Latin American Equity Research New York, January 2015

LATAM UNIVERSE BOOK

2015

Important disclosures/certifications are in the “Important Disclosures” section of this report. U.S. investors’ inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629/ (212) 350-3918. * Employed by a non-US affiliate of Santander Investment Securities, Inc. and is not registered/qualified as a research analyst under FINRA rules.

SANTANDER LATAM TEAM Ignacio Mendive Head of LatAm Equities 1-212-350-3958 / [email protected]

Jesus Gomez Head of LatAm Equity Research, Strategy 1-212-350-3992 / [email protected]

LatAm Strategy Team Jesus Gomez Stefano Rizzi Andres Soto Walter Chiarvesio Daniel Gewehr Joao Noronha, CFA Pedro Balcão Reis

LatAm LatAm Andean Argentina Brazil Brazil Mexico

Economists 1-212-350-3992 1-212-350-3979 1-212-407-0976 5411-4341-1564 5511-3012-5787 5511-3012-5734 5511-3012-5765

[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Agribusiness

Alejandro Estevez-Breton Sergio Galván Maurício Molan Juan Pablo Cabrera Fernanda Consorte David Franco

LatAm Argentina Brazil Chile Colombia Mexico

1-212-350-3917 5411-4341-1728 5511-3012-5724 562-2320-3778 5511-3012-7114 5255-5269-1932

[email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Metals & Mining

Christian Audi

Sector Head

1-212-350-3991

[email protected]

Gustavo Allevato, CFA

Brazil

5511-3012-6042

[email protected]

Daniel Gewehr

Sector Head

5511-3012-5787

[email protected]

Joao Noronha, CFA

Brazil

5511-3012-5734

[email protected]

Luis Miranda, CFA

Mexico

5255-5269-1926

Capital Goods

Felipe Reis

Sector Head

5511-3012-5758

[email protected]

Walter Chiarvesio

Argentina

5411-4341-1564

[email protected]

Renato Maruichi, CFA

Brazil

5511-3553-7149

[email protected]

Alberto Ariztia

Chile

5622-336-3359

[email protected]

Oil, Gas, and Petrochemicals Christian Audi

Sector Head

1-212-350-3991

[email protected]

Cement, Construction, Infrastructure & Real Estate

Walter Chiarvesio

Argentina

5411-4341-1564

[email protected]

Andres Soto

Andean

Gustavo Allevato, CFA

Brazil

5511-3012-6042

[email protected]

Walter Chiarvesio Bruno Mendonça Renan Manda Alberto Ariztia

Argentina Brazil Brazil Chile

5411-4341-1564 5511-3012-5759 5511-3012-6535 5622-336-3359

5511-3012-5758 5511-3553-7149 5622-336-3359

[email protected] [email protected] [email protected]

Toe Matsumura

Mexico

5255-5257-8172

[email protected]

1-212-407-0976

[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Education Bruno Giardino, CFA Daniel Gewehr

Sector Head Brazil

5511-3012-5914 5511-3012-5787

[email protected] [email protected]

Boris Molina

Sector Head

1-212-350-3977

[email protected]

Catalina Araya

New York Brazil Brazil Chile

1-212-297-1367 5511-30c125756 5511-3012-5731

[email protected]

Henrique Navarro Renata Cabral Nicolás Schild

Financial Services

Sector Head

Felipe Reis Renato Maruichi, CFA Alberto Ariztia

Sector Head Brazil Chile

Retail & Consumer Goods João Mamede

Sector Head

5511-3553-0699

Andres Soto

Andean

1-212-407-0976

[email protected]

Ronaldo Kasinsky Jessica Bessa

Brazil Brazil

5511-3553-2396 5511-3553-9602

[email protected] [email protected]

Nicolas Villarreal

Chile

Reinaldo Santana

Mexico

5622-336-3358

[email protected]

5255-5269-2102

[email protected]

5511-3012-5747 5411-4341-1564 5511-3012-5759

[email protected] [email protected] [email protected]

5622-336-3359

[email protected]

Telecom, Media & Technology Valder Nogueira Walter Chiarvesio Bruno Mendonça

Sector Head Argentina Brazil

Alberto Ariztia

Chile

5622-336-3361

[email protected] [email protected] [email protected]

5255-5269-1926

[email protected]

Transportation Pedro Balcão Reis

Sector Head

5511-3012-5765

[email protected]

Bruno Amorim Francisco Errandonea Ana Reynal, CFA Ulises Argote Bolio

Sector Head Chile Mexico Mexico

5511-3012-6016 5622-336-3357 5255-5269-1900 5255- 5269-1904

[email protected] [email protected] [email protected] [email protected]

Sector Head Argentina Chile Brazil Brazil

5511-3012-6682 5411-4341-1564 5622-336-3361 5511-3012-6016 5511-3553-7426

[email protected] [email protected] [email protected] [email protected] [email protected]

Food & Beverage Luis Miranda, CFA

Pulp & Forest Products

Andres Soto

Andean

1-212-407-0976

[email protected]

João Mamede Ronaldo Kasinsky Jessica Bessa Matias Duarte

Brazil Brazil Brazil Chile

5511-3553-0699 5511-3553-2396 5511-3553-9602 5622-336-3423

[email protected] [email protected] [email protected] [email protected]

5511-3012-5914 5511-3012-5787 5622-336-3423

[email protected] [email protected] [email protected]

Healthcare

Utilities

Bruno Giardino, CFA Sector Head Daniel Gewehr Brazil Matias Duarte Chile

Fixed Income Research

Maria Carolina Carneiro Walter Chiarvesio Nicolás Schild Thiago Silva Andre Sampaio

Quantitative

Aaron Holsberg Head of Credit Isidro Arrieta Credit - New York Alejandro Estevez-Breton Head of Rates

1-212-350-0978 1-212-407-0982 1-212-350-3917

[email protected] [email protected] [email protected]

Sales

Daniel Gewehr Joao Noronha, CFA

Head Brazil Brazil

5511-3012-5787 5511-3012-5734

[email protected] [email protected]

Sales Trading Marcio Souza, Head of Equity Execution, New York

New York Victoria Santaella

1-212-350-3919

[email protected]

Randall Smalley Alexa Lynch Brazil Carlos Prates Mirella Borin Camila Machado Chile Axel Timmermann Hong Kong Geoffrey Knoell, CFA London Fabio Faraggi Alex Pallin Roland Campbell Mexico Santiago Mosquera Maria Lopez Tolentino

1-212-350-3918 1-212-350-3918

[email protected] [email protected]

5511-3012-5305 5511-3012-5303 5511-3012-5302

[email protected] [email protected] [email protected]

5622-320-0344

[email protected]

852-3921-3080

[email protected]

4420-7756-6602 [email protected] 4420-7756-6601 [email protected] 4420-7756-6608 [email protected] m 5255-5269-8761 5255-5269-8760

[email protected] [email protected]

1-212-756-9160 1-212-756-9160

[email protected] [email protected]

Program Trading – New York Jason Nardella Michael Hill

Christopher Cohane, Head of Sales Trading

1-212-756-9165

[email protected]

1-212-756-9242

[email protected]

Darrin Cummings 1-212-756-9241 [email protected] Maury Mischel 1-212-756-9166 [email protected] Alejandro Chavez 1-212-756-9240 [email protected] James Tallarico 1-212-756-9164 [email protected] Juan Lecaros 1-212-350-3659 [email protected] Brazil Fernando Sanchez, Head of Brazil Institutional Equities 5511-3012-7022 [email protected] Daniel Ciotti, Head of Trading – Brazil 5511-3012-6330 [email protected] Cesar Tashiro 5511-3012-6330 [email protected] Vinicius Nogueira 5511-3012-6330 [email protected] Vito Madio, Head of Sales Trading – Brazil 5511-3012-6330 [email protected] Carlos Faria 5511-3012-6330 [email protected] Lucas Gonçalves 5511-3012-6330 [email protected] Janaiara Bhergami 5511-3012-5360 [email protected] London Benson O’Hara 4420-7756-6606 [email protected]

ETD- New York Isaac Prada Donna Sheehan Harley Evans

1-212-756-9243 1-212-583-4635 1-212-583-4607

[email protected] [email protected] [email protected]

Santander Research Available On… Santander: https://www.santander-center.com/globalresearch/_register.php Bloomberg: SIEQ

FactSet: www. FactSet.Com Capital iq: www.SPCapitaliq.Com

Reuters Knowledge: http://knowledge.reuters.com Thomson One Analytics: http://Thomsononeim.com

2014 Latin American Universe Book

Table of Contents ARGENTINA Banco Macro BBVA Frances Cresud GF Galicia Irsa Siderar Telecom Argentina YPF SA BRAZIL AES Tiete ALL Alupar AmBev Arteris B2W Banco do Brasil Banco Pine BB Seguridade BM&F Bovespa BR Malls BR Properties Bradesco Brasil Foods Brasil Insurance Braskem CBD CCR Cemig Cesp Cetip Cia. Hering Cielo Comgas Copasa Copel Cosan Energia Cosan Limited CPFL Energia CSN Cyrela BZ Realty DASA Duratex Ecorodovias Eletrobras Eletropaulo Embraer Energias do Brasil Equatorial Even EZTec Fibria

14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 100 102 104 106 108 110 112

BRAZIL (CTD) Fleury Fras-le Gerdau Gol Helbor HRT Hypermarcas Iguatemi IMC Iochpe-Maxion Itausa Itaú Unibanco JSL Klabin Light Linx Localiza Lojas Americanas Lojas Renner Magnesita Mahle Metal Leve Marcopolo MRV Engenharia Multiplan Multiplus Natura OdontoPrev PDG Realty Petrobras Porto Seguro Positivo Qualicorp Queiroz Galvão Raia Drogasil Randon Renova Energia Rodobens Romi Sabesp Santos Brasil São Martinho Saraiva Smiles Sul America Suzano TAESA Tecnisa Tegma Telefonica Brasil Totvs Tractebel

BRAZIL (CTD) Transmissao Paulista Triunfo Ultrapar Unicasa Móveis Usiminas Vale Valid Via Varejo WEG CHILE AES Gener AFP Habitat Aguas Andinas Andina Banco de Chile BCI CAP CCU Cencosud CMPC Colbun Concha y Toro Copec CorpBanca E-CL Endesa Chile Enersis Entel Falabella IAM Inversiones la LATAM Airlines Parque Arauco Ripley Sonda SQM COLOMBIA Almacenes Exito Bancolombia Cementos Argos Cemex LatAm Holdings Davivienda Ecopetrol Grupo Argos Grupo Aval Grupo Nutresa Grupo Sura Pacific Rubiales

114 116 118 120 122 124 126 128 130 132 134 136 138 140 142 144 146 148 150 152 154 156 158 160 162 164 166 168 170 172 174 176 178 180 182 184 186 188 190 192 194 196 198 200 202 204 206 208 210 212 214

3

216 218 220 222 224 226 228 230 232 234 236 238 240 242 244 246 248 250 252 254 256 258 260 262 264 266 268 270 272 274 276 278 280 282 284 286 288 290 292 294 296 298 300 302 304 306

MEXICO Alfa Alsea America Movil Arca Continental Asur Banorte Banregio Bolsa MX de Cemex Chedraui Coca-Cola FEMSA Comerci FEMSA Fibra Inn Fibra Uno GAP Genomma Lab Gentera GF Inbursa Gruma Grupo Bimbo Grupo Famsa Grupo Herdez Grupo Lala Grupo Sanborns ICA IEnova Kimberly-Clark Liverpool Mexichem OHL Mexico OMA PINFRA Soriana Sports World Televisa Volaris Walmex PERU Alicorp Cementos Credicorp Intercorp MULTINATIONAL Copa Holdings Tenaris Ternium VALUATION &

308 310 312 314 316 318 320 322 324 326 328 330 332 334 336 338 340 342 344 346 348 350 352 354 356 358 360 362 364 366 368 370 372 374 376 378 380 382 384 386 388 390 392 394 396 398

4

2015 Latin American Universe Book

Welcome to the “Bottom-Up World” Jesús Gómez

Stefano Rizzi

Head of LatAm Research, Strategy +1-212-350-3992 | [email protected]

LatAm Equity Strategist +1-212-350-3979 | [email protected]

We are pleased to present this year’s edition of our LatAm Universe Book, which once again should prove to be a useful tool in helping investors make fruitful investment decisions and navigate our flagship LatAm conference. This report, containing 192 companies under our coverage, was made possible thanks to our Latin American research teams, located in Brazil, Mexico, Chile, and Argentina, as well as in New York. Stock picking will be more critical than ever in 2015 since the top-down environment for emerging markets in general, and Latin America in particular, remains challenging and complex given various global macro variables. Investing in emerging markets has never been an easy task. For several years prior to 2008, it seemed that the battle between growth and risk had been won by growth; however, in the last four years, risk has moved to the forefront, leading to a more defensive investment stance. Important external factors for Latin America include the following: (1) The evolution of monetary policy in the U.S., particularly the way the long end of the curve, will incorporate the first increases in interest rates from the U.S. Federal Reserve. Quantitative easing in Europe and Japan coupled with deflation should anchor 10-year rates below 3% by year-end 2015, in our view, which, when combined with an uptick in global growth, is supportive for LatAm. (2) Stability in oil and commodity prices. (3) A more favorable flow of funds as investors continue to search for higher yields. (4) The GDP growth gap between emerging and developed markets increasing once more (or at least stabilizing after a few years of narrowing). (5) Meeting both GDP and earnings expectations. Our Economics Team projects GDP growth of 1.7% in 2015 and 2.9% in 2016. These numbers might seem low for an emerging market region, but note the expected acceleration in GDP growth (+0.5% in 2015 and +1.2% in 2016) and our expectations that most of the economies in Latin America will resume growth above 4.0% in 2016 with the exception of Brazil, where the adjustment process underway is likely to continue for longer. We anticipate that the second half of 2015 will bring a clearer picture to the above key variables and believe that financial markets have already incorporated a good amount of the uncertainties surrounding these variables. After four years of underperformance, Latin American equity markets in U.S. dollars are trading in relative terms at lower levels than those reached in the middle of the Great Financial Crisis in the latter part of 2008. Furthermore, structural themes underpinning the superior growth dynamics of Latin America are still present: the growing middle class, rebound in the investment cycle, the urbanization of emerging markets, stable and orthodox monetary and economic policies in most of the countries, lower levels of public and private debt, etc. We believe that these themes should provide greater secular growth for Latin America in the years to come, but that financial markets seem stubbornly focused on the short-term challenges rather than on long-term fundamentals. The combination of low interest rates, light investor positioning, attractive valuations in U.S. dollar terms, acceleration of adjustment in the region’s imbalances and uptick in global growth should produce attractive investment opportunities in our region. Our LatAm Universe Book, which has helped investors navigate turbulent waters for nearly two decades, should again prove valuable in current market conditions.

5

2015 Latin American Universe Book

CHANGES TO RATINGS AND TARGET PRICES The Universe Book contains our changes in ratings and target prices for our LatAm universe of coverage. In the figures that follow, we outline the most actionable changes (upgrades and downgrades), highlight the investment cases for selected stocks based on their significance, and lastly outline all the changes in ratings and target prices for our LatAm universe of coverage. Figure 1. Actionable Changes in Ratings (Upgrades and Downgrades) UPGRADES

DOWNGRADES

To Buy

To Hold

To Hold

To Underperform

Alfa

Eletropaulo

AES Gener

BCI

Banregio

Light

AFP Habitat

PDG Realty

Cementos Pacasmayo

Sabesp

Andina

Siderar

E-CL

Bancolombia

Embraer

Banorte

Gerdau

Cyrela Brazil Realty

GF Galicia

Grupo Aval

GF Inbursa

Helbor

Gol

MRV Engenharia

Iochpe Maxion

Smiles

Irsa

TAESA

Tegma

Tecnisa Tenaris Transmissao Paulista

Source: Santander estimates.

6

Figure 2. Selected Upgrades to Buy Investment Case

Company  Alfa



 Cementos



Pacasmayo

In the last few months, the upside risks for E-CL have materialized. The new regulated contract signed by E-CL in December 2014 allows the company to build the IEM coal project, significantly increase the load factor of current gas and coal facilities, and enter the SIC market, which has the main consumption centers.



We believe Embraer continues to have a strong delivery story, as evidenced by a new all-time record backlog, reaching US$22 billion in 3Q14 (from a historical low of US$12.5 billion in 4Q12). Embraer benefits from three important trends: (i) the continuing depreciation of the BRL, which our economists continue to see as overvalued; (ii) a falling jet fuel price that should boost commercial orders; and (iii) a strong U.S. economy, representing 64% of 9M14 commercial revenue. On our estimates, ERJ trades at a ~14x P/E for 2015E, which is in-line with the historical average but which could decline if the BRL depreciates more than we estimate

 Embraer



In spite of the lackluster economic scenario for Brazil in the near future, we think Gerdau continues to be the best option for investing in the Brazil steel space, given (1) its positive exposure to the U.S. market, at least mitigating the weakness in Brazil operations, and (2) its lower exposure to iron ore as a business line relative to its main peers.



We are upgrading GGAL to Buy due to its more attractive valuation compared to Argentine peers following its YoY underperformance. We continue to believe that short-term catalysts for Argentine banks remain a top-down re-rating leading to lower country risk. We think that GGAL’s universal banking franchise is well positioned to take advantage of a new economic and political cycle after 2015. The stock trades at an adjusted P/BV of 1.8x, while our YE2015 target valuation is 2.5x, still at a discount to Banco Macro and BBVA Frances.

Gerdau



 GF Inbursa



 Gol 

 Iochpe Maxion

We believe that the company is well positioned to benefit from the development of infrastructure projects in Peru and, more broadly speaking, from the expected acceleration in the Peruvian economy in 2015. Profitability in Peru's cement industry is supported by this market's structure, which is highly concentrated on the offer side (only three large producers in the country), and dispersed on the demand side (DIY segment represents 55% of company sales). This helps Cementos Pacasmayo's sustain pricing power, translating into superior levels of profitability, in our view.

 E-CL

GF Galicia

We believe that Alfa's weak performance at the end of 2014 was based primarily on the oil price decline and dilution expected from the announced follow-on. We believe that current prices offer an attractive entry point and that value from the expected IPO of Sigma and Nemak could be unlocked.



Inbursa's entry into retail banking should kick into high gear with the new JV with Walmex, in our view. We believe that the deal will allow Inbursa to overcome its key strategic disadvantage (lack of distribution points) by multiplying the capacity of Inbursa's sales force to reach potential new clients. We believe that the shift in the business mix toward retail banking will allow Inbursa to start to deploy its surplus capital at higher rates of return on capital, which we now expect to increase to the low 20s% from our previous estimate of ~17%. Oil prices (Brent) declined ~50% since June and we believe this will result in significant upside for the airlines sector, as 35-41% of its costs are jet fuel related. Moreover, we continue to highlight Brazilian sector players' strategy of rationalizing capacity in order to improve unit revenue (PRASK). In our view, the recent BRL depreciation (~15% in 2014) will pressure costs but will not offset the jet fuel cost improvement. With the stock trading at ~7.5x 2015E EV/EBITDAR, we believe the current stock price does not reflect the profitability improvement we forecast for 2015.

We are upgrading MYPK3 to Buy, following its -53% share performance in 2014, which leads to a DCF upside of 47% with an attractive 2015E FV/EBITDA of 4.9x (close to historical lows). We believe that MYPK3 offers investors (1) exposure to the global automotive market, through its leadership in the wheels (globally) and chassis (in the Americas) segments; and (2) indirect exposure to Brazilian infrastructure growth (wheels and chassis for heavy vehicles) and railway equipment (~85% of the transportation matrix).

Source: Santander.

7

2015 Latin American Universe Book

Figure 3. Selected Downgrades to Hold/Underperform Investment Case

Company 

We are downgrading Andina to Hold from Buy due to (1) a weak economic outlook, with our forecast of declining volume in Argentina, Chile and Paraguay; and (2) limited visibility on operating improvements in Chile and Brazil. However, in our view, the current valuation already incorporates this weak outlook, thereby limiting potential downside to the stock.



We have downgraded our rating on Bancolombia due to the impact of the recently enacted tax reform on growth, as well as the profitability of the bank. We expect the tax burden to persist over time, given the fiscal headwinds from lower oil prices, infrastructure investment needs and the potential costs of the peace with FARC.



We believe that recent changes in the leadership of Banorte increase corporate governance and execution risks; as such, we prefer to remain cautious on the stock.



We are downgrading BCI to Underperform, as we expect weak operating trends for 2015, as well as some overhang in the shares due to the capital increase required to acquire CNB of Florida. From a top-down view, we are not encouraged about Chile’s current economic outlook, given slowdowns in both mining and non-mining investments, political uncertainty, and potential uncertainty from the upcoming labor reform.

Andina

Bancolombia

Banorte

BCI

Cyrela Brazil





Despite its low leverage, above-average execution, and decent share-buyback program, we believe Cyrela's size (> R$5 billion launches) becomes a burden amid the still tough economic scenario ahead, limiting its flexibility to quickly improve profitability and to justify additional multiple expansion.



We are cutting our earnings estimates for 2015 and 2016 by around 15% due to higher taxation, expectations of only one rate increase in Colombia toward the end of 2015, still strong competitive pressures in the Colombian banking industry and slower loan growth estimates.



We maintain a favorable view of TAESA. The company has strong cash generation, good management, financial discipline, high predictability, inflation protection, low regulatory risk, operating efficiency, and high leverage, as well as a sound organic and inorganic growth track record, in our view. However, the recent stock price rally reduced the attractiveness of the company’s real IRR, and, therefore, we downgraded our rating to Hold from Buy.



We continue to believe CTEEP has stable revenue and solid cash flow generation, and we believe the main trigger for the stock will be Aneel's forthcoming opinion in relation to RBSE receivables. We see upside risk for our estimates if the final RBSE amount is higher than R$4.1 billion, and we believe the current stock price reflects a receivable close to our estimates. However, the stock price rally during 2014 limits the upside and IRR, and therefore, we are downgrading our rating to Hold from Buy.

Realty

Grupo Aval

TAESA

Transmissao Paulista

Source: Santander.

8

Figure 4. Rating and Target Price Changes for Our LatAm Universe of Coverage Inv. Code Company

Sector

Ticker

Current

YE2015 Target Price (LC) Previous

Current

Previous

Argentina Banco Macro BBVA Frances Cresud GF Galicia Irsa Siderar Telecom Argentina YPF SA

Financial Services Financial Services Cement, Construction, Infra & RE Financial Services Cement, Construction, Infra & RE Metals & Mining Telecom, Media & Technology Oil, Gas & Petrochemicals

BMA US BFR US CRESY US GGAL US IRS US ERAR AR TEO US YPF US

B H B B B Uperf Uperf B

B H B Uperf H H Uperf B

55.00 16.00 19.00 20.00 21.60 6.45 19.50 52.00

55.00 15.00 19.90 15.50 22.90 5.19 17.40 60.00

Brazil AES Tiete ALL Alupar B2W Digital

Utilities Transportation Utilities Retail & Consumer Goods

GETI4 BZ ALLL3 BZ ALUP11 BZ BTOW3 BZ

H H B H

H H B H

19.40 6.00 21.17 26.00

19.60 7.00 20.07 31.00

Banco do Brasil

Financial Services

BBAS3 BZ

B

B

30.00

28.00

Banco Pine

Financial Services

PINE4 BZ

B

B

7.20

13.00

BM&F Bovespa

Financial Services

BVMF3 BZ

B

B

12.30

11.70

BR Properties

Cement, Construction, Infra & RE

BRPR3 BZ

H

H

11.50

16.90

Bradesco

Financial Services

BBDC4 BZ

B

B

40.50

40.00

Brasil Insurance

Insurance Services

BRIN3 BZ

B

B

7.70

19.30

CCR

Transportation

CCRO3 BZ

Uperf

Uperf

14.00

15.00

Cemig

Utilities

CMIG4 BZ

H

H

13.80

24.50

Cesp

Utilities

CESP6 BZ

Uperf

Uperf

23.67

24.12

Cetip

Financial Services

CTIP3 BZ

H

H

36.00

33.80

Cia Hering Comgas Copasa Copel Cosan Limited CPFL Energia CSN Cyrela Brazil Realty DASA Duratex Eletrobras Eletropaulo Embraer Energias do Brasil Even EZTec Fleury Gerdau Gol Helbor HRT

Retail & Consumer Goods Utilities Utilities Utilities Agribusiness Utilities Metals & Mining Cement, Construction, Infra & RE Health Care Pulp & Forest Products Utilities Utilities Transportation Utilities Cement, Construction, Infra & RE Cement, Construction, Infra & RE Health Care Metals & Mining Transportation Cement, Construction, Infra & RE Oil, Gas & Petrochemicals

HGTX3 BZ CGAS5 BZ CSMG3 BZ CPLE6 BZ CZZ US CPFE3 BZ CSNA3 BZ CYRE3 BZ DASA3 BZ DTEX3 BZ ELET6 BZ ELPL4 BZ ERJ US ENBR3 BZ EVEN3 BZ EZTC3 BZ FLRY3 BZ GGBR4 BZ GOLL4 BZ HBOR3 BZ HRTP3 BZ

H H H B B B Uperf H Uperf H H H B B B B H B B H Uperf

H H H B B B Uperf B Uperf H Under Review Uperf H B B B H H H B Uperf

23.00 57.02 27.90 44.36 12.30 23.00 5.00 12.40 10.00 8.50 8.49 9.88 43.00 12.10 6.80 27.00 18.00 16.00 18.00 5.65 4.00

27.00 63.07 42.34 44.36 16.30 23.20 9.00 22.00 15.00 9.50 8.49 9.47 40.00 12.30 12.40 35.80 21.00 16.00 14.00 11.20 7.30

Hypermarcas

Retail & Consumer Goods

HYPE3 BZ

H

H

18.00

22.00

Source: Santander.

9

2015 Latin American Universe Book

Figure 4. Rating and Target Price Changes for Our LatAm Universe of Coverage (continued) Inv. Code Company

Sector

Ticker

Current

YE2015 Target Price (LC) Previous

Current

Previous

Brazil (continued) IMC Iochpe Maxion Itaú Unibanco Itausa JSL Light Linx Localiza Lojas Americanas Lojas Renner Magnesita Mahle Metal Leve MRV Engenharia Multiplus Natura PDG Realty Petrobras Porto Seguro Positivo Informatica Qualicorp Queiroz Galvão E&P Raia Drogasil Randon

Retail & Consumer Goods Conglomerates & Industrials Financial Services Investment Services Transportation Utilities Telecom, Media & Technology Transportation Retail & Consumer Goods Retail & Consumer Goods Metals & Mining Conglomerates & Industrials Cement, Construction, Infra & RE Financial Services Retail & Consumer Goods Cement, Construction, Infra & RE Oil, Gas & Petrochemicals Financial Services Telecom, Media & Technology Health Care Oil, Gas & Petrochemicals Retail & Consumer Goods Conglomerates & Industrials

IMCH3 BZ MYPK3 BZ ITUB4 BZ ITSA4 BZ JSLG3 BZ LIGT3 BZ LINX3 BZ RENT3 BZ LAME4 BZ LREN3 BZ MAGG3 BZ LEVE3 BZ MRVE3 BZ MPLU3 BZ NATU3 BZ PDGR3 BZ PBR US PSSA3 BZ POSI3 BZ QUAL3 BZ QGEP3 BZ RADL3 BZ RAPT4 BZ

H B B B H H H H B H H B H B Uperf Uperf H H B B B H B

H H B B H Uperf H H B H H B B B Uperf H H H B B B H B

13.00 17.50 40.50 11.90 15.00 20.13 57.00 38.00 21.00 83.00 2.40 25.00 8.50 39.00 33.00 0.90 8.20 34.00 3.20 33.00 11.00 28.00 8.00

23.00 22.50 37.27 12.20 18.00 21.66 49.00 37.00 19.00 79.00 4.70 27.00 13.10 55.50 45.00 1.95 11.20 32.80 1.57 28.00 13.00 22.00 8.50

Renova Energia Rodobens Romi Sabesp Santos Brasil

Utilities Cement, Construction, Infra & RE Conglomerates & Industrials Utilities Transportation

RNEW11 BZ RDNI3 BZ ROMI3 BZ SBSP3 BZ STBP11 BZ

B H B H Uperf

B H B Uperf Uperf

60.63 10.40 5.50 19.51 16.00

62.76 16.50 7.00 24.68 17.00

São Martinho

Agribusiness

SMTO3 BZ

B

B

43.50

34.00

Saraiva

Retail & Consumer Goods

SLED4 BZ

B

B

12.00

38.00

Smiles

Financial Services

SMLE3 BZ

H

B

49.00

49.00

Suzano

Pulp & Forest Products

SUZB5 BZ

H

H

10.50

10.50

TAESA

Utilities

TAEE11 BZ

H

B

19.83

21.10

Tecnisa

Cement, Construction, Infra & RE

TCSA3 BZ

H

B

4.20

10.50

Tegma

Transportation

TGMA3 BZ

B

H

19.00

26.00

Totvs

Telecom, Media & Technology

TOTS3 BZ

B

B

42.00

45.50

Tractebel

Utilities

TBLE3 BZ

H

H

37.85

37.68

Transmissao Paulista

Utilities

TRPL4 BZ

H

B

39.83

31.74

Triunfo Ultrapar Unicasa Móveis Vale Valid WEG

Transportation Oil, Gas & Petrochemicals Retail & Consumer Goods Metals & Mining Financial Services Conglomerates & Industrials

TPIS3 BZ UGP US UCAS3 BZ VALE US VLID3 BZ WEGE3 BZ

H B Uperf H B H

H B Uperf H B H

8.00 26.00 2.50 8.00 47.00 31.50

10.00 29.40 4.00 10.50 46.30 29.50

Source: Santander.

10

Figure 4. Rating & Target Price Changes for Our LatAm Universe of Coverage (continued) Inv. Code Company

Sector

Ticker

Current

YE2015 Target Price (LC) Previous

Current

Previous

Chile AES Gener AFP Habitat Aguas Andinas Andina Banco de Chile BCI CCU Cencosud CMPC Colbun Concha y Toro Copec CorpBanca E-CL Endesa Chile Enersis Entel IAM Inv. La Construcción LATAM Airlines Parque Arauco Ripley Sonda SQM

Utilities Financial Services Utilities Food & Beverage Financial Services Financial Services Food & Beverage Retail & Consumer Goods Pulp & Forest Products Utilities Food & Beverage Pulp & Forest Products Financial Services Utilities Utilities Utilities Telecom, Media & Technology Utilities Health Care Transportation Cement, Construction, Infra & RE Retail & Consumer Goods Telecom, Media & Technology Metals & Mining

AESGENER CI HABITAT CI AGUAS/A CI ANDINAB CI CHILE CI BCI CI CCU CI CENCOSUD CI CMPC CI COLBUN CI CONCHA CI COPEC CI CORPBANC CI ECL CI EOC US ENI US ENTEL CI IAM CI ILC CI LFL US PARAUCO CI RIPLEY CI SONDA CI SQM US

H H H H H Uperf H H H B H B B B B B H H B H B B H Uperf

B B H B H B H H H B H B B H B B H H B H B B H Uperf

360.00 965.00 390.00 1,900.00 80.00 31,000.00 6,250.00 1,690.00 1,699.80 195.00 1,270.00 8,099.56 10.00 1,115.00 53.70 19.20 7,000.00 1,040.00 8,250.00 13.20 1,499.82 395.00 1,570.00 23.42

350.00 820.00 382.00 2,560.00 85.00 33,500.00 7,000.00 2,170.00 1,500.00 162.00 1,260.00 8,200.00 8.50 780.00 55.80 19.22 7,600.00 1,025.00 8,900.00 18.00 1,200.00 515.00 1,400.00 22.61

Colombia Almacenes Exito Bancolombia Cementos Argos Davivienda Ecopetrol

Retail & Consumer Goods Financial Services Cement, Construction, Infra & RE Financial Services Oil, Gas & Petrochemicals

EXITO CB PFBCOLO CB PFCEMARG CB PFDAVVND CB EC US

H H H B H

H B H B H

31,000.00 31,000.00 10,500.00 33,500.00 20.00

31,500.00 30,700.00 11,000.00 29,000.00 39.00

Grupo Argos

Conglomerates & Industrials

GRUPOARG CB

H

H

23,200.00

22,700.00

Grupo Aval

Financial Services

PFAVAL CB

H

B

1,400.00

1,550.00

Grupo Nutresa

Food & Beverage

NUTRESA CB

H

H

30,000.00

32,500.00

Grupo Sura

Investment Services

PFGRUPSU CB

B

B

47,250.00

43,750.00

Pacific Rubiales Mexico Alfa America Movil Arca Continental Asur Banorte Banregio Bolsa Mexicana Cemex Chedraui Coca-Cola FEMSA Comerci FEMSA Fibra Inn GAP

Oil, Gas & Petrochemicals

PRE CN

H

H

8.60

11.00

Conglomerates & Industrials Telecom, Media & Technology Food & Beverage Transportation Financial Services Financial Services Financial Services Cement, Construction, Infra & RE Retail & Consumer Goods Food & Beverage Retail & Consumer Goods Food & Beverage Cement, Construction, Infra & RE Transportation

ALFAA MM AMX US AC* MM ASURB MM GFNORTEO MM GFREGIO MM BOLSAA MM CX US CHDRAUIB MM KOFL MM COMERUBC MM FEMSAUBD MM FINN13 MM GAPB MM

B H H H H B H B H H Uperf B B B

H H H H B Uperf H B H H Uperf B B B

40.00 21.71 102.00 217.00 90.00 86.00 28.00 15.38 48.00 148.00 50.00 150.00 22.00 112.00

42.00 24.60 87.00 174.00 107.50 70.00 32.00 15.50 51.00 50.60 52.00 140.00 21.00 79.00

Source: Santander.

11

2015 Latin American Universe Book

Figure 4. Rating & Target Price Changes for Our LatAm Universe of Coverage (continued) Inv. Code Company

Sector

Ticker

Current

YE2015 Target Price (LC) Previous

Current

Previous

Mexico (Continued) Genomma Lab Gentera GF Inbursa Gruma Grupo Bimbo Grupo Famsa Grupo Herdez ICA IEnova Kimberly Clark Liverpool Mexichem OHL Mexico OMA PINFRA Soriana Sports World Televisa Volaris Walmex Peru Alicorp Cementos Pacasmayo Credicorp Intercorp Multinational Copa Holdings Tenaris

Health Care Financial Services Financial Services Food & Beverage Food & Beverage Retail & Consumer Goods Food & Beverage Cement, Construction, Infra & RE Oil, Gas & Petrochemicals Retail & Consumer Goods Retail & Consumer Goods Petrochemicals Cement, Construction, Infra & RE Transportation Cement, Construction, Infra & RE Retail & Consumer Goods Retail & Consumer Goods Telecom, Media & Technology Transportation Retail & Consumer Goods

LABB MM GENTERA* MM GFINBURO MM GRUMAB MM BIMBOA MM GFAMSAA MM HERDEZ* MM ICA* MM IENOVA* MM KIMBERA MM LIVEPOLC MM MEXCHEM* MM OHLMEX* MM OMAB MM PINFRA* MM SORIANAB MM SPORTS MM TLEVICPO MM VLRS US WALMEXV MM

B B B H H H H B B Uperf B B B B B H B H B H

B B Uperf H H H H B B Uperf B B B B B H B H B H

40.00 35.00 43.00 173.00 44.00 13.00 40.00 32.00 90.00 33.00 190.00 65.94 32.00 82.00 214.00 44.00 30.50 105.00 12.00 35.00

50.00 30.00 31.00 170.00 40.00 19.00 42.00 39.00 92.00 37.00 196.00 66.00 37.00 54.00 219.00 48.00 23.00 83.00 10.80 39.00

Food & Beverage Cement, Construction, Infra & RE Financial Services Financial Services

ALICORC1 PE CPAC US BAP US IFS PE

B B B H

B H B H

8.90 10.50 188.00 33.00

9.80 10.50 165.00 34.00

Transportation Oil, Gas & Petrochemicals

CPA US TS US

B H

B B

130.00 35.00

174.00 56.50

Source: Santander.

12

COMPANY NOTES

13

LATIN AMERICAN 2015 Latin American Universe Book

ARGENTINA—FINANCIAL SERVICES

BANCO MACRO

BUY CURRENT PRICE: US$41.80 TARGET PRICE: US$55.00



Investment Case: We believe Banco Macro is the best-positioned

Boris Molina

bank to play the recovery of real profitability in Argentine banks, due

New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

to its strong distribution channels, low-risk lending operations, and strong capital base. We think Banco Macro should be able to deliver rates of adjusted ROE (return on capital employed) of approximately

Catalina Araya New York: Santander Investment Securities Inc. +1-212-297-1367 | [email protected]

50% in the medium term, which, with the decline in inflation and country risk that we expect, should support multiple expansion. As such, we expect the adjusted P/BV to increase from 3.1x at current prices to 4.3x in 2015E, per our target price.



Outlook 2015: We believe that the new set of regulations introduced in 2014—including (1) a prohibition against holding FX hedging positions by more than 20% of regulatory capital, (2) controls on interest rates on both sides of the balance sheet, and (3) forced directed subsidized loans—will affect the bank’s capacity to increase earnings in real terms. In our view, holding excess liquidity in central bank bills (yielding a high 20s interest rate) is likely the only way to partially offset the negative effect of the above-mentioned measures. We expect BMA’s loan book to grow below 20% and deposits to increase in the low 20s, amid weak economic activity. However, we expect NPLs to remain stable below 2.0%. In addition, we expect net

Company Statistics Bloomberg

BMA US / BMA AR

Current Price (01/02/15)

US$ 41.80 / Ar$ 50.70

fees, labor costs, and administrative costs to grow in-line with

Target Price (YE 2015)

US$ 55.00 / Ar$ 74.20

inflation in the low 30s.

52-Week Range (US$)

16.97 - 46.02

Market Capitalization (US$ Mn)



Looking beyond 2015: We believe that Argentine banks continue to have strong growth potential under macro normalization, which we expect with the next administration. Low credit penetration, at 15% of GDP, and a healthy financial system create a good starting point to



2,485

Float (%)

30.4

3-Mth Avg. Daily Vol (US$ Mn)

5.1

Shares Outstanding - Mn

59

Price Performance (US$) BMA US

reach 35-40% loan growth over a five- to seven-year period, with

500

ROEs in the high 40s for Banco Macro, in our view.

400

Merval

300

Solid balance sheet: Banco Macro should sustain a CT1 capital 200

ratio of

approximately 20.0% under our estimate of fully loaded

Basel III, which should allow it to sustain growth and bear risks better

100 0

than its Argentine peers.

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

14

D-14

BANCO MACRO Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions

Company Description

INCOME STATEMENT Net Interest Income NPL Provisions Adj Net Interest Income Non-Interest Income Total Operating Revenue Non-Interest Expense Profit Before Taxes Taxes Net Profit Adjusted Net Profit

2013A 4,993 (540) 4,453 3,272 7,725 (4,014) 3,795 (1,333) 2,444 2,262

Ar$ 2014E 7,192 (633) 6,559 4,841 11,400 (5,455) 6,086 (2,220) 3,851 3,478

BALANCE SHEET Cash and Equivalents Securities Loans (net) Intangible Assets Total Assets Core Deposits Other Financial Liabilities Subordinated Debt Technical Provisions Equity Adjusted Equity

2013A 12,860 2,441 39,045 344 59,295 35,461 4,698 981 0 8,627 8,782

2014E 11,857 15,270 43,637 328 76,348 41,505 6,978 1,727 0 11,864 12,030

2015E 14,816 18,937 51,667 302 94,687 51,114 8,364 2,023 0 15,691 15,896

2016E 18,397 21,174 67,081 283 117,635 65,121 9,705 2,109 0 20,176 20,414

2013A 1,465 278 4,448 39 6,755 4,040 535 112 0 983 1,000

2014E 1,030 1,326 3,791 28 6,632 3,605 606 150 0 1,031 1,045

2015E 1,098 1,404 3,831 22 7,020 3,790 620 150 0 1,163 1,179

2016E 1,308 1,506 4,770 20 8,365 4,631 690 150 0 1,435 1,452

LOAN BOOK Companies Total Consumer Mortgages Other Loans Gross Loans Loan Growth (%) NPL Provisions

2013A 14,571 22,143 2,309 640 39,663 24.8 689 (1,012)

2014E 15,424 25,905 2,479 640 44,449 12.1 855 (1,188)

2015E 18,516 30,357 3,086 640 52,599 18.3 1,024 (1,393)

2016E 24,976 38,473 4,083 640 68,172 29.6 1,320 (1,716)

2013A 1,660 2,523 263 73 4,519 (3.4) 78 (115)

2014E 1,340 2,250 215 56 3,861 (14.5) 74 (103)

2015E 1,373 2,251 229 47 3,900 1.0 76 (103)

2016E 1,776 2,736 290 45 4,848 24.3 94 (122)

KEY RATIOS NIM Risk Charge Operating Revenue / ATAs

2013A 10.02 1.74 14.32

2014E 11.98 1.92 16.19

2015E 13.05 1.95 16.72

2016E 12.52 1.94 16.91

2013A 10.02 1.74 14.32

2014E 11.98 1.92 16.19

2015E 13.05 1.95 16.72

2016E 12.52 1.94 16.91

2015E 9,141 (683) 8,458 5,660 14,118 (7,375) 6,829 (2,390) 4,405 3,553

2016E 10,940 (873) 10,067 7,532 17,599 (9,380) 8,319 (2,911) 5,365 4,385

2013A 591 (64) 527 388 915 (475) 449 (158) 289 268

US$ 2014E 645 (57) 588 434 1,022 (489) 546 (199) 345 312

2015E 731 (55) 677 453 1,129 (590) 546 (191) 352 284

2016E 794 (63) 731 547 1,278 (681) 604 (211) 390 318

Cost / ATAs

7.44

7.75

8.74

9.01

7.44

7.75

8.74

9.01

Adj Efficiency

49.3

46.7

49.8

50.5

49.3

46.7

49.8

50.5

Effective Taxes

35.1

36.5

35.0

35.0

35.1

36.5

35.0

35.0

Reported ROE (%)

33.9

37.7

32.2

30.3

33.9

37.7

32.2

30.3

Adj ROE (%)

42.7

50.8

46.7

47.1

42.7

50.8

46.7

47.1

NPL Ratio

1.74

1.92

1.95

1.94

1.74

1.92

1.95

1.94

Adj NPL Ratio

2.77

2.92

2.83

2.72

2.77

2.92

2.83

2.72

Loans / Total Assets

66.9

58.2

55.6

58.0

66.9

58.2

55.6

58.0

Loans / Core Deposits

111.8

107.1

102.9

104.7

111.8

107.1

102.9

104.7

RWA % Total Assets

91.1

87.4

83.5

86.4

91.1

87.4

83.5

86.4

Core Tier I Ratio (%)

16.3

18.0

20.1

20.1

16.3

18.0

20.1

20.1

Dividend Payout (%)

0.0

15.5

13.1

16.4

0.0

15.5

13.1

16.4

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Adj. P/BV

1.7

3.5

2.7

1.9

1.8

3.5

3.1

2.3

Adj. P/E

3.9

7.0

6.4

4.7

3.8

6.9

6.8

5.7

(0.0)

2.7

2.7

4.1

(0.0)

2.1

1.9

2.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

4.11

6.48

7.41

9.02

4.87

5.81

5.93

6.55

MARKET RATIOS

Div Yield (%) PER SHARE DATA EPS BVPS

14.51

19.95

26.39

33.93

16.53

17.33

19.57

24.13

DPS

0.00

1.00

0.97

1.48

0.00

0.99

0.79

1.08

Adj EPS

3.81

5.85

5.98

7.38

4.51

5.24

4.78

5.35

14.77

20.23

26.74

34.33

16.83

17.58

19.82

24.42

Surplus Capital per Share

6.13

8.39

12.33

16.00

6.98

7.29

9.14

11.37

Unrealized Cap. Gains/Shr

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Adj BVPS

15

Banco Macro is one of the leading banks in Argentina, with the largest distribution network (428 branches) and a strong capital base, with a market share in loans of 7.9% and 5.6% in core deposits. From its origins as a wholesale bank, the company has expanded via acquisitions of smaller regional banks in areas with low penetration of financial products. The bank is focused on retail banking for low-to-middle income individuals, specializing in payroll lending, SMEs and servicing provincial governments. Its shares trade in the Buenos Aires Stock Exchange and in ADR form on the NYSE.

Key Personnel: Jorge Horacio Brito (CEO and Chairman), Jorge Pablo Brito (CFO) and Jorge Scarinci (IRO) Web: www.macro.com.ar

Loan Portfolio, 2015E Credit Cards 17.6%

Other 6.5%

Companies 35.2%

Personal Loans 34.8%

Mortgages 5.9%

Revenue Breakdown, 2015E

Fees 32.8%

Others 0.2%

Trading 7.0% NII 59.9%

Shareholder Structure, Current

Free Float 30.4%

ANSES 31.0%

Jorge Brito 19.9%

Delfin Ezequiel Carvallo 18.8%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

ARGENTINA—FINANCIAL SERVICES

BBVA FRANCES

HOLD CURRENT PRICE: US$13.48 TARGET PRICE: US$16.00

RAISING YE2015 TARGET PRICE TO US$16.00 FROM US$15.00 

Investment Case: We consider BBVA Frances to be the best-

Boris Molina

performing franchise in our universe of coverage, posting sound

New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

returns and possessing a robust track record in asset quality. However, for investors looking to play Argentina’s 2015 political cycle, we think BBVA Frances’s lower-than-peers stock liquidity and

Catalina Araya New York: Santander Investment Securities Inc. +1-212-297-1367 | [email protected]

lofty relative valuation of 3.5x adjusted P/BV are large drawbacks, leading us to maintain our cautious stance on the stock.



Outlook 2015: We believe that the new set of regulations introduced in 2014—including (1) a prohibition against holding FX hedging positions by more than 20% of regulatory capital, (2) controls on interest rates on both sides of the balance sheet, and (3) forced directed subsidized loans—will affect the bank’s capacity to increase earnings in real terms. In our view, holding excess liquidity in central banks bills, which yield ~20%, could be the only way to partially offset the negative effect of the above-mentioned measures. We expect BFR’s loan book to grow below 20% and deposits to increase in the low 20s, amid weak economic activity. Nonetheless, NPLs should remain stable at ~1.0%, the lowest among Argentine banks. Net fees and operating costs should grow in-line with inflation in the low 30s, according to our estimates.



BFR US / FRAN AR

Current Price (01/02/15)

US$ 13.48 / Ar$ 55.00

Target Price (YE 2015)

US$ 16.00 / Ar$ 71.85

Looking beyond 2015: We expect Argentine banks to continue to

52-Week Range (US$)

5.56 - 15.26

have strong growth potential. In our view, low credit penetration at

Market Capitalization (US$ Mn)

15% of GDP and a healthy financial system are good starting points to reach 35-40% penetration in the next five to seven years, with adjusted ROEs reaching the high 30s.



Company Statistics Bloomberg

2,412

Float (%)

16.7

3-Mth Avg. Daily Vol (US$ Mn)

2.9

Shares Outstanding - Mn

179

Price Performance (US$) BFR US

Strong core funding base. The bank boasts a loan-to-deposit ratio

500

of around 80%, which, in our view, represents an inflationary subsidy

400

to shareholders, courtesy of the prevailing high inflation rates in

Merval

300

Argentina. This has allowed BFR to partially offset the impact of 200

punitive regulations on the adjusted profitability of the bank, in our 100

opinion.

0

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

16

D-14

BBVA FRANCES Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions

Company Description

INCOME STATEMENT Net Interest Income NPL Provisions Adj Net Interest Income Non-Interest Income Total Operating Revenue Non-Interest Expense Profit Before Taxes Taxes Net Profit Adjusted Net Profit

2013A 4,348 (454) 3,895 3,221 7,116 (3,889) 3,195 (1,121) 2,019 1,971

Ar$ 2014E 6,196 (587) 5,609 4,642 10,251 (5,702) 4,599 (1,590) 2,907 2,539

BALANCE SHEET Cash and Equivalents Securities Loans (net) Intangible Assets Total Assets Core Deposits Other Financial Liabilities Subordinated Debt Technical Provisions Equity Adjusted Equity

2013A 12,882 3,460 34,867 121 58,458 42,859 4,943 0 0 7,156 7,362

2014E 15,514 8,173 41,525 143 74,299 50,980 8,770 0 0 10,133 10,374

2015E 18,979 10,715 49,524 141 89,295 62,381 9,114 0 0 13,153 13,477

2016E 23,570 11,851 61,053 145 107,737 77,156 9,128 0 0 16,563 16,986

2013A 1,468 394 3,972 14 6,660 4,883 563 0 0 815 839

2014E 1,348 710 3,607 12 6,454 4,428 762 0 0 880 901

2015E 1,407 794 3,672 10 6,621 4,625 676 0 0 975 999

2016E 1,676 843 4,342 10 7,661 5,487 649 0 0 1,178 1,208

LOAN BOOK Companies Total Consumer Mortgages Other Loans Gross Loans Loan Growth (%) NPL Provisions

2013A 16,674 16,908 1,244 41 34,867 28.2 284 (722)

2014E 20,321 20,657 1,429 57 42,463 21.8 425 (938)

2015E 23,319 25,766 1,546 64 50,695 19.4 532 (1,171)

2016E 27,808 32,699 1,880 74 62,461 23.2 612 (1,408)

2013A 1,900 1,926 142 5 3,972 (0.7) 32 (82)

2014E 1,765 1,794 124 5 3,689 (7.1) 37 (82)

2015E 1,729 1,910 115 5 3,759 1.9 39 (87)

2016E 1,977 2,325 134 5 4,442 18.2 44 (100)

KEY RATIOS NIM Risk Charge Operating Revenue / ATAs

2013A 9.47 0.81 14.11

2014E 10.00 1.00 14.95

2015E 9.55 1.05 15.62

2016E 8.99 0.98 15.52

2013A 9.47 0.81 14.11

2014E 10.00 1.00 14.95

2015E 9.55 1.05 15.62

2016E 8.99 0.98 15.52

2015E 7,255 (695) 6,560 6,090 12,649 (7,498) 5,211 (1,824) 3,291 2,786

2016E 8,326 (817) 7,509 7,645 15,154 (9,089) 6,125 (2,144) 3,884 3,311

2013A 515 (54) 461 382 843 (461) 378 (133) 239 233

US$ 2014E 555 (53) 503 416 919 (511) 412 (143) 261 228

2015E 580 (56) 525 487 1,012 (600) 417 (146) 263 223

2016E 604 (59) 545 555 1,100 (660) 445 (156) 282 240

Cost / ATAs

7.71

8.32

9.26

9.31

7.71

8.32

9.26

9.31

Adj Efficiency

49.8

52.2

56.7

57.9

49.8

52.2

56.7

57.9

Effective Taxes

35.1

34.6

35.0

35.0

35.1

34.6

35.0

35.0

Reported ROE (%)

34.2

32.7

28.2

26.1

34.2

32.7

28.2

26.1

Adj ROE (%)

45.5

44.7

39.9

38.9

45.5

44.7

39.9

38.9

NPL Ratio

0.81

1.00

1.05

0.98

0.81

1.00

1.05

0.98

Adj NPL Ratio

1.55

1.87

1.95

1.89

1.55

1.87

1.95

1.89

Loans / Total Assets

59.6

57.2

56.8

58.0

59.6

57.2

56.8

58.0

Loans / Core Deposits

81.4

83.3

81.3

81.0

81.4

83.3

81.3

81.0

RWA % Total Assets

84.8

85.4

86.8

89.2

84.8

85.4

86.8

89.2

Core Tier I Ratio (%)

14.9

16.4

17.4

17.7

14.9

16.4

17.4

17.7

Dividend Payout (%)

0.0

1.3

8.8

12.7

0.0

1.3

8.8

12.7

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Adj. P/BV

1.8

3.9

3.1

2.3

1.8

3.9

3.5

2.8

Adj. P/E

4.2

9.6

8.5

6.6

4.1

9.3

8.9

7.8

(0.0)

0.2

1.4

2.4

(0.0)

0.1

1.0

1.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Div Yield (%) PER SHARE DATA EPS

3.76

5.42

6.13

7.23

1.34

1.46

1.47

1.58

13.33

18.87

24.50

30.85

4.56

4.92

5.45

6.58

DPS

0.00

0.07

0.54

0.92

0.00

0.02

0.13

0.20

Adj EPS

3.67

4.73

5.19

6.17

1.30

1.27

1.25

1.34

BVPS

Adj BVPS

13.71

19.32

25.10

31.64

4.69

5.04

5.58

6.75

Surplus Capital per Share

4.90

7.60

10.94

14.18

1.68

1.98

2.43

3.03

Unrealized Cap. Gains/Shr

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

17

BBVA Frances is one of Argentina’s leading financial institutions, with a market share of 7.1% in loans to the private sector and 5.3% in core deposits. The bank was acquired by BBVA in 1996, with the Spanish banking group currently owning approximately 75% of total capital. The bank focuses on corporate and SME lending and retail operations. The shares are listed on the Buenos Aires stock exchange and trade in ADR form in the NYSE.

Key Personnel: Jorge Carlos Bledel (Chairman), Ricardo Enrique Moreno (CEO), Ignacio Sanz y Arcelus (CFO) and Cecilia Acuña (IRO) Web: www.bancofrances.com.ar

Loan Portfolio, 2015E

Car Loans 8.5%

Others 3.2%

Credit Card 27.6%

Personal Loans 14.8%

Companies 46.0%

Revenue Breakdown, 2015E

Others 1.7%

Fees 35.3%

NII 51.9% Trading 11.1%

Shareholder Structure, Current

ANSES 7.9%

Free Float 16.7%

BBVA 75.4%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

ARGENTINA—CEMENT, CONSTRUCTION, INFRA & RE

CRESUD

BUY CURRENT PRICE: US$10.11 TARGET PRICE: US$19.00

LOWERING YE2015 TARGET PRICE TO US$19.00 FROM US$19.90 

Investment Case: We think that IRSA will remain the main driver

Walter Chiarvesio*

behind Creusud’s operating results. Despite still strong farm prices,

Argentina: Santander Rio Sociedad de Bolsa S.A. +5411-4341-1564 | [email protected]

we do not see much upside from agricultural operations in the short term, particularly given declining international grain prices. We believe that in the short term, the agricultural segment’s EBITDA depends on the sale of farms, which we find unpredictable at this point. Our Buy rating is predicated on Cresud’s strong discount vs. its NAV, especially relative to its controlled subsidiary IRSA (please see below).



Outlook 2015: We expect recurring adjusted EBITDA (excluding results from the sale of assets) to remain relatively flat YoY, with most of the contribution coming from IRSA. We forecast that the agricultural segment will post some improvement in results due to the sale of land, on which the company does not provide guidance in advance. Most of IRSA’s contribution is attributable to shopping malls, which could suffer a little due to the weak consumption environment. Also, Cresud’s bottom line could be hit by volatility stemming from IRSA’s financial positions in IDBD Holding in Israel. Company Statistics



A no brainer: Cresud a bargain compared to IRSA. At the current

Bloomberg

CRESY US / CRES AR

Current Price (01/02/15)

US$ 10.11 / Ar$ 12.50

Target Price (YE 2015)

US$ 19.00 / Ar$ 28.40

Cresud’s 65% stake in IRSA is US$573 million, higher than current

52-Week Range (US$)

8.37 - 14.08

Cresud’s market cap of US$507 million.

Market Capitalization (US$ Mn)

507

Float (%)

65.8

stock price, IRSA’s market cap stands at US$876 million, while

3-Mth Avg. Daily Vol (US$ Mn)

0.6

Shares Outstanding - Mn

50

Price Performance (US$) CRESY US

Merval

A-13

A-14

500 400 300 200 100 0

J-13

M-13

D-13

A-14

Sources: FactSet, Santander estimates and company reports.

18

D-14

CRESUD Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 3,975 23.9 584 2,889.7 1,220 (9.9) 30.7 934 (14.8) 23.5 (1,503) 165 (377) (182.5) (9.5)

Ar$ 2014E 5,801 45.9 1,123 92.3 2,441 100.2 42.1 2,149 130.0 37.0 (2,008) 273 (146) 61.3 (2.5)

2015E 7,581 30.7 1,308 16.5 2,859 17.1 37.7 2,561 19.2 33.8 (2,145) (83) 332 n/m 4.4

2016E 9,317 22.9 3,090 136.2 3,232 13.1 34.7 2,919 14.0 31.3 (1,688) (431) 800 140.9 8.6

2013A 696 0.1 102 2,313.5 214 (27.3) 30.7 164 (31.2) 23.5 (263) 29 (66) (166.6) (9.5)

Company Description

US$ 2014E 758 8.9 147 43.5 319 49.3 42.1 281 71.6 37.0 (263) 36 (19) 71.1 (2.5)

2015E 712 (6.1) 123 (16.3) 268 (15.9) 37.7 240 (14.4) 33.8 (201) (8) 31 n/m 4.4

2016E 1,070 50.3 355 188.9 371 38.3 34.7 335 39.4 31.3 (194) (49) 92 194.6 8.6

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 285 891 (93) 706 (638) 68 1,151 (216) -

2014E 293 1,224 (161) 1,209 (238) 971 0 (172) -

2015E 298 0 (176) 454 (390) 64 0 (28) -

2016E 313 100 (107) 1,107 (429) 678 (1,000) (332) -

2013A 50 156 (16) 124 (112) 12 202 (38) -

2014E 38 160 (21) 158 (31) 127 0 (22) -

2015E 28 0 (17) 43 (37) 6 0 (3) -

2016E 36 11 (12) 127 (49) 78 (115) (38) -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,340 3,176 6,398 13,852 3,245 6,158 4,449 7,156 1,908

2014E 2,570 5,196 5,827 16,218 4,016 6,132 3,475 6,988 2,223

2015E 3,386 6,878 5,827 17,900 4,892 6,874 3,541 8,075 2,569

2016E 3,590 7,606 5,827 18,628 4,583 5,538 5,913 6,115 1,946

2013A 206 489 984 2,131 499 947 684 1,101 294

2014E 292 590 662 1,843 456 697 395 794 253

2015E 271 550 466 1,432 391 550 283 646 206

2016E 730 1,547 1,185 3,790 932 1,127 1,203 1,244 396

5,248

4,764

5,506

4,170

807

541

440

848 2016E

LT Debt FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

Net Debt

5,816

4,418

4,689

2,525

895

502

375

514

Capital Employed

9,269

8,896

9,072

9,179

1,426

1,011

726

1,867

Net Debt/EBITDA

4.8

1.8

1.6

0.8

4.2

1.6

1.4

1.4

Net Debt/Equity Capex/Revenue (%) Int Cover (%) Dividend Payout (%) ROCE (%) ROE (%)

1.3

1.3

1.3

0.4

1.6

1.3

1.3

0.4

16.0

4.1

5.1

4.6

16.0

4.1

5.1

4.6

2.1

2.6

2.4

2.5

2.1

2.6

2.4

2.5

47.2

(45.6)

(19.0)

100.0

39.2

(30.8)

(18.1)

99.5

8.3

21.1

29.1

36.5

10.2

22.1

29.3

36.5

(7.3)

(3.7)

9.5

16.9

(7.4)

(3.3)

9.5

16.9

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

-

-

13.1

5.4

-

-

16.3

5.5

P/CE

-

-

n/m

8.9

-

-

n/m

9.1

8.8

4.9

4.3

2.7

7.7

4.3

4.7

3.4

11.5

5.5

4.8

3.0

10.1

4.9

5.2

3.7

FV/Revenue

2.7

2.1

1.6

0.9

2.4

1.8

1.8

1.2

P/BV

0.7

1.2

1.2

0.7

0.7

1.3

1.8

0.4

FCF Yield (%)

2.1

22.7

1.5

15.6

2.4

25.1

1.2

15.3

MARKET RATIOS

FV/EBITDA FV/EBIT

Div Yield (%)

6.6

4.0

0.6

7.7

7.5

4.4

0.5

7.5

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

(0.75)

(0.29)

0.66

1.45

(0.88)

(0.34)

0.77

1.86

DPS

0.43

0.34

0.06

0.60

0.09

0.05

0.01

0.09

BVPS

8.87

6.92

7.06

10.71

10.36

8.09

8.25

13.77

19

Cresud is a holding firm dedicated to agricultural and urban real estate asset management in Argentina, LatAm and US. In the agricultural segment, it has 1 million hectares of agricultural land under management in Argentina, Bolivia, Paraguay and Brazil through its subsidiary Brail Agro. Cresud operates in the urban real estate segment through its controlled company IRSA (65.5% stake), which has four lines of business: (1) shopping centers with a total GLA of 324,000 m2;(2) office rentals with a total GLA of 131,000 m2; (3) 3 hotels; (4) urban property developments and land reserves and (5) 30% stake in Banco Hipotecario.

Key

Personnel: Eduardo Elsztain (Chairman), Alejandro Elsztain (CEO), Matias Gaivironsky (CFO) and Santiago Donato (IR Head) Web: www.cresud.com.ar Sales by Segment, 2013

Urban Real Estate 60.3%

Agricultural 39.7%

EBITDA by Segment, 2013

Agricultural -6.4%

Urban Real Estate 106.4%

Shareholder Structure, Current

Free Float 62.1%

IFISA 37.9%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

ARGENTINA—FINANCIAL SERVICES

GF GALICIA

BUY CURRENT PRICE: US$15.57 TARGET PRICE: US$20.00

UPGRADING RATING TO BUY FROM UNDERPERFORM RAISING YE2015 TARGET PRICE TO US$20.00 FROM US$15.50 

Investment Case: We are upgrading GGAL to Buy due to its more

Boris Molina

attractive valuation compared to Argentine peers following its YoY

New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

underperformance. We continue to believe that short-term catalysts for Argentine banks remain a top-down re-rating leading to lower country risk. We think that GGAL’s universal banking franchise is well

Catalina Araya New York: Santander Investment Securities Inc. +1-212-297-1367 | [email protected]

positioned to take advantage of a new economic and political cycle after 2015. The stock trades at an adjusted P/BV of 1.8x, while our YE2015 target valuation is 2.5x, still at a discount to Banco Macro and BBVA Frances.



Outlook 2015: We believe that a new set of regulations introduced in 2014—including (1) a prohibition against holding FX hedging positions by more than 20% of regulatory capital; (2) controls on interest rates on both side of the balance sheet; and (3) forced directed subsidized credits to investments—will affect the bank’s potential to increase net income in real terms. In our view, holding excess liquidity in central banks bills, which yield ~20%, should be the only way to partially offset the negative effect of abovementioned measures. We expect GGAL’s deposits to grow slightly faster than its loan book, amid weak economic activity. NPLs should increase 20

Company Statistics Bloomberg

GGAL US / GGAL AR

Current Price (01/02/15)

US$ 15.57 / Ar$ 18.65

and administrative costs to grow in the low thirties (in line with

Target Price (YE 2015)

US$ 20.00 / Ar$ 27.00

inflation).

52-Week Range (US$)

7.49 - 17.02

bps, according to our estimates. Also, we expect net fees, labor cost

Market Capitalization (US$ Mn)



Looking beyond 2015: In our view, low credit penetration at 15% of GDP and a healthy financial system set a good starting point to reach penetration of 35-40% in five to seven years, with ROEs in the midtwenties for GF Galicia.

1,933

Float (%)

43.5

3-Mth Avg. Daily Vol (US$ Mn)

5.5

Shares Outstanding - Mn

124

Price Performance (US$) GGAL US

Merval

500



Dividends anyone? We believe that dividend payments by GGAL will remain constrained by regulatory pressures aimed at improving

400 300

capitalization and curtailing FX pressures (on dividends paid to 200

foreign shareholders). Nevertheless, we believe that over the next two to three years, GGAL could have a CT1 capital ratio high enough

100 0

to resume regular dividend payments.

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

20

D-14

GF GALICIA Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Ar$ 2014E 2015E 8,984 11,487 (2,469) (3,045) 6,516 8,442 7,203 7,981 13,718 16,423 (9,294) (11,689) 5,663 6,347 (2,159) (2,482) 3,293 3,611 3,025 3,491

2016E 14,609 (3,514) 11,095 9,769 20,864 (14,229) 8,733 (3,416) 4,968 4,810

2013A 818 (202) 616 555 1,171 (880) 387 (146) 216 161

2015E 14,619 14,209 84,750 1,676 130,309 79,787 24,382 4,046 0 13,746 13,003

2016E 17,437 17,854 108,919 1,654 163,747 95,428 36,886 4,219 0 18,642 17,871

2013A 1,431 454 6,299 163 9,473 5,544 2,202 189 0 791 709

2014E 995 1,008 5,950 147 9,243 5,492 1,857 300 0 886 810

2015E 1,084 1,053 6,284 124 9,661 5,916 1,808 300 0 1,019 964

2016E 1,240 1,270 7,745 118 11,644 6,786 2,623 300 0 1,326 1,271

2014E 26,046 43,606 1,918 0 71,570 22.3 2,791 (3,070)

2015E 32,034 54,227 2,682 0 88,943 24.3 3,647 (4,194)

2016E 42,605 67,663 3,926 0 114,195 28.4 4,796 (5,276)

2013A 2,372 4,092 205 0 6,669 1.2 234 (244)

2014E 2,263 3,788 167 0 6,217 (6.8) 242 (267)

2015E 2,375 4,021 199 0 6,594 6.1 270 (311)

2016E 3,030 4,812 279 0 8,121 23.1 341 (375)

2013A 9.91 3.50 13.88

2014E 9.69 3.90 14.38

2015E 10.08 4.10 13.94

2016E 10.22 4.20 14.28

2013A 9.91 3.50 13.88

2014E 9.69 3.90 14.38

2015E 10.08 4.10 13.94

2016E 10.22 4.20 14.28

INCOME STATEMENT Net Interest Income NPL Provisions Adj Net Interest Income Non-Interest Income Total Operating Revenue Non-Interest Expense Profit Before Taxes Taxes Net Profit Adjusted Net Profit

2013A 6,908 (1,704) 5,205 4,684 9,889 (7,428) 3,264 (1,232) 1,824 1,363

BALANCE SHEET Cash and Equivalents Securities Loans (net) Intangible Assets Total Assets Core Deposits Other Financial Liabilities Subordinated Debt Technical Provisions Equity Adjusted Equity

2013A 12,560 3,987 55,292 1,434 83,156 48,666 19,333 1,656 0 6,947 6,220

2014E 11,455 11,602 68,500 1,698 106,404 63,227 21,372 3,454 0 10,201 9,319

LOAN BOOK Companies Total Consumer Mortgages Other Loans Gross Loans Loan Growth (%) NPL Provisions

2013A 20,820 35,919 1,803 0 58,542 30.6 2,051 (2,145)

KEY RATIOS NIM Risk Charge Operating Revenue / ATAs Cost / ATAs

Company Description US$ 2014E 805 (221) 584 646 1,230 (833) 508 (194) 295 271

2015E 919 (244) 675 638 1,314 (935) 508 (199) 289 279

2016E 1,061 (255) 805 709 1,515 (1,033) 634 (248) 361 349

10.43

9.74

9.92

9.74

10.43

9.74

9.92

9.74

Adj Efficiency

58.3

54.6

54.9

53.4

58.3

54.6

54.9

53.4

Effective Taxes

37.7

38.1

39.1

39.1

37.7

38.1

39.1

39.1

Reported ROE (%)

32.2

38.6

29.8

30.9

32.2

38.6

29.8

30.9

Adj ROE (%)

15.7

27.6

23.7

25.4

15.7

27.6

23.7

25.4

NPL Ratio

3.50

3.90

4.10

4.20

3.50

3.90

4.10

4.20

Adj NPL Ratio

5.60

5.91

6.02

6.10

5.60

5.91

6.02

6.10

Loans / Total Assets

70.4

67.3

68.3

69.7

70.4

67.3

68.3

69.7

Loans / Core Deposits

120.3

113.2

111.5

119.7

120.3

113.2

111.5

119.7

RWA % Total Assets

85.5

88.5

90.2

91.9

85.5

88.5

90.2

91.9

Core Tier I Ratio (%)

8.8

10.0

11.2

12.0

8.8

10.0

11.2

12.0

Dividend Payout (%)

0.0

1.2

1.8

1.5

0.0

1.2

1.8

1.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

1.5

2.1

1.6

1.2

1.5

2.0

1.8

1.4

Adj. P/E

11.2

8.7

7.5

5.5

10.7

8.4

7.7

6.2

Div Yield (%)

(0.0)

0.2

0.4

0.4

(0.0)

0.2

0.3

0.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.47

2.65

2.91

4.00

1.74

2.38

2.33

2.91

BVPS

5.60

8.22

11.07

15.02

6.38

7.14

8.21

10.68

DPS

0.00

0.03

0.05

0.06

0.00

0.03

0.04

0.04

Adj EPS

1.10

2.44

2.81

3.87

1.30

2.18

2.25

2.81

Adj BVPS

5.01

7.51

10.47

14.40

5.71

6.52

7.77

10.24

(3.00)

(2.77)

(2.42)

(2.79)

(3.42)

(2.40)

(1.79)

(1.99)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

MARKET RATIOS Adj. P/BV

PER SHARE DATA

Surplus Capital per Share Unrealized Cap. Gains/Shr

21

Grupo Financiero Galicia (GGAL) is one of the leading private financial groups in Argentina, with market share of approximately 7.7% in loans and 4.9% in core deposits. The bank has a strong position in credit cards, which represent 47% of total loans, largely thanks to its Tarjetas Regionales subsidiary, which has a strong presence outside the Greater Buenos Aires region where the core bank franchise has a presence. GGAL has a shareholding structure with dual voting rights, with the Escasany, Ayerza and Brown families controlling 32% of the capital and 64% of votes. The bank's shares trade in the Buenos Aires Stock Exchange and in ADR form on the NYSE.

Key Personnel: Eduardo J. Escasany (Chairman), Pedro A. Richards (CEO), José Luis Gentile (CFO) and Pablo Firvida (IRO) Web: www.gfgsa.com

Loan Portfolio Breakdown, 2015E

Others 5.4% Credit Cards 50.2%

Companies 34.6%

Personal Loans 9.8%

Revenue Breakdown, 2015E

Other 1.4%

Fees 42.3%

NII 51.4%

Trading 4.9%

Shareholder Structure, Current

EBA Holding 32.0%

Free Float 48.0%

ANSES 20.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

ARGENTINA—CEMENT, CONSTRUCTION, INFRA & RE

IRSA

BUY CURRENT PRICE: US$15.41 TARGET PRICE: US$21.60

UPGRADING RATING TO BUY FROM HOLD LOWERING YE2015 TARGET PRICE TO US$21.60 FROM US$22.90 

Investment Case: Although we lowered our YE2015 target price,

Walter Chiarvesio*

IRSA’s implied discount to NAV continues to be strong, providing

Argentina: Santander Rio Sociedad de Bolsa S.A. +5411-4341-1564 | [email protected]

upside potential exceeding our Buy benchmark for Argentine stocks. Irsa’s main cash generation asset, shopping malls, performed poorly in 2014, and we expect that to continue in the short term due to weak private consumption growth. Longer term, the segment may show attractive potential due to GLA expansion, whose benefits may be seen more clearly beyond 2015. We expect IRSA to sell office space in 2015, taking advantage of good market prices and reducing its GLA in the segment. In the international segment, IRSA may show results volatility based on its investment in the Israeli holding IDBD, whose stock fell more than 70% in the past six months, with a potential impact on IRSA’s financial and net income lines.



Outlook 2015: We expect EBITDA to be maintained slightly above US$200 million due to property sales, offsetting a still weak performance in shopping centers based on revenue/GLA. The recent inauguration of the Distrito Arcos mall, and the probable inauguration of the Neuquén shopping mall in 2H15, should help the segment’s 2

EBITDA, in our view, by adding 24,000 m of GLA (+8.0%). We also expect sales of office space to reduce recurring EBITDA from the

Company Statistics Bloomberg

IRS US / IRSA AR

Current Price (01/02/15)

US$ 15.41 / Ar$ 17.50

segment. All in, we expect adjusted EBITDA (excluding results from

Target Price (YE 2015)

US$ 21.60 / Ar$ 32.40

investments) to reach US$187 million, +6.6% YoY. We expect

52-Week Range (US$)

9.41 - 17.73

nonadjusted EBITDA to fall to more normal levels due to a strong

Market Capitalization (US$ Mn)

892

Float (%)

34.5

base of comparison in 2014 stemming from the sale of the Madison

3-Mth Avg. Daily Vol (US$ Mn)

0.9

building in New York. IDBD holding, in which IRSA invested US$150

Shares Outstanding - Mn

58

million and may add an additional US$50 million due to future

Price Performance (US$)

purchases, could add volatility to net income at the financial results

IRS US

Merval

500

level, in our view.

400

300 200

100 0

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

22

D-14

IRSA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 2,475 29.4 1,267 17.3 1,269 13.7 51.3 1,043 13.6 42.1 (1,047) (56) 25 (93.6) 1.0

Ar$ 2014E 3,285 32.7 1,743 37.6 2,342 84.5 71.3 2,142 105.3 65.2 (1,989) (109) (587) (2,445.4) (17.9)

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 217 692 33 976 (367) 609 952 (102) -

2014E 191 1,335 127 1,075 (1,910) (835) 448 (327) -

2015E 190 20 231 1,093 (800) 293 10 (790) -

2016E 196 24 179 1,450 (600) 850 0 195 -

2013A 39 124 6 175 (66) 109 171 (18) -

2014E 23 162 15 131 (232) (101) 54 (40) -

2015E 18 2 22 105 (77) 28 1 (76) -

2016E 22 3 21 166 (69) 98 0 22 -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 473 1,181 4,188 8,739 1,671 4,171 2,508 4,296 873

2014E 1,264 2,043 3,613 9,690 2,015 4,523 2,472 4,795 1,207

2015E 776 1,633 4,022 10,560 2,597 4,767 2,516 5,312 1,714

2016E 1,431 2,416 4,426 12,182 1,690 2,759 7,053 2,089 674

2013A 73 182 644 1,344 257 642 386 661 134

2014E 144 232 411 1,101 229 514 281 545 137

2015E 62 131 322 845 208 381 201 425 137

2016E 291 491 901 2,478 344 561 1,435 425 137

3,423

3,588

3,598

1,415

527

408

288

288 2016E

LT Debt FINANCIAL RATIOS

2015E 4,310 31.2 2,289 31.4 2,494 6.5 57.9 2,304 7.6 53.5 (1,373) (279) 652 n/m 15.1

2016E 5,227 21.3 2,921 27.6 2,930 17.5 56.0 2,734 18.7 52.3 (1,118) (566) 1,051 61.2 20.1

2013A 443 5.5 227 (4.4) 227 (7.3) 51.3 187 (7.4) 42.1 (188) (10) 4 (94.8) 1.0

US$ 2014E 399 (10.0) 212 (6.7) 284 25.1 71.3 260 39.2 65.2 (242) (13) (71) (1,690.4) (17.9)

2015E 414 3.7 220 3.9 240 (15.8) 57.9 221 (14.9) 53.5 (132) (27) 63 n/m 15.1

2016E 600 45.0 335 52.5 336 40.5 56.0 314 41.9 52.3 (128) (65) 121 92.8 20.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

Net Debt

3,823

3,531

4,536

658

588

401

363

134

Capital Employed

7,591

7,774

9,158

9,946

1,168

883

733

2,023

Net Debt/EBITDA

3.0

1.5

1.8

0.2

2.6

1.4

1.5

0.4

Net Debt/Equity

1.5

1.4

1.8

0.1

1.8

1.5

1.8

0.1

14.8

58.1

18.6

11.5

14.8

58.1

18.6

11.5

3.3

3.6

3.1

3.4

3.3

3.6

3.1

3.4

Dividend Payout (%)

26.1

n/m

(134.6)

(30.0)

21.7

882.0

(128.4)

(29.8)

ROCE (%)

13.0

26.1

22.1

21.8

15.6

27.3

22.2

21.8

Capex/Revenue (%) Int Cover (%)

ROE (%)

1.0

(23.6)

26.1

22.0

1.0

(21.4)

26.1

22.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

n/m

-

11.7

7.3

n/m

-

14.3

7.4

-

-

16.5

8.9

-

-

20.1

9.1

FV/EBITDA

7.2

5.6

5.7

3.1

6.1

5.4

6.2

3.3

FV/EBIT

8.7

6.1

6.2

3.3

7.5

5.9

6.8

3.5

FV/Revenue

3.7

4.0

3.3

1.7

3.2

3.8

3.6

1.9

P/BV

1.8

3.0

3.0

1.1

1.8

3.2

4.4

0.6

13.3

(11.1)

3.8

11.1

15.6

(11.4)

3.2

10.9

MARKET RATIOS P/E P/CE

FCF Yield (%) Div Yield (%)

2.2

4.3

10.4

(2.6)

2.6

4.5

8.5

(2.5)

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.04

(1.01)

1.13

1.82

0.05

(1.19)

1.32

2.12

DPS

0.18

0.57

1.37

(0.34)

0.04

0.08

0.15

(0.05)

BVPS

4.33

4.27

4.35

12.19

5.07

4.99

5.08

14.25

PER SHARE DATA

23

IRSA is the largest and most diversified real estate company in Argentina. Its main assets are: (1) shopping centers with a total GLA of approximately 324,000 m2; (2) premium office rentals with an approximated total GLA of 121,000 m2; (3) 3 hotels; (4) property developments and land reserves; (5) Real estate assets in US; and (6) 30% stake in Banco Hipotecario.

Key

Personnel: Eduardo Elsztain (Chairman), Eduardo Elsztain (CEO), Matias Gaivironsky (CFO) and Santiago Donato (Head IR) Web: www.irsa.com.ar Sales by Segment, 2013 Hotels Developme Operation nt 10.2% Office 3.9% Rentals 12.1%

Shopping Centers 73.7%

EBITDA by Segment, 2013 Hotels Operation Developme -3.7% nt 19.7%

Shopping Centers 71.3%

Office Rentals 12.7%

Shareholder Structure, Current

Free Float 34.5%

CRESUD 65.5%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

ARGENTINA—METALS & MINING

SIDERAR

UNDERPERFORM CURRENT PRICE: AR$6.40 TARGET PRICE: AR$6.45

DOWNGRADING RATING TO UNDERPERFORM FROM HOLD RAISING YE2015 TARGET PRICE TO AR$6.45 AR$5.19 

Investment Case: We increased our YE2015 target price in local

Walter Chiarvesio*

currency on the back of an expected weaker currency. However, we

Argentina: Santander Rio Sociedad de Bolsa S.A. +5411-4341-1564 | [email protected]

think that the stock is expensive on valuation, trading at US$670/tonne of capacity or 4.8x 2015E FV/EBITDA, while its parent company Ternium is trading at US$310/tonne and 3.3x 2015E FV/EBITDA. Siderar continues to work almost at full capacity (roughly 3.0 million tonnes) and though volume suffered in 2014 from peaks observed in 2013, we expect this trend to continue in 2015. We further expect a volume recovery in 2016 due to a better macroeconomic performance by Argentina, mainly stemming from improvement in the construction and automotive industries. We think that upside is limited compared to other stocks in Argentina, even under a lower country risk scenario.



Outlook 2015: We expect volumes to compress by roughly 3.0% in Argentina, partially offset by exports to regional markets, leading to a small decline in EBITDA YoY, while maintaining margins. Declining iron ore prices should continue to be a tailwind for the company, especially during 1H15, in our view. Company Statistics Bloomberg

ERAR AR

Current Price (01/02/15)

Ar$ 6.40 / US$ 0.75

Target Price (YE 2015)

Ar$ 6.45 / US$ 0.52

52-Week Range (Ar$)

2.94 - 7.30

Market Capitalization (US$ Mn)

3,379

Float (%)

11.0

3-Mth Avg. Daily Vol (US$ Mn)

0.9

Shares Outstanding - Mn

4,517

Price Performance (Ar$) ERAR AR

Merval

500 400 300 200 100 0

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

24

D-14

SIDERAR Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 15,957 29.4 4,766 99.5 3,666 118.1 23.0 3,053 179.2 19.1 (407) (840) 1,825 238.0 11.4

Ar$ 2014E 21,133 32.4 7,046 47.8 6,011 64.0 28.4 5,248 71.9 24.8 (619) (1,251) 3,827 109.7 18.1

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 613 264 438 3,140 (1,798) 1,342 (416) (544) (948) -

2014E 763 (783) (1,180) 2,626 (1,644) 982 111 756 (689) -

2015E 935 0 (1,020) 4,049 (2,610) 1,439 0 0 0 -

2016E 1,155 0 (832) 5,302 (3,225) 2,077 0 0 (2,490) -

2013A 108 46 77 551 (315) 235 (73) (95) (166) -

2014E 91 (94) (141) 314 (197) 118 13 90 (82) -

2015E 86 0 (94) 372 (240) 132 0 0 0 -

2016E 86 0 (62) 395 (240) 155 0 0 (185) -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 400 6,050 6,972 20,706 4,432 1,679 14,595 2,089 1,791

2014E 2,919 10,518 10,508 31,657 6,477 1,826 23,354 3,467 2,996

2015E 5,735 15,479 11,676 43,226 8,657 2,141 32,428 4,285 4,069

2016E 6,155 19,031 15,642 53,300 10,867 2,462 39,971 4,928 4,679

2013A 62 931 1,073 3,186 682 258 2,245 321 276

2014E 332 1,195 1,194 3,597 736 208 2,654 394 340

2015E 459 1,238 934 3,458 693 171 2,594 343 326

2016E 428 1,324 1,088 3,708 756 171 2,781 343 326

298

471

216

249

46

54

17

17

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

1,689

548

(1,450)

(1,226)

260

62

(116)

(85)

Capital Employed

17,462

25,904

33,722

42,159

2,686

2,944

2,698

2,933

Net Debt/EBITDA

0.5

0.1

(0.2)

(0.1)

0.4

0.1

(0.2)

(0.1)

Net Debt/Equity

0.1

0.0

(0.0)

(0.0)

0.1

0.0

(0.0)

(0.0)

LT Debt FINANCIAL RATIOS Net Debt

Capex/Revenue (%)

2015E 28,662 35.6 9,568 35.8 7,408 23.2 25.8 6,474 23.3 22.6 (651) (2,036) 4,134 8.0 14.4

2016E 40,539 41.4 12,009 25.5 9,110 23.0 22.5 7,955 22.9 19.6 (572) (2,659) 4,979 20.4 12.3

2013A 2,799 5.9 836 63.2 643 78.4 23.0 536 128.4 19.1 (71) (147) 320 176.5 11.4

US$ 2014E 2,529 (9.7) 843 0.8 719 11.8 28.4 628 17.2 24.8 (74) (150) 458 43.0 18.1

2015E 2,636 4.2 880 4.4 681 (5.3) 25.8 595 (5.2) 22.6 (60) (187) 380 (17.0) 14.4

2016E 3,017 14.5 894 1.6 678 (0.5) 22.5 592 (0.5) 19.6 (43) (198) 371 (2.5) 12.3

11.3

7.8

9.1

8.0

11.3

7.8

9.1

8.0

Int Cover (%)

130.9

32.6

15.9

76.5

130.9

32.6

15.9

76.5

Dividend Payout (%)

175.6

37.8

0.0

60.2

145.8

25.5

0.0

59.9

22.3

25.1

25.2

25.2

25.6

26.0

25.3

25.2

ROCE (%) ROE (%) MARKET RATIOS P/E P/CE

13.9

20.2

14.8

13.8

14.4

18.9

14.8

13.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

7.5

7.1

7.0

5.8

6.6

7.0

8.9

9.1

11.4

8.9

9.0

7.6

9.9

8.8

11.5

11.9

FV/EBITDA

4.2

4.6

3.7

3.0

3.7

4.6

4.8

4.9

FV/EBIT

5.1

5.3

4.2

3.5

4.4

5.2

5.5

5.6

FV/Revenue

1.0

1.3

1.0

0.7

0.8

1.3

1.2

1.1

P/BV

0.9

1.2

0.9

0.7

0.9

1.2

1.3

1.2

FCF Yield (%)

9.7

3.6

5.0

7.2

11.1

3.7

3.9

4.6

Div Yield (%)

6.9

2.5

(0.0)

8.6

7.9

2.6

(0.0)

5.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.40

0.85

0.92

1.10

0.07

0.10

0.08

0.08

DPS

0.21

0.15

0

0.55

0.04

0.02

0

0.04

BVPS

3.23

5.17

7.18

8.85

0.50

0.59

0.57

0.62

PER SHARE DATA

25

Siderar is Argentina’s largest steel company and has an installed capacity of 2.9 million tons per year. Siderar manufactures hot-rolled, cold-rolled, hot-dip galvanized, electrogalvanized, pre-painted, and tinplate steel sheet products. Siderar is part of Ternium (a Luxembourg holding company that encompasses Siderar in Argentina and Ternium Mexico). Ternium holds 61% of Siderar, employees hold a 2.0% stake in the company, Government Social Security Agency (ANSES) holds 26%, and 11% is traded on the stock market. In addition, Siderar directly owns 28.7% of Ternium Mexico. The company is listed on the Buenos Aires Stock Exchange.

Key Personnel: Daniel Novegil (Chairman), Martín Berardi (CEO), Silvia Sanchez (CFO) and Guillermo Etchepareborda Web: www.ternium.com/siderar

Sales Volumes by Products, 2013

Coated & Others 36.1%

Hot Rolled 39.8%

Cold Rolled 24.1%

Sales by Region, 2013

Exports 8.0%

Domestic 92.0%

Shareholder Structure, Current

ANSES 26.0%

Employees 2.0%

Free Float 11.0%

Ternium 61.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

ARGENTINA—TELECOM, MEDIA & TECHNOLOGY

TELECOM ARGENTINA

UNDERPERFORM CURRENT PRICE: US$18.99 TARGET PRICE: US$19.50

RAISING YE2015 TARGET PRICE TO US$19.50 FROM US$17.40 

Investment Case: We increased our YE2015 target price based on

Walter Chiarvesio*

our more optimistic view of the company’s growth potential given the

Argentina: Santander Rio Sociedad de Bolsa S.A. +5411-4341-1564 | [email protected]

scheduled 4G technology expansion in 2015. This should result in U.S.-dollar-denominated ARPU growth to US$14.40 (from the current US$10.00) in five years and margin expansion to 33% for the

Valder Nogueira* Brazil: Banco Santander S.A. +5511-3012-5747 | [email protected]

same period from the 26% we estimate for 2014. On the negative side, we note that TEO already committed US$658 million for 4G and spare 3G spectrum, which is incorporated in our model, together with new infrastructure capex scheduled for 2015. Thus, despite our more optimistic DCF model scenario, we think that upside is limited and driven only by a potential top-down catalyst—a re-rating driven by the expectation of a market friendlier government in 2016. However, the stock is already trading at 4.0x FV/EBITDA for 2015E, implying only a narrow discount of 20% to LatAm Telcos.



Outlook 2015: We expect limited operating upside potential due to continued limited pricing power in all segments. We think that TEO will more readily catch up with cost inflation once the investments in 4G and 3G allow the company to improve service quality in voice and data. In our opinion, this could happen by 2H15 at the earliest.

Company Statistics Bloomberg



Revenue and margin improvement potential: TEO experienced

TEO US / TECO2 AR

Current Price (01/02/15)

US$ 18.99 / Ar$ 47.00

Target Price (YE 2015)

US$ 19.50 / Ar$ 58.40

margin compression and EBITDA declines in U.S.-dollars in recent

52-Week Range (US$)

14.78 - 25.09

years due to rate adjustments that lagged inflation and FX

Market Capitalization (US$ Mn)

depreciation. This trend could change due to pricing mix improvement once 4G is implemented and a new bundle of products is offered at higher prices. Increasing ARPU by client base re-farming should improve the company’s operating costs and margins. However, we think this could happen no sooner than 2016.

3,739

Float (%)

44.6

3-Mth Avg. Daily Vol (US$ Mn)

2.4

Shares Outstanding - Mn

197

Price Performance (US$) TEO US

Merval

500 400

300 200

100 0

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

26

D-14

TELECOM ARGENTINA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 27,350 23.2 4,518 13.9 7,391 12.4 27.0 4,518 13.9 16.5 528 (1,792) 3,254 19.1 11.9

Ar$ 2014E 33,240 21.5 5,163 14.3 8,504 15.1 25.6 5,163 14.3 15.5 323 (1,881) 3,605 10.8 10.8

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 2,873 (515) 1,527 7,139 (3,352) 3,787 91 (981) -

2014E 3,341 (91) (1,442) 5,413 (8,402) (2,990) 1,057 (1,218) -

2015E 4,951 0 187 8,489 (8,015) 474 2,000 (1,200) -

2016E 5,915 0 178 11,683 (10,094) 1,588 2,000 (1,676) -

2013A 515 (92) 274 1,279 (600) 678 16 (176) -

2014E 408 (11) (176) 660 (1,025) (365) 129 (149) -

2015E 479 0 18 822 (776) 46 194 (116) -

2016E 440 0 13 869 (751) 118 149 (125) -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 5,347 9,751 11,226 23,130 9,050 1,377 11,783 235 15

2014E 673 6,318 17,051 27,700 8,978 1,768 15,153 1,292 32

2015E 744 7,525 21,260 33,513 10,777 2,029 16,702 3,292 32

2016E 1,143 9,794 26,609 41,999 13,564 3,218 19,682 5,292 32

2013A 823 1,500 1,727 3,558 1,392 212 1,813 36 2

2014E 76 718 1,938 3,148 1,020 201 1,722 147 4

2015E 60 602 1,701 2,681 862 162 1,336 263 3

2016E 79 681 1,851 2,922 944 224 1,369 368 2

220

1,260

3,260

5,260

34

143

261

366

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

(5,112)

619

2,548

4,149

(786)

70

204

289

Capital Employed

10,373

18,770

22,850

28,366

1,596

2,133

1,828

1,973

Net Debt/EBITDA

(0.7)

0.1

0.2

0.3

(0.6)

0.1

0.2

0.3

Net Debt/Equity

(0.4)

0.0

0.2

0.2

(0.5)

0.0

0.2

0.2

Capex/Revenue (%)

12.3

25.3

20.0

20.0

12.3

25.3

20.0

20.0

LT Debt

Int Cover (%)

2015E 40,077 20.6 5,561 7.7 10,512 23.6 26.2 5,561 7.7 13.9 (420) (1,790) 3,351 (7.0) 8.4

2016E 50,472 25.9 8,973 61.3 14,888 41.6 29.5 8,973 61.3 17.8 (397) (2,986) 5,590 66.8 11.1

2013A 4,899 0.5 809 (7.1) 1,324 (8.4) 27.0 809 (7.1) 16.5 95 (321) 583 (2.9) 11.9

US$ 2014E 4,056 (17.2) 630 (22.2) 1,038 (21.6) 25.6 630 (22.2) 15.5 39 (230) 440 (24.5) 10.8

2015E 3,882 (4.3) 539 (14.5) 1,018 (1.9) 26.2 539 (14.5) 13.9 (41) (173) 325 (26.2) 8.4

2016E 3,756 (3.2) 668 24.0 1,108 8.8 29.5 668 24.0 17.8 (30) (222) 416 28.1 11.1

8.3

7.4

16.4

30.1

8.3

7.4

16.4

30.1

Dividend Payout (%)

35.9

37.4

33.3

50.0

29.8

25.3

31.8

49.7

ROCE (%)

60.8

37.5

32.2

42.2

69.1

38.7

32.3

42.2

ROE (%) MARKET RATIOS

29.9

26.8

21.0

30.7

31.0

24.7

21.0

30.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E 8.8

P/E

6.7

8.8

9.4

5.6

5.7

8.5

11.3

P/CE

n/m

n/m

-

-

49.0

n/m

-

-

FV/EBITDA

2.3

3.9

3.3

2.5

2.0

3.8

3.9

3.7

FV/EBIT

3.8

6.4

6.3

4.1

3.3

6.2

7.4

6.1

FV/Revenue

0.6

1.0

0.9

0.7

0.5

1.0

1.0

1.1

P/BV

1.8

2.1

1.9

1.6

1.8

2.2

2.8

2.7

FCF Yield (%)

17.4

(9.4)

1.5

5.0

20.3

(9.7)

1.2

3.2

Div Yield (%)

4.5

3.8

3.8

5.3

5.3

4.0

3.2

3.4

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

3.36

3.72

3.46

5.77

0.35

0.27

0.20

0.25

DPS

1.01

1.26

1.24

1.73

0.11

0.09

0.07

0.08

12.16

15.64

17.24

20.31

1.09

1.04

0.81

0.83

BVPS

27

Telecom Argentina is one of the three main players in Argentina’s telecommunications industry. Telecom offers fixed telephony, internet ADSL and mobile telphony in the country. The main shareholder of the firm is Nortel Inversora (with a 54.74%), a holding company controlled by Sofora (78%), which is owned by Telecom Italia (51%) and the local W de Argentina Group (32%) and Fintech Group (17%).

Key Personnel: Enrique Garrido (Chairman), Oscar Cicchetti (CEO), Adrian Calaza (CFO), Solange Barthe Dennin (IR) and Pedro Insusarry (Finance Director) Web: www.telecom.com.ar

Sales by Segment, 2013

Internet 12.8%

Fixed Telephony 12.6%

Mobile 74.6%

EBITDA by Segment, 2013 Fixed Telephony & Internet 25.0%

Mobile 75.0%

Shareholder Structure, Current

Free Float 44.6%

ESOP Program 0.6%

NORTEL 54.7%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

ARGENTINA—OIL, GAS & PETROCHEMICALS

YPF SA

BUY CURRENT PRICE: US$26.11 TARGET PRICE: US$52.00

LOWERING YE2015 TARGET PRICE TO US$52.00 FROM US$62.00 

Investment Case: We have reduced our YE2015 target price based

Walter Chiarvesio*

on a more conservative approach to crude oil and pump prices in

Argentina: Santander Rio Sociedad de Bolsa S.A. +5411-4341-1564 | [email protected]

Argentina. One of the biggest risks for YPF continues to be how it manages to maintain prices in U.S. dollars at the pump. In our view, the current price of the stock can only be supported by a combination

Christian Audi New York: Santander Investment Securities Inc. +1-212-350-3991 | [email protected]

of a long-term oil price at US$60/bbl (we assume a gradual recovery to long-term levels of US$85/bbl for Brent), and maintaining refining & marketing spreads slightly below US$30/refined barrel for the next three years, down from the last-four-year-average of US$37. On the valuation front, despite our lower EBITDA estimate for 2015, YPF trades at 2.7x FV/EBITDA, an attractive 50% discount to global oil & gas peers. Thus, the upside potential for the stock remains highly attractive, in our view. We maintain our view that a re-rating of the stock to reflect a potential new political cycle in Argentina remains the main catalyst for the stock in the short term.



Outlook 2015: We reduced our EBITDA estimate by 8.3% due to our more conservative pump pricing assumptions, implying flat EBITDA YoY in U.S. dollars. Company Statistics



Local oil and pump prices: Argentine oil and derivative markets have a dynamic independent of international markets, and if the



Bloomberg

YPF US / YPFD AR

Current Price (01/02/15)

US$ 26.11 / Ar$ 321.00

Target Price (YE 2015E)

US$ 52.00 / Ar$ 715.00

recent and ongoing drop in oil prices proves to be temporary, we see

52-Week Range (US$)

only a small chance that local prices will decline.

Market Capitalization (US$ Mn)

Natural gas price: We continue to assume natural gas prices to

21.85 - 38.91 10,269

Float (%)

37.0

3-Mth Avg. Daily Vol (US$ Mn)

53.9

Shares Outstanding - Mn

393

reach US$7.50/Mbtu for new gas production, still below imported gas Price Performance (US$)

prices.

YPF US



Merval

500

Unconventional resources development: Unless the world is 400

entering an era of sustainable low oil prices, we believe that the shale oil and gas story continues to be an attractive catalyst in the long

300

term, remaining a free call option embedded in the current stock

200

price. Further development of Vaca Muerta could continue to add

100

value to shareholders based on lower country risk after 2015, well

0

costs savings, and efficiency gains in the development of the fields. 28

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

D-14

YPF SA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 90,113 34.1 21,542 27.4 22,396 31.2 24.9 11,160 41.2 12.4 2,835 (9,269) 5,125 29.3 5.7

Ar$ 2014E 2015E 143,571 186,136 59.3 29.6 40,876 46,239 89.8 13.1 45,079 55,515 101.3 23.2 31.4 29.8 25,932 27,366 132.4 5.5 18.1 14.7 2,512 (1,533) (18,303) (15,476) 10,272 10,357 100.4 0.8 7.2 5.6

2016E 269,038 44.5 67,745 46.5 76,761 38.3 28.5 38,074 39.1 14.2 (2,188) (21,498) 14,387 38.9 5.3

Company Description

2013A 15,885 9.3 3,797 3.8 3,948 6.9 24.9 1,967 15.1 12.4 500 (1,634) 903 5.4 5.7

US$ 2014E 17,421 9.7 4,960 30.6 5,470 38.6 31.4 3,147 59.9 18.1 305 (2,221) 1,246 38.0 7.2

2015E 17,876 2.6 4,441 (10.5) 5,332 (2.5) 29.8 2,628 (16.5) 14.7 (147) (1,486) 995 (20.2) 5.6

2016E 20,021 12.0 5,041 13.5 5,712 7.1 28.5 2,833 7.8 14.2 (163) (1,600) 1,071 7.6 5.3

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (11,236) 5,515 (912) 20,964 (27,639) (6,675) 10,025 (326) 0

2014E (19,147) 13,377 2,383 45,180 (49,664) (4,484) 10,330 (464) 0

2015E (28,149) 16,010 2,861 57,377 (69,129) (11,752) 12,000 0 0

2016E (38,687) 16,010 2,199 71,284 (76,621) (5,337) 12,000 (279) 0

2013A (1,981) 972 (161) 3,696 (4,872) (1,177) 1,767 (57) 0

2014E (2,323) 1,623 289 5,482 (6,026) (544) 1,253 (56) 0

2015E (2,703) 1,538 275 5,510 (6,639) (1,129) 1,152 0 0

2016E (2,879) 1,191 164 5,305 (5,702) (397) 893 (21) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 10,713 34,514 93,496 135,595 32,808 44,441 48,240 31,890 8,814

2014E 11,994 46,600 153,188 209,798 52,242 26,079 96,340 50,196 15,059

2015E 12,242 62,550 181,039 254,423 77,656 29,352 96,290 73,036 21,911

2016E 18,626 91,199 222,973 325,224 107,364 30,232 124,268 90,514 27,154

2013A 1,648 5,310 14,384 20,861 5,047 6,837 7,422 4,906 1,356

2014E 1,363 5,295 17,408 23,841 5,937 2,963 10,948 5,704 1,711

2015E 979 5,004 14,483 20,354 6,212 2,348 7,703 5,843 1,753

2016E 1,296 6,344 15,511 22,624 7,469 2,103 8,645 6,297 1,889

23,076

35,137

51,125

63,360

3,550

3,993

4,090

4,408 2016E

LT Debt FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

Net Debt

21,177

38,202

60,794

71,888

3,258

4,341

4,864

5,001

Capital Employed

96,985

159,907

189,089

234,743

14,921

18,171

15,127

16,330

Net Debt/EBITDA

0.9

0.8

1.1

0.9

0.8

0.8

0.9

0.9

Net Debt/Equity

0.4

0.4

0.6

0.6

0.5

0.4

0.6

0.6

30.7

34.6

37.1

28.5

30.7

34.6

37.1

28.5

Int Cover (%)

8.3

6.3

6.2

7.5

8.3

6.3

6.2

7.5

Dividend Payout (%)

8.2

9.1

0.0

2.7

6.8

6.1

0.0

2.7

ROCE (%)

23.1

29.4

23.9

27.1

25.5

30.2

24.0

27.1

ROE (%)

12.9

14.2

10.8

13.0

13.6

13.5

10.8

13.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Capex/Revenue (%)

MARKET RATIOS P/E

16.5

8.6

8.5

6.1

14.3

8.4

10.3

9.6

P/CE

5.2

3.0

2.3

1.7

4.5

2.9

2.8

2.6

FV/EBITDA

4.7

2.8

2.7

2.1

4.1

2.7

2.8

2.7

FV/EBIT

9.5

4.9

5.4

4.2

8.2

4.7

5.8

5.4

FV/Revenue

1.2

0.9

0.8

0.6

1.0

0.8

0.8

0.8

P/BV

1.8

0.9

0.9

0.7

1.7

1.0

1.3

1.2

(7.9)

(5.1)

(13.4)

(6.1)

(9.1)

(5.2)

(11.0)

(3.9)

0.4

0.5

(0.0)

0.3

0.4

0.5

(0.0)

0.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

13.03

26.12

26.33

36.58

2.30

3.17

2.53

2.72

FCF Yield (%) Div Yield (%) PER SHARE DATA EPS DPS BVPS

0.83

1.18

0

0.71

0.10

0.14

0

0.08

122.65

244.95

244.82

315.95

21.62

29.72

23.51

23.51

YPF S.A. is an integrated company engaged in oil and gas exploration and production, refining, chemicals, and petrochemicals. It operates mainly in Argentina, and has a production of 85 million barrels of crude oil, 17 million barrels of NGL and 393 billion of cubic feet of natural gas as of 2013. The company also has a refining capacity of 320,000 barrels per day, with over 3,000 km of oil pipeline and a multiproduct pipeline network. This makes it the leader in terms of market share, with more than 1,500 service stations. Moreover, the company operates in the petrochemical business, which is fully integrated with E&P and Refining, plus some stakes in different related companies. YPF is controlled by the Argentine Government with a 51.1% stake. Respsol holds 11.9% The remaining 37% floats freely in the Buenos Aires Stock Exchange (YPFD) and the New York Stock Exchange (YPF).

Key Personnel: Miguel Galuccio (Chairman), Miguel Galuccio (CEO), Daniel Gonzalez (CFO) and Diego Celaa (Investor Relations) Web: www.ypf.com

EBITDA, 2013

R&M 33.9%

E&P 66.1%

Reserves Composition, 2013

Natural Gas 42.0%

Crude Oil 58.0%

Shareholder Structure, Current

Float 49.0%

Government 51.0%

Sources for all charts and tables: Company reports and Santander estimates.

29

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—UTILITIES

AES TIETE

HOLD CURRENT PRICE: R$17.42 TARGET PRICE: R$19.40

LOWERING YE2015 TARGET PRICE TO R$19.40 FROM R$19.60 

Investment Case: We continue to see AES Tietê as a solid dividend

Maria Carolina Carneiro*

player in the sector, with predictable results, low capex needs, and a

Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

sound balance sheet. Even with the challenging scenario for earnings, we expect Tiete will continue to have one of the top yields in the sector, with a DY of 13% estimated for 2015 and an average long-term DY of 10%. The company’s main drawback is the low visibility regarding the expansion program required by the privatization contract ruling.



Outlook 2015: Tiete will remain the Brazilian Genco most exposed to short-term pressure from the hydro deficit we expect for 2015, given that it is fully contracted until July. However, we estimate an EBITDA increase of 10.7% YoY in 2015, mainly as a result of the lower expenses in the spot market (due to higher levels of spot prices). We also note that we expect the company to be focused on negotiating new long-term contracts throughout 2015.



Future outlook seems to have improved: We believe the tight supply-demand scenario in 2014-15E points to a better price for the long-term curve. The tendency toward better prices was confirmed in

Company Statistics

Tiete’s last conference call, where the company revealed that new

Bloomberg

contracts point to a price level of R$135/MWh. We revised our long-

GETI4 BZ

Current Price (01/02/15)

R$ 17.42 / US$ 6.47

Target Price (YE 2015)

R$ 19.40 / US$ 7.32

term price outlook to R$150/MWh and acknowledge upside risk for

52-Week Range (R$)

Tiete’s earnings if prices achieve higher levels.

Market Capitalization (US$ Mn)

16.12 - 21.55 2,467

Float (%)



Expansion requirement still not addressed: We still see the main

39.6

3-Mth Avg. Daily Vol (US$ Mn)

3.9

Shares Outstanding - Mn

381

risk to Tiete’s investment thesis as the uncompleted expansion required (roughly a 500 MW capacity increase due to the

Price Performance (R$) GETI4 BZ

privatization contract ruling). We believe recent pressure on markets

110

should open opportunities for gas projects, and Tiete might be able to

100

negotiate a supply contract with Petrobras that would allow for

IBOVESPA

90

participation in the next few auctions, in our view. 80 70 60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

30

D-14

AES TIETE Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 2,337 10.6 1,578 0.0 1,525 (1.1) 65.3 1,362 (1.3) 58.3 (51) (429) 881 (2.2) 37.7

R$ 2014E 2,517 7.7 1,236 (21.6) 1,220 (20.1) 48.5 1,057 (22.4) 42.0 (69) (336) 652 (26.0) 25.9

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (163) (76) 265 (206) 60 201 (803) -

2014E (162) (89) (131) (174) (305) 29 (953) -

2015E (164) (22) 173 (189) (16) 0 (882) -

2016E (163) 47 127 (93) 33 0 (765) -

2013A (76) (35) 123 (95) 28 93 (372) -

2014E (70) (39) (57) (75) (132) 12 (412) -

2015E (63) (8) 67 (73) (6) 0 (339) -

2016E (60) 17 47 (35) 12 0 (283) -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 457 764 764 4,073 893 1,397 1,784 1,117 320

2014E 151 415 415 3,729 869 1,410 1,839 1,145 324

2015E 135 429 429 3,768 978 1,411 1,769 1,145 324

2016E 169 396 396 3,666 945 1,410 1,700 1,145 324

2013A 195 326 326 1,738 381 596 761 477 137

2014E 59 163 163 1,462 341 553 721 449 127

2015E 51 162 162 1,422 369 532 668 432 122

2016E 61 144 144 1,333 344 513 618 417 118

797

821

821

821

340

322

310

299

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

660

994

1,010

977

282

390

381

355

Capital Employed

1,430

847

961

914

610

332

363

333

Net Debt/EBITDA

0.4

0.8

0.7

0.8

0.4

0.7

0.7

0.8

Net Debt/Equity

0.4

0.5

0.6

0.6

0.4

0.6

0.6

0.6

Capex/Revenue (%)

8.8

6.9

7.9

5.4

8.8

6.9

7.9

5.4

Int Cover (%)

60.0

23.3

98.7

93.4

60.0

23.3

98.7

93.4

Dividend Payout (%)

89.1

108.1

135.2

110.0

80.6

99.1

119.0

109.3

125.3

164.6

160.7

158.4

134.1

180.7

161.5

158.4

49.1

36.0

38.6

37.4

49.8

38.3

38.6

37.4

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

8.3

10.6

9.5

10.2

7.6

9.2

9.2

10.3

P/CE

7.0

8.5

7.7

8.2

6.4

7.4

7.5

8.2

FV/EBITDA

5.2

6.5

5.7

6.0

4.8

5.7

5.5

6.0

FV/EBIT

5.8

7.5

6.4

6.8

5.3

6.5

6.2

6.8

FV/Revenue

3.4

3.1

3.2

4.4

3.1

2.7

3.1

4.4

P/BV

4.1

3.8

3.8

3.9

4.1

3.6

3.7

4.0

FCF Yield (%)

0.8

(4.4)

(0.2)

0.5

0.9

(5.1)

(0.2)

0.5

Div Yield (%)

11.0

13.8

13.3

11.5

12.1

15.9

13.8

11.5

LT Debt FINANCIAL RATIOS Net Debt

ROCE (%) ROE (%) MARKET RATIOS

PER SHARE DATA

2015E 2,389 (5.1) 1,362 10.2 1,350 10.7 56.5 1,187 12.2 49.7 (133) (358) 696 6.6 29.1

2016E 1,730 (27.6) 1,291 (5.3) 1,278 (5.4) 73.8 1,114 (6.1) 64.4 (131) (334) 649 (6.7) 37.5

2013A 1,083 0.2 731 (9.4) 707 (10.4) 65.3 631 (10.6) 58.3 (24) (199) 409 (11.4) 37.7

US$ 2014E 1,089 0.5 535 (26.8) 528 (25.4) 48.5 457 (27.5) 42.0 (30) (145) 282 (30.9) 25.9

2015E 919 (15.6) 524 (2.1) 519 (1.6) 56.5 456 (0.2) 49.7 (51) (138) 268 (5.2) 29.1

2016E 641 (30.3) 478 (8.8) 473 (8.9) 73.8 413 (9.6) 64.4 (49) (124) 240 (10.2) 37.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

2.31

1.71

1.82

1.70

1.07

0.74

0.70

0.63

DPS

2.50

2.31

2.01

1.88

1.16

1.00

0.77

0.70

BVPS

4.68

4.82

4.64

4.46

2.00

1.89

1.75

1.62

31

AES Tietê is a privately owned generation company, controlled by Brasiliana (a holding company controlled by AES Group and BNDES). The company operates 10 hydropower plants located in the central and northeastern regions of the State of São Paulo. GETI has an installed capacity of 2,658 MW and 1,278 MW of firm capacity, accounting for 2% of Brazil’s generation market.

Key Personnel: Arminio Francisco Borjas Herrera (Chairman), Britaldo Pedrosa Soares (CEO), Gustavo Duarte Pimenta (CFO) and Clarissa Sadock (IR Director) Web: http://ri.aestiete.com.br/

Sales by Segment, 2015E MRE + Losses 18.5%

Other Bilateral 11.1%

Eletropaulo 70.4%

EBITDA by Segment, 2015E

Generation 100.0%

Shareholder Structure, Current

Others 39.6%

Eletrobrás 7.9%

Companhia Brasiliana de Energia 52.6%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—TRANSPORTATION

ALL

HOLD CURRENT PRICE: R$5.06 TARGET PRICE: R$6.00

INTRODUCING YE2015 TARGET PRICE OF R$6.00; REPLACING YE2014 TARGET PRICE OF R$7.00 

Investment Case: We view the planned merger with Rumo as highly

Bruno Amorim*, CFA

positive, as it (i) will probably strengthen the company’s relationship

Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

with the government, implying a higher probability that its concessions will be extended, (ii) should imply the execution of a transformational investment plan (R$7-9 billion capex in 10 years,

Pedro Balcão Reis* Brazil: Banco Santander S.A. +5511-3012-5765 | [email protected]

according to Cosan), and (iii) would allow for better integration between ALL’s network and Rumo’s terminals at the port of Santos. However, we have a neutral view on the stock for now, as (i) we believe most of the potential upside lies in the long term, and (ii) newco will probably be a highly leveraged (~4x net debt/EBITDA) cash-burning company in the next couple of years.



Outlook 2015: We expect the merger with Rumo to be approved by CADE (Brazilian antitrust authority) in 1H15, which could be a positive catalyst. On the operating front, we expect ALL to deliver volume growth of around 5% for the full year, mainly boosted by a ~10% YoY increase in soybean production (mostly in 1H15). We estimate revenue to grow 11% YoY to R$4.3 billion and EBITDA to increase 11% to R$2.1 billion. Net profit should be stable at ~R$80 million, pressured by higher financial expenses. Company Statistics



R$7-9 billion capex plan: We believe the potential renewal of

Bloomberg

concessions would allow for the newco to monetize the much-

Current Price (01/02/15)

R$ 5.06 / US$ 1.88

Target Price (YE 2015)

R$ 6.00 / US$ 2.21

needed investment program (R$7-9 billion capex in 10 years,



ALLL3 BZ

52-Week Range (R$) Market Capitalization (US$ Mn)

the efficiency/capacity of the current network in the long term, in our

Float (%)

62.8

view, thus boosting the competitiveness of the newco vs. trucks.

3-Mth Avg. Daily Vol (US$ Mn)

13.7

Shares Outstanding - Mn

682

CADE’s approval pending: We expect the Brazilian antitrust

ALLL3 BZ

with the possibility of extending the process for an additional 90 days.

140

We believe the newco may be obliged to offer some competitors of

120

Cosan a minimum available capacity at a reasonable price.

100

Valuation: We value the newco through an equity value SOTP

60

value of R$6.2 bn. Our fair equity value for ALLL3 is equivalent to

40

newco is trading at ~6.0-6.5x 2015E EV/EBITDA on our numbers. 32

IBOVESPA

80

(standalone ALL R$3.8 bn; Rumo R$2.4 bn), which implies an equity 63.5% of this amount (~R$4.0 bn). ALLL3’s current price implies the

1,283

Price Performance (R$)

agency to rule on the deal sometime before the end of March 2015,



4.90 - 9.03

according to Cosan). Such investment would significantly increase

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

D-14

ALL (NOT INCLUDING RUMO) Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 3,641 2.0 1,830 8.7 50.3 1,213 1.2 33.3 (1,043) 44 199 (16.3) 5.5

R$ 2014E 3,838 5.4 1,896 3.6 49.4 1,350 11.4 35.2 (1,249) (2) 72 (63.8) 1.9

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (527) 208 2,351 (925) 693 489 (3) 0

2014E (548) (396) 1,473 (1,144) 30 708 (37) 0

2015E (607) (4) 1,870 (1,133) 170 347 (19) 0

2016E (676) (10) 2,002 (1,225) 184 306 (25) 0

2013A (244) 96 1,090 (429) 321 227 (1) 0

2014E (233) (169) 627 (487) 13 301 (16) 0

2015E (231) (1) 711 (431) 65 132 (7) 0

2016E (239) (3) 709 (434) 65 108 (9) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 2,918 4,308 12,906 18,882 2,821 11,462 4,598 10,285 1,518

2014E 2,883 4,580 13,503 19,750 2,453 12,663 4,633 11,208 1,240

2015E 2,999 4,799 14,029 20,495 2,452 13,348 4,695 11,792 1,140

2016E 3,116 5,033 14,578 21,278 2,461 14,028 4,789 12,373 1,040

2013A 1,245 1,839 5,508 8,059 1,204 4,892 1,963 4,390 648

2014E 1,131 1,796 5,295 7,745 962 4,966 1,817 4,395 486

2015E 1,107 1,771 5,177 7,563 905 4,925 1,733 4,351 421

2016E 1,060 1,712 4,958 7,238 837 4,772 1,629 4,208 354

LT Debt

2015E 4,277 11.5 2,098 10.6 49.0 1,493 10.5 34.9 (1,356) (20) 81 12.7 1.9

2016E 4,784 11.9 2,346 11.8 49.0 1,673 12.1 35.0 (1,470) (41) 119 47.2 2.5

2013A 1,688 (7.6) 848 (1.5) 50.3 562 (8.4) 33.3 (483) 20 92 (24.2) 5.5

US$ 2014E 1,634 (3.2) 808 (4.8) 49.4 575 2.3 35.2 (532) (1) 31 (66.8) 1.9

2015E 1,626 (0.5) 798 (1.2) 49.0 568 (1.3) 34.9 (516) (8) 31 0.6 1.9

2016E 1,694 4.1 831 4.1 49.0 592 4.3 35.0 (520) (14) 42 37.0 2.5

8,767

9,968

10,653

11,333

3,742

3,909

3,931

3,855

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

7,368

8,325

8,793

9,257

3,144

3,265

3,245

3,149

Capital Employed

14,883

15,841

16,487

17,162

6,352

6,212

6,084

5,838

Net Debt/EBITDA

4.0

4.4

4.2

3.9

3.7

4.0

4.1

3.8

Net Debt/Equity

1.6

1.8

1.9

1.9

1.8

2.0

1.9

1.9

25.4

29.8

26.5

25.6

25.4

29.8

26.5

25.6

FINANCIAL RATIOS Net Debt

Capex/Revenue (%) Int Cover (%)

1.5

1.3

1.2

1.3

1.5

1.3

1.2

1.3

Dividend Payout (%)

1.3

18.5

26.6

30.9

1.1

16.9

23.4

30.7

ROCE (%)

6.0

8.7

10.4

11.7

6.8

9.8

10.5

11.7

ROE (%)

4.5

1.6

1.7

2.5

4.6

1.7

1.7

2.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

22.5

48.1

42.7

29.0

20.6

42.4

41.7

30.4

P/CE

6.2

5.6

5.0

4.3

5.6

4.9

4.9

4.6

FV/EBITDA

6.5

6.2

5.8

5.4

5.9

5.7

5.7

5.3

FV/EBIT

9.8

8.7

8.2

7.6

9.0

7.9

8.0

7.5

FV/Revenue

3.3

3.1

2.9

2.7

3.0

2.8

2.8

2.6

P/BV

1.0

0.7

0.7

0.7

1.0

0.7

0.7

0.8

FCF Yield (%)

15.5

0.9

4.9

5.3

16.9

1.0

5.1

5.1

Div Yield (%)

0.1

1.1

0.6

0.7

0.1

1.2

0.6

0.7

MARKET RATIOS P/E

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.29

0.11

0.12

0.17

0.13

0.04

0.05

0.06

DPS

0.00

0.05

0.03

0.04

0.00

0.02

0.01

0.01

BVPS

6.74

6.79

6.88

7.02

2.88

2.66

2.54

2.39

33

América Latina Logística (ALL) provides fully integrated solutions in Brazil for long-haul transportation, door-todoor shipping, and warehouse storage services. ALL operates a 12,900-km rail network that includes 966 locomotives, 27,748 railcars, a fleet of 563 trucks, distribution centers, and warehousing installations. The products typically transported are agricultural commodities, and industrial commodities and goods. ALL’s shares are listed in the Bovespa’s Novo Mercado segment.

Key Personnel: Alexandre Santoro (CEO), Rodrigo Campos (CFO) and Marcelo Carvalho (IR Manager) Web: http://www.all-logistica.com

Revenue Breakdown, 2013

Brado 7.6%

Ritmo 7.2%

Rail 85.3%

EBITDA Breakdown, 2013

Brado Ritmo 3.0%1.4%

Rail 95.6%

Shareholder Structure, Current

Free Float & Others 69.4%

BNDESPAR 12.1% BRZ ALL PREVI 4.8% 4.0%

FUNCEF 4.1% Julia Dora Arduni 5.6%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—UTILITIES

ALUPAR

BUY CURRENT PRICE: R$17.50 TARGET PRICE: R$21.17

INTRODUCING YE2015 TARGET PRICE OF R$21.17; REPLACING YE2014 TARGET PRICE OF R$20.07 

Investment Case: We see Alupar as a company exposed to the

Maria Carolina Carneiro*

upward trend in price curve, with stability in cash flow generation and

Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

protection against inflation pressure. Moreover, we believe that the company has a proven track record in efficiency when building new transmission projects, as well as good potential growth opportunities in generation projects.



Outlook 2015: We expect Alupar to post solid EBITDA growth of 10.8% in 2015. Additionally, we expect Alupar to continue growing organically by bidding for transmission projects in 2015 auctions. Regarding the generation arm, we believe the anticipated hydro deficit for 2015 could hurt margins, despite solid potential growth.



The story remains the same: We continue to see Alupar as a stable player. The company’s transmission business generates the majority of EBITDA, with high dividends via its exposure to growth in the energy generation business, thus exposing Alupar to a scenario of energy price increases in Brazil.



Ferreira Gomes Unit. The plant’s first generation was granted

Company Statistics

authorization to start in November, ahead of schedule. We see this

Bloomberg

start-up as positive for the company, as the plant is benefiting from

Current Price (01/02/15)

R$ 17.50 / US$ 6.50

Target Price (YE 2015)

R$ 21.17 / US$ 7.81

high energy prices, and the earlier-than-expected launch shows to the market the commitment to its building projects.

ALUP11 BZ

52-Week Range (R$)

14.81 - 19.25

Market Capitalization (US$ Mn)

1,326

Float (%)



Updating estimates. We adjusted our discount rate according to new country risk and risk-free rates, thus revising upward our WACCs for both the generation and transmission segments. We also adjusted estimates to account for recently released results and

21.3

3-Mth Avg. Daily Vol (US$ Mn)

1.3

Shares Outstanding - Mn

204

Price Performance (R$) ALUP11 BZ

IBOVESPA

120

higher hydro deficit expected for 2015 (a 7% vs. previous 5%). 110

100

90

80

A-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

34

D-14

ALUPAR Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 1,912 51.9 952 3.8 986 7.5 51.6 952 8.0 49.8 (185) (171) 284 29.0 14.9

R$ 2014E 1,908 (0.2) 1,140 19.7 1,210 22.7 63.4 1,140 19.7 59.7 (193) (145) 402 41.4 21.1

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (34) 414 0 732 (1,214) 615 66 (104) 800

2014E (71) 492 0 964 (1,102) (303) 276 (350) -

2015E (102) 426 0 874 (1,203) 145 1,038 (350) -

2016E (148) 476 0 1,051 (32) 367 (234) (350) -

2013A (16) 192 0 339 (563) 285 31 (48) 371

2014E (30) 209 0 411 (469) (129) 118 (149) -

2015E (39) 162 0 332 (457) 55 395 (133) -

2016E (52) 169 0 372 (11) 130 (83) (124) -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,173 1,173 8,837 10,010 207 4,297 2,804 3,382 207

2014E 870 870 9,741 10,611 331 5,246 2,414 4,453 331

2015E 1,015 1,015 10,741 11,757 410 5,804 2,524 5,143 410

2016E 1,382 1,382 15,807 17,190 393 5,662 3,695 4,909 393

2013A 501 501 3,771 4,272 88 1,834 1,197 1,444 88

2014E 341 341 3,820 4,161 130 2,057 947 1,746 130

2015E 375 375 3,964 4,338 151 2,142 931 1,898 151

2016E 470 470 5,377 5,847 134 1,926 1,257 1,670 134

LT Debt FINANCIAL RATIOS

2015E 1,604 (15.9) 1,215 6.6 1,317 8.8 82.1 1,215 6.6 75.7 (281) (248) 345 (14.1) 21.5

2016E 1,833 14.3 1,419 16.8 1,566 18.9 85.4 1,443 18.8 78.7 (347) (271) 427 23.7 23.3

2013A 886 37.6 441 (6.0) 457 (2.6) 51.6 441 (2.2) 49.8 (86) (79) 132 16.9 14.9

US$ 2014E 813 (8.3) 485 10.0 515 12.8 63.4 485 10.0 59.7 (82) (62) 171 29.9 21.1

2015E 610 (25.0) 462 (4.9) 501 (2.8) 82.1 462 (4.9) 75.7 (107) (94) 131 (23.3) 21.5

2016E 649 6.4 502 8.7 554 10.7 85.4 511 10.6 78.7 (123) (96) 151 15.1 23.3

3,175

4,122

4,734

4,517

1,355

1,617

1,747

1,536

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

2,209

3,583

4,128

3,527

943

1,405

1,523

1,200

Capital Employed

9,803

10,280

11,347

16,797

4,184

4,031

4,187

5,713

Net Debt/EBITDA

2.2

3.0

3.1

2.3

2.1

2.7

3.0

2.2 1.0

Net Debt/Equity

0.8

1.5

1.6

1.0

0.9

1.7

1.6

63.5

57.7

75.0

1.7

63.5

57.7

75.0

1.7

5.3

6.3

4.7

4.5

5.3

6.3

4.7

4.5

Dividend Payout (%)

47.2

123.1

87.0

101.4

42.7

112.9

76.6

100.7

ROCE (%)

11.4

12.5

12.9

10.2

12.3

13.9

13.0

10.2

Capex/Revenue (%) Int Cover (%)

ROE (%)

12.8

15.4

14.0

13.7

13.3

16.3

14.0

13.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

11.7

8.9

10.3

8.4

10.7

7.9

10.1

8.8

P/CE

10.4

7.6

8.0

6.2

9.5

6.7

7.8

6.5

FV/EBITDA

8.9

9.2

9.2

7.3

8.1

8.2

9.0

7.5

FV/EBIT

9.2

9.8

10.0

7.9

8.4

8.7

9.8

8.1

FV/Revenue

4.6

5.8

7.6

6.2

4.2

5.2

7.4

6.4

P/BV

1.2

1.5

1.4

1.0

1.2

1.4

1.4

1.1

18.6

(8.4)

4.1

10.3

20.3

(9.5)

4.2

9.8

MARKET RATIOS

FCF Yield (%) Div Yield (%) PER SHARE DATA EPS DPS BVPS

3.1

9.7

9.8

9.8

3.4

11.0

10.0

9.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

1.39

1.97

1.69

2.09

0.65

0.84

0.64

0.74

0.51

1.72

1.72

1.72

0.24

0.73

0.65

0.61

13.75

11.84

12.38

18.12

5.87

4.64

4.57

6.16

35

Alupar is an integrated company holding transmission and generation assets. It is one of the most important privately owned power transmission players in Brazil in terms of RAP, with 21 transmission assets and 2,579 km of lines (2,176 operational and 403 km under construction) (according to the company's participation in the projects) . In the generation segment, Alupar currently concentrates its operations on renewable energy, with investments in hydro power plants (UHEs), small hydro power plants (PCHs), and wind power project. The company currently has 781 MW of installed capacity in operations.

Key Personnel: José Luiz de Godoy Pereira (Chairman), Paulo Roberto de Godoy Pereira (CEO), José Luiz de Godoy Pereira (CFO) and Luis Coimbra (IR Manager) Web: http://www.alupar.com.br/

EBITDA by Segment, 2014E

Generation 15.5%

Tranmission 84.5%

RAP Exposed to Tariff Review (2014-15 cycle)

Exposed to TR 9.9%

Not Exposed to TR 90.1%

Shareholder Structure, Current

Free Float 21.3% FI-FGTS 14.0%

Guarupart 64.7%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—FOOD & BEVERAGE

AMBEV

BUY CURRENT PRICE: R$16.01 TARGET PRICE: R$20.00



Investment Case: We believe Ambev is still a core holding in the

João Mamede*

Brazilian consumer space, due to its (1) industry-leading margins

Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

(~50% EBITDA margin); (2) high returns (33% ROIC); and (3) skilled management team. We acknowledge that market dynamics have deteriorated recently because of changes in demand elasticity and uncertainties surrounding additional tax increases. Furthermore, despite signs of weaker volume growth (especially in

Luis Miranda*, CFA Mexico: Banco Santander S.A. +5255-5269-1926 | [email protected]

Ronaldo Kasinsky* Brazil: Banco Santander S.A. +5511-3553-2396 | [email protected]

Brazil), we believe the company still can increase affordability through different packaging propositions, as well as stimulate tradeup through its diverse brand mix (the company recently introduced “new” premium brands in Brazil). We maintain our Buy rating, as the stock currently trades at compelling multiples (in-line with global peers) while still offering robust margins and solid execution.



Outlook 2015: We forecast that beer volume in Brazil will decline 2% YoY, due to tough 2014 comps (stemming from the non-recurring sporting event) and the resumption of tax increases, though we anticipate 10% YoY consolidated sales growth along with 60-bp YoY EBITDA margin expansion (due to easy comps on the SG&A front following substantial investments in promoting the 2014 sporting

Bloomberg

event), leading to healthy consolidated growth figures.



ABEV3 BZ / ABEV US

Current Price (01/02/15)

R$ 16.01 / US$ 5.95

Target Price (YE 2015)

R$ 20.00 / US$ 10.70

Catalysts: We believe that ongoing initiatives, including (1)

52-Week Range (R$)

“premiumization” (enhanced by expanding its premium brand

Market Capitalization (US$ Mn)

portfolio in Brazil), (2) innovation in packaging and pricing

3-Mth Avg. Daily Vol (US$ Mn)

architecture, (3) product innovation from its international branches (ABI Group), and (4) improved execution in POS (e.g., the Nosso Bar franchise network) will continue to bear fruit and allow for growth and margin expansion opportunities, despite challenging consumption dynamics.



Company Statistics

15.20 - 17.84 93,367

Float (%)

28.0 80.3

Shares Outstanding - Mn

15,700

Price Performance (US$) ABEV3 BZ

IBOVESPA

110

100

Concerns: Main risks to our investment case include (1) higher taxation, (2) greater competition from multinationals, and (3) inflation

90

80

affecting consumer buying power (trade-down). 70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

36

D-14

AMBEV Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 34,696 7.6 23,391 6.6 17,375 10.9 50.1 15,371 10.6 44.3 (1,566) (2,496) 11,095 5.9 32.0

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (2,005) (576) (584) 11,941 (4,530) 7,736 0 (250) (4,989) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 11,574 20,470 48,204 68,674 17,181 7,496 42,839 2,894 1,041

LT Debt

R$ 2014E 38,073 9.7 25,143 7.5 18,380 5.8 48.3 16,149 5.1 42.4 (1,222) (2,483) 12,191 9.9 32.0

Company Description

2015E 41,919 10.1 28,002 11.4 20,519 11.6 48.9 18,136 12.3 43.3 (1,589) (2,752) 13,514 10.9 32.2

2016E 45,869 9.4 30,842 10.1 22,709 10.7 49.5 20,182 11.3 44.0 (1,648) (3,336) 14,883 10.1 32.4

2013A 16,081 (2.5) 10,841 (3.4) 8,053 0.5 50.1 7,124 0.2 44.3 (726) (1,157) 5,142 (4.1) 32.0

US$ 2014E 16,473 2.4 10,879 0.3 7,953 (1.2) 48.3 6,988 (1.9) 42.4 (529) (1,074) 5,275 2.6 32.0

2014E (2,230) (1,575) 137 12,983 (2,542) 11,779 0 (237) (10,972) 0

2015E (2,382) (817) 348 15,428 (3,265) 12,980 0 0 (12,163) 0

2016E (2,527) (1,045) 460 16,826 (3,431) 14,439 0 0 (13,395) 0

2013A (929) (267) (270) 5,534 (2,100) 3,586 0 (116) (2,312) 0

2014E (965) (682) 59 5,618 (1,100) 5,096 0 (103) (4,748) 0

2015E (916) (314) 134 5,934 (1,256) 4,992 0 0 (4,678) 0

2016E (936) (387) 170 6,232 (1,271) 5,348 0 0 (4,961) 0

2014E 10,806 20,424 47,552 67,976 17,869 6,584 42,389 2,657 870

2015E 10,806 21,261 48,434 69,695 19,054 6,584 42,923 2,657 870

2016E 10,806 22,143 49,338 71,481 20,397 6,584 43,367 2,657 870

2013A 4,940 8,737 20,574 29,310 7,333 3,199 18,284 1,235 444

2014E 4,238 8,009 18,648 26,657 7,007 2,582 16,623 1,042 341

2015E 4,078 8,023 18,277 26,300 7,190 2,484 16,198 1,003 328

2016E 3,929 8,052 17,941 25,993 7,417 2,394 15,770 966 316

2015E 16,123 (2.1) 10,770 (1.0) 7,892 (0.8) 48.9 6,975 (0.2) 43.3 (611) (1,058) 5,198 (1.5) 32.2

2016E 16,989 5.4 11,423 6.1 8,411 6.6 49.5 7,475 7.2 44.0 (610) (1,236) 5,512 6.0 32.4

1,854

1,787

1,787

1,787

791

701

674

650

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

(8,680)

(8,149)

(8,149)

(8,149)

(3,705)

(3,196)

(3,075)

(2,963)

Capital Employed

51,493

50,107

50,641

51,085

21,978

19,650

19,110

18,576

Net Debt/EBITDA

(0.5)

(0.4)

(0.4)

(0.4)

(0.5)

(0.4)

(0.4)

(0.4)

Net Debt/Equity

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

Capex/Revenue (%)

13.1

6.7

7.8

7.5

13.1

6.7

7.8

7.5

Int Cover (%)

10.6

15.0

12.9

13.8

10.6

15.0

12.9

13.8

Dividend Payout (%)

47.6

98.9

99.8

99.1

43.1

90.7

87.8

98.5

ROCE (%)

34.7

37.2

41.2

46.0

37.5

41.3

41.5

46.0

ROE (%)

30.9

28.6

31.7

34.5

31.9

30.4

31.7

34.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

24.5

21.3

18.6

16.9

22.4

18.5

18.0

16.9

P/CE

20.8

18.0

15.8

14.4

19.0

15.6

15.3

14.5

FV/EBITDA

15.6

14.1

12.2

11.0

14.3

12.2

11.8

11.0

FV/EBIT

MARKET RATIOS

17.6

16.0

13.8

12.4

16.1

13.9

13.3

12.4

FV/Revenue

7.8

6.8

6.0

5.4

7.1

5.9

5.8

5.5

P/BV

6.4

6.1

5.9

5.8

6.3

5.9

5.8

5.9

FCF Yield (%)

2.8

4.5

5.2

5.7

3.1

5.2

5.3

5.7

Div Yield (%)

1.8

4.2

4.8

5.3

2.0

4.9

5.0

5.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.71

0.78

0.86

0.95

0.26

0.29

0.32

0.35

DPS

0.32

0.70

0.77

0.85

0.12

0.26

0.29

0.32

BVPS

2.73

2.70

2.73

2.76

1.01

1.00

1.02

1.03

PER SHARE DATA

37

Ambev is the fifth largest brewer in the world and the largest beverage company in Latin America. The company is the market leader in the Brazilian beer segment (~68% market share) while also holding a strong share in the Brazilian soft-drinks market (~19% market share). The company also bottles Pepsi-Cola carbonated and non-carbonated soft drinks in Brazil. Brazil accounts for 63% of consolidated sales and 69% of total EBITDA. Moreover, Ambev features two of the most recognized beer brands in the world (SKOL and BRAHMA). The Belgian brewer Anheuser-Busch InBev (ABI) has a 69% stake in the company.

Key Personnel: Carlos Alves de Brito (Chairman), Bernardo Pinto Paiva (CEO), Nelson Jamel (CFO) and Nelson Jamel (IRO) Web: http://ambev.com.br/

EBITDA by region (2015E)

Quinsa + HILA 20.1%

Canada 9.9%

Brazil 70.0%

EBITDA by product (2015E)

Soft Drinks 13.1%

Beer 86.9%

Shareholder Structure, Current

Free Float 28.0% FAHZ 10.0%

AnheuserBusch InBev 62.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—TRANSPORTATION

ARTERIS

HOLD CURRENT PRICE: R$12.40 TARGET PRICE: R$14.00



Investment Case: We continue to see Arteris as a quality play in the

Bruno Amorim*, CFA

infrastructure sector in Brazil due to its seasoned management and

Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

its shareholder structure. However, on December 8, we adjusted our target price to reflect (i) a more negative traffic estimate, (ii) management’s new capex estimate, and (iii) the R$140 million

Pedro Balcão Reis* Brazil: Banco Santander S.A. +5511-3012-5765 | [email protected]

fine imposed by ANTT. The net impact was a reduction of R$8.00 per share in our target price (36%), leaving 13% potential upside, not enough to justify a Buy rating.



Outlook 2015: Our 2015 GDP growth estimate of 0.3%, in-line with 2014, implies another year of somewhat weak results. We expect traffic growth of only 1.3% on top of just 1.0% in 2014. In 2015, we estimate (1) top-line growth of 8%, (2) EBITDA growth of 12%, and (3) net profit down 7%. This compares with our 2014 estimates of (1) top-line growth of 7%, (2) EBITDA up 7%, and (3) flat net profit.



Two potential upsides to valuation: We believe Arteris has two clear potential routes to achieving upside to our valuation: (1) a more aggressive cost-cutting plan than the R$60 million per annum announced at the Abertis investor day on September 9-10 in Rio de

Company Statistics

Janeiro; and (ii) potential amendments of R$1.3 billion in existing

Bloomberg

concessions, which could imply an additional R$1.20 per share, or 9%, on top of our current valuation.

ARTR3 BZ

Current Price (01/02/15)

R$ 12.40 / US$ 4.61

Target Price (YE 2015)

R$ 14.00 / US$ 5.17

52-Week Range (R$)

11.70 - 19.50

Market Capitalization (US$ Mn)



Risk to financial results: Since the second round of presidential elections on October 26, 2014, the Brazilian Central Bank has

1,587

Float (%)

31.0

3-Mth Avg. Daily Vol (US$ Mn)

2.7

Shares Outstanding - Mn

344

increased rates by 75 bps, and we expect another 75-bp increase in the short term. Unlike CCR, which has ~90% of debt linked to the Selic, Arteris, like Ecorodovias, has only 20%. However, it has the

Price Performance (R$) ARTR3 BZ

IBOVESPA

140

highest percentage of debt with the BNDES (53%), and while our 120

estimates do not include any increase in TJLP, we believe there is a real risk that this could go higher.

100

80

60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

38

D-14

ARTERIS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 2,119 5.8 1,429 8.7 67.4 947 13.2 44.7 (278) (203) 466 15.6 22.0

R$ 2014E 2,266 7.0 1,530 7.1 67.5 1,036 9.4 45.7 (325) (242) 469 0.5 20.7

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 288 0 1,041 (1,330) 351 641 (192) 0

2014E 336 0 1,124 (1,842) 234 1,233 (234) 0

2015E 397 0 1,263 (1,684) 227 1,041 (227) 0

2016E 530 0 1,430 (1,012) 213 259 (213) 0

2013A 133 0 482 (616) 163 297 (89) 0

2014E 143 0 480 (786) 100 526 (100) 0

2015E 151 0 480 (640) 86 396 (86) 0

2016E 188 0 506 (358) 76 92 (76) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 930 1,161 5,951 7,369 1,880 4,125 -

2014E 930 1,161 7,457 8,875 2,115 5,357 -

2015E 930 1,161 8,743 10,162 2,326 6,398 -

2016E 930 1,161 9,225 10,644 2,528 6,657 -

2013A 397 496 2,540 3,145 802 1,760 -

2014E 365 455 2,924 3,480 829 2,101 -

2015E 343 429 3,226 3,750 858 2,361 -

2016E 316 395 3,138 3,620 860 2,264 -

4,125

5,357

6,398

6,657

1,760

2,101

2,361

2,264

LT Debt FINANCIAL RATIOS

2015E 2,457 8.4 1,709 11.7 69.5 1,153 11.3 46.9 (489) (226) 438 (6.6) 17.8

2016E 2,688 9.4 1,894 10.8 70.5 1,218 5.6 45.3 (588) (214) 416 (5.1) 15.5

2013A 982 (4.1) 662 (1.5) 67.4 439 2.5 44.7 (129) (94) 216 4.7 22.0

US$ 2014E 967 (1.5) 653 (1.4) 67.5 442 0.7 45.7 (139) (103) 200 (7.5) 20.7

2015E 934 (3.4) 650 (0.5) 69.5 438 (0.8) 46.9 (186) (86) 167 (16.7) 17.8

2016E 952 1.8 670 3.2 70.5 431 (1.7) 45.3 (208) (76) 147 (11.6) 15.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

3,195

4,427

5,469

5,727

1,363

1,736

2,018

1,948

Capital Employed

6,004

7,472

8,724

9,185

2,563

2,930

3,219

3,124

Net Debt/EBITDA

2.2

2.9

3.2

3.0

2.1

2.7

3.1

2.9

Net Debt/Equity

1.7

2.1

2.4

2.3

1.9

2.4

2.4

2.3

62.8

81.3

68.5

37.7

62.8

81.3

68.5

37.7

4.2

3.6

2.8

2.7

4.2

3.6

2.8

2.7

Dividend Payout (%)

47.5

50.1

48.4

48.7

43.0

46.0

42.6

48.4

ROCE (%)

22.2

19.3

18.3

18.3

23.7

21.1

18.4

18.3

ROE (%)

26.8

23.5

19.7

17.1

27.3

25.0

19.7

17.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E 10.8

Capex/Revenue (%) Int Cover (%)

MARKET RATIOS P/E

14.1

9.1

9.7

10.3

12.9

8.0

9.5

P/CE

36.7

32.1

n/m

-

33.6

28.3

n/m

-

6.8

5.7

5.7

5.3

6.3

5.1

5.5

5.3

FV/EBITDA FV/EBIT

10.3

8.4

8.4

8.2

9.4

7.6

8.2

8.2

FV/Revenue

4.6

3.8

4.0

3.7

4.2

3.5

3.9

3.7

P/BV

3.5

2.0

1.8

1.7

3.5

1.9

1.8

1.8

FCF Yield (%)

5.4

5.5

5.3

5.0

5.9

6.2

5.4

4.8

Div Yield (%) PER SHARE DATA

2.9

5.5

5.3

5.0

3.2

6.2

5.4

4.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.35

1.36

1.27

1.21

0.63

0.58

0.48

0.43

DPS

(0.56)

(0.68)

(0.66)

(0.62)

(0.26)

(0.29)

(0.25)

(0.22)

5.46

6.14

6.75

7.34

2.33

2.41

2.49

2.50

BVPS

39

Arteris currently operates four state concessions in São Paulo and five federal concessions. Arteris’s concessions are located in the Southeast and Southern regions, where about three quarters of the country’s GDP is concentrated. The company’s IPO was held on July 14, 2005, with shares listed in the Bovespa’s Novo Mercado (New Market).

Key Personnel: David Díaz Almazán (CEO), Felipe Ezquerra (CFO) and Alessandro Scotoni Levy (IR Director) Web: www.arteris.com.br

Revenue Breakdown, 2013 Federal Concession s 41.8%

State Concesssio ns 58.2%

EBITDA Breakdown, 2013 Federal Concession s 30.4%

State Concesssio ns 69.6%

Shareholder Structure, Current

Free Float 30.7%

Controlling block 69.3%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—RETAIL & CONSUMER GOODS

B2W DIGITAL

HOLD CURRENT PRICE: R$21.99 TARGET PRICE: R$26.00

LOWERING YE2015 TARGET PRICE TO R$26.00 FROM R$31.00 

Investment Case: We maintain a Hold rating on B2W, as we

João Mamede*

believe the company will be able to sustain superior top-line growth,

Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

further develop its margin expansion initiatives (sales mix diversification, market place developments, and operating leverage) and

eventually

turn

bottom-line

positive

(supported

by

deleveraging), although we see limited upside given the strong share performance in 2014 (+80%). Cash flow generation and

Ronaldo Kasinsky* Brazil: Banco Santander S.A. +5511-3553-2396 | [email protected]

Jessica Bessa* Brazil: Banco Santander S.A. +5511-3553-9602 | [email protected]

increasing/sustaining market share in Brazil remain uncertain, but we are confident that operating improvements (including higher service levels) will be supportive and should help turn bottom-line losses into gains. The stock is trading at 0.6x sales 2015E.



Outlook for 2015: We expect the Brazilian e-commerce industry to sustain ~20% YoY growth in 2015, with B2W to continue gaining market share based on maturing marketplace operations and enhanced sales mix. In our view, the company’s mix diversification away from electronic goods and into more profitable categories provides greater resilience in a weak economic environment and should support further market share gains. We anticipate 28% YoY sales growth combined with EBITDA margin expansion (+40 bps YoY) and reduced leverage ratios to translate into net profit for 2015 of ~R$76 million).

Company Statistics Bloomberg

BTOW3 BZ

Current Price (01/02/15)

R$ 21.99 / US$ 8.17

Target Price (YE 2015)

R$ 26.00 / US$ 9.59

52-Week Range (R$)



12.97 - 40.59

Catalysts: We believe B2W’s investments in logistics and

Market Capitalization (US$ Mn)

technology will continue to support improved services levels and

3-Mth Avg. Daily Vol (US$ Mn)

4.7

Shares Outstanding - Mn

255

allow for further market share gains in the industry, while we anticipate that the shift in sales mix into more profitable categories (e.g., apparel) and the development of its marketplace channel will

2,085

Float (%)

44.5

Price Performance (R$)

offer margin expansion opportunities and improved cash flow.

300

Moreover, we believe its improved debt structure should improve

250

bottom-line visibility.

200

BTOW3 BZ

IBOVESPA

A-13

A-14

150



Concerns: Main risks to our investment case include (1) increased competition,

(2)

lower

credit

availability,

(3)

higher

capex

requirements, and (4) still limited margins and earnings visibility.

100 50 0

J-13

M-13

D-13

A-14

Sources: FactSet, Santander estimates and company reports.

40

D-14

B2W DIGITAL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 6,089 26.6 1,508 32.2 431 31.9 7.1 273 75.3 4.5 (513) 81 (160) 8.0 (2.6)

R$ 2014E 7,916 30.0 1,930 28.0 578 34.0 7.3 394 44.2 5.0 (663) 94 (175) (10.0) (2.2)

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (103) 1,175 (522) 390 (714) 101 0 822 0 11

2014E (151) 1,145 (564) 255 (894) 79 0 (1,815) 0 2,407

2015E (149) 890 (296) 521 (751) 91 0 0 0 0

2016E (177) 875 (261) 638 (649) 339 0 0 0 0

2013A (48) 544 (242) 181 (331) 47 0 381 0 5

2014E (64) 488 (240) 109 (381) 34 0 (773) 0 1,025

2015E (57) 338 (112) 198 (285) 35 0 0 0 0

2016E (62) 310 (92) 226 (230) 120 0 0 0 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,879 4,143 2,471 6,614 2,556 3,228 830 3,581 507

2014E 1,832 4,316 3,441 7,757 3,181 1,516 3,061 1,766 347

2015E 1,602 4,680 4,043 8,723 4,070 1,516 3,137 1,766 347

2016E 1,592 5,166 4,515 9,681 4,828 1,516 3,338 1,766 347

2013A 802 1,768 1,055 2,823 1,091 1,378 354 1,528 216

2014E 719 1,693 1,349 3,042 1,247 594 1,200 693 136

2015E 591 1,727 1,492 3,219 1,502 559 1,158 652 128

2016E 541 1,757 1,536 3,293 1,642 515 1,135 601 118

LT Debt FINANCIAL RATIOS

2015E 10,098 27.6 2,485 28.8 774 34.0 7.7 602 52.9 6.0 (487) (39) 76 n/m 0.8

2016E 12,416 23.0 3,098 24.7 1,034 33.5 8.3 834 38.6 6.7 (530) (103) 201 163.7 1.6

2013A 2,822 14.7 699 19.7 200 19.5 7.1 127 58.8 4.5 (238) 37 (74) 16.7 (2.6)

US$ 2014E 3,371 19.5 822 17.6 246 23.2 7.3 168 32.5 5.0 (282) 40 (75) (1.1) (2.2)

2015E 3,840 13.9 945 15.0 294 19.6 7.7 229 36.6 6.0 (185) (15) 29 n/m 0.8

2016E 4,395 14.5 1,097 16.1 366 24.3 8.3 295 29.0 6.7 (188) (37) 71 145.5 1.6

3,074

1,419

1,419

1,419

1,312

557

524

483

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

1,702

(66)

164

174

726

(26)

60

59

Capital Employed

4,057

4,576

4,652

4,853

1,732

1,795

1,717

1,651

Net Debt/EBITDA

3.9

(0.1)

0.2

0.2

3.6

(0.1)

0.2

0.2

2.1

(0.0)

0.1

0.1

2.2

(0.0)

0.1

0.1

11.7

11.3

7.4

5.2

11.7

11.3

7.4

5.2

Net Debt/Equity Capex/Revenue (%) Int Cover (%)

0.6

0.6

0.9

1.0

0.6

0.6

0.9

1.0

Dividend Payout (%)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

ROCE (%)

8.7

10.6

12.1

15.1

9.3

11.8

12.2

15.1

ROE (%)

(17.7)

(9.0)

2.5

6.2

(17.9)

(9.9)

2.5

6.2

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

-

-

n/m

28.0

-

-

n/m

29.4

P/CE

-

-

24.9

14.9

-

-

24.4

15.6

9.0

9.8

7.5

5.6

8.3

8.7

7.3

5.9

14.2

14.4

9.6

6.9

13.1

12.7

9.4

7.3

FV/Revenue

0.6

0.7

0.6

0.5

0.6

0.6

0.6

0.5

P/BV

2.6

1.9

1.8

1.7

2.6

1.8

1.8

1.8

FV/EBITDA FV/EBIT

FCF Yield (%)

4.6

1.4

1.6

6.0

5.1

1.6

1.7

5.8

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

(1.00)

(0.69)

0.30

0.79

(0.46)

(0.29)

0.11

0.28

DPS

0

0

0

0

0

0

0

0

5.22

11.99

12.29

13.07

2.23

4.70

4.53

4.45

Div Yield (%)

BVPS

41

B2W DIGITAL is the leading e-commerce player in Latin America. The Company operates through a multichannel, multibrand platform, including highly recognized banners such as Americanas.com, Submarino, Shoptime and Sou Barato (Online Outlet) besides the online services sites B2W Viagens (Online Travel), Ingresso.com (Online Ticket), Submarino Finance (Consumer Finance) and BLOCKBUSTER® Online (Entertainment), offering more than 700,000 items in 38 different categories and services through the internet, telesales, catalogs, TV and kiosks distribution channels.

Key Personnel: Miguel Gutierrez (Chairman), Anna Saicali (CEO), Murilo Corrêa (CFO) and Fabio Abrate (Investor Relations Director) Web: www.b2wdigital.com

Sales by Category, 2013

Others 35.0%

Durables 45.0%

Entertainme nt 20.0%

Sales by Payment Type, 9M14

Others 35.0%

Credit Cards 65.0%

Shareholder Structure, Current

Free Float 44.5%

Lojas Americanas (Controlling Group) 55.5%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—FINANCIAL SERVICES

BANCO DO BRASIL

BUY CURRENT PRICE: R$22.65 TARGET PRICE: R$30.00

INTRODUCING YE2015 TARGET PRICE OF R$30.00; REPLACING YE2014 TARGET PRICE OF R$28.00 

Investment Case: We believe the Rousseff administration’s

Boris Molina

appointment of a new economic team heralds a potential transition in

New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

strategy toward strengthening public sector banks’ balance sheets. Therefore, we expect BBAS to start to address the challenges from the transition to Basel III with a strategy to defend margins, contain costs, and reduce capital consumption via slower loan growth, as the banks seems to have exhausted their options to realize capital gains

Henrique Navarro* Brazil: Banco Santander S.A. +5511-3012-5756 | [email protected]

Renata Cabral* Brazil: Banco Santander S.A. +5511-3012-5731 | [email protected]

from the sale of operating revenue to listed subsidiaries (Cielo and BB Seguridade). We view positively the reinforcement of this change in strategy, which started around a year ago.



Outlook 2015: We expect BBAS’s loans to post another slowdown to 9% growth. We expect NIMs (ex insurance) to expand 48 bps to 4.50%, as the bank’s longer-duration portfolio finally reprices at higher spreads. We anticipate some asset quality deterioration (around 40 bps in adjusted NPLs, including 12-month-trailing writeoffs). We expect opex growth slightly ahead of inflation.



Capital deficit of R$45 billion, estimated as the difference between our estimate of BBAS’s fully loaded Basel III CT1 2015E (including

Company Statistics

the sale of BB’s net interchange to Cielo) and our estimate of the

Bloomberg

group’s consolidated capital requirement (10.9%). While the bank

Target Price (YE 2015)

R$ 30.00 / US$ 11.07

52-Week Range (R$)

a capital increase may still be needed unless BBAS cuts its dividend

Market Capitalization (US$ Mn)

18.70 - 37.46 23,632

Float (%)

31.6

3-Mth Avg. Daily Vol (US$ Mn)

96.3

Shares Outstanding - Mn

2,809

New economics minister, new management? We believe that a new management team is likely to take over at BBAS in early 2015,



R$ 22.65 / US$ 8.41

could still realize capital gains via further asset sales, we believe that payment and/or the size of its loan portfolio by YE2018.



BBAS3 BZ

Current Price (01/02/15)

Price Performance (R$) BBAS3 BZ

as management turnover tends to follow changes in the Brazilian

160

government’s economic team.

140

How long can asset quality outperform? We expect only a modest

IBOVESPA

120

deterioration in BBAS’s NPLs over the next two years, under our

100

assumptions of GDP growth of 0.3% in 2015 and 1.3% in 2016;

80

however, this may prove to be optimistic.

60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

42

D-14

BANCO DO BRASIL Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions

Company Description

2015E 56,484 (21,681) 34,802 41,535 76,338 (57,183) 19,155 (5,151) 15,860 17,612

2016E 62,292 (24,032) 38,260 47,179 85,439 (61,735) 23,705 (6,772) 15,029 18,507

2013A 21,303 (5,711) 15,592 13,785 29,377 (23,295) 6,160 (1,489) 7,301 5,203

US$ 2014E 2015E 21,800 21,089 (6,276) (8,095) 15,524 12,994 13,949 15,507 29,474 28,501 (22,995) (21,350) 6,553 7,152 (1,490) (1,923) 4,822 5,921 3,953 6,575

2014E 12,280 229,296 672,354 15,703 1,445,737 462,402 452,631 59,062 102,071 83,282 78,731

2015E 13,828 264,953 728,716 13,422 1,555,891 523,114 442,036 66,042 134,258 94,101 93,364

2016E 17,455 324,453 803,156 11,293 1,727,610 592,191 482,795 68,246 172,423 104,675 107,757

2013A 5,009 85,480 253,843 7,283 551,945 196,350 155,017 26,851 32,903 30,573 28,539

2014E 4,640 86,632 254,025 5,933 546,221 174,702 171,011 22,314 38,564 31,465 29,746

2015E 5,102 97,769 268,899 4,953 574,130 193,031 163,113 24,370 49,542 34,724 34,452

2016E 5,937 110,358 273,182 3,841 587,623 201,426 164,216 23,213 58,647 35,604 36,652

2013A 242,024 149,160 18,458 195,134 623,340 18.6 12,346 (23,662)

2014E 261,748 153,218 28,803 224,642 699,066 12.1 14,486 (26,712)

2015E 280,265 162,212 39,532 243,958 763,228 9.2 17,892 (34,512)

2016E 305,282 176,041 48,164 272,622 844,047 10.6 19,686 (40,891)

2013A 102,448 63,139 7,813 82,600 263,859 2.8 5,226 (10,016)

2014E 98,892 57,888 10,882 84,873 264,118 0.1 5,473 (10,092)

2015E 103,419 59,857 14,587 90,021 281,634 6.6 6,602 (12,735)

2016E 103,837 59,878 16,382 92,729 287,091 1.9 6,696 (13,909)

2013A 4.26 2.17 5.17

2014E 4.02 2.27 4.96

2015E 4.50 2.98 5.11

2016E 4.61 3.00 5.23

2013A 4.26 2.17 5.17

2014E 4.02 2.27 4.96

2015E 4.50 2.98 5.11

2016E 4.61 3.00 5.23

Cost / ATAs

4.22

3.99

3.98

3.95

4.22

3.99

3.98

3.95

Adj Efficiency

56.6

54.5

49.8

48.2

56.6

54.5

49.8

48.2

Effective Taxes

24.2

22.7

26.9

28.6

24.2

22.7

26.9

28.6

Reported ROE (%)

24.3

14.9

17.8

15.1

24.3

14.9

17.8

15.1

Adj ROE (%)

14.3

10.5

16.7

15.9

14.3

10.5

16.7

15.9

NPL Ratio

1.98

2.07

2.34

2.33

1.98

2.07

2.34

2.33

Adj NPL Ratio

4.06

4.19

4.63

5.01

4.06

4.19

4.63

5.01

INCOME STATEMENT Net Interest Income NPL Provisions Adj Net Interest Income Non-Interest Income Total Operating Revenue Non-Interest Expense Profit Before Taxes Taxes Net Profit Adjusted Net Profit

2013A 45,980 (12,326) 33,654 29,752 63,406 (50,278) 13,295 (3,213) 15,758 11,230

BALANCE SHEET Cash and Equivalents Securities Loans (net) Intangible Assets Total Assets Core Deposits Other Financial Liabilities Subordinated Debt Technical Provisions Equity Adjusted Equity

2013A 11,834 201,939 599,678 17,205 1,303,915 463,858 366,212 63,433 77,729 72,225 67,420

LOAN BOOK Companies Total Consumer Mortgages Other Loans Gross Loans Loan Growth (%) NPL Provisions KEY RATIOS NIM Risk Charge Operating Revenue / ATAs

Loans / Total Assets

R$ 2014E 51,316 (14,773) 36,543 32,836 69,379 (54,129) 15,424 (3,507) 11,351 9,306

2016E 22,050 (8,507) 13,543 16,701 30,244 (21,853) 8,391 (2,397) 5,320 6,551

47.8

48.4

49.1

48.9

47.8

48.4

49.1

48.9

Loans / Core Deposits

134.4

151.2

145.9

142.5

134.4

151.2

145.9

142.5

RWA % Total Assets

62.7

64.4

64.9

64.7

62.7

64.4

64.9

64.7

Core Tier I Ratio (%)

6.4

5.7

6.5

7.1

6.4

5.7

6.5

7.1

Dividend Payout (%)

40.1

39.8

37.3

27.0

40.1

39.8

37.3

27.0

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Adj. P/BV

0.8

0.6

0.6

0.5

0.7

0.6

0.6

0.5

Adj. P/E

7.0

8.9

4.4

4.1

6.3

7.5

4.4

4.2

Div Yield (%)

9.2

6.8

7.1

7.1

10.1

7.6

7.1

6.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

PER SHARE DATA EPS

5.61

4.04

5.65

5.35

2.60

1.72

2.11

1.89

25.71

29.65

33.50

37.27

10.88

11.20

12.36

12.68

DPS

2.25

1.61

2.11

1.45

1.04

0.68

0.79

0.51

Adj EPS

4.00

3.31

6.27

6.59

1.85

1.41

2.34

2.33

24.00

28.03

33.24

38.37

10.16

10.59

12.27

13.05

(12.38)

(17.17)

(15.78)

(15.31)

(5.24)

(6.49)

(5.82)

(5.21)

8.63

11.58

10.81

10.70

3.66

4.36

4.02

3.97

BVPS

Adj BVPS Surplus Capital per Share Unrealized Cap. Gains/Shr

Banco do Brasil is Brazil’s leading bank, with total assets of approximately US$546 billion as of 4Q14E, and approximately a 21.2% market share in loans and 23.9% in deposits in Brazil, the highest in the country. The bank has a 50% stake in Banco Votorantim, which boosts its presence in the auto financing market, and has a plan to expand its presence in Latin America and in the USA. Banco do Brasil has a listed subsidiary which encompasses its insurance brokerage and underwriting operations which is the second-largest insurance group in the country. Insurance underwriting is done largely via a joint venture with Spain's Mapfre. The bank is majority owned by the Brazilian National Treasury and its CEO is appointed by the Brazilian government. The bank has a regulatory mandate to lend to the agricultural sector in Brazil under several government-sponsored programs.

Key Personnel: Nelson Henrique Barbosa Filho (Chairman), Aldemir Bendini (CEO), Ivan de Souza Monteiro (CFO) and Leonardo Loyola (IRO) Web: www.bb.com.br

Loan Book, 2015E Agribusiness 24.5%

Abroad 7.5% SME 14.3%

Consumer 26.4%

Corporate 22.4%

Revenue Structure, 2015E

Insur. 8.7%

Fees 37.5%

Other 11.5%

NII 42.4%

Shareholder Structure, Current

Free Float 31.6%

Previ 10.4% National Treasury 57.9%

Sources for all charts and tables: Company reports and Santander estimates.

43

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—FINANCIAL SERVICES

BANCO PINE

BUY CURRENT PRICE: R$6.04 TARGET PRICE: R$7.20

INTRODUCING YE2015 TARGET PRICE OF R$7.20; REPLACING YE2014 TARGET PRICE OF R$13.00 

Investment Case: We reiterate our Buy rating on Banco Pine based

Henrique Navarro*

on a compelling valuation associated with the conservative approach

Brazil: Banco Santander S.A. +5511-3012-5756 | [email protected]

adopted by management. Earnings disappointments, triggered by a higher loan provision due to re-rating by clients, led to a significant decline in reported ROE in 2014, to ~9%. The downward revision in the profitability level is the main reason for our lower target price for YE2015. In our opinion, a turnaround in profitability should come in

Boris Molina New York: Santander Investment Securities Inc. +1-212-350-3977| [email protected]

Renata Cabral* Brazil: Banco Santander S.A. +5511-3012-5731 | [email protected]

2016 onward, which should lead to profitability levels in the mid-teens on a sustained basis.



Outlook 2015: Pine has opted for a more cautious approach, maintaining excess liquidity and conservative provisioning policies. This is something of a drag on potential profitability and will probably cap ROE in 2015 at ~10%, in our view. As a wholesale bank, Pine has stayed ahead of macro headwinds by loan portfolio de-risking, focusing on lower-risk sectors and slower growth, and limiting corporate lending to selected industries. We believe loan growth should continue to be modest in 2015. With such ROE levels in the short term, we see no room for mid-sized banks to perform much Company Statistics

above the 1.0x P/BV level.

Bloomberg



Strong capital ratios. Banco Pine has a strong capital structure and

BZ / PINE4 BZ / PINE4 BZ

Current Price (01/02/15)

R$ 6.04 / R$ 6.04

Target Price (YE 2015)

R$ 7.20 / R$ 7.20

continues to carry out operations as efficiently as before, in our

52-Week Range (R$)

opinion. We believe the solid capital ratio, at ~12.8%, coupled with

Market Capitalization (US$ Mn)

244

Float (%)

23.5

the softer loan growth we estimate for the next year, leaves the bank without stress to face the more stringent Basel III requirements.

5.52 - 9.05

3-Mth Avg. Daily Vol (US$ Mn)

0.1

Shares Outstanding - Mn

109

Price Performance (R$) PINE4 BZ

IBOVESPA

120

100

80

60

40

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

44

D-14

BANCO PINE Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions

Company Description

INCOME STATEMENT Net Interest Income NPL Provisions Adj Net Interest Income Non-Interest Income Total Operating Revenue Non-Interest Expense Profit Before Taxes Taxes Net Profit Adjusted Net Profit

2013A 389 (101) 288 120 479 (112) 229 (31) 162 271

R$ 2014E 399 (14) 385 72 506 (306) 188 (31) 117 505

BALANCE SHEET Cash and Equivalents Securities Loans (net) Intangible Assets Total Assets Core Deposits Other Financial Liabilities Subordinated Debt Technical Provisions Equity Adjusted Equity

2013A 157 3,183 6,196 2 10,545 3,156 1,738 0 0 1,272 1,271

2014E 163 3,781 7,120 2 10,923 2,962 1,800 140 0 1,311 1,310

2015E 97 2,891 7,120 2 11,077 3,270 1,825 140 0 1,374 1,373

2016E 98 2,934 7,429 2 11,233 3,609 1,851 140 0 1,445 1,444

2013A 73 1,475 2,872 1 4,887 1,463 805 0 0 590 589

2014E 70 1,626 3,062 1 4,697 1,274 774 60 0 564 563

2015E 37 1,112 2,738 1 4,260 1,258 702 54 0 528 528

2016E 36 1,087 2,751 1 4,160 1,337 686 52 0 535 535

LOAN BOOK Companies Total Consumer Mortgages Other Loans Gross Loans Loan Growth (%) NPL Provisions

2013A 7,021 0 0 0 9,930 24.9 173 (186)

2014E 7,120 0 0 0 10,132 2.0 135 (151)

2015E 7,120 0 0 0 10,143 0.1 130 (140)

2016E 7,429 0 0 0 10,638 4.9 130 (139)

2013A 3,254 0 0 0 4,603 13.2 80 (86)

2014E 3,062 0 0 0 4,357 (5.3) 58 (65)

2015E 2,738 0 0 0 3,901 (10.5) 50 (54)

2016E 2,751 0 0 0 3,940 1.0 48 (51)

KEY RATIOS NIM Risk Charge Operating Revenue / ATAs

2013A 275.55 1.02 211.45

2014E 298.92 0.14 161.44

2015E 378.70 0.99 194.29

2016E 385.10 1.00 210.99

2013A 275.55 1.02 211.45

2014E 298.92 0.14 161.44

2015E 378.70 0.99 194.29

2016E 385.10 1.00 210.99

Cost / ATAs

2015E 471 (100) 371 59 491 (172) 223 (63) 127 166

2016E 523 (106) 416 65 544 (225) 245 (70) 143 180

2013A 180 (47) 134 55 222 (52) 106 (14) 75 126

US$ 2014E 172 (6) 166 31 218 (132) 81 (14) 51 217

2015E 181 (38) 143 23 189 (66) 86 (24) 49 64

2016E 194 (39) 154 24 201 (83) 91 (26) 53 67

3.09

2.52

2.50

2.75

3.09

2.52

2.50

2.75

Adj Efficiency

4,813.2

5,195.2

4,489.4

4,724.3

4,813.2

5,195.2

4,489.4

4,724.3

Effective Taxes

1,352.1

1,669.5

2,840.0

2,863.2

1,352.1

1,669.5

2,840.0

2,863.2

Reported ROE (%)

12.9

9.2

9.5

10.1

12.9

9.2

9.5

10.1

Adj ROE (%)

14.8

5.7

10.9

11.6

14.8

5.7

10.9

11.6

174.59

133.01

128.65

122.04

174.59

133.01

128.65

122.04

1.75

1.33

1.39

1.33

1.75

1.33

1.39

1.33

5,876.0

6,517.9

6,427.4

6,613.2

5,876.0

6,517.9

6,427.4

6,613.2

NPL Ratio Adj NPL Ratio Loans / Total Assets

19,631.2

24,034.4

21,773.9

20,582.1

19,631.2

24,034.4

21,773.9

20,582.1

RWA % Total Assets

Loans / Core Deposits

879.7

151.7

145.7

148.5

879.7

151.7

145.7

148.5

Core Tier I Ratio (%)

1.3

7.9

8.5

8.7

1.3

7.9

8.5

8.7

Dividend Payout (%)

50.0

50.0

50.0

50.0

50.0

50.0

50.0

50.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

1.0

0.6

0.5

0.5

1.0

0.6

0.5

0.5

31.6

1.3

0.9

0.8

31.3

1.2

0.9

0.8

MARKET RATIOS Adj. P/BV Adj. P/E Div Yield (%) PER SHARE DATA EPS

9.7

11.3

12.2

10.6

10.7

13.0

12.6

10.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

1.49

2.15

2.96

3.91

0.69

0.92

1.14

1.45

11.71

12.06

12.65

13.31

5.43

5.19

4.86

4.93

DPS

0.92

1.51

1.87

2.25

0.43

0.65

0.72

0.83

Adj EPS

2.50

6.85

8.05

9.48

1.16

2.94

3.10

3.51

11.70

12.06

12.64

13.30

5.42

5.18

4.86

4.92

(69.41)

(2.44)

(1.47)

(1.29)

(32.17)

(1.05)

(0.57)

(0.48)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

BVPS

Adj BVPS Surplus Capital per Share Unrealized Cap. Gains/Shr

45

Banco Pine was founded in 1997 and is majority controlled by Mr. Norberto Nogueira Pinheiro, who holds about 70% of the total shares. The bank specializes in the corporate segment, with a focus on middle and uppermiddle cap companies. Banco Pine also offers a range of credit products in both local and foreign currency, besides financial and strategic advisory services, treasury and investments products—all of which are ways the bank intends to differentiate itself among mid-cap Brazilian banks. Its network comprises nine branches, including its headquarters in São Paulo. The bank executed its IPO on the Bovespa in April 2007.

Key

Personnel: Noberto Nogueira Pinheiro (Chairman), Noberto Nogueira Pinheiro Junior (CEO) and Norberto Zaiet (CFO) Web: www.bancopine.com.br Revenue Breakdown, 2014E

Others 20.2% Guarantees 26.6%

Working Capital 42.5%

onlendings 10.7%

Loan Portfolio Breakdown, 2014E

Fee income 8.5%

Others 13.7%

Loans 39.0% Securities 38.7%

Shareholder Structure, Current

Free float 26.4% Mgmt. 5.4%

Norberto Nogueira Pinheiro 68.2%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—FINANCIAL SERVICES

BB SEGURIDADE

BUY CURRENT PRICE: R$30.47 TARGET PRICE: R$41.50

 Investment Case: BB Seguridade delivered a strong set of results for 9M14, reaching 51.3% ROE, which is above its 2014 guidance range of 44-49%. We believe that BB Seguridade will surpass the high end of its ROE guidance for full year 2014, as we think its penetration story within Banco do Brasil’s client base should exceed expectations. We also note that in the case of BB Seguridade, “above estimates” net income normally results in

Henrique Navarro* Brazil: Banco Santander S.A. +5511-3012-5756 | [email protected]

Boris Molina New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

Renata Cabral* Brazil: Banco Santander S.A. +5511-3012-5731 | [email protected]

forward net income estimates being revised upward, due to the nature of part of its business (pension plans and number of insured lives/vehicles/contracts, etc.). Thus, we see upside risk for the industry’s 2015 and 2016 bottom lines.

 Outlook 2015: At the last BB Seguridade Day (November 2014), management said they foresee a good 2015 despite the difficult macroeconomic environment ahead. Although they did not provide guidance, we read this as supporting 21.3% EPS growth YoY, topping that of the other companies under our coverage.

 The high-growth story continues. We expect a 22.4% net income CAGR for 2013-16E, well above that of the Brazilian

Company Statistics

financial industry as a whole.

Bloomberg

 Penetration is king. Insurance penetration within Banco do

BBSE3 BZ

Current Price (01/02/15)

R$ 30.47 / US$ 11.32

Target Price (YE 2015)

R$ 41.50 / US$ 3.97

52-Week Range (R$)

21.83 - 35.74

Brasil’s client base reached 13.7% during 2014, according to BB

Market Capitalization (US$ Mn)

Seguridade. Even better, this ratio was stable QoQ, as Banco do

Float (%)

Brasil’s client base has increased at nearly the same pace as

22,637 33.8

3-Mth Avg. Daily Vol (US$ Mn)

50.5

Shares Outstanding - Mn

2,000

insurance sales. Price Performance (R$)

 Why we believe the insurance penetration story between

BBSE3 BZ

IBOVESPA

250

Banco do Brasil and BB Seguridade has room to grow substantially: (i) Bradesco, a good proxy, has much higher insurance penetration ratios, as it has focused on insurance for

200

150

much longer; (ii) Banco do Brasil has a larger client base than Bradesco; and (iii) BB Seguridade could surpass Bradesco’s penetration ratios due to what we consider to be Banco do Brasil’s stronger commitment to sell insurance.

100

50

A-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

46

D-14

BB SEGURIDADE Company Description

2016E 3,139 1 0 137 568 12,974 4,782 568 3,218 1,090 0 8,192

2013A 200 0 0 11 57 985 207 57 115 39 0 778

2014E 302 0 0 14 57 1,068 325 57 196 81 0 743

2015E 300 0 0 13 54 1,125 385 54 249 90 0 740

2016E 289 0 0 13 52 1,196 441 52 297 100 0 755

2014E 43.3 26.1 9.9 79.3 70.5 35.9 2.3 33.5

2015E 40.8 26.3 12.2 79.3 69.1 36.1 1.9 35.2

2016E 40.6 26.5 12.3 79.5 68.8 36.3 1.7 36.7

2013A 40.9 26.6 10.8 78.3 71.4 28.1 1.7 31.5

2014E 43.3 26.1 9.9 79.3 70.5 35.9 1.0 35.8

2015E 40.8 26.3 12.2 79.3 69.1 36.1 0.7 35.2

2016E 40.6 26.5 12.3 79.5 68.8 36.3 0.6 36.7

39.3

45.4

52.1

57.0

40.2

48.2

52.1

57.0

0.0

80.0

80.0

80.0

0.0

73.4

70.4

79.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

19.8

19.8

15.5

13.4

n/m

n/m

n/m

n/m

P/CE

19.8

19.8

15.5

13.4

n/m

n/m

n/m

n/m

P/BV

7.1

8.8

7.9

7.4

26.7

32.6

30.6

30.0

(0.0)

3.1

4.3

5.2

(0.0)

0.8

1.1

1.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

1.24

1.62

1.96

2.27

0.14

0.16

0.19

0.21 0.21

BALANCE SHEET Cash and Equivalents Financial Assets Premiums Receivable Intangible Assets Tangible Assets Total Assets Current Liabilities Technical Provisions Other Provisions Debt and Financial Liabilities Minority Interest Equity

2013A 1,785 3 0 94 509 8,785 1,844 509 1,022 345 0 6,941

2014E 2,983 1 0 137 568 10,558 3,213 568 1,934 805 0 7,345

OPERATING RATIOS Claims Ratio Sales Ratio Admin Ratio Combined Ratio Amplified Combined Ratio Effective Tax Rate Excess Solvency Margin ROAA

2013A 40.9 26.6 10.8 78.3 71.4 28.1 3.8 30.8

ROAE Payout MARKET RATIOS

Div Yield (%) PER SHARE DATA EPS

2015E 4,358 14.7 4,358 14.7 1,030 5.8 (816.3) 138 151 0 377 (136) 376 14.8

2016E 4,836 11.0 4,836 11.0 1,108 7.6 (880.5) 151 172 0 424 (154) 418 11.2

CEPS

1.24

1.62

1.96

2.27

0.14

0.16

0.19

BVPS

13.06

14.32

15.17

16.03

1.46

1.45

1.45

1.48

0.99

1.30

1.57

1.81

0.11

0.13

0.15

0.17

DPS

BB Seguridade is a holding company that consolidates all of Banco do Brasil’s insurance companies-therefore it holds stakes in companies specializing in insurance (life, auto, P&C and others), capitalization, open private pension plans and brokerage. It was formed at the end of 2012, and then IPO'd at the beginning of 2013. Banco do Brasil is the majority shareholder.

Key Personnel: Alexandre Corrêa Abreu (Chairman), Marcelo Augusto Dutra Labuto (CEO) and Werner Romera Suffert (CFO) Web: www.bancodobrasilseguridade.com.br

Valuation Breakdown, 2015E BB Corretora 30.8%

BrasilCap 7.9%

IRB 1.2%

SH1 35.8%

BrasilPrev 19.2%

SH2 5.3%

EPS 3-Year CAGR, 2013–16E 39.11 29.96 22.86

21.47 16.36

BB Corretora

2015E 3,133 1 0 137 568 11,759 4,021 568 2,604 943 0 7,738

2013A 30,104 34.4 30,104 34.4 8,091 38.9 (6,335.0) 1,254 778 (27) 2,143 (602) 2,474 99.5

BrasilCap

2013A 3,374 19.4 3,374 19.4 907 23.3 (709.9) 140 87 (3) 240 (67) 277 77.1

INCOME STATEMENT Written Premiums Growth (%) Retained Premiums Growth (%) Earned Premiums Growth (%) Commissions and Expenses Underwriting Results Financial Result Equity Income Profit Before Taxes Taxes Net Profit Growth (%)

BrasilPrev

2016E 52,468 15.2 52,468 15.2 12,022 11.7 (9,553.1) 1,643 1,863 0 4,599 (1,670) 4,537 15.5

US$ 2014E 3,798 12.6 3,798 12.6 973 7.3 (771.3) 162 121 (2) 313 (112) 328 18.2

SH2

R$ 2014E 2015E 37,562 45,541 24.8 21.2 37,562 45,541 24.8 21.2 9,621 10,761 18.9 11.8 (7,627.4) (8,530.7) 1,604 1,447 1,192 1,576 (19) 0 3,096 3,945 (1,112) (1,422) 3,240 3,929 31.0 21.3

SH1

Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions

Shareholder Structure, Current

Free Float 33.8%

Banco do Brasil 66.3%

Sources for all charts and tables: Company reports and Santander estimates.

47

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—FINANCIAL SERVICES

BM&F BOVESPA

BUY CURRENT PRICE: R$9.50 TARGET PRICE: R$12.30

RAISING YE2015 TARGET PRICE TO R$12.30 FROM R$11.70

 Investment Case: We recently lowered our volume and earnings estimates (for details, see our November 13 report, BM&F Bovespa: Saved by the Dividend Bell). Although negative news could continue in the form of stalling volumes, we believe current dividend levels could lead BVMF3 to outperform the IBOV.

 Outlook 2015: With respect to equities and derivatives, we

Henrique Navarro* Brazil: Banco Santander S.A. +5511-3012-5756 | [email protected]

Boris Molina New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

Renata Cabral* Brazil: Banco Santander S.A. +5511-3012-5731 | [email protected]

remain a negative outlook for volumes, as 2014 volumes came in below 2013 levels (equities -7%; derivatives -12%). We believe 2015 will face hard comps vs. 2014, due to the lack of elections and the potential sovereign risk downgrade; therefore, we expect another YoY reduction in volumes (equities -15%; derivatives 0%). We save our optimism only for 2016, when we finally expect some recovery (equities +10%; derivatives +2%).

 A dividend play company . . . again. At current price levels, BVMF’s dividend yield are at levels high enough to support the stock price, in our view. If our net income estimates are correct (we are 9% below consensus for 2014-16), the dividend yield Company Statistics

could top that of the financial segment.

Bloomberg

 Share buybacks should also help maximize shareholder returns. BVMF is an active user of share buy-back programs to

BVMF3 BZ

Current Price (01/02/15)

R$ 9.50 / US$ 3.53

Target Price (YE 2015)

R$ 12.30 / US$ 4.54

52-Week Range (R$)

8.80 - 14.19

maximize returns for shareholders. The current share-buyback

Market Capitalization (US$ Mn)

program authorized up to 100 million shares from February

Float (%)

through

December

2014.

In

this

period,

the

company

6,705 92.3

3-Mth Avg. Daily Vol (US$ Mn)

74.2

Shares Outstanding - Mn

1,900

repurchased 41.5 million shares at an average price of R$11.02 per share (totaling R$456.9 million). Shares bought under buy-

Price Performance (R$) BVMF3 BZ

back programs are put into the treasury and regardless of

110

whether they are cancelled or not, dividends are paid over the

100

amount of shares ex treasury. Therefore, BVMF’s share buy-

IBOVESPA

90

backs increase dividend yields, as the amount to be distributed as 80

dividends is divided by a fewer number of shares. 70 60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

48

D-14

BM&F BOVESPA Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions

Company Description

INCOME STATEMENT Equities Derivatives Other Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) Profit Before Taxes Taxes Net Profit Growth (%)

2013A 1,024 917 430 2,370 3.5 1,454 4.2 1,335 2.5 1,688 (607) 1,080 0.6

R$ 2014E 956 857 413 2,226 (6.1) 1,368 (5.9) 1,250 (6.3) 1,657 (633) 1,025 (5.1)

BALANCE SHEET Cash and Equivalents Accounts Receivable Intangible and Deferred Asse Tangible Assets Total Assets ST Debt LT Debt Equity Net Debt (Cash)

2013A 4,050 54 16,672 423 25,897 42 1,426 19,304 (4,592)

2014E 2,893 59 16,732 450 25,514 20 1,493 19,407 (2,871)

2015E 3,194 51 16,732 481 26,033 20 1,493 19,528 (4,575)

2016E 3,591 56 16,732 512 26,715 20 1,493 19,669 (6,678)

2013A 1,729 23 7,116 181 11,053 18 609 8,239 (1,960)

2014E 1,135 23 6,561 177 10,005 8 586 7,611 (1,126)

2015E 1,179 19 6,174 177 9,606 7 551 7,206 (1,688)

2016E 1,222 19 5,691 174 9,087 7 508 6,690 (2,271)

CASH FLOW Changes in Working Capital Operating Cash Flow Capital Expenditures Change in Debt Free Cash Flow to Equity Cash Dividends Capital Increase (Decrease)

2013A (24) 229 289 (767) 904 (865) 0

2014E (40) 298 245 378 808 (865) 0

2015E (20) 295 205 434 855 (923) 0

2016E (20) 346 151 295 1,038 (1,019) 0

2013A (10) 98 123 (327) 386 (369) 0

2014E (16) 117 96 148 317 (339) 0

2015E (7) 109 76 160 316 (340) 0

2016E (7) 118 51 100 353 (347) 0

OPERATING RATIOS ADTV ADTC EBITDA Margin

2013A 7,513 2,858 61.3

2014E 6,952 2,523 61.5

2015E 5,916 2,522 63.4

2016E 6,533 2,572 63.9

2013A 7,513 2,858 61.3

2014E 6,952 2,523 61.5

2015E 5,916 2,522 63.4

2016E 6,533 2,572 63.9

35.9

38.2

32.4

29.1

35.9

38.2

32.4

29.1

Effective Tax Rate

2015E 818 862 366 2,047 (8.0) 1,298 (5.1) 1,191 (4.8) 1,676 (544) 1,132 10.4

2016E 887 879 395 2,161 5.6 1,380 6.3 1,267 6.4 1,868 (544) 1,324 16.9

2013A 437 391 183 1,012 (9.7) 620 (9.1) 570 (10.6) 720 (259) 461 (12.3)

US$ 2014E 375 336 162 873 (13.7) 536 (13.5) 490 (13.9) 650 (248) 402 (12.8)

2015E 302 318 135 755 (13.5) 479 (10.7) 439 (10.4) 619 (201) 418 3.9

2016E 302 299 134 735 (2.7) 469 (2.0) 431 (2.0) 635 (185) 450 7.8

Net Margin

45.6

46.1

55.3

61.3

45.6

46.1

55.3

61.3

Net Debt / EBITDA

(3.2)

(2.1)

(3.5)

(4.8)

(3.2)

(2.1)

(3.5)

(4.8)

Net Debt / Equity

(0.2)

(0.1)

(0.2)

(0.3)

(0.3)

(0.2)

(0.2)

(0.3)

FCFE / Revenues

38.1

36.3

41.8

48.0

38.1

36.3

41.8

48.0

ROAA

4.3

4.0

4.4

5.0

4.4

4.2

4.4

5.0

ROAE

5.6

5.3

5.8

6.8

5.7

5.6

5.8

6.8

Payout

80.5

80.1

90.0

90.0

72.9

73.4

79.2

89.4

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

19.5

18.3

15.9

13.6

19.3

17.5

16.0

14.9

P/CE

21.9

20.6

17.6

14.9

21.7

19.8

17.7

16.3

FV/EBITDA

MARKET RATIOS

11.3

11.6

10.4

8.3

11.2

11.0

10.5

9.5

FCFE Yield (%)

4.3

4.3

4.7

5.7

4.3

4.5

4.7

5.3

P/BV

1.1

1.0

0.9

0.9

1.1

0.9

0.9

1.0

Div Yield (%)

4.1

4.6

5.1

5.6

4.1

4.8

5.1

5.2

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.56

0.54

0.60

0.70

0.24

0.21

0.22

0.24

CEPS

0.46

0.50

0.55

0.65

0.19

0.20

0.20

0.22

FCFPS

0.03

0.03

0.03

0.05

0.01

0.01

0.01

0.02

BVPS

10.15

10.21

10.27

10.34

4.33

4.00

3.79

3.52

0.46

0.50

0.55

0.65

0.19

0.20

0.20

0.22

DPS

BM&F Bovespa (BVMF), the Securities, Commodities, and Futures Exchange was created in 2008 after the merger of the Brazilian Mercantile & Futures Exchange (BM&F) and the São Paulo Stock Exchange (Bovespa). The company offers trading services for equities, securities, financial assets, indices, interest rates, agricultural commodities, and foreign exchange futures and spot contracts, all in a vertically integrated structure. On the derivatives side, BM&F is one of the largest derivatives exchanges in the world per number of contracts traded, the largest in Latin America, and the only futures exchange in Brazil. On the equity side, the Bovespa is the only cash equities exchange in Brazil and responsible for more than half of the total market capitalization of all Latin American exchanges. BVMF has a fully integrated business model and provides execution, registration, clearing, settlement, and custody services.

Key Personnel: Pedro Parente (Chairman), Edemir Pinto (CEO), Eduardo Guardia (CFO) and Rogerio Santana (IRO) Web: http://ri.bmfbovespa.com.br/

Bovespa Revenues, 2013A

Others 2.8%

Trading 17.4%

Clearing 79.8%

Revenue Breakdown, 2014E Other oper. revenues 18.6%

BM&F 38.5% Bovespa 42.9%

Shareholder Structure, Current

CME Treasury 5.3% 3.2%

Free Float 91.5%

Sources for all charts and tables: Company reports and Santander estimates.

49

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—CEMENT, CONSTRUCTION, INFRA & RE

BR MALLS

BUY CURRENT PRICE: R$15.41 TARGET PRICE: R$22.00



Investment Case: The deceleration in the growth pace for the next couple of years is likely to drive down capex disbursements, in our view, and favor cash generation after 2015. As a result, we expect significant equity value to be created due to the deleveraging process we expect in 2015 and 2016 (net debt/EBITDA 3.8x and 3.0x,

Bruno Mendonca* Brazil: Banco Santander S.A. +5511-3012-5759 | [email protected]

Renan Manda* Brazil: Banco Santander S.A. +5511 3012-6535 | [email protected]

respectively, down from 4.3x in 3Q14). The short term remains cloudy due to recent decelerating SSS trends, but we expect the combination of cost discipline, new GLA, and deleveraging to offset potentially lower sales in 2015 and 2016.



Outlook 2015: We expect BRMalls to continue with its portfolio turnover strategy. We believe that a potential sale of mature malls (those with less room for growth/efficiency gains) or even of noncontrolling stakes (a less liquid market, so harder to get a good sale price) would likely be seen as value accretive for the stock. These asset sales could (1) help accelerate BRMalls’ deleveraging process (4.3x net debt/EBITDA by 3Q14), and (2) potentially unlock value in light of the stock’s current discount to the marked-to-market value of the assets.



3Q14 brought concerns on SSS deceleration: Below-inflation SSS

Company Statistics

(+4.7% in 3Q14) may be seen as a leading indicator of leasing

Bloomberg

spreads, in our view. Considering that the risk of an imminent

BRML3 BZ

Current Price (01/02/15)

R$ 15.41 / US$ 5.72

Target Price (YE 2015)

R$ 22.00 / US$ 8.30

slowdown was more apparent to BRMalls than to peers in 3Q14, an

52-Week Range (R$)

additional SSS deceleration in the next few quarters could put the

Market Capitalization (US$ Mn)

market’s 2016 estimates at risk. Our estimates are already below consensus, but we believe the comparison is not fully applicable due

14.62 - 23.40 2,631

Float (%)

69.1

3-Mth Avg. Daily Vol (US$ Mn)

20.6

Shares Outstanding - Mn

460

to the effects of the recent sale of assets and the postponement of Price Performance (R$)

delivery of BRMalls’ greenfields to 2016 from 2015.

BRML3 BZ



Strong multiple dilution from 2016 onward: After a 17% stock dive

IBOVESPA

110 100

in December (not fully explained by interest rates, in our view), we 90

see BRML3 trading at an attractive 14.6x P/FFO 2015E. In addition, we expect substantial compression in multiples in 2016 (12.3x

80 70

P/FFO, 18% discount to MULT3), mainly driven by the maturing of

60

the recently delivered mall Shopping Vila Velha as well as six other

50

j-13

expansions to be delivered through YE2016.

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

50

d-14

BR MALLS Company Description

2013A (5) 0 (18) 297 (665) (368) 175 61 (67) (13)

2014E (4) 0 4 213 (271) (58) 81 (7) (73) (24)

2015E (4) 0 (15) 168 (154) 14 54 (126) (65) (49)

2016E (4) 0 (22) 187 (133) 54 167 (112) (69) (52)

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 409 973 17,557 19,123 1,405 8,251 8,790 4,767 770

2014E 415 910 18,183 19,758 1,107 8,757 9,172 4,911 627

2015E 138 657 18,583 19,940 1,095 8,603 9,476 4,579 627

2016E 308 894 18,944 20,628 1,119 8,842 9,856 4,272 627

2013A 174 415 7,493 8,162 600 3,522 3,752 2,034 328

2014E 163 357 7,131 7,748 434 3,434 3,597 1,926 246

2015E 52 248 7,013 7,524 413 3,247 3,576 1,728 237

2016E 112 325 6,889 7,501 407 3,215 3,584 1,553 228

3,997

4,284

3,951

3,645

1,706

1,680

1,491

1,325

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

4,358

4,496

4,441

3,964

1,860

1,763

1,676

1,442

Capital Employed

13,148

13,667

13,917

13,820

5,612

5,360

5,252

5,025

Net Debt/EBITDA

4.2

4.1

3.8

3.0

3.9

3.7

3.7

2.9

Net Debt/Equity

0.5

0.5

0.5

0.4

0.5

0.6

0.5

0.4

110.0

44.8

27.3

21.7

110.0

44.8

27.3

21.7

Capex/Revenue (%) Int Cover (%)

0.7

1.0

2.1

2.4

0.7

1.0

2.1

2.4

Dividend Payout (%)

8.3

25.0

35.2

39.1

7.5

22.9

31.0

38.9

ROCE (%)

8.1

8.3

8.4

9.5

8.8

9.3

8.4

9.5

ROE (%)

8.0

5.4

5.1

5.8

8.2

5.7

5.1

5.8

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

11.4

15.7

14.9

12.5

10.5

13.6

14.4

12.6

P/CE

11.3

15.3

14.6

12.3

10.3

13.3

14.1

12.3

FV/EBITDA

12.2

11.5

10.3

8.8

11.2

10.2

10.0

8.7

FV/EBIT

12.4

11.6

10.4

8.8

11.3

10.3

10.1

8.8

FV/Revenue

9.8

9.0

8.2

7.0

9.0

8.0

8.0

7.0

P/BV

0.9

0.8

0.7

0.7

0.9

0.8

0.7

0.7

(10.2)

(1.8)

0.5

2.0

(11.2)

(2.1)

0.5

2.0

1.9

2.2

2.4

2.6

2.0

2.6

2.5

2.6

FCF Yield (%) Div Yield (%) PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.09

0.99

1.05

1.25

0.51

0.43

0.40

0.46

DPS

0.32

0.37

0.37

0.40

0.15

0.16

0.14

0.15

19.28

19.96

20.62

21.45

8.23

7.83

7.78

7.80

BVPS

51

Key Personnel: Carlos Medeiros (CEO) and Frederico Villa (CFO and IR Officer) Web: www.brmalls.com.br/ri

Owned GLA, 2013–16E ('000 m²) 1100.12

1025.19 1004.07 974.81

2016E

2016E (10) 0 (60) 505 (360) 145 451 (302) (185) (139)

BRMalls Participações S/A is the largest shopping center owner/operator in Brazil. The company has the most geographically diversified portfolio, with a presence in all regions of Brazil. As of the latest figures (September 2014), it had an interest in 50 malls, with an owned GLA of 1,004,068 m², and an average stake of 58.1% in its mall portfolio, which is mostly managed by the company. In addition, the company has 2 greenfield projects and 6 expansions currently under development. BRMalls is a full corporation listed on Bovespa’s Novo Mercado.

Rental Revenue, 2013–16E (R$ in millions) 1287.69 999.40

1076.00

1124.63

2016E

2015E (10) 0 (38) 436 (401) 35 141 (327) (170) (126)

Net Debt

2016E 614 8.8 562 8.7 492 8.7 80.2 488 8.7 79.5 (202) (51) 209 14.9 34.1

2015E

2014E (10) 0 9 491 (626) (135) 187 (15) (170) (55)

FINANCIAL RATIOS

2015E 564 (6.6) 517 (6.4) 453 (4.7) 80.3 449 (4.6) 79.6 (200) (45) 182 (12.6) 32.3

2015E

2013A (10) 0 (39) 641 (1,434) (794) 377 132 (145) (28)

LT Debt

2013A 604 5.1 553 5.3 482 7.1 79.7 477 7.7 79.0 (269) (247) 315 (64.6) 52.2

2014E

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2016E 1,658 13.0 1,516 12.9 1,329 12.8 80.2 1,319 12.9 79.5 (546) (139) 565 19.3 34.1

2014E

2013A 1,304 16.0 1,194 16.3 1,040 18.3 79.7 1,030 18.9 79.0 (581) (532) 680 (61.0) 52.2

2015E 1,467 5.0 1,343 5.3 1,178 7.2 80.3 1,168 7.3 79.6 (520) (117) 474 (1.7) 32.3

US$ 2014E 604 0.0 552 (0.2) 475 (1.4) 78.6 471 (1.3) 77.9 (228) (154) 209 (33.8) 34.5

2013

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

R$ 2014E 1,397 7.1 1,276 6.9 1,098 5.6 78.6 1,088 5.7 77.9 (528) (356) 482 (29.1) 34.5

2013

Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Shareholder Structure, Current

Dodge & Cox 13.4% Others 69.5%

T. Rowe Price 11.3% Board 5.8%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—CEMENT, CONSTRUCTION, INFRA & RE

BR PROPERTIES

HOLD CURRENT PRICE: R$10.12 TARGET PRICE: R$11.50



Investment Case: BR Properties is a leading player in the AAA

Bruno Mendonca*

office segment in Brazil, focusing mainly on SP and RJ. In our

Brazil: Banco Santander S.A. +5511-3012-5759 | [email protected]

opinion, the São Paulo corporate market’s fundamentals should remain bleak mainly on the still strong volume of deliveries expected over the next two years and the dismal economic growth, which is

Renan Manda* Brazil: Banco Santander S.A. +5511 3012-6535 | [email protected]

likely to undermine demand for new leases in the office segment and to pressure rent prices in the short- to mid-term.



Outlook 2015: With nearly half of its rent revenue being renegotiated/renewed in 2015, we anticipate a difficult year ahead for BBR Properties mainly because: (i) the risk of increasing vacancy rates is still not negligible given the strong upcoming supply; and (ii) of our expectation of pressure in rent prices over the next couple of years as a result of increasing competition.



Positive operating performance reported so far in 2014: The company recently announced the lease of 24,972 m² of the Tower B from the JK complex to Johnson & Johnson. This greatly reduces the risk of increasing vacancy in the short term.



We do not rule out additional portfolio rotation: The company recently sold the majority of its warehouse and retail portfolio, with

BRPR3 BZ

most of the proceeds distributed as an extraordinary dividend in June

Current Price (01/02/15)

R$ 10.12 / US$ 3.76

2014 (R$1.6 billion, or 29% dividend yield) and the remaining part

Target Price (YE 2015)

R$ 11.50 / US$ 4.51

was used to prepay debt and strengthen the company’s cash position.



Company Statistics Bloomberg

Already a fair valuation. BRPR3 is currently trading at a 2016E

52-Week Range (R$)

9.73 - 18.90

Market Capitalization (US$ Mn)

1,175

Float (%)

53.6

3-Mth Avg. Daily Vol (US$ Mn)

11.4

Shares Outstanding - Mn

313

P/FFO of 17.1x (a premium of 31% to the sector average). Price Performance (R$) BRPR3 BZ

IBOVESPA

120 100 80 60 40 20

j-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

52

d-14

BR PROPERTIES Company Description

2013A (0) (14) 24 196 219 136 (74) (181)

2014E (0) (14) 142 1,228 1,370 (606) (777) (1,001)

2015E 0 3 42 (32) 10 40 (37) (39)

2016E 0 (6) 63 (29) 33 (73) (19) 5

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 951 1,421 13,428 15,463 1,170 7,711 5,548 909

2014E 500 1,075 10,629 12,278 769 6,130 4,142 320

2015E 485 1,043 10,678 12,329 721 6,182 4,247 328

2016E 433 1,031 10,722 12,396 770 6,274 4,050 313

2013A 413 618 5,838 6,723 509 3,353 2,412 395

2014E 204 439 4,339 5,012 314 2,502 1,691 131

2015E 190 409 4,188 4,835 283 2,424 1,665 129

2016E 166 396 4,124 4,768 296 2,413 1,558 120

4,639

3,822

3,919

3,738

2,017

1,560

1,537

1,438

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

4,597

3,642

3,762

3,618

1,999

1,486

1,475

1,391

Capital Employed

11,677

9,297

9,387

9,339

5,077

3,795

3,681

3,592

Net Debt/EBITDA

5.7

4.9

5.3

4.7

5.3

4.7

5.4

4.9

Net Debt/Equity

0.6

0.6

0.6

0.6

0.7

0.7

0.6

0.6

(45.7)

(340.4)

10.3

9.2

(45.7)

(340.4)

10.3

9.2

Capex/Revenue (%) Int Cover (%)

1.1

1.0

1.1

1.3

1.1

1.0

1.1

1.3

13.0

n/m

27.0

50.0

11.8

n/m

23.8

49.7

ROCE (%)

6.9

7.9

7.6

8.2

7.6

8.9

7.6

8.2

ROE (%)

1.0

5.2

1.7

3.0

1.0

5.5

1.7

3.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

n/m

8.9

30.8

17.1

n/m

7.7

29.8

17.2

P/CE

n/m

8.9

30.8

17.1

n/m

7.7

29.8

17.2

FV/EBITDA

12.8

9.3

9.7

8.9

11.9

8.5

9.7

9.1

FV/EBIT

12.8

9.3

9.7

8.9

11.9

8.5

9.7

9.1

FV/Revenue

Dividend Payout (%)

MARKET RATIOS

11.3

8.2

8.6

7.8

10.4

7.5

8.5

8.0

P/BV

0.8

0.5

0.5

0.5

0.7

0.5

0.5

0.5

FCF Yield (%)

8.1

98.8

0.8

2.8

8.9

113.7

0.9

2.8

Div Yield (%)

2.8

56.1

3.1

1.6

3.0

64.5

3.2

1.6

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.26

1.17

0.33

0.59

0.12

0.50

0.13

0.22

DPS

0.51

5.55

0.16

0.30

0.24

2.40

0.06

0.11

24.66

19.61

19.77

20.07

10.72

8.00

7.75

7.72

BVPS

53

Key Personnel: Claudio Bruni (CEO) and Pedro Marcio Daltro dos Santos (CFO and IR) Web: www.brproperties.com.br/ri

GLA Evolution ('000 m²), 2013–16E

1939.47

964.40

993.94

993.94

2016E

2016E 0 (15) 169 (79) 90 (196) (51) 13

BR Properties is a leading company in Brazil’s income property industry that is focused on the corporate real estate markets. Currently, the company acquires, manages, leases, and sells income-generating commercial properties across Brazil, with a primary focus on office buildings and warehouses. In September 2011, BR Properties announced the acquisition of One Properties, which expanded its portfolio by almost 45% in terms of GLA.

Rental Revenue (R$ in millions), 2013–16E 984.02

910.17 882.69 849.83

2016E

2015E 0 7 110 (83) 26 105 (97) (101)

Net Debt

2016E 320 3.1 320 3.1 283 3.6 88.3 283 3.6 88.3 (201) (13) 68 73.1 21.3

2015E

2014E (0) (32) 328 2,839 3,167 (1,401) (1,796) (2,314)

FINANCIAL RATIOS

2015E 311 (13.9) 311 (13.9) 273 (14.2) 87.9 273 (14.2) 87.9 (226) (8) 39 (74.6) 12.7

2015E

2013A (0) (31) 51 422 473 295 (160) (390)

LT Debt

2013A 428 32.6 428 32.6 376 34.3 87.8 376 34.3 87.8 (285) (12) 38 (94.0) 8.8

2014E

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2016E 865 7.1 865 7.1 764 7.6 88.3 764 7.6 88.3 (543) (35) 185 79.7 21.3

2014E

2013A 924 46.4 924 46.4 811 48.2 87.8 811 48.2 87.8 (614) (27) 81 (93.4) 8.8

2015E 808 (3.1) 808 (3.1) 710 (3.5) 87.9 710 (3.4) 87.9 (587) (20) 103 (71.5) 12.7

US$ 2014E 361 (15.7) 361 (15.7) 318 (15.3) 88.2 318 (15.3) 88.2 (239) (40) 156 314.0 43.2

2013

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

R$ 2014E 834 (9.7) 834 (9.7) 736 (9.2) 88.2 736 (9.2) 88.2 (551) (92) 360 343.5 43.2

2013

Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Shareholder Structure, Current

BTG Pactual 24.5%

Others 53.6%

GIC 6.5%

Wtorre 6.9%

Petros 8.5%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—FINANCIAL SERVICES

BRADESCO

BUY CURRENT PRICE: R$34.30 TARGET PRICE: R$40.50

INTRODUCING YE2015 TARGET PRICE OF R$40.50; REPLACING YE2014 TARGET PRICE OF R$40.00 

Investment Case: In our view Bradesco is fundamentally

Boris Molina

undervalued. The bank offers a solid combination of earnings

New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

diversification

(thanks

to

its

insurance

operations),

strong

capitalization on a group-consolidated basis (with a lower-risk business mix and higher tangible equity capital ratios, particularly relative to Itaú) and high levels of adjusted profitability (return on capital employed in the mid-20% range). Trading at a 2015E P/BV of

Henrique Navarro* Brazil: Banco Santander S.A. +5511-3012-5756 | [email protected]

Renata Cabral* Brazil: Banco Santander S.A. +5511-3012-5731 | [email protected]

1.4x, we believe that Bradesco is attractively valued and should continue to outperform the Brazilian market.



Outlook 2015: We expect modest loan growth of 8.5%, a slight acceleration relative to 2013, based on our current estimate of 0.3% GDP growth. Slow growth could lead to a gradual, albeit manageable, deterioration in NPLs and slightly higher risk cost. We believe asset-quality headwinds will be offset by flat margins (relative to 2H13 levels) and improvements in efficiency thanks to the rollout of the new IT platform. We expect adjusted ROE to post a 100-bp contraction due to mid-single-digit growth in adjusted earnings.



Tangible efficiency gains: In the next two years, we expect an

Bloomberg

BBDC4 BZ / BBD US

has seen the peak in the growth of capitalized software expenses (in

Current Price (01/02/15)

R$ 34.30 / US$ 12.82

intangible assets) from its IT plan, which are now starting to be

Target Price (YE 2015)

R$ 40.50 / US$ 14.95

amortized. This means that tangible cost growth is slower than

25.27 - 41.64

Market Capitalization (US$ Mn)

53,606

Float (%)

consumption from operating expenditures than is apparent from

3-Mth Avg. Daily Vol (US$ Mn)

128.3

Shares Outstanding - Mn

4,207

Capital position stronger than it appears: We estimate a fully

60.1

Price Performance (R$) BBDC4 BZ

loaded Basel III consolidated capital ratio for Bradesco of 10.5% for

120

2015, which we believe is a better reflection of the underling

110

capitalization of the group, given that it takes into account excess

100

capital in insurance operations.



52-Week Range (R$)

reported costs, leading to faster underlying improvement in capital reported figures.



Company Statistics

approximate 300-bp improvement in adjusted efficiency, as the bank

IBOVESPA

90

The start of international expansion? The expansion of brokerage

80

and investment banking services in the region signals the start of the

70

international expansion of Bradesco, in our view.

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

54

D-14

BRADESCO Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions

Company Description

INCOME STATEMENT Net Interest Income NPL Provisions Adj Net Interest Income Non-Interest Income Total Operating Revenue Non-Interest Expense Profit Before Taxes Taxes Net Profit Adjusted Net Profit

2013A 36,793 (12,071) 24,722 33,414 58,136 (39,395) 18,621 (6,384) 12,011 10,114

R$ 2014E 2015E 41,606 48,578 (12,673) (14,265) 28,932 34,313 37,355 38,477 66,288 72,790 (42,682) (45,822) 23,474 26,819 (8,280) (9,373) 15,102 17,306 17,248 17,865

2016E 52,165 (14,312) 37,854 42,415 80,269 (48,901) 31,200 (10,935) 20,103 20,401

2013A 17,047 (5,593) 11,454 15,481 26,935 (18,252) 8,627 (2,958) 5,565 4,686

US$ 2014E 2015E 17,675 18,137 (5,384) (5,326) 12,291 12,811 15,869 14,366 28,160 27,177 (18,132) (17,108) 9,972 10,013 (3,518) (3,500) 6,416 6,461 7,327 6,670

BALANCE SHEET Cash and Equivalents Securities Loans (net) Intangible Assets Total Assets Core Deposits Other Financial Liabilities Subordinated Debt Technical Provisions Equity Adjusted Equity

2013A 12,196 313,327 301,374 12,702 908,139 217,099 315,741 35,885 136,229 70,940 69,686

2014E 2015E 2016E 13,704 15,683 17,832 340,301 362,096 387,908 323,912 350,974 389,366 12,455 12,116 11,840 973,745 1,047,300 1,140,871 227,367 260,274 295,988 339,886 351,872 378,597 35,961 35,220 34,771 145,552 157,873 171,142 81,850 92,824 105,916 81,362 92,572 105,838

2013A 5,163 132,631 127,571 5,377 384,414 91,898 133,653 15,190 57,666 30,029 29,498

2014E 5,178 128,571 122,379 4,706 367,895 85,903 128,414 13,587 54,992 30,924 30,740

2015E 5,787 133,615 129,511 4,471 386,458 96,042 129,842 12,996 58,256 34,252 34,160

2016E 6,065 131,941 132,437 4,027 388,051 100,676 128,774 11,827 58,212 36,026 35,999

LOAN BOOK Companies Total Consumer Mortgages Other Loans Gross Loans Loan Grow th (%) NPL Provisions

2013A 193,381 116,861 12,819 0 323,061 11.0 11,275 (21,687)

2014E 205,887 124,093 17,377 0 347,357 7.5 12,676 (23,445)

2015E 219,074 134,735 23,099 0 376,908 8.5 14,694 (25,933)

2016E 237,197 149,186 29,576 0 415,960 10.4 15,211 (26,594)

2013A 81,858 49,467 5,426 0 136,751 (3.7) 4,773 (9,180)

2014E 77,787 46,884 6,565 0 131,237 (4.0) 4,789 (8,858)

2015E 80,839 49,718 8,523 0 139,080 6.0 5,422 (9,569)

2016E 80,679 50,744 10,060 0 141,483 1.7 5,174 (9,046)

2013A 5.59 3.95 6.48

2014E 6.00 3.82 7.02

2015E 6.20 3.96 7.23

2016E 6.17 3.64 7.37

2013A 5.59 3.95 6.48

2014E 6.00 3.82 7.02

2015E 6.20 3.96 7.23

2016E 6.17 3.64 7.37

Cost / ATAs

4.39

4.52

4.55

4.49

4.39

4.52

4.55

4.49

Adj Efficiency

50.5

48.0

46.2

45.2

50.5

48.0

46.2

45.2

Effective Taxes

34.3

35.3

35.0

35.0

34.3

35.3

35.0

35.0

Reported ROE (%)

17.6

19.8

19.8

20.2

17.6

19.8

19.8

20.2

Adj ROE (%)

16.6

26.7

25.7

26.3

16.6

26.7

25.7

26.3

NPL Ratio

3.49

3.65

3.90

3.66

3.49

3.65

3.90

3.66

Adj NPL Ratio

7.34

7.06

7.18

7.00

7.34

7.06

7.18

7.00

KEY RATIOS NIM Risk Charge Operating Revenue / ATA

Loans / Total Assets

2016E 18,466 (5,066) 13,400 15,014 28,414 (17,310) 11,044 (3,871) 7,116 7,222

35.6

35.7

36.0

36.5

35.6

35.7

36.0

36.5

Loans / Core Deposits

148.8

152.8

144.8

140.5

148.8

152.8

144.8

140.5

RWA % Total Assets

59.7

63.1

64.6

67.1

59.7

63.1

64.6

67.1

Core Tier I Ratio (%)

9.3

9.8

10.5

11.2

9.3

9.8

10.5

11.2

Dividend Payout (%)

34.0

35.0

35.0

35.0

34.0

35.0

35.0

35.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

MARKET RATIOS Adj. P/BV Adj. P/E Div Yield (%) PER SHARE DATA EPS

1.5

1.6

1.4

1.3

1.6

1.6

1.4

1.4

12.0

8.1

7.5

6.3

11.1

7.3

7.5

6.8

3.5

3.8

4.4

5.1

3.8

4.2

4.4

4.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

2.85

3.59

4.11

4.78

1.32

1.52

1.54

1.69

16.86

19.45

22.06

25.17

7.14

7.35

8.14

8.56

DPS

1.02

1.32

1.51

1.75

0.47

0.56

0.56

0.62

Adj EPS

2.40

4.10

4.25

4.85

1.11

1.74

1.59

1.72

Adj BVPS

16.56

19.34

22.00

25.16

7.01

7.31

8.12

8.56

Surplus Capital per Share

(2.07)

(1.43)

(0.44)

0.66

(0.88)

(0.54)

(0.16)

0.22

2.39

3.12

2.91

2.86

1.01

1.18

1.07

0.97

BVPS

Unrealized Cap. Gains/Shr

55

Bradesco is one of Brazil’s leading private sector banks, with total assets of approximately US$402 billion as of 3Q14 and approximately an 10.6% market share in loans and 12.6%% in deposits in Brazil. Bradesco boasts a leading market share among its peers in the insurance industry in Brazil, with strong positions in private pension fund management, corporate banking, and asset management. The bank has a solid segmentation strategy that gives it ample exposure to all the socioeconomic and product segments in the Brazilian banking industry, combined with strong distribution capabilities via its extensive branch and correspondent banking networks. The bank has a dual shareholding structure, with control of the bank held largely by the bank’s management and the founding Aguiar family via a series of cascading holding companies and foundations that own the majority of the bank’s voting shares.

