L AM UNIVERSE BOOK - Pessoa Física - Santander LATAM TEAM Ignacio Mendive Jesus Gomez Head of LatAm...

Important disclosures/certifications are in the “Important Disclosures” section of this report. U.S. investors’ inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629/ (212) 350-3918.

* Employed by a non-US affiliate of Santander Investment Securities, Inc. and is not registered/qualified as a research analyst under FINRA rules.

Latin American Equity Research

New York, January 2015

LATAM UNIVERSE BOOK 2015

SANTANDER LATAM TEAM Ignacio Mendive Jesus GomezHead of LatAm Equities Head of LatAm Equity Research, Strategy

1-212-350-3958 / [email protected] 1-212-350-3992 / [email protected]

LatAm Strategy Team Economists Jesus Gomez LatAm 1-212-350-3992 [email protected] Alejandro Estevez-Breton LatAm 1-212-350-3917 [email protected]

Stefano Rizzi LatAm 1-212-350-3979 [email protected] Sergio Galván Argentina 5411-4341-1728 [email protected]

Andres Soto Andean 1-212-407-0976 [email protected] Maurício Molan Brazil 5511-3012-5724 [email protected]

Walter Chiarvesio Argentina 5411-4341-1564 [email protected] Juan Pablo Cabrera Chile 562-2320-3778 [email protected]

Daniel Gewehr Brazil 5511-3012-5787 [email protected] Fernanda Consorte Colombia 5511-3012-7114 [email protected]

Joao Noronha, CFA Brazil 5511-3012-5734 [email protected] David Franco Mexico 5255-5269-1932 [email protected]

Pedro Balcão Reis Mexico 5511-3012-5765 [email protected]

Agribusiness Metals & Mining Christian Audi Sector Head 1-212-350-3991 [email protected] Felipe Reis Sector Head 5511-3012-5758 [email protected]

Gustavo Allevato, CFA Brazil 5511-3012-6042 [email protected] Walter Chiarvesio Argentina 5411-4341-1564 [email protected]

Capital Goods Renato Maruichi, CFA Brazil 5511-3553-7149 [email protected]

Daniel Gewehr Sector Head 5511-3012-5787 [email protected] Alberto Ariztia Chile 5622-336-3359 [email protected]

Joao Noronha, CFA Brazil 5511-3012-5734 [email protected] Oil, Gas, and Petrochemicals

Luis Miranda, CFA Mexico 5255-5269-1926 [email protected] Christian Audi Sector Head 1-212-350-3991 [email protected]

Cement, Construction, Infrastructure & Real Estate Walter Chiarvesio Argentina 5411-4341-1564 [email protected]

Andres Soto Andean 1-212-407-0976 [email protected] Gustavo Allevato, CFA Brazil 5511-3012-6042 [email protected]

Walter Chiarvesio Argentina 5411-4341-1564 [email protected]

Pulp & Forest Products Bruno Mendonça Brazil 5511-3012-5759 [email protected] Felipe Reis Sector Head 5511-3012-5758 [email protected]

Renan Manda Brazil 5511-3012-6535 [email protected] Renato Maruichi, CFA Brazil 5511-3553-7149 [email protected]

Alberto Ariztia Chile 5622-336-3359 [email protected] Alberto Ariztia Chile 5622-336-3359 [email protected]

Toe Matsumura Mexico 5255-5257-8172 [email protected] Retail & Consumer Goods João Mamede Sector Head 5511-3553-0699 [email protected]

Education Andres Soto Andean 1-212-407-0976 [email protected]

Bruno Giardino, CFA Sector Head 5511-3012-5914 [email protected] Ronaldo Kasinsky Brazil 5511-3553-2396 [email protected]

Daniel Gewehr Brazil 5511-3012-5787 [email protected] Jessica Bessa Brazil 5511-3553-9602 [email protected]

Financial Services Nicolas Villarreal Chile 5622-336-3358 [email protected]

Boris Molina Sector Head 1-212-350-3977 [email protected] Reinaldo Santana Mexico 5255-5269-2102 [email protected]

Catalina Araya New York 1-212-297-1367 [email protected] Telecom, Media & Technology

Henrique Navarro Brazil 5511-30c12-5756

[email protected] Valder Nogueira Sector Head 5511-3012-5747 [email protected]

Renata Cabral Brazil 5511-3012-5731 [email protected] Walter Chiarvesio Argentina 5411-4341-1564 [email protected]

Nicolás Schild Chile 5622-336-3361 [email protected] Bruno Mendonça Brazil 5511-3012-5759 [email protected]

Food & Beverage Alberto Ariztia Chile 5622-336-3359 [email protected]

Luis Miranda, CFA Sector Head 5255-5269-1926 [email protected] Transportation

Andres Soto Andean 1-212-407-0976 [email protected] Pedro Balcão Reis Sector Head 5511-3012-5765 [email protected]

João Mamede Brazil 5511-3553-0699 [email protected] Bruno Amorim Sector Head 5511-3012-6016 [email protected]

Ronaldo Kasinsky Brazil 5511-3553-2396 [email protected] Francisco Errandonea Chile 5622-336-3357 [email protected]

Jessica Bessa Brazil 5511-3553-9602 [email protected] Ana Reynal, CFA Mexico 5255-5269-1900 [email protected]

Matias Duarte Chile 5622-336-3423 [email protected] Ulises Argote Bolio Mexico 5255- 5269-1904 [email protected]

Healthcare Utilities

Bruno Giardino, CFA Sector Head 5511-3012-5914 [email protected] Maria Carolina Carneiro

Sector Head 5511-3012-6682 [email protected]

Daniel Gewehr Brazil 5511-3012-5787 [email protected] Walter Chiarvesio Argentina 5411-4341-1564 [email protected]

Matias Duarte Chile 5622-336-3423 [email protected] Nicolás Schild Chile 5622-336-3361 [email protected]

Thiago Silva Brazil 5511-3012-6016 [email protected]

Andre Sampaio Brazil 5511-3553-7426 [email protected]

Fixed Income Research Quantitative

Aaron Holsberg Head of Credit 1-212-350-0978 [email protected] Daniel Gewehr Head Brazil 5511-3012-5787 [email protected]

Isidro Arrieta Credit - New York 1-212-407-0982 [email protected] Joao Noronha, CFA Brazil 5511-3012-5734 [email protected]

Alejandro Estevez-Breton Head of Rates 1-212-350-3917 [email protected]

Sales Sales Trading

Marcio Souza, Head of Equity Execution, New York

New York 1-212-756-9165 [email protected]

Victoria Santaella 1-212-350-3919 [email protected] Christopher Cohane, Head of Sales Trading 1-212-756-9242 [email protected]

Randall Smalley 1-212-350-3918 [email protected] Darrin Cummings 1-212-756-9241 [email protected]

Alexa Lynch 1-212-350-3918 [email protected] Maury Mischel 1-212-756-9166 [email protected]

Brazil Alejandro Chavez 1-212-756-9240 [email protected]

Carlos Prates 5511-3012-5305 [email protected] James Tallarico 1-212-756-9164 [email protected]

Mirella Borin 5511-3012-5303 [email protected] Juan Lecaros 1-212-350-3659 [email protected]

Camila Machado 5511-3012-5302 [email protected] Brazil

Chile Fernando Sanchez, Head of Brazil Institutional Equities

Axel Timmermann 5622-320-0344 [email protected] 5511-3012-7022 [email protected]

Hong Kong Daniel Ciotti, Head of Trading – Brazil 5511-3012-6330 [email protected]

Geoffrey Knoell, CFA 852-3921-3080 [email protected] Cesar Tashiro 5511-3012-6330 [email protected]

London Vinicius Nogueira 5511-3012-6330 [email protected]

Fabio Faraggi 4420-7756-6602 [email protected] Vito Madio, Head of Sales Trading – Brazil 5511-3012-6330 [email protected]

Alex Pallin 4420-7756-6601 [email protected] Carlos Faria 5511-3012-6330 [email protected]

Roland Campbell 4420-7756-6608 [email protected]

Lucas Gonçalves 5511-3012-6330 [email protected]

Mexico Janaiara Bhergami 5511-3012-5360 [email protected]

Santiago Mosquera 5255-5269-8761 [email protected] London

Maria Lopez Tolentino 5255-5269-8760 [email protected] Benson O’Hara 4420-7756-6606 [email protected]

Program Trading – New York ETD- New York

Jason Nardella 1-212-756-9160 [email protected] Isaac Prada 1-212-756-9243 [email protected]

Michael Hill 1-212-756-9160 [email protected] Donna Sheehan 1-212-583-4635 [email protected]

Harley Evans 1-212-583-4607 [email protected]

Santander Research Available On… Santander: https://www.santander-center.com/globalresearch/_register.php FactSet: www. FactSet.Com Reuters Knowledge: http://knowledge.reuters.com

Bloomberg: SIEQ <Go> Capital iq: www.SPCapitaliq.Com Thomson One Analytics: http://Thomsononeim.com

mailto:[email protected]

















2014 Latin American Universe Book

Table of ContentsARGENTINA BRAZIL (CTD) BRAZIL (CTD) MEXICO Banco Macro 14 Fleury 114 Transmissao Paulista 216 Alfa 308 BBVA Frances 16 Fras-le 116 Triunfo 218 Alsea 310 Cresud 18 Gerdau 118 Ultrapar 220 America Movil 312 GF Galicia 20 Gol 120 Unicasa Móveis 222 Arca Continental 314 Irsa 22 Helbor 122 Usiminas 224 Asur 316 Siderar 24 HRT 124 Vale 226 Banorte 318 Telecom Argentina 26 Hypermarcas 126 Valid 228 Banregio 320 YPF SA 28 Iguatemi 128 Via Varejo 230 Bolsa MX de

322

BRAZIL IMC 130 WEG 232 Cemex 324 AES Tiete 30 Iochpe-Maxion 132 CHILE Chedraui 326 ALL 32 Itausa 134 AES Gener 234 Coca-Cola FEMSA 328 Alupar 34 Itaú Unibanco 136 AFP Habitat 236 Comerci 330 AmBev 36 JSL 138 Aguas Andinas 238 FEMSA 332 Arteris 38 Klabin 140 Andina 240 Fibra Inn 334 B2W 40 Light 142 Banco de Chile 242 Fibra Uno 336 Banco do Brasil 42 Linx 144 BCI 244 GAP 338 Banco Pine 44 Localiza 146 CAP 246 Genomma Lab 340 BB Seguridade 46 Lojas Americanas 148 CCU 248 Gentera 342 BM&F Bovespa 48 Lojas Renner 150 Cencosud 250 GF Inbursa 344 BR Malls 50 Magnesita 152 CMPC 252 Gruma 346 BR Properties 52 Mahle Metal Leve 154 Colbun 254 Grupo Bimbo 348 Bradesco 54 Marcopolo 156 Concha y Toro 256 Grupo Famsa 350 Brasil Foods 56 MRV Engenharia 158 Copec 258 Grupo Herdez 352 Brasil Insurance 58 Multiplan 160 CorpBanca 260 Grupo Lala 354 Braskem 60 Multiplus 162 E-CL 262 Grupo Sanborns 356 CBD 62 Natura 164 Endesa Chile 264 ICA 358 CCR 64 OdontoPrev 166 Enersis 266 IEnova 360 Cemig 66 PDG Realty 168 Entel 268 Kimberly-Clark 362 Cesp 68 Petrobras 170 Falabella 270 Liverpool 364 Cetip 70 Porto Seguro 172 IAM 272 Mexichem 366 Cia. Hering 72 Positivo 174 Inversiones la

274 OHL Mexico 368

Cielo 74 Qualicorp 176 LATAM Airlines 276 OMA 370 Comgas 76 Queiroz Galvão 178 Parque Arauco 278 PINFRA 372 Copasa 78 Raia Drogasil 180 Ripley 280 Soriana 374 Copel 80 Randon 182 Sonda 282 Sports World 376 Cosan Energia 82 Renova Energia 184 SQM 284 Televisa 378 Cosan Limited 84 Rodobens 186 COLOMBIA Volaris 380 CPFL Energia 86 Romi 188 Almacenes Exito 286 Walmex 382 CSN 88 Sabesp 190 Bancolombia 288 PERU Cyrela BZ Realty 90 Santos Brasil 192 Cementos Argos 290 Alicorp 384 DASA 92 São Martinho 194 Cemex LatAm Holdings 292 Cementos 386 Duratex 94 Saraiva 196 Davivienda 294 Credicorp 388 Ecorodovias 96 Smiles 198 Ecopetrol 296 Intercorp 390 Eletrobras 98 Sul America 200 Grupo Argos 298 MULTINATIONAL Eletropaulo 100 Suzano 202 Grupo Aval 300 Copa Holdings 392 Embraer 102 TAESA 204 Grupo Nutresa 302 Tenaris 394 Energias do Brasil 104 Tecnisa 206 Grupo Sura 304 Ternium 396 Equatorial 106 Tegma 208 Pacific Rubiales 306 VALUATION &

398

Even 108 Telefonica Brasil 210 EZTec 110 Totvs 212 Fibria 112 Tractebel 214

3


Welcome to the “Bottom-Up World” Jesús Gómez Stefano Rizzi Head of LatAm Research, Strategy LatAm Equity Strategist +1-212-350-3992 | [email protected] +1-212-350-3979 | [email protected]

We are pleased to present this year’s edition of our LatAm Universe Book, which once again should prove to be a

useful tool in helping investors make fruitful investment decisions and navigate our flagship LatAm conference. This

report, containing 192 companies under our coverage, was made possible thanks to our Latin American research

teams, located in Brazil, Mexico, Chile, and Argentina, as well as in New York.

Stock picking will be more critical than ever in 2015 since the top-down environment for emerging markets in

general, and Latin America in particular, remains challenging and complex given various global macro

variables. Investing in emerging markets has never been an easy task. For several years prior to 2008, it seemed that

the battle between growth and risk had been won by growth; however, in the last four years, risk has moved to the

forefront, leading to a more defensive investment stance.

Important external factors for Latin America include the following: (1) The evolution of monetary policy in the

U.S., particularly the way the long end of the curve, will incorporate the first increases in interest rates from the U.S.

Federal Reserve. Quantitative easing in Europe and Japan coupled with deflation should anchor 10-year rates below

3% by year-end 2015, in our view, which, when combined with an uptick in global growth, is supportive for LatAm. (2)

Stability in oil and commodity prices. (3) A more favorable flow of funds as investors continue to search for higher

yields. (4) The GDP growth gap between emerging and developed markets increasing once more (or at least

stabilizing after a few years of narrowing). (5) Meeting both GDP and earnings expectations. Our Economics Team

projects GDP growth of 1.7% in 2015 and 2.9% in 2016. These numbers might seem low for an emerging market

region, but note the expected acceleration in GDP growth (+0.5% in 2015 and +1.2% in 2016) and our expectations

that most of the economies in Latin America will resume growth above 4.0% in 2016 with the exception of Brazil, where

the adjustment process underway is likely to continue for longer.

We anticipate that the second half of 2015 will bring a clearer picture to the above key variables and believe

that financial markets have already incorporated a good amount of the uncertainties surrounding these

variables. After four years of underperformance, Latin American equity markets in U.S. dollars are trading in relative

terms at lower levels than those reached in the middle of the Great Financial Crisis in the latter part of 2008.

Furthermore, structural themes underpinning the superior growth dynamics of Latin America are still present: the

growing middle class, rebound in the investment cycle, the urbanization of emerging markets, stable and orthodox

monetary and economic policies in most of the countries, lower levels of public and private debt, etc. We believe that

these themes should provide greater secular growth for Latin America in the years to come, but that financial markets

seem stubbornly focused on the short-term challenges rather than on long-term fundamentals.

The combination of low interest rates, light investor positioning, attractive valuations in U.S. dollar terms, acceleration

of adjustment in the region’s imbalances and uptick in global growth should produce attractive investment opportunities

in our region. Our LatAm Universe Book, which has helped investors navigate turbulent waters for nearly two decades,

should again prove valuable in current market conditions.

5


CHANGES TO RATINGS AND TARGET PRICES

The Universe Book contains our changes in ratings and target prices for our LatAm

universe of coverage. In the figures that follow, we outline the most actionable changes

(upgrades and downgrades), highlight the investment cases for selected stocks based on

their significance, and lastly outline all the changes in ratings and target prices for our

LatAm universe of coverage.

Figure 1. Actionable Changes in Ratings (Upgrades and Downgrades)

UPGRADES DOWNGRADES To Buy To Hold To Hold To Underperform Alfa Eletropaulo AES Gener BCI Banregio Light AFP Habitat PDG Realty Cementos Pacasmayo Sabesp Andina Siderar E-CL Bancolombia Embraer Banorte Gerdau Cyrela Brazil Realty GF Galicia Grupo Aval GF Inbursa Helbor Gol MRV Engenharia Iochpe Maxion Smiles Irsa TAESA Tegma Tecnisa

Tenaris

Transmissao Paulista Source: Santander estimates.

6

Figure 2. Selected Upgrades to Buy

Company Investment Case

Alfa

We believe that Alfa's weak performance at the end of 2014 was based primarily on the oil price decline and dilutionexpected from the announced follow-on.

We believe that current prices offer an attractive entry point and that value from the expected IPO of Sigma andNemak could be unlocked.

Cementos

Pacasmayo

We believe that the company is well positioned to benefit from the development of infrastructure projects in Peruand, more broadly speaking, from the expected acceleration in the Peruvian economy in 2015.

Profitability in Peru's cement industry is supported by this market's structure, which is highly concentrated on theoffer side (only three large producers in the country), and dispersed on the demand side (DIY segment represents55% of company sales). This helps Cementos Pacasmayo's sustain pricing power, translating into superior levels ofprofitability, in our view.

E-CL In the last few months, the upside risks for E-CL have materialized. The new regulated contract signed by E-CL in

December 2014 allows the company to build the IEM coal project, significantly increase the load factor of current gasand coal facilities, and enter the SIC market, which has the main consumption centers.

Embraer

We believe Embraer continues to have a strong delivery story, as evidenced by a new all-time record backlog,reaching US$22 billion in 3Q14 (from a historical low of US$12.5 billion in 4Q12).

Embraer benefits from three important trends: (i) the continuing depreciation of the BRL, which our economistscontinue to see as overvalued; (ii) a falling jet fuel price that should boost commercial orders; and (iii) a strong U.S.economy, representing 64% of 9M14 commercial revenue. On our estimates, ERJ trades at a ~14x P/E for 2015E,which is in-line with the historical average but which could decline if the BRL depreciates more than we estimate

Gerdau In spite of the lackluster economic scenario for Brazil in the near future, we think Gerdau continues to be the best

option for investing in the Brazil steel space, given (1) its positive exposure to the U.S. market, at least mitigating theweakness in Brazil operations, and (2) its lower exposure to iron ore as a business line relative to its main peers.

GF Galicia

We are upgrading GGAL to Buy due to its more attractive valuation compared to Argentine peers following its YoYunderperformance. We continue to believe that short-term catalysts for Argentine banks remain a top-down re-ratingleading to lower country risk.

We think that GGAL’s universal banking franchise is well positioned to take advantage of a new economic andpolitical cycle after 2015. The stock trades at an adjusted P/BV of 1.8x, while our YE2015 target valuation is 2.5x, stillat a discount to Banco Macro and BBVA Frances.

GF Inbursa

Inbursa's entry into retail banking should kick into high gear with the new JV with Walmex, in our view. We believethat the deal will allow Inbursa to overcome its key strategic disadvantage (lack of distribution points) by multiplyingthe capacity of Inbursa's sales force to reach potential new clients.

We believe that the shift in the business mix toward retail banking will allow Inbursa to start to deploy its surpluscapital at higher rates of return on capital, which we now expect to increase to the low 20s% from our previousestimate of ~17%.

Gol

Oil prices (Brent) declined ~50% since June and we believe this will result in significant upside for the airlines sector,as 35-41% of its costs are jet fuel related. Moreover, we continue to highlight Brazilian sector players' strategy ofrationalizing capacity in order to improve unit revenue (PRASK). In our view, the recent BRL depreciation (~15% in2014) will pressure costs but will not offset the jet fuel cost improvement.

With the stock trading at ~7.5x 2015E EV/EBITDAR, we believe the current stock price does not reflect theprofitability improvement we forecast for 2015.

Iochpe Maxion

We are upgrading MYPK3 to Buy, following its -53% share performance in 2014, which leads to a DCF upside of47% with an attractive 2015E FV/EBITDA of 4.9x (close to historical lows).

We believe that MYPK3 offers investors (1) exposure to the global automotive market, through its leadership in thewheels (globally) and chassis (in the Americas) segments; and (2) indirect exposure to Brazilian infrastructure growth(wheels and chassis for heavy vehicles) and railway equipment (~85% of the transportation matrix).

Source: Santander.

7


Figure 3. Selected Downgrades to Hold/Underperform

Company Investment Case

Andina

We are downgrading Andina to Hold from Buy due to (1) a weak economic outlook, with our forecast of decliningvolume in Argentina, Chile and Paraguay; and (2) limited visibility on operating improvements in Chile and Brazil.However, in our view, the current valuation already incorporates this weak outlook, thereby limiting potentialdownside to the stock.

Bancolombia We have downgraded our rating on Bancolombia due to the impact of the recently enacted tax reform on growth, as

well as the profitability of the bank. We expect the tax burden to persist over time, given the fiscal headwinds fromlower oil prices, infrastructure investment needs and the potential costs of the peace with FARC.

Banorte We believe that recent changes in the leadership of Banorte increase corporate governance and execution risks; as

such, we prefer to remain cautious on the stock.

BCI

We are downgrading BCI to Underperform, as we expect weak operating trends for 2015, as well as some overhangin the shares due to the capital increase required to acquire CNB of Florida.

From a top-down view, we are not encouraged about Chile’s current economic outlook, given slowdowns in bothmining and non-mining investments, political uncertainty, and potential uncertainty from the upcoming labor reform.

Cyrela Brazil

Realty

Despite its low leverage, above-average execution, and decent share-buyback program, we believe Cyrela's size(> R$5 billion launches) becomes a burden amid the still tough economic scenario ahead, limiting its flexibility toquickly improve profitability and to justify additional multiple expansion.

Grupo Aval We are cutting our earnings estimates for 2015 and 2016 by around 15% due to higher taxation, expectations of only

one rate increase in Colombia toward the end of 2015, still strong competitive pressures in the Colombian bankingindustry and slower loan growth estimates.

TAESA

We maintain a favorable view of TAESA. The company has strong cash generation, good management, financialdiscipline, high predictability, inflation protection, low regulatory risk, operating efficiency, and high leverage, as wellas a sound organic and inorganic growth track record, in our view. However, the recent stock price rally reduced theattractiveness of the company’s real IRR, and, therefore, we downgraded our rating to Hold from Buy.

Transmissao

Paulista

We continue to believe CTEEP has stable revenue and solid cash flow generation, and we believe the main triggerfor the stock will be Aneel's forthcoming opinion in relation to RBSE receivables. We see upside risk for ourestimates if the final RBSE amount is higher than R$4.1 billion, and we believe the current stock price reflects areceivable close to our estimates. However, the stock price rally during 2014 limits the upside and IRR, andtherefore, we are downgrading our rating to Hold from Buy.

Source: Santander.

8

Inv. Code YE2015 Target Price (LC)

Company Sector Ticker Current Previous Current Previous Argentina

Figure 4. Rating and Target Price Changes for Our LatAm Universe of Coverage

Source: Santander.

Banco Macro Financial Services BMA US B B 55.00 55.00 BBVA Frances Financial Services BFR US H H 16.00 15.00 Cresud Cement, Construction, Infra & RE CRESY US B B 19.00 19.90 GF Galicia Financial Services GGAL US B Uperf 20.00 15.50 Irsa Cement, Construction, Infra & RE IRS US B H 21.60 22.90 Siderar Metals & Mining ERAR AR Uperf H 6.45 5.19 Telecom Argentina Telecom, Media & Technology TEO US Uperf Uperf 19.50 17.40 YPF SA Oil, Gas & Petrochemicals YPF US B B 52.00 60.00 Brazil AES Tiete Utilities GETI4 BZ H H 19.40 19.60 ALL Transportation ALLL3 BZ H H 6.00 7.00 Alupar Utilities ALUP11 BZ B B 21.17 20.07 B2W Digital Retail & Consumer Goods BTOW3 BZ H H 26.00 31.00 Banco do Brasil Financial Services BBAS3 BZ B B 30.00 28.00 Banco Pine Financial Services PINE4 BZ B B 7.20 13.00 BM&F Bovespa Financial Services BVMF3 BZ B B 12.30 11.70 BR Properties Cement, Construction, Infra & RE BRPR3 BZ H H 11.50 16.90 Bradesco Financial Services BBDC4 BZ B B 40.50 40.00 Brasil Insurance Insurance Services BRIN3 BZ B B 7.70 19.30 CCR Transportation CCRO3 BZ Uperf Uperf 14.00 15.00 Cemig Utilities CMIG4 BZ H H 13.80 24.50 Cesp Utilities CESP6 BZ Uperf Uperf 23.67 24.12 Cetip Financial Services CTIP3 BZ H H 36.00 33.80 Cia Hering Retail & Consumer Goods HGTX3 BZ H H 23.00 27.00 Comgas Utilities CGAS5 BZ H H 57.02 63.07 Copasa Utilities CSMG3 BZ H H 27.90 42.34 Copel Utilities CPLE6 BZ B B 44.36 44.36 Cosan Limited Agribusiness CZZ US B B 12.30 16.30 CPFL Energia Utilities CPFE3 BZ B B 23.00 23.20 CSN Metals & Mining CSNA3 BZ Uperf Uperf 5.00 9.00 Cyrela Brazil Realty Cement, Construction, Infra & RE CYRE3 BZ H B 12.40 22.00 DASA Health Care DASA3 BZ Uperf Uperf 10.00 15.00 Duratex Pulp & Forest Products DTEX3 BZ H H 8.50 9.50 Eletrobras Utilities ELET6 BZ H Under Review 8.49 8.49 Eletropaulo Utilities ELPL4 BZ H Uperf 9.88 9.47 Embraer Transportation ERJ US B H 43.00 40.00 Energias do Brasil Utilities ENBR3 BZ B B 12.10 12.30 Even Cement, Construction, Infra & RE EVEN3 BZ B B 6.80 12.40 EZTec Cement, Construction, Infra & RE EZTC3 BZ B B 27.00 35.80 Fleury Health Care FLRY3 BZ H H 18.00 21.00 Gerdau Metals & Mining GGBR4 BZ B H 16.00 16.00 Gol Transportation GOLL4 BZ B H 18.00 14.00 Helbor Cement, Construction, Infra & RE HBOR3 BZ H B 5.65 11.20 HRT Oil, Gas & Petrochemicals HRTP3 BZ Uperf Uperf 4.00 7.30 Hypermarcas Retail & Consumer Goods HYPE3 BZ H H 18.00 22.00

9



Company Sector Ticker Current Previous Current Previous Brazil (continued)

Figure 4. Rating and Target Price Changes for Our LatAm Universe of Coverage (continued)

IMC Retail & Consumer Goods IMCH3 BZ H H 13.00 23.00 Iochpe Maxion Conglomerates & Industrials MYPK3 BZ B H 17.50 22.50 Itaú Unibanco Financial Services ITUB4 BZ B B 40.50 37.27 Itausa Investment Services ITSA4 BZ B B 11.90 12.20 JSL Transportation JSLG3 BZ H H 15.00 18.00 Light Utilities LIGT3 BZ H Uperf 20.13 21.66 Linx Telecom, Media & Technology LINX3 BZ H H 57.00 49.00 Localiza Transportation RENT3 BZ H H 38.00 37.00 Lojas Americanas Retail & Consumer Goods LAME4 BZ B B 21.00 19.00 Lojas Renner Retail & Consumer Goods LREN3 BZ H H 83.00 79.00 Magnesita Metals & Mining MAGG3 BZ H H 2.40 4.70 Mahle Metal Leve Conglomerates & Industrials LEVE3 BZ B B 25.00 27.00 MRV Engenharia Cement, Construction, Infra & RE MRVE3 BZ H B 8.50 13.10 Multiplus Financial Services MPLU3 BZ B B 39.00 55.50 Natura Retail & Consumer Goods NATU3 BZ Uperf Uperf 33.00 45.00 PDG Realty Cement, Construction, Infra & RE PDGR3 BZ Uperf H 0.90 1.95 Petrobras Oil, Gas & Petrochemicals PBR US H H 8.20 11.20 Porto Seguro Financial Services PSSA3 BZ H H 34.00 32.80 Positivo Informatica Telecom, Media & Technology POSI3 BZ B B 3.20 1.57 Qualicorp Health Care QUAL3 BZ B B 33.00 28.00 Queiroz Galvão E&P Oil, Gas & Petrochemicals QGEP3 BZ B B 11.00 13.00 Raia Drogasil Retail & Consumer Goods RADL3 BZ H H 28.00 22.00 Randon Conglomerates & Industrials RAPT4 BZ B B 8.00 8.50 Renova Energia Utilities RNEW11 BZ B B 60.63 62.76 Rodobens Cement, Construction, Infra & RE RDNI3 BZ H H 10.40 16.50 Romi Conglomerates & Industrials ROMI3 BZ B B 5.50 7.00 Sabesp Utilities SBSP3 BZ H Uperf 19.51 24.68 Santos Brasil Transportation STBP11 BZ Uperf Uperf 16.00 17.00 São Martinho Agribusiness SMTO3 BZ B B 43.50 34.00 Saraiva Retail & Consumer Goods SLED4 BZ B B 12.00 38.00 Smiles Financial Services SMLE3 BZ H B 49.00 49.00 Suzano Pulp & Forest Products SUZB5 BZ H H 10.50 10.50 TAESA Utilities TAEE11 BZ H B 19.83 21.10 Tecnisa Cement, Construction, Infra & RE TCSA3 BZ H B 4.20 10.50 Tegma Transportation TGMA3 BZ B H 19.00 26.00 Totvs Telecom, Media & Technology TOTS3 BZ B B 42.00 45.50 Tractebel Utilities TBLE3 BZ H H 37.85 37.68 Transmissao Paulista Utilities TRPL4 BZ H B 39.83 31.74 Triunfo Transportation TPIS3 BZ H H 8.00 10.00 Ultrapar Oil, Gas & Petrochemicals UGP US B B 26.00 29.40 Unicasa Móveis Retail & Consumer Goods UCAS3 BZ Uperf Uperf 2.50 4.00 Vale Metals & Mining VALE US H H 8.00 10.50 Valid Financial Services VLID3 BZ B B 47.00 46.30WEG Conglomerates & Industrials WEGE3 BZ H H 31.50 29.50 Source: Santander.

10


Company Sector Ticker Current Previous Current Previous Chile

Figure 4. Rating & Target Price Changes for Our LatAm Universe of Coverage (continued)

Source: Santander.

AES Gener Utilities AESGENER CI H B 360.00 350.00 AFP Habitat Financial Services HABITAT CI H B 965.00 820.00 Aguas Andinas Utilities AGUAS/A CI H H 390.00 382.00 Andina Food & Beverage ANDINAB CI H B 1,900.00 2,560.00 Banco de Chile Financial Services CHILE CI H H 80.00 85.00 BCI Financial Services BCI CI Uperf B 31,000.00 33,500.00 CCU Food & Beverage CCU CI H H 6,250.00 7,000.00 Cencosud Retail & Consumer Goods CENCOSUD CI H H 1,690.00 2,170.00 CMPC Pulp & Forest Products CMPC CI H H 1,699.80 1,500.00 Colbun Utilities COLBUN CI B B 195.00 162.00 Concha y Toro Food & Beverage CONCHA CI H H 1,270.00 1,260.00 Copec Pulp & Forest Products COPEC CI B B 8,099.56 8,200.00 CorpBanca Financial Services CORPBANC CI B B 10.00 8.50 E-CL Utilities ECL CI B H 1,115.00 780.00 Endesa Chile Utilities EOC US B B 53.70 55.80 Enersis Utilities ENI US B B 19.20 19.22 Entel Telecom, Media & Technology ENTEL CI H H 7,000.00 7,600.00 IAM Utilities IAM CI H H 1,040.00 1,025.00 Inv. La Construcción Health Care ILC CI B B 8,250.00 8,900.00 LATAM Airlines Transportation LFL US H H 13.20 18.00 Parque Arauco Cement, Construction, Infra & RE PARAUCO CI B B 1,499.82 1,200.00 Ripley Retail & Consumer Goods RIPLEY CI B B 395.00 515.00 Sonda Telecom, Media & Technology SONDA CI H H 1,570.00 1,400.00 SQM Metals & Mining SQM US Uperf Uperf 23.42 22.61 Colombia Almacenes Exito Retail & Consumer Goods EXITO CB H H 31,000.00 31,500.00 Bancolombia Financial Services PFBCOLO CB H B 31,000.00 30,700.00 Cementos Argos Cement, Construction, Infra & RE PFCEMARG CB H H 10,500.00 11,000.00 Davivienda Financial Services PFDAVVND CB B B 33,500.00 29,000.00 Ecopetrol Oil, Gas & Petrochemicals EC US H H 20.00 39.00 Grupo Argos Conglomerates & Industrials GRUPOARG CB H H 23,200.00 22,700.00 Grupo Aval Financial Services PFAVAL CB H B 1,400.00 1,550.00 Grupo Nutresa Food & Beverage NUTRESA CB H H 30,000.00 32,500.00 Grupo Sura Investment Services PFGRUPSU CB B B 47,250.00 43,750.00 Pacific Rubiales Oil, Gas & Petrochemicals PRE CN H H 8.60 11.00 Mexico Alfa Conglomerates & Industrials ALFAA MM B H 40.00 42.00 America Movil Telecom, Media & Technology AMX US H H 21.71 24.60 Arca Continental Food & Beverage AC* MM H H 102.00 87.00 Asur Transportation ASURB MM H H 217.00 174.00 Banorte Financial Services GFNORTEO MM H B 90.00 107.50 Banregio Financial Services GFREGIO MM B Uperf 86.00 70.00 Bolsa Mexicana Financial Services BOLSAA MM H H 28.00 32.00 Cemex Cement, Construction, Infra & RE CX US B B 15.38 15.50 Chedraui Retail & Consumer Goods CHDRAUIB MM H H 48.00 51.00 Coca-Cola FEMSA Food & Beverage KOFL MM H H 148.00 50.60 Comerci Retail & Consumer Goods COMERUBC MM Uperf Uperf 50.00 52.00 FEMSA Food & Beverage FEMSAUBD MM B B 150.00 140.00 Fibra Inn Cement, Construction, Infra & RE FINN13 MM B B 22.00 21.00 GAP Transportation GAPB MM B B 112.00 79.00

11



Company Sector Ticker Current Previous Current Previous Mexico (Continued)

Figure 4. Rating & Target Price Changes for Our LatAm Universe of Coverage (continued)

Source: Santander.

Genomma Lab Health Care LABB MM B B 40.00 50.00 Gentera Financial Services GENTERA* MM B B 35.00 30.00 GF Inbursa Financial Services GFINBURO MM B Uperf 43.00 31.00 Gruma Food & Beverage GRUMAB MM H H 173.00 170.00 Grupo Bimbo Food & Beverage BIMBOA MM H H 44.00 40.00 Grupo Famsa Retail & Consumer Goods GFAMSAA MM H H 13.00 19.00 Grupo Herdez Food & Beverage HERDEZ* MM H H 40.00 42.00 ICA Cement, Construction, Infra & RE ICA* MM B B 32.00 39.00 IEnova Oil, Gas & Petrochemicals IENOVA* MM B B 90.00 92.00 Kimberly Clark Retail & Consumer Goods KIMBERA MM Uperf Uperf 33.00 37.00 Liverpool Retail & Consumer Goods LIVEPOLC MM B B 190.00 196.00 Mexichem Petrochemicals MEXCHEM* MM B B 65.94 66.00 OHL Mexico Cement, Construction, Infra & RE OHLMEX* MM B B 32.00 37.00 OMA Transportation OMAB MM B B 82.00 54.00 PINFRA Cement, Construction, Infra & RE PINFRA* MM B B 214.00 219.00 Soriana Retail & Consumer Goods SORIANAB MM H H 44.00 48.00 Sports World Retail & Consumer Goods SPORTS MM B B 30.50 23.00 Televisa Telecom, Media & Technology TLEVICPO MM H H 105.00 83.00 Volaris Transportation VLRS US B B 12.00 10.80 Walmex Retail & Consumer Goods WALMEXV MM H H 35.00 39.00 Peru Alicorp Food & Beverage ALICORC1 PE B B 8.90 9.80 Cementos Pacasmayo Cement, Construction, Infra & RE CPAC US B H 10.50 10.50 Credicorp Financial Services BAP US B B 188.00 165.00 Intercorp Financial Services IFS PE H H 33.00 34.00 Multinational Copa Holdings Transportation CPA US B B 130.00 174.00 Tenaris Oil, Gas & Petrochemicals TS US H B 35.00 56.50

12

COMPANY NOTES

13

2015 Latin American Universe Book LATIN AMERICAN

ARGENTINA—FINANCIAL SERVICES

BANCO MACRO BUY CURRENT PRICE: US$41.80

TARGET PRICE: US$55.00

Investment Case: We believe Banco Macro is the best-positioned bank to play the recovery of real profitability in Argentine banks, due to its strong distribution channels, low-risk lending operations, and strong capital base. We think Banco Macro should be able to deliver rates of adjusted ROE (return on capital employed) of approximately50% in the medium term, which, with the decline in inflation and country risk that we expect, should support multiple expansion. As such, we expect the adjusted P/BV to increase from 3.1x at current prices to 4.3x in 2015E, per our target price.

Outlook 2015: We believe that the new set of regulations introduced in 2014—including (1) a prohibition against holding FX hedging positions by more than 20% of regulatory capital, (2) controls on interest rates on both sides of the balance sheet, and (3) forced directed subsidized loans—will affect the bank’s capacity to increase earnings in real terms. In our view, holding excess liquidity in central bank bills (yielding a high 20s interest rate) is likely the only way to partially offset the negative effect of the above-mentioned measures. We expect BMA’s loan book to grow below 20% and deposits to increase in the low 20s, amid weak economic activity. However, we expect NPLs to remain stable below 2.0%. In addition, we expect net fees, labor costs, and administrative costs to grow in-line with inflation in the low 30s.

Looking beyond 2015: We believe that Argentine banks continue to have strong growth potential under macro normalization, which we expect with the next administration. Low credit penetration, at 15% of GDP, and a healthy financial system create a good starting point to reach 35-40% loan growth over a five- to seven-year period, with ROEs in the high 40s for Banco Macro, in our view.

Solid balance sheet: Banco Macro should sustain a CT1 capital ratio of approximately 20.0% under our estimate of fully loaded Basel III, which should allow it to sustain growth and bear risks better than its Argentine peers.

Boris Molina New York: Santander Investment Securities Inc. +1-212-350-3977 | [email protected]

Catalina Araya New York: Santander Investment Securities Inc. +1-212-297-1367 | [email protected]

Company Statistics

Price Performance (US$)

Sources: FactSet, Santander estimates and company reports.

Bloomberg BMA US / BMA ARCurrent Price (01/02/15) US$ 41.80 / Ar$ 50.70Target Price (YE 2015) US$ 55.00 / Ar$ 74.2052-Week Range (US$) 16.97 - 46.02Market Capitalization (US$ Mn) 2,485Float (%) 30.43-Mth Avg. Daily Vol (US$ Mn) 5.1Shares Outstanding - Mn 59

0

100

200

300

400

500

J-13 M-13 A-13 D-13 A-14 A-14 D-14

BMA US Merval

14

BANCO MACRO Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Banco Macro is one of the leading banks in Argentina, with the largest distribution network (428 branches) and a strong capital base, with a market share in loans of 7.9% and 5.6% in core deposits. From its origins as a wholesale bank, the company has expanded via acquisitions of smaller regional banks in areas with low penetration of financial products. The bank is focused on retail banking for low-to-middle income individuals, specializing in payroll lending, SMEs and servicing provincial governments. Its shares trade in the Buenos Aires Stock Exchange and in ADR form on the NYSE. Key Personnel: Jorge Horacio Brito (CEO and Chairman), Jorge Pablo Brito (CFO) and Jorge Scarinci (IRO) Web: www.macro.com.ar

Loan Portfolio, 2015E

Revenue Breakdown, 2015E

Shareholder Structure, Current

Sources for all charts and tables: Company reports and Santander estimates.

INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Interest Income 4,993 7,192 9,141 10,940 591 645 731 794NPL Provisions (540) (633) (683) (873) (64) (57) (55) (63)Adj Net Interest Income 4,453 6,559 8,458 10,067 527 588 677 731Non-Interest Income 3,272 4,841 5,660 7,532 388 434 453 547Total Operating Revenue 7,725 11,400 14,118 17,599 915 1,022 1,129 1,278Non-Interest Expense (4,014) (5,455) (7,375) (9,380) (475) (489) (590) (681)Profit Before Taxes 3,795 6,086 6,829 8,319 449 546 546 604Taxes (1,333) (2,220) (2,390) (2,911) (158) (199) (191) (211)Net Profit 2,444 3,851 4,405 5,365 289 345 352 390Adjusted Net Profit 2,262 3,478 3,553 4,385 268 312 284 318

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 12,860 11,857 14,816 18,397 1,465 1,030 1,098 1,308Securities 2,441 15,270 18,937 21,174 278 1,326 1,404 1,506Loans (net) 39,045 43,637 51,667 67,081 4,448 3,791 3,831 4,770Intangible Assets 344 328 302 283 39 28 22 20Total Assets 59,295 76,348 94,687 117,635 6,755 6,632 7,020 8,365Core Deposits 35,461 41,505 51,114 65,121 4,040 3,605 3,790 4,631Other Financial Liabilities 4,698 6,978 8,364 9,705 535 606 620 690Subordinated Debt 981 1,727 2,023 2,109 112 150 150 150Technical Provisions 0 0 0 0 0 0 0 0Equity 8,627 11,864 15,691 20,176 983 1,031 1,163 1,435Adjusted Equity 8,782 12,030 15,896 20,414 1,000 1,045 1,179 1,452

LOAN BOOK 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECompanies 14,571 15,424 18,516 24,976 1,660 1,340 1,373 1,776Total Consumer 22,143 25,905 30,357 38,473 2,523 2,250 2,251 2,736Mortgages 2,309 2,479 3,086 4,083 263 215 229 290Other Loans 640 640 640 640 73 56 47 45Gross Loans 39,663 44,449 52,599 68,172 4,519 3,861 3,900 4,848Loan Growth (%) 24.8 12.1 18.3 29.6 (3.4) (14.5) 1.0 24.3NPL 689 855 1,024 1,320 78 74 76 94Provisions (1,012) (1,188) (1,393) (1,716) (115) (103) (103) (122)

KEY RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENIM 10.02 11.98 13.05 12.52 10.02 11.98 13.05 12.52Risk Charge 1.74 1.92 1.95 1.94 1.74 1.92 1.95 1.94Operating Revenue / ATAs 14.32 16.19 16.72 16.91 14.32 16.19 16.72 16.91Cost / ATAs 7.44 7.75 8.74 9.01 7.44 7.75 8.74 9.01Adj Efficiency 49.3 46.7 49.8 50.5 49.3 46.7 49.8 50.5Effective Taxes 35.1 36.5 35.0 35.0 35.1 36.5 35.0 35.0Reported ROE (%) 33.9 37.7 32.2 30.3 33.9 37.7 32.2 30.3Adj ROE (%) 42.7 50.8 46.7 47.1 42.7 50.8 46.7 47.1NPL Ratio 1.74 1.92 1.95 1.94 1.74 1.92 1.95 1.94Adj NPL Ratio 2.77 2.92 2.83 2.72 2.77 2.92 2.83 2.72Loans / Total Assets 66.9 58.2 55.6 58.0 66.9 58.2 55.6 58.0Loans / Core Deposits 111.8 107.1 102.9 104.7 111.8 107.1 102.9 104.7RWA % Total Assets 91.1 87.4 83.5 86.4 91.1 87.4 83.5 86.4Core Tier I Ratio (%) 16.3 18.0 20.1 20.1 16.3 18.0 20.1 20.1Dividend Payout (%) 0.0 15.5 13.1 16.4 0.0 15.5 13.1 16.4

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EAdj. P/BV 1.7 3.5 2.7 1.9 1.8 3.5 3.1 2.3Adj. P/E 3.9 7.0 6.4 4.7 3.8 6.9 6.8 5.7Div Yield (%) (0.0) 2.7 2.7 4.1 (0.0) 2.1 1.9 2.6

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 4.11 6.48 7.41 9.02 4.87 5.81 5.93 6.55BVPS 14.51 19.95 26.39 33.93 16.53 17.33 19.57 24.13DPS 0.00 1.00 0.97 1.48 0.00 0.99 0.79 1.08Adj EPS 3.81 5.85 5.98 7.38 4.51 5.24 4.78 5.35Adj BVPS 14.77 20.23 26.74 34.33 16.83 17.58 19.82 24.42Surplus Capital per Share 6.13 8.39 12.33 16.00 6.98 7.29 9.14 11.37Unrealized Cap. Gains/Shr 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

US$Ar$

Companies35.2%

Mortgages5.9%

Personal Loans34.8%

Credit Cards17.6%

Other6.5%

NII59.9%

Trading7.0%

Fees32.8%

Others0.2%

Jorge Brito

19.9%

Delfin Ezequiel Carvallo18.8%

ANSES31.0%

Free Float30.4%

15



BBVA FRANCES HOLD CURRENT PRICE: US$13.48


RAISING YE2015 TARGET PRICE TO US$16.00 FROM US$15.00

Investment Case: We consider BBVA Frances to be the best-performing franchise in our universe of coverage, posting sound returns and possessing a robust track record in asset quality. However, for investors looking to play Argentina’s 2015 political cycle, we think BBVA Frances’s lower-than-peers stock liquidity and lofty relative valuation of 3.5x adjusted P/BV are large drawbacks, leading us to maintain our cautious stance on the stock.

Outlook 2015: We believe that the new set of regulations introduced in 2014—including (1) a prohibition against holding FX hedging positions by more than 20% of regulatory capital, (2) controls on interest rates on both sides of the balance sheet, and (3) forced directed subsidized loans—will affect the bank’s capacity to increase earnings in real terms. In our view, holding excess liquidity in central banks bills, which yield ~20%, could be the only way to partially offset the negative effect of the above-mentioned measures. We expect BFR’s loan book to grow below 20% and deposits to increase in the low 20s, amid weak economic activity. Nonetheless, NPLs should remain stable at ~1.0%, the lowest among Argentine banks. Net fees and operating costs should grow in-line with inflation in the low 30s, according to our estimates.

Looking beyond 2015: We expect Argentine banks to continue to have strong growth potential. In our view, low credit penetration at 15% of GDP and a healthy financial system are good starting points to reach 35-40% penetration in the next five to seven years, with adjusted ROEs reaching the high 30s.

Strong core funding base. The bank boasts a loan-to-deposit ratio of around 80%, which, in our view, represents an inflationary subsidy to shareholders, courtesy of the prevailing high inflation rates in Argentina. This has allowed BFR to partially offset the impact of punitive regulations on the adjusted profitability of the bank, in our opinion.



Company Statistics



Bloomberg BFR US / FRAN ARCurrent Price (01/02/15) US$ 13.48 / Ar$ 55.00Target Price (YE 2015) US$ 16.00 / Ar$ 71.8552-Week Range (US$) 5.56 - 15.26Market Capitalization (US$ Mn) 2,412Float (%) 16.73-Mth Avg. Daily Vol (US$ Mn) 2.9Shares Outstanding - Mn 179

0

100

200

300

400

500

J-13 M-13 A-13 D-13 A-14 A-14 D-14

BFR US Merval

16

BBVA FRANCES Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

BBVA Frances is one of Argentina’s leading financial institutions, with a market share of 7.1% in loans to the private sector and 5.3% in core deposits. The bank was acquired by BBVA in 1996, with the Spanish banking group currently owning approximately 75% of total capital. The bank focuses on corporate and SME lending and retail operations. The shares are listed on the Buenos Aires stock exchange and trade in ADR form in the NYSE. Key Personnel: Jorge Carlos Bledel (Chairman), Ricardo Enrique Moreno (CEO), Ignacio Sanz y Arcelus (CFO) and Cecilia Acuña (IRO) Web: www.bancofrances.com.ar





INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Interest Income 4,348 6,196 7,255 8,326 515 555 580 604NPL Provisions (454) (587) (695) (817) (54) (53) (56) (59)Adj Net Interest Income 3,895 5,609 6,560 7,509 461 503 525 545Non-Interest Income 3,221 4,642 6,090 7,645 382 416 487 555Total Operating Revenue 7,116 10,251 12,649 15,154 843 919 1,012 1,100Non-Interest Expense (3,889) (5,702) (7,498) (9,089) (461) (511) (600) (660)Profit Before Taxes 3,195 4,599 5,211 6,125 378 412 417 445Taxes (1,121) (1,590) (1,824) (2,144) (133) (143) (146) (156)Net Profit 2,019 2,907 3,291 3,884 239 261 263 282Adjusted Net Profit 1,971 2,539 2,786 3,311 233 228 223 240

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 12,882 15,514 18,979 23,570 1,468 1,348 1,407 1,676Securities 3,460 8,173 10,715 11,851 394 710 794 843Loans (net) 34,867 41,525 49,524 61,053 3,972 3,607 3,672 4,342Intangible Assets 121 143 141 145 14 12 10 10Total Assets 58,458 74,299 89,295 107,737 6,660 6,454 6,621 7,661Core Deposits 42,859 50,980 62,381 77,156 4,883 4,428 4,625 5,487Other Financial Liabilities 4,943 8,770 9,114 9,128 563 762 676 649Subordinated Debt 0 0 0 0 0 0 0 0Technical Provisions 0 0 0 0 0 0 0 0Equity 7,156 10,133 13,153 16,563 815 880 975 1,178Adjusted Equity 7,362 10,374 13,477 16,986 839 901 999 1,208

LOAN BOOK 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECompanies 16,674 20,321 23,319 27,808 1,900 1,765 1,729 1,977Total Consumer 16,908 20,657 25,766 32,699 1,926 1,794 1,910 2,325Mortgages 1,244 1,429 1,546 1,880 142 124 115 134Other Loans 41 57 64 74 5 5 5 5Gross Loans 34,867 42,463 50,695 62,461 3,972 3,689 3,759 4,442Loan Growth (%) 28.2 21.8 19.4 23.2 (0.7) (7.1) 1.9 18.2NPL 284 425 532 612 32 37 39 44Provisions (722) (938) (1,171) (1,408) (82) (82) (87) (100)




US$Ar$

Companies46.0%

Personal Loans14.8%

Credit Card27.6%

Car Loans8.5%

Others3.2%

NII51.9%

Trading11.1%

Fees35.3%

Others1.7%

BBVA75.4%

ANSES7.9%

Free Float16.7%

17


ARGENTINA—CEMENT, CONSTRUCTION, INFRA & RE

CRESUD BUY CURRENT PRICE: US$10.11

TARGET PRICE: US$19.00 LOWERING YE2015 TARGET PRICE TO US$19.00 FROM US$19.90

Investment Case: We think that IRSA will remain the main driver behind Creusud’s operating results. Despite still strong farm prices, we do not see much upside from agricultural operations in the short term, particularly given declining international grain prices. We believe that in the short term, the agricultural segment’s EBITDA depends on the sale of farms, which we find unpredictable at this point. Our Buy rating is predicated on Cresud’s strong discount vs. its NAV, especially relative to its controlled subsidiary IRSA (please see below).

Outlook 2015: We expect recurring adjusted EBITDA (excluding results from the sale of assets) to remain relatively flat YoY, with most of the contribution coming from IRSA. We forecast that the agricultural segment will post some improvement in results due to the sale of land, on which the company does not provide guidance in advance. Most of IRSA’s contribution is attributable to shopping malls, which could suffer a little due to the weak consumption environment. Also, Cresud’s bottom line could be hit by volatility stemming from IRSA’s financial positions in IDBD Holding in Israel.

A no brainer: Cresud a bargain compared to IRSA. At the current stock price, IRSA’s market cap stands at US$876 million, while Cresud’s 65% stake in IRSA is US$573 million, higher than current Cresud’s market cap of US$507 million.

Walter Chiarvesio* Argentina: Santander Rio Sociedad de Bolsa S.A. +5411-4341-1564 | [email protected]

Company Statistics



Bloomberg CRESY US / CRES ARCurrent Price (01/02/15) US$ 10.11 / Ar$ 12.50Target Price (YE 2015) US$ 19.00 / Ar$ 28.4052-Week Range (US$) 8.37 - 14.08Market Capitalization (US$ Mn) 507Float (%) 65.83-Mth Avg. Daily Vol (US$ Mn) 0.6Shares Outstanding - Mn 50

0

100

200

300

400

500

J-13 M-13 A-13 D-13 A-14 A-14 D-14

CRESY US Merval

18

CRESUD Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Cresud is a holding firm dedicated to agricultural and urban real estate asset management in Argentina, LatAm and US. In the agricultural segment, it has 1 million hectares of agricultural land under management in Argentina, Bolivia, Paraguay and Brazil through its subsidiary Brail Agro. Cresud operates in the urban real estate segment through its controlled company IRSA (65.5% stake), which has four lines of business: (1) shopping centers with a total GLA of 324,000 m2;(2) office rentals with a total GLA of 131,000 m2; (3) 3 hotels; (4) urban property developments and land reserves and (5) 30% stake in Banco Hipotecario. Key Personnel: Eduardo Elsztain (Chairman), Alejandro Elsztain (CEO), Matias Gaivironsky (CFO) and Santiago Donato (IR Head) Web: www.cresud.com.ar

Sales by Segment, 2013

EBITDA by Segment, 2013



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 3,975 5,801 7,581 9,317 696 758 712 1,070 YoY change (%) 23.9 45.9 30.7 22.9 0.1 8.9 (6.1) 50.3Gross Profit 584 1,123 1,308 3,090 102 147 123 355 YoY change (%) 2,889.7 92.3 16.5 136.2 2,313.5 43.5 (16.3) 188.9EBITDA 1,220 2,441 2,859 3,232 214 319 268 371 YoY change (%) (9.9) 100.2 17.1 13.1 (27.3) 49.3 (15.9) 38.3 As % of Revenue 30.7 42.1 37.7 34.7 30.7 42.1 37.7 34.7Operating Income 934 2,149 2,561 2,919 164 281 240 335 YoY change (%) (14.8) 130.0 19.2 14.0 (31.2) 71.6 (14.4) 39.4 As % of Revenue 23.5 37.0 33.8 31.3 23.5 37.0 33.8 31.3Financial Results (1,503) (2,008) (2,145) (1,688) (263) (263) (201) (194)Taxes 165 273 (83) (431) 29 36 (8) (49)Net Profit (377) (146) 332 800 (66) (19) 31 92 YoY change (%) (182.5) 61.3 n/m 140.9 (166.6) 71.1 n/m 194.6 As % of Revenue (9.5) (2.5) 4.4 8.6 (9.5) (2.5) 4.4 8.6

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 285 293 298 313 50 38 28 36Other Noncash Items 891 1,224 0 100 156 160 0 11Changes in Working Capital (93) (161) (176) (107) (16) (21) (17) (12)Operating Cash Flow 706 1,209 454 1,107 124 158 43 127Capital Expenditures (638) (238) (390) (429) (112) (31) (37) (49)Free Cash Flow 68 971 64 678 12 127 6 78Other Invest./(Divestments) - - - - - - - -Change in Debt 1,151 0 0 (1,000) 202 0 0 (115)Dividends (216) (172) (28) (332) (38) (22) (3) (38)Capital Increases/Other - - - - - - - -

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,340 2,570 3,386 3,590 206 292 271 730Current Assets 3,176 5,196 6,878 7,606 489 590 550 1,547Fixed Assets 6,398 5,827 5,827 5,827 984 662 466 1,185Total Assets 13,852 16,218 17,900 18,628 2,131 1,843 1,432 3,790Current Liabilities 3,245 4,016 4,892 4,583 499 456 391 932Long-Term Liabilities 6,158 6,132 6,874 5,538 947 697 550 1,127Shareholders' Equity 4,449 3,475 3,541 5,913 684 395 283 1,203Total Financial Debt 7,156 6,988 8,075 6,115 1,101 794 646 1,244ST Debt 1,908 2,223 2,569 1,946 294 253 206 396LT Debt 5,248 4,764 5,506 4,170 807 541 440 848

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 5,816 4,418 4,689 2,525 895 502 375 514Capital Employed 9,269 8,896 9,072 9,179 1,426 1,011 726 1,867Net Debt/EBITDA 4.8 1.8 1.6 0.8 4.2 1.6 1.4 1.4Net Debt/Equity 1.3 1.3 1.3 0.4 1.6 1.3 1.3 0.4Capex/Revenue (%) 16.0 4.1 5.1 4.6 16.0 4.1 5.1 4.6Int Cover (%) 2.1 2.6 2.4 2.5 2.1 2.6 2.4 2.5Dividend Payout (%) 47.2 (45.6) (19.0) 100.0 39.2 (30.8) (18.1) 99.5ROCE (%) 8.3 21.1 29.1 36.5 10.2 22.1 29.3 36.5ROE (%) (7.3) (3.7) 9.5 16.9 (7.4) (3.3) 9.5 16.9

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E - - 13.1 5.4 - - 16.3 5.5P/CE - - n/m 8.9 - - n/m 9.1FV/EBITDA 8.8 4.9 4.3 2.7 7.7 4.3 4.7 3.4FV/EBIT 11.5 5.5 4.8 3.0 10.1 4.9 5.2 3.7FV/Revenue 2.7 2.1 1.6 0.9 2.4 1.8 1.8 1.2P/BV 0.7 1.2 1.2 0.7 0.7 1.3 1.8 0.4FCF Yield (%) 2.1 22.7 1.5 15.6 2.4 25.1 1.2 15.3Div Yield (%) 6.6 4.0 0.6 7.7 7.5 4.4 0.5 7.5

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS (0.75) (0.29) 0.66 1.45 (0.88) (0.34) 0.77 1.86DPS 0.43 0.34 0.06 0.60 0.09 0.05 0.01 0.09BVPS 8.87 6.92 7.06 10.71 10.36 8.09 8.25 13.77

US$Ar$

Agricultural39.7%

Urban Real Estate60.3%

Agricultural-6.4%

Urban Real Estate106.4%

IFISA37.9%

Free Float62.1%

19



GF GALICIA BUY CURRENT PRICE: US$15.57

TARGET PRICE: US$20.00 UPGRADING RATING TO BUY FROM UNDERPERFORM RAISING YE2015 TARGET PRICE TO US$20.00 FROM US$15.50

Investment Case: We are upgrading GGAL to Buy due to its more attractive valuation compared to Argentine peers following its YoY underperformance. We continue to believe that short-term catalysts for Argentine banks remain a top-down re-rating leading to lower country risk. We think that GGAL’s universal banking franchise is well positioned to take advantage of a new economic and political cycle after 2015. The stock trades at an adjusted P/BV of 1.8x, while our YE2015 target valuation is 2.5x, still at a discount to Banco Macro and BBVA Frances.

Outlook 2015: We believe that a new set of regulations introduced in 2014—including (1) a prohibition against holding FX hedging positions by more than 20% of regulatory capital; (2) controls on interest rates on both side of the balance sheet; and (3) forced directed subsidized credits to investments—will affect the bank’s potential to increase net income in real terms. In our view, holding excess liquidity in central banks bills, which yield ~20%, should be the only way to partially offset the negative effect of abovementioned measures. We expect GGAL’s deposits to grow slightly faster than its loan book, amid weak economic activity. NPLs should increase 20 bps, according to our estimates. Also, we expect net fees, labor cost and administrative costs to grow in the low thirties (in line with inflation).

Looking beyond 2015: In our view, low credit penetration at 15% of GDP and a healthy financial system set a good starting point to reachpenetration of 35-40% in five to seven years, with ROEs in the mid-twenties for GF Galicia.

Dividends anyone? We believe that dividend payments by GGAL will remain constrained by regulatory pressures aimed at improving capitalization and curtailing FX pressures (on dividends paid to foreign shareholders). Nevertheless, we believe that over the next two to three years, GGAL could have a CT1 capital ratio high enough to resume regular dividend payments.



Company Statistics



Bloomberg GGAL US / GGAL ARCurrent Price (01/02/15) US$ 15.57 / Ar$ 18.65Target Price (YE 2015) US$ 20.00 / Ar$ 27.0052-Week Range (US$) 7.49 - 17.02Market Capitalization (US$ Mn) 1,933Float (%) 43.53-Mth Avg. Daily Vol (US$ Mn) 5.5Shares Outstanding - Mn 124

0

100

200

300

400

500

J-13 M-13 A-13 D-13 A-14 A-14 D-14

GGAL US Merval

20

GF GALICIA Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Grupo Financiero Galicia (GGAL) is one of the leading private financial groups in Argentina, with market share of approximately 7.7% in loans and 4.9% in core deposits. The bank has a strong position in credit cards, which represent 47% of total loans, largely thanks to its Tarjetas Regionales subsidiary, which has a strong presence outside the Greater Buenos Aires region where the core bank franchise has a presence. GGAL has a shareholding structure with dual voting rights, with the Escasany, Ayerza and Brown families controlling 32% of the capital and 64% of votes. The bank's shares trade in the Buenos Aires Stock Exchange and in ADR form on the NYSE. Key Personnel: Eduardo J. Escasany (Chairman), Pedro A. Richards (CEO), José Luis Gentile (CFO) and Pablo Firvida (IRO) Web: www.gfgsa.com

Loan Portfolio Breakdown, 2015E




INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Interest Income 6,908 8,984 11,487 14,609 818 805 919 1,061NPL Provisions (1,704) (2,469) (3,045) (3,514) (202) (221) (244) (255)Adj Net Interest Income 5,205 6,516 8,442 11,095 616 584 675 805Non-Interest Income 4,684 7,203 7,981 9,769 555 646 638 709Total Operating Revenue 9,889 13,718 16,423 20,864 1,171 1,230 1,314 1,515Non-Interest Expense (7,428) (9,294) (11,689) (14,229) (880) (833) (935) (1,033)Profit Before Taxes 3,264 5,663 6,347 8,733 387 508 508 634Taxes (1,232) (2,159) (2,482) (3,416) (146) (194) (199) (248)Net Profit 1,824 3,293 3,611 4,968 216 295 289 361Adjusted Net Profit 1,363 3,025 3,491 4,810 161 271 279 349

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 12,560 11,455 14,619 17,437 1,431 995 1,084 1,240Securities 3,987 11,602 14,209 17,854 454 1,008 1,053 1,270Loans (net) 55,292 68,500 84,750 108,919 6,299 5,950 6,284 7,745Intangible Assets 1,434 1,698 1,676 1,654 163 147 124 118Total Assets 83,156 106,404 130,309 163,747 9,473 9,243 9,661 11,644Core Deposits 48,666 63,227 79,787 95,428 5,544 5,492 5,916 6,786Other Financial Liabilities 19,333 21,372 24,382 36,886 2,202 1,857 1,808 2,623Subordinated Debt 1,656 3,454 4,046 4,219 189 300 300 300Technical Provisions 0 0 0 0 0 0 0 0Equity 6,947 10,201 13,746 18,642 791 886 1,019 1,326Adjusted Equity 6,220 9,319 13,003 17,871 709 810 964 1,271

LOAN BOOK 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECompanies 20,820 26,046 32,034 42,605 2,372 2,263 2,375 3,030Total Consumer 35,919 43,606 54,227 67,663 4,092 3,788 4,021 4,812Mortgages 1,803 1,918 2,682 3,926 205 167 199 279Other Loans 0 0 0 0 0 0 0 0Gross Loans 58,542 71,570 88,943 114,195 6,669 6,217 6,594 8,121Loan Growth (%) 30.6 22.3 24.3 28.4 1.2 (6.8) 6.1 23.1NPL 2,051 2,791 3,647 4,796 234 242 270 341Provisions (2,145) (3,070) (4,194) (5,276) (244) (267) (311) (375)



PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 1.47 2.65 2.91 4.00 1.74 2.38 2.33 2.91BVPS 5.60 8.22 11.07 15.02 6.38 7.14 8.21 10.68DPS 0.00 0.03 0.05 0.06 0.00 0.03 0.04 0.04Adj EPS 1.10 2.44 2.81 3.87 1.30 2.18 2.25 2.81Adj BVPS 5.01 7.51 10.47 14.40 5.71 6.52 7.77 10.24Surplus Capital per Share (3.00) (2.77) (2.42) (2.79) (3.42) (2.40) (1.79) (1.99)Unrealized Cap. Gains/Shr 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

US$Ar$

Companies34.6%

Personal Loans9.8%

Credit Cards50.2%

Others5.4%

NII51.4%

Trading4.9%

Fees42.3%

Other1.4%

EBA Holding 32.0%

ANSES 20.0%

Free Float48.0%

21


LATIN AMERICAN

22

ARGENTINA—CEMENT, CONSTRUCTION, INFRA & RE

IRSA BUY CURRENT PRICE: US$15.41


UPGRADING RATING TO BUY FROM HOLD LOWERING YE2015 TARGET PRICE TO US$21.60 FROM US$22.90

Investment Case: Although we lowered our YE2015 target price,

IRSA’s implied discount to NAV continues to be strong, providing

upside potential exceeding our Buy benchmark for Argentine stocks.

Irsa’s main cash generation asset, shopping malls, performed poorly

in 2014, and we expect that to continue in the short term due to weak

private consumption growth. Longer term, the segment may show

attractive potential due to GLA expansion, whose benefits may be

seen more clearly beyond 2015. We expect IRSA to sell office space

in 2015, taking advantage of good market prices and reducing its

GLA in the segment. In the international segment, IRSA may show

results volatility based on its investment in the Israeli holding IDBD,

whose stock fell more than 70% in the past six months, with a

potential impact on IRSA’s financial and net income lines.

Outlook 2015: We expect EBITDA to be maintained slightly above

US$200 million due to property sales, offsetting a still weak

performance in shopping centers based on revenue/GLA. The recent

inauguration of the Distrito Arcos mall, and the probable inauguration

of the Neuquén shopping mall in 2H15, should help the segment’s

EBITDA, in our view, by adding 24,000 m2 of GLA (+8.0%). We also

expect sales of office space to reduce recurring EBITDA from the

segment. All in, we expect adjusted EBITDA (excluding results from

investments) to reach US$187 million, +6.6% YoY. We expect

nonadjusted EBITDA to fall to more normal levels due to a strong

base of comparison in 2014 stemming from the sale of the Madison

building in New York. IDBD holding, in which IRSA invested US$150

million and may add an additional US$50 million due to future

purchases, could add volatility to net income at the financial results

level, in our view.

Walter Chiarvesio*

Argentina: Santander Rio Sociedad de Bolsa S.A.

+5411-4341-1564 | [email protected]

Company Statistics



Bloomberg IRS US / IRSA AR

Current Price (01/02/15) US$ 15.41 / Ar$ 17.50

Target Price (YE 2015) US$ 21.60 / Ar$ 32.40

52-Week Range (US$) 9.41 - 17.73

Market Capitalization (US$ Mn) 892

Float (%) 34.5

3-Mth Avg. Daily Vol (US$ Mn) 0.9

Shares Outstanding - Mn 58

0

100

200

300

400

500

J-13 M-13 A-13 D-13 A-14 A-14 D-14

IRS US Merval

23

IRSA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

IRSA is the largest and most diversified real estate company in Argentina. Its main assets are:

(1) shopping centers with a total GLA of approximately 324,000 m2; (2) premium office rentals with an approximated total GLA of 121,000 m2; (3) 3 hotels; (4) property developments and land reserves; (5) Real estate assets in US; and (6) 30% stake in Banco Hipotecario.

Key Personnel: Eduardo Elsztain (Chairman),

Eduardo Elsztain (CEO), Matias Gaivironsky (CFO) and Santiago Donato (Head IR) Web: www.irsa.com.ar





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016E

Total Revenue 2,475 3,285 4,310 5,227 443 399 414 600

YoY change (%) 29.4 32.7 31.2 21.3 5.5 (10.0) 3.7 45.0

Gross Profit 1,267 1,743 2,289 2,921 227 212 220 335

YoY change (%) 17.3 37.6 31.4 27.6 (4.4) (6.7) 3.9 52.5

EBITDA 1,269 2,342 2,494 2,930 227 284 240 336

YoY change (%) 13.7 84.5 6.5 17.5 (7.3) 25.1 (15.8) 40.5

As % of Revenue 51.3 71.3 57.9 56.0 51.3 71.3 57.9 56.0

Operating Income 1,043 2,142 2,304 2,734 187 260 221 314

YoY change (%) 13.6 105.3 7.6 18.7 (7.4) 39.2 (14.9) 41.9

As % of Revenue 42.1 65.2 53.5 52.3 42.1 65.2 53.5 52.3

Financial Results (1,047) (1,989) (1,373) (1,118) (188) (242) (132) (128)

Taxes (56) (109) (279) (566) (10) (13) (27) (65)

Net Profit 25 (587) 652 1,051 4 (71) 63 121

YoY change (%) (93.6) (2,445.4) n/m 61.2 (94.8) (1,690.4) n/m 92.8

As % of Revenue 1.0 (17.9) 15.1 20.1 1.0 (17.9) 15.1 20.1

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016E

Depreciation & Amortization 217 191 190 196 39 23 18 22

Other Noncash Items 692 1,335 20 24 124 162 2 3

Changes in Working Capital 33 127 231 179 6 15 22 21

Operating Cash Flow 976 1,075 1,093 1,450 175 131 105 166

Capital Expenditures (367) (1,910) (800) (600) (66) (232) (77) (69)

Free Cash Flow 609 (835) 293 850 109 (101) 28 98

Other Invest./(Divestments) - - - - - - - -

Change in Debt 952 448 10 0 171 54 1 0

Dividends (102) (327) (790) 195 (18) (40) (76) 22

Capital Increases/Other - - - - - - - -

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016E

Cash and Equivalents 473 1,264 776 1,431 73 144 62 291

Current Assets 1,181 2,043 1,633 2,416 182 232 131 491

Fixed Assets 4,188 3,613 4,022 4,426 644 411 322 901

Total Assets 8,739 9,690 10,560 12,182 1,344 1,101 845 2,478

Current Liabilities 1,671 2,015 2,597 1,690 257 229 208 344

Long-Term Liabilities 4,171 4,523 4,767 2,759 642 514 381 561

Shareholders' Equity 2,508 2,472 2,516 7,053 386 281 201 1,435

Total Financial Debt 4,296 4,795 5,312 2,089 661 545 425 425

ST Debt 873 1,207 1,714 674 134 137 137 137

LT Debt 3,423 3,588 3,598 1,415 527 408 288 288

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016E

Net Debt 3,823 3,531 4,536 658 588 401 363 134

Capital Employed 7,591 7,774 9,158 9,946 1,168 883 733 2,023

Net Debt/EBITDA 3.0 1.5 1.8 0.2 2.6 1.4 1.5 0.4

Net Debt/Equity 1.5 1.4 1.8 0.1 1.8 1.5 1.8 0.1

Capex/Revenue (%) 14.8 58.1 18.6 11.5 14.8 58.1 18.6 11.5

Int Cover (%) 3.3 3.6 3.1 3.4 3.3 3.6 3.1 3.4

Dividend Payout (%) 26.1 n/m (134.6) (30.0) 21.7 882.0 (128.4) (29.8)

ROCE (%) 13.0 26.1 22.1 21.8 15.6 27.3 22.2 21.8

ROE (%) 1.0 (23.6) 26.1 22.0 1.0 (21.4) 26.1 22.0

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016E

P/E n/m - 11.7 7.3 n/m - 14.3 7.4

P/CE - - 16.5 8.9 - - 20.1 9.1

FV/EBITDA 7.2 5.6 5.7 3.1 6.1 5.4 6.2 3.3

FV/EBIT 8.7 6.1 6.2 3.3 7.5 5.9 6.8 3.5

FV/Revenue 3.7 4.0 3.3 1.7 3.2 3.8 3.6 1.9

P/BV 1.8 3.0 3.0 1.1 1.8 3.2 4.4 0.6

FCF Yield (%) 13.3 (11.1) 3.8 11.1 15.6 (11.4) 3.2 10.9

Div Yield (%) 2.2 4.3 10.4 (2.6) 2.6 4.5 8.5 (2.5)

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016E

EPS 0.04 (1.01) 1.13 1.82 0.05 (1.19) 1.32 2.12

DPS 0.18 0.57 1.37 (0.34) 0.04 0.08 0.15 (0.05)

BVPS 4.33 4.27 4.35 12.19 5.07 4.99 5.08 14.25

US$Ar$

Development

3.9%Office

Rentals12.1%

Shopping Centers73.7%

Hotels Operation

10.2%

Development

19.7%

Office Rentals12.7%

Shopping Centers71.3%

Hotels Operation

-3.7%

CRESUD65.5%

Free Float34.5%


ARGENTINA—METALS & MINING

SIDERAR UNDERPERFORM CURRENT PRICE: AR$6.40

TARGET PRICE: AR$6.45 DOWNGRADING RATING TO UNDERPERFORM FROM HOLD RAISING YE2015 TARGET PRICE TO AR$6.45 AR$5.19

Investment Case: We increased our YE2015 target price in local currency on the back of an expected weaker currency. However, we think that the stock is expensive on valuation, trading at US$670/tonne of capacity or 4.8x 2015E FV/EBITDA, while its parent company Ternium is trading at US$310/tonne and 3.3x 2015E FV/EBITDA. Siderar continues to work almost at full capacity (roughly 3.0 million tonnes) and though volume suffered in 2014 from peaks observed in 2013, we expect this trend to continue in 2015. We further expect a volume recovery in 2016 due to a better macroeconomic performance by Argentina, mainly stemming from improvement in the construction and automotive industries. We think that upside is limited compared to other stocks in Argentina, even under a lower country risk scenario.

Outlook 2015: We expect volumes to compress by roughly 3.0% in Argentina, partially offset by exports to regional markets, leading to a small decline in EBITDA YoY, while maintaining margins. Declining iron ore prices should continue to be a tailwind for the company, especially during 1H15, in our view.


Company Statistics

Price Performance (Ar$)


Bloomberg ERAR ARCurrent Price (01/02/15) Ar$ 6.40 / US$ 0.75Target Price (YE 2015) Ar$ 6.45 / US$ 0.5252-Week Range (Ar$) 2.94 - 7.30Market Capitalization (US$ Mn) 3,379Float (%) 11.03-Mth Avg. Daily Vol (US$ Mn) 0.9Shares Outstanding - Mn 4,517

0

100

200

300

400

500

J-13 M-13 A-13 D-13 A-14 A-14 D-14

ERAR AR Merval

24

SIDERAR Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Siderar is Argentina’s largest steel company and has an installed capacity of 2.9 million tons per year. Siderar manufactures hot-rolled, cold-rolled, hot-dip galvanized, electrogalvanized, pre-painted, and tinplate steel sheet products. Siderar is part of Ternium (a Luxembourg holding company that encompasses Siderar in Argentina and Ternium Mexico). Ternium holds 61% of Siderar, employees hold a 2.0% stake in the company, Government Social Security Agency (ANSES) holds 26%, and 11% is traded on the stock market. In addition, Siderar directly owns 28.7% of Ternium Mexico. The company is listed on the Buenos Aires Stock Exchange. Key Personnel: Daniel Novegil (Chairman), Martín Berardi (CEO), Silvia Sanchez (CFO) and Guillermo Etchepareborda Web: www.ternium.com/siderar

Sales Volumes by Products, 2013

Sales by Region, 2013



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 15,957 21,133 28,662 40,539 2,799 2,529 2,636 3,017 YoY change (%) 29.4 32.4 35.6 41.4 5.9 (9.7) 4.2 14.5Gross Profit 4,766 7,046 9,568 12,009 836 843 880 894 YoY change (%) 99.5 47.8 35.8 25.5 63.2 0.8 4.4 1.6EBITDA 3,666 6,011 7,408 9,110 643 719 681 678 YoY change (%) 118.1 64.0 23.2 23.0 78.4 11.8 (5.3) (0.5) As % of Revenue 23.0 28.4 25.8 22.5 23.0 28.4 25.8 22.5Operating Income 3,053 5,248 6,474 7,955 536 628 595 592 YoY change (%) 179.2 71.9 23.3 22.9 128.4 17.2 (5.2) (0.5) As % of Revenue 19.1 24.8 22.6 19.6 19.1 24.8 22.6 19.6Financial Results (407) (619) (651) (572) (71) (74) (60) (43)Taxes (840) (1,251) (2,036) (2,659) (147) (150) (187) (198)Net Profit 1,825 3,827 4,134 4,979 320 458 380 371 YoY change (%) 238.0 109.7 8.0 20.4 176.5 43.0 (17.0) (2.5) As % of Revenue 11.4 18.1 14.4 12.3 11.4 18.1 14.4 12.3

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 613 763 935 1,155 108 91 86 86Other Noncash Items 264 (783) 0 0 46 (94) 0 0Changes in Working Capital 438 (1,180) (1,020) (832) 77 (141) (94) (62)Operating Cash Flow 3,140 2,626 4,049 5,302 551 314 372 395Capital Expenditures (1,798) (1,644) (2,610) (3,225) (315) (197) (240) (240)Free Cash Flow 1,342 982 1,439 2,077 235 118 132 155Other Invest./(Divestments) (416) 111 0 0 (73) 13 0 0Change in Debt (544) 756 0 0 (95) 90 0 0Dividends (948) (689) 0 (2,490) (166) (82) 0 (185)Capital Increases/Other - - - - - - - -

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 400 2,919 5,735 6,155 62 332 459 428Current Assets 6,050 10,518 15,479 19,031 931 1,195 1,238 1,324Fixed Assets 6,972 10,508 11,676 15,642 1,073 1,194 934 1,088Total Assets 20,706 31,657 43,226 53,300 3,186 3,597 3,458 3,708Current Liabilities 4,432 6,477 8,657 10,867 682 736 693 756Long-Term Liabilities 1,679 1,826 2,141 2,462 258 208 171 171Shareholders' Equity 14,595 23,354 32,428 39,971 2,245 2,654 2,594 2,781Total Financial Debt 2,089 3,467 4,285 4,928 321 394 343 343ST Debt 1,791 2,996 4,069 4,679 276 340 326 326LT Debt 298 471 216 249 46 54 17 17

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 1,689 548 (1,450) (1,226) 260 62 (116) (85)Capital Employed 17,462 25,904 33,722 42,159 2,686 2,944 2,698 2,933Net Debt/EBITDA 0.5 0.1 (0.2) (0.1) 0.4 0.1 (0.2) (0.1)Net Debt/Equity 0.1 0.0 (0.0) (0.0) 0.1 0.0 (0.0) (0.0)Capex/Revenue (%) 11.3 7.8 9.1 8.0 11.3 7.8 9.1 8.0Int Cover (%) 130.9 32.6 15.9 76.5 130.9 32.6 15.9 76.5Dividend Payout (%) 175.6 37.8 0.0 60.2 145.8 25.5 0.0 59.9ROCE (%) 22.3 25.1 25.2 25.2 25.6 26.0 25.3 25.2ROE (%) 13.9 20.2 14.8 13.8 14.4 18.9 14.8 13.8

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 7.5 7.1 7.0 5.8 6.6 7.0 8.9 9.1P/CE 11.4 8.9 9.0 7.6 9.9 8.8 11.5 11.9FV/EBITDA 4.2 4.6 3.7 3.0 3.7 4.6 4.8 4.9FV/EBIT 5.1 5.3 4.2 3.5 4.4 5.2 5.5 5.6FV/Revenue 1.0 1.3 1.0 0.7 0.8 1.3 1.2 1.1P/BV 0.9 1.2 0.9 0.7 0.9 1.2 1.3 1.2FCF Yield (%) 9.7 3.6 5.0 7.2 11.1 3.7 3.9 4.6Div Yield (%) 6.9 2.5 (0.0) 8.6 7.9 2.6 (0.0) 5.5

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 0.40 0.85 0.92 1.10 0.07 0.10 0.08 0.08DPS 0.21 0.15 0 0.55 0.04 0.02 0 0.04BVPS 3.23 5.17 7.18 8.85 0.50 0.59 0.57 0.62

US$Ar$

Hot Rolled39.8%Cold Rolled

24.1%

Coated & Others36.1%

Domestic92.0%

Exports8.0%

Ternium61.0%

Employees2.0%

ANSES26.0%

Free Float11.0%

25


LATIN AMERICAN

26

ARGENTINA—TELECOM, MEDIA & TECHNOLOGY

TELECOM ARGENTINA UNDERPERFORM CURRENT PRICE: US$18.99



Investment Case: We increased our YE2015 target price based on

our more optimistic view of the company’s growth potential given the

scheduled 4G technology expansion in 2015. This should result in

U.S.-dollar-denominated ARPU growth to US$14.40 (from the

current US$10.00) in five years and margin expansion to 33% for the

same period from the 26% we estimate for 2014. On the negative

side, we note that TEO already committed US$658 million for 4G and

spare 3G spectrum, which is incorporated in our model, together with

new infrastructure capex scheduled for 2015. Thus, despite our more

optimistic DCF model scenario, we think that upside is limited and

driven only by a potential top-down catalyst—a re-rating driven by the

expectation of a market friendlier government in 2016. However, the

stock is already trading at 4.0x FV/EBITDA for 2015E, implying only

a narrow discount of 20% to LatAm Telcos.

Outlook 2015: We expect limited operating upside potential due to

continued limited pricing power in all segments. We think that TEO

will more readily catch up with cost inflation once the investments in

4G and 3G allow the company to improve service quality in voice and

data. In our opinion, this could happen by 2H15 at the earliest.

Revenue and margin improvement potential: TEO experienced

margin compression and EBITDA declines in U.S.-dollars in recent

years due to rate adjustments that lagged inflation and FX

depreciation. This trend could change due to pricing mix

improvement once 4G is implemented and a new bundle of products

is offered at higher prices. Increasing ARPU by client base re-farming

should improve the company’s operating costs and margins.

However, we think this could happen no sooner than 2016.

Walter Chiarvesio*



Valder Nogueira*

Brazil: Banco Santander S.A.


Company Statistics



Bloomberg TEO US / TECO2 AR


Target Price (YE 2015) US$ 19.50 / Ar$ 58.40

52-Week Range (US$) 14.78 - 25.09

Market Capitalization (US$ Mn) 3,739

Float (%) 44.6



0

100

200

300

400

500

J-13 M-13 A-13 D-13 A-14 A-14 D-14

TEO US Merval

27

TELECOM ARGENTINA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Telecom Argentina is one of the three main players in Argentina’s telecommunications industry. Telecom offers fixed telephony, internet ADSL and mobile telphony in the country. The main shareholder of the firm is Nortel Inversora (with a 54.74%), a holding company controlled by Sofora (78%), which is owned by Telecom Italia (51%) and the local W de Argentina Group (32%) and Fintech Group (17%).

