in 2011. When compared to its peers, Aguas/A trades roughly in line vs comparables, though with a premium vs Brazilian peers. The latter is partially due to the higher dividend yield that Aguas/A ensures.

• IAM valuation: We also valued Aguas Andinas’ holding company, IAM, through a discount model based on its historic average. Our Aguas T.P. implies a T.P. for IAM of CLP 1,000, with a total return of 13% from current valuations and a HOLD recommendation.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

54 Andean Equities Guide, October 25th 2013

Ticker aguas/a ci

Price (CLP) 349

LTM Range (CLP) 316 - 402

Target (CLP) 370

Total Return 12%

Market Cap (USD mn) 4,156

Shares Outstanding (mn) 5,811

Free Float 45%

ADTV (USD mn) 4.7

10

12

14

16

18

20

Apr/11 Dec/11 Aug/12 Apr/13 Dec/13

8

9

10

11

12

13

14

Apr/11 Dec/11 Aug/12 Apr/13 Dec/13

0

20

40

60

80

100

0

20

40

60

80

100

120

140

Oct-12 Feb-13 Jun-13 Oct-13

US

D m

n

CLP

Aguas A IPSA

SEVERN TRENT

UNITED UTILITIES GROUP

AQUA AMERICA

AGUAS/A

SUEZ ENVIRONNEMENT

CIA DE SANEAM. BASICO

4

7

10

13

16

19

22

4 6 8 10 12 14

P/E

201

4E

FV/EBITDA 2014E

Page 55: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Aguas Andinas Company Description

Aguas Andinas is the leading company in the Chilean sanitary industry and one of the largest in Latin America. It provides sanitation services to over 7 million residents within the Metropolitan Region, in both urban and rural areas. Through its subsidiary ESSAL, the company also supplies sanitation services to over 600,000 clients in the 10th and 14th region.

Ownership Income Statement

Revenues Breakdown LTM Balance Sheet

Service Coverage Evolution

Cash Flow

Management

CEO: Víctor de la Barra CFO: Miguel Ángel Zarza IR Manager: Mary E. Laverty www.aguasandinas.cl/investors

55 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Revenues 363,733 382,886 395,610 422,766 423,519

EBIT 171,587 188,835 185,124 202,059 193,948

EBITDA 225,889 243,603 246,572 265,144 257,145

Net Income 114,661 120,584 116,229 129,311 123,775

EPS 19.7 20.8 20.0 22.3 21.3

EBIT Margin 47.2% 49.3% 46.8% 47.8% 45.8%

EBITDA Margin 62.1% 63.6% 62.3% 62.7% 60.7%

Net Margin 31.5% 31.5% 29.4% 30.6% 29.2%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 6,510 37,114 22,714 24,273 24,316

Total Current Assets 83,718 120,312 110,317 116,554 121,428

Total Assets 1,489,106 1,533,856 1,553,654 1,592,943 1,598,809

Current Liabilities 200,458 165,418 170,702 174,168 177,199

Financial Debt 635,452 690,088 705,256 726,357 734,500

Total Liabilities 801,216 855,077 875,494 900,038 911,193

Minority Interest 65,819 61,998 65,735 67,397 67,645

Shareholders Equity 622,071 616,780 612,425 625,507 619,971

Total Liabilities + Equity 1,489,106 1,533,856 1,553,654 1,592,943 1,598,809

EBITDA / Fin. Expenses 11.6 15.5 11.4 12.2 11.5

Financial Debt /EBITDA 2.8 2.8 2.9 2.7 2.9

Financial Debt /Equity 1.0 1.1 1.2 1.2 1.2

ROAE 18.4% 19.5% 18.9% 20.9% 19.9%

ROAA 7.7% 8.0% 7.5% 8.2% 7.8%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Initial Cash 7,652 6,510 37,114 22,714 24,273

Cash from Operations 231,626 226,213 200,190 205,944 215,932

CAPEX -121,688 -96,810 -80,000 -76,800 -63,654

Changes in Financial Debt 33,577 54,636 15,168 21,101 8,144

Div idends (Paid) Receiv ed -112,414 -114,661 -120,584 -116,229 -129,311

Tax es -26,021 -35,507 -29,173 -32,457 -31,067

Changes in Equity -6,223 -3,267 0 0 0

Final Cash 6,510 37,114 22,714 24,273 24,316

Change in Cash -1,143 30,604 -14,400 1,559 43

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

IAM50%

Corfo5%

Others45%

Water39%

Collection22%

Sewage treat.19%

Intercon.5%

Others Reg.4%

Others Non-Reg.

11%

0%

25%

50%

75%

100%

6.0

6.3

6.6

6.9

7.2

2003 2005 2007 2009 2011 2013E

Population (Mn.) Water DeliverySewage Colection Sewage Treatment

Page 56: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

0

5

10

Feb-12 Aug-12 Feb-13 Aug-130

10

20

30

40

50

Feb-12 Aug-12 Feb-13 Aug-13

Peru Industry:

Transport Rating:

Buy Andino Investment Holding A long term play

Iván Bogarín +(511) 4163333 – Ext 33055

[email protected]

Investment Thesis Stock Data

• We are maintaining our BUY recommendation with a target price of 2014 YE PEN 3.3 based on 2014 revenues and EBITDA growth of 6.2% and 4.2%, respectively. We recommend this share to investors with high tolerance to illiquidity.

• AIH provides exposure to the steady growth of Peru’s

international trade. Peru is one of the economies with the highest trade openness ratio in Latam (42% of its GDP). International trade will rebound in 2014 (8.4%) due to the start of full production of mining copper projects and the recovery of the global economy.

• New infrastructure projects: We expect the startup of its "Lima Hub" multi development project (next to the Lima International Airport) in 2014, which includes hotels, offices, malls and restaurants, and air cargo handling. The company is awaiting for municipal permissions to starts construction in 1S14 .

• Risks to our thesis: regulatory changes in concession businesses. Slowdown in commercial trade; unfavorable credit conditions for debt reprofiling. The main upside risk we see is the market factoring significant land banks into AIH’s value. Along with the rest of the market, we are not considering then in our valuation.

Price Chart (PEN) and Volumes (USD mn)

Valuation • We value AIH at 2014YE TP PEN 3.3 trough a sum-of-parts DCF

analysis for the ongoing businesses. We see AIH trading at 13.8x PE 2014E, below its historical multiple average (20.5x)

• We exclude from our TP the land banks of Terrano (140,890 m2) and Oporsa (578,681 m2) , which sum PEN 2.00 /share because we estimate that the market is not considering them since the IPO (Feb 2012).

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

56

Ticker aihc1 pe equity

Price (PEN) 2.5

LTM Range 2.2 - 3.2

Target 3.3

Total Return 35%

Market Cap (USD, mn) 120

Shares Outstanding (mn) 0.0

Free Float 26%

ADTV (USDm) 0.0

2012 2013E 2014E 2015E

FV/EBITDA 9.6 8.1 7.7 7.6

P/E 20.5 nm 13.8 11.5

P/CF 33.1 5 5.3 4.7

P/BV 0.3 0.3 0.3 0.3

Div . Yield 0.0% 0.0% 0.0% 0.0%

Sources: Company Reports and Credicorp Capital E

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

0

20

40

60

80

100

120

140

Oct-12 Feb-13 Jun-13 Oct-13

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D m

n

PE

N

AIH IGBVL

Grupo Aeroportuario

del Centro Norte

Santos Brasil Participacione

s

AIH

10

13

16

19

22

25

0 5 10 15

P/E

2014

E

FV/EBITDA 2014E

(PEN)

(PEN)

Andean Equities Guide, October 25th 2013

Page 57: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

AIH Company Description

AIH is a conglomerate of companies with operations in maritime services, logistics and infrastructure with more than 40 years of experience. The company also has a 50% participation in the 26-year and 20-year concessions of the Paita port and five domestic airports, respectively. AIH has been listed on the Lima SE since February 2012.

Ownership Income Statement

Target Price Breakdown 2014E Balance Sheet

Cash Flow

Management

CEO: Carlos Vargas Loret de Mola CFO: José Balta del Río IR Manager: Susanne Noltenius Aurich www.andino.com.pe

57

PEN mm 2011 2012 2013E 2014E 2015E

Revenues 469 517 580 616 656

EBIT 30 32 52 59 64

EBITDA 56 61 75 79 85

Net Income 6 16 0 24 29

EPS nm 0.12 0.00 0.18 0.21

EBIT Margin 6.4% 6.2% 8.9% 9.6% 9.8%

EBITDA Margin 12.0% 11.9% 12.9% 12.8% 12.9%

Net Margin 1.2% 3.0% 0.0% 3.9% 4.4%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mm 2011 2012 2013E 2014E 2015E

Cash & Equivalents 19 17 18 23 34

Total Current Assets 137 187 204 220 244

Total Assets 878 2,048 2,077 2,100 2,131

Current Liabilities 125 157 180 186 192

Financial Debt 311 276 273 266 261

Total Liabilities 512 812 838 838 840

Minority Interest 23 42 42 42 42

Shareholders Equity 342 1,194 1,196 1,220 1,249

Total Liabilities + Equity 878 2,048 2,077 2,100 2,131

EBITDA / Fin. Expenses 1.3 1.6 1.9 2.2 2.4

Financial Debt /EBITDA 5.5 4.5 3.7 3.4 3.1

Financial Debt /Equity 0.9 0.2 0.2 0.2 0.2

ROAE 3.4% 2.0% 0.0% 2.0% 2.3%

ROAA 1.3% 1.1% 0.0% 1.1% 1.4%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mm 2011 2012 2013E 2014E 2015E

Initial Cash 0 19 17 18 23

Cash from Operations 15 -1 3 35 39

CAPEX -38 -21 -19 -22 -22

Changes in Financial Debt nm -35 -3 -7 -5

Div idends (Paid) Received 2 0 0 0 0

Financing & investing, others 40 73 36 18 22

Changes in Equity 0 0 0 0 0

Final Cash 19 17 18 23 34

Change in Cash 19 -2 1 5 11

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Vargas Loret de

Mola Family,

27%

Others, 47%

Float, 26%

Ongoing busines

ses, 44%

Concession

businesses, 18%

Land banks ,

38%

Andean Equities Guide, October 25th 2013

Page 58: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

0

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10

15

jun-01 jun-04 jun-07 jun-10 jun-13

Peru Industry:

Rating:

Hold Alicorp A Latam consumer company

Iván Bogarín +(511) 4163333 – Ext 33055

[email protected]

Investment Thesis Stock Data

• We are maintaining our Hold recommendation on Alicorp, with a 2014YE target price of PEN 9.5, based on the company’s strong competitive position and on expectations for strong revenues and EBITDA growth in 2014 (11% and 13%, respectively).

• Sustainable growth of household income (middle class) due to Peru’s remarkable economic performance will benefit Alicorp sales. The growth of GDP will remain strong according to Credicorp Capital forecast (5.8% in 2014). The company is also working to expand its distribution channels in Peru to reach more regions that are benefiting from the sustained economic growth.

• Alicorp is increasing its market share in Peru and Latin America through acquisitions (Brazil 2013 and Peru 2012). The company has established a USD 5,000 mn revenues and a 50% non-Peruvian sales participation target by 2021, which compares to a current 66% contribution from sales in Peru. We are not expecting any significant acquisition in 2014.

• Improving its operating margins in recently acquired international units is the short term task for Alicorp to reinforce investors confidence.

• Risks to our thesis: slowdown in private consumption in Peru, political risk in Argentina and Ecuador, volatility in commodity prices and in FX.

Price Chart (PEN) and Volumes (USD mn)

Valuation • Under our 10-year DCF model with a WACC of 8.35% and D/E

target of 25%, we value Alicorp at 2014YE PEN 9.5. In 2014 we consider a 11.6% growth in consumer goods, a 6.4% in B2B branded products and a 14.5% in animal nutrition .

• Alicorp is trading within its +/- 1 SD 12M FWD P/E historical average (12.5x) and in line with its regional peers. We see the shares as fairly priced and poised to perform in line with the market.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

58

Ticker alicorc1 pe equity

Price (PEN) 8.5

LTM Range 7.26 - 10.4

Target 9.5

Total Return 13%

Market Cap (USD, mn) 2,619

Shares Outstanding (mn) 0.0

Free Float 55%

ADTV (USDm) 0.9

2012 2013E 2014E 2015E

FV/EBITDA 14.0 12.6 11.1 9.7

P/E 20.1 25.1 18.2 15.2

P/CF 51.4 15 11.0 9.5

P/BV 3.3 3.1 2.8 2.5

Div . Yield 3.2% 1.5% 1.6% 2.0%

Sources: Company Reports and Credicorp Capital E

Grupo Bimbo SAB Hypermarca

s SA

Nutresa

M Dias Branco Grupo

Herdez Gruma Alicorp

10

15

20

25

30

35

40

45

5 10 15 20

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2014

E

FV/EBITDA 2014E

0.0

2.0

4.0

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8.0

10.0

0

50

100

150

200

Oct-12 Feb-13 Jun-13 Oct-13

US

D m

n

PE

N

ALICORP IGBVL

(PEN)

(PEN)

Andean Equities Guide, October 25th 2013

Food & Beverages

Page 59: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Alicorp Company Description

Alicorp is the leading Peruvian consumer goods company of branded products with operations in Argentina, Colombia, Ecuador, Chile and Brazil. The company has 106 families of brands in 16 categories in the consumer goods segment, 14 brands directed to the food industry and two brands of fish and shrimp feed.

Ownership Income Statement

Revenues by category 2014E Balance Sheet

Revenues by geographic area 2014E

Cash Flow

Management

CEO: Paolo Sacchi Giurato CFO: Diego Rosado IR Manager: Fiorella Debernardi Baertl www.alicorp.com.pe

59

PEN mm 2011 2012 2013E 2014E 2015E

Revenues 4,256 4,474 5,758 6,413 7,161

EBIT 489 489 615 696 807

EBITDA 552 561 727 830 949

Net Income 331 351 288 396 475

EPS 0.39 0.41 0.34 0.47 0.56

EBIT Margin 11.5% 10.9% 10.7% 10.9% 11.3%

EBITDA Margin 13.0% 12.5% 12.6% 12.9% 13.3%

Net Margin 7.8% 7.9% 5.0% 6.2% 6.6%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mm 2011 2012 2013E 2014E 2015E

Cash & Equivalents 111 496 98 177 239

Total Current Assets 1,453 2,234 2,329 2,629 3,015

Total Assets 3,184 4,250 5,778 6,169 6,627

Current Liabilities 708 1,241 1,185 1,273 1,397

Financial Debt 511 1,286 2,060 2,089 2,091

Total Liabilities 1,254 2,121 3,456 3,569 3,694

Minority Interest 1 7 7 7 7

Shareholders Equity 1,928 2,123 2,315 2,593 2,925

Total Liabilities + Equity 3,184 4,250 5,778 6,169 6,627

EBITDA / Fin. Expenses 11.5 9.1 5.7 8.2 8.8

Financial Debt /EBITDA 0.9 2.3 2.8 2.5 2.2

Financial Debt /Equity 0.3 0.6 0.9 0.8 0.7

ROAE 17.9% 17.3% 12.9% 16.1% 17.2%

ROAA 10.7% 9.5% 5.7% 6.6% 7.4%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mm 2011 2012 2013E 2014E 2015E

Initial Cash 150 111 496 98 177

Cash from Operations 242 233 315 393 418

CAPEX -87 -244 -277 -224 -215

Changes in Financial Debt -49 775 774 28 2

Div idends (Paid) Received -145 -162 -103 -119 -143

Financing & investing, others 151 -106 -611 98 177

Changes in Equity 0 0 0 0 0

Final Cash 111 496 98 177 239

Change in Cash -40 385 -398 78 63

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Romero Group, 45%

Pension Funds, 31%

Inv. & Mutual Funds, 11%

Others, 13%

Perú, 66%

International, 34%

Consumer

goods, 64%

B2B Branded Product

, 23%

Animal nutrition, 13%

Andean Equities Guide, October 25th 2013

Page 60: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Chile Industry:

Rating:

Hold Andina - B Consolidating the region

Javier Gunther +(562) 2450 1695

[email protected]

Investment Thesis Stock Data

• We maintain our HOLD recommendation on Andina-B and introduce a 2014YE target price of CLP 3,150. We like the company’s stable operations and presence in different markets. However, we believe the negative macro scenario in Brazil will continue hurting volumes, and we expect a moderation in growth in volumes in Chile.

• After labor cost increases in the last few quarters, the closure of a plant and the merger with KO Polar, Andina is posting the worst margins since 1997. For next year, we expect margins to improve as a result of higher economies of scale and investments in new bottling lines, especially in Chile with the new Renca plant.

• Andina explicitly stated its intention to consolidate KO bottlers in Latam. Last years’ two acquisitions and the recent purchase of Ipiranga is part of that plan. Although more M&A activity could be positive depending on prices, we believe Andina should focus on integrating its acquisitions before aiming for further consolidation.

• Downside risk include: FX depreciation, increases in sugar or concentrate costs, political instability in Argentina and Paraguay. Upside risks include: a hot summer or accretive M&A activity.

Price Chart (CLP) and Volumes (USD mn)

Valuation • At 23.4x P/E 2014E and 10.0x FV/EBITDA 2014E, we believe that

the stock is trading at fair multiples when compared to its peers.

• When compared to its 10 year average, the company is trading at a with a 22% premium in terms of P/E and a 9% discount in terms of FV/EBITDA, which we believe is not enough to provide an attractive entry point.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

2012 2013E 2014E 2015E

FV/EBITDA 13.7 10.9 10.0 9.0

P/E 29.4 23.8 23.4 20.8

P/CF 121.2 -9.9 25.3 18.7

P/BV 2.9 2.6 2.6 2.5

Div . Yield 2.6% 3.2% 3.3% 3.7%

Sources: Company Reports and Credicorp Capital

60 Andean Equities Guide, October 25th 2013

Ticker andinab ci / ako/b us

Price (CLP) 2,903

LTM Range (CLP) 2,454 - 3,320

Target 3,150 (loc) / 37.4 (ADR)

Total Return 12%

Market Cap (USD mn) 4,816

Shares Outstanding (mn) 473

Free Float 51%

ADTV (USD mn) 3.0 (loc) / 0.9 (ADR)

61014182226303438

dic-99 dic-02 dic-05 dic-08 dic-112

4

6

8

10

12

14

16

dic-99 dic-02 dic-05 dic-08 dic-11

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n

CLP

Andina B IPSA

Andina

Embonor

Coca-Cola Co.

KO Enter.

Amatil

Femsa

Arca

1415161718192021222324

7 8 9 10 11 12 13 14

P/E

201

4E

FV/EBITDA 2014E

Food & Beverages

Page 61: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Andina - B Company Description

Andina is the largest KO bottler in Chile (center, center-north and extreme south), Argentina (Cordoba and Patagonia) and Brazil (Rio de Janeiro). Its product portfolio includes soft drinks, juices, water and beer. The company merged with Kopolar in Oct-12 and acquired 40% of Sorocaba (Brazil) and recently 100% of Ipiranga (Brazil).

Ownership Income Statement

EBITDA Breakdown (LTM) Balance Sheet

Volume per Division Breakdown (LTM)

Cash Flow

Management

CEO: Miguel Ángel Peirano CFO: Andrés Wainer IR Manager: Paula Vicuña www.koandina.com/

61 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Revenues 982,863 1,172,293 1,447,293 1,539,562 1,689,107

EBIT 144,424 154,164 169,012 185,333 206,529

EBITDA 181,923 207,986 246,387 268,498 297,578

Net Income 99,024 87,637 101,068 102,708 115,476

EPS 260.5 185.2 213.5 217.0 244.0

EBIT Margin 14.7% 13.2% 11.7% 12.0% 12.2%

EBITDA Margin 18.5% 17.7% 17.0% 17.4% 17.6%

Net Margin 10.1% 7.5% 7.0% 6.7% 6.8%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 46,959 55,651 72,365 76,978 84,455

Total Current Assets 235,532 327,172 377,029 414,092 458,589

Total Assets 750,020 1,539,836 2,000,810 2,119,392 2,254,327

Current Liabilities 196,644 345,371 402,236 438,555 484,446

Financial Debt 86,922 280,128 639,597 694,007 742,421

Total Liabilities 328,041 646,231 1,067,863 1,160,139 1,257,057

Minority Interest 9 19,441 25,261 26,758 28,462

Shareholders Equity 421,970 874,164 907,685 932,495 968,809

Total Liabilities + Equity 750,020 1,539,836 2,000,810 2,119,392 2,254,327

EBITDA / Fin. Expenses 26.3 28.2 38.1 43.0 50.7

Financial Debt /EBITDA 0.5 1.3 2.6 2.6 2.5

Financial Debt /Equity 0.2 0.3 0.7 0.7 0.8

ROAE 24.2% 13.5% 11.3% 11.2% 12.1%

ROAA 13.7% 7.7% 5.7% 5.0% 5.3%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Initial Cash 97,178 46,959 55,651 72,365 76,978

Cash from Operations 142,016 71,402 221,111 199,048 213,142

CAPEX -88,705 -165,141 -438,750 -120,960 -110,619

Changes in Financial Debt 4,476 193,207 359,469 54,410 48,414

Div idends (Paid) Received -76,323 -67,546 -77,898 -79,162 -89,003

Taxes -31,682 -23,230 -47,218 -48,723 -54,456

Changes in Equity 0 0 0 0 0

Final Cash 46,959 55,651 72,365 76,978 84,455

Change in Cash -50,219 8,692 16,714 4,613 7,477

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Controlling Group49.1%

Pension Funds 4.3%

Coca-Cola 14.6%

ADR's 7.7%

Others 24.3%

Chile41%

Brazil32%

Argentina19%

Paraguay8%

Soft Drinks85%

Water7%

Juices7%

Beer1%

Page 62: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Peru Industry:

Mining Rating:

Uperf Atacocha The canary in the polymetallic mine?

Héctor Collantes +(511) 4163333 – Ext 33052

[email protected]

Investment Thesis Stock Data

• We maintain our Underperform rating on Atacocha. Despite a favorable outlook for prices of Zn, Pb and Ag, and relatively stable ore head grades after steep declines in the past years, discounts to sales of concentrates have almost doubled in the last semester with more volatile metal prices, severely affecting revenues.

• Recent cost reductions seem unlikely to be sustained. Even though operating costs reached their lowest level in a year (USD46.6/MT) this achievement seems hard to sustain as more work is required to increase Atacocha’s reserves.

• The deepening of a mine shaft in development. The 447 shaft will allow to replace costly diesel trucks to reach the lower levels of the mine (Santa Bárbara zone). However, we do not expect a sizeable cost reduction as it has not been the case in similar mines.

• Short life of mine in reserves. One year in reserves and six in resources do not support immediate concentrator expansions.

• Risks to our thesis: not all of the resources may become reserves; 40% of Atacocha’s resources are in the least certain of categories.

Price Chart (PEN) and Volumes (USD mn)

Valuation

• Sensitive to inputs. As production costs are very close to the level of the company’s revenues, Atacocha’s forecasted results are very sensitive within our already short 7-periods DCF model.

• Not enough risk compensation. Current multiples do not seem compelling enough to offset the execution risks we see in this turnaround story.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

62

Minmetals Sumitomo

Metal Mining

Boliden

Milpo El Brocal

Atacocha

Volcan

-10

-5

0

5

10

15

20

25

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P/E

2014

E

FV/EBITDA 2014E

Ticker atacobc1 pe

Price (PEN) 0.1

LTM Range 0.1 - 0.38

Target 0.1

Total Return -9%

Market Cap (USDmn) 44

Shares Outstanding (mn) 962

Free Float 21%

ADTV (USDm) 0.1

2012 2013E 2014E 2015E

FV/EBITDA nm -5.8 2.2 nm

P/E -14.5 -1.7 -5.4 -29.9

P/CF -22.9 -1.3 2.4 -5.0

P/BV 1.2 0.6 0.7 0.7

Div . Yield 0.0% 0.0% 0.0% 0.0%

Sources: Company Reports and Credicorp Capital

0

0

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ATACOCHA IGBVL

Andean Equities Guide, October 25th 2013

(PEN)

(PEN)

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Page 63: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Atacocha Company Description

Atacocha operates a polymetallic (zinc, lead, silver, and to a lesser extent, gold) mine in Central Peru. It is controlled by Milpo (56% of equity). Its located in Cerro de Pasco where most of the mines of the companies under coverage operates. Hence, its results have usually been seen as early indicators on trends that could affect bigger mines.

Ownership Income Statement

Revenues Breakdown per Metal Balance Sheet

COGS Breakdown

Cash Flow

Management

CEO: Víctor Gobitz CFO:Persio Morasutti IR Manager: Henry Aragón www.milpo.com

63

Milpo 56,7%

Peruvian Pension Funds 22.4%

Others 20.9%

Zinc 45,7%

Lead 12.5%

Copper 10.8%

Silver 22.8%

Gold 3.9%

Supplies 14,2%

Personnel 14.9%

Contractor 39.8%

Deprec 30.9%

Workers' Particip 0.1%

Change in Inventory 12.8%

USDmn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 31 22 26 22 32

Total Current Assets 84 78 65 76 89

Total Assets 201 191 161 154 153

Current Liabilities 51 52 50 51 51

Financial Debt 35 23 23 23 23

Total Liabilities 96 93 90 91 91

Minority Interest 0 0 0 0 0

Shareholders Equity 105 98 72 64 62

Total Liabilities + Equity 201 191 162 154 153

EBITDA / Fin. Expenses 20.1 15.5 -5.7 14.3 15.8

Financial Debt /EBITDA 0.7 0.9 -3.6 1.0 0.9

Financial Debt /Equity 0.3 0.2 0.3 0.4 0.4

ROAE 12.5% -8.2% -30.8% -12.0% -2.3%

ROAA 6.5% -4.2% -14.8% -5.1% -1.0%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USDmn 2011 2012 2013E 2014E 2015E

Initial Cash 27 31 22 26 22

Cash from Operations 42 14 17 9 24

CAPEX -31 -14 -14 -14 -14

Changes in Financial Debt -11 -15 0 0 0

Div idends (Paid) Received 0 0 0 0 0

Financial&Investing, others 3 7 0 0 0

Changes in Equity 0 0 0 0 0

Final Cash 31 22 26 22 32

Change in Cash 4 -8 4 -4 11

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USDmn 2011 2012 2013E 2014E 2015E

Revenues 135 111 78 108 120

EBIT 24 -8 -37 -12 -2

EBITDA 48 25 -6 23 26

Net Income 13 -8 -26 -8 -1

EPS 0.014 -0.009 -0.027 -0.007 -0.004

EBIT Margin 18.1% -6.8% -47.9% -10.7% -1.8%

EBITDA Margin 35.9% 22.1% -8.0% 21.0% 21.8%

Net Margin 9.7% -7.4% -33.5% -7.5% -1.2%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

Page 64: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

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Peru Industry:

Fishing Rating:

Hold Austral A cash flow machine

Iván Bogarín +(511) 4163333 – Ext 33055

[email protected]

Investment Thesis Stock Data

• We are downgrading our recommendation to Hold from Buy, with a target price 2014YE PEN 0.3 based on 2014E revenues and EBITDA growth by 25% and 76%, respectively.

• Peruvian’s fourth largest catch quota, in the north – center area Austral has a 7% of total quota (most important for fishing). In 2008, Peruvian government set an ITQ system (individual fishing quota) for indirect human consumption (IHC). In the last 30 years, the worldwide aquaculture industry has grown at a CAGR of 8%, particularly in China, supporting the increasing demand for fishmeal and fish oil as sources of protein. Also demand for fish oil is supported by its Omega-3 content (health benefits ).

• Strong cash flow generation resulting in a high dividend yield (7.4% for 2014) despite years with quota reduction (- 68% in 2nd season 2012).

• Developing new markets in the Direct Human Consumption unit (DHC). Currently about 18% of company revenues (mainly exports) are DHC. The company is working on the development of a canned products market in the country improving its distribution channels.

• Risks to our thesis: a reduction of biomass or global quota of anchovy in 2014; adverse climatic phenomena such as El Niño; significant reduction in prices of fishmeal or fish oil , which are driven by demand from China.

Price Chart (PEN) and Volumes (USD mn)

Valuation • We are raising our 2014YE target price to PEN 0.3 based on a

global quota of 5 mn MT for the entire year in the north - center area. Our projections of prices for fishmeal are USD 1,500 / MT in 2014 and USD 1,600 / MT in the long term.

• We see Austral trading at similar levels than its local peers, with the exception of Copeinca , which was taken over by the Chinese CFG.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

64

Ticker austrac1 pe equity

Price (PEN) 0.3

LTM Range 0.2 - 0.3

Target 0.3

Total Return 19%

Market Cap (USD, mn) 253

Shares Outstanding (mn) 0.0

Free Float 14%

ADTV (USDm) 0.0

0.0

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0.4

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0.8

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1.4

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D

mn

PE

N

AUSTRAL IGBVL

2012 2013E 2014E 2015E

FV/EBITDA 4.7 10.7 6.1 6.0

P/E 8.1 40.2 8.8 8.6

P/CF 2.5 nm 5.4 5.0

P/BV 0.9 1.2 1.1 1.1

Div . Yield 10.7% 9.5% 7.4% 7.4%

Sources: Company Reports and Credicorp Capital E

Oceana Group

Leroy Seafood Group

Copeinca Aker ASA-A

Austral

Grieg Seafood

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Andean Equities Guide, October 25th 2013

Page 65: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Austral Company Description

Austral is a subsidiary of the Norwegian Austevoll Seafood. It is the fifth largest producer of fishmeal and fish oil in Peru. The company’s fleet is composed of 22 vessels and it has seven factories along the coast of Peru. Additionally it produces canned products and frozen fish.

Ownership Income Statement

IHC Revenues Breakdown 2014E Balance Sheet

DHC Revenues Breakdown 2014E

Cash Flow

Management

CEO: Adriana Carmen Giudice Alva CFO: Andrew Dark IR Manager: - www.austral.com.pe

65

Dordogne Holdings,

86%

Others, 14%

Fishmeal, 86%

Fish Oil, 14%

Canned products,

79%

Frozen fish, 18%

Fresh fish, 3%

PEN mm 2011 2012 2013E 2014E 2015E

Revenues 754 677 606 757 767

EBIT 143 97 40 113 115

EBITDA 193 150 94 166 168

Net Income 102 67 17 79 81

EPS 0.04 0.03 0.01 0.03 0.03

EBIT Margin 18.9% 14.3% 6.7% 14.9% 15.0%

EBITDA Margin 25.6% 22.2% 15.5% 21.9% 21.9%

Net Margin 13.5% 9.9% 2.9% 10.4% 10.6%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mm 2011 2012 2013E 2014E 2015E

Cash & Equivalents 8 11 6 22 21

Total Current Assets 340 234 352 361 367

Total Assets 1,123 965 1,099 1,107 1,113

Current Liabilities 196 105 310 288 274

Financial Debt 274 169 267 273 251

Total Liabilities 485 338 506 487 464

Minority Interest 0 0 0 0 0

Shareholders Equity 638 627 593 620 649

Total Liabilities + Equity 1,123 965 1,099 1,107 1,113

EBITDA / Fin. Expenses 16.6 14.6 7.7 9.5 9.9

Financial Debt /EBITDA 1.4 1.1 2.8 1.6 1.5

Financial Debt /Equity 0.4 0.3 0.5 0.4 0.4

ROAE 16.2% 10.6% 2.8% 13.0% 12.8%

ROAA 9.6% 6.4% 1.7% 7.2% 7.3%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mm 2011 2012 2013E 2014E 2015E

Initial Cash 5 8 11 6 22

Cash from Operations 32 196 34 114 125

CAPEX -29 -46 -69 -52 -52

Changes in Financial Debt 79 -67 82 6 -22

Div idends (Paid) Received -78 -78 -52 -52 -52

Financing & investing, others 3 7 11 6 21

Changes in Equity 0 0 0 0 0

Final Cash 8 11 6 22 21

Change in Cash 4 3 -5 16 -1

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

Page 66: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Colombia Industry:

Banks Rating:

Buy Bancolombia Dilution risk vs. upside potential

Juan Dominguez +(571) 339 4400 Ext 1026

[email protected]

Investment Thesis Stock Data

• We maintain our BUY in Bancolombia, despite a difficult 2013 due to lower NIM (lower interest rates and losses on investments) and higher provision expenses, which will result in an EPS decrease of 8.0% YoY. We expect a better 2014, as NIM has upward pressures due to CB policy rate rises starting 1Q14. Also, the efficiency programs and IT investments will reflect on efficiency improvements, given the relative weakness of Bancolombia on this front. An increasing NIM and improving efficiency should boost ROAE in coming years from 13% in 2013 to ~17% in the long term.

• Bancolombia has underperformed YTD, partly due to the likelihood of a share issuance in 2014 to support capital adequacy ratios once HSBC Panama is consolidated. Our TP does not include HSBC Panama, as the transaction awaits regulatory approvals (estimated closing date during 4Q13), but Tier 1 ratio could be driven below 6%. Yet, the combined effect of consolidating HSBC Panama and an equity issuance of USD 500-1,000mn could drive TP up 1%-4%.

• Downside risks include the eventual equity issuance and further M&As, which could affect profitability. Upside risks may come from asset quality and efficiency improvements.

Price Chart (COP) and Volumes (USD mn)

Valuation

• Our TP of COP 32,440/share is based on a DDM at a Ke of 12.5%, a long term ROAE close to 17% and a perpetuity growth rate of 6%. Our TP implies a 2.0x 2014E P/B and a 13.9x 2014E P/E. The shares are trading at 1.6x 2014E P/B, only higher than Corpbanca and Banco do Brasil among peers.

• Consolidating HSBC Panama could have a positive effect on valuation, even including a capital increase. Thus, the likelihood of an issuance is already priced, and we rate the share with a BUY.

Valuation Summary

P/E Forward P/B Forward Relative Valuation

66

2012 2013E 2014E 2015E

P/E 14.9x 14.3x 11.3x 9.7x

P/BV 2.2x 1.8x 1.6x 1.5x

Div . Yield 2.4% 2.8% 3.0% 3.3%Sources: Company Reports and Credicorp Capital;

E Credicorp Capital Estimates

0

10

20

30

40

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24,000

26,000

28,000

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32,000

Oct-12 Feb-13 Jun-13 Oct-13

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mn

CO

P

PfBancolombia COLCAP

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2

3

4

5

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Itau Bradesco

Credicorp BCI

Chile

Corpbanca

Santander

Banorte Davivienda

Aval

Bcolo

Banco do Brasil

0.5

1.0

1.5

2.0

2.5

3.0

3.5

10% 15% 20% 25%

P/B

2014

E

ROAE 2014E

Ticker pfbcolo cb / cib us

Price (COP) 26,620

LTM Range (COP) 25,500 - 31,460

Target 32,440 (loc) / 69.4 (ADR)

Upside 25%

Market Cap (USD mn) 11,896

Shares Outstanding (mn) 852

Free Float 69%

ADTV (USD mn) 7.0 (loc) / 16.8 (ADR)

Andean Equities Guide, October 25th 2013

Page 67: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Bancolombia Company Description

Grupo Bancolombia is the second largest financial conglomerate in Colombia, offering a wide range of financial products and services to an individual and corporate base of more than 7 million costumers. It is also present in El Salvador through Banagricola, and has recently acquired assets in Panama (HSBC) and Guatemala (Agromercantil).

Ownership Income Statement

Loans Breakdown (as of Jun-13) Balance Sheet

Funding Structure (as of Jun-13)

Ratios

Management

Chairman BoD: David Emilio Bojanini CEO: Carlos Raúl Yepes CFO: José Humberto Acosta IR Manager: Alejandro Mejía www.grupobancolombia.com

67

COP bn 2011 2012 2013E 2014E 2015E

Net Interest Income 3,904 4,767 5,141 6,017 6,845

Net Fee Income 1,669 1,807 1,943 2,137 2,351

Operational Income 6,263 7,407 7,902 9,216 10,392

Provision Expenses 599 1,111 1,337 1,482 1,691

Operational Expenses 3,606 4,162 4,624 5,184 5,739

Net Income 1,664 1,702 1,565 1,983 2,297

EPS (COP / share) 2,112 1,998 1,837 2,328 2,696

EPS growth 15.8% -5.4% -8.0% 26.7% 15.8%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Corporate 61%

Consumer 18%

Mortgages 9%

Financial Leasing

12%

Micro finance

1%

Demand deposits

40%

Time deposits

27%

Interbank and

financial obligations

9%

Bonds 12%

Equity + Min. Int.

11%

Grupo Sura 27%

Grupo Argos

4%

ADR Program

21%

Pension Funds 22%

Other Intern. 15%

Other Local 13%

COP bn 2011 2012 2013E 2014E 2015E

Cash & Interbank Deposits 7,729 8,169 10,206 11,709 13,316

Investment Portfolio 9,958 12,554 14,868 15,633 16,845

Gross Loans 61,388 69,989 81,362 93,222 106,018

Total Assets 85,463 97,916 114,555 129,932 146,479

Total Deposits 52,434 64,159 75,977 87,165 99,129

Financial Obligations 19,722 17,376 20,805 22,938 25,177

Total Liabilities 76,396 86,228 101,947 116,000 130,980

Minority Interest 73 81 71 85 98

Shareholders' Equity 8,993 11,607 12,537 13,847 15,400

Total Liabilities + Equity 85,463 97,916 114,555 129,932 146,479

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

(%) 2011 2012 2013E 2014E 2015E

NIM 6.4% 6.5% 6.0% 6.1% 6.2%

Fee income/Op. Income 26.6% 24.4% 24.6% 23.2% 22.6%

Efficiency 57.6% 56.2% 58.5% 56.2% 55.2%

NPLs / Loans 1.5% 1.8% 1.8% 1.8% 1.8%

LLPs / Loans 4.6% 4.6% 4.8% 4.6% 4.6%

Provision expenses / Loans 1.1% 1.7% 1.8% 1.7% 1.7%

Coverage ratio 301% 264% 264% 257% 257%

Deposits / Loans 90% 96% 98% 98% 98%

BIS ratio 12.5% 15.8% 13.1% 12.3% 12.1%

ROAE 19.6% 16.5% 13.0% 15.0% 15.7%

ROAA 2.2% 1.9% 1.5% 1.6% 1.7%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

Page 68: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Chile Industry:

Banks Rating:

Hold Banco de Chile Leadership fully priced

Christopher DiSalvatore +(562) 2446 1724

[email protected]

Investment Thesis Stock Data

• We are downgrading our recommendation from BUY to HOLD after an 8% run since our last revision in August. Though we expect the bank to maintain the highest returns amongst the banks under our coverage, at 2.9x 2014E P/B we see little room for an upward rerating in share valuations.

• Going forward, we expect the bank to maintain superior returns within the system, owing to its below average funding cots, control and reduction in total operating costs, and stable NPL ratios, which remain well below the industry average. The bank’s conservative risk management should support a coverage ratio above 200%, which should help to limit downside risk, going forward.

• We expect higher inflation to drive results through 2H 2013, resulting in a 6% EPS growth 2013 followed by 6% growth in 2014.

• Risks to our thesis: upside risks includes higher than expected inflationary pressure during 2H13, better than expected cost reductions, and a higher asset quality improvement. Downside risks include deflationary pressure, asset quality deterioration, and an increase in Chile's corporate tax rate.

Price Chart (CLP) and Volumes (USD mn)

Valuation • Our 2014E target price is based on a 10 year DDM valuation using a

nominal cost of equity of 11.3% in CLP terms.

• Based on our estimates, shares trade at a 2.9x 2014E P/B or a 9,4% discount to historical averages; however, still at a premium to regional peers, reflecting the bank’s above average returns. At current prices, we see less room for a share rerating, however, coupled with a 2014E 5% dividend yield, we see little downside risk for investors.

Valuation Summary

P/E Forward P/B Forward Relative Valuation

68 Andean Equities Guide, October 25th 2013

Ticker chile ci

Price (CLP) 77

LTM Range 68 - 80

Target (CLP) 83

Total Return 12%

Market Cap (USD mn) 14,424

Shares Outstanding (mn) 93,175

Free Float 18%

ADTV (USD mn) 5.5

2012 2013E 2014E 2015E

P/E 15.2 14.0 13.2 11.9

P/BV 3.5 3.3 2.9 2.7

Div . Yield 4.2% 4.5% 5.0% 5.3%

Sources: Company Reports and Credicorp Capital

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n

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Chile IPSA

ItauBradesco

Credicorp

Chile

Corpbanca

Santander

Banorte

Bcolo

DaviviendaAval

Banco do Brasil

0

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201

4E

ROE 2014E

0

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4

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Dec-02 Dec-05 Dec-08 Dec-11

(CLP)

Page 69: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Banco de Chile Company Description

Banco de Chile is a full service financial institution offering credit products and services across all segments of the Chilean financial market. Today, Banco de Chile is the largest commercial bank in Chile by loan size with over USD 40 bn and 19.1% market share. As of August 2013, the bank was the most profitable amongst its large peers, posting an annualized ROE of 26%.

Ownership Income Statement

Loans by Segment (1H 2013) Balance Sheet

Pre-tax income by Segment (1H 2013)

Ratios

Management

CEO: Arturo Tagle CFO: Pedro Samhan IR Manager: Pablo Mejia www.bancochile.com 69

Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Net Interest Income 871,320 952,838 1,030,796 1,135,029 1,249,556

Net Fee Income 308,773 307,257 289,995 324,206 355,675

Operational Income 1,223,782 1,342,039 1,420,861 1,523,101 1,675,039

Provision Expenses -145,840 -166,670 -214,706 -234,368 -255,972

Operational Expenses -613,217 -631,967 -617,940 -661,529 -724,433

Net Income 428,806 465,851 514,336 545,996 604,695

EPS 4.7 5.2 5.5 5.9 6.5

EPS growth 14.4% 9.3% 6.4% 6.2% 10.8%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Interbank Deposits 1,254,785 1,081,536 2,072,969 2,029,480 2,208,882

Investments Portfolio 1,853,701 1,492,264 2,514,632 2,741,774 2,996,905

Gross Loans 17,377,793 18,761,765 20,492,356 22,364,477 24,432,273

Total Assets 21,740,945 23,160,276 25,662,347 28,913,351 31,458,370

Total Deposits 14,177,750 15,083,921 15,916,488 18,331,029 19,943,157

Financial Obligations 4,079,280 4,382,614 8,832,591 5,643,851 6,139,427

Total Liabilities 20,001,772 21,254,007 23,495,149 26,472,668 28,812,798

Minority Interest 0 1 1 1 1

Shareholders Equity 1,739,173 2,007,057 2,167,197 2,440,682 2,645,571

Total Liabilities + Equity 21,740,945 23,261,065 25,662,347 28,913,351 31,458,370

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

(%) 2011 2012 2013E 2014E 2015E

NIM (% ) 5.0% 4.9% 4.9% 4.8% 4.9%

Fee Income / Op. Income 25.2% 22.9% 20.4% 21.3% 21.2%

Efficiency (% ) 50% 47% 43% 43% 43%

Effective Tax Rate 12% 10% 13% 14% 14%

NPLs / Loans 1.0% 1.0% 1.0% 1.0% 1.0%

LLPs / Loans 2.2% 2.3% 2.2% 2.2% 2.2%

Provision expenses / Loans -0.8% -0.9% -1.1% -1.1% -1.1%

Coverage ratio 219% 225% 213% 222% 217%

Deposit / Loans 83% 82% 79% 84% 83%

BIS ratio 12.9% 13.2% 13.1% 13.0% 12.9%

ROAE 24.7% 24.9% 24.6% 23.7% 23.8%

ROAA 2.0% 2.1% 2.1% 2.0% 2.0%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

LQIF58%

Ergas6%

Other Indirect

18%

Float18%

Individuals & SMEs

42%

Subsidiary9%

Treasury2%

Corporate20%

Company21%

Consumer Finance

6%

Individuals & SMEs

47%

Corporate21%

Company28%

Consumer Finance

4%

Page 70: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Chile Industry:

Rating:

Buy Banmedica Healthy returns at discounted price

Javier Gunther +(562) 2540 1695

[email protected]

Investment Thesis Stock Data

• We are upgrading Banmédica from Hold to Buy. Since our last revision in March, the stock has underperformed the IPSA by 10% and is now our top pick in the sector given its attractive valuations. We believe the company is the best vehicle to gain exposure to Latam’s healthcare industry, whose growth potential is driven by the increase in per capita income (2013-2017 CAGR of 6.6%), the ageing of population and low unemployment rates.

• We like Banmedica’s proven and experience management. The company has a consolidated business model, with operations in Chile, Peru and Colombia, a stable FCF, high profitability (ROE above 25%) and low exposure to regulatory changes in the Isapres.

• Banmedica’s focus is in the inpatient provider business, which has lower exposure to regulatory changes. The company expects to increase its capacity in the Davila, Vespucio and Country hospitals, implying an investment of USD 75m for next year.

• Risks to our thesis: Regulatory changes in the insurance business in the light of complaints from policy holders. Low liquidity of the stock could make it difficult to build a significant position for larger investors.

Price Chart (CLP) and Volumes (USD mn)

Valuation • Attractive forward multiples, Banmedica is trading at a 15%

discount in terms of 2014E P/E and 15% 2014E FV/EBITDA when compared to its peers. When compared with its history, Banmédica is trading at a 10% discount to its 3 years avg. in terms P/E.

• When compared with Cruz Blanca, its main competitor in Chile, Banmédica is trading at a 27% discount in terms of P/E 2014E and a 12% discount in terms of EV/EBITDA 2014E.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

70 Andean Equities Guide, October 25th 2013

Ticker banmed ci

Price (CLP) 945

LTM Range (CLP) 910 - 1,325

Target (CLP) 1,150

Total Return 26%

Market Cap (USD mn) 1,522

Shares Outstanding (mn) 805

Free Float 43%

ADTV (USD mn) 0.7

2012 2013E 2014E 2015E

FV/EBITDA 12.3 9.4 8.3 7.4

P/E 20.3 15.3 13.9 12.4

P/CF 21.0 12.6 18.2 9.6

P/BV 5.3 3.9 3.5 3.1

Div . Yield 2.9% 3.9% 4.3% 4.8%

Sources: Company Reports and Credicorp Capital

4

8

12

16

20

24

dic-99 dic-02 dic-05 dic-08 dic-114

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140

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D m

n

CLP

Banmedica IPSA

UNH

Fleury

Dasa

Cruz Blanca Odontoprev

Sonic Healtcare

Banmédica

8

11

14

17

20

23

4 9 14

P/E

201

4E

FV/EBITDA 2014E

Health Services

Page 71: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Banmedica Company Description

Banmédica is a health services provider and health insurance company. In the insurance business, Banmédica owns "Isapre Banmédica" and "Vida Tres", while in the service provider business it owns 5 hospitals in Chile. In addition, Banmédica owns an ambulatory center and an ambulance assistance. Banmédica also has presence in Colombia and Peru.