Key Personnel: Lázaro Brandão (Chairman), Luiz Carlos Trabuco (CEO), Luiz Angelotti (CFO) and Paulo Faustino da Costa (IRO) Web: www.bradescori.com.br

Loan Portfolio, 2015E

Payroll 9.0%

Mortgage 6.1%

C.Card 6.9%

Other 8.7%

Corp/MM 28.1%

Personal 4.4%

Auto 6.7%

SMEs 30.0%

Revenue Structure, 2015E

Insurance 13.9%

Other 5.3%

Fees 33.4% NII 47.3%

Shareholder Structure, Current Bradesco Mngt Found. 3.1% 29.3% Free Float 60.1%

Other 1.7%

Aguiar Fam. 5.8%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—FOOD & BEVERAGE

BRASIL FOODS

BUY CURRENT PRICE: R$62.18 TARGET PRICE: R$77.00



Investment Case: The company continues to show progress with

João Mamede*

its self-improvement efforts, and we believe that management’s

Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

strategy to cut back from unprofitable categories and markets should continue to drive returns to record levels. We recognize that BRF’s shares are trading at relatively high multiples (~20x P/E for 2015E), but we expect the positive earnings momentum to continue, lowering multiples in the years ahead. Moreover, we view

Luis Miranda*, CFA Mexico: Banco Santander S.A. +5255-5269-1926 | [email protected]

Ronaldo Kasinsky* Brazil: Banco Santander S.A. +5511-3553-2396 | [email protected]

favorably the company’s solid balance sheet (deleveraged), and we do not expect a change in CEO in early 2015 to be disruptive, as capital discipline and cash flow efficiency remain a priority for management.



Outlook for 2015: We anticipate BRF will be able to deliver another year of improving results based on favorable grain price dynamics and maturing internal initiatives. We forecast 15% YoY EBITDA growth and 27% EPS growth as a consequence of increasing margins and reduced leverage ratios (supported by strong cash flow generation and the sale of its dairy unit in 1H15). We expect cash discipline and a focus on profitability to allow for strong cash generation (4% FCF yield in 2015E) and enhanced returns (14%

Bloomberg

ROE in 2015E).



Company Statistics BRFS3 BZ / BRFS US

Current Price (01/02/15)

R$ 62.18 / US$ 22.94

Target Price (YE 2015)

R$ 77.00 / US$ 28.42

Catalysts: Structural improvements in all business lines should be

52-Week Range (R$)

supported by (1) the new go-to-market strategy (streamlining the

Market Capitalization (US$ Mn)

sales force), (2) further SKU rationalization (focus on profitability), (3)

Float (%)

54.2

3-Mth Avg. Daily Vol (US$ Mn)

57.2

Shares Outstanding - Mn

872

enhanced internal processes (improved systems), (4) reduced bureaucracy (fewer layers), and (5) favorable industry dynamics (lower grain prices). Moreover, we expect internationalization initiatives to materialize, including possible M&A in strategic markets.

40.00 - 67.85 20,152

Price Performance (R$) BRFS3 BZ

IBOVESPA

160 140



Concerns: Main risks to our investment case include (1) grain price

120

volatility affecting margins (roughly 25% of COGS), (2) sanitation and 100

commercial barriers in the export market, (3) higher competition in the domestic market, (4) execution risk associated with its internal initiatives, (5) M&A in foreign markets, and (6) demanding multiples (20x P/E in 2015E and 11x EV/EBITDA in 2015E).

80 60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

56

D-14

BRASIL FOODS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 30,519 7.0 7,566 17.2 3,132 16.9 10.3 1,958 11.6 6.4 (748) (146) 1,061 30.1 3.5

R$ 2014E 31,896 4.5 8,932 18.1 4,510 44.0 14.1 3,277 67.3 10.3 (874) (233) 2,171 104.7 6.8

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (1,177) 2,456 81 2,421 (1,827) 1,991 0 1,020 (579) 0

2014E (1,232) 2,144 152 3,236 (1,519) 2,952 0 767 (726) 0

2015E (1,290) 2,374 175 4,021 (1,570) 2,856 0 0 (651) 0

2016E (1,314) 865 (195) 2,450 (1,621) 2,878 0 0 (829) 0

2013A (546) 1,138 38 1,122 (847) 923 0 473 (268) 0

2014E (526) 915 65 1,381 (648) 1,260 0 327 (310) 0

2015E (490) 903 66 1,529 (597) 1,086 0 0 (248) 0

2016E (465) 306 (69) 867 (574) 1,019 0 0 (293) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 3,588 13,243 19,132 32,375 8,436 9,243 14,550 10,182 2,697

2014E 5,346 15,130 18,910 34,040 8,549 10,134 15,171 10,745 2,529

2015E 7,146 16,841 19,190 36,031 8,635 10,134 17,076 10,745 2,529

2016E 7,146 17,531 19,497 37,028 9,129 10,134 17,578 10,745 2,529

2013A 1,531 5,652 8,166 13,818 3,601 3,945 6,210 4,346 1,151

2014E 2,096 5,933 7,416 13,349 3,353 3,974 5,949 4,214 992

2015E 2,637 6,214 7,081 13,296 3,186 3,739 6,301 3,965 933

2016E 2,431 5,963 6,632 12,594 3,105 3,447 5,979 3,655 860

7,485

8,216

8,216

8,216

3,195

3,222

3,032

2,795

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

6,594

5,399

3,599

3,599

2,814

2,117

1,328

1,224

Capital Employed

23,939

25,491

27,396

27,898

10,217

9,996

10,109

9,489

Net Debt/EBITDA

2.1

1.2

0.7

0.6

1.9

1.1

0.7

0.6

Net Debt/Equity

0.5

0.4

0.2

0.2

0.5

0.4

0.2

0.2

Capex/Revenue (%)

6.0

4.8

4.9

4.6

6.0

4.8

4.9

4.6

LT Debt FINANCIAL RATIOS Net Debt

Int Cover (%) Dividend Payout (%) ROCE (%) ROE (%) MARKET RATIOS

2015E 31,921 0.1 9,540 6.8 5,166 14.5 16.2 3,876 18.3 12.1 (649) (466) 2,762 27.2 8.7

2016E 35,221 10.3 10,457 9.6 5,693 10.2 16.2 4,379 13.0 12.4 (736) (549) 3,095 12.0 8.8

2013A 14,145 (1.9) 3,507 7.5 1,452 7.2 10.3 908 2.3 6.4 (347) (68) 492 19.4 3.5

US$ 2014E 13,611 (3.8) 3,811 8.7 1,925 32.6 14.1 1,398 54.1 10.3 (373) (99) 926 88.4 6.8

2015E 12,137 (10.8) 3,628 (4.8) 1,964 2.1 16.2 1,474 5.4 12.1 (247) (177) 1,050 13.4 8.7

2016E 12,468 2.7 3,701 2.0 2,015 2.6 16.2 1,550 5.2 12.4 (260) (194) 1,095 4.3 8.8

2.7

5.7

5.8

6.4

2.7

5.7

5.8

6.4

71.0

68.4

30.0

30.0

64.3

62.8

26.4

29.8

-

-

-

-

-

-

-

-

7.3

14.6

17.1

17.9

7.4

15.5

17.1

17.9

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

40.5

25.5

19.6

17.5

37.0

22.5

19.2

18.4

P/CE

19.2

16.3

13.4

12.3

17.6

14.3

13.1

12.9

FV/EBITDA

16.0

13.6

11.3

10.3

14.6

12.1

11.0

10.7

FV/EBIT

25.5

18.7

15.1

13.3

23.4

16.6

14.7

13.9

FV/Revenue

1.6

1.9

1.8

1.7

1.5

1.7

1.8

1.7

P/BV

3.0

3.6

3.2

3.1

2.9

3.5

3.2

3.4

FCF Yield (%)

4.6

5.3

5.3

5.3

5.1

6.1

5.4

5.1

Div Yield (%)

1.3

1.3

1.2

1.5

1.5

1.5

1.2

1.5

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.22

2.49

3.17

3.55

0.90

1.85

2.35

2.64

DPS

0.66

0.83

0.75

0.95

0.49

0.62

0.55

0.71

16.68

17.39

19.57

20.15

12.39

12.92

14.54

14.97

BVPS

57

BRF is one of the largest food companies in the world and is the result of the merger between Perdigão and Sadia. It operates in the segments of poultry meats, pork and beef, industrialized meats, margarines, pastas, pizzas and frozen vegetables. It operates 49 plants in Brazil, nine in Argentina, two in Europe (Plusfood) and inaugurated, more recently in 2014, a processed products plant in the Middle East. Its operational structure is supported by 28 distribution centers of refrigerated and frozen products supplying 98% of the country and consumers in more than 110 countries. BRF also has 22 overseas commercial offices and a portfolio of clients across the five continents. Its principal raw material inputs are grains and live animals.

Key Personnel: Abilio dos Santos Diniz (Chairman), Claudio Galeazzi (CEO), Augusto Ribeiro Jr. (CFO) and Christiane Assis (Investor Relations Manager) Web: www.ri.brf-global.com

Sales by Product Category, 9M14

Dairy 9.2%

Processed 41.6%

Other 8.4%

Fresh Poultry 32.0%

Fresh Pork/Beef 8.7%

Sales by Region, 9M14

Exports 42.3%

Domestic 57.7%

Shareholder Structure, Current

Petros 12.1%

Float 54.2%

Previ 11.7%

Others 11.5%

Tarpon 10.5%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—INSURANCE SERVICES

BRASIL INSURANCE

BUY CURRENT PRICE: R$3.23 TARGET PRICE: R$7.70

INTRODUCING YE2015 TARGET PRICE OF R$7.70; REPLACING YE2014 TARGET PRICE OF R$19.30 

Investment Case: Management is focused on a restructuring

Henrique Navarro*

process to transform Brasil Insurance into a more professional and

Brazil: Banco Santander S.A. +5511-3012-5756 | [email protected]

integrated company. A crucial challenge addressed in 2014 was to improve the alignment of interest among partners, management, and key employees, with the ultimate goal of boosting organic growth. The key objective of the new management is to ensure that the former independent insurance brokers who remain shareholders are

Boris Molina New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

Renata Cabral* Brazil: Banco Santander S.A. +5511-3012-5731 | [email protected]

focused on BRIN’s results as a holding company. In our view, the company’s top-line recovery over the next 12 months will be extremely important to return the stock to a 12x P/E multiple.



Outlook 2015: The year 2015 will be a challenging and crucial one for the company to regain investors’ confidence by showing at least some progress in the ongoing restructuring process to build a more efficient platform to reignite organic growth. Although adjustments will continue to pressure results, we expect the company to maintain its ~15% commission fee due to cross-selling and operating leverage.



New organization structure: We continue to believe in the longterm proposition of a large independent insurance broker in Brazil,

Company Statistics

although a certain execution risk exists. The structure has been

Bloomberg

implemented and appears to be solid, in our view, consolidating

R$ 3.23 / US$ 1.20

Target Price (YE 2015)

R$ 7.70 / US$ 2.96

functions to promote synergies that are critical to the sustainability of

52-Week Range (R$)

the business model. We expect the new structure also to increase

Market Capitalization (US$ Mn)

115

Float (%)

65.5

accountability at all levels, improve the visibility of the underlying drivers of profitability and growth, and help the company develop a common culture.



BRIN3 BZ

Current Price (01/02/15)

2.55 - 19.09

3-Mth Avg. Daily Vol (US$ Mn)

0.4

Shares Outstanding - Mn

96

rice Performance (R$) BRIN3 BZ

Potential acquisitions would be a plus: Although management

140

does not dismiss the possibility of opportunistic acquisitions, the

120

company has emphasized that the ongoing restructuring process is

100

IBOVESPA

80

its top priority. Therefore, we continue to apply zero value to potential new acquisitions.

60 40 20 0

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

58

D-14

BRASIL INSURANCE Company Description

2014E 37 69 550.4 0 719 0 0 513 (37)

2015E 30 65 544.7 0 702 0 0 522 (30)

2016E 45 65 538.9 0 711 0 0 532 (45)

2013A 65 38 255.8 0 391 0 0 234 (65)

2014E 15 28 225.1 0 294 0 0 210 (15)

2015E 12 25 209.5 0 270 0 0 201 (12)

2016E 17 24 199.6 0 263 0 0 197 (16)

CASH FLOW Changes in Working Capital Operating Cash Flow Capital Expenditures Change in Debt Free Cash Flow to Equity Cash Dividends Capital Increase (Decrease)

2013A 42 65 (7) 0 115 (98) 0

2014E 9 81 (8) 0 16 (44) 0

2015E (14) 82 (8) 0 2 (50) 0

2016E (0) 71 (11) 0 54 (57) 0

2013A 20 31 (3) 0 55 (47) 0

2014E 4 34 (3) 0 7 (19) 0

2015E (5) 32 (3) 0 1 (20) 0

2016E (0) 27 (4) 0 20 (22) 0

OPERATING RATIOS EBITDA Margin Effective Tax Rate Net Margin Net Debt / EBITDA Net Debt / Equity

2013A 35.9 25.4 0.4 (1.3) (0.3)

2014E 36.0 33.8 0.2 (0.4) (0.1)

2015E 26.2 33.8 0.2 (0.4) (0.1)

2016E 24.4 25.0 0.2 (0.6) (0.1)

2013A 35.9 25.4 0.4 (1.3) (0.3)

2014E 36.0 33.8 0.2 (0.4) (0.1)

2015E 26.2 33.8 0.2 (0.4) (0.1)

2016E 24.4 25.0 0.2 (0.6) (0.1)

FCFE / Revenues

38.6

6.6

0.7

18.7

38.6

6.6

0.7

18.7

ROAA

12.9

6.6

8.3

9.5

13.1

7.0

8.3

9.5

ROAE

21.1

10.2

11.4

12.8

21.4

10.8

11.4

12.8

Payout

94.0

41.4

95.9

97.6

85.1

38.0

84.5

97.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

16.4

6.4

5.4

4.7

14.5

5.7

5.1

4.7

P/CE

17.7

6.5

5.0

4.4

15.7

5.7

4.7

4.3

FV/EBITDA

15.1

3.3

4.2

3.8

13.3

2.9

4.0

3.8

FCFE Yield (%)

6.6

4.9

0.6

17.1

7.4

5.6

0.6

17.3

P/BV

3.4

0.7

0.6

0.6

3.2

0.6

0.6

0.6

Div Yield (%)

2015E 103 (3.4) 27 (29.7) 29 (24.4) 28 (9) 2 23 4.1

2016E 110 6.6 27 (0.7) 29 (0.9) 28 (7) 3 25 9.6

5.6

13.2

15.7

18.0

6.3

15.0

16.6

18.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.06

0.53

0.60

0.69

0.51

0.23

0.23

0.26

CEPS

1.02

0.42

0.46

1.09

0.49

0.18

0.18

0.41

FCFPS

1.15

0.16

0.02

0.39

0.53

0.07

0.01

0.14

BVPS

5.29

5.13

5.22

5.41

2.43

2.10

2.01

2.00

DPS

1.02

0.42

0.46

1.09

0.49

0.18

0.18

0.41

PER SHARE DATA

Brasil Insurance was founded in 2010 by the investment fund Gulf and was IPOed in the same year. The company is one of the largest and most diversified insurance brokerage companies in Brazil, having grown organically and through acquisitions. In fact, Brasil Insurance is a holding company that consolidates a group of insurance brokers. Its main revenue line comes from the commission its subsidiaries charge on insurance premiums; its insurance portfolio mainly encompasses corporate health, followed by life, auto, P&C and others. The company is one of the leaders in the very fragmented market of insurance brokers.

Key Personnel: Edward Lange (CEO) and Miguel Longo Junior (CFO) Web: http://ri.brasilinsurance.com.br

Commissioning Level in %, 2010A–2014E 0.15

0.15

0.15

0.15

0.14

2014E

2013A 142 83 556.2 0 850 0 0 508 (141)

MARKET RATIOS

2013A 142 7.8 51 (9.0) 47 (8.6) 70 (18) (3) 51 (7.1)

2013A

BALANCE SHEET Cash and Equivalents Accounts Receivable Intangible and Deferred Asse Tangible Assets Total Assets ST Debt LT Debt Equity Net Debt (Cash)

2016E 292 11.6 71 4.0 76 3.8 73 (18) 7 67 14.8

2012A

2013A 298 18.9 107 0.4 99 0.8 146 (37) (7) 107 2.4

2015E 261 4.8 68 (23.7) 73 (18.0) 71 (24) 6 59 12.9

US$ 2014E 106 (25.2) 38 (25.0) 38 (19.3) 54 (18) 2 22 (56.5)

2011A

INCOME STATEMENT Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) Profit before Taxes Taxes Minorities Net Profit Growth (%)

R$ 2014E 249 (16.2) 90 (16.0) 89 (9.5) 127 (43) 6 52 (51.3)

2010A

Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions

Industry Breakdown, 2013

Life 8.0%

Others 18.0%

P&C 8.0%

Auto 10.0%

Health 56.0%

Shareholder Structure, Current

Controlling Group 30.6% Free float 65.5%

Others, Treasury 3.9%

Sources for all charts and tables: Company reports and Santander estimates.

59

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—OIL, GAS & PETROCHEMICALS

BRASKEM

HOLD CURRENT PRICE: US$12.82 TARGET PRICE: US$15.50



Investment Case: We believe that the significant drop in oil prices should help the company on the cost-of-naphtha front, but we have to carefully monitor how quickly international spreads for resins (PP,

Christian Audi New York: Santander Investment Securities Inc. +1-212-350-3991 | [email protected]

PE, PVC) could fall, as we expect global demand for these products

Gustavo Allevato*, CFA

to weaken in 2015. Also, on the positive side, the continued

Brazil: Banco Santander S.A. +5511-3012-6042 | [email protected]

depreciation of the Brazilian real could continue to help the company`s fundamentals in the short term, in our view. See bullet below for key risks to be carefully monitored.



Outlook 2015: Although we expect weak domestic activity to continue hurting resin 2015 demand, the following positive factors could offset that somewhat:

(i) relatively healthy petrochemical

spreads as result of lower naphtha prices; (ii) the depreciation of Brazilian real; and (iii) the start-up of the ethylene project in Mexico slated for 2H15.



Lower oil prices should benefit the company at first: With naphtha representing half of company’s costs and given its high correlation to oil prices, we believe that Braskem could be positively affected by the on-going, significant drop in oil prices during 2015, translating into higher petrochemical spreads in the short term, but then resin prices should adjust downwards accordingly, in our view.



Key risks to monitor closely include: (i) weak demand outlook in Brazil; (II) the negotiation of the naphtha supply contract with

Company Statistics Bloomberg

BAK US / BRKM5 BZ

Current Price (01/02/15)

US$ 12.82 / R$ 17.41

Target Price (YE 2015)

US$ 15.50 / R$ 21.00

52-Week Range (US$)

12.30 - 17.41

Petrobras that expires in February and which, if the terms change,

Market Capitalization (US$ Mn)

could potentially increase the company’s costs by up to R$500

Float (%)

million per year, under some scenarios; and (iii) the negotiation of the

5,110 37.4

3-Mth Avg. Daily Vol (US$ Mn)

7.9

Shares Outstanding - Mn

399

energy supply contract with Chesf for the Camaçari and Alagoas petrochemical complexes that expires in June, and that also if terms are changed, could increase the company’s costs by up to R$80

Price Performance (US$) Braskem - ADR (Rebased) 140

million per year, according to our calculations in some scenarios. 120



Attractive ethylene XXI project in Mexico around the corner: The plant is expected to start-up in 2H15, and run at 15-20% of full capacity by year-end. We estimate that the plant will likely represent around 30% of the company’s EBITDA in 2016.

100

80

60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

60

D-14

BRASKEM Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 40,969 15.4 5,148 55.9 4,775 37.3 11.7 2,739 75.0 6.7 (1,776) (457) 507 n/m 1.2

R$ 2014E 45,187 10.3 6,014 16.8 5,429 13.7 12.0 3,596 31.3 8.0 (3,009) (314) 273 (46.1) 0.6

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (2,056) 0 155 2,718 (2,722) (1,267) (673) 1,091 (218) 766

2014E (2,109) 0 211 2,594 (2,604) 2,723 693 650 (68) 100

2015E (2,402) 25 (2,113) 3,089 (2,531) 854 (88) 904 (220) 77

2016E (2,620) 242 166 4,888 (2,359) 3,455 (90) 675 (406) (138)

2013A (953) 0 72 1,260 (1,262) (588) (312) 506 (101) 355

2014E (898) 0 90 1,104 (1,108) 1,159 295 277 (29) 43

2015E (913) 9 (803) 1,175 (963) 325 (34) 344 (84) 29

2016E (926) 86 59 1,727 (834) 1,221 (32) 239 (143) (49)

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 4,422 14,998 28,447 48,346 13,595 27,071 7,543 18,603 1,249

2014E 5,680 17,298 31,227 52,798 14,898 30,015 7,748 19,253 1,299

2015E 7,024 17,386 33,092 54,837 13,469 32,824 8,407 20,157 1,342

2016E 10,338 21,873 32,833 59,153 15,089 34,303 9,624 20,833 1,386

2013A 1,872 6,349 12,043 20,467 5,755 11,461 3,193 7,876 529

2014E 2,228 6,784 12,246 20,705 5,842 11,771 3,038 7,550 509

2015E 2,592 6,416 12,211 20,235 4,970 12,112 3,102 7,438 495

2016E 3,516 7,440 11,168 20,120 5,132 11,668 3,274 7,086 471

LT Debt

17,354

17,954

18,815

19,446

7,347

7,041

6,943

6,614

2015E 40,894 (9.5) 5,944 (1.2) 5,786 6.6 14.1 3,384 (5.9) 8.3 (2,179) (343) 879 221.7 2.1

2016E 47,957 17.3 7,345 23.6 7,015 21.3 14.6 4,395 29.9 9.2 (1,568) (1,377) 1,623 84.7 3.4

2013A 18,997 4.3 2,387 40.9 2,214 24.1 11.7 1,270 58.3 6.7 (824) (212) 235 n/m 1.2

US$ 2014E 19,229 1.2 2,559 7.2 2,310 4.3 12.0 1,530 20.5 8.0 (1,280) (134) 116 (50.6) 0.6

2015E 15,549 (19.1) 2,260 (11.7) 2,200 (4.8) 14.1 1,287 (15.9) 8.3 (829) (131) 334 187.4 2.1

2016E 16,946 9.0 2,595 14.8 2,479 12.7 14.6 1,553 20.7 9.2 (554) (486) 574 71.6 3.4

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

14,181

13,572

13,133

10,495

6,004

5,322

4,846

3,570

Capital Employed

23,335

23,900

25,785

27,395

9,879

9,373

9,515

9,318

Net Debt/EBITDA

3.0

2.5

2.3

1.5

2.7

2.3

2.2

1.4

Net Debt/Equity

1.9

1.8

1.6

1.1

2.1

2.0

1.6

1.1

Capex/Revenue (%)

6.6

5.8

6.2

4.9

6.6

5.8

6.2

4.9

Int Cover (%)

2.7

2.0

3.1

4.2

2.7

2.0

3.1

4.2

(29.5)

13.5

80.4

46.2

(26.7)

12.4

70.4

45.7

Dividend Payout (%) ROCE (%)

6.2

7.0

9.8

10.6

7.3

8.9

10.0

10.6

ROE (%)

6.3

3.6

10.9

18.0

6.4

3.8

10.9

18.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

MARKET RATIOS P/E

33.1

n/m

15.7

8.5

30.3

44.3

15.3

8.9

P/CE

6.5

5.7

4.2

3.2

6.0

5.1

4.1

3.4

FV/EBITDA

6.5

5.1

4.7

3.5

6.0

4.6

4.6

3.5

FV/EBIT FV/Revenue P/BV FCF Yield (%) Div Yield (%)

11.4

7.6

8.0

5.6

10.4

6.9

7.8

5.6

0.8

0.6

0.7

0.5

0.7

0.5

0.6

0.5

2.2

1.8

1.6

1.4

2.2

1.7

1.6

1.6

(7.5)

19.9

6.2

25.1

(8.3)

22.5

6.4

23.9

1.3

0.5

1.6

2.9

1.4

0.6

1.6

2.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.64

0.34

1.10

2.04

0.47

0.25

0.81

1.50

DPS

0.27

0.09

0.28

0.51

0.20

0.06

0.20

0.37

BVPS

9.46

9.72

10.54

12.07

6.96

7.15

7.76

8.88

PER SHARE DATA

61

Braskem is the largest chemical company in Brazil and Latin America in terms of production capacity, with integrated first- and second-generation petrochemical production facilities throughout Brazil and the U.S. More specifically, the company is the leading producer of thermoplastic resins (polyethylene, polypropylene, PVC) in the country, as well as in Latin America. Braskem has shares listed locally and ADRs listed on the NYSE.

Key Personnel: Carlos Fadigas (CEO), Mario Augusto da Silva (CFO) and Roberta Varella (IR Officer) Web: www.braskem.com.br

Sales by Country, 2015E

Other 44.9%

Brazil 55.1%

Sales by Segment, 2015E

Polymers 54.7%

Basic Petrochemic als 45.3%

Shareholder Structure, Current

Petrobras 36.1%

Odebrecht 38.3%

Free Float 25.6%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—RETAIL & CONSUMER GOODS

CBD

BUY CURRENT PRICE: R$93.81 TARGET PRICE: R$131.00



Investment Case: We maintain our Buy rating on CBD, as we

João Mamede*

believe the company still offers an attractive combination of a resilient

Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

food business and a more cyclical durables business (Via Varejo), whose internal initiatives should continue to drive sales growth and profitability gains. Despite its distinctive businesses, CBD has been able to achieve balanced growth in its more attractive (high-return) formats, while we also highlight the company’s ability to integrate and extract

value

from

its

multi-channel/multi-format

Ronaldo Kasinsky* Brazil: Banco Santander S.A. +5511-3553-2396 | [email protected]

Jessica Bessa* Brazil: Banco Santander S.A. +5511-3553-9602 | [email protected]

operations.

Moreover, we believe CBD trades at a compelling multiple (~14x P/E for 2015E), given the resilient nature of its food business, and offers substantial potential upside to our YE2015 target price of R$131.



Outlook 2015: We expect CBD to focus growth in its more attractive cash-and-carry and proximity store formats, while we think ongoing efficiency gains will be passed on to competitive pricing in order to keep gaining market share in the food business. We expect CBD’s food business to deliver 13% YoY top-line growth based on stronger sales area expansion (+7% YoY), while we remain upbeat regarding margin expansion opportunities at its durables business (Via Varejo), Company Statistics

which should support profitable growth ahead.

Bloomberg



Catalysts: We highlight CBD’s key differentials, namely its multi-

PCAR4 BZ

Current Price (01/02/15)

R$ 93.81 / US$ 34.85

Target Price (YE 2015)

R$ 131.00 / US$ 49.43

store platform and strong execution, which we believe should allow

52-Week Range (R$)

for superior growth and further market share gains. Moreover, we

Market Capitalization (US$ Mn)

emphasize key initiatives that should continue to support profitability

Float (%)

58.6

3-Mth Avg. Daily Vol (US$ Mn)

31.4

Shares Outstanding - Mn

263

gains ahead, including (1) expanding private label brands, (2) further developing commercial galleries in order to drive traffic and enhance the profitability of hypermarket formats, and (3) tight expense control, which we believe will be converted into pricing.

92.30 - 115.00 9,168

Price Performance (R$) PCAR4 BZ

IBOVESPA

130 120



Concerns: The main risks to our investment case include (1) food

110

inflation affecting consumption patterns, (2) increased competition

100

from large chains and smaller regional players, (3) underperforming

90

hypermarket formats, and (4) weaker sales at its durables

80

businesses (Via Varejo and Cnova).

70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

62

D-14

CBD Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 57,730 13.7 15,207 11.7 3,830 6.5 6.6 2,947 8.4 5.1 (1,193) (359) 1,312 39.6 2.3

R$ 2014E 63,978 10.8 16,357 7.6 5,165 34.9 8.1 4,271 44.9 6.7 (1,470) (856) 1,531 16.7 2.4

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 866 3,440 2,037 5,662 (1,786) 1,156 0 (997) (1,573) 0

2014E 894 (1,533) 5 (890) (1,707) 14 0 (710) (290) 0

2015E 929 1,366 102 2,323 (1,837) 979 0 0 (486) 0

2016E 1,006 1,362 108 2,477 (1,899) 1,228 0 0 (579) 0

2013A 401 1,594 944 2,624 (828) 536 0 (462) (729) 0

2014E 383 (656) 2 (381) (730) 6 0 (304) (124) 0

2015E 357 525 39 893 (706) 377 0 0 (187) 0

2016E 372 504 40 918 (703) 455 0 0 (214) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 8,392 18,612 19,399 38,011 17,013 8,286 9,483 9,494 5,171

2014E 4,795 16,500 20,344 36,844 17,592 8,583 7,346 8,784 4,259

2015E 4,795 17,760 21,251 39,011 18,954 8,583 8,150 8,784 4,259

2016E 4,795 19,013 22,144 41,157 20,316 8,583 8,935 8,784 4,259

2013A 3,582 7,944 8,280 16,223 7,261 3,536 4,047 4,052 2,207

2014E 1,880 6,471 7,978 14,449 6,899 3,366 2,881 3,445 1,670

2015E 1,809 6,702 8,019 14,721 7,153 3,239 3,076 3,315 1,607

2016E 1,744 6,914 8,052 14,966 7,388 3,121 3,249 3,194 1,549

LT Debt FINANCIAL RATIOS Net Debt

2015E 71,605 11.9 18,081 10.5 5,933 14.9 8.3 5,003 17.1 7.0 (1,666) (1,021) 1,784 16.5 2.5

2016E 79,036 10.4 19,592 8.4 6,556 10.5 8.3 5,551 10.9 7.0 (1,739) (1,162) 2,013 12.8 2.5

2013A 26,757 3.0 7,048 1.2 1,775 (3.5) 6.6 1,366 (1.8) 5.1 (553) (166) 608 26.5 2.3

US$ 2014E 27,376 2.3 6,999 (0.7) 2,210 24.5 8.1 1,828 33.8 6.7 (629) (366) 655 7.8 2.4

2015E 27,540 0.6 6,954 (0.6) 2,282 3.2 8.3 1,924 5.3 7.0 (641) (393) 686 4.7 2.5

2016E 29,272 6.3 7,256 4.3 2,428 6.4 8.3 2,056 6.8 7.0 (644) (430) 746 8.7 2.5

4,323

4,525

4,525

4,525

1,845

1,775

1,708

1,645

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

1,102

3,989

3,989

3,989

470

1,564

1,505

1,451

Capital Employed

20,998

19,252

20,056

20,841

8,962

7,550

7,568

7,579

Net Debt/EBITDA

0.3

0.8

0.7

0.6

0.3

0.7

0.7

0.6

Net Debt/Equity

0.1

0.5

0.5

0.4

0.1

0.6

0.5

0.4

Capex/Revenue (%)

3.1

2.7

2.6

2.4

3.1

2.7

2.6

2.4

(6.1)

(6.5)

(6.7)

(7.2)

(6.1)

(6.5)

(6.7)

(7.2)

Int Cover (%) Dividend Payout (%)

167.3

22.1

31.7

32.5

151.5

20.3

27.9

32.2

ROCE (%)

15.7

26.6

30.0

32.2

17.0

29.5

30.2

32.2

ROE (%)

14.6

18.2

23.0

23.6

14.9

19.2

23.0

23.6

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

21.0

16.9

13.8

12.3

19.2

14.9

13.4

12.3

P/CE

n/m

40.7

28.9

24.5

n/m

35.8

27.9

24.6

FV/EBITDA

9.9

8.1

6.5

5.8

9.1

7.1

6.3

5.8

FV/EBIT

12.9

9.8

7.7

6.8

11.8

8.6

7.5

6.8

FV/Revenue

0.7

0.7

0.5

0.5

0.6

0.6

0.5

0.5

P/BV

2.9

3.5

3.0

2.8

2.9

3.4

3.0

2.8

FCF Yield (%)

4.2

0.1

4.0

5.0

4.6

0.1

4.1

5.0

Div Yield (%)

5.7

1.1

2.0

2.3

6.2

1.3

2.0

2.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

4.99

5.82

6.78

7.65

2.31

2.49

2.61

2.83

PER SHARE DATA EPS DPS BVPS

5.98

1.10

1.85

2.20

2.77

0.47

0.71

0.81

36.04

27.92

30.98

33.96

15.38

10.95

11.69

12.35

63

Grupo Pão de Açúcar (CBD) is the largest Brazilian multibrand multi-channel retailer with sales of R$64.4bn in 2013. CBD food (R$34.6bn in sales) is the largest food retailer in the country with a total of 1,051 stores (3Q14) including hypermarkets (Extra), supermarkets (Pão de Açúcar and Extra), cash & carry (Assai) and proximity stores (Minimercado Extra), along with gas stations and drugstores. Through its 53% stake in ViaVarejo (R$29.8bn in sales), CBD is also the largest white goods, electronics, and furniture retailer in the country, with a total of 986 stores (3Q14) and an estimated market share of 26%. CBD is controlled by French retailer Casino.

Key Personnel: Jean-Charles Naouri (Chairman), Ronaldo Iabrudi (CEO), Christophe Hidalgo (CFO) and Daniela Sabbag (Investor Relations Director) Web: http://www.gpari.com.br/

EBITDA by Segment, 3Q14

Others 48.7%

CBD (Food) 51.3%

Stores by Format, 3Q14

Extra 19.2%

Assai (Cash & Carry) 4.5%

Small Markets 11.9%

Pão de Açúcar 9.5%

Via Varejo 54.9%

Shareholder Structure, Current

Free Float 58.6%

Managemen t and Board / Treasury 0.1%

Casino (Controlling Group) 41.3%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—TRANSPORTATION

CCR

UNDERPERFORM CURRENT PRICE: R$15.41 TARGET PRICE: R$14.00

LOWERING YE2015 TARGET PRICE TO R$14.00 FROM R$15.00 

Investment Case: We continue to see CCR as the top-quality play in

Bruno Amorim*, CFA

the infrastructure sector in Brazil due to its seasoned management

Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

and excellent investment track record. However, we reiterate our cautious view on the stock, given its (1) stretched valuation—implied equity nominal IRR of 11.5%, or 6.4% in real terms, (2) downside to

Pedro Balcão Reis* Brazil: Banco Santander S.A. +5511-3012-5765 | [email protected]

our valuation from potentially higher interest rates (both short and long term), and (3) weak momentum in traffic and earnings.



Outlook 2015: We expect another year without earnings growth due to (1) continuing weak traffic due to weak GDP growth, and (2) another strong increase in financial costs due to an increase in interest rates and net debt. We estimate (1) top-line growth of 10%, (2) an EBITDA increase of 13%, and (3) flat net profit. This compares with our estimates for 2014 of (1) top-line growth of 7%,(2) EBITDA up 6%, and (3) net profit down 5%.



Stretched Valuation: We highlight that our estimated implied nominal equity IRR of 11.5% is below the 10-year Brazilian bond rate and below our estimated cost of equity of 13.7%. Moreover, our



estimated implied real IRR of 6.4% is in-line with the current yield of

Company Statistics

10-year Brazilian inflation-linked bonds (NTNB).

Bloomberg

Investment opportunities: Following a strong 4Q13 and early 2014

CCRO3 BZ

Current Price (01/02/15)

R$ 15.41 / US$ 5.72

Target Price (YE 2015)

R$ 14.00 / US$ 5.17

52-Week Range (R$)

14.34 - 21.10

in terms of investment opportunities, with several auctions for new

Market Capitalization (US$ Mn)

concessions in roads and airports, we believe there will be no new

Float (%)

auctions besides Ponte (currently a concession operated by CCR) at

10,107 48.8

3-Mth Avg. Daily Vol (US$ Mn)

34.5

Shares Outstanding - Mn

1,766

least until 2H15. Price Performance (R$)



~90% of total debt linked to Selic: Since the presidential elections

CCRO3 BZ

IBOVESPA

A-13

A-14

120

on October 26, the Brazilian Central Bank has increased rates by 75 110

bps, and we expect another 75-bp hike in the short term. This should have a major impact on financial results, which we expect to increase by 39% in 2015 vs. 2014 on top of a 32% increase in 2014 vs. 2013.

100 90 80 70

J-13

M-13

D-13

A-14

Sources: FactSet, Santander estimates and company reports.

64

D-14

CCR Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 6,004 15.5 3,838 17.3 63.9 2,890 15.7 48.1 (723) (798) 1,351 14.8 22.5

R$ 2014E 6,409 6.7 4,063 5.9 63.4 2,989 3.4 46.6 (954) (735) 1,285 (4.8) 20.1

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (691) 0 3,039 (1,366) 1,921 1,066 (1,301) 0

2014E (791) 0 3,328 (3,128) 1,416 2,272 (1,293) 0

2015E (967) 0 3,878 (2,459) 1,475 1,478 (1,288) 0

2016E (1,118) 0 4,543 (1,550) 1,963 521 (1,669) 0

2013A (320) 0 1,409 (633) 890 494 (603) 0

2014E (338) 0 1,420 (1,335) 604 970 (552) 0

2015E (368) 0 1,475 (935) 561 562 (490) 0

2016E (396) 0 1,608 (549) 695 184 (591) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,601 2,368 9,962 15,782 3,486 9,220 -

2014E 1,709 2,476 12,119 18,047 3,478 11,492 -

2015E 1,880 2,646 13,429 19,527 3,480 12,971 -

2016E 2,154 2,921 13,675 20,048 3,480 13,492 -

2013A 683 1,011 4,252 6,736 1,488 3,935 -

2014E 670 971 4,752 7,077 1,364 4,507 -

2015E 694 976 4,955 7,206 1,284 4,786 -

2016E 733 993 4,651 6,819 1,184 4,589 -

9,220

11,492

12,971

13,492

3,935

4,507

4,786

4,589

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

LT Debt FINANCIAL RATIOS Net Debt

2015E 7,048 10.0 4,597 13.2 65.2 3,348 12.0 47.5 (1,322) (719) 1,290 0.3 18.3

2016E 8,077 14.6 5,413 17.7 67.0 4,013 19.9 49.7 (1,455) (870) 1,669 29.4 20.7

2013A 2,783 4.7 1,779 6.3 63.9 1,339 4.8 48.1 (335) (370) 626 4.0 22.5

US$ 2014E 2,735 (1.7) 1,734 (2.5) 63.4 1,276 (4.8) 46.6 (407) (314) 549 (12.4) 20.1

2015E 2,680 (2.0) 1,748 0.8 65.2 1,273 (0.2) 47.5 (503) (273) 490 (10.6) 18.3

2016E 2,859 6.7 1,916 9.6 67.0 1,421 11.6 49.7 (515) (308) 591 20.5 20.7

7,619

9,783

11,091

11,337

3,252

3,837

4,093

3,856

Capital Employed

12,706

14,970

16,451

16,972

5,423

5,871

6,070

5,773

Net Debt/EBITDA

2.0

2.4

2.4

2.1

1.8

2.2

2.3

2.0

Net Debt/Equity

2.2

2.8

3.2

3.3

2.4

3.2

3.2

3.3

22.8

48.8

34.9

19.2

22.8

48.8

34.9

19.2

5.3

4.3

3.5

3.7

5.3

4.3

3.5

3.7

Capex/Revenue (%) Int Cover (%) Dividend Payout (%)

110.5

95.7

100.2

129.4

100.1

87.8

88.2

128.6

ROCE (%)

31.9

27.9

28.2

32.2

34.0

30.4

28.3

32.2

ROE (%)

39.5

36.9

37.1

48.0

40.1

39.2

37.1

48.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

23.2

21.2

21.1

16.3

21.2

18.7

20.6

17.1

P/CE

15.4

13.1

12.1

9.8

14.0

11.6

11.8

10.2

FV/EBITDA

10.2

9.1

8.3

7.1

9.3

8.1

8.1

7.3

FV/EBIT

13.5

12.4

11.4

9.6

12.4

11.0

11.2

9.8

FV/Revenue

6.5

5.8

5.4

4.8

5.9

5.1

5.3

4.9

P/BV

9.0

7.8

7.8

7.8

8.9

7.5

7.9

8.5

FCF Yield (%)

6.1

5.2

5.4

7.2

6.7

5.9

5.5

6.9

Div Yield (%)

4.1

4.8

4.7

6.1

4.5

5.4

4.8

5.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

MARKET RATIOS

PER SHARE DATA EPS

0.77

0.73

0.73

0.95

0.35

0.31

0.28

0.33

DPS

(0.74)

(0.73)

(0.73)

(0.95)

(0.34)

(0.31)

(0.28)

(0.33)

1.97

1.97

1.97

1.97

0.84

0.77

0.73

0.67

BVPS

65

Companhia de Concessões Rodoviárias (CCR) is the largest toll road operator in Latin America by revenue. Currently, the company controls eleven toll-road concessions—AutoBan, NovaDutra, Rodonorte, Ponte S.A, Via Lagos, ViaOeste, RodoAnel, SPVias, Renovias, ViaRio and MSVia. In addition, the company holds a 40% stake in Renovias (toll road concession with 346 km) and a 58% stake in the consortium ViaQuatro (which operates the São Paulo City Subway Line 4). CCR was the first listing in the Bovespa’s Novo Mercado segment.

Key

Personnel: Eduardo Borges de Andrade (Chairman), Renato Alves Vale (CEO), Arthur Piotto Filho (CFO) and Arthur Piotto Filho (Investor Relations Officer) Web: www.grupoccr.com.br/investor Traffic Breakdown, 2013

Others 23.6% Rodoanel Oeste 15.2%

ViaOeste 13.8%

Autoban 30.6%

NovaDutra 16.8%

Toll Revenue (% of Total Revenue), 2013 Others Revenues 14.4%

Toll Revenue 85.6%

Shareholder Structure, Current Grupo Camargo Corrêa 17.0%

Free Float 48.8%

Grupo Soares Penido 17.2%

Grupo Andrade Gutierrez 17.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—UTILITIES

CEMIG

HOLD CURRENT PRICE: R$13.14 TARGET PRICE: R$13.80



Investment Case: a new Cemig, but the challenges remain the

Maria Carolina Carneiro*

same.

Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

Although

Cemig

has

invested

significantly

through

acquisitions and stakes in various segments in the last five years (stakes in TAESA, Renova, Santo Antonio Energia, Light), spreading the risks of operation in the sector through a balanced portfolio combining different segments, in our view its investment thesis continues to depend on the company’s new guidance for its 2015 growth strategy. Recently, the company started to add capacity to offset the potential negative impact on its margins of the end of generation contracts. However, we believe the ongoing investment strategy could change in 2015 as a new government takes office in the State of Minas Gerais.



Outlook 2015: Cemig is currently profiting from high energy prices, availability of energy from the Jaguara power plant, and a partnership in the renewable and transmission segments. Cemig still has energy available for trading in 2015 and 2016, which we believe should help partially offset the potential impact of the hydro deficit; at the same time, we believe revenue from the transmission segment should guarantee stability of cash flow. However, the company will continue to suffer from its exposure to the distribution segment. We project a YoY EBITDA decline of 16.3% for 2015.

Company Statistics Bloomberg

CMIG4 BZ

Current Price (01/02/15)

R$ 13.14 / US$ 4.88

Target Price (YE 2015)

R$ 13.80 / US$ 5.09

52-Week Range (R$)



Change in Estimates. We recently resumed coverage of Cemig and updated our models to reflect (1) a new energy balance portfolio, with additional energy sold for the 2015-16 period and some energy still being sold at the spot market (180 MW), (2) new price curve (longterm R$150/MWh), (3) a hydro deficit expected for 2015 (average

6,142

Float (%)

62.3

3-Mth Avg. Daily Vol (US$ Mn)

26.6

Shares Outstanding - Mn

1,258

Price Performance (R$) CMIG4 BZ

7%), (4) new macroeconomic estimates, (5) results released and

130

2014 guidance reflecting its energy trading strategy, (6) termination

120

of concession contracts for the UHE Jaguara, São Simão, and

110

Miranda plants, and (7) regulatory WACC of 7.2% for the Disco

12.14 - 19.96

Market Capitalization (US$ Mn)

IBOVESPA

100 90

business.

80 70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

66

D-14

CEMIG Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 15,955 (0.1) 10,173 (2.2) 5,109 10.5 32.0 4,253 11.1 26.7 (308) (950) 3,962 (14.3) 24.8

R$ 2014E 17,661 10.7 9,390 (7.7) 4,786 (6.3) 27.1 3,996 (6.0) 22.6 (824) (1,064) 2,353 (40.6) 13.3

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 856 0 (23) 4,795 (980) 559 694 0 (1,108) 0

2014E 790 0 229 3,372 (935) (339) (2,375) 0 (1,177) 0

2015E 822 0 (500) 2,383 (950) 234 0 0 (1,031) 0

2016E 839 0 163 2,708 (996) 681 0 0 (853) 0

2013A 397 0 (11) 2,222 (454) 259 322 0 (513) 0

2014E 337 0 98 1,439 (399) (144) (1,013) 0 (502) 0

2015E 313 0 (190) 906 (361) 89 0 0 (392) 0

2016E 297 0 58 959 (353) 241 0 0 (302) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 3,135 6,669 19,913 29,814 5,922 11,254 12,638 9,457 2,238

2014E 2,797 7,176 22,342 32,927 9,643 11,225 12,059 11,806 4,698

2015E 3,031 7,735 22,469 33,614 9,299 11,225 13,090 11,806 4,698

2016E 3,712 8,452 22,626 34,488 9,319 11,225 13,943 11,806 4,698

2013A 1,338 2,846 8,499 12,725 2,527 4,803 5,394 4,036 955

2014E 1,097 2,814 8,761 12,913 3,781 4,402 4,729 4,630 1,842

2015E 1,118 2,854 8,291 12,404 3,431 4,142 4,830 4,356 1,734

2016E 1,262 2,875 7,696 11,731 3,170 3,818 4,743 4,016 1,598

LT Debt FINANCIAL RATIOS Net Debt

2015E 17,494 (0.9) 9,313 (0.8) 4,004 (16.3) 22.9 3,182 (20.4) 18.2 (886) (762) 2,062 (12.4) 11.8

2016E 17,866 2.1 8,290 (11.0) 3,213 (19.8) 18.0 2,373 (25.4) 13.3 (802) (521) 1,706 (17.3) 9.5

2013A 7,395 (9.5) 4,715 (11.4) 2,368 0.1 32.0 1,971 0.7 26.7 (143) (440) 1,836 (22.3) 24.8

US$ 2014E 7,536 1.9 4,007 (15.0) 2,042 (13.8) 27.1 1,705 (13.5) 22.6 (352) (454) 1,004 (45.3) 13.3

2015E 6,652 (11.7) 3,541 (11.6) 1,522 (25.5) 22.9 1,210 (29.1) 18.2 (337) (290) 784 (21.9) 11.8

2016E 6,324 (4.9) 2,934 (17.1) 1,137 (25.3) 18.0 840 (30.6) 13.3 (284) (184) 604 (23.0) 9.5

7,220

7,108

7,108

7,108

3,081

2,787

2,623

2,418

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

6,322

9,009

8,775

8,094

2,698

3,533

3,238

2,753

Capital Employed

21,001

23,305

23,264

23,243

8,963

9,139

8,584

7,906

Net Debt/EBITDA

1.2

1.9

2.2

2.5

1.1

1.7

2.1

2.4

Net Debt/Equity

0.5

0.7

0.7

0.6

0.5

0.8

0.7

0.6

Capex/Revenue (%)

6.1

5.3

5.4

5.6

6.1

5.3

5.4

5.6

Int Cover (%)

4.3

3.5

2.9

2.4

4.3

3.5

2.9

2.4

Dividend Payout (%)

24.0

29.7

43.8

41.4

21.7

27.2

38.6

41.1

ROCE (%)

24.8

21.7

17.0

12.5

26.6

23.9

17.0

12.5

ROE (%)

32.8

19.1

16.4

12.6

33.4

20.2

16.4

12.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

MARKET RATIOS P/E

4.4

7.0

8.0

9.7

4.1

6.2

7.8

10.2

P/CE

5.7

10.6

13.3

19.1

5.2

9.3

13.0

20.0

FV/EBITDA

4.7

5.3

6.3

7.7

4.3

4.8

6.2

7.8

FV/EBIT

5.6

6.4

8.0

10.4

5.2

5.7

7.8

10.6

FV/Revenue

1.5

1.4

1.4

1.4

1.4

1.3

1.4

1.4

P/BV

1.4

1.4

1.3

1.2

1.4

1.3

1.3

1.3

FCF Yield (%)

3.2

(2.0)

1.4

4.1

3.5

(2.3)

1.4

3.9

Div Yield (%)

6.3

7.1

6.2

5.2

6.9

8.1

6.4

4.9

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

3.15

1.87

1.64

1.36

1.46

0.80

0.62

0.48

DPS

1.57

0.94

0.82

0.68

0.73

0.40

0.31

0.24

10.04

9.58

10.40

11.08

4.29

3.76

3.84

3.77

PER SHARE DATA

BVPS

67

Cemig is a holding company that operates generation, distribution and transmission assets in Brazil. Although it is a state-run company, controlled by the government of the State of Minas Gerais, it has implemented several pro-market clauses in its by-laws guaranteeing protection to minority shareholders. Cemig has a 11% market share of the distribution market in Brazil and comprises the Minas Gerais State concession and, through Light, a part of Rio de Janeiro State. Cemig currently has an installed capacity of 7,682 MW, having a 5% share in the Brazilian generation market.

Key Personnel: Danilo de Castro (Chairman), Djalma Bastos de Morais (CEO), Luiz Fernando Rolla (CFO) and Antonio Carlos Velez (IR Manager) Web: www.cemig.com.br

EBITDA by Business, 2013

TransCo 35.0%

DisCo and Other 7.0%

GenCo 58.0%

Sales by Segment (DisCo), 9M14

Rural 8.0%

Others 9.8%

Commercial 23.5%

Industrial 13.2%

Residential 45.5%

Shareholder Structure, Current

Minas Gerais State 23.3% Free float 62.3%

Andrade Gutierrez Energia 14.4%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—UTILITIES

CESP

UNDERPERFORM CURRENT PRICE: R$25.43 TARGET PRICE: R$23.67

LOWERING YE2015 TARGET PRICE TO R$23.67 FROM R$24.12 

Investment Case: We maintain our Underperform rating for Cesp,

Maria Carolina Carneiro*

as we believe the stock’s recent appreciation has already priced in

Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

gains in spot prices and some cost improvement, and thus we see limited upside at current levels. Moreover, looking beyond 2015, we see uncertainty with respect to (i) the value of reimbursement for the Tres Irmaos plant, and (ii) long-term cash flow generation.



Outlook 2015: We see 2015 as a defining year for Cesp, as the company will continue to fight for higher indemnification from the federal government for its old generation assets. Moreover, the company will have to continue its efforts to reduce costs and maintain profitability, in our view. We revised our estimates for 2015 to account for a higher hydro deficit, and we now forecast a 50.4% YoY EBITDA decline.



Cap on spot price: On November 25, 2014, Aneel approved the new energy spot price cap of R$388.48/MWh (vs. the current cap of R$822.83/MWh), valid for 2015. A new and lower spot price cap was expected by the market and investors; therefore, the final impact of the prices approved on our fair value calculation is not significant.

Company Statistics

However, the lower price cap should, in our opinion, negatively affect

Bloomberg

implied margins (and cash flow) for Cesp in 2015.



CESP6 BZ

Current Price (01/02/15)

R$ 25.43 / US$ 9.45

Target Price (YE 2015)

R$ 23.67 / US$ 8.93

52-Week Range (R$)

20.59 - 32.65

Tres Irmaos reimbursement terms: the big question mark. The

Market Capitalization (US$ Mn)

terms proposed by the federal government to reimburse Cesp for the

Float (%)

Tres Irmaos project were worse than we expected, as Cesp will not

3,094 59.4

3-Mth Avg. Daily Vol (US$ Mn)

9.3

Shares Outstanding - Mn

328

be able to receive the R$1.7 billion initially proposed unless it abandons its fight for the R$3.6 billion it requested. Thus, we expect the cash flow balance to be compromised in the next few years.

Price Performance (R$) CESP6 BZ

IBOVESPA

180 160



What does the future hold? We note that ~70% of Cesp’s

140

concessions end in July 2015, after which EBITDA will decline to a

120

normalized R$1.1 billion and the outlook for dividends will be murky.

100

We also highlight that the future return on assets (new type of

80

concession contract) and the commercialization strategy remain

60

unclear, and that the privatization of the company remains an option. 68

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

D-14

CESP Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 3,904 16.4 2,684 44.5 2,892 27.9 74.1 2,211 48.7 56.6 (422) 56 (194) (138.5) (5.0)

R$ 2014E 6,932 77.6 4,121 53.5 4,235 46.5 61.1 3,626 64.0 52.3 (85) (1,150) 2,232 n/m 32.2

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (681) (130) (141) 581 (86) 326 (1,136) (848) -

2014E (609) 83 (432) 3,727 (91) 1,065 (488) (1,348) -

2015E (365) (125) 427 2,233 (96) (894) (1,214) (996) -

2016E (142) (102) 341 1,237 (63) (429) (338) (641) -

2013A (313) (60) (65) 267 (39) 150 (522) (390) -

2014E (255) 35 (181) 1,560 (38) 446 (204) (564) -

2015E (140) (48) 164 859 (37) (344) (467) (383) -

2016E (53) (38) 126 458 (23) (159) (125) (237) -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 840 1,471 12,794 15,175 1,697 4,606 8,872 2,610 481

2014E 1,904 2,982 12,276 16,204 2,234 4,216 9,755 2,122 391

2015E 1,011 1,652 12,007 14,641 1,550 3,233 9,857 908 167

2016E 582 865 11,928 13,809 1,041 2,964 9,803 570 105

2013A 358 628 5,461 6,478 724 1,966 3,787 1,114 206

2014E 747 1,169 4,814 6,355 876 1,653 3,825 832 154

2015E 381 623 4,531 5,525 585 1,220 3,720 343 63

2016E 211 315 4,338 5,021 379 1,078 3,565 207 38

2,129

1,731

740

465

909

679

279

169

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

1,771

218

(103)

(12)

756

85

(39)

(4)

Capital Employed

13,809

13,813

13,187

12,742

5,895

5,417

4,976

4,634

Net Debt/EBITDA

0.6

0.1

(0.0)

(0.0)

0.6

0.0

(0.0)

(0.0)

Net Debt/Equity

0.2

0.0

(0.0)

(0.0)

0.2

0.0

(0.0)

(0.0)

Capex/Revenue (%)

2.2

1.3

2.5

4.3

2.2

1.3

2.5

4.3

11.2

25.1

40.4

58.0

11.2

25.1

40.4

58.0 58.0

LT Debt FINANCIAL RATIOS Net Debt

Int Cover (%) Dividend Payout (%)

2015E 3,880 (44.0) 2,254 (45.3) 2,101 (50.4) 54.1 1,736 (52.1) 44.7 98 (566) 1,099 (50.8) 28.3

2016E 1,479 (61.9) 1,178 (47.8) 1,082 (48.5) 73.1 940 (45.8) 63.5 33 (302) 587 (46.6) 39.7

2013A 1,795 4.6 1,234 29.9 1,330 15.0 74.1 1,017 33.7 56.6 (194) 26 (89) (134.6) (5.0)

US$ 2014E 2,901 61.6 1,725 39.7 1,772 33.3 61.1 1,518 49.2 52.3 (36) (481) 934 n/m 32.2

2015E 1,492 (48.6) 867 (49.7) 808 (54.4) 54.1 668 (56.0) 44.7 38 (218) 423 (54.8) 28.3

2016E 548 (63.3) 436 (49.7) 401 (50.4) 73.1 348 (47.9) 63.5 12 (112) 217 (48.6) 39.7

168.2

(695.2)

44.6

58.3

152.2

(637.4)

39.3

ROCE (%)

15.6

34.6

17.5

9.7

17.1

38.0

17.5

9.7

ROE (%)

(2.1)

24.0

11.2

6.0

(2.1)

25.5

11.2

6.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

-

3.9

7.6

14.2

-

3.5

7.3

14.2

15.1

3.1

5.7

11.4

13.9

2.8

5.5

11.5

FV/EBITDA

3.2

2.1

3.9

7.7

2.9

1.9

3.8

7.7

FV/EBIT

4.1

2.5

4.7

8.8

3.8

2.2

4.6

8.9

FV/Revenue

2.3

1.3

2.1

5.6

2.2

1.2

2.0

5.6

P/BV

0.8

0.9

0.8

0.8

0.8

0.9

0.8

0.9 (5.1)

MARKET RATIOS P/E P/CE

FCF Yield (%)

4.4

12.1

(10.7)

(5.2)

4.8

13.5

(11.1)

Div Yield (%)

11.5

15.4

12.0

7.7

12.5

17.1

12.4

7.7

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

(0.59)

6.81

3.35

1.79

(0.27)

2.85

1.29

0.66

DPS

2.59

4.12

3.04

1.96

1.19

1.72

1.17

0.72

27.09

29.79

30.10

29.93

11.56

11.68

11.36

10.88

BVPS

69

Cesp is one of the largest generation companies in Brazil, with a total installed capacity of 7,457.3 MW (hydrobased). The company has 3,916 MW in firm capacity, representing 6% of Brazil’s total installed capacity. Cesp is a state-owned company, controlled by the State of São Paulo. The company has been put up for sale three times, but all privatization attempts failed.

Key Personnel: Marco Antonio Mroz (Chairman), Almir Fernando Martins (CEO), Almir Fernando Martins (CFO) and Gildázio Pimenta (IR) Web: http://ri.cesp.com.br/

Sales by Segment, 2015E

Others 18.8%

Regulated 23.8%

Free Market 57.4%

EBITDA by Business, 2015E

Generation 100.0%

Shareholder Structure, Current

Free Float 59.4%

São Paulo State 40.6%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—FINANCIAL SERVICES

CETIP

HOLD CURRENT PRICE: R$31.78 TARGET PRICE: R$36.00

RAISING YE2015 TARGET PRICE TO R$36.00 FROM R$33.80 

Investment Case: We acknowledge that due to market conditions,

Henrique Navarro*

Cetip has lost the high-growth profile that it had in the aftermath of its

Brazil: Banco Santander S.A. +5511-3012-5756 | [email protected]

IPO. Nonetheless, we still forecast that the company can grow gross revenue by a sustainable 9% during the next five years. Cetip continues to be a defensive name, in our view, based on its inflationlinked products and recurring, diversified sources of revenue. Even though we still like the name, the stock’s strong performance in 2014

Boris Molina New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

Renata Cabral* Brazil: Banco Santander S.A. +5511-3012-5731 | [email protected]

(nearly 40% outperformance vs. IBOV) leaves little room for upside, and therefore we maintain our Hold rating on Cetip.



Outlook 2015: We expect revenue in the fixed income and OTC derivatives segments (Cetip) to grow 13% YoY, while GRV revenue could remain flat YoY, so gross revenue in this segment should grow 8% YoY. The lower debt service could positively affect net income, which we see growing 12% YoY, quite reasonable in view of the potentially challenging macroeconomic scenario in 2015.



100% dividend payout? Good, but mostly priced in. The company has been indicating that it might increase its dividend payout from the current 75% to 100%. Based on that, several

Company Statistics

dividend-play funds are already considering Cetip for their invested

Bloomberg

portfolios. On the one hand, such a payout could boost dividend yield

CTIP3 BZ

Current Price (01/02/15)

R$ 31.78 / US$ 11.81

Target Price (YE 2015)

R$ 36.00 / US$ 13.69

by roughly 130 bps in the next few years; on the other hand, this

52-Week Range (R$)

positive news is already priced in by the market, in our view.

Market Capitalization (US$ Mn)

22.60 - 33.63 3,083,085

Float (%)



New ventures—still not tangible. (i) GRV’s real estate: the

83.7

3-Mth Avg. Daily Vol (US$ Mn)

17.0

Shares Outstanding - Mn

261,165

continued rollout of the real estate platform gives us confidence in Cetip’s ability to create new sources of revenue, but we see this as a

Price Performance (R$) CTIP3 BZ

long-term venture whose full value we cannot assess until we have

140

more visibility; and (ii) vehicle financing platform: Cetip has a new

130

system under development that automates the processing of vehicle

120

IBOVESPA

110

credit concessions, with the goal of faster and less expensive

100

processing (e.g., car dealers will be able to send documents directly

90

to financial institutions through smartphone devices).

80 70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

70

D-14

CETIP Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions INCOME STATEMENT Equities Derivatives Other Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) Profit Before Taxes Taxes Net Profit Growth (%)

2013A 0 0 1,076 1,076 17.3 650 12.9 908 14.8 510 (149) 361 31.0

R$ 2014E 0 0 1,218 1,218 13.2 718 10.5 1,010 11.2 582 (165) 417 15.7

BALANCE SHEET Cash and Equivalents Accounts Receivable Intangible and Deferred Asse Tangible Assets Total Assets ST Debt LT Debt Equity Net Debt (Cash)

2013A 462 93 2,049 41 2,683 26 488 1,695 13

2014E 663 104 1,969 55 2,832 29 514 1,799 (163)

2015E 0 0 1,320 1,320 8.5 779 8.5 1,096 8.5 656 (190) 466 11.7

2016E 0 0 1,448 1,448 9.7 869 11.5 1,202 9.7 746 (216) 529 13.5

2015E 779 117 1,917 70 2,928 33 515 1,915 (279)

2016E 909 131 1,865 87 3,042 37 516 2,048 (409)

Company Description

2013A 0 0 499 499 6.3 301 2.2 421 4.0 236 (69) 167 18.7

US$ 2014E 0 0 520 520 4.2 306 1.8 431 2.4 248 (70) 178 6.5

2015E 0 0 502 502 (3.4) 296 (3.3) 417 (3.4) 249 (72) 177 (0.5)

2016E 0 0 513 513 2.1 307 3.8 425 2.1 264 (77) 187 5.7

2013A 214 43 950 19 1,243 12 226 785 6

2014E 283 44 840 23 1,209 12 219 768 (70)

2015E 296 44 729 27 1,113 12 196 728 (106)

2016E 322 46 660 31 1,077 13 183 725 (145)

CASH FLOW Changes in Working Capital Operating Cash Flow Capital Expenditures Change in Debt Free Cash Flow to Equity Cash Dividends Capital Increase (Decrease)

2013A 33 616 57 435 (71) (138) 0

2014E 37 681 71 (25) 425 (271) 0

2015E 42 737 77 0 453 (313) 0

2016E 47 822 84 0 518 (350) 0

2013A 15 286 26 202 (33) (64) 0

2014E 16 291 30 (11) 181 (115) 0

2015E 16 280 29 0 172 (119) 0

2016E 17 291 30 0 183 (124) 0

OPERATING RATIOS ADTV ADTC EBITDA Margin

2013A 0 0 60.4

2014E 0 0 59.0

2015E 0 0 59.0

2016E 0 0 60.0

2013A 0 0 60.4

2014E 0 0 59.0

2015E 0 0 59.0

2016E 0 0 60.0

Effective Tax Rate

29.2

28.3

29.0

29.0

29.2

28.3

29.0

29.0

Net Margin

33.5

34.3

35.3

36.5

33.5

34.3

35.3

36.5

0.0

(0.2)

(0.4)

(0.5)

0.0

(0.2)

(0.4)

(0.5)

Net Debt / Equity

0.0

(0.1)

(0.1)

(0.2)

0.0

(0.1)

(0.1)

(0.2)

FCFE / Revenues

37.9

36.2

35.7

36.4

37.9

36.2

35.7

36.4

ROAA

13.6

15.1

16.2

17.7

13.8

16.1

16.2

17.7

ROAE

23.1

23.9

25.1

26.7

23.6

25.4

25.1

26.7

Payout

50.0

75.0

75.0

75.0

45.3

68.8

66.0

74.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

17.4

20.2

17.8

15.7

15.9

17.8

17.4

16.5

P/CE

22.1

25.2

22.1

19.3

20.2

22.2

21.6

20.3

9.7

11.5

10.3

9.1

8.9

10.1

10.1

9.6

(1.1)

5.1

5.5

6.2

(1.2)

5.7

5.6

5.9

P/BV

3.7

4.7

4.3

4.1

3.4

4.1

4.2

4.3

Div Yield (%)

2.2

3.2

3.8

4.2

2.4

3.7

3.9

4.0

Net Debt / EBITDA

MARKET RATIOS

FV/EBITDA FCFE Yield (%)

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.39

1.60

1.78

2.03

0.65

0.68

0.68

0.72

CEPS

1.39

1.60

1.78

2.03

0.65

0.68

0.68

0.72

FCFPS

0.21

0.21

0.21

0.22

0.10

0.09

0.08

0.08

BVPS

6.52

6.89

7.33

7.84

3.02

2.94

2.79

2.78

DPS

1.04

1.20

1.34

1.52

0.48

0.51

0.51

0.54

Cetip is one of the largest fixed income depositories in the world and the largest in Latin America in terms of assets under custody. The company has a vertically integrated business model (encompassing registration, custody, trading, collateral management, and clearing and settlement activities) designed to suit the Brazilian regulatory mandate to have central registration of all fixed income securities and OTC derivatives. The company was founded in 1986 by the largest financial institutions in Brazil. In 2010 it acquired GRV Solutions, the leading provider of an electronic system that maintains and processes motor vehicle liens (“gravame”) for financial institutions and Brazil’s regional DMVs (Department of Motor Vehicles, or “DETRANs”) in conjunction with motor vehicle financing. GRV is the sole consolidator of this data in the country.

Key Personnel: Edgar da Silva Ramos (Chairman), Gilson Finkelsztain (CEO), Willy Otto Jordan (CFO) and Bernardo Garcia (IRM) Web: www.cetip.com.br

Main Revenue Lines, 2014E

Sircof 14.2%

SNG 15.8%

Transaction s 9.5%

Registration 10.6%

Custody 22.3%

Monthly Utilization 14.7%

Revenue Breakdown in %, 2014E

GRV 35.7%

Cetip 64.3%

Shareholder Structure, Current ICE Overseas Ltd. 12.1% Board Members 3.1%

Free Float 84.8%

Sources for all charts and tables: Company reports and Santander estimates.

71

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—RETAIL & CONSUMER GOODS

CIA HERING

HOLD CURRENT PRICE: R$19.70 TARGET PRICE: R$23.00

LOWERING YE2015 TARGET PRICE TO R$23.00 FROM R$27.00 

Investment Case: Hering remains a compelling retail play given its (1) attractive valuation (trading at a 2015E P/E of 9x), (2) superior

João Mamede*

returns (31% ROIC in 2015E), (3) strong balance sheet, and

Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

(4) flexible business model, combining internal production and

Ronaldo Kasinsky*

outsourcing; however, we remain concerned with the poor sales

Brazil: Banco Santander S.A. +5511-3553-2396 | [email protected]

visibility while the company’s turnaround process might take longer than we previously anticipated. The company is working on several initiatives to reignite SSS growth and we expect internal measures to

Jessica Bessa* Brazil: Banco Santander S.A. +5511-3553-9602 | [email protected]

gradually bear fruit, yet visibility remains limited.



Outlook 2015: Hering’s sales remain subpar, buy we expect easy comps to support positive SSS for 2015 (+4%), while robust store openings (+85 stores) should allow for top-line sales recovery (+8% YoY). Moreover we expect some margin recovery (+60 bps YoY EBITDA margin), as operating leverage should be able to offset higher expenses with the new corporate structure. We forecast Hering delivers 11% YoY EPS growth along with 30% ROE in 2015.



Catalysts: Improving SSS remains a challenge, although we expect the newly enhanced collections to improve traffic in stores. Management believes that the “new” collections will offer a better value proposition buy we believe the company’s store execution and

Bloomberg

HGTX3 BZ

Current Price (01/02/15)

R$ 19.70 / US$ 7.32

communication (inside and outside the store network) still needs

Target Price (YE 2015)

R$ 23.00 / US$ 8.49

improvement. Cleaning “old” stock levels has also been detrimental

52-Week Range (R$)

to margins, but we believe this has been accomplished, which should help improve margins.



Company Statistics

Concerns: Main risks to our investment case include: (1) strongerthan-expected economic slowdown, hindering sales acceleration, (2) higher competition from local and foreign brands, (3) depleting returns, (4) cutback in store openings, and (5) downside risk to

19.70 - 30.00

Market Capitalization (US$ Mn)

1,205

Float (%)

70.3

3-Mth Avg. Daily Vol (US$ Mn)

10.7

Shares Outstanding - Mn

165

Price Performance (R$) HGTX3 BZ

IBOVESPA

110 100 90

consensus estimates.

80 70 60 50 40

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

72

D-14

CIA HERING Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 1,680 12.6 759 11.7 439 7.8 26.1 405 8.5 24.1 29 (116) 318 2.3 18.9

R$ 2014E 1,709 1.8 752 (0.9) 401 (8.5) 23.5 364 (10.2) 21.3 34 (81) 317 (0.2) 18.6

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (34) 60 (116) 228 (72) 143 0 (0) (208) 0

2014E (38) 106 (77) 309 (84) 167 0 (2) (112) 0

2015E (45) (99) 36 245 (86) 312 0 0 (159) 0

2016E (48) (57) (42) 242 (66) 297 0 0 (176) 0

2013A (16) 28 (54) 106 (33) 66 0 (0) (97) 0

2014E (16) 45 (33) 131 (36) 71 0 (1) (48) 0

2015E (17) (38) 14 93 (33) 119 0 0 (60) 0

2016E (17) (20) (15) 86 (23) 105 0 0 (62) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 141 935 364 1,299 313 79 907 24 2

2014E 250 1,093 412 1,504 304 47 1,153 23 23

2015E 250 1,065 453 1,518 312 47 1,159 23 23

2016E 250 1,122 470 1,592 327 47 1,218 23 23

2013A 60 399 155 554 133 34 387 10 1

2014E 98 429 161 590 119 18 452 9 9

2015E 92 393 167 560 115 17 428 8 8

2016E 85 382 160 542 111 16 414 8 8

LT Debt FINANCIAL RATIOS Net Debt

2015E 1,851 8.3 820 9.0 446 11.1 24.1 401 10.3 21.7 44 (92) 353 11.0 19.0

2016E 2,025 9.4 903 10.1 502 12.5 24.8 454 13.1 22.4 42 (106) 389 10.4 19.2

2013A 779 2.0 352 1.2 203 (2.4) 26.1 188 (1.7) 24.1 13 (54) 147 (7.3) 18.9

US$ 2014E 728 (6.5) 320 (8.9) 171 (16.0) 23.5 155 (17.5) 21.3 15 (34) 135 (8.3) 18.6

2015E 704 (3.3) 312 (2.6) 170 (0.8) 24.1 153 (1.5) 21.7 17 (35) 134 (0.9) 19.0

2016E 717 1.8 320 2.5 178 4.8 24.8 161 5.3 22.4 15 (38) 138 2.8 19.2

22

0

0

0

10

0

0

0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E (78)

(117)

(230)

(230)

(230)

(50)

(90)

(85)

Capital Employed

986

1,200

1,206

1,265

421

471

445

430

Net Debt/EBITDA

(0.3)

(0.6)

(0.5)

(0.5)

(0.2)

(0.5)

(0.5)

(0.4)

Net Debt/Equity

(0.1)

(0.2)

(0.2)

(0.2)

(0.1)

(0.2)

(0.2)

(0.2)

4.3

4.9

4.6

3.2

4.3

4.9

4.6

3.2

Capex/Revenue (%) Int Cover (%)

14.8

13.6

21.8

23.5

14.8

13.6

21.8

23.5

Dividend Payout (%)

67.0

35.1

50.0

50.0

60.6

32.2

44.0

49.7

ROCE (%)

52.8

37.0

40.9

44.2

56.6

40.9

41.1

44.2

ROE (%)

37.6

30.8

30.5

32.8

38.4

33.0

30.5

32.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

15.5

10.5

9.2

8.3

14.1

9.3

9.0

8.7

P/CE

14.0

9.4

8.2

7.4

12.8

8.3

8.0

7.8

FV/EBITDA

10.9

7.7

6.8

6.0

10.0

6.8

6.6

6.3

FV/EBIT

11.9

8.5

7.5

6.6

10.8

7.5

7.3

7.0

FV/Revenue

2.9

1.8

1.6

1.5

2.6

1.6

1.6

1.6

P/BV

5.4

2.9

2.8

2.7

5.4

2.8

2.8

2.9

FCF Yield (%)

2.9

5.0

9.6

9.2

3.2

5.7

9.9

8.7

MARKET RATIOS

Div Yield (%)

4.2

3.4

4.9

5.4

4.6

3.8

5.0

5.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.93

1.93

2.14

2.36

0.90

0.82

0.81

0.84

DPS

1.27

0.68

0.96

1.07

0.59

0.29

0.37

0.38

BVPS

5.51

7.01

7.04

7.40

2.35

2.75

2.60

2.52

PER SHARE DATA

73

Cia. Hering is a vertically integrated branded apparel wholesale/retailer operating through franchise network and multi-brand channels. The company features a flexible production model, benefiting from own manufacturing (five plants) and outsourcing (80%/20%), to deliver six collections throughout the year to its four main brands: Hering, PUC, Hering Kids, and Dzarm. Hering distributes its products through two distribution channels: (1) owned and franchised stores for its different brands, with more than 750 stores (3Q14), and (2) the multi-brand channel with nearly 17,000 points of sale. Hering is a publicly traded company in the Bovespa’s Novo Mercado, with a free float of 78%.

Key Personnel: Ivo Hering (Chairman), Fabio Hering (CEO), Frederico Oldani (CFO) and Bruno Brasil (Investor Relations Manager) Web: www.ciahering.com.br

Sales Breakdown by Brand, 3Q14

Hering Kids 12.0%

PUC 9.0%

dzarm. 5.0%

Other 2.0%

Hering 72.0%

Sales Breakdown by Channel, 3Q14 Other Webstore 3.3% Franchise 1.5% Stores 34.9%

Multibrand 48.6%

Own Stores 11.8%

Shareholder Structure, Current Aberdeen 5.0% Inpasa S/A Ivo 7.3% Hering 7.1% Free Float 70.3% Others 10.2%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—FINANCIAL SERVICES

CIELO

BUY CURRENT PRICE: R$39.72 TARGET PRICE: R$51.00

 Investment Case: Cielo announced on November 21, 2014 the creation of a JV with Banco do Brasil in the cards’ segment. (Please refer to our December 1 report, Cielo: The Cielo-BB JV— Spelling Out Value Creation.) We considered the deal as valueaccretive based on (i) the NPV we calculated was 19.5% above the price paid by Cielo for its 70% stake, (ii) lower WACC due to the expected R$8.1 billion in debentures yet to be issued, and

Henrique Navarro* Brazil: Banco Santander S.A. +5511-3012-5756 | [email protected]

Boris Molina New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

Renata Cabral* Brazil: Banco Santander S.A. +5511-3012-5731 | [email protected]

(iii) potential synergies to be unlocked from the lower tax burden. We have not included in our valuation (i) potential synergies from higher efficiency, (ii) the tax shield from goodwill amortization (we estimate at ~R$1.7 billion), and (iii) the tax credits from IOC (interest on capital); near R$3 billion by our estimate).

 Outlook 2015: The deal would potentially reduce 2015 EPS by 7%, with a zero impact on 2016 results, and margin recovery happening only in 2017, after which we believe EPS will increase circa 6% for the following years. Thus, investors should expect slightly lower EPS growth in 2015, but this will be in exchange for long-term benefits, in our view. Based on the 2015E P/E, the company will look more expensive with its higher multiples.

Company Statistics Bloomberg

 Waiting for final approval. We expect this to be granted by the

CIEL3 BZ

Current Price (01/02/15)

R$ 39.72 / US$ 14.75

Target Price (YE 2015)

R$ 51.00 / US$ 19.62

regulators (BACEN and CADE) by YE2014. Following approval,

52-Week Range (R$)

Cielo should provide additional information to the market, which

Market Capitalization (US$ Mn)

we believe will support the deal price. We look forward to this time, when we believe our thesis that the deal was valueaccretive will be corroborated.

31.25 - 46.50 23,198

Float (%)

42.3

3-Mth Avg. Daily Vol (US$ Mn)

66.3

Shares Outstanding - Mn

1,572

Price Performance (R$)

 Regulatory risk—still hovering. Our call is that the deal is not

CIEL3 BZ

IBOVESPA

250

as negative as it might appear. We see only three viable 200

regulatory risks: (i) the end of exclusivity, which is a given and whose outcome will be known by April 2015, as the main players agreed; (ii) the cap on debit cards’ MDR; and (iii) the end of POS

150

100

machines. If all three materialize, our YE2015 target price would be negatively affected by 5%. The end of the “D+30” is not an immediate concern, in our view.

50

D-12

A-13

J-13

N-13

M-14

J-14

Sources: FactSet, Santander estimates and company reports.

74

N-14

CIELO Company Description

2015E 2,626 10,577 745.5 719 18,056 0 0 5,400 (2,626)

2016E 3,971 11,574 874.5 815 20,786 0 0 6,649 (3,971)

2013A 196 4,004 285.6 239 6,147 0 0 1,544 (196)

2014E 619 3,786 280.4 315 6,381 0 0 1,836 (619)

2015E 1,010 4,068 286.7 277 6,945 0 0 2,077 (1,010)

2016E 1,471 4,287 323.9 302 7,698 0 0 2,463 (1,471)

CASH FLOW Changes in Working Capital Operating Cash Flow Capital Expenditures Change in Debt Free Cash Flow to Equity Cash Dividends Capital Increase (Decrease)

2013A 1,001 2,574 (339) 867 734 (1,520) 0

2014E 998 2,941 (547) (601) 2,676 (1,802) 0

2015E 1,032 3,531 (612) (339) 2,625 (2,293) 0

2016E 335 4,736 (675) (386) 3,960 (2,530) 0

2013A 464 1,193 (157) 402 340 (704) 0

2014E 425 1,251 (233) (256) 1,139 (767) 0

2015E 397 1,358 (235) (131) 1,009 (882) 0

2016E 124 1,754 (250) (143) 1,467 (937) 0

OPERATING RATIOS EBITDA Margin Effective Tax Rate Net Margin Net Debt / EBITDA Net Debt / Equity

2013A 33.6 33.8 (11.8) (12.7)

2014E 33.5 34.9 (37.0) (33.7)

2015E 33.0 34.9 (57.6) (48.6)

2016E 33.0 36.0 (78.3) (59.7)

2013A 33.6 33.8 (11.8) (13.9)

2014E 33.5 34.9 (37.0) (37.0)

2015E 33.0 34.9 (57.6) (48.6)

2016E 33.0 36.0 (78.3) (59.7)

6.5

7.9

6.9

7.0

6.5

7.9

6.9

7.0

ROAA

23.1

23.2

21.9

21.4

23.7

24.5

21.9

21.4

ROAE

93.3

85.7

74.4

69.1

95.8

90.7

74.4

69.1

MARKET RATIOS P/E

2016E 4,291 7.7 1,878 7.0 2,433 7.5 2,303 (760) 0 1,543 11.0

65.2

67.2

70.0

70.0

59.0

62.3

63.8

70.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

9.6

20.7

18.7

16.3

8.8

19.0

19.1

17.2

11.3

23.8

21.3

18.4

10.3

21.9

21.7

19.4

FV/EBITDA

7.1

16.8

14.3

12.6

6.5

15.4

14.5

13.3

FCFE Yield (%)

2.0

1.1

1.1

1.2

2.2

1.2

1.0

1.1

P/BV

7.7

15.7

12.5

10.2

7.1

14.4

12.8

10.8

P/CE

Div Yield (%)

5.9

2.7

3.4

3.7

6.4

2.9

3.3

3.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

3.41

2.08

2.30

2.65

1.58

0.89

0.88

0.98

CEPS

3.41

2.08

2.30

2.65

1.58

0.89

0.88

0.98

FCFPS

0.06

0.09

0.07

0.07

0.03

0.04

0.03

0.03

BVPS

4.24

2.74

3.43

4.23

1.96

1.17

1.32

1.57

DPS

2.29

1.46

1.61

1.85

1.06

0.62

0.62

0.69

PER SHARE DATA

Cielo is the leading acquirer in the Brazilian credit and debit card industry. The company is responsible for the affiliation of new merchants to accept credit and debit cards as means of payment. Formerly, Cielo had exclusivity for the affiliation of Visa-branded cards. That exclusivity has ended, but Cielo has already started to affiliate with other brands such as MasterCard and Elo. Cielo rents the point of sale (POS) machines, and captures, transmits, processes and settles credit and debit card transactions in Brazil. Cielo also operates some complementary products and services, such as processing service and food vouchers, hybrid privatelabel cards and corresponding banking transactions, the latter on behalf of the low-income banking customers of its main shareholders.

Key Personnel: Rômulo de Mello Dias (CEO), Clovis Poggetti (CFO) and Roberta Noronha (IRO) Web: www.cielo.com.br

Share of Transactions, YE2014E

Debit card 39.1%

Credit card 60.9%

EBITDA Margin, 2010–15E 61.55

58.29 49.70

45.05

41.95

44.05

2015E

2014E 1,456 8,897 659.0 740 14,997 0 0 4,315 (1,456)

Payout

2015E 3,983 (0.3) 1,755 4.7 2,263 1.9 2,075 (685) 0 1,390 (0.3)

2014E

2013A 423 8,639 616.2 515 13,264 0 0 3,332 (423)

FCFE / Revenues

2013A 3,678 15.3 1,657 4.6 2,033 9.5 1,872 (629) 0 1,242 4.1

2013A

BALANCE SHEET Cash and Equivalents Accounts Receivable Intangible and Deferred Asse Tangible Assets Total Assets ST Debt LT Debt Equity Net Debt (Cash)

2016E 11,585 11.9 5,072 11.2 6,569 11.6 6,217 (2,052) 0 4,166 15.3

2012A

2013A 7,936 27.3 3,575 15.4 4,386 20.8 4,039 (1,358) 0 2,681 14.9

2015E 10,356 10.3 4,562 15.8 5,885 12.8 5,394 (1,780) 0 3,614 10.3

US$ 2014E 3,995 8.6 1,676 1.1 2,220 9.2 1,825 (611) 0 1,394 12.2

2011A

INCOME STATEMENT Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) Profit before Taxes Taxes Minorities Net Profit Growth (%)

R$ 2014E 9,388 18.3 3,939 10.2 5,218 19.0 4,289 (1,435) 0 3,276 22.2

2010A

Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions

Shareholder Structure, Current

Free float 42.7%

Bradesco 28.6%

Banco do Brasil 28.6%

Sources for all charts and tables: Company reports and Santander estimates.

75

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—UTILITIES

COMGAS

HOLD CURRENT PRICE: R$46.95 TARGET PRICE: R$57.02

INTRODUCING YE2015 TARGET PRICE OF R$57.02; REPLACING YE2014 TARGET PRICE OF R$63.07 

Investment Case: The delay in the tariff revision sheds light on the

Maria Carolina Carneiro*

complexity of the regulatory framework and the risks associated with

Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

potential changes in methodology parameters. We believe any changes in the assessment of the asset base and in aggressive volume curves could dent margins and returns. Therefore, although we continue to expect no important changes to the asset base definition and anticipate that decent return levels will be maintained, we reiterate our Hold rating for the stock.



Outlook 2015: Arsesp is scheduled to conclude the tariff revision process on May 30, 2015, which implies, in our estimates, a 1.5% tariff increase if WACC is confirmed at 8.06% post tax. However, we expect EBITDA to decrease 8.6% YoY, reflecting cost pressure and lower volume growth. Therefore, we believe the main challenges for 2015 will be (i) the industrial segment’s performance, which has been weak recently, partially contributing to lower volume growth, and (ii) higher inflation, which will increase the cost pressure.



Tariff revision: The tariff revision process was delayed until May 2015; as a result, the regulator announced a tariff reset of 2.3% for

Company Statistics

Comgas to partially offset inflation and cost pressures until the tariff

Bloomberg

revision is concluded. We view the announcement as neutral, given that we already considered the calendar for the process to be tight.

CGAS5 BZ

Current Price (01/02/15)

R$ 46.95 / US$ 17.44

Target Price (YE 2015)

R$ 57.02 / US$ 21.52

52-Week Range (R$)

46.70 - 58.00

Market Capitalization (US$ Mn)



New holding unit for gas. Cosan, the controlling entity of Comgas, highlighted that the separation of the gas distribution business and

2,090

Float (%)

21.4

3-Mth Avg. Daily Vol (US$ Mn)

0.7

Shares Outstanding - Mn

120

the creation of a new listed holding company for that business (approval expected in 1Q15) is intended to make future acquisitions and development in the gas business more efficient. Cosan said it

Price Performance (R$) CGAS5 BZ

IBOVESPA

A-13

A-14

110

would allocate part of its debt to this new holding unit and that in the 100

future investors should focus investments in the new holding unit. 90



Change to estimates: We updated our model to include (1) recently released quarterly results, (2) a new (lower) volume curve and gas price, (3) new tariff revision estimates/parameters and calendar, and (4) an updated discount rate.

80

70

J-13

M-13

D-13

A-14

Sources: FactSet, Santander estimates and company reports.

76

D-14

COMGAS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 6,337 20.0 2,452 32.9 1,403 45.9 22.1 1,072 59.6 16.9 (191) (262) 619 68.9 9.8

R$ 2014E 6,415 1.2 2,491 1.6 1,465 4.4 22.8 1,094 2.1 17.1 (246) (252) 596 (3.7) 9.3

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (331) 22 1,293 (852) 366 0 0 127

2014E (370) (313) 652 (735) (230) 0 (147) 0

2015E (413) 42 1,140 (801) 41 0 (298) 0

2016E (459) (38) 1,335 (871) 134 0 (329) 0

2013A (154) 10 599 (395) 170 0 0 59

2014E (155) (131) 272 (307) (96) 0 (61) 0

2015E (159) 16 439 (308) 16 0 (115) 0

2016E (170) (14) 494 (323) 50 0 (122) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 536 1,498 4,133 6,919 1,403 2,860 2,656 2,841 336

2014E 306 1,527 4,497 7,420 1,588 2,877 2,954 2,840 336

2015E 348 1,572 4,886 7,854 1,673 3,085 3,096 3,056 362

2016E 482 1,753 5,298 8,454 1,845 3,308 3,301 3,285 389

2013A 229 639 1,764 2,953 599 1,220 1,134 1,213 144

2014E 120 599 1,764 2,910 623 1,128 1,159 1,114 132

2015E 131 593 1,844 2,964 631 1,164 1,168 1,153 137

2016E 175 637 1,927 3,074 671 1,203 1,200 1,195 141

LT Debt

2015E 6,479 1.0 2,459 (1.3) 1,339 (8.6) 20.7 927 (15.3) 14.3 (257) (199) 470 (21.1) 7.3

2016E 6,814 5.2 2,909 18.3 1,701 27.0 25.0 1,242 34.1 18.2 (268) (290) 685 45.5 10.0

2013A 2,937 8.7 1,136 20.4 650 32.2 22.1 497 44.6 16.9 (89) (121) 287 53.0 9.8

US$ 2014E 2,677 (8.8) 1,040 (8.5) 611 (6.0) 22.8 457 (8.1) 17.1 (103) (105) 249 (13.3) 9.3

2015E 2,492 (6.9) 946 (9.0) 515 (15.7) 20.7 356 (22.0) 14.3 (99) (77) 181 (27.3) 7.3

2016E 2,524 1.3 1,077 13.9 630 22.3 25.0 460 29.1 18.2 (99) (107) 254 40.1 10.0

2,505

2,504

2,694

2,896

1,069

982

1,017

1,053

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

2,305

2,534

2,708

2,803

984

994

1,022

1,019

Capital Employed

4,240

4,755

5,175

5,737

1,810

1,865

1,953

2,086

Net Debt/EBITDA

1.6

1.7

2.0

1.6

1.5

1.6

2.0

1.6

Net Debt/Equity

0.9

0.9

0.9

0.8

0.9

1.0

0.9

0.8

Capex/Revenue (%)

13.4

11.5

12.4

12.8

13.4

11.5

12.4

12.8

Int Cover (%)

n/m

n/m

n/m

n/m

n/m

n/m

n/m

n/m

FINANCIAL RATIOS

Dividend Payout (%)

0.0

23.8

50.0

70.0

0.0

21.8

44.0

69.6

ROCE (%)

31.5

28.3

21.8

26.7

33.8

31.3

21.9

26.7

ROE (%)

25.2

21.2

15.6

21.4

25.7

22.6

15.6

21.4

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

11.3

9.8

12.0

8.2

10.3

8.8

11.5

8.2

P/CE

7.3

6.1

6.4

4.9

6.7

5.5

6.2

4.9

FV/EBITDA

6.6

5.7

6.2

5.0

6.1

5.2

6.0

4.9

FV/EBIT

8.7

7.7

9.0

6.8

7.9

7.0

8.7

6.8

FV/Revenue

1.5

1.3

1.3

1.2

1.3

1.2

1.2

1.2

P/BV

2.6

2.0

1.8

1.7

2.6

1.9

1.8

1.7

FCF Yield (%)

5.2

(3.9)

0.7

2.4

5.7

(4.4)

0.8

2.4

(0.0)

2.5

5.3

5.9

(0.0)

2.8

5.5

5.8

P/E

Div Yield (%) PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

5.17

4.97

3.93

5.71

2.39

2.08

1.51

2.12

DPS

0

1.23

2.49

2.75

0

0.51

0.96

1.02

22.17

24.66

25.83

27.55

9.46

9.67

9.75

10.02

BVPS

77

Comgás is a distributor of piped natural gas in São Paulo State with over 1,400,000 customers. In 2013, it distributed 5.5 billion cubic meters—amounting to a quarter share of the domestic market—through its 10,900 km of pipelines. Its concession area comprises 177 cities in metropolitan São Paulo, metropolitan Campinas, the coastal area around Santos, and the Paraíba Valley. The company is controlled by Cosan, its major shareholder (60.7% of total shares).

Key Personnel: Rubens Ometto Silveira Mello (Chairman), Luis Henrique Cals de Beauclair Guimarães (CEO), Roberto Collares Lage (CFO) and Andre Meneguetti Salgueiro (IR Manager) Web: http://www.comgas.com.br/investidores/

Sales by Segment, 9M14

Gas Distribution 100.0%

Gross Result by Business, 9M14 Cogeneratio n Vehicles 3.7% 3.2% Residential 10.3%

Industrial 67.1%

Others 15.7%

Shareholder Structure, Current

Others 21.4% Shell Bz (Integral BV) 17.9%

Cosan 60.7%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—UTILITIES

COPASA

HOLD CURRENT PRICE: R$24.80 TARGET PRICE: R$27.90

INTRODUCING YE2015 TARGET PRICE OF R$27.90; REPLACING YE2014 TARGET PRICE OF R$42.34  Investment Case: We maintain our Hold rating for Copasa despite its recent underperformance, given that the latest

Maria Carolina Carneiro* Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

quarterly results indicated a tighter volume curve for the next few quarters. Moreover, there is no clear time frame for the realization of a tariff revision methodology. However, we note that the company continues to be protected against inflation and trades at a discount to its peers.

 Outlook 2015: We continue to expect that the tariff revision process will not be completed in 2015, due to understaffing at ARSAE, the state regulator. We forecast EBITDA of R$1,236 million, a 5.5% YoY increase, primarily reflecting pressure on short-term volume growth and the tariff adjustment to cover inflation pressure for nonmanageable costs.

 Volume Curve: In its latest operating results, the company highlighted that its ongoing awareness campaign to reduce consumption has reduced the billed volume per connection in its concession area throughout 2014. Therefore, we update our volume curve, predicting YoY increases in water and sewage

Company Statistics

volumes of only 1.3% and 1.4%, respectively, for 2015. We also

Bloomberg

highlight, however, that the volume curve should tend to spike

CSMG3 BZ

Current Price (01/02/15)

R$ 24.80 / US$ 9.21

Target Price (YE 2015)

R$ 27.90 / US$ 10.53

again in 2016, when we project volume increases of 3.6% and

52-Week Range (R$)

3.3% for the water and sewage segment, respectively.

Market Capitalization (US$ Mn)

21.37 - 41.30 1,099

Float (%)

 Tariff revision process: We believe that ARSAE will continue to

48.6

3-Mth Avg. Daily Vol (US$ Mn)

4.8

Shares Outstanding - Mn

119

delay the new tariff revision process, and consequently, uncertainty surrounding the return of the company's marginal

Price Performance (R$) CSMG3 BZ

capex will continue.

IBOVESPA

120

 Change in estimates. We revised our model to reflect (1) new

100

macroeconomic estimates, (2) slower volume growth, (3) recent

80

quarterly results, (4) a higher discount rate, (5) tariff revision 60

delayed until 2016, and (6) higher tax rate.

40

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

78

D-14

COPASA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 3,733 8.3 726 (4.8) 1,157 1.2 31.0 726 (4.8) 19.5 (160) (146) 420 (12.9) 11.2

R$ 2014E 4,278 14.6 690 (5.0) 1,172 1.3 27.4 690 (5.0) 16.1 (203) (123) 364 (13.3) 8.5

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (431) 58 (93) 816 (909) (236) 22 0 (334) -

2014E (482) 58 216 1,120 (878) (49) 0 439 (164) -

2015E (529) 76 (50) 892 (1,208) 177 0 604 (112) -

2016E (573) 74 (20) 980 (1,103) 306 0 551 (123) -

2013A (200) 27 (43) 379 (423) (110) 10 0 (155) -

2014E (199) 24 89 462 (362) (20) 0 181 (68) -

2015E (204) 29 (19) 343 (464) 68 0 232 (43) -

2016E (212) 27 (7) 363 (408) 113 0 204 (46) -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 262 1,100 7,623 9,388 931 3,120 5,337 3,264 472

2014E 213 1,084 8,237 9,969 962 3,440 5,567 3,396 446

2015E 390 1,339 8,916 10,901 1,088 4,027 5,786 4,075 539

2016E 696 1,690 9,445 11,783 1,199 4,568 6,016 4,700 624

2013A 114 478 3,314 4,082 405 1,357 2,321 1,419 205

2014E 84 425 3,230 3,909 377 1,349 2,183 1,332 175

2015E 147 505 3,364 4,114 410 1,520 2,183 1,538 203

2016E 253 615 3,435 4,285 436 1,661 2,188 1,709 227

LT Debt

2015E 5,614 31.2 707 2.5 1,236 5.5 22.0 707 2.5 12.6 (270) (100) 337 (7.3) 6.0

2016E 5,631 0.3 740 4.7 1,313 6.2 23.3 740 4.7 13.1 (282) (105) 353 4.7 6.3

2013A 1,737 (1.5) 338 (13.4) 538 (8.0) 31.0 338 (13.4) 19.5 (74) (68) 195 (20.7) 11.2

US$ 2014E 1,764 1.6 284 (15.8) 483 (10.2) 27.4 284 (15.8) 16.1 (84) (51) 150 (23.2) 8.5

2015E 2,159 22.4 272 (4.4) 475 (1.6) 22.0 272 (4.4) 12.6 (104) (39) 130 (13.6) 6.0

2016E 2,085 (3.4) 274 0.8 486 2.2 23.3 274 0.8 13.1 (104) (39) 131 0.9 6.3

2,792

2,949

3,536

4,077

1,214

1,157

1,334

1,482

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

3,002

3,182

3,685

4,004

1,305

1,248

1,391

1,456

Capital Employed

7,709

8,331

9,015

9,546

3,352

3,267

3,402

3,471

Net Debt/EBITDA

2.6

2.7

3.0

3.1

2.4

2.6

2.9

3.0

FINANCIAL RATIOS

Net Debt/Equity Capex/Revenue (%) Int Cover (%)

0.6

0.6

0.6

0.7

0.6

0.6

0.6

0.7

24.4

20.5

21.5

19.6

24.4

20.5

21.5

19.6

4.7

4.2

3.4

3.2

4.7

4.2

3.4

3.2

Dividend Payout (%)

69.3

39.1

30.7

36.4

62.7

35.9

27.0

36.2

ROCE (%)

11.3

9.8

9.0

8.9

12.2

10.8

9.0

8.9

8.1

6.7

5.9

6.0

8.3

7.1

5.9

6.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

ROE (%) MARKET RATIOS P/E

10.6

8.3

8.8

8.4

9.6

7.5

8.5

8.4

P/CE

5.2

3.6

3.4

3.2

4.8

3.2

3.3

3.2

FV/EBITDA

6.4

5.3

5.4

5.3

5.9

4.9

5.2

5.3

10.2

9.0

9.4

9.4

9.4

8.4

9.2

9.3

2.0

1.4

1.2

1.2

1.8

1.3

1.2

1.2

0.8

0.5

0.5

0.5

0.8

0.5

0.5

0.5

(5.3)

(1.6)

6.0

10.3

(5.8)

(1.8)

6.2

10.3

FV/EBIT FV/Revenue P/BV FCF Yield (%) Div Yield (%)

7.5

5.5

3.8

4.2

8.3

6.0

3.9

4.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

3.52

3.05

2.83

2.96

1.64

1.26

1.09

1.10

DPS

1.23

1.07

0.99

1.04

0.57

0.44

0.38

0.38

44.73

46.65

48.49

50.42

19.45

18.30

18.30

18.33

PER SHARE DATA

BVPS

79

Copasa is one of the largest sanitation water distribution companies in Latin America. The company charges its clients for water treatment and distribution and for sewage treatment and collection. It is controlled by the State of Minas Gerais (51.1% ownership) and operates in 633 municipalities, mainly in the water supply segment, serving more than 12 million people. The company is in the process of expanding its activities to the sewage sector primarily in areas with existing water concessions. Copasa is listed in the Novo Mercado (CSMG3).

Key

Personnel: Joaquim Herculano Rodrigues (Chairman), Ricardo Augusto Simões Campos (CEO), Paula Vasques Bittencourt (CFO) and Paula Vasques Bittencourt (Investor Relations Officer) Web: www.copasa.com.br Revenues by Business, 9M14

Sewage 34.2%

Water 65.8%

Sales by Segment, 9M14 Commercial Industrial and others 9.8% 3.0%

Public Sector 4.8%

Residential 82.4%

Shareholder Structure, Current

Free Float 48.6%

Minas Gerais State 51.1%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—UTILITIES

COPEL

BUY CURRENT PRICE: R$35.90 TARGET PRICE: R$44.36



Investment Case: We recently introduced our YE2015 target price and upgraded the company to Buy from Hold based on its fundamental prospects and the gains we expect from higher energy

Maria Carolina Carneiro* Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

prices. Although there is no clear growth strategy to apply the residual tariff index approved by the regulator, in the Disco arm we see upside risk at this point, as the company’s valuation shows inexpensive multiples.



Outlook 2015: We expect EBITDA growth of 2.7% in 2015, as the company should benefit from (1) continued high thermal dispatch from the Araucaria thermal plant, and (2) the sale of about 177 MWm of available energy at high energy prices. However, the positives will be partially offset by the hydro deficit and the delay in UHE Colider.



Upside to higher energy prices: Copel has 41% of its electricity generation portfolio to be recontracted in 2017 and 65% in 2018. We expect rollover prices to be R$150/MWh (a good price), ~24% higher than the current average of R$120/MWh.



Negative on uncertainty in tariff application. Interference by the main shareholder could create systematic downside risks. The company currently holds regulatory receivables of R$622.4 million and R$275.4 million, for 2014 and 2013, respectively. We expect

Company Statistics Bloomberg

CPLE6 BZ

Current Price (01/02/15)

R$ 35.90 / US$ 13.34

Copel to request these tariffs gradually in the next few years,

Target Price (YE 2015)

R$ 44.36 / US$ 16.37

minimizing the impact for final consumers.

52-Week Range (R$)

23.64 - 40.40

Market Capitalization (US$ Mn)



What has changed? We recently updated our models to include (i) a new price curve (long-term R$150/MWh) as well as the hydro

3,649

Float (%)

45.0

3-Mth Avg. Daily Vol (US$ Mn)

7.3

Shares Outstanding - Mn

274

deficit expected for 2015 (average 7%), (ii) a new energy balance portfolio, with additional energy sold for the 2015-16 period and some

Price Performance (R$)

energy that is still being sold at the spot market (about 9% of its

130

portfolio, or 177 MW), (iii) new macroeconomic assumptions,

120

(iv) recently released results, (v) a tariff increase of 24.86% applied in

110

June 2014 as well as the residual tariffs to be applied in the next tariff

100

review process, (vi) regulatory WACC of 7.2% for the disco business,

90

(vii) new capex guidance, and (viii) some cost cuts made to achieve

80

regulatory targets.

70

CPLE6 BZ

J-13

M-13

A-13

IBOVESPA

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

80

D-14

COPEL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 9,180 7.6 4,833 9.8 1,716 11.4 18.7 1,113 12.4 12.1 280 (405) 959 39.0 10.4

R$ 2014E 12,870 40.2 6,910 43.0 2,409 40.4 18.7 1,793 61.1 13.9 68 (604) 1,310 36.7 10.2

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (603) (306) 392 1,855 (1,843) 12 (1,065) 1,236 (343) 0

2014E (617) (190) (180) 2,083 (2,490) (407) (264) 1,133 (351) 0

2015E (645) 0 (158) 1,524 (1,950) (426) 0 67 (567) 0

2016E (688) 0 (116) 1,593 (1,641) (47) 0 39 (659) 0

2013A (280) (142) 182 860 (854) 6 (494) 573 (159) 0

2014E (263) (81) (77) 889 (1,062) (174) (113) 483 (150) 0

2015E (245) 0 (60) 580 (742) (162) 0 25 (216) 0

2016E (244) 0 (41) 564 (581) (17) 0 14 (233) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 2,131 4,676 14,696 23,111 3,348 6,835 12,651 5,499 1,045

2014E 1,724 4,879 16,577 25,351 4,191 7,957 12,831 6,740 1,301

2015E 1,298 4,623 17,882 26,334 4,461 8,102 13,398 6,928 1,343

2016E 1,251 4,740 18,835 27,365 4,653 8,283 14,057 7,160 1,395

2013A 909 1,996 6,272 9,864 1,429 2,917 5,400 2,347 446

2014E 676 1,913 6,501 9,942 1,643 3,120 5,032 2,643 510

2015E 479 1,706 6,599 9,717 1,646 2,990 4,944 2,556 496

2016E 425 1,612 6,407 9,308 1,583 2,817 4,781 2,435 474

LT Debt FINANCIAL RATIOS Net Debt

2015E 13,610 5.7 6,360 (8.0) 2,474 2.7 18.2 1,829 2.0 13.4 (252) (523) 1,134 (13.5) 8.3

2016E 13,488 (0.9) 6,774 6.5 2,893 17.0 21.4 2,205 20.6 16.3 (347) (607) 1,317 16.2 9.8

2013A 4,255 (2.5) 2,240 (0.5) 795 0.9 18.7 516 1.9 12.1 130 (188) 444 26.0 10.4

US$ 2014E 5,492 29.1 2,949 31.6 1,028 29.3 18.7 765 48.3 13.9 29 (258) 559 25.8 10.2

2015E 5,175 (5.8) 2,418 (18.0) 941 (8.5) 18.2 695 (9.1) 13.4 (96) (199) 431 (22.9) 8.3

2016E 4,775 (7.7) 2,398 (0.8) 1,024 8.9 21.4 781 12.3 16.3 (123) (215) 466 8.2 9.8

4,454

5,439

5,585

5,765

1,901

2,133

2,061

1,961

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

2,401

3,996

4,609

4,889

1,025

1,567

1,701

1,663

Capital Employed

15,191

17,510

19,023

20,075

6,483

6,866

7,020

6,828

Net Debt/EBITDA

1.4

1.7

1.9

1.7

1.3

1.5

1.8

1.6

Net Debt/Equity

0.2

0.3

0.3

0.3

0.2

0.4

0.3

0.3

20.1

19.3

14.3

12.2

20.1

19.3

14.3

12.2

4.6

4.2

3.1

3.4

4.6

4.2

3.1

3.4

Dividend Payout (%)

49.7

36.6

43.3

58.1

45.0

33.6

38.1

57.7

ROCE (%)

10.0

13.7

12.4

14.0

10.7

15.0

12.4

14.0

7.7

10.3

8.6

9.6

7.8

10.9

8.6

9.6

Capex/Revenue (%) Int Cover (%)

ROE (%) MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

8.7

7.5

8.7

7.5

8.0

6.6

8.5

7.8

P/CE

5.3

5.1

5.5

4.9

4.9

4.5

5.4

5.1

FV/EBITDA

6.4

5.9

5.9

5.2

5.8

5.2

5.8

5.3

FV/EBIT

9.8

7.9

8.0

6.8

9.0

7.0

7.8

6.9

FV/Revenue

1.2

1.1

1.1

1.1

1.1

1.0

1.1

1.1

P/BV

0.7

0.8

0.7

0.7

0.7

0.7

0.7

0.8

FCF Yield (%)

0.1

(4.1)

(4.3)

(0.5)

0.2

(4.7)

(4.4)

(0.5)

Div Yield (%)

4.1

3.6

5.8

6.7

4.5

4.1

5.9

6.4

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

3.50

4.79

4.14

4.81

1.62

2.04

1.58

1.70

DPS

0.07

1.28

2.07

2.41

0.03

0.55

0.79

0.85

46.23

46.89

48.96

51.37

19.73

18.39

18.07

17.47

BVPS

81

Copel is a holding company that operates generation, distribution, and transmission assets and sells electricity in Brazil. Copel is a state-run company controlled by the government of the State of Paraná (58.63% of common shares and 31.08% of total capital. In the distribution segment, the company has approximately 6% of market share. In the generation segment, Copel currently has an annual installed capacity of 5.455 MW and partnerships in several power plants (4% market share).

Key Personnel: Mauricio Schulman (Chairman), Luiz Fernando Leone Vianna (CEO), Luiz Eduardo da Veiga Sebastiani (CFO) and Luiz Eduardo da Veiga Sebastiani (IR Director) Web: www.copel.com/hpcopel

EBITDA by Business, 3Q14

DisCo 14.0%

Other 7.0%

GenCo & TransCo 79.0%

Sales by Segment (DisCo), 9M14

Others 15.4%

Commercial 19.7%

Residential 31.5%

Industrial 29.6%

Shareholder Structure, Current

Free float 45.0%

Paraná State 31.1%

BNDESPAR 24.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—AGRIBUSINESS

COSAN ENERGIA

BUY CURRENT PRICE: R$27.80 TARGET PRICE: R$39.00

LOWERING YE2015 TARGET PRICE TO R$39.00 FROM R$50.60 

Investment Case: In our view, the company’s focus on improving

Christian Audi

both its return on capital employed and capital structure will continue.

New York: Santander Investment Securities Inc. +1-212-350-3991 | [email protected]

On the operational front, we believe the foundation of Cosan Energia’s fuel distribution business should remain solid in 2015 despite the expected weak economic activity in Brazil. More

Gustavo Allevato*, CFA Brazil: Banco Santander S.A. +5511-3012-6042 | [email protected]

specifically, we anticipate that the persistence of rationality among top players, market share gains, and the materialization of product mix improvements will result in healthy EBITDA growth.



Outlook 2015: We believe that Raízen Combustiveis will continue to generate solid results due to a combination of: (i) the resilience of gasoline volumes, supported by growth in the fleet of passenger vehicles in Brazil; (ii) an improving product mix; (iii) continued market share gains; and (iv) enhancements in the company’s convenience store growth strategy. Additionally, despite our expectation of flat sugar prices, we expect Raizen Energia to post improvements in operating results helped by the depreciation of the Brazilian real, coupled with still high energy prices. With respect to other business units, we expect a slight improvement in the lubricant business Company Statistics

despite the weak domestic activity.

Bloomberg



Focus on optimizing its capital structure and deleveraging: We

CSAN3 BZ

Current Price (01/02/15)

R$ 27.80 / US$ 10.33

Target Price (YE 2015)

R$ 39.00 / US$ 14.72

believe management will continue to push forward in its strong efforts

52-Week Range (R$)

to optimize the company’s capital structure, as well as restructure

Market Capitalization (US$ Mn)

debt in order to further reduce costs.

Additionally, the focus on

deleveraging should continue, creating room, in our view, for potentially higher dividend payments. After the conclusion of the spinoff of its gas distribution business, we estimate that Cosan Energia

25.86 - 46.50 4,203

Float (%)

26.1

3-Mth Avg. Daily Vol (US$ Mn)

17.3

Shares Outstanding - Mn

407

Price Performance (R$)

could have a net debt/EBITDA of around 3.0x in 2015, compared

120

with the company’s target of 2.0-2.5x.

110

Cosan Energia - ON (Rebased)

100 90 80 70 60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

82

D-14

COSAN ENERGIA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 36,165 20.5 4,607 38.2 3,962 28.7 11.0 2,213 44.2 6.1 (1,243) (190) 271 (57.3) 0.7

R$ 2014E 39,481 9.2 5,028 9.1 3,717 (6.2) 9.4 2,367 7.0 6.0 (960) (288) 763 181.3 1.9

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (1,774) 6 (530) 1,498 (2,547) (68) 81 1,466 (302) (265)

2014E (1,859) 7 (232) 1,916 (1,870) (1,633) (342) (1,251) (443) 358

2015E (1,841) 8 (140) 2,432 (2,174) 878 (19) 800 (326) 165

2016E (1,893) 9 (228) 2,608 (2,172) 71 (20) (100) (429) 183

2013A (816) 3 (244) 689 (1,171) (31) 37 674 (139) (122)

2014E (808) 3 (101) 833 (813) (710) (149) (544) (192) 156

2015E (708) 3 (54) 935 (836) 338 (7) 308 (125) 63

2016E (701) 3 (84) 966 (804) 26 (7) (37) (159) 68

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 2,345 7,444 23,611 35,811 4,558 4,756 9,737 13,248 1,789

2014E 1,414 6,837 25,621 36,789 4,365 4,331 9,930 11,997 1,668

2015E 2,297 8,000 26,039 38,546 4,616 4,507 10,257 12,797 1,780

2016E 2,374 8,528 26,404 39,621 4,827 4,690 10,686 12,697 1,766

2013A 993 3,152 9,996 15,161 1,930 2,014 4,122 5,608 757

2014E 554 2,681 10,047 14,427 1,712 1,698 3,894 4,705 654

2015E 867 3,019 9,826 14,546 1,742 1,701 3,870 4,829 672

2016E 863 3,101 9,601 14,408 1,755 1,705 3,886 4,617 642

LT Debt

11,339

10,209

10,896

10,810

4,800

4,003

4,112

3,931

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

10,902

10,583

10,499

10,323

4,616

4,150

3,962

3,754

Capital Employed

24,928

24,012

25,204

25,537

10,554

9,417

9,511

9,286

Net Debt/EBITDA

2.8

2.8

2.8

2.4

2.5

2.6

2.8

2.4

Net Debt/Equity

1.1

1.1

1.0

1.0

1.1

1.2

1.0

1.0

Capex/Revenue (%)

7.0

4.7

5.2

4.8

7.0

4.7

5.2

4.8

Int Cover (%)

3.1

2.9

3.7

3.9

3.1

2.9

3.7

3.9

Dividend Payout (%)

47.6

163.2

42.8

65.8

42.6

155.8

37.4

65.8

ROCE (%)

11.9

13.2

11.1

13.6

11.9

14.6

11.1

13.6

ROE (%)

2015E 41,694 5.6 5,287 5.2 3,738 0.6 9.0 2,080 (12.1) 5.0 (730) (426) 653 (14.5) 1.6

2016E 44,865 7.6 6,065 14.7 4,307 15.2 9.6 2,597 24.8 5.8 (818) (564) 859 31.6 1.9

2013A 16,634 8.1 2,119 24.0 1,822 15.5 11.0 1,018 29.3 6.1 (572) (87) 125 (61.7) 0.7

US$ 2014E 17,165 3.2 2,186 3.2 1,616 (11.3) 9.4 1,029 1.1 6.0 (417) (125) 332 165.9 1.9

2015E 16,036 (6.6) 2,034 (7.0) 1,438 (11.0) 9.0 800 (22.2) 5.0 (281) (164) 251 (24.3) 1.6

2016E 16,617 3.6 2,246 10.5 1,595 11.0 9.6 962 20.2 5.8 (303) (209) 318 26.7 1.9

2.8

7.8

6.5

8.2

2.6

8.1

6.5

8.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

n/m

14.8

17.3

13.2

n/m

12.7

16.7

13.2

P/CE

7.0

4.3

4.5

4.1

6.8

3.7

4.4

4.1

FV/EBITDA

7.8

7.1

7.1

6.1

7.4

6.2

6.9

6.1

MARKET RATIOS

FV/EBIT

14.0

11.2

12.7

10.1

13.2

9.8

12.4

10.1

FV/Revenue

0.9

0.7

0.6

0.6

0.8

0.6

0.6

0.6

P/BV

1.5

1.1

1.1

1.1

1.5

1.1

1.1

1.1

(0.5)

(14.4)

7.8

0.6

(0.5)

(16.9)

8.0

0.6

FCF Yield (%) Div Yield (%) PER SHARE DATA EPS DPS BVPS

2.1

3.9

2.9

3.8

2.2

4.6

3.0

3.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

0.67

1.87

1.60

2.11

0.31

0.82

0.62

0.78

0.74

1.09

0.80

1.05

0.34

0.47

0.31

0.39

23.92

24.40

25.20

26.25

10.13

9.57

9.51

9.55

83

Cosan is an integrated energy company and is active in the following business: sugarcane crushing with a capacity of 65 million tons, railway logistics under its subsidiary Rumo, fuel distribution under its JV with Shell, and most recently the gas distribution businesses with the acquisition of Comgás. Cosan was founded in 1936 and went public in February 2005. It has two types of shares: CSAN3 is listed on the Brazilian stock exchange and complies with Novo Mercado rules, and CZZ (the holding company), which began trading in the NYSE in 2007 and is also controlled by Mr. Rubens Ometto.

Key Personnel: Rubens Ometto Silveira Mello (Chairman), Marcos Marinho Lutz (CEO), Marcelo Eduardo Martins (CFO) and Guilherme Machado (IR Officer) Web: www.cosan.com.br

Sales by Segment, 2015E

Comgas 15.5%

Lubs 4.7%

Sugar & Ethanol 11.3%

Fuel Distribution 68.5%

EBITDA by Segment, 2015E

Comgas 33.8%

Sugar & Ethanol 28.0%

Lubs 3.7% Fuel Distribution 30.3%

Shareholder Structure, Current

Free Float 26.1% Rezende Barbosa 10.9%

Cosan Ltd. 62.3%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—AGRIBUSINESS

COSAN LIMITED

BUY CURRENT PRICE: US$7.73 TARGET PRICE: US$12.30

LOWERING YE2015 TARGET PRICE TO US$12.30 FROM US$16.30 

Investment Case: (Please refer to Cosan Energia’s “Investment

Christian Audi

Case” section for more details.) Cosan Limited (CZZ) remains the

New York: Santander Investment Securities Inc. +1-212-350-3991 | [email protected]

best way, in our view, to gain exposure to Cosan Energia (CSAN3) and Cosan Logistica, at an attractive discount. We view positively the results from the corporate restructuring carried out in 2014, since it

Gustavo Allevato*, CFA Brazil: Banco Santander S.A. +5511-3012-6042 | [email protected]

has provided investors with the option to invest in all of Cosan’s operations by owning CZZ shares, or to pick more specific exposure to segments by owning Cosan Energia vs. Cosan Logistics, vs. eventually Cosan Gas.



Outlook 2015: (Please refer to Cosan Energia’s “Outlook 2015” section for more details). We expect the spin-off of the gas distribution business to be concluded in 2015, at which time we estimate that Cosan Limited could have a stake of 62.3% in this company, similar to the stake it already has in Cosan Logistica and Cosan Energia.



Focus on improving return on capital employed, as well as optimizing its capital structure of its businesses: We believe the company will continue to push forward in its strong efforts to improve

Company Statistics

the return on capital employed of its businesses as well as to

Bloomberg

optimize its capital structure, both welcomed objectives, in our view.

CZZ US / CZLT33 BZ

Current Price (01/02/15)

US$ 7.73 / R$ 27.80

Target Price (YE 2015)

US$ 12.30 / R$ 33.33

52-Week Range (US$)

6.18 - 14.66

Market Capitalization (US$ Mn)

2,095

Float (%)

25.9

3-Mth Avg. Daily Vol (US$ Mn)

16.3

Shares Outstanding - Mn

271

Price Performance (US$) Cosan Limited - ADR (Rebased)

140 120 100 80 60 40 20

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

84

D-14

COSAN LIMITED Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 36,165 20.5 4,607 38.2 3,962 28.7 11.0 2,213 44.2 6.1 (1,243) (190) 271 (57.3) 0.7

R$ 2014E 39,481 9.2 5,028 9.1 3,717 (6.2) 9.4 2,367 7.0 6.0 (960) (288) 763 181.3 1.9

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (1,774) 6 (530) 1,498 (2,547) (68) 81 1,466 (302) (265)

2014E (1,859) 7 (232) 1,916 (1,870) (1,633) (342) (1,251) (443) 358

2015E (1,841) 8 (140) 2,432 (2,174) 878 (19) 800 (326) 165

2016E (1,893) 9 (228) 2,608 (2,172) 71 (20) (100) (429) 183

2013A (816) 3 (244) 689 (1,171) (31) 37 674 (139) (122)

2014E (808) 3 (101) 833 (813) (710) (149) (544) (192) 156

2015E (708) 3 (54) 935 (836) 338 (7) 308 (125) 63

2016E (701) 3 (84) 966 (804) 26 (7) (37) (159) 68

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 2,345 7,444 23,611 35,811 4,558 4,756 9,737 13,248 1,789

2014E 1,414 6,837 25,621 36,789 4,365 4,331 9,930 11,997 1,668

2015E 2,297 8,000 26,039 38,546 4,616 4,507 10,257 12,797 1,780

2016E 2,374 8,528 26,404 39,621 4,827 4,690 10,686 12,697 1,766

2013A 993 3,152 9,996 15,161 1,930 2,014 4,122 5,608 757

2014E 554 2,681 10,047 14,427 1,712 1,698 3,894 4,705 654

2015E 867 3,019 9,826 14,546 1,742 1,701 3,870 4,829 672

2016E 863 3,101 9,601 14,408 1,755 1,705 3,886 4,617 642

LT Debt

11,339

10,209

10,896

10,810

4,800

4,003

4,112

3,931

2015E 41,694 5.6 5,287 5.2 3,738 0.6 9.0 2,080 (12.1) 5.0 (730) (426) 653 (14.5) 1.6

2016E 44,865 7.6 6,065 14.7 4,307 15.2 9.6 2,597 24.8 5.8 (818) (564) 859 31.6 1.9

2013A 16,634 8.1 2,119 24.0 1,822 15.5 11.0 1,018 29.3 6.1 (572) (87) 125 (61.7) 0.7

US$ 2014E 17,165 3.2 2,186 3.2 1,616 (11.3) 9.4 1,029 1.1 6.0 (417) (125) 332 165.9 1.9

2015E 16,036 (6.6) 2,034 (7.0) 1,438 (11.0) 9.0 800 (22.2) 5.0 (281) (164) 251 (24.3) 1.6

2016E 16,617 3.6 2,246 10.5 1,595 11.0 9.6 962 20.2 5.8 (303) (209) 318 26.7 1.9

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

10,902

10,583

10,499

10,323

4,616

4,150

3,962

3,754

Capital Employed

24,928

24,012

25,204

25,537

10,554

9,417

9,511

9,286

Net Debt/EBITDA

2.8

2.8

2.8

2.4

2.5

2.6

2.8

2.4

Net Debt/Equity

1.1

1.1

1.0

1.0

1.1

1.2

1.0

1.0

Capex/Revenue (%)

7.0

4.7

5.2

4.8

7.0

4.7

5.2

4.8

Int Cover (%)

3.1

2.9

3.7

3.9

3.1

2.9

3.7

3.9

Dividend Payout (%)

47.6

163.2

42.8

65.8

42.6

155.8

37.4

65.8

ROCE (%)

11.9

13.2

11.1

13.6

11.9

14.6

11.1

13.6

ROE (%) MARKET RATIOS P/E P/CE FV/EBITDA FV/EBIT FV/Revenue P/BV FCF Yield (%) Div Yield (%) PER SHARE DATA

2.8

7.8

6.5

8.2

2.6

8.1

6.5

8.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

38.6

11.1

13.0

9.9

37.2

9.5

12.5

9.9

5.1

3.2

3.4

3.1

4.9

2.8

3.3

3.1 5.1

6.4

6.1

6.0

5.2

6.1

5.3

5.8

11.5

9.5

10.8

8.6

10.9

8.3

10.5

8.5

0.7

0.6

0.5

0.5

0.7

0.5

0.5

0.5 0.8

1.1

0.9

0.8

0.8

1.1

0.8

0.8

(0.7)

(19.3)

10.4

0.8

(0.7)

(22.6)

10.7

0.8

2.9

5.2

3.9

5.1

3.0

6.1

4.0

5.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.67

1.87

1.60

2.11

0.25

0.70

0.60

0.78

DPS

0.74

1.09

0.80

1.05

0.28

0.40

0.30

0.39

23.92

24.40

25.20

26.25

8.89

9.06

9.36

9.75

BVPS

85

Please refer to Cosan SA’s company description and financials. Cosan Limited was created as a holding company for Cosan SA in August 2007 to raise capital to grow and expand its operation through acquisitions. CZZ is listed on the NYSE with two types of shares with different voting rights, class A shares (1 vote) and class B shares (10 votes). Cosan SA’s Chairman Rubens Ometto owns 100% of Class B shares.

Key Personnel: Rubens Ometto Silveira Mello (Chairman), Marcos Marinho Lutz (CEO), Marcelo Eduardo Martins (CFO) and Guilherme Machado (IR Officer) Web: www.cosan.com.br

Sales by Segment, 2015E

Logistics 0.0%

Comgas 15.5%

Sugar & Ethanol 11.3%

Distribution 71.9%

EBITDA by Segment, 2015E

Comgas 35.8%

Sugar & Ethanol 29.7%

Logistics 0.0% Distribution 32.1%

Shareholder Structure, Current

Free Float 25.9% Others 11.8%

Cosan Ltd. 62.3%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—UTILITIES

CPFL ENERGIA

BUY CURRENT PRICE: R$17.63 TARGET PRICE: R$23.00

LOWERING YE2015 TARGET PRICE TO R$23.00 FROM R$23.20 

Investment Case: We believe CPFL continues to be a premium

Maria Carolina Carneiro*

utility. Its higher-than-average multiples are significantly below its

Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

own historical level and are more than justified, in our view, by (i) high-single-digit EBITDA CAGR, and (ii) no significant concession renewal risk in the short to medium term. In addition, we note that the company still has an attractive dividend policy as well as good profitability and regulatory metrics.



Outlook 2015: We believe that the company’s EBITDA will increase 19.1% YoY in 2015, reaching R$3.8 billion, reflecting (1) new renewable projects at the Renovaveis unit, (2) solid cost performance, and (3) the reduction in the spot price cap for 2015 (to R$388.48/MWh). We slightly adjusted our estimates to include a higher hydro deficit for 2015 (7% vs. the previous 5%).



Long-term strategy: Management reiterated that the company will continue to aim to expand its renewable generation arm and the consolidation of the distribution segment, which is the preferred segment for its portfolio. Company Statistics



Upside risks? We believe CPFL’s current covenants vs. its high

Bloomberg

leverage prevent it from pursuing large acquisitions. Still, CPFL has a

Current Price (01/02/15)

R$ 17.63 / US$ 6.55

Target Price (YE 2015)

R$ 23.00 / US$ 8.68

proven track record in financial discipline, in terms of reasonable

CPFE3 BZ

52-Week Range (R$)

15.42 - 22.74

acquisition multiples and superb execution of cost cuts and debt

Market Capitalization (US$ Mn)

refinancing to extract synergies from assets acquired. Thus, we

Float (%)

believe that whenever the company finds potential targets, it will do a

6,302 30.5

3-Mth Avg. Daily Vol (US$ Mn)

7.7

Shares Outstanding - Mn

962

fair due diligence to guarantee new value generation—and not simply to increase its market share. Moreover, the development of

Price Performance (R$) CPFE3 BZ

additional renewable units could be possible after the merger with

110

Desa.

100

IBOVESPA

90 80 70 60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

86

D-14

CPFL ENERGIA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 14,867 (0.7) 7,193 0.3 3,957 3.0 26.6 2,717 (5.0) 18.3 (1,136) (632) 938 (28.8) 6.3

R$ 2014E 16,765 12.8 6,370 (11.4) 3,140 (20.7) 18.7 1,980 (27.2) 11.8 (837) (541) 743 (20.8) 4.4

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (1,179) 0 288 2,404 (1,474) 1,690 0 1,455 (1,252) 0

2014E (1,112) 0 (163) 1,692 (4,345) 179 0 1,171 (891) 0

2015E (1,177) 0 84 2,276 (1,688) (262) 0 1,195 (706) 0

2016E (1,189) 0 (74) 2,647 (829) 184 0 592 (964) 0

2013A (546) 0 133 1,114 (683) 783 0 674 (580) 0

2014E (481) 0 (71) 732 (1,880) 77 0 507 (386) 0

2015E (453) 0 32 875 (649) (101) 0 460 (272) 0

2016E (440) 0 (27) 981 (307) 68 0 219 (357) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 3,943 6,921 22,363 32,660 4,906 18,985 7,111 18,668 1,837

2014E 4,122 8,280 23,590 35,172 8,012 19,239 6,302 20,621 3,557

2015E 3,860 8,139 24,350 35,792 8,204 19,681 6,287 21,078 3,572

2016E 4,044 8,529 24,233 36,065 8,551 19,500 6,395 20,913 3,588

2013A 1,683 2,954 9,545 13,940 2,094 8,103 3,035 7,968 784

2014E 1,616 3,247 9,251 13,793 3,142 7,545 2,471 8,087 1,395

2015E 1,457 3,071 9,189 13,506 3,096 7,427 2,372 7,954 1,348

2016E 1,471 3,102 8,812 13,115 3,109 7,091 2,326 7,605 1,305

LT Debt

16,831

17,064

17,506

17,325

7,183

6,692

6,606

6,300

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

12,735

13,506

13,495

13,378

5,435

5,297

5,092

4,865

Capital Employed

22,598

23,906

24,639

24,720

9,645

9,375

9,298

8,989

Net Debt/EBITDA

3.2

4.3

3.6

2.9

3.0

3.9

3.5

2.9

Net Debt/Equity

1.8

2.1

2.1

2.1

2.0

2.4

2.2

2.1

Capex/Revenue (%)

9.9

25.9

8.9

4.0

9.9

25.9

8.9

4.0

Int Cover (%)

2.1

1.7

1.6

1.9

2.1

1.7

1.6

1.9

Dividend Payout (%)

95.0

95.0

95.0

95.0

86.0

87.1

83.6

94.4

ROCE (%)

14.8

10.5

12.8

17.2

15.9

11.6

12.9

17.2

ROE (%)

13.3

11.1

16.1

24.2

13.5

11.7

16.1

24.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

19.6

23.9

16.7

11.1

17.9

20.8

16.1

11.1

8.7

9.6

7.7

6.2

7.9

8.3

7.5

6.3

MARKET RATIOS P/E P/CE FV/EBITDA

2015E 18,888 12.7 6,714 5.4 3,739 19.1 19.8 2,562 29.4 13.6 (947) (599) 1,015 36.5 5.4

2016E 20,468 8.4 7,667 14.2 4,584 22.6 22.4 3,395 32.5 16.6 (969) (868) 1,532 51.0 7.5

2013A 6,891 (10.0) 3,334 (9.1) 1,834 (6.7) 26.6 1,259 (13.9) 18.3 (527) (293) 435 (35.5) 6.3

US$ 2014E 7,254 5.3 2,756 (17.3) 1,359 (25.9) 18.7 857 (32.0) 11.8 (362) (234) 322 (26.0) 4.4

2015E 7,265 0.1 2,582 (6.3) 1,438 5.9 19.8 985 15.0 13.6 (364) (230) 390 21.4 5.4

2016E 7,581 4.3 2,840 10.0 1,698 18.1 22.4 1,258 27.6 16.6 (359) (321) 568 45.4 7.5

9.0

11.5

9.4

7.6

8.3

10.2

9.1

7.6

13.1

18.3

13.7

10.3

12.0

16.2

13.3

10.2

FV/Revenue

2.4

2.2

1.9

1.7

2.2

1.9

1.8

1.7

P/BV

2.6

2.8

2.7

2.7

2.6

2.7

2.7

2.7

FCF Yield (%)

9.2

1.0

(1.5)

1.1

10.1

1.2

(1.6)

1.1

Div Yield (%)

6.8

5.0

4.2

5.7

7.5

5.8

4.3

5.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.97

0.77

1.05

1.59

0.45

0.33

0.41

0.59

DPS

0.89

0.87

1.28

1.51

0.41

0.38

0.49

0.56

BVPS

7.39

6.55

6.53

6.65

3.15

2.57

2.47

2.42

FV/EBIT

PER SHARE DATA

87

CPFL is a holding company that operates through its subsidiaries in distribution, generation and sale of electricity in Brazil. The company is the leader in the distribution segment, its main business, holding 9% of total market share in Brazil through its 8 discos. In the generation segment, the company currently has 3,300 MW of installed capacity. Regarding its electricity trading company, the company has a significant market share, leading the segment through its subsidiary CPFL Brasil. In EBITDA terms, distribution represents 48% of consolidated EBITDA.

Key Personnel: Murilo Cesar Lemos dos Santos Passos (Chairman), Wilson Ferreira Junior (CEO), Gustavo Estrella (CFO) and Leandro Cappa (IR Director) Web: www.cpfl.com.br

EBITDA by Business, 9M14

Trading 10.6% Generation 41.5%

Distribution 47.9%

Sales by Segment (DisCo), 1H14

Others 15.0%

Commercial 16.0%

Residential 27.0%

Industrial 42.0%

Shareholder Structure, Current

Free Float 30.5% Previ 30.0%

Bonaire 15.1% Camargo Correa 24.4%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—METALS & MINING

CSN

UNDERPERFORM CURRENT PRICE: R$5.04 TARGET PRICE: R$5.00

LOWERING YE2015 TARGET PRICE TO R$5.00 FROM R$9.00 

Investment Case: We remain bearish on CSN. As the LatAm

Felipe Reis*

steelmaker most exposed to the iron ore business (as of 9M14,

Brazil: Banco Santander S.A. +5511-3012-5758 | [email protected]

approximately 40% of the company’s consolidated EBITDA came from its mining division), CSN is poised to suffer significantly from the end of the iron ore super cycle. Also, we do not expect the steel

Renato Maruichi*, CFA Brazil: Banco Santander S.A. +5511-3553-7149 | [email protected]

business in Brazil to be supportive, given the country’s lackluster economic outlook.



Outlook 2015: At current iron ore prices, we anticipate little EBITDA contribution from the mining division and, consequently, expect a poor operating performance for CSN in 2015. We estimate 2015 EBITDA at R$3.6 billion, 25% lower YoY.



High capex and financial expenses to hurt EBITDA: Our lower operating estimates (mainly due to lower iron ore prices) highlight CSN’s long-running and intensive capex program, and very heavy financial burden (due to its high amount of debt whose interest is being paid in reais while cash is largely invested overseas at low interest rates). We now believe that CSN is burning cash on a FCFE Company Statistics

basis

Bloomberg



Agreement recently announced regarding Namisa is unclear: Though a merger between Casa de Pedra (100% owned by CSN)

CSNA3 BZ

Current Price (01/02/15)

R$ 5.04 / US$ 1.87

Target Price (YE 2015)

R$ 5.00 / US$ 1.85

52-Week Range (R$)

4.54 - 14.44

and Namisa (60% owned by CSN) was recently announced, the

Market Capitalization (US$ Mn)

newly created company will not benefit from Namisa’s hefty cash

Float (%)

position. Furthermore, given the uncertainty surrounding the

2,585 45.5

3-Mth Avg. Daily Vol (US$ Mn)

15.3

Shares Outstanding - Mn

1,381

development of future iron ore mines due to falling iron ore prices, we question whether this merger can actually add value for CSN

Price Performance (R$) CSNA3 BZ

shareholders: we remain skeptical until CSN provides more details

120

on its new business plan for the mining division, which should be

100

announced sometime in 2015.

IBOVESPA

80 60 40 20

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

88

D-14

CSN Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 17,312 2.5 4,890 1.4 5,405 39.3 31.2 2,962 360.8 17.1 (2,512) (74) 534 n/m 3.1

R$ 2014E 16,269 (6.0) 4,658 (4.7) 4,771 (11.7) 29.3 2,958 (0.1) 18.2 (289) (21) 641 20.1 3.9

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (1,094) 0 (921) 707 (2,827) (2,073) 0 0 (800) 0

2014E (1,242) 0 305 2,188 (2,128) (827) 0 0 (420) 0

2015E (1,420) 0 99 2,263 (2,200) (1,800) 0 0 (331) 0

2016E (1,527) 0 606 2,650 (1,400) (235) 0 0 (352) 0

2013A (507) 0 (427) 328 (1,310) (961) 0 0 (371) 0

2014E (529) 0 130 932 (906) (352) 0 0 (179) 0

2015E (540) 0 38 860 (837) (685) 0 0 (126) 0

2016E (541) 0 215 938 (496) (83) 0 0 (125) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 9,996 16,402 14,911 50,403 2,921 39,412 8,069 27,746 0

2014E 9,329 16,014 15,607 50,684 3,505 41,640 5,539 29,864 0

2015E 8,798 15,866 16,387 52,421 3,986 42,483 5,952 29,910 0

2016E 10,461 17,174 16,260 54,718 4,238 44,363 6,116 30,967 0

2013A 4,266 7,000 6,364 21,512 1,247 16,821 3,444 11,842 0

2014E 3,455 5,931 5,780 18,772 1,298 15,422 2,051 11,061 0

2015E 3,247 5,854 6,047 19,344 1,471 15,676 2,196 11,037 0

2016E 3,558 5,841 5,531 18,612 1,442 15,090 2,080 10,533 0

LT Debt

27,746

29,864

29,910

30,967

11,842

11,061

11,037

10,533

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

17,751

20,535

21,111

20,506

7,576

7,606

7,790

6,975

Capital Employed

21,238

22,164

23,061

23,172

9,065

8,209

8,510

7,882

Net Debt/EBITDA

3.3

4.3

5.9

5.4

3.0

3.7

5.7

5.2

Net Debt/Equity

2.2

3.7

3.5

3.4

2.4

4.2

3.6

3.4

16.3

13.1

13.6

8.0

16.3

13.1

13.6

8.0

2.0

2.0

1.7

1.8

2.0

2.0

1.7

1.8

(166.5)

78.6

51.6

47.3

(150.7)

72.1

45.4

47.0

14.3

13.4

8.3

8.3

15.6

15.2

8.4

8.3

6.3

9.4

12.9

8.6

6.3

9.9

12.9

8.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

37.2

12.0

9.4

13.5

34.0

10.6

9.1

14.1

P/CE

12.2

4.1

3.2

3.4

11.2

3.6

3.1

3.6

7.0

5.9

7.8

7.2

6.4

5.2

7.6

7.1

12.7

9.5

14.9

13.8

11.6

8.3

14.5

13.6

Capex/Revenue (%) Int Cover (%) Dividend Payout (%) ROCE (%) ROE (%) MARKET RATIOS

FV/EBITDA FV/EBIT

2015E 16,146 (0.8) 3,520 (24.4) 3,585 (24.8) 22.2 1,885 (36.3) 11.7 (1,801) (38) 744 16.0 4.6

2016E 17,575 8.8 3,744 6.4 3,796 5.9 21.6 1,989 5.5 11.3 (208) 59 516 (30.6) 2.9

2013A 8,025 (7.2) 2,267 (8.2) 2,506 26.2 31.2 1,373 317.6 17.1 (1,164) (34) 248 n/m 3.1

US$ 2014E 6,929 (13.7) 1,984 (12.5) 2,032 (18.9) 29.3 1,260 (8.2) 18.2 (123) (9) 273 10.3 3.9

2015E 6,139 (11.4) 1,338 (32.5) 1,363 (32.9) 22.2 717 (43.1) 11.7 (685) (15) 283 3.5 4.6

2016E 6,224 1.4 1,326 (0.9) 1,345 (1.4) 21.6 704 (1.7) 11.3 (74) 21 183 (35.3) 2.9

FV/Revenue

2.2

1.7

1.7

1.6

2.0

1.5

1.7

1.5

P/BV

2.5

1.4

1.2

1.1

2.4

1.4

1.2

1.2

(10.4)

(10.7)

(25.9)

(3.4)

(11.4)

(12.2)

(26.5)

(3.2)

4.0

5.5

4.7

5.1

4.4

6.2

4.9

4.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.39

0.46

0.54

0.37

0.18

0.20

0.20

0.13

DPS

0.58

0.30

0.24

0.25

0.27

0.13

0.09

0.09

BVPS

5.84

4.01

4.31

4.43

2.49

1.49

1.59

1.51

FCF Yield (%) Div Yield (%) PER SHARE DATA

89

Companhia Siderúrgica Nacional (CSN) is the secondlargest flat steel producer in Brazil, with a crude steel production capacity of approximately 6.5 million tons per year. The company is a leading supplier to the steel packaging sector and also serves the automotive, home appliance, construction, and distribution sectors with a broad variety of products (e.g., slab, hot and cold rolled coils, galvanized and tin plate products). CSN also sold 29 million tons of iron ore in 2013. In 2013, exports (steel and iron ore) generated approximately 40% of consolidated net sales, with steel revenue representing 69% of the company’s total sales. Vicunha Siderurgia and other vehicles owned by the Steinbruch family, controls CSN, with approximately 51.8% of its voting stock. CSN is listed on the Bovespa and has ADRs listed on the NYSE.

Key Personnel: Benjamin Steinbruch (Chairman), Benjamin Steinbruch (CEO), David Salama (IR Director) and Luis Fernando Martinez (Commercial Director) Web: www.csn.com.br

Revenue by Division, 2013A

Iron Ore 27.0%

Logistics 6.0%

Other 4.0%

Steel 63.0%

Revenue by Market, 2013A

Exports 22.0%

Domestic 78.0%

Shareholder Structure, Current Others/Free Float 20.3% ADR's 25.2%

Vicunha Siderurgia 54.5%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—CEMENT, CONSTRUCTION, INFRA & RE

CYRELA BRAZIL REALTY

HOLD CURRENT PRICE: R$10.45 TARGET PRICE: R$12.40

DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF R$12.40; REPLACING YE2014 TARGET PRICE OF R$22.00 

Investment Case: Despite its low leverage, above-average

Bruno Mendonca*

execution, and decent share-buyback program, we believe Cyrela’s

Brazil: Banco Santander S.A. +5511-3012-5759 | [email protected]

size (> R$5 billion launches) becomes a burden amid the still tough economic scenario ahead, limiting its flexibility to quickly improve profitability and to justify additional multiple expansion.



Renan Manda* Brazil: Banco Santander S.A. +5511 3012-6535 | [email protected]

Outlook 2015: We expect 2015 to be another transition year for the homebuilders in Brazil. The macro scenario should remain challenging for the sector, with the combination of low expected GDP growth and inflationary pressure leading consumers and investors to remain cautious. Although we expect Cyrela’s distinctive expertise and financial strength to lead to a smooth transition, the bottom of the macroeconomic cycle may still be ahead and a bolder profitability recovery will likely take longer than a couple of quarters to materialize.



Balance sheet remains solid . . . We expect Cyrela to maintain a comfortable leverage level of 30-35% in 2015 and to generate cash throughout the next few years. Since we expect launches to remain flat in the next two years (not demanding any extra working capital),

Company Statistics

we see room for Cyrela to maintain its share-buyback program and

Bloomberg

to potentially increase dividend distribution (which could help to improve ROE).

CYRE3 BZ

Current Price (01/02/15)

R$ 10.45 / US$ 3.88

Target Price (YE 2015)

R$ 12.40 / US$ 4.68

52-Week Range (R$)

10.45 - 15.30

Market Capitalization (US$ Mn)



. . . but growing inventory still pressuring profitability. We expect Cyrela’s inventory to remain relatively high (R$6.9 billion in 3Q14, or

1,552

Float (%)

63.8

3-Mth Avg. Daily Vol (US$ Mn)

9.9

Shares Outstanding - Mn

400

14 months of sales), likely increasing during 1H15. Although a peak is expected in 4Q14, we expect only a gradual reduction going forward,

which

may

hinder

significant

short-term

margin

improvement.

Price Performance (R$) CYRE3 BZ

IBOVESPA

110 100 90



Valuation seems fair at current return levels. Due to Cyrela’s level

80

of launches and G&A, we expect profitability to increase only

70

gradually. With an ROE of 11.2% for 2015E, valuation at 0.7x P/BV

60

for 2015E leaves little room for short-term potential upside.

50

j-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

90

d-14

CYRELA BRAZIL REALTY Company Description

2015E (82) 0 (211) 523 (186) 338 (1) (343) (261) 17

2016E (90) 0 (48) 761 (193) 568 (1) (304) (261) 20

2013A (47) 0 (326) 54 (71) (16) 5 61 (97) (89)

2014E (38) 0 (24) 296 (66) 230 24 (38) (74) (109)

2015E (31) 0 (81) 201 (71) 130 (0) (132) (100) 7

2016E (29) 0 (16) 250 (64) 187 (0) (100) (86) 6

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,727 8,856 955 14,387 3,886 4,306 5,462 4,214 907

2014E 1,804 8,965 1,019 14,021 4,032 3,655 5,633 4,127 1,137

2015E 1,554 8,938 1,123 14,151 4,070 3,338 6,024 3,784 1,137

2016E 1,577 9,050 1,226 14,321 4,115 3,011 6,456 3,480 1,137

2013A 737 3,780 408 6,140 1,659 1,838 2,331 1,799 387

2014E 707 3,516 400 5,498 1,581 1,433 2,209 1,618 446

2015E 587 3,373 424 5,340 1,536 1,260 2,273 1,428 429

2016E 511 2,931 397 4,638 1,333 975 2,091 1,127 368

3,307

2,990

2,647

2,343

1,411

1,172

999

759

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

3,002

2,715

2,590

2,305

1,281

1,065

977

746

Capital Employed

8,464

8,347

8,614

8,761

3,612

3,273

3,251

2,837

Net Debt/EBITDA

2.7

2.6

2.5

2.1

2.5

2.4

2.4

2.0

Net Debt/Equity

0.5

0.5

0.4

0.4

0.6

0.5

0.4

0.4

Capex/Revenue (%)

2.8

2.7

3.3

3.3

2.8

2.7

3.3

3.3

Int Cover (%)

2.0

1.6

1.7

1.9

2.0

1.6

1.7

1.9

Dividend Payout (%)

31.6

23.8

40.0

40.0

28.6

21.8

35.2

39.7

ROCE (%)

15.6

15.4

14.5

14.8

16.9

17.2

14.6

14.8

ROE (%)

13.7

11.7

11.2

11.5

13.9

12.5

11.2

11.5

FINANCIAL RATIOS

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

8.1

6.8

6.4

5.8

7.4

5.9

6.2

6.6

P/CE

7.1

6.0

5.7

5.2

6.5

5.2

5.5

5.8

FV/EBITDA

8.7

7.4

6.9

6.2

8.0

6.5

6.7

6.8

FV/EBIT

8.1

6.7

6.4

5.9

7.4

5.9

6.2

6.4

FV/Revenue

1.8

1.4

1.3

1.2

1.6

1.2

1.2

1.3

P/BV

1.1

0.8

0.7

0.6

1.1

0.8

0.7

0.7

(0.6)

12.0

8.1

13.6

(0.7)

13.8

8.4

12.0

3.6

3.9

6.2

6.2

3.9

4.4

6.5

5.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.74

1.62

1.63

1.80

0.81

0.70

0.63

0.59

DPS

0.42

0.65

0.65

0.72

0.20

0.28

0.25

0.24

13.54

14.09

15.07

16.15

5.78

5.53

5.69

5.23

FCF Yield (%) Div Yield (%) PER SHARE DATA

BVPS

91

Key Personnel: Elie Horn (CEO) and Eric Alencar (CFO and IR) Web: www.cyrela.com/br/ir

2013–16E Launches. R$ in billions 6.65 5.71

6.13 5.51

2016e

2014E (88) 0 (56) 684 (152) 532 55 (87) (171) (252)

Cyrela Brazil Realty is among the largest homebuilders in Brazil in terms of both market cap and the value of developments launched in past years. The company’s main focus is on the development of residential apartments in prime locations, targeted mainly at upperto middle-income customers. The company also operates in the economic segment through Living, created in 2006.

2013–16E Contracted Sales, R$ in billions 7.18 5.72

6.08

5.15

2016e

2016E 1,948 (11.0) 695 (10.5) 367 (8.9) 18.8 389 (10.5) 20.0 (59) (38) 236 (5.8) 12.1

2015e

2015E 2,189 (10.4) 777 (10.6) 403 (10.3) 18.4 435 (12.3) 19.9 (77) (47) 251 (11.0) 11.5

2015e

2013A (102) 0 (703) 118 (153) (35) 10 132 (209) (192)

LT Debt

2013A 2,490 (16.9) 902 (16.9) 512 (19.0) 20.5 551 (15.6) 22.1 (73) (63) 333 (1.4) 13.4

2014e

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2016E 5,929 4.2 2,115 4.7 1,116 6.7 18.8 1,184 4.7 20.0 (179) (115) 720 10.3 12.1

2014e

2013A 5,372 (8.2) 1,945 (8.3) 1,104 (10.6) 20.5 1,188 (6.8) 22.1 (158) (136) 719 8.9 13.4

2015E 5,691 0.8 2,020 0.5 1,047 0.9 18.4 1,131 (1.3) 19.9 (201) (122) 652 0.1 11.5

US$ 2014E 2,443 (1.9) 869 (3.6) 449 (12.2) 18.4 496 (10.0) 20.3 (82) (61) 282 (15.4) 11.5

2013

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

R$ 2014E 5,645 5.1 2,009 3.3 1,038 (6.0) 18.4 1,146 (3.6) 20.3 (190) (141) 651 (9.3) 11.5

2013

Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Shareholder Structure, Current

Board of Directors 34.4% Free Float 65.5%

Executive Board 0.1%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—HEALTH CARE

DASA

UNDERPERFORM CURRENT PRICE: R$11.14 TARGET PRICE: R$10.00

INTRODUCING YE2015 TARGET PRICE OF R$10.00; REPLACING YE2014 TARGET PRICE OF R$15.00 

Investment Case: We maintain our Underperform rating on DASA,

Bruno Giardino*, CFA

due to the thin share liquidity (we estimate DASA’s real free float to

Brazil: Banco Santander S.A. +5511-3012-5914 | [email protected]

be lower than 5%), which prevents shares from reflecting their intrinsic value. Following the arbitrage decision that ruled in favor of Cromossomo Participações, we see no room for another tender offer

Daniel Gewehr* Brazil: Banco Santander S.A. +5511-3012-5787 | [email protected]

at the company’s intrinsic value.



Outlook 2015: We expect DASA’s net revenue to increase 11% YoY, benefiting from increasing volumes, partial inflation passthrough and a lower level of cancellations. We also foresee a gradual improve in the EBITDA margin throughout the year, reflecting the increased mix of imaging tests over patient services centers’ revenue (resulting from machinery replacement at stores). As a result, our EBITDA estimate implies 13% YoY growth.



Cromossomo wins arbitrage dispute. On December 1, the company announced that the Market Arbitrage Chamber ruled in favor of the request by Cromossomo to declare that it is not required to conduct another tender offer to acquire the shares of DASA under Company Statistics

the conditions outlined in the company’s bylaws.

Bloomberg



Bargaining power gradually shifting toward providers. The high capacity utilization of Brazil’s private healthcare system, coupled with

DASA3 BZ

Current Price (01/02/15)

R$ 11.14 / US$ 4.14

Target Price (YE 2015)

R$ 10.00 / US$ 3.69

52-Week Range (R$)

9.80 - 16.75

regulatory actions to improve the relationships among payers and

Market Capitalization (US$ Mn)

1,285

providers have attenuated the bargaining power of payers with

Float (%)

100.0

suppliers. This change should favor the pass-through of inflation over

3-Mth Avg. Daily Vol (US$ Mn)

0.1

Shares Outstanding - Mn

311

test prices, which we see as key to the sustainability of the Price Performance (R$)

diagnostics industry’s operating profits.

DASA3 BZ



IBOVESPA

130

Background. Cromossomo Participações, owned by Edson Bueno

120

and his former wife Dulce Bueno, acquired the majority of DASA

110

shares in the January 2014 free float, through a tender offer at

100

R$15.00/share.

90 80 70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

92

D-14

DASA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 2,487 9.9 773 10.5 434 9.2 17.5 289 18.2 11.6 (87) (71) 131 54.1 5.3

R$ 2014E 2,760 10.9 880 13.8 469 7.9 17.0 300 3.8 10.9 (102) (53) 145 10.6 5.3

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (145) 14 (122) 168 (144) 24 341 (21) 0

2014E (168) 48 5 367 (164) 203 (22) (31) 0

2015E (153) 0 (44) 290 (194) 96 0 (36) 0

2016E (164) 0 (64) 336 (199) 137 0 (45) 0

2013A (67) 6 (56) 78 (67) 11 158 (10) 0

2014E (72) 20 2 156 (70) 86 (9) (13) 0

2015E (58) 0 (17) 110 (74) 36 0 (14) 0

2016E (58) 0 (23) 119 (70) 48 0 (16) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 609 1,439 3,053 4,692 708 1,275 2,708 1,553 427

2014E 614 1,526 3,047 4,721 778 1,126 2,817 1,391 468

2015E 696 1,666 3,088 4,903 802 1,148 2,953 1,391 468

2016E 780 1,835 3,123 5,107 835 1,141 3,130 1,391 468

2013A 260 614 1,303 2,002 302 544 1,156 663 182

2014E 241 598 1,195 1,852 305 441 1,105 546 183

2015E 257 615 1,140 1,809 296 423 1,090 513 173

2016E 265 624 1,062 1,737 284 388 1,065 473 159

LT Debt FINANCIAL RATIOS Net Debt

2015E 2,990 8.4 988 12.3 531 13.2 17.8 378 25.7 12.6 (127) (70) 181 24.6 6.1

2016E 3,316 10.9 1,108 12.1 610 14.8 18.4 446 18.0 13.4 (119) (91) 236 30.1 7.1

2013A 1,153 (0.5) 358 0.1 201 (1.0) 17.5 134 7.1 11.6 (40) (33) 61 39.6 5.3

US$ 2014E 1,175 1.9 375 4.6 200 (0.8) 17.0 128 (4.6) 10.9 (44) (22) 62 1.7 5.3

2015E 1,137 (3.3) 376 0.3 202 1.1 17.8 144 12.3 12.6 (48) (27) 69 11.3 6.1

2016E 1,174 3.2 392 4.4 216 6.9 18.4 158 9.8 13.4 (42) (32) 83 21.2 7.1

1,126

924

924

924

481

362

341

314

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

906

740

658

574

387

290

243

195

Capital Employed

3,615

3,558

3,612

3,705

1,543

1,395

1,333

1,260

Net Debt/EBITDA

2.1

1.6

1.2

0.9

1.9

1.5

1.2

0.9

Net Debt/Equity

0.3

0.3

0.2

0.2

0.4

0.3

0.2

0.2

Capex/Revenue (%)

5.8

5.9

6.5

6.0

5.8

5.9

6.5

6.0

Int Cover (%)

2.9

2.9

2.9

3.3

2.9

2.9

2.9

3.3

Dividend Payout (%)

24.1

23.9

25.0

25.0

21.8

21.9

22.0

24.8

ROCE (%)

10.0

9.9

12.4

14.5

10.7

11.0

12.5

14.5

4.9

5.3

6.3

7.7

5.0

5.6

6.3

7.7

ROE (%) MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

34.4

23.9

19.1

14.7

31.5

21.1

18.7

15.4

P/CE

16.4

11.1

10.4

8.7

15.0

9.8

10.1

9.1

FV/EBITDA

12.5

9.0

7.8

6.6

11.4

8.0

7.6

6.9

FV/EBIT

18.8

14.0

10.9

9.1

17.2

12.5

10.6

9.4

FV/Revenue

2.2

1.5

1.4

1.2

2.0

1.4

1.3

1.3

P/BV

1.7

1.2

1.2

1.1

1.7

1.2

1.2

1.2

FCF Yield (%)

0.5

5.8

2.8

3.9

0.6

6.6

2.8

3.8

Div Yield (%)

0.5

0.9

1.0

1.3

0.5

1.0

1.1

1.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.42

0.47

0.58

0.76

0.20

0.20

0.22

0.27

DPS

0.04

0.02

0.15

0.19

0.02

0.01

0.06

0.07

BVPS

8.72

9.04

9.51

10.08

3.72

3.54

3.51

3.43

PER SHARE DATA

93

Diagnósticos da America (DASA) is the largest private provider of medical diagnostic services in Latin America and the fourth-largest in the world, with 455 patient service centers located in eight out of ten major metropolitan regions of Brazil. DASA also provides diagnostics services to private and public hospitals, as well as to other diagnostics companies. Founded in 1965, the company is listed in the Novo Mercado, the highest classification in terms of corporate governance in Brazil’s Bovespa stock exchange, and is included in the Ibovespa Index.

Key Personnel: Pedro Bueno (CEO) and Paulo Bokel (CFO)

Web: www.dasa3.com.br Revenue Breakdown, 9M14

Hospitals 9.3%

Lab-to-lab 10.9%

Public Segment 5.9%

PSCs 73.9%

PSC Revenue by Test, 3Q14

Imaging 27.3%

Clinical 72.7%

Shareholder Structure, Current

Oppenheim er 10.1%

Petros 10.0%

Free-float 8.0%

Controlling Group 71.9%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—PULP & FOREST PRODUCTS

DURATEX

HOLD CURRENT PRICE: R$7.68 TARGET PRICE: R$8.50

LOWERING YE2015 TARGET PRICE TO R$8.50 FROM R$9.50 

Investment Case: Although we continue to view favorably Duratex’s

Felipe Reis*

execution capabilities, caution is the watchword for the short and

Brazil: Banco Santander S.A. +5511-3012-5758 | [email protected]

medium terms, as 2015 prospects for the company’s business are challenged by the sluggish economic scenario in Brazil. Despite a solid M&A/asset integration track record, the execution of inorganic

Renato Maruichi*, CFA Brazil: Banco Santander S.A. +5511-3553-7149 | [email protected]

opportunities under the Duratex 2020 long-term strategic plan may cause mixed reactions among investors.



Outlook 2015: Duratex is leveraged to domestic macro drivers, which indicate a flattish scenario in 2015. Recent consensus estimates for GDP growth in Brazil next year have been cut to near zero, which has turned the company more conservative regarding operating performance. Accordingly, we project flat volume sold YoY assuming a zero real price increase. All in all, we estimate EBITDA will be nearly flat in 2015 YoY.



Negatively exposed to weaker BRL: With some 7% of revenue coming from exports and 25% of costs linked to the USD (resins, chemicals), Duratex has yet to feel the negative impact of the weaker BRL on its margins, as raw materials in stock are being consumed

Company Statistics

gradually. In order to mitigate short-term challenges, the company is

Bloomberg

directing efforts to cut costs/expenses. Considering that Duratex is

R$ 7.68 / US$ 2.85

Target Price (YE 2015)

R$ 8.50 / US$ 3.14

already a well-run organization, in our view, we do not see much

52-Week Range (R$)

room for significant cost cuts, but we view any initiative on this front

Market Capitalization (US$ Mn)

7.51 - 11.65 1,899

Float (%)

positively.



DTEX3 BZ

Current Price (01/02/15)

39.9

3-Mth Avg. Daily Vol (US$ Mn)

5.8

Shares Outstanding - Mn

666

Inorganic opportunities to support growth: DTEX’s long-term strategic plan (Duratex 2020) is to grow revenue twofold by 2020. We

Price Performance (R$) DTEX3 BZ

expect a significant portion of this growth to come from inorganic

120

opportunities. On the positive side, Duratex enjoys a sound M&A

110

track record, putting together disciplined bids and integrating them

100

successfully. However, given the uncertainty of M&A moves, it is

90

difficult to predict the outcome of this growth path. We estimate

80

Duratex has some R$1.2 billion to expend on M&A over the next few

70

years (or 20% of the company’s current market cap).

60

J-13

M-13

A-13

IBOVESPA

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

94

D-14

DURATEX Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 3,882 14.4 1,441 21.8 1,195 18.8 30.8 796 15.4 20.5 (118) (171) 520 13.2 13.4

R$ 2014E 4,128 6.3 1,305 (9.5) 946 (20.8) 22.9 678 (14.9) 16.4 (170) (98) 402 (22.7) 9.7

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 342 84 (166) 780 (601) 111 0 (7) (191) (15)

2014E 309 (31) (438) 242 (672) (435) 0 142 (210) (10)

2015E 297 0 (60) 616 (364) 264 0 0 (156) 0

2016E 313 0 (302) 460 (409) 56 0 0 (171) 0

2013A 159 39 (77) 361 (279) 51 0 (3) (89) (7)

2014E 131 (13) (185) 102 (284) (184) 0 60 (88) (4)

2015E 113 0 (23) 234 (138) 100 0 0 (59) 0

2016E 111 0 (107) 163 (145) 20 0 0 (60) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 997 2,589 4,582 8,178 589 3,225 4,365 2,451 0

2014E 707 2,778 5,172 8,871 630 3,540 4,630 2,663 0

2015E 803 2,881 5,239 9,040 576 3,540 4,853 2,663 0

2016E 683 3,174 5,336 9,430 686 3,540 5,132 2,663 0

2013A 425 1,105 1,956 3,491 251 1,376 1,863 1,046 0

2014E 277 1,089 2,028 3,479 247 1,388 1,816 1,044 0

2015E 296 1,063 1,933 3,336 213 1,306 1,791 983 0

2016E 232 1,080 1,815 3,207 233 1,204 1,746 906 0

LT Debt

2015E 4,441 7.6 1,358 4.1 981 3.7 22.1 684 0.9 15.4 (191) (113) 379 (5.6) 8.5

2016E 5,072 14.2 1,558 14.7 1,092 11.3 21.5 779 14.0 15.4 (189) (141) 450 18.6 8.9

2013A 1,799 3.6 668 10.4 554 7.7 30.8 369 4.5 20.5 (55) (79) 241 2.5 13.4

US$ 2014E 1,743 (3.2) 551 (17.6) 399 (27.9) 22.9 286 (22.5) 16.4 (72) (41) 170 (29.6) 9.7

2015E 1,689 (3.1) 516 (6.2) 373 (6.6) 22.1 260 (9.1) 15.4 (73) (43) 144 (15.0) 8.5

2016E 1,796 6.4 552 6.8 387 3.7 21.5 276 6.1 15.4 (67) (50) 159 10.4 8.9

2,451

2,663

2,663

2,663

1,046

1,044

983

906

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

1,454

1,956

1,860

1,980

621

767

686

673

Capital Employed

6,816

7,363

7,587

7,866

2,909

2,888

2,800

2,676

Net Debt/EBITDA

1.2

2.1

1.9

1.8

1.1

1.9

1.8

1.7

Net Debt/Equity

0.3

0.4

0.4

0.4

0.4

0.5

0.4

0.4

15.5

16.3

8.2

8.1

15.5

16.3

8.2

8.1

FINANCIAL RATIOS

Capex/Revenue (%) Int Cover (%)

5.4

3.3

3.6

4.0

5.4

3.3

3.6

4.0

Dividend Payout (%)

41.7

40.3

38.7

45.0

37.7

37.0

33.9

44.5

ROCE (%)

11.7

9.2

9.0

9.9

12.8

10.4

9.1

9.9

ROE (%)

12.4

8.9

8.0

9.0

12.6

9.5

8.0

9.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

13.3

12.8

13.5

11.4

12.2

11.4

13.2

11.9

P/CE

39.0

n/m

n/m

37.3

35.7

49.4

n/m

39.1 6.7

MARKET RATIOS

FV/EBITDA

7.0

7.6

7.2

6.6

6.4

6.8

7.0

10.5

10.6

10.3

9.2

9.6

9.5

10.0

9.4

FV/Revenue

2.2

1.7

1.6

1.4

2.0

1.6

1.5

1.4

P/BV

1.6

1.1

1.1

1.0

1.6

1.1

1.1

1.1

FCF Yield (%)

1.6

(8.5)

5.2

1.1

1.7

(9.5)

5.3

1.0

Div Yield (%)

2.8

4.1

3.0

3.3

3.0

4.6

3.1

3.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.90

0.63

0.57

0.68

0.42

0.27

0.22

0.24

DPS

0.33

0.33

0.23

0.26

0.15

0.14

0.09

0.09

BVPS

7.52

7.25

7.29

7.71

3.21

2.84

2.69

2.62

FV/EBIT

PER SHARE DATA

95

Duratex is a top 10 manufacturer of wooden panels globally and the largest player in the Southern Hemisphere, with annual capacity of 4.3 million m³ in five production units located in the states of São Paulo, Minas Gerais and Rio Grande do Sul, as well as in Colombia through its subsidiary Tablemac. Duratex is self-sufficient in wood, holding 230,000 hectares of planted forest area. The company is also a leader in the domestic vitreous china and metal fittings segments through its Deca division. Duratex is listed in the Bovespa’s Novo Mercado, with 100% voting shares and tagalong rights for minority shareholders. The company is controlled by Itausa and the Ligna Group, which together hold 60% of the company’s stock.

Key Personnel: Salo Davi Seibel (Chairman), Antonio Joaquim de Oliveira (CEO), Flavio Donatelli (CFO) and Guilherme Setúbal (Executive IR Manager) Web: www.duratex.com.br

Sales by Division, 2013 Deca Division 33.2%

Wood Division 66.8%

Sales by Destination, 2013

Exports 5.0%

Domestic 95.0%

Shareholder Structure, Current

Others/Free Float 40.2% Itausa 39.9%

Cia. Ligna 19.9%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—TRANSPORTATION

ECORODOVIAS

BUY CURRENT PRICE: R$10.65 TARGET PRICE: R$12.50



Investment Case: On November 17, 2014, we lowered our YE2015

Bruno Amorim*, CFA

target price to R$12.50 from R$15.00 to reflect a more negative

Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

traffic estimate. However, we upgraded our rating to Buy from Underperform due to (i) an implied nominal equity IRR of 13%, and (ii) the fact that the company did not win Tamoios, which in our view

Pedro Balcão Reis* Brazil: Banco Santander S.A. +5511-3012-5765 | [email protected]

is an additional sign of increased capital discipline.



Outlook 2015: Our 2015 GDP growth estimate of 0.3%, in-line with 2014, implies another year of somewhat weak results. We expect traffic growth of only 1.2% on top of just 3.3% in 2014 (~1% ex suspended axles). For 2015, we estimate (1) top-line growth of 10%, (2) EBITDA growth of 15%, and (3) net profit up 18%. This compares with our 2014 estimates of (1) a flat top line, (2) EBITDA down 2%, and (3) net profit down 25%.



Weak traffic growth: In August and September, consolidated traffic growth came in at -3% and -2%, respectively. In October there was a slight recovery to +0.2% YoY, followed by +1% in November. On November 14, we reduced our estimates for traffic growth from 5.1% to 3.3% and from 3.2% to 1.2% for 2014 and 2015, respectively.



Based on the above, and given the operating leverage, we have also

Company Statistics

cut our EBITDA margin estimates from 57.0% to 52.8% and from

Bloomberg

59.9% to 55.1% for 2014 and 2015, respectively.

Current Price (01/02/15)

R$ 10.65 / US$ 3.96

Target Price (YE 2015)

R$ 12.50 / US$ 4.72

Better capital discipline? We believe Ecorodovias has given

ECOR3 BZ

52-Week Range (R$)

9.06 - 15.70

Market Capitalization (US$ Mn)

2,210

several signs of increased capital discipline: (i) it was unsuccessful in

Float (%)

the five toll roads auctions that have taken place in Brazil in 2H13;

3-Mth Avg. Daily Vol (US$ Mn)

6.4

(ii) it sold STP and paid an extraordinary dividend last April; and (iii) it

Shares Outstanding - Mn

559

made an unsuccessful bid for Tamoios highway in the state of São

36.0

Price Performance (R$)

Paulo. All of the above, in our view, help dissipate the negative perception caused by the bids for the BR101 toll road and Guarulhos

110

airport and the acquisition of the Tecondi container terminal at the

100

ECOR3 BZ

IBOVESPA

A-13

A-14

90

port of Santos.

80



The most attractive Brazilian toll road operator: At an implied

70

nominal equity IRR of 13%, we believe Ecorodovias offers the best

60

risk/reward among Brazilian toll roads.

50

J-13

M-13

D-13

A-14

Sources: FactSet, Santander estimates and company reports.

96

D-14

ECORODOVIAS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 2,442 15.7 1,317 8.2 53.9 970 1.8 39.7 (341) (230) 398 (5.7) 16.3

R$ 2014E 2,453 0.5 1,294 (1.8) 52.8 873 (10.0) 35.6 (397) (176) 298 (25.1) 12.1

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (263) 0 959 (862) 537 666 (666) 0

2014E (318) 0 963 (1,113) (67) 348 (298) 270

2015E (357) 0 1,106 (726) 155 96 (351) 0

2016E (407) 0 1,251 (511) 152 (233) (404) 0

2013A (122) 0 444 (399) 249 309 (309) 0

2014E (138) 0 416 (482) (29) 150 (129) 117

2015E (137) 0 425 (279) 60 37 (135) 0

2016E (151) 0 463 (189) 56 (86) (150) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,260 1,607 4,559 6,931 1,332 2,072 3,951 866

2014E 981 1,328 5,353 7,378 1,409 2,158 4,298 942

2015E 812 1,159 5,723 7,578 1,430 2,184 4,395 963

2016E 587 934 5,827 7,458 1,379 2,211 4,162 912

2013A 538 686 1,946 2,958 569 884 1,686 370

2014E 385 521 2,099 2,893 552 846 1,686 370

2015E 307 437 2,160 2,860 539 824 1,658 364

2016E 213 340 2,119 2,712 501 804 1,513 332

3,085

3,356

3,431

3,249

1,317

1,316

1,295

1,182

LT Debt FINANCIAL RATIOS

2015E 2,708 10.4 1,492 15.2 55.1 1,017 16.5 37.6 (463) (188) 351 17.7 13.0

2016E 2,935 8.4 1,685 13.0 57.4 1,149 13.0 39.1 (512) (217) 404 15.3 13.8

2013A 1,132 4.8 611 (2.0) 53.9 450 (7.8) 39.7 (158) (107) 184 (14.6) 16.3

US$ 2014E 1,062 (6.2) 560 (8.3) 52.8 378 (16.0) 35.6 (172) (76) 129 (30.1) 12.1

2015E 1,041 (1.9) 574 2.4 55.1 391 3.6 37.6 (178) (72) 135 4.6 13.0

2016E 1,087 4.4 624 8.8 57.4 426 8.8 39.1 (190) (80) 150 11.0 13.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

2,691

3,317

3,582

3,575

1,148

1,301

1,352

1,300

Capital Employed

6,023

6,456

6,579

6,373

2,571

2,532

2,483

2,317

Net Debt/EBITDA

2.0

2.6

2.4

2.1

1.9

2.3

2.4

2.1

Net Debt/Equity Capex/Revenue (%) Int Cover (%)

1.3

1.5

1.6

1.6

1.4

1.7

1.7

1.6

35.3

45.4

26.8

17.4

35.3

45.4

26.8

17.4

3.9

3.3

3.2

3.3

3.9

3.3

3.2

3.3

157.8

74.9

117.7

115.3

142.8

68.7

103.6

114.6

ROCE (%)

22.1

18.7

21.3

24.9

23.6

20.4

21.4

24.9

ROE (%)

19.0

14.1

16.2

18.4

19.3

15.0

16.2

18.4

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

20.8

20.0

17.0

14.7

19.0

17.4

16.4

14.8

P/CE

12.5

9.7

8.4

7.3

11.4

8.4

8.1

7.4

8.4

7.2

6.4

5.7

7.7

6.4

6.3

5.7

11.4

10.7

9.4

8.4

10.4

9.4

9.2

8.3

FV/Revenue

4.5

3.8

3.5

3.3

4.1

3.4

3.4

3.3

P/BV

4.0

2.8

2.7

2.7

4.0

2.6

2.7

2.7

FCF Yield (%)

6.5

(1.1)

2.6

2.6

7.1

(1.3)

2.7

2.6

Div Yield (%)

8.1

5.0

5.9

6.8

8.8

5.8

6.1

6.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Dividend Payout (%)

MARKET RATIOS

FV/EBITDA FV/EBIT

PER SHARE DATA EPS

0.71

0.53

0.63

0.72

0.33

0.23

0.24

0.27

DPS

(1.19)

(0.53)

(0.63)

(0.72)

(0.55)

(0.23)

(0.24)

(0.27)

3.71

3.86

3.91

3.96

1.58

1.51

1.48

1.44

BVPS

97

Ecorodovias Infraestrutura e Logística S/A—the Ecorodovias Group—is a large integrated infrastructure logistic firm. Currently, the company’s operations include six highway concessions: Ecovias dos Imigrantes, Ecopistas, Ecovia, Ecocataratas, Ecosul and ECO101. The company’s businesses include intermodal logistic assets. In addition, Ecorodovias holds Ecoporto, a container terminal in the port of Santos. In March 2010, Ecorodovias listed shares in the Novo Mercado, a segment of the Brazilian Stock Exchange with the highest corporate governance standards.

Key Personnel: Marco Antonio Cassou (Chairman), Marcelino Rafart de Seras (CEO), Marcelo Guidotti (CFO) and Marcelo Guidotti (IR Director) Web: www.ecorodovias.com.br

Traffic Breakdown, 2013 Ecosul Rodovias do Sul 12.0%

Rodovia das Cataratas 12.6% Ecovia Caminho do Mar 7.3%

Ecovias dos Imigrantes 28.1%

Ecopistas 40.0%

Revenues Breakdown, 2013

Ecoporto 22.5%

Others 2.2%

Logistics 9.9%

Toll Roads 65.3%

Shareholder Structure, Current

Free Float 36.0%

CR Almeida 64.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—UTILITIES

ELETROBRAS

HOLD CURRENT PRICE: R$7.93 TARGET PRICE: R$8.49

REINSTATING OUR RATING TO HOLD FROM UNDER REVIEW INTRODUCING YE2015 TARGET PRICE OF R$8.49 

Investment Case: We are reinstating our ratings for ELET3 and

Maria Carolina Carneiro*

ELET6, to Hold, based on the risks perceived for cash flow

Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

generation and after considering the large losses recently reported by the company, which could prevent it from paying dividends to shareholders in the short- to mid-term. While Eletrobras will be entitled to receive indemnification based on law 12.783/2013, we believe these funds will not flow directly back to the common stock shareholders until the company significantly improves operations.



Outlook 2015: With EBITDA falling, Eletrobras began implementing a series of measures in order to (1) improve cash generation, (2) reduce costs, (3) restructure subsidiaries, and (4) participate in auctions via partnerships in order to mitigate risks and better manage cash balance, in our view. We believe the main themes of 2015 will be discussions on (1) the reimbursement for transmissions’ old assets, (ii) the renewal of concessions in disco units, (iii) additional measures to improve cash generation (that could include divestment in some assets), and (iv) large hydro deficit that should dent margins.



Talking about the spread (again). With our new estimates, we

Company Statistics

believe the fair spread between ELET3 and ELET6 should be

Bloomberg

R$1.80, as we believe Eletrobras will have to wait until 2018-19 to

ELET6 BZ / ELET3 BZ

Current Price (01/02/15)

R$ 7.93 / R$ 5.66

Target Price (YE 2015)

R$ 8.49 / R$ 6.68

fully recover reservoirs, attend to its capex and debt obligations, as

52-Week Range (R$)

well as reorganize its business and be able to pay dividends again.

Market Capitalization (US$ Mn)

6.25 - 12.64 3,984

Float (%)



Change in estimates: We have updated our target price given:

23.4

3-Mth Avg. Daily Vol (US$ Mn)

5.8

Shares Outstanding - Mn

1,353

(1) a higher discount rate; (2) new macroeconomic assumptions; (3) recently released results; (4) a new cost reduction plan; (5) new

Price Performance (R$) ELET6 BZ

capex guidance; (6) newly announced investments; (7) a larger

140

hydro deficit expected for 2015; and (8) a revised estimate for the

120

reimbursement of concession contracts renewed (estimated at R$10

IBOVESPA

100

billion vs. our previous estimate of R$8 billion). 80 60 40

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

98

D-14

ELETROBRAS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 24,008 (22.8) 15,432 (32.8) (3,695) (171.8) (15.4) (5,196) (250.3) (21.6) 2,188 (1,367) (6,114) 11.7 (25.5)

R$ 2014E 25,924 8.0 14,259 (7.6) (2,045) 44.7 (7.9) (3,299) 36.5 (12.7) 862 788 (2,701) 55.8 (10.4)

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (1,501) 0 4,656 2,885 (4,675) (1,790) 0 4,109 (369) 0

2014E (1,254) 0 10,438 13,786 (7,175) 6,611 0 5,324 0 0

2015E (1,340) 0 117 7,175 (7,175) 0 0 566 0 0

2016E (1,426) 0 (950) 7,175 (7,175) 0 0 3,333 0 0

2013A (695) 0 2,158 1,337 (2,167) (830) 0 1,904 (171) 0

2014E (534) 0 4,445 5,871 (3,056) 2,815 0 2,267 0 0

2015E (509) 0 45 2,728 (2,728) 0 0 215 0 0

2016E (542) 0 (361) 2,728 (2,728) 0 0 1,267 0 0

2013A 10,573 39,080 71,946 138,385 25,698 51,824 60,494 44,998 12,021

2014E 17,184 34,468 77,867 136,518 25,341 52,994 57,792 46,266 12,118

2015E 10,786 27,551 83,702 134,754 25,193 52,600 56,546 47,889 12,244

2016E 8,490 25,397 89,451 137,406 24,833 54,516 57,613 49,967 12,406

2013A 4,513 16,679 30,707 59,063 10,968 22,119 25,819 19,205 5,131

2014E 6,739 13,517 30,536 53,537 9,938 20,782 22,664 18,144 4,752

2015E 3,980 10,166 30,886 49,725 9,296 19,410 20,866 17,671 4,518

2016E 3,133 9,371 33,008 50,703 9,163 20,117 21,259 18,438 4,578

32,978

34,148

35,645

37,561

14,075

13,391

13,153

13,860 2016E

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt LT Debt

2015E 25,494 (1.7) 14,288 0.2 (1,493) 27.0 (5.9) (2,833) 14.1 (11.1) 1,044 364 (1,246) 53.9 (4.9)

2016E 26,513 4.0 17,434 22.0 1,393 n/m 5.3 (33) 98.8 (0.1) 726 (312) 1,067 n/m 4.0

2013A 11,127 (30.1) 7,152 (39.1) (1,713) (165.1) (15.4) (2,408) (236.2) (21.6) 1,014 (633) (2,834) 20.0 (25.5)

US$ 2014E 11,040 (0.8) 6,072 (15.1) (871) 49.1 (7.9) (1,405) 41.7 (12.7) 367 336 (1,150) 59.4 (10.4)

2015E 9,694 (12.2) 5,433 (10.5) (568) 34.8 (5.9) (1,077) 23.3 (11.1) 397 138 (474) 58.8 (4.9)

2016E 10,081 4.0 6,629 22.0 530 n/m 5.3 (13) 98.8 (0.1) 276 (119) 406 n/m 4.0

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

Net Debt

(6,852)

(13,682)

844

10,468

(2,925)

(5,366)

311

3,863

Capital Employed

53,922

70,833

77,089

82,783

23,014

27,778

28,446

30,547

Net Debt/EBITDA

1.9

6.7

(0.6)

7.5

1.7

6.2

(0.5)

7.3

(0.1)

(0.2)

0.0

0.2

(0.1)

(0.3)

0.0

0.2

Net Debt/Equity Capex/Revenue (%)

19.5

27.7

28.1

27.1

19.5

27.7

28.1

27.1

Int Cover (%)

(4.2)

(1.4)

(1.0)

0.8

(4.2)

(1.4)

(1.0)

0.8

Dividend Payout (%)

(5.3)

0.0

0.0

0.0

(4.8)

0.0

0.0

0.0

ROCE (%)

(7.1)

(5.8)

(4.1)

0.3

(8.0)

(6.4)

(4.2)

0.3

ROE (%) MARKET RATIOS P/E

(9.6)

(4.6)

(2.2)

1.9

(9.7)

(4.8)

(2.2)

1.9

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

-

-

-

10.1

-

-

-

9.8

P/CE

-

-

n/m

4.3

-

-

n/m

4.2

FV/EBITDA

-

1.3

-

15.2

-

1.4

-

14.8

FV/EBIT FV/Revenue P/BV FCF Yield (%) Div Yield (%)

-

0.8

-

-

-

0.8

-

-

0.3

(0.1)

0.5

0.8

0.3

(0.1)

0.4

0.8

0.2

0.2

0.2

0.2

0.2

0.2

0.2

0.2

(13.3)

59.8

0.0

0.0

(14.6)

67.6

0.0

0.0

2.7

(0.0)

(0.0)

(0.0)

3.0

(0.0)

(0.0)

(0.0)

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

(4.52)

(2.00)

(0.92)

0.79

(4.19)

(1.70)

(0.70)

0.60

DPS

0.27

0

0

0

0.25

0

0

0

44.72

42.73

41.80

42.59

38.18

33.51

30.85

31.43

BVPS

99

Eletrobras is a state-owned holding company, controlled by the Brazilian federal government, (which operates generation, distribution, and transmission assets in Brazil. Eletrobras has nearly 40% of participation in the Brazilian generation market, with 44 GW in installed capacity (including the its 50% stake in Itaipu). In the transmission segment, Eletrobras has over 70,000 km in lines, around 60% of the Brazilian transmission market. Eletrobras controls 6 distribution units, with a total of 3 million customers. Eletrobras also acts as a bank for the electricity sector, with R$5 billion in loans to companies and minority equity participation in 30 utilities.

Key

Personnel: Márcio Pereira Zimmermann (Chairman), José da Costa Carvalho Neto (CEO), Armando Casado de Araujo (CFO) and Arlindo Soares Castanheira (Head of IR Division) Web: http://www.eletrobras.com Sales by Segment, 9M14

Itaipu 35.6%

Free Market 18.4%

Regulated Market 46.0%

Installed Capacity per Subsidiary, 9M14

Others 27.9%

Eletronorte 23.6%

Furnas 21.6%

Chesf 26.9%

Shareholder Structure, Current

Others 32.6%

BNDES / BNDESPAR 21.7%

Federal Government 45.6%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—UTILITIES

ELETROPAULO

HOLD CURRENT PRICE: R$9.20 TARGET PRICE: R$9.88

UPGRADING RATING TO HOLD FROM UNDERPERFORM RAISING YE2015 TARGET PRICE TO R$9.88 FROM R$9.47 

Investment Case: We are upgrading our rating to Hold based on a

Maria Carolina Carneiro*

valuation that, in our view, prices in (1) the company’s complex

Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

financial situation, (2) risks related to pension fund liabilities, and (3) liabilities with Eletrobras. We believe Eletropaulo will continue to suffer from (1) depressed margins, and (2) pressure to invest more in order to improve quality of service while trying to further cut costs; however, we see upside risk from tariff revision and cost cuts.



Outlook 2015: We estimate an EBITDA increase of R$867 million in 2015, driven mainly by higher tariffs and a recovery of the tariff deficit, partially offset by (1) mild volume growth in the period (+0.2% YoY), (2) the negative effect of the retroactive reimbursement for the “missing cables,” and (3) additional cost pressure. We also highlight that possible improvements in regulatory parameters could be granted in 2015.



Reasons to be cautious about ELPL: (1) Despite recent efforts to reduce costs, margins continue under pressure, as regulatory targets are tight and a loss in regulatory EBITDA following the missing cables write-off is significant. (2) High leverage combined with lower

Company Statistics

cash flow generation should be a considerable challenge for the

Bloomberg

company, in our view, as the short-term working capital problem should continue to dent margins in 1H15.



ELPL4 BZ

Current Price (01/02/15)

R$ 9.20 / US$ 3.42

Target Price (YE 2015)

R$ 9.88 / US$ 3.73

52-Week Range (R$)

Where could we be wrong? After the large write-off in its asset base and given the reduction in its implied equity value, we believe

6.55 - 11.61

Market Capitalization (US$ Mn)

572

Float (%)

61.0

3-Mth Avg. Daily Vol (US$ Mn)

2.8

Shares Outstanding - Mn

167

that any potential improvement in regulatory variables would be significant for Eletropaulo. Additionally, we note that ELPL has 100%

Price Performance (R$) ELPL4 BZ

tag-along rights; thus, in the event BNDES sells its stake in Brasiliana

120

(controlling

100

Eletropaulo)

at

attractive

pricing,

the

minority

shareholders could benefit. In any case, we continue to believe there

IBOVESPA

80

is a cap to ELPL’s valuation, as the company faces several pending 60

regulatory discussions and potential provisions relating to past-due 40

debt (Eletrobras, pension fund).

20

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

100

D-14

ELETROPAULO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 9,012 (9.5) 2,763 4.3 1,067 29.8 11.8 1,103 6.5 12.2 16 (111) 198 48.2 2.2

R$ 2014E 9,689 7.5 1,830 (33.8) 310 (70.9) 3.2 167 (84.8) 1.7 (144) 189 (368) (285.6) (3.8)

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (436) (246) (164) (410) (644) 290 0 (88) (130) 0

2014E (437) (300) (27) (327) (547) (704) 0 (184) (79) 0

2015E (466) 0 (113) (113) (637) (92) 0 (233) 0 0

2016E (497) 0 (61) (61) (624) 8 0 (262) (23) 0

2013A (202) (114) (76) (190) (299) 134 0 (41) (60) 0

2014E (189) (130) (12) (141) (237) (305) 0 (80) (34) 0

2015E (179) 0 (43) (43) (245) (35) 0 (90) 0 0

2016E (184) 0 (23) (23) (231) 3 0 (97) (8) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 974 2,955 7,134 10,694 2,684 5,180 2,829 4,299 121

2014E 192 2,818 7,251 10,632 2,733 5,437 2,462 5,406 160

2015E 100 2,834 7,422 10,820 2,794 5,437 2,589 5,406 160

2016E 85 2,918 7,550 11,030 2,899 5,437 2,695 5,406 160

2013A 416 1,261 3,045 4,564 1,146 2,211 1,208 1,835 52

2014E 75 1,105 2,843 4,170 1,072 2,132 966 2,120 63

2015E 38 1,070 2,801 4,083 1,054 2,052 977 2,040 60

2016E 31 1,061 2,745 4,011 1,054 1,977 980 1,966 58

LT Debt

2015E 10,921 12.7 2,836 55.0 1,177 279.4 10.8 1,062 535.0 9.7 (233) (65) 127 n/m 1.2

2016E 11,616 6.4 2,955 4.2 1,241 5.5 10.7 1,082 1.9 9.3 (294) (56) 141 10.8 1.2

2013A 4,177 (18.0) 1,281 (5.5) 495 17.5 11.8 511 (3.6) 12.2 7 (52) 92 34.3 2.2

US$ 2014E 4,192 0.4 792 (38.2) 134 (72.9) 3.2 72 (85.8) 1.7 (62) 82 (159) (273.2) (3.8)

2015E 4,200 0.2 1,091 37.8 453 237.2 10.8 409 464.5 9.7 (90) (25) 49 n/m 1.2

2016E 4,302 2.4 1,094 0.3 460 1.5 10.7 401 (1.9) 9.3 (109) (21) 52 6.7 1.2

2,627

2,874

2,874

2,874

1,121

1,127

1,085

1,045

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

5,273

5,597

5,597

5,597

2,250

2,195

2,112

2,035

Capital Employed

9,178

9,012

9,244

9,476

3,917

3,534

3,488

3,446

Net Debt/EBITDA

4.9

18.0

4.8

4.5

4.6

16.4

4.7

4.4

Net Debt/Equity

1.9

2.3

2.2

2.1

2.0

2.6

2.2

2.1

FINANCIAL RATIOS

Capex/Revenue (%)

7.1

5.6

5.8

5.4

7.1

5.6

5.8

5.4

Int Cover (%)

n/m

n/m

n/m

n/m

n/m

n/m

n/m

n/m

Dividend Payout (%)

97.1

39.7

0.0

17.9

87.9

36.4

0.0

17.8

ROCE (%)

13.2

(0.2)

12.2

12.0

14.3

(0.0)

12.3

12.0

ROE (%) MARKET RATIOS

6.2

(13.9)

5.0

5.3

6.2

(14.7)

5.0

5.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

7.9

-

12.1

10.9

7.2

-

11.7

11.0

P/CE

2.5

20.9

2.6

2.4

2.3

18.1

2.5

2.4

FV/EBITDA

6.4

22.7

6.1

5.8

5.9

20.4

5.9

5.7

23.3

-

16.8

15.6

21.4

-

16.4

15.4

FV/Revenue

0.8

0.7

0.7

0.6

0.7

0.7

0.6

0.6

P/BV

0.6

0.6

0.6

0.6

0.5

0.6

0.6

0.6

18.5

(48.6)

(6.0)

0.5

20.2

(55.9)

(6.2)

0.5

FV/EBIT

FCF Yield (%) Div Yield (%)

8.3

5.4

(0.0)

1.5

9.1

6.2

(0.0)

1.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.18

(2.20)

0.76

0.84

0.55

(0.95)

0.29

0.31

DPS

0

0

0

0.21

0

0

0

0.08

16.91

14.71

15.47

16.10

7.22

5.77

5.84

5.86

PER SHARE DATA

BVPS

101

Eletropaulo is a pure distribution operating company with the concession for the metropolitan area of the city of São Paulo. As an operating company, Eletropaulo is forbidden by regulation to acquire other distribution companies or invest in other segments (such as generation). The São Paulo metropolitan region represents 15.5% of Brazilian GDP and concentrates 9.6% of the country’s population.

Key Personnel: Vincent Winslow Mathis (Chairman), Britaldo Pedrosa Soares (CEO), Gustavo Pimenta (CFO), Clarissa Sadock (IR Director) and Lina Gallo (IR Manager) Web: www.eletropaulo.com.br

EBITDA by Business, 2015E

Distribution 100.0%

Sales by Segment (DisCo), 2015E

Industrial 14.4%

Others 7.6%

Commercial 34.2%

Residential 43.8%

Shareholder Structure, Current

Free Float 61.0%

AES Group 31.0%

National Treasure 8.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—TRANSPORTATION

EMBRAER

BUY CURRENT PRICE: US$36.86 TARGET PRICE: US$43.00

UPGRADING RATING TO BUY FROM HOLD RAISING YE2015 TARGET PRICE TO US$43.00 FROM US$40.00 

Investment Case: We believe Embraer continues to have a strong

Bruno Amorim*, CFA

delivery story, as evidenced by a new all-time record backlog,

Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

reaching US$22 billion in 3Q14 (from a historical low of US$12.5 billion in 4Q12). Embraer benefits from three important trends: (i) the continuing depreciation of the BRL, which our economists continue to

Pedro Balcão Reis* Brazil: Banco Santander S.A. +5511-3012-5765 | [email protected]

see as overvalued; (ii) a falling jet fuel price that should boost commercial orders; and (iii) a strong U.S. economy, representing 64% of 9M14 commercial revenue. On our estimates, ERJ trades at a ~14x P/E for 2015E, which is in-line with the historical average but which could decline if the BRL depreciates more than we estimate.



Outlook 2015: In early 2015, Embraer said it will release its 2015 guidance. By segment, we estimate a 70-bp increase in commercial aviation EBIT margin, a 150-bp increase in executive aviation, and a 100-bp decrease in defense. For revenue, we estimate a 2% decrease in commercial, 18% increase in executive, and 7% increase in defense. For 2015, at the consolidated level, we estimate (i) top-line growth of 5%, (ii) EBIT up 9%, and (iii) net profit up 11%. This compares to our 2014 estimates of (i) top line up 3%, (ii) EBIT Company Statistics

up 6%, and (iii) adjusted net profit up 12%.

Bloomberg



USD exposure: We estimate that 75% of costs are in USD vs. 90%

US$ 36.86

Target Price (YE 2015)

US$ 43.00

of revenue. The latter implies Embraer is a strong beneficiary of

52-Week Range (US$)

29.86 - 39.97

potential BRL depreciation. Indeed, we estimate that each 10%

Market Capitalization (US$ Mn)

6,735

Float (%)

69.0

3-Mth Avg. Daily Vol (US$ Mn)

34.6

20% increase in BRL profits for Embraer.

Shares Outstanding - Mn

183

Low exposure to Brazilian economy: In 9M14 Brazil represented

Price Performance (US$)

depreciation in the BRL implies a 10% increase in USD profits and a



ERJ US

Current Price (01/02/15)

just 3% of Embraer’s commercial revenue and 24% of consolidated

ERJ US

IBOVESPA

140

revenue. We believe this is a strong positive for Embraer, as we 120

estimate only 0.3% Brazilian GDP growth in 2015. 100



Reasonable valuation: At a ~14x P/E for 2015E, Embraer trades inline with its historical average. However, the multiple could decline if the BRL moves above the average R$2.63/USD we have in our model for 2015E.

80

60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

102

D-14

EBRAER Financial Highlights: P&L, Balance Sheet and CF Statement, 2010-17E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2010A 5,364 (2.4) 1,026 (4.1) 611 0.4 11.4 392 3.2 7.3 18 (63) 292 4.7 5.4

2011A 5,803 8.2 1,307 27.4 557 (8.8) 9.6 318 (18.8) 5.5 (91) (127) 162 (44.5) 2.8

2012A 6,178 6.5 1,495 14.4 891 59.9 14.4 612 92.4 9.9 (7) (266) 453 180.0 7.3

US$ 2013A 6,235 0.9 1,416 (5.3) 855 (4.0) 13.7 565 (7.8) 9.1 (96) (256) 383 (15.6) 6.1

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2010A 219 354 867 (153) 82 (645) 162 0

2011A 239 (91) 387 (294) 240 216 183 0

2012A 279 80 817 (459) 699 346 60 0

2013A 291 54 768 (559) 264 128 71 0

2014E 320 (23) 745 (570) (261) (430) 109 0

2015E 336 (43) 783 (584) (99) (288) 119 0

2016E 352 (38) 854 (597) 228 (10) 129 0

2017E 344 28 913 (591) 159 (129) 201 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2010A 2,127 4,983 1,917 8,391 2,389 2,871 3,029 1,905 184

2011A 2,104 5,169 2,259 8,858 2,842 2,899 3,007 2,121 565

2012A 2,379 5,366 2,697 9,490 2,792 3,348 3,258 2,467 348

2013A 2,624 5,768 3,102 10,143 2,893 3,618 3,533 2,595 91

2014E 2,240 5,455 3,352 10,079 3,105 3,016 3,860 2,164 256

2015E 2,018 5,368 3,600 10,240 3,210 2,714 4,216 1,876 269

2016E 2,113 5,587 3,845 10,704 3,310 2,692 4,604 1,866 282

2017E 2,067 5,464 4,091 10,827 3,254 2,569 4,905 1,737 276

1,721

1,556

2,119

2,503

1,908

1,607

1,584

1,461 2017E

LT Debt FINANCIAL RATIOS

2014E 6,401 2.7 1,466 3.5 917 7.2 14.3 597 5.7 9.3 (7) (150) 428 11.9 6.7

2015E 6,727 5.1 1,571 7.2 989 7.9 14.7 653 9.4 9.7 (14) (160) 475 11.0 7.1

2016E 7,042 4.7 1,683 7.1 1,073 8.5 15.2 721 10.4 10.2 (26) (174) 517 8.8 7.3

2017E 6,889 (2.2) 1,663 (1.2) 1,065 (0.8) 15.5 721 (0.1) 10.5 (45) (169) 502 (2.8) 7.3

2010A

2011A

2012A

2013A

2014E

2015E

2016E

Net Debt

(222)

17

87

(29)

(76)

(142)

(247)

(330)

Capital Employed

4,934

5,128

5,725

6,128

6,024

6,092

6,469

6,642

Net Debt/EBITDA

(0.4)

0.0

0.1

(0.0)

(0.1)

(0.1)

(0.2)

(0.3)

Net Debt/Equity

(0.1)

0.0

0.0

(0.0)

(0.0)

(0.0)

(0.1)

(0.1)

Capex/Revenue (%)

2.8

5.1

7.4

9.0

8.9

8.7

8.5

8.6

Int Cover (%)

(34.9)

6.1

131.0

8.9

130.9

70.7

40.9

23.4

Dividend Payout (%)

(58.1)

(62.9)

(36.8)

(15.8)

(28.4)

(27.7)

(27.2)

(38.9)

9.9

7.8

13.4

11.5

12.4

13.4

13.9

13.6

10.9

5.4

14.5

11.3

11.6

11.8

11.7

10.6

2010A

2011A

2012A

2013A

2014E

2015E

2016E

2017E

P/E

18.4

28.5

11.5

15.4

15.7

14.2

13.0

13.4

P/CE

n/m

-

29.9

n/m

n/m

48.5

40.9

42.7

ROCE (%) ROE (%) MARKET RATIOS

FV/EBITDA

8.7

8.6

6.1

7.0

7.5

6.8

6.2

6.1

13.6

15.1

8.9

10.7

11.5

10.3

9.2

9.1

FV/Revenue

1.0

0.8

0.9

1.0

1.1

1.0

0.9

0.9

P/BV

1.8

1.5

1.6

1.7

1.7

1.6

1.5

1.4

FV/EBIT

FCF Yield (%) Div Yield (%) PER SHARE DATA

1.5

5.2

13.4

4.5

(3.9)

(1.5)

3.4

2.4

(3.0)

(4.0)

(1.1)

(1.2)

(1.6)

(1.8)

(1.9)

(3.0)

2010A

2011A

2012A

2013A

2014E

2015E

2016E

2017E

EPS

1.60

0.89

2.48

2.09

2.34

2.60

2.83

2.75

DPS

0.88

1.00

0.33

0.39

0.60

0.65

0.71

1.10

16.58

16.46

17.83

19.34

21.12

23.07

25.20

26.84

BVPS

103

Embraer has become one of the largest aircraft manufacturers in the world by focusing on specific market segments with high growth potential in commercial, defense, and executive aviation. Embraer develops and adapts successful aircraft platforms and judiciously introduces new technology whenever it creates value by lowering acquisition prices, reducing direct operating costs, or delivering higher reliability, comfort, and safety.

Key Personnel: Frederico Fleury Curado (CEO), José Filippo (CFO) and Luciano Froes (IR Director) Web: www.embraer.com.br

Revenue Breakdown, 2013A Defense and security 19.2%

Other 1.4%

Executive aviation 26.4%

Commercial aviation 53.0%

EBIT Breakdown, 2013A Defense and security 16.6%

Other 4.0%

Executive aviation 18.6%

Commercial aviation 60.8%

Shareholder Structure, Current

PREVI 7.8% Oppenheim 9.7%

Free Float 69.0%

Thornburg Investment 8.1%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—UTILITIES

ENERGIAS DO BRASIL

BUY CURRENT PRICE: R$8.73 TARGET PRICE: R$12.10

LOWERING YE2015 TARGET PRICE TO R$12.10 FROM R$12.30 

Investment Case: We maintain our Buy rating for EdB, as we

Maria Carolina Carneiro*

believe the company has attractive potential upside coupled with

Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

positive optionality (development of new projects and/or the potential to deliver improvement in performance).



Outlook 2015: We forecast a recovery in results in 2015, due to (1) better results at the Disco level following the recent tariff adjustments; and (2) additional revenue from anticipation of the Jari unit. We also highlight that given the cost pressure we predict for next year, we expect the company to continue to focus on cost control. We updated our estimates to consider a higher hydro deficit of 7% in 2015.



Reasons to like EdB: (i) Recent investments to reduce costs and losses, creating potential upside risk in Disco units; (ii) reasonable valuation (trading at 10.8x P/E for 2015E); (iii) solid dividend yield of 3.8% and fair dividend policy (based more on dividends per share than on payout); and (iv) upside risk from the Jari project.



A matter of proving capital discipline. We believe EdB can improve results in the future through cost cuts and reduction of

Company Statistics

regulatory losses. However, before the stock achieves full NAV

Bloomberg

potential, we believe that the company will have to prove to the

Current Price (01/02/15)

R$ 8.73 / US$ 3.24

Target Price (YE 2015)

R$ 12.10 / US$ 4.57

market that it holds adequate thresholds for IRR in new projects.



ENBR3 BZ

52-Week Range (R$)

8.20 - 11.56

Market Capitalization (US$ Mn)

1,545

Anticipating Project and Controlling Capex. The CEO highlighted

Float (%)

at the recent investors’ meeting that the Jari project was not only

3-Mth Avg. Daily Vol (US$ Mn)

5.7

Shares Outstanding - Mn

476

completed ahead of schedule but was also completed within cost estimates, which we see as a positive. He noted that construction of the Cachoeira do Caldeirao power plant is 50% complete, with start-

48.8

Price Performance (R$) ENBR3 BZ

IBOVESPA

110

up scheduled for January 2017; thus, we believe the start-up of units 100

of this plant could also occur ahead of the original schedule. 90



Pecem: a problem that we have to live with. On December 9, EdB

80

signed a stock purchase agreement with Eneva to acquire a 50%

70

stake in Pecem I, including intercompany loans, coal, and energy

60

credits. We note that EdB recently announced that the lower

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

availability of Pecem’s capacity implies downside for 2016E revenue. 104

D-14

ENERGIAS DO BRASIL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 7,096 8.1 2,939 28.5 1,656 26.1 23.3 1,253 28.8 17.7 (299) (260) 376 10.2 5.3

R$ 2014E 8,099 14.1 2,353 (19.9) 1,394 (15.8) 17.2 1,048 (16.4) 12.9 (301) (307) 321 (14.5) 4.0

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (403) 29 (891) 754 (403) 352 (585) (1,021) (41) 0

2014E (346) 29 370 529 (340) 189 (398) 334 (161) 0

2015E (357) 29 187 764 (370) 394 0 0 (164) 0

2016E (368) 29 211 883 (395) 487 0 0 (260) 0

2013A (187) 13 (413) 350 (187) 163 (271) (473) (19) 0

2014E (150) 13 160 229 (147) 82 (172) 144 (70) 0

2015E (137) 11 72 294 (142) 151 0 0 (63) 0

2016E (136) 11 78 327 (146) 180 0 0 (96) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 924 4,707 8,281 14,141 4,598 3,290 4,573 3,716 1,157

2014E 1,113 3,009 8,653 12,844 2,936 3,778 4,427 4,099 1,121

2015E 1,506 3,460 8,667 13,309 3,108 3,790 4,551 4,118 1,127

2016E 1,994 4,086 8,694 13,962 3,323 3,804 4,710 4,137 1,132

2013A 394 2,009 3,534 6,036 1,962 1,404 1,952 1,586 494

2014E 436 1,180 3,393 5,037 1,151 1,481 1,736 1,608 440

2015E 568 1,306 3,271 5,022 1,173 1,430 1,717 1,554 425

2016E 725 1,486 3,162 5,077 1,209 1,383 1,713 1,504 412

LT Debt

2015E 8,644 6.7 2,956 25.6 1,421 1.9 16.4 1,064 1.5 12.3 (275) (249) 384 19.7 4.4

2016E 9,426 9.0 3,484 17.9 1,844 29.8 19.6 1,477 38.8 15.7 (249) (398) 564 46.7 6.0

2013A 3,289 (2.1) 1,362 16.4 767 14.2 23.3 581 16.7 17.7 (139) (120) 174 (0.2) 5.3

US$ 2014E 3,504 6.5 1,018 (25.3) 603 (21.4) 17.2 453 (21.9) 12.9 (130) (133) 139 (20.2) 4.0

2015E 3,325 (5.1) 1,137 11.7 546 (9.4) 16.4 409 (9.7) 12.3 (106) (96) 148 6.4 4.4

2016E 3,491 5.0 1,290 13.5 683 25.0 19.6 547 33.6 15.7 (92) (147) 209 41.3 6.0

2,560

2,978

2,991

3,005

1,092

1,168

1,129

1,093

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

2,792

2,987

2,611

2,144

1,192

1,171

985

779

Capital Employed

8,288

8,946

9,056

9,229

3,537

3,508

3,417

3,356

Net Debt/EBITDA

1.7

2.1

1.8

1.2

1.6

1.9

1.8

1.1

Net Debt/Equity

0.6

0.7

0.6

0.5

0.7

0.8

0.6

0.5

Capex/Revenue (%)

5.7

4.2

4.3

4.2

5.7

4.2

4.3

4.2

Int Cover (%)

3.4

2.7

3.4

4.2

3.4

2.7

3.4

4.2

Dividend Payout (%)

11.9

42.8

51.0

67.7

10.8

39.2

44.9

67.3

ROCE (%)

18.3

15.2

14.5

20.3

19.7

16.7

14.6

20.3

FINANCIAL RATIOS

ROE (%) MARKET RATIOS P/E

8.3

7.1

8.6

12.2

8.5

7.6

8.6

12.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

14.4

13.3

10.8

7.4

13.2

11.6

10.5

7.4

P/CE

6.9

6.4

5.6

4.5

6.4

5.6

5.4

4.5

FV/EBITDA

6.2

6.4

6.0

4.4

5.6

5.6

5.8

4.4

FV/EBIT

8.1

8.5

8.0

5.5

7.4

7.5

7.7

5.5

FV/Revenue

1.4

1.1

1.0

0.9

1.3

1.0

1.0

0.9

P/BV

1.2

1.0

0.9

0.9

1.2

0.9

0.9

0.9

FCF Yield (%)

6.5

4.4

9.5

11.7

7.1

5.1

9.8

11.7

Div Yield (%)

0.8

3.8

3.9

6.3

0.8

4.3

4.1

6.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.79

0.67

0.81

1.18

0.37

0.29

0.31

0.44

DPS

0.34

0.34

0.55

0.85

0.16

0.15

0.21

0.31

BVPS

9.60

9.29

9.55

9.89

4.10

3.64

3.60

3.59

PER SHARE DATA

105

Energias do Brasil (EdB) is a holding company that controls the energy distribution companies Bandeirante and Escelsa located in the states of São Paulo and Espírito Santo, both in southeast Brazil. Also the company holds generation and energy trading companies. Management’s strategy is to expand its generation operations, which currently have 1,808 MW of installed capacity. EdB is controlled by Energias de Portugal, which has broad experience in operating wind and thermal plants in Spain and Portugal. EdB intends to leverage its controller experience to bolster its expansion strategy in Brazil.

Key Personnel: Ana Maria Machado Fernandes (Chairman), Miguel Nuno Simões Nunes Ferreira Setas (CEO), Miguel Amaro (CFO) and Maytê Souza Dantas de Albuquerque (IR Manager) Web: www.energiasdobrasil.com.br

EBITDA by Business, 9M14

Trading 15.0%

Distribution 41.7%

Generation 43.2%

Sales by Segment (DisCo), 9M14

Commercial 24.5%

Rural 3.1%

Others 8.3%

Industrial 21.8%

Residential 42.2%

Shareholder Structure, Current

Free Float 48.8%

EDP GROUP 51.2%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—UTILITIES

EQUATORIAL

HOLD CURRENT PRICE: R$27.50 TARGET PRICE: R$29.30



Investment Case: We recently adjusted our estimates to include a

Maria Carolina Carneiro*

better performance in cutting losses and in synergies, which

Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

generated additional gains for the company. However, we believe the market already prices in a majority of the upside related to initial synergy gains deriving from the incorporation of the Celpa unit and growth prospects after the deal. Therefore, to unlock new value we would have to see new acquisitions, a faster pace of loss reduction, or a more favorable than expected tariff revision process.



Outlook 2015: During the year, we believe that the company will accelerate cost and loss reduction so as to meet regulatory targets for Cemar and Celpa and will pursue synergies between the assets. Regarding volumes, we project an increase of 8% YoY in the captive market for both companies.



What’s there to like? We maintain our call that Equatorial will reach regulatory targets and create synergies between Cemar and Celpa, and we have incorporated recent operating improvements (seen in 1H14) into our latest model; moreover, we believe the company is well prepared to benefit from more favorable regulatory parameters.

Company Statistics

However, despite the growth potential achieved with a combination of

Bloomberg

efforts, we believe that multiples are no longer attractive, while we

EQTL3 BZ

Current Price (01/02/15)

R$ 27.50 / US$ 10.22

Target Price (YE 2015)

R$ 29.30 / US$ 11.06

expect the company will have to reduce dividend payments, at least

52-Week Range (R$)

in the short term, to focus on the turnaround of Celpa.

Market Capitalization (US$ Mn)

18.30 - 27.90 2,027

Float (%)



What could we be missing? We already include several upsides

30.4

3-Mth Avg. Daily Vol (US$ Mn)

7.3

Shares Outstanding - Mn

198

and improvements at the Celpa and Cemar operations that are needed in order to meet regulatory requirements. Still, we could be



Price Performance (R$) EQTL3 BZ

missing a more rapid trajectory in reducing losses and greater cost

160

cuts or synergy gains that could promote additional upside.

