July 23rd, 2014

Colombia - Equities

COLCAP Question Book for Investors

Country:

Colombia Equity Strategy

What should be top of mind going in 2H14? As we start preparing our set of YE2015 targets for the Colombian stock market, we still see upside for the remainder of 2014.  During the first half of the year, we have seen economic data matching our long-held optimism, with the GDP growth of 6.4% in 1Q14 beating market expectations. In line with the good performance of the economic activity, the Central Bank began rising its benchmark rate (now standing at 4.0% after three rises of 25pb).  On the political front, the most important event were the presidential elections, where Juan Manuel Santos was reelected for a second term (2014-2018), beating Mr. Oscar Iván Zuluaga. Even though no major changes in the economic model were expected regardless of the winner, uncertainty surrounding the future of the peace talks and some specific decisions on the sources of funding for government investment, had an impact on market behavior.  We remain moderately positive for the remainder of 2014 (upside potential of 9% from current levels). We expect the economy to keep performing well and earnings should grow and post relevant improvements compared to results in 2013, which were particularly negative for banks. Our main concern is the uncertainty regarding oil & gas. The deterioration of security conditions and the pickup in community protests have taken a toll on operational figures, and were part of the reason why the government cut its national production estimates. That said, we still see value in the mid-to-long term.

 In the following pages, we have compiled an investor handbook with key questions we think investors should have on the top of mind while analyzing Colombian companies in the COLCAP. Questions focus on both long term and short term themes and should help provide a clear picture of what could impact future results of the COLCAP.

CREDICORP CAPITAL EQUITY RESEARCH César Cuervo & Team +(571) 339 44 00 ext. 1012 [email protected]

This report is property of IM Trust S.A. and/or Credicorp Capital Colombia S.A Sociedad Comisionista de Bolsa and/or Credicorp Capital S.A.A. and/or its subsidiaries (hereinafter jointly called “Credicorp Capital”), therefore, no part of this the material or its content, nor any copy of it may altered in any way, transmitted, copied or distributed to any third party without prior and express written consent of Credicorp Capital. In making this report, Credicorp Capital has relied on information from public sources. Credicorp Capital has not verified the truthfulness, completeness or accuracy of the information accessed, nor has audit the information in any way. Accordingly, this report does not constitute a statement, assertion or guarantee (express or implied) as to the truth, accuracy or completeness of the information contained herein or any other written or oral information furnished to any person and/or their advisors.

Company Index

Avianca Holdings

3

Bancolombia

4

Banco de Bogotá

6

Canacol Energy

8

Celsia

9

Cementos Argos

11

Cemex Latam Holdings

12

Corficolombiana

13

Davivienda

15

Ecopetrol

17

EEB

19

ETB

20

Éxito

21

Grupo Argos

23

Grupo Aval

24

Grupo Sura

26

ISA

27

Isagen

28

Nutresa

30

Pacific Rubiales

31

2

Avianca Holdings (Buy; 2014E T.P. COP 4,800) Pilar Gonzalez; [email protected]

Below we have outlined 10 key themes in the form of questions that we believe can help investors with their analysis of the company: 1.

In 1Q14, Avianca announced the reduction of its 7 daily frequencies from and to Venezuela due to the cash retentions in this country. When does the company plan to redeploy this capacity in other markets? When does Avianca expect to receive the total retained cash from Venezuela?

2.

Will the company change its fleet expansion plan for coming years as a response of the necessity of capacity redeployment from Venezuela? After the 5 new aircrafts (2 A321, 2 ATR-72, and 1 A319) added in the 1Q14, which are the next milestones regarding fleet renewal?

3.

The passenger yield fell from 12.4 to 11.9 from 1Q13 to 1Q14. Should we expect similar yield decreases for the next quarters in 2014 as a response of the frequencies reduction in Venezuela and the increase of competition in the international market within the Latin American region?

4.

Recently, Avianca has added flights to and from London and New York. Which are the next destinations that the company plans to reach? In addition, where does the company expect to increase its frequencies?

5.

How does Copa stopping its operations in Colombia affect Avianca? How does the company see that Latam Airlines has recently increased its frequencies in this market? In addition, what has been so far, and will be the increasing participation of low-cost carriers in this market?

6.

Does the company have a plan to increase its load factor, which was 78.4% in 1Q14 and 77.3% in April and May (lower than in 2013 and below its competitors), considering that the company plans to continue increasing its ASK in coming years?

7.

The freight transportation has been negatively affected by the slowdown in the Latin American and Chinese economies over the past several years. Considering cargo load factors and revenues, which remain low, how does the company plan to deal with this industry challenge?

8.

The market sees Lifemiles as the star business of Avianca, as it has been showing continuously increasing revenues over the past quarters. How does the company plan to capitalize on this? Is the company planning to IPO this business segment the way its competitors did with Smiles (GOL) and Multiplus (Latam Airlines Group)?

9.

Avianca recently signed an agreement with Turkish Airlines within the Star Alliance framework. Moreover, alliances have strengthened in the region. For the time being, is the company planning on signing any other partnership?

10. After the CASK reduction of 2.7% during 1Q14, is the company planning any other specific cost reduction for 2014? In addition, after the fuel price increases during 2Q14, does the company plan to modify its hedging policy for fuel price risk for 2014 and 2015?

3

Bancolombia (Hold; 2014E T.P. COP 30,000) Juan Dominguez; [email protected]

Below we have outlined 10 key themes in the form of questions that we believe investors should be asking the company: 1.

Even though loan growth in 1Q14 stood at an impressive 27% y/y, most of this growth is explained by the consolidation of Banistmo, and loans in Colombia have decreased their dynamism. In this context, Bancolombia has lowered its market share YTD, given the fast growth rates of the two main competitors, Grupo Aval and Davivienda. Could you give us some guidance on the differences between your strategy and that of your main competitors? What is the expected loan growth (total and discerning by credit segment) for 2014 and coming years? What could we expect in terms of funding?

2.

Could you give us your outlook about the competitive environment of the Colombian banking industry? What do you admire about your competitors and what are your main competitive advantages in Colombia?

3.

In terms of asset quality, what could we expect in terms of the future evolution of the NPL ratio? How are loan collections, especially in consumer lending developing? What is the expected cost of credit risk (provision expenses over average loans) and write-offs for the next years considering the positive effect of a better economic outlook and a slight change on mix towards commercial loans, the negative effect of higher interest rates, and a 2-digit growth in the loan portfolio?

4.

Considering the recent raises in CB policy rate, what can we expect in terms of NIM? In other words, what is the expected effect of a 100 bps increase in CB policy rate in NIM, considering also both the strong competition in the industry and the geographical diversification of the loan book to Panama through Banistmo?

5.

What is the bank’s strategy in terms of fee income? How important are other operating revenues, such as investment banking (dividends), operating leases and proprietary trading, in total operating revenues?

6.

After the capital issuance in 1Q14, Bancolombia improved its Tier 1 ratio to the 8%9% range under ColBanking GAAP. Can you provide us with an estimate of capital adequacy under IFRS? What is the guidance on dividend payout policy? Considering this guidance on dividends and your estimates of ROAE, what is the sustainable growth in the loan book (i.e. the growth level that does not impair capital adequacy ratios)? Could you confirm to us if the next equity issuance will necessarily be a voting share issuance?

7.

The weakest single variable of Bancolombia compared to peers is its efficiency. How is INNOVA affecting efficiency and could you give us some guidance on the success of this project? How is the M&A activity over the last 10 years (obviously including Banistmo) affecting efficiency indicators and what could we expect going forward? Bancolombia has a relatively better paid payroll compared to peers. What is the strategy in terms of headcount, wages and bonuses? What is the proportion of unionized employees and how strong are labor unions? Finally, could you give us some guidance on other cost-control initiatives? Branches/ATMs? Capex in technology and alternate channels? Future evolution of the cost-to-income ratio?

4

8.

Bancolombia and its main competitors in Colombia were quite aggressive in acquiring assets in Central America. What could we expect in terms of further material M&A activity for Bancolombia? How important were low funding costs at a global level (i.e. historically low treasury rates) in this trend of M&A activity? Could you give us some guidance on the past results of both Banagrícola and Banistmo, and their future deliveries? How is competition in Panama, El Salvador and Guatemala? What could we expect in Agromercantil?

