Davivienda: Top Pick Among Colombian Banks

DAVIVIENDA
COVERAGE
Colombia— Financial Services
BUY / TP PFDAVVNDA: COP 30,580
2012
1.66%
13.6%
2.3x
17.3x
1.7%
ROaA
ROaE
P/BV*
P/E*
Yield*
2013
1.62%
15.1%
2.0x
14.3x
2.0%
2014
2015E 2016 E
1.71%
1.64%
1.62%
16.6%
16.0%
16.2%
1.7x
1.6x
1.4x
11.3x
10.7x
9.5x
2.3%
2.9%
2.8%
*At period’s closing Price. Expected multiples at PFDAVVNDA
closing price of 07/05/15 (COP 27,060)
Source: Serfinco S.A.
Davivienda Vs Colcap
Davivienda
Colcap
Source: Bloomberg and Serfinco S.A.
Infrastructure: The New Driver for Colombian Economy. Colombia’s ongoing plan to update the
country’s road infrastructure through the Fourth Generation Concession Program (4G) will drive the
economy in the upcoming years with an investment of COP 55 trillion (~US$ 22 million). Of course,
banks will participate in this huge investment schedule, financing ~40% of the projects (~COP 21
trillion—~US$ 8.3 billion), increasing the proportion of commercial loans as a percentage of total
loans, and offsetting the expected reduction in the consumer section.
Oil Crisis Casts Shadow Over Banks. Despite Colombian banks don't have a significant exposure to the
oil sector (Davivienda: 4%) and it is believed that the infrastructure development will drive the
Colombian economy in the upcoming years, the sharp decline in oil prices have already led investors to
reassess growth prospects, forcing us to reduce our total loan portfolio growth expectations, from
15.4% to 12.4% in 2015 and from 14.4% to 12.8% in 2016.
Davivienda is trading at multiples of 10.7x P/E and 1.6x P/BV and our forecast is to trade at 12.1x and
1.7x respectively for FY15E (with a target price of COP 30,580). Both indicators are in line with the
geometric median of peers, but below the average of it own history since September 2011 (14.0x P/E;
1.94x P/BV).
Davivienda is our top pick among Colombian banks for its growth potential (Central America, Daviplata
and infrastructure), its proven record of executing a profitability oriented strategy and most appealing
P/BV—ROaE relation among its local peers.



Adjustments to our model include:
Incorporation of 2014 consolidated financial results.
The effect of the tax reform.
New macro economic perspectives.
Natalia Casas Páez
Financial Services Analyst
nc@serfinco.com.co
(571) 6514646 Ext. 4267
Jose F. Restrepo, CFA
Equity Strategist
jr@serfinco.com.co
(574) 3106510
Apr-15
Mar-15
Jan-15
Feb-15
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
Apr-14
140
135
130
125
120
115
110
105
100
95
90
85
80
75
May-14
Mobile Banking Implementation and Growth. Daviplata, the mobile banking service of Davivienda,
became the first mass e-money platform in Latin America and the third most important around the
world, reporting 2.2 million customers and exceeding 50 million transactions (traded amount of COP
2.7 trillion) in Colombia at the close of 2014. They already tested the business model and proved its
ability to reach unbaked population - mainly poor or those living in rural areas, reason why they were
awarded with the execution of gov.'s subsidies programs "Más familias en acción" and "Licitación de
víctimas". Its implementación en Central America is a logic step because in the countries Davivienda
operates have elevated levels of poverty and rural population, high mobile phone penetration and low
bancarization levels. Davivienda is advancing negotiations with the regulators of each country and
expects to have the business model working in late 2016—early 2017.