Ownership Income Statement

Revenues Breakdown (LTM) Balance Sheet

EBITDA Breakdown (LTM)

Cash Flow

Management

CEO: Carlos Kubick CFO: Javier Eguiguren Deputy CFO: Michel Bouiey www.empresasbanmedica.cl

71 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Revenues 787,376 899,139 991,924 1,065,876 1,163,544

EBIT 60,190 67,992 67,621 77,374 85,200

EBITDA 87,711 97,372 100,776 113,662 123,008

Net Income 43,326 46,126 49,524 54,642 61,289

EPS 53.8 57.3 61.5 67.9 76.2

EBIT Margin 7.6% 7.6% 6.8% 7.3% 7.3%

EBITDA Margin 11.1% 10.8% 10.2% 10.7% 10.6%

Net Margin 5.5% 5.1% 5.0% 5.1% 5.3%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 22,308 33,803 39,677 42,635 58,177

Total Current Assets 179,939 216,197 232,557 249,873 284,395

Total Assets 580,935 656,991 694,989 755,777 808,665

Current Liabilities 247,993 280,162 299,266 321,324 349,154

Financial Debt 150,322 188,774 183,457 199,648 197,975

Total Liabilities 398,229 460,299 475,941 512,823 539,413

Minority Interest 19,585 20,885 23,430 25,480 27,263

Shareholders Equity 163,121 175,808 195,618 217,474 241,990

Total Liabilities + Equity 580,935 656,991 694,989 755,777 808,665

EBITDA / Fin. Expenses 19.1 16.5 17.4 19.3 25.5

Financial Debt /EBITDA 1.7 1.9 1.8 1.8 1.6

Financial Debt /Equity 0.9 1.1 0.9 0.9 0.8

ROAE 27.5% 27.2% 26.7% 26.5% 26.7%

ROAA 7.5% 7.5% 7.3% 7.5% 7.8%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Initial Cash 24,582 22,308 33,803 39,677 42,635

Cash from Operations 74,854 64,083 88,052 95,847 104,186

CAPEX -40,712 -53,539 -29,630 -56,251 -28,126

Changes in Financial Debt -1,863 38,451 -5,316 16,191 -1,674

Div idends (Paid) Received -26,936 -27,395 -29,715 -32,785 -36,773

Taxes -7,617 -10,107 -17,517 -20,044 -22,071

Changes in Equity 0 0 0 0 0

Final Cash 22,308 33,803 39,677 42,635 58,177

Change in Cash -2,273 11,494 5,874 2,958 15,542

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Fernández-León Group28.7%

Empresas Penta 28.7%

Moneda 7.0%

AFPs 6.2%

Float 29.3%

Insurance Chile20%

Inpatient Chile47%

Outpatient Chile6%

Insurance Colombia

12%

Inpatient Colombia

9%

Providers Peru5%

Insurance Chile42%

Inpatient Chile28%

Outpatient Chile6%

Insurance Colombia

17%

Inpatient Colombia

4%Providers

Peru2%

Page 72: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Chile Industry:

Banks Rating:

Hold BCI Overhang creating value ceiling

Christopher DiSalvatore +(562) 2446 1724

[email protected]

Investment Thesis Stock Data

• We maintain our HOLD recommendation after an 8% run since our last revision in August and an equity overhang, which we view as a ceiling for valuation levels in the near term.

• Going forward, we expect loan growth to moderate, reaching 10% by year end and averaging 9% through 2015. While loan growth has remained strong, NPLs have remained elevated while coverage has fallen, posing some downside risk, particularly if moderation in economic activity expected for 2014 were to lead to an increase in delinquency.

• Recent acquisition of banking franchise in Miami still awaits regulatory approval. Our target assumes the 1.5x P/B paid for assets was fair and as a result does not add or reduce value from shares at this moment. At current valuations, shares reflect, in part, investor uncertainty towards the bank’s strategy in the US market.

• Risks to our thesis: downside risks include deflationary pressure and asset quality deterioration on the back of a poorer macro scenario. We also estimate a slightly negative impact in valuation if the corporate tax rate were to increase to 25%. Upside risks include stronger inflationary pressure during 2H13 and 2014.

Price Chart (CLP) and Volumes (USD mn)

Valuation • Our revised 2014E target price is based on a 10 year DDM valuation

using a nominal cost of equity of 11.3% in CLP terms.

• Based on our estimates, shares trade at a 2.0x 2014e P/B or a 9% discount to 5 year averages, which in our view reflects the equity overhang. In our model, we consider a long term, sustainable ROAE for the bank of 20%.

Valuation Summary

P/E Forward P/B Forward Relative Valuation

72 Andean Equities Guide, October 25th 2013

2012 2013E 2014E 2015E

P/E 12.9 11.9 10.9 10.0

P/BV 2.5 2.2 2.0 2.0

Div . Yield 2.3% 2.5% 2.5% 3.2%

Sources: Company Reports and Credicorp Capital

0

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Chile

Corpbanca

Santander

Banorte

Bcolo

DaviviendaAval

Banco do Brasil

0

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201

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BCI IPSA

Ticker bci ci

Price (CLP) 30,667

LTM Range 24,001 - 36,555

Target (CLP) 33,800

Total Return 13%

Market Cap (USD mn) 6,580

Shares Outstanding (mn) 107

Free Float 29%

ADTV (USDm) 3.2

Page 73: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

BCI Company Description

Banco Credito y Inversiones (BCI) is the 3rd largest private bank in Chile, controlling roughly 13% of the market. The company’s loan portfolio is heavily weighted towards commercial loans and totaled USD 26 bn as of June 2013.

Ownership Income Statement

Loans by Segment (1H 2013) Balance Sheet

Operating Income by Type (1H 2013)

Ratios

Management

CEO: Lionel Olavarría CFO: Eugenio Carvajal IR Manager: Juan Enrique Honorato www.bci.cl

73 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Net Interest Income 555,350 595,183 631,505 721,128 784,495

Net Fee Income 169,271 189,694 197,486 189,915 209,195

Operational Income 807,761 904,860 959,408 1,044,833 1,139,018

Provision Expenses -122,314 -135,275 -164,545 -179,800 -195,856

Operational Expenses -381,570 -449,041 -477,972 -515,350 -560,176

Net Income 261,269 270,978 275,927 300,686 329,322

EPS 2,437.8 2,528.4 2,574.6 2,805.6 3,072.8

EPS growth 17.6% 3.7% 1.8% 9.0% 9.5%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Interbank Deposits 1,475,054 2,130,818 1,966,101 1,952,025 2,071,770

Investments Portfolio 2,782,567 2,598,864 2,915,669 3,182,607 3,457,054

Gross Loans 11,377,851 13,047,497 14,319,996 15,646,686 16,995,951

Total Assets 16,109,661 18,272,268 19,348,002 21,123,392 22,872,109

Total Deposits 9,921,534 10,840,953 11,628,734 12,720,830 13,817,789

Financial Obligations 3,320,728 4,125,518 4,062,996 4,434,818 4,862,623

Total Liabilities 14,887,612 16,852,311 17,873,643 19,520,254 21,248,926

Minority Interest 0 1 1 1 1

Shareholders Equity 1,222,045 1,419,957 1,474,359 1,603,138 1,623,183

Total Liabilities + Equity 16,109,661 18,272,268 19,348,002 21,123,392 22,872,109

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

(%) 2011 2012 2013E 2014E 2015E

NIM (% ) 4.4% 4.1% 3.9% 4.1% 4.1%

Fee Income / Op. Income 21.0% 21.0% 20.6% 18.2% 18.4%

Efficiency (% ) 45% 46% 48% 47% 47%

Effective Tax Rate 16% 17% 16% 17% 17%

NPLs / Loans 2.3% 2.1% 2.5% 2.5% 2.4%

LLPs / Loans 2.4% 2.3% 2.4% 2.5% 2.5%

Provision expenses / Loans -1.1% -1.1% -1.2% -1.2% -1.2%

Coverage ratio 105% 98% 103% 100% 96%

Deposit / Loans 89% 85% 83% 83% 83%

Equity / Assets 7.6% 7.8% 7.6% 7.6% 7.1%

BIS ratio 13.9% 13.4% 14.0% 14.1% 14.3%

ROAE 21.4% 20.5% 19.1% 19.5% 20.4%

ROAA 1.6% 1.6% 1.5% 1.5% 1.5%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Controlling Group64%

Pension Funds

7%

Float29%

Interest65%

Fees21%

Trading13%

Commercial68%

Mortgage19%

Consumer12%

Page 74: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Chile Industry:

Rating:

Hold Besalco High costs still hurting bottom line

Javier Gunther +(562) 2450 1695

[email protected]

Investment Thesis Stock Data

• We maintain our Hold recommendation on Besalco, and introduce a 2014 YE target price of CLP 855. In our view, Besalco stands as a solid and well managed company, with interesting LT growth prospect, linked to Chilean economy. However, we believe that high labor costs and a couple of bad contracts will keep margins under pressure this and next year. In addition, we think that current valuations are fairly pricing the outlook of the company.

• We like the company’s investment plan of USD 220m in new machines and equipments, focusing especially in machinery services for the mining industry. Additionally, the company is pursuing a plan to build 13 non-conventional renewable energy hydroelectric projects, which we believe is a positive way to innovate and add value to the shareholders.

• We like Besalco’s long-term relationship with its clients, since longer contract helps providing higher stability to the company results.

• Risks to our thesis: high exposure of the construction sector to economic cycles and potential slowdown in investment spending, added to exposure to large contracts (Cerro Alto contract).

Price Chart (CLP) and Volumes (USD mn)

Valuation • We believe that the stock is trading close to its fair value.

Currently, the company trades with a 3% premium and a 5% discount when compared to its 3 years average in terms of P/E and EV/EBITDA 2014E, respectively.

• When compared to its peers, Besalco trades with a 35% and 5% premium in terms of P/E and FV/EBITDA 2014E, respectively. We believe that this premium is justified, given Besalco’s higher margins when compared to other construction companies, but do not provide an attractive entry point to the stock.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

74 Andean Equities Guide, October 25th 2013

Ticker besalco ci

Price (CLP) 779

LTM Range (CLP) 495 - 908

Target (CLP) 855

Total Return 11%

Market Cap (USD mn) 888

Shares Outstanding (mn) 569

Free Float 40%

ADTV (USD mn) 0.8

2012 2013E 2014E 2015E

FV/EBITDA 13.3 11.1 9.6 8.1

P/E 19.4 21.5 21.5 18.4

P/CF -15.9 -32.2 39.8 86.4

P/BV 2.9 2.4 2.3 2.1

Div . Yield 2.6% 1.4% 1.4% 1.6%

Sources: Company Reports and Credicorp Capital

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Page 75: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Besalco Company Description

Besalco is the second largest construction company in Chile, operating in Chile and Peru. It has 5 business lines: Civil Works, Machinery, Industrial Assembly, Real Estate and Concession. It currently has more than USD 1,000m in backlog (projects to be executed). Recently, the company started the construction of non-conventional renewable energy projects.

Ownership Income Statement

Revenues per Division (2012) Balance Sheet

EBITDA per Division (2012)

Cash Flow

Management

CEO: Paulo Bezanilla CFO: Pablo Valenzuela Deputy CFO: Ana María Tampe www.besalco.cl

75 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Revenues 321,613 385,879 415,273 452,809 495,956

EBIT 25,943 26,546 25,877 33,335 39,259

EBITDA 45,120 49,508 54,605 63,070 71,695

Net Income 19,501 25,617 20,578 20,585 24,072

EPS 34.3 45.0 36.1 36.2 42.3

EBIT Margin 8.1% 6.9% 6.2% 7.4% 7.9%

EBITDA Margin 14.0% 12.8% 13.1% 13.9% 14.5%

Net Margin 6.1% 6.6% 5.0% 4.5% 4.9%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 24,215 16,610 17,875 19,491 21,348

Total Current Assets 209,602 224,538 234,714 255,035 278,906

Total Assets 423,214 446,709 498,531 533,799 583,296

Current Liabilities 153,026 150,657 165,344 177,871 193,999

Financial Debt 129,099 130,266 155,933 164,423 180,483

Total Liabilities 257,549 261,225 298,305 317,903 347,738

Minority Interest 13,078 15,936 17,785 19,043 20,809

Shareholders Equity 152,586 169,548 182,442 196,853 214,749

Total Liabilities + Equity 423,214 446,709 498,531 533,799 583,296

EBITDA / Fin. Expenses 11.5 11.5 18.1 18.4 19.6

Financial Debt /EBITDA 2.9 2.6 2.9 2.6 2.5

Financial Debt /Equity 0.8 0.8 0.9 0.8 0.8

ROAE 13.4% 15.9% 11.7% 10.9% 11.7%

ROAA 5.2% 5.9% 4.4% 4.0% 4.3%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Initial Cash 31,845 24,215 16,610 17,875 19,491

Cash from Operations -12,961 69,776 49,414 40,546 47,301

CAPEX -20,916 -60,416 -62,985 -35,245 -47,215

Changes in Financial Debt 47,263 1,167 25,667 8,490 16,060

Div idends (Paid) Received -14,688 -13,012 -6,174 -6,175 -7,221

Taxes -6,328 -5,120 -4,658 -6,000 -7,067

Changes in Equity 0 0 0 0 0

Final Cash 24,215 16,610 17,875 19,491 21,348

Change in Cash -7,630 -7,605 1,265 1,616 1,857

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Bezanilla Family60.2%

Free Float 48.5%

Pension Funds 8.7%

Civil Works48%

Machinery32%

Real Estate14%

Industrial Assembly

5%

Concessions0%

Civil Works16%

Machinery49%

Real Estate29%

Industrial Assembly

5%

Concessions2%

Page 76: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Peru Industry:

Mining Rating:

Uperf Buenaventura Still drilling for high golden rewards

Héctor Collantes +(511) 4163333 – Ext 33052

[email protected]

Investment Thesis Stock Data

• We are reducing our rating on Buenaventura to Underperform as operating optimization and cost controls will be tested by 1Q14. The operational problems with Yanacocha (depletion) and Buenaventura’s directly controlled mines (low grade areas struck and large cost increases) have coincided with the steep weakening of the gold prices. Yanacocha’s projects to continue operating (Conga and Yanacocha Sulfides and Verde) are still on early stages. The richer veins of Orcopampa will likely be accessible by 1Q14. However, the start of the Rio Seco plant and Huanza Hydroelectric will strengthen operational efficiency.

• Promising development projects are a hidden source of value. Two Orcopampa sized projects (Chucapaca and Tambomayo) and a copper project (Trapiche) are being studied and developed in order to start operations in 4 years time. These projects have not been modeled yet as they lack feasibility studies. Conservatively, only the in situ value of their resources is considered. On the other hand, the expansions of Cerro Verde and El Brocal are fully considered.

• Risks to our thesis: opposition in Conga may not stop after the 2014 regional elections; gold prices could fall faster than expected.

Price Chart (USD) and Volumes (USD mn)

Valuation • Our sum of the parts favors Cerro Verde exposure. Considering

a 10% discount rate and gold prices of USD1,400/oz in 2014 but falling to USD1,100/oz by 2020, our sum of the parts approach gives a 45% participation to Cerro Verde, 28% to Buenaventura’s direct operations (including El Brocal), and 27% to Yanacocha (including Conga). We apply a 1.0x multiple to the NAV of precious metals.

• Multiples are not convincing enough. We consider that current

forward multiples do not offer an interesting entry point to play the attractive yet still uncertain Buenaventura’s story.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

76

Barrick Gold

Newmont BVN

Goldcorp

Yamana Gold

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Ticker bvn us / buenavc1 pe

Price (USD) 14

LTM Range 11.36 - 36.41

Target 14 (ADR) / 38.8 (loc)

Total Return -2%

Market Cap (USDmn) 3,944

Shares Outstanding (mn) 254

Free Float 40%

ADTV (USDmn) 33.6 (ADR) / 0.3 (loc)

2012 2013E 2014E 2015E

FV/EBITDA 7.4 5.5 5.1 6.0

P/E 14.5 18.3 18.8 31.2

P/CF 0.4 0.1 0.1 0.1

P/BV 2.7 0.9 0.9 0.9

Div . Yield 1.5% 0.5% 0.4% 1.2%

Sources: Company Reports and Credicorp Capital

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(PEN)

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Page 77: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Buenaventura Company Description

Buenaventura ranks among the largest publicly listed precious metals mining companies in Latin America. The company has a 43.65% stake in Yanacocha (gold, JV with Newmont); 19.58% in Cerro Verde (copper, JV with Freeport McMoRan) and 53.78% in El Brocal (copper, zinc), The company has been listed on the NYSE since 1996.

Ownership Income Statement

Revenues Breakdown by Metal Balance Sheet

COGS Breakdown

Cash Flow

Management

CEO: Roque Benavides CFO:Carlos Gálvez IR Manager: Daniel Domínguez www.buenaventura.com

77

Inst.Inv. -Index Funds 55,0%

Benavides Family 27.0%

Pervian Pension Funds 16.0% Others

2.0%

Gold 59,0%

Copper 19.0%

Silver 18.0% Zinc /

Lead 4.0%

Contractor 27,0%

Supplies 11.5%

Personnel 10.1%

Transport 1.8%

Electricity and Water

2.7%

Others 5.7%

Inventory 3.8%

Deprec. and

Amort. 16.2%

Explo. in Operating

Unit 18.1%

Royalties 3.1%

USDmn 2011 2012 2013E 2014E 2015E

Revenues 1,557 1,564 1,269 1,383 1,247

EBIT 704 418 85 336 227

EBITDA 1,681 1,439 803 535 348

Net Income 859 685 242 273 173

EPS 3.4 2.7 0.8 0.8 0.4

EBIT Margin 45.3% 26.7% 6.7% 24.3% 18.2%

EBITDA Margin 108.0% 92.0% 63.3% 38.7% 27.9%

Net Margin 55.2% 43.8% 19.0% 19.7% 13.9%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USDmn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 471 187 370 477 604

Total Current Assets 969 803 827 975 1,054

Total Assets 3,954 4,587 4,823 4,990 5,118

Current Liabilities 361 331 332 318 318

Financial Debt 106 179 179 179 179

Total Liabilities 531 624 644 602 603

Minority Interest 259 262 0 -11 8

Shareholders Equity 3,164 3,701 4,179 4,399 4,507

Total Liabilities + Equity 3,954 4,587 4,823 4,990 5,118

EBITDA / Fin. Expenses 420,323 1,203 778 768 729

Financial Debt /EBITDA 0.1 0.1 0.2 0.2 0.2

Financial Debt /Equity 0.0 0.0 0.0 0.0 0.0

ROAE 27.1% 19.9% 5.5% 4.9% 2.8%

ROAA 21.7% 16.0% 4.6% 4.3% 2.5%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USDmn 2011 2012 2013E 2014E 2015E

Initial Cash 583 471 187 370 483

Cash from Operations 567 336 568 295 298

CAPEX -318 -443 -385 -181 -179

Changes in Financial Debt 49 73 0 0 0

Div idends (Paid) Received -209 -198 -54 -16 -51

Financial&Investing, others -201 -53 54 16 51

Changes in Equity 0 0 0 0 0

Final Cash 471 187 370 483 603

Change in Cash -112 -284 183 114 120

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

Page 78: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Chile Industry:

Rating:

Hold CAP Strong volumes, lower prices

Arturo Prado +(562) 2450 1688

[email protected]

Investment Thesis Stock Data

• We maintain our Hold recommendation on CAP introducing a new 2014YE T.P. of CLP 12,300. The stock has been affected by additional supply announced for the next 4 years which will add more than 400 mn tons, leading by expansion in Australia (Pilbara) and Brazil (Carajas, Serra Sul). In our opinion, these expansions are already priced in. Historically, the ratio of announced projects to real delivery has been less than 50%.The demand continues to grow, with China showing a soft landing with better than expected economics figures.

• For 2014 we expect a significant growth in volumes, increasing

30%YoY reaching slightly more than 16 mn. tons, due to the ramp up of Cerro Negro Norte and the expansion of Los Colorados at full capacity.

• Closing down the flat steel line should be positive. This

business has been affected by a global oversupply, and has been therefore operating with losses.

• Risks to our thesis: i) lower/stronger than expect realized iron ore prices, ii) better/worse than expected performance of the Chinese economy and, iii) subsidies from Chinese government .

Price Chart (CLP) and Volumes (USD mn)

Valuation • In terms of forward multiples, CAP is trading at 11.9x P/E and

7.2x FV/EBITDA 2014E, which shows a discount when compared to its 5 year average.

• When compared to its peers, the company is trading at a discount compared to historical premium among iron ore companies. This is justified by the shift company’s main business, moving from a steel producer to a basically pure iron ore player.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

78 Andean Equities Guide, October 25th 2013

Ticker cap ci

Price (CLP) 10,732

LTM Range (CLP) 8,994 - 17,885

Target (CLP) 12,300

Total Return 19%

Market Cap (USD mn) 3,211

Shares Outstanding (mn) 149

Free Float 69%

ADTV (USD mn) 7.1

2012 2013E 2014E 2015E

FV/EBITDA 11.1 8.1 7.2 6.6

P/E 21.7 13.6 11.9 13.4

P/CF 100.9 -5.4 5.1 17.4

P/BV 2.7 1.6 1.5 1.5

Div . Yield 5.3% 3.7% 4.2% 3.7%

Sources: Company Reports and Credicorp Capital; E

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Page 79: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

CAP Company Description

CAP is a Chilean mining, steel and processing steel company, which is engaged in the production of iron ore (CMP) with an annual capacity of 12MM ton, increasing to 18MM ton in 2015. It´s also the mayor local steel producer (Huachipato) with a total capacity of 1.45 MM ton crude steel.

Ownership Income Statement

Revenues LTM by segment Balance Sheet

EBITDA LTM by Segment

Cash Flow

Management

CEO: Fernando Reitich CFO: Raúl Gamonal IR Manager: Eduardo Rivadeneira www.cap.cl

79 Andean Equities Guide, October 25th 2013

USD mn 2011 2012 2013E 2014E 2015E

Revenues 2,787 2,470 2,409 2,491 2,483

EBIT 979 559 496 554 476

EBITDA 1,184 764 697 783 720

Net Income 442 231 236 270 239

EPS 1,474.0 770.2 788.6 899.7 797.6

EBIT Margin 35.1% 22.6% 20.6% 22.2% 19.2%

EBITDA Margin 42.5% 30.9% 28.9% 31.4% 29.0%

Net Margin 15.8% 9.3% 9.8% 10.8% 9.6%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 883 711 723 897 1,117

Total Current Assets 1,983 1,764 1,814 1,995 2,245

Total Assets 4,771 5,167 5,953 6,164 6,411

Current Liabilities 771 858 673 873 718

Financial Debt 628 719 1,352 1,171 1,374

Total Liabilities 1,801 2,058 2,509 2,532 2,598

Minority Interest 1,246 1,271 1,488 1,541 1,603

Shareholders Equity 1,724 1,838 1,956 2,091 2,210

Total Liabilities + Equity 4,771 5,167 5,953 6,164 6,411

EBITDA / Fin. Expenses 17.6 -329.6 23.1 22.0 35.3

Financial Debt /EBITDA 0.5 0.9 1.9 1.5 1.9

Financial Debt /Equity 0.4 0.4 0.7 0.6 0.6

ROAE 27.2% 13.0% 12.5% 13.3% 11.1%

ROAA 9.2% 4.6% 4.3% 4.4% 3.8%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Initial Cash 981 883 711 723 897

Cash from Operations 462 437 323 563 234

CAPEX -282 -778 -959 -229 -243

Changes in Financial Debt -373 91 634 -181 203

Div idends (Paid) Received 322 265 118 135 119

Taxes -226 -186 -104 -113 -93

Changes in Equity 0 0 0 0 0

Final Cash 883 711 723 897 1,117

Change in Cash -97 -172 11 174 220

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Invercap 31,3%

Pension Funds 8.8%Mitsubishi

Corp. 19.3%

Others 40.6%

Iron ore51%

Steel30%

Steel Processin

g18%

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360

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USDm

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Page 80: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

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Peru Industry:

Rating:

Hold Casa Grande Surfing low price of sugar

Iván Bogarín +(511) 4163333 – Ext 33055

[email protected]

Investment Thesis Stock Data

• We are updating our recommendation to HOLD and our target price to 2014 YE PEN 11.00 based on revenues and EBITDA growth by 4% and 8% respectively. We recommend this share only to investors with high tolerance to illiquidity.

• High productivity (160 MT/Ha) compared to world average (100 MT/ Ha). The company’s productivity is also higher than the national average (126 MT/ Ha). Sugarcane can be harvest throughout the year and seven times before requiring re-seeding.

• Low cost producer with resilient margins. Casa Grande has an

efficient cost structure which allows it to sustain operating margins in low price episodes (EBITDA margin of 40.8% in 2012 ).

• Good perspectives of sugar consumption in Peru. Sugar

consumption will continue to grow due to a higher demand of processed foods and drinks from the growing middle-class (higher disposable income).

• Risks to our thesis: sugar price volatility; adverse climatic phenomena such as El Niño (last severe one in 1998).

Price Chart (PEN) and Volumes (USD mn)

Valuation • We have revised our 10-year DCF model considering a sugar price

of PEN 61 per 50kg bag, a 12.92% sucrose content of sugarcane and a sugarcane yield of 159 MT / Ha in 2014. EBITDA margin above 30% in 2014)

• Casa Grande trades at 13.8x PE 2014E, above its historical multiple

average.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

80

Ticker casagrc1 pe equity

Price (PEN) 9.4

LTM Range 8.4 - 15.1

Target 11.0

Total Return 19%

Market Cap (USD, mn) 287

Shares Outstanding (mn) 0.0

Free Float 43%

ADTV (USDm) 0.1

2012 2013E 2014E 2015E

FV/EBITDA 5.8 7.5 7.0 6.8

P/E 12.6 22.8 13.8 13.4

P/CF 4.6 17 12.0 8.3

P/BV 1.0 0.6 0.6 0.6

Div . Yield 8.0% 0.0% 2.6% 4.3%

Sources: Company Reports and Credicorp Capital E

Ilovo Sugar Ltd

Tongaat Hulett

Casa Grande

Khon Kaen Sugar

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Food & Beverages

Page 81: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Casa Grande Company Description

Casa Grande is member of the Peruvian Gloria group, with interests in dairy, food, cement, and paper businesses, is the leading sugar producer in Peru, selling brown sugar in the domestic and international markets, and the third largest hydrous alcohol producer and exporter. The company was incorporated in 1860 and has the largest sugar mill in Peru.

Ownership Income Statement

Revenues by product 2014E Balance Sheet

Cash Flow

Management

CEO: John Carty Chirinos CFO: Cesar Abanto Quijano IR Manager: - www.coazucar.com

81

PEN mm 2011 2012 2013E 2014E 2015E

Revenues 583 511 370 384 387

EBIT 370 113 71 80 82

EBITDA 304 209 112 121 123

Net Income 312 97 35 57 59

EPS 3.71 1.15 0.41 0.68 0.70

EBIT Margin 63.5% 22.2% 19.1% 20.8% 21.2%

EBITDA Margin 52.1% 40.8% 30.3% 31.5% 31.8%

Net Margin 53.6% 18.9% 9.4% 14.9% 15.3%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mm 2011 2012 2013E 2014E 2015E

Cash & Equivalents 9 17 7 21 49

Total Current Assets 298 174 200 236 268

Total Assets 1,720 1,740 1,770 1,806 1,834

Current Liabilities 145 90 89 87 89

Financial Debt 119 182 203 206 207

Total Liabilities 401 528 543 543 546

Minority Interest 0 0 0 0 0

Shareholders Equity 1,319 1,212 1,227 1,263 1,288

Total Liabilities + Equity 1,720 1,740 1,770 1,806 1,834

EBITDA / Fin. Expenses 15.6 9.5 7.4 6.9 6.8

Financial Debt /EBITDA 0.4 0.9 1.8 1.7 1.7

Financial Debt /Equity 0.1 0.2 0.2 0.2 0.2

ROAE 27.0% 7.6% 2.8% 4.6% 4.6%

ROAA 19.2% 5.6% 2.0% 3.2% 3.3%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mm 2011 2012 2013E 2014E 2015E

Initial Cash 52 9 17 7 21

Cash from Operations 230 102 20 73 103

CAPEX -127 -76 -39 -40 -40

Changes in Financial Debt -67 63 21 3 1

Div idends (Paid) Received -69 -102 0 -21 -34

Financing & investing, others 41 30 5 6 19

Changes in Equity 0 0 0 0 0

Final Cash 9 17 7 21 49

Change in Cash -44 9 -10 14 28

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Coazucar, 57%

Others, 43%

Sugar, 87%

Alcohol, 8%

Others, 6%

Andean Equities Guide, October 25th 2013

Page 82: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Chile Industry:

Rating:

Hold CCU Sitting on a pile of cash

Javier Gunther +(562) 2450 1695

[email protected]

Investment Thesis Stock Data

• We are updating our coverage on CCU, maintaining our Hold recommendation and introducing our 2014YE T.P. of CLP 8,000. We like’s CCU’s multicategory business strategy and ability to leverage its distribution network, its defensive characteristics and its profitability. However we believe that current valuations do not provide an attractive entry point.

• Last week, CCU ended its capital increase process. The company raised in total USD 643 mn. We have not yet included the new capital in our model. We expect to see lower profitability and CCU’s stock to continue to be under pressure until we see some compelling M&A activity.

• We expect CCU to continue posting strong volume growth this year (+9.3%), driven by Non-Alcoholics beverages (+14.3%) and Rio de la Plata (+12.8%), which will drive improvements in results.

• Risks to our thesis: strong competition could affect market share in Chile. Argentine increase CCU’s risk, given its dependence on Budweiser brand (which will be lost in 2025), and the country’s political risk (ARS devaluation or government mandated price freezes). Additionally, the use of proceed of the capital increase.

Price Chart (CLP) and Volumes (USD mn)

Valuation • When compared to its history, the company is trading at fair

multiples in terms of P/E 2014E, and with a 13% premium in terms of FV/EBITDA 2014E.

• CCU trades with a 12% discount when compared to its peers. However we believe that the discount is justified given its exposure to Argentina, and the downside risk of its beer market share in Chile, which clear leadership in the business has continuously been tested with increasing competition in the last few years.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

Food & Beverages

2012 2013E 2014E 2015E

FV/EBITDA 12.5 12.2 10.8 9.1

P/E 21.3 20.3 17.6 16.0

P/CF 40.7 41.8 19.5 21.4

P/BV 3.9 3.8 3.4 3.0

Div . Yield 2.3% 2.5% 2.8% 3.1%

Sources: Company Reports and Credicorp Capital

82 Andean Equities Guide, October 25th 2013

Ticker ccu ci / ccu us

Price (CLP) 6,958

LTM Range (CLP) 6,471 - 8,074

Target 8,000 (loc) / 31.7 (ADR)

Total Return 17%

Market Cap (USD mn) 5,147

Shares Outstanding (mn) 369

Free Float 34%

ADTV (USD mn) 5.6 (loc) / 4.3 (ADR)

6

16

26

36

46

dic-99 dic-02 dic-05 dic-08 dic-115

10

15

dic-99 dic-02 dic-05 dic-08 dic-11

0

50

100

150

200

250

300

350

80

90

100

110

120

130

Oct-12 Feb-13 Jun-13 Oct-13

US

D m

n

CLP

CCU IPSA

Modelo

Heiniken

CCU Sab Miller

AmBev

14

16

18

20

22

24

26

28

7 9 11 13 15

P/E

201

4E

FV/EBITDA 2014E

Page 83: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

CCU Company Description

CCU is a multicategory bottler and distribution company, and leader beer producer in Chile. It is also the second largest beer producer in Argentina. CCU also produces and distributes soft drinks (PepsiCo and Schweppes), wines (VSPT winery), spirits, cider in Argentina and snacks. It recently acquired Nativa in Uruguay and 51% of Manantial (water).

Ownership Income Statement

EBITDA per Division (LTM) Balance Sheet

Volume per Division (LTM)

Cash Flow

Management

CEO: Patricio Jottar CFO: Ricardo Reyes IR Manager: Felipe Arancibia www.ccuinvestor.com

83 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Revenues 969,551 1,075,690 1,174,655 1,279,495 1,387,500

EBIT 190,760 179,331 193,287 223,845 242,685

EBITDA 238,542 234,093 257,545 291,085 314,903

Net Income 122,752 112,576 126,389 145,756 160,491

EPS 379.9 348.4 342.1 394.5 434.4

EBIT Margin 19.7% 16.7% 16.5% 17.5% 17.5%

EBITDA Margin 24.6% 21.8% 21.9% 22.7% 22.7%

Net Margin 12.7% 10.5% 10.8% 11.4% 11.6%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 181,608 103,718 113,260 136,164 175,407

Total Current Assets 542,546 495,888 538,761 597,722 675,873

Total Assets 1,298,491 1,326,448 1,461,833 1,565,258 1,712,940

Current Liabilities 350,771 314,530 342,403 369,798 400,847

Financial Debt 247,061 263,997 289,320 272,181 286,787

Total Liabilities 613,706 615,929 672,645 686,020 735,393

Minority Interest 115,810 97,299 105,866 113,356 124,052

Shareholders Equity 568,976 613,220 683,321 765,882 853,496

Total Liabilities + Equity 1,298,491 1,326,448 1,461,833 1,565,258 1,712,940

EBITDA / Fin. Expenses 32.5 25.0 25.6 33.7 55.8

Financial Debt /EBITDA 1.0 1.1 1.1 0.9 0.9

Financial Debt /Equity 0.4 0.4 0.4 0.4 0.3

ROAE 22.8% 19.0% 19.5% 20.1% 19.8%

ROAA 10.0% 8.6% 9.1% 9.6% 9.8%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Initial Cash 153,943 181,608 103,718 113,260 136,164

Cash from Operations 189,844 111,250 228,045 255,716 281,472

CAPEX -77,847 -116,951 -138,961 -92,839 -122,315

Changes in Financial Debt 14,093 16,937 25,323 -17,138 14,606

Div idends (Paid) Received -66,117 -56,288 -63,195 -72,878 -80,246

Taxes -32,308 -32,838 -41,670 -49,957 -54,274

Changes in Equity 0 0 0 0 0

Final Cash 181,608 103,718 113,260 136,164 175,407

Change in Cash 27,665 -77,891 9,542 22,904 39,244

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Quiñenco-Heineken

66.0%

Pension Funds 3.0%

ADR's 11.9%

Others 19.1%

Beer Chile47%

Rio de la Plata14%

Non-Alcoholics

27%

Wine8%

Beer Chile26%

Rio de la Plata23%

Non-Alcoholics

43%

Wine6%

Page 84: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Colombia Industry:

Utilities Rating:

Hold Celsia Most of the value is in the long term

Jaime A. Pedroza +(571) 339 44 00 ext 1025

[email protected]

Investment Thesis Stock Data

• We are lowering our rating on Celsia from Buy to Hold after its 220 bp YTD outperformance with respect to the COLCAP. Tighter valuations lead us to be neutral on the shares although we realize that the shares might benefit from near term catalysts.

• We expect revenues to grow 4.8% (CAGR 2012-2024), mainly driven by 1) the development of the power sector in Colombia (moderate growth explained by demand and power prices); and 2) the company’s expansion projects to increase its current installed capacity by 25.1% in the next 5 years, with Porvenir II being the most important new facility (79% of the MWs to be added). However, it is expected to start commercial operations in late 2018.

• The stock’s volume increase observed in the last year and its likely inclusion in the COLCAP index could trigger additional price increases in the short term, although we believe most of the benefits are already priced in.

• Main risks include challenges to the development of expansion projects: environmental permits, land acquisition, relationships with communities, security problems, and cost overruns. Eventual M&A activity, including an interest in acquiring control of ISAGEN, also constitutes a relevant risk in the medium term.

Price Chart (COP) and Volumes (USD mn)

Valuation

• Our TP of COP 7,120/share is based on a DCF incorporating slight EBITDA margin improvements (reaching ~37% after 2020) with the expansion projects, and long-term yearly nominal growth of 2%, in line with expected power prices.

• Celsia seems fairly valued with ongoing multiples close to their historical averages and slightly above its peers’ ones. However, FV/Installed capacity bordering USD 2 mn / MW is above the regional average.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

84

6

7

8

9

10

11

12

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 10

15

20

25

30

35

40

45

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

Ticker celsia cb equity

Price (COP) 6,360

LTM Range (COP) 4,835 - 6,360

Target (COP) 7,120

Total Return 14%

Market Cap (USD mn) 2,435

Shares Outstanding (mn) 720

Free Float 50%

ADTV (USD mn) 1.3

0

2

4

6

8

10

80

90

100

110

120

130

Oct-12 Feb-13 Jun-13 Oct-13

USD

mn

CO

P

Celsia Colcap

2012 2013E 2014E 2015E

FV/EBITDA 8.6 8.0 8.9 9.1

P/E 16.6 17.2 21.1 19.4

P/CF 8.4 9.2 42.3 41.7

P/BV 1.3 1.5 1.4 1.3

Div . Yield 1.9% 1.7% 1.8% 1.9%Sources: Company Reports and Credicorp Capital;

E Credicorp Capital Estimates

Enersis

Endesa Enersur

Gener

Colbun

Isagen

Celsia

Edegel

E-CL

8.0

13.0

18.0

23.0

28.0

3.0 5.0 7.0 9.0 11.0 13.0 15.0

P/E

201

4E

EV/EBITDA 2014E

Andean Equities Guide, October 25th 2013

Page 85: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Celsia Company Description

Celsia is a power generation and distribution company in Colombia. It has 1,789 MW of installed capacity (44% thermal, 56% hydro) which makes it the fourth largest power generator in Colombia. Furthermore, through its subsidiaries it is the fifth largest power distribution company in Colombia with about 520,000 customers in 39 municipalities in Valle del Cauca.

Ownership (as of June-2013) Income Statement

Revenues Breakdown (1H 2013) Balance Sheet

Installed Capacity (1,789 MW)

Cash Flow

Management

CEO: Juan Guillermo Londoño CFO: Esteban Piedrahíta Montoya IR Manager: Natalia Molina Arcila inversionistas.celsia.com

85

Grupo Argos, 50%

Pension Funds, 33%

Other, 17%

Power generation,

63%

Power distribution

, 24%

Other, 13%

Thermal, 779

Hydro, 999

COP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 685,026 744,227 773,284 657,634 606,365

Total Current Assets 1,061,274 1,055,536 1,077,996 1,115,191 1,153,610

Total Assets 6,796,027 6,840,008 6,985,553 7,226,580 7,475,537

Current Liabilities 632,423 442,731 427,611 439,689 450,483

Financial Debt 1,863,810 1,716,344 1,549,592 1,619,406 1,695,736

Total Liabilities 2,695,740 2,466,596 2,382,357 2,449,650 2,509,788

Minority Interest 1,449,745 1,468,001 1,504,011 1,538,116 1,574,276

Shareholder's Equity 2,650,542 2,905,411 3,099,184 3,238,813 3,391,472

Total Liabilities + Equity 6,796,027 6,840,008 6,985,552 7,226,579 7,475,536

EBITDA / Fin. Expenses 10.0 7.7 9.0 7.1 6.4

Financial Debt /EBITDA 2.6 2.3 1.8 2.0 2.2

Financial Debt /Equity 0.7 0.6 0.5 0.5 0.5

ROE 5.8% 8.3% 8.9% 6.8% 7.1%

ROA 2.2% 3.4% 3.8% 3.1% 3.2%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

COP mn 2011 2012 2013E 2014E 2015E

Revenues 1,849,504 2,023,672 2,349,247 2,251,721 2,195,181

EBIT 581,944 592,487 745,688 651,893 616,072

EBITDA 713,776 731,175 878,618 790,869 771,010

Net Income 152,890 230,759 265,732 216,915 235,668

EPS 212.5 320.7 369.3 301.4 327.5

EBIT Margin 31.5% 29.3% 31.7% 29.0% 28.1%

EBITDA Margin 38.6% 36.1% 37.4% 35.1% 35.1%

Net Margin 8.3% 11.4% 11.3% 9.6% 10.7%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

COP mn 2011 2012 2013E 2014E 2015E

Initial Cash 611,325 685,026 744,227 773,284 657,634

Cash from Operations 459,169 517,113 672,294 584,675 608,007

CAPEX -203,910 -103,489 -193,431 -510,833 -465,282

Changes in Financial Debt 14,279 -147,466 -166,752 69,815 76,330

Div idends (Paid) Received -59,006 -64,763 -71,958 -77,286 -83,008

Taxes -136,831 -142,194 -211,096 -182,020 -187,316

Changes in Equity 0 0 0 0 0

Final Cash 685,026 744,227 773,284 657,634 606,365

Change in Cash 73,701 59,201 29,057 -115,649 -51,269

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

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Colombia Industry:

Rating:

Uperf Cemargos Improving, but still pricy vs. peers

Juliana Valencia M. +(571) 339 4400 ext. 1365

[email protected]

Investment Thesis Stock Data

• We maintain Cemargos’ rating in Underperform. Margin expansion should continue, partially explained by initiatives in Colombia: (i) reduction in transport costs with Cartagena’s new distribution center; and (ii) operating efficiencies through the modernization and expansion of the Rio Claro plant. We are mildly optimistic on 4G concessions execution starting 2015, as actual works won’t demand materials ~1yr after contracts are signed. We consider recent reforms will improve the sector’s efficiency and resources’ allocation considerably, but remain cautious about timing.

• Growth in EBITDA margin will mainly come from the US cement operations which until very recently were cash burners. We expect US to close 2013 practically flat in terms of EBITDA, but begin contributing positively starting 2014 with USD 50mn (7% margin). Margins in the US should stabilize around 14% (in line with historical averages) by 2018, contributing to the consolidated margin. Our estimates include the acquisition of Lafarge’s assets in Honduras, which we deem positive. The paid price (USD 439/ton), seems to be justified by the plant’s high efficiency (49.6% margin).

• Relevant downside risk of potential economic sanctions and

cement price cuts due to the investigation opened by the Industry and Commerce Regulator, although not in the short term.

Price Chart (COP) and Volumes (USD mn)

Valuation • Our 2014 T.P. of COP 9,950/share is based on a DCF model at a

10.4% discount rate (WACC). Perpetuity growth standing at 2.7%, reflects long-term forecasts on regionally-weighted price growths. Consolidated EBITDA margin is expected to reach 25% by 2018 (vs. 18% in 2012).

• Our valuation implies 2014E FV/EBITDA and P/E of 10.4x and

27.0x, respectively (both clean from the investment portfolio, valued at USD 1bn by 2014). Although these multiples reflect a significant improvement compared to current and 2012’s, Cemargos continues to look overvalued vs. peers.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

86

0

5

10

15

20

25

80

90

100

110

120

130

140

Oct-12 Feb-13 Jun-13 Oct-13

USD

m

CO

P

Cemargos Colcap

0

20

40

60

80

100

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 10

15

20

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Holcim

Unacem

Heidelberg

Lafarge

CLH Pacasmay

o

Cemex

Cemargos

Ciments Francais

-20

-

20

40

60

80

100

120

- 5 10 15 20 25

P/E

2014E

EV/EBITDA 2014E

2012 2013E 2014E 2015E

FV/EBITDA 18.5 14.6 11.6 10.3

P/E 29.9 57.8 28.1 23.0

P/CF 25.1 -458.6 17.6 15.5

P/BV 2.0 1.8 1.7 1.7

Div . Yield 1.9% 1.8% 1.9% 1.9%Sources: Company Reports and Credicorp Capital;

E Credicorp Capital Estimates

Ticker cemargos cb equity

Price (COP) 9,850

LTM Range (COP) 7,330 - 11,120

Target (COP) 9,950

Total Return 3%

Market Cap (USD mn) 6,982

Shares Outstanding (mn) 1,361

Free Float 39%

ADTV (USD mn) 3.1

Andean Equities Guide, October 25th 2013

Cement & Construction

Page 87: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Cemargos Company Description

Cemargos is a cement and ready-mix producer with operations in Colombia, US and the Caribbean. In the cement segment Argos is number one in Colombia (~50% mkt share), fifth in LatAm and second in the US Southeast. Its total installed capacity in cement is 16mn TPA. In the ready-mix segment Argos is leader in Colombia and fourth in the US, with a total installed capacity of 14 mn m3 per year.

Ownership Income Statement

Revenues Breakdown Balance Sheet

EBITDA Breakdown

Cash Flow

Management

CEO: Jorge M. Velásquez CFO: Carlos H. Yusty IR Manager: Gustavo A. Uribe http://inversionistas.argos.com.co/en

87

Grupo Argos, 51%

Pension Funds, 17%

Amalfi, 5%

Others, 27%

Colombia, 52%

US, 27%

Caribbean, 17%

Others, 4%

Colombia, 83%

Caribbean, 17%

US, 0%

COP mn 2011 2012 2013E 2014E 2015E

Revenues 3,668,610 4,380,393 4,842,581 5,272,528 5,779,213

EBIT 272,833 414,567 637,382 869,249 995,869

EBITDA 681,544 791,190 1,009,313 1,274,254 1,423,960

Net Income 369,974 387,619 227,130 467,881 571,087

EPS 321.2 336.6 197.2 406.3 495.9

EBIT Margin 7.4% 9.5% 13.2% 16.5% 17.2%

EBITDA Margin 18.6% 18.1% 20.8% 24.2% 24.6%

Net Margin 10.1% 8.8% 4.7% 8.9% 9.9%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

COP mn 2011 2012 2013E 2014E 2015E

Initial Cash 476,130 290,935 156,865 685,884 285,448

Cash from Operations 1,220,005 667,951 933,594 1,016,474 1,199,306

CAPEX -1,761,618 -168,092 -1,006,791 -360,637 -393,868

Changes in Financial Debt 531,735 -422,770 -626,799 -661,523 -263,526

Div idends (Paid) Received -150,293 -158,931 -225,683 -233,927 -242,931

Taxes -25,024 -17,083 -156,142 -160,824 -196,299

Changes in Equity 0 -35,145 1,610,840 0 0

Final Cash 290,935 156,865 685,884 285,448 388,130

Change in Cash -185,195 -134,070 529,019 -400,436 102,682

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

COP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 290,935 156,865 685,884 285,448 388,130

Total Current Assets 1,534,358 1,333,673 1,999,947 1,705,490 1,923,190

Total Assets 16,781,066 10,266,715 11,537,422 11,208,658 11,403,054

Current Liabilities 2,841,456 1,769,676 1,813,554 1,559,538 1,492,846

Financial Debt 3,529,440 3,106,670 2,479,871 1,818,349 1,554,823

Total Liabilities 5,082,362 4,470,376 4,121,713 3,544,404 3,392,833

Minority Interest 81,305 82,855 89,938 104,529 122,339

Shareholders Equity 11,617,399 5,713,484 7,325,771 7,559,726 7,887,882

Total Liabilities + Equity 16,781,066 10,266,715 11,537,422 11,208,658 11,403,054

EBITDA / Fin. Expenses 3.8 3.7 5.8 8.9 12.2

Financial Debt /EBITDA 5.2 3.9 2.5 1.4 1.1

Financial Debt /Equity 0.3 0.5 0.3 0.2 0.2

ROAE 3.2% 4.5% 3.5% 6.3% 7.4%

ROAA 2.3% 2.9% 2.1% 4.1% 5.1%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

Page 88: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Peru Industry:

Rating:

Buy Cementos Pacasmayo Ruler of the North

Fernando Pereda +(511) 416 3333 - Ext: 37856

[email protected]

Investment Thesis Stock Data

• We are reiterating our Buy rating on Cementos Pacasmayo, with an estimated 2014YE TP of PEN 7.9 per share. Our new forecasts reflect our updated estimates for private and public investment in Peru in 2014. Healthy industry growth and substantial capacity expansions lead us to see Pacasmayo as one of our favorite names to get exposure to Peru’s dynamic construction and infrastructure cycle.

• Expanding cement capacity. The company is building a new cement plant in Piura (1.6mn MT; USD 385mn) which will expand its installed capacity by 48% in 2015. This new capacity will allow for continued dominance of Peru’s northern cement market in the foreseeable future.

• Phosphate project affected by market conditions. After the

recent weakness in the global phosphate market (prices have fallen from USD 170/MT in March, to current USD 128/MT), we decided to limit the value contribution of Pacasmayo’s phosphate project to the transaction value with Mitsubishi Corp. in 2011 (PEN 0.58/share).

• Risks to our thesis: Slowdown of self-construction, further delays in the phosphates project.

Price Chart (PEN) and Volumes (USD mn)

Valuation • We determined our TP with a sum of parts DCF model broken down

by plant. We forecast a 8.7% CAGR in cement demand during 2014-2016. Clinker will be imported until 1H15 when Piura plant enters.

• In our model, EBITDA margin peaks at 38.0% in 2016 when the new and most efficient Piura plant operates at 85% of clinker capacity.