9.

Summarizing the topics that we have already discussed, what is management guidance for earnings growth and ROAE in 2014 and 2015? What is the expected long-term sustainable ROAE?

10. Regarding corporate governance, how is the decision-making process in Bancolombia? Could you summarize the expertise of the senior management? How involved is GrupoSura in the decision-making?

5

Banco de Bogotá (Uperf; 2014E T.P. COP 70,700) Juan Dominguez; [email protected]

Below we have outlined 10 key themes in the form of questions that we believe investors should be asking the company: 1.

Banco de Bogotá started a healthy 2014 in terms of loan growth in Colombia. Could you give us some guidance on the differences between your strategy and that of your main competitors? What is the expected loan growth (total and discerning by credit segment) for 2014 and coming years? Could you summarize your commercial strategy in Central America? What could we expect in terms of funding?

2.

Could you give us your outlook about the competitive environment of the Colombian banking industry? What do you admire about your competitors and what are your main competitive advantages in Colombia?

3.

In terms of asset quality, what could we expect in terms of the future evolution of the NPL ratio given the increasing focus in retail lending? How are loan collections, especially in consumer lending developing? What is the expected cost of credit risk (provision expenses over average loans) and write-offs for the next years considering a better economic outlook, the slight change on mix towards retail loans, the effect of higher interest rates, and a 2-digit growth in the loan portfolio? In 1Q14 cost of credit risk increased as a result of the recently acquired assets in Central America. What could we expect on this front going forward?

4.

Considering the recent raises in CB policy rate in Colombia, what can we expect in terms of NIM? In other words, what is the expected effect of a 100 bps increase in CB policy rate in NIM, considering also both the strong competition in the industry and the geographical diversification of the loan book to Central America?

5.

What is the strategy in terms of fee income? What can we expect in terms of fee income from AFP Porvenir? Could you give us some guidance on revenue coming from Corficolombiana (i.e. dividends and income from investments in the real sector) going forward? How important are other operating revenues, such as proprietary trading, in total operating revenues?

6.

After the strong M&A activity that started with the acquisition of BAC Credomatic in 2010 and extended in 2014 with AFP Horizonte, BBVA Panama and Grupo Reformador, the Tier 1 ratio suffered materially. As a consequence, Banco de Bogotá issued voting shares which allowed the ratio to close at 7.4% as of Mar-14. Despite these efforts, credit agencies (Moody’s and S&P) seem cautious about the capital adequacy of the bank, and Moody’s even changed the outlook of the rating from stable to negative. Can you provide us some guidance on capital adequacy going forward? Could Banco de Bogotá once again issue capital to improve the ratios? What do you think these credit agencies are considering to reach their conclusions? Is the investment in Corficolombiana affecting materially the solvency of the bank and are there plans to modify the structure? How will capital ratios look like under IFRS? What is the guidance on dividend payout policy? Considering this guidance on dividends and your estimates of ROAE, what is the sustainable growth in the loan book (i.e. the growth level that does not impair capital adequacy ratios)?

6

7.

Banco de Bogotá is one of the most efficient banking franchises in the country. However, the indicators have impaired after the acquisitions in Central America. What is the strategy in terms of efficiency for both Colombia and Central America? What kind of cost-control programs are you implementing? How is the consolidation of AFP Porvenir and Corficolombiana affecting the indicators? Finally, could you give us some guidance on Branches/ATMs? Headcount? Capex in technology and alternate channels? Future evolution of the cost-to-income ratio?

8.

Banco de Bogotá and its main competitors in Colombia were quite aggressive in acquiring assets in Central America. What could we expect in terms of further material M&A activity for Banco de Bogotá? How important was low funding costs at a global level (i.e. historically low treasury rates) in this trend of M&A activity? Could you give us some guidance on the past results of BAC Credomatic, and their future deliveries? How is competition in the region?

9.

Summarizing the topics that we have already discussed, what is management guidance for earnings growth and ROAE in 2014 and 2015? What is the expected long-term sustainable ROAE?

10. Regarding corporate governance, how is the decision-making process in Banco de Bogotá? Could you summarize the expertise of the senior management? How involved is Grupo Aval in the decision-making?

7

Canacol Energy (Buy; 2014E T.P. COP 14,200) César Cuervo; [email protected] / Sebastián Gallego; [email protected]

Below we have outlined key themes in the form of questions that we believe can help investors with their analysis of the company: 1.

The company has undertaken a deep transformation process over the last two years, facing headwinds coming both from operational issues and market pressure. Could you summarize the factors that the management believes have been key to the turnaround? What are the main takeaways of Canacol’s current strategy? What are the main mid and long-term goals? How would you respond to those that question the strategic redefinition and in fact saw it as a lack of corporate strategy?

2.

The recent equity offering (CAD 125mn; dilution of 17.5%) and the increase in the credit line by USD 80mn, alleviated the pressures on cash flow to fund capital requirements for the exploratory campaign in the mid-term. What is the company expecting in terms of financial needs beyond 2015? Is management confident that the potential improvement on financials in 2014-2015 will allow the company to limit capital increases?

3.

With +30kboed by 2016 and +40kboed by 2019, the company’s production guidance seems optimistic given current production levels. Could you provide your estimates of the yearly CAPEX that the company will require in order to meet those production levels?

4.

Current debt levels of 58% D/E are high relative to peers (median around 36%). Does the company feel comfortable with this capital structure? Should we expect potential cash flow improvements in 2014 and 2015 to be used to reduce debt? If so, to what extent? Does the company have a target capital structure?

5.

Despite the potential seen by local and international institutions, there is also a consensus regarding the challenges that companies face in the shale play. There is uncertainty regarding the new regulation that will determine the rules and set the path for the companies to operate and environmental concerns are also an issue. Being an important player in unconventional assets, what is your view on these topics? Will Colombian institutions provide the companies with an enabling environment to successfully exploit unconventional oil and gas?

6.

Being the most promising asset today, what are the milestones investors should be looking for in the LLA23 exploratory campaign?

7.

Could you provide some detail regarding the new gas contracts signed in 1H14? What are the CAPEX needs to increase gas output from the Esperanza block? Do the new contracts have similar terms to those of the contract with the Cerro Matoso mine? What steps has the company taken to mitigate the risk of this highly concentrated set of clients in the gas business? Do the contracts have force majeure clauses to liberate the buyers from the obligations with Canacol?

8.

How does the stock-option-based compensation plan work in Canacol? Do employees have any restrictions for exercising the options and then sell the shares? Is this scheme the main way through which the company aligns the interests of the management with those of the shareholders?

8

Celsia (Buy; 2014E T.P. COP 7,120) Jaime Pedroza; [email protected]

Below we have outlined key themes in the form of questions that we believe can help investors with their analysis of the company: 1.

The installed capacity of Celsia is 56% hydro and 44% thermal. What are the ideal hydrological conditions for the financial performance of the company: high hydrology, normality, or drought? What are the implications in terms of revenues and margins of the different hydrological conditions? How does the company’s commercial strategy intervene in maximizing revenues and in generating power with a particular mix of technologies?

2.

Which is the company’s mix between contracts and the spot market sales? What is the average term of current contracts? The company has gradually changed the mix tilting towards longer-term contracts. Does the company have a new commercial strategy on this issue in particular?

3.

What are the company’s expectations for 2H14 given the high probability of El Niño phenomenon (drought for Colombia) occurring. How would El Niño affect the company’s financial results?

4.

What is the expansion plan of the company? Is the Porvenir II project on schedule? Is Celsia analyzing alternative sources of power generation like wind, geothermal or solar energy?

5.

The company has stated its interest to look for new investment opportunities outside Colombia. What kind of investments is the company interested in and which markets are being considered for the international expansion?

6.

Porvenir II is the main investment project of the company. It is a hydroelectric generator of 352 MW that is expected to start operations in 2018. Currently, Celsia is waiting for the environmental permits to begin the construction. When does Celsia expect to obtain those permits? What is the limit time to obtain those environmental permits without involving delays in the project schedule?