Key Personnel: Enrique Garrido (Chairman), Oscar

Cicchetti (CEO), Adrian Calaza (CFO), Solange Barthe Dennin (IR) and Pedro Insusarry (Finance Director) Web: www.telecom.com.ar






Total Revenue 27,350 33,240 40,077 50,472 4,899 4,056 3,882 3,756

YoY change (%) 23.2 21.5 20.6 25.9 0.5 (17.2) (4.3) (3.2)

Gross Profit 4,518 5,163 5,561 8,973 809 630 539 668

YoY change (%) 13.9 14.3 7.7 61.3 (7.1) (22.2) (14.5) 24.0

EBITDA 7,391 8,504 10,512 14,888 1,324 1,038 1,018 1,108

YoY change (%) 12.4 15.1 23.6 41.6 (8.4) (21.6) (1.9) 8.8

As % of Revenue 27.0 25.6 26.2 29.5 27.0 25.6 26.2 29.5


YoY change (%) 13.9 14.3 7.7 61.3 (7.1) (22.2) (14.5) 24.0

As % of Revenue 16.5 15.5 13.9 17.8 16.5 15.5 13.9 17.8

Financial Results 528 323 (420) (397) 95 39 (41) (30)

Taxes (1,792) (1,881) (1,790) (2,986) (321) (230) (173) (222)

Net Profit 3,254 3,605 3,351 5,590 583 440 325 416

YoY change (%) 19.1 10.8 (7.0) 66.8 (2.9) (24.5) (26.2) 28.1

As % of Revenue 11.9 10.8 8.4 11.1 11.9 10.8 8.4 11.1


Depreciation & Amortization 2,873 3,341 4,951 5,915 515 408 479 440

Other Noncash Items (515) (91) 0 0 (92) (11) 0 0

Changes in Working Capital 1,527 (1,442) 187 178 274 (176) 18 13

Operating Cash Flow 7,139 5,413 8,489 11,683 1,279 660 822 869

Capital Expenditures (3,352) (8,402) (8,015) (10,094) (600) (1,025) (776) (751)

Free Cash Flow 3,787 (2,990) 474 1,588 678 (365) 46 118


Change in Debt 91 1,057 2,000 2,000 16 129 194 149

Dividends (981) (1,218) (1,200) (1,676) (176) (149) (116) (125)

Capital Increases/Other - - - - - - - -


Cash and Equivalents 5,347 673 744 1,143 823 76 60 79

Current Assets 9,751 6,318 7,525 9,794 1,500 718 602 681

Fixed Assets 11,226 17,051 21,260 26,609 1,727 1,938 1,701 1,851

Total Assets 23,130 27,700 33,513 41,999 3,558 3,148 2,681 2,922

Current Liabilities 9,050 8,978 10,777 13,564 1,392 1,020 862 944

Long-Term Liabilities 1,377 1,768 2,029 3,218 212 201 162 224

Shareholders' Equity 11,783 15,153 16,702 19,682 1,813 1,722 1,336 1,369

Total Financial Debt 235 1,292 3,292 5,292 36 147 263 368

ST Debt 15 32 32 32 2 4 3 2

LT Debt 220 1,260 3,260 5,260 34 143 261 366


Net Debt (5,112) 619 2,548 4,149 (786) 70 204 289

Capital Employed 10,373 18,770 22,850 28,366 1,596 2,133 1,828 1,973

Net Debt/EBITDA (0.7) 0.1 0.2 0.3 (0.6) 0.1 0.2 0.3

Net Debt/Equity (0.4) 0.0 0.2 0.2 (0.5) 0.0 0.2 0.2

Capex/Revenue (%) 12.3 25.3 20.0 20.0 12.3 25.3 20.0 20.0

Int Cover (%) 8.3 7.4 16.4 30.1 8.3 7.4 16.4 30.1

Dividend Payout (%) 35.9 37.4 33.3 50.0 29.8 25.3 31.8 49.7

ROCE (%) 60.8 37.5 32.2 42.2 69.1 38.7 32.3 42.2

ROE (%) 29.9 26.8 21.0 30.7 31.0 24.7 21.0 30.7


P/E 6.7 8.8 9.4 5.6 5.7 8.5 11.3 8.8

P/CE n/m n/m - - 49.0 n/m - -

FV/EBITDA 2.3 3.9 3.3 2.5 2.0 3.8 3.9 3.7

FV/EBIT 3.8 6.4 6.3 4.1 3.3 6.2 7.4 6.1

FV/Revenue 0.6 1.0 0.9 0.7 0.5 1.0 1.0 1.1

P/BV 1.8 2.1 1.9 1.6 1.8 2.2 2.8 2.7

FCF Yield (%) 17.4 (9.4) 1.5 5.0 20.3 (9.7) 1.2 3.2

Div Yield (%) 4.5 3.8 3.8 5.3 5.3 4.0 3.2 3.4


EPS 3.36 3.72 3.46 5.77 0.35 0.27 0.20 0.25

DPS 1.01 1.26 1.24 1.73 0.11 0.09 0.07 0.08

BVPS 12.16 15.64 17.24 20.31 1.09 1.04 0.81 0.83

US$Ar$

Fixed Telephony

12.6%

Mobile74.6%

Internet12.8%

Mobile75.0%

Fixed Telephony & Internet

25.0%

NORTEL54.7%

ESOP Program

0.6%

Free Float44.6%


LATIN AMERICAN

28

ARGENTINA—OIL, GAS & PETROCHEMICALS

YPF SA BUY CURRENT PRICE: US$26.11


LOWERING YE2015 TARGET PRICE TO US$52.00 FROM US$62.00

Investment Case: We have reduced our YE2015 target price based

on a more conservative approach to crude oil and pump prices in

Argentina. One of the biggest risks for YPF continues to be how it

manages to maintain prices in U.S. dollars at the pump. In our view,

the current price of the stock can only be supported by a combination

of a long-term oil price at US$60/bbl (we assume a gradual recovery

to long-term levels of US$85/bbl for Brent), and maintaining refining

& marketing spreads slightly below US$30/refined barrel for the next

three years, down from the last-four-year-average of US$37. On the

valuation front, despite our lower EBITDA estimate for 2015, YPF

trades at 2.7x FV/EBITDA, an attractive 50% discount to global oil &

gas peers. Thus, the upside potential for the stock remains highly

attractive, in our view. We maintain our view that a re-rating of the

stock to reflect a potential new political cycle in Argentina remains the

main catalyst for the stock in the short term.

Outlook 2015: We reduced our EBITDA estimate by 8.3% due to

our more conservative pump pricing assumptions, implying flat

EBITDA YoY in U.S. dollars.

Local oil and pump prices: Argentine oil and derivative markets

have a dynamic independent of international markets, and if the

recent and ongoing drop in oil prices proves to be temporary, we see

only a small chance that local prices will decline.

Natural gas price: We continue to assume natural gas prices to

reach US$7.50/Mbtu for new gas production, still below imported gas

prices.

Unconventional resources development: Unless the world is

entering an era of sustainable low oil prices, we believe that the shale

oil and gas story continues to be an attractive catalyst in the long

term, remaining a free call option embedded in the current stock

price. Further development of Vaca Muerta could continue to add

value to shareholders based on lower country risk after 2015, well

costs savings, and efficiency gains in the development of the fields.

Walter Chiarvesio*



Christian Audi

New York: Santander Investment Securities Inc.

+1-212-350-3991 | [email protected]

Company Statistics



Bloomberg YPF US / YPFD AR


Target Price (YE 2015E) US$ 52.00 / Ar$ 715.00

52-Week Range (US$) 21.85 - 38.91


Float (%) 37.0



0

100

200

300

400

500

J-13 M-13 A-13 D-13 A-14 A-14 D-14

YPF US Merval

29

YPF SA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

YPF S.A. is an integrated company engaged in oil and gas exploration and production, refining, chemicals, and petrochemicals. It operates mainly in Argentina, and has a production of 85 million barrels of crude oil, 17 million barrels of NGL and 393 billion of cubic feet of natural gas as of 2013. The company also has a refining capacity of 320,000 barrels per day, with over 3,000 km of oil pipeline and a multiproduct pipeline network. This makes it the leader in terms of market share, with more than 1,500 service stations. Moreover, the company operates in the petrochemical business, which is fully integrated with E&P and Refining, plus some stakes in different related companies. YPF is controlled by the Argentine Government with a 51.1% stake. Respsol holds 11.9% The remaining 37% floats freely in the Buenos Aires Stock Exchange (YPFD) and the New York Stock Exchange (YPF).

Key Personnel: Miguel Galuccio (Chairman), Miguel

Galuccio (CEO), Daniel Gonzalez (CFO) and Diego Celaa (Investor Relations) Web: www.ypf.com

EBITDA, 2013

Reserves Composition, 2013




Total Revenue 90,113 143,571 186,136 269,038 15,885 17,421 17,876 20,021

YoY change (%) 34.1 59.3 29.6 44.5 9.3 9.7 2.6 12.0

Gross Profit 21,542 40,876 46,239 67,745 3,797 4,960 4,441 5,041

YoY change (%) 27.4 89.8 13.1 46.5 3.8 30.6 (10.5) 13.5

EBITDA 22,396 45,079 55,515 76,761 3,948 5,470 5,332 5,712

YoY change (%) 31.2 101.3 23.2 38.3 6.9 38.6 (2.5) 7.1

As % of Revenue 24.9 31.4 29.8 28.5 24.9 31.4 29.8 28.5

Operating Income 11,160 25,932 27,366 38,074 1,967 3,147 2,628 2,833

YoY change (%) 41.2 132.4 5.5 39.1 15.1 59.9 (16.5) 7.8

As % of Revenue 12.4 18.1 14.7 14.2 12.4 18.1 14.7 14.2

Financial Results 2,835 2,512 (1,533) (2,188) 500 305 (147) (163)

Taxes (9,269) (18,303) (15,476) (21,498) (1,634) (2,221) (1,486) (1,600)

Net Profit 5,125 10,272 10,357 14,387 903 1,246 995 1,071

YoY change (%) 29.3 100.4 0.8 38.9 5.4 38.0 (20.2) 7.6

As % of Revenue 5.7 7.2 5.6 5.3 5.7 7.2 5.6 5.3


Depreciation & Amortization (11,236) (19,147) (28,149) (38,687) (1,981) (2,323) (2,703) (2,879)

Other Noncash Items 5,515 13,377 16,010 16,010 972 1,623 1,538 1,191

Changes in Working Capital (912) 2,383 2,861 2,199 (161) 289 275 164

Operating Cash Flow 20,964 45,180 57,377 71,284 3,696 5,482 5,510 5,305

Capital Expenditures (27,639) (49,664) (69,129) (76,621) (4,872) (6,026) (6,639) (5,702)

Free Cash Flow (6,675) (4,484) (11,752) (5,337) (1,177) (544) (1,129) (397)


Change in Debt 10,025 10,330 12,000 12,000 1,767 1,253 1,152 893

Dividends (326) (464) 0 (279) (57) (56) 0 (21)

Capital Increases/Other 0 0 0 0 0 0 0 0


Cash and Equivalents 10,713 11,994 12,242 18,626 1,648 1,363 979 1,296

Current Assets 34,514 46,600 62,550 91,199 5,310 5,295 5,004 6,344

Fixed Assets 93,496 153,188 181,039 222,973 14,384 17,408 14,483 15,511

Total Assets 135,595 209,798 254,423 325,224 20,861 23,841 20,354 22,624

Current Liabilities 32,808 52,242 77,656 107,364 5,047 5,937 6,212 7,469

Long-Term Liabilities 44,441 26,079 29,352 30,232 6,837 2,963 2,348 2,103


Total Financial Debt 31,890 50,196 73,036 90,514 4,906 5,704 5,843 6,297

ST Debt 8,814 15,059 21,911 27,154 1,356 1,711 1,753 1,889

LT Debt 23,076 35,137 51,125 63,360 3,550 3,993 4,090 4,408


Net Debt 21,177 38,202 60,794 71,888 3,258 4,341 4,864 5,001


Net Debt/EBITDA 0.9 0.8 1.1 0.9 0.8 0.8 0.9 0.9

Net Debt/Equity 0.4 0.4 0.6 0.6 0.5 0.4 0.6 0.6

Capex/Revenue (%) 30.7 34.6 37.1 28.5 30.7 34.6 37.1 28.5

Int Cover (%) 8.3 6.3 6.2 7.5 8.3 6.3 6.2 7.5

Dividend Payout (%) 8.2 9.1 0.0 2.7 6.8 6.1 0.0 2.7

ROCE (%) 23.1 29.4 23.9 27.1 25.5 30.2 24.0 27.1

ROE (%) 12.9 14.2 10.8 13.0 13.6 13.5 10.8 13.0


P/E 16.5 8.6 8.5 6.1 14.3 8.4 10.3 9.6

P/CE 5.2 3.0 2.3 1.7 4.5 2.9 2.8 2.6

FV/EBITDA 4.7 2.8 2.7 2.1 4.1 2.7 2.8 2.7

FV/EBIT 9.5 4.9 5.4 4.2 8.2 4.7 5.8 5.4

FV/Revenue 1.2 0.9 0.8 0.6 1.0 0.8 0.8 0.8

P/BV 1.8 0.9 0.9 0.7 1.7 1.0 1.3 1.2

FCF Yield (%) (7.9) (5.1) (13.4) (6.1) (9.1) (5.2) (11.0) (3.9)

Div Yield (%) 0.4 0.5 (0.0) 0.3 0.4 0.5 (0.0) 0.2


EPS 13.03 26.12 26.33 36.58 2.30 3.17 2.53 2.72

DPS 0.83 1.18 0 0.71 0.10 0.14 0 0.08

BVPS 122.65 244.95 244.82 315.95 21.62 29.72 23.51 23.51

US$Ar$

E&P66.1%

R&M33.9%

Crude Oil58.0%

Natural Gas42.0%

Government51.0%

Float49.0%


BRAZIL—UTILITIES

AES TIETE HOLD CURRENT PRICE: R$17.42

TARGET PRICE: R$19.40

LOWERING YE2015 TARGET PRICE TO R$19.40 FROM R$19.60

Investment Case: We continue to see AES Tietê as a solid dividend player in the sector, with predictable results, low capex needs, and a sound balance sheet. Even with the challenging scenario for earnings, we expect Tiete will continue to have one of the top yields in the sector, with a DY of 13% estimated for 2015 and an average long-term DY of 10%. The company’s main drawback is the low visibility regarding the expansion program required by the privatization contract ruling.

Outlook 2015: Tiete will remain the Brazilian Genco most exposed to short-term pressure from the hydro deficit we expect for 2015, given that it is fully contracted until July. However, we estimate an EBITDA increase of 10.7% YoY in 2015, mainly as a result of the lower expenses in the spot market (due to higher levels of spot prices). We also note that we expect the company to be focused onnegotiating new long-term contracts throughout 2015.

Future outlook seems to have improved: We believe the tight supply-demand scenario in 2014-15E points to a better price for the long-term curve. The tendency toward better prices was confirmed in Tiete’s last conference call, where the company revealed that new contracts point to a price level of R$135/MWh. We revised our long-term price outlook to R$150/MWh and acknowledge upside risk for Tiete’s earnings if prices achieve higher levels.

Expansion requirement still not addressed: We still see the main risk to Tiete’s investment thesis as the uncompleted expansion required (roughly a 500 MW capacity increase due to the privatization contract ruling). We believe recent pressure on marketsshould open opportunities for gas projects, and Tiete might be able to negotiate a supply contract with Petrobras that would allow for participation in the next few auctions, in our view.

Maria Carolina Carneiro* Brazil: Banco Santander S.A. +5511-3012-6682 | [email protected]

Company Statistics

Price Performance (R$)


Bloomberg GETI4 BZCurrent Price (01/02/15) R$ 17.42 / US$ 6.47Target Price (YE 2015) R$ 19.40 / US$ 7.3252-Week Range (R$) 16.12 - 21.55Market Capitalization (US$ Mn) 2,467Float (%) 39.63-Mth Avg. Daily Vol (US$ Mn) 3.9Shares Outstanding - Mn 381

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

GETI4 BZ IBOVESPA

30

AES TIETE Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

AES Tietê is a privately owned generation company, controlled by Brasiliana (a holding company controlled by AES Group and BNDES). The company operates 10 hydropower plants located in the central and northeastern regions of the State of São Paulo. GETI has an installed capacity of 2,658 MW and 1,278 MW of firm capacity, accounting for 2% of Brazil’s generation market. Key Personnel: Arminio Francisco Borjas Herrera (Chairman), Britaldo Pedrosa Soares (CEO), Gustavo Duarte Pimenta (CFO) and Clarissa Sadock (IR Director) Web: http://ri.aestiete.com.br/

Sales by Segment, 2015E

EBITDA by Segment, 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 2,337 2,517 2,389 1,730 1,083 1,089 919 641 YoY change (%) 10.6 7.7 (5.1) (27.6) 0.2 0.5 (15.6) (30.3)Gross Profit 1,578 1,236 1,362 1,291 731 535 524 478 YoY change (%) 0.0 (21.6) 10.2 (5.3) (9.4) (26.8) (2.1) (8.8)EBITDA 1,525 1,220 1,350 1,278 707 528 519 473 YoY change (%) (1.1) (20.1) 10.7 (5.4) (10.4) (25.4) (1.6) (8.9) As % of Revenue 65.3 48.5 56.5 73.8 65.3 48.5 56.5 73.8Operating Income 1,362 1,057 1,187 1,114 631 457 456 413 YoY change (%) (1.3) (22.4) 12.2 (6.1) (10.6) (27.5) (0.2) (9.6) As % of Revenue 58.3 42.0 49.7 64.4 58.3 42.0 49.7 64.4Financial Results (51) (69) (133) (131) (24) (30) (51) (49)Taxes (429) (336) (358) (334) (199) (145) (138) (124)Net Profit 881 652 696 649 409 282 268 240 YoY change (%) (2.2) (26.0) 6.6 (6.7) (11.4) (30.9) (5.2) (10.2) As % of Revenue 37.7 25.9 29.1 37.5 37.7 25.9 29.1 37.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (163) (162) (164) (163) (76) (70) (63) (60)Other Noncash Items - - - - - - - -Changes in Working Capital (76) (89) (22) 47 (35) (39) (8) 17Operating Cash Flow 265 (131) 173 127 123 (57) 67 47Capital Expenditures (206) (174) (189) (93) (95) (75) (73) (35)Free Cash Flow 60 (305) (16) 33 28 (132) (6) 12Other Invest./(Divestments) - - - - - - - -Change in Debt 201 29 0 0 93 12 0 0Dividends (803) (953) (882) (765) (372) (412) (339) (283)Capital Increases/Other - - - - - - - -

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 457 151 135 169 195 59 51 61Current Assets 764 415 429 396 326 163 162 144Fixed Assets 764 415 429 396 326 163 162 144Total Assets 4,073 3,729 3,768 3,666 1,738 1,462 1,422 1,333Current Liabilities 893 869 978 945 381 341 369 344Long-Term Liabilities 1,397 1,410 1,411 1,410 596 553 532 513Shareholders' Equity 1,784 1,839 1,769 1,700 761 721 668 618Total Financial Debt 1,117 1,145 1,145 1,145 477 449 432 417ST Debt 320 324 324 324 137 127 122 118LT Debt 797 821 821 821 340 322 310 299

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 660 994 1,010 977 282 390 381 355Capital Employed 1,430 847 961 914 610 332 363 333Net Debt/EBITDA 0.4 0.8 0.7 0.8 0.4 0.7 0.7 0.8Net Debt/Equity 0.4 0.5 0.6 0.6 0.4 0.6 0.6 0.6Capex/Revenue (%) 8.8 6.9 7.9 5.4 8.8 6.9 7.9 5.4Int Cover (%) 60.0 23.3 98.7 93.4 60.0 23.3 98.7 93.4Dividend Payout (%) 89.1 108.1 135.2 110.0 80.6 99.1 119.0 109.3ROCE (%) 125.3 164.6 160.7 158.4 134.1 180.7 161.5 158.4ROE (%) 49.1 36.0 38.6 37.4 49.8 38.3 38.6 37.4

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 8.3 10.6 9.5 10.2 7.6 9.2 9.2 10.3P/CE 7.0 8.5 7.7 8.2 6.4 7.4 7.5 8.2FV/EBITDA 5.2 6.5 5.7 6.0 4.8 5.7 5.5 6.0FV/EBIT 5.8 7.5 6.4 6.8 5.3 6.5 6.2 6.8FV/Revenue 3.4 3.1 3.2 4.4 3.1 2.7 3.1 4.4P/BV 4.1 3.8 3.8 3.9 4.1 3.6 3.7 4.0FCF Yield (%) 0.8 (4.4) (0.2) 0.5 0.9 (5.1) (0.2) 0.5Div Yield (%) 11.0 13.8 13.3 11.5 12.1 15.9 13.8 11.5

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 2.31 1.71 1.82 1.70 1.07 0.74 0.70 0.63DPS 2.50 2.31 2.01 1.88 1.16 1.00 0.77 0.70BVPS 4.68 4.82 4.64 4.46 2.00 1.89 1.75 1.62

US$R$

Eletropaulo70.4%

Other Bilateral11.1%

MRE + Losses18.5%

Generation100.0%

Companhia Brasiliana de Energia

52.6%

Eletrobrás7.9%

Others39.6%

31


BRAZIL—TRANSPORTATION

ALL HOLD CURRENT PRICE: R$5.06


INTRODUCING YE2015 TARGET PRICE OF R$6.00; REPLACING YE2014 TARGET PRICE OF R$7.00

Investment Case: We view the planned merger with Rumo as highly positive, as it (i) will probably strengthen the company’s relationship with the government, implying a higher probability that its concessions will be extended, (ii) should imply the execution of a transformational investment plan (R$7-9 billion capex in 10 years, according to Cosan), and (iii) would allow for better integration between ALL’s network and Rumo’s terminals at the port of Santos. However, we have a neutral view on the stock for now, as (i) we believe most of the potential upside lies in the long term, and (ii) newco will probably be a highly leveraged (~4x net debt/EBITDA) cash-burning company in the next couple of years.

Outlook 2015: We expect the merger with Rumo to be approved by CADE (Brazilian antitrust authority) in 1H15, which could be a positive catalyst. On the operating front, we expect ALL to deliver volume growth of around 5% for the full year, mainly boosted by a ~10% YoY increase in soybean production (mostly in 1H15). We estimate revenue to grow 11% YoY to R$4.3 billion and EBITDA to increase 11% to R$2.1 billion. Net profit should be stable at ~R$80 million, pressured by higher financial expenses.

R$7-9 billion capex plan: We believe the potential renewal of concessions would allow for the newco to monetize the much-needed investment program (R$7-9 billion capex in 10 years, according to Cosan). Such investment would significantly increase the efficiency/capacity of the current network in the long term, in our view, thus boosting the competitiveness of the newco vs. trucks.

CADE’s approval pending: We expect the Brazilian antitrust agency to rule on the deal sometime before the end of March 2015, with the possibility of extending the process for an additional 90 days. We believe the newco may be obliged to offer some competitors of Cosan a minimum available capacity at a reasonable price.

Valuation: We value the newco through an equity value SOTP (standalone ALL R$3.8 bn; Rumo R$2.4 bn), which implies an equity value of R$6.2 bn. Our fair equity value for ALLL3 is equivalent to 63.5% of this amount (~R$4.0 bn). ALLL3’s current price implies the newco is trading at ~6.0-6.5x 2015E EV/EBITDA on our numbers.

Bruno Amorim*, CFA Brazil: Banco Santander S.A. +5511-3012-6016 | [email protected]

Pedro Balcão Reis* Brazil: Banco Santander S.A. +5511-3012-5765 | [email protected]

Company Statistics



Bloomberg ALLL3 BZCurrent Price (01/02/15) R$ 5.06 / US$ 1.88Target Price (YE 2015) R$ 6.00 / US$ 2.2152-Week Range (R$) 4.90 - 9.03Market Capitalization (US$ Mn) 1,283Float (%) 62.83-Mth Avg. Daily Vol (US$ Mn) 13.7Shares Outstanding - Mn 682

40

60

80

100

120

140

J-13 M-13 A-13 D-13 A-14 A-14 D-14

ALLL3 BZ IBOVESPA

32

ALL (NOT INCLUDING RUMO) Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

América Latina Logística (ALL) provides fully integrated solutions in Brazil for long-haul transportation, door-to-door shipping, and warehouse storage services. ALL operates a 12,900-km rail network that includes 966 locomotives, 27,748 railcars, a fleet of 563 trucks, distribution centers, and warehousing installations. The products typically transported are agricultural commodities, and industrial commodities and goods. ALL’s shares are listed in the Bovespa’s Novo Mercado segment. Key Personnel: Alexandre Santoro (CEO), Rodrigo Campos (CFO) and Marcelo Carvalho (IR Manager) Web: http://www.all-logistica.com

Revenue Breakdown, 2013

EBITDA Breakdown, 2013



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 3,641 3,838 4,277 4,784 1,688 1,634 1,626 1,694 YoY change (%) 2.0 5.4 11.5 11.9 (7.6) (3.2) (0.5) 4.1Gross Profit - - - - - - - - YoY change (%) - - - - - - - -EBITDA 1,830 1,896 2,098 2,346 848 808 798 831 YoY change (%) 8.7 3.6 10.6 11.8 (1.5) (4.8) (1.2) 4.1 As % of Revenue 50.3 49.4 49.0 49.0 50.3 49.4 49.0 49.0Operating Income 1,213 1,350 1,493 1,673 562 575 568 592 YoY change (%) 1.2 11.4 10.5 12.1 (8.4) 2.3 (1.3) 4.3 As % of Revenue 33.3 35.2 34.9 35.0 33.3 35.2 34.9 35.0Financial Results (1,043) (1,249) (1,356) (1,470) (483) (532) (516) (520)Taxes 44 (2) (20) (41) 20 (1) (8) (14)Net Profit 199 72 81 119 92 31 31 42 YoY change (%) (16.3) (63.8) 12.7 47.2 (24.2) (66.8) 0.6 37.0 As % of Revenue 5.5 1.9 1.9 2.5 5.5 1.9 1.9 2.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (527) (548) (607) (676) (244) (233) (231) (239)Other Noncash Items - - - - - - - -Changes in Working Capital 208 (396) (4) (10) 96 (169) (1) (3)Operating Cash Flow 2,351 1,473 1,870 2,002 1,090 627 711 709Capital Expenditures (925) (1,144) (1,133) (1,225) (429) (487) (431) (434)Free Cash Flow 693 30 170 184 321 13 65 65Other Invest./(Divestments) - - - - - - - -Change in Debt 489 708 347 306 227 301 132 108Dividends (3) (37) (19) (25) (1) (16) (7) (9)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 2,918 2,883 2,999 3,116 1,245 1,131 1,107 1,060Current Assets 4,308 4,580 4,799 5,033 1,839 1,796 1,771 1,712Fixed Assets 12,906 13,503 14,029 14,578 5,508 5,295 5,177 4,958Total Assets 18,882 19,750 20,495 21,278 8,059 7,745 7,563 7,238Current Liabilities 2,821 2,453 2,452 2,461 1,204 962 905 837Long-Term Liabilities 11,462 12,663 13,348 14,028 4,892 4,966 4,925 4,772Shareholders' Equity 4,598 4,633 4,695 4,789 1,963 1,817 1,733 1,629Total Financial Debt 10,285 11,208 11,792 12,373 4,390 4,395 4,351 4,208ST Debt 1,518 1,240 1,140 1,040 648 486 421 354LT Debt 8,767 9,968 10,653 11,333 3,742 3,909 3,931 3,855

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 7,368 8,325 8,793 9,257 3,144 3,265 3,245 3,149Capital Employed 14,883 15,841 16,487 17,162 6,352 6,212 6,084 5,838Net Debt/EBITDA 4.0 4.4 4.2 3.9 3.7 4.0 4.1 3.8Net Debt/Equity 1.6 1.8 1.9 1.9 1.8 2.0 1.9 1.9Capex/Revenue (%) 25.4 29.8 26.5 25.6 25.4 29.8 26.5 25.6Int Cover (%) 1.5 1.3 1.2 1.3 1.5 1.3 1.2 1.3Dividend Payout (%) 1.3 18.5 26.6 30.9 1.1 16.9 23.4 30.7ROCE (%) 6.0 8.7 10.4 11.7 6.8 9.8 10.5 11.7ROE (%) 4.5 1.6 1.7 2.5 4.6 1.7 1.7 2.5

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 22.5 48.1 42.7 29.0 20.6 42.4 41.7 30.4P/CE 6.2 5.6 5.0 4.3 5.6 4.9 4.9 4.6FV/EBITDA 6.5 6.2 5.8 5.4 5.9 5.7 5.7 5.3FV/EBIT 9.8 8.7 8.2 7.6 9.0 7.9 8.0 7.5FV/Revenue 3.3 3.1 2.9 2.7 3.0 2.8 2.8 2.6P/BV 1.0 0.7 0.7 0.7 1.0 0.7 0.7 0.8FCF Yield (%) 15.5 0.9 4.9 5.3 16.9 1.0 5.1 5.1Div Yield (%) 0.1 1.1 0.6 0.7 0.1 1.2 0.6 0.7


US$R$

Rail85.3%

Brado7.6%

Ritmo7.2%

Rail95.6%

Brado3.0%

Ritmo1.4%

BNDESPAR12.1%

BRZ ALL4.8%

PREVI4.0%

FUNCEF4.1%

Julia Dora Arduni5.6%

Free Float & Others69.4%

33


BRAZIL—UTILITIES

ALUPAR BUY CURRENT PRICE: R$17.50



Investment Case: We see Alupar as a company exposed to the upward trend in price curve, with stability in cash flow generation and protection against inflation pressure. Moreover, we believe that the company has a proven track record in efficiency when building new transmission projects, as well as good potential growth opportunities in generation projects.

Outlook 2015: We expect Alupar to post solid EBITDA growth of 10.8% in 2015. Additionally, we expect Alupar to continue growing organically by bidding for transmission projects in 2015 auctions. Regarding the generation arm, we believe the anticipated hydro deficit for 2015 could hurt margins, despite solid potential growth.

The story remains the same: We continue to see Alupar as a stable player. The company’s transmission business generates the majority of EBITDA, with high dividends via its exposure to growth in the energy generation business, thus exposing Alupar to a scenario of energy price increases in Brazil.

Ferreira Gomes Unit. The plant’s first generation was granted authorization to start in November, ahead of schedule. We see this start-up as positive for the company, as the plant is benefiting from high energy prices, and the earlier-than-expected launch shows to the market the commitment to its building projects.

Updating estimates. We adjusted our discount rate according to new country risk and risk-free rates, thus revising upward our WACCs for both the generation and transmission segments. We also adjusted estimates to account for recently released results and higher hydro deficit expected for 2015 (a 7% vs. previous 5%).


Company Statistics



Bloomberg ALUP11 BZCurrent Price (01/02/15) R$ 17.50 / US$ 6.50Target Price (YE 2015) R$ 21.17 / US$ 7.8152-Week Range (R$) 14.81 - 19.25Market Capitalization (US$ Mn) 1,326Float (%) 21.33-Mth Avg. Daily Vol (US$ Mn) 1.3Shares Outstanding - Mn 204

80

90

100

110

120

A-13 A-13 D-13 A-14 A-14 D-14

ALUP11 BZ IBOVESPA

34

ALUPAR Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Alupar is an integrated company holding transmission and generation assets. It is one of the most important privately owned power transmission players in Brazil in terms of RAP, with 21 transmission assets and 2,579 km of lines (2,176 operational and 403 km under construction) (according to the company's participation in the projects) . In the generation segment, Alupar currently concentrates its operations on renewable energy, with investments in hydro power plants (UHEs), small hydro power plants (PCHs), and wind power project. The company currently has 781 MW of installed capacity in operations. Key Personnel: José Luiz de Godoy Pereira (Chairman), Paulo Roberto de Godoy Pereira (CEO), José Luiz de Godoy Pereira (CFO) and Luis Coimbra (IR Manager) Web: http://www.alupar.com.br/


RAP Exposed to Tariff Review (2014-15 cycle)



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,912 1,908 1,604 1,833 886 813 610 649 YoY change (%) 51.9 (0.2) (15.9) 14.3 37.6 (8.3) (25.0) 6.4Gross Profit 952 1,140 1,215 1,419 441 485 462 502 YoY change (%) 3.8 19.7 6.6 16.8 (6.0) 10.0 (4.9) 8.7EBITDA 986 1,210 1,317 1,566 457 515 501 554 YoY change (%) 7.5 22.7 8.8 18.9 (2.6) 12.8 (2.8) 10.7 As % of Revenue 51.6 63.4 82.1 85.4 51.6 63.4 82.1 85.4Operating Income 952 1,140 1,215 1,443 441 485 462 511 YoY change (%) 8.0 19.7 6.6 18.8 (2.2) 10.0 (4.9) 10.6 As % of Revenue 49.8 59.7 75.7 78.7 49.8 59.7 75.7 78.7Financial Results (185) (193) (281) (347) (86) (82) (107) (123)Taxes (171) (145) (248) (271) (79) (62) (94) (96)Net Profit 284 402 345 427 132 171 131 151 YoY change (%) 29.0 41.4 (14.1) 23.7 16.9 29.9 (23.3) 15.1 As % of Revenue 14.9 21.1 21.5 23.3 14.9 21.1 21.5 23.3

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (34) (71) (102) (148) (16) (30) (39) (52)Other Noncash Items 414 492 426 476 192 209 162 169Changes in Working Capital 0 0 0 0 0 0 0 0Operating Cash Flow 732 964 874 1,051 339 411 332 372Capital Expenditures (1,214) (1,102) (1,203) (32) (563) (469) (457) (11)Free Cash Flow 615 (303) 145 367 285 (129) 55 130Other Invest./(Divestments) - - - - - - - -Change in Debt 66 276 1,038 (234) 31 118 395 (83)Dividends (104) (350) (350) (350) (48) (149) (133) (124)Capital Increases/Other 800 - - - 371 - - -

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,173 870 1,015 1,382 501 341 375 470Current Assets 1,173 870 1,015 1,382 501 341 375 470Fixed Assets 8,837 9,741 10,741 15,807 3,771 3,820 3,964 5,377Total Assets 10,010 10,611 11,757 17,190 4,272 4,161 4,338 5,847Current Liabilities 207 331 410 393 88 130 151 134Long-Term Liabilities 4,297 5,246 5,804 5,662 1,834 2,057 2,142 1,926Shareholders' Equity 2,804 2,414 2,524 3,695 1,197 947 931 1,257Total Financial Debt 3,382 4,453 5,143 4,909 1,444 1,746 1,898 1,670ST Debt 207 331 410 393 88 130 151 134LT Debt 3,175 4,122 4,734 4,517 1,355 1,617 1,747 1,536

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 2,209 3,583 4,128 3,527 943 1,405 1,523 1,200Capital Employed 9,803 10,280 11,347 16,797 4,184 4,031 4,187 5,713Net Debt/EBITDA 2.2 3.0 3.1 2.3 2.1 2.7 3.0 2.2Net Debt/Equity 0.8 1.5 1.6 1.0 0.9 1.7 1.6 1.0Capex/Revenue (%) 63.5 57.7 75.0 1.7 63.5 57.7 75.0 1.7Int Cover (%) 5.3 6.3 4.7 4.5 5.3 6.3 4.7 4.5Dividend Payout (%) 47.2 123.1 87.0 101.4 42.7 112.9 76.6 100.7ROCE (%) 11.4 12.5 12.9 10.2 12.3 13.9 13.0 10.2ROE (%) 12.8 15.4 14.0 13.7 13.3 16.3 14.0 13.7

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 11.7 8.9 10.3 8.4 10.7 7.9 10.1 8.8P/CE 10.4 7.6 8.0 6.2 9.5 6.7 7.8 6.5FV/EBITDA 8.9 9.2 9.2 7.3 8.1 8.2 9.0 7.5FV/EBIT 9.2 9.8 10.0 7.9 8.4 8.7 9.8 8.1FV/Revenue 4.6 5.8 7.6 6.2 4.2 5.2 7.4 6.4P/BV 1.2 1.5 1.4 1.0 1.2 1.4 1.4 1.1FCF Yield (%) 18.6 (8.4) 4.1 10.3 20.3 (9.5) 4.2 9.8Div Yield (%) 3.1 9.7 9.8 9.8 3.4 11.0 10.0 9.3


US$R$

Tranmission84.5%

Generation15.5%

Exposed to TR

9.9%

Not Exposed to

TR90.1%

Guarupart64.7%

FI-FGTS14.0%

Free Float21.3%

35


BRAZIL—FOOD & BEVERAGE

AMBEV BUY CURRENT PRICE: R$16.01


Investment Case: We believe Ambev is still a core holding in the Brazilian consumer space, due to its (1) industry-leading margins (~50% EBITDA margin); (2) high returns (33% ROIC); and (3) skilled management team. We acknowledge that market dynamics have deteriorated recently because of changes in demand elasticity and uncertainties surrounding additional tax increases. Furthermore, despite signs of weaker volume growth (especially in Brazil), we believe the company still can increase affordability through different packaging propositions, as well as stimulate trade-up through its diverse brand mix (the company recently introduced “new” premium brands in Brazil). We maintain our Buy rating, as the stock currently trades at compelling multiples (in-line with global peers) while still offering robust margins and solid execution.

Outlook 2015: We forecast that beer volume in Brazil will decline 2% YoY, due to tough 2014 comps (stemming from the non-recurring sporting event) and the resumption of tax increases, though we anticipate 10% YoY consolidated sales growth along with 60-bp YoY EBITDA margin expansion (due to easy comps on the SG&A front following substantial investments in promoting the 2014 sporting event), leading to healthy consolidated growth figures.

Catalysts: We believe that ongoing initiatives, including (1) “premiumization” (enhanced by expanding its premium brand portfolio in Brazil), (2) innovation in packaging and pricing architecture, (3) product innovation from its international branches (ABI Group), and (4) improved execution in POS (e.g., the Nosso Bar franchise network) will continue to bear fruit and allow for growth and margin expansion opportunities, despite challenging consumption dynamics.

Concerns: Main risks to our investment case include (1) higher taxation, (2) greater competition from multinationals, and (3) inflation affecting consumer buying power (trade-down).

João Mamede* Brazil: Banco Santander S.A. +5511-3553-0699 | [email protected]

Luis Miranda*, CFA Mexico: Banco Santander S.A. +5255-5269-1926 | [email protected]

Ronaldo Kasinsky* Brazil: Banco Santander S.A. +5511-3553-2396 | [email protected]

Company Statistics



Bloomberg ABEV3 BZ / ABEV USCurrent Price (01/02/15) R$ 16.01 / US$ 5.95Target Price (YE 2015) R$ 20.00 / US$ 10.7052-Week Range (R$) 15.20 - 17.84Market Capitalization (US$ Mn) 93,367Float (%) 28.03-Mth Avg. Daily Vol (US$ Mn) 80.3Shares Outstanding - Mn 15,700

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

ABEV3 BZ IBOVESPA

36

AMBEV Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Ambev is the fifth largest brewer in the world and the largest beverage company in Latin America. The company is the market leader in the Brazilian beer segment (~68% market share) while also holding a strong share in the Brazilian soft-drinks market (~19% market share). The company also bottles Pepsi-Cola carbonated and non-carbonated soft drinks in Brazil. Brazil accounts for 63% of consolidated sales and 69% of total EBITDA. Moreover, Ambev features two of the most recognized beer brands in the world (SKOL and BRAHMA). The Belgian brewer Anheuser-Busch InBev (ABI) has a 69% stake in the company. Key Personnel: Carlos Alves de Brito (Chairman), Bernardo Pinto Paiva (CEO), Nelson Jamel (CFO) and Nelson Jamel (IRO) Web: http://ambev.com.br/

EBITDA by region (2015E)

EBITDA by product (2015E)



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 34,696 38,073 41,919 45,869 16,081 16,473 16,123 16,989 YoY change (%) 7.6 9.7 10.1 9.4 (2.5) 2.4 (2.1) 5.4Gross Profit 23,391 25,143 28,002 30,842 10,841 10,879 10,770 11,423 YoY change (%) 6.6 7.5 11.4 10.1 (3.4) 0.3 (1.0) 6.1EBITDA 17,375 18,380 20,519 22,709 8,053 7,953 7,892 8,411 YoY change (%) 10.9 5.8 11.6 10.7 0.5 (1.2) (0.8) 6.6 As % of Revenue 50.1 48.3 48.9 49.5 50.1 48.3 48.9 49.5Operating Income 15,371 16,149 18,136 20,182 7,124 6,988 6,975 7,475 YoY change (%) 10.6 5.1 12.3 11.3 0.2 (1.9) (0.2) 7.2 As % of Revenue 44.3 42.4 43.3 44.0 44.3 42.4 43.3 44.0Financial Results (1,566) (1,222) (1,589) (1,648) (726) (529) (611) (610)Taxes (2,496) (2,483) (2,752) (3,336) (1,157) (1,074) (1,058) (1,236)Net Profit 11,095 12,191 13,514 14,883 5,142 5,275 5,198 5,512 YoY change (%) 5.9 9.9 10.9 10.1 (4.1) 2.6 (1.5) 6.0 As % of Revenue 32.0 32.0 32.2 32.4 32.0 32.0 32.2 32.4

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (2,005) (2,230) (2,382) (2,527) (929) (965) (916) (936)Other Noncash Items (576) (1,575) (817) (1,045) (267) (682) (314) (387)Changes in Working Capital (584) 137 348 460 (270) 59 134 170Operating Cash Flow 11,941 12,983 15,428 16,826 5,534 5,618 5,934 6,232Capital Expenditures (4,530) (2,542) (3,265) (3,431) (2,100) (1,100) (1,256) (1,271)Free Cash Flow 7,736 11,779 12,980 14,439 3,586 5,096 4,992 5,348Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt (250) (237) 0 0 (116) (103) 0 0Dividends (4,989) (10,972) (12,163) (13,395) (2,312) (4,748) (4,678) (4,961)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 11,574 10,806 10,806 10,806 4,940 4,238 4,078 3,929Current Assets 20,470 20,424 21,261 22,143 8,737 8,009 8,023 8,052Fixed Assets 48,204 47,552 48,434 49,338 20,574 18,648 18,277 17,941Total Assets 68,674 67,976 69,695 71,481 29,310 26,657 26,300 25,993Current Liabilities 17,181 17,869 19,054 20,397 7,333 7,007 7,190 7,417Long-Term Liabilities 7,496 6,584 6,584 6,584 3,199 2,582 2,484 2,394Shareholders' Equity 42,839 42,389 42,923 43,367 18,284 16,623 16,198 15,770Total Financial Debt 2,894 2,657 2,657 2,657 1,235 1,042 1,003 966ST Debt 1,041 870 870 870 444 341 328 316LT Debt 1,854 1,787 1,787 1,787 791 701 674 650

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt (8,680) (8,149) (8,149) (8,149) (3,705) (3,196) (3,075) (2,963)Capital Employed 51,493 50,107 50,641 51,085 21,978 19,650 19,110 18,576Net Debt/EBITDA (0.5) (0.4) (0.4) (0.4) (0.5) (0.4) (0.4) (0.4)Net Debt/Equity (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (0.2)Capex/Revenue (%) 13.1 6.7 7.8 7.5 13.1 6.7 7.8 7.5Int Cover (%) 10.6 15.0 12.9 13.8 10.6 15.0 12.9 13.8Dividend Payout (%) 47.6 98.9 99.8 99.1 43.1 90.7 87.8 98.5ROCE (%) 34.7 37.2 41.2 46.0 37.5 41.3 41.5 46.0ROE (%) 30.9 28.6 31.7 34.5 31.9 30.4 31.7 34.5



US$R$

Brazil70.0%

Quinsa + HILA

20.1%

Canada9.9%

Beer86.9%

Soft Drinks13.1%

Anheuser-Busch InBev62.0%

FAHZ10.0%

Free Float28.0%

37



ARTERIS HOLD CURRENT PRICE: R$12.40


Investment Case: We continue to see Arteris as a quality play in the infrastructure sector in Brazil due to its seasoned management and its shareholder structure. However, on December 8, we adjusted our target price to reflect (i) a more negative traffic estimate, (ii) management’s new capex estimate, and (iii) the R$140 million fine imposed by ANTT. The net impact was a reduction of R$8.00 per share in our target price (36%), leaving 13% potential upside, notenough to justify a Buy rating.

Outlook 2015: Our 2015 GDP growth estimate of 0.3%, in-line with 2014, implies another year of somewhat weak results. We expect traffic growth of only 1.3% on top of just 1.0% in 2014. In 2015, we estimate (1) top-line growth of 8%, (2) EBITDA growth of 12%, and (3) net profit down 7%. This compares with our 2014 estimates of (1) top-line growth of 7%, (2) EBITDA up 7%, and (3) flat net profit.

Two potential upsides to valuation: We believe Arteris has two clear potential routes to achieving upside to our valuation: (1) a moreaggressive cost-cutting plan than the R$60 million per annum announced at the Abertis investor day on September 9-10 in Rio de Janeiro; and (ii) potential amendments of R$1.3 billion in existing concessions, which could imply an additional R$1.20 per share, or 9%, on top of our current valuation.

Risk to financial results: Since the second round of presidential elections on October 26, 2014, the Brazilian Central Bank has increased rates by 75 bps, and we expect another 75-bp increase in the short term. Unlike CCR, which has ~90% of debt linked to the Selic, Arteris, like Ecorodovias, has only 20%. However, it has the highest percentage of debt with the BNDES (53%), and while our estimates do not include any increase in TJLP, we believe there is areal risk that this could go higher.



Company Statistics



Bloomberg ARTR3 BZCurrent Price (01/02/15) R$ 12.40 / US$ 4.61Target Price (YE 2015) R$ 14.00 / US$ 5.1752-Week Range (R$) 11.70 - 19.50Market Capitalization (US$ Mn) 1,587Float (%) 31.03-Mth Avg. Daily Vol (US$ Mn) 2.7Shares Outstanding - Mn 344

60

80

100

120

140

J-13 M-13 A-13 D-13 A-14 A-14 D-14

ARTR3 BZ IBOVESPA

38

ARTERIS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Arteris currently operates four state concessions in São Paulo and five federal concessions. Arteris’s concessions are located in the Southeast and Southern regions, where about three quarters of the country’s GDP is concentrated. The company’s IPO was held on July 14, 2005, with shares listed in the Bovespa’s Novo Mercado (New Market). Key Personnel: David Díaz Almazán (CEO), Felipe Ezquerra (CFO) and Alessandro Scotoni Levy (IR Director) Web: www.arteris.com.br





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 2,119 2,266 2,457 2,688 982 967 934 952 YoY change (%) 5.8 7.0 8.4 9.4 (4.1) (1.5) (3.4) 1.8Gross Profit - - - - - - - - YoY change (%) - - - - - - - -EBITDA 1,429 1,530 1,709 1,894 662 653 650 670 YoY change (%) 8.7 7.1 11.7 10.8 (1.5) (1.4) (0.5) 3.2 As % of Revenue 67.4 67.5 69.5 70.5 67.4 67.5 69.5 70.5Operating Income 947 1,036 1,153 1,218 439 442 438 431 YoY change (%) 13.2 9.4 11.3 5.6 2.5 0.7 (0.8) (1.7) As % of Revenue 44.7 45.7 46.9 45.3 44.7 45.7 46.9 45.3Financial Results (278) (325) (489) (588) (129) (139) (186) (208)Taxes (203) (242) (226) (214) (94) (103) (86) (76)Net Profit 466 469 438 416 216 200 167 147 YoY change (%) 15.6 0.5 (6.6) (5.1) 4.7 (7.5) (16.7) (11.6) As % of Revenue 22.0 20.7 17.8 15.5 22.0 20.7 17.8 15.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 288 336 397 530 133 143 151 188Other Noncash Items - - - - - - - -Changes in Working Capital 0 0 0 0 0 0 0 0Operating Cash Flow 1,041 1,124 1,263 1,430 482 480 480 506Capital Expenditures (1,330) (1,842) (1,684) (1,012) (616) (786) (640) (358)Free Cash Flow 351 234 227 213 163 100 86 76Other Invest./(Divestments) - - - - - - - -Change in Debt 641 1,233 1,041 259 297 526 396 92Dividends (192) (234) (227) (213) (89) (100) (86) (76)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 930 930 930 930 397 365 343 316Current Assets 1,161 1,161 1,161 1,161 496 455 429 395Fixed Assets 5,951 7,457 8,743 9,225 2,540 2,924 3,226 3,138Total Assets 7,369 8,875 10,162 10,644 3,145 3,480 3,750 3,620Current Liabilities - - - - - - - -Long-Term Liabilities - - - - - - - -Shareholders' Equity 1,880 2,115 2,326 2,528 802 829 858 860Total Financial Debt 4,125 5,357 6,398 6,657 1,760 2,101 2,361 2,264ST Debt - - - - - - - -LT Debt 4,125 5,357 6,398 6,657 1,760 2,101 2,361 2,264


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 14.1 9.1 9.7 10.3 12.9 8.0 9.5 10.8P/CE 36.7 32.1 n/m - 33.6 28.3 n/m -FV/EBITDA 6.8 5.7 5.7 5.3 6.3 5.1 5.5 5.3FV/EBIT 10.3 8.4 8.4 8.2 9.4 7.6 8.2 8.2FV/Revenue 4.6 3.8 4.0 3.7 4.2 3.5 3.9 3.7P/BV 3.5 2.0 1.8 1.7 3.5 1.9 1.8 1.8FCF Yield (%) 5.4 5.5 5.3 5.0 5.9 6.2 5.4 4.8Div Yield (%) 2.9 5.5 5.3 5.0 3.2 6.2 5.4 4.8

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 1.35 1.36 1.27 1.21 0.63 0.58 0.48 0.43DPS (0.56) (0.68) (0.66) (0.62) (0.26) (0.29) (0.25) (0.22)BVPS 5.46 6.14 6.75 7.34 2.33 2.41 2.49 2.50

US$R$

State Concesssio

ns58.2%

Federal Concession

s41.8%

State Concesssio

ns69.6%

Federal Concession

s30.4%

Controlling block69.3%

Free Float30.7%

39


BRAZIL—RETAIL & CONSUMER GOODS

B2W DIGITAL HOLD CURRENT PRICE: R$21.99



Investment Case: We maintain a Hold rating on B2W, as we believe the company will be able to sustain superior top-line growth, further develop its margin expansion initiatives (sales mix diversification, market place developments, and operating leverage) and eventually turn bottom-line positive (supported by deleveraging), although we see limited upside given the strong share performance in 2014 (+80%). Cash flow generation and increasing/sustaining market share in Brazil remain uncertain, but we are confident that operating improvements (including higher service levels) will be supportive and should help turn bottom-line losses into gains. The stock is trading at 0.6x sales 2015E.

Outlook for 2015: We expect the Brazilian e-commerce industry to sustain ~20% YoY growth in 2015, with B2W to continue gaining market share based on maturing marketplace operations and enhanced sales mix. In our view, the company’s mix diversification away from electronic goods and into more profitable categories provides greater resilience in a weak economic environment and should support further market share gains. We anticipate 28% YoY sales growth combined with EBITDA margin expansion (+40 bps YoY) and reduced leverage ratios to translate into net profit for 2015of ~R$76 million).

Catalysts: We believe B2W’s investments in logistics and technology will continue to support improved services levels and allow for further market share gains in the industry, while we anticipate that the shift in sales mix into more profitable categories (e.g., apparel) and the development of its marketplace channel will offer margin expansion opportunities and improved cash flow. Moreover, we believe its improved debt structure should improve bottom-line visibility.

Concerns: Main risks to our investment case include (1) increased competition, (2) lower credit availability, (3) higher capex requirements, and (4) still limited margins and earnings visibility.



Jessica Bessa* Brazil: Banco Santander S.A. +5511-3553-9602 | [email protected]

Company Statistics



Bloomberg BTOW3 BZCurrent Price (01/02/15) R$ 21.99 / US$ 8.17Target Price (YE 2015) R$ 26.00 / US$ 9.5952-Week Range (R$) 12.97 - 40.59Market Capitalization (US$ Mn) 2,085Float (%) 44.53-Mth Avg. Daily Vol (US$ Mn) 4.7Shares Outstanding - Mn 255

0

50

100

150

200

250

300

J-13 M-13 A-13 D-13 A-14 A-14 D-14

BTOW3 BZ IBOVESPA

40

B2W DIGITAL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

B2W DIGITAL is the leading e-commerce player in Latin America. The Company operates through a multichannel, multibrand platform, including highly recognized banners such as Americanas.com, Submarino, Shoptime and Sou Barato (Online Outlet) besides the online services sites B2W Viagens (Online Travel), Ingresso.com (Online Ticket), Submarino Finance (Consumer Finance) and BLOCKBUSTER® Online (Entertainment), offering more than 700,000 items in 38 different categories and services through the internet, telesales, catalogs, TV and kiosks distribution channels. Key Personnel: Miguel Gutierrez (Chairman), Anna Saicali (CEO), Murilo Corrêa (CFO) and Fabio Abrate (Investor Relations Director) Web: www.b2wdigital.com

Sales by Category, 2013

Sales by Payment Type, 9M14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 6,089 7,916 10,098 12,416 2,822 3,371 3,840 4,395 YoY change (%) 26.6 30.0 27.6 23.0 14.7 19.5 13.9 14.5Gross Profit 1,508 1,930 2,485 3,098 699 822 945 1,097 YoY change (%) 32.2 28.0 28.8 24.7 19.7 17.6 15.0 16.1EBITDA 431 578 774 1,034 200 246 294 366 YoY change (%) 31.9 34.0 34.0 33.5 19.5 23.2 19.6 24.3 As % of Revenue 7.1 7.3 7.7 8.3 7.1 7.3 7.7 8.3Operating Income 273 394 602 834 127 168 229 295 YoY change (%) 75.3 44.2 52.9 38.6 58.8 32.5 36.6 29.0 As % of Revenue 4.5 5.0 6.0 6.7 4.5 5.0 6.0 6.7Financial Results (513) (663) (487) (530) (238) (282) (185) (188)Taxes 81 94 (39) (103) 37 40 (15) (37)Net Profit (160) (175) 76 201 (74) (75) 29 71 YoY change (%) 8.0 (10.0) n/m 163.7 16.7 (1.1) n/m 145.5 As % of Revenue (2.6) (2.2) 0.8 1.6 (2.6) (2.2) 0.8 1.6

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (103) (151) (149) (177) (48) (64) (57) (62)Other Noncash Items 1,175 1,145 890 875 544 488 338 310Changes in Working Capital (522) (564) (296) (261) (242) (240) (112) (92)Operating Cash Flow 390 255 521 638 181 109 198 226Capital Expenditures (714) (894) (751) (649) (331) (381) (285) (230)Free Cash Flow 101 79 91 339 47 34 35 120Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 822 (1,815) 0 0 381 (773) 0 0Dividends 0 0 0 0 0 0 0 0Capital Increases/Other 11 2,407 0 0 5 1,025 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,879 1,832 1,602 1,592 802 719 591 541Current Assets 4,143 4,316 4,680 5,166 1,768 1,693 1,727 1,757Fixed Assets 2,471 3,441 4,043 4,515 1,055 1,349 1,492 1,536Total Assets 6,614 7,757 8,723 9,681 2,823 3,042 3,219 3,293Current Liabilities 2,556 3,181 4,070 4,828 1,091 1,247 1,502 1,642Long-Term Liabilities 3,228 1,516 1,516 1,516 1,378 594 559 515Shareholders' Equity 830 3,061 3,137 3,338 354 1,200 1,158 1,135Total Financial Debt 3,581 1,766 1,766 1,766 1,528 693 652 601ST Debt 507 347 347 347 216 136 128 118LT Debt 3,074 1,419 1,419 1,419 1,312 557 524 483

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 1,702 (66) 164 174 726 (26) 60 59Capital Employed 4,057 4,576 4,652 4,853 1,732 1,795 1,717 1,651Net Debt/EBITDA 3.9 (0.1) 0.2 0.2 3.6 (0.1) 0.2 0.2Net Debt/Equity 2.1 (0.0) 0.1 0.1 2.2 (0.0) 0.1 0.1Capex/Revenue (%) 11.7 11.3 7.4 5.2 11.7 11.3 7.4 5.2Int Cover (%) 0.6 0.6 0.9 1.0 0.6 0.6 0.9 1.0Dividend Payout (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0ROCE (%) 8.7 10.6 12.1 15.1 9.3 11.8 12.2 15.1ROE (%) (17.7) (9.0) 2.5 6.2 (17.9) (9.9) 2.5 6.2

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E - - n/m 28.0 - - n/m 29.4P/CE - - 24.9 14.9 - - 24.4 15.6FV/EBITDA 9.0 9.8 7.5 5.6 8.3 8.7 7.3 5.9FV/EBIT 14.2 14.4 9.6 6.9 13.1 12.7 9.4 7.3FV/Revenue 0.6 0.7 0.6 0.5 0.6 0.6 0.6 0.5P/BV 2.6 1.9 1.8 1.7 2.6 1.8 1.8 1.8FCF Yield (%) 4.6 1.4 1.6 6.0 5.1 1.6 1.7 5.8Div Yield (%) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0)

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS (1.00) (0.69) 0.30 0.79 (0.46) (0.29) 0.11 0.28DPS 0 0 0 0 0 0 0 0BVPS 5.22 11.99 12.29 13.07 2.23 4.70 4.53 4.45

US$R$

Durables45.0%Entertainme

nt20.0%

Others35.0%

Credit Cards65.0%

Others35.0%

Lojas Americanas (Controlling

Group)55.5%

Free Float44.5%

41


BRAZIL—FINANCIAL SERVICES

BANCO DO BRASIL BUY CURRENT PRICE: R$22.65



Investment Case: We believe the Rousseff administration’s appointment of a new economic team heralds a potential transition in strategy toward strengthening public sector banks’ balance sheets. Therefore, we expect BBAS to start to address the challenges from the transition to Basel III with a strategy to defend margins, contain costs, and reduce capital consumption via slower loan growth, as thebanks seems to have exhausted their options to realize capital gains from the sale of operating revenue to listed subsidiaries (Cielo and BB Seguridade). We view positively the reinforcement of this change in strategy, which started around a year ago.

Outlook 2015: We expect BBAS’s loans to post another slowdown to 9% growth. We expect NIMs (ex insurance) to expand 48 bps to 4.50%, as the bank’s longer-duration portfolio finally reprices at higher spreads. We anticipate some asset quality deterioration (around 40 bps in adjusted NPLs, including 12-month-trailing write-offs). We expect opex growth slightly ahead of inflation.

Capital deficit of R$45 billion, estimated as the difference between our estimate of BBAS’s fully loaded Basel III CT1 2015E (including the sale of BB’s net interchange to Cielo) and our estimate of the group’s consolidated capital requirement (10.9%). While the bank could still realize capital gains via further asset sales, we believe that a capital increase may still be needed unless BBAS cuts its dividend payment and/or the size of its loan portfolio by YE2018.

New economics minister, new management? We believe that a new management team is likely to take over at BBAS in early 2015, as management turnover tends to follow changes in the Brazilian government’s economic team.

How long can asset quality outperform? We expect only a modest deterioration in BBAS’s NPLs over the next two years, under our assumptions of GDP growth of 0.3% in 2015 and 1.3% in 2016; however, this may prove to be optimistic.


Henrique Navarro* Brazil: Banco Santander S.A. +5511-3012-5756 | [email protected]

Renata Cabral* Brazil: Banco Santander S.A. +5511-3012-5731 | [email protected]

Company Statistics



Bloomberg BBAS3 BZCurrent Price (01/02/15) R$ 22.65 / US$ 8.41Target Price (YE 2015) R$ 30.00 / US$ 11.0752-Week Range (R$) 18.70 - 37.46Market Capitalization (US$ Mn) 23,632Float (%) 31.63-Mth Avg. Daily Vol (US$ Mn) 96.3Shares Outstanding - Mn 2,809

60

80

100

120

140

160

J-13 M-13 A-13 D-13 A-14 A-14 D-14

BBAS3 BZ IBOVESPA

42

BANCO DO BRASIL Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Banco do Brasil is Brazil’s leading bank, with total assets of approximately US$546 billion as of 4Q14E, and approximately a 21.2% market share in loans and 23.9% in deposits in Brazil, the highest in the country. The bank has a 50% stake in Banco Votorantim, which boosts its presence in the auto financing market, and has a plan to expand its presence in Latin America and in the USA. Banco do Brasil has a listed subsidiary which encompasses its insurance brokerage and underwriting operations which is the second-largest insurance group in the country. Insurance underwriting is done largely via a joint venture with Spain's Mapfre. The bank is majority owned by the Brazilian National Treasury and its CEO is appointed by the Brazilian government. The bank has a regulatory mandate to lend to the agricultural sector in Brazil under several government-sponsored programs. Key Personnel: Nelson Henrique Barbosa Filho (Chairman), Aldemir Bendini (CEO), Ivan de Souza Monteiro (CFO) and Leonardo Loyola (IRO) Web: www.bb.com.br

Loan Book, 2015E

Revenue Structure, 2015E



INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Interest Income 45,980 51,316 56,484 62,292 21,303 21,800 21,089 22,050NPL Provisions (12,326) (14,773) (21,681) (24,032) (5,711) (6,276) (8,095) (8,507)Adj Net Interest Income 33,654 36,543 34,802 38,260 15,592 15,524 12,994 13,543Non-Interest Income 29,752 32,836 41,535 47,179 13,785 13,949 15,507 16,701Total Operating Revenue 63,406 69,379 76,338 85,439 29,377 29,474 28,501 30,244Non-Interest Expense (50,278) (54,129) (57,183) (61,735) (23,295) (22,995) (21,350) (21,853)Profit Before Taxes 13,295 15,424 19,155 23,705 6,160 6,553 7,152 8,391Taxes (3,213) (3,507) (5,151) (6,772) (1,489) (1,490) (1,923) (2,397)Net Profit 15,758 11,351 15,860 15,029 7,301 4,822 5,921 5,320Adjusted Net Profit 11,230 9,306 17,612 18,507 5,203 3,953 6,575 6,551

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 11,834 12,280 13,828 17,455 5,009 4,640 5,102 5,937Securities 201,939 229,296 264,953 324,453 85,480 86,632 97,769 110,358Loans (net) 599,678 672,354 728,716 803,156 253,843 254,025 268,899 273,182Intangible Assets 17,205 15,703 13,422 11,293 7,283 5,933 4,953 3,841Total Assets 1,303,915 1,445,737 1,555,891 1,727,610 551,945 546,221 574,130 587,623Core Deposits 463,858 462,402 523,114 592,191 196,350 174,702 193,031 201,426Other Financial Liabilities 366,212 452,631 442,036 482,795 155,017 171,011 163,113 164,216Subordinated Debt 63,433 59,062 66,042 68,246 26,851 22,314 24,370 23,213Technical Provisions 77,729 102,071 134,258 172,423 32,903 38,564 49,542 58,647Equity 72,225 83,282 94,101 104,675 30,573 31,465 34,724 35,604Adjusted Equity 67,420 78,731 93,364 107,757 28,539 29,746 34,452 36,652

LOAN BOOK 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECompanies 242,024 261,748 280,265 305,282 102,448 98,892 103,419 103,837Total Consumer 149,160 153,218 162,212 176,041 63,139 57,888 59,857 59,878Mortgages 18,458 28,803 39,532 48,164 7,813 10,882 14,587 16,382Other Loans 195,134 224,642 243,958 272,622 82,600 84,873 90,021 92,729Gross Loans 623,340 699,066 763,228 844,047 263,859 264,118 281,634 287,091Loan Growth (%) 18.6 12.1 9.2 10.6 2.8 0.1 6.6 1.9NPL 12,346 14,486 17,892 19,686 5,226 5,473 6,602 6,696Provisions (23,662) (26,712) (34,512) (40,891) (10,016) (10,092) (12,735) (13,909)


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EAdj. P/BV 0.8 0.6 0.6 0.5 0.7 0.6 0.6 0.5Adj. P/E 7.0 8.9 4.4 4.1 6.3 7.5 4.4 4.2Div Yield (%) 9.2 6.8 7.1 7.1 10.1 7.6 7.1 6.8


US$R$

Abroad7.5%

SME14.3%

Corporate22.4%

Consumer26.4%

Agri-business24.5%

NII42.4%

Fees37.5%

Insur.8.7%

Other 11.5%

National Treasury57.9%

Previ10.4%

Free Float31.6%

43



BANCO PINE BUY CURRENT PRICE: R$6.04


INTRODUCING YE2015 TARGET PRICE OF R$7.20; REPLACING YE2014 TARGET PRICE OF R$13.00 Investment Case: We reiterate our Buy rating on Banco Pine based

on a compelling valuation associated with the conservative approachadopted by management. Earnings disappointments, triggered by a higher loan provision due to re-rating by clients, led to a significant decline in reported ROE in 2014, to ~9%. The downward revision in the profitability level is the main reason for our lower target price for YE2015. In our opinion, a turnaround in profitability should come in 2016 onward, which should lead to profitability levels in the mid-teens on a sustained basis.

Outlook 2015: Pine has opted for a more cautious approach, maintaining excess liquidity and conservative provisioning policies. This is something of a drag on potential profitability and will probablycap ROE in 2015 at ~10%, in our view. As a wholesale bank, Pine has stayed ahead of macro headwinds by loan portfolio de-risking, focusing on lower-risk sectors and slower growth, and limiting corporate lending to selected industries. We believe loan growth should continue to be modest in 2015. With such ROE levels in the short term, we see no room for mid-sized banks to perform much above the 1.0x P/BV level.

Strong capital ratios. Banco Pine has a strong capital structure and continues to carry out operations as efficiently as before, in our opinion. We believe the solid capital ratio, at ~12.8%, coupled with the softer loan growth we estimate for the next year, leaves the bank without stress to face the more stringent Basel III requirements.


Boris Molina New York: Santander Investment Securities Inc. +1-212-350-3977| [email protected]


Company Statistics



Bloomberg BZ / PINE4 BZ / PINE4 BZCurrent Price (01/02/15) R$ 6.04 / R$ 6.04Target Price (YE 2015) R$ 7.20 / R$ 7.2052-Week Range (R$) 5.52 - 9.05Market Capitalization (US$ Mn) 244Float (%) 23.53-Mth Avg. Daily Vol (US$ Mn) 0.1Shares Outstanding - Mn 109

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

PINE4 BZ IBOVESPA

44

BANCO PINE Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Banco Pine was founded in 1997 and is majority controlled by Mr. Norberto Nogueira Pinheiro, who holds about 70% of the total shares. The bank specializes in the corporate segment, with a focus on middle and upper-middle cap companies. Banco Pine also offers a range of credit products in both local and foreign currency, besides financial and strategic advisory services, treasury and investments products—all of which are ways the bank intends to differentiate itself among mid-cap Brazilian banks. Its network comprises nine branches, including its headquarters in São Paulo. The bank executed its IPO on the Bovespa in April 2007. Key Personnel: Noberto Nogueira Pinheiro (Chairman), Noberto Nogueira Pinheiro Junior (CEO) and Norberto Zaiet (CFO) Web: www.bancopine.com.br





INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Interest Income 389 399 471 523 180 172 181 194NPL Provisions (101) (14) (100) (106) (47) (6) (38) (39)Adj Net Interest Income 288 385 371 416 134 166 143 154Non-Interest Income 120 72 59 65 55 31 23 24Total Operating Revenue 479 506 491 544 222 218 189 201Non-Interest Expense (112) (306) (172) (225) (52) (132) (66) (83)Profit Before Taxes 229 188 223 245 106 81 86 91Taxes (31) (31) (63) (70) (14) (14) (24) (26)Net Profit 162 117 127 143 75 51 49 53Adjusted Net Profit 271 505 166 180 126 217 64 67

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 157 163 97 98 73 70 37 36Securities 3,183 3,781 2,891 2,934 1,475 1,626 1,112 1,087Loans (net) 6,196 7,120 7,120 7,429 2,872 3,062 2,738 2,751Intangible Assets 2 2 2 2 1 1 1 1Total Assets 10,545 10,923 11,077 11,233 4,887 4,697 4,260 4,160Core Deposits 3,156 2,962 3,270 3,609 1,463 1,274 1,258 1,337Other Financial Liabilities 1,738 1,800 1,825 1,851 805 774 702 686Subordinated Debt 0 140 140 140 0 60 54 52Technical Provisions 0 0 0 0 0 0 0 0Equity 1,272 1,311 1,374 1,445 590 564 528 535Adjusted Equity 1,271 1,310 1,373 1,444 589 563 528 535

LOAN BOOK 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECompanies 7,021 7,120 7,120 7,429 3,254 3,062 2,738 2,751Total Consumer 0 0 0 0 0 0 0 0Mortgages 0 0 0 0 0 0 0 0Other Loans 0 0 0 0 0 0 0 0Gross Loans 9,930 10,132 10,143 10,638 4,603 4,357 3,901 3,940Loan Growth (%) 24.9 2.0 0.1 4.9 13.2 (5.3) (10.5) 1.0NPL 173 135 130 130 80 58 50 48Provisions (186) (151) (140) (139) (86) (65) (54) (51)

KEY RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENIM 275.55 298.92 378.70 385.10 275.55 298.92 378.70 385.10Risk Charge 1.02 0.14 0.99 1.00 1.02 0.14 0.99 1.00Operating Revenue / ATAs 211.45 161.44 194.29 210.99 211.45 161.44 194.29 210.99Cost / ATAs 3.09 2.52 2.50 2.75 3.09 2.52 2.50 2.75Adj Efficiency 4,813.2 5,195.2 4,489.4 4,724.3 4,813.2 5,195.2 4,489.4 4,724.3Effective Taxes 1,352.1 1,669.5 2,840.0 2,863.2 1,352.1 1,669.5 2,840.0 2,863.2Reported ROE (%) 12.9 9.2 9.5 10.1 12.9 9.2 9.5 10.1Adj ROE (%) 14.8 5.7 10.9 11.6 14.8 5.7 10.9 11.6NPL Ratio 174.59 133.01 128.65 122.04 174.59 133.01 128.65 122.04Adj NPL Ratio 1.75 1.33 1.39 1.33 1.75 1.33 1.39 1.33Loans / Total Assets 5,876.0 6,517.9 6,427.4 6,613.2 5,876.0 6,517.9 6,427.4 6,613.2Loans / Core Deposits 19,631.2 24,034.4 21,773.9 20,582.1 19,631.2 24,034.4 21,773.9 20,582.1RWA % Total Assets 879.7 151.7 145.7 148.5 879.7 151.7 145.7 148.5Core Tier I Ratio (%) 1.3 7.9 8.5 8.7 1.3 7.9 8.5 8.7Dividend Payout (%) 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0



US$R$

Working Capital42.5%onlendings

10.7%

Guarantees26.6%

Others20.2%

Loans39.0%

Securities38.7%

Fee income8.5%

Others13.7%

Norberto Nogueira Pinheiro68.2%

Mgmt.5.4%

Free float26.4%

45



BB SEGURIDADE BUY CURRENT PRICE: R$30.47


Investment Case: BB Seguridade delivered a strong set of results for 9M14, reaching 51.3% ROE, which is above its 2014 guidance range of 44-49%. We believe that BB Seguridade will surpass the high end of its ROE guidance for full year 2014, as we think its penetration story within Banco do Brasil’s client base should exceed expectations. We also note that in the case of BB Seguridade, “above estimates” net income normally results in forward net income estimates being revised upward, due to the nature of part of its business (pension plans and number of insured lives/vehicles/contracts, etc.). Thus, we see upside risk for the industry’s 2015 and 2016 bottom lines.

Outlook 2015: At the last BB Seguridade Day (November 2014), management said they foresee a good 2015 despite the difficult macroeconomic environment ahead. Although they did not provide guidance, we read this as supporting 21.3% EPS growth YoY, topping that of the other companies under our coverage.

The high-growth story continues. We expect a 22.4% net income CAGR for 2013-16E, well above that of the Brazilian financial industry as a whole.

Penetration is king. Insurance penetration within Banco do Brasil’s client base reached 13.7% during 2014, according to BB Seguridade. Even better, this ratio was stable QoQ, as Banco doBrasil’s client base has increased at nearly the same pace as insurance sales.

Why we believe the insurance penetration story between Banco do Brasil and BB Seguridade has room to grow substantially: (i) Bradesco, a good proxy, has much higher insurance penetration ratios, as it has focused on insurance for much longer; (ii) Banco do Brasil has a larger client base than Bradesco; and (iii) BB Seguridade could surpass Bradesco’s penetration ratios due to what we consider to be Banco do Brasil’s stronger commitment to sell insurance.




Company Statistics



Bloomberg BBSE3 BZCurrent Price (01/02/15) R$ 30.47 / US$ 11.32Target Price (YE 2015) R$ 41.50 / US$ 3.9752-Week Range (R$) 21.83 - 35.74Market Capitalization (US$ Mn) 22,637Float (%) 33.83-Mth Avg. Daily Vol (US$ Mn) 50.5Shares Outstanding - Mn 2,000

50

100

150

200

250

A-13 A-13 D-13 A-14 A-14 D-14

BBSE3 BZ IBOVESPA

46

BB SEGURIDADE Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

BB Seguridade is a holding company that consolidates all of Banco do Brasil’s insurance companies-therefore it holds stakes in companies specializing in insurance (life, auto, P&C and others), capitalization, open private pension plans and brokerage. It was formed at the end of 2012, and then IPO'd at the beginning of 2013. Banco do Brasil is the majority shareholder. Key Personnel: Alexandre Corrêa Abreu (Chairman), Marcelo Augusto Dutra Labuto (CEO) and Werner Romera Suffert (CFO) Web: www.bancodobrasilseguridade.com.br

Valuation Breakdown, 2015E

EPS 3-Year CAGR, 2013–16E



INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EWritten Premiums 30,104 37,562 45,541 52,468 3,374 3,798 4,358 4,836 Growth (%) 34.4 24.8 21.2 15.2 19.4 12.6 14.7 11.0Retained Premiums 30,104 37,562 45,541 52,468 3,374 3,798 4,358 4,836 Growth (%) 34.4 24.8 21.2 15.2 19.4 12.6 14.7 11.0Earned Premiums 8,091 9,621 10,761 12,022 907 973 1,030 1,108 Growth (%) 38.9 18.9 11.8 11.7 23.3 7.3 5.8 7.6Commissions and Expenses (6,335.0) (7,627.4) (8,530.7) (9,553.1) (709.9) (771.3) (816.3) (880.5)Underwriting Results 1,254 1,604 1,447 1,643 140 162 138 151Financial Result 778 1,192 1,576 1,863 87 121 151 172Equity Income (27) (19) 0 0 (3) (2) 0 0Profit Before Taxes 2,143 3,096 3,945 4,599 240 313 377 424Taxes (602) (1,112) (1,422) (1,670) (67) (112) (136) (154)Net Profit 2,474 3,240 3,929 4,537 277 328 376 418 Growth (%) 99.5 31.0 21.3 15.5 77.1 18.2 14.8 11.2

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,785 2,983 3,133 3,139 200 302 300 289Financial Assets 3 1 1 1 0 0 0 0Premiums Receivable 0 0 0 0 0 0 0 0Intangible Assets 94 137 137 137 11 14 13 13Tangible Assets 509 568 568 568 57 57 54 52Total Assets 8,785 10,558 11,759 12,974 985 1,068 1,125 1,196Current Liabilities 1,844 3,213 4,021 4,782 207 325 385 441Technical Provisions 509 568 568 568 57 57 54 52Other Provisions 1,022 1,934 2,604 3,218 115 196 249 297Debt and Financial Liabilities 345 805 943 1,090 39 81 90 100Minority Interest 0 0 0 0 0 0 0 0Equity 6,941 7,345 7,738 8,192 778 743 740 755

OPERATING RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EClaims Ratio 40.9 43.3 40.8 40.6 40.9 43.3 40.8 40.6Sales Ratio 26.6 26.1 26.3 26.5 26.6 26.1 26.3 26.5Admin Ratio 10.8 9.9 12.2 12.3 10.8 9.9 12.2 12.3Combined Ratio 78.3 79.3 79.3 79.5 78.3 79.3 79.3 79.5Amplified Combined Ratio 71.4 70.5 69.1 68.8 71.4 70.5 69.1 68.8Effective Tax Rate 28.1 35.9 36.1 36.3 28.1 35.9 36.1 36.3Excess Solvency Margin 3.8 2.3 1.9 1.7 1.7 1.0 0.7 0.6ROAA 30.8 33.5 35.2 36.7 31.5 35.8 35.2 36.7ROAE 39.3 45.4 52.1 57.0 40.2 48.2 52.1 57.0Payout 0.0 80.0 80.0 80.0 0.0 73.4 70.4 79.5

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 19.8 19.8 15.5 13.4 n/m n/m n/m n/mP/CE 19.8 19.8 15.5 13.4 n/m n/m n/m n/mP/BV 7.1 8.8 7.9 7.4 26.7 32.6 30.6 30.0Div Yield (%) (0.0) 3.1 4.3 5.2 (0.0) 0.8 1.1 1.3

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 1.24 1.62 1.96 2.27 0.14 0.16 0.19 0.21CEPS 1.24 1.62 1.96 2.27 0.14 0.16 0.19 0.21BVPS 13.06 14.32 15.17 16.03 1.46 1.45 1.45 1.48DPS 0.99 1.30 1.57 1.81 0.11 0.13 0.15 0.17

US$R$

SH135.8%

SH25.3%

BrasilPrev19.2%

BrasilCap7.9%

BB Corretora

30.8%

IRB1.2%

22.8629.96

21.47

39.11

16.36

SH

1

SH

2

Bra

silP

rev

Bra

silC

ap

BB

Cor

reto

raBanco do

Brasil66.3%

Free Float33.8%

47



BM&F BOVESPA BUY CURRENT PRICE: R$9.50 TARGET PRICE: R$12.30

RAISING YE2015 TARGET PRICE TO R$12.30 FROM R$11.70

Investment Case: We recently lowered our volume and earnings estimates (for details, see our November 13 report, BM&F Bovespa: Saved by the Dividend Bell). Although negative news could continue in the form of stalling volumes, we believe currentdividend levels could lead BVMF3 to outperform the IBOV.

Outlook 2015: With respect to equities and derivatives, we remain a negative outlook for volumes, as 2014 volumes came in below 2013 levels (equities -7%; derivatives -12%). We believe 2015 will face hard comps vs. 2014, due to the lack of elections and the potential sovereign risk downgrade; therefore, we expect another YoY reduction in volumes (equities -15%; derivatives 0%). We save our optimism only for 2016, when we finally expect some recovery (equities +10%; derivatives +2%).

A dividend play company . . . again. At current price levels, BVMF’s dividend yield are at levels high enough to support the stock price, in our view. If our net income estimates are correct (we are 9% below consensus for 2014-16), the dividend yield could top that of the financial segment.

Share buybacks should also help maximize shareholder returns. BVMF is an active user of share buy-back programs to maximize returns for shareholders. The current share-buyback program authorized up to 100 million shares from February through December 2014. In this period, the company repurchased 41.5 million shares at an average price of R$11.02 per share (totaling R$456.9 million). Shares bought under buy-back programs are put into the treasury and regardless of whether they are cancelled or not, dividends are paid over the amount of shares ex treasury. Therefore, BVMF’s share buy-backs increase dividend yields, as the amount to be distributed as dividends is divided by a fewer number of shares.




Company Statistics



Bloomberg BVMF3 BZCurrent Price (01/02/15) R$ 9.50 / US$ 3.53Target Price (YE 2015) R$ 12.30 / US$ 4.5452-Week Range (R$) 8.80 - 14.19Market Capitalization (US$ Mn) 6,705Float (%) 92.33-Mth Avg. Daily Vol (US$ Mn) 74.2Shares Outstanding - Mn 1,900

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

BVMF3 BZ IBOVESPA

48

BM&F BOVESPA Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

BM&F Bovespa (BVMF), the Securities, Commodities, and Futures Exchange was created in 2008 after the merger of the Brazilian Mercantile & Futures Exchange (BM&F) and the São Paulo Stock Exchange (Bovespa). The company offers trading services for equities, securities, financial assets, indices, interest rates, agricultural commodities, and foreign exchange futures and spot contracts, all in a vertically integrated structure. On the derivatives side, BM&F is one of the largest derivatives exchanges in the world per number of contracts traded, the largest in Latin America, and the only futures exchange in Brazil. On the equity side, the Bovespa is the only cash equities exchange in Brazil and responsible for more than half of the total market capitalization of all Latin American exchanges. BVMF has a fully integrated business model and provides execution, registration, clearing, settlement, and custody services. Key Personnel: Pedro Parente (Chairman), Edemir Pinto (CEO), Eduardo Guardia (CFO) and Rogerio Santana (IRO) Web: http://ri.bmfbovespa.com.br/

Bovespa Revenues, 2013A




INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEquities 1,024 956 818 887 437 375 302 302Derivatives 917 857 862 879 391 336 318 299Other 430 413 366 395 183 162 135 134Revenue 2,370 2,226 2,047 2,161 1,012 873 755 735 Growth (%) 3.5 (6.1) (8.0) 5.6 (9.7) (13.7) (13.5) (2.7)EBITDA 1,454 1,368 1,298 1,380 620 536 479 469 Growth (%) 4.2 (5.9) (5.1) 6.3 (9.1) (13.5) (10.7) (2.0)Operating Profit 1,335 1,250 1,191 1,267 570 490 439 431 Growth (%) 2.5 (6.3) (4.8) 6.4 (10.6) (13.9) (10.4) (2.0)Profit Before Taxes 1,688 1,657 1,676 1,868 720 650 619 635Taxes (607) (633) (544) (544) (259) (248) (201) (185)Net Profit 1,080 1,025 1,132 1,324 461 402 418 450 Growth (%) 0.6 (5.1) 10.4 16.9 (12.3) (12.8) 3.9 7.8

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 4,050 2,893 3,194 3,591 1,729 1,135 1,179 1,222Accounts Receivable 54 59 51 56 23 23 19 19Intangible and Deferred Asse 16,672 16,732 16,732 16,732 7,116 6,561 6,174 5,691Tangible Assets 423 450 481 512 181 177 177 174Total Assets 25,897 25,514 26,033 26,715 11,053 10,005 9,606 9,087ST Debt 42 20 20 20 18 8 7 7LT Debt 1,426 1,493 1,493 1,493 609 586 551 508Equity 19,304 19,407 19,528 19,669 8,239 7,611 7,206 6,690Net Debt (Cash) (4,592) (2,871) (4,575) (6,678) (1,960) (1,126) (1,688) (2,271)

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EChanges in Working Capital (24) (40) (20) (20) (10) (16) (7) (7)Operating Cash Flow 229 298 295 346 98 117 109 118Capital Expenditures 289 245 205 151 123 96 76 51Change in Debt (767) 378 434 295 (327) 148 160 100Free Cash Flow to Equity 904 808 855 1,038 386 317 316 353Cash Dividends (865) (865) (923) (1,019) (369) (339) (340) (347)Capital Increase (Decrease) 0 0 0 0 0 0 0 0

OPERATING RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EADTV 7,513 6,952 5,916 6,533 7,513 6,952 5,916 6,533ADTC 2,858 2,523 2,522 2,572 2,858 2,523 2,522 2,572EBITDA Margin 61.3 61.5 63.4 63.9 61.3 61.5 63.4 63.9Effective Tax Rate 35.9 38.2 32.4 29.1 35.9 38.2 32.4 29.1Net Margin 45.6 46.1 55.3 61.3 45.6 46.1 55.3 61.3Net Debt / EBITDA (3.2) (2.1) (3.5) (4.8) (3.2) (2.1) (3.5) (4.8)Net Debt / Equity (0.2) (0.1) (0.2) (0.3) (0.3) (0.2) (0.2) (0.3)FCFE / Revenues 38.1 36.3 41.8 48.0 38.1 36.3 41.8 48.0ROAA 4.3 4.0 4.4 5.0 4.4 4.2 4.4 5.0ROAE 5.6 5.3 5.8 6.8 5.7 5.6 5.8 6.8Payout 80.5 80.1 90.0 90.0 72.9 73.4 79.2 89.4

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 19.5 18.3 15.9 13.6 19.3 17.5 16.0 14.9P/CE 21.9 20.6 17.6 14.9 21.7 19.8 17.7 16.3FV/EBITDA 11.3 11.6 10.4 8.3 11.2 11.0 10.5 9.5FCFE Yield (%) 4.3 4.3 4.7 5.7 4.3 4.5 4.7 5.3P/BV 1.1 1.0 0.9 0.9 1.1 0.9 0.9 1.0Div Yield (%) 4.1 4.6 5.1 5.6 4.1 4.8 5.1 5.2

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 0.56 0.54 0.60 0.70 0.24 0.21 0.22 0.24CEPS 0.46 0.50 0.55 0.65 0.19 0.20 0.20 0.22FCFPS 0.03 0.03 0.03 0.05 0.01 0.01 0.01 0.02BVPS 10.15 10.21 10.27 10.34 4.33 4.00 3.79 3.52DPS 0.46 0.50 0.55 0.65 0.19 0.20 0.20 0.22

US$R$

Trading17.4%

Clearing79.8%

Others2.8%

BM&F38.5%

Bovespa42.9%

Other oper. revenues

18.6%

CME5.3%Treasury

3.2%

Free Float91.5%

49


BRAZIL—CEMENT, CONSTRUCTION, INFRA & RE

BR MALLS BUY CURRENT PRICE: R$15.41


Investment Case: The deceleration in the growth pace for the next couple of years is likely to drive down capex disbursements, in our view, and favor cash generation after 2015. As a result, we expect significant equity value to be created due to the deleveraging process we expect in 2015 and 2016 (net debt/EBITDA 3.8x and 3.0x, respectively, down from 4.3x in 3Q14). The short term remains cloudy due to recent decelerating SSS trends, but we expect the combination of cost discipline, new GLA, and deleveraging to offset potentially lower sales in 2015 and 2016.

Outlook 2015: We expect BRMalls to continue with its portfolio turnover strategy. We believe that a potential sale of mature malls (those with less room for growth/efficiency gains) or even of noncontrolling stakes (a less liquid market, so harder to get a good sale price) would likely be seen as value accretive for the stock. These asset sales could (1) help accelerate BRMalls’ deleveraging process (4.3x net debt/EBITDA by 3Q14), and (2) potentially unlock value in light of the stock’s current discount to the marked-to-market value of the assets.

3Q14 brought concerns on SSS deceleration: Below-inflation SSS (+4.7% in 3Q14) may be seen as a leading indicator of leasing spreads, in our view. Considering that the risk of an imminent slowdown was more apparent to BRMalls than to peers in 3Q14, an additional SSS deceleration in the next few quarters could put the market’s 2016 estimates at risk. Our estimates are already below consensus, but we believe the comparison is not fully applicable dueto the effects of the recent sale of assets and the postponement of delivery of BRMalls’ greenfields to 2016 from 2015.

Strong multiple dilution from 2016 onward: After a 17% stock dive in December (not fully explained by interest rates, in our view), we see BRML3 trading at an attractive 14.6x P/FFO 2015E. In addition, we expect substantial compression in multiples in 2016 (12.3x P/FFO, 18% discount to MULT3), mainly driven by the maturing of the recently delivered mall Shopping Vila Velha as well as six other expansions to be delivered through YE2016.