140

M&A potential. In our view, management will continue to map the market for potential future acquisitions, such as the Eletrobras units

IBOVESPA

120 100 80

that may be available for purchase in the near future.

60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

106

D-14

EQUATORIAL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 4,715 57.8 278 (67.8) 542 5.6 11.5 75 (78.4) 1.6 (218) (39) 36 n/m 0.8

R$ 2014E 5,852 24.1 576 107.1 889 63.9 15.2 418 459.0 7.1 (182) (122) 121 233.7 2.1

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (249) (582) 195 639 (751) (112) 0 148 (199) 0

2014E (288) (179) 201 751 (948) (197) 0 171 (40) 0

2015E (315) 0 (37) 536 (817) (281) 0 160 (40) 0

2016E (336) 0 (32) 687 (696) (9) 0 170 (20) 0

2013A (116) (270) 91 296 (348) (52) 0 69 (92) 0

2014E (125) (78) 87 325 (410) (85) 0 74 (17) 0

2015E (121) 0 (14) 206 (314) (108) 0 62 (15) 0

2016E (124) 0 (12) 254 (258) (3) 0 63 (7) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,613 3,081 5,384 9,103 1,689 4,567 2,354 3,226 175

2014E 1,416 3,389 5,846 9,905 2,953 4,032 2,424 3,396 852

2015E 1,135 3,116 6,348 10,134 2,966 4,152 2,520 3,557 893

2016E 1,126 3,231 6,708 10,608 3,130 4,280 2,703 3,727 935

2013A 688 1,315 2,298 3,885 721 1,949 1,005 1,377 75

2014E 555 1,329 2,293 3,884 1,158 1,581 951 1,332 334

2015E 428 1,176 2,395 3,824 1,119 1,567 951 1,342 337

2016E 409 1,175 2,439 3,858 1,138 1,556 983 1,355 340

LT Debt

2015E 6,211 6.1 567 (1.6) 908 2.1 14.6 420 0.3 6.8 (174) (211) 128 5.4 2.1

2016E 6,530 5.1 782 38.0 1,147 26.3 17.6 603 43.8 9.2 (208) (205) 244 91.3 3.7

2013A 2,185 43.0 129 (70.8) 251 (4.3) 11.5 35 (80.4) 1.6 (101) (18) 17 n/m 0.8

US$ 2014E 2,532 15.9 249 93.3 385 53.0 15.2 181 421.9 7.1 (79) (53) 52 211.5 2.1

2015E 2,389 (5.7) 218 (12.5) 349 (9.2) 14.6 161 (10.8) 6.8 (67) (81) 49 (6.3) 2.1

2016E 2,418 1.2 290 32.9 425 21.6 17.6 223 38.5 9.2 (77) (76) 91 84.2 3.7

3,050

2,544

2,664

2,792

1,302

998

1,005

1,015

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

1,613

1,981

2,422

2,601

688

777

914

946

Capital Employed

5,880

6,224

6,728

7,125

2,509

2,441

2,539

2,591

Net Debt/EBITDA

3.0

2.2

2.7

2.3

2.7

2.0

2.6

2.2

Net Debt/Equity

0.7

0.8

1.0

1.0

0.7

0.9

1.0

1.0

15.9

16.2

13.1

10.7

15.9

16.2

13.1

10.7

FINANCIAL RATIOS

Capex/Revenue (%) Int Cover (%) Dividend Payout (%) ROCE (%) ROE (%)

1.1

2.4

2.2

2.5

1.1

2.4

2.2

2.5

(56.9)

110.2

33.0

15.5

(51.5)

101.1

29.1

15.4

1.9

8.7

9.4

11.3

2.0

9.5

9.4

11.3

1.6

5.1

5.2

9.4

1.6

5.4

5.2

9.4

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

n/m

45.4

42.7

22.3

n/m

39.4

41.3

22.4

P/CE

16.1

13.4

12.3

9.4

14.7

11.7

11.9

9.4

FV/EBITDA

13.2

9.7

9.9

7.9

12.1

8.5

9.6

7.9

FV/EBIT

MARKET RATIOS

25.8

14.9

15.8

11.6

23.6

13.1

15.3

11.5

FV/Revenue

1.5

1.5

1.4

1.4

1.4

1.3

1.4

1.4

P/BV

2.0

2.3

2.2

2.0

1.9

2.2

2.1

2.1

(2.4)

(3.6)

(5.1)

(0.2)

(2.7)

(4.1)

(5.3)

(0.2)

4.3

0.7

0.7

0.4

4.7

0.8

0.8

0.4

FCF Yield (%) Div Yield (%) PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.18

0.61

0.64

1.23

0.08

0.26

0.25

0.46

DPS

1.54

0.31

0.15

0.16

0.71

0.13

0.06

0.06

11.86

12.21

12.70

13.62

5.06

4.79

4.79

4.95

BVPS

107

Equatorial Energia is a holding company in the energy sector. Equatorial currently operates in the (i) distribution segment through CEMAR, in the state of Maranhão, and CELPA, in the state of Pará, (ii) in the generation segment it jointly controls Geramar, two thermoelectric plants, (iii) in the trading segment through its indirect 51% ownership of Sol Energias, and (iv) in the services segment through Equatorial Soluções.

Key

Personnel: Carlos Augusto Leone Piani (Chairman), Firmino Ferreira Sampaio Neto (CEO), Eduardo Haiama (CFO) and Thomas Newlands (IR Director) Web: http://www.equatorialenergia.com.br/ri/ EBITDA by Segment, 2015E

Distribution 100.0%

Sales by Segment, 2015E

Others 25.2% Industrial 10.7%

Commercial 23.0%

Residential 41.0%

Shareholder Structure, Current PCP Latin America Power 22.9%

Others 77.1%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—CEMENT, CONSTRUCTION, INFRA & RE

EVEN

BUY CURRENT PRICE: R$5.27 TARGET PRICE: R$6.80

INTRODUCING YE2015 TARGET PRICE OF R$6.80; REPLACING YE2014 TARGET PRICE OF R$12.40 

Investment Case: The combination of solid execution, capital

Bruno Mendonca*

discipline, and attractive valuation leads us to place Even among our

Brazil: Banco Santander S.A. +5511-3012-5759 | [email protected]

top picks in the homebuilding universe.



Renan Manda*

Outlook 2015: We believe 2015 should be marked by a rebound in

Brazil: Banco Santander S.A. +5511 3012-6535 | [email protected]

contracted sales with a stable volume of launches, which should help keep inventory levels under control.



A year of adjustments. The pickup in contracted sales we expect is mainly attributable to a weak comparison base, as 2014 was negatively impacted by the world soccer tournament hosted in Brazil and the presidential elections. In addition, we expect Even to decelerate the pace of launches due to a less buoyant sector outlook for 2015 and to pick up the pace in 2016 onward.



Reliable execution. Even’s vertically integrated business model enables the company to control costs on a monthly basis. This has helped the gross margin (excluding financial charges) gradually improve over the last five years (to 34% in 2014E from 31% in 2010).



Solid financial position, likely to continue improving. Growing at

EVEN3 BZ

a moderate pace, Even has been able to keep leverage under

Current Price (01/02/15)

R$ 5.27 / US$ 1.96

control (50% net debt/equity as of September 2014). Furthermore,

Target Price (YE 2015)

R$ 6.80 / US$ 2.57

we expect the strong volume of inventory sales combined with a



Company Statistics Bloomberg

52-Week Range (R$)

4.73 - 7.90

Market Capitalization (US$ Mn)

457

substantial volume of deliveries expected for 2015 to further improve

Float (%)

91.4

cash generation.

3-Mth Avg. Daily Vol (US$ Mn)

4.3

Shares Outstanding - Mn

233

Attractive valuation. We see the current stock valuation as

Price Performance (R$)

attractive, trading at a P/BV of 0.5x, with an estimated ROE of 14%,

EVEN3 BZ

IBOVESPA

120

for 2015E.

100

80

60

40

j-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

108

d-14

EVEN Company Description

2013A (6) 0 (121) 16 (4) 20 1 114 (28) (11)

2014E (12) 0 (57) 55 (4) 59 (0) (12) (29) (36)

2015E (8) 0 (11) 118 (8) 125 (0) (34) (22) 3

2016E (7) 0 21 136 (7) 143 (0) (27) (26) 3

2013A 765,547 3,443,310 59,679 4,804,693 985,831 1,503 1,988 1,884 580,945

2014E 706,184 3,327,608 41,427 4,863,689 1,122,658 1,334 2,128 1,856 720,398

2015E 853,981 3,461,694 41,290 5,115,566 1,194,510 1,270 2,364 1,768 720,398

2016E 1,096,580 3,670,184 41,622 5,331,035 1,220,204 1,204 2,611 1,687 720,398

2013A 326,738 1,469,616 25,471 2,050,659 420,756 641 849 804 247,949

2014E 276,935 1,304,944 16,246 1,907,329 440,258 523 835 728 282,509

2015E 322,257 1,306,300 15,581 1,930,402 450,759 479 892 667 271,848

2016E 355,100 1,188,498 13,478 1,726,324 395,133 390 845 546 233,283

1,303

1,136

1,048

966

556

445

395

313

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

1,216

1,258

1,030

723

519

493

389

234

Capital Employed

3,434

3,557

3,565

3,497

1,466

1,395

1,345

1,132

Net Debt/EBITDA

3.5

5.5

3.6

2.4

3.3

5.0

3.5

2.4

Net Debt/Equity

0.6

0.6

0.4

0.3

0.7

0.7

0.4

0.3

Capex/Revenue (%)

0.4

0.4

0.8

0.8

0.4

0.4

0.8

0.8

Int Cover (%)

1.2

0.7

0.8

0.8

1.2

0.7

0.8

0.8

Dividend Payout (%)

23.9

23.7

25.0

25.0

21.6

21.8

22.0

24.8

ROCE (%)

14.8

11.1

13.5

14.3

16.0

12.4

13.5

14.3

ROE (%)

15.1

11.3

14.0

13.3

15.4

12.0

14.0

13.3

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

6.7

5.5

3.9

3.7

6.1

4.8

3.8

4.2

P/CE

6.4

4.9

3.7

3.5

5.9

4.3

3.6

4.0

10.0

11.7

8.4

7.0

9.1

10.4

8.1

7.5

FV/EBIT

7.5

7.7

5.6

4.7

6.9

6.8

5.5

5.1

FV/Revenue

1.4

1.2

1.0

0.8

1.3

1.1

0.9

0.9

P/BV

1.0

0.6

0.5

0.5

0.9

0.6

0.5

0.5

FCF Yield (%)

2.3

10.7

26.5

35.4

2.5

12.3

27.4

31.3

FV/EBITDA

Div Yield (%)

3.2

5.3

4.7

6.4

3.5

6.1

4.9

5.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.21

0.99

1.35

1.41

0.56

0.43

0.52

0.46

DPS

0.29

0.25

0.34

0.35

0.13

0.11

0.13

0.12

BVPS

8.52

9.12

10.13

11.19

3.64

3.58

3.82

3.62

PER SHARE DATA

109

Key Personnel: Carlos Eduardo Terepins (CEO) and Dany Muszkat (CFO and IR) Web: www.even.com.br/ri/

Launches (R$ in billions), 2012-15E 2.52

2.42 1.97

2.11

2015e

2016E (20) 0 65 415 (21) 435 (0) (81) (78) 8

Even is a vertically integrated real estate developer, involved in construction and brokerage operations. As it is one of the largest residential developers and building firms in the metropolitan region of São Paulo, the company has been expanding its operations to Rio de Janeiro, Minas Gerais, and Rio Grande do Sul, Brazil’s largest markets in terms of GDP. Although it is primarily focused on the mid-high/high-income segments, the company already operates in various income segments (from affordable and emerging to high-income, as well as commercial).

Contracted Sales (R$ in billions), 2012-15E 2.16

2.12 1.76 1.51

2015e

2015E (20) 0 (28) 306 (20) 326 (0) (88) (58) 8

FINANCIAL RATIOS

2016E 853 (11.4) 294 (10.9) 98 (11.2) 11.5 146 (11.1) 17.2 (9) (18) 108 (10.3) 12.7

2014e

2014E (27) 0 (133) 127 (9) 136 (0) (27) (67) (83)

LT Debt

2015E 962 2.1 330 2.0 111 11.7 11.5 165 9.1 17.1 (12) (20) 121 20.2 12.5

2014e

2013A (14) 0 (262) 35 (9) 44 1 246 (61) (23)

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,140 (11.3) 382 (6.6) 160 (26.8) 14.0 213 (17.4) 18.7 (37) (23) 131 0.3 11.5

2013

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2016E 2,597 3.8 896 4.3 300 4.0 11.5 445 4.0 17.2 (29) (53) 330 5.0 12.7

2013

2013A 2,459 (2.1) 823 3.1 345 (19.2) 14.0 459 (8.8) 18.7 (81) (50) 283 10.8 11.5

2015E 2,502 14.8 859 14.7 288 25.6 11.5 428 22.8 17.1 (31) (51) 314 35.3 12.5

US$ 2014E 943 (17.3) 324 (15.1) 99 (37.9) 10.5 151 (29.0) 16.0 (17) (21) 100 (23.4) 10.6

2012

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

R$ 2014E 2,180 (11.4) 749 (9.1) 229 (33.4) 10.5 349 (24.0) 16.0 (40) (48) 232 (18.0) 10.6

2012

Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Shareholder Structure, Current Board of Directors Executive Board 2.4% 6.2%

Free Float 91.4%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—CEMENT, CONSTRUCTION, INFRA & RE

EZTEC

BUY CURRENT PRICE: R$21.56 TARGET PRICE: R$27.00

INTRODUCING YE2015 TARGET PRICE OF R$27.00; REPLACING YE2014 TARGET PRICE OF R$35.80 

Investment Case: We maintain our positive view on EZTec,

Bruno Mendonca*

supported mainly by its: (i) solid execution, which should result in

Brazil: Banco Santander S.A. +5511-3012-5759 | [email protected]

robust and resilient profitability despite the challenging outlook for the sector; (ii) conservative capital structure, reflected in the company’s leverage, the lowest in the sector and on its way back to having a

Renan Manda* Brazil: Banco Santander S.A. +5511 3012-6535 | [email protected]

positive net cash position after receiving the last installment of Tower A from the EZTowers project in 1Q15; and (iii) attractive upside potential

to

be

captured,

according

to

our

DCF

analysis.

Consequently, we reiterate our Buy rating on the stock.



Outlook 2015: We believe EZTec should continue to post leading margins in the sector and enjoy significant cash generation in 2015, despite the challenging sector outlook.



Above-average profitability: EZTec is poised to continue posting above average profitability despite its conservative capital structure (-26% net debt/equity for YE2015). We estimate EZTec’s ROE to reach 19% for 2015 (compared with 20% for 2014E).



On its way back to net cash: 2015 should be marked by strong cash

Company Statistics

generation for EZTec, mainly on the collection of the last installment

Bloomberg

related to sale of Tower A from the EZTowers project as well as the

Current Price (01/02/15)

R$ 21.56 / US$ 8.01

Target Price (YE 2015)

R$ 27.00 / US$ 9.96

company’s efforts to sell finished inventory.



EZTC3 BZ

52-Week Range (R$)

19.40 - 28.69

Market Capitalization (US$ Mn)

1,175

Attractive valuation: In our view, EZtec’s industry-leading margins,

Float (%)

lowest leverage in the sector, and solid execution are not fully

3-Mth Avg. Daily Vol (US$ Mn)

3.5

Shares Outstanding - Mn

147

reflected on the stock price despite the premium valuation. The stock is currently trading at a 2015E P/BV of 1.2x, 70% above the sector average.

33.5

Price Performance (R$) EZTC3 BZ

IBOVESPA

130 120 110 100 90 80 70

j-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

110

d-14

EZTEC Company Description

2013A (2) 0 (231) 43 (74) 117 3 87 0 (37)

2014E (4) 0 (90) 113 (43) 156 1 38 0 (2)

2015E (4) 0 143 337 (41) 378 (0) (76) (53) 0

2016E (3) 0 3 166 (31) 197 (0) 0 (73) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 199 1,596 398 2,849 404 335 2,101 293 20

2014E 448 1,981 490 3,392 765 196 2,427 382 260

2015E 889 2,130 587 3,564 685 198 2,678 182 60

2016E 1,101 2,330 685 3,888 726 205 2,953 182 60

2013A 85 681 170 1,216 172 143 897 125 9

2014E 176 777 192 1,330 300 77 952 150 102

2015E 328 786 217 1,315 253 73 988 67 22

2016E 315 668 196 1,114 208 59 846 52 17

273

121

121

121

116

48

45

35

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E (222)

224

62

(578)

(775)

96

24

(213)

Capital Employed

2,204

2,364

1,974

2,037

941

927

728

584

Net Debt/EBITDA

0.4

0.1

(1.3)

(1.7)

0.4

0.1

(1.3)

(1.7)

Net Debt/Equity

0.1

0.0

(0.2)

(0.3)

0.1

0.0

(0.2)

(0.3)

Capex/Revenue (%)

14.0

11.3

11.3

10.6

14.0

11.3

11.3

10.6

Int Cover (%)

20.2

6.9

7.6

8.2

20.2

6.9

7.6

8.2

0.0

0.0

29.9

50.0

0.0

0.0

26.3

49.7

ROCE (%)

27.5

20.3

24.4

23.9

29.9

22.7

24.6

23.9

ROE (%)

31.2

20.5

19.6

19.5

31.9

21.9

19.6

19.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

7.3

6.9

6.3

5.8

6.7

6.1

6.2

7.4

P/CE

7.2

6.8

6.2

5.6

6.6

6.0

6.0

7.2

FV/EBITDA

7.9

7.5

5.9

5.4

7.2

6.6

5.7

7.4

FV/EBIT

7.8

7.2

5.6

5.1

7.1

6.4

5.5

7.1

FV/Revenue

4.0

3.7

2.7

2.4

3.6

3.2

2.7

3.2

P/BV

2.0

1.3

1.2

1.1

2.0

1.3

1.2

1.4 16.8

Dividend Payout (%)

MARKET RATIOS

FCF Yield (%)

5.9

11.4

31.4

21.5

6.4

12.9

32.2

(0.0)

(0.0)

4.4

7.9

(0.0)

(0.0)

4.5

6.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

3.99

3.17

3.42

3.75

1.85

1.35

1.30

1.09

DPS

0.95

0.95

1.71

1.87

0.44

0.40

0.65

0.54

14.32

16.54

18.25

20.13

6.11

6.49

6.74

5.77

Div Yield (%) PER SHARE DATA

BVPS

111

Key Personnel: Silvio Zarzur (CEO) and Antonio Emílio C. Fugazza (CFO and IR Director) Web: w

2013–16E Launches (R$ in billions)

1.92

1.07

1.08

1.20

2016e

2016E (10) 0 11 571 (108) 679 (0) 0 (251) 0

EZTec is a vertically integrated real estate developer (from construction to brokerage operations) with more than 30 years of industry experience. Although EZTec already operated in all different income segments (from low to high income), the company is currently focused on the mid-high/high-income segments, as well as commercial buildings, mainly in the metropolitan region of São Paulo. EZTec has been able to deliver such growth without decreasing its very high profitability levels since its IPO back in June 2007.

2013–16E Contracted Sales (R$ in billions) 1.61 1.26

1.33

0.90

2016e

2015E (10) 0 376 887 (107) 995 (0) (200) (139) 0

Net Debt

2016E 296 (18.1) 152 (21.3) 129 (23.0) 43.7 135 (22.7) 45.7 31 (6) 160 (16.2) 54.1

2015e

2014E (10) 0 (210) 265 (102) 366 2 89 0 (6)

FINANCIAL RATIOS

2015E 361 (5.8) 194 (9.2) 168 (10.3) 46.4 175 (10.5) 48.4 25 (9) 191 (4.0) 52.8

2015e

2013A (4) 0 (498) 92 (160) 252 7 189 0 (79)

LT Debt

2013A 528 63.2 281 57.9 266 67.1 50.3 269 65.4 50.9 16 (12) 272 57.9 51.4

2014e

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2016E 1,017 7.1 525 3.0 444 0.8 43.7 464 1.1 45.7 107 (22) 550 9.7 54.1

2014e

2013A 1,139 80.1 607 74.3 573 84.5 50.3 579 82.6 50.9 36 (26) 586 74.3 51.4

2015E 950 5.7 510 1.9 441 0.6 46.4 459 0.5 48.4 65 (22) 501 7.8 52.8

US$ 2014E 383 (27.4) 213 (24.2) 187 (29.6) 48.7 195 (27.4) 50.9 13 (9) 198 (26.9) 51.8

2013

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

R$ 2014E 898 (21.1) 500 (17.7) 438 (23.6) 48.7 457 (21.1) 50.9 31 (22) 465 (20.6) 51.8

2013

Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Shareholder Structure, Current

Free Float 33.5%

Controlling Shareholder s 66.5%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—PULP & FOREST PRODUCTS

FIBRIA

UNDERPERFORM CURRENT PRICE: R$32.30 TARGET PRICE: R$26.00



Investment Case: Capital allocation is an issue for investors, in our

Felipe Reis*

opinion. After a long period of successful deleveraging, we believe

Brazil: Banco Santander S.A. +5511-3012-5758 | [email protected]

the main use of the company’s excess cash generation in the upcoming years will be organic growth (with the Tres Lagoas II mill, capex of R$5.9 billion, output of 1.75 million tons/years, start-up by

Renato Maruichi*, CFA Brazil: Banco Santander S.A. +5511-3553-7149 | [email protected]

2H17). We do not view this favorably, as we believe that such investment does not result in a compelling return to shareholders. In the short term, however, we expect the stock to continue to benefit from strong earnings momentum. It is, indeed, a clear FX play, given its 100% USD top-line profile.



Outlook 2015: We expect Fibria’s 2015 results to be better than those in 2014, given a higher average pulp price and weaker BRL. We estimate EBITDA to increase by 14% YoY.



Our perception that the company will grow organically was strengthened after attending Fibria Investor Day in early December. The project feasibility studies are concluded and ready for board appraisal. We expect the board’s decision by the end of 1Q15. Additionally, we estimate 14% leveraged IRR for the possible

Company Statistics

Tres Lagoas II project, relative to a 17% cost of equity, which

Bloomberg

suggests to us that organic expansion does not add value to shareholders.

FIBR3 BZ / FBR US

Current Price (01/02/15)

R$ 32.30 / US$ 12.06

Target Price (YE 2015)

R$ 26.00 / US$ 8.30

52-Week Range (R$)

20.10 - 33.13

Market Capitalization (US$ Mn)



Short-term increase in pulp prices can be short-lived. We estimate capacity increases will outpace demand growth in the next

6,638

Float (%)

40.2

3-Mth Avg. Daily Vol (US$ Mn)

17.1

Shares Outstanding - Mn

553

three years (8% average growth relative to 3% demand increase). We note that unexpected capacity closures in the Northern Hemisphere can partially offset new supply in the Southern

Price Performance (R$) FIBR3 BZ

IBOVESPA

140

Hemisphere, providing support for occasional upward price trends 120

(as is currently occurring). Also, the stronger USD is expected to limit new rounds of pulp price increases is USD terms on a sustainable basis, in our view.

100

80

60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

112

D-14

FIBRIA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 6,917 12.0 1,535 63.8 2,797 24.1 40.4 1,710 141.9 24.7 (2,053) (354) (706) (45.6) (10.2)

R$ 2014E 7,035 1.7 1,448 (5.7) 2,659 (4.9) 37.8 1,723 0.8 24.5 (1,680) (51) (10) 98.6 (0.1)

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (1,862) 1,767 289 3,212 (1,286) 1,270 0 (2,095) 0 0

2014E (1,822) 1,567 63 3,442 (1,542) 709 0 (2,130) 0 0

2015E (1,963) 671 189 3,019 (1,455) 1,356 0 (879) 0 0

2016E (2,099) 733 (206) 2,831 (1,548) 1,132 0 (941) (50) 0

2013A (863) 819 134 1,489 (596) 589 0 (971) 0 0

2014E (775) 667 27 1,465 (656) 302 0 (906) 0 0

2015E (747) 255 72 1,148 (553) 516 0 (334) 0 0

2016E (743) 259 (73) 1,003 (548) 401 0 (333) (18) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 2,388 4,363 13,247 26,750 1,006 9,787 14,445 9,773 1,466

2014E 1,801 4,282 13,086 25,778 1,575 7,847 14,433 8,782 1,872

2015E 2,211 4,614 12,577 25,708 1,685 7,467 14,629 8,406 1,876

2016E 2,264 4,990 12,027 25,685 1,803 7,784 14,785 8,111 1,263

2013A 1,019 1,862 5,654 11,417 429 4,177 6,165 4,171 626

2014E 706 1,679 5,132 10,109 618 3,077 5,660 3,444 734

2015E 816 1,702 4,641 9,486 622 2,755 5,398 3,102 692

2016E 770 1,697 4,091 8,736 613 2,648 5,029 2,759 430

8,307

6,910

6,530

6,847

3,545

2,710

2,410

2,329

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

7,963

7,617

6,851

6,537

3,399

2,987

2,528

2,224

Capital Employed

22,408

22,050

21,481

21,322

9,564

8,647

7,927

7,252

Net Debt/EBITDA

2.8

2.9

2.3

2.0

2.6

2.6

2.2

1.9

Net Debt/Equity

0.6

0.5

0.5

0.4

0.6

0.6

0.5

0.4 18.4

LT Debt FINANCIAL RATIOS Net Debt

Capex/Revenue (%)

2015E 7,845 11.5 1,793 23.8 3,033 14.1 38.7 1,070 (37.9) 13.6 (778) (96) 196 n/m 2.5

2016E 8,424 7.4 1,959 9.3 3,289 8.4 39.0 1,190 11.2 14.1 (884) (100) 205 4.6 2.4

2013A 3,206 1.5 712 48.4 1,297 12.5 40.4 793 119.1 24.7 (952) (164) (327) (31.9) (10.2)

US$ 2014E 2,993 (6.6) 616 (13.4) 1,131 (12.7) 37.8 733 (7.5) 24.5 (715) (22) (4) 98.7 (0.1)

2015E 2,983 (0.3) 682 10.6 1,153 1.9 38.7 407 (44.5) 13.6 (296) (36) 75 n/m 2.5

2016E 2,984 0.0 694 1.8 1,165 1.0 39.0 421 3.6 14.1 (313) (35) 73 (2.5) 2.4

18.6

21.9

18.5

18.4

18.6

21.9

18.5

Int Cover (%)

2.1

2.7

6.8

7.7

2.1

2.7

6.8

7.7

Dividend Payout (%)

0.0

0.0

0.0

25.7

0.0

0.0

0.0

25.5

ROCE (%)

9.2

8.0

5.4

6.0

9.9

9.1

5.5

6.0

ROE (%) MARKET RATIOS P/E P/CE FV/EBITDA FV/EBIT

(4.8)

(0.1)

1.4

1.4

(4.8)

(0.1)

1.4

1.4

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E n/m

-

-

n/m

n/m

-

-

n/m

13.2

9.8

8.3

7.8

12.1

8.7

8.1

8.2

8.3

9.6

8.2

7.5

7.6

8.6

8.0

7.7

13.6

14.8

23.3

20.6

12.5

13.3

22.7

21.2

FV/Revenue

3.4

3.6

3.2

2.9

3.1

3.2

3.1

3.0

P/BV

1.1

1.2

1.2

1.2

1.0

1.2

1.2

1.3

FCF Yield (%)

8.3

4.0

7.6

6.3

9.1

4.5

7.7

6.0

Div Yield (%)

(0.0)

(0.0)

(0.0)

0.3

(0.0)

(0.0)

(0.0)

0.3

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

(1.28)

(0.02)

0.35

0.37

(0.95)

(0.01)

0.26

0.28

DPS

0

0

0

0.09

0

0

0

0.07

26.11

26.09

26.44

26.72

19.40

19.38

19.65

19.85

BVPS

113

Fibria is the world’s largest market pulp producer, with 5.3 million tons/year capacity. As of 2013 exports represented 91% of the company’s total sales. Fibria has only voting stock and is listed on the Bovespa’s Novo Mercado as well as on the NYSE. The company is jointly controlled by BNDESpar and the Votorantim Group, which hold 30% and 29% of the company’s stock, respectively.

Key Personnel: Jose Luciano Penido (Chairman), Marcelo Castelli (CEO), Guilherme Cavalcanti (CFO) and Andre Luiz Gonçalves (IR Manager) Web: www.fibria.com.br

Revenue by Product, 2013

Others 1.1%

Pulp 98.9%

Revenue by Destination, 2013

Domestic 9.0%

Exports 91.0%

Shareholder Structure, Current

Free Float 40.2% BNDESPar 30.4%

Votorantim Group 29.3%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—HEALTH CARE

FLEURY

HOLD CURRENT PRICE: R$16.00 TARGET PRICE: R$18.00

INTRODUCING YE2015 TARGET PRICE OF R$18.00; REPLACING YE2014 TARGET PRICE OF R$21.00 

Investment Case: We believe that Fleury’s earnings momentum will

Bruno Giardino*, CFA

improve in 2015, after the downsizing of the Rio de Janeiro operation

Brazil: Banco Santander S.A. +5511-3012-5914 | [email protected]

and management’s decision to focus on its premium Fleury brand. We estimate Fleury will deliver a solid 2014-17 EPS CAGR of 19%, complemented by a 2015E dividend yield of 5%. While Fleury’s

Daniel Gewehr* Brazil: Banco Santander S.A. +5511-3012-5787 | [email protected]

strategic value should limit potential downside, in our view, the current share price limits further significant upside potential.



Outlook 2015: We forecast that the company will deliver EBITDA and EPS growth of 22% and 39%, respectively, stemming from a combination of 10% top-line growth and a 200-bp EBITDA margin expansion. FLRY3 shares are trading at an attractive adjusted 2015E P/E of 12.5x. We note that, per our projections, Fleury should pay no taxes over taxable income, boosting its free cash flow.



Bargain power gradually shifting toward providers. The high capacity utilization of Brazilian private healthcare system, coupled with regulatory actions to improve the relationship among payers and providers, have attenuated the bargaining power of payers toward suppliers. This change should favor the pass-through of inflation over

Company Statistics

test prices, which we see as key to the sustainability of the

Bloomberg

diagnostics industry’s operating profits.



FLRY3 BZ

Current Price (01/02/15)

R$ 16.00 / US$ 5.94

Target Price (YE 2015)

R$ 18.00 / US$ 6.64

52-Week Range (R$)

13.40 - 20.00

Margin expansion prospects seem clear. Margin expansion, which

Market Capitalization (US$ Mn)

929

we think is a top priority for management, should result from the

Float (%)

39.9

following factors, in our view: (i) continued optimization of costs and

3-Mth Avg. Daily Vol (US$ Mn)

1.4

Shares Outstanding - Mn

156

expenses; (ii) increasing weight of premium brands in total revenue; and (iii) further pricing repositioning for regional brands in the top

Price Performance (R$) FLRY3 BZ

intermediary segment.

IBOVESPA

110 100



We welcome the expansion plan’s focus on premium brands,

90

considering their higher returns. Management expects to open four

80

new Fleury brand units in 2015-16 (in addition to the expansion of

70

existing units), adding ~8,000 m2 of store area (+8% vs. 3Q14).

60

Management sees room to open new stores of regional brands as

50

well, though we expect them to be of a smaller size.

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

114

D-14

FLEURY Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 1,657 10.3 372 (7.8) 278 (11.6) 16.8 170 (21.0) 10.2 (58) (50) 61 (42.6) 3.7

R$ 2014E 1,683 1.6 402 8.1 320 15.1 19.0 206 21.5 12.2 (52) (59) 95 55.1 5.6

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (109) 79 (140) 109 (165) (56) 419 (84) 0

2014E (114) 47 (79) 177 (131) 47 (2) (191) 0

2015E (122) 0 (29) 226 (195) 31 0 (125) 0

2016E (129) 0 (45) 240 (123) 117 0 (148) 0

2013A (50) 37 (65) 50 (76) (26) 194 (39) 0

2014E (49) 20 (34) 76 (56) 20 (1) (81) 0

2015E (47) 0 (11) 86 (74) 12 0 (48) 0

2016E (46) 0 (16) 85 (43) 41 0 (52) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 540 1,055 1,997 3,211 260 1,278 1,689 1,010 83

2014E 448 968 2,009 3,167 250 1,338 1,595 1,004 80

2015E 421 984 2,082 3,255 263 1,406 1,601 1,004 80

2016E 471 1,098 2,075 3,364 284 1,486 1,609 1,004 80

2013A 230 450 852 1,371 111 546 721 431 35

2014E 176 379 788 1,242 98 525 625 394 31

2015E 155 363 768 1,201 97 519 591 370 29

2016E 160 374 706 1,144 97 505 547 341 27

LT Debt FINANCIAL RATIOS Net Debt

2015E 1,853 10.1 480 19.3 390 21.8 21.0 267 29.8 14.4 (68) (68) 132 39.0 7.1

2016E 2,048 10.5 535 11.5 431 10.5 21.0 302 12.8 14.7 (66) (80) 156 18.0 7.6

2013A 768 (0.1) 172 (16.4) 129 (19.9) 16.8 79 (28.4) 10.2 (27) (23) 28 (48.0) 3.7

US$ 2014E 717 (6.7) 171 (0.6) 136 5.7 19.0 88 11.7 12.2 (22) (25) 40 42.5 5.6

2015E 705 (1.7) 182 6.5 148 8.7 21.0 102 15.9 14.4 (26) (26) 50 24.1 7.1

2016E 725 2.9 189 3.8 152 2.8 21.0 107 5.0 14.7 (23) (28) 55 9.9 7.6

927

924

924

924

396

362

341

314

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

470

556

582

533

201

218

215

181

Capital Employed

2,159

2,150

2,183

2,142

921

843

806

728

Net Debt/EBITDA

1.7

1.7

1.5

1.2

1.6

1.6

1.4

1.2

Net Debt/Equity

0.3

0.3

0.4

0.3

0.3

0.4

0.4

0.3

Capex/Revenue (%)

9.9

7.8

10.5

6.0

9.9

7.8

10.5

6.0

Int Cover (%)

3.2

2.9

3.0

3.2

3.2

2.9

3.0

3.2

Dividend Payout (%)

78.9

312.4

132.0

112.1

71.4

286.5

116.2

111.4

ROCE (%)

10.2

12.3

15.4

17.8

10.9

13.6

15.4

17.8

3.6

5.8

8.2

9.7

3.7

6.1

8.2

9.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

ROE (%) MARKET RATIOS P/E

47.0

26.8

19.0

16.1

43.0

23.7

18.5

16.9

P/CE

16.9

12.2

9.8

8.8

15.5

10.8

9.6

9.2

FV/EBITDA

12.0

9.7

7.9

7.0

11.0

8.6

7.7

7.3

FV/EBIT

19.7

15.0

11.5

10.1

18.1

13.4

11.2

10.4

2.0

1.8

1.7

1.5

1.8

1.6

1.6

1.5 1.7

FV/Revenue P/BV

1.7

1.6

1.6

1.6

1.7

1.5

1.6

(1.9)

1.8

1.2

4.7

(2.1)

2.1

1.3

4.5

2.9

7.5

5.0

5.9

3.2

8.5

5.1

5.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.39

0.61

0.84

1.00

0.18

0.26

0.32

0.35

DPS

0

0.58

0.80

0.95

0

0.25

0.30

0.33

10.81

10.20

10.24

10.29

4.61

4.00

3.78

3.50

FCF Yield (%) Div Yield (%) PER SHARE DATA

BVPS

115

Fleury S.A. is the second-largest private medical diagnostic services provider in Brazil, with 6 brands and 153 patient service centers (PSC) as of September, 2014, distributed in 6 states of the national territory. The company was founded in 1926. Since 2002, it has acquired 28 companies – Labs D’Or, acquired in July 2011, was the most sizable acquisition in Fleury’s history, representing close to half of its revenue the year it was acquired. In 2012, it processed more than 50 million diagnostics tests. The company is listed on the Novo Mercado, the highest level of corporate governance classification of the BM&F Bovespa stock exchange.

Key Personnel: Carlos Marinelli (CEO), Adolpho Souza Neto (CFO) and João Patah (IR Officer) Web: www.fleury.com.br

Sales per Segment, 9M14

Hospitals 13.9%

Others 2.6%

PSC 83.5%

PSC Tests per Type, 9M14

Imaging 46.8%

Clinical 53.2%

Shareholder Structure, Current

Free-float 39.9%

Founders (Direct Ownership) Core + 2.5% Bradseg 10.9%

Integritas (Core + Bradseg) 46.7%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—CONGLOMERATES & INDUSTRIALS

FRAS-LE

BUY CURRENT PRICE: R$4.10 TARGET PRICE: R$6.00



Investment Case: Check the Brakes and Speed Up. Fras-le is the largest brake-lining producer worldwide and is the leader in both the aftermarket and OEM markets in Brazil. We see the company as a less cyclical player in the automotive universe (76% of revenue in the aftermarket), and considering its positive FX exposure (45% of sales are international), we believe it is well positioned to benefit from (1) organic growth—2013-16E CAGR of ~10% for EBITDA and 15% for EPS, and (2) a maturing cycle of recent investments (sustaining ROE expansion in upcoming years, reaching the 17% level in the medium term). Fras-le trades at a 2015E P/E of 9.7x—a 20% discount to its Brazilian peers— offering a 9% FCFE yield in 2015E and 46% DCF upside.



Resilient market share leadership. The company's high ~90% OEM market share in brake linings and ~17% in brake pads offers an edge in the high-margin aftermarket. OEM suppliers are perceived as benchmarks, commanding premium prices.



A less cyclical and more diversified player with positive FX exposure. Fras-le is exposed to a diversified set of revenue drivers, a feature that reduces volatility in results. By segment, aftermarket represents 76% of sales; by geography, the International operation amounts to 45% of sales. With its power of diversification, Fras-le has never posted an annual loss in its 60 years of operation. Our economics team forecasts the BRL at R$2.71 at YE2015, which we believe should benefit Fras-le's growth and margins outlook.



Attractive earnings outlook and valuation. We forecast net sales, EBITDA, and net income 2013-16E CAGRs of 9%, 10%, and 15%. Fras-le is part of Randon Group, which bolsters its growth outlook, in our view. Earnings power: at current prices Fras-le prices -1.3% real growth in perpetuity.

Daniel Gewehr* Brazil: Banco Santander S.A. +5511-3012-5787 | [email protected]

Joao Noronha*, CFA Brazil: Banco Santander S.A. +5511-3012-5734 | [email protected]

Company Statistics Bloomberg

FRAS3 BZ

Current Price (01/02/15)

R$ 4.10 / US$ 1.52

Target Price (YE 2015)

R$ 6.00 / US$ 2.21

52-Week Range (R$)

3.40 - 6.43

Market Capitalization (US$ Mn)

190

Float (%)

53.8

3-Mth Avg. Daily Vol (US$ Mn)

0.1

Shares Outstanding - Mn

125

Price Performance (R$) FRAS3 BZ

IBOVESPA

350 300





Simplifying product portfolio: 80/20 method. New management is focusing on portfolio profitability, reducing exposure to lowvolume/low-return lines (e.g., reducing brake pad SKUs by ~20%).

250 200 150 100

A consolidation player in the brake market. We consider acquisitions a free option that could add ~11% to our valuation (e.g., adding R$200 million in revenue in 2016-17 raises our YE2015 target price to R$6.70). 116

50

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

D-14

FRAS-LE Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 717 8.2 195 16.0 106 24.9 14.7 67 33.5 9.4 (17) (10) 40 61.7 5.6

R$ 2014E 765 6.6 203 4.2 103 (2.8) 13.4 66 (2.8) 8.6 (10) (11) 44 10.8 5.8

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (37) 0 (22) 84 30 167 (36) (12) 0

2014E (37) 0 (27) 76 (37) 53 3 (16) 0

2015E (37) 0 (24) 97 (35) 46 0 (16) 0

2016E (42) 0 (22) 116 (35) 61 0 (18) 0

2013A (17) 0 (10) 39 14 78 (17) (6) 0

2014E (16) 0 (12) 32 (16) 23 1 (7) 0

2015E (14) 0 (9) 37 (13) 17 0 (6) 0

2016E (15) 0 (8) 41 (12) 22 0 (6) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 236 503 394 934 730 30 395 409 75

2014E 258 525 389 950 761 31 423 399 94

2015E 287 584 387 1,006 817 31 460 412 97

2016E 333 663 379 1,078 886 31 502 431 101

2013A 101 214 168 399 311 13 169 174 32

2014E 101 206 153 372 299 12 166 156 37

2015E 106 216 143 371 301 11 170 152 36

2016E 113 226 129 367 301 11 171 147 34

LT Debt

2015E 830 8.5 231 13.5 121 17.9 14.6 84 28.2 10.1 (14) (17) 53 18.8 6.3

2016E 923 11.3 259 12.3 138 14.1 15.0 96 14.5 10.4 (16) (19) 60 13.9 6.5

2013A 332 (2.0) 90 5.1 49 13.2 14.7 31 21.0 9.4 (8) (5) 19 46.5 5.6

US$ 2014E 326 (1.8) 87 (4.1) 44 (10.5) 13.4 28 (10.5) 8.6 (4) (5) 19 2.0 5.8

2015E 315 (3.3) 88 1.1 46 5.1 14.6 32 14.2 10.1 (5) (6) 20 5.8 6.3

2016E 327 3.6 92 4.5 49 6.2 15.0 34 6.6 10.4 (6) (7) 21 6.1 6.5

334

305

316

330

143

120

116

112

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

172

141

125

98

74

55

46

33

Capital Employed

568

566

587

603

243

222

217

205

Net Debt/EBITDA

1.6

1.4

1.0

0.7

1.5

1.3

1.0

0.7 0.2

FINANCIAL RATIOS

Net Debt/Equity

0.4

0.3

0.3

0.2

0.5

0.4

0.3

(4.2)

4.8

4.2

3.8

(4.2)

4.8

4.2

3.8

1.1

1.6

3.8

4.1

1.1

1.6

3.8

4.1

Dividend Payout (%)

49.6

41.1

35.6

34.2

44.9

37.7

31.4

34.0

ROCE (%)

13.6

13.5

17.1

19.2

14.7

15.0

17.2

19.2

Capex/Revenue (%) Int Cover (%)

ROE (%)

10.5

10.8

11.9

12.5

10.7

11.5

11.9

12.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

20.1

11.6

9.7

8.5

18.4

10.2

9.5

9.0

P/CE

10.4

6.3

5.7

5.0

9.5

5.5

5.6

5.3

MARKET RATIOS

FV/EBITDA

9.3

6.4

5.3

4.4

8.5

5.7

5.2

4.6

14.5

10.0

7.6

6.4

13.3

8.9

7.4

6.6

FV/Revenue

1.4

0.9

0.8

0.7

1.2

0.8

0.8

0.7

P/BV

2.0

1.2

1.1

1.0

2.0

1.2

1.1

1.1

FCF Yield (%)

20.8

10.4

8.9

12.0

22.8

11.8

9.2

11.4

Div Yield (%)

1.5

3.2

3.1

3.5

1.7

3.6

3.2

3.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.32

0.35

0.42

0.48

0.15

0.15

0.16

0.17

DPS

0.11

0.09

0.13

0.14

0.05

0.04

0.05

0.05

BVPS

3.16

3.39

3.68

4.02

1.35

1.33

1.36

1.37

FV/EBIT

PER SHARE DATA

117

Fras-le, a subsidiary of Randon Group, is a global leader as a manufacturer and producer of friction materials, for commercial and light vehicles. Its portfolio is composed of: (a) brake linings (commercial vehicles), totaling 57% of revenues; (b) pads and brake shoes (light vehicles), totaling 28% of revenues; (c) hydraulic brakes and polymer solution products for light vehicles, comprising 10% of sales; and (d) and other friction materials, adding the remaining 5% of the company’s revenue. Currently the company operates with four industrial units, seven commercial units and three distribution centers around the globe. In 2013, Fras-le revenue totaled R$717 million and net income R$40 million.

Key Personnel: Pedro Ferro (CEO) and Vanderlei Novello (IR Director) Web: http://www.frasle.com

Revenue Breakdown by Vehicle Segment, 2013

Controil 10.0%

Other 5.0%

Light Vehicle 28.0%

Heavy Vehicle 57.0%

Revenue Breakdown by Market, 2013

OEM 21.1%

Aftermarket 78.9%

Shareholder Structure, Current

Others 53.7%

Randon 46.3%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—METALS & MINING

GERDAU

BUY CURRENT PRICE: R$9.11 TARGET PRICE: R$16.00

UPGRADING RATING TO BUY FROM HOLD 

Investment Case: In spite of the lackluster economic scenario for

Felipe Reis*

Brazil in the near future, we think Gerdau continues to be the best

Brazil: Banco Santander S.A. +5511-3012-5758 | [email protected]

option for investing in the Brazil steel space, given (1) its positive exposure to the U.S. market, at least mitigating the weakness in Brazil operations, and (2) its lower exposure to iron ore as a business

Renato Maruichi*, CFA Brazil: Banco Santander S.A. +5511-3553-7149 | [email protected]

line relative to its main peers.



Outlook 2015: The year will be challenging for the steelmakers, and, despite Gerdau’s relatively lower exposure to the sluggish domestic market, the company will not remain unscathed. Indeed, the main macro indicators closely linked to the long steel segment— such as (i) disposable income; (ii) individual leverage and interest rates; and (iii) inflation—give no indications of an inflection point. SindusCon-SP (Sindicato da Indústria da Construção Civil do Estado de São Paulo), an independent entity in the real estate sector, projects a 1.5% drop in steel production in 2015. Accordingly, we estimate R$4.98 billion EBITDA for 2015, +11.6% YoY.



GNA improves, but we expect performance at Gerdau Brazil to remain sluggish. With expansion in the metallic spread due to

Company Statistics

selling prices, we estimate GNA will continue showing operating

Bloomberg

performance improvement in the upcoming quarters (EBITDA

GGBR4 BZ

Current Price (01/02/15)

R$ 9.11 / US$ 3.38

Target Price (YE 2015)

R$ 16.00 / US$ 6.04

margins in the high single digits due to volume and price increases).

52-Week Range (R$)

However, we expect Gerdau Brazil’s performance to remain weak,

Market Capitalization (US$ Mn)

with the company currently operating at 70% capacity and tough competition from imports. Indeed, according to CNI, expectations for civil construction companies for the next six months have been revisiting recent historical lows.

8.12 - 18.11 5,768

Float (%)

57.8

3-Mth Avg. Daily Vol (US$ Mn)

24.5

Shares Outstanding - Mn

1,704

Price Performance (R$) GGBR4 BZ

IBOVESPA

A-13

A-14

110



Iron ore outlook freezes capacity expansion: At current

100

commodity prices, the iron ore expansion project targeting 16 million

90 80

tons by 2016 has been revised and production is focused only on

70

self-sufficiency, since the company’s iron ore breakeven is around

60

US$80 per ton.

50 40

J-13

M-13

D-13

A-14

Sources: FactSet, Santander estimates and company reports.

118

D-14

GERDAU Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 39,863 5.0 5,135 8.2 4,731 13.5 11.9 2,700 15.4 6.8 (1,302) 241 1,584 11.1 4.0

R$ 2014E 43,898 10.1 5,012 (2.4) 4,460 (5.7) 10.2 2,274 (15.8) 5.2 (1,321) (149) 798 (49.6) 1.8

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (2,031) 0 116 3,731 (2,584) (264) 0 0 (476) 0

2014E (2,186) 0 (463) 2,522 (2,296) 344 0 0 (234) 0

2015E (2,298) 0 (979) 2,918 (2,400) 241 0 0 (432) 0

2016E (2,422) 0 (670) 3,580 (2,400) 894 0 0 (494) 0

2013A (942) 0 54 1,730 (1,198) (123) 0 0 (221) 0

2014E (936) 0 (198) 1,080 (983) 147 0 0 (100) 0

2015E (884) 0 (377) 1,122 (923) 93 0 0 (166) 0

2016E (897) 0 (248) 1,326 (889) 331 0 0 (183) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 4,222 18,177 21,419 58,215 5,398 20,796 30,339 16,707 0

2014E 4,831 19,986 21,122 59,646 6,136 21,771 30,028 17,542 0

2015E 4,220 21,053 21,224 62,019 6,834 22,279 31,196 17,763 0

2016E 4,171 22,105 21,202 64,298 7,266 22,791 32,530 17,980 0

2013A 1,802 7,759 9,143 24,851 2,304 8,877 12,951 7,132 0

2014E 1,894 7,838 8,283 23,390 2,406 8,538 11,776 6,879 0

2015E 1,593 7,944 8,009 23,404 2,579 8,407 11,772 6,703 0

2016E 1,517 8,038 7,710 23,381 2,642 8,288 11,829 6,538 0

LT Debt

16,707

17,542

17,763

17,980

7,132

6,879

6,703

6,538

2015E 51,109 16.4 5,646 12.7 4,979 11.6 9.7 2,682 17.9 5.2 (736) (400) 1,599 100.3 3.1

2016E 54,248 6.1 6,146 8.9 5,411 8.7 10.0 2,990 11.5 5.5 (765) (457) 1,828 14.3 3.4

2013A 18,485 (4.9) 2,381 (2.0) 2,194 2.9 11.9 1,252 4.6 6.8 (604) 112 734 0.7 4.0

US$ 2014E 18,795 1.7 2,146 (9.9) 1,910 (13.0) 10.2 974 (22.2) 5.2 (566) (64) 342 (53.5) 1.8

2015E 19,657 4.6 2,172 1.2 1,915 0.3 9.7 1,031 5.9 5.2 (283) (154) 615 80.0 3.1

2016E 20,094 2.2 2,277 4.8 2,004 4.7 10.0 1,107 7.4 5.5 (283) (169) 677 10.1 3.4

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

12,484

12,711

13,543

13,809

5,329

4,985

5,111

5,021

Capital Employed

35,198

34,841

35,720

36,608

15,025

13,663

13,479

13,312

Net Debt/EBITDA

2.6

2.8

2.7

2.6

2.4

2.6

2.7

2.5

Net Debt/Equity

0.4

0.4

0.4

0.4

0.4

0.5

0.4

0.4

Capex/Revenue (%)

6.5

5.2

4.7

4.4

6.5

5.2

4.7

4.4

Int Cover (%)

4.5

3.9

4.9

5.3

4.5

3.9

4.9

5.3

33.4

14.8

54.1

30.9

30.3

13.5

47.6

30.7

7.0

7.0

8.6

9.4

7.7

7.8

8.7

9.4

Dividend Payout (%) ROCE (%) ROE (%) MARKET RATIOS P/E P/CE FV/EBITDA

5.5

2.6

5.2

5.7

5.6

2.8

5.2

5.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

19.7

20.5

9.7

8.5

18.0

18.0

9.4

8.5

8.6

5.5

4.0

3.7

7.9

4.8

3.8

3.7

9.6

6.7

6.0

5.6

8.8

6.0

5.8

5.5

16.8

13.2

11.2

10.1

15.4

11.8

10.9

10.0

FV/Revenue

1.1

0.7

0.6

0.6

1.0

0.6

0.6

0.6

P/BV

1.0

0.5

0.5

0.5

1.0

0.5

0.5

0.5

FV/EBIT

FCF Yield (%) Div Yield (%) PER SHARE DATA

(0.8)

2.1

1.6

5.8

(0.9)

2.4

1.6

5.7

1.5

1.4

2.8

3.2

1.7

1.6

2.9

3.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.93

0.47

0.94

1.07

0.43

0.20

0.36

0.40

DPS

0.28

0.14

0.25

0.29

0.13

0.06

0.10

0.11

17.80

17.62

18.30

19.09

7.60

6.91

6.91

6.94

BVPS

Gerdau has a total annual crude steel production capacity of 26 million tons and an annual rolling capacity of 22 million tons (including recent acquisitions), which makes the company the largest long steel producer in the Americas and the eleventh largest steelmaker in the world. Besides Brazil, Gerdau also operates in the U.S., Canada, Uruguay, Argentina, Chile, Colombia, Mexico, India, Venezuela, and Spain, offering a broad range of long steel products such as rebars, billets, blooms, merchant bars, profiles, drawn, and specialty steel products, mainly to the civil construction and manufacturing segments. Gerdau is controlled by Metalúrgica Gerdau, which owns 76% of the company’s voting shares and 45% of its total capital. Metalúrgica Gerdau is a listed holding company controlled by the Gerdau family. Gerdau shares are listed on the stock exchanges in São Paulo, New York, Toronto, and Madrid.

Key

Personnel: Jorge Gerdau Johannpeter (Chairman), André Gerdau Johannpeter (CEO), Andre Pires (CFO), Tarcisio Beuren (IR Manager) and Harley Scardoelli (Financial Director) Web: www.gerdau.com.br Revenue by Division, 2013

Latam (exBrazil) 14.0%

Specialty Steel 14.0%

Brazil 39.0%

North America 33.4%

EBITDA by Division, 2013

Latam (exBrazil) 7.0%

Specialty Steel 19.0%

North America 11.0%

Brazil 63.0%

Shareholder Structure, Current

Free Float 40.7%

ADR's 17.1%

Gerdau Family 1.9%

Metalurgica Gerdau 40.3%

Sources for all charts and tables: Company reports and Santander estimates.

119

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—TRANSPORTATION

GOL

BUY CURRENT PRICE: R$15.18 TARGET PRICE: R$18.00

UPGRADING RATING TO BUY FROM HOLD INTRODUCING YE2015 TARGET PRICE OF R$18.00; REPLACING YE2014 TARGET PRICE OF R$14.00 

Investment Case: Oil prices (Brent) declined ~50% since June and

Bruno Amorim*, CFA

we believe this will result in significant upside for the airlines sector,

Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

as 35-41% of its costs are jet fuel related. Moreover, we continue to highlight Brazilian sector players’ strategy of rationalizing capacity in order to improve unit revenue (PRASK). In our view, the recent BRL

Pedro Balcão Reis* Brazil: Banco Santander S.A. +5511-3012-5765 | [email protected]

depreciation (~15% in 2014) will pressure costs but will not offset the jet fuel cost improvement. With the stock trading at ~7.5x 2015E EV/EBITDAR, we believe the current stock price does not reflect the profitability improvement we forecast for 2015.



Outlook 2015: We expect Gol’s prudent capacity allocation to continue in 2015 (flat domestic ASKs). In addition, we anticipate RPKs +3% YoY, suggesting a 78.4% load factor (+1.3 p.p. YoY). Flat yields (+1% YoY, in-line with 2014E) and +3% in RPKs should lead to a 4% YoY increase in RASK, in our view. Assuming flat FX (at 2.65 BRL/USD), the average exchange rate (USD/BRL) in 2015 would be 12% lower YoY. This would result in a higher ex fuel-CASK (+6% YoY), offset by the fall in jet fuel CASK (-7%, based on an average Brent of US$75/bbl), leading to flat consolidated CASK (+1%). With RASK +4% and CASK +1%, we forecast an EBIT margin of 7.7%, 2.4 p.p. higher YoY.



GOLL4 BZ / GOL US

Current Price (01/02/15)

R$ 15.18 / US$ 5.75

Target Price (YE 2015)

R$ 18.00 / US$ 7.00

BRL/USD is a negative . . . The main risk we anticipate for Gol is FX

52-Week Range (R$)

exposure (~55-60% of costs and ~90% of debt are US$-linked), as

Market Capitalization (US$ Mn)

our macroeconomic team forecasts ~12% depreciation of the BRL in



Company Statistics Bloomberg

9.29 - 15.25 1,560

Float (%)

35.0

3-Mth Avg. Daily Vol (US$ Mn)

7.5

2015 (full year average).

Shares Outstanding - Mn

277

. . . more than offset by jet fuel: About 41% of Gol’s costs are

Price Performance (R$)

related to jet fuel costs; therefore, every 10% fall in jet fuel price,

GOLL4 BZ

IBOVESPA

120

ceteris paribus, implies a ~4 p.p. increase in margins. We expect Gol 100

to deliver ~5% EBIT margin in 2014. Even if we incorporate 12% depreciation, if oil prices remain at current levels, jet fuel price in BRL terms would fall by ~40% in 2015E.

80

60

40

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

120

D-14

GOL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDAR YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 8,956 10.5 1,526 491.4 17.0 266 n/m 3.0 (923) (71) (77) 90.7 (0.9)

R$ 2014E 9,986 11.5 1,865 22.2 18.7 525 97.4 5.3 (1,005) (58) 67 n/m 0.7

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (561) 201 (12) (736) (254) 494 (96) (21) 1,098

2014E (480) (140) (236) (651) (549) 338 318 21 (1,098)

2015E (461) (168) 439 (591) 119 270 (530) 0 0

2016E (484) 22 615 (569) 416 370 (197) 0 0

2013A (260) 93 (6) (341) (118) 229 (44) (10) 509

2014E (205) (60) (101) (278) (234) 144 135 9 (468)

2015E (175) (64) 167 (225) 45 103 (202) 0 0

2016E (171) 8 218 (201) 147 131 (70) 0 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 3,046 3,566 5,466 10,638 3,447 7,192 1,219 10,484 441

2014E 2,975 3,421 5,330 10,610 4,329 6,281 315 12,262 1,229

2015E 2,563 3,248 5,460 10,566 4,398 6,168 462 12,715 1,229

2016E 2,783 3,543 5,544 10,945 4,495 6,450 571 13,665 1,229

2013A 1,300 1,522 2,333 4,541 1,471 3,069 520 4,475 188

2014E 1,166 1,342 2,090 4,161 1,698 2,463 124 4,808 482

2015E 946 1,198 2,015 3,899 1,623 2,276 170 4,692 454

2016E 947 1,205 1,886 3,723 1,529 2,194 194 4,648 418

5,149

5,016

4,756

4,929

2,197

1,967

1,755

1,677

LT Debt FINANCIAL RATIOS

2015E 10,483 5.0 2,235 19.8 21.3 812 54.7 7.7 (590) (76) 325 383.6 3.1

2016E 11,373 8.5 2,404 7.6 21.1 847 4.3 7.4 (682) (56) 353 8.6 3.1

2013A 4,151 0.1 707 435.8 17.0 123 n/m 3.0 (428) (33) (36) 91.6 (0.9)

US$ 2014E 4,261 2.7 796 12.5 18.7 224 81.8 5.3 (429) (25) 29 n/m 0.7

2015E 3,986 (6.5) 850 6.8 21.3 309 37.8 7.7 (224) (29) 124 330.9 3.1

2016E 4,026 1.0 851 0.2 21.1 300 (2.9) 7.4 (241) (20) 125 1.1 3.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

7,438

9,287

10,152

10,882

3,175

3,642

3,746

3,701

Capital Employed

6,041

5,327

5,625

5,687

2,578

2,089

2,076

1,935

Net Debt/EBITDAR

4.9

5.0

4.5

4.5

4.5

4.6

4.4

4.3

Net Debt/Equity

6.1

29.5

22.0

19.1

6.7

33.3

22.0

19.1

Capex/Revenue (%)

8.2

6.5

5.6

5.0

8.2

6.5

5.6

5.0

Int Cover (%)

2.9

3.2

3.6

3.8

2.9

3.2

3.6

3.8

(2.5)

27.4

0.0

0.0

(2.3)

25.1

0.0

0.0

3.6

7.1

10.3

10.6

4.1

8.5

10.4

10.6

(7.9)

8.8

83.7

68.4

(8.2)

9.0

83.4

68.4

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Dividend Payout (%) ROCE (%) ROE (%) MARKET RATIOS P/E

-

n/m

12.7

11.7

-

n/m

12.5

12.3

P/CE

6.0

7.7

5.3

5.0

5.5

6.8

5.2

5.2

FV/EBITDAR

8.8

8.7

7.6

7.4

8.8

8.7

7.6

7.4 17.5

FV/EBIT

38.9

25.7

17.6

17.7

35.7

23.3

17.1

FV/Revenue

1.2

1.4

1.4

1.3

1.1

1.2

1.3

1.3

P/BV

2.4

13.3

9.0

7.3

2.4

12.8

9.0

7.9

(8.8)

(13.1)

2.9

10.0

(9.6)

(14.8)

2.9

9.6

0.7

(0.5)

(0.0)

(0.0)

0.8

(0.6)

(0.0)

(0.0)

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

(0.28)

0.24

1.18

1.28

(0.26)

0.21

0.89

0.90

DPS

0.08

(0.08)

0

0

0.07

(0.07)

0

0

BVPS

4.40

1.14

1.67

2.06

4.08

0.97

1.27

1.46

FCF Yield (%) Div Yield (%)

121

Gol Linhas Aereas Inteligentes S.A. operates as a lowcost, low-fare airline in Latin America. It offers approximately 900 daily flights to several destinations connecting various cities in Brazil, as well as destinations in Argentina, Barbados, Bolivia, Chile, Paraguay, Uruguay, Venezuela, and the Caribbean. The company also provides cargo transportation and charter flight services. The company was founded in 2001 and is based in Sao Paulo, Brazil.

Key Personnel: Paulo Kakinoff (CEO), Edmar Prado Lopes (CFO) and Eduardo Masson (IR Director) Web: www.voegol.com.br

CASK Breakdown, 2013E

CASK fuel 41.5%

CASK exfuel 58.5%

Net Revenue Breakdown, 2013E Cargo and other 9.3%

Passenger 90.7%

Shareholder Structure Fundo de Invest. em Part. Volluto 23.0% Free Float 55.2%

Delta Airlines 6.2%

Wellington 10.5% Fidelity 5.2%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—CEMENT, CONSTRUCTION, INFRA & RE

HELBOR

HOLD CURRENT PRICE: R$4.57 TARGET PRICE: R$5.65

DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF R$5.65; REPLACING YE2014 TARGET PRICE OF R$11.20 

Investment Case: Helbor is the sole pure-play developer in the

Bruno Mendonca*

sector and stands out for its solid execution, being one of the few

Brazil: Banco Santander S.A. +5511-3012-5759 | [email protected]

companies that was able to successfully implement its geographical expansion while keeping its operations on track. However, we see its premium valuation as fairly priced in, and thus we are downgrading

Renan Manda* Brazil: Banco Santander S.A. +5511 3012-6535 | [email protected]

the stock to Hold from Buy.



Outlook 2015: We expect 2015 to be another transition year for the homebuilders in Brazil. The macro scenario should remain challenging for the sector, in our view, with the combination of low expected GDP growth and inflationary pressure leading consumers and investors to remain cautious. Although we expect Helbor’s distinct expertise and financial strength to allow a smooth transition, the bottom of the macroeconomic cycle may still be ahead, and a stronger recovery in profitability will likely take more than a few quarters, in our view.



A differentiated business model . . . Unlike most of the listed homebuilders, Helbor is a pure developer—that is, it fully outsources Company Statistics

the construction and commercialization of its projects.

Bloomberg



. . . that stands out for its execution. Being solely focused on the development of its projects, Helbor partners with construction

R$ 4.57 / US$ 1.70

Target Price (YE 2015)

R$ 5.65 / US$ 2.13

52-Week Range (R$)

4.57 - 8.25

companies, usually regional partners, through tightly structured

Market Capitalization (US$ Mn)

437

contracts (e.g., the partner has a 10-20% share in the project), in

Float (%)

39.3

order to align interests and avoid cost overruns or delays.



HBOR3 BZ

Current Price (01/02/15)

Premium valuation seems fairly priced in. In our opinion, Helbor’s sound execution and solid profitability are already reflected in the

3-Mth Avg. Daily Vol (US$ Mn)

0.8

Shares Outstanding - Mn

258

Price Performance (R$) HBOR3 BZ

IBOVESPA

a-13

a-14

120

company’s current premium valuation (0.8x 2015E P/BV vs. the 100

sector average of 0.7x).

80

60

40

j-13

m-13

d-13

a-14

Sources: FactSet, Santander estimates and company reports.

122

d-14

HELBOR Company Description

2016E (18) 0 109 347 (21) 368 (0) 0 (105) 14

2013A (8) 0 (259) (110) (11) (99) 2 82 (48) 53

2014E (10) 0 (106) (7) (8) 1 0 47 (56) (27)

2015E (7) 0 34 122 (8) 130 (0) 0 (40) 5

2016E (6) 0 36 114 (7) 121 (0) 0 (34) 4

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 338 3,236 50 4,904 1,097 2,094 1,211 1,336 573

2014E 223 3,402 45 4,908 1,251 1,902 1,312 1,444 739

2015E 428 3,532 48 5,028 1,251 1,903 1,417 1,444 739

2016E 664 3,791 50 5,330 1,283 2,050 1,527 1,444 739

2013A 144 1,381 21 2,093 468 894 517 570 245

2014E 87 1,334 17 1,925 491 746 515 566 290

2015E 162 1,333 18 1,897 472 718 535 545 279

2016E 215 1,228 16 1,726 415 664 495 468 239

762

705

705

705

325

276

266

228

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

1,101

1,289

1,085

857

470

505

409

278

Capital Employed

2,312

2,601

2,502

2,385

987

1,020

944

772

Net Debt/EBITDA

2.4

3.9

3.2

2.6

2.2

3.5

3.1

2.6

Net Debt/Equity

0.9

1.0

0.8

0.6

1.0

1.1

0.8

0.6

Capex/Revenue (%)

1.2

1.0

1.2

1.2

1.2

1.0

1.2

1.2

Int Cover (%)

2.1

1.3

1.2

1.1

2.1

1.3

1.2

1.1

Dividend Payout (%)

38.0

42.8

50.0

50.0

34.4

39.2

44.0

49.7

ROCE (%)

24.7

17.3

18.3

18.6

26.8

19.4

18.4

18.6

ROE (%)

27.0

16.4

15.4

15.0

27.6

17.5

15.4

15.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

6.6

5.9

5.6

5.4

6.0

5.1

5.4

6.1

P/CE

6.2

5.3

5.2

4.9

5.7

4.6

5.0

5.6

FV/EBITDA

8.8

8.8

7.8

7.3

8.0

7.8

7.6

7.9

FV/EBIT

7.5

7.1

6.3

5.9

6.9

6.3

6.1

6.4

FV/Revenue

2.1

1.7

1.5

1.4

1.9

1.5

1.5

1.5

MARKET RATIOS

P/BV FCF Yield (%) Div Yield (%)

1.7

0.9

0.8

0.8

1.6

0.9

0.8

0.9

(10.6)

0.2

28.7

31.2

(11.6)

0.3

29.7

27.6

5.1

10.6

8.8

8.9

5.6

12.2

9.1

7.9

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.22

0.80

0.82

0.85

0.56

0.35

0.31

0.28

DPS

0.50

0.40

0.41

0.43

0.23

0.17

0.16

0.14

BVPS

4.70

5.09

5.50

5.93

2.01

2.00

2.08

1.92

PER SHARE DATA

123

Key Personnel: Henrique Borenstein (CEO) and Roberval Lanera Toffoli (CFO and IR) Web: http://ri.helbor.com.br/

2012–15E Launches, R$ in billions 1.39

1.50 1.13

1.16

2015e

2015E (18) 0 90 317 (21) 338 (0) 0 (104) 13

Helbor is a pure real estate developer in Brazil with operations in 31 cities distributed in 10 states. The company is also well diversified in terms of targeted segments, with projects in the residential (with products from the mid-low to the high income segment), commercial, lot and hotel segments.

2012–15E Contracted Sales, R$ in billions 1.31

1.17 1.11

1.13

2015e

2016E 567 (15.7) 198 (16.6) 108 (17.4) 19.0 133 (17.2) 23.5 (15) (12) 72 (10.5) 12.7

2014e

2014E (23) 0 (246) (15) (18) 3 1 108 (130) (61)

FINANCIAL RATIOS

2015E 673 (12.0) 237 (12.2) 130 (9.3) 19.4 161 (9.6) 24.0 (27) (15) 81 (10.0) 12.0

2014e

2013A (18) 0 (558) (236) (24) (213) 3 177 (103) 114

LT Debt

2013A 891 (1.8) 332 (9.6) 209 (14.1) 23.5 242 (13.3) 27.2 (25) (22) 141 1.2 15.8

2013e

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2016E 1,727 (1.3) 601 (2.4) 328 (3.3) 19.0 406 (3.1) 23.5 (45) (38) 220 4.8 12.7

2013e

2013A 1,922 8.4 716 (0.2) 451 (5.2) 23.5 523 (4.3) 27.2 (53) (48) 304 11.8 15.8

2015E 1,750 (1.0) 616 (1.2) 339 2.0 19.4 419 1.7 24.0 (71) (39) 210 1.3 12.0

US$ 2014E 765 (14.1) 270 (18.6) 144 (31.1) 18.8 178 (26.4) 23.3 (30) (17) 90 (36.3) 11.7

2012

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

R$ 2014E 1,768 (8.0) 624 (12.9) 332 (26.2) 18.8 412 (21.1) 23.3 (69) (39) 207 (31.8) 11.7

2012

Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Shareholder Structure, Current

Others 39.3%

Dynamo 8.4%

Henrique Borenstein 8.4%

Hélio Borenstein 43.9%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—OIL, GAS & PETROCHEMICALS

HRT

UNDERPERFORM CURRENT PRICE: R$4.40 TARGET PRICE: R$4.00

INTRODUCING YE2015 TARGET PRICE OF R$4.00; REPLACING YE2014 TARGET PRICE OF R$7.30 

Investment Case: Despite the start-up of oil production in the Polvo

Christian Audi

Field, challenges remain, in our view, to the maintenance of current

New York: Santander Investment Securities Inc. +1-212-350-3991 | [email protected]

production levels. Add to this the current downward trend in oil prices, and we are left with a continually cautious view on the name.



Gustavo Allevato*, CFA Brazil: Banco Santander S.A. +5511-3012-6042 | [email protected]

Outlook 2015: We expect a lackluster year for HRT, particularly considering the recent drop in oil prices. Despite its more steady cash flow generation, we believe that the company still faces challenges, including: (i) the need to invest in drilling new wells to extend the Polvo Field’s lifespan, (ii) finding partnerships for its farmdown process in Namibia, as well as for its divestment program of non-strategic assets.



Polvo Field: Since becoming the operator of the Polvo Field back in in January 2014, the company has implemented a series of preventive and technical measures that extended the economic lifespan of the field until the end of 2017; however, new investments are needed to extend the lifespan even further. HRT also entered into an agreement with Maersk to acquire 40% of the exploration,



development and production rights in this area (HRT already owns

Company Statistics

the other 60%), but this agreement was blocked by ANP.

Bloomberg

Solimões: The assignment of 6% of the exploration, development,

HRTP3 BZ

Current Price (01/02/15)

R$ 4.40 / US$ 1.63

Target Price (YE 2015)

R$ 4.00 / US$ 1.48

52-Week Range (R$)

4.40 - 14.50

production and operation rights of the 18 blocks under HRT’s

Market Capitalization (US$ Mn)

concession in the Solimões Basin was approved by ANP. Rosneft

Float (%)

Brasil agreed to pay US$96 million to become the blocks’ operator,

26 45.0

3-Mth Avg. Daily Vol (US$ Mn)

1.4

Shares Outstanding - Mn

16

with a 51% interest (HRT owns the remaining 49%). Price Performance (R$)



Namíbia: Since drilling three wells in Namibia in 2013, which proved non-commercial, the company has been looking for partnerships in order to complete its farm-down process in this area.



HRT - ON (Rebased)

IBOVESPA (Rebased)

120 100 80 60

Note: YE2014 target price is adjusted for stock split.

40 20 0

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

124

D-14

HRT Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 4 (34.9) (23) (740.5) (2,580) (336.8) (58,700.7) (2,605) (341.0) (59,277.1) 44 323 (2,238) (706.2) (50,918.5)

R$ 2014E 546 12,325.1 179 n/m 101 n/m 18.6 46 n/m 8.5 37 3 87 n/m 15.9

2015E 420 (23.1) 23 (86.9) 12 (88.1) 2.9 (108) (333.6) (25.8) 24 (8) (92) (206.0) (22.0)

2016E 547 30.4 122 421.4 110 806.0 20.0 (20) 81.9 (3.6) 29 1 11 n/m 1.9

2013A 2 (38.1) (11) (708.8) (1,196) (315.2) (58,700.7) (1,208) (319.3) (59,277.1) 20 150 (1,038) (666.4) (50,918.5)

Company Description

US$ 2014E 233 11,311.3 76 n/m 43 n/m 18.6 20 n/m 8.5 16 1 37 n/m 15.9

2015E 160 (31.4) 9 (88.3) 5 (89.4) 2.9 (41) (308.6) (25.8) 9 (3) (35) (194.7) (22.0)

2016E 194 21.4 43 385.4 39 743.5 20.0 (7) 83.2 (3.6) 10 0 4 n/m 1.9

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (2,582) 277 (361) (2,297) 0 (574) 2,051 (328) 0 0

2014E (132) 0 (99) 43 (270) 399 327 298 0 0

2015E (132) 0 10 38 (210) 63 367 (132) 0 0

2016E (141) 0 (5) 134 (198) 209 394 (121) 0 0

2013A (1,197) 128 (167) (1,065) 0 (266) 951 (152) 0 0

2014E (56) 0 (42) 18 (115) 170 139 127 0 0

2015E (50) 0 4 15 (80) 24 139 (50) 0 0

2016E (50) 0 (2) 48 (70) 74 139 (43) 0 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 155 673 1,127 1,805 224 127 1,455 0 0

2014E 600 1,191 1,038 2,234 165 461 1,608 0 0

2015E 702 1,320 818 2,144 175 354 1,614 0 0

2016E 980 1,655 549 2,210 190 258 1,762 0 0

2013A 65 285 477 764 95 54 616 0 0

2014E 235 467 407 876 65 181 631 0 0

2015E 259 487 302 791 65 131 596 0 0

2016E 333 563 187 752 65 88 599 0 0

LT Debt FINANCIAL RATIOS

0

0

0

0

0

0

0

0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

(155)

(600)

(702)

(980)

(65)

(235)

(259)

(333)

Capital Employed

1,454

1,576

1,590

1,731

615

618

587

589

Net Debt/EBITDA

0.1

(5.9)

(58.1)

(8.9)

0.1

(5.4)

(56.4)

(8.6)

(0.1)

(0.4)

(0.4)

(0.6)

(0.1)

(0.4)

(0.4)

(0.6)

Capex/Revenue (%)

0.0

49.4

50.1

36.1

0.0

49.4

50.1

36.1

Int Cover (%)

n/m

n/m

n/m

n/m

n/m

n/m

n/m

n/m

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

(206.1)

2.9

(7.5)

(1.2)

(222.7)

3.3

(7.5)

(1.2)

Net Debt/Equity

Dividend Payout (%) ROCE (%) ROE (%)

(87.5)

5.7

(5.7)

0.6

(86.2)

6.0

(5.7)

0.6

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

-

8.6

-

n/m

-

7.6

-

n/m

4.3

3.4

18.1

4.7

3.9

3.0

17.7

4.9

FV/EBITDA

-

1.5

0.9

-

-

1.1

1.2

-

FV/EBIT

-

3.2

-

13.6

-

2.4

-

9.9

300.3

0.3

0.0

(0.5)

274.5

0.2

0.0

(0.4)

P/CE

FV/Revenue P/BV FCF Yield (%) Div Yield (%)

1.0

0.5

0.4

0.4

1.0

0.4

0.4

0.4

(38.9)

53.2

8.9

29.3

(42.6)

60.3

9.1

28.0

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

(13.81)

0.21

(0.57)

0.06

(6.41)

0.09

(0.22)

0.02

DPS

0

0

0

0

0

0

0

0

8.98

9.93

9.96

10.88

3.80

3.89

3.68

3.70

BVPS

125

HRT is an independent E&P company with concession rights over 21 on-shore blocks in the Brazilian Solimões Basin, 13 off-shore blocks in Namibia (Walvis and Orange Basins), and 4 other on-shore blocks inside Brazil. The company has a stake of 60% in Polvo field which is currently producing an average of 8,000 kbpd. HRT held its IPO in October 2010 and has only one type of share (HRTP3), which is listed in the Brazilian stock exchange. The company is part of the Novo Mercado, complying with the highest corporate governance levels.

Key Personnel: John Willott (Chairman), Milton Franke (CEO), Ricardo Dourado (CFO) and Eduardo Jacome (Manager) Web: www.hrt.com.br

Production by Basin, 2015E

Polvo 100.0%

EV by Basin, 2015E

Polvo 100.0%

Shareholder Structure, Current

Free-Float 100.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—RETAIL & CONSUMER GOODS

HYPERMARCAS

HOLD CURRENT PRICE: R$16.19 TARGET PRICE: R$18.00

LOWERING YE2015 TARGET PRICE TO R$18.00 FROM R$22.00 

Investment Case: We believe Hypermarcas still provides a

João Mamede*

compelling way to play the Brazilian domestic consumer space

Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

based on its resilient sales mix (low ticket, essential items) and expected strong cash flow generation. However, we remain concerned with subpar growth in its consumer division; thus, we maintain our Hold rating. We view favorably the company’s recent debt restructuring (elimination of FX exposure), which increases

Ronaldo Kasinsky* Brazil: Banco Santander S.A. +5511-3553-2396 | [email protected]

Jessica Bessa* Brazil: Banco Santander S.A. +5511-3553-9602 | [email protected]

bottom-line visibility, despite its need to incur hedge expenses.



Outlook 2015: We expect HYPE3 will continue to deliver healthy sales growth (high-single digits to low-double digits) despite a weaker economic environment, as the company’s resilient pharma and “smart choice” consumer portfolio should spur steady growth. We forecast 10% YoY consolidated sales growth along with 50-bp YoY EBITDA margin expansion, despite higher marketing investments to sustain brand awareness in 2015.



Catalysts: We believe HYPE3 should further benefit from (1) strong industry growth, (2) a robust innovation pipeline, (3) cross-selling from its integrated salesforce for each division, (4) margin expansion

Company Statistics

opportunities following the consolidation of industrial units, and

Bloomberg

(5)



substantial

tax

shield.

Moreover,

management

recently

HYPE3 BZ

Current Price (01/02/15)

R$ 16.19 / US$ 6.01

Target Price (YE 2015)

R$ 18.00 / US$ 6.64

mentioned potential strategic alliances with international brands,

52-Week Range (R$)

which may provide the company with an enhanced portfolio,

Market Capitalization (US$ Mn)

operating leverage, and margin expansion opportunities.

Float (%)

59.1

3-Mth Avg. Daily Vol (US$ Mn)

14.9

Shares Outstanding - Mn

632

14.40 - 19.46 3,801

Concerns: Main risks to our investment case include (1) increased competition from both domestic and international players in both

Price Performance (R$) HYPE3 BZ

consumer and pharma categories, (2) elimination of tax incentives in

120

the State of Goiás, where most of the company’s production plants

110

are located, and (3) currency depreciation and its effects on COGS

IBOVESPA

100

(~20% FX exposure). 90 80 70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

126

D-14

HYPERMARCAS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 4,259 9.9 2,749 14.1 1,002 16.9 23.5 897 16.4 21.1 (583) (55) 259 13.6 6.1

R$ 2014E 4,577 7.5 2,948 7.2 1,101 9.9 24.1 952 6.2 20.8 (415) (91) 447 72.5 9.8

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 105 321 (296) 320 (222) (122) 0 205 (102) 0

2014E 109 539 (23) 921 (191) 376 0 0 (65) 0

2015E 119 (222) 40 267 (155) 571 0 0 (112) 0

2016E 130 (208) (117) 285 (143) 610 0 0 (142) 0

2013A 49 149 (137) 149 (103) (57) 0 95 (47) 0

2014E 47 229 (10) 392 (81) 160 0 0 (28) 0

2015E 45 (84) 15 102 (59) 217 0 0 (42) 0

2016E 46 (74) (42) 101 (51) 216 0 0 (50) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,159 3,785 8,717 12,502 1,917 3,506 7,079 4,076 899

2014E 1,825 4,458 8,836 13,294 2,108 3,943 7,243 4,706 1,106

2015E 1,825 4,483 8,873 13,357 2,174 3,943 7,240 4,706 1,106

2016E 1,825 4,653 8,886 13,539 2,226 3,943 7,371 4,706 1,106

2013A 495 1,615 3,720 5,336 818 1,497 3,021 1,740 384

2014E 716 1,748 3,465 5,213 827 1,546 2,841 1,846 434

2015E 673 1,654 3,274 4,929 802 1,455 2,672 1,737 408

2016E 621 1,583 3,022 4,605 757 1,341 2,507 1,601 376

LT Debt FINANCIAL RATIOS Net Debt

2015E 4,969 8.6 3,143 6.6 1,186 7.7 23.9 1,068 12.1 21.5 (400) (100) 568 27.2 11.4

2016E 5,458 9.8 3,473 10.5 1,357 14.4 24.9 1,226 14.9 22.5 (355) (131) 741 30.4 13.6

2013A 1,974 (0.4) 1,274 3.4 465 5.9 23.5 416 5.4 21.1 (270) (26) 120 2.9 6.1

US$ 2014E 1,949 (1.3) 1,255 (1.5) 469 1.0 24.1 406 (2.4) 20.8 (177) (39) 190 58.5 9.8

2015E 1,889 (3.1) 1,195 (4.8) 451 (3.8) 23.9 406 0.1 21.5 (152) (38) 216 13.5 11.4

2016E 1,932 2.3 1,230 2.9 480 6.5 24.9 434 6.9 22.5 (126) (46) 262 21.4 13.6

3,177

3,601

3,601

3,601

1,356

1,412

1,329

1,225

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

2,917

2,882

2,882

2,882

1,245

1,130

1,063

980

Capital Employed

10,585

11,186

11,183

11,313

4,518

4,387

4,127

3,848

Net Debt/EBITDA

2.9

2.6

2.4

2.1

2.7

2.4

2.4

2.0

Net Debt/Equity

0.4

0.4

0.4

0.4

0.5

0.4

0.4

0.4

Capex/Revenue (%)

5.2

4.2

3.1

2.6

5.2

4.2

3.1

2.6

Int Cover (%)

1.4

1.9

2.1

2.4

1.4

1.9

2.1

2.4

44.8

25.0

25.0

25.0

40.6

22.9

22.0

24.8

ROCE (%)

9.0

9.3

10.4

12.0

9.8

10.4

10.5

12.0

ROE (%)

3.7

6.2

7.8

10.1

3.8

6.6

7.8

10.1

Dividend Payout (%)

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

43.1

23.6

18.0

13.8

39.4

20.8

17.6

14.5

P/CE

n/m

31.2

22.8

16.8

n/m

27.6

22.3

17.6

FV/EBITDA

14.0

12.2

11.1

9.7

12.9

10.9

10.8

10.0

FV/EBIT

15.7

14.1

12.3

10.7

14.4

12.5

12.0

11.0

FV/Revenue

3.3

2.9

2.6

2.4

3.0

2.6

2.6

2.5

P/BV

1.6

1.5

1.4

1.4

1.6

1.4

1.4

1.5

(1.1)

3.6

5.6

6.0

(1.2)

4.0

5.7

5.7

FCF Yield (%) Div Yield (%)

0.9

0.6

1.1

1.4

1.0

0.7

1.1

1.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.41

0.71

0.90

1.17

0.19

0.30

0.34

0.41

DPS

0.16

0.10

0.18

0.22

0.07

0.04

0.07

0.08

11.20

11.46

11.45

11.66

4.78

4.49

4.23

3.97

PER SHARE DATA

BVPS

127

Hypermarcas is one of the largest and most diversified consumer goods companies in Brazil, with gross sales of R$5.3 billion in 2013. The company manufactures and markets a diversified range of growing, relatively defensive (i.e., staple) products through two business units (Pharma and Consumer Goods), enjoying some strong brands focusing mainly on mid- to low-income level consumers.

Key Personnel: João Alves Queiroz (Chairman), Claudio Bergamo (CEO), Martim Mattos (CFO) and Breno Toledo (Investor Relations Manager) Web: www.hypermarcas.com.br

Revenues Breakdown, 3Q14 LTM

Consumer 45.0%

Pharma 55.0%

Sales Breakdown, 3Q14 LTM

Personal Care 18.0%

Consumer Health 9.5%

OTC 22.6%

DPP 17.6% Dermocos. Generics 3.9% 6.6%

Similars / Branded Generics 11.6%

RX 10.5%

Shareholder Structure, Current

Igarapava Part. 20.1% Free Float 59.1%

Other Contr. 6.0%

Maiorem S.A. 14.8%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—CEMENT, CONSTRUCTION, INFRA & RE

IGUATEMI

BUY CURRENT PRICE: R$24.00 TARGET PRICE: R$31.50



Investment Case: We place Iguatemi as our top pick among the

Bruno Mendonca*

mall companies, as we see the company well able to endure the less

Brazil: Banco Santander S.A. +5511-3012-5759 | [email protected]

positive sector outlook for the next couple of years, while we see the stock still trading at a discount to peers. We expect Iguatemi’s earnings momentum to continue strong, mainly on the maturing of its

Renan Manda* Brazil: Banco Santander S.A. +5511 3012-6535 | [email protected]

recently delivered projects.



Outlook 2015: We estimate Iguatemi will post robust 15% top-line growth in 2015, mostly supported by the maturing of recently delivered assets. Currently, over 40% of Iguatemi’s GLA is attributable to assets less than five years old. Furthermore, the company has over 25,000 m² in expansions scheduled to be delivered between 2Q15 and 3Q15.



Lower pre-operating expenses and operating leverage to fuel EBITDA margin expansion . . . The maturing process of the recently delivered malls should help dilute operating expenses. In addition, the deceleration in delivery of new projects should bring down pre-operating expenses over the next couple of years. As a



result, we anticipate EBITDA margin expansion of 1.5 p.p. to 75.9%

Company Statistics

in 2015.

Bloomberg

. . . plus more room for growth . . . Our Maturity Index shows

IGTA3 BZ

Current Price (01/02/15)

R$ 24.00 / US$ 8.92

Target Price (YE 2015)

R$ 31.50 / US$ 11.89

52-Week Range (R$)

19.82 - 28.18

Iguatemi with a newer portfolio, which we expect to be translated

Market Capitalization (US$ Mn)

into relatively higher growth in consolidated NOI through YE2015

Float (%)

(+29%). In addition, we see the JK Iguatemi mall as a potential

1,567 37.1

3-Mth Avg. Daily Vol (US$ Mn)

3.7

Shares Outstanding - Mn

176

source of additional upside to our estimates, as we have conservatively decelerated its maturation curve (despite its being

IGTA3 BZ

only two years old).



Price Performance (R$) IBOVESPA

110

. . . show us an excessive discount to peers: At 14.0x P/FFO for 2015E, IGTA3’s discount appears even higher if we look toward

100

90

2016E, when we expect the company to continue to outgrow peers. We see IGTA trading at an 11.9x P/FFO for 2016, a discount of 21% to MULT3 and 3% to BRML3.

80

70

j-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

128

d-14

IGUATEMI Company Description

2013A (6) 0 (33) 71 (420) (349) 21 220 (30) 167

2014E (8) 0 (35) 94 (279) (184) (4) 38 (26) (0)

2015E (6) 0 (9) 101 (120) (20) (1) 0 (31) (30)

2016E (6) 0 (11) 114 (84) 31 (1) 0 (28) (28)

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,065 1,310 3,181 4,658 384 1,956 2,313 1,973 218

2014E 717 992 3,759 4,927 411 1,966 2,542 2,061 295

2015E 584 901 4,011 5,108 429 1,984 2,688 2,061 295

2016E 590 957 4,174 5,349 450 2,005 2,888 2,061 295

2013A 454 559 1,358 1,988 164 835 987 842 93

2014E 281 389 1,474 1,932 161 771 997 808 116

2015E 221 340 1,514 1,927 162 749 1,014 778 111

2016E 215 348 1,518 1,945 164 729 1,050 750 107

1,755

1,766

1,766

1,766

749

693

666

642

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

908

1,344

1,477

1,471

388

527

557

535

Capital Employed

3,221

3,887

4,165

4,359

1,375

1,524

1,572

1,585

Net Debt/EBITDA

2.8

3.0

2.8

2.4

2.5

2.7

2.8

2.4

Net Debt/Equity

0.4

0.5

0.5

0.5

0.4

0.6

0.6

0.5

195.5

107.8

45.5

28.5

195.5

107.8

45.5

28.5

2.1

2.0

2.1

2.3

2.1

2.0

2.1

2.3

Dividend Payout (%)

23.8

32.5

34.1

33.4

21.5

29.8

30.1

33.2

ROCE (%)

10.0

9.9

11.9

13.5

10.7

11.1

12.0

13.5

9.0

9.6

8.6

9.8

9.3

10.2

8.6

9.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

21.2

18.6

18.7

15.4

19.4

16.2

18.1

15.4

P/CE

19.9

17.3

17.6

14.5

18.2

15.0

17.0

14.6

FV/EBITDA

14.7

12.8

10.9

9.4

13.5

11.2

10.6

9.4

FV/EBIT

17.6

15.8

12.8

10.8

16.1

13.8

12.4

10.8

FV/Revenue

10.4

9.5

8.3

7.2

9.6

8.3

8.0

7.1

1.7

1.7

1.6

1.5

1.7

1.6

1.5

1.5

(19.2)

(9.9)

(1.2)

2.0

(21.0)

(11.3)

(1.3)

1.9

1.6

1.4

1.9

1.8

1.8

1.6

1.9

1.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.38

1.81

1.71

2.01

0.64

0.78

0.66

0.75

DPS

0.36

0.34

0.45

0.43

0.17

0.15

0.17

0.16

13.16

14.47

15.30

16.43

5.61

5.67

5.77

5.98

Capex/Revenue (%) Int Cover (%)

ROE (%) MARKET RATIOS

P/BV FCF Yield (%) Div Yield (%) PER SHARE DATA

BVPS

129

Key Personnel: Carlos Jereissati (CEO), Cristina Anne Betts (CFO) and Gunther Schrappe (IR Officer) Web: www.iguatemi.com.br/ri

Owned GLA, 2013–16E ('000 m²)

425.16

451.02

483.42

379.81

2016E

2016E (16) 0 (29) 309 (227) 82 (2) 0 (75) (75)

Iguatemi Empresa de Shopping Centers S/A is one of the largest full-service companies in the Brazilian shopping centers sector. As of 3Q14, the company held interest in 19 malls and 3 commercial towers, with an owned GLA of 425,163 m², boasting an average stake of 64% in its mall portfolio. Furthermore, Iguatemi currently has 7 projects under development.

Rental Revenue, 2013–16E (R$ in millions) 624.55 535.83 448.86 351.51

2016E

2015E (15) 0 (24) 262 (313) (51) (2) 0 (79) (79)

Net Debt

2016E 295 11.5 218 13.2 224 11.6 76.0 195 13.4 66.0 (70) (22) 102 17.3 34.5

2015E

2014E (18) 0 (81) 218 (644) (426) (9) 89 (60) (1)

FINANCIAL RATIOS

2015E 264 2.3 193 6.4 201 4.3 75.9 172 10.1 64.9 (65) (19) 87 (13.9) 32.8

2015E

2013A (13) 0 (72) 154 (907) (753) 45 475 (64) 360

LT Debt

2013A 215 2.3 154 2.8 152 4.4 70.8 127 1.7 59.1 (21) (22) 86 (37.6) 39.8

2014E

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2016E 796 15.8 589 17.5 605 15.9 76.0 526 17.8 66.0 (188) (61) 274 21.9 34.5

2014E

2013A 464 13.0 331 13.5 328 15.2 70.8 274 12.2 59.1 (45) (47) 185 (31.2) 39.8

2015E 687 15.1 501 19.7 522 17.4 75.9 446 23.8 64.9 (170) (50) 225 (3.1) 32.8

US$ 2014E 258 20.2 181 17.9 192 26.4 74.4 156 22.7 60.3 (47) (10) 101 17.6 38.9

2013

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

R$ 2014E 597 28.8 418 26.3 445 35.4 74.4 360 31.4 60.3 (109) (24) 233 25.9 38.9

2013

Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Shareholder Structure, Current

Others 37.6%

Petros 10.2% La Fonte Telecom 0.8%

Jereissati Part. 51.4%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—RETAIL & CONSUMER GOODS

IMC

HOLD CURRENT PRICE: R$11.80 TARGET PRICE: R$13.00

LOWERING YE2015 TARGET PRICE TO R$13.00 FROM R$23.00 

Investment Case: We are confident that IMC’s strategy to focus on

João Mamede*

growth in its more profitable markets (airports) will allow for greater

Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

sales resilience and earnings visibility, yet we remain concerned about expense pressures and sluggish growth in its less captive markets (malls). We believe IMC still features strong growth prospects, but improving profitability remains a challenge, as the company is still working to enhance its store footprint (including

Ronaldo Kasinsky* Brazil: Banco Santander S.A. +5511-3553-2396 | [email protected]

Jessica Bessa* Brazil: Banco Santander S.A. +5511-3553-9602 | [email protected]

conversions to more profitable/suitable brands). We see limited potential upside to our YE2015 target price, in addition to a demanding valuation (18x P/E 2015E), and thus we maintain our Hold rating.



Outlook for 2015: After a series of M&As to enhance its brand portfolio, management has reaffirmed its commitment to operational efficiency and highlighted that the focus will be on tight SG&A control and improving the store network (maturing “international” brands, store conversions, and focusing on growth in higher-margin formats/markets). We anticipate IMC will be able to deliver 14% YoY sales growth with over 40 store openings in 2015, while we expect that initiatives to improve the store network and control expenses will

Bloomberg

lead to 120-bp YoY EBITDA margin expansion.



Company Statistics IMCH3 BZ

Current Price (01/02/15)

R$ 11.80 / US$ 4.38

Target Price (YE 2015)

R$ 13.00 / US$ 4.80

Catalysts: We believe IMC still features plenty of growth

52-Week Range (R$)

opportunities that could be further enhanced by new airport

Market Capitalization (US$ Mn)

370

concessions. Guarulhos airport stores have been suffering from the

Float (%)

60.1

3-Mth Avg. Daily Vol (US$ Mn)

1.3

Shares Outstanding - Mn

84

shifts in airlines within terminals following the launch of Terminal 3, but we expect disruptions to subside as passenger traffic is normalized within each terminal.

11.49 - 20.50

Price Performance (R$) IMCH3 BZ

IBOVESPA

120



Concerns: Main risks to our investment case include: (1) food 100

inflation, higher labor costs, and property value pressuring margins; (2) higher competition in key markets (including airports); (3) low share liquidity; and (4) potential block trades from controlling

80

60

shareholders. 40

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

130

D-14

IMC Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 1,368 16.6 416 19.2 145 6.1 10.6 50 (15.3) 3.7 (26) (20) 4 (76.8) 0.3

R$ 2014E 1,722 25.9 543 30.8 198 36.2 11.5 86 71.4 5.0 (44) (20) 22 422.0 1.3

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (95) 162 15 87 (152) 63 0 101 (7) 0

2014E (111) 132 54 96 (241) 86 0 140 (1) 0

2015E (127) 198 (8) 114 (108) 61 0 0 (6) 0

2016E (124) 184 (7) 129 (117) 77 0 0 (13) 0

2013A (44) 75 7 40 (70) 29 0 47 (3) 0

2014E (47) 56 23 41 (103) 36 0 59 (0) 0

2015E (48) 75 (3) 43 (41) 23 0 0 (2) 0

2016E (44) 65 (2) 46 (41) 27 0 0 (5) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 82 241 1,397 1,638 265 451 922 326 69

2014E 75 266 1,614 1,880 332 638 910 466 52

2015E 75 274 1,595 1,870 332 638 900 466 52

2016E 75 292 1,588 1,879 343 638 899 466 52

2013A 35 103 596 699 113 193 393 139 30

2014E 29 104 633 737 130 250 357 183 20

2015E 28 101 589 690 123 235 332 172 19

2016E 26 99 540 639 117 217 306 158 18

257

414

414

414

110

162

153

141

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

244

390

390

390

104

153

144

133

Capital Employed

1,373

1,548

1,537

1,536

586

607

567

523

Net Debt/EBITDA

1.7

2.0

1.5

1.3

1.6

1.8

1.4

1.3 0.4

LT Debt FINANCIAL RATIOS Net Debt

Net Debt/Equity Capex/Revenue (%) Int Cover (%) Dividend Payout (%)

2015E 1,967 14.2 623 14.7 262 32.5 13.3 135 56.8 6.9 (63) (22) 51 135.9 2.6

2016E 2,192 11.4 695 11.4 298 13.6 13.6 173 28.2 7.9 (65) (33) 76 49.8 3.5

2013A 634 5.7 193 8.0 67 (3.9) 10.6 23 (23.2) 3.7 (12) (9) 2 (79.0) 0.3

US$ 2014E 733 15.7 231 20.2 84 25.2 11.5 37 57.5 5.0 (19) (9) 9 379.6 1.3

2015E 748 2.0 237 2.4 100 18.3 13.3 51 40.0 6.9 (24) (8) 19 110.6 2.6

2016E 776 3.8 246 3.8 105 5.7 13.6 61 19.3 7.9 (23) (12) 27 39.4 3.5

0.3

0.4

0.4

0.4

0.3

0.5

0.4

11.1

14.0

5.5

5.3

11.1

14.0

5.5

5.3

4.9

4.0

3.7

4.1

4.9

4.0

3.7

4.1

37.5

27.0

26.8

25.0

33.9

24.7

23.6

24.8

ROCE (%)

2.2

4.3

7.4

9.2

2.5

5.0

7.4

9.2

ROE (%)

0.5

2.4

5.6

8.5

0.5

2.5

5.6

8.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

n/m

47.0

19.6

13.1

n/m

41.5

19.1

13.7

P/CE

15.6

7.6

5.6

5.0

14.2

6.7

5.5

5.2

FV/EBITDA

12.3

7.1

5.3

4.7

11.3

6.3

5.2

4.8

FV/EBIT

35.5

16.3

10.3

8.0

32.5

14.5

10.0

8.2

FV/Revenue

1.3

0.8

0.7

0.6

1.2

0.7

0.7

0.6

P/BV

1.7

1.1

1.1

1.1

1.7

1.1

1.1

1.2

FCF Yield (%)

4.1

8.4

6.2

7.8

4.5

9.6

6.3

7.4

Div Yield (%)

0.4

0.1

0.6

1.3

0.5

0.1

0.6

1.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.05

0.26

0.60

0.90

0.02

0.11

0.23

0.32

DPS

0.08

0.01

0.07

0.15

0.04

0.01

0.03

0.05

10.91

10.78

10.65

10.64

4.66

4.23

3.93

3.62

MARKET RATIOS

PER SHARE DATA

BVPS

131

IMC is a leading, multi-brand, quick casual restaurant (QSR) operator with operations in Brazil (75% of sales), and throughout LatAm (Caribbean, Colombia and Mexico). The company focuses mainly on high traffic, high margin and growing captive markets such as airports, motorways and malls, featuring highly recognized brands such as Viena, Frango Assado, and Carl’s Jr. The company operates 384 stores (1Q14): 159 in airports, 30 in motorways, 158 in malls and 37 in other locations. Airport sales account for nearly 40% of sales. In November 2013, the company announced its entry into the U.S. market through the acquisition of the Margaritaville brand. IMC is controlled by private equity firm Advent, and is a publicly traded company in the Bovespa’s Novo Mercado segment.

Key Personnel: Juan Carlos Torres (Chairman), Francisco Javier Gavilan (CEO), Julio Millan (CFO) and Neil Amereno (Investor Relations Director) Web: www.internationalmealcompany.com

Stores Breakdown, 3Q14 USA + Others 12.4%

Roads 7.3%

Airports 41.2%

Malls 39.0%

Sales by Segment, 9M14 USA + Others 19.4% Roads 25.6% Airports 35.7%

Malls 19.2%

Shareholder Structure, Current

Free Float 60.1%

FIP - Brasil Empreendi mentos 39.8%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—CONGLOMERATES & INDUSTRIALS

IOCHPE MAXION

BUY CURRENT PRICE: R$11.88 TARGET PRICE: R$17.50

UPGRADING RATING TO BUY FROM HOLD 

Investment Case: We are upgrading MYPK3 to Buy, following its -53% share performance in 2014, which leads to a DCF upside of 47% with an attractive 2015E FV/EBITDA of 4.9x (close to historical lows). We believe that MYPK3 offers investors (1) exposure to the global automotive market, through its leadership in the wheels

Daniel Gewehr* Brazil: Banco Santander S.A. +5511-3012-5787 | [email protected]

Joao Noronha*, CFA Brazil: Banco Santander S.A. +5511-3012-5734 | [email protected]

(globally) and chassis (in the Americas) segments; and (2) indirect exposure to Brazilian infrastructure growth (wheels and chassis for heavy vehicles) and railway equipment (~85% of the transportation matrix).



Outlook 2015: We anticipate that Iochpe will post an 80-bp improvement in EBITDA margin to 11.6%, arising from a less volatile Brazilian market (albeit still slightly negative) and the operating efficiency measures implemented in 2014. We expect net income to increase 90% due to the deleveraging process (net debt/EBITDA of 3.0x in 2015E versus 3.6x in 2014E).



What’s changed: We reduced our 2015 EBITDA estimate by 5%, due to a tougher environment for domestic operations (Brazil represents ~40% of sales). Together with Iochpe’s leverage, this led us to lower our 2015 earnings estimate by 44% to R$82 million. We are 31% below sell-side consensus for 2015 net income.



Company Statistics Bloomberg

MYPK3 BZ

Current Price (01/02/15)

R$ 11.88 / US$ 4.41

CEO meeting highlights. (1) The company targets a medium-term

Target Price (YE 2015)

R$ 17.50 / US$ 6.46

normalized EBITDA margin level of 12.5%-13.0%, implying downside

52-Week Range (R$)

from pre-acquisition estimates of 14-15%. We currently estimate

11.49 - 26.69

Market Capitalization (US$ Mn)

419

Float (%)

63.7

Iochpe’s long-term EBITDA margin at 12.7%. Management’s plans

3-Mth Avg. Daily Vol (US$ Mn)

2.1

for the Limeira plant are to offer an alternative to imported aluminum

Shares Outstanding - Mn

95

wheels. (2) The Limeira plant is set to be operational in 4Q15.

Price Performance (R$)

Management believes most of the capacity is already contracted, as currently 1 million wheels are imported. Of this volume, 30-40% is imported from Iochpe plants abroad. (3) Europe: Management expects gradual margin expansion in 2015 through restructuring

MYPK3 BZ

IBOVESPA

A-13

A-14

120

100

80

measures. Turkey has been the outperformer, with a doubling in aluminum capacity (above-average margin vs. the rest of Europe). Iochpe’s margins have been recovering in Spain (gaining market share in production), Germany, and Italy (new agreement with

60

40

J-13

M-13

D-13

A-14

Sources: FactSet, Santander estimates and company reports.

unions). 132

D-14

IOCHPE MAXION Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 6,126 7.5 859 49.1 680 50.4 11.1 467 67.8 7.6 (213) (29) 170 154.7 2.8

R$ 2014E 5,920 (3.4) 801 (6.8) 642 (5.6) 10.8 404 (13.6) 6.8 (240) (73) 43 (74.6) 0.7

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (212) 191 (33) 647 (249) 536 (86) 0 0

2014E (238) 211 (127) 515 (267) 377 74 (16) 0

2015E (259) 6 (29) 690 (237) 381 0 (30) 0

2016E (275) 0 (38) 737 (248) 391 0 (46) 0

2013A (98) 88 (15) 300 (116) 248 (40) 0 0

2014E (101) 90 (54) 219 (114) 161 32 (7) 0

2015E (99) 2 (11) 262 (90) 145 0 (12) 0

2016E (104) 0 (14) 280 (94) 149 0 (18) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 662 2,219 3,662 6,036 1,834 2,756 1,221 2,773 712

2014E 589 2,161 3,692 5,946 1,962 2,486 1,279 2,870 959

2015E 757 2,446 3,670 6,209 2,065 2,525 1,331 2,909 959

2016E 970 2,726 3,644 6,462 2,110 2,580 1,409 2,964 959

2013A 283 947 1,563 2,576 783 1,176 521 1,184 304

2014E 231 848 1,448 2,332 769 975 501 1,126 376

2015E 279 902 1,354 2,291 762 932 491 1,073 354

2016E 330 927 1,239 2,198 718 878 479 1,008 326

LT Debt

2015E 6,201 4.7 835 4.2 719 11.9 11.6 459 13.7 7.4 (237) (78) 82 90.1 1.3

2016E 6,527 5.3 878 5.2 774 7.8 11.9 500 8.8 7.7 (203) (98) 125 51.3 1.9

2013A 2,840 (2.6) 398 35.0 315 36.3 11.1 217 52.0 7.6 (99) (14) 79 130.8 2.8

US$ 2014E 2,521 (11.2) 341 (14.4) 273 (13.2) 10.8 172 (20.6) 6.8 (102) (31) 18 (76.6) 0.7

2015E 2,358 (6.5) 317 (6.9) 273 (0.0) 11.6 175 1.5 7.4 (90) (30) 31 69.8 1.3

2016E 2,482 5.3 334 5.2 294 7.8 11.9 190 8.8 7.7 (77) (37) 47 51.3 1.9

2,061

1,911

1,949

2,005

880

749

719

682

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

2,111

2,281

2,152

1,995

901

894

794

678

Capital Employed

3,556

3,779

3,771

3,767

1,518

1,482

1,392

1,281

Net Debt/EBITDA

3.1

3.6

3.0

2.6

2.9

3.3

2.9

2.3

Net Debt/Equity

1.7

1.8

1.6

1.4

1.9

2.0

1.6

1.4

Capex/Revenue (%)

4.1

4.5

3.8

3.8

4.1

4.5

3.8

3.8

FINANCIAL RATIOS

Int Cover (%)

3.0

2.2

1.9

1.9

3.0

2.2

1.9

1.9

Dividend Payout (%)

0.0

9.4

70.4

56.0

0.0

8.6

61.9

55.6

ROCE (%)

14.0

12.6

14.2

15.9

15.2

14.0

14.3

15.9

ROE (%)

16.0

3.5

6.3

9.1

16.4

3.7

6.3

9.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

14.6

26.7

13.7

9.0

13.3

23.6

13.4

8.8

P/CE

6.5

4.1

3.3

2.8

5.9

3.6

3.2

2.8

FV/EBITDA

7.4

5.7

4.9

4.4

6.8

5.1

4.8

4.1

10.8

9.0

7.7

6.8

9.9

8.2

7.5

6.3

0.8

0.6

0.6

0.5

0.8

0.6

0.6

0.5

MARKET RATIOS P/E

FV/EBIT FV/Revenue P/BV FCF Yield (%) Div Yield (%)

2.0

0.9

0.8

0.8

2.0

0.9

0.9

0.9

21.6

32.6

33.8

34.7

23.6

36.9

34.6

35.5

(0.0)

1.4

2.7

4.1

(0.0)

1.6

2.8

4.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.80

0.46

0.87

1.31

0.83

0.19

0.33

0.50

DPS

0

0.17

0.32

0.49

0

0.07

0.12

0.18

12.87

13.48

14.03

14.85

5.49

5.29

5.18

5.05

PER SHARE DATA

BVPS

Iochpe-Maxion operates in three main business sectors: (1) Wheels (supplying steel wheels for light and commercial vehicles and aluminum wheels for light vehicles), accounting for 74% of sales in 2013; (2) Structural components (supplying chassis, sidebars, and crossbars for commercial vehicles), accounting for 26% of 2013 sales; Railway equipment (manufacturing railcars, wheels, and castings) now consolidated through equity income. The external market accounted for ~61% of Iochpe’s 2013 sales, with the company selling its products in over 40 countries. In October 2011, Iochpe acquired two companies: Hayes Lemmerz (a manufacturer of aluminum and steel wheels in Europe) and Galaz (a Mexican producer of steel-based side rails for commercial vehicles), doubling its revenue (2011 pro forma of R$6.3 billion). Iochpe is listed on the Novo Mercado.

Key Personnel: Dan Ioschpe (Chairman), Marcos Oliveira (CEO), Oscar Fontoura Becker (CFO) and Luis Fernando Abreu (IR Director) Web: www.iochpe-maxion.com.br

Sales by Segment, 2013 Structural Component s 23.6%

Wheels (Aluminum) 22.0%

Wheels (Steel) 54.4%

Sales by Region, 2013

Europe 30.9%

Asia + Others 6.6%

North America 23.9%

South America 38.6%

Shareholder Structure, Current

Ioschpe Family 25.2% Free-float 68.1%

BNDESPar 6.8%

Sources for all charts and tables: Company reports and Santander estimates.

133

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—FINANCIAL SERVICES

ITAUSA

BUY

CURRENT PRICE: R$9.17 TARGET PRICE: R$12.30 INTRODUCING YE2015 TARGET PRICE OF R$12.30; REPLACING YE2014 TARGET PRICE OF R$10.54 

Investment Case: Itausa is all about Itaú Unibanco, as the latter

Henrique Navarro*

contributes 96% of Itausa’s NAV and is the main driver of our Itausa

Brazil: Banco Santander S.A. +5511-3012-5756 | [email protected]

target price. For those who want to be invested in Itaú, we recommend Itausa instead, as this company holds Itaú’s voting shares, and trades at a discount to its NAV—one that we believe will narrow over time.



Renata Cabral* Brazil: Banco Santander S.A. +5511-3012-5731 | [email protected]

Boris Molina New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

Outlook 2015: Itausa is currently trading at a nearly 21.5% discount to its NAV (adopting the market’s practice of considering its NAV as being composed of ITUB4, as this is the most liquid Itaú stock), which is in-line with the 22.2% one-year historical average. We expect no material change in this level in the short to medium term, so we do not currently recommend long/short trades between the shares of Itausa and Itaú.



What if we use the “what you pay is what you get” concept? We calculated Itausa’s discount to its NAV based on what Itausa does carry—ITUB3 (Itaú’s voting shares), thus reaching a lower discount of ~13%. We note that ITUB3 trades at an ~11% discount to ITUB4, one we expect to narrow in the long term—a benefit that would be

Bloomberg

captured by Itausa, in our view.



Company Statistics ITSA4 BZ

Current Price (01/02/15)

R$ 9.17 / US$ 3.40

Target Price (YE 2015)

R$ 12.30 / US$ 4.50

Itausa + Itaú = the strongest concentration of financial stocks in

52-Week Range (R$)

the Ibovespa. Financials constitute the largest sector in the

Market Capitalization (US$ Mn)

Ibovespa, with a 34.1% weighting (which should reach about 36% in

Float (%)

the next rebalancing, to take place in January 2015). The bank

7.28 - 11.20 23 66.0

3-Mth Avg. Daily Vol (US$ Mn)

63.3

Shares Outstanding - Mn

6,103

component of financials accounts for 27.6%, and Itaú and Itausa contribute almost half of that amount, with the highest weighting

Price Performance (R$) ITSA4 BZ

among financials. ITUB4 + ITSA4 have a combined weight within the

160

Ibovespa of 14.3% (vs. 5% two years ago). In 2015, we expect

140

Brazilian banks to sustain the strong profitability registered in 2014,

IBOVESPA

120

which could positively affect the Ibovespa as a whole. We believe 100

Itausa (including Itaú) is an attractive vehicle for investors seeking to 80

gain exposure to the Brazilian equity market.

60



D-12

Note: Our YE2014 target price was R$12.20, which we adjusted to R$10.54 in this publication to reflect distributed stock dividends. 134

A-13

J-13

N-13

M-14

J-14

Sources: FactSet, Santander estimates and company reports.

N-14

ITAUSA Summary Valuation Parameters (YE2015E) and Net Asset Value (3Q14), in R$ Millions

Ticker ITUB3 DTEX3 ELEK4 ITEC3 Other Assets/Liabilities Net Asset Value Book Value of Investments Capital Gain 15% Tax on Capital Gain 4% Discount on Holding Company status Adj Net Asset Value Num ber of shares - Mn Target Price in R$

Total shares in Mn 5,476 663 31 11

Itausa's stake 36.8% 35.5% 96.6% 97.8%

Current At Market Target price At Target price per Value in R$ in R$ per Price in share - R$ Mn share R$ Mn 32.56 65,541 40.50 81,524 7.80 1,838 9.50 2,238 8.59 261 261 17.50 192 192 983 983 68,815 85,198 35,935 49,263 -7,530 -2,753 74,915 6,103 12.30

Company Description Itausa-Investimentos Itaú S.A. (Itausa) is a pure holding company with subsidiaries operating in sectors such as financial services, real estate, ceramic and metal sanitary products, chemicals, electronics, consumer goods, information technology and the internet. The company owns approximately 37% of Itaú Unibanco, one of Brazil’s leading financial institutions, accounting for the major part of Itausa’s net asset value. The company is controlled mainly by the Setubal and Villela families and is based in São Paulo.

Key

Personnel: Carlos da Camara Pestana (Chairman), Alfredo Egydio Arruda Villela Filho (CEO) and Henri Penchas (IRO) Web: www.itau.com.br/itausa NAV Composition, 4Q14E Duratex / Others 4.8%

Itau Unibanco 95.2%

Target Price Upside Composition, 2015E From Discount to Narrow 6.4%

From Companies' TP 2015 93.6%

Shareholder Structure, Current

Companhia Esa 34.0% Free float 66.0%

Sources for all charts and tables: Company reports and Santander estimates.

135

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—FINANCIAL SERVICES

ITAÚ UNIBANCO

BUY CURRENT PRICE: R$33.83 TARGET PRICE: R$40.50

INTRODUCING YE2015 TARGET PRICE OF R$40.50; REPLACING YE2014 TARGET PRICE OF R$37.27 

Investment Case: We believe Itaú will continue implementing its

Boris Molina

strategy to reduce credit risk on its balance sheet, while enjoying high

New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

levels of adjusted profitability thanks to healthy spreads in unsecured personal loans and non-earmarked credit in Brazil. We do not expect the bank to become more aggressive as long as growth remains weak, focusing instead on concluding its IT renewal plan and executing its merger with CorpBanca in Chile while kick-starting its

Henrique Navarro* Brazil: Banco Santander S.A. +5511-3012-5756 | [email protected]

Renata Cabral* Brazil: Banco Santander S.A. +5511-3012-5731 | [email protected]

expansion away from slow growth Brazil.



Outlook 2015: We expect adjusted ROE to fall 150 bps, to 26.5%, owing to slower loan growth (7.3%), flat margins (6.31%, ex insurance), a slight pickup in NPLs and lower market-related income. Nevertheless, we expect adjusted earnings to post a 7% increase YoY (12% reported earnings).



De-risking as a way of life: Loan growth should continue to be driven by products with lower credit risk, such as payroll, mortgage and corporate lending, as the bank continues to de-risk its loan book ahead of a potentially weaker economy in 2015. As such, we expect



continued contraction in SME and auto lending in 1H15, with only

Company Statistics

moderate growth in 2H15.

Bloomberg

Diversifying outside Brazil. We expect Itaú to close the merger of

ITUB4 BZ / ITUB US

Current Price (01/02/15)

R$ 33.83 / US$ 12.57

Target Price (YE 2015)

R$ 40.50 / US$ 14.95

52-Week Range (R$)

26.60 - 41.24

its Chilean operations with Chile’s CorpBanca in 2H15, now that Itaú

Market Capitalization (US$ Mn)

has entered into an additional shareholder agreement with the IFC

Float (%)

and activist minorities have dropped their legal strategy to block the

68,699 54.6

3-Mth Avg. Daily Vol (US$ Mn)

198.2

Shares Outstanding - Mn

5,467

merger. While we do not expect the transaction to have a significant capital impact in the short term (owing to Brazilian bank GAAP



Price Performance (R$) ITUB4 BZ

proportional consolidation), over the medium term, we expect Itaú to

160

acquire minorities and fully consolidate Itaú-CorpBanca.

140

Valuation attractive: Itaú is trading at a 2015E adjusted P/BV of

IBOVESPA

120

1.6x, which we consider very attractive relative to the high adjusted

100

ROE in the 20% range that we estimate for the bank. Our target price

80

implies a 2015E adjusted P/BV of 1.9x and an adjusted P/E of 9.8x.

60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

136

D-14

ITAÚ UNIBANCO Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions INCOME STATEMENT Net Interest Income NPL Provisions Adj Net Interest Income Non-Interest Income Total Operating Revenue Non-Interest Expense Profit Before Taxes Taxes Net Profit Adjusted Net Profit BALANCE SHEET Cash and Equivalents Securities Loans (net) Intangible Assets Total Assets Core Deposits Other Financial Liabilities Subordinated Debt Technical Provisions Equity Adjusted Equity LOAN BOOK Companies Total Consumer Mortgages Other Loans Gross Loans Loan Grow th (%) NPL Provisions

Company Description

2016E 67,804 (18,450) 49,354 42,341 91,695 (53,234) 38,460 (12,008) 26,042 27,881

2013A 24,004 (6,299) 17,705 11,397 29,103 (19,043) 10,218 (2,883) 7,272 6,356

US$ 2014E 2015E 22,833 23,676 (5,733) (5,855) 17,100 17,821 14,850 13,001 31,950 30,822 (19,326) (18,227) 12,614 12,595 (4,100) (3,912) 8,673 8,555 9,461 8,875

2013A 2014E 2015E 2016E 16,576 18,229 19,666 21,338 297,334 303,546 339,076 379,712 385,864 422,880 453,459 493,438 11,772 13,168 14,340 14,243 1,105,721 1,215,261 1,311,062 1,422,518 266,189 297,188 329,082 361,298 349,855 407,175 405,782 413,179 55,639 33,547 34,222 33,638 102,060 124,930 162,767 206,197 81,024 95,718 110,860 129,424 82,679 96,306 110,998 129,804

2013A 7,017 125,861 163,336 4,983 468,050 112,677 148,093 23,552 43,202 34,298 34,998

2014E 6,887 114,684 159,770 4,975 459,144 112,282 153,837 12,675 47,200 36,163 36,386

2015E 7,257 125,120 167,328 5,292 483,787 121,432 149,735 12,628 60,062 40,908 40,959

2016E 7,258 129,154 167,836 4,844 483,850 122,891 140,537 11,441 70,135 44,022 44,151

2013A 51,809 (13,595) 38,214 24,599 62,814 (41,102) 22,054 (6,222) 15,696 13,718

R$ 2014E 2015E 53,748 63,415 (13,495) (15,682) 40,253 47,733 34,955 34,821 75,208 82,554 (45,493) (48,819) 29,693 33,735 (9,652) (10,479) 20,417 22,915 22,270 23,772

2016E 24,001 (6,531) 17,470 14,988 32,458 (18,844) 13,614 (4,251) 9,218 9,869

2013A 207,781 143,991 24,209 36,254 412,235 12.5 15,120 (26,371)

2014E 220,394 161,581 28,944 38,150 449,069 8.9 14,616 (26,189)

2015E 230,557 177,038 33,534 40,892 482,021 7.3 16,602 (28,562)

2016E 248,512 194,150 37,743 44,482 524,886 8.9 19,220 (31,448)

2013A 87,954 60,951 10,248 15,346 174,498 (2.4) 6,400 (11,163)

2014E 83,268 61,048 10,936 14,414 169,665 (2.8) 5,522 (9,895)

2015E 85,076 65,328 12,374 15,089 177,867 4.8 6,126 (10,539)

2016E 84,528 66,037 12,838 15,130 178,533 0.4 6,537 (10,697)

2013A 5.73 3.56 5.94

2014E 6.29 3.21 6.63

2015E 6.31 3.36 6.54

2016E 6.73 3.68 6.74

2013A 5.73 3.56 5.94

2014E 6.29 3.21 6.63

2015E 6.31 3.36 6.54

2016E 6.73 3.68 6.74

Cost / ATAs

3.91

4.03

3.90

3.95

3.91

4.03

3.90

3.95

Adj Efficiency

48.2

45.3

43.9

41.3

48.2

45.3

43.9

41.3

Effective Taxes

28.2

32.5

31.1

31.2

28.2

32.5

31.1

31.2

Reported ROE (%)

20.5

23.5

22.4

21.8

20.5

23.5

22.4

21.8

KEY RATIOS NIM Risk Charge Operating Revenue / ATA

Adj ROE (%)

20.5

28.0

26.5

27.3

20.5

28.0

26.5

27.3

NPL Ratio

3.67

3.25

3.44

3.66

3.67

3.25

3.44

3.66

Adj NPL Ratio

8.50

7.14

6.79

7.12

8.50

7.14

6.79

7.12

Loans / Total Assets

43.7

43.3

43.0

43.3

43.7

43.3

43.0

43.3

Loans / Core Deposits

181.6

176.9

171.1

170.6

181.6

176.9

171.1

170.6

RWA % Total Assets

64.1

64.7

68.4

72.4

64.1

64.7

68.4

72.4

Core Tier I Ratio (%)

7.5

8.6

9.2

9.9

7.5

8.6

9.2

9.9

Dividend Payout (%)

31.7

32.0

31.0

30.0

31.7

32.0

31.0

30.0

MARKET RATIOS Adj. P/BV Adj. P/E Div Yield (%) PER SHARE DATA EPS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

1.7

1.8

1.6

1.4

1.7

1.8

1.6

1.5

13.0

9.2

8.3

6.9

12.1

8.1

8.2

7.2

3.3

3.6

4.0

4.4

3.6

4.1

4.1

4.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

2.87

3.73

4.19

4.76

1.33

1.59

1.56

1.69

14.82

17.51

20.28

23.67

6.27

6.62

7.48

8.05

DPS

0.95

1.25

1.36

1.50

0.45

0.54

0.51

0.54

Adj EPS

2.51

4.07

4.35

5.10

1.16

1.73

1.62

1.81

BVPS

Adj BVPS

15.12

17.62

20.30

23.74

6.40

6.66

7.49

8.08

Surplus Capital per Share

(4.39)

(2.84)

(2.27)

(1.53)

(1.86)

(1.07)

(0.84)

(0.52)

0.24

0.16

0.16

0.16

0.10

0.06

0.06

0.05

Unrealized Cap. Gains/Shr

137

Itaú is Brazil’s leading private sector bank, with total assets of approximately US$459 billion as of 4Q14E and approximately a 12.6% market share in loans and 16.6% in deposits in Brazil, the largest among private sector banks and second only to Banco do Brasil. The bank consolidated its leadership among private banks in Brazil after merging with Unibanco in 2009. Itaú is in the initial stages of a regional expansion plan, with the expected close of the merger with Corpbanca in 2015 expanding the footprint of the bank from Argentina, Paraguay, and Uruguay to Chile and Colombia. The shares trade on the Bovespa and as ADRs listed on the NYSE.

Key Personnel: Pedro Moreira Salles (Chairman), Roberto Setubal (CEO), Caio Ibrahim David (CFO) and Alfredo Setubal (IRO) Web: www.itau.com.br

Loan Book, 2015E

SME 15.9%

Other 5.3%

Corp. 31.9% Individual 39.9%

Mortgage 7.0%

Revenue Structure, 2015E

Insurance Other 5.9% 1.3%

Fees 37.3%

NII 55.5%

Shareholder Structure, Current

Itausa 19.6%

Free Float 54.6%

IU Part 25.8%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—TRANSPORTATION

JSL

HOLD CURRENT PRICE: R$12.75 TARGET PRICE: R$15.00

INTRODUCING YE2015 TARGET PRICE OF R$15.00; REPLACING YE2014 TARGET PRICE OF R$18.00 

Investment Case: In our view, JSL has (1) an advantageous competitive position, and (2) above-average growth potential due to

Bruno Amorim*, CFA

the ongoing consolidation in the logistics services market. However,

Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

we have a neutral view on the stock based on (1) decelerating

Pedro Balcão Reis*

revenue growth (+12% in 2014E vs. +19% in 2013), reflecting a

Brazil: Banco Santander S.A. +5511-3012-5765 | [email protected]

weak economic environment; and (2) limited upside to our 2015E target price.



Outlook 20155: We expect JSL to keep growing via (1) acquisition of new contracts, (2) maturing of new contracts recently signed, and (3) increase in revenue from the same contracts. For 2015, at a consolidated level, we estimate (1) top-line growth of 11%, (2) EBITDA up 16%, and (3) net profit up 19%. This compares with our estimates for 2014 of (1) top-line growth of 9%, (2) EBITDA growth of 20%, and (3) net profit decline of 10%.



An advantageous competitive position. JSL is Brazil’s biggest logistics provider and its only one-stop-shop player. Its main competitive advantages are: (1) As Brazil’s largest buyer of heavy vehicles, JSL has significant bargaining power with OEMs. (2) Its sales network enables JSL to sell over 40% of light vehicles and almost 100% of heavy vehicles directly to final consumers. (3) Its



Bloomberg

potential, in our view.

Current Price (01/02/15)

R$ 12.75 / US$ 4.74

Target Price (YE 2015)

R$ 15.00 / US$ 5.54

JSLG3 BZ

Strong long-term growth potential. The logistics market in Brazil is

52-Week Range (R$)

still very fragmented and underpenetrated (just 10% of logistic costs

Market Capitalization (US$ Mn)

are outsourced), implying strong long-term growth potential, in our

Float (%)

opinion.



Company Statistics

complete range of services offered implies strong cross-selling

10.40 - 16.05 1,027 25.1

3-Mth Avg. Daily Vol (US$ Mn)

0.8

Shares Outstanding - Mn

217

Low risk. Its business model is asset-heavy, but JSL buys assets only after signing a long-term contract with a client. Moreover, JSL is

Price Performance (R$) JSLG3 BZ

highly diversified in terms of clients and economic sectors.

IBOVESPA

130 120 110 100 90 80 70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

138

D-14

JSL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 4,740 14.5 754 4.7 705 18.5 14.9 348 14.8 7.3 (144) (43) 87 14.3 1.8

R$ 2014E 5,175 9.2 819 8.6 844 19.8 16.3 393 12.9 7.6 (181) (40) 78 (9.7) 1.5

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (357) 0 119 563 1,351 471 0 856 (4) 0

2014E (451) 0 6 536 1,453 108 0 564 (39) 0

2015E (515) 0 (19) 590 1,586 136 0 607 (47) 0

2016E (592) 0 (25) 683 1,201 197 0 112 (86) 0

2013A (165) 0 55 261 626 219 0 397 (2) 0

2014E (192) 0 3 228 619 46 0 240 (17) 0

2015E (196) 0 (7) 224 603 52 0 231 (18) 0

2016E (210) 0 (9) 242 425 70 0 40 (31) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 745 2,050 3,208 5,830 1,446 3,370 1,015 3,487 531

2014E 814 2,169 3,749 6,489 1,502 3,934 1,054 4,051 531

2015E 903 2,350 4,295 7,216 1,575 4,541 1,101 4,658 531

2016E 1,014 2,576 4,301 7,447 1,665 4,653 1,129 4,770 531

2013A 318 875 1,369 2,488 617 1,438 433 1,488 227

2014E 319 851 1,470 2,545 589 1,543 413 1,589 208

2015E 333 867 1,585 2,663 581 1,676 406 1,719 196

2016E 345 876 1,463 2,533 566 1,583 384 1,622 181

LT Debt

2015E 5,742 11.0 927 13.2 980 16.0 17.1 465 18.4 8.1 (214) (48) 93 19.0 1.6

2016E 6,446 12.3 1,039 12.1 1,123 14.6 17.4 531 14.2 8.2 (235) (59) 115 23.4 1.8

2013A 2,197 3.7 349 (5.2) 327 7.4 14.9 161 4.0 7.3 (67) (20) 40 3.6 1.8

US$ 2014E 2,204 0.3 349 (0.2) 360 10.1 16.3 167 3.8 7.6 (77) (17) 33 (17.0) 1.5

2015E 2,183 (0.9) 353 1.1 373 3.6 17.1 177 5.7 8.1 (81) (18) 36 6.3 1.6

2016E 2,282 4.5 368 4.3 398 6.7 17.4 188 6.3 8.2 (83) (21) 41 14.9 1.8

2,955

3,519

4,127

4,238

1,261

1,380

1,523

1,442

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

2,741

3,237

3,755

3,756

1,170

1,269

1,386

1,278

Capital Employed

4,501

5,105

5,759

5,899

1,921

2,002

2,125

2,007

Net Debt/EBITDA

3.9

3.8

3.8

3.3

3.6

3.5

3.7

3.2

Net Debt/Equity

2.7

3.1

3.4

3.3

3.0

3.5

3.4

3.3 (18.6)

FINANCIAL RATIOS

Capex/Revenue (%)

(28.5)

(28.1)

(27.6)

(18.6)

(28.5)

(28.1)

(27.6)

Int Cover (%)

4.9

4.7

4.6

4.8

4.9

4.7

4.6

4.8

Dividend Payout (%)

4.9

45.1

59.5

92.6

4.4

41.4

52.4

92.0

10.4

10.3

10.8

12.1

11.1

11.3

10.9

12.1

8.8

7.6

8.7

10.3

9.0

8.1

8.7

10.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

ROCE (%) ROE (%) MARKET RATIOS P/E

40.0

35.4

29.7

24.1

36.6

31.3

29.0

25.3

P/CE

7.8

5.2

4.6

3.9

7.2

4.6

4.5

4.1

FV/EBITDA

8.8

7.1

6.7

5.8

8.1

6.4

6.5

5.8

17.9

15.3

14.0

12.3

16.4

13.8

13.7

12.3

FV/Revenue

1.3

1.2

1.1

1.0

1.2

1.0

1.1

1.0

P/BV

3.4

2.6

2.5

2.5

3.4

2.5

2.5

2.7

FCF Yield (%)

13.6

3.9

4.9

7.1

14.8

4.4

5.0

6.8

Div Yield (%)

0.1

1.4

1.7

3.1

0.1

1.6

1.7

3.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

FV/EBIT

PER SHARE DATA EPS

0.40

0.36

0.43

0.53

0.18

0.15

0.16

0.19

DPS

(0.02)

(0.18)

(0.21)

(0.40)

(0.01)

(0.08)

(0.08)

(0.14)

4.66

4.84

5.05

5.19

1.99

1.90

1.86

1.76

BVPS

139

JSL operates four primary business lines: dedicated supply chain services, management and outsourcing of fleets and equipment, public and private passenger transportation, and general cargo transportation.

Key Personnel: Fernando Antonio Simões (CEO), Denys Marc Ferrez (CFO) and Denys Marc Ferrez (IR Officer) Web: http://ri.jsl.com.br

Revenue Breakdown, 2013A

Asset Sales 8.7%

Dealerships 24.1%

Logistics Services 68.6%

Logistics Revenue Breakdown, 2013A

Passenger Transportati on 10.0%

General Cargo transportatio n 7.1%

Asset Sales 10.1%

Managemen t and Outsourcing 24.7%

Others 1.2%

Dedicated Services 46.8%

Shareholder Structure, Current Others and Free Float 27.0%

Remaining Simões Family 30.1%

Fernando Simões 42.9%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—PULP & FOREST PRODUCTS

KLABIN

BUY CURRENT PRICE: R$14.29 TARGET PRICE: R$18.00



Investment Case: Klabin is our Top Pick in the Pulp & Forest

Felipe Reis*

Products universe, offering a unique combination of good earnings

Brazil: Banco Santander S.A. +5511-3012-5758 | [email protected]

momentum in a difficult domestic environment and a sound and accretive organic growth option, which we think is not yet priced into the stock. We estimate 30% EBITDA CAGR for the next two years.



Renato Maruichi*, CFA Brazil: Banco Santander S.A. +5511-3553-7149 | [email protected]

Outlook 2015: We see Klabin as well positioned to post improved operating performance despite the slow domestic economic activity our economists forecast for 2015. Beyond the Puma project, Klabin will remain a paper packaging company, with most of its revenue coming from its defensive exposure to the food & beverage packaging market. Debottlenecks in the kraftliner and corrugated board segments support our estimated 12% YoY EBITDA growth.



Puma is the best project in the sector, in our view: Puma has unique competitive advantages that support our accretive view. Indeed, relative to the other projects in the sector, it offers (i) exposure to the more balanced supply/demand fluff market; (ii) future verticalization of the cardboard unit; (iii) higher energy sales; and (iv) more leveraged capital structure (75% debt/total capitalization).

Company Statistics Bloomberg



Changing the strategy—from cost-cutting to growth: After instituting a series of successful cost-cutting initiatives, the goal now

R$ 14.29 / US$ 5.31

Target Price (YE 2015)

R$ 18.00 / US$ 6.64

52-Week Range (R$)

is profitable growth. Puma is the first step, and we expect a new

Market Capitalization (US$ Mn)

cardboard line segment, with Klabin’s highest operating margin

Float (%)

(~50%, relative to the current 32% consolidated), to be the next.



KLBN11 BZ

Current Price (01/02/15)

ROE expansion offsets elevated multiples: Klabin trades at 12.5x 2015E EV/EBITDA, relative to 7.5x for domestic peers. We believe higher multiples are a natural consequence of growth until the project

5,580 44.9

3-Mth Avg. Daily Vol (US$ Mn)

14.9

Shares Outstanding - Mn

1,051

Price Performance (R$) KLBN11 BZ

IBOVESPA

M-14

S-14

200 180

startup, and should not be a concern if the investment is accretive

160

from a shareholder standpoint (if leveraged IRR > Ke). We estimate

140

21% leveraged IRR for Puma, relative to 17% Ke. Additionally, we

120

believe Klabin will not wait to deleverage to disburse the cardboard

100

line capex. The bottom line is that we expect KLBN11 to continue to

80

trade at higher multiples for the next two years.

8.00 - 14.59

J-14

Sources: FactSet, Santander estimates and company reports.

140

KLABIN Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 4,599 10.5 1,729 (22.4) 1,562 15.6 34.0 1,097 (32.2) 23.9 (739) (90) 290 (61.4) 6.3

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (767) 735 (166) 1,626 (900) 339 (131) 351 (300) 2

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt LT Debt FINANCIAL RATIOS Net Debt

R$ 2014E 4,979 8.2 1,862 7.7 1,618 3.6 32.5 1,243 13.3 25.0 (439) (358) 470 62.0 9.4

Company Description

US$ 2014E 2015E 2,117 2,193 (0.5) 3.6 792 387 (1.0) (51.2) 688 691 (4.8) 0.5 32.5 31.5 529 123 4.1 (76.7) 25.0 5.6 (187) (209) (152) 24 200 (148) 48.8 (173.8) 9.4 (6.7)

2015E 5,768 15.9 1,017 (45.4) 1,818 12.3 31.5 324 (73.9) 5.6 (549) 64 (388) (182.6) (6.7)

2016E 7,740 34.2 2,862 181.4 2,692 48.1 34.8 1,918 491.8 24.8 (1,040) (186) 635 n/m 8.2

2013A 2,129 (0.1) 800 (29.8) 723 4.5 34.0 508 (38.7) 23.9 (342) (42) 134 (65.1) 6.3

2016E 2,741 25.0 1,013 162.1 953 37.9 34.8 679 451.3 24.8 (368) (66) 225 n/m 8.2

2014E (1,106) 477 849 2,902 (3,436) (823) 0 0 (90) 1,700

2015E (1,711) 345 63 1,732 (3,860) (2,423) 0 1,206 0 0

2016E (1,037) 652 (622) 1,702 (1,487) (126) 0 1,253 (254) 0

2013A (355) 340 (77) 752 (417) 157 (60) 162 (139) 1

2014E (470) 203 361 1,234 (1,461) (350) 0 0 (38) 723

2015E (651) 131 24 658 (1,468) (921) 0 459 0 0

2016E (367) 231 (220) 603 (527) (45) 0 444 (90) 0

2013A 2,979 4,826 9,231 14,919 653 8,872 5,395 6,964 1,125

2014E 4,092 6,295 13,169 20,380 1,859 11,468 7,054 9,075 1,200

2015E 2,927 5,403 15,536 21,879 2,194 13,019 6,666 10,626 1,200

2016E 3,851 7,098 16,249 24,314 2,344 14,924 7,047 12,531 1,200

2013A 1,273 2,062 3,945 6,376 279 3,792 2,305 2,976 481

2014E 1,605 2,469 5,165 7,992 729 4,497 2,766 3,559 471

2015E 1,080 1,994 5,733 8,073 810 4,804 2,460 3,921 443

2016E 1,310 2,414 5,527 8,270 797 5,076 2,397 4,262 408

6,964

9,075

10,626

12,531

2,976

3,559

3,921

4,262

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

3,984

4,983

7,699

8,679

1,703

1,954

2,841

2,952

Capital Employed

12,358

16,129

17,292

19,578

5,281

6,325

6,381

6,659

Net Debt/EBITDA

2.6

3.1

4.2

3.2

2.4

2.8

4.1

3.1

Net Debt/Equity Capex/Revenue (%) Int Cover (%) Dividend Payout (%)

0.7

0.7

1.2

1.2

0.8

0.8

1.2

1.2

19.6

69.0

66.9

19.2

19.6

69.0

66.9

19.2

3.7

3.3

3.1

3.5

3.7

3.3

3.1

3.5

39.9

31.0

0.0

(65.5)

36.1

28.4

0.0

(65.4)

ROCE (%)

9.6

9.9

1.5

10.7

10.4

10.9

1.5

10.7

ROE (%)

5.4

7.5

(5.7)

9.3

5.4

8.1

(5.6)

9.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

45.1

32.6

-

23.7

40.0

28.9

-

24.8

MARKET RATIOS P/E P/CE

38.6

9.7

11.4

9.0

34.2

8.6

11.1

9.4

FV/EBITDA

10.9

12.6

12.5

8.8

9.7

11.2

12.2

8.9

FV/EBIT

21.5

16.3

n/m

12.4

19.1

14.6

n/m

12.6

FV/Revenue

3.8

4.1

3.9

3.1

3.4

3.6

3.8

3.1

P/BV

2.0

2.2

2.3

2.1

1.7

2.1

2.3

2.3

FCF Yield (%)

2.6

(5.4)

(16.1)

(0.8)

2.9

(6.1)

(16.5)

(0.8)

Div Yield (%)

2.3

0.6

(0.0)

1.7

2.6

0.7

(0.0)

1.6

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.28

0.45

(0.37)

0.60

0.13

0.19

(0.14)

0.21

DPS

0.29

0.09

0

0.24

0.13

0.04

0

0.09

BVPS

5.13

6.71

6.34

6.70

2.19

2.63

2.34

2.28

141

Klabin is the largest integrated manufacturer of packaging paper in Brazil, with current nominal production capacity of 1.7 million tons per year. The company’s product portfolio includes kraftliner paper, coated boards, industrial bags, and corrugated boxes. In 2013 roughly 30% of total volume sold and 25% of net revenue should be captured abroad. The Klabin family controls the company, with nearly 60% of voting capital. Klabin's stock should soon be listed in Bovespa’s Level 2 of corporate governance, with 100% tag-along rights for minority shareholders.

Key Personnel: Daniel Miguel Klabin (Chairman), Fabio Schvartsman (CEO), Antonio Sergio Alfano (CFO) and Vinicius Campos (IR Manager) Web: www.klabin.com.br

Revenue by Product, 2013

Corrugated Boxes 29.9%

Sack Kraft 12.4%

Wood/Other s 7.8%

Kraftliner 15.2%

Coated Boards 34.8%

Revenue by Destination, 2013

Exports 27.3%

Domestic 72.7%

Shareholder Structure, Current

Klabin Family 20.5% Free Float 61.6%

Monteiro Aranha 9.2%

BNDESPar 8.7%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—UTILITIES

LIGHT

HOLD CURRENT PRICE: R$17.00 TARGET PRICE: R$20.13

UPGRADING RATING TO HOLD FROM UNDERPERFORM LOWERING YE2015 TARGET PRICE TO R$20.13 FROM R$21.66 

Investment Case: Given the large decline in the stock price, we

Maria Carolina Carneiro*

upgrade our rating to Hold. We still believe that the target for the

Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

regulatory loss curve will be a challenge to reach, mainly due to the company’s problematic concession area (Rio de Janeiro State) and the potential impact of higher tariffs and lower economic activity, but we see the current stock price already pricing in the majority of the risk associated with loss reduction.



Outlook 2015: In our view, Light will maintain its loss-reduction program as the main focus of the company for 2015. Furthermore, we expect the company to act on cost and provisions control. We project that the company's EBITDA will increase in 2015, helped by the reduction in energy purchase costs throughout the year and a tariff increase. For the generation arm, we increase our estimate of losses related to the hydro deficit.



Expecting regulatory improvements. In our view, the major (positive or negative) trigger for Light should be the achievement of the company’s loss curve target defined by Aneel—which issued a loss curve starting from 40.41% (in November 2013) but targeting a

Company Statistics

30.5% level by 2018. We currently include in our model capex related

Bloomberg

to the loss curve and assume that Light will be able to achieve the

LIGT3 BZ

Current Price (01/02/15)

R$ 17.00 / US$ 6.31

Target Price (YE 2015)

R$ 20.13 / US$ 7.60

regulatory metrics. In the third quarter of 2014, the company

52-Week Range (R$)

improved its loss ratio to 41.3% (-0.6 p.p. on a QoQ basis).

Market Capitalization (US$ Mn)

15.18 - 25.38 1,288

Float (%)



Estimates updated. We included a new valuation implied for

37.6

3-Mth Avg. Daily Vol (US$ Mn)

4.8

Shares Outstanding - Mn

204

Renova Energia and a higher hydro deficit estimate (from 5% to 7%) as well as the inclusion of a tariff increase announced by Aneel in

Price Performance (R$) LIGT3 BZ

November 2014.

IBOVESPA

120 110 100 90 80 70 60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

142

D-14

LIGHT Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 7,407 (2.7) 3,291 6.9 1,419 (2.6) 19.2 1,904 7.7 25.7 (454) (265) 310 (27.0) 4.2

R$ 2014E 7,939 7.2 3,005 (8.7) 1,086 (23.5) 13.7 1,432 (24.8) 18.0 (409) (90) 165 (46.9) 2.1

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (335) 660 187 2,390 (845) 1,545 0 (354) (75) 0

2014E (415) 412 (1,356) (101) (768) (869) 0 (335) (365) 0

2015E (470) 519 (15) 887 (844) 44 0 (467) (82) 0

2016E (530) 552 (25) 759 (837) (78) 0 (492) (231) 0

2013A (155) 306 87 1,108 (392) 716 0 (164) (35) 0

2014E (178) 176 (580) (43) (329) (372) 0 (143) (156) 0

2015E (181) 200 (6) 341 (324) 17 0 (179) (32) 0

2016E (903) 940 (43) 1,294 (1,427) (133) 0 (838) (394) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,790 4,313 8,209 13,002 2,427 7,431 3,144 7,040 643

2014E 921 3,919 8,540 12,954 2,963 6,764 3,227 6,848 1,104

2015E 965 4,112 8,914 13,520 3,255 6,808 3,458 6,900 1,113

2016E 887 4,084 9,221 13,800 3,271 6,858 3,671 6,960 1,122

2013A 764 1,841 3,504 5,549 1,036 3,172 1,342 3,005 274

2014E 361 1,537 3,349 5,080 1,162 2,652 1,265 2,685 433

2015E 364 1,552 3,364 5,102 1,228 2,569 1,305 2,604 420

2016E 322 1,485 3,353 5,018 1,190 2,494 1,335 2,531 408

LT Debt

2015E 9,023 13.6 3,787 26.0 1,689 55.6 18.7 2,063 44.0 22.9 (519) (238) 462 180.9 5.1

2016E 9,142 1.3 3,892 2.8 1,727 2.2 18.9 2,034 (1.4) 22.3 (552) (219) 426 (7.9) 4.7

2013A 3,433 (11.9) 1,525 (3.2) 658 (11.8) 19.2 883 (2.5) 25.7 (210) (123) 144 (33.8) 4.2

US$ 2014E 3,397 (1.0) 1,286 (15.7) 464 (29.4) 13.7 613 (30.6) 18.0 (175) (38) 70 (50.9) 2.1

2015E 3,470 2.2 1,456 13.3 650 39.9 18.7 793 29.5 22.9 (200) (92) 178 152.5 5.1

2016E 15,574 348.8 6,631 355.3 2,942 352.9 18.9 3,466 336.8 22.3 (940) (374) 725 308.0 4.7

6,398

5,743

5,787

5,838

2,730

2,252

2,184

2,123

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

5,250

5,926

5,935

6,073

2,241

2,324

2,240

2,208

Capital Employed

6,273

7,106

7,319

7,640

2,677

2,787

2,762

2,778

Net Debt/EBITDA

3.7

5.5

3.5

3.5

3.4

5.0

3.4

0.8

FINANCIAL RATIOS

Net Debt/Equity Capex/Revenue (%) Int Cover (%)

1.7

1.8

1.7

1.7

1.8

2.1

1.7

1.7

11.4

9.7

9.3

9.2

11.4

9.7

9.3

9.2

2.5

1.6

2.4

2.3

2.5

1.6

2.4

2.3

Dividend Payout (%)

17.6

117.8

50.0

50.0

16.0

108.0

44.0

49.7

ROCE (%)

34.6

21.4

31.4

29.5

37.4

24.0

31.6

29.5

ROE (%) MARKET RATIOS P/E

10.0

5.2

13.8

11.9

10.2

5.5

13.8

11.9

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

14.6

21.1

7.5

8.1

13.3

18.5

7.2

1.8

P/CE

7.0

6.0

3.7

3.6

6.4

5.3

3.6

0.8

FV/EBITDA

6.9

8.7

5.6

5.5

6.3

7.8

5.4

1.2

FV/EBIT

5.1

6.6

4.6

4.7

4.7

5.9

4.4

1.0

FV/Revenue

1.3

1.2

1.0

1.0

1.2

1.1

1.0

0.2

P/BV

1.4

1.1

1.0

0.9

1.4

1.0

1.0

1.0

34.2

(25.0)

1.3

(2.3)

37.4

(28.5)

1.3

(10.3)

FCF Yield (%) Div Yield (%) PER SHARE DATA EPS DPS BVPS

1.7

10.5

2.4

6.7

1.8

12.0

2.5

30.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

1.52

0.81

2.27

2.09

0.70

0.35

0.87

3.56

1.79

0.40

1.13

1.04

0.83

0.17

0.44

1.78

15.42

15.82

16.96

18.00

6.58

6.20

6.40

6.55

143

Light S.A. is an integrated company operating in the Brazilian electricity market. In electricity distribution, its main activity, the company holds a concession to operate in part of the State of Rio de Janeiro, currently representing 11.5% of national GDP. The company distributes more than 25GWh of energy to over 4 million clients. Light S.A. also operates the generation and commercialization of electricity through its subsidiaries Light Energia and Light Esco. The generation segment, with an installed capacity of 961 MW represents roughly 34% of the group’s consolidated EBITDA.

Key Personnel: Sérgio Alair Barroso (Chairman), Paulo Roberto Ribeiro Pinto (CEO), João Batista Zolini Carneiro (CFO) and Gustavo Werneck Souza (IR Manager) Web: http://ri.light.com.br/

EBITDA by Business, 9M14

Trading 6.4%

Generation 33.7%

Distribution 59.9%

Sales by Segment (DisCo), 2015E

Others 17.3%

Industrial 6.6%

Commercial 34.5%

Residential 41.6%

Shareholder Structure, Current

Free Float 37.6%

BNDESPAR 10.3%

Cemig 26.1%

Luce 13.0%

RME 13.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—TELECOM, MEDIA & TECHNOLOGY

LINX

HOLD CURRENT PRICE: R$51.35 TARGET PRICE: R$57.00

INTRODUCING YE2015 TARGET PRICE OF R$57.00; REPLACING YE2014 TARGET PRICE OF R$49.00 

Investment Case: Linx’s attractive growth story remains untouched, in our view, as it is poised to leverage on (i) IT tailwinds in Brazil (e.g.,

Valder Nogueira*

formalization of the market, digitalization of retailers, and increasing

Brazil: Banco Santander S.A. +5511-3012-5747 | [email protected]

use of credit cards); and (ii) focus on retail, but not a retail company,

Bruno Mendonca*

meaning that it benefits from the expansion of retail (opening of new

Brazil: Banco Santander S.A. +5511-3012-5759 | [email protected]

stores, malls, and the sales concentration trend into larger retailers, most of them already Linx’s clients), but is not immediately affected by overall SSS short-term deceleration. Multiple-wise, the stock looks expensive, trading at 17.7x EV/EBITDA 2015E and 24.7x P/E 2015E, but the quality of Linx’s execution since the IPO, combined with a positive track record of acquisitions, makes it a core-value holding story in Brazil.



Outlook 2015: Linx’s recurring revenue model and service backlog provide above-average results predictability, in our view. Although we cannot fully rule out some margin volatility due to M&A integration, we do not expect any major earnings surprise (either negative or positive) in the short term. Even after delivering seven acquisitions since the IPO in February 2013, we believe the pipeline remains strong, and we do not rule out new announcements. Meanwhile, we expect Linx to focus on accelerating the integration of the acquired companies. For 2015, we expect mid-teens organic top-line growth

Company Statistics

and stable margins YoY, with earnings resilience being the main

Bloomberg

support for the stock.



Long-term double-digit growth looks feasible when we combine (1) unpenetrated market, estimated below 20% in Linx’s main target

LINX3 BZ

Current Price (01/02/15)

R$ 51.35 / US$ 19.07

Target Price (YE 2015)

R$ 57.00 / US$ 21.03

52-Week Range (R$)

39.75 - 57.80

Market Capitalization (US$ Mn)

887

Float (%)

48.3

market (mid-sized and large retailers); (2) government’s programs to

3-Mth Avg. Daily Vol (US$ Mn)

3.5

fight tax evasion (formalization trends); and (3) Linx’s ability to make

Shares Outstanding - Mn

47

successful acquisitions and accelerate growth in the acquired companies (food, with acquisitions made in 2012, and gas stations,

Price Performance (R$) LINX3 BZ

with acquisitions made in 2014, are currently Linx’s fastest-growing

200

verticals).

180

IBOVESPA

160



Micro retail and the partnership with Cielo. The joint venture with

140

Cielo is another potential source of long-term growth in a market that

120

is mostly untapped (micro retailers). Linx will start testing the

100

products in 2H15 and we will follow progress closely, but we do not expect this to become significant in the short to medium term.

80 60

f-13

j-13

o-13

f-14

j-14

o-14

Sources: FactSet, Santander estimates and company reports.

144

LINX Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 295 27.9 211 27.7 87 45.9 29.5 57 67.3 19.4 19 (14) 78 95.0 26.3

R$ 2014E 364 23.2 260 23.0 103 18.2 28.3 63 10.2 17.4 26 (19) 99 27.0 27.1

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (30) 1 93 (64) 39 6 0 0

2014E (40) (8) 102 (29) 58 (2) (19) 0

2015E (43) (5) 117 (24) 104 4 (39) 0

2016E (41) (5) 132 (25) 121 5 (39) 0

2013A (14) 1 43 (29) 18 3 0 0

2014E (16) (3) 42 (12) 24 (1) (8) 0

2015E (16) (2) 44 (9) 40 1 (15) 0

2016E (14) (2) 47 (9) 43 2 (14) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 335 411 357 769 80 103 586 65 29

2014E 285 374 428 803 91 91 622 63 34

2015E 342 445 409 855 102 81 672 67 36

2016E 416 533 393 927 114 78 736 72 39

2013A 143 175 152 328 34 44 250 28 12

2014E 112 147 168 315 36 36 244 25 13

2015E 126 164 151 315 37 30 248 25 13

2016E 141 181 134 315 39 26 250 25 13

36

29

30

33

15

11

11

11

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

(271)

(222)

(276)

(344)

(116)

(87)

(102)

(117)

Capital Employed

316

400

397

392

135

157

146

133

Net Debt/EBITDA

(3.1)

(2.2)

(2.3)

(2.6)

(2.9)

(2.1)

(2.2)

(2.5)

Net Debt/Equity

(0.5)

(0.4)

(0.4)

(0.5)

(0.5)

(0.4)

(0.4)

(0.5)

Capex/Revenue (%)

21.7

8.0

5.6

5.3

21.7

8.0

5.6

5.3

LT Debt FINANCIAL RATIOS Net Debt

Int Cover (%)

2015E 419 15.1 301 16.1 119 16.0 28.5 77 21.3 18.3 28 (26) 97 (1.8) 23.1

2016E 478 14.1 344 14.1 133 11.4 27.8 92 20.3 19.3 36 (32) 109 12.6 22.8

2013A 135 14.3 96 14.1 40 30.4 29.5 26 49.5 19.4 9 (7) 35 74.3 26.3

US$ 2014E 149 10.4 106 10.3 42 5.9 28.3 26 (1.2) 17.4 11 (8) 40 13.9 27.1

2015E 159 7.0 115 8.0 45 7.9 28.5 29 12.9 18.3 11 (10) 37 (8.6) 23.1

2016E 169 6.2 122 6.2 47 3.7 27.8 33 12.0 19.3 13 (11) 39 4.8 22.8

-

-

-

-

-

-

-

-

0.0

25.0

40.0

40.0

0.0

22.9

35.2

39.7

ROCE (%)

21.4

19.1

24.1

29.4

23.1

21.1

24.3

29.4

ROE (%)

18.9

16.3

15.0

15.5

19.8

17.4

15.0

15.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

28.7

23.8

24.7

21.9

26.7

21.9

24.1

23.0

P/CE

20.7

17.0

17.1

15.9

19.3

15.6

16.7

16.7

FV/EBITDA

22.5

20.7

17.7

15.4

20.9

18.9

17.3

16.4

FV/EBIT

Dividend Payout (%)

MARKET RATIOS

37.6

33.7

27.6

22.2

34.9

30.9

27.0

23.6

FV/Revenue

6.6

5.8

5.0

4.3

6.2

5.4

4.9

4.6

P/BV

3.8

3.8

3.6

3.2

3.8

3.6

3.6

3.5

FCF Yield (%)

1.7

2.5

4.3

5.1

1.9

2.7

4.5

4.8

(0.0)

0.8

1.7

1.6

(0.0)

0.9

1.7

1.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.67

2.12

2.08

2.34

0.76

0.87

0.79

0.83

DPS

0

0.42

0.85

0.83

0

0.17

0.32

0.29

12.60

13.36

14.45

15.82

5.38

5.24

5.33

5.38

Div Yield (%) PER SHARE DATA

BVPS

145

Linx is the leading provider of enterprise resource planning (ERP) and point of sale (POS) software solutions for the retail sector in Brazil, also offering connectivity solutions, TEF (electronic transfer of funds), e-commerce and CRM (customer relationship management). Linx has a 33% market share of the Brazilian software solutions market in this segment, serving more than 30,000 retailers nationwide in diversified sub-verticals such as apparel, car dealers, food chains, drugstores, supermarkets and franchises. Main shareholders are the founders of the company (31%), BNDESPar (10%) and private equity Genesis Asset (10%). The remaining capital is free float. Linx is listed on the Novo Mercado section of the BM&F-Bovespa stock market.

Key Personnel: Alberto Menache (CEO), Dennis Herszkowicz (CFO) and Dennis Herszkowicz (CFO and IR Manager) Web: www.linx.com.br/ri

Revenue Breakdown, 2013

Services 22.3%

Maintenanc e 77.7%

Revenue Concentration, 2013 #1 largest client 2.8% others 59.8%

#2-#100 larger clients 37.4%

Shareholder Structure, Current

Board/Foun ders 31.3%

Free Float 48.3%

Genesis Asset 10.0%

BndesPar 10.4%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—TRANSPORTATION

LOCALIZA

HOLD CURRENT PRICE: R$35.71 TARGET PRICE: R$38.00

INTRODUCING YE2015 TARGET PRICE OF R$38.00; REPLACING YE2014 TARGET PRICE OF R$37.00 

Investment Case: We reiterate our Hold rating, as we project a very

Bruno Amorim*, CFA

difficult 2015 based on (i) another year of weak GDP growth (we now

Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

expect 0.3% vs. 1.3% previously), and (ii) very difficult comparables due to the positive one-offs that took place in 2014. We now estimate R$418 million net profit in 2015 (up 2% vs. 2014), which implies a

Pedro Balcão Reis* Brazil: Banco Santander S.A. +5511-3012-5765 | [email protected]

17x 2015E P/E. Therefore, we see very little upside potential.



Outlook 2015: We expect flat earnings in 2015 based on (i) weak GDP growth (0.3%); (ii) higher financial results, due to higher interest rates; and (iii) higher depreciation due to a normalization of the secondhand car market in Brasil. For 2015 we estimate: (i) top-line growth of 6%, (ii) EBITDA up 6%, and (iii) net profit growth of 2%. This compares with our estimates for 2014 of (1) top-line growth of 11%, (2) EBITDA up 7%, and (3) net profit growth of 5%.



A relatively strong 2014: The company is on track to deliver doubledigit top-line growth in 2014E with GDP growth that we estimate at just 0.3%, but this does not lead us to expect similar strong growth in 2015. We estimate GDP growth in 2015 in-line with that of 2014; however, in 2014 Localiza benefited from several one-offs: (i)

Company Statistics

presidential elections, (ii) a major sporting event, and (iii) a late

Bloomberg

Easter.



RENT3 BZ

Current Price (01/02/15)

R$ 35.71 / US$ 13.26

Target Price (YE 2015)

R$ 38.00 / US$ 14.02

52-Week Range (R$)

30.00 - 40.35

Slightly below consensus: At R$1,035 million and R$418 million,

Market Capitalization (US$ Mn)

our estimates for 2015 EBITDA and net profit are slightly below

Float (%)

66.0

3-Mth Avg. Daily Vol (US$ Mn)

12.8

Shares Outstanding - Mn

208

Bloomberg consensus (EBITDA estimate 3% below consensus; net

2,763

profit estimate 3.5% below). While these are small deviations, we believe this implies that unlike previous years, when quarterly results

RENT3 BZ

surprised the market positively and consensus moved up during the

120

year, supporting the shares, in 2015E we should see a small decline

110

in consensus estimates.



Price Performance (R$) IBOVESPA

100

2015E P/E of 18x: Given the significant deceleration in Localiza’s

90

earnings growth, 5% in 2014E and 2% in 2015E, we do not expect

80

any significant expansion of this multiple.

70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

146

D-14

LOCALIZA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 3,506 10.7 1,314 6.8 917 4.7 26.1 652 39.9 18.6 (111) (157) 391 15.9 11.2

R$ 2014E 3,877 10.6 1,406 7.0 979 6.9 25.3 741 13.7 19.1 (162) (169) 411 4.9 10.6

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (265) 1,486 122 843 (592) 250 0 288 (255) 0

2014E (238) 1,689 (212) 545 (585) (40) 0 270 (103) 0

2015E (252) 1,810 (10) 790 (616) 174 0 0 (104) 0

2016E (278) 1,919 1 862 (678) 185 0 0 (111) 0

2013A (123) 689 56 391 (274) 116 0 134 (118) 0

2014E (101) 719 (90) 232 (249) (17) 0 115 (44) 0

2015E (96) 688 (4) 300 (234) 66 0 0 (40) 0

2016E (98) 679 0 305 (240) 65 0 0 (39) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,011 1,426 226 4,578 534 2,703 1,341 2,344 0

2014E 1,273 1,709 218 5,182 553 2,939 1,691 2,613 0

2015E 1,212 1,664 274 5,511 562 2,946 2,004 2,613 0

2016E 1,144 1,628 331 5,894 594 2,964 2,335 2,613 0

2013A 431 609 96 1,954 228 1,153 572 1,000 0

2014E 499 670 85 2,032 217 1,152 663 1,025 0

2015E 447 614 101 2,034 207 1,087 739 964 0

2016E 389 554 112 2,005 202 1,008 794 889 0

LT Debt

2015E 4,119 6.2 1,487 5.7 1,035 5.7 25.1 783 5.7 19.0 (187) (179) 418 1.7 10.1

2016E 4,393 6.7 1,592 7.1 1,112 7.4 25.3 834 6.6 19.0 (203) (189) 442 5.9 10.1

2013A 1,625 0.3 609 (3.2) 425 (5.2) 26.1 302 26.8 18.6 (51) (73) 181 5.0 11.2

US$ 2014E 1,650 1.5 598 (1.7) 417 (1.9) 25.3 315 4.4 19.1 (69) (72) 175 (3.7) 10.6

2015E 1,566 (5.1) 565 (5.5) 394 (5.6) 25.1 298 (5.6) 19.0 (71) (68) 159 (9.1) 10.1

2016E 1,555 (0.7) 564 (0.3) 394 0.0 25.3 295 (0.8) 19.0 (72) (67) 156 (1.4) 10.1

2,344

2,613

2,613

2,613

1,000

1,025

964

889

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

1,333

1,340

1,401

1,469

569

526

517

500

Capital Employed

2,761

3,131

3,505

3,904

1,178

1,228

1,293

1,328

Net Debt/EBITDA

1.5

1.4

1.4

1.3

1.3

1.3

1.3

1.3

FINANCIAL RATIOS

Net Debt/Equity Capex/Revenue (%) Int Cover (%)

1.0

0.8

0.7

0.6

1.1

0.9

0.7

0.6

16.9

15.1

15.0

15.4

16.9

15.1

15.0

15.4

4.9

3.6

3.4

3.5

4.9

3.6

3.4

3.5

Dividend Payout (%)

75.6

26.2

25.4

26.5

68.4

24.1

22.4

26.3

ROCE (%)

15.6

15.6

14.7

14.1

17.8

18.7

14.9

14.1

ROE (%)

29.4

27.1

22.6

20.4

29.8

29.0

22.6

20.4

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

17.7

18.1

17.8

16.8

16.2

16.0

17.4

17.7

P/CE

10.6

11.5

11.1

10.3

9.7

10.1

10.9

10.8

9.0

9.0

8.5

8.0

8.2

8.0

8.3

8.3

12.7

11.8

11.3

10.7

11.6

10.5

11.0

11.0

FV/Revenue

2.4

2.3

2.1

2.0

2.2

2.0

2.1

2.1

P/BV

5.2

4.4

3.7

3.2

5.1

4.2

3.7

3.5

FCF Yield (%)

3.6

(0.5)

2.3

2.5

4.0

(0.6)

2.4

2.4

Div Yield (%)

3.7

1.4

1.4

1.5

4.0

1.6

1.4

1.4

FV/EBITDA FV/EBIT

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.85

1.97

2.00

2.12

0.86

0.84

0.76

0.75

DPS

1.52

0.52

0.50

0.53

0.70

0.22

0.19

0.19

BVPS

6.45

8.12

9.62

11.21

2.75

3.18

3.55

3.81

147

Localiza—Localiza Rent a Car S.A.—was founded in 1973 and is currently the main car rental company in Brazil. The company has the largest car rental network in the country, totaling 477car rental branches (it owns 301 and franchises 176 in Brazil). In addition, Localiza has 63 franchised branches in other countries in Latin America. It operates under four business units: car rental; fleet management/rental; franchising; and used car sales (Seminovos). The company ended 1Q14 with a fleet of around 96,651 vehicles. Localiza’s IPO was held on May 20, 2005, and the company’s shares are listed in the Bovespa’s Novo Mercado (New Market).

Key Personnel: Salim Mattar (Chairman), Eugênio Mattar (CEO), Roberto Mendes (CFO) and Nora Lanari (IR Director) Web: www.localiza.com.br

EBITDA by Segment, 2013A Used car sales 10.8% Fleet Rental 41.2%

Car Rental 48.0%

Average Operating Fleet, 2013A

Fleet Rental 34.5%

Car Rental 65.5%

Shareholder Structure, Current

Free Float 70.8%

Antonio Claudio Brandao Resende 9.0% Jose Salim Mattar Junior 7.7% Flavio Brandao Resende Eugenio 6.1% Pacelli Mattar 6.4%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—RETAIL & CONSUMER GOODS

LOJAS AMERICANAS

BUY CURRENT PRICE: R$16.86 TARGET PRICE: R$21.00

RAISING YE2015 TARGET PRICE TO R$21.00 FROM R$19.00 

Investment Case: Lojas Americanas remains our top pick among

João Mamede*

Brazilian retailers, as we continue to believe that LAME’s bricks-and-

Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

mortar operation offers strong growth opportunities (to nearly double the store footprint over the next five years) due to its flexible store format and store-opening expertise, which has led to margin expansion, despite pre-operating expenses, and should translate into superior returns (~30% ROIC in 2015E). Moreover, we expect the

Ronaldo Kasinsky* Brazil: Banco Santander S.A. +5511-3553-2396 | [email protected]

Jessica Bessa* Brazil: Banco Santander S.A. +5511-3553-9602 | [email protected]

turnaround of B2W to offer greater earnings visibility and further propel earnings growth for its parent company. The stock is trading at a ~32x P/E for 2015E, roughly in-line with its historical average (30x P/E), but 30% above some of its peers in Brazil.



Outlook for 2015: Despite the weaker macroeconomic environment expected, we believe LAME’s B&M division continues to be well positioned to expand aggressively in a still fragmented retail industry, owing to its flexible store model and superior execution. We expect LAME to open 160 stores in 2015 (+14% YoY sales area expansion) and to sustain high-single-digit SSS (+8%), along with registering +20-bps YoY EBITDA margin expansion and enhanced earnings growth (supported by positive results coming from B2W), making it the fastest growing retailer in Brazil (consolidated EPS growing 55% YoY).

Company Statistics Bloomberg

LAME4 BZ

Current Price (01/02/15)

R$ 16.86 / US$ 6.26

Target Price (YE 2015)

R$ 21.00 / US$ 7.75

52-Week Range (R$)



Catalysts: We are convinced that LAME offers the best combination of healthy growth, margin expansion, and superior FCF owing to its defensive sales mix (diversified sales mix and low credit exposure) combined with best-in-class execution. Moreover, we anticipate the turnaround of B2W (turning bottom-line positive) will provide a major boost to LAME’s consolidated earnings growth.

11.08 - 17.24

Market Capitalization (US$ Mn)

7,611

Float (%)

53.5

3-Mth Avg. Daily Vol (US$ Mn)

14.3

Shares Outstanding - Mn

1,215

Price Performance (R$) LAME4 BZ

IBOVESPA

120 110



Concerns: Main risks to our investment case include (1) a slower-

100

than-expected recovery at B2W’s level, (2) additional stores could 90

result in diminishing returns, and (3) higher trading multiples versus 80

its peers.

70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

148

D-14

LOJAS AMERICANAS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 13,401 18.2 4,075 20.0 1,846 17.3 13.8 1,573 15.4 11.7 (881) (169) 463 13.4 3.5

R$ 2014E 16,308 21.7 4,847 19.0 2,185 18.4 13.4 1,813 15.3 11.1 (1,238) (153) 410 (11.3) 2.5

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (273) 285 2 477 (1,347) 491 0 1,970 (120) 0

2014E (373) 916 670 1,624 (1,545) 1,483 0 (329) (137) 0

2015E (437) 999 932 2,131 (1,516) 819 0 23 (124) 0

2016E (520) 1,212 26 1,642 (1,427) 711 0 458 (173) 0

2013A (127) 132 1 221 (624) 227 0 913 (56) 0

2014E (159) 390 285 692 (658) 632 0 (140) (58) 0

2015E (166) 380 354 810 (577) 311 0 9 (47) 0

2016E (184) 429 9 581 (505) 252 0 162 (61) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 4,088 10,900 5,147 16,047 7,389 7,170 1,175 9,602 2,656

2014E 3,701 10,703 7,513 18,216 8,508 6,570 1,771 9,273 2,915

2015E 3,471 10,818 9,245 20,063 9,807 6,570 2,284 9,296 2,938

2016E 3,460 12,025 10,579 22,605 11,509 6,570 3,034 9,754 3,396

2013A 1,745 4,652 2,197 6,849 3,154 3,060 501 4,098 1,134

2014E 1,451 4,197 2,946 7,144 3,336 2,576 695 3,636 1,143

2015E 1,281 3,992 3,411 7,403 3,619 2,424 843 3,430 1,084

2016E 1,177 4,090 3,598 7,689 3,915 2,235 1,032 3,318 1,155

LT Debt

2015E 20,197 23.8 5,877 21.2 2,683 22.8 13.3 2,246 23.9 11.1 (1,219) (313) 637 55.3 3.2

2016E 24,240 20.0 7,105 20.9 3,341 24.5 13.8 2,821 25.6 11.6 (1,267) (485) 923 44.8 3.8

2013A 6,211 7.1 1,889 8.7 856 6.3 13.8 729 4.5 11.7 (408) (78) 215 2.8 3.5

US$ 2014E 6,945 11.8 2,064 9.3 931 8.8 13.4 772 5.9 11.1 (527) (65) 175 (18.5) 2.5

2015E 7,680 10.6 2,235 8.3 1,020 9.6 13.3 854 10.6 11.1 (463) (119) 242 38.7 3.2

2016E 8,581 11.7 2,515 12.5 1,183 15.9 13.8 999 16.9 11.6 (448) (172) 327 34.8 3.8

6,946

6,358

6,358

6,358

2,964

2,493

2,346

2,163

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

5,514

5,572

5,825

6,294

2,353

2,185

2,149

2,141

Capital Employed

8,658

9,709

10,256

11,096

3,695

3,807

3,784

3,774

Net Debt/EBITDA

3.0

2.5

2.2

1.9

2.8

2.3

2.1

1.8 2.1

FINANCIAL RATIOS

Net Debt/Equity

4.7

3.1

2.6

2.1

5.1

3.6

2.6

10.1

9.5

7.5

5.9

10.1

9.5

7.5

5.9

2.1

1.6

1.7

1.9

2.1

1.6

1.7

1.9

Dividend Payout (%)

29.4

29.6

30.3

27.2

26.6

27.2

26.7

27.0

ROCE (%)

16.2

17.1

18.9

21.1

17.9

19.5

19.0

21.1

ROE (%)

46.7

27.9

31.4

34.7

48.0

29.9

31.5

34.7 2016E

Capex/Revenue (%) Int Cover (%)

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

P/E

27.0

n/m

32.1

22.2

24.7

45.1

31.4

23.3

P/CE

17.0

26.8

19.1

14.2

15.5

23.6

18.6

14.9

FV/EBITDA

11.6

19.5

14.5

11.0

10.6

17.4

14.1

11.4

FV/EBIT

13.6

23.6

17.3

13.1

12.4

20.9

16.9

13.5

1.6

2.6

1.9

1.5

1.5

2.3

1.9

1.6

10.6

11.8

9.0

6.8

10.6

11.3

9.0

7.4

3.9

7.1

4.0

3.5

4.3

8.0

4.1

3.3

FV/Revenue P/BV FCF Yield (%) Div Yield (%)

1.0

0.7

0.6

0.8

1.0

0.7

0.6

0.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.47

0.34

0.52

0.76

0.22

0.14

0.20

0.27

DPS

0.12

0.11

0.10

0.14

0.06

0.05

0.04

0.05

BVPS

1.18

1.46

1.88

2.50

0.50

0.57

0.69

0.85

PER SHARE DATA

149

LAME is one of the fastest growing general merchandisers in Brazil featuring a multi-channel platform comprising physical stores, e-commerce, catalog and television sales. The company currently operates 893 stores (3Q14) in all major cities (in all states + DF) and four distribution centers (São Paulo, Rio de Janeiro, Recife and Uberlândia), selling over 60,000 items from 4,000 different supplies, giving Lojas Americanas a major share of Brazilian trade in toys, chocolates & candies, lingerie, and CDs. Additionally, LAME is also the controller of the leading e-commerce player in Brazil (B2W) selling over 700,000 SKUs on its internet sites.

Key Personnel: Carlos Alberto Sicupira (Chairman), Miguel Gutierrez (CEO), Murilo Corrêa (CFO) and Fabien Picavet (Investor Relations Manager) Web: www.ri.lasa.com.br

Stores per Format, 3Q14

Express 35.5%

Traditional 64.5%

Payments by Type, 9M14

Credit Cards 52.0%

Cash 48.0%

Shareholder Structure, Current

Free Float 53.5%

Treasury Shares 2.5%

Controlling Group 44.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—RETAIL & CONSUMER GOODS

LOJAS RENNER

HOLD CURRENT PRICE: R$75.90 TARGET PRICE: R$83.00

RAISING YE2015 TARGET PRICE TO R$83.00 FROM R$79.00 

Investment Case: Lojas Renner has been able to deliver steady

João Mamede*

growth based on solid execution, which we believe will continue to

Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

support consistent market share gains. We remain convinced that the company’s growth outlook is robust and despite the tougher consumption environment expected, a combination of its strong culture, people, and internal processes should continue to serve as key competitive advantages. The stock currently trades at a 2015E

Ronaldo Kasinsky* Brazil: Banco Santander S.A. +5511-3553-2396 | [email protected]

Jessica Bessa* Brazil: Banco Santander S.A. +5511-3553-9602 | [email protected]

P/E of 17.0x, a deserved premium to apparel retailers in Brazil given the company’s superior execution and consistent track record, yet we maintain our Hold rating based on limited upside to our YE2015 target price of R$83.00.



Outlook for 2015: We expect vigorous 6.8% SSS, with 15% YoY top-line growth supported by +40 store openings in 2015, while margins should continue to benefit from operating leverage and collection assertiveness (lower markdowns), despite a smoother contribution form financial services.



Catalysts: Renner has a solid track record of store openings, which we believe should be supported by further developing its secondary

Company Statistics

store formats (YOUCOM and Camicado), while the introduction of

Bloomberg

the push-and-pull logistics (maturing initiative) should serve as a new

R$ 75.90 / US$ 28.19

Target Price (YE 2015)

R$ 83.00 / US$ 30.63

margin expansion opportunity, helping to reduce in-store stock levels

52-Week Range (R$)

and improving distribution efficiency. Moreover, we expect the recent

Market Capitalization (US$ Mn)

3,524

credit card business partnership with Indusval Bank will help to

Float (%)

100.0

3-Mth Avg. Daily Vol (US$ Mn)

17.4

Shares Outstanding - Mn

125

further develop co-branded credit cards within LAME’s consumer base and ultimately drive store merchandise sales.



LREN3 BZ

Current Price (01/02/15)

53.63 - 76.68

Price Performance (R$) LREN3 BZ

Concerns: Main risks to our investment case include (1) increased

110

competition from domestic and foreign brands, (2) deterioration in

100

LAME’s consumer finance business, (3) stock-outs when fully

IBOVESPA

90

implementing the push-and-pull logistics scheme, and (4) premium 80

valuation (2015E P/E of 17x). 70 60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

150

D-14

LOJAS RENNER Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 3,914 13.1 2,063 11.8 822 17.4 21.0 655 15.4 16.7 (68) (175) 407 14.6 10.4

R$ 2014E 4,491 14.7 2,401 16.4 998 21.4 22.2 786 20.0 17.5 (83) (213) 490 20.4 10.9

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (167) 330 (249) 320 (412) (86) 0 472 (262) 0

2014E (212) 572 (432) 419 (483) (212) 0 34 (247) 0

2015E (263) 625 (267) 655 (459) 97 0 0 (196) 0

2016E (290) 757 (263) 881 (460) 244 0 0 (421) 0

2013A (78) 153 (115) 149 (191) (40) 0 219 (121) 0

2014E (90) 244 (184) 178 (206) (90) 0 15 (105) 0

2015E (100) 238 (102) 249 (175) 37 0 0 (75) 0

2016E (103) 268 (93) 312 (163) 86 0 0 (149) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 802 3,001 1,386 4,516 1,964 1,059 1,493 1,744 728

2014E 525 3,000 1,656 4,802 1,559 1,336 1,906 1,779 480

2015E 525 3,347 1,852 5,345 1,639 1,336 2,370 1,779 480

2016E 525 3,688 2,021 5,855 1,717 1,336 2,802 1,779 480

2013A 342 1,281 591 1,927 838 452 637 744 311

2014E 206 1,177 649 1,883 612 524 747 697 188

2015E 194 1,235 683 1,972 605 493 874 656 177

2016E 178 1,254 688 1,991 584 455 953 605 163

1,016

1,298

1,298

1,298

433

509

479

442

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

943

1,254

1,254

1,254

402

492

463

426

Capital Employed

2,552

3,242

3,706

4,138

1,089

1,271

1,367

1,408

Net Debt/EBITDA

1.1

1.3

1.1

0.9

1.1

1.2

1.0

0.9 0.4

LT Debt FINANCIAL RATIOS Net Debt

Net Debt/Equity

2015E 5,159 14.9 2,774 15.5 1,173 17.5 22.7 910 15.7 17.6 (106) (243) 561 14.4 10.9

2016E 5,817 12.7 3,144 13.4 1,372 16.9 23.6 1,081 18.8 18.6 (111) (293) 677 20.6 11.6

2013A 1,814 2.4 956 1.3 381 6.4 21.0 304 4.6 16.7 (31) (81) 189 3.9 10.4

US$ 2014E 1,912 5.4 1,022 6.9 425 11.5 22.2 335 10.3 17.5 (35) (91) 209 10.6 10.9

2015E 1,962 2.6 1,055 3.2 446 4.9 22.7 346 3.3 17.6 (40) (92) 213 2.1 10.9

2016E 2,059 5.0 1,113 5.5 485 8.9 23.6 383 10.6 18.6 (39) (104) 240 12.3 11.6

0.6

0.7

0.5

0.4

0.7

0.7

0.5

10.5

10.7

8.9

7.9

10.5

10.7

8.9

7.9

6.9

5.7

6.2

7.0

6.9

5.7

6.2

7.0

Dividend Payout (%)

73.7

60.7

40.0

75.0

66.7

55.6

35.2

74.5

ROCE (%)

32.5

30.8

31.1

33.2

34.9

33.9

31.3

33.2

ROE (%)

29.1

28.9

26.2

26.2

29.7

30.9

26.3

26.2

Capex/Revenue (%) Int Cover (%)

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

18.9

19.7

17.1

14.2

17.2

17.4

16.7

14.9

P/CE

13.4

13.7

11.6

9.9

12.2

12.1

11.4

10.4

FV/EBITDA

10.5

10.9

9.2

7.9

9.6

9.7

9.0

8.2

FV/EBIT

13.2

13.9

11.9

10.0

12.0

12.3

11.6

10.4

FV/Revenue

2.2

2.4

2.1

1.9

2.0

2.2

2.0

1.9

P/BV

5.1

5.1

4.0

3.4

5.1

4.9

4.1

3.7

(1.1)

(2.2)

1.0

2.5

(1.2)

(2.5)

1.0

2.4

FCF Yield (%) Div Yield (%) PER SHARE DATA EPS DPS BVPS

3.4

2.6

2.0

4.4

3.7

2.9

2.1

4.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

3.24

3.89

4.45

5.36

1.50

1.66

1.69

1.90

2.08

1.96

1.55

3.33

0.96

0.83

0.59

1.18

11.86

15.11

18.78

22.21

5.06

5.92

6.93

7.55

151

Lojas Renner is one of the largest Brazilian apparel retailers, targeting middle- and upper-middle-income consumers (mainly women between 18 and 39 years of age) selling several different third-party-produced private label brands based on a “lifestyle” concept. The company has 232 Renner stores, including traditional stores (average selling area of 2,000 sqm) and compact stores (average selling area of 1,000 sqm), 23 YOUCOM stores and 58 Camicado stores. Besides the traditional retail operations, Renner also offers financial services, which accounted for ~34% of EBITDA in 3Q14. The stock trades on the Novo Mercado with 100% free float.

Key Personnel: Osvaldo Burgos Schirmer (Chairman), José Galló (CEO), Laurence Gomes (CFO) and Paula Picinini (Investor Relations Manager) Web: www.lojasrenner.com.br/

EBITDA Breakdown, 3Q14

Financial 32.5%

Retail 67.5%

Sales by Payment Type, 9M14

Other Cards 24.2% Cash 25.3%

Renner Card 50.5%

Shareholder Structure, Current

Others 61.0%

Aberdeen 14.0% BlackRock 7.1%

J.P.Morgan 7.0% T. Rowe Price BTG 5.4% Pactual 5.5%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—METALS & MINING

MAGNESITA

HOLD CURRENT PRICE: R$2.05 TARGET PRICE: R$2.40

LOWERING YE2015 TARGET PRICE TO R$2.40 FROM R$4.70 

Investment Case: Although we believe that many of the negatives

Felipe Reis*

for the stock have been priced in over the last few months, the

Brazil: Banco Santander S.A. +5511-3012-5758 | [email protected]

challenging scenario is likely to continue in the medium term. Our economics team estimates 0.3% domestic GDP growth for 2015, mainly driven by poor industrial activity. Key expansion markets have

Renato Maruichi*, CFA Brazil: Banco Santander S.A. +5511-3553-7149 | [email protected]

also been posting low-single-digit growth. We see no clear triggers for the company. Moreover, cancellation of the graphite project due to limited mining resources (short mining life of only six years, after the drilling campaign) may weigh on investor sentiment, in our view.



Outlook 2015: The persistently weak macro scenario has been a strong headwind against Magnesita’s attempts to deliver operating improvement. We estimate that the company’s EBITDA will remain in the range of R$385-415 million annually for the next few years, despite management’s efforts to gain global market share. Though we believe that such a performance would be below the company’s potential, we would need to see more concrete evidence of significant operating improvement before becoming more upbeat on the name. Company Statistics



Higher COGS: an issue to be addressed by management. Magnesita’s new management is adopting measures to improve

Bloomberg

MAGG3 BZ

Current Price (01/02/15)

R$ 2.05 / US$ 0.76

Target Price (YE 2015)

R$ 2.40 / US$ 0.89

performance by expanding the company’s global footprint into new

52-Week Range (R$)

markets (roughly 70% of the company’s sales volume expansion has

Market Capitalization (US$ Mn)

217

Float (%)

59.8

been gained from new markets). However, top-line growth has not consistently translated into EBITDA expansion, due to higher costs and expenses, reflecting labor and raw materials inflation. We are concerned about Magnesita’s ability to gain pricing power in order to better defend margins in the future.

2.05 - 5.85

3-Mth Avg. Daily Vol (US$ Mn)

0.3

Shares Outstanding - Mn

285

Price Performance (R$) MAGG3 BZ

IBOVESPA

120 100



Leverage should remain at high levels. Magnesita ended 3Q14 at

80

3.7x net debt/EBITDA, and we estimate that could increase even 60

further (to 4.0x in the near future) given the real depreciation scenario ahead. Additionally, we project the company will generate meaningful FCF only in 2018, too far in the future to be priced in, and short-term visibility is still low.

40 20

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

152

D-14

MAGNESITA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 2,656 7.8 864 15.3 439 21.9 16.5 313 25.4 11.8 (197) (57) 58 (20.5) 2.2

R$ 2014E 2,905 9.4 912 5.6 395 (9.9) 13.6 254 (18.7) 8.7 (270) (27) (42) (172.3) (1.5)

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (126) (25) (161) (2) (150) (42) 0 (4) (18) 0

2014E (141) 85 (155) 29 (182) (182) 0 0 (12) 0

2015E (153) 100 (41) 272 (226) (41) 0 0 (0) 0

2016E (165) 143 (103) 237 (225) (103) 0 0 (50) 0

2013A (58) (12) (75) (1) (69) (20) 0 (2) (8) 0

2014E (60) 36 (66) 12 (77) (78) 0 0 (5) 0

2015E (58) 38 (16) 104 (86) (16) 0 0 (0) 0

2016E (58) 51 (37) 84 (80) (37) 0 0 (18) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 961 2,561 1,249 6,474 688 2,668 3,004 2,414 113

2014E 775 2,572 1,252 6,431 731 2,724 2,862 2,484 113

2015E 822 2,725 1,325 6,656 796 2,824 2,923 2,583 113

2016E 784 2,877 1,385 6,868 883 2,967 2,905 2,726 113

2013A 410 1,093 533 2,763 294 1,139 1,282 1,030 48

2014E 304 1,009 491 2,522 287 1,068 1,123 974 44

2015E 303 1,005 489 2,456 294 1,042 1,079 953 42

2016E 267 979 471 2,336 300 1,009 988 927 38

LT Debt FINANCIAL RATIOS

2015E 3,138 8.0 929 1.8 451 14.1 14.4 298 17.3 9.5 (247) 10 61 n/m 1.9

2016E 3,456 10.1 1,008 8.5 487 8.1 14.1 322 8.0 9.3 (296) 5 32 (47.6) 0.9

2013A 1,231 (2.3) 400 4.5 203 10.5 16.5 145 13.6 11.8 (91) (26) 27 (27.9) 2.2

US$ 2014E 1,237 0.5 388 (3.0) 168 (17.3) 13.6 108 (25.3) 8.7 (115) (11) (18) (166.4) (1.5)

2015E 1,193 (3.6) 353 (9.1) 171 1.9 14.4 113 4.7 9.5 (94) 4 23 n/m 1.9

2016E 1,224 2.6 357 1.1 173 0.7 14.1 114 0.6 9.3 (105) 2 11 (51.2) 0.9

2,301

2,371

2,470

2,613

982

930

911

889

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

1,453

1,709

1,762

1,943

620

670

650

661

Capital Employed

3,506

3,425

3,489

3,530

1,496

1,343

1,287

1,201

Net Debt/EBITDA

3.3

4.3

3.9

4.0

3.1

4.0

3.8

3.8

Net Debt/Equity

0.5

0.6

0.6

0.7

0.5

0.7

0.6

0.7

Capex/Revenue (%)

5.6

6.3

7.2

6.5

5.6

6.3

7.2

6.5

Int Cover (%)

1.6

2.1

2.0

2.0

1.6

2.1

2.0

2.0

Dividend Payout (%)

24.5

20.7

(0.4)

82.3

22.1

19.0

(0.4)

81.7

ROCE (%)

10.5

8.2

8.3

9.0

11.4

9.2

8.3

9.0

2.0

(1.4)

2.1

1.1

2.1

(1.5)

2.1

1.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

ROE (%) MARKET RATIOS P/E

29.5

-

9.8

18.7

27.0

-

9.6

19.6

P/CE

9.3

6.1

2.8

3.0

8.5

5.4

2.7

3.2

FV/EBITDA

7.2

5.9

5.2

5.2

6.6

5.3

5.1

5.1

10.2

9.1

7.9

7.9

9.3

8.3

7.7

7.7

1.2

0.8

0.8

0.7

1.1

0.7

0.7

0.7

FV/EBIT FV/Revenue P/BV FCF Yield (%) Div Yield (%)

0.6

0.2

0.2

0.2

0.6

0.2

0.2

0.2

(2.5)

(30.1)

(6.9)

(17.2)

(2.7)

(34.1)

(7.0)

(16.4)

1.0

2.0

0.0

8.4

1.1

2.3

0.0

8.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.20

(0.14)

0.21

0.11

0.09

(0.06)

0.08

0.04

DPS

0.06

0.04

0.00

0.17

0.03

0.02

0.00

0.06

10.29

9.80

10.01

9.95

4.39

3.84

3.69

3.38

PER SHARE DATA

BVPS

153

Magnesita is a vertically integrated Brazilian refractory producer. The company owns some of the largest and highest-quality magnesite and dolomite reserves in the world, and currently operates 14 plants (5 in Brazil and the others in the U.S., Germany, Belgium, China, and Argentina), with an aggregate nominal capacity of 1.43 million tonnes per year. Steel producers are Magnesita’s main customers, accounting for nearly 80% of sales. In 2013, nearly half of Magnesita’s revenues came from the export market and from its operations abroad. GP Investments and Rhone Capital, two private equity investors, share control of Magnesita with 43% of voting stock. Magnesita’s common shares are listed in the Bovespa’s Novo Mercado, having 100% tag-along rights for minorities.

Key Personnel: Fersen Lambranho (Chairman), Octavio Lopes (CEO), Eduardo Gotilla (CFO) and Daniel Domiciano Silva () Web: www.magnesita.com

Revenue by Product, 2013

Mining 4.8%

Services 7.0%

Refractory Solutions 88.2%

Revenue by Destination, 2013

Europe 22.0%

Others 10.0%

North America 17.0%

South America 51.0%

Shareholder Structure, Current

Others/Free Float 57.8%

GP Investments 34.9%

Rhone Group 7.4%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—CONGLOMERATES & INDUSTRIALS

MAHLE METAL LEVE

BUY CURRENT PRICE: R$20.96 TARGET PRICE: R$25.00

LOWERING YE2015 TARGET PRICE TO R$25.00 FROM R$27.00 

Investment Case: Reliable Engine for a Cyclical Environment. We

Daniel Gewehr*

reiterate LEVE3 as our top pick in the capital goods universe, based

Brazil: Banco Santander S.A. +5511-3012-5787 | [email protected]

on a large market share sustained by technology. Mahle’s market share has been above 80% in bearings and piston rings in the Brazilian OEM market and above 70% in the domestic aftermarket.

Joao Noronha*, CFA Brazil: Banco Santander S.A. +5511-3012-5734 | [email protected]

The company has a good level of diversification and is a less cyclical player than others in our universe, with more than 60% of sales unexposed to new domestic vehicle production (coming instead from exports and aftermarket). The current dividend yield of 8% and 2015E P/E of 12.4x (with an expected 15.3% 2015E ROE) are a good carry, in our view, while still offering investors exposure to automotive market trends.



Outlook 2015: We expect 2015 to be a challenging year for domestic OEM production (~ -4% in production). In our view, Mahle should outperform market growth in 2015 due to its alignment with automotive trends (potential new orders arising from Inovar Auto).



What’s changed? Following results in 2014, we became more conservative regarding volumes and margins into 2015. As a consequence, we lowered our revenue forecast by 3%, while reducing EBITDA and net income by 3% and 2%, respectively. We are 4% above consensus for 2015E net income.

Company Statistics Bloomberg

LEVE3 BZ

Current Price (01/02/15)

R$ 20.96 / US$ 7.79

Target Price (YE 2015)

R$ 25.00 / US$ 9.23

52-Week Range (R$)



Innovation Day Highlights. Positive. During the November meeting, top management took the opportunity to discuss major trends in the automotive industry (lighter and smaller engines) and how R&D investment, which we expect to continue at 3% of sales, should play a major role in sustaining Mahle’s competitive positioning. The

999

Float (%)

30.0

3-Mth Avg. Daily Vol (US$ Mn)

1.0

Shares Outstanding - Mn

128

Price Performance (R$) IBOVESPA

LEVE3 BZ

domestic aftermarket should reap the benefits of the past years’

120

boom in auto sales (2006-2013 CAGR of 8%), as Mahle’s current

110

addressable domestic aftermarket makes up only 34% of the fleet

100

(that is, older than 11 years). Ongoing efficiency programs were also

90

discussed at the meeting, and management expects them to

20.01 - 27.30

Market Capitalization (US$ Mn)

80

contribute 1-2% to margins. For more on Mahle trends, please see 70

our November 24 note, Germany Auto Trip: Takeaways from

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

Meetings at Mahle and Daimler Headquarters.

154

D-14

MAHLE METAL LEVE Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 2,394 7.4 662 12.1 426 11.8 17.8 311 15.4 13.0 (33) (85) 201 12.5 8.4

R$ 2014E 2,322 (3.0) 624 (5.8) 402 (5.6) 17.3 290 (6.8) 12.5 (17) (79) 198 (2.0) 8.5

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (115) 0 (82) 344 (115) 303 10 (167) 0

2014E (112) 0 (41) 361 (91) 264 43 (176) 34

2015E (129) 0 (25) 392 (116) 200 0 (207) 0

2016E (135) 0 (21) 432 (121) 228 0 (194) 0

2013A (53) 0 (38) 160 (53) 140 4 (77) 0

2014E (48) 0 (18) 154 (39) 113 18 (75) 15

2015E (49) 0 (9) 149 (44) 76 0 (79) 0

2016E (48) 0 (7) 153 (43) 81 0 (69) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 221 1,014 1,369 2,428 1,876 237 1,376 488 74

2014E 380 1,153 1,350 2,553 1,807 282 1,405 523 132

2015E 375 1,196 1,337 2,583 2,026 282 1,414 519 131

2016E 414 1,270 1,323 2,644 2,093 282 1,462 516 130

2013A 94 433 584 1,036 801 101 587 208 32

2014E 149 452 529 1,001 708 111 551 205 52

2015E 138 441 493 953 748 104 522 192 48

2016E 141 432 450 899 712 96 497 175 44

414

391

389

386

177

153

143

131

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

LT Debt FINANCIAL RATIOS Net Debt

2015E 2,410 3.8 631 1.1 417 3.6 17.3 288 (0.8) 11.9 5 (76) 216 9.4 9.0

2016E 2,545 5.6 680 7.8 453 8.7 17.8 318 10.5 12.5 9 (83) 242 12.2 9.5

2013A 1,109 (2.7) 307 1.6 198 1.3 17.8 144 4.6 13.0 (15) (39) 93 1.9 8.4

US$ 2014E 991 (10.7) 266 (13.3) 172 (13.1) 17.3 124 (14.2) 12.5 (7) (34) 84 (9.7) 8.5

2015E 916 (7.5) 240 (9.9) 158 (7.7) 17.3 109 (11.6) 11.9 2 (29) 82 (2.5) 9.0

2016E 901 (1.7) 241 0.3 160 1.2 17.8 113 2.9 12.5 3 (29) 86 4.4 9.5

267

143

145

102

114

56

53

35

Capital Employed

1,642

1,566

1,578

1,585

701

614

582

539

Net Debt/EBITDA

0.6

0.4

0.3

0.2

0.6

0.3

0.3

0.2

Net Debt/Equity

0.2

0.1

0.1

0.1

0.2

0.1

0.1

0.1

Capex/Revenue (%)

4.8

3.9

4.8

4.8

4.8

3.9

4.8

4.8

3.6

4.0

10.3

11.3

3.6

4.0

10.3

11.3

Dividend Payout (%)

Int Cover (%)

93.3

87.2

105.1

89.7

84.5

79.9

92.5

89.2

ROCE (%)

24.1

23.6

23.0

25.3

25.9

26.0

23.1

25.3

ROE (%)

14.8

14.2

15.3

16.9

15.0

15.1

15.3

16.9

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

17.4

13.6

12.4

11.1

16.0

12.0

12.2

11.6

P/CE

11.1

8.7

7.8

7.1

10.2

7.7

7.6

7.5

8.9

7.1

6.9

6.2

8.1

6.3

6.7

6.5

MARKET RATIOS

FV/EBITDA FV/EBIT

12.1

9.9

10.0

8.9

11.1

8.7

9.7

9.3

FV/Revenue

1.6

1.2

1.2

1.1

1.4

1.1

1.2

1.2

P/BV

2.6

1.9

1.9

1.8

2.5

1.8

1.9

2.0

FCF Yield (%)

8.6

9.8

7.4

8.5

9.4

11.1

7.6

8.1

Div Yield (%)

4.8

6.5

7.7

7.2

5.2

7.4

7.9

6.9

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.57

1.54

1.68

1.89

0.73

0.66

0.64

0.67

DPS

1.56

0.51

1.62

1.51

0.72

0.22

0.61

0.54

10.72

10.95

11.02

11.40

4.58

4.29

4.07

3.88

PER SHARE DATA

BVPS

155

MAHLE Metal Leve is part of a worldwide group (MAHLE) manufacturer that is a well-known producer of pistons and its components, filter systems, and other parts for engines. MAHLE Metal Leve SA (MML) is controlled by MAHLE Indústria e Comércio Ltda (60.8%) and by MAHLE GmbH (9.2%), with 30.0% of free float being the Latin America arm with operations in Brazil and Argentina. In 2013, it produced more than 74,000 different products categorized in two main lines: pistons (and its components), which contribute around 87% of total revenue, and filter systems, which contribute the 13% balance. Sales are worldwide in the main automotive markets, to OEMs and the after-market. Company shares, LEVE3, were listed in August 2011 on Bovespa´s Novo Mercado, which has the highest level of corporate governance.

Key Personnel: Claus Hoppen (CEO) and Caio Gonçalves de Moraes (CFO) Web: http://www.br.mahle.com

Revenue Breakdown by Product Category, 2013

Filters 13.2%

Engine Component s 86.8%

Revenue Breakdown by Region, 2013

Central and North America 13.9%

South America 7.9%

Europe 15.8%

Others 2.8%

Domestic Market 59.6%

Shareholder Structure, Current

Free Float 30.0%

Controlling Group 70.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—CONGLOMERATES & INDUSTRIALS

MARCOPOLO

BUY CURRENT PRICE: R$3.09 TARGET PRICE: R$5.00



Investment Case: With its (1) high and stable market share

Daniel Gewehr*

(approximately 45% in Brazil, arising from premium positioning), (2)

Brazil: Banco Santander S.A. +5511-3012-5787 | [email protected]

attractive ROE (2014E-17E average of 18%), and (3) returnsoriented management profile (based on CFROGI—cash flow return on gross investment metrics), we believe Marcopolo is an attractive

Joao Noronha*, CFA Brazil: Banco Santander S.A. +5511-3012-5734 | [email protected]

long-term vehicle to play the mass transportation market in Brazil. Following the sharp 34% correction in LTM, we are keeping our Buy rating as a value call (POMO is trading below its earnings power value, which in our view is ~R$4.30).



Outlook 2015: Despite lower economic visibility in 2015, we believe net income for 2015 can be better than 2014E (R$275 million versus R$220 million), due to: (a) higher equity income from New Flyer, (b) potential recovery of urban and interstate lines, especially the former, as 2016 is a year of municipal elections; (c) end of nonrecurring learning curve and turnaround of Mexico, Australia, and Ciferal, which we estimate consumed ~R$25 million; and (d) exports expected to recover, with good mix and Reintegra credits.



Main changes: We are reducing our 2015 EPS estimates by 5%, a

Company Statistics

consequence of a lower top-line forecast (school bus program). Our

Bloomberg

bottom-line estimate is currently 4% above consensus.



POMO4 BZ

Current Price (01/02/15)

R$ 3.09 / US$ 1.15

Target Price (YE 2015)

R$ 5.00 / US$ 1.85

52-Week Range (R$)

3.09 - 5.20

European CEO Road Show Highlights: What we liked: (1) aligned

Market Capitalization (US$ Mn)

management: one third of variable remuneration is paid in POMO

Float (%)

shares, vesting one third per year; and (2) EBITDA margin to

1,029 72.0

3-Mth Avg. Daily Vol (US$ Mn)

4.8

Shares Outstanding - Mn

897

increase sequentially—internal target maintained at 12% per year in medium-term. What we did not like: international market margins continue to lag (Brazil should continue to outperform in the future).



Company with a clear competitive advantage: POMO’s (1) scale, (2) higher resale prices, (3) customization, and (4) brand awareness

Price Performance (R$) POMO4 BZ

IBOVESPA

120

100

80

allow the company to charge premium prices and resulted in consistent returns in recent years (16-23% ROIC range). We continue to like the company’s capital discipline, which should sustain its valuation at a premium to peers in the long run, in our view. 156

60

40

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

D-14

MARCOPOLO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 3,659 (4.1) 731 (5.9) 410 (4.7) 11.2 370 (3.1) 10.1 (5) (98) 292 (3.4) 8.0

R$ 2014E 3,433 (6.2) 601 (17.7) 292 (28.7) 8.5 248 (32.9) 7.2 9 (64) 220 (24.8) 6.4

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (40) 188 (224) 186 (300) (25) 573 (144) 0

2014E (44) 112 15 307 (107) 249 182 (110) 0

2015E (62) 43 (63) 289 (127) 132 0 (137) 0

2016E (71) 49 (43) 353 (101) 221 0 (151) 0

2013A (19) 87 (104) 86 (139) (11) 266 (67) 0

2014E (19) 48 6 131 (46) 106 78 (47) 0

2015E (24) 16 (24) 110 (48) 50 0 (52) 0

2016E (25) 17 (15) 125 (36) 78 0 (53) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 625 2,525 978 4,118 1,055 1,529 1,516 1,836 368

2014E 844 2,766 1,068 4,485 1,290 1,662 1,512 2,013 411

2015E 875 2,906 1,133 4,689 1,361 1,657 1,649 2,008 410

2016E 959 3,060 1,164 4,874 1,401 1,652 1,800 2,001 409

2013A 267 1,078 417 1,758 450 652 647 784 157

2014E 331 1,085 419 1,759 506 652 593 790 161

2015E 323 1,072 418 1,730 502 612 609 741 151

2016E 326 1,041 396 1,658 477 562 612 681 139

LT Debt FINANCIAL RATIOS Net Debt

2015E 3,619 5.4 645 7.3 352 20.4 9.7 290 17.0 8.0 15 (74) 275 25.0 7.6

2016E 3,899 7.7 720 11.6 396 12.5 10.2 325 12.1 8.3 7 (80) 301 9.6 7.7

2013A 1,696 (13.2) 339 (14.7) 190 (13.7) 11.2 171 (12.2) 10.1 (2) (45) 135 (12.5) 8.0

US$ 2014E 1,462 (13.8) 256 (24.4) 125 (34.5) 8.5 106 (38.4) 7.2 4 (27) 94 (30.9) 6.4

2015E 1,376 (5.9) 245 (4.2) 134 7.5 9.7 110 4.4 8.0 6 (28) 104 11.6 7.6

2016E 1,380 0.3 255 3.9 140 4.7 10.2 115 4.4 8.3 2 (28) 107 2.1 7.7

1,469

1,602

1,598

1,592

627

628

590

542

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

411

164

128

37

175

64

47

13

Capital Employed

1,945

1,697

1,798

1,858

830

666

663

632

Net Debt/EBITDA

1.0

0.6

0.4

0.1

0.9

0.5

0.4

0.1

Net Debt/Equity

0.3

0.1

0.1

0.0

0.3

0.1

0.1

0.0

Capex/Revenue (%)

8.2

3.1

3.5

2.6

8.2

3.1

3.5

2.6

Int Cover (%)

7.4

4.4

2.6

2.9

7.4

4.4

2.6

2.9

Dividend Payout (%)

47.7

37.6

62.5

54.8

43.2

34.5

55.0

54.5

ROCE (%)

24.1

18.4

20.2

21.8

25.8

20.2

20.3

21.8

ROE (%)

20.7

14.5

17.4

17.5

21.2

15.4

17.4

17.5

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

15.7

13.6

10.1

9.2

14.3

12.0

9.9

9.7

P/CE

13.8

11.3

8.2

7.5

12.6

10.0

8.0

7.8

FV/EBITDA

12.3

10.9

8.3

7.2

11.2

9.7

8.1

7.5

FV/EBIT

13.6

12.9

10.1

8.7

12.5

11.4

9.9

9.2

FV/Revenue

1.4

0.9

0.8

0.7

1.3

0.8

0.8

0.8

P/BV

3.0

2.0

1.7

1.5

3.0

1.9

1.7

1.7

(0.5)

8.3

4.7

8.0

(0.6)

9.4

4.9

7.6

3.2

3.7

5.0

5.4

3.4

4.2

5.1

5.2

FCF Yield (%) Div Yield (%) PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.33

0.24

0.31

0.34

0.15

0.10

0.12

0.12

DPS

0

0.12

0.15

0.17

0

0.05

0.06

0.06

1.69

1.69

1.84

2.01

0.72

0.66

0.68

0.68

BVPS

157

Founded in 1949, Marcopolo is the market leader of busbody manufacturing in Brazil, with a 39.8% market share. It is also one of the world’s largest manufacturers, with a market share of 8% in passenger mass transit solutions. The company has a global presence, posting sales to more than 100 countries throughout the world. Marcopolo has four plants in Brazil and eight plants abroad, as well as a bank (Banco Moneo), which finances sales in the domestic market. In 2013, the company’s net sales, EBITDA, and net income reached R$3.7 billion, R$410 million (ex-equity income), and R$292 million, respectively. Marcopolo has been listed on the Bovespa’s Level 2 since 2002, offering 100% tag-along rights in ON shares and 80% in PN shares.

Key Personnel: José Rubens de La Rosa (CEO), José Antonio Valiati (CFO), José Antonio Valiati (IR Officer) and Thiago Deiro (IR Manager) Web: www.marcopolo.com.br

Sales by Segment, 2013 Parts and Others 9.9%

Volare 22.8% Micros and Minis 3.2%

Intercity 35.0%

Urban 29.1%

Production Volume by Country, 2013 South Africa 1.3% Mexico Australia 6.6% 2.6%

Brazil 89.5%

Shareholder Structure, Current Foreign Shareholder s 35.3%

Controlling Treasury Shareholder s 0.2% 25.3%

Shareholder s in Brazil 39.2%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—CEMENT, CONSTRUCTION, INFRA & RE

MRV ENGENHARIA

HOLD CURRENT PRICE: R$7.23 TARGET PRICE: R$8.50

DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF R$8.50; REPLACING YE2014 TARGET PRICE OF R$13.10 

Investment Case: The resilient demand for low-income projects and

Bruno Mendonca*

the company’s solid execution are likely to support MRV’s

Brazil: Banco Santander S.A. +5511-3012-5759 | [email protected]

performance during the coming years, in our view. Furthermore, we expect the gross margin to gradually improve as less profitable projects are delivered (mainly projects in the Midwest region of

Renan Manda* Brazil: Banco Santander S.A. +5511 3012-6535 | [email protected]

Brazil).



Outlook 2015: We expect MRV to post gradual margin improvements and expanding cash flow generation in upcoming quarters.



Improving gross margin. The gross margin has recovered since it bottomed in 2013, and we expect it to continue gradually improving in 2015 to 31% (ex capitalized interest), mainly on the delivery of underperforming projects in the Midwest region of Brazil (specifically Brasilia and Goiania).



Recurring and growing cash flow trend . . . MRV has been closing the gap between production and collection by increasing the volume





of transfer of clients to banks shortly after sales take place, paving

Company Statistics

the way for increasing and continuous cash flow generation on a

Bloomberg

quarterly basis, in our view.

Current Price (01/02/15)

R$ 7.23 / US$ 2.69

Target Price (YE 2015)

R$ 8.50 / US$ 3.21

. . . should enable the company to continue deleveraging (to

MRVE3 BZ

52-Week Range (R$)

6.50 - 9.47

Market Capitalization (US$ Mn)

1,197

22% net debt/EBITDA at YE2015E from 28% in 3Q14) and thereafter

Float (%)

increase distribution to shareholders, in our view.

3-Mth Avg. Daily Vol (US$ Mn)

7.0

Shares Outstanding - Mn

446

Valuation seems fair at current return levels. We see the stock

67.9

Price Performance (R$)

trading at 0.7x and 0.6x P/BV for 2015E and 2016E, levels we see as fairly valued at the current profitability levels (ROE of 10.6% and

MRVE3 BZ

IBOVESPA

a-13

a-14

110 100

11.1% for 2015E and 2016E, respectively).

90 80 70 60 50

j-13

m-13

d-13

a-14

Sources: FactSet, Santander estimates and company reports.