7.

Also on the Porvenir II project, are you worried about issues related to community protests? Key expansion projects including Sogamoso (Isagen) and El Quimbo (Emgesa) have faced major challenges on this front. Further, EPM cancelled the Porce IV project alleging expected return was below cost of capital due to cost overruns related to dealing with communities located in the project’s area of influence. Does Celsia have contingency plans ready to overcome these difficulties?

8.

The natural gas industry in Colombia was redefined with several regulatory changes over the last 12-18 months, including the deregulation of national prices and the implementation of a new methodology to determine them (bilateral contracts vs. auctions). Being one of the main players in thermal generation in Colombia (779 MW; 17% of total installed thermal capacity), how have these changes modified the company’s commercial strategy? Operational figures and financials?

9

9.

How are the natural gas supply contracts of the company? Who are the suppliers and how is the natural gas price formation? What regulatory changes are expected in the Colombian natural gas sector and how this changes could to affect the company’s financial results?

10. What plans does the company have to guarantee its thermal capacity availability? Dual conversion of its installed thermal capacity to operate with Natural Gas and Diesel, long-term supply contracts, imports of natural gas?

11. When does Celsia expect the next auction of reliability charges?

10

Cementos Argos (Uperf; 2014E T.P. COP 9,950) Sebastián Gallego;[email protected]

Below we have outlined key themes in the form of questions that we believe can help investors with their analysis of the company: 1.

What are your expectations for volumes and prices in each country? Which projects does the company have in the pipeline for each country?

2.

How do you see the construction environment in Colombia? Any delays due to licensing or political obstacles? Is housing still driving volumes? What is your view and timing regarding the infrastructure projects, namely 4G road concessions?

3.

Can you provide an outlook of the operation in the USA? What sectors are driving growth in this country? Can we have any guidance on projected EBITDA and margins for 2014 and 2015?

4.

We have seen a significant improvement on EBITDA margins in Colombia. Is there further room to increase this margin? If so, what are these initiatives? Does the company need to incur in further capital commitments?

5.

Does the company have new plans to increase installed capacity in any country of operations? How do you see the internal demand in each country in the upcoming years?

6.

There was a strike in the Panama Canal in 1Q14 and there has been a delay on this project. What is the status of this operation and when does the company expect to end delivering volumes? Can you comment on the status of other projects in Panama?

7.

The company has mentioned downward pressure on prices in the Dominican Republic. What is the current status on this? Should we expect this to continue during 2014?

8.

Credit metrics increased during 1Q14. Even though the company expressed that it feels comfortable under current levels, is there any plan to reduce debt in the shortmedium term? Does the company have any targets on debt/EBITDA or EBITDA/financial expenses?

9.

Are there any plans to make additional acquisitions? The merger between Lafarge and Holcim is expected to create opportunities. Which operations are within your interest?

10. The company holds ~USD 800 of equity in other companies listed in Colombia and these are considered non-strategic assets. Given that Cementos Argos has mentioned that it wants to become a pure cement player, can we have a time frame for the company to divest these positions?

11

Cemex Latam (Uperf; 2014E T.P. COP15,287) Fernando Pereda; [email protected]

Below we have outlined key themes in the form of questions that we believe can help investors with their analysis of the company: 1.

Given that financial expenses and amortization of debt would considerably reduce CFO and CFF through 2018, do you see room for Capex to expand capacity and take advantage of the fast-growing Colombian market?

2.

Will Cemex S.A.B. allow you to increase expansion CAPEX to avoid deficit in capacity for the following years?

3.

Shall we expect flat production during the following quarters due to de high utilization rates of the overall plants?

4.

The company does not expect to pay dividends until debt with Cemex is cancelled, which according to our forecasts will take place in 2018. Shall we expect more years without receiving any dividends?

5.

How will you finance the new cement plant in Nicaragua to be implemented in two stages through 2015 (0.22mn MT, USD 30mn) and 2017 (0.22mn MT, USD 25mn)? Mostly debt or equity?

6.

The market expects an unconfirmed expansion of cement and clinker capacity in Colombia through 2016 (1.0 mn MT, USD 300mn). Has Cemex S.A.B. authorized this Capex?

7.

Colombia is currently implementing the 4G infrastructure works of private-public initiative – PPPs, which are expected to require USD 50.9bn from 2011 to 2021. The most relevant project types are: i) roads (USD 28.7bn; 56% of total); ii) railway (USD 10.8bn; 21% of total); and iii) River and Maritime (USD 1.6bn; 3% of total); among others. Road work is the most important component of the infrastructure plan and important Capex will be disbursed; can the company take advantage of it with current capacity?

12

Corficolombiana (Hold; 2014E T.P. COP 41,160) Juan Dominguez; [email protected]

Below we have outlined 10 key themes in the form of questions that we believe investors should be asking the company: 1.

Corficolombiana has a rather complex structure and an audited accounting that is difficult to understand. Could you summarize the general strategy of Corficolombiana in terms of direct businesses (trading income, private banking and investment banking), equity investments, and capital structure to have a better understanding of the corporation?

2.

Corficolombiana is one of the most active players in both the local fixed-income market and the USD:COP market. What are the Corporation’s expectations for these markets? What is the current strategy in terms of duration, currency and accounting classification for the fixed-income portfolio?

3.

Equity investments are in the core of Corficolombiana’s activities, and power and gas investments are the most representative in terms of book value. Could you give us some guidance on the outlook for Promigas going forward? What can we expect for Calidda and the new gas transportation project on the northern part of Peru? What can be expected on the LNG plant in the northern coast of Colombia? In which projects or countries are you interested in order to maintain robust growth rates? What’s the current state of Promigas’ capital structure and what room does the company have for funding new projects? Is there anything worth mentioning on other equity investments in this sector such as EEB and Gascop?

4.

The second most relevant sector is infrastructure. This is, undoubtedly, one of the sectors that is expected to record high growth rates going forward. Could you summarize the current situation of ongoing concessions (PISA, Coviandes, Ruta del Sol and Panamericana)? How is traffic in these concessions developing? For concessions in the construction phase, how is capex being executed?

5.

Corficolombiana was recently awarded with the Conexión Pacífico 1 road concession under the 4G framework. Could you list the main differences between 4G and previous concessions? Could you summarize the specific features of this new concession (capex, maturity, present value of toll revenue, fiscal commitments, risks, etc)? What is the pipeline of further 4G concessions and public-private partnerships?

6.

Corficolombiana increased its stake in Aerocali upon the extension of the concession contract for Cali’s international airport. Could you give us some details on this concession? What is the pipeline of further airport concessions?

7.

Regarding other strategic sectors, how is the expansion plan of Hoteles Estelar developing (hotels in Cartagena, Villavicencio and Cúcuta)? Could you give us an update on the rubber project, Unipalma and Pajonales? What is the strategic value of the exposure to Pizano?

13

8.

Considering the impressive pipeline of projects, some of them with significant capex, how will Corficolombiana fund these projects? In other words, how will Corficolombiana cope with the possibility of being awarded several infrastructure projects at the same time? How will this translate into the dividend payout policy, considering that the cash dividend payout has already come down significantly?

9.

Could you give us some color on the decision-making process in Corficolombiana? How involved is Grupo Aval and Mr Sarmiento Angulo in the process? What is the experience of the senior management? Are there plans to improve the quality of information disclaimed to the market on a periodical basis?

14

Davivienda (Hold; 2014E T.P. COP 32,200) Juan Dominguez; [email protected]

Below we have outlined 10 key themes in the form of questions that we believe investors should be asking the company: 1.

Davivienda started a healthy 2014 in terms of loan growth in Colombia. Could you give us some guidance on the differences between your strategy and that of your main competitors? What is the expected loan growth (total and discerning by credit segment) for 2014 and coming years? Could you summarize your commercial strategy in Central America? What could we expect in terms of funding?

2.

Could you give us your outlook on the competitive environment of the Colombian banking industry? What do you admire about your competitors and what are your main competitive advantages in Colombia?

3.