• Cementos Pacasmayo trades at 9.8x FV/EBITDA and 19.7x P/E, which are considerably above many peers. We believe this is justified by its above-industry growth perspectives.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

88

Holcim

Unacem

Heidelberg

Lafarge

CLH Pacasmayo

Cemex

Cemargos

Ciments Francais

-20

-

20

40

60

80

100

120

- 5 10 15 20 25

P/E

2

01

4E

EV/EBITDA 2014E

0

2

4

6

8

10

12

020406080

100120140

Oct-12 Feb-13 Jun-13 Oct-13

US

D m

PE

N

CEMENTOS PACASMAYO IGBVL

Ticker cpacasc1 pe / cpac us

Price (PEN) 6.4 (loc) / 11.5 (ADR)

LTM Range (PEN) 5.85 - 7.71

Target 7.9 (loc) / 14.2(ADR)

Total Return 26%

Market Cap (USD, mn) 1,302

Shares Outstanding (mn) 531

Free Float 36%

ADTV (USDm) 0.4 (loc) / 0.4(ADR)

2012 2013E 2014E 2015E

FV/EBITDA 14.7 10.8 9.8 8.7

P/E 26.4 23.7 19.7 17.5

P/CF -7.7 -6.6 -10.2 15.9

P/BV 2.3 2.0 1.9 1.8

Div . Yield 2.0% 1.9% 2.1% 2.5%

Sources: Company Reports and Credicorp Capital

(PEN)

Andean Equities Guide, October 25th 2013

0

10

20

30

40

50

Jun-01 Jun-04 Jun-07 Jun-10 Jun-130

5

10

15

20

Jun-01 Jun-04 Jun-07 Jun-10 Jun-13

Cement & Construction

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C. Pacasmayo Company Description

Cementos Pacasmayo is Peru’s second-largest cement producer and the only manufacturer in the northern region of the country (24% population, 16% of GDP). The company is part of the Hochschild group (mining and industrial businesses) and has been listed on the Lima SE since 1995 and on the NYSE since February 2012.

Ownership Income Statement*

Cement Capacity** Breakdown (2015) Balance Sheet*

COGS* Breakdown (2015)

Cash Flow*

Management

CEO: Humberto Nadal CFO: Manuel Ferreyros IR Manager: Claudia Bustamante www.cementospacasmayo.com.pe (*) Non-consolidated financial information. (**) Subsidiaries valuated separately

89

PEN mn 2011 2012 2013E 2014E 2015E

Revenues 657 785 859 950 1,048

EBIT 180 219 279 297 329

EBITDA 526 253 315 348 392

Net Income 163 148 151 183 205

EPS 0.28 0.25 0.26 0.31 0.35

EBIT Margin 27.4% 27.9% 32.5% 31.3% 31.4%

EBITDA Margin 80.2% 32.2% 36.7% 36.7% 37.4%

Net Margin 24.8% 18.9% 17.6% 19.2% 19.5%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 330 415 839 375 474

Total Current Assets 593 826 1,268 850 998

Total Assets 1,697 2,131 2,819 2,940 3,066

Current Liabilities 253 135 111 125 138

Financial Debt 550 215 820 820 820

Total Liabilities 769 425 1,032 1,046 1,059

Minority Interest 0 0 0 0 0

Shareholders Equity 928 1,706 1,787 1,894 2,008

Total Liabilities + Equity 1,697 2,131 2,819 2,940 3,066

EBITDA / Fin. Expenses 28.5 9.4 8.4 8.5 9.6

Financial Debt /EBITDA 1.0 0.9 2.6 2.4 2.1

Financial Debt /Equity 0.6 0.1 0.5 0.4 0.4

ROE 17.6% 11.2% 8.7% 9.9% 10.5%

ROA 9.6% 7.7% 6.1% 6.3% 6.8%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Non-cash charges 8.5%

Production inputs 42.6%

Maintainance

17.8%

Labour 10.3%

Others 20.8%

Piura , 1600 k

MT

Pacasmayo, 2900

k MT

Rioja, 440 k MT

Pension Funds 23.6%

Invers. Pacasmayo 52.6%

ADRS 20.5%

Others 3.3%

Andean Equities Guide, October 25th 2013

PEN mn 2011 2012 2013E 2014E 2015E

Initial Cash 120 330 415 839 375

Cash from Operations 79 76 215 202 232

CAPEX -129 -192 -279 -590 -42

Changes in Financial Debt 242 -361 567 0 0

Div idends (Paid) Received -91 -52 -74 -76 -91

Others 108 -53 -4 0 0

Changes in Equity 0 666 0 0 0

Final Cash 330 415 839 375 474

Change in Cash 210 85 424 -464 99

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

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Colombia Industry:

Rating:

Uperf Cemex Latam Holdings On the right path

Fernando Pereda +(511) 416 3333 - Ext: 37856

[email protected]

Investment Thesis Stock Data

• We are updating our view on CLH, with an Underperform rating on the shares and a 2014YE T.P. of COP 15,287. Growing demand in the company’s area of influence may not be fully capitalized in the upcoming years as CLH’s facilities will run at 86% of their capacity in 2014 and expansions will be limited.

• Cash flow from operations will focus on paying debt with Cemex S.A.B., which should be paid off through 2018. Moreover, Capex may be limited as we only consider a new plant in Cartagena (0.5mn MT) in 4Q13 and another expansion of (1.0 mn MT) in Colombia through 2016.

• Sales and EBITDA in Colombia will account for 52% and 59% of consolidated figures in 2014, respectively. CLH has a significant presence in Colombia’s "urban triangle” (Bogota, Medellin and Cali); where 38% the country’s total grey cement dispatches are concentrated. Nonetheless, political risk may affect cement demand, as a new zoning plan is set in Bogota.

• Risks to our thesis: Delays in the “fourth generation” infrastructure projects in Colombia. Higher competition. Not enough cash generation capacity to serve debt with Cemex S.A.B.

Price Chart (PEN) and Volumes (USD mn)

Valuation • We established our TP with a DCF model broken down by country.

Consolidated net margin is expected to rise from 16.6% in 2012 to 19.8% in 2015 as financial expenses tend to decline due to scheduled amortizations made to Cemex S.A.B.’s debt.

• CLH trades at 8.4x FV/EBITDA and 12.7x P/E, which are slightly below comparables. We do not see room for multiple expansions as the company’s medium-term growth is expected to be modest, even in a fast growing market.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

90

Holcim

Unacem

Heidelberg

Lafarge

CLH Pacasmayo

Cemex

Cemargos

Ciments Francais

-20

-

20

40

60

80

100

120

- 5 10 15 20 25

P/E

2

01

4E

EV/EBITDA 2014E

0

50

100

150

200

0

50

100

150

Nov-12 Mar-13 Jul-13

US

D m

CLP

CLH COLCAP

Ticker clh cb

Price (COP) 14,640

LTM Range 11,320 - 16,400

Target 15,287

Total Return 4%

Market Cap (USD mn) 4,331

Shares Outstanding (mn) 556

Free Float 27%

ADTV (USDmn) 3.8

2012 2013E 2014E 2015E

FV/EBITDA 9.7 9.3 8.4 7.8

P/E 14.0 14.8 12.7 11.0

P/CF 9.7 10.4 10.2 12.3

P/BV 2.3 2.3 1.9 1.7

Div . Yield nm 0.0% 0.0% 0.0%

Sources: Company Reports and Credicorp Capital

(COP) (COP)

Andean Equities Guide, October 25th 2013

9

10

11

12

13

Nov-12 Mar-13 Jul-13 Nov-136

7

8

9

Nov-12 Mar-13 Jul-13 Nov-13

Cement & Construction

(CO

P)

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CLH Company Description

Cemex Latam Holdings produces, distributes and sells cement, ready mix concrete and aggregates in Colombia, Panama, Costa Rica, Brazil, Nicaragua, Guatemala and El Salvador. The company has been listed on the Colombian SE since November 2012. CLH represents about 11% of Cemex SAB revenues.

Ownership Income Statement

Revenues Breakdown Balance Sheet

EBITDA Breakdown

Cash Flow

Management

CEO: Lorenzo H. Zambrano CFO: Fernando A. Gonzalez IR Manager: Patricio Treviño www.cemexlatam.com

91

Cemex España 73.4%

Others 26.6%

Colombia 52.0%

Costa Rica 7.9%

Panama 22.1%

Nicaragua/Guatemala 13.5%

Brasil 4.6%

Colombia 60.0%

Costa Rica 5.4%

Panama 18.4%

Nicaragua/Guatemala 13.0%

Brasil 3.1%

USD mn 2011 2012 2013E 2014E 2015E

Revenues 1,270 1,592 1,673 1,815 1,979

EBIT 278 480 553 614 673

EBITDA 348 548 632 694 753

Net Income 118 266 293 342 394

EPS 0.21 0.48 0.53 0.61 0.71

EBIT Margin 21.9% 30.2% 33.0% 33.9% 34.0%

EBITDA Margin 27.4% 34.4% 37.8% 38.3% 38.1%

Net Margin 9.3% 16.7% 17.5% 18.8% 19.9%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 325 57 235 287 397

Total Current Assets 576 351 479 549 683

Total Assets 2,066 4,059 4,230 4,315 4,572

Current Liabilities 273 456 419 418 425

Financial Debt 642 1,639 1,524 1,268 1,125

Total Liabilities 1,297 2,466 2,345 2,088 1,951

Minority Interest 2 6 7 9 12

Shareholders Equity 768 1,587 1,878 2,218 2,609

Total Liabilities + Equity 2,066 4,059 4,230 4,315 4,572

EBITDA / Fin. Expenses 7.6 4.7 5.5 6.5 8.4

Financial Debt /EBITDA 1.8 3.0 2.4 1.8 1.5

Financial Debt /Equity 0.8 1.0 0.8 0.6 0.4

ROE 15.4% 22.6% 16.9% 16.7% 16.3%

ROA 5.7% 8.7% 7.1% 8.0% 8.9%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

USD mn 2011 2012 2013E 2014E 2015E

Initial Cash 161 325 57 235 287

Cash from Operations 186 354 386 402 457

CAPEX -26 -41 -93 -95 -204

Changes in Financial Debt -4 -1,473 -115 -256 -143

Div idends (Paid) Received 0 0 0 0 0

Others 8 -758 0 0 0

Changes in Equity 0 1,650 0 0 0

Final Cash 325 57 235 287 397

Change in Cash 164 -268 179 51 110

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

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Chile Industry:

Retail Rating:

Uperf Cencosud The giant oak in an acorn

Christopher DiSalvatore +(562) 2446 1724

[email protected]

Investment Thesis Stock Data

• We are downgrading the shares to Underperform, despite a 16% share correction YTD. Though we believe the company offers important exposure to high growth markets across Latam (Brazil, Peru, Colombia), earnings visibility remains unclear over coming quarters. In relative terms, valuations do not fully reflect potential downside risks generated from Argentine operations (FX & Price freezes) and integration risks related to Colombian and Brazilian operations.

• We project top line and EBITDA to moderate to 8% and 11%, respectively, between 2013 and 2016. Margin improvement should come mainly on the back of improving returns related to previous inorganic growth; however, timing remains unclear. We are confident that the company can bring down its leverage over the next 12 months, reaching a net debt to EBITDA level of 3x in 2014, a result which we expect could lead to a ramp up in Capex to USD 1bn annually from 2015, onwards.

• Risks to our thesis: Downside risks include a sustained depreciation in Latam currencies, higher cost pressures, sharper deterioration in macro environment, particularly in Argentina and Brazil. Upside risk include quicker than expected integration.

Price Chart (CLP) and Volumes (USD mn)

Valuation • Our revised 2014E target price is based on a 10-year, SOTP DCF

valuation using country/segment weighted WACCs, which together averages 12.7% in nominal, CLP terms.

• After adjusting for the revaluation of assets, shares are trading at 26x 2014E P/E, which we view as high considering below average returns on recent growth. In Adj. FV/EBITDA terms, shares are trading at 2014E 11x or a 7% premium to regional peers.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

92 Andean Equities Guide, October 25th 2013

5

10

15

20

25

30

35

40

dic-04 dic-07 dic-10 dic-135

10

15

20

dic-04 dic-07 dic-10 dic-13

2012 2013E 2014E 2015E

FV/EBITDA 14.2 12.6 11.3 10.0

P/E 22.6 28.8 19.9 16.7

P/CF 14.3 23.4 24.7 32.6

P/BV 1.8 1.4 1.4 1.3

Div . Yield 0.9% 0.7% 1.2% 1.4%

Cencosud

Falabella

RipleyCBD

Exito

Walmex

Liverpool

Lojas Amer.

Soriana

Marisa

Chedraui

5x

10x

15x

20x

25x

30x

35x

5x 10x 15x

P/E

201

4E

EV/EBITDA 2014E

0

20

40

60

80

100

60

70

80

90

100

110

120

Oct-12 Feb-13 Jun-13 Oct-13

US

D m

n

CLP

Cencosud IPSA

Ticker Cencosud ci

Price (CLP) 2,163

LTM Range (CLP) 1,990 - 3,065

Target (CLP) 2,300

Total Return 7%

Market Cap (USD mn) 12,153

Shares Outstanding (mn) 2,807

Free Float 23%

ADTV (USD mn) 17.0

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Cencosud Company Description

Cencosud operates as a multi-format retailer, integrating supermarkets, department stores, real estate, home improvement, and financial services. The company ranks among the largest retailers in Latam with operations in Argentina, Brazil, Chile, Colombia, and Peru, where together operations generate over USD 20 bn in sales.

Ownership Income Statement

Revenue Breakdown by Format (LTM) Balance Sheet

Gross Profit by Country (LTM)

Cash Flow

Management

CEO: Daniel Rodríguez CFO: Juan Manuel Parada IR Manager: Marisol Fernández www.cencosud.cl

93 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Revenues 7,569,196 9,149,077 10,412,057 11,001,285 11,969,802

EBIT 578,152 607,866 549,174 627,120 714,740

EBITDA 637,779 656,323 700,156 786,157 886,273

Net Income 285,915 269,958 210,580 304,110 363,161

EPS 123.4 113.1 75.0 108.3 129.4

EBIT Margin 7.6% 6.6% 5.3% 5.7% 6.0%

EBITDA Margin 8.4% 7.2% 6.7% 7.1% 7.4%

Net Margin 3.8% 3.0% 2.0% 2.8% 3.0%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 175,950 305,888 129,984 118,976 108,901

Total Current Assets 1,870,453 2,334,567 2,297,119 2,430,369 2,575,732

Total Assets 7,504,552 9,674,000 9,771,284 10,096,644 10,556,951

Current Liabilities 2,022,858 3,315,041 2,986,716 3,168,002 3,384,206

Financial Debt 2,143,174 3,538,632 2,655,582 2,677,677 2,783,733

Total Liabilities 4,534,918 6,261,788 5,510,375 5,673,215 5,929,756

Minority Interest 95,196 678 684 707 739

Shareholders Equity 2,874,438 3,410,857 4,260,225 4,422,722 4,626,456

Total Liabilities + Equity 7,504,552 9,674,000 9,771,284 10,096,644 10,556,951

EBITDA / Fin. Expenses 5.1 3.2 3.0 4.3 4.7

Financial Debt /EBITDA 3.4 5.4 3.8 3.4 3.1

Financial Debt /Equity 0.7 1.0 0.6 0.6 0.6

ROAE 9.9% 8.7% 5.5% 7.0% 8.0%

ROAA 3.8% 3.1% 2.2% 3.1% 3.5%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Initial Cash 153,562 175,950 305,888 129,984 118,976

Cash from Operations -639,505 -1,581,872 437,574 577,048 670,911

CAPEX -620,682 -145,207 -357,350 -422,782 -558,112

Changes in Financial Debt 552,437 1,395,459 -883,050 22,095 106,056

Div idends (Paid) Receiv ed -78,469 -53,259 -41,684 -69,743 -87,458

Tax es -119,198 -109,190 -82,894 -117,627 -141,473

Changes in Equity 927,804 624,007 751,500 0 0

Final Cash 175,950 305,888 129,984 118,976 108,901

Change in Cash 22,388 129,938 -175,904 -11,008 -10,075

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Controller 59%

Pension Funds 18%

Float 23%

Super 74%

H.I. 12%

D.S 10%

Financial 3%

Shopping 2%

Chile 42%

Argentina 30%

Brazil 16%

Peru 8% Colombia 4%

Page 94: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Peru Industry:

Mining Rating:

Uperf Cerro Verde A diminished near term outlook

Héctor Collantes +(511) 4163333 – Ext 33052

[email protected]

Investment Thesis Stock Data

• We are lowering our rating on Cerro Verde to Underperform as the company faces increased Capex requirements. Current labor contracts and updated detailed engineering rose Capex to USD4.6bn (from USD4.4bn, initially in USD3.5bn, two years ago).

• Total copper output will increase by 110% by 2016. The concentrator expansion that will triple sulfides milling capacity (to 360,000 tpd) will double copper output (to 556,000 MT, including 41,000 MT from oxides) because the average copper head grade will fall from today’s 0.56% to 0.45% when the expansion finishes. The new large facility will limit mine planning flexibility. We assume that USD1.0bn will be financed with debt in 2014.

• Local support entails “social goodwill”. Not only is Cerro Verde a

major economic actor but managed to treat Arequipa’s waste water to use it for its expansion. Moreover, Cerro Verde negotiated a favorable tax stability agreement with the Peruvian Government, provided that it will go ahead with the large scale expansion.

• Risks to our thesis: Cerro Verde’s appeal against a USD153mn tax ruling may fail; copper prices might fall more than expected.

Price Chart (USD) and Volumes (USD mn)

Valuation • Cut in near term production guidance. Our DCF considers 40

periods as implied by Cerro Verde’s life of mine plus an exploration assumption. The recent 260,000 MT Cu reduced guidance has trimmed our outlook before the expansion finishes by 2016. 2014F copper price is USD7,100/MT, which falls towards 2020 at USD6,000/MT. Molybdenum price is set flat at USD25,000/MT.

• We expect no dividends. Cerro Verde is going through its most intensive capital expense phase so we see it very unlikely that it will resume dividend payments, suspended in 2011.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

94

Southern Copper

First Quantum

Freeport McMoRan

Cerro Verde

Antofagasta

0

5

10

15

20

25

0 5 10 15

P/E

2014

E

FV/EBITDA 2014E

Ticker cverdec1 pe

Price (USD) 26

LTM Range 20.3 - 41.95

Target 24

Total Return -8%

Market Cap (USDmn) 9,101

Shares Outstanding (mn) 350

Free Float 6%

ADTV (USDm) 0.3

2012 2013E 2014E 2015E

FV/EBITDA 9.0 9.7 6.6 6.9

P/E 17.2 20.2 13.5 14.1

P/CF 7.6 -34.2 34.6 5.8

P/BV 3.9 2.3 2.0 1.7

Div . Yield 0.0% 0.0% 0.0% 0.0%

Sources: Company Reports and Credicorp Capital

0

1

1

2

2

0

20

40

60

80

100

120

Oct-12 Feb-13 Jun-13 Oct-13

US

D m

n

US

D

C. VERDE IGBVL

Andean Equities Guide, October 25th 2013

(PEN)

0

10

20

30

40

50

Jun-01 Jun-04 Jun-07 Jun-10 Jun-130

5

10

15

20

Jun-01 Jun-04 Jun-07 Jun-10 Jun-13

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Cerro Verde Company Description

Cerro Verde is majority owned and operated by Freeport-McMoRan (53.56% stake) with minority participation of Sumitomo and Buenaventura. It is the third copper producer in Peru with operations in Arequipa (southern Peru). The company produces copper concentrates and molybdenum concentrates from its sulfides and copper cathodes from its oxides.

Ownership Income Statement

Revenues Breakdown per Metal Balance Sheet

Reserves Breakdown (Cont. Cu Eq)

Cash Flow

Management

CEO: Bruce Clements CFO: Steve Palmer IR Manager: _ www.fcx.com/operations/peru_arequipa.htm

95

Freeport 54,0%

Buena ventura 19.6%

Sumitomo 21.0%

Others 5.9%

Moly 95,0%

Copper 95.0%

Copper Sulphides

79,4%

Copper Oxides 13.6%

Moly Sulphides

7.1%

USDmn 2011 2012 2013E 2014E 2015E

Revenues 2,520 2,127 1,751 2,057 2,015

EBIT 1,559 1,217 763 1,066 1,025

EBITDA 1,643 1,313 874 1,182 1,141

Net Income 1,078 772 479 657 632

EPS 3.1 2.2 1.3 1.9 1.8

EBIT Margin 61.9% 57.2% 43.6% 51.8% 50.9%

EBITDA Margin 65.2% 61.7% 49.9% 57.5% 56.7%

Net Margin 42.8% 36.3% 27.4% 31.9% 31.4%

Sources: Company Reports and Credicorp Capital; Credicorp Capital Estimates

USDmn 2011 2012 2013E 2014E 2015E

Cash & Equivalentes 1,384 1,428 970 1,155 473

Total Current Assets 1,829 1,985 1,703 2,023 1,317

Total Assets 3,197 4,043 4,567 6,300 6,947

Current Liabilities 336 272 304 299 299

Financial Debt 0 0 0 1,071 1,071

Total Liabilities 519 593 667 1,727 1,727

Minority Interest 0 0 0 0 0

Shareholders Equity 2,678 3,450 3,900 4,572 5,220

Total Liabilities + Equity 3,197 4,043 4,567 6,300 6,947

EBITDA / Fin. Expenses 1,800 259- 5,555 6,773 6,589

Financial Debt /EBITDA 0.0 0.0 0.0 0.9 0.9

Financial Debt /Equity 0.0 0.0 0.0 0.2 0.2

ROAE 40.3% 25.2% 12.3% 15.9% 13.2%

ROAA 33.7% 21.3% 10.5% 12.4% 9.8%

Sources: Company Reports and Credicorp Capital; Credicorp Capital Estimates

USDmn 2011 2012 2013E 2014E 2015E

Initial Cash 388 1,384 1,428 981 1,214

Cash from Operations 1,191 645 433 647 840

CAPEX -195 -601 -890 -1,540 -1,540

Changes in Financial Debt 0 0 0 1,071 0

Div idends (Paid) Received 0 0 0 0 0

Financial&Investing, others 0 0 11 55 104

Changes in Equity 0 0 0 0 0

Final Cash 1,384 1,428 981 1,214 617

Change in Cash 996 44 -447 233 -596

Sources: Company Reports and Credicorp Capital; Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

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2012 2013E 2014E 2015E

FV/EBITDA 12.3 10.0 8.8 7.8

P/E 40.6 21.9 18.3 17.0

P/CF 42.2 256.6 -20.7 56.1

P/BV 1.0 0.8 0.8 0.8

Div . Yield 1.5% 1.4% 1.6% 1.8%

Sources: Company Reports and Credicorp Capital; E

Chile Industry:

Rating:

Hold CMPC Upcoming hardwood price pressure

Arturo Prado +(562) 2450 1688

[email protected]

Investment Thesis Stock Data

• We maintain our Hold recommendation and introduce a new 2014YE T.P. of CLP 1,725. We like the diversified cash flow of the company and the interesting growth prospects with he start up of Guaiba II in 2Q15 (1.3 mn. tons). However, we are expecting a downward pressure on hardwood pulp prices, (which represents 70% of CMPC’s installed capacity) for the next year, due to the entrance of new supply coming from Montes del Plata (1Q14 1.3 mn. tons) and Maranhao (4Q13 1.5 mn. tons).

• The company should consolidated its competitive position in the pulp and LatAm tissue markets, the latter based on the region’s trends of higher income and living standards of its population. However, slower than expected GDP growth rates in the region, together with LatAm currencies depreciation should pose challenges for this business expansion in the short term.

• Risks to our thesis: i) stronger / weaker than expect pulp prices ii)

stronger /weaker than expect domestic demand for paper and tissue , iii) stronger / weaker than expect performance of LatAm currencies. It is important to clarify that a depreciation of BRL and CLP will have a positive net effect in the company’s performance.

Price Chart (CLP) and Volumes (USD mn)

Valuation • CMPC is trading at fair valuations in terms of forward multiples

which are in line with its historical average.

• When compared to its peers, CMPC is trading at 18.3x P/E and 8.8x FV/EBITDA 2014E which represent a premium compared to its peers. We think this is justified due to the upcoming growth and its diversified cash flow sources.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

96 Andean Equities Guide, October 25th 2013

Ticker cmpc ci

Price (CLP) 1,525

LTM Range (CLP) 1,419 - 1,907

Target (CLP) 1,725

Total Return 15%

Market Cap (USD mn) 7,250

Shares Outstanding (mn) 2,375

Free Float 44%

ADTV (USD mn) 4.8

0

10

20

30

40

50

Dec-99 Dec-02 Dec-05 Dec-08 Dec-113

8

13

Dec-99 Dec-02 Dec-05 Dec-08 Dec-11

0

10

20

30

40

0

20

40

60

80

100

120

Oct-12 Feb-13 Jun-13 Oct-13

US

D m

n

CLP

CMPC IPSA

CMPCCOPEC

MASISA

Suzano

Stora Enso

Duratex

0x

5x

10x

15x

20x

25x

30x

0x 5x 10x 15x 20x

P/E

201

4E

FV/EBITDA 2014E

Pulp & Paper

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CMPC Company Description

CMPC is an integrated Chilean Pulp&Paper company, that participates in the entire production chain, producing: pulp, paper, tissue, packaging and other forestry products in Latin America.

Ownership Income Statement

Revenues LTM Breakdown by segment Balance Sheet

EBITDA LTM by segment

Cash Flow

Management

CEO: Hernán Rodríguez CFO: Luis Llanos IR Manager: Trinidad Valdés / Colomba

Henriquez www.cmpc.cl

97 Andean Equities Guide, October 25th 2013

USD mn 2011 2012 2013E 2014E 2015E

Revenues 4,786 4,759 5,156 5,501 6,077

EBIT 693 526 590 696 793

EBITDA 1,066 914 1,009 1,142 1,292

Net Income 391 202 331 396 426

EPS 87.7 44.9 69.4 83.2 89.5

EBIT Margin 14.5% 11.1% 11.4% 12.7% 13.0%

EBITDA Margin 22.3% 19.2% 19.6% 20.8% 21.3%

Net Margin 8.2% 4.2% 6.4% 7.2% 7.0%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 924 865 1,031 1,100 1,215

Total Current Assets 3,248 3,368 3,661 3,897 4,293

Total Assets 13,348 13,348 15,031 16,662 17,787

Current Liabilities 1,058 1,584 1,648 1,746 1,912

Financial Debt 3,431 3,936 4,132 5,394 6,068

Total Liabilities 5,445 6,061 6,314 7,667 8,493

Minority Interest 9 5 5 6 6

Shareholders Equity 7,854 7,980 8,712 8,989 9,288

Total Liabilities + Equity 13,308 14,046 15,031 16,662 17,787

EBITDA / Fin. Expenses 8.4 6.6 5.8 5.5 5.1

Financial Debt /EBITDA 3.2 4.3 4.1 4.7 4.7

Financial Debt /Equity 0.4 0.5 0.5 0.6 0.7

ROAE 5.0% 2.5% 4.0% 4.5% 4.7%

ROAA 3.0% 1.5% 2.3% 2.5% 2.5%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Initial Cash 764 924 865 1,031 1,100

Cash from Operations 696 262 477 326 577

CAPEX -636 -559 -800 -1,300 -900

Changes in Financial Debt 413 506 196 1,262 674

Div idends (Paid) Received -206 -124 -99 -119 -128

Taxes -176 -128 -84 -100 -108

Changes in Equity 69 -15 476 0 0

Final Cash 924 865 1,031 1,100 1,215

Change in Cash 160 -58 166 69 115

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Matte Group 56,0%

Pension Funds 11.0%

Others 33.0%

Pulp44%

Tissue23%

Paper16%

Forestry13%

Paper Products

4%

Pulp30%

Tissue37%

Paper14%

Forestry10%

Paper Products

8%

Page 98: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

2012 2013E 2014E 2015E

FV/EBITDA 19.6 14.1 11.2 8.7

P/E 99.0 30.5 23.3 14.3

P/CF -16.9 16.7 16.8 9.1

P/BV 1.4 1.3 1.2 1.2

Div . Yield 0.0% 0.3% 1.0% 1.3%

Sources: Company Reports and Credicorp Capital

Chile Industry:

Utilities Rating:

Hold Colbun Slowing the pace of expansion

Andrés Ossa +(562) 2651 9332

[email protected]

Investment Thesis Stock Data

• We are updating our coverage of Colbun, maintaining our HOLD recommendation and introducing a new 2014YE T.P. of CLP 153. While we uphold a positive outlook for the long term of the company, we believe focus for the coming years will be on strengthening its balance sheet rather than on capacity expansions. We anticipate a reduction in CAPEX levels from the USD ~400 mn seen in the previous years to USD ~90 mn.

• With the start of operations of Angostura, and a gradual improvement in hydrology (both would add ~1,500 GWh to Colbun’s generation in 2014), along with the steady operations of Santa Maria I (which we expect will generate ~2,500 GWh next year), we anticipate a decrease in the company’s exposure to the spot market. While this would improve margins, in our view we need to wait for a full normalization of hydrology (which we anticipate for 2015) to reach historical levels (EBITDA Mg > 40%).

• Risk to our thesis: Upside risks are related to a stronger than expected hydrology and to the, at the moment unlikely, announcement of HidroAysen. Downside risks include unexpected problems related to the startup of Angostura and an unforeseen but possible 5th consecutive dry year.

Price Chart (CLP) and Volumes (USD mn)

Valuation • In terms of forward multiples, the company is trading at 23.3x P/E

and 11.2x FV/EBITDA 2014E, below its average since 2008. Colbun’s forward multiples during dry years benefit from a recurrent belief of “normalization” of hydrology, which may or may not occur.

• When compared to local and regional peers, current valuations seem high, and are most likely already pricing in margin improvements related to hydro normalization.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

98 Andean Equities Guide, October 25th 2013

Ticker colbun ci

Price (CLP) 131

LTM Range (CLP) 125 - 154

Target (CLP) 153

Total Return 17%

Market Cap (USD mn) 4,605

Shares Outstanding (mn) 17,536

Free Float 51%

ADTV (USD mn) 2.3

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Page 99: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Colbun Company Description

Colbun is the second largest generation company in the SIC grid, with nearly a 20% market share. With an installed capacity of 1,273 MW of hydro generation and 1,689 MW of thermo generation, the company owns 22 power units along the center and south of Chile. Additionally, Colbun has almost 900 km. in transmission lines.

Ownership Income Statement

Installed Capacity (2,962 MW) Balance Sheet

Revenues Breakdown LTM

Cash Flow

Management

CEO: Ignacio Cruz CFO: Cristián Morales IR Manager: Olivia Heuts www.colbun.cl/en/inversionistas/

99 Andean Equities Guide, October 25th 2013

USD mn 2011 2012 2013E 2014E 2015E

Revenues 1,333 1,409 1,759 1,589 1,556

EBIT 80 148 264 356 502

EBITDA 205 324 423 531 685

Net Income 5 49 151 198 321

EPS 0.1 1.4 4.3 5.6 9.1

EBIT Margin 6.0% 10.5% 15.0% 22.4% 32.3%

EBITDA Margin 15.3% 23.0% 24.0% 33.4% 44.0%

Net Margin 0.4% 3.5% 8.6% 12.5% 20.6%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 296 218 238 271 265

Total Current Assets 771 789 639 696 745

Total Assets 5,619 6,003 6,002 6,042 5,991

Current Liabilities 339 551 552 553 555

Financial Debt 1,497 1,726 1,716 1,704 1,459

Total Liabilities 2,157 2,491 2,461 2,348 2,035

Minority Interest 0 0 0 0 0

Shareholders Equity 3,462 3,513 3,541 3,694 3,956

Total Liabilities + Equity 5,619 6,003 6,002 6,042 5,991

EBITDA / Fin. Expenses 10.9 11.8 5.1 6.5 9.1

Financial Debt /EBITDA 7.3 5.3 4.1 3.2 2.1

Financial Debt /Equity 0.4 0.5 0.5 0.5 0.4

ROAE 0.2% 1.4% 4.3% 5.5% 8.4%

ROAA 0.1% 0.8% 2.5% 3.3% 5.3%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Initial Cash 555 296 218 238 271

Cash from Operations 311 247 374 341 469

CAPEX -433 -490 -300 -200 -90

Changes in Financial Debt -75 229 -10 -13 -244

Div idends (Paid) Receiv ed -38 0 -15 -45 -59

Tax es -24 -64 -30 -50 -80

Changes in Equity 0 0 0 0 0

Final Cash 296 218 238 271 265

Change in Cash -259 -78 20 33 -6

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Matte Group49%

Angelini Group10%

Pension Funds18%

Others23%

Regulated47%

Free25%

Spot10%

Others18%

Hydro43%

Coal12%

Gas38%

Diesel7%

Page 100: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Chile Industry:

Rating:

Buy Concha y Toro Ripe off the vine

Javier Gunther +(562) 2450 1695

[email protected]

Investment Thesis Stock Data

• We maintain our Buy recommendation on Concha y Toro. After a tough couple of years for the industry in Chile (strong CLP, weak global economic growth, earthquake destroying inventories and negative 2011 grape harvest), we expect 2014 to be a turning point for the company.

• We see conditions improving for Concha y Toro. First, we see little downside on the FX side, especially after the Chilean Central Bank just announced a 25 bps cut in the interest rates. This should make Concha y Toro more competitive vs. the rest of the industry. Second, the company currently has high inventories (around 1 year sales) at low grape prices (given a positive 2012 vintage), which should improve margins from 4Q13 onwards.

• We expect a strong results recovery in 2014, with a 29% net income and a 22% EBITDA growth, due to two consecutive positive harvests that give us high earnings visibility.

• Risks to our thesis are lower than expected recovery in developed markets, increasing competition from New World Wineries, Chilean fx strengthening, or October-November new freezes affecting the harvest.

Price Chart (CLP) and Volumes (USD mn)

Valuation • The company is trading at a 25% discount in terms of P/E

2014E and a 17% discount in terms of EV/EBITDA 2014E. At 16.2x P/E 2014E multiple, CyT is trading at the bottom of its range since 2000, which we believe offers an attractive entry point.

• When compared to its peers, the company is trading at a premium of 18% in terms of P/E. We believe that the premium that CyT has traditionally had over its wine peers is justified due to its global distribution network and brand equity.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

2012 2013E 2014E 2015E

FV/EBITDA 16.7 16.5 12.9 11.4

P/E 23.2 23.8 17.2 15.0

P/CF -79.4 246.3 33.7 27.3

P/BV 1.6 1.6 1.5 1.4

Div . Yield 1.7% 1.7% 2.3% 2.7%

Sources: Company Reports and Credicorp Capital

100 Andean Equities Guide, October 25th 2013

Ticker concha ci / vco us

Price (CLP) 958

LTM Range (CLP) 904 - 1,000

Target 1,150 (loc) / 45.5 (ADR)

Total Return 22%

Market Cap (USD mn) 1,433

Shares Outstanding (mn) 747

Free Float 60%

ADTV (USD mn) 1.7 (loc) / 0.2 (ADR)

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Concha y Toro IPSA

Constellation

Baron de Ley

Yantai Changyu

CyT

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Food & Beverages

Page 101: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Concha y Toro Company Description

Concha y Toro is the largest Chilean wine company, leader in the domestic market and in exports, selling 30 million cases in 2012. It currently owns vineyards in Chile, Argentina and USA, with focus on exports and on developing a global distribution network. It owns commercial subsidiaries in Brazil, UK, Nordic countries, S. Africa, Mexico and Singapore.

Ownership Income Statement

Revenues Breakdown (LTM) Balance Sheet

Volume per Division (LTM)

Cash Flow

Management

CEO: Eduardo Guilisasti CFO: Osvaldo Solar IR Manager: Matías Rojas www.conchaytoro.com/

101 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Revenues 422,746 450,546 469,962 505,584 539,786

EBIT 41,221 35,993 35,637 49,659 57,328

EBITDA 59,069 53,682 53,898 69,304 78,302

Net Income 50,493 30,023 29,992 41,459 47,574

EPS 67.6 40.2 40.1 55.5 63.7

EBIT Margin 9.8% 8.0% 7.6% 9.8% 10.6%

EBITDA Margin 14.0% 11.9% 11.5% 13.7% 14.5%

Net Margin 11.9% 6.7% 6.4% 8.2% 8.8%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 29,192 70,954 28,198 35,391 43,183

Total Current Assets 357,726 431,686 405,524 431,051 457,969

Total Assets 774,130 854,669 849,263 888,029 928,348

Current Liabilities 167,858 224,132 168,594 177,432 187,559

Financial Debt 230,637 272,725 241,246 241,828 241,189

Total Liabilities 375,626 430,219 406,834 416,112 425,413

Minority Interest 292 573 570 596 623

Shareholders Equity 398,212 423,877 441,859 471,322 502,312

Total Liabilities + Equity 774,130 854,669 849,263 888,029 928,348

EBITDA / Fin. Expenses 10.0 7.0 6.3 8.7 10.0

Financial Debt /EBITDA 3.9 5.1 4.5 3.5 3.1

Financial Debt /Equity 0.6 0.6 0.5 0.5 0.5

ROAE 13.1% 7.3% 6.9% 9.1% 9.8%

ROAA 7.4% 3.7% 3.5% 4.8% 5.2%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Initial Cash 27,479 29,192 70,954 28,198 35,391

Cash from Operations 15,153 43,396 40,216 59,173 66,864

CAPEX -139,289 -29,056 -31,300 -24,557 -26,218

Changes in Financial Debt 149,945 42,089 -31,480 583 -639

Div idends (Paid) Received -19,422 -12,009 -11,997 -16,584 -19,030

Taxes -4,674 -2,657 -8,197 -11,421 -13,185

Changes in Equity 0 0 0 0 0

Final Cash 29,192 70,954 28,198 35,391 43,183

Change in Cash 1,713 41,762 -42,757 7,193 7,792

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Controlling Group40.1%

Pension Funds 8.3%

Brokerage H, Mutual F

20.2%

ADRs 2.6%

Others 28.8%

Chile77%

Argentina8%

USA15%

Chile86%

Argentina6%

USA8%

Page 102: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

2012 2013E 2014E 2015E

FV/EBITDA 16.5 13.1 12.0 10.8

P/E 45.0 24.1 20.2 18.4

P/CF -41.4 28.7 17.3 14.8

P/BV 1.9 1.9 1.8 1.7

Div . Yield 1.9% 1.7% 2.0% 2.2%

Sources: Company Reports and Credicorp Capital; E

Chile Industry:

Rating:

Buy Copec Prepared for strong growth

Arturo Prado +(562) 2450 1688

[email protected]

Investment Thesis Stock Data

• We are upgrading our recommendation of COPEC from Hold to Buy with a 2014YE T.P. of CLP 8,900. We like the upcoming growth of the company, its solid position and diversification cash flow. In Arauco (pulp subsidiary) we should expect strong delivery driven by the consolidation of Moncure and Flakeboard positively affected by the recovery in the US housing market and the ramp up of Montes del Plata in 1Q14 (JV COPEC 50%; Stora Enso 50%) which will add 1.3 mn. tons of hardwood (HW) to the market.

• The company has a higher exposure to softwood pulp price which

has a balanced market outlook (USD 850 average price for 2014E).

• The fuel division is showing the strong performance of Terpel in Colombia driven by low car penetration and government infrastructure project. In Chile retail segment its growing and is compensating the substitution from gas in the industrial segment. Also, bottom line has been boosted by the performance of Metrogas.

• Risks to our thesis: Weaker than expect pulp market environment

ii) increasing competition in the fuel market in Chile and iii) weak demand for wood products/panels in the US and Europe.

Price Chart (CLP) and Volumes (USD mn)

Valuation • In terms of forward multiples, the company is trading at 20.2x P/E

and 12.0x FV/EBITDA, which looks attractive when you compare with its 5 years average.

• When compared to its peers, COPEC has always traded at a justified premium, due to its diversified cash generation. Now this premium has narrowed significantly, suggesting an interesting entry point to the stock.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

102 Andean Equities Guide, October 25th 2013

Ticker copec ci

Price (CLP) 7,470

LTM Range (CLP) 6,049 - 7,496

Target (CLP) 8,900

Total Return 21.1%

Market Cap (USD mn) 19,439

Shares Outstanding (mn) 1,300

Free Float 39%

ADTV (USD mn) 7.8

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Page 103: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Copec Company Description

Empresas COPEC is one of Chile‘s largest holding companies with interests in the energy and natural resources. In the energy field, it is engaged in the distribution of liquid fuel, mainly through Copec (Chile) and Terpel (Colombia), natural gas, liquefied petroleum gas (LPG) and electric power generation. In the natural resources field, it is active in Forestry (Arauco), fishing and mining.

Ownership Income Statement

Revenues by Division (LTM) Balance Sheet

EBITDA by Division (LTM)

Cash Flow

Management

CEO: Eduardo Navarro CFO: Rodrigo Huidobro IR Manager: Cristián Palacios www.empresascopec.cl

103 Andean Equities Guide, October 25th 2013

USD mn 2011 2012 2013E 2014E 2015E

Revenues 21,125 22,761 24,881 25,959 27,437

EBIT 1,103 660 1,082 1,258 1,365

EBITDA 2,022 1,560 1,999 2,179 2,346

Net Income 933 410 807 963 1,056

EPS 357.9 157.2 309.7 369.6 405.2

EBIT Margin 5.2% 2.9% 4.3% 4.8% 5.0%

EBITDA Margin 9.6% 6.9% 8.0% 8.4% 8.6%

Net Margin 4.4% 1.8% 3.2% 3.7% 3.8%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 1,132 1,154 1,333 1,391 1,470

Total Current Assets 5,636 6,127 6,542 6,816 7,202

Total Assets 20,095 22,010 23,214 23,850 24,456

Current Liabilities 2,705 3,400 3,453 3,583 3,782

Financial Debt 5,313 6,851 7,011 6,862 6,541

Total Liabilities 9,296 11,248 11,537 11,559 11,499

Minority Interest 986 846 1,277 1,312 1,345

Shareholders Equity 9,813 9,916 10,401 10,979 11,612

Total Liabilities + Equity 20,095 22,010 23,214 23,850 24,456

EBITDA / Fin. Expenses 7.9 4.6 5.1 5.6 6.3

Financial Debt /EBITDA 2.6 4.4 3.5 3.1 2.8

Financial Debt /Equity 0.5 0.7 0.7 0.6 0.6

ROAE 9.5% 4.2% 7.9% 9.0% 9.4%

ROAA 4.7% 1.9% 3.6% 4.1% 4.4%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Initial Cash 1,740 1,132 1,154 1,333 1,391

Cash from Operations 991 852 1,458 1,549 1,713

CAPEX -1,206 -1,770 -900 -700 -609

Changes in Financial Debt 340 1,539 160 -149 -321

Div idends (Paid) Received -484 -348 -323 -385 -422

Taxes -249 -251 -215 -257 -282

Changes in Equity 0 0 0 0 0

Final Cash 1,132 1,154 1,333 1,391 1,470

Change in Cash -608 22 179 58 79

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Antarchile 60.8%

Pension Funds 5.1%

Others 34.1%

Forestry 54%

Fuels44%

Fishing2%

Forestry 20%

Fuels79%

Fishing1%

Page 104: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Colombia Industry:

Rating:

Hold Corficolombiana High dilution, but with upside risks

Juan Dominguez +(571) 339 4400 Ext 1026

[email protected]

Investment Thesis Stock Data

• So far, Corficolombiana’s results have surprised us on the positive side, as 1H13’s net interest margin was better than expected, although IB fees have been affected by a decrease on deal flow. More importantly, the equity investments portfolio has shown a good performance in terms of dividends received in 2013. However, 2013 dilution has been higher than expected, as the share of stock dividend over total dividends in 1H13 surprised us. We expect this trend on dilution to continue in coming years; we maintain our Hold recommendation.

• Power and gas investments (comprised mainly of Promigas and EEB) will keep generating value and stable dividend streams in coming years. Episol will be one of the main value drivers in coming years, once the Ruta del Sol Tramo 2 road concession enters its operating phase in 2017.

• Upside risks include the award of new road concessions under

PPAs or government tenders (4th generation road concessions). Downside risks come mainly from land acquisition and community relationship risks in the infrastructure business. Corficolombiana could also be interested in acquiring power and gas assets that are currently in the market (Isagen and EEB).

Price Chart (COP) and Volumes (USD mn)

Valuation

• Our TP of COP 41,660/share is based on a SOTP assessment. The equity investment portfolio adds 81% to the total value, with the remaining 19% being the directly operated financial business. Promigas, EEB and the infrastructure assets (PISA, Epiandes, and Episol) concentrate most of the value.

• Current prices are not attractive as the share is trading at peak forward multiples, but the dividend yield is still attractive under our dilution scenarios. Based on total return, we rate with a HOLD.

Valuation Summary

P/E Forward P/B Forward 2014E Value Breakdown

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Corficol's Direct

Operation 19%

Power & Gas 35%

Infra-structure

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Agri-business

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Hotels 6%

Financials 5%

Other equity inv.

4%

2012 2013E 2014E 2015E

P/E 18.1 16.3 18.2 19.8

P/BV 2.4 2.3 2.2 2.1

Div . Yield 7.5% 6.9% 6.9% 6.9%Sources: Company Reports and Credicorp Capital;

E Credicorp Capital Estimates

Ticker corficol cb

Price (COP) 39,160

LTM Range (COP) 32,980 - 40,000

Target (COP) 41,660

Upside 13%

Market Cap (USD mn) 4,328

Shares Outstanding (mn) 207

Free Float 43%

ADTV (USD mn) 2.0

Andean Equities Guide, October 25th 2013

Conglomerates

Page 105: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Corficolombiana Company Description

Corficolombiana is a merchant bank that invests in strategic sectors of the Colombian economy, including infrastructure, energy, hotels, agribusiness and finance, and also provides treasury, investment banking and private banking services. It is considered the real sector investment vehicle of Grupo Aval.

Ownership Equity Investments

Book Value by Sector (as of Jun-13) Balance Sheet

Income Statement

Management

CEO: José Elías Melo Executive VP: Juan Carlos Páez IR Manager: María José Nieto www.corficolombiana.com

105

Power & Gas 67%

Infra-structure

11%

Financials 5%

Agri-business

7%

Hotels 5%

Others 5%

Banco de Bogotá

38%

Banco de Occidente

14%

Banco Popular

6%

Pension funds 6%

Other common

30%

Pref. Shares

6%

COP mn 2011 2012 2013E 2014E 2015E

Cash & Interbank Deposits 711,957 1,346,855 1,016,928 1,090,780 1,172,588

Investment Portfolio 6,266,203 8,165,177 7,758,904 8,229,215 8,697,406

Total Assets 7,221,800 9,779,753 9,113,405 9,682,083 10,259,239

Total Deposits 1,752,175 2,656,003 2,310,083 2,477,846 2,663,685

Interbank funds 2,205,479 3,874,849 2,998,192 3,215,928 3,457,123

Total Liabilities 4,396,544 6,784,553 5,569,880 5,974,378 6,422,456

Shareholders' Equity 2,825,256 2,995,199 3,543,523 3,707,703 3,836,781

Total Liabilities + Equity 7,221,800 9,779,752 9,113,403 9,682,081 10,259,237

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

COP mn 2011 2012 2013E 2014E 2015E

Net Interest Income 102,171 62,819 103,960 118,460 132,689

Net Fee Income 17,445 17,556 10,787 14,656 18,981

Operational Expenses 49,840 52,531 59,593 61,247 63,085

Div idend income 261,877 430,140 458,014 428,016 376,672

Net Income 587,737 395,179 496,346 445,180 410,077

EPS (COP / share) 3,169 2,032 2,426 2,098 1,871

EPS growth 4.1% -35.9% 19.4% -13.5% -10.9%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

Page 106: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Chile Industry:

Banks Rating:

Hold Corpbanca Short term risk, long term potential

Christopher DiSalvatore / Juan Dominguez +(562) 2446 1724

[email protected]

Investment Thesis Stock Data

• We are re-initiating our coverage with a HOLD recommendation, which is based on potential challenges expected from recent acquisitions in Colombia and some downside risk related to exposure to SMU. In Chile, Corpbanca needs to focus on improvement in profitability, stemming more cross selling and cost control. In Colombia, uncertain results in the short term should be offset by long term opportunity to penetrate a less mature market.