Financial Information and Multiples
Mar-14
Central America: The Key Element for Future Growth. Contrary to Colombia, Central American
countries will be benefit from the slump of oil prices. Due to its status as net oil importer, these
economies are expected to gather some momentum in the short term, driven by a fall in the cost of
energy imports, that is expected to boost real incomes and accelerates consumer spending. In
addition, CA countries are hardly working in increase their financial penetration, expanding it in 15.2
pp between 2011 and 2014 (from 24.3% to 39.5%). Contrary to other Colombia banks in the region,
DVV's strategy focused on the base of the pyramid, taking advantage of the characteristics of the
population in this region and increasing the financial inclusion. For the next five years we expect CA
loans to growth at an average rate of 16.1% in COP (10.9% in USD), compared to an average
consolidated expansion of 13.7% (in COP).
PFDAVVNDA
27,060
30,580
13%
444.2
0.948
11,665.1
2.72%
23,000—32,500
Source: Bloomberg and Serfinco S.A.
Jan-14
A History of Fulfilled Promises Both, in Colombia and Central America. Across the years, Davivienda
has demonstrated its ability to improve profitability in Colombia and Central America, (1) expanding
consolidated ROaE by 154 bps in two years, going from 13.7% in 2012 to 16.3% in 2014; and (2)
contracting the efficiency ratio 269 bps in the last year, taking it from 53.4% in 2013 to 50.8% in 2014.
This background gives us reasons to believe that the bank will achieve its 2015 guidance: reach an
efficiency of 50% with slight ROaE reduction due to the new taxes impacts in Colombia, and a more
aggressive strategy in commercial loans increasing their share on total loans.
Ticker BVC
Closing Price (COP)
Target Price (COP)
Expected Return
Outstanding shares (Mill.)
Adj. Beta vs. COLCAP—2 years
Mkt. Cap. (COP MM)
COLCAP Index weight
52-week range
Feb-14
We are reinitiating coverage of Davivienda due to analyst change and maintaining our BUY
recommendation based on a December 2015 target price of COP 30,580 per share, equivalent to
upside potential of 13%. Despite the recent economic slowdown in Colombia, we believe banks is
one the two exposures - along with construction - an investor should have in Colombia, supported
by infrastructure development projects and space to increase loan penetration. In addition,
Davivienda is our top pick among Colombian banks due to (1) its growth potential (Central America,
Daviplata and infrastructure), (2) its proved record of executing a profitability oriented strategy and
(3) most appealing P/BV—ROaE relation among local peers. Future value is based on continuous
improvements in efficiency, profitability and market share in countries where the bank has presence
and the replication of value added products in Central America.
Stock Data
Dec-13
DAVIVIENDA: TOP PICK AMONG COLOMBIAN BANKS
May 8, 2015
Positive
Negative
Infrastructure development projects support future loan growth.
 ROaE will be hit by new taxes and a higher proportion of
commercial loans as a percentage of total.
Synergies between Central American and Colombian operations
will boost the efficiency of the bank.
 Deceleration outlook for Colombian economy affect expected
loan portfolio growth.
Low loan penetration in Colombia and Central America compared
to similar economies that support double digit loan growth.
Possible implementation of Daviplata (mobile banking service) in
CA.
 Possible deterioration in the loan quality, NIM reduction and
increases in provisions, due to the sinking of oil prices.
