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Company Alert, ISA - UNDERPERFORM

Update on the pending compensation in Brazil: ISA expects a USD ~ 2,3bn payment.

Price: COP 9,300; T.P. COP 9,220

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August 14, 2014 (www.investorideas.com newswire) ISA issued a press release in which it disclosed the results of the valuation of CTEEP's assets that were incorporated before May 2000, prepared by the external advisor Delos Consultoría. The pending compensation from the Brazilian Government lies on this assets, due to the regulatory changes in the transmission contracts of CTEEP that stared in 2013. According to this study, the value of the compensation should be BRL 5,186mn (USD ~2.3bn) using prices as of December 31st, 2012.

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The report will be filed before the Brazilian power regulator (ANEEL) in the coming days. The power regulator has 150 days after the filing to evaluate and validate the compensation amount, and could negotiate and propose changes to the value of the compensation. Further, payment alternatives are yet to be defined.

We have insisted that much of the uncertainty and risks associated to ISA's shares come from this pending compensation. The update on this subject is positive, but our concern remains as there are several issues to be defined. Also, the Brazilian government has not released an official statement about ISA's valuation, and we estimate it will take a while before the parts reach a final agreement.

Nevertheless, we highlight that the estimated compensation amount surprised us positively . This compensation value is 71% higher than the preliminary one estimated by the same consulting firm one year ago (after a more thorough assessment was done over the last few months). Our valuation model assumed a compensation payment of USD ~1,4bn risked at a 90% probability, which supports our 2014 T.P. of COP 9,220. Ceteris paribus, assuming a USD 2.3bn compensation, our valuation model would result in a 16.5% increase on our estimate of fair value.

With the remaining uncertainty coming from the many questions unsolved, we maintain our UNDERPERFORM rating on ISA and our COP 9,220 2014 T.P. However, new information on the Brazilian Government regarding the compensation, that may lead to the potential materialization of Delos' valuation, could result in an upward revision to our target price.

Regards,
Credicorp Capital

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.

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