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Company Update: Bancolombia - Overhang cap behind; Reiterating our HOLD after strong market reaction (T.P. COP 30,000 (loc) / USD 60.0 (ADR))

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March 26, 2014 (www.investorideas.com newswire) After high uncertainty regarding dilution and capital adequacy throughout 2013, Bancolombia finally managed to raise around COP 2.7 tn (USD 1.3 bn) through the issuance of 110 mn preferred (non-voting) shares. A week before the closing of the order book, PFBCOLO started a strong rally.

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Despite the better-than-expected results of the capital injection, the strong outperformance of the shares will limit further outperformance according to fundamentals. As mentioned in our previous update, we strongly believed that once the overhang risk faded, shares would respond to fundamentals. However, currently trading at 1.5x 2014E P/B, PFBCOLO does not offer significant value, given our 1.7x target multiple for 2014. Moreover, the Bank still faces several challenges on efficiency and consolidation that will maintain ROAEs pressured in the mid-term, even though we consider a positive the new strategy focused on efficiency and profitability.

  • Finally, some profit-taking from the recent capital injection can be expected, putting some price pressures in coming months after the recent outperformance of PFBCOLO.
  • After eliminating our adjustment for the issuance, our new T.P. is COP 30,000/share, with a fundamental value of COP 30,200/share (very similar to our last update). Our valuation exercise combines a DDM, and an analysis of ROAE-adjusted and historical forward multiples. We reiterate our HOLD rating on the shares.

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

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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