Table 1. Income Statement
Table 2. Balance Sheet
COP Billion
2012
2013
2014
2015E 2016E 2017E 2018E
Interest income
Interest expense
Net interest income
Net provisions
Net interest income after provisions
Fees income, net
Other operating income
Operating expenses
Net operating income
Non operating income (expense)
Income tax expense
Minority interest
Net income
3,931
1,266
2,665
830
1,835
753
112
1,764
936
-18
215
8
695
4,513
1,429
3,084
816
2,268
944
72
2,256
1,028
49
233
6
839
5,162
1,650
3,512
830
2,682
1,030
187
2,479
1,419
21
374
7
1,060
5,945
1,890
4,055
1,051
3,004
1,173
220
2,807
1,590
32
489
12
1,121
6,931
2,303
4,627
1,233
3,395
1,315
222
3,123
1,809
40
574
13
1,263
8,069
2,672
5,396
1,409
3,987
1,452
248
3,566
2,122
48
711
15
1,443
COP Billion
Assets
Cash and overnight funds
Net investment securities
Net loans and financial leases
9,257
3,043
6,214
1,601
4,613
1,611
280
4,020
2,484
57
855
18
1,669
2012
2013
2014 2015E 2016E
47,122 56,374 67,471 76,270 86,953
4,245 4,997 5,768 7,177 8,132
6,176 7,925 8,156 8,151 10,365
32,811 39,427 48,943 56,381 63,877
2017E
98,527
9,274
11,886
72,647
2018E
112,178
10,564
14,196
82,557
Commercial loans
17,425
20,767
26,218
30,636
35,392
40,876
46,766
Consumer loans
10,490
11,242
13,642
15,258
16,757
18,610
20,884
90
76
92
106
121
136
160
4,098
5,490
6,521
7,753
8,780
9,960
11,415
Small business loans
Mortgage loans
Financial leases
2,336
3,557
4,447
4,927
5,399
5,968
6,611
Allowance for loans and leases
-1,629
-1,705
-1,976
-2,299
-2,572
-2,902
-3,279
3,890 4,025 4,604 4,561 4,579
47,122 56,374 67,471 76,270 86,953
30,040 36,286 43,585 49,766 56,926
357
421
485
690
812
29,683 35,865 43,100 49,076 56,115
4,720
98,527
65,007
960
64,047
4,861
112,178
74,505
1,128
73,377
Other assets
Liabilities and Shareholders' equity
Deposits
Non interest bearing
Interest bearing
Checking accounts
4,847
5,930
7,047
6,766
7,496
8,361
9,076
Time deposits
9,516
13,064
16,296
20,204
22,953
25,730
30,094
Savings deposits
15,320
16,871
19,757
22,106
25,666
29,956
34,207
4,206
5,367
2,178
5,331
4,095
6,651
3,283
6,059
5,454
7,685
3,770
6,977
5,976
9,064
3,778
7,686
6,759
10,244
4,480
8,544
7,570
11,298
5,070
9,582
9,238
11,880
5,736
10,818
Borrowings from banks
Bonds
Other liabilities
Shareholders' equity
Source: Davivienda and SerfincoS.A. estimations
Source: Davivienda and SerfincoS.A. estimations
Table 3. Financial Ratios
Table 4. Stock Data and Multiples
2012
Asset quality
PDL ratio (90 days)
PDL coverage ratio (90 days)
Allowances as % of gross loans
Cost of risk (prov expense / avg. loans)
Efficiency
Operating efficiency (income)
Administrative efficiency (assets)
Fees and services income
Fee ratio (income)
Fee ratio (assets)
Rentabilidad
NIM
ROE
ROaE
ROA
ROaA
Regulatory capital
Payout ratio
Tier I
Tier II
Capital adequacy
2013
2014
2015E
2016E
2017E
2018E
2012
1.83% 1.62% 1.57% 1.62% 1.63% 1.62% 1.62%
258.7% 255.2% 246.9% 241.9% 238.0% 237.0% 235.9%
4.73% 4.14% 3.88% 3.92% 3.87% 3.84% 3.82%
2.41% 2.17% 1.79% 1.96% 2.02% 2.03% 2.02%
48.6%
4.10%
53.4%
4.36%
50.7%
4.00%
50.0%
3.91%
49.2%
3.83%
48.9%
3.84%
48.3%
3.82%
21.34%
2.07%
23.0%
1.96%
21.8%
1.96%
21.5%
1.94%
21.3%
1.88%
20.5%
1.83%
19.9%
1.79%
Number of shares (million)
Dividend per share (payed)
Dividend yield*
EPS (COP)
Forward P/E per share*