Bruno Mendonca* Brazil: Banco Santander S.A. +5511-3012-5759 | [email protected]

Renan Manda* Brazil: Banco Santander S.A. +5511 3012-6535 | [email protected]

Company Statistics



Bloomberg BRML3 BZCurrent Price (01/02/15) R$ 15.41 / US$ 5.72Target Price (YE 2015) R$ 22.00 / US$ 8.3052-Week Range (R$) 14.62 - 23.40Market Capitalization (US$ Mn) 2,631Float (%) 69.13-Mth Avg. Daily Vol (US$ Mn) 20.6Shares Outstanding - Mn 460

50

60

70

80

90

100

110

j-13 m-13 a-13 d-13 a-14 a-14 d-14

BRML3 BZ IBOVESPA

50

BR MALLS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

BRMalls Participações S/A is the largest shopping center owner/operator in Brazil. The company has the most geographically diversified portfolio, with a presence in all regions of Brazil. As of the latest figures (September 2014), it had an interest in 50 malls, with an owned GLA of 1,004,068 m², and an average stake of 58.1% in its mall portfolio, which is mostly managed by the company. In addition, the company has 2 greenfield projects and 6 expansions currently under development. BRMalls is a full corporation listed on Bovespa’s Novo Mercado. Key Personnel: Carlos Medeiros (CEO) and Frederico Villa (CFO and IR Officer) Web: www.brmalls.com.br/ri

Owned GLA, 2013–16E ('000 m²)

Rental Revenue, 2013–16E (R$ in millions)



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,304 1,397 1,467 1,658 604 604 564 614 YoY change (%) 16.0 7.1 5.0 13.0 5.1 0.0 (6.6) 8.8Gross Profit 1,194 1,276 1,343 1,516 553 552 517 562 YoY change (%) 16.3 6.9 5.3 12.9 5.3 (0.2) (6.4) 8.7EBITDA 1,040 1,098 1,178 1,329 482 475 453 492 YoY change (%) 18.3 5.6 7.2 12.8 7.1 (1.4) (4.7) 8.7 As % of Revenue 79.7 78.6 80.3 80.2 79.7 78.6 80.3 80.2Operating Income 1,030 1,088 1,168 1,319 477 471 449 488 YoY change (%) 18.9 5.7 7.3 12.9 7.7 (1.3) (4.6) 8.7 As % of Revenue 79.0 77.9 79.6 79.5 79.0 77.9 79.6 79.5Financial Results (581) (528) (520) (546) (269) (228) (200) (202)Taxes (532) (356) (117) (139) (247) (154) (45) (51)Net Profit 680 482 474 565 315 209 182 209 YoY change (%) (61.0) (29.1) (1.7) 19.3 (64.6) (33.8) (12.6) 14.9 As % of Revenue 52.2 34.5 32.3 34.1 52.2 34.5 32.3 34.1

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (10) (10) (10) (10) (5) (4) (4) (4)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (39) 9 (38) (60) (18) 4 (15) (22)Operating Cash Flow 641 491 436 505 297 213 168 187Capital Expenditures (1,434) (626) (401) (360) (665) (271) (154) (133)Free Cash Flow (794) (135) 35 145 (368) (58) 14 54Other Invest./(Divestments) 377 187 141 451 175 81 54 167Change in Debt 132 (15) (327) (302) 61 (7) (126) (112)Dividends (145) (170) (170) (185) (67) (73) (65) (69)Capital Increases/Other (28) (55) (126) (139) (13) (24) (49) (52)

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 409 415 138 308 174 163 52 112Current Assets 973 910 657 894 415 357 248 325Fixed Assets 17,557 18,183 18,583 18,944 7,493 7,131 7,013 6,889Total Assets 19,123 19,758 19,940 20,628 8,162 7,748 7,524 7,501Current Liabilities 1,405 1,107 1,095 1,119 600 434 413 407Long-Term Liabilities 8,251 8,757 8,603 8,842 3,522 3,434 3,247 3,215Shareholders' Equity 8,790 9,172 9,476 9,856 3,752 3,597 3,576 3,584Total Financial Debt 4,767 4,911 4,579 4,272 2,034 1,926 1,728 1,553ST Debt 770 627 627 627 328 246 237 228LT Debt 3,997 4,284 3,951 3,645 1,706 1,680 1,491 1,325


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 11.4 15.7 14.9 12.5 10.5 13.6 14.4 12.6P/CE 11.3 15.3 14.6 12.3 10.3 13.3 14.1 12.3FV/EBITDA 12.2 11.5 10.3 8.8 11.2 10.2 10.0 8.7FV/EBIT 12.4 11.6 10.4 8.8 11.3 10.3 10.1 8.8FV/Revenue 9.8 9.0 8.2 7.0 9.0 8.0 8.0 7.0P/BV 0.9 0.8 0.7 0.7 0.9 0.8 0.7 0.7FCF Yield (%) (10.2) (1.8) 0.5 2.0 (11.2) (2.1) 0.5 2.0Div Yield (%) 1.9 2.2 2.4 2.6 2.0 2.6 2.5 2.6


US$R$

974.81

1004.071025.19

1100.12

2013

2014

E

2015

E

2016

E

999.401076.00 1124.63

1287.69

2013

2014

E

2015

E

2016

E

Dodge & Cox

13.4%

T. Rowe Price

11.3%Board5.8%

Others69.5%

51



BR PROPERTIES HOLD CURRENT PRICE: R$10.12


Investment Case: BR Properties is a leading player in the AAA office segment in Brazil, focusing mainly on SP and RJ. In our opinion, the São Paulo corporate market’s fundamentals should remain bleak mainly on the still strong volume of deliveries expected over the next two years and the dismal economic growth, which is likely to undermine demand for new leases in the office segment and to pressure rent prices in the short- to mid-term.

Outlook 2015: With nearly half of its rent revenue being renegotiated/renewed in 2015, we anticipate a difficult year ahead for BBR Properties mainly because: (i) the risk of increasing vacancy rates is still not negligible given the strong upcoming supply; and (ii) of our expectation of pressure in rent prices over the next couple of years as a result of increasing competition.

Positive operating performance reported so far in 2014: The company recently announced the lease of 24,972 m² of the Tower B from the JK complex to Johnson & Johnson. This greatly reduces therisk of increasing vacancy in the short term.

We do not rule out additional portfolio rotation: The company recently sold the majority of its warehouse and retail portfolio, with most of the proceeds distributed as an extraordinary dividend in June2014 (R$1.6 billion, or 29% dividend yield) and the remaining part was used to prepay debt and strengthen the company’s cash position.

Already a fair valuation. BRPR3 is currently trading at a 2016E P/FFO of 17.1x (a premium of 31% to the sector average).



Company Statistics



Bloomberg BRPR3 BZCurrent Price (01/02/15) R$ 10.12 / US$ 3.76Target Price (YE 2015) R$ 11.50 / US$ 4.5152-Week Range (R$) 9.73 - 18.90Market Capitalization (US$ Mn) 1,175Float (%) 53.63-Mth Avg. Daily Vol (US$ Mn) 11.4Shares Outstanding - Mn 313

20

40

60

80

100

120

j-13 m-13 a-13 d-13 a-14 a-14 d-14

BRPR3 BZ IBOVESPA

52

BR PROPERTIES Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

BR Properties is a leading company in Brazil’s income property industry that is focused on the corporate real estate markets. Currently, the company acquires, manages, leases, and sells income-generating commercial properties across Brazil, with a primary focus on office buildings and warehouses. In September 2011, BR Properties announced the acquisition of One Properties, which expanded its portfolio by almost 45% in terms of GLA. Key Personnel: Claudio Bruni (CEO) and Pedro Marcio Daltro dos Santos (CFO and IR) Web: www.brproperties.com.br/ri

GLA Evolution ('000 m²), 2013–16E

Rental Revenue (R$ in millions), 2013–16E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 924 834 808 865 428 361 311 320 YoY change (%) 46.4 (9.7) (3.1) 7.1 32.6 (15.7) (13.9) 3.1Gross Profit 924 834 808 865 428 361 311 320 YoY change (%) 46.4 (9.7) (3.1) 7.1 32.6 (15.7) (13.9) 3.1EBITDA 811 736 710 764 376 318 273 283 YoY change (%) 48.2 (9.2) (3.5) 7.6 34.3 (15.3) (14.2) 3.6 As % of Revenue 87.8 88.2 87.9 88.3 87.8 88.2 87.9 88.3Operating Income 811 736 710 764 376 318 273 283 YoY change (%) 48.2 (9.2) (3.4) 7.6 34.3 (15.3) (14.2) 3.6 As % of Revenue 87.8 88.2 87.9 88.3 87.8 88.2 87.9 88.3Financial Results (614) (551) (587) (543) (285) (239) (226) (201)Taxes (27) (92) (20) (35) (12) (40) (8) (13)Net Profit 81 360 103 185 38 156 39 68 YoY change (%) (93.4) 343.5 (71.5) 79.7 (94.0) 314.0 (74.6) 73.1 As % of Revenue 8.8 43.2 12.7 21.3 8.8 43.2 12.7 21.3

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (0) (0) 0 0 (0) (0) 0 0Other Noncash Items - - - - - - - -Changes in Working Capital (31) (32) 7 (15) (14) (14) 3 (6)Operating Cash Flow 51 328 110 169 24 142 42 63Capital Expenditures 422 2,839 (83) (79) 196 1,228 (32) (29)Free Cash Flow 473 3,167 26 90 219 1,370 10 33Other Invest./(Divestments) - - - - - - - -Change in Debt 295 (1,401) 105 (196) 136 (606) 40 (73)Dividends (160) (1,796) (97) (51) (74) (777) (37) (19)Capital Increases/Other (390) (2,314) (101) 13 (181) (1,001) (39) 5

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 951 500 485 433 413 204 190 166Current Assets 1,421 1,075 1,043 1,031 618 439 409 396Fixed Assets 13,428 10,629 10,678 10,722 5,838 4,339 4,188 4,124Total Assets 15,463 12,278 12,329 12,396 6,723 5,012 4,835 4,768Current Liabilities 1,170 769 721 770 509 314 283 296Long-Term Liabilities - - - - - - - -Shareholders' Equity 7,711 6,130 6,182 6,274 3,353 2,502 2,424 2,413Total Financial Debt 5,548 4,142 4,247 4,050 2,412 1,691 1,665 1,558ST Debt 909 320 328 313 395 131 129 120LT Debt 4,639 3,822 3,919 3,738 2,017 1,560 1,537 1,438

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 4,597 3,642 3,762 3,618 1,999 1,486 1,475 1,391Capital Employed 11,677 9,297 9,387 9,339 5,077 3,795 3,681 3,592Net Debt/EBITDA 5.7 4.9 5.3 4.7 5.3 4.7 5.4 4.9Net Debt/Equity 0.6 0.6 0.6 0.6 0.7 0.7 0.6 0.6Capex/Revenue (%) (45.7) (340.4) 10.3 9.2 (45.7) (340.4) 10.3 9.2Int Cover (%) 1.1 1.0 1.1 1.3 1.1 1.0 1.1 1.3Dividend Payout (%) 13.0 n/m 27.0 50.0 11.8 n/m 23.8 49.7ROCE (%) 6.9 7.9 7.6 8.2 7.6 8.9 7.6 8.2ROE (%) 1.0 5.2 1.7 3.0 1.0 5.5 1.7 3.0

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E n/m 8.9 30.8 17.1 n/m 7.7 29.8 17.2P/CE n/m 8.9 30.8 17.1 n/m 7.7 29.8 17.2FV/EBITDA 12.8 9.3 9.7 8.9 11.9 8.5 9.7 9.1FV/EBIT 12.8 9.3 9.7 8.9 11.9 8.5 9.7 9.1FV/Revenue 11.3 8.2 8.6 7.8 10.4 7.5 8.5 8.0P/BV 0.8 0.5 0.5 0.5 0.7 0.5 0.5 0.5FCF Yield (%) 8.1 98.8 0.8 2.8 8.9 113.7 0.9 2.8Div Yield (%) 2.8 56.1 3.1 1.6 3.0 64.5 3.2 1.6


US$R$

1939.47

964.40 993.94 993.94

2013

2014

E

2015

E

2016

E

984.02

882.69

849.83

910.17

2013

2014

E

2015

E

2016

E

BTG Pactual24.5%

Petros8.5%Wtorre

6.9%GIC6.5%

Others53.6%

53

http://www.brproperties.com.br/ri



BRADESCO BUY CURRENT PRICE: R$34.30



Investment Case: In our view Bradesco is fundamentally undervalued. The bank offers a solid combination of earnings diversification (thanks to its insurance operations), strong capitalization on a group-consolidated basis (with a lower-risk business mix and higher tangible equity capital ratios, particularly relative to Itaú) and high levels of adjusted profitability (return on capital employed in the mid-20% range). Trading at a 2015E P/BV of 1.4x, we believe that Bradesco is attractively valued and should continue to outperform the Brazilian market.

Outlook 2015: We expect modest loan growth of 8.5%, a slight acceleration relative to 2013, based on our current estimate of 0.3%GDP growth. Slow growth could lead to a gradual, albeit manageable, deterioration in NPLs and slightly higher risk cost. We believe asset-quality headwinds will be offset by flat margins (relative to 2H13 levels) and improvements in efficiency thanks to the rollout of the new IT platform. We expect adjusted ROE to post a 100-bp contraction due to mid-single-digit growth in adjusted earnings.

Tangible efficiency gains: In the next two years, we expect an approximate 300-bp improvement in adjusted efficiency, as the bank has seen the peak in the growth of capitalized software expenses (in intangible assets) from its IT plan, which are now starting to be amortized. This means that tangible cost growth is slower than reported costs, leading to faster underlying improvement in capital consumption from operating expenditures than is apparent from reported figures.

Capital position stronger than it appears: We estimate a fully loaded Basel III consolidated capital ratio for Bradesco of 10.5% for2015, which we believe is a better reflection of the underling capitalization of the group, given that it takes into account excess capital in insurance operations.

The start of international expansion? The expansion of brokerage and investment banking services in the region signals the start of theinternational expansion of Bradesco, in our view.




Company Statistics



Bloomberg BBDC4 BZ / BBD USCurrent Price (01/02/15) R$ 34.30 / US$ 12.82Target Price (YE 2015) R$ 40.50 / US$ 14.9552-Week Range (R$) 25.27 - 41.64Market Capitalization (US$ Mn) 53,606Float (%) 60.13-Mth Avg. Daily Vol (US$ Mn) 128.3Shares Outstanding - Mn 4,207

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

BBDC4 BZ IBOVESPA

54

BRADESCO Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Bradesco is one of Brazil’s leading private sector banks, with total assets of approximately US$402 billion as of 3Q14 and approximately an 10.6% market share in loans and 12.6%% in deposits in Brazil. Bradesco boasts a leading market share among its peers in the insurance industry in Brazil, with strong positions in private pension fund management, corporate banking, and asset management. The bank has a solid segmentation strategy that gives it ample exposure to all the socio-economic and product segments in the Brazilian banking industry, combined with strong distribution capabilities via its extensive branch and correspondent banking networks. The bank has a dual shareholding structure, with control of the bank held largely by the bank’s management and the founding Aguiar family via a series of cascading holding companies and foundations that own the majority of the bank’s voting shares. Key Personnel: Lázaro Brandão (Chairman), Luiz Carlos Trabuco (CEO), Luiz Angelotti (CFO) and Paulo Faustino da Costa (IRO) Web: www.bradescori.com.br






BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 12,196 13,704 15,683 17,832 5,163 5,178 5,787 6,065Securities 313,327 340,301 362,096 387,908 132,631 128,571 133,615 131,941Loans (net) 301,374 323,912 350,974 389,366 127,571 122,379 129,511 132,437Intangible Assets 12,702 12,455 12,116 11,840 5,377 4,706 4,471 4,027Total Assets 908,139 973,745 1,047,300 1,140,871 384,414 367,895 386,458 388,051Core Deposits 217,099 227,367 260,274 295,988 91,898 85,903 96,042 100,676Other Financial Liabilities 315,741 339,886 351,872 378,597 133,653 128,414 129,842 128,774Subordinated Debt 35,885 35,961 35,220 34,771 15,190 13,587 12,996 11,827Technical Provisions 136,229 145,552 157,873 171,142 57,666 54,992 58,256 58,212Equity 70,940 81,850 92,824 105,916 30,029 30,924 34,252 36,026Adjusted Equity 69,686 81,362 92,572 105,838 29,498 30,740 34,160 35,999

LOAN BOOK 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECompanies 193,381 205,887 219,074 237,197 81,858 77,787 80,839 80,679Total Consumer 116,861 124,093 134,735 149,186 49,467 46,884 49,718 50,744Mortgages 12,819 17,377 23,099 29,576 5,426 6,565 8,523 10,060Other Loans 0 0 0 0 0 0 0 0Gross Loans 323,061 347,357 376,908 415,960 136,751 131,237 139,080 141,483Loan Grow th (%) 11.0 7.5 8.5 10.4 (3.7) (4.0) 6.0 1.7NPL 11,275 12,676 14,694 15,211 4,773 4,789 5,422 5,174Provisions (21,687) (23,445) (25,933) (26,594) (9,180) (8,858) (9,569) (9,046)

KEY RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENIM 5.59 6.00 6.20 6.17 5.59 6.00 6.20 6.17Risk Charge 3.95 3.82 3.96 3.64 3.95 3.82 3.96 3.64Operating Revenue / ATA 6.48 7.02 7.23 7.37 6.48 7.02 7.23 7.37Cost / ATAs 4.39 4.52 4.55 4.49 4.39 4.52 4.55 4.49Adj Eff iciency 50.5 48.0 46.2 45.2 50.5 48.0 46.2 45.2Effective Taxes 34.3 35.3 35.0 35.0 34.3 35.3 35.0 35.0Reported ROE (%) 17.6 19.8 19.8 20.2 17.6 19.8 19.8 20.2Adj ROE (%) 16.6 26.7 25.7 26.3 16.6 26.7 25.7 26.3NPL Ratio 3.49 3.65 3.90 3.66 3.49 3.65 3.90 3.66Adj NPL Ratio 7.34 7.06 7.18 7.00 7.34 7.06 7.18 7.00Loans / Total Assets 35.6 35.7 36.0 36.5 35.6 35.7 36.0 36.5Loans / Core Deposits 148.8 152.8 144.8 140.5 148.8 152.8 144.8 140.5RWA % Total Assets 59.7 63.1 64.6 67.1 59.7 63.1 64.6 67.1Core Tier I Ratio (%) 9.3 9.8 10.5 11.2 9.3 9.8 10.5 11.2Dividend Payout (%) 34.0 35.0 35.0 35.0 34.0 35.0 35.0 35.0


PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 2.85 3.59 4.11 4.78 1.32 1.52 1.54 1.69BVPS 16.86 19.45 22.06 25.17 7.14 7.35 8.14 8.56DPS 1.02 1.32 1.51 1.75 0.47 0.56 0.56 0.62Adj EPS 2.40 4.10 4.25 4.85 1.11 1.74 1.59 1.72Adj BVPS 16.56 19.34 22.00 25.16 7.01 7.31 8.12 8.56Surplus Capital per Share (2.07) (1.43) (0.44) 0.66 (0.88) (0.54) (0.16) 0.22Unrealized Cap. Gains/Shr 2.39 3.12 2.91 2.86 1.01 1.18 1.07 0.97

US$R$

Corp/MM28.1%

SMEs30.0%

Auto6.7%

Personal4.4%

Payroll9.0%

C.Card6.9%

Mortgage6.1%

Other 8.7%

NII47.3%

Fees33.4%

Insurance13.9%

Other5.3%

Mngt3.1%

Bradesco Found.29.3%

Aguiar Fam.5.8%

Other1.7%

Free Float60.1%

55


BRAZIL—FOOD & BEVERAGE

BRASIL FOODS BUY CURRENT PRICE: R$62.18


Investment Case: The company continues to show progress with its self-improvement efforts, and we believe that management’s strategy to cut back from unprofitable categories and markets should continue to drive returns to record levels. We recognize that BRF’s shares are trading at relatively high multiples (~20x P/E for 2015E), but we expect the positive earnings momentum to continue, lowering multiples in the years ahead. Moreover, we view favorably the company’s solid balance sheet (deleveraged), and we do not expect a change in CEO in early 2015 to be disruptive, as capital discipline and cash flow efficiency remain a priority for management.

Outlook for 2015: We anticipate BRF will be able to deliver another year of improving results based on favorable grain price dynamics and maturing internal initiatives. We forecast 15% YoY EBITDA growth and 27% EPS growth as a consequence of increasing margins and reduced leverage ratios (supported by strong cash flow generation and the sale of its dairy unit in 1H15). We expect cash discipline and a focus on profitability to allow for strong cash generation (4% FCF yield in 2015E) and enhanced returns (14% ROE in 2015E).

Catalysts: Structural improvements in all business lines should be supported by (1) the new go-to-market strategy (streamlining the sales force), (2) further SKU rationalization (focus on profitability), (3) enhanced internal processes (improved systems), (4) reduced bureaucracy (fewer layers), and (5) favorable industry dynamics (lower grain prices). Moreover, we expect internationalization initiatives to materialize, including possible M&A in strategic markets.

Concerns: Main risks to our investment case include (1) grain price volatility affecting margins (roughly 25% of COGS), (2) sanitation and commercial barriers in the export market, (3) higher competition in the domestic market, (4) execution risk associated with its internal initiatives, (5) M&A in foreign markets, and (6) demanding multiples (20x P/E in 2015E and 11x EV/EBITDA in 2015E).




Company Statistics



Bloomberg BRFS3 BZ / BRFS USCurrent Price (01/02/15) R$ 62.18 / US$ 22.94Target Price (YE 2015) R$ 77.00 / US$ 28.4252-Week Range (R$) 40.00 - 67.85Market Capitalization (US$ Mn) 20,152Float (%) 54.23-Mth Avg. Daily Vol (US$ Mn) 57.2Shares Outstanding - Mn 872

60

80

100

120

140

160

J-13 M-13 A-13 D-13 A-14 A-14 D-14

BRFS3 BZ IBOVESPA

56

BRASIL FOODS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

BRF is one of the largest food companies in the world and is the result of the merger between Perdigão and Sadia. It operates in the segments of poultry meats, pork and beef, industrialized meats, margarines, pastas, pizzas and frozen vegetables. It operates 49 plants in Brazil, nine in Argentina, two in Europe (Plusfood) and inaugurated, more recently in 2014, a processed products plant in the Middle East. Its operational structure is supported by 28 distribution centers of refrigerated and frozen products supplying 98% of the country and consumers in more than 110 countries. BRF also has 22 overseas commercial offices and a portfolio of clients across the five continents. Its principal raw material inputs are grains and live animals. Key Personnel: Abilio dos Santos Diniz (Chairman), Claudio Galeazzi (CEO), Augusto Ribeiro Jr. (CFO) and Christiane Assis (Investor Relations Manager) Web: www.ri.brf-global.com

Sales by Product Category, 9M14

Sales by Region, 9M14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 30,519 31,896 31,921 35,221 14,145 13,611 12,137 12,468 YoY change (%) 7.0 4.5 0.1 10.3 (1.9) (3.8) (10.8) 2.7Gross Profit 7,566 8,932 9,540 10,457 3,507 3,811 3,628 3,701 YoY change (%) 17.2 18.1 6.8 9.6 7.5 8.7 (4.8) 2.0EBITDA 3,132 4,510 5,166 5,693 1,452 1,925 1,964 2,015 YoY change (%) 16.9 44.0 14.5 10.2 7.2 32.6 2.1 2.6 As % of Revenue 10.3 14.1 16.2 16.2 10.3 14.1 16.2 16.2Operating Income 1,958 3,277 3,876 4,379 908 1,398 1,474 1,550 YoY change (%) 11.6 67.3 18.3 13.0 2.3 54.1 5.4 5.2 As % of Revenue 6.4 10.3 12.1 12.4 6.4 10.3 12.1 12.4Financial Results (748) (874) (649) (736) (347) (373) (247) (260)Taxes (146) (233) (466) (549) (68) (99) (177) (194)Net Profit 1,061 2,171 2,762 3,095 492 926 1,050 1,095 YoY change (%) 30.1 104.7 27.2 12.0 19.4 88.4 13.4 4.3 As % of Revenue 3.5 6.8 8.7 8.8 3.5 6.8 8.7 8.8

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (1,177) (1,232) (1,290) (1,314) (546) (526) (490) (465)Other Noncash Items 2,456 2,144 2,374 865 1,138 915 903 306Changes in Working Capital 81 152 175 (195) 38 65 66 (69)Operating Cash Flow 2,421 3,236 4,021 2,450 1,122 1,381 1,529 867Capital Expenditures (1,827) (1,519) (1,570) (1,621) (847) (648) (597) (574)Free Cash Flow 1,991 2,952 2,856 2,878 923 1,260 1,086 1,019Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 1,020 767 0 0 473 327 0 0Dividends (579) (726) (651) (829) (268) (310) (248) (293)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 3,588 5,346 7,146 7,146 1,531 2,096 2,637 2,431Current Assets 13,243 15,130 16,841 17,531 5,652 5,933 6,214 5,963Fixed Assets 19,132 18,910 19,190 19,497 8,166 7,416 7,081 6,632Total Assets 32,375 34,040 36,031 37,028 13,818 13,349 13,296 12,594Current Liabilities 8,436 8,549 8,635 9,129 3,601 3,353 3,186 3,105Long-Term Liabilities 9,243 10,134 10,134 10,134 3,945 3,974 3,739 3,447Shareholders' Equity 14,550 15,171 17,076 17,578 6,210 5,949 6,301 5,979Total Financial Debt 10,182 10,745 10,745 10,745 4,346 4,214 3,965 3,655ST Debt 2,697 2,529 2,529 2,529 1,151 992 933 860LT Debt 7,485 8,216 8,216 8,216 3,195 3,222 3,032 2,795

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 6,594 5,399 3,599 3,599 2,814 2,117 1,328 1,224Capital Employed 23,939 25,491 27,396 27,898 10,217 9,996 10,109 9,489Net Debt/EBITDA 2.1 1.2 0.7 0.6 1.9 1.1 0.7 0.6Net Debt/Equity 0.5 0.4 0.2 0.2 0.5 0.4 0.2 0.2Capex/Revenue (%) 6.0 4.8 4.9 4.6 6.0 4.8 4.9 4.6Int Cover (%) 2.7 5.7 5.8 6.4 2.7 5.7 5.8 6.4Dividend Payout (%) 71.0 68.4 30.0 30.0 64.3 62.8 26.4 29.8ROCE (%) - - - - - - - -ROE (%) 7.3 14.6 17.1 17.9 7.4 15.5 17.1 17.9



US$R$

Fresh Poultry32.0%

Fresh Pork/Beef

8.7%

Processed41.6%

Dairy9.2%

Other8.4%

Domestic57.7%

Exports42.3%

Petros12.1%

Previ11.7%

Tarpon10.5%Others

11.5%

Float54.2%

57


BRAZIL—INSURANCE SERVICES

BRASIL INSURANCE BUY CURRENT PRICE: R$3.23


INTRODUCING YE2015 TARGET PRICE OF R$7.70; REPLACING YE2014 TARGET PRICE OF R$19.30 Investment Case: Management is focused on a restructuring

process to transform Brasil Insurance into a more professional and integrated company. A crucial challenge addressed in 2014 was to improve the alignment of interest among partners, management, andkey employees, with the ultimate goal of boosting organic growth. The key objective of the new management is to ensure that the former independent insurance brokers who remain shareholders arefocused on BRIN’s results as a holding company. In our view, the company’s top-line recovery over the next 12 months will be extremely important to return the stock to a 12x P/E multiple.

Outlook 2015: The year 2015 will be a challenging and crucial one for the company to regain investors’ confidence by showing at least some progress in the ongoing restructuring process to build a more efficient platform to reignite organic growth. Although adjustments will continue to pressure results, we expect the company to maintain its ~15% commission fee due to cross-selling and operating leverage.

New organization structure: We continue to believe in the long-term proposition of a large independent insurance broker in Brazil, although a certain execution risk exists. The structure has been implemented and appears to be solid, in our view, consolidating functions to promote synergies that are critical to the sustainability of the business model. We expect the new structure also to increase accountability at all levels, improve the visibility of the underlying drivers of profitability and growth, and help the company develop a common culture.

Potential acquisitions would be a plus: Although management does not dismiss the possibility of opportunistic acquisitions, the company has emphasized that the ongoing restructuring process is its top priority. Therefore, we continue to apply zero value to potentialnew acquisitions.




Company Statistics

rice Performance (R$)


Bloomberg BRIN3 BZCurrent Price (01/02/15) R$ 3.23 / US$ 1.20Target Price (YE 2015) R$ 7.70 / US$ 2.9652-Week Range (R$) 2.55 - 19.09Market Capitalization (US$ Mn) 115Float (%) 65.53-Mth Avg. Daily Vol (US$ Mn) 0.4Shares Outstanding - Mn 96

0

20

40

60

80

100

120

140

J-13 M-13 A-13 D-13 A-14 A-14 D-14

BRIN3 BZ IBOVESPA

58

BRASIL INSURANCE Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Brasil Insurance was founded in 2010 by the investment fund Gulf and was IPOed in the same year. The company is one of the largest and most diversified insurance brokerage companies in Brazil, having grown organically and through acquisitions. In fact, Brasil Insurance is a holding company that consolidates a group of insurance brokers. Its main revenue line comes from the commission its subsidiaries charge on insurance premiums; its insurance portfolio mainly encompasses corporate health, followed by life, auto, P&C and others. The company is one of the leaders in the very fragmented market of insurance brokers. Key Personnel: Edward Lange (CEO) and Miguel Longo Junior (CFO) Web: http://ri.brasilinsurance.com.br

Commissioning Level in %, 2010A–2014E

Industry Breakdown, 2013



INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ERevenue 298 249 261 292 142 106 103 110 Growth (%) 18.9 (16.2) 4.8 11.6 7.8 (25.2) (3.4) 6.6EBITDA 107 90 68 71 51 38 27 27 Growth (%) 0.4 (16.0) (23.7) 4.0 (9.0) (25.0) (29.7) (0.7)Operating Profit 99 89 73 76 47 38 29 29 Growth (%) 0.8 (9.5) (18.0) 3.8 (8.6) (19.3) (24.4) (0.9)Profit before Taxes 146 127 71 73 70 54 28 28Taxes (37) (43) (24) (18) (18) (18) (9) (7)Minorities (7) 6 6 7 (3) 2 2 3Net Profit 107 52 59 67 51 22 23 25 Growth (%) 2.4 (51.3) 12.9 14.8 (7.1) (56.5) 4.1 9.6

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 142 37 30 45 65 15 12 17Accounts Receivable 83 69 65 65 38 28 25 24Intangible and Deferred Asse 556.2 550.4 544.7 538.9 255.8 225.1 209.5 199.6Tangible Assets 0 0 0 0 0 0 0 0Total Assets 850 719 702 711 391 294 270 263ST Debt 0 0 0 0 0 0 0 0LT Debt 0 0 0 0 0 0 0 0Equity 508 513 522 532 234 210 201 197Net Debt (Cash) (141) (37) (30) (45) (65) (15) (12) (16)

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EChanges in Working Capital 42 9 (14) (0) 20 4 (5) (0)Operating Cash Flow 65 81 82 71 31 34 32 27Capital Expenditures (7) (8) (8) (11) (3) (3) (3) (4)Change in Debt 0 0 0 0 0 0 0 0Free Cash Flow to Equity 115 16 2 54 55 7 1 20Cash Dividends (98) (44) (50) (57) (47) (19) (20) (22)Capital Increase (Decrease) 0 0 0 0 0 0 0 0

OPERATING RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEBITDA Margin 35.9 36.0 26.2 24.4 35.9 36.0 26.2 24.4Effective Tax Rate 25.4 33.8 33.8 25.0 25.4 33.8 33.8 25.0Net Margin 0.4 0.2 0.2 0.2 0.4 0.2 0.2 0.2Net Debt / EBITDA (1.3) (0.4) (0.4) (0.6) (1.3) (0.4) (0.4) (0.6)Net Debt / Equity (0.3) (0.1) (0.1) (0.1) (0.3) (0.1) (0.1) (0.1)FCFE / Revenues 38.6 6.6 0.7 18.7 38.6 6.6 0.7 18.7ROAA 12.9 6.6 8.3 9.5 13.1 7.0 8.3 9.5ROAE 21.1 10.2 11.4 12.8 21.4 10.8 11.4 12.8Payout 94.0 41.4 95.9 97.6 85.1 38.0 84.5 97.0



US$R$

0.14

0.15

0.15 0.15 0.15

2010

A

2011

A

2012

A

2013

A

2014

E

Health56.0%

Auto10.0%

P&C8.0%

Life8.0%

Others18.0%

Controlling Group30.6%

Others, Treasury

3.9%

Free float65.5%

59


BRAZIL—OIL, GAS & PETROCHEMICALS

BRASKEM HOLD CURRENT PRICE: US$12.82


Investment Case: We believe that the significant drop in oil prices should help the company on the cost-of-naphtha front, but we have to carefully monitor how quickly international spreads for resins (PP, PE, PVC) could fall, as we expect global demand for these products to weaken in 2015. Also, on the positive side, the continued depreciation of the Brazilian real could continue to help the company`s fundamentals in the short term, in our view. See bullet below for key risks to be carefully monitored.

Outlook 2015: Although we expect weak domestic activity to continue hurting resin 2015 demand, the following positive factors could offset that somewhat: (i) relatively healthy petrochemical spreads as result of lower naphtha prices; (ii) the depreciation of Brazilian real; and (iii) the start-up of the ethylene project in Mexico slated for 2H15.

Lower oil prices should benefit the company at first: With naphtha representing half of company’s costs and given its high correlation to oil prices, we believe that Braskem could be positively affected by the on-going, significant drop in oil prices during 2015, translating into higher petrochemical spreads in the short term, but then resin prices should adjust downwards accordingly, in our view.

Key risks to monitor closely include: (i) weak demand outlook in Brazil; (II) the negotiation of the naphtha supply contract with Petrobras that expires in February and which, if the terms change, could potentially increase the company’s costs by up to R$500 million per year, under some scenarios; and (iii) the negotiation of the energy supply contract with Chesf for the Camaçari and Alagoas petrochemical complexes that expires in June, and that also if terms are changed, could increase the company’s costs by up to R$80 million per year, according to our calculations in some scenarios.

Attractive ethylene XXI project in Mexico around the corner: The plant is expected to start-up in 2H15, and run at 15-20% of full capacity by year-end. We estimate that the plant will likely represent around 30% of the company’s EBITDA in 2016.

Christian Audi New York: Santander Investment Securities Inc. +1-212-350-3991 | [email protected]

Gustavo Allevato*, CFA Brazil: Banco Santander S.A. +5511-3012-6042 | [email protected]

Company Statistics



Bloomberg BAK US / BRKM5 BZCurrent Price (01/02/15) US$ 12.82 / R$ 17.41Target Price (YE 2015) US$ 15.50 / R$ 21.0052-Week Range (US$) 12.30 - 17.41Market Capitalization (US$ Mn) 5,110Float (%) 37.43-Mth Avg. Daily Vol (US$ Mn) 7.9Shares Outstanding - Mn 399

60

80

100

120

140

J-13 M-13 A-13 D-13 A-14 A-14 D-14

Braskem - ADR (Rebased)

60

BRASKEM Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Braskem is the largest chemical company in Brazil and Latin America in terms of production capacity, with integrated first- and second-generation petrochemical production facilities throughout Brazil and the U.S. More specifically, the company is the leading producer of thermoplastic resins (polyethylene, polypropylene, PVC) in the country, as well as in Latin America. Braskem has shares listed locally and ADRs listed on the NYSE. Key Personnel: Carlos Fadigas (CEO), Mario Augusto da Silva (CFO) and Roberta Varella (IR Officer) Web: www.braskem.com.br

Sales by Country, 2015E




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 40,969 45,187 40,894 47,957 18,997 19,229 15,549 16,946 YoY change (%) 15.4 10.3 (9.5) 17.3 4.3 1.2 (19.1) 9.0Gross Profit 5,148 6,014 5,944 7,345 2,387 2,559 2,260 2,595 YoY change (%) 55.9 16.8 (1.2) 23.6 40.9 7.2 (11.7) 14.8EBITDA 4,775 5,429 5,786 7,015 2,214 2,310 2,200 2,479 YoY change (%) 37.3 13.7 6.6 21.3 24.1 4.3 (4.8) 12.7 As % of Revenue 11.7 12.0 14.1 14.6 11.7 12.0 14.1 14.6Operating Income 2,739 3,596 3,384 4,395 1,270 1,530 1,287 1,553 YoY change (%) 75.0 31.3 (5.9) 29.9 58.3 20.5 (15.9) 20.7 As % of Revenue 6.7 8.0 8.3 9.2 6.7 8.0 8.3 9.2Financial Results (1,776) (3,009) (2,179) (1,568) (824) (1,280) (829) (554)Taxes (457) (314) (343) (1,377) (212) (134) (131) (486)Net Profit 507 273 879 1,623 235 116 334 574 YoY change (%) n/m (46.1) 221.7 84.7 n/m (50.6) 187.4 71.6 As % of Revenue 1.2 0.6 2.1 3.4 1.2 0.6 2.1 3.4

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (2,056) (2,109) (2,402) (2,620) (953) (898) (913) (926)Other Noncash Items 0 0 25 242 0 0 9 86Changes in Working Capital 155 211 (2,113) 166 72 90 (803) 59Operating Cash Flow 2,718 2,594 3,089 4,888 1,260 1,104 1,175 1,727Capital Expenditures (2,722) (2,604) (2,531) (2,359) (1,262) (1,108) (963) (834)Free Cash Flow (1,267) 2,723 854 3,455 (588) 1,159 325 1,221Other Invest./(Divestments) (673) 693 (88) (90) (312) 295 (34) (32)Change in Debt 1,091 650 904 675 506 277 344 239Dividends (218) (68) (220) (406) (101) (29) (84) (143)Capital Increases/Other 766 100 77 (138) 355 43 29 (49)

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 4,422 5,680 7,024 10,338 1,872 2,228 2,592 3,516Current Assets 14,998 17,298 17,386 21,873 6,349 6,784 6,416 7,440Fixed Assets 28,447 31,227 33,092 32,833 12,043 12,246 12,211 11,168Total Assets 48,346 52,798 54,837 59,153 20,467 20,705 20,235 20,120Current Liabilities 13,595 14,898 13,469 15,089 5,755 5,842 4,970 5,132Long-Term Liabilities 27,071 30,015 32,824 34,303 11,461 11,771 12,112 11,668Shareholders' Equity 7,543 7,748 8,407 9,624 3,193 3,038 3,102 3,274Total Financial Debt 18,603 19,253 20,157 20,833 7,876 7,550 7,438 7,086ST Debt 1,249 1,299 1,342 1,386 529 509 495 471LT Debt 17,354 17,954 18,815 19,446 7,347 7,041 6,943 6,614

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 14,181 13,572 13,133 10,495 6,004 5,322 4,846 3,570Capital Employed 23,335 23,900 25,785 27,395 9,879 9,373 9,515 9,318Net Debt/EBITDA 3.0 2.5 2.3 1.5 2.7 2.3 2.2 1.4Net Debt/Equity 1.9 1.8 1.6 1.1 2.1 2.0 1.6 1.1Capex/Revenue (%) 6.6 5.8 6.2 4.9 6.6 5.8 6.2 4.9Int Cover (%) 2.7 2.0 3.1 4.2 2.7 2.0 3.1 4.2Dividend Payout (%) (29.5) 13.5 80.4 46.2 (26.7) 12.4 70.4 45.7ROCE (%) 6.2 7.0 9.8 10.6 7.3 8.9 10.0 10.6ROE (%) 6.3 3.6 10.9 18.0 6.4 3.8 10.9 18.0

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 33.1 n/m 15.7 8.5 30.3 44.3 15.3 8.9P/CE 6.5 5.7 4.2 3.2 6.0 5.1 4.1 3.4FV/EBITDA 6.5 5.1 4.7 3.5 6.0 4.6 4.6 3.5FV/EBIT 11.4 7.6 8.0 5.6 10.4 6.9 7.8 5.6FV/Revenue 0.8 0.6 0.7 0.5 0.7 0.5 0.6 0.5P/BV 2.2 1.8 1.6 1.4 2.2 1.7 1.6 1.6FCF Yield (%) (7.5) 19.9 6.2 25.1 (8.3) 22.5 6.4 23.9Div Yield (%) 1.3 0.5 1.6 2.9 1.4 0.6 1.6 2.8


US$R$

Brazil55.1%

Other44.9%

Basic Petrochemic

als45.3%

Polymers54.7%

Odebrecht38.3%

Free Float25.6%

Petrobras36.1%

61



CBD BUY CURRENT PRICE: R$93.81 TARGET PRICE: R$131.00

Investment Case: We maintain our Buy rating on CBD, as we believe the company still offers an attractive combination of a resilientfood business and a more cyclical durables business (Via Varejo), whose internal initiatives should continue to drive sales growth and profitability gains. Despite its distinctive businesses, CBD has been able to achieve balanced growth in its more attractive (high-return) formats, while we also highlight the company’s ability to integrate and extract value from its multi-channel/multi-format operations. Moreover, we believe CBD trades at a compelling multiple (~14x P/E for 2015E), given the resilient nature of its food business, and offers substantial potential upside to our YE2015 target price of R$131.

Outlook 2015: We expect CBD to focus growth in its more attractive cash-and-carry and proximity store formats, while we think ongoing efficiency gains will be passed on to competitive pricing in order to keep gaining market share in the food business. We expect CBD’s food business to deliver 13% YoY top-line growth based on stronger sales area expansion (+7% YoY), while we remain upbeat regarding margin expansion opportunities at its durables business (Via Varejo),which should support profitable growth ahead.

Catalysts: We highlight CBD’s key differentials, namely its multi-store platform and strong execution, which we believe should allow for superior growth and further market share gains. Moreover, we emphasize key initiatives that should continue to support profitability gains ahead, including (1) expanding private label brands, (2) further developing commercial galleries in order to drive traffic and enhancethe profitability of hypermarket formats, and (3) tight expense control, which we believe will be converted into pricing.

Concerns: The main risks to our investment case include (1) food inflation affecting consumption patterns, (2) increased competition from large chains and smaller regional players, (3) underperforminghypermarket formats, and (4) weaker sales at its durables businesses (Via Varejo and Cnova).




Company Statistics



Bloomberg PCAR4 BZCurrent Price (01/02/15) R$ 93.81 / US$ 34.85Target Price (YE 2015) R$ 131.00 / US$ 49.4352-Week Range (R$) 92.30 - 115.00Market Capitalization (US$ Mn) 9,168Float (%) 58.63-Mth Avg. Daily Vol (US$ Mn) 31.4Shares Outstanding - Mn 263

70

80

90

100

110

120

130

J-13 M-13 A-13 D-13 A-14 A-14 D-14

PCAR4 BZ IBOVESPA

62

CBD Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Grupo Pão de Açúcar (CBD) is the largest Brazilian multi-brand multi-channel retailer with sales of R$64.4bn in 2013. CBD food (R$34.6bn in sales) is the largest food retailer in the country with a total of 1,051 stores (3Q14) including hypermarkets (Extra), supermarkets (Pão de Açúcar and Extra), cash & carry (Assai) and proximity stores (Minimercado Extra), along with gas stations and drugstores. Through its 53% stake in ViaVarejo (R$29.8bn in sales), CBD is also the largest white goods, electronics, and furniture retailer in the country, with a total of 986 stores (3Q14) and an estimated market share of 26%. CBD is controlled by French retailer Casino. Key Personnel: Jean-Charles Naouri (Chairman), Ronaldo Iabrudi (CEO), Christophe Hidalgo (CFO) and Daniela Sabbag (Investor Relations Director) Web: http://www.gpari.com.br/

EBITDA by Segment, 3Q14

Stores by Format, 3Q14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 57,730 63,978 71,605 79,036 26,757 27,376 27,540 29,272 YoY change (%) 13.7 10.8 11.9 10.4 3.0 2.3 0.6 6.3Gross Profit 15,207 16,357 18,081 19,592 7,048 6,999 6,954 7,256 YoY change (%) 11.7 7.6 10.5 8.4 1.2 (0.7) (0.6) 4.3EBITDA 3,830 5,165 5,933 6,556 1,775 2,210 2,282 2,428 YoY change (%) 6.5 34.9 14.9 10.5 (3.5) 24.5 3.2 6.4 As % of Revenue 6.6 8.1 8.3 8.3 6.6 8.1 8.3 8.3Operating Income 2,947 4,271 5,003 5,551 1,366 1,828 1,924 2,056 YoY change (%) 8.4 44.9 17.1 10.9 (1.8) 33.8 5.3 6.8 As % of Revenue 5.1 6.7 7.0 7.0 5.1 6.7 7.0 7.0Financial Results (1,193) (1,470) (1,666) (1,739) (553) (629) (641) (644)Taxes (359) (856) (1,021) (1,162) (166) (366) (393) (430)Net Profit 1,312 1,531 1,784 2,013 608 655 686 746 YoY change (%) 39.6 16.7 16.5 12.8 26.5 7.8 4.7 8.7 As % of Revenue 2.3 2.4 2.5 2.5 2.3 2.4 2.5 2.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 866 894 929 1,006 401 383 357 372Other Noncash Items 3,440 (1,533) 1,366 1,362 1,594 (656) 525 504Changes in Working Capital 2,037 5 102 108 944 2 39 40Operating Cash Flow 5,662 (890) 2,323 2,477 2,624 (381) 893 918Capital Expenditures (1,786) (1,707) (1,837) (1,899) (828) (730) (706) (703)Free Cash Flow 1,156 14 979 1,228 536 6 377 455Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt (997) (710) 0 0 (462) (304) 0 0Dividends (1,573) (290) (486) (579) (729) (124) (187) (214)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 8,392 4,795 4,795 4,795 3,582 1,880 1,809 1,744Current Assets 18,612 16,500 17,760 19,013 7,944 6,471 6,702 6,914Fixed Assets 19,399 20,344 21,251 22,144 8,280 7,978 8,019 8,052Total Assets 38,011 36,844 39,011 41,157 16,223 14,449 14,721 14,966Current Liabilities 17,013 17,592 18,954 20,316 7,261 6,899 7,153 7,388Long-Term Liabilities 8,286 8,583 8,583 8,583 3,536 3,366 3,239 3,121Shareholders' Equity 9,483 7,346 8,150 8,935 4,047 2,881 3,076 3,249Total Financial Debt 9,494 8,784 8,784 8,784 4,052 3,445 3,315 3,194ST Debt 5,171 4,259 4,259 4,259 2,207 1,670 1,607 1,549LT Debt 4,323 4,525 4,525 4,525 1,845 1,775 1,708 1,645

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 1,102 3,989 3,989 3,989 470 1,564 1,505 1,451Capital Employed 20,998 19,252 20,056 20,841 8,962 7,550 7,568 7,579Net Debt/EBITDA 0.3 0.8 0.7 0.6 0.3 0.7 0.7 0.6Net Debt/Equity 0.1 0.5 0.5 0.4 0.1 0.6 0.5 0.4Capex/Revenue (%) 3.1 2.7 2.6 2.4 3.1 2.7 2.6 2.4Int Cover (%) (6.1) (6.5) (6.7) (7.2) (6.1) (6.5) (6.7) (7.2)Dividend Payout (%) 167.3 22.1 31.7 32.5 151.5 20.3 27.9 32.2ROCE (%) 15.7 26.6 30.0 32.2 17.0 29.5 30.2 32.2ROE (%) 14.6 18.2 23.0 23.6 14.9 19.2 23.0 23.6

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 21.0 16.9 13.8 12.3 19.2 14.9 13.4 12.3P/CE n/m 40.7 28.9 24.5 n/m 35.8 27.9 24.6FV/EBITDA 9.9 8.1 6.5 5.8 9.1 7.1 6.3 5.8FV/EBIT 12.9 9.8 7.7 6.8 11.8 8.6 7.5 6.8FV/Revenue 0.7 0.7 0.5 0.5 0.6 0.6 0.5 0.5P/BV 2.9 3.5 3.0 2.8 2.9 3.4 3.0 2.8FCF Yield (%) 4.2 0.1 4.0 5.0 4.6 0.1 4.1 5.0Div Yield (%) 5.7 1.1 2.0 2.3 6.2 1.3 2.0 2.3


US$R$

CBD (Food)51.3%

Others48.7%

Via Varejo54.9%

Pão de Açúcar9.5%

Extra19.2%

Assai (Cash & Carry)

4.5%

Small Markets11.9%

Casino (Controlling

Group)41.3%

Management and Board / Treasury

0.1%

Free Float58.6%

63



CCR UNDERPERFORM CURRENT PRICE: R$15.41



Investment Case: We continue to see CCR as the top-quality play in the infrastructure sector in Brazil due to its seasoned management and excellent investment track record. However, we reiterate our cautious view on the stock, given its (1) stretched valuation—implied equity nominal IRR of 11.5%, or 6.4% in real terms, (2) downside to our valuation from potentially higher interest rates (both short and long term), and (3) weak momentum in traffic and earnings.

Outlook 2015: We expect another year without earnings growth due to (1) continuing weak traffic due to weak GDP growth, and (2) another strong increase in financial costs due to an increase in interest rates and net debt. We estimate (1) top-line growth of 10%, (2) an EBITDA increase of 13%, and (3) flat net profit. This compareswith our estimates for 2014 of (1) top-line growth of 7%,(2) EBITDA up 6%, and (3) net profit down 5%.

Stretched Valuation: We highlight that our estimated implied nominal equity IRR of 11.5% is below the 10-year Brazilian bond rate and below our estimated cost of equity of 13.7%. Moreover, our estimated implied real IRR of 6.4% is in-line with the current yield of 10-year Brazilian inflation-linked bonds (NTNB).

Investment opportunities: Following a strong 4Q13 and early 2014 in terms of investment opportunities, with several auctions for new concessions in roads and airports, we believe there will be no new auctions besides Ponte (currently a concession operated by CCR) at least until 2H15.

~90% of total debt linked to Selic: Since the presidential elections on October 26, the Brazilian Central Bank has increased rates by 75 bps, and we expect another 75-bp hike in the short term. This should have a major impact on financial results, which we expect to increase by 39% in 2015 vs. 2014 on top of a 32% increase in 2014 vs. 2013.



Company Statistics



Bloomberg CCRO3 BZCurrent Price (01/02/15) R$ 15.41 / US$ 5.72Target Price (YE 2015) R$ 14.00 / US$ 5.1752-Week Range (R$) 14.34 - 21.10Market Capitalization (US$ Mn) 10,107Float (%) 48.83-Mth Avg. Daily Vol (US$ Mn) 34.5Shares Outstanding - Mn 1,766

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

CCRO3 BZ IBOVESPA

64

CCR Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Companhia de Concessões Rodoviárias (CCR) is the largest toll road operator in Latin America by revenue. Currently, the company controls eleven toll-road concessions—AutoBan, NovaDutra, Rodonorte, Ponte S.A, Via Lagos, ViaOeste, RodoAnel, SPVias, Renovias, ViaRio and MSVia. In addition, the company holds a 40% stake in Renovias (toll road concession with 346 km) and a 58% stake in the consortium ViaQuatro (which operates the São Paulo City Subway Line 4). CCR was the first listing in the Bovespa’s Novo Mercado segment. Key Personnel: Eduardo Borges de Andrade (Chairman), Renato Alves Vale (CEO), Arthur Piotto Filho (CFO) and Arthur Piotto Filho (Investor Relations Officer) Web: www.grupoccr.com.br/investor

Traffic Breakdown, 2013

Toll Revenue (% of Total Revenue), 2013



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 6,004 6,409 7,048 8,077 2,783 2,735 2,680 2,859 YoY change (%) 15.5 6.7 10.0 14.6 4.7 (1.7) (2.0) 6.7Gross Profit - - - - - - - - YoY change (%) - - - - - - - -EBITDA 3,838 4,063 4,597 5,413 1,779 1,734 1,748 1,916 YoY change (%) 17.3 5.9 13.2 17.7 6.3 (2.5) 0.8 9.6 As % of Revenue 63.9 63.4 65.2 67.0 63.9 63.4 65.2 67.0Operating Income 2,890 2,989 3,348 4,013 1,339 1,276 1,273 1,421 YoY change (%) 15.7 3.4 12.0 19.9 4.8 (4.8) (0.2) 11.6 As % of Revenue 48.1 46.6 47.5 49.7 48.1 46.6 47.5 49.7Financial Results (723) (954) (1,322) (1,455) (335) (407) (503) (515)Taxes (798) (735) (719) (870) (370) (314) (273) (308)Net Profit 1,351 1,285 1,290 1,669 626 549 490 591 YoY change (%) 14.8 (4.8) 0.3 29.4 4.0 (12.4) (10.6) 20.5 As % of Revenue 22.5 20.1 18.3 20.7 22.5 20.1 18.3 20.7

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (691) (791) (967) (1,118) (320) (338) (368) (396)Other Noncash Items - - - - - - - -Changes in Working Capital 0 0 0 0 0 0 0 0Operating Cash Flow 3,039 3,328 3,878 4,543 1,409 1,420 1,475 1,608Capital Expenditures (1,366) (3,128) (2,459) (1,550) (633) (1,335) (935) (549)Free Cash Flow 1,921 1,416 1,475 1,963 890 604 561 695Other Invest./(Divestments) - - - - - - - -Change in Debt 1,066 2,272 1,478 521 494 970 562 184Dividends (1,301) (1,293) (1,288) (1,669) (603) (552) (490) (591)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,601 1,709 1,880 2,154 683 670 694 733Current Assets 2,368 2,476 2,646 2,921 1,011 971 976 993Fixed Assets 9,962 12,119 13,429 13,675 4,252 4,752 4,955 4,651Total Assets 15,782 18,047 19,527 20,048 6,736 7,077 7,206 6,819Current Liabilities - - - - - - - -Long-Term Liabilities - - - - - - - -Shareholders' Equity 3,486 3,478 3,480 3,480 1,488 1,364 1,284 1,184Total Financial Debt 9,220 11,492 12,971 13,492 3,935 4,507 4,786 4,589ST Debt - - - - - - - -LT Debt 9,220 11,492 12,971 13,492 3,935 4,507 4,786 4,589




US$R$

Autoban30.6%

NovaDutra16.8%

ViaOeste13.8%

Rodoanel Oeste15.2%

Others23.6%

Toll Revenue

85.6%

Others Revenues

14.4%

Grupo Camargo Corrêa17.0%

Grupo Andrade Gutierrez

17.0%

Grupo Soares Penido17.2%

Free Float48.8%

65


BRAZIL—UTILITIES

CEMIG HOLD CURRENT PRICE: R$13.14


Investment Case: a new Cemig, but the challenges remain the same. Although Cemig has invested significantly through acquisitions and stakes in various segments in the last five years (stakes in TAESA, Renova, Santo Antonio Energia, Light), spreading the risks of operation in the sector through a balanced portfolio combining different segments, in our view its investment thesis continues to depend on the company’s new guidance for its 2015 growth strategy. Recently, the company started to add capacity to offset the potential negative impact on its margins of the end of generation contracts. However, we believe the ongoing investment strategy could change in 2015 as a new government takes office in the State of Minas Gerais.

Outlook 2015: Cemig is currently profiting from high energy prices, availability of energy from the Jaguara power plant, and a partnership in the renewable and transmission segments. Cemig still has energyavailable for trading in 2015 and 2016, which we believe should help partially offset the potential impact of the hydro deficit; at the same time, we believe revenue from the transmission segment should guarantee stability of cash flow. However, the company will continueto suffer from its exposure to the distribution segment. We project a YoY EBITDA decline of 16.3% for 2015.

Change in Estimates. We recently resumed coverage of Cemig and updated our models to reflect (1) a new energy balance portfolio, with additional energy sold for the 2015-16 period and some energy still being sold at the spot market (180 MW), (2) new price curve (long-term R$150/MWh), (3) a hydro deficit expected for 2015 (average 7%), (4) new macroeconomic estimates, (5) results released and 2014 guidance reflecting its energy trading strategy, (6) termination of concession contracts for the UHE Jaguara, São Simão, and Miranda plants, and (7) regulatory WACC of 7.2% for the Disco business.


Company Statistics



Bloomberg CMIG4 BZCurrent Price (01/02/15) R$ 13.14 / US$ 4.88Target Price (YE 2015) R$ 13.80 / US$ 5.0952-Week Range (R$) 12.14 - 19.96Market Capitalization (US$ Mn) 6,142Float (%) 62.33-Mth Avg. Daily Vol (US$ Mn) 26.6Shares Outstanding - Mn 1,258

70

80

90

100

110

120

130

J-13 M-13 A-13 D-13 A-14 A-14 D-14

CMIG4 BZ IBOVESPA

66

CEMIG Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Cemig is a holding company that operates generation, distribution and transmission assets in Brazil. Although it is a state-run company, controlled by the government of the State of Minas Gerais, it has implemented several pro-market clauses in its by-laws guaranteeing protection to minority shareholders. Cemig has a 11% market share of the distribution market in Brazil and comprises the Minas Gerais State concession and, through Light, a part of Rio de Janeiro State. Cemig currently has an installed capacity of 7,682 MW, having a 5% share in the Brazilian generation market. Key Personnel: Danilo de Castro (Chairman), Djalma Bastos de Morais (CEO), Luiz Fernando Rolla (CFO) and Antonio Carlos Velez (IR Manager) Web: www.cemig.com.br

EBITDA by Business, 2013

Sales by Segment (DisCo), 9M14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 15,955 17,661 17,494 17,866 7,395 7,536 6,652 6,324 YoY change (%) (0.1) 10.7 (0.9) 2.1 (9.5) 1.9 (11.7) (4.9)Gross Profit 10,173 9,390 9,313 8,290 4,715 4,007 3,541 2,934 YoY change (%) (2.2) (7.7) (0.8) (11.0) (11.4) (15.0) (11.6) (17.1)EBITDA 5,109 4,786 4,004 3,213 2,368 2,042 1,522 1,137 YoY change (%) 10.5 (6.3) (16.3) (19.8) 0.1 (13.8) (25.5) (25.3) As % of Revenue 32.0 27.1 22.9 18.0 32.0 27.1 22.9 18.0Operating Income 4,253 3,996 3,182 2,373 1,971 1,705 1,210 840 YoY change (%) 11.1 (6.0) (20.4) (25.4) 0.7 (13.5) (29.1) (30.6) As % of Revenue 26.7 22.6 18.2 13.3 26.7 22.6 18.2 13.3Financial Results (308) (824) (886) (802) (143) (352) (337) (284)Taxes (950) (1,064) (762) (521) (440) (454) (290) (184)Net Profit 3,962 2,353 2,062 1,706 1,836 1,004 784 604 YoY change (%) (14.3) (40.6) (12.4) (17.3) (22.3) (45.3) (21.9) (23.0) As % of Revenue 24.8 13.3 11.8 9.5 24.8 13.3 11.8 9.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 856 790 822 839 397 337 313 297Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (23) 229 (500) 163 (11) 98 (190) 58Operating Cash Flow 4,795 3,372 2,383 2,708 2,222 1,439 906 959Capital Expenditures (980) (935) (950) (996) (454) (399) (361) (353)Free Cash Flow 559 (339) 234 681 259 (144) 89 241Other Invest./(Divestments) 694 (2,375) 0 0 322 (1,013) 0 0Change in Debt 0 0 0 0 0 0 0 0Dividends (1,108) (1,177) (1,031) (853) (513) (502) (392) (302)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 3,135 2,797 3,031 3,712 1,338 1,097 1,118 1,262Current Assets 6,669 7,176 7,735 8,452 2,846 2,814 2,854 2,875Fixed Assets 19,913 22,342 22,469 22,626 8,499 8,761 8,291 7,696Total Assets 29,814 32,927 33,614 34,488 12,725 12,913 12,404 11,731Current Liabilities 5,922 9,643 9,299 9,319 2,527 3,781 3,431 3,170Long-Term Liabilities 11,254 11,225 11,225 11,225 4,803 4,402 4,142 3,818Shareholders' Equity 12,638 12,059 13,090 13,943 5,394 4,729 4,830 4,743Total Financial Debt 9,457 11,806 11,806 11,806 4,036 4,630 4,356 4,016ST Debt 2,238 4,698 4,698 4,698 955 1,842 1,734 1,598LT Debt 7,220 7,108 7,108 7,108 3,081 2,787 2,623 2,418




US$R$

GenCo58.0%

DisCo and Other

7.0%

TransCo35.0%

Residential45.5%

Industrial13.2%

Commercial23.5%

Rural8.0%

Others9.8%

Minas Gerais State

23.3%

Andrade Gutierrez Energia14.4%

Free float62.3%

67


BRAZIL—UTILITIES

CESP UNDERPERFORM CURRENT PRICE: R$25.43



Investment Case: We maintain our Underperform rating for Cesp, as we believe the stock’s recent appreciation has already priced in gains in spot prices and some cost improvement, and thus we see limited upside at current levels. Moreover, looking beyond 2015, we see uncertainty with respect to (i) the value of reimbursement for theTres Irmaos plant, and (ii) long-term cash flow generation.

Outlook 2015: We see 2015 as a defining year for Cesp, as the company will continue to fight for higher indemnification from the federal government for its old generation assets. Moreover, the company will have to continue its efforts to reduce costs and maintainprofitability, in our view. We revised our estimates for 2015 to account for a higher hydro deficit, and we now forecast a 50.4% YoYEBITDA decline.

Cap on spot price: On November 25, 2014, Aneel approved the new energy spot price cap of R$388.48/MWh (vs. the current cap of R$822.83/MWh), valid for 2015. A new and lower spot price cap was expected by the market and investors; therefore, the final impact of the prices approved on our fair value calculation is not significant. However, the lower price cap should, in our opinion, negatively affect implied margins (and cash flow) for Cesp in 2015.

Tres Irmaos reimbursement terms: the big question mark. The terms proposed by the federal government to reimburse Cesp for theTres Irmaos project were worse than we expected, as Cesp will not be able to receive the R$1.7 billion initially proposed unless it abandons its fight for the R$3.6 billion it requested. Thus, we expect the cash flow balance to be compromised in the next few years.

What does the future hold? We note that ~70% of Cesp’s concessions end in July 2015, after which EBITDA will decline to a normalized R$1.1 billion and the outlook for dividends will be murky.We also highlight that the future return on assets (new type of concession contract) and the commercialization strategy remain unclear, and that the privatization of the company remains an option.


Company Statistics



Bloomberg CESP6 BZCurrent Price (01/02/15) R$ 25.43 / US$ 9.45Target Price (YE 2015) R$ 23.67 / US$ 8.9352-Week Range (R$) 20.59 - 32.65Market Capitalization (US$ Mn) 3,094Float (%) 59.43-Mth Avg. Daily Vol (US$ Mn) 9.3Shares Outstanding - Mn 328

60

80

100

120

140

160

180

J-13 M-13 A-13 D-13 A-14 A-14 D-14

CESP6 BZ IBOVESPA

68

CESP Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Cesp is one of the largest generation companies in Brazil, with a total installed capacity of 7,457.3 MW (hydro-based). The company has 3,916 MW in firm capacity, representing 6% of Brazil’s total installed capacity. Cesp is a state-owned company, controlled by the State of São Paulo. The company has been put up for sale three times, but all privatization attempts failed. Key Personnel: Marco Antonio Mroz (Chairman), Almir Fernando Martins (CEO), Almir Fernando Martins (CFO) and Gildázio Pimenta (IR) Web: http://ri.cesp.com.br/


EBITDA by Business, 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 3,904 6,932 3,880 1,479 1,795 2,901 1,492 548 YoY change (%) 16.4 77.6 (44.0) (61.9) 4.6 61.6 (48.6) (63.3)Gross Profit 2,684 4,121 2,254 1,178 1,234 1,725 867 436 YoY change (%) 44.5 53.5 (45.3) (47.8) 29.9 39.7 (49.7) (49.7)EBITDA 2,892 4,235 2,101 1,082 1,330 1,772 808 401 YoY change (%) 27.9 46.5 (50.4) (48.5) 15.0 33.3 (54.4) (50.4) As % of Revenue 74.1 61.1 54.1 73.1 74.1 61.1 54.1 73.1Operating Income 2,211 3,626 1,736 940 1,017 1,518 668 348 YoY change (%) 48.7 64.0 (52.1) (45.8) 33.7 49.2 (56.0) (47.9) As % of Revenue 56.6 52.3 44.7 63.5 56.6 52.3 44.7 63.5Financial Results (422) (85) 98 33 (194) (36) 38 12Taxes 56 (1,150) (566) (302) 26 (481) (218) (112)Net Profit (194) 2,232 1,099 587 (89) 934 423 217 YoY change (%) (138.5) n/m (50.8) (46.6) (134.6) n/m (54.8) (48.6) As % of Revenue (5.0) 32.2 28.3 39.7 (5.0) 32.2 28.3 39.7

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (681) (609) (365) (142) (313) (255) (140) (53)Other Noncash Items (130) 83 (125) (102) (60) 35 (48) (38)Changes in Working Capital (141) (432) 427 341 (65) (181) 164 126Operating Cash Flow 581 3,727 2,233 1,237 267 1,560 859 458Capital Expenditures (86) (91) (96) (63) (39) (38) (37) (23)Free Cash Flow 326 1,065 (894) (429) 150 446 (344) (159)Other Invest./(Divestments) - - - - - - - -Change in Debt (1,136) (488) (1,214) (338) (522) (204) (467) (125)Dividends (848) (1,348) (996) (641) (390) (564) (383) (237)Capital Increases/Other - - - - - - - -

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 840 1,904 1,011 582 358 747 381 211Current Assets 1,471 2,982 1,652 865 628 1,169 623 315Fixed Assets 12,794 12,276 12,007 11,928 5,461 4,814 4,531 4,338Total Assets 15,175 16,204 14,641 13,809 6,478 6,355 5,525 5,021Current Liabilities 1,697 2,234 1,550 1,041 724 876 585 379Long-Term Liabilities 4,606 4,216 3,233 2,964 1,966 1,653 1,220 1,078Shareholders' Equity 8,872 9,755 9,857 9,803 3,787 3,825 3,720 3,565Total Financial Debt 2,610 2,122 908 570 1,114 832 343 207ST Debt 481 391 167 105 206 154 63 38LT Debt 2,129 1,731 740 465 909 679 279 169

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 1,771 218 (103) (12) 756 85 (39) (4)Capital Employed 13,809 13,813 13,187 12,742 5,895 5,417 4,976 4,634Net Debt/EBITDA 0.6 0.1 (0.0) (0.0) 0.6 0.0 (0.0) (0.0)Net Debt/Equity 0.2 0.0 (0.0) (0.0) 0.2 0.0 (0.0) (0.0)Capex/Revenue (%) 2.2 1.3 2.5 4.3 2.2 1.3 2.5 4.3Int Cover (%) 11.2 25.1 40.4 58.0 11.2 25.1 40.4 58.0Dividend Payout (%) 168.2 (695.2) 44.6 58.3 152.2 (637.4) 39.3 58.0ROCE (%) 15.6 34.6 17.5 9.7 17.1 38.0 17.5 9.7ROE (%) (2.1) 24.0 11.2 6.0 (2.1) 25.5 11.2 6.0

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E - 3.9 7.6 14.2 - 3.5 7.3 14.2P/CE 15.1 3.1 5.7 11.4 13.9 2.8 5.5 11.5FV/EBITDA 3.2 2.1 3.9 7.7 2.9 1.9 3.8 7.7FV/EBIT 4.1 2.5 4.7 8.8 3.8 2.2 4.6 8.9FV/Revenue 2.3 1.3 2.1 5.6 2.2 1.2 2.0 5.6P/BV 0.8 0.9 0.8 0.8 0.8 0.9 0.8 0.9FCF Yield (%) 4.4 12.1 (10.7) (5.2) 4.8 13.5 (11.1) (5.1)Div Yield (%) 11.5 15.4 12.0 7.7 12.5 17.1 12.4 7.7

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS (0.59) 6.81 3.35 1.79 (0.27) 2.85 1.29 0.66DPS 2.59 4.12 3.04 1.96 1.19 1.72 1.17 0.72BVPS 27.09 29.79 30.10 29.93 11.56 11.68 11.36 10.88

US$R$

Regulated23.8%

Free Market57.4%

Others18.8%

Generation100.0%

São Paulo State40.6%

Free Float59.4%

69



CETIP HOLD CURRENT PRICE: R$31.78

TARGET PRICE: R$36.00 RAISING YE2015 TARGET PRICE TO R$36.00 FROM R$33.80 Investment Case: We acknowledge that due to market conditions,

Cetip has lost the high-growth profile that it had in the aftermath of its IPO. Nonetheless, we still forecast that the company can grow grossrevenue by a sustainable 9% during the next five years. Cetip continues to be a defensive name, in our view, based on its inflation-linked products and recurring, diversified sources of revenue. Even though we still like the name, the stock’s strong performance in 2014 (nearly 40% outperformance vs. IBOV) leaves little room for upside, and therefore we maintain our Hold rating on Cetip.

Outlook 2015: We expect revenue in the fixed income and OTC derivatives segments (Cetip) to grow 13% YoY, while GRV revenuecould remain flat YoY, so gross revenue in this segment should grow8% YoY. The lower debt service could positively affect net income, which we see growing 12% YoY, quite reasonable in view of the potentially challenging macroeconomic scenario in 2015.

100% dividend payout? Good, but mostly priced in. The company has been indicating that it might increase its dividend payout from the current 75% to 100%. Based on that, several dividend-play funds are already considering Cetip for their invested portfolios. On the one hand, such a payout could boost dividend yieldby roughly 130 bps in the next few years; on the other hand, this positive news is already priced in by the market, in our view.

New ventures—still not tangible. (i) GRV’s real estate: the continued rollout of the real estate platform gives us confidence in Cetip’s ability to create new sources of revenue, but we see this as a long-term venture whose full value we cannot assess until we have more visibility; and (ii) vehicle financing platform: Cetip has a new system under development that automates the processing of vehicle credit concessions, with the goal of faster and less expensive processing (e.g., car dealers will be able to send documents directlyto financial institutions through smartphone devices).




Company Statistics



Bloomberg CTIP3 BZCurrent Price (01/02/15) R$ 31.78 / US$ 11.81Target Price (YE 2015) R$ 36.00 / US$ 13.6952-Week Range (R$) 22.60 - 33.63Market Capitalization (US$ Mn) 3,083,085Float (%) 83.73-Mth Avg. Daily Vol (US$ Mn) 17.0Shares Outstanding - Mn 261,165

70

80

90

100

110

120

130

140

J-13 M-13 A-13 D-13 A-14 A-14 D-14

CTIP3 BZ IBOVESPA

70

CETIP Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Cetip is one of the largest fixed income depositories in the world and the largest in Latin America in terms of assets under custody. The company has a vertically integrated business model (encompassing registration, custody, trading, collateral management, and clearing and settlement activities) designed to suit the Brazilian regulatory mandate to have central registration of all fixed income securities and OTC derivatives. The company was founded in 1986 by the largest financial institutions in Brazil. In 2010 it acquired GRV Solutions, the leading provider of an electronic system that maintains and processes motor vehicle liens (“gravame”) for financial institutions and Brazil’s regional DMVs (Department of Motor Vehicles, or “DETRANs”) in conjunction with motor vehicle financing. GRV is the sole consolidator of this data in the country. Key Personnel: Edgar da Silva Ramos (Chairman), Gilson Finkelsztain (CEO), Willy Otto Jordan (CFO) and Bernardo Garcia (IRM) Web: www.cetip.com.br

Main Revenue Lines, 2014E

Revenue Breakdown in %, 2014E



INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEquities 0 0 0 0 0 0 0 0Derivatives 0 0 0 0 0 0 0 0Other 1,076 1,218 1,320 1,448 499 520 502 513Revenue 1,076 1,218 1,320 1,448 499 520 502 513 Growth (%) 17.3 13.2 8.5 9.7 6.3 4.2 (3.4) 2.1EBITDA 650 718 779 869 301 306 296 307 Growth (%) 12.9 10.5 8.5 11.5 2.2 1.8 (3.3) 3.8Operating Profit 908 1,010 1,096 1,202 421 431 417 425 Growth (%) 14.8 11.2 8.5 9.7 4.0 2.4 (3.4) 2.1Profit Before Taxes 510 582 656 746 236 248 249 264Taxes (149) (165) (190) (216) (69) (70) (72) (77)Net Profit 361 417 466 529 167 178 177 187 Growth (%) 31.0 15.7 11.7 13.5 18.7 6.5 (0.5) 5.7

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 462 663 779 909 214 283 296 322Accounts Receivable 93 104 117 131 43 44 44 46Intangible and Deferred Asse 2,049 1,969 1,917 1,865 950 840 729 660Tangible Assets 41 55 70 87 19 23 27 31Total Assets 2,683 2,832 2,928 3,042 1,243 1,209 1,113 1,077ST Debt 26 29 33 37 12 12 12 13LT Debt 488 514 515 516 226 219 196 183Equity 1,695 1,799 1,915 2,048 785 768 728 725Net Debt (Cash) 13 (163) (279) (409) 6 (70) (106) (145)

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EChanges in Working Capital 33 37 42 47 15 16 16 17Operating Cash Flow 616 681 737 822 286 291 280 291Capital Expenditures 57 71 77 84 26 30 29 30Change in Debt 435 (25) 0 0 202 (11) 0 0Free Cash Flow to Equity (71) 425 453 518 (33) 181 172 183Cash Dividends (138) (271) (313) (350) (64) (115) (119) (124)Capital Increase (Decrease) 0 0 0 0 0 0 0 0

OPERATING RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EADTV 0 0 0 0 0 0 0 0ADTC 0 0 0 0 0 0 0 0EBITDA Margin 60.4 59.0 59.0 60.0 60.4 59.0 59.0 60.0Effective Tax Rate 29.2 28.3 29.0 29.0 29.2 28.3 29.0 29.0Net Margin 33.5 34.3 35.3 36.5 33.5 34.3 35.3 36.5Net Debt / EBITDA 0.0 (0.2) (0.4) (0.5) 0.0 (0.2) (0.4) (0.5)Net Debt / Equity 0.0 (0.1) (0.1) (0.2) 0.0 (0.1) (0.1) (0.2)FCFE / Revenues 37.9 36.2 35.7 36.4 37.9 36.2 35.7 36.4ROAA 13.6 15.1 16.2 17.7 13.8 16.1 16.2 17.7ROAE 23.1 23.9 25.1 26.7 23.6 25.4 25.1 26.7Payout 50.0 75.0 75.0 75.0 45.3 68.8 66.0 74.5

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 17.4 20.2 17.8 15.7 15.9 17.8 17.4 16.5P/CE 22.1 25.2 22.1 19.3 20.2 22.2 21.6 20.3FV/EBITDA 9.7 11.5 10.3 9.1 8.9 10.1 10.1 9.6FCFE Yield (%) (1.1) 5.1 5.5 6.2 (1.2) 5.7 5.6 5.9P/BV 3.7 4.7 4.3 4.1 3.4 4.1 4.2 4.3Div Yield (%) 2.2 3.2 3.8 4.2 2.4 3.7 3.9 4.0


US$R$

Registration10.6%

Custody22.3%Monthly

Utilization14.7%

Transactions

9.5%

SNG15.8%

Sircof14.2%

Cetip64.3%

GRV35.7%

ICE Overseas

Ltd.12.1%

Board Members

3.1%

Free Float84.8%

71



CIA HERING HOLD CURRENT PRICE: R$19.70



Investment Case: Hering remains a compelling retail play given its (1) attractive valuation (trading at a 2015E P/E of 9x), (2) superior returns (31% ROIC in 2015E), (3) strong balance sheet, and (4) flexible business model, combining internal production and outsourcing; however, we remain concerned with the poor sales visibility while the company’s turnaround process might take longer than we previously anticipated. The company is working on several initiatives to reignite SSS growth and we expect internal measures to gradually bear fruit, yet visibility remains limited.

Outlook 2015: Hering’s sales remain subpar, buy we expect easy comps to support positive SSS for 2015 (+4%), while robust store openings (+85 stores) should allow for top-line sales recovery (+8% YoY). Moreover we expect some margin recovery (+60 bps YoY EBITDA margin), as operating leverage should be able to offset higher expenses with the new corporate structure. We forecast Hering delivers 11% YoY EPS growth along with 30% ROE in 2015.

Catalysts: Improving SSS remains a challenge, although we expect the newly enhanced collections to improve traffic in stores. Management believes that the “new” collections will offer a better value proposition buy we believe the company’s store execution and communication (inside and outside the store network) still needs improvement. Cleaning “old” stock levels has also been detrimental to margins, but we believe this has been accomplished, which should help improve margins.

Concerns: Main risks to our investment case include: (1) stronger-than-expected economic slowdown, hindering sales acceleration, (2) higher competition from local and foreign brands, (3) depleting returns, (4) cutback in store openings, and (5) downside risk to consensus estimates.




Company Statistics



Bloomberg HGTX3 BZCurrent Price (01/02/15) R$ 19.70 / US$ 7.32Target Price (YE 2015) R$ 23.00 / US$ 8.4952-Week Range (R$) 19.70 - 30.00Market Capitalization (US$ Mn) 1,205Float (%) 70.33-Mth Avg. Daily Vol (US$ Mn) 10.7Shares Outstanding - Mn 165

40

50

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

HGTX3 BZ IBOVESPA

72

CIA HERING Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Cia. Hering is a vertically integrated branded apparel wholesale/retailer operating through franchise network and multi-brand channels. The company features a flexible production model, benefiting from own manufacturing (five plants) and outsourcing (80%/20%), to deliver six collections throughout the year to its four main brands: Hering, PUC, Hering Kids, and Dzarm. Hering distributes its products through two distribution channels: (1) owned and franchised stores for its different brands, with more than 750 stores (3Q14), and (2) the multi-brand channel with nearly 17,000 points of sale. Hering is a publicly traded company in the Bovespa’s Novo Mercado, with a free float of 78%. Key Personnel: Ivo Hering (Chairman), Fabio Hering (CEO), Frederico Oldani (CFO) and Bruno Brasil (Investor Relations Manager) Web: www.ciahering.com.br

Sales Breakdown by Brand, 3Q14

Sales Breakdown by Channel, 3Q14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,680 1,709 1,851 2,025 779 728 704 717 YoY change (%) 12.6 1.8 8.3 9.4 2.0 (6.5) (3.3) 1.8Gross Profit 759 752 820 903 352 320 312 320 YoY change (%) 11.7 (0.9) 9.0 10.1 1.2 (8.9) (2.6) 2.5EBITDA 439 401 446 502 203 171 170 178 YoY change (%) 7.8 (8.5) 11.1 12.5 (2.4) (16.0) (0.8) 4.8 As % of Revenue 26.1 23.5 24.1 24.8 26.1 23.5 24.1 24.8Operating Income 405 364 401 454 188 155 153 161 YoY change (%) 8.5 (10.2) 10.3 13.1 (1.7) (17.5) (1.5) 5.3 As % of Revenue 24.1 21.3 21.7 22.4 24.1 21.3 21.7 22.4Financial Results 29 34 44 42 13 15 17 15Taxes (116) (81) (92) (106) (54) (34) (35) (38)Net Profit 318 317 353 389 147 135 134 138 YoY change (%) 2.3 (0.2) 11.0 10.4 (7.3) (8.3) (0.9) 2.8 As % of Revenue 18.9 18.6 19.0 19.2 18.9 18.6 19.0 19.2

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (34) (38) (45) (48) (16) (16) (17) (17)Other Noncash Items 60 106 (99) (57) 28 45 (38) (20)Changes in Working Capital (116) (77) 36 (42) (54) (33) 14 (15)Operating Cash Flow 228 309 245 242 106 131 93 86Capital Expenditures (72) (84) (86) (66) (33) (36) (33) (23)Free Cash Flow 143 167 312 297 66 71 119 105Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt (0) (2) 0 0 (0) (1) 0 0Dividends (208) (112) (159) (176) (97) (48) (60) (62)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 141 250 250 250 60 98 92 85Current Assets 935 1,093 1,065 1,122 399 429 393 382Fixed Assets 364 412 453 470 155 161 167 160Total Assets 1,299 1,504 1,518 1,592 554 590 560 542Current Liabilities 313 304 312 327 133 119 115 111Long-Term Liabilities 79 47 47 47 34 18 17 16Shareholders' Equity 907 1,153 1,159 1,218 387 452 428 414Total Financial Debt 24 23 23 23 10 9 8 8ST Debt 2 23 23 23 1 9 8 8LT Debt 22 0 0 0 10 0 0 0

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt (117) (230) (230) (230) (50) (90) (85) (78)Capital Employed 986 1,200 1,206 1,265 421 471 445 430Net Debt/EBITDA (0.3) (0.6) (0.5) (0.5) (0.2) (0.5) (0.5) (0.4)Net Debt/Equity (0.1) (0.2) (0.2) (0.2) (0.1) (0.2) (0.2) (0.2)Capex/Revenue (%) 4.3 4.9 4.6 3.2 4.3 4.9 4.6 3.2Int Cover (%) 14.8 13.6 21.8 23.5 14.8 13.6 21.8 23.5Dividend Payout (%) 67.0 35.1 50.0 50.0 60.6 32.2 44.0 49.7ROCE (%) 52.8 37.0 40.9 44.2 56.6 40.9 41.1 44.2ROE (%) 37.6 30.8 30.5 32.8 38.4 33.0 30.5 32.8



US$R$

Hering72.0%

Hering Kids12.0%

PUC9.0%

dzarm.5.0%

Other2.0%

Franchise Stores34.9%

Own Stores11.8%

Multibrand48.6%

Webstore1.5%

Other3.3%

Inpasa S/A

7.3%Ivo

Hering7.1%

Aberdeen5.0%

Others10.2%

Free Float70.3%

73



CIELO BUY CURRENT PRICE: R$39.72


Investment Case: Cielo announced on November 21, 2014 the creation of a JV with Banco do Brasil in the cards’ segment. (Please refer to our December 1 report, Cielo: The Cielo-BB JV—Spelling Out Value Creation.) We considered the deal as value-accretive based on (i) the NPV we calculated was 19.5% above the price paid by Cielo for its 70% stake, (ii) lower WACC due tothe expected R$8.1 billion in debentures yet to be issued, and (iii) potential synergies to be unlocked from the lower tax burden. We have not included in our valuation (i) potential synergies from higher efficiency, (ii) the tax shield from goodwill amortization (weestimate at ~R$1.7 billion), and (iii) the tax credits from IOC (interest on capital); near R$3 billion by our estimate).

Outlook 2015: The deal would potentially reduce 2015 EPS by 7%, with a zero impact on 2016 results, and margin recovery happening only in 2017, after which we believe EPS will increase circa 6% for the following years. Thus, investors should expect slightly lower EPS growth in 2015, but this will be in exchange for long-term benefits, in our view. Based on the 2015E P/E, the company will look more expensive with its higher multiples.

Waiting for final approval. We expect this to be granted by the regulators (BACEN and CADE) by YE2014. Following approval, Cielo should provide additional information to the market, which we believe will support the deal price. We look forward to this time, when we believe our thesis that the deal was value-accretive will be corroborated.

Regulatory risk—still hovering. Our call is that the deal is not as negative as it might appear. We see only three viable regulatory risks: (i) the end of exclusivity, which is a given and whose outcome will be known by April 2015, as the main players agreed; (ii) the cap on debit cards’ MDR; and (iii) the end of POSmachines. If all three materialize, our YE2015 target price would be negatively affected by 5%. The end of the “D+30” is not an immediate concern, in our view.




Company Statistics



Bloomberg CIEL3 BZCurrent Price (01/02/15) R$ 39.72 / US$ 14.75Target Price (YE 2015) R$ 51.00 / US$ 19.6252-Week Range (R$) 31.25 - 46.50Market Capitalization (US$ Mn) 23,198Float (%) 42.33-Mth Avg. Daily Vol (US$ Mn) 66.3Shares Outstanding - Mn 1,572

50

100

150

200

250

D-12 A-13 J-13 N-13 M-14 J-14 N-14

CIEL3 BZ IBOVESPA

74

CIELO Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Cielo is the leading acquirer in the Brazilian credit and debit card industry. The company is responsible for the affiliation of new merchants to accept credit and debit cards as means of payment. Formerly, Cielo had exclusivity for the affiliation of Visa-branded cards. That exclusivity has ended, but Cielo has already started to affiliate with other brands such as MasterCard and Elo. Cielo rents the point of sale (POS) machines, and captures, transmits, processes and settles credit and debit card transactions in Brazil. Cielo also operates some complementary products and services, such as processing service and food vouchers, hybrid private-label cards and corresponding banking transactions, the latter on behalf of the low-income banking customers of its main shareholders. Key Personnel: Rômulo de Mello Dias (CEO), Clovis Poggetti (CFO) and Roberta Noronha (IRO) Web: www.cielo.com.br

Share of Transactions, YE2014E

EBITDA Margin, 2010–15E



INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ERevenue 7,936 9,388 10,356 11,585 3,678 3,995 3,983 4,291 Growth (%) 27.3 18.3 10.3 11.9 15.3 8.6 (0.3) 7.7EBITDA 3,575 3,939 4,562 5,072 1,657 1,676 1,755 1,878 Growth (%) 15.4 10.2 15.8 11.2 4.6 1.1 4.7 7.0Operating Profit 4,386 5,218 5,885 6,569 2,033 2,220 2,263 2,433 Growth (%) 20.8 19.0 12.8 11.6 9.5 9.2 1.9 7.5Profit before Taxes 4,039 4,289 5,394 6,217 1,872 1,825 2,075 2,303Taxes (1,358) (1,435) (1,780) (2,052) (629) (611) (685) (760)Minorities 0 0 0 0 0 0 0 0Net Profit 2,681 3,276 3,614 4,166 1,242 1,394 1,390 1,543 Growth (%) 14.9 22.2 10.3 15.3 4.1 12.2 (0.3) 11.0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 423 1,456 2,626 3,971 196 619 1,010 1,471Accounts Receivable 8,639 8,897 10,577 11,574 4,004 3,786 4,068 4,287Intangible and Deferred Asse 616.2 659.0 745.5 874.5 285.6 280.4 286.7 323.9Tangible Assets 515 740 719 815 239 315 277 302Total Assets 13,264 14,997 18,056 20,786 6,147 6,381 6,945 7,698ST Debt 0 0 0 0 0 0 0 0LT Debt 0 0 0 0 0 0 0 0Equity 3,332 4,315 5,400 6,649 1,544 1,836 2,077 2,463Net Debt (Cash) (423) (1,456) (2,626) (3,971) (196) (619) (1,010) (1,471)

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EChanges in Working Capital 1,001 998 1,032 335 464 425 397 124Operating Cash Flow 2,574 2,941 3,531 4,736 1,193 1,251 1,358 1,754Capital Expenditures (339) (547) (612) (675) (157) (233) (235) (250)Change in Debt 867 (601) (339) (386) 402 (256) (131) (143)Free Cash Flow to Equity 734 2,676 2,625 3,960 340 1,139 1,009 1,467Cash Dividends (1,520) (1,802) (2,293) (2,530) (704) (767) (882) (937)Capital Increase (Decrease) 0 0 0 0 0 0 0 0

OPERATING RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEBITDA Margin - - - - - - - -Effective Tax Rate 33.6 33.5 33.0 33.0 33.6 33.5 33.0 33.0Net Margin 33.8 34.9 34.9 36.0 33.8 34.9 34.9 36.0Net Debt / EBITDA (11.8) (37.0) (57.6) (78.3) (11.8) (37.0) (57.6) (78.3)Net Debt / Equity (12.7) (33.7) (48.6) (59.7) (13.9) (37.0) (48.6) (59.7)FCFE / Revenues 6.5 7.9 6.9 7.0 6.5 7.9 6.9 7.0ROAA 23.1 23.2 21.9 21.4 23.7 24.5 21.9 21.4ROAE 93.3 85.7 74.4 69.1 95.8 90.7 74.4 69.1Payout 65.2 67.2 70.0 70.0 59.0 62.3 63.8 70.0



US$R$

Credit card60.9%

Debit card39.1%

61.55 58.29

49.7045.05 41.95 44.05

2010

A

2011

A

2012

A

2013

A

2014

E

2015

EBradesco

28.6%

Banco do Brasil28.6%

Free float42.7%

75

http://www.cielo.com.br/


BRAZIL—UTILITIES

COMGAS HOLD CURRENT PRICE: R$46.95



Investment Case: The delay in the tariff revision sheds light on the complexity of the regulatory framework and the risks associated withpotential changes in methodology parameters. We believe any changes in the assessment of the asset base and in aggressive volume curves could dent margins and returns. Therefore, althoughwe continue to expect no important changes to the asset base definition and anticipate that decent return levels will be maintained,we reiterate our Hold rating for the stock.

