colombian banks

COLOMBIAN BANKS
COVERAGE
Financial Services
June 12, 2014
PFDAVVNDA (BUY / COP 31,800); PFBCOLO (HOLD / COP 29,600); BOGOTA (HOLD / COP 71,750)
Central America: The Promised Land for Colombian Banks?
This is our first Colombian Banking Sector Report we present our investment
thesis for the industry, and analyze each bank’s outlook and fundamentals. Our
Top Pick in the industry is Davivienda (BUY / Target Price COP 31,800 / 6.1%
upside), followed by Bancolombia (HOLD / TP COP 29,600 / 6.9% upside) and
Banco de Bogota (Initiating Coverage HOLD / TP COP 71,750 / 4% upside).
Banks vs. Colcap
125
115
105
95
The next 2 years will be focused on consolidating and increasing profitability
of acquired banks. We expect improving efficiencies and rising ROAEs in
Bancolombia, Davivienda and Banco de Bogota (although timing will differ
between them), explained by a cooling of inorganic growth and strategies
focused on consolidation and profitability.
Rising interest rates during 2014-2015 and lower cost of funding derived
from financial inclusion (retail funding), will boost mid term NIMs and ROAEs.
Underlying inflation is poised to pickup in Colombia and CA, leading to higher key
rates towards the end of 2014. Besides, lagging financial inclusion and
governmental programs aimed to increase it, offer an attractive retail customer
base potential and fast expansion perspectives (penetration). We believe
Colombian banks’ experience in financial inclusion will set the base for the
successful replication of innovative models throughout CA, to the extent that
particular regulations allow.
Infrastructure investments and a sharp rise in housing demands across the
region will overhaul economic performance and loan dynamics. In fact,
Colombia’s GDP is expected to accelerate driven mainly by 10 years of
investments (planned) amounting to US$27 billion in infrastructure megaprojects, of which ~80% will be financed through debt (banks, pension funds,
development agencies). In addition, infrastructure investments and housing
deficits in CA will boost loan dynamics as GDP per capita continues to improve.
Equity issuances, reserves re-allocation and capitalization will strengthen
capital ratios and pave the way for strong growth over the next 5 years. Banco
de Bogota and Bancolombia’s recent equity issuances amounted COP 3.96 trillion
(US$2 billion), strengthening capital adequacy ratios and paving the way for
dynamic financing of infrastructure and housing projects. Additionally
Davivienda’s management has hinted its intention to list ADRs between 20152016.
International assets are increasingly relevant as they represented 17%-35% of
consolidated net loans as of December 2013 (Figure 1). Colombian banks are
the biggest players in CA, owning 20.3% of the regional banking system’s
combined assets. Our Top Pick for 2014 is Davivienda with a BUY
recommendation and a TP COP 31,800 per share (6.1% upside).
85
Banco de Bogota
Pref. Bancolombia
Pref. Davivienda
Colcap Index
Source: Bloomberg
Figure 1. Loan portfolio 2013
17.2%
82.8%
22.0%
78.0%
35.5%
64.5%
Colombia
Central America
Source: Corporate Filings; SERFINCO S.A.
Nicolas Noreña T.
Financial Services Analyst
[email protected]
(571) 6514646 Ext. 4225
Jose F. Restrepo, CFA
Equity Strategist
[email protected]
(574) 3106510
Jun-14
Mar-14
Sep-13
Dec-13
75
Jun-13
Colombian banks have showed an impressive appetite for Central American (CA)
banks with ~US$7 billion in acquisitions since 2006. We will show you why CA
represents an excellent opportunity to grow and diversify risk, explained by a
positive outlook on the region’s banking systems and economic growth potential.
Is CA really that attractive for Colombian banks? We believe it is. The region
offers an attractive growth potential and complements Colombian banks’
strategies, opening an investment opportunity for the next 3-5 years due to:
Table of Contents
1) Central America: The Promised Land for Colombian Banks?...…………………………………………………………………(Page 3)
2) What Can We Say About Colombia and Central America? ……………………………………………………………………...(Page 4)
3) Who is Where, Doing What?........................................................................................................................(Page 6)
4) Colombian Banks: Nesting Across Central America………………………………………………………………………………….(Page 7)
5) Improving Economic Performance Will Lead to Higher Key Rates and NIMs in 2014-2015………………….…..(Page 8)
i) Historically low key rate in Colombia (3.25%) will bounce 225 bps 2014-2015 leading to higher NIMs.
ii) Improvements in local economic performance and FED’s policy normalization lead to higher key rates in CA.
5) Boosting Financial Inclusion: GPFI and Governmental Efforts……………………………………………………………...….(Page 9)
i) What is financial inclusion?
ii) Global Partnership for Financial Inclusion (GPFI) - Alliance for Financial Inclusion (AFI) Maya Declaration.
iii) What are regional Governments doing in order to increase inclusion?
6) Financial Inclusion: What is the Region’s Potential?...................................................................................(Page 10)
i) Opportunities.
ii) Challenges.
iii) The question.
7) Alternate Banking Channels and Regional Platforms - Key to Efficiency……………………………………………..….(Page 11)
i) Demographics, Government policies and macro perspectives favor the expansion of mobile and online banking.
(Page 12)
ii) Some Examples of Government Subsidy Programs as Tools for Financial Inclusion.
(Page 13)
iii) How do Payments Work in Colombia and CA? 2011 FINDEX Sheds a Light; Upcoming 2014 will Confirm Trends.
(Page 14)
Iv) Our View on the Region’s Potential to Migrate Towards Alternate Banking Channels.
(Page 16)
iv) SICA - Integrating Central America as a Region.
(Page 17)
v) Interconnected Payments System (SIP)
(Page 18)
vi) Tag Along with the Central American Integration - Regional Banking Platforms.
(Page 18)
8) Colombia: Transformation is Underway; Heavy Construction and Banks, the Biggest Winners………………(Page 19)
9) The Housing Revolution in Latin America & Caribbean…………………………………………………………………………..(Page 20)
10) Banco de Bogota= Growth + Exposure + Profitability.………..…………………………………………………….……….…..(Page 21)
11) Davivienda: All About Profitability and Growth………….…………………………………………………………….…………...(Page 37)
12) Bancolombia: Getting the Ducks in a Row……………………………………………………………………………………..……...(Page 46)
Click on SERFINCO’s logo anywhere in the document to go back to the Table of Contents
2
Central America: The Promised Land for Colombian Banks?
This is our first Colombian Banking Sector Report we present our investment thesis for the industry, and analyze
each bank’s outlook and fundamentals. Our Top Pick in the industry is Davivienda (BUY / Target Price COP
31,800 / 6.1% upside), followed by Bancolombia (HOLD / TP COP 29,600 / 6.9% upside) and Banco de Bogota
(Initiating Coverage HOLD / TP COP 71,750 / 4% upside). We are updating the regression component of valuation
for Davivienda and Bancolombia’s TPs to set all the banks with the same market pricing factor.
Colombian banks have showed an impressive appetite for Central American (CA) banks with ~US$7 billion in
acquisitions since 2006. We will show you why CA represents an excellent opportunity to grow and diversify risk,
explained by a positive outlook on the region’s banking systems and economic growth potential. Is CA really that
attractive for Colombian banks? We believe it is. The region offers an attractive growth potential and
complements Colombian banks’ strategies, opening an appealing investment opportunity for the next 3-5 years
due to:
Increasing profitability from consolidation and merger of acquired banks. After the most recent acquisitions,
there is still plenty of room for consolidation of synergies, efficiencies and organic growth. We expect improving
ROAEs in all three banks (although timing will differ between them), explained by a cooling of inorganic growth
and strategies focused on consolidation and profitability. Davivienda (profitability approach) and Banco de Bogota
(consolidation) are somewhat ahead of the curve, while Bancolombia (expansion) will take a bit more time to
accomplish Banistmo’s goals traced by management.
Rising interest rates during 2014-2015 and lower cost of funding derived from financial inclusion (retail
funding), will boost mid term NIMs and ROAEs. Underlying inflation is already increasing in Colombia and CA,
which we expect will lead to higher key rates towards 2H14. Besides, lagging financial inclusion and governmental
programs aimed to increase it, offer an attractive retail customer base potential and fast loan expansion
perspectives (penetration). We believe Colombian banks’ experience in financial inclusion will set the base for the
successful replication of innovative models throughout CA, to the extent that regulations allow.
Infrastructure investments and a sharp rise in housing demands across the region will overhaul economic
performance and loan dynamics. In fact, Colombia’s GDP is expected to accelerate driven mainly by 10 years of
investments (planned) amounting to US$27 billion in infrastructure mega-projects, of which ~80% will be financed
through debt (banks, pension funds, development agencies). In addition, infrastructure investments and housing
deficits in CA will boost loan dynamics as GDP per capita continues to improve.
Equity issuances and reserves re-allocation will strengthen capital ratios and pave the way for strong growth
over the next 5 years. Banco de Bogota and Bancolombia’s recent equity issuances amounted COP 3.96 trillion
(US$2 billion), strengthening capital adequacy ratios and paving the way for dynamic financing of infrastructure
and housing projects. Additionally Davivienda’s management has hinted its intention to list ADRs between 20152016.
This report is intended to give investors context about what is CA, its potential, and some key trends in terms of
inclusion and payments systems. As well as an overview as to who is who in the region and what is each bank’s
strategy to profit from an increasingly attractive region. Next up is a table showing the bank’s forward multiples
and our preference order, enabling you to take decisions based both on their stories and their valuations:
Table 1. Forward Multiples for Davivienda, Bancolombia and Banco de Bogota and Order of Preference
1.
2.
3.
3
What Can We Say About Colombia and Central America?
Table 2. Key macro and demographic figures - Colombia and Central America
Source: IMF, SECMCA, Central Banks; Serfinco S.A.
CA has undergone an economic and social transformation over the past few years as a region. Goals aimed to
strengthen integration have already been accomplished by consolidating intraregional trade, customs and
migration controls, educational systems and negotiation processes for the joint acquisition of medications. We
expect further advances as the region seeks to sign new political and commercial cooperation agreements,
consolidate a regional electric grid with competitive prices and take the integration efforts to the everyday
citizen. Besides, countries such as Costa Rica, El Salvador, Guatemala and Nicaragua have signed agreements with
the IMF under which their respective governments receive credit, subject to adopting fiscal discipline in their
economic policies.
The region’s GDP is expected to grow 4.1% between 2014 and 2016, compared to Colombia’s 4.4%. The fact that
CA as a whole has the same customer potential as Colombia but only 52% of its GDP, alongside structural reforms
and investments to increase competitiveness, welfare and a rising middle-income class make for an attractive
region.
El Salvador:
Infrastructure investments and improving welfare indicators. Investments in infrastructure projects for 2014
contemplate US$650 million in roads and highways, US$51.1 million will be used in transportation and US$41.6
million in housing projects. There is also a potential investment of US$490 million in airport renovation as a part
of an 18 year plan (ends in 2032) to position Salvadorian airports above regional peers.
4
Costa Rica:
Potential catalyst in infrastructure improvements. Similar to Colombia, Costa Rica has a lagging infrastructure
that limits the country’s economic performance. Marcos Camacho, transportation expert from the IDB, stated
Costa Rica would need US$10 billion to improve the quality of its infrastructure and match South American
countries with better indicators. The newly elected president said he will make infrastructure one of his top
priorities in order to restore Costa Rica’s competitiveness. Some announced projects contemplate investments in
logistics (US$450 million), road and highways (US$850 million), and education infrastructure (US$167 million).
Honduras:
Revamping the country’s electric grid and ICT & transportation infrastructure. According to local press and
unions the newly elected president has been doing a solid labor in his 100 days of governing, with advances in
security, job creation, education and electric transformation. According to the Government, US$5 billion will be
invested to reactivate economic performance, funded through public debt and loans from development banks.
Panama:
Heavy investments on infrastructure, transportation and welfare improvement. The country will continue
investing heavily on infrastructure, transportation, energy, healthcare and housing. In that sense, Panamanian
Government announced public investments of over US$13.5 billion for the next three to five years in key projects
such as: i) US$2.5 billion in infrastructure, ii) US$1.9 billion in transportation projects, iii) US$534 million in new
hospitals, and iv) US$417 million in energy related investments.
Guatemala:
Investments in infrastructure and competitiveness. Guatemala has been trying to launch Public Private
Partnerships to restore the country’s transportation infrastructure network. Investments through this vehicle are
planned at approximately US$7.4 billion for the next four years. Otto Perez, Guatemala’s current president (20112015) is focused on increasing the country’s position in the Doing Business ranking, to do so he is leading 8
structural reforms to reduce the need of permits, difficulty to open businesses, steps to register property, etc.
Guatemala is taking the necessary economic and social steps to reach investment grade over the next 3-5 years.