• The bank’s acquisition of Helm in Colombia consolidates its position in the country, providing important scale to operations. Efficiency in Colombia is currently lower than Chilean operations, which coupled with one-timers related to the acquisition, should pressure costs in the near term. However, identified synergies based on tax benefits and back office costs, which we estimate to be USD 75-95mn, could be captured within 3 years.

• Risks to our thesis: downside risks include exposure to SMU ( ~USD 200mn in a worst case scenario) and higher than expected costs associated with the Colombian integration. Upside risks include better than expected results from Colombian operations.

Price Chart (CLP) and Volumes (USD mn)

Valuation • Our 2014E target price is based on a 10 year DDM valuation

considering a nominal cost of equity of 11.6%, a long term ROAE of 16% and a nominal perpetuity growth rate of 5%. Our TP implies a 1.6x 2014E P/B and a 11.6x 2014E P/E. In our view, low multiples are supported by the uncertainty of earnings development and integration risks.

Valuation Summary

P/E Forward P/B Forward Relative Valuation

106 Andean Equities Guide, October 25th 2013

2012 2013E 2014E 2015E

P/E 15.7 13.4 10.2 8.2

P/BV 2.0 1.5 1.4 1.3

Div . Yield 6.3% 3.1% 3.7% 4.9%

Sources: Company Reports and Credicorp Capital

Ticker corpbanc ci

Price (CLP) 5.7

LTM Range (CLP) 4.73 - 6.98

Target (CLP) 6.40

Total Return 15%

Market Cap (USD mn) 3,901

Shares Outstanding (mn) 340,358

Free Float 35%

ADTV (USD mn) 6.5

ItauBradesco

CredicorpBCI

Chile

Corpbanca

Santander

Banorte

Bcolo

DaviviendaAval

Banco do Brasil

0

1

2

3

10% 20% 30%

P/B

201

4E

ROE 2014E

0

1

2

3

4

Dec-02 Dec-05 Dec-08 Dec-110

5

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15

20

Dec-02 Dec-05 Dec-08 Dec-11

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90

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Corpbanca IPSA

Page 107: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Corpbanca Company Description

Corpbanca is the 4th largest private bank in Chile with an 8% market share and a strong presence in the corporate segment. Through the acquisitions of Santander Colombia (2011) and Helm Bank (2012), Corpbanca has become the 5th largest bank in Colombia. The bank maintains over USD 21 bn in total loans and USD 27 bn in total assets.

Ownership Income Statement

Loans by Country (Proforma 2014) Balance Sheet

Operating Income by Type (1H 2013)

Ratios

Management

CEO: Fernando Massú CFO: Eugenio Gigogne IR Manager: Claudia Labbé www.corpbanca.cl

107 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Net Interest Income 193,000 256,876 428,800 613,765 680,544

Net Fee Income 60,362 85,644 109,151 137,207 153,874

Operational Income 333,831 446,737 676,911 916,113 1,006,263

Provision Expenses -40,182 -50,864 -115,946 -170,991 -189,595

Operational Expenses -148,730 -253,238 -366,319 -489,291 -496,085

Net Income 118,951 119,764 145,476 190,142 238,268

EPS 0.47 0.40 0.43 0.56 0.70

EPS growth -9.0% -13.5% 5.7% 30.7% 25.3%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Interbank Deposits 361,977 644,005 1,875,113 2,083,849 2,305,857

Investments Portfolio 1,303,484 1,666,650 1,508,464 1,662,642 1,866,171

Gross Loans 6,814,445 10,160,598 14,121,857 15,693,887 17,365,873

Total Assets 8,887,704 13,528,223 18,836,870 20,885,265 23,101,066

Total Deposits 5,507,098 8,795,350 11,640,325 12,936,113 14,314,293

Financial Obligations 2,186,399 2,856,125 4,052,617 4,503,750 4,983,567

Total Liabilities 8,158,492 12,531,908 17,228,942 19,146,848 21,186,704

Minority Interest 2,609 54,370 323,843 350,124 382,872

Shareholders Equity 726,603 941,945 1,284,085 1,388,292 1,531,489

Total Liabilities + Equity 8,887,704 13,528,223 18,836,870 20,885,265 23,101,066

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

(%) 2011 2012 2013E 2014E 2015E

NIM (% ) 2.6% 2.6% 3.2% 3.8% 3.8%

Fee Income / Op. Income 18.1% 19.2% 16.1% 15.0% 15.3%

Efficiency (% ) 45% 57% 54% 53% 49%

NPLs / Loans 1.6% 1.3% 1.2% 1.2% 1.2%

LLPs / Loans 1.7% 2.0% 2.1% 2.1% 2.1%

Provision expenses / Loans 0.6% 0.6% 1.0% 1.1% 1.1%

Coverage ratio 108% 154% 180% 180% 180%

Deposit / Loans 82% 88% 84% 84% 84%

BIS ratio 14.5% 11.1% 13.3% 13.1% 13.1%

ROAE 16.4% 14.4% 13.1% 14.2% 16.3%

ROAA 1.3% 1.1% 0.9% 1.0% 1.1%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Cotnroling Group54%

IFC5%

SD Group3%

Pension Funds

3%

Float35%

Chile62%

Colombia38%

Interest58%

Fees18%

Other23%

Page 108: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Chile Industry:

Rating:

Hold Cruz Blanca Waiting for improvements in returns

Javier Gunther +(562) 2450 1695

[email protected]

Investment Thesis Stock Data

• We are downgrading our recommendation for Cruz Blanca Salud from Buy to Hold. Even though we like the company’s growth story in the long-run, we see high regulatory risk in the industry in the short-term and earnings improvements in the short term remain unclear.

• We estimate that the current scenario of bad results in the insurance business will continue given the difficulty to increase prices, especially when the industry is being politically persecuted (and only 10-15% of its clients are renewed every year). We believe that the increase in the GES plan is not a permanent solution since claim rates should increase in the next three years.

• According to our estimates, the company’s ROE will remain below the company’s cost of capital until 2019, given higher financial expenses and the start up of operation of new Integramedica centers and the Santiago Hospital in 2016, which will negatively impact EBITDA in the first years of operations .

• Cruz Blanca’s main risks include the volatility in claim rates, and the regulatory difficulties to increase prices. Additionally, the company will not generate positive FCF until 2016.

Price Chart (CLP) and Volumes (USD mn)

Valuation • Low earnings visibility in the sort-term and high investments in

Chile and Peru in the coming years result in the company to trade at a premium when compared to its peers (11% in terms of P/E 2014E and a 4% discount in terms of FV/EBITDA).

• When compared to its history, Cruz Blanca is trading with an 20% discount in terms of 2014E P/E and 24% in terms of 2014E FV/EBITDA. However we believe this is justified given the current context of lower forward estimates for the stock.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

2012 2013E 2014E 2015E

FV/EBITDA 12.7 10.0 9.1 7.2

P/E 22.0 19.7 18.3 15.6

P/CF 53.6 -10.9 -8.9 -23.1

P/BV 2.2 1.3 1.2 1.1

Div . Yield 1.4% 1.5% 1.6% 1.9%

Sources: Company Reports and Credicorp Capital

108 Andean Equities Guide, October 25th 2013

Ticker cruzblan ci

Price (CLP) 362

LTM Range (CLP) 274 - 637

Target (CLP) 430

Total Return 20%

Market Cap (USD mn) 463

Shares Outstanding (mn) 638

Free Float 59%

ADTV (USD mn) 1.2

10

15

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25

30

35

40

jun-11 dic-11 jun-12 dic-12 jun-13 dic-136

8

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18

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Cruz Blanca IPSA

Health Services

UNH

Fleury

Dasa

Cruz Blanca Odontoprev

Sonic Healtcare

Banmédica

8

11

14

17

20

23

4 9 14

P/E

201

4E

FV/EBITDA 2014E

Page 109: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Cruz Blanca Company Description

Cruz Blanca is a leading company in the Health Care industry highlighting its leading position as a private service provider and the second largest Chilean Isapre (Insurance Business), with more than 340,000 policy holders. The inpatient business has 3 hospitals in three different Chilean regions, while the Outpatient business has 25 centers.

Ownership Income Statement

Revenues per Division (LTM) Balance Sheet

EBITDA per Division (LTM)

Cash Flow

Management

CEO: Andrés Varas CFO: Marcelo Bermúdez IR Manager: Joaquín Solís de Ovando www.cruzblancasalud.cl/

109 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Revenues 415,583 471,327 530,263 573,634 634,317

EBIT 32,988 28,320 19,309 21,066 28,431

EBITDA 41,889 38,810 32,426 35,420 44,118

Net Income 20,240 17,655 11,697 12,632 14,771

EPS 31.7 27.7 18.3 19.8 23.2

EBIT Margin 7.9% 6.0% 3.6% 3.7% 4.5%

EBITDA Margin 10.1% 8.2% 6.1% 6.2% 7.0%

Net Margin 4.9% 3.7% 2.2% 2.2% 2.3%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 92,536 60,746 42,421 45,891 50,745

Total Current Assets 133,216 111,130 96,808 104,724 115,772

Total Assets 429,999 463,112 520,978 599,724 681,179

Current Liabilities 119,185 129,719 142,061 155,054 170,459

Financial Debt 127,269 132,737 167,760 222,452 274,956

Total Liabilities 250,150 272,898 322,133 389,277 457,184

Minority Interest 14,354 14,181 16,411 18,891 21,457

Shareholders Equity 165,495 176,033 182,434 191,557 202,538

Total Liabilities + Equity 429,999 463,112 520,978 599,724 681,179

EBITDA / Fin. Expenses 5.2 8.5 6.0 5.9 4.1

Financial Debt /EBITDA 3.0 3.4 5.2 6.3 6.2

Financial Debt /Equity 0.8 0.8 0.9 1.2 1.4

ROAE 16.6% 10.3% 6.5% 6.8% 7.5%

ROAA 5.3% 4.0% 2.4% 2.3% 2.3%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Initial Cash 26,467 92,536 60,746 42,421 45,891

Cash from Operations 29,246 5,887 6,370 17,365 14,528

CAPEX -11,305 -34,189 -52,347 -60,585 -52,060

Changes in Financial Debt -15,071 5,468 35,023 54,692 52,504

Div idends (Paid) Received -8,555 -5,296 -3,509 -3,789 -4,431

Taxes -4,813 -3,661 -3,862 -4,213 -5,686

Changes in Equity 76,567 0 0 0 0

Final Cash 92,536 60,746 42,421 45,891 50,745

Change in Cash 66,070 -31,791 -18,324 3,470 4,855

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Said Group40.6%

AFPs 6.4%Mutual

Funds 3.7%

Securities funds 19.8%

Others 29.5%

Outpatient21%

Hospitals10%

Insurance69%

Outpatient55%

Hospitals26%

Insurance19%

Page 110: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Colombia Industry:

Banks Rating:

Buy Davivienda A bet on NIM improvement

Juan Dominguez +(571) 339 4400 Ext 1026

[email protected]

Investment Thesis Stock Data

• Davivienda is our high conviction play in the Colombian banking space, as it is expected to post the highest organic earnings growth over the next five years with the lowest dilution risk. Thus, we maintain our BUY on the share.

• Losses from investments and non-recurring expenses will impact ROAE in 2013, which we estimate in 12.4%. However, as the loan portfolio has a relatively high share of retail loans, we expect NIM improvement from CB policy rate rises to be significant, reaching ~8% in the long term. Also, efficiency should improve starting next year as Daviplata and the Central American operations have demanded non-recurring OPEX in 2013. Finally, we expect stability in asset quality and provision expenses, given the higher growth of corporate loans in 2013 compared to consumer loans.

• As a result, ROAE could reach 16.7% in the long term. Despite this relatively low profitability, the Bank’s expected EPS growth for 2013-2017 of almost 18% supports our rating. Tier 1 ratios will remain healthy due to its low payout ratio of 30%.

• Risks to our positive view include impairment on consumer loans quality and the sustainability of the real estate market. Central America’s profitability is still a challenge, despite improvements since the 2012 acquisition. Also, further M&As could eventually trigger capital increases.

Price Chart (COP) and Volumes (USD mn)

Valuation

• Our TP of COP 30,560/share is based on a DDM at a Ke of 12.6%, a long term ROAE at 16.7% and a perpetuity growth rate of 6%. Our TP implies a 2.0x 2014E P/B and a 14.1x 2014 P/E.

• Davivienda currently trades at 1.7x 2014E P/B with a P/E forward multiple noticeably below its historical average, explained by its ample room for profitability improvements.

Valuation Summary

P/E Forward P/B Forward Relative Valuation

110

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mn

CO

P

PfDavivienda COLCAP

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2012 2013E 2014E 2015E

P/E 15.4x 15.9x 11.6x 9.4x

P/BV 2.0x 1.9x 1.7x 1.5x

Div . Yield 2.0% 2.2% 2.3% 2.6%Sources: Company Reports and Credicorp Capital;

E Credicorp Capital Estimates

Itau Bradesco

Credicorp BCI

Chile

Corpbanca

Santander

Banorte

Bcolo

Davivienda

Aval

Banco do Brasil

0.5

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2014

E

ROAE 2014E

Ticker pfdavvnd cb

Price (COP) 25,100

LTM Range (COP) 22,000 - 26,300

Target (COP) 30,560

Upside 24%

Market Cap (USD mn) 5,932

Shares Outstanding (mn) 444

Free Float 23%

ADTV (USD mn) 2.5

Andean Equities Guide, October 25th 2013

Page 111: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Davivienda Company Description

Davivienda has grown to become the third largest bank in Colombia. It is the result of several M&As: Banco Superior (2006), Granbanco-Bancafe (2007) and HSBC’s banks and insurance companies in Costa Rica, El Salvador and Honduras (2012). It offers a wide portfolio of financial services, and has a strong presence in retail loans.

Ownership Income Statement

Loans Breakdown (as of Jun-13) Balance Sheet

Funding Structure (as of Jun-13)

Ratios

Management

Chairman BoD: Carlos Guillermo Arango CEO: Efraín Enrique Forero CFO: Ricardo León IR Manager: Elizabeth Uribe https://linea.davivienda.com

111

Corporate & Micro-finance

52%

Consumer Loans 29%

Mortgages 19%

Demand deposits

41%

Time deposits

24%

Interbank and

financial obligations

10%

Bonds 13%

Equity + Min. Int.

11%

COP bn 2011 2012 2013E 2014E 2015E

Net Interest Income 2,289 2,784 2,975 3,729 4,404

Net Fee Income 673 765 953 1,055 1,170

Operational Income 3,050 3,683 4,062 4,925 5,737

Provision Expenses 605 843 931 1,088 1,243

Operational Expenses 1,630 1,881 2,260 2,573 2,933

Net Income 630 696 700 965 1,192

EPS (COP / share) 1,506 1,567 1,576 2,172 2,682

EPS growth 0.5% 4.1% 0.6% 37.8% 23.5%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

COP bn 2011 2012 2013E 2014E 2015E

Cash & Interbank Deposits 3,335 4,245 4,885 5,611 6,361

Investment Portfolio 4,783 6,176 7,421 8,748 10,287

Gross Loans 26,839 34,440 39,254 45,052 51,078

Total Assets 36,658 47,122 53,948 61,785 70,059

Total Deposits 23,024 30,040 34,613 39,755 45,071

Financial Obligations 7,332 9,624 11,191 12,854 14,573

Total Liabilities 31,829 41,694 47,962 55,088 62,455

Minority Interest 33 97 61 66 72

Shareholders' Equity 4,795 5,331 5,924 6,630 7,532

Total Liabilities + Equity 36,658 47,122 53,948 61,785 70,059

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

(%) 2011 2012 2013E 2014E 2015E

NIM 8.3% 8.1% 7.1% 7.8% 8.0%

Fee income/Op. Income 22.1% 20.8% 23.5% 21.4% 20.4%

Efficiency 53.4% 51.1% 55.7% 52.2% 51.1%

NPLs / Loans 1.6% 1.8% 1.9% 1.8% 1.8%

LLPs / Loans 4.8% 4.7% 4.6% 4.5% 4.5%

Provision expenses / Loans 2.5% 2.8% 2.5% 2.6% 2.6%

Coverage ratio 308% 258% 242% 245% 245%

Deposits / Loans 90% 92% 92% 92% 92%

BIS ratio 14.4% 15.2% 10.7% 10.7% 11.0%

ROAE 15.1% 13.7% 12.4% 15.4% 16.8%

ROAA 1.9% 1.7% 1.4% 1.7% 1.8%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Bolívar 54%

Cuzesar 17%

IFC & other

common 6%

Pref. shares 23%

Andean Equities Guide, October 25th 2013

Page 112: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

2012 2013E 2014E 2015E

FV/EBITDA 11.9 8.9 8.5 7.3

P/E 44.0 33.0 23.0 15.8

P/CF 259.4 31.4 10.1 8.1

P/BV 1.5 1.0 1.0 0.9

Div . Yield 1.1% 1.5% 2.2% 3.2%

Sources: Company Reports and Credicorp Capital

Chile Industry:

Utilities Rating:

Hold E-CL Strategic position, unattractive valuations

Andrés Ossa +(562) 2651 9332

[email protected]

Investment Thesis Stock Data

• We are updating our coverage of E-CL maintaining, our HOLD recommendation and releasing a 2014YE T.P. of CLP 860. While we believe E-CL has an advantage position in the electric sector in the north of Chile, with approved projects in mining locations, current valuations seem fair and do not offer an attractive entry point.

• The company has disappointed the market by not achieving PPAs for IEM (Mejillones’ coal-fired power plant, 750 MW). While China’s slowdown has been softer than previously expected, expansion plans in the mining industry are likely to continue to be on the hold status seen this year. Until the mining industry shows sings of speeding up, we do not see a relevant game changer.

• For 2014 we anticipate an improvement in margins due to higher LNG availability and a reduction in contractual levels. For 2015, though LNG generation should fall back to 2013’s levels, we foresee lower purchases in the spot market supporting better margins.

• Risks to our thesis: Upside risks include the announcement of

IEM, which would add CLP 40 to our 2014YE T.P. (considering only one unit). Downside risks are related to a harder than expected slowdown in China’s economy, and hence in the mining industry.

Price Chart (CLP) and Volumes (USD mn)

Valuation • In terms of forward multiples, the company is trading at 23.0x P/E

and 8.5x FV/EBITDA 2014E, roughly in line with its historical average since 2008.

• When compared to local and regional peers, E-CL is trading at a premium in terms of P/E 2014E and roughly in line in terms of FV/EBITDA 2014E. While a certain premium could be justified by lower volatility due to no hydro exposure, in our view, valuations seem high when comparing to peers and do not offer an interesting opportunity.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

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112 Andean Equities Guide, October 25th 2013

Ticker ecl ci

Price (CLP) 787

LTM Range (CLP) 659 - 1,200

Target (CLP) 860

Total Return 11%

Market Cap (USD mn) 1,660

Shares Outstanding (mn) 1,053

Free Float 47%

ADTV (USD mn) 3.0

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ECL IPSA

COLBUNECL

CELSIA

ISAGEN

EDELNOR

ENERSISENDESA

AES GENER

EDEGEL

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19

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29

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Page 113: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

E-CL Company Description

E-CL is engaged in the generation and transmission of electric power in the North of Chile. The company operates exclusively in the SING grid, where it supplies energy to large mining projects. With an installed capacity of 2,135 MW, E-CL is the fourth largest electricity generator in Chile.

Ownership Income Statement

Installed Capacity (2,135 MW) Balance Sheet

Revenues Breakdown LTM

Cash Flow

Management

CEO: Lodewijk Verdeyen Finance & Mgmt VP: Carlos Freitas CFO: Bernardita Infante IR Manager: Marcela Muñoz www.e-cl.cl/prontus_ecl/

113 Andean Equities Guide, October 25th 2013

USD mn 2011 2012 2013E 2014E 2015E

Revenues 1,257 1,152 1,178 1,148 1,185

EBIT 255 122 117 129 168

EBITDA 366 260 260 271 317

Net Income 175 56 50 72 105

EPS 83.1 26.6 23.8 34.1 49.8

EBIT Margin 20.3% 10.6% 9.9% 11.2% 14.2%

EBITDA Margin 29.2% 22.6% 22.0% 23.6% 26.7%

Net Margin 14.0% 4.9% 4.3% 6.3% 8.9%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 193 184 212 230 260

Total Current Assets 633 622 655 672 710

Total Assets 2,811 2,891 2,986 2,937 2,924

Current Liabilities 260 230 234 235 237

Financial Debt 702 795 734 651 582

Total Liabilities 1,133 1,206 1,155 1,066 999

Minority Interest 0 0 120 125 126

Shareholders Equity 1,678 1,685 1,710 1,746 1,799

Total Liabilities + Equity 2,811 2,891 2,986 2,937 2,924

EBITDA / Fin. Expenses 13.3 6.2 5.9 7.8 10.4

Financial Debt /EBITDA 1.9 3.1 2.8 2.4 1.8

Financial Debt /Equity 0.4 0.5 0.4 0.4 0.3

ROAE 10.5% 3.3% 3.0% 4.2% 5.9%

ROAA 6.2% 2.0% 1.7% 2.4% 3.6%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Initial Cash 50 193 184 212 230

Cash from Operations 422 138 321 242 263

CAPEX -121 -176 -193 -87 -83

Changes in Financial Debt -16 93 -61 -83 -69

Div idends (Paid) Receiv ed -88 -28 -25 -36 -53

Tax es -47 -36 -13 -18 -27

Changes in Equity -7 0 0 0 0

Final Cash 193 184 212 230 260

Change in Cash 143 -8 28 18 31

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

GDF Suez53%

Pension Funds24%

Chilean Institutionals

13%

Foreign Institutionals

9%

Others1%

Coal52%

Gas32%

Diesel15%

Hydro1%

Regulated Clients

14%

Free Clients

75%

Spot1%

Others10%

Page 114: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Colombia Industry:

Oil & Gas Rating:

Hold Ecopetrol Too big to move

Cesar Cuervo +(571) 339 44 00 ext 1210

[email protected]

Investment Thesis Stock Data

• Moderate growth expectations have tightened upside. A slowdown in reserves addition and production over 2012 and YTD 2013 has lead us to moderate our mid-term growth expectations for Ecopetrol. Moreover, in terms of relative valuation, the higher level of Ecopetrol’s multiples compared to its peers is running out of fundament. Thus, trailing and forward-looking multiples show little room for outperformance next year. In the absence of significant reserves additions, potential fundamental value is relatively limited. Thus, we maintain our HOLD recommendation.

• Leading position in the sector and in the stock market. Being the leading Oil&Gas company in Colombia (4th in Latin America), its control over the local industry’s downstream favors cash generation and diversifies sources of income. Besides, it is the first company in the Colombian stock market by capitalization and liquidity.

• Main risks: The ability to add reserves, achieve production targets, and oil prices; the first two closely related to sector weaknesses (delays in environmental permits, infrastructure deficiencies, security issues, and community protests). Other risks include: exchange rate risk; Government incidence in corporate decisions; and cash flow pressures due to the high a dividend payout (70%).

Price Chart (COP) and Volumes (USD mn)

Valuation

• Our 2014YE T.P. of COP 4,810/share is based on a DCF model with a discount rate of 12% (COP WACC). Perpetuity growth set at 2.0% (the expected long-term growth in oil prices), implies that production remains unchanged in the long run after reaching the 2024 mark.

• Our T.P. has an implicit 2014 EV/EBITDA of 6.98x, P/E of 14.85x and P/B of 2.82x, all within Ecopetrol’s historical range, and significantly cheaper than a year ago.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

114

8

10

12

14

16

18

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 4

5

6

7

8

9

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

Ticker ecopetl cb / ec us

Price (COP) 4,535

LTM Range (COP) 3,850 - 5,790

Target 4,810 (loc) / 52.0 (ADR)

Total Return 11%

Market Cap (USD mn) 99,202

Shares Outstanding (mn) 41,117

Free Float 12%

ADTV (USD mn) 17.5 (loc) / 23.6 (ADR)

0

10

20

30

40

50

60

70

65

75

85

95

105

115

Oct-12 Feb-13 Jun-13 Oct-13

USD

mn

CO

P

Ecopetrol Colcap

2012 2013E 2014E 2015E

FV/EBITDA 7.7 6.7 6.4 5.7

P/E 15.1 13.8 14.0 12.2

P/CF 21.5 34.3 29.4 19.2

P/BV 3.5 2.8 2.7 2.5

Div . Yield 5.3% 5.1% 5.0% 5.7%Sources: Company Reports and Credicorp Capital;

E Credicorp Capital Estimates

Chevron

Ecopetrol

Pacific Rubiales

Cnooc Petrobras

BP PLC

SINOPEC

Exxon

Petrochina

Shell

Statoil Total

Conoco

5

7

9

11

13

15

1 3 5 7

P/E

2014E

FV/EBITDA 2014E

Andean Equities Guide, October 25th 2013

Page 115: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Ecopetrol Company Description

Ecopetrol is the leading Oil & Gas company in Colombia, with 65% of the country’s production, and the fourth largest Oil & Gas company in Latin America. Moreover, Ecopetrol is the leading company in Colombia by revenues, and the third largest company in Latin America by Market Cap. Nearly 16% of the 2012 Government’s income came from Ecopetrol.

Ownership (as of June-2013) Income Statement

Revenues Breakdown (1H 2013) Balance Sheet

EBITDA Breakdown (1Q 2013)

Cash Flow

Management

CEO: Javier Gutiérrez CFO: Julián Rojas IR Manager: Alejandro Giraldo www.ecopetrol.com.co/english

115

Govmnt, 88%

Pension Funds,

4%

Retail & Corporate

, 5%

Others, 2%

Local, 32%

Exports, 63%

Services, 4%

E&P, 88%

Refining &

Petroch., 5%

Transport &

Logistics, 8%

COP bn 2011 2012 2013E 2014E 2015E

Revenues 65,968 68,852 67,653 70,648 79,285

EBIT 25,873 24,206 23,344 23,387 26,188

EBITDA 30,939 30,090 29,545 30,938 34,985

Net Income 15,452 14,779 13,468 13,326 15,237

EPS 381.8 359.4 327.6 324.1 370.6

EBIT Margin 39.2% 35.2% 34.5% 33.1% 33.0%

EBITDA Margin 46.9% 43.7% 43.7% 43.8% 44.1%

Net Margin 23.4% 21.5% 19.9% 18.9% 19.2%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

COP bn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 6,780 7,941 4,234 4,412 4,922

Total Current Assets 19,038 22,884 17,485 18,122 20,123

Total Assets 92,277 113,880 118,871 128,236 138,042

Current Liabilities 16,788 23,689 21,784 21,760 23,756

Financial Debt 8,802 13,706 19,266 24,904 26,304

Total Liabilities 35,336 46,537 49,643 54,731 58,196

Minority Interest 2,253 2,602 2,984 3,362 3,795

Shareholders Equity 54,689 64,741 66,244 70,143 76,052

Total Liabilities + Equity 92,277 113,880 118,871 128,236 138,042

EBITDA / Fin. Expenses 22.0 49.7 26.5 20.3 17.9

Financial Debt /EBITDA 0.3 0.5 0.7 0.8 0.8

Financial Debt /Equity 0.2 0.2 0.3 0.4 0.3

ROAE 32.2% 24.7% 20.6% 19.5% 20.8%

ROAA 19.2% 14.3% 11.6% 10.8% 11.4%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

COP bn 2011 2012 2013E 2014E 2015E

Initial Cash 3,727 6,780 7,941 4,234 4,412

Cash from Operations 28,186 26,917 27,087 27,851 33,076

CAPEX -13,332 -11,358 -17,254 -16,823 -16,566

Changes in Financial Debt -111 4,904 5,560 5,637 1,400

Div idends (Paid) Received -5,962 -12,335 -11,965 -9,428 -9,328

Taxes -7,956 -7,133 -7,135 -7,060 -8,072

Changes in Equity 2,229 166 0 0 0

Final Cash 6,780 7,941 4,234 4,412 4,922

Change in Cash 3,053 1,161 -3,706 178 510

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

Page 116: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Peru Industry:

Utilities Rating:

Buy Edegel Spread the wings in 2014

Fernando Pereda +(511) 416 3333 - Ext: 37856

[email protected]

Investment Thesis Stock Data

• We are reiterating our Buy rating on Edegel and setting a new 2014YE target price of PEN 3.0. In our view, the company is a value play in the Peruvian utilities industry, with solid fundamentals and limited downside.

• New contracts to back up power sales and steady cash flow. A boost in revenues is expected starting in January 2014, as 696 MW of new PPAs will begin. 95.7% of this demand corresponds to regulated clients such as Edelnor (40.7%) and Luz del Sur (33.1%).

• Upturn in thermal generation levels. The risk of insufficient supply for Edegel’s thermal generation is mitigated by long term contracts with the gas pipeline operator; nevertheless, we expect higher natural gas costs, which Edegel will pass through to its clients, increasing revenues and reducing margins.

• Economic growth in the concession zones of Edelnor and Luz del Sur (Lima, 53% of Peruvian GDP and 31% of population) positively impact Edegel’s revenues, as both represent 47% of physical sales.

• Risks to our thesis: Unfavorable hydrological conditions. Non-regulated clients cooling down.

Price Chart (PEN) and Volumes (USD mn)

Valuation • Our recommendation is based on a DCF model broken down by

generation unit. EBITDA margins tend to decrease to 45.8% in 2015 as thermal production increases and marginal generation cost rises.

• Margins decline every 3Q as hydro-generation decreases to 64% of capacity (from 82% in 1Q) and higher levels of production in thermo-units increase fuels consumption to supply the residual demand.

• Edegel trades at 8.3x FV/EBITDA and 13.3x P/E, which are slightly below comparables, but in line with past performance. We believe there is room for multiple expansions as sales are expected to grow.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

116

COLBUNECL

ENERSUR

CELSIA

ISAGEN

ENERSIS

ENDESAEDEGEL

4

9

14

19

24

29

4 6 8 10 12 14 16

P/E

201

4E

FV/EBITDA 2014E

0

1

1

2

2

3

3

0

20

40

60

80

100

120

140

Oct-12 Feb-13 Jun-13 Oct-13

US

D m

PE

N

EDEGEL IGBVL

Ticker edegelc1 pe

Price (PEN) 2.45

LTM Range 2.06 - 2.77

Target 3.0

Total Return 28%

Market Cap (USD mn) 2,031

Shares Outstanding (mn) 2,294

Free Float 34%

ADTV (USDmn) 0.2

2012 2013E 2014E 2015E

FV/EBITDA 8.8 10.2 8.3 8.1

P/E 16.8 16.8 13.3 12.9

P/CF 13.7 16.8 20.3 -150.8

P/BV 2.2 2.2 2.1 2.1

Div . Yield 4.6% 3.6% 5.2% 6.0%

Sources: Company Reports and Credicorp Capital

(PEN) (PEN)

Andean Equities Guide, October 25th 2013

0

5

10

15

20

25

30

Mar-06 Mar-09 Mar-120

5

10

15

Mar-06 Mar-09 Mar-12

Page 117: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Edegel Company Description

Edegel is the second largest power-generation company in Peru. The company has an installed capacity of 1,470 MW (37% hydroelectric and 63% thermoelectric capacities). Edegel is controlled by the Spanish Endesa and has an 80%-owned subsidiary Chinango (194MW) and a 4.2% JV with Endesa Chile in Endesa Brazil.

Ownership Income Statement*

Capacity** Breakdown (2014) Balance Sheet*

COGS* Breakdown (2014)

Cash Flow*

Management

CEO: Daniel Abramovich CFO: Eric Añorga IR Manager: - www.edegel.com (*) Non-consolidated financial information. (**) Subsidiaries valuated separately

117

PEN mn 2011 2012 2013E 2014E 2015E

Revenues 1,225 1,347 1,258 1,539 1,643

EBIT 440 452 411 551 574

EBITDA 645 650 598 731 752

Net Income 343 307 334 420 435

EPS 0.15 0.13 0.15 0.18 0.19

EBIT Margin 35.9% 33.6% 32.6% 35.8% 34.9%

EBITDA Margin 52.6% 48.2% 47.5% 47.5% 45.8%

Net Margin 28.0% 22.8% 26.6% 27.3% 26.5%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 126 164 226 280 80

Total Current Assets 364 390 505 606 423

Total Assets 4,046 4,040 4,039 4,204 4,429

Current Liabilities 312 383 306 322 322

Financial Debt 852 720 641 660 786

Total Liabilities 1,741 1,660 1,548 1,583 1,709

Minority Interest 0 0 0 0 0

Shareholders Equity 2,305 2,379 2,491 2,621 2,720

Total Liabilities + Equity 4,046 4,040 4,039 4,204 4,429

EBITDA / Fin. Expenses 12.0 14.7 15.6 18.0 16.3

Financial Debt /EBITDA 1.3 1.1 1.1 0.9 1.0

Financial Debt /Equity 0.4 0.3 0.3 0.3 0.3

ROE 14.9% 13.1% 13.7% 16.4% 16.3%

ROA 8.5% 7.6% 8.3% 10.2% 10.1%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Pension Funds 12.4%

Endesa Chile 29.4%

Generandes Perú 54.2%

Others 4.0%

Non-cash charges 18.5%

Fuels 34.9%Energy

purchases 13.3%

Transmission costs 13.8%

Others 19.4%

Hydro 548 MW

32.9%

Thermo (Simple

cycle) 427 MW

25.7%

Thermo (Combined cycle) 495 MW 29.8%

Chinango (80% own sub) 194

MW 11.6%

Andean Equities Guide, October 25th 2013

PEN mn 2011 2012 2013E 2014E 2015E

Initial Cash 62 126 164 226 280

Cash from Operations 458 375 445 570 596

CAPEX -49 -68 -65 -244 -586

Changes in Financial Debt -116 -60 -76 19 126

Div idends (Paid) Received -231 -186 -186 -291 -336

Others 2 -23 -56 0 0

Changes in Equity 0 0 0 0 0

Final Cash 126 164 226 280 80

Change in Cash 63 38 62 54 -200

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Page 118: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Peru Industry:

Utilities Rating:

Hold Edelnor Steady and ready

Fernando Pereda +(511) 416 3333 - Ext: 37856

[email protected]

Investment Thesis Stock Data

• We reiterate our Hold rating on Edelnor and set a 2014YE TP of PEN 5.2. Even though economic dynamism in Edelnor’s concession area will support energy demand, we see this as largely priced in the shares which have posted a 5-year CAGR of 22.2%.

• Structure of physical energy sales favor margins. Regulated customers will explain about 85% of energy sales and 91% of earnings in 2014. Moreover, their consumption may rise 5.1% and 4.6% in 2014 and 2015, respectively. This will enhance margins as residential clients are subject to higher prices.

• Distribution Value Added (DAV) to be revised in November. The company should face a 4% cut in tariffs, as part of the regulatory tariff –revision process.

• No room for additional efficiency gains. Energy losses, which

have come down from 18.8% at the time of the privatization in 1994, will remain around current levels of 8.2%.

• Risks to our thesis: deceleration of commercial activity in the area

of concession, larger than expected reduction in DAV.

Price Chart (PEN) and Volumes (USD mn)

Valuation

• Our recommendation is based on a DCF model which considers important capital expenditures through 2015 to enhance service.

• Edelnor trades at 7.0x FV/EBITDA and 12.9x P/E, slightly below its

peers. Believe this is justified because Capex per kw/h will be higher than for its comparables through 2015 and the company’s dividend payout should decline to 60%.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

118

CPFL

Coelce

EdelnorLuz del Sur

0

5

10

15

20

25

0 5 10 15

P/E

201

4E

FV/EBITDA 2014E

0

5

10

15

20

0

20

40

60

80

100

120

140

Oct-12 Feb-13 Jun-13 Oct-13

US

D m

PE

N

EDELNOR IGBVL

Ticker edelnoc1 pe

Price (PEN) 4.80

LTM Range 4.28 - 5.25

Target 5.2

Total Return 13%

Market Cap (USD mn) 1,108

Shares Outstanding (mn) 639

Free Float 50%

ADTV (USDmn) 0.2

2012 2013E 2014E 2015E

FV/EBITDA 7.3 7.5 7.0 6.5

P/E 13.0 13.1 12.9 12.1

P/CF 38.7 48.5 29.9 27.4

P/BV 2.6 2.7 2.5 2.3

Div . Yield 5.8% 6.6% 4.3% 4.6%

Sources: Company Reports and Credicorp Capital

(PEN) (PEN)

Andean Equities Guide, October 25th 2013

0

5

10

15

Dec-03 Dec-06 Dec-09 Dec-120

5

10

Dec-03 Dec-06 Dec-09 Dec-12

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Edelnor Company Description

Edelnor distributes electricity to the northern area of the Lima Metropolitan Area and Callao (port of Lima) with more than 1,100 th. customers and a coverage territory of 2,440 km2. The company serves exclusively 52 districts of Lima and its concession area consists mainly of the industrial part of Lima and some of the most populous districts of Lima.

Ownership Income Statement

Sales Breakdown (% of MW.h in 2014) Balance Sheet

COGS Breakdown (2014)

Cash Flow

Management

CEO: Ignacio Blanco CFO: Raffaele Grandi IR Manager: - www.edelnor.com.pe

119

PEN mn 2011 2012 2013E 2014E 2015E

Revenues 1,880 2,096 2,199 2,355 2,518

EBIT 369 379 394 411 441

EBITDA 487 506 528 562 603

Net Income 207 217 233 236 251

EPS 0.32 0.34 0.37 0.37 0.39

EBIT Margin 19.6% 18.1% 17.9% 17.4% 17.5%

EBITDA Margin 25.9% 24.2% 24.0% 23.9% 24.0%

Net Margin 11.0% 10.3% 10.6% 10.0% 10.0%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 48 73 56 98 141

Total Current Assets 378 368 403 467 534

Total Assets 2,632 2,802 2,999 3,259 3,533

Current Liabilities 537 646 699 709 718

Financial Debt 942 952 1,064 1,207 1,361

Total Liabilities 1,631 1,724 1,872 2,026 2,189

Minority Interest 0 0 0 0 0

Shareholders Equity 1,001 1,078 1,127 1,233 1,344

Total Liabilities + Equity 2,632 2,802 2,999 3,259 3,533

EBITDA / Fin. Expenses 5.9 6.0 7.9 7.7 7.4

Financial Debt /EBITDA 1.9 1.9 2.0 2.1 2.3

Financial Debt /Equity 0.9 0.9 0.9 1.0 1.0

ROE 20.6% 20.8% 21.2% 20.0% 19.5%

ROA 7.9% 8.0% 8.0% 7.5% 7.4%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Pension Funds, 9.7%

Credicorp, 6.8%

Enersis, 24.0%

Invers. Distrilima,

51.7%

Others, 7.8%

Non-regulated clients 12.5%

Regulated clients 87.5%

Non-cash charges 6.9%

Energy purchases

82.4%

Labour 1.8%

Services 4.3%

Others 4.6%

Andean Equities Guide, October 25th 2013

PEN mn 2011 2012 2013E 2014E 2015E

Initial Cash 159 48 73 69 113

Cash from Operations 309 464 284 378 399

CAPEX -194 -294 -314 -346 -370

Changes in Financial Debt -79 14 221 142 154

Div idends (Paid) Received -134 -142 -186 -130 -149

Others -12 -17 -9 0 0

Changes in Equity 0 0 0 0 0

Final Cash 48 73 69 113 147

Change in Cash -111 25 -4 44 34

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Page 120: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Colombia Industry:

Utilities Rating:

Hold EEB Uncertainty regarding Ecopetrol's sale

Jaime A. Pedroza +(571) 339 44 00 ext. 1025

[email protected]

Investment Thesis Stock Data

• We are cutting our rating on EEB from Buy to Hold after the shares’ strong YTD outperformance (289 bp above the Colcap). At current levels we no longer see much room for the shares to continue outperforming.

• Ecopetrol’s stake in EEB on sale. Ecopetrol announce a probable sale of its 7% stake in EEB. Even though no date has been set for this possible sale, nor the administrative and governmental authorizations have been granted, this could generate downside pressures in the short term. In the longer term however, a higher free float could increase the stock’s liquidity.

• New projects to add value to EEB: generation project in Emgesa (El Quimbo), power networking in Guatemala (Trecsa), and natural gas distribution network in Peru (Calidda and Contugas); acquiring control of Isagen would also be material.

• Political risk. The city of Bogota is the major shareholder of the company (76% stake). As seen in the past, political decisions could influence the company’s investment policies as the management is exposed to changing Mayors in Bogota, elected every 4 years.

Price Chart (COP) and Volumes (USD mn)

Valuation

• Our 2014YE target price of COP 1,800/share is based on a SOTP model. The value of Emgesa, Codensa, Promigas, ISA, Isagen, and EEB consolidated, was based on a DCF model. These investments represent 93% of EEB’s total estimated value.

• Our valuation implies 2014 target multiples of 11.8x FV/Adjusted EBITDA (includes dividends received from non-controlling investments which are considered as operating revenues, given their long-term and strategic nature), and 14.4x P/E.

Valuation Summary

P/E Forward FV/EBITDA Forward Value Breakdown

120

Ticker eeb cb equity

Price (COP) 1,590

LTM Range (COP) 1,225 - 1,605

Target (COP) 1,800

Total Return 18%

Market Cap (USD mn) 7,766

Shares Outstanding (mn) 9,181

Free Float 60%

ADTV (USD mn) 1.8

EEB Cons., 38.1%

Emgesa, 30.0%

Codensa, 18.9%

Gas Natural,

4.0%

Promigas, 4.1%

Other, 4.9%

0

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20

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Sep-09 Sep-10 Sep-11 Sep-12 Sep-13

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130

Oct-12 Feb-13 Jun-13 Oct-13

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mn

CO

P

EEB Colcap

2012 2013E 2014E 2015E

FV/EBITDA 12.0 10.7 9.9 9.2

P/E 16.8 13.3 12.7 12.1

P/CF 29.0 15.2 15.8 14.4

P/BV 1.3 1.5 1.5 1.4

Div . Yield 3.5% 4.4% 4.6% 4.8%Sources: Company Reports and Credicorp Capital;

E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

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EEB Company Description

EEB, directly and through its investments, operates in the power (transmission, distribution, and generation) and natural gas (transmission and distribution) businesses. Emgesa and Codensa (~50% of the value) are controlled by Enersis (Chile). Its operations are concentrated in Colombia, Peru and Guatemala. The City of Bogotá is the controlling shareholder.

Ownership (as of June-2013) Income Statement

Revenues Breakdown (1H 2013) Balance Sheet

EBIT Breakdown (1H 2013)

Cash Flow

Management

CEO: Sandra Stella Fonseca CFO: Jorge Armando Pinzón IR Manager: Antonio José Angarita www.grupoenergiadebogota.com/inversionistas

121

COP mn 2011 2012 2013E 2014E 2015E

Revenues 1,421,664 1,585,105 1,910,819 2,090,498 2,305,826

EBIT 550,659 558,518 683,290 769,802 860,743

EBITDA 1,082,048 1,279,394 1,728,791 1,867,330 2,011,402

Net Income 305,294 690,701 1,099,013 1,148,744 1,202,173

EPS 35.6 75.2 119.7 125.1 130.9

EBIT Margin 38.7% 35.2% 35.8% 36.8% 37.3%

EBITDA Margin 76.1% 80.7% 90.5% 89.3% 87.2%

Net Margin 21.5% 43.6% 57.5% 55.0% 52.1%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

COP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 953,259 663,918 1,362,361 1,356,159 1,354,113

Total Current Assets 1,573,506 1,458,644 1,568,914 1,647,131 1,731,015

Total Assets 13,956,870 14,689,730 15,800,240 16,587,948 17,432,726

Current Liabilities 622,029 673,719 761,841 802,753 848,428

Financial Debt 3,374,919 3,203,989 3,882,646 4,090,329 4,308,005

Total Liabilities 4,574,731 4,492,725 5,080,373 5,353,193 5,657,783

Minority Interest 1,068,188 1,202,345 1,250,000 1,258,342 1,267,615

Shareholder's Equity 8,313,951 8,994,660 9,469,867 9,976,413 10,507,329

Total Liabilities + Equity 13,956,870 14,689,730 15,800,240 16,587,948 17,432,726

EBITDA / Fin. Expenses -483.1 -6.1 -2.8 -3.1 -3.4

Financial Debt /EBITDA 3.1 2.5 2.2 2.2 2.1

Financial Debt /Equity 0.4 0.4 0.4 0.4 0.4

ROE 3.7% 8.0% 11.9% 11.8% 11.7%

ROA 2.2% 4.8% 7.2% 7.1% 7.1%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

COP mn 2011 2012 2013E 2014E 2015E

Initial Cash 588,845 953,259 663,918 1,362,361 1,356,159

Cash from Operations 2,031,076 993,107 1,309,071 1,336,566 1,415,524

CAPEX -1,846,014 -717,122 -810,488 -824,838 -871,258

Changes in Financial Debt 422,259 -170,930 678,657 207,684 217,675

Div idends (Paid) Received -753,073 -319,964 -403,605 -642,198 -671,257

Taxes -57,339 -74,432 -75,191 -83,417 -92,730

Changes in Equity 567,505 0 0 0 0

Final Cash 953,259 663,918 1,362,361 1,356,159 1,354,113

Change in Cash 364,414 -289,341 698,443 -6,203 -2,045

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Bogota D.C., 76%

Ecopetrol, 7%

Corficol, 4%

Pension funds, 7%

Other, 6%

Power transmission,

6%

Power distribution,

15%

Gas transportation,

45%

Gas distribution,

35%

Power transmission,

6.8%

Power distribution,

4.8%

Gas transportation,

79.4%

Gas distribution,

9.0%

Andean Equities Guide, October 25th 2013

Page 122: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Peru Industry:

Mining Rating:

Uperf El Brocal The elusive quest for rich zinc

Héctor Collantes +(511) 4163333 – Ext 33052

[email protected]

Investment Thesis Stock Data

• We downgrade El Brocal to Underperform. Unlike other miners, El Brocal has shown cost contention. However, recent disappointing results (losses at the operating level) were driven by lower head grades, higher short term provisions for settlements of concentrate sales and increased depreciation from a tailings dam that resulted too small. These effects have been partially addressed.

• We expect operations to stabilize at current levels as exploration and development upside is still uncertain. The San Gregorio project of 84mn MT with 5.5% Zn almost doubles current Zinc head grades and adds 20y to the 25y of Tajo North, if exploration finishes and it overcomes local opposition.

• The concentrator expansion will finish by 1Q14. El Brocal is set to finish its expansion towards 18,000 tpd (from 11,000 tpd). It sorted out its Capex overrun of USD80mn through debt arrangements and equity issuance. Consequently, we do not foresee additional delays for the start of the new concentrator.

• Risks to our thesis: current head grades might result unstable;

negotiations with the communities blocking San Gregorio may stall.

Price Chart (PEN) and Volumes (USD mn)

Valuation

• No exploration upside. Our DCF considers 25 periods as stated in the life of mine in reserves and resources without considering cash flow nor in situ value of greenfields (San Gregorio and Marcapunta West).

• Better multiples ahead. El Brocal has stopped trading at more and more expensive forward multiples as the expansion delay became evident. Notwithstanding, current multiples are still at or above historical averages and do not encourage an entry point.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

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Price (PEN) 10.7

LTM Range 10.71 - 37.5

Target 11.3

Total Return 6%

Market Cap (USDmn) 421

Shares Outstanding (mn) 113

Free Float 36%

ADTV (USDm) 0.1

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FV/EBITDA 23.9 11.2 3.3 3.2

P/E 60.1 -678.2 6.7 6.4

P/CF 19.7 -5.1 3.9 3.0

P/BV 3.8 0.9 0.9 0.8

Div . Yield 5.2% 1.0% 0.0% 8.8%

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Andean Equities Guide, October 25th 2013

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Page 123: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

El Brocal Company Description

El Brocal is consolidated into Buenaventura (53% of equity). It operates the polymetallic (zinc, lead, silver) Tajo North and the copper Marcapunta North mine. Its expanded concentrator of 18,000 tpd (1Q14) will allow El Brocal to benefit from exploration projects such as San Gregorio’s high grade Zinc, provided the company manages to overcome local opposition.

