Quarterly Results: ISA (UNDERPERFORM) - Sound financial results above our expectations due to accounting changes and lower taxes.
Price: COP 9,060; Target Price: COP 9,220
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May 8, 2014 (www.investorideas.com newswire) Revenues in 1Q14 rose 10.6% y/y but were below our estimates as revenues from toll road concessions declined 15.9% y/y and were 18.4% lower than our forecast. Revenues from power business grew 17.2% but also were 6.1% below our estimates.
On the other hand, EBITDA grew 15.6% y/y and stood in line with our estimates due to a higher EBITDA margin. EBIT grew 56.5% y/y explained by lower amortizations consistent with changes to the accounting treatment of toll road concessions in Chile and power transmission concessions in Brazil that took place in 2Q13, and the finalization of the goodwill amortization of ISA Capital do Brazil in December 2013. Net income was COP 155,1 bn, which represents a 121.6% y/y increase. Bottom-line figures were explained by the above mentioned growth in operating results and boosted by a significant drop on the effective tax rate which fell from 36.2% in 1Q13 to 24.7% in 1Q14.
The sound results posted by the company were mainly explained by the accounting changes implemented in 2Q13 which have allowed net income to increase and the company to trade at more reasonable trailing P/E multiples (19.4x). However we highlight that this changes have no effects on our valuation model as they affect non-cash items. We maintain our 2014 T.P. of 9,220 and our UNDERPERFORM rating. Our concern regarding the pending compensation from the Brazilian government remains as our model includes the payment starting in 2014 and it is risked at a 90% probability. We expect to have some new information regarding the compensation in the coming months.
Regards, Credicorp Capital
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