Nicaragua:
Reduction of poverty on several fronts. Nicaragua’s Government has an estimated US$3.4 billion investment
plan for the 2014-2018 period (focused on transportation infrastructure, sewerage and sanitation, and health
and education), and expects to finance it through fiscal expenditure and funds from development banks. BCIE
(regional development bank) intends to disburse between US$176.2 and US$220.2 million a year during 20132017 to finance infrastructure (40%), energy (21%), social development (14%), agriculture (13%) and tourism
(12%). On May 14, a reform passed the National Assembly’s approval to give a 2.5% Governmental subsidy on
housing loans below US$32,000. Estimations from Nicaragua’s Developers Union reveal new home sales could
rise by 43% by 2014.
5
Who Is Where, Doing What?
Financials as of Mar-14 on individual
results; ROAA and ROAE LTM
Branches
ATMs
Clients*
Share of Assets Share of Loans Share of Deposits
ROAA & ROAE
Colombia - 25 banks
844
3,538
+7
20.0%
21.1%
18.1%
1.5%
9.8%
739
1,688
4.2
13.7%
13.4%
13.9%
2.7%
14.0%
577
1,582
4
11.1%
12.3%
11.1%
1.9%
15.1%
Combined subsidiaries (not financials)
Porvenir clients are not included (8 million)
Daviplata users are not included (1.8 million)
Panama - 49 banks in Banking System
48
282
0.5
10.7%
11.6%
10.1%
-0.2%
-2.7%
62
199
0.3
8.1%
5.7%
6.9%
6.0%
21.5%
5
5
n.a.
1.5%
1.5%
1.8%
1.4%
12.1%
Combined BAC Intl Bank Inc and BAC Panama
El Salvador - 13 banks
98
498
1
27.6%
27.6%
26.7%
2.3%
16.3%
79
263
0.5
11.0%
11.4%
11.4%
1.8%
16.2%
68
217
0.3
14.4%
14.6%
13.6%
1.3%
8.5%
Guatemala - 18 banks
233
188
1.1
8.2%
9.5%
8.1%
1.3%
13.5%
173
219
0.6
7.6%
8.5%
7.6%
1.8%
17.2%
Bancolombia owns 40%
Combined BAC Guatemala and Banco Reformador
Costa Rica - 16 banks
97
336
0.8
12.4%
14.1%
12.1%
2.5%
21.6%
28
118
0.2
5.4%
5.1%
4.7%
0.7%
6.7%
Honduras - 17 banks
124
323
0.5
13.6%
12.7%
12.5%
1.1%
10.1%
67
74
0.3
7.1%
7.1%
7.0%
0.6%
5.7%
Nicaragua - 6 banks
88
165
0.3
22.0%
26.6%
22.6%
3.1%
24.1%
Source: Bancolombia, Banco de Bogota, Davivienda; Serfinco S.A. ; *Millions of clients ; Figures of branches and ATMs may differ subject to each bank’s methodologies
6
Colombian Banks: Nesting Across Central America
Colombian banks have showed an impressive appetite for Central American assets with approximately US$7
billion in acquisitions since 2006; 2013 being the most active year in M&A as 4 deals were closed.
Figure 2. Geographical Distribution of Colombian Banks
Figure 3. Timeline of Acquisitions in Central America
FL & Caribbean
MX
HN
NC
GT
ES
CR
PA
PE
Bancolombia
-Operations in Peru
include Leasing,
Renting and Fiduciary
Davivienda
Banco de Bogota
-Operations in Mexico
include BAC Credomatic’s
credit card business
Source: BJDesigns, Bancolombia, Banco de Bogota, Davivienda and Serfinco S.A.
M&As positioned Colombian banks as key players in the region, setting the stage for a phase of consolidation,
where strategies will be focused on the development of synergies, increasing profitability and organic growth. We
expect improving efficiencies and rising ROAEs in Bancolombia, Davivienda and Banco de Bogota (although timing
will differ between them), explained by a cooling of inorganic growth. These banks plan to achieve their goals
through the replication of innovative business and service models in countries where traditional banking is still the
reference point. In that sense, technological platform investments made over the last 5 years in Colombia (Core
banking, IT integration, online & mobile banking, etc.) will help to increase competitiveness in countries where
market share is atomized among many players (Panama) or concentrated in a few competitors (Costa Rica,
Guatemala and El Salvador).
Table 3. Recent Banking M&A Activity in Central America and Colombia
Source: Capital IQ, Bloomberg and Serfinco S.A.
7
Improving Economic Performance Will Lead to Higher Key Rates and NIMs in 2014-2015
Historically low key rate in Colombia (3.25%) will bounce 225 bps 2014-2015 leading to higher NIMs.
A bounce of Colombia’s key rate will lead to improving NIMs on asset re-pricing sensitivity. Colombia’s economy
will perform increasingly better over the next 4 years on heavy public investments and a recovering international
context. Inflation will bounce (+146 bps by 2015) and key rates will pick up (+131 bps by 2015) to control any
macroeconomic imbalances that may arise. In that sense, Colombian banks’ balance sheet structure will favor asset
re-pricing through a majority of loans pegged to variable rates (inflation -IPC/UVR– and deposits rate -DTF-).
Improvements in local economic performance and FED’s policy normalization will lead to higher key rates in CA.
Less expansive monetary policy in USA is expected to increase inflation and interest rates in El Salvador (ES) and
Panama (PA). Inflation in dollarized economies is linked to inflation in USA, in that sense, expectations of rising
prices and rates in USA influence rates in ES and PA. In fact, over the past months, loan rates in those countries have
been stabilizing or even increasing. Furthermore, foreign currency loans Guatemala (35% of total loans), Costa Rica
(39%), Honduras (26%) and Nicaragua (91%) will also re-price.
Figure 4. Interest Rates in ES (3-month average)
Figure 5. Interest Rates in PA (3-month average)
Source: BCR; Serfinco S.A.
Source: Superbancos (Local Banks); Serfinco S.A.
CA will benefit from improvements in USA economy due to its relevance as a trade partner and remittance
source. CA is heavily reliant on USA’s economic performance as a trade partner and remittance source. We believe
an improving context in that country for upcoming years is positive for the region’s trade perspectives, and
therefore, its outlook.
Figure 6. CA’s Exports by Country of Destination
2004
2013
Source: SIECA; Serfinco S.A.
A shift to inflation targeting and lower target ranges might mean rather quick rate hikes to control rising inflation.
Costa Rica adopted inflation targeting recently and lowered its target range a 100 bps to 4% ± 1 pp. Underlying
inflation picked up by 154 bps to 3.63% between January and May. Costa Rica’s Central Bank (BCCR) increased its
key rate by a 100 bps in March and 50 bps in May to 5.25%; mainly explained by a 10% YTD depreciation of the local
currency and rising inflation expectations.
8
Boosting Financial Inclusion: GPFI and Governmental Efforts
What is financial inclusion?
Financial inclusion is the delivery of financial services at affordable costs to sections of disadvantaged and lowincome segments of society. Access, usage and quality indicators allow the measurement of financial inclusion in
each country. This topic has gained momentum because studies have proven it accelerates economic growth and
employment, redresses income inequality and contributes to poverty reduction. Financial systems with broad
coverage allow for a more efficient distribution of capital at lower costs (lower intermediation margins with higher
volumes), which along with financial education increase financial penetration (Loans / GDP).
Global Partnership for Financial Inclusion (GPFI) - Alliance for Financial Inclusion (AFI) Maya Declaration
In 2011, members of the Alliance for Financial Inclusion (AFI) designed the Maya Declaration: a measurable set of
commitments to increase financial inclusion. To date, central banks and financial policymakers and regulators from
40 developing and emerging market countries have set targets to increase access to formal financial services for the
world’s 2.5 billion people unbanked. Many more AFI members, spanning 90 countries, are expected to make
commitments soon. It is worth noting that all Central American countries and Colombia are members.
What are regional Governments doing in order to increase inclusion?
After AFI members signed the Maya Declaration, several Working Groups were created to gain better understanding
of how financial inclusion is evolving and which guidelines are necessary for further development of their countries’
financial systems and Government programs:
Table 4. AFI Working Groups and Regional Members
Table 5. Regional Advance of Innovative Banking Channels
Country
Colombia
Panama
Guatemala
Costa Rica
El Salvador
Honduras
Nicaragua
Actions taken on innovative banking channels
BAs*
E-money** Mobile Banking
* Banking Agents
**Simplified electronic savings accounts and/or transfers
Fully functional
Some advance
No information available
Source: Finance Superintendence and Central Banks; Serfinco S.A.
Source: GPFI; Serfinco S.A.
CEMC - Consumer Empowerment and Market Conduct - 42 members.
FIDWG - Financial Inclusion Data Working Group - 35 members.
FISPLG - Financial Inclusion Strategy Peer Learning Group - 35 members.
MFSWG - Mobile Financial Services Working Group - 47 members.
SMEFWG - SME Finance Working Group - 32 members.
CA countries have made some advances in innovative banking channels to increase financial inclusion. However, the
creation of regulatory frameworks and implementation has been slow. We expect further advances in the
development and consolidation of these systems over the coming years.
9
Financial Inclusion: What is the Region’s Potential?
Financial Access Indicators
Figure 7. Branches per 100,000 adults
Figure 8. ATMs per 100,000 adults
81
Ecuador
70
Peru
Costa Rica
38
Guatemala
67
55
54
51
47
44
42
Chile
47
Brazil
119
Brazil
Panama
Average
25
Argentina
Panama
24
Mexico
Costa Rica
23
Ecuador
Honduras
23
Average
Chile
17
Colombia
36
Latin America & Caribbean
15
Peru
Colombia
15
Latin America & Caribbean
Mexico
15
Dominican Rep.
Argentina
14
Guatemala
36
33
31
29
28
28
24
20
12
Dominican Republic
10
Bolivia
El Salvador
10
El Salvador
Paraguay
10
Honduras
Bolivia
10
Paraguay
Nicaragua
7
Nicaragua
Figure 9. Adults with savings accounts(%)
55.9%
Brazil
50.4%
Costa Rica
42.2%
Chile
Latin America & Caribbean
39.3%
Dominican Rep.
38.2%
36.7%
Ecuador
33.1%
Argentina
Colombia
30.4%
Average
29.5%
Bolivia
28.0%
Mexico
27.4%
24.9%
Panama
Guatemala
22.3%
Haiti
22.0%
Paraguay
21.7%
Honduras
20.5%
Peru
20.5%
Nicaragua
14.2%
El Salvador
13.8%
Source: 2012 GPFI Basic Set of Financial Inclusion Indicators; Serfinco S.A. Average refers to the selected countries in the graph.
Opportunities: Colombia and CA still have great
potential in terms of increasing financial access. CA
and Colombia have high accessibility to financial
services, but low access in terms of adult population
with savings accounts. We believe there is a vast
potential in terms of new clients. The implementation
of inclusion focused strategies is vital to get on with the
trend and generate significant growth in client bases.
Challenges: As always, the challenges to increase access
to financial services can be overcome with a mix of
financial education by official and private entities and a
banking system able to attract new people. And as we
previously noted, advances are already being made
throughout the region.
The question: Are Colombian banks going to be able to attract new clients and grow them into potential customers
for liability products?
Figure 10. Adults with Credit Card (%)
Figure 11. Adults with Debit Card (%)
Source: 2011 FINDEX - World Bank ; Serfinco S.A.
Source: 2011 FINDEX - World Bank ; Serfinco S.A.
10
Alternate Banking Channels and Regional Platforms - Key to Efficiency
Lower intermediation margins, tougher regulations and market volatility have led banks to seek alternative ways
to improve efficiency and profitability in a sustainable manner. Colombian banks have been riding the wave of
technological innovation as a tool to compensate for lower intermediation margins, tougher regulations and market
volatility affecting returns. This has been accompanied by a changing framework that enables and regulates
alternate banking channels. Over the last few years, this has become a popular topic in emerging markets since
evidence shows African and other emerging countries have managed to reduce inequality indices and boost
financial inclusion through these innovative methods of payments, insurances and savings.
Figure 12. Payments Ecosystem and International Success Stories
Payments
Ecosystem
Source: MagTek Confidential and CGAP; Serfinco S.A.
Technological innovations and the promotion of usage are key to improving efficiency as they make banking less
dependent on physical access and lower use of capital intensive channels. Traditional banking models offered
access almost solely through branches and ATMs, which are capital intensive due to the cost of expanding them to
rural and isolated populations. However, technological transformation has enabled banking to reach people through
their mobile phones, smartphones, PCs and BAs. These are capital efficient investments since they require a onetime heavy investment and further small maintenance and update investments. However, they can be easily
replicated and we are confident of their positive perspective.
Figure 13. What Are Mobile Payments - Mobile Payments Today
Source: Mobile Payments Today
11
Demographics, Government policies and macro perspectives favor the expansion of mobile and online banking.
Latin American countries have young populations (digital natives), a strong reduction of poverty and indigence, a
rising middle income class, strong broadband internet growth and high mobile phone penetration, that combined,
favor the adoption of new technologies.
Figure 14. Distribution of Population by Age Group and Poverty and Indigence Indicators in Colombia and CA
Colombia
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama
Source: CEPALSTAT; Serfinco S.A.