One of the main doubts that arise when analyzing Davivienda is its relatively low Tier 1 ratio, considering also that the bank is the only leading bank that has not issued capital after the enforcement of the new regulatory capital framework. How do you expect Tier 1 ratio to develop going forward? How important are occasional reserves for Davivienda? What are the expected effects of IFRS in the ratios? Could we expect an equity increase in 2015 or 2016? What is the guidance on dividend payout policy? Considering this guidance on dividends and your estimates of ROAE, what is the sustainable growth in the loan book (i.e. the growth level that does not impair capital adequacy ratios)?

4.

Davivienda and its main competitors in Colombia were quite aggressive in acquiring assets in Central America, and Davivienda acquired a challenging franchise with low profitability ratios. Could you give us some guidance on the past results of the Central American operations, and their future deliveries (especially in terms of ROAE)? How is competition in the region? What could we expect in terms of further material M&A activity for Davivienda? How important was low funding costs at a global level (i.e. historically low treasury rates) in this trend of M&A activity?

5.

In terms of asset quality, Davivienda has proved conservative in its lending policies, allowing it to lower its cost of credit risk. What could we expect in terms of the future evolution of the NPL ratio? How are loan collections, especially in consumer lending developing? What is the expected cost of credit risk (provision expenses over average loans) and write-offs for the next years considering a better economic outlook, the change on mix towards commercial loans, the effect of higher interest rates, and a 2-digit growth in the loan portfolio?

6.

Considering the recent raises in CB policy rate, what can we expect in terms of NIM? In other words, what is the expected effect of a 100 bps increase in CB policy rate in NIM, considering also both the strong competition in the industry and the geographical diversification of the loan book to Central America?

7.

What is the bank’s strategy in terms of fee income? How important are other operating revenue, such as dividend income, operating leases and proprietary trading, in total operating revenues?

15

8.

What is the strategy in terms of efficiency for both Colombia and Central America? What kind of cost-control programs are you implementing? Could you give us some guidance on Branches/ATMs? Headcount? Capex in technology and alternate channels? Future evolution of the cost-to-income ratio?

9.

Summarizing the topics that we have already discussed, what is management guidance for earnings growth and ROAE in 2014 and 2015? What is the expected long-term sustainable ROAE?

10. Regarding corporate governance, how is the decision-making process in Davivienda? Could you summarize the expertise of the senior management? Can you tell us a bit more about the controlling group (Grupo Bolívar)? How involved is the Cortés family in Grupo Bolívar’s decision-making? How is the current “chain of command” in the family?

16

Ecopetrol (Hold; 2014E T.P. COP 4,260) César Cuervo; [email protected] / Sebastián Gallego; [email protected]

Below we have outlined key themes in the form of questions that we believe can help investors with their analysis of the company: 1.

Considering that the Colombian Government cut its estimates on national crude oil production for the next 10 years (Mid-Term Fiscal Framework, June 16th 2014), will the company revise down its production targets of 1 Mboed for 2015 and 1.3 Mboed for 2020? What would be the pessimistic scenario for Ecopetrol in terms of production in the period 2015-2020? What will be the means to achieve production targets? Regarding the Government’s figures, does the company work alongside the national agencies and ministries involved in outlying the fiscal framework, in order to obtain the production estimates for the country?

2.

Also on production, the company seems confident that it will be able to meet production targets mostly via organic growth, backed on new production coming from Akacias and Caño Sur, and increased production of Castilla and Chichimene. What are the main risks to achieving the targets set for these fields? Is it feasible to increase production by ~200 kboed in the next 12 to 18 months? Is inorganic growth in Colombia an option to meet production and reserves targets?

3.

Much has been said about the potential results of tertiary recovery techniques for heavy crude oil fields in the Llanos basin in Colombia. Are the technologies being used in fields like Castilla and Chichimene applicable to other blocks, like Rubiales? In case the latter reverts in full to Ecopetrol, would the company be capable of extending this field’s reserves life? Have Ecopetrol and Pacific waited too long to implement STAR (or any other enhanced recovery technique) in Rubiales, so that the maximum (optimal) amount of resources from the reservoir can no longer be recovered? What would be a feasible number to expect in terms of final recovery factors from fields Rubiales and Quifa? Would the Energy Return on Investment be positive in the case of the STAR technology?

4.

Is CAPEX being deployed according to schedule? What has been the impact of the operational disruptions and security / environmental issues in terms of investment in 2014? Given that the company has consistently come short of budget in terms of investment (5%-10% less than anticipated for each year) will the company revise its longer-term CAPEX plan? The ambitious investment plan has raised questions regarding the sources of funding. Is a new equity offering a potential source of funding for 2015 after it was firmly discarded by the company for 2014?

5.

Would you consider changes to the dividend payout policy? For 2015, taking into account capital needs and 2014 earnings potentially below budget, would you consider lowering the traditional payout ratio of 70% and/or paying no extraordinary dividend?

6.

The company has, or is currently developing new contingency plans to face the recent deterioration in security conditions? Is there anything the company can do to mitigate the negative effects of the terrorist attacks? What has been the impact in terms of production, costs, and delays in the exploratory campaign in 2014?

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7.

One of the main concerns regarding the long-term sustainability of the E&P segment is the absence of new big findings over the last few years (at least not the size of Rubiales or Caño Limón), not only for Ecopetrol but for most industry players in Colombia. Also, the longer time required to obtaining environmental licenses from the ANLA (Colombia Environment Authority) compared to 2-3 years ago is a recurrent complaint by the industry. Considering the aforementioned, could you give an update on the exploratory campaign for 2014? What are the main milestones the market should be looking at for the remainder of the year and 2015?

8.

Is the conversion project of the Cartagena refinery going on schedule? Which will be the first quarter that will show the potentially positive impact from the increased profitability due to enhanced conversion factors? What is the company’s guidance in terms of EBITDA margins for the downstream segment once the conversion is complete?

9.

The company has undertaken a geographic diversification strategy, acquiring interests in countries as varied as Peru, US, Brazil, and more recently, Angola. What other regions would be of interest? Does the company have a specific target of revenue and/or production coming from outside Colombia?

10. Also on this topic, several companies with relevant operations in Colombia have stated their interest in participating in Mexico’s round zero for exploratory assets. Is Ecopetrol interested as well? What is the management’s view regarding how attractive and investor-friendly will be the conditions outlined by Pemex and the Mexican Government? Will Mexico opening its oil & gas sector to foreign players, deviate resources previously allocated to Colombia? 11. According to different national agencies and associations of oil producers, the unconventional play in Colombia yet promising, still is in a very early stage of development and production from these assets shouldn’t be expected before five or six years. Being the most relevant player in shale land in the country, does Ecopetrol agree with this view? How far is Colombia from developing the shale plays in the Magdalena basin? What is Ecopetrol’s strategy on unconventional oil & gas? From the USD 56 bn the company expects to invest in the upstream segment in 2014-2020, how much is going to be devoted to unconventional initiatives?

18

EEB (Hold; 2014E T.P. COP 1,800) Jaime Pedroza; [email protected]

Below we have outlined key themes in the form of questions that we believe can help investors with their analysis of the company: 1.

EEB approved an investment plan for about USD 7,500 mn between 2013 and 2017. How will the funding of this investment plan be structured and how could it affect the indebtedness capacity of the company? So far, what is the execution of this estimated CAPEX?

2.

What is the progress of the current projects under construction?: Trecsa (power transmission network in Guatemala); Calidda and Contugas (natural gas distribution in Peru); EEB (power transmission projects in Colombia).

3.

What are the new investment alternatives that EEB is evaluating/developing? Looking at investment alternatives in Central America, Chile and Peru: the Pacific Pipeline (Colombia); Electric Public transportation in Bogota, Colombia-Panama power interconnection, which is the importance of those investments for the future of the company and how could them change the current strategy and revenue mix?

4.

What was the rationale behind acquiring the additional 31.9% stake in TGI? Did you consider it to be undervalued? At USD 880mn, implied EV/EBITDA multiple of 10.4x was fair relative to recent transactions but somewhat above trading multiples of listed peers (9.6x). What are the company’s plans with TGI? Could you give us some guidance on EBITDA expansion for TGI for the next 12 to 18 months?