158

d-14

MRV ENGENHARIA Company Description

2014E (39) 0 (197) 559 (270) 828 (6) (482) (141) (177)

2015E (38) 0 (272) 254 (31) 284 (2) (120) (179) 8

2016E (37) 0 (415) 173 (44) 217 (2) (111) (122) 9

2013A (16) 0 67 280 (53) 333 6 (86) (58) (20)

2014E (17) 0 (85) 242 (117) 358 (3) (208) (61) (77)

2015E (15) 0 (105) 98 (12) 109 (1) (46) (69) 3

2016E (12) 0 (136) 57 (15) 71 (1) (36) (40) 3

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,689 5,870 760 10,199 2,559 3,272 4,104 3,018 775

2014E 1,173 5,705 991 10,436 2,768 2,980 4,402 2,536 991

2015E 1,104 5,781 983 10,623 2,694 2,867 4,768 2,416 991

2016E 1,007 5,915 991 10,952 2,698 2,769 5,181 2,306 991

2013A 721 2,505 324 4,353 1,092 1,397 1,752 1,288 331

2014E 460 2,237 389 4,093 1,085 1,169 1,726 995 389

2015E 416 2,181 371 4,009 1,017 1,082 1,799 912 374

2016E 326 1,915 321 3,546 874 897 1,678 747 321

2,243

1,545

1,425

1,315

957

606

538

426

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

1,885

2,306

2,317

2,363

805

904

874

765

Capital Employed

5,066

5,261

5,530

5,944

2,162

2,063

2,087

1,925

Net Debt/EBITDA

3.9

4.9

4.2

3.8

3.6

4.5

4.1

3.7

Net Debt/Equity

0.5

0.5

0.5

0.5

0.5

0.6

0.5

0.5

Capex/Revenue (%)

2.9

6.5

0.7

1.0

2.9

6.5

0.7

1.0

FINANCIAL RATIOS

Int Cover (%)

1.2

1.3

1.2

1.4

1.2

1.3

1.2

1.4

Dividend Payout (%)

23.8

33.2

25.0

25.0

21.5

30.4

22.0

24.8

ROCE (%)

11.5

10.5

12.1

12.6

12.6

11.8

12.1

12.6

ROE (%)

10.7

16.9

10.6

11.1

10.9

17.9

10.6

11.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

9.4

4.7

6.6

5.9

8.6

4.1

6.4

6.6

P/CE

8.7

4.4

6.1

5.5

8.0

3.8

5.9

6.2

FV/EBITDA

12.8

12.6

10.5

9.3

11.7

11.1

10.2

9.9

FV/EBIT

10.5

10.6

8.6

7.7

9.6

9.4

8.4

8.3

FV/Revenue

1.6

1.4

1.3

1.3

1.5

1.3

1.3

1.4

P/BV

1.0

0.8

0.7

0.6

1.0

0.7

0.7

0.7

18.0

24.8

8.8

6.7

19.7

28.5

9.1

6.0

MARKET RATIOS

FCF Yield (%) Div Yield (%)

3.1

4.2

5.6

3.8

3.4

4.8

5.8

3.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.89

1.57

1.09

1.24

0.41

0.68

0.42

0.41

DPS

0.30

0.40

0.27

0.31

0.14

0.17

0.11

0.10

BVPS

8.66

9.87

10.69

11.62

3.70

3.87

4.04

3.76

PER SHARE DATA

159

MRV is the largest Brazilian real estate developer and builder in the low-income residential segment in terms of number of units developed. During its 30 years of experience in the industry, the company has developed strong capabilities that enable it to profitably operate in the low-income segment. The company is controlled by its founder, Rubens Menin, who has 34% of the company.

Key Personnel: Rubens Menin Teixeira de Souza (Chairman), Leonardo Guimarães Corrêa (CFO and IR Officer) and Rafael de Souza and Eduardo de Souza (coCEOs) Web: www.mrv.com.br/ri

Launches (R$ billion), 2013-16E

4.56

4.28

4.84

3.52

2016e

2016E 1,486 (11.1) 481 (8.0) 205 (2.9) 13.8 246 (4.0) 16.6 (38) (19) 181 (3.5) 12.2

Contracted Sales (R$ billion), 2013-16E 5.98

5.51 5.09

2015e

2015E 1,672 (6.8) 524 (4.2) 211 4.4 12.6 256 7.4 15.3 (39) (22) 188 (39.6) 11.2

2015e

2013A (35) 0 145 604 (114) 718 13 (185) (125) (43)

LT Debt

2013A 1,795 (7.8) 538 (13.0) 223 (32.4) 12.4 271 (30.6) 15.1 (50) (23) 197 (27.2) 11.0

2014e

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2016E 4,523 4.1 1,466 7.7 623 13.6 13.8 749 12.4 16.6 (115) (59) 551 13.0 12.2

2014e

2013A 3,872 1.8 1,161 (3.9) 480 (25.3) 12.4 584 (23.3) 15.1 (108) (49) 424 (19.6) 11.0

2015E 4,347 4.9 1,361 7.8 548 17.4 12.6 667 20.9 15.3 (101) (57) 488 (32.0) 11.2

US$ 2014E 1,793 (0.1) 546 1.5 202 (9.2) 11.3 239 (11.9) 13.3 (10) (23) 310 57.9 17.3

2013

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

R$ 2014E 4,144 7.0 1,262 8.7 467 (2.8) 11.3 552 (5.6) 13.3 (24) (53) 717 69.1 17.3

2013

Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Shareholder Structure, Current Rubens M. T. de Souza 34.0% Free Float 65.0%

Board 1.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—CEMENT, CONSTRUCTION, INFRA & RE

MULTIPLAN

HOLD CURRENT PRICE: R$44.26 TARGET PRICE: R$55.50



Investment Case: We like Multiplan’s story and believe there is

Bruno Mendonca*

hidden value to be unlocked in the long term, mainly from its

Brazil: Banco Santander S.A. +5511-3012-5759 | [email protected]

landbank for unannounced multi-use projects and a unique ability to extract value from mature assets. We agree with the market’s positive view about Multiplan’s solid execution, but we expect this

Renan Manda* Brazil: Banco Santander S.A. +5511 3012-6535 | [email protected]

additional value to be reflected in the company’s numbers only gradually. In this sense, we see limited short-term triggers that could boost valuation much higher than current levels



Outlook 2015: Our Maturity Tracker points to solid 22% growth in Multiplan malls’ NOI in 2015. However, developments for sale should decelerate, leading to low-single-digit growth for the consolidated top line. We believe there is upside on additional leases in the Morumbi Corporate towers (67% leased by 3Q14) and the maturing of the recently leased area, so we expect earnings momentum in 2015 to remain consistent.



Valuation premium already reflected in the stock price: We believe Multiplan’s solid execution is already reflected in the company’s valuation at 16.0x and 15.1x P/FFO for 2015E and

Company Statistics

2016E, with the average valuation premium to peers exceeding 20%

Bloomberg

by 2016E. Moreover, Multiplan is trading at an FFO yield of 6.3% for

R$ 44.26 / US$ 16.44

Target Price (YE 2015)

R$ 55.50 / US$ 20.94

2015, in-line with the long-term government bond, and we do not

52-Week Range (R$)

expect significant multiple dilution in 2016 due to temporary lower

Market Capitalization (US$ Mn)

42.60 - 58.48 3,124

Float (%)

growth.



MULT3 BZ

Current Price (01/02/15)

0.0

3-Mth Avg. Daily Vol (US$ Mn)

14.6

Shares Outstanding - Mn

190

We are 11% below consensus for 2016E FFO: We believe this difference is mainly explained by unannounced developments for sale (for which we have a more conservative approach). We believe

Price Performance (R$) MULT3 BZ

IBOVESPA

110

that even if Multiplan announces new developments, the revenue 100

recognition may take longer to reach what is currently reflected in consensus estimates.

90

80

70

j-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

160

d-14

MULTIPLAN Company Description

2015E (149) 0 0 529 (178) 351 2 1 (211) (211)

2016E (154) 0 (5) 553 (463) 91 15 5 (223) (223)

2013A (58) 0 (47) 143 (428) (285) 4 141 (90) 152

2014E (69) 0 (54) 161 (118) 43 (6) (56) (91) (75)

2015E (57) 0 0 203 (68) 135 1 0 (81) (81)

2016E (57) 0 (2) 205 (171) 34 6 2 (83) (83)

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 352 840 5,183 6,476 513 2,143 3,819 2,133 213

2014E 245 766 5,311 6,545 692 1,869 3,980 2,004 359

2015E 449 970 5,368 6,780 754 1,874 4,149 2,004 359

2016E 349 897 5,755 7,026 791 1,902 4,329 2,004 359

2013A 150 358 2,212 2,764 219 915 1,630 911 91

2014E 96 301 2,083 2,567 271 733 1,561 786 141

2015E 169 366 2,026 2,559 285 707 1,566 756 136

2016E 127 326 2,093 2,555 288 692 1,574 729 131

1,921

1,645

1,645

1,645

820

645

621

598

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

1,782

1,759

1,555

1,655

761

690

587

602

Capital Employed

5,601

5,740

5,704

5,985

2,390

2,251

2,153

2,176

Net Debt/EBITDA

2.9

2.3

1.8

1.8

2.7

2.1

1.8

1.8

Net Debt/Equity

0.5

0.4

0.4

0.4

0.5

0.5

0.4

0.4

94.5

24.5

15.5

36.1

94.5

24.5

15.5

36.1

FINANCIAL RATIOS

Capex/Revenue (%) Int Cover (%)

3.8

3.9

3.8

3.5

3.8

3.9

3.8

3.5

Dividend Payout (%)

49.9

73.5

62.8

58.7

45.2

67.4

55.0

58.1

ROCE (%)

10.3

12.8

14.8

15.4

11.1

14.2

14.9

15.4

8.1

8.6

9.3

9.5

8.3

9.2

9.3

9.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

ROE (%) MARKET RATIOS P/E

33.3

26.8

22.1

20.8

30.5

23.3

21.4

20.9

P/CE

23.2

18.2

15.9

15.1

21.2

15.8

15.4

15.1

FV/EBITDA

18.4

13.9

11.7

10.9

16.9

12.2

11.3

10.9

FV/EBIT

23.2

17.4

14.2

13.1

21.2

15.3

13.7

13.1

FV/Revenue

11.5

9.7

8.7

7.9

10.5

8.5

8.4

7.9

2.5

2.3

2.0

1.9

2.5

2.2

2.0

2.0

P/BV FCF Yield (%) Div Yield (%) PER SHARE DATA

(6.5)

1.1

4.2

1.1

(7.1)

1.3

4.3

1.1

2.0

2.3

2.5

2.7

2.2

2.7

2.6

2.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

2.30

2.75

2.78

2.94

1.06

1.19

1.07

1.09

DPS

1.02

1.10

1.11

1.17

0.47

0.48

0.43

0.44

20.10

20.95

21.84

22.79

8.58

8.22

8.24

8.29

BVPS

161

Key Personnel: José Isaac Peres (CEO), Armando d'Almeida Neto (CFO) and Hans Melchers (IR Officer) Web: www.multiplan.com.br/ri

Owned GLA ('000 m²), 2013–16E 684.17

645.77

645.77

634.98

2016E

2014E (158) 0 (124) 371 (273) 99 (14) (130) (209) (173)

Multiplan Empreendimentos Imobiliários S/A is one of the leading developers, owners, and operators of shopping centers in Brazil. As of 3Q14, the company held interest in 18 malls, with its own GLA of 562.465 m², boasting an average stake of 74% in its mall portfolio.

Rental Revenue (R$ in millions), 2013–16E

889.72

961.84

789.69 684.23

2016E

2016E 475 7.4 408 4.9 343 4.6 72.2 285 5.6 60.1 (81) (55) 150 2.3 31.5

2015E

2015E 442 (8.1) 389 (2.6) 327 (2.5) 74.1 270 1.1 61.1 (70) (54) 146 0.2 33.1

2015E

2013A (125) 0 (101) 309 (924) (616) 9 303 (194) 329

LT Debt

2013A 453 (7.9) 366 (6.8) 283 (10.2) 62.4 225 (18.7) 49.7 (52) (41) 132 (33.6) 29.1

2014E

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2016E 1,282 11.5 1,103 8.9 925 8.7 72.2 771 9.7 60.1 (218) (149) 404 6.2 31.5

2014E

2013A 978 1.7 789 2.9 611 (0.8) 62.4 486 (10.2) 49.7 (113) (88) 285 (26.7) 29.1

2015E 1,149 3.4 1,012 9.5 851 9.7 74.1 703 13.7 61.1 (182) (140) 380 12.8 33.1

US$ 2014E 481 6.1 400 9.4 336 18.7 69.8 267 18.7 55.6 (70) (51) 146 10.5 30.3

2013

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

R$ 2014E 1,111 13.6 924 17.2 776 27.1 69.8 618 27.2 55.6 (162) (119) 337 18.4 30.3

2013

Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Shareholder Structure, Current

Multiplan Part. 22.2%

Others 43.6%

José Isaac Peres 5.3%

Ontario Teachers 28.9%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—FINANCIAL SERVICES

MULTIPLUS

BUY CURRENT PRICE: R$32.55 TARGET PRICE: R$39.00



Investment Case: We continue to see a favorable scenario for

Henrique Navarro*

loyalty companies, with their relationship with banks still improving,

Brazil: Banco Santander S.A. +5511-3012-5756 | [email protected]

and price wars (if any) abating. Please refer to our report Multiplus: Minding the Discount to Smiles, November 4, 2014, where we reinforced our Buy rating and our positive view on the name.



Boris Molina New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

Renata Cabral*

Outlook 2015: We believe there is a certain level of uncertainty

Brazil: Banco Santander S.A. +5511-3012-5731 | [email protected]

about the company’s net income outlook for 2015, resulting in a wide range of estimates. Our net income estimate is R$370 million, which we consider conservative—we see more chances of upside risk than downside to our 2015 estimates. This net income estimate falls 11% short of Bloomberg consensus (R$414 million). If our numbers are right, we could see some downward earnings revisions on the Street. We believe a clearer view concerning 2015 earnings will only be possible at the beginning of 2015. Finally, our net income estimate still suggests 13% YoY growth, which we consider quite good (on a relative comparison with sectors outside financials) if we consider the tough macroeconomic scenario ahead in 2015.



Mind the gap. We note that MPLU3 trades at a large discount to

Company Statistics

SMLE3 (on a P/E 2015E basis), whereas we believe the right

Bloomberg

discount is 11%—therefore, we see this discount narrowing in the short term.

MPLU3 BZ

Current Price (01/02/15)

R$ 32.55 / US$ 12.09

Target Price (YE 2015)

R$ 39.00 / US$ 14.72

52-Week Range (R$)

23.60 - 36.49

Market Capitalization (US$ Mn)



Margin is king. Multiplus and its main competitor Smiles both announced recently that they do not intend to compromise margins in

1,961

Float (%)

27.1

3-Mth Avg. Daily Vol (US$ Mn)

4.1

Shares Outstanding - Mn

162

order to grow, which indicates to us that no price wars are imminent Price Performance (R$)

for the time being.

MPLU3 BZ



IBOVESPA

110

A new status quo? Although Multiplus has certain positives (cash

100

cow company, negative working capital, not capital-intensive, and

90

large dividend payout ratios), it still lacks stable YoY EPS growth. If

80

the company is able to produce sustainable EPS growth, we believe

70 60

it could attract interest from investors and reach a new valuation

50

level.

40

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

162

D-14

MULTIPLUS Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions

Company Description

INCOME STATEMENT Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) Profit before Taxes Taxes Minorities Net Profit Growth (%)

2013A 1,822 11.9 285 18.3 277 17.6 345 (113) 0 232 3.6

R$ 2014E 2,109 15.8 389 36.3 374 35.1 494 (167) 0 327 40.7

BALANCE SHEET Cash and Equivalents Accounts Receivable Intangible and Deferred Asse Tangible Assets Total Assets ST Debt LT Debt Equity Net Debt (Cash)

2013A 1,264 131 89.4 8 1,539 0 0 186 (1,264)

2014E 980 161 89.1 12 1,414 0 0 149 (980)

2015E 1,114 169 89.3 13 1,602 0 0 149 (1,114)

2016E 1,278 170 89.3 13 1,779 0 0 149 (1,278)

2013A 540 56 38.2 4 658 0 0 79 (540)

2014E 384 63 34.9 5 555 0 0 59 (384)

2015E 421 64 33.7 5 604 0 0 56 (421)

2016E 465 62 32.5 5 647 0 0 54 (465)

CASH FLOW Changes in Working Capital Operating Cash Flow Capital Expenditures Change in Debt Free Cash Flow to Equity Cash Dividends Capital Increase (Decrease)

2013A (72) 461 (72) 0 113 (223) 0

2014E 98 352 98 0 346 (232) 0

2015E 41 460 41 0 329 (327) 0

2016E 0 (0) 11 0 332 (370) 0

2013A (31) 197 (31) 0 48 (95) 0

2014E 39 138 39 0 136 (91) 0

2015E 16 173 16 0 124 (123) 0

2016E 0 (0) 4 0 121 (135) 0

OPERATING RATIOS EBITDA Margin Effective Tax Rate Net Margin Net Debt / EBITDA Net Debt / Equity

2013A 15.7 32.8 0.1 (4.4) (6.8)

2014E 18.4 33.8 0.2 (2.5) (6.6)

2015E 19.9 34.1 0.2 (2.5) (7.5)

2016E 20.8 34.1 0.2 (2.6) (8.6)

2013A 15.7 32.8 0.1 (4.4) (7.4)

2014E 18.4 33.8 0.2 (2.5) (7.4)

2015E 19.9 34.1 0.2 (2.5) (7.5)

2016E 20.8 34.1 0.2 (2.6) (8.6)

FCFE / Revenues

2015E 2,258 7.0 450 15.6 434 16.1 562 (192) 0 370 13.2

2016E 2,410 6.7 501 11.3 484 11.6 641 (219) 0 422 14.2

2013A 779 (2.3) 122 3.3 118 2.7 148 (48) 0 99 (9.6)

US$ 2014E 827 6.2 153 25.0 147 24.0 194 (65) 0 128 29.1

2015E 852 3.0 170 11.3 164 11.7 212 (72) 0 140 8.9

2016E 876 2.9 182 7.3 176 7.5 233 (80) 0 154 10.0

6.2

16.4

14.6

13.8

6.2

16.4

14.6

13.8

ROAA

16.4

22.1

24.5

25.0

16.7

23.4

24.5

25.0

ROAE

138.6

195.1

247.8

283.0

141.9

205.8

247.8

283.0

Payout

99.2

100.0

100.0

100.0

89.8

91.7

88.0

99.4

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

20.9

15.9

14.3

12.5

20.7

15.2

14.0

12.8

P/CE

21.7

16.6

14.9

13.0

21.5

16.0

14.7

13.3

FV/EBITDA

12.5

10.8

9.3

8.0

12.4

10.3

9.1

8.2

FCFE Yield (%)

2.3

6.7

6.2

6.3

2.3

7.0

6.3

6.2

26.1

34.8

35.4

35.4

25.9

33.4

34.8

36.1

4.6

4.5

6.2

7.0

4.6

4.7

6.3

6.9

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.43

2.02

2.28

2.60

0.61

0.79

0.86

0.95

CEPS

1.43

2.02

2.28

2.60

0.61

0.79

0.86

0.95

(0.99)

(1.66)

(1.93)

(2.15)

(0.42)

(0.65)

(0.73)

(0.78)

BVPS

1.15

0.92

0.92

0.92

0.49

0.36

0.35

0.33

DPS

1.43

2.02

2.28

2.60

0.61

0.79

0.86

0.95

P/BV Div Yield (%) PER SHARE DATA

FCFPS

Multiplus was created in 2009 as a business unit of TAM Group, having as its backbone the TAM Fidelidade loyalty program, which was created in 1993. Multiplus became independent in 2009 and held its IPO in 2010. The company operates as a loyalty program coalition network and has 465 partnerships through which its 13.3 million members (as of 3Q14), which makes it the leading loyalty coalition network in Brazil) may accrue points. The company is still a subsidiary of TAM Group, which owns 73% of its shares.

Key Personnel: Roberto Medeiros (CEO), Jaime Rebelo (CFO) and Ronald Domingues (IRO) Web: http://multiplus.riweb.com.br/Multiplus/

Revenue Breakdown, 2014E

Breakage 14.3%

Points Sale - TAM 7.1%

Points Sale - Others 78.5%

Costs Breakdown, 2014E Other redemptions 7.7%

Air tickets 92.3%

Shareholder Structure, Current

Free float 27.2% Others, Treasury 0.0%

Controlling Shareholder - TAM 72.8%

Sources for all charts and tables: Company reports and Santander estimates.

163

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—RETAIL & CONSUMER GOODS

NATURA

UNDERPERFORM CURRENT PRICE: R$30.42 TARGET PRICE: R$33.00

LOWERING YE2015 TARGET PRICE TO R$33.00 FROM R$45.00 

Investment Case: Natura has been diversifying its distribution

João Mamede*

channels to offset market share losses from increased competition

Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

and a slowdown in the direct sales channel. Although we recognize some initiatives might be transformational (including Rede Natura), we expect new developments to take time to mature and returns to decline, as alternative sales channels offer lower returns, raising investors’ concerns about short-term growth and returns. On the

Ronaldo Kasinsky* Brazil: Banco Santander S.A. +5511-3553-2396 | [email protected]

Jessica Bessa* Brazil: Banco Santander S.A. +5511-3553-9602 | [email protected]

positive side, international operations are maturing quickly and should help offset sluggish growth in Brazil. We maintain our Underperform rating for Natura given the stock’s limited upside potential, still demanding valuation, and lingering uncertainties regarding maturing initiatives.



Outlook for 2015: We forecast Brazil sales will grow 5% YoY in 2015, owing to 4% consultant growth and slight productivity gains. Moreover, we anticipate consolidated top-line sales will grow 8% YoY, supported by maturing international operations, driving a 20-bp YoY EBITDA margin expansion, while competition in Brazil should remain fierce. Company Statistics



Catalysts: Rede Natura is slowly maturing and the company seems to be on the right track to improve its consumer intelligence and

NATU3 BZ

Current Price (01/02/15)

R$ 30.42 / US$ 11.30

Target Price (YE 2015)

R$ 33.00 / US$ 12.18

ultimately increase productivity (sales efficiency), while we also

52-Week Range (R$)

believe that the development of its own stores is also being

Market Capitalization (US$ Mn)

considered and may serve as a new growth avenue. Nonetheless,

Float (%)

39.9

3-Mth Avg. Daily Vol (US$ Mn)

15.1

Shares Outstanding - Mn

431

we expect substantial improvements could take time to materialize, and short-term dynamics remain challenging.



Bloomberg

30.16 - 42.64 4,873

Price Performance (R$) NATU3 BZ

Concerns: Main risks to our investment case include (1) increasing

110

competition from local and foreign brands, (2) complexity of Rede

100

Natura and potential issues with the company’s more intricate

90

distribution structure, (3) diminishing returns from alternative

80

distribution channels, and (4) possible changes in taxation for the

70

CF&T industry.

60

IBOVESPA

50

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

164

D-14

NATURA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 7,000 10.3 4,907 9.6 1,613 6.8 23.0 1,408 2.8 20.1 (158) (402) 842 (2.2) 12.0

R$ 2014E 7,543 7.8 5,231 6.6 1,624 0.7 21.5 1,413 0.3 18.7 (240) (373) 799 (5.1) 10.6

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (206) 120 (250) 507 (554) 813 0 569 (856) 0

2014E (211) 343 (99) 832 (478) 1,110 0 676 (757) 0

2015E (240) 516 14 1,152 (433) 684 0 0 (719) 0

2016E (258) 527 14 1,272 (410) 852 0 0 (863) 0

2013A (95) 56 (116) 235 (257) 377 0 264 (397) 0

2014E (90) 146 (42) 354 (203) 473 0 288 (322) 0

2015E (91) 196 5 438 (164) 260 0 0 (273) 0

2016E (91) 187 5 450 (145) 302 0 0 (305) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,309 3,513 2,736 6,248 2,327 2,753 1,168 2,894 693

2014E 1,583 4,026 3,137 7,163 2,692 3,243 1,227 3,570 919

2015E 1,583 4,118 3,329 7,448 2,798 3,243 1,405 3,570 919

2016E 1,583 4,236 3,481 7,717 2,931 3,243 1,543 3,570 919

2013A 559 1,499 1,168 2,667 993 1,175 499 1,235 296

2014E 621 1,579 1,230 2,809 1,056 1,272 481 1,400 360

2015E 584 1,520 1,229 2,748 1,033 1,197 519 1,317 339

2016E 539 1,441 1,184 2,625 997 1,103 525 1,214 312

2,201

2,652

2,652

2,652

939

1,040

978

902

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

1,585

1,987

1,987

1,987

676

779

733

676

Capital Employed

3,922

4,471

4,649

4,786

1,674

1,753

1,716

1,628

Net Debt/EBITDA

1.0

1.2

1.1

1.0

0.9

1.1

1.1

1.0

LT Debt FINANCIAL RATIOS

2015E 8,116 7.6 5,640 7.8 1,762 8.5 21.7 1,521 7.7 18.7 (253) (406) 863 7.9 10.6

2016E 8,846 9.0 6,174 9.5 1,966 11.6 22.2 1,708 12.2 19.3 (272) (447) 989 14.7 11.2

2013A 3,244 (0.1) 2,274 (0.7) 748 (3.3) 23.0 652 (6.9) 20.1 (73) (186) 390 (11.4) 12.0

US$ 2014E 3,212 (1.0) 2,228 (2.0) 692 (7.5) 21.5 602 (7.8) 18.7 (102) (159) 340 (12.8) 10.6

2015E 3,086 (3.9) 2,145 (3.7) 670 (3.1) 21.7 579 (3.8) 18.7 (96) (154) 328 (3.6) 10.6

2016E 3,131 1.5 2,186 1.9 696 3.9 22.2 605 4.5 19.3 (96) (158) 350 6.7 11.2

Net Debt/Equity

1.4

1.6

1.4

1.3

1.5

1.8

1.4

Capex/Revenue (%)

7.9

6.3

5.3

4.6

7.9

6.3

5.3

4.6

Int Cover (%)

3.1

3.1

3.0

3.1

3.1

3.1

3.0

3.1

Dividend Payout (%)

99.4

89.8

90.0

100.0

90.0

82.4

79.2

99.4

ROCE (%)

25.6

23.3

24.0

26.4

29.0

27.3

24.2

26.4

ROE (%)

68.1

66.7

65.5

67.1

68.8

70.9

65.6

67.1

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

21.2

17.2

15.2

13.3

19.4

15.2

14.9

13.9

P/CE

17.0

13.6

11.9

10.5

15.6

12.0

11.6

11.0

FV/EBITDA

12.0

9.7

8.6

7.7

11.0

8.6

8.4

8.0

FV/EBIT

13.8

11.1

9.9

8.8

12.6

9.9

9.7

9.2

2.8

2.1

1.9

1.7

2.5

1.9

1.8

1.8

15.3

11.2

9.3

8.5

15.2

10.7

9.4

9.3

FCF Yield (%)

4.6

8.1

5.2

6.5

5.0

9.1

5.3

6.2

Div Yield (%)

4.8

5.5

5.5

6.6

5.2

6.2

5.6

6.3

P/BV

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.95

1.85

2.00

2.29

0.91

0.79

0.76

0.81

DPS

1.99

1.75

1.67

2.00

0.92

0.75

0.63

0.71

BVPS

2.71

2.85

3.26

3.58

1.16

1.12

1.20

1.22

165

Key Personnel: Plínio Villares Musetti (Chairman), Roberto Lima (CEO), Roberto Pedote (CFO) and Fabio Cefaly (Investor Relations Manager) Web: www.natura.net

Sales by Region, 3Q14

Others 2.7%

LatAm (exBrazil) 15.3%

Brazil 82.0%

Industry Share by Country, 2013

USA 16.1% Others 51.9%

Germany 4.2%

1.3

P/E

FV/Revenue

Natura is one of the leading Brazilian players in the cosmetics, fragrances, and toiletries market (CF&T) as well as in the direct sales channel, with a 19.4% market share in its target market (6M14); 32.7% share in cosmetics and fragrances and 9.7% in toiletries. Founded in Brazil in 1969, the company launched operations in Argentina, Chile, and Peru in 1994. Natura currently operates in six Latin American countries, France and recently acquired the Australian brand Aesop (Emeis). Natura currently features 1.7 million consultants (sales reps), of which 1.3 million in Brazil (3Q14). The company is well known for its sustainability efforts and its shares are listed in the Novo Mercado, with a free float at 40%.

Japan 8.6%

Brazil 9.5%

China 9.7%

Shareholder Structure, Current

Free Float 39.9%

Controlling Group 60.1%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—HEALTH CARE

ODONTOPREV

HOLD CURRENT PRICE: R$9.36 TARGET PRICE: R$10.50

INTRODUCING YE2015 TARGET PRICE OF R$10.50; REPLACING YE2014 TARGET PRICE OF R$10.50 

Investment Case: We maintain our cautious view on OdontoPrev, based on the limited upside offered by our YE2015 target price. We see the company’s premium valuation (2015E P/E of 21x) as fair, considering its strong market position and the strength of its business model (4% 2015E FCF yield and 2014 ROE of 36%), although it

Bruno Giardino*, CFA Brazil: Banco Santander S.A. +5511-3012-5914 | [email protected]

Daniel Gewehr* Brazil: Banco Santander S.A. +5511-3012-5787 | [email protected]

short-term growth outlook has been reduced.



Outlook 2015: In our view, the sluggish formal job creation in 2015 will curb the company’s initiatives to reignite membership growth (outlined below). We expect, therefore, 2% YoY growth in membership, coupled with the addition of 75,000 members from BrasilDental (JV) with Banco do Brasil. We are conservatively assuming flattish EBITDA margins in 2015 (27%), leading to 6% YoY EBITDA growth.



Among the initiatives to reignite growth in 2015, we highlight: (i) campaigns

to

increase

conversion

of

employees

at client

corporations that adopt non-sponsored plans (nearly 50% of OdontoPrev's corporate membership), where penetration is currently at suboptimal levels; (ii) educational campaigns to increase retention



of existing users; and (iii) the beginning of on-line sales in 1H15

Company Statistics

(initially through OdontoPrev's website, later via Bradesco Dental's).

Bloomberg

R$ 9.36 / US$ 3.48

Free option on INSS dispute adds R$1.00 to our YE2015 target

Target Price (YE 2015)

R$ 10.50 / US$ 3.87

price. If the company wins the judicial dispute over the payment of

52-Week Range (R$)

social service charges to dentists, we believe it could distribute the

8.52 - 10.20

Market Capitalization (US$ Mn)

1,838

Float (%)

47.6

R$140 million in judicial deposits to shareholders (yielding an extra

3-Mth Avg. Daily Vol (US$ Mn)

6.0

dividend of ~3%), as well as obtain a 300-bp EBITDA margin gain

Shares Outstanding - Mn

529

from no longer incurring this expense.



ODPV3 BZ

Current Price (01/02/15)

Price Performance (R$)

Positive medium-term trend for average ticket. While we have a

ODPV3 BZ

IBOVESPA

A-13

A-14

110

conservative stance on the individual product, we acknowledge that the larger share of individual clients tends to push the average ticket ahead of inflation. Individual plans sold through the banking channel are priced at R$37.50 per month, well above the consolidated

100

90

80

average ticket of ~R$15 and that of the retail portfolio (~R$20). 70

J-13

M-13

D-13

A-14

Sources: FactSet, Santander estimates and company reports.

166

D-14

ODONTOPREV Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 1,070 11.9 568 21.0 273 20.1 25.5 263 31.6 24.6 12 (87) 188 29.2 17.6

R$ 2014E 1,146 7.1 611 7.5 307 12.7 26.8 287 9.1 25.1 15 (97) 205 8.7 17.9

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 5 17 24 224 (19) 206 0 (182) 0

2014E 6 (1) (45) 153 (24) 128 0 (225) 0

2015E 8 0 (6) 220 (12) 208 0 (234) 0

2016E 10 0 (9) 245 (14) 231 0 (264) 0

2013A 2 8 11 104 (9) 95 0 (84) 0

2014E 2 (0) (19) 65 (10) 55 0 (96) 0

2015E 3 0 (2) 84 (5) 79 0 (89) 0

2016E 4 0 (3) 87 (5) 82 0 (93) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 257 369 547 1,074 220 156 696 0 0

2014E 258 386 554 1,092 240 193 657 0 0

2015E 247 386 558 1,097 245 193 657 0 0

2016E 234 390 562 1,104 253 193 657 0 0

2013A 110 158 233 458 94 67 297 0 0

2014E 101 151 217 428 94 76 258 0 0

2015E 91 142 206 405 90 71 242 0 0

2016E 80 133 191 376 86 66 223 0 0

LT Debt FINANCIAL RATIOS Net Debt

2015E 1,232 7.6 665 8.8 326 6.2 26.5 326 13.5 26.4 12 (104) 234 14.5 19.0

2016E 1,362 10.5 739 11.1 372 14.1 27.3 373 14.5 27.4 10 (119) 264 12.5 19.3

2013A 496 1.4 263 9.6 126 8.8 25.5 122 19.2 24.6 6 (40) 87 17.1 17.6

US$ 2014E 488 (1.6) 260 (1.2) 131 3.5 26.8 122 0.3 25.1 6 (41) 87 (0.1) 17.9

2015E 469 (4.0) 253 (2.8) 124 (5.2) 26.5 124 1.3 26.4 5 (40) 89 2.2 19.0

2016E 482 2.9 261 3.4 132 6.2 27.3 132 6.6 27.4 3 (42) 93 4.8 19.3

0

0

0

0

0

0

0

0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E (80)

(257)

(258)

(247)

(234)

(110)

(101)

(91)

Capital Employed

441

401

412

425

188

157

152

145

Net Debt/EBITDA

(0.9)

(0.8)

(0.8)

(0.6)

(0.9)

(0.8)

(0.7)

(0.6)

Net Debt/Equity

(0.4)

(0.4)

(0.4)

(0.4)

(0.4)

(0.4)

(0.4)

(0.4)

1.7

2.1

1.0

1.0

1.7

2.1

1.0

1.0

23.5

15.7

13.4

14.3

23.5

15.7

13.4

14.3

125.0

119.6

114.5

112.5

113.2

109.7

100.2

111.4

ROCE (%)

79.3

95.7

104.2

115.8

84.9

104.9

105.1

115.8

ROE (%)

27.0

30.2

35.7

40.1

27.4

32.1

35.6

40.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

27.7

25.5

21.1

18.8

25.3

22.5

20.6

19.7

P/CE

28.4

26.2

21.8

19.5

26.0

23.1

21.3

20.5

FV/EBITDA

18.2

16.2

14.5

12.7

16.6

14.3

14.1

13.4

FV/EBIT

18.9

17.3

14.5

12.7

17.2

15.3

14.1

13.4

FV/Revenue

4.6

4.3

3.8

3.5

4.2

3.8

3.7

3.7

P/BV

7.5

7.9

7.5

7.5

7.4

7.6

7.6

8.2

FCF Yield (%)

4.0

2.5

4.2

4.7

4.3

2.8

4.3

4.4

Div Yield (%)

3.5

4.3

4.7

5.3

3.8

4.9

4.8

5.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.36

0.39

0.44

0.50

0.16

0.16

0.17

0.18

DPS

0.34

0.43

0.44

0.50

0.16

0.18

0.17

0.18

BVPS

1.31

1.24

1.24

1.24

0.56

0.49

0.46

0.42

Capex/Revenue (%) Int Cover (%) Dividend Payout (%)

MARKET RATIOS

PER SHARE DATA

167

Founded in 1987 by a group of dentists, OdontoPrev is the largest dental-care plan provider in Brazil, with a membership of roughly 6 million, leading to a 33% share in Brazil’s dental market. OdontoPrev’s network consists of more than 25,000 dentists operating in more than 2,000 cities, and its main product is a risk-based plan (pre-paid plan). On August 2014, the company announced the beginning of operations of Brasildental, a joint venture with Banco do Brasil, which aims to serve dental plans to the bank’s employees and its their dependents, as well as to explore dental plan sales through the bank's distribution channels.

Key Personnel: Mauro Figueiredo (CEO) and José Roberto Borges Pacheco (IR Officer) Web: www.odontoprev.com.br/ir

Membership Breakdown, 3Q14

SME 11.9%

Individuals 7.2%

Large Corporate 80.8%

Revenue Breakdown, 9M14

Individuals 12.6%

Corporate 87.4%

Shareholder Structure, Current

Treasury 0.8%

Free-float 47.6%

Mgmt. 1.6%

Bradesco 50.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—CEMENT, CONSTRUCTION, INFRA & RE

PDG REALTY

UNDERPERFORM CURRENT PRICE: R$0.84 TARGET PRICE: R$0.90

DOWNGRADING RATING TO UNDERPERFORM FROM HOLD INTRODUCING YE2015 TARGET PRICE OF R$0.90; REPLACING YE2014 TARGET PRICE OF $1.95 

Investment Case: We believe PDG should show early signs of

Bruno Mendonca*

improvements in terms of cash generation in 2015. However, we

Brazil: Banco Santander S.A. +5511-3012-5759 | [email protected]

believe investors’ sentiment toward the stock is likely to remain negative until PDG

delivers

material

quarterly performance

improvements, which we do not expect in the short term.



Renan Manda* Brazil: Banco Santander S.A. +5511 3012-6535 | [email protected]

Outlook 2015: Although PDG’s cash consumption slowed in 3Q14, and we believe this trend is likely to continue improving gradually, we expect PDG to continue posting weak results over the next quarters.



We acknowledge that PDG’s hard work should bear fruit . . . PDG is working hard to turn around its operations, a process incorporating massive revisions in cost budget and projects, sales cancellations, and redefinition of internal processes.



. . . but that short-term momentum is likely to remain weak. We expect PDG to close 2015 and 2016 with net losses due to (1) a large proportion of “legacy” projects, (2) low operating leverage, and (3) heavy financial expenses.



Turnaround is far from over and execution risk is not negligible.

Company Statistics

The company is currently focusing on monetizing assets in order to

Bloomberg

pay its debt due in 2015. As a result, PDG is organizing marketing

Current Price (01/02/15)

R$ 0.84 / US$ 0.31

Target Price (YE 2015)

R$ 0.90 / US$ 0.34

campaigns and offering units at discounted prices (mainly finished

PDGR3 BZ

52-Week Range (R$)

0.78 - 1.90

units and units near completion) in order to boost sales and

Market Capitalization (US$ Mn)

418

consequently, to generate cash.

Float (%)

59.0

3-Mth Avg. Daily Vol (US$ Mn)



Leverage remains an issue. Although PDG heavily downsized its operations in the last three years, which should favor consistent and sizable cash flow over the next few years, leverage remains an issue.

5.3

Shares Outstanding - Mn

1,340

Price Performance (R$) PDGR3 BZ

IBOVESPA

a-13

a-14

120

We expect net debt/equity to drop to a still uncomfortable 93% at 100

YE2015 (from 131% at YE2014E), dropping to 35% at YE2016E. 80 60 40 20

j-13

m-13

d-13

a-14

Sources: FactSet, Santander estimates and company reports.

168

d-14

PDG REALTY Company Description

2013A (34) 0 (376) (467) (87) (380) 29 279 0 58

2014E (23) 0 384 249 (56) 304 0 (208) 0 9

2015E (20) 0 937 851 (36) 887 0 (235) 0 7

2016E (17) 0 990 948 (26) 974 0 (185) 0 6

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,353 9,734 1,555 16,799 4,831 6,637 4,704 8,367 2,953

2014E 1,338 9,322 1,631 15,868 5,186 5,697 4,340 7,886 3,299

2015E 2,864 9,005 1,673 14,526 4,598 5,199 4,066 7,273 3,043

2016E 5,128 9,285 1,699 13,615 4,241 4,804 3,887 6,709 2,807

2013A 578 4,155 664 7,170 2,062 2,833 2,008 3,571 1,260

2014E 525 3,656 640 6,223 2,034 2,234 1,702 3,092 1,294

2015E 1,081 3,398 631 5,481 1,735 1,962 1,534 2,745 1,148

2016E 1,661 3,007 550 4,409 1,373 1,556 1,259 2,172 909

5,414

4,586

4,230

3,902

2,311

1,798

1,596

1,263

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

7,737

7,115

4,980

2,234

3,302

2,790

1,879

723

Capital Employed

11,216

10,472

8,046

5,030

4,787

4,107

3,036

1,629

Net Debt/EBITDA

19.0

24.5

29.0

37.2

19.3

22.6

26.3

36.5

Net Debt/Equity

1.6

1.6

1.2

0.6

1.8

1.9

1.2

0.6

Capex/Revenue (%)

3.6

3.1

3.1

3.1

3.6

3.1

3.1

3.1

Int Cover (%)

0.2

0.2

0.1

0.1

0.2

0.2

0.1

0.1

Dividend Payout (%)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

ROCE (%)

5.5

4.8

3.7

4.8

6.0

5.4

3.7

4.8

ROE (%)

(5.6)

(8.1)

(6.5)

(4.5)

(5.6)

(8.6)

(6.5)

(4.5)

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

-

-

-

-

-

-

-

-

P/CE

-

-

-

-

-

-

-

-

FV/EBITDA

33.2

34.4

47.0

30.7

30.5

31.0

46.0

31.9

FV/EBIT

MARKET RATIOS

17.0

16.9

21.2

14.7

15.7

15.2

20.8

15.3

FV/Revenue

2.0

2.0

2.1

1.4

1.8

1.8

2.0

1.5

P/BV

0.5

0.3

0.3

0.3

0.5

0.3

0.3

0.3 233.0

FCF Yield (%)

(33.8)

61.1

205.1

263.5

(37.0)

70.3

212.3

Div Yield (%)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

(0.24)

(0.33)

(0.20)

(0.13)

(0.11)

(0.14)

(0.08)

(0.04)

DPS BVPS

0

0

0

0

0

0

0

0

3.51

3.24

3.04

2.90

1.50

1.27

1.15

0.94

169

Key Personnel: Carlos Augusto Piani (CEO), Marco Racy Kheirallah (CFO) and Rafael Espirito Santo (IR Officer) Web: www.pdgrealty.com.br

Launches (R$ in billions), 2013-16E 2.01

1.13

1.14

1.31

2016e

2016E (52) 0 3,014 2,887 (78) 2,965 0 (565) 0 20

PDG is a real estate investment firm engaged in the development of housing projects through its portfolio of subsidiaries and the co-development of projects with other players in the sector in Brazil. The main companies comprising PDG’s portfolio are AGRE, Goldfarb, CHL, TGLT, REP and Brasil Brokers. The company boasts a portfolio of over 100,000 units delivered across 14 Brazilian states including the Federal District (Brasília) and Argentina. Although it operates in all income segments, its primary focus is the middle- to low-income segments.

Contracted Sales (R$ in billions), 2013-16E 2.83

1.98

1.99

1.87

2016e

2015E (52) 0 2,436 2,213 (94) 2,307 0 (612) 0 19

Net Debt

2016E 829 (29.3) 237 (25.9) 38 (26.0) 4.6 79 (30.5) 9.6 (108) (26) (59) 44.4 (7.1)

2015e

2014E (54) 0 887 575 (129) 704 0 (481) 0 20

FINANCIAL RATIOS

2015E 1,173 (34.3) 319 (33.8) 51 (51.5) 4.4 114 (47.2) 9.7 (170) (43) (106) 33.4 (9.0)

2015e

2013A (74) 0 (811) (1,008) (189) (819) 62 601 0 124

LT Debt

2013A 2,464 10.3 682 n/m 146 n/m 5.9 285 n/m 11.6 (298) (58) (126) 88.6 (5.1)

2014e

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2016E 2,525 (17.2) 720 (13.3) 116 (13.4) 4.6 241 (18.6) 9.6 (330) (79) (179) 34.9 (7.1)

2014e

2013A 5,317 21.8 1,472 n/m 316 n/m 5.9 615 n/m 11.6 (643) (126) (271) 87.4 (5.1)

2015E 3,049 (26.1) 831 (25.5) 134 (45.4) 4.4 296 (40.6) 9.7 (442) (111) (274) 25.1 (9.0)

US$ 2014E 1,785 (27.6) 482 (29.3) 106 (27.6) 5.9 216 (24.3) 12.1 (286) (64) (159) (26.2) (8.9)

2013

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

R$ 2014E 4,125 (22.4) 1,115 (24.3) 245 (22.5) 5.9 499 (19.0) 12.1 (662) (149) (366) (35.2) (8.9)

2013

Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Shareholder Structure, Current

Orbis 10.1% Others 60.2%

Vinci 14.1%

Dimensional Skopos 5.1% 5.0%

Platinum 5.5%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—OIL, GAS & PETROCHEMICALS

PETROBRAS

HOLD CURRENT PRICE: US$6.76 TARGET PRICE: US$8.20

LOWERING YE2015 TARGET PRICE TO US$8.20 FROM US$11.20 

Investment Case: After several years without significant growth in

Christian Audi

production, Petrobras reached an inflection point in 2014 that should

New York: Santander Investment Securities Inc. +1-212-350-3991 | [email protected]

continue in 2015, in our view. However, we believe that production alone is not enough to significantly improve the company’s fundamentals and fragile balance sheet: rationalization, a cut in

Gustavo Allevato*, CFA Brazil: Banco Santander S.A. +5511-3012-6042 | [email protected]

capex (particularly on the back of the on-going, significant drop in oil prices), and a sound, predictable pricing policy for gasoline and diesel also are needed in tandem.



Outlook 2015: Although we expect oil production to continue growing in 2015, the combination of significantly lower oil prices and a depreciating Brazilian real should continue pressuring the company’s

fundamentals

and balance sheet, in our

view.

Additionally, we have to carefully monitor the ongoing investigation of the company and the implications it could have in terms of impairments and impact on book value.



Key risks to monitor include: (i) the impact of the ongoing, significant drop in oil prices on the company upstream and downstream operations; (ii) whether or not the company will be

Company Statistics

allowed to maintain the current premium in gasoline and diesel prices

Bloomberg

PBR US / PETR3 BZ

Current Price (01/02/15)

US$ 6.76 / R$ 9.00

Target Price (YE 2015)

US$ 8.20 / R$ 12.00

the CIDE tax re-introduced; (iii) the effect of the continuing

52-Week Range (US$)

6.26 - 20.65

depreciation of the Brazilian real; (iv) the ability to fund capex via the

Market Capitalization (US$ Mn)

(vs. international prices) during 2015, or whether prices will be cut or

company’s own cash flow generation, debt, or even potentially sale of assets; (iv) potential impairments resulting from the investigation of the company that is still in progress; and (v) the impact that all these factors could have on the company’s dividend policy.

44,089

Float (%)

51.6

3-Mth Avg. Daily Vol (US$ Mn)

517.2

Shares Outstanding - Mn

6,522

Price Performance (US$) Petrobras - ADR (Rebased) 120



Rationalization of capex: As a result of the significant, current drop in oil prices, we believe an important rationalization of the company’s

100 80

very large five-year capex plan of US$220 billion needs to take place. 60



Pricing policy for gasoline and diesel. We have to carefully

40

monitor whether Petrobras will be allowed or not to keep its prices for

20

gasoline and diesel at large premiums at which they are currently selling vs. international prices. 170

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

D-14

PETROBRAS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions R$ 2014E 341,549 12.0 87,311 22.7 75,383 19.7 22.1 42,393 21.0 12.4 (5,240) (9,238) 28,058 19.0 8.2

2015E 307,924 (9.8) 92,639 6.1 86,483 14.7 28.1 47,024 10.9 15.3 (7,558) (13,003) 26,609 (5.2) 8.6

2016E 352,168 14.4 110,380 19.2 99,594 15.2 28.3 57,521 22.3 16.3 (10,839) (15,614) 31,232 17.4 8.9

2013A (13,179) (20,084) 3,658 35,611 (103,868) (40,770) 30,022 39,080 (8,575) (1,030)

2014E (14,007) 233 1,149 62,431 (84,693) (16,706) (1,770) 47,222 (9,099) 636

2015E (15,003) 263 4,194 70,525 (93,456) (14,902) (2,143) 44,074 (10,475) 765

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 46,273 123,351 585,616 752,146 82,525 321,108 347,940 267,521 18,782

2014E 66,259 147,170 693,854 890,441 88,171 401,818 399,271 342,656 20,571

LT Debt

249,038 2013A

Net Debt Capital Employed Net Debt/EBITDA Net Debt/Equity

Company Description

2013A 141,153 (1.7) 32,946 (8.9) 29,151 6.9 20.7 16,214 (4.1) 11.5 (2,871) (2,383) 10,912 1.0 7.7

US$ 2014E 2015E 145,018 117,081 2.7 (19.3) 37,071 35,224 12.5 (5.0) 32,007 32,883 9.8 2.7 22.1 28.1 17,999 17,880 11.0 (0.7) 12.4 15.3 (2,225) (2,874) (3,922) (4,944) 11,913 10,118 9.2 (15.1) 8.2 8.6

2016E 124,441 6.3 39,003 10.7 35,192 7.0 28.3 20,325 13.7 16.3 (3,830) (5,517) 11,036 9.1 8.9

2016E (14,867) 286 1,867 75,459 (98,846) (12,224) (2,505) 45,710 (11,975) 832

2013A (6,101) (9,298) 1,694 16,487 (48,087) (18,875) 13,899 18,093 (3,970) (477)

2014E (5,947) 99 488 26,507 (35,960) (7,093) (751) 20,050 (3,863) 270

2015E (5,705) 100 1,595 26,816 (35,535) (5,666) (815) 16,758 (3,983) 291

2016E (5,253) 101 660 26,664 (34,928) (4,319) (885) 16,152 (4,231) 294

2015E 80,060 153,923 793,452 1,001,678 86,106 473,693 440,949 409,571 21,997

2016E 95,763 176,403 920,234 1,157,690 95,905 562,765 498,378 491,818 24,011

2013A 19,775 52,714 250,263 321,430 35,267 137,226 148,692 114,325 8,026

2014E 25,984 57,714 272,100 349,193 34,577 157,576 156,577 134,375 8,067

2015E 29,542 56,798 292,787 369,623 31,773 174,795 162,712 151,133 8,117

2016E 32,572 60,001 313,005 393,772 32,621 191,417 169,516 167,285 8,167

322,085

387,573

467,807

106,426

126,308

143,016

159,118

2014E

2015E

2016E

2013A

2014E

2015E

2016E

221,298

276,397

329,511

396,055

94,572

108,391

121,591

134,713

615,074

741,928

850,519

990,196

262,852

290,952

313,845

336,802

3.5

3.7

3.8

4.0

3.2

3.4

3.7

3.8

0.6

0.7

0.7

0.8

0.7

0.8

0.8

0.8

Capex/Revenue (%)

34.1

24.8

30.4

28.1

34.1

24.8

30.4

28.1

Int Cover (%)

10.9

6.8

8.2

7.8

10.9

6.8

8.2

7.8

Dividend Payout (%)

44.7

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

FINANCIAL RATIOS

2013A 304,890 8.4 71,164 0.4 62,967 17.8 20.7 35,022 5.7 11.5 (6,202) (5,148) 23,570 11.3 7.7

40.5

38.6

37.3

45.0

36.6

35.4

32.9

ROCE (%)

6.8

4.3

3.7

3.9

7.3

5.0

3.7

3.9

ROE (%)

6.8

7.5

6.3

6.6

6.9

8.0

6.3

6.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

9.0

4.5

4.5

3.8

8.2

4.0

4.4

4.0

P/CE

5.8

3.0

2.9

2.6

5.3

2.7

2.8

2.7

FV/EBITDA

6.9

5.4

5.2

5.2

6.3

4.9

5.0

5.1

MARKET RATIOS

FV/EBIT FV/Revenue P/BV FCF Yield (%) Div Yield (%)

12.4

9.5

9.5

9.0

11.4

8.7

9.3

8.8

1.4

1.2

1.5

1.5

1.3

1.1

1.4

1.4

0.6

0.3

0.3

0.2

0.6

0.3

0.3

0.3

(19.2)

(13.2)

(12.6)

(10.3)

(21.0)

(14.9)

(12.9)

(9.8)

4.0

7.2

8.8

10.1

4.4

8.1

9.0

9.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.81

2.15

2.04

2.39

1.34

1.60

1.52

1.78

DPS

0.66

0.70

0.80

0.92

0.49

0.52

0.60

0.68

26.67

30.61

33.80

38.21

19.82

22.74

25.11

28.39

PER SHARE DATA

BVPS

171

Petrobras is Brazil’s integrated oil and gas company created in 1954 as a wholly owned government entity responsible for all hydrocarbon activities in the country.

Key Personnel: Maria das Graças Foster (CEO), Almir Guilherme Barbassa (CFO) Barbassa (IR Officer) Web: www.petrobras.com.br

and

Almir

Guilherme

Sales by Country, 2015E

Other 9.3%

Brazil 90.7%

Sales Volume by Segment, 2015E

Others 19.4%

Natural Gas 14.1%

Diesel 34.9% LPG 8.0% Gasoline 23.5%

Shareholder Structure, Current

Brazilian Government 31.1% Free Float 51.6%

Sovereign Fund 3.9%

BNDES 13.4%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—FINANCIAL SERVICES

PORTO SEGURO

HOLD CURRENT PRICE: R$31.00 TARGET PRICE: R$34.00

INTRODUCING YE2015 TARGET PRICE OF R$34.00; REPLACING YE2014 TARGET PRICE OF R$32.80 

Investment Case: PSSA3 trades at a premium to Itau and Bradesco

Henrique Navarro*

on a 2015E P/E basis, despite its much lower ROE. Thus, we see

Brazil: Banco Santander S.A. +5511-3012-5756 | [email protected]

large banks as a cheaper way to play Brazil’s insurance segment.



Boris Molina

Finally, our target price leaves little room for appreciation potential.

New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

Outlook 2015: We see some supportive tailwinds for 2015, but these

Renata Cabral*

are already priced in, in our opinion. We expect the insurance

Brazil: Banco Santander S.A. +5511-3012-5731 | [email protected]

industry sector and Porto Seguro in particular to benefit from a series of positives, such as a higher (and less volatile) average Selic and prevailing high inflation. The more rational competition we have been seeing should continue until mid-2015, when we believe the competitive landscape will be reviewed to be positioned for conditions in 2016. Finally, 2015 will not benefit from nonrecurring revenue, which strongly inflated the bottom line in 2013 and, to a lesser extent, in 2014; therefore, we do not expect strong EPS grow YoY in 2015 on a reported net income basis.



Sustainable ROE. We concur with company guidance for a 16-18% long-term sustainable ROE. The 2014 ROE will be near 16%, pushed by some ~R$100 million in nonrecurring items. This

Company Statistics

sustainable ROE expectation depends on the level of competition,

Bloomberg

and is also based on a financial income return of 100% (over the

PSSA3 BZ

Current Price (01/02/15)

R$ 31.00 / US$ 11.52

Target Price (YE 2015)

R$ 34.00 / US$ 12.93

local interest rates—Selic) per year, although the historical return has

52-Week Range (R$)

been above that, near 110%.

Market Capitalization (US$ Mn)

27.41 - 35.00 3,723

Float (%)



Excess capital could eventually be distributed. The company will

30.1

3-Mth Avg. Daily Vol (US$ Mn)

5.0

Shares Outstanding - Mn

323

end 2014 with circa R$1.4 billion in excess capital, by our estimate, which could be partially distributed in the future. But this is a long-

Price Performance (R$) PSSA3 BZ

term expectation, as (i) the fully loaded Solvency II requirement must

160

first be known (company estimates more than R$70 million to be

140

required by YE2015 to face the market risk pillar), and (ii) top

IBOVESPA

120

management is conservative on capital matters. 100



No material change in EPS. We revised our numbers after the

80

3Q14 release, with no material change in EPS for 2014, 2015, and

60

2016: a small ~3% reduction in EPS for the period.

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

172

D-14

PORTO SEGURO Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions R$ 2014E 2015E 12,523 13,676 10.2 9.2 12,239 13,581 8.4 11.0 11,778 12,830 12.4 8.9 (10,637.2) (11,662.1) (44) (174) 869 890 717 958 1,339 1,394 (449) (487) 890 907 (36.3) 1.9

INCOME STATEMENT Written Premiums Growth (%) Retained Premiums Growth (%) Earned Premiums Growth (%) Commissions and Expenses Underwriting Results Financial Result Equity Income Profit Before Taxes Taxes Net Profit Growth (%)

2013A 11,363 18.0 11,291 18.1 10,479 18.5 (9,369.3) 1,050 958 524 2,226 (829) 1,397 105.5

BALANCE SHEET Cash and Equivalents Financial Assets Premiums Receivable Intangible Assets Tangible Assets Total Assets Current Liabilities Technical Provisions Other Provisions Debt and Financial Liabilities Minority Interest Equity

2013A 1,041 7,081 3,792 1,425 1,213 20,409 13,347 644 396 3,755 13 5,894

2014E 883 6,007 4,133 1,498 1,331 21,164 14,466 710 403 4,116 19 6,005

OPERATING RATIOS Claims Ratio Sales Ratio Admin Ratio Combined Ratio Amplified Combined Ratio Effective Tax Rate Excess Solvency Margin ROAA

2013A 54.7 19.4 9.5 90.6 76.0 37.2 33.0 7.1 25.5

ROAE Payout

Company Description US$ 2014E 2015E 5,065 5,161 (0.6) 1.9 4,950 5,125 (2.2) 3.5 4,764 4,841 1.4 1.6 (4,302.4) (4,400.8) (18) (66) 352 336 290 362 542 526 (182) (184) 360 342 (42.5) (5.0)

2016E 14,971 9.5 14,863 9.4 14,032 9.4 (12,630.5) (90) 918 1,045 1,607 (545) 1,062 17.2

2013A 5,093 4.8 5,061 4.8 4,697 5.2 (4,199.8) 471 429 235 998 (372) 626 82.5

2016E 5,246 1.7 5,208 1.6 4,917 1.6 (4,425.9) (32) 322 366 563 (191) 372 8.8

2015E 991 6,739 4,514 1,574 1,399 23,016 15,882 786 423 4,523 19 6,406

2016E 1,137 7,735 4,943 1,655 1,470 25,390 17,719 871 445 4,982 19 6,906

2013A 483 3,282 1,758 660 562 9,459 6,186 298 184 1,740 6 2,732

2014E 377 2,563 1,763 639 568 9,031 6,173 303 172 1,756 8 2,563

2015E 377 2,562 1,716 599 532 8,751 6,039 299 161 1,720 7 2,436

2016E 403 2,738 1,750 586 520 8,987 6,272 308 157 1,764 7 2,444

2014E 55.6 19.5 17.0 100.4 85.8 33.5 29.5 4.3

2015E 56.1 19.6 17.5 101.4 89.4 35.0 26.2 4.1

2016E 55.2 19.6 17.7 100.6 89.6 33.9 25.6 4.4

2013A 54.7 19.4 9.5 90.6 76.0 37.2 15.3 7.3

2014E 55.6 19.5 17.0 100.4 85.8 33.5 12.5 4.5

2015E 56.1 19.6 17.5 101.4 89.4 35.0 9.8 4.1

2016E 55.2 19.6 17.7 100.6 89.6 33.9 9.5 4.4

15.0

14.6

16.0

26.0

15.9

14.6

16.0

51.6

62.8

50.0

48.1

46.7

57.6

44.0

47.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

6.9

11.0

11.1

9.4

6.5

10.3

10.9

10.0

P/CE

6.9

11.0

11.1

9.4

6.5

10.3

10.9

10.0

P/BV

1.6

1.6

1.6

1.5

1.5

1.4

1.5

1.5

Div Yield (%)

3.6

8.9

4.4

4.4

3.8

9.6

4.5

4.1

MARKET RATIOS

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

4.30

0.91

1.08

1.21

1.93

0.37

0.41

0.42

CEPS

4.30

0.91

1.08

1.21

1.93

0.37

0.41

0.42

BVPS

18.15

18.58

19.82

21.36

8.41

7.93

7.53

7.56

2.70

1.38

1.35

1.52

1.21

0.56

0.51

0.53

DPS

Porto Seguro S.A. is Brazil’s leading insurance company in the Auto segment, with more than 60 years of experience in this sector. The company also offers health insurance, as well as home and life, among others. The company launched its IPO in 2004, which raised funds to help it consolidate its presence in the Brazilian market. In 2009, Itaú Unibanco and Porto Seguro announced an agreement to merge their Home and Automobile insurance operations, which gave Porto Seguro exclusive distribution rights for the Auto insurance products (Porto Seguro and Azul brands) in Itaú Unibanco’s branch network. The company is controlled by Jayme Brasil Garfinkel, who indirectly owns approximately 40% of the company.

Key Personnel: Jayme Brasil Garfinkel (Chairman), Fabio Luchetti (CEO), Marcelo Picanço (CFO) and Ricardo Fuzaro (IRM) Web: www.portoseguro.com.br

Invested Portfolio, 3Q14

Health 8.9%

Others 14.4%

P&C 8.6%

Itau Auto 16.9%

Porto Seguro Auto 34.9%

Azul 16.3%

Premiums per Segment, 2014E

Inflation linked 3.0%

Corporate bonds 17.0%

Equities 3.0%

Fixed rate 24.0%

Floating rate 53.0%

Shareholder Structure, Current

Free Float 29.2%

PSIUPAR 70.8%

Sources for all charts and tables: Company reports and Santander estimates.

173

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—TELECOM, MEDIA & TECHNOLOGY

POSITIVO INFORMATICA

BUY CURRENT PRICE: R$2.03 TARGET PRICE: R$3.20

INTRODUCING YE2015 TARGET PRICE OF R$3.20; REPLACING YE2014 TARGET PRICE OF R$4.00 

Investment Case: Amid a still disappointing PC market in Brazil in 2014 (with research institute IDC estimating volumes -25% YoY),

Valder Nogueira*

Positivo has focused its efforts on (i) reducing debt, (ii) establishing a

Brazil: Banco Santander S.A. +5511-3012-5747 | [email protected]

healthy inventory level (to improve returns), and (iii) increasing

Bruno Mendonca*

protection against FX variations. In our view, current FX levels, if they

Brazil: Banco Santander S.A. +5511-3012-5759 | [email protected]

remain stable, would help Positivo’s pricing competitiveness and allow higher fixed-cost dilution (G&A and development costs are mostly in R$ terms). However, the outlook remains challenging (mainly in Brazil), on a combination of a cloudy macro scenario and the ongoing deterioration of Positivo’s main business segment (PCs).



Outlook 2015: We expect Positivo to maintain its focus on improving its balance sheet, focusing on generating cash, and reducing invested capital. We expect Positivo to be more selective in government projects, while restricting volume commitments to larger partners in the retail segment. In this sense, we cannot rule out sales volatility. We do not expect return on capital to meet the company’s cost of capital in 2015, but we expect it to keep gradually improving in the upcoming years.



Improving the mix to offset a weaker PC market: Positivo recently announced a partnership with telecom operators for smartphone

Bloomberg

Positivo’s brand exposure, potentially resulting in significant market

Current Price (01/02/15)

R$ 2.03 / US$ 0.75

share gains, helping to offset the shrinking PC market. We forecast a

Target Price (YE 2015)

R$ 3.20 / US$ 1.21

flat top line in 2015, reflecting a combination of (1) 72% growth in smartphones sales (with additional upside in the coming years); (2)

POSI3 BZ

52-Week Range (R$)

1.95 - 3.28

Market Capitalization (US$ Mn)

66

Float (%)

87.0

flat tablet sales; (3) still strong government sales, albeit down 9%

3-Mth Avg. Daily Vol (US$ Mn)

0.2

YoY on hard comps (and no plans to reduce exposure to this

Shares Outstanding - Mn

88

segment); and (4) a 11% decline in PCs sales.



Company Statistics

sales. We believe the agreement will likely accelerate sales and

Price Performance (R$)

Positioning to become an international player: After a successful

POSI3 BZ

IBOVESPA

120

joint venture in Argentina (mostly focused on retail), in 2015 Positivo will launch a small operation in Africa. We see this is as a first step

100

toward replicating the company’s local success in educational

80

programs for other emerging economies. We see room for Positivo to

60

become an international reference in this segment, which, combined

40

with its expertise in meeting government requirements, may open the doors to a new market.

20

j-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

174

d-14

POSITIVO INFORMATICA

2013A 49 (34) 10 (14) 92 75 0 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 170 1,518 276 1,880 1,011 223 646 554 387

Net Debt

2013A 1,170 9.1 250 (5.0) 47 14.2 4.0 25 5.5 2.1 (27) 0 7 (53.7) 0.6

2014E 12 (1) 10 (3) (49) (59) 0 0

2015E 12 47 102 (13) 17 (65) (8) 0

2016E 13 (14) 65 (17) 25 (20) (7) 0

2013A 23 (16) 5 (6) 42 34 0 0

2014E 116 1,374 261 1,722 867 218 637 495 334

2015E 195 1,219 289 1,586 594 295 697 427 192

2016E 217 1,265 293 1,635 594 284 757 408 184

2013A 72 648 118 802 431 95 276 237 165

2015E 836 241.3 205 312.8 36 207.9 4.4 32 372.7 3.8 (16) (6) 10 2,105.4 1.2

2016E 824 (1.5) 202 (1.7) 38 5.6 4.7 34 5.5 4.1 (9) (4) 21 102.0 2.5

2014E 5 (0) 4 (1) (20) (24) 0 0

2015E 5 18 39 (5) 7 (25) (3) 0

2016E 5 (5) 24 (6) 9 (7) (2) 0

2014E 45 539 103 675 340 85 250 194 131

2015E 74 460 109 598 224 111 263 161 73

2016E 79 460 106 595 216 103 275 148 67

167

162

235

224

71

63

89

81

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

385

380

232

190

164

149

88

69

Capital Employed

1,000

987

912

930

427

387

344

338

Net Debt/EBITDA

3.7

13.1

2.5

1.8

3.5

12.6

2.4

1.8

Net Debt/Equity

0.6

0.6

0.3

0.3

0.7

0.7

0.3

0.3

Capex/Revenue (%)

0.5

0.5

0.6

0.8

0.5

0.5

0.6

0.8

-

-

-

-

-

-

-

-

Dividend Payout (%)

0.0

0.0

679.9

25.0

0.0

0.0

598.5

24.8

ROCE (%)

5.4

1.7

9.1

9.8

5.9

1.9

9.2

9.8

ROE (%)

2.4

0.2

4.0

7.7

2.5

0.2

4.0

7.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

16.1

n/m

6.6

3.2

15.0

n/m

6.4

3.2

-

-

11.9

4.1

-

-

11.5

4.1 3.5

Int Cover (%)

MARKET RATIOS P/E P/CE FV/EBITDA

6.1

19.6

4.3

3.5

5.7

18.6

4.2

11.8

34.4

4.9

4.1

11.0

32.5

4.8

4.0

FV/Revenue

0.2

0.9

0.2

0.2

0.2

0.9

0.2

0.2

P/BV

0.4

0.3

0.3

0.2

0.4

0.3

0.3

0.2

FCF Yield (%)

36.5

(26.2)

9.7

14.1

39.3

(28.4)

10.1

14.0

Div Yield (%)

(0.0)

(0.0)

4.4

3.8

(0.0)

(0.0)

4.5

3.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.18

0.01

0.31

0.64

0.08

0.01

0.12

0.24

DPS

0

0

0.09

0.08

0

0

0.03

0.03

7.35

7.25

7.94

8.62

3.14

2.85

3.00

3.13

FV/EBIT

PER SHARE DATA

BVPS

175

Positivo Informática held, at the end of 2Q14, a 15.6% market share in official PC sales in Brazil. The largest portion of Positivo’s sales was geared toward the retail market, targeting mostly Class C households. Positivo is also present in the government (30% of units sold) and corporate (15% of units sold) segments, including production in Argentina. Positivo Informática also offers mobile devices through its Positivo Ypy product line, including tablets and smartphones with extensive content in Portuguese. POSI3 shares are listed in the Novo Mercado, bearing 100% tag-along rights, and the free float is currently 87%.

Key Personnel: Helio Rotenberg (CEO) and Lincon Lopes Ferraz (IR Officer) Web: www.positivoinformatica.com.br/ri

Total PCs Units Sold (000) 2405.08

2567.10 2305.71

1979.81

2013E

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

FINANCIAL RATIOS

2016E 2,225 2.3 544 2.1 104 9.7 4.7 91 9.5 4.1 (25) (10) 56 109.8 2.5

Company Description

2012

2013A 2,567 22.1 549 6.3 104 27.8 4.0 54 18.1 2.1 (59) 0 16 (48.2) 0.6

LT Debt

2015E 2,175 262.7 533 338.6 95 227.2 4.4 83 402.3 3.8 (40) (16) 27 2,243.7 1.2

US$ 2014E 245 (79.1) 50 (80.2) 12 (74.9) 4.8 7 (72.6) 2.8 (7) 0 0 (93.4) 0.2

2011

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

R$ 2014E 600 (76.6) 121 (77.9) 29 (72.0) 4.8 17 (69.5) 2.8 (18) 0 1 (92.7) 0.2

2010

Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Segment Breakdown (units sold), 9M14

Corporate 8.0%

Government 38.0%

Retail 53.0%

Shareholder Structure, Current

Free Float 27.3% Treasury 2.0%

Controllers 70.7%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—HEALTH CARE

QUALICORP

BUY CURRENT PRICE: R$27.80 TARGET PRICE: R$33.00

INTRODUCING YE2015 TARGET PRICE OF R$33.00; REPLACING YE2014 TARGET PRICE OF R$28.00 

Investment Case: We maintain our positive view on Qualicorp,

Bruno Giardino*, CFA

based on the company’s strong earnings momentum (2014-17E EPS

Brazil: Banco Santander S.A. +5511-3012-5914 | [email protected]

CAGR of 41%) and operating cash flow generation (2015E yield of ~5%), which opens room for larger payout rates, in our view. While the company is exposed to the macroeconomic environment, its

Daniel Gewehr* Brazil: Banco Santander S.A. +5511-3012-5787 | [email protected]

revenue stream is mostly recurring and linked to medical inflation, which has been at least twice as large overall inflation, resulting in EBITDA margin expansion by diluting fixed expenses.



Outlook 2015: We expect Qualicorp to deliver healthy 25% EBITDA growth (on a recurring basis), driven by double-digit readjustments in healthcare plan prices, and, to a lower extent, a slight growth in volume and margin expansion gains. We see the company trading at a 2015E adjusted P/E of 14x, which we believe is attractive.



A dividend play. Following the conclusion of payments for 75% of its subsidiary Aliança, and considering the company’s high cash flow generation and low capex needs, we see room for the company to fully distribute earnings to shareholders from 2015 onward. Assuming a payout ratio of 100%, we estimate a 2015 dividend yield of 3.6%.

Company Statistics Bloomberg



Competitive advantages intact. We believe that Qualicorp’s large addressable market (estimated by the company to be at least 13

QUAL3 BZ

Current Price (01/02/15)

R$ 27.80 / US$ 10.33

Target Price (YE 2015)

R$ 33.00 / US$ 12.45

52-Week Range (R$)

19.60 - 28.15

million people) and its first-mover advantages (i.e., large scale)

Market Capitalization (US$ Mn)

provide unique growth opportunities in the healthcare plan industry.

Float (%)

74.4

3-Mth Avg. Daily Vol (US$ Mn)

19.5

Shares Outstanding - Mn

267

We conservatively estimate an affinity healthcare portfolio of 2 million

2,753

beneficiaries in 2025 (from 1.459 million in 2014E). Price Performance (R$)



Qualicorp’s expansion strategy is based on two main pillars:

QUAL3 BZ

IBOVESPA

140

(1) market, by expanding to new regions (the bulk of sales still originate in São Paulo and Rio de Janeiro); and (2) channel, by improving productivity in existing channels (external, internal and new

120

100

channels, which include the establishment of franchises and e-commerce). Following the acquisition of Tempo, we see opportunity for the company to explore new businesses related to the relationship between healthcare providers.

80

60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

176

D-14

QUALICORP Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 1,200 30.3 895 32.7 451 41.7 37.6 231 192.2 19.3 (228) (16) (32) (242.4) (2.6)

R$ 2014E 1,491 24.3 1,112 24.3 703 56.1 47.2 427 84.5 28.6 (134) (128) 144 n/m 9.7

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (177) (17) 36 165 (132) (48) (81) 0 26

2014E (202) (87) (3) 256 (536) (22) 258 0 15

2015E (199) 36 (64) 440 (63) 377 0 (269) 0

2016E (181) 42 (32) 558 (73) 485 0 (367) 0

2013A (82) (8) 17 77 (61) (22) (38) 0 12

2014E (86) (37) (1) 110 (229) (9) 110 0 6

2015E (76) 14 (24) 169 (24) 145 0 (104) 0

2016E (67) 15 (12) 207 (27) 180 0 (136) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 327 522 2,489 3,242 403 825 2,009 700 110

2014E 477 936 2,627 3,811 416 995 2,390 744 35

2015E 708 1,239 2,491 3,978 425 1,127 2,390 770 35

2016E 914 1,516 2,383 4,146 463 1,225 2,390 800 35

2013A 140 223 1,062 1,384 172 352 858 299 47

2014E 187 367 1,030 1,494 163 390 937 292 14

2015E 267 468 940 1,501 160 425 902 291 13

2016E 332 551 866 1,508 168 446 869 291 13

LT Debt FINANCIAL RATIOS Net Debt

2015E 1,790 20.0 1,339 20.4 717 2.0 40.1 438 2.7 24.5 (1) (142) 269 86.7 15.0

2016E 2,077 16.0 1,555 16.2 832 16.0 40.1 558 27.3 26.9 32 (191) 367 36.4 17.7

2013A 556 18.0 415 20.3 209 28.4 37.6 107 164.7 19.3 (106) (7) (15) (229.0) (2.6)

US$ 2014E 638 14.8 476 14.7 301 44.1 47.2 183 70.3 28.6 (57) (55) 62 n/m 9.7

2015E 688 7.9 515 8.2 276 (8.3) 40.1 169 (7.7) 24.5 (0) (54) 104 67.8 15.0

2016E 769 11.7 576 11.9 308 11.7 40.1 207 22.6 26.9 12 (71) 136 31.4 17.7

590

709

735

765

252

278

277

278

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E (42)

372

267

62

(114)

159

105

23

Capital Employed

2,386

2,666

2,488

2,343

1,019

1,046

939

852

Net Debt/EBITDA

0.8

0.4

0.1

(0.1)

0.8

0.3

0.1

(0.1)

Net Debt/Equity

0.2

0.1

0.0

(0.0)

0.2

0.1

0.0

(0.0)

11.0

35.9

3.5

3.5

11.0

35.9

3.5

3.5

Int Cover (%)

1.6

3.2

5.1

5.6

1.6

3.2

5.1

5.6

Dividend Payout (%)

0.0

0.0

186.7

136.4

0.0

0.0

164.3

135.6

10.4

20.8

23.3

32.0

11.3

22.9

23.4

32.0

Capex/Revenue (%)

ROCE (%) ROE (%) MARKET RATIOS P/E

(1.6)

6.6

11.3

15.4

(1.6)

7.0

11.3

15.4

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

-

n/m

27.5

20.2

-

45.2

26.6

20.2

P/CE

40.8

21.4

15.8

13.5

37.3

18.8

15.3

13.6

FV/EBITDA

14.0

11.0

10.6

9.0

12.9

9.6

10.2

9.1

FV/EBIT

27.4

18.1

17.3

13.5

25.0

15.9

16.7

13.5

FV/Revenue

5.3

5.2

4.2

3.6

4.8

4.6

4.1

3.6

P/BV

3.0

3.1

3.1

3.1

2.9

3.0

3.1

3.2

(0.8)

(0.3)

5.1

6.6

(0.9)

(0.3)

5.3

6.5

FCF Yield (%) Div Yield (%)

(0.0)

(0.0)

3.6

5.0

(0.0)

(0.0)

3.8

4.9

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

(0.12)

0.54

1.01

1.38

(0.06)

0.23

0.39

0.51

DPS

0

0

0.25

0.34

0

0

0.10

0.13

7.61

8.96

8.96

8.96

3.25

3.52

3.38

3.26

BVPS

177

Founded in 1997 by José Seripieri Filho, Qualicorp is a leading, full-service, nonrisk provider of health benefits management services in Brazil. The company serves 1.890 million lives through the affinity segment (associations), and 2.297 million lives through corporate clients. The company competes in important Brazilian markets such as São Paulo, Rio de Janeiro, Bahia, Brasília, Espírito Santo, and the Federal District.

Key Personnel: José Seripieri Filho (Chairman), Mauricio Ceschin (CEO), Alex Oreiro (CFO) and Wilson Olivieri (IR Officer) Web: www.qualicorp.com.br

Membership Breakdown, 3Q14

TPA & Others 44.1%

Affinity Health 27.7%

Affinity New Products 8.5%

Corporate Health 19.7%

Revenue Breakdown, 9M14 Corporate & Others 8.2%

Affinity 91.8%

Shareholder Structure, Current

José Seripieri Filho 20.3%

Free Float 79.7%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—OIL, GAS & PETROCHEMICALS

QUEIROZ GALVÃO E&P

BUY CURRENT PRICE: R$6.96 TARGET PRICE: R$11.00

LOWERING YE2015 TARGET PRICE TO R$11.00 FROM R$13.00 

Investment Case: Our positive view on the stock is driven by its

Christian Audi

attractive upside/downside asymmetry, despite the lack of short-term

New York: Santander Investment Securities Inc. +1-212-350-3991 | [email protected]

catalysts and the slight delays in the first oil for the Atlanta field. We also view positively management’s conservative stance from a financial and capital discipline point of view, particularly given the

Gustavo Allevato*, CFA Brazil: Banco Santander S.A. +5511-3012-6042 | [email protected]

current backdrop of falling oil prices.



Outlook 2015: Queiroz Galvão’s most important asset, the Manati field, should post a healthy production level in 2015 of 5.5 MMm³/d, slightly below 2014’s expected level due to construction of the compression plant, slated for completion by the end of first half 2015. Additionally, we expect more details about productivity in Carcará in 2H15, after the second phase of the appraisal well in that field is concluded.



BS-4 update: The company decided in late December to contract a FPSO with capacity of 25-30 kbpd, and it should take some 14 months to be installed, with expectations for first oil slated for late 2015/early 2016 (instead of late 2015, as initially expected). We estimate the initial oil production to be around 25 kbpd with two wells.

Company Statistics Bloomberg



Carcará field: QGEP concluded the drilling of the first phase at the beginning of November 2014, with the second phase to begin in

QGEP3 BZ

Current Price (01/02/15)

R$ 6.96 / US$ 2.59

Target Price (YE 2015)

R$ 11.00 / US$ 4.06

52-Week Range (R$)

6.45 - 10.00

3Q15 and conclude at the end of 1Q16 (using a rig equipped with

Market Capitalization (US$ Mn)

687

managed pressure drilling, MPD), when productivity info should be

Float (%)

30.0

announced. Additionally, in order to speed up the delineation of the

3-Mth Avg. Daily Vol (US$ Mn)

1.3

Shares Outstanding - Mn

266

Carcará discovery, the consortium has proposed to the ANP the drilling of a second appraisal well in a single phase, to be concluded by 4Q15.

Price Performance (R$) Queiroz Galvão E&P - ON (Rebased)

110 100



Growth opportunities: We believe the company continues to

90

analyze growth opportunities ranging from prospective resources to

80

fields that are already producing, but in our view, any decision will

70 60

have been carefully analyzed, particularly given current oil price

50

trends.

40

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

178

D-14

QUEIROZ GALVÃO E&P Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 486 5.1 194 88.1 223 81.4 45.9 126 214.3 25.9 62 5 192 133.2 39.6

R$ 2014E 596 22.5 243 25.1 207 (7.2) 34.8 121 (3.9) 20.3 61 (55) 127 (33.8) 21.4

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 97 (475) 20 (165) (416) (109) (20) 153 0 86

2014E 86 0 (54) 159 (305) (80) 11 0 0 0

2015E 102 0 40 233 (355) (61) 12 0 0 0

2016E 48 0 6 317 (434) (54) 19 0 0 0

2013A 45 (220) 9 (77) (193) (51) (9) 71 0 40

2014E 37 0 (23) 68 (130) (34) 5 0 0 0

2015E 39 0 15 89 (135) (23) 5 0 0 0

2016E 17 0 2 112 (154) (19) 7 0 0 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,006 1,284 1,715 3,040 234 397 2,409 168 0

2014E 940 1,299 2,077 3,419 288 392 2,739 181 36

2015E 885 1,227 2,456 3,730 308 417 3,005 193 39

2016E 858 1,230 3,046 4,326 340 452 3,534 209 42

2013A 426 544 726 1,287 99 168 1,020 71 0

2014E 368 509 814 1,341 113 154 1,074 71 14

2015E 327 453 906 1,376 113 154 1,109 71 14

2016E 292 418 1,036 1,471 116 154 1,202 71 14

168

145

154

167

71

57

57

57 2016E

LT Debt FINANCIAL RATIOS

2015E 527 (11.6) 190 (21.7) 177 (14.5) 33.6 75 (37.7) 14.3 56 (39) 92 (28.0) 17.4

2016E 740 40.5 470 146.9 371 109.9 50.2 323 329.1 43.7 52 (112) 262 186.2 35.5

2013A 225 (4.9) 90 70.1 103 64.1 45.9 58 184.2 25.9 29 2 89 110.9 39.6

US$ 2014E 254 12.5 103 14.9 88 (14.8) 34.8 51 (11.7) 20.3 26 (23) 54 (39.2) 21.4

2015E 200 (21.1) 72 (30.1) 67 (23.7) 33.6 29 (44.3) 14.3 21 (15) 35 (35.7) 17.4

2016E 262 30.8 166 129.8 131 95.4 50.2 114 299.5 43.7 18 (40) 93 166.4 35.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

Net Debt

(838)

(777)

(713)

(671)

(355)

(305)

(263)

(228)

Capital Employed

2,478

2,811

3,079

3,653

1,049

1,102

1,136

1,243

Net Debt/EBITDA

(3.8)

(3.8)

(4.0)

(1.8)

(3.4)

(3.5)

(3.9)

(1.7)

Net Debt/Equity

(0.3)

(0.3)

(0.2)

(0.2)

(0.4)

(0.3)

(0.2)

(0.2)

Capex/Revenue (%)

85.6

51.2

67.4

58.7

85.6

51.2

67.4

58.7

Int Cover (%)

n/m

14.6

11.1

21.8

n/m

14.6

11.1

21.8

Dividend Payout (%)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

ROCE (%)

5.2

5.6

3.2

11.5

5.7

6.1

3.2

11.5

ROE (%)

8.3

4.9

3.2

8.0

8.4

5.3

3.2

8.0

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

13.5

15.0

20.2

7.0

12.4

13.3

19.7

7.4

P/CE

27.3

46.5

-

8.6

25.0

41.1

-

9.1 3.5

FV/EBITDA

7.9

5.5

6.4

3.2

7.2

4.7

6.3

14.0

9.4

15.1

3.6

12.8

8.1

14.8

4.0

FV/Revenue

3.6

1.9

2.2

1.6

3.3

1.6

2.1

1.8

P/BV

1.1

0.7

0.6

0.5

1.1

0.7

0.6

0.6

FCF Yield (%)

(4.2)

(4.2)

(3.3)

(2.9)

(4.6)

(4.8)

(3.4)

(2.8)

Div Yield (%)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.72

0.48

0.35

0.99

0.34

0.20

0.13

0.35

DPS

0

0

0

0

0

0

0

0

9.06

10.30

11.31

13.29

3.84

4.04

4.17

4.52

FV/EBIT

PER SHARE DATA

BVPS

179

Queiroz Galvão is an upstream player in Brazil, with an exploration portfolio comprising 8 blocks located within the basins of Camamu, Jequitinhonha, Santos, and Campos. Queiroz Galvão held its IPO in February 2011, is controlled (63%) by Queiroz Galvão S.A, and it is part of the Novo Mercado.

Key Personnel: Antônio Augusto de Queiroz Galvão (Chairman), Lincoln Guardado (CEO), Paula Costa (CFO) and Paula Costa (IR Officer) Web: www.qgep.com.br

EV by Basin, 2015E

BM-S-8 9.0% BS-4 39.0%

Manati 42.0%

Production by Basin, 2015E

Manati 100.0%

Shareholder Structure, Current

Mgmt 0.1%

Free-Float 29.9%

FIP Quantum 7.0% Queiroz Galvão S.A 63.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—RETAIL & CONSUMER GOODS

RAIA DROGASIL

HOLD CURRENT PRICE: R$25.00 TARGET PRICE: R$28.00

RAISING YE2015 TARGET PRICE TO R$28.00 FROM R$22.00 

Investment Case: We remain upbeat regarding Raia Drogasil’s

João Mamede*

sales growth and margin expansion opportunities, supported by

Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

strong industry dynamics. However, we maintain our Hold rating based on demanding multiples (~31x P/E 2015E) and limited upside potential to our YE2015 target price. We have seen no major change in the competitive environment and believe that the company’s superior store opening efficiency is a key competitive advantage in

Ronaldo Kasinsky* Brazil: Banco Santander S.A. +5511-3553-2396 | [email protected]

Jessica Bessa* Brazil: Banco Santander S.A. +5511-3553-9602 | [email protected]

order to lead the consolidation trend in the industry.



Outlook 2015: The Brazilian pharmaceutical industry has been growing at double-digit rates, supporting strong SSS figures for Raia Drogasil (+11% in 2015E), which, combined with the company’s +130 store-opening plan, should result in +16.4% YoY top-line growth. Moreover, we expect +30-bp YoY EBITDA margin expansion to 6.7% (from 6.4%) owing to an enhanced sales mix, smoother expense pressures, and operating leverage at maturing stores.



Catalysts: We expect Raia Drogasil to lead the consolidation of the pharmaceutical retail industry through its aggressive store-opening plan (+130 stores/year), while its defensive sales mix (including

Company Statistics

medications and CF&T categories) should allow for decent sales

Bloomberg

visibility. We expect higher-margin CF&T categories to continue



RADL3 BZ

Current Price (01/02/15)

R$ 25.00 / US$ 9.29

Target Price (YE 2015)

R$ 28.00 / US$ 10.33

gaining share, as the drugstore convenience factor continues to drive

52-Week Range (R$)

demand, while expanding private label brands offer further margin

Market Capitalization (US$ Mn)

expansion opportunities.

3-Mth Avg. Daily Vol (US$ Mn)

9.0

Shares Outstanding - Mn

330

13.71 - 25.35 3,068

Float (%)

58.0

Main Concerns: Main risks to our investment case include (1) increased competition; (2) property value may hinder the company’s

Price Performance (R$) RADL3 BZ

store expansion plans; (3) changes to industry regulation (OTC and

110

generics regulations); (4) introduction of lower-margin categories to

100

its sales mix, hurting store profitability; and (5) demanding multiples

90

(~31x P/E 2015E).

80

IBOVESPA

70 60 50

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

180

D-14

RAIA DROGASIL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 6,233 15.8 1,720 15.2 357 9.5 5.7 150 (6.3) 2.4 (10) (38) 176 16.2 2.8

R$ 2014E 7,342 17.8 2,092 21.6 490 37.3 6.7 303 102.2 4.1 (8) (75) 258 46.9 3.5

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (159) 260 7 284 (228) 157 0 53 (33) 0

2014E (182) 181 (40) 218 (263) 113 0 (23) (24) 0

2015E (250) 467 (146) 340 (286) 88 0 0 (55) 0

2016E (272) 453 (190) 358 (296) 153 0 0 (62) 0

2013A (74) 121 3 132 (106) 73 0 24 (15) 0

2014E (77) 77 (17) 93 (112) 48 0 (10) (10) 0

2015E (95) 177 (56) 129 (109) 33 0 0 (21) 0

2016E (96) 160 (67) 127 (105) 54 0 0 (22) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 242 1,904 1,710 3,614 1,020 267 2,327 245 84

2014E 150 2,073 1,799 3,872 1,256 251 2,366 222 99

2015E 150 2,358 1,835 4,193 1,395 251 2,548 222 99

2016E 150 2,728 1,859 4,586 1,575 251 2,761 222 99

2013A 103 812 730 1,542 435 114 993 104 36

2014E 59 813 706 1,518 492 98 928 87 39

2015E 55 870 677 1,547 515 92 940 82 36

2016E 51 928 632 1,560 536 85 939 76 34

LT Debt FINANCIAL RATIOS Net Debt

2015E 8,548 16.4 2,445 16.9 595 21.3 7.0 345 13.8 4.0 (9) (86) 270 4.5 3.2

2016E 10,121 18.4 2,917 19.3 747 25.6 7.4 475 37.7 4.7 (9) (119) 367 35.9 3.6

2013A 2,889 4.9 797 4.4 165 (0.8) 5.7 69 (15.2) 2.4 (5) (18) 81 5.3 2.8

US$ 2014E 3,126 8.2 891 11.7 209 26.2 6.7 129 85.7 4.1 (3) (32) 110 34.9 3.5

2015E 3,250 4.0 930 4.4 226 8.3 7.0 131 1.6 4.0 (3) (33) 103 (6.7) 3.2

2016E 3,583 10.2 1,032 11.0 264 16.9 7.4 168 28.2 4.7 (3) (42) 130 26.5 3.6

161

123

123

123

69

48

45

42

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

3

72

72

72

1

28

27

25

Capital Employed

2,594

2,616

2,798

3,011

1,107

1,026

1,033

1,024

Net Debt/EBITDA

0.0

0.1

0.1

0.1

0.0

0.1

0.1

0.1

Net Debt/Equity

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Capex/Revenue (%)

3.7

3.6

3.3

2.9

3.7

3.6

3.3

2.9

Int Cover (%)

17.6

19.4

21.4

26.9

17.6

19.4

21.4

26.9

Dividend Payout (%)

22.0

13.4

21.3

23.1

20.0

12.3

18.7

23.0

ROCE (%)

4.3

8.7

9.3

11.8

4.8

10.2

9.3

11.8

ROE (%)

7.7

11.0

11.0

13.8

7.8

11.7

11.0

13.8

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

27.8

32.4

30.6

22.5

25.4

28.6

29.9

23.6

P/CE

14.6

19.0

15.9

12.9

13.3

16.8

15.5

13.6

FV/EBITDA

13.7

17.2

14.0

11.2

12.5

15.2

13.7

11.7

FV/EBIT

32.6

27.9

24.2

17.6

29.8

24.6

23.6

18.4

FV/Revenue

0.8

1.2

1.0

0.8

0.7

1.0

1.0

0.9

P/BV

2.1

3.5

3.2

3.0

2.1

3.4

3.3

3.3

FCF Yield (%)

3.2

1.4

1.1

1.9

3.5

1.5

1.1

1.8

Div Yield (%)

0.7

0.3

0.7

0.8

0.7

0.3

0.7

0.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.53

0.78

0.82

1.11

0.25

0.33

0.31

0.39

DPS

0.10

0.07

0.17

0.19

0.05

0.03

0.06

0.07

BVPS

7.04

7.16

7.71

8.36

3.01

2.81

2.85

2.84

PER SHARE DATA

181

Raia Drogasil is the largest drugstore chain in Brazil with 9% market share and R$ 6.2 billion sales in 2013. The company adopts a unique business strategy, with two different brands (Droga Raia and Drogasil) and potential for synergies and economies of scale. The chain grows organically, through the opening of new stores, and also through acquisitions, when convenient. The company´s sales mix is comprised of Branded Medicaments (45%), Generic Medicaments (12%), Over-the-Counter Medicaments (18%), and Health and Personal Care items (26%),

Key Personnel: Antonio Carlos Pipponzi (Chairman), Marcílio D'Amico Pousada (CEO), Antonio Carlos Coelho (CFO) and Eugênio De Zagottis (Investor Relations Director) Web: www.raiadrogasil.com.br/

Sales by Product Category, 3Q14 HPC & Others 26.1% OTC 17.6%

Generics 11.7%

Reference / Branded 44.6%

Store Maturity Profile, 3Q14

Year 1 11.6% Year 2 12.3%

Year 4 or more 67.3%

Year 3 8.8%

Shareholder Structure, Current

Free Float 58.0%

Raia Drogasil Controllers 42.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—CONGLOMERATES & INDUSTRIALS

RANDON

BUY CURRENT PRICE: R$4.64 TARGET PRICE: R$8.00



Investment case: We see Randon (trading at a 35% discount to

Daniel Gewehr*

peers) as a good value way to play the long term growth in the

Brazil: Banco Santander S.A. +5511-3012-5787 | [email protected]

Brazilian transportation and logistics industry: road dominance in transportation matrix, with an aging truck fleet. While the company is the most exposed of those in our universe to the domestic economy

Joao Noronha*, CFA Brazil: Banco Santander S.A. +5511-3012-5734 | [email protected]

(88% of sales are in Brazil), we like its solid vertical integration strategy, improving long-term EBITDA margins (average of ~14% through 2025E), and ROE (we estimate an average of 14% for 201517), We like management’s focus on higher free cash flow in recent years and believe it is key to restoring confidence in the shares.



Outlook 2015, a tough year ahead: We except the domestic heavy vehicle segment to face a challenging 2015. Our estimates point to a 6% decline in new truck production, driven by (1) declining grain prices and pressured agribusiness margins, (2) business confidence close to historical lows (we see this as a major driver for truck sales), and (3) industrial production expected to decline 0.2%.



Railcar business to partially offset truck business. We expect sales to continue at the healthy level of ~1,300 units per year, driven

Company Statistics

by fleet expansion and renewals in the domestic market. We believe

Bloomberg

margins are up to 300 bps higher in this segment (vs. truck trailers), which should help the company sustain profitability in 2015.



What has changed? We reduced our 2015 sales estimate by 3.2% to R$3.9 billion (quasi-flat YoY growth), while trimming our EBITDA

RAPT4 BZ

Current Price (01/02/15)

R$ 4.64 / US$ 1.72

Target Price (YE 2015)

R$ 8.00 / US$ 2.95

52-Week Range (R$)

4.64 - 9.03

Market Capitalization (US$ Mn)

525

Float (%)

55.0

3-Mth Avg. Daily Vol (US$ Mn)

2.6

Shares Outstanding - Mn

305

margin by 50 bps to 12.7% (we see the poorer truck trailer mix partially offset by cost-cutting measures and railcar demand). Our

RAPT4 BZ

forecast points to net profit of R$173 million (-7.2% YoY).



Price Performance (R$) IBOVESPA

120

Focus on costs. We like the company’s efforts on cost reduction: (1) Randon recently hired McKinsey to reduce raw material expenditures

100

80

(aiming at 1.5-2.0% in cost reduction); and (2) Randon intends to save R$60 million next year as the group’s shared purchase center begins to be put into use.

60

40

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

182

D-14

RANDON Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 4,253 21.5 1,040 42.0 564 101.3 13.3 446 165.9 10.5 (35) (105) 235 452.3 5.5

R$ 2014E 3,732 (12.2) 927 (10.8) 485 (14.0) 13.0 362 (18.9) 9.7 (51) (80) 187 (20.5) 5.0

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (117) 257 (280) 284 (584) 65 650 (56) 0

2014E (123) 39 49 534 (104) 389 (207) (126) 0

2015E (134) (12) 13 506 (146) 272 0 (52) 0

2016E (143) (13) (86) 493 (159) 229 0 (236) 0

2013A (54) 119 (130) 131 (271) 30 301 (26) 0

2014E (52) 17 21 228 (44) 166 (88) (54) 0

2015E (51) (4) 5 192 (56) 103 0 (20) 0

2016E (51) (4) (30) 175 (56) 81 0 (83) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,414 3,031 1,500 4,907 4,777 2,110 1,337 2,606 545

2014E 1,344 2,946 1,479 4,810 4,248 2,089 1,451 2,439 404

2015E 1,532 3,149 1,491 5,048 3,867 2,127 1,572 2,474 404

2016E 1,518 3,272 1,507 5,216 4,090 2,184 1,572 2,527 404

2013A 603 1,294 640 2,094 2,039 900 571 1,112 233

2014E 527 1,155 580 1,886 1,666 819 569 956 158

2015E 565 1,162 550 1,863 1,427 785 580 913 149

2016E 516 1,113 513 1,774 1,391 743 535 860 137

LT Debt

2015E 3,877 3.9 919 (0.9) 493 1.6 12.7 358 (1.0) 9.2 (67) (76) 173 (7.2) 4.5

2016E 4,226 9.0 998 8.6 579 17.5 13.7 436 21.7 10.3 (60) (92) 236 36.0 5.6

2013A 1,971 10.0 482 28.6 261 82.3 13.3 207 140.8 10.5 (16) (49) 109 400.3 5.5

US$ 2014E 1,593 (19.2) 396 (17.9) 207 (20.9) 13.0 155 (25.3) 9.7 (22) (34) 80 (26.8) 5.0

2015E 1,474 (7.4) 350 (11.7) 187 (9.4) 12.7 136 (11.8) 9.2 (25) (29) 66 (17.3) 4.5

2016E 1,496 1.5 353 1.1 205 9.4 13.7 154 13.3 10.3 (21) (33) 83 26.6 5.6

2,061

2,035

2,070

2,123

879

798

764

722

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

1,192

1,095

942

1,009

509

429

348

343

Capital Employed

2,835

2,885

2,884

2,986

1,210

1,131

1,064

1,016

Net Debt/EBITDA

2.1

2.3

1.9

1.7

1.9

2.1

1.9

1.7 0.6

FINANCIAL RATIOS

Net Debt/Equity Capex/Revenue (%) Int Cover (%) Dividend Payout (%) ROCE (%) ROE (%)

0.9

0.8

0.6

0.6

1.0

0.9

0.6

13.7

2.8

3.8

3.8

13.7

2.8

3.8

3.8

1.7

1.8

2.5

3.1

1.7

1.8

2.5

3.1

131.6

53.6

27.8

136.0

119.2

49.2

24.5

135.1

19.5

15.3

15.1

17.7

20.9

16.9

15.1

17.7

17.4

13.4

11.5

15.0

17.6

14.3

11.5

15.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

9.4

7.8

8.2

6.0

8.6

6.9

8.0

6.3

P/CE

6.3

4.7

4.6

3.7

5.7

4.1

4.5

3.9

FV/EBITDA

6.9

6.0

5.5

4.8

6.4

5.3

5.3

4.9

FV/EBIT

8.8

8.0

7.5

6.4

8.0

7.1

7.3

6.5

FV/Revenue

0.9

0.8

0.7

0.7

0.8

0.7

0.7

0.7

P/BV

1.7

1.0

0.9

0.9

1.6

1.0

0.9

1.0

FCF Yield (%)

2.9

26.8

19.2

16.2

3.2

30.4

19.7

15.4

Div Yield (%)

2.5

8.7

3.7

16.7

2.8

9.8

3.8

15.9

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.98

0.61

0.57

0.77

0.45

0.26

0.22

0.27

DPS

0.24

0.28

0.17

0.77

0.11

0.12

0.06

0.27

BVPS

5.55

4.76

5.16

5.16

2.37

1.87

1.90

1.75

MARKET RATIOS

PER SHARE DATA

183

Randon produces a wide range of truck trailers and auto components for heavy vehicles, such as suspension systems and brake pads, among other items. It is one of the 10 largest manufacturers of truck trailers in the world, with production of 25.4 thousand trailers in 2013. It also manufactures off-road dump trucks, backhoes and forest harvesters. The company has an important export base, shipping its products to more than 100 countries, which represented 12.0% of 2013 sales. Randon’s sales increased from R$613 million in 2000 to R$4.250 million in 2013 Randon is listed on Level 1 of the BM&F Bovespa.

Key Personnel: David Randon (CEO), Daniel Randon (CFO) and Geraldo Santa Catharina (IR Director and Treasurer) Web: www.randon.com.br

Sales by Segment, 2013

Services 1.8%

Auto Parts 45.4%

Vehicles 52.8%

EBITDA by Segment, 2013

Services 3.9% Auto Parts 54.0%

Vehicles 42.1%

Shareholder Structure, Current

Corporate Individuals 0.9% 7.1%

Institutional Investors 34.7%

Foreign Investors 15.6%

Treasury 1.1%

Randon Family 40.6%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—UTILITIES

RENOVA ENERGIA

BUY CURRENT PRICE: R$37.16 TARGET PRICE: R$60.63

INTRODUCING YE2015 TARGET PRICE OF R$60.63; REPLACING YE2014 TARGET PRICE OF R$62.76 

Investment Case: We continue to believe that potential upside from

Maria Carolina Carneiro*

the company’s contracts is not fully priced in, while we expect capital

Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

restructuring to provide room for additional value to be unlocked through new contracts. We also see Renova as being well positioned to take advantage of growth in the renewable energy market, a segment we consider attractive (above-average IRRs, incentives, and a variety of growth channels).



Outlook 2015: We believe that Renova will reach R$329 million of EBITDA in 2015 given the startup of new projects. We also expect the company to sell energy in new energy auctions throughout 2015, and to continue the corporate restructuring that was initiated at the beginning of 2014.



Latest Auction Results: In the last couple of months, Renova participated in the LEN A-5 2014 auction and in the LER 2014 auction, selling 81.2 MWm of energy through solar and wind projects (corresponding to a total of 205 MW of installed capacity).



Solar Partnership: On November 24, Renova announced the

Company Statistics

creation of a joint venture with SunEdison Inc.—a global player that

Bloomberg

manufactures solar technology and develops plants—to develop 1

Current Price (01/02/15)

R$ 37.16 / US$ 13.80

Target Price (YE 2015)

R$ 60.63 / US$ 22.37

GW of solar projects in Brazil. This partnership would be owned 50%

RNEW11 BZ

52-Week Range (R$)

34.99 - 50.00

by Renova and 50% by SunEdison. Although in our view the

Market Capitalization (US$ Mn)

partnership is initially neutral for Renova, we see this as a good

Float (%)

strategic move for the company, as Renova could minimize its risks

1,466 12.9

3-Mth Avg. Daily Vol (US$ Mn)

0.2

Shares Outstanding - Mn

106

in installing solar farms in Brazil as well as increase its potential Price Performance (R$)

opportunity to maximize return on investment.

RNEW11 BZ



IBOVESPA

160

Change to Estimates: Our recent valuation reflects (1) recently 140

released results; (2) new macroeconomic assumptions; (3) the recent change in the company’s controlling shareholder structure,

120

with an additional capital increase from Cemig GT; (4) new wind and

100

solar projects with contracts awarded in recent auctions; and (5) new

80

cost of equity.

60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

184

D-14

RENOVA ENERGIA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 226 95.4 196 96.9 158 180.2 69.9 158 180.2 69.9 (72) (10) 6 n/m 2.8

R$ 2014E 281 24.3 219 11.7 148 (6.0) 52.8 148 (6.0) 52.8 (208) (9) (118) (1,974.8) (41.8)

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (70) 0 51 126 0 (234) 0 887 0 0

2014E (49) 0 0 (68) (1,897) (71) 0 1,036 0 792

2015E (86) 0 (7) (17) (1,760) (503) 0 1,263 0 0

2016E (138) 0 (9) 101 (592) (518) 0 340 0 0

2013A (32) 0 23 59 0 (108) 0 411 0 0

2014E (21) 0 0 (29) (810) (30) 0 442 0 338

2015E (33) 0 (3) (6) (669) (191) 0 480 0 0

2016E (49) 0 (3) 36 (210) (183) 0 120 0 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 374 395 3,105 3,672 244 2,427 1,001 2,390 -

2014E 303 317 4,953 5,271 3 3,426 1,841 3,426 -

2015E (200) (178) 6,628 6,450 4 4,689 1,757 4,689 -

2016E (718) (684) 7,082 6,398 6 5,029 1,363 5,029 -

2013A 160 169 1,325 1,567 104 1,036 427 1,020 -

2014E 119 124 1,942 2,067 1 1,344 722 1,344 -

2015E (74) (66) 2,446 2,380 1 1,730 648 1,730 -

2016E (244) (233) 2,409 2,176 2 1,711 463 1,711 -

LT Debt

2015E 437 55.5 362 64.7 246 65.6 56.2 246 65.6 56.2 (244) (11) (95) 19.2 (21.7)

2016E 680 55.7 551 52.3 362 47.2 53.2 362 47.2 53.2 (233) (19) (28) 70.9 (4.1)

2013A 105 77.1 91 78.4 73 153.8 69.9 73 153.8 69.9 (33) (5) 3 n/m 2.8

US$ 2014E 120 14.5 94 2.9 63 (13.5) 52.8 63 (13.5) 52.8 (89) (4) (50) (1,826.1) (41.8)

2015E 166 38.6 137 46.8 93 47.5 56.2 93 47.5 56.2 (93) (4) (36) 28.0 (21.7)

2016E 241 44.9 195 41.8 128 37.0 53.2 128 37.0 53.2 (82) (7) (10) 72.9 (4.1)

2,390

3,426

4,689

5,029

1,020

1,344

1,730

1,711

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

2,016

3,123

4,889

5,747

861

1,225

1,804

1,955

Capital Employed

3,105

4,953

6,628

7,082

1,325

1,942

2,446

2,409

Net Debt/EBITDA

12.8

21.0

19.9

15.9

11.7

19.3

19.3

15.3

Net Debt/Equity

2.0

1.7

2.8

4.2

2.2

1.9

2.8

4.2

Capex/Revenue (%)

0.0

675.1

402.7

87.1

0.0

675.1

402.7

87.1

FINANCIAL RATIOS

Int Cover (%)

n/m

n/m

n/m

n/m

n/m

n/m

n/m

n/m

Dividend Payout (%)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

ROCE (%)

5.4

3.2

3.9

5.4

5.9

3.6

3.9

5.4

ROE (%)

0.6

(8.3)

(5.3)

(1.8)

0.6

(8.9)

(5.3)

(1.8) 2016E

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

P/E

n/m

-

-

-

n/m

-

-

-

P/CE

n/m

-

-

35.7

n/m

-

-

37.5

FV/EBITDA

n/m

n/m

n/m

37.7

n/m

n/m

n/m

38.2

FV/EBIT

n/m

n/m

n/m

n/m

n/m

n/m

n/m

n/m

FV/Revenue

55.0

39.5

29.2

20.0

50.3

35.2

28.5

20.3

5.2

2.2

2.2

2.9

5.2

2.1

2.3

3.2

FCF Yield (%)

(4.5)

(1.8)

(12.7)

(13.1)

(4.9)

(2.0)

(13.0)

(12.5)

Div Yield (%)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

P/BV

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

-

(1.11)

(0.89)

(0.26)

-

(0.47)

(0.34)

(0.09)

DPS

-

-

-

-

-

-

-

-

9.42

17.34

16.54

12.83

4.02

6.80

6.11

4.36

BVPS

185

Renova Energia is a renewable energy generation company that focuses on small hydro (SHPP) and wind energy projects. However, they are also investing in solar energy projects (1GW of potential projects). Currently, Renova has 462.1 MW of wind capacity and 190.2 from small hydro (SHPP) in operation. They also have more than 1.745 MW of installed capacity already contracted (1.692 MW from wind projects and 53.5 MW from solar projects).

Key Personnel: Ricardo Lopes Delneri (Chairman), Carlos Mathias Aloysius Becker Neto (CEO), Pedro Villas Boas Pileggi (CFO) and Flavia Carvalho (IR Manager) Web: www.renovaenergia.com.br

EBITDA by Segment, 2014E

Generation 100.0%

Sales by Segment (GenCo), 2014E

Regulated Market 100.0%

Shareholder Structure, Current

Others 37.9%

Light 15.9%

RR 18.9%

Cemig GT 27.3%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—CEMENT, CONSTRUCTION, INFRA & RE

RODOBENS

HOLD CURRENT PRICE: R$10.00 TARGET PRICE: R$10.40

INTRODUCING YE2015 TARGET PRICE OF R$10.40; REPLACING YE2014 TARGET PRICE OF R$16.50 

Investment Case: After revising its strategy in 2013, Rodobens

Bruno Mendonca*

began focusing on simplifying its operations, gradually reducing its

Brazil: Banco Santander S.A. +5511-3012-5759 | [email protected]

geographical footprint and focusing on the mid- to mid-high-income segment.



Renan Manda* Brazil: Banco Santander S.A. +5511 3012-6535 | [email protected]

Outlook 2015: We expect 2015 to be another transition year for the homebuilders in Brazil. The macro scenario should remain challenging for the sector, with the combination of low expected GDP growth and inflationary pressure leading consumers and investors to remain cautious, in our view.



Positive

operating

performance:

Despite

a

worse

sales

performance in 2014 versus last year, Rodobens has managed to keep its inventory levels under control.



Balance sheet remains solid: The combination of Rodobens’s low inventory levels and low leverage (16% net debt/EBITDA as of 3Q14) greatly reduces the need for cash in the short term and eases the pressure for inventory sales at discounted prices, in our view.



Some improvements in G&A expenses to come: Rodobens

RDNI3 BZ

recently moved its headquarters to São Paulo in order to simplify its

Current Price (01/02/15)

R$ 10.00 / US$ 3.71

operations. In addition, the company reduced its payroll by

Target Price (YE 2015)

R$ 10.40 / US$ 3.92

approximately 40%, which we believe should gradually bring down G&A expenses over the next few quarters.



Company Statistics Bloomberg

Valuation seems fairly priced in: Rodobens is currently trading at 0.5x P/BV for 2015E, which we see as fairly valued, given the

52-Week Range (R$)

9.35 - 13.16

Market Capitalization (US$ Mn)

180

Float (%)

44.3

3-Mth Avg. Daily Vol (US$ Mn)

0.3

Shares Outstanding - Mn

49

Price Performance (R$)

company’s current profitability levels (ROE of 8.9% for 2015E).

RDNI3 BZ

IBOVESPA

130 120 110 100 90 80 70

j-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

186

d-14

RODOBENS Company Description

2013A (3) 0 9 59 2 56 (2) 66 (15) (11)

2014E (3) 0 61 93 1 92 4 (111) (19) (13)

2015E (3) 0 29 62 (2) 64 (0) 0 (7) 1

2016E (2) 0 63 92 (1) 94 (0) 0 (6) 1

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 469 1,651 63 2,157 643 554 837 778 289

2014E 364 1,461 53 1,939 622 377 851 521 224

2015E 504 1,526 51 1,975 599 374 910 521 224

2016E 763 1,644 49 2,041 597 378 972 521 224

2013A 200 705 27 921 275 237 357 332 123

2014E 143 573 21 760 244 148 334 204 88

2015E 190 576 19 745 226 141 343 197 85

2016E 247 532 16 661 193 122 315 169 73

489

297

297

297

209

116

112

96

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E (10)

268

337

202

(32)

114

132

76

Capital Employed

1,212

1,071

995

803

517

420

376

260

Net Debt/EBITDA

2.2

4.0

2.3

(0.4)

2.0

3.6

2.3

(0.4)

Net Debt/Equity

0.3

0.4

0.2

(0.0)

0.3

0.4

0.2

(0.0)

(0.6)

(0.4)

0.8

0.8

(0.6)

(0.4)

0.8

0.8

1.0

0.9

0.9

0.8

1.0

0.9

0.9

0.8

Dividend Payout (%)

38.0

44.8

25.0

25.0

34.4

41.0

22.0

24.8

ROCE (%)

12.2

9.2

9.7

10.7

13.3

10.4

9.8

10.7

Capex/Revenue (%) Int Cover (%)

ROE (%)

12.5

8.1

8.9

8.9

12.7

8.6

8.9

8.9

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

6.2

6.9

6.1

5.8

5.7

6.0

5.9

6.5

P/CE

5.9

6.2

5.6

5.3

5.4

5.4

5.4

6.0

FV/EBITDA

8.0

10.1

8.5

6.4

7.4

8.9

8.2

7.3

FV/EBIT

6.7

8.7

7.5

5.8

6.1

7.7

7.3

6.6

FV/Revenue

1.3

1.2

1.2

0.9

1.2

1.1

1.2

1.1

P/BV

0.7

0.6

0.5

0.5

0.7

0.5

0.5

0.6

19.4

45.2

34.5

59.5

21.2

52.0

35.8

52.7

MARKET RATIOS

FCF Yield (%) Div Yield (%)

5.1

9.6

3.6

4.1

5.6

11.0

3.7

3.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

2.10

1.43

1.63

1.74

0.97

0.62

0.63

0.57

DPS

0.94

0.36

0.41

0.43

0.44

0.15

0.16

0.14

17.48

17.74

18.97

20.27

7.46

6.96

7.16

6.56

PER SHARE DATA

BVPS

187

Key Personnel: Waldemar Verdi Júnior (Chairman), Marcelo Oliveira (CEO) and Flávio Vidigal (CFO and IR Officer) Web: http://ri.rodobens.com.br/

Launches (R$ million), 2013-16E 743.24 584.23 500.79

512.91

2016e

2016E (7) 0 191 281 (4) 285 (1) 0 (20) 3

Part of Grupo Verdi, Rodobens Negócios Imobiliários is a Brazilian homebuilder that mainly focuses on mid- to highincome vertical housing developments through the Stillo brand in cities with more than 150,000 inhabitants in the Brazilian countryside. The company has also engaged in the allotment segment though Rodobens Urbanismo as well as strip malls though Rodobens Malls.

Contracted Sales (R$ million), 2013-16E 686.02 561.97

539.81

553.63

2016e

2015E (7) 0 75 160 (5) 166 (1) 0 (17) 3

Net Debt

2016E 174 (26.3) 63 (26.3) 25 (23.2) 14.6 28 (24.2) 16.2 8 (6) 27 (9.0) 15.7

2015e

2014E (7) 0 140 216 3 212 8 (256) (45) (30)

FINANCIAL RATIOS

2015E 236 (22.3) 85 (15.9) 33 (9.7) 14.0 37 (12.6) 15.7 4 (8) 30 1.6 12.7

2015e

2013A (6) 0 20 126 5 122 (5) 143 (32) (24)

LT Debt

2013A 343 (22.7) 125 (20.6) 57 (20.3) 16.6 68 (28.2) 20.0 (15) (12) 47 8.0 13.6

2014e

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2016E 530 (13.7) 191 (13.7) 77 (10.1) 14.6 86 (11.3) 16.2 25 (19) 83 6.6 15.7

2014e

2013A 739 (14.7) 270 (12.3) 123 (12.1) 16.6 148 (20.7) 20.0 (33) (26) 101 19.2 13.6

2015E 614 (12.6) 221 (5.4) 86 1.6 14.0 97 (1.7) 15.7 12 (22) 78 14.3 12.7

US$ 2014E 304 (11.3) 101 (19.2) 37 (35.6) 12.1 43 (37.8) 14.0 0 (12) 30 (36.4) 9.7

2013

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

R$ 2014E 703 (5.0) 234 (13.5) 85 (31.1) 12.1 98 (33.4) 14.0 1 (28) 68 (31.9) 9.7

2013

Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Shareholder Structure, Current

GV Holding 27.6%

Others 54.0%

Giuliano Verdi 7.0%

Waldemar Junior 11.4%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—CONGLOMERATES & INDUSTRIALS

ROMI

BUY CURRENT PRICE: R$2.87 TARGET PRICE: R$5.50



Investment Case: We see Romi as a deep value play in our capital

Daniel Gewehr*

goods coverage with 92% DCF upside, despite the slow short-term

Brazil: Banco Santander S.A. +5511-3012-5787 | [email protected]

momentum (driven by weak and declining domestic industrial production, which our economists forecast at -0.2% in 2015). We expect Romi’s FCFE to yield 17% in 2015 following the successful

Joao Noronha*, CFA Brazil: Banco Santander S.A. +5511-3012-5734 | [email protected]

turnaround, which management began implementing in 2012, and that resulted in an ~800-bp recovery in the EBITDA margin to ~7% in 2014E.



Outlook 2015: We see declining volumes for domestic machine tools (market to remain close to trough, selling only replacements despite Brazil’s average machine fleet age of 17 years). Castings should improve on potential new orders in renewable energy. We expect FX to help competitiveness. We forecast a consolidated EBITDA margin of ~9% in 2015. Romi had ~R$8 million in nonrecurring expenses during 2014.



Main changes. We downwardly revised our estimates, reflecting the weak industrial production growth we expect in 2015. According to management, backlog building has been weak in the final months of

Company Statistics

the year, which could reduce revenue visibility in 2015. We lowered

Bloomberg

our 2015 EBITDA estimate by 20%, to R$62 million (we are 16%

ROMI3 BZ

Current Price (01/02/15)

R$ 2.87 / US$ 1.07

Target Price (YE 2015)

R$ 5.50 / US$ 2.03

below consensus), which materially reduced our net income estimate

52-Week Range (R$)

to R$17 million from R$34 million.

Market Capitalization (US$ Mn)

2.87 - 6.11 77

Float (%)



Focus on profitability and cash generation. Management has an

30.0

3-Mth Avg. Daily Vol (US$ Mn)

0.1

Shares Outstanding - Mn

72

internal target of running at a 15% EBITDA margin (with no established timeline) and plans to increase investment in productivity.

ROMI3 BZ

We work with an average 13.0% margin.



Price Performance (R$) IBOVESPA

160 140

Hidden value remains? Romi has property for future rental income and capital appreciation, booked at a cost of R$16 million on the balance sheet, which has market value appraisals of R$142 million (~69% of market cap), and which we view as an upside call.

120 100 80 60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

188

D-14

ROMI Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 667 8.1 193 46.6 67 n/m 10.0 30 n/m 4.5 4 (8) 26 n/m 3.9

R$ 2014E 645 (3.3) 172 (10.8) 48 (28.3) 7.4 11 (62.2) 1.8 (0) (3) 8 (71.0) 1.2

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (36) (1) 43 105 (26) 72 0 (26) (1) 0

2014E (36) (3) 22 65 (30) 24 0 11 (1) (3)

2015E (42) 0 2 61 (23) 35 0 0 (5) 0

2016E (44) 0 (7) 72 (25) 35 0 0 (13) 0

2013A (17) (1) 20 49 (12) 34 0 (12) (0) 0

2014E (16) (1) 9 28 (13) 10 0 5 (1) (1)

2015E (16) 0 1 23 (9) 13 0 0 (2) 0

2016E (15) 0 (3) 26 (9) 12 0 0 (5) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 107 785 344 1,421 98 209 648 203 54

2014E 130 733 340 1,297 143 146 647 213 100

2015E 163 822 322 1,402 149 182 659 214 100

2016E 199 871 303 1,436 155 186 683 215 101

2013A 46 335 147 607 42 89 277 87 23

2014E 51 288 133 509 56 57 254 83 39

2015E 60 303 119 517 55 67 243 79 37

2016E 68 296 103 488 53 63 232 73 34

LT Debt FINANCIAL RATIOS Net Debt

2015E 668 3.5 182 5.8 62 29.2 9.3 20 74.8 3.0 3 (6) 17 123.3 2.5

2016E 714 6.9 209 14.8 79 28.5 11.1 36 79.2 5.0 13 (12) 36 115.0 5.1

2013A 309 (2.1) 90 32.8 31 n/m 10.0 14 n/m 4.5 2 (4) 12 n/m 3.9

US$ 2014E 275 (11.0) 74 (17.9) 20 (34.0) 7.4 5 (65.2) 1.8 (0) (1) 3 (73.3) 1.2

2015E 254 (7.8) 69 (5.7) 24 15.2 9.3 8 55.8 3.0 1 (2) 6 99.0 2.5

2016E 253 (0.4) 74 6.9 28 19.6 11.1 13 66.8 5.0 4 (4) 13 100.2 5.1

149

113

113

114

63

44

42

39

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

96

83

50

16

41

32

19

5

Capital Employed

746

732

710

700

318

287

262

238

Net Debt/EBITDA

1.4

1.7

0.8

0.2

1.3

1.6

0.8

0.2

Net Debt/Equity

0.1

0.1

0.1

0.0

0.2

0.1

0.1

0.0

Capex/Revenue (%)

3.8

4.7

3.5

3.5

3.8

4.7

3.5

3.5

3.1

3.1

4.2

5.4

3.1

3.1

4.2

5.4

(1.4)

4.8

64.7

77.5

(1.3)

4.4

57.0

77.0

Int Cover (%) Dividend Payout (%) ROCE (%)

5.2

2.0

3.6

6.9

5.5

2.2

3.7

6.9

ROE (%)

4.0

1.2

2.6

5.4

4.1

1.2

2.6

5.4

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

16.5

27.4

12.3

5.7

15.1

24.1

12.0

6.0

6.8

4.7

3.5

2.6

6.3

4.1

3.4

2.7 2.9

MARKET RATIOS P/E P/CE FV/EBITDA FV/EBIT FV/Revenue P/BV FCF Yield (%) Div Yield (%)

7.8

6.0

4.2

2.8

7.2

5.4

4.1

17.3

25.3

12.8

6.2

15.8

22.5

12.5

6.5

0.8

0.4

0.4

0.3

0.7

0.4

0.4

0.3

0.7

0.3

0.3

0.3

0.7

0.3

0.3

0.3

16.9

11.7

16.8

16.8

18.5

13.2

17.2

16.0

0.1

0.6

2.4

6.3

0.1

0.7

2.4

6.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.36

0.10

0.23

0.50

0.17

0.04

0.09

0.18

DPS

0

0.03

0.08

0.17

0

0.01

0.03

0.06

9.03

9.02

9.18

9.52

3.86

3.54

3.39

3.24

PER SHARE DATA

BVPS

189

Romi is Brazil’s largest producer of machine tools and plastic injection molding machines. It is also becoming an important player in the rough and machined castings segment. Founded in 1930, Romi currently has 11 production facilities, 9 of which are located in the city of Santa Bárbara D’Oeste (130 km from the city of São Paulo). In 2013, machine tools accounted for 71.3% of revenue, followed by plastic molding machines (12.2%), and castings (16.6%). Romi is listed under the Bovespa’s Novo Mercado level of corporate governance. The external market accounted for 23.9% of the R$667 million in total revenue reported in 2013, with products sold in over 30 countries.

Key Personnel: Livaldo Aguiar dos Santos (CEO), Luiz Cassiano Rosolen (CFO) and Fabio Taiar (IR Officer) Web: www.romi.com.br

Sales by Region, 2013 External Market 23.9%

Internal Market 76.1%

Sales by Segment, 2013

Plastic Machines 12.2%

Castings 16.5%

Machine Tools 71.3%

Shareholder Structure, Current

Free-float 48.5%

Treasury Fundação Romi 4.1% 1.9%

Romi and Chiti Families 45.5%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—UTILITIES

SABESP

HOLD CURRENT PRICE: R$16.80 TARGET PRICE: R$19.51

UPGRADING RATING TO HOLD FROM UNDERPERFORM LOWERING YE2015 TARGET PRICE TO R$19.51 FROM R$24.68 

Investment Case: We acknowledge that the discount program

Maria Carolina Carneiro*

should continue to dent margins in 2015 and that the reservoir levels

Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

at Cantareira and Alto Tiete continue to fall. However, given the recent correction in Sabesp’s stock price, we believe the company's problems are close to fully priced in by the market. Thus, we upgraded our rating to Hold from Underperform.



Outlook 2015: In our view, Sabesp’s results will continue to suffer the consequences of its discount policies throughout 2015. We estimate an EBITDA decline of 13.1%, with volumes falling 5.8% YoY and average tariffs growing only 2.6% YoY. We expect the company to continue its efforts to protect its reservoir levels through additional investments in 2015.



Reservoir levels: Since early 2014, reservoir levels have declined sharply in São Paulo State. The Cantareira system, which accounts for ~47% of Sabesp’s water supply, fell to 7.2% of total capacity by December 15, while Alto Tiete, Sabesp’s second biggest reservoir, declined to 4.2%. Company Statistics



Tariff increase: some small relief. On November 27, 2014, Arsesp

Bloomberg

approved a 6.5% tariff increase for Sabesp. Although we believe the

Current Price (01/02/15)

R$ 16.80 / US$ 6.24

Target Price (YE 2015)

R$ 19.51 / US$ 7.36

announcement was anticipated by the market, we consider this news as marginally positive, as it offers some relief to the cash position.

SBSP3 BZ

52-Week Range (R$)

15.98 - 25.95

Market Capitalization (US$ Mn)

4,266

Float (%)



Additional supply in sight? On November 27, the company also received permission to begin construction work to prepare to reroute a portion of the water inflow from the Paraiba do Sul/Jaguari River. The effective usage of volumes will depend on a complete

9.2

Shares Outstanding - Mn

684

Price Performance (R$) SBSP3 BZ

IBOVESPA

120

agreement with the states of Rio de Janeiro, Minas Gerais, and São

110

Paulo. Although this will not offset the current hydrology crisis, we

100

believe it at least signals some relief for the medium to long term.

49.7

3-Mth Avg. Daily Vol (US$ Mn)

90 80



Change in estimates: We updated our model to reflect (1) new macroeconomic assumptions, (2) a slightly smaller discount rate, (3) recently released results, (4) the tariff readjustment, (5) lower volume

70 60 50

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

growth, and (6) the new parameters for the discount program. 190

D-14

SABESP Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 11,316 5.2 10,444 4.3 4,004 10.4 35.4 5,528 4.2 48.9 (484) (732) 1,922 0.5 17.0

R$ 2014E 11,108 (1.8) 10,151 (2.8) 3,125 (22.0) 28.1 4,878 (11.8) 43.9 (544) (514) 1,109 (42.3) 10.0

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (871) 461 (164) 732 (2,716) (139) 0 0 (457) 0

2014E (958) 1,135 261 1,034 (2,222) 76 0 0 0 3,796

2015E (1,025) 240 34 (33) (2,676) (1,059) 0 0 (333) 0

2016E (1,104) 229 (243) 391 (2,529) (713) 0 0 (163) 0

2013A (404) 214 (76) 339 (1,259) (65) 0 0 (212) 0

2014E (410) 486 112 442 (951) 33 0 0 0 1,624

2015E (394) 92 13 (13) (1,029) (407) 0 0 (128) 0

2016E (409) 85 (90) 145 (937) (264) 0 0 (60) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,782 3,254 24,123 52,398 2,972 12,371 12,931 11,777 641

2014E 1,858 3,136 25,992 55,961 2,914 13,451 13,604 12,804 716

2015E 800 2,074 27,642 58,198 2,790 13,674 14,092 13,044 733

2016E 87 1,542 29,067 60,584 2,915 13,887 14,715 13,272 749

2013A 761 1,389 10,296 22,364 1,269 5,280 5,519 5,027 274

2014E 729 1,230 10,193 21,945 1,143 5,275 5,335 5,021 281

2015E 302 783 10,431 21,962 1,053 5,160 5,318 4,922 277

2016E 32 561 10,570 22,031 1,060 5,050 5,351 4,826 272

LT Debt

11,136

12,088

12,311

12,524

4,753

4,740

4,646

4,554

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

2015E 11,788 6.1 10,763 6.0 2,716 (13.1) 23.0 5,410 10.9 45.9 (792) (248) 651 (41.3) 5.5

2016E 12,295 4.3 11,192 4.0 3,345 23.1 27.2 5,756 6.4 46.8 (894) (458) 889 36.6 7.2

2013A 5,245 (5.1) 4,841 (6.0) 1,856 (0.5) 35.4 2,562 (6.0) 48.9 (225) (339) 891 (9.4) 17.0

US$ 2014E 4,753 (9.4) 4,343 (10.3) 1,337 (28.0) 28.1 2,087 (18.5) 43.9 (233) (220) 475 (46.7) 10.0

2015E 4,534 (4.6) 4,140 (4.7) 1,045 (21.9) 23.0 2,081 (0.3) 45.9 (305) (95) 250 (47.2) 5.5

2016E 4,554 0.4 4,145 0.1 1,239 18.6 27.2 2,132 2.5 46.8 (331) (170) 329 31.5 7.2

7,668

8,521

9,820

10,761

3,273

3,342

3,705

3,913

Capital Employed

25,571

27,192

28,672

30,201

10,914

10,663

10,820

10,982

Net Debt/EBITDA

1.9

2.7

3.6

3.2

1.8

2.5

3.5

3.2

Net Debt/Equity

0.6

0.6

0.7

0.7

0.6

0.7

0.7

0.7

24.0

20.0

22.7

20.6

24.0

20.0

22.7

20.6

Capex/Revenue (%) Int Cover (%)

10.6

7.4

0.3

0.0

10.6

7.4

0.3

0.0

Dividend Payout (%)

23.9

0.0

30.0

25.0

21.6

0.0

26.3

24.7

ROCE (%)

24.5

19.8

19.7

20.6

26.5

22.1

19.9

20.6

ROE (%)

15.6

8.4

4.7

6.2

15.9

8.9

4.7

6.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

9.4

10.5

17.6

12.9

8.6

9.2

17.0

13.0

P/CE

6.5

5.6

6.8

5.8

5.9

4.9

6.6

5.8

FV/EBITDA

6.4

6.4

7.8

6.7

5.9

5.8

7.6

6.6

FV/EBIT

8.2

9.3

12.6

9.9

7.5

8.3

12.3

9.9

FV/Revenue

2.3

1.8

1.8

1.8

2.1

1.6

1.8

1.8

1.4

0.9

0.8

0.8

1.4

0.8

0.8

0.8

(0.8)

0.7

(9.2)

(6.2)

(0.8)

0.7

(9.5)

(6.2)

MARKET RATIOS

P/BV FCF Yield (%) Div Yield (%)

2.5

(0.0)

2.9

1.4

2.8

(0.0)

3.0

1.4

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

2.81

1.62

0.95

1.30

1.30

0.69

0.37

0.48

DPS

0.90

0.49

0.24

0.39

0.42

0.21

0.09

0.14

18.92

19.90

20.62

21.53

8.07

7.81

7.78

7.83

PER SHARE DATA

BVPS

191

Sabesp is one of the largest sewage and water companies in the world. Sabesp charges its clients for water treatment and distribution and for sewage collection and treatment. Sabesp is controlled by São Paulo State (50.3% ownership) and operates in 364 municipalities in São Paulo State, reaching more than 22 million people. The company also sells water in the wholesale market to other municipalities in the state that are not part of Sabesp’s system. Sabesp is listed in Bovespa’s Novo Mercado (SBSP3, 24.6% of total shares) and NYSE (SBS, 25.1% of total shares).

Key Personnel: Mauro Guilherme Jardim Arce (Chairman), Jerson Kelman (CEO), Rui de Britto Álvares Affonso (CFO) and Mário Arruda Sampaio (IR Manager) Web: www.sabesp.com.br

Sales by Segment, 9M14

Commercial 8.3%

Industrial 1.9%

Other 15.2%

Residential 74.6%

Revenues by Business, 9M14

Sewage 46.0%

Water 54.0%

Shareholder Structure, Current

Free Float 49.7%

São Paulo state 50.3%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—TRANSPORTATION

SANTOS BRASIL

UNDERPERFORM CURRENT PRICE: R$15.00 TARGET PRICE: R$16.00

INTRODUCING YE2015 TARGET PRICE OF R$16.00; REPLACING YE2014 TARGET PRICE OF R$17.00 

Investment Case: The competitive landscape for Santos Brasil (SB)

Bruno Amorim*, CFA

has changed dramatically since 2H13. The beginning of operations

Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

of both Embraport and BTP has meant an increase of over 60% in the container terminal capacity of the port of Santos. Moreover, the two new competitors are much more efficient than previous

Pedro Balcão Reis* Brazil: Banco Santander S.A. +5511-3012-5765 | [email protected]

competitors of SB. Our YE2015 target price implies limited potential upside (7%), already including a concession renewal as suggested by ANTAQ (National Water Transportation Regulator).



Outlook 2015: We expect another decline in results, as 1H14 represents a difficult comparison basis (BTP’s ramp-up happened in mid-2014). Therefore, we estimate (1) a top-line decline of 1%, (2) EBITDA down 6%, and (3) adjusted net profit down 6%. This compares with our 2014 estimates of: (1) a top-line decline of 20%, (2) EBITDA down 34%, and (3) a net profit decline of 50%.



Competition has arrived: Santos Brasil volumes decreased 21% YoY in November (vs. -23% in 11M14). In October, Santos Brasil had a 28% market share (vs. ~55% in FY2013); Embraport had 13%



(from zero volume in mid-2013); and BTP had 32% (from zero

Company Statistics

volume in mid-2013).

Bloomberg

Concession renewal. The concession renewal has been approved

STBP11 BZ

Current Price (01/02/15)

R$ 15.00 / US$ 5.57

Target Price (YE 2015)

R$ 16.00 / US$ 5.90

52-Week Range (R$)

12.30 - 21.70

by ANTAQ but is still pending approval by SEP (Ports Ministry). We

Market Capitalization (US$ Mn)

741

have incorporated the renewal as suggested by ANTAQ in our

Float (%)

34.4

model, which includes R$1.2 billion capex for the expansion of

3-Mth Avg. Daily Vol (US$ Mn)

0.7

Shares Outstanding - Mn

133

Santos Brasil’s capacity to ~2.4 million TEUs/year (from 2.0 million currently) and maintenance capex of ~R$1.7 billion in 2023-47.

Price Performance (R$) STBP11 BZ



IBOVESPA

120

Unfavorable risk/reward and momentum. With only 7% potential upside and unfavorable momentum, we reiterate our underperform recommendation. Although most of the adjustment in market share at

100

80

the port of Santos has already happened, 1H14 represents a difficult comparison basis, implying declining results in 1H15. Moreover, we believe the weak economic environment in Brazil should prevent a prompt recovery in volumes at the port of Santos.

60

40

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

192

D-14

SANTOS BRASIL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 1,326 2.5 487 (11.7) 36.7 351 (17.3) 26.5 (29) (109) 213 (15.3) 16.1

R$ 2014E 1,057 (20.2) 321 (34.1) 30.4 188 (46.4) 17.8 (26) (82) 107 (49.7) 10.1

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (136) 15 393 (85) 299 (111) (96) -

2014E (133) 16 255 (48) 194 (72) (137) -

2015E (127) 1 250 (58) 185 (106) (65) -

2016E (122) (6) 263 (396) (136) 209 (60) -

2013A (63) 7 182 (39) 138 (52) (44) -

2014E (57) 7 109 (21) 83 (31) (59) -

2015E (48) 0 95 (22) 70 (40) (25) -

2016E (43) (2) 93 (140) (48) 74 (21) -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 123 306 1,901 2,207 361 398 1,448 322 148

2014E 95 246 1,816 2,062 345 327 1,391 250 148

2015E 94 244 1,747 1,991 246 319 1,426 145 50

2016E 104 266 2,021 2,286 252 528 1,506 354 50

2013A 52 131 811 942 154 170 618 137 63

2014E 37 97 712 809 135 128 546 98 58

2015E 35 90 645 735 91 118 526 53 18

2016E 35 90 687 778 86 180 512 120 17

LT Debt FINANCIAL RATIOS Net Debt

2015E 1,048 (0.8) 301 (6.4) 28.7 174 (7.6) 16.6 (22) (52) 100 (6.4) 9.6

2016E 1,150 9.7 340 13.2 29.6 219 25.7 19.0 (7) (72) 139 39.1 12.1

2013A 614 (7.1) 226 (20.0) 36.7 163 (25.1) 26.5 (13) (50) 99 (23.3) 16.1

US$ 2014E 451 (26.6) 137 (39.3) 30.4 80 (50.7) 17.8 (11) (35) 46 (53.7) 10.1

2015E 399 (11.6) 114 (16.6) 28.7 66 (17.7) 16.6 (8) (20) 38 (16.6) 9.6

2016E 407 2.1 120 5.4 29.6 77 17.0 19.0 (3) (25) 49 29.5 12.1

174

102

95

304

74

40

35

103

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

199

155

50

250

85

61

19

85

Capital Employed

1,770

1,641

1,571

1,860

755

644

580

633

Net Debt/EBITDA

0.4

0.5

0.2

0.7

0.4

0.4

0.2

0.7

Net Debt/Equity

0.1

0.1

0.0

0.2

0.1

0.1

0.0

0.2

Capex/Revenue (%)

6.4

4.6

5.5

34.4

6.4

4.6

5.5

34.4

Int Cover (%)

(1.5)

(2.0)

(2.0)

(1.6)

(1.5)

(2.0)

(2.0)

(1.6)

Dividend Payout (%)

38.1

64.4

60.9

59.8

34.5

59.0

53.3

59.1

ROCE (%)

26.0

16.5

14.4

15.6

27.8

17.9

14.5

15.6

ROE (%)

15.3

7.5

7.1

9.5

15.6

8.0

7.1

9.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

11.8

17.4

19.9

14.3

10.8

15.3

19.4

15.0

P/CE

7.2

7.8

8.8

7.6

6.6

6.8

8.6

8.0

FV/EBITDA

5.6

6.3

6.8

6.6

5.1

5.6

6.6

6.9

FV/EBIT

7.7

10.7

11.8

10.3

7.1

9.5

11.5

10.7

FV/Revenue

2.1

1.9

1.9

2.0

1.9

1.7

1.9

2.0

P/BV

1.7

1.3

1.4

1.3

1.7

1.3

1.4

1.4

FCF Yield (%)

11.8

10.4

9.3

(6.8)

13.0

11.8

9.5

(6.5)

Div Yield (%)

3.8

7.4

3.3

3.0

4.2

8.4

3.3

2.9

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.61

0.60

0.75

1.05

0.74

0.26

0.29

0.37

DPS

0.72

1.03

0.49

0.45

0.33

0.44

0.19

0.16

BVPS

0.09

0.10

0.09

0.09

0.04

0.04

0.03

0.03

MARKET RATIOS P/E

PER SHARE DATA

193

Santos Brasil is responsible for handling approximately 25% of the containers in the country. Currently, SB operates three container terminals: Tecon de Santos, in São Paulo; Tecon Imbituba, in Santa Catarina; and Tecon Vila do Conde, in Pará. The company also operates TEV, one of the largest vehicle terminals in the country.

Key Personnel: Antônio Carlos Duarte Sepúlveda (CEO), Washington Cristiano Kato (CFO) and Orlando Mansur (IR Director) Web: http://www.santosbrasil.com.br

Port Operations Breakdown, 2014E Imbituba + CONVICON 3.1%

Santos 96.9%

Revenue Breakdown, 2014E

Logistics 18.7%

Port Terminals 76.3%

Vehicle Terminal 5.0%

Shareholder Structure, Current PW237 Participaçõe s S.A. 20.5%

Multi STS Participaçõe s S.A. 10.2%

Free Float 34.4%

International Market Investments 26.7%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—AGRIBUSINESS

SÃO MARTINHO

BUY CURRENT PRICE: R$36.68 TARGET PRICE: R$43.50

INTRODUCING YE2015 TARGET PRICE OF R$43.50: REPLACING YE2014 TARGET PRICE OF R$34.00 

Investment Case: We reiterate our positive view on São Martinho,

Christian Audi

based on the company’s solid position in the sugar and ethanol

New York: Santander Investment Securities Inc. +1-212-350-3991 | [email protected]

sector in Brazil, fueled by its ability to deliver solid results even under less favorable sugar and ethanol price conditions. In addition, the company continues to be a benchmark in the sector for its ability to

Gustavo Allevato*, CFA Brazil: Banco Santander S.A. +5511-3012-6042 | [email protected]

maintain capital discipline through accretive acquisitions.



Outlook 2015: We expect a solid 2015-16 harvest for São Martinho fueled by: (i) the conclusion of the acquisition of the Santa Cruz mill, which has increased the company’s crushed cane capacity to 20 million tons; (ii) increased cogeneration capacity, to 660 MWh, which should positively contribute to consolidated results given the still high energy prices; and (iii) a depreciating Brazilian real that could offset somewhat a fall in sugar prices in USD.



High efficiency and low cash costs: We believe that São Martinho continues to stand out for its trademark efficiency and low cash costs. Of note, (i) the conclusion of the acquisition of the Santa Cruz mill, the company should be able to capture synergies due to improvement in the operations of that mill, in our view, and (ii) given

Company Statistics

the completion of its growth investment program and future

Bloomberg

investments more tied to maintenance.



SMTO3 BZ

Current Price (01/02/15)

R$ 36.68 / US$ 13.63

Target Price (YE 2015)

R$ 43.50 / US$ 17.33

52-Week Range (R$)

24.54 - 46.55

Lower oil prices to limit upside to ethanol prices in Brazil: As a

Market Capitalization (US$ Mn)

result of the recent drop in oil prices, the price of domestic gasoline in

Float (%)

Brazil is more than 30% higher than international prices.

1,540 39.2

3-Mth Avg. Daily Vol (US$ Mn)

2.3

Shares Outstanding - Mn

113

Consequently, we do not expect price increases for gasoline in Brazil Price Performance (R$)

in 2015, thus capping ethanol prices in 2015.



São Martinho - ON (Rebased)

180

Unlocking value with land sale: São Martinho recently launched two real estate projects with a NPV of R$111 million (around 3% of

160 140

company’s market capitalization), that could unlock some value

120

stemming from the sale of land.

100 80 60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

194

D-14

SÃO MARTINHO Financial Highlights: P&L, Balance Sheet and CF Statement, 2014–17E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2014A 1,972 20.5 530 31.9 751 17.0 38.1 303 55.3 15.4 (107) (61) 135 81.1 6.8

R$ 2015E 2,213 12.3 642 21.1 931 24.0 42.1 514 69.7 23.2 (150) (60) 303 124.5 13.7

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2014A (468) 6 23 512 (658) 7 (37) 227 (15) (25)

2015E (481) 7 (286) 162 (540) 157 1 693 (92) 205

2016E (501) 8 180 1,098 (673) 392 (2) (200) (98) 0

2017E (519) 9 (3) 980 (670) 505 (2) (140) (152) 0

2014A (208) 3 10 228 (293) 3 (16) 101 (7) (11)

2015E (194) 3 (115) 65 (218) 63 0 279 (37) 83

2016E (191) 3 69 419 (257) 150 (1) (76) (37) 0

2017E (197) 3 (1) 371 (254) 191 (1) (53) (58) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2014A 650 1,018 4,509 5,768 901 2,849 2,076 2,211 592

2015E 1,067 1,775 4,864 6,899 1,053 3,558 2,342 2,905 723

2016E 1,193 1,626 5,057 6,953 908 3,463 2,635 2,705 673

2017E 1,210 1,648 5,227 7,156 876 3,416 2,918 2,565 638

2014A 286 448 1,985 2,539 397 1,254 914 973 261

2015E 425 707 1,938 2,748 420 1,417 933 1,157 288

2016E 454 618 1,923 2,644 345 1,317 1,002 1,028 256

2017E 457 622 1,972 2,700 331 1,289 1,101 968 241

LT Debt

2016E 2,640 19.3 870 35.4 1,149 23.4 43.5 668 29.9 25.3 (207) (69) 391 29.1 14.8

2017E 2,818 6.8 932 7.2 1,214 5.6 43.1 713 6.7 25.3 (169) (109) 434 11.0 15.4

2014A 877 4.5 236 14.4 334 1.5 38.1 135 34.7 15.4 (48) (27) 60 57.0 6.8

US$ 2015E 892 1.8 259 9.8 375 12.4 42.1 207 53.9 23.2 (60) (24) 122 103.5 13.7

2016E 1,008 12.9 332 28.2 439 16.8 43.5 255 22.9 25.3 (79) (26) 149 22.2 14.8

2017E 1,068 6.0 353 6.4 460 4.8 43.1 270 5.9 25.3 (64) (41) 165 10.2 15.4

1,617

2,179

2,029

1,924

712

868

772

726

2014A

2015E

2016E

2017E

2014A

2015E

2016E

2017E

Net Debt

1,561

1,837

1,511

1,355

687

732

575

511

Capital Employed

4,382

5,409

5,435

5,579

1,929

2,155

2,067

2,105

Net Debt/EBITDA

2.1

2.0

1.3

1.1

2.1

1.9

1.3

1.1

Net Debt/Equity

0.8

0.8

0.6

0.5

0.8

0.9

0.6

0.5

33.4

24.4

25.5

23.8

33.4

24.4

25.5

23.8

FINANCIAL RATIOS

Capex/Revenue (%) Int Cover (%) Dividend Payout (%)

3.3

4.3

4.5

5.5

3.3

4.3

4.5

5.5

19.9

68.5

32.3

38.9

17.8

65.4

28.2

38.9

ROCE (%)

5.1

7.6

8.3

9.6

5.1

9.0

8.3

9.6

ROE (%)

6.5

13.7

15.7

15.6

6.1

14.4

15.7

15.6

2014A

2015E

2016E

2017E

2014A

2015E

2016E

2017E

25.9

13.7

10.6

9.5

25.9

12.6

10.3

9.4

P/CE

5.8

5.3

4.6

4.3

5.8

4.9

4.5

4.3

FV/EBITDA

6.7

6.4

4.9

4.5

6.7

6.1

4.8

4.5

16.7

11.6

8.5

7.7

16.6

11.0

8.3

7.6

FV/Revenue

2.6

2.7

2.1

2.0

2.6

2.5

2.1

1.9

P/BV

1.7

1.8

1.6

1.4

1.7

1.7

1.5

1.4

FCF Yield (%)

0.2

3.8

9.5

12.2

0.2

4.1

9.7

12.4

Div Yield (%)

0.4

2.2

2.4

3.7

0.4

2.4

2.4

3.7

2014A

2015E

2016E

2017E

2014A

2015E

2016E

2017E

MARKET RATIOS P/E

FV/EBIT

PER SHARE DATA EPS

1.19

2.68

3.46

3.84

0.53

1.08

1.32

1.46

DPS

0.27

0.53

0.87

1.35

0.12

0.21

0.33

0.51

18.37

20.72

23.32

25.82

8.09

8.26

8.87

9.74

BVPS

195

São Martinho is one of the largest sugarcane groups in Brazil and the second-largest publicly traded one. It is located in a highly productive area in the State of São Paulo (two mills) and in Goias (one mill and one greenfield in partnership with Petrobras Biocombustível). The company has a sugarcane crushing capacity of 20 million tons and it crushed 19.5 million tons in 2014/15. São Martinho was founded in 1914 and went public in February 2007. It has only one type of share (SMTO3), which is listed on the Brazilian stock exchange. The company is part of the Novo Mercado, thus complying with the highest levels of corporate governance.

Key Personnel: Fábio Venturelli (CEO), Felipe Vichiatto (CFO) and Felipe Vichiatto (IR Officer) Web: www.saomartinho.ind.br

Sales by Region, FY2015E

International 45.2%

Brazil 54.8%

Sales by Segment, FY2015E

Other 9.3% Sugar 39.6%

Ethanol 51.1%

Shareholder Structure, Current

Free Float 39.2%

Managemen t Others 0.5% 4.3%

Ometto Family 56.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—RETAIL & CONSUMER GOODS

SARAIVA

BUY CURRENT PRICE: R$6.45 TARGET PRICE: R$12.00

INTRODUCING YE2015 TARGET PRICE OF R$12.00; REPLACING 2014 TARGET PRICE OF R$38.00 

Investment Case: We maintain our Buy rating, as we see SLED4

Bruno Giardino*, CFA

trading at a 0.4x book value, which fails, in our view, to price-in the

Brazil: Banco Santander S.A. +5511-3012-5914|[email protected]

company’s strategic value. We point out, however, that we have little visibility on the restructuring process at the retail operation, which could limit earnings momentum. Despite the company's high leverage, we do not see risk of liquidity constraints, following the long-term debt recently contracted with BNDES.



Daniel Gewehr* Brazil: Banco Santander S.A. +5511-3012-5787|[email protected]

João Mamede* Brazil: Banco Santander S.A. +5511-3553-0699|[email protected]

Outlook2015: We expect Saraiva’s EBITDA to grow 38% YoY, stemming basically from an uplift of profitability levels, mainly at the publishing division (offsetting lower volumes from the National Textbook Program). Our net income estimate of R$25 million implies the company’s shares are trading at a 2015E P/E of 7.2x.



Moving toward becoming an education company. Management has reiterated its intention of transforming Saraiva’s publishing unit into an education-focused company through the increased supply of education services and solutions (such as learning systems and preparatory courses), on top of educational books. We welcome this



orientation, which should reflect on the company’s further capital

Company Statistics

allocation decisions, according to the CEO.

Bloomberg

M&A activity back on the radar? Management has expressed

SLED4 BZ

Current Price (01/02/15)

R$ 6.45 / US$ 2.40

Target Price (YE 2015)

R$ 12.00 / US$ 4.43

52-Week Range (R$)

6.31 - 25.29

interest in gaining relevance in K-12 learning systems through

Market Capitalization (US$ Mn)

acquisitions. It believes that Saraiva’s Etico has 14% share in the

Float (%)

segment (and 5% over the total market), but growing it organically

68 67.7

3-Mth Avg. Daily Vol (US$ Mn)

0.6

Shares Outstanding - Mn

28

looks challenging, in our view. Saraiva’s high net-debt-to-EBITDA ratio, which reached 4x in 3Q14, could be a limitation, in our view.

Price Performance (R$) SLED4 BZ



Retail: focus on expenses. The company expects a normalized EBITDA margin of 6-7% in three to five years, which would come primarily by a reduction in expenses. Note that CEO Jorge Saraiva committed to annual savings of R$30 million (25% of 2014 EBITDA

IBOVESPA

140 120 100 80 60

guidance), to be fully reaped by 2016, as a result of the corporate expense review project, which is being carried out with the help of

40 20

J-13

Gradus Consultancy.

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

196

D-14

SARAIVA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 2,144 11.4 903 7.6 95 (47.9) 4.4 49 (65.9) 2.3 (39) 3 13 (83.1) 0.6

R$ 2014E 2,299 7.2 944 4.5 118 23.9 5.1 74 51.7 3.2 (65) (2) 7 (45.2) 0.3

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (46) 0 (47) 48 (80) (4) 64 (25) 0

2014E (43) 0 (95) 23 (73) 152 269 (22) 0

2015E (49) 0 8 170 (72) 10 0 (2) 0

2016E (52) 0 (82) 130 (76) (51) 0 (6) 0

2013A (21) 0 (22) 22 (37) (2) 29 (11) 0

2014E (18) 0 (40) 10 (31) 65 115 (9) 0

2015E (19) 0 3 65 (27) 4 0 (1) 0

2016E (18) 0 (29) 46 (27) (18) 0 (2) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 23 949 1,326 550 516 446 225

2014E 102 1,229 1,631 867 481 723 489

2015E 111 1,291 1,715 933 500 723 489

2016E 54 1,355 1,803 979 542 723 489

2013A 10 405 566 235 220 190 96

2014E 40 482 639 340 189 284 192

2015E 41 476 633 344 185 267 181

2016E 18 461 613 333 184 246 166

221

234

234

234

94

92

86

80

LT Debt FINANCIAL RATIOS

2015E 2,471 7.5 1,025 8.6 162 37.6 6.6 113 52.1 4.6 (78) (10) 25 255.3 1.0

2016E 2,752 11.4 1,145 11.7 212 30.7 7.7 160 41.0 5.8 (83) (21) 55 118.5 2.0

2013A 994 1.0 419 (2.6) 44 (52.8) 4.4 23 (69.1) 2.3 (18) 1 6 (84.7) 0.6

US$ 2014E 979 (1.5) 402 (4.0) 50 13.9 5.1 32 39.3 3.2 (28) (1) 3 (49.7) 0.3

2015E 939 (4.0) 390 (3.1) 62 22.9 6.6 43 35.8 4.6 (30) (4) 10 217.2 1.0

2016E 974 3.7 405 4.0 75 21.6 7.7 57 31.3 5.8 (29) (8) 20 103.5 2.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

423

621

613

670

180

244

226

228

Capital Employed

938

1,102

1,113

1,211

400

432

411

412

Net Debt/EBITDA

4.4

5.3

3.8

3.2

4.1

4.9

3.7

3.0

Net Debt/Equity

0.8

1.3

1.2

1.2

0.9

1.5

1.2

1.2

Capex/Revenue (%)

3.7

3.2

2.9

2.8

3.7

3.2

2.9

2.8

Int Cover (%)

2.1

1.5

1.5

1.9

2.1

1.5

1.5

1.9

32.1

171.2

25.0

25.0

29.0

157.0

22.0

24.8

ROCE (%)

4.9

7.0

11.1

14.9

5.4

7.8

11.1

14.9

ROE (%)

2.5

1.4

5.2

10.6

2.6

1.5

5.2

10.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

n/m

25.2

7.2

3.3

n/m

22.2

7.1

3.5

P/CE

12.5

3.5

2.5

1.7

11.4

3.1

2.4

1.8

FV/EBITDA

12.2

6.8

4.9

4.0

11.2

6.2

4.8

3.9

FV/EBIT

23.6

10.7

7.0

5.3

21.6

9.8

6.8

5.2

FV/Revenue

0.5

0.3

0.3

0.3

0.5

0.3

0.3

0.3

P/BV

1.4

0.4

0.4

0.3

1.4

0.4

0.4

0.4 (26.4)

Dividend Payout (%)

MARKET RATIOS

FCF Yield (%)

(0.6)

85.0

5.5

(27.7)

(0.7)

96.2

5.6

3.4

12.4

1.0

3.5

3.7

14.1

1.0

3.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.46

0.26

0.89

1.95

0.21

0.11

0.34

0.69

DPS

0.88

0.06

0.22

0.49

0.41

0.03

0.08

0.17

18.23

17.33

17.64

19.11

7.78

6.80

6.51

6.50

Div Yield (%) PER SHARE DATA

BVPS

197

Saraiva operates 115 multi-format retail stores in Brazil that offers a wide range of products, such as books, videos, music, periodicals, stationery, multimedia games and computer and electro-electronic products and conducts its online business through Saraiva.com. The company also develops educational solutions in teaching books and digital media targeted to elementary and high school and university levels. It also offers customers a comprehensive range of educational products and services in the Learning Systems' segment. Saraiva is listed in the Bovespa’s Level 2 of corporate governance, offering 90% tagalong for preferred shareholders.

Key Personnel: Jorge Saraiva Neto (CEO), Marcus Mingoni (CFO) and Luciana Doria Wilson (IR Officer) Web: www.saraiva.com.br

Sales by Segment, 9M14

Publishing 16.6%

Bookstore 83.4%

EBITDA by Segment, 9M14

Bookstore 63.3%

Publishing 36.7%

Shareholder Structure, Current

Saraiva Family 28.5% Free-float 67.7%

Board and Treasury Mgmt. 2.9% 0.9%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—FINANCIAL SERVICES

SMILES

HOLD CURRENT PRICE: R$48.28 TARGET PRICE: R$49.00

DOWNGRADING RATING TO HOLD FROM BUY 

Investment Case: We are downgrading the stock to Hold purely on

Henrique Navarro*

valuation. After setting it as our top pick among financials (see our

Brazil: Banco Santander S.A. +5511-3012-5756 | [email protected]

report Smiles: The Early Bird May Get the Worm, but the Second Mouse Gets the Cheese, August 27, 2014), SMLE3’s strong performance since then has left little upside potential in our YE2015 target price for a Buy recommendation.



Boris Molina New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

Renata Cabral* Brazil: Banco Santander S.A. +5511-3012-5731 | [email protected]

Outlook 2015: We expect 11% EPS growth in 2015. Although this is a good number given the expected tough macroeconomic scenario for 2015, we note that such low-double-digit EPS growth could also reflect (i) Smiles’s focus on margins rather than on volume growth, and (ii) the beginning of the flattening of the high-growth phase.



A brunch of positives—already priced in. Smiles is a cash-cow company, not capital intensive, still enjoying a high-growth phase and with strong dividend payout ratios. Some of these qualities could be used to describe BB Seguridade, Cielo, Cetip, and BVMF, but only Smiles combines all of these.



Smiles–Cielo strategic partnership: take it as a bonus. This

Company Statistics

venture will cover a potential base of 1.4 million Cielo merchants

Bloomberg

across Brazil. We have no detailed data to reach a precise valuation

Current Price (01/02/15)

R$ 48.28 / US$ 17.93

Target Price (YE 2015)

R$ 49.00 / US$ 18.63

and add it to our target price, but using our base-case estimate, we



SMLE3 BZ

52-Week Range (R$)

33.01 - 48.28

reached a potential R$3.30 per share, or 7%, increase to our 2015

Market Capitalization (US$ Mn)

target price. The test phase of the venture began in December 2014.

Float (%)

27.6

3-Mth Avg. Daily Vol (US$ Mn)

10.2

Shares Outstanding - Mn

122

A good dividend story, and not over yet. The strong extraordinary dividend distribution story is over. But we see some potential for a residual extraordinary dividend in 2016, which, coupled with a 100%

2,191

Price Performance (R$) SMLE3 BZ

IBOVESPA

250

payout, results in still attractive dividend yields, in our view. 200



Smiles and Multiplus—a premium is reasonable. We believe the

150

premium at which Smiles trades over Multiplus can be explained by (i) the higher growth phase the company is still in; (ii) the market perception of a stronger corporate governance level; and (iii) the lower air ticket costs Smiles pays Gol vs. Multiplus’s payments to

100

50

A-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

LATAM. 198

D-14

SMILES Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions

Company Description

INCOME STATEMENT Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) Profit before Taxes Taxes Minorities Net Profit Growth (%)

2013A 632 n/m 180 n/m 180 n/m 309 (102) 0 208 n/m

R$ 2014E 851 34.6 229 27.3 231 28.3 412 (140) 0 272 30.9

BALANCE SHEET Cash and Equivalents Accounts Receivable Intangible and Deferred Asse Tangible Assets Total Assets ST Debt LT Debt Equity Net Debt (Cash)

2013A 383 99 77.3 1 1,944 0 1,096 1,329 1,561

2014E 133 110 81.6 0 1,649 0 96 329 1,515

2015E 707 125 81.6 0 2,018 0 96 329 1,312

2016E 523 139 81.6 0 1,849 0 (4) 129 1,326

2013A 177 46 35.8 1 901 0 508 616 724

2014E 57 47 34.8 0 704 0 41 140 647

2015E 269 47 31.0 0 767 0 36 125 499

2016E 185 49 28.9 0 654 0 (1) 46 469

CASH FLOW Changes in Working Capital Operating Cash Flow Capital Expenditures Change in Debt Free Cash Flow to Equity Cash Dividends Capital Increase (Decrease)

2013A 0 189 (2) 996 110 (37) 1,132

2014E 0 102 (2) (1,000) 354 (1,272) (1,000)

2015E 0 189 (2) 0 201 (303) 0

2016E 0 387 (2) (100) 399 (468) (100)

2013A 0 88 (1) 462 51 (17) 525

2014E 0 44 (1) (427) 151 (543) (427)

2015E 0 72 (1) 0 76 (115) 0

2016E 0 137 (1) (35) 141 (166) (35)

OPERATING RATIOS EBITDA Margin Effective Tax Rate Net Margin Net Debt / EBITDA Net Debt / Equity

2013A 28.5 32.8 0.4 8.7 1.2

2014E 26.9 34.1 0.4 6.6 4.6

2015E 22.4 33.9 0.4 6.7 4.0

2016E 37.4 34.0 0.4 3.4 10.3

2013A 28.5 32.8 0.4 8.7 1.3

2014E 26.9 34.1 0.4 6.6 5.2

2015E 22.4 33.9 0.4 6.7 4.0

2016E 37.4 34.0 0.4 3.4 10.3

FCFE / Revenues

17.5

41.6

23.0

37.8

17.5

41.6

23.0

37.8

ROAA

18.8

15.1

16.5

19.0

20.2

16.0

16.5

19.0

ROAE

29.1

32.8

92.1

160.6

31.4

33.6

92.1

160.6

Payout

n/m

612.0

111.4

154.4

n/m

561.2

98.1

153.5

MARKET RATIOS

2015E 872 2.5 196 (14.6) 196 (15.3) 459 (156) 0 303 11.4

2016E 1,055 21.0 394 101.5 394 101.5 557 (189) 0 368 21.4

2013A 293 n/m 83 n/m 84 n/m 143 (47) 0 96 n/m

US$ 2014E 363 23.9 98 17.2 99 18.1 176 (60) 0 116 20.5

2015E 332 (8.7) 74 (23.9) 74 (24.6) 174 (59) 0 115 (0.7)

2016E 373 12.6 140 87.6 140 87.6 197 (67) 0 130 13.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

19.1

20.7

19.5

16.0

17.5

18.2

19.0

16.8

P/CE

19.1

20.5

19.5

16.0

17.5

18.1

19.0

16.8

FV/EBITDA

30.7

31.2

36.8

18.3

28.8

28.3

36.2

19.1

FCFE Yield (%)

2.8

6.3

3.4

6.8

3.0

7.1

3.5

6.4

P/BV

3.0

17.1

17.9

45.7

2.7

15.1

17.5

48.0

Div Yield (%)

0.9

22.6

5.1

7.9

1.0

25.6

5.3

7.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.70

2.23

2.48

3.01

0.79

0.95

0.94

1.07

CEPS

1.70

2.23

2.48

3.01

0.79

0.95

0.94

1.07

FCFPS

(0.08)

(1.08)

(0.62)

(3.11)

(0.04)

(0.46)

(0.23)

(1.10)

BVPS

10.88

2.69

2.69

1.06

5.04

1.15

1.02

0.37

0.30

10.41

2.48

3.83

0.14

4.44

0.94

1.36

PER SHARE DATA

DPS

Smiles was created in 1994 by Varig Airlines as its frequent flyer program until 2007, when both were acquired by GOL. Smiles enjoyed a very high recognition rate by customers, and in January 2013, it became an independent business unit of GOL. The company operates as a loyalty program coalition network and has 153 partnerships through which its 9 million members (as of 2012) can accrue points. It ranks second among loyalty coalition companies in Brazil in terms of members, being a subsidiary of GOL. The company’s IPO was held in April 2013.

Key

Personnel: Constantino de Oliveira Jr. (Chairman), Leonel Dias de Andrade Neto (CEO), Flavio Jardim Vargas (CFO) Web: http://ri.smiles.com.br/smiles/ Revenue Breakdown, 2014E Others (SM, etc.) 28.3% Breakage 9.1%

Points Sale 62.6%

Accruals, 2014E

GOL Airlines 14.9%

Banks 64.8%

Shareholder Structure, Current

Free float 27.6%

GA 17.9% Controlling Shareholder - GOL 54.5%

Sources for all charts and tables: Company reports and Santander estimates.

199

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—FINANCIAL SERVICES

SUL AMERICA

BUY CURRENT PRICE: R$12.16 TARGET PRICE: R$17.00

 Investment Case: In August 2014, we set Sul America as one of our top picks among financial service companies (for details, see our August 4 report, Sul America: Sword of Damocles Removed). The reasons for that remain unchanged: (i) the total upside potential we expect for Sul America by YE2015 is among the highest among companies under our universe of coverage; (ii) its 2015E P/E can be considered cheap in light of the company’s

Henrique Navarro* Brazil: Banco Santander S.A. +5511-3012-5756 | [email protected]

Boris Molina New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

Renata Cabral* Brazil: Banco Santander S.A. +5511-3012-5731 | [email protected]

five-year average of 11x; and (iii) Sul America is the least expensive way to gain exposure to the insurance sector in Brazil because of the huge discount at which it trades vs. peers.

 Outlook 2015: In a recent meeting with top management, the CEO offered a supportive message regarding the profitability level for coming years: ROE should be on an upward trend, as the health loss ratio seems to be showing signs of peaking. The initiatives to counteract rising loss ratios are becoming more apparent and effective, in our view, and include clients’ coparticipation and Sula’s entering the medical supply chain. We see ROE set to expand for the next couple of years. Company Statistics

 4Q14 could be the catalyst. We expect R$271 million net income for 4Q14, or 51% of the net income we estimate for full

Bloomberg

SULA11 BZ

Current Price (01/02/15)

R$ 12.16 / US$ 4.52

Target Price (YE 2015)

R$ 17.00 / US$ 6.27

year 2014 (R$530 million). This strong and recurring seasonality

52-Week Range (R$)

normally creates a trigger for the stock. According to

Market Capitalization (US$ Mn)

management, the new repricing cycle, which started July 1, 2014, indicates satisfactory repricing levels, a high retention rate, and rational competition.

11.10 - 17.62 1,539

Float (%)

70.7

3-Mth Avg. Daily Vol (US$ Mn)

4.3

Shares Outstanding - Mn

341

Price Performance (R$) SULA11 BZ

 No more sword of Damocles. At the end of June 2014, ING

120

divested 100% of its remaining SULA11 position through a R$522

110

million block trade, thus eliminating the pending overhang risk

IBOVESPA

100

over the stock. Initially, this block trade did more harm than good, 90

with SULA stock being hit afterward due to fast-money strategies. However, we believe the lack of overhang and higher liquidity

80 70

could attract investors.

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

200

D-14

SUL AMERICA Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions INCOME STATEMENT 2013A Written Premiums 12,218 Growth (%) 15.1 Retained Premiums 12,022 Growth (%) 15.5 Earned Premiums 11,770 Growth (%) 12.7 Commissions and Expenses (11,201.3) Underwriting Results 128 Financial Result 469 Equity Income 133 Profit Before Taxes 730 Taxes (260) Net Profit 487 Growth (%) 0.8

R$ 2014E 2015E 13,646 14,923 11.7 9.4 13,477 14,713 12.1 9.2 13,232 14,471 12.4 9.4 (12,669.5) (13,819.4) 79 125 662 694 127 137 868 956 (337) (331) 531 625 8.9 17.7

Company Description

2016E 16,329 9.4 16,112 9.5 15,848 9.5 (15,053.6) 217 714 149 1,080 (377) 703 12.6

2013A 5,215 0.4 5,131 0.7 5,023 (1.7) (4,780.8) 55 200 57 312 (111) 208 (12.0)

US$ 2014E 2015E 5,351 5,506 2.6 2.9 5,285 5,429 3.0 2.7 5,189 5,340 3.3 2.9 (4,968.4) (5,099.4) 31 46 259 256 50 50 340 353 (132) (122) 208 231 0.1 10.8

2016E 5,554 0.9 5,480 0.9 5,390 0.9 (5,120.3) 74 243 51 367 (128) 239 3.7

BALANCE SHEET Cash and Equivalents Financial Assets Premiums Receivable Intangible Assets Tangible Assets Total Assets Current Liabilities Technical Provisions Other Provisions Debt and Financial Liabilities Minority Interest Equity

2013A 673 7,860 2,511 341 123 16,962 7,070 2,627 2,391 670 42 3,413

2014E 775 9,049 2,860 362 131 18,653 7,344 2,682 3,192 752 24 3,778

2015E 807 9,423 3,131 364 131 20,509 8,207 2,992 3,646 815 27 4,222

2016E 843 9,844 3,432 367 132 22,382 8,933 3,247 3,999 894 30 4,702

2013A 287 3,355 1,072 146 53 7,239 3,017 1,121 1,020 286 18 1,457

2014E 304 3,549 1,122 142 51 7,315 2,880 1,052 1,252 295 10 1,482

2015E 298 3,477 1,155 134 48 7,568 3,028 1,104 1,345 301 10 1,558

2016E 287 3,348 1,167 125 45 7,613 3,038 1,104 1,360 304 10 1,599

OPERATING RATIOS Claims Ratio Sales Ratio Admin Ratio Combined Ratio Amplified Combined Ratio Effective Tax Rate Excess Solvency Margin ROAA

2013A 74.8 11.0 10.6 98.9 94.9 35.6 11.1 3.1

2014E 75.6 11.2 10.6 99.5 94.5 38.9 8.5 3.0

2015E 75.9 11.0 10.5 99.5 94.7 34.7 9.2 3.2

2016E 75.5 10.9 10.5 99.0 94.5 34.9 9.9 3.3

2013A 74.8 11.0 10.6 98.9 94.9 35.6 5.1 3.2

2014E 75.6 11.2 10.6 99.5 94.5 38.9 3.6 3.2

2015E 75.9 11.0 10.5 99.5 94.7 34.7 3.4 3.2

2016E 75.5 10.9 10.5 99.0 94.5 34.9 3.7 3.3

14.8

14.8

15.6

15.8

15.1

15.7

15.6

15.8

ROAE Payout

30.2

31.8

33.4

31.1

27.4

29.2

29.4

30.9

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

10.3

8.3

6.6

5.9

10.3

8.0

6.7

6.4

P/CE

10.3

8.3

6.6

5.9

10.3

8.0

6.7

6.4

P/BV

1.5

1.2

1.0

0.9

1.5

1.1

1.0

1.0

Div Yield (%)

2.9

3.5

4.3

4.7

2.9

3.7

4.3

4.3

MARKET RATIOS

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.43

1.56

1.83

2.06

0.61

0.61

0.68

0.70

CEPS

0.43

0.45

0.52

0.57

0.18

0.18

0.19

0.19

BVPS

10.62

11.77

13.09

14.58

4.53

4.62

4.83

4.96

0.43

0.45

0.52

0.57

0.18

0.18

0.19

0.19

DPS

Sul America S.A. is the largest independent insurance company in Brazil. Founded over 110 years ago, the company operates mainly in the health insurance segment, as well as in auto insurance, property and casualty (P&C), and life insurance. Sul America became a publicly traded company in October 2007 and has been controlled by the Larragoiti family since its inception.

Key Personnel: Patrick Antonio Claude de Larragoiti Lucas (Chairman), Gabriel Portella Fagundes Filho (CEO) and Arthur Farme d’Amoed Neto (Controller VP) Web: www.sulamerica.com.br/ri

Premiums by Segment, 2014E

Life + VGBL Others 3.0% 2.6%

Auto 22.1%

Health 72.3%

Invested Portfolio, 3Q14 Fixed Equities rate/Others 8.0% 2.0%

Inflationlinked bonds 20.0%

Floating Gov. bonds 70.0%

Shareholder Structure, Current

Free float 44.0%

Oppenheim er 8.1%

Sulasapar 25.2%

IFC 7.8%

Swiss Re 14.9%

Sources for all charts and tables: Company reports and Santander estimates.

201

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—PULP & FOREST PRODUCTS

SUZANO

HOLD CURRENT PRICE: R$10.98 TARGET PRICE: R$10.50



Investment Case: After the ramp-up of the Maranhao pulp mill,

Felipe Reis*

which reached full capacity in August 2014, Suzano has become a

Brazil: Banco Santander S.A. +5511-3012-5758 | [email protected]

deleveraging case, gradually unlocking equity value. However, according to our estimates, the deleveraging process is likely to be more gradual than previously expected by the market. We note that

Renato Maruichi*, CFA Brazil: Banco Santander S.A. +5511-3553-7149 | [email protected]

growth comes at the expense of return to investors, since we estimate returns below cost of equity for the Maranhão project under current market conditions. On the other hand, we expect strong earnings momentum in the short term to favor the stock.



Outlook 2015: We believe Suzano has the best earnings momentum in the sector given our estimated 21% EBITDA growth YoY, propelled by capacity growth and BRL weakness.



Complete deleveraging process to last until 2017, in our view. If, on the one hand BRL depreciation boosts the company’s EBITDA, on the other hand it negatively affects the debt portion in foreign currency. The net effect is that it may take more time to deleverage than the market anticipates, in our opinion. Additionally, according to the company’s CFO, Suzano will carry out significant capacity

Company Statistics

increases and/or act as a consolidator agent in the pulp sector only

Bloomberg

after the 2.5x net debt/EBITDA target ratio is achieved, which we estimate will occur in mid-2017.

SUZB5 BZ

Current Price (01/02/15)

R$ 10.98 / US$ 4.08

Target Price (YE 2015)

R$ 10.50 / US$ 3.87

52-Week Range (R$)

7.20 - 11.28

Market Capitalization (US$ Mn)



Doing the homework in COGS and SG&A: We still see room for improvement, especially with respect to (i) wood productivity and

4,460

Float (%)

35.3

3-Mth Avg. Daily Vol (US$ Mn)

20.1

Shares Outstanding - Mn

1,093

forest logistics; (ii) the learning curve at the Maranhão mill; (iii) punctual investments in the paper segment (e.g., the new digester for

Price Performance (R$) SUZB5 BZ

the Suzano mill); and (iv) a greater contribution from energy sales

160

(SUZB plans to be a 35 MW/h net seller by July 2015). On the SG&A

140

side, Suzano intends to encourage direct paper sales (eliminating

IBOVESPA

120

intermediary agents); also, more aggressive variable compensation 100

metrics were established for managers to emphasize the focus on free cash flow generation. We forecast SG&A at ~9% of sales in the

80 60

next few years, -1.5 p.p. relative to the recent average.

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

202

D-14

SUZANO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 5,689 9.6 1,498 29.6 1,758 38.2 30.9 976 79.2 17.1 (1,256) 60 (220) (20.4) (3.9)

R$ 2014E 7,239 27.3 1,871 24.8 2,358 34.1 32.6 1,191 22.1 16.5 (1,314) (2) (124) 43.6 (1.7)

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (889) 1,084 (394) 1,359 (2,257) (1,703) (1,591) 1,248 (100) (51)

2014E (1,176) 642 (823) 872 (1,698) (1,307) (668) 42 (122) 9

2015E (1,278) 460 (114) 2,033 (1,200) 451 (200) 0 (120) 0

2016E (1,337) 662 (165) 2,179 (1,225) 500 (200) 0 (102) 0

2013A (412) 503 (183) 630 (1,046) (789) (738) 579 (46) (24)

2014E (501) 273 (350) 371 (723) (556) (284) 18 (52) 4

2015E (486) 175 (43) 773 (456) 171 (76) 0 (46) 0

2016E (473) 234 (59) 772 (434) 177 (71) 0 (36) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 3,690 6,472 27,149 27,149 1,273 2,312 10,687 12,877 1,009

2014E 3,174 6,761 27,550 27,550 1,256 2,383 10,459 13,451 1,272

2015E 3,887 7,662 28,373 28,373 1,329 2,383 10,749 13,912 1,272

2016E 4,738 8,764 29,363 29,363 1,415 2,383 10,992 14,574 1,272

2013A 1,575 2,762 11,587 11,587 543 987 4,561 5,496 431

2014E 1,245 2,652 10,804 10,804 493 935 4,102 5,275 499

2015E 1,434 2,827 10,470 10,470 490 879 3,966 5,134 469

2016E 1,612 2,981 9,988 9,988 481 811 3,739 4,957 433

LT Debt

12,369

12,179

12,640

13,302

5,279

4,776

4,664

4,524

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

9,187

10,278

10,025

9,835

3,921

4,031

3,699

3,345

Capital Employed

29,896

30,242

31,207

32,385

12,760

11,860

11,515

11,015

Net Debt/EBITDA

5.2

4.4

3.5

3.3

4.8

4.0

3.4

3.2

Net Debt/Equity

0.9

1.0

0.9

0.9

0.9

1.1

0.9

0.9

39.7

23.5

14.2

13.6

39.7

23.5

14.2

13.6

Net Debt

Capex/Revenue (%) Int Cover (%) Dividend Payout (%) ROCE (%) ROE (%) MARKET RATIOS P/E

2015E 8,476 17.1 2,272 21.4 2,849 20.8 33.6 1,571 31.9 18.5 (1,025) (136) 409 n/m 4.8

2016E 8,995 6.1 2,397 5.5 2,989 4.9 33.2 1,652 5.1 18.4 (1,191) (115) 346 (15.6) 3.8

2013A 2,637 (0.7) 695 17.4 815 25.3 30.9 452 62.4 17.1 (582) 28 (102) (9.1) (3.9)

US$ 2014E 3,080 16.8 796 14.6 1,003 23.1 32.6 507 12.1 16.5 (559) (1) (53) 48.3 (1.7)

2015E 3,223 4.6 864 8.5 1,083 8.0 33.6 597 17.8 18.5 (390) (52) 156 n/m 4.8

2016E 3,186 (1.1) 849 (1.7) 1,058 (2.3) 33.2 585 (2.1) 18.4 (422) (41) 122 (21.4) 3.8

2.2

2.4

3.0

2.9

2.2

2.4

3.0

2.9

(54.6)

(55.4)

(96.6)

25.0

(49.4)

(50.8)

(85.0)

24.8 4.0

4.0

4.3

3.7

4.0

4.3

4.9

3.8

(2.0)

(1.2)

3.9

3.2

(2.1)

(1.2)

3.9

3.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

-

-

29.3

34.7

-

-

28.7

36.4

P/CE

15.3

11.7

7.1

7.1

14.0

10.3

7.0

7.5

FV/EBITDA

11.1

9.6

7.7

7.3

10.1

8.6

7.5

7.4

FV/EBIT

19.9

19.0

14.0

13.2

18.3

17.1

13.7

13.3

FV/Revenue

3.4

3.1

2.6

2.4

3.1

2.8

2.5

2.5

P/BV

1.0

1.2

1.1

1.1

1.0

1.1

1.1

1.2

(16.6)

(10.6)

3.8

4.2

(18.2)

(12.0)

3.8

4.0

1.0

1.0

1.0

0.9

1.1

1.1

1.0

0.8

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

(0.20)

(0.11)

0.37

0.32

(0.09)

(0.05)

0.14

0.11

DPS

0.09

0.11

0.11

0.09

0.04

0.05

0.04

0.03

BVPS

9.64

9.57

9.83

10.05

4.11

3.75

3.63

3.42

FCF Yield (%) Div Yield (%)

203

Suzano Papel e Celulose is an integrated Brazilian pulp & paper company and one of the leading players in the domestic paper market, with an installed capacity of 1.3 tons of printing and writing paper (P/W) and paperboard. Suzano is also a market pulp exporter with an annual capacity of 3.4 million tons per year, with exports accounting for 60% of Suzano’s net sales. Suzano Papel e Celulose is controlled by Suzano Holding (owned by the Feffer family), with 98% of the voting shares and 56% of total capital. Suzano’s shares are traded in the São Paulo Stock Exchange.

Key Personnel: David Feffer (Chairman), Walter Schalka (CEO), Marcelo Fernandes (IR Director) Web: www.suzano.com.br

Bacci

(CFO)

and

Tiago

Revenue by Product, 2013

Paperboard 11.2%

P&W Paper (Coated + Uncoated) 43.8%

Pulp 45.0%

Revenue by Destination, 2013

Exports 54.4%

Domestic 45.6%

Shareholder Structure, Current

Suzano Holding 32.3%

Others 56.0%

BNDESPar 11.7%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—UTILITIES

TAESA

HOLD CURRENT PRICE: R$18.65 TARGET PRICE: R$19.83

DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF R$19.83; REPLACING YE2014 TARGET PRICE OF R$21.10 

Investment Case: We maintain a favorable view of TAESA. The

Maria Carolina Carneiro*

company has strong cash generation, good management, financial

Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

discipline, high predictability, inflation protection, low regulatory risk, operating efficiency, and high leverage, as well as a sound organic and inorganic growth track record, in our view. However, the recent stock price rally reduced the attractiveness of the company’s real IRR, and, therefore, we downgraded our rating to Hold from Buy.



Outlook 2015: We forecast YoY EBITDA growth of 5.7%, reflecting the inflation adjustment to TAESA’s contracts, partially offset by a slight decrease in EBITDA margin. We also highlight that our forecast payout remains at the maximum level (95% payout after discounting the fiscal incentive reserve), with an 11.5% dividend yield.



M&A: The CEO and CFO reiterated in a recent meeting with investors that there are some transmission assets available to sell in the market; however, they also stated that given the current murky momentum outlook, this is not the ideal time for such transactions. Still, they believe that the scenario could become more propitious in 2015. They further mentioned that investments in brownfield or

Company Statistics

greenfield projects would be considered by TAESA only if they

Bloomberg

offered attractive IRRs.



TAEE11 BZ

Current Price (01/02/15)

R$ 18.65 / US$ 6.93

Target Price (YE 2015)

R$ 19.83 / US$ 7.32

52-Week Range (R$)

16.85 - 23.34

Fiscal tax incentives: TAESA’s management is confident regarding

Market Capitalization (US$ Mn)

its application to the government’s SUDAN/SUDENE program for

Float (%)

fiscal incentives for assets, which, if successful, could create

2,387 27.1

3-Mth Avg. Daily Vol (US$ Mn)

4.1

Shares Outstanding - Mn

344

substantial tax incentives for certain assets/units. Price Performance (R$)



FIP Coliseu: The change in structure of FIP Coliseu is neutral for

TAEE11 BZ

IBOVESPA

110

TAESA. However, we believe investors may be concerned about long-term prospects. We point out that all decisions regarding TAESA must be approved unanimously by the board. Thus, we view

100

90

the changes as neutral. 80



Change in estimates. We revised our model to reflect (1) new macroeconomic estimates, (2) recent quarterly results, and (3) a

70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

higher discount rate. 204

D-14

TAESA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 1,448 0.2 1,108 (1.1) 1,144 (9.6) 79.0 1,108 (1.1) 76.5 (369) (48) 868 19.8 60.0

R$ 2014E 1,535 6.0 1,177 6.3 1,314 14.8 85.6 1,177 6.3 76.7 (326) (233) 965 11.2 62.9

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (2) 454 1,260 88 1,005 0 (696) 0

2014E (2) 310 1,350 37 1,117 0 (662) 0

2015E (2) (202) 1,015 34 184 0 (737) 0

2016E (2) (207) 1,063 36 149 0 (776) 0

2013A (1) 210 584 41 466 0 (323) 0

2014E (1) 132 576 16 477 0 (283) 0

2015E (1) (77) 386 13 70 0 (280) 0

2016E (1) (73) 376 13 53 0 (275) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 430 722 6,259 9,154 1,098 3,751 4,305 4,367 942

2014E 1,005 1,395 6,260 9,548 1,627 3,763 4,158 4,126 733

2015E 1,103 1,502 6,076 9,662 1,703 0 4,197 4,126 733

2016E 1,162 1,565 5,893 9,743 1,743 3,763 4,237 4,126 733

2013A 183 308 2,671 3,907 468 1,601 1,837 1,864 402

2014E 394 547 2,455 3,744 638 1,476 1,631 1,618 287

2015E 407 554 2,242 3,565 628 0 1,549 1,523 270

2016E 395 532 2,004 3,314 593 1,280 1,441 1,403 249

LT Debt

2015E 1,526 (0.6) 1,150 (2.4) 1,257 (4.3) 82.4 1,150 (2.4) 75.3 (47) (358) 1,091 13.1 71.5

2016E 1,529 0.2 1,132 (1.5) 1,249 (0.6) 81.7 1,132 (1.5) 74.1 (44) (366) 1,090 (0.1) 71.3

2013A 671 (9.2) 513 (10.4) 530 (18.1) 79.0 513 (10.4) 76.5 (171) (22) 402 8.6 60.0

US$ 2014E 655 (2.4) 502 (2.2) 561 5.7 85.6 502 (2.2) 76.7 (139) (99) 412 2.4 62.9

2015E 580 (11.4) 437 (13.0) 478 (14.7) 82.4 437 (13.0) 75.3 (18) (136) 415 0.7 71.5

2016E 541 (6.8) 401 (8.3) 442 (7.5) 81.7 401 (8.3) 74.1 (16) (130) 386 (7.0) 71.3

3,425

3,393

3,393

3,393

1,462

1,331

1,252

1,154

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

3,938

3,121

3,023

2,964

1,681

1,224

1,116

1,008

Capital Employed

6,245

6,943

6,834

6,690

2,665

2,723

2,522

2,275

Net Debt/EBITDA

3.4

2.4

2.4

2.4

3.2

2.2

2.3

2.3

Net Debt/Equity

0.9

0.8

0.7

0.7

1.0

0.8

0.7

0.7

(6.1)

(2.4)

(2.3)

(2.4)

(6.1)

(2.4)

(2.3)

(2.4)

FINANCIAL RATIOS

Capex/Revenue (%)

3.2

3.5

3.4

3.4

3.2

3.5

3.4

3.4

Dividend Payout (%)

Int Cover (%)

96.1

76.3

76.4

71.1

87.0

69.9

67.2

70.7

ROCE (%)

18.5

20.3

22.1

22.4

20.1

22.5

22.2

22.4

ROE (%)

20.7

22.8

26.1

25.8

21.0

24.2

26.1

25.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

7.2

6.7

5.9

5.9

6.6

5.9

5.8

6.2

P/CE

7.2

6.7

5.9

5.9

6.6

5.9

5.7

6.2

FV/EBITDA

8.9

7.3

7.5

7.5

8.2

6.5

7.3

7.7

FV/EBIT

8.9

7.3

7.5

7.5

8.2

6.5

7.3

7.7

FV/Revenue

7.0

6.3

6.2

6.1

6.5

5.6

6.0

6.3 1.7

MARKET RATIOS

P/BV

1.5

1.6

1.5

1.5

1.4

1.5

1.5

FCF Yield (%)

16.0

17.2

2.9

2.3

17.5

19.5

2.9

2.2

Div Yield (%)

11.1

10.2

11.5

12.1

12.1

11.6

11.7

11.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

2.52

2.80

3.17

3.16

1.17

1.20

1.20

1.12

DPS

2.02

1.92

2.14

2.25

0.94

0.82

0.81

0.80

12.50

12.07

12.18

12.30

5.33

4.73

4.50

4.18

PER SHARE DATA

BVPS

205

TAESA is the largest privately owned Brazilian group dedicated exclusively to electricity transmission. TAESA currently operates more than 9,884 km (proportionally) of transmission lines (17% market share) with annual RAP of R$2,157 million through long-term concessions. TAESA is jointly controlled by Cemig and by FIP Coliseu. We believe Cemig’s operating capabilities coupled with its financial partners’ focus on return, guarantee capital discipline and operating excellence, an important competitive edge for TAESA.

Key Personnel: Djalma Bastos de Morais (Chairman), José Aloíse Ragone Filho (CEO), Cristiano Correa de Barros (CFO) and Cristiano Correa de Barros (IR Director) Web: www.taesa.com.br

Ebitda by Business, 9M14

Transmissio n 100.0%

Cost Detail, 9M14

Others 6.7%

Services 32.4%

Material 1.4%

Personnel 59.5%

Shareholder Structure, Current

Free Float 27.1% FIP Resling 7.4%

FIP Coliseu 22.1%

Cemig GT 43.4%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—CEMENT, CONSTRUCTION, INFRA & RE

TECNISA

HOLD CURRENT PRICE: R$3.74 TARGET PRICE: R$4.20

DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF R$4.20; REPLACING YE2014 TARGET PRICE OF R$10.50 

Investment Case: Tecnisa is poised to continue delivering improving

Bruno Mendonca*

results for the next few years, in our view, benefiting from the

Brazil: Banco Santander S.A. +5511-3012-5759 | [email protected]

additional launches as part of the Jardim das Perdizes (JDP) project and the delivery of projects with substandard profitability. This improvement should enable Tecnisa to significantly deleverage over

Renan Manda* Brazil: Banco Santander S.A. +5511 3012-6535 | [email protected]

the next few quarters, in our opinion.



Outlook 2015: We expect 2015 to be another transition year for the homebuilders in Brazil. The macro scenario should remain challenging for the sector, with the combination of low expected GDP growth and inflationary pressure leading consumers and investors to remain cautious, in our view.



Focus on profitability and monetizing assets. The combination of a challenging sector outlook for the next year and the company’s high leverage (129% net debt/EBITDA as of 3Q14) led management to focus on monetizing its assets. As a result, Tecnisa’s strong pipeline of deliveries scheduled for 2015 and 2016 and additional inventory sales are likely to boost cash generation and help reduce leverage, in our opinion.

Company Statistics Bloomberg





TCSA3 BZ

Room for additional improvements in G&A expenses: Despite

Current Price (01/02/15)

R$ 3.74 / US$ 1.39

having already reduced its payroll by approximately 15%,

Target Price (YE 2015)

R$ 4.20 / US$ 1.58

52-Week Range (R$)

3.70 - 8.90

management still sees some room for additional improvements as

Market Capitalization (US$ Mn)

249

the projects under development are delivered in 2015.

Float (%)

45.0

Valuation seems fair at current return levels. With an ROE of 13.1% for 2015E, the stock’s current valuation of 0.4x P/BV leaves

3-Mth Avg. Daily Vol (US$ Mn)

1.4

Shares Outstanding - Mn

179

Price Performance (R$)

little room for upside in the short term, in our view.

TCSA3 BZ

IBOVESPA

140 120 100 80 60 40

j-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

206

d-14

TECNISA Company Description

2015E (11) 0 126 359 (14) 372 (0) 0 (48) 6

2016E (11) 0 403 646 (13) 658 (0) (191) (52) 6

2013A (5) 0 (266) (151) 1 (152) 13 238 0 (13)

2014E (5) 0 (36) 57 1 56 (13) 83 (36) 13

2015E (4) 0 48 138 (5) 143 (0) 0 (18) 2

2016E (4) 0 132 212 (4) 216 (0) (63) (17) 2

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 343 3,289 449 4,690 1,620 1,491 1,412 2,273 979

2014E 587 3,403 421 4,969 1,773 1,476 1,515 2,466 1,139

2015E 891 3,722 411 5,321 1,952 1,486 1,672 2,466 1,139

2016E 1,287 3,905 401 5,425 1,990 1,380 1,837 2,274 1,051

2013A 147 1,404 192 2,002 691 636 603 970 418

2014E 230 1,334 165 1,949 695 579 594 967 447

2015E 336 1,404 155 2,008 737 561 631 930 430

2016E 417 1,265 130 1,757 644 447 595 736 340

1,294

1,326

1,326

1,223

552

520

501

396

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

2,012

1,933

1,674

1,128

859

758

632

365

Capital Employed

3,206

3,281

3,158

2,756

1,368

1,287

1,192

892

Net Debt/EBITDA

5.8

7.5

5.4

3.8

5.3

6.8

5.3

3.7

Net Debt/Equity

1.4

1.3

1.0

0.6

1.6

1.4

1.0

0.6

FINANCIAL RATIOS

Capex/Revenue (%)

(0.1)

(0.1)

0.8

0.8

(0.1)

(0.1)

0.8

0.8

Int Cover (%)

1.0

0.7

0.8

0.8

1.0

0.7

0.8

0.8

Dividend Payout (%)

0.0

38.0

25.0

25.0

0.0

34.8

22.0

24.8

ROCE (%)

14.2

12.5

14.2

15.0

15.5

14.1

14.3

15.0

ROE (%)

16.2

13.0

13.1

12.5

16.5

13.9

13.2

12.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

7.3

3.7

3.3

3.1

6.6

3.2

3.1

3.5

P/CE

6.9

3.5

3.1

3.0

6.3

3.0

3.0

3.3

10.9

10.5

7.9

6.3

10.0

9.4

7.7

6.6

FV/EBIT

8.4

6.7

5.4

4.6

7.7

6.0

5.3

4.8

FV/Revenue

2.1

1.6

1.4

1.2

1.9

1.5

1.4

1.3

P/BV

1.1

0.5

0.4

0.4

1.1

0.4

0.4

0.4

FCF Yield (%)

(20.4)

18.5

54.5

96.4

(22.3)

21.3

56.4

85.3

Div Yield (%)

(0.0)

12.0

7.0

7.7

(0.0)

13.8

7.2

6.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.21

1.06

1.15

1.20

0.56

0.46

0.44

0.40

DPS

0.47

0.26

0.29

0.30

0.22

0.11

0.11

0.10

BVPS

7.87

8.30

9.16

10.06

3.36

3.25

3.46

3.26

MARKET RATIOS

FV/EBITDA

PER SHARE DATA

207

Key Personnel: Meyer Joseph Nigri (CEO) and Vasco Barcellos (CFO and IR Officer) Web: www.tecnisa.com.br/ri

Launches (R$ billion), 2013-16E 1.88 1.46 1.04 0.57

2016e

2014E (11) 0 (84) 133 2 130 (29) 192 (84) 30

Tecnisa is one of the largest developers of residential buildings in Brazil, with a focus on upper and uppermiddle income customers mainly in the São Paulo metropolitan region. The company participates in all stages of residential real estate development, including land acquisition, construction, marketing and client service. As of June 2013, Tecnisa held a land bank with a potential VGV of R$7.1 billion. Tecnisa went public in January 2007 having raised R$791 million and in February 2011 made a follow-on offer of R$360 million. The company currently has a free float of 51.5%, being controlled by the local businessman Meyer Nigri.

Contracted Sales (R$ billion), 2013-16E 1.76

1.66 1.23

0.69

2016e

2016E 513 (20.9) 214 (19.2) 99 (17.2) 19.2 136 (21.4) 26.5 (18) (11) 72 (10.3) 14.1

2015e

2015E 649 (10.8) 265 (7.9) 119 6.1 18.3 173 (2.5) 26.6 (40) (13) 81 (2.4) 12.4

2015e

2013A (11) 0 (575) (326) 2 (329) 27 514 0 (29)

LT Debt

2013A 832 47.6 314 125.2 162 n/m 19.5 210 n/m 25.3 (61) (18) 102 n/m 12.3

2014e

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2016E 1,563 (7.4) 652 (5.4) 300 (3.0) 19.2 414 (8.0) 26.5 (55) (32) 220 5.0 14.1

2014e

2013A 1,795 63.0 678 148.6 349 n/m 19.5 454 n/m 25.3 (131) (38) 221 n/m 12.3

2015E 1,688 0.4 689 3.6 310 19.4 18.3 450 9.7 26.6 (104) (35) 210 9.8 12.4

US$ 2014E 727 (12.6) 288 (8.4) 112 (30.7) 15.4 177 (15.8) 24.4 (52) (15) 83 (19.5) 11.3

2013

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

R$ 2014E 1,681 (6.3) 666 (1.8) 259 (25.8) 15.4 410 (9.8) 24.4 (120) (35) 191 (13.7) 11.3

2013

Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Shareholder Structure, Current

Free Float 45.3%

Board 0.2%

Controlling Shareholder s 54.5%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—TRANSPORTATION

TEGMA

BUY CURRENT PRICE: R$15.89 TARGET PRICE: R$19.00

UPGRADING RATING TO BUY FROM HOLD INTRODUCING YE2015 TARGET PRICE TO R$19.00; REPLACING YE2014 TARGET PRICE OF R$26.00 

Investment Case: Our upgrade to Buy reflects our belief that the

Bruno Amorim*, CFA

current share price, which according to our estimates implies a

Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

~10.5x 2015 P/E, has more than priced in the major deterioration in the Brazilian auto market in 2014-15E. Moreover, the sale of Direct in 2014 for R$127 million was a major positive, in our view, as the

Pedro Balcão Reis* Brazil: Banco Santander S.A. +5511-3012-5765 | [email protected]

company divested a cash-burning operation and reduced debt at a challenging time (lower free cash flow generation from the auto division and high interest rates in Brazil).



Outlook 2015: We estimate net revenue, EBITDA, and net income growth of -3%, +9%, and +24% YoY to R$1.5 billion, R$187 million, and R$98 million, respectively. We believe these results will be driven mainly by (i) stable margins in auto; (ii) the sale of Direct (which made a negative contribution); (iii) an improvement in financial results (due to the R$127 million proceeds of the Direct sale); and (iv) our estimate of no payment of dividends related to net profits reported in 2014.



Challenging environment in Brazil auto market: We estimate that the number of vehicles sold in the Brazilian domestic market fell 8% in 2014 (vs. our previous 7.5% estimate). For 2015 we now expect a 6% decline vs. flat previously. However, we highlight that Tegma

Company Statistics Bloomberg

TGMA3 BZ

Current Price (01/02/15)

R$ 15.89 / US$ 5.90

should experience volume declines of 15% and 6% in 2014E and

Target Price (YE 2015)

R$ 19.00 / US$ 7.01

2015E, respectively. We see the 15% fall in Tegma volumes in

52-Week Range (R$)

2014E as due to (i) a 38% decline in exports, and (ii) a 13% fall in

Market Capitalization (US$ Mn)

390

Float (%)

34.5

domestic sales (higher than the 8% market decline, due to reduced stock at car dealerships). We are cutting our sales and EBITDA

14.71 - 21.01

3-Mth Avg. Daily Vol (US$ Mn)

0.9

Shares Outstanding - Mn

66

estimates for the auto division in 2015 by 13% and 15%. Price Performance (R$)



Auto margin stability is the positive highlight: For the auto

110

division, we estimate declines of only 100 bps and 30 bps in the

100

EBITDA margin in 2014 and 2015, respectively. In our view, this

90

vindicates the strength of Tegma’s asset-light model.

80

TGMA3 BZ

IBOVESPA

A-13

A-14

70



Upgrade to buy: At ~10.5x and ~9.5x P/E for 2015E and 2016E and with 20% potential upside to our new YE2015 target price, we believe the stock is now cheap enough to offset the lack of visibility in the

60 50 40

J-13

M-13

D-13

A-14

Sources: FactSet, Santander estimates and company reports.

Brazilian car market. 208

D-14

TEGMA Company Description

2014E (29) 41 180 81 230 (358) 0 0

2015E (25) 12 144 (55) 81 15 (98) 0

2016E (27) (19) 130 (49) 71 47 (112) 0

2013A (13) 25 75 (19) 47 58 (21) 0

2014E (12) 17 76 35 98 (152) 0 0

2015E (10) 5 55 (21) 31 6 (37) 0

2016E (10) (7) 46 (17) 25 17 (40) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 204 610 472 1,200 266 533 402 528 83

2014E 77 427 362 908 231 196 481 170 61

2015E 74 404 391 914 220 213 481 185 60

2016E 81 433 412 965 229 255 481 232 65

2013A 87 260 201 512 114 227 171 225 36

2014E 30 167 142 356 90 77 189 67 24

2015E 27 149 144 337 81 79 177 68 22

2016E 28 147 140 328 78 87 164 79 22

FINANCIAL RATIOS

2015E 566 (13.4) 71 (2.9) 12.5 61 1.0 10.8 (5) (19) 37 10.2 6.6

2016E 573 1.3 75 6.0 13.1 66 6.8 11.4 (5) (20) 40 6.3 6.9

445

109

126

167

190

43

46

57

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

324

93

111

151

138

37

41

51

Capital Employed

930

651

666

713

397

255

246

243

Net Debt/EBITDA

2.1

0.5

0.6

0.7

1.9

0.5

0.6

0.7

Net Debt/Equity

0.8

0.2

0.2

0.3

0.9

0.2

0.2

0.3

Capex/Revenue (%)

2.3

(5.3)

3.7

3.0

2.3

(5.3)

3.7

3.0

Int Cover (%)

4.6

4.4

14.6

13.7

4.6

4.4

14.6

13.7

Dividend Payout (%)

65.5

0.0

123.5

114.1

59.3

0.0

108.7

113.4

ROCE (%)

18.5

26.9

32.5

34.8

19.8

29.8

32.6

34.8

ROE (%)

16.9

18.0

20.4

23.3

17.1

19.2

20.4

23.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

17.0

13.2

10.7

9.4

15.6

11.7

10.4

9.8

P/CE

12.0

9.7

8.5

7.5

11.0

8.5

8.3

7.9

MARKET RATIOS

FV/EBITDA

9.8

6.7

6.2

5.6

9.0

5.9

6.1

5.9

11.9

8.0

7.2

6.5

10.9

7.1

7.0

6.7

FV/Revenue

0.9

0.7

0.8

0.7

0.8

0.7

0.8

0.8

P/BV

3.0

2.2

2.2

2.2

2.9

2.1

2.2

2.4

FCF Yield (%)

8.5

22.0

7.7

6.8

9.3

24.9

7.9

6.5

Div Yield (%)

3.9

(0.0)

9.4

10.7

4.2

(0.0)

9.6

10.2

FV/EBIT

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.91

1.20

1.49

1.70

0.42

0.51

0.57

0.60

DPS

0.70

0

1.49

1.70

0.32

0

0.57

0.60

BVPS

6.08

7.29

7.29

7.29

2.60

2.86

2.69

2.48

209

Tegma Gestão Logística S.A. is a highway-based transportation and logistics company, which provides services to several different industries, including automobiles, electronics, e-commerce, chemical products, telecommunications, and others. The company’s IPO was held on July 3, 2007, and Tegma’s stock is listed in the Novo Mercado segment

Key Personnel: Fabio Murilo Costa (CEO), Luiz Otavio Pessoa (CFO) and Ian Nunes (IR Manager) Web: www.tegma.com.br

Revenue Breakdown, 2015E Integrated logistics 14.7%

Auto division 85.3%

EBITDA, 2011-15E 206.37 178.13

171.52

186.62

153.64

2015e

2013A (29) 54 162 (40) 101 125 (46) 0

LT Debt

2013A 822 (1.7) 71 (21.9) 8.7 59 (20.5) 7.1 (15) (16) 32 (9.9) 3.9

2014e

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2016E 1,619 8.8 213 13.9 13.1 185 14.7 11.4 (15) (58) 112 14.1 6.9

2013

2013A 1,772 8.5 154 (13.7) 8.7 127 (12.3) 7.1 (33) (34) 70 (0.5) 3.9

2015E 1,488 (3.0) 187 8.8 12.5 161 13.2 10.8 (13) (51) 98 23.5 6.6

US$ 2014E 653 (20.5) 73 2.6 11.2 61 3.4 9.3 (17) (10) 34 4.7 5.2

2012

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

R$ 2014E 1,533 (13.5) 172 11.6 11.2 143 12.6 9.3 (39) (24) 79 13.9 5.2

2011

Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Shareholder Structure, Current

Free Float 40.6%

Grupo Itavema 34.0%

Coimex 25.4%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—TELECOM, MEDIA & TECHNOLOGY

TELEFONICA BRASIL

BUY CURRENT PRICE: R$46.26 TARGET PRICE: R$55.50



Strengthening organic consolidation: TEF Brasil and peer

Valder Nogueira*

America Movil continue to run what we like to call an “organic

Brazil: Banco Santander S.A. +5511-3012-5747 | [email protected]

consolidation” of the Brazilian telco sector, further distancing themselves from competitors, with (i) AMX growing fast on fixed-line services (+10% YoY), with TEF+GVT+AMX booking 62% of total

Bruno Mendonca* Brazil: Banco Santander S.A. +5511-3012-5759 | [email protected]

fixed-line revenue; and (ii) TEF widening its mobile revenue share gap vs. AMX by 0.9 p.p. YoY for a solid 37% share of total mobile revenue, anchored by a 63% share in post-paid net adds in 9M14 and a 45% share of mobile data revenue.



Outlook 2015: Closing the GVT deal (and capturing the related synergies) constitutes the main short- to medium-term driver for VIVT4, in our view. TEF Brasil is icing the organic consolidation cake through an inorganic move (GVT), which yields strong inroads outside São Paulo and plausible operating/financial synergies. Our R$55.50/share YE2015 sum-of-the-parts target price for VIVT4 incorporates (i) a DCF-based FV of R$53.30/share pre-dilution (or R$37.80/share post dilution); (ii) GVT’s business valued at 6.5x EV/EBITDA 2015E (or R$10.60/share); (iii) R$11.3 billion in merger synergies (R$7.10/share); and (iv) an estimated fully diluted number of shares (assuming a capital increase at the current stock price of

Company Statistics Bloomberg

VIVT4 BZ / VIV US

Current Price (01/02/15)

R$ 46.26 / US$ 17.15

R$48.76/share). Our estimated total return of 20% includes a post-

Target Price (YE 2015)

R$ 55.50 / US$ 20.90

dilution dividend yield of 6.4%. We were conservative and assumed

52-Week Range (R$)

no GVT net income contribution at the outset; if that materialized, it could provide upside to our current 2015 dividend estimate.

42.00 - 52.51

Market Capitalization (US$ Mn)

19,372

Float (%)

26.0

3-Mth Avg. Daily Vol (US$ Mn)

16.1

Shares Outstanding - Mn



Additional

icing:

optionality

on

in-market

consolidation:

Although TEF Brasil is currently digesting the GVT acquisition, we

Price Performance (R$) VIVT4 BZ

see additional potential value creation in the event of in-market

120

mobile consolidation, where TEF Brasil’s unleveraged balance sheet

110

(0.2x net debt/EBITDA as of 3Q14) provides an additional leverage

100

cushion.

1,127

IBOVESPA

90 80 70

j-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

210

d-14

TELEFONICA BRASIL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 34,722 2.3 21,978 (0.1) 10,576 (16.8) 30.5 4,933 (31.6) 14.2 (215) (947) 3,718 (24.9) 10.7

R$ 2014E 35,076 1.0 22,452 2.2 10,390 (1.8) 29.6 5,244 6.3 15.0 (352) (75) 4,822 29.7 13.7

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (5,643) 348 9,762 5,399 5,096 786 (4,873) 0

2014E (5,146) (13) 9,372 7,004 3,273 140 (3,585) 0

2015E (5,293) 52 10,184 6,964 3,227 7 (4,534) 0

2016E (5,470) 60 10,430 6,928 3,437 (66) (3,979) 0

2013A (2,573) 158 4,450 2,461 2,323 359 (2,221) 0

2014E (2,103) (5) 3,831 2,863 1,338 57 (1,465) 0

2015E (2,036) 20 3,917 2,679 1,241 3 (1,744) 0

2016E (2,026) 22 3,863 2,566 1,273 (25) (1,474) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 6,544 15,937 48,031 69,541 13,768 12,878 42,894 8,754 1,524

2014E 6,980 14,276 49,938 70,603 14,715 10,848 45,040 8,893 2,231

2015E 5,673 13,101 51,608 71,419 14,944 13,345 43,130 8,900 2,232

2016E 5,130 12,714 53,065 72,824 15,193 15,660 41,971 8,834 2,216

2013A 2,793 6,802 20,500 29,680 5,876 5,497 18,307 3,736 650

2014E 2,737 5,598 19,583 27,687 5,770 4,254 17,663 3,488 875

2015E 2,141 4,944 19,475 26,950 5,639 5,036 16,276 3,359 842

2016E 1,866 4,623 19,297 26,481 5,525 5,694 15,262 3,212 806

LT Debt FINANCIAL RATIOS Net Debt

2015E 35,714 1.8 23,518 4.7 10,910 5.0 30.5 5,617 7.1 15.7 (326) (1,189) 4,102 (14.9) 11.5

2016E 36,461 2.1 24,399 3.7 11,389 4.4 31.2 5,919 5.4 16.2 (509) (1,245) 4,165 1.5 11.4

2013A 15,830 (8.6) 10,020 (10.7) 4,821 (25.6) 30.5 2,249 (38.9) 14.2 (98) (432) 1,695 (32.9) 10.7

US$ 2014E 14,337 (9.4) 9,177 (8.4) 4,247 (11.9) 29.6 2,144 (4.7) 15.0 (144) (31) 1,971 16.3 13.7

2015E 13,736 (4.2) 9,045 (1.4) 4,196 (1.2) 30.5 2,160 0.8 15.7 (125) (457) 1,578 (19.9) 11.5

2016E 13,504 (1.7) 9,036 (0.1) 4,218 0.5 31.2 2,192 1.5 16.2 (189) (461) 1,542 (2.2) 11.4

7,230

6,663

6,668

6,618

3,086

2,613

2,516

2,407

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

2,210

1,913

3,227

3,704

943

750

1,218

1,347

Capital Employed

45,104

46,953

46,358

45,675

19,251

18,413

17,493

16,609

Net Debt/EBITDA

0.2

0.2

0.3

0.3

0.2

0.2

0.3

0.3

Net Debt/Equity

0.1

0.0

0.1

0.1

0.1

0.0

0.1

0.1

(15.5)

(20.0)

(19.5)

(19.0)

(15.5)

(20.0)

(19.5)

(19.0)

Capex/Revenue (%) Int Cover (%)

-

-

-

-

-

-

-

-

Dividend Payout (%)

98.4

96.4

94.0

97.0

89.1

88.4

82.3

96.0

ROCE (%)

13.2

11.4

16.2

17.4

14.2

12.8

16.4

17.4

ROE (%) MARKET RATIOS P/E

8.5

11.0

9.3

9.8

8.6

11.7

9.3

9.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

13.6

11.0

12.7

12.5

12.6

10.1

12.3

12.6

P/CE

5.4

5.3

5.6

5.4

5.0

4.9

5.4

5.4

FV/EBITDA

5.0

5.3

5.1

4.9

4.6

4.9

4.9

4.9

10.7

10.4

9.9

9.4

9.9

9.6

9.5

9.5

1.5

1.6

1.6

1.5

1.4

1.4

1.5

1.5 1.3

FV/EBIT FV/Revenue P/BV

1.2

1.2

1.2

1.2

1.2

1.1

1.2

FCF Yield (%)

10.1

6.2

6.2

6.6

10.8

6.7

6.4

6.6

Div Yield (%)

9.6

6.8

8.7

7.6

10.4

7.4

9.0

7.6

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

3.30

4.28

3.64

3.69

1.11

1.29

1.03

1.01

DPS

4.32

3.18

4.02

3.53

3.18

2.34

2.96

2.60

38.05

39.95

38.26

37.23

11.95

11.53

10.62

9.96

BVPS

211

Telefonica Brasil (TEF Brasil) is one of Brazil’s largest integrated telecom operators (in terms of revenues and RGUs). At the end of 3Q14, TEF Brasil had a total of 95.4 million RGUs, being the national leader in mobile (79.8 million subscribers, 35% being post-paid). TEF Brasil is controlled by the Telefonica Group, which holds 74% of TEF Brasil’s total capital, with the remaining capital being free float. TEF Brasil shares (voting VIVT3; non-voting VIVT4) are listed on the BM&F-Bovespa. VIVT4 shares are also listed on the NYSE.