12
Expansion of mobile phones and broadband internet has been very fast in Colombia and CA over the last 10
years. This is a result of Governmental efforts to reduce inequality and give equal technological access to large
portions of the population. We believe these programs will continue strengthening over the upcoming years. For
example, Colombia is the first Latin American country to implement Smart Schools, a technological innovation
designed to revolutionize learning through tablets (83,367 given and 1 million budgeted for 2014) and computers
(449,730 given and 219,270 budgeted for 2014) and promote in-class connectivity.
Government managed to increase the country’s fiber-optic connectivity fivefold in 4 years with a coverage of 96%.
In 2014, 1.9 million families of the lowest social stratus will receive a COP 300,000 (US$155) a one-time month
subsidy to pay for broadband subscription or buy computers/tablets. It is worth mentioning Colombia has the
cheapest PCs in the continent due to tax and tariff reductions.
Figure 15. Mobile cellular subscriptions (per 100 people)
Figure 16. Internet users (per 100 people)
Source: 2012 Development Indicators - World Bank ; Serfinco S.A.
Some Examples of Government Subsidy Programs as Tools for Financial Inclusion
Colombian Government started the “Familias en Accion” program back in 2000 and modified it in 2011, changing its
name to “Mas Familias en Accion”. This is a cash transfer program aimed to reduce poverty and income inequality
through the formation of human capital and improving the lives of poor and vulnerable families. According to
National Planning Department (DNP) estimates, the absence of this program would increase extreme poverty by 1.2
percentage points and Gini would be 50 bps higher. The program has a COP 2 trillion (US$1.1 billion) budget for
2014 and Government expects to reach 2.6 million families.
In CA similar programs are starting to be implemented. A Government program was recently approved in El
Salvador and granted to Tigo Money. Camara Salvadoreña de la Industria de la Construccion (CASALCO Construction Union) signed an agreement with Tigo to promote payroll payments of more than 23,222 employees
through Tigo Money. According to company figures there are already between 5,000 and 6,000 people receiving
their salaries through the platform. The company has more than 420,000 clients, 1,400 nation-wide authorized
points (BAs) and monthly transactions of ~US$20 million. This mobile carrier launched its e-money platforms in
2011 and has presence in Guatemala, Honduras and El Salvador.
13
How do Payments Work in Colombia and CA? 2011 FINDEX Sheds a Light; Upcoming 2014 will Confirm Trends
World Bank started the Global Financial Inclusion Database in 2011, which measures how adults in 148 countries
save, borrow, make payments and manage risk. The 2014 Global Findex will be released in April 2015. There are
some interesting trends revealed about how Latin Americans relate to their financial systems and the growth
potential in mobile, online and BAs usage when compared to other countries and regions.
Figure 17. Distribution of Deposits Made by Banking Channel
Source: 2011 FINDEX - World Bank ; Serfinco S.A.
Figure 18. Distribution of Withdrawals Made by Banking Channel
Source: 2011 FINDEX - World Bank ; Serfinco S.A.
14
Figure 19. Usage of Alternate Banking Channels
Source: 2011 FINDEX - World Bank ; Serfinco S.A.
Figure 20. Usage of Mobiles to Send and Receive Remittances
Source: 2011 FINDEX - World Bank ; Serfinco S.A.
15
Our View on the Region’s Potential to Migrate Towards Alternate Banking Channels
We expect innovative banking channels to gain relevance in Colombia and CA as they are progressively gaining track
as an option to improve efficiency in a sustainable manner. They offer several advantages when compared to
traditional channels, where we would like to point out the following:
Fewer customer service representatives are needed, saving money and resources.
Mobile device and online banking usage might help increase customer loyalty since they make content available
anywhere and at any time.
Young populations (digital natives) are more inclined to use technology and they are just entering the financial
system as potential customers, enabling the construction of long-term relations with the bank.
Figure 21. Evolution of Number of Branches and Banking Agents (BA) in Colombia
100%
100%6,000
5,398
4,921
80%
4,419
4,487
50,000
45,000
5,102
5,000
80%
4,518
40,000
33,419
4,000
60%
30,000
60%
3,000
40%
40%
2,000
20%
20%
1,000
4,880
19,410
20,000
34.7%
9,698
10,000
5,617
5.8%
0%0
0%
2008
2009
2010
2011
Nation-wide Branches
2012
2013
0
2008
Y/Y Growth
2009
2010
Nation-wide BAs
2011
2012
2013
Y/Y Growth
Source: Banca de las Oportunidades ; Serfinco S.A.
We believe CA has a large potential in terms of expanding the customer base with debit cards and thus,
incentivize ATM usage.
Guatemala and Honduras’ heavy reliance on bank tellers is explained by both the lack of debit cards and the
weak ATM infrastructure evidenced in the per 100,000 adults access metrics. However, the number of transactions
through BAs and their amounts in Guatemala rose by 19.1% and 26.2% in 2013.
As for Honduras, there is no recent information but we believe the usage of ATMs and alternate channels may
have risen over the past two years since the Superintendence of Finance, Central Bank and private banks have led
intensive financial inclusion and education campaigns. As a matter of fact, as of 2011 Honduras was the heaviest
user of banking agents among Colombia and CA as a channel to make withdrawals and deposits.
Nicaragua, Honduras and Guatemala have low levels of urban population (50%-60%) and low internet access
indicators. Nonetheless, mobile phone penetration is almost at a 100% in all of them, opening a very interesting
opportunities to migrate payments from cash and bank tellers to mobile phones.
16
SICA - Integrating Central America as a Region
The Central American Integration System (SICA) is the institutional framework of regional
integration in CA, created by the States of Costa Rica, El Salvador, Guatemala,
Honduras, Nicaragua and Panama. Subsequently, Belize joined as a full member; in 2013,
The Dominican Republic did likewise. Colombia was recently accepted as a regional
observer, alongside 20 additional countries such as Brazil, Mexico, Chile, Peru and USA.
Source: SICA
What has SICA accomplished?
Consolidation of intraregional commerce of goods and services.
Creation of a Central American Monetary Agreement to harmonize and gradually lead to the convergence of
macroeconomic, credit and exchange rate policies to a regional monetary and financial integration.
Creation of a regional Interconnected Payments System (SIP) in US$ useful for both people and financial
institutions.
Representation of the region as a negotiating block.
On migration, SICA achieved the free movement through the CA-4 Agreement between Guatemala, El Salvador,
Honduras and Nicaragua, which has allowed the reduction of customs and migration controls.
Security committees and the establishment of a regional perspective (complementing national level policies).
SICA’s Consultative Committee, groups business, labor, academic sector and civil society groups (regional level).
Significant advances on the harmonization of the educational systems, to strengthen the productive capacity of
CA and allow its citizens to benefit from the integration process.
Establishment in Spain of the Central American Tourism Agency (CATA); its effectiveness has resulted in the
increase of multi destination tourists coming to the region.
Creation of an integrated negotiation process for the joint acquisition of medications, leading to substantial
savings.
Where is SICA going?
Coordinate and help execute the Monetary Policy Cooperation Plan between the region’s Central Banks.
Coordinate and help execute the Monetary Policy Cooperation Plan between the region’s Central Banks.
The European Union – Central America Association Agreement that goes beyond Free Trade, and includes
political dialogue, cooperation and commerce.
Efforts are being made for the implementation of the Central America Security Strategy, in order to provide a
transnational solution to organized crime and drug trafficking.
Sustainable Energy Strategy seeks to influence the energetic market of the region, through the development of
sustainable energy initiatives, rational and efficient use of electricity, broad access in rural areas, as well as
production and use of bio fuels. We expect large advances in this front over the course of the next 3 years.
SICA has created a series of mechanisms to increase citizen participation as well as “socialization” forums, to
collect opinions and proposals for national Governments to include on the policy making process.
17
Interconnected Payments System (SIP)
SIP started operations January 3, 2011 as a regional intent to move forward with the consolidation of CA as an
integrated region. It aims to strengthen the member countries’ payments systems as to develop a regional
payments system. SIP’s purpose is to offer automated mechanisms that enable participants (commercial and central
banks) real-time electronic clearance of their operations, derived from intraregional payments in US$ with a fixed
US$5 fee per transaction. Available transactions include remittances, bill payments, import clearance and others.
Costa Rican banks have not yet decided their course of action regarding the affiliation to SIP.
Figure 22. SIP Direct and Indirect Members (Selected)
Central Banks
Guatemala
Honduras
El Salvador
Nicaragua
Dominican
Republic
Source: Dominican Republic Central Bank, SECMCA and Google Images; Serfinco S.A.
Tag Along with the Central American Integration - Regional Banking Platforms
As CA develops towards an integrated region, banks will tag along with the creation and evolution of regional
corporations, intra-regional remittances (from labor mobility), trade transactions, etc. We believe, the demographic,
macro and technological trends are positive for banks in CA, enabling the expansion of Colombian banks as
important regional players. Furthermore, innovative products, increasingly better service models, rising customer
satisfaction scores and customer-centric marketing strategies will allow Colombian banks to position themselves as
local players. After discussing this scenario with management from companies within our coverage universe we
noted their confidence on this topic to be an important catalyst enabling the expansion of cross-selling and
increasing the average number of products per client.
We believe the shift to alternate channels and the creation of regional platforms are key to unlocking never seen
before efficiency ratios. This innovative business model cannot be compared with the traditional banking we are
accustomed to. However, we rather have a conservative stance in our estimations and project better efficiency
ratios, although not out of the ordinary.
18
Colombia: Transformation is Underway; Heavy Construction and Banks, the Biggest Winners
Local Government will initiate the construction of infrastructure projects with US$27 billion of investments made
mostly between 2015 and 2023. After years of having poor and lagging infrastructure in Colombia (ranked 130 out
of 148 countries in quality of roads according to the World Economic Forum) when compared to other economies in
the region (only ahead of Paraguay), a huge revolution of the infrastructure sector is under way with several
megaprojects. Construction phase is expected to start late 2015, led by the 4G Program and the PPP initiatives
(Public Private Partnerships), under which US$23.5 billion in roads are estimated to be invested until 2023. Other,
less certain, Government plans include US$3.05 billion in railroads, US$840 million in ports and US$270 million in
airports; amounting a total investment of over US$27 billion.
Colombian financial system (banks, pension funds, development agencies) could finance up to 80% of the US$27
billion. Colombian banks are the most favored entities to benefit from infrastructure development and investments.
4G and PPP contracting schemes have a less risk than the prior because equity requirements for constructors were
raised from 10% to 20% of the project’s total value and the disbursement of payments from the Government is
made on the delivery of completed sections. The idea is to grant concessions after consulting communities,
obtaining environmental licenses and land acquisitions (pre-construction) in an intent to transfer risks from
licensees, constructors and financers to the Government. This, should lower risks in the construction and operation
phases, but it would extend the pre-construction phase. However, regulation has not come through fully yet.
Figure 23. 4G Project Financing Structure
Source: Asobancaria; Serfinco S.A.
Colombian Banking Association (Asobancaria) and management from different banks estimate that financing
for 4G and PPP projects will add 1.5% to the system’s loan portfolio growth -on average- over the next 5 to 8
years. The projects’ financing needs are big when compared to the size of financial institutions at 69.2% of
technical capital and 13.1% of the system’s outstanding gross loans as of Mar-14. This could set some restrictions
over the system’s capacity to disburse such amount. However, this risk has been moderated through 3
mechanisms: 1) new regulation raised the maximum exposure to an individual client from 10% to 25% of a bank’s
technical capital, 2) equity issuances and reserves re-allocation are going to be made over the course of the next
2 years to increase Tier I capital and strengthen technical capital and 3) structured finance proposals could enable
standard securitization of projects through credit enhancement, facilitating loan rotation.
Recent regulation enabled intangible assets and accounts receivable (among others) as guarantees for loans and
created the National Guarantees Registry to make transactions more efficient and transparent. Asobancaria
expects the full implementation of this reform will enhance financial inclusion (usage of financial products by Micro
enterprises and SMEs, increasing competitiveness through leverage) and lessen credit risks, lowering allowances,
provision expenses and therefore reduce interest rates.
19
The Housing Revolution in Latin America & Caribbean
Latin American & Caribbean countries have considerable housing deficits and low financial penetration levels,
which will enable growing mortgage and housing leasing demands from a rising middle-income class. In
Colombia, growth of housing projects, housing demands and subsidy programs (“100.000 houses” and interest rate
subsidies for low-middle value mortgages - FRECH) will increase financing needs. During 2013, the housing loan
portfolio (mortgages, securitized loans, leasing and Fondo Nacional del Ahorro) increased 19.4% to COP 40 trillion or
5.6% of GDP. We expect this segment to reach 6.4% of GDP in 5 years, with a positive outlook.
Figure 24. Housing Deficits Across Latin America & Caribbean
Figure 25. Mortgages / GDP (2013)
Source: IADB Study: Latin America & Caribbean face an increasing housing
deficit (2012). As a percentage of families.
Source: Superintendences of Finance and Titularizadora Colombiana;
Serfinco S.A.
Figure 26. GDP Per Capita (US$ Thousand) Estimations
Figure 27. Usage of housing loans
Source: World Bank’s FINDEX 2011; Serfinco S.A.