Outlook 2015: Arsesp is scheduled to conclude the tariff revision process on May 30, 2015, which implies, in our estimates, a 1.5% tariff increase if WACC is confirmed at 8.06% post tax. However, we expect EBITDA to decrease 8.6% YoY, reflecting cost pressure and lower volume growth. Therefore, we believe the main challenges for2015 will be (i) the industrial segment’s performance, which has beenweak recently, partially contributing to lower volume growth, and (ii) higher inflation, which will increase the cost pressure.

Tariff revision: The tariff revision process was delayed until May 2015; as a result, the regulator announced a tariff reset of 2.3% for Comgas to partially offset inflation and cost pressures until the tariff revision is concluded. We view the announcement as neutral, given that we already considered the calendar for the process to be tight.

New holding unit for gas. Cosan, the controlling entity of Comgas, highlighted that the separation of the gas distribution business and the creation of a new listed holding company for that business (approval expected in 1Q15) is intended to make future acquisitions and development in the gas business more efficient. Cosan said it would allocate part of its debt to this new holding unit and that in the future investors should focus investments in the new holding unit.

Change to estimates: We updated our model to include (1) recently released quarterly results, (2) a new (lower) volume curve and gas price, (3) new tariff revision estimates/parameters and calendar, and (4) an updated discount rate.


Company Statistics



Bloomberg CGAS5 BZCurrent Price (01/02/15) R$ 46.95 / US$ 17.44Target Price (YE 2015) R$ 57.02 / US$ 21.5252-Week Range (R$) 46.70 - 58.00Market Capitalization (US$ Mn) 2,090Float (%) 21.43-Mth Avg. Daily Vol (US$ Mn) 0.7Shares Outstanding - Mn 120

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

CGAS5 BZ IBOVESPA

76

COMGAS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Comgás is a distributor of piped natural gas in São Paulo State with over 1,400,000 customers. In 2013, it distributed 5.5 billion cubic meters—amounting to a quarter share of the domestic market—through its 10,900 km of pipelines. Its concession area comprises 177 cities in metropolitan São Paulo, metropolitan Campinas, the coastal area around Santos, and the Paraíba Valley. The company is controlled by Cosan, its major shareholder (60.7% of total shares). Key Personnel: Rubens Ometto Silveira Mello (Chairman), Luis Henrique Cals de Beauclair Guimarães (CEO), Roberto Collares Lage (CFO) and Andre Meneguetti Salgueiro (IR Manager) Web: http://www.comgas.com.br/investidores/

Sales by Segment, 9M14

Gross Result by Business, 9M14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 6,337 6,415 6,479 6,814 2,937 2,677 2,492 2,524 YoY change (%) 20.0 1.2 1.0 5.2 8.7 (8.8) (6.9) 1.3Gross Profit 2,452 2,491 2,459 2,909 1,136 1,040 946 1,077 YoY change (%) 32.9 1.6 (1.3) 18.3 20.4 (8.5) (9.0) 13.9EBITDA 1,403 1,465 1,339 1,701 650 611 515 630 YoY change (%) 45.9 4.4 (8.6) 27.0 32.2 (6.0) (15.7) 22.3 As % of Revenue 22.1 22.8 20.7 25.0 22.1 22.8 20.7 25.0Operating Income 1,072 1,094 927 1,242 497 457 356 460 YoY change (%) 59.6 2.1 (15.3) 34.1 44.6 (8.1) (22.0) 29.1 As % of Revenue 16.9 17.1 14.3 18.2 16.9 17.1 14.3 18.2Financial Results (191) (246) (257) (268) (89) (103) (99) (99)Taxes (262) (252) (199) (290) (121) (105) (77) (107)Net Profit 619 596 470 685 287 249 181 254 YoY change (%) 68.9 (3.7) (21.1) 45.5 53.0 (13.3) (27.3) 40.1 As % of Revenue 9.8 9.3 7.3 10.0 9.8 9.3 7.3 10.0

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (331) (370) (413) (459) (154) (155) (159) (170)Other Noncash Items - - - - - - - -Changes in Working Capital 22 (313) 42 (38) 10 (131) 16 (14)Operating Cash Flow 1,293 652 1,140 1,335 599 272 439 494Capital Expenditures (852) (735) (801) (871) (395) (307) (308) (323)Free Cash Flow 366 (230) 41 134 170 (96) 16 50Other Invest./(Divestments) - - - - - - - -Change in Debt 0 0 0 0 0 0 0 0Dividends 0 (147) (298) (329) 0 (61) (115) (122)Capital Increases/Other 127 0 0 0 59 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 536 306 348 482 229 120 131 175Current Assets 1,498 1,527 1,572 1,753 639 599 593 637Fixed Assets 4,133 4,497 4,886 5,298 1,764 1,764 1,844 1,927Total Assets 6,919 7,420 7,854 8,454 2,953 2,910 2,964 3,074Current Liabilities 1,403 1,588 1,673 1,845 599 623 631 671Long-Term Liabilities 2,860 2,877 3,085 3,308 1,220 1,128 1,164 1,203Shareholders' Equity 2,656 2,954 3,096 3,301 1,134 1,159 1,168 1,200Total Financial Debt 2,841 2,840 3,056 3,285 1,213 1,114 1,153 1,195ST Debt 336 336 362 389 144 132 137 141LT Debt 2,505 2,504 2,694 2,896 1,069 982 1,017 1,053

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 2,305 2,534 2,708 2,803 984 994 1,022 1,019Capital Employed 4,240 4,755 5,175 5,737 1,810 1,865 1,953 2,086Net Debt/EBITDA 1.6 1.7 2.0 1.6 1.5 1.6 2.0 1.6Net Debt/Equity 0.9 0.9 0.9 0.8 0.9 1.0 0.9 0.8Capex/Revenue (%) 13.4 11.5 12.4 12.8 13.4 11.5 12.4 12.8Int Cover (%) n/m n/m n/m n/m n/m n/m n/m n/mDividend Payout (%) 0.0 23.8 50.0 70.0 0.0 21.8 44.0 69.6ROCE (%) 31.5 28.3 21.8 26.7 33.8 31.3 21.9 26.7ROE (%) 25.2 21.2 15.6 21.4 25.7 22.6 15.6 21.4

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 11.3 9.8 12.0 8.2 10.3 8.8 11.5 8.2P/CE 7.3 6.1 6.4 4.9 6.7 5.5 6.2 4.9FV/EBITDA 6.6 5.7 6.2 5.0 6.1 5.2 6.0 4.9FV/EBIT 8.7 7.7 9.0 6.8 7.9 7.0 8.7 6.8FV/Revenue 1.5 1.3 1.3 1.2 1.3 1.2 1.2 1.2P/BV 2.6 2.0 1.8 1.7 2.6 1.9 1.8 1.7FCF Yield (%) 5.2 (3.9) 0.7 2.4 5.7 (4.4) 0.8 2.4Div Yield (%) (0.0) 2.5 5.3 5.9 (0.0) 2.8 5.5 5.8

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 5.17 4.97 3.93 5.71 2.39 2.08 1.51 2.12DPS 0 1.23 2.49 2.75 0 0.51 0.96 1.02BVPS 22.17 24.66 25.83 27.55 9.46 9.67 9.75 10.02

US$R$

Gas Distribution

100.0%

Cogeneration

3.7%Vehicles

3.2%Residential

10.3%

Others15.7%

Industrial67.1%

Cosan60.7%

Shell Bz (Integral

BV)17.9%

Others21.4%

77


BRAZIL—UTILITIES

COPASA HOLD CURRENT PRICE: R$24.80



Investment Case: We maintain our Hold rating for Copasa despite its recent underperformance, given that the latest quarterly results indicated a tighter volume curve for the next few quarters. Moreover, there is no clear time frame for the realizationof a tariff revision methodology. However, we note that the company continues to be protected against inflation and trades at a discount to its peers.

Outlook 2015: We continue to expect that the tariff revision process will not be completed in 2015, due to understaffing at ARSAE, the state regulator. We forecast EBITDA of R$1,236 million, a 5.5% YoY increase, primarily reflecting pressure on short-term volume growth and the tariff adjustment to cover inflation pressure for nonmanageable costs.

Volume Curve: In its latest operating results, the company highlighted that its ongoing awareness campaign to reduce consumption has reduced the billed volume per connection in its concession area throughout 2014. Therefore, we update our volume curve, predicting YoY increases in water and sewage volumes of only 1.3% and 1.4%, respectively, for 2015. We also highlight, however, that the volume curve should tend to spike again in 2016, when we project volume increases of 3.6% and 3.3% for the water and sewage segment, respectively.

Tariff revision process: We believe that ARSAE will continue to delay the new tariff revision process, and consequently, uncertainty surrounding the return of the company's marginal capex will continue.

Change in estimates. We revised our model to reflect (1) new macroeconomic estimates, (2) slower volume growth, (3) recent quarterly results, (4) a higher discount rate, (5) tariff revision delayed until 2016, and (6) higher tax rate.


Company Statistics



Bloomberg CSMG3 BZCurrent Price (01/02/15) R$ 24.80 / US$ 9.21Target Price (YE 2015) R$ 27.90 / US$ 10.5352-Week Range (R$) 21.37 - 41.30Market Capitalization (US$ Mn) 1,099Float (%) 48.63-Mth Avg. Daily Vol (US$ Mn) 4.8Shares Outstanding - Mn 119

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

CSMG3 BZ IBOVESPA

78

COPASA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Copasa is one of the largest sanitation water distribution companies in Latin America. The company charges its clients for water treatment and distribution and for sewage treatment and collection. It is controlled by the State of Minas Gerais (51.1% ownership) and operates in 633 municipalities, mainly in the water supply segment, serving more than 12 million people. The company is in the process of expanding its activities to the sewage sector primarily in areas with existing water concessions. Copasa is listed in the Novo Mercado (CSMG3). Key Personnel: Joaquim Herculano Rodrigues (Chairman), Ricardo Augusto Simões Campos (CEO), Paula Vasques Bittencourt (CFO) and Paula Vasques Bittencourt (Investor Relations Officer) Web: www.copasa.com.br

Revenues by Business, 9M14




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 3,733 4,278 5,614 5,631 1,737 1,764 2,159 2,085 YoY change (%) 8.3 14.6 31.2 0.3 (1.5) 1.6 22.4 (3.4)Gross Profit 726 690 707 740 338 284 272 274 YoY change (%) (4.8) (5.0) 2.5 4.7 (13.4) (15.8) (4.4) 0.8EBITDA 1,157 1,172 1,236 1,313 538 483 475 486 YoY change (%) 1.2 1.3 5.5 6.2 (8.0) (10.2) (1.6) 2.2 As % of Revenue 31.0 27.4 22.0 23.3 31.0 27.4 22.0 23.3Operating Income 726 690 707 740 338 284 272 274 YoY change (%) (4.8) (5.0) 2.5 4.7 (13.4) (15.8) (4.4) 0.8 As % of Revenue 19.5 16.1 12.6 13.1 19.5 16.1 12.6 13.1Financial Results (160) (203) (270) (282) (74) (84) (104) (104)Taxes (146) (123) (100) (105) (68) (51) (39) (39)Net Profit 420 364 337 353 195 150 130 131 YoY change (%) (12.9) (13.3) (7.3) 4.7 (20.7) (23.2) (13.6) 0.9 As % of Revenue 11.2 8.5 6.0 6.3 11.2 8.5 6.0 6.3

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (431) (482) (529) (573) (200) (199) (204) (212)Other Noncash Items 58 58 76 74 27 24 29 27Changes in Working Capital (93) 216 (50) (20) (43) 89 (19) (7)Operating Cash Flow 816 1,120 892 980 379 462 343 363Capital Expenditures (909) (878) (1,208) (1,103) (423) (362) (464) (408)Free Cash Flow (236) (49) 177 306 (110) (20) 68 113Other Invest./(Divestments) 22 0 0 0 10 0 0 0Change in Debt 0 439 604 551 0 181 232 204Dividends (334) (164) (112) (123) (155) (68) (43) (46)Capital Increases/Other - - - - - - - -

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 262 213 390 696 114 84 147 253Current Assets 1,100 1,084 1,339 1,690 478 425 505 615Fixed Assets 7,623 8,237 8,916 9,445 3,314 3,230 3,364 3,435Total Assets 9,388 9,969 10,901 11,783 4,082 3,909 4,114 4,285Current Liabilities 931 962 1,088 1,199 405 377 410 436Long-Term Liabilities 3,120 3,440 4,027 4,568 1,357 1,349 1,520 1,661Shareholders' Equity 5,337 5,567 5,786 6,016 2,321 2,183 2,183 2,188Total Financial Debt 3,264 3,396 4,075 4,700 1,419 1,332 1,538 1,709ST Debt 472 446 539 624 205 175 203 227LT Debt 2,792 2,949 3,536 4,077 1,214 1,157 1,334 1,482




US$R$

Water65.8%

Sewage34.2%

Residential82.4%

Industrial3.0%

Commercial and others

9.8%

Public Sector4.8%

Minas Gerais State

51.1%

Free Float48.6%

79


BRAZIL—UTILITIES

COPEL BUY CURRENT PRICE: R$35.90


Investment Case: We recently introduced our YE2015 target price and upgraded the company to Buy from Hold based on its fundamental prospects and the gains we expect from higher energy prices. Although there is no clear growth strategy to apply the residual tariff index approved by the regulator, in the Disco arm we see upside risk at this point, as the company’s valuation shows inexpensive multiples.

Outlook 2015: We expect EBITDA growth of 2.7% in 2015, as the company should benefit from (1) continued high thermal dispatch from the Araucaria thermal plant, and (2) the sale of about 177 MWmof available energy at high energy prices. However, the positives willbe partially offset by the hydro deficit and the delay in UHE Colider.

Upside to higher energy prices: Copel has 41% of its electricity generation portfolio to be recontracted in 2017 and 65% in 2018. We expect rollover prices to be R$150/MWh (a good price), ~24% higher than the current average of R$120/MWh.

Negative on uncertainty in tariff application. Interference by the main shareholder could create systematic downside risks. The company currently holds regulatory receivables of R$622.4 million and R$275.4 million, for 2014 and 2013, respectively. We expect Copel to request these tariffs gradually in the next few years, minimizing the impact for final consumers.

What has changed? We recently updated our models to include (i) a new price curve (long-term R$150/MWh) as well as the hydro deficit expected for 2015 (average 7%), (ii) a new energy balance portfolio, with additional energy sold for the 2015-16 period and some energy that is still being sold at the spot market (about 9% of its portfolio, or 177 MW), (iii) new macroeconomic assumptions, (iv) recently released results, (v) a tariff increase of 24.86% applied in June 2014 as well as the residual tariffs to be applied in the next tariffreview process, (vi) regulatory WACC of 7.2% for the disco business, (vii) new capex guidance, and (viii) some cost cuts made to achieve regulatory targets.


Company Statistics



Bloomberg CPLE6 BZCurrent Price (01/02/15) R$ 35.90 / US$ 13.34Target Price (YE 2015) R$ 44.36 / US$ 16.3752-Week Range (R$) 23.64 - 40.40Market Capitalization (US$ Mn) 3,649Float (%) 45.03-Mth Avg. Daily Vol (US$ Mn) 7.3Shares Outstanding - Mn 274

70

80

90

100

110

120

130

J-13 M-13 A-13 D-13 A-14 A-14 D-14

CPLE6 BZ IBOVESPA

80

COPEL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Copel is a holding company that operates generation, distribution, and transmission assets and sells electricity in Brazil. Copel is a state-run company controlled by the government of the State of Paraná (58.63% of common shares and 31.08% of total capital. In the distribution segment, the company has approximately 6% of market share. In the generation segment, Copel currently has an annual installed capacity of 5.455 MW and partnerships in several power plants (4% market share). Key Personnel: Mauricio Schulman (Chairman), Luiz Fernando Leone Vianna (CEO), Luiz Eduardo da Veiga Sebastiani (CFO) and Luiz Eduardo da Veiga Sebastiani (IR Director) Web: www.copel.com/hpcopel

EBITDA by Business, 3Q14




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 9,180 12,870 13,610 13,488 4,255 5,492 5,175 4,775 YoY change (%) 7.6 40.2 5.7 (0.9) (2.5) 29.1 (5.8) (7.7)Gross Profit 4,833 6,910 6,360 6,774 2,240 2,949 2,418 2,398 YoY change (%) 9.8 43.0 (8.0) 6.5 (0.5) 31.6 (18.0) (0.8)EBITDA 1,716 2,409 2,474 2,893 795 1,028 941 1,024 YoY change (%) 11.4 40.4 2.7 17.0 0.9 29.3 (8.5) 8.9 As % of Revenue 18.7 18.7 18.2 21.4 18.7 18.7 18.2 21.4Operating Income 1,113 1,793 1,829 2,205 516 765 695 781 YoY change (%) 12.4 61.1 2.0 20.6 1.9 48.3 (9.1) 12.3 As % of Revenue 12.1 13.9 13.4 16.3 12.1 13.9 13.4 16.3Financial Results 280 68 (252) (347) 130 29 (96) (123)Taxes (405) (604) (523) (607) (188) (258) (199) (215)Net Profit 959 1,310 1,134 1,317 444 559 431 466 YoY change (%) 39.0 36.7 (13.5) 16.2 26.0 25.8 (22.9) 8.2 As % of Revenue 10.4 10.2 8.3 9.8 10.4 10.2 8.3 9.8

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (603) (617) (645) (688) (280) (263) (245) (244)Other Noncash Items (306) (190) 0 0 (142) (81) 0 0Changes in Working Capital 392 (180) (158) (116) 182 (77) (60) (41)Operating Cash Flow 1,855 2,083 1,524 1,593 860 889 580 564Capital Expenditures (1,843) (2,490) (1,950) (1,641) (854) (1,062) (742) (581)Free Cash Flow 12 (407) (426) (47) 6 (174) (162) (17)Other Invest./(Divestments) (1,065) (264) 0 0 (494) (113) 0 0Change in Debt 1,236 1,133 67 39 573 483 25 14Dividends (343) (351) (567) (659) (159) (150) (216) (233)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 2,131 1,724 1,298 1,251 909 676 479 425Current Assets 4,676 4,879 4,623 4,740 1,996 1,913 1,706 1,612Fixed Assets 14,696 16,577 17,882 18,835 6,272 6,501 6,599 6,407Total Assets 23,111 25,351 26,334 27,365 9,864 9,942 9,717 9,308Current Liabilities 3,348 4,191 4,461 4,653 1,429 1,643 1,646 1,583Long-Term Liabilities 6,835 7,957 8,102 8,283 2,917 3,120 2,990 2,817Shareholders' Equity 12,651 12,831 13,398 14,057 5,400 5,032 4,944 4,781Total Financial Debt 5,499 6,740 6,928 7,160 2,347 2,643 2,556 2,435ST Debt 1,045 1,301 1,343 1,395 446 510 496 474LT Debt 4,454 5,439 5,585 5,765 1,901 2,133 2,061 1,961


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 8.7 7.5 8.7 7.5 8.0 6.6 8.5 7.8P/CE 5.3 5.1 5.5 4.9 4.9 4.5 5.4 5.1FV/EBITDA 6.4 5.9 5.9 5.2 5.8 5.2 5.8 5.3FV/EBIT 9.8 7.9 8.0 6.8 9.0 7.0 7.8 6.9FV/Revenue 1.2 1.1 1.1 1.1 1.1 1.0 1.1 1.1P/BV 0.7 0.8 0.7 0.7 0.7 0.7 0.7 0.8FCF Yield (%) 0.1 (4.1) (4.3) (0.5) 0.2 (4.7) (4.4) (0.5)Div Yield (%) 4.1 3.6 5.8 6.7 4.5 4.1 5.9 6.4


US$R$

GenCo & TransCo79.0%

DisCo14.0%

Other7.0%

Residential31.5%

Industrial29.6%

Commercial19.7%

Others15.4%

Paraná State31.1%

BNDESPAR24.0%

Free float45.0%

81


BRAZIL—AGRIBUSINESS

COSAN ENERGIA BUY CURRENT PRICE: R$27.80



Investment Case: In our view, the company’s focus on improving both its return on capital employed and capital structure will continue. On the operational front, we believe the foundation of Cosan Energia’s fuel distribution business should remain solid in 2015 despite the expected weak economic activity in Brazil. More specifically, we anticipate that the persistence of rationality among top players, market share gains, and the materialization of product mix improvements will result in healthy EBITDA growth.

Outlook 2015: We believe that Raízen Combustiveis will continue togenerate solid results due to a combination of: (i) the resilience of gasoline volumes, supported by growth in the fleet of passenger vehicles in Brazil; (ii) an improving product mix; (iii) continued market share gains; and (iv) enhancements in the company’s convenience store growth strategy. Additionally, despite our expectation of flat sugar prices, we expect Raizen Energia to post improvements in operating results helped by the depreciation of the Brazilian real, coupled with still high energy prices. With respect to other business units, we expect a slight improvement in the lubricant business despite the weak domestic activity.

Focus on optimizing its capital structure and deleveraging: We believe management will continue to push forward in its strong efforts to optimize the company’s capital structure, as well as restructure debt in order to further reduce costs. Additionally, the focus on deleveraging should continue, creating room, in our view, for potentially higher dividend payments. After the conclusion of the spin-off of its gas distribution business, we estimate that Cosan Energia could have a net debt/EBITDA of around 3.0x in 2015, compared with the company’s target of 2.0-2.5x.



Company Statistics



Bloomberg CSAN3 BZCurrent Price (01/02/15) R$ 27.80 / US$ 10.33Target Price (YE 2015) R$ 39.00 / US$ 14.7252-Week Range (R$) 25.86 - 46.50Market Capitalization (US$ Mn) 4,203Float (%) 26.13-Mth Avg. Daily Vol (US$ Mn) 17.3Shares Outstanding - Mn 407

60

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

Cosan Energia - ON(Rebased)

82

COSAN ENERGIA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Cosan is an integrated energy company and is active in the following business: sugarcane crushing with a capacity of 65 million tons, railway logistics under its subsidiary Rumo, fuel distribution under its JV with Shell, and most recently the gas distribution businesses with the acquisition of Comgás. Cosan was founded in 1936 and went public in February 2005. It has two types of shares: CSAN3 is listed on the Brazilian stock exchange and complies with Novo Mercado rules, and CZZ (the holding company), which began trading in the NYSE in 2007 and is also controlled by Mr. Rubens Ometto. Key Personnel: Rubens Ometto Silveira Mello (Chairman), Marcos Marinho Lutz (CEO), Marcelo Eduardo Martins (CFO) and Guilherme Machado (IR Officer) Web: www.cosan.com.br





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 36,165 39,481 41,694 44,865 16,634 17,165 16,036 16,617 YoY change (%) 20.5 9.2 5.6 7.6 8.1 3.2 (6.6) 3.6Gross Profit 4,607 5,028 5,287 6,065 2,119 2,186 2,034 2,246 YoY change (%) 38.2 9.1 5.2 14.7 24.0 3.2 (7.0) 10.5EBITDA 3,962 3,717 3,738 4,307 1,822 1,616 1,438 1,595 YoY change (%) 28.7 (6.2) 0.6 15.2 15.5 (11.3) (11.0) 11.0 As % of Revenue 11.0 9.4 9.0 9.6 11.0 9.4 9.0 9.6Operating Income 2,213 2,367 2,080 2,597 1,018 1,029 800 962 YoY change (%) 44.2 7.0 (12.1) 24.8 29.3 1.1 (22.2) 20.2 As % of Revenue 6.1 6.0 5.0 5.8 6.1 6.0 5.0 5.8Financial Results (1,243) (960) (730) (818) (572) (417) (281) (303)Taxes (190) (288) (426) (564) (87) (125) (164) (209)Net Profit 271 763 653 859 125 332 251 318 YoY change (%) (57.3) 181.3 (14.5) 31.6 (61.7) 165.9 (24.3) 26.7 As % of Revenue 0.7 1.9 1.6 1.9 0.7 1.9 1.6 1.9

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (1,774) (1,859) (1,841) (1,893) (816) (808) (708) (701)Other Noncash Items 6 7 8 9 3 3 3 3Changes in Working Capital (530) (232) (140) (228) (244) (101) (54) (84)Operating Cash Flow 1,498 1,916 2,432 2,608 689 833 935 966Capital Expenditures (2,547) (1,870) (2,174) (2,172) (1,171) (813) (836) (804)Free Cash Flow (68) (1,633) 878 71 (31) (710) 338 26Other Invest./(Divestments) 81 (342) (19) (20) 37 (149) (7) (7)Change in Debt 1,466 (1,251) 800 (100) 674 (544) 308 (37)Dividends (302) (443) (326) (429) (139) (192) (125) (159)Capital Increases/Other (265) 358 165 183 (122) 156 63 68



MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E n/m 14.8 17.3 13.2 n/m 12.7 16.7 13.2P/CE 7.0 4.3 4.5 4.1 6.8 3.7 4.4 4.1FV/EBITDA 7.8 7.1 7.1 6.1 7.4 6.2 6.9 6.1FV/EBIT 14.0 11.2 12.7 10.1 13.2 9.8 12.4 10.1FV/Revenue 0.9 0.7 0.6 0.6 0.8 0.6 0.6 0.6P/BV 1.5 1.1 1.1 1.1 1.5 1.1 1.1 1.1FCF Yield (%) (0.5) (14.4) 7.8 0.6 (0.5) (16.9) 8.0 0.6Div Yield (%) 2.1 3.9 2.9 3.8 2.2 4.6 3.0 3.8


US$R$

Sugar & Ethanol11.3%

Fuel Distribution

68.5%

Lubs4.7%

Comgas15.5%


Fuel Distribution

30.3%

Lubs3.7%

Comgas33.8%

Cosan Ltd.62.3%

Rezende Barbosa10.9%

Free Float26.1%

83



COSAN LIMITED BUY CURRENT PRICE: US$7.73 TARGET PRICE: US$12.30


Investment Case: (Please refer to Cosan Energia’s “Investment Case” section for more details.) Cosan Limited (CZZ) remains the best way, in our view, to gain exposure to Cosan Energia (CSAN3) and Cosan Logistica, at an attractive discount. We view positively the results from the corporate restructuring carried out in 2014, since it has provided investors with the option to invest in all of Cosan’s operations by owning CZZ shares, or to pick more specific exposure to segments by owning Cosan Energia vs. Cosan Logistics, vs. eventually Cosan Gas.

Outlook 2015: (Please refer to Cosan Energia’s “Outlook 2015” section for more details). We expect the spin-off of the gas distribution business to be concluded in 2015, at which time we estimate that Cosan Limited could have a stake of 62.3% in this company, similar to the stake it already has in Cosan Logistica and Cosan Energia.

Focus on improving return on capital employed, as well as optimizing its capital structure of its businesses: We believe the company will continue to push forward in its strong efforts to improvethe return on capital employed of its businesses as well as to optimize its capital structure, both welcomed objectives, in our view.



Company Statistics



Bloomberg CZZ US / CZLT33 BZCurrent Price (01/02/15) US$ 7.73 / R$ 27.80Target Price (YE 2015) US$ 12.30 / R$ 33.3352-Week Range (US$) 6.18 - 14.66Market Capitalization (US$ Mn) 2,095Float (%) 25.93-Mth Avg. Daily Vol (US$ Mn) 16.3Shares Outstanding - Mn 271

20

40

60

80

100

120

140

J-13 M-13 A-13 D-13 A-14 A-14 D-14

Cosan Limited - ADR(Rebased)

84

COSAN LIMITED Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Please refer to Cosan SA’s company description and financials. Cosan Limited was created as a holding company for Cosan SA in August 2007 to raise capital to grow and expand its operation through acquisitions. CZZ is listed on the NYSE with two types of shares with different voting rights, class A shares (1 vote) and class B shares (10 votes). Cosan SA’s Chairman Rubens Ometto owns 100% of Class B shares. Key Personnel: Rubens Ometto Silveira Mello (Chairman), Marcos Marinho Lutz (CEO), Marcelo Eduardo Martins (CFO) and Guilherme Machado (IR Officer) Web: www.cosan.com.br





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 36,165 39,481 41,694 44,865 16,634 17,165 16,036 16,617 YoY change (%) 20.5 9.2 5.6 7.6 8.1 3.2 (6.6) 3.6Gross Profit 4,607 5,028 5,287 6,065 2,119 2,186 2,034 2,246 YoY change (%) 38.2 9.1 5.2 14.7 24.0 3.2 (7.0) 10.5EBITDA 3,962 3,717 3,738 4,307 1,822 1,616 1,438 1,595 YoY change (%) 28.7 (6.2) 0.6 15.2 15.5 (11.3) (11.0) 11.0 As % of Revenue 11.0 9.4 9.0 9.6 11.0 9.4 9.0 9.6Operating Income 2,213 2,367 2,080 2,597 1,018 1,029 800 962 YoY change (%) 44.2 7.0 (12.1) 24.8 29.3 1.1 (22.2) 20.2 As % of Revenue 6.1 6.0 5.0 5.8 6.1 6.0 5.0 5.8Financial Results (1,243) (960) (730) (818) (572) (417) (281) (303)Taxes (190) (288) (426) (564) (87) (125) (164) (209)Net Profit 271 763 653 859 125 332 251 318 YoY change (%) (57.3) 181.3 (14.5) 31.6 (61.7) 165.9 (24.3) 26.7 As % of Revenue 0.7 1.9 1.6 1.9 0.7 1.9 1.6 1.9

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (1,774) (1,859) (1,841) (1,893) (816) (808) (708) (701)Other Noncash Items 6 7 8 9 3 3 3 3Changes in Working Capital (530) (232) (140) (228) (244) (101) (54) (84)Operating Cash Flow 1,498 1,916 2,432 2,608 689 833 935 966Capital Expenditures (2,547) (1,870) (2,174) (2,172) (1,171) (813) (836) (804)Free Cash Flow (68) (1,633) 878 71 (31) (710) 338 26Other Invest./(Divestments) 81 (342) (19) (20) 37 (149) (7) (7)Change in Debt 1,466 (1,251) 800 (100) 674 (544) 308 (37)Dividends (302) (443) (326) (429) (139) (192) (125) (159)Capital Increases/Other (265) 358 165 183 (122) 156 63 68





US$R$


Distribution71.9%

Logistics0.0%

Comgas15.5%


Distribution32.1%

Logistics0.0%

Comgas35.8%

Cosan Ltd.62.3%

Others11.8%

Free Float25.9%

85


BRAZIL—UTILITIES

CPFL ENERGIA BUY CURRENT PRICE: R$17.63



Investment Case: We believe CPFL continues to be a premium utility. Its higher-than-average multiples are significantly below its own historical level and are more than justified, in our view, by (i) high-single-digit EBITDA CAGR, and (ii) no significant concession renewal risk in the short to medium term. In addition, we note that thecompany still has an attractive dividend policy as well as good profitability and regulatory metrics.

Outlook 2015: We believe that the company’s EBITDA will increase 19.1% YoY in 2015, reaching R$3.8 billion, reflecting (1) new renewable projects at the Renovaveis unit, (2) solid cost performance, and (3) the reduction in the spot price cap for 2015 (to R$388.48/MWh). We slightly adjusted our estimates to include a higher hydro deficit for 2015 (7% vs. the previous 5%).

Long-term strategy: Management reiterated that the company will continue to aim to expand its renewable generation arm and the consolidation of the distribution segment, which is the preferred segment for its portfolio.

Upside risks? We believe CPFL’s current covenants vs. its high leverage prevent it from pursuing large acquisitions. Still, CPFL has a proven track record in financial discipline, in terms of reasonable acquisition multiples and superb execution of cost cuts and debt refinancing to extract synergies from assets acquired. Thus, we believe that whenever the company finds potential targets, it will do a fair due diligence to guarantee new value generation—and not simply to increase its market share. Moreover, the development of additional renewable units could be possible after the merger with Desa.


Company Statistics



Bloomberg CPFE3 BZCurrent Price (01/02/15) R$ 17.63 / US$ 6.55Target Price (YE 2015) R$ 23.00 / US$ 8.6852-Week Range (R$) 15.42 - 22.74Market Capitalization (US$ Mn) 6,302Float (%) 30.53-Mth Avg. Daily Vol (US$ Mn) 7.7Shares Outstanding - Mn 962

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

CPFE3 BZ IBOVESPA

86

CPFL ENERGIA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

CPFL is a holding company that operates through its subsidiaries in distribution, generation and sale of electricity in Brazil. The company is the leader in the distribution segment, its main business, holding 9% of total market share in Brazil through its 8 discos. In the generation segment, the company currently has 3,300 MW of installed capacity. Regarding its electricity trading company, the company has a significant market share, leading the segment through its subsidiary CPFL Brasil. In EBITDA terms, distribution represents 48% of consolidated EBITDA. Key Personnel: Murilo Cesar Lemos dos Santos Passos (Chairman), Wilson Ferreira Junior (CEO), Gustavo Estrella (CFO) and Leandro Cappa (IR Director) Web: www.cpfl.com.br

EBITDA by Business, 9M14

Sales by Segment (DisCo), 1H14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 14,867 16,765 18,888 20,468 6,891 7,254 7,265 7,581 YoY change (%) (0.7) 12.8 12.7 8.4 (10.0) 5.3 0.1 4.3Gross Profit 7,193 6,370 6,714 7,667 3,334 2,756 2,582 2,840 YoY change (%) 0.3 (11.4) 5.4 14.2 (9.1) (17.3) (6.3) 10.0EBITDA 3,957 3,140 3,739 4,584 1,834 1,359 1,438 1,698 YoY change (%) 3.0 (20.7) 19.1 22.6 (6.7) (25.9) 5.9 18.1 As % of Revenue 26.6 18.7 19.8 22.4 26.6 18.7 19.8 22.4Operating Income 2,717 1,980 2,562 3,395 1,259 857 985 1,258 YoY change (%) (5.0) (27.2) 29.4 32.5 (13.9) (32.0) 15.0 27.6 As % of Revenue 18.3 11.8 13.6 16.6 18.3 11.8 13.6 16.6Financial Results (1,136) (837) (947) (969) (527) (362) (364) (359)Taxes (632) (541) (599) (868) (293) (234) (230) (321)Net Profit 938 743 1,015 1,532 435 322 390 568 YoY change (%) (28.8) (20.8) 36.5 51.0 (35.5) (26.0) 21.4 45.4 As % of Revenue 6.3 4.4 5.4 7.5 6.3 4.4 5.4 7.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (1,179) (1,112) (1,177) (1,189) (546) (481) (453) (440)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital 288 (163) 84 (74) 133 (71) 32 (27)Operating Cash Flow 2,404 1,692 2,276 2,647 1,114 732 875 981Capital Expenditures (1,474) (4,345) (1,688) (829) (683) (1,880) (649) (307)Free Cash Flow 1,690 179 (262) 184 783 77 (101) 68Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 1,455 1,171 1,195 592 674 507 460 219Dividends (1,252) (891) (706) (964) (580) (386) (272) (357)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 3,943 4,122 3,860 4,044 1,683 1,616 1,457 1,471Current Assets 6,921 8,280 8,139 8,529 2,954 3,247 3,071 3,102Fixed Assets 22,363 23,590 24,350 24,233 9,545 9,251 9,189 8,812Total Assets 32,660 35,172 35,792 36,065 13,940 13,793 13,506 13,115Current Liabilities 4,906 8,012 8,204 8,551 2,094 3,142 3,096 3,109Long-Term Liabilities 18,985 19,239 19,681 19,500 8,103 7,545 7,427 7,091Shareholders' Equity 7,111 6,302 6,287 6,395 3,035 2,471 2,372 2,326Total Financial Debt 18,668 20,621 21,078 20,913 7,968 8,087 7,954 7,605ST Debt 1,837 3,557 3,572 3,588 784 1,395 1,348 1,305LT Debt 16,831 17,064 17,506 17,325 7,183 6,692 6,606 6,300


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 19.6 23.9 16.7 11.1 17.9 20.8 16.1 11.1P/CE 8.7 9.6 7.7 6.2 7.9 8.3 7.5 6.3FV/EBITDA 9.0 11.5 9.4 7.6 8.3 10.2 9.1 7.6FV/EBIT 13.1 18.3 13.7 10.3 12.0 16.2 13.3 10.2FV/Revenue 2.4 2.2 1.9 1.7 2.2 1.9 1.8 1.7P/BV 2.6 2.8 2.7 2.7 2.6 2.7 2.7 2.7FCF Yield (%) 9.2 1.0 (1.5) 1.1 10.1 1.2 (1.6) 1.1Div Yield (%) 6.8 5.0 4.2 5.7 7.5 5.8 4.3 5.7


US$R$

Distribution47.9%

Generation41.5%

Trading10.6%

Residential27.0%

Industrial42.0%

Commercial16.0%

Others15.0%

Previ30.0%

Camargo Correa24.4%

Bonaire15.1%

Free Float30.5%

87


BRAZIL—METALS & MINING

CSN UNDERPERFORM CURRENT PRICE: R$5.04



Investment Case: We remain bearish on CSN. As the LatAm steelmaker most exposed to the iron ore business (as of 9M14, approximately 40% of the company’s consolidated EBITDA came from its mining division), CSN is poised to suffer significantly from theend of the iron ore super cycle. Also, we do not expect the steel business in Brazil to be supportive, given the country’s lackluster economic outlook.

Outlook 2015: At current iron ore prices, we anticipate little EBITDA contribution from the mining division and, consequently, expect a poor operating performance for CSN in 2015. We estimate 2015 EBITDA at R$3.6 billion, 25% lower YoY.

High capex and financial expenses to hurt EBITDA: Our lower operating estimates (mainly due to lower iron ore prices) highlight CSN’s long-running and intensive capex program, and very heavy financial burden (due to its high amount of debt whose interest is being paid in reais while cash is largely invested overseas at low interest rates). We now believe that CSN is burning cash on a FCFEbasis

Agreement recently announced regarding Namisa is unclear: Though a merger between Casa de Pedra (100% owned by CSN) and Namisa (60% owned by CSN) was recently announced, the newly created company will not benefit from Namisa’s hefty cash position. Furthermore, given the uncertainty surrounding the development of future iron ore mines due to falling iron ore prices, wequestion whether this merger can actually add value for CSN shareholders: we remain skeptical until CSN provides more details on its new business plan for the mining division, which should be announced sometime in 2015.

Felipe Reis* Brazil: Banco Santander S.A. +5511-3012-5758 | [email protected]

Renato Maruichi*, CFA Brazil: Banco Santander S.A. +5511-3553-7149 | [email protected]

Company Statistics



Bloomberg CSNA3 BZCurrent Price (01/02/15) R$ 5.04 / US$ 1.87Target Price (YE 2015) R$ 5.00 / US$ 1.8552-Week Range (R$) 4.54 - 14.44Market Capitalization (US$ Mn) 2,585Float (%) 45.53-Mth Avg. Daily Vol (US$ Mn) 15.3Shares Outstanding - Mn 1,381

20

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

CSNA3 BZ IBOVESPA

88

CSN Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Companhia Siderúrgica Nacional (CSN) is the second-largest flat steel producer in Brazil, with a crude steel production capacity of approximately 6.5 million tons per year. The company is a leading supplier to the steel packaging sector and also serves the automotive, home appliance, construction, and distribution sectors with a broad variety of products (e.g., slab, hot and cold rolled coils, galvanized and tin plate products). CSN also sold 29 million tons of iron ore in 2013. In 2013, exports (steel and iron ore) generated approximately 40% of consolidated net sales, with steel revenue representing 69% of the company’s total sales. Vicunha Siderurgia and other vehicles owned by the Steinbruch family, controls CSN, with approximately 51.8% of its voting stock. CSN is listed on the Bovespa and has ADRs listed on the NYSE. Key Personnel: Benjamin Steinbruch (Chairman), Benjamin Steinbruch (CEO), David Salama (IR Director) and Luis Fernando Martinez (Commercial Director) Web: www.csn.com.br

Revenue by Division, 2013A

Revenue by Market, 2013A



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 17,312 16,269 16,146 17,575 8,025 6,929 6,139 6,224 YoY change (%) 2.5 (6.0) (0.8) 8.8 (7.2) (13.7) (11.4) 1.4Gross Profit 4,890 4,658 3,520 3,744 2,267 1,984 1,338 1,326 YoY change (%) 1.4 (4.7) (24.4) 6.4 (8.2) (12.5) (32.5) (0.9)EBITDA 5,405 4,771 3,585 3,796 2,506 2,032 1,363 1,345 YoY change (%) 39.3 (11.7) (24.8) 5.9 26.2 (18.9) (32.9) (1.4) As % of Revenue 31.2 29.3 22.2 21.6 31.2 29.3 22.2 21.6Operating Income 2,962 2,958 1,885 1,989 1,373 1,260 717 704 YoY change (%) 360.8 (0.1) (36.3) 5.5 317.6 (8.2) (43.1) (1.7) As % of Revenue 17.1 18.2 11.7 11.3 17.1 18.2 11.7 11.3Financial Results (2,512) (289) (1,801) (208) (1,164) (123) (685) (74)Taxes (74) (21) (38) 59 (34) (9) (15) 21Net Profit 534 641 744 516 248 273 283 183 YoY change (%) n/m 20.1 16.0 (30.6) n/m 10.3 3.5 (35.3) As % of Revenue 3.1 3.9 4.6 2.9 3.1 3.9 4.6 2.9

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (1,094) (1,242) (1,420) (1,527) (507) (529) (540) (541)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (921) 305 99 606 (427) 130 38 215Operating Cash Flow 707 2,188 2,263 2,650 328 932 860 938Capital Expenditures (2,827) (2,128) (2,200) (1,400) (1,310) (906) (837) (496)Free Cash Flow (2,073) (827) (1,800) (235) (961) (352) (685) (83)Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 0 0 0 0 0 0 0 0Dividends (800) (420) (331) (352) (371) (179) (126) (125)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 9,996 9,329 8,798 10,461 4,266 3,455 3,247 3,558Current Assets 16,402 16,014 15,866 17,174 7,000 5,931 5,854 5,841Fixed Assets 14,911 15,607 16,387 16,260 6,364 5,780 6,047 5,531Total Assets 50,403 50,684 52,421 54,718 21,512 18,772 19,344 18,612Current Liabilities 2,921 3,505 3,986 4,238 1,247 1,298 1,471 1,442Long-Term Liabilities 39,412 41,640 42,483 44,363 16,821 15,422 15,676 15,090Shareholders' Equity 8,069 5,539 5,952 6,116 3,444 2,051 2,196 2,080Total Financial Debt 27,746 29,864 29,910 30,967 11,842 11,061 11,037 10,533ST Debt 0 0 0 0 0 0 0 0LT Debt 27,746 29,864 29,910 30,967 11,842 11,061 11,037 10,533

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 17,751 20,535 21,111 20,506 7,576 7,606 7,790 6,975Capital Employed 21,238 22,164 23,061 23,172 9,065 8,209 8,510 7,882Net Debt/EBITDA 3.3 4.3 5.9 5.4 3.0 3.7 5.7 5.2Net Debt/Equity 2.2 3.7 3.5 3.4 2.4 4.2 3.6 3.4Capex/Revenue (%) 16.3 13.1 13.6 8.0 16.3 13.1 13.6 8.0Int Cover (%) 2.0 2.0 1.7 1.8 2.0 2.0 1.7 1.8Dividend Payout (%) (166.5) 78.6 51.6 47.3 (150.7) 72.1 45.4 47.0ROCE (%) 14.3 13.4 8.3 8.3 15.6 15.2 8.4 8.3ROE (%) 6.3 9.4 12.9 8.6 6.3 9.9 12.9 8.6

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 37.2 12.0 9.4 13.5 34.0 10.6 9.1 14.1P/CE 12.2 4.1 3.2 3.4 11.2 3.6 3.1 3.6FV/EBITDA 7.0 5.9 7.8 7.2 6.4 5.2 7.6 7.1FV/EBIT 12.7 9.5 14.9 13.8 11.6 8.3 14.5 13.6FV/Revenue 2.2 1.7 1.7 1.6 2.0 1.5 1.7 1.5P/BV 2.5 1.4 1.2 1.1 2.4 1.4 1.2 1.2FCF Yield (%) (10.4) (10.7) (25.9) (3.4) (11.4) (12.2) (26.5) (3.2)Div Yield (%) 4.0 5.5 4.7 5.1 4.4 6.2 4.9 4.8


US$R$

Steel63.0%

Iron Ore27.0%

Logistics6.0%

Other4.0%

Domestic78.0%

Exports22.0%

Vicunha Siderurgia

54.5%

ADR's25.2%

Others/Free Float

20.3%

89



CYRELA BRAZIL REALTY HOLD CURRENT PRICE: R$10.45

TARGET PRICE: R$12.40 DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF R$12.40; REPLACING YE2014 TARGET PRICE OF R$22.00

Investment Case: Despite its low leverage, above-average execution, and decent share-buyback program, we believe Cyrela’s size (> R$5 billion launches) becomes a burden amid the still tough economic scenario ahead, limiting its flexibility to quickly improve profitability and to justify additional multiple expansion.

Outlook 2015: We expect 2015 to be another transition year for the homebuilders in Brazil. The macro scenario should remain challenging for the sector, with the combination of low expected GDPgrowth and inflationary pressure leading consumers and investors toremain cautious. Although we expect Cyrela’s distinctive expertise and financial strength to lead to a smooth transition, the bottom of themacroeconomic cycle may still be ahead and a bolder profitability recovery will likely take longer than a couple of quarters to materialize.

Balance sheet remains solid . . . We expect Cyrela to maintain a comfortable leverage level of 30-35% in 2015 and to generate cash throughout the next few years. Since we expect launches to remain flat in the next two years (not demanding any extra working capital), we see room for Cyrela to maintain its share-buyback program and to potentially increase dividend distribution (which could help to improve ROE).

. . . but growing inventory still pressuring profitability. We expect Cyrela’s inventory to remain relatively high (R$6.9 billion in 3Q14, or 14 months of sales), likely increasing during 1H15. Although a peak is expected in 4Q14, we expect only a gradual reduction going forward, which may hinder significant short-term margin improvement.

Valuation seems fair at current return levels. Due to Cyrela’s level of launches and G&A, we expect profitability to increase only gradually. With an ROE of 11.2% for 2015E, valuation at 0.7x P/BV for 2015E leaves little room for short-term potential upside.



Company Statistics



Bloomberg CYRE3 BZCurrent Price (01/02/15) R$ 10.45 / US$ 3.88Target Price (YE 2015) R$ 12.40 / US$ 4.6852-Week Range (R$) 10.45 - 15.30Market Capitalization (US$ Mn) 1,552Float (%) 63.83-Mth Avg. Daily Vol (US$ Mn) 9.9Shares Outstanding - Mn 400

50

60

70

80

90

100

110

j-13 m-13 a-13 d-13 a-14 a-14 d-14

CYRE3 BZ IBOVESPA

90

CYRELA BRAZIL REALTY Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Cyrela Brazil Realty is among the largest homebuilders in Brazil in terms of both market cap and the value of developments launched in past years. The company’s main focus is on the development of residential apartments in prime locations, targeted mainly at upper- to middle-income customers. The company also operates in the economic segment through Living, created in 2006. Key Personnel: Elie Horn (CEO) and Eric Alencar (CFO and IR) Web: www.cyrela.com/br/ir

2013–16E Launches. R$ in billions

2013–16E Contracted Sales, R$ in billions



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 5,372 5,645 5,691 5,929 2,490 2,443 2,189 1,948 YoY change (%) (8.2) 5.1 0.8 4.2 (16.9) (1.9) (10.4) (11.0)Gross Profit 1,945 2,009 2,020 2,115 902 869 777 695 YoY change (%) (8.3) 3.3 0.5 4.7 (16.9) (3.6) (10.6) (10.5)EBITDA 1,104 1,038 1,047 1,116 512 449 403 367 YoY change (%) (10.6) (6.0) 0.9 6.7 (19.0) (12.2) (10.3) (8.9) As % of Revenue 20.5 18.4 18.4 18.8 20.5 18.4 18.4 18.8Operating Income 1,188 1,146 1,131 1,184 551 496 435 389 YoY change (%) (6.8) (3.6) (1.3) 4.7 (15.6) (10.0) (12.3) (10.5) As % of Revenue 22.1 20.3 19.9 20.0 22.1 20.3 19.9 20.0Financial Results (158) (190) (201) (179) (73) (82) (77) (59)Taxes (136) (141) (122) (115) (63) (61) (47) (38)Net Profit 719 651 652 720 333 282 251 236 YoY change (%) 8.9 (9.3) 0.1 10.3 (1.4) (15.4) (11.0) (5.8) As % of Revenue 13.4 11.5 11.5 12.1 13.4 11.5 11.5 12.1

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (102) (88) (82) (90) (47) (38) (31) (29)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (703) (56) (211) (48) (326) (24) (81) (16)Operating Cash Flow 118 684 523 761 54 296 201 250Capital Expenditures (153) (152) (186) (193) (71) (66) (71) (64)Free Cash Flow (35) 532 338 568 (16) 230 130 187Other Invest./(Divestments) 10 55 (1) (1) 5 24 (0) (0)Change in Debt 132 (87) (343) (304) 61 (38) (132) (100)Dividends (209) (171) (261) (261) (97) (74) (100) (86)Capital Increases/Other (192) (252) 17 20 (89) (109) 7 6

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,727 1,804 1,554 1,577 737 707 587 511Current Assets 8,856 8,965 8,938 9,050 3,780 3,516 3,373 2,931Fixed Assets 955 1,019 1,123 1,226 408 400 424 397Total Assets 14,387 14,021 14,151 14,321 6,140 5,498 5,340 4,638Current Liabilities 3,886 4,032 4,070 4,115 1,659 1,581 1,536 1,333Long-Term Liabilities 4,306 3,655 3,338 3,011 1,838 1,433 1,260 975Shareholders' Equity 5,462 5,633 6,024 6,456 2,331 2,209 2,273 2,091Total Financial Debt 4,214 4,127 3,784 3,480 1,799 1,618 1,428 1,127ST Debt 907 1,137 1,137 1,137 387 446 429 368LT Debt 3,307 2,990 2,647 2,343 1,411 1,172 999 759

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 3,002 2,715 2,590 2,305 1,281 1,065 977 746Capital Employed 8,464 8,347 8,614 8,761 3,612 3,273 3,251 2,837Net Debt/EBITDA 2.7 2.6 2.5 2.1 2.5 2.4 2.4 2.0Net Debt/Equity 0.5 0.5 0.4 0.4 0.6 0.5 0.4 0.4Capex/Revenue (%) 2.8 2.7 3.3 3.3 2.8 2.7 3.3 3.3Int Cover (%) 2.0 1.6 1.7 1.9 2.0 1.6 1.7 1.9Dividend Payout (%) 31.6 23.8 40.0 40.0 28.6 21.8 35.2 39.7ROCE (%) 15.6 15.4 14.5 14.8 16.9 17.2 14.6 14.8ROE (%) 13.7 11.7 11.2 11.5 13.9 12.5 11.2 11.5

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 8.1 6.8 6.4 5.8 7.4 5.9 6.2 6.6P/CE 7.1 6.0 5.7 5.2 6.5 5.2 5.5 5.8FV/EBITDA 8.7 7.4 6.9 6.2 8.0 6.5 6.7 6.8FV/EBIT 8.1 6.7 6.4 5.9 7.4 5.9 6.2 6.4FV/Revenue 1.8 1.4 1.3 1.2 1.6 1.2 1.2 1.3P/BV 1.1 0.8 0.7 0.6 1.1 0.8 0.7 0.7FCF Yield (%) (0.6) 12.0 8.1 13.6 (0.7) 13.8 8.4 12.0Div Yield (%) 3.6 3.9 6.2 6.2 3.9 4.4 6.5 5.5


US$R$

6.65

5.71 5.516.13

2013

2014

e

2015

e

2016

e

7.18

5.155.72 6.08

2013

2014

e

2015

e

2016

e

Board of Directors

34.4%

Executive Board0.1%

Free Float65.5%

91


BRAZIL—HEALTH CARE

DASA UNDERPERFORM CURRENT PRICE: R$11.14



Investment Case: We maintain our Underperform rating on DASA, due to the thin share liquidity (we estimate DASA’s real free float to be lower than 5%), which prevents shares from reflecting their intrinsic value. Following the arbitrage decision that ruled in favor of Cromossomo Participações, we see no room for another tender offerat the company’s intrinsic value.

Outlook 2015: We expect DASA’s net revenue to increase 11%YoY, benefiting from increasing volumes, partial inflation pass-through and a lower level of cancellations. We also foresee a gradual improve in the EBITDA margin throughout the year, reflecting the increased mix of imaging tests over patient services centers’ revenue(resulting from machinery replacement at stores). As a result, our EBITDA estimate implies 13% YoY growth.

Cromossomo wins arbitrage dispute. On December 1, the company announced that the Market Arbitrage Chamber ruled in favor of the request by Cromossomo to declare that it is not requiredto conduct another tender offer to acquire the shares of DASA under the conditions outlined in the company’s bylaws.

Bargaining power gradually shifting toward providers. The high capacity utilization of Brazil’s private healthcare system, coupled withregulatory actions to improve the relationships among payers and providers have attenuated the bargaining power of payers with suppliers. This change should favor the pass-through of inflation over test prices, which we see as key to the sustainability of the diagnostics industry’s operating profits.

Background. Cromossomo Participações, owned by Edson Bueno and his former wife Dulce Bueno, acquired the majority of DASA shares in the January 2014 free float, through a tender offer at R$15.00/share.

Bruno Giardino*, CFA Brazil: Banco Santander S.A. +5511-3012-5914 | [email protected]

Daniel Gewehr* Brazil: Banco Santander S.A. +5511-3012-5787 | [email protected]

Company Statistics



Bloomberg DASA3 BZCurrent Price (01/02/15) R$ 11.14 / US$ 4.14Target Price (YE 2015) R$ 10.00 / US$ 3.6952-Week Range (R$) 9.80 - 16.75Market Capitalization (US$ Mn) 1,285Float (%) 100.03-Mth Avg. Daily Vol (US$ Mn) 0.1Shares Outstanding - Mn 311

70

80

90

100

110

120

130

J-13 M-13 A-13 D-13 A-14 A-14 D-14

DASA3 BZ IBOVESPA

92

DASA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Diagnósticos da America (DASA) is the largest private provider of medical diagnostic services in Latin America and the fourth-largest in the world, with 455 patient service centers located in eight out of ten major metropolitan regions of Brazil. DASA also provides diagnostics services to private and public hospitals, as well as to other diagnostics companies. Founded in 1965, the company is listed in the Novo Mercado, the highest classification in terms of corporate governance in Brazil’s Bovespa stock exchange, and is included in the Ibovespa Index. Key Personnel: Pedro Bueno (CEO) and Paulo Bokel (CFO) Web: www.dasa3.com.br

Revenue Breakdown, 9M14

PSC Revenue by Test, 3Q14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 2,487 2,760 2,990 3,316 1,153 1,175 1,137 1,174 YoY change (%) 9.9 10.9 8.4 10.9 (0.5) 1.9 (3.3) 3.2Gross Profit 773 880 988 1,108 358 375 376 392 YoY change (%) 10.5 13.8 12.3 12.1 0.1 4.6 0.3 4.4EBITDA 434 469 531 610 201 200 202 216 YoY change (%) 9.2 7.9 13.2 14.8 (1.0) (0.8) 1.1 6.9 As % of Revenue 17.5 17.0 17.8 18.4 17.5 17.0 17.8 18.4Operating Income 289 300 378 446 134 128 144 158 YoY change (%) 18.2 3.8 25.7 18.0 7.1 (4.6) 12.3 9.8 As % of Revenue 11.6 10.9 12.6 13.4 11.6 10.9 12.6 13.4Financial Results (87) (102) (127) (119) (40) (44) (48) (42)Taxes (71) (53) (70) (91) (33) (22) (27) (32)Net Profit 131 145 181 236 61 62 69 83 YoY change (%) 54.1 10.6 24.6 30.1 39.6 1.7 11.3 21.2 As % of Revenue 5.3 5.3 6.1 7.1 5.3 5.3 6.1 7.1

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (145) (168) (153) (164) (67) (72) (58) (58)Other Noncash Items 14 48 0 0 6 20 0 0Changes in Working Capital (122) 5 (44) (64) (56) 2 (17) (23)Operating Cash Flow 168 367 290 336 78 156 110 119Capital Expenditures (144) (164) (194) (199) (67) (70) (74) (70)Free Cash Flow 24 203 96 137 11 86 36 48Other Invest./(Divestments) - - - - - - - -Change in Debt 341 (22) 0 0 158 (9) 0 0Dividends (21) (31) (36) (45) (10) (13) (14) (16)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 609 614 696 780 260 241 257 265Current Assets 1,439 1,526 1,666 1,835 614 598 615 624Fixed Assets 3,053 3,047 3,088 3,123 1,303 1,195 1,140 1,062Total Assets 4,692 4,721 4,903 5,107 2,002 1,852 1,809 1,737Current Liabilities 708 778 802 835 302 305 296 284Long-Term Liabilities 1,275 1,126 1,148 1,141 544 441 423 388Shareholders' Equity 2,708 2,817 2,953 3,130 1,156 1,105 1,090 1,065Total Financial Debt 1,553 1,391 1,391 1,391 663 546 513 473ST Debt 427 468 468 468 182 183 173 159LT Debt 1,126 924 924 924 481 362 341 314

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 906 740 658 574 387 290 243 195Capital Employed 3,615 3,558 3,612 3,705 1,543 1,395 1,333 1,260Net Debt/EBITDA 2.1 1.6 1.2 0.9 1.9 1.5 1.2 0.9Net Debt/Equity 0.3 0.3 0.2 0.2 0.4 0.3 0.2 0.2Capex/Revenue (%) 5.8 5.9 6.5 6.0 5.8 5.9 6.5 6.0Int Cover (%) 2.9 2.9 2.9 3.3 2.9 2.9 2.9 3.3Dividend Payout (%) 24.1 23.9 25.0 25.0 21.8 21.9 22.0 24.8ROCE (%) 10.0 9.9 12.4 14.5 10.7 11.0 12.5 14.5ROE (%) 4.9 5.3 6.3 7.7 5.0 5.6 6.3 7.7



US$R$

PSCs73.9%

Hospitals9.3%

Lab-to-lab10.9%

Public Segment

5.9%

Clinical72.7%

Imaging27.3%


Oppenheimer

10.1%

Petros10.0%

Free-float8.0%

93


BRAZIL—PULP & FOREST PRODUCTS

DURATEX HOLD CURRENT PRICE: R$7.68



Investment Case: Although we continue to view favorably Duratex’s execution capabilities, caution is the watchword for the short and medium terms, as 2015 prospects for the company’s business are challenged by the sluggish economic scenario in Brazil. Despite a solid M&A/asset integration track record, the execution of inorganic opportunities under the Duratex 2020 long-term strategic plan may cause mixed reactions among investors.

Outlook 2015: Duratex is leveraged to domestic macro drivers, which indicate a flattish scenario in 2015. Recent consensus estimates for GDP growth in Brazil next year have been cut to near zero, which has turned the company more conservative regarding operating performance. Accordingly, we project flat volume sold YoYassuming a zero real price increase. All in all, we estimate EBITDA will be nearly flat in 2015 YoY.

Negatively exposed to weaker BRL: With some 7% of revenue coming from exports and 25% of costs linked to the USD (resins, chemicals), Duratex has yet to feel the negative impact of the weaker BRL on its margins, as raw materials in stock are being consumed gradually. In order to mitigate short-term challenges, the company is directing efforts to cut costs/expenses. Considering that Duratex is already a well-run organization, in our view, we do not see much room for significant cost cuts, but we view any initiative on this front positively.

Inorganic opportunities to support growth: DTEX’s long-term strategic plan (Duratex 2020) is to grow revenue twofold by 2020. We expect a significant portion of this growth to come from inorganic opportunities. On the positive side, Duratex enjoys a sound M&A track record, putting together disciplined bids and integrating them successfully. However, given the uncertainty of M&A moves, it is difficult to predict the outcome of this growth path. We estimate Duratex has some R$1.2 billion to expend on M&A over the next fewyears (or 20% of the company’s current market cap).



Company Statistics



Bloomberg DTEX3 BZCurrent Price (01/02/15) R$ 7.68 / US$ 2.85Target Price (YE 2015) R$ 8.50 / US$ 3.1452-Week Range (R$) 7.51 - 11.65Market Capitalization (US$ Mn) 1,899Float (%) 39.93-Mth Avg. Daily Vol (US$ Mn) 5.8Shares Outstanding - Mn 666

60

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

DTEX3 BZ IBOVESPA

94

DURATEX Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Duratex is a top 10 manufacturer of wooden panels globally and the largest player in the Southern Hemisphere, with annual capacity of 4.3 million m³ in five production units located in the states of São Paulo, Minas Gerais and Rio Grande do Sul, as well as in Colombia through its subsidiary Tablemac. Duratex is self-sufficient in wood, holding 230,000 hectares of planted forest area. The company is also a leader in the domestic vitreous china and metal fittings segments through its Deca division. Duratex is listed in the Bovespa’s Novo Mercado, with 100% voting shares and tagalong rights for minority shareholders. The company is controlled by Itausa and the Ligna Group, which together hold 60% of the company’s stock. Key Personnel: Salo Davi Seibel (Chairman), Antonio Joaquim de Oliveira (CEO), Flavio Donatelli (CFO) and Guilherme Setúbal (Executive IR Manager) Web: www.duratex.com.br

Sales by Division, 2013

Sales by Destination, 2013



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 3,882 4,128 4,441 5,072 1,799 1,743 1,689 1,796 YoY change (%) 14.4 6.3 7.6 14.2 3.6 (3.2) (3.1) 6.4Gross Profit 1,441 1,305 1,358 1,558 668 551 516 552 YoY change (%) 21.8 (9.5) 4.1 14.7 10.4 (17.6) (6.2) 6.8EBITDA 1,195 946 981 1,092 554 399 373 387 YoY change (%) 18.8 (20.8) 3.7 11.3 7.7 (27.9) (6.6) 3.7 As % of Revenue 30.8 22.9 22.1 21.5 30.8 22.9 22.1 21.5Operating Income 796 678 684 779 369 286 260 276 YoY change (%) 15.4 (14.9) 0.9 14.0 4.5 (22.5) (9.1) 6.1 As % of Revenue 20.5 16.4 15.4 15.4 20.5 16.4 15.4 15.4Financial Results (118) (170) (191) (189) (55) (72) (73) (67)Taxes (171) (98) (113) (141) (79) (41) (43) (50)Net Profit 520 402 379 450 241 170 144 159 YoY change (%) 13.2 (22.7) (5.6) 18.6 2.5 (29.6) (15.0) 10.4 As % of Revenue 13.4 9.7 8.5 8.9 13.4 9.7 8.5 8.9

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 342 309 297 313 159 131 113 111Other Noncash Items 84 (31) 0 0 39 (13) 0 0Changes in Working Capital (166) (438) (60) (302) (77) (185) (23) (107)Operating Cash Flow 780 242 616 460 361 102 234 163Capital Expenditures (601) (672) (364) (409) (279) (284) (138) (145)Free Cash Flow 111 (435) 264 56 51 (184) 100 20Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt (7) 142 0 0 (3) 60 0 0Dividends (191) (210) (156) (171) (89) (88) (59) (60)Capital Increases/Other (15) (10) 0 0 (7) (4) 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 997 707 803 683 425 277 296 232Current Assets 2,589 2,778 2,881 3,174 1,105 1,089 1,063 1,080Fixed Assets 4,582 5,172 5,239 5,336 1,956 2,028 1,933 1,815Total Assets 8,178 8,871 9,040 9,430 3,491 3,479 3,336 3,207Current Liabilities 589 630 576 686 251 247 213 233Long-Term Liabilities 3,225 3,540 3,540 3,540 1,376 1,388 1,306 1,204Shareholders' Equity 4,365 4,630 4,853 5,132 1,863 1,816 1,791 1,746Total Financial Debt 2,451 2,663 2,663 2,663 1,046 1,044 983 906ST Debt 0 0 0 0 0 0 0 0LT Debt 2,451 2,663 2,663 2,663 1,046 1,044 983 906

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 1,454 1,956 1,860 1,980 621 767 686 673Capital Employed 6,816 7,363 7,587 7,866 2,909 2,888 2,800 2,676Net Debt/EBITDA 1.2 2.1 1.9 1.8 1.1 1.9 1.8 1.7Net Debt/Equity 0.3 0.4 0.4 0.4 0.4 0.5 0.4 0.4Capex/Revenue (%) 15.5 16.3 8.2 8.1 15.5 16.3 8.2 8.1Int Cover (%) 5.4 3.3 3.6 4.0 5.4 3.3 3.6 4.0Dividend Payout (%) 41.7 40.3 38.7 45.0 37.7 37.0 33.9 44.5ROCE (%) 11.7 9.2 9.0 9.9 12.8 10.4 9.1 9.9ROE (%) 12.4 8.9 8.0 9.0 12.6 9.5 8.0 9.0

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 13.3 12.8 13.5 11.4 12.2 11.4 13.2 11.9P/CE 39.0 n/m n/m 37.3 35.7 49.4 n/m 39.1FV/EBITDA 7.0 7.6 7.2 6.6 6.4 6.8 7.0 6.7FV/EBIT 10.5 10.6 10.3 9.2 9.6 9.5 10.0 9.4FV/Revenue 2.2 1.7 1.6 1.4 2.0 1.6 1.5 1.4P/BV 1.6 1.1 1.1 1.0 1.6 1.1 1.1 1.1FCF Yield (%) 1.6 (8.5) 5.2 1.1 1.7 (9.5) 5.3 1.0Div Yield (%) 2.8 4.1 3.0 3.3 3.0 4.6 3.1 3.2


US$R$

Wood Division66.8%

Deca Division33.2%

Exports5.0%

Domestic95.0%

Itausa39.9%

Cia. Ligna19.9%

Others/Free Float

40.2%

95



ECORODOVIAS BUY CURRENT PRICE: R$10.65


Investment Case: On November 17, 2014, we lowered our YE2015 target price to R$12.50 from R$15.00 to reflect a more negative traffic estimate. However, we upgraded our rating to Buy from Underperform due to (i) an implied nominal equity IRR of 13%, and (ii) the fact that the company did not win Tamoios, which in our view is an additional sign of increased capital discipline.

Outlook 2015: Our 2015 GDP growth estimate of 0.3%, in-line with 2014, implies another year of somewhat weak results. We expect traffic growth of only 1.2% on top of just 3.3% in 2014 (~1% ex suspended axles). For 2015, we estimate (1) top-line growth of 10%, (2) EBITDA growth of 15%, and (3) net profit up 18%. This compares with our 2014 estimates of (1) a flat top line, (2) EBITDA down 2%,and (3) net profit down 25%.

Weak traffic growth: In August and September, consolidated traffic growth came in at -3% and -2%, respectively. In October there was a slight recovery to +0.2% YoY, followed by +1% in November. On November 14, we reduced our estimates for traffic growth from 5.1% to 3.3% and from 3.2% to 1.2% for 2014 and 2015, respectively. Based on the above, and given the operating leverage, we have also cut our EBITDA margin estimates from 57.0% to 52.8% and from 59.9% to 55.1% for 2014 and 2015, respectively.

Better capital discipline? We believe Ecorodovias has given several signs of increased capital discipline: (i) it was unsuccessful in the five toll roads auctions that have taken place in Brazil in 2H13; (ii) it sold STP and paid an extraordinary dividend last April; and (iii) it made an unsuccessful bid for Tamoios highway in the state of São Paulo. All of the above, in our view, help dissipate the negative perception caused by the bids for the BR101 toll road and Guarulhos airport and the acquisition of the Tecondi container terminal at the port of Santos.

The most attractive Brazilian toll road operator: At an implied nominal equity IRR of 13%, we believe Ecorodovias offers the best risk/reward among Brazilian toll roads.



Company Statistics



Bloomberg ECOR3 BZCurrent Price (01/02/15) R$ 10.65 / US$ 3.96Target Price (YE 2015) R$ 12.50 / US$ 4.7252-Week Range (R$) 9.06 - 15.70Market Capitalization (US$ Mn) 2,210Float (%) 36.03-Mth Avg. Daily Vol (US$ Mn) 6.4Shares Outstanding - Mn 559

50

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

ECOR3 BZ IBOVESPA

96

ECORODOVIAS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Ecorodovias Infraestrutura e Logística S/A—the Ecorodovias Group—is a large integrated infrastructure logistic firm. Currently, the company’s operations include six highway concessions: Ecovias dos Imigrantes, Ecopistas, Ecovia, Ecocataratas, Ecosul and ECO101. The company’s businesses include intermodal logistic assets. In addition, Ecorodovias holds Ecoporto, a container terminal in the port of Santos. In March 2010, Ecorodovias listed shares in the Novo Mercado, a segment of the Brazilian Stock Exchange with the highest corporate governance standards. Key Personnel: Marco Antonio Cassou (Chairman), Marcelino Rafart de Seras (CEO), Marcelo Guidotti (CFO) and Marcelo Guidotti (IR Director) Web: www.ecorodovias.com.br

Traffic Breakdown, 2013

Revenues Breakdown, 2013



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 2,442 2,453 2,708 2,935 1,132 1,062 1,041 1,087 YoY change (%) 15.7 0.5 10.4 8.4 4.8 (6.2) (1.9) 4.4Gross Profit - - - - - - - - YoY change (%) - - - - - - - -EBITDA 1,317 1,294 1,492 1,685 611 560 574 624 YoY change (%) 8.2 (1.8) 15.2 13.0 (2.0) (8.3) 2.4 8.8 As % of Revenue 53.9 52.8 55.1 57.4 53.9 52.8 55.1 57.4Operating Income 970 873 1,017 1,149 450 378 391 426 YoY change (%) 1.8 (10.0) 16.5 13.0 (7.8) (16.0) 3.6 8.8 As % of Revenue 39.7 35.6 37.6 39.1 39.7 35.6 37.6 39.1Financial Results (341) (397) (463) (512) (158) (172) (178) (190)Taxes (230) (176) (188) (217) (107) (76) (72) (80)Net Profit 398 298 351 404 184 129 135 150 YoY change (%) (5.7) (25.1) 17.7 15.3 (14.6) (30.1) 4.6 11.0 As % of Revenue 16.3 12.1 13.0 13.8 16.3 12.1 13.0 13.8

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (263) (318) (357) (407) (122) (138) (137) (151)Other Noncash Items - - - - - - - -Changes in Working Capital 0 0 0 0 0 0 0 0Operating Cash Flow 959 963 1,106 1,251 444 416 425 463Capital Expenditures (862) (1,113) (726) (511) (399) (482) (279) (189)Free Cash Flow 537 (67) 155 152 249 (29) 60 56Other Invest./(Divestments) - - - - - - - -Change in Debt 666 348 96 (233) 309 150 37 (86)Dividends (666) (298) (351) (404) (309) (129) (135) (150)Capital Increases/Other 0 270 0 0 0 117 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,260 981 812 587 538 385 307 213Current Assets 1,607 1,328 1,159 934 686 521 437 340Fixed Assets 4,559 5,353 5,723 5,827 1,946 2,099 2,160 2,119Total Assets 6,931 7,378 7,578 7,458 2,958 2,893 2,860 2,712Current Liabilities 1,332 1,409 1,430 1,379 569 552 539 501Long-Term Liabilities - - - - - - - -Shareholders' Equity 2,072 2,158 2,184 2,211 884 846 824 804Total Financial Debt 3,951 4,298 4,395 4,162 1,686 1,686 1,658 1,513ST Debt 866 942 963 912 370 370 364 332LT Debt 3,085 3,356 3,431 3,249 1,317 1,316 1,295 1,182




US$R$

Ecovias dos Imigrantes

28.1%

Ecopistas40.0%

Ecovia Caminho do Mar7.3%

Rodovia das Cataratas

12.6%

Ecosul Rodovias do

Sul12.0%

Toll Roads65.3%

Logistics9.9%

Ecoporto22.5%

Others2.2%

CR Almeida64.0%

Free Float36.0%

97


BRAZIL—UTILITIES

ELETROBRAS HOLD CURRENT PRICE: R$7.93

TARGET PRICE: R$8.49 REINSTATING OUR RATING TO HOLD FROM UNDER REVIEW INTRODUCING YE2015 TARGET PRICE OF R$8.49

Investment Case: We are reinstating our ratings for ELET3 and ELET6, to Hold, based on the risks perceived for cash flow generation and after considering the large losses recently reported by the company, which could prevent it from paying dividends to shareholders in the short- to mid-term. While Eletrobras will be entitled to receive indemnification based on law 12.783/2013, we believe these funds will not flow directly back to the common stock shareholders until the company significantly improves operations.

Outlook 2015: With EBITDA falling, Eletrobras began implementing a series of measures in order to (1) improve cash generation, (2) reduce costs, (3) restructure subsidiaries, and (4) participate in auctions via partnerships in order to mitigate risks and better managecash balance, in our view. We believe the main themes of 2015 willbe discussions on (1) the reimbursement for transmissions’ old assets, (ii) the renewal of concessions in disco units, (iii) additional measures to improve cash generation (that could include divestmentin some assets), and (iv) large hydro deficit that should dent margins.

Talking about the spread (again). With our new estimates, we believe the fair spread between ELET3 and ELET6 should be R$1.80, as we believe Eletrobras will have to wait until 2018-19 to fully recover reservoirs, attend to its capex and debt obligations, as well as reorganize its business and be able to pay dividends again.

Change in estimates: We have updated our target price given: (1) a higher discount rate; (2) new macroeconomic assumptions; (3) recently released results; (4) a new cost reduction plan; (5) new capex guidance; (6) newly announced investments; (7) a larger hydro deficit expected for 2015; and (8) a revised estimate for the reimbursement of concession contracts renewed (estimated at R$10billion vs. our previous estimate of R$8 billion).


Company Statistics



Bloomberg ELET6 BZ / ELET3 BZCurrent Price (01/02/15) R$ 7.93 / R$ 5.66Target Price (YE 2015) R$ 8.49 / R$ 6.6852-Week Range (R$) 6.25 - 12.64Market Capitalization (US$ Mn) 3,984Float (%) 23.43-Mth Avg. Daily Vol (US$ Mn) 5.8Shares Outstanding - Mn 1,353

40

60

80

100

120

140

J-13 M-13 A-13 D-13 A-14 A-14 D-14

ELET6 BZ IBOVESPA

98

ELETROBRAS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Eletrobras is a state-owned holding company, controlled by the Brazilian federal government, (which operates generation, distribution, and transmission assets in Brazil. Eletrobras has nearly 40% of participation in the Brazilian generation market, with 44 GW in installed capacity (including the its 50% stake in Itaipu). In the transmission segment, Eletrobras has over 70,000 km in lines, around 60% of the Brazilian transmission market. Eletrobras controls 6 distribution units, with a total of 3 million customers. Eletrobras also acts as a bank for the electricity sector, with R$5 billion in loans to companies and minority equity participation in 30 utilities. Key Personnel: Márcio Pereira Zimmermann (Chairman), José da Costa Carvalho Neto (CEO), Armando Casado de Araujo (CFO) and Arlindo Soares Castanheira (Head of IR Division) Web: http://www.eletrobras.com


Installed Capacity per Subsidiary, 9M14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 24,008 25,924 25,494 26,513 11,127 11,040 9,694 10,081 YoY change (%) (22.8) 8.0 (1.7) 4.0 (30.1) (0.8) (12.2) 4.0Gross Profit 15,432 14,259 14,288 17,434 7,152 6,072 5,433 6,629 YoY change (%) (32.8) (7.6) 0.2 22.0 (39.1) (15.1) (10.5) 22.0EBITDA (3,695) (2,045) (1,493) 1,393 (1,713) (871) (568) 530 YoY change (%) (171.8) 44.7 27.0 n/m (165.1) 49.1 34.8 n/m As % of Revenue (15.4) (7.9) (5.9) 5.3 (15.4) (7.9) (5.9) 5.3Operating Income (5,196) (3,299) (2,833) (33) (2,408) (1,405) (1,077) (13) YoY change (%) (250.3) 36.5 14.1 98.8 (236.2) 41.7 23.3 98.8 As % of Revenue (21.6) (12.7) (11.1) (0.1) (21.6) (12.7) (11.1) (0.1)Financial Results 2,188 862 1,044 726 1,014 367 397 276Taxes (1,367) 788 364 (312) (633) 336 138 (119)Net Profit (6,114) (2,701) (1,246) 1,067 (2,834) (1,150) (474) 406 YoY change (%) 11.7 55.8 53.9 n/m 20.0 59.4 58.8 n/m As % of Revenue (25.5) (10.4) (4.9) 4.0 (25.5) (10.4) (4.9) 4.0

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (1,501) (1,254) (1,340) (1,426) (695) (534) (509) (542)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital 4,656 10,438 117 (950) 2,158 4,445 45 (361)Operating Cash Flow 2,885 13,786 7,175 7,175 1,337 5,871 2,728 2,728Capital Expenditures (4,675) (7,175) (7,175) (7,175) (2,167) (3,056) (2,728) (2,728)Free Cash Flow (1,790) 6,611 0 0 (830) 2,815 0 0Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 4,109 5,324 566 3,333 1,904 2,267 215 1,267Dividends (369) 0 0 0 (171) 0 0 0Capital Increases/Other 0 0 0 0 0 0 0 0


FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt (6,852) (13,682) 844 10,468 (2,925) (5,366) 311 3,863Capital Employed 53,922 70,833 77,089 82,783 23,014 27,778 28,446 30,547Net Debt/EBITDA 1.9 6.7 (0.6) 7.5 1.7 6.2 (0.5) 7.3Net Debt/Equity (0.1) (0.2) 0.0 0.2 (0.1) (0.3) 0.0 0.2Capex/Revenue (%) 19.5 27.7 28.1 27.1 19.5 27.7 28.1 27.1Int Cover (%) (4.2) (1.4) (1.0) 0.8 (4.2) (1.4) (1.0) 0.8Dividend Payout (%) (5.3) 0.0 0.0 0.0 (4.8) 0.0 0.0 0.0ROCE (%) (7.1) (5.8) (4.1) 0.3 (8.0) (6.4) (4.2) 0.3ROE (%) (9.6) (4.6) (2.2) 1.9 (9.7) (4.8) (2.2) 1.9

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E - - - 10.1 - - - 9.8P/CE - - n/m 4.3 - - n/m 4.2FV/EBITDA - 1.3 - 15.2 - 1.4 - 14.8FV/EBIT - 0.8 - - - 0.8 - -FV/Revenue 0.3 (0.1) 0.5 0.8 0.3 (0.1) 0.4 0.8P/BV 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2FCF Yield (%) (13.3) 59.8 0.0 0.0 (14.6) 67.6 0.0 0.0Div Yield (%) 2.7 (0.0) (0.0) (0.0) 3.0 (0.0) (0.0) (0.0)

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS (4.52) (2.00) (0.92) 0.79 (4.19) (1.70) (0.70) 0.60DPS 0.27 0 0 0 0.25 0 0 0BVPS 44.72 42.73 41.80 42.59 38.18 33.51 30.85 31.43

US$R$

Free Market18.4%

Regulated Market46.0%

Itaipu35.6%

Furnas21.6%

Chesf26.9%

Eletronorte23.6%

Others27.9%

Federal Government

45.6%

BNDES / BNDESPAR

21.7%

Others32.6%

99


BRAZIL—UTILITIES

ELETROPAULO HOLD CURRENT PRICE: R$9.20

TARGET PRICE: R$9.88 UPGRADING RATING TO HOLD FROM UNDERPERFORM RAISING YE2015 TARGET PRICE TO R$9.88 FROM R$9.47

Investment Case: We are upgrading our rating to Hold based on a valuation that, in our view, prices in (1) the company’s complex financial situation, (2) risks related to pension fund liabilities, and (3) liabilities with Eletrobras. We believe Eletropaulo will continue to suffer from (1) depressed margins, and (2) pressure to invest more in order to improve quality of service while trying to further cut costs; however, we see upside risk from tariff revision and cost cuts.

Outlook 2015: We estimate an EBITDA increase of R$867 million in2015, driven mainly by higher tariffs and a recovery of the tariff deficit, partially offset by (1) mild volume growth in the period (+0.2% YoY), (2) the negative effect of the retroactive reimbursement for the “missing cables,” and (3) additional cost pressure. We also highlight that possible improvements in regulatory parameters could be granted in 2015.

Reasons to be cautious about ELPL: (1) Despite recent efforts to reduce costs, margins continue under pressure, as regulatory targetsare tight and a loss in regulatory EBITDA following the missing cables write-off is significant. (2) High leverage combined with lower cash flow generation should be a considerable challenge for the company, in our view, as the short-term working capital problem should continue to dent margins in 1H15.

Where could we be wrong? After the large write-off in its asset base and given the reduction in its implied equity value, we believe that any potential improvement in regulatory variables would be significant for Eletropaulo. Additionally, we note that ELPL has 100% tag-along rights; thus, in the event BNDES sells its stake in Brasiliana(controlling Eletropaulo) at attractive pricing, the minority shareholders could benefit. In any case, we continue to believe thereis a cap to ELPL’s valuation, as the company faces several pendingregulatory discussions and potential provisions relating to past-due debt (Eletrobras, pension fund).


Company Statistics



Bloomberg ELPL4 BZCurrent Price (01/02/15) R$ 9.20 / US$ 3.42Target Price (YE 2015) R$ 9.88 / US$ 3.7352-Week Range (R$) 6.55 - 11.61Market Capitalization (US$ Mn) 572Float (%) 61.03-Mth Avg. Daily Vol (US$ Mn) 2.8Shares Outstanding - Mn 167

20

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

ELPL4 BZ IBOVESPA

100

ELETROPAULO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Eletropaulo is a pure distribution operating company with the concession for the metropolitan area of the city of São Paulo. As an operating company, Eletropaulo is forbidden by regulation to acquire other distribution companies or invest in other segments (such as generation). The São Paulo metropolitan region represents 15.5% of Brazilian GDP and concentrates 9.6% of the country’s population. Key Personnel: Vincent Winslow Mathis (Chairman), Britaldo Pedrosa Soares (CEO), Gustavo Pimenta (CFO), Clarissa Sadock (IR Director) and Lina Gallo (IR Manager) Web: www.eletropaulo.com.br


Sales by Segment (DisCo), 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 9,012 9,689 10,921 11,616 4,177 4,192 4,200 4,302 YoY change (%) (9.5) 7.5 12.7 6.4 (18.0) 0.4 0.2 2.4Gross Profit 2,763 1,830 2,836 2,955 1,281 792 1,091 1,094 YoY change (%) 4.3 (33.8) 55.0 4.2 (5.5) (38.2) 37.8 0.3EBITDA 1,067 310 1,177 1,241 495 134 453 460 YoY change (%) 29.8 (70.9) 279.4 5.5 17.5 (72.9) 237.2 1.5 As % of Revenue 11.8 3.2 10.8 10.7 11.8 3.2 10.8 10.7Operating Income 1,103 167 1,062 1,082 511 72 409 401 YoY change (%) 6.5 (84.8) 535.0 1.9 (3.6) (85.8) 464.5 (1.9) As % of Revenue 12.2 1.7 9.7 9.3 12.2 1.7 9.7 9.3Financial Results 16 (144) (233) (294) 7 (62) (90) (109)Taxes (111) 189 (65) (56) (52) 82 (25) (21)Net Profit 198 (368) 127 141 92 (159) 49 52 YoY change (%) 48.2 (285.6) n/m 10.8 34.3 (273.2) n/m 6.7 As % of Revenue 2.2 (3.8) 1.2 1.2 2.2 (3.8) 1.2 1.2

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (436) (437) (466) (497) (202) (189) (179) (184)Other Noncash Items (246) (300) 0 0 (114) (130) 0 0Changes in Working Capital (164) (27) (113) (61) (76) (12) (43) (23)Operating Cash Flow (410) (327) (113) (61) (190) (141) (43) (23)Capital Expenditures (644) (547) (637) (624) (299) (237) (245) (231)Free Cash Flow 290 (704) (92) 8 134 (305) (35) 3Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt (88) (184) (233) (262) (41) (80) (90) (97)Dividends (130) (79) 0 (23) (60) (34) 0 (8)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 974 192 100 85 416 75 38 31Current Assets 2,955 2,818 2,834 2,918 1,261 1,105 1,070 1,061Fixed Assets 7,134 7,251 7,422 7,550 3,045 2,843 2,801 2,745Total Assets 10,694 10,632 10,820 11,030 4,564 4,170 4,083 4,011Current Liabilities 2,684 2,733 2,794 2,899 1,146 1,072 1,054 1,054Long-Term Liabilities 5,180 5,437 5,437 5,437 2,211 2,132 2,052 1,977Shareholders' Equity 2,829 2,462 2,589 2,695 1,208 966 977 980Total Financial Debt 4,299 5,406 5,406 5,406 1,835 2,120 2,040 1,966ST Debt 121 160 160 160 52 63 60 58LT Debt 2,627 2,874 2,874 2,874 1,121 1,127 1,085 1,045

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 5,273 5,597 5,597 5,597 2,250 2,195 2,112 2,035Capital Employed 9,178 9,012 9,244 9,476 3,917 3,534 3,488 3,446Net Debt/EBITDA 4.9 18.0 4.8 4.5 4.6 16.4 4.7 4.4Net Debt/Equity 1.9 2.3 2.2 2.1 2.0 2.6 2.2 2.1Capex/Revenue (%) 7.1 5.6 5.8 5.4 7.1 5.6 5.8 5.4Int Cover (%) n/m n/m n/m n/m n/m n/m n/m n/mDividend Payout (%) 97.1 39.7 0.0 17.9 87.9 36.4 0.0 17.8ROCE (%) 13.2 (0.2) 12.2 12.0 14.3 (0.0) 12.3 12.0ROE (%) 6.2 (13.9) 5.0 5.3 6.2 (14.7) 5.0 5.3

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 7.9 - 12.1 10.9 7.2 - 11.7 11.0P/CE 2.5 20.9 2.6 2.4 2.3 18.1 2.5 2.4FV/EBITDA 6.4 22.7 6.1 5.8 5.9 20.4 5.9 5.7FV/EBIT 23.3 - 16.8 15.6 21.4 - 16.4 15.4FV/Revenue 0.8 0.7 0.7 0.6 0.7 0.7 0.6 0.6P/BV 0.6 0.6 0.6 0.6 0.5 0.6 0.6 0.6FCF Yield (%) 18.5 (48.6) (6.0) 0.5 20.2 (55.9) (6.2) 0.5Div Yield (%) 8.3 5.4 (0.0) 1.5 9.1 6.2 (0.0) 1.5

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 1.18 (2.20) 0.76 0.84 0.55 (0.95) 0.29 0.31DPS 0 0 0 0.21 0 0 0 0.08BVPS 16.91 14.71 15.47 16.10 7.22 5.77 5.84 5.86

US$R$

Distribution100.0%

Residential43.8%

Commercial34.2%

Industrial14.4%

Others7.6%

AES Group31.0%

National Treasure

8.0%

Free Float61.0%

101



EMBRAER BUY CURRENT PRICE: US$36.86

TARGET PRICE: US$43.00 UPGRADING RATING TO BUY FROM HOLD RAISING YE2015 TARGET PRICE TO US$43.00 FROM US$40.00

Investment Case: We believe Embraer continues to have a strong delivery story, as evidenced by a new all-time record backlog, reaching US$22 billion in 3Q14 (from a historical low of US$12.5 billion in 4Q12). Embraer benefits from three important trends: (i) thecontinuing depreciation of the BRL, which our economists continue to see as overvalued; (ii) a falling jet fuel price that should boost commercial orders; and (iii) a strong U.S. economy, representing 64% of 9M14 commercial revenue. On our estimates, ERJ trades at a ~14x P/E for 2015E, which is in-line with the historical average but which could decline if the BRL depreciates more than we estimate.