Ownership Income Statement

Revenues Breakdown per Metal Balance Sheet

Revenues Breakdown per Mine

Cash Flow

Management

CEO: Ysaac Cruz CFO (IR):Javier Méndez www.elbrocal.pe

123

Buena ventura 53,8%

Elías Fernandni

8.3%

Peruvian Pension Funds 2.0%

Others 35.9%

Zinc 45,7%

Lead 13.4%

Copper 41.1%

Silver 14.1%

Gold 2.7%

Tajo North 58,2%

Marcapunta North 41.8%

USDmn 2011 2012 2013E 2014E 2015E

Revenues 264 268 190 349 353

EBIT 109 38 -3 94 98

EBITDA 121 61 37 125 129

Net Income 78 24 -1 63 65

EPS 0.69 0.22 -0.01 0.56 0.58

EBIT Margin 41.2% 14.3% -1.4% 27.0% 27.6%

EBITDA Margin 45.9% 22.6% 19.7% 35.9% 36.5%

Net Margin 29.5% 9.1% -0.3% 18.1% 18.5%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USDmn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 81 23 153 176 223

Total Current Assets 210 207 400 522 571

Total Assets 468 566 791 860 856

Current Liabilities 52 85 66 109 110

Financial Debt 0 1 181 149 115

Total Liabilities 76 183 338 381 350

Minority Interest 0 0 0 0 0

Shareholders Equity 392 383 453 479 506

Total Liabilities + Equity 468 566 791 860 856

EBITDA / Fin. Expenses 1,145.8 42.8 20.0 64.7 66.5

Financial Debt /EBITDA 0.0 0.0 4.8 1.2 0.9

Financial Debt /Equity 0.0 0.0 0.4 0.3 0.2

ROAE 19.9% 6.3% -0.1% 13.5% 13.3%

ROAA 16.6% 4.7% -0.1% 7.6% 7.6%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USDmn 2011 2012 2013E 2014E 2015E

Initial Cash 120 81 23 153 176

Cash from Operations 61 27 68 71 96

CAPEX -20 -10 -68 -16 -16

Changes in Financial Debt 0 60 180 -32 -34

Div idends (Paid) Received -36 -32 0 -37 -38

Financial&Investing, others -43 -103 -120 37 38

Changes in Equity 0 0 70 0 0

Final Cash 81 23 153 176 223

Change in Cash -39 -58 129 24 47

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

Page 124: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Chile Industry:

Rating:

Buy Embonor-B Fastest growing KO bottler

Javier Gunther +(562) 2450 1695

[email protected]

Investment Thesis Stock Data

• We maintain our positive view on the shares and continue to believe that the company has the best growth potential in the region. We expect Embonor to improve margins in Chile due to greater economies of scale and investments in new bottling lines.

• We are expecting a consolidated CAGR in EBITDA of 9.2% between 2013 and 2018, led by a CAGR of 5.6% in volumes, an average of 2% of price increases and higher efficiencies.

• In Chile, we are expecting per capita consumption to grow in line with private consumption (5.3% 2014E) and higher disposable income. We are expecting volumes to grow at a 5% CAGR between 2013 and 2018.

• In Bolivia, we expect an increase in penetration since the country has one of the lowest penetrations in the region, similar to that of Chile 20 years ago and Argentina 10 years ago. Volume growth rates should continue above 6% at least until 2016.

• We believe that one of the main risks to the shares are possible political instability in Bolivia, higher than expected mandatory increases in labor costs, and significant increases in sugar cost.

Price Chart (CLP) and Volumes (USD mn)

Valuation • Embonor is trading at a premium over its history in terms of P/E, but

in line in terms of FV/EBITDA. When only considering the period after the KO block sale of 45% of Embonor in September 2011 (when the company increased its liquidity ~8x), the discount in terms of EV/EBITDA increases to 3%.

• When compared to its Latam peers, the company trades at a discount, being one of the cheapest KO bottlers in the world. In terms of P/E 2014E, the company trades at a 18% discount, whereas for FV/EBITDA the discount reaches 22%.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

124 Andean Equities Guide, October 25th 2013

Ticker embonob ci

Price (CLP) 1,290

LTM Range (CLP) 1,138 - 1,600

Target (CLP) 1,510

Total Return 21%

Market Cap (USD mn) 1,322

Shares Outstanding (mn) 266

Free Float 50%

ADTV (USD mn) 1.3

2012 2013E 2014E 2015E

FV/EBITDA 10.5 9.6 8.6 7.8

P/E 16.9 19.1 15.8 14.2

P/CF 31.9 30.6 19.2 16.7

P/BV 2.3 2.3 2.2 2.1

Div . Yield 4.3% 3.9% 4.7% 5.3%

Sources: Company Reports and Credicorp Capital

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Page 125: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Embonor - B Company Description

Embonor is a Coca-Cola bottler with operations in Chile (extreme north and center-south) and Bolivia. In Chile, the company serves more than 7.5 million inhabitants and produces more than 110 MUC. In Bolivia it covers 95% of the total territory, serving more than 10 million inhabitants and producing more than 110 MUC.

Ownership Income Statement

EBITDA per Country (LTM) Balance Sheet

Volume per Country (LTM)

Cash Flow

Management

CEO: Cristián Hohlberg CFO: Anton Szafronov Deputy CFO: Fernando Sahli www.embonor.cl

125 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Revenues 336,571 380,449 401,541 433,872 466,480

EBIT 43,331 49,469 53,103 59,925 67,051

EBITDA 58,243 67,707 75,709 84,346 93,305

Net Income 36,488 37,807 34,586 41,683 46,534

EPS 137.0 141.9 129.8 156.4 174.7

EBIT Margin 12.9% 13.0% 13.2% 13.8% 14.4%

EBITDA Margin 17.3% 17.8% 18.9% 19.4% 20.0%

Net Margin 10.8% 9.9% 8.6% 9.6% 10.0%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 23,288 21,134 34,131 36,879 39,651

Total Current Assets 95,984 96,577 114,753 123,180 131,998

Total Assets 463,071 483,086 539,488 586,444 635,387

Current Liabilities 85,515 127,635 135,351 144,917 154,795

Financial Debt 97,220 95,859 139,402 162,639 188,022

Total Liabilities 190,225 202,842 253,013 284,225 317,895

Minority Interest 8 9 10 11 12

Shareholders Equity 272,838 280,234 286,465 302,209 317,480

Total Liabilities + Equity 463,071 483,086 539,488 586,444 635,387

EBITDA / Fin. Expenses 17.1 18.6 17.5 15.0 14.2

Financial Debt /EBITDA 1.7 1.4 1.8 1.9 2.0

Financial Debt /Equity 0.4 0.3 0.5 0.5 0.6

ROAE 13.8% 13.7% 12.2% 14.2% 15.0%

ROAA 8.1% 8.0% 6.8% 7.4% 7.6%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Initial Cash 39,546 23,288 21,134 34,131 36,879

Cash from Operations 48,811 78,459 49,032 60,238 65,473

CAPEX -33,157 -47,324 -48,070 -43,387 -46,648

Changes in Financial Debt 1,158 -1,361 43,544 23,237 25,383

Div idends (Paid) Received -27,457 -27,457 -25,939 -31,262 -34,900

Taxes -5,613 -4,472 -5,569 -6,077 -6,536

Changes in Equity 0 0 0 0 0

Final Cash 23,288 21,134 34,131 36,879 39,651

Change in Cash -16,257 -2,154 12,997 2,748 2,772

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Vicuña Family50.0%

Pension Funds 6.9%

Others 43.1%

Chile60%

Bolivia40%

Chile51%

Bolivia49%

Page 126: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Chile Industry:

Utilities Rating:

Buy Endesa Better times to come

Andrés Ossa +(562) 2651 9332

[email protected]

Investment Thesis Stock Data

• We are updating our coverage of Endesa, changing our recommendation from HOLD to BUY and releasing a new 2014YE T.P. of CLP 900. Attractive valuations when compared to its average and peers, along with important short term catalysts, support our positive view towards the company.

• Snowmelt forecasts – which predict an important improvement vs 2012 – will determine a good end of the year for the company’s operations in Chile (40% of current installed capacity). For 2014 we expect low fuel costs and a gradual improvement in hydrology. Still, we project hydro generation in Chile will not return to normal levels before 2015 (adding ~2,400 GWh). The latter would represent less exposure to the spot market and margin improvements.

• In Colombia, we anticipate EBITDA growth for 2014 and 2015 due to the startup of Salaco (145 MW) and El Quimbo (400 MW).

• Risks to our thesis: Downside risks include an unlikely, but still

possible, 5th consecutive dry year in Chile, along with the temporal shutdown of Bocamina II, due to environmental problems. Punta Alcalde’s rejection – while not being considered in our valuation – could also pressure the stock in the short term.

Price Chart (CLP) and Volumes (USD mn)

Valuation • In terms of forward multiples, Endesa is trading at 16.2x 2014E

P/E and 10.2x 2014E FV/EBITDA, implying a discount to its average FV/EBITDA and in line with its average P/E.

• When compared to local peers (excluding Enersis), the company is trading roughly in line in terms of FV/EBITDA, but with a 20% discount in terms of P/E 2014E, which supports our BUY recommendation.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

126 Andean Equities Guide, October 25th 2013

Ticker endesa ci

Price (CLP) 755

LTM Range (CLP) 676 - 841

Target 900 (loc) / 53.5 (ADR)

Total Return 22%

Market Cap (USD mn) 12,399

Shares Outstanding (mn) 8,202

Free Float 40%

ADTV (USD mn) 9.6

2012 2013E 2014E 2015E

FV/EBITDA 12.5 11.2 10.2 8.0

P/E 27.0 21.3 16.2 13.7

P/CF 15.3 12.5 9.7 8.6

P/BV 2.5 2.3 2.1 2.0

Div . Yield 6.0% 2.8% 3.7% 4.4%

Sources: Company Reports and Credicorp Capital

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Page 127: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Endesa Company Description

Endesa Chile is one of the largest electric generation companies in South America. It is controlled by Enersis which is part of Endesa Spain, which itself is part of the Italian Enel. Endesa's main business is the generation of electric power with operations in Chile, Argentina, Peru and Colombia and participation in the Brazilian electric business through Endesa Brasil.

Ownership Income Statement

Installed capacity (13,794 MW) Balance Sheet

EBITDA Breakdown (1H 2013)

Cash Flow

Management

CEO: Joaquín Galindo CFO: Fernando Gardeweg IR Manager: Susana Rey www.endesa.cl

127 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Revenues 2,435,749 2,350,431 2,340,835 2,494,778 2,698,161

EBIT 798,214 627,152 672,805 751,821 870,092

EBITDA 967,359 805,122 891,048 974,968 1,102,319

Net Income 452,683 232,461 291,092 382,112 451,549

EPS 55.2 28.3 35.5 46.6 55.1

EBIT Margin 32.8% 26.7% 28.7% 30.1% 32.2%

EBITDA Margin 39.7% 34.3% 38.1% 39.1% 40.9%

Net Margin 18.6% 9.9% 12.4% 15.3% 16.7%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 445,100 319,405 316,397 374,217 377,743

Total Current Assets 972,536 828,306 865,810 944,066 969,213

Total Assets 6,647,319 6,436,780 6,654,252 6,701,995 6,711,678

Current Liabilities 949,413 1,076,814 1,186,614 1,262,701 1,344,856

Financial Debt 1,872,927 1,891,472 1,856,273 1,696,508 1,472,200

Total Liabilities 3,161,445 3,029,614 2,995,449 2,883,774 2,711,505

Minority Interest 894,075 886,254 916,196 922,770 924,103

Shareholders Equity 2,591,799 2,520,912 2,742,606 2,895,451 3,076,070

Total Liabilities + Equity 6,647,319 6,436,780 6,654,252 6,701,995 6,711,678

EBITDA / Fin. Expenses 8.7 6.0 6.6 7.9 10.1

Financial Debt /EBITDA 1.9 2.3 2.1 1.7 1.3

Financial Debt /Equity 0.7 0.8 0.7 0.6 0.5

ROAE 17.5% 9.1% 11.1% 13.6% 15.1%

ROAA 6.8% 3.6% 4.4% 5.7% 6.7%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Initial Cash 357,986 445,100 319,405 316,397 374,217

Cash from Operations 995,979 722,489 574,911 631,776 661,910

CAPEX -269,213 -258,981 -214,386 -128,229 -131,589

Changes in Financial Debt -71 39 -295 -320 -449

Dividends (Paid) Received -373,010 -377,290 -174,655 -229,267 -270,929

Taxes -213,302 -183,986 -188,583 -216,141 -255,417

Changes in Equity -53,269 -27,966 0 0 0

Final Cash 445,100 319,405 316,397 374,217 377,743

Change in Cash 87,114 -125,695 -3,008 57,820 3,526

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Enersis60%

Pension Funds15%

Other Inst.

Investors6%

ADRs4%

Others15%

Chile40%

Colombia21%

Peru12%

Argentina27%

Chile35%

Colombia46%

Peru16%

Argentina3%

Page 128: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

2012 2013E 2014E 2015E

FV/EBITDA 5.8 5.7 5.5 5.1

P/E 16.2 12.3 12.1 11.9

P/CF 7.6 1.8 2.8 2.7

P/BV 0.9 0.8 0.8 0.8

Div . Yield 3.1% 2.2% 4.0% 4.1%

Sources: Company Reports and Credicorp Capital

Chile Industry:

Utilities Rating:

Buy Enersis Too “cheap” to let go

Andrés Ossa +(562) 2651 9332

[email protected]

Investment Thesis Stock Data

• We reiterate our BUY recommendation on Enersis and introduce a new 2014YE T.P. of CLP 200. In our view, current valuations, which are below its 5 year average and below local and regional peers, represent an interesting entry point. We continue to see Enersis as an attractive alternative in volatile moments, due to its diversified business model with solid cash flows. In addition, we expect that potential M&A activity will become a clear catalyst for the stock in the next 12 months.

• In the Gx business, we anticipate margin improvements for 2014 and 2015, related to a normalization of Chilean hydrology and low fuel costs due to the new contract with BG. Additionally, we expect a recovery in Cachoeira’s generation to improve the results in Brazil.

• In the Dx business, we highlight this year’s better than expected tariff adjustments in Chilectra and Edelnor, and assume reductions of ~5% in the tariff revisions of Ampla (2014) and Coelce (2015).

• Risks to our thesis: Main risks are related to extreme hydrological

conditions for the Gx business, and to higher than expected reductions in tariffs for the Dx business.

Price Chart (CLP) and Volumes (USD mn)

Valuation • In terms of forward multiples, the company is trading at 12.1x P/E

and 5.5x FV/EBITDA 2014E, below its average since 2008. When compared to local and regional peers, Enersis trades with an important discount in both, P/E and FV/EBITDA 2014E, which supports our recommendation to invest at current levels.

• Our valuation for Enersis is based on a sum-of-the-parts model, in which we valued each subsidiary using a DCF methodology, with different WACCs for each country.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

128 Andean Equities Guide, October 25th 2013

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Price (CLP) 168

LTM Range (CLP) 152 - 184

Target 200 (loc) / 19.8 (ADR)

Total Return 21%

Market Cap (USD mn) 16,546

Shares Outstanding (mn) 49,093

Free Float 39%

ADTV (USD mn) 13.0

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Page 129: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Enersis Company Description

Enersis is an electric utility company engaged, through its subsidiaries and related companies, in the generation, transmission and distribution of electricity in Chile, Argentina, Brazil, Colombia and Peru. It is one of the largest private electricity companies in South America in terms of consolidated assets and operating revenues, with over 14 mn. customers.

Ownership Income Statement

EBITDA Breakdown by country (2012) Balance Sheet

EBITDA Breakdown by business (2012)

Cash Flow

Management

CEO: Ignacio Antoñanzas CFO: Eduardo Escaffi IR Manager: Pedro Cañamero www.enersis.cl

129 Andean Equities Guide, October 25th 2013

CLP m 2011 2012 2013E 2014E 2015E

Revenues 6,619,834 6,525,046 6,682,143 6,976,148 7,288,173

EBIT 1,586,673 1,484,989 1,540,182 1,637,418 1,775,476

EBITDA 2,155,024 1,967,061 2,121,298 2,231,589 2,393,824

Net Income 380,352 374,332 680,842 695,787 708,238

EPS 7.7 7.6 13.9 14.2 14.4

EBIT Margin 24.0% 22.8% 23.0% 23.5% 24.4%

EBITDA Margin 32.6% 30.1% 31.7% 32.0% 32.8%

Net Margin 5.7% 5.7% 10.2% 10.0% 9.7%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP m 2011 2012 2013E 2014E 2015E

Cash & Equivalents 1,310,140 1,148,538 2,351,267 2,086,511 2,179,835

Total Current Assets 2,558,803 2,335,682 3,705,065 3,497,407 3,650,333

Total Assets 13,912,411 13,211,291 16,851,275 17,247,088 18,016,160

Current Liabilities 2,492,521 2,362,063 2,443,011 2,532,083 2,600,349

Financial Debt 4,009,193 3,583,659 3,846,480 3,688,643 3,816,122

Total Liabilities 6,926,607 6,303,233 6,663,648 6,612,853 6,844,298

Minority Interest 3,039,431 3,045,410 3,884,484 3,975,725 4,153,008

Shareholders Equity 3,946,373 3,862,648 6,303,143 6,658,510 7,018,854

Total Liabilities + Equity 13,912,411 13,211,291 16,851,275 17,247,088 18,016,160

EBITDA / Fin. Expenses 9.2 10.5 n.m. -65.4 -42.9

Financial Debt /EBITDA 1.9 1.8 1.8 1.7 1.6

Financial Debt /Equity 1.0 0.9 0.6 0.6 0.5

ROAE 9.6% 9.6% 13.4% 10.7% 10.4%

ROAA 2.7% 2.8% 4.5% 4.1% 4.0%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP m 2011 2012 2013E 2014E 2015E

Initial Cash 1,058,440 1,310,140 1,148,538 2,351,267 2,086,511

Cash from Operations 1,654,748 1,622,310 1,527,291 1,795,762 1,954,277

CAPEX -679,715 -703,842 -2,732,787 -1,032,608 -1,059,343

Changes in Financial Debt 94,359 -425,534 248,178 -157,837 127,479

Div idends (Paid) Receiv ed -237,869 -186,617 -188,675 -340,421 -347,894

Tax es -466,828 -408,596 -518,274 -529,651 -581,195

Changes in Equity -112,995 -59,323 2,866,997 0 0

Final Cash 1,310,140 1,148,538 2,351,267 2,086,511 2,179,835

Change in Cash 251,700 -161,602 1,202,728 -264,755 93,324

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Gx52%

Dx48%

Chile23%

Colombia34%

Brasil30%

Peru12%

Argentina-1%

Endesa Spain61%

Pension Funds13%

ADR10%

Other Inst.

Investors14%

Others2%

Page 130: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Peru Industry:

Utilities Rating:

Hold Enersur Eye of the tiger

Fernando Pereda +(511) 416 3333 - Ext: 37856

[email protected]

Investment Thesis Stock Data

• We are updating our rating on Enersur to Hold with an estimated 2014YE T.P of PEN 28.9. Our outlook for the company is positive as we expect a boost in earnings through 2015 and stronger margins. However, after a 27.5% YTD return, we believe the market has already factored in these improvements.

• Significant growth in capacity: Enersur simultaneously developed three large projects with two of them already completed. ChilcaUno (270 MW) and Reserva Fria (569 MW) in Ilo should provide a combined additional EBITDA of USD 128 mn. Meanwhile Quitaracsa (112 MW) is expected to be completed in 4Q14 to become the company’s second hydro plant. It is expected to contribute additional EBITDA of USD 40 mn.

• Risks to our thesis: High concentration of sales in Southern Peru

(37% of the total). Non-regulated clients cooling down. Delay in the arrival of the Camisea gas pipeline to the South (2020).

Price Chart (PEN) and Volumes (USD mn)

Valuation

• We established our target price with a DCF model broken down by generation unit. We forecast higher sales and margins, as new projects will enhance efficiency, even with higher transmission costs and natural gas prices. EBITDA margin will rise to 49.8% in 2015.

• We overweight a conservative scenario in “Reserva Fría”, with sales at the tender contract; nonetheless, it may have an additional upside if gas pipeline arrives to the South.

• Enersur trades at 8.1x FV/EBITDA and 15.7x P/E, which are in line with historical performance and should remain at these levels.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

130

COLBUNECL

EDEGEL

CELSIA

ISAGEN

ENERSIS

ENDESA

ENERSUR

4

9

14

19

24

29

4 6 8 10 12 14 16

P/E

201

4E

FV/EBITDA 2014E

0

2

4

6

8

10

12

0

20

40

60

80

100

120

140

Oct-12 Feb-13 Jun-13 Oct-13

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PE

N

ENERSUR IGBVL

Ticker enersuc1 pe

Price (PEN) 25.50

LTM Range 20 - 26.75

Target 28.9

Total Return 18%

Market Cap (USD mn) 2,058

Shares Outstanding (mn) 224

Free Float 51%

ADTV (USDmn) 0.2

2012 2013E 2014E 2015E

FV/EBITDA 12.4 9.9 8.1 7.3

P/E 17.5 17.8 15.7 13.3

P/CF 734.4 51.8 12.1 8.1

P/BV 3.2 3.3 3.2 3.0

Div . Yield 2.3% 2.6% 5.1% 5.7%

Sources: Company Reports and Credicorp Capital

(PEN) (PEN)

Andean Equities Guide, October 25th 2013

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25

Dec-05 Dec-07 Dec-09 Dec-11 Dec-130

5

10

15

Dec-05 Dec-07 Dec-09 Dec-11 Dec-13

Page 131: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Enersur Company Description

Enersur, is the largest power generation company in Peru with an installed capacity of 1,928 MW (7% hydro and 93% thermolectric capacities), which includes 569 MW capacity of its back-up unit Reserva Fria. The company has a balanced portfolio of regulated and non-regulated customers and has PPAs with important clients.

Ownership Income Statement

Capacity Breakdown (2015) Balance Sheet

COGS Breakdown (2015)

Cash Flow

Management

CEO: Alexandre Keisser CFO: Eduardo Milligan IR Manager: Eduardo Milligan www.enersur.com.pe

131

USD mn 2011 2012 2013E 2014E 2015E

Revenues 417 496 569 656 727

EBIT 134 152 217 252 286

EBITDA 167 188 265 324 362

Net Income 86 101 116 131 155

EPS 0.38 0.45 0.52 0.58 0.69

EBIT Margin 32.1% 30.7% 38.2% 38.4% 39.4%

EBITDA Margin 40.2% 37.9% 46.7% 49.4% 49.8%

Net Margin 20.6% 20.3% 20.4% 20.0% 21.3%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 22 97 91 108 229

Total Current Assets 120 199 246 276 408

Total Assets 844 1,344 1,479 1,515 1,602

Current Liabilities 104 135 191 184 185

Financial Debt 399 664 723 713 736

Total Liabilities 521 794 864 872 922

Minority Interest 0 0 0 0 0

Shareholders Equity 323 550 616 643 679

Total Liabilities + Equity 844 1,344 1,479 1,515 1,602

EBITDA / Fin. Expenses 10.7 12.3 5.7 5.0 5.6

Financial Debt /EBITDA 2.4 3.5 2.7 2.2 2.0

Financial Debt /Equity 1.2 1.2 1.2 1.1 1.1

ROE 26.5% 23.0% 19.9% 20.9% 23.4%

ROA 10.2% 9.2% 8.2% 8.8% 9.9%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Pension Funds 28.4%

GDF Suez 61.8%

RIMAC INT. 5.1%

Others 4.7%

Natural gas

combined cycle,

852 MW

Reserva Fria In Ilo, 569 MW

Hydro, 134 MW

Quitaracsa (Hydro project), 112 MW

Coal and Diesel,

372 MW

Non-cash charges 18.0%

Fuels 49.4%

Transmission costs & Energy purchases

19.3%

Labour 4.2%

Others 9.1%

Andean Equities Guide, October 25th 2013

USD mn 2011 2012 2013E 2014E 2015E

Initial Cash 50 22 97 91 108

Cash from Operations 104 100 133 209 247

CAPEX -85 -101 -133 -78 -31

Changes in Financial Debt 20 110 45 -11 23

Div idends (Paid) Received -24 -28 -45 -104 -118

Others -43 -6 -5 0 0

Changes in Equity 0 0 0 0 0

Final Cash 22 97 91 108 229

Change in Cash -28 75 -5 16 121

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Page 132: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

3

4

5

6

7

Jan/03 Jan/06 Jan/09 Jan/12

5

10

15

20

Jan/03 Jan/06 Jan/09 Jan/12

Chile Industry:

Rating:

Buy Entel Attractive entry point for a bet on growth

Andrés Ossa +(562) 2651 9332

[email protected]

Investment Thesis Stock Data

• We reiterate our BUY recommendation on Entel and introduce a new 2014YE T.P. of CLP 10,200. While intentionally adopting a more conservative view – we lowered the long term EBITDA margin in Peru from 30% to 25% and postponed in 1 year the breakeven point for its operations in Peru – we still see a great amount of value in the stock and find its YTD performance unjustified.

• Growth perspectives in the industry remain strong. The Chilean

mobile industry is reaching its maturity in terms of mobile penetration but we still expect strong growth in line with the use of mobile data. Additionally, Entel is entering the home segment with competitive offers in telephony, MBB and TV.

• We see the company’s entrance to Peru as a natural step in order to continue its growth plans. Lower mobile penetration rates, lower competitiveness in the industry, higher margins, and strong macro fundamentals support the company’s expansion plan.

• Risks to our thesis: While our projections for the company are conservative, execution risks for Entel’s operations in Peru and lower than expected growth for the telecom industry in Chile pose downside risks to our investment thesis.

Price Chart (CLP) and Volumes (USD mn)

Valuation • In terms of forward multiples, the company is trading at 13.3x P/E

and 4.8x FV/EBITDA 2014E, above its 10 year average in terms of P/E, but slightly in line for FV/EBITDA. The accounting treatment change largely explains the higher P/E.

• When compared to regional and global peers, Entel is trading with a premium in terms of P/E. The change in accounting treatment – which will impact the company’s results until 3Q 2013 – largely explains this.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

2012 2013E 2014E 2015E

FV/EBITDA 5.1 4.9 4.8 4.3

P/E 14.0 13.7 13.3 12.8

P/CF 19.5 -29.6 46.6 32.5

P/BV 2.9 2.2 2.0 1.8

Div . Yield 5.5% 4.5% 3.6% 3.8%

Sources: Company Reports and Credicorp Capital

AMERICA MOVIL

TELE-FONICA BRASIL

AT&T

VODA-FONE

TELE-FONICA

TIM

ENTEL

5

8

10

13

15

18

20

2x 7x 12x

P/E

201

4E

EV/EBITDA 2014E

132 Andean Equities Guide, October 25th 2013

Ticker entel ci

Price (CLP) 7,911

LTM Range (CLP) 7870.5 - 10447

Target (CLP) 10,200

Total Return 33%

Market Cap (USD mn) 3,746

Shares Outstanding (mn) 237

Free Float 45%

ADTV (USD mn) 7.4

0

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Entel IPSA

Telecom, IT & Media

Page 133: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Entel Company Description

Entel is a telecommunications company that operates in Chile and soon in Peru (after the acquisition of Nextel Peru), offering mobile and fixed line services, along with IT services . Entel currently has more than 10.3 mn clients in its mobile business, leading the industry with nearly 38% of MS.

Ownership Income Statement

Mobile Clients 2013 YTD Balance Sheet

Revenues Breakdown LTM

Cash Flow

Management

CEO: Antonio Büchi CFO: Felipe Ureta IR Manager: Carmen Luz de la Cerda www.entel.cl/inversionistas/

133 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Revenues 1,242,371 1,441,101 1,682,451 1,834,931 2,000,441

EBIT 238,228 221,580 169,925 176,250 205,954

EBITDA 515,199 536,512 475,383 484,648 536,665

Net Income 180,767 167,294 135,910 140,827 146,419

EPS 764.3 707.3 574.6 595.4 619.0

EBIT Margin 19.2% 15.4% 10.1% 9.6% 10.3%

EBITDA Margin 41.5% 37.2% 28.3% 26.4% 26.8%

Net Margin 14.6% 11.6% 8.1% 7.7% 7.3%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 28,471 55,155 67,298 73,397 80,018

Total Current Assets 365,735 422,838 469,941 512,289 558,409

Total Assets 1,558,014 1,695,255 1,965,049 2,123,115 2,288,531

Current Liabilities 394,261 439,323 488,041 527,071 565,983

Financial Debt 372,088 435,784 602,542 647,734 697,462

Total Liabilities 784,937 881,249 1,098,780 1,183,974 1,273,384

Minority Interest 0 0 0 0 0

Shareholders Equity 773,077 814,007 866,269 939,141 1,015,147

Total Liabilities + Equity 1,558,014 1,695,255 1,965,049 2,123,115 2,288,531

EBITDA / Fin. Expenses 71.0 49.3 33.6 27.8 28.7

Financial Debt /EBITDA 0.7 0.8 1.3 1.3 1.3

Financial Debt /Equity 0.5 0.5 0.7 0.7 0.7

ROAE 23.4% 21.1% 16.2% 15.6% 15.0%

ROAA 11.6% 10.3% 7.4% 6.9% 6.6%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Initial Cash 76,143 28,471 55,155 67,298 73,397

Cash from Operations 549,475 538,907 463,345 468,341 500,332

CAPEX -404,340 -403,922 -502,179 -407,718 -432,208

Changes in Financial Debt 7,186 63,696 166,758 45,192 49,728

Dividends (Paid) Received -140,527 -129,680 -83,647 -67,955 -70,413

Taxes -38,560 -31,342 -32,133 -31,761 -40,818

Changes in Equity -20,907 -10,976 0 0 0

Final Cash 28,471 55,155 67,298 73,397 80,018

Change in Cash -47,672 26,683 12,143 6,099 6,620

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Altel Inv. Ltda.55%

Pension Funds

8%

Others37%

Post-Paid27%

Pre-Paid63%

MBB10%

Consum. Segment

55%

Corporate & SME30%

IT Services

14%

Americal-tel Peru

1%

Page 134: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

2012 2013E 2014E 2015E

FV/EBITDA 21.0 18.9 15.8 12.3

P/E 32.0 27.8 22.6 18.7

P/CF 24.5 72.7 40.6 31.1

P/BV 4.1 3.8 3.5 3.1

Div . Yield 1.6% 1.4% 1.8% 2.1%

Sources: Company Reports and Credicorp Capital

Chile Industry:

Retail Rating:

Buy Falabella No receipt necessary

Christopher DiSalvatore +(562) 2446 1724

[email protected]

Investment Thesis Stock Data

• We are upgrading our recommendation to BUY. Though we see some cost pressures in the near term, we believe in management’s capabilities to continue their delivery of accretive results, which we expect to accompany the growth expected for the company, going forward.

• Amongst our preferred retailers across the Andean. We expect the company to achieve the highest average EPS growth levels over the medium term (CAGR 20% between 2013 and 2016), driven by a 7% increase in total sales space and 114 bps improvement in EBITDA margin during the same period. We expect Falabella to focus its growth primarily in Peru where the company continues to successfully penetrate a highly informal food retail sector. We also appreciate the company’s recent entrance into Brazil via a local partnership, which should provide additional upside to long term estimates and further creates an inorganic “surprise” factor for investors, going forward.

• Risks to our thesis: Downside risks include lower than expected cost efficiencies, delays in store growth, and a general deterioration in the macro situation. Upside risks include accretive M&A activity.

Price Chart (CLP) and Volumes (USD mn)

Valuation • Our 2014E year end target price is based on a 10 SOTP DCF

valuation, averaging a consolidated, nominal WACC of 9.6% in CLP terms.

• Based on our estimates, shares are trading at 22.6x 2014E P/E or in line with the company historical averages. Forward valuations imply a PEG ratio of 1.2x, which is slightly below regional average and does not incorporate the improvement in returns expected over the next 18 months.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

134 Andean Equities Guide, October 25th 2013

Cencosud

Falabella

RipleyCBD

Exito

Walmex

Liverpool

Lojas Amer.

Soriana

Marisa

Chedraui

5x

10x

15x

20x

25x

30x

35x

5x 10x 15x

P/E

201

4E

EV/EBITDA 2014E

0

50

100

150

80

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100

110

120

130

Oct-12 Feb-13 Jun-13 Oct-13

US

D m

n

CLP

Falabella IPSA

5

15

25

35

Dec-01 Dec-04 Dec-07 Dec-10 Dec-135

15

25

Dec-01 Dec-04 Dec-07 Dec-10 Dec-13

Ticker falab ci

Price (CLP) 5,023

LTM Range (CLP) 4,692 - 5,740

Target (CLP) 6,000

Total Return 21%

Market Cap (USD mn) 24,196

Shares Outstanding (mn) 2,406

Free Float 13%

ADTV (USD mn) 14.5

Page 135: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Falabella Company Description

Falabella operates as a multi-format retailer, integrating department stores, home improvement, shopping centers, supermarkets, and financial services. Today, Falabella (over US 12bn in sales) ranks among the largest Latin American retailers with presence in Chile, Peru, Argentina, Colombia and Brazil.

Ownership Structure Income Statement

Revenue Breakdown by Country (LTM) Balance Sheet

EBITDA Breakdown by Country (LTM)

Cash Flow

Management

CEO: Sandro Solari CFO: Alejandro González CDO: Jordi Gaju www.falabella.cl

135 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Revenues 5,163,995 5,907,595 6,640,373 7,526,488 8,617,340

EBIT 649,920 621,551 689,575 842,064 1,010,607

EBITDA 778,899 764,284 843,893 1,007,485 1,187,663

Net Income 423,046 370,697 434,712 533,394 646,520

EPS 175.9 154.0 180.7 221.7 268.7

EBIT Margin 12.6% 10.5% 10.4% 11.2% 11.7%

EBITDA Margin 15.1% 12.9% 12.7% 13.4% 13.8%

Net Margin 8.2% 6.3% 6.5% 7.1% 7.5%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 125,543 196,947 237,163 255,266 309,365

Total Current Assets 2,070,569 2,300,175 2,550,560 2,833,881 3,204,254

Total Assets 7,764,096 8,639,220 9,354,786 10,087,007 10,934,228

Current Liabilities 1,310,376 1,522,730 1,690,798 1,936,580 2,235,772

Financial Debt 1,780,148 2,003,068 2,572,293 2,602,629 2,616,582

Total Liabilities 4,465,203 5,164,847 5,570,792 5,933,047 6,334,584

Minority Interest 579,916 589,103 637,897 687,827 745,599

Shareholders Equity 2,718,976 2,885,270 3,146,097 3,466,133 3,854,045

Total Liabilities + Equity 7,764,096 8,639,220 9,354,786 10,087,007 10,934,228

EBITDA / Fin. Expenses 12.6 10.7 10.0 10.5 12.4

Financial Debt /EBITDA 2.3 2.6 3.0 2.6 2.2

Financial Debt /Equity 0.7 0.7 0.8 0.8 0.7

ROAE 15.6% 13.2% 14.4% 16.1% 17.7%

ROAA 5.4% 4.5% 4.8% 5.5% 6.2%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Initial Cash 114,739 125,543 196,947 237,163 255,266

Cash from Operations 420,517 286,884 181,078 794,133 963,147

CAPEX -296,576 -106,970 -389,428 -411,858 -435,243

Changes in Financial Debt 243,583 222,920 569,224 30,336 13,953

Dividends (Paid) Received -243,021 -191,410 -173,885 -213,357 -258,608

Taxes -114,155 -142,733 -146,774 -181,150 -229,149

Changes in Equity 455 2,713 0 0 0

Final Cash 125,543 196,947 237,163 255,266 309,365

Change in Cash 10,804 71,404 40,216 18,103 54,099

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Controlling Group 82%

Pension Funds 5%

Float 13%

Chile 65%

Peru 21% Colombia 7%

Argentina 7%

Chile 74%

Peru 19%Colombia

4%

Argentina 3%

Page 136: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Peru Industry:

Rating:

Buy Ferreycorp Turning on the machine

Omar Avellaneda +(511) 416 3333 - Ext: 37856

[email protected]

Investment Thesis Stock Data

• We are updating our valuation on Ferreycorp with a BUY rating and a 2014YE target price of PEN 2.1, for a total return of 22%. We like the company for its portfolio of leading brands and its capability to provide tailored products as well as after-sale services at nationwide level.

• Well exposed to mining and construction projects. Several mining projects with EIA approval are on track in Peru, while real estate activity, self-construction and infrastructure projects provide good perspectives for the company’s business.

• Improvements in working capital should boost cash generation in the near term. An asset management plan to increase its inventory turnover is on track in order to reduce its cash conversion cycle and improve CFO. The cash conversion cycle has already improved from 142 days in 2012 to 120 days in 1S13.

• Risks to our thesis. Delays in mining projects due to lower prices and social conflicts. Delays in tender processes for infrastructure projects. Higher competition in the mining sector (open pit projects).

Price Chart (PEN) and Volumes (USD mn)

Valuation • We arrived at our 2014YE target price based on a 10-year DCF

model. This target includes updated estimates for mining investments over the 2014-2016 period as well as a more efficient use of working capital.

• Stable margins. Over the next few years we expect EBITDA and net margins to be slightly above 10% and close to 4.5%, respectively. Ferreycorp trades at 2014 P/E of 5.9x and 2014 FV/EBITDA 4.8x, which remain within +/-0.5 SD from its historical level since 2009 and below its comparable peers.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

136

Ticker ferreyc1 pe

Price (PEN) 1.75

LTM Range 1.53 - 2.4

Target 2.1

Total Return 22%

Market Cap (USD, mn) 598

Shares Outstanding (mn) 945

Free Float 39%

ADTV (USD, mn) 1.3

0

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FERREYC1 IGBVL

Finning

H&E Equipment

Ferreycorp

MarcopoloRandon

Toromont

0

3

6

9

12

15

18

21

0 5 10 15

P/E

201

4E

FV/EBITDA 2014E

2012 2013E 2014E 2015E

FV/EBITDA 7.3 5.5 4.8 4.4

P/E 8.0 14.5 5.9 5.2

P/CF -4.8 4.2 21.6 8.0

P/BV 1.2 1.1 0.9 0.8

Div . Yield 2.9% 2.9% 1.7% 4.0%

Sources: Company Reports and Credicorp Capital

Andean Equities Guide, October 25th 2013

(PEN) (PEN)

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Cement & Construction

Page 137: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Ferreycorp Company Description

Ferreycorp is the largest capital goods distributor in Peru and the only Caterpillar distributor in Peru (since 1942), Guatemala, El Salvador and Belize. Ferreycorp offers its products and services in seven business lines: machines, engines and equipment, spare- parts and after-sale services, rentals, used, automotive, agricultural and other.

Ownership Income Statement

Revenues Breakdown (by sector) Balance Sheet

Revenues Breakdown (by division)

Cash Flow

Management

CEO: Mariela García CFO: Patricia Gastelumendi IR Manager: Elizabeth Tamayo www.ferreycorp.com.pe

137

PEN mn 2011 2012 2013E 2014E 2015E

Revenues 3,823 4,627 5,423 6,404 7,042

EBIT 272 302 372 460 519

EBITDA 427 465 571 653 715

Net Income 191 220 114 277 317

EPS 0.2 0.2 0.1 0.3 0.3

EBIT Margin 7.1% 6.5% 6.9% 7.2% 7.4%

EBITDA Margin 11.2% 10.1% 10.5% 10.2% 10.2%

Net Margin 5.0% 4.8% 2.1% 4.3% 4.5%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 68 173 113 255 423

Total Current Assets 2,045 2,613 2,688 3,274 3,734

Total Assets 3,359 4,072 4,222 4,813 5,292

Current Liabilities 1,571 1,885 1,977 2,244 2,423

Financial Debt 1,415 1,786 1,782 1,968 2,093

Total Liabilities 2,294 2,649 2,721 3,063 3,292

Minority Interest 0 0 0 0 0

Shareholders Equity 1,065 1,423 1,501 1,750 2,001

Total Liabilities + Equity 3,359 4,072 4,222 4,813 5,292

EBITDA / Fin. Expenses 8.8 7.5 7.4 10.2 10.7

Financial Debt /EBITDA 3.3 3.8 3.1 3.0 2.9

Financial Debt /Equity 1.3 1.3 1.2 1.1 1.0

ROAE 20.8% 17.7% 7.8% 17.1% 16.9%

ROAA 6.5% 5.9% 2.7% 6.1% 6.3%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mn 2011 2012 2013E 2014E 2015E

Initial Cash 66 68 173 113 255

Cash from Operations -88 -12 106 147 288

CAPEX -126 -296 -128 -163 -179

Changes in Financial Debt 270 370 -3 186 125

Div idends (Paid) Received -32 -42 -48 -27 -67

Financing, investing others -22 -86 13 0 0

Changes in Equity 0 170 0 0 0

Final Cash 68 173 113 255 423

Change in Cash 2 105 -61 142 167

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Local companies 33,0%

Pension funds 28.0%

Foreign investors 27.0%

Retail 12.0%

Mining, 49.7%

Construction,

24.7%

Others, 25.6%

CAT equipment, spare

parts and services,

74.4%

Other sales, 25.6%

Andean Equities Guide, October 25th 2013

Page 138: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

2012 2013E 2014E 2015E

FV/EBITDA 16.3 14.8 12.7 11.3

P/E 22.2 20.4 17.2 15.4

P/CF 29.1 35.3 25.1 16.9

P/BV 6.2 5.7 4.9 4.2

Div . Yield 1.7% 1.8% 2.1% 2.4%

Sources: Company Reports and Credicorp Capital

Chile Industry:

Retail Rating:

Buy Forus A foot ahead

Christopher DiSalvatore +(562) 2446 1724

[email protected]

Investment Thesis Stock Data

• We maintain our BUY recommendation on shares, despite a 15% outperformance versus the IPSA, year to date. In our view, shares have outperformed the sector primarily due to good execution under current management, above average returns, and buoyant dynamism in consumption. Despite expected moderation in economic activity in 2014, the company’s pure retail focus with lower capital deployment needs, positive cash flow, and low leverage ratios provides Forus with cyclical advantage, which should help drive additional outperformance over the next 12 months.

• Forus is among our top picks within the discretionary retail segment across the Andean. We like the company’s 100% retail focus on higher margin businesses (footwear & clothing), which face less direct competition than other big box retailers across the region. In terms of growth, we expect the company to average 30 new store openings annually, implying a 17% increase in sales space (2013-2015) primarily focused in Chile and Peru over the medium term.

• Risks to our thesis: Downside risks are related to sustained

depreciation of Andean currencies, deterioration in macro scenario, higher competition, and delays in store growth. Upside risks include accretive M&A and higher than expected store build out.

Price Chart (CLP) and Volumes (USD mn)

Valuation • Our year-end 2014 target price is based on a 10 year DCF

valuation. We consider a country weighted WACC of 11.6% in nominal, CLP terms.

• Shares currently trade at 17x 2014E in line with Latam discretionary peers ex. Chile. Comparing to global discretionary players, Forus trades at a 6% discount, in part due to below average share liquidity and despite double digit earnings growth and above average returns.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

138 Andean Equities Guide, October 25th 2013

0

5

10

15

80

100

120

140

Oct-12 Feb-13 Jun-13 Oct-13

US

D m

n

CLP

Forus IPSA

Falabella

Forus

AdidasPuma Asics

Madden

PVH

Wolverine

Arezzo

Marisa

5

10

15

20

25

30

5 10 15

P/E

201

4E

FV/EBITDA 2014E

5

10

15

20

25

30

Dec-06 Dec-09 Dec-120

5

10

15

20

Dec-06 Dec-09 Dec-12

Ticker forus ci

Price (CLP) 2,840

LTM Range (CLP) 2,250 - 3,350

Target (CLP) 3,400

Total Return 22%

Market Cap (USD mn) 1,470

Shares Outstanding (mn) 258

Free Float 29%

ADTV (USD mn) 1.5

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Forus Company Description

Forus is a Chilean brand licensee and retailer specializing in footwear, apparel, and accessories. It generates sales through, both a wholesale and retail channel, the latter of which through the operation of stores in Chile, Peru, Colombia, and Uruguay. The company represents over 24 brands (4 own), which it sells directly in its 17 distinct, formatted stores across LatAm.

Ownership Income Statement

Revenue by Segment (LTM) Balance Sheet

EBIT by Country (LTM)

Cash Flow

Management

CEO: Gonzalo Darraidou CFO: Andrés Celedón IR Manager: Macarena Swett www.forus.cl

139 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Revenues 142,351 170,768 192,498 236,952 261,131

EBIT 33,159 38,131 43,572 51,495 57,642

EBITDA 37,663 42,463 49,194 57,365 63,607

Net Income 28,424 31,366 35,909 42,627 47,612

EPS 110.0 121.4 138.9 164.9 184.2

EBIT Margin 23.3% 22.3% 22.6% 21.7% 22.1%

EBITDA Margin 26.5% 24.9% 25.6% 24.2% 24.4%

Net Margin 20.0% 18.4% 18.7% 18.0% 18.2%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 20,453 14,787 19,250 23,695 26,113

Total Current Assets 93,041 103,050 113,521 142,363 165,659

Total Assets 123,824 137,464 157,139 178,550 207,599

Current Liabilities 29,284 23,090 24,708 26,434 30,447

Financial Debt 8,635 4,672 4,690 3,956 4,226

Total Liabilities 32,390 26,022 27,460 27,888 32,001

Minority Interest 64 1,023 1,170 1,329 1,546

Shareholders Equity 91,434 111,442 129,699 150,685 175,625

Total Liabilities + Equity 123,888 137,464 157,139 178,550 207,599

EBITDA / Fin. Expenses -101.7 -37.0 -43.6 -36.0 -33.2

Financial Debt /EBITDA 0.2 0.1 0.1 0.1 0.1

Financial Debt /Equity 0.1 0.0 0.0 0.0 0.0

ROAE 31.1% 30.9% 29.8% 30.4% 29.2%

ROAE 23.0% 24.0% 24.4% 25.4% 24.7%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Initial Cash 7,537 20,453 14,787 19,250 23,695

Cash from Operations 44,592 25,505 31,832 36,651 38,108

CAPEX -8,769 -8,024 -4,904 -5,313 -5,473

Changes in Financial Debt 2,073 -3,963 17 -734 271

Div idends (Paid) Receiv ed -18,279 -11,945 -13,174 -15,082 -17,903

Tax es -6,700 -7,239 -9,308 -11,077 -12,586

Changes in Equity 0 0 0 0 0

Final Cash 20,453 14,787 19,250 23,695 26,113

Change in Cash 12,916 -5,667 4,463 4,445 2,418

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Controller 66%

Pension Fund 5%

Float 29%

Chile 88%

Uruguay 8%

Peru 3%

Colombia 1%

Footwear 73%

Clothing 20%

Accessory 7%

Page 140: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Peru Industry:

Rating:

Buy Graña y Montero Infrastructure is the next step

Omar Avellaneda +(511) 416 3333 - Ext: 37856

[email protected]

Investment Thesis Stock Data

• We are maintaining our BUY recommendation on Graña y Montero, with a 2014YE target price of PEN 13.8 (GRAM USD 25.0), based on its leading position in the E&C business and its integrated business model, the strong dynamism in the real estate business, the positive infrastructure and mining investment shock and its regional expansion (Chile and Colombia).