Source: Adjusted for PPP - IMF’s WEO 2013; Serfinco S.A.
Colombian banks have presence in 3 of the 5 fastest growing countries in terms of GDP per capita adjusted for
PPP for the next 5 years. Colombian banks are going to profit from a rising purchasing power and shifting
consumption trends as CA countries are becoming evermore globalized. These countries have signed several free
trade agreements (CAFTA-RD, SICA, ACS, FTAA and potentially Pacific Alliance) and are increasingly important in
international trade due to their strategic geopolitical location.
20
BANCO DE BOGOTA
COVERAGE
Financial Services
June 12, 2014
BOGOTA / HOLD / COP 71,750 per share
Financial Information and Multiples
ROaA
ROaE
P/BV*
P/E*
Div. Yield*
2011
1.79%
21.3%
2.05x
12.3x
3.29%
2012
1.78%
18.1%
2.00x
11.8x
3.30%
2013
1.55%
15.8%
2.22x
15.7x
3.00%
2014E
1.50%
15.4%
1.99x
13.4x
3.48%
*At period's closing price. Expected multiples at 6/11/14 closing price.
Source: Bloomberg and SERFINCO S.A. estimations
Banco de Bogota vs. Colcap
115
110
105
100
95
90
85
Banco de Bogota
Colcap Index
Source: Bloomberg
Other operating income diversification is positive for the bank’s profitability
and dividend stability. Banco de Bogota consolidates income from companies in
diverse sectors of the economy, ranging from energy & gas, infrastructure and
hotels to pension fund, warehouse and fiduciary management. Exposure to high
dividend and non-financial sector operating income is an important catalyst to
the bank’s consolidated net income, allowing for higher than peer 2014E
dividend yield and fee ratio.
Nicolas Noreña T.
Financial Services Analyst
[email protected]
(571) 6514646 Ext. 4225
Since the market already reflects all of these positive trends in the stock’s price,
we believe Banco de Bogota’s shares are fully valued for 2014, with an upside
potential of 4%, that leads us to a HOLD recommendation. 2014E multiples are
13.4x P/E and 1.99 P/BV, while 2015E offer an entry point at 11.5x P/E and 1.81x
P/BV.
Jose F. Restrepo, CFA
Equity Strategist
[email protected]
(574) 3106510
21
2015E
1.58%
16.48%
1.81x
11.5x
3.68%
Jun-14
Technological renovation, migration towards electronic channels and
boosting synergies with Grupo Aval and BAC will drive efficiency ratio lower
and will contribute to increase Banco de Bogota’s consolidated ROAE. Cost
controls, faster processes, centralized purchases, education campaigns aimed to
migrate customers towards electronic channels, implementation of best
practices in CA, as well as mergers of recent acquisitions to BAC will drive
efficiency ratio lower towards 2H15 and on.
Source: Bloomberg and SERFINCO S.A.
Mar-14
Growth in consumer loans will be supported by marketing, credit scoring and
risk evaluation synergies acquired from BAC Credomatic’s know-how in CA. BAC
Credomatic is one of the leading credit cards issuers in CA with a US$2 billion
portfolio (21.3% of BAC’s total loans), 40% share of cards emitted and the only
network able to process all major brands in the region. Senior management’s
experience (15 years in the company on average) in consumer lending
complements Banco de Bogota’s strategy and will set the base for strong growth,
mainly in credit cards and payroll loans. The bank’s initial focus is to penetrate
the existing client base through cross-selling. We expect growth in clients to be
supported by the results of current marketing efforts.
BOGOTA
69,000.00
4.0%
7.5%
307.5
0.50
10.8%
2.6%
11,267
0.82
72,000 - 64,220
Dec-13
Game-changing shift in lending strategy will position Banco de Bogota as a
relevant player in consumer and mortgages segments in Colombia, and
commercial and mortgages in CA. Banco de Bogota has been very strong in
commercial loans due to the bank’s corporate focus. We expect this experience,
complemented with the recent acquisitions (BBVA Panama and Grupo
Reformador) to enable fast growth of the segment in CA. Furthermore, since
2011, a strategy evaluation led to a more dynamic loan activity and aggressive
market share goals in key segments in Colombia such as consumer and
mortgages.
Ticker BVC
Closing Price (COP)
Expected Return
Expected Total Return
Outstanding Shares (MM)
Adj. Beta vs. COLCAP - 2 Years
Free Float
Index Weight (COLCAP)
Market Cap. (USD MM)
ADTV LTM (USD MM)
52 week range
Sep-13
We are initiating coverage of Banco de Bogota with a December 2014 target
price (TP) of COP 71,750 per share (4% upside) and a HOLD recommendation.
We base our position on the limited upside after a 31.2% appreciation during
2013, the overhang on ROAE from the recent equity issuance and the share’s
limited liquidity and float. However the bank has solid fundamentals and forward
multiples for the next 3 years, that offer an attractive structural investment. We
believe the bank is a good play to benefit from credit expansion in Colombia
and Central America (CA) because of the following:
Stock Data
Jun-13
Banco de Bogota = Growth + Exposure + Profitability
Positive Catalysts
Negative Catalysts
Increase in clients from current marketing strategy.
Relevance of CA in the bank’s results makes them vulnerable to
a macroeconomic deterioration in the region.
Faster than expected success in customer migration to electronic
channels would improve efficiency.
Synergies with Grupo Aval - distribution network, marketing, etc.
Further extensions of housing programs in Colombia.
Relatively low expected capital adequacy level could limit the
bank’s ability to grow despite deterioration in asset quality.
Political instability in Colombia, Panama, El Salvador and Costa
Rica due to changes in Presidents and/or Parliaments.
Faster than expected improvement in access would boost financial
Implementation of IFRS in 2015 will broaden information
penetration.
disclosure, however we have no certainty on the outcome.
Table 6. Income Statement
Table 7. Balance Sheet
Source: Banco de Bogota and Serfinco S.A. estimations
Figure 28. Loan Portfolio Composition
Source: Banco de Bogota and Serfinco S.A. estimations
Figure 29. Loan Growth by Country
Source: Banco de Bogota and Serfinco S.A. estimations
Table 8. Financial Ratios
Source: Banco de Bogota and Serfinco S.A. estimations
Table 9. Stock Data and Multiples
Source: Banco de Bogota and Serfinco S.A. estimations
Source: Banco de Bogota and Serfinco S.A. estimations
22
Growth + Exposure + Profitability = Banco de Bogota
We are initiating coverage of Banco de Bogota with a December 2014 target price (TP) of COP 71,750 per share
(4.7% upside) and a HOLD recommendation. We base our position on the limited upside after a 31.2% appreciation
during 2013, the overhang on ROAE from the recent equity issuance and the share’s limited liquidity. However the
bank has solid fundamentals and forward multiples for the next 3 years, that offer an attractive structural
investment.
We believe the bank is a good play to benefit from credit expansion in Colombia and Central America (CA)
because of the following:
Game-changing shift in lending strategy will position Banco de Bogota as a relevant player in consumer and
mortgages segments in Colombia, and commercial and mortgages in CA.
Banco de Bogota has been very strong in commercial loans due to the bank’s corporate focus. Even so, service
models and marketing campaigns are being overhauled to serve a new type of client for the bank: the everyday
consumer. Banco de Bogota’s traditionally corporate approach is being transformed into a multichannel - CRM
focused model that will strengthen its position in consumer banking (consumer loans and mortgages).
In 2013, consumer loans grew 11.2% (COP 686.6 billion) and the mortgage portfolio went from COP 123 billion in
December 2012 to COP 700.5 billion in one year (469.7% Y/Y). Over the same period, Banco de Bogota was the 7 th
most active bank in mortgage disbursements with a 6.23% share of total disbursements. As of 1Q14 the bank
positioned as the 6th most relevant player in disbursements with a 8.61% share.
Figure 30. Evolution of Loan Portfolio Composition in Colombia
2008
Source: Superfinanciera and Serfinco S.A.
2013
Corporate: Commercial + Microloans / Consumer: Consumer + Mortgages
Arranged by loan portfolio size
Growth in consumer loans will be supported by marketing, credit scoring and risk evaluation synergies
acquired from BAC Credomatic’s know-how in CA.
The bank’s initial focus is to penetrate the existing client base through cross-selling. We expect further growth in
clients to be supported by the results of current marketing efforts. Traditionally, Banco de Bogota’s marketing was
done in low impact channels or directly through the bank’s sales force. However, we are starting to see TV, radio and
internet marketing that aims to complement the expansion strategy in consumer loans. In fact, between March
2011 and the same month in 2014, credit cards issuance grew at a 24.2% CAGR (301,202 credit cards) vs. 10.8% of
the system and increased its market share in the segment by 148 bps to 7.22%.
BAC Credomatic is the leading credit cards issuer in CA with a US$2 billion portfolio (21.3% of BAC’s total loans), 40%
share of cards emitted and the only network able to process all major brands in the region. Senior management’s
experience (15 years in the company on average) in consumer lending complements Banco de Bogota’s strategy and
will set the base for strong growth, mainly in credit cards and payroll loans.
23
Figure 31. Consumer Loans (Colombia)
Figure 32. Mortgages and Housing Leasing (Colombia)*
Source: Superfinanciera, Asobancaria and Serfinco S.A.; *Bogota’s CAGR in mortgages was 96.5% for the analyzed period - Includes securitized loans
Technological renovation, migration towards electronic channels and boosting synergies with Grupo Aval and
BAC will drive efficiency ratio lower and will contribute to increase Banco de Bogota’s consolidated ROAE.
We have a positive perspective regarding Banco de Bogota’s efficiency for the upcoming years. Cost controls, faster
processes via reduced paperwork, centralized purchases, education campaigns aimed to migrate customers towards
electronic channels, implementation of best practices in CA, as well as mergers of recent acquisitions (BBVA Panama
and Grupo Reformador - Guatemala) to BAC will drive efficiency ratio lower towards 2H15 and on.
Figure 33. Consolidated Efficiency
Source: Banco de Bogota and Serfinco S.A.
Technological renovation. 2013 marked the beginning of a technological revolution inside Banco de Bogota, with
investments close to US$60 million. They are focusing on the use and standardization of different solutions,
especially in areas such as Core Banking, CRM (Customer Relationship Management), ERP (Enterprise Resource
Planning), MDM (Master Data Management), and the mobile banking solutions credit card. The bank’s Core Banking
platform was updated to the latest version released worldwide, beginning 2Q14 this new tool will enable better
service levels, new products and the integration of business lines such as leasing and factoring. Other breakthroughs
include the launch of mobile banking and mobile app, a redesigned web portal and the start of Banco de Bogota 24
BAC Portal Connectivity Project. This portal will give centralized access to clients from Banco de Bogota or BAC’s
portal, making regional transactions and treasury management easier. It is worth noting important clients, such as
Avianca, use Banco de Bogota for treasury management due to its wide regional coverage.
Migration towards electronic channels. We agree with management on migration to alternate banking channels as
one of the keys to unlock efficiency. Banco de Bogota is heavily dependent on physical channels in Colombia; while
peers like Bancolombia and Davivienda have more than 80% of their transactions performed through electronic
channels, Banco de Bogota registered 57% (89% in CA). The recent launch of new banking platforms aim to increase
electronic transactions, one of the main pillars to the expansion strategy in consumer loans and mortgages. We
believe the bank’s efforts are going to be complemented with synergies obtained from Grupo Aval and BAC to make
the shift smoother and faster (see the following two points).
Boosting synergies with Grupo Aval. The bank has entered a process focused on boosting potential synergies
obtainable from Grupo Aval’s distribution network, standardized technological solutions and centralized purchases.
Grupo Aval has the largest network of branches (1,374), ATMs (3,674) and banking agents (15,977 BAs) in Colombia
fully functional with any of the holding’s subsidiary banks. Therefore, Banco de Bogota complements its 689
branches, 1,688 ATMs and 1,654 BAs with others from Banco de Occidente, Banco Popular and Banco AV Villas,
benefiting from the expansion in its partners’ distribution networks. A similar situation arises from marketing efforts
made within Grupo Aval, where the value proposal concentrates on business model diversity and convenience of
locations, indirectly advertising Banco de Bogota. Finally, a project led by the holding company contemplates the
joint purchase of staples and services for all subsidiaries, meaning lower costs and increased efficiency.
Figure 34. Banking Agent Synergies with Grupo Aval (Number of BAs)
Source: Reporte de Operaciones Superfinanciera and Serfinco S.A.
A little context on BAC Credomatic. BAC’s commercial and consumer banking divisions offer traditional banking
services and products. BAC also offers pension plan administration, mutual funds, financial advisory, leasing, private
banking and insurance services to its customers in some countries.
Through its network and CRM models, BAC offers instant payment processing and funds transfers within the BAC
regional network. The bank’s electronic channel recorded over US$33.7 billion in payments in 2013. BAC was the
first bank in CA to offer deposit capabilities with instant credit balance through its ATMs and deployed the first
mobile banking platform. BAC’s mobile banking system is SMS-enabled and it has several fully operational smart
phone applications and some under development. We expect the bank to benefit from further regional penetration.
