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Bancolombia | Target Price Update

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February 17, 2014 ( newswire) We update our Bancolombia Target Price to COP 26,500/share. The change is explained by the following: i) the integration into our estimates of Banistmo (HSBC Panama); ii) the incorporation of the issuance of 110 million preferred shares (for approximately COP 2.3 trillion) currently underway; iii) a drop in our net income and ROE estimates; iv) a change in the method for valuing to residual income; and v) the results from a multiples exercise in which we used a regression to estimate the relationship of P/B adjusted for the bank´s return on equity. Finally, we highlight that our Target Price of COP 26,500/share translates to a potential upside of 15.2% and a BUY recommendation.

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We are lowering our net income estimates: Recently (On January 31st), Bancolombia published its non-audited financial results for the year 2013, which show for the first time consolidated results including Banistmo´s operations following the acquisition on October 28, 2013 (the most updated information prior to the acquisition was of September of 2012). In this update, we incorporate for the first time in our projections Banistmo´s financial results. In addition, we were disappointed by 2013´s results, especially in net income (12% below our estimates), which has led us to lower our estimates for 2014 and beyond.

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