Bancolombia: Model Update – BUY
A well-capitalized leader with positive outlook; upgrading to BUY
Price: COP 29,640; 2015E T.P.: COP 35,000
August 11, 2014 (www.investorideas.com newswire) We are fine-tuning our valuation model of Bancolombia after strong 2Q14 results on the back of an expansion on loan NIM and better cost of credit. We consider that Bancolombia still offers value to shareholders given the strong macro outlook for Colombia, lower exposure to fixed-income securities, better asset quality and positive pressures for NIM, which will mitigate opex growth driven by the consolidation of Banistmo. Our 2015E T.P. at COP 35,000 implies 1.9x 2015E P/B and 12.5x 2016E P/E. We upgrade to BUY based on attractive upside potential.
- Our investment thesis is constructive. Bancolombia is the leading banking franchise in Colombia (2nd largest conglomerate after Grupo Aval), and will lever on the attractive macro outlook of the country, recording an average loan growth of 12% in the next three years. This, coupled with a more conservative risk management and the expected effects of the monetary tightening in NIM, results in an appealing investment thesis.
- The main challenge is efficiency. The cost-to-income ratio will remain relatively high as a result of opex from the consolidation of Banistmo, a large payroll, and some accounting policies that impair the ratio (i.e. amortization of Goodwill). Nonetheless we expect improvements in this front, with a cost-to-income ratio of 54% in 2015 (47% excluding D&A) due to a stable headcount and network size.
- ROAE is in the lower end of our banking space, but shares still offer value. We expect ROAE to close at 13.7% and 14.3% in 2014E and 2015E respectively, in the lower end of our banking space. However, trading at 11.6x 2015E P/E and 1.7x 2014E P/B, Bancolombia could still generate value to shareholders despite the recent rally of the shares.
- Risks to our outlook. Main downside risks include a lower-than-expected loan growth on the back of strong competition or negative surprises in economic activity; a surge on cost of credit risk, and further issues preventing the bank from improving its efficiency ratios. Although Tier 1 ratio at 9% looks healthy, further M&A activity (not likely in the mid-term) could reflect on dilution going forwards. There are risks regarding regulatory changes, including the effects of the adoption of IFRS.
La información contenida en este mensaje es confidencial y para conocimiento exclusivo del destinatario. La información y opiniones contenidas en este mensaje pertenecen únicamente al remitente, excepto cuando en el cuerpo del mensaje se establezca lo contrario y el remitente esté autorizado para enviar dicha información con carácter definitivo y oficial de Credicorp Capital. La información relacionada con su cuenta, los extractos, informes financieros y de productos, sólo será vinculante en la medida en que sea remitida por los canales y en los formatos que Credicorp Capital determine. Las opiniones, conclusiones o cualquier otra clase de información contenida en este correo no relacionadas con los fines del negocio de Credicorp Capital, deben entenderse como personales y bajo ninguna circunstancia son avaladas por Credicorp Capital. Si usted ha recibido este mensaje por error por favor proceda a eliminarlo, y notificar al remitente. De cualquier manera, usted no debe usar, divulgar, revelar, distribuir, imprimir, copiar o adulterar en forma parcial o total este mensaje. Credicorp Capital no se hace responsable por la eventual transmisión de virus o programas dañinos por este medio. Credicorp Capital, no se responsabiliza por eventuales daños o alteraciones como consecuencia de la recepción o uso del presente mensaje.
To View Complete Report: Bancolombia
This news is published on the Investorideas.com Newswire and its syndicated partner network
Get free news alerts:
Sign up here
Published at the Investorideas.com Newswire - Big ideas for Global Investors
Disclaimer/ Disclosure:The Investorideas.com newswire is a third party publisher of news as well as creates original content as a news source. Original content created by investor ideas is protected by copyright laws other than syndication rights. Investorideas is a news source on Google news and global syndication partners. Our site does not make recommendations for purchases or sale of stocks or products. Nothing on our sites should be construed as an offer or solicitation to buy or sell products or securities. All investment involves risk and possible loss of investment. This site is currently compensated by featured companies, news submissions and advertising. Contact each company directly for press release questions. Disclosure is posted on each release if required but otherwise the news was not compensated for and is published for the sole interest of our readers.
BC Residents and Investor Disclaimer: Effective September 15 2008 - all BC investors should review all OTC and Pink sheet listed companies for adherence in new disclosure filings and filing appropriate documents with Sedar. Read for more info: http://www.bcsc.bc.ca/release.aspx?id=6894. Global investors must adhere to regulations of each country.