• GRAM’s new bet on infrastructure. GRAM has several projects under analysis, for a total amount of USD 20bn in Oil&Gas (USD 6.9bn), mass transit (USD 7.0bn), water (USD 1.5bn), infrastructure (USD 2.0bn) and power (USD 3.0bn).

• Regional expansion continues. 20% of proceeds of the recent capital increase (USD 420mn) will be spent in acquisitions in the Andean region. On August 13th, the company acquired DSD Construcciones y Montajes in Chile (USD 41mn), and increased its share in Peru’s Norvial toll-road (USD 19.2mn).

• Risks to our thesis: Slowdown in backlog growth due to a deceleration in public and private investment. Delays in tender processes and red tape. Significant exposure to the mining sector.

Price Chart (PEN) and Volumes (USD mn)

Valuation • We estimate our 2014YE target price based on a 10-year DCF

model. This target includes Vía Expresa Sur, Vía Expresa Javier Prado and Cuartel San Martín projects, which in our TP account for PEN 1.20. GRAM shares are trading at 2014E P/E of 20.5x and 2014 FV/EBITDA of 9.4x, close to its regional comparables average.

• ‘Mining backlog’ not a concern: Although 54% of GRAM’s backlog is concentrated in the mining sector, 34% comes from mining services rather than new projects; also 58% of its E&C backlog (73% of total backlog) are cost plus fee contracts (lower budgetary risk).

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

140

0

1

2

3

4

5

6

0

50

100

150

200

Oct-12 Feb-13 Jun-13 Oct-13

US

D m

n

PE

N

GyM IGBVL

Ticker gramonc1 pe / gram us

Price (PEN) 11.40

LTM Range 8.78 - 12.79

Target 13.8 (loc) / 25.0 (USD)

Total Return 23%

Market Cap (USD, mn) 2,730

Shares Outstanding (mn) 660

Free Float 37%

ADTV (USD, mn) 1.1

Granite Construction Ica

Graña y Montero

Salfacorp

Conconcreto

Besalco

0

5

10

15

20

25

30

0 5 10 15 20

P/E

201

4E

FV/EBITDA 2014E

2012 2013E 2014E 2015E

FV/EBITDA 8.8 10.7 9.4 8.9

P/E 18.7 25.0 20.5 17.7

P/CF 8.2 139.6 13.2 17.8

P/BV 3.9 2.7 2.5 2.3

Div . Yield 1.9% 1.3% 2.3% 2.4%

Sources: Company Reports and Credicorp Capital

Andean Equities Guide, October 25th 2013

(PEN)

(PEN)

0

5

10

15

20

25

Dec-02 Dec-05 Dec-08 Dec-110

5

10

Dec-02 Dec-05 Dec-08 Dec-11

Cement & Construction

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Graña y Montero Company Description

GRAM is the largest engineering and construction company in Peru with complementary businesses in infrastructure, real estate and technical services, with 80 years of operations and a long track record of many landmark private- and public-sector infrastructure projects. GRAM has operations in Chile since 2011, and listed its shares on NYSE in July 2013.

Ownership Income Statement

Revenues Breakdown (2014E) Balance Sheet

EBITDA Breakdown (2014E)

Cash Flow

Management

CEO: Mario Alvarado CFO: Mónica Miloslavich IR Manager: Dennis Gray www.granaymontero.com.pe

141

PEN mn 2011 2012 2013E 2014E 2015E

Revenues 4,244 5,232 6,217 7,167 8,091

EBIT 498 529 688 862 921

EBITDA 676 794 986 1,124 1,265

Net Income 289 290 301 368 425

EPS 0.5 0.5 0.5 0.6 0.6

EBIT Margin 11.7% 10.1% 11.1% 12.0% 11.4%

EBITDA Margin 15.9% 15.2% 15.9% 15.7% 15.6%

Net Margin 6.8% 5.5% 4.8% 5.1% 5.3%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 659 780 1,666 2,571 2,901

Total Current Assets 2,527 2,974 4,502 5,672 6,398

Total Assets 3,723 5,045 6,724 8,206 9,245

Current Liabilities 1,787 2,693 2,631 3,318 3,773

Financial Debt 530 847 846 1,510 1,769

Total Liabilities 2,284 3,269 3,433 4,517 5,129

Minority Interest 263 379 482 681 864

Shareholders Equity 1,175 1,397 2,809 3,007 3,252

Total Liabilities + Equity 3,723 5,045 6,724 8,206 9,245

EBITDA / Fin. Expenses 66.3 76.9 17.6 21.5 20.3

Financial Debt /EBITDA 0.8 1.1 0.9 1.3 1.4

Financial Debt /Equity 0.5 0.6 0.3 0.5 0.5

ROAE 27.6% 22.5% 14.3% 12.6% 13.6%

ROAA 9.1% 6.6% 5.1% 4.9% 4.9%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mn 2011 2012 2013E 2014E 2015E

Initial Cash 681 659 780 1,666 2,571

Cash from Operations 198 556 42 984 897

CAPEX -261 -337 -190 -502 -566

Changes in Financial Debt 174 318 -2 664 260

Div idends (Paid) Received -55 -128 -97 -170 -180

Financing, investing others -78 -287 -63 -71 -81

Changes in Equity 0 0 1,196 0 0

Final Cash 659 780 1,666 2,571 2,901

Change in Cash -22 122 886 905 329

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Float, 36.70%

Internal shareholders, 26%

Pension funds,

31.30%

E&C, 69.10%

Infrastructure,

7.10%

Real Estate, 6.20%

Technical Services, 17.60%

E&C, 53.20%

Infrastructure,

22.50%

Real Estate, 9.50%

Technical Services, 14.80%

Andean Equities Guide, October 25th 2013

Page 142: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Colombia Industry:

Rating:

Hold Grupo Argos Still reorganizing

Juliana Valencia M. +(571) 339 4400 ext. 1365

[email protected]

Investment Thesis Stock Data

• We maintain Grupo Argos’ rating on Hold. The Conglomerate has focused its strategic portfolio on a wide range of infrastructure-related sectors such as cement, power generation, real estate, ports and mines, with positive long term perspectives as some of these sectors are expected to drive economic growth in the following years.

• However, Situm (real estate), Compas (ports) and Sator (coal) - are recently established companies with strategies that still need to be strengthened, and in the case of Sator, defined. Hence, conservatively they are included in our valuation at spin-off values (USD 1.8bn).

• We expect margin improvements in Grupo Argos’ two main strategic investments – Cemargos and Celsia (see the corresponding reports for further details) – driven by cash generation in the US cement operations starting in 2014 (Cemargos) and the start-up of new generation capacity starting in 2019 (Celsia).

• On the other hand, perspectives on non-strategic investments are positive as we expect dividend revenues to grow 6.4% in our 10yr projection.

Price Chart (COP) and Volumes (USD mn)

Valuation • Our 2014 TP of 24,460/share is based on a SOTP, with

Cemargos, Celsia, and Nutresa valued with a DCF model; Bancolombia through a DDM, EPSA (COP 14,822/share) at a 9.9x EBITDA multiple, spin-off assets at transaction value; and Grupo Sura valued as a SOTP. We highlight that our valuation includes a COP 70/share dilution as a consequence of the conversion of convertible bonds into preferred shares (+30.8mn shares).

• Implied as well as forward-looking multiples seem to indicate

Grupo Argos is fairly valued compared to its history.

Valuation Summary

P/E Forward FV/EBITDA Forward Value Breakdown

142

0

5

10

15

20

80

90

100

110

120

130

Oct-12 Feb-13 Jun-13 Oct-13

USD

mn

CO

P

Grupo Argos Colcap

10

12

14

16

18

20

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

20

30

40

50

60

70

80

90

100

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

Cemargos, 32%

Celsia, 12%

EPSA, 3%

Grupo Sura, 30%

Bancolombia, 2%

Nutresa, 6%

Absorbed Assets,

15%

2012 2013E 2014E 2015E

FV/EBITDA 16.4 14.1 13.0 12.0

P/E 47.8 46.1 40.9 37.8

P/BV 1.3 1.3 1.3 1.3

Div . Yield 1.1% 1.1% 1.2% 1.3%Sources: Company Reports and Credicorp Capital;

E Credicorp Capital Estimates

Ticker grupoarg cb equity

Price (COP) 22,500

LTM Range (COP) 18,600 - 24,000

Target (COP) 24,460

Total Return 10%

Market Cap (USD mn) 9,374

Shares Outstanding (mn) 791

Free Float 52%

ADTV (USD mn) 2.9

Andean Equities Guide, October 25th 2013

Conglomerates

Page 143: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Grupo Argos Company Description

Grupo Argos is an infrastructure holding with presence in the cement, power generation, ports, real estate and coal sectors. Its total portfolio, which includes non-strategic investments in the financial and food industries, is worth USD ~10bn.

Ownership Portfolio

Balance Sheet

Income Statement

Management

CEO: Jose A. Vélez CFO: Ricardo A. Sierra IR Manager: Nicolás Valencia http://inversionistas.grupoargos.com/en

143

Grupo Sura, 29%

Grupo Nutresa,

10% Pension Funds, 21%

Others, 40%

Investment Portfolio

Strategic

Non-strategic

Cement: Cemargos (51.3%)

Power Generation:

Celsia (50.2%); EPSA (11.9%)

Real Estate: Situm (100%)

Ports: Compas (50%)

Coal: Sator

(100%)

Food Processing: Nutresa (8.3%)

Financials: Grupo Sura (25.5%); Bancolombia

(1.5%)

Absorbed Assets

COP mn 2011 2012 2013E 2014E 2015E

Revenues 5,786,283 6,681,155 7,472,337 7,827,824 8,340,481

EBIT 1,088,231 1,088,447 1,306,000 1,451,654 1,565,316

EBITDA 1,629,049 1,615,543 1,961,568 2,133,290 2,295,736

Net Income 153,657 343,938 382,502 431,181 466,205

EPS 238.1 532.9 592.7 668.1 722.4

EBIT Margin 18.8% 16.3% 17.5% 18.5% 18.8%

EBITDA Margin 28.2% 24.2% 26.3% 27.3% 27.5%

Net Margin 2.7% 5.1% 5.1% 5.5% 5.6%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

COP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 982,571 1,468,055 1,258,422 1,252,670 1,283,102

Total Current Assets 2,619,597 3,146,392 3,344,311 3,329,025 3,409,899

Total Assets 25,394,114 26,799,834 29,080,962 28,948,042 29,651,293

Current Liabilities 4,633,466 3,624,032 3,313,272 3,298,128 3,378,251

Financial Debt 6,562,905 6,662,093 5,942,149 5,914,990 6,058,686

Total Liabilities 9,084,235 9,148,376 8,628,313 8,588,875 8,797,530

Minority Interest 6,744,120 4,870,120 6,677,080 6,646,561 6,808,029

Shareholders Equity 9,565,759 12,781,338 13,775,570 13,712,606 14,045,734

Total Liabilities + Equity 25,394,114 26,799,834 29,080,962 28,948,042 29,651,293

EBITDA / Fin. Expenses 4.6 3.8 4.2 4.4 4.4

Financial Debt /EBITDA 4.0 4.1 3.0 2.8 2.6

Financial Debt /Equity 0.7 0.5 0.4 0.4 0.4

ROAE 1.5% 3.1% 2.9% 3.1% 3.4%

ROAA 0.6% 1.3% 1.4% 1.5% 1.6%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

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Colombia Industry:

Banks Rating:

Hold Grupo Aval Cautious on price, despite profitability

Juan Dominguez +(571) 339 4400 Ext 1026

[email protected]

Investment Thesis Stock Data

• Grupo Aval is the most profitable financial conglomerate among Colombian banks, but we are cautious on the share as current valuations seems high. Further, if Aval launches an issuance in the U.S., investors may demand a significant discount, given current multiples. Yet, as the share has shown a slight decrease since our Aug-13 report, we upgrade Grupo Aval to Hold.

• Efficiency has been affected by the consolidation of BAC Credomatic, and recently, by the acquisition of AFP Horizonte. We expect improvements in the next two years from cost control programs, but room for is capped.

• Provision expenses have increased significantly in 2013, as a result of higher consumer credit in the loan mix (BAC Credomatic’s consolidation and strategic focus on retail in recent years) and regulatory changes in credit risk policies. Both efficiency improvements and increasing NIM, offset by higher provision expenses, should boost ROAE to ~21% in the long term.

• Upside risks include improvements in asset quality. Downside risks are an eventual equity issuance to fund recent and further M&A activity.

Price Chart (COP) and Volumes (USD mn)

Valuation • Our TP of COP 1,580/share is based on DDM and relative

valuation. Our DDM at a Ke of 12.5%, a long term ROAE at 21% and a perpetuity growth rate of 6% gives COP 1,620/share, while 2014E relative valuation throws a COP 1,540/share. Our TP implies a 2.8x 2014E P/B and a 15.4x 2014 P/E.

• Dilution risk is not negligible as the Group has announced three

acquisitions YTD (AFP Horizonte, Grupo Reformador and BBVA Panama) for ~USD 1.7bn; HOLD.

Valuation Summary

P/E Forward P/B Forward Relative Valuation

144

2012 2013E 2014E 2015E

P/E 15.7x 16.3x 13.4x 11.3x

P/BV 2.6x 2.6x 2.4x 2.2x

Div . Yield 3.8% 3.6% 3.9% 4.2%Sources: Company Reports and Credicorp Capital;

E Credicorp Capital Estimates

0

5

10

15

20

25

1,000

1,100

1,200

1,300

1,400

1,500

Oct-12 Feb-13 Jun-13 Oct-13

USD

mn

CO

P

PfAval COLCAP

4

8

12

16

20

24

Dec-06 Dec-08 Dec-10 Dec-12 1.0

1.5

2.0

2.5

3.0

3.5

Dec-06 Dec-08 Dec-10 Dec-12

Itau Bradesco

Credicorp BCI

Chile

Corpbanca

Santander

Banorte

Bcolo

Davivienda

Aval

Banco do Brasil

0.5

1.0

1.5

2.0

2.5

3.0

3.5

10% 15% 20% 25%

P/B

2014

E

ROAE 2014E

Ticker pfaval cb

Price (COP) 1,380

LTM Range (COP) 1,205 - 1,435

Target (COP) 1,580

Upside 18%

Market Cap (USD mn) 13,584

Shares Outstanding (mn) 18,552

Free Float 14%

ADTV (USD mn) 3.2

Andean Equities Guide, October 25th 2013

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Grupo Aval Company Description

Grupo Aval is the leading financial conglomerate in Colombia through its 4 banks (Banco de Bogota, Banco de Occidente, Banco Popular and Banco AVVillas), developing a multi-brand strategy. It is also leader in the pension fund management and merchant bank businesses. Through BAC Credomatic, it is the leader in the Central American banking industry.

Ownership Income Statement

Loan Breakdown (as of Jun-13) Balance Sheet

Funding Structure (as of Jun-13)

Ratios

Management

Chairman BoD: Luis Carlos Sarmiento A. CEO: Luis Carlos Sarmiento G. CFO: Diego Solano IR Manager: Tatiana Uribe www.grupoaval.com

145

COP bn 2011 2012 2013E 2014E 2015E

Net Interest Income 5,469 6,310 7,234 8,355 9,692

Net Fee Income 2,234 2,382 2,807 3,139 3,511

Operational Income 8,661 9,578 11,068 12,599 14,345

Provision Expenses 416 917 1,390 1,534 1,745

Operational Expenses 4,933 5,300 6,036 6,670 7,370

Net Income 1,291 1,526 1,565 1,906 2,257

EPS (COP / share) 77.0 82.3 84.4 102.8 121.6

EPS growth 12.2% 6.9% 2.5% 21.8% 18.4%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

COP bn 2011 2012 2013E 2014E 2015E

Cash & Interbank Deposits 11,699 13,399 15,204 17,437 19,834

Investment Portfolio 18,975 23,296 25,554 29,962 34,827

Gross Loans 69,948 80,029 91,963 105,458 119,953

Total Assets 111,502 127,663 145,318 166,106 188,702

Total Deposits 71,008 81,463 93,299 107,002 121,708

Financial Obligations 21,229 25,306 29,369 33,683 38,312

Total Liabilities 98,416 113,172 129,837 148,906 169,372

Minority Interest 4,927 5,408 5,791 6,593 7,549

Shareholders' Equity 8,159 9,083 9,690 10,607 11,781

Total Liabilities + Equity 111,502 127,663 145,318 166,106 188,702

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Mr Sarmiento

Angulo (Directly

and Indirectly)

86%

General Public 14%

Corporate 57%

Consumer Loans 29%

Mortgages 6%

Financial Leases

8%

Micro-finance

0%

Demand deposits

45%

Time deposits

24%

Interbank and

financial obligations

12%

Bonds 9%

Equity + Min. Int.

11%

(%) 2011 2012 2013E 2014E 2015E

NIM 6.9% 6.9% 6.9% 6.9% 7.0%

Fee income/Op. Income 25.8% 24.9% 25.4% 24.9% 24.5%

Efficiency 57.0% 55.3% 54.5% 52.9% 51.4%

NPLs / Loans 1.6% 1.6% 1.7% 1.7% 1.7%

LLPs / Loans 3.3% 3.2% 3.4% 3.4% 3.4%

Provision expenses / Loans 0.6% 1.2% 1.6% 1.6% 1.5%

Coverage ratio 208% 194% 196% 201% 201%

Deposits / Loans 105% 105% 105% 105% 105%

Equity + Min. Int. / Assets 11.7% 11.4% 10.7% 10.4% 10.2%

ROAE 20.3% 17.7% 16.7% 18.8% 20.2%

ROAA 2.3% 2.0% 1.9% 2.0% 2.1%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

Page 146: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Colombia Industry:

Rating:

Hold Grupo Sura Consolidating recent M&A activity

Juliana Valencia M. +(571) 339 4400 ext. 1365

[email protected]

Investment Thesis Stock Data

• We downgrade our rating from Buy to Hold, as the shares offer a limited room to outperform the Colcap going forward. Our view on Grupo Sura continues to be positive, supported by double-digit salary base growth in the Region, high labor informality in most of the countries were the Company is present and low but increasing banking penetration; all drivers for future revenues growth.

• We highlight the low ROE of the pension segment. 9.2% for Protección (LTM earnings, as of Jul-13) and 6.0% for Sura Asset Management (SUAM) (annualized earnings, as of Jun-13). We expect profitability to increase significantly in the long term, as the recent acquisitions are fully consolidated and goodwill is amortized, but our TP does not reflect relevant ROE growth in the short term.

• We expect dividend revenues to grow 8.7% and equity method revenues to grow 5.6%, on average, in our 10yr forecasts. Long term estimated net income growth in the social security business is 1.1x GDP. Dividend pay-out practices are maintained, aligned with guidance from the different companies in the portfolio.

• Downside risks include pension reforms which could lower fees, future M&A activity which could continue pressuring profitability, and regulatory uncertainties in Colombia (health) and Chile (pensions).

Price Chart (COP) and Volumes (USD mn)

Valuation • Our 2014 TP of 44,680/share is based on a SOTP, with SUAM,

Protección and Suramericana valued at book value multiples, Bancolombia through a DDM, and Grupo Argos valued as a SOTP. Multiples for the pension fund businesses range from 1.6x (SUAM) to 1.8x (Protección); while Suramericana S.A. is valued at 1.2x book value, equivalent to LatAm peers’ median.

• The stock currently trades with a 6.0% discount to NAV, while

historical average discount stands at 4.5%.

Valuation Summary

Historical Discount to NAV Value Breakdown

146

Grupo Argos, 21%

Bancolombia, 27%

SUAM, 24%

Nutresa, 19%

Suramericana, 7%

Proteccion, 2%

Other, 0%

0

5

10

15

20

25

30

35

80

90

100

110

120

130

Oct-12 Feb-13 Jun-13 Oct-13

USD

mn

CO

P

Grupo Sura Colcap

-30%

-20%

-10%

0%

10%

20%

Oct-

08

Jan-0

9

Apr-

09

Jul-09

Oct-

09

Jan-1

0

Apr-

10

Jul-10

Oct-

10

Jan-1

1

Apr-

11

Jul-11

Oct-

11

Jan-1

2

Apr-

12

Jul-12

Oct-

12

Jan-1

3

Apr-

13

Jul-13

Oct-

13

2012 2013E 2014E 2015E

P/E 40.1 33.1 31.8 29.6

P/BV 1.1 1.0 1.0 1.0

Div . Yield 1.2% 1.3% 1.3% 1.4%Sources: Company Reports and Credicorp Capital;

E Credicorp Capital Estimates

Ticker gruposur cb equity

Price (COP) 37,660

LTM Range (COP) 31,000 - 39,100

Target (COP) 44,680

Total Return 20%

Market Cap (USD mn) 11,587

Shares Outstanding (mn) 575

Free Float 52%

ADTV (USD mn) 3.9

Andean Equities Guide, October 25th 2013

Conglomerates

Page 147: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Grupo Sura Company Description

Grupo Sura is a financial holding which controls local and regional leading companies in the asset management, banking and insurance segments. In the asset management division it has AUM worth USD 112.5bn and 14.5mn contributors. Additionally, it holds stakes in the food processing and infrastructure sectors through non-strategic investments.

Ownership Investment Portfolio

Dividend Revenues Breakdown Balance Sheet

Income Statement

Management

CEO: David Bojanini CFO: Ignacio Calle IR Manager: Luis E. Martinez www.gruposuramericana.com/en/Pages/InvestorRelations/InvestorRelations.aspx 147

Grupo Argos, 25%

Nutresa, 10%

Cemargos, 5% Pension

Funds, 24%

Others, 35%

Sura Asset

Management , 30%

Proteccion, 3%

Suramericana, 9%

Bancolombia, 34%

Nutresa, 12%

Grupo Argos, 10%

Others, 2%

Investment Portfolio

Strategic

Non-strategic

Pensions: SUAM

(64.0%)

Pensions: Protección

(32.9%)

Social Security:

Suramericana (81.1%)

Food Processing:

Nutresa (35.0%)

Banking: Bancolombia

(26.5%)

Conglomerate: Grupo Argos

(29.3%)

COP mn 2011 2012 2013E 2014E 2015E

Revenues 461,929 668,879 779,848 811,074 871,531

EBIT 417,061 545,917 747,269 777,190 835,121

Net Income 332,735 546,100 658,179 684,533 735,558

EPS 709.4 1,164.3 1,403.3 1,459.4 1,568.2

EBIT Margin 90.3% 81.6% 95.8% 95.8% 95.8%

Net Margin 72.0% 81.6% 84.4% 84.4% 84.4%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

COP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 293,032 88,551 131,546 243,073 359,674

Total Current Assets 1,271,061 202,056 436,333 560,064 700,293

Total Assets 21,590,399 21,680,178 22,179,873 22,592,675 23,038,243

Current Liabilities 250,000 250,000 250,000 250,000 250,000

Financial Debt 2,612,335 721,869 700,626 700,626 700,626

Total Liabilities 2,725,931 888,318 992,514 997,775 1,005,428

Shareholders Equity 18,864,467 20,791,860 21,187,358 21,594,900 22,032,815

Total Liabilities + Equity 21,590,398 21,680,178 22,179,873 22,592,675 23,038,243

Financial Debt /Equity 0.1 0.0 0.0 0.0 0.0

ROAE 1.8% 2.8% 3.1% 3.2% 3.4%

ROAA 1.7% 2.5% 3.0% 3.1% 3.2%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

Page 148: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Chile Industry:

Rating:

Buy Habitat Not yet time to retire

Christopher DiSalvatore +(562) 2446 1724

[email protected]

Investment Thesis Stock Data

• We are upgrading our recommendation to BUY, after a 9% downward price correction since our last revision. Despite the rebound in share price over the past month, at 12.5x 2014e recurring P/E and a dividend yield of 7%, valuation remains compelling.

• Political noise could pressure share valuation in the short term; however, we expect any potential regulatory changes to have a neutral/benign effect on operations. Based on our analysis, the changes required for the Chilean system going forward will depend on the formalization of the labor market and greater incentives for affiliates to actively contribute.

• In Chile, operations continue to benefit from important increase in salary growth and market share gains in higher income markets. Peruvian operations should weigh on costs in the short term, but provide growth that Chile will not be able to provide over the long term.

• Risks to our thesis: Downside risks include unforeseen regulatory changes, sharp decline in fees, integration challenges in Peru, and a general deterioration in the employment situation in both countries.

Price Chart (CLP) and Volumes (USD mn)

Valuation • Our revised 2014E target price is based on a 10 year DDM valuation

using a nominal cost of equity of 9.3% for Chile and 10% for Peru. Our terminal value implies an exit multiple P/E of 9x in Chile and 9.5x in Peru.

• Based on our estimates, shares are trading at recurring (ex. cash reserves) 2014E P/E of 12.5x or a 22% discount to the local market and a 11% discount to global, wealth management peers.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

148 Andean Equities Guide, October 25th 2013

2012 2013E 2014E 2015E

P/E 12.4 11.4 10.4 9.0

P/BV 4.0 3.4 3.1 2.8

Div . Yield 5.5% 6.6% 6.6% 7.2%

Sources: Company Reports and Credicorp Capital

0

5

10

15

20

25

30

80

90

100

110

120

130

Oct-12 Feb-13 Jun-13 Oct-13

US

D m

CLP

Habitat IPSA

Habitat

Blackrock

T Rowe

OCH -Ziff

W&R

Federated Inv.

0

1

2

3

4

5

6

7

5% 15% 25% 35% 45%

P/B

201

4E

ROE 2014E

Financial Services

0

5

10

15

20

Dec-99 Dec-02 Dec-05 Dec-08 Dec-110

1

2

3

4

5

Dec-99 Dec-02 Dec-05 Dec-08 Dec-11

Ticker habitat ci

Price (CLP) 839

LTM Range (CLP) 710 - 1,000

Target (CLP) 974

Total Return 23%

Market Cap (USD mn) 1,679

Shares Outstanding (mn) 1,000

Free Float 29%

ADTV (USD mn) 1.5

Page 149: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Habitat Company Description

Habitat, founded in 1981, operates as the #2 pension fund administrator in terms of affiliates and contributors in the Chilean AFP system, totaling over 2.2 and 1.7 million, respectively. The company offers a wide range of products and services to a diversified customer base. As of June 2013, the company was operational in Peru, where the AFP will have exclusivity of new affiliates entering the market for a duration of 2 years.

Ownership Income Statement

Revenues by Fee Type Balance Sheet

Obligatory fees charged by industry

Management

CEO: Cristián Rodríguez CFO: Cristián Halabi IR Manager: Megan Callahan www.afphabitat.cl

149 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Revenues 114,486 121,301 126,238 140,097 161,010

EBIT 71,219 88,883 87,141 96,273 111,755

EBITDA 77,832 97,270 94,296 103,565 119,192

Net Income 61,654 74,576 73,312 80,913 92,884

EPS 61.7 74.6 73.3 80.9 92.9

EBIT Margin 62.2% 73.3% 69.0% 68.7% 69.4%

EBITDA Margin 68.0% 80.2% 74.7% 73.9% 74.0%

Net Margin 53.9% 61.5% 58.1% 57.8% 57.7%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 47,604 55,765 58,659 65,368 76,429

Total Current Assets 49,882 58,870 61,855 68,763 80,193

Total Assets 248,610 279,020 300,976 329,302 364,393

Current Liabilities 22,292 26,193 27,912 28,980 31,548

Financial Debt 341 571 571 571 571

Total Liabilities 39,013 48,736 52,828 56,491 61,895

Minority Interest 0 0 0 0 0

Shareholders Equity 209,596 230,284 249,162 273,825 303,512

Total Liabilities + Equity 248,610 279,020 301,990 330,316 365,407

EBITDA / Fin. Expenses -1.0 -1.2 -1.1 -1.1 -1.1

Financial Debt /EBITDA 0.0 0.0 0.0 0.0 0.0

Financial Debt /Equity 0.0 0.0 0.0 0.0 0.0

ROAE 29.4% 33.9% 30.6% 30.9% 32.2%

ROAA 24.8% 28.3% 25.3% 25.7% 26.8%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

ILC68%

I.Union Esp.4%

Float29%

Planvital2.36%

Provida1.54%

Cuprum1.48%

Capital1.44%

Habitat1.27%

Modelo0.77%

CCICO94%

APV3%

CAV2%

Pensions1%

Page 150: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Chile Industry:

Rating:

Hold ILC A bet on Chilean development

Javier Gunther +(562) 2450 1695

[email protected]

Investment Thesis Stock Data

• We maintain our Hold recommendation, with a 2014YE T.P. of CLP 8,825. We believe that ILC is a defensive and stable play, with low revenue volatility (most of it coming from mandatory workers contribution) and one of the highest div. yields in the Chilean market (5.7% 2013E). However, we expect some changes in regulation in the Isapres, which could hurt the company’s profitability.

• We believe that ILC is an attractive asset for investors looking for stability and growth, sustained by domestic economic activity. However, the recent outperformance of the stock (+25% rebound since the beginning of September), precludes us from putting a Buy rating on the stock.

• Recently, ILC announced an agreement with Corpgroup to acquire 67% of its life and general insurance subsidiary Corpgroup. The price paid was between 0.9-1.0x P/BV, which is attractive when compared to similar operations. We have not included the acquisition in our model since its still in due diligence.

• Risks to our thesis: possible regulatory changes in the pension funds and healthcare. On the upside, compelling investments/M&A could trigger a positive performance on the stock.

Price Chart (CLP) and Volumes (USD mn)

Valuation • We valued ILC with a NAV approach, equivalent to the sum of the

economic value of its investments, taking into account our CLP 974 target price for Habitat (applying a 7.5% holding discount), and a DCF or BV approach for the other assets.

• After the outperformance of ILC over Habitat (25% vs. 14% since September), we recommend to invest directly in Habitat rather than through ILC. Also we believe Habitat has lower regulatory downside.

Valuation Summary

P/E Forward FV/EBITDA Forward Ownership Structure

150 Andean Equities Guide, October 25th 2013

Ticker ilc ci

Price (CLP) 7,745

LTM Range (CLP) 6,140 - 9,430

Target (CLP) 8,825

Total Return 20%

Market Cap (USD mn) 1,550

Shares Outstanding (mn) 100

Free Float 33%

ADTV (USD mn) 2.0

6

8

10

12

14

16

18

20

jul-12 oct-12 ene-13 abr-13 jul-13 oct-136

8

10

12

14

jul-12 oct-12 ene-13 abr-13 jul-13 oct-13

0

5

10

15

20

60

70

80

90

100

110

120

Oct-12 Feb-13 Jun-13 Oct-13

US

D m

n

CLP

ILC IPSA

CChC67.0%

International 11.3%

Institutional 5.7%

ILC Related 6.4%

Others 9.6%

2012 2013E 2014E 2015E

FV/EBITDA 8.6 9.5 8.2 6.8

P/E 11.2 12.7 10.5 10.3

Div . Yield 7.1% 5.6% 6.5% 6.9%

Sources: Company Reports and Credicorp Capital

Conglomerates

Page 151: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

ILC Company Description

Inversiones la Construccion (ILC) is an investment company, with ownership in AFP Habitat (pension fund), Red Salud (healthcare services provider), Consalud (health insurance), Vida Camara (life insurance), iConstruye (IT services), and real estate investments. It recently announced the acquisition of a general and life insurance company.

NAV Breakdown Holding Structure

Net Income Breakdown (LTM) Income Statement

Management

CEO: Pablo González CFO: Ignacio González IR Manager: María Paz Merino www.ilcinversiones.cl

151 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Revenues 652,345 678,055 642,029 710,448 786,874

EBIT 126,751 119,618 107,164 121,631 140,321

EBITDA 137,495 146,135 114,327 130,997 151,809

Net Income 81,041 83,031 60,659 73,847 74,877

EPS nm 830.3 606.7 738.6 748.9

EBIT Margin 19.4% 17.6% 16.7% 17.1% 17.8%

EBITDA Margin 21.1% 21.6% 17.8% 18.4% 19.3%

Net Margin 12.4% 12.2% 9.4% 10.4% 9.5%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Habitat65.4%

Consalud8.9%

Red Salud18.4%

Vida Camara

3.7%

Other Assets3.7%

Habitat76%

Consalud13%

Red Salud6%

Vida Camara

5%

Hábitat

ILC

Red Salud Vida Cámara Other Assets* Consalud

99.9% 89.9% 99.9% 67.5% 33-99%

Pension Funds

Healthcare Services

Mandatory Health Insurance

iConstruye / Real Estate assets.

Complementary Health Insurance

Page 152: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Colombia Industry:

Utilities Rating:

Uperf ISA Brazil turns off the light

Jaime A. Pedroza +(571) 339 44 00 ext. 1025

[email protected]

Investment Thesis Stock Data

• We are setting an underperform recommendation on ISA. The renegotiation of the power transmission concessions in Brazil came into force in January 2013. As a result, ISA’s total revenues fell 21% YoY during 1H13 and EBITDA margin decreased from 67.5% (2012) to 54.5% as of 1H13, with Brazil’s revenues falling over 60%. This change represents a dramatic decrease in revenues and profitability for ISA, a downturn from which we believe it will hardly recover in the foreseeable future.

• Uncertainty about compensation in Brazil: as part of the contracts’ renegotiation in Brazil, ISA is waiting for part of the compensation agreed upon with the Brazilian Government. This indemnification, related to investments made before the year 2000, should account for USD ~1.4 bn, according to ISA’s estimates. So far, the Brazilian Government has not released the final amount of the compensation, nor the payment method and its tax implications.

• Future opportunities: ISA’s main growth opportunities will come from participating in new toll road concessions in Colombia, and new power transmission concessions in Chile and Peru. Furthermore, the company is implementing a new strategic plan focused on reaching operating efficiencies.

Price Chart (COP) and Volumes (USD mn)

Valuation

• Target Price. Our 2014YE target price of COP 9,220/share is based on a DCF at a 9.0% discount rate (WACC). Perpetuity growth stands at 3.2%, reflecting long-term forecasts on weighted-average inflations of the countries in which ISA is currently operating.

• ISA has historically traded at high multiples, but even after LTM’s significant fall, it appears rich against its peers. We included the compensation payment in Brazil, risked at a 90% probability. However, the uncertainty regarding this compensation still implies a material risk for the stock in 2014.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

152

Ticker isa cb equity

Price (COP) 9,660

LTM Range (COP) 7,350 - 10,200

Target (COP) 9,220

Total Return -3%

Market Cap (USD mn) 5,693

Shares Outstanding (mn) 1,108

Free Float 31%

ADTV (USD mn) 1.6

5

7

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11

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15

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20

30

40

50

60

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Terna

ITC Holding

Red Electrica

Elia

ISA

8

10

12

14

16

18

20

22

24

8 9 10 11 12

P/E

201

3E

FV/EBITDA 2013E

0

2

4

6

8

10

12

70

80

90

100

110

Oct-12 Feb-13 Jun-13 Oct-13

USD

mn

CO

P

ISA Colcap

2012 2013E 2014E 2015E

FV/EBITDA 7.7 11.6 11.1 10.7

P/E 38.8 22.5 43.1 38.9

P/CF 3.1 -33.5 10.8 11.4

P/BV 1.7 1.4 1.4 1.4

Div . Yield 2.0% 3.4% 1.8% 2.0%Sources: Company Reports and Credicorp Capital;

E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

Page 153: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

ISA Company Description

ISA is dedicated to the construction, operation and maintenance of systems of linear infrastructure. including: 1) Power transmission, 2) Toll road concessions, 3) Telecommunications transmission, and 4) Real-Time Systems intelligent management. The company operates in Colombia, Chile, Peru, Brazil, Bolivia, Argentina, and Central America.

Ownership (as of June-2013) Income Statement

Revenues Breakdown (1H 2013) Balance Sheet

Revenues by Country (1H 2013)

Cash Flow

Management

CEO: Luis Fernando Alarcón CFO: Judith Cure Cure IR Manager: Gloria Velazquez www.isa.com.co

153

Colombian Government

, 51%

EPM, 10%

Mixed Companies,

7%

Free Float, 31%

Power, 65% Toll road

concessions, 27%

Telecoms, 4%

Others, 4%

Brazil, 21.4%

Colombia, 39.1%

Peru, 11.3%

Chile, 27.2%

Other, 1.0%

COP mn 2011 2012 2013E 2014E 2015E

Revenues 4,368,601 4,303,075 3,499,785 3,669,729 3,813,176

EBIT 2,193,390 2,002,717 1,277,143 1,281,487 1,314,005

EBITDA 3,027,415 2,903,106 1,904,628 1,991,552 2,065,375

Net Income 336,779 272,938 475,686 248,482 275,310

EPS 304.0 246.4 429.4 224.3 248.5

EBIT Margin 50.2% 46.5% 36.5% 34.9% 34.5%

EBITDA Margin 69.3% 67.5% 54.4% 54.3% 54.2%

Net Margin 7.7% 6.3% 13.6% 6.8% 7.2%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

COP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 1,412,951 1,676,906 5,324,290 5,084,081 5,471,583

Total Current Assets 3,327,841 4,895,065 5,284,615 5,220,034 5,268,655

Total Assets 26,659,165 25,770,989 27,821,849 27,481,852 27,737,824

Current Liabilities 4,815,691 2,823,877 2,867,444 2,813,512 2,830,364

Financial Debt 9,495,310 9,392,247 9,918,607 9,641,314 9,772,154

Total Liabilities 15,836,240 15,487,053 15,725,986 15,430,209 15,522,632

Minority Interest 4,398,238 4,173,321 4,307,800 4,378,047 4,455,878

Shareholder's Equity 6,424,687 6,110,615 7,788,063 7,673,596 7,759,314

Total Liabilities + Equity 26,659,165 25,770,989 27,821,849 27,481,852 27,737,824

EBITDA / Fin. Expenses 3.9 4.1 16.2 4.3 4.8

Financial Debt /EBITDA 3.1 3.2 5.2 4.8 4.7

Financial Debt /Equity 1.5 1.5 1.3 1.3 1.3

ROE 5.2% 4.4% 6.8% 3.2% 3.6%

ROA 1.3% 1.0% 1.8% 0.9% 1.0%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

COP mn 2011 2012 2013E 2014E 2015E

Initial Cash 1,211,091 1,412,951 1,676,906 5,324,290 5,084,081

Cash from Operations 494,452 1,651,908 5,293,344 1,403,327 1,573,602

CAPEX -1,045,748 -420,128 -1,653,976 -841,312 -947,878

Changes in Financial Debt 1,401,070 -103,063 526,360 -277,293 130,839

Div idends (Paid) Received -190,520 -198,274 -208,252 -362,949 -189,592

Taxes -457,394 -666,488 -310,093 -161,982 -179,470

Changes in Equity 0 0 0 0 0

Final Cash 1,412,951 1,676,906 5,324,290 5,084,081 5,471,583

Change in Cash 201,860 263,955 3,647,384 -240,208 387,501

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

Page 154: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Colombia Industry:

Utilities Rating:

Uperf Isagen The power company on sale

Jaime A. Pedroza +(571) 339 44 00 ext. 1025

[email protected]

Investment Thesis Stock Data

• We are maintaining our underperform recommendation on Isagen. The Colombian Government decided to sell its stake in the Company (57%) and defined a minimum sale price of COP 3,178/share. Government officials have stated that an even higher sale price is expected, given that the price should include a control premium and should also charge for some of the synergies that a strategic investor should be able to extract after the acquisition. The announcement has generated a national debate regarding whether the sale is in the Nation’s best interest; several law suits have been filed in an attempt to hinder the selling process.

• Isagen is currently trading at historical highs and its multiples are way above their historical average due to the price hike since the Government’s stake sale was announced (16.2%). The stock also seems overvalued relative to its peers. If the Government is successful in achieving a high selling price, this should trigger a public acquisition offer, benefiting minority holders.

• The main expansion project, Sogamoso is expected to start operations in August 2014, increasing installed capacity by 37% and generating efficiencies and margin improvements. We expect revenues to grow at 5.7% (CAGR 2013-2024).

Price Chart (COP) and Volumes (USD mn)

Valuation

• Our 2014YE target price of COP 3,060/share is based on a DCF that incorporates efficiencies coming from the expansion plan, and assumes a 2% perpetuity growth in line with power prices forecasts.

• The stock's current price appears disconnected from the Company’s fundamentals and fair value. There is a lot of uncertainty around the Government’s sale, but current prices seem to discount it as a given. Furthermore, the price seems to already include a control premium, reducing the room for appreciation even if the sale is carried out.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

154

10

15

20

25

30

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 5

7

9

11

13

15

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Ticker isagen cb equity

Price (COP) 3,160

LTM Range (COP) 2,420 - 3,180

Target (COP) 3,060

Total Return -2%

Market Cap (USD mn) 4,583

Shares Outstanding (mn) 2,726

Free Float 29%

ADTV (USD mn) 1.5

0

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Oct-12 Feb-13 Jun-13 Oct-13

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mn

CO

P

Isagen Colcap

2012 2013E 2014E 2015E

FV/EBITDA 14.4 14.2 13.7 11.2

P/E 14.8 19.5 27.6 19.4

P/CF -9.8 -215.1 25.2 12.7

P/BV 1.9 2.2 2.1 2.0

Div . Yield 2.8% 2.1% 1.5% 2.1%Sources: Company Reports and Credicorp Capital;

E Credicorp Capital Estimates

Endesa Enersur

Gener

Colbun

Isagen

Celsia

Edegel

E-CL

Enersis

8

13

18

23

28

3 5 7 9 11 13 15

P/E

201

3E

EV/EBITDA 2013E

Andean Equities Guide, October 25th 2013

Page 155: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Isagen Company Description

Isagen is a power generation company in Colombia. It has 2,212 MW of installed capacity (14% thermal, 86% Hydro) which makes it the third largest power generator in Colombia. Colombian Government has a 58% stake in the company. The company is developing Sogamoso hydroelectric project which will add 800 MW of installed capacity in late 2014.

Ownership (as of June-2013) Income Statement

Revenues Breakdown (1H 2013) Balance Sheet

Installed Capacity (MW)

Cash Flow

Management

CEO: Luis Fernando Rico Pinzón CFO: Juan Fernando Vásquez IR Manager: Bertha Libia Suárez www.isagen.com.co/inversionistas

155

COP mn 2011 2012 2013E 2014E 2015E

Revenues 1,682,700 1,731,539 2,012,251 2,024,060 2,390,353

EBIT 599,085 501,455 634,039 638,699 810,747

EBITDA 707,900 610,929 744,773 767,464 945,782

Net Income 479,113 460,903 442,768 312,588 443,387

EPS 175.8 169.1 162.4 114.7 162.6

EBIT Margin 35.6% 29.0% 31.5% 31.6% 33.9%

EBITDA Margin 42.1% 35.3% 37.0% 37.9% 39.6%

Net Margin 28.5% 26.6% 22.0% 15.4% 18.5%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

COP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 568,892 178,391 199,800 200,837 228,996

Total Current Assets 950,584 782,073 850,995 872,249 889,051

Total Assets 5,882,447 6,742,265 7,336,444 7,519,678 7,664,521

Current Liabilities 368,266 492,841 546,760 555,026 528,036

Financial Debt 1,569,620 2,180,497 2,468,730 2,524,356 2,216,897

Total Liabilities 2,507,569 3,111,208 3,451,589 3,503,770 3,333,387

Minority Interest 0 0 0 0 0

Shareholder's Equity 3,374,878 3,631,057 3,884,855 4,015,908 4,331,134

Total Liabilities + Equity 5,882,447 6,742,265 7,336,444 7,519,678 7,664,521

EBITDA / Fin. Expenses 60.2 65.4 22.1 3.6 4.5

Financial Debt /EBITDA 2.2 3.6 3.3 3.3 2.3

Financial Debt /Equity 0.5 0.6 0.6 0.6 0.5

ROE 14.2% 13.2% 11.8% 7.9% 10.6%

ROA 8.1% 7.3% 6.3% 4.2% 5.8%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Colombian Government,

58%

EPM, 13%

EEB, 3%

Pension funds, 12%

Other, 15%

Thermal, 300

Hydro, 1,912

Power, 96%

Natural Gas, 3%

Other, 0%

COP mn 2011 2012 2013E 2014E 2015E

Initial Cash 1,029,122 568,892 178,391 199,800 200,837

Cash from Operations 653,210 497,616 651,170 545,217 731,225

CAPEX -831,195 -1,240,327 -571,888 -307,232 -109,990

Changes in Financial Debt 1,844 610,877 288,233 55,626 -307,459

Div idends (Paid) Received -163,625 -209,985 -188,917 -181,602 -128,208

Taxes -120,464 -48,682 -157,189 -110,973 -157,408

Changes in Equity 0 0 0 0 0

Final Cash 568,892 178,391 199,800 200,837 228,996

Change in Cash -460,230 -390,501 21,409 1,036 28,160

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

Page 156: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

2012 2013E 2014E 2015E

FV/EBITDA 18.6 10.1 8.0 6.6

P/E 867.5 nm 18.4 11.3

P/CF nm nm 11.7 11.4

P/BV 2.2 1.6 1.5 1.4

Div . Yield 1.1% 0.0% 1.6% 2.7%

Sources: Company Reports and Credicorp Capital

Chile Industry:

Rating:

Hold LATAM Flying at the edge of debt limit

Francisca Manuschevich +(562) 2446 1798

[email protected]

Investment Thesis Stock Data

• We are updating our recommendation on Latam Airlines from BUY to HOLD. Though the company is working on strengthening its balance sheet and rationalizing operating factors to improve profitability, we still see important challenges going foward. Brazilian market has shown a hostile environment, with low domestic demand, excess of capacity, increasing jet fuel costs and currency depreciation. In addition, Net Debt/EBITDA is still estimated to be above 4.0x for 2013/14, which won’t allow the company to go back to Investment Grade rating.

• Company strategy in the right direction. After several quarters of

weak earnings, Latam will show improvements in profitability starting in 3Q13. We believe the company is moving in the right direction, reducing capacity in Brazil (7-9% 2012/13) and modifying its CAPEX plan for 2013/15E (USD 1.1 bn decrease in its fleet comminments). The airline is also working on amending its BRL/USD currency mismatch. However, we remain cautios on the stock as costs are still under pressure, demand remains weak (mainly in Brazil) and we continue to see a tough environment for the cargo business.

• Risks to our thesis include slower than expected recovery in

Brazilian operations and a delayed generation of merger synergies.

Price Chart (CLP) and Volumes (USD mn)

Valuation • Our revised 2014E target price is based on a 10 year DCF valuation.

We use a nominal WACC of 11.37% in USD terms. Our TP implies a 8.13 x 2014E FV/EBITDA.

• Latam airlines is currently trading at 8.0 and 6.6x 2014E/15E FV/EBITDA , below its 5-year historical range, which in our view is fair considering current profitability levels, the challenging outlook and high debt levels.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

156 Andean Equities Guide, October 25th 2013

Transport

Ticker lan ci / lfl us

Price (CLP) 8,106

LTM Range (CLP) 6,022 - 12,064

Target 9,000 (loc)/ 17.8 (ADR)

Total Return 11%

Market Cap (USD mn) 7,847

Shares Outstanding (mn) 483.6

Free Float 76%

ADTV (USD mn) 13.8 (loc) / 9.7 (ADR)

0

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n

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LATAM IPSA

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Dec-99 Dec-02 Dec-05 Dec-08 Dec-11

LATAM

AVIANCA COPA

468

10121416182022

0 5 10 15

P/E

201

4E

FV/EBITDA 2014E

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LATAM Company Description

Latam is the largest South American airline, offering passenger and cargo air transport services. It has international and domestic operations in Chile, Argentina, Brazil, Paraguay, Peru, Ecuador and Colombia. It currently owns more than 204 aircrafts, flying to more than 116 destinations worldwide and transporting more than 45 million passengers.