Key Personnel: Paulo Cesar Teixeira (CEO), Alberto Horcajo Aguirre (CFO) and Luis Plaster (IR Director) Web: www.telefonica.com.br/ir

Subscriber Base, 2Q14

Pre-Paid 67.0%

Post-Paid 33.0%

Sales Breakdown, 2014E

Broadband 10.6%

Other 10.1%

Fixed Line Voice 15.9% Mobile Voice 39.7%

Mobile Data 23.7%

Shareholder Structure, Current

Free Float 26.2%

Telefonica 73.8%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—TELECOM, MEDIA & TECHNOLOGY

TOTVS

BUY CURRENT PRICE: R$35.80 TARGET PRICE: R$42.00

INTRODUCING YE2015 TARGET PRICE OF R$42.00; REPLACING YE2014 TARGET PRICE OF R$45.50  Investment Case: Although Totvs’s announced migration to the SaaS model was necessary, in our view, we see investors still struggling to understand the motivations. After updating our model with the new revenue model, we still consider Totvs’s main levers and execution to be resilient and we see decent potential

Valder Nogueira* Brazil: Banco Santander S.A. +5511-3012-5747 | [email protected]

Bruno Mendonca* Brazil: Banco Santander S.A. +5511-3012-5759 | [email protected]

upside to the stock, but the overhang from the SaaS migration may need a sequence of positive results in order to dissipate, in our view.

 Outlook 2015: A clearer set of catalysts for the stock after the announced migration to a SaaS-based revenue model would be dictated by how fast and accurately the market understands the timing of the benefits and the side effects of the announced migration. We see margins pressured in the initial stages of the new model (we estimate that Totvs already sells ~20% of its licenses under the SaaS model), with the shape of the EBITDA margin curve steepening only gradually. During the first quarters under the new model, it will be hard to discern whether the potential deceleration in license sales will stem from the new model or from the consequences of the weak GDP growth we expect for Brazil in 2015. Thus, we believe the market will be in a wait-and-see mode.

Company Statistics Bloomberg

TOTS3 BZ

Current Price (01/02/15)

R$ 35.80 / US$ 13.30

Target Price (YE 2015)

R$ 42.00 / US$ 15.50

52-Week Range (R$)

 Short-term pain should be offset by long-term gains, but we are taking a careful approach in our estimates. In our model, we now assume (1) license sales 11% and 23% lower than our previous estimates for 2015 and 2016, only gradually offset by stronger

SaaS

maintenance

revenue

(+1%

and

+3%,

respectively); (2) significantly slower margin expansion, with 2016E EBITDA margin now at 23.6% (down from 28.8%

30.98 - 41.95

Market Capitalization (US$ Mn)

2,174

Float (%)

67.5

3-Mth Avg. Daily Vol (US$ Mn)

8.5

Shares Outstanding - Mn

163

Price Performance (R$) TOTS3 BZ

IBOVESPA

110

100

previously) and only gradually evolving to 30% in perpetuity (which we see as conservative); and (3) value transfer to the longer term of the DCF (to 61% at perpetuity, from 50%

90

80

previously). Short-term multiples are now looking richer at 22.9x 70

P/E 2015E, even after a 16% drop from the 2014 peak.

j-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

212

d-14

TOTVS Company Description

2013A 1,612 13.3 1,070 11.4 402 6.4 24.9 402 6.4 24.9 (3) (93) 223 7.8 13.8

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (83) (3) 303 (112) 272 158 (105) 30

2014E (89) (87) 266 (122) (38) (46) (159) 0

2015E (96) (18) 334 (59) 276 0 (158) 0

2016E (91) (16) 378 (64) 321 0 (154) 0

2013A (38) (2) 138 (51) 124 72 (48) 14

2014E (36) (35) 109 (50) (16) (19) (65) 0

2015E (37) (7) 127 (22) 105 0 (60) 0

2016E (32) (6) 134 (23) 114 0 (54) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 533 942 703 1,849 368 411 1,070 411 58

2014E 476 1,037 739 2,029 361 487 1,181 364 47

2015E 593 1,208 702 2,176 391 454 1,330 364 47

2016E 754 1,418 674 2,371 419 420 1,532 364 47

2013A 228 402 300 789 157 176 457 175 25

2014E 187 407 290 796 142 191 463 143 18

2015E 219 446 259 803 144 167 491 134 17

2016E 257 482 229 806 142 143 521 124 16

LT Debt

2015E 1,967 9.6 1,287 7.1 457 2.7 23.3 457 2.7 23.3 4 (110) 256 (2.8) 13.0

2016E 2,123 8.0 1,383 7.5 501 9.5 23.6 501 9.5 23.6 23 (130) 303 18.4 14.3

2013A 735 1.3 488 (0.5) 183 (5.0) 24.9 183 (5.0) 24.9 (1) (43) 102 (3.7) 13.8

US$ 2014E 734 (0.1) 491 0.6 182 (0.7) 24.8 182 (0.7) 24.8 2 (40) 108 5.8 14.7

2015E 748 1.9 489 (0.3) 174 (4.4) 23.3 174 (4.4) 23.3 2 (42) 97 (9.6) 13.0

2016E 752 0.5 490 0.1 177 1.9 23.6 177 1.9 23.6 8 (46) 107 10.3 14.3

352

317

317

317

150

124

117

108

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

(122)

(112)

(229)

(390)

(52)

(44)

(85)

(133)

Capital Employed

947

1,069

1,101

1,142

404

419

406

388

Net Debt/EBITDA

(0.3)

(0.3)

(0.5)

(0.8)

(0.3)

(0.2)

(0.5)

(0.7)

Net Debt/Equity

(0.1)

(0.1)

(0.2)

(0.3)

(0.1)

(0.1)

(0.2)

(0.3)

7.0

6.8

3.0

3.0

7.0

6.8

3.0

3.0

FINANCIAL RATIOS Net Debt

Capex/Revenue (%) Int Cover (%)

-

-

-

-

-

-

-

-

Dividend Payout (%)

50.6

71.4

60.0

60.0

45.8

65.5

52.8

59.6

ROCE (%)

50.7

49.7

50.0

53.3

54.6

55.0

50.2

53.3

ROE (%)

22.5

23.4

20.4

21.2

23.0

24.9

20.4

21.2

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

27.1

21.7

22.9

19.3

25.2

20.0

22.3

20.3

P/CE

19.8

16.3

16.6

14.8

18.4

15.0

16.2

15.6

FV/EBITDA

14.7

12.6

12.3

10.9

13.7

11.6

12.0

11.5

FV/EBIT

22.2

17.7

18.1

15.3

20.7

16.3

17.7

16.1 2.7

FV/Revenue

3.7

3.1

2.9

2.6

3.4

2.9

2.8

P/BV

5.6

4.8

4.4

3.8

5.6

4.6

4.4

4.2

FCF Yield (%)

4.5

(0.7)

4.7

5.5

4.9

(0.7)

4.8

5.2

Div Yield (%)

1.7

2.8

2.7

2.6

1.9

3.0

2.8

2.5

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.37

1.61

1.57

1.85

0.62

0.66

0.60

0.66

DPS

0.64

0.98

0.97

0.94

0.29

0.40

0.37

0.33

BVPS

6.55

7.23

8.14

9.37

2.79

2.83

3.00

3.19

213

TOTVS is Latin America's largest developer of application software, one of the largest ERP developers and the leader in emerging markets. It is the absolute leader in Brazil with more than 50% of market share and the leader in the small and medium enterprises (SME) segment in Latin America. Its ERP operations serve over 35,700 clients and are complemented by a broad portfolio of vertical solutions, as well as by value-added services such as consulting, infrastructure and BPO.

Key Personnel: Laercio Cosentino (CEO), Alexandre Mafra Guimarães (CFO), Gilsomar Maia (IR, M&A and Planning Director) and Flavio Bongiovanni (IR Manager) Web: www.totvs.com/ri

Licenses Sold, 2014E 4782.00

967.00

Existing Clients

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

R$ 2014E 1,795 11.4 1,201 12.2 445 10.7 24.8 445 10.7 24.8 5 (98) 263 18.0 14.7

New Clients

Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Revenue Breakdown, 2014E

License fees 20.0%

Maintenanc e 50.3%

Services 29.7%

Shareholder Structure, Current

Board/Direct ors 17.7% Free Float 67.9%

Bndes + Petros 14.4%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—UTILITIES

TRACTEBEL

HOLD CURRENT PRICE: R$32.61 TARGET PRICE: R$37.85

RAISING YE2015 TARGET PRICE TO R$37.85 FROM R$37.68 

Investment Case: We continue to believe Tractebel is one of the

Maria Carolina Carneiro*

best names under our coverage in terms of quality, returns, and

Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

management of its energy portfolio; however, the stock is trading at multiples similar to Chilean peers, while the downside risk from the hydro deficit should pressure margins for Brazilian Gencos.



Outlook 2015: In our view, the company's results will continue to be hurt by the hydro deficit in 2015. However, we expect the impact to be less significant that for AES Tiete, once Tractebel presents (1) exposure to thermal generation, and (2) energy surplus when considering energy purchased for resale.



Jirau: A potential drawback. We believe the main drawback in the investment case continues to be the lack of transparency behind the transfer of the Jirau project. The transfer continues to be postponed, with little guidance with respect to exact timetable, terms agreed, and final capex estimates, and no contract (so far) for the energy available (30% of firm energy). We believe current high spot prices might improve the final IRR of the project, but prefer to postpone the Company Statistics

final NPV calculation to the moment of the transfer.

Bloomberg



A-5 auction results: The company recently participated in the A-5 Auction, selling 293 MWm from the coal project, Pampa Sul, for a

TBLE3 BZ

Current Price (01/02/15)

R$ 32.61 / US$ 12.11

Target Price (YE 2015)

R$ 37.85 / US$ 14.28

52-Week Range (R$)

31.20 - 38.85

price (fixed revenue) of R$202/MWh. Tractebel also sold an

Market Capitalization (US$ Mn)

additional 9.8 MWm of thermal energy (biomass), from UTE Ferrari,

Float (%)

21.3

3-Mth Avg. Daily Vol (US$ Mn)

10.7

Shares Outstanding - Mn

653

for a price of R$202/MWh and 82.6MWm of wind energy, from six

7,907

projects, at an average price of R$135/MWh. Price Performance (R$)



Estimate updates: We adjusted our target price to include a higher

TBLE3 BZ

IBOVESPA

120

hydro deficit estimate for 2015 (7% vs. the previous 5%) and higher 110

short-term energy prices. 100 90 80 70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

214

D-14

TRACTEBEL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 5,569 13.4 3,363 (3.8) 2,962 (4.4) 53.2 2,708 (6.3) 48.6 (386) (565) 1,436 (4.3) 25.8

R$ 2014E 5,840 4.9 2,725 (19.0) 2,306 (22.1) 39.5 2,034 (24.9) 34.8 (472) (409) 793 (44.8) 13.6

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (574) 0 71 488 (443) 44 0 70 (1,474) 0

2014E (603) 0 (1) (197) (489) (686) 0 0 (634) 0

2015E (586) 0 (8) 1,260 (309) 951 0 0 (712) 0

2016E (566) 0 8 1,647 (243) 1,404 0 0 (1,674) 0

2013A (264) 0 32 224 (204) 20 0 32 (678) 0

2014E (252) 0 (0) (82) (205) (287) 0 0 (265) 0

2015E (225) 0 (3) 485 (119) 366 0 0 (274) 0

2016E (210) 0 3 610 (90) 520 0 0 (620) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,224 2,338 481 12,654 2,184 5,106 5,365 3,497 667

2014E 539 1,648 481 11,850 2,597 5,130 4,123 3,526 673

2015E 1,490 2,622 481 12,547 2,693 5,149 4,705 3,550 677

2016E 2,893 4,004 481 13,606 3,646 5,167 4,793 3,572 681

2013A 523 998 205 5,402 932 2,180 2,290 1,493 285

2014E 211 646 189 4,647 1,018 2,012 1,617 1,383 264

2015E 562 989 182 4,735 1,016 1,943 1,775 1,339 255

2016E 1,052 1,456 175 4,948 1,326 1,879 1,743 1,299 248

2,830

2,854

2,873

2,891

1,208

1,119

1,084

1,051

LT Debt FINANCIAL RATIOS

2015E 6,005 2.8 3,515 29.0 3,016 30.8 50.2 2,782 36.8 46.3 (446) (667) 1,294 63.2 21.5

2016E 5,849 (2.6) 4,158 18.3 3,583 18.8 61.3 3,386 21.7 57.9 (324) (908) 1,762 36.2 30.1

2013A 2,561 1.9 1,547 (13.5) 1,362 (14.0) 53.2 1,245 (15.8) 48.6 (177) (260) 660 (13.9) 25.8

US$ 2014E 2,444 (4.6) 1,141 (26.2) 965 (29.1) 39.5 851 (31.6) 34.8 (197) (171) 332 (49.8) 13.6

2015E 2,310 (5.5) 1,352 18.5 1,160 20.2 50.2 1,070 25.7 46.3 (172) (256) 498 50.0 21.5

2016E 2,166 (6.2) 1,540 13.9 1,327 14.4 61.3 1,254 17.2 57.9 (120) (336) 653 31.1 30.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

2,272

2,988

2,060

679

970

1,172

777

247

Capital Employed

1,200

1,613

1,691

2,653

512

633

638

965

Net Debt/EBITDA

0.8

1.3

0.7

0.2

0.7

1.2

0.7

0.2

Net Debt/Equity

0.4

0.7

0.4

0.1

0.5

0.8

0.4

0.1

Capex/Revenue (%)

8.0

8.4

5.1

4.2

8.0

8.4

5.1

4.2

Int Cover (%) Dividend Payout (%) ROCE (%) ROE (%) MARKET RATIOS

5.2

4.1

5.3

6.3

5.2

4.1

5.3

6.3

98.3

44.2

89.7

129.4

89.0

40.5

79.0

128.6

272.6

151.4

204.0

161.8

293.5

167.6

205.0

161.8

26.5

16.7

29.3

37.1

26.9

17.6

29.3

37.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

16.3

27.9

16.5

12.1

15.1

25.0

15.9

12.1

P/CE

11.7

15.8

11.3

9.1

10.8

14.2

10.9

9.2

FV/EBITDA

8.7

10.9

7.7

6.1

8.0

9.8

7.5

6.1

10.8

14.7

9.6

7.3

9.9

13.3

9.3

7.3

FV/Revenue

4.6

4.3

3.9

3.8

4.3

3.9

3.8

3.8

P/BV

4.4

5.4

4.5

4.4

4.3

5.1

4.5

4.5

FCF Yield (%)

0.2

(3.1)

4.5

6.6

0.2

(3.5)

4.6

6.6

Div Yield (%)

6.3

2.9

3.3

7.9

6.8

3.2

3.5

7.8

FV/EBIT

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

2.20

1.21

1.98

2.70

1.01

0.51

0.76

1.00

DPS

2.26

0.97

1.09

2.56

1.04

0.41

0.42

0.95

BVPS

8.22

6.32

7.21

7.34

3.51

2.48

2.72

2.67

215

Tractebel is the largest private generation company in Brazil, with a total annual installed capacity of 7,024 MW (firm capacity of 3,878 MW), representing 6% of Brazil’s total installed capacity. GDF SUEZ Latin America owns 40% of Jirau HPP, which is envisaged to reach a total installed capacity of 3,750 MW and is currently under construction in the state of Rondônia. The parent company stake in the project is expected to be transferred to Tractebel Energia. Tractebel originated from a spin-off of Eletrobras subsidiary Eletrosul’s generation assets (Gerasul). Gerasul was acquired by Tractebel’s current controller, the French company GDF Suez, in a privatization auction in 1998.

Key Personnel: Mauricio Stolle Bahr (Chairman), Manoel Zaroni Torres (CEO), Eduardo Antonio Gori Sattamini (CFO) and Antonio Previtali Jr. (IR Manager)

Web: http://www.tractebelenergia.com.br/wps/portal/internet/en/ investidores

Installed Capacity Source, 9M14

Alternative 5.0%

Thermal 16.0%

Hydro 79.0%

Sales by Segment, 2015E

Trading + Exports 3.9%

Regulated Market 48.0%

Free Market 48.0%

Shareholder Structure, Current

Banco Classico 10.0%

Free Float 21.3%

Suez Energy 68.7%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—UTILITIES

TRANSMISSAO PAULISTA

HOLD CURRENT PRICE: R$40.70 TARGET PRICE: R$39.83

DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF R$39.83; REPLACING YE2014 TARGET PRICE OF R$31.74 

Investment Case: We continue to believe CTEEP has stable

Maria Carolina Carneiro*

revenue and solid cash flow generation, and we believe the main

Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

trigger for the stock will be Aneel’s forthcoming opinion in relation to RBSE receivables. We see upside risk for our estimates if the final RBSE amount is higher than R$4.1 billion, and we believe the current stock price reflects a receivable close to our estimates. However, the stock price rally during 2014 limits the upside and IRR, and therefore, we are downgrading our rating to Hold from Buy.



Outlook 2015: We expect revenue, EBITDA, and earnings to increase as a result of tariff adjustments (inflation indexed), cost control, and the start of operations at Garanhus and the full impact of revenue from the Madeira lines.



RBSE: the big question mark. At the recent investor day, management commented on Aneel’s appraisal of RBSE (old transmission assets) and detailed some of the measures/variables used in the calculation of investments that should be reimbursed by the federal government for the renewal of concessions. Management stated that Aneel is concluding the analysis of the physical assets

Company Statistics

and said they expect the regulator to issue a report with a final

Bloomberg

opinion by the end of January 2015.

TRPL4 BZ

Current Price (01/02/15)

R$ 40.70 / US$ 15.12

Target Price (YE 2015)

R$ 39.83 / US$ 14.70

52-Week Range (R$)



22.82 - 41.50

The name of the game: efficiency. CTEEP has been focusing on

Market Capitalization (US$ Mn)

measures to improve the return and profitability of its portfolio of

Float (%)

assets instead of focusing on additional greenfield projects. The

2,438 20.8

3-Mth Avg. Daily Vol (US$ Mn)

3.7

Shares Outstanding - Mn

161

company is also working on improving costs in order to maximize Price Performance (R$)

gains in the O&M model.

TRPL4 BZ



IBOVESPA

130

Change in estimates. We revised our model to reflect (1) new

120

macroeconomic estimates, (2) recent quarterly results, and (3) higher

110

reimbursement for old concession assets (R$4.1 billion) and higher

100 90

expectations of monetary adjustments for the receivables.

80 70 60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

216

D-14

TRANSMISSAO PAULISTA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description CTEEP is one of the largest pure-transmission privately owned players in Brazil. The company owns and operates 13,726 km of transmission lines, with a total of 45,587 MVA of transmission capacity. CTEEP has a presence in 16 states in Brazil, with the bulk of its revenue concentrated in the State of São Paulo. The company is controlled by ISA Capital do Brasil, a subsidiary of ISA Colombia, and Eletrobras is a major shareholder.

Key Personnel: Luis Fernando Alarcón Mantilla (Chairman), Reynaldo Passanezi Filho (CEO), Reynaldo Pecchio Junior (CFO) and Thiago Lopes da Silva (IR Manager) Web: www.cteep.com.br

EBITDA by Business, 9M14

Transmission 100.0%

Revenue by Segment, 9M14

Shareholder Structure, Current

Sources for all charts and tables: Company reports and Santander estimates.

217

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—TRANSPORTATION

TRIUNFO

HOLD CURRENT PRICE: R$7.70 TARGET PRICE: R$8.00

INTRODUCING YE2015 TARGET PRICE OF R$8.00; REPLACING YE2014 TARGET PRICE OF R$10.00 

Investment Case: We are reiterating our Hold rating, as our new

Bruno Amorim*, CFA

estimates (reflecting a weaker economic environment) imply limited

Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

upside. We estimate a 15.5% IRR at the stock’s current price, which is in-line with our estimated 15.6% cost of equity. We believe that the main challenge for Triunfo will be the implementation of BR-

Pedro Balcão Reis* Brazil: Banco Santander S.A. +5511-3012-5765 | [email protected]

060/153/262 (DF/GO/MG), an R$8.5 billion capex toll road concession won by Triunfo in December 2013. We estimate ~4.3x net debt/EBITDA in 2016E (in-line with the covenant) if we were to consider the recently won Concebra and Tranbrasiliana concessions, not included in our model yet.



Outlook 2015: We believe the main challenge for Triunfo will be finding a way to execute the R$8.5 billion capex plan for its new toll road (BR-060/153/262), given the company’s high indebtedness. We view the sale of a stake in one of the company’s mature assets as a possible solution. On the operational front, we expect revenue to grow by 3% and flat EBITDA as a result of the tough comparison basis in the energy division (Rio Canoas managed to start operations in 4Q13, ~1 year before initially scheduled, thereby benefitting from Company Statistics

high spot energy prices in Brazil in 2014).

Bloomberg



Toll roads and energy represent 66% of EV. We value Triunfo’s

TPIS3 BZ

Current Price (01/02/15)

R$ 7.70 / US$ 2.86

Target Price (YE 2015)

R$ 8.00 / US$ 2.95

three mature toll roads at R$1.1 billion, the two hydroelectric plants at

52-Week Range (R$)

R$1.3 billion, and the port division at R$1.0 billion. These account for

Market Capitalization (US$ Mn)

503

Float (%)

34.8

31%, 27%, and 36%, respectively, of our EV valuation. We value the airport division at R$435 million EV, implying a slightly negative equity value. We have not yet included Concebra (BR-060/153/262 DF/GO/MG), mentioned above, in our valuation model.

5.01 - 10.38

3-Mth Avg. Daily Vol (US$ Mn)

0.4

Shares Outstanding - Mn

176

Price Performance (R$) TPIS3 BZ

IBOVESPA

120



Valuation. We value Triunfo at R$8.00/share, implying 5% upside 100

and 10% total-return potential. Our YE2015 target price is based on a sum-of-the-parts valuation, as Triunfo’s various businesses have very different growth profiles, margins, and capital intensities. By our

80

60

estimate, Triunfo currently trades at an equity IRR of approximately 40

15.5%.

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

218

D-14

TRIUNFO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 1,067 18.2 495 17.9 46.4 257 21.2 24.1 (266) (15) (24) (206.2) (2.3)

R$ 2014E 1,241 16.3 806 62.7 64.9 517 100.9 41.6 (268) (99) 149 n/m 12.0

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (238) 4 218 (955) (712) 499 (27) 0

2014E (289) 0 438 (426) 12 269 (65) 0

2015E (315) 0 433 (188) 245 (204) (96) 0

2016E (327) 0 461 (180) 281 (224) (111) 0

2013A (110) 2 101 (443) (330) 231 (13) 0

2014E (123) 0 186 (181) 5 115 (28) 0

2015E (120) 0 165 (72) 93 (78) (36) 0

2016E (116) 0 163 (64) 99 (79) (39) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 94 245 5,524 5,994 508 3,383 2,103 2,451 311

2014E 310 461 5,661 6,348 508 3,652 2,187 2,721 311

2015E 255 406 5,535 6,166 508 3,448 2,210 2,516 311

2016E 201 351 5,388 5,965 508 3,224 2,233 2,292 311

2013A 40 104 2,358 2,558 217 1,444 897 1,046 133

2014E 122 181 2,220 2,489 199 1,432 858 1,067 122

2015E 94 150 2,042 2,275 187 1,272 815 929 115

2016E 68 120 1,833 2,029 173 1,097 759 780 106

2,141

2,410

2,206

1,981

914

945

814

674 2016E

LT Debt FINANCIAL RATIOS

2015E 1,277 2.9 795 (1.3) 62.3 481 (6.9) 37.6 (293) (70) 118 (20.4) 9.3

2016E 1,337 4.7 816 2.6 61.1 489 1.8 36.6 (277) (79) 134 13.1 10.0

2013A 495 7.1 229 6.8 46.4 119 9.8 24.1 (123) (7) (11) (196.2) (2.3)

US$ 2014E 529 6.8 343 49.5 64.9 220 84.6 41.6 (114) (42) 63 n/m 12.0

2015E 486 (8.1) 302 (11.8) 62.3 183 (16.9) 37.6 (111) (26) 45 (29.0) 9.3

2016E 473 (2.5) 289 (4.4) 61.1 173 (5.2) 36.6 (98) (28) 47 5.3 10.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

Net Debt

2,358

2,410

2,261

2,092

1,006

945

834

711

Capital Employed

4,554

4,908

4,726

4,525

1,944

1,925

1,744

1,539

Net Debt/EBITDA

4.8

3.0

2.8

2.6

4.4

2.8

2.8

2.5

Net Debt/Equity

1.1

1.1

1.0

0.9

1.2

1.2

1.0

0.9

89.5

34.3

14.7

13.5

89.5

34.3

14.7

13.5

1.9

2.9

2.4

2.6

1.9

2.9

2.4

2.6

120.2

(266.9)

64.3

93.8

108.8

(244.7)

56.6

93.2

3.7

6.9

6.7

7.1

4.2

8.3

6.8

7.1

(1.2)

6.9

5.4

6.0

(1.3)

7.4

5.4

6.0

Capex/Revenue (%) Int Cover (%) Dividend Payout (%) ROCE (%) ROE (%) MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

-

9.1

11.4

10.1

-

8.0

11.2

10.6

P/CE

7.8

3.1

3.1

2.9

7.2

2.7

3.1

3.1

FV/EBITDA

8.1

4.7

4.5

4.2

7.5

4.2

4.4

4.2

15.7

7.3

7.5

7.0

14.4

6.6

7.3

7.0

3.8

3.0

2.8

2.6

3.5

2.8

2.8

2.6

0.8

0.6

0.6

0.6

0.8

0.6

0.6

0.7

(42.6)

0.9

18.1

20.7

(46.6)

1.0

18.5

19.7

P/E

FV/EBIT FV/Revenue P/BV FCF Yield (%) Div Yield (%)

1.6

4.8

7.1

8.2

1.8

5.4

7.2

7.8

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

(0.14)

0.85

0.67

0.76

(0.06)

0.36

0.26

0.27

DPS

0.16

0.37

0.54

0.63

0.07

0.16

0.21

0.22

11.95

12.43

12.56

12.69

5.10

4.87

4.63

4.31

BVPS

219

Triunfo is a Brazilian infrastructure company that has operations in highway concessions, ports, energy generation and airports. The company manages three highway concessions totaling 640km. Triunfo holds 50% control in a container terminal (south of Brazil). In energy generation, it operates two hydroelectric plants totalling 308MW. Finally in 2012, Triunfo won the bid to operate the Viracopos International Airport (9 million passenger/year estimate), close to Sao Paulo, for 30 years through a partnership with UTC and Egis.

Key Personnel: Luiz Fernando Wolff de Carvalho (Chairman), Carlo Alberto Bottarelli (CEO), Sandro Antônio de Lima (CFO) and Marcos Pereira (IR Manager) Web: http://www.tpisa.com.br/

Revenue Breakdown, 2013A

Airport 8.2%

Energy 14.4% Cabotage 9.1%

Ports 21.0%

Toll Roads 47.1%

EV Breakdown, 2013A

Airport 8.8%

Energy 31.5%

Vetria 2.2%

Toll roads 35.9%

Ports 21.5%

Shareholder Structure, Current

Controlling Shareholder s and Managemen t 2.8% BNDESPAR . 14.8%

Free Float 31.3%

Tiunfo Holding de Participaçõe s Ltda 51.1%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—OIL, GAS & PETROCHEMICALS

ULTRAPAR

BUY CURRENT PRICE: US$18.66 TARGET PRICE: US$26.00

LOWERING YE2015 TO US$26.00 FROM US$29.40 

Investment Case: We maintain our positive view on Ultrapar and

Christian Audi

reiterate it as our Top Pick in Brazil given its combination of: (i) strong

New York: Santander Investment Securities Inc. +1-212-350-3991 | [email protected]

EBITDA growth; (ii) continually improving return on capital employed; (iii) resilience (that we believe will stand out, particularly in 2015, when we expect weakness from a macro point of view); (iv) solid

Gustavo Allevato*, CFA Brazil: Banco Santander S.A. +5511-3012-6042 | [email protected]

execution track record; (v) sound capital discipline; and (vi) strong management and corporate governance.



Outlook 2015: Despite the challenging macro outlook for 2015, we expect the company to deliver solid results, driven especially by its very strong fuel distribution business, which represents around 70% of Ultrapar’s EBITDA. We also expect Oxiteno to benefit from the continued depreciation of the Brazilian real, for Ultracargo and Ultragaz to generate good results, and for Extrafarma to accelerate its expansion plan.



Ipiranga: The resilience of gasoline volumes (which represent close to half of Ipiranga’s sales), fueled by the continued growth in Brazil’s car fleet (despite falling passenger car sales), should continue in 2015. On the other hand, we expect diesel sales to post mild growth

Company Statistics

given the expected weak economic activity in Brazil, with margins

Bloomberg

UGP US / UGPA3 BZ

Current Price (01/02/15)

US$ 18.66 / R$ 50.66

Target Price (YE 2015)

US$ 26.00 / R$ 70.00

penetration on the resale front, coupled with enhancements to its

52-Week Range (US$)

17.80 - 26.18

convenience store strategy.

Market Capitalization (US$ Mn)

continuing to grow, however, due to Ipiranga’s strategy to increase



Oxiteno: We expect the depreciation of the Brazilian real to partially

10,383

Float (%)

64.0

3-Mth Avg. Daily Vol (US$ Mn)

10.7

Shares Outstanding - Mn

556

offset potentially weak volumes in the domestic market (resulting from the expected weak economic activity in Brazil in 2015).

Price Performance (US$) Ultrapar - ADR (Rebased)



130

Extrafarma: In 2015, we expect Ultrapar to accelerate the expansion

120

plan for Extrafarma, opening approximately 100 new stores in the

110

North and Northeast of Brazil; these stores should start to positively

100

contribute to consolidated results during 2H15, according to our

90

projections.

80 70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

220

D-14

ULTRAPAR Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 60,940 13.0 4,775 15.8 2,918 21.5 4.8 2,006 23.3 3.3 (338) (573) 1,225 21.2 2.0

R$ 2014E 68,313 12.1 5,431 13.7 3,140 7.6 4.6 2,276 13.5 3.3 (428) (571) 1,253 2.3 1.8

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (779) 4 (488) 1,519 (1,071) 1,275 6 731 (711) 36

2014E (863) 10 (307) 1,820 (1,132) 1,129 (4) 0 (779) 60

2015E (938) 10 (239) 2,106 (1,288) 1,351 (11) (300) (838) 67

2016E (1,025) 5 (326) 2,337 (1,321) 1,542 (31) (300) (947) 69

2013A (361) 2 (226) 703 (496) 590 3 338 (329) 17

2014E (368) 4 (131) 775 (482) 481 (2) 0 (332) 26

2015E (357) 4 (91) 801 (490) 514 (4) (114) (319) 25

2016E (363) 2 (115) 827 (468) 546 (11) (106) (335) 24

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 3,425 7,904 8,475 16,379 3,764 6,067 6,520 6,970 1,830

2014E 3,390 8,409 8,741 17,150 3,997 6,127 6,994 6,970 1,830

2015E 3,126 8,564 9,096 17,660 4,178 5,894 7,553 6,670 1,830

2016E 2,933 8,944 9,423 18,367 4,425 5,663 8,239 6,370 1,830

2013A 1,450 3,346 3,588 6,934 1,594 2,569 2,760 2,951 775

2014E 1,329 3,297 3,428 6,725 1,568 2,403 2,743 2,733 718

2015E 1,154 3,160 3,356 6,517 1,542 2,175 2,787 2,461 675

2016E 998 3,042 3,205 6,247 1,505 1,926 2,802 2,167 622

LT Debt FINANCIAL RATIOS Net Debt

2015E 74,082 8.4 6,031 11.0 3,555 13.2 4.8 2,617 15.0 3.5 (522) (678) 1,397 11.4 1.9

2016E 81,889 10.5 6,673 10.7 3,995 12.4 4.9 2,970 13.5 3.6 (516) (806) 1,633 16.9 2.0

2013A 28,213 2.3 2,211 4.8 1,351 10.0 4.8 929 11.6 3.3 (156) (265) 567 9.7 2.0

US$ 2014E 29,092 3.1 2,313 4.6 1,337 (1.0) 4.6 969 4.4 3.3 (182) (243) 534 (5.9) 1.8

2015E 28,168 (3.2) 2,293 (0.9) 1,352 1.1 4.8 995 2.7 3.5 (199) (258) 531 (0.5) 1.9

2016E 28,987 2.9 2,362 3.0 1,414 4.6 4.9 1,051 5.7 3.6 (183) (285) 578 8.8 2.0

5,140

5,140

4,840

4,540

2,176

2,016

1,786

1,544

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

3,485

3,579

3,544

3,437

1,476

1,404

1,308

1,169

Capital Employed

11,168

11,361

11,400

11,489

4,728

4,455

4,207

3,908

Net Debt/EBITDA

1.2

1.1

1.0

0.9

1.1

1.0

1.0

0.8

Net Debt/Equity

0.5

0.5

0.5

0.4

0.6

0.6

0.5

0.4

Capex/Revenue (%)

1.8

1.7

1.7

1.6

1.8

1.7

1.7

1.6

Int Cover (%)

5.0

4.0

3.9

5.3

5.0

4.0

3.9

5.3 67.1

Dividend Payout (%)

70.4

63.6

66.9

67.8

63.7

58.3

58.5

ROCE (%)

12.3

13.8

15.5

17.3

13.9

16.4

15.7

17.3

ROE (%)

19.6

18.5

19.2

20.7

19.9

19.7

19.2

20.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

24.8

22.5

20.0

17.1

22.7

19.9

19.5

18.0

P/CE

15.2

13.3

12.0

10.5

13.9

11.8

11.7

11.0

FV/EBITDA

11.6

10.2

8.9

7.9

10.7

9.0

8.7

8.2

FV/EBIT

16.9

14.0

12.1

10.6

15.5

12.4

11.8

11.0

FV/Revenue

0.6

0.5

0.4

0.4

0.5

0.4

0.4

0.4

P/BV

4.7

4.0

3.7

3.4

4.7

3.9

3.7

3.7

FCF Yield (%)

4.2

4.0

4.8

5.5

4.6

4.5

4.9

5.3

Div Yield (%)

2.3

2.8

3.0

3.4

2.6

3.1

3.1

3.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

2.25

2.25

2.51

2.93

0.83

0.83

0.92

1.08

DPS

1.31

1.40

1.51

1.70

0.48

0.52

0.55

0.63

11.98

12.57

13.57

14.81

4.41

4.62

4.99

5.45

MARKET RATIOS

PER SHARE DATA

BVPS

221

Ultrapar is engaged in fuel distribution (it is the secondlargest fuel distributor in the country, operating via Ultragas and Ipiranga), the production of specialty and commodity chemicals (the largest producer of ethylene oxide and derivatives in South America, and the largest specialty chemicals producer in Brazil via Oxiteno), and integrated logistics for special bulk (through Ultracargo). The company, which went public in 1999, is controlled by the Igel family and its management team, offers full tagalong rights, and has shares listed in the Brazilian stock exchange, as well as ADRs on the NYSE.

Key Personnel: Thilo Mannhardt (CEO), André Covre (CFO) and André Covre (IR Officer) Web: www.ultrapar.com.br

Sales by Country, 2015E

Other 1.5%

Brazil 98.5%

Sales by Segment, 2015E

Ultragaz Oxiteno Ultracargo 0.5% 5.5% 5.1%

Ipiranga 86.8%

Shareholder Structure, Current

Others 17.6%

Ultra S.A 21.7%

Free Float 60.7%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—RETAIL & CONSUMER GOODS

UNICASA MÓVEIS

UNDERPERFORM CURRENT PRICE: R$2.35 TARGET PRICE: R$2.50

LOWERING YE2015 TARGET PRICE TO R$2.50 FROM R$4.00 

Investment Case: We believe Unicasa shares will remain pressured

João Mamede*

due to limited sales visibility and further negative impact from “fixing”

Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

the store network. We anticipate that market conditions for planned (i.e., tailor-made) furniture sales will remain challenging due to less credit availability and disposable income, preventing short-term sales acceleration. We maintain our Underperform rating.



Ronaldo Kasinsky* Brazil: Banco Santander S.A. +5511-3553-2396 | [email protected]

Jessica Bessa* Brazil: Banco Santander S.A. +5511-3553-9602 | [email protected]

Outlook 2015: We forecast sales growth to resume in 2015 (+4% YoY), following three years of negative sales performance, as the company continues to take measures to “fix” its franchise network. (We expect further marginal store closures in 2015.) Moreover, we expect some EBITDA margin recovery (+300 bps YoY), as we anticipate the own store network expansion to start gaining scale and boosting margins.



Catalysts: Management has acted to offset weak sales dynamics through cost-saving initiatives and layoffs, along with assuming greater control of its franchisees, which should eventually improve store network profitability and reduce sales volatility. Nevertheless, we continue to be skeptical about a substantial sales recovery in the

Company Statistics

short term and do not rule out further margin pressure from weak

Bloomberg

operating leverage.

UCAS3 BZ

Current Price (01/02/15)

R$ 2.35 / US$ 0.87

Target Price (YE 2015)

R$ 2.50 / US$ 0.92

52-Week Range (R$)



2.35 - 5.74

Concerns: Main risks to our investment case include (1) weaker-

Market Capitalization (US$ Mn)

than-expected economic environment affecting credit availability and

Float (%)

disposable income, (2) another round of store closing on weak sales

58 43.3

3-Mth Avg. Daily Vol (US$ Mn)

0.1

Shares Outstanding - Mn

66

dynamics, and (3) greater competition from planned furniture Price Performance (R$)

retailers.

UCAS3 BZ

IBOVESPA

120 100 80 60 40 20

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

222

D-14

UNICASA MÓVEIS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 258 (7.7) 103 (10.8) 22 (60.4) 8.6 14 (71.0) 5.4 2 (2) 14 (67.5) 5.3

R$ 2014E 252 (2.5) 104 0.6 19 (15.0) 7.5 10 (28.3) 3.9 6 (1) 16 13.6 6.2

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 8 13 9 28 (13) 17 0 (5) (27) 0

2014E 9 2 (4) 5 (8) 7 0 (1) (3) 0

2015E 10 (11) 14 12 (9) 30 0 0 (3) 0

2016E 10 10 (9) 13 (10) 10 0 0 (4) 0

2013A 4 6 4 13 (6) 8 0 (2) (13) 0

2014E 4 1 (1) 2 (3) 3 0 (0) (1) 0

2015E 4 (4) 5 5 (3) 11 0 0 (1) 0

2016E 3 4 (3) 5 (3) 3 0 0 (1) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 12 114 143 257 46 5 205 1 1

2014E 6 120 159 280 54 5 220 0 0

2015E 6 109 159 268 57 5 205 0 0

2016E 6 120 159 279 59 5 215 0 0

2013A 5 49 61 110 20 2 88 0 0

2014E 2 47 63 110 21 2 86 0 0

2015E 2 40 59 99 21 2 76 0 0

2016E 2 41 54 95 20 2 73 0 0

LT Debt FINANCIAL RATIOS

2015E 262 4.0 108 4.0 27 45.2 10.5 18 77.8 6.8 4 (3) 18 17.2 7.0

2016E 292 11.8 120 11.8 37 34.9 12.6 27 54.2 9.3 4 (9) 22 20.5 7.5

2013A 120 (16.4) 48 (19.2) 10 (64.1) 8.6 6 (73.7) 5.4 1 (1) 6 (70.5) 5.3

US$ 2014E 107 (10.4) 44 (7.5) 8 (21.9) 7.5 4 (34.2) 3.9 3 (0) 7 4.4 6.2

2015E 99 (7.2) 41 (7.2) 10 29.6 10.5 7 58.8 6.8 1 (1) 7 4.7 7.0

2016E 103 4.0 43 4.0 13 25.5 12.6 10 43.6 9.3 1 (3) 8 12.2 7.5

0

0

0

0

0

0

0

0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E (2)

Net Debt

(11)

(6)

(6)

(6)

(5)

(2)

(2)

Capital Employed

210

226

211

220

90

88

78

75

Net Debt/EBITDA

(0.5)

(0.3)

(0.2)

(0.2)

(0.5)

(0.3)

(0.2)

(0.2)

Net Debt/Equity

(0.0)

(0.1)

(0.0)

(0.0)

(0.0)

(0.1)

(0.0)

(0.0)

Capex/Revenue (%)

4.9

3.2

3.4

3.3

4.9

3.2

3.4

3.3

Int Cover (%)

2.6

5.9

8.3

10.0

2.6

5.9

8.3

10.0

Dividend Payout (%)

64.2

19.2

19.2

19.2

58.1

17.6

16.9

19.1

ROCE (%)

7.4

4.7

9.9

16.7

8.0

5.3

10.0

16.7

ROE (%)

6.4

7.3

8.6

10.5

6.5

7.8

8.6

10.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

27.6

10.1

8.5

7.1

25.2

9.0

8.3

7.4

P/CE

n/m

23.8

18.2

12.6

n/m

21.0

17.8

13.2

FV/EBITDA

16.5

8.1

5.5

4.0

15.1

7.1

5.3

4.3

FV/EBIT

26.5

15.3

8.5

5.5

24.2

13.5

8.3

5.8

FV/Revenue

1.4

0.6

0.6

0.5

1.3

0.5

0.6

0.5

P/BV

1.8

0.7

0.8

0.7

1.8

0.7

0.8

0.8

FCF Yield (%)

4.6

4.3

19.3

6.2

5.0

4.8

19.8

5.9

Div Yield (%)

7.2

1.7

1.9

2.3

7.8

1.9

2.0

2.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.21

0.24

0.28

0.33

0.10

0.10

0.11

0.12

DPS

0.41

0.04

0.05

0.05

0.19

0.02

0.02

0.02

BVPS

3.11

3.33

3.10

3.25

1.33

1.31

1.15

1.10

MARKET RATIOS P/E

PER SHARE DATA

Unicasa Móveis is one of the largest planned furniture players in Brazilian (net sales of R$258mn in 2013), operating out of a state-of-the-art industrial complex and an exclusive distribution channel consisting of 667 stores (3Q14). The company designs, creates, produces, and markets its four different consumer brands focused on different social classes—Dell Anno (focus on A and B class), Favorita (focus on B and C class), New (focus on C class), Telasul Madeira (focus on D class), which are then sold through its exclusive stores for each brand and through 695 (3Q14) multibrand retailers in the case of New and Telasul Madeira. The company also features the Unicasa Corporate brand focused on the office and hotel markets. Unicasa is controlled by the Grendene family and its shares are traded in the Novo Mercado.

Key Personnel: Alexandre Grendene (Chairman), Frank Zietolie (CEO), Frank Zietolie (CFO), Frank Zietolie (IRO) and Guilherme Oliveira (Investor Relations Manager) Web: www.unicasamoveis.com.br

Sales Breakdown, 3Q14

New (Exclusive) 26.0%

New (Multibrand) / Casa Brasileira 10.2%

Others 8.3%

Dellano / Favorita (Exclusive) 55.5%

Store Breakdown, 3Q14

New / Casa Brasileira (Exclusive) 58.3%

Dellano / Favorita (Exclusive) 41.7%

Shareholder Structure, Current

Free Float 43.3%

Zietolie Family (exc. Frank) 6.7%

Frank Zietolie 9.0%

Alexandre Grendene 41.0%

Sources for all charts and tables: Company reports and Santander estimates.

223

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—METALS & MINING

USIMINAS

UNDERPERFORM CURRENT PRICE: R$4.79 TARGET PRICE: R$4.50



Investment Case: Our negative view on Usiminas’s preferred

Felipe Reis*

shares is based on macroeconomic and company-specific factors:

Brazil: Banco Santander S.A. +5511-3012-5758 | [email protected]

the sluggish economic outlook for Brazil in 2015 and the unresolved company controller’s battle. The latter issue could potentially divert Usiminas’s focus in a tough domestic macro environment.

Renato Maruichi*, CFA Brazil: Banco Santander S.A. +5511-3553-7149 | [email protected]

Additionally, its operating performance could head south, raising concerns about financial leverage. We estimate Usiminas’s net debt/EBITDA will reach 4.5x in mid-2015.



Outlook 2015: We expect a challenging 2015 (25% EBITDA decline YoY). The company’s main revenue sources face unfavorable momentum: (i) our Economics team estimates 0.3% GDP growth for Brazil in 2015, driven mainly by poor industrial activity; (ii) we project a 30% average iron ore price per ton drop in the next year (in 9M14 the iron ore division accounted for 16% of consolidated EBITDA); and (iii) the excess energy sale contribution may be cut by half given the energy spot price cap reduction (as a percentage of consolidated EBITDA in 9M14).



Uncertainties ahead: The fight between Ternium and Nippon Steel

Company Statistics

within the controlling block will be ongoing, in our view. Both sides

Bloomberg

headed to the courts to defend their rights, and the process can take

R$ 4.79 / US$ 1.78

Target Price (YE 2015)

R$ 4.50 / US$ 1.70

months to resolve. Share price volatility has resulted from this battle

52-Week Range (R$)

and we expect this situation to continue until the controlling

Market Capitalization (US$ Mn)

4.32 - 14.08 1,774

Float (%)

shareholders’ issues are resolved.



USIM5 BZ

Current Price (01/02/15)

2.6

3-Mth Avg. Daily Vol (US$ Mn)

13.2

Shares Outstanding - Mn

997

Weak top line in a tough domestic scenario: The current premium for imported steel is around 12%, which does not justify a price

Price Performance (R$) USIM5 BZ

increase in the domestic market. (We believe 15% is the breakeven

120

that triggers more imports.) Additionally, the domestic sales mix is

100

also deteriorating; since we estimate Usiminas is selling more to real

IBOVESPA

80

estate clients relative to the automakers on a comparative basis, or, 60

in other words, selling less value-added products. The bottom line: we estimate an 11.8% EBITDA margin for 2015, -4.0 p.p. YoY.

40 20

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

224

D-14

USIMINAS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 12,829 0.9 1,476 123.4 1,806 126.3 14.1 520 n/m 4.1 (895) 211 (142) 77.8 (1.1)

R$ 2014E 11,917 (7.1) 1,157 (21.6) 1,906 5.5 16.0 567 9.2 4.8 (547) (299) (192) (35.8) (1.6)

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (1,072) (158) 122 894 (981) 329 (981) 0 0 0

2014E (1,108) (55) (669) 191 (1,082) (524) (1,082) 0 47 0

2015E (1,160) (7) (571) 384 (1,040) (735) (1,040) 0 69 0

2016E (1,203) (8) 110 1,296 (1,080) 163 (1,080) 0 23 0

2013A (497) (73) 57 415 (455) 153 (455) 0 0 0

2014E (474) (23) (287) 82 (464) (224) (464) 0 20 0

2015E (446) (3) (219) 148 (400) (283) (400) 0 26 0

2016E (446) (3) 41 480 (400) 60 (400) 0 9 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 3,469 9,460 15,507 31,358 3,732 10,915 16,712 6,903 0

2014E 2,841 8,601 15,496 30,641 2,830 11,003 16,807 7,024 0

2015E 2,152 9,042 15,376 31,301 3,390 11,233 16,678 7,127 0

2016E 2,288 8,942 15,253 31,423 3,263 11,468 16,692 7,230 0

2013A 1,481 4,038 6,618 13,384 1,593 4,658 7,133 2,946 0

2014E 1,114 3,373 6,077 12,016 1,110 4,315 6,591 2,754 0

2015E 812 3,412 5,802 11,812 1,279 4,239 6,294 2,689 0

2016E 832 3,252 5,546 11,427 1,187 4,170 6,070 2,629 0

LT Debt

2015E 11,859 (0.5) 901 (22.1) 1,436 (24.6) 12.1 96 (83.0) 0.8 (340) 64 (198) (2.9) (1.7)

2016E 12,990 9.5 1,247 38.3 1,787 24.4 13.8 385 299.4 3.0 (363) 0 (9) 95.5 (0.1)

2013A 5,947 (8.5) 684 102.5 837 105.1 14.1 241 n/m 4.1 (415) 98 (66) 79.9 (1.1)

US$ 2014E 5,103 (14.2) 496 (27.6) 816 (2.5) 16.0 243 0.9 4.8 (234) (128) (82) (25.5) (1.6)

2015E 4,561 (10.6) 347 (30.0) 552 (32.3) 12.1 37 (84.8) 0.8 (131) 24 (76) 7.5 (1.7)

2016E 4,812 5.5 462 33.2 662 19.9 13.8 142 284.6 3.0 (135) 0 (3) 95.7 (0.1)

6,903

7,024

7,127

7,230

2,946

2,754

2,689

2,629

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

3,434

4,183

4,975

4,942

1,466

1,640

1,877

1,797

Capital Employed

17,078

17,679

17,616

17,793

7,289

6,933

6,648

6,470

Net Debt/EBITDA

1.9

2.2

3.5

2.8

1.8

2.0

3.4

2.7

Net Debt/Equity

0.2

0.2

0.3

0.3

0.2

0.3

0.3

0.3

Capex/Revenue (%)

7.6

9.1

8.8

8.3

7.6

9.1

8.8

8.3

Int Cover (%)

1.2

2.4

2.2

2.7

1.2

2.4

2.2

2.7

Dividend Payout (%)

0.0

33.3

35.7

11.6

0.0

30.5

31.4

11.5

ROCE (%)

1.8

4.9

0.2

2.2

2.1

5.3

0.2

2.2

FINANCIAL RATIOS Net Debt

ROE (%) MARKET RATIOS P/E P/CE FV/EBITDA FV/EBIT

(0.9)

(1.1)

(1.2)

(0.1)

(0.9)

(1.2)

(1.2)

(0.1)

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

-

-

-

-

-

-

-

-

15.2

5.5

5.0

4.0

13.9

4.8

4.8

4.0

9.7

4.8

6.8

5.4

8.9

4.3

6.6

5.4

33.9

16.2

n/m

25.3

31.0

14.5

n/m

25.1

FV/Revenue

1.4

0.8

0.8

0.7

1.3

0.7

0.8

0.7

P/BV

0.8

0.3

0.3

0.3

0.8

0.3

0.3

0.3

FCF Yield (%)

2.3

(10.4)

(15.4)

3.4

2.5

(11.8)

(15.9)

3.4

Div Yield (%)

(0.0)

(0.9)

(1.4)

(0.5)

(0.0)

(1.1)

(1.5)

(0.5)

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

(0.14)

(0.19)

(0.20)

(0.01)

(0.07)

(0.08)

(0.08)

(0.00)

DPS BVPS

0

0.05

0.07

0.02

0

0.02

0.03

0.01

16.76

16.86

16.73

16.74

7.15

6.61

6.31

6.09

Usiminas is the largest Brazilian flat steel producer, with a nominal crude steel capacity of approximately 9.0 million tons per year. The company produces a wide range of products, including slabs, heavy plates, hot- and coldrolled coils, and galvanized products. It is a leading supplier to the automotive, auto-parts, pipeline, electronic equipment, and naval industries. In Brazil, the company has a market share of nearly 45% in the flat steel segment. In 2013, 10% of total net sales were obtained in the export market. The company has two plants located in Ipatinga, State of Minas Gerais, and Cubatão, State of São Paulo (former Cosipa). Nippon Steel (29.5% of voting shares), Ternium (38.0%), and the employee’s pension fund (6.8%) currently share control of the company. The company trades in the São Paulo Stock Exchange, with an approximate 68% float.

Key Personnel: Paulo Penido (Chairman), Rômel de Souza (CEO), Ronald Seckelmann (CFO) and Cristina Morgan (Head of IR) Web: www.usiminas.com

EBITDA by Division, 2013 Capital Steel Processing Goods 1.0% 5.0% Mining 30.0% Steel 64.0%

Revenue by Destination, 2013

Exports 10.0%

Domestic 90.0%

Shareholder Structure, Current

Free Float 36.1%

Ternium 27.7%

Nippon Steel 29.5%

Employee Pension Fund 6.8%

Sources for all charts and tables: Company reports and Santander estimates.

225

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—METALS & MINING

VALE

HOLD CURRENT PRICE: US$7.94 TARGET PRICE: US$8.00

LOWERING YE2015 TARGET PRICE TO US$8.00 FROM US$10.50 

Investment Case: Iron ore price estimates look to be in the midst of

Felipe Reis*

a downward spiral of revisions. In our view, the negative top-down

Brazil: Banco Santander S.A. +5511-3012-5758 | [email protected]

outlook will continue to dictate investors’ caution with the stock, in spite of management’s good efforts to cut costs and raise extra cash by selling noncore assets, especially the potential listing of a minority

Renato Maruichi*, CFA Brazil: Banco Santander S.A. +5511-3553-7149 | [email protected]

stake of the Base Metals division.



Outlook 2015: In the words of Vale’s CEO, 2015 will be a challenging year. We agree with him. Capex is still high, US$10 billion, since the company still has to deliver organic expansion, and volatility in iron ore prices should blur visibility. Indeed, we estimate Vale’s EBITDA at US$9.2 billion for the next year, which is 29% below the Bloomberg consensus.



We do not expect support for the stock price from a potential high dividend yield: Vale has the potential to unlock some US$5-10 billion in extra cash in the short/medium terms, putting together all noncore divestitures (MRS, VLOCS, MRN, etc.), JVs (coal, fertilizer), and the potential Base Metals listing. All in, these measures could lead to a potential extraordinary dividend yield of 10-20% in 2015, by

Company Statistics

our estimate. However, if all divestitures materialize, we do not

Bloomberg

VALE US

Current Price (01/02/15)

US$ 7.94

expect Vale to pay extra dividends until 2H15/1H16; thus, we do not

Target Price (YE 2015)

US$ 8.00

expect dividends to be offered to promote investors’ exposure to the

52-Week Range (US$)

6.86 - 15.07

stock. Excluding the aforementioned possible one-off events,

Market Capitalization (US$ Mn)

however, we project US$1.8 billion dividend payment for 2015, -57%



40,918

Float (%)

61.7

3-Mth Avg. Daily Vol (US$ Mn)

255.0

YoY.

Shares Outstanding - Mn

5,153

Consistent new iron ore supply to keep prices under pressure:

Price Performance (US$) VALE US

With some 280 million tons of cost-efficient iron ore still expected to

120

hit the market in the next two years, representing supply growth of

100

27% from the top five global producers, iron ore prices are under

IBOVESPA

80

pressure, in our view. Considering Vale’s numbers alone, we project 60

volume will increase by 46% in the next five years, from 330 million tons in 2014 to 450 million tons in 2019. We estimate US$65/ton average iron ore price for 2015, but risks are to the downside.

40 20

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

226

D-14

VALE Financial Highlights: P&L, Balance Sheet and CF Statement, 2013-16E in Millions P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2010A 45,293 94.3 26,479 173.3 26,116 185.0 57.7 21,695 258.2 47.9 (1,381) (3,705) 17,235 222.2 38.1

2011A 58,991 30.2 35,417 33.8 33,759 29.3 57.2 28,599 31.8 48.5 (3,313) (5,282) 22,781 32.2 38.6

2012A 45,395 (23.0) 21,103 (40.4) 19,135 (43.3) 42.2 13,737 (52.0) 30.3 (3,801) 833 5,511 (75.8) 12.1

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2010A (3,260) 0 (3,418) 17,077 (16,899) 178 (8,647) 0 (3,000) 0

2011A (4,122) 0 (1,230) 25,673 (16,253) 9,420 (10,000) 0 (9,000) 0

2012A (4,396) 0 794 10,701 (14,055) (3,354) 0 0 (6,000) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2010A 9,377 31,791 83,096 129,139 14,941 42,469 68,899 25,846 0

2011A 3,531 21,736 88,895 128,728 9,502 39,617 77,715 23,170 0

25,846

23,170

LT Debt

US$ 2013A 48,050 5.8 22,573 7.0 20,015 4.6 41.7 14,873 8.3 31.0 (8,334) (6,585) 584 (89.4) 1.2

Company Description

2014E 36,733 (23.6) 12,098 (46.4) 13,284 (33.6) 36.2 7,784 (47.7) 21.2 (5,665) (1,414) 1,352 131.5 3.7

2015E 33,847 (7.9) 7,834 (35.2) 9,159 (31.1) 27.1 4,190 (46.2) 12.4 (2,320) (417) 1,889 39.7 5.6

2016E 36,132 6.7 7,506 (4.2) 8,774 (4.2) 24.3 3,617 (13.7) 10.0 (5,375) 253 (1,148) (160.8) (3.2)

2017E 39,521 9.4 10,146 35.2 11,868 35.3 30.0 6,787 87.6 17.2 (5,950) (225) 1,019 n/m 2.6

2013A (4,308) 364 (3,307) 1,949 (14,233) (12,284) 0 0 (4,500) 0

2014E (4,060) (1,146) 8,024 12,290 (11,927) 363 0 0 (4,200) 0

2015E (4,134) (1,058) (207) 4,757 (10,200) (5,443) 0 4,050 (1,832) 0

2016E (4,314) (880) 53 2,338 (7,600) (5,262) 0 4,262 (1,755) 0

2017E (4,246) (700) (62) 4,503 (6,900) (2,397) 0 0 (2,374) 0

2012A 6,078 22,897 90,744 131,478 8,910 46,205 74,728 32,199 0

2013A 5,324 24,377 81,665 124,597 7,837 51,824 63,325 29,445 0

2014E 4,001 15,104 76,296 110,766 7,912 48,803 52,858 28,680 0

2015E 1,923 13,947 82,362 115,782 8,625 54,152 51,856 32,730 0

2016E 1,991 14,318 79,043 111,704 8,982 57,522 44,115 36,525 0

2017E 173 12,793 75,139 105,038 9,212 56,334 38,518 36,079 0

32,199

29,445

28,680

32,730

36,525

36,079

FINANCIAL RATIOS

2010A

2011A

2012A

2013A

2014E

2015E

2016E

2017E

Net Debt

16,469

19,639

26,121

24,121

24,679

30,807

34,534

35,906

Capital Employed

79,247

90,306

95,166

83,001

75,355

79,910

75,671

71,021

Net Debt/EBITDA

0.6

0.6

1.4

1.2

1.9

3.4

3.9

3.0

Net Debt/Equity

0.2

0.3

0.3

0.4

0.5

0.6

0.8

0.9

37.3

27.6

31.0

29.6

32.5

30.1

21.0

17.5

Capex/Revenue (%) Int Cover (%)

n/m

n/m

n/m

n/m

n/m

n/m

n/m

n/m

Dividend Payout (%)

56.1

52.2

26.3

81.7

719.1

135.5

92.9

(206.7)

ROCE (%)

32.1

37.5

13.6

25.9

12.2

5.8

4.4

9.9

ROE (%)

27.4

31.1

7.2

0.8

2.3

3.6

(2.4)

2.5

2010A

2011A

2012A

2013A

2014E

2015E

2016E

2017E

P/E

9.0

4.7

19.6

n/m

31.2

21.7

-

40.2

P/CE

7.6

3.9

10.9

16.1

7.8

6.8

12.9

7.8

FV/EBITDA

6.8

3.8

7.1

5.2

5.1

7.9

8.7

6.6

FV/EBIT

8.2

4.5

9.9

7.0

8.7

17.3

21.1

11.5

FV/Revenue

3.9

2.2

3.0

2.2

1.8

2.1

2.1

2.0

P/BV

2.3

1.4

1.4

1.2

0.8

0.8

0.9

1.1

FCF Yield (%)

0.1

8.9

(3.1)

(15.6)

0.9

(13.3)

(12.9)

(5.9)

Div Yield (%)

1.9

8.5

5.6

5.7

10.0

4.5

4.3

5.8

MARKET RATIOS

PER SHARE DATA

2010A

2011A

2012A

2013A

2014E

2015E

2016E

2017E

EPS

3.34

4.42

1.07

0.11

0.26

0.37

(0.22)

0.20

DPS

0.58

1.75

1.16

0.87

0.82

0.36

0.34

0.46

13.37

15.08

14.50

12.29

10.26

10.06

8.56

7.47

BVPS

227

Vale is the world’s largest producer and exporter of iron ore and nickel, and one of the largest companies in the mining and metal industries in terms of market cap. In 2013, its ferrous minerals activities (mainly iron ore and pellets) accounted for 95% of the company’s EBITDA. Vale is controlled by the Valepar consortium, which owns 53% of the voting stock and 32% of total capital. Valepar’s main shareholders are Litel (Previ), Bradespar, BNDESPar, and Mitsui.

Key Personnel: Dan Conrado (Chairman), Murilo Ferreira (CEO), Luciano Siani (CFO) and Rogério Nogueira (IR Director) Web: www.vale.com

Sales by Segment, 2013 Logistics 3.1% Fertilizers 6.1%

Base Metals 14.9%

Other 4.0%

Iron Ore 70.6%

Sales by Destination, 2013

Europe 18.0%

North Other America South 3.9% 4.9% America 19.0%

Asia 54.2%

Shareholder Structure, Current

Free Float 32.7% Valepar 32.9%

ADR's 30.2%

BNDESPar 4.2%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—FINANCIAL SERVICES

VALID

BUY CURRENT PRICE: R$42.20 TARGET PRICE: R$47.00

RAISING YE2015 TARGET PRICE TO R$47.00 FROM R$46.30 

Investment Case: Valid is our top pick among financials in Brazil.

Henrique Navarro*

We believe Valid will deliver increased profitability, supported by

Brazil: Banco Santander S.A. +5511-3012-5756 | [email protected]

changes in portfolio mix, improving margins, and decent volumes. Additionally, we believe Valid is well positioned to benefit from some opportunities not yet operational, such as the JV with Correios, bottling seals, a new ID system in Brazil, and driver’s licenses in the U.S., which could imply additional potential upside to our target price.



Boris Molina New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

Renata Cabral* Brazil: Banco Santander S.A. +5511-3012-5731 | [email protected]

Outlook 2015: In our view, the company will be able to reach a three-year (2013-15E) net income CAGR of 24%, with a slight improvement year-over-year in the net margin. We believe this should be accomplished as new businesses and segments gain ground little by little: some are high margin; others (such as Valid USA cards) have low EBITDA margins but their high volumes help by diluting opex. Thus, we estimate 23% EPS growth YoY in 2015.



Our top pick. We value the company “as is,” considering all business lines that are tangible and up and running currently. This comprises Valid USA and new ID cards in São Paulo State. But the company has several new businesses and initiatives that are not yet

Company Statistics

in operation, such as (i) the JV with Correios; (ii) bottling seals; (iii)

Bloomberg

new ID system in Brazil; and (iv) driver’s licenses in the U.S. Other



VLID3 BZ

Current Price (01/02/15)

R$ 42.20 / US$ 15.68

Target Price (YE 2015)

R$ 47.00 / US$ 18.08

ventures, such as 4G expansion and SIM cards in the U.S., are still

52-Week Range (R$)

too far in the future to be priced in.

Market Capitalization (US$ Mn)

874

Float (%)

97.6

Assessing this potential added value. We ran a valuation analysis

27.90 - 42.40

3-Mth Avg. Daily Vol (US$ Mn)

3.8

Shares Outstanding - Mn

56

on these new ventures, to better assess the potential value they could bring to the company if they succeed—we reached R$730

VLID3 BZ

million, or a 28% increase in our YE2015 target price. However,

110

despite Valid’s good track record in bringing its ventures to fruition,

100

we did not add them to our valuation, as they are not yet operational.



Price Performance (R$)

90

Driving safely in the U.S. In November 2014 Valid was declared

80

“Apparently Successful Vendor" in the competitive bidding for the

70

driver’s license contract for Washington State. The company expects

60

to begin offering services in August 2015.

IBOVESPA

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

228

D-14

VALID Company Description

2013A 1,321 33.9 223 1.4 133 (17.1) 120 (29) 0 92 (11.6)

BALANCE SHEET Cash and Equivalents Accounts Receivable Intangible and Deferred Asse Tangible Assets Total Assets ST Debt LT Debt Equity Net Debt (Cash)

2013A 152 234 956.0 0 1,173 0 0 543 260

2014E 214 240 995.8 0 1,265 0 0 617 271

2015E 186 243 992.9 0 1,235 0 0 631 195

2016E 161 244 990.7 0 1,205 0 0 644 121

2013A 71 108 443.1 0 544 0 0 252 120

2014E 91 102 423.7 0 538 0 0 263 115

2015E 72 94 381.9 0 475 0 0 243 75

2016E 61 93 377.4 0 459 0 0 245 46

CASH FLOW Changes in Working Capital Operating Cash Flow Capital Expenditures Change in Debt Free Cash Flow to Equity Cash Dividends Capital Increase (Decrease)

2013A 170 53 (91) (120) 2 (51) 0

2014E 195 57 (63) 123 206 (65) 0

2015E 206 72 (63) (14) 91 (61) 0

2016E 224 83 (71) (7) 115 (75) 0

2013A 79 25 (42) (56) 1 (24) 0

2014E 83 24 (27) 52 88 (28) 0

2015E 79 28 (24) (6) 35 (23) 0

2016E 85 32 (27) (3) 44 (28) 0

OPERATING RATIOS EBITDA Margin Effective Tax Rate Net Margin Net Debt / EBITDA Net Debt / Equity

2013A 16.9 23.8 0.1 1.2 0.5

2014E 18.4 22.7 0.1 1.1 0.4

2015E 17.7 26.0 0.1 0.7 0.3

2016E 17.3 27.1 0.1 0.4 0.2

2013A 16.9 23.8 0.1 1.2 0.5

2014E 18.4 22.7 0.1 1.1 0.5

2015E 17.7 26.0 0.1 0.7 0.3

2016E 17.3 27.1 0.1 0.4 0.2

2015E 1,572 15.0 279 10.6 216 14.4 202 (52) 0 149 23.3

2016E 1,779 13.2 308 10.5 247 14.2 239 (65) 0 174 16.5

2013A 612 21.3 103 (8.2) 62 (24.9) 56 (13) 0 43 (19.9)

US$ 2014E 582 (5.0) 107 3.7 80 30.1 67 (15) 0 52 21.3

2015E 605 4.0 107 0.0 83 3.4 78 (20) 0 57 11.4

2016E 678 12.1 117 9.4 94 13.2 91 (25) 0 66 15.4

Valid has operated in Brazil since 1993, when American Banknote Corporation acquired the Brazilian subsidiary of Thomas de La Rue, a company engaged in providing security printing services that has operated in the Brazilian market for almost 50 years. In 2006 the company then named American BankNote held its IPO, selling 56% of its shares. In October 2010, it changed its name to Valid. Presently, Valid is engaged mainly in the printing industry, including security prints, lottery tickets and systems in general, including electronic, plastic, magnetic and inductive cards, encoding cards, and in the development, implementation and execution of electronic document management projects.

Key Personnel: José Roberto Mauro (CEO), Carlos Affonso (CFO) and Rita Carvalho (IRO) Web: www.valid.com.br

Means of Payments, BZ, Units 186.00 175.00

176.00

2015E

INCOME STATEMENT Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) Profit before Taxes Taxes Minorities Net Profit Growth (%)

R$ 2014E 1,367 3.5 252 12.9 189 41.7 157 (36) 0 121 32.1

2014E

Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions

163.00

FCFE / Revenues

12.2

10.0

9.2

8.6

12.2

10.0

9.2

8.6

ROAA

8.1

9.9

12.0

14.3

8.2

10.6

12.0

14.3

ROAE

17.4

20.9

23.9

27.3

17.7

22.2

23.9

27.3

Payout

49.6

70.6

50.0

50.0

44.9

64.7

44.0

49.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

19.6

19.5

15.7

13.5

17.9

17.2

15.2

13.2

P/CE

MARKET RATIOS

40.7

35.2

24.4

19.4

37.2

31.1

23.6

18.9

FV/EBITDA

9.2

10.5

9.1

8.0

8.5

9.4

8.9

7.8

FCFE Yield (%)

9.0

5.8

6.1

6.5

9.8

6.5

6.3

6.7

P/BV

3.3

3.8

3.7

3.7

3.0

3.4

3.6

3.6

Div Yield (%)

2.9

2.7

2.6

3.2

3.1

3.1

2.7

3.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.65

2.17

2.68

2.82

0.76

0.92

1.03

1.07

CEPS

0.43

0.68

0.79

0.78

0.20

0.29

0.30

0.30

(0.46)

(0.32)

(0.33)

(0.35)

(0.22)

(0.14)

(0.13)

(0.13)

BVPS

9.75

11.07

11.32

9.61

4.52

4.71

4.35

3.66

DPS

1.16

1.09

1.34

0.39

0.54

0.46

0.52

0.15

PER SHARE DATA

FCFPS

2013A

2012A

2011A

156.00

Revenue Breakdown, 2014E Digital Certification Telecom SIM Cards 4.4% 14.5% Telecom - Others 1.6%

Id. Systems 32.5%

Means of Payments 47.2%

Shareholder Structure, Current Mgmt. / Treasury 2.4%

Free float 97.6%

Sources for all charts and tables: Company reports and Santander estimates.

229

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—RETAIL & CONSUMER GOODS

VIA VAREJO

BUY CURRENT PRICE: R$19.50 TARGET PRICE: R$34.00



Investment Case: We believe Via Varejo offers a compelling

João Mamede*

opportunity for participating in the Brazilian retail space due to its

Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

(1) pioneering large-scale multichannel platform, (2) strong cash flow generation primarily derived from operating improvements, backed by ongoing initiatives, and (3) attractive valuation. Consistent margin expansion has been a positive surprise, and we believe there is more to come, leading us to maintain a Buy rating on the stock.



Ronaldo Kasinsky* Brazil: Banco Santander S.A. +5511-3553-2396 | [email protected]

Jessica Bessa* Brazil: Banco Santander S.A. +5511-3553-9602 | [email protected]

Outlook for 2015: We forecast 9% YoY top-line growth based on +70 store openings and 6% SSS, while we also expect +40-bp YoY EBITDA margin expansion owing to maturing internal initiatives. We are confident that VVAR will continue to grow and gain market share despite a tougher economic environment ahead, as we believe the company offers key competitive advantages over its direct competitors (i.e., scale, strong banners, multichannel platform, and unique distribution platform).



Catalysts: We recognize that investors are concerned about discretionary sales in Brazil, with the decline in consumer confidence and credit growth (which might compromise top-line growth at some

Company Statistics

point). However, we see limited downside risk to our 2015 earnings

Bloomberg

estimates (mostly from cost-cutting) strengthening our conviction that

R$ 19.50 / US$ 7.24

Target Price (YE 2015)

R$ 34.00 / US$ 12.83

Via Varejo remains an interesting value play. We expect synergies

52-Week Range (R$)

arising from VVAR’s stake in Cnova to surface along 2015, including

Market Capitalization (US$ Mn)

combined stock management and distribution (click-and-collect),

3-Mth Avg. Daily Vol (US$ Mn)

7.5

Shares Outstanding - Mn

430

which we expect to become a key competitive advantage over single-channel competitors.



VVAR11 BZ

Current Price (01/02/15)

19.07 - 26.49 3,117

Float (%)

29.3

Price Performance (R$) VVAR11 BZ

Concerns: Main risks to our investment thesis include: (1) stronger-

130

than-expected economic slowdown, affecting consumers’ disposable

120

income and credit availability; (2) increased competition from brick-

110

and-mortar and e-commerce players; (3) elimination of government

100

stimulus programs (including tax exemptions on certain categories);

90

and (4) potential block trades from controlling shareholders.

80

IBOVESPA

70

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

230

D-14

VIA VAREJO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 21,745 11.9 6,690 13.3 2,423 87.9 11.1 2,270 105.3 10.4 (558) (514) 1,190 242.6 5.5

R$ 2014E 23,125 6.3 7,158 7.0 2,144 (11.5) 9.3 1,998 (12.0) 8.6 (657) (440) 901 (24.2) 3.9

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 153 (1,255) 244 25 (361) 1,805 0 528 (192) 0

2014E 147 433 (261) 926 (397) 262 0 (134) (437) 0

2015E 153 68 10 899 (427) 712 0 0 (472) 0

2016E 168 62 (9) 984 (451) 835 0 0 (533) 0

2013A 71 (582) 113 11 (167) 837 0 245 (89) 0

2014E 63 185 (112) 396 (170) 112 0 (57) (187) 0

2015E 59 26 4 346 (164) 274 0 0 (182) 0

2016E 62 23 (3) 365 (167) 309 0 0 (197) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 3,533 8,984 4,474 13,458 7,809 1,698 3,951 3,962 3,055

2014E 2,193 8,981 4,642 13,623 8,977 1,517 3,129 3,828 3,147

2015E 2,193 9,408 4,916 14,324 9,414 1,517 3,393 3,828 3,147

2016E 2,193 9,907 5,199 15,107 9,904 1,517 3,686 3,828 3,147

2013A 1,508 3,834 1,910 5,744 3,333 725 1,686 1,691 1,304

2014E 860 3,522 1,820 5,342 3,520 595 1,227 1,501 1,234

2015E 828 3,550 1,855 5,405 3,552 572 1,280 1,445 1,188

2016E 797 3,603 1,891 5,493 3,601 552 1,340 1,392 1,144

LT Debt

2015E 25,282 9.3 7,874 10.0 2,444 14.0 9.7 2,291 14.7 9.1 (841) (475) 974 8.1 3.9

2016E 27,340 8.1 8,515 8.1 2,672 9.3 9.8 2,504 9.3 9.2 (882) (523) 1,100 12.8 4.0

2013A 10,078 1.4 3,101 2.7 1,123 70.2 11.1 1,052 86.0 10.4 (259) (238) 551 210.4 5.5

US$ 2014E 9,895 (1.8) 3,063 (1.2) 918 (18.3) 9.3 855 (18.7) 8.6 (281) (188) 386 (30.1) 3.9

2015E 9,724 (1.7) 3,028 (1.1) 940 2.4 9.7 881 3.1 9.1 (324) (183) 375 (2.8) 3.9

2016E 10,126 4.1 3,154 4.1 990 5.3 9.8 927 5.3 9.2 (327) (194) 407 8.6 4.0

907

681

681

681

387

267

257

248

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

429

1,635

1,635

1,635

183

641

617

595

Capital Employed

5,649

4,646

4,910

5,203

2,411

1,822

1,853

1,892

Net Debt/EBITDA

0.2

0.8

0.7

0.6

0.2

0.7

0.7

0.6

Net Debt/Equity

0.1

0.5

0.5

0.4

0.1

0.6

0.5

0.4

Capex/Revenue (%)

1.7

1.7

1.7

1.7

1.7

1.7

1.7

1.7

(10.8)

(5.4)

(5.6)

(5.9)

(10.8)

(5.4)

(5.6)

(5.9)

Dividend Payout (%)

55.4

36.7

52.4

54.7

50.1

33.7

46.1

54.4

ROCE (%)

49.3

52.5

56.3

58.2

53.0

58.0

56.6

58.2

ROE (%)

34.4

25.5

29.9

31.1

35.3

26.8

29.9

31.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

9.1

9.9

8.6

7.6

8.3

8.7

8.3

7.7

10.4

11.8

10.2

9.0

9.5

10.4

9.9

9.0

FV/EBITDA

4.6

4.9

4.1

3.8

4.2

4.4

4.0

3.8

FV/EBIT

5.0

5.3

4.4

4.0

4.5

4.7

4.2

4.0

FV/Revenue

0.5

0.5

0.4

0.4

0.5

0.4

0.4

0.4

P/BV

2.7

2.9

2.5

2.3

2.7

2.7

2.4

2.3

FCF Yield (%)

16.7

2.9

8.5

10.0

18.2

3.3

8.8

9.9

Div Yield (%)

1.8

4.9

5.6

6.4

1.9

5.6

5.8

6.3

FINANCIAL RATIOS Net Debt

Int Cover (%)

MARKET RATIOS P/E P/CE

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

2.76

2.09

2.26

2.56

1.28

0.90

0.87

0.95

DPS

0.45

1.02

1.10

1.24

0.21

0.43

0.42

0.46

BVPS

9.18

7.27

7.89

8.57

3.92

2.85

2.98

3.12

231

Via Varejo is currently the largest electronics and furniture retailer in Brazil, with annual gross sales of R$25 billion in 2013 and an estimated 26% market share in its core categories (19% overall market share). The company sells a wide variety of electronic goods, home appliances and furniture through a multichannel platform that includes 999 stores (YE2013) with the Casas Bahia and Ponto Frio banners along with e-commerce operations through Nova Pontocom (controlled by CBD as well).

Key Personnel: Ronaldo Iabrudi (Chairman), Líbano Miranda Barroso (CEO), Vitor Fagá (CFO) and Marcelo Rizzi (Investor Relations Director) Web: http://www.viavarejo.com.br/ri

Sales Breakdown by Brand, 3Q14

Pontofrio 22.3%

Casas Bahia 77.7%

Sales by Payment Type, 3Q14

Credit Cards 59.7%

Cash 25.3%

Payment Book 15.0%

Shareholder Structure, Current

Free Float 29.3%

Klein Family 27.3%

CBD 43.3%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

BRAZIL—CONGLOMERATES & INDUSTRIALS

WEG

HOLD CURRENT PRICE: R$31.06 TARGET PRICE: R$31.50



Investment Case: We see WEG as a scarcity quality play on FX in

Daniel Gewehr*

Brazil and on an energy efficiency trend. WEG has 50% of sales

Brazil: Banco Santander S.A. +5511-3012-5787 | [email protected]

related to FX and is one of the few FX-affected companies that is not in the commodities business (its 2015E ROE is 21%). While its multiples are slightly above the historical average, based on our

Joao Noronha*, CFA Brazil: Banco Santander S.A. +5511-3012-5734 | [email protected]

estimates we think WEG may be a good relative call among industrials in a scenario of potential energy rationing, given that its main long-term thesis is about energy efficiency (it sells industrial motors that consume less energy—i.e., the payback period for industrial motor investment, sold by WEG, is ~1 year).



Outlook 2015: We expect WEG to increase sales by 15% in 2015, driven by a recovery in longer-cycle products (especially in the wind energy segment), M&A, and FX on 50% sales exposure. We see the company reaching R$8.9 billion in sales, R$1,626 million in EBITDA, and R$1,114 million in net income in 2015.



To acquire, or not to acquire—that is the question. Despite the company’s good execution track record, our practice is not to include acquisitions in our long-term estimates; our organic estimates reach R$20 billion in revenue only by 2022 (vs. R$20 billion in revenue by 2020 as guided by WEG’s 20/20 strategic plan). If we were to include acquisitions, our YE2015 target price would be R$36/share.



Company Statistics Bloomberg

WEGE3 BZ

Current Price (01/02/15)

R$ 31.06 / US$ 11.54

Target Price (YE 2015)

R$ 31.50 / US$ 11.62

52-Week Range (R$)

20.92 - 31.52

What’s changed? Although our net sales estimates remain nearly

Market Capitalization (US$ Mn)

unchanged (-2%), we reduced our 2015E EBITDA and net income

Float (%)

by 11% and 6% to account for lower-than-expected sales in the

9,313 35.3

3-Mth Avg. Daily Vol (US$ Mn)

8.2

Shares Outstanding - Mn

807

Brazilian domestic market. However, the more favorable FX helps



shift our medium-term estimates upward. We are in-line with 2015

Price Performance (R$)

consensus net income estimates.

160

WEGE3 BZ

A Brazilian leader with competitive advantages. In our strategy

140

report Hey Competition, Can You Jump a Wide Moat? Part 2, April 7,

120

2014, WEG was ranked 5th among the 16 companies with the

100

greatest competitive advantages (117-company Brazil coverage).

IBOVESPA

80 60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

232

D-14

WEG Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 6,829 10.6 2,237 18.9 1,255 19.1 18.4 1,012 25.2 14.8 73 (240) 843 28.6 12.4

R$ 2014E 7,798 14.2 2,460 10.0 1,350 7.5 17.3 1,088 7.5 13.9 82 (253) 910 7.8 11.7

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (218) 180 (232) 1,023 (206) 1,009 537 (392) 0

2014E (246) 174 (177) 1,173 (836) 142 202 (437) 0

2015E (269) 179 (232) 1,394 (475) 595 0 (303) 0

2016E (295) 205 (242) 1,618 (513) 732 0 (360) 0

2013A (101) 83 (108) 474 (96) 468 249 (182) 0

2014E (105) 74 (76) 500 (357) 61 86 (186) 0

2015E (102) 68 (88) 530 (181) 226 0 (115) 0

2016E (104) 73 (86) 573 (182) 259 0 (127) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 3,374 6,852 3,166 10,141 10,980 2,921 4,558 3,209 913

2014E 3,425 7,237 3,585 10,950 10,665 3,157 4,875 3,434 908

2015E 3,744 7,950 3,791 11,868 11,806 3,116 5,655 3,379 894

2016E 4,142 8,876 4,009 13,012 12,884 3,065 6,554 3,309 875

2013A 1,440 2,924 1,351 4,328 4,686 1,247 1,945 1,370 390

2014E 1,343 2,838 1,406 4,294 4,182 1,238 1,912 1,347 356

2015E 1,382 2,934 1,399 4,379 4,357 1,150 2,087 1,247 330

2016E 1,409 3,019 1,364 4,426 4,382 1,042 2,229 1,125 298

LT Debt FINANCIAL RATIOS

2015E 8,963 14.9 2,882 17.2 1,626 20.5 18.1 1,357 24.7 15.1 84 (324) 1,114 22.4 12.4

2016E 10,259 14.5 3,309 14.8 1,860 14.4 18.1 1,565 15.3 15.3 96 (373) 1,284 15.3 12.5

2013A 3,165 0.2 1,037 7.7 582 7.9 18.4 469 13.4 14.8 34 (111) 391 16.5 12.4

US$ 2014E 3,328 5.1 1,050 1.3 576 (1.0) 17.3 464 (1.0) 13.9 35 (108) 388 (0.7) 11.7

2015E 3,408 2.4 1,096 4.4 618 7.3 18.1 516 11.1 15.1 32 (123) 423 9.1 12.4

2016E 3,632 6.6 1,171 6.9 658 6.5 18.1 554 7.4 15.3 34 (132) 455 7.4 12.5

2,296

2,526

2,485

2,434

980

991

917

828

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

(167)

8

(366)

(834)

(71)

3

(135)

(284)

Capital Employed

4,475

4,968

5,375

5,810

1,910

1,948

1,984

1,976

Net Debt/EBITDA

(0.1)

0.0

(0.2)

(0.4)

(0.1)

0.0

(0.2)

(0.4)

Net Debt/Equity

(0.0)

0.0

(0.1)

(0.1)

(0.0)

0.0

(0.1)

(0.1)

Capex/Revenue (%)

3.0

10.7

5.3

5.0

3.0

10.7

5.3

5.0

Int Cover (%)

3.7

3.1

4.9

5.5

3.7

3.1

4.9

5.5

Dividend Payout (%)

59.8

51.8

33.4

32.3

54.1

47.5

29.4

32.1

ROCE (%)

28.0

27.0

31.3

33.4

30.1

29.8

31.4

33.4

ROE (%)

19.6

19.3

21.2

21.0

20.0

20.5

21.2

21.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

17.6

27.2

22.5

19.5

16.1

23.9

22.0

20.5

P/CE

14.0

21.4

18.1

15.9

12.8

18.8

17.7

16.7

FV/EBITDA

11.9

18.6

15.4

13.2

10.9

16.4

15.1

13.9

FV/EBIT

14.8

23.1

18.5

15.7

13.5

20.4

18.1

16.5

MARKET RATIOS

FV/Revenue

2.2

3.2

2.8

2.4

2.0

2.8

2.7

2.5

P/BV

3.3

5.1

4.4

3.8

3.2

4.9

4.5

4.2

FCF Yield (%)

6.8

0.6

2.4

2.9

7.4

0.7

2.4

2.8

Div Yield (%)

2.6

1.8

1.2

1.4

2.9

2.0

1.2

1.4

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

1.36

1.13

1.38

1.59

0.63

0.48

0.52

0.56

PER SHARE DATA EPS DPS

0.74

0.59

0.69

0.80

0.34

0.25

0.26

0.28

BVPS

5.56

6.12

6.54

7.34

2.37

2.40

2.42

2.50

233

WEG is the largest manufacturer of electric motors and related equipment in Latin America and one of the largest in the world. With nine plants in Brazil and eight outside the country, the company has a global presence, currently selling products to more than 100 countries. With its four business areas, WEG has a diversified portfolio of products, including electric motors, energy generators and transformers, electronic components, industrial automation systems, and paint and varnishes. In 2013, the company reported net sales of R$6.8 billion (50% from exports and foreign subsidiaries). WEG is listed on the Novo Mercado.

Key Personnel: Harry Schmelzer Júnior (CEO), Sérgio Schwartz (CFO) and Luis Fernando Moran de Oliveira (IR Manager) Web: www.weg.net.br

Gross Sales by Segment, 2013

Sales by Region, 2013

Shareholder Structure, Current

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—UTILITIES

AES GENER

HOLD CURRENT PRICE: CH$316.04 TARGET PRICE: CH$360.00

DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF CH$360.00; REPLACING YE2014 TARGET PRICE OF CH$350.00 

Investment Case: Although we remain positive with respect to earnings momentum in the long term, we believe the bulk of this momentum will occur in 2016, after the startup of Cochrane, which we believe to be already reflected in current valuations. In the

Nicolas Schild* Chile: Santander Investment Chile Limitada +5622-336-3361 | [email protected]

Maria Carolina Carneiro* Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

meantime, we expect the company’s high capex, and weakened outlook for Colombia and Argentina to pressure 2015 results and financials.



Outlook 2015: We forecast a 3.3% YoY EBITDA decline, for a total of US$652 million, corresponding mainly to: (1) less favorable price conditions in Colombia after the startup of large hydrological projects; and (2) the negative impact on results from the depreciation of COP and ARS against the USD. We expect results to recover by 2016, once the Cochrane 532-MW coal project launches.



Good performer in dry scenario, limited downside under El Niño: In our scenario of dry to normal hydro conditions in 2015, we believe AES Gener will take advantage of high spot prices in order to be a net seller in the spot market by (1) using its large coal capacity and balanced contract basis in the SIC, and (2) activating its backup facilities. Conversely, if El Niño materializes, we believe downside will



be limited, as the company could buy cheap energy in the spot

Company Statistics

market to fulfill its contracts.

Bloomberg

Pressure on results to come from Colombia and Argentina. We

AESGENER CI

Current Price (01/02/15)

Ch$ 316.04 / US$ 0.51

Target Price (YE 2015)

Ch$ 360.00 / US$ 0.58

expect weaker results for Colombian operations, with EBITDA falling

52-Week Range (Ch$)

257.58 - 337.09

17% YoY, stemming from the lower price outlook, due to the startup

Market Capitalization (US$ Mn)

of large hydro projects (Sogamoso and Quimbo) and depreciation of the Colombian peso versus the USD. In Argentina, we see risk from

4,322

Float (%)

29.3

3-Mth Avg. Daily Vol (US$ Mn)

1.6

Shares Outstanding - Mn

8,400

further FX depreciation and continuing weak economic activity.



Price Performance (Ch$)

Considerable investment pipeline to pressure cash flow: We

AESGENER CI

expect the significant investment pipeline for 2015 (Alto Maipo,

120

Cochrane and Guacolda) to temporally pressure financial ratios,

110

reducing the company’s financial flexibility. We expect a reduction in

100

the dividend policy from the current 100% to 60% and a FCF yield of

90

-14% in 2015. Also, we estimate adjusted net debt/EBITDA

80

(considering hybrid bond) to peak at 4.2x in 2015.

IPSA

70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

234

D-14

AES GENER Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 1,112 (1.9) 253 (12.0) 307 (4.3) 27.7 195 (9.8) 17.5 (56) (42) 97 (1.8) 8.7

Ch$ 2014E 1,349 21.3 319 26.1 385 25.3 28.5 257 31.9 19.0 (102) (49) 106 9.2 7.8

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (112) 0 23 231 (247) (15) 109 234 (104) 0

2014E (128) 0 26 259 (486) (227) 12 122 (132) 86

2015E (139) 0 (40) 268 (632) (365) 222 363 (70) 0

2016E (140) 0 39 343 (511) (168) 128 148 (100) 0

2013A (226) 0 46 467 (498) (31) 220 473 (210) 0

2014E (223) 0 45 454 (850) (396) 22 214 (231) 150

2015E (222) 0 (64) 427 (1,010) (583) 355 580 (112) 0

2016E (228) 0 63 558 (830) (272) 207 240 (163) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 385 639 2,560 3,464 469 1,609 1,386 1,508 233

2014E 273 579 3,354 4,268 498 2,171 1,508 1,881 186

2015E 426 726 3,898 4,963 501 2,521 1,631 2,272 234

2016E 427 701 4,202 5,238 533 2,604 1,667 2,382 253

2013A 733 1,216 4,872 6,592 892 3,063 2,637 2,870 444

2014E 447 950 5,498 6,996 817 3,559 2,473 3,084 305

2015E 687 1,171 6,287 8,005 808 4,065 2,630 3,664 378

2016E 700 1,150 6,889 8,587 874 4,270 2,734 3,904 414

1,329

1,802

2,146

2,236

2,528

2,955

3,461

3,666

LT Debt FINANCIAL RATIOS

2015E 1,295 (4.0) 332 4.2 408 6.0 31.5 269 4.9 20.8 (43) (58) 169 59.2 13.0

2016E 1,285 (0.7) 352 6.0 429 5.1 33.4 289 7.2 22.5 (61) (64) 164 (2.8) 12.7

2013A 2,245 (3.6) 510 (13.5) 621 (5.9) 27.7 393 (11.4) 17.5 (113) (85) 196 (3.5) 8.7

US$ 2014E 2,360 5.1 557 9.3 674 8.5 28.5 449 14.3 19.0 (178) (86) 185 (5.3) 7.8

2015E 2,067 (12.4) 530 (4.9) 652 (3.3) 31.5 430 (4.3) 20.8 (69) (92) 269 45.3 13.0

2016E 2,090 1.1 572 8.0 698 7.1 33.4 469 9.2 22.5 (100) (103) 266 (1.0) 12.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

1,123

1,609

1,846

1,955

2,137

2,637

2,977

3,205

Capital Employed

2,623

3,496

4,037

4,278

4,992

5,732

6,511

7,013

Net Debt/EBITDA

3.7

4.2

4.5

4.6

3.4

3.9

4.6

4.6

Net Debt/Equity

0.8

1.0

1.1

1.2

0.8

1.1

1.1

1.2

22.2

36.0

48.9

39.7

22.2

36.0

48.9

39.7

5.0

4.4

3.9

4.1

5.0

4.4

3.9

4.1

Capex/Revenue (%) Int Cover (%) Dividend Payout (%)

105.4

136.1

64.8

60.9

103.6

118.2

60.5

60.5

ROCE (%)

9.7

9.4

8.4

8.6

10.2

9.9

8.5

8.6

ROE (%)

7.5

7.3

10.5

9.9

7.6

7.3

10.6

9.9

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

24.1

25.6

15.7

16.2

22.7

24.1

16.1

16.2

P/CE

11.2

11.6

8.6

8.7

10.5

10.9

8.8

8.7

FV/EBITDA

11.5

11.6

12.3

12.4

10.9

10.9

12.5

12.4

FV/EBIT

18.2

17.5

18.6

18.4

17.1

16.4

18.9

18.4

3.2

3.3

3.9

4.1

3.0

3.1

3.9

4.1

FV/Revenue P/BV FCF Yield (%) Div Yield (%) PER SHARE DATA

1.7

1.8

1.6

1.6

1.7

1.8

1.6

1.6

(0.7)

(8.4)

(13.7)

(6.3)

(0.7)

(8.9)

(13.5)

(6.3)

4.5

4.9

2.6

3.8

4.7

5.2

2.6

3.8 2016E

2013A

2014E

2015E

2016E

2013A

2014E

2015E

EPS

15

14

20

19

0.03

0.02

0.03

0.03

DPS

16

17

8

12

0.03

0.03

0.01

0.02

201

181

192

200

0.38

0.30

0.31

0.33

BVPS

235

Company Description AES Gener is the second largest electricity generation company in Chile, with a presence in the two largest electricity grids in the country. The company has a diversified generation portfolio with 4,081 MW of installed capacity in Chile and a 1,000 MW facility in Colombia with a mix of hydro, natural gas, diesel and coal facilities. In Chile, the company operates in the central and northern grids (the SIC and the SING, respectively), while in Colombia, the company operates through Chivor. The company is controlled by the AES Group, with a 70.7% stake.

Key Personnel: Andrés Gluski (Chairman), Luis Felipe Cerón (CEO), Daniel Stadelmann (CFO), Constanza López (Head of IR) and Paola Lara (IR Analyst) Web: www.aesgener.cl

EBITDA by Region, 2015E

SIN (Colombia) 31.7%

SADI (Argentina) 5.4%

SIC (Chile) 39.6%

SING (Chile) 23.3%

Installed Capacity by Region, 2015E

SIN (Colombia) 20.0%

SADI (Argentina) 13.0%

SING (Chile) 16.0%

SIC (Chile) 51.0%

Shareholder Structure, Current

Pension Funds 16.4%

Others 12.9%

AES Corp 70.7%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—FINANCIAL SERVICES

AFP HABITAT

HOLD CURRENT PRICE: CH$910.36 TARGET PRICE: CH$965.00

DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF CH$965.00; REPLACING YE2014 TARGET PRICE OF CH$820.00 

Investment Case: We are downgrading our rating to Hold from Buy, as we believe that after the 46.4% rally of the stock price YTD,

Matias Duarte*

current valuations limit potential upside. The stock currently trades at

Chile: Santander Investment Chile Limitada +5622-336-3423|[email protected]

2015E FV/EBITDA and P/E multiples of 9.9x and 10.8x, respectively,

Boris Molina

26% and 5% premiums, respectively, to its average since 2010,

New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

when ILC acquired AFP Habitat from Citigroup. In addition, the company holds a 90% dividend yield payout, which drives a 2015E dividend yield of 7.0%, below its last-four-year average of 9.1%. We recommend investors to tender their shares on the Prudential tender offer.



Outlook 2015: We expect 3.1% EBITDA growth, explained by null growth in affiliates in Chile and a 2% increase in average salaries, in line with expected deterioration of the labor market in 2015, as we expect unemployment to deteriorate in from 6.4% to 7.4% in 2015. In Peru, we anticipate that commission revenue will increase 31% YoY, representing roughly 2.9% of the company’s total commission revenue, driven by an increase in Monthly Pension Holders (awarded the bid for second year in a row for 24 months) and client salaries.



Prudential to co-control: On November 28, ILC (AFP Habitat’s

Company Statistics Bloomberg

HABITAT CI

controller) announced that Prudential had signed an agreement to

Current Price (01/02/15)

Ch$ 910.36 / US$ 1.48

co-control the company. ILC (owns 67.5% of AFP Habitat), will

Target Price (YE 2015)

Ch$ 965.00 / US$ 1.56

52-Week Range (Ch$)

690.00 - 988.32

launch a tender offering for up to 13.1% of Habitat’s shares at

Market Capitalization (US$ Mn)

Ch$925 per share, adjusted for any dividend distributed by Habitat,

Float (%)

with the exception of the Ch$10.00/share dividend Habitat

3-Mth Avg. Daily Vol (US$ Mn)

traditionally pays in January. Once this is done, ILC will allocate half of its stake in Habitat to Prudential under the same conditions as the

1,482 32.5 0.8

Shares Outstanding - Mn

1,000

Price Performance (Ch$)

tender offering.

HABITAT CI

IPSA

110



Bravo Commission: The commission has been studying possible

100

proposals to improve the current pension fund system in Chile, such as increasing the retirement age and the monthly contribution fee in order to increase pensions. The final report will be delivered on August 2015, following postponement of the original date, January

90

80

70

J-13

2015.

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

236

D-14

AFP HABITAT Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 129 6.7 129 6.7 81 3.7 62.4 78 3.3 60.7 17 (19) 79 6.6 61.4

Ch$ 2014E 139 7.7 139 7.7 84 3.6 60.0 82 3.9 58.5 40 (35) 89 11.7 63.7

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (2) 32 114 (6) 107 (18) (0) (52) 0

2014E (2) 7 98 (2) 96 (33) (0) (75) 0

2015E (3) 1 88 (5) 83 (21) 0 (61) 0

2016E (3) 1 90 (5) 84 (22) 0 (61) 0

2013A (5) 64 229 (13) 217 (37) (1) (105) 0

2014E (4) 13 172 (3) 168 (58) (0) (131) 0

2015E (4) 1 140 (8) 132 (34) 0 (97) 0

2016E (5) 1 146 (9) 137 (37) 0 (100) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 63 67 14 308 28 24 256 0 0

2014E 51 55 14 340 35 39 265 0 0

2015E 52 56 17 364 36 39 289 0 0

2016E 52 57 19 390 37 39 314 0 0

2013A 119 127 27 587 53 46 488 1 0

2014E 84 91 23 557 58 64 434 0 0

2015E 83 91 27 587 58 63 466 0 0

2016E 86 93 31 639 61 64 514 0 0

0

0

0

0

0

0

0

0

LT Debt FINANCIAL RATIOS

2015E 143 2.7 143 2.7 86 3.1 60.3 84 2.6 58.5 23 (25) 85 (4.7) 59.1

2016E 147 2.9 147 2.9 90 3.9 60.9 87 3.6 58.9 24 (27) 86 1.8 58.5

2013A 261 4.8 261 4.8 163 1.9 62.4 158 1.5 60.7 35 (37) 160 4.7 61.4

US$ 2014E 244 (6.6) 244 (6.6) 146 (10.2) 60.0 143 (10.0) 58.5 69 (60) 155 (3.2) 63.7

2015E 229 (6.3) 229 (6.3) 138 (5.9) 60.3 134 (6.3) 58.5 37 (39) 135 (13.0) 59.1

2016E 240 4.8 240 4.8 146 5.9 60.9 141 5.5 58.9 40 (44) 140 3.7 58.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

(66)

(55)

(56)

(57)

(126)

(90)

(90)

(93)

Capital Employed

263

314

338

364

501

514

546

597

Net Debt/EBITDA

(0.8)

(0.7)

(0.6)

(0.6)

(0.8)

(0.6)

(0.7)

(0.6)

Net Debt/Equity

(0.3)

(0.2)

(0.2)

(0.2)

(0.3)

(0.2)

(0.2)

(0.2)

4.8

1.3

3.5

3.7

4.8

1.3

3.5

3.7

2,754.4

1,418.5

1,501.6

1,560.9

2,754.4

1,418.5

1,501.6

1,560.9

Dividend Payout (%)

69.7

94.4

68.5

72.4

68.5

81.9

64.0

72.0

ROCE (%)

37.2

37.5

32.4

31.6

39.1

39.2

32.5

31.6

Capex/Revenue (%) Int Cover (%)

ROE (%)

32.7

34.0

30.5

28.6

33.1

33.6

30.6

28.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

8.8

10.3

10.8

10.6

8.3

9.7

11.0

10.6

P/CE

8.5

10.0

10.4

10.2

8.0

9.4

10.6

10.2

FV/EBITDA

7.8

10.2

9.9

9.5

7.3

9.6

10.1

9.5

FV/EBIT

8.0

10.5

10.2

9.8

7.6

9.9

10.4

9.9

FV/Revenue

4.9

6.1

6.0

5.8

4.6

5.8

6.1

5.8

P/BV

2.7

3.4

3.2

2.9

2.7

3.5

3.2

2.9

FCF Yield (%)

15.4

10.6

9.1

9.3

16.4

11.2

8.9

9.3

Div Yield (%)

7.5

8.2

6.7

6.7

7.9

8.7

6.5

6.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

79

89

85

86

0.16

0.16

0.14

0.14

DPS

52

75

61

61

0.11

0.13

0.10

0.10

256

265

289

314

0.49

0.43

0.47

0.51

MARKET RATIOS

PER SHARE DATA

BVPS

237

Company Description AFP Habitat is Chile’s number two pension fund in terms of contributors and managed assets. According to September 2014 figures, AFP Habitat has more than 2.0 million affiliates and almost 1.2 million of contributors, with a market share of 21.4% and 22.9%, respectively and more than US$44 billion of assets under management (AUM). Consolidated sales and EBITDA during 2013 reached US$246 and US$154 million, respectively. The company manages mandatory savings, and also offers products to increase these savings over the mandatory level. In addition, in 2013 Habitat launched operations in Peru, after winning a bid for new entrants to the system for the next two years. The company has been listed on the Chilean stock exchange since 1981 and currently is controlled by Inversiones La Construcción (ILC), with a stake of 67.5%.

Key Personnel: Juan Benavides (Chairman), Cristián Rodríguez (CEO), Cristián Costabal (CFO), Megan Callahan () and Patrick Muzard Le Minihy (CPO) Web: www.afphabitat.cl

Market Share, October 2014

Provida 27.5%

Capital 20.5%

Planvital Modelo 2.8% 1.6%

Habitat 25.6%

Cuprum 20.9%

Sales, 2015E

Perú 2.2%

Chilean Monthly commission 97.8%

Shareholder Structure, November 2014

Others 28.8% Inversion Union Española 3.7%

ILC 67.5%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—UTILITIES

AGUAS ANDINAS

HOLD CURRENT PRICE: CH$356.92 TARGET PRICE: CH$390.00

RAISING YE2015 TARGET PRICE TO CH$390.00 FROM CH$382.00 

Investment

Case:

We

believe

regulatory

pressure

should

significantly weaken following the regulator's publication of the results of the 2015-2020 tariff revision cycle, which came in slightly better than our forecast. Also, we like Aguas's high dividend yield (5.4%) and low beta in a scenario of economic deceleration and political

Nicolas Schild* Chile: Santander Investment Chile Limitada +5622-336-3361 | [email protected]

Maria Carolina Carneiro* Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

uncertainty in Chile. However we believe the company's valuation (17.3x 15E P/E) limits potential upside.



Outlook 2015: We expect YoY net income growth of 7.7%, for a total of Ch$127 billion, mainly owing to (1) inflation pass-through to final consumers, (2) a less negative effect of inflation on debt issued in real terms, and (3) a neutral impact from the tariff revision on results. This would be offset, in our view, by lower volume growth due to better hydrology and an increase in taxes from 21% to 22.5%.



Slightly better-than-expected tariff revision: On November 19, the regulator announced the results of the 2015-2020 tariff revision cycle, calling for zero tariff growth compared with our forecast of a 0.5% decline. We believe these results should help ease the pressure that Company Statistics

has been on Aguas Andinas's stock during the past year.

Bloomberg



Defensive stock in uncertain times: We like Aguas Andinas's defensiveness in the current uncertain economic environment, based

AGUAS/A CI

Current Price (01/02/15)

Ch$ 356.92 / US$ 0.58

Target Price (YE 2015)

Ch$ 390.00 / US$ 0.61

52-Week Range (Ch$)

325.68 - 375.07

on: (1) its attractive dividend yield (5.4%), (2) no major impact from

Market Capitalization (US$ Mn)

the tax reform, as the regulated return for Aguas Andinas is

Float (%)

calculated after taxes, (3) the limited political risk, especially

3,556 44.9

3-Mth Avg. Daily Vol (US$ Mn)

2.3

Shares Outstanding - Mn

6,119

regarding the possible introduction of hydro royalties, and (4) the low Price Performance (Ch$)

elasticity of the water business to the economic cycle.

AGUAS/A CI



IPSA

120

Valuation limits potential upside. We estimate Aguas Andinas 110

trades at 2015E P/E and FV/EBITDA multiples of 17.3x and 11.3x, respectively, similar to its three-year average, despite our forecast of

100 90

low growth in the upcoming years.

80 70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

238

D-14

AGUAS ANDINAS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 403 5.2 223 (1.0) 247 2.2 61.4 183 (2.2) 45.3 (37) (29) 117 (3.8) 29.0

Ch$ 2014E 433 7.6 247 10.8 268 8.3 61.8 202 10.7 46.6 (57) (28) 117 0.7 27.1

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (65) 8 189 (84) 106 (34) 26 (89) 0

2014E (66) (51) 133 (67) 65 39 18 (121) 0

2015E (67) (1) 192 (125) 68 1 50 (117) 0

2016E (70) 9 209 (117) 92 0 18 (127) 0

2013A (131) 16 382 (169) 214 (69) 52 (180) 0

2014E (115) (89) 232 (118) 114 69 31 (211) 0

2015E (107) (2) 309 (200) 109 1 80 (189) 0

2016E (114) 14 340 (190) 150 1 29 (206) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 39 133 1,171 1,578 220 680 617 720 94

2014E 38 125 1,173 1,585 121 750 649 738 52

2015E 39 130 1,230 1,647 155 768 658 788 84

2016E 23 121 1,277 1,684 169 787 662 806 83

2013A 74 253 2,229 3,003 419 1,294 1,173 1,370 178

2014E 62 206 1,922 2,598 198 1,230 1,065 1,209 84

2015E 61 205 1,937 2,593 244 1,210 1,037 1,241 132

2016E 37 198 2,093 2,761 277 1,290 1,085 1,321 135

626

686

704

723

1,192

1,125

1,109

1,186

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

681

700

749

783

1,296

1,148

1,179

1,283

Capital Employed

1,412

1,478

1,537

1,574

2,688

2,423

2,420

2,581

Net Debt/EBITDA

2.8

2.6

2.7

2.6

2.6

2.4

2.6

2.7

Net Debt/Equity

1.1

1.1

1.1

1.2

1.2

1.1

1.1

1.2

20.8

15.5

27.7

24.6

20.8

15.5

27.7

24.6

8.6

8.4

8.1

8.0

8.6

8.4

8.1

8.0

Dividend Payout (%)

73.7

103.6

100.0

100.0

72.3

89.9

93.5

99.4

ROCE (%)

12.9

13.7

13.9

14.4

13.7

14.6

14.0

14.4

ROE (%)

18.8

18.6

19.4

19.7

19.1

18.4

19.4

19.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

17.8

18.3

17.3

16.8

16.8

17.2

17.5

16.8

P/CE

11.4

11.7

11.3

10.9

10.8

11.0

11.4

10.9

FV/EBITDA

12.0

11.4

11.3

10.7

11.3

10.8

11.3

10.8

FV/EBIT

16.2

15.2

14.8

14.1

15.3

14.3

14.9

14.1

FV/Revenue

7.4

7.1

7.0

6.7

6.9

6.6

7.1

6.7

P/BV

3.4

3.3

3.3

3.3

3.4

3.3

3.4

3.3

FCF Yield (%)

5.1

3.0

3.1

4.2

5.4

3.2

3.1

4.2

Div Yield (%)

4.3

5.6

5.4

5.8

4.6

6.0

5.3

5.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

19

19

21

21

3.85

3.36

3.32

3.46

DPS

15

20

19

21

2.95

3.46

3.08

3.36

4

3

3

3

0.69

0.52

0.51

0.57

LT Debt FINANCIAL RATIOS Net Debt

Capex/Revenue (%) Int Cover (%)

MARKET RATIOS

PER SHARE DATA

BVPS

2015E 449 3.6 259 4.7 280 4.5 62.4 213 5.4 47.5 (49) (38) 127 7.7 28.2

2016E 475 5.8 274 6.0 296 5.9 62.4 226 6.1 47.6 (54) (42) 130 2.8 27.4

2013A 813 3.3 450 (2.8) 499 0.4 61.4 369 (3.9) 45.3 (74) (59) 236 (5.4) 29.0

US$ 2014E 758 (6.7) 432 (4.0) 469 (6.1) 61.8 354 (4.1) 46.6 (99) (49) 206 (12.7) 27.1

2015E 721 (4.9) 416 (3.9) 450 (4.1) 62.4 342 (3.2) 47.5 (78) (60) 203 (1.1) 28.2

2016E 772 7.1 446 7.3 482 7.2 62.4 367 7.4 47.6 (87) (68) 212 4.1 27.4

Company Description Aguas Andinas is the largest water utility company in Chile, and one of the largest private water and sewage companies in South America. The company provides water and basic sanitation services to residential, commercial, and industrial customers in the Santiago metropolitan region, Chile’s capital, largest city, and the most populous region in the country. Aguas Andinas also has operations in Chile’s Region X through Empresa Sanitaria de los Lagos (Essal). Aguas Andinas, accounts for 43% of the water utilities industry in Chile. The company is controlled with a hold of 50.1% of the shares by Inversiones Aguas Metropolitanas (IAM), a holding company owned by Aguas Barcelona (Agbar), which is owned by Suez Environnement. Agbar and Suez Environnement are global players with extensive expertise in the sanitation and energy transportation sectors. Aguas Andinas stock trades at the Chilean stock market.

Key Personnel: Felipe Larrain (Chairman), Jordi Valls (CEO), Iván Yarur (CFO) and Stephanie Baier (Head of IR) Web: www.aguasandinas.cl

EBITDA by Sector, 2015E

ESSAL 9.5%

Aguas 90.5%

Sales by Segment, 2015E

Others 19.5% Treatment 20.4% Water 39.9%

Collection 20.2%

Shareholder Structure, Current

Others 43.0%

Local pension CORFO funds 5.0% 1.9%

IAM 50.1%

Sources for all charts and tables: Company reports and Santander estimates.

239

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—FOOD & BEVERAGE

ANDINA

HOLD CURRENT PRICE: CH$1,722 TARGET PRICE: CH$1,900

DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF CH$1,900; REPLACING YE2014 TARGET PRICE OF CH$2,560 

Investment Case: We are downgrading Andina to Hold from Buy due to (1) a weak economic outlook, with our forecast of declining volume in Argentina, Chile and Paraguay; and (2) limited visibility on operating improvements in Chile and Brazil. However, in our view, the current valuation already incorporates this weak outlook, thereby

Luis Miranda*, CFA Mexico: Banco Santander S.A. +5255-5269-1926 | [email protected]

Matias Duarte* Chile: Santander Investment Chile Limitada +5622-336-3423 | [email protected]

limiting potential downside to the stock.



Outlook 2015: We expect revenue to grow a modest 2.9% for 2015, due to a decline in volumes of 1.6% YoY, which we believe will be more than offset by the depreciation of the Chilean peso vs. local currencies, as non-Chilean operations represent close to 75% of volume. Due to this, we estimate an EBITDA of Ch$291 billion and 4.6% YoY growth, with a 27-bp EBITDA margin increase to 15.7%.



Weak outlook for soft drink consumption: Over the past few months, 2015 consensus forecasts for 2015E have fallen. We currently forecast that private consumption will reach -2.3%, 0.5% and 2.2% for Argentina, Chile and Paraguay, respectively. In our opinion, these decreases will hurt volume in these countries;



therefore, we are reducing our volume estimates in Argentina, Chile

Company Statistics

and Paraguay by 4.4%, 4.8% and 1.4%, respectively, with

Bloomberg

consolidated volume falling 1.6% for 2015.

Current Price (01/02/15)

Ch$ 1,722 / US$ 17.01

Target Price (YE 2015)

Ch$ 1,900 / US$ 18.77

52-Week Range (Ch$)

1,717 - 2,472

Tax reform affecting prices: The Chilean government’s current tax

Market Capitalization (US$ Mn)

2,654

reform incorporates tax increases on beverages, increasing prices of

Float (%)

Andinas’ products. The tax reform has led to an increase in excise

3-Mth Avg. Daily Vol (US$ Mn)

0.9

Shares Outstanding - Mn

947

taxes on soft drinks from 13% to 18% for sugary beverages, and a decline from 13% to 10% for non-sugary beverages; these changes have been passed through to consumers.



ANDINAB CI / AKO/B US

35.0

Price Performance (Ch$) ANDINAB CI

IPSA

120 110

Valuation: The stock currently trades at a 2015E FV/EBITDA and

100

P/E of 7.7x and 21.4x, respectively, and at a 38% and 14%

90

discounts, respectively, with respect to the averages of the last four

80 70

years.

60 50

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

240

D-14

ANDINA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 1,522 29.8 607 28.2 255 19.6 16.7 171 11.1 11.3 (58) (23) 89 1.5 5.8

Ch$ 2014E 1,808 18.8 717 18.1 279 9.7 15.4 174 1.6 9.6 (89) (26) 59 (33.8) 3.3

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (83) (17) (12) (116) (33) (337) 432 (73) (0)

2014E (105) (8) (55) (60) (91) (65) 89 (57) 0

2015E (106) 52 33 (124) (105) 0 (14) (42) 0

2016E (110) (3) (22) (123) (155) 0 (10) (61) 0

2013A (168) (35) (23) (235) (66) (680) 873 (147) (0)

2014E (184) (15) (96) (104) (159) (114) 155 (100) 0

2015E (169) 83 53 (199) (168) 0 (22) (67) 0

2016E (178) (4) (36) (200) (251) 0 (16) (99) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 80 459 693 2,083 402 799 861 712 107

2014E 179 581 724 2,293 451 923 897 801 110

2015E 244 628 743 2,358 478 916 943 787 103

2016E 248 641 756 2,385 480 912 972 778 98

2013A 152 874 1,319 3,964 765 1,521 1,638 1,355 203

2014E 294 952 1,187 3,759 740 1,513 1,471 1,313 181

2015E 394 1,012 1,198 3,803 771 1,478 1,520 1,270 167

2016E 407 1,052 1,240 3,911 788 1,495 1,593 1,275 161

605

691

684

679

1,152

1,132

1,103

1,114

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

632

621

543

529

1,203

1,019

875

868

Capital Employed

921

974

941

957

1,753

1,598

1,518

1,569

Net Debt/EBITDA

2.5

2.2

1.8

1.7

2.3

2.1

1.8

1.8

Net Debt/Equity

0.7

0.7

0.6

0.5

0.8

0.7

0.6

0.5

Capex/Revenue (%)

7.6

3.3

6.6

6.3

7.6

3.3

6.6

6.3

Int Cover (%)

8.8

4.3

4.6

4.8

8.8

4.3

4.6

4.8

Dividend Payout (%)

83.3

64.3

70.7

70.0

81.8

55.8

65.8

69.8

ROCE (%)

22.8

22.2

24.9

25.1

24.0

23.4

24.9

25.1

ROE (%)

10.3

6.7

9.5

9.4

10.4

6.6

9.4

9.4

LT Debt FINANCIAL RATIOS

MARKET RATIOS

2015E 1,895 4.8 770 7.4 297 6.2 15.6 191 9.6 10.1 (78) (25) 87 47.7 4.6

2016E 1,954 3.1 803 4.3 303 2.3 15.5 194 1.6 9.9 (75) (28) 90 3.7 4.6

2013A 3,073 27.6 1,225 26.0 514 17.6 16.7 346 9.2 11.3 (117) (46) 180 (0.2) 5.8

US$ 2014E 3,163 2.9 1,254 2.3 489 (5.0) 15.4 304 (12.0) 9.6 (155) (46) 103 (42.6) 3.3

2015E 3,026 (4.3) 1,230 (2.0) 474 (3.1) 15.6 305 0.0 10.1 (125) (40) 139 34.8 4.6

2016E 3,177 5.0 1,306 6.2 493 4.1 15.5 315 3.4 9.9 (122) (46) 147 5.6 4.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

25.7

27.6

18.7

18.1

24.2

26.0

19.1

18.1

P/CE

13.3

9.9

8.4

8.2

12.5

9.3

8.6

8.2

FV/EBITDA

11.7

8.2

7.5

7.2

11.0

7.7

7.6

7.3

FV/EBIT

17.3

13.1

11.6

11.3

16.3

12.4

11.8

11.4

FV/Revenue

2.0

1.3

1.2

1.1

1.8

1.2

1.2

1.1

P/BV

2.7

1.8

1.7

1.7

2.7

1.8

1.7

1.7

(1.4)

(5.6)

(6.4)

(9.5)

(1.5)

(5.9)

(6.3)

(9.5)

3.2

3.5

2.6

3.7

3.4

3.7

2.5

3.7

FCF Yield (%) Div Yield (%) PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

94

62

92

95

1.07

0.23

0.60

0.86

DPS

77

60

44

64

0.88

0.59

0.42

0.61

909

948

996

1,027

10.38

9.31

9.31

9.61

BVPS

241

Company Description Andina is the second-largest Coke bottler in Latin America and the seventh-largest globally in terms of volume sales. It has operations in Chile, Brazil, Argentina and Paraguay, serving more than 48 million inhabitants. The company also distributes fruit beverages and mineral water in all its markets, and in addition, in Brazil it distributes Kaiser beer. The Coca-Cola Company holds a 15% stake in Andina.

Key Personnel: Juan Claro (Chairman), Miguel Angel Peirano (CEO), Andres Wainer (CFO) and Paula Vicuña (Head of IR) Web: www.koandina.com

EBITDA by Country, 2015E

Paraguay 13.2% Chile 29.8%

Argentina 18.8%

Brazil 38.3%

Volumes by Segment, 2015E

Paraguay 7.4%

Chile 27.6%

Argentina 27.2%

Brazil 37.8%

Shareholder Structure, Current

Others 24.8% ADRs 6.6%

Coca Cola 14.7%

AFPs 3.4%

Controlling Group 50.5%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—FINANCIAL SERVICES

BANCO DE CHILE

HOLD CURRENT PRICE: CH$70.27 TARGET PRICE: CH$80.00

INTRODUCING YE2015 TARGET PRICE OF CH$80.00; REPLACING YE2014 TARGET PRICE OF CH$85.00 

Investment Case: Despite BCH having one of the highest ROEs

Boris Molina

within our universe of coverage, we remain discouraged by the weak

New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

economic outlook for Chile, due to a deceleration in investments, the impact of higher taxes, lower inflation, and potential changes coming from the upcoming labor reform.



Catalina Araya New York: Santander Investment Securities Inc. +1-212-297-1367 | [email protected]

Outlook 2015: We expect loan growth to remain weak, at 8% YoY (nominal), due to a weak investment climate and falling consumer confidence. Furthermore, we see competition intensifying in BCH’s targeted segments (high income individuals and mortgages of high value properties), as Chilean banks move away from the now less profitable mass market given higher taxes and maximum cap rate regulation.

Finally, we expect lower inflation to lead to margin

contraction in 1H15. Despite the weak outlook, we expect Banco de Chile to sustain an adjusted ROE close to 20% in 2015.



Subdued revenue growth: Given margins’ positive sensitivity to inflation, we expect NIM to compress ~30 bps YoY, as we forecast a deceleration in inflation to 2.6% from 5.1% accumulated through November 2014. Nonetheless, an acceleration in fee income growth should relieve some top-line pressure, thanks to slower NII growth.



Company Statistics Bloomberg

CHILE CI / BCH US

Current Price (01/02/15)

Ch$ 70.27 / US$ 68.34

Target Price (YE 2015)

Ch$ 80.00 / US$ 77.75

Best run bank in Chile: Banco de Chile’s management has a strong

52-Week Range (Ch$)

64.67 - 75.50

track record in credit risk management. For 2015, we believe the

Market Capitalization (US$ Mn)

bank will be able to navigate an economic slowdown, without compromising profitability. In 2014, the bank accumulated voluntary

10,781

Float (%)

9.5

3-Mth Avg. Daily Vol (US$ Mn)

4.9

Shares Outstanding - Mn

94,655

provisions, which it could deploy in 2015 in a weaker-than-expected economic scenario. Nonetheless, we forecast that asset quality will

Price Performance (Ch$) CHILE CI

remain under control, with NPLs increasing +10 bps YoY.

IPSA

110 105



Cost containment: We expect management to remain committed to

100

its tight cost-control strategy, with relatively no growth in the number

95

of branches and employees, while administrative costs and wages

90 85

should grow with inflation. As a result, we expect operating expenses

80

to come in slightly above inflation; though some deterioration in

75

adjusted efficiency is likely, in our view, due to weak revenue generation. 242

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

D-14

BANCO DE CHILE Financial Highlights: P&L and Balance Sheet, 2013–16E in Billions (Ch$), Millions (US$)

Company Description

INCOME STATEMENT Net Interest Income NPL Provisions Adj Net Interest Income Non-Interest Income Total Operating Revenue Non-Interest Expense Profit Before Taxes Taxes Net Profit Adjusted Net Profit

2013A 1,042 (242) 800 416 1,216 (621) 594 (80) 514 510

Ch$ 2014E 1,242 (286) 956 423 1,380 (672) 706 (87) 640 596

BALANCE SHEET Cash and Equivalents Securities Loans (net) Intangible Assets Total Assets Core Deposits Other Financial Liabilities Subordinated Debt Technical Provisions Equity Adjusted Equity

2013A 1,248 2,442 20,389 30 25,934 16,387 4,322 747 0 2,284 2,548

2014E 1,296 2,690 21,399 25 26,897 16,375 4,982 762 0 2,614 2,895

2015E 1,144 2,555 23,115 17 28,393 18,146 4,416 823 0 2,822 3,128

2016E 1,176 2,800 25,447 9 31,107 19,909 4,853 915 0 3,167 3,504

2013A 2,375 4,647 38,803 56 49,356 31,187 8,225 1,422 0 4,347 4,850

2014E 2,108 4,376 34,813 40 43,758 26,640 8,106 1,239 0 4,252 4,710

2015E 1,831 4,090 36,998 27 45,447 29,045 7,069 1,318 0 4,517 5,007

2016E 1,913 4,555 41,398 14 50,607 32,389 7,895 1,488 0 5,153 5,700

LOAN BOOK Companies Total Consumer Mortgages Other Loans Gross Loans Loan Grow th (%) NPL Provisions

2013A 13,077 3,061 4,732 0 20,870 11.2 237 (480)

2014E 13,183 3,363 5,402 0 21,948 5.2 286 (549)

2015E 13,958 3,733 6,051 0 23,741 8.2 333 (627)

2016E 15,405 4,148 6,598 0 26,151 10.1 371 (704)

2013A 24,886 5,825 9,006 0 39,717 1.4 451 (914)

2014E 21,448 5,471 8,789 0 35,707 (10.1) 465 (894)

2015E 22,341 5,975 9,685 0 38,001 6.4 534 (1,003)

2016E 25,062 6,748 10,734 0 42,544 12.0 603 (1,146)

KEY RATIOS NIM Risk Charge Operating Revenue / ATA

2013A 4.39 1.22 4.96

2014E 4.91 1.35 5.28

2015E 4.63 1.35 5.03

2016E 4.74 1.39 5.10

2013A 4.39 1.22 4.96

2014E 4.91 1.35 5.28

2015E 4.63 1.35 5.03

2016E 4.74 1.39 5.10

Cost / ATAs

2.53

2.57

2.56

2.50

2.53

2.57

2.56

2.50

Adj Efficiency

43.3

41.7

43.5

41.8

43.3

41.7

43.5

41.8

Effective Taxes

13.5

12.3

16.0

18.0

13.5

12.3

16.0

18.0

Reported ROE (%)

23.7

26.8

21.9

21.8

23.7

26.8

21.9

21.8

Adj ROE (%)

22.1

22.9

19.3

19.7

22.1

22.9

19.3

19.7

NPL Ratio

1.13

1.30

1.40

1.42

1.13

1.30

1.40

1.42

Adj NPL Ratio

2.06

2.39

2.47

2.52

2.06

2.39

2.47

2.52

Loans / Total Assets

2015E 1,244 (306) 938 440 1,378 (702) 676 (108) 568 548

2016E 1,380 (345) 1,035 474 1,508 (741) 767 (138) 629 618

2013A 2,103 (488) 1,616 840 2,456 (1,253) 1,198 (161) 1,037 1,029

US$ 2014E 2015E 2,177 2,007 (501) (493) 1,676 1,514 742 709 2,418 2,223 (1,178) (1,132) 1,237 1,091 (152) (175) 1,122 916 1,045 884

2016E 2,227 (557) 1,670 764 2,434 (1,196) 1,238 (223) 1,015 997

80.5

81.6

83.6

84.1

80.5

81.6

83.6

84.1

Loans / Core Deposits

127.4

134.0

130.8

131.4

127.4

134.0

130.8

131.4

RWA % Total Assets

94.9

98.4

100.5

101.9

94.9

98.4

100.5

101.9

Core Tier I Ratio (%)

10.4

10.9

11.0

11.1

10.4

10.9

11.0

11.1

Dividend Payout (%) MARKET RATIOS Adj. P/BV

58.6

50.3

61.5

45.1

58.6

50.3

61.5

45.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

2.8

2.4

2.2

1.9

2.9

2.4

2.2

1.9

13.6

11.0

11.9

10.5

12.9

10.2

11.9

10.5

4.4

4.8

5.3

4.3

4.8

5.3

5.3

4.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

5.45

6.76

6.00

6.65

6.61

7.11

5.81

6.43

24.13

27.61

29.82

33.46

27.56

26.95

28.63

32.66

DPS

3.25

3.40

3.69

3.00

4.12

3.64

3.59

2.89

Adj EPS

5.41

6.30

5.79

6.53

6.56

6.63

5.60

6.32

26.92

30.59

33.05

37.02

30.74

29.86

31.74

36.13

Adj. P/E Div Yield (%) PER SHARE DATA EPS BVPS

Adj BVPS Surplus Capital per Share

1.15

1.22

1.59

1.89

1.32

1.19

1.53

1.85

Unrealized Cap. Gains/Shr

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

243

Banco de Chile is the second-largest bank in Chile with an 18% market share in total loans in Chile, as of November 2014. Banco de Chile is engaged primarily in commercial banking in Chile, providing general banking services to a diverse customer base, which includes corporations, individuals and SMEs. The bank has historically grown via a combination of organic growth and acquisitions, the latest one being the purchase of Citibank’s operations in Chile in early 2008.

Key Personnel: Pablo Granifo Lavín (Chairman), Arturo Tagle Quiroz (CEO), Pedro Samhan (CFO) and Pablo Mejia (IRO) Web: www.bancochile.cl

Loan Book, 2015E Consumer Loans 27.1% Mortgages 4.4% Foreign Trade 12.7%

Commercial 55.8%

Revenue Structure, 2015E

Fees 21.0%

Other 2.2%

Trading 8.7%

NII 68.1%

Shareholder Structure, Current

Free Float 33.6%

SAOS 25.0%

Quiñenco 17.4%

SM-Chile Minorities 6.6%

Citigroup 17.4%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—FINANCIAL SERVICES

BCI

UNDERPERFORM CURRENT PRICE: CH$29,932 TARGET PRICE: CH$31,000

DOWNGRADING RATING TO UNDERPERFORM FROM BUY INTRODUCING YE2015 TARGET PRICE OF CH$31,000; REPLACING YE2014 TARGET PRICE OF CH$33,500 

Investment Case: We are downgrading BCI to Underperform, as we

Boris Molina

expect weak operating trends for 2015, as well as some overhang in

New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

the shares due to the capital increase required to acquire CNB of Florida. From a top-down view, we are not encouraged about Chile’s current economic outlook, given slowdowns in both mining and non-

Catalina Araya New York: Santander Investment Securities Inc. +1-212-297-1367 | [email protected]

mining investments, political uncertainty, and potential uncertainty from the upcoming labor reform.



Outlook 2015: We expect loan growth of 8%, below that of the system, given that BCI’s core customers in SMEs tend to be among the most affected during an economic slowdown. Therefore, we expect some asset quality deterioration in the segment. Furthermore, we view 2015 as likely to be challenging for top-line growth, as we expect further rate cuts and lower inflation to affect margins. Adjusted ROE should fall to 13.5%, from 18.3% in 2014, according to our estimates.



Inflation and rate cuts playing against BCI: Accumulated inflation through November 2014 reached 5.1%, while our forecast for 2015 is 2.6%. Additionally, we expect two 25-bp rate cuts in 2015, which we believe should translate into a 60-bp YoY compression in NIM.



Company Statistics Bloomberg

BCI CI

Current Price (01/02/15)

Ch$ 29,932 / US$ 48.75

Target Price (YE 2015)

Ch$ 31,000 / US$ 50.25

CNB acquisition still on hold: BCI is still awaiting approval from the

52-Week Range (Ch$)

26,924 - 33,755

U.S. Fed to acquire City National Bank of Florida, after reaching an

Market Capitalization (US$ Mn)

agreement to buy it in early 2013. We believe the deal will be delayed and will likely close by YE2015. We estimate that to fund the

5,225

Float (%)

36.2

3-Mth Avg. Daily Vol (US$ Mn)

2.0

Shares Outstanding - Mn

107

deal, BCI will issue approximately 8.3 million shares (US$400 million), which will create an overhang in the stock, in our opinion.

Price Performance (Ch$) BCI CI



IPSA

120

Building provisions for potential NPLs in 2015. For 2014, we 110

estimate BCI has built up approximately Ch$49 billion in excess provisions, a conservative policy that could allow the bank to reduce

100

the impact on reported earnings in 2015 should NPLs start to affect

90

results. Our adjusted ROE measure eliminates this effect, allocating

80

to 2014 returns the increase in excess NPL provisions in 2014 and

70

subtracting the drop in excess provisions in 2015.

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

244

D-14

BCI Financial Highlights: P&L and Balance Sheet, 2013–16E in Billions (Ch$), Millions (US$)

Company Description

INCOME STATEMENT Net Interest Income NPL Provisions Adj Net Interest Income Non-Interest Income Total Operating Revenue Non-Interest Expense Profit Before Taxes Taxes Net Profit Adjusted Net Profit

2013A 643 (159) 484 355 840 (472) 362 (62) 300 260

Ch$ 2014E 784 (204) 580 364 944 (509) 435 (79) 356 356

BALANCE SHEET Cash and Equivalents Securities Loans (net) Intangible Assets Total Assets Core Deposits Other Financial Liabilities Subordinated Debt Technical Provisions Equity Adjusted Equity

2013A 1,960 3,246 14,089 83 20,299 11,628 3,734 743 0 1,582 1,517

2014E 2,845 4,333 15,619 83 24,071 12,789 5,721 867 0 1,812 1,734

2015E 2,538 3,387 16,806 70 24,021 14,277 3,992 774 0 2,013 1,921

2016E 3,326 4,210 21,134 56 30,074 18,996 4,121 995 0 2,600 2,567

2013A 3,730 6,178 26,813 159 38,632 22,130 7,106 1,414 0 3,011 2,887

2014E 4,688 7,139 25,735 137 39,662 21,073 9,427 1,429 0 2,985 2,857

2015E 4,115 5,491 27,246 113 38,942 23,146 6,471 1,255 0 3,264 3,113

2016E 5,480 6,938 34,823 92 49,554 31,300 6,790 1,639 0 4,283 4,231

LOAN BOOK Companies Total Consumer Mortgages Other Loans Gross Loans Loan Growth (%) NPL Provisions

2013A 9,840 1,764 2,819 0 14,423 10.5 318 (334)

2014E 10,768 1,941 3,248 0 15,957 10.6 342 (338)

2015E 11,464 2,068 3,655 0 17,188 7.7 415 (382)

2016E 14,255 2,241 5,140 0 21,636 25.9 469 (502)

2013A 18,727 3,358 5,365 0 27,449 0.7 605 (636)

2014E 17,743 3,198 5,351 0 26,292 (4.2) 563 (557)

2015E 18,585 3,353 5,926 0 27,864 6.0 672 (619)

2016E 23,488 3,693 8,469 0 35,651 27.9 773 (828)

KEY RATIOS NIM Risk Charge Operating Revenue / ATAs

2013A 3.64 1.17 4.48

2014E 3.82 1.36 4.31

2015E 3.26 1.41 3.86

2016E 3.79 1.43 4.25

2013A 3.64 1.17 4.48

2014E 3.82 1.36 4.31

2015E 3.26 1.41 3.86

2016E 3.79 1.43 4.25

Cost / ATAs

2.52

2.32

2.24

2.26

2.52

2.32

2.24

2.26

Adj Efficiency

52.1

46.6

51.4

46.6

52.1

46.6

51.4

46.6

Effective Taxes

17.1

18.1

17.1

19.2

17.1

18.1

17.1

19.2

Reported ROE (%)

20.2

21.4

17.3

19.1

20.2

21.4

17.3

19.1

Adj ROE (%)

15.6

18.3

13.5

19.8

15.6

18.3

13.5

19.8

NPL Ratio

2.20

2.14

2.41

2.17

2.20

2.14

2.41

2.17

Adj NPL Ratio

3.26

3.36

3.36

2.92

3.26

3.36

3.36

2.92

Loans / Total Assets

71.1

66.3

71.6

71.9

71.1

66.3

71.6

71.9

Loans / Core Deposits

124.0

124.8

120.4

113.9

124.0

124.8

120.4

113.9

RWA % Total Assets

91.2

85.1

90.0

92.8

91.2

85.1

90.0

92.8

Core Tier I Ratio (%)

8.4

8.7

9.0

9.4

8.4

8.7

9.0

9.4

Dividend Payout (%)

28.7

37.9

38.8

25.1

28.7

37.9

38.8

25.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

1.8

1.7

1.6

1.3

1.8

1.6

1.6

1.3

12.8

9.6

11.9

7.2

12.0

9.0

11.8

7.1

MARKET RATIOS Adj. P/BV Adj. P/E Div Yield (%) PER SHARE DATA EPS BVPS DPS Adj EPS

2015E 730 (231) 499 422 921 (534) 388 (66) 321 283

2016E 999 (286) 713 470 1,183 (629) 554 (106) 448 471

2013A 1,298 (320) 978 717 1,695 (953) 732 (125) 606 524

US$ 2014E 1,374 (357) 1,017 639 1,655 (892) 763 (138) 624 623

2015E 1,194 (378) 816 690 1,506 (872) 633 (108) 525 463

2016E 1,633 (468) 1,165 768 1,933 (1,027) 906 (174) 732 770

2.8

4.2

3.9

3.3

3.0

4.5

3.9

3.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

2,802.00

3,323.60

2,997.07

3,883.98

5.66

5.83

4.90

6.35

14,761.90

16,904.14

18,784.60

22,530.00

28.09

27.85

30.45

37.12

803.11

1,259.99

1,163.26

975.10

1.62

2.21

1.90

1.59

2,421.86

3,318.25

2,644.16

4,084.76

4.89

5.82

4.32

6.68

Adj BVPS

14,154.88

16,177.82

17,919.55

22,251.66

26.94

26.66

29.05

36.66

Surplus Capital per Share

(2,591.04)

(2,717.21)

(2,087.51)

81.86

(4.93)

(4.48)

(3.38)

0.13

372.11

676.47

675.17

599.58

0.71

1.11

1.10

0.98

Unrealized Cap. Gains/Shr

245

BCI is the third-largest private bank in Chile, with a 12.5% market share as measured in total loans in 3Q14. During 2013 the BCI announced it started a process to acquire Citi National of Florida (CNB), subject to the approval of Chilean, Spanish, and U.S. banking regulators. The bank’s business has traditionally been oriented toward small and medium-sized companies (SMEs) and lowermiddle-income individuals. More recently, the bank has been targeting high-income individuals through its new business division dedicated to this segment. BCI offers a full range of banking products and services and participates in nearly all sectors in the financial industry through its business units and subsidiaries.

Key Personnel: Luis Enrique Yarur (Chairman), Lionel Olavarría Leyton (CEO), José Luis Ibaibarriaga (CFO) and Cristian Rodriguez (IRO) Web: www.bci.cl

Loan Book, 2015E

Mortgages 21.3%

Consumer Loans 12.0%

Foreign Trade 8.4%

Commercial 58.3%

Revenue Structure, 2015E

Fees 24.9%

Other 5.0%

NII 54.2% Trading 15.9%

Shareholder Structure, Current

Free Float 36.2%

Yarur Family 63.8%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—METALS & MINING

CAP

HOLD CURRENT PRICE: CH$2,743 TARGET PRICE: CH$3,000



Investment Case: CAP’s stock price declined 73% during 2014, a

Alberto Ariztia*

reflection of the 47% LTM decline in listed iron ore prices. However,

Chile: Santander Investment Chile Limitada +5622-336-3359 | [email protected]

assuming an iron ore price of US$65/ton, we believe downside is limited, as we believe an overall decline in commodity prices, a

Felipe Reis*

depreciated currency, and a weaker labor market in Chile will have a

Brazil: Banco Santander S.A. +5511-3012-5758 | [email protected]

marginally positive impact on production costs.



Outlook 2015: We expect a 43% drop in EBITDA due to (1) average effective prices 33% lower than 2014E, (2) total 2015E iron ore production to increase by 23%, reaching 16 million tons due to the ramp-up process at the Cerro Negro Norte mine, and (3) 6% lower cash cost per ton.



Valuation sensitivity: We estimate that, ceteris paribus, a US$10.00 increase/decrease

in

our

iron

ore

price

estimates

would

increase/decrease our target price by 109%. Regarding other variables, we estimate a US$10.00/bbl decline/increase in oil prices increases/decreases our target price by 9%, and assuming historical correlation of costs and the CRB index, we also estimate that a 10% decline in the CRB commodity index increases our target price by 14%.



CAP CI

Current Price (01/02/15)

Ch$ 2,743 / US$ 4.47

Cash cost will likely soften the impact of lower iron ore prices:

Target Price (YE 2015)

Ch$ 3,000 / US$ 4.84

We see potential cash cost reductions due to (1) Chilean peso

52-Week Range (Ch$)

2,530 - 9,930

depreciation, as we estimate that 35% of total cash-cost is indexed to

Market Capitalization (US$ Mn)

667

Float (%)

40.5

the CLP, (2) weaker commodity prices, which also reduce raw

3-Mth Avg. Daily Vol (US$ Mn)

2.0

materials costs (16% of total cash cost), and (3) decelerating mining

Shares Outstanding - Mn

149

activity, which reduces labor and services costs.



Company Statistics Bloomberg

Price Performance (Ch$) CAP CI

Adjusting to a new reality: We are cutting our medium-term list

120

price estimate for iron ore from US$90/ton to US$65/ton, but with a

100

higher-than-historical discount on effective prices, due to a change in

80

the sales mix.

60

IPSA

40 20 0

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

246

D-14

CAP Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 1,137 (5.4) 348 1.0 351 (6.1) 30.8 276 0.7 24.3 (17) (61) 91 (20.1) 8.0

Ch$ 2014E 1,075 (5.5) 186 (46.6) 233 (33.6) 21.7 120 (56.3) 11.2 (37) (12) 32 (64.7) 3.0

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (75) 0 (7) 158 (504) (346) (6) 105 (148) 195

2014E (113) 4 57 207 (343) (136) 20 155 (72) 6

2015E (116) 19 7 114 (92) 23 0 0 (5) 0

2016E (118) 18 (2) 104 (49) 55 0 0 0 0

2013A (151) 0 (15) 320 (1,018) (698) (11) 213 (299) 393

2014E (197) 8 100 361 (599) (238) 35 271 (127) 10

2015E (190) 31 12 187 (150) 37 0 0 (7) 0

2016E (191) 29 (3) 169 (80) 89 0 0 0 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 164 718 1,815 3,014 463 836 1,019 493 72

2014E 159 713 2,336 3,581 597 1,061 1,126 733 170

2015E 180 799 2,349 3,671 670 1,078 1,112 745 173

2016E 231 857 2,243 3,597 674 1,061 1,064 733 170

2013A 309 1,356 3,427 5,692 874 1,578 1,924 932 136

2014E 261 1,169 3,829 5,871 978 1,739 1,846 1,202 278

2015E 290 1,289 3,789 5,920 1,081 1,739 1,793 1,202 278

2016E 379 1,405 3,678 5,896 1,105 1,739 1,745 1,202 278

421

563

573

563

795

924

924

924

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

330

574

565

502

623

941

912

823

Capital Employed

2,388

2,826

2,821

2,691

4,509

4,632

4,549

4,412

Net Debt/EBITDA

0.9

2.5

3.9

3.4

0.9

2.3

3.8

3.5 0.5

LT Debt FINANCIAL RATIOS Net Debt

Net Debt/Equity

2015E 1,019 (5.2) 106 (42.9) 145 (37.5) 14.3 29 (75.7) 2.9 (41) 11 (28) (187.1) (2.7)

2016E 1,057 3.7 110 3.3 146 0.4 13.8 29 (2.3) 2.7 (46) 13 (30) (5.8) (2.8)

2013A 2,297 (7.0) 702 (0.8) 708 (7.7) 30.8 557 (1.1) 24.3 (34) (123) 184 (21.5) 8.0

US$ 2014E 1,880 (18.1) 325 (53.7) 407 (42.5) 21.7 211 (62.2) 11.2 (64) (21) 56 (69.4) 3.0

2015E 1,667 (11.3) 174 (46.6) 238 (41.6) 14.3 48 (77.3) 2.9 (67) 17 (46) (181.4) (2.7)

2016E 1,719 3.1 178 2.6 238 (0.2) 13.8 46 (2.9) 2.7 (75) 21 (48) (5.2) (2.8)

0.3

0.5

0.5

0.5

0.3

0.5

0.5

Capex/Revenue (%)

44.3

31.9

9.0

4.7

44.3

31.9

9.0

4.7

Int Cover (%)

17.5

5.2

3.0

3.0

17.5

5.2

3.0

3.0

130.2

79.6

14.3

0.0

128.0

69.1

13.3

0.0

14.5

4.8

0.7

0.6

15.2

5.1

0.7

0.6

Dividend Payout (%) ROCE (%) ROE (%)

9.6

3.0

(2.5)

(2.7)

9.8

3.0

(2.5)

(2.7)

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

16.4

12.5

-

-

15.5

11.8

-

-

P/CE

9.0

2.8

4.6

4.7

8.5

2.6

4.6

4.7

FV/EBITDA

8.1

5.4

8.8

8.3

7.6

5.1

8.7

8.4

MARKET RATIOS P/E

FV/EBIT

10.3

10.4

43.6

42.7

9.7

9.8

43.2

42.8

FV/Revenue

2.5

1.2

1.3

1.2

2.4

1.1

1.2

1.2

P/BV

1.5

0.4

0.4

0.4

1.5

0.4

0.4

0.4

(23.1)

(33.9)

5.5

13.4

(24.5)

(36.0)

5.6

13.3

FCF Yield (%) Div Yield (%)

9.9

18.1

1.1

(0.0)

10.5

19.2

1.1

(0.0)

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

754

231

(188)

(198)

1.52

0.40

(0.31)

(0.32)

DPS

1,229

521

31

0

2.48

0.91

0.05

0

BVPS

7,909

7,589

7,370

7,172

14.94

12.44

11.89

11.76

PER SHARE DATA

247

CAP is a Chilean mining and steel company engaged in the production of iron ore and long and flat steel products. Its production facilities include 13 million metric tons of annual iron ore production 700,000 tons of crude steel production and 425,000 tons of steel processing for 2014. The mining business is managed by Compañía Minera del Pacífico (CMP), from which about 87% of its production is exported and it is 75% owned by CAP and 25% owned by Mitsubishi Corporation (Japan). The company is listed on the Chilean Stock Exchange and is controlled by Invercap with a 31.3% stake, followed by Mitsubishi Corporation with a 19.3% stake, Chilean pension funds 8.9%. The remaining 40.5% is free float in the Chilean stock market.

Key Personnel: Roberto de Andraca (Chairman), Fernando Reitich (CEO), Raúl Gamonal (CFO) and Eduardo Rivadeneira (Investor Relations Officer) Web: www.cap.cl

Sales by Region, 6M14

Other Asia 9.0%

Chile 9.0%

China 72.0%

EBITDA by Business, 2015E Overhead & Intercompan y Adjustments 25.9%

Steel Production and Processing 33.2%

Iron Ore 40.9%

Shareholder Structure, Current

Others 40.5% Invercap 31.3%

Pension funds 8.9%

Mitsubishi Corp 19.3%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—FOOD & BEVERAGE

CCU

HOLD CURRENT PRICE: CH$5,769 TARGET PRICE: CH$6,250

INTRODUCING YE2015 TARGET PRICE OF CH$6,250; REPLACING YE2014 TARGET PRICE OF CH$7,000 

Investment Case: We are maintaining our Hold rating, as we believe that the stock’s current valuation is unattractive and factors in most of the negative impacts related to the fiscal reform and, to a large

Luis Miranda*, CFA Mexico: Banco Santander S.A. +5255-5269-1926 | [email protected]

extent, the devaluation of the Chilean peso. However, we

Matias Duarte*

acknowledge that the economic outlook for Chile and Rio de la Plata

Chile: Santander Investment Chile Limitada +5622-336-3423 | [email protected]

remains weak. Furthermore, we see downside risk to our numbers due to more-than-expected margin pressure from the depreciation of the Chilean peso vs. the U.S. dollar, as 70% of costs are U.S.-dollar denominated.



Outlook 2015: We expect YoY revenue and EBITDA growth of 8.3% and 11.5%, respectively, attributable to: (1) weak volume growth from worse-than-expected economic conditions; and (2) higher prices from the tax reform, partly offset by weaker margins stemming from (1) the depreciation of the Chilean peso vs. the U.S. dollar; and (2) higher SG&A costs and cost of sales spurred by salary increases and given that approximately 70% of the company’s cost of sales are in USD, thereby pressuring margins



Weak

consumption

growth:

Weak

prospects

for

private

consumption in Chile (2.2%) and Argentina (-2.3%), which amounts to 48% of EBITDA, hurt volume growth in the Chilean and Argentine operations.



Entry into Colombian market: On November 10, CCU announced

Company Statistics Bloomberg

CCU CI / CCU US

Current Price (01/02/15)

Ch$ 5,769 / US$ 18.47

Target Price (YE 2015)

Ch$ 6,250 / US$ 21.00

52-Week Range (Ch$)

5,619 - 6,713

that its intention to form a 50/50 JV with Postobon (the Colombian

Market Capitalization (US$ Mn)

bottler for Pepsi) for the production and distribution of beer and malt

Float (%)

beverages. CCU plans to invest US$400 million in the project, with

3,470 40.0

3-Mth Avg. Daily Vol (US$ Mn)

1.3

Shares Outstanding - Mn

370

disbursements of these funds made according to an unspecified but programmed schedule. The company will be named Central

CCU CI

Cervecera de Colombia.



Price Performance (Ch$) IPSA

110

Valuation at unattractive levels: We estimate that CCU currently trades at a 12-month forward FV/EBITDA of 7.5x, a P/E of 13.2x, a

100

90

3% and 10% discounts to its last four-year average. We believe that the current valuation already incorporates the tax reform and the weak economic outlook, thus limiting the stock’s potential downside.

80

70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

248

D-14

CCU Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 1,197 11.3 661 13.4 253 7.0 21.1 188 3.9 15.7 (31) (35) 123 7.5 10.3

Ch$ 2014E 1,299 8.5 699 5.8 273 8.2 21.0 206 9.4 15.9 (32) (49) 125 1.8 9.6

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (64) (12) 13 164 (109) 370 (16) (1) (64) 332

2014E (67) 1 (61) 111 (177) (125) 5 (64) (62) 0

2015E (53) 0 (6) 208 (130) 71 10 (16) (64) 0

2016E (58) 0 (10) 224 (128) 89 9 (16) (82) 0

2013A (130) (24) 26 331 (219) 748 (33) (2) (129) 670

2014E (119) 1 (108) 196 (312) (221) 8 (113) (110) 0

2015E (89) 0 (11) 346 (217) 118 16 (27) (106) 0

2016E (95) 0 (16) 369 (211) 146 15 (27) (135) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 409 818 681 1,728 409 234 989 263 120

2014E 221 709 811 1,767 372 239 1,054 199 67

2015E 228 743 889 1,879 393 222 1,151 183 67

2016E 235 778 959 1,985 408 209 1,245 167 63

2013A 772 1,546 1,286 3,263 773 443 1,867 497 228

2014E 371 1,191 1,364 2,970 625 401 1,771 334 112

2015E 377 1,228 1,469 3,106 649 368 1,903 302 110

2016E 386 1,276 1,573 3,254 669 343 2,042 273 104

143

132

116

103

270

222

192

169

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

LT Debt FINANCIAL RATIOS

2015E 1,407 8.3 753 7.7 305 11.5 21.7 252 22.2 17.9 (36) (55) 161 28.6 11.4

2016E 1,520 8.0 817 8.6 334 9.6 22.0 276 9.8 18.2 (35) (65) 176 9.2 11.6

2013A 2,418 9.4 1,334 11.4 510 5.2 21.1 380 2.1 15.7 (62) (70) 248 5.7 10.3

US$ 2014E 2,287 (5.4) 1,231 (7.7) 481 (5.6) 21.0 363 (4.6) 15.9 (56) (86) 221 (11.2) 9.6

2015E 2,345 2.5 1,254 1.9 508 5.5 21.7 419 15.6 17.9 (60) (91) 268 21.7 11.4

2016E 2,502 6.7 1,346 7.3 549 8.2 22.0 455 8.4 18.2 (58) (107) 290 7.9 11.6

Net Debt

(146)

(22)

(45)

(69)

(275)

(37)

(75)

(113)

Capital Employed

1,030

1,241

1,325

1,405

1,946

2,086

2,189

2,303

Net Debt/EBITDA

(0.6)

(0.1)

(0.1)

(0.2)

(0.5)

(0.1)

(0.1)

(0.2)

Net Debt/Equity

(0.1)

(0.0)

(0.0)

(0.1)

(0.2)

(0.0)

(0.0)

(0.1)

9.1

13.6

9.3

8.4

9.1

13.6

9.3

8.4

Capex/Revenue (%) Int Cover (%)

10.5

11.9

17.7

22.2

10.5

11.9

17.7

22.2

Dividend Payout (%)

55.6

50.7

50.7

50.7

54.6

44.1

47.2

50.6

ROCE (%)

22.0

21.1

23.7

24.8

23.2

22.1

23.7

24.8

ROE (%)

15.4

12.3

14.6

14.7

15.7

12.1

14.6

14.7

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

18.9

16.9

13.2

12.1

17.8

15.8

12.9

12.0

P/CE

12.4

11.0

10.0

9.1

11.7

10.3

9.7

9.0

9.5

8.4

7.5

6.8

9.0

7.9

7.4

6.7

FV/EBITDA

12.8

11.2

9.1

8.2

12.0

10.5

8.9

8.1

FV/Revenue

FV/EBIT

2.0

1.8

1.6

1.5

1.9

1.7

1.6

1.5

P/BV

2.4

2.0

1.9

1.7

2.4

2.0

1.8

1.7

FCF Yield (%)

15.9

(5.9)

3.3

4.2

16.9

(6.3)

3.4

4.2

Div Yield (%)

2.7

2.9

3.0

3.8

2.9

3.1

3.1

3.9

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

333

339

436

476

1.34

1.17

1.41

1.56

DPS

172

169

172

221

0.65

0.57

0.57

0.73

2,676

2,852

3,115

3,370

10.11

9.58

10.30

11.05

BVPS

249

Company Description CCU is a diversified beverage company operating mainly in Chile and Argentina. It is the largest brewer in Chile, the second largest brewer in Argentina, and it recently acquired a small soft drink operation in Uruguay. It is also Chile’s second largest carbonated soft drink producer and the largest producer of bottled juice, as well as the largest mineral water producer through its Ecusa division. CCU participates in the Chilean wine industry, with its 65% stake in the second largest exporting Chilean winery (Viña San Pedro Tarapacá). It holds an 80% stake in Compañía Pisquera de Chile, the second largest Chilean producer of Pisco. CCU is controlled by the Luksic group (Quiñenco) and Heineken, which together own 60% of the company.

Key Personnel: Andrónico Luksic (Chairman), Patricio Jottar (CEO), Felipe Dubernet (CFO) and Cristobal Escobar (Deputy IR Manager) Web: www.ccu.cl

Sales by Segment, 2015E

Other -13.0%

Wine 25.4%

Rio de la Plata 19.8%

Chile 67.8%

EBITDA by Segment, 2015E

Other 1.9%

Wine 39.6%

Chile 50.9%

Rio de la Plata 7.6%

Shareholder Structure

ADRs 12.9%

Others 27.1%

Quiñenco 30.0%

Heineken 30.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—RETAIL & CONSUMER GOODS

CENCOSUD

HOLD CURRENT PRICE: CH$1,496 TARGET PRICE: CH$1,690

INTRODUCING YE2015 TARGET PRICE OF CH$1,690; REPLACING YE2014 TARGET PRICE OF CH$2,170 

Investment Case: We maintain our Hold rating on Cencosud, as we

Nicolas Villarreal*

believe that even though its high exposure to supermarket operations

Chile: Santander Investment Chile Limitada +5622-336-3358 | [email protected]

should mitigate the negative impact of a worse economic scenario (75% of consolidated revenue), this will not be enough to offset the pressures on margins in the short term, based on lower than previously expected margins in Brazil. We view the deleveraging strategy the company has adopted as positive in order to reduce high

Reinaldo Santana* Mexico: Banco Santander S.A. +5255-5269-2102 | [email protected]

João Mamede* Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

debt levels; however, we see downside risk if the company is not able to make the planned improvements.



Outlook 2015: We estimate: (1) a YoY top-line marginal increase of 0.9% as a result of the deconsolidation of the financial business based on the JV with Scotiabank to be signed in 1Q15, which should be accounted for as equity income; (2) EBIT margin flat YoY at 5.0%, as financial business operations, accounted for as equity income, were one of the most profitable in terms of gross margin; and (3) 17% YoY net profit growth, with net margin expansion of 0.3 p.p. to 2.0% based on lower financial expenses.



Margin improvement in Brazil and Colombia. We expect a 26-bp

Company Statistics

recovery in EBITDA margin on improvements in the Brazilian and

Bloomberg

Ch$ 1,496 / US$ 7.48

Target Price (YE 2015)

Ch$ 1,690 / US$ 8.12

the regional strategy Cencosud has adopted in the country, and after

52-Week Range (Ch$)

1,422 - 1,969

improvements in inventory management. In Colombia we believe

Market Capitalization (US$ Mn)

Colombian operations. In Brazil we expect to see this effect following

margins will improve due to the change in sales mix, which should



CENCOSUD CI / CNCO US

Current Price (01/02/15)

39.5

3-Mth Avg. Daily Vol (US$ Mn)

lead to higher margins and consolidation in operations.

Shares Outstanding - Mn

Credit card business transfer to JV with Scotiabank: Scotiabank

Price Performance (Ch$)

is to acquire 51% of Cencosud Administradora de Tarjetas (CAT),

7,035

Float (%)

4.5 2,889

CENCOSUD CI

IPSA

120

which implies that (1) Cencosud will no longer have to finance this 100

working-capital-intensive business, (2) the credit business will likely be able to show higher leverage inside a bank, and (3) Cencosud will be able to reduce its leverage in-line with the company’s recently

80

60

adopted strategy. 40

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

250

D-14

CENCOSUD Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 10,408 14.7 3,022 18.4 858 32.3 8.2 677 34.9 6.5 (298) (96) 294 66.0 2.8

Ch$ 2014E 2015E 10,999 11,101 5.7 0.9 3,071 3,040 1.6 (1.0) 767 789 (10.6) 2.9 7.0 7.1 554 559 (18.1) 0.9 5.0 5.0 (291) (231) (74) (107) 189 221 (35.7) 17.0 1.7 2.0

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (189) 0 (324) (219) (255) (474) (14) (82) 638

2014E (203) 0 (352) (366) (398) (764) 233 (88) 280

2015E (204) 0 379 396 (254) 141 (146) (57) (274)

2016E (202) 0 (0) 148 (288) (140) (146) (66) 0

2013A (382) 0 (654) (442) (515) (956) (28) (166) 1,288

2014E (356) 0 (616) (640) (696) (1,337) 408 (154) 489

2015E (326) 0 605 632 (406) 226 (234) (91) (438)

2016E (328) 0 (0) 241 (468) (227) (237) (108) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 172 2,434 4,670 10,065 2,952 2,852 4,261 2,957 739

2014E 125 1,571 4,865 9,510 1,831 3,154 4,524 3,191 787

2015E 817 1,658 4,915 9,029 1,752 2,588 4,689 3,044 934

2016E 868 1,714 5,002 9,171 1,913 2,285 4,973 2,898 1,090

2013A 327 4,633 8,888 19,155 5,617 5,428 8,110 5,628 1,407

2014E 206 2,576 7,975 15,591 3,002 5,171 7,417 5,230 1,291

2015E 1,318 2,674 7,928 14,562 2,825 4,174 7,563 4,910 1,506

2016E 1,423 2,810 8,200 15,035 3,136 3,746 8,152 4,752 1,788

2,218

2,403

2,110

1,808

4,221

3,939

3,404

2,964 2016E

LT Debt FINANCIAL RATIOS

2016E 11,079 (0.2) 3,027 (0.4) 838 6.1 7.6 610 9.1 5.5 (106) (154) 350 58.3 3.2

2013A 21,018 12.7 6,102 16.3 1,733 30.0 8.2 1,367 32.5 6.5 (602) (194) 594 63.1 2.8

US$ 2014E 2015E 19,247 17,726 (8.4) (7.9) 5,374 4,854 (11.9) (9.7) 1,343 1,261 (22.5) (6.1) 7.0 7.1 970 893 (29.0) (7.9) 5.0 5.0 (510) (368) (129) (171) 331 353 (44.3) 6.8 1.7 2.0

2016E 18,015 1.6 4,923 1.4 1,362 8.0 7.6 992 11.1 5.5 (172) (250) 569 61.2 3.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

Net Debt

2,785

3,065

2,227

2,030

5,301

5,025

3,593

3,328

Capital Employed

6,983

6,790

6,979

7,068

13,290

11,131

11,257

11,588

Net Debt/EBITDA

3.2

4.0

2.8

2.4

3.1

3.7

2.8

2.4

Net Debt/Equity

0.7

0.7

0.5

0.4

0.7

0.7

0.5

0.4

Capex/Revenue (%)

2.5

3.6

2.3

2.6

2.5

3.6

2.3

2.6

Int Cover (%)

3.3

3.5

3.7

4.1

3.3

3.5

3.7

4.1

Dividend Payout (%)

46.4

30.0

30.0

30.0

45.6

26.0

27.9

29.9

ROCE (%)

11.1

9.3

9.8

11.1

11.7

9.8

9.8

11.1

7.7

4.3

4.8

7.2

7.8

4.3

4.8

7.2

ROE (%) MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

18.6

23.1

19.5

12.3

17.5

21.8

19.9

12.4

P/CE

11.3

11.2

10.2

7.8

10.7

10.5

10.4

7.8

FV/EBITDA FV/EBIT FV/Revenue P/BV FCF Yield (%) Div Yield (%) PER SHARE DATA

9.6

9.7

8.3

7.6

9.1

9.1

8.4

7.6

12.2

13.4

11.7

10.4

11.5

12.6

11.9

10.5

0.8

0.7

0.6

0.6

0.7

0.6

0.6

0.6

1.3

1.0

0.9

0.9

1.3

1.0

0.9

0.9

(8.7)

(17.5)

3.3

(3.2)

(9.2)

(18.5)

3.2

(3.2)

1.5

2.0

1.3

1.5

1.6

2.1

1.3

1.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

102

65

77

121

0.57

0.38

0.40

0.59

DPS

28

31

20

23

0.16

0.15

0.10

0.11

1,475

1,566

1,623

1,721

0.01

0.01

0.01

0.01

BVPS

251

Company Description Cencosud is one of the leading multiformat retailers in Chile, Argentina, Colombia, Peru and Brazil. The company’s retail formats in Chile include Jumbo hypermarkets, Santa Isabel supermarkets, Easy home improvement division, shopping centers, and department store chains, Paris and Johnson. In Argentina, Cencosud operates Jumbo hypermarkets, Disco and Vea Supermarkets, Easy home improvement, and shopping malls. In Brazil, the company has operations in three states, with GBarbosa, Bretas and Prezunic being the most important brands. In Peru, its operations include Wong hypermarkets, Metro supermarkets, and Paris department stores. Finally, Cencosud has operated its home improvement business in Colombia, and since 4Q12, Jumbo Colombia with the acquisition of Carrefour Colombia.

Key Personnel: Horst Paulmann (Chairman), Jaime Soler (CEO), Juan Manuel Parada (CFO), María Soledad Fernández (Head of Investor Relations) and Natalia Nacif (IR) Web: www.cencosud.cl

Revenue by Country, 2015E

Peru 9.4%

Colombia 9.9%

Brazil 20.2%

Chile 36.8%

Argentina 24.0%

Revenue by Segment, 2015E

Department Store 9.7%

Home Improvemen t 11.6%

Real Financial Estate Services 1.8% 1.0%

Supermarke ts 76.2%

Shareholder Structure, Current

Others 21.3% AFPs 18.2%

Paulmann Family 60.5%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—PULP & FOREST PRODUCTS

CMPC

HOLD CURRENT PRICE: CH$1,493 TARGET PRICE: CH$1,700

INTRODUCING YE2015 TARGET PRICE OF CH$1,700; REPLACING YE2014 TARGET PRICE OF CH$1,500 

Investment Case: We maintain our Hold rating on CMPC, as we

Alberto Ariztia*

believe the current P/E valuation of 18.4x for 2016E in U.S. dollars

Chile: Santander Investment Chile Limitada +5622-336-3359 | [email protected]

(after the Guaiba II expansion has become fully operational) fully incorporates the new pulp capacity and potential cost reductions associated with that project. CMPC is trading at a 27% premium to

Felipe Reis* Brazil: Banco Santander S.A. +5511-3012-5758 | [email protected]

Copec, which we believe should narrow in the future.



Outlook 2015: We expect EBITDA of US$1.031 million, up 4.0% YoY, based on the launch in 2H15 of the Guaiba II project, which we expect will help the company expand volumes sold to third parties by 3.6% in 2015 and another 4.5% in 2016. We also assume a 5% decrease in average cash costs, due to the effect of FX depreciation, a more efficient operation (Guaiba II), and lower cost pressures from a weaker labor market in Chile in 2015E.



Guaiba II to enter production in 2H15: We assume the Guaiba II expansion will begin operations in 2H15. The US$2.1 billion capex project should contribute 32% of CMPC’s capacity and increase hardwood’s percentage of total pulp produced from 70% to 79%. The



project was financed via debt and a US$250 million capital increase

Company Statistics

(June 2014).

Bloomberg

CMPC CI

Current Price (01/02/15)

Ch$ 1,493 / US$ 2.43

Target Price (YE 2015)

Ch$ 1,700 / US$ 2.74

We remain cautious on hardwood pulp: The startup of

52-Week Range (Ch$)

1,140 - 1,538

considerable low-cost BHKP capacity within a short period of time

Market Capitalization (US$ Mn)

has limited a pulp price recovery, a situation that we expect to prevail

Float (%)

in the medium to long term. Regardless of short-term price

6,075 44.6

3-Mth Avg. Daily Vol (US$ Mn)

2.7

Shares Outstanding - Mn

2,500

fluctuations, we see the industry cost curve continuing to shift from less efficient players to low-cost producers. In our view, this should

Price Performance (Ch$) CMPC CI

continue not only to limit a sustainable price recovery but also to

110

exert downward pressure on pulp prices in USD terms, since we

100

estimate demand to grow less than capacity, and paper producers

IPSA

90

may have more bargaining power relative to the more efficient pulp 80

producers. Consequently we assume a long-term BHKP price of 70

US$720/ton.

60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

252

D-14

CMPC Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 2,463 6.4 508 7.6 477 7.3 19.4 265 3.4 10.7 (66) (88) 97 (1.3) 3.9

Ch$ 2014E 2,765 12.2 585 15.2 567 18.7 20.5 312 17.7 11.3 (47) (135) 111 14.6 4.0

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (170) 0 4 272 (290) (18) 12 (36) 248

2014E (197) 0 81 389 (822) (434) 454 (35) 119

2015E (215) 0 (29) 357 (677) (319) (221) (36) 0

2016E (250) 0 (77) 376 (353) 23 (114) (51) 0

2013A (344) 0 9 549 (585) (36) 24 (73) 500

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 589 1,847 3,606 7,513 603 2,505 4,403 2,097 200

2014E 858 2,219 4,822 9,431 817 3,483 5,130 2,901 356

2015E 292 1,720 5,366 9,516 739 3,425 5,350 2,726 254

2016E 147 1,649 5,382 9,421 735 3,269 5,549 2,569 237

1,897

2,545

2,472

2013A

2014E

Net Debt

1,508

Capital Employed

6,521

Net Debt/EBITDA Net Debt/Equity

2015E 4,786 (1.1) 1,051 2.6 1,031 4.0 21.5 579 6.2 12.1 (184) (93) 278 42.9 5.8

2016E 5,299 10.7 1,181 12.4 1,167 13.1 22.0 675 16.4 12.7 (194) (122) 331 19.2 6.2

2014E (344) 0 141 680 (1,439) (759) 794 (61) 208

2015E (350) 0 (47) 581 (1,100) (519) (359) (58) 0

2016E (406) 0 (126) 611 (573) 38 (185) (83) 0

2013A 1,113 3,489 6,811 14,188 1,138 4,730 8,316 3,961 378

2014E 1,406 3,637 7,905 15,461 1,339 5,709 8,409 4,755 583

2015E 470 2,774 8,655 15,348 1,191 5,524 8,629 4,396 409

2016E 240 2,703 8,822 15,444 1,204 5,359 9,096 4,211 389

2,331

3,583

4,172

3,987

3,822

2015E

2016E

2013A

2014E

2015E

2016E

2,043

2,434

2,422

2,848

3,349

3,926

3,971

8,112

8,802

8,688

12,315

13,299

14,197

14,243

3.2

3.6

3.8

3.4

3.0

3.4

3.8

3.4

0.3

0.4

0.5

0.4

0.3

0.4

0.5

0.4

11.8

29.7

23.0

10.8

11.8

29.7

23.0

10.8

6.3

5.9

5.7

6.1

6.3

5.9

5.7

6.1

36.7

35.7

32.2

30.0

36.0

31.0

30.0

30.0

ROCE (%)

5.6

5.6

5.4

6.1

5.8

5.9

5.4

6.1

ROE (%)

2.4

2.3

3.3

3.7

2.4

2.3

3.3

3.7

LT Debt FINANCIAL RATIOS

Capex/Revenue (%) Int Cover (%) Dividend Payout (%)

MARKET RATIOS

2015E 2,943 6.4 646 10.5 634 11.9 21.5 356 14.3 12.1 (113) (57) 171 53.8 5.8

2016E 3,259 10.7 726 12.4 718 13.1 22.0 415 16.4 12.7 (119) (75) 204 19.2 6.2

2013A 4,974 4.5 1,026 5.8 964 5.4 19.4 535 1.6 10.7 (134) (178) 196 (3.0) 3.9

US$ 2014E 4,838 (2.7) 1,024 (0.2) 992 2.9 20.5 545 2.0 11.3 (83) (236) 194 (0.7) 4.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

31.4

34.2

21.8

18.3

29.6

32.2

21.9

18.4

P/CE

11.4

12.3

9.7

8.2

10.7

11.6

9.7

8.2

FV/EBITDA

9.5

10.3

9.7

8.6

9.0

9.7

9.7

8.6

17.2

18.7

17.3

14.8

16.2

17.6

17.3

14.9

FV/Revenue

1.8

2.1

2.1

1.9

1.7

2.0

2.1

1.9

P/BV

0.7

0.7

0.7

0.7

0.7

0.7

0.7

0.7

(0.6)

(11.4)

(8.6)

0.6

(0.6)

(12.1)

(8.5)

0.6

1.2

0.9

1.0

1.4

1.3

1.0

1.0

1.4

FV/EBIT

FCF Yield (%) Div Yield (%) PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

51

48

68

81

0.10

0.08

0.11

0.13

DPS

19

15

14

20

0.04

0.03

0.02

0.03

2,154

2,070

2,124

2,239

4.07

3.39

3.43

3.67

BVPS

253

Company Description CMPC is one of the main manufacturers of forestry products in Latin America, with interests in wood, pulp, paper, tissue and packaging businesses. The company has approximately 667,000 planted hectares of eucalyptus and radiate pine in Argentina, Chile and Brazil; 1.7 million cubic meters per year of wood capacity; 2.8 million tons per year of pulp capacity; and is considered a market leader in the tissue business in Chile, Argentina, Peru and Uruguay. CMPC is also the largest packaging supplier for the export industries in Chile. The company is controlled by the Matte Group, which holds a 55.4% stake in CMPC. The stock is listed in the Santiago Stock Exchange.

Key Personnel: Eliodoro Matte (Chairman), Hernán Rodríguez (CEO), Luis Llanos (CFO) and Colomba Henríquez (IR) Web: www.cmpc.cl

Sales by Geography, 6M14

Others 43.0% Chile 26.0%

North America 3.0%

Europe 12.0%

Asia 16.0%

EBITDA by Business, 2014E

Tissue 20.0%

Paper 15.0%

Forestry 11.0%

Pulp 54.0%

Shareholder Structure, Current

Float 33.2%

Pension funds 11.4%

Matte Family (Controller) 55.4%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—UTILITIES

COLBUN

BUY

CURRENT PRICE: CH$163.22 TARGET PRICE: CH$195.00 INTRODUCING YE2015 TARGET PRICE OF CH$195.00; REPLACING YE2014 TARGET PRICE OF CH$162.00 

Investment Case: We believe that the startup of the Angostura (316 MW) hydro facility and new non-regulated contracts will continue to boost results and improve Colbun’s financial position. Also, the recent competitive LNG supply agreement should bring higher stability to results, lowering hydrological risk for the company, in our

Nicolas Schild* Chile: Santander Investment Chile Limitada +5622-336-3361 | [email protected]

Maria Carolina Carneiro* Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

view. Colbun currently trades at a FCF yield of 9.2%, one of the highest in Chile and partly attributable to, in our view, the startup of Angostura.



Outlook 2015: We expect EBITDA to reach US$634 million, growing 17% YoY, stemming from new non-regulated contracts and a more favorable outlook for 2014-15 ice-melting season. We forecast YoY bottom-line growth of 45% YoY, due to a weaker impact of FX depreciation on deferred tax assets.



New LNG supply contract to protect results: Colbun secured an LNG supply contract for 2015-19 at a lower-than-historical price and with higher flexibility, finally closing the gap between contract basis and efficient generation under normal conditions hydrology, consequently significantly reducing volatility in results.



Sharp improvement in financial position. The startup of the

Company Statistics

Angostura (316 MW, hydro) project in 1Q14 and the maturity of low

Bloomberg

priced non-regulated contracts have substantially helped strengthen

Current Price (01/02/15)

Ch$ 163.22 / US$ 0.27

Target Price (YE 2015)

Ch$ 195.00 / US$ 0.31

52-Week Range (Ch$)

116.54 - 166.42

Colbun’s balance sheet. We expect the company to end 2015 at a net debt/EBITDA of 1.1x and cash of ~US$1.3 billion. Also, we

Market Capitalization (US$ Mn)

highlight the 9.2% FCF yield for 2015E, one of the highest of Chilean

Float (%)

companies.



COLBUN CI

4,660 41.0

3-Mth Avg. Daily Vol (US$ Mn)

2.4

Shares Outstanding - Mn

Preparing for the next investment phase: Due to its solid cash position, we expect Colbun will announce in 2015 potential uses of

Price Performance (Ch$) COLBUN CI

these funds, which could lead to the development of green or

130

brownfield projects or, inclusively, entering another market (Colombia

120

or Peru, in our view). We estimate that the announcement of the

110

Santa Maria II (350 MW, coal) project could have a +10% positive

17,536

IPSA

100 90

impact on our target price.

80 70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

254

D-14

COLBUN Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 840 22.4 135 23.0 174 24.9 20.8 94 27.9 11.2 (35) (33) 26 5.6 3.1

Ch$ 2014E 869 3.4 254 87.4 311 78.0 35.7 207 120.2 23.8 (40) (48) 121 365.3 14.0

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (81) 0 29 136 (144) (9) 2 (11) (7) 0

2014E (104) 0 (6) 219 (47) 172 (123) 188 (10) 0

2015E (117) 0 (2) 307 (38) 269 0 (19) (40) 0

2016E (117) 0 (7) 333 (37) 296 0 (43) (57) 0

2013A (163) 0 58 274 (291) (18) 4 (23) (13) 0

2014E (181) 0 (10) 383 (82) 302 (215) 329 (18) 0

2015E (187) 0 (3) 490 (60) 430 0 (30) (64) 0

2016E (190) 0 (11) 541 (60) 481 0 (70) (92) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 137 391 2,645 3,187 180 1,139 1,869 895 79

2014E 590 861 3,009 4,030 201 1,673 2,156 1,240 115

2015E 808 1,074 2,980 4,217 218 1,657 2,343 1,241 142

2016E 990 1,244 2,853 4,258 201 1,587 2,469 1,179 139

2013A 260 744 5,033 6,066 342 2,168 3,556 1,703 149

2014E 967 1,411 4,933 6,607 330 2,742 3,535 2,032 188

2015E 1,304 1,732 4,807 6,802 352 2,672 3,778 2,002 228

2016E 1,623 2,040 4,677 6,980 330 2,602 4,048 1,932 228

816

1,125

1,100

1,039

1,554

1,844

1,774

1,704

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

758

650

433

189

1,443

1,065

698

309

Capital Employed

2,790

3,239

3,191

3,067

5,310

5,310

5,146

5,027

Net Debt/EBITDA

4.3

2.1

1.1

0.4

4.1

2.0

1.1

0.4

LT Debt FINANCIAL RATIOS Net Debt

Net Debt/Equity Capex/Revenue (%) Int Cover (%) Dividend Payout (%)

2015E 883 1.6 334 31.9 397 27.8 45.0 280 35.3 31.7 (48) (52) 192 58.3 21.8

2016E 810 (8.2) 371 11.1 434 9.4 53.6 317 13.2 39.1 (40) (66) 223 15.8 27.5

2013A 1,696 20.3 273 20.9 352 22.8 20.8 190 25.7 11.2 (71) (66) 53 3.8 3.1

US$ 2014E 1,520 (10.4) 444 62.4 543 54.2 35.7 362 90.8 23.8 (70) (85) 212 303.2 14.0

2015E 1,409 (7.3) 534 20.3 634 16.6 45.0 447 23.5 31.7 (77) (83) 307 44.5 21.8

2016E 1,317 (6.6) 604 13.1 706 11.4 53.6 515 15.3 39.1 (66) (108) 362 17.9 27.5

0.4

0.3

0.2

0.1

0.4

0.3

0.2

0.1

17.2

5.4

4.3

4.6

17.2

5.4

4.3

4.6

7.0

7.1

7.4

8.4

7.0

7.1

7.4

8.4

26.8

39.5

32.1

30.2

26.3

34.3

30.0

30.0

ROCE (%)

4.8

8.2

10.5

12.8

5.0

8.6

10.6

12.8

ROE (%)

1.5

6.0

8.4

9.2

1.5

6.0

8.4

9.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

n/m

23.3

14.9

12.9

n/m

22.0

15.2

12.9

P/CE

19.7

12.6

9.3

8.4

18.6

11.9

9.4

8.4

FV/EBITDA

16.4

11.2

8.3

7.0

15.5

10.6

8.5

7.0

FV/EBIT

30.4

16.8

11.8

9.6

28.7

15.8

12.0

9.6

FV/Revenue

3.4

4.0

3.7

3.8

3.2

3.8

3.8

3.8

P/BV

1.1

1.3

1.2

1.2

1.1

1.3

1.2

1.2

(0.4)

6.1

9.4

10.3

(0.4)

6.5

9.2

10.3

0.3

0.4

1.4

2.0

0.3

0.4

1.4

2.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

3

12

17

21

0.01

0.02

0.03

0.03

DPS

1

1

4

5

0.00

0.00

0.01

0.01

203

202

215

231

0.39

0.33

0.35

0.38

MARKET RATIOS

FCF Yield (%) Div Yield (%) PER SHARE DATA

BVPS

255

Company Description Colbún is the third largest generator of electricity in the Central Interconnected System. The company has a total installed capacity of 3,278 MW, with all the generating facilities linked to the Chilean Central Grid (SIC). Its controller is the Matte Group, one of the largest economic groups in Chile, which also has a presence in the pulp and paper, banking, telecommunications, and real estate sectors, among others.

Key Personnel: Bernardo Matte L. (Chairman), Thomas Keller (CEO), Sebastián Moraga (CFO) and Maria Elena Palma (IR) Web: www.colbun.cl

Installed Capacity by technology, 2015E

Coal 10.0%

Natural Gas/Diesel 42.0%

Hydro 48.0%

Electricity Generation Mix, 2015E

Hydro 40.8%

Thermal 59.2%

Shareholder Structure, Current

Angelini Group 10.0%

Chilean Pension Funds 17.0%

Others 24.0%

Matte Group 49.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—FOOD & BEVERAGE

CONCHA Y TORO

HOLD CURRENT PRICE: CH$1,162 TARGET PRICE: CH$1,270

INTRODUCING YE2015 TARGET PRICE OF CH$1,270; REPLACING YE2014 TARGET PRICE OF CH$1,260 

Investment Case: We are maintaining our Hold rating on the stock,

Luis Miranda*, CFA

as we believe current valuations already incorporate a 2015E YoY

Mexico: Banco Santander S.A. +5255-5269-1926 | [email protected]

EBITDA improvement of 12.7%. In our view, this increase should be driven by a depreciation of the Chilean peso vs. the currencies of the main countries to which the company exports, coupled with similar

Matias Duarte* Chile: Santander Investment Chile Limitada +5622-336-3423 | [email protected]

wine costs to those of this year. In addition to valuation and pressure from COGS, we believe the main stock driver will be FX.



Outlook 2015: We expect EBITDA growth of 12.7% and an EBITDA margin of 15.5% (up merely 11 bps), mainly supported by: (1) price stability for grapes and bulk wine; and (2) the depreciation of the Chilean peso versus the U.S. dollar, the euro, and the British pound sterling; with these currencies accounting for approximately 65% of total exported volume. However, we believe these positives will be partially offset by a decrease in private consumption in Chile, which we forecast at 2.2%, declining throughout the year and thereby affecting wine consumption.



Chilean peso to depreciate further: We expect a 7.6% depreciation of the Chilean peso in 2015 (average CLP of 615/USD,

Company Statistics

compared with the FX of 571.50/USD in 2014), which would

Bloomberg

CONCHA CI / VCO US

Current Price (01/02/15)

Ch$ 1,162 / US$ 37.80

Target Price (YE 2015)

Ch$ 1,270 / US$ 41.70

52-Week Range (Ch$)

948.83 - 1,200

positively affect the company’s results, in our view, as some 80% of the company’s revenue is in denominated in foreign currency.

Market Capitalization (US$ Mn)



Valuation at unattractive levels: VCO currently trades at a 12month forward P/E of 17.6x (a 12% discount vs. its last-four-year

1,413

Float (%)

59.9

3-Mth Avg. Daily Vol (US$ Mn)

1.3

Shares Outstanding - Mn

747

average). Due to this valuation, we believe that the future growth is already reflected in the stock price, thus limiting any potential

Price Performance (Ch$) CONCHA CI

downside risks and supporting our Hold rating.

IPSA

130 120 110 100 90 80 70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

256

D-14

CONCHA Y TORO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 476 5.6 164 11.3 55 3.2 11.6 37 1.8 7.7 6 (9) 33 10.6 7.0

Ch$ 2014E 564 18.6 213 29.4 87 57.2 15.4 62 68.6 10.9 (7) (13) 42 25.7 7.4

CASH FLOW Depreciation & Amortizatio Other Noncash Items Changes in Working Capita Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments Change in Debt Dividends Capital Increases/Other

2013A (19) 0 (26) 22 (19) (34) (18) (19) (12) 0

2014E (25) 0 (23) 68 (125) 59 (14) 67 (21) 0

2015E (28) 0 (32) 45 (35) 12 0 2 (26) 0

2016E (29) 0 (5) 76 (36) 54 0 15 (31) 0

2013A (38) 0 (53) 44 (39) (69) (36) (39) (24) 0

2014E (44) 0 (39) 119 (219) 104 (25) 118 (36) 0

2015E (45) 0 (52) 72 (56) 19 0 4 (42) 0

2016E (47) 0 (7) 123 (59) 88 0 24 (50) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 21 434 257 850 197 161 429 254 68

2014E 59 519 257 960 205 129 436 321 52

2015E 45 549 257 997 246 109 459 323 82

2016E 68 580 257 1,035 286 90 479 338 118

2013A 40 827 488 1,618 375 306 817 483 130

2014E 97 851 421 1,573 335 211 714 526 86

2015E 73 886 414 1,608 397 176 740 521 133

2016E 112 951 421 1,697 469 147 785 554 194

185

269

241

219

352

440

389

360

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

232

261

278

269

442

429

448

441

Capital Employed

657

670

677

686

1,251

1,098

1,092

1,124

Net Debt/EBITDA

4.2

3.0

2.8

2.6

4.0

2.8

2.9

2.6

Net Debt/Equity

0.5

0.6

0.6

0.6

0.6

0.6

0.6

0.6

Capex/Revenue (%)

4.0

22.2

5.6

5.6

4.0

22.2

5.6

5.6

Int Cover (%)

5.7

9.0

10.6

10.9

5.7

9.0

10.6

10.9

LT Debt FINANCIAL RATIOS

Dividend Payout (%)

2015E 631 11.9 240 13.0 98 12.7 15.5 70 13.0 11.1 (5) (15) 49 18.0 7.8

2016E 648 2.8 249 3.8 103 5.3 15.9 74 6.3 11.4 (7) (16) 51 3.8 7.9

2013A 960 3.7 332 9.4 112 1.4 11.6 74 (0.0) 7.7 12 (18) 67 8.7 7.0

US$ 2014E 987 2.8 372 12.1 152 36.2 15.4 108 46.1 10.9 (12) (23) 73 8.9 7.4

2015E 1,008 2.1 383 3.1 157 2.8 15.5 111 3.1 11.1 (9) (24) 79 7.6 7.8

2016E 1,054 4.6 405 5.7 168 7.2 15.9 121 8.2 11.4 (12) (26) 83 5.7 7.9

40.1

62.7

62.7

62.7

39.4

54.4

58.3

62.5

ROCE (%)

7.2

11.2

12.5

13.3

7.6

11.8

12.5

13.3

ROE (%)

7.8

9.6

11.0

10.9

7.9

9.5

11.0

10.9

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

22.2

21.3

17.6

17.0

20.9

20.0

18.0

17.0

P/CE

14.2

13.2

11.2

10.8

13.4

12.5

11.4

10.8

FV/EBITDA

17.5

13.2

11.7

11.0

16.5

12.4

11.9

11.1

FV/EBIT

22.3

23.0

20.6

18.3

21.0

21.7

21.0

18.3

2.0

2.0

1.8

1.8

1.9

1.9

1.9

1.8 1.8

FV/Revenue P/BV FCF Yield (%) Div Yield (%) PER SHARE DATA

1.7

2.0

1.9

1.8

1.7

2.0

1.9

(4.6)

6.7

1.4

6.2

(4.9)

7.1

1.4

6.2

1.6

2.3

3.0

3.6

1.7

2.5

3.0

3.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

44

56

66

68

1.87

2.10

2.36

2.68

DPS

16

28

35

41

0.61

0.91

1.13

1.35

1

1

1

1

24.22

25.37

26.65

28.14

BVPS

257

Company Description Concha y Toro is the largest Chilean winery, with international and domestic sales, targeting the complete range of wine segments through a broad range of varieties, such as premium, varietal, varietal blends, and popular wines. The U.S., Europe, and South America are its main export markets, volume wise they represent14.4%, 50.6% (UK, Europa continental, Nordics) and 9.4%, respectively. Concha y Toro also produces wine in Argentina through its subsidiary, Viña Trivento, which is the second largest exporter in the country, and started producing in U.S.A after the acquisition of Fetzer Winery in 2011. Concha y Toro is controlled by the three families, Guilisasti Gana, Larraín Santa María and Fontecilla, which together own 38.8% of the company.

Key Personnel: Alfonso Larraín (Chairman), Eduardo Guilisasti (CEO), Osvaldo Solar (CFO) and Patricio Garreton (IR) Web: www.conchaytoro.cl

Export Sales Mix, 3Q14

Asia 8.2%

Canada 4.6%

Others 11.3%

South America 12.0%

Europe 50.1%

USA 13.8%

Sales Breakdown, 3Q14 Domestic Market Domestic Other Market Products Wine 2.0% 19.0%

Argentina 4.0%

Fetzer 9.0%

Exports 66.0%

Shareholder Structure, Current

AFPs ADRs 5.6% 2.5%

Others 55.6%

Controlling Group 38.8%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—PULP & FOREST PRODUCTS

COPEC

BUY CURRENT PRICE: CH$6,888 TARGET PRICE: CH$8,100

INTRODUCING YE2015 TARGET PRICE OF CH$8,100; REPLACING YE2014 TARGET PRICE OF CH$8,200 

Investment Case: Our Buy rating on Copec is based on the following: (1) We believe valuation does not reflect the fuel distribution business potential (37% of 2014E EBITDA versus 42% for pulp). (2) During 2015, the ramp-up of the 1.3 tpy hardwood Montes del Plata project (a 50%/50% JV between Stora Enso and

Alberto Ariztia* Chile: Santander Investment Chile Limitada +5622-336-3359 | [email protected]

Felipe Reis* Brazil: Banco Santander S.A. +5511-3012-5758 | [email protected]

Copec), which will add more efficient capacity, should be completed. (3) Softwood accounts for 54% of Copec’s total pulp sales, and we believe it will continue to be sold at a US$170 per ton premium to hardwood, due to tighter supply/demand.



Outlook 2015: We expect U.S. dollar sales to decrease 7.1% based on depreciated local currencies and lower oil prices. EBITDA should reach US$2.1 billion, up 3.2% YoY, due to better pulp division margins and increased fuel volumes with stable margins. We expect 5.9% YoY net income growth to US$955 million.



Opportunity in fuel distribution business: In 2010 Copec acquired Terpel; in 2012 consolidation started. We believe Copec will try to replicate its successful strategy in Chile of improving brand perception based on better service, increased number of associated

Company Statistics

services (e.g., retail stores), and new gas station openings.

Bloomberg

Moreover, we believe Copec will build flagship gas stations in newly

Current Price (01/02/15)

Ch$ 6,888 / US$ 11.21

Target Price (YE 2015)

Ch$ 8,100 / US$ 13.06

52-Week Range (Ch$)

6,339 - 7,664

built Colombian highways, as it did in Chile in the 1990s, bolstering consumer’s perception about the brand and service.

COPEC CI

Market Capitalization (US$ Mn)

14,577

Float (%)



Softwood/hardwood spread premium to continue: The startup of considerable low-cost BHKP capacity within a short period of time has limited a pulp price recovery; this situation should prevail in the

39.2

3-Mth Avg. Daily Vol (US$ Mn)

4.3

Shares Outstanding - Mn

1,300

Price Performance (Ch$)

mid to long term, in our view. Regardless of short-term price

COPEC CI

IPSA

110

fluctuations, the industry cost curve will continue to shift from less efficient players to low-cost producers. Consequently, we assume a long-term BHKP price of US$720/t. In our view, softwood, which has

100

90

historically traded at a US$90 spread to hardwood, currently trades at a ~US$190/ton premium. We assume the premium will remain above historical levels, as limited options for new efficient softwood capacity

80

70

J-13

exist.

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

258

D-14

COPEC Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 12,053 8.8 1,586 27.2 980 29.1 8.1 553 72.2 4.6 (24) (128) 389 95.3 3.2

Ch$ 2014E 13,812 14.6 1,831 15.4 1,169 19.3 8.5 660 19.3 4.8 46 (175) 515 32.4 3.7

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (268) (8) 311 960 (629) 332 42 129 (156) 0

2014E (529) 1 (306) 740 (538) 202 (42) 65 (200) 0

2015E (494) 3 641 1,726 (492) 1,234 147 0 (235) 0

2016E (495) 0 71 1,179 (558) 622 1,859 (202) (235) 0

2013A (542) (17) 628 1,939 (1,270) 669 85 261 (314) 0

2014E (926) 3 (536) 1,295 (941) 354 (73) 113 (349) 0

2015E (804) 4 1,043 2,806 (800) 2,006 239 0 (382) 0

2016E (804) 0 115 1,918 (907) 1,011 3,022 (328) (382) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 799 3,116 5,339 11,845 1,799 4,316 5,355 3,766 662

2014E 684 3,407 6,150 13,463 2,064 4,946 6,505 4,408 858

2015E 677 3,584 6,216 13,769 2,303 4,925 6,967 4,480 973

2016E 2,693 5,321 6,178 15,405 2,390 4,391 7,231 4,207 1,213

2013A 1,508 5,884 10,082 22,368 3,398 8,151 10,112 7,112 1,250

2014E 1,122 5,585 10,082 22,070 3,383 8,108 10,664 7,225 1,406

2015E 1,092 5,780 10,026 22,209 3,715 7,944 11,237 7,225 1,570

2016E 4,415 8,723 10,128 25,254 3,919 7,198 11,854 6,897 1,988

3,104

3,550

3,507

2,995

5,862

5,819

5,656

4,910 2016E

LT Debt FINANCIAL RATIOS

2015E 13,809 (0.0) 1,912 4.4 1,299 11.1 9.4 741 12.3 5.4 81 (218) 587 13.9 4.3

2016E 14,550 5.4 2,019 5.6 1,345 3.5 9.2 787 6.2 5.4 89 (245) 614 4.6 4.2

2013A 24,339 6.9 3,202 25.0 1,979 26.9 8.1 1,116 69.2 4.6 (49) (259) 786 91.9 3.2

US$ 2014E 24,169 (0.7) 3,203 0.0 2,045 3.4 8.5 1,154 3.4 4.8 81 (307) 902 14.7 3.7

2015E 22,454 (7.1) 3,108 (3.0) 2,111 3.2 9.4 1,205 4.4 5.4 131 (354) 955 5.9 4.3

2016E 23,658 5.4 3,283 5.6 2,186 3.5 9.2 1,280 6.2 5.4 145 (399) 999 4.6 4.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

Net Debt

2,968

3,723

3,803

1,514

5,604

6,104

6,133

2,482

Capital Employed

9,909

11,573

11,731

11,534

18,712

18,972

18,920

18,908

Net Debt/EBITDA

3.0

3.2

2.9

1.1

2.8

3.0

2.9

1.1

Net Debt/Equity

0.5

0.5

0.5

0.2

0.6

0.6

0.5

0.2

Capex/Revenue (%)

5.2

3.9

3.6

3.8

5.2

3.9

3.6

3.8

Int Cover (%)

5.4

6.0

6.1

6.6

5.4

6.0

6.1

6.6

Dividend Payout (%)

78.0

51.2

45.4

40.2

76.7

44.5

42.4

40.0

ROCE (%)

7.4

7.8

8.7

9.4

7.8

8.1

8.7

9.4

ROE (%)

7.7

8.7

8.7

8.6

7.8

8.7

8.7

8.6

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

23.5

17.3

15.2

14.6

22.2

16.3

15.3

14.6

P/CE

13.9

8.5

8.3

8.1

13.1

8.0

8.3

8.1

FV/EBITDA

13.0

12.8

11.5

9.3

12.2

12.0

11.5

9.3

FV/EBIT

23.1

22.6

20.2

15.9

21.7

21.3

20.1

16.0

FV/Revenue

1.1

1.1

1.1

0.9

1.0

1.0

1.1

0.9

P/BV

1.7

1.4

1.3

1.2

1.7

1.4

1.3

1.2

FCF Yield (%)

3.6

2.3

13.8

6.9

3.8

2.4

13.8

6.9

Div Yield (%)

1.7

2.2

2.6

2.6

1.8

2.4

2.6

2.6

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

371

426

451

472

0.75

0.75

0.73

0.77

DPS

148

165

180

180

0.30

0.29

0.29

0.29

4,778

5,039

5,310

5,601

9.02

8.26

8.56

9.18

BVPS

259

Company Description Empresas Copec, the third largest listed Chilean company in terms of market cap, is a holding company with a presence in the forest products, fuel, and fishing businesses, which according to December 2013 figures represented 57%, 41%, and 2% of consolidated EBITDA, respectively. Through its fully owned subsidiary Arauco, which is its forest business, Copec owns over 1,000,000 ha of forest in Chile, Argentina, Brazil, and Uruguay, and has 17 panel mills in the U.S., Chile, Brazil and Argentina. The company also has investments in the electricity and mining sectors. Copec’s main shareholder is Antarchile (which owns 60.8% of Copec), a listed holding company controlled by the Chilean Angelini Group, and the remaining 39.2% is listed only on the Chilean stock exchange.

Key Personnel: Roberto Angelini (Chairman), Eduardo Navarro (CEO), Rodrigo Huidobro (CFO) and Cristián Palacios (Head of IR) Web: www.ec.cl

Sales Breakdown,

Fishing 1.0%

Forestry 22.0%

Fuel 77.0%

EBITDA Breakdown,

Fuel 41.0%

Fishing 2.0%

Forestry 57.0%

Shareholder Structure, Current

Others 34.7%

Pension Funds 4.5% AntarChile 60.8%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—FINANCIAL SERVICES

CORPBANCA

BUY CURRENT PRICE: CH$7.07 TARGET PRICE: CH$10.00

INTRODUCING YE2015 TARGET PRICE OF CH$10.00; REPLACING YE2014 TARGET PRICE OF CH$8.50 

Investment Case: We expect the merger with Itaú to close in 2H15,

Boris Molina

leading to incremental positive effects on the merged bank’s

New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

efficiency and profitability. At current prices the merged bank would be trading at close to a 25% discount to the average 2016E P/E multiple of BCH and BCI. We expect that over the medium to long

Catalina Araya New York: Santander Investment Securities Inc. +1-212-297-1367 | [email protected]

term, Itaú will tender to buy out all minorities in the bank.



Outlook 2015: Our estimates assume the merger will close in mid2015. We expect the merger to strengthen the CT1 capital ratio of Itaú-CorpBanca to 8.1% in 2015E under fully loaded Basel III.



The Itaú-IFC shareholders’ agreement: what’s in it? We expect Itaú and the IFC to sign a shareholders’ agreement to formalize the IFC’s consent to the merger. The agreement may enshrine several rights the IFC has in the existing IFC-CorpGroup shareholders’ agreement. If so, the IFC could keep its seat on the board and have veto power over certain issues (e.g., change of control). We do not expect changes in the terms of the merger between Itaú and CorpGroup. Company Statistics



No more hurdles along the way: Cartica announced on December

Bloomberg

14, 2014, that it was dropping its legal challenges to the Itaú-

Current Price (01/02/15)

CorpBanca merger, days after the IFC approved the merger. The

CORPBANC CI / BCA US Ch$ 7.07 / US$ 17.36

Target Price (YE 2015)

Ch$ 10.00 / US$ 24.25

52-Week Range (Ch$)

5.68 - 7.79

merger still has to be approved by shareholders and the SBIF, but

Market Capitalization (US$ Mn)

we do not expect any pushback.

Float (%)

6,080 39.6

3-Mth Avg. Daily Vol (US$ Mn)



Cost synergies in Colombia and Chile to boost adjusted ROE. The merged Itaú-CorpBanca could achieve ratios of adjusted efficiency in the mid-to-low 40s by 2016-17, allowing adjusted ROE to improve to 17% in two years’ time, from 15% in 2014E.



2.6

Shares Outstanding - Mn

512,407

Price Performance (Ch$) CORPBANC CI

IPSA

130 120 110

Tax man takes a larger cut. Previously we expected the bank to achieve adjusted ROEs close to 19-20%; however, we believe the

100 90

impact of higher taxes in both Chile and Colombia will prevent the

80

improvement

70

in

operating

profitability

from

fully

benefiting

J-13

shareholders.

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

260

D-14

CORPBANCA (PRO FORMA MERGED) Financial Highlights: P&L and Balance Sheet, 2013–16E in Billions (Ch$), Millions (US$)

Company Description

INCOME STATEMENT Net Interest Income NPL Provisions Adj Net Interest Income Non-Interest Income Total Operating Revenue Non-Interest Expense Profit Before Taxes Taxes Net Profit Adjusted Net Profit

2013A 450 (101) 349 237 586 (369) 232 (64) 155 232

Ch$ 2014E 620 (101) 520 369 888 (521) 367 (106) 229 314

BALANCE SHEET Cash and Equivalents Securities Loans (net) Intangible Assets Total Assets Core Deposits Other Financial Liabilities Subordinated Debt Technical Provisions Equity Adjusted Equity

2013A 1,024 1,935 12,778 837 17,490 10,789 2,264 774 0 1,411 942

2014E 1,193 2,309 14,107 876 19,967 13,198 1,556 789 0 1,708 1,216

2015E 1,825 2,612 22,985 979 30,177 19,847 3,130 827 0 3,115 2,456

2016E 1,971 2,631 25,205 910 32,593 21,838 2,915 881 0 3,420 2,836

2013A 1,949 3,682 24,318 1,593 33,286 20,533 4,310 1,473 0 2,686 1,793

2014E 1,966 3,805 23,245 1,444 32,900 21,747 2,563 1,301 0 2,814 2,003

2015E 2,958 4,235 37,262 1,587 48,921 32,175 5,074 1,340 0 5,051 3,982

2016E 3,247 4,336 41,530 1,499 53,704 35,983 4,803 1,452 0 5,634 4,673

LOAN BOOK Companies Total Consumer Mortgages Other Loans Gross Loans Loan Grow th (%) NPL Provisions

2013A 9,402 1,680 2,004 0 13,086 28.8 93 (308)

2014E 10,341 1,844 2,246 0 14,431 10.3 101 (324)

2015E 16,469 2,912 4,074 0 23,455 62.5 206 (117)

2016E 18,041 3,237 4,444 0 25,722 9.7 233 (126)

2013A 17,893 3,197 3,814 0 24,904 17.4 177 (586)

2014E 17,038 3,038 3,702 0 23,778 (4.5) 167 (533)

2015E 26,699 4,721 6,604 0 38,024 59.9 334 (190)

2016E 29,727 5,333 7,323 0 42,383 11.5 385 (207)

KEY RATIOS NIM Risk Charge Operating Revenue / ATA

2013A 3.19 0.90 3.89

2014E 3.42 0.71 4.54

2015E 3.23 0.66 3.52

2016E 3.32 0.80 4.13

2013A 3.19 0.90 3.89

2014E 3.42 0.71 4.54

2015E 3.23 0.66 3.52

2016E 3.32 0.80 4.13

Cost / ATAs

2.45

2.66

2.03

2.18

2.45

2.66

2.03

2.18

Adj Efficiency

53.0

54.5

50.0

43.8

53.0

54.5

50.0

43.8

Effective Taxes

27.5

29.0

26.3

25.8

27.5

29.0

26.3

25.8

Reported ROE (%)

12.4

15.1

10.5

13.3

12.4

15.1

10.5

13.3

Adj ROE (%)

15.5

16.6

15.5

16.9

15.5

16.6

15.5

16.9

NPL Ratio

0.71

0.70

0.88

0.91

0.71

0.70

0.88

0.91

Adj NPL Ratio

1.52

1.45

1.32

1.32

1.52

1.45

1.32

1.32

Loans / Total Assets

74.8

72.3

77.7

78.9

74.8

72.3

77.7

78.9

Loans / Core Deposits

121.3

109.3

118.2

117.8

121.3

109.3

118.2

117.8

RWA % Total Assets

102.7

2015E 745 (145) 600 429 1,029 (592) 436 (115) 299 369

2016E 995 (197) 798 510 1,308 (691) 617 (159) 437 516

2013A 909 (205) 704 479 1,183 (744) 468 (129) 313 468

US$ 2014E 1,087 (177) 911 647 1,558 (914) 643 (186) 401 550

2015E 1,218 (238) 980 701 1,681 (968) 713 (187) 488 603

2016E 1,626 (322) 1,305 833 2,137 (1,129) 1,009 (261) 715 844

101.7

100.4

100.6

102.7

101.7

100.4

100.6

Core Tier I Ratio (%)

6.4

7.2

8.1

8.5

6.4

7.2

8.1

8.5

Dividend Payout (%)

38.7

29.1

38.3

34.1

38.7

29.1

38.3

34.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

2.0

1.8

1.4

1.3

2.0

1.8

1.4

1.3

13.0

9.1

8.9

7.4

12.5

8.4

8.9

7.4

2.6

2.7

4.8

4.1

2.8

3.0

4.8

4.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.46

0.67

0.70

0.85

1.40

1.77

1.72

2.09

BVPS

4.15

5.02

6.08

6.67

11.84

12.40

14.78

16.49

DPS

0.19

0.20

0.34

0.29

0.60

0.53

0.83

0.71

Adj EPS

0.69

0.92

0.87

1.01

2.10

2.42

2.13

2.47

MARKET RATIOS Adj. P/BV Adj. P/E Div Yield (%) PER SHARE DATA

Adj BVPS Surplus Capital per Share Unrealized Cap. Gains/Shr

2.77

3.57

4.79

5.53

7.90

8.83

11.66

13.68

(1.78)

(1.07)

(0.66)

(0.42)

(5.08)

(2.64)

(1.62)

(1.03)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

261

CorpBanca is one of the leading banks in the Chilean financial sector. CorpBanca’s strategy is based on a low cost structure and a wide array of financial products and services, and is focused mainly on middle-income individuals and large and medium-sized enterprises. In early 2014 the bank announced that its controlling shareholder Alvaro Saieh (via the CorpGroup holding company) has agreed to cede control of CorpBanca to Itaú Unibanco of Brazil as part of a merger agreement in which CorpBanca would acquire Itaú Chile in exchange for issuing a controlling stake in the merged bank to Itaú Unibanco. After the close of the merger, Itaú-CorpBanca would become the fourth banking group in Chile and the fifth in Colombia.

Key Personnel: Jorge Andres

Saieh Guzman (Chairman), Fernando Massú Tare (CEO), Eugenio Gigogne Miqueles (CFO) and Claudia Labbé Montevecchi (IRO) Web: www.corpbanca.cl

Loan Portfolio, 2015E Chile Mortgage 14.7%

Chile Consumer 5.8%

Colombia Company 19.7%

Colombia Consumer 6.7% Colombia Mortgage 2.7%

Chile Company 50.5%

Revenue Breakdown, 2015E

Fees 16.5% Trading 22.3%

Other 2.9%

NII 58.3%

Shareholder Structure, Current

Free Float 30.2% IFC 3.3%

Alvaro Saieh and Family 32.9%

Itau 33.6%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—UTILITIES

E-CL

BUY CURRENT PRICE: CH$899.33 TARGET PRICE: CH$1,115.00

UPGRADING RATING TO BUY FROM HOLD INTRODUCING YE2015 TARGET PRICE OF CH$1,115; REPLACING YE2014 TARGET PRICE OF CH$780 

Investment Case: In the last few months, the upside risks for E-CL

Nicolas Schild*

have materialized. The new regulated contract signed by E-CL in

Chile: Santander Investment Chile Limitada +5622-336-3361 | [email protected]

December 2014 allows the company to build the IEM coal project, significantly increase the load factor of current gas and coal facilities, and enter the SIC market, which has the main consumption centers.



Maria Carolina Carneiro* Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

Outlook 2015: We expect flat EBITDA growth (3.5%) to US$312 million. This should come mainly from (1) renewal of the leasing of a LNG facility to another generator, and (2) a reduction of excess system costs in the SING given the sharp decrease in international oil prices. We expect this to be offset by lower contract prices due to indexation of contracts to international raw material prices.



Cracking the SIC in 2018: In the most recent tender offer in the SIC, E-CL won a 5,040 GWh/year contract; this represents 56% growth in the contract basis vs. the current portfolio. The contract contemplates 15 years’ supply, starting in 2018, at US$109.48/MWh. This will allow E-CL to use a potential SIC-SING interconnection line to generate energy in the north and send it to the distribution centers in the Company Statistics

central part of Chile (SIC).

Bloomberg



Entering new investment phase: We believe the new regulated contract will be supplied by (1) construction of Infrastructura

ECL CI

Current Price (01/02/15)

Ch$ 899.33 / US$ 1.46

Target Price (YE 2015)

Ch$ 1,115 / US$ 1.80

52-Week Range (Ch$)

633.64 - 929.69

Energética Mejillones (375 MW, coal), which contemplates a US$1.1

Market Capitalization (US$ Mn)

billion capex program for the facility and a port to unload the coal,

Float (%)

(2) increasing gas units’ load factor, currently at 27%, by connecting

1,542 48.0

3-Mth Avg. Daily Vol (US$ Mn)

1.2

Shares Outstanding - Mn

1,053

the CTM-3 unit (250 MW) to the SIC, and (3) replacing nonregulated Price Performance (Ch$)

contracts in the SING with regulated contracts in the SIC.

ECL CI



IPSA

110

Funding is important: We expect the expansion capex plan for

100

2015-18 to reach US$1.154 million, which should put pressure on

90

E-CL’s financial ratios. Although E-CL has alternatives to fund the

80

operations (sale of noncore transmission assets, lowering dividends,

70

or issuing hybrid bonds), we do not dismiss the possibility of a capital

60

increase in 2016, especially if E-CL decides to acquire Electrica

50

Monte Redondo from its controller (GDF Suez).