Outlook 2015: In early 2015, Embraer said it will release its 2015 guidance. By segment, we estimate a 70-bp increase in commercial aviation EBIT margin, a 150-bp increase in executive aviation, and a 100-bp decrease in defense. For revenue, we estimate a 2% decrease in commercial, 18% increase in executive, and 7% increase in defense. For 2015, at the consolidated level, we estimate (i) top-line growth of 5%, (ii) EBIT up 9%, and (iii) net profit up 11%.This compares to our 2014 estimates of (i) top line up 3%, (ii) EBIT up 6%, and (iii) adjusted net profit up 12%.

USD exposure: We estimate that 75% of costs are in USD vs. 90%of revenue. The latter implies Embraer is a strong beneficiary of potential BRL depreciation. Indeed, we estimate that each 10% depreciation in the BRL implies a 10% increase in USD profits and a 20% increase in BRL profits for Embraer.

Low exposure to Brazilian economy: In 9M14 Brazil represented just 3% of Embraer’s commercial revenue and 24% of consolidated revenue. We believe this is a strong positive for Embraer, as we estimate only 0.3% Brazilian GDP growth in 2015.

Reasonable valuation: At a ~14x P/E for 2015E, Embraer trades in-line with its historical average. However, the multiple could decline if the BRL moves above the average R$2.63/USD we have in our model for 2015E.



Company Statistics



Bloomberg ERJ USCurrent Price (01/02/15) US$ 36.86Target Price (YE 2015) US$ 43.0052-Week Range (US$) 29.86 - 39.97Market Capitalization (US$ Mn) 6,735Float (%) 69.03-Mth Avg. Daily Vol (US$ Mn) 34.6Shares Outstanding - Mn 183

60

80

100

120

140

J-13 M-13 A-13 D-13 A-14 A-14 D-14

ERJ US IBOVESPA

102

EBRAER Financial Highlights: P&L, Balance Sheet and CF Statement, 2010-17E in Millions Company Description

Embraer has become one of the largest aircraft manufacturers in the world by focusing on specific market segments with high growth potential in commercial, defense, and executive aviation. Embraer develops and adapts successful aircraft platforms and judiciously introduces new technology whenever it creates value by lowering acquisition prices, reducing direct operating costs, or delivering higher reliability, comfort, and safety. Key Personnel: Frederico Fleury Curado (CEO), José Filippo (CFO) and Luciano Froes (IR Director) Web: www.embraer.com.br

Revenue Breakdown, 2013A

EBIT Breakdown, 2013A



P&L ACCOUNT 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017ETotal Revenue 5,364 5,803 6,178 6,235 6,401 6,727 7,042 6,889 YoY change (%) (2.4) 8.2 6.5 0.9 2.7 5.1 4.7 (2.2)Gross Profit 1,026 1,307 1,495 1,416 1,466 1,571 1,683 1,663 YoY change (%) (4.1) 27.4 14.4 (5.3) 3.5 7.2 7.1 (1.2)EBITDA 611 557 891 855 917 989 1,073 1,065 YoY change (%) 0.4 (8.8) 59.9 (4.0) 7.2 7.9 8.5 (0.8) As % of Revenue 11.4 9.6 14.4 13.7 14.3 14.7 15.2 15.5Operating Income 392 318 612 565 597 653 721 721 YoY change (%) 3.2 (18.8) 92.4 (7.8) 5.7 9.4 10.4 (0.1) As % of Revenue 7.3 5.5 9.9 9.1 9.3 9.7 10.2 10.5Financial Results 18 (91) (7) (96) (7) (14) (26) (45)Taxes (63) (127) (266) (256) (150) (160) (174) (169)Net Profit 292 162 453 383 428 475 517 502 YoY change (%) 4.7 (44.5) 180.0 (15.6) 11.9 11.0 8.8 (2.8) As % of Revenue 5.4 2.8 7.3 6.1 6.7 7.1 7.3 7.3

CASH FLOW 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017EDepreciation & Amortization 219 239 279 291 320 336 352 344Other Noncash Items - - - - - - - -Changes in Working Capital 354 (91) 80 54 (23) (43) (38) 28Operating Cash Flow 867 387 817 768 745 783 854 913Capital Expenditures (153) (294) (459) (559) (570) (584) (597) (591)Free Cash Flow 82 240 699 264 (261) (99) 228 159Other Invest./(Divestments) - - - - - - - -Change in Debt (645) 216 346 128 (430) (288) (10) (129)Dividends 162 183 60 71 109 119 129 201Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017ECash and Equivalents 2,127 2,104 2,379 2,624 2,240 2,018 2,113 2,067Current Assets 4,983 5,169 5,366 5,768 5,455 5,368 5,587 5,464Fixed Assets 1,917 2,259 2,697 3,102 3,352 3,600 3,845 4,091Total Assets 8,391 8,858 9,490 10,143 10,079 10,240 10,704 10,827Current Liabilities 2,389 2,842 2,792 2,893 3,105 3,210 3,310 3,254Long-Term Liabilities 2,871 2,899 3,348 3,618 3,016 2,714 2,692 2,569Shareholders' Equity 3,029 3,007 3,258 3,533 3,860 4,216 4,604 4,905Total Financial Debt 1,905 2,121 2,467 2,595 2,164 1,876 1,866 1,737ST Debt 184 565 348 91 256 269 282 276LT Debt 1,721 1,556 2,119 2,503 1,908 1,607 1,584 1,461

FINANCIAL RATIOS 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017ENet Debt (222) 17 87 (29) (76) (142) (247) (330)Capital Employed 4,934 5,128 5,725 6,128 6,024 6,092 6,469 6,642Net Debt/EBITDA (0.4) 0.0 0.1 (0.0) (0.1) (0.1) (0.2) (0.3)Net Debt/Equity (0.1) 0.0 0.0 (0.0) (0.0) (0.0) (0.1) (0.1)Capex/Revenue (%) 2.8 5.1 7.4 9.0 8.9 8.7 8.5 8.6Int Cover (%) (34.9) 6.1 131.0 8.9 130.9 70.7 40.9 23.4Dividend Payout (%) (58.1) (62.9) (36.8) (15.8) (28.4) (27.7) (27.2) (38.9)ROCE (%) 9.9 7.8 13.4 11.5 12.4 13.4 13.9 13.6ROE (%) 10.9 5.4 14.5 11.3 11.6 11.8 11.7 10.6

MARKET RATIOS 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017EP/E 18.4 28.5 11.5 15.4 15.7 14.2 13.0 13.4P/CE n/m - 29.9 n/m n/m 48.5 40.9 42.7FV/EBITDA 8.7 8.6 6.1 7.0 7.5 6.8 6.2 6.1FV/EBIT 13.6 15.1 8.9 10.7 11.5 10.3 9.2 9.1FV/Revenue 1.0 0.8 0.9 1.0 1.1 1.0 0.9 0.9P/BV 1.8 1.5 1.6 1.7 1.7 1.6 1.5 1.4FCF Yield (%) 1.5 5.2 13.4 4.5 (3.9) (1.5) 3.4 2.4Div Yield (%) (3.0) (4.0) (1.1) (1.2) (1.6) (1.8) (1.9) (3.0)

PER SHARE DATA 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017EEPS 1.60 0.89 2.48 2.09 2.34 2.60 2.83 2.75DPS 0.88 1.00 0.33 0.39 0.60 0.65 0.71 1.10BVPS 16.58 16.46 17.83 19.34 21.12 23.07 25.20 26.84

US$

Commercial aviation53.0%

Executive aviation26.4%

Defense and security

19.2%Other 1.4%

Commercial aviation60.8%

Executive aviation18.6%

Defense and security

16.6%Other 4.0%

PREVI7.8%

Oppenheim 9.7%

Thornburg Investment

8.1%

Free Float69.0%

103


BRAZIL—UTILITIES

ENERGIAS DO BRASIL BUY CURRENT PRICE: R$8.73 TARGET PRICE: R$12.10


Investment Case: We maintain our Buy rating for EdB, as we believe the company has attractive potential upside coupled with positive optionality (development of new projects and/or the potential to deliver improvement in performance).

Outlook 2015: We forecast a recovery in results in 2015, due to (1) better results at the Disco level following the recent tariff adjustments;and (2) additional revenue from anticipation of the Jari unit. We also highlight that given the cost pressure we predict for next year, we expect the company to continue to focus on cost control. We updatedour estimates to consider a higher hydro deficit of 7% in 2015.

Reasons to like EdB: (i) Recent investments to reduce costs and losses, creating potential upside risk in Disco units; (ii) reasonable valuation (trading at 10.8x P/E for 2015E); (iii) solid dividend yield of 3.8% and fair dividend policy (based more on dividends per share than on payout); and (iv) upside risk from the Jari project.

A matter of proving capital discipline. We believe EdB can improve results in the future through cost cuts and reduction of regulatory losses. However, before the stock achieves full NAV potential, we believe that the company will have to prove to the market that it holds adequate thresholds for IRR in new projects.

Anticipating Project and Controlling Capex. The CEO highlighted at the recent investors’ meeting that the Jari project was not only completed ahead of schedule but was also completed within cost estimates, which we see as a positive. He noted that construction of the Cachoeira do Caldeirao power plant is 50% complete, with start-up scheduled for January 2017; thus, we believe the start-up of units of this plant could also occur ahead of the original schedule.

Pecem: a problem that we have to live with. On December 9, EdB signed a stock purchase agreement with Eneva to acquire a 50% stake in Pecem I, including intercompany loans, coal, and energy credits. We note that EdB recently announced that the lower availability of Pecem’s capacity implies downside for 2016E revenue.


Company Statistics



Bloomberg ENBR3 BZCurrent Price (01/02/15) R$ 8.73 / US$ 3.24Target Price (YE 2015) R$ 12.10 / US$ 4.5752-Week Range (R$) 8.20 - 11.56Market Capitalization (US$ Mn) 1,545Float (%) 48.83-Mth Avg. Daily Vol (US$ Mn) 5.7Shares Outstanding - Mn 476

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

ENBR3 BZ IBOVESPA

104

ENERGIAS DO BRASIL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Energias do Brasil (EdB) is a holding company that controls the energy distribution companies Bandeirante and Escelsa located in the states of São Paulo and Espírito Santo, both in southeast Brazil. Also the company holds generation and energy trading companies. Management’s strategy is to expand its generation operations, which currently have 1,808 MW of installed capacity. EdB is controlled by Energias de Portugal, which has broad experience in operating wind and thermal plants in Spain and Portugal. EdB intends to leverage its controller experience to bolster its expansion strategy in Brazil. Key Personnel: Ana Maria Machado Fernandes (Chairman), Miguel Nuno Simões Nunes Ferreira Setas (CEO), Miguel Amaro (CFO) and Maytê Souza Dantas de Albuquerque (IR Manager) Web: www.energiasdobrasil.com.br





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 7,096 8,099 8,644 9,426 3,289 3,504 3,325 3,491 YoY change (%) 8.1 14.1 6.7 9.0 (2.1) 6.5 (5.1) 5.0Gross Profit 2,939 2,353 2,956 3,484 1,362 1,018 1,137 1,290 YoY change (%) 28.5 (19.9) 25.6 17.9 16.4 (25.3) 11.7 13.5EBITDA 1,656 1,394 1,421 1,844 767 603 546 683 YoY change (%) 26.1 (15.8) 1.9 29.8 14.2 (21.4) (9.4) 25.0 As % of Revenue 23.3 17.2 16.4 19.6 23.3 17.2 16.4 19.6Operating Income 1,253 1,048 1,064 1,477 581 453 409 547 YoY change (%) 28.8 (16.4) 1.5 38.8 16.7 (21.9) (9.7) 33.6 As % of Revenue 17.7 12.9 12.3 15.7 17.7 12.9 12.3 15.7Financial Results (299) (301) (275) (249) (139) (130) (106) (92)Taxes (260) (307) (249) (398) (120) (133) (96) (147)Net Profit 376 321 384 564 174 139 148 209 YoY change (%) 10.2 (14.5) 19.7 46.7 (0.2) (20.2) 6.4 41.3 As % of Revenue 5.3 4.0 4.4 6.0 5.3 4.0 4.4 6.0

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (403) (346) (357) (368) (187) (150) (137) (136)Other Noncash Items 29 29 29 29 13 13 11 11Changes in Working Capital (891) 370 187 211 (413) 160 72 78Operating Cash Flow 754 529 764 883 350 229 294 327Capital Expenditures (403) (340) (370) (395) (187) (147) (142) (146)Free Cash Flow 352 189 394 487 163 82 151 180Other Invest./(Divestments) (585) (398) 0 0 (271) (172) 0 0Change in Debt (1,021) 334 0 0 (473) 144 0 0Dividends (41) (161) (164) (260) (19) (70) (63) (96)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 924 1,113 1,506 1,994 394 436 568 725Current Assets 4,707 3,009 3,460 4,086 2,009 1,180 1,306 1,486Fixed Assets 8,281 8,653 8,667 8,694 3,534 3,393 3,271 3,162Total Assets 14,141 12,844 13,309 13,962 6,036 5,037 5,022 5,077Current Liabilities 4,598 2,936 3,108 3,323 1,962 1,151 1,173 1,209Long-Term Liabilities 3,290 3,778 3,790 3,804 1,404 1,481 1,430 1,383Shareholders' Equity 4,573 4,427 4,551 4,710 1,952 1,736 1,717 1,713Total Financial Debt 3,716 4,099 4,118 4,137 1,586 1,608 1,554 1,504ST Debt 1,157 1,121 1,127 1,132 494 440 425 412LT Debt 2,560 2,978 2,991 3,005 1,092 1,168 1,129 1,093




US$R$

Generation43.2%

Distribution41.7%

Trading15.0%

Residential42.2%

Industrial21.8%

Commercial24.5%

Rural3.1%

Others8.3%

EDP GROUP51.2%

Free Float48.8%

105


BRAZIL—UTILITIES

EQUATORIAL HOLD CURRENT PRICE: R$27.50


Investment Case: We recently adjusted our estimates to include a better performance in cutting losses and in synergies, which generated additional gains for the company. However, we believe themarket already prices in a majority of the upside related to initial synergy gains deriving from the incorporation of the Celpa unit and growth prospects after the deal. Therefore, to unlock new value we would have to see new acquisitions, a faster pace of loss reduction, or a more favorable than expected tariff revision process.

Outlook 2015: During the year, we believe that the company will accelerate cost and loss reduction so as to meet regulatory targets for Cemar and Celpa and will pursue synergies between the assets.Regarding volumes, we project an increase of 8% YoY in the captive market for both companies.

What’s there to like? We maintain our call that Equatorial will reach regulatory targets and create synergies between Cemar and Celpa, and we have incorporated recent operating improvements (seen in 1H14) into our latest model; moreover, we believe the company is well prepared to benefit from more favorable regulatory parameters. However, despite the growth potential achieved with a combination ofefforts, we believe that multiples are no longer attractive, while we expect the company will have to reduce dividend payments, at least in the short term, to focus on the turnaround of Celpa.

What could we be missing? We already include several upsides and improvements at the Celpa and Cemar operations that are needed in order to meet regulatory requirements. Still, we could be missing a more rapid trajectory in reducing losses and greater cost cuts or synergy gains that could promote additional upside.

M&A potential. In our view, management will continue to map the market for potential future acquisitions, such as the Eletrobras units that may be available for purchase in the near future.


Company Statistics



Bloomberg EQTL3 BZCurrent Price (01/02/15) R$ 27.50 / US$ 10.22Target Price (YE 2015) R$ 29.30 / US$ 11.0652-Week Range (R$) 18.30 - 27.90Market Capitalization (US$ Mn) 2,027Float (%) 30.43-Mth Avg. Daily Vol (US$ Mn) 7.3Shares Outstanding - Mn 198

60

80

100

120

140

160

J-13 M-13 A-13 D-13 A-14 A-14 D-14

EQTL3 BZ IBOVESPA

106

EQUATORIAL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Equatorial Energia is a holding company in the energy sector. Equatorial currently operates in the (i) distribution segment through CEMAR, in the state of Maranhão, and CELPA, in the state of Pará, (ii) in the generation segment it jointly controls Geramar, two thermoelectric plants, (iii) in the trading segment through its indirect 51% ownership of Sol Energias, and (iv) in the services segment through Equatorial Soluções. Key Personnel: Carlos Augusto Leone Piani (Chairman), Firmino Ferreira Sampaio Neto (CEO), Eduardo Haiama (CFO) and Thomas Newlands (IR Director) Web: http://www.equatorialenergia.com.br/ri/





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 4,715 5,852 6,211 6,530 2,185 2,532 2,389 2,418 YoY change (%) 57.8 24.1 6.1 5.1 43.0 15.9 (5.7) 1.2Gross Profit 278 576 567 782 129 249 218 290 YoY change (%) (67.8) 107.1 (1.6) 38.0 (70.8) 93.3 (12.5) 32.9EBITDA 542 889 908 1,147 251 385 349 425 YoY change (%) 5.6 63.9 2.1 26.3 (4.3) 53.0 (9.2) 21.6 As % of Revenue 11.5 15.2 14.6 17.6 11.5 15.2 14.6 17.6Operating Income 75 418 420 603 35 181 161 223 YoY change (%) (78.4) 459.0 0.3 43.8 (80.4) 421.9 (10.8) 38.5 As % of Revenue 1.6 7.1 6.8 9.2 1.6 7.1 6.8 9.2Financial Results (218) (182) (174) (208) (101) (79) (67) (77)Taxes (39) (122) (211) (205) (18) (53) (81) (76)Net Profit 36 121 128 244 17 52 49 91 YoY change (%) n/m 233.7 5.4 91.3 n/m 211.5 (6.3) 84.2 As % of Revenue 0.8 2.1 2.1 3.7 0.8 2.1 2.1 3.7

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (249) (288) (315) (336) (116) (125) (121) (124)Other Noncash Items (582) (179) 0 0 (270) (78) 0 0Changes in Working Capital 195 201 (37) (32) 91 87 (14) (12)Operating Cash Flow 639 751 536 687 296 325 206 254Capital Expenditures (751) (948) (817) (696) (348) (410) (314) (258)Free Cash Flow (112) (197) (281) (9) (52) (85) (108) (3)Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 148 171 160 170 69 74 62 63Dividends (199) (40) (40) (20) (92) (17) (15) (7)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,613 1,416 1,135 1,126 688 555 428 409Current Assets 3,081 3,389 3,116 3,231 1,315 1,329 1,176 1,175Fixed Assets 5,384 5,846 6,348 6,708 2,298 2,293 2,395 2,439Total Assets 9,103 9,905 10,134 10,608 3,885 3,884 3,824 3,858Current Liabilities 1,689 2,953 2,966 3,130 721 1,158 1,119 1,138Long-Term Liabilities 4,567 4,032 4,152 4,280 1,949 1,581 1,567 1,556Shareholders' Equity 2,354 2,424 2,520 2,703 1,005 951 951 983Total Financial Debt 3,226 3,396 3,557 3,727 1,377 1,332 1,342 1,355ST Debt 175 852 893 935 75 334 337 340LT Debt 3,050 2,544 2,664 2,792 1,302 998 1,005 1,015

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 1,613 1,981 2,422 2,601 688 777 914 946Capital Employed 5,880 6,224 6,728 7,125 2,509 2,441 2,539 2,591Net Debt/EBITDA 3.0 2.2 2.7 2.3 2.7 2.0 2.6 2.2Net Debt/Equity 0.7 0.8 1.0 1.0 0.7 0.9 1.0 1.0Capex/Revenue (%) 15.9 16.2 13.1 10.7 15.9 16.2 13.1 10.7Int Cover (%) 1.1 2.4 2.2 2.5 1.1 2.4 2.2 2.5Dividend Payout (%) (56.9) 110.2 33.0 15.5 (51.5) 101.1 29.1 15.4ROCE (%) 1.9 8.7 9.4 11.3 2.0 9.5 9.4 11.3ROE (%) 1.6 5.1 5.2 9.4 1.6 5.4 5.2 9.4

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E n/m 45.4 42.7 22.3 n/m 39.4 41.3 22.4P/CE 16.1 13.4 12.3 9.4 14.7 11.7 11.9 9.4FV/EBITDA 13.2 9.7 9.9 7.9 12.1 8.5 9.6 7.9FV/EBIT 25.8 14.9 15.8 11.6 23.6 13.1 15.3 11.5FV/Revenue 1.5 1.5 1.4 1.4 1.4 1.3 1.4 1.4P/BV 2.0 2.3 2.2 2.0 1.9 2.2 2.1 2.1FCF Yield (%) (2.4) (3.6) (5.1) (0.2) (2.7) (4.1) (5.3) (0.2)Div Yield (%) 4.3 0.7 0.7 0.4 4.7 0.8 0.8 0.4


US$R$

Distribution100.0%

Residential41.0%Commercial

23.0%

Industrial10.7%

Others25.2%

PCP Latin America Power22.9%

Others77.1%

107



EVEN BUY CURRENT PRICE: R$5.27



Investment Case: The combination of solid execution, capital discipline, and attractive valuation leads us to place Even among our top picks in the homebuilding universe.

Outlook 2015: We believe 2015 should be marked by a rebound in contracted sales with a stable volume of launches, which should helpkeep inventory levels under control.

A year of adjustments. The pickup in contracted sales we expect is mainly attributable to a weak comparison base, as 2014 was negatively impacted by the world soccer tournament hosted in Brazil and the presidential elections. In addition, we expect Even to decelerate the pace of launches due to a less buoyant sector outlook for 2015 and to pick up the pace in 2016 onward.

Reliable execution. Even’s vertically integrated business model enables the company to control costs on a monthly basis. This hashelped the gross margin (excluding financial charges) gradually improve over the last five years (to 34% in 2014E from 31% in 2010).

Solid financial position, likely to continue improving. Growing at a moderate pace, Even has been able to keep leverage under control (50% net debt/equity as of September 2014). Furthermore, we expect the strong volume of inventory sales combined with a substantial volume of deliveries expected for 2015 to further improve cash generation.

Attractive valuation. We see the current stock valuation as attractive, trading at a P/BV of 0.5x, with an estimated ROE of 14%, for 2015E.



Company Statistics



Bloomberg EVEN3 BZCurrent Price (01/02/15) R$ 5.27 / US$ 1.96Target Price (YE 2015) R$ 6.80 / US$ 2.5752-Week Range (R$) 4.73 - 7.90Market Capitalization (US$ Mn) 457Float (%) 91.43-Mth Avg. Daily Vol (US$ Mn) 4.3Shares Outstanding - Mn 233

40

60

80

100

120

j-13 m-13 a-13 d-13 a-14 a-14 d-14

EVEN3 BZ IBOVESPA

108

EVEN Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Even is a vertically integrated real estate developer, involved in construction and brokerage operations. As it is one of the largest residential developers and building firms in the metropolitan region of São Paulo, the company has been expanding its operations to Rio de Janeiro, Minas Gerais, and Rio Grande do Sul, Brazil’s largest markets in terms of GDP. Although it is primarily focused on the mid-high/high-income segments, the company already operates in various income segments (from affordable and emerging to high-income, as well as commercial). Key Personnel: Carlos Eduardo Terepins (CEO) and Dany Muszkat (CFO and IR) Web: www.even.com.br/ri/

Launches (R$ in billions), 2012-15E

Contracted Sales (R$ in billions), 2012-15E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 2,459 2,180 2,502 2,597 1,140 943 962 853 YoY change (%) (2.1) (11.4) 14.8 3.8 (11.3) (17.3) 2.1 (11.4)Gross Profit 823 749 859 896 382 324 330 294 YoY change (%) 3.1 (9.1) 14.7 4.3 (6.6) (15.1) 2.0 (10.9)EBITDA 345 229 288 300 160 99 111 98 YoY change (%) (19.2) (33.4) 25.6 4.0 (26.8) (37.9) 11.7 (11.2) As % of Revenue 14.0 10.5 11.5 11.5 14.0 10.5 11.5 11.5Operating Income 459 349 428 445 213 151 165 146 YoY change (%) (8.8) (24.0) 22.8 4.0 (17.4) (29.0) 9.1 (11.1) As % of Revenue 18.7 16.0 17.1 17.2 18.7 16.0 17.1 17.2Financial Results (81) (40) (31) (29) (37) (17) (12) (9)Taxes (50) (48) (51) (53) (23) (21) (20) (18)Net Profit 283 232 314 330 131 100 121 108 YoY change (%) 10.8 (18.0) 35.3 5.0 0.3 (23.4) 20.2 (10.3) As % of Revenue 11.5 10.6 12.5 12.7 11.5 10.6 12.5 12.7

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (14) (27) (20) (20) (6) (12) (8) (7)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (262) (133) (28) 65 (121) (57) (11) 21Operating Cash Flow 35 127 306 415 16 55 118 136Capital Expenditures (9) (9) (20) (21) (4) (4) (8) (7)Free Cash Flow 44 136 326 435 20 59 125 143Other Invest./(Divestments) 1 (0) (0) (0) 1 (0) (0) (0)Change in Debt 246 (27) (88) (81) 114 (12) (34) (27)Dividends (61) (67) (58) (78) (28) (29) (22) (26)Capital Increases/Other (23) (83) 8 8 (11) (36) 3 3

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 765,547 706,184 853,981 1,096,580 326,738 276,935 322,257 355,100Current Assets 3,443,310 3,327,608 3,461,694 3,670,184 1,469,616 1,304,944 1,306,300 1,188,498Fixed Assets 59,679 41,427 41,290 41,622 25,471 16,246 15,581 13,478Total Assets 4,804,693 4,863,689 5,115,566 5,331,035 2,050,659 1,907,329 1,930,402 1,726,324Current Liabilities 985,831 1,122,658 1,194,510 1,220,204 420,756 440,258 450,759 395,133Long-Term Liabilities 1,503 1,334 1,270 1,204 641 523 479 390Shareholders' Equity 1,988 2,128 2,364 2,611 849 835 892 845Total Financial Debt 1,884 1,856 1,768 1,687 804 728 667 546ST Debt 580,945 720,398 720,398 720,398 247,949 282,509 271,848 233,283LT Debt 1,303 1,136 1,048 966 556 445 395 313

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 1,216 1,258 1,030 723 519 493 389 234Capital Employed 3,434 3,557 3,565 3,497 1,466 1,395 1,345 1,132Net Debt/EBITDA 3.5 5.5 3.6 2.4 3.3 5.0 3.5 2.4Net Debt/Equity 0.6 0.6 0.4 0.3 0.7 0.7 0.4 0.3Capex/Revenue (%) 0.4 0.4 0.8 0.8 0.4 0.4 0.8 0.8Int Cover (%) 1.2 0.7 0.8 0.8 1.2 0.7 0.8 0.8Dividend Payout (%) 23.9 23.7 25.0 25.0 21.6 21.8 22.0 24.8ROCE (%) 14.8 11.1 13.5 14.3 16.0 12.4 13.5 14.3ROE (%) 15.1 11.3 14.0 13.3 15.4 12.0 14.0 13.3



US$R$

2.52 2.42

1.97 2.11

2012

2013

2014

e

2015

e

1.76

2.12

1.51

2.16

2012

2013

2014

e

2015

e

Board of Directors

2.4%

Executive Board6.2%

Free Float91.4%

109



EZTEC BUY CURRENT PRICE: R$21.56



Investment Case: We maintain our positive view on EZTec, supported mainly by its: (i) solid execution, which should result in robust and resilient profitability despite the challenging outlook for the sector; (ii) conservative capital structure, reflected in the company’s leverage, the lowest in the sector and on its way back to having a positive net cash position after receiving the last installment of Tower A from the EZTowers project in 1Q15; and (iii) attractive upside potential to be captured, according to our DCF analysis. Consequently, we reiterate our Buy rating on the stock.

Outlook 2015: We believe EZTec should continue to post leading margins in the sector and enjoy significant cash generation in 2015, despite the challenging sector outlook.

Above-average profitability: EZTec is poised to continue posting above average profitability despite its conservative capital structure (-26% net debt/equity for YE2015). We estimate EZTec’s ROE to reach 19% for 2015 (compared with 20% for 2014E).

On its way back to net cash: 2015 should be marked by strong cash generation for EZTec, mainly on the collection of the last installment related to sale of Tower A from the EZTowers project as well as the company’s efforts to sell finished inventory.

Attractive valuation: In our view, EZtec’s industry-leading margins, lowest leverage in the sector, and solid execution are not fully reflected on the stock price despite the premium valuation. The stockis currently trading at a 2015E P/BV of 1.2x, 70% above the sector average.



Company Statistics



Bloomberg EZTC3 BZCurrent Price (01/02/15) R$ 21.56 / US$ 8.01Target Price (YE 2015) R$ 27.00 / US$ 9.9652-Week Range (R$) 19.40 - 28.69Market Capitalization (US$ Mn) 1,175Float (%) 33.53-Mth Avg. Daily Vol (US$ Mn) 3.5Shares Outstanding - Mn 147

70

80

90

100

110

120

130

j-13 m-13 a-13 d-13 a-14 a-14 d-14

EZTC3 BZ IBOVESPA

110

EZTEC Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

EZTec is a vertically integrated real estate developer (from construction to brokerage operations) with more than 30 years of industry experience. Although EZTec already operated in all different income segments (from low to high income), the company is currently focused on the mid-high/high-income segments, as well as commercial buildings, mainly in the metropolitan region of São Paulo. EZTec has been able to deliver such growth without decreasing its very high profitability levels since its IPO back in June 2007. Key Personnel: Silvio Zarzur (CEO) and Antonio Emílio C. Fugazza (CFO and IR Director) Web: w

2013–16E Launches (R$ in billions)

2013–16E Contracted Sales (R$ in billions)



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,139 898 950 1,017 528 383 361 296 YoY change (%) 80.1 (21.1) 5.7 7.1 63.2 (27.4) (5.8) (18.1)Gross Profit 607 500 510 525 281 213 194 152 YoY change (%) 74.3 (17.7) 1.9 3.0 57.9 (24.2) (9.2) (21.3)EBITDA 573 438 441 444 266 187 168 129 YoY change (%) 84.5 (23.6) 0.6 0.8 67.1 (29.6) (10.3) (23.0) As % of Revenue 50.3 48.7 46.4 43.7 50.3 48.7 46.4 43.7Operating Income 579 457 459 464 269 195 175 135 YoY change (%) 82.6 (21.1) 0.5 1.1 65.4 (27.4) (10.5) (22.7) As % of Revenue 50.9 50.9 48.4 45.7 50.9 50.9 48.4 45.7Financial Results 36 31 65 107 16 13 25 31Taxes (26) (22) (22) (22) (12) (9) (9) (6)Net Profit 586 465 501 550 272 198 191 160 YoY change (%) 74.3 (20.6) 7.8 9.7 57.9 (26.9) (4.0) (16.2) As % of Revenue 51.4 51.8 52.8 54.1 51.4 51.8 52.8 54.1

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (4) (10) (10) (10) (2) (4) (4) (3)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (498) (210) 376 11 (231) (90) 143 3Operating Cash Flow 92 265 887 571 43 113 337 166Capital Expenditures (160) (102) (107) (108) (74) (43) (41) (31)Free Cash Flow 252 366 995 679 117 156 378 197Other Invest./(Divestments) 7 2 (0) (0) 3 1 (0) (0)Change in Debt 189 89 (200) 0 87 38 (76) 0Dividends 0 0 (139) (251) 0 0 (53) (73)Capital Increases/Other (79) (6) 0 0 (37) (2) 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 199 448 889 1,101 85 176 328 315Current Assets 1,596 1,981 2,130 2,330 681 777 786 668Fixed Assets 398 490 587 685 170 192 217 196Total Assets 2,849 3,392 3,564 3,888 1,216 1,330 1,315 1,114Current Liabilities 404 765 685 726 172 300 253 208Long-Term Liabilities 335 196 198 205 143 77 73 59Shareholders' Equity 2,101 2,427 2,678 2,953 897 952 988 846Total Financial Debt 293 382 182 182 125 150 67 52ST Debt 20 260 60 60 9 102 22 17LT Debt 273 121 121 121 116 48 45 35

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 224 62 (578) (775) 96 24 (213) (222)Capital Employed 2,204 2,364 1,974 2,037 941 927 728 584Net Debt/EBITDA 0.4 0.1 (1.3) (1.7) 0.4 0.1 (1.3) (1.7)Net Debt/Equity 0.1 0.0 (0.2) (0.3) 0.1 0.0 (0.2) (0.3)Capex/Revenue (%) 14.0 11.3 11.3 10.6 14.0 11.3 11.3 10.6Int Cover (%) 20.2 6.9 7.6 8.2 20.2 6.9 7.6 8.2Dividend Payout (%) 0.0 0.0 29.9 50.0 0.0 0.0 26.3 49.7ROCE (%) 27.5 20.3 24.4 23.9 29.9 22.7 24.6 23.9ROE (%) 31.2 20.5 19.6 19.5 31.9 21.9 19.6 19.5

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 7.3 6.9 6.3 5.8 6.7 6.1 6.2 7.4P/CE 7.2 6.8 6.2 5.6 6.6 6.0 6.0 7.2FV/EBITDA 7.9 7.5 5.9 5.4 7.2 6.6 5.7 7.4FV/EBIT 7.8 7.2 5.6 5.1 7.1 6.4 5.5 7.1FV/Revenue 4.0 3.7 2.7 2.4 3.6 3.2 2.7 3.2P/BV 2.0 1.3 1.2 1.1 2.0 1.3 1.2 1.4FCF Yield (%) 5.9 11.4 31.4 21.5 6.4 12.9 32.2 16.8Div Yield (%) (0.0) (0.0) 4.4 7.9 (0.0) (0.0) 4.5 6.2


US$R$

1.92

1.07 1.08 1.20

2013

2014

e

2015

e

2016

e

1.61

0.90

1.26 1.33

2013

2014

e

2015

e

2016

e

Controlling Shareholder

s66.5%

Free Float33.5%

111



FIBRIA UNDERPERFORM CURRENT PRICE: R$32.30


Investment Case: Capital allocation is an issue for investors, in our opinion. After a long period of successful deleveraging, we believe the main use of the company’s excess cash generation in the upcoming years will be organic growth (with the Tres Lagoas II mill, capex of R$5.9 billion, output of 1.75 million tons/years, start-up by 2H17). We do not view this favorably, as we believe that such investment does not result in a compelling return to shareholders. Inthe short term, however, we expect the stock to continue to benefit from strong earnings momentum. It is, indeed, a clear FX play, given its 100% USD top-line profile.

Outlook 2015: We expect Fibria’s 2015 results to be better than those in 2014, given a higher average pulp price and weaker BRL. We estimate EBITDA to increase by 14% YoY.

Our perception that the company will grow organically was strengthened after attending Fibria Investor Day in early December. The project feasibility studies are concluded and ready for board appraisal. We expect the board’s decision by the end of 1Q15. Additionally, we estimate 14% leveraged IRR for the possible Tres Lagoas II project, relative to a 17% cost of equity, which suggests to us that organic expansion does not add value to shareholders.

Short-term increase in pulp prices can be short-lived. We estimate capacity increases will outpace demand growth in the next three years (8% average growth relative to 3% demand increase). We note that unexpected capacity closures in the Northern Hemisphere can partially offset new supply in the Southern Hemisphere, providing support for occasional upward price trends (as is currently occurring). Also, the stronger USD is expected to limitnew rounds of pulp price increases is USD terms on a sustainable basis, in our view.



Company Statistics



Bloomberg FIBR3 BZ / FBR USCurrent Price (01/02/15) R$ 32.30 / US$ 12.06Target Price (YE 2015) R$ 26.00 / US$ 8.3052-Week Range (R$) 20.10 - 33.13Market Capitalization (US$ Mn) 6,638Float (%) 40.23-Mth Avg. Daily Vol (US$ Mn) 17.1Shares Outstanding - Mn 553

60

80

100

120

140

J-13 M-13 A-13 D-13 A-14 A-14 D-14

FIBR3 BZ IBOVESPA

112

FIBRIA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Fibria is the world’s largest market pulp producer, with 5.3 million tons/year capacity. As of 2013 exports represented 91% of the company’s total sales. Fibria has only voting stock and is listed on the Bovespa’s Novo Mercado as well as on the NYSE. The company is jointly controlled by BNDESpar and the Votorantim Group, which hold 30% and 29% of the company’s stock, respectively. Key Personnel: Jose Luciano Penido (Chairman), Marcelo Castelli (CEO), Guilherme Cavalcanti (CFO) and Andre Luiz Gonçalves (IR Manager) Web: www.fibria.com.br

Revenue by Product, 2013

Revenue by Destination, 2013



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 6,917 7,035 7,845 8,424 3,206 2,993 2,983 2,984 YoY change (%) 12.0 1.7 11.5 7.4 1.5 (6.6) (0.3) 0.0Gross Profit 1,535 1,448 1,793 1,959 712 616 682 694 YoY change (%) 63.8 (5.7) 23.8 9.3 48.4 (13.4) 10.6 1.8EBITDA 2,797 2,659 3,033 3,289 1,297 1,131 1,153 1,165 YoY change (%) 24.1 (4.9) 14.1 8.4 12.5 (12.7) 1.9 1.0 As % of Revenue 40.4 37.8 38.7 39.0 40.4 37.8 38.7 39.0Operating Income 1,710 1,723 1,070 1,190 793 733 407 421 YoY change (%) 141.9 0.8 (37.9) 11.2 119.1 (7.5) (44.5) 3.6 As % of Revenue 24.7 24.5 13.6 14.1 24.7 24.5 13.6 14.1Financial Results (2,053) (1,680) (778) (884) (952) (715) (296) (313)Taxes (354) (51) (96) (100) (164) (22) (36) (35)Net Profit (706) (10) 196 205 (327) (4) 75 73 YoY change (%) (45.6) 98.6 n/m 4.6 (31.9) 98.7 n/m (2.5) As % of Revenue (10.2) (0.1) 2.5 2.4 (10.2) (0.1) 2.5 2.4

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (1,862) (1,822) (1,963) (2,099) (863) (775) (747) (743)Other Noncash Items 1,767 1,567 671 733 819 667 255 259Changes in Working Capital 289 63 189 (206) 134 27 72 (73)Operating Cash Flow 3,212 3,442 3,019 2,831 1,489 1,465 1,148 1,003Capital Expenditures (1,286) (1,542) (1,455) (1,548) (596) (656) (553) (548)Free Cash Flow 1,270 709 1,356 1,132 589 302 516 401Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt (2,095) (2,130) (879) (941) (971) (906) (334) (333)Dividends 0 0 0 (50) 0 0 0 (18)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 2,388 1,801 2,211 2,264 1,019 706 816 770Current Assets 4,363 4,282 4,614 4,990 1,862 1,679 1,702 1,697Fixed Assets 13,247 13,086 12,577 12,027 5,654 5,132 4,641 4,091Total Assets 26,750 25,778 25,708 25,685 11,417 10,109 9,486 8,736Current Liabilities 1,006 1,575 1,685 1,803 429 618 622 613Long-Term Liabilities 9,787 7,847 7,467 7,784 4,177 3,077 2,755 2,648Shareholders' Equity 14,445 14,433 14,629 14,785 6,165 5,660 5,398 5,029Total Financial Debt 9,773 8,782 8,406 8,111 4,171 3,444 3,102 2,759ST Debt 1,466 1,872 1,876 1,263 626 734 692 430LT Debt 8,307 6,910 6,530 6,847 3,545 2,710 2,410 2,329

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 7,963 7,617 6,851 6,537 3,399 2,987 2,528 2,224Capital Employed 22,408 22,050 21,481 21,322 9,564 8,647 7,927 7,252Net Debt/EBITDA 2.8 2.9 2.3 2.0 2.6 2.6 2.2 1.9Net Debt/Equity 0.6 0.5 0.5 0.4 0.6 0.6 0.5 0.4Capex/Revenue (%) 18.6 21.9 18.5 18.4 18.6 21.9 18.5 18.4Int Cover (%) 2.1 2.7 6.8 7.7 2.1 2.7 6.8 7.7Dividend Payout (%) 0.0 0.0 0.0 25.7 0.0 0.0 0.0 25.5ROCE (%) 9.2 8.0 5.4 6.0 9.9 9.1 5.5 6.0ROE (%) (4.8) (0.1) 1.4 1.4 (4.8) (0.1) 1.4 1.4

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E - - n/m n/m - - n/m n/mP/CE 13.2 9.8 8.3 7.8 12.1 8.7 8.1 8.2FV/EBITDA 8.3 9.6 8.2 7.5 7.6 8.6 8.0 7.7FV/EBIT 13.6 14.8 23.3 20.6 12.5 13.3 22.7 21.2FV/Revenue 3.4 3.6 3.2 2.9 3.1 3.2 3.1 3.0P/BV 1.1 1.2 1.2 1.2 1.0 1.2 1.2 1.3FCF Yield (%) 8.3 4.0 7.6 6.3 9.1 4.5 7.7 6.0Div Yield (%) (0.0) (0.0) (0.0) 0.3 (0.0) (0.0) (0.0) 0.3

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS (1.28) (0.02) 0.35 0.37 (0.95) (0.01) 0.26 0.28DPS 0 0 0 0.09 0 0 0 0.07BVPS 26.11 26.09 26.44 26.72 19.40 19.38 19.65 19.85

US$R$

Pulp98.9%

Others1.1%

Domestic9.0%

Exports91.0%

BNDESPar30.4%

Votorantim Group29.3%

Free Float40.2%

113



FLEURY HOLD CURRENT PRICE: R$16.00



Investment Case: We believe that Fleury’s earnings momentum will improve in 2015, after the downsizing of the Rio de Janeiro operation and management’s decision to focus on its premium Fleury brand. We estimate Fleury will deliver a solid 2014-17 EPS CAGR of 19%, complemented by a 2015E dividend yield of 5%. While Fleury’s strategic value should limit potential downside, in our view, the current share price limits further significant upside potential.

Outlook 2015: We forecast that the company will deliver EBITDA and EPS growth of 22% and 39%, respectively, stemming from a combination of 10% top-line growth and a 200-bp EBITDA margin expansion. FLRY3 shares are trading at an attractive adjusted 2015EP/E of 12.5x. We note that, per our projections, Fleury should pay notaxes over taxable income, boosting its free cash flow.

Bargain power gradually shifting toward providers. The high capacity utilization of Brazilian private healthcare system, coupled with regulatory actions to improve the relationship among payers and providers, have attenuated the bargaining power of payers toward suppliers. This change should favor the pass-through of inflation over test prices, which we see as key to the sustainability of the diagnostics industry’s operating profits.

Margin expansion prospects seem clear. Margin expansion, which we think is a top priority for management, should result from the following factors, in our view: (i) continued optimization of costs and expenses; (ii) increasing weight of premium brands in total revenue;and (iii) further pricing repositioning for regional brands in the top intermediary segment.

We welcome the expansion plan’s focus on premium brands, considering their higher returns. Management expects to open four new Fleury brand units in 2015-16 (in addition to the expansion of existing units), adding ~8,000 m2 of store area (+8% vs. 3Q14). Management sees room to open new stores of regional brands as well, though we expect them to be of a smaller size.



Company Statistics



Bloomberg FLRY3 BZCurrent Price (01/02/15) R$ 16.00 / US$ 5.94Target Price (YE 2015) R$ 18.00 / US$ 6.6452-Week Range (R$) 13.40 - 20.00Market Capitalization (US$ Mn) 929Float (%) 39.93-Mth Avg. Daily Vol (US$ Mn) 1.4Shares Outstanding - Mn 156

50

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

FLRY3 BZ IBOVESPA

114

FLEURY Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Fleury S.A. is the second-largest private medical diagnostic services provider in Brazil, with 6 brands and 153 patient service centers (PSC) as of September, 2014, distributed in 6 states of the national territory. The company was founded in 1926. Since 2002, it has acquired 28 companies – Labs D’Or, acquired in July 2011, was the most sizable acquisition in Fleury’s history, representing close to half of its revenue the year it was acquired. In 2012, it processed more than 50 million diagnostics tests. The company is listed on the Novo Mercado, the highest level of corporate governance classification of the BM&F Bovespa stock exchange. Key Personnel: Carlos Marinelli (CEO), Adolpho Souza Neto (CFO) and João Patah (IR Officer) Web: www.fleury.com.br

Sales per Segment, 9M14

PSC Tests per Type, 9M14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,657 1,683 1,853 2,048 768 717 705 725 YoY change (%) 10.3 1.6 10.1 10.5 (0.1) (6.7) (1.7) 2.9Gross Profit 372 402 480 535 172 171 182 189 YoY change (%) (7.8) 8.1 19.3 11.5 (16.4) (0.6) 6.5 3.8EBITDA 278 320 390 431 129 136 148 152 YoY change (%) (11.6) 15.1 21.8 10.5 (19.9) 5.7 8.7 2.8 As % of Revenue 16.8 19.0 21.0 21.0 16.8 19.0 21.0 21.0Operating Income 170 206 267 302 79 88 102 107 YoY change (%) (21.0) 21.5 29.8 12.8 (28.4) 11.7 15.9 5.0 As % of Revenue 10.2 12.2 14.4 14.7 10.2 12.2 14.4 14.7Financial Results (58) (52) (68) (66) (27) (22) (26) (23)Taxes (50) (59) (68) (80) (23) (25) (26) (28)Net Profit 61 95 132 156 28 40 50 55 YoY change (%) (42.6) 55.1 39.0 18.0 (48.0) 42.5 24.1 9.9 As % of Revenue 3.7 5.6 7.1 7.6 3.7 5.6 7.1 7.6

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (109) (114) (122) (129) (50) (49) (47) (46)Other Noncash Items 79 47 0 0 37 20 0 0Changes in Working Capital (140) (79) (29) (45) (65) (34) (11) (16)Operating Cash Flow 109 177 226 240 50 76 86 85Capital Expenditures (165) (131) (195) (123) (76) (56) (74) (43)Free Cash Flow (56) 47 31 117 (26) 20 12 41Other Invest./(Divestments) - - - - - - - -Change in Debt 419 (2) 0 0 194 (1) 0 0Dividends (84) (191) (125) (148) (39) (81) (48) (52)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 540 448 421 471 230 176 155 160Current Assets 1,055 968 984 1,098 450 379 363 374Fixed Assets 1,997 2,009 2,082 2,075 852 788 768 706Total Assets 3,211 3,167 3,255 3,364 1,371 1,242 1,201 1,144Current Liabilities 260 250 263 284 111 98 97 97Long-Term Liabilities 1,278 1,338 1,406 1,486 546 525 519 505Shareholders' Equity 1,689 1,595 1,601 1,609 721 625 591 547Total Financial Debt 1,010 1,004 1,004 1,004 431 394 370 341ST Debt 83 80 80 80 35 31 29 27LT Debt 927 924 924 924 396 362 341 314

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 470 556 582 533 201 218 215 181Capital Employed 2,159 2,150 2,183 2,142 921 843 806 728Net Debt/EBITDA 1.7 1.7 1.5 1.2 1.6 1.6 1.4 1.2Net Debt/Equity 0.3 0.3 0.4 0.3 0.3 0.4 0.4 0.3Capex/Revenue (%) 9.9 7.8 10.5 6.0 9.9 7.8 10.5 6.0Int Cover (%) 3.2 2.9 3.0 3.2 3.2 2.9 3.0 3.2Dividend Payout (%) 78.9 312.4 132.0 112.1 71.4 286.5 116.2 111.4ROCE (%) 10.2 12.3 15.4 17.8 10.9 13.6 15.4 17.8ROE (%) 3.6 5.8 8.2 9.7 3.7 6.1 8.2 9.7



US$R$

PSC83.5%

Hospitals13.9%

Others2.6%

Clinical53.2%

Imaging46.8%

Integritas (Core +

Bradseg)46.7%

Core + Bradseg10.9%

Founders (Direct

Ownership)2.5%

Free-float39.9%

115


BRAZIL—CONGLOMERATES & INDUSTRIALS

FRAS-LE BUY CURRENT PRICE: R$4.10


Investment Case: Check the Brakes and Speed Up. Fras-le isthe largest brake-lining producer worldwide and is the leader in both the aftermarket and OEM markets in Brazil. We see the company as a less cyclical player in the automotive universe (76% of revenue in the aftermarket), and considering its positive FX exposure (45% of sales are international), we believe it is well positioned to benefit from (1) organic growth—2013-16E CAGR of ~10% for EBITDA and 15% for EPS, and (2) a maturing cycle of recent investments (sustaining ROE expansion in upcoming years, reaching the 17% level in the medium term). Fras-le trades at a 2015E P/E of 9.7x—a 20% discount to its Brazilian peers—offering a 9% FCFE yield in 2015E and 46% DCF upside.

Resilient market share leadership. The company's high ~90%OEM market share in brake linings and ~17% in brake pads offers an edge in the high-margin aftermarket. OEM suppliers are perceived as benchmarks, commanding premium prices.

A less cyclical and more diversified player with positive FX exposure. Fras-le is exposed to a diversified set of revenuedrivers, a feature that reduces volatility in results. By segment, aftermarket represents 76% of sales; by geography, the International operation amounts to 45% of sales. With its power of diversification, Fras-le has never posted an annual loss in its 60 years of operation. Our economics team forecasts the BRL at R$2.71 at YE2015, which we believe should benefit Fras-le's growth and margins outlook.

Attractive earnings outlook and valuation. We forecast netsales, EBITDA, and net income 2013-16E CAGRs of 9%, 10%, and 15%. Fras-le is part of Randon Group, which bolsters its growth outlook, in our view. Earnings power: at current prices Fras-le prices -1.3% real growth in perpetuity.

Simplifying product portfolio: 80/20 method. New management is focusing on portfolio profitability, reducing exposure to low-volume/low-return lines (e.g., reducing brake pad SKUs by ~20%).

A consolidation player in the brake market. We consideracquisitions a free option that could add ~11% to our valuation(e.g., adding R$200 million in revenue in 2016-17 raises ourYE2015 target price to R$6.70).


Joao Noronha*, CFA Brazil: Banco Santander S.A. +5511-3012-5734 | [email protected]

Company Statistics



Bloomberg FRAS3 BZCurrent Price (01/02/15) R$ 4.10 / US$ 1.52Target Price (YE 2015) R$ 6.00 / US$ 2.2152-Week Range (R$) 3.40 - 6.43Market Capitalization (US$ Mn) 190Float (%) 53.83-Mth Avg. Daily Vol (US$ Mn) 0.1Shares Outstanding - Mn 125

50

100

150

200

250

300

350

J-13 M-13 A-13 D-13 A-14 A-14 D-14

FRAS3 BZ IBOVESPA

116

FRAS-LE Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Fras-le, a subsidiary of Randon Group, is a global leader as a manufacturer and producer of friction materials, for commercial and light vehicles. Its portfolio is composed of: (a) brake linings (commercial vehicles), totaling 57% of revenues; (b) pads and brake shoes (light vehicles), totaling 28% of revenues; (c) hydraulic brakes and polymer solution products for light vehicles, comprising 10% of sales; and (d) and other friction materials, adding the remaining 5% of the company’s revenue. Currently the company operates with four industrial units, seven commercial units and three distribution centers around the globe. In 2013, Fras-le revenue totaled R$717 million and net income R$40 million. Key Personnel: Pedro Ferro (CEO) and Vanderlei Novello (IR Director) Web: http://www.frasle.com

Revenue Breakdown by Vehicle Segment, 2013

Revenue Breakdown by Market, 2013



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 717 765 830 923 332 326 315 327 YoY change (%) 8.2 6.6 8.5 11.3 (2.0) (1.8) (3.3) 3.6Gross Profit 195 203 231 259 90 87 88 92 YoY change (%) 16.0 4.2 13.5 12.3 5.1 (4.1) 1.1 4.5EBITDA 106 103 121 138 49 44 46 49 YoY change (%) 24.9 (2.8) 17.9 14.1 13.2 (10.5) 5.1 6.2 As % of Revenue 14.7 13.4 14.6 15.0 14.7 13.4 14.6 15.0Operating Income 67 66 84 96 31 28 32 34 YoY change (%) 33.5 (2.8) 28.2 14.5 21.0 (10.5) 14.2 6.6 As % of Revenue 9.4 8.6 10.1 10.4 9.4 8.6 10.1 10.4Financial Results (17) (10) (14) (16) (8) (4) (5) (6)Taxes (10) (11) (17) (19) (5) (5) (6) (7)Net Profit 40 44 53 60 19 19 20 21 YoY change (%) 61.7 10.8 18.8 13.9 46.5 2.0 5.8 6.1 As % of Revenue 5.6 5.8 6.3 6.5 5.6 5.8 6.3 6.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (37) (37) (37) (42) (17) (16) (14) (15)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (22) (27) (24) (22) (10) (12) (9) (8)Operating Cash Flow 84 76 97 116 39 32 37 41Capital Expenditures 30 (37) (35) (35) 14 (16) (13) (12)Free Cash Flow 167 53 46 61 78 23 17 22Other Invest./(Divestments) - - - - - - - -Change in Debt (36) 3 0 0 (17) 1 0 0Dividends (12) (16) (16) (18) (6) (7) (6) (6)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 236 258 287 333 101 101 106 113Current Assets 503 525 584 663 214 206 216 226Fixed Assets 394 389 387 379 168 153 143 129Total Assets 934 950 1,006 1,078 399 372 371 367Current Liabilities 730 761 817 886 311 299 301 301Long-Term Liabilities 30 31 31 31 13 12 11 11Shareholders' Equity 395 423 460 502 169 166 170 171Total Financial Debt 409 399 412 431 174 156 152 147ST Debt 75 94 97 101 32 37 36 34LT Debt 334 305 316 330 143 120 116 112

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 172 141 125 98 74 55 46 33Capital Employed 568 566 587 603 243 222 217 205Net Debt/EBITDA 1.6 1.4 1.0 0.7 1.5 1.3 1.0 0.7Net Debt/Equity 0.4 0.3 0.3 0.2 0.5 0.4 0.3 0.2Capex/Revenue (%) (4.2) 4.8 4.2 3.8 (4.2) 4.8 4.2 3.8Int Cover (%) 1.1 1.6 3.8 4.1 1.1 1.6 3.8 4.1Dividend Payout (%) 49.6 41.1 35.6 34.2 44.9 37.7 31.4 34.0ROCE (%) 13.6 13.5 17.1 19.2 14.7 15.0 17.2 19.2ROE (%) 10.5 10.8 11.9 12.5 10.7 11.5 11.9 12.5



US$R$

Heavy Vehicle57.0%

Light Vehicle28.0%

Controil10.0%

Other5.0%

Aftermarket78.9%

OEM21.1%

Randon46.3%

Others53.7%

117



GERDAU BUY CURRENT PRICE: R$9.11 TARGET PRICE: R$16.00

UPGRADING RATING TO BUY FROM HOLD

Investment Case: In spite of the lackluster economic scenario for Brazil in the near future, we think Gerdau continues to be the best option for investing in the Brazil steel space, given (1) its positive exposure to the U.S. market, at least mitigating the weakness in Brazil operations, and (2) its lower exposure to iron ore as a business line relative to its main peers.

Outlook 2015: The year will be challenging for the steelmakers, and, despite Gerdau’s relatively lower exposure to the sluggish domesticmarket, the company will not remain unscathed. Indeed, the main macro indicators closely linked to the long steel segment— such as (i) disposable income; (ii) individual leverage and interest rates; and (iii) inflation—give no indications of an inflection point. SindusCon-SP (Sindicato da Indústria da Construção Civil do Estado de São Paulo),an independent entity in the real estate sector, projects a 1.5% drop in steel production in 2015. Accordingly, we estimate R$4.98 billion EBITDA for 2015, +11.6% YoY.

GNA improves, but we expect performance at Gerdau Brazil to remain sluggish. With expansion in the metallic spread due to selling prices, we estimate GNA will continue showing operating performance improvement in the upcoming quarters (EBITDA margins in the high single digits due to volume and price increases). However, we expect Gerdau Brazil’s performance to remain weak, with the company currently operating at 70% capacity and tough competition from imports. Indeed, according to CNI, expectations forcivil construction companies for the next six months have been revisiting recent historical lows.

Iron ore outlook freezes capacity expansion: At current commodity prices, the iron ore expansion project targeting 16 milliontons by 2016 has been revised and production is focused only on self-sufficiency, since the company’s iron ore breakeven is around US$80 per ton.



Company Statistics



Bloomberg GGBR4 BZCurrent Price (01/02/15) R$ 9.11 / US$ 3.38Target Price (YE 2015) R$ 16.00 / US$ 6.0452-Week Range (R$) 8.12 - 18.11Market Capitalization (US$ Mn) 5,768Float (%) 57.83-Mth Avg. Daily Vol (US$ Mn) 24.5Shares Outstanding - Mn 1,704

40

50

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

GGBR4 BZ IBOVESPA

118

GERDAU Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Gerdau has a total annual crude steel production capacity of 26 million tons and an annual rolling capacity of 22 million tons (including recent acquisitions), which makes the company the largest long steel producer in the Americas and the eleventh largest steelmaker in the world. Besides Brazil, Gerdau also operates in the U.S., Canada, Uruguay, Argentina, Chile, Colombia, Mexico, India, Venezuela, and Spain, offering a broad range of long steel products such as rebars, billets, blooms, merchant bars, profiles, drawn, and specialty steel products, mainly to the civil construction and manufacturing segments. Gerdau is controlled by Metalúrgica Gerdau, which owns 76% of the company’s voting shares and 45% of its total capital. Metalúrgica Gerdau is a listed holding company controlled by the Gerdau family. Gerdau shares are listed on the stock exchanges in São Paulo, New York, Toronto, and Madrid. Key Personnel: Jorge Gerdau Johannpeter (Chairman), André Gerdau Johannpeter (CEO), Andre Pires (CFO), Tarcisio Beuren (IR Manager) and Harley Scardoelli (Financial Director) Web: www.gerdau.com.br

Revenue by Division, 2013

EBITDA by Division, 2013



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 39,863 43,898 51,109 54,248 18,485 18,795 19,657 20,094 YoY change (%) 5.0 10.1 16.4 6.1 (4.9) 1.7 4.6 2.2Gross Profit 5,135 5,012 5,646 6,146 2,381 2,146 2,172 2,277 YoY change (%) 8.2 (2.4) 12.7 8.9 (2.0) (9.9) 1.2 4.8EBITDA 4,731 4,460 4,979 5,411 2,194 1,910 1,915 2,004 YoY change (%) 13.5 (5.7) 11.6 8.7 2.9 (13.0) 0.3 4.7 As % of Revenue 11.9 10.2 9.7 10.0 11.9 10.2 9.7 10.0Operating Income 2,700 2,274 2,682 2,990 1,252 974 1,031 1,107 YoY change (%) 15.4 (15.8) 17.9 11.5 4.6 (22.2) 5.9 7.4 As % of Revenue 6.8 5.2 5.2 5.5 6.8 5.2 5.2 5.5Financial Results (1,302) (1,321) (736) (765) (604) (566) (283) (283)Taxes 241 (149) (400) (457) 112 (64) (154) (169)Net Profit 1,584 798 1,599 1,828 734 342 615 677 YoY change (%) 11.1 (49.6) 100.3 14.3 0.7 (53.5) 80.0 10.1 As % of Revenue 4.0 1.8 3.1 3.4 4.0 1.8 3.1 3.4

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (2,031) (2,186) (2,298) (2,422) (942) (936) (884) (897)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital 116 (463) (979) (670) 54 (198) (377) (248)Operating Cash Flow 3,731 2,522 2,918 3,580 1,730 1,080 1,122 1,326Capital Expenditures (2,584) (2,296) (2,400) (2,400) (1,198) (983) (923) (889)Free Cash Flow (264) 344 241 894 (123) 147 93 331Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 0 0 0 0 0 0 0 0Dividends (476) (234) (432) (494) (221) (100) (166) (183)Capital Increases/Other 0 0 0 0 0 0 0 0





US$R$

Brazil39.0%

North America33.4%

Latam (ex-Brazil)14.0%

Specialty Steel

14.0%

Brazil63.0%

North America11.0%

Latam (ex-Brazil)7.0%

Specialty Steel

19.0%

Metalurgica Gerdau40.3%

Gerdau Family1.9%

ADR's17.1%

Free Float40.7%

119



GOL BUY CURRENT PRICE: R$15.18

TARGET PRICE: R$18.00 UPGRADING RATING TO BUY FROM HOLD INTRODUCING YE2015 TARGET PRICE OF R$18.00; REPLACING YE2014 TARGET PRICE OF R$14.00

Investment Case: Oil prices (Brent) declined ~50% since June and we believe this will result in significant upside for the airlines sector, as 35-41% of its costs are jet fuel related. Moreover, we continue to highlight Brazilian sector players’ strategy of rationalizing capacity in order to improve unit revenue (PRASK). In our view, the recent BRL depreciation (~15% in 2014) will pressure costs but will not offset the jet fuel cost improvement. With the stock trading at ~7.5x 2015E EV/EBITDAR, we believe the current stock price does not reflect the profitability improvement we forecast for 2015.

Outlook 2015: We expect Gol’s prudent capacity allocation to continue in 2015 (flat domestic ASKs). In addition, we anticipate RPKs +3% YoY, suggesting a 78.4% load factor (+1.3 p.p. YoY). Flat yields (+1% YoY, in-line with 2014E) and +3% in RPKs should lead to a 4% YoY increase in RASK, in our view. Assuming flat FX (at 2.65 BRL/USD), the average exchange rate (USD/BRL) in 2015 would be 12% lower YoY. This would result in a higher ex fuel-CASK (+6% YoY), offset by the fall in jet fuel CASK (-7%, based on an average Brent of US$75/bbl), leading to flat consolidated CASK (+1%). With RASK +4% and CASK +1%, we forecast an EBIT margin of 7.7%, 2.4 p.p. higher YoY.

BRL/USD is a negative . . . The main risk we anticipate for Gol is FX exposure (~55-60% of costs and ~90% of debt are US$-linked), as our macroeconomic team forecasts ~12% depreciation of the BRL in 2015 (full year average).

. . . more than offset by jet fuel: About 41% of Gol’s costs are related to jet fuel costs; therefore, every 10% fall in jet fuel price, ceteris paribus, implies a ~4 p.p. increase in margins. We expect Gol to deliver ~5% EBIT margin in 2014. Even if we incorporate 12% depreciation, if oil prices remain at current levels, jet fuel price in BRL terms would fall by ~40% in 2015E.



Company Statistics



Bloomberg GOLL4 BZ / GOL USCurrent Price (01/02/15) R$ 15.18 / US$ 5.75Target Price (YE 2015) R$ 18.00 / US$ 7.0052-Week Range (R$) 9.29 - 15.25Market Capitalization (US$ Mn) 1,560Float (%) 35.03-Mth Avg. Daily Vol (US$ Mn) 7.5Shares Outstanding - Mn 277

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

GOLL4 BZ IBOVESPA

120

GOL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Gol Linhas Aereas Inteligentes S.A. operates as a low-cost, low-fare airline in Latin America. It offers approximately 900 daily flights to several destinations connecting various cities in Brazil, as well as destinations in Argentina, Barbados, Bolivia, Chile, Paraguay, Uruguay, Venezuela, and the Caribbean. The company also provides cargo transportation and charter flight services. The company was founded in 2001 and is based in Sao Paulo, Brazil. Key Personnel: Paulo Kakinoff (CEO), Edmar Prado Lopes (CFO) and Eduardo Masson (IR Director) Web: www.voegol.com.br

CASK Breakdown, 2013E

Net Revenue Breakdown, 2013E

Shareholder Structure


P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 8,956 9,986 10,483 11,373 4,151 4,261 3,986 4,026 YoY change (%) 10.5 11.5 5.0 8.5 0.1 2.7 (6.5) 1.0Gross Profit - - - - - - - - YoY change (%) - - - - - - - -EBITDAR 1,526 1,865 2,235 2,404 707 796 850 851 YoY change (%) 491.4 22.2 19.8 7.6 435.8 12.5 6.8 0.2 As % of Revenue 17.0 18.7 21.3 21.1 17.0 18.7 21.3 21.1Operating Income 266 525 812 847 123 224 309 300 YoY change (%) n/m 97.4 54.7 4.3 n/m 81.8 37.8 (2.9) As % of Revenue 3.0 5.3 7.7 7.4 3.0 5.3 7.7 7.4Financial Results (923) (1,005) (590) (682) (428) (429) (224) (241)Taxes (71) (58) (76) (56) (33) (25) (29) (20)Net Profit (77) 67 325 353 (36) 29 124 125 YoY change (%) 90.7 n/m 383.6 8.6 91.6 n/m 330.9 1.1 As % of Revenue (0.9) 0.7 3.1 3.1 (0.9) 0.7 3.1 3.1

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (561) (480) (461) (484) (260) (205) (175) (171)Other Noncash Items - - - - - - - -Changes in Working Capital 201 (140) (168) 22 93 (60) (64) 8Operating Cash Flow (12) (236) 439 615 (6) (101) 167 218Capital Expenditures (736) (651) (591) (569) (341) (278) (225) (201)Free Cash Flow (254) (549) 119 416 (118) (234) 45 147Other Invest./(Divestments) 494 338 270 370 229 144 103 131Change in Debt (96) 318 (530) (197) (44) 135 (202) (70)Dividends (21) 21 0 0 (10) 9 0 0Capital Increases/Other 1,098 (1,098) 0 0 509 (468) 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 3,046 2,975 2,563 2,783 1,300 1,166 946 947Current Assets 3,566 3,421 3,248 3,543 1,522 1,342 1,198 1,205Fixed Assets 5,466 5,330 5,460 5,544 2,333 2,090 2,015 1,886Total Assets 10,638 10,610 10,566 10,945 4,541 4,161 3,899 3,723Current Liabilities 3,447 4,329 4,398 4,495 1,471 1,698 1,623 1,529Long-Term Liabilities 7,192 6,281 6,168 6,450 3,069 2,463 2,276 2,194Shareholders' Equity 1,219 315 462 571 520 124 170 194Total Financial Debt 10,484 12,262 12,715 13,665 4,475 4,808 4,692 4,648ST Debt 441 1,229 1,229 1,229 188 482 454 418LT Debt 5,149 5,016 4,756 4,929 2,197 1,967 1,755 1,677

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 7,438 9,287 10,152 10,882 3,175 3,642 3,746 3,701Capital Employed 6,041 5,327 5,625 5,687 2,578 2,089 2,076 1,935Net Debt/EBITDAR 4.9 5.0 4.5 4.5 4.5 4.6 4.4 4.3Net Debt/Equity 6.1 29.5 22.0 19.1 6.7 33.3 22.0 19.1Capex/Revenue (%) 8.2 6.5 5.6 5.0 8.2 6.5 5.6 5.0Int Cover (%) 2.9 3.2 3.6 3.8 2.9 3.2 3.6 3.8Dividend Payout (%) (2.5) 27.4 0.0 0.0 (2.3) 25.1 0.0 0.0ROCE (%) 3.6 7.1 10.3 10.6 4.1 8.5 10.4 10.6ROE (%) (7.9) 8.8 83.7 68.4 (8.2) 9.0 83.4 68.4

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E - n/m 12.7 11.7 - n/m 12.5 12.3P/CE 6.0 7.7 5.3 5.0 5.5 6.8 5.2 5.2FV/EBITDAR 8.8 8.7 7.6 7.4 8.8 8.7 7.6 7.4FV/EBIT 38.9 25.7 17.6 17.7 35.7 23.3 17.1 17.5FV/Revenue 1.2 1.4 1.4 1.3 1.1 1.2 1.3 1.3P/BV 2.4 13.3 9.0 7.3 2.4 12.8 9.0 7.9FCF Yield (%) (8.8) (13.1) 2.9 10.0 (9.6) (14.8) 2.9 9.6Div Yield (%) 0.7 (0.5) (0.0) (0.0) 0.8 (0.6) (0.0) (0.0)

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS (0.28) 0.24 1.18 1.28 (0.26) 0.21 0.89 0.90DPS 0.08 (0.08) 0 0 0.07 (0.07) 0 0BVPS 4.40 1.14 1.67 2.06 4.08 0.97 1.27 1.46

US$R$

CASK ex-fuel

58.5%

CASK fuel41.5%

Passenger90.7%

Cargo and other9.3%

Fundo de Invest. em

Part. Volluto23.0%

Wellington10.5%

Fidelity5.2%

Delta Airlines6.2%

Free Float55.2%

121



HELBOR HOLD CURRENT PRICE: R$4.57


Investment Case: Helbor is the sole pure-play developer in the sector and stands out for its solid execution, being one of the few companies that was able to successfully implement its geographical expansion while keeping its operations on track. However, we see its premium valuation as fairly priced in, and thus we are downgrading the stock to Hold from Buy.

Outlook 2015: We expect 2015 to be another transition year for the homebuilders in Brazil. The macro scenario should remain challenging for the sector, in our view, with the combination of low expected GDP growth and inflationary pressure leading consumers and investors to remain cautious. Although we expect Helbor’s distinct expertise and financial strength to allow a smooth transition, the bottom of the macroeconomic cycle may still be ahead, and a stronger recovery in profitability will likely take more than a few quarters, in our view.

A differentiated business model . . . Unlike most of the listed homebuilders, Helbor is a pure developer—that is, it fully outsources the construction and commercialization of its projects.

. . . that stands out for its execution. Being solely focused on the development of its projects, Helbor partners with construction companies, usually regional partners, through tightly structured contracts (e.g., the partner has a 10-20% share in the project), in order to align interests and avoid cost overruns or delays.

Premium valuation seems fairly priced in. In our opinion, Helbor’s sound execution and solid profitability are already reflected in the company’s current premium valuation (0.8x 2015E P/BV vs. the sector average of 0.7x).



Company Statistics



Bloomberg HBOR3 BZCurrent Price (01/02/15) R$ 4.57 / US$ 1.70Target Price (YE 2015) R$ 5.65 / US$ 2.1352-Week Range (R$) 4.57 - 8.25Market Capitalization (US$ Mn) 437Float (%) 39.33-Mth Avg. Daily Vol (US$ Mn) 0.8Shares Outstanding - Mn 258

40

60

80

100

120

j-13 m-13 a-13 d-13 a-14 a-14 d-14

HBOR3 BZ IBOVESPA

122

HELBOR Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Helbor is a pure real estate developer in Brazil with operations in 31 cities distributed in 10 states. The company is also well diversified in terms of targeted segments, with projects in the residential (with products from the mid-low to the high income segment), commercial, lot and hotel segments. Key Personnel: Henrique Borenstein (CEO) and Roberval Lanera Toffoli (CFO and IR) Web: http://ri.helbor.com.br/

2012–15E Launches, R$ in billions

2012–15E Contracted Sales, R$ in billions



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,922 1,768 1,750 1,727 891 765 673 567 YoY change (%) 8.4 (8.0) (1.0) (1.3) (1.8) (14.1) (12.0) (15.7)Gross Profit 716 624 616 601 332 270 237 198 YoY change (%) (0.2) (12.9) (1.2) (2.4) (9.6) (18.6) (12.2) (16.6)EBITDA 451 332 339 328 209 144 130 108 YoY change (%) (5.2) (26.2) 2.0 (3.3) (14.1) (31.1) (9.3) (17.4) As % of Revenue 23.5 18.8 19.4 19.0 23.5 18.8 19.4 19.0Operating Income 523 412 419 406 242 178 161 133 YoY change (%) (4.3) (21.1) 1.7 (3.1) (13.3) (26.4) (9.6) (17.2) As % of Revenue 27.2 23.3 24.0 23.5 27.2 23.3 24.0 23.5Financial Results (53) (69) (71) (45) (25) (30) (27) (15)Taxes (48) (39) (39) (38) (22) (17) (15) (12)Net Profit 304 207 210 220 141 90 81 72 YoY change (%) 11.8 (31.8) 1.3 4.8 1.2 (36.3) (10.0) (10.5) As % of Revenue 15.8 11.7 12.0 12.7 15.8 11.7 12.0 12.7

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (18) (23) (18) (18) (8) (10) (7) (6)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (558) (246) 90 109 (259) (106) 34 36Operating Cash Flow (236) (15) 317 347 (110) (7) 122 114Capital Expenditures (24) (18) (21) (21) (11) (8) (8) (7)Free Cash Flow (213) 3 338 368 (99) 1 130 121Other Invest./(Divestments) 3 1 (0) (0) 2 0 (0) (0)Change in Debt 177 108 0 0 82 47 0 0Dividends (103) (130) (104) (105) (48) (56) (40) (34)Capital Increases/Other 114 (61) 13 14 53 (27) 5 4

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 338 223 428 664 144 87 162 215Current Assets 3,236 3,402 3,532 3,791 1,381 1,334 1,333 1,228Fixed Assets 50 45 48 50 21 17 18 16Total Assets 4,904 4,908 5,028 5,330 2,093 1,925 1,897 1,726Current Liabilities 1,097 1,251 1,251 1,283 468 491 472 415Long-Term Liabilities 2,094 1,902 1,903 2,050 894 746 718 664Shareholders' Equity 1,211 1,312 1,417 1,527 517 515 535 495Total Financial Debt 1,336 1,444 1,444 1,444 570 566 545 468ST Debt 573 739 739 739 245 290 279 239LT Debt 762 705 705 705 325 276 266 228

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 1,101 1,289 1,085 857 470 505 409 278Capital Employed 2,312 2,601 2,502 2,385 987 1,020 944 772Net Debt/EBITDA 2.4 3.9 3.2 2.6 2.2 3.5 3.1 2.6Net Debt/Equity 0.9 1.0 0.8 0.6 1.0 1.1 0.8 0.6Capex/Revenue (%) 1.2 1.0 1.2 1.2 1.2 1.0 1.2 1.2Int Cover (%) 2.1 1.3 1.2 1.1 2.1 1.3 1.2 1.1Dividend Payout (%) 38.0 42.8 50.0 50.0 34.4 39.2 44.0 49.7ROCE (%) 24.7 17.3 18.3 18.6 26.8 19.4 18.4 18.6ROE (%) 27.0 16.4 15.4 15.0 27.6 17.5 15.4 15.0



US$R$

1.391.50

1.13 1.16

2012

2013

e

2014

e

2015

e

1.17

1.111.13

1.31

2012

2013

e

2014

e

2015

e

Hélio Borenstein

43.9%Henrique Borenstein

8.4%

Dynamo 8.4%

Others39.3%

123



HRT UNDERPERFORM CURRENT PRICE: R$4.40



Investment Case: Despite the start-up of oil production in the Polvo Field, challenges remain, in our view, to the maintenance of current production levels. Add to this the current downward trend in oil prices, and we are left with a continually cautious view on the name.

Outlook 2015: We expect a lackluster year for HRT, particularly considering the recent drop in oil prices. Despite its more steady cash flow generation, we believe that the company still faces challenges, including: (i) the need to invest in drilling new wells to extend the Polvo Field’s lifespan, (ii) finding partnerships for its farm-down process in Namibia, as well as for its divestment program of non-strategic assets.

Polvo Field: Since becoming the operator of the Polvo Field back in in January 2014, the company has implemented a series of preventive and technical measures that extended the economic lifespan of the field until the end of 2017; however, new investments are needed to extend the lifespan even further. HRT also entered into an agreement with Maersk to acquire 40% of the exploration, development and production rights in this area (HRT already owns the other 60%), but this agreement was blocked by ANP.

Solimões: The assignment of 6% of the exploration, development, production and operation rights of the 18 blocks under HRT’s concession in the Solimões Basin was approved by ANP. Rosneft Brasil agreed to pay US$96 million to become the blocks’ operator, with a 51% interest (HRT owns the remaining 49%).

Namíbia: Since drilling three wells in Namibia in 2013, which proved non-commercial, the company has been looking for partnerships in order to complete its farm-down process in this area.

Note: YE2014 target price is adjusted for stock split.



Company Statistics



Bloomberg HRTP3 BZCurrent Price (01/02/15) R$ 4.40 / US$ 1.63Target Price (YE 2015) R$ 4.00 / US$ 1.4852-Week Range (R$) 4.40 - 14.50Market Capitalization (US$ Mn) 26Float (%) 45.03-Mth Avg. Daily Vol (US$ Mn) 1.4Shares Outstanding - Mn 16

0

20

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

HRT - ON (Rebased) IBOVESPA (Rebased)

124

HRT Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

HRT is an independent E&P company with concession rights over 21 on-shore blocks in the Brazilian Solimões Basin, 13 off-shore blocks in Namibia (Walvis and Orange Basins), and 4 other on-shore blocks inside Brazil. The company has a stake of 60% in Polvo field which is currently producing an average of 8,000 kbpd. HRT held its IPO in October 2010 and has only one type of share (HRTP3), which is listed in the Brazilian stock exchange. The company is part of the Novo Mercado, complying with the highest corporate governance levels. Key Personnel: John Willott (Chairman), Milton Franke (CEO), Ricardo Dourado (CFO) and Eduardo Jacome (Manager) Web: www.hrt.com.br

Production by Basin, 2015E

EV by Basin, 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 4 546 420 547 2 233 160 194 YoY change (%) (34.9) 12,325.1 (23.1) 30.4 (38.1) 11,311.3 (31.4) 21.4Gross Profit (23) 179 23 122 (11) 76 9 43 YoY change (%) (740.5) n/m (86.9) 421.4 (708.8) n/m (88.3) 385.4EBITDA (2,580) 101 12 110 (1,196) 43 5 39 YoY change (%) (336.8) n/m (88.1) 806.0 (315.2) n/m (89.4) 743.5 As % of Revenue (58,700.7) 18.6 2.9 20.0 (58,700.7) 18.6 2.9 20.0Operating Income (2,605) 46 (108) (20) (1,208) 20 (41) (7) YoY change (%) (341.0) n/m (333.6) 81.9 (319.3) n/m (308.6) 83.2 As % of Revenue (59,277.1) 8.5 (25.8) (3.6) (59,277.1) 8.5 (25.8) (3.6)Financial Results 44 37 24 29 20 16 9 10Taxes 323 3 (8) 1 150 1 (3) 0Net Profit (2,238) 87 (92) 11 (1,038) 37 (35) 4 YoY change (%) (706.2) n/m (206.0) n/m (666.4) n/m (194.7) n/m As % of Revenue (50,918.5) 15.9 (22.0) 1.9 (50,918.5) 15.9 (22.0) 1.9

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (2,582) (132) (132) (141) (1,197) (56) (50) (50)Other Noncash Items 277 0 0 0 128 0 0 0Changes in Working Capital (361) (99) 10 (5) (167) (42) 4 (2)Operating Cash Flow (2,297) 43 38 134 (1,065) 18 15 48Capital Expenditures 0 (270) (210) (198) 0 (115) (80) (70)Free Cash Flow (574) 399 63 209 (266) 170 24 74Other Invest./(Divestments) 2,051 327 367 394 951 139 139 139Change in Debt (328) 298 (132) (121) (152) 127 (50) (43)Dividends 0 0 0 0 0 0 0 0Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 155 600 702 980 65 235 259 333Current Assets 673 1,191 1,320 1,655 285 467 487 563Fixed Assets 1,127 1,038 818 549 477 407 302 187Total Assets 1,805 2,234 2,144 2,210 764 876 791 752Current Liabilities 224 165 175 190 95 65 65 65Long-Term Liabilities 127 461 354 258 54 181 131 88Shareholders' Equity 1,455 1,608 1,614 1,762 616 631 596 599Total Financial Debt 0 0 0 0 0 0 0 0ST Debt 0 0 0 0 0 0 0 0LT Debt 0 0 0 0 0 0 0 0

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt (155) (600) (702) (980) (65) (235) (259) (333)Capital Employed 1,454 1,576 1,590 1,731 615 618 587 589Net Debt/EBITDA 0.1 (5.9) (58.1) (8.9) 0.1 (5.4) (56.4) (8.6)Net Debt/Equity (0.1) (0.4) (0.4) (0.6) (0.1) (0.4) (0.4) (0.6)Capex/Revenue (%) 0.0 49.4 50.1 36.1 0.0 49.4 50.1 36.1Int Cover (%) n/m n/m n/m n/m n/m n/m n/m n/mDividend Payout (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0ROCE (%) (206.1) 2.9 (7.5) (1.2) (222.7) 3.3 (7.5) (1.2)ROE (%) (87.5) 5.7 (5.7) 0.6 (86.2) 6.0 (5.7) 0.6

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E - 8.6 - n/m - 7.6 - n/mP/CE 4.3 3.4 18.1 4.7 3.9 3.0 17.7 4.9FV/EBITDA - 1.5 0.9 - - 1.1 1.2 -FV/EBIT - 3.2 - 13.6 - 2.4 - 9.9FV/Revenue 300.3 0.3 0.0 (0.5) 274.5 0.2 0.0 (0.4)P/BV 1.0 0.5 0.4 0.4 1.0 0.4 0.4 0.4FCF Yield (%) (38.9) 53.2 8.9 29.3 (42.6) 60.3 9.1 28.0Div Yield (%) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0)

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS (13.81) 0.21 (0.57) 0.06 (6.41) 0.09 (0.22) 0.02DPS 0 0 0 0 0 0 0 0BVPS 8.98 9.93 9.96 10.88 3.80 3.89 3.68 3.70

US$R$

Polvo100.0%

Polvo100.0%

Free-Float100.0%

125



HYPERMARCAS HOLD CURRENT PRICE: R$16.19



Investment Case: We believe Hypermarcas still provides a compelling way to play the Brazilian domestic consumer space based on its resilient sales mix (low ticket, essential items) and expected strong cash flow generation. However, we remain concerned with subpar growth in its consumer division; thus, we maintain our Hold rating. We view favorably the company’s recent debt restructuring (elimination of FX exposure), which increases bottom-line visibility, despite its need to incur hedge expenses.

Outlook 2015: We expect HYPE3 will continue to deliver healthy sales growth (high-single digits to low-double digits) despite a weaker economic environment, as the company’s resilient pharma and “smart choice” consumer portfolio should spur steady growth. We forecast 10% YoY consolidated sales growth along with 50-bp YoY EBITDA margin expansion, despite higher marketing investments to sustain brand awareness in 2015.

Catalysts: We believe HYPE3 should further benefit from (1) strong industry growth, (2) a robust innovation pipeline, (3) cross-selling from its integrated salesforce for each division, (4) margin expansion opportunities following the consolidation of industrial units, and (5) substantial tax shield. Moreover, management recently mentioned potential strategic alliances with international brands, which may provide the company with an enhanced portfolio, operating leverage, and margin expansion opportunities.

Concerns: Main risks to our investment case include (1) increased competition from both domestic and international players in both consumer and pharma categories, (2) elimination of tax incentives in the State of Goiás, where most of the company’s production plants are located, and (3) currency depreciation and its effects on COGS (~20% FX exposure).




