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Quarterly Results: Nutresa (BUY) Still positive perspectives despite margin reduction for upcoming quarters

Price: COP 27,180; Target Price: COP 32,600

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May 5, 2014 ( newswire) First quarter results were overall in line with our estimations. While figures in Colombia surprised us slightly on the positive side, results from international sales – and particularly from TMLUC – were slightly below. We expect EBITDA margin to remain practically unchanged for 2Q; however, we anticipate a margin reduction for upcoming quarters associated to higher raw material prices. Yet, margins should remain in the upper limit of the management’s target range (12%-14%) as the company has room for increasing prices.

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Total consolidated sales increased 26.6% y/y, while organic growth accounted for 12.8% y/y. We highlight the performance of sales in Colombia during 1Q14 which grew 8.3% y/y in terms of volumes and 0.8% y/y in prices, for a total growth of 9.2%. International sales increased 52.5%, including TMLUC, while organic growth stood at 9.9%. It was a very weak first quarter for TMLUC, where sales grew 5.4% y/y in Chile and decreased 51% y/y in Mexico. According to the management, this was due to a one-time reformulation of the strategy. This led TMLUC’s EBITDA margin to stand at 8.8% vs. 16.2% of 2013YE. However, the company expects the Mexico-effect not to persist and margins should stabilize around 13% for the year.

In terms of CAPEX, 2014’s stands at USD 265 mn (~10% has been executed), which will be destined to production and logistics capacity expansions. With practically no surprises in results we maintain our T.P. and rating with a positive perspective on Nutresa. We highlight that significant synergies from Lucchetti’s distribution network in Mexico are yet to be seen and incorporated in our valuation, as well as a slight margin reduction for 3Q and 4Q.

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

Credicorp Ltd

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