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

262

D-14

E-CL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 600 3.5 81 (9.7) 125 (7.4) 20.8 58 (9.5) 9.7 (22) (8) 20 (28.3) 3.3

Ch$ 2014E 724 20.7 122 51.6 172 38.2 23.8 97 65.7 13.4 (24) (15) 55 182.1 7.6

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (66) 0 13 99 (58) 41 12 (17) (28) 0

2014E (75) 0 (39) 91 (39) 52 (31) 2 (38) 0

2015E (84) 0 11 153 (253) (100) 0 219 (18) 0

2016E (84) 0 10 138 (284) (146) 0 0 (17) 0

2013A (134) 0 27 200 (116) 83 23 (33) (56) 0

2014E (132) 0 (69) 160 (68) 92 (54) 3 (67) 0

2015E (134) 0 17 245 (404) (159) 0 350 (29) 0

2016E (137) 0 17 225 (462) (237) 0 0 (28) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 112 340 1,022 1,575 128 497 885 400 11

2014E 138 450 1,147 1,847 154 605 1,025 466 13

2015E 241 544 1,333 2,132 154 832 1,081 691 13

2016E 75 339 1,510 2,099 127 818 1,090 680 13

2013A 213 648 1,944 2,997 244 945 1,683 761 21

2014E 227 738 1,881 3,028 253 991 1,680 764 22

2015E 388 878 2,151 3,438 249 1,341 1,744 1,114 22

2016E 123 555 2,476 3,441 208 1,341 1,788 1,114 22

389

453

677

666

740

742

1,092

1,092

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

288

328

450

604

548

537

726

991

Capital Employed

1,334

1,555

1,737

1,897

2,539

2,549

2,801

3,110

Net Debt/EBITDA

2.3

1.9

2.3

3.4

2.2

1.8

2.3

3.4

Net Debt/Equity

0.3

0.3

0.4

0.6

0.3

0.3

0.4

0.6

Capex/Revenue (%)

9.6

5.4

32.9

40.3

9.6

5.4

32.9

40.3

LT Debt FINANCIAL RATIOS Net Debt

Int Cover (%) Dividend Payout (%) ROCE (%) ROE (%) MARKET RATIOS P/E P/CE FV/EBITDA

2015E 769 6.2 139 13.5 195 13.4 25.4 111 14.8 14.5 (33) (17) 58 5.6 7.6

2016E 705 (8.3) 123 (11.2) 180 (7.9) 25.5 96 (14.0) 13.6 (35) (14) 44 (24.8) 6.2

2013A 1,211 1.8 163 (11.3) 252 (9.0) 20.8 118 (11.1) 9.7 (45) (17) 40 (29.6) 3.3

US$ 2014E 1,266 4.6 214 31.4 301 19.8 23.8 169 43.6 13.4 (41) (27) 97 144.5 7.6

2015E 1,227 (3.1) 222 3.6 312 3.5 25.4 178 4.8 14.5 (52) (27) 93 (3.7) 7.6

2016E 1,146 (6.6) 201 (9.6) 292 (6.2) 25.5 155 (12.5) 13.6 (57) (23) 71 (23.4) 6.2

4.7

6.1

5.1

4.4

4.7

6.1

5.1

4.4

101.7

193.8

32.1

30.2

100.0

168.2

30.0

30.0

5.0

7.3

7.3

5.7

5.3

7.7

7.3

5.7

2.3

5.8

5.4

4.0

2.4

5.8

5.4

4.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

36.5

16.9

16.2

21.6

34.4

15.9

16.5

21.6

8.3

7.1

6.7

7.4

7.9

6.7

6.8

7.4

8.5

7.7

7.4

8.9

8.0

7.2

7.6

9.0

18.1

13.6

13.1

16.8

17.0

12.8

13.3

16.9

FV/Revenue

1.8

1.8

1.9

2.3

1.7

1.7

1.9

2.3

P/BV

0.8

0.9

0.9

0.9

0.8

0.9

0.9

0.9

FCF Yield (%)

5.8

5.6

(10.5)

(15.4)

6.1

6.0

(10.3)

(15.4)

Div Yield (%)

3.9

4.1

1.9

1.8

4.1

4.3

1.9

1.8

FV/EBIT

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

23

56

54

42

0.05

0.10

0.09

0.07

DPS

33

39

17

16

0.07

0.07

0.03

0.03

982

980

1,017

1,043

1.87

1.61

1.64

1.71

BVPS

263

Company Description E.CL is the fourth largest generator of electricity in Chile and the largest one in the Chilean Northern Interconnected System (SING). The company has a total installed capacity of 2,137 MW (including CTH), with all its generating facilities linked to the SING, representing 54% of the SING’s total installed capacity. The company also has transmission lines and natural gas pipeline, as well as operating port facilities. It is controlled by the GDF Suez Group, a major industrial player in the energy sector, with operations in more than 40 countries worldwide.

Key Personnel: Juan Clavería (Chairman), Axel Leveque (CEO), Carlos Freitas (CFO) and Marcela Muñoz (IR) Web: www.e-cl.cl

SING Installed Capacity Market Share, 2014E

Gener 20.0%

Others 4.0%

Endesa 24.0% E.CL 52.0%

Installed Capacity Mix, 2014E

Diesel 7.0%

Gas/LNG 10.0%

Coal 83.0%

Shareholder Structure, Current Foreign Institucional Investors 7.4%

Chilean Pension Funds 20.7%

Others 19.2%

GDF SUEZ 52.8%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—UTILITIES

ENDESA CHILE

BUY CURRENT PRICE: US$45.47 TARGET PRICE: US$53.70

LOWERING YE2015 TARGET PRICE TO US$53.70 FROM US$55.80 

Investment Case: We believe Endesa’s strong fundamentals have remained intact and that it full potential should be reach in the next two to three years. The renewal of contracts and restart of Bocamina II should aid margins, in our view, while its flexible thermal capacity provides the company with protection against all hydro scenarios.

Nicolas Schild* Chile: Santander Investment Chile Limitada +5622-336-3361 | [email protected]

Maria Carolina Carneiro* Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

Finally, we believe two-year forward (under normal hydrology) valuations look attractive.



Outlook 2015: We expect 12.4% YoY EBITDA growth (in Chilean pesos), mainly thanks to the recovery in Chilean operations after the startup of Bocamina II (350 MW, coal) in 2H15 and slightly better hydrology thanks to a positive 2014-15 ice-melting season. We believe that this improvement would be offset by weak results in Colombia due to the decline in prices after the startup of large hydro projects and strong COP/USD depreciation.



Contract renewal to boost earnings: The startup of 5,650 GWh regulated contracts in Chile during 2014 at an average price of US$120 per MWh, an increase of 65% from 2013’s average, should boost top-line results by US$700 million, according to our calculations. Also, 2015 will see start of the auction process for

Company Statistics

contracts to be renewed in 2022, which represents about 56% of the

Bloomberg

expected demand in Chile for the next decade. Following the raised

EOC US / ENDESA CI

Current Price (01/02/15)

US$ 45.47 / Ch$ 926.73

Target Price (YE 2015)

US$ 53.70 / Ch$ 1,110.00

ceiling for tender offers of the past few years, we expect more

52-Week Range (US$)

37.92 - 47.91

attractive prices for generators.

Market Capitalization (US$ Mn)

12,431

Float (%)



40.0

Good performer in all hydro scenarios: Endesa’s flexibility owing

3-Mth Avg. Daily Vol (US$ Mn)

4.1

to its competitive LNG supply contract and role as an active player in

Shares Outstanding - Mn

273

hydro facilities allows it to take advantage of the spot market in all

Price Performance (US$)

hydrological scenarios. We estimate that over the next five years,

EOC US

IPSA

110

Endesa will sell 2-25% of its energy to the spot market.

100



Better hydrology to buffer results in upcoming quarters. In Chile, energy in water reservoirs is 38% higher than in 2013, and regulators’ forecast a 2014-15 ice-melting season that will be 48% higher than the last season, which we expect will protect margins from the halt of Bocamina (350 MW, coal) that began in December

90

80

70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

2013. 264

D-14

ENDESA CHILE Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 2,027 (12.6) 1,000 24.1 979 21.1 48.3 783 27.8 38.6 (224) (205) 354 51.1 17.5

Ch$ 2014E 2,404 18.6 1,116 11.5 1,088 11.1 45.3 873 11.5 36.3 (265) (273) 335 (5.4) 13.9

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (196) 0 129 673 (367) 306 95 (38) (294) 0

2014E (215) 0 (152) 398 (866) (468) 118 311 (318) 0

2015E (224) 0 11 685 (495) 190 0 (177) (167) 0

2016E (225) 0 3 863 (268) 594 0 (184) (224) 0

2013A (396) 0 261 1,359 (741) 618 191 (76) (594) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 348 965 4,692 6,762 1,238 1,936 2,652 1,894 354

2014E 337 1,023 5,344 7,415 1,211 2,304 2,902 2,206 407

2015E 183 913 5,614 7,576 975 2,420 3,184 2,029 114

2016E 369 1,111 5,658 7,818 1,005 2,219 3,595 1,845 131

1,541

1,799

1,915

2013A

2014E

2015E

Net Debt

1,547

1,869

1,846

1,476

2,943

3,063

2,978

2,420

Capital Employed

9,618

9,618

10,353

10,563

18,304

15,767

16,698

17,316

Net Debt/EBITDA

1.6

1.7

1.5

1.0

1.5

1.6

1.5

1.0

LT Debt FINANCIAL RATIOS

Net Debt/Equity Capex/Revenue (%)

2015E 2,613 8.7 1,262 13.1 1,222 12.4 46.8 998 14.3 38.2 (281) (268) 449 34.1 17.2

2016E 2,667 2.1 1,563 23.8 1,524 24.7 57.1 1,299 30.2 48.7 (304) (360) 635 41.5 23.8

2013A 4,094 (14.1) 2,020 21.9 1,977 19.0 48.3 1,581 25.6 38.6 (452) (414) 715 48.5 17.5

US$ 2014E 4,206 2.7 1,952 (3.4) 1,904 (3.7) 45.3 1,528 (3.4) 36.3 (463) (479) 586 (18.0) 13.9

2015E 4,172 (0.8) 2,015 3.2 1,952 2.5 46.8 1,594 4.3 38.2 (449) (428) 717 22.4 17.2

2016E 4,337 3.9 2,541 26.1 2,478 26.9 57.1 2,112 32.6 48.7 (494) (586) 1,033 44.1 23.8

2014E (376) 0 (265) 696 (1,516) (819) 206 545 (557) 0

2015E (358) 0 18 1,093 (790) 303 0 (282) (267) 0

2016E (365) 0 5 1,403 (436) 966 0 (299) (365) 0

2013A 662 1,837 8,930 12,869 2,357 3,684 5,047 3,605 673

2014E 553 1,677 8,760 12,157 1,986 3,776 4,758 3,616 667

2015E 295 1,473 9,055 12,220 1,572 3,903 5,135 3,273 185

2016E 605 1,821 9,275 12,816 1,648 3,638 5,893 3,025 214

1,715

2,932

2,949

3,089

2,811

2016E

2013A

2014E

2015E

2016E

0.6

0.6

0.6

0.4

0.6

0.7

0.6

0.4

18.1

36.0

18.9

10.1

18.1

36.0

18.9

10.1

6.9

7.3

8.2

11.3

6.9

7.3

8.2

11.3

125.4

89.9

50.0

50.0

123.2

78.0

46.5

49.8

ROCE (%)

11.2

12.8

13.1

16.8

11.7

13.4

13.1

16.8

ROE (%)

13.6

12.1

14.8

18.7

13.8

11.9

14.7

18.7

Int Cover (%) Dividend Payout (%)

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

18.1

22.2

17.0

12.0

17.0

20.9

17.3

12.0

P/CE

11.6

13.5

11.3

8.9

11.0

12.7

11.6

8.9

FV/EBITDA

10.4

10.9

9.7

7.4

9.8

10.2

9.9

7.4

FV/EBIT

13.0

13.6

11.9

8.6

12.3

12.8

12.1

8.7

FV/Revenue

5.0

4.9

4.5

4.2

4.7

4.6

4.6

4.2

P/BV

2.4

2.6

2.4

2.1

2.4

2.6

2.4

2.1

FCF Yield (%)

4.8

(6.3)

2.5

7.8

5.1

(6.7)

2.4

7.8

Div Yield (%)

4.6

4.3

2.2

2.9

4.9

4.6

2.2

2.9

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

43

41

55

77

0.09

0.07

0.09

0.13

DPS

36

39

20

27

0.07

0.07

0.03

0.04

323

354

388

438

0.65

0.62

0.62

0.71

BVPS

265

Company Description Endesa Chile is the largest electricity generation company in Chile, and one of the largest privately held electricity generators in the region. With operations in Chile, Argentina, Colombia, Peru, and Brazil (via the 38.9% stake it owns in Endesa Brazil, consolidated by Enersis), and a total consolidated installed capacity of 15,555 MW. Endesa Chile is arguably the most regionally diversified energy-generating platform in Latin America.

Key Personnel: Enrico Viale (Chairman), Valter Moro (CEO), Fernando Gardeweg (CFO), Susana Rey (IR Director) and Catalina González (Head of IR) Web: www.endesa.cl

EBITDA Breakdown per Country, 2015E

Perú 14.0%

Colombia 40.0% Chile 43.0% Argentina 3.0%

Installed Capacity by Technology, 2015E

Hydro 57.0%

Thermal 43.0%

Shareholder Structure, Current

ADR holders 4.0% Chilean Pension Funds 15.0%

Others 21.0%

Enersis 60.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—UTILITIES

ENERSIS

BUY CURRENT PRICE: US$16.10 TARGET PRICE: US$19.20

LOWERING YE2015 TARGET PRICE TO US$19.20 FROM US$19.22 

Investment Case: We remain positive on Enersis, as we like the

Nicolas Schild*

company’s exposure to the generation business growth story (via

Chile: Santander Investment Chile Limitada +5622-336-3361 | [email protected]

Endesa), and as we expect to see normalization in its distribution business (which has been affected by nonrecurring events, especially in Brazil). Finally, we believe that current valuations are

Maria Carolina Carneiro* Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

attractive, particularly with respect to the implied valuation of its distribution business.



Outlook 2015: We expect Chilean operation to drive 9.1% EBITDA growth (in Chilean pesos), thanks to the ramp-up of regulated contracts and startup of Bocamina II in 2H15. However, we believe that these positives could be offset by weaker results in Colombia, due to FX depreciation, lower prices for Emgesa and the tariff revision for Codensa. In Brazil, we expect a slight recovery in the distribution business due to the pass-through of over costs to clients, though this could be jeopardized if the drought persists in 2015.



Recovery in Brazilian distribution business: We expect results to recover in the medium term, as over costs generated by involuntary exposure to spot market in 2014 should pass onto tariffs and due to

Company Statistics

recent caps on spot prices. But, negative effects from Coelce tariff

Bloomberg

revision cycle (set to be announced in the next few months) could offset this potential upside.

ENI US / ENERSIS CI

Current Price (01/02/15)

US$ 16.10 / Ch$ 197.45

Target Price (YE 2015)

US$ 19.20 / Ch$ 235.00

52-Week Range (US$)

13.12 - 17.72

Market Capitalization (US$ Mn)



Enersis gains significance for controller. The recent change in control of Enersis from Endesa Spain to Enel shows, in our view,

15,808

Float (%)

39.4

3-Mth Avg. Daily Vol (US$ Mn)

7.5

Shares Outstanding - Mn

982

how significant Enel’s LatAm operations have become. We believe the controller could promote changes in the future, such as boosting the use of proceeds from the 2013 capital increase or even

Price Performance (US$) ENI US

IPSA

110

promoting new changes in the Endesa/Enersis structure. 100



Contract renewal in generation business to boost results: In

90

Chile, the start-up of regulated contracts during 2014 at substantially higher prices should boost results, we believe. In 2015, the auction process to renew contracts expiring in 2021-22 will begin, and we expect these renewals to come at attractive prices for generation companies. 266

80

70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

D-14

ENERSIS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) 2015E 7,256 3.4 2,882 7.6 2,380 9.2 32.8 1,838 10.8 25.3 (675) (476) 687 48.6 9.5

2016E 7,387 1.8 3,212 11.5 2,706 13.7 36.6 2,161 17.6 29.3 (691) (594) 876 27.6 11.9

2013A 12,650 (5.2) 5,381 12.7 4,547 13.6 35.9 3,516 16.3 27.8 (1,168) (1,018) 1,330 71.5 10.5

US$ 2014E 2015E 12,283 11,586 (2.9) (5.7) 4,687 4,602 (12.9) (1.8) 3,814 3,801 (16.1) (0.3) 31.1 32.8 2,901 2,935 (17.5) 1.2 23.6 25.3 (1,178) (1,078) (915) (761) 808 1,097 (39.2) 35.6 6.6 9.5

2014E (522) 0 219 824 (1,106) (282) 474 285 (568) 0

2015E (542) 0 4 1,233 (974) 259 0 (444) (231) 0

2016E (545) 0 3 1,423 (729) 694 0 (516) (343) 0

2013A (1,031) 0 (867) 1,342 (1,655) (312) (3,203) 223 (973) 5,744

2014E (913) 0 383 1,442 (1,935) (493) 829 499 (995) 0

2015E (866) 0 7 1,969 (1,555) 414 0 (709) (369) 0

2016E (886) 0 4 2,314 (1,186) 1,128 0 (840) (558) 0

2013A 2,387 3,896 7,434 15,178 2,981 3,689 6,169 3,697 907

2014E 1,487 3,344 8,396 15,770 2,603 4,461 6,472 3,982 588

2015E 1,072 2,971 8,828 15,829 2,650 4,017 6,927 3,538 588

2016E 906 2,834 9,013 15,876 2,593 3,588 7,460 3,022 501

2013A 4,544 7,415 14,147 28,885 5,674 7,021 11,740 7,036 1,726

2014E 2,438 5,482 13,765 25,853 4,268 7,313 10,609 6,528 965

2015E 1,728 4,793 14,238 25,530 4,274 6,479 11,173 5,706 949

2016E 1,485 4,645 14,775 26,026 4,251 5,882 12,229 4,953 821

2,790

3,393

2,950

2,521

5,310

5,563

4,757

4,132

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 6,264 (3.6) 2,665 14.7 2,251 15.6 35.9 1,741 18.4 27.8 (578) (504) 659 74.5 10.5

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (510) 0 (429) 665 (819) (155) (1,586) 110 (482) 2,844

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt LT Debt FINANCIAL RATIOS

Ch$ 2014E 7,020 12.1 2,679 0.5 2,180 (3.2) 31.1 1,658 (4.8) 23.6 (673) (523) 462 (29.8) 6.6

2016E 12,012 3.7 5,222 13.5 4,400 15.8 36.6 3,514 19.7 29.3 (1,124) (966) 1,424 29.9 11.9

Net Debt

1,310

2,495

2,466

2,116

2,492

4,090

3,978

3,468

Capital Employed

9,809

11,680

12,107

12,376

18,668

19,147

19,527

20,289

Net Debt/EBITDA

0.6

1.1

1.0

0.8

0.5

1.1

1.0

0.8

Net Debt/Equity

0.2

0.4

0.4

0.3

0.2

0.4

0.4

0.3

13.1

15.8

13.4

9.9

13.1

15.8

13.4

9.9

6.1

4.4

6.0

7.9

6.1

4.4

6.0

7.9

127.7

86.3

50.0

50.0

125.4

74.9

46.5

49.8

ROCE (%)

23.5

18.9

19.3

22.5

24.6

19.8

19.4

22.5

ROE (%)

13.1

7.3

10.2

12.2

13.4

7.2

10.2

12.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

11.7

20.7

14.1

11.1

11.1

19.5

14.4

11.1

P/CE

6.6

9.7

7.9

6.8

6.2

9.1

8.1

6.8

FV/EBITDA

5.3

7.0

6.4

5.4

5.0

6.6

6.5

5.5

FV/EBIT

6.9

9.3

8.3

6.8

6.5

8.7

8.5

6.8

FV/Revenue

1.9

2.2

2.1

2.0

1.8

2.1

2.1

2.0

P/BV

1.3

1.5

1.4

1.3

1.3

1.5

1.4

1.3

(2.0)

(2.9)

2.7

7.1

(2.1)

(3.1)

2.6

7.1

6.2

6.0

2.4

3.5

6.6

6.3

2.3

3.5

Capex/Revenue (%) Int Cover (%) Dividend Payout (%)

MARKET RATIOS P/E

FCF Yield (%) Div Yield (%) PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

13

9

14

18

0.03

0.02

0.02

0.03

DPS

10

12

5

7

0.02

0.02

0.01

0.01

126

132

141

152

0.25

0.23

0.22

0.24

BVPS

267

Company Description Enersis is an integrated electricity group involved in the generation, transmission, and distribution of electrical power in Latin America. Originally a distribution company in Chile, Enersis has gradually expanded into Argentina, Brazil, Chile, Colombia, and Peru as an active player following the privatization of Latin American electricity assets in the 1990s. Controlling 14,781 MW of generating capacity through Endesa Chile and Endesa Brasil, as well as electricity distribution sales totaling 45,107 GWh during 9M2014, Enersis is the largest publicly traded electricity group in the region. The company is controlled by Enel, which owns 61% of the company, and listed on the stock exchanges of Santiago and New York.

Key Personnel: Jorge Rosenblut (Chairman), Luigi Ferraris (CEO), Javier Galán (CFO), Pedro Cañamero (Director of IR) and Denisse Labarca (Head of IR) Web: www.enersis.cl

Discos EBITDA by Country, 2015E

Perú 13.2%

Chile 23.6%

Colombia 34.1%

Argentina -6.6%

Brazil 35.7%

EBITDA by Segment, 2015E

Transmision 2.1%

Distribution 38.6%

Generation 59.3%

Shareholder Structure, Current

ADR Holders 12.0%

Others 13.0%

Chilean Pension Funds 14.0%

Endesa Latam 61.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—TELECOM, MEDIA & TECHNOLOGY

ENTEL

HOLD CURRENT PRICE: CH$6,075 TARGET PRICE: CH$7,000

LOWERING YE2015 TARGET PRICE TO CH$7,000 FROM CH$7,600  Investment Case: We maintain our Hold rating, as we believe the stock is unlikely to fully reflect the value of the Peruvian mobile business until that operation reaches breakeven, which we estimate will not occur until 2017. Moreover, the slowdown in the Chilean operation has been faster than we expected, and we

Alberto Ariztia* Chile: Santander Investment Chile Limitada +5622-336-3359 | [email protected]

Valder Nogueira* Brazil: Banco Santander S.A. +5511-3012-5747 | [email protected]

believe 4Q14 results will likely show continued weakness, due to increasingly aggressive competition within the postpaid business.

 Outlook 2015: We expect Entel to reach revenue, EBITDA, and net income of US$3,005 million, US$714 million, and US$147 million, reflecting growth of +0.6%, -2.4%, and +11.2%. The main drivers for these estimates are (1) markedly negative results in Peru based on commercial expansion and a high degree of competition in the new market, and (2) more modest growth in the Chilean subscriber base together with a decelerating economy.

 Too soon to jump in based on Peru: We estimate the Peruvian mobile operation has a firm value of US$464 million, compared with the US$400 million Entel paid in April 2013, contributing ~10% of our target EV. Nevertheless, we do not expect the

Company Statistics

Peruvian operation to reach breakeven EBITDA until 2017 and

Bloomberg

ENTEL CI

Current Price (01/02/15)

Ch$ 6,075 / US$ 9.89

believe it will not become cash flow positive until the end of the

Target Price (YE 2015)

Ch$ 7,000 / US$ 11.29

decade. Thus, consolidated FCF yield should remain below 5%

52-Week Range (Ch$)

6,033 - 7,497

until 2019, in our view, limiting potential increases in the dividend.

Market Capitalization (US$ Mn)

 Tough postpaid competition in Chile: After the 76% decline in

2,280

Float (%)

45.2

3-Mth Avg. Daily Vol (US$ Mn)

2.2

Shares Outstanding - Mn

231

MTR tariffs, prepaid segment profitability decreased, and we have seen more aggressiveness among postpaid competitors. Entel

Price Performance (Ch$) ENTEL CI

reacted by increasing subsidies but not tariffs, as competitors do.

110

Still, we expect margins to remain low for the next few quarters.

100

 Standby of 700 MHz-spectrum process: In February 2014,

90

Block B was assigned to Entel, but a suit concerning the bidding

80

process has delayed implementation. We expect the issue to be

70

resolved in 2015; however, we do not incorporate potential

60

gains in our model.

J-13

M-13

A-13

IPSA

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

268

D-14

ENTEL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 1,644 14.1 390 7.4 481 (10.4) 29.3 218 (1.7) 13.3 (19) (30) 147 (12.2) 8.9

Ch$ 2014E 1,706 3.8 394 1.0 418 (13.1) 24.5 169 (22.5) 9.9 (46) (16) 75 (48.7) 4.4

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (263) 10 (89) 317 (420) (103) (223) 405 (89) 0

2014E (249) 11 51 386 (470) (84) (91) 583 (56) 0

2015E (269) 12 3 374 (546) (172) 0 (71) (41) 0

2016E (304) 13 5 430 (567) (137) 0 176 (49) 0

2013A (531) 20 (180) 640 (849) (209) (450) 817 (180) 0

2014E (436) 19 89 675 (823) (148) (159) 1,020 (97) 0

2015E (437) 20 5 608 (888) (280) 0 (116) (67) 0

2016E (494) 21 8 698 (922) (223) 0 286 (80) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 35 568 1,334 2,257 515 861 881 840 27

2014E 376 875 1,570 2,926 522 1,463 942 1,423 18

2015E 80 607 1,848 2,936 576 1,369 991 1,352 40

2016E 56 633 2,110 3,226 900 1,275 1,050 1,528 310

2013A 65 1,073 2,520 4,262 973 1,625 1,664 1,587 51

2014E 616 1,434 2,574 4,797 855 2,399 1,544 2,334 29

2015E 129 979 2,980 4,736 930 2,208 1,598 2,181 65

2016E 92 1,038 3,460 5,288 1,476 2,091 1,721 2,505 508

813

1,406

1,312

1,218

1,536

2,305

2,116

1,997

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

806

1,048

1,272

1,472

1,522

1,717

2,052

2,413

Capital Employed

1,245

1,621

1,851

2,115

2,351

2,657

2,985

3,467

Net Debt/EBITDA

1.7

2.5

2.9

2.9

1.6

2.3

2.9

2.9

Net Debt/Equity

0.9

1.1

1.3

1.4

1.0

1.2

1.3

1.4

25.6

27.6

29.5

27.7

25.6

27.6

29.5

27.7

LT Debt FINANCIAL RATIOS Net Debt

Capex/Revenue (%)

2015E 1,848 8.3 428 8.5 439 5.1 23.8 171 0.9 9.2 (49) (26) 90 19.6 4.9

2016E 2,046 10.7 508 18.9 503 14.5 24.6 199 16.8 9.7 (51) (34) 108 19.8 5.3

2013A 3,320 12.1 788 5.5 971 (11.9) 29.3 440 (3.4) 13.3 (38) (60) 297 (13.7) 8.9

US$ 2014E 2,986 (10.1) 690 (12.5) 731 (24.7) 24.5 296 (32.8) 9.9 (81) (28) 132 (55.6) 4.4

2015E 3,005 0.6 695 0.8 714 (2.4) 23.8 277 (6.3) 9.2 (79) (43) 147 11.2 4.9

2016E 3,327 10.7 827 18.9 818 14.5 24.6 324 16.8 9.7 (83) (55) 176 19.8 5.3

Int Cover (%)

23.1

8.1

8.7

9.6

23.1

8.1

8.7

9.6

Dividend Payout (%)

53.2

37.8

54.3

54.3

52.2

32.9

50.7

54.0

ROCE (%)

17.5

10.4

9.2

9.4

18.6

11.1

9.3

9.4

ROE (%)

17.3

8.3

9.3

10.6

17.6

8.2

9.3

10.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

MARKET RATIOS P/E

11.2

18.6

15.5

13.0

10.5

17.6

15.5

13.0

P/CE

4.0

4.3

3.9

3.4

3.8

4.1

3.9

3.4

FV/EBITDA

5.1

5.9

6.1

5.7

4.8

5.5

6.1

5.7

FV/EBIT

11.2

14.5

15.7

14.4

10.6

13.6

15.6

14.5

FV/Revenue

1.5

1.4

1.4

1.4

1.4

1.4

1.4

1.4

P/BV

1.9

1.5

1.4

1.3

1.9

1.5

1.4

1.3

(6.3)

(6.0)

(12.3)

(9.8)

(6.7)

(6.4)

(12.3)

(9.8)

5.4

4.0

2.9

3.5

5.7

4.2

2.9

3.5

FCF Yield (%) Div Yield (%) PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

638

327

391

469

1.29

0.57

0.64

0.76

DPS

386

241

177

212

0.78

0.42

0.29

0.35

3,822

4,085

4,299

4,555

7.22

6.70

6.93

7.47

BVPS

269

Company Description Entel is the second largest telecommunication company in Chile, after Telefónica Group, with an industry revenue share of about 32%. The company offers a wide range of services, including mobile, long distance, fixed wireline services, data transmission, IT, and Internet services. As of September 2014, Entel had 10.1 million mobile subscribers in Chile, making it one of the largest mobile operators in the country, with a 38% market share (in terms of mobile subscribers). The company also has a wireline operation that is mainly focused on corporate clients. Entel has a small wireline operation in Peru and acquired Nextel, which has been recently launched as Entel Peru to develop the mobile services business. As of September 2014, Entel had 1.5 million mobile subscribers in Peru. Entel is controlled by Almendral, a listed Chilean company controlled by a group of Chilean entrepreneurs.

Key Personnel: Juan Hurtado (Chairman), Antonio Buchi (CEO), Felipe Ureta (CFO) and Carmen Luz de la Cerda (IR Officer) Web: http://www.entel.cl

Revenues Breakdown, 9M14

Mobile Peru 9.1% Data & TI Chile 8.6%

Other fixed services 13.6%

Mobile Services Chile 68.7%

Mobile Subscribers, 3Q14 Chile Mobile Broadband 7.9%

Mobile Peru 12.8%

Postpaid Chile 25.1%

Prepaid Chile 54.3%

Shareholder Structure, Current

Others 36.6%

Afps 8.6%

Almendral 54.8%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—RETAIL & CONSUMER GOODS

FALABELLA

BUY CURRENT PRICE: CH$4,084 TARGET PRICE: CH$5,300



Investment Case: We consider Falabella’s current valuation as a

Nicolas Villarreal*

good entry point into a company with a solid track record of organic

Chile: Santander Investment Chile Limitada +5622-336-3358 | [email protected]

growth, significant market share in its key markets/business lines, and an increasingly diversified sales mix in terms of geographies and formats. Despite decelerating GDP growth, implying a potential slowdown in SSS, we expect net income growth to remain driven by sales floor expansion and store maturity, and to be particularly

Reinaldo Santana* Mexico: Banco Santander S.A. +5255-5269-2102 | [email protected]

João Mamede* Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

focused on less mature formal retail markets such as Peru and, to a lesser extent, Colombia.



Outlook 2015: We estimate YoY top-line growth of 8.8% (CLP) as a result of +7% growth in sqm in the region, with a special focus on Peru and, to lesser extent Colombia, based on the lower penetration these markets show. The EBIT margin should expand by 0.4 p.p., according to our calculations, to 10.6% due to weaker pressure on SG&A (-0.7 p.p. over sales) after the consolidation of home improvement division in Brazil and Peru (after the acquisitions of Dicico and Maestro, respectively). We forecast net profit growth to US$853 million (vs. US$797 million in 2014E), leading to 7.0% YoY

Company Statistics

growth and showing net margin expansion of 0.3 p.p., to 6.3%.



Sales growth driven by organic capex should lessen the impact of decelerating SSS. Despite decelerating consumption in Chile and an expected recovery from late 2015 onward, we believe that investments in organic growth (14% sales floor expansion expected between YE2014 and YE2016), and the consequent 18.1% growth in consolidated sales spurred by this higher sqm and store maturity, should lessen the expected impact of lower SSS. In addition, we



Bloomberg Current Price (01/02/15) Target Price (YE 2015) 52-Week Range (Ch$) Market Capitalization (US$ Mn) Float (%) 3-Mth Avg. Daily Vol (US$ Mn) Shares Outstanding - Mn

FALAB CI Ch$ 4,084 / US$ 6.65 Ch$ 5,300 / US$ 8.55 4,009 - 5,143 15,998 12.0 5.7 2,406

Price Performance (Ch$) FALAB CI

believe the expansion plan will not be priced in. Finally, in almost all

120

business lines/formats, we assume margins below historical levels.

110

Trading at a historical discount: FALAB trades at a 12-month-

100

forward P/E of 17.8x (a 24.5% discount to its historical multiple of

90

23.6x), and a 12-month-forward FV/EBITDA of 11.8x (a 26.4%

80

discount to its historical multiple of 16.1x).

70

J-13

M-13

A-13

IPSA

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

270

D-14

FALABELLA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 6,660 12.5 2,353 17.2 902 17.7 13.5 735 18.3 11.0 (94) (144) 444 19.0 6.7

Ch$ 2014E 7,577 13.8 2,636 12.0 972 7.7 12.8 773 5.2 10.2 (137) (153) 453 2.0 6.0

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 167 (303) 308 (536) (20) 431 (171) 1

2014E 199 39 690 (209) 1,102 629 (214) 3

2015E 215 (83) 648 (390) 15 (244) (219) 0

2016E 232 (27) 762 (314) 223 (225) (249) 0

2013A 338 (612) 623 (1,082) (41) 871 (346) 2

2014E 350 68 1,216 (367) 1,940 1,107 (378) 5

2015E 356 (137) 1,072 (645) 24 (403) (362) 0

2016E 384 (44) 1,263 (520) 370 (373) (413) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 748 5,324 1,707 9,895 3,475 2,595 3,152 3,096 857

2014E 541 5,461 2,156 10,942 3,457 3,572 3,522 3,251 456

2015E 541 5,706 2,330 11,362 3,823 3,329 3,819 3,211 660

2016E 541 5,925 2,412 11,662 4,042 3,104 4,126 3,013 686

2013A 1,424 10,132 3,249 18,832 6,614 4,939 5,999 5,892 1,631

2014E 909 9,178 3,623 18,390 5,810 6,004 5,920 5,463 766

2015E 872 9,204 3,759 18,325 6,167 5,369 6,160 5,179 1,064

2016E 893 9,779 3,982 19,248 6,670 5,123 6,811 4,972 1,132

2,239

2,795

2,552

2,327

4,260

4,698

4,116

3,840

LT Debt FINANCIAL RATIOS

2015E 8,246 8.8 2,863 8.6 1,085 11.7 13.2 870 12.6 10.6 (101) (193) 516 13.9 6.3

2016E 8,852 7.4 3,063 7.0 1,170 7.8 13.2 938 7.8 10.6 (91) (229) 556 7.9 6.3

2013A 13,448 10.6 4,752 15.1 1,822 15.6 13.5 1,484 16.3 11.0 (190) (290) 896 16.9 6.7

US$ 2014E 13,343 (0.8) 4,642 (2.3) 1,711 (6.1) 12.8 1,361 (8.3) 10.2 (242) (269) 797 (11.0) 6.0

2015E 13,643 2.3 4,736 2.0 1,796 4.9 13.2 1,440 5.8 10.6 (167) (319) 853 7.0 6.3

2016E 14,682 7.6 5,079 7.2 1,940 8.1 13.2 1,556 8.1 10.6 (150) (380) 923 8.2 6.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

2,347

2,710

2,670

2,472

4,467

4,554

4,307

4,080

Capital Employed

6,529

6,666

7,103

7,842

12,425

11,204

11,457

12,944

Net Debt/EBITDA

2.6

2.8

2.5

2.1

2.5

2.7

2.4

2.1

Net Debt/Equity

0.7

0.8

0.7

0.6

0.8

0.8

0.7

0.6

Capex/Revenue (%)

8.0

2.8

4.7

3.5

8.0

2.8

4.7

3.5

Int Cover (%)

9.0

7.7

8.3

9.3

9.0

7.7

8.3

9.3

Dividend Payout (%)

45.9

48.3

48.3

48.3

45.1

41.9

45.2

48.0

ROCE (%)

13.8

14.3

15.4

15.2

14.5

15.0

15.4

15.2

ROE (%)

14.7

13.6

14.0

14.0

14.9

13.4

14.0

14.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

25.6

21.6

19.1

17.7

24.1

20.2

18.8

17.3

P/CE

41.0

38.6

32.7

30.3

38.7

36.1

32.2

29.7

FV/EBITDA

17.9

14.9

13.2

11.9

16.8

13.9

12.9

11.7

FV/EBIT

21.9

18.7

16.4

14.9

20.7

17.5

16.1

14.6

FV/Revenue

2.4

1.9

1.7

1.6

2.3

1.8

1.7

1.6

P/BV

3.6

2.8

2.6

2.4

3.6

2.7

2.6

2.3

(0.2)

11.2

0.1

2.3

(0.2)

12.0

0.2

2.3

MARKET RATIOS

FCF Yield (%) Div Yield (%) PER SHARE DATA EPS DPS BVPS

1.5

2.2

2.2

2.5

1.6

2.3

2.3

2.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

184

188

214

231

0.37

0.33

0.35

0.38

71

89

91

104

0.14

0.16

0.15

0.17

1,310

1,464

1,587

1,715

2.49

2.46

2.56

2.83

Company Description Falabella is one of the Chilean leading multi-format retailers in the region, with operations in Chile, Peru, Colombia, Brazil, Uruguay and Argentina. The company’s retail formats include department stores, homeimprovement stores and supermarkets. It also has two other business units: financial retail and real estate. With its brands, Falabella and Sodimac, the company is the market-share leader in the department store and home improvement markets in the main four countries where it has presence (except for home improvement in Argentina and Brazil) It also leads the shopping center market with Mall Plaza both in Chile and Peru, and it recently entered the Colombian and Brazilian market in 2012 and 2013, respectively. In addition, in 1998, the company opened a bank, Banco Falabella, which has operations in Chile, Peru and Colombia, and owns the leading credit card in Chile, CMR, which also has operations in the other three countries

Key Personnel: Carlo Solari (Chairman), Sandro Solari (CEO), Alejandro González (CFO), Jordi Gaju (CDO) and Lucrecia Fittipaldi (Head of IR) Web: www.falabella.cl

Revenue by Country, 2015E

Colombia 6.8%

Peru 23.8% Brazil 2.7%

Argentina and Uruguay 6.9%

Chile 59.7%

Gross Profit by Country, 2015E

Brazil Argentina 0.3% and Uruguay 4.4%

Colombia 5.7%

Peru 22.7%

Chile 66.9%

Shareholder Structure, Current

AFPs 3.7%

Others 8.3%

Solari-Del Rio Group 88.0%

Sources for all charts and tables: Company reports and Santander estimates.

271

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—UTILITIES

IAM

HOLD CURRENT PRICE: CH$939.89 TARGET PRICE: CH$1,040.00

RAISING YE2015 TARGET PRICE TO CH$1,040 FROM CH$960 

Investment Case: We believe the end of Aguas Andinas’ sixth tariff

Nicolas Schild*

revision cycle, with a slightly better-than-expected outcome, should

Chile: Santander Investment Chile Limitada +5622-336-3361 | [email protected]

help ease the pressure we have seen on IAM’s stock during 2014. Moreover, we like IAM’s defensive nature in times of economic

Maria Carolina Carneiro*

uncertainty. However, we believe that its 2015E P/E of 15x limits

Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

upside potential, highlighting that the holding company discount is in line with its three-year average (12%).



Outlook 2015:

We expect net income growth of 7.1% YoY, to

Ch$63 billion, due to: (1) the pass-through of inflation to final consumers; (2) a less negative effect from inflation on debt issued in real terms; and (3) a neutral impact on results from the tariff revision. However, we believe lower volume growth could offset part of this upside.



Tariff revision news better than expected for IAM's only asset: In 4Q14, Aguas Andinas announced the results of its sixth tariff revision cycle, which implied zero change in the tariff beginning March 2015. We highlight that the new tariff is slightly better than the 0.5% decline



we estimated. We expect the end of the tariff process to reduce

Company Statistics

regulatory risk for IAM, offering the stock some relief.

Bloomberg

Defensive stock in uncertain times: We like IAM's defensive

IAM CI

Current Price (01/02/15)

Ch$ 939.89 / US$ 1.53

Target Price (YE 2015)

Ch$ 1,040 / US$ 1.68

52-Week Range (Ch$)

847.01 - 963.31

nature in the current period of economic uncertainty, thanks to: (1) its

Market Capitalization (US$ Mn)

attractive dividend yield (6.3%); (2) no major impact from tax reform,

Float (%)

as regulated return in Aguas Andinas is calculated after taxes; (3)

1,530 43.4

3-Mth Avg. Daily Vol (US$ Mn)

1.7

Shares Outstanding - Mn

1,000

limited political risk, especially given the potential introduction of hydro royalties; and (4) the low elasticity of regulated businesses

IAM CI

relative to the economic cycle.



Price Performance (Ch$) IPSA

120 110

Valuation limits the upside: We estimate that currently IAM trades at a holding discount in line with its 12% average in 2011-14. On the

100

other hand, 2015E P/E and FV/EBITDA are at 15.0x and 8.2x, 4%

90

discounts to the three-year averages. However, we do not see this as

80

especially attractive, given the constraints on the company's growth

70

now that Aguas Andina has reached 100% service coverage in most of its business. 272

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

D-14

IAM Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 403 5.2 223 (1.0) 246 2.0 61.2 182 (2.5) 45.1 (95) (29) 58 (4.3) 14.3

Ch$ 2014E 433 7.6 247 10.9 267 8.4 61.6 201 10.8 46.4 (117) (28) 59 1.6 13.5

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (65) 8 131 (84) 47 (21) 26 (44) (0)

2014E (67) (51) 74 (67) 7 28 18 (60) (1)

2015E (68) (1) 129 (125) 5 2 50 (59) (1)

2016E (70) 12 147 (117) 30 1 18 (63) 0

2013A (131) 17 264 (169) 95 (42) 52 (89) (0)

2014E (117) (90) 130 (118) 12 48 31 (104) (2)

2015E (109) (2) 207 (199) 8 4 80 (94) (2)

2016E (114) 19 238 (190) 48 1 29 (103) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 40 135 1,171 1,851 221 680 581 720 94

2014E 29 117 1,173 1,848 121 750 597 738 52

2015E 27 118 1,230 1,906 155 768 601 788 84

2016E 12 106 1,277 1,941 169 787 602 806 83

2013A 77 256 2,229 3,522 421 1,294 1,106 1,370 178

2014E 48 192 1,922 3,029 198 1,230 979 1,209 84

2015E 43 190 1,984 3,074 250 1,239 969 1,271 135

2016E 19 174 2,093 3,181 277 1,291 987 1,321 135

626

686

704

723

1,192

1,125

1,136

1,186

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

680

709

761

794

1,293

1,162

1,227

1,302

Capital Employed

1,683

1,749

1,808

1,770

3,203

2,867

2,916

2,901

Net Debt/EBITDA

2.8

2.7

2.7

2.7

2.6

2.5

2.8

2.7

Net Debt/Equity

1.2

1.2

1.3

1.3

1.2

1.3

1.3

1.3

20.8

15.5

27.7

24.6

20.8

15.5

27.7

24.6

LT Debt FINANCIAL RATIOS Net Debt

Capex/Revenue (%) Int Cover (%)

2015E 449 3.6 259 4.8 279 4.6 62.2 212 5.5 47.3 (116) (34) 63 7.1 14.0

2016E 475 5.8 274 6.0 296 5.9 62.2 225 6.1 47.4 (119) (42) 64 2.8 13.6

2013A 813 3.3 449 (2.7) 498 0.3 61.2 367 (4.2) 45.1 (191) (59) 116 (5.9) 14.3

US$ 2014E 758 (6.8) 432 (3.9) 467 (6.1) 61.6 352 (4.0) 46.4 (205) (49) 103 (11.9) 13.5

2015E 717 (5.5) 413 (4.3) 446 (4.5) 62.2 339 (3.7) 47.3 (186) (54) 100 (2.3) 14.0

2016E 772 7.8 446 7.9 481 7.8 62.2 366 8.0 47.4 (193) (68) 105 4.7 13.6

8.5

8.3

7.9

7.9

8.5

8.3

7.9

7.9

Dividend Payout (%)

72.8

103.3

100.5

101.1

71.5

89.7

93.9

100.5

ROCE (%)

10.8

11.5

11.8

12.7

11.5

12.2

11.8

12.7

9.9

9.9

10.5

10.7

10.0

9.8

10.5

10.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

ROE (%) MARKET RATIOS P/E

15.5

16.0

15.0

14.6

14.6

15.1

15.3

14.6

P/CE

7.3

7.5

7.2

7.0

6.9

7.1

7.3

7.0

FV/EBITDA

8.7

8.4

8.2

7.9

8.2

7.9

8.4

7.9

FV/EBIT

11.8

11.2

10.8

10.3

11.1

10.5

11.0

10.4

FV/Revenue

5.3

5.2

5.1

4.9

5.0

4.9

5.2

4.9

P/BV

1.5

1.6

1.6

1.6

1.5

1.6

1.6

1.6

FCF Yield (%)

5.3

0.7

0.5

3.2

5.6

0.8

0.5

3.2

Div Yield (%)

4.9

6.3

6.3

6.7

5.2

6.7

6.1

6.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

58

59

63

64

2.33

2.05

2.00

2.10

DPS

44

60

59

63

1.77

2.08

1.88

2.06

2

2

2

2

0.08

0.06

0.07

0.07

PER SHARE DATA

BVPS

273

Company Description Inversiones Aguas Metropolitanas (IAM) is a holding company with a single asset: a 50.1% stake in Aguas Andinas, the largest water utility company in Chile and one of the largest private water and sewage companies in South America. The company provides water and basic sanitation services to residential, commercial, and industrial customers in most of Santiago, Chile’s capital and largest city, as well as other locations in the metropolitan region. Aguas Andinas, which accounts for 43% of the water utilities industry in Chile, also has operations in Chile’s Tenth Region through the acquisition of its subsidiary Essal.

Key Personnel: Josep Bagué Prats (Chairman), Jorge Sagnier (CEO), Iván Yarur (CFO) and Stephanie Baier (Head of IR) Web: www.iamchile.cl

EBITDA by Sector, 2015E

ESSAL 9.5%

Aguas 90.5%

Sales by Segment, 2015E

Others 19.5% Treatment 20.4% Water 39.9%

Collection 20.2%

Shareholder Structure, Current

Others 40.8%

Local Institutional Investor 0.5% International Investors 2.1%

Agbar 56.6%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—HEALTH CARE

INVERSIONES LA CONSTRUCCIÓN

BUY CURRENT PRICE: CH$7,350 TARGET PRICE: CH$8,250

INTRODUCING YE2015 TARGET PRICE OF CH$8,250; REPLACING YE2014 TARGET PRICE OF CH$8,900 

Investment Case: We maintain our Buy rating on ILC shares, as in

Matias Duarte*

our view, the recent 8.7% decline since November 30 is unjustified,

Chile: Santander Investment Chile Limitada +5622-336-3423|[email protected]

considering the company’s business mix at valuations that are below historical levels. Moreover, our estimates do not assume synergies from the recently announced acquisitions.



Daniel Gewehr* Brazil: Banco Santander S.A. +5511-3012-5787 | [email protected]

Outlook 2015: We expect 6.6% EBITDA growth, driven by 3.3% growth in Habitat EBITDA, flat results in Red Salud (Private Health Services), partly offset by a 10% decline in Consalud, as we expect higher claim rates in 2015. Our operating income estimate does not include Corp Group Vida insurance company results; neither does it include the operations of Banco Internacional, as we await clarity on due diligence for the pending acquisition. We expect that transaction to close in 1H15.



Entering the banking business: On August 19, ILC announced that it had signed a MOU to acquire a 50.1% stake and the control of Banco Internacional, a small-sized corporate bank, with a market share in loans of 0.61%. The bank has equity of ~US$124 million; considering the postdeal capital increase, we estimate capital of

Company Statistics

~US$158 million. For that, ILC will be paying an estimated US$112

Bloomberg

million for 50.1% of the shares, implying a P/BV of 1.4x. Banco

Ch$ 7,350 / US$ 11.97

Target Price (YE 2015)

Ch$ 8,250 / US$ 13.31

Internacional posted a LTM ROAE of 5.36%. While the price paid is

52-Week Range (Ch$)

6,437 - 8,580

below recent transaction/market prices in the sector, we find it

Market Capitalization (US$ Mn)

1,196

Float (%)

justified by the bank’s relatively low profitability.



ILC CI

Current Price (01/02/15)

33.0

3-Mth Avg. Daily Vol (US$ Mn)

1.1

Shares Outstanding - Mn

100

Attractive valuations and dividends: According to our estimate, ILC is trading at a 2015E P/E of 8.8 times, not considering AFP

Price Performance (Ch$) ILC CI

Habitat’s legal reserve, which is at a 15.3% historical discount and is

110

delivering a 12-month-forward dividend yield of 7.4%, in-line with its

100

average, and among the highest in our Chilean coverage in the

IPSA

90

sector. 80 70 60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

274

D-14

INVERSIONES LA CONSTRUCCIÓN Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 646 (4.7) 224 (8.8) 102 (21.1) 15.8 90 (23.7) 13.9 34 (21) 79 (2.5) 12.3

Ch$ 2014E 674 4.3 242 8.1 119 17.0 17.7 107 18.4 15.8 (5) (34) 42 (46.6) 6.3

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (12) (22) 68 19 87 (317) 181 (70) 0

2014E (13) 14 101 (37) 64 (72) 22 (46) 0

2015E (12) 6 98 (12) 86 (21) (14) (53) 0

2016E (13) 3 98 (13) 85 (22) 0 (56) 0

2013A (24) (45) 137 38 175 (640) 366 (141) 0

2014E (23) 24 176 (65) 112 (125) 39 (80) 0

2015E (20) 10 160 (20) 140 (35) (22) (86) 0

2016E (20) 5 159 (20) 139 (37) 0 (92) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 126 231 206 5,299 173 418 477 397 43

2014E 124 198 231 5,721 190 427 504 419 51

2015E 118 199 231 5,743 202 413 531 405 51

2016E 125 207 231 5,774 207 413 557 405 51

2013A 239 439 392 10,084 330 796 907 755 81

2014E 203 325 379 9,379 312 699 826 686 84

2015E 191 321 373 9,263 326 666 857 653 82

2016E 204 340 379 9,465 340 677 913 664 84

354

368

354

354

673

603

571

580

LT Debt FINANCIAL RATIOS

2015E 688 2.1 255 5.2 127 6.6 18.5 115 8.1 16.7 (3) (31) 80 90.3 11.7

2016E 709 3.1 263 3.0 132 3.4 18.6 119 3.4 16.8 (2) (35) 82 2.2 11.6

2013A 1,304 (6.4) 453 (10.4) 206 (22.5) 15.8 182 (25.0) 13.9 69 (42) 160 (4.2) 12.3

US$ 2014E 1,179 (9.6) 424 (6.3) 209 1.4 17.7 186 2.6 15.8 (9) (59) 74 (53.7) 6.3

2015E 1,119 (5.1) 415 (2.2) 207 (0.9) 18.5 187 0.5 16.7 (6) (51) 131 76.8 11.7

2016E 1,154 3.1 427 3.0 214 3.4 18.6 194 3.4 16.8 (4) (56) 134 2.2 11.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

245

295

287

280

467

483

462

459

Capital Employed

683

712

728

747

1,301

1,168

1,174

1,225

Net Debt/EBITDA

2.4

2.5

2.3

2.1

2.3

2.3

2.2

2.1

Net Debt/Equity

0.5

0.6

0.5

0.5

0.5

0.6

0.5

0.5

(2.9)

5.5

1.8

1.8

(2.9)

5.5

1.8

1.8

7.6

5.6

5.2

5.4

7.6

5.6

5.2

5.4

Dividend Payout (%)

85.9

57.5

125.1

70.0

84.4

49.9

116.9

69.6

ROCE (%)

25.1

30.4

31.4

32.8

26.4

31.8

31.5

32.8

Capex/Revenue (%) Int Cover (%)

ROE (%)

17.5

8.6

15.6

15.1

17.8

8.5

15.6

15.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

9.3

17.4

9.1

8.9

8.8

16.4

9.1

9.0

P/CE

8.1

13.3

7.9

7.8

7.6

12.6

7.9

7.8

FV/EBITDA

13.3

11.0

10.1

9.7

12.6

10.4

10.1

9.7

FV/EBIT

15.1

12.4

11.2

10.8

14.2

11.6

11.2

10.8

2.1

2.0

1.9

1.8

2.0

1.8

1.9

1.8

MARKET RATIOS

FV/Revenue P/BV

1.6

1.5

1.4

1.3

1.6

1.5

1.4

1.3

FCF Yield (%)

11.7

8.7

11.7

11.6

12.4

9.2

11.7

11.6

Div Yield (%)

9.4

6.2

7.2

7.7

10.0

6.6

7.2

7.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

792

423

805

822

1.60

0.74

1.31

1.34

DPS

698

456

529

563

1.41

0.80

0.86

0.92

4,767

5,037

5,312

4,280

9.07

8.26

8.57

7.02

PER SHARE DATA

BVPS

275

Company Description ILC is a holding company controlled by the Chilean Construction Chamber (CChC). In the pension fund sector, ILC through AFP Habitat manages the money of its contributors, which, according to November 2014 data was equivalent to assets under management (AUM) of more than US$44 billion. In contrast, the company has an active participation in the insurer and healthcare provider business through Red Salud, which has one of the largest networks of private hospitals and medical centers in Chile. Also, in the healthcare sector, through Consalud, ILC provides private health insurance in Chile and is the second largest health insurance company in terms of policyholders. With respect to insurance, through Vida Camara, the company provides complementary health insurance and since October sold disability and survivorship (SIS) services to pension companies. Also, ILC has a small participation in IT services and the education sector.

Key Personnel: Daniel Hurtado (Chairman), Pablo González (CEO) Web: http://www.ilcinversiones.cl/

Sales, 2015E Vida Camara 4.5% Consalud 46.8%

Habitat 19.4%

Red Salud 29.2%

EBIT, 2015E

Red Salud 15.1%

Consalud 12.1%

Vida Camara -9.4%

Habitat 82.1%

Shareholder Structure, Current

International 14.7%

Others 12.4%

Mutual Funds 5.9%

CChC 67.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—TRANSPORTATION

LATAM AIRLINES

HOLD CURRENT PRICE: US$11.82 TARGET PRICE: US$13.20

INTRODUCING YE2015 TARGET PRICE OF US$13.20; REPLACING YE2014 TARGET PRICE OF US$18.00 

Investment thesis: We anticipate a challenging competitive

Bruno Amorim*, CFA

scenario in almost all of the markets where LATAM operates, which

Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

should imply lower unit revenue next year and partially offset the recent significant fall in oil prices (~-50% since June). According to our calculations, the stock trades at a 2015E EV/EBITDAR of ~7x,

Nicolas Villarreal* Chile: Santander Investment Chile Limitada +5622-336-3358 | [email protected]

only slightly below our target multiple of 7.5x (compared with our previous 8.5x due to a weaker revenue trend).



Outlook 2015: We estimate: (1) YoY top-line growth of -1% in US dollars, as a result of -4% RASK and +3.3% ASK (vs. -0.2% in 2013 and -1.2% in 2014E); (2) EBIT margin expansion of 2.93 p.p., to 7.1%, with RASK at -4% (mainly due to 4% decrease in yields, maintaining the downward trajectory seen in the last few quarters) and CASK at -7% (on lower jet fuel prices); and (3) net profit growth to US$435 million (vs. US$84 million losses in 2014E).



Falling revenue . . . We expect a fall in revenue of 1% YoY, after strong competition in international passenger operations, with capacity transferring to more profitable routes. Also a tougher competitive environment in Spanish speaking countries (SSC) and

Company Statistics

cargo operations should lead to a decrease in yields (-4% and -3%

Bloomberg

YoY, respectively) that would offset the increase in capacity, mostly

US$ 11.82 / Ch$ 7,198.30

Target Price (YE 2015)

US$ 13.20 / Ch$ 8,184.00

coming from SSC and international operations. Finally, the 12% BRL

52-Week Range (US$)

10.60 - 16.36

depreciation expected for 2015, up to R$2.71 per USD, should also

Market Capitalization (US$ Mn)

6,405

Float (%)

pressure revenue.



LFL US / LAN CI

Current Price (01/02/15)

49.9

3-Mth Avg. Daily Vol (US$ Mn)

6.0

Shares Outstanding - Mn

542

. . . offset by lower oil prices. Oil prices (Brent) are at ~US$55/bbl (down by ~50% since June), and we believe this implies significant upside for LATAM Airlines, as 35% of costs are related to jet fuel

Price Performance (US$) LFL US

IPSA

120

costs. Our model assumes an average oil price of ~US$75/bbl (36% 100

above current level) during 2015. 80

60

40

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

276

D-14

LATAM AIRLINES Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 6,570 1.7 1,553 19.0 1,053 32.3 16.0 319 636.8 4.9 (459) 10 (139) 41.8 (2.1)

Ch$ 2014E 7,303 11.2 1,708 9.9 1,173 11.4 16.1 303 (5.1) 4.1 (313) (45) (48) 65.5 (0.7)

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (516) 0 (32) 345 408 753 261 76 (15) (396)

2014E (572) 0 (27) 497 (600) (102) 0 209 0 (50)

2015E (648) 0 (93) 827 (810) 17 0 0 0 (68)

2016E (671) 0 15 1,075 (1,377) (302) 0 0 (83) 52

2013A (1,042) 0 (64) 696 824 1,521 526 154 (30) (799)

2014E (1,001) 0 (47) 870 (1,050) (179) 0 366 0 (87)

2015E (1,035) 0 (148) 1,321 (1,294) 27 0 0 0 (109)

2016E (1,061) 0 24 1,700 (2,177) (477) 0 0 (130) 83

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,397 2,617 5,771 11,892 3,420 5,673 2,799 5,202 1,072

2014E 1,683 3,047 6,729 13,844 3,890 6,756 3,198 6,262 1,244

2015E 1,660 3,035 7,000 14,169 3,851 6,799 3,520 6,365 1,265

2016E 1,348 2,801 7,769 14,746 3,968 6,919 3,859 6,428 1,277

2013A 2,659 4,980 10,983 22,631 6,509 10,796 5,326 9,900 2,040

2014E 2,759 4,995 11,031 22,694 6,377 11,075 5,242 10,266 2,040

2015E 2,677 4,895 11,290 22,854 6,211 10,966 5,677 10,266 2,040

2016E 2,152 4,472 12,407 23,548 6,337 11,049 6,162 10,266 2,040

4,130

5,018

5,100

5,151

7,860

8,226

8,226

8,226

LT Debt FINANCIAL RATIOS

2015E 7,939 8.7 2,134 25.0 1,546 31.7 19.5 562 85.5 7.1 (210) (134) 272 n/m 3.4

2016E 8,389 5.7 2,358 10.5 1,732 12.1 20.6 712 26.8 8.5 (210) (191) 389 42.9 4.6

2013A 13,266 (0.0) 3,137 16.9 2,127 30.0 16.0 644 624.0 4.9 (928) 20 (281) 42.8 (2.1)

US$ 2014E 2015E 12,779 12,677 (3.7) (0.8) 2,988 3,407 (4.7) 14.0 2,053 2,468 (3.5) 20.2 16.1 19.5 530 897 (17.7) 69.3 4.1 7.1 (548) (336) (79) (213) (84) 435 70.1 n/m (0.7) 3.4

2016E 13,262 4.6 3,727 9.4 2,738 11.0 20.6 1,126 25.5 8.5 (331) (302) 615 41.5 4.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

5,427

6,808

7,032

7,500

10,328

11,160

11,342

11,976

Capital Employed

7,746

8,213

8,406

8,745

14,742

13,463

13,558

13,966

Net Debt/EBITDA

5.2

5.8

4.6

4.3

4.9

5.4

4.6

4.4

Net Debt/Equity Capex/Revenue (%) Int Cover (%) Dividend Payout (%) ROCE (%) ROE (%) MARKET RATIOS P/E P/CE FV/EBITDA FV/EBIT FV/Revenue P/BV

1.8

2.0

2.0

1.9

1.9

2.1

2.0

1.9

(6.2)

8.2

10.2

16.4

(6.2)

8.2

10.2

16.4

5.5

6.3

11.7

13.1

5.5

6.3

11.7

13.1 30.0

(6.1)

0.0

0.0

30.1

(6.0)

0.0

0.0

4.2

3.1

5.0

5.9

4.5

3.3

5.0

5.9

(5.2)

(1.6)

8.0

10.4

(5.3)

(1.6)

8.0

10.4

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

-

-

14.4

10.1

-

-

14.7

10.4

10.9

7.5

4.3

3.7

10.3

7.1

4.4

3.8

9.1

9.2

7.1

6.6

8.5

8.6

7.2

6.7

29.9

35.5

19.5

16.1

28.2

33.3

19.8

16.3

1.5

1.5

1.4

1.4

1.4

1.4

1.4

1.4

1.5

1.2

1.1

1.0

1.5

1.2

1.1

1.0

FCF Yield (%)

18.3

(2.6)

0.4

(7.7)

19.4

(2.8)

0.4

(7.4)

Div Yield (%)

0.4

(0.0)

(0.0)

2.1

0.4

(0.0)

(0.0)

2.0 2016E

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

EPS

(360)

(95)

493

698

(0.59)

(0.15)

0.80

1.14

DPS

38

0

0

148

0.06

0.00

0.00

0.24

6,817

5,942

6,435

6,985

11.10

9.67

10.48

11.37

BVPS

277

Company Description LATAM Airlines (parent company of LAN Airlines, LAN Express, LAN Peru, LAN Ecuador, LAN Argentina, LAN Cargo, TAM in Brazil and Paraguay, and other affiliates) is the largest domestic and international passenger and cargo air carrier in Chile, Brazil and Latin America. LATAM operates in the international long-haul market (linking South America to North America, Europe, and South Pacific), in the regional market (within South America) and in the domestic markets of Chile, Brazil, Peru, Paraguay, Colombia, Argentina, and Ecuador. The airline currently serves a total of 150 destinations around the world, with a fleet of 320 aircraft.

Key Personnel: Mauricio Amaro (Chairman), Enrique Cueto (CEO), Andres Osorio (CFO) and Gisela Escobar (Head of Investor Relations) Web: www.latamairlines.com

Revenue by Segment, 2015E

Cargo 16.4%

Passenger 83.6%

ASK by Country, 2015E

Regional 17.0%

Long Haul 33.0%

Argentina 3.0%

Brazil 36.0%

Perú Colombia Chile 3.0% 2.0% 6.0%

Shareholder Structure, Current

Cueto Group 25.9%

Others 43.8%

AFPs 16.5%

Amaro Group 13.8%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—CEMENT, CONSTRUCTION, INFRA & RE

PARQUE ARAUCO

BUY CURRENT PRICE: CH$1,165 TARGET PRICE: CH$1,500

INTRODUCING YE2015 TARGET PRICE OF CH$1,500; REPLACING YE2014 TARGET PRICE OF CH$1,200 

Investment Case: We believe Parque Arauco is likely to continue its

Alberto Ariztia*

successful story based on: (1) a shopping mall base with low

Chile: Santander Investment Chile Limitada +5622-336-3359 | [email protected]

maturity, which supports revenue and margin improvement; (2) an active format and regional diversification; (3) organic and inorganic growth, supported by a pipeline of more than US$500 million, from which our valuation incorporates 60%; and (4) a US$227 million land bank that could bolster further growth from 2016 onward. Finally, our valuation does not consider the acquisition of El Quince in Peru, which is an upside risk. These factors translate into a 2014-17E 14.7% EBITDA CAGR, with limited downside risk, in our view, as 76% of total GLA is linked to contracts of two or more years.



Outlook 2015: We forecast EBITDA growth of 8.2% due to a 7.6% increase in sales, stemming from a 3% GLA increase. If El Quince project gets fully approved and consolidated on time (1Q15), we estimate sales and EBITDA might grow at a double-digit rate. We note that Parque Arauca’s EBITDA will jump 32.2% in 2016 due to the entrance of La Colima mall in Bogotá, Colombia, the largest project under construction. Company Statistics



Peru as a source of growth: For 2015, we estimate sales and

PARAUCO CI

Current Price (01/02/15)

Ch$ 1,165 / US$ 1.90

EBITDA in Peru will grow 16.6% and 13.9%, respectively.

Target Price (YE 2015)

Ch$ 1,500 / US$ 2.44

Management has been actively looking for M&A and new projects in

52-Week Range (Ch$)

905.02 - 1,251

Peru with partners: El Quinde (inorganic growth), Parque El Golf

Market Capitalization (US$ Mn)

1,551

Float (%)

57.0

(50% equity share with local Centenario group, incorporated in our

3-Mth Avg. Daily Vol (US$ Mn)

1.2

model) and other potential projects, for some US$200 million of

Shares Outstanding - Mn

818

pipeline space not incorporated.



Bloomberg

Price Performance (Ch$) PARAUCO CI

New tax reform—land taxes: We estimate that the end of land tax

120

credit will lead to ~Ch$2,200 million in 2016 and Ch$4,500 million in

110

2017 to Parque Arauco’s bottom line; though our earnings forecast

IPSA

100

incorporates this, we have not changed our DCF projection, as our 90

valuations have never incorporated this tax benefit of the company. 80 70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

278

D-14

PARQUE ARAUCO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 107 12.5 85 12.6 74 11.3 69.4 72 9.9 66.8 (17) (9) 55 51.8 51.5

Ch$ 2014E 125 16.0 97 13.7 85 13.7 68.0 81 13.4 65.3 (28) (11) 40 (28.2) 31.9

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 3 (13) (0) 45 (137) (91) (10) 86 (19) 0

2014E 3 (2) (18) 23 (167) (144) 76 17 (24) 103

2015E 4 0 (5) 45 (88) (42) 36 (26) (21) 0

2016E 4 0 (1) 52 (75) (23) 32 (31) (25) 0

2013A 5 (24) (1) 85 (258) (173) (19) 163 (37) 0

2014E 6 (3) (30) 38 (275) (237) 125 28 (40) 169

2015E 6 0 (8) 73 (142) (69) 59 (42) (34) 0

2016E 6 0 (1) 85 (123) (38) 52 (50) (41) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 69 117 951 1,202 76 491 510 441 36

2014E 97 149 1,115 1,413 79 524 645 458 53

2015E 44 103 1,199 1,451 100 478 670 433 72

2016E (3) 57 1,270 1,475 106 443 694 402 77

2013A 139 236 1,920 2,427 154 991 1,031 891 72

2014E 170 262 1,950 2,472 138 916 1,128 802 92

2015E 71 168 1,949 2,359 163 778 1,090 704 117

2016E (5) 92 2,065 2,399 172 720 1,128 654 126

LT Debt FINANCIAL RATIOS Net Debt

2015E 134 7.5 104 7.7 92 8.1 68.3 88 8.1 65.6 (19) (18) 47 17.4 34.8

2016E 138 2.8 107 2.9 104 13.1 75.2 100 13.5 72.5 (24) (19) 48 4.0 35.2

2013A 203 1.8 161 1.9 141 0.8 69.4 135 (0.5) 66.8 (33) (17) 104 37.4 51.5

US$ 2014E 204 0.7 158 (1.3) 139 (1.3) 68.0 133 (1.5) 65.3 (46) (19) 65 (37.7) 31.9

2015E 216 5.8 168 5.9 148 6.3 68.3 142 6.4 65.6 (31) (28) 75 15.5 34.8

2016E 226 4.5 176 4.6 170 15.0 75.2 164 15.4 72.5 (39) (32) 79 5.7 35.2

406

406

361

325

819

710

586

528

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

372

361

389

405

752

632

632

659

Capital Employed

1,093

1,289

1,378

1,450

2,206

2,256

2,241

2,358

Net Debt/EBITDA

5.0

4.3

4.2

3.9

5.3

4.6

4.3

3.9

Net Debt/Equity

0.7

0.6

0.6

0.6

0.8

0.6

0.6

0.6

127.3

134.5

65.6

54.4

127.3

134.5

65.6

54.4

3.9

3.5

4.1

5.0

3.9

3.5

4.1

5.0

53.5

43.8

53.5

53.5

52.6

38.0

49.8

53.4

7.7

7.5

7.9

8.5

8.1

7.9

8.0

8.5

Capex/Revenue (%) Int Cover (%) Dividend Payout (%) ROCE (%) ROE (%)

11.2

6.9

7.1

7.1

11.4

6.8

7.1

7.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

12.2

23.9

20.5

19.7

12.3

24.1

20.6

19.5

P/CE

12.8

26.2

22.2

21.3

12.9

26.3

22.4

21.2

FV/EBITDA

16.3

18.4

17.8

16.2

16.7

18.7

17.9

16.1

FV/EBIT

16.9

19.1

18.5

16.8

17.4

19.5

18.7

16.7

FV/Revenue

11.3

12.5

12.2

12.2

11.6

12.7

12.3

12.1

1.3

1.5

1.4

1.4

1.2

1.4

1.4

1.4

(13.6)

(15.2)

(4.5)

(2.4)

(13.5)

(15.1)

(4.4)

(2.5)

2.9

2.5

2.2

2.6

2.9

2.5

2.2

2.6

MARKET RATIOS

P/BV FCF Yield (%) Div Yield (%) PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

79

49

57

59

0.15

0.08

0.09

0.10

DPS

28

30

26

30

0.05

0.05

0.04

0.05

726

789

819

848

1.47

1.38

1.33

1.38

BVPS

279

Company Description Parque Arauco is the third largest shopping center company in Chile, developing and operating malls in Chile, Peru, and Colombia. As of 3Q14, the company held interests in eighteen malls in Chile, eleven in Peru, and two in Colombia, with owned GLA of 540,940 m2, boasting an average stake of 75.3% in its mall portfolio. The company manages over 718,000 m2 of GLA. In addition, the company has five projects currently under development. Parque Arauco is owned by the Said Somavía, Said Yarur, and Abumohor families.

Key Personnel: José Said (Chairman), José Antonio Alvarez (CEO), Claudio Chamorro (CFO), Eduardo Pérez (Finance Officer) and Samantha Zerbe (Head of IR) Web: www.parauco.com

GLA by Country, 2014E

Colombia 10.0% Peru 35.0%

Chile 55.0%

EBITDA by Country, 2014E

Peru 26.0%

Colombia 8.0%

Chile 66.0%

Shareholder Structure, Current

Controller 26.0%

Others 56.9%

Pension Abumohor Funds Family 8.3% 2.7%

Said Yarur Family 6.1%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—RETAIL & CONSUMER GOODS

RIPLEY

BUY CURRENT PRICE: CH$290.03 TARGET PRICE: CH$395.00



Investment Case: We believe that Ripley’s current valuation

Nicolas Villarreal*

provides a good entry point into a company that currently trades at

Chile: Santander Investment Chile Limitada +5622-336-3358 | [email protected]

0.70x book value, even including its banking operation, which has a ROE of 24% (LTM 3Q14). We further note that the company’s most recent store openings in Colombia, as well as its real estate division, could be an important source of untapped value, which in our opinion, has yet to be priced in.



Reinaldo Santana* Mexico: Banco Santander S.A. +5255-5269-2102 | [email protected]

João Mamede* Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

Outlook 2015: We estimate: (1) YoY top-line growth of 10.6%, the result of a low comparative basis, better outlook in SSS for 2015, and the positive effect of the financial division merger, bringing important synergies to the financial division (all accounted in EBITDA after the transaction); (2) EBIT margin expansion of 1.3 p.p., to 3.7%, due to weaker pressure on SG&A (-2.0 p.p. over sales) stemming from the maturity of Colombian operations; (3) net profit growth of US$52 million (vs. US$31 million in 2014E), 66.5% YoY growth, showing net margin expansion of 0.7 p.p., to 1.9%.



Maturity analysis in Colombia: Since Ripley's entrance into Colombia in 2013, the company has opened a total of seven stores

Company Statistics

in the country. Our analysis projects that each store will reach

Bloomberg

maturity after two years of operations; we expect four stores to reach maturity in 2015 and three in 2016.



Untapped value in real estate division: In our analysis, we used Parque Arauco as a comparable that trades at a 2014E P/E of 15.4x,

RIPLEY CI

Current Price (01/02/15)

Ch$ 290.03 / US$ 0.47

Target Price (YE 2015)

Ch$ 395.00 / US$ 0.64

52-Week Range (Ch$)

286.65 - 389.60

Market Capitalization (US$ Mn)

914

Float (%)

34.5

3-Mth Avg. Daily Vol (US$ Mn)

0.9

Shares Outstanding - Mn

1,936

to which we used a 30% discount factor, due to the maturity of its stores and strong operating position. This led us to US$234 million

Price Performance (Ch$) RIPLEY CI

real estate division valuation, which would imply a US$620 million

120

valuation if Ripley, which shows a ~7% ROE, is able to meet the

110

~13% ROE Parque Arauco has in its mature operations, implying

100

30% upside to our YE2015 target price of $395.00 per share.

IPSA

90 80



Nonrecurring negative effects: The company was hurt by

70

nonrecurring items in Chile and Peru in 2014 that squeezed

60

margins—we expect margins to normalize.

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

280

D-14

RIPLEY Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 1,374 5.8 530 10.7 105 13.6 7.6 66 14.4 4.8 (14) (8) 44 18.6 3.2

Ch$ 2014E 1,544 12.4 579 9.3 82 (21.9) 5.3 37 (43.5) 2.4 (15) (5) 18 (59.1) 1.2

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (38) 0 (111) (29) (64) 87 77 (11) 0

2014E (44) 0 (128) (66) (75) (7) 153 (22) 0

2015E (41) 0 (36) 38 (86) (25) 52 (7) 0

2016E (52) 0 (33) 72 (73) 48 79 (10) 0

2013A (77) 0 (223) (58) (130) 176 156 (22) 0

2014E (77) 0 (224) (115) (132) (13) 268 (38) 0

2015E (66) 0 (58) 60 (138) (40) 83 (11) 0

2016E (84) 0 (54) 116 (119) 78 129 (16) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 203 969 613 1,970 740 440 789 795 383

2014E 174 1,052 689 2,124 806 500 818 948 466

2015E 142 1,090 775 2,237 853 540 844 1,001 478

2016E 181 1,202 848 2,399 885 627 887 1,080 470

2013A 387 1,845 1,167 3,748 1,408 837 1,502 1,513 728

2014E 286 1,724 1,129 3,483 1,321 820 1,341 1,555 763

2015E 230 1,758 1,250 3,607 1,375 871 1,361 1,614 771

2016E 296 1,970 1,391 3,933 1,451 1,028 1,454 1,770 771

413

483

523

610

785

792

843

1,000

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

LT Debt FINANCIAL RATIOS

2015E 1,708 10.6 629 8.6 105 28.9 6.2 64 70.9 3.7 (21) (10) 33 82.4 1.9

2016E 1,934 13.2 725 15.3 142 35.0 7.3 90 41.0 4.7 (21) (16) 53 61.7 2.7

2013A 2,775 4.0 1,070 8.7 211 11.6 7.6 134 12.5 4.8 (29) (17) 89 16.5 3.2

US$ 2014E 2,702 (2.6) 1,014 (5.3) 143 (32.3) 5.3 66 (51.0) 2.4 (26) (8) 31 (64.5) 1.2

2015E 2,728 1.0 1,005 (0.9) 168 17.6 6.2 102 56.0 3.7 (34) (15) 52 66.5 1.9

2016E 3,145 15.3 1,179 17.4 231 37.4 7.3 147 43.6 4.7 (35) (25) 86 64.6 2.7

Net Debt

592

774

858

899

1,127

1,269

1,384

1,474

Capital Employed

934

1,110

1,192

1,247

1,777

1,820

1,923

2,044

Net Debt/EBITDA

5.7

9.5

8.2

6.3

5.3

8.9

8.2

6.4

Net Debt/Equity

0.7

0.9

1.0

1.0

0.8

1.0

1.0

1.0

Capex/Revenue (%)

4.7

4.9

5.1

3.8

4.7

4.9

5.1

3.8

Int Cover (%)

4.3

3.8

3.9

5.1

4.3

3.8

3.9

5.1

29.6

49.1

39.6

30.0

29.1

42.7

37.0

29.8

9.8

4.5

7.3

10.0

10.3

4.8

7.4

10.0

Dividend Payout (%) ROCE (%) ROE (%)

5.7

2.2

3.9

6.1

5.8

2.2

3.9

6.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

16.8

31.7

17.1

10.6

15.8

29.8

17.5

10.6

9.0

9.2

7.6

5.4

8.4

8.6

7.7

5.4

FV/EBITDA

12.7

16.5

13.5

10.3

12.0

15.5

13.7

10.3

FV/EBIT

MARKET RATIOS P/E P/CE

20.0

35.9

22.2

16.2

18.9

33.7

22.5

16.3

FV/Revenue

1.0

0.9

0.8

0.8

0.9

0.8

0.8

0.8

P/BV

0.9

0.7

0.7

0.6

0.9

0.7

0.7

0.6

11.9

(1.3)

(4.4)

8.6

12.6

(1.4)

(4.3)

8.6

FCF Yield (%) Div Yield (%) PER SHARE DATA

1.5

3.8

1.3

1.8

1.6

4.0

1.2

1.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

23

9

17

27

0.05

0.02

0.03

0.04

DPS

6

11

4

5

0.01

0.02

0.01

0.01

408

422

436

458

0.78

0.69

0.70

0.75

BVPS

281

Company Description Ripley is the third-largest department store operator in Chile, with 43 stores as of September 2014. The company is also active in the financing business with its credit card and through Banco Ripley, which specializes in the consumer segment. Internationally, in Peru, Ripley operates 22 stores, in addition to its financial operations, while in Colombia, as of 3Q14 it has built 6 stores , based on an expansion plan of US$350 million over a three-year period.

Key Personnel: Felipe Lamarca (Chairman), Lázaro Calderon (CEO), Juan Diuana (CFO) and Alberto Corona (Deputy CFO) Web: http://www.ripley.cl

Revenue by Country, 2015E

Colombia 5.6%

Peru 33.3%

Chile 61.5%

Revenue by Segment, 2015E

Bank 5.5%

Credit 22.4%

Retail 72.0%

Shareholder Structure, Current

Others 13.7%

Pension Funds 14.2%

Foreign Investors Mutual 4.3% Funds 2.3%

Calderon Group 65.5%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—TELECOM, MEDIA & TECHNOLOGY

SONDA

HOLD CURRENT PRICE: CH$1,439 TARGET PRICE: CH$1,570

INTRODUCING YE2015 TARGET PRICE OF CH$1,570; REPLACING YE2014 TARGET PRICE OF CH$1,400 

Investment Case: We reiterate our Hold rating on Sonda, as we do

Alberto Ariztia*

not see any clear short-term catalysts for the stock. We are cautious

Chile: Santander Investment Chile Limitada +5622-336-3359 | [email protected]

about the consolidation of CTIS, which has led to lower-thanexpected margins, and Chilean revenue, which has significantly decelerated in the last few years. Moreover, in order to be more

Valder Nogueira* Brazil: Banco Santander S.A. +5511-3012-5747 | [email protected]

constructive on the story, we would need to have more visibility on margin recovery in Brazil and Chile. In our opinion, the current 2015E P/E of 19.4x is not compelling enough to be more constructive on the story, unless M&A activity is announced.



Outlook 2015: We expect EBITDA growth of 19.2%, of which 75% comes from the Brazilian operation, based on: (1) 29% revenue growth in R$ terms for the Brazilian operation, due to the full year consolidation of CTIS and ~10% organic growth; and (2) 190-bp margin expansion due to margin maturity and synergies obtained from the CTIS acquisition.



Brazil consolidation: Before the CTIS acquisition, EBITDA margins in Brazil were ~13%, but the consolidation of CTIS caused margins to decline to 11%. Historically, the company has been able to

Company Statistics

consolidate acquisitions and obtain synergies, and that supports our

Bloomberg

SONDA CI

Current Price (01/02/15)

Ch$ 1,439 / US$ 2.34

view on potential margin expansion; however, a weak economic

Target Price (YE 2015)

Ch$ 1,570 / US$ 2.53

scenario might be a risk to that assumption.

52-Week Range (Ch$)

1,020 - 1,608

Market Capitalization (US$ Mn)



Turnaround of Chile, another challenge: In 2014E, results were flat in terms of revenue and negative (-13%) in terms of EBITDA,

2,197

Float (%)

53.0

3-Mth Avg. Daily Vol (US$ Mn)

2.1

Shares Outstanding - Mn

938

mainly affected by the end of the contract with the national identity system. For 2015, we expect a recovery to 5.2% growth in sales and

Price Performance (Ch$) SONDA CI

modest 30-bp expansion in margins.

IPSA

120 110



Ready for M&A: The company has a 2013-15 investment plan that

100

includes US$500 million in acquisitions, of which US$200 million has

90

been spent. Should economic weakness continue, we believe

80

windows of opportunity could open, and Sonda has the financial

70

strength (cash of US$260 million) to take advantage of such

60

opportunities, which we believe will be the main driver of the stock. 282

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

D-14

SONDA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 672 (1.3) 142 (3.1) 114 (2.8) 17.0 84 (2.0) 12.5 2 (19) 66 46.7 9.9

Ch$ 2014E 869 29.3 158 11.5 127 11.5 14.6 86 2.7 9.9 (5) (29) 52 (21.1) 6.0

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (30) 0 26 63 (32) 30 10 (11) (27) 48

2014E (41) 0 (9) 2 (47) (45) (42) 18 (33) 0

2015E (49) 0 (11) 9 (35) (26) 0 0 (26) 0

2016E (52) 1 (40) (16) (38) (54) 0 0 (35) 0

2013A (64) 0 56 133 (68) 64 21 (24) (57) 101

2014E (72) 0 (16) 4 (81) (78) (73) 32 (57) 0

2015E (80) 0 (19) 15 (57) (42) 0 0 (42) 0

2016E (85) 2 (64) (26) (61) (87) 0 0 (57) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 178 393 91 744 205 64 470 94 53

2014E 159 428 97 895 254 103 533 113 58

2015E 206 515 83 968 283 103 577 113 58

2016E 221 587 90 1,025 300 103 617 113 58

2013A 376 832 193 1,574 434 134 994 199 112

2014E 261 702 159 1,468 417 168 873 184 95

2015E 332 831 133 1,562 457 166 930 181 93

2016E 362 962 147 1,681 492 168 1,011 184 95

41

55

55

55

87

90

88

90

LT Debt FINANCIAL RATIOS

2015E 1,000 15.0 186 17.6 151 19.2 15.1 102 18.8 10.2 (4) (29) 70 33.0 7.0

2016E 1,074 7.4 204 9.3 166 9.5 15.4 113 10.9 10.6 (6) (32) 75 7.3 7.0

2013A 1,423 1.7 301 (0.1) 241 0.1 17.0 177 0.9 12.5 4 (41) 141 51.1 9.9

US$ 2014E 1,521 6.9 277 (7.8) 222 (7.8) 14.6 151 (15.1) 9.9 (8) (51) 92 (34.7) 6.0

2015E 1,626 6.9 303 9.3 246 10.7 15.1 166 10.4 10.2 (6) (47) 113 23.6 7.0

2016E 1,747 7.4 332 9.3 270 9.5 15.4 185 10.9 10.6 (10) (52) 122 7.3 7.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

(84)

(47)

(93)

(108)

(177)

(76)

(150)

(178)

Capital Employed

346

410

394

329

731

672

635

539

Net Debt/EBITDA

(0.7)

(0.4)

(0.6)

(0.7)

(0.7)

(0.3)

(0.6)

(0.7)

Net Debt/Equity

(0.2)

(0.1)

(0.2)

(0.2)

(0.2)

(0.1)

(0.2)

(0.2)

4.8

5.4

3.5

3.5

4.8

5.4

3.5

3.5

Int Cover (%)

15.8

10.1

10.7

11.2

15.8

10.1

10.7

11.2

Dividend Payout (%)

59.5

49.3

49.2

50.0

58.4

42.8

46.0

49.7

ROCE (%)

24.3

21.1

26.1

34.6

25.8

22.4

26.2

34.6

Capex/Revenue (%)

ROE (%)

15.4

10.5

12.6

12.5

15.6

10.4

12.6

12.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

17.8

25.8

19.4

18.0

16.0

24.3

19.4

18.1

P/CE

12.2

14.5

11.3

10.6

11.0

13.6

11.4

10.6

9.7

10.4

8.4

7.6

8.7

9.8

8.4

7.6

13.3

15.3

12.4

11.0

11.8

14.5

12.4

11.1

FV/Revenue

1.7

1.5

1.3

1.2

1.5

1.4

1.3

1.2

P/BV

2.5

2.5

2.3

2.2

2.3

2.6

2.4

2.2

FCF Yield (%)

2.6

(3.3)

(1.9)

(4.0)

2.8

(3.5)

(1.9)

(4.0)

Div Yield (%)

2.3

2.4

1.9

2.6

2.5

2.6

1.9

2.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

71

56

74

80

0.15

0.10

0.12

0.13

MARKET RATIOS

FV/EBITDA FV/EBIT

PER SHARE DATA EPS DPS BVPS

29

35

28

37

0.06

0.06

0.04

0.06

501

568

615

657

1.06

0.93

0.99

1.08

283

Company Description Founded in 1974, Sonda is LatAm’s leading publicly traded technology provider, as measured by revenue. Sonda provides IT services (57% of 9M14 sales), software applications (8%), and hardware platforms (35%) in a number of LatAm countries, including Chile (44% of consolidated sales through September 2014), Brazil (32% of sales), OPLA (14% of sales) and Mexico (10% of sales). According to IDC figures, the LatAm IT industry is expected to grow 9.9% annually on average for the period 2012-2015. The company is controlled by its founder, Andrés Navarro, and his family. The company had its IPO in 2006 at a price of Ch$566 per share, and free float is currently at 53.0%.

Key Personnel: Mario Pavón (Chairman), Raúl Véjar (CEO), Rafael Osorio (CFO), Rodrigo Peña (Planning and IR Officer) and Melissa Vargas (IR) Web: http://www.sonda.com

EBITDA Breakdown, 9M14

OPLA 18.6%

Mexico 10.2%

Chile 41.2% Brazil 30.0%

Sales Breakdown, 9M14

Mexico 7.8%

OPLA 12.9% Chile 35.7%

Brazil 43.5%

Shareholder Structure, Current

Others 37.4%

Pension Funds 15.6%

Navarro Family 47.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

CHILE—METALS & MINING

SQM

UNDERPERFORM CURRENT PRICE: US$24.41 TARGET PRICE: US$23.42

INTRODUCING YE2015 TARGET PRICE OF US$23.42; REPLACING YE2014 TARGET PRICE OF US$22.61 

Investment Case: We maintain our Underperform rating for SQM

Alberto Ariztia*

based on our bearish outlook for the iodine business over the next

Chile: Santander Investment Chile Limitada +5622-336-3359 | [email protected]

few years. This business contributes ~28% of the company’s EBITDA. SQM says it will likely implement a cost-reduction plan over the next year; however, we do not see this as an investment trigger.



Felipe Reis* Brazil: Banco Santander S.A. +5511-3012-5758 | [email protected]

Outlook 2015: We expect consolidated revenue, EBITDA, and net income to reach US$2.045 million (-2% YoY), US$833 million (-5%), and US$289 million (+1.9%). Our EBITDA estimate for 2015 is 10% above consensus. We estimate flat potassium chloride prices, with the potash product line posting a 3% price increase due to change in mix (additional potassium sulphate). We expect iodine prices to drop 33% to US$25/ton, as we continue to see weak supply/demand dynamics.



Wounded by iodine: We estimate iodine prices fell some 25% in 2014 due to new capacity from Chilean competitors and we expect a 2015 decline of 33%. We had expected SQM to reduce production to defend prices, but the company opted instead to try to regain its



historical 35% market share, which we believe might further pressure

Company Statistics

prices and margins.

Bloomberg

SQM US / SQM/B CI

Current Price (01/02/15)

US$ 24.41 / Ch$ 15,198.00

Target Price (YE 2015)

US$ 23.42 / Ch$ 14,500.00

Waiting for certainty on Atacama Salar: In May 2014, Corfo (state-

52-Week Range (US$)

21.54 - 33.10

owned agency) sought to recover from SQM what it believes to be

Market Capitalization (US$ Mn)

underpayment of royalty taxes and demanded the end of the

Float (%)

concession contract on the Atacama Salar, which is leased to SQM

6,425 34.0

3-Mth Avg. Daily Vol (US$ Mn)

8.8

Shares Outstanding - Mn

263

until 2030. We expect this matter to be resolved in 2015. While the outcome is uncertain, our base case is that SQM will continue

SQM US

operating the asset.



Price Performance (US$) IPSA

120 100

Lithium quota might be reached by 2025. Atacama Salar has a maximum extraction quota for lithium carbonate, which we believe

80

will not be reached until 2025 and this is not reflected in our 2015 P/E

60

projection of 20x in U.S. dollars; this represents a downside risk if the

40

contract is not renewed.

20

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

284

D-14

SQM Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 1,102 (6.8) 361 (27.9) 417 (23.5) 37.8 308 (31.3) 28.0 (5) (69) 234 (26.1) 21.2

Ch$ 2014E 1,116 1.3 313 (13.1) 469 12.6 42.0 262 (14.9) 23.5 (52) (59) 151 (35.2) 13.6

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (108) 1 (24) 320 (141) 178 0 110 (140) 0

2014E (207) 31 62 451 (66) 385 0 (153) (107) 0

2015E (205) 0 (104) 256 (95) 161 0 (30) (77) 0

2016E (203) 0 (0) 364 (58) 306 0 (96) (80) 0

2013A (217) 2 (47) 639 (283) 356 0 220 (280) 0

2014E (386) 58 116 844 (124) 720 0 (286) (200) 0

2015E (379) 0 (193) 475 (176) 298 0 (56) (143) 0

2016E (371) 0 (1) 668 (107) 561 0 (176) (147) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 497 1,301 1,089 2,527 383 855 1,260 964 213

2014E 456 1,261 984 2,385 298 888 1,168 828 77

2015E 514 1,323 867 2,332 243 816 1,259 806 129

2016E 650 1,468 730 2,341 287 685 1,354 717 172

2013A 937 2,455 2,054 4,768 723 1,613 2,377 1,819 401

2014E 844 2,334 1,822 4,416 552 1,645 2,163 1,533 142

2015E 943 2,426 1,589 4,276 445 1,495 2,308 1,477 236

2016E 1,180 2,664 1,325 4,249 522 1,243 2,458 1,301 313

751

751

677

545

1,417

1,391

1,241

989

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

467

372

292

67

882

689

535

121

Capital Employed

1,860

1,708

1,703

1,575

3,510

3,163

3,123

2,860

Net Debt/EBITDA

1.1

0.8

0.6

0.1

1.1

0.8

0.6

0.1

Net Debt/Equity

0.3

0.3

0.2

0.0

0.4

0.3

0.2

0.0

LT Debt FINANCIAL RATIOS Net Debt

2015E 1,105 (1.0) 293 (6.4) 450 (4.1) 40.7 245 (6.5) 22.2 (40) (50) 156 3.0 14.1

2016E 1,116 1.0 296 1.0 451 0.2 40.4 248 1.2 22.2 (34) (51) 162 4.1 14.5

2013A 2,203 (9.3) 721 (29.9) 833 (25.5) 37.8 616 (33.2) 28.0 (11) (139) 467 (28.0) 21.2

US$ 2014E 2,087 (5.3) 586 (18.8) 877 5.2 42.0 490 (20.4) 23.5 (97) (110) 283 (39.4) 13.6

2015E 2,045 (2.0) 543 (7.3) 833 (5.0) 40.7 454 (7.4) 22.2 (73) (92) 289 1.9 14.1

2016E 2,046 0.0 543 0.0 826 (0.8) 40.4 455 0.2 22.2 (63) (94) 297 3.1 14.5

Capex/Revenue (%)

12.8

5.9

8.6

5.2

12.8

5.9

8.6

5.2

Int Cover (%)

14.2

14.6

15.4

16.6

14.2

14.6

15.4

16.6

Dividend Payout (%)

43.8

49.3

54.6

51.2

43.1

42.8

50.7

51.1

ROCE (%)

20.9

18.5

17.9

19.8

22.0

19.5

18.0

19.8

ROE (%)

20.4

12.6

13.0

12.5

20.7

12.5

12.9

12.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

15.3

25.2

25.3

24.3

14.6

22.2

22.3

21.6

P/CE

10.5

10.7

11.0

10.8

10.0

9.4

9.6

9.6

MARKET RATIOS

FV/EBITDA

9.9

9.1

9.6

9.1

9.4

8.1

8.5

8.1

13.4

16.3

17.7

16.5

12.7

14.6

15.7

14.7

FV/Revenue

3.7

3.8

3.9

3.7

3.6

3.4

3.5

3.3

P/BV

2.8

3.3

3.1

2.9

2.9

2.9

2.8

2.6

FCF Yield (%)

5.0

10.1

4.1

7.8

5.2

11.5

4.6

8.7

Div Yield (%)

3.9

2.8

2.0

2.0

4.1

3.2

2.2

2.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1,090

661

673

694

1.77

1.08

1.10

1.13

DPS

653

466

335

344

1.06

0.76

0.55

0.56

5,546

5,047

5,385

5,736

9.03

8.22

8.77

9.34

FV/EBIT

PER SHARE DATA

BVPS

285

Company Description Sociedad Química y Minera de Chile (SQM) is an integrated producer and worldwide distributor of specialty and commodity fertilizers (mainly potassium chloride derivatives), iodine, lithium and industrial chemicals. SQM, according to 2013 figures, is the world’s largest producer of potassium nitrate (48% market share), iodine (28% market share) and lithium (27% market share). The company has two main production sites: one located in the Caliche Area, where it obtains its nitrates and iodine, and the other in the Atacama Salar, where potassium chloride and lithium are extracted. Using an inorganic chemistry process, it produces potassium nitrate using the sodium nitrate of the Caliche Area with the potassium chloride of the Atacama Salar. The company is controlled by Julio Ponce, via a series of investment companies, three of them listed in Chile (Pampa Calichera, Norte Grande and Oro Blanco).

Key Personnel: Julio Ponce (Chairman), Patricio Contesse (CEO), Ricardo Ramos (CFO), Gerardo Illanes (Vice President Finance) and Kelly O'Brien (Head of Investor Relations) Web: http://www.sqm.com

Gross Margin Breakdown, 2014E MOP and SOP 23.0%

Other 9.0%

Lithium 15.0%

Specialty Fertilizers 25.0%

Iodine 28.0%

Sales by Geography, 9M14 Asia & Others 24.0% LatAm 25.0%

North America 27.0% Europe 24.0%

Shareholder Structure, Current

Others Chile 13.0%

ADRs 23.0%

Pampa Calichera, Potasios de Chile and G 32.0%

Potash Corp 32.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

COLOMBIA—RETAIL & CONSUMER GOODS

ALMACENES EXITO

HOLD CURRENT PRICE: CO$28,800 TARGET PRICE: CO$31,000

LOWERING YE2015 TARGET PRICE TO CO$31,000 FROM CO$31,500 I 2015 T P C $31 000 D C $31 500  Investment Case: Almacenes Exito’s strategy is focused on Andres Soto

delivering profitable growth while protecting market share. We expect this approach to pay off over the medium term, as competitors will be

New York: Santander Investment Securities Inc. +1-212-407-0976 | [email protected]

increasingly pressured to prioritize profitability over expansion.



Exito’s unique geographical footprint combined with its growing portfolio of complementary businesses should translate into superior levels of profitability, in our view.



João Mamede* Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

Outlook 2015: We expect Exito’s SSS to continue underperforming Colombia’s nominal GDP growth due to: the resilience of the traditional format, the relentless expansion of Exito’s competitors, and sales cannibalization from Exito’s own expansion.



While we expect the integration of SuperInter to allow the company to reach a leading position in the discount format in Colombia, we note that SuperInter’s low EBITDA margin can put pressure on Exito’s consolidated margins. Nevertheless, we expect the company to maintain its current EBITDA margin due to an increased contribution

from

the

company’s

complementary

businesses

(particularly real estate).





Company Statistics

Our reduced target price reflects the approved increases in corporate

Bloomberg

taxes in Colombia, which will not only imply higher income tax (from

Current Price (01/02/15)

Co$ 28,800 / US$ 12.13

34% currently to 39% in 2015), but also a temporary wealth tax that

Target Price (YE 2015)

Co$ 31,000 / US$ 12.74

52-Week Range (Co$)

24,640 - 33,200

EXITO CB

will require Exito to pay a total of 2.55% of its equity in taxes over the

Market Capitalization (US$ Mn)

2015-2017 period.

Float (%)

Valuation: Our target price implies an FV/EBITDA multiple of 9.7x for 2015E versus a trading multiple of 8.0x. While Exito’s valuation is

5,429 26.5

3-Mth Avg. Daily Vol (US$ Mn)

1.8

Shares Outstanding - Mn

448

Price Performance (Co$)

not expensive (by the company’s historical standards), we see no

EXITO CB

COLCAP

110

catalysts in the short term. Moreover, we believe that, in order for investors to become more positive on the name, Exito needs to

100

deliver (1) solid improvement in SSS, (2) significant expansion in

90

EBITDA margin, and/or (3) more profitable use of the company’s

80

strong financial position.

70 60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

286

D-14

ALMACENES EXITO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Co$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 10,697 4.6 2,842 6.5 932 8.5 8.7 545 10.3 5.1 80 (116) 432 (9.1) 4.0

Co$ 2014E 11,278 5.4 3,001 5.6 980 5.1 8.7 583 7.1 5.2 96 (161) 483 11.7 4.3

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (387) (76) 136 880 (344) 430 (138) 25 (238) 0

2014E (396) 0 (37) 869 (771) 26 0 0 (238) 0

2015E (459) 0 62 970 (1,043) (135) 0 0 (241) 0

2016E (490) 0 45 1,017 (510) 454 0 0 (224) 0

2013A (206) (40) 72 469 (183) 229 (74) 13 (127) 0

2014E (196) 0 (18) 429 (381) 13 0 0 (117) 0

2015E (190) 0 26 401 (431) (56) 0 0 (100) 0

2016E (200) 0 18 415 (208) 185 0 0 (92) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 2,754 4,353 6,432 10,785 2,677 233 7,861 252 102

2014E 2,697 4,533 6,780 11,313 2,943 250 8,106 252 86

2015E 2,392 4,432 7,364 11,796 3,219 250 8,313 252 86

2016E 2,682 4,861 7,383 12,244 3,409 250 8,571 252 86

2013A 1,429 2,259 3,338 5,597 1,389 121 4,080 131 53

2014E 1,123 1,886 2,822 4,708 1,225 104 3,374 105 36

2015E 983 1,821 3,026 4,847 1,323 103 3,416 104 35

2016E 1,088 1,973 2,996 4,968 1,383 101 3,478 102 35

LT Debt

2015E 12,500 10.8 3,264 8.8 1,082 10.5 8.7 623 6.8 5.0 100 (275) 448 (7.2) 3.6

2016E 13,390 7.1 3,515 7.7 1,181 9.2 8.8 691 11.0 5.2 87 (296) 482 7.6 3.6

2013A 5,701 0.1 1,515 2.0 497 3.9 8.7 290 5.6 5.1 42 (62) 230 (12.9) 4.0

US$ 2014E 5,571 (2.3) 1,483 (2.1) 484 (2.6) 8.7 288 (0.8) 5.2 48 (80) 239 3.6 4.3

2015E 5,170 (7.2) 1,350 (9.0) 447 (7.5) 8.7 258 (10.6) 5.0 42 (114) 185 (22.3) 3.6

2016E 5,468 5.8 1,435 6.3 482 7.8 8.8 282 9.6 5.2 36 (121) 197 6.3 3.6

150

166

166

166

78

69

68

68

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

(2,502)

(2,445)

(2,140)

(2,430)

(1,298)

(1,017)

(879)

(986)

Capital Employed

8,211

8,456

8,663

8,921

4,261

3,519

3,560

3,620

Net Debt/EBITDA

(2.7)

(2.5)

(2.0)

(2.1)

(2.6)

(2.1)

(2.0)

(2.0)

Net Debt/Equity

(0.3)

(0.3)

(0.3)

(0.3)

(0.3)

(0.4)

(0.3)

(0.3)

3.2

6.8

8.3

3.8

3.2

6.8

8.3

3.8

Int Cover (%)

Capex/Revenue (%)

11.4

11.1

12.3

14.7

11.4

11.1

12.3

14.7

Dividend Payout (%)

50.0

55.0

50.0

50.0

48.1

51.3

42.2

50.0

ROCE (%)

5.2

5.2

4.5

4.8

5.5

6.5

4.5

4.8

ROE (%)

5.6

6.0

5.5

5.7

5.5

6.4

5.5

5.7

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

31.1

27.1

28.8

26.7

30.2

23.1

29.3

27.6

P/CE

16.4

14.9

14.2

13.3

15.9

12.7

14.5

13.7

FV/EBITDA

11.7

10.9

10.0

8.9

11.4

9.3

10.2

9.2

FV/EBIT

20.1

18.3

17.3

15.2

19.5

15.6

17.7

15.8

FV/Revenue

1.0

0.9

0.9

0.8

1.0

0.8

0.9

0.8

P/BV

1.7

1.6

1.6

1.5

1.7

1.6

1.6

1.6

FCF Yield (%)

3.2

0.2

(1.0)

3.5

3.3

0.2

(1.0)

3.4

Div Yield (%)

1.8

1.8

1.9

1.7

1.8

2.1

1.8

1.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

965

1,079

1,001

1,077

0.51

0.53

0.41

0.44

DPS

531

531

539

501

0.28

0.26

0.22

0.20

17,562

18,109

18,571

19,148

9.11

7.54

7.63

7.77

PER SHARE DATA

BVPS

287

Company Description Almacenes Exito is the leading retailer in Colombia and Uruguay in terms of sales and number of stores. The company operates 538 stores in total (September 2014), most of them under the hypermarket, supermarket, convenience store and bodega formats. The company is further developing a shopping mall business and offers financial services through a joint venture with Bancolombia.

Key Personnel: Nicanor Restrepo (Chairman), Carlos Mario Giraldo (CEO), Filipe Da Silva (CFO) and Maria Fernanda Moreno (IR) Web: http://www.grupoexito.com.co/

Sales Mix, 9M14

Non Food 28.0%

Food 72.0%

Selling Area per Country, 3Q14A

Uruguay 8.9%

Colombia 91.1%

Shareholder Structure, September 30, 2014

Free Float 26.5% Casino 54.8%

Colombian pension funds 18.7%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

COLOMBIA—FINANCIAL SERVICES

BANCOLOMBIA

HOLD CURRENT PRICE: CO$28,640 TARGET PRICE: CO$31,000

DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF CO$31,000; REPLACING YE2014 TARGET PRICE CO$30,700 

Investment Case: We have downgraded our recommendation on Bancolombia due to the impact of the recently enacted tax reform on growth, as well as the profitability of the bank. We expect the tax burden to persist over time, given the fiscal headwinds from lower oil prices, infrastructure investment needs and the potential costs of the

Boris Molina New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

Catalina Araya New York: Santander Investment Securities Inc. +1-212-297-1367 | [email protected]

peace with FARC.



Outlook 2015: We expect loan growth of 11% YoY, driven by mortgage and commercial lending, with sluggish growth in consumer lending, as the bank remains cautious due to relatively high household indebtedness. Adjusted ROE should be flat, at 16%, according to our forecast, as we expect higher corporate taxes to offset margin expansion and improvements in efficiency.



Total tax burden. We estimate that the tax reform will reduce net income by 11% in 2015. We anticipate that Bancolombia’s total tax burden, including equity and other taxes (reported in the costs line) and income taxes, should rise from a 32% average over the prior six years to 41% in the next four years.



DTF catching up with interest rate hikes? We expect NIMs to bottom out in late 2014, as the spread between the DTF rate and the

Company Statistics Bloomberg

PFBCOLO CB / CIB US

Current Price (01/02/15)

Co$ 28,640 / US$ 47.90

bps YoY, negatively affected by a change in mix with faster growth in

Target Price (YE 2015)

Co$ 31,000 / US$ 54.40

corporate lending, thanks to infrastructure lending in late 2015.

52-Week Range (Co$)

22,100 - 31,000

policy rate should recover in 1H15. We forecast NIM to expand 20

Market Capitalization (US$ Mn)



Improvement in efficiency: Operating expenses should normalize following a surge in IT investments and integration costs related to

11,601

Float (%)

70.0

3-Mth Avg. Daily Vol (US$ Mn)

7.4

Shares Outstanding - Mn

962

Banistmo, in Panama. We forecast a 200-bp YoY improvement in



efficiency due to slower growth in personnel and administrative costs.

Price Performance (Co$)

Switching to IFRS in 2015. The main impact from the accounting

110

PFBCOLO CB

change is that goodwill will no longer be amortized. Nevertheless, we

COLCAP

100

do not expect this to affect our adjusted net income, as we already excluded intangible asset amortization in our model, as intangible assets are deducted from capital; therefore; the amortization or impairment of intangibles have no impact on the capital position of the bank.

90

80

70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

288

D-14

BANCOLOMBIA Financial Highlights: P&L and Balance Sheet, 2013–16E in Billions (Co$), Millions (US$) Co$ 2014E 2015E 6,201 7,205 (1,403) (1,631) 4,798 5,575 3,217 3,527 8,016 9,102 (5,371) (5,844) 2,660 3,307 (758) (1,071) 1,846 2,225 2,035 2,392

Company Description

2016E 8,340 (2,408) 5,932 3,839 9,771 (6,299) 3,522 (1,168) 2,342 2,644

2013A 2,793 (622) 2,171 1,407 3,578 (2,564) 1,043 (223) 811 668

US$ 2014E 2015E 3,099 3,096 (701) (701) 2,398 2,396 1,608 1,516 4,005 3,911 (2,684) (2,511) 1,329 1,421 (379) (460) 922 956 1,017 1,028

2015E 14,676 15,482 109,303 3,935 154,817 104,830 7,413 5,395 0 17,994 16,346

2016E 15,798 17,549 126,007 3,761 175,493 117,021 8,123 5,183 0 19,632 18,602

2013A 8,013 7,179 44,374 2,226 68,027 45,011 3,804 2,607 0 6,497 5,315

2014E 5,491 5,917 41,606 1,733 59,169 39,222 2,925 2,363 0 6,921 6,070

2015E 6,444 6,798 47,993 1,728 67,976 46,028 3,255 2,369 0 7,901 7,177

2016E 6,789 7,542 54,150 1,616 75,415 50,288 3,491 2,227 0 8,437 7,994

2014E 48,423 31,753 12,420 10,965 103,562 15.8 1,801 (4,683)

2015E 53,752 34,618 13,988 12,187 114,544 10.6 1,872 (5,241)

2016E 61,993 40,301 16,131 13,944 132,369 15.6 2,232 (6,361)

2013A 21,483 14,649 5,354 5,035 46,521 17.5 716 (2,114)

2014E 20,375 13,361 5,226 4,614 43,577 (6.3) 758 (1,970)

2015E 23,601 15,200 6,142 5,351 50,294 15.4 822 (2,301)

2016E 26,641 17,319 6,932 5,992 56,883 13.1 959 (2,734)

2013A 5.12 1.14 6.31

2014E 5.14 0.97 6.10

2015E 5.34 1.00 6.36

2016E 5.54 1.05 6.19

2013A 5.12 1.14 6.31

2014E 5.14 0.97 6.10

2015E 5.34 1.00 6.36

2016E 5.54 1.05 6.19

Cost / ATAs

4.52

4.09

4.08

3.99

4.52

4.09

4.08

3.99

Adj Efficiency

55.6

51.8

49.8

47.6

55.6

51.8

49.8

47.6

Effective Taxes

21.4

28.5

32.4

33.2

21.4

28.5

32.4

33.2

Reported ROE (%)

12.9

12.4

13.1

12.6

12.9

12.4

13.1

12.6

Adj ROE (%)

12.0

16.3

16.6

15.8

12.0

16.3

16.6

15.8

NPL Ratio

1.54

1.74

1.63

1.69

1.54

1.74

1.63

1.69

Adj NPL Ratio

2.50

2.60

2.55

2.63

2.50

2.60

2.55

2.63

Loans / Total Assets

68.4

73.6

74.0

75.4

68.4

73.6

74.0

75.4

103.4

111.1

109.3

113.1

103.4

111.1

109.3

113.1

80.8

86.0

87.4

89.1

80.8

86.0

87.4

89.1

Core Tier I Ratio (%)

8.0

10.8

11.1

11.0

8.0

10.8

11.1

11.0

Dividend Payout (%)

41.7

43.1

31.7

30.7

41.7

43.1

31.7

30.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

1.7

1.9

1.7

1.5

1.7

1.9

1.6

1.4

18.6

13.6

11.7

10.8

17.6

11.4

11.4

10.4

3.1

3.0

2.6

2.6

3.2

3.7

2.6

2.7

INCOME STATEMENT Net Interest Income NPL Provisions Adj Net Interest Income Non-Interest Income Total Operating Revenue Non-Interest Expense Profit Before Taxes Taxes Net Profit Adjusted Net Profit

2013A 5,220 (1,163) 4,057 2,630 6,687 (4,792) 1,950 (417) 1,515 1,249

BALANCE SHEET Cash and Equivalents Securities Loans (net) Intangible Assets Total Assets Core Deposits Other Financial Liabilities Subordinated Debt Technical Provisions Equity Adjusted Equity

2013A 15,409 13,806 85,330 4,280 130,816 86,557 7,314 5,014 0 12,493 10,222

2014E 13,050 14,062 98,879 4,119 140,617 93,212 6,950 5,617 0 16,448 14,424

2013A 41,311 28,171 10,296 9,681 89,460 27.8 1,378 (4,066)

LOAN BOOK Companies Total Consumer Mortgages Other Loans Gross Loans Loan Grow th (%) NPL Provisions KEY RATIOS NIM Risk Charge Operating Revenue / ATA

Loans / Core Deposits RWA % Total Assets

MARKET RATIOS Adj. P/BV Adj. P/E Div Yield (%) PER SHARE DATA EPS BVPS DPS Adj EPS Adj BVPS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

1,778.68

1,963.28

2,313.09

2,434.80

3.81

3.92

3.98

4.23

14,665.94 17,101.03 18,707.82 20,411.37

30.51

28.78

32.86

35.09

742.50

889.21

732.29

746.84

1.59

1.79

1.24

1.31

1,466.52

2,164.97

2,487.11

2,748.46

3.14

4.33

4.28

4.78

11,999.63 14,996.97 16,995.23 19,340.70

24.96

25.24

29.85

33.25

(7.85)

(1.25)

(0.98)

(1.81)

0.00

0.00

0.00

0.00

Surplus Capital per Share (3,772.61) Unrealized Cap. Gains/Shr

2016E 3,623 (1,046) 2,577 1,668 4,244 (2,736) 1,530 (507) 1,017 1,148

0.00

(739.82) 0.00

(555.41) (1,051.89) 0.00

0.00

289

Bancolombia one of Colombia’s leading financial institutions, with a market share of 23.3% of gross loans as of September 2014. The bank is controlled by Grupo Sura, a group of industrial and financial corporations with headquarters in Medellin, which owns the majority of its voting ordinary shares. It distributes a wide variety of financial services and products in the main cities and towns in Colombia. The company is in the midst of an international expansion plan that has led it so far to acquire banks in El Salvador, Guatemala and Panama. The bank's preferred non-voting shares trade in the Bogota stock exchange and in ADR format in the NYSE.

Key Personnel: David Bojanini (Chairman), Carlos Raul Yepes (CEO), Jose Humberto Acosta (CFO) and Alejandro Mejia (IRO) Web: www.grupobancolombia.com

Loan Book, 2015E

Leases 10.6%

Mortgage 12.2%

Retail and SME 30.2%

Corporate 46.9%

Revenue Structure, 2015E

Fees 27.5%

Other 10.5%

Trading 0.7%

NII 61.2%

Shareholder Structure, Current

Float Loc 47.8%

Grupo Sura 26.6%

Float ADR 22.1%

Argos 3.4%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

COLOMBIA—CEMENT, CONSTRUCTION, INFRA & RE

CEMENTOS ARGOS

HOLD CURRENT PRICE: CO$9,650 TARGET PRICE: CO$10,500

LOWERING YE2015 TARGET PRICE TO CO$10,500 FROM CO$11,000 

Investment Case: We see Cementos Argos as a play on the continued recovery of construction activity in the U.S.’s Southeast, and expected infrastructure-driven cement-demand in Colombia in

Andres Soto New York: Santander Investment Securities Inc. +1-212-407-0976 | [email protected]

the next few years.



We believe that Argos’s geographical footprint in Colombia enables it to take advantage of the expected demand for cement and ready mix from large-scale road infrastructure projects in Colombia. Meanwhile, the

company’s

international

production-and-logistics

network,

enables it to deliver smooth results through a combination of assets at different points in the demand cycle, in our view.



Outlook 2015: In Colombia, we expect housing development to be the main demand drivers of cement and ready mix in 2015, while in the U.S. we expect a sustained volume recovery and continued price increases in the states in which the company operates. In the Caribbean, we expect a flattish performance, as we expect the cement volume decrease resulting from the conclusion of the Canal project to be offset by increased demand from other projects in Panama and the rest of Argos’s markets.



In terms of profitability, we expect Argos’s EBITDA margin to improve at each individual segment: Colombia’s cement and ready mix (due

Co$ 9,650 / US$ 4.06

to Rioclaro expansion), U.S. (due to operating leverage), and

Target Price (YE 2015)

Co$ 10,500 / US$ 4.91

Caribbean (due to substitution of Canal demand). Nevertheless, we

52-Week Range (Co$)

8,280 - 12,100

Market Capitalization (US$ Mn)

5,789

Float (%)

29.6

consolidated level due to the company’s ongoing changes in product

3-Mth Avg. Daily Vol (US$ Mn)

mix (concrete outgrowing cement) and geographical footprint (U.S.

Shares Outstanding - Mn

outgrowing Colombia).



PFCEMARG CB

Current Price (01/02/15)

expect this margin improvement to be toned down at the



Company Statistics Bloomberg

1.4 1,424

Price Performance (Co$) PFCEMARG CB

Our reduced target price reflects the effect of Colombia’s tax reform

120

(see our December 9 note: Colombia Strategy: An Updated Version

110

of the Tax Reform Bill).

100

COLCAP

90

Valuation: Our YE2015E target price is based on a discounted cash flow analysis using a 10% discount rate and a 3.3% terminal growth rate. Our target price implies a 2015E FV/EBITDA multiple of 12.5x, which, in our view, is justified by the EBITDA growth that we expect in the next few years (14.5% CAGR 2014-18). 290

80 70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

D-14

CEMENTOS ARGOS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Co$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 4,968 13.4 1,108 21.5 978 23.7 19.7 581 40.2 11.7 (74) (212) 221 (42.7) 4.5

Co$ 2014E 5,765 16.0 1,300 17.3 1,092 11.7 18.9 688 18.4 11.9 (119) (179) 343 55.0 6.0

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (397) (63) 276 794 (857) 71 951 (587) (206) 1,611

2014E (404) 0 (147) 571 (2,008) (1,290) 0 1,578 (221) 0

2015E (524) (68) (103) 650 (646) 240 0 (215) (236) 0

2016E (556) (59) (116) 825 (685) 362 0 112 (253) 0

2013A (209) (33) 146 419 (452) 37 502 (310) (109) 850

2014E (203) 0 (74) 287 (1,011) (649) 0 794 (111) 0

2015E (249) (32) (49) 309 (307) 114 0 (102) (112) 0

2016E (257) (27) (54) 380 (316) 167 0 51 (117) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 367 1,624 9,847 11,632 1,722 2,298 7,243 2,444 482

2014E 447 2,211 11,451 13,662 2,404 3,553 7,335 4,021 804

2015E 1 1,749 11,572 13,322 2,243 3,381 7,328 3,807 761

2016E 0 1,976 11,701 13,677 2,589 3,258 7,460 3,918 996

2013A 190 843 5,110 6,037 894 1,192 3,759 1,268 250

2014E 216 1,065 5,519 6,584 1,159 1,712 3,535 1,938 388

2015E 0 818 5,414 6,232 1,049 1,582 3,428 1,781 356

2016E 0 898 5,318 6,217 1,177 1,481 3,391 1,781 453

LT Debt

2015E 6,595 14.4 1,437 10.5 1,262 15.5 19.1 737 7.1 11.2 (215) (203) 297 (13.6) 4.5

2016E 7,522 14.1 1,751 21.9 1,509 19.7 20.1 953 29.3 12.7 (205) (282) 444 49.6 5.9

2013A 2,622 7.6 585 15.3 516 17.3 19.7 307 33.0 11.7 (39) (112) 117 (45.7) 4.5

US$ 2014E 2,901 10.6 654 11.9 550 6.5 18.9 346 12.9 11.9 (60) (90) 173 47.8 6.0

2015E 3,131 7.9 682 4.3 599 9.0 19.1 350 1.1 11.2 (102) (97) 141 (18.4) 4.5

2016E 3,468 10.8 807 18.4 696 16.2 20.1 439 25.6 12.7 (95) (130) 204 45.2 5.9

1,962

3,217

3,045

2,922

1,018

1,550

1,425

1,328

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

2,077

3,574

3,806

3,918

1,078

1,722

1,781

1,781

Capital Employed

10,392

12,062

11,840

12,084

5,393

5,813

5,539

5,493

Net Debt/EBITDA

2.1

3.3

3.0

2.6

2.1

3.1

3.0

2.6

Net Debt/Equity

0.3

0.5

0.5

0.5

0.3

0.6

0.5

0.5

17.2

34.8

9.8

9.1

17.2

34.8

9.8

9.1

6.0

6.1

5.9

7.4

6.0

6.1

5.9

7.4

FINANCIAL RATIOS Net Debt

Capex/Revenue (%) Int Cover (%) Dividend Payout (%)

53.4

99.8

68.9

85.3

51.4

93.1

58.1

85.3

ROCE (%)

2.9

4.4

4.5

5.7

3.1

5.6

4.5

5.7

ROE (%)

3.4

4.7

4.0

6.0

3.4

5.0

4.0

6.0

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

n/m

40.1

46.4

31.0

n/m

33.5

41.1

28.3

P/CE

22.6

18.4

16.7

13.7

22.1

15.4

14.9

12.6

FV/EBITDA

17.1

16.5

14.5

12.2

16.8

14.2

13.1

11.3

FV/EBIT

28.8

26.2

24.8

19.2

28.3

22.5

22.5

17.9

FV/Revenue

3.4

3.1

2.8

2.4

3.3

2.7

2.5

2.3

P/BV

1.9

1.9

1.9

1.8

1.9

1.6

1.7

1.7

FCF Yield (%)

0.5

(9.4)

1.7

2.6

0.5

(11.2)

2.0

2.9

Div Yield (%)

1.5

1.6

1.7

1.8

1.5

1.9

1.9

2.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

155

241

208

311

0.08

0.12

0.10

0.14

DPS

145

155

166

177

0.08

0.08

0.08

0.08

5,084

5,150

5,144

5,237

2.64

2.48

2.41

2.38

PER SHARE DATA

BVPS

291

Company Description Cementos Argos is the leading cement and concrete producer in Colombia and one of the five largest cement producers in Latin America. In Latin America, the company also has operations in Panama, Honduras, Haiti, the Dominican Republic, the Lesser Antilles, Surinam and French Guiana. In the United States, Cementos Argos is the seventh-largest cement company in terms of installed capacity and the second-largest one in the southwest region. Grupo Empresarial Antioqueño, through Grupo Argos, is the company’s largest shareholder.

Key Personnel: José Alberto Vélez (Chairman), Jorge Mario Velasquez (CEO), Carlos Horacio Yusty (CFO) and Gustavo Uribe (IRO) Web: www.argos.com.co/

Revenue by Country, 2014E Central America & Caribbean 19.4%

USA 37.8% Colombia 42.9%

Sales by Segment, 2014E

Ready mix 44.1%

Cement 55.9%

Shareholder Structure, September 30, 2014

Float 29.6% Treasury stock 4.7%

Pension funds 14.4%

Grupo Argos (60.7% of common shares) 51.4%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

COLOMBIA—CEMENT, CONSTRUCTION, INFRA & RE

CEMEX LATAM HOLDINGS

HOLD CURRENT PRICE: CO$16,000 TARGET PRICE: CO$19,500



Investment Case: We believe that the company offers an attractive combination of: (1) a positive outlook for cement demand in the countries in which it operates; (2) a strategic focus on value-added

Andres Soto New York: Santander Investment Securities Inc. +1-212-407-0976 | [email protected]

initiatives; (3) continuous operating improvement; and (4) a disciplined approach to capital deployment.



While CLH’s profitability has been recently hurt by an aggressive pricing environment in Colombia, we expect the company to maintain above-peers margins and free-cash-flow conversion in the next few years.



Outlook 2015: In Colombia, CLH’s plans to act as a developer in the construction

of

12,000

homes

(through

2016)

under

the

government’s housing subsidies program (VIPA); and it has stated its intention to participate (also as a developer) in the second phase of the government’s free home program (cien mil viviendas gratis). We therefore expect housing development to be a major revenue driver for CLH in 2015 and 2016. While the housing development program represents incremental revenue and EBITDA for the company, the business’ margins are substantially lower than those of the cement



business. Therefore, we expect this effect, combined with the new

Company Statistics

pricing scenario, to further deteriorate CLH’s EBITDA margin in 2015.

Bloomberg

Co$ 16,000 / US$ 6.74

In the rest of CLH’s markets, we expect mixed performance in 2015,

Target Price (YE 2015)

Co$ 19,500 / US$ 8.09

with Panama and Nicaragua outperforming Costa Rica and

52-Week Range (Co$)

12,760 - 19,820

Market Capitalization (US$ Mn)

Guatemala.



CLH CB

Current Price (01/02/15)

3,897

Float (%)

CLH plans to add a 1.0 m ton/year capacity in the center of Colombia

22.6

3-Mth Avg. Daily Vol (US$ Mn)

2.7

Shares Outstanding - Mn

578

by 2Q15 (initially with a grinding mill) and to have a full cement plant in the second half of 2016. We believe that the plant’s location is a

Price Performance (Co$)

sound complement to CLH’s current footprint in the country, which

180

we expect to result in increased efficiency, once the full cement plant

160

is completed, due to efficient production and reduced transportation

140

costs.

120

CLH CB

COLCAP

100



Valuation: Our target price implies a 2015E FV/EBITDA multiple of

80

9.7x versus a trading multiple of 8.3x. While we are confident in CLH

60

management’s ability to continue delivering strong results, we believe that the stock’s valuation offers limited upside at current levels.

292

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

D-14

CEMEX LATAM HOLDINGS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Co$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 3,317 15.9 1,702 15.5 1,200 21.8 36.2 1,014 17.7 30.6 (222) (261) 501 5.3 15.1

Co$ 2014E 3,768 13.6 1,833 7.7 1,273 6.1 33.8 1,052 3.7 27.9 (215) (241) 561 12.1 14.9

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 185 48 253 617 (178) 438 0 (418) 0 0

2014E 220 0 430 771 (371) 400 0 (252) 0 0

2015E 264 0 430 782 (498) 285 0 (281) 0 0

2016E 293 0 583 962 (453) 509 0 (284) 0 0

2013A 97 25 133 325 (94) 231 0 (220) 0 0

2014E 102 0 200 359 (173) 186 0 (117) 0 0

2015E 110 0 180 327 (208) 119 0 (117) 0 0

2016E 121 0 241 397 (187) 210 0 (117) 0 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 148 867 7,392 7,392 1,237 3,539 2,588 2,181 13

2014E 345 1,257 9,463 9,463 1,801 3,819 3,808 2,408 279

2015E 354 1,396 9,958 9,958 1,846 3,592 4,484 2,161 283

2016E 583 1,660 10,467 10,467 1,886 3,342 5,203 1,897 286

2013A 77 450 3,836 3,836 642 1,836 1,343 1,132 7

2014E 145 529 3,986 3,986 759 1,609 1,604 1,014 117

2015E 147 580 4,134 4,134 766 1,491 1,861 897 117

2016E 240 682 4,303 4,303 776 1,374 2,139 780 117

LT Debt

2015E 4,304 14.2 2,029 10.6 1,401 10.0 32.5 1,137 8.0 26.4 (219) (291) 616 9.7 14.3

2016E 4,611 7.2 2,162 6.6 1,499 7.0 32.5 1,206 6.1 26.2 (202) (322) 671 9.0 14.6

2013A 1,750 10.0 898 9.6 633 15.6 36.2 535 11.6 30.6 (117) (138) 264 (0.1) 15.1

US$ 2014E 1,752 0.1 853 (5.1) 592 (6.5) 33.8 489 (8.6) 27.9 (100) (112) 261 (1.2) 14.9

2015E 1,800 2.7 848 (0.5) 586 (1.0) 32.5 475 (2.9) 26.4 (92) (122) 258 (1.3) 14.3

2016E 1,905 5.9 893 5.3 619 5.7 32.5 498 4.8 26.2 (83) (133) 277 7.7 14.6

2,168

2,130

1,878

1,611

1,125

897

780

662

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

2,033

2,063

1,807

1,314

1,055

869

750

540

Capital Employed

6,168

7,941

8,395

8,866

3,201

3,345

3,485

3,645

Net Debt/EBITDA

1.7

1.6

1.3

0.9

1.7

1.5

1.3

0.9

Net Debt/Equity

0.8

0.5

0.4

0.3

0.8

0.5

0.4

0.3

Capex/Revenue (%)

5.4

9.8

11.6

9.8

5.4

9.8

11.6

9.8

Int Cover (%)

5.5

6.0

6.5

7.5

5.5

6.0

6.5

7.5

Dividend Payout (%)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

FINANCIAL RATIOS

ROCE (%)

11.8

7.9

9.1

9.3

12.3

10.2

9.3

9.3

ROE (%)

20.8

16.2

14.8

13.9

20.6

17.7

14.9

13.9

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

17.1

16.5

15.0

13.8

16.8

14.9

15.1

14.1

P/CE

27.1

27.1

26.3

24.4

26.6

24.6

26.5

24.9

8.9

9.0

7.9

7.1

8.7

8.1

8.0

7.2

10.5

10.8

9.8

8.8

10.3

9.8

9.8

9.0

FV/Revenue

3.2

3.0

2.6

2.3

3.2

2.7

2.6

2.3

P/BV

3.3

2.4

2.1

1.8

3.3

2.4

2.1

1.8

FV/EBITDA FV/EBIT

FCF Yield (%)

5.1

4.3

3.1

5.5

5.2

4.8

3.1

5.4

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS EPS

1,104,794 866

1,091,657 970

1,077,224 1,065

1,159,976 1,161

582.94 0.46

507.65 0.45

450.45 0.45

479.19 0.48

DPS DPS

00

00

00

0

00

00

00

00

5,617,987 4,401

6,709,643 5,965

7,786,867 7,698

8,946,844 8,953

2,915.66 2.32

2,826.30 2.77

3,232.52 3.22

3,678.00 3.70

Div Yield (%) PER SHARE DATA

BVPS BVPS

293

Company Description Cemex Latam Holdings SA (CLH) is a holding company engaged in the production, distribution, marketing and sale of cement, ready-mix concrete and aggregates in Colombia, Panama, Costa Rica and Nicaragua, as well as of cement and ready-mix concrete in Guatemala through its operating subsidiaries. Additionally, CLH maintains a commercial sales office in El Salvador and own a river terminal located on the Amazon River, near Manaus, Brazil. CLH is a subsidiary of CEMEX, S.A.B. de C.V., one of the largest cement companies in the world based on annual installed cement production capacity. CLH shares are listed on the Colombian stock exchange.

Key Personnel: Jaime Elizondo (Chairman), Carlos Jacks (CEO), Josué González (CFO) and Patricio Trevino (IR) Web: http://www.cemexlatam.com/

EBITDA by Country, 2014E Other countries 11.9%

Costa Rica 10.9% Panama 21.0%

Colombia 56.2%

Sales by Segment, 2014E Ready-mix and aggregates 33.7%

Cement 66.3%

Shareholder Structure, September 30 2014

Treasury stock 3.8% Local Pension funds 3.0%

Float 22.6%

Cemex 70.5%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

COLOMBIA—FINANCIAL SERVICES

DAVIVIENDA

BUY CURRENT PRICE: CO$28,100 TARGET PRICE: CO$33,500

INTRODUCING YE2015 TARGET PRICE OF CO$33,500; REPLACING YE2014 TARGET PRICE OF CO$29,000 

Investment Case: Davivienda is our new top pick among Colombian

Boris Molina

banks, as we expect it to post the fastest loan growth over the next

New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

three years, mainly driven by mortgages, where the bank has a strong presence in the mass market. Given a more adverse macro scenario, we expect the government to continue promoting housing

Catalina Araya New York: Santander Investment Securities Inc. +1-212-297-1367 | [email protected]

construction subsidies as a way to sustain growth. Although we view infrastructure projects as a solid source of growth for Aval and Bancolombia, we believe investments could face fiscal headwinds in 2016. Furthermore, we highlight that mortgages have higher spreads than those of infrastructure projects, benefiting margins at Davivienda.



Outlook 2015: According to our estimates, loan growth should reach 14%, driven by mortgages and payroll. We expect margins to compress slightly given funding pressures and strong competition but still remain higher than peers. In addition, we expect Daviplata to become a growth engine and expect the efficiency ratio to improve. Adjusted ROE should reach 16.1%, affected by the new tax reform.



“Temporary” tax impact: We estimate the impact of the new tax

Company Statistics

structure to be 10% of earnings in 2015. We believe DVV will have

Bloomberg

the lowest total tax burden among Colombian banks we cover, at 37% in 2018E, up from 33% in 2014E.

PFDAVVND CB

Current Price (01/02/15)

Co$ 28,100 / US$ 11.83

Target Price (YE 2015)

Co$ 33,500 / US$ 14.71

52-Week Range (Co$)

21,180 - 32,400

Market Capitalization (US$ Mn)



A capital increase in 2016? We estimate a 2015E CT1 ratio of 7.0%, below peers. If asset growth is higher than expected or if

5,257

Float (%)

21.6

3-Mth Avg. Daily Vol (US$ Mn)

2.1

Shares Outstanding - Mn

444

Davivienda acquires any of the assets that Citi is selling in LatAm (possibly in Nicaragua), we expect Davivienda to raise capital early in 2016, via ADRs on the NYSE. In the meantime, we believe the bank

Price Performance (Co$) PFDAVVND CB

COLCAP

140

could release provisions, given its high coverage ratio of 120

approximately 240%, which could add 30-40 bps to the CT1 ratio. 100



Switching to IFRS: Davivienda expects to release 1Q15 consolidated financial statements in May, delaying the usual reporting date. The change in accounting will eliminate the goodwill amortization charge valid in Colombian-GAAP.

80

60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

294

D-14

DAVIVIENDA Financial Highlights: P&L and Balance Sheet, 2013–16E in Billions (Co$), Millions (US$)

Company Description

INCOME STATEMENT Net Interest Income NPL Provisions Adj Net Interest Income Non-Interest Income Total Operating Revenue Non-Interest Expense Profit Before Taxes Taxes Net Profit Adjusted Net Profit

2013A 3,102 (940) 2,163 1,222 3,384 (2,341) 1,090 (233) 851 922

Co$ 2014E 3,450 (960) 2,490 1,362 3,852 (2,538) 1,346 (334) 1,004 1,039

BALANCE SHEET Cash and Equivalents Securities Loans (net) Intangible Assets Total Assets Core Deposits Other Financial Liabilities Subordinated Debt Technical Provisions Equity Adjusted Equity

2013A 4,551 7,925 39,427 1,864 56,374 36,286 4,374 2,278 0 6,059 4,958

2014E 5,147 7,811 47,941 1,763 65,093 42,891 4,840 2,056 0 6,806 5,877

2015E 5,615 8,792 54,522 1,696 73,271 46,791 5,267 2,298 0 7,792 7,051

2016E 6,403 10,201 63,846 1,634 85,006 53,356 6,109 2,681 0 9,009 8,448

2013A 2,366 4,121 20,503 969 29,316 18,870 2,274 1,184 0 3,151 2,578

2014E 2,166 3,287 20,173 742 27,390 18,048 2,036 865 0 2,864 2,473

2015E 2,465 3,861 23,939 745 32,171 20,545 2,313 1,009 0 3,421 3,096

2016E 2,751 4,384 27,437 702 36,530 22,929 2,625 1,152 0 3,871 3,630

LOAN BOOK Companies Total Consumer Mortgages Other Loans Gross Loans Loan Growth (%) NPL Provisions

2013A 16,635 9,723 7,701 7,074 41,132 19.4 670 (1,705)

2014E 19,432 11,292 9,222 9,979 49,925 21.4 831 (1,985)

2015E 22,240 12,739 10,900 11,051 56,931 14.0 988 (2,409)

2016E 26,499 14,410 12,811 12,896 66,616 17.0 1,145 (2,770)

2013A 8,650 5,056 4,004 3,679 21,390 9.8 349 (886)

2014E 8,177 4,751 3,880 4,199 21,008 (1.8) 350 (835)

2015E 9,765 5,594 4,786 4,852 24,997 19.0 434 (1,058)

2016E 11,388 6,193 5,505 5,542 28,627 14.5 492 (1,191)

KEY RATIOS NIM Risk Charge Operating Revenue / ATAs

2013A 6.84 2.52 6.52

2014E 6.50 2.14 6.40

2015E 6.42 2.00 6.40

2016E 6.46 1.89 6.49

2013A 6.84 2.52 6.52

2014E 6.50 2.14 6.40

2015E 6.42 2.00 6.40

2016E 6.46 1.89 6.49

Cost / ATAs

4.51

4.22

4.04

3.92

4.51

4.22

4.04

3.92

Adj Efficiency

49.9

49.1

47.0

45.7

49.9

49.1

47.0

45.7

Effective Taxes

21.4

24.9

29.2

30.1

21.4

24.9

29.2

30.1

Reported ROE (%)

15.1

15.8

16.1

17.1

15.1

15.8

16.1

17.1

Adj ROE (%)

17.6

17.3

16.3

15.9

17.6

17.3

16.3

15.9

NPL Ratio

1.63

1.66

1.73

1.72

1.63

1.66

1.73

1.72

Adj NPL Ratio

3.37

2.70

2.82

2.87

3.37

2.70

2.82

2.87

Loans / Total Assets

73.0

76.7

77.7

78.4

73.0

76.7

77.7

78.4

Loans / Core Deposits

113.4

116.4

121.7

124.9

113.4

116.4

121.7

124.9

RWA % Total Assets

86.9

95.0

96.8

99.0

86.9

95.0

96.8

99.0

Core Tier I Ratio (%)

8.8

8.4

9.0

9.2

8.8

8.4

9.0

9.2

Dividend Payout (%)

29.2

27.9

17.3

16.3

29.2

27.9

17.3

16.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

MARKET RATIOS Adj. P/BV Adj. P/E Div Yield (%) PER SHARE DATA

2015E 3,961 (1,060) 2,901 1,481 4,381 (2,766) 1,665 (487) 1,164 1,251

2016E 4,598 (1,153) 3,445 1,642 5,087 (3,076) 2,067 (623) 1,427 1,431

2013A 1,660 (503) 1,157 654 1,811 (1,253) 583 (125) 455 493

US$ 2014E 1,724 (480) 1,244 681 1,925 (1,268) 672 (167) 502 519

2015E 1,702 (455) 1,247 636 1,883 (1,189) 715 (209) 500 538

2016E 1,997 (501) 1,496 713 2,210 (1,336) 898 (270) 620 622

1.9

1.9

1.6

1.4

1.8

1.6

1.6

1.3

12.8

13.8

11.5

10.3

12.3

11.7

11.4

10.0

2.4

2.2

1.6

1.9

2.4

2.7

1.6

1.9

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

1,915.98

2,261.21

2,619.58

3,213.42

1.03

1.13

1.13

1.40

13,639.43

15,321.69

17,540.09

20,280.65

7.09

6.45

7.70

8.72

560.00

630.00

452.24

523.92

0.30

0.31

0.19

0.23

2,075.60

2,338.10

2,816.97

3,221.17

1.11

1.17

1.21

1.40

Adj BVPS

11,160.71

13,229.68

15,872.77

19,017.82

5.80

5.57

6.97

8.17

Surplus Capital per Share

(2,815.26)

(4,261.49)

(4,373.79)

(4,968.65)

(1.46)

(1.79)

(1.92)

(2.14)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

EPS BVPS DPS Adj EPS

Unrealized Cap. Gains/Shr

Davivienda is Colombia’s third largest bank, with a loan market share of 13% as of 3Q14, a strong franchise in mortgage and consumer finance, as well as a solid foothold in the middle class retail banking market dating from its origins as a savings and loans institution. The bank successfully diversified into a full-fledged commercial bank via acquisitions over the past years. The acquisition of Bancafe in 2007 gave it a solid platform in corporate, commercial and SME banking. In addition, the bank acquired HSBC's operations in Central America (El Salvador, Honduras and Costa Rica). The bank is part of Grupo Empresarial Bolivar, a real estate, construction and insurance group based in Colombia. The bank has a dual shareholding structure, with control of the bank held largely by the Bolivar group via voting ordinary shares.

Key Personnel: Carlos Arango Uribe (Chairman), Efrain Forero Fonseca (CEO), Ricardo Leon (CFO) and Julian Naranjo (IRO) Web: www.davivienda.com

Loan Portfolio Breakdown, 2015E

Abroad 19.4% Consumer 19.1% Company 39.1%

Mortgage 22.4%

Revenue Breakdown, 2015E

Others 5.4%

Fees 25.7% FX/Trad 2.7%

NII 66.2%

Shareholder Structure, Current

IFC 8.1%

Cúsezar 17.2%

Free Float 20.5%

Grupo Bolivar 54.2%

Sources for all charts and tables: Company reports and Santander estimates.

295

LATIN AMERICAN 2015 Latin American Universe Book

COLOMBIA—OIL, GAS & PETROCHEMICALS

ECOPETROL

HOLD CURRENT PRICE: US$16.50 TARGET PRICE: US$20.00

LOWERING YE2015 TARGET PRICE TO US$20.00 FROM US$39.00 

Investment Case: Our cautious view on the name is based on the

Christian Audi

challenges faced by the company in terms of growing reserves as

New York: Santander Investment Securities Inc. +1-212-350-3991 | [email protected]

well as production at an attractive, sustainable basis. The difficult, current environment of significant lower oil prices does not help, as the company has already had to curtail its 2015 capex, in order to

Gustavo Allevato*, CFA Brazil: Banco Santander S.A. +5511-3012-6042 | [email protected]

maintain its financial healthy.



Outlook 2015: We expect the difficult oil price environment to present a significant challenge for Ecopetrol, with lackluster production growth for 2015, in our view. With 2015 capex having been reduced YoY, the likelihood of significant exploratory successes has to also be tempered, we believe. In addition, we expect the company to complete the modernization of the Cartagena refinery by midyear.



Lackluster production growth: Ecopetrol‘s production growth continues to disappoint, and we now expect 2015 growth of only 2%, after an uninspiring 2014. Some of the challenges that may preclude production from growing more include: attacks on infrastructure,



delays in securing environmental licenses, and the impact from

Company Statistics

community demonstrations.

Bloomberg

Path to ambitious reserve growth target remains unclear:

EC US / ECOPETL CB

Current Price (01/02/15)

US$ 16.50 / Co$ 1,955.00

Target Price (YE 2015)

US$ 20.00 / Co$ 2,220.00

52-Week Range (US$)

14.77 - 41.16

Ecopetrol has not changed its goal of reaching 1.3 mbpd by 2020. In

Market Capitalization (US$ Mn)

our view, achieving this goal will require significant additions of 1P

Float (%)

33,947 10.0

3-Mth Avg. Daily Vol (US$ Mn)

reserves, whose outlook remains uncertain at this point.

19.9

Shares Outstanding - Mn

2,057

Price Performance (US$) Ecopetrol - ADR (Rebased) 120 100 80 60 40 20

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

296

D-14

ECOPETROL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Co$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 62,514 5.0 24,079 (6.3) 28,498 3.4 45.6 19,627 (14.1) 31.4 340 (7,023) 13,353 (10.8) 21.4

Co$ 2014E 53,942 (13.7) 18,947 (21.3) 22,155 (22.3) 41.1 15,473 (21.2) 28.7 1,004 (5,022) 10,196 (23.6) 18.9

2015E 43,156 (20.0) 12,034 (36.5) 15,869 (28.4) 36.8 9,506 (38.6) 22.0 (691) (3,611) 5,416 (46.9) 12.5

2016E 49,234 14.1 15,805 31.3 19,486 22.8 39.6 13,040 37.2 26.5 (676) (4,989) 7,483 38.2 15.2

2013A 33,456 1.0 12,886 (9.9) 15,251 (0.6) 45.6 10,504 (17.4) 31.4 182 (3,759) 7,146 (14.2) 21.4

US$ 2014E 25,872 (22.7) 9,087 (29.5) 10,626 (30.3) 41.1 7,421 (29.3) 28.7 482 (2,409) 4,890 (31.6) 18.9

2015E 20,143 (22.1) 5,617 (38.2) 7,407 (30.3) 36.8 4,437 (40.2) 22.0 (323) (1,685) 2,528 (48.3) 12.5

2016E 22,268 10.5 7,148 27.3 8,813 19.0 39.6 5,898 32.9 26.5 (306) (2,256) 3,384 33.9 15.2

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (4,916) 17,551 (5,821) 29,999 (8,852) (1,359) (16,669) 6,724 (14,570) 6,925

2014E (5,482) 0 (667) 15,010 (7,092) (406) 450 4,000 (7,137) (156)

2015E (5,163) 0 (740) 9,839 (5,066) (888) 450 3,000 (3,791) (156)

2016E (5,246) 0 444 13,173 (8,507) (3,524) 450 2,000 (5,238) (156)

2013A (2,631) 9,393 (3,115) 16,054 (4,737) (727) (8,921) 3,599 (7,798) 3,706

2014E (2,629) 0 (320) 7,199 (3,401) (195) 216 1,918 (3,423) (75)

2015E (2,410) 0 (345) 4,592 (2,365) (414) 210 1,400 (1,769) (73)

2016E (2,373) 0 201 5,958 (3,848) (1,594) 204 905 (2,369) (71)

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 5,371 21,687 73,023 114,041 18,630 23,617 71,795 12,320 342

2014E 4,964 20,355 79,664 119,132 16,929 27,349 74,853 16,320 454

2015E 4,077 17,872 84,280 120,990 14,401 30,110 76,478 19,320 537

2016E 553 15,247 92,338 126,577 15,956 31,899 78,723 21,320 593

2013A 2,783 11,240 37,845 59,104 9,655 12,240 37,209 6,385 177

2014E 2,381 9,763 38,208 57,138 8,120 13,117 35,901 7,827 218

2015E 1,853 8,123 38,309 54,995 6,546 13,686 34,763 8,782 244

2016E 249 6,862 41,556 56,965 7,181 14,356 35,429 9,595 267

LT Debt

11,978

15,867

18,783

20,728

6,208

7,610

8,538

9,328

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

8,419

12,825

16,713

22,237

4,363

6,151

7,597

10,008

Capital Employed

84,115

91,174

95,798

100,043

43,594

43,728

43,545

45,024

Net Debt/EBITDA

0.3

0.6

1.1

1.1

0.3

0.6

1.0

1.1

Net Debt/Equity

0.1

0.2

0.2

0.3

0.1

0.2

0.2

0.3

Capex/Revenue (%)

14.2

13.1

11.7

17.3

14.2

13.1

11.7

17.3

Int Cover (%)

10.5

7.5

3.7

5.1

10.5

7.5

3.7

5.1

Dividend Payout (%)

97.3

53.4

37.2

96.7

93.6

49.9

31.2

95.6

ROCE (%)

15.2

11.4

6.0

7.8

15.9

14.5

6.1

7.8

ROE (%)

19.5

13.9

7.2

9.6

19.3

14.8

7.2

9.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

MARKET RATIOS P/E

11.4

8.2

14.9

10.8

11.1

7.2

13.4

10.0

P/CE

8.4

5.3

7.6

6.3

8.1

4.7

6.9

5.9

FV/EBITDA

5.7

4.4

6.1

5.3

5.5

3.9

5.6

5.0

FV/EBIT

8.2

6.2

10.2

7.9

7.9

5.6

9.4

7.5

FV/Revenue

2.6

1.8

2.3

2.1

2.5

1.6

2.1

2.0

P/BV

2.1

1.1

1.1

1.0

2.1

1.0

1.0

1.0

(0.9)

(0.5)

(1.1)

(4.4)

(0.9)

(0.6)

(1.2)

(4.7)

9.5

8.5

4.7

6.5

9.9

9.7

5.2

7.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

325

248

132

182

3

2

1

2

DPS

354

173

92

127

3

1

1

1

1,745

1,819

1,859

1,913

14

15

15

16

FCF Yield (%) Div Yield (%) PER SHARE DATA

BVPS

297

Company Description Ecopetrol is Colombia’s integrated oil and gas company created in 1951 as a wholly owned government entity responsible for all hydrocarbon activities in the country. The company’s operations include exploration and production, refining, transportation, marketing, gas and energy, as well as growing international upstream activities. The company has proven reserves of 1,878 million boe. Ecopetrol held its IPO in 2007, and is controlled (88.5%) by the Colombian Government. The company’s ordinary shares are listed locally in the Colombian market and were listed on the NYSE as of September 2008.

Key Personnel: Gonzalo Restrepo (Chairman), Javier Gutierrez Pemberthy (CEO), Gonzalo Restrepo (CFO) and Alejandro Giraldo (IR Officer) Web: www.ecopetrol.co

Sales by Country, 2015E

Other 57.2%

Colombia 42.8%

Volume by Segment, 2015E

Others 39.6%

Oil 49.8%

Natural Gas 10.6%

Shareholder Structure, Current

Free Float 11.5%

Colombia Government 88.5%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

COLOMBIA—CONGLOMERATES & INDUSTRIALS

GRUPO ARGOS

HOLD CURRENT PRICE: CO$19,820 TARGET PRICE: CO$23,200

INTRODUCING YE2014 TARGET PRICE OF CO$23,200; REPLACING YE2014 TARGET PRICE OF CO$22,700 

Investment Case: Grupo Argos is an investment vehicle that provides exposure to the infrastructure and financial sectors in Colombia. Although most of its NAV (more than 80%, according to

Andres Soto New York: Santander Investment Securities Inc. +1-212-407-0976 | [email protected]

our estimate) comprises assets that are already listed on the stock market, Grupo Argos also provides exposure to real estate and other non-listed assets.



On November 10, the company announced a capital increase (50 m shares), which it decided to put on the backburner on December 17, due to adverse market conditions. According to our estimates, this capital increase would have amounted to 3x the company’s EBITDA; we believe that such funding cannot be covered entirely with debt, according to the company’s leverage targets. We therefore conclude that an equity offering is still likely in 2015.



Outlook 2015: Grupo Argos entered into a JV with Conconcreto (CONCONC CB | Current Price; Co$1,450 | NR) to further develop both companies’ income property businesses. As part of this partnership, Grupo Argos will contribute some real estate assets, and has committed to provide Co$365,000 m in cash in the next four



years. According to the company, this JV (in which Grupo Argos will

Company Statistics

have 50% stake), combines 430,000 sqm in real estate assets and it

Bloomberg

is expected to add some 300,000 sqm more in the next four years.

Current Price (01/02/15)

Co$ 19,820 / US$ 8.35

Target Price (YE 2014)

Co$ 23,200 / US$ 9.77

We believe that this transaction is consistent with Grupo Argos’ goal

52-Week Range (Co$)

17,000 - 24,100

to diversify its asset base within its core businesses; nevertheless we

GRUPOARG CB

Market Capitalization (US$ Mn)

6,832

Float (%)

40.6

note that this transaction puts additional pressure in the company’s

3-Mth Avg. Daily Vol (US$ Mn)

2.4

cash flow in the next four years, which, in our view, represents an

Shares Outstanding - Mn

818

overhang risk for both Grupo Argos shares and those of the

Price Performance (Co$)

companies in its investment portfolio.

GRUPOARG CB

COLCAP

120



Valuation: We value Grupo Argos using a sum-of-the-parts model,

110

applying our YE2015 target price to its stakes in Cementos Argos,

100

Grupo Sura, Grupo Nutresa and Bancolombia. We assume market

90

values for Celsia and non-listed assets (according to company’s

80

reports). We apply a 10% holding discount to this sum-of-the-parts to 70

calculate our target price.

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

298

D-14

GRUPO ARGOS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Co$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 517 (14.1) 448 (15.9) 360 (17.2) 69.5 358 (17.7) 69.1 (8,390) (16) 295 (14.2) 57.0

Co$ 2014E 733 41.7 476 6.4 384 6.7 52.4 384 7.4 52.4 (8,383) (16) 302 2.5 41.3

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 2 (162) (67) 64 0 45 6,576 (283) (171) 0

2014E 0 (218) 73 158 0 139 (12) 200 (203) 130

2015E 0 (238) 65 105 0 79 0 0 (210) 0

2016E 0 (318) (36) (0) 0 (32) 0 0 (217) 0

2013A 1 (88) (36) 35 0 25 3,577 (154) (93) 0

2014E 0 (102) 34 74 0 65 (6) 93 (95) 61

2015E 0 (99) 27 44 0 33 0 0 (88) 0

2016E 0 (131) (15) (0) 0 (13) 0 0 (90) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 92 353 15,116 15,469 556 501 14,413 818 373

2014E 365 668 15,397 16,065 442 929 14,694 1,018 145

2015E 260 498 15,848 16,346 442 929 14,975 1,018 145

2016E 43 316 16,391 16,706 442 929 15,335 1,018 145

2013A 48 185 7,914 8,099 291 262 7,546 428 195

2014E 154 281 6,486 6,767 186 391 6,189 429 61

2015E 108 207 6,579 6,786 184 386 6,216 423 60

2016E 17 129 6,706 6,835 181 380 6,274 417 59

LT Debt FINANCIAL RATIOS Net Debt

2015E 550 (25.0) 467 (1.9) 373 (2.9) 67.8 373 (2.9) 67.8 (8,391) (21) 278 (8.2) 50.5

2016E 650 18.3 553 18.3 456 22.3 70.1 456 22.3 70.1 (8,393) (27) 353 27.3 54.3

2013A 281 (17.5) 244 (19.2) 196 (20.4) 69.5 194 (20.9) 69.1 (4,563) (9) 160 (17.6) 57.0

US$ 2014E 342 21.6 222 (8.7) 179 (8.4) 52.4 179 (7.8) 52.4 (3,913) (7) 141 (12.0) 41.3

2015E 230 (32.8) 195 (12.1) 156 (13.0) 67.8 156 (13.0) 67.8 (3,509) (9) 116 (17.7) 50.5

2016E 268 16.6 228 16.6 188 20.5 70.1 188 20.5 70.1 (3,459) (11) 146 25.4 54.3

445

873

873

873

233

368

363

357

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

726

653

758

976

380

275

315

399

Capital Employed

15,287

15,768

16,049

16,409

8,004

6,642

6,662

6,713

Net Debt/EBITDA

2.0

1.7

2.0

2.1

1.9

1.5

2.0

2.1

Net Debt/Equity

0.1

0.0

0.1

0.1

0.1

0.1

0.1

0.1

Capex/Revenue (%)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Int Cover (%)

5.5

6.7

5.2

6.4

5.5

6.7

5.2

6.4

49.7

68.8

69.5

78.3

47.8

64.2

58.6

78.3

ROCE (%)

2.2

2.3

2.2

2.6

2.3

2.8

2.2

2.6

ROE (%)

2.0

2.1

1.9

2.3

2.0

2.2

1.9

2.3

Dividend Payout (%)

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

n/m

n/m

n/m

45.9

n/m

n/m

n/m

46.9

P/CE

n/m

n/m

n/m

45.9

n/m

n/m

n/m

46.9

FV/EBITDA

46.3

45.4

45.6

37.7

44.0

40.9

45.9

38.5

FV/EBIT

46.5

45.4

45.6

37.7

44.3

40.9

45.9

38.5

FV/Revenue

32.2

23.8

30.9

26.4

30.6

21.4

31.1

27.0

P/BV

1.1

1.1

1.1

1.1

1.1

1.1

1.1

1.1

FCF Yield (%)

0.3

0.8

0.5

(0.2)

0.3

0.9

0.5

(0.2)

Div Yield (%)

1.1

1.2

1.3

1.3

1.1

1.3

1.3

1.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

360

369

339

432

0.20

0.17

0.14

0.18

DPS

209

248

257

266

0.11

0.12

0.11

0.11

17,610

17,953

18,296

18,737

9.22

7.56

7.60

7.67

PER SHARE DATA

BVPS

299

Company Description Grupo Argos is an investment holding company with controlling stakes in cement and power companies. The company also owns minority stakes in other listed companies in the food, financial services, and insurance sectors. Grupo Argos’s asset portfolio also includes nonlisted instruments, mainly real estate, port, and coal assets.

Key Personnel: Esteban Giraldo (Chairman), José Alberto Vélez (CEO), Ricardo Andrés Sierra (CFO) and Sebastian Velásquez (IR) Web: inversionistas.grupoargos.com/

NAV Composition, 2015E

Grupo Nutresa 6.2%

Real estate assets 16.3%

Grupo Sura 30.4%

Other assets 2.4%

Cementos Argos 33.7%

Celsia + EPSA 11.0%

Target Price Upside Composition From asset portfolio's TP 12.5%

From discount to NAV 87.5%

Shareholder Structure, September 30 2014

Float 40.6%

Grupo Sura 29.0%

Pension Funds 20.3%

Grupo Nutresa 10.1%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

COLOMBIA—FINANCIAL SERVICES

GRUPO AVAL

HOLD CURRENT PRICE: CO$1,265 TARGET PRICE: CO$1,400

DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF CO$1,400; REPLACING YE2014 TARGET PRICE OF CO$1,550 

Investment Case: We are cutting our earnings estimates for 2015

Boris Molina

and 2016 by around 15% due to higher taxation, expectations of only

New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

one rate increase in Colombia toward the end of 2015, still strong competitive pressures in the Colombian banking industry and slower loan growth estimates.



Catalina Araya New York: Santander Investment Securities Inc. +1-212-297-1367 | [email protected]

Outlook 2015: We have cut our loan growth expectation from 15% to 11%, as we do not expect the effect of loan demand from infrastructure investments until 2016. Also, we believe that Aval could take a more cautious stance toward consumer credit and mortgage growth, with a focus on defending margins; regardless we forecast only a modest 10-bp NIM expansion. While we expect efficiency to continue improving, we project that adjusted ROE will expand only 80 bps, to 15.5%, as higher taxation offsets the impact of improved efficiency.



We estimate Aval’s total tax burden should increase to 48% by 2018, a 700-bp increase from the average 41.7% in the four years leading to 2014. The total tax burden includes corporate income tax, financial transaction taxes and taxes on equity (reported in opex).

Company Statistics Bloomberg



IFRS Transition. We expect the transition to IFRS to lower operating expenses related to goodwill amortization and lead to lower

Co$ 1,265 / US$ 10.30

Target Price (YE 2015)

Co$ 1,400 / US$ 12.30

52-Week Range (Co$)

1,093 - 1,455

intangible asset amortization from the write-off of software

Market Capitalization (US$ Mn)

development costs incurred in recent years. We assume that taxes

Float (%)

11,879 19.4

3-Mth Avg. Daily Vol (US$ Mn)

on equity will be reflected in administrative costs.



PFAVAL CB / AVAL US

Current Price (01/02/15)

4.5

Shares Outstanding - Mn

Corporate restructuring may lead to capital challenges. We estimate Aval’s fully loaded 2014E Basel III CT1 capital ratio at 6.1%,

22,037

Price Performance (Co$) PFAVAL CB

COLCAP

120

due to deductions for intangibles and equity investments at 110

Corficolombiana. Aval’s holding company will acquire the 14% stake in Corficolombiana held by Banco de Occidente. The group has

100

stated that it may eventually acquire the remaining 44% stake that is

90

currently in the hands of Banco de Bogota and Banco Popular in

80

order to release capital at operating units. This, and the potential

70

acquisition of minority staked at the operating units could lead to additional capital requirements at the group level. 300

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

D-14

GRUPO AVAL Financial Highlights: P&L and Balance Sheet, 2013–16E in Billions (Co$), Millions (US$)

Company Description

2015E 8,620 (1,785) 6,835 4,704 11,539 (7,153) 4,533 (1,744) 1,858 2,409

2016E 10,083 (2,220) 7,863 5,336 13,199 (7,916) 5,441 (2,136) 2,251 2,822

2013A 3,660 (679) 2,981 2,300 5,281 (3,252) 2,155 (757) 857 1,108

US$ 2014E 2015E 3,700 3,704 (702) (767) 2,998 2,937 2,160 2,022 5,159 4,959 (3,288) (3,074) 1,974 1,948 (698) (749) 831 799 994 1,035

2014E 14,558 28,758 108,317 4,995 168,870 111,981 22,327 1,949 0 12,941 10,178

2015E 16,396 33,976 119,775 4,831 188,353 124,753 25,395 1,929 0 13,996 11,222

2016E 16,434 37,886 138,687 4,667 212,202 139,503 28,783 1,970 0 15,171 12,499

2013A 6,921 15,645 48,591 2,583 80,233 52,621 10,966 1,064 0 6,099 4,241

2014E 6,126 12,101 45,578 2,102 71,057 47,120 9,395 820 0 5,446 4,283

2015E 7,199 14,918 52,590 2,121 82,701 54,776 11,150 847 0 6,145 4,927

2016E 7,062 16,281 59,598 2,006 91,190 59,949 12,369 847 0 6,520 5,371

2013A 53,309 20,671 1,880 20,654 96,514 20.6 1,473 (3,073)

2014E 57,885 23,543 2,836 27,339 111,603 15.6 2,053 (3,286)

2015E 64,239 26,436 3,647 29,311 123,632 10.8 2,411 (3,857)

2016E 74,812 30,366 4,328 33,805 143,312 15.9 2,838 (4,625)

2013A 27,722 10,749 978 10,741 50,189 10.8 766 (1,598)

2014E 24,357 9,906 1,193 11,504 46,960 (6.4) 864 (1,383)

2015E 28,206 11,607 1,601 12,870 54,284 15.6 1,059 (1,694)

2016E 32,149 13,050 1,860 14,527 61,586 13.5 1,219 (1,988)

2013A 5.50 1.48 7.21

2014E 5.01 1.37 6.33

2015E 5.11 1.53 6.31

2016E 5.33 1.68 6.48

2013A 5.50 1.48 7.21

2014E 5.01 1.37 6.33

2015E 5.11 1.53 6.31

2016E 5.33 1.68 6.48

Cost / ATAs

4.44

4.04

3.91

3.89

4.44

4.04

3.91

3.89

Adj Efficiency

55.8

55.3

52.5

50.1

55.8

55.3

52.5

50.1

Effective Taxes

35.1

35.3

38.5

39.3

35.1

35.3

38.5

39.3

Reported ROE (%)

17.0

13.0

13.8

15.4

17.0

13.0

13.8

15.4

Adj ROE (%)

17.6

14.7

15.5

15.9

17.6

14.7

15.5

15.9

NPL Ratio

1.62

1.96

2.05

2.08

1.62

1.96

2.05

2.08

Adj NPL Ratio

2.70

3.17

3.05

3.14

2.70

3.17

3.05

3.14

Loans / Total Assets

62.6

66.1

65.6

67.5

62.6

66.1

65.6

67.5

Loans / Core Deposits

95.4

99.7

99.1

102.7

95.4

99.7

99.1

102.7

RWA % Total Assets

84.4

INCOME STATEMENT Net Interest Income NPL Provisions Adj Net Interest Income Non-Interest Income Total Operating Revenue Non-Interest Expense Profit Before Taxes Taxes Net Profit Adjusted Net Profit

2013A 6,840 (1,269) 5,571 4,298 9,869 (6,078) 4,027 (1,415) 1,601 2,070

BALANCE SHEET Cash and Equivalents Securities Loans (net) Intangible Assets Total Assets Core Deposits Other Financial Liabilities Subordinated Debt Technical Provisions Equity Adjusted Equity

2013A 13,310 30,086 93,441 4,968 154,287 101,190 21,088 2,046 0 11,728 8,155

LOAN BOOK Companies Total Consumer Mortgages Other Loans Gross Loans Loan Grow th (%) NPL Provisions KEY RATIOS NIM Risk Charge Operating Revenue / ATAs

Co$ 2014E 7,405 (1,405) 6,000 4,323 10,323 (6,579) 3,951 (1,396) 1,664 1,990

2016E 4,379 (964) 3,415 2,318 5,733 (3,438) 2,363 (928) 978 1,226

81.8

82.5

81.9

84.4

81.8

82.5

81.9

Core Tier I Ratio (%)

5.2

6.0

6.3

6.4

5.2

6.0

6.3

6.4

Dividend Payout (%)

64.7

55.0

50.0

50.0

64.7

55.0

50.0

50.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Grupo Aval is Colombia’s leading banking group with approximately a 27% market share in loans and 30% in deposits in Colombia. Aval is active in most segments of the financial industry in Colombia, with strong positions in corporate and investment banking, private pension funds, commercial banking and payroll loans, among others. The group operates four banks in Colombia, each with a particular strategic focus, with central risk management and general oversight. Aval is also the leading Central American banking group via BAC Credomatic. The group has a dual shareholding structure, with ordinary voting and non-voting preferred shares, both of which are listed in the Colombian stock exchange. The group's non-voting shares trade in ADR format in U.S. markets. The group is controlled by Mr. Luis Sarmiento Angulo, who owns most of the outstanding ordinary and preferred shares.

Key Personnel: Luis Sarmiento A. (Chairman), Luis Sarmiento G. (CEO), Diego Solano (CFO) and Tatiana Uribe (IRO) Web: www.grupoaval.com

Loan Book, 2015E

Foreign 23.7% Consumer 21.4%

Company 52.0%

Mortgage 2.9%

Revenue Structure, 2015E Equity Income Other 3.0% 3.6%

Fees 30.9%

NII 59.2% Trading 3.2%

Shareholder Structure, Current MARKET RATIOS Adj. P/BV Adj. P/E Div Yield (%) PER SHARE DATA EPS BVPS DPS

2.2

2.1

2.0

1.8

-

2.0

1.8

1.7

14.1

15.8

14.3

12.7

-

13.2

13.6

11.8

4.4

3.7

3.4

4.2

-

4.7

3.5

4.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

87.25

82.53

84.32

102.17

0.93

0.82

0.72

0.89

588.21

587.27

635.11

688.46

6.12

4.94

5.58

5.92

56.54

47.27

42.16

51.08

0.61

0.48

0.36

0.44

Adj EPS

112.81

98.72

109.31

128.06

1.21

0.99

0.94

1.11

Adj BVPS

408.98

461.89

509.23

567.20

4.25

3.89

4.47

4.87

(316.71)

(277.67)

(285.66)

(347.56)

(3.48)

(2.75)

(2.52)

(2.85)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Surplus Capital per Share Unrealized Cap. Gains/Shr

Free Float 19.4%

Luis Carlos Sarmiento Angulo 80.6%

Sources for all charts and tables: Company reports and Santander estimates.

301

LATIN AMERICAN 2015 Latin American Universe Book

COLOMBIA—FOOD & BEVERAGE

GRUPO NUTRESA

HOLD CURRENT PRICE: CO$28,000 TARGET PRICE: CO$30,000



Investment Case: Nutresa offers a top-notch portfolio of brands and a powerful sales and distribution network, which, in the context of a resilient traditional market (grocery stores) in Colombia implies

New York: Santander Investment Securities Inc. +1-212-407-0976 | [email protected]

Luis Miranda*, CFA

sustainable “pricing power,” in our view.



Andres Soto

A significant investment portfolio (approximately a third of Nutresa’s

Mexico: Banco Santander S.A. +5255-5269-1926 | [email protected]

market cap) distorts the company’s valuation and drives low levels of ROE and relatively low liquidity (vs. its market cap). On the flip side, this investment portfolio provides Nutresa with enhanced financial flexibility to continue the company’s inorganic expansion strategy.



Outlook 2015: We expect Nutresa’s defensive product portfolio to allow the company to post positive top-line results despite recent uncertainties in Colombia’s macro scenario. Meanwhile, El Corral’s acquisition will, in our view, provide Nutresa with a powerful platform to tap the fast-growing dine-out-of-home category in Colombia, which we expect to result in accelerated revenue growth and an improved EBITDA margin at the company’s consolidated level. At the same time, we expect the company’s new accounting policies for its operations in Venezuela to reflect poor top-line performance in the company’s cold cut segment until mid-2015.



Company Statistics

In terms of profitability, we expect recent currency depreciation to

NUTRESA CB

Current Price (01/02/15)

Co$ 28,000 / US$ 11.79

produce mixed effects in Nutresa’s results. In the short term, it drives

Target Price (YE 2015)

Co$ 30,000 / US$ 12.92

the EBITDA margin lower as a result of higher costs in its U.S. dollar-

52-Week Range (Co$)

23,400 - 29,500

denominated inputs, while over the medium to long term, we believe



Bloomberg

Market Capitalization (US$ Mn)

5,426

Float (%)

40.5

that currency depreciation represents an opportunity for Nutresa to

3-Mth Avg. Daily Vol (US$ Mn)

1.8

gain market share and/or recoup margins via prices.

Shares Outstanding - Mn

460

Valuation: Our target price implies an adjusted FV/EBITDA multiple

Price Performance (Co$) NUTRESA CB

of 11.7x for 2015 (versus a trading multiple of 11.3x), which is

120

consistent with our target multiple for other food companies under our

110

coverage in Latin America. While we believe that the current stock

100

valuation is unattractive, we see limited downside risk at current

90

levels, as we expect Nutresa’s strategy to deliver improved

COLCAP

80

profitability and growth. 70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

302

D-14

GRUPO NUTRESA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Co$), Millions (US$) P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 5,898 11.2 2,637 17.7 833 24.1 14.1 650 24.8 11.0 (41) (174) 380 10.1 6.4

Co$ 2014E 6,444 9.2 2,874 9.0 879 5.5 13.6 657 1.0 10.2 (100) (150) 362 (4.8) 5.6

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (183) (18) (101) 444 (1,164) (720) 1,164 0 (182) 0

2014E (222) (29) (101) 454 (387) 67 0 0 (190) 0

2015E (246) (5) (81) 557 (1,182) (625) 0 830 (199) 0

2016E (312) (4) (88) 628 (283) 345 0 0 (218) 0

2013A (99) (10) (55) 240 (630) (390) 630 0 (99) 0

2014E (112) (15) (51) 229 (195) 34 0 0 (96) 0

2015E (107) (2) (35) 241 (512) (271) 0 359 (86) 0

2016E (134) (2) (38) 269 (121) 148 0 0 (93) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 415 2,018 8,562 10,580 1,348 1,802 7,411 1,997 408

2014E 293 2,054 8,731 10,786 1,374 1,810 7,583 1,997 399

2015E 298 2,308 9,672 11,980 1,706 2,474 7,780 2,827 565

2016E 425 2,618 9,646 12,263 1,801 2,474 7,969 2,827 565

2013A 216 1,047 4,443 5,491 700 935 3,846 1,036 212

2014E 127 893 3,796 4,690 597 787 3,297 868 174

2015E 128 994 4,164 5,158 735 1,065 3,350 1,217 243

2016E 181 1,116 4,113 5,229 768 1,055 3,398 1,205 241

LT Debt

2015E 7,384 14.6 3,280 14.1 994 13.1 13.5 748 13.8 10.1 (108) (197) 397 9.6 5.4

2016E 8,105 9.8 3,610 10.1 1,101 10.8 13.6 789 5.5 9.7 (134) (202) 407 2.5 5.0

2013A 3,193 8.4 1,428 14.7 451 21.0 14.1 352 21.7 11.0 (22) (94) 206 7.3 6.4

US$ 2014E 3,253 1.9 1,450 1.6 444 (1.6) 13.6 332 (5.8) 10.2 (50) (76) 183 (11.3) 5.6

2015E 3,195 (1.8) 1,419 (2.2) 430 (3.1) 13.5 323 (2.5) 10.1 (47) (85) 172 (6.1) 5.4

2016E 3,473 8.7 1,547 9.0 472 9.7 13.6 338 4.5 9.7 (58) (86) 174 1.5 5.0

1,589

1,597

2,261

2,261

825

695

974

964

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

1,581

1,704

2,528

2,402

821

741

1,089

1,024

Capital Employed

9,640

9,812

10,839

11,028

5,002

4,266

4,667

4,702

Net Debt/EBITDA

1.9

1.9

2.5

2.2

1.8

1.7

2.5

2.2

Net Debt/Equity

0.2

0.2

0.3

0.3

0.2

0.3

0.3

0.3

19.7

6.0

16.0

3.5

19.7

6.0

16.0

3.5

FINANCIAL RATIOS

Capex/Revenue (%)

8.2

5.6

5.9

5.6

8.2

5.6

5.9

5.6

Dividend Payout (%)

Int Cover (%)

52.7

50.0

55.0

55.0

50.7

46.7

46.4

55.0

ROCE (%)

12.4

12.2

11.9

12.2

12.7

14.2

11.9

12.2

5.1

4.8

5.2

5.2

5.1

5.1

5.2

5.2

ROE (%) MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

32.0

36.4

32.5

31.7

30.6

30.3

31.6

31.1

P/CE

21.6

22.5

20.0

17.9

20.7

18.8

19.5

17.6

FV/EBITDA

16.5

16.9

15.5

13.9

15.8

14.2

15.2

13.7

FV/EBIT

21.2

22.7

20.7

19.4

20.3

19.0

20.2

19.1

FV/Revenue

2.3

2.3

2.1

1.9

2.2

1.9

2.0

1.9

P/BV

1.6

1.7

1.7

1.6

1.6

1.7

1.6

1.6

(5.9)

0.5

(4.9)

2.7

(6.2)

0.6

(5.0)

2.7

1.5

1.4

1.5

1.7

1.6

1.7

1.6

1.7

FCF Yield (%) Div Yield (%) PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

826

787

862

884

0.45

0.40

0.37

0.38

DPS

396

413

433

474

0.21

0.21

0.19

0.20

16,106

16,480

16,909

17,319

8.36

7.17

7.28

7.38

BVPS

303

Company Description Nutresa is the largest publicly listed food company in the Andean region and the fourth largest in Latin America in terms of market capitalization. Nutresa’s products span cold cuts, chocolates, biscuits, coffee, powdered drinks, ice cream and pasta categories. Colombia, Chile and Central America and the Caribbean are the company’s main markets. Nutresa has equity stakes in publicly listed Colombian companies, including Grupo Sura and Grupo Argos, which account for approximately 30% of its market capitalization.

Key Personnel: Antonio Celia (Chairman), Carlos I. Gallego (CEO), Jose D. Penagos (CFO) and Alejandro Jimenez (IR) Web: www.nutresa.com.co

Sales by Country, 3Q14

Central Chile America & 7.8% Caribbean 8.7%

USA Mexico 7.0% 3.9%

Others 6.8%

Colombia 65.8%

EBITDA by Segment, 2014E

Ice Cream 11.2%

TMLUC Others 3.5% 3.2%

Chocolates 15.9%

Coffee 17.4%

Cold Cuts 27.8%

Biscuits 21.0%

Shareholder Structure, September 30, 2014

Suramerica na 35.2%

Float 40.5%

Pension funds 14.5%

Inversiones Argos 9.8%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

COLOMBIA—INSURANCE SERVICES

GRUPO SURA

BUY CURRENT PRICE: CO$39,500 TARGET PRICE: CO$47,250

INTRODUCING YE2015 TARGET PRICE OF CO$47,250; REPLACING YE2014 TARGET PRICE OF CO$43,750 

Investment Case: The advent of IFRS should close the gap between reported earnings and our estimate of the economic earnings of the Group, in our view, greatly enhancing the

Boris Molina New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

attractiveness of Sura as a diversified play on the growth in the

Catalina Araya

Colombian economy. Currently, the stock trades at a 10% discount

New York: Santander Investment Securities Inc. +1-212-297-1367 | [email protected]

to NAV (at the bottom of its one-year range), while we estimate a 2015 financial services P/E of 11.8x

(stripping out Nutresa and

Argos at market values).



Outlook 2015: We expect Sura AM to post net earnings of US$250 million, up from US$220 million in 2014; while for Suramericana (Insurance) we expect Ch$375 billion. For the group, we expect lookthrough earnings (assuming equity income accounting for all units) to post 13.2% growth prior to the impact of equity taxes.



Equity taxes: We believe that it is feasible that under IFRS, Grupo Sura and its operating units may record a onetime charge for the three-year impact of the tax. We expect a small impact at the holding company level, as most equity investments in Colombia are deductible form the capital base taxed, at Co$6-8 billion. On the other hand, we believe that Sura Asset Management will see the largest hit, as the taxable equity is high, at Co$120-150 billion. Finally, we

PFGRUPSU CB

forecast that the insurance operations will see a smaller Co$60-80

Current Price (01/02/15)

Co$ 39,500 / US$ 16.64

billion impact. We incorporate the consolidated impact of these taxes

Target Price (YE 2015)

Co$ 47,250 / US$ 20.75

52-Week Range (Co$)

30,620 - 43,600

as a one-off charge of Co$212 billion in 2015.



Company Statistics Bloomberg

Market Capitalization (US$ Mn)

Diversified sources of upside to our 2015E Target NAV: we expect Sura to enjoy diversified sources of performance, with 76% of

9,571

Float (%)

58.8

3-Mth Avg. Daily Vol (US$ Mn)

1.9

Shares Outstanding - Mn

575

the upside driven by our target prices for Bancolombia, Grupo Argos and Sura AM (in roughly equal parts), with an additional 10% from



Price Performance (Co$) PFGRUPSU CB

the current discount to NAV and an additional 13% from changes in

120

the net debt position and others.

110

Cash Building up: We expect that Grupo Sura’s net debt position

100

may improve by as much as US$1.0 billion over the next three to four

90

years, largely from the retention of dividend payments in excess of debt service. We expect excess cash to be eventually deployed in international acquisitions.

COLCAP

80 70

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

304

D-14

GRUPO SURA Financial Highlights: P&L and Balance Sheet, 2013–16E in Billions (Co$), Millions (US$)

Company Description

INCOME STATEMENT Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) Profit before Taxes Taxes Minorities Net Profit Growth (%)

2013A 1,205 (1.9) 1,159 5.0 1,159 5.0 1,112 (51) 0 1,062 7.3

Co$ 2014E 1,384 14.9 1,341 15.7 1,341 15.7 1,299 (48) 0 1,251 17.9

BALANCE SHEET Cash and Equivalents Accounts Receivable Intangible and Deferred Asse Tangible Assets Total Assets ST Debt LT Debt Equity Net Debt (Cash)

2013A 211 141 1 21,050 313 250 20,288 928

2014E 226 119 1 24,108 0 900 22,990 1,387

2015E 712 128 1 26,446 0 900 25,316 872

2016E 1,365 132 1 26,623 90 900 25,395 323

2013A 110 73 1 10,947 163 130 10,550 483

2014E 95 50 1 10,144 0 379 9,674 584

2015E 312 56 1 11,612 0 395 11,116 383

2016E 586 57 1 11,441 39 387 10,913 139

CASH FLOW Changes in Working Capital Operating Cash Flow Capital Expenditures Change in Debt Free Cash Flow to Equity Cash Dividends Capital Increase (Decrease)

2013A (9) 247 298 (159) 382 259 0

2014E 68 245 (224) 337 411 277 0

2015E 35 42 702 0 751 238 0

2016E 37 116 735 90 948 267 0

2013A (5) 132 160 (85) 204 139 0

2014E 34 122 (112) 168 206 138 0

2015E 15 18 302 0 323 102 0

2016E 16 51 319 39 412 116 0

OPERATING RATIOS EBITDA Margin Effective Tax Rate Net Margin Net Debt / EBITDA Net Debt / Equity

2013A 96.2 4.6 0.8 0.0

2014E 96.9 3.7 1.0 0.1

2015E 97.1 2.0 0.6 0.0

2016E 97.1 1.8 0.2 0.0

2013A 96.2 4.6 0.8 0.0

2014E 96.9 3.7 1.0 0.1

2015E 97.1 2.0 0.6 0.0

2016E 97.1 1.8 0.2 0.0

FCFE / Revenues ROAA

2015E 1,515 9.4 1,470 9.6 1,470 9.6 1,462 (29) 0 1,221 (2.4)

2016E 1,603 5.9 1,557 5.9 1,557 5.9 1,397 (26) 0 1,371 12.3

2013A 645 (5.6) 620 1.0 620 1.0 595 (27) 0 568 3.2

US$ 2014E 692 7.3 670 8.0 670 8.0 649 (24) 0 625 10.1

2015E 651 (5.9) 632 (5.7) 632 (5.7) 628 (12) 0 525 (16.1)

2016E 696 7.0 676 7.1 676 7.1 607 (11) 0 596 13.5

-

-

-

-

-

-

-

-

5.0

5.5

4.8

5.2

4.9

5.9

4.8

5.2

ROAE

5.2

5.8

5.1

5.4

5.1

6.2

5.1

5.4

Payout

(26.2)

(26.1)

(19.0)

(21.8)

(25.2)

(24.4)

(16.0)

(21.8)

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

19.0

18.2

18.6

16.6

18.3

15.3

18.2

16.1

P/E P/CE FV/EBITDA FCFE Yield (%) P/BV Div Yield (%) PER SHARE DATA EPS

-

-

-

-

-

-

-

-

18.2

18.0

16.1

14.8

17.6

15.1

15.8

14.4

-

-

-

-

-

-

-

-

1.0

1.0

0.9

0.9

1.0

1.0

0.9

0.9

(1.3)

(1.2)

(1.0)

(1.2)

(1.3)

(1.4)

(1.1)

(1.2)

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

1,359

1,329

1,264

1,449

0.73

0.66

0.54

0.63

CEPS

445

308

11

138

0.24

0.15

0.00

0.06

FCFPS

664

715

1,305

1,648

0.35

0.30

0.57

0.71

35,260

39,956

43,999

44,137

18.34

16.81

19.32

18.97

975

975

414

464

0.52

0.49

0.18

0.20

BVPS DPS

Grupo Sura is one of Colombia’s leading corporate groups. Its origins date back to the 1970’s when businessmen from Medellin grouped under what was then known as the Grupo Empresarial Antioqueño, with the aim of fending off hostile takeovers. The group consolidated its holdings in 1997 into what today is Grupo Sura. The group acquired in late 2011 ING’s pension, insurance, and asset management business in Latin America for a total of US$3.6 billion. The group’s strategy is to grow in Latin American financial services via acquisitions in banking and insurance in countries where it is already present with pension fund management.

Key

Personnel: Armando Montenegro Trujillo (Chairman), David Bojanini (CEO), Ignacio Calle (CFO) and Luis E. Martinez (IRO) Web: www.gruposuramericana.com Target NAV Breakdown, 2015E Other (Net) 0.2% Nutresa 17.1%

Insurance 14.5%

Sura AM 21.6%

Grupo Argos 19.0%

CIB 27.6%

Pro-Forma Equity Income Breakdown, 2015E Other (Net) 0.7%

Sura AM 25.6%

Nutresa 9.2% Grupo Argos 5.2%

Insurance 20.1% CIB 39.2%

Shareholder Structure, Current

Grupo Argos 24.3% Free Float 58.8%

Cementos Argos Other 4.8% 1.8%

Nutresa 10.3%

Sources for all charts and tables: Company reports and Santander estimates.

305

LATIN AMERICAN 2015 Latin American Universe Book

COLOMBIA—OIL, GAS & PETROCHEMICALS

PACIFIC RUBIALES

HOLD CURRENT PRICE: CA$7.36 TARGET PRICE: CA$8.60

LOWERING YE2015 TARGET PRICE TO CA$8.60 FROM CA$11.00 

Investment Case: We believe that the combination of modest

Christian Audi

production growth, a significant drop in oil prices and the resulting

New York: Santander Investment Securities Inc. +1-212-350-3991 | [email protected]

rationalization of capex (and potentially negative implications for reserve and production growth in the future), and the uncertainty surrounding Alfa’s interests in the company will continue to weigh on

Gustavo Allevato*, CFA Brazil: Banco Santander S.A. +5511-3012-6042 | [email protected]

the stock in 2015 and thus, support our cautious view. Although the company’s entry and potential participation in Mexico is attractive, more details are needed in order to properly quantify potential upside for the stock, in our view



Outlook 2015: The company recently revised downward its 2015 guidance for net production to155-160 kbpd, a level that may still be ambitious, given some of the continually challenging factors that affected

Colombian production in 2014, namely attacks on

infrastructure, delays in securing environmental licenses, and in some cases, community demonstrations that disrupted some operations. Additionally, in response to the rapid fall in oil prices, the company announced a 2015 capex reduction to US$1.5 billion, below 2014’s level of around US$2.3 billion. Company Statistics



Conclusion of sale of midstream assets: At the end of December, Pacific Rubiales concluded the sale of a 43% stake in midstream

PRE CN / PREC CB

Current Price (01/02/15)

CA$ 7.36 / Co$ 15,100.00

Target Price (YE 2015)

CA$ 8.60 / Co$ 17,248.67

assets for IFC; with this agreement, the company will immediately

52-Week Range (CA$)

5.17 - 23.80

receive US$240 million in cash: US$80 million in 1Q15, plus a

Market Capitalization (US$ Mn)

1,975

Float (%)

90.0

3-Mth Avg. Daily Vol (US$ Mn)

28.3

infrastructure projects.

Shares Outstanding - Mn

314

Limited visibility, quantification of upside for JV with Alfa: The

Price Performance (CA$)

commitment for an additional US$60 million in cash to develop future



Bloomberg

Pacific Rubiales - ORD (Rebased)

company recently announced a 50/50 JV with Alfa, with the main

120

goals being: (i) the joint study of and bidding on, assets in Mexico’s

100

“First Bid Round”; (ii) the acquisition of services contracts with a view

80

to migrate them to E&P contracts; (iii) the development or petroleum 60

and natural gas assets in Mexico; and (iv) the development of any business related to oil in Mexico. Although we view this news positively, more details are needed in order to better assess and quantify the upside for the company.

40 20

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

306

D-14

PACIFIC RUBIALES Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description Pacific Rubiales is the largest independent E&P company in Colombia, with an exploration portfolio comprising 35 blocks in Colombia, 3 blocks in Peru, and 2 blocks in Guatemala. Its net reserves and risked prospective resources comprise 445 million boe of proved reserves (2P) according to the latest reports issued by Petrotech, RPS, and the company’s estimates. Pacific Rubiales's stock trades on the Colombian and Toronto stock exchanges. It has no controlling shareholders, and management holds roughly 10% of shares.

Key Personnel: Serafino Iacono / Miguel de la Campa (Chairman), Ronald Pantin (CEO), Carlos Perez (CFO) and Roberto Puente (IR Officer) Web: www.pacificrubiales.com

EV by Resources, 2015E

Revenues by Basin, 2015E

Shareholder Structure, Current

Management 10.0%

Other 77.0%

Capital Research 8.0% Carmignac Gestion 5.0%

Sources for all charts and tables: Company reports and Santander estimates.

307

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—CONGLOMERATES & INDUSTRIALS

ALFA

BUY CURRENT PRICE: M$32.03 TARGET PRICE: M$40.00

UPGRADING RATING TO BUY FROM HOLD INTRODUCING YE2015 TARGET PRICE OF M$40.00; REPLACING YE2014 TARGET PRICE OF M$42.00 

Investment Case: We believe that Alfa’s weak performance at the

Luis Miranda*, CFA

end of 2014 was based primarily on the oil price decline and dilution

Mexico: Banco Santander S.A. +5255-5269-1926 | [email protected]

expected from the announced follow-on. These factors have set the company’s valuation at attractive levels, which prompts our rating upgrade to Buy. We do not expect a short-term catalyst, but we

Jens Spiess*, CFA Mexico: Banco Santander S.A. +5255-5269-1931 | [email protected]

believe that current prices offer an attractive entry point and that value from the expected IPO of Sigma and Nemak could be unlocked. Additionally, the stock could benefit from the energy reform in the medium term, albeit at a more moderate speed due to lowerthan-expected oil prices.



Outlook 2015: We expect Sigma and Nemak to be the key growth drivers in 2015, which would more than offset the expected slowdown in the petrochemical and natural gas operations (Alpek and Newpek) due to lower prices of oil, especially during the first half of 2015. At the consolidated level, we estimate that the company could deliver top-line growth of 7.3% in U.S. dollar terms, mainly driven by the positive impact of the consolidation of Campo Frio in Sigma and resilient results at Nemak. At the EBITDA level, we estimate 7.4% growth in USD, driven by growth in all the divisions, but still moderate growth in Alpek.



Company Statistics Bloomberg

ALFAA MM

Current Price (01/02/15)

M$ 32.03 / US$ 2.16

Target Price (YE 2015)

M$ 40.00 / US$ 2.94

Valuation: After the recent price correction, we see value in Alfa’s

52-Week Range (M$)

portfolio. We estimate that it trades at an approximately 27% discount

Market Capitalization (US$ Mn)

to its NAV, which in our view offers attractive potential upside. We believe that upside to this valuation is possible when we are able to see the market value of Sigma and Nemak as stand-alone companies. However, the timing of these offerings is not clear.

30.02 - 46.87 11,104

Float (%)

45.0

3-Mth Avg. Daily Vol (US$ Mn)

30.8

Shares Outstanding - Mn

5,143

Price Performance (M$) ALFAA MM

MEXBOL

a-13

a-14

180



Key themes 2015: (1) Oil and energy projects based on the current outlook for oil prices; (2) expected follow-on of ALFA for up to 8.3%

160 140

of shares outstanding (timing not defined); (3) potential IPO of 120

Nemak and Sigma; (4) impact of lower oil prices on sales and profitability for Alpek and Newpek; and (5) integration process of

100 80

Campo Frio and potential expansion in the region.

e-13

m-13

d-13

a-14

Sources: FactSet, Santander estimates and company reports.

308

d-14

ALFA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 203,456 1.6 36,627 3.0 24,511 1.2 12.0 14,078 (13.3) 6.9 (3,733) (3,192) 6,249 (34.7) 3.1

M$ 2014E 221,799 9.0 40,736 11.2 26,613 8.6 12.0 17,163 21.9 7.7 (6,149) (3,825) 5,758 (7.9) 2.6

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (10,434) 365 215 16,533 (19,879) (3,346) (1,025) 6,178 (3,566) -

2014E (9,451) (1,845) 2,038 19,091 (10,628) 8,463 (18,128) 26,779 0 -

2015E (10,114) 553 (5,010) 13,894 (11,205) 2,689 1,930 (2,267) (2,235) -

2016E (10,349) (432) (3,543) 17,263 (11,253) 6,010 4,443 (897) (2,527) -

2013A (818) 29 17 1,296 (1,559) (262) (80) 484 (280) -

2014E (732) (143) 158 1,478 (823) 655 (1,404) 2,074 0 -

2015E (792) 43 (392) 1,088 (877) 211 151 (178) (175) -

2016E (810) (34) (277) 1,352 (881) 471 348 (70) (198) -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 11,902 59,651 73,974 165,390 42,700 57,521 56,441 57,454 10,522

2014E 29,016 91,109 85,205 224,890 56,494 92,265 60,615 84,232 8,100

2015E 29,133 100,559 86,296 235,431 60,644 89,728 67,724 81,966 7,927

2016E 36,162 113,641 87,200 249,416 63,288 88,479 77,748 81,069 8,060

2013A 910 4,559 5,654 12,640 3,263 4,396 4,314 4,391 804

2014E 2,043 6,416 6,000 15,837 3,978 6,498 4,269 5,932 570

2015E 2,142 7,394 6,345 17,311 4,459 6,598 4,980 6,027 583

2016E 2,572 8,081 6,201 17,736 4,500 6,292 5,529 5,765 573

LT Debt

46,932

76,132

74,039

73,008

3,587

5,361

5,444

5,192

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

2015E 252,215 13.7 47,219 15.9 30,100 13.1 11.9 19,986 16.5 7.9 (1,190) (6,015) 9,343 62.3 3.7

2016E 269,316 6.8 50,421 6.8 32,372 7.5 12.0 22,023 10.2 8.2 (1,856) (6,453) 10,024 7.3 3.7

2013A 15,951 4.8 2,872 6.2 1,922 4.4 12.0 1,104 (10.6) 6.9 (293) (250) 490 (32.7) 3.1

US$ 2014E 17,176 7.7 3,154 9.9 2,061 7.2 12.0 1,329 20.4 7.7 (476) (296) 446 (9.0) 2.6

2015E 19,751 15.0 3,698 17.2 2,357 14.4 11.9 1,565 17.8 7.9 (93) (471) 732 64.1 3.7

2016E 21,090 6.8 3,948 6.8 2,535 7.5 12.0 1,725 10.2 8.2 (145) (505) 785 7.3 3.7

45,552

55,216

52,833

44,907

3,481

3,888

3,885

3,193

Capital Employed

122,690

168,395

174,787

186,129

9,377

11,859

12,852

13,236

Net Debt/EBITDA

1.9

2.1

1.8

1.4

1.8

1.9

1.6

1.3

Net Debt/Equity

0.8

0.9

0.8

0.6

0.8

1.0

0.8

0.6

Capex/Revenue (%)

9.8

4.8

4.4

4.2

9.8

4.8

4.4

4.2

Int Cover (%)

13.8

13.7

11.3

12.3

13.8

13.7

11.3

12.3

Dividend Payout (%)

37.2

0.0

38.8

27.0

38.4

0.0

34.9

27.0

ROCE (%)

14.4

12.6

14.9

15.3

14.6

13.6

14.9

15.3

ROE (%)

11.5

9.8

14.6

13.8

11.7

10.3

14.6

13.8

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

30.1

29.4

17.6

16.4

29.3

25.7

15.2

14.1

P/CE

11.3

11.1

8.5

8.1

11.0

9.7

7.3

6.9

FV/EBITDA

10.7

10.1

8.6

7.8

10.5

8.9

7.6

6.8

FV/EBIT

18.7

15.6

13.0

11.4

18.2

13.8

11.4

9.9

FV/Revenue

1.3

1.2

1.0

0.9

1.3

1.1

0.9

0.8

P/BV

3.3

2.8

2.4

2.1

3.3

2.7

2.2

2.0

(1.8)

5.0

1.6

3.7

(1.8)

5.7

1.9

4.2

FCF Yield (%) Div Yield (%)

1.9

(0.0)

1.4

1.5

1.9

(0.0)

1.6

1.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.22

1.12

1.82

1.95

0.10

0.09

0.14

0.15

DPS

0.10

0

0.44

0.49

0.01

0

0.03

0.04

10.98

11.81

13.19

15.14

0.84

0.83

0.97

1.08

PER SHARE DATA

BVPS

Alfa is a Mexican conglomerate with exposure to the petrochemicals sector (Alpek—42% of sales and 29% of EBITDA in 2014), high-technology aluminum casting, mainly auto parts—engine heads and blocks (Nemak— 30% of sales and 31% of EBITDA for 2014), refrigerated food—cold cuts, yogurt, cheese, and prepared food (Sigma—24% of sales and 28% of 2014 EBITDA), telecommunications (Alestra—2% of sales and 7% of 2014 EBITDA), and natural gas and hydrocarbons (Newpek—1% of sales and 6% of 2014 EBITDA). With the last acquisitions of Eastman Chemical and Wellman assets, ALFA has become the largest producer of purified terephthalic acid (PTA) in NAFTA. Also, ALFA is the largest manufacturer of aluminum engine heads and blocks worldwide. It is also a market leader in the production of cold cuts and cheeses in Mexico.

Key Personnel: Armando Garza Sada (Chairman), Alvaro Fernández Garza (CEO), Ramón Leal (CFO), Enrique Flores Rodriguez (Vice President of Corporate Communications), Luis Ochoa (IRO) and Raúl González (IR Director) Web: www.alfa.com.mx

Sales by Division, 2015E Newpek 1.0% Alestra Others 2.5% 1.0%

Sigma 35.2%

Alpek 32.1%

Nemak 28.1%

EBITDA by Division, 2015E

Alestra Newpek Others 7.2% 5.4% 0.0% Sigma 32.3%

Alpek 21.6%

Nemak 33.5%

Shareholder Structure, Current

Free Float 45.0%

Related Parties 15.0%

Garza Family 40.0%

Sources for all charts and tables: Company reports and Santander estimates.

309

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—RETAIL & CONSUMER GOODS

ALSEA

BUY CURRENT PRICE: M$39.90 TARGET PRICE: M$52.00



Investment Case: We reiterate our Buy rating on more attractive

Reinaldo Santana*

valuation ratios—an 8% discount to global peers—especially

Mexico: Banco Santander S.A. +5255-5269-2102 | [email protected]

considering Alsea’s solid EBITDA CAGR of 30.9% for 2015-16E. We believe a faster-than anticipated Vips integration (back office and distribution) and lower input costs than we previously expected bode well for margins in 2015E onward. We view Alsea as a solid holding in Mexico, where we continue to favor discretionary consumption.



Jens Spiess*, CFA Mexico: Banco Santander S.A. +5255-5269-1931 | [email protected]

João Mamede* Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

Outlook 2015: We expect management to focus on assuring a smooth transition for Vips and on growing organically in its successful Starbucks and casual dining brands. We expect Alsea’s revenue to increase by 36.0% and its EBITDA to grow by 44.1% in 2015 in US$, fueled by the consolidation of Vips and Grupo Zena.



Faster integration of Vips than anticipated: The full integration of the Vips acquisition, nearly seven months after Alsea assumed control, is happening faster than we initially expected. Once this integration is completed, we believe it should translate into lower operating expenses for Alsea from 1Q15 onward. Company Statistics



Incorporating the recent acquisition in Spain: We are now

Bloomberg

incorporating the Zena acquisition in our model (representing 17% of

Current Price (01/02/15)

M$ 39.90 / US$ 2.69

Target Price (YE 2015)

M$ 52.00 / US$ 4.06

total sales by YE2015), and we think the company’s benefits from



ALSEA* MM

52-Week Range (M$)

37.86 - 48.00

market share gains for Domino’s Pizza in Spain could potentially

Market Capitalization (US$ Mn)

exceed our expectations.

Float (%)

Valuation makes sense to us: Alsea trades at a 10.0x EV/EBITDA for 2015E, which represents an 8% discount to its international peers. We see this as compelling, considering Alsea’s superior

2,256 57.0

3-Mth Avg. Daily Vol (US$ Mn)

6.3

Shares Outstanding - Mn

839

Price Performance (M$) ALSEA* MM

MEXBOL

180

EBITDA growth outlook of 30.9% CAGR compared with only 11.2% 160

for comparable peers globally. Moreover, Alsea’s EV/EBITDA to 140

growth is attractive at 0.3x.

120 100 80

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

310

d-14

ALSEA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description Alsea is the leading operator within the quick service restaurant industry in Mexico and it is becoming a panLatin American operator. In Mexico, it operates Domino’s Pizza, Burger King, Starbucks, California Pizza Kitchen, PF Chang’s, Italianni’s, The Cheesecake Factory, and Chili’s, and also runs a distribution business. Alsea operates Burger King in Argentina, Chile, and Colombia, Domino’s Pizza in Colombia, and Starbucks in Argentina, Colombia and Chile. It also has a majority stake in Grupo Zena, Spanish leading restaurant player that operates Domino's and Foster Hollywood. In 2013, total revenue, EBITDA, and net profit amounted to M$15.7 billion, M$2.0 billion, and M$681 million, respectively. The Torrado family holds 43% of the outstanding shares while the free float is 57%.

Key Personnel: Alberto Torrado (Chairman), Fabian Gosselin (CEO), Diego Gaxiola (CFO) and Salvador Villaseñor (IRO) Web: www.alsea.com.mx

Sales by Region, 2014E

EBITDA by Region, 2014E

Shareholder Structure, Current

Torrado Family

Other Shareholders 0.1%

42.9%

Free Float 57.0%

Sources for all charts and tables: Company reports and Santander estimates.

311

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—TELECOM, MEDIA & TECHNOLOGY

AMERICA MOVIL

HOLD CURRENT PRICE: M$16.20 TARGET PRICE: M$18.00

INTRODUCING YE2015 TARGET PRICE OF M$18.00; REPLACING YE2014 TARGET PRICE OF M$15.50 

Investment Case: With the stock trading at an inexpensive 2015E

Valder Nogueira*

P/E of 12.5x, improving operating metrics/potential fiscal gains from

Brazil: Banco Santander S.A. +5511-3012-5747 | [email protected]

asset integration in Brazil and potential cash inflow from asset sale in Mexico, we believe the main barrier behind a more positive stance on AMX remains a clearer definition of how quick (and if) AMX could

Bruno Mendonca* Brazil: Banco Santander S.A. +5511-3012-5759 | [email protected]

have its dominant regulatory remedies lifted.



Outlook 2015: In our view, the timing (and the real possibility) of Ifetel lifting AMX’s dominant player ruling is the single most important driver in determining key aspects of the competitive landscape in Mexico in terms of both M&A possibilities and pricing dynamics. Yet, it is still unclear whether the lifting of the restrictions would be decided upon either (i) a nationwide or on a regional market-share basis and/or; (ii) a per telecom service basis or on a consolidated basis. In our view, the regulator tends to have a more thorough reading on the effects of asset sales and the real benefits from competition relative to what the current news flow may offer. We believe that most AMX competitors have not yet begun to fully explore the benefits of the dominant remedies, even though some reference infrastructure prices have just been defined, which, for the time being is a positive for AMX, but sooner rather than later, the net negative side-effects of

Company Statistics Bloomberg

AMXL MM / AMX US

Current Price (01/02/15)

M$ 16.20 / US$ 21.71

dominant ruling could become more evident, in our view. Telecom

Target Price (YE 2015)

M$ 18.00 / US$ 26.50

Transitory Article #9, Televisa-AT&T relations at Sky Mexico, and the

52-Week Range (M$)

fate of Nextel LatAm are some key elements that we believe govern M&A decisions.

12.43 - 17.51

Market Capitalization (US$ Mn)

72,693

Float (%)

67.9

3-Mth Avg. Daily Vol (US$ Mn)

66.6

Shares Outstanding - Mn



Side-effects in LatAm and Europe: We note that divesting part of its Mexican assets may free up cash for AMX to deploy elsewhere in

Price Performance (M$) AMXL MM

LatAm and/or Europe. We further highlight that potential changes in

120

regulations in Brazil (on fixed line concessions and mobile spectrum

110

re-farming) and financially distressed players could open the door to

100

important consolidation moves, attracting both existing players and

90

newcomers. Lastly, we point to the possibility of a harsher economic

66,560

MEXBOL

80

environment and government measures to tackle fiscal imbalances 70

potentially leading to a buyers’ market in Brazil.

j-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

312

d-14

AMERICA MOVIL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 786,100 1.4 427,771 (0.9) 255,698 (2.0) 32.5 427,771 (0.9) 54.4 (48,072) (31,488) 74,621 (18.3) 9.5

M$ 2014E 2015E 843,026 886,666 7.2 5.2 457,952 472,987 7.1 3.3 268,569 273,800 5.0 1.9 31.9 30.9 457,952 472,987 7.1 3.3 54.3 53.3 (34,908) (31,023) (47,553) (38,559) 66,272 85,714 (11.2) 29.3 7.9 9.7

2016E 873,367 (1.5) 460,861 (2.6) 264,662 (3.3) 30.3 460,861 (2.6) 52.8 (31,715) (34,624) 76,967 (10.2) 8.8

2013A 61,570 4.5 33,505 2.1 20,027 1.0 32.5 33,505 2.1 54.4 (3,765) (2,466) 5,845 (15.9) 9.5

US$ 2014E 63,415 3.0 34,449 2.8 20,203 0.9 31.9 34,449 2.8 54.3 (2,626) (3,577) 4,985 (14.7) 7.9

Company Description 2015E 63,333 (0.1) 33,785 (1.9) 19,557 (3.2) 30.9 33,785 (1.9) 53.3 (2,216) (2,754) 6,122 22.8 9.7

2016E 64,154 1.3 33,853 0.2 19,441 (0.6) 30.3 33,853 0.2 52.8 (2,330) (2,543) 5,654 (7.7) 8.8

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (101,535) (8,497) 187,252 129,600 110,339 31,900 72,648 (15,800) 0

2014E (116,207) 9,679 201,584 169,107 72,062 1,400 46,818 (16,536) 0

2015E (114,247) 3,974 208,193 168,466 48,332 0 10,463 (21,428) 0

2016E (117,533) (1,211) 197,112 157,206 19,962 0 (18,276) (19,242) 0

2013A (7,953) (666) 14,666 10,151 8,642 2,499 5,690 (1,238) 0

2014E (8,741) 728 15,164 12,721 5,421 105 3,522 (1,244) 0

2015E (8,161) 284 14,871 12,033 3,452 0 747 (1,531) 0

2016E (8,633) (89) 14,479 11,548 1,466 0 (1,342) (1,413) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 48,164 236,699 501,107 1,035,158 281,471 544,675 209,012 490,319 25,841

2014E 63,385 232,902 492,445 1,033,002 316,246 495,874 220,882 537,137 28,308

2015E 61,666 239,959 546,664 1,105,095 336,935 513,473 254,688 547,600 28,860

2016E 32,051 207,670 586,338 1,123,837 334,387 509,040 280,410 529,324 27,897

2013A 3,682 18,096 38,311 79,141 21,519 41,642 15,980 37,486 1,976

2014E 4,464 16,402 34,679 72,747 22,271 34,921 15,555 37,827 1,994

2015E 4,534 17,644 40,196 81,257 24,775 37,755 18,727 40,265 2,122

2016E 2,347 15,209 42,941 82,306 24,489 37,280 20,536 38,766 2,043

464,478

508,829

518,741

501,428

35,511

35,833

38,143

36,723

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

LT Debt FINANCIAL RATIOS Net Debt

442,155

473,752

485,934

497,273

33,804

33,363

35,730

36,418

Capital Employed

651,167

694,634

740,622

777,683

49,783

48,918

54,457

56,955

Net Debt/EBITDA

1.7

1.8

1.8

1.9

1.7

1.7

1.8

1.9

Net Debt/Equity

2.1

2.1

1.9

1.8

2.2

2.4

1.9

1.8

(16.5)

(20.1)

(19.0)

(18.0)

(16.5)

(20.1)

(19.0)

(18.0)

-

-

-

-

-

-

-

-

Dividend Payout (%)

17.3

22.2

32.3

22.4

17.8

21.3

29.1

22.4

ROCE (%)

72.7

74.8

70.3

64.9

74.4

81.9

70.5

64.9

ROE (%)

28.6

30.8

36.0

28.8

29.2

32.2

36.1

28.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

14.5

16.9

12.5

13.5

14.1

15.3

11.8

12.4

P/CE

6.1

6.1

5.4

5.3

6.0

5.5

5.1

4.9

FV/EBITDA

6.0

5.9

5.7

5.8

5.8

5.4

5.5

5.5

FV/EBIT

9.9

10.5

9.8

10.4

9.6

9.5

9.5

9.8

FV/Revenue

1.9

1.9

1.8

1.8

1.9

1.7

1.7

1.7 3.4

Capex/Revenue (%) Int Cover (%)

MARKET RATIOS P/E

P/BV

5.2

5.1

4.2

3.7

5.2

4.9

3.9

FCF Yield (%)

10.2

6.4

4.5

1.9

10.5

7.1

4.8

2.1

Div Yield (%)

1.5

1.5

2.0

1.9

1.5

1.6

2.1

2.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

PER SHARE DATA EPS

1.02

0.95

1.27

1.18

2.85

2.61

3.47

3.22

DPS

0.22

0.24

0.32

0.29

0.60

0.65

0.87

0.81

59.27

64.40

76.53

87.05

0.38

0.43

0.51

0.58

BVPS

América Móvil (AMX) is Latin America’s largest integrated telecom company, which, at the end of 3Q14, had 364 million accesses, 287 million of which being mobile subscribers (in over 20 countries, including noncontrolling interests in Europe), making it one of the world's top five largest mobile operators. AMX also provides fixed-line, broadband and internet services, digital television, IT and network services throughout the region under the brands of Telcel and Telmex (Mexico), Claro (in most of the Americas), Embratel (Brazil), Net Serviços (Brazil), Tracfone (United States), amongst others. AMX is also present in Europe, holding noncontrolling economic interests in telecom companies KPN (29.8% stake) and Telekom Austria (59.7% stake). AMX is controlled by the Slim Group in Mexico, holding 51.7% of the total capital.

Key Personnel: Patrick Slim Domit (Chairman), Daniel Hajj Aboumrad (CEO), Carlos Garcia Moreno (CFO) and Daniela Lecuona (Investor Relations Office) Web: www.americamovil.com

Sales breakdown per Country, 2013 Colombia Central & America & Panama 9.6% Perú Caribbean 6.4% Ecuador 3.0% 2.8%

USA 10.0%

Chile 2.6%

Mexico 35.4%

Brazil 24.9%

Argentina, Uruguay & Paraguay 5.2%

EBITDA breakdown per Country, 2013

Colombia & Panama 12.6%

Ecuador Perú 3.8% 3.4%

Central America & Caribbean USA 6.6% 2.4%

Chile 0.1% Brazil 19.4%

Argentina, Uruguay & Paraguay 5.2%

Mexico 46.4%

Shareholder Structure, Current

Free Float 48.3%

Slim Trust + Inmobiliaria Carso 51.7%

Sources for all charts and tables: Company reports and Santander estimates.

313

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—FOOD & BEVERAGE

ARCA CONTINENTAL

HOLD CURRENT PRICE: M$91.62 TARGET PRICE: M$102.00

INTRODUCING YE2015 TARGET PRICE OF M$102.00; REPLACING YE2014 TARGET PRICE OF M$87.00 

Investment Case: We see AC as an attractive consumer play in LatAm, with high exposure to Mexico (more than 70% of its EBITDA) and attractive potential medium-term growth, driven by its solid soft drink operations, which we believe should benefit from moderate volume increases in 2015 and from price recovery (moderately below

Luis Miranda*, CFA B

Mexico: Banco Santander S.A. +5255-5269-1926 | [email protected]

Jens Spiess*, CFA Mexico: Banco Santander S.A. +5255-5269-1931 | [email protected]

inflation). Additionally, we believe that the company will continue to grow its snack and dairy operations organically and via M&A. However, in our view, the stock is fairly priced at a 2015E P/E of 20.7, which in our view limits potential upside.



Outlook 2015: We expect some volume recovery, but management has stated that they intend to focus on profitable growth, not only on volume. We estimate 2% volume growth in Mexico, with price increases of 3%, slightly below inflation. At the EBITDA level, we estimate flat margins, as the expected benefit from lower prices of raw materials and packaging should be offset by weaker FX. We estimate consolidated sales growth for 2015 of 6% and EBITDA growth of 6%.