Book value per share*
Forward P/BV per share*
2013
2014
444.21 444.21 444.21
480.00 560.00 630.00
2.28%
1,565 1,888 2,387
11.55x
12,001 13,639 15,706
1.76x
2015E
2016E
2017E
2018E
444.21
788.00
2.86%
2,523
10.93x
17,302
1.59x
444.21
776.01
2.81%
2,842
9.7x
19,234
1.43x
444.21
852.64
3.09%
3,249
8.49x
21,571
1.28x
444.21
974.65
3.53%
3,758
7.34x
24,354
1.13x
* At closing price of 06/05/2015
7.47% 7.09% 6.66% 6.61% 6.62% 6.74% 6.80%
13.04% 13.84% 15.20% 14.58% 14.78% 15.06% 15.43%
13.73% 14.73% 16.27% 15.29% 15.56% 15.92% 16.37%
1.48% 1.49% 1.57% 1.47% 1.45% 1.46% 1.49%
1.66% 1.62% 1.71% 1.56% 1.55% 1.56% 1.58%
34.5%
10.6%
5.4%
16.1%
33.4%
7.5%
4.1%
11.5%
33.0%
6.5%
5.0%
11.5%
28.5%
6.8%
4.8%
11.6%
30.8%
7.1%
4.4%
11.6%
30.0%
7.5%
3.9%
11.4%
30.0%
7.7%
3.5%
11.2%
Source: Davivienda and SerfincoS.A. estimations
Source: Davivienda and SerfincoS.A. estimations
Figure 1. Loan Portfolio Composition
Table 5. Valuation Results
Methodology
P/B to ROAE regression
Dividend discount
Excess returns
Target price
Weight
20%
40%
40%
Price
29,783
30,516
31,043
30,580
2024
5%
Cost of Equity
Risk Free Rate
Country Risk premium
Colombia
El Salvador
Costa Rica
Panama
Market Premium
Beta
Devaluation
Sustainable Growth Rate of Equity
12.6%
2.3%
2.0%
1.6%
4.2%
3.0%
1.9%
4.6%
0.9
3.5%
8.6%
8%
4%
5%
3%
5%
5%
7%
2014
80%
78%
Colombia
El Salvador
Costa Rica
Panama
Honduras
Source: Davivienda and SerfincoS.A. estimations
Source: Bloomberg and SerfincoS.A. estimations
2
Davivienda: Top Pick Among Colombian Banks
We are reinitiating coverage of Davivienda due to analyst change and maintaining our BUY recommendation based on a
December 2015 target price of COP 30,580 per share, equivalent to upside potential of 13%. Despite the recent economic
slowdown in Colombia, we believe banks is one the two exposures - along with construction - an investor should have in
Colombia, supported by infrastructure development projects and space to increase loan penetration. In addition, Davivienda is
our top pick among Colombian banks due to (1) its growth potential (Central America, Daviplata and infrastructure), (2) its
proved record of executing a profitability orientated strategy and (3) most appealing P/BV—ROaE relation among local peers.
Future value is based on continuous improvements in efficiency, profitability and market share in countries where the bank has
presence and the replication of value added products in Central America.
INVESTMENT POSITIVES
A History of Fulfilled Promises Both, in Colombia and Central America.
Across the years, Davivienda has demonstrated its ability to improve profitability in Colombia and Central America, (1) expanding
consolidated ROaE by 154 bps in two years, going from 13.7% in 2012 to 16.3% in 2014; and (2) contracting the efficiency ratio by
269 bps in the last year, taking it from 53.4% in 2013 to 50.8% in 2014. This background gives us reasons to believe that the bank
will achieve its 2015 guidance: reach an efficiency of 50% with slight ROaE reduction due to the new taxes impacts in Colombia,
and a more aggressive strategy in commercial loans increasing their share on total loans.
Figure 2. Efficiency Ratio by Country and Consolidated ROaE
Period with higher taxes:
wealth tax and CREE
(income) tax surcharge.