5.

What is the importance of investments not controlled by the Group (Codensa, Emgesa, Gas Natural, etc.)? What kind of shareholder agreements have been signed? What is the influence of EEB in the decision-making process? What are the plans of EEB with those investments? Increase, hold or sell its stake?

6.

How is the power and natural gas regulation in Colombia Peru and Guatemala? What are the main differences between those markets? What are the WACCs at which these investments are remunerated? What kind of changes are expected in terms of regulation in this markets and how could those changes affect the financial situation of the Group?

7.

What is the interest of EEB in the sale process of the Colombian Government’s stake in Isagen? What are the conditions imposed by the Competition Regulator (SIC) to EEB in order to participate in the process? Given those conditions, has EEB definitely lost its interest in Isagen? Is there still a way in witch EEB is willing to participate? Should the company not participate, will it sell its current 2.5% stake?

19

ETB (Buy; 2014E T.P. COP 540) Jaime Pedroza; [email protected]

Below we have outlined key themes in the form of questions that we believe can help investors with their analysis of the company: 1.

The Office of the Mayor of Bogotá is the controlling shareholder of ETB (86.6%stake). It implies an inherent political risk in the company. How are the relations between the Office of the Mayor and the company? What are the main corporate governance policies and how does the decision-making process work? Are there any mechanisms to guarantee the continuity of the Company’s policies, even after the transitions in the office of the mayor, between one administration and the next one (Bogotá’s Mayor is elected for a 4-year period)?

2.

Could you give us your outlook about the competitive environment of the Colombian telecoms industry? What do you admire about your competitors and what are your main competitive advantages in Colombia?

3.

The strategic plan of the company relies on the substitution of its current copperbased network for optical fiber in Bogotá. How is the deployment of the optical fiber network working so far? How many users could be connected by optical fiber and how many are already subscribers of ETB?

4.

What is the estimated CAPEX required by the company to deploy the optical fiber network and build the infrastructure needed to offer mobile services? What is the funding plan for those investments and how could it affect the indebtedness capacity of the company?

5.

ETB intends to participate in all the telecom services (fixed line, pay television, internet, and mobile voice and data) and to offer bundled services. Which is the segment that offers the most attractive growth opportunities and what is the company’s strategy to capture market share? What are the company’s expectations in terms of market share, ARPU and penetration rates in Colombia for those segments?

6.

ETB is foraying in pay television (service launched in March 2014) and mobile services (expected to be launched in September 2014). What are the main challenges in those business and what is the strategy of the company to compete in those markets? What do you think will to be most likely response of incumbents? Higher customer service standards? Price wars?

7.

What regulatory changes are expected in the Colombian telecom sector and how these changes could affect the company’s financial results?

20

Éxito (Uperf; 2014E T.P. COP 29,000) Christopher DiSalvatore; [email protected]

Below we have outlined key themes in the form of questions that we believe can help investors with their analysis of the company: 1.

How has the competitive environment changed over the last 2 years with the recent entry of Cencosud and Jeronimo Martins? Does the company intend to defend its market share by investing in pricing through the medium term? Geographically, where do these new players play create the most threat?

2.

Despite positive economic data, particularly consumption data in the country, SSS have been negative. What is explaining this divide? Is this a mix of lower traffic and lower ticket? In what segments are SSS most affected? Where, if in any segment, is the company seeing a positive trend? In 2Q results, are SSS inflecting? If so, how much of this reflects promotional activity versus a change in trend?

3.

In 2012 and 2013, growth in new stores came in under company expectations? Is the company on track to reaching new store growth in 2014? What is the breakdown of new stores by segment in Colombia for the year? Does the company expect to pull back new store growth if location and demand cannot absorb? What is the cost per store and as a % of sales that is being paid in rent? Expected payback period of new stores?

4.

What is growth outlook in Uruguay? When does the company expect to reactivate growth in the country? What are the main restrictions? How are higher personnel costs and inflation affecting operations in the country? What is market share in Uruguay?

5.

How has the program, “Aliados Surtimax” changed the company’s distribution capacity? If not now, what is expected in terms of investment in this program in order to reach long term POS figure of 5,000? What are the economics of this program, per store? How much in terms of sales are this businesses expected to represent in the next 3 to 5 years? What is current number of POS?

6.

How much does the company maintain in land bank? How much of this is currently in the pipeline for development? What are challenges to real estate project development in Colombia today? What is the maturation period of a new mall today in Bogota or Medellin? Where is growth in this business being focused, geographically?

7.

When is the Super Inter acquisition expected to close? What is expected EBITDA margin during the first full year of operations under the group? How will the company use this new banner to grow in the country? Can it use this banner in other regions outside of Valle and the Coffee Region? Where does the company see other opportunities for M&A in the country or in the Latam region?

8.

What is total expected investment in E-commerce operations over the next 2 to 3 year period? What, as a % of sales, could this business come to represent in this time frame? Is the company investing in new distribution capacity solely for this segment?

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9.

What are plans for the more than USD 1bn in cash on the company's balance sheet? What conditions are necessary for the company to increase its payout ratio for investors? How is cash management policy influenced by controllers?

10. How will a shift to IFRS accounting in 2015 change cash flow and operational returns? What accounts will no longer be accounted for in costs (or depreciation) under this change? Stripping out land bank and other businesses, what is the real ROIC of food retail in Colombia?

22

Grupo Argos (Hold; 2014E T.P. COP 24,460) César Cuervo; [email protected]

Below we have outlined key themes in the form of questions that we believe can help investors with their analysis of the company: 1.

Grupo Argos withdrew from the sale process of the Government’s stake in ISAGEN alleging the financial conditions where not attractive enough to meet the company’s return requirements. Are you considering other inorganic growth opportunities? Does the company have a specific target in terms of ROIC?

2.

During 1H14 Grupo Argos increased its stake in Celsia, acquiring shares from local pension funds. Would the company consider further increases of its participation in Celsia? Would a similar transaction be considered in the case of Cemargos?

3.

What is the company’s guidance in terms of revenue and EBITDA generated by Situm? Is the urban development plan in Barranquilla on schedule?

4.

One of the main projects currently being developed by Compas (ports) is the construction of storage facilities for 240k barrels of diesel. The project should benefit Celsia and allow this subsidiary to meet its fuel needs to comply with reliability requirements. What are the terms of the contract between Compas and Celsia? Is Celsia going to be the only user of these facilities?

5.

Also on Compas, is the Aguadulce project on schedule? What is the expected time of completion? What are the company’s estimates for revenue and EBITDA in years 1, 2, and 3? When is the project expected to break-even? Are the other operations in the north coast of Colombia profitable? What is the current utilization of installed capacity per facility? Does the company consider all the facilities to be strategic? More generally, what’s the strategy and medium-term goals set for Compas?

6.

What is the rationale behind keeping the 11.9% stake in EPSA directly owned by Grupo Argos, instead of consolidating the entire position under Celsia? Is there a strategic reason? Is it related only to avoiding transaction costs and dealing with minority shareholders in EPSA and Celsia?

7.

By the time the transaction through which Cemargos transferred most part of the nonstrategic assets to its parent (which led to the creation of Compas, Situm and Sator) took place, the holding company mentioned that listing one or all of these new subsidiaries was an option. Is Grupo Argos currently assessing this possibility?

8.

How does the company measure success? What is the company consolidated ROIC requirement? Is top management being measured and rewarded according to performance metrics linked to return on capital and value creation?

9.

One of the main sources of uncertainty for Grupo Argos (and generally, for holdings in Colombia) is how financial statements will look like under IFRS. Could you give us some guidance on this front?

10. What is the capital structure strategy at the holding level? Could we expect further material M&A activity, and what markets, business or products are you targeting?

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Grupo Aval (Buy; 2014E T.P. COP 1,500) Juan Dominguez; [email protected]

Below we have outlined 10 key themes in the form of questions that we believe investors should be asking the company: 1.