Boosting cross-synergies with BAC. Implementation of commercial and operational standards and best practices
25
in BAC, while capitalizing on its regional expertise, brand recognition and customer base will help to improve the
unit’s efficiency. BAC has already achieved significant improvements in this ratio, taking it from 52.7% in 2010 to
46.3% in 2013. Moreover, the acquired units offer interesting synergy potential in CRM experience in the credit card
and SME segments. This bank has several value added services in the SME segment that would give Banco de
Bogota an important differentiator if replicated in Colombia.
In that context, the replication of services like Pymercado would set the base for loan and client growth in the SME
segment. Pymercado (pymercado.com), is an SME social network that allows affiliated companies to publish,
discover and generate businesses with over 6,691 companies across CA. This website offers free articles, videos,
education modules, as well as products and services to increase efficiency, sales, visibility and quality of processes.
We expect BAC to continue expanding products offered for SMEs across CA, since they are currently offered only in
Costa Rica. We believe the potential is very large taking into account that only 28.1% of affiliated companies to
Pymercado trace back to that country and 47.9% are from El Salvador and Honduras, with a similar number of
companies between both. The following products caught our attention and we are positive on their potential if they
were to be accompanied by a strong marketing campaign:
Clics offers ad campaign management services through an alliance with Google Adwords. Clics can
refer customers to either the company’s website or its Pymercado online profile. BAC charges
monthly fees ranging from US$200 to +US$750 depending on the customer’s needs.
MiRotulo offers clients business image counseling and the chance to lease their store’s front signs
through monthly fees and a full purchase option at contract termination. Clients choose from
available models and a front sign is designed according to the company’s logo and activity. Requisites:
Being a BAC client for at least 6 months and US$3,500 minimum monthly billing.
Pymesoft software aims to help SMEs (<50 employees) accounting and administrative needs. The
service makes accounting registry easier through its direct link to payment systems and cloud
computing support. It was created by BAC in alliance with SAP, it uses SAP Business One platform and
has a specialized support call center. The contract has to be signed for at least 5 years (free early
cancellation available) and has a starting cost of US$110 for SAP’s license and a maximum of US$160
including SAP + POS + Hardware (+US$120 one-time installation fee).
Other operating income diversification is positive for the bank’s profitability and dividend stability. Banco de
Bogota consolidates income from companies in diverse sectors of the economy, ranging from energy & gas,
infrastructure and hotels to pension and severance fund, warehouse and fiduciary management. Altogether, these
alternative income sources make up for 23% of the bank’s total operating income, allowing for higher than peer
dividend yield and fee ratio.
Figure 35. Consolidated Total Operating Income Distribution (2013)
Source: Banco de Bogota and Serfinco S.A.; Fees and Services Income on a Gross Basis
26
AFP Porvenir (46.9% ownership). Porvenir is the leading private pension and severance fund manager in Colombia,
with a 42.6% market share of assets under management at December 31, 2013. Between 2010 and 2013, Porvenir
increased its net income at a 8.8% CAGR. Porvenir is the most profitable and efficient pension and severance fund
manager in the market, with a 20.9% ROAE in 2013. Porvenir completed the merger by absorption of AFP Horizonte,
a recently acquired pension and severance fund management business in Colombia. The operation was finished in
December 2013, and will positively impact efficiency during 2014.
Corficolombiana (38.2% ownership). Corficolombiana is Colombia’s largest merchant bank, with business units
focused on particular tasks, such as: commercial banking, investment banking, treasury and investments. The
company is characterized for having operational income from treasury and financial services that fully covers
operational expenses. As a result, Corficolombiana’s income from dividends (recurring and non-recurring) is free to
distribute to the company’s shareholders. In fact, payout ratio for the period between 2009 and 2013 was 90% of
net income and dividend yield has been consistently above 6%, averaging 8.8% since 2H09.
Figure 36. Corficolombiana’s Investment Portfolio
Investment Portfolio Composition - Book Value (2013)
Investment Portfolio Composition - Net Income (2013)
Infrastucture
Peru
Energy & Gas
Other
Source: Corficolombiana and Serfinco S.A.
Fiduciaria Bogota (95% ownership). Fiduciaria Bogota focuses on execution of contracts on mercantile trust and
trust funds. As of December 2013, Fidubogota managed COP 43.2 trillion assets in trust (34.9% Y/Y) and ranked as
the 3rd trust fund in share of net income with COP 52 billion (15.1%).
Almaviva (95.8% ownership). Almaviva is the main logistics operator and goods storage agency in Colombia with
COP 1,978 billion worth of merchandise under custody. The company offers services such as: international
transport, multimodal operation transportation (MTO), national transport and urban distribution, customs
brokerage, storage in customs warehouse, distribution centers and free trade zones, finance and logistics consulting.
We believe this exposure is positive for operating income diversification and dividend stability. However, this factor
could generate volatility or negative impacts in net income when comparing quarters due to changes in decreed
dividend periods (from annual to semi-annual or vice versa) and non-seasonality of income from toll road
concessions and other non-financial sector income. This gives Banco de Bogota the appearance of a holding
company, rather than a pure banking play.
27
Wrap-up. We are estimating the next 3 years will offer space for development of synergies, consolidation of new
acquisitions, integration of improved core banking systems, further expansion of the loan portfolio, enhanced
efficiency and rising interest rates, which combined will lead to improvements in profitability. 2014E ROAE will close
around 15.5% and improve towards 18.6% in 2018E, stabilizing in the high teens over the long term. This figure will
be sustained by higher than peer estimated efficiency and non-interest operating income.
We think Banco de Bogota is the bank to buy if you are seeking exposure to CA. The importance of the region in the
bank’s loan portfolio makes it a very interesting bank to benefit from the integration of CA, growth from its
members and consolidation of Banco de Bogota as a regional platform. Furthermore, we estimate strong loan
growth to come from Banco de Bogota’s increasing presence in the consumer and mortgage segments in Colombia,
offering geographical risk diversification.
Finally, it is worth noting the bank faces some short term challenges to efficiency and loan growth due to IT
renovation and integration (Panama and Guatemala). According to management, IT integration of its newly acquired
operations should be ready by 3Q14 and we believe they might pose a temporary risk to the normal course of
operations. Nonetheless, experience has showed Bogota’s positive results of M&As, and in this particular process,
proximity to BAC’s IT groups could lower the chances of a negative outcome. In Colombia, IT renovation processes
should run smoothly; however, there could be some pressures in efficiency, taking into account there are US$61
million of planned IT investments in the country.
Since the market already reflects all of these positive trends in the stock’s price, we believe Banco de Bogota’s
shares are fully valued for 2014, with an upside potential of 4%, that leads us to a HOLD recommendation. 2014E
multiples are 13.4x P/E and 1.99 P/BV, while 2015E offer an entry point at 11.5x P/E and 1.81x P/BV.
28
Positives and Negatives (Long Term)
Positives (Strengths):
Solid and diversified commercial model. Banco de Bogota has implemented various commercial models within
the bank to cover different types of clients with services and products tailored to their needs. Differentiation is
achieved through customer development teams (corporate), segment offices (governmental and institutional
banking), mobile sales teams (consumer), specialized housing and payroll loans centers.
Low cost deposit base on a consolidated basis. As of December 2013, 61.5% (62.3% Peers - Bancolombia and
Davivienda) of Banco de Bogota’s deposit base was comprised by savings and checking accounts, where the latter
represented 26.6% (17.5% peers) of total deposits and 21.8% (13.5% peers) of total funding. We base our opinion on
the fact that Banco de Bogota had the highest proportion of checking accounts over total deposits and funding in
the last 6 years (2008-2013) with 26.9% (18.9% peers) and 22.4% (13.5% peers) average respectively. A similar
situation is observed when analyzing deposits over total funding for the same period, where Banco de Bogota stands
out with a 83.8% average vs. its peers’ 79.3%; same trend is observed at year end 2013.
Developed regional platform. Banco de Bogota is currently the only Colombian bank with a fully functional
regional platform enabling instant inter-bank payments and transactions through BAC Credomatic’s network in
Central America (CA). We believe this to be a competitive edge for the medium term, given the efforts and
investments its peers will need to consolidate their platforms over the upcoming years. Furthermore, once
completed, the integration of Banco de Bogota and BAC’s transaction portals will strengthen the bank’s value
proposal for the corporate segment, complemented by treasury and foreign currency management across banks in
Colombia and CA, as well as agencies in Miami, New York and the Caribbean.
BAC’s brand recognition in Central America. BAC Credomatic has a strong brand recognition in CA, positioning
the bank as a leader in consumer loans. Now, we believe the corporate profile of recent acquisitions and Banco de
Bogota’s experience will be the starting point to penetrate the corporate segment in the region with a solid brand to
support the strategy.
Decision making model and risk policies are conservative. Banco de Bogotá's management and credit policies
have been traditionally conservative and led to healthy asset quality indicators and delinquency ratios among the
banking system's lowest. The bank's three year-end average past due loans as percentage of gross loans were 1.4%.
Diversified other operating income enables a relatively stable dividend income stream. Banco de Bogota
consolidates income from companies in diverse sectors of the economy, ranging from energy & gas, infrastructure
and hotels to pension and severance fund, warehouse and fiduciary management. Altogether, these alternative
income sources make up for 23% of the bank’s total operating income, allowing for higher than peer dividend yield
and fee ratio.
Synergies with Grupo Aval. The bank has entered a process focused on boosting potential synergies obtainable
from Grupo Aval’s distribution network, standardized technological solutions and centralized purchases. Grupo Aval
has the largest network of branches (1,374), ATMs (3,674) and banking agents (15,977 BAs) in Colombia fully
functional with any of the holding’s subsidiary banks. Synergies also arise from marketing efforts, where Grupo
Aval’s value proposal concentrates on business model diversity and convenience of locations, indirectly advertising
Banco de Bogota. Finally, a project led by the holding company contemplates the joint purchase of staples and
services for all subsidiaries, meaning lower costs and increased efficiency.
Negatives (Weaknesses):
Brand recognition in Colombia does not translate into customers’ perception of the bank. We believe one of the
Banco de Bogota’s biggest challenges is to improve quality perception from actual and potential clients. The most
recent customer satisfaction (ACSI) study from Customer Index Value (CIV) positioned Banco de Bogota at the
bottom of 12 Colombian banks with a 78 over 100 score, lower than the sample’s average of 79 (5 banks below
average). The study measures responses from 250 customers per bank in 4 major cities to evaluate the following
aspects: customer expectations, perceived quality, perceived value, customer complaints and customer loyalty.
29
Liquidity and float are low when compared to closest peers in Colombia. Banco de Bogota was founded in 1870
as the country’s first financial institution and its stock has been listed in Colombia’s stock exchange since 1981. This
stock has a distinctive feature, it has been the best or among the three best performing stocks in the Colombian
banks universe in the last 5, 4, 3 and 2 years; nonetheless, its liquidity measured through ADTV (US$0.83 million)
and float (10.8%) is significantly below that of its closest peers Bancolombia (US$9.36 million and 44.7%) and
Davivienda (US$2.22 million and 18.3%) during the last year. We believe this is one of the main concerns for an
institutional investor, given the liquidity risk it may pose in high volatility junctures. As a matter of fact, ADTV shrank
over the course of the last 3 months and is now at around US$0.48 million.
Transactions in Colombia are heavily reliant on physical channels. Banco de Bogota is heavily dependent on
physical channels in Colombia; while peers like Bancolombia and Davivienda have more than 80% of their
transactions performed through electronic channels, Banco de Bogota registered 57% (89% in CA). The recent
launch of new banking platforms aim to increase electronic transactions, one of the main pillars to the expansion
strategy in consumer loans and mortgages. We believe the bank’s efforts are going to be complemented with
synergies obtained from Grupo Aval and BAC to make the shift smoother and faster.
30
Catalysts and Risks (Short Term)
Positives:
Possibility of further M&A activity. Banco de Bogota has expressed its willingness to participate in further M&A
activities, funded through equity issuances, as has been done in all previous acquisitions. We do not expect any
more acquisitions, at least during 2014, taking into account the 3 M&A processes (AFP Horizonte, Grupo Reformador
and BBVA Panama) closed last year.
Payroll accounts growth could complement and facilitate expansion in payroll loans and credit cards in
Colombia. Banco de Bogota is trying to penetrate the consumer segment from a strong starting point in corporate
banking. The bank’s relations with a large number of companies could serve as an attractive customer base to
expand in payroll accounts and afterwards boost cross-selling. During 2H13, payroll accounts grew by 6.3% or 40,500
accounts, compared to the previous semester. If growth stays above 5% H/H, consumer loans could expand faster
than initially estimated (14.1%).
Migration towards electronic transactional channels is an important catalyst to efficiency. BAC Panama
(formerly BBVA) and Grupo Reformador (Guatemala) will bring a new stage of growth in corporate banking across
CA for BAC. Furthermore, the bank is poised to benefit from the improving economic conditions in the region.
