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Grupo Aval 4Q13 Results: Operating results in line; net income a bit short on higher-than-expected minority interest

Price: COP 1,300; Target Price: COP 1,500

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April 8, 2014 ( newswire) Grupo Aval recorded COP 362 bn of net income, 11% below our forecast and 26% below 4Q12’s figure. However, most of the surprise came from minority interest and not from the operating side. On the other hand, net revenues and opex came in line with our expectations, while provision expenses posted a slight surprise.

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Gross loans increased 21% y/y due partly to the consolidation of acquired assets in Guatemala and Panama via Banco de Bogota in 4Q13. Organic growth in Colombia recorded a 12% y/y, posting impressive rates in mortgages (+75% y/y) due to a low market share in the segment, while consumer loans decelerated.

Net interest income increased 10.6%, reducing LTM NIM from 6.9% in 2012 to 6.5%; however, NIM expansion is forecasted on a normalization of the intervention rate expected sometime in mid-14. Provision expenses increased 23% y/y partly explained by change on loan mix towards retail segments in Colombia.

ROAA at 1.9% was in line with our forecast, but ROAE closed at 15.4% due to a temporary difference on the capital injection computation in the equity line (we expected the full effect in 1Q14). This temporary effect will decrease slightly the ROAE expected for 2014 due to the methodology used in our models (net income over average of the current and last year equity). On the mid to long run, the capital injection effect should dilute in the operation’s growth, and we remain confident about management ability to increase ROAEs to the 20%-21% range. Thus, our constructive view on PfAval remains, based on strong fundamentals and high dividend yield which limits downside risks.

For charts, tables and the full report, see the attached file.

Credicorp Capital

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