Valuation a concern: During 2014, AC was the best-performing

Company Statistics

stock in the beverages sector in LatAm. In our view, this was partially

Bloomberg

due to the company’s high exposure to Mexico’s north, a region that

M$ 91.62 / US$ 6.18

Target Price (YE 2015)

M$ 102.00 / US$ 7.50

has benefited from strong manufacturing and exports to the U.S.

52-Week Range (M$)

However, this strong stock price performance sets a tough

Market Capitalization (US$ Mn)

comparison base for 2015, which limits potential upside, in our view.



AC* MM

Current Price (01/02/15)

67.25 - 98.07 9,952

Float (%)

23.6

3-Mth Avg. Daily Vol (US$ Mn)

7.4

Shares Outstanding - Mn

1,611

Key themes for 2015: (1) Impact on volumes of price increases in Mexico instituted at the end of 2014; (2) potential to increase prices in

Price Performance (M$) AC* MM

Argentina in-line with real inflation; (3) evolution of Tonicorp and

110

snack operations in Ecuador and in the territories, respectively;

100

(4) evolution of refranchising initiatives in the U.S.; and (5) evolution

MEXBOL

90

of FX, especially in Mexico, and its impact on AC’s cost structure. 80 70 60

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

314

d-14

ARCA CONTINENTAL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 60,359 7.3 29,016 11.5 12,449 14.4 20.6 9,922 16.9 16.4 (971) (2,775) 5,973 18.4 9.9

M$ 2014E 61,486 1.9 30,525 5.2 13,545 8.8 22.0 10,946 10.3 17.8 (928) (3,193) 6,618 10.8 10.8

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (2,528) (611) (1,009) 8,102 (5,098) 3,004 (3,333) 2,635 (4,834) -

2014E (2,599) 82 1,572 10,707 (4,000) 6,707 (1,535) 3,097 0 -

2015E (2,695) (14) (221) 9,634 (5,200) 4,434 617 (6) (3,971) -

2016E (2,833) 11 (187) 10,403 (4,127) 6,276 (1,208) 5 (4,288) -

2013A (198) (48) (79) 635 (399) 235 (261) 206 (379) -

2014E (196) 6 118 806 (301) 505 (116) 233 0 -

2015E (192) (1) (16) 688 (371) 317 44 (0) (283) -

2016E (201) 1 (13) 740 (293) 446 (86) 0 (305) -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 2,566 8,240 58,109 66,349 8,049 17,116 38,352 14,078 2,376

2014E 10,835 17,672 61,664 79,336 11,299 19,901 45,171 17,175 2,891

2015E 11,909 19,155 63,746 82,901 11,481 19,901 48,347 17,168 2,885

2016E 12,694 20,297 66,487 86,784 11,655 19,901 51,827 17,173 2,890

2013A 196 630 4,441 5,071 615 1,308 2,931 1,076 182

2014E 763 1,245 4,343 5,587 796 1,401 3,181 1,209 204

2015E 876 1,408 4,687 6,096 844 1,463 3,555 1,262 212

2016E 903 1,443 4,728 6,171 829 1,415 3,686 1,221 205

LT Debt

11,701

14,283

14,283

14,283

894

1,006

1,050

1,016

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

11,512

6,340

5,259

4,479

880

446

387

318

Capital Employed

58,300

68,036

71,421

75,129

4,456

4,791

5,252

5,343

Net Debt/EBITDA

0.9

0.5

0.4

0.3

0.9

0.4

0.4

0.3

Net Debt/Equity

0.3

0.1

0.1

0.1

0.3

0.2

0.1

0.1

Capex/Revenue (%)

8.4

6.5

7.9

6.0

8.4

6.5

7.9

6.0

Int Cover (%)

11.3

11.5

12.3

14.1

11.3

11.5

12.3

14.1

Dividend Payout (%)

95.8

0.0

60.0

60.0

98.8

0.0

54.0

59.8

ROCE (%)

21.8

20.2

20.3

20.3

22.2

21.9

20.3

20.3

ROE (%)

15.5

15.8

15.3

15.5

15.9

16.6

15.3

15.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

22.0

22.7

20.7

19.0

21.5

20.5

19.5

18.0

P/CE

15.5

16.3

15.0

13.9

15.1

14.7

14.2

13.2

FV/EBITDA

12.3

12.3

11.3

10.6

12.0

11.1

10.7

10.0

FV/EBIT

MARKET RATIOS

2015E 65,420 6.4 32,600 6.8 14,417 6.4 22.0 11,722 7.1 17.9 (793) (3,497) 7,147 8.0 10.9

2016E 68,780 5.1 34,278 5.1 15,296 6.1 22.2 12,463 6.3 18.1 (583) (3,801) 7,768 8.7 11.3

2013A 4,728 10.6 2,273 14.9 975 17.9 20.6 777 20.5 16.4 (76) (217) 468 22.0 9.9

US$ 2014E 4,628 (2.1) 2,298 1.1 1,020 4.5 22.0 824 6.0 17.8 (70) (240) 498 6.5 10.8

2015E 4,671 0.9 2,328 1.3 1,029 1.0 22.0 837 1.6 17.9 (57) (250) 510 2.4 10.9

2016E 4,890 4.7 2,437 4.7 1,087 5.6 22.2 886 5.9 18.1 (41) (270) 552 8.2 11.3

15.4

15.2

13.9

13.0

15.0

13.7

13.1

12.3

FV/Revenue

2.5

2.7

2.5

2.4

2.5

2.4

2.4

2.2

P/BV

3.4

3.3

3.1

2.8

3.4

3.2

2.8

2.7

FCF Yield (%)

2.3

4.5

3.0

4.3

2.3

4.9

3.2

4.5

Div Yield (%)

3.7

(0.0)

2.7

2.9

3.8

(0.0)

2.8

3.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

3.71

4.11

4.44

4.82

0.29

0.31

0.32

0.34

DPS

3.00

0

2.46

2.66

0.24

0

0.18

0.19

23.80

28.03

30.01

32.17

1.82

1.97

2.21

2.29

PER SHARE DATA

BVPS

315

Arca Continental (AC) produces and distributes nonalcoholic beverages under the Coca-Cola brand. It is the second largest independent bottler in the Coca-Cola system in Latin America and fourth largest in the world, with an estimated 2015 volume of 1,355 MUC (close to 70% in Mexico, 15% in Ecuador and 15% in Argentina). AC entered Argentina (in the northeast) in 2008, and in 2010, the company bought a stake from EBC to start operations in Ecuador. AC also produces and distributes salty snacks under the Bokados (Mexico), Wise (U.S.), Inalecsa (Ecuador) and Señor Snacks (U.S.) brands. In October 2013, the company acquired Tonicorp, a leader producer and distributor of dairy foods in Ecuador.

Key Personnel: Francisco Garza Egloff (CEO), Emilio Marcos Charur (CFO), Ulises Fernández de Lara (IRO) and Juan Hawach (IRO) Web: www.arcacontal.com.mx

Volume by Region, 2015E

S. America 22.0%

Mexico 78.0%

Sales by Region, 2015E

S. America 23.6%

Mexico 76.4%

Shareholder Structure, Current Coca Cola Co. 8.6%

Free Float 16.5%

Control Group 74.9%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—TRANSPORTATION

ASUR

HOLD CURRENT PRICE: M$191.42 TARGET PRICE: M$217.00

RAISING YE2015 TARGET PRICE TO M$217.00 FROM M$197.00 

Investment Case: We believe Asur will be the underperformer in terms of passenger (PAX) traffic growth in 2015, at 7.6% by our estimate (vs. 10.4% for GAP and 9.9% for OMA). Our view is based on (i) difficult comps (as impaired operations in Los Cabos caused extraordinary growth for Cancun in 4Q14), and (ii) tight capacity in Cancun. Although we have a positive view on the sector overall, ASUR remains our least favorite among the airport groups, with the

Ana Gabriela Reynal*, CFA 3

Mexico: Banco Santander S.A. +5255-5269-1900 | [email protected]

Bruno Amorim*, CFA Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

Pedro Balcão Reis* Brazil: Banco Santander S.A. +5511-3012-60165765 | [email protected]

lowest spread between estimated equity IRR and cost, margins capped by significant capex commitments for 2015, and a subpar dividend yield of ~1%.



PAX outlook 2015: We believe outstanding PAX performance during 4Q14 (+15% YoY) was mainly caused by leisure travel intended for Los Cabos being redirected to Cancun (+16% YoY in the quarter) after Hurricane Odile (September 2014).Thus, we expect PAX growth to decelerate from 10% in 2014 to 7% in 2015.



Operating outlook: solid but subpar. In addition to Asur’s weaker PAX outlook vs. its peers, we expect commercial revenue growth to be limited by near saturation conditions in Cancun. In addition, we

Company Statistics

expect no margin expansion to result from significant construction

Bloomberg

work in Cancun (which is causing increased fixed expenses with no revenue to offset it until 2017, according to our estimates).

ASURB MM / ASR US

Current Price (01/02/15)

M$ 191.42 / US$ 129.23

Target Price (YE 2015)

M$ 217.00 / US$ 159.60

52-Week Range (M$)

142.48 - 199.43

Market Capitalization (US$ Mn)



Dividends also below peers: Finally, if we assume the company will not take on new debt (which is current guidance) to finance its

3,871

Float (%)

40.4

3-Mth Avg. Daily Vol (US$ Mn)

3.6

Shares Outstanding - Mn

300

M$2.8 billion 2015 capex program, excess cash flow available to pay dividends would result in a ~1% yield. This compares unfavorably

Price Performance (US$) ASURB MM

with our estimates of 4.6% and 5.1% for OMA and GAP,

140

respectively.

130

MEXBOL

120 110 100 90 80

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

316

d-14

ASUR Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description Grupo Aeroportuario del Sureste (ASUR) owns a 50-year concession to operate, maintain, and develop nine airports in the southeastern region of Mexico. The concession was initially granted in November 1998 and includes the operation of Cancun´s International Airport, Mexico’s number one tourist destination, and the second busiest airport in Mexico in terms of passenger traffic. ASUR’s other airports are in Cozumel, Mérida, Oaxaca, Veracruz, Huatulco, Villahermosa, Tapachula, and Minatitlan. During 2010, the group’s airports handled 16.7 million PAX.

Key Personnel: Fernando Chico Pardo (Chairman) and Adolfo Castro (CEO) Web: www.asur.com.mx

Passengers by Origin, 2013

Domestic 44.5%

Internat’l 55.5%

Revenues by Segment, 2013

Shareholder Structure, Current

Sources for all charts and tables: Company reports and Santander estimates.

317

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—FINANCIAL SERVICES

BANORTE

HOLD CURRENT PRICE: M$78.83 TARGET PRICE: M$90.00

DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF M$90.00; REPLACING YE2014 TARGET PRICE OF M$107.50 

Investment Case: We believe that recent changes in the leadership

Boris Molina

of Banorte increase corporate governance and execution risks; as

New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

such, we prefer to remain cautious on the stock.



Catalina Araya

Outlook 2015: We are cutting our earnings estimates by 15%, as we

New York: Santander Investment Securities Inc. +1-212-297-1367 | [email protected]

now forecast that Banorte will deliver 2015 earnings at the bottom of its guidance range, given: (1) a late start to the rate increase cycle in Mexico; (2) potentially lower trading income; and (3) lower pension fund management fees, among others. We expect loan growth to accelerate to 13%, with NIM expansion driven by sustained growth in consumer lending.



Merger with Interacciones? Never say never. While the bank has stated several times that there are no plans to merge with Interacciones, we believe that the risk continues to affect the stock.



April shareholder meeting not to be missed. While we expect a fair degree of institutional shareholder opposition to the nomination of a new chairman, we believe Carlos Hank Gonzalez’s appointment is likely to pass. We expect the new management team to actively

Company Statistics

engage institutional investors to provide reassurances regarding the

Bloomberg

continuity of the group’s strategy. We believe an offer for large

Current Price (01/02/15)

M$ 78.83 / US$ 5.33

Target Price (YE 2015)

M$ 90.00 / US$ 6.35

institutional shareholders to propose potential replacements for

GFNORTEO MM

52-Week Range (M$)

75.05 - 95.63

Guillermo Ortiz’s seat on the board would go a long way in defusing

Market Capitalization (US$ Mn)

shareholder concerns.

Float (%)

14,784 88.2

3-Mth Avg. Daily Vol (US$ Mn)



“Key man” risk. After the recent departures at the top management level introduced execution risks related to the rollout of the bank’s new retail-banking model and the ongoing upgrade of its IT platform,

57.5

Shares Outstanding - Mn

2,774

Price Performance (M$) GFNORTEO MM

MEXBOL

120

we believe the bulk of the responsibility for the execution of this plan was and still remains with Rafael Arana, COO and temporary CFO. We do not expect Mr. Arana to leave the bank, however, such a

110

100

departure could represent a significant blow to the organization, in 90

our view.

80

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

318

D-14

BANORTE Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions INCOME STATEMENT Net Interest Income NPL Provisions Adj Net Interest Income Non-Interest Income Total Operating Revenue Non-Interest Expense Profit Before Taxes Taxes Net Profit Adjusted Net Profit BALANCE SHEET Cash and Equivalents Securities Loans (net) Intangible Assets Total Assets Core Deposits Other Financial Liabilities Subordinated Debt Technical Provisions Equity Adjusted Equity LOAN BOOK Companies Total Consumer Mortgages Other Loans Gross Loans Loan Grow th (%) NPL Provisions

Company Description

2016E 51,651 (14,820) 36,830 26,162 62,992 (35,958) 27,034 (7,786) 18,959 18,941

2013A 2,848 (701) 2,147 1,566 3,713 (2,342) 1,398 (279) 1,059 359

US$ 2014E 2015E 2,921 3,103 (850) (828) 2,071 2,275 1,901 1,657 3,972 3,932 (2,329) (2,250) 1,643 1,682 (457) (489) 1,168 1,175 1,165 1,213

2013A 2014E 2015E 2016E 61,978 71,935 81,795 92,539 429,802 466,181 510,135 598,740 424,404 457,526 519,142 603,268 22,366 23,030 23,030 23,030 1,006,788 1,101,981 1,220,064 1,408,478 438,335 479,567 545,302 616,924 327,761 354,891 397,073 481,591 18,001 17,595 16,852 17,223 62,207 72,566 83,571 95,786 106,657 121,460 135,924 151,141 84,935 97,969 113,896 130,403

2013A 4,732 32,818 32,406 1,708 76,875 33,470 25,027 1,374 4,750 8,144 6,485

2014E 4,878 31,611 31,024 1,562 74,723 32,518 24,065 1,193 4,921 8,236 6,643

2015E 5,791 36,117 36,755 1,631 86,380 38,607 28,113 1,193 5,917 9,623 8,064

2016E 6,410 41,476 41,789 1,595 97,568 42,735 33,361 1,193 6,635 10,470 9,033

2013A 36,340 (8,941) 27,399 19,990 47,389 (29,892) 17,836 (3,556) 13,508 4,582

M$ 2014E 2015E 38,875 44,794 (11,310) (11,946) 27,564 32,847 25,294 23,916 52,858 56,763 (30,994) (32,481) 21,864 24,282 (6,081) (7,066) 15,548 16,958 15,499 17,517

2016E 3,617 (1,038) 2,579 1,832 4,411 (2,518) 1,893 (545) 1,328 1,326

2013A 199,960 59,959 83,120 95,654 438,693 7.0 13,655 (14,289)

2014E 199,771 73,506 90,410 110,250 473,937 8.0 14,429 (16,411)

2015E 221,712 90,629 102,351 121,695 536,387 13.2 13,157 (17,245)

2016E 261,878 109,514 118,531 132,697 622,620 16.1 13,406 (19,352)

2013A 15,268 4,578 6,347 7,304 33,497 5.6 1,043 (1,091)

2014E 13,546 4,984 6,131 7,476 32,137 (4.1) 978 (1,113)

2015E 15,697 6,416 7,246 8,616 37,976 18.2 932 (1,221)

2016E 18,141 7,586 8,211 9,192 43,130 13.6 929 (1,341)

2013A 4.44 2.12 4.90

2014E 4.44 2.51 5.06

2015E 4.60 2.37 4.92

2016E 4.66 2.57 4.81

2013A 4.44 2.12 4.90

2014E 4.44 2.51 5.06

2015E 4.60 2.37 4.92

2016E 4.66 2.57 4.81

Cost / ATAs

3.09

2.97

2.81

2.75

3.09

2.97

2.81

2.75

Adj Efficiency

48.7

46.8

43.9

41.7

48.7

46.8

43.9

41.7

Effective Taxes

19.9

27.8

29.1

28.8

19.9

27.8

29.1

28.8

Reported ROE (%)

14.2

13.5

13.2

13.2

14.2

13.5

13.2

13.2

7.5

24.6

25.0

23.0

7.5

24.6

25.0

23.0

NPL Ratio

3.11

3.04

2.45

2.15

3.11

3.04

2.45

2.15

Adj NPL Ratio

4.71

4.46

4.18

3.86

4.71

4.46

4.18

3.86

Loans / Total Assets

42.2

41.5

42.6

42.8

42.2

41.5

42.6

42.8

Loans / Core Deposits

96.8

95.4

95.2

97.8

96.8

95.4

95.2

97.8

RWA % Total Assets

65.1

60.6

62.3

64.8

65.1

60.6

62.3

64.8

Core Tier I Ratio (%)

12.0

14.1

14.5

14.0

12.0

14.1

14.5

14.0

Dividend Payout (%)

21.5

15.0

15.0

20.0

21.5

15.0

15.0

20.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

3.4

2.9

2.4

2.0

3.3

2.8

2.3

1.9

48.4

13.0

10.7

9.8

47.2

11.3

10.3

9.4

1.3

1.0

1.2

1.7

1.3

1.2

1.2

1.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

5.34

5.61

6.11

6.84

0.42

0.42

0.42

0.48

38.45

43.79

49.00

54.49

2.94

2.97

3.47

3.77

DPS

1.15

0.84

0.92

1.37

0.09

0.06

0.06

0.10

Adj EPS

1.81

5.59

6.32

6.83

0.14

0.42

0.44

0.48

30.62

35.32

41.06

47.01

2.34

2.40

2.91

3.26

KEY RATIOS NIM Risk Charge Operating Revenue / ATA

Adj ROE (%)

MARKET RATIOS Adj. P/BV Adj. P/E Div Yield (%) PER SHARE DATA EPS BVPS

Adj BVPS Surplus Capital per Share Unrealized Cap. Gains/Shr

5.04

10.10

12.77

13.29

0.38

0.69

0.90

0.92

(1.34)

(1.37)

(1.37)

(1.37)

(0.10)

(0.09)

(0.09)

(0.09)

Grupo Financiero Banorte is Mexico’s third-largest financial institution, with M$1102 billion (US$74.7 billion) in total assets and a market share of approximately 14% of total assets among Mexican financial groups as of 4Q14E. The bank is active in commercial banking for medium and small enterprises and in retail banking for individuals. Historically, the bank has grown through acquisitions, the most recent transactions are the acquisition of Ixe, a corporate and investment banking group, the merger of its pension fund unit with Afore XXI and Bancomer's Afore and the buyout of minorities in its banking, insurance and annuities operations. After the passing of the bank's largest shareholder, the late Roberto González Barrera, the bank's control has passed to his heirs who proposed his grandson be appointed as Chairman of the group in early 2015.

Key Personnel: Guillermo Ortiz (Chairman), Marcos Ramirez (CEO), Rafael Arana (CFO), Ursula Wilhelm (IRO), Carlos Hank Gonzalez (Chairman Designate) and Rafael Arana (COO) Web: www.banorte.com

Loan Book, 2015E Public Sector 22.7%

Other Corporate/M 0.7% M 33.9%

Consumer 16.9%

Mortgage 19.1%

SMEs 6.7%

Revenue Structure, 2015E

Fees 16.4%

Insurance 9.0%

Other 10.2%

NII 57.9% Trading 6.5%

Shareholder Structure, Current Heirs to Don Roberto Gonzalez 11.8%

Free Float 88.2%

Sources for all charts and tables: Company reports and Santander estimates.

319

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—FINANCIAL SERVICES

BANREGIO

BUY CURRENT PRICE: M$71.82 TARGET PRICE: M$86.00

UPGRADING RATING TO BUY FROM UNDERPERFORM INTRODUCING YE2015 TARGET PRICE OF M$86.00; REPLACING YE2014 TARGET PRICE OF M$70.00 

Investment Case: We view current valuation levels as an attractive

Boris Molina

entry point. We believe Banregio’s underperformance should come

New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

to an end as a turnaround in rates should boost margins and profitability. Furthermore, we believe that middle-market companies, followed by SMEs, could be among the first to increase credit

Catalina Araya New York: Santander Investment Securities Inc. +1-212-297-1367 | [email protected]

demand to participate in the value chains related to the infrastructure and energy investment cycle that are expected in Mexico in 2015.



Outlook 2015: We expect loan growth to accelerate to 22% YoY, mainly driven by the SMEs as the Mexican economy reactivates with investments in infrastructure and energy. Meanwhile, we estimate that toward year end, we could see a turnaround after three years of margin compression, translating into earnings growth acceleration and improvement in profitability into 2016. We expect adjusted ROE to reach 23.8% in 2015, above our 2014 estimate of 19.7%.



Relaunching growth in Mexico City: Banregio’s growth story requires a successful expansion the Mexico D.F region, in our view; however, the bank’s regional managers and account officers have not delivered as we expected. Now, Banregio has hired new key

Company Statistics

executives with relevant experience to improve productivity across

Bloomberg

the branches and revamp its growth in the city.



GFREGIO MM

Current Price (01/02/15)

M$ 71.82 / US$ 4.84

Target Price (YE 2015)

M$ 86.00 / US$ 6.09

52-Week Range (M$)

68.04 - 80.48

Expanding leasing business: Banregio’s acquisition of equipment

Market Capitalization (US$ Mn)

financing of CIT Group (subject to approval) could add approximately

Float (%)

M$3.0 billion in the loan book and contribute nearly M$50 million in

1,588 18.5

3-Mth Avg. Daily Vol (US$ Mn)

3.0

Shares Outstanding - Mn

328

2015, according to our estimates. The new business offers crossselling opportunities for middle-market companies and potential to

Price Performance (M$) GFREGIO MM

add new clients from CIT’s existing lease portfolio.

MEXBOL

150 140



Reaping the benefits of the financial reform: Banregio started

130

offering mortgage refinancing now that mortgage portability from one

120

bank to another is simpler and less expensive process. We believe

110 100

that Banregio could benefit from this, as it provides an avenue to

90

grow the bank’s loan book while improving customer loyalty.

80

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

320

D-14

BANREGIO Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions

Company Description

2015E 4,507 (643) 3,864 1,014 4,877 (2,261) 2,616 (732) 1,884 1,801

2016E 5,174 (721) 4,453 1,173 5,626 (2,651) 2,975 (863) 2,113 2,064

2013A 266 (17) 249 54 304 (156) 148 (35) 112 100

US$ 2014E 287 (33) 255 61 315 (156) 159 (44) 126 96

2014E 2,628 47,729 52,344 392 108,475 43,795 50,738 0 0 9,538 9,510

2015E 2,591 55,089 63,974 392 128,115 51,810 59,089 0 0 11,116 11,176

2016E 3,029 62,425 76,022 392 148,630 60,587 67,373 0 0 12,861 13,017

2013A 207 3,295 3,373 21 7,248 2,783 3,511 0 0 605 634

2014E 178 3,236 3,549 27 7,355 2,970 3,440 0 0 647 645

2015E 183 3,900 4,529 28 9,070 3,668 4,183 0 0 787 791

2016E 210 4,324 5,266 27 10,296 4,197 4,667 0 0 891 902

2013A 31,933 1,023 4,476 8,313 45,745 22.5 703 (1,566)

2014E 42,351 1,283 4,824 5,295 53,754 17.5 909 (1,409)

2015E 53,141 1,480 5,298 5,780 65,699 22.2 1,150 (1,726)

2016E 64,170 1,637 5,735 6,512 78,054 18.8 1,355 (2,032)

2013A 2,438 78 342 635 3,493 20.9 54 (120)

2014E 2,872 87 327 359 3,645 4.4 62 (96)

2015E 3,762 105 375 409 4,651 27.6 81 (122)

2016E 4,445 113 397 451 5,407 16.2 94 (141)

2013A 3.98 0.52 4.34

2014E 3.92 0.90 4.11

2015E 4.07 1.10 4.20

2016E 3.95 1.01 4.12

2013A 3.98 0.52 4.34

2014E 3.92 0.90 4.11

2015E 4.07 1.10 4.20

2016E 3.95 1.01 4.12

Cost / ATAs

2.23

2.04

1.95

1.94

2.23

2.04

1.95

1.94

Adj Efficiency

43.2

37.7

33.6

34.2

43.2

37.7

33.6

34.2

Effective Taxes

10.7

28.0

28.0

29.0

10.7

28.0

28.0

29.0

Reported ROE (%)

18.6

19.1

18.2

17.7

18.6

19.1

18.2

17.7

Adj ROE (%)

23.1

19.7

23.8

22.7

23.1

19.7

23.8

22.7

NPL Ratio

1.54

1.69

1.75

1.74

1.54

1.69

1.75

1.74

Adj NPL Ratio

1.83

2.08

2.03

2.01

1.83

2.08

2.03

2.01

Loans / Total Assets

46.5

48.3

49.9

51.1

46.5

48.3

49.9

51.1

Loans / Core Deposits

121.2

119.5

123.5

125.5

121.2

119.5

123.5

125.5

RWA % Total Assets

60.9

61.0

62.1

62.9

60.9

61.0

62.1

62.9

Core Tier I Ratio (%)

14.4

14.5

14.1

14.0

14.4

14.5

14.1

14.0

Dividend Payout (%)

30.9

0.0

16.0

17.8

30.9

0.0

16.0

17.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

3.9

3.2

2.5

2.1

3.8

2.8

2.5

2.0

18.1

16.8

11.4

9.8

17.6

15.1

11.0

9.4

1.7

(0.0)

1.3

1.6

1.8

(0.0)

1.3

1.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

4.37

5.10

5.74

6.44

0.34

0.38

0.40

0.45

INCOME STATEMENT Net Interest Income NPL Provisions Adj Net Interest Income Non-Interest Income Total Operating Revenue Non-Interest Expense Profit Before Taxes Taxes Net Profit Adjusted Net Profit

2013A 3,393 (211) 3,182 693 3,875 (1,991) 1,884 (451) 1,433 1,272

BALANCE SHEET Cash and Equivalents Securities Loans (net) Intangible Assets Total Assets Core Deposits Other Financial Liabilities Subordinated Debt Technical Provisions Equity Adjusted Equity

2013A 2,712 43,148 44,179 276 94,924 36,453 45,975 0 0 7,922 8,299

LOAN BOOK Companies Total Consumer Mortgages Other Loans Gross Loans Loan Growth (%) NPL Provisions KEY RATIOS NIM Risk Charge Operating Revenue / ATAs

MARKET RATIOS Adj. P/BV Adj. P/E Div Yield (%) PER SHARE DATA EPS BVPS

M$ 2014E 3,821 (433) 3,388 807 4,195 (2,081) 2,115 (581) 1,673 1,281

2015E 312 (45) 268 70 338 (157) 181 (51) 130 125

2016E 362 (50) 312 82 394 (186) 208 (60) 148 145

24.16

29.09

33.90

39.22

1.84

1.97

2.40

2.72

DPS

1.35

0.00

0.92

1.15

0.11

0.00

0.06

0.08

Adj EPS

3.88

3.91

5.49

6.29

0.30

0.29

0.38

0.44

25.31

29.00

34.08

39.69

1.93

1.97

2.41

2.75

Surplus Capital per Share

7.52

8.71

9.26

10.27

0.57

0.59

0.66

0.71

Unrealized Cap. Gains/Shr

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Adj BVPS

321

Grupo Financiero Banregio is a regional bank, which focuses on SME and middle market lending. The bank started operations in the northern states of Mexico (Nuevo Leon) in 1994, and it has since expanded organically into other adjacent states in northern and central Mexico, including gaining a foothold in the Mexico City market. In 2011, the bank listed 18.4% of its shares in the Mexican stock market, in a transaction that included a capital increase of M$1,350 million (US$110 million).

Key

Personnel: Jaime Alberto Rivero Santos (Chairman), Manuel Gerardo Rivero Santos (CEO), Alejandro de Lascurrain Morhan (CFO) and Enrique Navarro (IRO) Web: www.banregio.com Loan Portfolio, 2015E

Consumer 2.3%

Mortgages 8.1%

Others 8.8%

Companies 80.9%

Revenue Breakdown, 2015E

Trading 3.7%

Fees 6.5%

Others 10.6%

NII 79.2%

Shareholder Structure, Current Other minority shareholder s 33.5%

Free Float 18.5%

Rivero Santos Family 28.0%

Other 3 controlling families 20.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—FINANCIAL SERVICES

BOLSA MEXICANA DE VALORES

HOLD CURRENT PRICE: M$25.35 TARGET PRICE: M$28.00

LOWERING YE2015 TARGET PRICE TO M$28.00 FROM M$32.00 

Investment Case: We expect a slow recovery in trading volumes in

Boris Molina

both equities and derivatives and a ramp-up in technology

New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

investments, which could pressure EBITDA margins, in our view. Furthermore, following the year-end 2014 correction, we expect the stock to trade more in-line with its historical P/E average of 19.0x.



Catalina Araya New York: Santander Investment Securities Inc. +1-212-297-1367 | [email protected]

Outlook 2015: We forecast limited adjusted net income growth (+5% YoY) during 2015, mainly due to rising expenses stemming from (1) investments in data sales and post-trade services IT platforms; (2) regulatory pressures; (3) financial expenses on the debt assumed to buy Indeval; (4) lower mutual fund listing income; and (5) weak growth in equity and derivatives volumes. On the positive side, we expect a recovery in capital markets activity driven by infrastructure, real estate and energy investments.



New Chairman and CEO: Following the resignation of Luis Tellez, Jaime Ruiz Sacristan and José Oriol Bosch Par, were elected Chairman and CEO, respectively, both bringing over 60 years of combined experience in the financial industry. We view these appointments positively: the company has now split of these roles in

Company Statistics

accordance to best corporate governance practices. In addition, Mr.

Bloomberg

Bosch, former CEO of JP Morgan Casa de Bolsa, has extensive

BOLSAA MM

Current Price (01/02/15)

M$ 25.35 / US$ 1.71

Target Price (YE 2015)

M$ 28.00 / US$ 1.98

experience as a user of Bolsa’s services, which should provide

52-Week Range (M$)

practical knowledge of the areas in need of improvement, in our view.

Market Capitalization (US$ Mn)

22.99 - 30.52 1,013

Float (%)



Will volumes return? We expect a partial recovery in both equities

60.7

3-Mth Avg. Daily Vol (US$ Mn)

2.3

Shares Outstanding - Mn

593

and derivatives volumes in 2015, as the economy reactivates; however, we expect revenue growth to be driven by other “non-core”

BOLSAA MM

segments such as custody and information services.



Price Performance (M$) MEXBOL

110 100

Potential acquisition target? Not really. Edimir Pinto, CEO of BM&FBovespa, announced in late November that Bovespa will try to

90

acquire a minority stake in Bolsa to gain a seat on the Board. We do

80

not believe that BMVF’s intentions provide upside risks, as we expect

70

it to run into resistance as such an acquisition would need the

60

approval of both Bolsa’s board and the Mexican government. 322

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

D-14

BOLSA MEXICANA DE VALORES Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions

Company Description

INCOME STATEMENT Equities Derivatives Other Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) Profit Before Taxes Taxes Net Profit Growth (%)

2013A 719 530 1,016 2,265 9.8 1,070 4.7 1,013 3.7 1,100 (286) 768 12.5

M$ 2014E 679 625 1,087 2,391 5.5 1,144 6.9 1,087 7.2 1,149 (339) 770 0.2

BALANCE SHEET Cash and Equivalents Accounts Receivable Intangible and Deferred Asse Tangible Assets Total Assets ST Debt LT Debt Equity Net Debt (Cash)

2013A 2,092 512 1,464 439 6,072 21 20 5,555 (2,051)

2014E 1,798 597 2,751 565 7,011 15 650 5,676 (1,133)

2015E 1,812 661 2,806 826 7,413 4 951 5,741 (857)

2016E 1,842 768 2,867 817 7,609 4 947 5,873 (891)

2013A 160 39 112 34 464 2 2 424 (157)

2014E 122 41 187 38 475 1 44 385 (77)

2015E 128 47 199 58 525 0 67 406 (61)

2016E 128 53 199 57 527 0 66 407 (62)

CASH FLOW Changes in Working Capital Operating Cash Flow Capital Expenditures Change in Debt Free Cash Flow to Equity Cash Dividends Capital Increase (Decrease)

2013A (256) 826 (20) 0 514 (696) (13)

2014E (398) 822 (732) 687 67 (711) (43)

2015E (64) 829 (318) 290 714 (731) 0

2016E (91) 900 (50) (4) 755 (756) 0

2013A (20) 65 (2) 0 40 (55) (1)

2014E (30) 62 (55) 52 5 (53) (3)

2015E (4) 57 (22) 20 49 (51) 0

2016E (6) 63 (4) (0) 53 (53) 0

OPERATING RATIOS ADTV ADTC EBITDA Margin

2013A 14,816 27 47.2

2014E 12,089 30 47.8

2015E 13,314 34 46.8

2016E 15,578 35 48.0

2013A 14,816 27 47.2

2014E 12,089 30 47.8

2015E 13,314 34 46.8

2016E 15,578 35 48.0

26.0

29.5

29.0

29.0

26.0

29.5

29.0

29.0

Effective Tax Rate

2015E 707 684 1,181 2,572 7.6 1,203 5.2 1,146 5.5 1,177 (341) 796 3.4

2016E 794 719 1,303 2,816 9.5 1,353 12.5 1,294 12.9 1,313 (381) 888 11.6

2013A 56 42 80 178 13.2 84 8.0 79 6.9 86 (22) 60 16.0

US$ 2014E 51 47 82 180 1.2 86 2.5 82 2.8 86 (25) 58 (3.9)

2015E 49 47 82 178 (0.8) 83 (3.0) 79 (2.8) 82 (24) 55 (4.7)

2016E 56 50 91 197 10.7 95 13.7 91 14.2 92 (27) 62 12.8

Net Margin

33.9

32.2

31.0

31.5

33.9

32.2

31.0

31.5

Net Debt / EBITDA

(1.9)

(1.0)

(0.7)

(0.7)

(1.9)

(1.0)

(0.7)

(0.7)

Net Debt / Equity

(0.4)

(0.2)

(0.1)

(0.2)

(0.4)

(0.2)

(0.1)

(0.2)

FCFE / Revenues

22.7

2.8

27.8

26.8

22.7

2.8

27.8

26.8

ROAA

12.8

11.8

11.0

11.8

13.1

12.3

11.0

11.8

ROAE

14.0

13.7

13.9

15.3

14.3

14.3

13.9

15.3

Payout

102.0

92.5

95.0

95.0

105.2

88.7

85.5

94.7

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

23.1

20.6

18.9

16.9

22.5

18.6

18.4

16.3

P/CE

21.5

19.2

17.6

15.9

21.0

17.3

17.2

15.3

FV/EBITDA

15.2

13.7

12.6

11.3

14.8

12.4

12.3

10.9

FCFE Yield (%)

2.9

0.4

4.8

5.0

3.0

0.5

4.9

5.2

P/BV

3.2

2.8

2.6

2.6

3.2

2.8

2.5

2.5

Div Yield (%)

3.9

4.5

4.9

5.0

4.0

5.0

5.0

5.2

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.30

1.30

1.34

1.50

0.10

0.10

0.09

0.10

CEPS

1.39

1.39

1.44

1.60

0.11

0.10

0.10

0.11

FCFPS

0.87

0.11

1.20

1.27

0.07

0.01

0.09

0.09

BVPS

9.37

9.57

9.68

9.90

0.72

0.65

0.69

0.69

DPS

1.18

1.10

1.23

1.28

0.09

0.08

0.09

0.09

Bolsa Mexicana de Valores (BMV) is a vertically integrated exchange that operates in the Mexican financial markets. The company was formed through the consolidation of the main market infrastructure via a series of acquisitions funded with the proceeds of its June 2008 IPO. The company operates the trading platforms for listed equities and derivatives, as well as OTC trading marketplaces for fixed income and derivative instruments. BMV also provides central counterparty services for equities and derivatives, clearing and settlement services, and is the sole authorized depository institution in Mexico for all the securities registered in the national securities registry. The company has an order routing agreement with the Chicago Mercantile Exchange for its derivatives products. The exchange is controlled by the main brokers in the Mexican market via a trust that controls around 35% of the shares in the company.

Key Personnel: Jaime Ruíz Sacristán (Chairman), José Oriol Bosch Par (CEO), Ramon Guemez (CFO) and Miriam Kai (IRM) Web: www.bmv.com.mx

Total Revenue, 2015E

Others 13.7%

Custody 20.1%

Issuers 22.7%

Cash Equities 20.1%

OTC (SIF Icap) 15.4%

Derivatives 8.0%

Valuation Breakdown, 2015E

Net Debt 5.2%

Terminal Value NPV 40.0%

NPV FCFE 54.8%

Shareholder Structure, Current

Control Trust 36.4%

Free Float 60.7%

CME BME 1.9% 1.0%

Sources for all charts and tables: Company reports and Santander estimates.

323

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—CEMENT, CONSTRUCTION, INFRA & RE

CEMEX

BUY CURRENT PRICE: US$9.86 TARGET PRICE: US$15.50



Investment Case: Cemex currently trades at a 2015E FV/EBITDA

Toe Matsumura*

multiple of 9.0x, which compares favorably to the 9.5x of Holcim and

Mexico: Banco Santander S.A. +5255-5257-8172 | [email protected]

10.4x of Lafarge. We see a potential price appreciation of 57%, fueled by good prospects for improved profitability, mostly driven by a recovery in the U.S. economy and higher growth in Mexico.



Outlook 2015: We expect an 8% increase in net sales, operating EBITDA growth of 17%, and net losses of 85%. We forecast net debt to EBITDA reaching 4.6x, a significant improvement compared to the 6.2x at YE2013.



Growth in the U.S. economy should be a major driver: GDP in the U.S. has been growing, and this growth has brought a turnaround in construction activity. We believe this could drive an increase in cement sales, which should benefit Cemex, especially in light of its operating leverage advantage, which we expect to amplify the growth of EBITDA. For 2015, we expect sales in the U.S. to increase by 17% and represent 25% of consolidated net sales. We also expect U.S. EBITDA to grow by 74% and to represent 21% of consolidated Company Statistics

EBITDA.

Bloomberg



CX US / CEMEXCPO MM

Current Price (01/02/15)

US$ 9.86 / M$ 14.68

Target Price (YE 2015)

US$ 15.50 / M$ 22.99

recent fall in oil prices has created concerns about possible delays in

52-Week Range (US$)

9.86 - 13.59

infrastructure spending and lower GDP growth in Mexico. But we see

Market Capitalization (US$ Mn)

Buffers against the effect of falling oil prices on Mexico: The

growth in construction being driven by sources other than infrastructure. The recovery in the U.S. has and should continue to

12,264

Float (%)

97.0

3-Mth Avg. Daily Vol (US$ Mn)

129.3

Shares Outstanding - Mn

1,244

increase industrial activity in Mexico in sectors like automotive, aerospace and electronics, in our view. So, Cemex should benefit

Price Performance (US$) CX US

from this economic revival, in our view, with increased sales in all its

150

product lines. For 2015, we expect Mexico sales to grow 11% and to

140

represent 20% of consolidated. We also expect Mexico EBITDA to grow 14% and represent 32% of consolidated EBITDA.

MEXBOL

130 120 110 100



Discipline with debt: Cemex has been able to continue its path

90

towards returning to investment grade, and is fully committed to

80

achieving this goal in the next few years.

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

324

d-14

CEMEX Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 204,338 1.6 63,543 6.8 35,458 0.8 17.4 15,255 30.8 7.5 (18,807) (6,502) (10,054) 13.2 (4.9)

M$ 2014E 2015E 218,149 234,825 6.8 7.6 67,082 73,970 5.6 10.3 38,819 45,304 9.5 16.7 17.8 19.3 17,184 23,483 12.6 36.7 7.9 10.0 (16,749) (16,139) (5,281) (8,080) (4,846) (736) 51.8 84.8 (2.2) (0.3)

2016E 252,982 7.7 81,019 9.5 53,173 17.4 21.0 25,429 8.3 10.1 (15,408) (8,145) 1,875 n/m 0.7

2013A 15,219 1.6 4,733 6.8 2,641 0.8 17.4 1,136 30.8 7.5 (1,401) (484) (749) 13.2 (4.9)

US$ 2014E 16,247 6.8 4,996 5.6 2,891 9.5 17.8 1,280 12.6 7.9 (1,247) (393) (361) 51.8 (2.2)

Company Description 2015E 17,489 7.6 5,509 10.3 3,374 16.7 19.3 1,749 36.7 10.0 (1,202) (602) (55) 84.8 (0.3)

2016E 18,842 7.7 6,034 9.5 3,960 17.4 21.0 1,894 8.3 10.1 (1,148) (607) 140 n/m 0.7

2013A 15,110 0 2,739 7,795 1,558 4,644 0 0 0

2014E 16,546 0 3,031 14,731 2,215 304 0 0 0

2015E 17,125 0 3,335 19,723 2,417 334 0 (680) 0 0

2016E 22,685 0 3,350 27,909 2,215 6,598 0 (680) 0 0

2013A 1,125 0 204 581 116 346 0 0 0

2014E 1,232 0 226 1,097 165 23 0 0 0

2015E 1,275 0 248 1,469 180 25 0 (51) 0 0

2016E 1,690 0 249 2,079 165 491 0 (51) 0 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 15,615 71,042 439,412 510,454 61,282 296,572 152,600 234,566 4,563

2014E 11,643 70,326 435,420 505,745 65,343 286,174 154,229 226,237 6,595

2015E 7,137 69,077 432,208 501,284 64,990 282,802 153,493 217,106 6,321

2016E 10,928 76,137 423,749 499,886 64,636 279,882 155,368 207,976 6,048

2013A 1,163 5,291 32,727 38,018 4,564 22,088 11,365 17,470 340

2014E 867 5,238 32,429 37,667 4,867 21,314 11,487 16,850 491

2015E 532 5,145 32,190 37,335 4,840 21,063 11,432 16,170 471

2016E 814 5,671 31,560 37,231 4,814 20,845 11,572 15,490 450

LT Debt

230,002

219,641

210,785

201,929

17,130

16,358

15,699

15,039

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

218,951

214,594

209,969

197,048

16,307

15,983

15,638

14,676

Capital Employed

449,172

440,403

436,295

435,250

33,453

32,800

32,494

32,417

Net Debt/EBITDA

6.2

5.5

4.6

3.7

6.2

5.5

4.6

3.7

FINANCIAL RATIOS

Net Debt/Equity

1.4

1.4

1.4

1.3

1.5

1.5

1.4

1.3

(0.8)

(1.0)

(1.0)

(0.9)

(0.8)

(1.0)

(1.0)

(0.9)

Int Cover (%)

1.7

2.0

2.6

3.1

1.7

2.0

2.6

3.1

Dividend Payout (%)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Capex/Revenue (%)

ROCE (%) ROE (%) MARKET RATIOS

4.8

5.1

7.2

7.7

4.9

5.5

7.3

7.7

(6.4)

(3.2)

(0.5)

1.2

(6.5)

(3.3)

(0.5)

1.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

-

-

-

n/m

-

-

-

n/m

P/CE

-

-

-

-

-

-

-

-

FV/EBITDA

11.5

10.8

9.0

7.5

11.6

10.3

8.6

7.1

FV/EBIT

20.0

18.8

14.5

13.0

20.2

18.0

13.9

12.4

FV/Revenue

2.0

1.9

1.7

1.6

2.0

1.8

1.7

1.5

P/BV

1.1

1.2

1.2

1.2

1.1

1.1

1.1

1.1

FCF Yield (%)

2.7

0.2

0.2

3.6

2.7

0.2

0.2

4.0

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

(9.60)

(4.37)

(0.59)

1.51

(6.47)

(2.95)

(0.40)

1.02

Div Yield (%)

DPS BVPS

0

0

0

0

0

0

0

0

101.67

94.83

94.38

95.53

9.01

8.40

8.36

8.46

325

Cemex is the third largest cement producer in the world, with 96 million metric tonnes per year of cement production capacity. The company is engaged in the production, distribution, marketing, and sale of cement, ready-mix concrete, aggregates, and clinker. Cemex has operations and is the market leader in Mexico, the U.S., Spain, the Philippines, Colombia, Puerto Rico, and Egypt. It also has a significant presence in Central America and the Caribbean, as well as in Thailand, the United Kingdom, Germany, France, and Eastern Europe. Cemex’s most widely known shareholders are the Zambrano family, as well as Cemex senior management and employees, who hold an estimated 3% of Cemex’s outstanding shares. Stock trades on the Mexican Stock Exchange and the NYSE in the form of ADRs.

Key Personnel: Rogelio Zambrano (Chairman), Fernando A. González (CEO), José Antonio González (CFO) and Maher Al-Haffar (Executive VP Investor Relations, Communications and PR) Web: www.cemex.com

Sales by Region, 2013A South CA & Caribbean 15.0%

Mediterrane an 10.2%

Asia 3.9%

Northern Europe 27.4%

Mexico 21.4%

USA 22.2%

EBITDA by Region, 2013A South CA & Caribbean 27.9%

Asia 4.6%

Mexico 35.5% Mediterrane an Northern 11.4% Europe 11.7%

USA 9.0%

Shareholder Structure, Current Zambrano Family and controlling group 3.0%

Free Float 97.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—RETAIL & CONSUMER GOODS

CHEDRAUI

HOLD CURRENT PRICE: M$41.18 TARGET PRICE: M$48.00

LOWERING YE2015 TARGET PRICE TO M$48.00 FROM M$51.00 

Investment Case: We remain positive on the company’s long-term

Reinaldo Santana*

outlook, and we are encouraged by its recent market share gains.

Mexico: Banco Santander S.A. +5255-5269-2102 | [email protected]

However, we see risk from potential dilutive acquisitions, while its premium valuation relative to peers suggests more limited upside from current levels.



Jens Spiess*, CFA Mexico: Banco Santander S.A. +5255-5269-1931 | [email protected]

João Mamede*

Outlook 2015: We expect SSS to increase by 3.5% in Mexico in

Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

2015, reflecting further market share gains and a better consumption outlook in Mexico. We now assume very little selling space growth for Chedraui in Mexico (up only 2.2% YoY), not offset by higher-thananticipated new unit expansion in the U.S. We expect revenue to grow by 6.5% and EBITDA to increase by 6.8% in 2015; thus we assume stable operating margins.



Potential M&A activity: We see increasing risk of dilutive acquisitions for Chedraui, as the company plans to participate in the consolidation of the food retail sector in Mexico. Despite a weak consumption environment, valuations remain high for the players potentially for sale, which could translate into dilutive acquisitions for Company Statistics

Chedraui.

Bloomberg



Lowering our target price to M$48.00: We are reducing our target price by M$3.00 to M$48.00, as we made minor downward



CHDRAUIB MM

Current Price (01/02/15)

M$ 41.18 / US$ 2.78

Target Price (YE 2015)

M$ 48.00 / US$ 3.75

52-Week Range (M$)

35.33 - 48.65

adjustments to our estimates, especially on the company’s limited

Market Capitalization (US$ Mn)

selling space growth in 2015E.

Float (%)

Premium valuations suggest limited upside: Chedraui trades at a 21x P/E for 2015E, which represents a premium to LatAm retail peers. Our target price of M$48 is based on a DCF analysis

2,676 16.0

3-Mth Avg. Daily Vol (US$ Mn)

1.4

Shares Outstanding - Mn

964

Price Performance (M$) CHDRAUIB MM

MEXBOL

120

assuming a WACC of 8.5% and perpetuity growth of 3.5%. This target price considers more limited upside potential and a more conservative EPS forecast.

110

100

90

80

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

326

d-14

CHEDRAUI Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 66,364 3.8 13,402 6.5 4,438 4.4 6.7 3,106 5.0 4.7 (916) 482 1,645 9.5 2.5

M$ 2014E 70,555 6.3 14,249 6.3 4,667 5.1 6.6 3,405 9.6 4.8 (847) 786 1,729 5.1 2.5

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (1,332) 613 3,590 (2,464) 1,674 (1,160) (472) -

2014E (1,262) (293) 2,698 (1,730) 158 983 0 -

2015E (1,284) 268 3,479 (1,869) 655 (1,104) (251) -

2016E (1,313) 180 3,747 (2,149) 1,191 (552) (289) -

2013A (104) 48 281 (193) 131 (91) (37) -

2014E (96) (22) 205 (131) 12 75 0 -

2015E (97) 20 264 (142) 50 (84) (19) -

2016E (100) 14 287 (164) 91 (42) (22) -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 443 10,653 31,425 45,479 14,506 9,323 21,650 5,078 640

2014E 957 11,892 31,964 47,138 16,855 6,805 23,478 6,061 2,749

2015E 258 11,706 32,549 47,650 17,606 4,438 25,607 4,957 2,749

2016E 607 12,986 33,384 49,882 18,684 3,254 27,945 4,405 2,749

2013A 34 814 2,402 3,476 1,109 713 1,655 388 49

2014E 73 901 2,422 3,571 1,277 516 1,779 459 208

2015E 20 915 2,543 3,723 1,375 347 2,001 387 215

2016E 47 1,015 2,608 3,897 1,460 254 2,183 344 215

3,971

3,000

2,000

1,500

303

227

156

117

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

LT Debt FINANCIAL RATIOS Net Debt

2015E 75,111 6.5 15,170 6.5 4,984 6.8 6.6 3,700 8.7 4.9 (837) 916 1,927 11.4 2.6

2016E 81,526 8.5 16,464 8.5 5,408 8.5 6.6 4,095 10.7 5.0 (747) 1,071 2,253 16.9 2.8

2013A 5,199 7.0 1,050 9.7 348 7.6 6.7 243 8.2 4.7 (72) 38 129 12.9 2.5

US$ 2014E 5,351 2.9 1,081 2.9 354 1.8 6.6 258 6.1 4.8 (64) 60 131 1.8 2.5

2015E 5,696 6.4 1,150 6.4 378 6.8 6.6 281 8.7 4.9 (63) 69 146 11.4 2.6

2016E 6,235 9.5 1,259 9.5 414 9.5 6.6 313 11.6 5.0 (57) 82 172 17.9 2.8

4,635

5,103

4,699

3,798

354

387

367

297

Capital Employed

30,973

30,283

30,044

31,198

2,367

2,294

2,347

2,437

Net Debt/EBITDA

1.0

1.1

0.9

0.7

1.0

1.1

1.0

0.7

Net Debt/Equity

0.2

0.2

0.2

0.1

0.2

0.2

0.2

0.1

Capex/Revenue (%)

3.7

2.5

2.5

2.6

3.7

2.5

2.5

2.6

Int Cover (%)

4.5

5.2

5.8

7.2

4.5

5.2

5.8

7.2

Dividend Payout (%)

31.4

0.0

14.5

15.0

32.4

0.0

13.1

15.0

ROCE (%)

10.4

10.3

10.5

10.7

10.6

11.6

10.6

10.7

7.8

7.7

7.9

8.4

8.0

8.0

7.9

8.4

ROE (%) MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

27.0

23.6

20.6

17.6

26.3

21.1

18.3

15.5

P/CE

14.9

13.6

12.4

11.1

14.6

12.2

11.0

9.8

FV/EBITDA

11.1

9.9

9.0

8.1

10.8

9.0

8.1

7.3

FV/EBIT

15.9

13.6

12.1

10.7

15.5

12.3

10.9

9.6

FV/Revenue

0.7

0.7

0.6

0.5

0.7

0.6

0.5

0.5

P/BV

2.1

1.7

1.6

1.4

2.1

1.6

1.3

1.2

FCF Yield (%)

3.8

0.4

1.7

3.0

3.9

0.4

1.9

3.4

Div Yield (%)

1.1

(0.0)

0.6

0.7

1.1

(0.0)

0.7

0.8

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.71

1.79

2.00

2.34

0.13

0.14

0.15

0.18

DPS

0.49

0

0.26

0.30

0.04

0

0.02

0.02

22.46

24.36

26.57

28.99

1.72

1.85

2.08

2.26

BVPS

327

Chedraui is the third largest food retailer in Mexico, with a market share that we estimate was 8% in 2013. While the Mexican retail operation represents the bulk of the business (77% of sales and 76% of EBITDA), it also has a food retail operation in the U.S. (22% of sales and 15% of the EBITDA) as well as a real estate business in Mexico (1% of sales and 9% of EBITDA). The company ended Q3 2014 with 261 stores and 1,413,749 square meters.

Key Personnel: Antonio Chedraui (CEO), Rafael Contreras (CFO) and Arturo Velázquez (IRO) Web: www.chedraui.com.mx

Sales by Division, 2014E

USA 22.2%

RE 0.9%

Mexico 76.9%

Market Share Food Retailers, 2013A

Chedraui 7.6% Comerci 6.9%

Ley 3.4%

Others 12.2%

Soriana 15.9%

Walmex 54.0%

Shareholder Structure, Current Chedraui Family / Managemen t 31.0%

Free Float 16.0%

Control Trust 53.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—FOOD & BEVERAGE

COCA-COLA FEMSA

HOLD CURRENT PRICE: M$126.69 TARGET PRICE: M$148.00

INTRODUCING YE2015 TARGET PRICE OF M$148.00; REPLACING YE2014 TARGET PRICE OF M$158.00 

Investment Case: We see 2015 as a very challenging year for KOF.

Luis Miranda*, CFA

On the positive side, Mexico (51% of volume) should post healthy

Mexico: Banco Santander S.A. +5255-5269-1926 | [email protected]

results, with volume recovering after the decline we expect in 2014 due to the excise tax on sugar-added drinks. Additionally, despite the weak outlook for the Brazilian economy (21% of volume), we expect

Jens Spiess*, CFA Mexico: Banco Santander S.A. +5255-5269-1931 | [email protected]

the new plant to allow the company to continue growing with a higher presence in returnables. This should lead to margin expansion in the company’s key markets, in our view. However, on the negative side, KOF is highly exposed to Venezuela (close to 18% of EBITDA), where inflationary and devaluation risks are accelerating. The company has been able to deliver strong, profitable results, but we believe that in the short to medium term such results are unsustainable. Therefore, we maintain a cautious view on the stock until we have clearer visibility on the outlook for the Venezuelan operation.



Outlook 2015: We estimate a lackluster consolidated 2015 for the company, as we are working with an exchange rate for Venezuela operations of 25 Venezuelan bolivars/USD, which basically eliminates 10% of the company’s EBITDA. We consolidated sales growth of 4.8% with EBITDA growth of 2% in peso terms. However,



Company Statistics Bloomberg

KOFL MM / KOF US

Current Price (01/02/15)

M$ 126.69 / US$ 85.46

in the medium term, we expect a 2013-16E CAGR for EBITDA and

Target Price (YE 2015)

M$ 148.00 / US$ 109.00

net income of 7.9% and 6.9% in peso terms.

52-Week Range (M$)

124.12 - 156.98

Market Capitalization (US$ Mn)

Venezuela: As noted above, we expect that Venezuela’s operating results will become less important in the short to medium term, due to the impact of a potential devaluation of the bolivar on KOF’s financials.

17,705

Float (%)

20.6

3-Mth Avg. Daily Vol (US$ Mn)

7.3

Shares Outstanding - Mn

2,073

Price Performance (M$) KOFL MM

MEXBOL

120



Key themes for 2015: (1) Venezuela: impact of currency outlook for

110

KOF

recognition of

100

devaluation; (2) volume recovery in Mexico after impact of excise

90

taxes in 2014; (3) volume recovery in Brazil due to stronger

80

penetration in returnables; (4) evolution of Philippines operations;

70

and (5) evolution of Colombia’s volume as penetration strategy

60

financials

and potential recovery after

continues.

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

328

d-14

COCA-COLA FEMSA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 150,556 1.9 70,226 2.3 27,784 1.5 18.5 20,724 (3.2) 13.8 3,694 (5,530) 11,262 (16.0) 7.5

M$ 2014E 166,470 10.6 77,890 10.9 31,576 13.6 19.0 23,216 12.0 13.9 6,475 (4,765) 11,558 2.6 6.9

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (7,027) (582) (861) 18,009 (11,463) 6,546 (42,049) 30,548 (3,006) -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt LT Debt

Company Description

2015E 174,468 4.8 82,105 5.4 32,206 2.0 18.5 23,122 (0.4) 13.3 6,134 (5,266) 11,155 (3.5) 6.4

2016E 185,286 6.2 87,963 7.1 34,933 8.5 18.9 25,344 9.6 13.7 4,377 (6,500) 13,768 23.4 7.4

2013A 11,794 5.0 5,501 5.5 2,177 4.6 18.5 1,623 (0.3) 13.8 289 (433) 882 (13.4) 7.5

US$ 2014E 12,531 6.2 5,863 6.6 2,377 9.2 19.0 1,748 7.6 13.9 487 (359) 870 (1.4) 6.9

2014E (8,385) 406 7,910 27,446 (11,292) 16,154 (4,976) 1,801 (9,017) -

2015E (9,084) (1,361) (90) 21,511 (9,104) 12,407 (628) (1,373) (6,628) -

2016E (9,589) (411) (136) 23,633 (8,440) 15,193 (742) (192) (6,959) -

2013A (550) (46) (67) 1,411 (898) 513 (3,294) 2,393 (235) -

2014E (631) 31 595 2,066 (850) 1,216 (375) 136 (679) -

2015E (649) (97) (6) 1,536 (650) 886 (45) (98) (473) -

2016E (682) (29) (10) 1,680 (600) 1,080 (53) (14) (495) -

2013A 15,306 43,231 173,434 216,665 32,398 67,114 113,111 60,462 3,586

2014E 19,243 44,733 174,704 219,438 35,970 60,180 111,392 61,862 1,682

2015E 23,021 49,291 173,994 223,285 36,623 58,843 115,919 60,489 1,646

2016E 30,322 57,632 173,408 231,040 37,556 58,623 122,729 60,297 1,674

2013A 1,170 3,304 13,255 16,559 2,476 5,129 8,645 4,621 274

2014E 1,355 3,150 12,303 15,453 2,533 4,238 7,844 4,356 118

2015E 1,693 3,624 12,794 16,418 2,693 4,327 8,523 4,448 121

2016E 2,156 4,098 12,331 16,430 2,671 4,169 8,727 4,288 119

56,875

60,180

58,843

58,623

4,347

4,238

4,327

4,169 2016E

2015E 12,457 (0.6) 5,862 (0.0) 2,299 (3.3) 18.5 1,651 (5.5) 13.3 438 (376) 796 (8.5) 6.4

2016E 13,173 5.7 6,254 6.7 2,483 8.0 18.9 1,802 9.1 13.7 311 (462) 979 22.9 7.4

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

Net Debt

45,156

42,619

37,467

29,975

3,451

3,001

2,755

2,132

Capital Employed

184,267

183,468

186,662

193,484

14,083

12,920

13,725

13,759

Net Debt/EBITDA

1.6

1.3

1.2

0.9

1.6

1.3

1.2

0.9

Net Debt/Equity

0.4

0.4

0.3

0.2

0.4

0.4

0.3

0.2

Capex/Revenue (%)

7.6

6.8

5.2

4.6

7.6

6.8

5.2

4.6

8.4

5.5

5.7

6.8

8.4

5.5

5.7

6.8

Dividend Payout (%)

Int Cover (%)

22.4

80.1

57.3

62.4

23.1

76.8

51.4

61.9

ROCE (%)

14.3

15.9

15.2

16.5

14.6

17.2

15.3

16.5

ROE (%)

10.5

10.3

9.8

11.5

10.7

10.7

9.8

11.5

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

29.4

22.9

23.6

19.1

28.6

20.6

22.2

18.1

P/CE

18.1

13.3

13.0

11.2

17.6

11.9

12.3

10.7

FV/EBITDA

13.9

10.0

9.6

8.7

13.6

9.1

9.2

8.3

FV/EBIT

18.7

13.7

13.4

11.9

18.2

12.4

12.8

11.4

FV/Revenue

2.6

1.9

1.8

1.6

2.5

1.7

1.7

1.6

P/BV

2.9

2.4

2.3

2.1

2.9

2.3

2.1

2.0

FCF Yield (%)

2.0

6.1

4.7

5.8

2.0

6.8

5.0

6.1

Div Yield (%)

0.9

3.4

2.5

2.6

0.9

3.8

2.7

2.8

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

5.43

5.58

5.38

6.64

8.55

8.39

7.69

11.01

DPS

1.46

4.35

3.20

3.36

2.28

6.55

4.57

4.77

54.57

53.74

55.92

59.21

83.41

75.69

82.24

84.20

BVPS

329

Coca-Cola FEMSA is the largest publicly traded bottler outside the U.S. for the Coca-Cola Company, accounting for almost 10% of the Coca-Cola Company’s global sales volume. It produces, distributes, and markets proprietary Coke brands, including non-carbonated beverages, along with bottled water and other beverages. KOF operates across Latin America through two divisions: Mexico and Central America (55% of volume for 2014E including Mexico, Guatemala, Nicaragua, Costa Rica, and Panama), and South America, 45% of volume (23% from Brazil, 9% from Colombia, 7% from Argentina, and 7% from Venezuela). Additionally, the company recognizes through the equity method their 51% exposure to the Philippines.

Key Personnel: José Antonio Fernández Carbajal (Chairman), John Santa Maria Otazua (CEO), Héctor Treviño (CFO) and Roland Karig (IR Director) Web: www.coca-colafemsa.com

Sales Volume by Division, 2015E

South America 56.0%

Mexico & CA 44.0%

EBITDA by Division, 2015E

South America 47.7%

Mexico & CA 57.5%

Shareholder Structure, Current

The Coca Cola Company 29.4%

Femsa 48.9%

Free Float 21.7%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—RETAIL & CONSUMER GOODS

COMERCI

UNDERPERFORM CURRENT PRICE: M$49.80 TARGET PRICE: M$50.00

LOWERING YE2015 TARGET PRICE TO M$50.00 FROM M$52.00 



Investment Case: We maintain our Underperform rating on Comerci

Reinaldo Santana*

due to what we consider its unsustainably high valuation ratios.

Mexico: Banco Santander S.A. +5255-5269-2102 | [email protected]

Outlook 2015: We are incorporating a noteworthy recovery in comp sales in 2015E (up 4.0% YoY) due to a consumption recovery in Mexico

and

market

share

gains,

especially

in

Comerci’s

neighborhood supermarket formats. However, we do not expect the

Jens Spiess*, CFA Mexico: Banco Santander S.A. +5255-5269-1931 | [email protected]

João Mamede* Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

company to accelerate its organic growth expansion, and we are not assuming any gains in operating margins, as most supply chain efficiencies have already been achieved, in our view. We expect EBITDA to increase by only 5.3% and EPS to rise 5.4% in 2015.



No news on the M&A front: Roughly one year has passed since Comerci announced it was seeking M&A alternatives that included selling the company or forming an association, but there has been no news. Although we think Comerci is solidly differentiated from peers commercially, with positive results, we believe the longer it takes to accomplish such a deal, the worse for Comerci’s pending growth and strategic plans. Company Statistics



Slight reduction in our target price: We lowered our target price by

Bloomberg

4% to M$50, as we have reduced our estimates to reflect weaker-

Current Price (01/02/15)

M$ 49.80 / US$ 3.36

Target Price (YE 2015)

M$ 50.00 / US$ 3.91

than-anticipated SSS and selling space growth in 2014-16E.



COMERUBC MM

52-Week Range (M$)

45.91 - 55.67

Market Capitalization (US$ Mn)

Premium valuation incorporates a possible sale: Even after the

Float (%)

recent correction, Comerci trades at a hefty valuation, at a 22.3x P/E

3-Mth Avg. Daily Vol (US$ Mn)

for 2015E in U.S. dollars. This represents a premium to LatAm peers, and it incorporates a possible M&A transaction, in our view.

3,648 41.0 2.5

Shares Outstanding - Mn

1,087

Price Performance (M$) COMERUBC MM

MEXBOL

130 120 110 100 90 80

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

330

d-14

COMERCI Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description Comerci is the fourth largest player in the Mexican formal food retailing industry. With 1.3 million square meters in retail space, Comerci has a nationwide presence (stronger in central Mexico), operating supermarkets, hypermarkets, and bodega store concepts, in addition to restaurants. Following a problem with derivatives in 2008, which brought the company to the brink of bankruptcy, in August 2010 an agreement was reached with most creditors for a financial restructuring, making the company viable from an operating perspective. In July 2012, Comerci sold its 50% stake in Costco Mexico to pay down more liabilities. The Gonzalez family holds 59% of the outstanding shares, while 41% are free float.

Key Personnel: Carlos González Nova (Chairman), Carlos González Zabalegui (CEO), José Calvillo (CFO), Jonathan Rangel (IRO) and Santiago García (COO) Web: www.comerci.com.mx

Sales by Format, 2013A Supermarkets 7.3% C.M. 22.8%

Others 2.1%

Bodega 13.9%

Mega 53.8%

Market Share Food Retailers, 2013A

Shareholder Structure, Current

Sources for all charts and tables: Company reports and Santander estimates.

331

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—FOOD & BEVERAGE

FEMSA

BUY CURRENT PRICE: M$126.82 TARGET PRICE: M$150.00

INTRODUCING YE2015 TARGET PRICE OF M$150.00; REPLACING YE2014 TARGET PRICE OF M$140.00 

Investment Case: We maintain a positive view on FEMSA, as we

Luis Miranda*, CFA

believe that the company offers a solid portfolio with a compelling mix

Mexico: Banco Santander S.A. +5255-5269-1926 | [email protected]

of defensiveness and a strong position for the recovery we expect for consumption in Mexico. We expect that OXXO will continue expanding at a pace of more than 1,000 stores per year and continue

Jens Spiess*, CFA Mexico: Banco Santander S.A. +5255-5269-1931 | [email protected]

its growth in the drugstore format. For KOF, although we expect marginal growth at the consolidated level, as we are factoring in much weaker FX at the Venezuelan operations, we estimate an attractive 2013-16 EBITDA CAGR of 7.9%. We also expect that in the medium term, the company will accelerate its growth in the drugstore format and in April 2015 will also reach the milestone of the end of the lock-up period for its stake in Heineken.



Outlook 2015: We estimate consolidated sales and EBITDA growth of 5.4% and 4.4%, respectively, for 2015. For OXXO, we estimate sales growth of 8.3% YoY with EBITDA growth of 11.4% (EBITDA margin of 11.4% in 2015E, +20 bps YoY). For 2013-16, we estimate FEMSA consolidated CAGR of 8.3% in sales and 7.9% in EBITDA. (Please refer to Coca-Cola FEMSA snapshot for details on specific Company Statistics

outlook and drivers for FEMSA.)

Bloomberg



Growth and management changes: In April 2015, Daniel

M$ 126.82 / US$ 85.40

Target Price (YE 2015)

M$ 150.00 / US$ 105.60

Rodriguez will assume the role of chief financial and corporate

52-Week Range (M$)

officer, replacing Javier Astaburuaga, who will become vice president

Market Capitalization (US$ Mn)

of corporate development. We believe these changes should sharpen the company’s focus on the retail operations ex OXXO and ex Mexico.



FEMSAUBD MM / FMX US

Current Price (01/02/15)

109.62 - 134.71 30,593

Float (%)

32.9

3-Mth Avg. Daily Vol (US$ Mn)

19.4

Shares Outstanding - Mn

3,578

Price Performance (M$)

Key themes for 2015: (1) April 2015: end of lock-up period for 20%

FEMSAUBD MM

MEXBOL

120

stake in Heineken; (2) April 2015: change in CFO; (3) evolution of 110

Venezuela contribution to KOF; (4) ongoing expansion (organic and M&A) in drugstores; and (5) evolution of traffic recovery in OXXO.

100

90

80

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

332

d-14

FEMSA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 252,717 6.9 106,964 6.6 38,746 2.5 15.3 28,980 (1.4) 11.5 (4,540) (7,559) 15,276 (25.8) 6.0

M$ 2014E 281,462 11.4 119,159 11.4 44,590 15.1 15.8 33,084 14.2 11.8 (7,183) (7,891) 15,742 3.1 5.6

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (9,766) (1,038) (3,587) 22,492 (17,565) 4,927 (41,681) 39,391 (13,368) -

2014E (11,506) 153 10,658 37,754 (16,606) 21,148 7,540 1,451 0 -

2015E (10,273) 181 (159) 29,137 (14,706) 14,431 14,794 (2,025) (6,721) -

2016E (10,970) (140) (389) 32,388 (14,706) 17,682 14,986 (940) (7,583) -

2013A (765) (81) (281) 1,762 (1,376) 386 (3,265) 3,086 (1,047) -

2014E (866) 11 802 2,842 (1,250) 1,592 568 109 0 -

2015E (733) 13 (11) 2,080 (1,050) 1,030 1,056 (145) (480) -

2016E (780) (10) (28) 2,303 (1,046) 1,257 1,065 (67) (539) -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 27,385 73,569 73,955 359,192 48,869 87,773 159,392 76,749 3,827

2014E 57,524 100,187 78,761 388,999 54,114 87,711 171,075 78,199 1,934

2015E 78,002 122,609 81,965 414,625 55,857 85,431 190,279 76,175 1,892

2016E 102,147 149,891 86,055 445,998 58,638 84,313 211,946 75,235 1,924

2013A 2,093 5,623 5,652 27,452 3,735 6,708 12,182 5,866 292

2014E 4,051 7,055 5,547 27,394 3,811 6,177 12,048 5,507 136

2015E 5,735 9,015 6,027 30,487 4,107 6,282 13,991 5,601 139

2016E 7,264 10,659 6,119 31,715 4,170 5,996 15,072 5,350 137

72,922

76,265

74,283

73,310

5,573

5,371

5,462

5,213

LT Debt

2015E 296,779 5.4 126,580 6.2 46,544 4.4 15.7 36,271 9.6 12.2 (4,611) (9,498) 19,204 22.0 6.5

2016E 320,810 8.1 137,353 8.5 51,115 9.8 15.9 40,145 10.7 12.5 (3,888) (10,877) 21,667 12.8 6.8

2013A 19,797 10.2 8,379 9.8 3,035 5.7 15.3 2,270 1.6 11.5 (356) (592) 1,197 (23.6) 6.0

US$ 2014E 21,187 7.0 8,970 7.0 3,356 10.6 15.8 2,490 9.7 11.8 (541) (594) 1,185 (1.0) 5.6

2015E 21,189 0.0 9,038 0.8 3,323 (1.0) 15.7 2,590 4.0 12.2 (329) (678) 1,371 15.7 6.5

2016E 22,807 7.6 9,765 8.0 3,634 9.4 15.9 2,854 10.2 12.5 (276) (773) 1,540 12.3 6.8

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

49,363

20,676

(1,828)

(26,912)

3,773

1,456

(134)

(1,914)

Capital Employed

310,324

334,885

358,769

387,359

23,717

23,583

26,380

27,546

Net Debt/EBITDA

1.3

0.5

(0.0)

(0.5)

1.2

0.4

(0.0)

(0.5)

Net Debt/Equity

0.3

0.1

(0.0)

(0.1)

0.3

0.1

(0.0)

(0.1)

Capex/Revenue (%)

7.0

5.9

5.0

4.6

7.0

5.9

5.0

4.6

Int Cover (%)

9.0

6.5

6.4

7.2

9.0

6.5

6.4

7.2 39.4

Dividend Payout (%)

64.9

0.0

42.7

39.5

66.9

0.0

38.4

ROCE (%)

2.4

3.6

3.9

3.8

2.6

4.7

4.0

3.8

ROE (%)

9.7

9.5

10.6

10.8

9.9

9.9

10.6

10.8

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

30.0

29.5

23.6

20.9

29.3

26.6

22.3

19.8

P/CE

18.3

17.0

15.4

13.9

17.9

15.4

14.5

13.2

FV/EBITDA

17.8

14.8

13.4

11.7

17.4

13.4

12.6

11.1

FV/EBIT

23.8

20.0

17.2

14.9

23.2

18.0

16.2

14.1

FV/Revenue

2.7

2.3

2.1

1.9

2.7

2.1

2.0

1.8

P/BV

2.9

2.7

2.4

2.1

2.9

2.6

2.2

2.0

FCF Yield (%)

1.1

4.6

3.2

3.9

1.1

5.1

3.4

4.1

Div Yield (%)

2.9

(0.0)

1.5

1.7

3.0

(0.0)

1.6

1.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

4.27

4.40

5.37

6.06

6.69

6.62

7.66

8.61

DPS

3.74

0

1.88

2.12

5.85

0

2.68

3.01

44.55

47.81

53.18

59.23

68.09

67.34

78.20

84.24

PER SHARE DATA

BVPS

333

FEMSA is Latin America´s leading consumer company, with a presence in nine countries. It controls an integrated platform comprising: (1) Coca-Cola FEMSA, the largest Coca-Cola bottler in the region, in which the company holds a 47.9% stake; (2) OXXO, the largest and fastestgrowing operated store chain in the Americas, with almost 12,800 stores in 2014E and 13,830 in 2015E; and (3) the second-largest holding in Heineken Group with a 20% economic interest.

Key Personnel: José Antonio Fernández Carbajal (Chairman), Carlos Salazar (CEO), Javier Astaburuaga Sanjines (CFO), Juan Fonseca (IRO) and Gerardo Lozoya (IR.) Web: www.femsa.com.mx

Sales by Division, 2015E

Coca Cola Femsa 56.1% Oxxo 43.9%

EBITDA by Division, 2015E

Oxxo 28.8%

Coca Cola Femsa 71.2%

Shareholder Structure, Current

Cascade A.M. 12.9%

Aberdeen A.M. 15.5% Free Float 32.9%

Family Trust 38.7%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—CEMENT, CONSTRUCTION, INFRA & RE

FIBRA INN

BUY CURRENT PRICE: M$15.70 TARGET PRICE: M$22.00

RAISING YE2015 TARGET PRICE TO M$22.00 FROM M$21.00 

Investment Case: Fibra Inn is trading at a 2015E cap rate of 9.1%, above the average of 6.3% for the rest of the Mexican Fibras. This is driven by the expectation of an 84% YoY increase in net operating

Toe Matsumura* Mexico: Banco Santander S.A. +5255-5257-8172 | [email protected]

income (NOI), which should be fueled by the addition of 2,250 rooms and a 7% increase in revenue per available room (RevPAR), according to our projections. For 2015, we estimate that price appreciation potential of 40%, with a dividend yield of 5.8%. We reiterate our Buy rating.



Outlook 2015: We forecast revenue growth of 83%, EBITDA growth of 83%. For net income and funds from operations (FFO), we project for each increases of 59%, while dividend distributions should grow 74%.



Access to liquidity to fund growth: Fibra Inn raised M$2.8 billion via its rights offering, and now is taking advantage of leverage, having negotiated a revolving credit line of M$2.3 billion. We believe that this should allow FINN to accelerate its growth plans, by adding to its portfolio 15 properties in 2015 and another 15 hotels in 2016, through a mix of 80% acquisition and 20% development.



Room to increase leverage: In addition, we note that Fibra Inn has even more room for leverage since its only has 22% loan to value

Bloomberg

FINN13 MM

Current Price (01/02/15)

M$ 15.70 / US$ 1.06

(LTV) with this level of debt, which leaves more purchasing power

Target Price (YE 2015)

M$ 22.00 / US$ 1.48

before it reaches its target of 33% LTV. We estimate Fibra Inn could

52-Week Range (M$)

borrow up to M$3.6 billion and still be within its targeted leverage.



Company Statistics

Possible exchange rate benefits: We believe that the recent depreciation of the Mexican peso relative to the U.S. dollar could be beneficial for FINN. Most of FINN’s hotel brands are international, so

463

Float (%)

83.3

3-Mth Avg. Daily Vol (US$ Mn)

0.6

Shares Outstanding - Mn

437

Price Performance (M$) FINN13 MM

even if the actual payment of the daily rate is disbursed in Mexican

120

pesos, the rates are actually negotiated in U.S. dollars, especially in

110

channels like online reservations, corporate deals and call centers,

100

which represent about 60% of FINN’s clients. So, a strong U.S. dollar

90

should translate into higher revenues for FINN, in our view.

14.92 - 18.34

Market Capitalization (US$ Mn)

MEXBOL

80 70

m-13

j-13

n-13

m-14

j-14

Sources: FactSet, Santander estimates and company reports.

334

n-14

FIBRA INN Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 203 n/m 181 n/m 150 n/m 73.9 178 n/m 87.5 60 0 159 n/m 78.2

M$ 2014E 416 104.9 368 103.7 276 84.4 66.5 364 104.9 87.5 (3) 0 214 34.6 51.4

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 36 15 104 314 (4,347) 254 (4,347) 0 (183) 4,542

2014E 42 30 (375) (89) (2,054) (119) (2,076) 100 (227) 2,832

2015E 76 56 176 649 (1,563) 643 (1,600) 635 (395) 0

2016E 124 91 (113) 601 (1,650) 641 (1,710) 1,665 (542) 0

2013A 2 1 7 21 (293) 17 (293) 0 (12) 306

2014E 3 2 (25) (6) (138) (8) (140) 7 (15) 191

2015E 5 4 12 44 (105) 43 (108) 43 (27) 0

2016E 8 6 (8) 41 (111) 43 (115) 112 (37) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 386 586 4,296 4,882 302 2 4,578 0 0

2014E 926 1,332 6,330 7,662 133 102 7,427 100 0

2015E 215 952 7,855 8,807 714 665 7,428 735 74

2016E 229 1,492 9,444 10,935 1,292 2,166 7,477 2,400 240

2013A 26 39 290 329 20 0 309 0 0

2014E 62 90 427 516 9 7 501 7 0

2015E 14 64 529 594 48 45 501 50 5

2016E 15 101 636 737 87 146 504 162 16

LT Debt

2015E 762 83.3 677 84.0 505 82.8 66.3 669 84.0 87.8 (70) 0 341 59.4 44.7

2016E 1,238 62.4 1,077 59.1 817 61.6 66.0 1,063 58.8 85.9 (188) 0 500 46.9 40.4

2013A 14 n/m 12 n/m 10 n/m 73.9 12 n/m 87.5 4 0 11 n/m 78.2

US$ 2014E 28 104.9 25 103.7 19 84.4 66.5 25 104.9 87.5 (0) 0 14 34.6 51.4

2015E 51 83.3 46 84.0 34 82.8 66.3 45 84.0 87.8 (5) 0 23 59.4 44.7

2016E 83 62.4 73 59.1 55 61.6 66.0 72 58.8 85.9 (13) 0 34 46.9 40.4

0

100

662

2,160

0

7

45

146

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

(386)

(826)

520

2,171

(26)

(56)

35

146

Capital Employed

4,580

7,529

8,094

9,643

309

507

546

650

Net Debt/EBITDA

(2.6)

(3.0)

1.0

2.7

(2.6)

(3.0)

1.0

2.7

Net Debt/Equity

(0.1)

(0.1)

0.1

0.3

(0.1)

(0.1)

0.1

0.3

2,142.2

494.1

205.1

133.3

2,142.2

494.1

205.1

133.3

-

-

-

-

-

-

-

-

Dividend Payout (%)

n/m

143.0

185.0

159.2

n/m

137.1

166.6

158.7

ROCE (%)

3.9

4.8

8.3

11.0

4.0

5.3

8.3

11.0

ROE (%)

6.9

3.6

4.6

6.7

7.1

3.8

4.6

6.7

FINANCIAL RATIOS

Capex/Revenue (%) Int Cover (%)

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

27.2

22.4

20.1

13.8

30.8

22.5

20.2

13.8

P/CE

35.2

27.8

26.0

18.3

39.9

28.0

26.0

18.3

FV/EBITDA

26.2

14.3

14.6

11.1

30.1

14.4

14.6

11.1

FV/EBIT

39.7

18.3

18.0

13.2

45.5

18.4

18.0

13.2

FV/Revenue

19.4

9.5

9.7

7.3

22.2

9.6

9.7

7.3 0.9

P/BV

0.9

0.6

0.9

0.9

1.1

0.6

0.9

FCF Yield (%)

5.9

(2.5)

9.4

9.3

5.2

(2.5)

9.4

9.3

Div Yield (%)

4.2

4.7

5.8

7.8

3.7

4.7

5.8

7.8 2016E

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

EPS

0.61

0.70

0.78

1.14

0.04

0.05

0.05

0.08

DPS

(0.71)

(0.75)

(0.90)

(1.23)

(0.05)

(0.05)

(0.06)

(0.08)

-

97.92

67.99

67.97

-

6.60

4.58

4.58

BVPS

335

Fibra Inn is a Mexican FIBRA headquartered in Monterrey, formed primarily to acquire, own, develop and rent hotel properties in Mexico. Fibra Inn’s properties are focused on the business traveler. To date, Fibra Inn has a portfolio of 31 hotels in service and 3 hotels in development. Fibra Inn operates hotels under 14 global brands and 1 Mexican brand and has presence in 14 states of Mexico. Fibra Inn participates in in three business hotel formats, which are Select Service, Limited Service and Full Service.

Key Personnel: Victor Zorrilla (Chairman), Victor Zorrilla (CEO), Oscar Calvillo (CFO), Lizette Chang (IRO) and Joel Zorrilla (COO) Web: http://www.fibrainn.mx/

Revenue by Type, 3Q14 Rental Revenue 6.3%

Room Revenue 93.7%

Hotel Portfolio by Segment, 3Q14

Full-Service 36.4%

Developme nts 9.1%

SelectedService 24.2%

LimitedService 30.3%

Shareholder Structure, Current Control Shareholder s 16.7%

Free Float 83.3%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—CEMENT, CONSTRUCTION, INFRA & RE

FIBRA UNO

BUY CURRENT PRICE: M$42.83 TARGET PRICE: M$56.00



Investment Case: Fibra Uno currently trades at a 2015E cap rate of

Toe Matsumura*

7.0%, above the average of 6.6% for the rest of the Mexican Fibras

Mexico: Banco Santander S.A. +5255-5257-8172 | [email protected]

that we keep track of. This premium is based on our forecast of a 40% YoY increase in net operating income (NOI), a 224% increase vs 2013. We expect NOI growth to be fueled by acquisitions, occupancy increases and rental rates. We forecast a price appreciation of 31%, plus a dividend yield of 4.7%.



Outlook 2015: We anticipate revenue growth of 38%, EBITDA growth of 36%, net income growth of 17%, with funds from operations (FFO) and dividend distributions growing 55% and 34%, respectively.



Occupancy to continue increasing: As of 3Q14, Fibra Uno had overall occupancy of 94.6%. We believe that this occupancy could still increase, especially in the office sector. Fibra Uno’s office portfolio had occupancy of 92% in 3Q14, which we forecast to approach 95%, as demand for office space in Mexico increases. Retail and industrial were close to 95% in the same period, and



should, in our view, remain stable in spite of major increases in gross

Company Statistics

leasable area (GLA).

Bloomberg

Competitive rental rates: Rental rates in the three sectors where

M$ 42.83 / US$ 2.89

Target Price (YE 2015)

M$ 56.00 / US$ 4.27

52-Week Range (M$)

39.31 - 47.89

Fibra Uno participates are competitive and tend to grow at 50 bps

Market Capitalization (US$ Mn)

over Mexican inflation. We see potential for this spread to widen, due

Float (%)

to the dynamics of each of the markets where Fibra Uno is present.



FUNO11 MM

Current Price (01/02/15)

Additional purchasing power: In June, Fibra Uno raised M$33 billion in its third follow-on offering. We believe that FUNO also had

8,311 68.1

3-Mth Avg. Daily Vol (US$ Mn)

21.4

Shares Outstanding - Mn

2,878

Price Performance (M$) FUNO11 MM

MEXBOL

130

access to additional resources of ~M$39 billion, for a total of M$72 120

billion. This figure results from combining the authorized additional CBFIs in treasury to be issued for acquisitions, plus a potential

110

increase in debt that would take their loan to value (LTV) from 25% to

100

37%. We believe Fibra Uno already spent ~M$37 billion in

90

acquisitions that include Mazaryk, and some R15 properties, leaving

80

~M$35 billion that could be used to acquire value-creating properties in 2015, in our view. 336

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

d-14

FIBRA UNO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 3,904 143.1 3,268 158.8 2,940 162.3 75.3 3,268 158.8 83.7 (53) 0 2,886 150.8 73.9

M$ 2014E 8,911 128.2 7,538 130.7 5,640 91.9 63.3 7,538 130.7 84.6 36 0 5,676 96.7 63.7

2015E 12,292 37.9 10,575 40.3 7,684 36.2 62.5 10,575 40.3 86.0 (1,046) 0 6,638 16.9 54.0

2016E 14,199 15.5 12,315 16.4 8,948 16.4 63.0 12,315 16.4 86.7 (1,354) 0 7,594 14.4 53.5

2013A 298 143.1 249 158.8 224 162.3 75.3 249 158.8 83.7 (4) 0 220 150.8 73.9

US$ 2014E 680 128.2 575 130.7 431 91.9 63.3 575 130.7 84.6 3 0 433 96.7 63.7

Company Description 2015E 938 37.9 807 40.3 587 36.2 62.5 807 40.3 86.0 (80) 0 507 16.9 54.0

2016E 1,084 15.5 940 16.4 683 16.4 63.0 940 16.4 86.7 (103) 0 580 14.4 53.5

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 0 0 83 2,970 (61,941) (39,003) 0 25,377 (3,002) 34,190

2014E 0 694 (5,132) (149) (24,821) 2,759 0 8,318 (4,689) 10,781

2015E 0 0 3,583 10,221 (1,863) 14,058 0 (600) (6,306) 0

2016E 0 (25) (11) 7,607 (7,262) 12,203 0 (1,670) (7,214) 0

2013A 0 0 6 227 (4,728) (2,977) 0 1,937 (229) 2,610

2014E 0 53 (392) (11) (1,895) 211 0 635 (358) 823

2015E 0 0 273 780 (142) 1,073 0 (46) (481) 0

2016E 0 (2) (1) 581 (554) 932 0 (128) (551) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 2,088 6,700 94,438 101,138 15,138 27,786 58,214 34,302 7,032

2014E 21,355 27,604 128,473 156,077 6,281 38,506 111,290 40,606 2,880

2015E 22,848 25,465 130,396 155,862 5,632 38,608 111,622 40,006 2,280

2016E 14,329 16,910 137,743 154,653 6,078 36,574 112,002 38,336 2,775

2013A 159 511 7,209 7,720 1,156 2,121 4,444 2,619 537

2014E 1,630 2,107 9,807 11,914 479 2,939 8,495 3,100 220

2015E 1,744 1,944 9,954 11,898 430 2,947 8,521 3,054 174

2016E 1,094 1,291 10,515 11,806 464 2,792 8,550 2,926 212

LT Debt

27,270

37,726

37,726

35,561

2,082

2,880

2,880

2,715

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

32,214

19,252

17,159

24,007

2,459

1,470

1,310

1,833

Capital Employed

86,000

149,797

150,230

148,575

6,565

11,435

11,468

11,342

Net Debt/EBITDA

11.0

3.4

2.2

2.7

11.0

3.4

2.2

2.7

Net Debt/Equity Capex/Revenue (%) Int Cover (%)

0.6

0.2

0.2

0.2

0.6

0.2

0.2

0.2

1,586.6

278.5

15.2

51.1

1,586.6

278.5

15.2

51.1

3.9

2.4

3.2

3.8

3.9

2.4

3.2

3.8

260.9

162.5

111.1

108.7

268.9

155.8

100.0

108.3

ROCE (%)

3.8

5.0

7.0

8.3

3.9

5.6

7.1

8.3

ROE (%)

7.0

6.7

6.0

6.8

7.2

7.1

6.0

6.8

Dividend Payout (%)

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

25.3

20.9

20.2

17.7

25.3

18.5

17.8

15.6

P/CE

25.3

20.9

20.2

17.7

25.3

18.5

17.8

15.6

FV/EBITDA

35.8

24.4

19.7

17.7

35.8

22.1

17.6

15.9

FV/EBIT

32.2

18.3

14.3

12.8

32.2

16.5

12.8

11.6

FV/Revenue

27.0

15.4

12.3

11.1

27.0

14.0

11.0

10.0

1.3

1.1

1.2

1.2

1.3

0.9

1.1

1.1

(53.4)

2.3

10.5

9.1

(53.4)

2.6

11.9

10.3

4.1

4.0

4.7

5.4

4.1

4.5

5.3

6.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

1.65

2.08

2.12

2.43

0.13

0.16

0.16

0.19

P/BV FCF Yield (%) Div Yield (%) PER SHARE DATA EPS DPS BVPS

1.71

1.72

2.02

2.31

0.13

0.13

0.15

0.18

33.31

40.87

35.67

35.79

2.54

3.12

2.72

2.73

337

Fibra Uno is a Mexican real estate investment trust (FIBRA) that was formed in March 2011 primarily to acquire, own, develop and operate a broad range of commercial real estate in Mexico, including industrial, retail, office, mixed-use and other properties. Fibra Uno is mainly managed by F1 Management S.C. and externally advised by Fibra Uno Administracion S.A. de C.V., a Mexican real estate operator whose management has more than 30 years of experience in the Mexican real estate market. The El-Mann and Attié families are the majority shareholders of FUNO.

Key Personnel: Moises El-Mann (Chairman), Andre El-Mann (CEO), Gerardo Vargas (CFO) and Jorge Pigeon (Vice President of Financial Markets and Investor Relations) Web: www.fibra-uno.com

Rental Income by Source, 2013A Other Income 7.1%

Rental Income 92.9%

Rental Income by Property Type, 1Q14

Office 16.6%

Industrial 25.5%

Retail 57.9%

Shareholder Structure, Current Control Group 31.9%

Free Float 68.1%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—TRANSPORTATION

GAP

BUY CURRENT PRICE: M$91.24 TARGET PRICE: M$112.00

RAISING YE2015 TARGET PRICE TO M$112.00 FROM M$108.00 

Investment Case: We believe GAP’s recent weakness in terms of

Ana Gabriela Reynal*, CFA

passenger (PAX) traffic is mainly explained by two one-offs:

Mexico: Banco Santander S.A. +5255-5269-1900 | [email protected]

Hurricane Odile’s impact in September 2014 (and its rollover effect during the rest of the year), and domestic airlines moving capacity away from Tijuana. Thus, we see a combination of (i) a strong growth outlook for 2015E together with a reasonable valuation (0.5-p.p. spread between equity IRR and cost), and (ii) an attractive expected

Bruno Amorim*, CFA Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

Pedro Balcão Reis* Brazil: Banco Santander S.A. +5511-3012-5765 | [email protected]

dividend yield, which in our view is of more importance than potentially short-lived overhang risk from Grupo Mexico.



PAX outlook: We estimate GAP’s PAX will grow 10.4% in 2015 to reach

27.4

million,

which

was

our

estimate

before

the

aforementioned one-offs hit in 4Q14. Additionally, we believe growth will be supported by cheap jet fuel prices and higher GDP growth next year.



Commercial revenue: We estimate non-aeronautical revenue growth of 19.3% for 2015, resulting in 8.1% growth in nonaeronautical revenue per passenger, as the company further Company Statistics

develops its convenience store and VIP lounge network.

Bloomberg



GAP vs. GMexico: still relevant? Now that the Mexican partner (CMA) holds a majority stake in GAP’s controlling shareholder, if

GAPB MM / PAC US

Current Price (01/02/15)

M$ 91.24 / US$ 61.63

Target Price (YE 2015)

M$ 112.00 / US$ 82.40

52-Week Range (M$)

63.37 - 98.75

GMexico is able to and decides to continue pursuing a hostile

Market Capitalization (US$ Mn)

takeover attempt, we see two options: (i) it acquires one third of AMP

Float (%)

from AENA but with CMA retaining control; or (ii) it buys CMA’s two

3,451 63.8

3-Mth Avg. Daily Vol (US$ Mn)

5.7

Shares Outstanding - Mn

561

thirds of AMP, gets control, and goes for 100% of GAP (at a premium price). Thus, potential disputes between (equally voting) controlling

Price Performance (US$) GAPB MM

shareholders seem highly unlikely, in our view.

MEXBOL

130 120



Overhang risk: If GAP wins the battle, GMexico would have to sell

110

an 11% stake in the company. Such an overhang would cause a

100

negative reaction in the stock price that, in our view, would be short-

90

lived.

80 70

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

338

d-14

GAP Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 5,228 5.7 5,228 5.7 3,256 10.7 62.3 2,373 12.3 45.4 (51) 76 2,246 26.8 43.0

M$ 2014E 5,556 6.3 5,556 6.3 3,631 11.5 65.4 2,742 15.5 49.4 5 686 2,061 (8.3) 37.1

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (883) 21 3,151 (646) 1,964 158 (1,202) 0

2014E (889) (3) 2,947 (518) 2,561 (745) (3,100) 0

2015E (860) (12) 3,201 (942) 2,471 (323) (2,473) 0

2016E (864) (6) 3,529 (1,693) 2,008 (1,241) (2,589) 0

2013A (68) 2 244 (50) 152 12 (93) 0

2014E (66) (0) 220 (39) 191 (56) (231) 0

2015E (62) (1) 230 (68) 177 (23) (178) 0

2016E (62) (0) 253 (121) 144 (89) (186) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 2,168 2,872 874 25,235 1,212 1,810 22,213 2,081 864

2014E 2,385 3,120 874 25,105 1,240 2,692 21,173 2,826 864

2015E 2,687 3,464 874 25,534 1,269 3,211 21,054 3,149 864

2016E 3,327 4,146 874 27,044 1,305 4,602 21,136 4,390 864

2013A 166 220 67 1,929 93 138 1,698 159 66

2014E 168 220 62 1,768 87 190 1,491 199 61

2015E 198 255 64 1,878 93 236 1,548 232 64

2016E 239 297 63 1,940 94 330 1,516 315 62

1,217

1,962

2,285

3,526

93

138

168

253

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

(87)

441

462

1,063

(7)

31

34

76

Capital Employed

24,022

23,865

24,265

25,738

1,836

1,681

1,784

1,846

Net Debt/EBITDA

(0.0)

0.1

0.1

0.2

(0.0)

0.1

0.1

0.2

Net Debt/Equity

(0.0)

0.0

0.0

0.1

(0.0)

0.0

0.0

0.1

Capex/Revenue (%)

12.4

9.3

14.6

22.6

12.4

9.3

14.6

22.6

LT Debt FINANCIAL RATIOS Net Debt

2015E 6,437 15.9 6,437 15.9 4,149 14.3 64.5 3,289 20.0 51.1 (20) 915 2,354 14.2 36.6

2016E 7,489 16.4 7,489 16.4 4,655 12.2 62.2 3,791 15.3 50.6 (29) 1,091 2,671 13.5 35.7

2013A 405 6.6 405 6.6 252 11.6 62.3 184 13.2 45.4 (4) 6 174 27.8 43.0

US$ 2014E 414 2.3 414 2.3 271 7.3 65.4 204 11.2 49.4 0 51 154 (11.7) 37.1

2015E 462 11.6 462 11.6 298 10.1 64.5 236 15.6 51.1 (1) 66 169 10.0 36.6

2016E 537 16.2 537 16.2 334 12.0 62.2 272 15.1 50.6 (2) 78 191 13.3 35.7

Int Cover (%)

18.2

28.0

22.8

22.8

18.2

28.0

22.8

22.8

Dividend Payout (%)

67.8

138.0

120.0

110.0

69.9

132.4

108.0

109.7

ROCE (%)

23.5

29.1

32.7

33.5

24.3

33.0

32.8

33.5

ROE (%)

10.3

9.5

11.1

12.7

10.5

9.9

11.1

12.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

17.4

25.4

21.8

19.2

17.2

23.1

20.5

18.1

P/CE

12.5

17.7

16.0

14.5

12.3

16.1

15.0

13.6

FV/EBITDA

12.0

14.5

12.5

11.2

11.8

13.2

11.7

10.6

FV/EBIT

MARKET RATIOS

16.4

19.2

15.7

13.8

16.2

17.5

14.8

13.0

FV/Revenue

7.5

9.5

8.0

7.0

7.4

8.6

7.6

6.6

P/BV

1.8

2.5

2.4

2.4

1.8

2.4

2.2

2.3

FCF Yield (%)

5.0

4.9

4.8

3.9

5.1

5.4

5.1

4.2

Div Yield (%)

3.1

5.9

4.8

5.0

3.1

6.5

5.1

5.4

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

4.00

3.67

4.20

4.76

3.10

2.74

3.01

3.41

PER SHARE DATA EPS DPS BVPS

2.14

5.53

4.41

4.62

1.66

4.12

3.17

3.31

39.59

37.74

37.53

37.68

30.26

26.58

27.60

27.03

339

Grupo Aeroportuario del Pacífico (GAP) has a 50-year renewable concession to operate 12 airports in Northwestern Mexico. GAP operates airports in two large metropolitan cities (Guadalajara and Tijuana), four tourist destinations (Puerto Vallarta, Los Cabos, La Paz, and Manzanillo), and six medium-sized cities (Hermosillo, Bajío region, Morelia, Mexicalí, Aguascalientes, and Los Mochis). Six of GAP’s airports are among the top 10 busiest airports in Mexico in terms of PAX traffic, with Guadalajara being the third largest and Tijuana the fifth largest. During full year 2012, GAP handled over 21 million passengers.

Key Personnel: Fernando Bosque (CEO), Raúl Revuelta (CFO) and Miguel Aliaga (IRO) Web: www.aeropuertosgap.com.mx

Passengers by Origin, 2013

Internationa L 33.7% Domestic 66.3%

Revenue by Segment, 2013 NonAeronautical 24.5%

Aeronautical 75.5%

Shareholder Structure, Current

AMP 15.0% Free Float 63.8%

Grupo Mexico 21.2%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—HEALTH CARE

GENOMMA LAB

BUY CURRENT PRICE: M$26.19 TARGET PRICE: M$40.00

LOWERING YE2015 TARGET PRICE TO M$40.00 FROM M$50.00 

Investment Case: Our Buy rating is based mainly on Genomma’s

Reinaldo Santana*

attractive valuation, as the company trades at a 20% discount to

Mexico: Banco Santander S.A. +5255-5269-2102 | [email protected]

international peers. We also believe Genomma’s new commercial strategies should translate into gradually improving volumes from 2015 onward, particularly in Mexico.



Jens Spiess*, CFA Mexico: Banco Santander S.A. +5255-5269-1931 | [email protected]

Daniel Gewehr*

Outlook 2015: After a difficult 2014, we expect a recovery in

Brazil: Banco Santander S.A. +5511-3012-5787 | [email protected]

Genomma’s sales and EBITDA based on a gradual consumption recovery in Mexico, continuing solid growth in its international markets, and the positive initial impact of its new commercial strategies. We expect total revenue to increase 14.4%, EBITDA to rise 16.0% to M$3.7 billion—assuming a conservative EBITDA margin of 26.1%—and EPS to reach M$2.05.



New commercial strategy: The strategies to enhance the company’s execution at points of sale and penetrate other channels include: (i) improved understanding of the shopper; (ii) better in-store vision

(i.e.,

better

shelf

positioning

with

existing

clients);

(iii) expansion into new channels (the traditional sector in Mexico through wholesalers, food retailers in LatAm and the U.S.); and (iv)

Company Statistics

more trade marketing. We believe these initiatives could begin to

Bloomberg

boost sales in 2015, but more importantly, from 2016 onward.



LABB MM

Current Price (01/02/15)

M$ 26.19 / US$ 1.77

Target Price (YE 2015)

M$ 40.00 / US$ 3.19

52-Week Range (M$)

24.07 - 37.02

Reducing our target price to M$40/share: We decreased our

Market Capitalization (US$ Mn)

YE2015 target price by 20% to M$40.00 per share mainly on lower

Float (%)

estimates reflecting slower consumption growth and higher FX

1,852 70.0

3-Mth Avg. Daily Vol (US$ Mn)

6.2

Shares Outstanding - Mn

1,049

volatility than previously expected. In addition, we increased our WACC assumption to 9.0% from 8.7% to capture a higher risk profile. We expect further noise regarding Genomma’s temporary

Price Performance (M$) LABB MM

MEXBOL

160

majority stake in Marzam in the short term given its overall low 140

margins. 120



Attractive valuations: Although we believe that Genomma’s higher risk profile is not well suited to the current economic environment, its valuation ratio is attractive, with a 2015E P/E of 12.8x, a 20% discount to peers. Our YE2015 target price is based on a DCF model, using a WACC of 9.0% and perpetuity growth of 3.5%. 340

100

80

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

d-14

GENOMMA LAB Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 11,361 15.9 7,944 17.9 3,001 17.3 26.4 2,937 17.8 25.9 (343) 795 1,752 12.0 15.4

M$ 2014E 12,440 9.5 8,640 8.8 3,204 6.8 25.8 3,114 6.0 25.0 (420) 852 1,764 0.6 14.2

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (64) 57 (411) 1,349 (41) 1,855 1,997 0 0

2014E (90) 69 (206) 1,579 (123) 1,597 727 0 0

2015E (94) (2) (550) 1,701 (111) 1,648 (287) (199) 0

2016E (97) (14) (1,010) 1,742 (115) 1,677 (797) (199) 0

2013A (5) 4 (32) 106 (3) 146 157 0 0

2014E (7) 5 (16) 123 (10) 125 57 0 0

2015E (7) (0) (42) 130 (9) 126 (22) (15) 0

2016E (7) (1) (75) 129 (9) 124 (59) (15) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,767 9,987 7,366 17,353 3,154 5,363 8,835 5,456 805

2014E 1,857 10,452 9,457 19,909 2,875 6,566 10,468 6,183 343

2015E 2,406 11,868 10,398 22,266 3,192 6,292 12,782 5,895 355

2016E 2,453 13,342 11,391 24,733 3,609 5,509 15,616 5,098 367

2013A 134 758 559 1,317 239 407 671 414 61

2014E 147 829 751 1,580 228 521 831 491 27

2015E 192 946 829 1,776 255 502 1,019 470 28

2016E 189 1,029 879 1,908 278 425 1,204 393 28

LT Debt FINANCIAL RATIOS Net Debt

2015E 14,237 14.4 9,902 14.6 3,718 16.0 26.1 3,624 16.4 25.5 (363) 1,060 2,154 22.1 15.1

2016E 16,873 18.5 11,735 18.5 4,412 18.7 26.2 4,315 19.1 25.6 (317) 1,299 2,641 22.6 15.7

2013A 892 19.7 624 21.8 236 21.1 26.4 231 21.7 25.9 (27) 62 138 15.6 15.4

US$ 2014E 972 9.0 675 8.3 250 6.3 25.8 243 5.6 25.0 (33) 67 138 0.2 14.2

2015E 1,088 12.0 757 12.1 284 13.5 26.1 277 13.9 25.5 (28) 81 165 19.5 15.1

2016E 1,248 14.6 868 14.6 326 14.8 26.2 319 15.1 25.6 (23) 96 195 18.6 15.7

4,651

5,839

5,540

4,731

353

463

442

365

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

3,689

4,325

3,489

2,646

280

343

278

204

Capital Employed

14,199

17,034

19,074

21,125

1,078

1,352

1,521

1,629

Net Debt/EBITDA

1.2

1.3

0.9

0.6

1.2

1.4

1.0

0.6

Net Debt/Equity

0.4

0.4

0.3

0.2

0.4

0.5

0.3

0.2

Capex/Revenue (%)

0.4

1.0

0.8

0.7

0.4

1.0

0.8

0.7

Int Cover (%)

10.1

8.7

8.6

10.8

10.1

8.7

8.6

10.8

0.0

0.0

11.3

9.3

0.0

0.0

10.2

9.2

ROCE (%)

17.8

13.3

14.0

14.8

18.4

15.4

14.1

14.8

ROE (%)

22.1

18.3

18.5

18.6

22.6

19.1

18.5

18.6

Dividend Payout (%)

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

21.9

16.7

12.8

10.4

21.3

14.5

11.2

9.5

P/CE

21.1

15.9

12.2

10.0

20.6

13.8

10.8

9.1

FV/EBITDA

14.2

10.7

8.5

7.0

13.8

9.5

7.6

6.4

FV/EBIT

14.5

11.0

8.7

7.1

14.1

9.8

7.8

6.6

FV/Revenue

3.8

2.8

2.2

1.8

3.6

2.4

2.0

1.7

P/BV

4.3

2.8

2.1

1.8

4.4

2.4

1.8

1.5

FCF Yield (%)

4.8

5.4

6.0

6.1

5.0

6.2

6.8

6.7

(0.0)

(0.0)

0.7

0.7

(0.0)

(0.0)

0.8

0.8

Div Yield (%) PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.67

1.68

2.05

2.52

0.13

0.13

0.16

0.19

DPS

0

0

0.19

0.19

0

0

0.01

0.01

8.39

9.98

12.18

14.89

0.64

0.79

0.97

1.15

BVPS

341

Genomma Lab Internacional develops, advertises, and sells OTC medicines, interchangeable generic prescription drugs and personal-care products in Mexico; as well as personal care products and OTC medicine in other Latin American countries and in the U.S. through a JV with Televisa. The group of controlling shareholders owns 30% of the company while 70% free floats on the Mexican Stock Exchange.

Key Personnel: Rodrigo Herrera (CEO), Oscar Villalobos (CFO), Ana M. Ybarra (IR) and Maximo Juda (COO) Web: http://www.genommalab.com/

Sales by Region, 2014E

Int'l 43.9%

Mexico 56.1%

Mexico Sales by Industry, 2014E

Personal Care 37.4%

OTC 62.6%

Shareholder Structure, Current Controlling group 30.0%

Free Float 70.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—FINANCIAL SERVICES

GENTERA

BUY CURRENT PRICE: M$28.57 TARGET PRICE: M$35.00

INTRODUCING YE2015 TARGET PRICE OF M$35.00; REPLACING YE2014 TARGET PRICE OF M$30.00 

Investment Case: Gentera continues to be one of our Top Picks in

Boris Molina

the region, as we believe that the bank is well-positioned to capture

New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

Mexico’s increasing banking penetration in lower-income segments of the population. Furthermore, profitability should improve, in our view, as the bank begins to reap the benefits from its IT investments.



Catalina Araya New York: Santander Investment Securities Inc. +1-212-297-1367 | [email protected]

Outlook 2015: We expect loan growth of 13%, mainly driven by group lending in Mexico, while loan growth abroad should remain on hold, as Gentera focuses on improving asset quality. In addition, we estimate efficiency gains as decelerating operating expenses offset margins pressures and increasing provision charges due to changes in the loan mix. As a result, we estimate return on capital employed (adjusted ROE) to reach 53.0%, above 46.5% in 2014.



Complementing its business: We are optimistic about Gentera’s diversification efforts announced in late 2014, including the acquisition of Pagos InterMex (subject to approval) and the investment in MiMoni. The former offers an opportunity to increase customer reach, across Mexico and the U.S., and its cross-selling opportunities between the remittances business and Yastas.

Company Statistics

Meanwhile, MiMoni, an internet-based unsecured consumer credit

Bloomberg

lender, offers a platform to explore and understand the business

GENTERA* MM

Current Price (01/02/15)

M$ 28.57 / US$ 1.93

Target Price (YE 2015)

M$ 35.00 / US$ 2.48

model before making a final decision whether to expand in this

52-Week Range (M$)

segment, in our view.

Market Capitalization (US$ Mn)

21.04 - 30.32 3,175

Float (%)



System migration to conclude: With SAP costs peaking in 2014,

62.8

3-Mth Avg. Daily Vol (US$ Mn)

5.2

Shares Outstanding - Mn

1,648

we expect to see operating expenses grow slower than revenues, leading to efficiency gains. Under the new SAP platform, Gentera is able to convert its Yastas point of sale network to a functional

Price Performance (M$) GENTERA* MM

MEXBOL

160

banking correspondent’s and launch deposits-taking product, 140

improving its funding mix. 120



International operations: Asset quality was negatively affected by increasing NPLs in both Guatemala and Peru during 2014. For this year, we expect Gentera to be more strict in credit origination and highly focused in retaining top-quality clients.

100

80

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

342

D-14

GENTERA Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions

Company Description

INCOME STATEMENT Net Interest Income NPL Provisions Adj Net Interest Income Non-Interest Income Total Operating Revenue Non-Interest Expense Profit Before Taxes Taxes Net Profit Adjusted Net Profit

2013A 11,772 (1,608) 10,164 78 10,242 (6,763) 3,479 (1,208) 2,264 2,454

M$ 2014E 13,547 (1,625) 11,922 196 12,118 (7,723) 4,394 (1,767) 3,128 3,019

BALANCE SHEET Cash and Equivalents Securities Loans (net) Intangible Assets Total Assets Core Deposits Other Financial Liabilities Subordinated Debt Technical Provisions Equity Adjusted Equity

2013A 2,169 364 19,478 715 25,362 704 8,537 0 0 8,772 7,273

2014E 5,051 312 22,105 713 31,181 983 9,918 0 0 11,778 9,856

2015E 5,306 519 25,033 713 34,625 1,272 10,594 0 0 13,835 11,967

2016E 5,668 785 28,927 713 39,248 2,431 11,164 0 0 16,455 14,655

2013A 166 28 1,487 55 1,937 54 652 0 0 670 555

2014E 342 21 1,499 48 2,114 67 673 0 0 799 668

2015E 376 37 1,772 50 2,451 90 750 0 0 980 847

2016E 393 54 2,004 49 2,719 168 773 0 0 1,140 1,015

LOAN BOOK Companies Total Consumer Mortgages Other Loans Gross Loans Loan Growth (%) NPL Provisions

2013A 0 20,706 0 20,706 14.0 645 (1,228)

2014E 0 23,372 0 23,372 12.9 710 (1,267)

2015E 0 26,504 0 26,504 13.4 809 (1,471)

2016E 0 30,665 0 30,665 15.7 951 (1,739)

2013A 0 1,581 0 1,581 12.5 49 (94)

2014E 0 1,585 0 1,585 0.2 48 (86)

2015E 0 1,876 0 1,876 18.4 57 (104)

2016E 0 2,124 0 2,124 13.2 66 (120)

KEY RATIOS NIM Risk Charge Operating Revenue / ATAs

2013A 51.39 8.02 41.45

2014E 52.50 7.28 43.04

2015E 50.38 7.52 41.74

2016E 49.99 7.25 42.11

2013A 51.39 8.02 41.45

2014E 52.50 7.28 43.04

2015E 50.38 7.52 41.74

2016E 49.99 7.25 42.11

Cost / ATAs

2015E 15,319 (1,868) 13,452 231 13,683 (8,506) 5,177 (1,827) 3,308 3,571

2016E 17,286 (2,064) 15,222 271 15,493 (9,462) 6,031 (2,040) 3,943 4,106

2013A 922 (126) 796 6 803 (530) 273 (95) 177 192

US$ 2014E 1,018 (122) 896 15 911 (580) 330 (133) 235 227

2015E 1,061 (129) 932 16 948 (589) 359 (127) 229 247

2016E 1,210 (145) 1,066 19 1,085 (663) 422 (143) 276 288

27.37

27.43

25.94

25.72

27.37

27.43

25.94

25.72

Adj Efficiency

56.9

55.9

54.7

53.9

56.9

55.9

54.7

53.9

Effective Taxes

34.7

40.2

35.3

33.8

34.7

40.2

35.3

33.8

Reported ROE (%)

25.8

30.8

26.3

26.4

25.8

30.8

26.3

26.4

Adj ROE (%)

41.8

46.5

53.0

54.5

41.8

46.5

53.0

54.5

NPL Ratio

3.12

3.04

3.05

3.10

3.12

3.04

3.05

3.10

Adj NPL Ratio

9.95

10.30

9.58

9.39

9.95

10.30

9.58

9.39

Loans / Total Assets

76.8

70.9

72.3

73.7

76.8

70.9

72.3

73.7

2,766.8

2,249.0

1,967.9

1,189.9

2,766.8

2,249.0

1,967.9

1,189.9

RWA % Total Assets

101.8

97.9

97.5

98.6

101.8

97.9

97.5

98.6

Core Tier I Ratio (%)

28.2

32.3

35.5

37.9

28.2

32.3

35.5

37.9

Dividend Payout (%)

75.6

0.0

37.8

33.6

75.6

0.0

37.8

33.6

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

6.3

7.1

6.0

5.0

6.1

6.1

5.9

4.8

16.0

15.1

11.8

9.9

15.6

13.6

11.4

9.5

4.2

(0.0)

2.7

2.8

4.4

(0.0)

2.7

2.9

Loans / Core Deposits

MARKET RATIOS Adj. P/BV Adj. P/E Div Yield (%) PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.37

1.90

2.01

2.39

0.11

0.14

0.14

0.17

BVPS

5.31

7.15

8.39

9.98

0.41

0.48

0.59

0.69

DPS

1.04

0.00

0.76

0.80

0.08

0.00

0.05

0.06

Adj EPS

1.49

1.83

2.17

2.49

0.12

0.14

0.15

0.17

Adj BVPS

4.40

5.98

7.26

8.89

0.34

0.41

0.51

0.62

Surplus Capital per Share

0.64

2.08

2.96

4.00

0.05

0.14

0.21

0.28

Unrealized Cap. Gains/Shr

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Gentera is Latin America’s leading microcredit institution, with more than 2.9 million clients. Since its creation as a non-governmental organization (NGO) in 1990, the company has specialized in providing working-capital loans for micro-businesses in the lower-income segments of the Mexican population, located largely in rural and exurban areas. In 2006, it was incorporated as a bank and is currently designing retail deposit-gathering products and developing an alternative distribution network based on banking correspondents. Gentera operates Banco Compartamos in Mexico, an urban microfinance institution in Peru (CREAR) and is organically expanding into Guatemala. The company is controlled by a core group of shareholders led by its co-founders and copresidents, Carlos Labarthe and Carlos Danel.

Key Personnel: Carlos Danel (Chairman), Carlos Labarthe (CEO), Patricio Diez de Bonilla (CFO), Enrique Barrera Flores (IRO) and Enrique Majós (CEO Compartamos Mexico) Web: www.gentera.com.mx

Loan Book, 2015E

Fin CREAR 18.6%

Crece y Mejora 12.2% Other 1.2%

Mujer 43.0%

Comerciant e 20.1% Individual 4.9%

Funding, 2015E Interbank and other loans 38.2%

Total Deposits 6.6%

Bonds 55.2%

Shareholder Structure, Current

Promotora Social Mexico 31.8% Free Float 62.8%

Accion Gateway Fund 5.4%

Sources for all charts and tables: Company reports and Santander estimates.

343

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—FINANCIAL SERVICES

GF INBURSA

BUY CURRENT PRICE: M$37.15 TARGET PRICE: M$43.00

UPGRADING RATING TO BUY FROM UNDERPERFORM INTRODUCING YE2015 TARGET PRICE OF M$43.00; REPLACING YE2014 TARGET PRICE OF M$26.00 

Investment Case: Inbursa’s entry into retail banking should kick into high gear with the new JV with Walmex, in our view. We believe that

Boris Molina

the deal will allow Inbursa to overcome its key strategic disadvantage

New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

(lack of distribution points) by multiplying the capacity of Inbursa’s

Catalina Araya

sales force to reach potential new clients. We believe that the shift in

New York: Santander Investment Securities Inc. +1-212-297-1367 | [email protected]

the business mix toward retail banking will allow Inbursa to start to deploy its surplus capital at higher rates of return on capital, which we now expect to increase to the low 20s% from our previous estimate of ~17%.



Outlook 2015: We expect Inbursa to deliver approximately 16% loan growth driven by approximately 30% growth in retail loans, thanks to the initial boost from the acquisition of Walmex’s Banco Walmart. We expect reported earnings to be boosted by strong provisions reversals, which should lead to sustained strong dividends in the year, in our view. Finally, we expect to see a rebound in Inbursa’s commercial loan portfolio, thanks to disbursements for infrastructure and energy investments.



Joint venture with Walmex: On December 19, Inbursa announced that it had entered a joint venture with Walmex to distribute retail banking products in Mexico’s leading retail chain. The deal involves the acquisition of Banco Walmex, with the incorporation of 1.5 million

GFINBURO MM

Current Price (01/02/15)

M$ 37.15 / US$ 2.50

new clients, allowing Inbursa access to Walmex’s customer base in

Target Price (YE 2015)

M$ 43.00 / US$ 3.04

exchange for profit sharing and fee-based compensation for the retail

52-Week Range (M$)

29.10 - 42.39

Market Capitalization (US$ Mn)

chain.



Company Statistics Bloomberg

16,698

Float (%)

We expect weak 4Q14 results on trading income, as mark-tomarket losses from interest rate swaps and potential losses in its stake in Argentina’s YPF due to lower oil prices. Any weakness in the stock on the back of these results should be considered a buying

27.9

3-Mth Avg. Daily Vol (US$ Mn)

6.7

Shares Outstanding - Mn

6,667

Price Performance (M$) GFINBURO MM

MEXBOL

110

opportunity, in our view. 100



Provision reversals to peak in 2015: We expect a total of M$16.0

90

billion in provision reversals to take place in 2015, as the group 80

should conclude the release of excess NPL provisions (M$6-7 billion) and reverse an additional M$7-8 billion in insurance technical

70 60

provisions from the implementation of IFRS accounting.

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

344

D-14

GF INBURSA Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions

Company Description

2015E 17,029 (2,427) 14,603 26,141 40,743 (8,882) 31,862 (7,999) 23,778 11,470

2016E 20,543 (1,028) 19,515 10,925 30,440 (9,958) 20,482 (5,708) 14,708 13,287

2013A 855 (251) 605 1,686 2,291 (579) 1,712 (433) 1,277 1,071

US$ 2014E 950 (171) 779 1,444 2,223 (603) 1,620 (277) 1,340 522

2014E 16,817 117,475 181,766 2,788 373,733 84,087 99,242 0 67,471 85,516 80,178

2015E 17,747 124,499 218,991 2,889 426,605 98,597 110,791 0 68,184 97,761 88,787

2016E 18,905 130,469 259,400 2,991 475,677 118,155 123,210 0 72,412 105,115 95,854

2013A 1,431 8,854 13,139 182 27,503 6,863 5,705 0 5,460 6,267 6,407

2014E 1,140 7,966 12,325 189 25,342 5,702 6,729 0 4,575 5,799 5,437

2015E 1,257 8,814 15,505 205 30,203 6,981 7,844 0 4,827 6,921 6,286

2016E 1,310 9,038 17,969 207 32,951 8,185 8,535 0 5,016 7,281 6,640

2013A 143,130 21,903 1,372 34,362 199,079 12.4 8,752 (27,002)

2014E 137,193 29,356 1,967 30,163 196,711 (1.2) 6,820 (14,863)

2015E 150,777 43,878 6,377 32,619 227,274 15.5 5,207 (8,200)

2016E 169,005 63,924 14,066 35,693 268,621 18.2 6,410 (9,139)

2013A 10,929 1,672 105 2,624 15,201 11.0 668 (2,062)

2014E 9,303 1,991 133 2,045 13,339 (12.3) 462 (1,008)

2015E 10,675 3,107 451 2,309 16,091 20.6 369 (581)

2016E 11,707 4,428 974 2,472 18,608 15.6 444 (633)

2013A 3.36 0.88 8.02

2014E 4.00 0.64 8.15

2015E 4.91 1.15 10.11

2016E 5.23 0.42 6.76

2013A 3.36 0.88 8.02

2014E 4.00 0.64 8.15

2015E 4.91 1.15 10.11

2016E 5.23 0.42 6.76

Cost / ATAs

2.03

2.21

2.20

2.21

2.03

2.21

2.20

2.21

Adj Efficiency

36.0

38.5

25.4

32.5

36.0

38.5

25.4

32.5

Effective Taxes

25.3

17.1

25.1

27.9

25.3

17.1

25.1

27.9

Reported ROE (%)

20.0

20.6

25.0

14.4

20.0

20.6

25.0

14.4

Adj ROE (%)

29.5

14.3

22.8

23.6

29.5

14.3

22.8

23.6

NPL Ratio

4.40

3.47

2.29

2.39

4.40

3.47

2.29

2.39

Adj NPL Ratio

4.69

4.62

2.89

3.21

4.69

4.62

2.89

3.21

Loans / Total Assets

47.8

48.6

51.3

54.5

47.8

48.6

51.3

54.5

Loans / Core Deposits

115.4

108.9

114.1

116.3

115.4

108.9

114.1

116.3

RWA % Total Assets

109.0

102.4

98.2

98.4

109.0

102.4

98.2

98.4

Core Tier I Ratio (%)

23.5

23.1

23.1

22.2

23.5

23.1

23.1

22.2

Dividend Payout (%)

14.3

78.9

48.5

50.0

14.3

78.9

48.5

50.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

4.7

5.0

4.2

3.6

4.4

4.1

4.1

3.4

13.6

28.5

16.4

14.2

13.3

25.5

15.7

13.5

0.9

5.5

4.7

3.0

1.0

6.1

4.8

3.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

INCOME STATEMENT Net Interest Income NPL Provisions Adj Net Interest Income Non-Interest Income Total Operating Revenue Non-Interest Expense Profit Before Taxes Taxes Net Profit Adjusted Net Profit

2013A 10,915 (3,199) 7,716 21,516 29,232 (7,385) 21,847 (5,531) 16,292 13,668

BALANCE SHEET Cash and Equivalents Securities Loans (net) Intangible Assets Total Assets Core Deposits Other Financial Liabilities Subordinated Debt Technical Provisions Equity Adjusted Equity

2013A 18,744 115,951 172,077 2,387 360,195 89,879 74,719 0 71,501 82,071 83,912

LOAN BOOK Companies Total Consumer Mortgages Other Loans Gross Loans Loan Growth (%) NPL Provisions KEY RATIOS NIM Risk Charge Operating Revenue / ATAs

MARKET RATIOS Adj. P/BV Adj. P/E Div Yield (%) PER SHARE DATA EPS

M$ 2014E 12,647 (2,282) 10,366 19,214 29,579 (8,025) 21,554 (3,692) 17,833 6,941

2015E 1,180 (168) 1,012 1,811 2,822 (615) 2,207 (554) 1,647 795

2016E 1,439 (72) 1,367 765 2,132 (697) 1,434 (400) 1,030 930

2.44

2.67

3.57

2.21

0.19

0.20

0.25

0.15

12.31

12.83

14.66

15.77

0.94

0.87

1.04

1.09

DPS

0.35

2.11

1.73

1.10

0.03

0.16

0.12

0.08

Adj EPS

2.05

1.04

1.72

1.99

0.16

0.08

0.12

0.14

12.59

12.03

13.32

14.38

0.96

0.82

0.94

1.00

Surplus Capital per Share

6.60

6.10

6.61

6.59

0.50

0.41

0.47

0.46

Unrealized Cap. Gains/Shr

2.36

2.35

2.31

2.33

0.18

0.16

0.16

0.16

BVPS

Adj BVPS

Inbursa is a leading Mexican financial group with a strong presence in banking, insurance, annuities, brokerage, corporate finance, and asset management. In recent years, it has entered the consumer finance and retail banking markets. The company incorporated Spain’s La Caixa as a strategic investor in 2008 and implemented a new retail banking business model, which involves an ambitious branch expansion plan. The group has distribution agreements with Chrysler (to finance auto dealers and car loans), Telmex (for SME and personal loans) and has entered into a joint venture with Walmex for the distribution of retail banking and insurance products. Over the years, Inbursa provided corporate and investment banking services for companies controlled by its largest shareholder, Mr. Carlos Slim Helú.

Key Personnel: Marco Antonio Slim (Chairman), Javier Foncerrada (CEO), Raul Reynal (CFO), Juan Ignacio Gonzalez (IRO) and Frank Aguado (Chief Credit Officer) Web: www.inbursa.com

Loan Book, 2015E

Other 14.4%

Mortgage 2.8%

Consumer 16.5%

SMEs 6.4% Corporate 59.9%

Net Income Breakdown, 2015E

Real Estate Other 2.8% 7.7% Insurance 32.1%

Asset Mngt. 2.8%

Bank 54.6%

Shareholder Structure, Current

Free Float 27.9% La Caixa 9.0%

Slim 63.1%

Sources for all charts and tables: Company reports and Santander estimates.

345

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—FOOD & BEVERAGE

GRUMA

HOLD CURRENT PRICE: M$152.71 TARGET PRICE: M$173.00

RAISING YE2015 TARGET PRICE TO M$173.00 FROM M$170.00 

Investment Case: Gruma will continue to benefit from catalysts—

Luis Miranda*, CFA

further deleveraging, operating improvements, and operating

Mexico: Banco Santander S.A. +5255-5269-1926 | [email protected]

momentum—in the short to medium terms, in our view. But improvements should be only moderate compared with those associated with the company’s past restructuring process. This

Jens Spiess*, CFA Mexico: Banco Santander S.A. +5255-5269-1931 | [email protected]

should help the company maintain current valuation levels. We believe that operating improvements, which rely on execution at the point of sales and strict discipline for capital allocation, will be more difficult to achieve.



Outlook 2015: The year should be crucial for Gruma’s management. The financial and operating turnarounds have largely concluded, and the challenge will be to continue improving profitability via a more profitable sales mix, mainly in the U.S. market. Additionally, we believe the company’s growth will resume, with a key focus on profitability.



Lower raw material prices and improved profitability: In 2015, top-line growth should be modest due to lower grain price. However, this should help Gruma defend profitability despite the price declines

Company Statistics

we expect due to lower prices of grains. We expect a 2013-16 net

Bloomberg

sales CAGR of only 0.3%, but an EBITDA CAGR of 8.6% in the

M$ 152.71 / US$ 41.39

Target Price (YE 2015)

M$ 173.00 / US$ 51.00

same period (both in Mexican pesos). We adjusted our net income

52-Week Range (M$)

estimate for a lower tax rate (to 27% from 32%), as the company

Market Capitalization (US$ Mn)

expects to maintain a lower corporate tax rate in the coming years.



GRUMAB MM / GMK US

Current Price (01/02/15)

101.19 - 157.32 4,455

Float (%)

40.0

3-Mth Avg. Daily Vol (US$ Mn)

7.7

We estimate EBITDA margins of 15.1% in 2015 and 15.3% in 2016.

Shares Outstanding - Mn

433

Key themes for 2015: (1) Competition in the U.S. market due to

Price Performance (M$)

lower grain prices; (2) volume recovery in the U.S. and U.K. markets;

GRUMAB MM

MEXBOL

400

(3) sales mix evolution in the U.S. market; (4) margin evolution in 300

Mexico due to lower grain prices; (5) improved growth both organically and through M&A; and (6) potential increase of dividends (both regular and extraordinary).

200

100

0

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

346

d-14

GRUMA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 51,732 (4.9) 17,174 3.7 6,366 43.2 12.3 4,715 67.5 9.1 (1,002) (197) 3,163 183.6 6.1

M$ 2014E 50,600 (2.2) 18,054 5.1 7,258 14.0 14.3 5,857 24.2 11.6 (1,154) (1,100) 3,540 11.9 7.0

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (1,651) 1,791 3,898 6,922 (1,380) 5,541 (1,991) (3,499) 0 -

2014E (1,401) 16 (626) 4,299 (1,890) 2,409 3,811 (5,006) (649) -

2015E (1,679) (201) 474 5,794 (2,560) 3,234 (347) (1,360) (885) -

2016E (1,829) 141 (411) 5,346 (2,590) 2,756 (1,075) (1,452) (860) -

2013A (129) 140 305 542 (108) 434 (156) (274) 0 -

2014E (106) 1 (47) 324 (142) 181 287 (377) (49) -

2015E (120) (14) 34 414 (183) 231 (25) (97) (63) -

2016E (130) 10 (29) 380 (184) 196 (76) (103) (61) -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,339 18,336 17,905 42,609 11,350 16,831 12,973 16,372 3,276

2014E 1,903 19,784 16,023 42,381 10,298 13,261 17,082 11,367 1,966

2015E 2,544 20,172 16,572 43,318 10,520 11,901 19,434 10,007 1,966

2016E 2,773 20,987 17,715 45,276 10,694 10,449 22,444 8,554 1,966

2013A 102 1,401 1,368 3,256 867 1,286 991 1,251 250

2014E 134 1,393 1,128 2,985 725 934 1,203 800 138

2015E 187 1,483 1,219 3,185 773 875 1,429 736 145

2016E 197 1,492 1,260 3,220 760 743 1,596 608 140

LT Debt

13,096

9,400

8,040

6,588

1,001

662

591

468

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

15,034

9,464

7,462

5,781

1,149

666

549

411

Capital Employed

31,258

32,083

32,799

34,582

2,389

2,259

2,412

2,459

Net Debt/EBITDA

2.4

1.3

1.0

0.7

2.3

1.2

1.0

0.7

Net Debt/Equity

1.2

0.6

0.4

0.3

1.2

0.6

0.4

0.3

Capex/Revenue (%)

2.7

3.7

5.0

4.8

2.7

3.7

5.0

4.8

Int Cover (%)

6.6

9.0

10.4

12.4

6.6

9.0

10.4

12.4

Dividend Payout (%)

2015E 51,252 1.3 18,204 0.8 7,734 6.6 15.1 6,055 3.4 11.8 (856) (1,404) 3,440 (2.8) 6.7

2016E 53,444 4.3 18,903 3.8 8,174 5.7 15.3 6,345 4.8 11.9 (417) (1,601) 4,070 18.3 7.6

2013A 4,053 (2.0) 1,345 6.9 499 47.6 12.3 369 72.7 9.1 (79) (15) 248 192.3 6.1

US$ 2014E 3,812 (5.9) 1,360 1.1 547 9.6 14.3 441 19.5 11.6 (87) (83) 267 7.6 7.0

2015E 3,659 (4.0) 1,300 (4.4) 552 1.0 15.1 432 (2.0) 11.8 (61) (100) 246 (7.9) 6.7

2016E 3,800 3.8 1,344 3.4 581 5.3 15.3 451 4.4 11.9 (30) (114) 289 17.8 7.6

0.0

20.5

25.0

25.0

0.0

19.7

22.5

24.9

ROCE (%)

21.3

22.6

22.7

23.0

21.7

24.5

22.8

23.0

ROE (%)

26.1

23.6

18.8

19.4

26.6

24.7

18.8

19.4

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

MARKET RATIOS P/E

13.5

19.2

19.2

16.2

13.2

17.3

18.1

15.4

P/CE

8.9

13.8

12.9

11.2

8.7

12.4

12.2

10.6

FV/EBITDA

9.8

11.6

10.2

9.4

9.6

10.5

9.7

8.9

13.3

14.4

13.0

12.1

12.9

13.0

12.4

11.5

1.2

1.7

1.5

1.4

1.2

1.5

1.5

1.4

FV/EBIT FV/Revenue P/BV

3.3

4.0

3.4

2.9

3.3

3.8

3.1

2.8

FCF Yield (%)

13.0

3.5

4.9

4.2

13.3

3.9

5.2

4.4

Div Yield (%)

(0.0)

1.0

1.3

1.3

(0.0)

1.1

1.4

1.4

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

PER SHARE DATA EPS

7.31

8.18

7.95

9.41

4.58

4.93

4.54

5.35

DPS

0

(1.50)

(2.04)

(1.99)

0

(0.90)

(1.17)

(1.13)

29.98

39.47

44.91

51.86

18.33

22.24

26.42

29.50

BVPS

347

Gruma is the largest producer of branded tortillas in the world, with operations in the United States, Mexico, Central America, Europe, and Asia. In the U.S., the company is the leader in the tortilla market, with an estimated 35% market share with its Mission and Guerrero brands. In Mexico, Gruma is the leading producer of corn flour, with its Maseca brand. It trades on the NYSE and Mexican Bolsa. It is controlled by the Gonzalez family.

Key Personnel: Juan Antonio Gónzalez Moreno (Chairman), Juan Antonio Gónzalez Moreno (CEO), Raúl Cavazos (CFO), Lili Gómez (IRO) and Rogelio Sánchez (VP of Finance) Web: www.gruma.com.mx

Sales by Segment, 2015E

Central America 7.9%

Gimsa 30.8%

Gruma Corp 61.3%

EBITDA by Segment, 2015E Central America 6.7%

Gimsa 38.1%

Gruma Corp 55.3%

Shareholder Structure, Current

Free Float 40.0%

Gonzalez Family 60.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—FOOD & BEVERAGE

GRUPO BIMBO

HOLD CURRENT PRICE: M$39.77 TARGET PRICE: M$44.00

INTRODUCING YE2015 TARGET PRICE OF M$44.00; REPLACING YE2014 TARGET PRICE OF M$40.00 

Investment Case: Bimbo should continue posting healthy EBITDA

Luis Miranda*, CFA

growth in 2015, mainly driven by the consolidation of Canada Bread

Mexico: Banco Santander S.A. +5255-5269-1926 | [email protected]

(2Q14), ongoing synergies from the manufacturing upgrade in the U.S., and lower extraordinary charges. We also note that the company is highly exposed to the U.S. economy, which is delivering

Jens Spiess*, CFA Mexico: Banco Santander S.A. +5255-5269-1931 | [email protected]

attractive growth rates. However, we believe that this is already reflected in the stock price, as it currently trades at 22.4x our 2015 P/E estimate. In addition, we remain concerned about the strong competition and limited growth in the U.S. and Canada bakery industry.



Outlook 2015: We estimate healthy sales and EBITDA growth in 2015, driven by the consolidation of Canada Bread, high exposure to the U.S. and Canadian markets (favorable FX), and moderate recovery in the Mexican operations after a tough 2014, which was affected by new taxes on high-energy-content food. We estimate sales growth of 9% in peso terms in 2015 and 18% EBITDA growth. For the 2013-16E period, we estimate a CAGR of 6.6% and 13.1% in terms of sales and EBITDA, respectively. Company Statistics



Valuation improving: The integration process for the Sara Lee assets in the U.S., as well as the reorganization of the Brazilian

BIMBOA MM

Current Price (01/02/15)

M$ 39.77 / US$ 2.68

Target Price (YE 2015)

M$ 44.00 / US$ 3.24

operations, led to several restructuring charges during 2013 and

52-Week Range (M$)

2014. These charges have declined significantly, and thus we expect

Market Capitalization (US$ Mn)

EPS to post more normalized results. Despite this improvement, we



Bloomberg

32.53 - 43.17 12,610

Float (%)

24.0

3-Mth Avg. Daily Vol (US$ Mn)

still see limited upside in the name, as we see the valuation as fair.

Shares Outstanding - Mn

Key themes for 2015: (1) Evolution of integration, synergies, and

Price Performance (M$) BIMBOA MM

profitability of the U.S. and Canada operations; (2) we expect a

140

recovery in volumes in Mexico after a decline resulting from the 8%

130

excise tax on high-energy-content food implemented in 2014;

120

(3) evolution of grain prices and FX, which could have an impact on

110

the profitability of the Mexican operations; and (4) improvement in the

100

profitability of the South America (mainly Brazil) and European

90

operations.

80

e-13

m-13

a-13

4.1 4,703

d-13

MEXBOL

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

348

d-14

GRUPO BIMBO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt LT Debt

2013A 176,041 1.7 92,099 4.9 15,742 14.3 8.9 10,490 42.0 6.0 (2,788) (2,878) 4,412 117.5 2.5

M$ 2014E 190,947 8.5 100,686 9.3 19,750 25.5 10.3 13,739 31.0 7.2 (3,740) (3,689) 6,058 37.3 3.2

2015E 208,345 9.1 104,712 4.0 23,298 18.0 11.2 16,758 22.0 8.0 (3,144) (5,173) 8,337 37.6 4.0

2016E 212,972 2.2 106,560 1.8 25,036 7.5 11.8 18,348 9.5 8.6 (3,535) (5,629) 9,071 8.8 4.3

2013A 13,791 4.8 7,215 8.1 1,233 17.8 8.9 822 46.3 6.0 (218) (225) 346 124.2 2.5

US$ 2014E 14,373 4.2 7,579 5.0 1,487 20.6 10.3 1,034 25.8 7.2 (282) (278) 456 31.9 3.2

Company Description 2015E 14,875 3.5 7,476 (1.4) 1,663 11.9 11.2 1,196 15.7 8.0 (224) (369) 595 30.5 4.0

2016E 15,141 1.8 7,576 1.3 1,780 7.0 11.8 1,304 9.0 8.6 (251) (400) 645 8.3 4.3

2013A (5,252) (131) 1,916 11,711 (6,743) 4,968 (4,460) (1,643) (638) -

2014E (6,011) (466) 777 13,311 (28,773) (15,462) (819) 18,509 (1,277) -

2015E (6,540) 520 (6,174) 8,182 (7,703) 479 8,800 (2,586) (700) -

2016E (6,688) (376) (3,395) 12,739 (7,736) 5,003 5,916 (7,539) (703) -

2013A (411) (10) 150 917 (528) 389 (349) (129) (50) -

2014E (452) (35) 58 1,002 (2,166) (1,164) (62) 1,393 (96) -

2015E (467) 37 (441) 584 (550) 34 628 (185) (50) -

2016E (475) (27) (241) 906 (550) 356 421 (536) (50) -

2013A 2,504 24,741 42,684 134,727 33,278 53,666 45,619 40,329 7,997

2014E 3,456 30,661 47,663 165,490 31,852 80,927 50,604 58,838 826

2015E 9,449 42,110 40,239 169,515 31,123 78,351 58,240 56,252 816

2016E 12,125 48,451 34,415 170,032 31,401 69,964 66,607 48,713 824

2013A 191 1,891 3,262 10,297 2,543 4,102 3,487 3,082 611

2014E 243 2,159 3,357 11,654 2,243 5,699 3,564 4,143 58

2015E 695 3,096 2,959 12,464 2,288 5,761 4,282 4,136 60

2016E 862 3,445 2,447 12,091 2,233 4,975 4,737 3,464 59

32,332

58,012

55,436

47,889

2,471

4,085

4,076

3,405

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

37,825

55,382

46,803

36,588

2,891

3,900

3,441

2,602

Capital Employed

101,449

133,639

138,392

138,631

7,753

9,411

10,176

9,858

Net Debt/EBITDA

2.4

2.8

2.0

1.5

2.3

2.6

2.1

1.5

Net Debt/Equity

0.8

1.1

0.8

0.5

0.9

1.2

0.8

0.5

Capex/Revenue (%)

3.8

15.1

3.7

3.6

3.8

15.1

3.7

3.6

Int Cover (%)

4.9

5.5

5.8

6.8

4.9

5.5

5.8

6.8

Dividend Payout (%)

31.5

28.9

11.6

8.4

32.4

27.7

10.4

8.4

ROCE (%)

13.4

13.5

17.0

19.0

13.6

14.6

17.0

19.0

9.8

12.6

15.3

14.5

10.0

13.2

15.3

14.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

42.9

31.6

22.4

20.6

41.8

28.5

21.2

19.6

P/CE

19.6

15.9

12.6

11.9

19.1

14.3

11.9

11.3

FV/EBITDA

15.0

12.9

10.3

9.2

14.6

11.7

9.9

8.8

FV/EBIT

22.5

18.5

14.3

12.5

21.9

16.9

13.7

12.0

FV/Revenue

1.3

1.3

1.2

1.1

1.3

1.2

1.1

1.0

P/BV

4.1

3.8

3.2

2.8

4.1

3.6

2.9

2.7

FCF Yield (%)

2.6

(8.1)

0.3

2.7

2.7

(9.0)

0.3

2.8

Div Yield (%)

0.3

0.7

0.4

0.4

0.3

0.7

0.4

0.4

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.94

1.29

1.77

1.93

0.07

0.10

0.13

0.14

DPS

0.14

0.27

0.15

0.15

0.01

0.02

0.01

0.01

BVPS

9.70

10.76

12.38

14.16

0.74

0.76

0.91

1.01

ROE (%) MARKET RATIOS

PER SHARE DATA

Grupo Bimbo is the largest baked goods producer in the world. The last acquisition was Canada Bread in 2Q14, after Sara Lee North America Fresh Bakery and Sara Lee Spain and Portugal (4Q11). Agreement to acquire Saputo Bakery in Canada was announced on December 2014. With these acquisitions the company has a presence in 22 countries in the Americas, Asia, and Europe. It manages over 100 brands and 10,000 SKUs encompassing products such as sliced bread, cookies, snack cakes, prepackaged foods, tortillas, salty snacks, and confectionery. The Mexican operations would represent 35% of consolidated sales, the U.S. & Canada 50%, LatAm 12%, and Europe 3%. The controlling families (Servitje, Jorba, Sendra, and Mata) hold close to 76% of the outstanding shares, while the free float is roughly 20%.

Key Personnel: Roberto Servitje (Chairman), Daniel Servitje (CEO), Guillermo Quiroz (CFO), Marcos Camacho (IRO) and Roberto Cejudo (Treasurer) Web: www.grupobimbo.com.mx

Sales by Region, 2015E

Europe 3.2%

Latam 11.6%

U.S. 50.2%

Mexico 35.0%

EBITDA by Region, 2015E

U.S. 41.8%

Europe LatAm 0.9% 5.5%

Mexico 51.8%

Shareholder Structure, Current

Free Float 20.0%

Controlling Families 80.0%

Sources for all charts and tables: Company reports and Santander estimates.

349

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—RETAIL & CONSUMER GOODS

GRUPO FAMSA

HOLD CURRENT PRICE: M$11.67 TARGET PRICE: M$13.00

LOWERING YE2015 TARGET PRICE TO M$13.00 FROM M$19.00 

Investment Case: We reiterate our cautious view on Grupo Famsa

Reinaldo Santana*

based on a more gradual recovery than previously anticipated after

Mexico: Banco Santander S.A. +5255-5269-2102 | [email protected]

the challenging 2014. We prefer to remain on the sidelines until we



Jens Spiess*, CFA

have more visibility on earnings, including healthier NPLs.

Mexico: Banco Santander S.A. +5255-5269-1931 | [email protected]

Outlook 2015: We expect total revenue to increase by 7.4% and

João Mamede*

EBITDA to rise by 9.9% to M$1.8 billion in 2015. Our forecast

Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

accounts for the opening of 15 stores in Mexico, with SSS expanding 3%. We estimate the EBITDA margin expands 30 bps to 11.0%.



Gradual recovery in credit sales: We expect Grupo Famsa’s credit operations to recover gradually; they were negatively affected by an increase in cash payments from consumers in 1H14 as a result of the fiscal reform. However, we do not expect a significant uptick in the loan growth given the moderate recovery in personal loans due to high NPLs, which remain above 15%.



Reducing our target price, taking a conservative approach: We reduced our YE2015 target price to M$13 from M$19 to reflect lower estimates in 2014-16 on all fronts. We have turned more cautious on

Company Statistics

the company’s comp sales and operating margins, while we also

Bloomberg

increased our estimates on interest expenses to reflect the current

Current Price (01/02/15)

M$ 11.67 / US$ 0.79

Target Price (YE 2015)

M$ 13.00 / US$ 1.02

FX environment.



GFAMSAA MM

52-Week Range (M$)

11.24 - 22.60

Market Capitalization (US$ Mn)

346

Higher risk profile: Although the company trades at a discount to

Float (%)

36.0

peers in most valuation multiples, its risk profile is also higher even

3-Mth Avg. Daily Vol (US$ Mn)

0.5

Shares Outstanding - Mn

439

after the recent share subscription to pay down debt, specifically regarding high loan uncollectables, high leverage, low returns, and lack of free cash flow generation.

Price Performance (M$) GFAMSAA MM

MEXBOL

180 160 140 120 100 80 60

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

350

d-14

GRUPO FAMSA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 15,040 7.4 6,967 (1.4) 1,754 (21.5) 11.7 1,471 (23.4) 9.8 (985) (205) 689 93.6 4.6

M$ 2014E 15,008 (0.2) 6,898 (1.0) 1,611 (8.2) 10.7 1,281 (12.9) 8.5 (938) (100) 442 (35.9) 2.9

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (283) 3,581 4,554 (526) (4,025) 4,318 0 -

2014E (330) 2,105 2,876 (241) 821 2,134 (2) -

2015E (331) 1,947 2,769 (395) (174) 873 0 -

2016E (338) 0 953 (394) (441) 132 0 -

2013A (22) 281 357 (41) (315) 338 0 -

2014E (25) 160 218 (18) 62 162 (0) -

2015E (25) 148 210 (30) (13) 66 0 -

2016E (26) 0 73 (30) (34) 10 0 -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,510 27,759 5,318 33,077 15,190 8,916 8,971 16,766 4,310

2014E 3,223 29,117 6,664 35,781 16,664 9,684 9,433 19,287 4,217

2015E 3,922 30,965 6,871 37,836 18,085 9,684 10,067 20,160 4,720

2016E 3,721 31,961 7,074 39,035 18,532 9,684 10,820 20,292 4,470

2013A 115 2,122 406 2,528 1,161 681 686 1,281 329

2014E 244 2,206 505 2,711 1,262 734 715 1,461 319

2015E 306 2,419 537 2,956 1,413 757 786 1,575 369

2016E 283 2,432 538 2,971 1,410 737 823 1,544 340

3,177

4,332

4,332

4,332

243

328

338

330

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

15,257

16,065

16,239

16,572

1,166

1,217

1,269

1,261

Capital Employed

17,887

19,117

19,751

20,504

1,367

1,448

1,543

1,560

Net Debt/EBITDA

8.7

10.0

9.2

8.4

8.5

10.0

9.4

8.4

Net Debt/Equity

1.7

1.7

1.6

1.5

1.7

1.9

1.6

1.5

Capex/Revenue (%)

3.5

1.6

2.5

2.3

3.5

1.6

2.5

2.3

Int Cover (%)

1.8

1.7

2.3

2.4

1.8

1.7

2.3

2.4

Dividend Payout (%)

0.0

0.3

0.0

0.0

0.0

0.3

0.0

0.0

ROCE (%)

8.2

6.4

6.5

7.0

8.4

7.1

6.6

7.0

ROE (%)

7.9

4.8

5.0

5.9

8.0

5.0

5.0

5.9

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

14.4

12.1

10.5

8.3

14.0

10.8

9.3

7.4

P/CE

10.2

6.9

6.2

5.4

10.0

6.2

5.6

4.8

FV/EBITDA

14.4

13.3

12.1

11.0

14.0

12.9

12.0

10.7

FV/EBIT

LT Debt

MARKET RATIOS

2015E 16,114 7.4 7,437 7.8 1,771 9.9 11.0 1,440 12.4 8.9 (784) 164 491 11.1 3.0

2016E 17,460 8.4 8,092 8.8 1,969 11.2 11.3 1,630 13.2 9.3 (808) 206 615 25.3 3.5

2013A 1,178 9.1 546 0.2 137 (20.3) 11.7 115 (22.2) 9.8 (77) (16) 54 96.6 4.6

US$ 2014E 1,138 (3.4) 523 (4.2) 122 (11.1) 10.7 97 (15.7) 8.5 (71) (8) 33 (38.0) 2.9

2015E 1,222 7.4 564 7.8 134 9.9 11.0 109 12.4 8.9 (59) 12 37 11.1 3.0

2016E 1,329 8.7 616 9.2 150 11.6 11.3 124 13.6 9.3 (62) 16 47 25.8 3.5

17.1

16.7

14.8

13.3

16.7

16.3

14.8

13.0

FV/Revenue

1.7

1.4

1.3

1.2

1.6

1.4

1.3

1.2

P/BV

1.1

0.6

0.5

0.5

1.1

0.5

0.4

0.4

FCF Yield (%)

(40.5)

15.3

(3.4)

(8.6)

(41.6)

17.2

(3.8)

(9.7)

Div Yield (%)

(0.0)

0.0

(0.0)

(0.0)

(0.0)

0.0

(0.0)

(0.0)

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.57

1.00

1.12

1.40

0.12

0.08

0.08

0.11

DPS

0

2.38

0

0

0

0.18

0

0

20.43

21.47

22.91

24.62

1.56

1.63

1.79

1.87

BVPS

351

Famsa is one of the largest Mexican retail companies focused on providing credit to low-income consumers. Sales in 2013 totaled M$15.0 billion. Besides Mexico, Famsa has operations in Texas (in the U.S.), focusing on the Hispanic population. The Garza González family owns 64% of the outstanding shares and the remaining 36% is free float. There is only one series of shares.

Key

Personnel: Humberto Garza González (Chairman), Humberto Garza Valdéz (CEO), Abelardo García Lozano (CFO) and Paloma Arellano (IRO) Web: www.grupofamsa.com Sales by Division, 2014E

USA 11.5%

Others 0.5%

Mexico 88.0%

Product Sales Breakdown, 2013

Appliances 12.1%

Electronics 13.0%

Mobile Phones 9.2%

Personal loans 21.6%

Furniture 16.9%

Shareholder Structure, Current

Humberto Garza 64.0%

Free Float 36.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—FOOD & BEVERAGE

GRUPO HERDEZ

HOLD CURRENT PRICE: M$34.08 TARGET PRICE: M$40.00

INTRODUCING YE2015 TARGET PRICE OF M$40.00; REPLACING YE2014 TARGET PRICE OF M$42.00 

Investment Case: We reiterate our Hold rating on Herdez based on

Luis Miranda*, CFA

what we believe is its fair valuation that already reflects attractive,

Mexico: Banco Santander S.A. +5255-5269-1926 | [email protected]

solid, long-term growth, with the risk related to higher COGS due to a weaker FX during 2015. On the positive side, we see recovery in the domestic market and a good dynamic in the U.S. market, where

Jens Spiess*, CFA Mexico: Banco Santander S.A. +5255-5269-1931 | [email protected]

exports represent 8% of sales. Additionally, we expect healthier growth in Nutrisa, after the restructuring process implemented in 2014. On the negative side, note that close to 50% of the company’s COGS are linked to the USD; thus, we expect margins to be negatively affected in 2015.



Outlook 2015: We believe that the company will recover sales growth in 2015, driven by a modest improvement in the consumer environment in Mexico and to a lesser degree, the solid dynamic of the U.S. economy. We estimate top-line growth of 9.1% in peso terms, driven by 8.3% growth in the domestic market and 20% growth in the export market. At the EBITDA level, we estimate 6.2% growth, as we expect pressure from a weaker currency. We anticipate a 40-bp margin contraction at the EBITDA level to 15.2% Company Statistics

from an estimated 15.6% in 2014.

Bloomberg



Stable CAGR ahead: We believe that valuation is fair at a 17.7x P/E

M$ 34.08 / US$ 2.30

Target Price (YE 2015)

M$ 40.00 / US$ 2.94

for 2015E, but in our view this is supported by the company’s solid

52-Week Range (M$)

market position and brand equity. We estimate that this will allow the

Market Capitalization (US$ Mn)

992

Float (%)

28.0

company to grow at a CAGR for 2013-16 of 8.5% in sales, 9.6% in



HERDEZ* MM

Current Price (01/02/15)

32.52 - 47.50

3-Mth Avg. Daily Vol (US$ Mn)

1.3

EBITDA, and 15.4% in net income.

Shares Outstanding - Mn

432

Key themes 2015: (1) Evolution of volumes and prices in the

Price Performance (M$) HERDEZ* MM

domestic market, which was highly promotional during 2014;

120

(2) expansion and restructure plans for Nutrisa; (3) penetration into

110

the U.S. market as well as further M&A to continue strengthening the

MEXBOL

100

portfolio; (4) outlook for soft commodities and FX; and (5) approval of 90

acquisition of Nestle’s ice cream operations in Mexico. 80 70

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

352

d-14

GRUPO HERDEZ Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 13,180 15.2 4,639 21.5 2,050 16.6 15.6 1,757 12.1 13.3 (259) (536) 608 (23.1) 4.6

M$ 2014E 14,315 8.6 5,460 17.7 2,242 9.4 15.7 1,923 9.4 13.4 (309) (554) 733 20.6 5.1

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (293) 42 (85) 774 (735) 39 (2,911) 2,815 (367) -

2014E (319) 222 (78) 753 (703) 50 1,467 41 0 -

2015E (350) 181 (371) 628 (551) 77 925 450 (387) -

2016E (377) 229 (140) 971 (570) 401 1,024 483 (387) -

2013A (23) 3 (7) 61 (58) 3 (228) 220 (29) -

2014E (24) 17 (6) 57 (53) 4 110 3 0 -

2015E (25) 13 (26) 45 (39) 5 66 32 (28) -

2016E (27) 16 (10) 69 (41) 29 73 34 (27) -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 887 5,318 4,111 20,837 1,590 7,117 5,665 5,969 0

2014E 2,445 6,898 4,281 22,913 2,348 6,298 6,244 6,010 814

2015E 3,510 8,456 4,426 24,616 2,460 6,857 6,687 6,460 803

2016E 5,031 10,251 4,664 26,649 2,601 7,432 7,264 6,943 811

2013A 68 406 314 1,593 122 544 433 456 0

2014E 172 486 301 1,614 165 444 440 423 57

2015E 258 622 325 1,810 181 504 492 475 59

2016E 358 729 332 1,895 185 528 517 494 58

5,969

5,196

5,657

6,131

456

366

416

436

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

5,082

3,565

2,950

1,912

388

251

217

136

Capital Employed

19,247

20,566

22,157

24,048

1,471

1,448

1,629

1,710

Net Debt/EBITDA

2.5

1.6

1.2

0.7

2.4

1.5

1.2

0.7

Net Debt/Equity

0.9

0.6

0.4

0.3

0.9

0.6

0.4

0.3

Capex/Revenue (%)

5.6

4.9

3.5

3.4

5.6

4.9

3.5

3.4

Int Cover (%)

6.0

5.7

6.7

7.3

6.0

5.7

6.7

7.3

LT Debt FINANCIAL RATIOS Net Debt

2015E 15,676 9.5 5,847 7.1 2,447 9.1 15.6 2,097 9.1 13.4 (257) (589) 830 13.2 5.3

2016E 16,916 7.9 6,448 10.3 2,776 13.4 16.4 2,399 14.4 14.2 (210) (701) 963 16.0 5.7

2013A 1,033 18.7 363 25.3 161 20.1 15.6 138 15.5 13.3 (20) (42) 48 (20.7) 4.6

US$ 2014E 1,078 4.4 411 13.1 169 5.1 15.7 145 5.1 13.4 (23) (42) 55 15.9 5.1

2015E 1,119 3.9 417 1.6 175 3.5 15.6 150 3.5 13.4 (18) (42) 59 7.4 5.3

2016E 1,203 7.5 458 9.8 197 13.0 16.4 171 13.9 14.2 (15) (50) 68 15.5 5.7

Dividend Payout (%)

46.4

0.0

52.7

46.6

47.9

0.0

47.5

46.4

ROCE (%)

11.8

11.2

11.3

11.9

12.0

12.2

11.3

11.9

ROE (%)

10.6

12.3

12.8

13.8

10.8

12.9

12.8

13.8 2016E

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

P/E

33.0

20.9

17.7

15.3

32.2

18.8

16.7

14.5

P/CE

22.3

14.5

12.5

11.0

21.7

13.1

11.8

10.4

FV/EBITDA

23.4

16.0

13.9

11.9

22.9

14.5

13.2

11.3

FV/EBIT

27.4

18.6

16.2

13.7

26.7

16.9

15.4

13.1

FV/Revenue

3.6

2.5

2.2

1.9

3.6

2.3

2.1

1.9

P/BV

3.5

2.5

2.2

2.0

3.5

2.4

2.0

1.9

FCF Yield (%)

0.2

0.3

0.5

2.7

0.2

0.4

0.6

2.9

Div Yield (%)

1.8

(0.0)

2.6

2.6

1.9

(0.0)

2.8

2.8

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.41

1.70

1.92

2.23

0.11

0.13

0.14

0.16

DPS

0.85

0

0.89

0.89

0.07

0

0.06

0.06

13.11

14.45

15.48

16.81

1.00

1.02

1.14

1.20

BVPS

353

Grupo Herdez is one of the leading companies in Mexico’s processed food industry, with operations in the U.S. and Canada as well. The company manufactures and distributes over 1,000 products, delivering 600 SKUs, under a number of brands, including Herdez, Del Fuerte, Barilla, Búfalo, Chi-Chi’s, Doña María, Embasa, La Victoria, McCormick, Nair, and Yemina, among others. It also has distribution agreements with Kikkoman and Ocean Spray. The company holds 25% stake in MegaMex Foods in the U.S. and in 2013 acquired Nutrisa in Mexico.

Key Personnel: Héctor Hernández-Pons Torres (Chairman), Gerardo F. Canavati Miguel (CFO), Andrea Amozurrutia (Financial Planning & IRO) and Grecia Dominguez (IR) Web: www.grupoherdez.com.mx

Sales by Division, 2015E

Exports 8.0%

Domestic 92.0%

Sales Mix by Distribution Channel, 2015E

Wholesalers 30.0%

Foreign Sales 17.0%

Supermarke ts 42.0%

Other 11.0%

Shareholder Structure, Current

HernándezPons Family 51.0%

Free Float 28.0%

Alfredo Harp Helú 21.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—FOOD & BEVERAGE

GRUPO LALA

BUY CURRENT PRICE: M$27.60 TARGET PRICE: M$37.00



Investment Case: Although we expect a lackluster 2014 due to a

Luis Miranda*, CFA

weak consumer environment, we continue to see Lala as an

Mexico: Banco Santander S.A. +5255-5269-1926 | [email protected]

attractive consumer play in Mexico for 2015. Our positive view is based on the expected economic recovery in Mexico, where we still see private consumption growing 2.5% in 2015, while the company’s

Jens Spiess*, CFA Mexico: Banco Santander S.A. +5255-5269-1931 | [email protected]

strategy to grow the functional dairy category (leveraging it on the company’s cold storage distribution chain — the largest in Mexico), is feasible, in our view. Additionally, we expect Lala to start development of the cold cut category, via a greenfield or M&A.



Outlook 2015: We anticipate a lackluster performance, with sales growth of 2.1% YoY and a marginal decline in EBITDA. However, we estimate sales and EBITDA growth of 6.9% and 13.9%, respectively, with EBITDA growth benefiting from a weak comparison base in 2014 (namely, higher expenses due to the restructuring of the company’s manufacturing arm, the integration of Nestle assets and a very weak start to that year, thanks to higher taxes in Mexico). Our estimates consider only organic growth and no M&A.



New categories: Lala’s strategy to enter into new categories has

Company Statistics

taken longer than expected. The company is currently working on a

Bloomberg

test market for mainstream and value segments in the cold cut

LALAB MM

Current Price (01/02/15)

M$ 27.60 / US$ 1.86

Target Price (YE 2015)

M$ 37.00 / US$ 2.89

category. In 2015, we expect the company to decide whether to roll

52-Week Range (M$)

out the project or increase its efforts to grow via M&A.

Market Capitalization (US$ Mn)

26.34 - 34.95 4,604

Float (%)



Key themes for 2015: Volume growth in Mexico remains a concern

20.6

3-Mth Avg. Daily Vol (US$ Mn)

4.1

Shares Outstanding - Mn

2,474

due to low visibility on an economic recovery. We also expect price increases on the back of ongoing stiff competition. Investors should

Price Performance (M$) LALAB MM

also keep an eye on (1) initiatives to enter the bulk market in Mexico;

120

(2) the evolution of the Nutriline cold cut initiative; (3) the deployment

115

of cash from the October 2013 IPO; and (4) management’s

110

MEXBOL

105

willingness to improve disclosure of the company’s performance at the operating level.

100 95 90 85

o-13

f-14

j-14

o-14

Sources: FactSet, Santander estimates and company reports.

354

GRUPO LALA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 43,846 8.7 15,828 11.4 5,416 13.7 12.4 4,351 13.0 9.9 329 (1,427) 3,130 152.3 7.1

M$ 2014E 44,775 2.1 16,224 2.5 5,405 (0.2) 12.1 4,413 1.4 9.9 281 (1,493) 3,170 1.3 7.1

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (1,066) 227 (2,921) 1,047 (1,265) (218) 191 (3,222) (2,972) 14,056

2014E (992) 140 1,032 5,055 (2,634) 2,420 (890) (551) 0 0

2015E (1,062) 14 (300) 4,350 (2,900) 1,450 150 (1) (1,221) 0

2016E (1,147) (15) (374) 4,802 (2,970) 1,832 (90) 1 (1,221) 0

2013A (83) 18 (229) 82 (99) (17) 15 (252) (233) 1,101

2014E (75) 11 78 384 (200) 184 (68) (42) 0 0

2015E (81) 1 (23) 330 (220) 110 11 (0) (93) 0

2016E (86) (1) (28) 362 (224) 138 (7) 0 (92) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 8,442 15,076 9,934 26,333 4,197 1,931 19,930 727 646

2014E 9,421 16,739 11,560 30,047 5,327 1,374 23,039 176 61

2015E 9,800 17,565 13,232 32,545 5,474 1,465 25,270 176 60

2016E 10,322 18,668 15,183 35,600 5,682 1,577 27,968 176 61

2013A 645 1,152 759 2,013 321 148 1,523 56 49

2014E 714 1,268 876 2,276 404 104 1,745 13 5

2015E 766 1,372 1,034 2,543 428 114 1,974 14 5

2016E 780 1,410 1,147 2,690 429 119 2,113 13 5

81

115

115

115

6

9

9

9 2016E

LT Debt

2015E 47,859 6.9 17,700 9.1 6,154 13.9 12.9 5,092 15.4 10.6 375 (1,833) 3,602 13.6 7.5

2016E 51,687 8.0 19,271 8.9 6,872 11.7 13.3 5,725 12.4 11.1 368 (2,043) 4,014 11.4 7.8

2013A 3,435 12.0 1,240 14.8 424 17.2 12.4 341 16.5 9.9 26 (112) 245 160.0 7.1

US$ 2014E 3,399 (1.0) 1,232 (0.7) 410 (3.3) 12.1 335 (1.7) 9.9 21 (113) 241 (1.8) 7.1

2015E 3,630 6.8 1,343 9.0 467 13.8 12.9 386 15.3 10.6 28 (139) 273 13.5 7.5

2016E 3,894 7.3 1,452 8.1 518 10.9 13.3 431 11.7 11.1 28 (154) 302 10.7 7.8

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

Net Debt

(7,715)

(9,245)

(9,624)

(10,146)

(590)

(700)

(752)

(767)

Capital Employed

22,136

24,720

27,071

29,918

1,692

1,873

2,115

2,260

Net Debt/EBITDA

(1.4)

(1.7)

(1.6)

(1.5)

(1.4)

(1.7)

(1.6)

(1.5)

Net Debt/Equity

(0.4)

(0.4)

(0.4)

(0.4)

(0.4)

(0.4)

(0.4)

(0.4)

2.9

5.9

6.1

5.7

2.9

5.9

6.1

5.7

31.5

259.5

6,259.7

6,519.2

31.5

259.5

6,259.7

6,519.2

239.6

0.0

38.5

33.9

246.9

0.0

34.7

33.8

ROCE (%)

40.9

39.4

40.1

39.6

41.7

42.5

40.2

39.6

ROE (%)

18.8

14.8

14.9

15.1

19.2

15.4

14.9

15.1

Capex/Revenue (%) Int Cover (%) Dividend Payout (%)

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

22.9

22.2

19.0

17.0

22.3

19.8

16.9

15.2

P/CE

17.1

16.9

14.6

13.2

16.6

15.1

13.0

11.8

FV/EBITDA

12.0

11.5

9.7

8.6

11.7

10.1

8.4

7.5

FV/EBIT

14.9

14.1

11.7

10.3

14.5

12.3

10.1

9.0

FV/Revenue

1.5

1.4

1.2

1.1

1.4

1.2

1.1

1.0

P/BV

3.6

3.1

2.7

2.4

3.6

2.7

2.3

2.2

(0.3)

3.4

2.1

2.7

(0.3)

3.9

2.4

3.0

4.2

(0.0)

1.8

1.8

4.3

(0.0)

2.0

2.0

FCF Yield (%) Div Yield (%) PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.26

1.28

1.46

1.62

0.10

0.10

0.11

0.12

DPS

1.20

0

0.49

0.49

0.09

0

0.04

0.04

BVPS

8.05

9.31

10.21

11.30

0.62

0.71

0.80

0.85

355

Grupo Lala is a leading company in the food and beverages industry in Mexico with over 60 years of experience in the production, innovation and selling of milk and other dairy products. The company operates 17 production plants and 161 distribution centers in Mexico and Central America, with a headcount of over 31,000 employees. Grupo Lala operates a fleet of over 7,300 vehicles to distribute over 600 SKUs that reach nearly 500,000 POS. The company offers a wide portfolio of products, mainly under the LALA and NUTRILECHE brands.

Key

Personnel: Eduardo Tricio (Chairman), Arquímedes Celis (CEO), Antonio Zamora (CFO) and Enrique González (IRO) Web: www.grupolala.com Sales by Category, 2015E

Functional 49.3%

Milk 50.7%

Sales by Region, 2015E Central America* 2.0%

Mexico 98.0%

Shareholder Structure, Current Underwritin g Trust 23.6%

Free Float 20.6%

Control Trust 55.3%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—RETAIL & CONSUMER GOODS

GRUPO SANBORNS

UNDERPERFORM CURRENT PRICE: M$22.70 TARGET PRICE: M$24.00



Investment Case: We maintain our Underperform rating, as we

Reinaldo Santana*

remain cautious about a recovery in the company’s SSS (and

Mexico: Banco Santander S.A. +5255-5269-2102 | [email protected]

operating margins) after recent market share losses in its main



Jens Spiess*, CFA

formats.

Mexico: Banco Santander S.A. +5255-5269-1931 | [email protected]

Outlook 2015: After a disappointing 2014, we expect a recovery in

João Mamede*

Grupo Sanborns’ sales and EBITDA in 2015E due to very easy

Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

comps and a gradual consumption recovery in Mexico. However, we are not assuming the company can retake lost market share in the short to medium term. We expect Grupo Sanborns’ EBITDA to increase by 9.8% in 2015, assuming SSS growth of 4.5% for Sears and 3.0% for Sanborns.



Losing confidence in the turnaround: Although we view as positive the company’s efforts to accelerate store remodeling for Sears and Sanborns, SSS continue to disappoint vs. comparable peers, and we believe the turnaround in comp sales will take longer to materialize than previously expected. We are skeptical on the company’s execution in clothing, where competitors have been better



at seizing opportunities in the local market due to the reduction in

Company Statistics

import tariffs.

Bloomberg

A brighter outlook for its credit card division: We are more

GSANBOB1 MM

Current Price (01/02/15)

M$ 22.70 / US$ 1.53

Target Price (YE 2015)

M$ 24.00 / US$ 1.88

52-Week Range (M$)

20.88 - 27.55

optimistic on Grupo Sanborns’ credit card division as a result of a

Market Capitalization (US$ Mn)

slight improvement in loan growth in 2015E (up 7% YoY) and lower

Float (%)

NPLs. In addition, the participation of the company’s private label

3,604 17.2

3-Mth Avg. Daily Vol (US$ Mn)

1.3

Shares Outstanding - Mn

2,355

credit card in Sears’s total sales stood at around 59% at YE2014, better than we expected. This could bode well for the productivity

GSANBOB1 MM

levels of Grupo Sanborns’ credit card division in 2015E.



Price Performance (M$) MEXBOL

120 110

Justified discount to peers: In our view, GSanborns trades at a justified discount to its LatAm counterparts due to its higher execution

100

risks under its current market positioning. Our YE2015 target price is

90

based on a DCF analysis assuming a WACC of 7.9% and perpetuity

80

growth of 3.5%.

70

f-13

j-13

o-13

f-14

j-14

o-14

Sources: FactSet, Santander estimates and company reports.

356

GRUPO SANBORNS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 40,514 2.8 16,088 3.2 5,500 5.3 13.6 4,796 5.1 11.8 251 1,710 3,023 1.8 7.5

M$ 2014E 41,338 2.0 16,419 2.1 5,179 (5.8) 12.5 4,375 (8.8) 10.6 175 1,492 2,830 (6.4) 6.8

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (704) (3) (739) 2,991 (1,675) 1,981 (5,274) (1,942) 11,162

2014E (804) 11 (699) 2,924 (2,470) 376 0 (1,956) (5)

2015E (872) 7 (899) 3,128 (3,297) 49 0 (1,878) 0

2016E (1,016) (4) (1,238) 3,282 (3,462) 38 0 (1,925) 0

2013A (55) (0) (58) 234 (131) 155 (413) (152) 874

2014E (61) 1 (53) 222 (187) 28 0 (148) (0)

2015E (66) 1 (68) 237 (250) 4 0 (142) 0

2016E (77) (0) (94) 250 (263) 3 0 (147) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 7,715 26,524 12,239 38,763 9,476 1,276 26,394 0 0

2014E 6,302 26,059 14,060 40,119 10,865 1,169 26,389 0 0

2015E 4,473 25,695 16,517 42,212 11,575 1,210 27,651 0 0

2016E 2,585 25,755 18,995 44,750 12,431 1,251 29,192 0 0

2013A 590 2,027 935 2,963 724 97 2,017 0 0

2014E 477 1,974 1,065 3,039 823 89 1,999 0 0

2015E 349 2,007 1,290 3,298 904 95 2,160 0 0

2016E 197 1,960 1,446 3,406 946 95 2,222 0 0

LT Debt

2015E 44,566 7.8 17,765 8.2 5,689 9.8 12.8 4,817 10.1 10.8 132 1,584 3,163 11.7 7.1

2016E 48,790 9.5 19,595 10.3 6,331 11.3 13.0 5,315 10.3 10.9 85 1,674 3,501 10.7 7.2

2013A 3,174 5.9 1,260 6.3 431 8.5 13.6 376 8.3 11.8 20 134 237 4.9 7.5

US$ 2014E 3,135 (1.2) 1,245 (1.2) 393 (8.8) 12.5 332 (11.7) 10.6 13 113 215 (9.3) 6.8

2015E 3,379 7.8 1,347 8.2 431 9.8 12.8 365 10.1 10.8 10 120 240 11.7 7.1

2016E 3,713 9.9 1,491 10.7 482 11.7 13.0 404 10.7 10.9 6 127 266 11.1 7.2

0

0

0

0

0

0

0

0

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

(7,715)

(6,302)

(4,473)

(2,585)

(590)

(477)

(349)

(197)

Capital Employed

29,287

29,254

30,637

32,319

2,238

2,216

2,394

2,460

Net Debt/EBITDA

(1.4)

(1.2)

(0.8)

(0.4)

(1.4)

(1.2)

(0.8)

(0.4)

Net Debt/Equity

(0.3)

(0.2)

(0.2)

(0.1)

(0.3)

(0.3)

(0.2)

(0.1)

4.1

6.0

7.4

7.1

4.1

6.0

7.4

7.1

Capex/Revenue (%) Int Cover (%)

45.2

62.1

n/m

n/m

45.2

62.1

n/m

n/m

Dividend Payout (%)

65.4

64.7

66.4

60.9

67.4

62.1

59.7

60.7

ROCE (%)

10.5

9.9

10.6

11.3

11.0

11.5

10.6

11.3

ROE (%)

15.0

10.7

11.7

12.3

15.4

11.2

11.7

12.3

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

21.5

19.1

16.9

15.3

21.0

17.1

15.0

13.5

P/CE

17.5

14.9

13.3

11.8

17.0

13.3

11.8

10.5

FV/EBITDA

11.2

9.9

9.2

8.6

10.9

8.7

8.1

7.6

FV/EBIT

12.8

11.7

10.9

10.2

12.5

10.3

9.5

9.0

FV/Revenue

1.5

1.2

1.2

1.1

1.5

1.1

1.0

1.0

P/BV

2.5

2.1

1.9

1.8

2.5

1.8

1.7

1.6

FCF Yield (%)

3.0

0.7

0.1

0.1

3.1

0.8

0.1

0.1

Div Yield (%)

3.0

3.6

3.5

3.6

3.1

4.0

4.0

4.1

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.28

1.20

1.34

1.49

0.10

0.09

0.10

0.11

DPS

0.82

0.83

0.80

0.82

0.06

0.06

0.06

0.06

11.21

11.21

11.74

12.40

0.86

0.85

0.92

0.94

BVPS

357

Grupo Sanborns is a leading company in the Mexican retail market. The company has a multi-format portfolio, which includes department, specialized, electronic and entertainment, convenience and luxury stores as well as restaurants, with highly recognized brands such as Sears, Sanborns, Sanborns Café, iShop-Mixup, Saks Fifth Avenue, eduMac and DAX. The group of controlling shareholders owns 83% of the company while 17% free float is on the Mexican Stock Exchange.

Key Personnel: Patrick Slim (CEO), Mario Enrique Bermudez (CFO) and Angélica Piña (IR) Web: http://www.gsanborns.com.mx/

Sales by Format, 2014E

Promousa 11.1%

Others 5.8%

Sanborns 30.4%

Sears 52.6%

Market Share of Main Department Stores, 2013A

Sears 19.0%

Palacio 17.0%

Liverpool 64.0%

Shareholder Structure, Current

Free Float 17.2%

Grupo Carso 82.8%

Sources for all charts and tables: Company reports and Santander estimates.

MEXICO—CEMENT, CONSTRUCTION, INFRA & RE

ICA

BUY CURRENT PRICE: M$17.88 TARGET PRICE: M$32.00

INTRODUCING YE2015 TARGET PRICE OF M$32.00; REPLACING YE2014 TARGET PRICE OF M$32.00 

Investment Case:

A vehicle to invest in the Mexican

infrastructure revival. ICA is trading at a 2015E P/E multiple of

Toe Matsumura* Mexico: Banco Santander S.A. +5255-5257-8172 | [email protected]

10.2x, well below the 21.2x of the Mexican market. In our view, the uncertain macroeconomic expectations and industry talk about possible delays in the bidding process caused ICA’s stock price to decline 49% in 2014. However, ICA has focused on diversifying income sources and reducing leverage, and we expect 79% price appreciation.



Outlook 2015: We expect a 12% increase in consolidated revenue, 13% adjusted EBITDA growth, and a 112% jump in net income in 2015. Net debt to EBITDA should reach 4.9x in 2015E, a significant improvement compared with 7.0x at YE2013.



Diversifying sources of revenue: ICA’s revenue will be driven by concessions, projects derived from the energy reform, and the continued good performance in airports, in our opinion. ICA has become diversified and less dependent on civil construction projects: construction accounted for 72% of sales in 3Q14, but contributed only 30% of EBITDA for the same period. We estimate that over 30%

Company Statistics

of ICA’s revenue will be derived from other countries in 2015, which

Bloomberg

should buffer the impact of exchange rate volatility on its U.S. dollardenominated debt (~43% of total debt at YE2013, 51% for 3Q14).



Expecting successful bidding activity in Mexico: We estimate ICA’s success ratio in the 2015 bidding process at ~10% in Mexico.

ICA* MM / ICA US

Current Price (01/02/15)

M$ 17.88 / US$ 4.79

Target Price (YE 2015)

M$ 32.00 / US$ 8.65

52-Week Range (M$)

16.40 - 27.18

Market Capitalization (US$ Mn)

735

Float (%)

84.5

3-Mth Avg. Daily Vol (US$ Mn)

4.7

Shares Outstanding - Mn

610

Subsidiary ICA Fluor should be the vehicle through which projects resulting from the energy reform in Mexico can be assigned.

Price Performance (US$) ICA* MM



MEXBOL

140

Financing projects without compromising balance sheet: To 120

avoid liquidity shortages from its new projects, ICA could focus on projects with payments that are received in advances at different

100

stages (i.e., a portion at the beginning, and different installments at

80

completion of pre-negotiated goals of each project). We believe ICA

60

will maintain its asset recycling strategy for debt reduction. We do not

40

expect ICA to announce new foreign acquisitions.

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

358

d-14

LATIN AMERICAN 2015 Latin American Universe Book

ICA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 29,556 (22.5) 6,083 23.5 4,735 26.6 16.0 3,133 86.6 10.6 (3,379) 596 1,422 (7.0) 4.8

M$ 2014E 35,367 19.7 7,095 16.6 6,338 33.8 17.9 4,512 44.0 12.8 (4,488) 200 503 (64.6) 1.4

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 1,022 4,312 (5,992) 168 (5,314) (1,852) (1,183) 610 0 1,281

2014E 1,626 2,000 2,157 6,086 (3,400) 8,295 5,272 3,000 0 0

2015E 1,865 2,000 1,214 6,343 (3,400) 8,554 2,791 1,000 0 0

2016E 1,762 3,000 1,587 7,792 (6,400) 9,337 1,058 1,000 0 0

2013A 80 338 (469) 13 (416) (145) (93) 48 0 100

2014E 122 150 162 457 (255) 623 396 225 0 0

2015E 126 135 82 429 (230) 578 189 68 0 0

2016E 119 202 107 525 (431) 629 71 67 0 0

2013A 5,380 42,767 58,740 101,507 38,620 38,755 24,132 38,572 9,756

2014E 8,852 41,743 62,660 104,403 36,918 42,850 24,635 41,572 10,393

2015E 7,743 42,620 66,755 109,375 40,368 45,008 24,000 42,572 10,643

2016E 7,801 44,795 74,356 119,151 44,322 47,387 27,443 43,572 10,893

2013A 411 3,265 4,485 7,750 2,949 2,959 1,843 3,021 764

2014E 601 2,832 4,251 7,083 2,505 2,907 1,671 3,123 781

2015E 522 2,873 4,500 7,374 2,721 3,034 1,618 2,879 720

2016E 526 3,020 5,013 8,033 2,988 3,195 1,850 2,937 734

28,816

31,179

31,929

32,679

2,257

2,342

2,159

2,203

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt LT Debt

2015E 39,634 12.1 7,927 11.7 7,140 12.7 18.0 5,075 12.5 12.8 (3,991) (200) 1,064 111.5 2.7

2016E 44,571 12.5 8,914 12.5 7,551 5.7 16.9 5,589 10.1 12.5 (4,276) (200) 1,243 16.8 2.8

2013A 2,315 (20.1) 477 27.3 371 30.5 16.0 245 92.4 10.6 (265) 47 111 (4.1) 4.8

US$ 2014E 2,657 14.8 533 11.8 476 28.4 17.9 339 38.1 12.8 (337) 15 38 (66.1) 1.4

2015E 2,680 0.9 536 0.6 483 1.4 18.0 343 1.3 12.8 (270) (14) 72 90.4 2.7

2016E 3,005 12.1 601 12.1 509 5.4 16.9 377 9.8 12.5 (288) (13) 84 16.4 2.8

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

33,192

32,720

34,829

35,771

2,600

2,458

2,355

2,412

Capital Employed

62,887

67,485

69,007

74,830

4,802

4,578

4,652

5,045

Net Debt/EBITDA

7.0

5.2

4.9

4.7

7.0

5.2

4.9

4.7

Net Debt/Equity

1.4

1.3

1.5

1.3

1.4

1.5

1.5

1.3

18.0

9.6

8.6

14.4

18.0

9.6

8.6

14.4

Capex/Revenue (%) Int Cover (%)

1.6

1.6

1.6

1.6

1.6

1.6

1.6

1.6

Dividend Payout (%)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

ROCE (%)

4.0

6.4

7.6

7.7

4.2

7.1

7.7

7.7

ROE (%)

6.4

2.1

4.4

4.8

6.5

2.2

4.4

4.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

11.6

21.8

10.2

8.8

11.3

19.7

10.2

8.8

MARKET RATIOS P/E P/CE

41.1

-

-

-

40.1

-

-

-

FV/EBITDA

10.5

6.9

6.4

6.2

10.4

6.7

6.4

6.2

FV/EBIT

15.8

9.7

9.0

8.4

15.7

9.5

9.0

8.4

FV/Revenue

1.7

1.2

1.2

1.0

1.7

1.2

1.2

1.0

P/BV

0.7

0.4

0.5

0.4

0.7

0.4

0.5

0.4

FCF Yield (%)

(11.3)

75.5

78.4

85.6

(11.6)

83.6

78.7

85.6

Div Yield (%)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

2.33

0.83

1.74

2.04

0.16

0.06

0.12

0.14

DPS

0

0

0

0

0

0

0

0

39.56

40.38

39.34

44.99

2.67

2.72

2.65

3.03

BVPS

359

Empresas ICA (ICA) is the largest infrastructure and construction company in Mexico, specializing in projects, that include power plants, roads, bridges, subways, suburban trains, airports, and industrial projects. It also participates in the maintenance and operation of highways, bridges, ports, airports, water treatment and distribution and tunnels through concession schemes. ICA has operations in Mexico, Panama and Colombia. ICA holds a controlling stake in Grupo Aeroportuario Centro Norte (OMA), which has a concession to manage and operate 13 airports in Mexico, including Monterrey and Acapulco. ICA has a joint venture with U.S. company Fluor Daniel (ICA – Fluor) to participate in industrial construction projects in Mexico.

Key Personnel: Bernardo Quintana (Chairman), Alonso Quintana (CEO), Victor Bravo (CFO) and Elena García (IRO) Web: www.ica.com.mx

Revenue by Type, 3Q14

Concession s 14.8%

Airports 12.6%

Constructio n 72.6%

Adjusted EBITDA by Type, 3Q14

Airports 33.8%

Constructio n 30.3%

Concession s 35.9%

Shareholder Structure, Current Quintana Family 10.4%

Managemen t and ICA Foundation Trusts 5.2%

Free Float 84.5%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

MEXICO—OIL, GAS & PETROCHEMICALS

IENOVA

BUY CURRENT PRICE: M$74.27 TARGET PRICE: M$90.00

LOWERING YE2015 TARGET PRICE TO M$90.00 FROM M$92.00 

Investment Case: IEnova’s strong growth outlook, attractive returns,

Christian Audi

defensiveness (to FX and GDP in Mexico, and also largely to

New York: Santander Investment Securities Inc. +1-212-350-3991 | [email protected]

commodity prices), solid execution track record, and robust capital discipline makes it—once again—our Top Pick in the Mexico’s energy space.



Gustavo Allevato*, CFA Brazil: Banco Santander S.A. +5511-3012-6042 | [email protected]

Outlook 2015: Despite the downward trend in oil prices, we believe natural gas infrastructure projects in Mexico will continue to move forward (as the country desperately needs them in order to lower electricity prices by accessing cheaper natural gas), not to mention other potential opportunities related to the Energy Reform that may arise for IEnova in 2015. Additionally, we expect the company to benefit from the start-up/ramping up of its new projects, which will strengthen its cash flow generation, in our view, and thus open space for the company to add around US$1 billion in new projects in 2015, and another US$600- 700 million in 2016.



Strong pipeline of growth opportunities: We believe that in addition to numerous opportunities resulting from the country’s massive infrastructure program (natural gas pipelines, electricity

Company Statistics

transmission and generation), IEnova is also well positioned to take

Bloomberg

advantage of the wave of potential new projects resulting from the

IENOVA* MM

Current Price (01/02/15)

M$ 74.27 / US$ 5.01

Target Price (YE 2015)

M$ 90.00 / US$ 7.18

energy reform in Mexico, ranging from liquids pipeline and storage, to

52-Week Range (M$)

gathering and processing, to power generation.

Market Capitalization (US$ Mn)

51.50 - 85.90 5,778

Float (%)



Attractive return outlook: IEnova has been able to build an

19.0

3-Mth Avg. Daily Vol (US$ Mn)

6.0

Shares Outstanding - Mn

1,154

attractive portfolio of assets with high returns. In our view, the company will be able to maintain this capital discipline going forward, by pursuing projects able to generate an IRR of around 8-10% unlevered, in nominal terms.

Price Performance (M$) IEnova - ON (Rebased)

MEXBOL (Rebased)

250

This implies an attractive spread 200

between potential levered returns and the company’s cost of capital. 150

100

50

M-13

J-13

N-13

M-14

J-14

Sources: FactSet, Santander estimates and company reports.

360

N-14

IENOVA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 8,649 8.2 4,453 (4.5) 3,867 (10.9) 44.7 3,087 (12.7) 35.7 (47) (1,069) 1,817 (31.9) 21.0

M$ 2014E 10,253 18.5 5,006 12.4 4,489 16.1 43.8 3,579 15.9 34.9 (187) (749) 2,600 43.1 25.4

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (780) 1,263 (3,694) 658 (7,358) (9,838) (780) 802 (1,990) 11,556

2014E (824) (466) 10 2,968 (6,035) (3,816) 0 2,600 (2,132) 0

2015E (912) (933) (14) 2,917 (8,767) (7,171) 0 7,656 (2,199) 9,570

2016E (931) (1,118) (32) 3,051 (10,402) (5,829) 0 6,400 (2,319) 0

2013A (61) 99 (289) 52 (577) (771) (61) 63 (156) 906

2014E (63) (36) 1 228 (464) (294) 0 200 (164) 0

2015E (72) (73) (1) 229 (687) (562) 0 600 (172) 750

2016E (73) (87) (2) 238 (813) (455) 0 500 (181) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 4,053 6,519 28,861 41,571 2,002 9,371 30,198 5,145 0

2014E 1,399 3,925 32,945 43,304 2,087 11,577 29,640 7,493 0

2015E 10,410 12,994 40,507 60,822 2,133 19,046 39,643 14,981 0

2016E 7,436 10,162 51,374 70,222 2,229 26,123 41,870 21,929 0

2013A 311 500 2,214 3,189 154 719 2,316 395 0

2014E 111 311 2,615 3,437 166 919 2,352 595 0

2015E 830 1,036 3,230 4,850 170 1,519 3,161 1,195 0

2016E 575 785 3,970 5,427 172 2,019 3,236 1,695 0

5,145

7,493

14,981

21,929

395

595

1,195

1,695

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

LT Debt FINANCIAL RATIOS Net Debt

2015E 10,765 5.0 5,265 5.2 5,789 29.0 53.8 4,714 31.7 43.8 (207) (785) 2,952 13.5 27.4

2016E 11,409 6.0 5,721 8.7 6,933 19.8 60.8 5,759 22.2 50.5 (412) (837) 3,270 10.8 28.7

2013A 678 11.6 349 (1.5) 303 (8.2) 44.7 242 (10.0) 35.7 (4) (84) 142 (29.8) 21.0

US$ 2014E 789 16.4 385 10.3 345 13.9 43.8 275 13.8 34.9 (14) (58) 200 40.5 25.4

2015E 844 7.0 413 7.2 454 31.4 53.8 369 34.2 43.8 (16) (62) 231 15.7 27.4

2016E 891 5.7 447 8.3 542 19.4 60.8 450 21.8 50.5 (32) (65) 255 10.5 28.7

1,092

6,094

4,571

14,493

84

484

364

1,120

Capital Employed

35,343

37,133

54,624

63,799

2,711

2,947

4,356

4,930

Net Debt/EBITDA

0.3

1.4

0.8

2.1

0.3

1.4

0.8

2.1

Net Debt/Equity Capex/Revenue (%) Int Cover (%) Dividend Payout (%)

0.0

0.2

0.1

0.3

0.0

0.2

0.1

0.3

85.1

58.9

81.4

91.2

85.1

58.9

81.4

91.2

(303.1)

(548.1)

(673.7)

(101.8)

(303.1)

(548.1)

(673.7)

(101.8)

74.6

120.1

96.2

78.3

76.9

115.2

86.2

78.3 6.6

ROCE (%)

4.8

5.8

6.1

6.6

5.0

6.7

6.1

ROE (%)

6.8

8.2

8.4

8.0

7.0

8.6

8.4

8.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

33.1

32.8

29.0

26.2

32.3

28.9

25.0

22.6

P/CE

23.2

24.9

22.2

20.4

22.6

21.9

19.1

17.6

FV/EBITDA

15.9

20.3

15.6

14.5

15.4

18.1

13.5

12.7

FV/EBIT

MARKET RATIOS

19.9

25.5

19.2

17.4

19.3

22.7

16.6

15.3

FV/Revenue

7.1

8.9

8.4

8.8

6.9

7.9

7.3

7.7

P/BV

2.0

2.9

2.2

2.0

2.0

2.5

1.8

1.8

(16.3)

(4.5)

(8.4)

(6.8)

(16.8)

(5.1)

(9.7)

(7.9)

3.3

2.5

2.6

2.7

3.4

2.8

3.0

3.1

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.83

2.57

2.97

3.28

0.14

0.20

0.23

0.26

DPS

2.01

2.11

2.22

2.33

0.16

0.16

0.17

0.18

29.77

30.24

40.63

41.59

2.28

2.40

3.24

3.21

FCF Yield (%) Div Yield (%) PER SHARE DATA

BVPS

361

IEnova is one of the biggest energy companies in Mexico. It is controlled by the global group Sempra Energy and is dedicated to the development, construction and operation of gas-related infrastructure. The company’s assets are distributed in two main business segments: 1) Gas segment, which includes pipelines, LNG storage, and natural gas distribution; and 2) Electricity segment, with power generation from natural gas plants, and also from a wind farm (currently under development). These assets generate revenues mainly through long-term contracts linked to the US dollar.

Key Personnel: Carlos Ruiz Sacristán (Chairman), Carlos Ruiz Sacristán (CEO), Arturo Infanzón Favela (CFO) and Mike Adams (IR Officer) Web: www.ienova.com.mx

Revenues by Segment, 2015E

Other 0.2% Power 27.9%

Gas 71.9%

EBITDA by Segment, 2015E

Other 2.8% Power 8.7%

Gas 88.5%

Shareholder Structure, Current

Free Float 19.0%

Sempra Energy 81.0%

Sources for all charts and tables: Company reports and Santander estimates.

MEXICO—RETAIL & CONSUMER GOODS

KIMBERLY CLARK

UNDERPERFORM CURRENT PRICE: M$30.74 TARGET PRICE: M$33.00

INTRODUCING YE2015 TARGET PRICE OF M$33.00; REPLACING YE2014 TARGET PRICE OF M$37.00 

Investment Case: Kimber continues to be a key consumer play in

Luis Miranda*, CFA

the Mexican consumer universe and market leader in the tissue

Mexico: Banco Santander S.A. +5255-5269-1926 | [email protected]

market. However, we maintain a cautious view on the company, as we believe that top-line growth continues to be as issue, especially during the first half of 2015, due to a weak consumer environment.

Jens Spiess*, CFA Mexico: Banco Santander S.A. +5255-5269-1931

Additionally, in our view, operating results could remain under pressure, due to a weaker-than-expected FX, which affects more than 60% of the company’s COGS either directly or indirectly.



Outlook 2015: We expect the company’s EBITDA growth to resume in 2015, after declining 21% YoY in pesos in 2014E. Sales could grow close to 5% in peso terms, with a stronger second half of the year, as we expect above-average promotional activity to continue through the first part of the year due to strong competition (as the company continues to defend its market share). We also expect EBITDA to grow at the same level, benefiting from expected appreciation of the Mexican peso during the second half of the year. We believe that lower prices of oil and favorable prices of soft commodities could also help the company deliver slightly healthier Company Statistics

EBITDA growth.

Bloomberg



Searching for growth: We expect the company to continue looking

M$ 30.74 / US$ 2.07

Target Price (YE 2015)

M$ 33.00 / US$ 2.43

for alternatives for growth beyond the tissue market, and we expect

52-Week Range (M$)

that it could enter an additional category in the consumer market in

Market Capitalization (US$ Mn)

2015, potentially via an acquisition in Mexico. This could give the company entrance into a new market, and help to expand its footprint, improving its portfolio.



KIMBERA MM

Current Price (01/02/15)

28.05 - 37.51 6,521

Float (%)

35.0

3-Mth Avg. Daily Vol (US$ Mn)

8.1

Shares Outstanding - Mn

3,147

Price Performance (M$) KIMBERA MM

Key themes for 2015: (1) Competition and pricing in the consumer

140

division (close to 80% of sales); (2) evolution of FX (key driver for

130

COGS); (3) potential acquisition of or development of a new

120

category; and (4) acceleration of share-buyback program.

110

MEXBOL

100 90 80

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

362

d-14

LATIN AMERICAN 2015 Latin American Universe Book

KIMBERLY CLARK Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 29,678 1.3 11,918 5.2 8,725 7.4 29.4 7,208 8.7 24.3 (599) (1,990) 4,619 11.6 15.6

M$ 2014E 28,603 (3.6) 10,676 (10.4) 7,405 (15.1) 25.9 6,045 (16.1) 21.1 (802) (1,609) 3,634 (21.3) 12.7

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (1,517) 159 1,078 7,054 (1,637) 5,417 (613) 1,249 (4,128) -

2014E (1,360) (106) 1,332 6,432 (2,068) 4,364 229 4,143 (4,348) -

2015E (1,338) 60 (12) 5,227 (2,067) 3,159 775 (51) (4,565) -

2016E (1,558) (47) (31) 5,718 (2,138) 3,580 282 40 (4,794) -

2013A (119) 12 84 553 (128) 424 (48) 98 (323) -

2014E (102) (8) 100 484 (156) 328 17 312 (327) -

2015E (96) 4 (1) 373 (148) 226 55 (4) (326) -

2016E (111) (3) (2) 407 (152) 255 20 3 (341) -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 5,390 12,181 17,359 29,540 8,757 12,196 8,587 12,478 2,300

2014E 9,778 17,003 18,024 35,027 10,588 16,261 6,173 16,621 2,366

2015E 9,096 16,659 18,539 35,198 10,864 16,261 6,069 16,570 2,314

2016E 8,204 16,154 19,290 35,444 11,259 16,261 5,919 16,609 2,354

2013A 412 931 1,327 2,258 669 932 656 954 176

2014E 689 1,197 1,269 2,467 746 1,145 435 1,170 167

2015E 669 1,225 1,363 2,588 799 1,196 446 1,218 170

2016E 583 1,149 1,372 2,520 801 1,156 421 1,181 167

LT Debt

10,178

14,255

14,255

14,255

778

1,004

1,048

1,014

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

7,088

6,843

7,474

8,406

542

482

550

598

Capital Employed

20,783

24,439

24,334

24,185

1,588

1,721

1,789

1,720

Net Debt/EBITDA

0.8

0.9

1.0

1.0

0.8

0.9

1.0

1.0

Net Debt/Equity

0.8

1.1

1.2

1.4

0.8

1.2

1.2

1.4

Capex/Revenue (%)

5.5

7.2

6.9

6.8

5.5

7.2

6.9

6.8

Net Debt

2015E 29,980 4.8 11,190 4.8 7,755 4.7 25.9 6,418 6.2 21.4 (593) (1,864) 3,961 9.0 13.2

2016E 31,549 5.2 11,776 5.2 8,311 7.2 26.3 6,754 5.2 21.4 (659) (1,950) 4,144 4.6 13.1

2013A 2,325 4.4 934 8.4 683 10.6 29.4 565 12.1 24.3 (47) (156) 362 15.0 15.6

US$ 2014E 2,153 (7.4) 804 (13.9) 557 (18.4) 25.9 455 (19.4) 21.1 (60) (121) 274 (24.4) 12.7

2015E 2,140 (0.6) 799 (0.6) 554 (0.7) 25.9 458 0.7 21.4 (42) (133) 283 3.4 13.2

2016E 2,243 4.8 837 4.8 591 6.7 26.3 480 4.8 21.4 (47) (139) 295 4.2 13.1

Int Cover (%)

11.7

7.9

7.6

8.8

11.7

7.9

7.6

8.8

Dividend Payout (%)

99.7

94.1

125.6

121.0

102.8

90.3

113.1

120.6

ROCE (%)

44.3

32.9

34.6

36.2

45.2

35.5

34.6

36.2

ROE (%)

53.7

49.2

64.7

69.1

54.8

50.8

64.7

69.1

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

25.1

27.4

24.1

23.0

24.5

24.7

22.8

21.8

P/CE

18.9

20.0

18.0

16.7

18.4

18.0

17.0

15.9

FV/EBITDA

14.1

14.4

13.3

12.5

13.7

13.0

12.6

11.9

FV/EBIT

17.1

17.6

16.0

15.4

16.6

15.9

15.2

14.6

FV/Revenue

4.1

3.7

3.4

3.3

4.0

3.4

3.3

3.1

13.5

16.1

15.7

16.1

13.5

15.6

14.4

15.3

FCF Yield (%)

4.7

4.4

3.3

3.8

4.8

4.9

3.5

4.0

Div Yield (%)

3.6

4.4

4.8

5.0

3.7

4.8

5.1

5.3

P/BV

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.48

1.17

1.28

1.33

0.12

0.09

0.09

0.09

DPS

1.32

1.40

1.47

1.54

0.10

0.11

0.10

0.11

BVPS

2.75

1.99

1.95

1.91

0.21

0.14

0.14

0.14

363

Kimberly Clark de Mexico (“Kimber”) is the largest Mexican manufacturer and distributor of consumer and institutional tissue. For 2015, sales, EBITDA, and net profit are expected to be M$30 billion, M$7.8 billion, and M$4.0 billion, respectively. Domestic sales amount to 94% of the total, while 6% are accounted for by exports. The Kimberly Clark Corporation holds 48% of the total outstanding shares. The free float is 35%.

Key

Personnel: Claudio González Laporte (Chairman), Pablo González Guajardo (CEO), Xavier Cortés Lascurain (CFO) and Sergio Camacho Carmona (Treasurer) Web: www.kimberly-clark.com.mx Sales by Segment, 2015E

Professional 8.5%

Exports 4.2%

Consumer Products 87.5%

Distribution Channels, 2015E

Retailers 50.0%

Wholesalers 50.0%

Shareholder Structure, Current

Free Float 35.0%

Others 17.0%

KimberlyClark Corp 48.0%

Sources for all charts and tables: Company reports and Santander estimates.

MEXICO—RETAIL & CONSUMER GOODS

LIVERPOOL

BUY CURRENT PRICE: M$144.01 TARGET PRICE: M$190.00

LOWERING YE2015 TARGET PRICE TO M$190.00 FROM M$196.00 

Investment Case: We maintain our Buy rating on Liverpool, as we

Reinaldo Santana*

continue to like the company’s fundamentals in terms of market

Mexico: Banco Santander S.A. +5255-5269-2102 | [email protected]

share gains, organic expansion, and enhanced productivity of its loan portfolio and a gradual reduction in its NPLs given an expected consumption recovery in Mexico.



Jens Spiess*, CFA Mexico: Banco Santander S.A. +5255-5269-1931 | [email protected]

João Mamede*

Outlook 2015: We are optimistic about Liverpool’s outlook for 2015,

Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

based on above-average selling space growth of 5% coupled with a more robust SSS outlook (+7.0% versus +5.5% in 2014E). Furthermore, we expect minor operating margin improvements given lower provisions for bad loans and more comparable expenses regarding online and personnel investments. We expect EBITDA to increase by 15% to M$14.9 billion in 2015.



New avenues for growth: Liverpool has gained considerable share in the Mexican department store market in 2014, at least 3 percentage points against its closest competitor. In addition, we view as positive Liverpool’s new ventures in fashion boutiques, in the online platform, and in the new Fabricas de Francia line targeting lower-income segments, as we see these as long-term growth

Company Statistics

opportunities. We expect Liverpool to end 2015 with 200 boutiques, 7

Bloomberg

new Fábricas, and close to 200,000 SKUs available on its website.



M$ 144.01 / US$ 9.71

Target Price (YE 2015)

M$ 190.00 / US$ 14.84

52-Week Range (M$)

129.97 - 159.88

Slight reduction in our target price: We reduced our target price

Market Capitalization (US$ Mn)

for YE2015 by 3% to M$190, mainly as a result of lower operating

Float (%)

13,031 14.0

3-Mth Avg. Daily Vol (US$ Mn)

margins for 2014-16E than we initially expected.



LIVEPOLC MM

Current Price (01/02/15)

3.2

Shares Outstanding - Mn

Justified premium valuations: Liverpool trades at a premium valuation to its LatAm peers, at a 22.1x P/E for 2015E, though we

1,342

Price Performance (M$) LIVEPOLC MM

MEXBOL

130

find this premium justified given the company’s increasing market 120

share, low credit risk portfolio, 2015-16E EPS CAGR of 16%, and 110

higher profitability and returns compared with peers.

100 90 80

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

364

d-14

LATIN AMERICAN 2015 Latin American Universe Book

LIVERPOOL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

2013A 5,805 15.3 2,348 15.6 982 9.8 16.9 849 8.4 14.6 (74) 211 603 10.3 10.4

US$ 2014E 6,130 5.6 2,476 5.4 979 (0.3) 16.0 834 (1.7) 13.6 (70) 225 577 (4.4) 9.4

2015E 6,872 12.1 2,789 12.7 1,126 15.1 16.4 969 16.1 14.1 (66) 284 663 14.9 9.6

2016E 7,832 14.0 3,202 14.8 1,318 17.0 16.8 1,143 18.0 14.6 (62) 339 790 19.3 10.1

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 74,105 11.9 29,971 12.2 12,536 6.5 16.9 10,836 5.1 14.6 (945) 2,699 7,701 7.0 10.4

M$ 2014E 80,832 9.1 32,644 8.9 12,905 2.9 16.0 11,001 1.5 13.6 (926) 2,968 7,603 (1.3) 9.4

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (1,700) 589 5,956 10,186 (5,956) 194 2,011 (2,590) 0

2014E (1,904) 510 7,770 9,401 (6,436) 1,512 (2,021) (0) 0

2015E (2,079) 572 9,868 11,349 (7,045) 1,204 (500) (532) 0

2016E (2,284) 630 0 13,714 (7,300) 9,542 0 (1,311) 0

2013A (133) 46 467 798 (467) 15 158 (203) 0

2014E (144) 39 589 713 (488) 115 (153) (0) 0

2015E (158) 43 748 861 (534) 91 (38) (40) 0

2016E (175) 48 0 1,050 (559) 730 0 (100) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,618 37,140 57,442 94,581 25,626 14,128 54,827 14,933 6,011

2014E (416) 38,109 63,220 101,329 23,335 15,566 62,428 12,911 2,990

2015E (244) 42,113 68,186 110,298 25,171 15,066 70,061 12,411 2,990

2016E (305) 47,393 73,201 120,594 27,084 15,066 78,445 12,411 2,990

2013A 124 2,839 4,390 7,229 1,959 1,080 4,190 1,141 459

2014E (32) 2,887 4,789 7,676 1,768 1,179 4,729 978 227

2015E (19) 3,290 5,327 8,617 1,967 1,177 5,473 970 234

2016E (23) 3,627 5,603 9,230 2,073 1,153 6,004 950 229

8,921

9,921

9,421

9,421

682

752

736

721 2016E

LT Debt

2015E 90,626 12.1 36,782 12.7 14,853 15.1 16.4 12,774 16.1 14.1 (865) 3,745 8,737 14.9 9.6

2016E 102,321 12.9 41,835 13.7 17,219 15.9 16.8 14,934 16.9 14.6 (816) 4,425 10,323 18.2 10.1

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

Net Debt

13,315

13,327

12,655

12,717

1,018

1,010

989

973

Capital Employed

68,955

77,994

85,127

93,511

5,270

5,909

6,651

7,157

Net Debt/EBITDA

1.1

1.0

0.9

0.7

1.0

1.0

0.9

0.7

Net Debt/Equity

0.2

0.2

0.2

0.2

0.2

0.2

0.2

0.2

Capex/Revenue (%)

8.0

8.0

7.8

7.1

8.0

8.0

7.8

7.1

Int Cover (%)

12.0

13.0

17.6

21.8

12.0

13.0

17.6

21.8

Dividend Payout (%)

36.0

0.0

7.0

15.0

37.1

0.0

6.3

15.0

ROCE (%)

14.0

11.7

11.3

11.9

14.5

13.3

11.3

11.9

ROE (%)

14.8

13.0

13.2

13.9

15.1

13.6

13.2

13.9

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

26.0

26.1

22.1

18.7

25.3

23.3

19.7

16.5

P/CE

21.3

20.9

17.9

15.3

20.7

18.7

15.9

13.5

FV/EBITDA

17.0

16.4

13.9

12.0

16.6

14.8

12.4

10.6

FV/EBIT

19.7

19.3

16.1

-

19.2

17.3

14.5

-

FV/Revenue

2.9

2.6

2.3

2.0

2.8

2.4

2.0

1.8

P/BV

3.6

3.2

2.8

2.5

3.6

2.8

2.4

2.2

FCF Yield (%)

0.1

0.8

0.6

4.9

0.1

0.9

0.7

5.6

Div Yield (%)

1.3

0.0

0.3

0.7

1.3

0.0

0.3

0.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

5.74

5.66

6.51

7.69

0.45

0.43

0.49

0.59

PER SHARE DATA EPS DPS BVPS

1.93

0.00

0.40

0.98

0.15

0

0.03

0.07

40.85

46.51

52.20

58.45

3.12

3.52

4.08

4.47

365

Liverpool is Mexico’s largest department store chain, with a market share of over 64% in 2013 if considering the three largest industry players. Liverpool operates three divisions: retailing (86% of sales), credit (11% of sales) and real estate (3% of sales). The Michel, David, Guichard and Bremond families hold 77% of the total outstanding shares, while Bancomer and Banamex hold about 9%. The remaining 14% could be considered as free float. There are two series of shares: LIVEPOL1 with voting rights encompassing 85% of the outstanding shares and LIVEPOLC1 without voting rights encompassing the remaining 14%.

Key Personnel: Max David (Chairman), Jorge Salgado (CEO), Enrique Güijosa (CFO), Joao de Moura (IRO) and Jose Antonio Diego (Corporate Treasurer) Web: www.liverpool.com.mx

Sales by Segment, 2014E

Credit 10.6%

RE 3.4%

Retail 86.0%

Retail Sales Mix, 2013A Electronics & Home Appliances 26.0%

Others 23.0% Kids 13.0%

Men & Sports 17.0%

Women 21.0%

Shareholder Structure, Current Non Controlling Group 9.0%

Free Float 14.0%

Controlling Group 77.0%

Sources for all charts and tables: Company reports and Santander estimates.

MEXICO—PETROCHEMICALS

MEXICHEM

BUY CURRENT PRICE: M$42.82 TARGET PRICE: M$60.00

INTRODUCING YE2015 TARGET PRICE OF M$60.00; REPLACING YE2014 TARGET PRICE OF M$66.00 

Investment Case: We maintain a positive view on Mexichem for

Luis Miranda*, CFA

2015, as we believe the company will resume growing organically

Mexico: Banco Santander S.A. +5255-5269-1926 | [email protected]

and see benefits from the integration of DuraLine and Vestolit (acquired during 2014). Thus, we expect the disappointing performance—with the company negatively affected by extraordinary charges, devaluation in Venezuela, investment in PMV (JV with Pemex), and lower prices of fluorspar—to end. We also believe that

Jens Spiess*, CFA Mexico: Banco Santander S.A. +5255-5269-1931 | [email protected]

Christian Audi New York: Santander Investment Securities Inc. +1-212-350-3991 | [email protected]

the company will be a clear beneficiary of the energy reform in Mexico, with the impact, however, reflected only in long-term results.