Company Statistics



Bloomberg HYPE3 BZCurrent Price (01/02/15) R$ 16.19 / US$ 6.01Target Price (YE 2015) R$ 18.00 / US$ 6.6452-Week Range (R$) 14.40 - 19.46Market Capitalization (US$ Mn) 3,801Float (%) 59.13-Mth Avg. Daily Vol (US$ Mn) 14.9Shares Outstanding - Mn 632

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

HYPE3 BZ IBOVESPA

126

HYPERMARCAS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Hypermarcas is one of the largest and most diversified consumer goods companies in Brazil, with gross sales of R$5.3 billion in 2013. The company manufactures and markets a diversified range of growing, relatively defensive (i.e., staple) products through two business units (Pharma and Consumer Goods), enjoying some strong brands focusing mainly on mid- to low-income level consumers. Key Personnel: João Alves Queiroz (Chairman), Claudio Bergamo (CEO), Martim Mattos (CFO) and Breno Toledo (Investor Relations Manager) Web: www.hypermarcas.com.br

Revenues Breakdown, 3Q14 LTM

Sales Breakdown, 3Q14 LTM



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 4,259 4,577 4,969 5,458 1,974 1,949 1,889 1,932 YoY change (%) 9.9 7.5 8.6 9.8 (0.4) (1.3) (3.1) 2.3Gross Profit 2,749 2,948 3,143 3,473 1,274 1,255 1,195 1,230 YoY change (%) 14.1 7.2 6.6 10.5 3.4 (1.5) (4.8) 2.9EBITDA 1,002 1,101 1,186 1,357 465 469 451 480 YoY change (%) 16.9 9.9 7.7 14.4 5.9 1.0 (3.8) 6.5 As % of Revenue 23.5 24.1 23.9 24.9 23.5 24.1 23.9 24.9Operating Income 897 952 1,068 1,226 416 406 406 434 YoY change (%) 16.4 6.2 12.1 14.9 5.4 (2.4) 0.1 6.9 As % of Revenue 21.1 20.8 21.5 22.5 21.1 20.8 21.5 22.5Financial Results (583) (415) (400) (355) (270) (177) (152) (126)Taxes (55) (91) (100) (131) (26) (39) (38) (46)Net Profit 259 447 568 741 120 190 216 262 YoY change (%) 13.6 72.5 27.2 30.4 2.9 58.5 13.5 21.4 As % of Revenue 6.1 9.8 11.4 13.6 6.1 9.8 11.4 13.6

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 105 109 119 130 49 47 45 46Other Noncash Items 321 539 (222) (208) 149 229 (84) (74)Changes in Working Capital (296) (23) 40 (117) (137) (10) 15 (42)Operating Cash Flow 320 921 267 285 149 392 102 101Capital Expenditures (222) (191) (155) (143) (103) (81) (59) (51)Free Cash Flow (122) 376 571 610 (57) 160 217 216Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 205 0 0 0 95 0 0 0Dividends (102) (65) (112) (142) (47) (28) (42) (50)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,159 1,825 1,825 1,825 495 716 673 621Current Assets 3,785 4,458 4,483 4,653 1,615 1,748 1,654 1,583Fixed Assets 8,717 8,836 8,873 8,886 3,720 3,465 3,274 3,022Total Assets 12,502 13,294 13,357 13,539 5,336 5,213 4,929 4,605Current Liabilities 1,917 2,108 2,174 2,226 818 827 802 757Long-Term Liabilities 3,506 3,943 3,943 3,943 1,497 1,546 1,455 1,341Shareholders' Equity 7,079 7,243 7,240 7,371 3,021 2,841 2,672 2,507Total Financial Debt 4,076 4,706 4,706 4,706 1,740 1,846 1,737 1,601ST Debt 899 1,106 1,106 1,106 384 434 408 376LT Debt 3,177 3,601 3,601 3,601 1,356 1,412 1,329 1,225

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 2,917 2,882 2,882 2,882 1,245 1,130 1,063 980Capital Employed 10,585 11,186 11,183 11,313 4,518 4,387 4,127 3,848Net Debt/EBITDA 2.9 2.6 2.4 2.1 2.7 2.4 2.4 2.0Net Debt/Equity 0.4 0.4 0.4 0.4 0.5 0.4 0.4 0.4Capex/Revenue (%) 5.2 4.2 3.1 2.6 5.2 4.2 3.1 2.6Int Cover (%) 1.4 1.9 2.1 2.4 1.4 1.9 2.1 2.4Dividend Payout (%) 44.8 25.0 25.0 25.0 40.6 22.9 22.0 24.8ROCE (%) 9.0 9.3 10.4 12.0 9.8 10.4 10.5 12.0ROE (%) 3.7 6.2 7.8 10.1 3.8 6.6 7.8 10.1

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 43.1 23.6 18.0 13.8 39.4 20.8 17.6 14.5P/CE n/m 31.2 22.8 16.8 n/m 27.6 22.3 17.6FV/EBITDA 14.0 12.2 11.1 9.7 12.9 10.9 10.8 10.0FV/EBIT 15.7 14.1 12.3 10.7 14.4 12.5 12.0 11.0FV/Revenue 3.3 2.9 2.6 2.4 3.0 2.6 2.6 2.5P/BV 1.6 1.5 1.4 1.4 1.6 1.4 1.4 1.5FCF Yield (%) (1.1) 3.6 5.6 6.0 (1.2) 4.0 5.7 5.7Div Yield (%) 0.9 0.6 1.1 1.4 1.0 0.7 1.1 1.3


US$R$

Pharma55.0%

Consumer45.0%

OTC22.6%

RX10.5%Similars /

Branded Generics

11.6%

Generics6.6%

Dermocos.3.9%

DPP17.6%

Personal Care

18.0%

Consumer Health9.5%

Igarapava Part.

20.1%

Maiorem S.A.

14.8%Other Contr.

6.0%

Free Float59.1%

127



IGUATEMI BUY CURRENT PRICE: R$24.00


Investment Case: We place Iguatemi as our top pick among the mall companies, as we see the company well able to endure the lesspositive sector outlook for the next couple of years, while we see thestock still trading at a discount to peers. We expect Iguatemi’s earnings momentum to continue strong, mainly on the maturing of its recently delivered projects.

Outlook 2015: We estimate Iguatemi will post robust 15% top-line growth in 2015, mostly supported by the maturing of recently delivered assets. Currently, over 40% of Iguatemi’s GLA is attributable to assets less than five years old. Furthermore, the company has over 25,000 m² in expansions scheduled to be delivered between 2Q15 and 3Q15.

Lower pre-operating expenses and operating leverage to fuel EBITDA margin expansion . . . The maturing process of the recently delivered malls should help dilute operating expenses. In addition, the deceleration in delivery of new projects should bring down pre-operating expenses over the next couple of years. As a result, we anticipate EBITDA margin expansion of 1.5 p.p. to 75.9% in 2015.

. . . plus more room for growth . . . Our Maturity Index showsIguatemi with a newer portfolio, which we expect to be translated into relatively higher growth in consolidated NOI through YE2015 (+29%). In addition, we see the JK Iguatemi mall as a potential source of additional upside to our estimates, as we have conservatively decelerated its maturation curve (despite its being only two years old).

. . . show us an excessive discount to peers: At 14.0x P/FFO for 2015E, IGTA3’s discount appears even higher if we look toward 2016E, when we expect the company to continue to outgrow peers. We see IGTA trading at an 11.9x P/FFO for 2016, a discount of 21% to MULT3 and 3% to BRML3.



Company Statistics



Bloomberg IGTA3 BZCurrent Price (01/02/15) R$ 24.00 / US$ 8.92Target Price (YE 2015) R$ 31.50 / US$ 11.8952-Week Range (R$) 19.82 - 28.18Market Capitalization (US$ Mn) 1,567Float (%) 37.13-Mth Avg. Daily Vol (US$ Mn) 3.7Shares Outstanding - Mn 176

70

80

90

100

110

j-13 m-13 a-13 d-13 a-14 a-14 d-14

IGTA3 BZ IBOVESPA

128

IGUATEMI Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Iguatemi Empresa de Shopping Centers S/A is one of the largest full-service companies in the Brazilian shopping centers sector. As of 3Q14, the company held interest in 19 malls and 3 commercial towers, with an owned GLA of 425,163 m², boasting an average stake of 64% in its mall portfolio. Furthermore, Iguatemi currently has 7 projects under development. Key Personnel: Carlos Jereissati (CEO), Cristina Anne Betts (CFO) and Gunther Schrappe (IR Officer) Web: www.iguatemi.com.br/ri

Owned GLA, 2013–16E ('000 m²)

Rental Revenue, 2013–16E (R$ in millions)



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 464 597 687 796 215 258 264 295 YoY change (%) 13.0 28.8 15.1 15.8 2.3 20.2 2.3 11.5Gross Profit 331 418 501 589 154 181 193 218 YoY change (%) 13.5 26.3 19.7 17.5 2.8 17.9 6.4 13.2EBITDA 328 445 522 605 152 192 201 224 YoY change (%) 15.2 35.4 17.4 15.9 4.4 26.4 4.3 11.6 As % of Revenue 70.8 74.4 75.9 76.0 70.8 74.4 75.9 76.0Operating Income 274 360 446 526 127 156 172 195 YoY change (%) 12.2 31.4 23.8 17.8 1.7 22.7 10.1 13.4 As % of Revenue 59.1 60.3 64.9 66.0 59.1 60.3 64.9 66.0Financial Results (45) (109) (170) (188) (21) (47) (65) (70)Taxes (47) (24) (50) (61) (22) (10) (19) (22)Net Profit 185 233 225 274 86 101 87 102 YoY change (%) (31.2) 25.9 (3.1) 21.9 (37.6) 17.6 (13.9) 17.3 As % of Revenue 39.8 38.9 32.8 34.5 39.8 38.9 32.8 34.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (13) (18) (15) (16) (6) (8) (6) (6)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (72) (81) (24) (29) (33) (35) (9) (11)Operating Cash Flow 154 218 262 309 71 94 101 114Capital Expenditures (907) (644) (313) (227) (420) (279) (120) (84)Free Cash Flow (753) (426) (51) 82 (349) (184) (20) 31Other Invest./(Divestments) 45 (9) (2) (2) 21 (4) (1) (1)Change in Debt 475 89 0 0 220 38 0 0Dividends (64) (60) (79) (75) (30) (26) (31) (28)Capital Increases/Other 360 (1) (79) (75) 167 (0) (30) (28)

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,065 717 584 590 454 281 221 215Current Assets 1,310 992 901 957 559 389 340 348Fixed Assets 3,181 3,759 4,011 4,174 1,358 1,474 1,514 1,518Total Assets 4,658 4,927 5,108 5,349 1,988 1,932 1,927 1,945Current Liabilities 384 411 429 450 164 161 162 164Long-Term Liabilities 1,956 1,966 1,984 2,005 835 771 749 729Shareholders' Equity 2,313 2,542 2,688 2,888 987 997 1,014 1,050Total Financial Debt 1,973 2,061 2,061 2,061 842 808 778 750ST Debt 218 295 295 295 93 116 111 107LT Debt 1,755 1,766 1,766 1,766 749 693 666 642

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 908 1,344 1,477 1,471 388 527 557 535Capital Employed 3,221 3,887 4,165 4,359 1,375 1,524 1,572 1,585Net Debt/EBITDA 2.8 3.0 2.8 2.4 2.5 2.7 2.8 2.4Net Debt/Equity 0.4 0.5 0.5 0.5 0.4 0.6 0.6 0.5Capex/Revenue (%) 195.5 107.8 45.5 28.5 195.5 107.8 45.5 28.5Int Cover (%) 2.1 2.0 2.1 2.3 2.1 2.0 2.1 2.3Dividend Payout (%) 23.8 32.5 34.1 33.4 21.5 29.8 30.1 33.2ROCE (%) 10.0 9.9 11.9 13.5 10.7 11.1 12.0 13.5ROE (%) 9.0 9.6 8.6 9.8 9.3 10.2 8.6 9.8

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 21.2 18.6 18.7 15.4 19.4 16.2 18.1 15.4P/CE 19.9 17.3 17.6 14.5 18.2 15.0 17.0 14.6FV/EBITDA 14.7 12.8 10.9 9.4 13.5 11.2 10.6 9.4FV/EBIT 17.6 15.8 12.8 10.8 16.1 13.8 12.4 10.8FV/Revenue 10.4 9.5 8.3 7.2 9.6 8.3 8.0 7.1P/BV 1.7 1.7 1.6 1.5 1.7 1.6 1.5 1.5FCF Yield (%) (19.2) (9.9) (1.2) 2.0 (21.0) (11.3) (1.3) 1.9Div Yield (%) 1.6 1.4 1.9 1.8 1.8 1.6 1.9 1.8


US$R$

379.81425.16 451.02

483.42

2013

2014

E

2015

E

2016

E

351.51

448.86535.83

624.55

2013

2014

E

2015

E

2016

EJereissati

Part.51.4%La Fonte

Telecom 0.8%

Petros10.2%

Others37.6%

129



IMC HOLD CURRENT PRICE: R$11.80



Investment Case: We are confident that IMC’s strategy to focus on growth in its more profitable markets (airports) will allow for greater sales resilience and earnings visibility, yet we remain concerned about expense pressures and sluggish growth in its less captive markets (malls). We believe IMC still features strong growth prospects, but improving profitability remains a challenge, as the company is still working to enhance its store footprint (including conversions to more profitable/suitable brands). We see limited potential upside to our YE2015 target price, in addition to a demanding valuation (18x P/E 2015E), and thus we maintain our Hold rating.

Outlook for 2015: After a series of M&As to enhance its brand portfolio, management has reaffirmed its commitment to operational efficiency and highlighted that the focus will be on tight SG&A control and improving the store network (maturing “international” brands, store conversions, and focusing on growth in higher-margin formats/markets). We anticipate IMC will be able to deliver 14% YoY sales growth with over 40 store openings in 2015, while we expect that initiatives to improve the store network and control expenses willlead to 120-bp YoY EBITDA margin expansion.

Catalysts: We believe IMC still features plenty of growth opportunities that could be further enhanced by new airport concessions. Guarulhos airport stores have been suffering from the shifts in airlines within terminals following the launch of Terminal 3, but we expect disruptions to subside as passenger traffic is normalized within each terminal.

Concerns: Main risks to our investment case include: (1) food inflation, higher labor costs, and property value pressuring margins; (2) higher competition in key markets (including airports); (3) low share liquidity; and (4) potential block trades from controlling shareholders.




Company Statistics



Bloomberg IMCH3 BZCurrent Price (01/02/15) R$ 11.80 / US$ 4.38Target Price (YE 2015) R$ 13.00 / US$ 4.8052-Week Range (R$) 11.49 - 20.50Market Capitalization (US$ Mn) 370Float (%) 60.13-Mth Avg. Daily Vol (US$ Mn) 1.3Shares Outstanding - Mn 84

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

IMCH3 BZ IBOVESPA

130

IMC Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

IMC is a leading, multi-brand, quick casual restaurant (QSR) operator with operations in Brazil (75% of sales), and throughout LatAm (Caribbean, Colombia and Mexico). The company focuses mainly on high traffic, high margin and growing captive markets such as airports, motorways and malls, featuring highly recognized brands such as Viena, Frango Assado, and Carl’s Jr. The company operates 384 stores (1Q14): 159 in airports, 30 in motorways, 158 in malls and 37 in other locations. Airport sales account for nearly 40% of sales. In November 2013, the company announced its entry into the U.S. market through the acquisition of the Margaritaville brand. IMC is controlled by private equity firm Advent, and is a publicly traded company in the Bovespa’s Novo Mercado segment. Key Personnel: Juan Carlos Torres (Chairman), Francisco Javier Gavilan (CEO), Julio Millan (CFO) and Neil Amereno (Investor Relations Director) Web: www.internationalmealcompany.com

Stores Breakdown, 3Q14




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,368 1,722 1,967 2,192 634 733 748 776 YoY change (%) 16.6 25.9 14.2 11.4 5.7 15.7 2.0 3.8Gross Profit 416 543 623 695 193 231 237 246 YoY change (%) 19.2 30.8 14.7 11.4 8.0 20.2 2.4 3.8EBITDA 145 198 262 298 67 84 100 105 YoY change (%) 6.1 36.2 32.5 13.6 (3.9) 25.2 18.3 5.7 As % of Revenue 10.6 11.5 13.3 13.6 10.6 11.5 13.3 13.6Operating Income 50 86 135 173 23 37 51 61 YoY change (%) (15.3) 71.4 56.8 28.2 (23.2) 57.5 40.0 19.3 As % of Revenue 3.7 5.0 6.9 7.9 3.7 5.0 6.9 7.9Financial Results (26) (44) (63) (65) (12) (19) (24) (23)Taxes (20) (20) (22) (33) (9) (9) (8) (12)Net Profit 4 22 51 76 2 9 19 27 YoY change (%) (76.8) 422.0 135.9 49.8 (79.0) 379.6 110.6 39.4 As % of Revenue 0.3 1.3 2.6 3.5 0.3 1.3 2.6 3.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (95) (111) (127) (124) (44) (47) (48) (44)Other Noncash Items 162 132 198 184 75 56 75 65Changes in Working Capital 15 54 (8) (7) 7 23 (3) (2)Operating Cash Flow 87 96 114 129 40 41 43 46Capital Expenditures (152) (241) (108) (117) (70) (103) (41) (41)Free Cash Flow 63 86 61 77 29 36 23 27Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 101 140 0 0 47 59 0 0Dividends (7) (1) (6) (13) (3) (0) (2) (5)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 82 75 75 75 35 29 28 26Current Assets 241 266 274 292 103 104 101 99Fixed Assets 1,397 1,614 1,595 1,588 596 633 589 540Total Assets 1,638 1,880 1,870 1,879 699 737 690 639Current Liabilities 265 332 332 343 113 130 123 117Long-Term Liabilities 451 638 638 638 193 250 235 217Shareholders' Equity 922 910 900 899 393 357 332 306Total Financial Debt 326 466 466 466 139 183 172 158ST Debt 69 52 52 52 30 20 19 18LT Debt 257 414 414 414 110 162 153 141


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E n/m 47.0 19.6 13.1 n/m 41.5 19.1 13.7P/CE 15.6 7.6 5.6 5.0 14.2 6.7 5.5 5.2FV/EBITDA 12.3 7.1 5.3 4.7 11.3 6.3 5.2 4.8FV/EBIT 35.5 16.3 10.3 8.0 32.5 14.5 10.0 8.2FV/Revenue 1.3 0.8 0.7 0.6 1.2 0.7 0.7 0.6P/BV 1.7 1.1 1.1 1.1 1.7 1.1 1.1 1.2FCF Yield (%) 4.1 8.4 6.2 7.8 4.5 9.6 6.3 7.4Div Yield (%) 0.4 0.1 0.6 1.3 0.5 0.1 0.6 1.2


US$R$

Roads7.3%

Malls39.0%

Airports41.2%

USA + Others12.4%

Roads25.6%

Malls19.2%

Airports35.7%

USA + Others19.4%

FIP - Brasil Empreendi

mentos39.8%

Free Float60.1%

131



IOCHPE MAXION BUY CURRENT PRICE: R$11.88


UPGRADING RATING TO BUY FROM HOLD Investment Case: We are upgrading MYPK3 to Buy, following its

-53% share performance in 2014, which leads to a DCF upside of 47% with an attractive 2015E FV/EBITDA of 4.9x (close to historical lows). We believe that MYPK3 offers investors (1) exposure to the global automotive market, through its leadership in the wheels (globally) and chassis (in the Americas) segments; and (2) indirect exposure to Brazilian infrastructure growth (wheels and chassis for heavy vehicles) and railway equipment (~85% of the transportation matrix).

Outlook 2015: We anticipate that Iochpe will post an 80-bp improvement in EBITDA margin to 11.6%, arising from a less volatileBrazilian market (albeit still slightly negative) and the operating efficiency measures implemented in 2014. We expect net income to increase 90% due to the deleveraging process (net debt/EBITDA of 3.0x in 2015E versus 3.6x in 2014E).

What’s changed: We reduced our 2015 EBITDA estimate by 5%, due to a tougher environment for domestic operations (Brazil represents ~40% of sales). Together with Iochpe’s leverage, this led us to lower our 2015 earnings estimate by 44% to R$82 million. We are 31% below sell-side consensus for 2015 net income.

CEO meeting highlights. (1) The company targets a medium-term normalized EBITDA margin level of 12.5%-13.0%, implying downside from pre-acquisition estimates of 14-15%. We currently estimate Iochpe’s long-term EBITDA margin at 12.7%. Management’s plans for the Limeira plant are to offer an alternative to imported aluminum wheels. (2) The Limeira plant is set to be operational in 4Q15. Management believes most of the capacity is already contracted, as currently 1 million wheels are imported. Of this volume, 30-40% is imported from Iochpe plants abroad. (3) Europe: Management expects gradual margin expansion in 2015 through restructuring measures. Turkey has been the outperformer, with a doubling in aluminum capacity (above-average margin vs. the rest of Europe). Iochpe’s margins have been recovering in Spain (gaining market share in production), Germany, and Italy (new agreement with unions).



Company Statistics



Bloomberg MYPK3 BZCurrent Price (01/02/15) R$ 11.88 / US$ 4.41Target Price (YE 2015) R$ 17.50 / US$ 6.4652-Week Range (R$) 11.49 - 26.69Market Capitalization (US$ Mn) 419Float (%) 63.73-Mth Avg. Daily Vol (US$ Mn) 2.1Shares Outstanding - Mn 95

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

MYPK3 BZ IBOVESPA

132

IOCHPE MAXION Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Iochpe-Maxion operates in three main business sectors: (1) Wheels (supplying steel wheels for light and commercial vehicles and aluminum wheels for light vehicles), accounting for 74% of sales in 2013; (2) Structural components (supplying chassis, sidebars, and crossbars for commercial vehicles), accounting for 26% of 2013 sales; Railway equipment (manufacturing railcars, wheels, and castings) now consolidated through equity income. The external market accounted for ~61% of Iochpe’s 2013 sales, with the company selling its products in over 40 countries. In October 2011, Iochpe acquired two companies: Hayes Lemmerz (a manufacturer of aluminum and steel wheels in Europe) and Galaz (a Mexican producer of steel-based side rails for commercial vehicles), doubling its revenue (2011 pro forma of R$6.3 billion). Iochpe is listed on the Novo Mercado. Key Personnel: Dan Ioschpe (Chairman), Marcos Oliveira (CEO), Oscar Fontoura Becker (CFO) and Luis Fernando Abreu (IR Director) Web: www.iochpe-maxion.com.br





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 6,126 5,920 6,201 6,527 2,840 2,521 2,358 2,482 YoY change (%) 7.5 (3.4) 4.7 5.3 (2.6) (11.2) (6.5) 5.3Gross Profit 859 801 835 878 398 341 317 334 YoY change (%) 49.1 (6.8) 4.2 5.2 35.0 (14.4) (6.9) 5.2EBITDA 680 642 719 774 315 273 273 294 YoY change (%) 50.4 (5.6) 11.9 7.8 36.3 (13.2) (0.0) 7.8 As % of Revenue 11.1 10.8 11.6 11.9 11.1 10.8 11.6 11.9Operating Income 467 404 459 500 217 172 175 190 YoY change (%) 67.8 (13.6) 13.7 8.8 52.0 (20.6) 1.5 8.8 As % of Revenue 7.6 6.8 7.4 7.7 7.6 6.8 7.4 7.7Financial Results (213) (240) (237) (203) (99) (102) (90) (77)Taxes (29) (73) (78) (98) (14) (31) (30) (37)Net Profit 170 43 82 125 79 18 31 47 YoY change (%) 154.7 (74.6) 90.1 51.3 130.8 (76.6) 69.8 51.3 As % of Revenue 2.8 0.7 1.3 1.9 2.8 0.7 1.3 1.9

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (212) (238) (259) (275) (98) (101) (99) (104)Other Noncash Items 191 211 6 0 88 90 2 0Changes in Working Capital (33) (127) (29) (38) (15) (54) (11) (14)Operating Cash Flow 647 515 690 737 300 219 262 280Capital Expenditures (249) (267) (237) (248) (116) (114) (90) (94)Free Cash Flow 536 377 381 391 248 161 145 149Other Invest./(Divestments) - - - - - - - -Change in Debt (86) 74 0 0 (40) 32 0 0Dividends 0 (16) (30) (46) 0 (7) (12) (18)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 662 589 757 970 283 231 279 330Current Assets 2,219 2,161 2,446 2,726 947 848 902 927Fixed Assets 3,662 3,692 3,670 3,644 1,563 1,448 1,354 1,239Total Assets 6,036 5,946 6,209 6,462 2,576 2,332 2,291 2,198Current Liabilities 1,834 1,962 2,065 2,110 783 769 762 718Long-Term Liabilities 2,756 2,486 2,525 2,580 1,176 975 932 878Shareholders' Equity 1,221 1,279 1,331 1,409 521 501 491 479Total Financial Debt 2,773 2,870 2,909 2,964 1,184 1,126 1,073 1,008ST Debt 712 959 959 959 304 376 354 326LT Debt 2,061 1,911 1,949 2,005 880 749 719 682


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 14.6 26.7 13.7 9.0 13.3 23.6 13.4 8.8P/CE 6.5 4.1 3.3 2.8 5.9 3.6 3.2 2.8FV/EBITDA 7.4 5.7 4.9 4.4 6.8 5.1 4.8 4.1FV/EBIT 10.8 9.0 7.7 6.8 9.9 8.2 7.5 6.3FV/Revenue 0.8 0.6 0.6 0.5 0.8 0.6 0.6 0.5P/BV 2.0 0.9 0.8 0.8 2.0 0.9 0.9 0.9FCF Yield (%) 21.6 32.6 33.8 34.7 23.6 36.9 34.6 35.5Div Yield (%) (0.0) 1.4 2.7 4.1 (0.0) 1.6 2.8 4.2


US$R$

Wheels (Steel)54.4%

Wheels (Aluminum)

22.0%

Structural Component

s23.6%

South America38.6%North

America23.9%

Europe30.9%

Asia + Others6.6%

Ioschpe Family25.2%

BNDESPar6.8%

Free-float68.1%

133



ITAUSA BUY CURRENT PRICE: R$9.17 TARGET PRICE: R$12.30


Investment Case: Itausa is all about Itaú Unibanco, as the latter contributes 96% of Itausa’s NAV and is the main driver of our Itausa target price. For those who want to be invested in Itaú, we recommend Itausa instead, as this company holds Itaú’s voting shares, and trades at a discount to its NAV—one that we believe will narrow over time.

Outlook 2015: Itausa is currently trading at a nearly 21.5% discount to its NAV (adopting the market’s practice of considering its NAV as being composed of ITUB4, as this is the most liquid Itaú stock), which is in-line with the 22.2% one-year historical average. We expect no material change in this level in the short to medium term, so we do not currently recommend long/short trades between the shares of Itausa and Itaú.

What if we use the “what you pay is what you get” concept? We calculated Itausa’s discount to its NAV based on what Itausa does carry—ITUB3 (Itaú’s voting shares), thus reaching a lower discount of ~13%. We note that ITUB3 trades at an ~11% discount to ITUB4, one we expect to narrow in the long term—a benefit that would be captured by Itausa, in our view.

Itausa + Itaú = the strongest concentration of financial stocks in the Ibovespa. Financials constitute the largest sector in the Ibovespa, with a 34.1% weighting (which should reach about 36% in the next rebalancing, to take place in January 2015). The bank component of financials accounts for 27.6%, and Itaú and Itausa contribute almost half of that amount, with the highest weighting among financials. ITUB4 + ITSA4 have a combined weight within the Ibovespa of 14.3% (vs. 5% two years ago). In 2015, we expect Brazilian banks to sustain the strong profitability registered in 2014, which could positively affect the Ibovespa as a whole. We believe Itausa (including Itaú) is an attractive vehicle for investors seeking to gain exposure to the Brazilian equity market.

Note: Our YE2014 target price was R$12.20, which we adjusted to R$10.54 in this publication to reflect distributed stock dividends.




Company Statistics



Bloomberg ITSA4 BZCurrent Price (01/02/15) R$ 9.17 / US$ 3.40Target Price (YE 2015) R$ 12.30 / US$ 4.5052-Week Range (R$) 7.28 - 11.20Market Capitalization (US$ Mn) 23Float (%) 66.03-Mth Avg. Daily Vol (US$ Mn) 63.3Shares Outstanding - Mn 6,103

60

80

100

120

140

160

D-12 A-13 J-13 N-13 M-14 J-14 N-14

ITSA4 BZ IBOVESPA

134

ITAUSA Summary Valuation Parameters (YE2015E) and Net Asset Value (3Q14), in R$ Millions Company Description

Itausa-Investimentos Itaú S.A. (Itausa) is a pure holding company with subsidiaries operating in sectors such as financial services, real estate, ceramic and metal sanitary products, chemicals, electronics, consumer goods, information technology and the internet. The company owns approximately 37% of Itaú Unibanco, one of Brazil’s leading financial institutions, accounting for the major part of Itausa’s net asset value. The company is controlled mainly by the Setubal and Villela families and is based in São Paulo. Key Personnel: Carlos da Camara Pestana (Chairman), Alfredo Egydio Arruda Villela Filho (CEO) and Henri Penchas (IRO) Web: www.itau.com.br/itausa

NAV Composition, 4Q14E

Target Price Upside Composition, 2015E



Ticker

Total shares in

MnItausa's stake

Current price per share - R$

At Market Value in R$

Mn

Target price in R$ per

share

At Target Price in R$ Mn

ITUB3 5,476 36.8% 32.56 65,541 40.50 81,524DTEX3 663 35.5% 7.80 1,838 9.50 2,238ELEK4 31 96.6% 8.59 261 261ITEC3 11 97.8% 17.50 192 192Other Assets/Liabilities 983 983Net Asset Value 68,815 85,198Book Value of Investments 35,935Capital Gain 49,26315% Tax on Capital Gain -7,5304% Discount on Holding Company status -2,753Adj Net Asset Value 74,915Number of shares - Mn 6,103 Target Price in R$ 12.30

Itau Unibanco

95.2%

Duratex / Others4.8%

From Discount to

Narrow6.4%

From Companies'

TP 201593.6%

Companhia Esa

34.0%Free float

66.0%

135



ITAÚ UNIBANCO BUY CURRENT PRICE: R$33.83

TARGET PRICE: R$40.50 INTRODUCING YE2015 TARGET PRICE OF R$40.50; REPLACING YE2014 TARGET PRICE OF R$37.27 Investment Case: We believe Itaú will continue implementing its

strategy to reduce credit risk on its balance sheet, while enjoying high levels of adjusted profitability thanks to healthy spreads in unsecuredpersonal loans and non-earmarked credit in Brazil. We do not expect the bank to become more aggressive as long as growth remains weak, focusing instead on concluding its IT renewal plan and executing its merger with CorpBanca in Chile while kick-starting its expansion away from slow growth Brazil.

Outlook 2015: We expect adjusted ROE to fall 150 bps, to 26.5%, owing to slower loan growth (7.3%), flat margins (6.31%, ex insurance), a slight pickup in NPLs and lower market-related income. Nevertheless, we expect adjusted earnings to post a 7% increase YoY (12% reported earnings).

De-risking as a way of life: Loan growth should continue to be driven by products with lower credit risk, such as payroll, mortgage and corporate lending, as the bank continues to de-risk its loan book ahead of a potentially weaker economy in 2015. As such, we expect continued contraction in SME and auto lending in 1H15, with only moderate growth in 2H15.

Diversifying outside Brazil. We expect Itaú to close the merger of its Chilean operations with Chile’s CorpBanca in 2H15, now that Itaú has entered into an additional shareholder agreement with the IFC and activist minorities have dropped their legal strategy to block the merger. While we do not expect the transaction to have a significant capital impact in the short term (owing to Brazilian bank GAAP proportional consolidation), over the medium term, we expect Itaú toacquire minorities and fully consolidate Itaú-CorpBanca.

Valuation attractive: Itaú is trading at a 2015E adjusted P/BV of 1.6x, which we consider very attractive relative to the high adjusted ROE in the 20% range that we estimate for the bank. Our target priceimplies a 2015E adjusted P/BV of 1.9x and an adjusted P/E of 9.8x.




Company Statistics



Bloomberg ITUB4 BZ / ITUB USCurrent Price (01/02/15) R$ 33.83 / US$ 12.57Target Price (YE 2015) R$ 40.50 / US$ 14.9552-Week Range (R$) 26.60 - 41.24Market Capitalization (US$ Mn) 68,699Float (%) 54.63-Mth Avg. Daily Vol (US$ Mn) 198.2Shares Outstanding - Mn 5,467

60

80

100

120

140

160

J-13 M-13 A-13 D-13 A-14 A-14 D-14

ITUB4 BZ IBOVESPA

136

ITAÚ UNIBANCO Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Itaú is Brazil’s leading private sector bank, with total assets of approximately US$459 billion as of 4Q14E and approximately a 12.6% market share in loans and 16.6% in deposits in Brazil, the largest among private sector banks and second only to Banco do Brasil. The bank consolidated its leadership among private banks in Brazil after merging with Unibanco in 2009. Itaú is in the initial stages of a regional expansion plan, with the expected close of the merger with Corpbanca in 2015 expanding the footprint of the bank from Argentina, Paraguay, and Uruguay to Chile and Colombia. The shares trade on the Bovespa and as ADRs listed on the NYSE. Key Personnel: Pedro Moreira Salles (Chairman), Roberto Setubal (CEO), Caio Ibrahim David (CFO) and Alfredo Setubal (IRO) Web: www.itau.com.br

Loan Book, 2015E






LOAN BOOK 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECompanies 207,781 220,394 230,557 248,512 87,954 83,268 85,076 84,528Total Consumer 143,991 161,581 177,038 194,150 60,951 61,048 65,328 66,037Mortgages 24,209 28,944 33,534 37,743 10,248 10,936 12,374 12,838Other Loans 36,254 38,150 40,892 44,482 15,346 14,414 15,089 15,130Gross Loans 412,235 449,069 482,021 524,886 174,498 169,665 177,867 178,533Loan Grow th (%) 12.5 8.9 7.3 8.9 (2.4) (2.8) 4.8 0.4NPL 15,120 14,616 16,602 19,220 6,400 5,522 6,126 6,537Provisions (26,371) (26,189) (28,562) (31,448) (11,163) (9,895) (10,539) (10,697)




US$R$

Individual39.9%Mortgage

7.0%

Corp.31.9%

SME15.9%

Other5.3%

NII55.5%

Fees37.3%

Insurance5.9%

Other1.3%

Itausa19.6%

IU Part25.8%

Free Float54.6%

137



JSL HOLD CURRENT PRICE: R$12.75



Investment Case: In our view, JSL has (1) an advantageous competitive position, and (2) above-average growth potential due to the ongoing consolidation in the logistics services market. However, we have a neutral view on the stock based on (1) decelerating revenue growth (+12% in 2014E vs. +19% in 2013), reflecting a weak economic environment; and (2) limited upside to our 2015E target price.

Outlook 20155: We expect JSL to keep growing via (1) acquisition of new contracts, (2) maturing of new contracts recently signed, and (3) increase in revenue from the same contracts. For 2015, at a consolidated level, we estimate (1) top-line growth of 11%, (2) EBITDA up 16%, and (3) net profit up 19%. This compares with our estimates for 2014 of (1) top-line growth of 9%, (2) EBITDA growth of 20%, and (3) net profit decline of 10%.

An advantageous competitive position. JSL is Brazil’s biggest logistics provider and its only one-stop-shop player. Its main competitive advantages are: (1) As Brazil’s largest buyer of heavy vehicles, JSL has significant bargaining power with OEMs. (2) Its sales network enables JSL to sell over 40% of light vehicles and almost 100% of heavy vehicles directly to final consumers. (3) Its complete range of services offered implies strong cross-selling potential, in our view.

Strong long-term growth potential. The logistics market in Brazil is still very fragmented and underpenetrated (just 10% of logistic costsare outsourced), implying strong long-term growth potential, in our opinion.

Low risk. Its business model is asset-heavy, but JSL buys assets only after signing a long-term contract with a client. Moreover, JSL is highly diversified in terms of clients and economic sectors.



Company Statistics



Bloomberg JSLG3 BZCurrent Price (01/02/15) R$ 12.75 / US$ 4.74Target Price (YE 2015) R$ 15.00 / US$ 5.5452-Week Range (R$) 10.40 - 16.05Market Capitalization (US$ Mn) 1,027Float (%) 25.13-Mth Avg. Daily Vol (US$ Mn) 0.8Shares Outstanding - Mn 217

70

80

90

100

110

120

130

J-13 M-13 A-13 D-13 A-14 A-14 D-14

JSLG3 BZ IBOVESPA

138

JSL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

JSL operates four primary business lines: dedicated supply chain services, management and outsourcing of fleets and equipment, public and private passenger transportation, and general cargo transportation. Key Personnel: Fernando Antonio Simões (CEO), Denys Marc Ferrez (CFO) and Denys Marc Ferrez (IR Officer) Web: http://ri.jsl.com.br


Logistics Revenue Breakdown, 2013A



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 4,740 5,175 5,742 6,446 2,197 2,204 2,183 2,282 YoY change (%) 14.5 9.2 11.0 12.3 3.7 0.3 (0.9) 4.5Gross Profit 754 819 927 1,039 349 349 353 368 YoY change (%) 4.7 8.6 13.2 12.1 (5.2) (0.2) 1.1 4.3EBITDA 705 844 980 1,123 327 360 373 398 YoY change (%) 18.5 19.8 16.0 14.6 7.4 10.1 3.6 6.7 As % of Revenue 14.9 16.3 17.1 17.4 14.9 16.3 17.1 17.4Operating Income 348 393 465 531 161 167 177 188 YoY change (%) 14.8 12.9 18.4 14.2 4.0 3.8 5.7 6.3 As % of Revenue 7.3 7.6 8.1 8.2 7.3 7.6 8.1 8.2Financial Results (144) (181) (214) (235) (67) (77) (81) (83)Taxes (43) (40) (48) (59) (20) (17) (18) (21)Net Profit 87 78 93 115 40 33 36 41 YoY change (%) 14.3 (9.7) 19.0 23.4 3.6 (17.0) 6.3 14.9 As % of Revenue 1.8 1.5 1.6 1.8 1.8 1.5 1.6 1.8

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (357) (451) (515) (592) (165) (192) (196) (210)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital 119 6 (19) (25) 55 3 (7) (9)Operating Cash Flow 563 536 590 683 261 228 224 242Capital Expenditures 1,351 1,453 1,586 1,201 626 619 603 425Free Cash Flow 471 108 136 197 219 46 52 70Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 856 564 607 112 397 240 231 40Dividends (4) (39) (47) (86) (2) (17) (18) (31)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 745 814 903 1,014 318 319 333 345Current Assets 2,050 2,169 2,350 2,576 875 851 867 876Fixed Assets 3,208 3,749 4,295 4,301 1,369 1,470 1,585 1,463Total Assets 5,830 6,489 7,216 7,447 2,488 2,545 2,663 2,533Current Liabilities 1,446 1,502 1,575 1,665 617 589 581 566Long-Term Liabilities 3,370 3,934 4,541 4,653 1,438 1,543 1,676 1,583Shareholders' Equity 1,015 1,054 1,101 1,129 433 413 406 384Total Financial Debt 3,487 4,051 4,658 4,770 1,488 1,589 1,719 1,622ST Debt 531 531 531 531 227 208 196 181LT Debt 2,955 3,519 4,127 4,238 1,261 1,380 1,523 1,442

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 2,741 3,237 3,755 3,756 1,170 1,269 1,386 1,278Capital Employed 4,501 5,105 5,759 5,899 1,921 2,002 2,125 2,007Net Debt/EBITDA 3.9 3.8 3.8 3.3 3.6 3.5 3.7 3.2Net Debt/Equity 2.7 3.1 3.4 3.3 3.0 3.5 3.4 3.3Capex/Revenue (%) (28.5) (28.1) (27.6) (18.6) (28.5) (28.1) (27.6) (18.6)Int Cover (%) 4.9 4.7 4.6 4.8 4.9 4.7 4.6 4.8Dividend Payout (%) 4.9 45.1 59.5 92.6 4.4 41.4 52.4 92.0ROCE (%) 10.4 10.3 10.8 12.1 11.1 11.3 10.9 12.1ROE (%) 8.8 7.6 8.7 10.3 9.0 8.1 8.7 10.3



US$R$

Logistics Services68.6%

Dealerships24.1%

Asset Sales8.7%

Dedicated Services46.8%

Management and

Outsourcing24.7%

Passenger Transportati

on10.0%

General Cargo

transportation

7.1%Asset Sales

10.1%Others1.2%

Fernando Simões42.9%

Remaining Simões Family30.1%

Others and Free Float

27.0%

139



KLABIN BUY CURRENT PRICE: R$14.29


Investment Case: Klabin is our Top Pick in the Pulp & Forest Products universe, offering a unique combination of good earnings momentum in a difficult domestic environment and a sound and accretive organic growth option, which we think is not yet priced into the stock. We estimate 30% EBITDA CAGR for the next two years.

Outlook 2015: We see Klabin as well positioned to post improved operating performance despite the slow domestic economic activity our economists forecast for 2015. Beyond the Puma project, Klabinwill remain a paper packaging company, with most of its revenue coming from its defensive exposure to the food & beverage packaging market. Debottlenecks in the kraftliner and corrugated board segments support our estimated 12% YoY EBITDA growth.

Puma is the best project in the sector, in our view: Puma has unique competitive advantages that support our accretive view. Indeed, relative to the other projects in the sector, it offers (i) exposure to the more balanced supply/demand fluff market; (ii) futureverticalization of the cardboard unit; (iii) higher energy sales; and (iv) more leveraged capital structure (75% debt/total capitalization).

Changing the strategy—from cost-cutting to growth: Afterinstituting a series of successful cost-cutting initiatives, the goal now is profitable growth. Puma is the first step, and we expect a new cardboard line segment, with Klabin’s highest operating margin (~50%, relative to the current 32% consolidated), to be the next.

ROE expansion offsets elevated multiples: Klabin trades at 12.5x 2015E EV/EBITDA, relative to 7.5x for domestic peers. We believe higher multiples are a natural consequence of growth until the project startup, and should not be a concern if the investment is accretive from a shareholder standpoint (if leveraged IRR > Ke). We estimate21% leveraged IRR for Puma, relative to 17% Ke. Additionally, we believe Klabin will not wait to deleverage to disburse the cardboard line capex. The bottom line is that we expect KLBN11 to continue to trade at higher multiples for the next two years.



Company Statistics



Bloomberg KLBN11 BZCurrent Price (01/02/15) R$ 14.29 / US$ 5.31Target Price (YE 2015) R$ 18.00 / US$ 6.6452-Week Range (R$) 8.00 - 14.59Market Capitalization (US$ Mn) 5,580Float (%) 44.93-Mth Avg. Daily Vol (US$ Mn) 14.9Shares Outstanding - Mn 1,051

80

100

120

140

160

180

200

J-14 M-14 S-14

KLBN11 BZ IBOVESPA

140

KLABIN Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Klabin is the largest integrated manufacturer of packaging paper in Brazil, with current nominal production capacity of 1.7 million tons per year. The company’s product portfolio includes kraftliner paper, coated boards, industrial bags, and corrugated boxes. In 2013 roughly 30% of total volume sold and 25% of net revenue should be captured abroad. The Klabin family controls the company, with nearly 60% of voting capital. Klabin's stock should soon be listed in Bovespa’s Level 2 of corporate governance, with 100% tag-along rights for minority shareholders. Key Personnel: Daniel Miguel Klabin (Chairman), Fabio Schvartsman (CEO), Antonio Sergio Alfano (CFO) and Vinicius Campos (IR Manager) Web: www.klabin.com.br





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 4,599 4,979 5,768 7,740 2,129 2,117 2,193 2,741 YoY change (%) 10.5 8.2 15.9 34.2 (0.1) (0.5) 3.6 25.0Gross Profit 1,729 1,862 1,017 2,862 800 792 387 1,013 YoY change (%) (22.4) 7.7 (45.4) 181.4 (29.8) (1.0) (51.2) 162.1EBITDA 1,562 1,618 1,818 2,692 723 688 691 953 YoY change (%) 15.6 3.6 12.3 48.1 4.5 (4.8) 0.5 37.9 As % of Revenue 34.0 32.5 31.5 34.8 34.0 32.5 31.5 34.8Operating Income 1,097 1,243 324 1,918 508 529 123 679 YoY change (%) (32.2) 13.3 (73.9) 491.8 (38.7) 4.1 (76.7) 451.3 As % of Revenue 23.9 25.0 5.6 24.8 23.9 25.0 5.6 24.8Financial Results (739) (439) (549) (1,040) (342) (187) (209) (368)Taxes (90) (358) 64 (186) (42) (152) 24 (66)Net Profit 290 470 (388) 635 134 200 (148) 225 YoY change (%) (61.4) 62.0 (182.6) n/m (65.1) 48.8 (173.8) n/m As % of Revenue 6.3 9.4 (6.7) 8.2 6.3 9.4 (6.7) 8.2

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (767) (1,106) (1,711) (1,037) (355) (470) (651) (367)Other Noncash Items 735 477 345 652 340 203 131 231Changes in Working Capital (166) 849 63 (622) (77) 361 24 (220)Operating Cash Flow 1,626 2,902 1,732 1,702 752 1,234 658 603Capital Expenditures (900) (3,436) (3,860) (1,487) (417) (1,461) (1,468) (527)Free Cash Flow 339 (823) (2,423) (126) 157 (350) (921) (45)Other Invest./(Divestments) (131) 0 0 0 (60) 0 0 0Change in Debt 351 0 1,206 1,253 162 0 459 444Dividends (300) (90) 0 (254) (139) (38) 0 (90)Capital Increases/Other 2 1,700 0 0 1 723 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 2,979 4,092 2,927 3,851 1,273 1,605 1,080 1,310Current Assets 4,826 6,295 5,403 7,098 2,062 2,469 1,994 2,414Fixed Assets 9,231 13,169 15,536 16,249 3,945 5,165 5,733 5,527Total Assets 14,919 20,380 21,879 24,314 6,376 7,992 8,073 8,270Current Liabilities 653 1,859 2,194 2,344 279 729 810 797Long-Term Liabilities 8,872 11,468 13,019 14,924 3,792 4,497 4,804 5,076Shareholders' Equity 5,395 7,054 6,666 7,047 2,305 2,766 2,460 2,397Total Financial Debt 6,964 9,075 10,626 12,531 2,976 3,559 3,921 4,262ST Debt 1,125 1,200 1,200 1,200 481 471 443 408LT Debt 6,964 9,075 10,626 12,531 2,976 3,559 3,921 4,262

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 3,984 4,983 7,699 8,679 1,703 1,954 2,841 2,952Capital Employed 12,358 16,129 17,292 19,578 5,281 6,325 6,381 6,659Net Debt/EBITDA 2.6 3.1 4.2 3.2 2.4 2.8 4.1 3.1Net Debt/Equity 0.7 0.7 1.2 1.2 0.8 0.8 1.2 1.2Capex/Revenue (%) 19.6 69.0 66.9 19.2 19.6 69.0 66.9 19.2Int Cover (%) 3.7 3.3 3.1 3.5 3.7 3.3 3.1 3.5Dividend Payout (%) 39.9 31.0 0.0 (65.5) 36.1 28.4 0.0 (65.4)ROCE (%) 9.6 9.9 1.5 10.7 10.4 10.9 1.5 10.7ROE (%) 5.4 7.5 (5.7) 9.3 5.4 8.1 (5.6) 9.3

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 45.1 32.6 - 23.7 40.0 28.9 - 24.8P/CE 38.6 9.7 11.4 9.0 34.2 8.6 11.1 9.4FV/EBITDA 10.9 12.6 12.5 8.8 9.7 11.2 12.2 8.9FV/EBIT 21.5 16.3 n/m 12.4 19.1 14.6 n/m 12.6FV/Revenue 3.8 4.1 3.9 3.1 3.4 3.6 3.8 3.1P/BV 2.0 2.2 2.3 2.1 1.7 2.1 2.3 2.3FCF Yield (%) 2.6 (5.4) (16.1) (0.8) 2.9 (6.1) (16.5) (0.8)Div Yield (%) 2.3 0.6 (0.0) 1.7 2.6 0.7 (0.0) 1.6

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 0.28 0.45 (0.37) 0.60 0.13 0.19 (0.14) 0.21DPS 0.29 0.09 0 0.24 0.13 0.04 0 0.09BVPS 5.13 6.71 6.34 6.70 2.19 2.63 2.34 2.28

US$R$

Kraftliner15.2%

Coated Boards34.8%

Corrugated Boxes29.9%

Sack Kraft12.4%

Wood/Others

7.8%

Domestic72.7%

Exports27.3%

Klabin Family20.5%

BNDESPar8.7%Monteiro

Aranha9.2%

Free Float61.6%

141


BRAZIL—UTILITIES

LIGHT HOLD CURRENT PRICE: R$17.00

TARGET PRICE: R$20.13 UPGRADING RATING TO HOLD FROM UNDERPERFORM LOWERING YE2015 TARGET PRICE TO R$20.13 FROM R$21.66

Investment Case: Given the large decline in the stock price, we upgrade our rating to Hold. We still believe that the target for the regulatory loss curve will be a challenge to reach, mainly due to thecompany’s problematic concession area (Rio de Janeiro State) and the potential impact of higher tariffs and lower economic activity, but we see the current stock price already pricing in the majority of the risk associated with loss reduction.

Outlook 2015: In our view, Light will maintain its loss-reduction program as the main focus of the company for 2015. Furthermore, we expect the company to act on cost and provisions control. We project that the company's EBITDA will increase in 2015, helped by the reduction in energy purchase costs throughout the year and a tariff increase. For the generation arm, we increase our estimate of losses related to the hydro deficit.

Expecting regulatory improvements. In our view, the major (positive or negative) trigger for Light should be the achievement of the company’s loss curve target defined by Aneel—which issued a loss curve starting from 40.41% (in November 2013) but targeting a 30.5% level by 2018. We currently include in our model capex relatedto the loss curve and assume that Light will be able to achieve the regulatory metrics. In the third quarter of 2014, the company improved its loss ratio to 41.3% (-0.6 p.p. on a QoQ basis).

Estimates updated. We included a new valuation implied for Renova Energia and a higher hydro deficit estimate (from 5% to 7%) as well as the inclusion of a tariff increase announced by Aneel in November 2014.


Company Statistics



Bloomberg LIGT3 BZCurrent Price (01/02/15) R$ 17.00 / US$ 6.31Target Price (YE 2015) R$ 20.13 / US$ 7.6052-Week Range (R$) 15.18 - 25.38Market Capitalization (US$ Mn) 1,288Float (%) 37.63-Mth Avg. Daily Vol (US$ Mn) 4.8Shares Outstanding - Mn 204

60

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

LIGT3 BZ IBOVESPA

142

LIGHT Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Light S.A. is an integrated company operating in the Brazilian electricity market. In electricity distribution, its main activity, the company holds a concession to operate in part of the State of Rio de Janeiro, currently representing 11.5% of national GDP. The company distributes more than 25GWh of energy to over 4 million clients. Light S.A. also operates the generation and commercialization of electricity through its subsidiaries Light Energia and Light Esco. The generation segment, with an installed capacity of 961 MW represents roughly 34% of the group’s consolidated EBITDA. Key Personnel: Sérgio Alair Barroso (Chairman), Paulo Roberto Ribeiro Pinto (CEO), João Batista Zolini Carneiro (CFO) and Gustavo Werneck Souza (IR Manager) Web: http://ri.light.com.br/


Sales by Segment (DisCo), 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 7,407 7,939 9,023 9,142 3,433 3,397 3,470 15,574 YoY change (%) (2.7) 7.2 13.6 1.3 (11.9) (1.0) 2.2 348.8Gross Profit 3,291 3,005 3,787 3,892 1,525 1,286 1,456 6,631 YoY change (%) 6.9 (8.7) 26.0 2.8 (3.2) (15.7) 13.3 355.3EBITDA 1,419 1,086 1,689 1,727 658 464 650 2,942 YoY change (%) (2.6) (23.5) 55.6 2.2 (11.8) (29.4) 39.9 352.9 As % of Revenue 19.2 13.7 18.7 18.9 19.2 13.7 18.7 18.9Operating Income 1,904 1,432 2,063 2,034 883 613 793 3,466 YoY change (%) 7.7 (24.8) 44.0 (1.4) (2.5) (30.6) 29.5 336.8 As % of Revenue 25.7 18.0 22.9 22.3 25.7 18.0 22.9 22.3Financial Results (454) (409) (519) (552) (210) (175) (200) (940)Taxes (265) (90) (238) (219) (123) (38) (92) (374)Net Profit 310 165 462 426 144 70 178 725 YoY change (%) (27.0) (46.9) 180.9 (7.9) (33.8) (50.9) 152.5 308.0 As % of Revenue 4.2 2.1 5.1 4.7 4.2 2.1 5.1 4.7

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (335) (415) (470) (530) (155) (178) (181) (903)Other Noncash Items 660 412 519 552 306 176 200 940Changes in Working Capital 187 (1,356) (15) (25) 87 (580) (6) (43)Operating Cash Flow 2,390 (101) 887 759 1,108 (43) 341 1,294Capital Expenditures (845) (768) (844) (837) (392) (329) (324) (1,427)Free Cash Flow 1,545 (869) 44 (78) 716 (372) 17 (133)Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt (354) (335) (467) (492) (164) (143) (179) (838)Dividends (75) (365) (82) (231) (35) (156) (32) (394)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,790 921 965 887 764 361 364 322Current Assets 4,313 3,919 4,112 4,084 1,841 1,537 1,552 1,485Fixed Assets 8,209 8,540 8,914 9,221 3,504 3,349 3,364 3,353Total Assets 13,002 12,954 13,520 13,800 5,549 5,080 5,102 5,018Current Liabilities 2,427 2,963 3,255 3,271 1,036 1,162 1,228 1,190Long-Term Liabilities 7,431 6,764 6,808 6,858 3,172 2,652 2,569 2,494Shareholders' Equity 3,144 3,227 3,458 3,671 1,342 1,265 1,305 1,335Total Financial Debt 7,040 6,848 6,900 6,960 3,005 2,685 2,604 2,531ST Debt 643 1,104 1,113 1,122 274 433 420 408LT Debt 6,398 5,743 5,787 5,838 2,730 2,252 2,184 2,123


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 14.6 21.1 7.5 8.1 13.3 18.5 7.2 1.8P/CE 7.0 6.0 3.7 3.6 6.4 5.3 3.6 0.8FV/EBITDA 6.9 8.7 5.6 5.5 6.3 7.8 5.4 1.2FV/EBIT 5.1 6.6 4.6 4.7 4.7 5.9 4.4 1.0FV/Revenue 1.3 1.2 1.0 1.0 1.2 1.1 1.0 0.2P/BV 1.4 1.1 1.0 0.9 1.4 1.0 1.0 1.0FCF Yield (%) 34.2 (25.0) 1.3 (2.3) 37.4 (28.5) 1.3 (10.3)Div Yield (%) 1.7 10.5 2.4 6.7 1.8 12.0 2.5 30.6


US$R$

Distribution59.9%

Generation33.7%

Trading6.4%

Residential41.6%

Commercial34.5%

Industrial6.6%

Others17.3%

Cemig26.1%

RME13.0%

Luce 13.0%

BNDESPAR10.3%

Free Float37.6%

143


BRAZIL—TELECOM, MEDIA & TECHNOLOGY

LINX HOLD CURRENT PRICE: R$51.35


INTRODUCING YE2015 TARGET PRICE OF R$57.00; REPLACING YE2014 TARGET PRICE OF R$49.00 Investment Case: Linx’s attractive growth story remains untouched,

in our view, as it is poised to leverage on (i) IT tailwinds in Brazil (e.g., formalization of the market, digitalization of retailers, and increasing use of credit cards); and (ii) focus on retail, but not a retail company, meaning that it benefits from the expansion of retail (opening of new stores, malls, and the sales concentration trend into larger retailers, most of them already Linx’s clients), but is not immediately affectedby overall SSS short-term deceleration. Multiple-wise, the stock looks expensive, trading at 17.7x EV/EBITDA 2015E and 24.7x P/E 2015E, but the quality of Linx’s execution since the IPO, combined with a positive track record of acquisitions, makes it a core-value holding story in Brazil.

Outlook 2015: Linx’s recurring revenue model and service backlog provide above-average results predictability, in our view. Although we cannot fully rule out some margin volatility due to M&A integration, we do not expect any major earnings surprise (either negative or positive) in the short term. Even after delivering seven acquisitions since the IPO in February 2013, we believe the pipeline remains strong, and we do not rule out new announcements. Meanwhile, we expect Linx to focus on accelerating the integration of the acquired companies. For 2015, we expect mid-teens organic top-line growth and stable margins YoY, with earnings resilience being the main support for the stock.

Long-term double-digit growth looks feasible when we combine (1) unpenetrated market, estimated below 20% in Linx’s main target market (mid-sized and large retailers); (2) government’s programs tofight tax evasion (formalization trends); and (3) Linx’s ability to makesuccessful acquisitions and accelerate growth in the acquired companies (food, with acquisitions made in 2012, and gas stations, with acquisitions made in 2014, are currently Linx’s fastest-growing verticals).

Micro retail and the partnership with Cielo. The joint venture with Cielo is another potential source of long-term growth in a market that is mostly untapped (micro retailers). Linx will start testing the products in 2H15 and we will follow progress closely, but we do not expect this to become significant in the short to medium term.

Valder Nogueira* Brazil: Banco Santander S.A. +5511-3012-5747 | [email protected]


Company Statistics



Bloomberg LINX3 BZCurrent Price (01/02/15) R$ 51.35 / US$ 19.07Target Price (YE 2015) R$ 57.00 / US$ 21.0352-Week Range (R$) 39.75 - 57.80Market Capitalization (US$ Mn) 887Float (%) 48.33-Mth Avg. Daily Vol (US$ Mn) 3.5Shares Outstanding - Mn 47

60

80

100

120

140

160

180

200

f-13 j-13 o-13 f-14 j-14 o-14

LINX3 BZ IBOVESPA

144

LINX Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Linx is the leading provider of enterprise resource planning (ERP) and point of sale (POS) software solutions for the retail sector in Brazil, also offering connectivity solutions, TEF (electronic transfer of funds), e-commerce and CRM (customer relationship management). Linx has a 33% market share of the Brazilian software solutions market in this segment, serving more than 30,000 retailers nationwide in diversified sub-verticals such as apparel, car dealers, food chains, drugstores, supermarkets and franchises. Main shareholders are the founders of the company (31%), BNDESPar (10%) and private equity Genesis Asset (10%). The remaining capital is free float. Linx is listed on the Novo Mercado section of the BM&F-Bovespa stock market. Key Personnel: Alberto Menache (CEO), Dennis Herszkowicz (CFO) and Dennis Herszkowicz (CFO and IR Manager) Web: www.linx.com.br/ri


Revenue Concentration, 2013



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 295 364 419 478 135 149 159 169 YoY change (%) 27.9 23.2 15.1 14.1 14.3 10.4 7.0 6.2Gross Profit 211 260 301 344 96 106 115 122 YoY change (%) 27.7 23.0 16.1 14.1 14.1 10.3 8.0 6.2EBITDA 87 103 119 133 40 42 45 47 YoY change (%) 45.9 18.2 16.0 11.4 30.4 5.9 7.9 3.7 As % of Revenue 29.5 28.3 28.5 27.8 29.5 28.3 28.5 27.8Operating Income 57 63 77 92 26 26 29 33 YoY change (%) 67.3 10.2 21.3 20.3 49.5 (1.2) 12.9 12.0 As % of Revenue 19.4 17.4 18.3 19.3 19.4 17.4 18.3 19.3Financial Results 19 26 28 36 9 11 11 13Taxes (14) (19) (26) (32) (7) (8) (10) (11)Net Profit 78 99 97 109 35 40 37 39 YoY change (%) 95.0 27.0 (1.8) 12.6 74.3 13.9 (8.6) 4.8 As % of Revenue 26.3 27.1 23.1 22.8 26.3 27.1 23.1 22.8

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (30) (40) (43) (41) (14) (16) (16) (14)Other Noncash Items - - - - - - - -Changes in Working Capital 1 (8) (5) (5) 1 (3) (2) (2)Operating Cash Flow 93 102 117 132 43 42 44 47Capital Expenditures (64) (29) (24) (25) (29) (12) (9) (9)Free Cash Flow 39 58 104 121 18 24 40 43Other Invest./(Divestments) - - - - - - - -Change in Debt 6 (2) 4 5 3 (1) 1 2Dividends 0 (19) (39) (39) 0 (8) (15) (14)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 335 285 342 416 143 112 126 141Current Assets 411 374 445 533 175 147 164 181Fixed Assets 357 428 409 393 152 168 151 134Total Assets 769 803 855 927 328 315 315 315Current Liabilities 80 91 102 114 34 36 37 39Long-Term Liabilities 103 91 81 78 44 36 30 26Shareholders' Equity 586 622 672 736 250 244 248 250Total Financial Debt 65 63 67 72 28 25 25 25ST Debt 29 34 36 39 12 13 13 13LT Debt 36 29 30 33 15 11 11 11

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt (271) (222) (276) (344) (116) (87) (102) (117)Capital Employed 316 400 397 392 135 157 146 133Net Debt/EBITDA (3.1) (2.2) (2.3) (2.6) (2.9) (2.1) (2.2) (2.5)Net Debt/Equity (0.5) (0.4) (0.4) (0.5) (0.5) (0.4) (0.4) (0.5)Capex/Revenue (%) 21.7 8.0 5.6 5.3 21.7 8.0 5.6 5.3Int Cover (%) - - - - - - - -Dividend Payout (%) 0.0 25.0 40.0 40.0 0.0 22.9 35.2 39.7ROCE (%) 21.4 19.1 24.1 29.4 23.1 21.1 24.3 29.4ROE (%) 18.9 16.3 15.0 15.5 19.8 17.4 15.0 15.5



US$R$

Maintenance

77.7%

Services22.3%

#1 largest client2.8%

#2-#100 larger clients37.4%

others59.8%

Board/Founders

31.3%

BndesPar10.4%

Genesis Asset10.0%

Free Float48.3%

145



LOCALIZA HOLD CURRENT PRICE: R$35.71



Investment Case: We reiterate our Hold rating, as we project a very difficult 2015 based on (i) another year of weak GDP growth (we now expect 0.3% vs. 1.3% previously), and (ii) very difficult comparables due to the positive one-offs that took place in 2014. We now estimate R$418 million net profit in 2015 (up 2% vs. 2014), which implies a 17x 2015E P/E. Therefore, we see very little upside potential.

Outlook 2015: We expect flat earnings in 2015 based on (i) weak GDP growth (0.3%); (ii) higher financial results, due to higher interest rates; and (iii) higher depreciation due to a normalization of the secondhand car market in Brasil. For 2015 we estimate: (i) top-line growth of 6%, (ii) EBITDA up 6%, and (iii) net profit growth of 2%. This compares with our estimates for 2014 of (1) top-line growth of 11%, (2) EBITDA up 7%, and (3) net profit growth of 5%.

A relatively strong 2014: The company is on track to deliver double-digit top-line growth in 2014E with GDP growth that we estimate at just 0.3%, but this does not lead us to expect similar strong growth in 2015. We estimate GDP growth in 2015 in-line with that of 2014; however, in 2014 Localiza benefited from several one-offs: (i) presidential elections, (ii) a major sporting event, and (iii) a late Easter.

Slightly below consensus: At R$1,035 million and R$418 million, our estimates for 2015 EBITDA and net profit are slightly below Bloomberg consensus (EBITDA estimate 3% below consensus; net profit estimate 3.5% below). While these are small deviations, we believe this implies that unlike previous years, when quarterly results surprised the market positively and consensus moved up during the year, supporting the shares, in 2015E we should see a small declinein consensus estimates.

2015E P/E of 18x: Given the significant deceleration in Localiza’s earnings growth, 5% in 2014E and 2% in 2015E, we do not expect any significant expansion of this multiple.



Company Statistics



Bloomberg RENT3 BZCurrent Price (01/02/15) R$ 35.71 / US$ 13.26Target Price (YE 2015) R$ 38.00 / US$ 14.0252-Week Range (R$) 30.00 - 40.35Market Capitalization (US$ Mn) 2,763Float (%) 66.03-Mth Avg. Daily Vol (US$ Mn) 12.8Shares Outstanding - Mn 208

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

RENT3 BZ IBOVESPA

146

LOCALIZA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Localiza—Localiza Rent a Car S.A.—was founded in 1973 and is currently the main car rental company in Brazil. The company has the largest car rental network in the country, totaling 477car rental branches (it owns 301 and franchises 176 in Brazil). In addition, Localiza has 63 franchised branches in other countries in Latin America. It operates under four business units: car rental; fleet management/rental; franchising; and used car sales (Seminovos). The company ended 1Q14 with a fleet of around 96,651 vehicles. Localiza’s IPO was held on May 20, 2005, and the company’s shares are listed in the Bovespa’s Novo Mercado (New Market). Key Personnel: Salim Mattar (Chairman), Eugênio Mattar (CEO), Roberto Mendes (CFO) and Nora Lanari (IR Director) Web: www.localiza.com.br

EBITDA by Segment, 2013A

Average Operating Fleet, 2013A



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 3,506 3,877 4,119 4,393 1,625 1,650 1,566 1,555 YoY change (%) 10.7 10.6 6.2 6.7 0.3 1.5 (5.1) (0.7)Gross Profit 1,314 1,406 1,487 1,592 609 598 565 564 YoY change (%) 6.8 7.0 5.7 7.1 (3.2) (1.7) (5.5) (0.3)EBITDA 917 979 1,035 1,112 425 417 394 394 YoY change (%) 4.7 6.9 5.7 7.4 (5.2) (1.9) (5.6) 0.0 As % of Revenue 26.1 25.3 25.1 25.3 26.1 25.3 25.1 25.3Operating Income 652 741 783 834 302 315 298 295 YoY change (%) 39.9 13.7 5.7 6.6 26.8 4.4 (5.6) (0.8) As % of Revenue 18.6 19.1 19.0 19.0 18.6 19.1 19.0 19.0Financial Results (111) (162) (187) (203) (51) (69) (71) (72)Taxes (157) (169) (179) (189) (73) (72) (68) (67)Net Profit 391 411 418 442 181 175 159 156 YoY change (%) 15.9 4.9 1.7 5.9 5.0 (3.7) (9.1) (1.4) As % of Revenue 11.2 10.6 10.1 10.1 11.2 10.6 10.1 10.1

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (265) (238) (252) (278) (123) (101) (96) (98)Other Noncash Items 1,486 1,689 1,810 1,919 689 719 688 679Changes in Working Capital 122 (212) (10) 1 56 (90) (4) 0Operating Cash Flow 843 545 790 862 391 232 300 305Capital Expenditures (592) (585) (616) (678) (274) (249) (234) (240)Free Cash Flow 250 (40) 174 185 116 (17) 66 65Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 288 270 0 0 134 115 0 0Dividends (255) (103) (104) (111) (118) (44) (40) (39)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,011 1,273 1,212 1,144 431 499 447 389Current Assets 1,426 1,709 1,664 1,628 609 670 614 554Fixed Assets 226 218 274 331 96 85 101 112Total Assets 4,578 5,182 5,511 5,894 1,954 2,032 2,034 2,005Current Liabilities 534 553 562 594 228 217 207 202Long-Term Liabilities 2,703 2,939 2,946 2,964 1,153 1,152 1,087 1,008Shareholders' Equity 1,341 1,691 2,004 2,335 572 663 739 794Total Financial Debt 2,344 2,613 2,613 2,613 1,000 1,025 964 889ST Debt 0 0 0 0 0 0 0 0LT Debt 2,344 2,613 2,613 2,613 1,000 1,025 964 889




US$R$

Car Rental48.0%

Fleet Rental41.2%

Used car sales10.8%

Car Rental65.5%

Fleet Rental34.5%

Antonio Claudio Brandao Resende

9.0% Jose Salim Mattar Junior7.7%

Flavio Brandao Resende

6.1%Eugenio Pacelli Mattar6.4%

Free Float70.8%

147



LOJAS AMERICANAS BUY CURRENT PRICE: R$16.86



Investment Case: Lojas Americanas remains our top pick among Brazilian retailers, as we continue to believe that LAME’s bricks-and-mortar operation offers strong growth opportunities (to nearly double the store footprint over the next five years) due to its flexible store format and store-opening expertise, which has led to margin expansion, despite pre-operating expenses, and should translate into superior returns (~30% ROIC in 2015E). Moreover, we expect the turnaround of B2W to offer greater earnings visibility and further propel earnings growth for its parent company. The stock is trading ata ~32x P/E for 2015E, roughly in-line with its historical average (30x P/E), but 30% above some of its peers in Brazil.

Outlook for 2015: Despite the weaker macroeconomic environment expected, we believe LAME’s B&M division continues to be well positioned to expand aggressively in a still fragmented retail industry, owing to its flexible store model and superior execution. We expect LAME to open 160 stores in 2015 (+14% YoY sales area expansion) and to sustain high-single-digit SSS (+8%), along with registering +20-bps YoY EBITDA margin expansion and enhanced earnings growth (supported by positive results coming from B2W), making it the fastest growing retailer in Brazil (consolidated EPS growing 55% YoY).

Catalysts: We are convinced that LAME offers the best combination of healthy growth, margin expansion, and superior FCF owing to its defensive sales mix (diversified sales mix and low credit exposure) combined with best-in-class execution. Moreover, we anticipate the turnaround of B2W (turning bottom-line positive) will provide a major boost to LAME’s consolidated earnings growth.

Concerns: Main risks to our investment case include (1) a slower-than-expected recovery at B2W’s level, (2) additional stores could result in diminishing returns, and (3) higher trading multiples versus its peers.




Company Statistics



Bloomberg LAME4 BZCurrent Price (01/02/15) R$ 16.86 / US$ 6.26Target Price (YE 2015) R$ 21.00 / US$ 7.7552-Week Range (R$) 11.08 - 17.24Market Capitalization (US$ Mn) 7,611Float (%) 53.53-Mth Avg. Daily Vol (US$ Mn) 14.3Shares Outstanding - Mn 1,215

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

LAME4 BZ IBOVESPA

148

LOJAS AMERICANAS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

LAME is one of the fastest growing general merchandisers in Brazil featuring a multi-channel platform comprising physical stores, e-commerce, catalog and television sales. The company currently operates 893 stores (3Q14) in all major cities (in all states + DF) and four distribution centers (São Paulo, Rio de Janeiro, Recife and Uberlândia), selling over 60,000 items from 4,000 different supplies, giving Lojas Americanas a major share of Brazilian trade in toys, chocolates & candies, lingerie, and CDs. Additionally, LAME is also the controller of the leading e-commerce player in Brazil (B2W) selling over 700,000 SKUs on its internet sites. Key Personnel: Carlos Alberto Sicupira (Chairman), Miguel Gutierrez (CEO), Murilo Corrêa (CFO) and Fabien Picavet (Investor Relations Manager) Web: www.ri.lasa.com.br

Stores per Format, 3Q14

Payments by Type, 9M14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 13,401 16,308 20,197 24,240 6,211 6,945 7,680 8,581 YoY change (%) 18.2 21.7 23.8 20.0 7.1 11.8 10.6 11.7Gross Profit 4,075 4,847 5,877 7,105 1,889 2,064 2,235 2,515 YoY change (%) 20.0 19.0 21.2 20.9 8.7 9.3 8.3 12.5EBITDA 1,846 2,185 2,683 3,341 856 931 1,020 1,183 YoY change (%) 17.3 18.4 22.8 24.5 6.3 8.8 9.6 15.9 As % of Revenue 13.8 13.4 13.3 13.8 13.8 13.4 13.3 13.8Operating Income 1,573 1,813 2,246 2,821 729 772 854 999 YoY change (%) 15.4 15.3 23.9 25.6 4.5 5.9 10.6 16.9 As % of Revenue 11.7 11.1 11.1 11.6 11.7 11.1 11.1 11.6Financial Results (881) (1,238) (1,219) (1,267) (408) (527) (463) (448)Taxes (169) (153) (313) (485) (78) (65) (119) (172)Net Profit 463 410 637 923 215 175 242 327 YoY change (%) 13.4 (11.3) 55.3 44.8 2.8 (18.5) 38.7 34.8 As % of Revenue 3.5 2.5 3.2 3.8 3.5 2.5 3.2 3.8

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (273) (373) (437) (520) (127) (159) (166) (184)Other Noncash Items 285 916 999 1,212 132 390 380 429Changes in Working Capital 2 670 932 26 1 285 354 9Operating Cash Flow 477 1,624 2,131 1,642 221 692 810 581Capital Expenditures (1,347) (1,545) (1,516) (1,427) (624) (658) (577) (505)Free Cash Flow 491 1,483 819 711 227 632 311 252Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 1,970 (329) 23 458 913 (140) 9 162Dividends (120) (137) (124) (173) (56) (58) (47) (61)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 4,088 3,701 3,471 3,460 1,745 1,451 1,281 1,177Current Assets 10,900 10,703 10,818 12,025 4,652 4,197 3,992 4,090Fixed Assets 5,147 7,513 9,245 10,579 2,197 2,946 3,411 3,598Total Assets 16,047 18,216 20,063 22,605 6,849 7,144 7,403 7,689Current Liabilities 7,389 8,508 9,807 11,509 3,154 3,336 3,619 3,915Long-Term Liabilities 7,170 6,570 6,570 6,570 3,060 2,576 2,424 2,235Shareholders' Equity 1,175 1,771 2,284 3,034 501 695 843 1,032Total Financial Debt 9,602 9,273 9,296 9,754 4,098 3,636 3,430 3,318ST Debt 2,656 2,915 2,938 3,396 1,134 1,143 1,084 1,155LT Debt 6,946 6,358 6,358 6,358 2,964 2,493 2,346 2,163


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 27.0 n/m 32.1 22.2 24.7 45.1 31.4 23.3P/CE 17.0 26.8 19.1 14.2 15.5 23.6 18.6 14.9FV/EBITDA 11.6 19.5 14.5 11.0 10.6 17.4 14.1 11.4FV/EBIT 13.6 23.6 17.3 13.1 12.4 20.9 16.9 13.5FV/Revenue 1.6 2.6 1.9 1.5 1.5 2.3 1.9 1.6P/BV 10.6 11.8 9.0 6.8 10.6 11.3 9.0 7.4FCF Yield (%) 3.9 7.1 4.0 3.5 4.3 8.0 4.1 3.3Div Yield (%) 1.0 0.7 0.6 0.8 1.0 0.7 0.6 0.8


US$R$

Traditional64.5%

Express35.5%

Cash48.0%

Credit Cards52.0%

Controlling Group 44.0%

Treasury Shares2.5%

Free Float53.5%

149



LOJAS RENNER HOLD CURRENT PRICE: R$75.90



Investment Case: Lojas Renner has been able to deliver steady growth based on solid execution, which we believe will continue to support consistent market share gains. We remain convinced that the company’s growth outlook is robust and despite the tougher consumption environment expected, a combination of its strong culture, people, and internal processes should continue to serve askey competitive advantages. The stock currently trades at a 2015E P/E of 17.0x, a deserved premium to apparel retailers in Brazil given the company’s superior execution and consistent track record, yet wemaintain our Hold rating based on limited upside to our YE2015 target price of R$83.00.

Outlook for 2015: We expect vigorous 6.8% SSS, with 15% YoY top-line growth supported by +40 store openings in 2015, while margins should continue to benefit from operating leverage and collection assertiveness (lower markdowns), despite a smoother contribution form financial services.

Catalysts: Renner has a solid track record of store openings, which we believe should be supported by further developing its secondary store formats (YOUCOM and Camicado), while the introduction of the push-and-pull logistics (maturing initiative) should serve as a new margin expansion opportunity, helping to reduce in-store stock levels and improving distribution efficiency. Moreover, we expect the recentcredit card business partnership with Indusval Bank will help to further develop co-branded credit cards within LAME’s consumer base and ultimately drive store merchandise sales.

Concerns: Main risks to our investment case include (1) increased competition from domestic and foreign brands, (2) deterioration in LAME’s consumer finance business, (3) stock-outs when fully implementing the push-and-pull logistics scheme, and (4) premium valuation (2015E P/E of 17x).




Company Statistics



Bloomberg LREN3 BZCurrent Price (01/02/15) R$ 75.90 / US$ 28.19Target Price (YE 2015) R$ 83.00 / US$ 30.6352-Week Range (R$) 53.63 - 76.68Market Capitalization (US$ Mn) 3,524Float (%) 100.03-Mth Avg. Daily Vol (US$ Mn) 17.4Shares Outstanding - Mn 125

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

LREN3 BZ IBOVESPA

150

LOJAS RENNER Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Lojas Renner is one of the largest Brazilian apparel retailers, targeting middle- and upper-middle-income consumers (mainly women between 18 and 39 years of age) selling several different third-party-produced private label brands based on a “lifestyle” concept. The company has 232 Renner stores, including traditional stores (average selling area of 2,000 sqm) and compact stores (average selling area of 1,000 sqm), 23 YOUCOM stores and 58 Camicado stores. Besides the traditional retail operations, Renner also offers financial services, which accounted for ~34% of EBITDA in 3Q14. The stock trades on the Novo Mercado with 100% free float. Key Personnel: Osvaldo Burgos Schirmer (Chairman), José Galló (CEO), Laurence Gomes (CFO) and Paula Picinini (Investor Relations Manager) Web: www.lojasrenner.com.br/

EBITDA Breakdown, 3Q14

Sales by Payment Type, 9M14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 3,914 4,491 5,159 5,817 1,814 1,912 1,962 2,059 YoY change (%) 13.1 14.7 14.9 12.7 2.4 5.4 2.6 5.0Gross Profit 2,063 2,401 2,774 3,144 956 1,022 1,055 1,113 YoY change (%) 11.8 16.4 15.5 13.4 1.3 6.9 3.2 5.5EBITDA 822 998 1,173 1,372 381 425 446 485 YoY change (%) 17.4 21.4 17.5 16.9 6.4 11.5 4.9 8.9 As % of Revenue 21.0 22.2 22.7 23.6 21.0 22.2 22.7 23.6Operating Income 655 786 910 1,081 304 335 346 383 YoY change (%) 15.4 20.0 15.7 18.8 4.6 10.3 3.3 10.6 As % of Revenue 16.7 17.5 17.6 18.6 16.7 17.5 17.6 18.6Financial Results (68) (83) (106) (111) (31) (35) (40) (39)Taxes (175) (213) (243) (293) (81) (91) (92) (104)Net Profit 407 490 561 677 189 209 213 240 YoY change (%) 14.6 20.4 14.4 20.6 3.9 10.6 2.1 12.3 As % of Revenue 10.4 10.9 10.9 11.6 10.4 10.9 10.9 11.6

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (167) (212) (263) (290) (78) (90) (100) (103)Other Noncash Items 330 572 625 757 153 244 238 268Changes in Working Capital (249) (432) (267) (263) (115) (184) (102) (93)Operating Cash Flow 320 419 655 881 149 178 249 312Capital Expenditures (412) (483) (459) (460) (191) (206) (175) (163)Free Cash Flow (86) (212) 97 244 (40) (90) 37 86Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 472 34 0 0 219 15 0 0Dividends (262) (247) (196) (421) (121) (105) (75) (149)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 802 525 525 525 342 206 194 178Current Assets 3,001 3,000 3,347 3,688 1,281 1,177 1,235 1,254Fixed Assets 1,386 1,656 1,852 2,021 591 649 683 688Total Assets 4,516 4,802 5,345 5,855 1,927 1,883 1,972 1,991Current Liabilities 1,964 1,559 1,639 1,717 838 612 605 584Long-Term Liabilities 1,059 1,336 1,336 1,336 452 524 493 455Shareholders' Equity 1,493 1,906 2,370 2,802 637 747 874 953Total Financial Debt 1,744 1,779 1,779 1,779 744 697 656 605ST Debt 728 480 480 480 311 188 177 163LT Debt 1,016 1,298 1,298 1,298 433 509 479 442

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 943 1,254 1,254 1,254 402 492 463 426Capital Employed 2,552 3,242 3,706 4,138 1,089 1,271 1,367 1,408Net Debt/EBITDA 1.1 1.3 1.1 0.9 1.1 1.2 1.0 0.9Net Debt/Equity 0.6 0.7 0.5 0.4 0.7 0.7 0.5 0.4Capex/Revenue (%) 10.5 10.7 8.9 7.9 10.5 10.7 8.9 7.9Int Cover (%) 6.9 5.7 6.2 7.0 6.9 5.7 6.2 7.0Dividend Payout (%) 73.7 60.7 40.0 75.0 66.7 55.6 35.2 74.5ROCE (%) 32.5 30.8 31.1 33.2 34.9 33.9 31.3 33.2ROE (%) 29.1 28.9 26.2 26.2 29.7 30.9 26.3 26.2



US$R$

Retail67.5%

Financial32.5%

Cash25.3%

Renner Card

50.5%

Other Cards24.2%

Aberdeen14.0%

BlackRock7.1%

J.P.Morgan7.0%

BTG Pactual5.5%

T. Rowe Price5.4%

Others61.0%

151



MAGNESITA HOLD CURRENT PRICE: R$2.05



Investment Case: Although we believe that many of the negatives for the stock have been priced in over the last few months, the challenging scenario is likely to continue in the medium term. Our economics team estimates 0.3% domestic GDP growth for 2015, mainly driven by poor industrial activity. Key expansion markets have also been posting low-single-digit growth. We see no clear triggers for the company. Moreover, cancellation of the graphite project due to limited mining resources (short mining life of only six years, after the drilling campaign) may weigh on investor sentiment, in our view.

Outlook 2015: The persistently weak macro scenario has been a strong headwind against Magnesita’s attempts to deliver operating improvement. We estimate that the company’s EBITDA will remain inthe range of R$385-415 million annually for the next few years, despite management’s efforts to gain global market share. Though we believe that such a performance would be below the company’s potential, we would need to see more concrete evidence of significant operating improvement before becoming more upbeat on the name.

Higher COGS: an issue to be addressed by management. Magnesita’s new management is adopting measures to improve performance by expanding the company’s global footprint into new markets (roughly 70% of the company’s sales volume expansion has been gained from new markets). However, top-line growth has not consistently translated into EBITDA expansion, due to higher costs and expenses, reflecting labor and raw materials inflation. We are concerned about Magnesita’s ability to gain pricing power in order to better defend margins in the future.

Leverage should remain at high levels. Magnesita ended 3Q14 at 3.7x net debt/EBITDA, and we estimate that could increase even further (to 4.0x in the near future) given the real depreciation scenario ahead. Additionally, we project the company will generate meaningful FCF only in 2018, too far in the future to be priced in, and short-term visibility is still low.



Company Statistics



Bloomberg MAGG3 BZCurrent Price (01/02/15) R$ 2.05 / US$ 0.76Target Price (YE 2015) R$ 2.40 / US$ 0.8952-Week Range (R$) 2.05 - 5.85Market Capitalization (US$ Mn) 217Float (%) 59.83-Mth Avg. Daily Vol (US$ Mn) 0.3Shares Outstanding - Mn 285

20

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

MAGG3 BZ IBOVESPA

152

MAGNESITA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Magnesita is a vertically integrated Brazilian refractory producer. The company owns some of the largest and highest-quality magnesite and dolomite reserves in the world, and currently operates 14 plants (5 in Brazil and the others in the U.S., Germany, Belgium, China, and Argentina), with an aggregate nominal capacity of 1.43 million tonnes per year. Steel producers are Magnesita’s main customers, accounting for nearly 80% of sales. In 2013, nearly half of Magnesita’s revenues came from the export market and from its operations abroad. GP Investments and Rhone Capital, two private equity investors, share control of Magnesita with 43% of voting stock. Magnesita’s common shares are listed in the Bovespa’s Novo Mercado, having 100% tag-along rights for minorities. Key Personnel: Fersen Lambranho (Chairman), Octavio Lopes (CEO), Eduardo Gotilla (CFO) and Daniel Domiciano Silva () Web: www.magnesita.com





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 2,656 2,905 3,138 3,456 1,231 1,237 1,193 1,224 YoY change (%) 7.8 9.4 8.0 10.1 (2.3) 0.5 (3.6) 2.6Gross Profit 864 912 929 1,008 400 388 353 357 YoY change (%) 15.3 5.6 1.8 8.5 4.5 (3.0) (9.1) 1.1EBITDA 439 395 451 487 203 168 171 173 YoY change (%) 21.9 (9.9) 14.1 8.1 10.5 (17.3) 1.9 0.7 As % of Revenue 16.5 13.6 14.4 14.1 16.5 13.6 14.4 14.1Operating Income 313 254 298 322 145 108 113 114 YoY change (%) 25.4 (18.7) 17.3 8.0 13.6 (25.3) 4.7 0.6 As % of Revenue 11.8 8.7 9.5 9.3 11.8 8.7 9.5 9.3Financial Results (197) (270) (247) (296) (91) (115) (94) (105)Taxes (57) (27) 10 5 (26) (11) 4 2Net Profit 58 (42) 61 32 27 (18) 23 11 YoY change (%) (20.5) (172.3) n/m (47.6) (27.9) (166.4) n/m (51.2) As % of Revenue 2.2 (1.5) 1.9 0.9 2.2 (1.5) 1.9 0.9

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (126) (141) (153) (165) (58) (60) (58) (58)Other Noncash Items (25) 85 100 143 (12) 36 38 51Changes in Working Capital (161) (155) (41) (103) (75) (66) (16) (37)Operating Cash Flow (2) 29 272 237 (1) 12 104 84Capital Expenditures (150) (182) (226) (225) (69) (77) (86) (80)Free Cash Flow (42) (182) (41) (103) (20) (78) (16) (37)Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt (4) 0 0 0 (2) 0 0 0Dividends (18) (12) (0) (50) (8) (5) (0) (18)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 961 775 822 784 410 304 303 267Current Assets 2,561 2,572 2,725 2,877 1,093 1,009 1,005 979Fixed Assets 1,249 1,252 1,325 1,385 533 491 489 471Total Assets 6,474 6,431 6,656 6,868 2,763 2,522 2,456 2,336Current Liabilities 688 731 796 883 294 287 294 300Long-Term Liabilities 2,668 2,724 2,824 2,967 1,139 1,068 1,042 1,009Shareholders' Equity 3,004 2,862 2,923 2,905 1,282 1,123 1,079 988Total Financial Debt 2,414 2,484 2,583 2,726 1,030 974 953 927ST Debt 113 113 113 113 48 44 42 38LT Debt 2,301 2,371 2,470 2,613 982 930 911 889

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 1,453 1,709 1,762 1,943 620 670 650 661Capital Employed 3,506 3,425 3,489 3,530 1,496 1,343 1,287 1,201Net Debt/EBITDA 3.3 4.3 3.9 4.0 3.1 4.0 3.8 3.8Net Debt/Equity 0.5 0.6 0.6 0.7 0.5 0.7 0.6 0.7Capex/Revenue (%) 5.6 6.3 7.2 6.5 5.6 6.3 7.2 6.5Int Cover (%) 1.6 2.1 2.0 2.0 1.6 2.1 2.0 2.0Dividend Payout (%) 24.5 20.7 (0.4) 82.3 22.1 19.0 (0.4) 81.7ROCE (%) 10.5 8.2 8.3 9.0 11.4 9.2 8.3 9.0ROE (%) 2.0 (1.4) 2.1 1.1 2.1 (1.5) 2.1 1.1

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 29.5 - 9.8 18.7 27.0 - 9.6 19.6P/CE 9.3 6.1 2.8 3.0 8.5 5.4 2.7 3.2FV/EBITDA 7.2 5.9 5.2 5.2 6.6 5.3 5.1 5.1FV/EBIT 10.2 9.1 7.9 7.9 9.3 8.3 7.7 7.7FV/Revenue 1.2 0.8 0.8 0.7 1.1 0.7 0.7 0.7P/BV 0.6 0.2 0.2 0.2 0.6 0.2 0.2 0.2FCF Yield (%) (2.5) (30.1) (6.9) (17.2) (2.7) (34.1) (7.0) (16.4)Div Yield (%) 1.0 2.0 0.0 8.4 1.1 2.3 0.0 8.0

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 0.20 (0.14) 0.21 0.11 0.09 (0.06) 0.08 0.04DPS 0.06 0.04 0.00 0.17 0.03 0.02 0.00 0.06BVPS 10.29 9.80 10.01 9.95 4.39 3.84 3.69 3.38

US$R$

Refractory Solutions

88.2%

Mining4.8%

Services7.0%

South America51.0%

North America17.0%

Europe22.0%

Others10.0%

GP Investments

34.9%

Rhone Group7.4%

Others/Free Float

57.8%

153



MAHLE METAL LEVE BUY CURRENT PRICE: R$20.96

TARGET PRICE: R$25.00 LOWERING YE2015 TARGET PRICE TO R$25.00 FROM R$27.00

Investment Case: Reliable Engine for a Cyclical Environment. We reiterate LEVE3 as our top pick in the capital goods universe, based on a large market share sustained by technology. Mahle’s market share has been above 80% in bearings and piston rings in the Brazilian OEM market and above 70% in the domestic aftermarket. The company has a good level of diversification and is a less cyclicalplayer than others in our universe, with more than 60% of sales unexposed to new domestic vehicle production (coming instead fromexports and aftermarket). The current dividend yield of 8% and 2015E P/E of 12.4x (with an expected 15.3% 2015E ROE) are a good carry, in our view, while still offering investors exposure to automotive market trends.