Grupo Aval started a healthy 2014 in terms of loan growth in Colombia. Could you give us some guidance on the differences between your strategy and that of your main competitors? What is the expected loan growth (total and discerning by credit segment) for 2014 and coming years? Could you summarize your commercial strategy in Central America? What could we expect in terms of funding? What is going on in Banco Popular?

2.

Could you give us your outlook about the competitive environment of the Colombian banking industry? What do you admire about your competitors and what are your main competitive advantages in Colombia?

3.

In terms of asset quality, what could we expect in terms of the future evolution of the NPL ratio given the increasing focus in retail lending? How are loan collections, especially in consumer lending developing? What is the expected cost of credit risk (provision expenses over average loans) and write-offs for the next years considering a better economic outlook, the slight change on mix towards retail loans, the effect of higher interest rates, and a 2-digit growth in the loan portfolio? In 1Q14 cost of credit risk increased as a result of the recently acquired assets in Central America. What could we expect on this front going forward?

4.

Considering the recent raises in CB policy rate in Colombia, what can we expect in terms of NIM? In other words, what is the expected effect of a 100 bps increase in CB policy rate in NIM, considering also both the strong competition in the industry and the geographical diversification of the loan book to Central America?

5.

What is the bank’s strategy in terms of fee income? What can we expect in terms of fee income from AFP Porvenir? Could you give us some guidance on revenue coming from Corficolombiana (i.e. dividends and income from investments in the real sector going forward? How important are other operating revenue, such as proprietary trading, in total operating revenues?

6.

After the strong M&A activity that started with the acquisition of BAC Credomatic and extended in 2014 with AFP Horizonte, BBVA Panama and Grupo Reformador, the Tier 1 ratio of Banco de Bogotá and the tangible ratio for the parent company suffered materially. As a consequence, both Banco de Bogotá and Grupo Aval issued voting shares which improved the capital soundness of both companies. Despite these efforts, credit agencies (Moody’s and S&P) seem cautious about the capital adequacy of Banco de Bogotá, and hence, about the balance sheet soundness of Grupo Aval. Moody’s even change the outlook of the rating from stable to negative to both Banco de Bogotá and Grupo Aval. Can you provide us some guidance on these issues regarding capital going forward? Could Banco de Bogotá and Grupo Aval once again issue capital to improve the ratios? What do you think these credit agencies are considering to reach their conclusions? Is the investment in Corficolombiana affecting materially the solvency of the Banco de Bogotá and are there plans to modify the structure at the holding level?

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7.

Grupo Aval is one of the most efficient banking financial conglomerates in the country. However, the indicators have impaired after the acquisitions in Central America. What is the strategy in terms of efficiency for both Colombia and Central America? What kind of cost-control programs are you implementing? How is the consolidation of AFP Porvenir and Corficolombiana affecting the indicators? Finally, could you give us some guidance on Branches/ATMs? Headcount? Capex in technology and alternate channels? Future evolution of the cost-to-income ratio?

8.

Grupo Aval and its main competitors in Colombia were quite aggressive in acquiring assets in Central America. What could we expect in terms of further material M&A activity for the group? How important was low funding costs at a global level (i.e. historically low treasury rates) in this trend of M&A activity? Could you give us some guidance on the past results of BAC Credomatic, and their future deliveries? How is competition in the region?

9.

Summarizing the topics that we have already discussed, what is management guidance for earnings growth and ROAE in 2014 and 2015? What is the expected long-term sustainable ROAE?

10. Regarding corporate governance, how is the decision-making process in Grupo Aval? Could you summarize the expertise of the senior management? How involved is Mr Sarmiento Angulo in the decision-making? In terms of structure, what is the rationale behind the multi-bank strategy of the Group? What are the benefits and costs of having such a structure? Are there plans to eventually merge into a consolidated operation?

25

Grupo Sura (Hold; 2014E T.P. COP 44,680) Juan Dominguez; [email protected]

Below we have outlined 10 key themes in the form of questions that we believe investors should be asking the company: 1.

Grupo Sura belongs to a complex cross-holding structure, along with Grupo Argos and Grupo Nutresa. Could you help us understand the rationale behind this structure? We acknowledge that the structure of these three holdings have simplified materially in recent years. Can we expect this simplifying process to continue in coming years? How does this cross-holding nature translate into corporate governance? In other words, how is the BoD structure in these companies?

2.

Can you summarize GrupoSura’s strategy in its strategic portfolio in the financial sector? How would GrupoSura grow profitably in coming years? What are the main advantages and challenges?

3.

One of the key components of GrupoSura’s strategy is to exploit cross-selling opportunities between its different lines of business (insurance, pension management, wealth management and banking). Do you have an indicator of the current cross-selling and a guidance on the target?

4.

Could you summarize your view on Bancolombia? Why did you subscribe shares in the recent issuance, considering that these shares do not have voting rights? Do you plan to eventually divest those shares?

5.

One of the most interesting value drivers for GrupoSura is Sura Asset Management (SAM), its pension fund and wealth management subsidiary. Can you give us color on the growth opportunities in this business? How competed is this industry in the region? There have been several regulatory changes in the region, including the upcoming creation of a state-owned pension fund manager in Chile. How are these changes expected to affect the industry’s landscape and SAM’s results? Finally, could you give us guidance on growth and profitability for SAM?

6.

The insurance business (both PC and HL) in Colombia is a quite challenging one given strong competition and some discouraging products such as minimum wage annuities that are almost impossible to immunize. Could you give us your guidance on the specific products or lines of products you are targeting for growth in the insurance business? Are you expecting some regulatory changes in the mid-term? How strong is competition in Colombia, considering recent news in media about a price war in the sector, especially for PC lines? Which are your toughest competitors in both PC and HL? Could you give us guidance on growth and profitability for SAM?

7.

One of the main sources of uncertainty for GrupoSura (and generally, for holdings in Colombia) is how financial statements will look like under IFRS. Could you give us some guidance on this front?

8.

Finally, GrupoSura has recently raised debt in the local bond market. What is the purpose of this debt? What is the capital structure strategy at the holding level? Could we expect further material M&A activity, and if so what markets, business or products are you targeting?

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ISA (Uperf; 2014E T.P. COP 9,220) Jaime Pedroza; [email protected]

Below we have outlined key themes in the form of questions that we believe can help investors with their analysis of the company: 1.

ISA has defined its business activity as the construction, operation and maintenance of systems of linear infrastructure, highlighting 4 business lines: 1) Energy transmission, 2) Toll road concessions, 3) Telecommunications transport and 4) intelligent management of real-time systems. Is there a different business in the pipeline of the company?

2.

What are the main growth opportunities that the company has identified in those businesses? In which markets/businesses is ISA interested? After the regulatory changes experienced in Brazil in 2013, is ISA interested in looking for investment opportunities in this country? More generally, how has the company modified its strategy after the events in Brazil?

3.

As part of the renegotiation of contracts in Brazil, ISA is waiting for the payment of part of the compensation agreed upon with the Brazilian Government. This indemnification relates to investments made before the year 2000. What has the Brazilian government stated regarding this compensation? When and how does ISA expect to receive it? Is ISA expecting to receive the full amount? What is to become of CTEEP (Companhia de Transmissão de Energia Elétrica Paulista), main subsidiary of ISA in Brazil?

4.

ISA has expressed its interest in participating in the 4G toll road concessions that are being awarded by the Colombian government. In which concessions is the company interested/pre-qualified? How much is ISA expecting to invest in this business unit? What are the main challenges to those concessions?

5.

What regulatory changes are expected in the Brazilian, Colombian and Peruvian power transmission sectors and how could such changes affect the company’s financial results? A change in the regulatory WACC to remunerate future transmission contracts in Colombia is expected later this year and regulators are even considering a structural change in the methodology to define transmission charges. Being the main player in Colombia, could you give us some color on how advanced these discussion on regulatory issues are? What is the most likely scenario and what would be the impact on ISA’s financials going forward? Are you expecting significant reductions in WACCs?

6.

The company is working on a strategic plan to implement operational efficiencies and improve profitability. How is this strategic plan working? Is it on schedule? What is the expected EBITDA margin after implementing its strategic plan?

7.