Outlook 2015: After a disappointing 2014, we expect the company’s EBITDA growth to resume. On the organic front, the key driver will be the recovery in prices of fluorspar due to contract renegotiations. We also expect a more normalized 2015 in terms of extraordinary charges (Wavin restructure, devaluation in Venezuela, and ramp-up of PMV). Based on our estimates, the acquisition made in 2014 could add 11% EBITDA growth in 2015.



Organic versus acquisitions: During 2015, we expect that both

Company Statistics

organic and M&A increases will be material growth drivers. Although

Bloomberg

organic growth will face a challenging environment due to lower oil

Current Price (01/02/15)

M$ 42.82 / US$ 2.89

prices, this should be partially offset by a weak base of comparison in

Target Price (YE 2015)

M$ 60.00 / US$ 4.41

2014. For M&A, we expect the company will focus on integrating the companies acquired in 2014, which would strengthen its position in the chlorine vinyl and integrated solution divisions.

MEXCHEM* MM

52-Week Range (M$)

41.40 - 58.14

Market Capitalization (US$ Mn)

6,062

Float (%)

43.0

3-Mth Avg. Daily Vol (US$ Mn)

9.6

Shares Outstanding - Mn



2,100

Key themes for 2015: (1) Evolution of prices for fluorspar (average and contract prices); (2) availability and prices of VCM and PVC

Price Performance (M$) MEXCHEM* MM

under current oil price scenario; (3) evolution of PMV output (VCM)

110

and profitability of the ethylene cracker project; (4) integration and

100

synergies of DuraLine and Vestolit; and (5) outlook for its operations

90

in Venezuela.

80

MEXBOL

70 60 50

d-12

a-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

366

d-14

LATIN AMERICAN 2015 Latin American Universe Book

MEXICHEM Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 66,086 5.0 19,534 (5.8) 11,475 (13.4) 17.4 7,178 (20.1) 10.9 2,409 (2,002) 833 (78.2) 1.3

M$ 2014E 75,022 13.5 19,280 (1.3) 11,266 (1.8) 15.0 6,299 (12.2) 8.4 3,275 (865) 2,243 169.2 3.0

2015E 91,342 21.8 22,506 16.7 13,880 23.2 15.2 7,764 23.3 8.5 2,541 (1,732) 3,676 63.9 4.0

2016E 104,528 14.4 25,755 14.4 16,237 17.0 15.5 9,930 27.9 9.5 2,678 (2,382) 5,057 37.5 4.8

2013A 5,177 8.2 1,530 (2.9) 899 (10.7) 17.4 562 (17.6) 10.9 189 (157) 65 (77.5) 1.3

US$ 2014E 5,647 9.1 1,451 (5.2) 848 (5.7) 15.0 474 (15.7) 8.4 247 (65) 169 158.7 3.0

Company Description 2015E 6,522 15.5 1,607 10.7 991 16.9 15.2 554 16.9 8.5 181 (124) 262 55.5 4.0

2016E 7,431 13.9 1,831 13.9 1,154 16.5 15.5 706 27.4 9.5 190 (169) 360 37.0 4.8

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (4,297) (909) 617 6,655 (23,098) (16,444) 23,468 (2,110) (10,182) -

2014E (5,490) (707) (1,174) 7,266 (16,261) (8,995) 36,659 5,036 (21,193) -

2015E (6,230) 152 285 10,040 (17,143) (7,104) 14,315 (326) 0 -

2016E (6,257) (65) (1,507) 9,872 (7,033) 2,839 3,269 252 0 -

2013A (337) (71) 48 521 (1,809) (1,288) 1,838 (165) (798) -

2014E (413) (53) (88) 547 (1,224) (677) 2,759 379 (1,595) -

2015E (445) 11 20 717 (1,224) (507) 1,022 (23) 0 -

2016E (445) (5) (107) 702 (500) 202 232 18 0 -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 16,127 39,946 67,107 107,053 19,822 40,245 43,159 28,330 813

2014E 29,803 60,443 80,643 141,086 25,029 61,693 48,492 36,129 864

2015E 35,229 69,118 77,552 146,669 28,773 61,827 50,013 34,286 809

2016E 42,786 82,544 80,588 163,132 32,977 66,511 56,769 35,704 851

2013A 1,233 3,053 5,129 8,182 1,515 3,076 3,299 2,165 62

2014E 2,099 4,257 5,679 9,936 1,763 4,345 3,415 2,544 61

2015E 2,590 5,082 5,702 10,785 2,116 4,546 3,677 2,521 60

2016E 3,043 5,870 5,731 11,601 2,345 4,730 4,037 2,539 61

27,517

35,265

33,477

34,853

2,103

2,483

2,462

2,478

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

12,203

6,326

(942)

(7,081)

933

446

(69)

(504)

Capital Employed

87,231

116,057

117,896

130,155

6,667

8,173

8,669

9,255

Net Debt/EBITDA

1.1

0.6

(0.1)

(0.4)

1.0

0.5

(0.1)

(0.4)

Net Debt/Equity

0.3

0.1

(0.0)

(0.1)

0.3

0.1

(0.0)

(0.1)

35.0

21.7

18.8

6.7

35.0

21.7

18.8

6.7

LT Debt

Capex/Revenue (%) Int Cover (%) Dividend Payout (%) ROCE (%) ROE (%) MARKET RATIOS

5.7

5.0

5.4

6.5

5.7

5.0

5.4

6.5

266.8

n/m

0.0

0.0

274.9

n/m

0.0

0.0

11.2

7.1

9.2

11.4

11.4

7.8

9.2

11.4

2.0

4.8

7.4

9.3

2.0

5.0

7.4

9.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

n/m

41.9

25.6

18.6

n/m

37.9

24.4

17.8

P/CE

22.0

12.2

9.5

8.3

21.5

11.0

9.0

7.9

FV/EBITDA

11.8

9.9

7.5

6.1

11.5

9.0

7.2

5.8

FV/EBIT

18.8

17.7

13.4

9.9

18.3

16.1

12.8

9.4

FV/Revenue

2.0

1.5

1.1

0.9

2.0

1.3

1.1

0.9

P/BV

2.6

1.9

1.9

1.7

2.6

1.9

1.7

1.6

(14.6)

(9.6)

(7.6)

3.0

(14.9)

(10.6)

(7.9)

3.2

9.0

22.6

(0.0)

(0.0)

9.3

25.0

(0.0)

(0.0)

FCF Yield (%) Div Yield (%) PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.46

1.18

1.84

2.52

0.04

0.09

0.13

0.18

DPS

5.58

11.17

0

0

0.44

0.84

0

0

23.09

23.91

25.74

28.26

1.76

1.68

1.89

2.01

BVPS

367

Mexichem is a leading producer of PVC products and pipes, as well as metallurgic and acid grades of fluorite. It is a market leader in the PVC pipe business in Latin America, with an installed capacity of close to 1.4 million tonnes per year and the largest fluorite mine in the world, with an annual production of 1.0 million tonnes. The company operates three business units: (1) the chlorinevinyl chain; (2) fluorite chain; and (3) transformed products. The company has one of the first JV with Pemex for the production of VCM in Mexico and also has a JV with Oxychem in the U.S. for the construction of a natural gas-based ethylene cracker (2017). It is also investing in cogeneration projects for internal consumption and sale to the public grid.

Key Personnel: Juan Pablo del Valle (Chairman), Antonio Carrillo (CEO), Rodrigo Guzmán (CFO) and Bernice Muñoz (IRO) Web: www.mexichem.com.mx

Sales by Division, 2015E Integrated Solutions 32.9%

VinylChlorine 51.0%

Fluorine 32.6%

EBITDA by Division, 2015E

Integrated Solutions 49.1%

VinylChlorine 29.7%

Fluorine 33.4%

Shareholder Structure, Current

Del Valle Family 57.0%

Free Float 43.0%

Sources for all charts and tables: Company reports and Santander estimates.

MEXICO—CEMENT, CONSTRUCTION, INFRA & RE

OHL MEXICO

BUY CURRENT PRICE: M$25.81 TARGET PRICE: M$32.00



Investment Case: In the last 30 days, OHLMEX’s share price has

Ana Gabriela Reynal*, CFA

fallen 40%. According to our sensitivity analysis, the current share

Mexico: Banco Santander S.A. +5255-5269-1900 | [email protected]

price already reflects the sale of Conmex at a significant discount. We maintain our Buy rating while we continue to highlight two strong risks: (i) EBITDA cash below financing costs; and (ii) the potential conflict of interest between OHL Spain and OHLMEX.



Bruno Amorim*, CFA Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

Pedro Balcão Reis* Brazil: Banco Santander S.A. +5511-3012-5765 | [email protected]

Conmex sale: Our base-case scenario is OHLMEX selling 49% of Conmex at a 30% discount to our valuation, which is reflected in our YE2015 target price of M$32.00. This high discount assumption is based on (i) the market’s perception that both OHLMEX and its parent company are distressed sellers; and (ii) this being a minority stake sale.



Our sensitivity analysis includes scenarios ranging from the sale of a 0-49% stake in Conmex at a 0-50% discount to our estimated fair equity value. In each scenario, we take into account both the decrease in the company’s ownership of Conmex and the cash that would be received for the sale (post taxes), while valuing the Company Statistics

remaining stake in the asset at a fair level.

Bloomberg



Conclusion: Even if the company sells 49% of Conmex at a 50% discount to our valuation, upside potential would be ~16%. Although

OHLMEX* MM

Current Price (01/02/15)

M$ 25.81 / US$ 1.74

Target Price (YE 2015)

M$ 32.00 / US$ 2.35

52-Week Range (M$)

25.20 - 42.87

we continue to see significant risks to the investment case, the

Market Capitalization (US$ Mn)

current share price supports our Buy rating.

Float (%)

8,605 43.9

3-Mth Avg. Daily Vol (US$ Mn)



Outlook 2015: Solid operating outlook . . . We expect 16% toll revenue growth in 2015 based on double-digit traffic growth in V. Bicentenario and AUNorte and above-inflation tariff increases in

9.3

Shares Outstanding - Mn

4,945

Price Performance (M$) OHLMEX* MM

MEXBOL

160

Conmex, V. Bicentenario, and AUNorte. We also expect a 2.5-p.p. expansion in the EBITDA cash margin as toll roads continue maturing.



140

120

. . . however, cash EBITDA is still below financing costs, despite a 24% YoY increase in the former.

100

80

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

368

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LATIN AMERICAN 2015 Latin American Universe Book

OHL MEXICO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 19,692 8.0 0 n/m 15,404 43.6 78.2 14,673 50.9 74.5 5,377 3,255 6,674 29.4 33.9

M$ 2014E 18,183 (7.7) 0 n/m 14,105 (8.4) 77.6 13,077 (10.9) 71.9 4,593 2,717 6,317 (5.4) 34.7

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 730 (4,437) 0 1,507 (2,927) (1,421) 0 4,839 (14) (900)

2014E 1,028 (3,351) 0 1,938 (2,646) (708) 0 6,604 0 287

2015E 1,178 (4,059) 0 2,371 (7,050) (4,679) 0 6,384 0 (2,181)

2016E 1,328 (6,625) 0 2,959 (5,300) (2,341) 0 2,224 0 (5,870)

2013A 57 (348) 0 118 (229) (111) 0 379 (1) (70)

2014E 78 (253) 0 146 (199) (53) 0 498 0 22

2015E 84 (291) 0 170 (505) (335) 0 457 0 (156)

2016E 95 (473) 0 211 (379) (167) 0 159 0 (419)

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 5,155 6,081 80,760 90,567 2,105 40,390 47,940 31,423 522

2014E 8,046 8,972 90,569 103,457 2,105 46,994 54,204 38,027 522

2015E 8,345 9,271 104,931 118,583 2,105 53,378 62,918 44,411 522

2016E 5,273 6,199 120,539 131,657 2,105 55,602 73,730 46,635 522

2013A 394 465 6,172 6,922 161 3,087 3,664 2,402 40

2014E 579 645 6,516 7,443 151 3,381 3,900 2,736 38

2015E 614 682 7,716 8,719 155 3,925 4,626 3,266 38

2016E 378 445 8,647 9,445 151 3,989 5,289 3,345 37

LT Debt

30,901

37,505

43,889

46,113

2,362

2,698

3,227

3,308

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

27,781

31,494

37,579

42,874

2,123

2,266

2,763

3,076

Capital Employed

88,462

101,352

116,478

129,552

6,761

7,292

8,565

9,294

Net Debt/EBITDA

1.8

2.2

2.5

2.1

1.8

2.1

2.5

2.1

Net Debt/Equity

2015E 23,640 30.0 0 n/m 15,179 7.6 64.2 14,001 7.1 59.2 3,758 3,272 7,607 20.4 32.2

2016E 28,038 18.6 0 n/m 20,424 34.6 72.8 19,096 36.4 68.1 4,221 4,693 10,911 43.4 38.9

2013A 1,543 11.3 0 n/m 1,207 48.0 78.2 1,149 55.6 74.5 421 255 523 33.4 33.9

US$ 2014E 1,371 (11.1) 0 n/m 1,064 (11.9) 77.6 986 (14.2) 71.9 346 205 476 (8.9) 34.7

2015E 1,693 23.5 0 n/m 1,087 2.2 64.2 1,003 1.7 59.2 269 234 545 14.4 32.2

2016E 2,003 18.3 0 n/m 1,459 34.2 72.8 1,364 36.1 68.1 301 335 779 43.1 38.9

0.6

0.6

0.6

0.6

0.6

0.6

0.6

0.6

Capex/Revenue (%)

14.9

14.5

29.8

18.9

14.9

14.5

29.8

18.9

Int Cover (%)

(2.8)

(3.7)

(3.9)

(4.8)

(2.8)

(3.7)

(3.9)

(4.8)

0.3

0.0

0.0

0.0

0.3

0.0

0.0

0.0

16.6

12.9

12.0

14.7

17.0

14.3

12.0

14.7

Dividend Payout (%) ROCE (%) ROE (%)

16.6

12.4

13.0

16.0

16.9

12.9

13.0

16.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

8.7

7.5

5.9

4.1

8.5

6.7

5.5

3.9

P/CE

9.7

9.0

7.0

4.7

9.5

8.1

6.5

4.4

FV/EBITDA

5.6

5.6

5.4

4.3

5.4

5.2

5.3

4.2

FV/EBIT

5.9

6.0

5.9

4.6

5.7

5.6

5.8

4.5

FV/Revenue

4.4

4.3

3.5

3.1

4.3

4.0

3.4

3.0

P/BV

1.2

0.9

0.7

0.6

1.2

0.8

0.7

0.6

(2.5)

(1.5)

(10.5)

(5.2)

(2.5)

(1.7)

(11.1)

(5.5)

MARKET RATIOS

FCF Yield (%) Div Yield (%)

0.0

(0.0)

(0.0)

(0.0)

0.0

(0.0)

(0.0)

(0.0)

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

3.85

3.65

4.39

6.30

0.30

0.27

0.31

0.45

DPS

0.01

0

0

0

0.00

0

0

0

27.68

31.29

36.32

42.56

2.12

2.25

2.67

3.05

PER SHARE DATA

BVPS

369

OHL Mexico is a pure-concession infrastructure company controlled by OHL Spain, a construction company. OHLMEX’s portfolio comprises 7 toll road concessions in Mexico (Conmex, Viaducto Bicentenario, GANA, Urbana Norte, Atizapán – Atlacomulco, Mexico – Puebla bypass and 50% of Poetas). Currently, all of OHLMEX’s highways are fully operational, except for Atizapán – Atlacomulco and Mexico – Puebla bypass, which were recently awarded to OHLMEX. All toll road concessions are located within the Mexico City metropolitan area and the states of Mexico and Puebla. In addition, OHL Mexico holds 49% of AMAIT, the concession holder of Toluca Airport.

Key Personnel: José Andrés de Oteyza (Chairman), Sergio Hidalgo (CEO) and Alberto Guajardo (IRO) Web: www.ohlmexico.com.mx

Cash EBITDA by Concession, 2014E

GANA 14.0%

V. Urbana Bicentenario Norte 9.1% -0.8%

Conmex 77.7%

SOTP valuation, 2015E

Urbana Norte 18.9%

Toluca Atizapan - POETAS 0.8% Gana Atlacomulco 2.4% Puebla 7.1% 3.0% -0.1%

Viaducto Bicentenario 12.0%

CONMEX 56.0%

Shareholder Structure, Current

Free Float 43.9%

OHL Spain 56.1%

Sources for all charts and tables: Company reports and Santander estimates.

MEXICO—TRANSPORTATION

OMA

BUY CURRENT PRICE: M$65.61 TARGET PRICE: M$82.00

RAISING YE2015 TARGET PRICE TO M$82.00 FROM M$73.00 

Investment Case: With OMA’s implied spread between equity IRR

Ana Gabriela Reynal*, CFA

and cost of equity of 1.2 p.p., high dividend yield, and strong outlook,

Mexico: Banco Santander S.A. +5255-5269-1900 | [email protected]

the company remains our top pick among Mexican airports and in the LatAm infrastructure sector. We expect the company’s traffic growth to outperform its peers in 2016-18E, mainly due to its exposure to shale gas zones: Monterrey, Reynosa, Tampico, and Chihuahua (62% of total traffic).



Bruno Amorim*, CFA Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

Pedro Balcão Reis* Brazil: Banco Santander S.A. +5511-3012-5765 | [email protected]

2015 PAX outlook: We estimate OMA’s PAX will grow 10% in 2015 (with 10.0% growth in 2014E vs. our former 8.3% estimate). In our view, such an increase will be supported by (i) domestic airlines’ increased interest in Monterrey (e.g., new hubs by Aeromexico and Volaris, new operations by TAR), (ii) cheap jet fuel prices, and (iii) potential traffic related to the energy reform, in our view. These airports have already been growth drivers in October and November.



Commercial revenue: We estimate nonaeronautical revenue growth of 16.6% for 2015, on the back of 7.0% growth in nonaeronautical revenue (ex hotels) per PAX, as the new Hilton Garden Inn



Monterrey starts operations and the first industrial park is opened

Company Statistics

(both estimated for 1Q15).

Bloomberg

2015 estimate revisions: Our estimates reflect above-consensus

M$ 65.61 / US$ 35.50

Target Price (YE 2015)

M$ 82.00 / US$ 48.20

52-Week Range (M$)

40.43 - 68.82

positive operating results in 2014. Thus, our new EBITDA and net

Market Capitalization (US$ Mn)

income forecasts for 2015 are 10.6% and 12.5% above consensus,

Float (%)

respectively.



OMAB MM / OMAB US

Current Price (01/02/15)

Attractive dividend yield: Management plans to pay M$1.2 billion in dividends, or M$3.01 per share, for a 2015E yield of 4.7%.

1,763 31.0

3-Mth Avg. Daily Vol (US$ Mn)

3.5

Shares Outstanding - Mn

399

Price Performance (US$) OMAB MM

MEXBOL

200 180 160 140 120 100 80

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

370

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LATIN AMERICAN 2015 Latin American Universe Book

OMA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description Grupo Aeroportuario del Centro Norte (OMA) has a concession from the Mexican government ending in 2048, which allows it to operate 13 airports. OMA's airports are located in Mexico’s central and northern regions and fall into four categories: (1) those serving large metropolitan cities (e.g., Monterrey); (2) three tourist destinations on the Pacific Coast (Acapulco, Mazatlán, and Zihuatanejo); (3) seven medium-sized cities in Northern Mexico (Chihuahua, Culiacán, Durango, San Luis Potosí, Tampico, Torreón, and Zacatecas); and (4) two cities on the border with the U.S. (Ciudad Juárez and Reynosa). It also operates a hotel and commercial area inside Terminal 2 of the Mexico City airport. During full year 2013, OMA handled 13.3 million passengers.

Key Personnel: Diego Quintana (Chairman), Porfirio González (CEO), José Luis Guerrero (CFO) and Vicsaly Torres (IRO) Web: www.oma.aero

Passengers by Origin, 2013

Internat’l’l 13.3%

Domestic 86.7%

Revenues by Segment, 2013

Shareholder Structure, Current

Sources for all charts and tables: Company reports and Santander estimates.

371

MEXICO—INFRASTRUCTURE

PINFRA

BUY CURRENT PRICE: M$172.06 TARGET PRICE: M$214.00

LOWERING YE2015 TARGET PRICE TO M$214.00/M$205.00 FROM M$219.00/M$210.00 

Investment Case: PINFRA, which we believe has the strongest

Ana Gabriela Reynal*, CFA

investment capabilities in the toll road sector, continues to be the best

Mexico: Banco Santander S.A. +5255-5269-1900 | [email protected]

way to play Mexico’s infrastructure plan, in our view. This, along with the attractive price-appreciation potential based on the company’s current portfolio (+30.5% to year-end 2015, +1.1 p.p. spread between equity IRR and cost) and upside risk to our estimates in the medium term (both from new projects and roads near the new Mexico City

Bruno Amorim*, CFA Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

Pedro Balcão Reis* Brazil: Banco Santander S.A. +5511-3012-5765 | [email protected]

airport), support a Buy rating.



Outlook 2015: We expect consolidated traffic growth of 10%, mainly boosted by the opening of the Mexico-Toluca bypass. We estimate revenue from toll roads will grow 16.7% and EBITDA toll margin expansion of 1.3 p.p. We expect total top line, EBITDA, and net income growth of 16%, 17%, and 40% (the latter benefiting from a high comp base in financing costs).



Investment capabilities (cash + potential leverage): PINFRA is currently in a position to invest M$20.6 billion, assuming the company leverages investments at 50%. Its current pipeline accounts for M$10.0 billion, which is already reflected in our model. If we assume

Company Statistics

the remaining M$10.6 billion are invested at a 10% real IRR, our

Bloomberg

estimate of fair equity value becomes M$105.1 billion, implying additional 20.0% capital-appreciation potential (or 51.2% total).

NFRA* MM / PINFRAL MM

Current Price (01/02/15)

M$ 172.06 / M$ 155.83

Target Price (YE 2015)

M$ 214.00 / M$ 205.00

52-Week Range (M$)

151.19 - 189.59

Market Capitalization (US$ Mn)



New Mexico City airport and PINFRA: The project is slated to be developed in government-owned land in the Texcoco area, and to be

4,409

Float (%)

59.4

3-Mth Avg. Daily Vol (US$ Mn)

7.4

Shares Outstanding - Mn

380

surrounded by two of PINFRA’s toll roads: Peñón–Texcoco and Ecatepec–Peñon (the latter expected to start operations in 2015). Considering the airport will start off with a 50 million annual PAX

Price Performance (M$) PINFRA* MM

MEXBOL

250

capacity, we believe that stabilizing traffic in Peñon–Texcoco and 200

Ecatepec–Peñón

just

below

80,000

and

38,000

vehicles,

respectively, in 2026 is a conservative estimate.



150

Changes in estimates: Our target price decrease reflects weakerthan-expected performance, mainly from Paquete Michoacán.

100

50

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

372

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LATIN AMERICAN 2015 Latin American Universe Book

PINFRA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions 2015E 7,282 15.5 0 n/m 4,725 17.3 64.9 4,256 14.9 58.4 117 889 3,557 39.3 48.8

2016E 7,699 5.7 0 n/m 4,906 3.8 63.7 4,306 1.2 55.9 (107) 1,196 3,075 (13.6) 39.9

2013A 449 28.6 0 n/m 291 24.6 64.8 264 25.1 58.8 (74) 24 172 23.9 38.3

2014E (324) (239) 0 2,638 (3,339) 206 0 (592) 0 8,172

2015E (468) (93) 0 3,932 (4,094) (221) 0 (1,061) 0 0

2016E (601) (16) 0 3,659 (2,925) 776 0 4,093 (3,557) 0

2013A (27) 17 0 216 (54) 204 0 (52) 0 (11)

2014E (24) (18) 0 199 (252) 16 0 (45) 0 616

2015E (34) (7) 0 282 (293) (16) 0 (76) 0 0

2016E (43) (1) 0 261 (209) 55 0 292 (254) 0

2013A 3,084 3,808 11,913 18,718 1,656 8,322 8,737 8,122 0

2014E 9,962 10,686 14,927 28,850 1,656 7,730 19,461 7,530 0

2015E 8,738 9,462 18,553 31,346 1,656 6,668 23,018 6,468 0

2016E 10,009 10,733 20,878 34,957 1,656 10,761 22,536 10,561 0

2013A 236 291 910 1,431 127 636 668 621 0

2014E 717 769 1,074 2,076 119 556 1,400 542 0

2015E 643 696 1,364 2,305 122 490 1,693 476 0

2016E 718 770 1,498 2,508 119 772 1,617 758 0

8,122

7,530

6,468

10,561

621

542

476

758 2016E

2013A 5,732 24.8 0 n/m 3,714 20.9 64.8 3,370 21.3 58.8 (947) 311 2,195 20.2 38.3

CASH FLOW Depreciation & Amortizatio Other Noncash Items Changes in Working Capita Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments Change in Debt Dividends Capital Increases/Other

2013A (344) 221 0 2,760 (693) 2,606 0 (659) 0 (145)

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt LT Debt FINANCIAL RATIOS

Company Description

US$ 2014E 475 5.9 0 n/m 304 4.4 63.9 279 5.8 58.7 (64) 29 192 11.9 40.5

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

M$ 2014E 6,305 10.0 0 n/m 4,027 8.4 63.9 3,703 9.9 58.7 (845) 381 2,553 16.3 40.5

2015E 521 9.7 0 n/m 338 11.4 64.9 305 9.2 58.4 8 64 255 32.3 48.8

2016E 550 5.5 0 n/m 350 3.6 63.7 308 0.9 55.9 (8) 85 220 (13.8) 39.9

2013A

2014E

2015E

2016E

2013A

2014E

2015E

4,278

(3,192)

(3,029)

(207)

327

(230)

(223)

(15)

Capital Employed

17,063

27,195

29,690

33,301

1,304

1,956

2,183

2,389

Net Debt/EBITDA

1.2

(0.8)

(0.6)

(0.0)

1.1

(0.8)

(0.7)

(0.0)

Net Debt/Equity

0.5

(0.2)

(0.1)

(0.0)

0.5

(0.2)

(0.1)

(0.0)

12.1

53.0

56.2

38.0

12.1

53.0

56.2

38.0

Int Cover (%)

5.5

6.2

10.0

8.4

5.5

6.2

10.0

8.4

Dividend Payout (%)

0.0

0.0

0.0

100.0

0.0

0.0

0.0

99.7

ROCE (%)

18.5

12.7

12.3

10.5

19.0

14.1

12.3

10.5

ROE (%)

28.7

18.1

16.7

13.5

29.4

19.3

16.7

13.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

27.0

29.1

20.3

23.5

26.3

26.2

19.1

22.1

P/CE

23.4

25.8

17.9

19.6

22.8

23.2

16.9

18.5

FV/EBITDA

17.1

17.7

14.6

14.7

16.7

15.8

13.7

13.8

FV/EBIT

18.9

19.2

16.2

16.7

18.4

17.2

15.2

15.8

FV/Revenue

11.1

11.3

9.5

9.3

10.8

10.1

8.9

8.8

P/BV

6.8

3.8

3.1

3.2

6.8

3.6

2.9

3.0

FCF Yield (%)

4.4

0.3

(0.3)

1.1

4.5

0.3

(0.3)

1.1

(0.0)

(0.0)

(0.0)

4.9

(0.0)

(0.0)

(0.0)

5.2 2016E

Net Debt

Capex/Revenue (%)

MARKET RATIOS

Div Yield (%) PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

EPS

5.77

6.03

8.41

7.27

0.45

0.91

1.20

1.04

DPS

0

0

0

8.41

0

0

0

1.20

22.99

48.46

54.40

53.26

1.76

6.97

8.00

7.64

BVPS

373

PINFRA is a concession, construction, materials and infrastructure operating company that controls a portfolio of 15 toll road concessions in Mexico, which implies the operation of 24 toll roads (being their most important the Mexico - Toluca toll-road) and the Altamira Port concession. Currently, 16 of PINFRA’s highways are fully operational, and 8 are under construction. The concessions are located in Mexico City and the Estates of México, Morelos, Puebla, Guerrero, Tlaxcala, Michoacán, Colima, Sonora, Tamaulipas, and Veracruz.

Key Personnel: David Peñaloza Alanis (Chairman), David Peñaloza Alanis (CEO), Carlos Cesarman Kolteniuk (CFO) and Carlos Cesarman Kolteniuk (CFO) Web: www.pinfra.com.mx

EBITDA by Concession/Line of Business, 2014E Other Altamira Materials Construct. Bussiness Mexico 8.3% 3.0% 1.1% 5.6% Toluca 33.0%

Other Toll Roads 38.6%

Pirámides Ecatepec Peñon 10.5%

SOTP Valuation, 2015E

Other Toll Roads 24.1%

Peñon Texcoco 14.1%

Altamira 2.4% Materials Construct. Opervite 6.5% 1.7% 0.6%

Armería Manzanillo 9.6%

Pirámides Ecatepec Peñon 12.9%

Mexico Toluca 28.1%

Shareholder Structure, Current

Free Float 59.4%

Peñaloza Alanis Family 40.6%

Sources for all charts and tables: Company reports and Santander estimates.

MEXICO—RETAIL & CONSUMER GOODS

SORIANA

HOLD CURRENT PRICE: M$38.03 TARGET PRICE: M$44.00

LOWERING YE2015 TARGET PRICE OF M$44.00 FROM M$48.00 

Investment Case: We maintain our Hold rating based on lower

Reinaldo Santana*

earnings visibility given market share losses and the company’s

Mexico: Banco Santander S.A. +5255-5269-2102 | [email protected]

initiatives to implement changes in its IT systems and commercial strategy, as well as remodel stores as we believe that that these factors could increase execution risk in the short to medium term.



Outlook 2015: We expect Soriana’s selling space to increase by

Jens Spiess*, CFA Mexico: Banco Santander S.A. +5255-5269-1931 | [email protected]

João Mamede* Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

4.2% in 2015, below the company’s historical growth of 8-10%. We are factoring in a recovery in comp sales (up 3%YoY) fueled by a consumption recovery in Mexico and easy comps. However, we highlight the risks stemming from recent market share losses and changes in the company’s structure. We expect EBITDA to increase 8.3%, to M$7.4 billion.



Tough landscape and higher risk of dilutive acquisitions: The food retail market in Mexico remains fiercely competitive, making it harder for Soriana to convince customers of its new value proposition. In addition, we see increased risks that players like Soriana could pay high valuation multiples to participate in the Company Statistics

potential consolidation of the food retail industry.

Bloomberg



We are reducing our year-end target price by 9% due to lower estimates, based on a more gradual consumption recovery in Mexico, and market share losses.

SORIANAB MM

Current Price (01/02/15)

M$ 38.03 / US$ 2.56

Target Price (YE 2015)

M$ 44.00 / US$ 3.44

52-Week Range (M$)

36.00 - 48.62

Market Capitalization (US$ Mn)

4,615

Float (%)



Attractive valuation is not a catalyst: Soriana trades at a 2015E P/E of 15.1x, which suggests some upside from current levels, though with lower earnings visibility. Our YE2015 target price is based on a DCF analysis assuming a WACC of 8.2% and a

13.8

3-Mth Avg. Daily Vol (US$ Mn)

1.1

Shares Outstanding - Mn

1,800

Price Performance (M$) SORIANAB MM

MEXBOL

110

perpetuity growth of 3.5%. 100

90

80

70

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

374

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LATIN AMERICAN 2015 Latin American Universe Book

SORIANA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions 2013A 8,228 2.3 1,741 5.1 590 3.7 7.2 435 4.4 5.3 (22) 173 244 (12.0) 3.0

2015E 8,141 5.6 1,789 6.1 587 8.2 7.2 424 9.9 5.2 (1) 127 335 18.5 4.1

2016E 8,963 10.1 1,978 10.6 658 12.1 7.3 484 14.4 5.4 3 146 395 18.1 4.4

2016E (2,270) (151) 7,282 (4,965) 1,937 (2) (1,324) 0

2013A (155) (121) 278 (283) 88 (62) 0 0

2014E (157) (35) 405 (240) 170 (113) (53) 0

2015E (163) (11) 487 (320) 147 (34) 0 0

2016E (174) (12) 557 (380) 148 (0) (101) 0

2016E 3,350 28,049 62,111 90,161 23,085 13,333 53,743 (2) (2)

2013A 127 1,812 4,227 6,039 1,806 916 3,316 149 149

2014E 93 1,720 4,281 6,001 1,547 944 3,510 34 34

2015E 211 2,001 4,608 6,609 1,664 1,007 3,938 (0) (0)

2016E 256 2,147 4,754 6,901 1,767 1,020 4,113 (0) (0)

2013A 105,028 0.4 22,229 3.1 7,534 1.7 7.2 5,558 2.4 5.3 (276) 2,209 3,117 (13.7) 3.0

2015E 107,358 5.7 23,586 6.1 7,742 8.3 7.2 5,586 9.9 5.2 (15) 1,671 4,414 18.5 4.1

2016E 117,097 9.1 25,840 9.6 8,599 11.1 7.3 6,329 13.3 5.4 39 1,910 5,164 17.0 4.4

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (1,976) (1,540) 3,553 (3,617) 1,126 (796) 0 0

2014E (2,069) (455) 5,337 (3,169) 2,245 (1,494) (700) 0

2015E (2,156) (151) 6,419 (4,220) 1,937 (455) 0 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 1,666 23,709 55,302 79,010 23,634 11,988 43,387 1,948 1,948

2014E 1,224 22,705 56,503 79,208 20,416 12,460 46,333 454 454

2015E 2,705 25,608 58,984 84,593 21,299 12,889 50,405 (0) (0)

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

LT Debt FINANCIAL RATIOS Net Debt

Company Description

US$ 2014E 7,706 (6.3) 1,685 (3.2) 542 (8.1) 7.0 385 (11.5) 5.0 (15) 101 282 15.6 3.7

M$ 2014E 101,609 (3.3) 22,223 (0.0) 7,152 (5.1) 7.0 5,082 (8.6) 5.0 (198) 1,329 3,724 19.5 3.7

0

0

0

0

0

0

0

0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

282

(769)

(2,706)

(3,352)

22

(58)

(211)

(257)

Capital Employed

55,376

58,792

63,294

67,075

4,232

4,454

4,945

5,134

Net Debt/EBITDA

0.0

(0.1)

(0.3)

(0.4)

0.0

(0.1)

(0.4)

(0.4)

Net Debt/Equity

0.0

(0.0)

(0.1)

(0.1)

0.0

(0.0)

(0.1)

(0.1)

Capex/Revenue (%)

3.4

3.1

3.9

4.2

3.4

3.1

3.9

4.2

16.7

26.1

274.7

n/m

16.7

26.1

274.7

n/m

Dividend Payout (%)

Int Cover (%)

0.0

22.4

0.0

30.0

0.0

21.5

0.0

29.9

ROCE (%)

8.4

6.8

6.7

7.1

8.7

7.8

6.7

7.1

ROE (%)

7.4

8.3

9.1

9.9

7.6

8.7

9.1

9.9

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

26.9

19.5

15.5

13.3

26.2

17.4

13.8

11.7

P/CE

16.4

12.5

10.4

9.2

16.0

11.2

9.3

8.1

FV/EBITDA

11.2

10.0

8.5

7.6

10.9

9.0

7.5

6.6

FV/EBIT

15.1

14.1

11.8

10.3

14.7

12.6

10.4

9.0

FV/Revenue

0.8

0.7

0.6

0.6

0.8

0.6

0.5

0.5

P/BV

1.9

1.6

1.4

1.3

1.9

1.4

1.2

1.1

FCF Yield (%) Div Yield (%) PER SHARE DATA

1.3

3.1

2.8

2.8

1.4

3.5

3.2

3.2

(0.0)

1.0

(0.0)

1.9

(0.0)

1.1

(0.0)

2.2

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.73

2.07

2.45

2.87

0.14

0.16

0.19

0.22

DPS

0

0.39

0

0.74

0

0.03

0

0.06

24.10

25.74

28.00

29.86

1.84

1.95

2.19

2.29

BVPS

375

Soriana is the second largest food retailer in Mexico, with a market share that we estimate was 18% in 2013. The company ended 2013 with 659 stores and 3,220,697 square meters. The Martin Bringas and Martin Soberon families hold 86% of the outstanding shares, while the free float is 14%.

Key Personnel: Ricardo Martin Bringas (CEO), Aurelio Adan (CFO), Rodrigo Benet (IRO) and Arturo Ledesma (IR) Web: www.soriana.com.mx

Sales by Division 2013A

Mercado 19.6%

Express 4.5%

City Club 8.3%

Super 8.3%

Hiper 59.4%

Market Share Food Retailers 2013A

Comerci Casa Ley 3.4% 7.6% Chedraui 6.9%

Others 12.2%

Soriana 15.9%

Walmex 54.0%

Shareholder Structure, Current Managemen t 2.4% Free Float 13.8%

Control Trust 83.8%

Sources for all charts and tables: Company reports and Santander estimates.

MEXICO—RETAIL & CONSUMER GOODS

SPORTS WORLD

BUY CURRENT PRICE: M$25.77 TARGET PRICE: M$30.50

INTRODUCING YE2015 TARGET PRICE OF M$30.50; REPLACING YE2014 TARGET PRICE OF M$23.00 

Investment Case: We believe Sports World’s strong top-line growth

Ana Gabriela Reynal*, CFA

and margin improvement in 2013-14 despite Mexico’s weak

Mexico: Banco Santander S.A. +5255-5269-1900 | [email protected]

consumption environment during both years offer proof of the resilience of the company’s business model. We reiterate our positive stance on the name based on: (i) a healthier macro outlook for 2015,

João Mamede* Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

which in our view, should translate into stronger same-club sales and lower churn rates; (ii) strong organic expansion plans; and (iii) continuing operating leverage from corporate expense dilution.



Outlook 2015: We expect 17.7% growth in revenue, boosted by six openings and the maturation of clubs opened in 2H13 and 2014 (10 units). We expect EBITDA margin expansion of 100 bps, as preoperating and corporate expenses are now diluted by a significantly larger club base (45 vs. 38 in 2014 in average). We highlight some upside risk to our estimates, derived mainly from the company’s incursion into new ventures that require lower investment compared with current formats. However, we prefer to wait until there is more evidence of revenue and profitability from Company Statistics

these ventures before including them in our model.

Bloomberg



Valuation: We believe Sports World continues to trade at attractive levels (2015E EV/EBITDA of 7.7x), especially compared to Mexican

M$ 25.77 / US$ 1.74

Target Price (YE 2015)

M$ 30.50 / US$ 2.24

52-Week Range (M$)

18.70 - 26.05

consumer names (averaging 11.8x). Our YE2015 target price is

Market Capitalization (US$ Mn)

143

based on a 10-year DCF model, using a WACC of 10.05% and

Float (%)

70.0

perpetuity growth of 3.0%.



SPORTS MM

Current Price (01/02/15)

Changes in management: After the corporate restructuring of the past couple of years, we anticipated more stability in Sports World’s

3-Mth Avg. Daily Vol (US$ Mn)

0.4

Shares Outstanding - Mn

82

Price Performance (M$) SPORTS MM

MEXBOL

160

management. In November 2014, however, the company announced a new CFO; nonetheless, we believe that with all other key executive positions unchanged, the company will continue implementing the

140

120

successful strategies we have been witnessing since 2013. 100

80

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

376

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LATIN AMERICAN 2015 Latin American Universe Book

SPORTS WORLD Company Description

2014E 115 0 9 192 257 (60) 0 29 0 0

2015E 134 0 11 233 264 (23) 0 51 0 0

2016E 158 0 13 280 277 15 0 19 0 0

2013A 8 0 (1) 12 19 (7) 0 4 0 0

2014E 9 0 1 14 19 (4) 0 2 0 0

2015E 10 0 1 17 19 (2) 0 4 0 0

2016E 11 0 1 20 20 1 0 1 0 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 143 166 883 1,228 267 152 802 193 41

2014E 105 129 1,025 1,335 277 181 870 222 41

2015E 124 149 1,155 1,487 289 232 959 274 41

2016E 146 173 1,274 1,629 304 251 1,068 293 41

2013A 11 13 67 94 20 12 61 15 3

2014E 7 9 72 94 20 13 61 16 3

2015E 9 11 85 109 21 17 71 20 3

2016E 11 12 92 117 22 18 77 21 3

123

152

203

222

9

11

15

16

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

50

117

150

147

4

8

11

11

Capital Employed

961

1,058

1,198

1,326

73

74

88

95

Net Debt/EBITDA

0.3

0.6

0.6

0.5

0.3

0.5

0.6

0.5

Net Debt/Equity

0.1

0.1

0.2

0.1

0.1

0.1

0.2

0.1

Capex/Revenue (%)

(26.9)

(24.4)

(21.3)

(19.0)

(26.9)

(24.4)

(21.3)

(19.0)

Int Cover (%)

(13.2)

(15.3)

(16.0)

(16.1)

(13.2)

(15.3)

(16.0)

(16.1)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

FINANCIAL RATIOS Net Debt

Dividend Payout (%) ROCE (%) ROE (%) MARKET RATIOS P/E P/CE FV/EBITDA FV/EBIT

2015E 88 11.4 88 11.4 18 17.5 20.7 9 26.1 9.9 (1) 2 6 23.9 7.2

2016E 105 18.6 105 18.6 23 23.1 21.5 11 27.9 10.7 (1) 2 8 23.6 7.5

7.4

7.5

8.8

10.2

7.6

8.4

8.8

10.2

10.1

8.1

9.7

10.8

10.3

8.5

9.7

10.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

19.9

31.2

23.9

19.4

19.4

28.1

22.5

18.2

-

-

-

-

-

-

-

-

9.2

10.8

8.8

7.2

9.0

9.8

8.4

6.8

20.9

24.3

18.5

14.5

20.4

21.9

17.6

13.7

FV/Revenue

1.8

2.1

1.8

1.5

1.7

1.9

1.7

1.5

P/BV

1.9

2.4

2.2

2.0

1.9

2.3

2.0

1.9

FCF Yield (%)

(5.8)

(2.8)

(1.1)

0.7

(5.9)

(3.1)

(1.1)

0.8

Div Yield (%)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.94

0.83

1.08

1.33

0.07

0.06

0.08

0.10

DPS

0

0

0

0

0

0

0

0

9.77

10.60

11.68

13.00

0.75

0.75

0.86

0.94

PER SHARE DATA

BVPS

377

Sports World is one of Mexico’s leading fitness brands. Founded in 2000 and going public in 2010, the company began an accelerated expansion—going from 12 gyms in operation pre-IPO to 40 units as of December 2014. The company is present in Mexico City, Mexico State, Veracruz, Puebla and Tijuana through fully owned gyms (no franchises). Historically, Sports World has served the highest end of the income segment, competing mainly with Sport City, but is currently developing a low-cost business model to expand its target clientele. The company's main focus and differentiator is customer service.

Key Personnel: Fabian Bifaretti (CEO), Jose Antonio Pastrana (CFO) and Begoña Orgambide (IRO) Web: www.sportsworld.com.mx

Revenue per Item, 2014E Other (sponsorshi ps) 11.5%

Membership Sales 4.4%

Monthly Dues 84.1%

Number of Clubs, 2010A-15E 46.00 40.00 34.00 29.00 19.00

2015E

2013A 97 0 (17) 157 240 (89) 0 46 0 0

LT Debt

2013A 70 31.9 70 31.9 14 51.6 19.4 6 60.6 8.5 (1) 0 6 100.5 8.7

2014E

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2016E 1,460 17.9 1,460 17.9 313 22.3 21.5 156 27.2 10.7 (16) 34 109 22.8 7.5

2013A

2013A 892 28.0 892 28.0 173 47.0 19.4 76 55.8 8.5 (7) 5 78 94.6 8.7

2015E 1,238 17.5 1,238 17.5 256 23.8 20.7 122 33.0 9.9 (10) 26 89 30.7 7.2

US$ 2014E 79 13.5 79 13.5 16 14.8 19.6 7 16.2 8.7 (1) 1 5 (15.9) 6.4

2012A

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

M$ 2014E 1,054 18.1 1,054 18.1 207 19.5 19.6 92 20.9 8.7 (7) 18 68 (12.4) 6.4

2011A

Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Shareholder Structure, Current Founders + Nexxus Partners 30.0%

Free Float 70.0%

Sources for all charts and tables: Company reports and Santander estimates.

MEXICO—TELECOM, MEDIA & TECHNOLOGY

TELEVISA

HOLD CURRENT PRICE: M$99.94 TARGET PRICE: M$105.00

INTRODUCING YE2015 TARGET PRICE OF M$105.00; REPLACING YE2014 TARGET PRICE OF M$83.00 

Investment Case: Although we still see Televisa growing its top line

Valder Nogueira*

by high-single digits (based on a good blend of telecom/Sky/royalties

Brazil: Banco Santander S.A. +5511-3012-5747 | [email protected]

revenue) and acknowledge the benefits of a stronger U.S. dollar (for content sold in the U.S. and the US$-denominated sale of its 50% stake in Iusacell), the performance of the core content business

Bruno Mendonca* Brazil: Banco Santander S.A. +5511-3012-5759 | [email protected]

(including the negative impact of the must-carry/must-offer ruling) and advertising dynamics in Mexico remain challenging. We see the current 29.3x P/E for 2015E as stretched and do not see major upside at current levels, even when valuing the stake in Univision at 17x EV/EBITDA.



Outlook 2015: In our view, the main key drivers for the stock in 2015, following the Iusacell divestment, will be (1) the fate of the ongoing discussions (on both legal and regulatory grounds) regarding a ruling on Televisa’s market dominance, (2) the potential monetization of Univision, and (3) the auctioning, in 1Q15, of new open-TV licenses, which are also set to be telecom-convergent (Televisa may be forced to share open-TV infrastructure as part of anti-dominance regulatory remedies). Another key factor to watch is M&A, in light of (i) the fate of DirecTV-AT&T’s noncontrolling stake in Sky Mexico (controlled by Televisa), (ii) AT&T’s recently announced

Company Statistics Bloomberg

TLEVICPO MM / TV US

Current Price (01/02/15)

M$ 99.94 / US$ 33.71

intention to have a mobile footprint in Mexico (by acquiring 100% of

Target Price (YE 2015)

M$ 105.00 / US$ 36.20

Iusacell from Grupo Salinas), and (iii) additional M&A opportunities

52-Week Range (M$)

arising from AMX’s announced intention to divest telecom assets and infrastructure.

74.24 - 104.73

Market Capitalization (US$ Mn)

19,320

Float (%)

85.0

3-Mth Avg. Daily Vol (US$ Mn)

19.1

Shares Outstanding - Mn

2,868

Price Performance (M$) TLEVICPO MM

MEXBOL

160

140

120

100

80

j-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

378

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LATIN AMERICAN 2015 Latin American Universe Book

TELEVISA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions 2015E 85,238 8.2 42,677 36.6 32,246 26.2 37.8 42,677 36.6 50.1 (5,217) (4,357) 9,803 56.5 11.5

2016E 90,174 5.8 45,123 5.7 34,088 5.7 37.8 45,123 5.7 50.0 (4,697) (5,007) 11,267 14.9 12.5

2013A 5,922 12.4 2,159 1.2 2,287 4.1 38.6 2,159 1.2 36.5 43 (299) 594 (27.1) 10.0

2014E (11,256) (2,639) 16,713 14,128 18,834 18,446 (1,779) 0

2015E (12,524) 41 22,712 12,822 8,490 0 (2,451) 0

2016E (12,587) 33 24,417 12,710 8,636 (1,461) (2,817) 0

2013A (784) 223 2,305 1,726 896 567 (87) 0

2014E (899) (211) 1,335 1,128 1,504 1,473 (142) 0

2015E (860) 3 1,560 881 583 0 (168) 0

2016E (858) 2 1,664 866 589 (100) (192) 0

2013A 16,692 53,474 53,477 194,507 40,173 75,426 78,908 60,056 313

2014E 28,895 63,913 59,500 220,433 32,716 100,909 86,809 78,502 342

2015E 36,335 74,053 59,799 235,723 33,293 108,269 94,161 78,502 342

2016E 43,764 83,496 59,922 250,382 35,201 112,570 102,611 77,041 336

2013A 1,391 4,456 4,456 16,209 3,348 6,285 6,576 5,005 26

2014E 1,993 4,408 4,103 15,202 2,256 6,959 5,987 5,414 24

2015E 2,486 5,066 4,091 16,127 2,278 7,407 6,442 5,371 23

2016E 2,970 5,667 4,067 16,994 2,389 7,640 6,964 5,229 23

59,743

78,159

78,159

76,705

4,979

5,390

5,347

5,206 2016E

2013A 73,791 6.5 26,908 (4.2) 28,504 (1.4) 38.6 26,908 (4.2) 36.5 533 (3,729) 7,397 (31.0) 10.0

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (9,765) 2,782 28,725 21,508 11,160 7,064 (1,084) 0

LT Debt

Company Description

US$ 2014E 6,292 6.3 2,494 15.5 2,040 (10.8) 32.4 2,494 15.5 39.6 (302) (241) 500 (15.7) 7.9

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

M$ 2014E 78,794 6.8 31,233 16.1 25,548 (10.4) 32.4 31,233 16.1 39.6 (3,777) (3,018) 6,263 (15.3) 7.9

2015E 5,855 (6.9) 2,931 17.5 2,215 8.6 37.8 2,931 17.5 50.1 (358) (299) 673 34.6 11.5

2016E 6,145 4.9 3,075 4.9 2,323 4.9 37.8 3,075 4.9 50.0 (320) (341) 768 14.0 12.5

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

Net Debt

43,364

49,606

42,167

33,277

3,614

3,421

2,885

2,259

Capital Employed

122,272

136,415

136,328

135,888

10,189

9,408

9,327

9,223

Net Debt/EBITDA

1.5

1.9

1.3

1.0

1.6

1.7

1.3

1.0

Net Debt/Equity

0.5

0.6

0.4

0.3

0.6

0.6

0.4

0.3

(29.1)

(17.9)

(15.0)

(14.1)

(29.1)

(17.9)

(15.0)

(14.1)

Capex/Revenue (%) Int Cover (%)

-

-

-

-

-

-

-

-

Dividend Payout (%)

10.1

24.0

39.1

28.7

10.4

23.1

35.2

28.6

ROCE (%)

26.2

25.8

35.4

37.6

26.8

28.3

35.5

37.6

ROE (%)

10.0

7.6

10.8

11.5

10.3

7.9

10.8

11.5

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

30.7

46.0

29.3

25.5

29.2

39.1

28.7

25.2

P/CE

13.2

16.4

12.8

12.0

12.6

14.0

12.6

11.9

FV/EBITDA

10.5

14.6

11.3

10.4

10.1

12.4

11.1

10.3

FV/EBIT

15.9

26.1

18.5

16.5

15.4

22.2

18.2

16.4

FV/Revenue

4.0

4.7

4.3

3.9

3.9

4.0

4.2

3.9

P/BV

2.9

3.3

3.0

2.8

2.6

3.3

3.0

2.8

FCF Yield (%)

4.9

6.5

3.0

3.0

5.2

7.7

3.0

3.0

Div Yield (%)

0.5

0.6

0.9

1.0

0.5

0.7

0.9

1.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

2.59

2.18

3.42

3.93

2.07

1.74

2.35

2.68

DPS

0.38

0.62

0.85

0.98

0.30

0.50

0.59

0.67

27.58

30.27

32.83

35.77

22.14

24.17

22.55

24.38

MARKET RATIOS

PER SHARE DATA

BVPS

379

Grupo Televisa, S.A.B., is the largest media company in the Spanish-speaking world based on its market capitalization and a major participant in the international entertainment business. It has interests in television production and broadcasting, pay-television networks, international distribution of TV programming, cable television and telecommunication services, magazine publishing and distribution, among other media services. Televisa is controlled by the Azcárraga family, which holds 15% of Televisa's total capital. The rest is free float.

Key Personnel: Emilio Azcárraga Jean (Chairman), Emilio Azcárraga Jean (CEO), Salvi Rafael Folch Viadero (CFO), Carlos Madrazo (IRO) and Eduardo Nestel (IR Manager) Web: http://www.televisa.com/inversionistas-ingles/

Revenue Breakdown, 2013 Cable and Telecom 23.3% Sky 21.3%

Content 44.7%

Other Businesses (including Publishing) 10.7%

EBITDA Breakdown, 2013 Cable and Telecom 20.4% Sky 24.5%

Other Businesses (including Publishing) 2.7%

Content 51.9%

Shareholder Structure, Current

Azcárraga Family 15.0%

Free Float 85.0%

Sources for all charts and tables: Company reports and Santander estimates.

MEXICO—TRANSPORTATION

VOLARIS

BUY CURRENT PRICE: US$8.83 TARGET PRICE: US$12.00

RAISING YE2015 TARGET PRICE TO US$12.00 FROM US$10.80 

Investment Case: We believe momentum is improving for Volaris

Ana Gabriela Reynal*, CFA

based on: (i) a deceleration of the price war, with clear signs of

Mexico: Banco Santander S.A. +5255-5269-1900 | [email protected]

increasing capacity rationality from Aeromexico and Volaris; and (ii) a significant decrease in jet fuel prices (-35% in USD in the last two months). We expect a strong 4Q14 (EBIT margin of 6.5% vs. -6.2% in 4Q13) and a much stronger 2015 vs. 2013-14. With the stock trading at a 2015E EV/EBITDAR of ~7.5x, we believe the

Pedro Balcão Reis* Brazil: Banco Santander S.A. +5511-3012-5765 | [email protected]

Bruno Amorim*, CFA Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

shares are attractive, with 33.4% price-appreciation potential.



Decelerating price war with Aeromexico: In June 2014, Aeromexico became significantly more cautious by decelerating domestic capacity growth, with Volaris following suit a couple of months later. Since October, we have seen capacity fall for both players, which together account for 60% of the domestic air PAX market in Mexico. In fact, in 3Q14 Volaris posted a flat yield after four

Company Statistics

consecutive quarters of significant cuts (-10%, -15%, -21%, and

Bloomberg

-10% YoY in 3Q13, 4Q13, 1Q14, and 2Q14, respectively).



VLRS US / VOLARA MM

Current Price (01/02/15)

US$ 8.83 / M$ 13.03

Target Price (YE 2015)

US$ 12.00 / M$ 16.30

52-Week Range (US$)

6.92 - 13.97

Going abroad in search of demand: While posting a contraction in

Market Capitalization (US$ Mn)

893

domestic ASMs, both Aeromexico and Volaris’s supply grew by

Float (%)

25.0

double digits in the international market in November (11.4% and

3-Mth Avg. Daily Vol (US$ Mn)

1.3

Shares Outstanding - Mn

101

10.2%, respectively). According to Volaris’s management, yields are not being pressured to accommodate this increase in supply.

Price Performance (US$) VLRS US



MEXBOL

120

Outlook 2015: We believe a more rational competitive landscape, improving load factors and strong focus on ancillary revenue will

100

result in 14% YoY top-line growth.

80

Additionally, we see a 5.8 p.p. increase in EBIT margin (to 5.9%)

60

given (i) cheap jet fuel (-10% YoY in MXN FY2015, even considering it increases and stabilizes at an average of 14% above current levels); (ii) Volaris’ fleet modernization, which implies further jet fuel cost efficiencies; (iii) capacity management; and (iv) better margins from ancillary vs. PAX revenue.

380

40

s-13

e-14

m-14

s-14

Sources: FactSet, Santander estimates and company reports.

LATIN AMERICAN 2015 Latin American Universe Book

VOLARIS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDAR YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 13,002 11.3 13,002 11.3 2,805 13.3 21.6 316 (16.5) 2.4 (35) 18 263 29.2 2.0

M$ 2014E 13,650 5.0 13,650 5.0 2,803 (0.1) 20.5 13 (96.0) 0.1 130 9 134 (48.9) 1.0

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (302) (407) 158 (312) (2,108) (358) (598) 0 2,377

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 2,451 4,000 1,341 8,378 3,872 544 3,962 562 268

LT Debt

2015E 15,595 14.3 15,595 14.3 4,130 47.4 26.5 913 7,035.4 5.9 (12) 90 811 503.4 5.2

2016E 16,856 8.1 16,856 8.1 4,644 12.5 27.6 1,054 15.5 6.3 (10) 157 888 9.4 5.3

2013A 1,046 13.1 1,046 13.1 226 15.2 21.6 25 (15.1) 2.4 (3) 1 21 31.3 2.0

US$ 2014E 1,038 (0.8) 1,038 (0.8) 213 (5.6) 20.5 1 (96.2) 0.1 10 1 10 (51.7) 1.0

2014E (289) (405) 19 (603) (1,007) (360) 350 0 37

2015E (342) (328) 825 (600) 447 (400) 0 0 0

2016E (359) (418) 829 (500) 654 (500) 0 0 0

2013A (24) (33) 13 (25) (170) (29) (48) 0 191

2014E 2,113 3,557 1,655 8,713 3,722 894 4,097 912 268

2015E 2,324 3,850 1,913 9,677 3,875 894 4,908 912 268

2016E 2,114 3,700 2,053 10,180 4,017 894 5,269 912 268

2013A 176 287 96 601 278 39 284 40 19

Company Description 2015E 1,222 17.8 1,222 17.8 324 51.9 26.5 72 7,254.1 5.9 (1) 7 64 521.9 5.2

2016E 1,269 3.9 1,269 3.9 350 8.0 27.6 79 10.9 6.3 (1) 12 67 5.1 5.3

2014E (22) (31) 1 (46) (77) (27) 27 0 3

2015E (27) (26) 65 (47) 35 (31) 0 0 0

2016E (27) (31) 62 (38) 49 (38) 0 0 0

2014E 163 274 128 672 287 69 316 70 21

2015E 178 294 146 740 296 68 375 70 21

2016E 149 261 145 717 283 63 371 64 19

294

644

644

644

21

50

49

45

FINANCIAL RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

13,421

16,304

18,712

21,415

962

1,257

1,430

1,508

4,506

4,991

5,802

6,163

323

385

443

434

Net Debt/EBITDAR

4.8

5.8

4.5

4.6

4.3

5.9

4.4

4.3

Net Debt/Equity

3.4

4.0

3.8

4.1

3.5

4.4

3.8

4.1

Capex/Revenue (%)

2.4

4.4

3.8

3.0

2.4

4.4

3.8

3.0

Capital Employed

(72.3)

(71.2)

(90.5)

(101.8)

(72.3)

(71.2)

(90.5)

(101.8)

Dividend Payout (%)

Int Cover (%)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

ROCE (%)

6.6

0.1

14.2

14.6

6.8

0.1

14.2

14.6

ROE (%) MARKET RATIOS

10.5

3.3

18.0

17.4

10.7

3.5

18.0

17.4

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

n/m

n/m

16.3

14.9

n/m

n/m

14.1

13.4

P/CE

31.8

31.7

11.5

10.6

30.2

28.3

9.9

9.5

FV/EBITDAR

11.2

10.6

7.7

7.5

10.3

10.2

7.2

6.9

FV/EBIT

n/m

n/m

35.0

32.9

n/m

n/m

32.5

30.3

FV/Revenue

2.4

2.2

2.0

2.1

2.2

2.1

1.9

1.9

P/BV

4.5

3.3

2.7

2.5

4.8

2.9

2.4

2.4

(11.7)

(7.5)

3.4

4.9

(12.4)

(8.4)

3.9

5.5

FCF Yield (%) Div Yield (%)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

(0.0)

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.26

0.13

0.80

0.88

0.21

0.10

0.63

0.66

DPS

0

0

0

0

0

0

0

0

3.92

4.05

4.85

5.21

2.81

3.12

3.71

3.67

PER SHARE DATA

BVPS

381

Volaris is the largest ultra low-cost carrier (“ULCC”) in Mexico, providing passenger and cargo services in 30 cities in Mexico and 10 in the U.S. through its subsidiary Volaris Opco. The company aims to stimulate demand by offering low base fares while providing high quality customer service and generating ancillary revenues from other services. In 2013, Volaris booked 8.9 million passengers.

Key Personnel: Gilberto Perezalonso (Chairman), Enrique Beltranena (CEO), Fernando Suárez (CFO) and Andrés Pliego (IRO) Web: www.volaris.mx

Cost Breakdown, 2013A

Airport and navigation 15.2%

Marketing Mainten. Other D&A 5.5% 4.5% 2.7% 2.4%

Fuel 40.1% Labor 12.3% Aircraft rent 17.2%

Revenue Structure, 2013A

Non ticket 14.5%

Passenger 85.5%

Shareholder Structure, Current

Indigo 19.0%

Kriete/ Caoba 19.0%

Mexican Investors 12.0%

Mngmnt 3.0%

Free Float 25.0%

Discovery Air 22.0%

Sources for all charts and tables: Company reports and Santander estimates.

MEXICO—RETAIL & CONSUMER GOODS

WALMEX

HOLD CURRENT PRICE: M$30.76 TARGET PRICE: M$35.00

LOWERING YE2015 TARGET PRICE TO M$35.00 FROM M$39.00 

Investment Case: We reiterate our Hold rating on Walmex given the

Reinaldo Santana*

overall weak growth outlook based on more gradual-than-anticipated

Mexico: Banco Santander S.A. +5255-5269-2102 | [email protected]

SSS in addition to internal execution issues that continue to affect Sam’s Club. Therefore, we remain on the sidelines until we see better-than-anticipated traffic growth and/or a revitalization of its credit offering to consumers.



Jens Spiess*, CFA Mexico: Banco Santander S.A. +5255-5269-1931 | [email protected]

João Mamede* Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

Outlook 2015: We expect selling space to grow by only 6% in 2015, still short of the 11% average organic growth expansion before the bribery allegations surfaced in 2011. We expect SSS to increase 3.0% in 2015, which factors in a gradual consumption recovery in Mexico. We forecast 10% EBITDA growth led by margin gains in its operations in Central America, and 7% EPS growth YoY, excluding the extraordinary income from the sale of Vips in 2014.



Cautious on turnaround at Sam’s Club: We remain cautious on the turnaround of Sam’s in the short term due to (i) heightened competition from other wholesalers and department stores, (ii) recent management changes while the team has yet to decide what works



best and what does not, and (iii) relaunching of product categories

Company Statistics

over the next 12 months under the new commercial strategy.

Bloomberg

Lowering YE2015 target price to M$35.00 due to lower estimated

M$ 30.76 / US$ 2.07

Target Price (YE 2015)

M$ 35.00 / US$ 2.68

52-Week Range (M$)

28.06 - 35.67

earnings: The 10% reduction in our target price reflects lower

Market Capitalization (US$ Mn)

earnings in all lines in the difficult 2014 and lower selling space

Float (%)

growth than previously anticipated for 2015-16.



WALMEXV MM

Current Price (01/02/15)

36,534 31.0

3-Mth Avg. Daily Vol (US$ Mn)

41.5

Shares Outstanding - Mn

Premium valuation despite underperformance: Walmex trades at a 2015E P/E of 22.5x, and has limited upside potential despite its

17,618

Price Performance (M$) WALMEXV MM

MEXBOL

110

underperformance, in our view, considering uninspiring EPS growth 100

of 7.0% in 2015 (excluding extraordinary items). Catalysts could include revitalization of its credit offering or higher-than-anticipated

90

comp sales traffic, but we remain neutral until some of these

80

expected drivers materialize.

70 60

e-13

m-13

a-13

d-13

a-14

a-14

Sources: FactSet, Santander estimates and company reports.

382

d-14

LATIN AMERICAN 2015 Latin American Universe Book

WALMEX Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

2013A 33,100 4.2 7,289 1.4 3,131 0.1 9.5 2,455 (0.3) 7.4 (1) 741 1,769 (0.0) 5.3

US$ 2014E 33,621 1.6 7,391 1.4 3,164 1.0 9.4 2,458 0.1 7.3 (26) 731 1,702 (3.8) 5.1

2015E 36,107 7.4 8,001 8.3 3,478 9.9 9.6 2,724 10.8 7.5 (113) 783 1,827 7.4 5.1

2016E 39,318 8.9 8,718 9.0 3,826 10.0 9.7 3,024 11.0 7.7 (166) 857 2,001 9.5 5.1

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 425,161 1.7 93,624 (1.0) 40,221 (2.3) 9.5 31,532 (2.7) 7.4 (15) 9,517 22,717 (2.4) 5.3

M$ 2014E 442,608 4.1 97,297 3.9 41,651 3.6 9.4 32,364 2.6 7.3 (337) 9,623 22,403 (1.4) 5.1

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (8,690) (4,265) 27,141 (13,987) 12,734 0 (16,056) -

2014E (9,287) (1,645) 30,045 (13,431) 16,040 0 (21,754) -

2015E (9,934) (2,007) 31,987 (15,862) 16,125 0 (20,768) -

2016E (10,511) (2,007) 34,734 (16,666) 16,125 0 (18,282) -

2013A (677) (332) 2,113 (1,089) 991 0 (1,250) -

2014E (705) (125) 2,282 (1,020) 1,218 0 (1,652) -

2015E (754) (152) 2,429 (1,204) 1,224 0 (1,577) -

2016E (802) (153) 2,649 (1,271) 1,230 0 (1,394) -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 21,129 82,649 147,613 230,262 65,721 21,590 142,930 0 0

2014E 21,153 81,703 152,674 234,378 74,974 21,507 137,882 0 0

2015E 16,510 82,436 161,013 243,449 79,204 21,507 142,722 0 0

2016E 17,341 88,773 169,696 258,469 84,654 21,507 152,291 0 0

2013A 1,619 6,331 11,307 17,638 5,034 1,654 10,948 0 0

2014E 1,615 6,237 11,655 17,891 5,723 1,642 10,525 0 0

2015E 1,264 6,310 12,324 18,634 6,062 1,646 10,924 0 0

2016E 1,309 6,700 12,807 19,507 6,389 1,623 11,494 0 0

LT Debt

2015E 475,489 7.4 105,360 8.3 45,804 10.0 9.6 35,870 10.8 7.5 (1,493) 10,313 24,061 7.4 5.1

2016E 515,530 8.4 114,314 8.5 50,167 9.5 9.7 39,655 10.6 7.7 (2,179) 11,243 26,231 9.0 5.1

0

0

0

0

0

0

0

0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

(21,129)

(21,153)

(16,510)

(17,341)

(1,619)

(1,615)

(1,264)

(1,309)

Capital Employed

164,541

159,404

164,245

173,815

12,604

12,168

12,571

13,118

Net Debt/EBITDA

(0.5)

(0.5)

(0.4)

(0.3)

(0.5)

(0.5)

(0.4)

(0.3)

Net Debt/Equity

(0.1)

(0.2)

(0.1)

(0.1)

(0.2)

(0.2)

(0.1)

(0.1)

FINANCIAL RATIOS

Capex/Revenue (%)

3.3

3.0

3.3

3.2

3.3

3.0

3.3

3.2

Int Cover (%)

34.8

32.5

24.2

19.6

34.8

32.5

24.2

19.6

Dividend Payout (%)

69.0

95.8

92.7

76.0

71.1

91.8

83.5

75.7

ROCE (%)

16.0

16.6

18.4

19.1

16.6

19.1

18.5

19.1

ROE (%)

16.1

16.0

17.1

17.8

16.4

16.6

17.2

17.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

26.7

24.9

22.5

20.7

26.2

22.3

20.0

18.3

P/CE

19.3

17.6

15.9

14.7

19.0

15.8

14.2

13.0

FV/EBITDA

14.6

12.9

11.5

10.5

14.3

11.5

10.1

9.2

FV/EBIT

18.6

16.6

14.6

13.2

18.2

14.8

13.0

11.6

FV/Revenue

1.4

1.2

1.1

1.0

1.4

1.1

1.0

0.9

P/BV

4.2

4.1

3.8

3.6

4.2

3.6

3.3

3.2

FCF Yield (%)

2.1

2.9

3.0

3.0

2.1

3.2

3.4

3.4

Div Yield (%)

2.6

3.9

3.8

3.4

2.7

4.4

4.3

3.8

MARKET RATIOS

PER SHARE DATA

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

1.28

1.27

1.37

1.49

0.10

0.10

0.10

0.11

DPS

0.91

1.23

1.18

1.04

0.07

0.09

0.09

0.08

BVPS

8.06

7.83

8.10

8.64

0.62

0.60

0.62

0.65

383

Walmart de México y Centroamérica (Walmex) is a major retail chain in Mexico and Central America. As of September 30, 2014 it operates 2,904 units throughout 6 countries (Mexico, Guatemala, Costa Rica, Honduras, El Salvador and Nicaragua), including self-service stores, membership wholesale clubs, and apparel stores. It is the leading food retailer in Mexico with a market share close to 54% of the formal sector.

Key Personnel: Scot Rank (CEO), Rafael Matute (CFO), Mariana Rodriguez (IRO) and Renzo Casillo (COO) Web: www.walmex.mx

Sales by Region, 2014E

Central America 13.9%

Mexico 86.1%

EBITDA by Region, 2014E

Central America 9.2%

Mexico 90.8%

Shareholder Structure, Current

Walmart Stores, Inc. 69.0%

Free Float 31.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

PERU—FOOD & BEVERAGE

ALICORP

BUY CURRENT PRICE: S/.7.11 TARGET PRICE: S/.8.90

INTRODUCING YE2015 TARGET PRICE OF S/.8.90; REPLACING YE2014 TARGET PRICE OF S/.9.80 

Investment Case: We believe that the company is well positioned to benefit from the expected acceleration in the Peruvian economy in 2015, based on Alicorp’s leading brand portfolio, the degree of integration in its operations, and its effective distribution model, which, we believe, results in attractive and sustainable levels of

Andres Soto New York: Santander Investment Securities Inc. +1-212-407-0976 | [email protected]

Luis Miranda*, CFA Mexico: Banco Santander S.A. +5255-5269-1926 | [email protected]

profitability and cash flow generation.



Alicorp still has substantial opportunities to grow, in our view, despite the company’s high market shares, as a result of the relatively low penetration of its products in the Peruvian provinces compared with Lima. Moreover, some of the product categories with the highest growth potential are also some of the most attractive ones from an EBITDA generation point of view.



We expect Alicorp’s cash flow generation to improve after the conclusion of the company’s strategic capex plan, which should result in a deleveraging of the company in the next few years.



Outlook 2015: We expect the Peruvian economy to accelerate in 2015 driven by: (1) large mining projects coming on stream; (2) starting of large-scale infrastructure projects; and (3) Peruvian

Company Statistics

government stimulus measures. We believe that these drivers will

Bloomberg

result in a recovery of domestic demand in Peru, which would

S/. 7.11 / US$ 2.39

Target Price (YE 2015)

S/. 8.90 / US$ 2.92

increase demand for Alicorp’s products. In the company’s

52-Week Range (S/.)

international operations, we expect a continuation of the scenario in

Market Capitalization (US$ Mn)

which a positive performance in Alicorp’s Animal Nutrition segment



ALICORC1 PE

Current Price (01/02/15)

7.01 - 9.40 2,022

Float (%)

26.3

3-Mth Avg. Daily Vol (US$ Mn)

0.9

will continue offsetting poor performance in Argentina.

Shares Outstanding - Mn

847

We are decreasing our EBITDA margin estimates to reflect ongoing

Price Performance (S/.)

trends in revenue mix (i.e., Animal Nutrition outgrowing Consumer

ALICORC1 PE

IGBVL

130

Goods Peru) and also our expectation of a less supportive FX

120

performance, which we anticipate to offset some of the margin

110

improvement that we expected to see as a result of the company’s

100 90

product launches in 2014.

80



70

Valuation: Alicorp’s stock currently trades at a 2015E FV/EBITDA of 10.1x, which compares favorably with other food companies in the

60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

region. 384

D-14

ALICORP Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 5,822 30.1 1,598 31.0 767 36.7 13.2 660 35.0 11.3 (213) (123) 368 5.0 6.3

S/. 2014E 6,341 8.9 1,662 4.0 751 (2.1) 11.8 640 (3.0) 10.1 (214) (91) 272 (26.1) 4.3

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A (107) 0 (95) 380 (762) (256) 344 (103) 0

2014E (111) 0 (289) 94 (618) (316) 563 (103) 0

2015E (114) 0 (19) 466 (370) 265 0 (82) 0

2016E (130) 0 (71) 468 (213) 424 0 (111) 0

2013A (40) 0 (35) 141 (282) (95) 127 (38) 0

2014E (38) 0 (100) 32 (213) (109) 194 (35) 0

2015E (38) 0 (6) 154 (122) 88 0 (27) 0

2016E (42) 0 (23) 153 (70) 138 0 (36) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 93 2,132 3,763 5,894 1,191 2,337 2,357 2,054 292

2014E 30 2,463 4,270 6,733 1,398 2,800 2,527 2,618 393

2015E 44 2,547 4,526 7,073 1,448 2,800 2,816 2,618 393

2016E 187 2,813 4,609 7,422 1,500 2,800 3,114 2,618 393

2013A 33 762 1,345 2,108 426 836 843 760 108

2014E 10 821 1,423 2,244 466 933 842 873 131

2015E 14 835 1,484 2,319 475 918 923 858 129

2016E 61 913 1,496 2,410 487 909 1,011 850 127

1,762

2,225

2,225

2,225

652

742

729

722

LT Debt FINANCIAL RATIOS

2015E 6,729 6.1 1,791 7.8 821 9.4 12.2 706 10.4 10.5 (220) (114) 371 36.4 5.5

2016E 7,108 5.6 1,901 6.2 886 8.0 12.5 756 7.0 10.6 (220) (126) 409 10.1 5.7

2013A 2,154 27.0 591 27.9 284 33.5 13.2 244 31.8 11.3 (79) (46) 136 2.5 6.3

US$ 2014E 2,188 1.6 573 (3.0) 259 (8.7) 11.8 221 (9.5) 10.1 (74) (31) 94 (31.1) 4.3

2015E 2,224 1.7 592 3.2 271 4.8 12.2 234 5.8 10.5 (73) (38) 123 30.7 5.5

2016E 2,319 4.3 620 4.8 289 6.5 12.5 247 5.6 10.6 (72) (41) 133 8.7 5.7

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

1,961

2,588

2,574

2,431

726

863

844

789

Capital Employed

4,995

5,728

6,017

6,315

1,786

1,909

1,973

2,050

Net Debt/EBITDA

2.6

3.4

3.1

2.7

2.6

3.3

3.1

2.7

Net Debt/Equity

0.8

1.0

0.9

0.8

0.9

1.1

0.9

0.8

Capex/Revenue (%)

13.1

9.7

5.5

3.0

13.1

9.7

5.5

3.0

5.1

3.9

3.5

3.8

5.1

3.9

3.5

3.8

Dividend Payout (%)

29.3

27.9

30.0

30.0

28.5

26.5

28.6

30.0

ROCE (%)

17.9

14.8

15.4

16.0

18.4

15.4

15.4

16.0

ROE (%)

16.5

11.1

13.9

13.8

16.3

11.3

13.9

13.8

Int Cover (%)

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

20.9

22.1

16.2

14.7

20.2

21.6

16.5

15.2

P/CE

16.2

15.7

12.4

11.2

15.7

15.3

12.6

11.5

FV/EBITDA

12.7

11.5

10.5

9.6

12.3

11.2

10.6

9.7

FV/EBIT

14.7

13.5

12.2

11.2

14.3

13.1

12.3

11.4

FV/Revenue

1.7

1.4

1.3

1.2

1.6

1.3

1.3

1.2

P/BV

3.3

2.4

2.1

1.9

3.3

2.4

2.2

2.0

(3.3)

(5.2)

4.4

7.0

(3.4)

(5.4)

4.3

6.8

FCF Yield (%) Div Yield (%)

1.3

1.7

1.4

1.8

1.4

1.7

1.3

1.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.43

0.32

0.44

0.48

0.43

0.11

0.14

0.16

DPS

0.12

0.12

0.10

0.13

0.12

0.04

0.03

0.04

BVPS

2.78

2.98

3.32

3.68

2.78

0.99

1.09

1.19

PER SHARE DATA

385

Alicorp is the largest consumer goods company in Peru, with operations in other Latin American countries, including: Brazil, Argentina, Colombia, Ecuador and Central America, and exports to 23 other countries. The company is focused in three core businesses: (1) Consumer Products (food, personal and home care products), (2) Industrial Food Products (industrial flour, industrial lard, pre-mix and food service products), and (3) Animal Nutrition (fish and shrimp feeding). The company is controlled by Grupo Romero, one of the largest business groups in Peru with investments across different sectors including: financial (Credicorp), logistics, infrastructure, trading and services.

Key Personnel: Dionisio Romero Paoletti (Chairman), Paolo Sacchi (CEO), Diego Rosado (CFO) and Alexander Pendavis (IR and Head of Corporate Development) Web: http://www.alicorp.com.pe/

Revenue by Country, 3Q14

Argentina 7.9%

Chile 8.3%

Ecuador 9.5%

Others 3.2%

Brazil 8.9%

Peru 62.2%

EBITDA by Segment, 2014E Animal Nutrition 20.8% B2B 22.6%

Consumer Goods 56.5%

Shareholder Structure, September 30, 2014

Float 26.3%

Peruvian pension funds 28.4%

Grupo Romero 45.3%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

PERU—CEMENT, CONSTRUCTION, INFRA & RE

CEMENTOS PACASMAYO

BUY CURRENT PRICE: US$8.69 TARGET PRICE: US$10.50

UPGRADING RATING TO BUY FROM HOLD 

Investment Case: We believe that the company is well positioned to benefit from the development of infrastructure projects in Peru and, more broadly speaking, from the expected acceleration in the

Andres Soto New York: Santander Investment Securities Inc. +1-212-407-0976 | [email protected]

Peruvian economy in 2015.



Profitability in Peru’s cement industry is supported by this market’s structure, which is highly concentrated on the offer side (only three large producers in the country), and dispersed on the demand side (DIY segment represents 55% of company sales). This helps Cementos Pacasmayo’s sustain pricing power, translating into superior levels of profitability, in our view.



In addition to its cement business, Cementos Pacasmayo is currently involved in a project to develop some phosphate deposits in partnership with Mitsibishi Corp. We believe that additional news on this project could represent a positive catalyst for the stock.



Outlook 2015: We expect the Peruvian economy to accelerate in 2015 driven by: (1) large mining projects coming on stream; (2) the startup of large-scale infrastructure projects; and (3) Peruvian government stimulus measures. We believe that these drivers will result in a recovery of cement demand in Pacasmayo’s markets. In addition to this, we expect key infrastructure projects in Peru’s

CPAC US / CPACASC1 PE

Current Price (01/02/15)

US$ 8.69 / S/. 5.30

northern region (e.g., the Talara refinery, the Chavimochic irrigation

Target Price (YE 2015)

US$ 10.50 / S/. 6.20

project and Olmos’ urban development) to provide incremental

52-Week Range (US$)

8.21 - 11.60

demand for cement next year.



Company Statistics Bloomberg

In addition to a recovery in top-line results, we expect the company to

Market Capitalization (US$ Mn)

924

Float (%)

30.0

3-Mth Avg. Daily Vol (US$ Mn)

0.2

Shares Outstanding - Mn

106

increase EBITDA generation in 2015 as a result of the startup of its



new Piura plant (in the second half). This margin improvement, in our

Price Performance (US$)

view, will be driven by the substitution of imported clinker, as well as

120

more efficient logistics given the plant’s location.

110

CPAC US

IGBVL

100

Valuation: Cementos Pacasmayo’s stock currently trades at a

90

2015E FV/EBITDA of 8.6x, which compares favorably to other

80

cement companies in the region. While part of this discount may be

70

justified by CPAC’s lower liquidity, we also highlight that the company

60

delivers similar levels of profitability and expected growth in the medium term. 386

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

D-14

CEMENTOS PACASMAYO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2013A 1,240 6.0 523 14.6 349 25.1 28.1 293 27.1 23.6 (58) (82) 152 (2.1) 12.3

S/. 2014E 1,229 (0.8) 500 (4.6) 328 (5.8) 26.7 262 (10.5) 21.3 (38) (71) 153 0.5 12.4

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2013A 55 (7) (72) 129 (205) (31) 0 609 (58) 0

2014E 66 2 135 356 (808) (428) 0 0 (61) 0

2015E 57 (4) (168) 90 (58) 59 0 0 (61) 0

2016E 68 (5) (40) 271 (63) 236 0 0 (82) 0

2013A 20 (3) (26) 48 (76) (11) 0 225 (22) 0

2014E 23 1 47 125 (284) (150) 0 0 (21) 0

2015E 19 (1) (57) 30 (20) 20 0 0 (21) 0

2016E 23 (2) (13) 91 (21) 79 0 0 (28) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2013A 977 1,419 1,695 3,115 158 947 2,009 824 0

2014E 464 769 2,441 3,210 161 947 2,102 824 0

2015E 464 940 2,449 3,389 196 947 2,246 854 30

2016E 590 1,108 2,453 3,561 203 947 2,411 854 30

2013A 349 508 606 1,114 56 339 719 295 0

2014E 157 260 825 1,084 54 320 710 278 0

2015E 156 316 823 1,139 66 319 755 287 10

2016E 197 371 821 1,191 68 317 807 286 10

824

824

824

824

295

278

277

276

LT Debt FINANCIAL RATIOS

2015E 1,330 8.2 568 13.8 384 17.0 28.9 327 24.7 24.6 (34) (88) 205 34.1 15.4

2016E 1,456 9.5 656 15.4 455 18.6 31.3 387 18.3 26.6 (34) (106) 247 20.4 17.0

2013A 459 3.4 194 11.8 129 22.1 28.1 108 24.0 23.6 (22) (30) 56 (4.5) 12.3

US$ 2014E 432 (5.8) 176 (9.3) 115 (10.5) 26.7 92 (15.0) 21.3 (13) (25) 54 (4.5) 12.4

2015E 448 3.7 192 9.1 129 12.1 28.9 110 19.6 24.6 (11) (30) 69 28.6 15.4

2016E 488 9.0 220 14.9 153 18.0 31.3 130 17.7 26.6 (11) (36) 83 19.8 17.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

Net Debt

(153)

360

390

264

(55)

122

131

88

Capital Employed

2,957

3,049

3,223

3,388

1,058

1,030

1,084

1,134

Net Debt/EBITDA

(0.4)

1.1

1.0

0.6

(0.4)

1.1

1.0

0.6

Net Debt/Equity

(0.1)

0.2

0.2

0.1

(0.1)

0.2

0.2

0.1

Capex/Revenue (%)

16.5

65.7

4.4

4.3

16.5

65.7

4.4

4.3

Int Cover (%)

9.4

10.6

8.5

10.0

9.4

10.6

8.5

10.0

37.4

40.0

40.0

40.0

36.5

38.1

38.1

40.0

ROCE (%)

6.4

5.9

7.1

8.0

6.8

6.3

7.1

8.0

ROE (%)

7.8

7.4

9.4

10.6

7.7

7.6

9.4

10.6

Dividend Payout (%)

MARKET RATIOS

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

P/E

23.1

18.0

13.4

11.1

22.3

17.2

13.4

11.1

P/CE

36.3

31.8

18.6

15.4

35.1

30.4

18.5

15.4

FV/EBITDA

10.3

10.0

8.6

6.9

10.0

9.6

8.6

7.0

FV/EBIT

12.3

12.6

10.1

8.2

11.9

12.0

10.1

8.2

2.9

2.7

2.5

2.2

2.8

2.6

2.5

2.2 1.1

FV/Revenue P/BV

1.8

1.3

1.2

1.1

1.8

1.3

1.2

(0.9)

(15.5)

2.1

8.6

(0.9)

(16.2)

2.2

8.6

1.7

2.2

2.2

3.0

1.7

2.3

2.2

3.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

EPS

0.29

0.29

0.39

0.47

0.48

0.48

0.65

0.78

DPS

0.11

0.11

0.12

0.15

0.18

0.19

0.19

0.26

BVPS

3.78

3.95

4.23

4.54

2.27

2.24

2.38

2.55

FCF Yield (%) Div Yield (%) PER SHARE DATA

387

Cementos Pacasmayo is one of the leading cement producers in Peru, with a market share of about 21% in cement. The company is the only cement producer in the northern region of Peru where it also produces distributes and sells cement-related materials, such as concrete blocks and ready-mix concrete. The company owns two cement plants with an annual installed capacity of about 3.3 million tons of cement per year. Hochschild Group is the company’s largest shareholder. "

Key Personnel: Eduardo Hochschild (Chairman), Humberto Nadal (CEO), Manuel Ferreyros (CFO) and Claudia Bustamante (IR) Web: www.cementospacasmayo.com.pe

Sales by Segment, 2014E Constructio n materials Quicklime 7.6% 4.7%

Concrete 9.9%

Cement and blocks 77.8%

Sales by Type of Consumer, 2014E

Private construction 22.0%

Public construction 23.0%

DIY 55.0%

Shareholder Structure, September 30, 2014

Free float 30.0%

Pension Funds 19.0%

Hochschild Group 51.0%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

PERU—FINANCIAL SERVICES

CREDICORP

BUY CURRENT PRICE: US$159.35 TARGET PRICE: US$188.00

INTRODUCING YE2015 TARGET PRICE OF US$188.00; REPLACING YE2014 TARGET PRICE OF US$165.00 

Investment Case: Our Buy rating is driven by the expectation that

Boris Molina

the Peruvian economy should rebound from a weak 2014, due to a

New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

recovery in investment and tax cuts, which should both support domestic demand. As such, we expect loan growth to recover amid still-high NIMs, improving asset quality and efficiency.



Catalina Araya New York: Santander Investment Securities Inc. +1-212-297-1367 | [email protected]

Outlook 2015: We expect loan growth (ex MiBanco) to accelerate from 9.8% YoY in 3Q14 to 14.3% by YE15. MiBanco should deliver loan growth of 24% YoY, according to our calculations, as the integration of the bank is scheduled to conclude in early 2015, with the group recovering lost market share in microlending in Peru. We expect recurrent tangible net income to grow 31%, leading to an improvement in ROTE to 23.9%, from 22.1% in 2014E.



Credicorp not undercapitalized. While headline capital ratios under Peruvian regulations may look weak, we believe they are misleading, as local regulations are tougher than international standards. We estimate that ~27% of BAP’s consolidated group RWA can be attributed to punitive regulations. As such, RWA as a percentage of total assets exceeds 100% (an anomaly by LatAm standards)

Company Statistics

despite loans at only 55% of total assets, with cash, securities and

Bloomberg

reserve requirements representing ~40%. Nevertheless, the bank will

US$ 159.35 / S/. 474.75

Target Price (YE 2015)

US$ 188.00 / S/. 579.01

need to re-invest most of the earnings in its core banking operation in

52-Week Range (US$)

125.14 - 169.97

Peru to meet strict local capital requirements, potentially leading to

Market Capitalization (US$ Mn)

lower dividend payouts in the medium term.



BAP US

Current Price (01/02/15)

12,710

Float (%)

69.4

3-Mth Avg. Daily Vol (US$ Mn)

36.6

Shares Outstanding - Mn

80

BCRP to support domestic credit demand. Peruvian banks, including BCP, will need to continue relying on liquidity support from

Price Performance (US$) BAP US

the central bank to meet rising credit demand, both in the form of

120

lower reserve requirements and reverse-repo operations, as

110

mismatches between deposit and loan growth (by currency) should

100

persist into 2015, in our view.

IGBVL

90 80



Turning the page on NPL issues. We expect the economic

70

recovery to lead to improving NPLs at BAP, ending the bank’s

60

current credit cycle.

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

388

D-14

CREDICORP Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions

Company Description

2015E 7,103 (1,767) 5,336 4,745 10,081 (5,690) 4,465 (1,085) 3,313 3,357

2016E 8,235 (2,213) 6,022 5,219 11,241 (6,108) 5,218 (1,242) 3,896 3,886

2013A 1,714 (458) 1,256 1,393 2,648 (1,679) 864 (288) 569 435

US$ 2014E 2015E 2,150 2,344 (610) (583) 1,539 1,761 1,532 1,566 3,071 3,327 (1,852) (1,878) 1,221 1,474 (321) (358) 898 1,093 1,031 1,108

2014E 24,438 23,437 74,837 2,319 138,013 72,907 14,830 4,735 5,495 13,992 12,422

2015E 27,281 26,637 86,514 2,127 157,218 82,807 16,987 4,977 6,199 16,856 15,430

2016E 29,616 30,064 99,227 1,925 177,552 94,608 17,572 5,170 6,982 20,240 19,067

2013A 7,839 7,437 22,180 733 40,957 23,089 3,880 1,223 1,782 4,231 3,687

2014E 8,199 7,863 25,109 778 46,305 24,461 4,976 1,589 1,844 4,694 4,168

2015E 8,858 8,649 28,090 691 51,047 26,887 5,516 1,616 2,013 5,473 5,010

2016E 9,316 9,456 31,211 605 55,848 29,759 5,527 1,626 2,196 6,366 5,998

2013A 29,053 17,948 9,741 1,485 64,294 17.4 1,437 (2,264)

2014E 34,132 19,081 10,819 6,216 78,037 21.4 1,987 (3,200)

2015E 38,829 21,970 12,899 6,994 89,906 15.2 2,120 (3,392)

2016E 44,257 25,045 15,088 7,910 103,111 14.7 2,412 (3,884)

2013A 10,388 6,418 3,483 531 22,989 7.1 514 (809)

2014E 11,452 6,402 3,630 2,086 26,182 13.9 667 (1,074)

2015E 12,608 7,134 4,188 2,271 29,192 11.5 688 (1,101)

2016E 13,921 7,878 4,746 2,488 32,433 11.1 759 (1,222)

2013A 4.58 2.09 6.47

2014E 5.30 2.38 6.84

2015E 5.36 2.12 6.87

2016E 5.43 2.30 6.72

2013A 4.58 2.09 6.47

2014E 5.30 2.38 6.84

2015E 5.36 2.12 6.87

2016E 5.43 2.30 6.72

Cost / ATAs

4.10

4.12

3.88

3.65

4.10

4.12

3.88

3.65

Adj Efficiency

53.7

51.3

48.8

46.0

53.7

51.3

48.8

46.0

Effective Taxes

33.3

26.3

24.3

23.8

33.3

26.3

24.3

23.8

Reported ROE (%)

13.9

20.0

21.7

21.2

13.9

20.0

21.7

21.2

9.6

19.5

18.8

19.3

9.6

19.5

18.8

19.3

NPL Ratio

2.24

2.55

2.36

2.34

2.24

2.55

2.36

2.34

Adj NPL Ratio

3.61

4.37

4.04

3.94

3.61

4.37

4.04

3.94

Loans / Total Assets

56.1

56.5

57.2

58.1

56.1

56.5

57.2

58.1

Loans / Core Deposits

99.6

107.0

108.6

109.0

99.6

107.0

108.6

109.0

RWA % Total Assets

98.6

103.8

103.6

103.6

98.6

103.8

103.6

103.6

Core Tier I Ratio (%)

8.7

7.4

8.5

9.7

8.7

7.4

8.5

9.7

Dividend Payout (%)

23.7

25.0

20.0

15.0

23.7

25.0

20.0

15.0

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

2.4

2.3

2.1

1.8

2.3

2.3

2.1

1.9

29.1

14.8

12.4

10.3

27.0

14.0

12.6

10.8

1.6

1.0

1.3

1.3

1.8

1.1

1.3

1.3

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

19.29

31.95

41.53

48.85

7.13

11.26

13.71

15.62

148.34

175.42

211.32

253.75

53.04

58.86

68.62

79.82

6.17

4.82

6.39

6.23

2.39

1.72

2.14

2.01

14.75

36.70

42.09

48.72

5.38

12.97

13.90

15.57

INCOME STATEMENT Net Interest Income NPL Provisions Adj Net Interest Income Non-Interest Income Total Operating Revenue Non-Interest Expense Profit Before Taxes Taxes Net Profit Adjusted Net Profit

2013A 4,632 (1,238) 3,393 3,763 7,157 (4,537) 2,335 (778) 1,539 1,177

BALANCE SHEET Cash and Equivalents Securities Loans (net) Intangible Assets Total Assets Core Deposits Other Financial Liabilities Subordinated Debt Technical Provisions Equity Adjusted Equity

2013A 21,922 20,798 62,031 2,050 114,543 64,572 10,851 3,420 4,985 11,832 10,311

LOAN BOOK Companies Total Consumer Mortgages Other Loans Gross Loans Loan Grow th (%) NPL Provisions KEY RATIOS NIM Risk Charge Operating Revenue / ATA

Adj ROE (%)

MARKET RATIOS Adj. P/BV Adj. P/E Div Yield (%) PER SHARE DATA EPS BVPS DPS Adj EPS

S/. 2014E 6,102 (1,733) 4,369 4,348 8,718 (5,256) 3,465 (911) 2,549 2,927

2016E 2,631 (707) 1,924 1,668 3,592 (1,952) 1,667 (397) 1,245 1,242

Adj BVPS

129.27

155.73

193.45

239.06

46.22

52.25

62.81

75.19

Surplus Capital per Share

(46.54)

(75.59)

(59.38)

(37.92)

(16.64)

(25.36)

(19.28)

(11.93)

11.53

10.67

11.06

11.39

4.12

3.58

3.59

3.58

Unrealized Cap. Gains/Shr

389

Credicorp is Peru's leading diversified financial services group. Its main asset is Banco de Credito del Peru (BCP), Peru’s largest bank in terms of both loans and deposits, with a market share of approximately 34%. The group also operates an insurance operation (Pacifico Grupo Asegurador), pension funds (AFP Prima), asset management (Atlantic Security), a microfinance unit (MiBanco) and a Pan-Andean investment banking operation. The bank is controlled by the Romero family.

Key Personnel: Dionisio Romero (Chairman), Dionisio Romero Paoletti (CEO), Fernando Dasso (CFO), Aida Kleffmann (IRO) and Walter Bayly (COO) Web: www.credicorpnet.com

Loan Book, 2015E

C. Card 3.8% Consumer 7.5%

Mortgage 14.3%

MyBanco 10.1%

Other 8.0% Corp 27.0%

SMEs 13.1%

MM 16.2%

Revenue Structure, 2015E

Fees 27.9%

Insurance 8.5%

Other 1.7%

NII 52.9% Trading 9.0%

Shareholder Structure, Current

Romero Family 13.3% Free Float 69.4% Atlantic BCI Security 1.9% 15.5%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

PERU—FINANCIAL SERVICES

INTERCORP

HOLD CURRENT PRICE: US$30.40 TARGET PRICE: US$33.00

INTRODUCING YE2015 TARGET PRICE OF US$33.00; REPLACING YE2014 TARGET PRICE OF US$34.00 

Investment Case: We believe that Intercorp should continue to trade at a discounted valuation relative to Credicorp as long as liquidity remains low. In our view, the secondary offering could create an

Boris Molina New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

opportunity to enter the shares at an attractive valuation; however,

Catalina Araya

we maintain our Hold rating, as the timing of the transaction and the

New York: Santander Investment Securities Inc. +1-212-297-1367 | [email protected]

urgency of the controlling shareholder to sell the shares remain uncertain.



Outlook 2015: We expect loan growth of 15%, mainly driven by commercial lending and credit cards. In our view, margins should be relatively flat, given the low interest rate environment, but fee income is likely to accelerate, given the full-year accounting of Inteligo, a feegenerating business. Furthermore, we expect efficiency to improve 100 bps due to the increased use of alternative distribution channels, such as, smart ATMs, telephone and mobile banking. Adjusted ROE should increase to 21.4%, from 17.9% in 2014E, according to our estimates.



Gaining market share: Intercorp is focused on growing in corporate and middle-market companies lending, where we see ample room to grow as the bank has a small market share of only 9% compared to its stake in consumer lending of 21% as of September 2014.



Secondary offering opens new play in Peruvian banks: Intercorp filed to list a US$400 secondary offering on the NYSE, which is likely

IFS PE

Current Price (01/02/15)

US$ 30.40 / S/. 90.57

Target Price (YE 2015)

US$ 33.00 / S/. 101.64

52-Week Range (US$)

28.17 - 33.14

to close in 1H15. We estimate free float to increase from 22% to

Market Capitalization (US$ Mn)

35%, which should address the issue of low liquidity, offering

Float (%)

investors an alternative to play Peru’s low credit penetration story.



Company Statistics Bloomberg

Cross-selling opportunities: Interbank has invested in a clientcentric IT platform, which, in our view, should help Interbank

3,439 22.3

3-Mth Avg. Daily Vol (US$ Mn)

0.7

Shares Outstanding - Mn

113

Price Performance (US$) IFS PE

improved its low cross selling ratio of 1.7x as of 3Q14. We believe

120

the bank can leverage its subsidiaries, Interseguros and Inteligo, and

110

offer targeted products in annuities, bankasssurance, and wealth

100

IGBVL

90

management.

80 70 60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

390

D-14

INTERCORP Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions

Company Description

INCOME STATEMENT Net Interest Income NPL Provisions Adj Net Interest Income Non-Interest Income Total Operating Revenue Non-Interest Expense Profit Before Taxes Taxes Net Profit Adjusted Net Profit

2013A 1,660 (377) 1,283 1,409 2,691 (1,451) 1,240 (266) 970 846

S/. 2014E 1,893 (423) 1,470 1,303 2,773 (1,529) 1,244 (272) 967 843

BALANCE SHEET Cash and Equivalents Securities Loans (net) Intangible Assets Total Assets Core Deposits Other Financial Liabilities Subordinated Debt Technical Provisions Equity Adjusted Equity

2013A 7,606 5,678 20,662 158 36,179 19,176 2,988 559 3,137 3,712 3,702

2014E 4,932 7,969 23,484 139 38,987 23,486 3,088 596 3,680 4,134 4,159

2015E 5,537 8,525 26,889 139 43,822 27,683 2,189 616 4,143 4,796 4,892

2016E 6,097 9,523 30,814 139 49,634 30,483 3,592 636 4,560 5,500 5,662

2013A 2,720 2,030 7,388 57 12,936 6,857 1,068 200 1,122 1,327 1,324

2014E 1,655 2,674 7,879 47 13,081 7,880 1,036 200 1,235 1,387 1,395

2015E 1,798 2,768 8,731 45 14,229 8,988 711 200 1,345 1,557 1,588

2016E 1,918 2,995 9,692 44 15,612 9,588 1,130 200 1,434 1,730 1,781

LOAN BOOK Companies Total Consumer Mortgages Other Loans Gross Loans Loan Grow th (%) NPL Provisions

2013A 10,031 6,005 3,743 1,383 21,162 33.6 347 (694)

2014E 10,860 7,295 4,253 1,670 24,078 13.8 453 (824)

2015E 12,334 8,479 4,810 2,005 27,628 14.7 542 (1,002)

2016E 14,148 9,730 5,466 2,363 31,707 14.8 646 (1,195)

2013A 3,587 2,147 1,338 495 7,567 22.0 124 (248)

2014E 3,644 2,448 1,427 560 8,078 6.8 152 (277)

2015E 4,005 2,753 1,562 651 8,971 11.0 176 (325)

2016E 4,450 3,061 1,719 743 9,973 11.2 203 (376)

KEY RATIOS NIM Risk Charge Operating Revenue / ATA

2013A 6.38 2.14 8.79

2014E 5.39 1.87 7.39

2015E 5.44 1.85 7.37

2016E 5.27 1.87 7.06

2013A 6.38 2.14 8.79

2014E 5.39 1.87 7.39

2015E 5.44 1.85 7.37

2016E 5.27 1.87 7.06

Cost / ATAs

4.74

4.07

3.94

3.69

4.74

4.07

3.94

3.69

Adj Efficiency

49.8

50.1

48.9

46.8

49.8

50.1

48.9

46.8

Effective Taxes

21.4

21.9

19.9

19.4

21.4

21.9

19.9

19.4

Reported ROE (%)

32.6

25.1

25.4

24.6

32.6

25.1

25.4

24.6

Adj ROE (%)

24.1

17.9

21.3

21.0

24.1

17.9

21.3

21.0

NPL Ratio

1.64

1.88

1.96

2.04

1.64

1.88

1.96

2.04

11.18

9.70

10.43

10.92

11.18

9.70

10.43

10.92

57.1

60.2

61.4

62.1

57.1

60.2

61.4

62.1

Loans / Core Deposits

107.7

100.0

97.1

101.1

107.7

100.0

97.1

101.1

RWA % Total Assets

76.3

97.0

97.1

96.8

76.3

97.0

97.1

96.8

Core Tier I Ratio (%)

11.2

9.7

10.4

10.9

11.2

9.7

10.4

10.9

Dividend Payout (%)

40.4

45.9

43.2

44.8

40.4

45.9

43.2

44.8

2013A

2014E

2015E

2016E

2013A

2014E

2015E

2016E

1.9

2.1

1.9

1.7

1.9

2.1

1.9

1.8

10.8

12.5

10.1

9.1

10.4

11.9

10.2

9.6

4.8

5.2

4.7

5.5

5.1

5.6

4.7

5.2 2016E

Adj NPL Ratio Loans / Total Assets

MARKET RATIOS Adj. P/BV Adj. P/E Div Yield (%) PER SHARE DATA

2015E 2,087 (471) 1,616 1,407 3,023 (1,618) 1,405 (279) 1,120 1,123

2016E 2,277 (547) 1,729 1,532 3,261 (1,705) 1,557 (302) 1,249 1,224

2013A 614 (140) 475 521 996 (537) 459 (98) 359 313

US$ 2014E 667 (149) 518 459 977 (539) 438 (96) 341 297

2015E 689 (156) 533 464 998 (534) 464 (92) 370 371

2016E 727 (175) 553 490 1,042 (545) 497 (96) 399 391

2013A

2014E

2015E

2016E

2013A

2014E

2015E

EPS

10.36

9.51

9.90

11.04

3.84

3.35

3.27

3.53

BVPS

39.66

36.55

42.40

48.62

14.18

12.26

13.77

15.29

4.19

4.71

4.27

4.95

1.57

1.69

1.42

1.59

DPS Adj EPS Adj BVPS Surplus Capital per Share Unrealized Cap. Gains/Shr

9.04

8.29

9.93

10.82

3.34

2.92

3.28

3.46

39.54

36.77

43.25

50.06

14.14

12.34

14.04

15.75

(11.03)

(13.31)

(9.92)

(8.68)

(3.94)

(4.47)

(3.22)

(2.73)

0.08

0.22

0.25

0.28

0.03

0.07

0.08

0.09

391

Intercorp is a Peruvian financial services holding company that operates through three subsidiaries: Interbank, Inteligo, and Interseguro. Interbank is the fourth largest bank in Peru, with a market share of approximately 12% in terms of gross loans. It is a fullservice bank focused mainly on the consumer segment. Inteligo is a fast growing provider of wealth management services, catering to Peruvian high net worth individuals. Interseguro is the fourth largest insurance company in Peru in terms of total assets. It provides annuities, life insurance, disability insurance, and survivor benefits, as well as traffic accident insurance. Intergroup launched its IPO in June 2007, and its shares trade in U.S. dollars on the Lima Stock Exchange; currently in the process of listing its shares in the NYSE via ADRs.

Key Personnel: Carlos Rodriguez-Pastor (Chairman), Luis Felipe Castellanos (CEO), Michela Casassa (CFO) and Ernesto Ferrero (IRO) Web: www.ifs.com.pe

Loan Book, 2015E

SME 16.7%

Revolving 16.2%

Corporate 28.0%

Mortgages 17.4%

NonRevolving 14.0%

Funding Structure, 2015E Bonds & Notes 8.3%

Interbank 9.9%

Demand Dep. 29.0%

Time Dep. 33.0%

Savings Dep. 19.8%

Shareholder Structure, Current

Free Float 22.3%

Carlos RodriguezPastor 77.7%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

MULTINATIONAL—TRANSPORTATION

COPA HOLDINGS

BUY CURRENT PRICE: US$103.62 TARGET PRICE: US$130.00

INTRODUCING YE2015 TARGET PRICE OF US$130.00; REPLACING YE2014 TARGET PRICE OF US$174.00 

Investment Case: We reiterate our Buy rating on Copa despite the

Pedro Balcão Reis*

problems in Venezuela, which imply lack of momentum, as (i) the

Brazil: Banco Santander S.A. +5511-3012-5765 | [email protected]

business model remains intact (hub-based model, with very limited competition), (ii) high profitability (17-18% EBIT margin) and strong balance sheet (rated investment grade by S&P and Moody’s),

Bruno Amorim*, CFA Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

(iii) lower oil prices should partially offset the reduction of operations in Venezuela, and (iv) valuation is attractive at 2015E P/E of 11.5x.



Outlook 2015: We estimate: (1) YoY top-line growth of -2% due to -8% RASM and +7% ASM YoY (a deceleration in capacity growth this year vs. +14% in 2013 and +9% in 2014E); (2) EBIT margin contraction of 1.3 p.p. to 17.7% (vs. guidance of 15-17%), with RASM -8% (mainly due to Venezuela) and CASM -7% (on lower jet fuel prices); and (3) net profit decline of 9% YoY, to US$400 million.



Venezuela update: Copa has redeployed ~50% of capacity out of Venezuela, which implies that Copa is no longer accumulating cash in bolivars. The current cash position in bolivars is ~US$520 million.



Oil prices: Oil price (Brent) is at US$64/bbl (down ~45% since

Company Statistics

June), which we believe implies significant upside for Copa, as 38%

Bloomberg

of costs are related to jet fuel costs. In our model we assumed an

Current Price (12/09/14)

average oil price of ~US$75/bbl (17% above current level) for 2015.



CPA US US$ 103.62

Target Price (YE 2015)

US$ 130.00

52-Week Range (US$)

97.84 - 161.11

Market Capitalization (US$ Mn)

4,601

Consistent and successful strategy: Over the past 17 years, Copa

Float (%)

70.0

has consistently implemented its business model (i.e., it serves

3-Mth Avg. Daily Vol (US$ Mn)

86.5

markets that need a hub). Facing a low level of competition, Copa has consistently been able to pass through fully to clients changes in oil costs, leading to relatively stable margins over the years. Panama,

Shares Outstanding - Mn

44

Price Performance (US$) CPA US

MSCI LatAm

180

where Copa and its hub are based, is the fastest-growing country in 160

LatAm, according to the IMF (~50% of Copa’s passengers have Panama as their final destination or origin). Latin America, although

140

decelerating, delivered the third-highest growth rate in air traffic of

120

any region in the world in 2013, according to IATA.

100 80



25% upside to target price: Our target price of US$130/share

D-12

A-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

implies a 12-month-forward P/E of ~13x at the end of 2015. 392

N-14

COPA HOLDINGS Financial Highlights: P&L, Balance Sheet and CF Statement, 2012-15E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDAR YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2009A 1,253 (2.8) 317 2.3 25.3 223 (0.3) 17.8 (23) (20) 176 3.4 14.0

2010A 1,411 12.6 380 19.8 26.9 280 25.4 19.8 (25) (21) 233 32.9 16.5

2011A 1,833 29.9 511 34.7 27.9 385 37.3 21.0 (26) (36) 316 35.3 17.2

US$ 2012A 2,249 22.7 564 10.3 25.1 403 4.6 17.9 (21) (40) 336 6.3 14.9

CASH FLOW Depreciation & Amortization Other Noncash Items Changes in Working Capital Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments) Change in Debt Dividends Capital Increases/Other

2009A (47) (36) 214 (187) (39) (32) (71) (16) 5

2010A (53) 67 375 (348) 91 (38) 144 (48) 8

2011A (75) 88 514 (299) 267 14 78 (73) 8

2012A (89) 114 569 (370) 209 (88) 138 (107) 7

2013E (105) 250 827 (162) 613 127 (136) (170) 6

2014E (112) (174) 406 (320) 19 (130) 114 (167) -

2015E (122) 25 573 (319) 428 0 200 (160) -

2016E (136) 42 636 (416) 392 0 200 (215) -

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2009A 358 509 1,541 2,093 447 781 866 1,171 95

2010A 409 600 1,841 2,556 498 948 1,110 1,314 101

2011A 611 860 2,072 3,066 658 1,017 1,391 1,427 131

2012A 721 987 2,372 3,480 789 1,154 1,537 1,713 136

2013E 1,169 1,442 2,402 3,952 1,041 1,010 1,902 1,702 156

2014E 1,025 1,307 2,624 4,040 881 1,128 2,031 1,958 159

2015E 1,293 1,584 2,821 4,514 937 1,305 2,271 2,218 186

2016E 1,470 1,775 3,101 4,985 1,013 1,485 2,487 2,477 213

751

889

937

1,070

914

1,025

1,199

1,372

2009A

2010A

2011A

2012A

2013E

2014E

2015E

2016E

LT Debt FINANCIAL RATIOS Net Debt

2013E 2,608 16.0 714 26.6 27.4 518 28.8 19.9 (18) (60) 441 31.3 16.9

2014E 2,701 3.6 737 3.2 27.3 514 (0.8) 19.0 (13) (53) 441 0.1 16.3

2015E 2,645 (2.1) 710 (3.7) 26.8 468 (8.9) 17.7 (14) (55) 400 (9.4) 15.1

2016E 2,819 6.6 767 8.1 27.2 504 7.5 17.9 (15) (59) 430 7.6 15.3

813

905

816

993

532

933

925

1,008

1,542

1,820

2,008

2,334

2,416

2,645

2,830

3,111

Net Debt/EBITDAR

2.6

2.4

1.6

1.8

0.7

1.3

1.3

1.3

Net Debt/Equity

0.9

0.8

0.6

0.6

0.3

0.5

0.4

0.4

14.9

24.6

16.3

16.5

6.2

11.9

12.1

14.8

4.0

5.0

6.1

5.4

5.9

5.3

4.7

4.7

Capital Employed

Capex/Revenue (%) Int Cover (%) Dividend Payout (%)

9.6

27.3

31.1

33.7

50.8

37.8

36.2

53.8

ROCE (%)

13.0

13.8

17.2

15.5

19.3

17.5

14.9

14.6

ROE (%)

23.5

23.6

25.3

22.9

25.6

22.4

18.6

18.1

2009A

2010A

2011A

2012A

2013E

2014E

2015E

2016E

P/E

13.3

11.1

8.2

13.2

16.1

10.4

11.5

10.7

P/CE

10.5

9.0

6.6

10.4

13.0

8.3

8.8

8.1

9.9

9.2

6.7

9.6

10.7

7.5

7.8

7.3

MARKET RATIOS

FV/EBITDAR FV/EBIT

14.1

12.5

8.9

13.4

14.7

10.8

11.8

11.1

FV/Revenue

2.5

2.5

1.9

2.4

2.9

2.0

2.1

2.0

P/BV

2.7

2.3

1.9

2.9

3.7

2.3

2.0

1.9

(1.7)

3.5

10.3

4.7

8.6

0.4

9.3

8.5

0.7

1.9

2.8

2.4

2.4

3.6

3.5

4.7

FCF Yield (%) Div Yield (%) PER SHARE DATA

2009A

2010A

2011A

2012A

2013E

2014E

2015E

2016E

EPS

1.00

1.00

1.00

1.00

1.00

1.00

1.00

1.00

DPS

1.00

1.00

1.00

1.00

1.00

1.00

1.00

1.00

BVPS

1.00

1.00

1.00

1.00

1.00

1.00

1.00

1.00

393

Copa Holdings (Copa) is the parent company of Copa Airlines, the largest airline in Central America and the Caribbean, and Copa Airlines Colombia, the secondlargest airline in Colombia. Copa Airlines provides international passenger and cargo transportation throughout the Americas and the Caribbean, using the Tucumen International Airport (Panama City) as its hub. Copa Holdings listed its shares on the NYSE in 2005, and it offers 100% tag-along rights to minority shareholders.

Key Personnel: Pedro Heilbron (CEO) and Joseph Putaturo (IR Director) Web: www.copaair.com

Revenue by Segment, 2013E Cargo, mail and other 3.4%

Passenger Revenues 96.6%

RPM Breakdown, 2013E Copa Airlines Colombia 3.5%

Copa Airlines 96.5%

Shareholder Structure, Current Ameriprise Financial 7.6% Fidelity 9.3%

Other 83.1%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

MULTINATIONAL—OIL, GAS & PETROCHEMICALS

TENARIS

HOLD CURRENT PRICE: US$29.91 TARGET PRICE: US$35.00

DOWNGRADING RATING TO HOLD FROM BUY LOWERING YE2015 TARGET PRICE TO US$35.00 FROM US$56.50 

Investment Case: Despite our belief that Tenaris is well positioned

Christian Audi

globally (particularly in the high-end seamless segment of the

New York: Santander Investment Securities Inc. +1-212-350-3991 | [email protected]

market), the rapid drop in oil prices is already and should continue to force integrated as well as exploration and production companies that Tenaris services to cut their capex plans, thus pressuring both

Gustavo Allevato*, CFA Brazil: Banco Santander S.A. +5511-3012-6042 | [email protected]

Tenaris’s prices and volume. Notwithstanding the healthy financial position of the company’s balance sheet, the lack of catalysts should continue to weigh on the performance of the stock, in our view.



Outlook 2015: We believe the positive outcome of the ITC’s decision to impose antidumping measures on OCTG imports into the U.S. from five countries (including Korea) in 2014 has been completely offset by concerns about the impact of lower oil prices on Tenaris’s volume and prices across all its global operations.



Implications from premium product strategy: We believe that Tenaris’s trademark expertise in premium products has served it well over the past few years and should continue to do so going forward. However, in the current environment of severe oil price corrections, investment in more complex and thus more expensive projects that

Company Statistics

Tenaris’s high-end products require are among the first ones to be

Bloomberg

postponed by integrated oil companies.



TS US

Current Price (01/02/15)

US$ 29.91

Target Price (YE 2015)

US$ 35.00

52-Week Range (US$)

28.18 - 47.83

Strong financial position remains key: With a net cash position of

Market Capitalization (US$ Mn)

more than US$1.5 billion at the end of 3Q14, we see the company as

Float (%)

34.5

3-Mth Avg. Daily Vol (US$ Mn)

67.7

Shares Outstanding - Mn

590

well positioned to weather the ongoing “falling oil price” storm.

17,655

Price Performance (US$) Tenaris - ADR (Rebased) 120 110 100 90 80 70 60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

394

D-14

TENARIS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013-16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2010A 7,712 (5.4) 3,205 (1.9) 2,013 (13.2) 26.1 1,574 (13.2) 20.4 (53) (450) 1,141 (5.5) 14.8

2011A 9,973 29.3 3,723 16.2 2,449 21.7 24.6 1,895 20.4 19.0 (10) (525) 1,331 16.7 13.3

2012A 10,834 8.6 4,271 14.7 2,875 17.4 26.5 2,283 20.5 21.1 (50) (542) 1,630 22.5 15.0

US$ 2013A 2014E 10,596 10,104 (2.2) (4.6) 4,402 4,080 3.1 (7.3) 2,797 2,641 (2.7) (5.6) 26.4 26.1 2,187 2,028 (4.2) (7.3) 20.6 20.1 (29) 39 (628) (615) 1,600 1,475 (1.9) (7.8) 15.1 14.6

CASH FLOW Depreciation & Amortizatio Other Noncash Items Changes in Working Capita Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments Change in Debt Dividends Capital Increases/Other

2010A (507) (83) (857) 29 (847) (673) 0 (202) (401) 84

2011A (554) (151) (190) 339 (863) (20) 0 (314) (559) (168)

2012A (568) 63 (594) (937) (790) 5 0 813 (564) (256)

2013A (610) (69) (335) 245 (753) (214) 0 (813) (507) (144)

2014E (613) (81) (520) (242) (1,004) 407 426 171 (442) 12

2015E (659) (85) (515) (49) (1,200) (177) 0 0 (570) 0

2016E (715) (86) 93 (50) (960) 864 0 0 (494) 0

2017E (743) (88) (216) (51) (920) 722 0 0 (537) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2010A 1,542 5,956 8,078 14,364 2,379 1,215 9,902 1,244 1,024

2011A 1,276 6,393 8,102 14,864 2,404 1,137 10,506 931 781

2012A 1,494 6,987 8,621 15,964 2,829 1,042 11,388 1,744 1,212

2013A 1,863 6,925 8,656 15,931 2,120 1,095 12,290 931 685

2014E 3,214 8,203 8,740 17,435 2,880 1,065 13,335 1,102 1,096

2015E 3,081 8,705 9,404 18,611 3,044 1,086 14,348 1,102 1,096

2016E 3,991 9,487 9,778 19,778 3,055 1,108 15,500 1,102 1,096

2017E 4,759 10,507 10,090 21,119 3,137 1,130 16,753 1,102 1,096

221

150

532

246

7

7

7

7

LT Debt FINANCIAL RATIOS

2015E 10,054 (0.5) 3,878 (5.0) 2,649 0.3 26.4 1,990 (1.9) 19.8 175 (624) 1,583 7.3 15.7

2016E 10,082 0.3 3,886 0.2 2,784 5.1 27.6 2,069 4.0 20.5 177 (648) 1,647 4.1 16.3

2017E 10,315 2.3 3,975 2.3 2,998 7.7 29.1 2,255 9.0 21.9 180 (702) 1,789 8.7 17.3

2010A

2011A

2012A

2013A

2014E

2015E

2016E

2017E

Net Debt

(297)

(345)

250

(932)

(2,112)

(1,979)

(2,889)

(3,656)

Capital Employed

9,443

9,295

10,801

11,018

12,449

13,237

14,443

15,595

Net Debt/EBITDA

(0.1)

(0.1)

0.1

(0.3)

(0.8)

(0.7)

(1.0)

(1.2)

Net Debt/Equity

(0.0)

(0.0)

0.0

(0.1)

(0.2)

(0.1)

(0.2)

(0.2)

Capex/Revenue (%)

11.0

8.7

7.3

7.1

9.9

11.9

9.5

8.9

Int Cover (%)

31.4

46.7

51.8

39.7

53.8

52.6

55.3

59.5

Dividend Payout (%)

33.2

49.0

42.3

31.1

27.7

38.6

31.2

32.6

ROCE (%)

12.0

14.9

15.9

14.2

11.6

10.8

10.3

10.4

ROE (%)

12.5

13.0

14.9

13.5

11.5

11.4

11.0

11.1

2010A

2011A

2012A

2013A

2014E

2015E

2016E

2017E

P/E

25.3

16.5

15.2

16.1

12.1

11.2

10.7

9.9

P/CE

17.5

11.6

11.3

11.7

8.5

7.9

7.5

7.0

FV/EBITDA

15.2

9.4

8.8

9.0

6.0

6.0

5.3

4.7

FV/EBIT

19.4

12.1

11.1

11.5

7.8

8.0

7.2

6.3

4.0

2.3

2.3

2.4

1.6

1.6

1.5

1.4 1.1

MARKET RATIOS

FV/Revenue P/BV FCF Yield (%) Div Yield (%) PER SHARE DATA

2.9

2.1

2.2

2.1

1.3

1.2

1.1

(2.3)

(0.1)

0.0

(0.8)

2.3

(1.0)

4.9

4.1

1.4

2.5

2.3

2.0

2.5

3.2

2.8

3.0

2010A

2011A

2012A

2013A

2014E

2015E

2016E

2017E

EPS

1.93

2.26

2.76

2.71

2.50

2.68

2.79

3.03

DPS

0.68

0.95

0.96

0.86

0.75

0.97

0.84

0.91

16.78

17.80

19.29

20.82

22.59

24.31

26.26

28.38

BVPS

395

Tenaris is a leading global manufacturer and supplier of OCTG (oil country tubular goods), premium connections, line pipe, and other products and services associated with the oil and gas, energy, and other industries. The company has a seamless production capacity of approximately 3.3 million tons in its manufacturing facilities located in Italy, Argentina, Mexico, Japan, Canada, and Romania, and Venezuela, as well as welded operations in Brazil, the U.S., and Canada, among other countries. The Techint group is Tenaris’s controlling shareholder, with a 60.5% stake.

Key Personnel: Paolo Rocca (Chairman), Paolo Rocca (CEO), Ricardo Soler (CFO) and Giovanni Sardagna (IR Officer) Web: www.tenaris.com

Tubes EBITDA by Country, 2015E

Far East & Oceania 4.1%

South America 18.9%

Middle East & Africa 20.1% North America 46.8%

Europe 10.0%

EBITDA by Segment, 2015E

Projects Other 0.0% 7.7%

Tubes 92.3%

Shareholder Structure, Current

Free Float 34.5%

Aberdeen Asset Mgmt. 5.0%

Techint Group 60.5%

Sources for all charts and tables: Company reports and Santander estimates.

LATIN AMERICAN 2015 Latin American Universe Book

MULTINATIONAL—METALS & MINING

TERNIUM

BUY CURRENT PRICE: US$17.53 TARGET PRICE: US$25.00



Investment Case: We see Ternium as a positive outlier in a

Felipe Reis*

problematic sector, factoring in its unique robustness in operating

Brazil: Banco Santander S.A. +5511-3012-5758 | [email protected]

performance and attractive valuation (3.7x FV/EBITDA). In our view, the stock is excessively discounted amid a wave of commodity stock sell-offs and the Usiminas drama. We recognize the Usiminas imbroglio as a risk, but even in the worst-case scenario we still model significant value for Ternium.



Walter Chiarvesio* Argentina: Santander Rio Sociedad de Bolsa S.A. +5411-4341-1564 | [email protected]

Renato Maruichi*, CFA Brazil: Banco Santander S.A. +5511-3553-7149 | [email protected]

Outlook 2015: Unlike its Brazilian peers that became self-sufficient with respect iron ore, Ternium acquires most of its raw materials (iron ore and slabs) at market prices, which are declining. We expect this to offset the potential decline in TX’s steel prices in the U.S. (where steel prices have been very resilient so far, though unlikely to maintain this resilience, in our view). We forecast EBITDA of US$1.5 billion, -7% YoY, an impressive 17% FCFE yield.



Exposed to the best steel market in the world: NAFTA. With 55% of its sales in NAFTA, Ternium is exposed to the only market enjoying positive trends for economic growth in 2015. Also, Mexico’s rise as a key global exporter of autos is poised to continue, in our view,

Company Statistics

benefitting Ternium, whose strategy is to increasingly supply

Bloomberg

galvanized coils to automakers (now reinforced by its recent investments in Pesquería).

TX US

Current Price (01/02/15)

US$ 17.53

Target Price (YE 2015)

US$ 25.00

52-Week Range (US$)

16.22 - 32.24

Market Capitalization (US$ Mn)



Current stock price more than discounts Usiminas risk. If Ternium is forced to carry out a tender offer to acquire USIM3 free float, we

3,441

Float (%)

25.0

3-Mth Avg. Daily Vol (US$ Mn)

7.4

Shares Outstanding - Mn

196

estimate that it can destroy some US$345 million in value for TX (US$1.76 per share). This is not our base case, but even if we write off this amount from our YE2015 target price, Ternium would still

Price Performance (US$) TX US

MSCI LatAm

140

offer 38% total return potential. 120



Cash ROE (approximately 11%) is close to matching company’s cost

100

of equity (12%), according to our estimate. Nonetheless, the stock is trading at 0.6x book value, which, in our view, provides evidences of a distortion between Ternium’s ability to create value and market perception of value.

80

60

J-13

M-13

A-13

D-13

A-14

A-14

Sources: FactSet, Santander estimates and company reports.

396

D-14

TERNIUM Financial Highlights: P&L, Balance Sheet and CF Statement, 2013-16E in Millions

Company Description

P&L ACCOUNT Total Revenue YoY change (%) Gross Profit YoY change (%) EBITDA YoY change (%) As % of Revenue Operating Income YoY change (%) As % of Revenue Financial Results Taxes Net Profit YoY change (%) As % of Revenue

2010A 7,382 48.9 1,717 102.3 1,476 110.1 20.0 1,054 232.4 14.3 131 (407) 622 273.0 8.4

2011A 9,157 24.1 2,063 20.2 1,812 22.8 19.8 1,265 20.0 13.8 (301) (316) 513 (17.5) 5.6

2012A 8,608 (6.0) 1,726 (16.3) 1,304 (28.0) 15.1 916 (27.6) 10.6 (125) (257) 140 (72.7) 1.6

US$ 2013A 8,531 (0.9) 1,930 11.8 1,580 21.2 18.5 1,109 21.0 13.0 (136) (349) 454 224.8 5.3

CASH FLOW Depreciation & Amortizatio Other Noncash Items Changes in Working Capita Operating Cash Flow Capital Expenditures Free Cash Flow Other Invest./(Divestments Change in Debt Dividends Capital Increases/Other

2010A (383) 0 419 1,424 (350) 1,074 0 0 (150) 0

2011A (406) 0 (604) 315 (601) (286) 0 0 (150) 0

2012A (371) 0 377 888 (3,200) (2,312) 0 0 (130) 0

2013A (378) 0 266 1,098 (883) 215 0 0 (150) 0

2014E (406) (256) (445) 244 (485) (241) 0 0 (147) 0

2015E (420) 0 13 888 (500) 388 0 0 (120) 0

2016E (443) 0 29 922 (500) 422 0 0 (118) 0

2017E (460) 0 (9) 946 (500) 446 0 0 (125) 0

BALANCE SHEET Cash and Equivalents Current Assets Fixed Assets Total Assets Current Liabilities Long-Term Liabilities Shareholders' Equity Total Financial Debt ST Debt

2010A 2,628 5,523 4,263 11,112 1,043 3,054 5,881 1,940 0

2011A 2,158 5,554 4,033 10,746 939 2,966 5,756 1,991 0

2012A 560 3,644 4,438 10,867 1,004 3,367 5,421 2,424 0

2013A 307 3,189 4,708 10,373 1,069 2,966 5,340 2,003 0

2014E 230 3,531 4,459 10,326 1,043 3,085 5,171 2,122 0

2015E 810 4,072 4,648 11,017 1,016 3,142 5,634 2,122 0

2016E 1,377 4,595 4,704 11,532 1,001 3,176 5,965 2,122 0

2017E 1,978 5,200 4,743 12,112 996 3,212 6,334 2,122 0

1,940

1,991

2,424

2,003

2,122

2,122

2,122

2,122 2017E

LT Debt FINANCIAL RATIOS

2014E 8,842 3.6 1,920 (0.5) 1,612 2.0 18.2 1,157 4.3 13.1 (91) (331) 539 18.7 6.1

2015E 8,686 (1.8) 1,853 (3.5) 1,504 (6.7) 17.3 1,031 (10.9) 11.9 (127) (265) 455 (15.6) 5.2

2016E 8,567 (1.4) 1,789 (3.5) 1,472 (2.1) 17.2 977 (5.2) 11.4 (85) (261) 451 (1.0) 5.3

2017E 8,604 0.4 1,860 3.9 1,557 5.7 18.1 1,044 6.9 12.1 (66) (287) 495 9.7 5.7

2010A

2011A

2012A

2013A

2014E

2015E

2016E

Net Debt

(688)

(167)

1,864

1,696

1,891

1,312

745

143

Capital Employed

4,299

4,480

6,387

6,178

5,802

5,914

5,891

5,842

Net Debt/EBITDA

(0.5)

(0.1)

1.4

1.1

1.2

0.9

0.5

0.1

Net Debt/Equity

(0.1)

(0.0)

0.3

0.3

0.4

0.2

0.1

0.0

4.7

6.6

37.2

10.4

5.5

5.8

5.8

5.8

Capex/Revenue (%) Int Cover (%)

n/m

n/m

n/m

n/m

n/m

n/m

n/m

n/m

Dividend Payout (%)

90.1

24.2

25.4

107.5

32.4

22.3

25.9

27.6

ROCE (%)

34.0

35.3

18.4

23.6

25.6

21.9

21.0

22.8

ROE (%)

11.1

8.8

2.5

8.4

10.3

8.4

7.8

8.0

2010A

2011A

2012A

2013A

2014E

2015E

2016E

2017E

MARKET RATIOS P/E

13.4

7.0

33.1

13.5

6.4

7.2

7.3

6.6

P/CE

8.3

3.9

9.0

7.4

3.7

3.7

3.7

3.4

FV/EBITDA

6.3

2.3

5.7

5.7

3.7

3.5

3.2

2.7

FV/EBIT

8.8

3.3

8.1

8.1

5.2

5.1

4.9

4.0

FV/Revenue

1.3

0.5

0.9

1.1

0.7

0.6

0.6

0.5

P/BV

1.4

0.6

0.9

1.2

0.7

0.6

0.5

0.5

FCF Yield (%)

12.9

(7.9)

(50.0)

3.5

(6.9)

11.9

12.9

13.6

Div Yield (%)

1.8

4.2

2.8

2.4

4.3

3.7

3.6

3.8

PER SHARE DATA

2010A

2011A

2012A

2013A

2014E

2015E

2016E

2017E

EPS

3.17

2.61

0.71

2.31

2.75

2.32

2.30

2.52

DPS

0.77

0.77

0.66

0.77

0.75

0.61

0.60

0.63

29.96

29.32

27.61

27.20

26.34

28.70

30.39

32.26

BVPS

397

Ternium is one of the main steel producers in LatAm, with main manufacturing facilities in Argentina and Mexico. It has total crude steel and rolling capacity of approximately 7.5 million and 10.5 million tonnes per year, respectively. Ternium owns 191 million common shares of Usiminas, giving it a 37% economic stake in the company. Ternium is incorporated in Luxembourg and listed at NYSE only.

Key Personnel: Paulo Rocca (Chairman), Daniel Novegil (CEO), Pablo Brizzio (CFO) and Sebastian Marti (IR Director) Web: www.ternium.com

Sales by Segment, 2013A

Iron Ore 1.0%

Steel 99.0%

Sales by Destination, 2013A Other Markets 15.0% Southern Region 35.0% Mexico 50.0%

Shareholder Structure, Current

Treasury Shares 2.0% Tenaris 11.0%

Free Float 25.0%

Techint Group 62.0%

Sources for all charts and tables: Company reports and Santander estimates.

IMPORTANT DISCLOSURES AES Gener – Valuation & Risks Our YE2015 target price is based on a sum-of-the parts analysis, which values the operations in Chile and Colombia with a different WACC per country: 7.4% in Chile and 8.4% in Colombia. Risks include environmental concerns about the construction of coal-fired facilities in Chile, execution risk of the company’s expansion program, hydrological risk and introduction of “green taxes.” AES Tiete – Valuation & Risks Our target price is based on a DCF valuation using a WACC of 10.9% in R$ nominal terms. Risks include: (1) no tag-along rights for GETI4 shareholders; (2) lower-than-expected generation prices; (3) uncertainties regarding the fulfillment of the expansion requirement; and (4) harsher concession renewal parameters. AFP Habitat – Valuation & Risks Our YE2015 target price is based on a DCF analysis, assuming a 9.6% cost of equity and a 2.5% nominal perpetuity growth rate (in U.S. dollars). Risks include: (1) changes in commission tariff; (2) a different-than-expected scenario for the Chilean macro figures; (3) changes in regulation; and (4) a different competitive scenario. ALL – Valuation & Risks For our DCF-based YE2015 target price, we discounted the company’s estimated cash flow by a WACC of 13.4% (in local currency). Risks include uncertainties related to potential changes in the Brazilian railroad regulatory framework, uncertainties related to the return of new projects in which ALL might become involved, uncertainties related to the merger with Rumo, unfavorable government intervention, and potential increases in Brazilian interest rates affecting ALL’s bottom line. Aguas Andinas – Valuation & Risks Our YE2015 target price is based on a DCF valuation with a WACC of 6.9% and a perpetuity growth rate of 2%. Risks include: (1) regulatory risk; (2) a reduction in the dividend policy; (3) weather conditions; (4) M&A activity. Alfa – Valuation & Risks Our year-end 2015 target price is based on a NAV model and estimating a fair value to our sum of the parts. This considers a valuation premium of its core operations. Risks include stronger-than-expected growth in the U.S. and Mexican economies, stronger recovery in the global demand for vehicles, lower-than-expected prices of key raw materials and stronger recovery on the petrochemical cycle and higher material benefits from the energy reform in Mexico. Alicorp – Valuation & Risks Our YE2015 target price is based on a DCF analysis using an 8.3% discount rate, and a 3% terminal growth rate. It implies an adjusted target FV/EBITDA multiple of 12x for 2015. Main risks include weaker-than-expected revenue growth, higher-than-expected commodity prices, political risk (mainly in Argentina), increased competition (including expansion of supermarket chains), execution risk in recent acquisitions and relatively low stock liquidity. Almacenes Exito – Valuation & Risks Our YE2015 target price is based on a DCF analysis using a 10% discount rate, and a 3.3% terminal growth rate. It implies a target FV/EBITDA multiple of 9.7x for 2015. Risks include weaker-than-anticipated SSS, fiercer-than-expected competition, delays in company’s expansion plan and bleaker-than-anticipated working capital. Alsea – Valuation & Risks Our YE2015 target price is based on our DCF model, which assumes a WACC of 7.8%: cost of equity of 9.6%, a risk-free rate of 3.0%, an equity risk premium of 5.5%, a blended country risk premium of 160 bps, and a beta of 0.9. The after-tax cost of debt is estimated at 5.8%, and the equity/debt structure considered is 52% - 48%. The perpetuity growth rate considered is 3.5%, inline with other retailers. Main risks: weaker-than-expected SSS, higher expenses coming from the integration of past acquisitions, and weaker-than-anticipated FX as 30% of input costs are U.S.-dollar based. Alupar – Valuation & Risks Our YE2015 target price is based on a DCF valuation using an average WACC of 9.71% and no perpetual growth. Risks include: (1) regulatory risk; (2) related party risk; and (3) execution risk for greenfield projects. 398

Ambev – Valuation & Risks Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a Ke of 8.7% and a perpetuity growth rate of 3.5%. Main risks include deteriorating wages, lower consumption growth, price increases and an overall lower economic activity. America Movil – Valuation & Risks Our year-end 2015 target price is based on a DCF valuation, discounted at a WACC of 7.3% (in US$ terms) and using a 3.0% perpetual growth rate. Risks include regulatory environment in Mexico, competition, economic environment, FX exposure and execution in Europe. Andina – Valuation & Risks Our YE2015 price target is based on a sum-of-the-parts approach to value each of the company’s operations in Chile, Brazil, Argentina and Paraguay, through a DCF analysis. Risks include slower-than-expected consumption growth in LatAm countries, changes in corporate taxes, foreign exchange risk, and M&A risk. Anima Educação – Valuation & Risks Our YE2015 target price is based on our DCF model, and implies a WACC of 12.8% in reais and a perpetuity growth rate of 5%. Main risks include execution and acquisition risk, competitive environment, dependence on macroeconomics, government regulation and related-party transactions. Arca Continental – Valuation & Risks Our YE2015 target price is based on a DCF model, using a WACC of 8.2% and perpetuity growth of 2.5%. Main risks include: weaker economic growth; potential increase in taxes, volatility in the price of raw materials and currencies, exposure to Argentina, competition, and execution risk. Arteris – Valuation & Risks Our YE2015 target price of R$14 is based on a DCF valuation of Arteris’ existing concessions. We do not consider any value of potential new concessions or projects. Also, we do not include a perpetuity value. We discount Arteris’s free cash flow by a WACC of 10.9% in local currency. Risks include a deceleration in Brazilian economic momentum, leading to a slowdown in cargo transport by road and traffic volume in general; increase in long term bond yields in Brazil; adverse government interference in the sector; stepped-up competition; and lower returns on new projects. Asur – Valuation & Risks Our YE2015 target price is based on a finite DCF model ending in 2048, using a WACC of 10.1%. We estimate implied equity IRR at 10.2%, for a -17 bps spread vs. cost of equity. Main risks include: (1) a further deterioration in growth for the U.S. and Mexican economies, (2) the relaunching of the bidding process for the Mayan Riviera airport could negatively affect long-term traffic figures at Cancun airport, (3) natural disasters (such as hurricanes) and terrorist threats could affect the tourism industry, (4) increases in operating costs and insurance are possible, and (5) volatility and sudden increase in oil prices could negatively affect the operations of airlines. B2W Digital – Valuation & Risks Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a Ke of 10.6% and a perpetuity growth rate of 4.0%. Main risks include an economic slowdown, the competitive environment, and limited earnings visibility. BB Seguridade – Valuation & Risks We valued the company using a SOTP - sum of the parts valuation model, combining each one of the main companies which integrate BB Seguridade: SH1, SH2, BrasilPrev, Brasilcap, BB Corretora and IRB. For the valuation of each one of these companies, we use a DDM-dividend discount model with three stages. Main risks are related to regulatory and political issues. We also note the Banco do Brasil-BB Corretora contract renegotiation risk, as well as risk to our growth estimates and Solvency II requirements.

399

BBVA Frances – Valuation & Risks We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 15.3% and a 15-year RWA CAGR of 18.0%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 5.0% and a sustainable ROE of 21.4%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include the risk of a deterioration in the country risk, risk of slower-than-expected growth, higher-than-expected NPLs, and slower-than-expected deposit growth. BCI – Valuation & Risks We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 9.4% and a 15-year RWA CAGR of 8.2%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 2.5% and a sustainable ROE of 12.2%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Downside risks include: deterioration in asset quality, weaker-than-expected loan growth and margins due to stronger competition from the company’s larger domestic competitors. Upside risk include: better-than-expected economic performance and higher-than-expected inflation. BM&F Bovespa – Valuation & Risks Our valuation is based on a two-stage DDM. Risks to the company include trading volume being significantly different than our estimates, competition from foreign exchanges and other trading platforms, as well as regulatory and pricing policy. BR Malls – Valuation & Risks We arrived at our YE2015 target price based on a free cash flow to firm analysis, using a WACC of 13.3% in reais, and nominal terminal growth of 5.8%. Risks include (1) profitability deterioration as a result of excessive industry expansion, (2) an increase in vacancy rates, (3) lack of funding for the industry, and (4) overpayment for acquisitions. BR Properties – Valuation & Risks Our YE2015 target price was derived from a free cash flow to the firm analysis, using a WACC of 14.7% in reais and a nominal terminal growth of 5.8%. Risks include: (1) further increase in vacancy rates, which could reduce rental revenues and increase expenses simultaneously, thus negatively affecting margins; (2) lower-than-expected leasing spreads, driving rental revenue downward and pressuring margins; (3) execution risk of completing and renting at attractive terms the projects under development; (4) a slower-thanexpected recovery in economic activity; and (5) scarcity of suitable and value-accretive targets for acquisitions, potentially limiting the company’s growth potential. Banco Macro – Valuation & Risks We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 14.8% and a 15-year RWA CAGR of 18.8%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 5.0% and a sustainable ROE of 21.5%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include upside potential from lower cost of equity due to lower country risk or lower inflation; risk of stronger-than-expected GDP from higher commodity prices. There are upside risks, from stronger-than-expected loan growth or weaker-than-expected competition in the banking industry. Risks include upside potential from lower cost of equity due to lower country risk or lower inflation; risk of stronger-than-expected GDP from higher commodity prices. There are upside risks, from stronger-than-expected loan growth or weaker-than-expected competition in the banking industry. Banco Pine – Valuation & Risks We use a discounted surplus capital model to value the banking operations, applying a 2013E P/BV of 1.0x to the stock of surplus capital and a net present value to value the bank’s tax credits. Risks include higher-than-expected NPLs, lower-than-expected loan growth, margin compression from stronger competition, and regulatory risk from tougher capital requirements.

400

Banco de Chile – Valuation & Risks We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 9.7% and a 15-year RWA CAGR of 6.6%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 2.5% and a sustainable ROE of 16.4%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Upside risk include: improvement in stock liquidity and weightings in market indices, better-thanexpected results in recent expansion into riskier loan portfolio (SME and consumer finance) in the form of higher margins and asset quality. Banco do Brasil – Valuation & Risks We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 15.4% and a 15-year RWA CAGR of 9.2%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.0% and a sustainable ROE of 15.4%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. We add the mark to market gains and losses to adjusted earnings. Risks include stronger-than-expected margin contraction from stronger-than-expected competitive influence on loan rates; slower-than-expected improvements in efficiency and higherthan-expected NPLs from potential weakening of the Brazilian economy given the current high household leverage ratios in the country. Other risks include stock overhang risk from a potential capital increase in the medium term; risk of lower dividend payout ratios, high effective leverage due to low capitalization of the bank, downside risk from its public sector ownership and control, high exposure volatile weather and commodity prices affecting its agricultural loan book. Bancolombia – Valuation & Risks We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 10.9% and a 15-year RWA CAGR of 10.1%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.5% and a sustainable ROE of 14.1%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include regulatory risk from the convergence to Basel III, weaker-than-expected loan demand, particularly in commercial lending and consumer lending from slower-than-expected GDP growth, lower-than-expected benchmark rates, slower-than-expected improvement in efficiency from the end of the IT upgrade program; and execution risks from the integration of Banistmo in Panama. Banorte – Valuation & Risks We value Banorte using a discounted surplus capital model, which estimates the present value of capital generated by the company in the long term. We use a cost of equity of 12.6%, a sustainable ROE of 17.7%, and a terminal growth rate of 4.5%. We applied a 1.0x P/BV multiple to the company’s stock of surplus capital. We apply a 50% haircut to Banorte’s M$10.0 billion real estate exposure via Solida. Risks include: execution risk in the deployment of the new retail banking model; execution risks in the development of its new IT platform; risks from a weaker-than-expected Mexican and global economy which could lead to lower interest rates and lower margins, slower loan growth and higher NPLs; among others. Banregio – Valuation & Risks We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 13.3% and a 15-year RWA CAGR of 12.8%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.5% and a sustainable ROE of 23.3%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Downside risks include: an increase in prepayments of corporate loans, lower-than-expected performance in the Mexican economy leading to weaker credit demand, and higher-thanexpected integration costs from recent acquisitions. Bolsa Mexicana de Valores – Valuation & Risks We value BMV with a 15-year DCF and a Gordon Growth Model for its perpetuity value, using a cost of equity of 12.4% and a growth factor of 4.5%. Risks include: risk of weaker-than-expected traded volumes, increased competition, regulatory risks, and potential conflicts of interest between controlling and minority shareholders.

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Bradesco – Valuation & Risks We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 13.3% and a 15-year RWA CAGR of 9.7%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.0% and a sustainable ROE of 17.3%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include regulatory risks, risk of lower lending rates and spreads due to ongoing government intervention in the industry, macroeconomic risks related to commodity prices and country risk. Risk of lower-than-expected loan growth due to a weaker than expected economic recovery as well as risks of higher-than-expected NPLs from high household indebtedness in Brazil. Also, there are risks inherent to investing in preferred shares with no-voting rights. Brasil Foods – Valuation & Risks Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a ke of 8% and a perpetuity growth rate of 3.5%. Main risks include (1) volatility in grain prices, (2) stronger competition in the domestic market, and (3) sanitary/commercial barriers in the export market. Brasil Insurance – Valuation & Risks Our valuation is based on a two-stage DCF model, with a Gordon Growth Model at perpetuity. Risks are mainly related to regulatory risks, economic slowdown affecting the insurance business with collateral effect on brokerage fees, execution risk on acquisitions, and overhang risk due to the end of lock-up periods. Braskem – Valuation & Risks Our year-end 2015 target price is based on a DCF valuation. Risks include a sharp and sustained drop in chemical prices, a significant and long-lasting increase in oil/naphtha prices, and the appreciation of the Brazilian real. CAP – Valuation & Risks Our 2015 target price is based on a sum-of-the-parts analysis, with different DCFs for the three main businesses of CAP: iron ore, steel and steel processing into different DCFs, together with another DCF of the overhead. Risks include a lower-than-expected reduction in cash costs/iron ore prices, higher-than-expected capex, different-than-expected impact from tax reform, higher-than-expected debt levels, potential findings on their exploration concessions. CBD – Valuation & Risks Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a ke of 9.2% and a perpetuity growth rate of 2.5%. Risks include deterioration in the credit environment, deterioration in working capital and an overall economic slowdown. CCR – Valuation & Risks Our YE2015 target price for CCR is based on a DCF valuation of the estimated cash flow from its current concessions until the end of each concession contract. We consider a residual value only for STP. We discounted CCR’s estimated cash flow by a WACC of 11.7% (in BRL terms). Risks include unexpected deceleration in Brazilian economic activity, leading to a slowdown in traffic volume in general, adverse government interference in the sector, stepped-up competition and lower returns on new projects. CCU – Valuation & Risks Our YE2015 target price is based on a sum-of-the-parts DCF analysis approach to value each of the company’s operations in Chile, Rio de la Plata and Wines. Risks include different-than-expected macro figures in Argentina, volatility in raw material prices (malt, sugar, PET resin), introduction of proprietary bottles in Argentina, possible tax hike in Chile, and possible tax hike on alcoholic beverages. CMPC – Valuation & Risks Our YE2015 target price is based on our DCF analysis, with a 8.4% WACC and a 3.0% perpetuity growth rate. Risks include lower-than-expected pulp and tissue prices, new energy supply contracts and project delays or announcements. CPFL Energia – Valuation & Risks Our YE2015 price target is based on a DCF valuation using a WACC of 9.9% and perpetual growth rate of 5.0% per year. Risks include (1) lower GDP driving energy consumption down, (2) overpayment in potential M&A opportunities, and (3) change in regulatory parameters. 402

CSN – Valuation & Risks Our YE2015 price target is based on a DCF analysis using a WACC of 14.5% and a 6% nominal growth rate in perpetuity. Main risks include higher-than-estimated growth in iron ore output, higher-than-expected iron ore and steel prices, higher-than-expected GDP growth in Brazil, and lower raw material prices. Cementos Argos – Valuation & Risks Our YE2015 target price is based on a DCF analysis for the cement business using a 9.4% discount rate, and a 3% terminal growth rate, plus a SOTP for the company’s investments in Bancolombia and Grupo Sura (at our target price). It implies a target FV/EBITDA multiple of 11.7x for 2015. Main risks include a slowdown in economic growth in Colombia, a delay in Colombia’s infrastructure programs, a later-than-expected recovery in the U.S. market, and execution risk in the company’s inorganic expansion. Cementos Pacasmayo – Valuation & Risks Our YE2015 target price is based on a DCF analysis using a 10.2% discount rate, a 2.8% terminal growth rate, and assuming no value in the company’s mining projects. It implies a target FV/EBITDA multiple of 10x for 2015. Main risks include increased competition or regulation, economic slowdown and political risks in Peru, and execution risk in company’s mining projects. Cemex – Valuation & Risks Our YE2015 target price is based on our DCF model, which assumes a WACC of 10.1%: cost of equity of 14.5%, and a beta of 1.5. The after-tax cost of debt is estimated at 6.6%, and the debt/equity structure considered is 56% - 44%. The perpetuity growth rate considered is 2.0%. Risks include lower cement demand in key regions like Latin America; a slower-than-expected recovery in the U.S; continued weakness in the formal residential construction sector in Mexico; negative impact from the fiscal reform in Mexico. Cemex LatAm Holdings – Valuation & Risks Our YE2015 target price is based on a DCF analysis using a 9.8% discount rate, and a 3.5% terminal growth rate. It implies a target FV/EBITDA multiple of 9.7x for 2015. Main risks include increased competition or regulation, economic slowdown and political risks in the countries where the company operates, and some risk derived from the relationship with the controlling shareholder and with the company’s complex corporate structure. Cemig – Valuation & Risks Our target price is based on a DCF valuation using a WACC of 11.2% and perpetual growth rate of 5% per year. Risks include (1) lower-than-expected generation prices, (2) concession renewal risks, and (3) expensive acquisitions. Cencosud – Valuation & Risks Our YE2015 target price was determined through a SOTP valuation in which the Chilean, Argentinean, Colombian, Peruvian, and Brazilian operations are valued using a DCF analysis. Main risks include: execution risks in capex plan and integration; worse-than-expected economic performance of the countries in which Cencosud operates; and Argentinean exposure. Cesp – Valuation & Risks Our target price is based on a DCF valuation using a WACC of 13.9% and no perpetuity. Risks include (1) concession renewal risks, (2) risk of indemnification lower-than-expected, (3) earnings volatility due to US$-denominated debt, and (4) provisions off-balance-sheet. Cetip – Valuation & Risks Our valuation is based on a two-stage DCF model, with a Gordon Growth Model at perpetuity. Risks include potential competition from existing and new players, regulatory risk for GRV contracts, and execution risk in business segments such as GRV contracts and real estate. Chedraui – Valuation & Risks Our YE2015 target price is based on a DCF model, using a WACC of 8.3% and perpetuity growth of 3.5%. Main risks include slower-than-anticipated organic growth, higher competitive pressures, and dilutive acquisitions. To the upside, main risk includes a faster recovery of SSS than expected.

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Cia Hering – Valuation & Risks Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a ke of 10% and a perpetuity growth rate of 3.0%. Risks include declining profitability in the franchise network, misses in product collections, full elimination of tax incentives, cotton price volatility, deterioration in working capital and an overall economic slowdown. Cielo – Valuation & Risks Our valuation is based on a two-stage DCF model, with a Gordon Growth Model at perpetuity. Risks are mainly related to ongoing regulatory and legislative initiatives that could affect the profitability of the industry, stronger competition from new entrants and/or existing competitors, and the execution risk related to its prepayment business. Coca-Cola FEMSA – Valuation & Risks Valuation: Our year-end 2015 target price is based on a DCF methodology in which we used a WACC of 8.5% and growth in perpetuity of 2.5%. Main risks include: (1) lower-than-expected growth in LatAm economies; (2) additional taxes on the company’s market towards sugar added beverages, (3) higher-than-expected raw material prices (sweetener-packaging); (4) currency volatility; (5) political risks related to the company’s geographical footprint; and (6) unfavorable weather. Colbun – Valuation & Risks Our YE2015 target price is based on a DCF valuation with a WACC of 8.6% and a perpetuity growth rate of 2.5%. Risks include different-than-expected hydro conditions in the central regions of Chile, execution risk of the company’s current expansion plan, unexpected failures at its efficient facilities, changes in price indexation of non-regulated contracts, increase in corporate tax rate and changes in the local regulation and the introduction of “green taxes.” Comerci – Valuation & Risks Our YE2015 target price is based on our DCF model, which assumes a WACC of 7.6%: cost of equity of 8.7%, a risk-free rate of 3.0%, an equity risk premium of 5.5%, a blended country risk premium of 140 bps, and a beta of 0.8. The after-tax cost of debt is estimated at 5.2%, and the equity/debt structure considered is 75% - 25%. The perpetuity growth rate considered is 3.5%, inline with other retailers. Upside risks include Comerci’s potential to become an M&A target within the food retail segment in Mexico, faster-than-anticipated organic growth, and more operating efficiencies regarding inventories and distribution than expected. Comgas – Valuation & Risks Our YE2015 target price is based on a DCF valuation using a WACC of 10.6% and growth in perpetuity of 5%. Main risks include worse regulatory parameters for upcoming revision cycles, lower growth in gas demand, and natural gas supply shortages. Concha y Toro – Valuation & Risks Our YE2015 price target is based on a DCF analysis. We are assuming a WACC of 7.1% and a nominal growth rate in perpetuity of 3.0%. Risks include a different international competitive environment, agricultural risks related to wine business, and a decrease of internal prices. Copa Holdings – Valuation & Risks Our YE2015 target price for Copa’s ADS is based on a DCF valuation where we have discounted our estimated cash flow for the airline by a WACC of 9.2% (in U.S. dollars). Risks include higherthan-expected volatility in jet fuel prices, stronger-than-expected competition and deterioration of the macroeconomic scenario in Latin America. Copasa – Valuation & Risks Our YE2015 price target is based on a 10-year DCF model. We assumed a WACC of 11% and used a growth in perpetuity rate of 5%. Risks include uncertainty on rate methodology, political interference, provisions, lower volume curve, reduced stock liquidity, and capex delays. Copec – Valuation & Risks Our YE2015 target price is based on our DCF analysis, with an 8.1% WACC and a 3.0% perpetuity growth rate. Main risks include different-than-expected scenario for pulp prices and a higher support from Chilean mutual funds investment, given its low current exposure to equity.

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Copel – Valuation & Risks Our YE2015 target price is based on a DCF valuation using a WACC of 12.2% and perpetual growth rate of 5% per year. Risks include (1) lower-than-expected generation prices; and (2) investment in new ventures at lower-than-expected return. CorpBanca – Valuation & Risks We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 9.8% and a 15-year RWA CAGR of 7.6%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 3.3% and a sustainable ROE of 15.3%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks: execution risk due to the simultaneous mergers in Colombia and Chile, risks of a largerthan-expected regulatory pressure from the implementation of Basel III in Chile, narrower spreads in corporate loans in Colombia and Chile. Risks of gradual squeeze out of minorities by Itaú. Risks of lower-than-expected dividend payments from the still relatively weak capital position of the merged bank relative to its Chilean peers under fully loaded Basel III standards. Cosan Energia – Valuation & Risks Our YE2015 target price is based on the SOTP of the company. Main risks include: (1) declining sugar and ethanol prices; (2) capital discipline; and (3) acquisition strategy. Cosan Limited – Valuation & Risks Our YE2015 target price is based on our CSAN3 valuation Main risks include: (1) declining sugar and ethanol prices; (2) the company’s hedging strategy; (3) capital discipline; and (4) acquisition strategy. Credicorp – Valuation & Risks We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 9.7% and a 15-year RWA CAGR of 10.9%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.8% and a sustainable ROE of 14.5%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Downside risk includes execution risk in its organic growth in retail banking especially in the form of deterioration in asset quality (higher-than-expected NPL and greater-than-expected NPL provisions) as well as greater-than-expected cost growth. Also, execution risk from the integration of its investment banking operations in Chile and Colombia, as well as execution risks in the integration and management of MiBanco. Cresud – Valuation & Risks Our valuation is based on a sum-of-the-parts approach. Risks include: decline in local consumption, stronger-than-expected depreciation of the currency, regulatory changes, and increasing country risk. Cyrela Brazil Realty – Valuation & Risks Our YE2015 target price is based on a FCFF analysis, using a WACC of 15.4% in reais and nominal terminal growth rate of 4.0%. Risks include: (1) macroeconomic risks, (2) potential margin disappointment, (3) increased competition in the Southeast region, (4) working capital management, and (5) construction cost pressures. DASA – Valuation & Risks Our YE2015 target price is based on a DCF analysis, assuming a 13.7% WACC and a 5% nominal perpetuity growth rate (in Brazilian reais). Risks include: execution risk, customers with strong bargaining power, stiffer competition and related-party transactions. Davivienda – Valuation & Risks We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 10.6% and a 15-year RWA CAGR of 10.6%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.5% and a sustainable ROE of 14.3%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include: regulatory risks, macroeconomic risks related to slower growth and potentially higher NPLs due its larger exposure to consumer credit, overhang risks due to potential share offering. 404

Duratex – Valuation & Risks Our YE2015 price target is based on a DCF analysis using a WACC of 14.4% and a 6.0% nominal growth rate in perpetuity. Main risks include slower-than-expected growth in domestic economic activity, stiffer competition, cost pressures and overpayment for acquisitions. E-CL – Valuation & Risks Our YE2015 target price is based on a DCF valuation with a WACC of 8.0% and a perpetuity growth rate of 2%. Risks include higher spot prices, increase in natural gas prices, changes in the environmental laws, failure in generation units, postponement of mining projects, lower-than-expected decrease in SING over cost, delay in expansion plan, possibility of capital increase to finance expansion plan. EZTec – Valuation & Risks Our YE2015 target price is based on a FCFF analysis, using a WACC of 15.6% in reais and nominal terminal growth rate of 4.0%. Risks include: (1) an economic downturn, (2) an unexpected decrease in profitability, (3) execution on an eventual geographic diversification, (4) the terms and conditions of the sale of EZ Tower, and (5) construction financing for commercial Towers. Ecopetrol – Valuation & Risks Our year-end 2015 target price is based on a DCF valuation. Main risks include declining oil prices, delays in the start-up and ramp-up of platforms, and capital allocation. Ecorodovias – Valuation & Risks Valuation: Our YE2015 target price is based on a DCF valuation of Ecorodovias, including a perpetuity value only for the logistics business. We discount the company’s free cash flow by a WACC of 12.0%, in BRL terms. Risks include: Low visibility on the premature logistic business, an unfavorable outcome of the dry port logistics regulatory framework still under development, a macroeconomic downturn, steppedup competition, and adverse government interference in the highways concession sector. Eletrobras – Valuation & Risks Our YE2015 target price is an average of a DCF valuation (US$-based cost of equity of 11%/perpetuity growth: 2.0%) and a SOTP valuation for each of Eletrobras’s subsidiaries. Risks include: (1) concession renewal; (2) political interference. Eletropaulo – Valuation & Risks Our YE2015 target price is based on a DCF valuation using a WACC of 11.1% and a perpetual growth rate of 5.0% per year. Risks include (1) off-balance-sheet contingencies; and (2) a betterthan-expected third cycle of tariff revisions. Embraer – Valuation & Risks Our YE2015 target price for Embraer is based on a DCF valuation where we have discounted our estimated cash flow for the airline by a WACC of 10.9% (in U.S. dollars). Risks include higherthan-expected competition; downturn in the global economic activity; appreciation of the BRL; delays in the development of the E2. Endesa Chile – Valuation & Risks Our YE2015 target price is derived from a sum-of-the-parts methodology, with the cost of capital differing for each country. We use a 2% perpetuity growth rate. Risks include volumes and FX risks in Brazil, different scenario for water supply, taxes changes for generation in Chile, unexpected halt of power plants, increase in raw material prices, exposure to spot market or rationing in Brazil and changes in the structure of Enersis or Endesa. Energias do Brasil – Valuation & Risks Our YE2015 target price is based on a DCF model using a nominal WACC of 11.4% and perpetuity growth of 5%. Risks include overbidding for projects, third fourth revision cycle, delays/higher-than-expected project capex, and weak industrial activity. Enersis – Valuation & Risks We value Enersis using a SOTP methodology to price in the various country risks. Risks include potential changes in distribution business ROE, further delay in minorities acquisition plan, volumes and FX risks in Brazil, different scenario for water supply, taxes changes for generation in Chile, unexpected halt of power plants, increase in raw material prices, exposure to spot market or rationing in Brazil and changes in the structure of Enersis or Endesa. 406

Entel – Valuation & Risks Our YE2015 target price is based on a 10-year forward SOTP analysis, which values the mobile operation in Peru and the rest of the business with different DCF. In the case of Peru we use a WACC of 7.97% in Peru, and in Chile of 7.50-7.58% (depending on the year). We use a perpetuity growth rate of 2.0% in Chile and 4.0% in Peru. Risks include better-than-expected results of the Peruvian operation, lower-than-expected capex needs, different-than-expected impact of tax reform in Chile and higher-than-expected penetration rates. Equatorial – Valuation & Risks Our YE2015 target price is based on a DCF model using a WACC of 10.8% and a perpetual growth of 5%. Risks include: (1) weaker-than-expected GDP driving electricity consumption down, and (2) low stock liquidity. Estácio – Valuation & Risks Our YE2015 target price is based on our DCF model, and implies a WACC of 12.5% in reais and a perpetuity growth rate of 5%. Main risks include execution and acquisition, potential off-balance-sheet liabilities, competitive environment, dependence on positive macroeconomics and government regulation. Even – Valuation & Risks Our YE2015 target price is based on a FCFF analysis, using a WACC of 15.4% in reais and nominal terminal growth rate of 4.0%. Risks include: (1) high exposure to land price appreciation due to the maintenance of a short-term land bank, (2) potential margin disappointment attributable to an increase in competition and changes in product mix, (3) working capital management, (4) construction cost pressures, and (5) macro risks. FEMSA – Valuation & Risks Our year-end 2015 target price is based on a SOTP model, which implies that the stock would be trading at a 5% discount to its SOTP. Main risks include: portfolio and geographical diversification, capacity to continue identifying successful location sites for OXXO’s expansion program, volatility in raw materials, higher-thanexpected impact of fiscal changes, and lower-than-expected economic growth. Falabella – Valuation & Risks We used a SOTP approach to value each of the company’s operations in Chile, Peru, Colombia, Brazil, Uruguay and Argentina, through a DCF analysis. Main risks include a different-than-expected economic scenario, higher credit risk, execution risks in the investment plan, and margin improvements. Fibra Inn – Valuation & Risks Our YE2015 target price is based on our DCF model, which assumes a WACC of 8.2%: cost of equity of 9.0%, a country adjusted risk-free rate of 5.0%, an equity risk premium of 5.5%, and a beta of 0.73. The cost of debt is estimated at 5.5%, and the equity/debt structure considered is 23.7% debt and 76.3% equity per our 2015 projection. The perpetuity growth rate considered is 2.0%. Exit multiple considered is 13.0x. Risks include: Continued volatility in interest rates. Adverse changes in national or international economic conditions could result in a general decline in business travel. Fibra Inn’s business would be adversely affected if general hotel occupancy levels in Mexico were affected, as well as daily rates, due to natural or economic disasters. Fibra Uno – Valuation & Risks Our YE2015 target price is based on our DCF model, which assumes a WACC of 7.3%: cost of equity of 7.7%, a country adjusted risk-free rate of 4.8%, an equity risk premium of 6.5%, and a beta of 0.4. The cost of debt is estimated at 6.0%, and the equity/debt structure considered is 25% debt and 75% equity per our 2015 projection. The perpetuity growth rate considered is 1.0%. Risks include: Continued volatility in interest rates. Adverse changes in national or international economic conditions could result in a general decline in rents or less favorable terms of renewed leases, occupancy rates or an increased incidence of defaults under existing leases. Fibra Uno’s business would be adversely affected if a significant number of tenants were unable to meet their lease obligations or if Fibra Uno were unable to renew existing leases or to lease vacant space, or unable to lease properties above existing rental rates.

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Fibria – Valuation & Risks Our YE2015 price target is based on a FCF analysis using a WACC of 13% in R$ and a 6.0% nominal growth rate in perpetuity. Main risks include (1) stronger-than-expected pulp prices, (2) BRL depreciation; (3) delays/withdrawals in new capacities. Fleury – Valuation & Risks Our YE2015 target price is based on a DCF analysis, assuming a WACC of 11.4% and a 5% nominal perpetuity growth rate (in Brazilian reais). Risks include: execution risk; acquisition risk; customers with bargaining power; stiffer competition. Fras-le – Valuation & Risks Our YE2015 target price is based on a DCF model with a WACC of 12.47% and a growth in perpetuity of 5%. Main risks include: challenges in international expansion; higher-than-expected prices of key raw materials; increasing competition; and low share liquidity. GAP – Valuation & Risks Our YE2015 target price is based on a finite DCF model ending in 2048, using a WACC of 9.9%. We estimate implied equity IRR at 10.3%, for a -23 bps spread vs. cost of equity. Risks include: overhang risk of at least 19.7% of the company’s shares currently held by GMexico, weaker-than-expected economic growth, lower-than-expected passenger traffic at GAP’s airports, changes in regulations that imply lower tariffs or higher capital expenditures, changes in travel preferences, industry consolidation, terrorism or natural disasters, and volatility in oil prices that could negatively affect the airline’s operations. GF Galicia – Valuation & Risks We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 15.9% and a 15-year RWA CAGR of 20.0%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 5.0% and a sustainable ROE of 20.7%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include the risk of a deterioration in the country risk, risk of slower-than-expected growth, weaker-than-expected deposit growth, and worse-than-expected asset quality in Galicia’s consumer loan portfolio. GF Inbursa – Valuation & Risks Our target price values Inbursa using a discounted surplus capital model, which estimates the present value of capital generated by the bank in excess of the capital required to fund growth in the long term. We applied a 1.0x P/BV multiple to the company’s stock of surplus capital and unrealized capital gains in principal investments. Risks include risk of weaker-than-expected loan growth, funding risks associated with its wholesale-funded business model, execution risks from its branch expansion plan, and the risk of higher-than-expected NPLs from the growing retail loan portfolio. Genomma Lab – Valuation & Risks Our YE2015 target price is based on a DCF model, using a WACC of 9.0% and perpetuity growth of 3.5%. Main risks: lower-than-expected sales of base brands, less success than expected from new launches, market share losses from the new working capital focus, not obtaining registration renewal of some products, and fiscal changes involving VAT. Gentera – Valuation & Risks We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 12.0% and a 15-year RWA CAGR of 14.5%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.5% and a sustainable RORWA of 4.1%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in nonbanking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include higher-than-expected NPLs in its growth in urban lending products, higher-thanexpected competitive pressures in its main market Credito Mujer, higher-than-expected cost growth especially from the investments in pilot programs (e.g., banking correspondent network, insurance, technology platform), and regulatory risks.

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Gerdau – Valuation & Risks Our YE2015 price target is based on our DCF analysis, using a WACC of 13.9% and a 6.0% nominal growth rate in perpetuity. Main risks include (1) lower-than-expected steel prices, (2) stronger-than-estimated economic slowdown in the U.S., and (3) higher-than-estimated increases in raw material prices. Gol – Valuation & Risks Our YE2015 target price for Gol implies a 12-month forward .FV/EBITDAR multiple of 8x. Risks include: stronger-than-expected competition from Latam Airlines, leading to a potential new pricing war and lower-than-estimated profitability; fuel price and FX volatility could lead to lowerthan-expected earnings; and infrastructure bottlenecks could limit Gol’s growth in the long term. Gruma – Valuation & Risks Our target price is based on our DCF analysis, with FV/EBITDA multiple as a cross reference. Our DCF analysis is based on a blended WACC of 7.2% which considers different country risks and betas for the U.S., Mexico and Latam operations. Our target price implies the stock would be trading at a forward FV/EBITDA multiple of 10.7x 2015E. Main risks include: (1) weaker-than-expected economic growth in the Americas; (2) volatility in the prices of corn and wheat; (3) currency and political risk; (4) higher-than-expected competition in the U.S.; and (5) aggressive growth and M&A. Grupo Argos – Valuation & Risks We value Grupo Argos using a sum-of-the-parts model, applying our YE2015 target price to its stakes in Cementos Argos, Grupo Sura, Grupo Nutresa and Bancolombia. We assume market values for Celsia and 1.0 P/BV multiple for non-listed assets. We apply a 10% holding discount to this sum-of-the-parts to calculate our target price. Finally, we assume that Grupo Argos’s mandatorily converted bonds are totally converted for all per share data calculations, including our target price. Risks include analysts’ rating changes of Cementos Argos, Grupo Sura, Grupo Nutresa and Bancolombia; potential changes in portfolio composition; and relatively high level of indebtedness (compared to company’s cash flow generation) that creates an overhang risk and limits company’s capacity to redistribute dividends from its subsidiaries. Grupo Aval – Valuation & Risks We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 10.1% and a 15-year RWA CAGR of 10.2%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.5% and a sustainable ROE of 15.2%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include: downside risks from later-than-expected consolidation of its operations in Colombia, investment risk in in its large stock of equity investments, risk of an additional capital increase and higher-than-expected prices in the potential acquisition of minorities. Upside risks include: potentially faster-than-expected increase in NIMs, lower-than-expected taxes in the medium term from a structural tax reform in Colombia. Grupo Bimbo – Valuation & Risks Our YE2015 target price is based on our DCF analysis, using a WACC of 7.5% and growth in perpetuity of 2.0%. Our target price implies trailing FV/EBITDA target multiples of 10.7x. Main risks include: (1) volatility in the price of raw materials (wheat, oils, packaging, etc.) and on currencies; (2) weaker-than-expected growth, especially in the U.S. and Mexican economies, (3) pension plans in the U.S., (4) higher competition in the U.S. market, and (5) additional taxes to high energy food. Grupo Famsa – Valuation & Risks Our YE2015 target price is based on a DCF model, using a WACC of 9.3% and perpetuity growth of 3.5%. Main risks include slower-than-anticipated organic growth, lower-than-expected demand for durable goods, and rising nonperforming loans. Grupo Herdez – Valuation & Risks Our YE2015 target price is based on a DCF analysis for which we consider a WACC of 8% and a perpetuity growth rate of 2.5%. Risks include lower-than-expected prices of raw materials, a stronger-than-expected recovery in private consumption in Mexico and the U.S., weaker-than-anticipated working capital structure, a tougher-than-projected competitive environment, and FX volatility.

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Grupo Lala – Valuation & Risks Our YE2015 target price is based on our DCF analysis, using a WACC of 8.2% and growth in perpetuity of 3.0%. Our target price implies forward FV/EBITDA target multiples of 11.5x. Main risks include: (1) stronger-than-expected competition; (2) lower-than-expected growth in Mexico; (3) raw materials and FX; (4) execution and M&A risk; (5) pressure from private labels; (6) concentration of clients; and (7) limited disclosure. Grupo Nutresa – Valuation & Risks Our YE2015 target price is based on a DCF analysis for the food business using an 8.4% discount rate, and a 2.5% terminal growth rate, plus a SOTP for the company’s investments in Grupo Sura and Grupo Argos (at our target price). It implies an adjusted target FV/EBITDA multiple of 11.9x for 2015. Main risks include weaker-than-expected revenue growth, higher-than-expected commodity prices, political risk (mainly in Venezuela), volatility in company’s investment portfolio, increased competition (including expansion of supermarket chains), execution risk in recent acquisitions and relatively low stock liquidity. Grupo Sanborns – Valuation & Risks Our YE2015 target price is based on a DCF model, using a WACC of 7.9% and perpetuity growth of 3.5%. Main risks: higher competitive pressures from other department stores and specialty retailers, rising NPLs on its credit card business, dilutive acquisitions, and lower organic growth. Grupo Sura – Valuation & Risks We value the company with a sum-of-the-parts model, using year-end 2015 target prices for those companies in the group under coverage, and target multiples for the un-listed asset management and insurance operations. We deduct the net present value of the group’s cash opex and the net debt expected as of the valuation date. Risks to our investment thesis include: downside risk from a weaker-than-expected domestic economy affecting cement and processed food demand; risk of higher-than-expected NPLs, risk from lower-than-expected interest rates and margins at Bancolombia; market risk associated in the pension fund management industry and in general market risks associated with the underlying market values of Grupo Sura’s investment portfolio. HRT – Valuation & Risks Our year-end 2015 target price is based on a DCF valuation. Main risks include: (1) declining oil prices; (2) capital discipline; and (3) exploratory and production execution risks. Helbor – Valuation & Risks Our YE2015 target price was derived from a free cash flow to firm analysis, using a WACC of 15.6% in reais and a nominal terminal growth of 4.0%. Risks include: (1) an unexpected decrease in profitability, (2) eventual cost pressures, (3) increased competition in the mainstream markets, (4) land price appreciation, (5) working capital and cash burning management, and (6) macro risks. Hypermarcas – Valuation & Risks Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a ke of 10% and a perpetuity growth rate of 3.5%. Main risks include (1) deterioration in the economic and competitive environment, (2) regulatory environment, (3) concentration of production in a few sites concentrates risk, (4) elimination of tax incentives, (5) prohibition of tax planning, and (6) block trades. IAM – Valuation & Risks Our YE2015 target price is based on a holding company discount methodology. We estimated IAM’s NAV using our target valuation of Aguas Andinas (DCF with a WACC of 8.1%) and IAM’s cash at the holding company level. We applied a 10% holding company discount to arrive to IAM’s target price. Risks include regulatory risk, a reduction in the dividend policy, weather conditions that cause blockages in the treatment plants and M&A activity.

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ICA – Valuation & Risks Our YE2015 target price is based on our DCF model, which assumes a WACC of 10.4%: cost of equity of 11.2%, a country adjusted risk-free rate of 4.6%, an equity risk premium of 6.6%, and a beta of 1.20. The cost of debt is estimated at 9.0%, and the equity/debt structure considered is 38.2% debt and 61.8% equity per our 2015 projection. The perpetuity growth rate considered is 2.0%. Risks: ICA could incur cost overruns, which would imply lower margins or losses. Higher-thanexpected working capital requirements could imply additional debt. Delays in the delivery of projects could imply delays in collections and lower-than-expected cash flow generation. For the concessions, lower-than-expected traffic on the roads could imply lower revenue and profitability. IEnova – Valuation & Risks Our year-end 2015 target price is based on a DCF valuation. Main risks include: (1) low Mexican GDP growth; (2) capital discipline; and (3) project execution risks. IMC – Valuation & Risks Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a ke of 11.4% and a perpetuity growth rate of 3.0%. Risks include a slower-than-expected expansion plan, higher-than-expected food inflation, regulation changes, a tougher-than-anticipated competitive environment, and overall weaker-than-projected macroeconomic dynamics. Iguatemi – Valuation & Risks Our YE2015 target was derived from a FCF to firm analysis, using a WACC of 13.5% in reais and a nominal terminal growth of 5.8%. Risks include: (1) competition increase in oversupplied regions; (2) profitability deterioration; (3) a downturn in retail sales; and (4) lack of funding to support future growth. Intercorp – Valuation & Risks We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 11.6% and a 15-year RWA CAGR of 11.3%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.8% and a sustainable ROE of 15.7%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include: upside risk from faster-than-expected loan growth, stronger-than-expected margin expansion and faster-than-expected efficiency improvements. Downside risks include stronger deterioration in asset quality, higher-than-expected funding cost and slower-than-expected loan growth. Finally, there are risks of conflicts of interest in related party transactions and agreements. Inversiones La Construcción – Valuation & Risks We used a SOTP approach for each of the company’s operations in the insurance business, pension funds business, health provider business, education and IT. Risks include potential changes in the health regulation, the unexpected risk of the insurance business and a different-than-expected scenario for the Chilean macro figures. Iochpe Maxion – Valuation & Risks Our YE2015 target price is based on a DCF analysis, assuming a 12.7% WACC and nominal perpetuity growth of 4.0%. Risks include: execution risk (acquisition integration); lower-than-expected growth in the GDP in Brazil, Europe, and the United States; higher-than-expected prices of key raw materials; and sharp interest-rate and currency fluctuations. Irsa – Valuation & Risks We reached our YE2015YE target price based on a sum-of-the-part valuation. Risks Include: worse-than-expected macroeconomic performance in Argentina, and increasing country risk. Itausa – Valuation & Risks We value Itausa with a sum-of-the-parts model, applying our latest target prices for Itaú and Duratex, to value Itausa’ stakes in these companies. We use current market values for other listed investments and a 1.0x P/BV multiple for non-listed assets. Risks include Santander rating changes for Itaú and Duratex, the lower value of non-voting shares in the event of a change in control at Itausa, reinvestment risk in case of portfolio sales, potential changes in the company’s portfolio mix, a significant widening in the discount to Itausa’s NAV driven by long/short trading activity, and overhang risk.

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Itaú Unibanco – Valuation & Risks We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 13.4% and a 15-year RWA CAGR of 9.9%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.0% and a sustainable ROE of 20.1%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include risks from higher-than-expected costs, weaker-than-expected margins, weakerthan-expected asset quality from a more protracted-than-expected economic slump. Risk associated with investing in non-voting shares, which limit minority shareholders’ voting rights, and risks of lower margins and spreads from a resumption of government intervention in the industry. JSL – Valuation & Risks Our YE2015 target price for JSL’s shares is based on a DCF valuation for which we have discounted our estimated cash flows by a WACC of 11.4% (in BRL). Risk include: loss of bargaining power with the OEMs, decrease in prices of used vehicles, thus increasing the spread between prices of new and used vehicles and loss of market share to other large competitors. Kimberly Clark – Valuation & Risks Our YE2015 target price is based on a DCF methodology, using a WACC of 7.5% and growth in perpetuity of 2.0%. Main risks include: (1) weaker-than-expected economic growth in Mexico; (2) higher than expected exchange rate or FX volatility; (4) dilutive acquisitions; and (5) stronger competition. Klabin – Valuation & Risks Our YE2015 price target is based on a DCF analysis using a WACC of 13.4% and a 6% nominal growth rate in perpetuity. Main risks include (1) weaker-than-expected economic growth in Brazil; (2) domestic currency appreciation; and (3) successful implementation of the Puma project. Kroton – Valuation & Risks Our YE2015 target price is based on our DCF model, and implies a WACC of 5% in reais and a perpetuity growth rate of 5%. Main risks include execution and acquisition risk, competitive environment, dependence on macroeconomics and government regulation. LATAM Airlines – Valuation & Risks Our YE2015 target price for LATAM’s ADR is based on a multiple analysis by a FV/EBITDAR 2015E objective of 7.5 times. Risks include any issues affecting the materialization of synergies, volatility of jet fuel prices, impact on capacity and/or yields due to the entrance to new markets, delays in upcoming aircraft deliveries and FX depreciation. Light – Valuation & Risks Our YE2015 price target is based on a DCF valuation using a WACC of 10.5% and perpetual growth rate of 5.0% per year. Risks include (1) lower GDP driving energy consumption downward; (2) overpayment in potential M&A opportunities; (3) non-achievement of the loss reduction target; and (4) a worse-than-expected tariff review process. Linx – Valuation & Risks Our YE2015 target price is DCF-based and assumes a 14.5% WACC in R$ terms and an 8.0% perpetuity growth rate (in R$ nominal terms). Risks include: M&A execution, economic activity and its impact on the retail market, tax benefits and software obsolescence. Liverpool – Valuation & Risks Our YE2015 TP is based on a DCF analysis assuming a WACC of 7.2% and a perpetuity growth rate of 3.5%. Main risks: weaker-than-expected SSS, deceleration in the organic expansion plan, higher competition from fast fashion players, and higher-than-expected NPLs.

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Localiza – Valuation & Risks Our YE2015 target price is based on a DCF valuation in which we discount Localiza’s free cash flow by a WACC of 12.7% in nominal Brazilian reais. Risks include an unexpected strong deceleration in Brazil’s economic momentum, a higher-than-expected increase in Brazilian interest rates, an unexpected downturn in the financing market, and an increase in the spread between the cost of a new car for Localiza and the price it receives for its used cars. Lojas Americanas – Valuation & Risks Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a Ke of 9.9% and a perpetuity growth rate of 3.5%. Main risks include (1) an economic slowdown, (2) the high uncertainty related to the turnaround at B2W, and (3) risks in executing its fast store openings targets. Lojas Renner – Valuation & Risks Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a Ke of 10% and a perpetuity growth rate of 3.5%. Main risks include (1) economic slowdown, (2) the total elimination of tax incentives on imports, (3) currency volatility, (4) lower interest rates could negatively impact the profitability of its financial business, (5) stiff competition, and (6) shortage of cheap locations to deliver its organic expansion plan. MRV Engenharia – Valuation & Risks Our YE2015 target price was derived from a free cash flow to firm analysis, using a WACC of 15.6% in reais and a nominal terminal growth of 4.0%. Risk include (1) lack of funding for the real estate sector, (2) deterioration in earnings momentum due to cost run-up or lower-than-expected sales speed, (3) working capital management, and (4) macroeconomic risks. Magnesita – Valuation & Risks Our YE2015 target price is based on a DCF valuation, using a WACC of 13.8% and 6.0% nominal growth in perpetuity. Risks include a slowdown in the Brazil, Europe, and U.S economies, exposure to the steel industry cycle, cost pressures, M&A activity, and substitutes for graphite in the production of battery cells. Mahle Metal Leve – Valuation & Risks Our year-end 2015 target price is based on our DCF model, which assumes a WACC of 13.3% and a nominal growth rate in perpetuity of 5% per year in Brazilian reais. Risks include: increasing competition, higher-than-expected prices of key raw materials, and stronger-than-expected slowdown in the global economy. Marcopolo – Valuation & Risks Our YE2015 target price is based on a DCF model with a WACC of 11.9% and a growth in perpetuity of 5%. Main risks include: challenges in international expansion; exporting sector exposed to currency fluctuations and dependent on long-term interest rates and financing; higher-than-expected prices of key raw materials; increasing competition; and contingencies and growth in air travel. Mexichem – Valuation & Risks Our YE2015 target price is based on a DCF methodology, using a WACC of 7.9%, a cost of equity of 10.1%, debt to capitalization of 40%, and growth in perpetuity of 2.0%. Main risks include (1) slower-than-expected organic growth, (2) execution risk on M&A activity, (3) volatility in commodity prices, (4) diversification into other related businesses, and (5) geographic diversification. Multiplan – Valuation & Risks Our YE2015 target price was derived from a free cash flow to firm analysis, using a WACC of 12.8% in reais and a nominal terminal growth rate of 5.8%. Risks include: (1) competition increase in oversupplied regions; (2) profitability deterioration; (3) a downturn in retail sales; and (4) lack of funding to support future growth. Multiplus – Valuation & Risks Our valuation is based on a two-stage dividend discount model (DDM), with a Gordon Growth Model at perpetuity. Risks are mainly related to the breakage rate level in the long term; competition in both loyalty services and airlines intensifying; pricing pressure from banks; its relationship/dependence on Tam - conflicts of interest risks; FX; and execution risk on acquisitions.

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Natura – Valuation & Risks Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a ke of 9.4% and a perpetuity growth rate of 3.0%. Main risks include (1) an economic slowdown, (2) competition from players in the direct channel, traditional channel and franchise channel, (3) increases in taxation (over the last few years the government has tried at least twice to implement measures to curb tax planning in the industry), (4) changes in working capital requirements, (5) raw material cost pressure, and (6) currency volatility in international operations. OHL Mexico – Valuation & Risks Our YE2015 target price is based on sum of the parts analysis of OHLMEX’s stakes in its concessions. Valuation of each concession is based on a finite DCF model for the term of the concession, using a WACC of 8.9% and does not take into account guaranteed returns. We are assuming 49% of Conmex is sold at a 30% discount. Main risks include: (1) political risk as governments (especially state authorities) could try to expropriate OHLMEX’s concessions or become unable or unwilling to compensate for guaranteed returns, (2) toll road traffic risk (especially for those roads lacking a guaranteed return clause), (3) slower-than-expected execution of infrastructure plans and increasing competition in bidding processes that could affect the company’s pipeline, (4) a further deterioration in growth for the U.S. and Mexican economies, (5) natural disasters, and (6) a potential conflict of interest between OHL Spain and OHLMEX. OMA – Valuation & Risks Our YE2015 target price is based on a finite DCF model ending in 2048, using a WACC of 9.5%. We estimate implied equity IRR at 11.6%, for a 120 bps spread vs. cost of equity. Main risks include: further economic slowdown in Mexico, which could negatively affect air traffic (especially in the case of OMA, with mostly domestic PAX); industry consolidation (reduction in flights and frequencies); natural disasters or terrorist acts; security concerns; and volatility in oil prices that could negatively affect airline operations. OdontoPrev – Valuation & Risks Our YE2015 target price is based on a DCF analysis with a cost of equity of 13.0% and a nominal perpetuity growth of 5% (in Brazilian reais). Main risks include stronger competition, execution risk, heavy reliance on domestic demand, higher costs for acquisitions and regulatory issues. PDG Realty – Valuation & Risks Our YE2015 target price is based on a FCFF analysis, using a WACC of 15.6% in reais and nominal terminal growth rate of 4.0%. Risks include: (1) delays in delivery of projects under construction, (2) lower-than-expected sales performance of finished inventory, (3) higher exposure to different segments and regions, and (4) macroeconomic risks. PINFRA – Valuation & Risks Our YE2015 target price is based on sum of the parts analysis of PINFRA’s stakes in its concessions. Valuation of each concession is based on a finite DCF model for the term of the concession, using a WACC of 9.6%. All in, we estimate implied equity IRR at 10.62%, for a 460 bps spread vs. Mexican risk-free rate. Main risks include: (1) political risk as governments (specially state authorities) could try to expropriate PINFRA’s concessions, (2) toll road traffic risk , (3) slower-than-expected execution of infrastructure plans and increasing competition in bidding processes that could affect the company’s pipeline, (4) a further deterioration in growth for the U.S. and Mexican economies, and (5) natural disasters. Pacific Rubiales – Valuation & Risks Our year-end 2015 target price is based on a DCF valuation. Main risks include: (1) declining oil prices; (2) capital discipline; and (3) exploratory and production execution risks. Parque Arauco – Valuation & Risks We used a SOTP approach for each of the company’s operations in Chile, Peru, and Colombia through a DCF analysis. Risks include slower consumption growth, delays in the maturity and releases of new projects, new announcements and developments of greenfield or brownfield projects and the overhang of the capital increase.

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Petrobras – Valuation & Risks Our YE2015 target price is based on a DCF valuation using a nominal WACC of 9.6%. Main risks include: oil prices, execution, and capital discipline. Porto Seguro – Valuation & Risks We value Porto Seguro using a discounted surplus capital model, which discounts to the present the capital generated in excess of the capital required to fund expected growth. Risks include: increasing competition, execution risk in the integration of Itaú’s insurance portfolio, a change in mix in the company’s noninsurance divisions, and the commoditization of insurance products. Positivo Informatica – Valuation & Risks Our target price is based on a DCF model, assuming a WACC of 15.5% in R$ terms and a 4.0% perpetuity growth rate (in R$ nominal terms). Risks include changes in the Brazilian tax regulation (benefits for PC makers), competition from international peers and from the grey market. Risks also include FX exposure, slowdown in credit availability for consumers, and sales concentration on specialty retailers. Qualicorp – Valuation & Risks Our YE2015 target price is based on a DCF analysis with a WACC of 12.5% and a nominal perpetuity growth of 5% (in Brazilian reais). Main risks include execution risk, exposure to macroeconomics, antitrust activity, competitive environment and regulation issues. Queiroz Galvão E&P – Valuation & Risks Our year-end 2015 target price is based on a DCF valuation. Main risks include: (1) declining oil prices; (2) capital discipline; and (3) exploratory and production execution risks. Raia Drogasil – Valuation & Risks Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a ke of 8.6% and a perpetuity growth rate of 3.5%. Main risks include (1) an economic slowdown, (2) stronger competition from local and foreign chains, (3) industry regulation changes, and (4) changes in taxation (ICMS). Randon – Valuation & Risks Our year-end 2015 target price is based on our DCF model, which assumes a WACC of 13.0% and a nominal growth rate in perpetuity of 5% per year in Brazilian reais. Risks include lower-than-expected growth in the agricultural and industrial sectors, higher-thanexpected prices of key raw materials, and sharp increases in interest rates. Renova Energia – Valuation & Risks Our YE2015 target price is based on a SoTP valuation using a U.S. dollar CoE of 13.4% and no perpetuity. Risks include environmental licenses, civil works, financing, capex overrun, energy sale, funding, and wind risk. Ripley – Valuation & Risks We arrived at our YE2015 target price through a SOTP valuation using a DCF analysis. Risks include a worse-than-expected economic outlook, expansion projects announcements or delays, a different retail margin scenario and higher-than-expected credit risk. Rodobens – Valuation & Risks Our YE2015 target price is based on a FCFF analysis, using a WACC of 15.2% in reais and nominal terminal growth rate of 4.0%. Risks include (1) fiercer competition for middle-income customers, (2) limited track record in the allotment and malls segments, (3) working capital management, (4) construction cost pressures, and (5) macro risks. Romi – Valuation & Risks Our YE2015 target price is based on our DCF model, which assumes a WACC of 15% and a nominal growth rate in perpetuity of 5% per year in Brazilian reais. Risks include increasing competition, execution risk (margins) and macroeconomic volatility. SER Educacional – Valuation & Risks Our YE2015 target price is based on our DCF model, and implies a WACC of 12.9% in reais and a perpetuity growth rate of 5%. Main risks include execution and acquisition risk, competitive environment, dependence on macroeconomics, government regulation and related-party transactions. 415

SQM – Valuation & Risks Our YE2015 target price is based on a DCF analysis, using a WACC of 8.9%, and assuming a long-term growth of 3% in nominal dollar terms. Risks include a different-than-expected scenario from the decision from Uralkali to end the commercial agreement pressuring prices down and risks related to the Atacama Salar concession and the lithium concession renewal with Corfo (state-owned agency). Sabesp – Valuation & Risks Our target price is based on a DCF valuation using a WACC of 11.5% and terminal value as an average of 5.0% growth perpetual rate and value of asset base in last year of estimate. Risks include (1) tariff revision methodology and application, (2) political interference, (3) capex related to water production, (4) reservoir levels, (5) U.S. dollar debt and refinancing needs, and (6) provisions. Santos Brasil – Valuation & Risks Our YE2015 target price for SB’s units is based on a DCF valuation for which we have discounted our estimated cash flows by a WACC of 13.5% (in BRL). Risk include: the expected performance of the Brazilian foreign trade not materializing; uncertainties about volume performance in SB’s terminal at the Port of Santos; and high operating leverage increasing margin volatility. Saraiva – Valuation & Risks Our YE2015 target price is based on our DCF analysis, using a WACC of 12.9% and a nominal perpetuity growth rate of 5% in Brazilian reais. Main risks include competition, acquisition and execution risk, and dependence on government book purchasing. Siderar – Valuation & Risks Our valuation of Siderar is based on a DCF model using a WACC of 12.3%. Risks include lowerthan-expected economic growth, increasing regulatory risk, and higher-than-expected increases in iron ore and coal costs. Smiles – Valuation & Risks Our valuation is based on a two-stage dividend discount model (DDM), with a Gordon Growth Model at perpetuity. Risks are mainly related to banks pressuring for lower unit prices, competition with banks and peers loyalty programs intensifying, breakage ratio level in the long term, and the evolution of its relationship/dependence on Gol—as well as conflicts of interest risks. Sonda – Valuation & Risks Our YE2015 target price is based on our SOTP analysis, with a 3.0% perpetuity growth rate. Risks include: a delay in potential acquisitions, stronger-than-expected competition and changes in taxes affecting our valuation. Soriana – Valuation & Risks Our YE2015 target price is based on a DCF model, using a WACC of 8.2% and perpetuity growth of 3.5%. Main risks include slower-than-anticipated organic growth, higher competitive pressures, disruptive sales from the change in IT systems, and dilutive acquisitions. To the upside, main risks are better operating margins than expected from the implementation of a new IT platform, and higher SSS expansion. Sports World – Valuation & Risks Our YE2015 target price is based on a DCF model, using a WACC of 9.8% and perpetuity growth of 3%. Main risks: longer-than-expected maturation periods, higher-than-expected desertion rates, more negative-than-expected consumer trends and lower-than-expected EBIT margins. Sul America – Valuation & Risks We valued Sul America using a discounted surplus capital model, which discounts to the present the capital generated by the company in excess of the capital required to fund the growth we expect. Risks: the company could engage in a strategy to grow via acquisitions; other risks include lowerthan-expected growth; regulatory risks in the individual health segment; increasing competition; and market overhang.

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Suzano – Valuation & Risks Our YE2015 price target for Suzano’s PNA shares is based on a DCF analysis, using a WACC of 13.8% and a 6.0% nominal growth rate in perpetuity in BRL terms. Main risks include (1) stronger-than-expected pulp and paper prices, (2) domestic currency depreciation, (3) sale of assets and other liquidity events, and (4) tax barriers and government incentives. São Martinho – Valuation & Risks Our YE2015 target price is based on a DCF valuation. Main risks include: (1) declining sugar and ethanol prices; (2) the company’s hedging strategy; (3) capital discipline; and (4) acquisition/growth strategy. TAESA – Valuation & Risks Our YE2015 target price is based on a DCF valuation using a WACC of 10.1% until the end of the concession contracts. Main risks include leverage, acquisitions, regulatory risk, and greenfield projects’ risk. Tecnisa – Valuation & Risks Our YE2015 target price is based on a FCFF analysis, using a WACC of 15.4% in reais and nominal terminal growth rate of 4.0%. Risks include: (1) an unexpected decrease in profitability, (2) its presence in the mainstream markets exposes it to cost pressures and price wars, (3) becoming overleveraged if collection problems are encountered, and (4) macro risks.

Telefonica Brasil – Valuation & Risks Our year-end 2015 target price is based on a sum-of-the-parts combination of (i) a DCF-based FV of R$53.30/share pre-dilution (or R$37.80/share post dilution); (ii) GVT’s business valued at 6.5x EV/EBITDA 2015E (or R$10.60/share); (iii) R$11.3 billion in merger synergies (R$7.10/share); and (iv) an estimated fully diluted number of shares (assuming a capital increase at the current stock price of R$48.76/share). The DCF part of our target is discounted at a WACC of 13.3% and using a 5.0% perpetual growth rate (in nominal R$). Risks include lower synergies from the GVT merger, executions risks (including M&A) and stricter regulatory and/or fiscal rules.

Tegma – Valuation & Risks Our YE2015 target price is based on a DCF valuation, for which we discounted the company’s estimated cash flow by a WACC of 13.8%, in BRL terms. Risks include high dependency on the automotive sector, some client concentration, execution risk when operating in nonautomotive markets, and low stock liquidity. Telecom Argentina – Valuation & Risks We valued TEO based on a DCF model assuming a WACC of 12.1%. Our YE2015 target price implies upside potential of 1.9%, including a dividend yield of 3%. Risks include: weaker-thanexpected currency, worse-than-expect operating performance, adverse regulatory changes and country risk increase. Televisa – Valuation & Risks Our year-end 2015 target price is based on a DCF valuation, discounted at a WACC of 8.1% (in USD terms) and using a 3.0% perpetual growth rate. Risks include: regulatory risks, new spectrum auctions for open-air TV may increase competition, economic environment. Tenaris – Valuation & Risks Our year-end 2015 target price is based on a DCF analysis. Risks include a sharp and sustained drop in oil and natural gas prices, a severe slowdown in global GDP growth, and increased competition. Ternium – Valuation & Risks Our YE2015 target price is based on a DCF analysis, using a WACC of 10.1% and a 2.0% nominal growth rate in perpetuity. Main risks include a worse-than-expected macroeconomic environment, lower-than-expected steel prices, and increases in raw material costs above our estimates.

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Totvs – Valuation & Risks Our YE2015 target price is DCF-based and assumes a 13.5% WACC in R$ terms and a 7.0% perpetuity growth rate (in nominal R$ terms). Risks include: a major economic slowdown in Brazil, the implementation of SaaS model, software obsolescence and tax benefits. Tractebel – Valuation & Risks Our target price is based on a DCF valuation using a WACC of 11.5% nominal in R$. Risks include lower-than-expected generation prices, losses in electricity trading, and related-party transactions. Transmissao Paulista – Valuation & Risks Our YE2015 target price is based on a DCF valuation using a WACC of 11.1% until the end of CTEEP’s concession contracts. Main risks include worse regulatory parameters for revision cycles, the contingency with Eletrobras and worse-than-expected reimbursement for transmission assets. Triunfo – Valuation & Risks Our YE2015 target price for Triunfo is based on a DCF valuation for which we have discounted our estimated cash flows by a WACC of 13.3% (in BRL). Risks include: the expected performance of the Brazilian foreign trade not materializing; unexpected deceleration in Brazilian economic activity, leading to a slowdown in traffic volume in general, adverse government interference in the sectors; stepped-up competition and lower returns on new projects; include lower-than-expected generation prices, losses in electricity trading, and related-party transactions. Ultrapar – Valuation & Risks Our year-end 2015 target price is based on a DCF valuation. Main risks include: (1) a decline in the growth of the Brazilian economy; (2) a sharp and sustained drop in chemical product prices; and (3) the potential impact of a consolidation strategy on the company’s balance sheet and working capital. Unicasa Móveis – Valuation & Risks Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a ke of 11.4% and a perpetuity growth rate of 3.0%. Main risks include (1) a stronger-than-expected economic slowdown, (2) competitive environment, (3) “control” of distribution network, and (4) relatively low share liquidity. Usiminas – Valuation & Risks Our YE2015 price target is based on a DCF analysis using a WACC of 17.8% and a 6.0% nominal growth rate in BRL terms. Main risks include (1) lower-than-expected steel prices and/or demand, (2) lower-than-expected economic growth in Brazil, and (3) higher-than-expected raw material prices. Vale – Valuation & Risks Our YE2015 target price is based on a DCF analysis, using a WACC of 9.8% and a 3.5% nominal growth rate in perpetuity. Risks include: political risk and higher royalties in Brazil, decline in iron ore and nickel prices, weaker-than-expected macroeconomic growth in Asia, and FX appreciation. Valid – Valuation & Risks Our valuation is based on a two-stage DCF, with a Gordon Growth Model at perpetuity. Main risks are related to execution risk on new acquisitions.

Via Varejo – Valuation & Risks Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a ke of 10.6% and a perpetuity growth rate of 2.5%. Main risks include (1) economic slowdown, (2) elimination of government stimulus programs, (3) currency volatility, (4) increased competition, and (5) potential block trades.

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Volaris – Valuation & Risks Our YE2015 target price is based on a multiple analysis by a FV/EBITDAR 2015E objective of 8.5x. Main risks include: stronger-than-expected competition from other domestic carriers could cause the ongoing pricing war to carry on or even intensify, leading to lower-than-estimated profitability; fuel price and FX volatility could lead to lower-than-expected earnings, especially considering jet fuel represents 40% of Volaris’s costs; further deterioration in the Mexican economy. WEG – Valuation & Risks Our year-end 2015 target price is based on our DCF model, which assumes a WACC of 12.3% and a nominal growth rate in perpetuity of 5% per year in Brazilian reais. Risks include: increasing competition, higher-than-expected prices of key raw materials, challenges in international expansion and stronger-than-expected slowdown in the global economy. Walmex – Valuation & Risks Our YE2015 target price is based on a DCF model, using a WACC of 7.9% and perpetuity growth of 3.5%. Main risks: Main risks include adverse legal consequences of the current bribery investigation, management changes, weaker-than-expected SSS, a more intense competitive environment, rise in food inflation, and a narrower-than-anticipated gross margin. YPF SA – Valuation & Risks We valued YPF based on a DCF model using a WACC of 10.9% and perpetuity of 2.5%. Main risks include: regulatory risks; sensitivity of earnings to changes in crude oil prices and related products; steeper-than-expected depreciation of the local currency against the U.S. dollar; and poorer-than-expected production growth and reserve replacement ratios.

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IMPORTANT DISCLOSURES Key to Investment Codes

Rating Buy (B)

Definition Expected to outperform the local market benchmark by more than 10%.

Hold (H)

Expected to perform within a range of 0% to 10% above the local market benchmark.

Underperform

Expected to underperform the local market benchmark.

Under Review (U/R)

% of % of Companies Provided Companies Investment Banking Covered with Services in the Past 12 This Rating Months 47.79

9.19

43.75

6.62

8.46

0.74

0.00

0.00

The numbers above reflect our Latin American universe as of Tuesday, January 06, 2015.

For a discussion, if applicable, of the valuation methods used to determine the price targets included in this report and the risks to achieving these targets, please refer to the latest published research on these stocks. Research is available through your sales representative and other electronic systems. Target prices are year-end 2015 unless otherwise specified. Recommendations are based on a total return basis (expected share price appreciation + prospective dividend yield) unless otherwise specified. Stock price charts and rating histories for companies discussed in this report are also available by written request to Santander Investment Securities Inc., 45 East 53rd Street, 17th Floor (Attn: Research Disclosures), New York, NY 10022 USA. Ratings are established when the firm sets a target price and/or when maintaining or reiterating the rating. Ratings may not coincide with the above methodology due to price volatility. Management reserves the right to maintain or to modify ratings on any specific stock and will disclose this in the report when it occurs. Valuation methodologies vary from stock to stock, analyst to analyst, and country to country. Any investment in Latin American equities is, by its nature, risky. A full discussion of valuation methodology and risks related to achieving the target price of the subject security is included in the body of this report. The benchmark used for local market performance is the country risk of each country plus the 1-year U.S. Treasury yield plus 5.5% of equity risk premium, unless otherwise specified. The benchmark plus the 10.0% differential used to determine the rating is time adjusted to make it comparable with the total return of the stock over the same period. For additional information about our rating methodology, please call (212) 350 3974. This research report (“report”) has been prepared by Santander Investment Securities Inc. (“SIS”; SIS is a subsidiary of Santander Investment I, S.A. which is wholly owned by Banco Santander, S.A. “Santander”]) on behalf of itself and its affiliates (collectively, Grupo Santander) and is provided for information purposes only. This report must not be considered as an offer to sell or a solicitation of an offer to buy any relevant securities (i.e., securities mentioned herein or of the same issuer and/or options, warrants, or rights with respect to or interests in any such securities). Any decision by the recipient to buy or to sell should be based on publicly available information on the related security and, where appropriate, should take into account the content of the related prospectus filed with and available from the entity governing the related market and the company issuing the security. This report is issued in Spain by Santander Investment Bolsa, Sociedad de Valores, S.A. (“Santander Investment Bolsa”) and in the United Kingdom by Banco Santander, S.A., London Branch. Santander London is authorized by the Bank of Spain. This report is not being issued to private customers. SIS, Santander London and Santander Investment Bolsa are members of Grupo Santander. The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed, that their recommendations reflect solely and exclusively their personal opinions, and that such opinions were prepared in an independent and autonomous manner, including as regards the institution to which they are linked, and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report, since their compensation and the compensation system applying to Grupo Santander and any of its affiliates is not pegged to the pricing of any of the securities issued by the companies evaluated in the report, or to the income arising from the businesses and financial transactions carried out by Grupo Santander and any of its affiliates: Jesus Gomez, Christian Audi, Walter Chiarvesio*, Joao Noronha*, CFA, Daniel Gewehr*, João Mamede*, Jens Spiess*, CFA, Reinaldo Santana*, Pedro Balcão Reis*, Ana Gabriela Reynal*, CFA, Jessica Bessa*, Ronaldo Kasinsky*, Toe Matsumura*, Renata Cabral*, Boris Molina, Henrique Navarro*, Renato Maruichi*, CFA, Felipe Reis*, Gustavo Allevato*, CFA, Bruno Amorim*, CFA, Maria Carolina Carneiro*, Bruno Mendonca*, Valder Nogueira*, Renan Manda*, Alberto Ariztia*, Bruno Giardino*, CFA, Nicolas Villarreal*, Luis Miranda*, CFA, Matias Duarte*, Catalina Araya, Nicolas Schild*, Stefano Rizzi, and Andres Soto. As per the requirements of the Brazilian CVM, the following analysts hereby certify that we do not maintain a relationship with any individual working for the companies whose securities were evaluated in the disclosed report. That we do not own, directly or indirectly, securities issued by the company evaluated. That we are not involved in the acquisition, disposal and intermediation of such securities on the market: Bruno Giardino, Renan Manda, Valder Nogueira, Bruno Mendonca, Maria Carolina Carneiro, Bruno Amorim, Gustavo Allevato, Felipe Reis, Renato Maruichi, Henrique Navarro, Renata Cabral, Ronaldo Kasinsky, Jessica Bessa, Pedro Balcão Reis, João Mamede, Daniel Gewehr, and Joao Noronha.

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IMPORTANT DISCLOSURES (CONTINUED)

Grupo Santander receives non-investment banking revenue from Alfa, Alicorp, Alsea, Alupar, Ambev, America Movil, Arca Continental, Asur, B2W Digital, Banco de Chile, Banco do Brasil, Banco Pine, Banorte, Banregio, BM&F Bovespa, Bolsa Mexicana de Valores, BR Malls, BR Properties, Bradesco, Brasil Foods, Brasil Insurance, Braskem, CBD, CCR, Cemex, Cemig, Cencosud, Cesp, Cetip, Chedraui, Cia Hering, Cielo, CMPC, CocaCola FEMSA, Comerci, Comgas, Copasa, Copel, Cosan Energia, Cosan Limited, CPFL Energia, Credicorp, CSN, Cyrela Brazil Realty, DASA, Davivienda, Duratex, Eletrobras, Eletropaulo, Embraer, Endesa Chile, Equatorial, Falabella, FEMSA, Fibra Uno, Fleury, GAP, Genomma Lab, Gentera, Gerdau, GF Inbursa, Gol, Gruma, Grupo Bimbo, Grupo Famsa, Grupo Herdez, Helbor, HRT, Hypermarcas, ICA, IEnova, Iguatemi, IMC, Intercorp, Iochpe Maxion, Itausa, Itaú Unibanco, Kimberly Clark, Klabin, LATAM Airlines, Light, Liverpool, Localiza, Lojas Americanas, Lojas Renner, Magnesita, Mahle Metal Leve, Marcopolo, Mexichem, MRV Engenharia, Multiplan, Natura, OdontoPrev, OHL Mexico, PDG Realty, Petrobras, Porto Seguro, Positivo Informatica, Qualicorp, Raia Drogasil, Randon, Renova Energia, Rodobens, Romi, Sabesp, Santos Brasil, Saraiva, Sonda, Soriana, Sports World, Sul America, Suzano, São Martinho, TAESA, Tecnisa, Tegma, Televisa, Totvs, Tractebel, Triunfo, Ultrapar, Unicasa Móveis, Usiminas, Vale, Valid, Volaris, Walmex, and WEG. Within the past 12 months, Grupo Santander has managed or co-managed a public offering of securities of Arteris, Banco do Brasil, Banco Pine, Brasil Foods, Cemex, Cetip, Copel, Fibra Uno, Genomma Lab, Gerdau, Gol, ICA, JSL, Liverpool, Lojas Renner, Mexichem, Multiplan, Petrobras, Positivo Informatica, Sabesp, Usiminas, Via Varejo, and Volaris. Within the past 12 months, Grupo Santander has received compensation for investment banking services from Alfa, ALL, Anima Educação, Arteris, Banco do Brasil, Banco Pine, Banorte, Brasil Foods, Braskem, Cemex, Cemig, Cetip, Copel, Eletrobras, Enersis, Estácio, Fibra Uno, Genomma Lab, Gerdau, Gol, ICA, IMC, JSL, Liverpool, Lojas Renner, Mexichem, Multiplan, Positivo Informatica, Sabesp, São Martinho, Usiminas, Via Varejo, and Volaris. In the next three months, Grupo Santander expects to receive or intends to seek compensation for investment banking services from Braskem, Cosan Energia, Genomma Lab, Gruma, ICA, Renova Energia, Telefonica Brasil, Vale, and Via Varejo. Grupo Santander or its affiliates beneficially own 1% or more of any class of common equity securities of Bolsa Mexicana de Valores, BR Properties, Cesp, Renova Energia, and TAESA. Santander or its affiliates and the securities investment clubs, portfolios and funds managed by them do not have any direct or indirect ownership interest equal to or higher than one percent (1%) of the capital stock of any of the companies whose securities were evaluated in this report (with the exception of Bolsa Mexicana de Valores, BR Properties, Cesp, Renova Energia, and TAESA) and are not involved in the acquisition, disposal and intermediation of such securities on the market. The information contained within this report has been compiled from sources believed to be reliable. Although all reasonable care has been taken to ensure the information contained within these reports is not untrue or misleading, we make no representation that such information is accurate or complete and it should not be relied upon as such. All opinions and estimates included within this report constitute our judgment as of the date of the report and are subject to change without notice. From time to time, Grupo Santander and/or any of its officers or directors may have a long or short position in, or otherwise be directly or indirectly interested in, the securities, options, rights or warrants of companies mentioned herein. Any U.S. recipient of this report (other than a registered broker-dealer or a bank acting in a broker-dealer capacity) that would like to effect any transaction in any security discussed herein should contact and place orders in the United States with SIS, which, without in any way limiting the foregoing, accepts responsibility (solely for purposes of and within the meaning of Rule 15a-6 under the U.S. Securities Exchange Act of 1934) for this report and its dissemination in the United States. © 2015 by Santander Investment Securities Inc. All Rights Reserved.

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