Faster than expected expansion in insurance banking and credit cards would boost fee income and ROAA. Both
products are becoming significantly important for fee income due to their fast growth rates. In 2013, insurance
banking income grew 34.3% Y/Y and credit and debit card fees more than doubled to COP 830 billion (127.9% Y/Y).
Given the bank’s aggressive focus on both products, 2014 could show positive surprises in fee income and ROAE.
Negatives:
IT renovation and integration (Panama and Guatemala) could pose temporary risks to efficiency and loan
growth. According to the bank, IT integration of its newly acquired operations should be ready by 3Q14 and we
believe they might pose a temporary risk to the normal course of operations. Nonetheless, experience has showed
Bogota’s positive results of M&As, and in this particular process, proximity to BAC’s IT groups could lower the
chances of a negative outcome. In Colombia, IT renovation processes should run smoothly; however, there could be
some pressures in efficiency, taking into account there are US$61 million of planned IT investments in the country.
Increasing competition coming from banks and technology companies (possibly) could impact NIM in the
medium term. We expect banks across Colombia and CA will cut intermediation margins over the upcoming years
to increase financial system penetration on the back of increasing competition and improving economic
performance. This race comes from both within the banking system and a surging interest from technology
companies (Google, Apple, Amazon, etc.) to bite a share out of fees generated through payment systems. The
following graph shows the evolution of the financial system’s intermediation margin in Colombia:
Figure 37. Gross Intermediation Margin in Colombia
Source: Superfinanciera and Serfinco S.A.
31
Regulatory changes in Colombia or CA could impact the bank’s results. Banks’ results are highly sensitive to
regulatory changes affecting requirements in capital adequacy, provisions, maximum banking fees, etc. For example,
newly passed regulation by Panamanian authorities requires banks to create a dynamic provisions ratio affecting the
retained earnings line (equity), with quarterly revisions. Starting in June 2014, the dynamic provision has to account
for 1.25% over risk weighted loans (RWL) under the normal category, rising towards 1.5% in December 2014 and
2.5% in December 2015.
Banco de Bogota’s exposure to CA makes it particularly sensitive to economic slowdowns and asset quality
deteriorations. If CA’s macroeconomic situation were to deteriorate, Banco de Bogota would be the most sensitive
to asset quality deteriorations, which would in turn lead to higher provision expenses (Colombian regulation on
expected loss) and lower consolidated ROAE.
Political instability in Colombia, Panama, El Salvador, Honduras and Costa Rica due to changes in Presidents
and/or Parliaments. Recent elections in El Salvador (officialist party) , Honduras (officialist party), Costa Rica
(opposition party - founded in 2002 center-left) and Panama (opposition party - right wing), as well as upcoming
elections in Colombia (June 15) might pose a political risk coming forward.
Headwinds from FED’s tapering affecting investment returns. Although Banco de Bogota’s treasury management
is very conservative and most operations are covered through interest rate derivatives, investment margins could be
impacted by the FED’s tapering. Therefore, we are expecting a moderate 1.1% return of investments relative to
average interest earning assets for 2014, lower than the 1.28% registered in 2013.
Implementation of IFRS in 2015 will broaden information disclosure, however we have no certainty on the
outcome. Colombian companies will be obliged to implement IFRS as of January 2015. With preliminary information
available it is possible banks will have to eliminate the Available for Sale category of fixed income securities and
include securitized loans in their balance sheets. However, regulation has not been definitively passed and changes
are still unclear.
32
Valuation and Recommendation
Loans were projected considering nominal GDP growth projections and an average multiplier of loan portfolio
growth over nominal GDP growth, modeled further with perspectives on innovative channels and regulations that
may help boost loan growth. We assume higher market shares in 2018 vs. 2013 in Colombia (+87 bps), Panama (+6
bps), Costa Rica (+10 bps), Guatemala (+80 bps), Honduras (+25 bps), El Salvador (+125 bps) and Nicaragua (+1 bps).
Using the projected loan portfolio as a starting point, we apply an estimated Net loans / Funding ratio to obtain the
total funding necessary. Equity was obtained through capitalization given an average payout of 43% on a
consolidated basis.
Interest income and expense were projected considering premiums or discounts to the projected driver rates for the
bank: 1) Colombia’s repo rate, 2) Colombia’s projected Term Deposit Rate (DTF), 3) 6-month LIBOR USD, and 4)
PRIME rate. Provision expenses were estimated by using projections of provision expenses as a percentage of
average gross loans and trends in asset quality.
Valuation
Our valuation model consists on a weighted average of three valuation methodologies: i) dividend discount model
(40%), ii) multi-stage excess return model (40%) over a 10 year period (2014-2023) and a terminal value after 2023
at P/B implied multiple; and iii) regression of ROAE to P/B multiples for peers across Latin America (20%) and used it
to obtain the expected P/B for 2014, given our ROAE estimations.
Table 10. Company Valuation
Source: Bloomberg; Serfinco S.A.
Sensitivity Analysis
Table 11. Valuation Sensitivity Analysis
Source: Bloomberg; Serfinco S.A.
33
Relative Valuation
Banco de Bogota is fairly priced in comparison to its regional peers, when analyzing the trailing ROAE to P/B
multiples. Currently, Banco de Bogota is trading at 2.13x trailing P/BV with a 13.81% LTM ROAE, in line with the
regression to its major regional peers. The bank is fairly priced in forward multiples as well at 1.99x P/BV with a
15.42% 2014E ROAE.
Figure 38. Relative valuation (P/BV vs. ROAE-LTM)
Figure 39. Relative valuation - Historic Regression of Leading P/BV vs. 1Yr Forward ROAE
Current P/BV
Source: Bloomberg, Company filings; Serfinco S.A.
34
Financial Statements
SERFINCO’s calculations on ratios have been standardized for our coverage universe, that is why figures displayed in
this report may differ from the ones published by the company.
- ROAE & ROAA: Full year net income / Average between beginning of period and end of period equity or assets.
- Fee Ratio: Calculation include total fees and services income.
- Efficiency Ratio: Calculations include total expenses except for depreciation and goodwill amortization.
Table 12. Forecasted income statement
Table 13. Forecasted balance sheet
Source: Banco de Bogota and Serfinco S.A. estimations
Source: Banco de Bogota and Serfinco S.A. estimations
Table 14. Forecasted key ratios
Table 15. Forecasted multiples
Source: Banco de Bogota and Serfinco S.A. estimations
Source: Banco de Bogota and Serfinco S.A. estimations
35
Historic Recommendation
We are initiating Banco de Bogota’s coverage with a December 2014 target price of COP 71,750 and a HOLD
recommendation as of June 11, 2014.
Figure 40. Historic Recommendation
Source: Bloomberg and Serfinco S.A. estimations
36
DAVIVIENDA
COVERAGE
Financial Services
June 12, 2014
PFDAVVNDA / BUY / COP 31,800 per share
Besides, Davivienda has been very clear on how they plan to achieve them:
Technological innovations, a shift to alternate banking channels, cost
controls, leveraged operations and synergies in CA will boost estimated
efficiency and lead long-term ROAE to 17.4% (FY13 15%). Plus, recovery of NIM
and a rising proportion of interest earning assets will increase consolidated ROAA
to 1.8% and ROAE to 18.1% in 2018.
Innovative service models and products will enable increasing market share
in countries with high potential. Colombian and CA markets are concentrated,
where around 5 competitors make up for more than 50-60% of the system’s
assets. Davivienda’s strategy is focused on improving service models to form long
term relations and gain market share in key segments such as commercial and
mortgages. Furthermore, Davivienda plans to remain aggressive in social housing
(VIS) projects in Colombia (44% of the system’s total disbursements in the LTM as
of Feb-14).
Replication of value added products will give Davivienda a competitive edge.
The goal is to spur regional cross-selling and payments through Davivienda. The
bank expects to reach 2.4 products per client (currently 1.2) in 4 years through
better service models and innovative products, grounded on a regional banking
platform to be launched in 2Q14. Additionally Daviplata -free mobile banking
service- will be implemented in CA, which is a very attractive and growing region.
In Davivienda’s case a clear path and strategy go hand in hand with attractive
valuations that offer an entry point for value and growth. 2014E’s leading
multiples are 12.28x P/E and 1.94x P/BV and 2015E 10.29x P/E and 1.70x P/BV.
All of the above support our BUY recommendation for Davivienda.
37
Financial Information and Multiples
ROaA
ROaE
P/BV*
P/E*
Div. Yield*
2011
1.90%
15.1%
2.13x
16.18x
1.68%
2012
1.66%
13.7%
1.74x
13.32x
2.30%
2013
1.64%
14.9%
1.73x
12.35x
1.18%
2014E
1.79%
16.8%
1.94x
12.28x
2.10%
2015E
1.83%
17.6%
1.70x
10.29x
2.44%
*At period's closing price. Expected multiples with closing price of 6/11/14
Source: Bloomberg and SERFINCO S.A. estimations
Davivienda vs. Colcap
130
120
110
100
90
80
70
Pref. Davivienda
Colcap Index
Source: Bloomberg
Nicolas Noreña T.
Financial Services Analyst
[email protected]
(571) 6514646 Ext. 4225
Jose F. Restrepo, CFA
Equity Strategist
[email protected]
(574) 3106510
Jun-14
1) Increasing profitability in Colombia and CA, 2) Gain market share both in
Colombia and CA, and 3) Position the bank as a key player in the region’s
financial system.
Source: Bloomberg and SERFINCO S.A.
Mar-14
This leads us to believe in management’s ability to accomplish the main goals
traced for the medium term:
PFDAVVNDA
29,980.00
6.1%
8.2%
444.2
0.67
18.0%
2.8%
7,073
2.24
29,980 - 21,180
Dec-13
Davivienda has demonstrated its ability to improve profitability and market
share from the recently acquired units in Central America (CA). When
Davivienda acquired HSBC’s operations in El Salvador, Costa Rica and Honduras
ROAE was near to 4.5%, after 1 year of operations it reached 10.5% (16.2% of
consolidated net income), we expect it to rise to 13.9% by 2018 with a positive
bias. Upsides in ROAE and growth depend on Davivienda’s market share of
deposits in CA to a large extent, which would lead to improving funding mix &
cost and balance sheet leverage.
Ticker BVC
Closing Price (COP)
Expected Return
Expected Total Return
Outstanding Shares (MM)
Adj. Beta vs. COLCAP - 2 Years
Free Float
Index Weight (COLCAP)
Market Cap. (USD MM)
ADTV LTM (USD MM)
52 week range
Sep-13
We are updating coverage of Davivienda with a December 2014 target price
(TP) of COP 31,800 per share (6.1% upside) and a BUY recommendation. There
is still value going forward, despite the 26.7% YTD appreciation.
Stock Data
Jun-13
All About Profitability and Growth
Positive Catalysts
Negative Catalysts
Increasing share of deposits in Colombia and CA to improve ROAE.
Relatively
Possible equity issuance would be positive for liquidity and float.
Possibility of further M&A activity.
Daviplata is outlined as the most likely to win the second bidding
process for “Mas Familias en Accion” disbursements.
Further extensions of housing programs in Colombia.
Faster than expected improvement in access would boost financial
penetration.
low expected capital adequacy level could limit the
bank’s ability to grow despite deterioration in asset quality.
Political instability in Colombia, Panama, El Salvador and Costa
Rica due to changes in Presidents and/or Parliaments.
Headwinds
from Fed’s tapering affecting investment returns.
Implementation of IFRS in 2015 will broaden information
disclosure, however we have no certainty on the outcome.
Table 16. Income Statement
Table 17. Balance Sheet
Source: Davivienda and Serfinco S.A. estimations
Figure 41. Loan Portfolio Composition
Source: Davivienda and Serfinco S.A. estimations
Figure 42. Loan Growth by Country
Source: Davivienda and Serfinco S.A. estimations
Table 18. Financial Ratios
Source: Davivienda and Serfinco S.A. estimations
Table 19. Stock Data and Multiples
Source: Davivienda and Serfinco S.A. estimations
Source: Davivienda and Serfinco S.A. estimations
38
All About Profitability and Growth
We are updating coverage of Davivienda with a December 2014 target price (TP) of COP 31,800 per share (9.1%
upside) and a BUY recommendation. There is still value going forward, despite the 29.3% YTD appreciation.
Davivienda has demonstrated its ability to improve profitability and market share from the recently acquired
operations in CA. When Davivienda acquired HSBC’s operations in El Salvador, Costa Rica and Honduras ROAE was
near to 4.5%, after 1 year of operations it reached 10.5% (16.2% of consolidated net income). Furthermore, market
share over loans and deposits has increased an average of 30 bps and 18 bps respectively. Upsides in ROAE and
growth depend to a large extent on Davivienda’s market share of deposits mainly in El Salvador and Costa Rica,
which would lead to improvements in funding mix & costs and balance sheet leverage. In that sense, we expect CA’s
ROAE to reach 13.9% by 2018 (with a positive bias), contributing with 17.7% of consolidated profits in 2018 and
22.8% in 2023. We consider our market share projections to be conservative given the history (see graphs below).