Is the company expecting to modify its capital structure in the short-to-medium term? Does the company have a new consolidated target debt-to-equity ratio, now that the business in Brazil has changed so dramatically?

27

Isagen (Uperf; 2014E T.P. COP 3,060) Jaime Pedroza; [email protected]

Below we have outlined key themes in the form of questions that we believe can help investors with their analysis of the company: 1.

How could the sale process of the Government stake in Isagen (57.7%) affect the company’s strategy and its corporate governance? The company’s bylaws include some clauses to protect the rights of minority shareholders, even after the change in the ownership structure. Could you describe those mechanisms?

2.

Isagen is finishing the construction of the Sogamoso hydroelectric project, a 820 MW installed capacity hydro generation plan that will increase the company’s total installed capacity by 37%. The project is expected to be operational in October 2014. What is the state of advance of the project? What are the risks of delays?

3.

How will the Sogamoso project affect the financial results of the company? What are the company’s expectations in terms of market share, revenues, costs and EBITDA margin?

4.

Currently 86% of Isagen’s total installed capacity is hydric and the remaining 14% is thermal (diesel and natural gas). Once Sogamoso begins operations, the hydric installed capacity will represent around 90%. How sensitive is the company to hydrological conditions and how does the company manage this risk? Is the construction / acquisition of an additional thermal back-up plant (besides Termocentro) being analyzed?

5.

After completing the construction of Sogamoso, which new growth opportunities are being analyzed and which is the investment plan of the Company? Is Isagen analyzing alternative sources of power generation as, wind, geothermal and solar energy?

6.

What are the company’s expectations for the remainder of 2014 given the high probability of El Niño phenomenon (drought in Colombia) occurring in the second semester? How could El Niño affect the company’s financial results? Will it have an impact on the company’s performance relative to other players in the industry? Would the Termocentro thermal generation plant be enough for the company to compensate the expected reduction in hydro generation?

7.

One source of uncertainty for Isagen under drought conditions is the company’s tilt towards hydro generation. Furthermore, the main generation facility (San Carlos), located in the Nare-Guatapé-San Carlos chain, is located downriver of EPM’s reservoir and has a relatively lower energy storage capacity. In the absence of precipitations, what are the capacities of Isagen’s reservoirs? At current levels, for how long can San Carlos generate with no rains?

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8.

The company’s historical EBITDA margin lies around 40% (2008-2013) but in the last two years it has been roughly 35%. The margin observed in 1Q14 was 45% and we expect it to consistently go back to the +40% levels once Sogamoso becomes fully operational by year-end. However, Isagen’s margins will remain low relative to those of other companies of similar size and technology-generation mix (tilt towards hydro) such as Emgesa and Chivor, currently operating in the 50%-60% range. From your point of view, what’s the reason for this difference in margin? Are these players doing something remarkably well? Is Isagen implementing strategies to improve efficiency? Would you expect margins to increase if the controlling shareholder changed?

9.

What regulatory changes are expected in the Colombian power sector an how this changes could affect the company’s financial results?

10. When does Isagen expect the next auction of reliability charge? Is Isagen planning to participate? 11. Power exports to Venezuela represented ~10% of total operating revenues in 2013. The Venezuelan government decided to suspend these transactions given the start of operations of two new power generation facilities in the country. During 1Q14 the company managed to successfully replace those revenues redistributing power sales within the Colombian market. Does the company expect this to continue going forward? Should we expect falls in revenues in coming quarters as a result of the suspension of the sales to Venezuela?

29

Nutresa (Hold; 2014E T.P. COP 1,800) Jaime Pedroza; [email protected]

Below we have outlined key themes in the form of questions that we believe can help investors with their analysis of the company: 1.

What is the competitive landscape in the different segments Grupo Nutresa operates in Colombia? Cold cuts, biscuits, chocolates, coffee, ice cream, and pasta? Is entering into other segments (dairy, for instance) being considered?

2.

Nutresa has a 57% consolidated market share in Colombia. Does Nutresa expect to increase its market share? Does the company estimate limited room for growth in its main market? Are there any regulatory limits to market share in Colombia?

3.

Is Grupo Nutresa actively looking for more inorganic growth opportunities? In which markets/businesses is Nutresa interested?

4.

Could you provide an update on the integration after the acquisition of Chilean Tresmontes Luchetti? Is it working as initially expected? Has the situation in Mexico normalized for both TML and Nutresa? What are the company’s expectations for this market in the next 12 to 18 months?

5.

Could you provide some details about the agreement to develop the Starbucks brand in Colombia? What is the target in terms of new shops, market share, and total volumes sold for the first twelve months of operation? What is going to be the impact in terms of revenues and EBITDA for the company?

6.

What is the company expecting for commodity prices in the next 12 months? Could you explain the company’s policies on hedging and inventories management? Who are the company’s main suppliers? Are suppliers highly concentrated in any of the business lines?

7.

Who are the main clients of the company? Are clients highly concentrated in any of the business lines? What is the company’s relation with the main formal retailers in Colombia, namely Grupo Exito, Cencosud, Olímpica and La 14? Does the recent strategy of some leading retailers to come closer to the Mom-and-Pop’s stores post a challenge to Nutresa’s business model? Is Nutresa’s competitive advantage in terms of logistics and distribution capabilities at risk if formalization in the retail sector improves?

8.

Are there any regulatory risks in the markets in which Nutresa operates (as we saw in Mexico with the obesity law)? Has the company identified any mega-trends that may lead the company to redefine its strategy and value proposition?

9.

How is Nutresa’s operation in Venezuela? In light of the relevant political risk, what has been Nutresa’s response to this situation?

10. In January this year, Carlos Enrique Piedrahíta left his position of CEO after 14 years of leading the Group. Should the market expect significant changes in the strategy of the company? In the managerial style? Could you comment on Mr. Carlos Gallego, new CEO, his background and his expertise in the food & beverage sector?

30

Pacific Rubiales (Buy; 2014E T.P. COP 42,200) César Cuervo; [email protected] / Sebastián Gallego; [email protected]

Below we have outlined key themes in the form of questions that we believe can help investors with their analysis of the company: 1.

Recent data for 2014 shows a decline in production coming from the Rubiales field. Should we expect this trend to continue going forward? Any news regarding ongoing negotiations with Ecopetrol to extend the contract and will it be still worth it by 2016?

2.

What is the status of the STAR project? When could we expect to have any material effect on production coming from STAR? Rumors and even local authorities have questioned the project and there has been a delay on results. Has the project meet initial expectations?

3.

Pacific has shown interest in Mexico. Can we have initial estimates on CAPEX commitments? Can we expect the operation in this country to become more important than Peru in terms of production in the longer term?

4.

Initial guidance of production from CPE-6 and Rio Ariari has been given. What is the status of the facilities in those blocks? What are the CAPEX commitments to transport this oil?

5.

Production from Petrominerales’ assets has been rising. Should we expect this trend to continue? Any results from the exploration campaign from these fields and others?

6.

The company’s tax rate is above 40% and during 2013 it climbed beyond 50%. Should we expect this high effective tax rates to remain in 2015? What is the strategy of Pacific to reduce this rate? Can we have a time–frame for this to be implemented?

7.

Could you please comment on environmental licenses that are pending? For how long have you been waiting for those?

8.

How do you assess the impact of the new transportation tariffs in Colombia? Does the company have any contingency plan to avoid the take or pay of the OBC when social unrest does not allow the transportation of oil?

9.

Production and transportation cost per barrel increased in 1Q14 relative to the levels observed in 4T13. Is this trend expected to continue? What is the status of the Agrocascada project?

10. Any updates regarding the LNG project? What would be the CAPEX commitments? How does the company plan to transport the gas up to the port?