Outlook 2015: We expect 2015 to be a challenging year for domestic OEM production (~ -4% in production). In our view, Mahle should outperform market growth in 2015 due to its alignment with automotive trends (potential new orders arising from Inovar Auto).

What’s changed? Following results in 2014, we became more conservative regarding volumes and margins into 2015. As a consequence, we lowered our revenue forecast by 3%, while reducing EBITDA and net income by 3% and 2%, respectively. We are 4% above consensus for 2015E net income.

Innovation Day Highlights. Positive. During the November meeting, top management took the opportunity to discuss major trends in the automotive industry (lighter and smaller engines) and how R&D investment, which we expect to continue at 3% of sales, should play a major role in sustaining Mahle’s competitive positioning. The domestic aftermarket should reap the benefits of the past years’ boom in auto sales (2006-2013 CAGR of 8%), as Mahle’s current addressable domestic aftermarket makes up only 34% of the fleet (that is, older than 11 years). Ongoing efficiency programs were alsodiscussed at the meeting, and management expects them to contribute 1-2% to margins. For more on Mahle trends, please see our November 24 note, Germany Auto Trip: Takeaways from Meetings at Mahle and Daimler Headquarters.



Company Statistics



Bloomberg LEVE3 BZCurrent Price (01/02/15) R$ 20.96 / US$ 7.79Target Price (YE 2015) R$ 25.00 / US$ 9.2352-Week Range (R$) 20.01 - 27.30Market Capitalization (US$ Mn) 999Float (%) 30.03-Mth Avg. Daily Vol (US$ Mn) 1.0Shares Outstanding - Mn 128

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

LEVE3 BZ IBOVESPA

154

MAHLE METAL LEVE Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

MAHLE Metal Leve is part of a worldwide group (MAHLE) manufacturer that is a well-known producer of pistons and its components, filter systems, and other parts for engines. MAHLE Metal Leve SA (MML) is controlled by MAHLE Indústria e Comércio Ltda (60.8%) and by MAHLE GmbH (9.2%), with 30.0% of free float being the Latin America arm with operations in Brazil and Argentina. In 2013, it produced more than 74,000 different products categorized in two main lines: pistons (and its components), which contribute around 87% of total revenue, and filter systems, which contribute the 13% balance. Sales are worldwide in the main automotive markets, to OEMs and the after-market. Company shares, LEVE3, were listed in August 2011 on Bovespa´s Novo Mercado, which has the highest level of corporate governance. Key Personnel: Claus Hoppen (CEO) and Caio Gonçalves de Moraes (CFO) Web: http://www.br.mahle.com

Revenue Breakdown by Product Category, 2013

Revenue Breakdown by Region, 2013



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 2,394 2,322 2,410 2,545 1,109 991 916 901 YoY change (%) 7.4 (3.0) 3.8 5.6 (2.7) (10.7) (7.5) (1.7)Gross Profit 662 624 631 680 307 266 240 241 YoY change (%) 12.1 (5.8) 1.1 7.8 1.6 (13.3) (9.9) 0.3EBITDA 426 402 417 453 198 172 158 160 YoY change (%) 11.8 (5.6) 3.6 8.7 1.3 (13.1) (7.7) 1.2 As % of Revenue 17.8 17.3 17.3 17.8 17.8 17.3 17.3 17.8Operating Income 311 290 288 318 144 124 109 113 YoY change (%) 15.4 (6.8) (0.8) 10.5 4.6 (14.2) (11.6) 2.9 As % of Revenue 13.0 12.5 11.9 12.5 13.0 12.5 11.9 12.5Financial Results (33) (17) 5 9 (15) (7) 2 3Taxes (85) (79) (76) (83) (39) (34) (29) (29)Net Profit 201 198 216 242 93 84 82 86 YoY change (%) 12.5 (2.0) 9.4 12.2 1.9 (9.7) (2.5) 4.4 As % of Revenue 8.4 8.5 9.0 9.5 8.4 8.5 9.0 9.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (115) (112) (129) (135) (53) (48) (49) (48)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (82) (41) (25) (21) (38) (18) (9) (7)Operating Cash Flow 344 361 392 432 160 154 149 153Capital Expenditures (115) (91) (116) (121) (53) (39) (44) (43)Free Cash Flow 303 264 200 228 140 113 76 81Other Invest./(Divestments) - - - - - - - -Change in Debt 10 43 0 0 4 18 0 0Dividends (167) (176) (207) (194) (77) (75) (79) (69)Capital Increases/Other 0 34 0 0 0 15 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 221 380 375 414 94 149 138 141Current Assets 1,014 1,153 1,196 1,270 433 452 441 432Fixed Assets 1,369 1,350 1,337 1,323 584 529 493 450Total Assets 2,428 2,553 2,583 2,644 1,036 1,001 953 899Current Liabilities 1,876 1,807 2,026 2,093 801 708 748 712Long-Term Liabilities 237 282 282 282 101 111 104 96Shareholders' Equity 1,376 1,405 1,414 1,462 587 551 522 497Total Financial Debt 488 523 519 516 208 205 192 175ST Debt 74 132 131 130 32 52 48 44LT Debt 414 391 389 386 177 153 143 131




US$R$

Engine Component

s86.8%

Filters13.2%

Domestic Market59.6%

Central and North America13.9%

Europe15.8%

South America

7.9%Others2.8%


Free Float30.0%

155



MARCOPOLO BUY CURRENT PRICE: R$3.09


Investment Case: With its (1) high and stable market share (approximately 45% in Brazil, arising from premium positioning), (2) attractive ROE (2014E-17E average of 18%), and (3) returns-oriented management profile (based on CFROGI—cash flow return on gross investment metrics), we believe Marcopolo is an attractive long-term vehicle to play the mass transportation market in Brazil. Following the sharp 34% correction in LTM, we are keeping our Buy rating as a value call (POMO is trading below its earnings power value, which in our view is ~R$4.30).

Outlook 2015: Despite lower economic visibility in 2015, we believe net income for 2015 can be better than 2014E (R$275 million versus R$220 million), due to: (a) higher equity income from New Flyer, (b) potential recovery of urban and interstate lines, especially the former, as 2016 is a year of municipal elections; (c) end of nonrecurring learning curve and turnaround of Mexico, Australia, and Ciferal, which we estimate consumed ~R$25 million; and (d) exports expected to recover, with good mix and Reintegra credits.

Main changes: We are reducing our 2015 EPS estimates by 5%, a consequence of a lower top-line forecast (school bus program). Our bottom-line estimate is currently 4% above consensus.

European CEO Road Show Highlights: What we liked: (1) aligned management: one third of variable remuneration is paid in POMO shares, vesting one third per year; and (2) EBITDA margin to increase sequentially—internal target maintained at 12% per year in medium-term. What we did not like: international market margins continue to lag (Brazil should continue to outperform in the future).

Company with a clear competitive advantage: POMO’s (1) scale, (2) higher resale prices, (3) customization, and (4) brand awareness allow the company to charge premium prices and resulted in consistent returns in recent years (16-23% ROIC range). We continue to like the company’s capital discipline, which should sustainits valuation at a premium to peers in the long run, in our view.



Company Statistics



Bloomberg POMO4 BZCurrent Price (01/02/15) R$ 3.09 / US$ 1.15Target Price (YE 2015) R$ 5.00 / US$ 1.8552-Week Range (R$) 3.09 - 5.20Market Capitalization (US$ Mn) 1,029Float (%) 72.03-Mth Avg. Daily Vol (US$ Mn) 4.8Shares Outstanding - Mn 897

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

POMO4 BZ IBOVESPA

156

MARCOPOLO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Founded in 1949, Marcopolo is the market leader of bus-body manufacturing in Brazil, with a 39.8% market share. It is also one of the world’s largest manufacturers, with a market share of 8% in passenger mass transit solutions. The company has a global presence, posting sales to more than 100 countries throughout the world. Marcopolo has four plants in Brazil and eight plants abroad, as well as a bank (Banco Moneo), which finances sales in the domestic market. In 2013, the company’s net sales, EBITDA, and net income reached R$3.7 billion, R$410 million (ex-equity income), and R$292 million, respectively. Marcopolo has been listed on the Bovespa’s Level 2 since 2002, offering 100% tag-along rights in ON shares and 80% in PN shares. Key Personnel: José Rubens de La Rosa (CEO), José Antonio Valiati (CFO), José Antonio Valiati (IR Officer) and Thiago Deiro (IR Manager) Web: www.marcopolo.com.br


Production Volume by Country, 2013



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 3,659 3,433 3,619 3,899 1,696 1,462 1,376 1,380 YoY change (%) (4.1) (6.2) 5.4 7.7 (13.2) (13.8) (5.9) 0.3Gross Profit 731 601 645 720 339 256 245 255 YoY change (%) (5.9) (17.7) 7.3 11.6 (14.7) (24.4) (4.2) 3.9EBITDA 410 292 352 396 190 125 134 140 YoY change (%) (4.7) (28.7) 20.4 12.5 (13.7) (34.5) 7.5 4.7 As % of Revenue 11.2 8.5 9.7 10.2 11.2 8.5 9.7 10.2Operating Income 370 248 290 325 171 106 110 115 YoY change (%) (3.1) (32.9) 17.0 12.1 (12.2) (38.4) 4.4 4.4 As % of Revenue 10.1 7.2 8.0 8.3 10.1 7.2 8.0 8.3Financial Results (5) 9 15 7 (2) 4 6 2Taxes (98) (64) (74) (80) (45) (27) (28) (28)Net Profit 292 220 275 301 135 94 104 107 YoY change (%) (3.4) (24.8) 25.0 9.6 (12.5) (30.9) 11.6 2.1 As % of Revenue 8.0 6.4 7.6 7.7 8.0 6.4 7.6 7.7

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (40) (44) (62) (71) (19) (19) (24) (25)Other Noncash Items 188 112 43 49 87 48 16 17Changes in Working Capital (224) 15 (63) (43) (104) 6 (24) (15)Operating Cash Flow 186 307 289 353 86 131 110 125Capital Expenditures (300) (107) (127) (101) (139) (46) (48) (36)Free Cash Flow (25) 249 132 221 (11) 106 50 78Other Invest./(Divestments) - - - - - - - -Change in Debt 573 182 0 0 266 78 0 0Dividends (144) (110) (137) (151) (67) (47) (52) (53)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 625 844 875 959 267 331 323 326Current Assets 2,525 2,766 2,906 3,060 1,078 1,085 1,072 1,041Fixed Assets 978 1,068 1,133 1,164 417 419 418 396Total Assets 4,118 4,485 4,689 4,874 1,758 1,759 1,730 1,658Current Liabilities 1,055 1,290 1,361 1,401 450 506 502 477Long-Term Liabilities 1,529 1,662 1,657 1,652 652 652 612 562Shareholders' Equity 1,516 1,512 1,649 1,800 647 593 609 612Total Financial Debt 1,836 2,013 2,008 2,001 784 790 741 681ST Debt 368 411 410 409 157 161 151 139LT Debt 1,469 1,602 1,598 1,592 627 628 590 542




US$R$

Intercity35.0%

Urban29.1%

Micros and

Minis3.2%

Volare22.8%

Parts and Others9.9%

Brazil89.5%

South Africa1.3% Mexico

6.6%Australia

2.6%


s25.3%

Shareholders in Brazil

39.2%

Foreign Shareholder

s35.3%

Treasury0.2%

157



MRV ENGENHARIA HOLD CURRENT PRICE: R$7.23


Investment Case: The resilient demand for low-income projects and the company’s solid execution are likely to support MRV’s performance during the coming years, in our view. Furthermore, we expect the gross margin to gradually improve as less profitable projects are delivered (mainly projects in the Midwest region of Brazil).

Outlook 2015: We expect MRV to post gradual margin improvements and expanding cash flow generation in upcoming quarters.

Improving gross margin. The gross margin has recovered since it bottomed in 2013, and we expect it to continue gradually improving in 2015 to 31% (ex capitalized interest), mainly on the delivery of underperforming projects in the Midwest region of Brazil (specifically Brasilia and Goiania).

Recurring and growing cash flow trend . . . MRV has been closing the gap between production and collection by increasing the volumeof transfer of clients to banks shortly after sales take place, paving the way for increasing and continuous cash flow generation on a quarterly basis, in our view.

. . . should enable the company to continue deleveraging (to 22% net debt/EBITDA at YE2015E from 28% in 3Q14) and thereafter increase distribution to shareholders, in our view.

Valuation seems fair at current return levels. We see the stock trading at 0.7x and 0.6x P/BV for 2015E and 2016E, levels we see as fairly valued at the current profitability levels (ROE of 10.6% and 11.1% for 2015E and 2016E, respectively).



Company Statistics



Bloomberg MRVE3 BZCurrent Price (01/02/15) R$ 7.23 / US$ 2.69Target Price (YE 2015) R$ 8.50 / US$ 3.2152-Week Range (R$) 6.50 - 9.47Market Capitalization (US$ Mn) 1,197Float (%) 67.93-Mth Avg. Daily Vol (US$ Mn) 7.0Shares Outstanding - Mn 446

50

60

70

80

90

100

110

j-13 m-13 a-13 d-13 a-14 a-14 d-14

MRVE3 BZ IBOVESPA

158

MRV ENGENHARIA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

MRV is the largest Brazilian real estate developer and builder in the low-income residential segment in terms of number of units developed. During its 30 years of experience in the industry, the company has developed strong capabilities that enable it to profitably operate in the low-income segment. The company is controlled by its founder, Rubens Menin, who has 34% of the company. Key Personnel: Rubens Menin Teixeira de Souza (Chairman), Leonardo Guimarães Corrêa (CFO and IR Officer) and Rafael de Souza and Eduardo de Souza (co-CEOs) Web: www.mrv.com.br/ri

Launches (R$ billion), 2013-16E

Contracted Sales (R$ billion), 2013-16E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 3,872 4,144 4,347 4,523 1,795 1,793 1,672 1,486 YoY change (%) 1.8 7.0 4.9 4.1 (7.8) (0.1) (6.8) (11.1)Gross Profit 1,161 1,262 1,361 1,466 538 546 524 481 YoY change (%) (3.9) 8.7 7.8 7.7 (13.0) 1.5 (4.2) (8.0)EBITDA 480 467 548 623 223 202 211 205 YoY change (%) (25.3) (2.8) 17.4 13.6 (32.4) (9.2) 4.4 (2.9) As % of Revenue 12.4 11.3 12.6 13.8 12.4 11.3 12.6 13.8Operating Income 584 552 667 749 271 239 256 246 YoY change (%) (23.3) (5.6) 20.9 12.4 (30.6) (11.9) 7.4 (4.0) As % of Revenue 15.1 13.3 15.3 16.6 15.1 13.3 15.3 16.6Financial Results (108) (24) (101) (115) (50) (10) (39) (38)Taxes (49) (53) (57) (59) (23) (23) (22) (19)Net Profit 424 717 488 551 197 310 188 181 YoY change (%) (19.6) 69.1 (32.0) 13.0 (27.2) 57.9 (39.6) (3.5) As % of Revenue 11.0 17.3 11.2 12.2 11.0 17.3 11.2 12.2

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (35) (39) (38) (37) (16) (17) (15) (12)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital 145 (197) (272) (415) 67 (85) (105) (136)Operating Cash Flow 604 559 254 173 280 242 98 57Capital Expenditures (114) (270) (31) (44) (53) (117) (12) (15)Free Cash Flow 718 828 284 217 333 358 109 71Other Invest./(Divestments) 13 (6) (2) (2) 6 (3) (1) (1)Change in Debt (185) (482) (120) (111) (86) (208) (46) (36)Dividends (125) (141) (179) (122) (58) (61) (69) (40)Capital Increases/Other (43) (177) 8 9 (20) (77) 3 3

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,689 1,173 1,104 1,007 721 460 416 326Current Assets 5,870 5,705 5,781 5,915 2,505 2,237 2,181 1,915Fixed Assets 760 991 983 991 324 389 371 321Total Assets 10,199 10,436 10,623 10,952 4,353 4,093 4,009 3,546Current Liabilities 2,559 2,768 2,694 2,698 1,092 1,085 1,017 874Long-Term Liabilities 3,272 2,980 2,867 2,769 1,397 1,169 1,082 897Shareholders' Equity 4,104 4,402 4,768 5,181 1,752 1,726 1,799 1,678Total Financial Debt 3,018 2,536 2,416 2,306 1,288 995 912 747ST Debt 775 991 991 991 331 389 374 321LT Debt 2,243 1,545 1,425 1,315 957 606 538 426




US$R$

3.52

4.28 4.56 4.84

2013

2014

e

2015

e

2016

e

5.09

5.98

5.51

2013

2014

e

2015

e

Rubens M. T. de Souza

34.0%

Board1.0%

Free Float65.0%

159



MULTIPLAN HOLD CURRENT PRICE: R$44.26


Investment Case: We like Multiplan’s story and believe there is hidden value to be unlocked in the long term, mainly from its landbank for unannounced multi-use projects and a unique ability to extract value from mature assets. We agree with the market’s positive view about Multiplan’s solid execution, but we expect this additional value to be reflected in the company’s numbers only gradually. In this sense, we see limited short-term triggers that could boost valuation much higher than current levels

Outlook 2015: Our Maturity Tracker points to solid 22% growth in Multiplan malls’ NOI in 2015. However, developments for sale should decelerate, leading to low-single-digit growth for the consolidated top line. We believe there is upside on additional leases in the Morumbi Corporate towers (67% leased by 3Q14) and the maturing of the recently leased area, so we expect earnings momentum in 2015 to remain consistent.

Valuation premium already reflected in the stock price: We believe Multiplan’s solid execution is already reflected in the company’s valuation at 16.0x and 15.1x P/FFO for 2015E and 2016E, with the average valuation premium to peers exceeding 20% by 2016E. Moreover, Multiplan is trading at an FFO yield of 6.3% for 2015, in-line with the long-term government bond, and we do not expect significant multiple dilution in 2016 due to temporary lower growth.

We are 11% below consensus for 2016E FFO: We believe this difference is mainly explained by unannounced developments for sale (for which we have a more conservative approach). We believe that even if Multiplan announces new developments, the revenue recognition may take longer to reach what is currently reflected in consensus estimates.



Company Statistics



Bloomberg MULT3 BZCurrent Price (01/02/15) R$ 44.26 / US$ 16.44Target Price (YE 2015) R$ 55.50 / US$ 20.9452-Week Range (R$) 42.60 - 58.48Market Capitalization (US$ Mn) 3,124Float (%) 0.03-Mth Avg. Daily Vol (US$ Mn) 14.6Shares Outstanding - Mn 190

70

80

90

100

110

j-13 m-13 a-13 d-13 a-14 a-14 d-14

MULT3 BZ IBOVESPA

160

MULTIPLAN Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Multiplan Empreendimentos Imobiliários S/A is one of the leading developers, owners, and operators of shopping centers in Brazil. As of 3Q14, the company held interest in 18 malls, with its own GLA of 562.465 m², boasting an average stake of 74% in its mall portfolio. Key Personnel: José Isaac Peres (CEO), Armando d'Almeida Neto (CFO) and Hans Melchers (IR Officer) Web: www.multiplan.com.br/ri

Owned GLA ('000 m²), 2013–16E

Rental Revenue (R$ in millions), 2013–16E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 978 1,111 1,149 1,282 453 481 442 475 YoY change (%) 1.7 13.6 3.4 11.5 (7.9) 6.1 (8.1) 7.4Gross Profit 789 924 1,012 1,103 366 400 389 408 YoY change (%) 2.9 17.2 9.5 8.9 (6.8) 9.4 (2.6) 4.9EBITDA 611 776 851 925 283 336 327 343 YoY change (%) (0.8) 27.1 9.7 8.7 (10.2) 18.7 (2.5) 4.6 As % of Revenue 62.4 69.8 74.1 72.2 62.4 69.8 74.1 72.2Operating Income 486 618 703 771 225 267 270 285 YoY change (%) (10.2) 27.2 13.7 9.7 (18.7) 18.7 1.1 5.6 As % of Revenue 49.7 55.6 61.1 60.1 49.7 55.6 61.1 60.1Financial Results (113) (162) (182) (218) (52) (70) (70) (81)Taxes (88) (119) (140) (149) (41) (51) (54) (55)Net Profit 285 337 380 404 132 146 146 150 YoY change (%) (26.7) 18.4 12.8 6.2 (33.6) 10.5 0.2 2.3 As % of Revenue 29.1 30.3 33.1 31.5 29.1 30.3 33.1 31.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (125) (158) (149) (154) (58) (69) (57) (57)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (101) (124) 0 (5) (47) (54) 0 (2)Operating Cash Flow 309 371 529 553 143 161 203 205Capital Expenditures (924) (273) (178) (463) (428) (118) (68) (171)Free Cash Flow (616) 99 351 91 (285) 43 135 34Other Invest./(Divestments) 9 (14) 2 15 4 (6) 1 6Change in Debt 303 (130) 1 5 141 (56) 0 2Dividends (194) (209) (211) (223) (90) (91) (81) (83)Capital Increases/Other 329 (173) (211) (223) 152 (75) (81) (83)

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 352 245 449 349 150 96 169 127Current Assets 840 766 970 897 358 301 366 326Fixed Assets 5,183 5,311 5,368 5,755 2,212 2,083 2,026 2,093Total Assets 6,476 6,545 6,780 7,026 2,764 2,567 2,559 2,555Current Liabilities 513 692 754 791 219 271 285 288Long-Term Liabilities 2,143 1,869 1,874 1,902 915 733 707 692Shareholders' Equity 3,819 3,980 4,149 4,329 1,630 1,561 1,566 1,574Total Financial Debt 2,133 2,004 2,004 2,004 911 786 756 729ST Debt 213 359 359 359 91 141 136 131LT Debt 1,921 1,645 1,645 1,645 820 645 621 598




US$R$

634.98

645.77 645.77

684.17

2013

2014

E

2015

E

2016

E

684.23789.69

889.72961.84

2013

2014

E

2015

E

2016

E

Multiplan Part.

22.2%

Ontario Teachers

28.9%

José Isaac Peres5.3%

Others43.6%

161



MULTIPLUS BUY CURRENT PRICE: R$32.55


Investment Case: We continue to see a favorable scenario for loyalty companies, with their relationship with banks still improving, and price wars (if any) abating. Please refer to our report Multiplus: Minding the Discount to Smiles, November 4, 2014, where we reinforced our Buy rating and our positive view on the name.

Outlook 2015: We believe there is a certain level of uncertainty about the company’s net income outlook for 2015, resulting in a widerange of estimates. Our net income estimate is R$370 million, which we consider conservative—we see more chances of upside risk than downside to our 2015 estimates. This net income estimate falls 11%short of Bloomberg consensus (R$414 million). If our numbers are right, we could see some downward earnings revisions on the Street. We believe a clearer view concerning 2015 earnings will only be possible at the beginning of 2015. Finally, our net income estimate still suggests 13% YoY growth, which we consider quite good (on a relative comparison with sectors outside financials) if we consider the tough macroeconomic scenario ahead in 2015.

Mind the gap. We note that MPLU3 trades at a large discount to SMLE3 (on a P/E 2015E basis), whereas we believe the right discount is 11%—therefore, we see this discount narrowing in the short term.

Margin is king. Multiplus and its main competitor Smiles both announced recently that they do not intend to compromise margins in order to grow, which indicates to us that no price wars are imminent for the time being.

A new status quo? Although Multiplus has certain positives (cash cow company, negative working capital, not capital-intensive, and large dividend payout ratios), it still lacks stable YoY EPS growth. If the company is able to produce sustainable EPS growth, we believe it could attract interest from investors and reach a new valuation level.




Company Statistics



Bloomberg MPLU3 BZCurrent Price (01/02/15) R$ 32.55 / US$ 12.09Target Price (YE 2015) R$ 39.00 / US$ 14.7252-Week Range (R$) 23.60 - 36.49Market Capitalization (US$ Mn) 1,961Float (%) 27.13-Mth Avg. Daily Vol (US$ Mn) 4.1Shares Outstanding - Mn 162

40

50

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

MPLU3 BZ IBOVESPA

162

MULTIPLUS Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Multiplus was created in 2009 as a business unit of TAM Group, having as its backbone the TAM Fidelidade loyalty program, which was created in 1993. Multiplus became independent in 2009 and held its IPO in 2010. The company operates as a loyalty program coalition network and has 465 partnerships through which its 13.3 million members (as of 3Q14), which makes it the leading loyalty coalition network in Brazil) may accrue points. The company is still a subsidiary of TAM Group, which owns 73% of its shares. Key Personnel: Roberto Medeiros (CEO), Jaime Rebelo (CFO) and Ronald Domingues (IRO) Web: http://multiplus.riweb.com.br/Multiplus/


Costs Breakdown, 2014E



INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ERevenue 1,822 2,109 2,258 2,410 779 827 852 876 Growth (%) 11.9 15.8 7.0 6.7 (2.3) 6.2 3.0 2.9EBITDA 285 389 450 501 122 153 170 182 Growth (%) 18.3 36.3 15.6 11.3 3.3 25.0 11.3 7.3Operating Profit 277 374 434 484 118 147 164 176 Growth (%) 17.6 35.1 16.1 11.6 2.7 24.0 11.7 7.5Profit before Taxes 345 494 562 641 148 194 212 233Taxes (113) (167) (192) (219) (48) (65) (72) (80)Minorities 0 0 0 0 0 0 0 0Net Profit 232 327 370 422 99 128 140 154 Growth (%) 3.6 40.7 13.2 14.2 (9.6) 29.1 8.9 10.0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,264 980 1,114 1,278 540 384 421 465Accounts Receivable 131 161 169 170 56 63 64 62Intangible and Deferred Asse 89.4 89.1 89.3 89.3 38.2 34.9 33.7 32.5Tangible Assets 8 12 13 13 4 5 5 5Total Assets 1,539 1,414 1,602 1,779 658 555 604 647ST Debt 0 0 0 0 0 0 0 0LT Debt 0 0 0 0 0 0 0 0Equity 186 149 149 149 79 59 56 54Net Debt (Cash) (1,264) (980) (1,114) (1,278) (540) (384) (421) (465)

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EChanges in Working Capital (72) 98 41 0 (31) 39 16 0Operating Cash Flow 461 352 460 (0) 197 138 173 (0)Capital Expenditures (72) 98 41 11 (31) 39 16 4Change in Debt 0 0 0 0 0 0 0 0Free Cash Flow to Equity 113 346 329 332 48 136 124 121Cash Dividends (223) (232) (327) (370) (95) (91) (123) (135)Capital Increase (Decrease) 0 0 0 0 0 0 0 0

OPERATING RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEBITDA Margin 15.7 18.4 19.9 20.8 15.7 18.4 19.9 20.8Effective Tax Rate 32.8 33.8 34.1 34.1 32.8 33.8 34.1 34.1Net Margin 0.1 0.2 0.2 0.2 0.1 0.2 0.2 0.2Net Debt / EBITDA (4.4) (2.5) (2.5) (2.6) (4.4) (2.5) (2.5) (2.6)Net Debt / Equity (6.8) (6.6) (7.5) (8.6) (7.4) (7.4) (7.5) (8.6)FCFE / Revenues 6.2 16.4 14.6 13.8 6.2 16.4 14.6 13.8ROAA 16.4 22.1 24.5 25.0 16.7 23.4 24.5 25.0ROAE 138.6 195.1 247.8 283.0 141.9 205.8 247.8 283.0Payout 99.2 100.0 100.0 100.0 89.8 91.7 88.0 99.4


PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 1.43 2.02 2.28 2.60 0.61 0.79 0.86 0.95CEPS 1.43 2.02 2.28 2.60 0.61 0.79 0.86 0.95FCFPS (0.99) (1.66) (1.93) (2.15) (0.42) (0.65) (0.73) (0.78)BVPS 1.15 0.92 0.92 0.92 0.49 0.36 0.35 0.33DPS 1.43 2.02 2.28 2.60 0.61 0.79 0.86 0.95

US$R$

Points Sale - TAM7.1%

Points Sale - Others78.5%

Breakage14.3%

Air tickets92.3%

Other redemptions

7.7%


- TAM72.8%

Others, Treasury

0.0%

Free float27.2%

163



NATURA UNDERPERFORM CURRENT PRICE: R$30.42



Investment Case: Natura has been diversifying its distribution channels to offset market share losses from increased competition and a slowdown in the direct sales channel. Although we recognize some initiatives might be transformational (including Rede Natura), we expect new developments to take time to mature and returns to decline, as alternative sales channels offer lower returns, raising investors’ concerns about short-term growth and returns. On the positive side, international operations are maturing quickly and should help offset sluggish growth in Brazil. We maintain our Underperform rating for Natura given the stock’s limited upside potential, still demanding valuation, and lingering uncertainties regarding maturing initiatives.

Outlook for 2015: We forecast Brazil sales will grow 5% YoY in 2015, owing to 4% consultant growth and slight productivity gains. Moreover, we anticipate consolidated top-line sales will grow 8% YoY, supported by maturing international operations, driving a 20-bp YoY EBITDA margin expansion, while competition in Brazil should remain fierce.

Catalysts: Rede Natura is slowly maturing and the company seems to be on the right track to improve its consumer intelligence and ultimately increase productivity (sales efficiency), while we also believe that the development of its own stores is also being considered and may serve as a new growth avenue. Nonetheless, we expect substantial improvements could take time to materialize, and short-term dynamics remain challenging.

Concerns: Main risks to our investment case include (1) increasing competition from local and foreign brands, (2) complexity of Rede Natura and potential issues with the company’s more intricate distribution structure, (3) diminishing returns from alternative distribution channels, and (4) possible changes in taxation for the CF&T industry.




Company Statistics



Bloomberg NATU3 BZCurrent Price (01/02/15) R$ 30.42 / US$ 11.30Target Price (YE 2015) R$ 33.00 / US$ 12.1852-Week Range (R$) 30.16 - 42.64Market Capitalization (US$ Mn) 4,873Float (%) 39.93-Mth Avg. Daily Vol (US$ Mn) 15.1Shares Outstanding - Mn 431

50

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

NATU3 BZ IBOVESPA

164

NATURA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Natura is one of the leading Brazilian players in the cosmetics, fragrances, and toiletries market (CF&T) as well as in the direct sales channel, with a 19.4% market share in its target market (6M14); 32.7% share in cosmetics and fragrances and 9.7% in toiletries. Founded in Brazil in 1969, the company launched operations in Argentina, Chile, and Peru in 1994. Natura currently operates in six Latin American countries, France and recently acquired the Australian brand Aesop (Emeis). Natura currently features 1.7 million consultants (sales reps), of which 1.3 million in Brazil (3Q14). The company is well known for its sustainability efforts and its shares are listed in the Novo Mercado, with a free float at 40%. Key Personnel: Plínio Villares Musetti (Chairman), Roberto Lima (CEO), Roberto Pedote (CFO) and Fabio Cefaly (Investor Relations Manager) Web: www.natura.net

Sales by Region, 3Q14

Industry Share by Country, 2013



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 7,000 7,543 8,116 8,846 3,244 3,212 3,086 3,131 YoY change (%) 10.3 7.8 7.6 9.0 (0.1) (1.0) (3.9) 1.5Gross Profit 4,907 5,231 5,640 6,174 2,274 2,228 2,145 2,186 YoY change (%) 9.6 6.6 7.8 9.5 (0.7) (2.0) (3.7) 1.9EBITDA 1,613 1,624 1,762 1,966 748 692 670 696 YoY change (%) 6.8 0.7 8.5 11.6 (3.3) (7.5) (3.1) 3.9 As % of Revenue 23.0 21.5 21.7 22.2 23.0 21.5 21.7 22.2Operating Income 1,408 1,413 1,521 1,708 652 602 579 605 YoY change (%) 2.8 0.3 7.7 12.2 (6.9) (7.8) (3.8) 4.5 As % of Revenue 20.1 18.7 18.7 19.3 20.1 18.7 18.7 19.3Financial Results (158) (240) (253) (272) (73) (102) (96) (96)Taxes (402) (373) (406) (447) (186) (159) (154) (158)Net Profit 842 799 863 989 390 340 328 350 YoY change (%) (2.2) (5.1) 7.9 14.7 (11.4) (12.8) (3.6) 6.7 As % of Revenue 12.0 10.6 10.6 11.2 12.0 10.6 10.6 11.2

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (206) (211) (240) (258) (95) (90) (91) (91)Other Noncash Items 120 343 516 527 56 146 196 187Changes in Working Capital (250) (99) 14 14 (116) (42) 5 5Operating Cash Flow 507 832 1,152 1,272 235 354 438 450Capital Expenditures (554) (478) (433) (410) (257) (203) (164) (145)Free Cash Flow 813 1,110 684 852 377 473 260 302Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 569 676 0 0 264 288 0 0Dividends (856) (757) (719) (863) (397) (322) (273) (305)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,309 1,583 1,583 1,583 559 621 584 539Current Assets 3,513 4,026 4,118 4,236 1,499 1,579 1,520 1,441Fixed Assets 2,736 3,137 3,329 3,481 1,168 1,230 1,229 1,184Total Assets 6,248 7,163 7,448 7,717 2,667 2,809 2,748 2,625Current Liabilities 2,327 2,692 2,798 2,931 993 1,056 1,033 997Long-Term Liabilities 2,753 3,243 3,243 3,243 1,175 1,272 1,197 1,103Shareholders' Equity 1,168 1,227 1,405 1,543 499 481 519 525Total Financial Debt 2,894 3,570 3,570 3,570 1,235 1,400 1,317 1,214ST Debt 693 919 919 919 296 360 339 312LT Debt 2,201 2,652 2,652 2,652 939 1,040 978 902




US$R$

LatAm (ex-Brazil)15.3%

Brazil82.0%

Others2.7%

USA16.1%

China9.7%Brazil

9.5%Japan8.6%

Germany4.2%

Others51.9%

Controlling Group 60.1%

Free Float39.9%

165



ODONTOPREV HOLD CURRENT PRICE: R$9.36 TARGET PRICE: R$10.50


Investment Case: We maintain our cautious view on OdontoPrev, based on the limited upside offered by our YE2015 target price. We see the company’s premium valuation (2015E P/E of 21x) as fair, considering its strong market position and the strength of its businessmodel (4% 2015E FCF yield and 2014 ROE of 36%), although it short-term growth outlook has been reduced.

Outlook 2015: In our view, the sluggish formal job creation in 2015 will curb the company’s initiatives to reignite membership growth (outlined below). We expect, therefore, 2% YoY growth in membership, coupled with the addition of 75,000 members from BrasilDental (JV) with Banco do Brasil. We are conservatively assuming flattish EBITDA margins in 2015 (27%), leading to 6% YoYEBITDA growth.

Among the initiatives to reignite growth in 2015, we highlight: (i) campaigns to increase conversion of employees at client corporations that adopt non-sponsored plans (nearly 50% of OdontoPrev's corporate membership), where penetration is currentlyat suboptimal levels; (ii) educational campaigns to increase retention of existing users; and (iii) the beginning of on-line sales in 1H15 (initially through OdontoPrev's website, later via Bradesco Dental's).

Free option on INSS dispute adds R$1.00 to our YE2015 target price. If the company wins the judicial dispute over the payment of social service charges to dentists, we believe it could distribute the R$140 million in judicial deposits to shareholders (yielding an extra dividend of ~3%), as well as obtain a 300-bp EBITDA margin gain from no longer incurring this expense.

Positive medium-term trend for average ticket. While we have a conservative stance on the individual product, we acknowledge that the larger share of individual clients tends to push the average ticket ahead of inflation. Individual plans sold through the banking channel are priced at R$37.50 per month, well above the consolidated average ticket of ~R$15 and that of the retail portfolio (~R$20).



Company Statistics



Bloomberg ODPV3 BZCurrent Price (01/02/15) R$ 9.36 / US$ 3.48Target Price (YE 2015) R$ 10.50 / US$ 3.8752-Week Range (R$) 8.52 - 10.20Market Capitalization (US$ Mn) 1,838Float (%) 47.63-Mth Avg. Daily Vol (US$ Mn) 6.0Shares Outstanding - Mn 529

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

ODPV3 BZ IBOVESPA

166

ODONTOPREV Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Founded in 1987 by a group of dentists, OdontoPrev is the largest dental-care plan provider in Brazil, with a membership of roughly 6 million, leading to a 33% share in Brazil’s dental market. OdontoPrev’s network consists of more than 25,000 dentists operating in more than 2,000 cities, and its main product is a risk-based plan (pre-paid plan). On August 2014, the company announced the beginning of operations of Brasildental, a joint venture with Banco do Brasil, which aims to serve dental plans to the bank’s employees and its their dependents, as well as to explore dental plan sales through the bank's distribution channels. Key Personnel: Mauro Figueiredo (CEO) and José Roberto Borges Pacheco (IR Officer) Web: www.odontoprev.com.br/ir

Membership Breakdown, 3Q14




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,070 1,146 1,232 1,362 496 488 469 482 YoY change (%) 11.9 7.1 7.6 10.5 1.4 (1.6) (4.0) 2.9Gross Profit 568 611 665 739 263 260 253 261 YoY change (%) 21.0 7.5 8.8 11.1 9.6 (1.2) (2.8) 3.4EBITDA 273 307 326 372 126 131 124 132 YoY change (%) 20.1 12.7 6.2 14.1 8.8 3.5 (5.2) 6.2 As % of Revenue 25.5 26.8 26.5 27.3 25.5 26.8 26.5 27.3Operating Income 263 287 326 373 122 122 124 132 YoY change (%) 31.6 9.1 13.5 14.5 19.2 0.3 1.3 6.6 As % of Revenue 24.6 25.1 26.4 27.4 24.6 25.1 26.4 27.4Financial Results 12 15 12 10 6 6 5 3Taxes (87) (97) (104) (119) (40) (41) (40) (42)Net Profit 188 205 234 264 87 87 89 93 YoY change (%) 29.2 8.7 14.5 12.5 17.1 (0.1) 2.2 4.8 As % of Revenue 17.6 17.9 19.0 19.3 17.6 17.9 19.0 19.3

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 5 6 8 10 2 2 3 4Other Noncash Items 17 (1) 0 0 8 (0) 0 0Changes in Working Capital 24 (45) (6) (9) 11 (19) (2) (3)Operating Cash Flow 224 153 220 245 104 65 84 87Capital Expenditures (19) (24) (12) (14) (9) (10) (5) (5)Free Cash Flow 206 128 208 231 95 55 79 82Other Invest./(Divestments) - - - - - - - -Change in Debt 0 0 0 0 0 0 0 0Dividends (182) (225) (234) (264) (84) (96) (89) (93)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 257 258 247 234 110 101 91 80Current Assets 369 386 386 390 158 151 142 133Fixed Assets 547 554 558 562 233 217 206 191Total Assets 1,074 1,092 1,097 1,104 458 428 405 376Current Liabilities 220 240 245 253 94 94 90 86Long-Term Liabilities 156 193 193 193 67 76 71 66Shareholders' Equity 696 657 657 657 297 258 242 223Total Financial Debt 0 0 0 0 0 0 0 0ST Debt 0 0 0 0 0 0 0 0LT Debt 0 0 0 0 0 0 0 0

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt (257) (258) (247) (234) (110) (101) (91) (80)Capital Employed 441 401 412 425 188 157 152 145Net Debt/EBITDA (0.9) (0.8) (0.8) (0.6) (0.9) (0.8) (0.7) (0.6)Net Debt/Equity (0.4) (0.4) (0.4) (0.4) (0.4) (0.4) (0.4) (0.4)Capex/Revenue (%) 1.7 2.1 1.0 1.0 1.7 2.1 1.0 1.0Int Cover (%) 23.5 15.7 13.4 14.3 23.5 15.7 13.4 14.3Dividend Payout (%) 125.0 119.6 114.5 112.5 113.2 109.7 100.2 111.4ROCE (%) 79.3 95.7 104.2 115.8 84.9 104.9 105.1 115.8ROE (%) 27.0 30.2 35.7 40.1 27.4 32.1 35.6 40.1



US$R$

Large Corporate

80.8%

SME11.9%

Individuals7.2%

Corporate87.4%

Individuals12.6%

Bradesco50.0%Mgmt.

1.6%

Free-float47.6%

Treasury0.8%

167



PDG REALTY UNDERPERFORM CURRENT PRICE: R$0.84

TARGET PRICE: R$0.90 DOWNGRADING RATING TO UNDERPERFORM FROM HOLD INTRODUCING YE2015 TARGET PRICE OF R$0.90; REPLACING YE2014 TARGET PRICE OF $1.95

Investment Case: We believe PDG should show early signs of improvements in terms of cash generation in 2015. However, we believe investors’ sentiment toward the stock is likely to remain negative until PDG delivers material quarterly performance improvements, which we do not expect in the short term.

Outlook 2015: Although PDG’s cash consumption slowed in 3Q14, and we believe this trend is likely to continue improving gradually, we expect PDG to continue posting weak results over the next quarters.

We acknowledge that PDG’s hard work should bear fruit . . . PDG is working hard to turn around its operations, a process incorporating massive revisions in cost budget and projects, sales cancellations, and redefinition of internal processes.

. . . but that short-term momentum is likely to remain weak. We expect PDG to close 2015 and 2016 with net losses due to (1) a large proportion of “legacy” projects, (2) low operating leverage, and (3) heavy financial expenses.

Turnaround is far from over and execution risk is not negligible. The company is currently focusing on monetizing assets in order to pay its debt due in 2015. As a result, PDG is organizing marketing campaigns and offering units at discounted prices (mainly finished units and units near completion) in order to boost sales and consequently, to generate cash.

Leverage remains an issue. Although PDG heavily downsized its operations in the last three years, which should favor consistent and sizable cash flow over the next few years, leverage remains an issue. We expect net debt/equity to drop to a still uncomfortable 93% at YE2015 (from 131% at YE2014E), dropping to 35% at YE2016E.



Company Statistics



Bloomberg PDGR3 BZCurrent Price (01/02/15) R$ 0.84 / US$ 0.31Target Price (YE 2015) R$ 0.90 / US$ 0.3452-Week Range (R$) 0.78 - 1.90Market Capitalization (US$ Mn) 418Float (%) 59.03-Mth Avg. Daily Vol (US$ Mn) 5.3Shares Outstanding - Mn 1,340

20

40

60

80

100

120

j-13 m-13 a-13 d-13 a-14 a-14 d-14

PDGR3 BZ IBOVESPA

168

PDG REALTY Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

PDG is a real estate investment firm engaged in the development of housing projects through its portfolio of subsidiaries and the co-development of projects with other players in the sector in Brazil. The main companies comprising PDG’s portfolio are AGRE, Goldfarb, CHL, TGLT, REP and Brasil Brokers. The company boasts a portfolio of over 100,000 units delivered across 14 Brazilian states including the Federal District (Brasília) and Argentina. Although it operates in all income segments, its primary focus is the middle- to low-income segments. Key Personnel: Carlos Augusto Piani (CEO), Marco Racy Kheirallah (CFO) and Rafael Espirito Santo (IR Officer) Web: www.pdgrealty.com.br

Launches (R$ in billions), 2013-16E

Contracted Sales (R$ in billions), 2013-16E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 5,317 4,125 3,049 2,525 2,464 1,785 1,173 829 YoY change (%) 21.8 (22.4) (26.1) (17.2) 10.3 (27.6) (34.3) (29.3)Gross Profit 1,472 1,115 831 720 682 482 319 237 YoY change (%) n/m (24.3) (25.5) (13.3) n/m (29.3) (33.8) (25.9)EBITDA 316 245 134 116 146 106 51 38 YoY change (%) n/m (22.5) (45.4) (13.4) n/m (27.6) (51.5) (26.0) As % of Revenue 5.9 5.9 4.4 4.6 5.9 5.9 4.4 4.6Operating Income 615 499 296 241 285 216 114 79 YoY change (%) n/m (19.0) (40.6) (18.6) n/m (24.3) (47.2) (30.5) As % of Revenue 11.6 12.1 9.7 9.6 11.6 12.1 9.7 9.6Financial Results (643) (662) (442) (330) (298) (286) (170) (108)Taxes (126) (149) (111) (79) (58) (64) (43) (26)Net Profit (271) (366) (274) (179) (126) (159) (106) (59) YoY change (%) 87.4 (35.2) 25.1 34.9 88.6 (26.2) 33.4 44.4 As % of Revenue (5.1) (8.9) (9.0) (7.1) (5.1) (8.9) (9.0) (7.1)

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (74) (54) (52) (52) (34) (23) (20) (17)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (811) 887 2,436 3,014 (376) 384 937 990Operating Cash Flow (1,008) 575 2,213 2,887 (467) 249 851 948Capital Expenditures (189) (129) (94) (78) (87) (56) (36) (26)Free Cash Flow (819) 704 2,307 2,965 (380) 304 887 974Other Invest./(Divestments) 62 0 0 0 29 0 0 0Change in Debt 601 (481) (612) (565) 279 (208) (235) (185)Dividends 0 0 0 0 0 0 0 0Capital Increases/Other 124 20 19 20 58 9 7 6

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,353 1,338 2,864 5,128 578 525 1,081 1,661Current Assets 9,734 9,322 9,005 9,285 4,155 3,656 3,398 3,007Fixed Assets 1,555 1,631 1,673 1,699 664 640 631 550Total Assets 16,799 15,868 14,526 13,615 7,170 6,223 5,481 4,409Current Liabilities 4,831 5,186 4,598 4,241 2,062 2,034 1,735 1,373Long-Term Liabilities 6,637 5,697 5,199 4,804 2,833 2,234 1,962 1,556Shareholders' Equity 4,704 4,340 4,066 3,887 2,008 1,702 1,534 1,259Total Financial Debt 8,367 7,886 7,273 6,709 3,571 3,092 2,745 2,172ST Debt 2,953 3,299 3,043 2,807 1,260 1,294 1,148 909LT Debt 5,414 4,586 4,230 3,902 2,311 1,798 1,596 1,263

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 7,737 7,115 4,980 2,234 3,302 2,790 1,879 723Capital Employed 11,216 10,472 8,046 5,030 4,787 4,107 3,036 1,629Net Debt/EBITDA 24.5 29.0 37.2 19.3 22.6 26.3 36.5 19.0Net Debt/Equity 1.6 1.6 1.2 0.6 1.8 1.9 1.2 0.6Capex/Revenue (%) 3.6 3.1 3.1 3.1 3.6 3.1 3.1 3.1Int Cover (%) 0.2 0.2 0.1 0.1 0.2 0.2 0.1 0.1Dividend Payout (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0ROCE (%) 5.5 4.8 3.7 4.8 6.0 5.4 3.7 4.8ROE (%) (5.6) (8.1) (6.5) (4.5) (5.6) (8.6) (6.5) (4.5)

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E - - - - - - - -P/CE - - - - - - - -FV/EBITDA 33.2 34.4 47.0 30.7 30.5 31.0 46.0 31.9FV/EBIT 17.0 16.9 21.2 14.7 15.7 15.2 20.8 15.3FV/Revenue 2.0 2.0 2.1 1.4 1.8 1.8 2.0 1.5P/BV 0.5 0.3 0.3 0.3 0.5 0.3 0.3 0.3FCF Yield (%) (33.8) 61.1 205.1 263.5 (37.0) 70.3 212.3 233.0Div Yield (%) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0)

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS (0.24) (0.33) (0.20) (0.13) (0.11) (0.14) (0.08) (0.04)DPS 0 0 0 0 0 0 0 0BVPS 3.51 3.24 3.04 2.90 1.50 1.27 1.15 0.94

US$R$

2.01

1.13 1.141.31

2013

2014

e

2015

e

2016

e

2.83

1.98 1.99 1.87

2013

2014

e

2015

e

2016

e

Orbis10.1%

Vinci14.1%

Platinum5.5%Skopos

5.1%Dimensional

5.0%

Others60.2%

169

http://www.pdgrealty.com.br/



PETROBRAS HOLD CURRENT PRICE: US$6.76



Investment Case: After several years without significant growth in production, Petrobras reached an inflection point in 2014 that should continue in 2015, in our view. However, we believe that production alone is not enough to significantly improve the company’s fundamentals and fragile balance sheet: rationalization, a cut in capex (particularly on the back of the on-going, significant drop in oil prices), and a sound, predictable pricing policy for gasoline and diesel also are needed in tandem.

Outlook 2015: Although we expect oil production to continue growing in 2015, the combination of significantly lower oil prices and a depreciating Brazilian real should continue pressuring the company’s fundamentals and balance sheet, in our view. Additionally, we have to carefully monitor the ongoing investigation of the company and the implications it could have in terms of impairments and impact on book value.

Key risks to monitor include: (i) the impact of the ongoing, significant drop in oil prices on the company upstream and downstream operations; (ii) whether or not the company will be allowed to maintain the current premium in gasoline and diesel prices (vs. international prices) during 2015, or whether prices will be cut orthe CIDE tax re-introduced; (iii) the effect of the continuing depreciation of the Brazilian real; (iv) the ability to fund capex via the company’s own cash flow generation, debt, or even potentially sale of assets; (iv) potential impairments resulting from the investigationof the company that is still in progress; and (v) the impact that all these factors could have on the company’s dividend policy.

Rationalization of capex: As a result of the significant, current drop in oil prices, we believe an important rationalization of the company’s very large five-year capex plan of US$220 billion needs to take place.

Pricing policy for gasoline and diesel. We have to carefully monitor whether Petrobras will be allowed or not to keep its prices forgasoline and diesel at large premiums at which they are currently selling vs. international prices.



Company Statistics



Bloomberg PBR US / PETR3 BZCurrent Price (01/02/15) US$ 6.76 / R$ 9.00Target Price (YE 2015) US$ 8.20 / R$ 12.0052-Week Range (US$) 6.26 - 20.65Market Capitalization (US$ Mn) 44,089Float (%) 51.63-Mth Avg. Daily Vol (US$ Mn) 517.2Shares Outstanding - Mn 6,522

20

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

Petrobras - ADR (Rebased)

170

PETROBRAS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Petrobras is Brazil’s integrated oil and gas company created in 1954 as a wholly owned government entity responsible for all hydrocarbon activities in the country. Key Personnel: Maria das Graças Foster (CEO), Almir Guilherme Barbassa (CFO) and Almir Guilherme Barbassa (IR Officer) Web: www.petrobras.com.br


Sales Volume by Segment, 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 304,890 341,549 307,924 352,168 141,153 145,018 117,081 124,441 YoY change (%) 8.4 12.0 (9.8) 14.4 (1.7) 2.7 (19.3) 6.3Gross Profit 71,164 87,311 92,639 110,380 32,946 37,071 35,224 39,003 YoY change (%) 0.4 22.7 6.1 19.2 (8.9) 12.5 (5.0) 10.7EBITDA 62,967 75,383 86,483 99,594 29,151 32,007 32,883 35,192 YoY change (%) 17.8 19.7 14.7 15.2 6.9 9.8 2.7 7.0 As % of Revenue 20.7 22.1 28.1 28.3 20.7 22.1 28.1 28.3Operating Income 35,022 42,393 47,024 57,521 16,214 17,999 17,880 20,325 YoY change (%) 5.7 21.0 10.9 22.3 (4.1) 11.0 (0.7) 13.7 As % of Revenue 11.5 12.4 15.3 16.3 11.5 12.4 15.3 16.3Financial Results (6,202) (5,240) (7,558) (10,839) (2,871) (2,225) (2,874) (3,830)Taxes (5,148) (9,238) (13,003) (15,614) (2,383) (3,922) (4,944) (5,517)Net Profit 23,570 28,058 26,609 31,232 10,912 11,913 10,118 11,036 YoY change (%) 11.3 19.0 (5.2) 17.4 1.0 9.2 (15.1) 9.1 As % of Revenue 7.7 8.2 8.6 8.9 7.7 8.2 8.6 8.9

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (13,179) (14,007) (15,003) (14,867) (6,101) (5,947) (5,705) (5,253)Other Noncash Items (20,084) 233 263 286 (9,298) 99 100 101Changes in Working Capital 3,658 1,149 4,194 1,867 1,694 488 1,595 660Operating Cash Flow 35,611 62,431 70,525 75,459 16,487 26,507 26,816 26,664Capital Expenditures (103,868) (84,693) (93,456) (98,846) (48,087) (35,960) (35,535) (34,928)Free Cash Flow (40,770) (16,706) (14,902) (12,224) (18,875) (7,093) (5,666) (4,319)Other Invest./(Divestments) 30,022 (1,770) (2,143) (2,505) 13,899 (751) (815) (885)Change in Debt 39,080 47,222 44,074 45,710 18,093 20,050 16,758 16,152Dividends (8,575) (9,099) (10,475) (11,975) (3,970) (3,863) (3,983) (4,231)Capital Increases/Other (1,030) 636 765 832 (477) 270 291 294

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 46,273 66,259 80,060 95,763 19,775 25,984 29,542 32,572Current Assets 123,351 147,170 153,923 176,403 52,714 57,714 56,798 60,001Fixed Assets 585,616 693,854 793,452 920,234 250,263 272,100 292,787 313,005Total Assets 752,146 890,441 1,001,678 1,157,690 321,430 349,193 369,623 393,772Current Liabilities 82,525 88,171 86,106 95,905 35,267 34,577 31,773 32,621Long-Term Liabilities 321,108 401,818 473,693 562,765 137,226 157,576 174,795 191,417Shareholders' Equity 347,940 399,271 440,949 498,378 148,692 156,577 162,712 169,516Total Financial Debt 267,521 342,656 409,571 491,818 114,325 134,375 151,133 167,285ST Debt 18,782 20,571 21,997 24,011 8,026 8,067 8,117 8,167LT Debt 249,038 322,085 387,573 467,807 106,426 126,308 143,016 159,118




US$R$

Brazil90.7%

Other9.3%

Diesel34.9%

Gasoline23.5%

LPG8.0%

Natural Gas14.1%

Others19.4%

Brazilian Government

31.1%

BNDES13.4%

Sovereign Fund3.9%

Free Float51.6%

171



PORTO SEGURO HOLD CURRENT PRICE: R$31.00



Investment Case: PSSA3 trades at a premium to Itau and Bradesco on a 2015E P/E basis, despite its much lower ROE. Thus, we see large banks as a cheaper way to play Brazil’s insurance segment. Finally, our target price leaves little room for appreciation potential.

Outlook 2015: We see some supportive tailwinds for 2015, but these are already priced in, in our opinion. We expect the insurance industry sector and Porto Seguro in particular to benefit from a series of positives, such as a higher (and less volatile) average Selic and prevailing high inflation. The more rational competition we have been seeing should continue until mid-2015, when we believe the competitive landscape will be reviewed to be positioned for conditions in 2016. Finally, 2015 will not benefit from nonrecurring revenue, which strongly inflated the bottom line in 2013 and, to a lesser extent, in 2014; therefore, we do not expect strong EPS grow YoY in 2015 on a reported net income basis.

Sustainable ROE. We concur with company guidance for a 16-18% long-term sustainable ROE. The 2014 ROE will be near 16%, pushed by some ~R$100 million in nonrecurring items. This sustainable ROE expectation depends on the level of competition, and is also based on a financial income return of 100% (over the local interest rates—Selic) per year, although the historical return has been above that, near 110%.

Excess capital could eventually be distributed. The company will end 2014 with circa R$1.4 billion in excess capital, by our estimate, which could be partially distributed in the future. But this is a long-term expectation, as (i) the fully loaded Solvency II requirement must first be known (company estimates more than R$70 million to be required by YE2015 to face the market risk pillar), and (ii) top management is conservative on capital matters.

No material change in EPS. We revised our numbers after the 3Q14 release, with no material change in EPS for 2014, 2015, and 2016: a small ~3% reduction in EPS for the period.




Company Statistics



Bloomberg PSSA3 BZCurrent Price (01/02/15) R$ 31.00 / US$ 11.52Target Price (YE 2015) R$ 34.00 / US$ 12.9352-Week Range (R$) 27.41 - 35.00Market Capitalization (US$ Mn) 3,723Float (%) 30.13-Mth Avg. Daily Vol (US$ Mn) 5.0Shares Outstanding - Mn 323

60

80

100

120

140

160

J-13 M-13 A-13 D-13 A-14 A-14 D-14

PSSA3 BZ IBOVESPA

172

PORTO SEGURO Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Porto Seguro S.A. is Brazil’s leading insurance company in the Auto segment, with more than 60 years of experience in this sector. The company also offers health insurance, as well as home and life, among others. The company launched its IPO in 2004, which raised funds to help it consolidate its presence in the Brazilian market. In 2009, Itaú Unibanco and Porto Seguro announced an agreement to merge their Home and Automobile insurance operations, which gave Porto Seguro exclusive distribution rights for the Auto insurance products (Porto Seguro and Azul brands) in Itaú Unibanco’s branch network. The company is controlled by Jayme Brasil Garfinkel, who indirectly owns approximately 40% of the company. Key Personnel: Jayme Brasil Garfinkel (Chairman), Fabio Luchetti (CEO), Marcelo Picanço (CFO) and Ricardo Fuzaro (IRM) Web: www.portoseguro.com.br

Invested Portfolio, 3Q14

Premiums per Segment, 2014E



INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EWritten Premiums 11,363 12,523 13,676 14,971 5,093 5,065 5,161 5,246 Growth (%) 18.0 10.2 9.2 9.5 4.8 (0.6) 1.9 1.7Retained Premiums 11,291 12,239 13,581 14,863 5,061 4,950 5,125 5,208 Growth (%) 18.1 8.4 11.0 9.4 4.8 (2.2) 3.5 1.6Earned Premiums 10,479 11,778 12,830 14,032 4,697 4,764 4,841 4,917 Growth (%) 18.5 12.4 8.9 9.4 5.2 1.4 1.6 1.6Commissions and Expenses (9,369.3) (10,637.2) (11,662.1) (12,630.5) (4,199.8) (4,302.4) (4,400.8) (4,425.9)Underwriting Results 1,050 (44) (174) (90) 471 (18) (66) (32)Financial Result 958 869 890 918 429 352 336 322Equity Income 524 717 958 1,045 235 290 362 366Profit Before Taxes 2,226 1,339 1,394 1,607 998 542 526 563Taxes (829) (449) (487) (545) (372) (182) (184) (191)Net Profit 1,397 890 907 1,062 626 360 342 372 Growth (%) 105.5 (36.3) 1.9 17.2 82.5 (42.5) (5.0) 8.8

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,041 883 991 1,137 483 377 377 403Financial Assets 7,081 6,007 6,739 7,735 3,282 2,563 2,562 2,738Premiums Receivable 3,792 4,133 4,514 4,943 1,758 1,763 1,716 1,750Intangible Assets 1,425 1,498 1,574 1,655 660 639 599 586Tangible Assets 1,213 1,331 1,399 1,470 562 568 532 520Total Assets 20,409 21,164 23,016 25,390 9,459 9,031 8,751 8,987Current Liabilities 13,347 14,466 15,882 17,719 6,186 6,173 6,039 6,272Technical Provisions 644 710 786 871 298 303 299 308Other Provisions 396 403 423 445 184 172 161 157Debt and Financial Liabilities 3,755 4,116 4,523 4,982 1,740 1,756 1,720 1,764Minority Interest 13 19 19 19 6 8 7 7Equity 5,894 6,005 6,406 6,906 2,732 2,563 2,436 2,444


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 6.9 11.0 11.1 9.4 6.5 10.3 10.9 10.0P/CE 6.9 11.0 11.1 9.4 6.5 10.3 10.9 10.0P/BV 1.6 1.6 1.6 1.5 1.5 1.4 1.5 1.5Div Yield (%) 3.6 8.9 4.4 4.4 3.8 9.6 4.5 4.1


US$R$

Porto Seguro

Auto34.9%

Azul16.3%

Itau Auto16.9%

Health8.9%

P&C8.6%

Others14.4%

Floating rate53.0%

Fixed rate

24.0%

Inflation linked3.0%

Corporate bonds17.0%

Equities3.0%

PSIUPAR70.8%

Free Float29.2%

173



POSITIVO INFORMATICA BUY CURRENT PRICE: R$2.03


INTRODUCING YE2015 TARGET PRICE OF R$3.20; REPLACING YE2014 TARGET PRICE OF R$4.00 Investment Case: Amid a still disappointing PC market in Brazil in

2014 (with research institute IDC estimating volumes -25% YoY), Positivo has focused its efforts on (i) reducing debt, (ii) establishing a healthy inventory level (to improve returns), and (iii) increasing protection against FX variations. In our view, current FX levels, if they remain stable, would help Positivo’s pricing competitiveness and allow higher fixed-cost dilution (G&A and development costs are mostly in R$ terms). However, the outlook remains challenging (mainly in Brazil), on a combination of a cloudy macro scenario and the ongoing deterioration of Positivo’s main business segment (PCs).

Outlook 2015: We expect Positivo to maintain its focus on improving its balance sheet, focusing on generating cash, and reducing invested capital. We expect Positivo to be more selective in government projects, while restricting volume commitments to larger partners in the retail segment. In this sense, we cannot rule out salesvolatility. We do not expect return on capital to meet the company’s cost of capital in 2015, but we expect it to keep gradually improving in the upcoming years.

Improving the mix to offset a weaker PC market: Positivo recently announced a partnership with telecom operators for smartphone sales. We believe the agreement will likely accelerate sales and Positivo’s brand exposure, potentially resulting in significant market share gains, helping to offset the shrinking PC market. We forecast aflat top line in 2015, reflecting a combination of (1) 72% growth in smartphones sales (with additional upside in the coming years); (2)flat tablet sales; (3) still strong government sales, albeit down 9% YoY on hard comps (and no plans to reduce exposure to this segment); and (4) a 11% decline in PCs sales.

Positioning to become an international player: After a successful joint venture in Argentina (mostly focused on retail), in 2015 Positivowill launch a small operation in Africa. We see this is as a first step toward replicating the company’s local success in educational programs for other emerging economies. We see room for Positivo tobecome an international reference in this segment, which, combined with its expertise in meeting government requirements, may open thedoors to a new market.



Company Statistics



Bloomberg POSI3 BZCurrent Price (01/02/15) R$ 2.03 / US$ 0.75Target Price (YE 2015) R$ 3.20 / US$ 1.2152-Week Range (R$) 1.95 - 3.28Market Capitalization (US$ Mn) 66Float (%) 87.03-Mth Avg. Daily Vol (US$ Mn) 0.2Shares Outstanding - Mn 88

20

40

60

80

100

120

j-13 m-13 a-13 d-13 a-14 a-14 d-14

POSI3 BZ IBOVESPA

174

POSITIVO INFORMATICA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Positivo Informática held, at the end of 2Q14, a 15.6% market share in official PC sales in Brazil. The largest portion of Positivo’s sales was geared toward the retail market, targeting mostly Class C households. Positivo is also present in the government (30% of units sold) and corporate (15% of units sold) segments, including production in Argentina. Positivo Informática also offers mobile devices through its Positivo Ypy product line, including tablets and smartphones with extensive content in Portuguese. POSI3 shares are listed in the Novo Mercado, bearing 100% tag-along rights, and the free float is currently 87%. Key Personnel: Helio Rotenberg (CEO) and Lincon Lopes Ferraz (IR Officer) Web: www.positivoinformatica.com.br/ri

Total PCs Units Sold (000)

Segment Breakdown (units sold), 9M14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 2,567 600 2,175 2,225 1,170 245 836 824 YoY change (%) 22.1 (76.6) 262.7 2.3 9.1 (79.1) 241.3 (1.5)Gross Profit 549 121 533 544 250 50 205 202 YoY change (%) 6.3 (77.9) 338.6 2.1 (5.0) (80.2) 312.8 (1.7)EBITDA 104 29 95 104 47 12 36 38 YoY change (%) 27.8 (72.0) 227.2 9.7 14.2 (74.9) 207.9 5.6 As % of Revenue 4.0 4.8 4.4 4.7 4.0 4.8 4.4 4.7Operating Income 54 17 83 91 25 7 32 34 YoY change (%) 18.1 (69.5) 402.3 9.5 5.5 (72.6) 372.7 5.5 As % of Revenue 2.1 2.8 3.8 4.1 2.1 2.8 3.8 4.1Financial Results (59) (18) (40) (25) (27) (7) (16) (9)Taxes 0 0 (16) (10) 0 0 (6) (4)Net Profit 16 1 27 56 7 0 10 21 YoY change (%) (48.2) (92.7) 2,243.7 109.8 (53.7) (93.4) 2,105.4 102.0 As % of Revenue 0.6 0.2 1.2 2.5 0.6 0.2 1.2 2.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 49 12 12 13 23 5 5 5Other Noncash Items - - - - - - - -Changes in Working Capital (34) (1) 47 (14) (16) (0) 18 (5)Operating Cash Flow 10 10 102 65 5 4 39 24Capital Expenditures (14) (3) (13) (17) (6) (1) (5) (6)Free Cash Flow 92 (49) 17 25 42 (20) 7 9Other Invest./(Divestments) - - - - - - - -Change in Debt 75 (59) (65) (20) 34 (24) (25) (7)Dividends 0 0 (8) (7) 0 0 (3) (2)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 170 116 195 217 72 45 74 79Current Assets 1,518 1,374 1,219 1,265 648 539 460 460Fixed Assets 276 261 289 293 118 103 109 106Total Assets 1,880 1,722 1,586 1,635 802 675 598 595Current Liabilities 1,011 867 594 594 431 340 224 216Long-Term Liabilities 223 218 295 284 95 85 111 103Shareholders' Equity 646 637 697 757 276 250 263 275Total Financial Debt 554 495 427 408 237 194 161 148ST Debt 387 334 192 184 165 131 73 67LT Debt 167 162 235 224 71 63 89 81

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 385 380 232 190 164 149 88 69Capital Employed 1,000 987 912 930 427 387 344 338Net Debt/EBITDA 3.7 13.1 2.5 1.8 3.5 12.6 2.4 1.8Net Debt/Equity 0.6 0.6 0.3 0.3 0.7 0.7 0.3 0.3Capex/Revenue (%) 0.5 0.5 0.6 0.8 0.5 0.5 0.6 0.8Int Cover (%) - - - - - - - -Dividend Payout (%) 0.0 0.0 679.9 25.0 0.0 0.0 598.5 24.8ROCE (%) 5.4 1.7 9.1 9.8 5.9 1.9 9.2 9.8ROE (%) 2.4 0.2 4.0 7.7 2.5 0.2 4.0 7.7

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 16.1 n/m 6.6 3.2 15.0 n/m 6.4 3.2P/CE - - 11.9 4.1 - - 11.5 4.1FV/EBITDA 6.1 19.6 4.3 3.5 5.7 18.6 4.2 3.5FV/EBIT 11.8 34.4 4.9 4.1 11.0 32.5 4.8 4.0FV/Revenue 0.2 0.9 0.2 0.2 0.2 0.9 0.2 0.2P/BV 0.4 0.3 0.3 0.2 0.4 0.3 0.3 0.2FCF Yield (%) 36.5 (26.2) 9.7 14.1 39.3 (28.4) 10.1 14.0Div Yield (%) (0.0) (0.0) 4.4 3.8 (0.0) (0.0) 4.5 3.8

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 0.18 0.01 0.31 0.64 0.08 0.01 0.12 0.24DPS 0 0 0.09 0.08 0 0 0.03 0.03BVPS 7.35 7.25 7.94 8.62 3.14 2.85 3.00 3.13

US$R$

1979.81

2405.08 2305.712567.10

2010

2011

2012

2013

E

Retail53.0%

Government38.0%

Corporate8.0%

Controllers70.7%

Treasury2.0%

Free Float27.3%

175



QUALICORP BUY CURRENT PRICE: R$27.80



Investment Case: We maintain our positive view on Qualicorp, based on the company’s strong earnings momentum (2014-17E EPS CAGR of 41%) and operating cash flow generation (2015E yield of ~5%), which opens room for larger payout rates, in our view. Whilethe company is exposed to the macroeconomic environment, its revenue stream is mostly recurring and linked to medical inflation, which has been at least twice as large overall inflation, resulting in EBITDA margin expansion by diluting fixed expenses.

Outlook 2015: We expect Qualicorp to deliver healthy 25% EBITDA growth (on a recurring basis), driven by double-digit readjustments in healthcare plan prices, and, to a lower extent, a slight growth in volume and margin expansion gains. We see the company trading ata 2015E adjusted P/E of 14x, which we believe is attractive.

A dividend play. Following the conclusion of payments for 75% of its subsidiary Aliança, and considering the company’s high cash flow generation and low capex needs, we see room for the company to fully distribute earnings to shareholders from 2015 onward. Assuming a payout ratio of 100%, we estimate a 2015 dividend yield of 3.6%.

Competitive advantages intact. We believe that Qualicorp’s large addressable market (estimated by the company to be at least 13 million people) and its first-mover advantages (i.e., large scale) provide unique growth opportunities in the healthcare plan industry. We conservatively estimate an affinity healthcare portfolio of 2 millionbeneficiaries in 2025 (from 1.459 million in 2014E).

Qualicorp’s expansion strategy is based on two main pillars: (1) market, by expanding to new regions (the bulk of sales still originate in São Paulo and Rio de Janeiro); and (2) channel, by improving productivity in existing channels (external, internal and newchannels, which include the establishment of franchises and e-commerce). Following the acquisition of Tempo, we see opportunity for the company to explore new businesses related to therelationship between healthcare providers.



Company Statistics



Bloomberg QUAL3 BZCurrent Price (01/02/15) R$ 27.80 / US$ 10.33Target Price (YE 2015) R$ 33.00 / US$ 12.4552-Week Range (R$) 19.60 - 28.15Market Capitalization (US$ Mn) 2,753Float (%) 74.43-Mth Avg. Daily Vol (US$ Mn) 19.5Shares Outstanding - Mn 267

60

80

100

120

140

J-13 M-13 A-13 D-13 A-14 A-14 D-14

QUAL3 BZ IBOVESPA

176

QUALICORP Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Founded in 1997 by José Seripieri Filho, Qualicorp is a leading, full-service, nonrisk provider of health benefits management services in Brazil. The company serves 1.890 million lives through the affinity segment (associations), and 2.297 million lives through corporate clients. The company competes in important Brazilian markets such as São Paulo, Rio de Janeiro, Bahia, Brasília, Espírito Santo, and the Federal District. Key Personnel: José Seripieri Filho (Chairman), Mauricio Ceschin (CEO), Alex Oreiro (CFO) and Wilson Olivieri (IR Officer) Web: www.qualicorp.com.br

Membership Breakdown, 3Q14




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,200 1,491 1,790 2,077 556 638 688 769 YoY change (%) 30.3 24.3 20.0 16.0 18.0 14.8 7.9 11.7Gross Profit 895 1,112 1,339 1,555 415 476 515 576 YoY change (%) 32.7 24.3 20.4 16.2 20.3 14.7 8.2 11.9EBITDA 451 703 717 832 209 301 276 308 YoY change (%) 41.7 56.1 2.0 16.0 28.4 44.1 (8.3) 11.7 As % of Revenue 37.6 47.2 40.1 40.1 37.6 47.2 40.1 40.1Operating Income 231 427 438 558 107 183 169 207 YoY change (%) 192.2 84.5 2.7 27.3 164.7 70.3 (7.7) 22.6 As % of Revenue 19.3 28.6 24.5 26.9 19.3 28.6 24.5 26.9Financial Results (228) (134) (1) 32 (106) (57) (0) 12Taxes (16) (128) (142) (191) (7) (55) (54) (71)Net Profit (32) 144 269 367 (15) 62 104 136 YoY change (%) (242.4) n/m 86.7 36.4 (229.0) n/m 67.8 31.4 As % of Revenue (2.6) 9.7 15.0 17.7 (2.6) 9.7 15.0 17.7

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (177) (202) (199) (181) (82) (86) (76) (67)Other Noncash Items (17) (87) 36 42 (8) (37) 14 15Changes in Working Capital 36 (3) (64) (32) 17 (1) (24) (12)Operating Cash Flow 165 256 440 558 77 110 169 207Capital Expenditures (132) (536) (63) (73) (61) (229) (24) (27)Free Cash Flow (48) (22) 377 485 (22) (9) 145 180Other Invest./(Divestments) - - - - - - - -Change in Debt (81) 258 0 0 (38) 110 0 0Dividends 0 0 (269) (367) 0 0 (104) (136)Capital Increases/Other 26 15 0 0 12 6 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 327 477 708 914 140 187 267 332Current Assets 522 936 1,239 1,516 223 367 468 551Fixed Assets 2,489 2,627 2,491 2,383 1,062 1,030 940 866Total Assets 3,242 3,811 3,978 4,146 1,384 1,494 1,501 1,508Current Liabilities 403 416 425 463 172 163 160 168Long-Term Liabilities 825 995 1,127 1,225 352 390 425 446Shareholders' Equity 2,009 2,390 2,390 2,390 858 937 902 869Total Financial Debt 700 744 770 800 299 292 291 291ST Debt 110 35 35 35 47 14 13 13LT Debt 590 709 735 765 252 278 277 278

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 372 267 62 (114) 159 105 23 (42)Capital Employed 2,386 2,666 2,488 2,343 1,019 1,046 939 852Net Debt/EBITDA 0.8 0.4 0.1 (0.1) 0.8 0.3 0.1 (0.1)Net Debt/Equity 0.2 0.1 0.0 (0.0) 0.2 0.1 0.0 (0.0)Capex/Revenue (%) 11.0 35.9 3.5 3.5 11.0 35.9 3.5 3.5Int Cover (%) 1.6 3.2 5.1 5.6 1.6 3.2 5.1 5.6Dividend Payout (%) 0.0 0.0 186.7 136.4 0.0 0.0 164.3 135.6ROCE (%) 10.4 20.8 23.3 32.0 11.3 22.9 23.4 32.0ROE (%) (1.6) 6.6 11.3 15.4 (1.6) 7.0 11.3 15.4

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E - n/m 27.5 20.2 - 45.2 26.6 20.2P/CE 40.8 21.4 15.8 13.5 37.3 18.8 15.3 13.6FV/EBITDA 14.0 11.0 10.6 9.0 12.9 9.6 10.2 9.1FV/EBIT 27.4 18.1 17.3 13.5 25.0 15.9 16.7 13.5FV/Revenue 5.3 5.2 4.2 3.6 4.8 4.6 4.1 3.6P/BV 3.0 3.1 3.1 3.1 2.9 3.0 3.1 3.2FCF Yield (%) (0.8) (0.3) 5.1 6.6 (0.9) (0.3) 5.3 6.5Div Yield (%) (0.0) (0.0) 3.6 5.0 (0.0) (0.0) 3.8 4.9

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS (0.12) 0.54 1.01 1.38 (0.06) 0.23 0.39 0.51DPS 0 0 0.25 0.34 0 0 0.10 0.13BVPS 7.61 8.96 8.96 8.96 3.25 3.52 3.38 3.26

US$R$

Affinity Health27.7%

Affinity New Products

8.5%

Corporate Health19.7%

TPA & Others44.1%

Affinity91.8%

Corporate & Others8.2%

José Seripieri

Filho20.3%

Free Float79.7%

177



QUEIROZ GALVÃO E&P BUY CURRENT PRICE: R$6.96 TARGET PRICE: R$11.00


Investment Case: Our positive view on the stock is driven by its attractive upside/downside asymmetry, despite the lack of short-term catalysts and the slight delays in the first oil for the Atlanta field. We also view positively management’s conservative stance from a financial and capital discipline point of view, particularly given the current backdrop of falling oil prices.

Outlook 2015: Queiroz Galvão’s most important asset, the Manati field, should post a healthy production level in 2015 of 5.5 MMm³/d, slightly below 2014’s expected level due to construction of the compression plant, slated for completion by the end of first half 2015. Additionally, we expect more details about productivity in Carcará in 2H15, after the second phase of the appraisal well in that field is concluded.

BS-4 update: The company decided in late December to contract a FPSO with capacity of 25-30 kbpd, and it should take some 14 months to be installed, with expectations for first oil slated for late 2015/early 2016 (instead of late 2015, as initially expected). We estimate the initial oil production to be around 25 kbpd with two wells.

Carcará field: QGEP concluded the drilling of the first phase at the beginning of November 2014, with the second phase to begin in 3Q15 and conclude at the end of 1Q16 (using a rig equipped with managed pressure drilling, MPD), when productivity info should be announced. Additionally, in order to speed up the delineation of the Carcará discovery, the consortium has proposed to the ANP the drilling of a second appraisal well in a single phase, to be concluded by 4Q15.

Growth opportunities: We believe the company continues to analyze growth opportunities ranging from prospective resources to fields that are already producing, but in our view, any decision will have been carefully analyzed, particularly given current oil price trends.



Company Statistics



Bloomberg QGEP3 BZCurrent Price (01/02/15) R$ 6.96 / US$ 2.59Target Price (YE 2015) R$ 11.00 / US$ 4.0652-Week Range (R$) 6.45 - 10.00Market Capitalization (US$ Mn) 687Float (%) 30.03-Mth Avg. Daily Vol (US$ Mn) 1.3Shares Outstanding - Mn 266

40

50

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

Queiroz Galvão E&P - ON(Rebased)

178

QUEIROZ GALVÃO E&P Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Queiroz Galvão is an upstream player in Brazil, with an exploration portfolio comprising 8 blocks located within the basins of Camamu, Jequitinhonha, Santos, and Campos. Queiroz Galvão held its IPO in February 2011, is controlled (63%) by Queiroz Galvão S.A, and it is part of the Novo Mercado. Key Personnel: Antônio Augusto de Queiroz Galvão (Chairman), Lincoln Guardado (CEO), Paula Costa (CFO) and Paula Costa (IR Officer) Web: www.qgep.com.br

EV by Basin, 2015E

Production by Basin, 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 486 596 527 740 225 254 200 262 YoY change (%) 5.1 22.5 (11.6) 40.5 (4.9) 12.5 (21.1) 30.8Gross Profit 194 243 190 470 90 103 72 166 YoY change (%) 88.1 25.1 (21.7) 146.9 70.1 14.9 (30.1) 129.8EBITDA 223 207 177 371 103 88 67 131 YoY change (%) 81.4 (7.2) (14.5) 109.9 64.1 (14.8) (23.7) 95.4 As % of Revenue 45.9 34.8 33.6 50.2 45.9 34.8 33.6 50.2Operating Income 126 121 75 323 58 51 29 114 YoY change (%) 214.3 (3.9) (37.7) 329.1 184.2 (11.7) (44.3) 299.5 As % of Revenue 25.9 20.3 14.3 43.7 25.9 20.3 14.3 43.7Financial Results 62 61 56 52 29 26 21 18Taxes 5 (55) (39) (112) 2 (23) (15) (40)Net Profit 192 127 92 262 89 54 35 93 YoY change (%) 133.2 (33.8) (28.0) 186.2 110.9 (39.2) (35.7) 166.4 As % of Revenue 39.6 21.4 17.4 35.5 39.6 21.4 17.4 35.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 97 86 102 48 45 37 39 17Other Noncash Items (475) 0 0 0 (220) 0 0 0Changes in Working Capital 20 (54) 40 6 9 (23) 15 2Operating Cash Flow (165) 159 233 317 (77) 68 89 112Capital Expenditures (416) (305) (355) (434) (193) (130) (135) (154)Free Cash Flow (109) (80) (61) (54) (51) (34) (23) (19)Other Invest./(Divestments) (20) 11 12 19 (9) 5 5 7Change in Debt 153 0 0 0 71 0 0 0Dividends 0 0 0 0 0 0 0 0Capital Increases/Other 86 0 0 0 40 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,006 940 885 858 426 368 327 292Current Assets 1,284 1,299 1,227 1,230 544 509 453 418Fixed Assets 1,715 2,077 2,456 3,046 726 814 906 1,036Total Assets 3,040 3,419 3,730 4,326 1,287 1,341 1,376 1,471Current Liabilities 234 288 308 340 99 113 113 116Long-Term Liabilities 397 392 417 452 168 154 154 154Shareholders' Equity 2,409 2,739 3,005 3,534 1,020 1,074 1,109 1,202Total Financial Debt 168 181 193 209 71 71 71 71ST Debt 0 36 39 42 0 14 14 14LT Debt 168 145 154 167 71 57 57 57

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt (838) (777) (713) (671) (355) (305) (263) (228)Capital Employed 2,478 2,811 3,079 3,653 1,049 1,102 1,136 1,243Net Debt/EBITDA (3.8) (3.8) (4.0) (1.8) (3.4) (3.5) (3.9) (1.7)Net Debt/Equity (0.3) (0.3) (0.2) (0.2) (0.4) (0.3) (0.2) (0.2)Capex/Revenue (%) 85.6 51.2 67.4 58.7 85.6 51.2 67.4 58.7Int Cover (%) n/m 14.6 11.1 21.8 n/m 14.6 11.1 21.8Dividend Payout (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0ROCE (%) 5.2 5.6 3.2 11.5 5.7 6.1 3.2 11.5ROE (%) 8.3 4.9 3.2 8.0 8.4 5.3 3.2 8.0

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 13.5 15.0 20.2 7.0 12.4 13.3 19.7 7.4P/CE 27.3 46.5 - 8.6 25.0 41.1 - 9.1FV/EBITDA 7.9 5.5 6.4 3.2 7.2 4.7 6.3 3.5FV/EBIT 14.0 9.4 15.1 3.6 12.8 8.1 14.8 4.0FV/Revenue 3.6 1.9 2.2 1.6 3.3 1.6 2.1 1.8P/BV 1.1 0.7 0.6 0.5 1.1 0.7 0.6 0.6FCF Yield (%) (4.2) (4.2) (3.3) (2.9) (4.6) (4.8) (3.4) (2.8)Div Yield (%) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0)

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 0.72 0.48 0.35 0.99 0.34 0.20 0.13 0.35DPS 0 0 0 0 0 0 0 0BVPS 9.06 10.30 11.31 13.29 3.84 4.04 4.17 4.52

US$R$

Manati42.0%

BS-439.0%

BM-S-89.0%

Manati100.0%

Queiroz Galvão S.A

63.0%

FIP Quantum

7.0%

Mgmt0.1%

Free-Float29.9%

179



RAIA DROGASIL HOLD CURRENT PRICE: R$25.00



Investment Case: We remain upbeat regarding Raia Drogasil’s sales growth and margin expansion opportunities, supported by strong industry dynamics. However, we maintain our Hold rating based on demanding multiples (~31x P/E 2015E) and limited upside potential to our YE2015 target price. We have seen no major changein the competitive environment and believe that the company’s superior store opening efficiency is a key competitive advantage in order to lead the consolidation trend in the industry.

Outlook 2015: The Brazilian pharmaceutical industry has been growing at double-digit rates, supporting strong SSS figures for Raia Drogasil (+11% in 2015E), which, combined with the company’s +130 store-opening plan, should result in +16.4% YoY top-line growth. Moreover, we expect +30-bp YoY EBITDA margin expansion to 6.7% (from 6.4%) owing to an enhanced sales mix, smoother expense pressures, and operating leverage at maturing stores.