Figure 43. Davivienda’s Share of Deposits in CA (as of Feb-14)
Figure 44. Davivienda’s Share of Loans in CA (as of Feb-14)
Source: Superintendences of Finance; Serfinco S.A.
We base our TP and recommendation on the following:
Increasing profitability in Colombia and CA through efficiency guided strategies. Technological innovations, a
shift to alternate banking channels, cost controls, leveraging operations and obtaining synergies in CA will lower
administrative efficiency ratio to 3.3% (47% cost-income) and lead long-term ROAE to 17.4%. All of the above, plus a
recovery of NIM in Colombia will increase ROAA to 1.8% and ROAE to 18.1% in 2016.
Figure 45. Administrative Efficiency by Country and Consolidated Operating Leverage
6%
4.00
5.45%
5.22%
4.92%
5%
3.50
4.92%
4.21%
4.40%
4.59%
4.29%
4.03%
4%
3.83%
3.00
4.14%
4.04%
3.71%
3.60%
3.94%
3.84%
3.53%
3.47%
3.74%
3.64%
3.54%
2.50
3.49%
3.41%
3.34%
3.28%
3.25%
3%
2.00
1.50
2%
1.53%
1.00
0.89%
1%
0.50
Central America
Colombia
Consolidated
2023E
2022E
2021E
Operating Leverage (RHS)
Source: Davivienda; Serfinco S.A. estimations
39
2020E
2019E
2018E
2017E
2016E
2015E
2014E
2013
2012
2011
2010
0.00
2009
0%
Innovative service models and products will enable larger share in markets with high growth potential.
Colombian and CA markets are concentrated, where around 5 competitors make up for more than 50-60% of the
system’s assets. Davivienda’s strategy is focused on improving service models to form long term relations and take
market share from large traditional players in key segments such as commercial and mortgages, which are poised to
be the fastest growing segments over the coming years (see links to this document). Furthermore, Davivienda is
planning to remain aggressive in social housing (VIS) projects in Colombia (44% of the system’s total disbursements
in the LTM as of Feb-14).
Diversification of the loan portfolio will contribute to improve asset quality. The bank’s focus out of consumer
loans and into commercial, mortgages and housing leasing will contribute to improve loan portfolio diversification
and quality; given that consumer loans are more sensitive to slowdowns in economic performance. We expect
strong loan growth to compensate a slightly lower margin on loans from this mix.
Figure 46. Loan Portfolio Composition and Estimated Asset Quality (90 days NPL)
Source: Davivienda; Serfinco S.A.
Replication of added value products will give Davivienda a competitive edge in CA. The goal is to spur regional
cross-selling and payments through Davivienda. The bank expects to reach 2.4 products per client (currently 1.2) in 4
years through the improvement of service models and the replication of innovative products, grounded on a
regional online banking platform to be launched in 2Q14. Our model contemplates a 7% 5 year CAGR of fees in CA,
which does not fully reflect management’s expectations.
Additionally Daviplata -free mobile banking service- will be implemented in CA to compete in what is taking shape as
a very attractive and growing business. The idea is to reach the income pyramid’s base and increase bancarization
with services that include transfers, payments and purchases through basic mobile phones (no internet needed).
This system complements mobile app, online banking, ATMs and POS to construct a complete payment ecosystem
accessible to everyone. We think the software’s competitive edge is its free for users.
We base our positive expectations in this product from experiences in Colombia, where Davivienda manages
300,000 clients and monthly disbursements of US$62 million of the Government’s subsidy program “Mas Familias
en Accion”. This program contributes to fees because it generates revenues from transactions. Furthermore, it is a
source of non-interest bearing deposits. Click for more information on technological innovations and financial
inclusion.
40
Daviplata:
In 2011 Davivienda launched Daviplata, one of the biggest payments system in Latin America. It started with
500,000 clients and as of December 2013 it had 1.9 million users with transactions amounting US$1,038 million. It
can be used with the 4 major mobile service providers in Colombia, opening a pool of opportunities to reach the
10.9 million Colombian adults without a savings account (34.4% of adult population).
Daviplata offers the following services:
1)For traditional users: Pre-paid airtime purchases, utility-bill payment, national and international remittances,
withdrawals at ATMs or banking agents (5,300 nation-wide) and transfers.
2)For companies: Payroll payments (Colombia’s Military Forces use Daviplata), cash collection and payments.
3)Roamler: App users (Roamlers) are paid through Daviplata to accomplish certain activities with their
smartphones. The app uses Roamlers’ collective data as a market research tool and sells it to corporate clients.
Figure 47. Daviplata’s Evolution
Source: Davivienda; Serfinco S.A.
41
Valuation and Recommendation
Loans were projected considering nominal GDP growth projections and an average multiplier of loan portfolio
growth over nominal GDP growth, modeled further with perspectives on innovative channels and regulations that
may help boost loan growth. We assume increasing market share over the next 5 years in Colombia (+35 bps), El
Salvador (+25 bps), Costa Rica (+40 bps), Honduras (+12 bps) and Panama (+1 bps). Using the projected loan
portfolio as a starting point, we apply an estimated Net loans / Funding ratio to obtain the total funding necessary.
Equity was obtained through capitalization given an average payout of 30%.
Interest income and expense were projected considering premiums or discounts to the projected driver rates for the
bank: 1) Colombia’s repo rate, 2) Colombia’s projected Term Deposit Rate (DTF), 3) 6-month LIBOR USD, and 4)
PRIME rate. Provision expenses were estimated by using projections of provision expenses as a percentage of
average gross loans and trends in asset quality.
Valuation
Our valuation model consists on a weighted average of three valuation methodologies: i) dividend discount model
(40%), ii) multi-stage excess return model (40%) over a 10 year period (2014-2023) and a terminal value after 2023
at P/B implied multiple; and iii) regression of ROAE to P/B multiples for peers across Latin America (20%) and used it
to obtain the expected P/B for 2014, given our ROAE estimations.
Table 20. Company Valuation
Source: Bloomberg; Serfinco S.A.
Sensitivity Analysis
Table 21. Valuation Sensitivity Analysis
Source: Bloomberg; Serfinco S.A.
42
Relative Valuation
Davivienda is fairly priced in comparison to its regional peers, when analyzing the trailing ROAE to P/B multiples.
Currently, Davivienda is trading at 2.19x trailing P/BV with a 15.2% LTM ROAE, in line with the regression to its major
regional peers. Nonetheless, the bank still offers a 7.7% upside relative to its peer regression (2.09x P/BV) of forward
multiples, trading at 1.94x P/BV with a 16.78% 2014E ROAE, higher than our fundamental potential of 6.1%.
Figure 48. Relative valuation (P/BV vs. ROAE-LTM)
Figure 49. Relative valuation - Historic Regression of Leading P/BV vs. 1Yr Forward ROAE
Current P/BV
Source: Bloomberg, Company filings; Serfinco S.A.
43
Financial Statements
SERFINCO’s calculations on ratios have been standardized for our coverage universe, that is why figures displayed in
this report may differ from the ones published by the company.
- ROAE & ROAA: Full year net income / Average between beginning of period and end of period equity or assets.
- Fee Ratio: Calculation include total fees and services income.
- Efficiency Ratio: Calculations include total expenses except for depreciation and goodwill amortization.
Table 22. Forecasted income statement
Table 23. Forecasted balance sheet
Source: Davivienda and Serfinco S.A. estimations
Source: Davivienda and Serfinco S.A. estimations
Table 24. Forecasted key ratios
Table 25. Forecasted multiples
Source: Davivienda and Serfinco S.A. estimations
Source: Davivienda and Serfinco S.A. estimations
44
Historic Recommendation
We are updating Davivienda’s coverage with a December 2014 target price of COP 31,800 and a BUY
recommendation as of June 11, 2014.
Figure 50. Historic Recommendation
Source: Bloomberg and Serfinco S.A. estimations
45
BANCOLOMBIA
COVERAGE
Financial Services
June 12, 2014
PFBCOLOM / BUY / COP 29,600 per preferred share / COP 29,100 (Ord.) / US$60.42 (ADR)
Bancolombia: Getting the Ducks in a Row
We are updating coverage of Bancolombia with a December 2014 target price
(TP) of COP 29,600 per share (6.9% upside) and a HOLD recommendation. We
believe there are more risks than catalysts in the short term, leading us to
maintain a HOLD recommendation for 2014. Now, there is fundamental value
in Bancolombia, which we expect to be fully unfolded over the course of the
next 3 years by getting their ducks in a row, aligning strategies in Colombia, El
Salvador, Panama and Guatemala to boost synergies:
Banistmo: head over heels operation. Bancolombia’s strategy in Panama is
focused on 2 points: 1) taking advantage of the country’s fast expansion as a
multinational business hub (law passed in ‘07 attracted 104 companies,
investments for US$400 million, 3,000 international executives and 2,000 local
workers); and 2) benefit from the regional credit growth as an offshore player
(Offshore banking system CAGR 2008-2013 8.3%). This will enable the bank to
have lower funding costs in USD and higher operational efficiencies.
Replication of the business model will help add approximately 1 million new
clients by 2018. Bancolombia’s innovative technological platform (electronic
transactions accounted for 91% of total transactions in 2013), its experience in
managing accessible banking networks (ATMs, Banking Agents - BA and Points of
Sale-POS; only bank in Colombia with presence in all states) and client
segmentation by activity will enable Banistmo to grow and position itself in
Panama, with the advantage of a recognized brand as a strong marketing starting
point.
Stock Data
Ticker (BVC; NYSE)
Closing Price (COP; USD)
Expected Return
Expected Total Return (COP)
Outstanding Shares (MM)
Adj. Beta vs. COLCAP - 2 Years
Free Float
Index Weight (COLCAP)
Market Cap. (USD MM)
ADTV LTM (USD MM)
52 week range (PFBCOLO)
52 week range (CIB)
PFBCOLO; CIB
27,680; 58.82
6.94%; 2.72%
9.8%
961.8
0.87
36.5%
13.6%
14,139
9.56
28,320 - 22,100
59.90 - 43.22
Source: Bloomberg and SERFINCO S.A.
Financial Information and Multiples
ROaA
ROaE
P/BV*
P/E*
Div. Yield*
2011
2.14%
19.9%
2.42x
13.1x
2.39%
2012
1.87%
15.8%
2.19x
14.9x
2.34%
2013
1.33%
12.7%
1.60x
13.2x
3.17%
2014E
1.43%
13.1%
1.62x
13.2x
2.82%
2015E
1.60%
14.43%
1.48x
10.7x
3.28%
*At period's closing price. Expected multiples with closing price of 6/11/14
Source: Bloomberg and SERFINCO S.A. estimations
Bancolombia vs. Colcap
125
115
105
95
85
Pref. Bcolo
Comm. Bcolo
Colcap Index
Source: Bloomberg
We maintain our HOLD recommendation due to Bancolombia’s strong
outperformance that led to a full valuation after the equity issuance. We
believe the stock could trade between the existing range of COP 26.500 and
COP 30.000 (range 2011-2012), which could offer attractive trading
opportunities despite the downward pressure generated by profit-taking from
non-structural investors participating in the equity issuance.
Nicolas Noreña T.
Financial Services Analyst
[email protected]
(571) 6514646 Ext. 4225
Jose F. Restrepo, CFA
Equity Strategist
[email protected]
(574) 3106510
46
Jun-14
Mar-14
Dec-13
Sep-13
75
Jun-13
Shifting to alternate banking channels and implementing cost control
initiatives will drive an improvement in efficiency. We estimate that the gradual
shift towards lower cost banking channels (slowdown in new branches and
intensive online and mobile usage) and a labor cost control initiative will enable
Bancolombia to reach an efficiency of 50.8% in 2017. Furthermore, we believe
the problems witnessed with the renovation of the core systems (2009-2012),
are starting to dissipate and Bancolombia is finally reaping the benefits of
integrating all subsidiaries into Finacle Core Solution (Infosys).
Positive Catalysts
Negative Catalysts
Possible (SERFINCO estimation) acquisition of a controlling stake
in BAM between late 2014-2015.
Possibility
Possible divestment from Banistmo Insurance (SERFINCO
estimation) with equity of US$110 million as of 3Q13.
loan growth.
Political instability in Colombia, Panama, El Salvador and Costa
Rica due to changes in Presidents and/or Parliaments.
of additional changes in the management team.
Deterioration
Further extensions of the Colombia’s housing programs.
of Banistmo’s funding base pressuring NIM and
Faster than expected improvement in access would boost financial
penetration.
Headwinds
Table 26. Income Statement
Table 27. Balance Sheet
COP Billion
Interest income
Interest expense
Net interest income
Net provisions
Net interest income after provisions
Fees income, net
Other operating income
Operating expenses
Net operating income
Non operating income (expense)
Income tax expense
Net income
2008
2012
2013
2014 E
2015E
2018E
6,314
2,753
3,560
1,133
2,427
1,314
650
2,567
1,824
-60
474
1,291
7,662
2,895
4,767
1,111
3,656
1,807
833
4,117
2,180
-10
467
1,702
8,131
3,122
5,009
1,231
3,778
1,916
840
4,560
1,974
-42
417
1,515
9,914
3,664
6,250
1,359
4,891
2,119
998
5,291
2,717
-63
635
2,018
12,007
4,677
7,330
1,648
5,682
2,365
1,081
5,869
3,258
-70
718
2,470
18,311
6,834
11,478
2,452
9,026
3,216
1,607
8,241
5,608
-87
1,243
4,277
from Fed’s tapering affecting investment returns.