75%
70%
20%
19%
18%
65%
17%
60%
16%
55%
15%
50%
14%
45%
13%
Central America
Colombia
Consolidated
2024 E
2023 E
2022 E
2021 E
2020 E
2019 E
2018 E
2017 E
2016 E
2015 E
2014
10%
2013
30%
2012
11%
2011
35%
2010
12%
2009
40%
Consolidated ROaE (RHS)
Source: Davivienda and Serfinco S.A. estimations.
In the long term, we forecast a reduction of 462 bps in consolidated efficiency, reaching 46.1% in 2024 and an increase in ROaE of
158 bps. These improvements will be achieved through the implementation of technological innovations, the implementation of
alternative banking channels, cost controls and the development of synergies in CA, lowering the administrative efficiency ratio
from 4% to 3.57%.
Central America: the Key Element for Future Growing.
Contrary to Colombia, Central American countries will be benefit from the slump of oil prices, due to its status as net oil importer,
these economies are expected to gather some momentum in the short term, driven by a reduction of energy costs imports, that is
expected to boost real incomes and accelerates consumer spending. In addition, being a region highly dependent on the US
(remittances, imports and exports), it will be favor by the acceleration of this county’s economy.
In addition, CA countries are hardly working in increase their financial inclusion, expanding it by 15.2 pp between 2011 and 2014
(from 24.3% to 39.5%), and they are still far away from the average of the region (Latin America & Caribbean: 51%) and the world
average (60%).
Contrary to other Colombia banks in the region, DVV's strategy focused on the base of the pyramid, taking advantage of the
characteristics of the population in this region and increasing the financial inclusion. In this way, the bank is improving its service
models in order to form long relations with their clients in key segments, such as commercial and mortgages.
3
Figure 3. US Dependence by Country: Imports, Exports and Remittances
55%
50%
El Salvador
16%
Exports to the US
45%
1%
Guatemala 10%
40%
Costa Rica
35%
17%
Nicaragua 10%
30%
Honduras
1%
Colombia
25%
Panama
20%
1%
15%
0%
10%
20%
30%
40%
Imports from the US
50%
60%
The size of the bubble represents the remittances received from the US as a percentage of GDP.
Source: World Bank
Figure 4. Adult Population with Savings Account in Central America and Colombia
+14.2 pp
+19 pp
+18.7 pp
+8.6 pp
+23 pp
+11 pp
64.6%
+5.2 pp
14.2%
19.4%
Nicaragua
39.0%
30.4%
24.9%
22.3%
20.5%
43.7%
41.3%
36.7%
31.5%
50.4%
13.8%
Honduras
El Salvador
Guatemala
2011
Panama
Costa Rica
Colombia
2014
Source: Global Findex database 2014
Mobile Banking Implementation and Growth.
Daviplata, the mobile banking service of Davivienda, became the first mass e-money platform in Latin America and the third most
important around the world, reporting 2.2 million customers and exceeding 50 million transactions (traded amount of COP 2.7
trillion or US$1.35 billion) in Colombia at the close of 2014. The rapid growing was mainly explain by the possibility that it offers to
reach unbanked adults (poor people or those living in rural areas), reason why the Government awarded Davivienda the payment
of subsidies of different social projects such as “Más Familias en Acción” and the “Licitación de Víctimas”.
According to the managers of Davivienda, will reach the break-even point in 2015, making the platform profitable from now on. In
addition, since 2014, costs associated to Daviplata decreased significantly due to a reduction of more than 50% in the
telecommunications costs of each transaction, achieved due to a decision of the Communications Regulatory Commission (CRC) to
increase the financial inclusion in the country.