31

Important Disclosures This report is property of IM Trust S.A. and/or Credicorp Capital Colombia S.A. Sociedad Comisionista de Bolsa and/or Credicorp Capital Perú S.A.A. and/or its subsidiaries (hereinafter jointly referred to as “Credicorp Capital”), therefore, no part of this the material or its content, nor any copy of it, may be altered in any way, transmitted, copied or distributed to any third party without prior and express written consent of Credicorp Capital. In making this report, Credicorp Capital has relied on public information. Credicorp Capital has not verified the truthfulness, completeness or accuracy of the information accessed, nor has audited the information in any way. Accordingly, this report does not constitute a statement, assertion or guarantee (express or implied) as to the truth, accuracy or completeness of the information contained herein or any other written or oral information furnished to any person and/or their advisors. Unless otherwise stated, the information used in this report is not confidential, nor constitutes privileged information that may mean the violation of the rules of the stock market, or that could mean failure to comply with copyright legislation. This report is not intended and shall not be understood in any way as to: a) predict the future or guarantee a specific financial result; b) ensure the fulfillment of the scenarios described in it; c) be an investment advice or opinion that could be considered as Credicorp Capital recommendations. The information contained in this report is only for referential purposes. While reading it, you should consider that the information contained in this report may be oriented to a specific segment of clients or investors, with a certain risk profile that may not be yours. Unless otherwise stated, this report does not contain investment recommendations or other suggestions that may be understood to be given under the stock market intermediaries’ special duty to clients classified as investors. When recommendations are made, the report will clearly specify the investors risk profile to which the recommendation is intended. Credicorp Capital can seek and/or conduct business with companies that are mentioned in the report, and they can also execute buying and selling transactions of shares that are mentioned. It is important to state that the fluctuation in exchange rates can have adverse effects on investments values. It is client responsibility to determine how to use the information contained in this report. Hence, the client is the sole responsible for investment decisions or any other operation he/she might perform in the stock market based on this report. In other words, the investment or operation result made by the client using the information contained in this report is of her/his sole responsibility. Credicorp Capital does not assume any responsibility, obligation or duty for any action or omission derived from the use of this document. Credicorp Capital recommends to their clients to ask for professional advice from financial, legal, accounting, tax experts before adopting an investment decision. Under no circumstances the information contained in this report may be considered as a financial, legal, accounting or taxation opinion, neither as a recommendation or investment advice. Rating System N° of Companies Companies covered covered with this rating with this rating (% )

Rating

Definition

Buy

Expected returns of 5 percentage points or more in excess over the expected return of the local index, over the next 12-18 months.

30

38%

Hold

Expected returns of +/- 5% in excess/below the expected return of the local index over the next 12-18 months.

31

40%

Underperform

Expected to underperform the local index by 5 percentage points or more over the next 12-18 months.

14

18%

Under Review / Restricted

Company coverage is under review or restricted.

3

4%

78

100%

Total

CONTACT LIST ANDEAN RESEARCH TEAM

SALES & TRADING

Heinrich Lessau

Hugo Horta

Head of Research [email protected] # (562) 2446 1704

Head of Capital Markets [email protected] # (511) 416 3333 Ext 36088

EQUITY RESEARCH

EQUITY SALES & TRADING

CHILE

COLOMBIA

PERÚ

Hernán Arellano

Francisca Manuschevich

Daniel Velandia

Alejandro Rabanal

Head of Equities [email protected] # (562) 2446 1706

Head of Equity Research Head of Research & Chief Economist Head of Equity Research [email protected] [email protected] [email protected] # (562) 2446 1798 # (571) 339 4400 Ext 1505 # (511) 205 9190 Ext 36070

Javier Gunther

Marilyn Macdonald

Cristián Castillo

Equity Sales International [email protected] # (562) 2450 1695

Equity Sales International [email protected] # (4477) 7151 5855

Sales Trader International [email protected] # (786) 999 1633

CHILE

PERÚ

COLOMBIA

René Ossa

Rodrigo Zavala

Sergio Ortíz

Senior Analyst: Mining [email protected] # (511) 205 9190 Ext 33052

Equity Sales International [email protected] # (562) 2651 9324

Head of Equity - Peru [email protected] # (511) 313 2918 Ext 36044

Head of Equity Sales - Colombia [email protected] # (571) 339 4400 Ext 1273

Juan C. Domínguez

Iván Bogarín

Christian Munchmeyer

Úrsula Mitterhofer

Juan A. Jiménez

Senior Analyst: Banks [email protected] # (571) 339 4400 Ext 1026

Senior Analyst: Retail & Others [email protected] # (511) 416 3333 Ext 33055

Sales & Trading International Sales & Trading Head of Equity Sales International [email protected] [email protected] [email protected] # (562) 2450 1613 # (511) 313 2918 Ext 32922 # (571) 339 4400 Ext 1701

Tomás Sanhueza

Sebastián Gallego

Omar Avellaneda

Santiago Castro

Research Analyst [email protected] # (562) 2446 1751

Analyst: Oil & Gas [email protected] # (571) 339 4400 Ext 1594

Senior Analyst: Infrastructure [email protected] # (511) 205 9190 Ext 36065

Sales & Trading International [email protected] # (571) 339 4400 Ext 1344

Christopher DiSalvatore

César Cuervo

Fernando Pereda

Senior Analyst: Retail & Financials [email protected] # (562) 2446 1724

Head of Equity / Oil & Gas [email protected] # (571) 339 4400 Ext 1012

Senior Analyst: Cement & Utilities [email protected] # (511) 205 9190 Ext 37856

Arturo Prado

Jaime Pedroza

Héctor Collantes

Senior Analyst: Natural Resources [email protected] # (562) 2450 1688

Senior Analyst: Utilities [email protected] # (571) 339 4400 Ext 1025

Andrés Ossa Analyst: Telecom & Utilities [email protected] # (562) 2651 9332

M. Pilar González

Alberto Zapata

Analyst: Transport [email protected] # (562) 2446 1768

Research Assistant [email protected] # (511) 205 9190 Ext 36018

FIXED INCOME SALES & TRADING Felipe García Head of Fixed Income [email protected] # (571) 339 4400 Ext 1280

Lourdes Alamos Research Assistant [email protected] # (562) 2450 1609

FIXED INCOME & ECONOMICS RESEARCH

CHILE

COLOMBIA

PERÚ

Gonzalo Covarrubias

Carlos Sanchez

Alfredo Bejar

Head of Sales & Trading [email protected]

Head of Fixed Income Trading [email protected]

Head of Fixed Income / FX Trading [email protected]

CHILE

COLOMBIA

PERÚ

# (562) 2450 1635

# (571) 323 9154

# (511) 205 9190 Ext 36148

Paulina Yazigi

Daniel Velandia

Alejandro Rabanal

Belén Larraín

Christian Jarrin

Vallerie Yong

Head of FI Research & Chief EconomistHead of Research & Chief Economist Head of Fixed Income Research [email protected] [email protected] [email protected] # (562) 2450 1637 # (571) 339 4400 Ext 1505 # (511) 416 3333 Ext 36070

Head of International FI Sales [email protected] # (562) 2446 1720

RM Fixed Income Offshore [email protected] # (571) 340 2591

Local FI Senior Trader [email protected] # (511) 313 2902 - # (511) 313 2908

Felipe Lubiano

Laura Mesa

Irvin León

Guido Riquelme

Andrés Valderrama

Evangeline Arapoglou

Fixed Income Analyst [email protected] # (562) 2651 9308

Fixed Income Analyst [email protected] # (571) 339 4400 Ext 1608

Fixed Income Analyst [email protected] # (511) 416 3333 Ext 37854

Head of Local FI Sales [email protected] # (562) 2446 1712

Fixed Income Trader International FI Senior Trader [email protected] [email protected] # (571) 323 9163 # (511) 313 2902 - # (511) 313 2908

Paulina Valdivieso

Sergio Ferro

Paz Stepke

Juan Camilo Murcia

Lizeth Espíritu

Fixed Income Analyst [email protected] # (562) 2651 9337

Fixed Income Analyst [email protected] # (571) 339 4400 Ext 1609

International Fixed Income Sales [email protected] # (562) 2651 9336

Fixed Income Trader [email protected] # (511) 339 4400 Ext 1180

Fixed Income Trader [email protected] # (511) 313 2902 - # (511) 313 2908

Andrés Osorio

Benjamín Diaz

Economist [email protected] # (562) 2446 1760

Local Fixed Income Sales [email protected] # (562) 2446 1738

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