Ownership Income Statement

2Q13 Revenues Breakdown Balance Sheet

2Q13 Passenger ASKs Breakdown

Cash Flow

Management

Latam VP: Enrique Cueto Plaza Lan CEO: Ignacio Cueto Plaza Tam CEO: Marco Antonio Bologna Latam CFO: Andrés Osorio IR Manager: Gisella Escobar www.latamairlinesgroup.net

157 Andean Equities Guide, October 25th 2013

USD mn 2011 2012 2013E 2014E 2015E

Revenues 5,718 9,942 13,128 14,005 14,805

EBIT 540 317 656 1,137 1,542

EBITDA 944 1,102 1,705 2,164 2,612

Net Income 320 13 -119 426 697

EPS 470.6 13.5 -122.2 439.1 719.2

EBIT Margin 9.4% 3.2% 5.0% 8.1% 10.4%

EBITDA Margin 16.5% 11.1% 13.0% 15.4% 17.6%

Net Margin 5.6% 0.1% -0.9% 3.0% 4.7%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 374 650 958 1,120 1,258

Total Current Assets 1,343 3,348 4,089 4,439 4,762

Total Assets 7,649 20,593 22,352 23,161 24,200

Current Liabilities 2,322 5,780 5,432 5,612 5,794

Financial Debt 3,691 9,746 10,379 10,662 10,982

Total Liabilities 6,191 15,424 17,308 17,819 18,368

Minority Interest 12 27 29 30 31

Shareholders Equity 1,445 5,142 5,015 5,313 5,801

Total Liabilities + Equity 7,649 20,593 22,352 23,161 24,200

EBITDA / Fin. Expenses 7.6 5.1 4.1 4.5 5.3

Financial Debt /EBITDA 3.9 8.8 6.1 4.9 4.2

Financial Debt /Equity 2.6 1.9 2.1 2.0 1.9

ROAE 22.2% 0.4% -2.5% 8.2% 12.5%

ROAA 4.2% 0.1% -0.6% 1.9% 2.9%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Initial Cash 631 374 650 958 1,120

Cash from Operations 487 1,277 1,577 2,119 1,943

CAPEX -1,051 -2,059 -1,718 -1,293 -1,615

Changes in Financial Debt 586 1,102 633 -219 32

Div idends (Paid) Received -192 125 0 -128 209

Taxes -87 -252 -184 -318 -432

Changes in Equity 0 83 0 0 0

Final Cash 374 650 958 1,120 1,258

Change in Cash -257 276 308 162 138

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Cueto Group 26%

Amaro Group 14%

Bethia Group 6%

Eblen Group 5%

ADR's 6%BDR's 1%

Pension Funds 16%

Foreign Investors

9%

Other (Chile) 19%

Long Haul 34%

Regional 17%

Brazil 34%

Chile 7%

Peru 3%

Argentina 3%

Colombia 2%

Ecuador 1%

International 38%

Domestic 14%

Brazil 29%

Cargo 16%

Other 2%

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Peru Industry:

Utilities Rating:

Hold Luz del Sur Sympathy for generation

Fernando Pereda +(511) 416 3333 - Ext: 37856

[email protected]

Investment Thesis Stock Data

• We are setting a Hold rating on the shares and a 2014YE target price of PEN 10.1. LdS’s sustainable growth strategy focuses on managing operational risks and looking for energy generation projects, a unique combination in Peru. However, we believe the shares already adequately reflect this.

• Inroads into generation are a new source of value. The company’s Santa Teresa hydro plant (98 MW; USD 154mn through 4Q14) is the first of potentially several generation projects that should add value.

• Vigorous growth in the household energy consumption market will continue to be the main driver of Luz del Sur’s energy sales, which will grow 6.2% in 2014 and 5.2% in 2015.

• Current regulatory framework and Peru’s economic stability will mitigate operational risk. Moreover, the company continues to sign long-term contracts to afford greater stability in its future cash flows, since energy purchases represent more than 80% of COGS.

• Risks to our thesis: Slower pace in the concession area; higher-than expected reduction in VAD (4% forecasted).

Price Chart (PEN) and Volumes (USD mn)

Valuation • We determined our target price with a DCF model that considers

higher energy consumption in the concession area; nevertheless, energy costs have been revised upward, which will increase revenues while reducing margins in the distribution business.

• The Capex made in recent years has allowed the company to efficiently meet growing electric demand in its concession area. This improved street lighting and reduced energy losses to around 7.2%.

• LdS trades at 8.8x FV/EBITDA and 13.7x P/E, which is justified since Santa Teresa hydro plant will enhance margins through 2015.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

158

Edelnor

CPFL

Luz del Sur

Coelce

0

5

10

15

20

25

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P/E

201

4E

FV/EBITDA 2014E

0

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140

Oct-12 Feb-13 Jun-13 Oct-13

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D m

PE

N

LUZ DEL SUR IGBVL

Ticker lusurc1 pe

Price (PEN) 9.65

LTM Range 8.28 - 9.94

Target 10.1

Total Return 10%

Market Cap (USD mn) 1,699

Shares Outstanding (mn) 487

Free Float 60%

ADTV (USDmn) 0.3

2012 2013E 2014E 2015E

FV/EBITDA 9.1 9.6 8.8 7.5

P/E 13.5 14.5 13.7 11.5

P/CF 43.6 38.7 28.4 14.1

P/BV 3.0 3.1 2.9 2.7

Div . Yield 7.3% 5.3% 5.0% 5.3%

Sources: Company Reports and Credicorp Capital

(PEN) (PEN)

Andean Equities Guide, October 25th 2013

0

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5

10

Jun-01 Jun-04 Jun-07 Jun-10 Jun-13

Page 159: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Luz del Sur Company Description

Luz del Sur distributes electricity to the southern area of Lima with more than 940.000 customers and a concession territory of 3,000 km2. The company distributes 30% of the electricity in Peru, covering 30 of the most important districts of Lima (4 million residents) with a 100% electrification rate and the lowest energy losses in Peru. Controlled by Sempra Energy.

Ownership Income Statement

Sales Breakdown (% of MW.h in 2014) Balance Sheet

COGS Breakdown (2014)

Cash Flow

Management

CEO: Mile Cacic CFO: Luis Fernando de las Casas IR Manager: - www.luzdelsur.com.pe

159

PEN mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 24 29 21 26 110

Total Current Assets 341 368 405 441 571

Total Assets 2,593 2,884 3,121 3,343 3,549

Current Liabilities 428 455 597 615 621

Financial Debt 620 835 968 1,080 1,122

Total Liabilities 1,281 1,496 1,633 1,746 1,789

Minority Interest 0 0 0 0 0

Shareholders Equity 1,312 1,388 1,487 1,597 1,760

Total Liabilities + Equity 2,593 2,884 3,121 3,343 3,549

EBITDA / Fin. Expenses 13.9 13.9 12.3 10.2 10.9

Financial Debt /EBITDA 1.2 1.5 1.7 1.7 1.5

Financial Debt /Equity 0.5 0.6 0.7 0.7 0.6

ROE 22.8% 22.9% 22.4% 22.2% 24.3%

ROA 11.5% 11.3% 10.7% 10.6% 11.9%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mn 2011 2012 2013E 2014E 2015E

Revenues 1,847 2,078 2,206 2,398 2,678

EBIT 455 478 492 528 628

EBITDA 525 550 571 619 724

Net Income 299 309 322 342 409

EPS 0.61 0.64 0.66 0.70 0.84

EBIT Margin 24.6% 23.0% 22.3% 22.0% 23.5%

EBITDA Margin 28.4% 26.5% 25.9% 25.8% 27.0%

Net Margin 16.2% 14.9% 14.6% 14.3% 15.3%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Non-cash charges 4.9%

Energy purchases

82.8%

Labour 4.0%

Services 5.3%

Others 3.0%

Non-regulated

5.9%

Regulated 94.1%

Pension Funds 9.9%

Ontario Quinta 61.2%

Peruvian Opportunit

y Company

12.9%

Others 16.1%

Andean Equities Guide, October 25th 2013

PEN mn 2011 2012 2013E 2014E 2015E

Initial Cash 14 24 29 21 26

Cash from Operations 357 318 356 402 460

CAPEX -144 -296 -273 -277 -172

Changes in Financial Debt 23 -8 132 112 42

Div idends (Paid) Received -224 -234 -223 -232 -246

Others -2 225 0 0 0

Changes in Equity 0 0 0 0 0

Final Cash 24 29 21 26 110

Change in Cash 11 5 -8 5 84

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

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2012 2013E 2014E 2015E

FV/EBITDA 6.5 5.3 5.0 4.6

P/E 16.1 11.3 11.2 9.6

P/CF 5.6 -8.4 10.3 10.2

P/BV 0.5 0.4 0.4 0.4

Div . Yield 2.3% 2.7% 2.7% 3.1%

Sources: Company Reports and Credicorp Capital; E

Chile Industry:

Rating:

Uperf Masisa Difficult times abroad

Arturo Prado +(562) 2450 1688

[email protected]

Investment Thesis Stock Data

• We are changing our rating on Masisa from Hold to Underperform and introducing a new 2014YE T.P. of CLP 39 per share. The company is highly exposed to unstable countries, facing significant devaluation risks and restrictions on dividend payments, particularly in Venezuela (28% of Masisa’s LTM Sales, up from 20% in 2010).

• We are skeptical about Masisa’s efforts to create value added

products in a highly commoditized market. Masisa expects to grow in Brazil, Chile and Mexico, where it recently bought Rexel and plans to start a new MDF plant by 2015. We like its exposure to growing markets with low housing penetration, like Mexico and Brazil. However, risks arise from fierce competition in those markets.

• The company announced the sale of forestry assets in Chile. The company expected to receive USD 200mn, this could results in value discovery for the company.

• Risks to our thesis. Main upside risks include better-than-expect

economic behavior of some LatAm countries and a higher-than-expected sale price of its forestry assets. The downside risk we see is a potential breach of covenants due to a devaluation in Venezuela negatively impacting debt coverage ratios.

Price Chart (CLP) and Volumes (USD mn)

Valuation • In terms of forward multiples, the company is trading at 11.2x P/E

and 5.0x FV/EBITDA 2014E, which look attractive if compared to its 5 year average, but we think is justified given the decline in the profitability ratios.

• When compared to its peers, the company is trading with a significant discount, which in our view is justified by its geographic allocation and the above mentioned decline in profitability ratios.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

160 Andean Equities Guide, October 25th 2013

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n

CLP

Masisa IPSA

Ticker masisa ci

Price (CLP) 37

LTM Range (CLP) 35.8 - 59.4

Target (CLP) 39

Total Return 7%

Market Cap (USD mn) 594

Shares Outstanding (mn) 7,965

Free Float 34%

ADTV (USD mn) 0.4

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CMPCCOPEC

MASISA

Suzano

Stora Enso

Duratex

0x

5x

10x

15x

20x

25x

30x

0x 5x 10x 15x 20x

P/E

201

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Materials

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Masisa Company Description

Masisa is an integrated industrial company, one of the leaders in the production and commercialization of wood boards for furniture and interior architecture in Latin America. The company also has a forestry division with assets located in Chile, Argentina and Venezuela.

Ownership Income Statement

Revenues LTM by country Balance Sheet

EBITDA LTM by segment

Cash Flow

Management

CEO: Roberto Salas CFO: Eugenio Arteaga IR Manager: Carolina Galvez www.masisa.com

161 Andean Equities Guide, October 25th 2013

USD mn 2011 2012 2013E 2014E 2015E

Revenues 1,251 1,349 1,487 1,538 1,653

EBIT 85 103 117 127 144

EBITDA 207 224 246 260 283

Net Income 69 45 53 53 62

EPS 4.9 3.2 3.3 3.3 3.9

EBIT Margin 6.8% 7.7% 7.9% 8.2% 8.7%

EBITDA Margin 16.6% 16.6% 16.6% 16.9% 17.1%

Net Margin 5.5% 3.3% 3.6% 3.5% 3.7%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 159 130 223 231 248

Total Current Assets 739 762 894 923 991

Total Assets 2,683 2,708 3,146 3,327 3,556

Current Liabilities 462 398 418 431 460

Financial Debt 875 854 1,128 1,257 1,408

Total Liabilities 1,305 1,328 1,630 1,774 1,960

Minority Interest -5 -6 -3 -3 -3

Shareholders Equity 1,400 1,382 1,519 1,556 1,599

Total Liabilities + Equity 2,700 2,705 3,146 3,327 3,556

EBITDA / Fin. Expenses 4.7 5.0 5.1 4.3 4.2

Financial Debt /EBITDA 4.2 3.8 4.6 4.8 5.0

Financial Debt /Equity 0.6 0.6 0.7 0.8 0.9

ROAE 5.2% 3.2% 3.6% 3.5% 3.9%

ROAA 2.7% 1.7% 1.8% 1.6% 1.8%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Initial Cash 68 159 130 223 231

Cash from Operations 105 92 47 86 85

CAPEX -94 -78 -266 -166 -170

Changes in Financial Debt 122 -20 273 129 151

Div idends (Paid) Received -24 -17 -16 -16 -19

Taxes -19 -5 -25 -25 -29

Changes in Equity 0 0 80 0 0

Final Cash 159 130 223 231 248

Change in Cash 91 -28 93 8 17

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Grupo Nueva 67.0%

Pension Funds 15.2%

Others 17.8%

Venezuela28%

Chile19%

Brazil17%

Argentina12%

Mexico10%

Others14%

Forestry29%

Industrial71%

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2012 2013E 2014E 2015E

FV/EBITDA 6.7 3.3 2.9 2.5

P/E 64.4 7.4 4.9 4.0

P/CF 4.9 2.7 2.6 2.0

P/BV 2.7 1.3 1.0 0.8

Div . Yield 4.4% 0.6% 4.1% 7.1%

Sources: Company Reports and Credicorp Capital

Peru Industry:

Mining Rating:

Buy Milpo Sailing the zinc-copper flagship

Héctor Collantes +(511) 4163333 – Ext 33052

[email protected]

Investment Thesis Stock Data

• We maintain our BUY rating on Milpo. Given expected production increases and cost controls, the shares look undervalued.

• Cerro Lindo expansion boosts results. Cerro Lindo’s expansion at 15,000 tpd (10,000 tpd until 4Q12) has brought output increases (YoY) of +50% Pb, +29% Ag, +24% Zn, +10% Cu and +9% Au (+20% in sales) and, due to cost controls, an expected +420% in NI.

• El Porvenir has room to grow. Its 5,600 tpd throughput has been operating at 90% of capacity while equipment was adjusting to new production levels. Moreover, an operational integration with Atacocha is being considered.

• Reorganization has finished. In 2012, Milpo faced overall rising costs and depletion in two small copper mines that became unprofitable. Both mines are already put in care and maintenance.

• New CEO may help unlock value from Milpo’s postponed greenfields. Victor Gobitz worked in Rio Alto and Volcan.

• Risks to our thesis: sustaining Capex and exploration expenses have been rising; Atacocha could start to drain cash.

Price Chart (PEN) and Volumes (USD mn)

Valuation • Expecting the next move. We are adding the 56% of Atacocha to

Cerro Lindo and El Porvenir in a 17-period DCF as of the longest life of mine of Cerro Lindo, without including further capacity expansions nor the in-situ value of greenfield resources. These exploration projects lack a clear development plan, in our view.

• Relatively undervalued. Milpo’s twelve months forward multiples are below historical averages, after taking into account the forthcoming Net Income and EBITDA increase. Milpo appears undervalued when compared with its peers.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

162

Minmetals Sumitomo Metal Mining

Boliden Volcan

El Brocal

Milpo 0

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Andean Equities Guide, October 25th 2013

Ticker milpoc1 pe

Price (PEN) 1.9

LTM Range 1.13 - 3.5

Target 2.6

Total Return 40%

Market Cap (USDmn) 774

Shares Outstanding (mn) 1,110

Free Float 19%

ADTV (USDm) 0.2

(PEN)

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Milpo Company Description

Milpo directly operates the polymetallic (zinc, lead and silver) mines of Cerro Lindo (15,000 tpd) and El Porvenir (5,600 tpd) and indirectly, Atacocha (56% of equity) in Peru. It also maintains rights but have suspended production in the copper mines of Chapi (Peru) and Iván (Chile). Milpo is majority owned by the Brazilian Votorantim.

Ownership Income Statement

Revenues Breakdown per Metal Balance Sheet

Revenues Breakdown per Mine

Cash Flow

Management

CEO: Víctor Gobitz CFO:Persio Morasutti HIR Henry Aragón www.milpo.com

163

Votorantm 43,4%

Milpo 10.0%

Carvel 7.5%

Peruvian Pension Funds 20.2%

Others 18.9%

Zinc 45,7%

Lead 6.6%

Copper 29.1%

Silver 13.8%

Gold 1.2%

Cerro Lindo 70,1%

El Porvenir 23.4%

Atacocha 6.5%

USDmn 2011 2012 2013E 2014E 2015E

Revenues 495 520 623 675 740

EBIT 235 155 208 242 290

EBITDA 276 206 271 308 357

Net Income 150 20 104 158 192

EPS 0.120 0.018 0.080 0.137 0.171

EBIT Margin 47.4% 29.8% 33.3% 35.8% 39.2%

EBITDA Margin 55.7% 39.6% 43.5% 45.6% 48.2%

Net Margin 30.2% 3.9% 16.7% 23.4% 25.9%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USDmn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 151 88 505 667 844

Total Current Assets 315 260 701 878 1,072

Total Assets 876 857 1,294 1,463 1,650

Current Liabilities 168 198 181 181 175

Financial Debt 133 179 512 495 487

Total Liabilities 278 372 704 716 711

Minority Interest 0 0 0 0 0

Shareholders Equity 598 486 590 748 940

Total Liabilities + Equity 876 857 1,294 1,463 1,650

EBITDA / Fin. Expenses 88.1 57.0 22.7 19.0 22.0

Financial Debt /EBITDA 0.5 0.9 1.9 1.6 1.4

Financial Debt /Equity 0.2 0.4 0.9 0.7 0.5

ROAE 25.1% 3.7% 19.4% 23.6% 22.8%

ROAA 17.1% 2.3% 9.7% 11.4% 12.3%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USDmn 2011 2012 2013E 2014E 2015E

Initial Cash 132 151 88 505 667

Cash from Operations 237 168 143 237 243

CAPEX -68 -151 -58 -58 -58

Changes in Financial Debt 54 27 333 -17 -9

Div idends (Paid) Received -91 7 -7 -32 -55

Financial&Investing, others -112 -115 7 32 55

Changes in Equity 0 0 0 0 0

Final Cash 151 88 505 667 844

Change in Cash 20 -64 417 162 177

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

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2012 2013E 2014E 2015E

FV/EBITDA 7.5 2.9 5.8 5.8

P/E 10.6 4.5 9.4 9.4

P/CF 4.8 2.1 6.2 4.5

P/BV 1.3 0.5 0.5 0.4

Div . Yield 14.0% 4.9% 5.5% 5.5%

Sources: Company Reports and Credicorp Capital

Peru Industry:

Mining Rating:

Buy Minsur The tin giant in transition

Héctor Collantes +(511) 4163333 – Ext 33052

[email protected]

Investment Thesis Stock Data

• We maintain our BUY rating on Minsur due to compelling valuations and positive trends in production and cost controls. Current refined tin output of 22,300 MT/year (-10% YoY) seems sustainable while Minsur focuses on exploration and development of tin and copper mines.

• Cost control measures will not mature soon. Even though most of Minsur’s cost control has been rightly aimed at third party contractors (41% of prod. costs), the company will continue requiring specialized contractors because it is finishing its operational transition towards long hole drilling in narrow vein mining.

• Gold mine is over delivering. The recently started Pucamarca Au mine in Tacna, Southern Peru, is set to almost reach 100,000 Au oz (75,000 Au oz expected) at cash costs as low as USD300/oz.

• Subsidiaries are turning around. Taboca is expected to get profits in 2014, whereas Melón will more than cover its debt expenses.

• Risks to our thesis: Tin reserves may not be replaced. Local opposition against Pucamarca could rise in 2014 regional elections.

Price Chart (PEN) and Volumes (USD mn)

Valuation • Tin and copper potential remains hidden. We sum a 7-year DCF

for the San Rafael Sn and Pucamarca Au operations (50% of TP) and 75% of the book value of the subsidiaries (50% of TP). Nor Bofedal II’s expected tin (prefeasibility 1Q14) nor Mina Justa’s copper (start in 2020) are included due to their early stages.

• Multiples seem to price a discount. Minsur trades at comparatively lower multiples than its tin mining peers. However, the market might be assigning a conglomerate discount to the scarce information available of its subsidiaries. We think that the new drive of management for transparency will address this issue.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

164

Malasysia Smelting

Corp Metals X Ltd

Minsur

Timah Persero Tbk

0

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E

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Ticker minsuri1 pe

Price (PEN) 1.4

LTM Range 1.15 - 2.56

Target 2.0

Total Return 54%

Market Cap (USDmn) 1,407

Shares Outstanding (mn) 2,883

Free Float 16%

ADTV (USDmn) 0.3

0

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Andean Equities Guide, October 25th 2013

(PEN)

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Minsur Company Description

Minsur is controlled by the Peruvian group Brescia and engages in the smelting and refining of tin from its San Rafael mine in Puno, southern Peru. Its main subsidiaries are Taboca (tin, niobium and tantalum, Brazil), Melón (cement, Chile) and Marcobre (Cu project, Peru). It is the world’s largest integrated tin producer.

Ownership Income Statement

Revenues Breakdown per Metal Balance Sheet

R&R (Contained Tin) Breakdown

Cash Flow

Management

CEO: Juan Luis Kruger CFO (IR):Álvaro Ossio www.minsur.com.pe

165

Tin 45,7%

Gold 17.0%

Niobium -Tantalium

8.0%

Brescia Family 66,7%

Peruvian Pension Funds 17.6%

Others 15.7%

Taboca 62,0%

San Rafael 28.0%

Bofedal II 10.0%

USDmn 2011 2012 2013E 2014E 2015E

Revenues 839 620 681 644 699

EBIT 592 341 475 211 209

EBITDA 631 368 525 261 259

Net Income 295 251 314 149 150

EPS 0.143 0.090 0.109 0.064 0.057

EBIT Margin 70.6% 55.0% 69.7% 32.8% 29.9%

EBITDA Margin 75.3% 59.4% 77.1% 40.5% 37.0%

Net Margin 35.2% 40.4% 46.1% 23.2% 21.4%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USDmn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 506 100 757 1,150 1,459

Total Current Assets 767 307 949 1,402 1,753

Total Assets 1,891 2,319 2,936 3,293 3,592

Current Liabilities 91 267 201 228 199

Financial Debt 7 201 172 141 110

Total Liabilities 123 304 238 271 244

Minority Interest 0 0 0 0 0

Shareholders Equity 1,768 2,016 2,698 3,022 3,348

Total Liabilities + Equity 1,891 2,319 2,936 3,293 3,592

EBITDA / Fin. Expenses -105.1 -37.4 -111.2 -93.0 -45.2

Financial Debt /EBITDA 0.0 0.5 0.3 0.5 0.4

Financial Debt /Equity 0.0 0.1 0.1 0.0 0.0

ROAE 16.7% 13.2% 13.3% 5.2% 4.7%

ROAA 15.6% 11.9% 11.9% 4.8% 4.4%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USDmn 2011 2012 2013E 2014E 2015E

Initial Cash 443 506 100 757 1,150

Cash from Operations 420 266 343 293 213

CAPEX -55 -129 -25 -25 -25

Changes in Financial Debt 0 200 4 2 2

Div idends (Paid) Received -160 -150 130 96 85

Financial&Investing, others -142 -593 205 27 34

Changes in Equity 0 0 0 0 0

Final Cash 506 100 757 1,150 1,459

Change in Cash 63 -405 657 392 309

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

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10

15

20

25

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

Colombia Industry:

Rating:

Buy Nutresa Expansion to continue driving growth

Juliana Valencia M. +(571) 339 4400 ext. 1365

[email protected]

Investment Thesis Stock Data

• We maintain Nutresa on Buy. Profitability has been boosted by lower commodity prices. However, the Company has also managed to increase efficiency in its operations rising its ton/man-hours ratio (+~4%/year). Additionally, Nutresa’s leading position in Colombia has given it flexibility in its pricing strategy. We expect EBITDA margin to close 2013 at 14.3% and after a mild drop, to continue in the upper limit of the management’s 12%-14% guidance range.

• Limited room to grow in Colombia (57% consolidated market share) should continue to push for inorganic growth. We highlight the Company’s successful track record in the consolidation of new operations, where it has shown profitable deliveries and low impact on its debt and coverage ratios which have remained sound. The TresMontes-Lucchetti (TML) deal, while at a relatively high EBITDA multiple (12.3x), will not only bring operational synergies, specially in Mexico with TML’s distribution network, but also a more efficient financial structure (approx. USD 600mn new debt).

• Nutresa is a play on local demand which we expect to remain robust in the following years (4.3% in 2013 and 4.2% in 2014).

• Risks include consumer trends, food industry regulation and

commodities’ volatility and its effects in profitability.

Price Chart (COP) and Volumes (USD mn)

Valuation • Our TP of COP 32,600/share is based on a DCF model at an 8.7%

discount rate (WACC in COP), a long term consolidated EBITDA margin of 13.5% and a real perpetuity growth rate of 1%.

• Our TP implies a 11.7x 2014E FV/EBITDA, in line with industry peers, and a 29.2x 2014E P/E. Given the size of the Company’s investment portfolio (USD 2.1bn) relative to the operating business, we highlight that these multiples are clean from this effect (different from tables and graphs in this document) to reflect the valuations of the core business.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

166

20

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USD

m

CO

P

Nutresa Colcap

2012 2013E 2014E 2015E

FV/EBITDA 18.0 15.6 13.2 12.3

P/E 33.7 38.5 36.8 32.9

P/CF 37.2 -11.8 29.0 28.1

P/BV 1.6 1.6 1.6 1.6

Div . Yield 1.5% 1.4% 1.5% 1.6%Sources: Company Reports and Credicorp Capital;

E Credicorp Capital Estimates

Nestle

Bimbo

Kellogg

Hershey

Nutresa

McCormick Mondelez

Kraft

Smucker

Alicorp

10

15

20

25

30

35

40

45

50

9 11 13 15

P/E

2

01

4E

EV/EBITDA 2014E

Ticker nutresa cb equity

Price (COP) 27,340

LTM Range (COP) 22,200 - 28,500

Target (COP) 32,600

Total Return 21%

Market Cap (USD mn) 6,693

Shares Outstanding (mn) 460

Free Float 47%

ADTV (USD mn) 2.5

Andean Equities Guide, October 25th 2013

Food & Beverages

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Nutresa Company Description

Grupo Nutresa is a leading company in the LatAm food processing industry with presence in 6 segments, through 70 brands: cold cuts, biscuits, chocolate, coffee, ice cream and pastas. It is number one in Colombia in almost all segments with a consolidated market share of 57%. It is also present in twelve countries in the Region with plants in eight of them.

Ownership Income Statement

Revenues Breakdown Balance Sheet

EBITDA Breakdown

Cash Flow

Management

CEO: Carlos E. Piedrahita CFO: José D. Penagos IR Manager: Alejandro Jimenez www.gruponutresa.com/en/relacion_inversionistas

167

Grupo Sura, 35%

Grupo Argos,

8% Pension Funds, 15%

Others, 42%

Cold Cuts, 32%

Biscuits, 20%

Chocolates, 17%

Coffee, 15%

Pastas , 4%

Ice Cream,

9%

Others, 2%

Cold Cuts, 32%

Biscuits, 17%

Chocolates, 20%

Coffee, 16%

Pastas , 4%

Ice Cream,

11%

Others, 0%

COP mn 2011 2012 2013E 2014E 2015E

Revenues 5,057,383 5,305,782 5,831,412 7,045,348 7,691,125

EBIT 432,495 521,112 538,755 665,252 717,720

EBITDA 568,131 671,095 830,977 979,368 1,054,548

Net Income 253,511 345,507 326,707 341,395 382,374

EPS 551.0 750.9 710.0 742.0 831.0

EBIT Margin 8.6% 9.8% 9.2% 9.4% 9.3%

EBITDA Margin 11.2% 12.6% 14.3% 13.9% 13.7%

Net Margin 5.0% 6.5% 5.6% 4.8% 5.0%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

COP mn 2011 2012 2013E 2014E 2015E

Initial Cash 133,389 193,087 291,812 483,682 233,155

Cash from Operations 476,875 768,683 739,380 784,756 862,203

CAPEX -225,762 -378,683 -1,545,927 -294,884 -321,174

Changes in Financial Debt -446,728 10,756 1,334,311 -364,151 -106,462

Div idends (Paid) Received -153,267 -163,574 -178,068 -182,062 -191,981

Taxes -113,919 -138,457 -157,826 -194,186 -220,656

Changes in Equity 522,499 0 0 0 0

Final Cash 193,087 291,812 483,682 233,155 255,086

Change in Cash 59,698 98,725 191,870 -250,528 21,932

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

COP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 193,087 291,812 483,682 233,155 255,086

Total Current Assets 1,458,594 1,537,695 2,151,004 2,049,441 2,234,832

Total Assets 7,931,169 8,951,564 10,808,862 10,688,067 10,857,805

Current Liabilities 638,082 757,672 922,513 841,148 838,921

Financial Debt 679,598 690,354 2,024,665 1,660,514 1,554,052

Total Liabilities 1,440,330 1,526,312 3,075,042 2,803,825 2,796,403

Minority Interest 16,209 16,294 17,427 18,434 19,514

Shareholders Equity 6,474,630 7,408,958 7,716,393 7,865,807 8,041,888

Total Liabilities + Equity 7,931,169 8,951,564 10,808,862 10,688,067 10,857,805

EBITDA / Fin. Expenses 7.4 11.5 10.0 6.1 7.2

Financial Debt /EBITDA 1.2 1.0 2.4 1.7 1.5

Financial Debt /Equity 0.1 0.1 0.3 0.2 0.2

ROAE 4.0% 5.0% 4.3% 4.4% 4.8%

ROAA 3.2% 4.1% 3.3% 3.2% 3.5%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

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Colombia Industry:

Oil & Gas Rating:

Buy Pacific Rubiales A STAR overshadowed by confidence

Cesar Cuervo +(571) 339 44 00 ext 1210

[email protected]

Investment Thesis Stock Data

• Waiting for delivery. A strong base of reserves and production, a diversified exploration portfolio, successful initiatives to reduce costs and enhance operations, along with very attractive relative valuations, support our BUY rating on PREC. However, from a market stance, after delivery problems in the past, investors’ confidence, hence the stock’s upward movements and our TP, are dependent on significant milestones being accomplished.

• Catalysts. i) CPE-6 (137 Mbbl resources), is called to be one of the

next major fields of the company, once pending environmental permits are granted; and ii) STAR technology was certified by 3 independent engineering firms in the pilot area, indicating that the technology has already resulted in a doubling of the recovery factor. A skeptical market awaits for prove of STAR’s commercial feasibility.

• Petrominerales acquisition: We estimate an addition of 30 Mboe to 2P net reserves for 2013YE and 19 Kboed of net production (primarily light oil) during 2014-2017. Additional light oil production and larger transportation capacity should favor efficiency.

• Main risks: Besides oil prices, main downside risks come from

delays in environmental permits, security and community protests.

Price Chart (COP) and Volumes (USD mn)

Valuation

• Target Price: Our 2014YE T.P. is COP 56,060/share, and is based on a DCF model with a discount rate of 13% (USD WACC); g was set at 2.0%. PMG acquisition added COP 1,480 to the base price. Higher discount rates explain the lower 2014YE T.P. compared to the previous one (2013YE T.P. of COP 63,240/share).

• Our T.P. has an implicit 2014 EV/EBITDA of 3.16x, P/E of 8.50x and P/B of 1.74x, well below PREC’s historical range and those of it’s peers.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

168

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Ticker prec CB / pre CN

Price (COP) 41,300

LTM Range (COP) 32,620 - 45,380

Target 56,060 (loc) / 30.30 (TSX)

Total Return 40%

Market Cap (USD mn) 7,110

Shares Outstanding (mn) 323

Free Float 100%

ADTV (USD mn) 9.8 (loc) / 31.1 (TSX)

0

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115

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mn

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Pacific Rubiales Colcap

2012 2013E 2014E 2015E

FV/EBITDA 3.9 3.2 2.5 2.2

P/E 13.0 8.3 6.1 5.8

P/CF -12.9 -14.3 13.2 10.9

P/BV 1.7 1.5 1.3 1.1

Div . Yield 2.8% 3.0% 4.6% 5.0%Sources: Company Reports and Credicorp Capital;

E Credicorp Capital Estimates

Pacific Rubiales

Ecopetrol

Canacol

YPF Murphy Canadian

Oil Sands

Encana

Gran Tierra

Noble

Canadian Natural

Resources

Southwestern

Energy

QEP

4

8

12

16

20

1 3 5 7 9

P/E

2014E

FV/EBITDA 2014E

Andean Equities Guide, October 25th 2013

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Pacific Rubiales Company Description

Pacific Rubiales is a Canadian and Colombian listed producer of oil and gas. The company is the largest independent oil and gas E&P company in Colombia. It currently has working interests in 58 blocks in Colombia, 8 blocks in Brazil, 5 blocks in Peru, 3 blocks in Guatemala & Belice, 1 block in Papua New Guinea and 63.2% participation in CGX Guyana (5 blocks).

2P Net Reserves Breakdown (2012) Income Statement

Production Breakdown (2013E) Balance Sheet

Production Costs Breakdown (2013E)

Cash Flow

Management

CEO: Ronald Pantin CFO: Carlos Pérez IR Manager: Christopher LeGallais www.pacificrubiales.com

169

Rubiales, 54%

La Creciente

, 8%

Quifa + Cajua, 20%

CPE-6, 3%

PMD, 4%

C&C, 8%

Others, 3%

Lifting, 46%

Transport, 37%

Diluents, 17%

Others, 0%

Rubiales, 19%

La Creciente

, 14%

Quifa + Cajua, 30%

CPE-6, 9%

Guama, 7%

PMD + C&C, 7%

Perú, 13%

Otros, 3%

USD mn 2011 2012 2013E 2014E 2015E

Revenues 3,381 3,885 4,724 6,218 7,028

EBIT 1,241 1,032 1,497 2,013 2,124

EBITDA 1,959 2,018 2,727 3,572 4,044

Net Income 554 528 852 1,162 1,224

EPS 2.0 1.8 2.6 3.6 3.8

EBIT Margin 36.7% 26.6% 31.7% 32.4% 30.2%

EBITDA Margin 57.9% 52.0% 57.7% 57.4% 57.5%

Net Margin 16.4% 13.6% 18.0% 18.7% 17.4%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 733 265 296 549 577

Total Current Assets 1,710 1,238 1,479 2,052 2,250

Total Assets 5,449 7,087 9,869 11,380 12,473

Current Liabilities 1,160 1,501 2,140 2,679 2,915

Financial Debt 1,034 1,290 2,595 2,568 2,463

Total Liabilities 2,541 3,113 5,198 5,709 5,844

Minority Interest 0 0 0 0 0

Shareholders Equity 2,908 3,974 4,671 5,670 6,629

Total Liabilities + Equity 5,449 7,087 9,869 11,380 12,473

EBITDA / Fin. Expenses 22.7 22.1 19.5 20.1 22.8

Financial Debt /EBITDA 0.5 0.6 1.0 0.7 0.6

Financial Debt /Equity 0.4 0.3 0.6 0.5 0.4

ROAE 21.9% 15.3% 19.7% 22.5% 19.9%

ROAA 11.8% 8.4% 10.1% 10.9% 10.3%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Initial Cash 609 733 265 296 549

Cash from Operations 1,151 1,773 2,050 3,527 3,846

CAPEX -1,096 -2,676 -2,710 -2,443 -2,755

Changes in Financial Debt 285 256 1,305 -27 -105

Div idends (Paid) Received -102 -130 -195 -215 -325

Taxes -448 -290 -468 -638 -672

Changes in Equity 334 598 50 50 39

Final Cash 733 265 296 549 577

Change in Cash 123 -468 31 253 28

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

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2012 2013E 2014E 2015E

FV/EBITDA 18.3 15.3 13.5 12.4

P/E 22.8 14.5 13.5 12.7

P/CF -28.2 -16.7 25.8 10.1

P/BV 1.8 1.4 1.3 1.2

Div . Yield 2.4% 2.8% 3.0% 3.1%

Sources: Company Reports and Credicorp Capital

Chile Industry:

Retail Rating:

Buy Parauco There’s value in the land

Christopher DiSalvatore +(562) 2446 1724

[email protected]

Investment Thesis Stock Data

• We are upgrading our recommendation from HOLD to BUY after the recent 9% share correction (wholly due to the announced capital increase) since our last revision and the consequently attractive forward valuations for the firm.

• We expect that the confirmation of the La Colina project in Colombia

as well as new land bank should provide additional upside to our estimates, and thus a tailwind for shares. We also argue in favor of the mall business model across the Andean, as it is more resilient to headwinds in the retail sector, providing stable returns to investors over the long term.

• Risks to our thesis: downside risks include delays in project development, increased competition, and sharp deterioration in the macro environment. Upside risk include material additions to the company’s current project pipeline.

Price Chart (CLP) and Volumes (USD mn)

Valuation • Our 2014E target price is based on a 10 year DCF valuation,

segmented by country. We use a nominal WACC of 8.6% for Chile, 8.8% for Peru, and 8.8% for Colombia.

• Based on our estimates, shares are trading at an 17% discount to Latam peers based on 2014E P/FFO, which implies a FFO yield of 8% in 2014. Based on expected 2014 FFO, including projects currently under construction, we calculate a spread of 6% between local inflation linked bonds, an attractive level versus historical averages.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

170 Andean Equities Guide, October 25th 2013

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BR Malls

Iguatemi

Multiplan

BR Prop.

PDG

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Ticker parauco ci

Price (CLP) 981

LTM Range (CLP) 951 - 1,364

Target (CLP) 1,240

Total Return 29%

Market Cap (USD mn) 1,380

Shares Outstanding (mn) 703

Free Float 56%

ADTV (USD mn) 2.9

Page 171: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Parauco Company Description

Parauco S.A. is a real estate developer and shopping center management company, whose portfolio includes 18 shopping centers, amounting to a total GLA of 634,900m2 located in Chile, Peru, and Colombia. The company is the 3rd largest shopping center operator in Chile, after Cencosud and Mall Plaza S.A.

Ownership Income Statement

Revenues by Type (1H 2013) Balance Sheet

EBITDA by Country (LTM)

Cash Flow

Management

CEO: Juan Antonio Álvarez CFO: Claudio Chamorro IR Manager: Eduardo Pérez www.parauco.cl

171 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Revenues 86,345 100,502 104,501 115,495 123,189

EBIT 58,896 69,581 71,764 81,449 87,445

EBITDA 61,227 71,308 74,460 84,429 90,624

Net Income 40,787 36,417 47,538 51,176 54,200

EPS 58.0 51.8 67.6 72.8 77.1

EBIT Margin 68.2% 69.2% 68.7% 70.5% 71.0%

EBITDA Margin 70.9% 71.0% 71.3% 73.1% 73.6%

Net Margin 47.2% 36.2% 45.5% 44.3% 44.0%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 136,430 104,290 109,271 114,490 119,958

Total Current Assets 174,256 147,870 154,604 163,054 171,113

Total Assets 941,239 1,075,809 1,181,447 1,229,106 1,239,816

Current Liabilities 60,183 74,704 76,892 81,835 85,595

Financial Debt 341,053 369,686 435,611 447,016 423,239

Total Liabilities 437,659 485,570 552,342 564,628 541,769

Minority Interest 48,815 117,806 129,374 134,593 135,766

Shareholders Equity 454,766 472,433 499,731 529,885 562,280

Total Liabilities + Equity 941,239 1,075,809 1,181,447 1,229,106 1,239,816

EBITDA / Fin. Expenses 5.2 5.9 6.1 5.1 4.8

Financial Debt /EBITDA 5.6 5.2 5.9 5.3 4.7

Financial Debt /Equity 0.7 0.8 0.9 0.8 0.8

ROAE 9.0% 7.9% 9.8% 9.9% 9.9%

ROAA 4.3% 3.6% 4.2% 4.2% 4.4%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Initial Cash 85,296 136,430 104,290 109,271 114,490

Cash from Operations 45,934 54,857 73,721 71,947 73,173

CAPEX -53,783 -73,138 -101,600 -42,189 -5,829

Changes in Financial Debt 7,151 28,633 65,925 11,405 -23,777

Dividends (Paid) Received -25,006 -20,086 -19,015 -20,470 -21,680

Taxes -5,879 -22,406 -14,049 -15,474 -16,418

Changes in Equity 82,716 0 0 0 0

Final Cash 136,430 104,290 109,271 114,490 119,958

Change in Cash 51,133 -32,140 4,981 5,219 5,468

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Controlling Group 26,0%

Said Yarur Family10%

Abumohor Family

3%Pension Funds

5%

Float56%

Variable16%

Fixed84%

Chile76%

Peru19%

Colombia5%

Page 172: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

2012 2013E 2014E 2015E

FV/EBITDA 12.7 11.2 10.3 9.2

P/E 23.8 19.3 18.3 15.2

P/CF 127.5 137.0 48.7 19.1

P/BV 1.2 1.1 1.0 1.0

Div . Yield 1.9% 1.3% 1.6% 1.6%

Sources: Company Reports and Credicorp Capital

Chile Industry:

Retail Rating:

Hold Ripley Corp. New horizons…uncertainty remains

Christopher DiSalvatore +(562) 2446 1724

[email protected]

Investment Thesis Stock Data

• We maintain our HOLD recommendation, despite discounted valuations, which in our view reflect investor uncertainty towards the necessary improvement in long term returns and the company’s new foray into Colombia, a market which we view as challenging (high competition, property scarcity, tough logistics).

• Recent results demonstrate the company’s current focus on a more efficient retail operation. However, we prefer to remain cautious towards further delivery until we can see clear gains in both profitability and market share. We expect ROIC to increase to only 6% by 2014 primarily on the back of lower costs associated with Colombian integration and better retail margins in Chile & Peru.

• We are concerned about the company’s proposed changes to consolidate its consumer finance division into its banking subsidiary. Though there exist commercial synergies from such change, as well a freeing up cash, higher regulatory oversight could restrict profitability while new leverage chases uncertain returns.

• Risks to our thesis: downside risks include hiccups in the investment plan in Colombia, higher competition, and deterioration in the macro scenario.

Price Chart (CLP) and Volumes (USD mn)

Valuation • Our revised 2014E target price is based on a 10 year DCF valuation

segmented by country. We use a nominal WACC of 11.2% for Chile and 11.6% for Peru and Colombia, all in CLP terms.

• Based on our estimates, shares are trading at 18x P/E 2014E or a 14% discount to regional peers, which in our view is fair considering uncertainty of the delivery in Colombia and returns below the company’s current cost of equity.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

172 Andean Equities Guide, October 25th 2013

Ticker ripley ci

Price (CLP) 449

LTM Range (CLP) 384 - 544

Target (CLP) 510

Total Return 15%

Market Cap (USD mn) 1,741

Shares Outstanding (mn) 1,936

Free Float 20%

ADTV (USD mn) 2.5

Cencosud

Falabella

RipleyCBD

Exito

Walmex

Liverpool

Lojas Amer.

Soriana

Marisa

Chedraui

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Page 173: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Ripley Corp. Company Description

Ripley Corp. S.A. operates department stores, which offers apparel, electronics and housing goods in Chile, Peru and Colombia. The company operates a proprietary credit division, as well as a bank in all countries of operations serving over 3.5 million active clients. Today, the company is the 3rd largest department store operator in Chile and 2nd largest in Peru.

Ownership Income Statement

Revenue by Country (LTM) Balance Sheet

EBITDA by Country (LTM)

Cash Flow

Management

CEO: Lázaro Calderón CFO: Juan Diuana IR Manager: Alberto Corona www.ripley.cl

173 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Revenues 1,195,681 1,296,995 1,399,207 1,567,496 1,794,539

EBIT 68,953 56,566 70,274 76,413 90,190

EBITDA 102,252 89,875 104,862 114,451 128,518

Net Income 55,010 37,020 44,993 47,520 57,211

EPS 28.4 19.1 23.2 24.5 29.6

EBIT Margin 5.8% 4.4% 5.0% 4.9% 5.0%

EBITDA Margin 8.6% 6.9% 7.5% 7.3% 7.2%

Net Margin 4.6% 2.9% 3.2% 3.0% 3.2%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 60,573 87,134 61,613 50,775 48,107

Total Current Assets 520,612 613,902 627,104 661,397 709,775

Total Assets 1,649,441 1,810,229 1,869,857 1,962,961 2,081,056

Current Liabilities 319,081 346,854 363,739 385,782 411,203

Financial Debt 299,269 343,723 366,216 399,248 403,424

Total Liabilities 915,083 1,053,882 1,079,605 1,138,662 1,213,769

Minority Interest 496 500 517 543 575

Shareholders Equity 733,861 755,847 794,140 828,162 871,117

Total Liabilities + Equity 1,649,441 1,810,229 1,869,857 1,962,961 2,081,055

EBITDA / Fin. Expenses 8.9 5.5 5.8 5.4 5.6

Financial Debt /EBITDA 2.9 3.8 3.5 3.5 3.1

Financial Debt /Equity 0.4 0.5 0.5 0.5 0.5

ROAE 7.5% 5.0% 5.8% 5.9% 6.7%

ROAA 3.3% 2.1% 2.4% 2.5% 2.8%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Initial Cash 71,902 60,573 87,134 61,613 50,775

Cash from Operations 26,466 84,365 42,310 45,240 67,607

CAPEX -53,783 -73,138 -66,600 -61,718 -43,016

Changes in Financial Debt 53,321 44,454 22,492 33,032 4,177

Dividends (Paid) Received -25,006 -16,589 -11,106 -13,498 -14,256

Taxes -12,327 -12,531 -12,618 -13,893 -17,180

Changes in Equity 0 0 0 0 0

Final Cash 60,573 87,134 61,613 50,775 48,107

Change in Cash -11,329 26,561 -25,521 -10,838 -2,668

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Chile 68%

Peru 32%

Calderon Volochinksy

53%

Calderon Kohon 13%

Pension Funds 14%

Float 20%

Chile 72%

Peru34%

Colombia-6%

Page 174: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Chile Industry:

Rating:

Hold Salfacorp Improving, but not enough yet

Javier Gunther +(562) 2450 1695

[email protected]

Investment Thesis Stock Data

• We maintain our HOLD recommendation and introduce a 2014 YE target price of CLP 680. Over the last few quarters, we have seen some improvements in operational results. However we remain conservative on the stock, due to the company’s high levels of debt and the slowdown in construction activity in Chile.

• In Engineering & Construction, after two quarters with decreasing revenues, we are expecting a mere 1% increase this year. On the bright side, we believe that the strategy to aim for more profitable businesses is positive for the company and we expect an increase in the business margins from 4.7% in 2012 to 6.1% by 2016.

• We remain cautious on the real estate business for next year. Since the end of last year, we have seen higher restrictions on mortgage loans and, consequently, YTD decreases in home sales in Chile. The latter has not impacted Salfacorp’s sales yet, but pre-sales this year have decreased 18% and 24% in 1Q13 and 2Q13 respectively.

• Risks to our thesis: a higher than expected slowdown in activity or increases in labor costs. Upside risks include: the awarding of larger contracts and faster than expected improvements in margins.

Price Chart (CLP) and Volumes (USD mn)

Valuation • In terms of forward multiples when compared to its average, the

company is trading at 40% and 14% discounts in terms of P/E 2014E and FV/EBITDA 2014E, respectively. However, we believe that the premium paid in the past is not a reference since the growth prospects for the company are not as high as in the past.