Figure 5. Daviplata’s Evolution in Colombia
4,000
2,200
3,500
1,900
3,000
2,700
71,064
80,000
73,260
50
70,000
54,000
60,000
50
1,000
20
500
500
334
10
43
0
2012
Amounts (COP bn)
2013
40,000
30,000
18,696
2
20,000
5
10,000
0
0
2011
27
30
850
1,500
50,000
1,500
2,000
2,000
500
2,000
60
40
2,500
1,000
2,500
0
2011
2014
2012
2013
Average COP per transaction (RHS)
Clients (thousand - RHS)
Source: Davivienda
2014
Transactions (MM)
Source: Davivienda and Serfinco S.A. estimations
But, why do we believe in Daviplata if all Colombian banks have mobile banking? Well, Daviplata´s strategy is to attack the base of
the pyramid (poverty in Colombia was 31% as of 2013), while other banks focus in clients with higher income. In addition,
Daviplata has become an ally of the Government, due to the subsidy distribution of the social programs mentioned previously,
which have allow the bank to increase their client base in 2013 and 2014, and adding expectations of around 500 thousand new
Daviplata clients in 2015. According to the management of Davivienda, between 5% and 10% of the people reached through the
Government subsidies programs become regular clients with, at least, one product of the bank.
4
Mobile Banking in Central America: According to the Global Findex, mobile money has play a key role in Central America’s financial
inclusion (previously discussed), reason why we consider the implementation of Daviplata in Central America as one of the most
relevant steps for Davivienda to gain market share and increase their presence, even more, taking into account the rural areas of
these countries, where is hard for a bank to get, and the amount of remittances that Central American people receive.
Figure 5. Agriculture Dependence and Poverty
Figure 6. Total and Rural Mobile Banking Penetration by Country
90%
Area Devoted to Agriculture
80%
El Salvador
37%
70%
60%
50%
Guatemala
Colombia
40%
Costa Rica 25% 31%
30%
26%
20%
Panama
Nicaragua 43%
5.5%
54%
3.4%
2.6%
Honduras
10%
0%
0%
5%
10%
15%
20%
25%
30%
35%
% Labor Force Devoted to Agriculture
4.6%
4.1%
65%
40%
45%
0.0%NA
0.0%
0.7% 1.1%
Costa Rica
Nicaragua
1.3% 1.6%
Panama
1.9% 1.8%
Guatemala
Rural
Honduras
El Salvador
2.2%
Colombia
Total
The size of the bubble represents the poverty ratio in each country.
Source: World Bank
Source: Global Findex database 2014
Despite Davivienda has already said that it’s not easy to replicate the mobile service model in CA, due to the regulation about
mobile banking in those countries, the bank is advancing negotiations in order to be able to implement the service in lately 2016—
early 2017. The replication of Daviplata in CA or the development of partnerships between already existing mobile money
providers (Tigo Money, Millicom or Movil Cash) and financial institutions is indispensable to make financial inclusion advance,
given the characteristics of the population: elevated poverty ratios, highly dependence on the US, low financial inclusion levels and
extended agricultural areas.
Infrastructure: The New Driver for Colombian Economy.
Colombia’s ongoing plan to update the country’s road infrastructure through the Fourth Generation Concession Program (4G) will
drive the country’s economy in the upcoming years with an investment of COP 55 trillion (~US$ 22.7 million). Of course, banks will
participate in this huge investment schedule, financing ~40% of the projects (~COP 21 trillion—~US$ 8.4 billion) in the next eight
years.
Davivienda expects to contribute ~35% to this infrastructure development projects (~COP 7.3 trillion—~US$ 2.9 million), if the
interest rate is attractive under a return - risk analysis. This possible contribution to the 4G projects would increase the proportion
of commercial loans, offsetting the expected deceleration in consumer loans, due to the effects of macro slowdown and currency
depreciation.
Figure 7. Infrastructure Program Investment Schedule
14.0
12.1
COP trillion
12.0
11.3
10.5
10.0
7.6
8.0
7.5
6.0
2.0
4.0
3.8
4.0
1.1
4.5
4.1
2.9
2.5
1.5
2.8
0.8
0.4
0.0
2015E
2016E
2017E
2018E
Total Investment
2019E
2020E
2021E
2022E
Banks Investment
Source: Government and Serfinco S.A. estimations
INVESTMENT NEGATIVES
 Oil
Crisis Casts Shadow Over Banks.
