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Quarterly Results: Pacific Rubiales (BUY) - Financials already priced in; outlook and valuation remain constructive

Price: COP 32,000; Target Price: COP 42,200

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May 8, 2014 (www.investorideas.com newswire) Pacific Rubiales reported financials for 1Q14 below our initial estimates; however we believe that the market already priced in these results after the company released its operational update two weeks ago. We believe the outlook for the company remains constructive and expect further increases on production and selling volumes. Finally, we expect to obtain new information regarding STAR at the end of May or beginning of June.

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Net production for the period stood at 148.8 kbpd (+16.4% relative to 1Q13). Growth on net production mainly came from the acquisition of Petrominerales, which contributed with 25 kbpd. Operational restrictions in the OBC pipeline and water disposal issues in the Rubiales field, prevented the company from higher production levels. Revenues reached USD 1,283 mn, equivalent to a 2% y/y growth while EBITDA increased 1.9% y/y. We highlight that Pacific Rubiales managed to post a 55.2% EBITDA margin (in line with 1Q13) and a netback of USD 63.80/barrel which is higher than those released in 4Q13 and 1Q13. Net income for the period was USD 118.5 mn (-1.9% y/y) due to higher costs (the restrictions on the transport infrastructure didn’t affect production volumes, but caused cost overruns of ~USD 30 mn).

For upcoming quarters, we expect production to further increase driven by assets of Petrominerales and CPE-6. In addition, selling volumes are expected to increase as the company delivered the PAP clause volumes and inventory increased due to a cargo that was being loaded at the end of March.

We reiterate our T.P of COP 42,200 and a buy rating. Valuation remains attractive and implicit multiples for PREC support our view. EV/EBITDA14e is placed at 2.9x vs 5.7x from peers.

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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