Implementation of IFRS in 2015 will broaden information
disclosure, however we have no certainty on the outcome.
COP Billion
Assets
Cash and overnight funds
Net investment securities
Net loans and financial leases
2008
61,783
5,620
7,278
42,508
2012
97,916
8,169
12,554
66,739
2013
130,816
15,409
13,806
85,394
2014 E
146,621
12,072
17,399
99,898
2015E
163,412
14,181
13,101
117,202
2018E
242,963
21,125
20,255
174,730
Commercial loans
Consumer loans
Small business loans
Mortgage loans
Financial leases
Allowance for loans and leases
28,069
7,533
143
3,391
5,507
-2,134
42,466
12,581
335
5,958
8,650
-3,250
52,364
16,602
517
10,296
9,681
-4,066
61,633
19,358
621
12,257
10,720
-4,690
72,308
22,438
711
14,036
13,122
-5,413
107,974
33,078
1,110
19,160
21,458
-8,051
6,377
61,783
40,384
5,723
34,661
10,454
97,916
64,159
9,799
54,360
16,208
130,816
86,557
14,680
71,876
17,252
146,621
95,670
15,854
79,816
18,929
163,412
105,879
17,545
88,333
26,854
242,963
162,509
26,930
135,579
2,011
18,653
13,997
2,478
24,767
27,114
3,168
34,058
34,650
3,415
38,123
38,279
3,779
42,191
42,364
5,800
64,757
65,022
12,508
12,328
15,282 22,151 6,930
6,117 11,607 12,493
13,737
12,927
8,075
16,212
16,771
14,492
8,459
17,812
25,091
17,578
12,962
24,823
Other assets
Liabilities and Shareholders' equity
Deposits
Non interest bearing
Interest bearing
Checking accounts
Time deposits
Savings deposits
Borrowings from banks
Bonds
Other liabilities
Shareholders' equity
Source: Davivienda and Serfinco S.A. estimations
Figure 51. Loan Portfolio Composition
Source: Davivienda and Serfinco S.A. estimations
Figure 52. Loan Growth by Country
Source: Bancolombia and Serfinco S.A. estimations
Table 28. Financial Ratios
Source: Bancolombia and Serfinco S.A. estimations
Table 29. Stock Data and Multiples
Source: Bancolombia and Serfinco S.A. estimations
Source: Bancolombia and Serfinco S.A. estimations
47
Bancolombia: Getting the Ducks in a Row
We are updating coverage of Bancolombia with a December 2014 target price (TP) of COP 29,600 per share (6.9%
upside) and a HOLD recommendation. The stock’s upside potential is the largest among our banking coverage
universe; however, there are more risks than catalysts in the short term, leading us to maintain a HOLD
recommendation for 2014. Now, there is fundamental value in Bancolombia, which we expect to be fully
unfolded over the course of the next 3 years based on the following:
Financial inclusion, access and penetration. Financial inclusion is becoming increasingly important for emerging
financial systems across the world. Including low income and vulnerable population into the system accelerates
economic growth and employment, redresses income inequality and contributes to poverty reduction. In that sense,
countries where Bancolombia operates are leading strategies and signing on to global partnerships to achieve
inclusion targets through regulatory changes and financial education campaigns. As financial inclusion and access
increase, financial penetration is also boosted. Colombia and the Central American countries still have large
penetration potentials (over 20%) when compared to peers in the region, which leads us to estimate increases in
financial penetration over the next 10 years.
Bancolombia’s strategic planning traced in 2011 contemplates financial inclusion as one of four main pillars. Since
then, the bank has accelerated the expansion and creation of alternate easy-to-access banking channels that have
contributed to the inclusion of new segments of the population into the financial system. Examples range from
electronic savings accounts (“Ahorro a la mano”) with no fees and online banking, to credit cards with low limits
(“Tuya”). We expect the replication of these products in Panama, El Salvador and Guatemala will help boost financial
inclusion and will bring lower transactional costs for the bank, improving its efficiency.
Bancolombia has worked on several projects to boost inclusion in Colombia and El Salvador, and will replicate the
initiatives in Panama and Guatemala. The bank’s cost reduction strategy has a clear focus on investing in, improving
and turning alternative banking channels mainstream. This is based on the fact that non physical channels are
significantly less expensive than branches and ATMs. Bancolombia has an extensive banking network with over
16,500 points of contact with clients in Colombia (~6% of the total PoC) and 700 in El Salvador.
Furthermore, we believe the problems witnessed with the renovation of the core systems (2009-2012), are starting
to dissipate and Bancolombia is finally reaping the benefits of integrating all subsidiaries into Finacle Core Solution.
Bancolombia can now monitor and interface with all its branches around the clock, operate all back-office functions
using one platform and process transactions in real-time. We estimate that the gradual shift towards lower cost
banking channels, the ending of amortizations from the technology investments and labor cost control initiatives
will enable Bancolombia to reach an efficiency of 50.8% in 2017.
Bancolombia’s strategy in Panama is focused on two points: 1) take advantage of the country’s fast expansion as a
multinational business hub (law passed in ‘07 attracted 104 companies, investments for US$400 million, 3,000
international executives and 2,000 local workers); and 2) benefit from the regional credit growth as an offshore
player. This will enable the bank to have lower funding costs in USD and higher operational efficiencies.
Furthermore, the implementation of Bancolombia’s business model will enable Banistmo to grow and position itself
in Panama, with the advantage of a recognized brand as a strong marketing starting point. The bank has important
strategic Customer Relationship Management synergies, which are already being boosted by using the name
Banistmo. The brand, as well as Bancolombia, appeals to the customers’ sense of belonging (Istmo and Colombia),
with the advantage of a prior usage that left a strong sentiment amongst Panamanians. The goal is to increase
market share from the current 14.4%. Bancolombia is also planning to take Banistmo’s normalized ROE from 8.6% in
2013 (expected) to 18% in 2016. This will be accomplished by leveraging Bancolombia’s knowledge of the
commercial and consumer retail segments into a strong loan growth with higher profitability, by loosening risk
models while maintaining healthy NPLs.
We maintain our HOLD recommendation due to Bancolombia’s strong outperformance that led to a full valuation
after the equity issuance. We believe the stock could trade between the existing range of COP 26.500 and COP
30.000 (range 2011-2012), which could offer attractive trading opportunities despite the downward pressure
generated by profit-taking from non-structural investors participating in the equity issuance.
48
Valuation and Recommendation
Loans were projected considering several macro drivers and further adjusted to our expectations. We infer the
system’s loan portfolio based on nominal GDP growth projections and an average multiplier of the loan portfolio
over nominal GDP growth. We assume stable market share in Colombia and El Salvador, but a conservative increase
of 90 bps market share in Panama (2013-2017). Using the projected loan portfolio as a starting point, we apply an
estimated Net loans / Funding ratio to obtain the total funding necessary. Equity was obtained through capitalization
given a stable payout level of 45%.
Interest income and expense were projected considering premiums or discounts to the projected driver rates for the
bank: 1) Colombia’s repo rate, 2) Colombia’s projected Term Deposit Rate (DTF), 3) 6-month LIBOR USD, and 4)
PRIME rate. Provision expenses were estimated by using projections of provision expenses as a percentage of
average gross loans and trends in loan quality.
Valuation
Our valuation model consists on a weighted average of three valuation methodologies: i) dividend discount model
(40%) to take into account the projected flows of dividends and terminal value to shareholders, ii) multi-stage excess
return model (40%), which values the company’s excess returns (expected ROE minus cost of equity multiplied by
beginning shareholder’s equity) over a 10 year period (2014-2023) and a terminal value after 2023 at P/B implied
multiple; and iii) regression of ROAE to P/B multiples for comparable banks across Latin America (20%) and used it to
obtain the expected P/B for 2014, given our ROAE estimations.
Table 30. Company Valuation
Source: Bloomberg; Serfinco S.A.
Sensitivity Analysis
Table 31. Valuation Sensitivity Analysis
Source: Bloomberg; Serfinco S.A.
49
Relative Valuation
Bancolombia is fairly priced in comparison to its regional peers, when analyzing the trailing ROAE to P/B multiples.
Currently, Bancolombia is trading at 1.78x trailing P/BV with a 11.6% LTM ROAE, in line with the regression to its
major regional peers. The bank offers a 3.1% upside relative to its peer regression (1.68x P/BV) of forward multiples,
trading at 1.62x P/BV with a 14.37% 2014E ROAE.
Figure 53. Relative valuation (P/BV vs. ROAE-LTM)
Figure 54. Relative valuation - Historic Regression of Leading P/BV vs. 1Yr Forward ROAE
4.00
3.50
3.00
2.50
Current P/BV
2.00
1.50
1.00
0.50
0.00
0.00%
5.00%
10.00%
15.00%
20.00%
Regional Peers
Bancolombia
Source: Bloomberg, Company filings; Serfinco S.A.
50
25.00%
30.00%
35.00%
Financial Statements
SERFINCO’s calculations on ratios have been standardized for our coverage universe, that is why figures displayed in
this report may differ from the ones published by the company.
- ROAE & ROAA: Full year net income / Average between beginning of period and end of period equity or assets.
- Fee Ratio: Calculation include total fees and services income.
- Efficiency Ratio: Calculations include total expenses except for depreciation and goodwill amortization.
Table 32. Forecasted income statement
Table 33. Forecasted balance sheet
Source: Bancolombia and Serfinco S.A. estimations
Source: Bancolombia and Serfinco S.A. estimations
Table 34. Forecasted key ratios
Table 35. Forecasted multiples
Source: Bancolombia and Serfinco S.A. estimations
Source: Bancolombia and Serfinco S.A. estimations
51
Historic Recommendation
We are initiating Bancolombia’s coverage with a December 2014 target price of COP 29,600 and a HOLD
recommendation as of June 11, 2014.
Figure 55. Historic Recommendation
Source: Bloomberg and Serfinco S.A. estimations
52
International Equity Trading Desk
Andres Jimenez
Juan P. Vieira
Andres Gomez
Head of Equity
Head of Trading
Head of Electronic
[email protected]
(574) 3106553
[email protected]
(574) 3106515
[email protected]
(574) 3106544
Daniel Marin
Equity Trader
Andres Upegui
FX Trader
Jose F. Restrepo,
Equity Strategist
[email protected]
[email protected]
(574) 4442235 Ext.
6640
[email protected]
(574) 3106518
(574) 3106510
Research Team
Maria Velásquez
Rafael España
Energy and Utilities
Consumer Services and Holdings
Alejandro Isaza
Cement and
Construction
[email protected]
[email protected]
(571) 6514646 Ext.
4228
[email protected]
(574) 3106544 Ext.
6642
(574) 3106553 Ext. 6667
Nicolas Noreña
Financial Services
[email protected]
(571) 6514646 Ext. 4225
Bogotá
Medellín
Centro de Negocios Andino
Carrera 11 No 82—01. Piso 6
Tel: (571) 6514646
San Fernando Plaza—Torre 1
Carrera 43A No 1— 50. Piso 10
Tel: (574) 4443522
Cali
Bucaramanga
Av 9 Norte Calle 13 Norte Esquina
Local 203
Tel: (572) 4858585
Metropolitan Bussiness Park
Carrera 29 # 45 - 45 of 910
Tel: (577) 6970367
Cartagena
Barranquilla
Torre Empresarial Protección
Carrera 3 No 6A—100 Of. 801
Tel: (575) 6930292
Centro Empresarial Las Américas
Calle 77B No 57—141.
Tel: (575) 3606030
The analyst certifies that the opinions expressed in this report accurately reflect his personal opinion about the company of concern. Also, the analyst certifies that he
has not received, is not receiving and will not receive any direct or indirect payment in exchange for expressing a specific recommendation in this report.
Serfinco S.A. is committed to provide independent and objective research for all the companies in the coverage universe. During the normal course of business, Serfinco
S.A. intends to obtain revenue for banking investment services from all the companies in the coverage universe. The remuneration for the analyst is based, in part, on
the profitability of the firm, which includes investment banking and revenues from sales. The research analyst does not have a position in the fixed positions of this
covered company and does not provide any kind of services to the company. The research analyst has not taken part in any investment banking transaction of the
company in concern. Serfinco S.A. was not making a market in the titles of the company in concern when this report was published. In the last twelve months, Serfinco
S.A. did not receive, nor it is authorized to receive, revenues for investment banking services, services related to the title of non investment banking, or non title services
rendered to the company in concern. that could affect the objectivity of this report. Therefore, investors should consider this report only as a factor for their investment
decision making. However, Serfinco S.A. intends to do business with the companies covered in this report. Consequently, investors should be aware that the firm might
have an interest conflict.
53