Despite Colombian Davivienda don't have a significant exposure to the oil sector (4% of total loans) and it is believed that the
infrastructure development will drive the Colombian economy in the upcoming years, the sharp decline in oil prices have already
led investors to reassess growth prospects, forcing us to reduce our total loan portfolio growth expectations, from 15.4% to 12.4%
in 2015 and from 14.4% to 12.8% in 2016. Some declines in asset quality, a reduction in NIM (-5 bps in 2015) and increases in
provisions (+17 bps in 2015) are expected also from current currency levels and the effects of oil prices.
5
VALUATION AND RECOMMENDATION
Loans were projected considering nominal GDP growth projections and an average multiplier of loan portfolio growth over
nominal GDP growth, modeled further with perspectives on innovative channels and regulations that may help boost loan growth.
We assume increasing market share over the next 5 years in Colombia (+33 bps), El Salvador (+18 bps), Costa Rica (+15 bps),
Honduras (+2 bps) and Panama (+1 bps). Using the projected loan portfolio as a starting point, we apply an estimated Net loans /
Funding ratio to obtain the total funding necessary. Equity was obtained through capitalization given an average payout of 30%.
Our valuation model consists on a weighted average of three valuation methodologies: i) dividend discount model (40%), ii) multistage excess return model (40%) over a 10 year period (2015-2024) and a terminal value after 2024 at P/BV implied multiple; and
iii) regression of ROAE to P/BV multiples for peers across Latin America (20%) and used it to obtain the expected P/BV for 2014,
given our ROAE estimations.
Table 6. Cost of Equity
Cost of equity
Ke
Risk Free Rate
Market Premium
Beta
Country Risk premium
Share of the loan portfolio
Colombia
El Salvador
Costa Rica
Panama
Honduras
CDS or EMBI
Colombia
El Salvador
Costa Rica
Panama
Honduras
Cualitative premium
Devaluation
# of shares (MM)
2015 E
12.65%
2.31%
4.60%
0.92
2.00%
2016 E
12.64%
2.31%
4.60%
0.92
1.99%
2017 E
12.64%
2.31%
4.60%
0.92
2.00%
2018 E
12.64%
2.31%
4.60%
0.92
2.00%
2019 E
12.64%
2.31%
4.60%
0.92
1.99%
78.56%
7.00%
5.67%
3.89%
4.88%
78.55%
6.61%
5.98%
3.98%
4.87%
78.32%
6.52%
6.26%
4.04%
4.86%
78.12%
6.38%
6.54%
4.10%
4.86%
78.19%
6.20%
6.74%
4.08%
4.80%
1.58%
4.20%
2.99%
1.88%
4.55%
0.36%
3.46%
444
1.58%
4.20%
2.99%
1.88%
4.55%
0.36%
3.46%
444
1.58%
4.20%
2.99%
1.88%
4.55%
0.36%
3.46%
444
1.58%
4.20%
2.99%
1.88%
4.55%
0.36%
3.46%
444
1.58%
4.20%
2.99%
1.88%
4.55%
0.36%
3.46%
444
Source: Bloomberg and SerfincoS.A. estimations
Table 7. Company Valuation
Methodology
P/B to ROAE regression
Dividend discount
Excess returns
Target price
Weight
20%
40%
40%
Price
29,783
30,516
31,043
30,580
Source: SerfincoS.A. estimations
Table 8. Valuation Sensitivity Analysis
7.98%
8.28%
8.58%
8.88%
9.18%
10.65%
48,237
53,478
60,239
69,292
82,041
11.65%
34,940
37,436
40,419
44,048
48,559
Ke
12.65%
27,492
28,901
30,516
32,389
34,586
13.65%
22,787
23,666
24,650
25,757
27,012
Excess Return Model
14.65%
19,581
20,168
20,814
21,527
22,317
Implied
terminal P/BV
Long term
nominal
growth rate
Dividend Discount Model
Source: SerfincoS.A. estimations
6
1.05
1.15
1.25
1.35
1.45
10.65%
28,501
34,051
39,601
45,151
50,701
11.65%
28,501
34,051
39,601
45,151
50,701
Ke
12.65%
26,758
28,901
31,043
33,186
35,329
13.65%
28,501
34,051
39,601
45,151
50,701
14.65%
28,501
34,051
39,601
45,151
50,701
Figure 8. P/E Multiple Evolution vs. History and Peers
24 x
22 x
20 x
18 x
16 x
14 x
12 x
10 x
8x
6x
4x
Figure 9. P/BV Multiple Evolution vs. History and Peers
Pfdavvnda
Peers Percentile 25%
Peers Percentile 75%
Geometric Median
3.0 x
Pfdavvnda
Peers Percentile 25%
Peers Percentile 75%
Geometric Median
2.5 x
2.0 x
1.5 x
1.0 x
0.5 x
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
0.0 x
Source: Bloomberg and Serfinco S.A.