• When compared to its peers, Salfacorp is trading at a 32% discount in terms of P/E 2014E, but a 52% premium in terms of FV/EBITDA 2014E. We believe that the main reason for the difference is the high levels of debt of the company.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

174 Andean Equities Guide, October 25th 2013

Ticker salfacorp ci

Price (CLP) 623

LTM Range (CLP) 457 - 1,199

Target (CLP) 680

Total Return 12%

Market Cap (USD mn) 546

Shares Outstanding (mn) 475

Free Float 60%

ADTV (USD mn) 1.6

2012 2013E 2014E 2015E

FV/EBITDA 13.9 14.8 13.7 12.6

P/E 18.5 11.5 10.8 9.2

P/CF -3.2 4.2 11.3 11.1

P/BV 1.5 0.9 0.9 0.8

Div . Yield 1.6% 2.6% 2.8% 3.3%

Sources: Company Reports and Credicorp Capital

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Page 175: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Salfacorp Company Description

Salfacorp is the largest construction company in Chile, with 2 main business lines: Engineering & Construction (68% of revenues) and Real Estate (32% of revenues). The company operates Chile, Peru, Uruguay, Colombia and Panama, with joint ventures with local partners.

Ownership Income Statement

Revenues per Division (LTM) Balance Sheet

EBITDA per Division (LTM)

Cash Flow

Management

CEO: Francisco Garcés CFO: Jorge Meruane Deputy CFO: Juan Pablo Reitze www.salfacorp.com

175 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Revenues 901,465 1,062,636 1,070,177 1,108,358 1,184,016

EBIT 32,712 46,915 49,065 53,403 59,631

EBITDA 41,140 60,207 64,706 69,653 76,516

Net Income 15,933 23,182 23,618 25,340 29,612

EPS 36.4 53.0 49.7 53.3 62.3

EBIT Margin 3.6% 4.4% 4.6% 4.8% 5.0%

EBITDA Margin 4.6% 5.7% 6.0% 6.3% 6.5%

Net Margin 1.8% 2.2% 2.2% 2.3% 2.5%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 45,271 31,989 32,216 33,365 35,643

Total Current Assets 460,653 562,111 531,853 554,277 588,175

Total Assets 781,933 973,416 948,244 980,178 1,036,757

Current Liabilities 239,456 403,094 395,479 408,748 434,112

Financial Debt 262,739 406,929 368,884 373,158 388,831

Total Liabilities 508,684 668,355 627,126 640,037 673,241

Minority Interest 7,507 23,461 22,855 23,624 24,988

Shareholders Equity 265,741 281,599 298,263 316,517 338,528

Total Liabilities + Equity 781,933 973,416 948,244 980,178 1,036,757

EBITDA / Fin. Expenses 3.3 4.2 5.4 6.2 6.8

Financial Debt /EBITDA 6.4 6.8 5.7 5.4 5.1

Financial Debt /Equity 1.0 1.4 1.2 1.2 1.1

ROAE 7.0% 8.5% 8.1% 8.2% 9.0%

ROAA 2.4% 2.6% 2.5% 2.6% 2.9%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Initial Cash 16,858 45,271 31,989 32,216 33,365

Cash from Operations -42,939 -73,335 73,953 34,646 27,698

CAPEX -25,640 -75,044 -18,770 -19,500 -20,261

Changes in Financial Debt 43,283 144,190 -38,045 4,274 15,673

Div idends (Paid) Received -4,780 -6,955 -7,086 -7,602 -8,884

Taxes -3,487 -2,139 -9,826 -10,668 -11,949

Changes in Equity 61,974 0 0 0 0

Final Cash 45,271 31,989 32,216 33,365 35,643

Change in Cash 28,413 -13,282 227 1,149 2,278

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Controlling Group41.2%

Others31.6%

Institutional Investors18.1%

Pension Funds9.10%

Engineering &

Construction68%

Real Estate32%

Engineering &

Construction66%

Real Estate34%

Page 176: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

2012 2013E 2014E 2015E

P/E 16.4 15.7 13.0 11.6

P/BV 2.9 2.6 2.5 2.3

Div . Yield 4.1% 3.8% 3.8% 4.6%

Sources: Company Reports and Credicorp Capital

Chile Industry:

Banks Rating:

Hold Santander Down, but not out

Christopher DiSalvatore +(562) 2446 1724

[email protected]

Investment Thesis Stock Data

• We maintain our HOLD recommendation on shares, after a 19% rebound since August. Though earnings growth is expected to pick up during 2H13 (higher inflation & lower risk), for the full year we expect flat bottom line growth. Based on our estimates of full year 2014 ROAE of 20%, we view 2014E P/B of 2.5x as fair.

• Loan growth remains cautious. Loan growth is currently trending below the rest of the market and our full year estimate of 10.7%, which we attribute to the bank’s shift away from retail lending in lower income segments. Positively, NPLs are trending downwards as a result, reflecting the bank’s recent overhaul of risk management in its consumer segment. We are confident in management’s ability to continue to bring down provision expenses, which is a key driver to our improvement in ROAE from 16% (LTM) to 21% by 2015.

• Risks to our thesis: Downside risks include deflationary pressure,

increased competition, and asset deterioration from a poorer than expected macro environment. We also estimate that an increase in Chile’s corporate tax rate to 25% could affect long term earnings by ~6%. Upside risks include higher than expect inflation and better than expected improvement in asset quality.

Price Chart (CLP) and Volumes (USD mn)

Valuation • Our revised 2014e target price is based on a 10 year DDM valuation

using a nominal cost of equity of 11.3% in CLP terms.

• Based on our estimates, shares trade at a 2.5x 2014E P/B or a 26% discount to historical average, reflecting lower than expected returns going forward. In our model, we consider a long term sustainable ROAE of 22%.

Valuation Summary

P/E Forward P/B Forward Relative Valuation

176 Andean Equities Guide, October 25th 2013

Ticker bsan ci

Price (CLP) 32

LTM Range (CLP) 27.6 - 36.2

Target (CLP) 35

Total Return 12%

Market Cap (USD mn) 12,257

Shares Outstanding (mn) 188,446

Free Float 27%

ADTV (USD mn) 9.3

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Page 177: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Santander Company Description

Santander is one of the largest, private financial institutions in Chile, with more than US$ 39 billion in loans and 19% of market share. The bank has historically maintained among the highest levels of profitability in the system due to important costs control derived from its large scale and its higher spread portfolio, historically mores focused on the consumer and SME segments.

Ownership Income Statement

Loans by Segment (1H 2013) Balance Sheet

Operating Income by Type (1H 2013)

Ratios

Management

CEO: Claudio Melandri CFO: Raimundo Monge IR Manager: Robert Moreno www.santander.cl

177 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Net Interest Income 972,300 1,042,734 1,082,901 1,200,033 1,320,979

Net Fee Income 277,836 270,572 260,381 271,758 294,789

Operational Income 1,371,433 1,415,363 1,469,146 1,606,294 1,756,756

Provision Expenses -282,527 -342,002 -372,082 -346,605 -375,908

Operational Expenses -567,462 -605,241 -627,595 -687,798 -737,768

Net Income 435,194 387,967 389,611 470,532 529,129

EPS 2.3 2.1 2.1 2.5 2.8

EPS growth -8.8% -10.9% 0.4% 20.8% 12.5%

Sources: Company Reports and Credicorp Capital

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Interbank Deposits 3,070,155 1,770,681 2,175,438 2,139,717 2,315,190

Investments Portfolio 3,696,871 3,464,650 3,696,886 4,180,106 4,522,183

Gross Loans 17,347,093 18,876,079 20,892,276 22,767,737 24,654,096

Total Assets 24,651,977 24,761,627 26,703,147 29,815,369 32,242,396

Total Deposits 13,334,929 14,082,232 15,057,708 17,053,481 18,509,137

Financial Obligations 6,543,331 6,009,292 6,548,454 7,151,225 7,681,069

Total Liabilities 22,616,954 22,591,702 24,343,770 27,300,148 29,538,962

Minority Interest 33,801 34,265 34,265 34,265 34,265

Shareholders Equity 2,001,222 2,169,925 2,325,112 2,480,956 2,669,169

Total Liabilities + Equity 24,651,977 24,761,627 26,703,147 29,815,369 32,242,396

Sources: Company Reports and Credicorp Capital

(%) 2011 2012 2013E 2014E 2015E

NIM (% ) 4.9% 4.9% 4.8% 4.8% 4.8%

Fee Income / Op. Income 20.3% 19.1% 17.7% 16.9% 16.8%

Efficiency (% ) 41% 43% 43% 43% 42%

Effective Tax Rate 16% 11% 17% 18% 18%

NPLs / Loans 2.9% 3.2% 3.2% 3.2% 3.2%

LLPs / Loans 3.0% 2.9% 2.8% 2.9% 3.0%

Provision expenses / Loans -1.6% -1.9% -1.9% -1.6% -1.6%

Coverage ratio 228% 176% 174% 175% 184%

Deposit / Loans 79% 77% 74% 77% 77%

Equity / Assets 8.1% 8.8% 8.7% 8.3% 8.3%

BIS ratio 14.7% 13.7% 13.7% 13.2% 13.2%

ROAE 21.7% 18.6% 17.3% 19.6% 20.5%

ROAA 1.8% 1.6% 1.5% 1.7% 1.7%

Controller67%

Pension Funds

6%

Float27%

Commercial56%

Mortgage27%

Consumer17%

Interest 73%

Fees 19%

Trading8%

Page 178: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Peru Industry:

Rating:

Uperf Siderperu Cleaning up the house

Omar Avellaneda +(511) 416 3333 - Ext: 37856

[email protected]

Investment Thesis Stock Data

• We updated our valuation of Siderperú with a 2014YE target price of PEN 0.3 and an Underperform recommendation. We do not expect that the company will reap the benefits of good perspectives of private and public investments because of its limited production capacity.

• Plan to increase steelmaking and steel rolling capacity still on hold. We expect Siderperú’s expansion plan (USD 253mn) to begin in 2015. The limited steelmaking and rolling capacity will increase imports of finished products and reduce the company’s gross margin.

• Enhancing efficiency and improving working capital. Siderperú is improving its production process and reducing its working capital (cash conversion cycle reduced from 242 days in 2Q12 to 207 days in 2Q13), which we expect to generate some improvements in CFO by the end of 2014.

• Risks to our thesis: slowdown in public and private investment; volatility in input prices (billets) can affect the company’s gross margin; slowdown in the global economy may increase competition with imports.

Price Chart (PEN) and Volumes (USD mn)

Valuation • We estimate our 2014YE target price based on a 10-year DCF

model. This valuation provides a 2014YE P/E of 6.4x and a 2014YE FV/EBITDA of 6.0x; lower than their 5-year average, and peers estimates. EBITDA margins improving, but below those of its peers.

• The recent capital infusion (USD120mn) increased Gerdau’s ownership from 86.7% to 90.0%, reduced Siderperú’s financial debt and improve leverage ratios (financial debt / equity ratio from 1.23x in 2Q12 to 0.56x in 2Q13), instead of using those proceeds to expansion plans.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

178

0

1

1

2

2

3

0

20

40

60

80

100

120

Oct-12 Feb-13 Jun-13 Oct-13

US

D m

n

PE

N

SIDERPERU IGBVL

Ticker siderc1 pe

Price (PEN) 0.30

LTM Range 0.2 - 0.65

Target 0.28

Total Return -7%

Market Cap (USD, mn) 138

Shares Outstanding (mn) 1,228

Free Float 10%

ADTV (USD, mn) 0.1

Grupo Simec

Gerdau

Cia Siderurgica

Nacional

Aceros Arequipa

Usiminas

TerniumSiderperú

0

5

10

15

20

25

0 5 10

P/E

201

4E

FV/EBITDA 2014E

2012 2013E 2014E 2015E

FV/EBITDA n.m 8.3 6.0 5.1

P/E n.m n.m 6.4 4.8

P/CF -9.8 3.0 6.1 -2.4

P/BV 0.4 0.3 0.3 0.3

Div . Yield 0.0% 0.0% 0.0% 0.0%

Sources: Company Reports and Credicorp Capital

Andean Equities Guide, October 25th 2013

(PEN)

(PEN)

0

10

20

30

40

50

Mar-06 Mar-08 Mar-10 Mar-120

10

20

30

40

50

60

Mar-06 Mar-08 Mar-10 Mar-12

Cement & Construction

Page 179: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Siderperu Company Description

Siderperú is a Peruvian steel company controlled by the Brazilian Gerdau, a leading producer of long steel in the Americas. The company has a currently shut down blast furnace (400,000 MT/year) and an electric furnace (300,000/MT/year) for steel production and a rolling capacity for long steel products of 500,000 MT/year.

Ownership Income Statement

Revenues Breakdown (by region) Balance Sheet

Revenues Breakdown (by products)

Cash Flow

Management

CEO: Juan Pablo García Bayce CFO: Diogo Espellet Dockhorn IR Manager: - www.sider.com.pe

179

PEN mn 2011 2012 2013E 2014E 2015E

Revenues 1,580 1,681 1,658 1,818 1,966

EBIT 73 -150 61 104 132

EBITDA 116 -96 123 170 197

Net Income 55 -99 -6 59 77

EPS 0.1 -0.1 0.0 0.0 0.1

EBIT Margin 4.6% -8.9% 3.7% 5.7% 6.7%

EBITDA Margin 7.4% -5.7% 7.4% 9.4% 10.0%

Net Margin 3.5% -5.9% -0.3% 3.3% 3.9%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 24 24 101 160 83

Total Current Assets 1,045 1,014 1,149 1,268 1,261

Total Assets 2,138 2,053 2,162 2,267 2,471

Current Liabilities 596 486 528 565 638

Financial Debt 880 955 666 682 785

Total Liabilities 1,083 1,095 899 944 1,071

Minority Interest 0 0 0 0 0

Shareholders Equity 1,055 958 1,263 1,323 1,400

Total Liabilities + Equity 2,138 2,053 2,162 2,267 2,471

EBITDA / Fin. Expenses 7.6 -3.6 7.1 9.0 9.0

Financial Debt /EBITDA 7.6 -9.9 5.4 4.0 4.0

Financial Debt /Equity 0.8 1.0 0.5 0.5 0.6

ROAE 5.3% -9.9% -0.5% 4.6% 5.7%

ROAA 2.6% -4.7% -0.3% 2.7% 3.2%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mn 2011 2012 2013E 2014E 2015E

Initial Cash 94 24 24 101 160

Cash from Operations -186 -8 87 95 94

CAPEX -96 -48 -21 -52 -275

Changes in Financial Debt 222 75 -289 16 103

Div idends (Paid) Received 0 0 0 0 0

Financing, investing others -10 -18 -11 0 0

Changes in Equity 0 0 310 0 0

Final Cash 24 24 101 160 83

Change in Cash -70 0 77 59 -77

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Gerdau, 90%

Others, 10%

Local, 91%

Exports, 9%

Long steel,

78.10%

Flat steel, 21.90%

Andean Equities Guide, October 25th 2013

Page 180: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Chile Industry:

Rating:

Buy Sigdo Koppers Mining volumes are key, not prices

Arturo Prado +(562) 2450 1688

[email protected]

Investment Thesis Stock Data

• We are maintaining our Buy rating on SK with a new 2014YE T.P. of CLP 1,100 per share. We like SK’s strategy of increasingly focusing on mining services, a trend which over the last few years has been accelerated through M&A activity, both by selling assets in other industries and acquiring companies in the mining value chain.

• As a mining services provider, the company’s performance is mostly linked to mining industry activity, which is growing due to decreasing ore grades and more than USD 80bn in mining projects in the pipeline until 2021, only in Chile.

• Volatility in copper prices has a limited impact in the company’s results in the short and medium term. In the long term, a decrease in copper prices could have a structural impact, as mining operations shut down. For a price drop to significantly impact South American copper mines (a low cost producing region) it would require a drop in copper prices below USD2.5/lb for a long period of time. We believe such a scenario to be highly unlikely.

• Risks to our thesis: i) lower than expect copper prices, ii)

environmental issues.

Price Chart (CLP) and Volumes (USD mn)

Valuation • In terms of forward multiples, the company is trading at 12.5x

2014E P/E and 7.8x FV/EBITDA, which look attractive compared to its 5 year average. The company has unjustifiably dropped 25% YTD as investors wrongly link SK’s results to copper prices.

• When compared to its international peers, the company is trading at a slight premium, which in our view is justified by the change in strategy of the company focusing on mining services.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

180

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Dec-05 Dec-08 Dec-113

5

7

9

11

13

Dec-05 Dec-08 Dec-11

Ticker sk ci

Price (CLP) 862

LTM Range (CLP) 796.87 - 1,348

Target (CLP) 1,100

Total Return 32.5%

Market Cap (USD mn) 1,854

Shares Outstanding (mn) 1,075

Free Float 24%

ADTV (USD mn) 1.5

0

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120

140

Oct-12 Feb-13 Jun-13 Oct-13

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D m

n

CLP

SK IPSA

ARRIUM LTD

AIA ENGINEERING

SK

Orica

Ferreyros

0x

2x

4x

6x

8x

10x

12x

14x

16x

0x 2x 4x 6x 8x 10x

P/E

201

4E

FV/EBITDA 2014E

Conglomerates

2012 2013E 2014E 2015E

FV/EBITDA 11.4 8.4 7.8 6.8

P/E 17.0 15.5 12.5 11.8

P/CF -50.2 29.9 11.2 716.5

P/BV 2.2 1.5 1.4 1.4

Div . Yield 4.9% 3.9% 4.8% 5.1%

Sources: Company Reports and Credicorp Capital

Andean Equities Guide, October 25th 2013

Page 181: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Sigdo Koppers Company Description

SK is an engineering and industrial holding which provides services all along the mining value chain, It´s main subsidiaries are: Enaex (explosives), SK Comercial (machinery), Magotteaux (grinding media), SK Engineering and Construction, Puerto Ventanas & Fepasa (transport & logistics) and SKBerge (car dealership).

Ownership Income Statement

Revenues LTM by Subsidiary Balance Sheet

EBITDA LTM by Subsidiary

Cash Flow

Management

CEO: Juan Pablo Aboitiz CFO: Gonzalo Cavada IR Manager: Patricio Garretón www.sigdokoppers.cl

181 Andean Equities Guide, October 25th 2013

USD mn 2011 2012 2013E 2014E 2015E

Revenues 2,128 2,786 2,900 2,933 3,223

EBIT 228 265 273 276 291

EBITDA 315 382 404 434 468

Net Income 286 152 120 149 157

EPS 132.5 70.7 55.6 68.9 72.7

EBIT Margin 10.7% 9.5% 9.4% 9.4% 9.0%

EBITDA Margin 14.8% 13.7% 13.9% 14.8% 14.5%

Net Margin 13.4% 5.5% 4.1% 5.1% 4.9%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 143 220 203 205 226

Total Current Assets 1,042 1,262 1,314 1,273 1,552

Total Assets 3,121 3,650 3,839 3,903 4,370

Current Liabilities 972 1,103 1,153 1,144 1,314

Financial Debt 932 1,094 1,170 1,177 1,369

Total Liabilities 1,804 2,067 2,187 2,185 2,536

Minority Interest 332 407 428 436 488

Shareholders Equity 985 1,176 1,224 1,283 1,346

Total Liabilities + Equity 3,121 3,650 3,839 3,903 4,370

EBITDA / Fin. Expenses 6.9 7.5 7.1 7.3 7.3

Financial Debt /EBITDA 3.0 2.9 2.9 2.7 2.9

Financial Debt /Equity 0.9 0.9 1.0 0.9 1.0

ROAE 35.7% 14.1% 10.0% 11.9% 11.9%

ROAA 10.7% 4.5% 3.2% 3.8% 3.8%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Initial Cash 200 143 220 203 205

Cash from Operations -243 241 272 387 229

CAPEX -158 -241 -240 -250 -250

Changes in Financial Debt 254 163 76 7 191

Div idends (Paid) Received -124 -127 -72 -89 -94

Taxes -68 -47 -52 -53 -56

Changes in Equity 282 88 0 0 0

Final Cash 143 220 203 205 226

Change in Cash -57 77 -17 2 20

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Controllig Group 76.6%

Pension Funds 7.0%

Others 16.4%

Enaex36%

SK Comercial

24%

Magotteaux20%

SK E&C8%

Puerto Ventanas

11%

SK CHBB1%

Enaex24%

SK Comercial

17%Magotteaux29%

SK E&C24%

Puerto Ventanas

5%

SK CHBB0%

Page 182: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

2012 2013E 2014E 2015E

P/E 15.2 14.0 13.2 11.9

P/BV 3.5 3.3 2.9 2.7

Div . Yield* 2.8% 3.1% 3.2% 3.6%

Sources: Company Reports and Credicorp Capital

*SM Chile-b div. yield

Chile Industry:

Banks Rating:

Buy SM Chile B Leveraging underlying assets

Christopher DiSalvatore +(562) 2446 1724

[email protected]

Investment Thesis Stock Data

• We are maintaining our BUY on the shares due to the holding’s exposure to what we view as fundamentally the strongest bank in Chile (Banco de Chile) and the interesting upside created for investors based on the legal structure of SM Chile shares.

• The value in SM Chile B is derived from its underlying asset’s generation of earnings, which we expect to be the most stable within the industry, going forward. Essentially, shares should be viewed as preferred equity guaranteed a payout of 30% of the bank’s distributable net income in order to fulfill a mandatory pay down of outstanding debt held by the Central Bank. Once this debt is fully extinguished, SM Chile B will fold up and shareholders will each receive 3.38 shares of Banco de Chile (2.38 shares -of the bank-plus 1 share attributed to the ownership of SM Chile).

• Based on our estimates for the bank, we expect the debt to be repaid and, concurrently, SM shares to be extinguished by 2018.

• Risks to our thesis: downside risks include sharp deterioration in macro economic scenario, threatening Banco de Chile’s earnings generation. Upside risk include quicker than expected payout of outstanding debt with Central Bank.

Price Chart (CLP) and Volumes (USD m)

Valuation • SM Chile-B’s value is calculated through DCF, as one Banco de

Chile share at target price (held by SM) plus the net debt outstanding by SAOS. The net debt payment by SAOS corresponds to 2.38 Banco de Chile shares minus 2.38 times the payment of the subordinated debt per share.

• Valuation provides attractive relative value for SM Chile B shareholders. Based on current valuations, the equity value of SM Chile B trades at a 12% discount to shares of Banco de Chile. This compares to a historical premium of 6%.

Valuation Summary (Banco de Chle)

Historical Discount to NAV Ownership Structure

182 Andean Equities Guide, October 25th 2013

0

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Oct-12 Feb-13 Jun-13 Oct-13

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D m

n

CLP

SM Chile B IPSA

LQIF58%

Others42%

-120%

-70%

-20%

30%

Jan-07 Jan-09 Jan-11 Jan-13

Ticker smchileb ci

Price (CLP) 189

LTM Range (CLP) 169 - 201

Target (CLP) 232

Total Return 26%

Market Cap (USD, mn) 4,995

Shares Outstanding (mn) 12,196

Free Float 42%

ADTV (USDm) 1.7

Page 183: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

SM Chile B Company Description

SM Chile-B was formed with the sole purpose to repay the subordinated debt to the Chilean Central Bank through its subsidiary SAOS. The bank debt obligation to the Central Bank is guaranteed by the 28,593,701,789 shares or 30.69% of Banco de Chile currently held by SAOS. Banco de Chile’s dividends and SM-Chile A’s dividends are the only sources of income for SAOS and are exclusively used to pay down outstanding debt owed to the Central Bank. When the subordinated debt is repaid, each SM Chile-B’s holder will receive 2.38 shares of Banco de Chile held by SAOS S.A. plus 1 share of Banco de Chile owned by SM Chile. s

Management Holding Structure

President: Andronico Luksic CEO: Arturo Tagle CFO: na IR Manager: na www.smchile.cl

Debt Evolution

Income Statement (Banco de Chile)

183 Andean Equities Guide, October 25th 2013

2011 2012 2013E 2014E 2015E

Dist. Net Income (CLP) 428,806 465,851 462,758 484,102 542,801

Effective Installment (UF) 5,633,517 5,882,359 6,295,905 6,285,670 6,715,064

Minimum Installment (UF) 3,187,364 3,187,364 3,187,364 3,187,364 3,187,364

Surplus Account (UF)* 9,055,382 11,954,304 15,247,014 19,117,906 23,172,107

Net Debt (UF) 36,839,994.0 33,048,476.9 28,818,541.3 23,963,563.1 18,876,071.5

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Direct Banco de Chile’s Shareholders

SM Chile

SAOS S.A.

Banco de Chile

56.28% 30.69%

13.03%

100%

CLP mn 2011 2012 2013E 2014E 2015E

Net Interest Income 871,320 952,838 1,030,796 1,135,029 1,249,556

Net Fee Income 308,773 307,257 289,995 324,206 355,675

Operational Income 1,223,782 1,342,039 1,420,861 1,523,101 1,675,039

Provision Expenses -145,840 -166,670 -214,706 -234,368 -255,972

Operational Expenses -613,217 -631,967 -617,940 -661,529 -724,433

Net Income 428,806 465,851 514,336 545,996 604,695

EPS 4.7 5.2 5.5 5.9 6.5

EPS growth 14.4% 9.3% 6.4% 6.2% 10.8%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Page 184: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

2012 2013E 2014E 2015E

FV/EBITDA 11.8 9.9 9.0 8.1

P/E 29.0 20.1 20.9 18.7

P/CF 14.3 19.1 17.2 15.9

P/BV 3.4 2.4 2.3 2.2

Div . Yield 1.6% 2.5% 2.4% 2.7%

Sources: Company Reports and Credicorp Capital

Chile Industry:

Rating:

Buy Sonda M&A to boost growth

Javier Gunther +(562) 2450 1695

[email protected]

Investment Thesis Stock Data

• We reiterate our Buy recommendation for Sonda and introduce a new 2014YE T.P. of CLP 1,600. Our positive view is based on the fundamentals of the industry in Latam (2nd fastest growing market after India), where Sonda has a strategic advantage given its local knowledge and strong balance sheet, which allows it to take advantage of opportunities in integration projects or M&A.

• We like the company’s USD 700m investment plan for the next 3 years. Even though we have seen some slowdown in platform investments (hardware), especially in ROLA and Brazil, Sonda has been able to offset that with higher application and IT services revenues. We have seen margin improvements following the consolidation of companies acquired in the last few years.

• The stock has clear short term catalysts given its intention to spend up to USD 500m in inorganic growth in the next 3 years, and given its proven acquisition track record.

• Risks to our thesis: we view as risky the possible FX depreciation given that most contracts are in local currencies. Additionally, we would be disappointed if the use of proceeds from the capital increase are not used in the short-term.

Price Chart (CLP) and Volumes (USD mn)

Valuation • In terms of forward multiples, the company is trading at 20x P/E

2014E and 8.8x FV/EBITDA, a slight 3% discount compared to its average since the IPO (2006).

• When compared to its peers, Sonda is trading at a 24% premium in terms of P/E and a 15% discount in terms of FV/EBITDA 2014E. However, we believe that the premium is justified given the expected consolidation of possible new acquisitions.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

184 Andean Equities Guide, October 25th 2013

Ticker sonda ci

Price (CLP) 1,327

LTM Range (CLP) 1,260 - 1,718

Target (CLP) 1,600

Total Return 23%

Market Cap (USD mn) 2,313

Shares Outstanding (mn) 871

Free Float 46%

ADTV (USD mn) 4.4

8

12

16

20

24

28

32

nov-06 nov-08 nov-10 nov-124

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12

14

nov-06 nov-08 nov-10 nov-12

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Oct-12 Feb-13 Jun-13 Oct-13

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D m

n

CLP

Sonda IPSA

Sonda

Totvs

Wipro

TataAccenture

Indra

10

12

14

16

18

20

22

24

7 9 11 13 15 17

P/E

201

4E

EV/EBITDA 2014E

Telecom, IT & Media

Page 185: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Sonda Company Description

Sonda is the leading IT services provider in Latin America with presence in 10 countries throughout the region. It also offers applications and platforms as a way to provide complete and customized solutions to clients, combining its three knowledge areas.

Ownership Income Statement

EBITDA per Country (LTM) Balance Sheet

EBITDA per Division (LTM)

Cash Flow

Management

CEO: Raúl Véjar CFO: Rafael Osorio IR Manager: Rodrigo Peña www.sonda.com/

185 Andean Equities Guide, October 25th 2013

CLP mn 2011 2012 2013E 2014E 2015E

Revenues 592,817 681,192 695,947 762,158 828,023

EBIT 68,968 85,555 80,825 89,014 99,050

EBITDA 91,661 117,349 112,726 123,480 136,522

Net Income 40,624 45,590 57,536 55,337 61,786

EPS 52.5 52.4 66.1 63.5 70.9

EBIT Margin 11.6% 12.6% 11.6% 11.7% 12.0%

EBITDA Margin 15.5% 17.2% 16.2% 16.2% 16.5%

Net Margin 6.9% 6.7% 8.3% 7.3% 7.5%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 35,125 65,814 146,149 121,945 140,764

Total Current Assets 274,657 305,564 399,375 392,221 428,916

Total Assets 580,101 695,106 793,523 813,604 879,376

Current Liabilities 170,393 170,142 183,176 201,863 221,567

Financial Debt 123,892 105,523 109,059 81,708 91,246

Total Liabilities 268,516 296,597 313,856 307,231 338,437

Minority Interest 4,975 4,737 5,408 5,545 5,993

Shareholders Equity 306,611 393,771 474,259 500,828 534,945

Total Liabilities + Equity 580,101 695,106 793,523 813,604 879,376

EBITDA / Fin. Expenses 26.1 15.4 67.3 -526.9 -324.0

Financial Debt /EBITDA 1.4 0.9 1.0 0.7 0.7

Financial Debt /Equity 0.4 0.3 0.2 0.2 0.2

ROAE 13.6% 13.0% 13.3% 11.4% 11.9%

ROAA 7.4% 7.2% 7.7% 6.9% 7.3%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

CLP mn 2011 2012 2013E 2014E 2015E

Initial Cash 86,256 35,125 65,814 146,149 121,945

Cash from Operations -24,880 31,647 108,112 85,815 102,771

CAPEX -37,500 -37,500 -30,000 -32,500 -37,500

Changes in Financial Debt 44,424 -18,369 3,536 -27,351 9,538

Div idends (Paid) Received -20,576 -21,252 -28,768 -27,669 -30,893

Taxes -12,599 -19,448 -20,412 -22,498 -25,097

Changes in Equity 0 95,612 47,868 0 0

Final Cash 35,125 65,814 146,149 121,945 140,764

Change in Cash -51,131 30,689 80,335 -24,204 18,819

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Navarro Group47.0%

Pension Funds 15.6%

Others 37.4%

Chile54%

Brazil27%

Mexico8%

ROLA11%

Platforms38%

IT Services54%

Aplications8%

Page 186: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

2012 2013E 2014E 2015E

FV/EBITDA 14.7 11.4 15.1 14.5

P/E 23.2 19.2 28.7 32.3

P/CF 60.8 20.3 25.9 84.4

P/BV 7.1 3.9 3.7 3.5

Div . Yield 2.2% 2.6% 1.7% 1.5%

Sources: Company Reports and Credicorp Capital

Chile Industry:

Rating:

Uperf SQM-B Waiting for the union

Arturo Prado +(562) 2450 1688

[email protected]

Investment Thesis Stock Data

• We are changing our recommendation on SQM to Underperform and introducing a new 2014YE T.P. of CLP 14,300. We like the fundamentals of the company, it’s competitive advantages, with access to quality resources and its leading position in the Iodine, Lithium and SPN markets. However, we remain cautious on the shares, as potash prices continue to be affected by the breakup of the BCP cartel and could reach US$300/ton. We maintain a negative view on potash prices as our base case scenario. Thus, we foresee significant upside risks to our thesis if there is a reunification of the cartel, which will positively affect our T.P. for 2014YE.

• Corporate governance issues are affecting the shares of SQM.

The controller of the company is currently being investigated for alleged violations of securities regulations in Chile. We believe these issues will continue to affect investors’ willingness to hold the shares.

• Risks to our thesis: upside risk comes from the reunification of

BCP cartel. Downside risk: i) more aggressive competition from iodine (locals producers are increasing its capacity) and lithium producers and ii) noises due to corporate governance issues.

Price Chart (CLP) and Volumes (USD mn)

Valuation • In terms of forward multiples, SQM is trading at 28.7x P/E 2014E

and 15.1x FV/EBITDA which is in line with its historic multiples. • When compared to peers, SQM has always traded with, in our

view, a justified premium due to its quality resources. 2014E multiples show a slight increase in this premium, due to its diversified cash generation, showing a lower dependency on potash prices when compared to peers.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

186

0

10

20

30

40

50

Dec-99 Dec-02 Dec-05 Dec-08 Dec-110

5

10

15

20

25

Dec-99 Dec-02 Dec-05 Dec-08 Dec-11

Ticker sqm/b ci / sqm us

Price (CLP) 13,771

LTM Range (CLP) 12,765 - 28,600

Target 14,300(loc) / 28.31 (ADR)

Total Return 5.6%

Market Cap (USD mn) 9,323

Shares Outstanding (mn) 120

Free Float 68%

ADTV (USD mn) 13.4

0

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100

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120

Oct-12 Feb-13 Jun-13 Oct-13

US

D m

n

CLP

SQM/B IPSA

SQM-B

PotashMOSAIC

Uralkali

ICL

K + S

0x

5x

10x

15x

20x

25x

30x

35x

0x 5x 10x 15x 20x

P/E

201

4E

FV/EBITDA 2014E

Materials

Andean Equities Guide, October 25th 2013

Page 187: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

SQM-B Company Description

SQM is the world’s largest integrated producer of potassium nitrate, iodine and lithium carbonate. The company also produces other specialty plant nutrients, potassium chloride and certain industrial chemicals. SQM mines and processes caliche ore and brine deposits in northern Chile and runs a global distribution operation.

Ownership Income Statement

Revenues LTM by Business line Balance Sheet

Gross Margin LTM by Business line

Cash Flow

Management

CEO: Patricio Contesse CFO: Ricardo Ramos IR Manager: Kelly O´Brien www.sqm.com

187 Andean Equities Guide, October 25th 2013

USD mn 2011 2012 2013E 2014E 2015E

Revenues 2,145 2,429 2,306 2,049 2,375

EBIT 763 922 699 487 432

EBITDA 959 1,118 919 696 710

Net Income 546 649 486 324 289

EPS 2,261.2 2,689.7 2,015.7 1,344.0 1,195.7

EBIT Margin 35.6% 38.0% 30.3% 23.8% 18.2%

EBITDA Margin 44.7% 46.0% 39.8% 33.9% 29.9%

Net Margin 25.4% 26.7% 21.1% 15.8% 12.2%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 614 640 692 615 712

Total Current Assets 1,956 2,247 2,197 2,027 2,414

Total Assets 3,872 4,416 4,538 4,449 4,861

Current Liabilities 629 609 629 613 736

Financial Debt 1,398 1,599 1,441 1,207 1,318

Total Liabilities 2,007 2,229 2,097 1,846 2,108

Minority Interest 52 55 66 65 70

Shareholders Equity 1,813 2,133 2,376 2,538 2,683

Total Liabilities + Equity 3,872 4,416 4,538 4,449 4,861

EBITDA / Fin. Expenses 59.5 44.7 45.3 40.8 71.3

Financial Debt /EBITDA 1.5 1.4 1.6 1.7 1.9

Financial Debt /Equity 0.8 0.7 0.6 0.5 0.5

ROAE 31.8% 32.9% 21.6% 13.2% 11.1%

ROAA 15.1% 15.7% 10.9% 7.2% 6.2%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USD mn 2011 2012 2013E 2014E 2015E

Initial Cash 601 614 640 692 615

Cash from Operations 808 820 1,009 731 502

CAPEX -458 -444 -400 -309 -279

Changes in Financial Debt 120 201 -158 -233 111

Div idends (Paid) Received -277 -335 -243 -162 -144

Taxes -180 -216 -156 -104 -92

Changes in Equity 0 0 0 0 0

Final Cash 614 640 692 615 712

Change in Cash 13 26 51 -77 98

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Grupo Pampa 32.0%

Potash Corp. 32.0%

Others 36.0%

SPN29%

Potassium MOP&SOP

25%

Iodine22%

Lithium8%

Industrial Chemicals

11%

Others4%

SPN22%

Potassium MOP&SOP

22%Iodine34%

Lithium11%

Industrial Chemicals

11%

Page 188: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Peru Industry:

Rating:

Hold Unacem The goal is elevation

Fernando Pereda +(511) 416 3333 - Ext: 37856

[email protected]

Investment Thesis Stock Data

• We are updating our rating on Unacem at Hold with an estimated 2014YE T.P. of PEN 4.2. The company will benefit from economic growth, infrastructure projects and the expansion of the Peruvian housing market. Nevertheless, we believe current price levels already reflect these good prospects.

• The Atocongo plant has recently been expanded and we expect Unacem to elevate production. The company’s total capacity is 7.6m MT and its annual average utilization ratio will rise to 85% in 2015 as our demand forecast increases. This new capacity will allow the company to meet future growth without the need of importing clinker, resulting and higher and more stable margins.

• We have updated the value of the subsidiary Celepsa hydro-

electrical plant (217MW), with a 2014YE equity value of USD 377.9mn (90%-owned subsidiary, 13.2% of Unacem’s value). Production will rise to 1,227GW/h in 2014, revenues may amount to USD 65.9mn and EBITDA should grow to USD 55.7mn.

• Risks to our thesis: Slowdown of self- construction. Problems with the supply of natural gas. Higher competition of cement imports and construction of new plants in the central area of Peru.

Price Chart (PEN) and Volumes (USD mn)

Valuation • Our recommendation is based on a sum of parts DCF model broken

down by plant. In our view, the company is a value play, with solid fundamentals and competitive cost structure.

• The company should increase production through 2015 and then remain stable while demand continues to grow. EBITDA margin in the cement units will rise to 36.5% through 2015.

• The company trades at 10.9x FV/EBITDA and 17.0x P/E, which are above comparables. However, multiples are in line with historical performance, as Unacem has an efficient cost structure.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

188

Holcim

Unacem

Heidelberg

Lafarge

CLH Pacasmayo

Cemex

Cemargos

Ciments Francais

-20

-

20

40

60

80

100

120

- 5 10 15 20 25

P/E

2

01

4E

EV/EBITDA 2014E

0

5

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100

150

Oct-12 Feb-13 Jun-13 Oct-13

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D m

PE

N

UNACEM IGBVL

Ticker unacemc1 pe

Price (PEN) 3.62

LTM Range 3.09 - 4.2

Target 4.2

Total Return 17%

Market Cap (USD mn) 2,154

Shares Outstanding (mn) 1,647

Free Float 41%

ADTV (USDmn) 0.6

2012 2013E 2014E 2015E

FV/EBITDA 12.8 11.8 10.9 9.8

P/E 14.8 25.7 17.0 14.7

P/CF -26.0 25.7 15.5 13.5

P/BV 1.6 1.8 1.6 1.5

Div . Yield 3.5% 2.9% 1.2% 1.8%

Sources: Company Reports and Credicorp Capital

(PEN) (PEN)

Andean Equities Guide, October 25th 2013

0

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Dec-06 Dec-08 Dec-10 Dec-12

0

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Dec-06 Dec-08 Dec-10 Dec-12

Cement & Construction

Page 189: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Unacem Company Description

Unacem, the result of the merger of Cementos Lima and Cementos Andino in 2012, is the leader cement producer in Peru with operations in Lima and central highlands. The company is part of the Peruvian group Rizo Patron and has more than 100 years experience in the local market. It has an 90%-owned participation in the hydroelectric company Celepsa.

Ownership Income Statement*

Cement Capacity** Breakdown (2015) Balance Sheet*

COGS* Breakdown (2015)

Cash Flow*

Management

CEO: Ricardo Rizo Patron CFO: Alvaro Morales IR Manager: - www.unacem.com.pe (*) Non-consolidated financial information. (**) Subsidiaries valuated separately

189

Pension Funds 22.3%

Sindicato de Invers. y Admin.

S A 68.0%

Others 9.7%

Condorcorcha,

2100 k MT

Atocongo, 5500 k

MT

Non-cash charges 6.7%

Fuels 18.1%

Electricity 8.5%

Materials 23.8%

Production Inputs 43.0%

PEN mn 2011 2012 2013E 2014E 2015E

Revenues 1,514 1,726 1,878 2,053 2,224

EBIT 457 495 555 621 700

EBITDA 552 562 671 731 812

Net Income 308 360 231 350 403

EPS 0.19 0.22 0.14 0.21 0.24

EBIT Margin 30.2% 28.7% 29.6% 30.2% 31.5%

EBITDA Margin 36.5% 32.6% 35.7% 35.6% 36.5%

Net Margin 20.4% 20.8% 12.3% 17.0% 18.1%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

PEN mn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 30 74 450 674 964

Total Current Assets 396 704 1,083 1,366 1,714

Total Assets 3,819 6,075 6,546 6,866 7,257

Current Liabilities 718 1,170 1,307 1,328 1,380

Financial Debt 1,242 1,943 2,414 2,446 2,525

Total Liabilities 1,855 2,773 3,164 3,202 3,296

Minority Interest 0 0 0 0 0

Shareholders Equity 1,965 3,303 3,383 3,663 3,961

Total Liabilities + Equity 3,819 6,075 6,546 6,866 7,257

EBITDA / Fin. Expenses 8.5 8.4 6.4 6.1 6.5

Financial Debt /EBITDA 2.3 3.5 3.6 3.3 3.1

Financial Debt /Equity 0.6 0.6 0.7 0.7 0.6

ROE 15.7% 13.7% 6.9% 9.9% 10.6%

ROA 8.1% 7.3% 3.7% 5.2% 5.7%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

PEN mn 2011 2012 2013E 2014E 2015E

Initial Cash 223 30 74 450 674

Cash from Operations 360 221 421 409 470

CAPEX -222 -321 -183 -147 -155

Changes in Financial Debt -261 159 323 31 80

Div idends (Paid) Received -58 -86 -157 -69 -105

Others -10 71 -28 0 0

Changes in Equity 0 0 0 0 0

Final Cash 30 74 450 674 964

Change in Cash -192 44 376 224 290

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Page 190: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Peru Industry:

Mining Rating:

Buy Volcan Demonstrating silver delivery

Héctor Collantes +(511) 4163333 – Ext 33052

[email protected]

Investment Thesis Stock Data

• We maintain our BUY rating on the shares of Volcan based mainly on expectations for strong production growth in silver and successful cost controls. Volcan is set to increase its silver output from 22mn oz in 2013 to 28mn oz in 2014 (up 40%). We expect silver production to peak at 32mn oz in 2017 (an almost 50% increase from the 2013E level). Such growth rests upon the expected start in 1Q14 of a new Ag, Zn and Pb mine (Alpamarca-Río Pallanga) and one metallurgical silver plant (oxides). Along with another metallurgical plant (pyrites) to treat past tailings (1Q16) total mining investment reaches USD400mn, out of which USD300mn are being spent in 2013.

• Powering up and diversifying. The Chancay hydroelectric is expected to start in 2016 (60MW) when a JV might have helped Volcan to develop Belo Horizonte (180MW). Volcan will sell energy to the National grid from both projects. Volcan also studies whether to develop Rondoní, a small project (20,000 MT Cu) without value accretion, in our view. It also looks for M&A opportunities in Cu-Au.

• Risks to our thesis: the pyrites project might show delays related to the metallurgical tests; the hydro projects might need more Capex; Rondoní Cu project might prove economically feasible.

Price Chart (PEN) and Volumes (USD mn)

Valuation • Our DCF takes 16 periods as stated in the life of mine in reserves

and resources without any potential exploration increase (especially Pasco West Wall). 22% of the value comes from the hydroelectric.

• Cost controls have started. Unlike most of its peers, Volcan has already diminished average cost per treated ton of ore to USD71/MT (-7% QoQ, +27% YoY). Hence, we have trimmed our cost expectation to fall back to the already high 1Q13 level (except for Pasco) and have kept that assumption in our forecasts.

• Debt-risen multiples, especially so in the forward FV/EBITDA.

Valuation Summary

P/E Forward FV/EBITDA Forward Relative Valuation

190

Minmetals Sumitomo Metal Mining

Boliden

Milpo El Brocal

Volcan

0

5

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20

25

0 5 10 15

P/E

2014

E

FV/EBITDA 2014E

Ticker volcabc1 pe

Price (PEN) 1.3

LTM Range 1.14 - 2.54

Target 1.7

Total Return 31%

Market Cap (USDmn) 2,486

Shares Outstanding (mn) 3,669

Free Float 60%

ADTV (USDm) 1.7

2012 2013E 2014E 2015E

FV/EBITDA 10.2 7.2 6.2 5.4

P/E 21.1 12.9 13.1 10.7

P/CF 6.6 27.8 5.1 4.4

P/BV 3.1 1.6 1.4 1.2

Div . Yield 3.1% 1.7% 2.7% 2.7%

Sources: Company Reports and Credicorp Capital

0

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VOLCAN IGBVL

Andean Equities Guide, October 25th 2013

(PEN)

(PEN)

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Page 191: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Volcan Company Description

Volcan is the largest producer of zinc, silver and lead in Peru and the sixth world largest producer of these metals. Volcan operates in the historic mining area of Central Peru. The company renewed its management three years ago bringing in professionals with more experience in silver mining. Volcan is listed on the Lima, Santiago and Madrid SE.

Ownership Income Statement

Revenues Breakdown per Metal Balance Sheet

Revenues Breakdown per Mine

Cash Flow

Management

CEO: Juan José Herrera CEO (deputy):Ignacio Rosado Financial Planning (IR): Jorge Murillo www.volcan.com.pe

191

Letts Family 17,8%

Peruvian Pension Funds 34.8%Int'l Inst

Inv 5.3%

Others 42.1%

Zinc 45,7%

Lead 10.6%

Copper 2.3%

Silver 41.4%

Yauli 61,0%

Chungar 35.0%

Cerro de Pasco 4.0%

USDmn 2011 2012 2013E 2014E 2015E

Revenues 1,240 1,131 1,134 1,125 1,274

EBIT 538 330 291 275 411

EBITDA 624 436 409 414 550

Net Income 370 205 223 175 266

EPS 0.12 0.07 0.05 0.05 0.06

EBIT Margin 43.3% 29.2% 25.7% 24.5% 32.3%

EBITDA Margin 50.3% 38.5% 36.1% 36.8% 43.1%

Net Margin 29.9% 18.1% 19.7% 15.6% 20.9%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USDmn 2011 2012 2013E 2014E 2015E

Cash & Equivalents 334 575 573 809 1,095

Total Current Assets 561 1,102 1,103 1,329 1,631

Total Assets 1,886 2,639 2,863 3,019 3,252

Current Liabilities 351 427 459 425 425

Financial Debt 250 706 706 706 706

Total Liabilities 553 1,262 1,294 1,260 1,260

Minority Interest 0 0 0 0 0

Shareholders Equity 1,333 1,376 1,569 1,758 1,992

Total Liabilities + Equity 1,886 2,639 2,863 3,019 3,252

EBITDA / Fin. Expenses 882- 17 27 25 31

Financial Debt /EBITDA 0.4 1.6 1.9 1.6 1.4

Financial Debt /Equity 0.2 0.5 0.4 0.4 0.4

ROAE 27.8% 15.1% 13.1% 11.4% 12.4%

ROAA 19.6% 9.1% 7.0% 6.5% 7.4%

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

USDmn 2011 2012 2013E 2014E 2015E

Initial Cash 135 154 575 568 798

Cash from Operations 179 97 335 299 350

CAPEX -54 -75 -341 -69 -69

Changes in Financial Debt 11 643 0 0 0

Div idends (Paid) Received -122 -97 -73 -68 -67

Financial&Investing, others 4 -147 73 68 67

Changes in Equity 0 0 0 0 0

Final Cash 154 575 568 798 1,079

Change in Cash 19 421 -6 230 281

Sources: Company Reports and Credicorp Capital; E Credicorp Capital Estimates

Andean Equities Guide, October 25th 2013

Page 192: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

192

Page 193: Introduction - investorideas.com · Atacocha Peru 62 Falabella Chile 4 Austral Peru 64 Ferreycorp Peru 6 Bancolombia Colombia 66 Forus Chile 8 Banco de Chile Chile 68 Graña y Montero

Universe Book, September 25th 2013 193


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