Source: Bloomberg and Serfinco S.A.
Figure 10. Relative valuation (P/BV vs. ROAE-LTM)
Source: Bloomberg, Company filings and Serfinco S.A.
Figure 11. Historic Recommendation
Davivienda (COP)
32,668
33,000
31,109
31,000
Date
Recommendation
T.P.
(1) 8-May-14
BUY
31,300
(2) 11-Jun-14
BUY
31,800
(3) 28-Apr-15
BUY
30,580
29,624
28,625
27,000
27,260
25,000
25,959
23,000
21,000
nov/15
jul/15
sep/15
may/15
ene/15
mar/15
sep/14
nov/14
jul/14
may/14
ene/14
mar/14
sep/13
nov/13
jul/13
may/13
ene/13
mar/13
sep/12
nov/12
jul/12
mar/12
may/12
19,000
ene/12
COP/per share
29,000
Dotted lines show a probable 1-standard deviation confidence
interval if returns behave as a t-distribution in a log-lin model
Source: Bloomberg and Serfinco S.A. estimations
7
International Equity Trading Desk
Andrés Jimenez
Juan P. Vieira
Andrés Gómez
Head of Equity
Head of Trading
Head of Electronic Trading
aj@serfinco.com.co
jv@serfinco.com.co
ag@serfinco.com.co
(574) 3106553
(574) 3106515
(574) 3106544
Daniel Marín
Andrés Felipe Sánchez
Jose F. Restrepo, CFA
Equity Trader
FX Trader
Equity Strategist
dm@serfinco.com.co
as@serfinco.com.co
jr@serfinco.com.co
(574) 3106518
(574) 3106587
(574) 3106510
Research Team
Alejandro Isaza
Cement and Construction
Rafael España
Consumer Services
Natalia Casas
Financial Services
ai@serfinco.com.co
re@serfinco.com.co
nc@serfinco.com.co
(574) 4443522 Ext. 6642
(571) 6514646 Ext. 4228
(571) 6514646 Ext. 4267
Bob Jenney
Enery and Mining Analyst
rfjenney@serfinco.com.co
(574) 4443522 Ext. 6671
Bogotá
Medellín
Centro de Negocios Andino
Carrera 11 No 82—01. Piso 6
Tel: (571) 6514646
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Carrera 43A No 1— 50. Piso 10
Tel: (574) 4443522
Cali
Bucaramanga
Carrera 100 No 5—169
Torre Empresarial Oasis of 722 B
Tel: (572) 4858585
Metropolitan Bussiness Park
Carrera 29 # 45 - 45 of 910
Tel: (577) 6970367
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Barranquilla
Torre Empresarial Protección
Carrera 3 No 6A—100 Of. 801
Tel: (575) 6930292
Centro Empresarial Las Américas
Calle 77B No 57—141.
Tel: (575) 3606030
The analyst certifies that the opinions expressed in this report accurately reflect his personal opinion about the company of concern. Also, the analyst certifies that he has
not received, is not receiving and will not receive any direct or indirect payment in exchange for expressing a specific recommendation in this report.
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8