Catalysts: We expect Raia Drogasil to lead the consolidation of the pharmaceutical retail industry through its aggressive store-opening plan (+130 stores/year), while its defensive sales mix (including medications and CF&T categories) should allow for decent sales visibility. We expect higher-margin CF&T categories to continue gaining share, as the drugstore convenience factor continues to drivedemand, while expanding private label brands offer further margin expansion opportunities.

Main Concerns: Main risks to our investment case include (1)increased competition; (2) property value may hinder the company’s store expansion plans; (3) changes to industry regulation (OTC and generics regulations); (4) introduction of lower-margin categories to its sales mix, hurting store profitability; and (5) demanding multiples(~31x P/E 2015E).




Company Statistics



Bloomberg RADL3 BZCurrent Price (01/02/15) R$ 25.00 / US$ 9.29Target Price (YE 2015) R$ 28.00 / US$ 10.3352-Week Range (R$) 13.71 - 25.35Market Capitalization (US$ Mn) 3,068Float (%) 58.03-Mth Avg. Daily Vol (US$ Mn) 9.0Shares Outstanding - Mn 330

50

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

RADL3 BZ IBOVESPA

180

RAIA DROGASIL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Raia Drogasil is the largest drugstore chain in Brazil with 9% market share and R$ 6.2 billion sales in 2013. The company adopts a unique business strategy, with two different brands (Droga Raia and Drogasil) and potential for synergies and economies of scale. The chain grows organically, through the opening of new stores, and also through acquisitions, when convenient. The company´s sales mix is comprised of Branded Medicaments (45%), Generic Medicaments (12%), Over-the-Counter Medicaments (18%), and Health and Personal Care items (26%), Key Personnel: Antonio Carlos Pipponzi (Chairman), Marcílio D'Amico Pousada (CEO), Antonio Carlos Coelho (CFO) and Eugênio De Zagottis (Investor Relations Director) Web: www.raiadrogasil.com.br/

Sales by Product Category, 3Q14

Store Maturity Profile, 3Q14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 6,233 7,342 8,548 10,121 2,889 3,126 3,250 3,583 YoY change (%) 15.8 17.8 16.4 18.4 4.9 8.2 4.0 10.2Gross Profit 1,720 2,092 2,445 2,917 797 891 930 1,032 YoY change (%) 15.2 21.6 16.9 19.3 4.4 11.7 4.4 11.0EBITDA 357 490 595 747 165 209 226 264 YoY change (%) 9.5 37.3 21.3 25.6 (0.8) 26.2 8.3 16.9 As % of Revenue 5.7 6.7 7.0 7.4 5.7 6.7 7.0 7.4Operating Income 150 303 345 475 69 129 131 168 YoY change (%) (6.3) 102.2 13.8 37.7 (15.2) 85.7 1.6 28.2 As % of Revenue 2.4 4.1 4.0 4.7 2.4 4.1 4.0 4.7Financial Results (10) (8) (9) (9) (5) (3) (3) (3)Taxes (38) (75) (86) (119) (18) (32) (33) (42)Net Profit 176 258 270 367 81 110 103 130 YoY change (%) 16.2 46.9 4.5 35.9 5.3 34.9 (6.7) 26.5 As % of Revenue 2.8 3.5 3.2 3.6 2.8 3.5 3.2 3.6

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (159) (182) (250) (272) (74) (77) (95) (96)Other Noncash Items 260 181 467 453 121 77 177 160Changes in Working Capital 7 (40) (146) (190) 3 (17) (56) (67)Operating Cash Flow 284 218 340 358 132 93 129 127Capital Expenditures (228) (263) (286) (296) (106) (112) (109) (105)Free Cash Flow 157 113 88 153 73 48 33 54Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 53 (23) 0 0 24 (10) 0 0Dividends (33) (24) (55) (62) (15) (10) (21) (22)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 242 150 150 150 103 59 55 51Current Assets 1,904 2,073 2,358 2,728 812 813 870 928Fixed Assets 1,710 1,799 1,835 1,859 730 706 677 632Total Assets 3,614 3,872 4,193 4,586 1,542 1,518 1,547 1,560Current Liabilities 1,020 1,256 1,395 1,575 435 492 515 536Long-Term Liabilities 267 251 251 251 114 98 92 85Shareholders' Equity 2,327 2,366 2,548 2,761 993 928 940 939Total Financial Debt 245 222 222 222 104 87 82 76ST Debt 84 99 99 99 36 39 36 34LT Debt 161 123 123 123 69 48 45 42




US$R$

Reference / Branded44.6%

Generics11.7%

OTC17.6%

HPC & Others26.1%

Year 111.6%

Year 212.3%

Year 38.8%

Year 4 or

more67.3%

Raia Drogasil

Controllers42.0%

Free Float58.0%

181



RANDON BUY CURRENT PRICE: R$4.64


Investment case: We see Randon (trading at a 35% discount to peers) as a good value way to play the long term growth in the Brazilian transportation and logistics industry: road dominance in transportation matrix, with an aging truck fleet. While the company is the most exposed of those in our universe to the domestic economy (88% of sales are in Brazil), we like its solid vertical integration strategy, improving long-term EBITDA margins (average of ~14% through 2025E), and ROE (we estimate an average of 14% for 2015-17), We like management’s focus on higher free cash flow in recent years and believe it is key to restoring confidence in the shares.

Outlook 2015, a tough year ahead: We except the domestic heavy vehicle segment to face a challenging 2015. Our estimates point to a 6% decline in new truck production, driven by (1) declining grain prices and pressured agribusiness margins, (2) business confidenceclose to historical lows (we see this as a major driver for truck sales), and (3) industrial production expected to decline 0.2%.

Railcar business to partially offset truck business. We expect sales to continue at the healthy level of ~1,300 units per year, driven by fleet expansion and renewals in the domestic market. We believe margins are up to 300 bps higher in this segment (vs. truck trailers), which should help the company sustain profitability in 2015.

What has changed? We reduced our 2015 sales estimate by 3.2% to R$3.9 billion (quasi-flat YoY growth), while trimming our EBITDA margin by 50 bps to 12.7% (we see the poorer truck trailer mix partially offset by cost-cutting measures and railcar demand). Our forecast points to net profit of R$173 million (-7.2% YoY).

Focus on costs. We like the company’s efforts on cost reduction: (1) Randon recently hired McKinsey to reduce raw material expenditures (aiming at 1.5-2.0% in cost reduction); and (2) Randon intends to save R$60 million next year as the group’s shared purchase center begins to be put into use.



Company Statistics



Bloomberg RAPT4 BZCurrent Price (01/02/15) R$ 4.64 / US$ 1.72Target Price (YE 2015) R$ 8.00 / US$ 2.9552-Week Range (R$) 4.64 - 9.03Market Capitalization (US$ Mn) 525Float (%) 55.03-Mth Avg. Daily Vol (US$ Mn) 2.6Shares Outstanding - Mn 305

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

RAPT4 BZ IBOVESPA

182

RANDON Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Randon produces a wide range of truck trailers and auto components for heavy vehicles, such as suspension systems and brake pads, among other items. It is one of the 10 largest manufacturers of truck trailers in the world, with production of 25.4 thousand trailers in 2013. It also manufactures off-road dump trucks, backhoes and forest harvesters. The company has an important export base, shipping its products to more than 100 countries, which represented 12.0% of 2013 sales. Randon’s sales increased from R$613 million in 2000 to R$4.250 million in 2013 Randon is listed on Level 1 of the BM&F Bovespa. Key Personnel: David Randon (CEO), Daniel Randon (CFO) and Geraldo Santa Catharina (IR Director and Treasurer) Web: www.randon.com.br





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 4,253 3,732 3,877 4,226 1,971 1,593 1,474 1,496 YoY change (%) 21.5 (12.2) 3.9 9.0 10.0 (19.2) (7.4) 1.5Gross Profit 1,040 927 919 998 482 396 350 353 YoY change (%) 42.0 (10.8) (0.9) 8.6 28.6 (17.9) (11.7) 1.1EBITDA 564 485 493 579 261 207 187 205 YoY change (%) 101.3 (14.0) 1.6 17.5 82.3 (20.9) (9.4) 9.4 As % of Revenue 13.3 13.0 12.7 13.7 13.3 13.0 12.7 13.7Operating Income 446 362 358 436 207 155 136 154 YoY change (%) 165.9 (18.9) (1.0) 21.7 140.8 (25.3) (11.8) 13.3 As % of Revenue 10.5 9.7 9.2 10.3 10.5 9.7 9.2 10.3Financial Results (35) (51) (67) (60) (16) (22) (25) (21)Taxes (105) (80) (76) (92) (49) (34) (29) (33)Net Profit 235 187 173 236 109 80 66 83 YoY change (%) 452.3 (20.5) (7.2) 36.0 400.3 (26.8) (17.3) 26.6 As % of Revenue 5.5 5.0 4.5 5.6 5.5 5.0 4.5 5.6

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (117) (123) (134) (143) (54) (52) (51) (51)Other Noncash Items 257 39 (12) (13) 119 17 (4) (4)Changes in Working Capital (280) 49 13 (86) (130) 21 5 (30)Operating Cash Flow 284 534 506 493 131 228 192 175Capital Expenditures (584) (104) (146) (159) (271) (44) (56) (56)Free Cash Flow 65 389 272 229 30 166 103 81Other Invest./(Divestments) - - - - - - - -Change in Debt 650 (207) 0 0 301 (88) 0 0Dividends (56) (126) (52) (236) (26) (54) (20) (83)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,414 1,344 1,532 1,518 603 527 565 516Current Assets 3,031 2,946 3,149 3,272 1,294 1,155 1,162 1,113Fixed Assets 1,500 1,479 1,491 1,507 640 580 550 513Total Assets 4,907 4,810 5,048 5,216 2,094 1,886 1,863 1,774Current Liabilities 4,777 4,248 3,867 4,090 2,039 1,666 1,427 1,391Long-Term Liabilities 2,110 2,089 2,127 2,184 900 819 785 743Shareholders' Equity 1,337 1,451 1,572 1,572 571 569 580 535Total Financial Debt 2,606 2,439 2,474 2,527 1,112 956 913 860ST Debt 545 404 404 404 233 158 149 137LT Debt 2,061 2,035 2,070 2,123 879 798 764 722

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 1,192 1,095 942 1,009 509 429 348 343Capital Employed 2,835 2,885 2,884 2,986 1,210 1,131 1,064 1,016Net Debt/EBITDA 2.1 2.3 1.9 1.7 1.9 2.1 1.9 1.7Net Debt/Equity 0.9 0.8 0.6 0.6 1.0 0.9 0.6 0.6Capex/Revenue (%) 13.7 2.8 3.8 3.8 13.7 2.8 3.8 3.8Int Cover (%) 1.7 1.8 2.5 3.1 1.7 1.8 2.5 3.1Dividend Payout (%) 131.6 53.6 27.8 136.0 119.2 49.2 24.5 135.1ROCE (%) 19.5 15.3 15.1 17.7 20.9 16.9 15.1 17.7ROE (%) 17.4 13.4 11.5 15.0 17.6 14.3 11.5 15.0



US$R$

Vehicles52.8%

Auto Parts45.4%

Services1.8%

Vehicles42.1%

Auto Parts54.0%

Services3.9%

Randon Family40.6%

Institutional Investors

34.7%

Individuals7.1%

Corporate0.9%

Foreign Investors

15.6%Treasury

1.1%

183


BRAZIL—UTILITIES

RENOVA ENERGIA BUY CURRENT PRICE: R$37.16



Investment Case: We continue to believe that potential upside from the company’s contracts is not fully priced in, while we expect capitalrestructuring to provide room for additional value to be unlocked through new contracts. We also see Renova as being well positioned to take advantage of growth in the renewable energy market, a segment we consider attractive (above-average IRRs, incentives, and a variety of growth channels).

Outlook 2015: We believe that Renova will reach R$329 million of EBITDA in 2015 given the startup of new projects. We also expect the company to sell energy in new energy auctions throughout 2015, and to continue the corporate restructuring that was initiated at the beginning of 2014.

Latest Auction Results: In the last couple of months, Renova participated in the LEN A-5 2014 auction and in the LER 2014 auction, selling 81.2 MWm of energy through solar and wind projects (corresponding to a total of 205 MW of installed capacity).

Solar Partnership: On November 24, Renova announced the creation of a joint venture with SunEdison Inc.—a global player that manufactures solar technology and develops plants—to develop 1 GW of solar projects in Brazil. This partnership would be owned 50% by Renova and 50% by SunEdison. Although in our view the partnership is initially neutral for Renova, we see this as a good strategic move for the company, as Renova could minimize its risks in installing solar farms in Brazil as well as increase its potential opportunity to maximize return on investment.

Change to Estimates: Our recent valuation reflects (1) recently released results; (2) new macroeconomic assumptions; (3) the recent change in the company’s controlling shareholder structure, with an additional capital increase from Cemig GT; (4) new wind and solar projects with contracts awarded in recent auctions; and (5) new cost of equity.


Company Statistics



Bloomberg RNEW11 BZCurrent Price (01/02/15) R$ 37.16 / US$ 13.80Target Price (YE 2015) R$ 60.63 / US$ 22.3752-Week Range (R$) 34.99 - 50.00Market Capitalization (US$ Mn) 1,466Float (%) 12.93-Mth Avg. Daily Vol (US$ Mn) 0.2Shares Outstanding - Mn 106

60

80

100

120

140

160

J-13 M-13 A-13 D-13 A-14 A-14 D-14

RNEW11 BZ IBOVESPA

184

RENOVA ENERGIA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Renova Energia is a renewable energy generation company that focuses on small hydro (SHPP) and wind energy projects. However, they are also investing in solar energy projects (1GW of potential projects). Currently, Renova has 462.1 MW of wind capacity and 190.2 from small hydro (SHPP) in operation. They also have more than 1.745 MW of installed capacity already contracted (1.692 MW from wind projects and 53.5 MW from solar projects). Key Personnel: Ricardo Lopes Delneri (Chairman), Carlos Mathias Aloysius Becker Neto (CEO), Pedro Villas Boas Pileggi (CFO) and Flavia Carvalho (IR Manager) Web: www.renovaenergia.com.br


Sales by Segment (GenCo), 2014E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 226 281 437 680 105 120 166 241 YoY change (%) 95.4 24.3 55.5 55.7 77.1 14.5 38.6 44.9Gross Profit 196 219 362 551 91 94 137 195 YoY change (%) 96.9 11.7 64.7 52.3 78.4 2.9 46.8 41.8EBITDA 158 148 246 362 73 63 93 128 YoY change (%) 180.2 (6.0) 65.6 47.2 153.8 (13.5) 47.5 37.0 As % of Revenue 69.9 52.8 56.2 53.2 69.9 52.8 56.2 53.2Operating Income 158 148 246 362 73 63 93 128 YoY change (%) 180.2 (6.0) 65.6 47.2 153.8 (13.5) 47.5 37.0 As % of Revenue 69.9 52.8 56.2 53.2 69.9 52.8 56.2 53.2Financial Results (72) (208) (244) (233) (33) (89) (93) (82)Taxes (10) (9) (11) (19) (5) (4) (4) (7)Net Profit 6 (118) (95) (28) 3 (50) (36) (10) YoY change (%) n/m (1,974.8) 19.2 70.9 n/m (1,826.1) 28.0 72.9 As % of Revenue 2.8 (41.8) (21.7) (4.1) 2.8 (41.8) (21.7) (4.1)

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (70) (49) (86) (138) (32) (21) (33) (49)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital 51 0 (7) (9) 23 0 (3) (3)Operating Cash Flow 126 (68) (17) 101 59 (29) (6) 36Capital Expenditures 0 (1,897) (1,760) (592) 0 (810) (669) (210)Free Cash Flow (234) (71) (503) (518) (108) (30) (191) (183)Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 887 1,036 1,263 340 411 442 480 120Dividends 0 0 0 0 0 0 0 0Capital Increases/Other 0 792 0 0 0 338 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 374 303 (200) (718) 160 119 (74) (244)Current Assets 395 317 (178) (684) 169 124 (66) (233)Fixed Assets 3,105 4,953 6,628 7,082 1,325 1,942 2,446 2,409Total Assets 3,672 5,271 6,450 6,398 1,567 2,067 2,380 2,176Current Liabilities 244 3 4 6 104 1 1 2Long-Term Liabilities 2,427 3,426 4,689 5,029 1,036 1,344 1,730 1,711Shareholders' Equity 1,001 1,841 1,757 1,363 427 722 648 463Total Financial Debt 2,390 3,426 4,689 5,029 1,020 1,344 1,730 1,711ST Debt - - - - - - - -LT Debt 2,390 3,426 4,689 5,029 1,020 1,344 1,730 1,711

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 2,016 3,123 4,889 5,747 861 1,225 1,804 1,955Capital Employed 3,105 4,953 6,628 7,082 1,325 1,942 2,446 2,409Net Debt/EBITDA 12.8 21.0 19.9 15.9 11.7 19.3 19.3 15.3Net Debt/Equity 2.0 1.7 2.8 4.2 2.2 1.9 2.8 4.2Capex/Revenue (%) 0.0 675.1 402.7 87.1 0.0 675.1 402.7 87.1Int Cover (%) n/m n/m n/m n/m n/m n/m n/m n/mDividend Payout (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0ROCE (%) 5.4 3.2 3.9 5.4 5.9 3.6 3.9 5.4ROE (%) 0.6 (8.3) (5.3) (1.8) 0.6 (8.9) (5.3) (1.8)

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E n/m - - - n/m - - -P/CE n/m - - 35.7 n/m - - 37.5FV/EBITDA n/m n/m n/m 37.7 n/m n/m n/m 38.2FV/EBIT n/m n/m n/m n/m n/m n/m n/m n/mFV/Revenue 55.0 39.5 29.2 20.0 50.3 35.2 28.5 20.3P/BV 5.2 2.2 2.2 2.9 5.2 2.1 2.3 3.2FCF Yield (%) (4.5) (1.8) (12.7) (13.1) (4.9) (2.0) (13.0) (12.5)Div Yield (%) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0)

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS - (1.11) (0.89) (0.26) - (0.47) (0.34) (0.09)DPS - - - - - - - -BVPS 9.42 17.34 16.54 12.83 4.02 6.80 6.11 4.36

US$R$

Generation100.0%


RR 18.9%

Cemig GT27.3%

Light15.9%

Others37.9%

185



RODOBENS HOLD CURRENT PRICE: R$10.00



Investment Case: After revising its strategy in 2013, Rodobens began focusing on simplifying its operations, gradually reducing its geographical footprint and focusing on the mid- to mid-high-income segment.

Outlook 2015: We expect 2015 to be another transition year for the homebuilders in Brazil. The macro scenario should remain challenging for the sector, with the combination of low expected GDPgrowth and inflationary pressure leading consumers and investors toremain cautious, in our view.

Positive operating performance: Despite a worse sales performance in 2014 versus last year, Rodobens has managed to keep its inventory levels under control.

Balance sheet remains solid: The combination of Rodobens’s low inventory levels and low leverage (16% net debt/EBITDA as of 3Q14) greatly reduces the need for cash in the short term and eases the pressure for inventory sales at discounted prices, in our view.

Some improvements in G&A expenses to come: Rodobens recently moved its headquarters to São Paulo in order to simplify its operations. In addition, the company reduced its payroll by approximately 40%, which we believe should gradually bring down G&A expenses over the next few quarters.

Valuation seems fairly priced in: Rodobens is currently trading at 0.5x P/BV for 2015E, which we see as fairly valued, given the company’s current profitability levels (ROE of 8.9% for 2015E).



Company Statistics



Bloomberg RDNI3 BZCurrent Price (01/02/15) R$ 10.00 / US$ 3.71Target Price (YE 2015) R$ 10.40 / US$ 3.9252-Week Range (R$) 9.35 - 13.16Market Capitalization (US$ Mn) 180Float (%) 44.33-Mth Avg. Daily Vol (US$ Mn) 0.3Shares Outstanding - Mn 49

70

80

90

100

110

120

130

j-13 m-13 a-13 d-13 a-14 a-14 d-14

RDNI3 BZ IBOVESPA

186

RODOBENS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Part of Grupo Verdi, Rodobens Negócios Imobiliários is a Brazilian homebuilder that mainly focuses on mid- to high-income vertical housing developments through the Stillo brand in cities with more than 150,000 inhabitants in the Brazilian countryside. The company has also engaged in the allotment segment though Rodobens Urbanismo as well as strip malls though Rodobens Malls. Key Personnel: Waldemar Verdi Júnior (Chairman), Marcelo Oliveira (CEO) and Flávio Vidigal (CFO and IR Officer) Web: http://ri.rodobens.com.br/

Launches (R$ million), 2013-16E

Contracted Sales (R$ million), 2013-16E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 739 703 614 530 343 304 236 174 YoY change (%) (14.7) (5.0) (12.6) (13.7) (22.7) (11.3) (22.3) (26.3)Gross Profit 270 234 221 191 125 101 85 63 YoY change (%) (12.3) (13.5) (5.4) (13.7) (20.6) (19.2) (15.9) (26.3)EBITDA 123 85 86 77 57 37 33 25 YoY change (%) (12.1) (31.1) 1.6 (10.1) (20.3) (35.6) (9.7) (23.2) As % of Revenue 16.6 12.1 14.0 14.6 16.6 12.1 14.0 14.6Operating Income 148 98 97 86 68 43 37 28 YoY change (%) (20.7) (33.4) (1.7) (11.3) (28.2) (37.8) (12.6) (24.2) As % of Revenue 20.0 14.0 15.7 16.2 20.0 14.0 15.7 16.2Financial Results (33) 1 12 25 (15) 0 4 8Taxes (26) (28) (22) (19) (12) (12) (8) (6)Net Profit 101 68 78 83 47 30 30 27 YoY change (%) 19.2 (31.9) 14.3 6.6 8.0 (36.4) 1.6 (9.0) As % of Revenue 13.6 9.7 12.7 15.7 13.6 9.7 12.7 15.7

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (6) (7) (7) (7) (3) (3) (3) (2)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital 20 140 75 191 9 61 29 63Operating Cash Flow 126 216 160 281 59 93 62 92Capital Expenditures 5 3 (5) (4) 2 1 (2) (1)Free Cash Flow 122 212 166 285 56 92 64 94Other Invest./(Divestments) (5) 8 (1) (1) (2) 4 (0) (0)Change in Debt 143 (256) 0 0 66 (111) 0 0Dividends (32) (45) (17) (20) (15) (19) (7) (6)Capital Increases/Other (24) (30) 3 3 (11) (13) 1 1

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 469 364 504 763 200 143 190 247Current Assets 1,651 1,461 1,526 1,644 705 573 576 532Fixed Assets 63 53 51 49 27 21 19 16Total Assets 2,157 1,939 1,975 2,041 921 760 745 661Current Liabilities 643 622 599 597 275 244 226 193Long-Term Liabilities 554 377 374 378 237 148 141 122Shareholders' Equity 837 851 910 972 357 334 343 315Total Financial Debt 778 521 521 521 332 204 197 169ST Debt 289 224 224 224 123 88 85 73LT Debt 489 297 297 297 209 116 112 96

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 268 337 202 (32) 114 132 76 (10)Capital Employed 1,212 1,071 995 803 517 420 376 260Net Debt/EBITDA 2.2 4.0 2.3 (0.4) 2.0 3.6 2.3 (0.4)Net Debt/Equity 0.3 0.4 0.2 (0.0) 0.3 0.4 0.2 (0.0)Capex/Revenue (%) (0.6) (0.4) 0.8 0.8 (0.6) (0.4) 0.8 0.8Int Cover (%) 1.0 0.9 0.9 0.8 1.0 0.9 0.9 0.8Dividend Payout (%) 38.0 44.8 25.0 25.0 34.4 41.0 22.0 24.8ROCE (%) 12.2 9.2 9.7 10.7 13.3 10.4 9.8 10.7ROE (%) 12.5 8.1 8.9 8.9 12.7 8.6 8.9 8.9



US$R$

743.24

500.79 512.91584.23

2013

2014

e

2015

e

2016

e

686.02

561.97 539.81 553.63

2013

2014

e

2015

e

2016

e

GV Holding27.6%

Waldemar Junior11.4%

Giuliano Verdi7.0%

Others54.0%

187



ROMI BUY CURRENT PRICE: R$2.87


Investment Case: We see Romi as a deep value play in our capital goods coverage with 92% DCF upside, despite the slow short-term momentum (driven by weak and declining domestic industrial production, which our economists forecast at -0.2% in 2015). We expect Romi’s FCFE to yield 17% in 2015 following the successful turnaround, which management began implementing in 2012, and that resulted in an ~800-bp recovery in the EBITDA margin to ~7% in 2014E.

Outlook 2015: We see declining volumes for domestic machine tools (market to remain close to trough, selling only replacements despite Brazil’s average machine fleet age of 17 years). Castings should improve on potential new orders in renewable energy. We expect FX to help competitiveness. We forecast a consolidated EBITDA margin of ~9% in 2015. Romi had ~R$8 million in nonrecurring expenses during 2014.

Main changes. We downwardly revised our estimates, reflecting the weak industrial production growth we expect in 2015. According to management, backlog building has been weak in the final months ofthe year, which could reduce revenue visibility in 2015. We lowered our 2015 EBITDA estimate by 20%, to R$62 million (we are 16% below consensus), which materially reduced our net income estimate to R$17 million from R$34 million.

Focus on profitability and cash generation. Management has an internal target of running at a 15% EBITDA margin (with no established timeline) and plans to increase investment in productivity. We work with an average 13.0% margin.

Hidden value remains? Romi has property for future rental income and capital appreciation, booked at a cost of R$16 million on the balance sheet, which has market value appraisals of R$142 million (~69% of market cap), and which we view as an upside call.



Company Statistics



Bloomberg ROMI3 BZCurrent Price (01/02/15) R$ 2.87 / US$ 1.07Target Price (YE 2015) R$ 5.50 / US$ 2.0352-Week Range (R$) 2.87 - 6.11Market Capitalization (US$ Mn) 77Float (%) 30.03-Mth Avg. Daily Vol (US$ Mn) 0.1Shares Outstanding - Mn 72

60

80

100

120

140

160

J-13 M-13 A-13 D-13 A-14 A-14 D-14

ROMI3 BZ IBOVESPA

188

ROMI Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Romi is Brazil’s largest producer of machine tools and plastic injection molding machines. It is also becoming an important player in the rough and machined castings segment. Founded in 1930, Romi currently has 11 production facilities, 9 of which are located in the city of Santa Bárbara D’Oeste (130 km from the city of São Paulo). In 2013, machine tools accounted for 71.3% of revenue, followed by plastic molding machines (12.2%), and castings (16.6%). Romi is listed under the Bovespa’s Novo Mercado level of corporate governance. The external market accounted for 23.9% of the R$667 million in total revenue reported in 2013, with products sold in over 30 countries. Key Personnel: Livaldo Aguiar dos Santos (CEO), Luiz Cassiano Rosolen (CFO) and Fabio Taiar (IR Officer) Web: www.romi.com.br





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 667 645 668 714 309 275 254 253 YoY change (%) 8.1 (3.3) 3.5 6.9 (2.1) (11.0) (7.8) (0.4)Gross Profit 193 172 182 209 90 74 69 74 YoY change (%) 46.6 (10.8) 5.8 14.8 32.8 (17.9) (5.7) 6.9EBITDA 67 48 62 79 31 20 24 28 YoY change (%) n/m (28.3) 29.2 28.5 n/m (34.0) 15.2 19.6 As % of Revenue 10.0 7.4 9.3 11.1 10.0 7.4 9.3 11.1Operating Income 30 11 20 36 14 5 8 13 YoY change (%) n/m (62.2) 74.8 79.2 n/m (65.2) 55.8 66.8 As % of Revenue 4.5 1.8 3.0 5.0 4.5 1.8 3.0 5.0Financial Results 4 (0) 3 13 2 (0) 1 4Taxes (8) (3) (6) (12) (4) (1) (2) (4)Net Profit 26 8 17 36 12 3 6 13 YoY change (%) n/m (71.0) 123.3 115.0 n/m (73.3) 99.0 100.2 As % of Revenue 3.9 1.2 2.5 5.1 3.9 1.2 2.5 5.1

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (36) (36) (42) (44) (17) (16) (16) (15)Other Noncash Items (1) (3) 0 0 (1) (1) 0 0Changes in Working Capital 43 22 2 (7) 20 9 1 (3)Operating Cash Flow 105 65 61 72 49 28 23 26Capital Expenditures (26) (30) (23) (25) (12) (13) (9) (9)Free Cash Flow 72 24 35 35 34 10 13 12Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt (26) 11 0 0 (12) 5 0 0Dividends (1) (1) (5) (13) (0) (1) (2) (5)Capital Increases/Other 0 (3) 0 0 0 (1) 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 107 130 163 199 46 51 60 68Current Assets 785 733 822 871 335 288 303 296Fixed Assets 344 340 322 303 147 133 119 103Total Assets 1,421 1,297 1,402 1,436 607 509 517 488Current Liabilities 98 143 149 155 42 56 55 53Long-Term Liabilities 209 146 182 186 89 57 67 63Shareholders' Equity 648 647 659 683 277 254 243 232Total Financial Debt 203 213 214 215 87 83 79 73ST Debt 54 100 100 101 23 39 37 34LT Debt 149 113 113 114 63 44 42 39

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 96 83 50 16 41 32 19 5Capital Employed 746 732 710 700 318 287 262 238Net Debt/EBITDA 1.4 1.7 0.8 0.2 1.3 1.6 0.8 0.2Net Debt/Equity 0.1 0.1 0.1 0.0 0.2 0.1 0.1 0.0Capex/Revenue (%) 3.8 4.7 3.5 3.5 3.8 4.7 3.5 3.5Int Cover (%) 3.1 3.1 4.2 5.4 3.1 3.1 4.2 5.4Dividend Payout (%) (1.4) 4.8 64.7 77.5 (1.3) 4.4 57.0 77.0ROCE (%) 5.2 2.0 3.6 6.9 5.5 2.2 3.7 6.9ROE (%) 4.0 1.2 2.6 5.4 4.1 1.2 2.6 5.4



US$R$

Internal Market76.1%

External Market23.9%

Machine Tools71.3%

Plastic Machines

12.2%

Castings16.5%

Romi and Chiti

Families45.5%

Fundação Romi1.9%

Treasury4.1%

Free-float48.5%

189


BRAZIL—UTILITIES

SABESP HOLD CURRENT PRICE: R$16.80

TARGET PRICE: R$19.51 UPGRADING RATING TO HOLD FROM UNDERPERFORM LOWERING YE2015 TARGET PRICE TO R$19.51 FROM R$24.68

Investment Case: We acknowledge that the discount program should continue to dent margins in 2015 and that the reservoir levelsat Cantareira and Alto Tiete continue to fall. However, given the recent correction in Sabesp’s stock price, we believe the company's problems are close to fully priced in by the market. Thus, we upgraded our rating to Hold from Underperform.

Outlook 2015: In our view, Sabesp’s results will continue to suffer the consequences of its discount policies throughout 2015. We estimate an EBITDA decline of 13.1%, with volumes falling 5.8% YoY and average tariffs growing only 2.6% YoY. We expect the company to continue its efforts to protect its reservoir levels through additional investments in 2015.

Reservoir levels: Since early 2014, reservoir levels have declined sharply in São Paulo State. The Cantareira system, which accounts for ~47% of Sabesp’s water supply, fell to 7.2% of total capacity by December 15, while Alto Tiete, Sabesp’s second biggest reservoir, declined to 4.2%.

Tariff increase: some small relief. On November 27, 2014, Arsesp approved a 6.5% tariff increase for Sabesp. Although we believe the announcement was anticipated by the market, we consider this news as marginally positive, as it offers some relief to the cash position.

Additional supply in sight? On November 27, the company also received permission to begin construction work to prepare to reroute a portion of the water inflow from the Paraiba do Sul/Jaguari River. The effective usage of volumes will depend on a complete agreement with the states of Rio de Janeiro, Minas Gerais, and São Paulo. Although this will not offset the current hydrology crisis, we believe it at least signals some relief for the medium to long term.

Change in estimates: We updated our model to reflect (1) new macroeconomic assumptions, (2) a slightly smaller discount rate, (3)recently released results, (4) the tariff readjustment, (5) lower volumegrowth, and (6) the new parameters for the discount program.


Company Statistics



Bloomberg SBSP3 BZCurrent Price (01/02/15) R$ 16.80 / US$ 6.24Target Price (YE 2015) R$ 19.51 / US$ 7.3652-Week Range (R$) 15.98 - 25.95Market Capitalization (US$ Mn) 4,266Float (%) 49.73-Mth Avg. Daily Vol (US$ Mn) 9.2Shares Outstanding - Mn 684

50

60

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

SBSP3 BZ IBOVESPA

190

SABESP Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Sabesp is one of the largest sewage and water companies in the world. Sabesp charges its clients for water treatment and distribution and for sewage collection and treatment. Sabesp is controlled by São Paulo State (50.3% ownership) and operates in 364 municipalities in São Paulo State, reaching more than 22 million people. The company also sells water in the wholesale market to other municipalities in the state that are not part of Sabesp’s system. Sabesp is listed in Bovespa’s Novo Mercado (SBSP3, 24.6% of total shares) and NYSE (SBS, 25.1% of total shares). Key Personnel: Mauro Guilherme Jardim Arce (Chairman), Jerson Kelman (CEO), Rui de Britto Álvares Affonso (CFO) and Mário Arruda Sampaio (IR Manager) Web: www.sabesp.com.br


Revenues by Business, 9M14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 11,316 11,108 11,788 12,295 5,245 4,753 4,534 4,554 YoY change (%) 5.2 (1.8) 6.1 4.3 (5.1) (9.4) (4.6) 0.4Gross Profit 10,444 10,151 10,763 11,192 4,841 4,343 4,140 4,145 YoY change (%) 4.3 (2.8) 6.0 4.0 (6.0) (10.3) (4.7) 0.1EBITDA 4,004 3,125 2,716 3,345 1,856 1,337 1,045 1,239 YoY change (%) 10.4 (22.0) (13.1) 23.1 (0.5) (28.0) (21.9) 18.6 As % of Revenue 35.4 28.1 23.0 27.2 35.4 28.1 23.0 27.2Operating Income 5,528 4,878 5,410 5,756 2,562 2,087 2,081 2,132 YoY change (%) 4.2 (11.8) 10.9 6.4 (6.0) (18.5) (0.3) 2.5 As % of Revenue 48.9 43.9 45.9 46.8 48.9 43.9 45.9 46.8Financial Results (484) (544) (792) (894) (225) (233) (305) (331)Taxes (732) (514) (248) (458) (339) (220) (95) (170)Net Profit 1,922 1,109 651 889 891 475 250 329 YoY change (%) 0.5 (42.3) (41.3) 36.6 (9.4) (46.7) (47.2) 31.5 As % of Revenue 17.0 10.0 5.5 7.2 17.0 10.0 5.5 7.2

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (871) (958) (1,025) (1,104) (404) (410) (394) (409)Other Noncash Items 461 1,135 240 229 214 486 92 85Changes in Working Capital (164) 261 34 (243) (76) 112 13 (90)Operating Cash Flow 732 1,034 (33) 391 339 442 (13) 145Capital Expenditures (2,716) (2,222) (2,676) (2,529) (1,259) (951) (1,029) (937)Free Cash Flow (139) 76 (1,059) (713) (65) 33 (407) (264)Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 0 0 0 0 0 0 0 0Dividends (457) 0 (333) (163) (212) 0 (128) (60)Capital Increases/Other 0 3,796 0 0 0 1,624 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,782 1,858 800 87 761 729 302 32Current Assets 3,254 3,136 2,074 1,542 1,389 1,230 783 561Fixed Assets 24,123 25,992 27,642 29,067 10,296 10,193 10,431 10,570Total Assets 52,398 55,961 58,198 60,584 22,364 21,945 21,962 22,031Current Liabilities 2,972 2,914 2,790 2,915 1,269 1,143 1,053 1,060Long-Term Liabilities 12,371 13,451 13,674 13,887 5,280 5,275 5,160 5,050Shareholders' Equity 12,931 13,604 14,092 14,715 5,519 5,335 5,318 5,351Total Financial Debt 11,777 12,804 13,044 13,272 5,027 5,021 4,922 4,826ST Debt 641 716 733 749 274 281 277 272LT Debt 11,136 12,088 12,311 12,524 4,753 4,740 4,646 4,554


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 9.4 10.5 17.6 12.9 8.6 9.2 17.0 13.0P/CE 6.5 5.6 6.8 5.8 5.9 4.9 6.6 5.8FV/EBITDA 6.4 6.4 7.8 6.7 5.9 5.8 7.6 6.6FV/EBIT 8.2 9.3 12.6 9.9 7.5 8.3 12.3 9.9FV/Revenue 2.3 1.8 1.8 1.8 2.1 1.6 1.8 1.8P/BV 1.4 0.9 0.8 0.8 1.4 0.8 0.8 0.8FCF Yield (%) (0.8) 0.7 (9.2) (6.2) (0.8) 0.7 (9.5) (6.2)Div Yield (%) 2.5 (0.0) 2.9 1.4 2.8 (0.0) 3.0 1.4


US$R$

Residential74.6%

Commercial8.3%

Industrial1.9%

Other15.2%

Water54.0%

Sewage46.0%

São Paulo state

50.3%

Free Float49.7%

191



SANTOS BRASIL UNDERPERFORM CURRENT PRICE: R$15.00



Investment Case: The competitive landscape for Santos Brasil (SB) has changed dramatically since 2H13. The beginning of operations of both Embraport and BTP has meant an increase of over 60% in the container terminal capacity of the port of Santos. Moreover, the two new competitors are much more efficient than previous competitors of SB. Our YE2015 target price implies limited potential upside (7%), already including a concession renewal as suggested by ANTAQ (National Water Transportation Regulator).

Outlook 2015: We expect another decline in results, as 1H14 represents a difficult comparison basis (BTP’s ramp-up happened in mid-2014). Therefore, we estimate (1) a top-line decline of 1%, (2) EBITDA down 6%, and (3) adjusted net profit down 6%. This compares with our 2014 estimates of: (1) a top-line decline of 20%, (2) EBITDA down 34%, and (3) a net profit decline of 50%.

Competition has arrived: Santos Brasil volumes decreased 21% YoY in November (vs. -23% in 11M14). In October, Santos Brasil had a 28% market share (vs. ~55% in FY2013); Embraport had 13% (from zero volume in mid-2013); and BTP had 32% (from zero volume in mid-2013).

Concession renewal. The concession renewal has been approved by ANTAQ but is still pending approval by SEP (Ports Ministry). We have incorporated the renewal as suggested by ANTAQ in our model, which includes R$1.2 billion capex for the expansion of Santos Brasil’s capacity to ~2.4 million TEUs/year (from 2.0 million currently) and maintenance capex of ~R$1.7 billion in 2023-47.

Unfavorable risk/reward and momentum. With only 7% potential upside and unfavorable momentum, we reiterate our underperform recommendation. Although most of the adjustment in market share at the port of Santos has already happened, 1H14 represents a difficult comparison basis, implying declining results in 1H15. Moreover, we believe the weak economic environment in Brazil should prevent a prompt recovery in volumes at the port of Santos.



Company Statistics



Bloomberg STBP11 BZCurrent Price (01/02/15) R$ 15.00 / US$ 5.57Target Price (YE 2015) R$ 16.00 / US$ 5.9052-Week Range (R$) 12.30 - 21.70Market Capitalization (US$ Mn) 741Float (%) 34.43-Mth Avg. Daily Vol (US$ Mn) 0.7Shares Outstanding - Mn 133

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

STBP11 BZ IBOVESPA

192

SANTOS BRASIL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Santos Brasil is responsible for handling approximately 25% of the containers in the country. Currently, SB operates three container terminals: Tecon de Santos, in São Paulo; Tecon Imbituba, in Santa Catarina; and Tecon Vila do Conde, in Pará. The company also operates TEV, one of the largest vehicle terminals in the country. Key Personnel: Antônio Carlos Duarte Sepúlveda (CEO), Washington Cristiano Kato (CFO) and Orlando Mansur (IR Director) Web: http://www.santosbrasil.com.br

Port Operations Breakdown, 2014E




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,326 1,057 1,048 1,150 614 451 399 407 YoY change (%) 2.5 (20.2) (0.8) 9.7 (7.1) (26.6) (11.6) 2.1Gross Profit - - - - - - - - YoY change (%) - - - - - - - -EBITDA 487 321 301 340 226 137 114 120 YoY change (%) (11.7) (34.1) (6.4) 13.2 (20.0) (39.3) (16.6) 5.4 As % of Revenue 36.7 30.4 28.7 29.6 36.7 30.4 28.7 29.6Operating Income 351 188 174 219 163 80 66 77 YoY change (%) (17.3) (46.4) (7.6) 25.7 (25.1) (50.7) (17.7) 17.0 As % of Revenue 26.5 17.8 16.6 19.0 26.5 17.8 16.6 19.0Financial Results (29) (26) (22) (7) (13) (11) (8) (3)Taxes (109) (82) (52) (72) (50) (35) (20) (25)Net Profit 213 107 100 139 99 46 38 49 YoY change (%) (15.3) (49.7) (6.4) 39.1 (23.3) (53.7) (16.6) 29.5 As % of Revenue 16.1 10.1 9.6 12.1 16.1 10.1 9.6 12.1

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (136) (133) (127) (122) (63) (57) (48) (43)Other Noncash Items - - - - - - - -Changes in Working Capital 15 16 1 (6) 7 7 0 (2)Operating Cash Flow 393 255 250 263 182 109 95 93Capital Expenditures (85) (48) (58) (396) (39) (21) (22) (140)Free Cash Flow 299 194 185 (136) 138 83 70 (48)Other Invest./(Divestments) - - - - - - - -Change in Debt (111) (72) (106) 209 (52) (31) (40) 74Dividends (96) (137) (65) (60) (44) (59) (25) (21)Capital Increases/Other - - - - - - - -

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 123 95 94 104 52 37 35 35Current Assets 306 246 244 266 131 97 90 90Fixed Assets 1,901 1,816 1,747 2,021 811 712 645 687Total Assets 2,207 2,062 1,991 2,286 942 809 735 778Current Liabilities 361 345 246 252 154 135 91 86Long-Term Liabilities 398 327 319 528 170 128 118 180Shareholders' Equity 1,448 1,391 1,426 1,506 618 546 526 512Total Financial Debt 322 250 145 354 137 98 53 120ST Debt 148 148 50 50 63 58 18 17LT Debt 174 102 95 304 74 40 35 103

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 199 155 50 250 85 61 19 85Capital Employed 1,770 1,641 1,571 1,860 755 644 580 633Net Debt/EBITDA 0.4 0.5 0.2 0.7 0.4 0.4 0.2 0.7Net Debt/Equity 0.1 0.1 0.0 0.2 0.1 0.1 0.0 0.2Capex/Revenue (%) 6.4 4.6 5.5 34.4 6.4 4.6 5.5 34.4Int Cover (%) (1.5) (2.0) (2.0) (1.6) (1.5) (2.0) (2.0) (1.6)Dividend Payout (%) 38.1 64.4 60.9 59.8 34.5 59.0 53.3 59.1ROCE (%) 26.0 16.5 14.4 15.6 27.8 17.9 14.5 15.6ROE (%) 15.3 7.5 7.1 9.5 15.6 8.0 7.1 9.5

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 11.8 17.4 19.9 14.3 10.8 15.3 19.4 15.0P/CE 7.2 7.8 8.8 7.6 6.6 6.8 8.6 8.0FV/EBITDA 5.6 6.3 6.8 6.6 5.1 5.6 6.6 6.9FV/EBIT 7.7 10.7 11.8 10.3 7.1 9.5 11.5 10.7FV/Revenue 2.1 1.9 1.9 2.0 1.9 1.7 1.9 2.0P/BV 1.7 1.3 1.4 1.3 1.7 1.3 1.4 1.4FCF Yield (%) 11.8 10.4 9.3 (6.8) 13.0 11.8 9.5 (6.5)Div Yield (%) 3.8 7.4 3.3 3.0 4.2 8.4 3.3 2.9


US$R$

Imbituba + CONVICON

3.1%

Santos96.9%

Logistics18.7%

Vehicle Terminal

5.0%

Port Terminals

76.3%

Free Float34.4%

International Market

Investments26.7%

PW237 Participaçõe

s S.A.20.5%

Multi STS Participaçõe

s S.A.10.2%

193



SÃO MARTINHO BUY CURRENT PRICE: R$36.68


INTRODUCING YE2015 TARGET PRICE OF R$43.50: REPLACING YE2014 TARGET PRICE OF R$34.00

Investment Case: We reiterate our positive view on São Martinho, based on the company’s solid position in the sugar and ethanol sector in Brazil, fueled by its ability to deliver solid results even under less favorable sugar and ethanol price conditions. In addition, the company continues to be a benchmark in the sector for its ability to maintain capital discipline through accretive acquisitions.

Outlook 2015: We expect a solid 2015-16 harvest for São Martinho fueled by: (i) the conclusion of the acquisition of the Santa Cruz mill, which has increased the company’s crushed cane capacity to 20 million tons; (ii) increased cogeneration capacity, to 660 MWh, whichshould positively contribute to consolidated results given the still high energy prices; and (iii) a depreciating Brazilian real that could offset somewhat a fall in sugar prices in USD.

High efficiency and low cash costs: We believe that São Martinho continues to stand out for its trademark efficiency and low cash costs. Of note, (i) the conclusion of the acquisition of the Santa Cruz mill, the company should be able to capture synergies due to improvement in the operations of that mill, in our view, and (ii) given the completion of its growth investment program and future investments more tied to maintenance.

Lower oil prices to limit upside to ethanol prices in Brazil: As a result of the recent drop in oil prices, the price of domestic gasoline in Brazil is more than 30% higher than international prices. Consequently, we do not expect price increases for gasoline in Brazil in 2015, thus capping ethanol prices in 2015.

Unlocking value with land sale: São Martinho recently launched two real estate projects with a NPV of R$111 million (around 3% of company’s market capitalization), that could unlock some value stemming from the sale of land.



Company Statistics



Bloomberg SMTO3 BZCurrent Price (01/02/15) R$ 36.68 / US$ 13.63Target Price (YE 2015) R$ 43.50 / US$ 17.3352-Week Range (R$) 24.54 - 46.55Market Capitalization (US$ Mn) 1,540Float (%) 39.23-Mth Avg. Daily Vol (US$ Mn) 2.3Shares Outstanding - Mn 113

60

80

100

120

140

160

180

J-13 M-13 A-13 D-13 A-14 A-14 D-14

São Martinho - ON(Rebased)

194

SÃO MARTINHO Financial Highlights: P&L, Balance Sheet and CF Statement, 2014–17E in Millions Company Description

São Martinho is one of the largest sugarcane groups in Brazil and the second-largest publicly traded one. It is located in a highly productive area in the State of São Paulo (two mills) and in Goias (one mill and one greenfield in partnership with Petrobras Biocombustível). The company has a sugarcane crushing capacity of 20 million tons and it crushed 19.5 million tons in 2014/15. São Martinho was founded in 1914 and went public in February 2007. It has only one type of share (SMTO3), which is listed on the Brazilian stock exchange. The company is part of the Novo Mercado, thus complying with the highest levels of corporate governance. Key Personnel: Fábio Venturelli (CEO), Felipe Vichiatto (CFO) and Felipe Vichiatto (IR Officer) Web: www.saomartinho.ind.br

Sales by Region, FY2015E

Sales by Segment, FY2015E



P&L ACCOUNT 2014A 2015E 2016E 2017E 2014A 2015E 2016E 2017ETotal Revenue 1,972 2,213 2,640 2,818 877 892 1,008 1,068 YoY change (%) 20.5 12.3 19.3 6.8 4.5 1.8 12.9 6.0Gross Profit 530 642 870 932 236 259 332 353 YoY change (%) 31.9 21.1 35.4 7.2 14.4 9.8 28.2 6.4EBITDA 751 931 1,149 1,214 334 375 439 460 YoY change (%) 17.0 24.0 23.4 5.6 1.5 12.4 16.8 4.8 As % of Revenue 38.1 42.1 43.5 43.1 38.1 42.1 43.5 43.1Operating Income 303 514 668 713 135 207 255 270 YoY change (%) 55.3 69.7 29.9 6.7 34.7 53.9 22.9 5.9 As % of Revenue 15.4 23.2 25.3 25.3 15.4 23.2 25.3 25.3Financial Results (107) (150) (207) (169) (48) (60) (79) (64)Taxes (61) (60) (69) (109) (27) (24) (26) (41)Net Profit 135 303 391 434 60 122 149 165 YoY change (%) 81.1 124.5 29.1 11.0 57.0 103.5 22.2 10.2 As % of Revenue 6.8 13.7 14.8 15.4 6.8 13.7 14.8 15.4

CASH FLOW 2014A 2015E 2016E 2017E 2014A 2015E 2016E 2017EDepreciation & Amortization (468) (481) (501) (519) (208) (194) (191) (197)Other Noncash Items 6 7 8 9 3 3 3 3Changes in Working Capital 23 (286) 180 (3) 10 (115) 69 (1)Operating Cash Flow 512 162 1,098 980 228 65 419 371Capital Expenditures (658) (540) (673) (670) (293) (218) (257) (254)Free Cash Flow 7 157 392 505 3 63 150 191Other Invest./(Divestments) (37) 1 (2) (2) (16) 0 (1) (1)Change in Debt 227 693 (200) (140) 101 279 (76) (53)Dividends (15) (92) (98) (152) (7) (37) (37) (58)Capital Increases/Other (25) 205 0 0 (11) 83 0 0

BALANCE SHEET 2014A 2015E 2016E 2017E 2014A 2015E 2016E 2017ECash and Equivalents 650 1,067 1,193 1,210 286 425 454 457Current Assets 1,018 1,775 1,626 1,648 448 707 618 622Fixed Assets 4,509 4,864 5,057 5,227 1,985 1,938 1,923 1,972Total Assets 5,768 6,899 6,953 7,156 2,539 2,748 2,644 2,700Current Liabilities 901 1,053 908 876 397 420 345 331Long-Term Liabilities 2,849 3,558 3,463 3,416 1,254 1,417 1,317 1,289Shareholders' Equity 2,076 2,342 2,635 2,918 914 933 1,002 1,101Total Financial Debt 2,211 2,905 2,705 2,565 973 1,157 1,028 968ST Debt 592 723 673 638 261 288 256 241LT Debt 1,617 2,179 2,029 1,924 712 868 772 726




US$R$

Brazil54.8%

International45.2%

Ethanol51.1%

Sugar39.6%

Other9.3%

Ometto Family56.0%

Free Float39.2%

Management

0.5% Others4.3%

195



SARAIVA BUY CURRENT PRICE: R$6.45 TARGET PRICE: R$12.00

INTRODUCING YE2015 TARGET PRICE OF R$12.00; REPLACING 2014 TARGET PRICE OF R$38.00

Investment Case: We maintain our Buy rating, as we see SLED4 trading at a 0.4x book value, which fails, in our view, to price-in the company’s strategic value. We point out, however, that we have littlevisibility on the restructuring process at the retail operation, which could limit earnings momentum. Despite the company's high leverage, we do not see risk of liquidity constraints, following the long-term debt recently contracted with BNDES.

Outlook2015: We expect Saraiva’s EBITDA to grow 38% YoY, stemming basically from an uplift of profitability levels, mainly at thepublishing division (offsetting lower volumes from the National Textbook Program). Our net income estimate of R$25 million impliesthe company’s shares are trading at a 2015E P/E of 7.2x.

Moving toward becoming an education company. Management has reiterated its intention of transforming Saraiva’s publishing unit into an education-focused company through the increased supply of education services and solutions (such as learning systems and preparatory courses), on top of educational books. We welcome this orientation, which should reflect on the company’s further capital allocation decisions, according to the CEO.

M&A activity back on the radar? Management has expressed interest in gaining relevance in K-12 learning systems through acquisitions. It believes that Saraiva’s Etico has 14% share in the segment (and 5% over the total market), but growing it organically looks challenging, in our view. Saraiva’s high net-debt-to-EBITDA ratio, which reached 4x in 3Q14, could be a limitation, in our view.

Retail: focus on expenses. The company expects a normalized EBITDA margin of 6-7% in three to five years, which would come primarily by a reduction in expenses. Note that CEO Jorge Saraiva committed to annual savings of R$30 million (25% of 2014 EBITDA guidance), to be fully reaped by 2016, as a result of the corporate expense review project, which is being carried out with the help of Gradus Consultancy.

Bruno Giardino*, CFA Brazil: Banco Santander S.A. +5511-3012-5914|[email protected]

Daniel Gewehr* Brazil: Banco Santander S.A. +5511-3012-5787|[email protected]

João Mamede* Brazil: Banco Santander S.A. +5511-3553-0699|[email protected]

Company Statistics



Bloomberg SLED4 BZCurrent Price (01/02/15) R$ 6.45 / US$ 2.40Target Price (YE 2015) R$ 12.00 / US$ 4.4352-Week Range (R$) 6.31 - 25.29Market Capitalization (US$ Mn) 68Float (%) 67.73-Mth Avg. Daily Vol (US$ Mn) 0.6Shares Outstanding - Mn 28

20

40

60

80

100

120

140

J-13 M-13 A-13 D-13 A-14 A-14 D-14

SLED4 BZ IBOVESPA

196

SARAIVA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Saraiva operates 115 multi-format retail stores in Brazil that offers a wide range of products, such as books, videos, music, periodicals, stationery, multimedia games and computer and electro-electronic products and conducts its online business through Saraiva.com. The company also develops educational solutions in teaching books and digital media targeted to elementary and high school and university levels. It also offers customers a comprehensive range of educational products and services in the Learning Systems' segment. Saraiva is listed in the Bovespa’s Level 2 of corporate governance, offering 90% tagalong for preferred shareholders. Key Personnel: Jorge Saraiva Neto (CEO), Marcus Mingoni (CFO) and Luciana Doria Wilson (IR Officer) Web: www.saraiva.com.br


EBITDA by Segment, 9M14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 2,144 2,299 2,471 2,752 994 979 939 974 YoY change (%) 11.4 7.2 7.5 11.4 1.0 (1.5) (4.0) 3.7Gross Profit 903 944 1,025 1,145 419 402 390 405 YoY change (%) 7.6 4.5 8.6 11.7 (2.6) (4.0) (3.1) 4.0EBITDA 95 118 162 212 44 50 62 75 YoY change (%) (47.9) 23.9 37.6 30.7 (52.8) 13.9 22.9 21.6 As % of Revenue 4.4 5.1 6.6 7.7 4.4 5.1 6.6 7.7Operating Income 49 74 113 160 23 32 43 57 YoY change (%) (65.9) 51.7 52.1 41.0 (69.1) 39.3 35.8 31.3 As % of Revenue 2.3 3.2 4.6 5.8 2.3 3.2 4.6 5.8Financial Results (39) (65) (78) (83) (18) (28) (30) (29)Taxes 3 (2) (10) (21) 1 (1) (4) (8)Net Profit 13 7 25 55 6 3 10 20 YoY change (%) (83.1) (45.2) 255.3 118.5 (84.7) (49.7) 217.2 103.5 As % of Revenue 0.6 0.3 1.0 2.0 0.6 0.3 1.0 2.0

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (46) (43) (49) (52) (21) (18) (19) (18)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (47) (95) 8 (82) (22) (40) 3 (29)Operating Cash Flow 48 23 170 130 22 10 65 46Capital Expenditures (80) (73) (72) (76) (37) (31) (27) (27)Free Cash Flow (4) 152 10 (51) (2) 65 4 (18)Other Invest./(Divestments) - - - - - - - -Change in Debt 64 269 0 0 29 115 0 0Dividends (25) (22) (2) (6) (11) (9) (1) (2)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 23 102 111 54 10 40 41 18Current Assets 949 1,229 1,291 1,355 405 482 476 461Fixed Assets - - - - - - - -Total Assets 1,326 1,631 1,715 1,803 566 639 633 613Current Liabilities 550 867 933 979 235 340 344 333Long-Term Liabilities - - - - - - - -Shareholders' Equity 516 481 500 542 220 189 185 184Total Financial Debt 446 723 723 723 190 284 267 246ST Debt 225 489 489 489 96 192 181 166LT Debt 221 234 234 234 94 92 86 80

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 423 621 613 670 180 244 226 228Capital Employed 938 1,102 1,113 1,211 400 432 411 412Net Debt/EBITDA 4.4 5.3 3.8 3.2 4.1 4.9 3.7 3.0Net Debt/Equity 0.8 1.3 1.2 1.2 0.9 1.5 1.2 1.2Capex/Revenue (%) 3.7 3.2 2.9 2.8 3.7 3.2 2.9 2.8Int Cover (%) 2.1 1.5 1.5 1.9 2.1 1.5 1.5 1.9Dividend Payout (%) 32.1 171.2 25.0 25.0 29.0 157.0 22.0 24.8ROCE (%) 4.9 7.0 11.1 14.9 5.4 7.8 11.1 14.9ROE (%) 2.5 1.4 5.2 10.6 2.6 1.5 5.2 10.6

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E n/m 25.2 7.2 3.3 n/m 22.2 7.1 3.5P/CE 12.5 3.5 2.5 1.7 11.4 3.1 2.4 1.8FV/EBITDA 12.2 6.8 4.9 4.0 11.2 6.2 4.8 3.9FV/EBIT 23.6 10.7 7.0 5.3 21.6 9.8 6.8 5.2FV/Revenue 0.5 0.3 0.3 0.3 0.5 0.3 0.3 0.3P/BV 1.4 0.4 0.4 0.3 1.4 0.4 0.4 0.4FCF Yield (%) (0.6) 85.0 5.5 (27.7) (0.7) 96.2 5.6 (26.4)Div Yield (%) 3.4 12.4 1.0 3.5 3.7 14.1 1.0 3.3


US$R$

Publishing16.6%

Bookstore83.4%

Publishing36.7%

Bookstore63.3%

Saraiva Family28.5%

Board and Mgmt.2.9%Treasury

0.9%

Free-float67.7%

197



SMILES HOLD CURRENT PRICE: R$48.28

TARGET PRICE: R$49.00 DOWNGRADING RATING TO HOLD FROM BUY Investment Case: We are downgrading the stock to Hold purely on

valuation. After setting it as our top pick among financials (see our report Smiles: The Early Bird May Get the Worm, but the Second Mouse Gets the Cheese, August 27, 2014), SMLE3’s strong performance since then has left little upside potential in our YE2015 target price for a Buy recommendation.

Outlook 2015: We expect 11% EPS growth in 2015. Although this is a good number given the expected tough macroeconomic scenario for 2015, we note that such low-double-digit EPS growth could also reflect (i) Smiles’s focus on margins rather than on volume growth, and (ii) the beginning of the flattening of the high-growth phase.

A brunch of positives—already priced in. Smiles is a cash-cow company, not capital intensive, still enjoying a high-growth phase and with strong dividend payout ratios. Some of these qualities could be used to describe BB Seguridade, Cielo, Cetip, and BVMF, but only Smiles combines all of these.

Smiles–Cielo strategic partnership: take it as a bonus. This venture will cover a potential base of 1.4 million Cielo merchants across Brazil. We have no detailed data to reach a precise valuationand add it to our target price, but using our base-case estimate, we reached a potential R$3.30 per share, or 7%, increase to our 2015 target price. The test phase of the venture began in December 2014.

A good dividend story, and not over yet. The strong extraordinary dividend distribution story is over. But we see some potential for a residual extraordinary dividend in 2016, which, coupled with a 100% payout, results in still attractive dividend yields, in our view.

Smiles and Multiplus—a premium is reasonable. We believe the premium at which Smiles trades over Multiplus can be explained by (i) the higher growth phase the company is still in; (ii) the market perception of a stronger corporate governance level; and (iii) the lower air ticket costs Smiles pays Gol vs. Multiplus’s payments to LATAM.




Company Statistics



Bloomberg SMLE3 BZCurrent Price (01/02/15) R$ 48.28 / US$ 17.93Target Price (YE 2015) R$ 49.00 / US$ 18.6352-Week Range (R$) 33.01 - 48.28Market Capitalization (US$ Mn) 2,191Float (%) 27.63-Mth Avg. Daily Vol (US$ Mn) 10.2Shares Outstanding - Mn 122

50

100

150

200

250

A-13 A-13 D-13 A-14 A-14 D-14

SMLE3 BZ IBOVESPA

198

SMILES Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Smiles was created in 1994 by Varig Airlines as its frequent flyer program until 2007, when both were acquired by GOL. Smiles enjoyed a very high recognition rate by customers, and in January 2013, it became an independent business unit of GOL. The company operates as a loyalty program coalition network and has 153 partnerships through which its 9 million members (as of 2012) can accrue points. It ranks second among loyalty coalition companies in Brazil in terms of members, being a subsidiary of GOL. The company’s IPO was held in April 2013. Key Personnel: Constantino de Oliveira Jr. (Chairman), Leonel Dias de Andrade Neto (CEO), Flavio Jardim Vargas (CFO) Web: http://ri.smiles.com.br/smiles/


Accruals, 2014E



INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ERevenue 632 851 872 1,055 293 363 332 373 Growth (%) n/m 34.6 2.5 21.0 n/m 23.9 (8.7) 12.6EBITDA 180 229 196 394 83 98 74 140 Growth (%) n/m 27.3 (14.6) 101.5 n/m 17.2 (23.9) 87.6Operating Profit 180 231 196 394 84 99 74 140 Growth (%) n/m 28.3 (15.3) 101.5 n/m 18.1 (24.6) 87.6Profit before Taxes 309 412 459 557 143 176 174 197Taxes (102) (140) (156) (189) (47) (60) (59) (67)Minorities 0 0 0 0 0 0 0 0Net Profit 208 272 303 368 96 116 115 130 Growth (%) n/m 30.9 11.4 21.4 n/m 20.5 (0.7) 13.0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 383 133 707 523 177 57 269 185Accounts Receivable 99 110 125 139 46 47 47 49Intangible and Deferred Asse 77.3 81.6 81.6 81.6 35.8 34.8 31.0 28.9Tangible Assets 1 0 0 0 1 0 0 0Total Assets 1,944 1,649 2,018 1,849 901 704 767 654ST Debt 0 0 0 0 0 0 0 0LT Debt 1,096 96 96 (4) 508 41 36 (1)Equity 1,329 329 329 129 616 140 125 46Net Debt (Cash) 1,561 1,515 1,312 1,326 724 647 499 469

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EChanges in Working Capital 0 0 0 0 0 0 0 0Operating Cash Flow 189 102 189 387 88 44 72 137Capital Expenditures (2) (2) (2) (2) (1) (1) (1) (1)Change in Debt 996 (1,000) 0 (100) 462 (427) 0 (35)Free Cash Flow to Equity 110 354 201 399 51 151 76 141Cash Dividends (37) (1,272) (303) (468) (17) (543) (115) (166)Capital Increase (Decrease) 1,132 (1,000) 0 (100) 525 (427) 0 (35)

OPERATING RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEBITDA Margin 28.5 26.9 22.4 37.4 28.5 26.9 22.4 37.4Effective Tax Rate 32.8 34.1 33.9 34.0 32.8 34.1 33.9 34.0Net Margin 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4Net Debt / EBITDA 8.7 6.6 6.7 3.4 8.7 6.6 6.7 3.4Net Debt / Equity 1.2 4.6 4.0 10.3 1.3 5.2 4.0 10.3FCFE / Revenues 17.5 41.6 23.0 37.8 17.5 41.6 23.0 37.8ROAA 18.8 15.1 16.5 19.0 20.2 16.0 16.5 19.0ROAE 29.1 32.8 92.1 160.6 31.4 33.6 92.1 160.6Payout n/m 612.0 111.4 154.4 n/m 561.2 98.1 153.5



US$R$

Points Sale62.6%

Breakage9.1%

Others (SM, etc.)

28.3%

GOL Airlines14.9%

Banks64.8%


- GOL54.5%

GA17.9%

Free float27.6%

199



SUL AMERICA BUY CURRENT PRICE: R$12.16


Investment Case: In August 2014, we set Sul America as one of our top picks among financial service companies (for details, see our August 4 report, Sul America: Sword of Damocles Removed). The reasons for that remain unchanged: (i) the total upside potential we expect for Sul America by YE2015 is among the highest among companies under our universe of coverage; (ii) its 2015E P/E can be considered cheap in light of the company’s five-year average of 11x; and (iii) Sul America is the least expensive way to gain exposure to the insurance sector in Brazil because of the huge discount at which it trades vs. peers.

Outlook 2015: In a recent meeting with top management, the CEO offered a supportive message regarding the profitability levelfor coming years: ROE should be on an upward trend, as the health loss ratio seems to be showing signs of peaking. The initiatives to counteract rising loss ratios are becoming more apparent and effective, in our view, and include clients’ co-participation and Sula’s entering the medical supply chain. We see ROE set to expand for the next couple of years.

4Q14 could be the catalyst. We expect R$271 million net income for 4Q14, or 51% of the net income we estimate for full year 2014 (R$530 million). This strong and recurring seasonality normally creates a trigger for the stock. According to management, the new repricing cycle, which started July 1, 2014, indicates satisfactory repricing levels, a high retention rate, and rational competition.

No more sword of Damocles. At the end of June 2014, ING divested 100% of its remaining SULA11 position through a R$522 million block trade, thus eliminating the pending overhang risk over the stock. Initially, this block trade did more harm than good, with SULA stock being hit afterward due to fast-money strategies. However, we believe the lack of overhang and higher liquidity could attract investors.




Company Statistics



Bloomberg SULA11 BZCurrent Price (01/02/15) R$ 12.16 / US$ 4.52Target Price (YE 2015) R$ 17.00 / US$ 6.2752-Week Range (R$) 11.10 - 17.62Market Capitalization (US$ Mn) 1,539Float (%) 70.73-Mth Avg. Daily Vol (US$ Mn) 4.3Shares Outstanding - Mn 341

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

SULA11 BZ IBOVESPA

200

SUL AMERICA Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Sul America S.A. is the largest independent insurance company in Brazil. Founded over 110 years ago, the company operates mainly in the health insurance segment, as well as in auto insurance, property and casualty (P&C), and life insurance. Sul America became a publicly traded company in October 2007 and has been controlled by the Larragoiti family since its inception. Key Personnel: Patrick Antonio Claude de Larragoiti Lucas (Chairman), Gabriel Portella Fagundes Filho (CEO) and Arthur Farme d’Amoed Neto (Controller VP) Web: www.sulamerica.com.br/ri

Premiums by Segment, 2014E

Invested Portfolio, 3Q14



INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EWritten Premiums 12,218 13,646 14,923 16,329 5,215 5,351 5,506 5,554 Growth (%) 15.1 11.7 9.4 9.4 0.4 2.6 2.9 0.9Retained Premiums 12,022 13,477 14,713 16,112 5,131 5,285 5,429 5,480 Growth (%) 15.5 12.1 9.2 9.5 0.7 3.0 2.7 0.9Earned Premiums 11,770 13,232 14,471 15,848 5,023 5,189 5,340 5,390 Growth (%) 12.7 12.4 9.4 9.5 (1.7) 3.3 2.9 0.9Commissions and Expenses (11,201.3) (12,669.5) (13,819.4) (15,053.6) (4,780.8) (4,968.4) (5,099.4) (5,120.3)Underwriting Results 128 79 125 217 55 31 46 74Financial Result 469 662 694 714 200 259 256 243Equity Income 133 127 137 149 57 50 50 51Profit Before Taxes 730 868 956 1,080 312 340 353 367Taxes (260) (337) (331) (377) (111) (132) (122) (128)Net Profit 487 531 625 703 208 208 231 239 Growth (%) 0.8 8.9 17.7 12.6 (12.0) 0.1 10.8 3.7

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 673 775 807 843 287 304 298 287Financial Assets 7,860 9,049 9,423 9,844 3,355 3,549 3,477 3,348Premiums Receivable 2,511 2,860 3,131 3,432 1,072 1,122 1,155 1,167Intangible Assets 341 362 364 367 146 142 134 125Tangible Assets 123 131 131 132 53 51 48 45Total Assets 16,962 18,653 20,509 22,382 7,239 7,315 7,568 7,613Current Liabilities 7,070 7,344 8,207 8,933 3,017 2,880 3,028 3,038Technical Provisions 2,627 2,682 2,992 3,247 1,121 1,052 1,104 1,104Other Provisions 2,391 3,192 3,646 3,999 1,020 1,252 1,345 1,360Debt and Financial Liabilities 670 752 815 894 286 295 301 304Minority Interest 42 24 27 30 18 10 10 10Equity 3,413 3,778 4,222 4,702 1,457 1,482 1,558 1,599


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 10.3 8.3 6.6 5.9 10.3 8.0 6.7 6.4P/CE 10.3 8.3 6.6 5.9 10.3 8.0 6.7 6.4P/BV 1.5 1.2 1.0 0.9 1.5 1.1 1.0 1.0Div Yield (%) 2.9 3.5 4.3 4.7 2.9 3.7 4.3 4.3


US$R$

Health72.3%

Auto22.1%

Life + VGBL3.0% Others

2.6%

Inflation-linked bonds20.0%

Floating Gov. bonds

70.0%

Equities2.0%

Fixed rate/Others

8.0%

Sulasapar25.2%

Swiss Re14.9%

IFC7.8%

Oppenheimer

8.1%

Free float44.0%

201



SUZANO HOLD CURRENT PRICE: R$10.98


Investment Case: After the ramp-up of the Maranhao pulp mill, which reached full capacity in August 2014, Suzano has become a deleveraging case, gradually unlocking equity value. However, according to our estimates, the deleveraging process is likely to be more gradual than previously expected by the market. We note that growth comes at the expense of return to investors, since we estimate returns below cost of equity for the Maranhão project undercurrent market conditions. On the other hand, we expect strong earnings momentum in the short term to favor the stock.

Outlook 2015: We believe Suzano has the best earnings momentum in the sector given our estimated 21% EBITDA growth YoY, propelled by capacity growth and BRL weakness.

Complete deleveraging process to last until 2017, in our view. If, on the one hand BRL depreciation boosts the company’s EBITDA, on the other hand it negatively affects the debt portion in foreign currency. The net effect is that it may take more time to deleverage than the market anticipates, in our opinion. Additionally, according to the company’s CFO, Suzano will carry out significant capacity increases and/or act as a consolidator agent in the pulp sector only after the 2.5x net debt/EBITDA target ratio is achieved, which we estimate will occur in mid-2017.

Doing the homework in COGS and SG&A: We still see room for improvement, especially with respect to (i) wood productivity and forest logistics; (ii) the learning curve at the Maranhão mill; (iii) punctual investments in the paper segment (e.g., the new digester for the Suzano mill); and (iv) a greater contribution from energy sales (SUZB plans to be a 35 MW/h net seller by July 2015). On the SG&A side, Suzano intends to encourage direct paper sales (eliminating intermediary agents); also, more aggressive variable compensation metrics were established for managers to emphasize the focus on free cash flow generation. We forecast SG&A at ~9% of sales in the next few years, -1.5 p.p. relative to the recent average.



Company Statistics



Bloomberg SUZB5 BZCurrent Price (01/02/15) R$ 10.98 / US$ 4.08Target Price (YE 2015) R$ 10.50 / US$ 3.8752-Week Range (R$) 7.20 - 11.28Market Capitalization (US$ Mn) 4,460Float (%) 35.33-Mth Avg. Daily Vol (US$ Mn) 20.1Shares Outstanding - Mn 1,093

60

80

100

120

140

160

J-13 M-13 A-13 D-13 A-14 A-14 D-14

SUZB5 BZ IBOVESPA

202

SUZANO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Suzano Papel e Celulose is an integrated Brazilian pulp & paper company and one of the leading players in the domestic paper market, with an installed capacity of 1.3 tons of printing and writing paper (P/W) and paperboard. Suzano is also a market pulp exporter with an annual capacity of 3.4 million tons per year, with exports accounting for 60% of Suzano’s net sales. Suzano Papel e Celulose is controlled by Suzano Holding (owned by the Feffer family), with 98% of the voting shares and 56% of total capital. Suzano’s shares are traded in the São Paulo Stock Exchange. Key Personnel: David Feffer (Chairman), Walter Schalka (CEO), Marcelo Bacci (CFO) and Tiago Fernandes (IR Director) Web: www.suzano.com.br





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 5,689 7,239 8,476 8,995 2,637 3,080 3,223 3,186 YoY change (%) 9.6 27.3 17.1 6.1 (0.7) 16.8 4.6 (1.1)Gross Profit 1,498 1,871 2,272 2,397 695 796 864 849 YoY change (%) 29.6 24.8 21.4 5.5 17.4 14.6 8.5 (1.7)EBITDA 1,758 2,358 2,849 2,989 815 1,003 1,083 1,058 YoY change (%) 38.2 34.1 20.8 4.9 25.3 23.1 8.0 (2.3) As % of Revenue 30.9 32.6 33.6 33.2 30.9 32.6 33.6 33.2Operating Income 976 1,191 1,571 1,652 452 507 597 585 YoY change (%) 79.2 22.1 31.9 5.1 62.4 12.1 17.8 (2.1) As % of Revenue 17.1 16.5 18.5 18.4 17.1 16.5 18.5 18.4Financial Results (1,256) (1,314) (1,025) (1,191) (582) (559) (390) (422)Taxes 60 (2) (136) (115) 28 (1) (52) (41)Net Profit (220) (124) 409 346 (102) (53) 156 122 YoY change (%) (20.4) 43.6 n/m (15.6) (9.1) 48.3 n/m (21.4) As % of Revenue (3.9) (1.7) 4.8 3.8 (3.9) (1.7) 4.8 3.8

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (889) (1,176) (1,278) (1,337) (412) (501) (486) (473)Other Noncash Items 1,084 642 460 662 503 273 175 234Changes in Working Capital (394) (823) (114) (165) (183) (350) (43) (59)Operating Cash Flow 1,359 872 2,033 2,179 630 371 773 772Capital Expenditures (2,257) (1,698) (1,200) (1,225) (1,046) (723) (456) (434)Free Cash Flow (1,703) (1,307) 451 500 (789) (556) 171 177Other Invest./(Divestments) (1,591) (668) (200) (200) (738) (284) (76) (71)Change in Debt 1,248 42 0 0 579 18 0 0Dividends (100) (122) (120) (102) (46) (52) (46) (36)Capital Increases/Other (51) 9 0 0 (24) 4 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 3,690 3,174 3,887 4,738 1,575 1,245 1,434 1,612Current Assets 6,472 6,761 7,662 8,764 2,762 2,652 2,827 2,981Fixed Assets 27,149 27,550 28,373 29,363 11,587 10,804 10,470 9,988Total Assets 27,149 27,550 28,373 29,363 11,587 10,804 10,470 9,988Current Liabilities 1,273 1,256 1,329 1,415 543 493 490 481Long-Term Liabilities 2,312 2,383 2,383 2,383 987 935 879 811Shareholders' Equity 10,687 10,459 10,749 10,992 4,561 4,102 3,966 3,739Total Financial Debt 12,877 13,451 13,912 14,574 5,496 5,275 5,134 4,957ST Debt 1,009 1,272 1,272 1,272 431 499 469 433LT Debt 12,369 12,179 12,640 13,302 5,279 4,776 4,664 4,524

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 9,187 10,278 10,025 9,835 3,921 4,031 3,699 3,345Capital Employed 29,896 30,242 31,207 32,385 12,760 11,860 11,515 11,015Net Debt/EBITDA 5.2 4.4 3.5 3.3 4.8 4.0 3.4 3.2Net Debt/Equity 0.9 1.0 0.9 0.9 0.9 1.1 0.9 0.9Capex/Revenue (%) 39.7 23.5 14.2 13.6 39.7 23.5 14.2 13.6Int Cover (%) 2.2 2.4 3.0 2.9 2.2 2.4 3.0 2.9Dividend Payout (%) (54.6) (55.4) (96.6) 25.0 (49.4) (50.8) (85.0) 24.8ROCE (%) 4.0 4.3 3.7 4.0 4.3 4.9 3.8 4.0ROE (%) (2.0) (1.2) 3.9 3.2 (2.1) (1.2) 3.9 3.2

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E - - 29.3 34.7 - - 28.7 36.4P/CE 15.3 11.7 7.1 7.1 14.0 10.3 7.0 7.5FV/EBITDA 11.1 9.6 7.7 7.3 10.1 8.6 7.5 7.4FV/EBIT 19.9 19.0 14.0 13.2 18.3 17.1 13.7 13.3FV/Revenue 3.4 3.1 2.6 2.4 3.1 2.8 2.5 2.5P/BV 1.0 1.2 1.1 1.1 1.0 1.1 1.1 1.2FCF Yield (%) (16.6) (10.6) 3.8 4.2 (18.2) (12.0) 3.8 4.0Div Yield (%) 1.0 1.0 1.0 0.9 1.1 1.1 1.0 0.8

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS (0.20) (0.11) 0.37 0.32 (0.09) (0.05) 0.14 0.11DPS 0.09 0.11 0.11 0.09 0.04 0.05 0.04 0.03BVPS 9.64 9.57 9.83 10.05 4.11 3.75 3.63 3.42

US$R$

Pulp45.0%

P&W Paper (Coated + Uncoated)

43.8%

Paperboard11.2%

Domestic45.6%

Exports54.4%

Suzano Holding32.3%

BNDESPar11.7%

Others56.0%

203


BRAZIL—UTILITIES

TAESA HOLD CURRENT PRICE: R$18.65


Investment Case: We maintain a favorable view of TAESA. The company has strong cash generation, good management, financial discipline, high predictability, inflation protection, low regulatory risk, operating efficiency, and high leverage, as well as a sound organic and inorganic growth track record, in our view. However, the recent stock price rally reduced the attractiveness of the company’s real IRR, and, therefore, we downgraded our rating to Hold from Buy.

Outlook 2015: We forecast YoY EBITDA growth of 5.7%, reflecting the inflation adjustment to TAESA’s contracts, partially offset by a slight decrease in EBITDA margin. We also highlight that our forecastpayout remains at the maximum level (95% payout after discounting the fiscal incentive reserve), with an 11.5% dividend yield.

M&A: The CEO and CFO reiterated in a recent meeting with investors that there are some transmission assets available to sell inthe market; however, they also stated that given the current murky momentum outlook, this is not the ideal time for such transactions. Still, they believe that the scenario could become more propitious in2015. They further mentioned that investments in brownfield or greenfield projects would be considered by TAESA only if they offered attractive IRRs.

Fiscal tax incentives: TAESA’s management is confident regarding its application to the government’s SUDAN/SUDENE program for fiscal incentives for assets, which, if successful, could create substantial tax incentives for certain assets/units.

FIP Coliseu: The change in structure of FIP Coliseu is neutral for TAESA. However, we believe investors may be concerned about long-term prospects. We point out that all decisions regarding TAESA must be approved unanimously by the board. Thus, we view the changes as neutral.

Change in estimates. We revised our model to reflect (1) new macroeconomic estimates, (2) recent quarterly results, and (3) a higher discount rate.


Company Statistics



Bloomberg TAEE11 BZCurrent Price (01/02/15) R$ 18.65 / US$ 6.93Target Price (YE 2015) R$ 19.83 / US$ 7.3252-Week Range (R$) 16.85 - 23.34Market Capitalization (US$ Mn) 2,387Float (%) 27.13-Mth Avg. Daily Vol (US$ Mn) 4.1Shares Outstanding - Mn 344

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

TAEE11 BZ IBOVESPA

204

TAESA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

TAESA is the largest privately owned Brazilian group dedicated exclusively to electricity transmission. TAESA currently operates more than 9,884 km (proportionally) of transmission lines (17% market share) with annual RAP of R$2,157 million through long-term concessions. TAESA is jointly controlled by Cemig and by FIP Coliseu. We believe Cemig’s operating capabilities coupled with its financial partners’ focus on return, guarantee capital discipline and operating excellence, an important competitive edge for TAESA. Key Personnel: Djalma Bastos de Morais (Chairman), José Aloíse Ragone Filho (CEO), Cristiano Correa de Barros (CFO) and Cristiano Correa de Barros (IR Director) Web: www.taesa.com.br

Ebitda by Business, 9M14

Cost Detail, 9M14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,448 1,535 1,526 1,529 671 655 580 541 YoY change (%) 0.2 6.0 (0.6) 0.2 (9.2) (2.4) (11.4) (6.8)Gross Profit 1,108 1,177 1,150 1,132 513 502 437 401 YoY change (%) (1.1) 6.3 (2.4) (1.5) (10.4) (2.2) (13.0) (8.3)EBITDA 1,144 1,314 1,257 1,249 530 561 478 442 YoY change (%) (9.6) 14.8 (4.3) (0.6) (18.1) 5.7 (14.7) (7.5) As % of Revenue 79.0 85.6 82.4 81.7 79.0 85.6 82.4 81.7Operating Income 1,108 1,177 1,150 1,132 513 502 437 401 YoY change (%) (1.1) 6.3 (2.4) (1.5) (10.4) (2.2) (13.0) (8.3) As % of Revenue 76.5 76.7 75.3 74.1 76.5 76.7 75.3 74.1Financial Results (369) (326) (47) (44) (171) (139) (18) (16)Taxes (48) (233) (358) (366) (22) (99) (136) (130)Net Profit 868 965 1,091 1,090 402 412 415 386 YoY change (%) 19.8 11.2 13.1 (0.1) 8.6 2.4 0.7 (7.0) As % of Revenue 60.0 62.9 71.5 71.3 60.0 62.9 71.5 71.3

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (2) (2) (2) (2) (1) (1) (1) (1)Other Noncash Items - - - - - - - -Changes in Working Capital 454 310 (202) (207) 210 132 (77) (73)Operating Cash Flow 1,260 1,350 1,015 1,063 584 576 386 376Capital Expenditures 88 37 34 36 41 16 13 13Free Cash Flow 1,005 1,117 184 149 466 477 70 53Other Invest./(Divestments) - - - - - - - -Change in Debt 0 0 0 0 0 0 0 0Dividends (696) (662) (737) (776) (323) (283) (280) (275)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 430 1,005 1,103 1,162 183 394 407 395Current Assets 722 1,395 1,502 1,565 308 547 554 532Fixed Assets 6,259 6,260 6,076 5,893 2,671 2,455 2,242 2,004Total Assets 9,154 9,548 9,662 9,743 3,907 3,744 3,565 3,314Current Liabilities 1,098 1,627 1,703 1,743 468 638 628 593Long-Term Liabilities 3,751 3,763 0 3,763 1,601 1,476 0 1,280Shareholders' Equity 4,305 4,158 4,197 4,237 1,837 1,631 1,549 1,441Total Financial Debt 4,367 4,126 4,126 4,126 1,864 1,618 1,523 1,403ST Debt 942 733 733 733 402 287 270 249LT Debt 3,425 3,393 3,393 3,393 1,462 1,331 1,252 1,154

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 3,938 3,121 3,023 2,964 1,681 1,224 1,116 1,008Capital Employed 6,245 6,943 6,834 6,690 2,665 2,723 2,522 2,275Net Debt/EBITDA 3.4 2.4 2.4 2.4 3.2 2.2 2.3 2.3Net Debt/Equity 0.9 0.8 0.7 0.7 1.0 0.8 0.7 0.7Capex/Revenue (%) (6.1) (2.4) (2.3) (2.4) (6.1) (2.4) (2.3) (2.4)Int Cover (%) 3.2 3.5 3.4 3.4 3.2 3.5 3.4 3.4Dividend Payout (%) 96.1 76.3 76.4 71.1 87.0 69.9 67.2 70.7ROCE (%) 18.5 20.3 22.1 22.4 20.1 22.5 22.2 22.4ROE (%) 20.7 22.8 26.1 25.8 21.0 24.2 26.1 25.8



US$R$

Transmission

100.0%

Personnel59.5%

Material 1.4%

Services32.4%

Others6.7%

Cemig GT

43.4%FIP Coliseu

22.1%

FIP Resling7.4%

Free Float27.1%

205



TECNISA HOLD CURRENT PRICE: R$3.74

TARGET PRICE: R$4.20 DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF R$4.20; REPLACING YE2014 TARGET PRICE OF R$10.50 Investment Case: Tecnisa is poised to continue delivering improving

results for the next few years, in our view, benefiting from the additional launches as part of the Jardim das Perdizes (JDP) project and the delivery of projects with substandard profitability. This improvement should enable Tecnisa to significantly deleverage over the next few quarters, in our opinion.

Outlook 2015: We expect 2015 to be another transition year for the homebuilders in Brazil. The macro scenario should remain challenging for the sector, with the combination of low expected GDPgrowth and inflationary pressure leading consumers and investors toremain cautious, in our view.

Focus on profitability and monetizing assets. The combination of a challenging sector outlook for the next year and the company’s high leverage (129% net debt/EBITDA as of 3Q14) led management to focus on monetizing its assets. As a result, Tecnisa’s strong pipeline of deliveries scheduled for 2015 and 2016 and additional inventory sales are likely to boost cash generation and help reduce leverage, in our opinion.

Room for additional improvements in G&A expenses: Despite having already reduced its payroll by approximately 15%, management still sees some room for additional improvements as the projects under development are delivered in 2015.

Valuation seems fair at current return levels. With an ROE of 13.1% for 2015E, the stock’s current valuation of 0.4x P/BV leaves little room for upside in the short term, in our view.



Company Statistics



Bloomberg TCSA3 BZCurrent Price (01/02/15) R$ 3.74 / US$ 1.39Target Price (YE 2015) R$ 4.20 / US$ 1.5852-Week Range (R$) 3.70 - 8.90Market Capitalization (US$ Mn) 249Float (%) 45.03-Mth Avg. Daily Vol (US$ Mn) 1.4Shares Outstanding - Mn 179

40

60

80

100

120

140

j-13 m-13 a-13 d-13 a-14 a-14 d-14

TCSA3 BZ IBOVESPA

206

TECNISA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Tecnisa is one of the largest developers of residential buildings in Brazil, with a focus on upper and upper-middle income customers mainly in the São Paulo metropolitan region. The company participates in all stages of residential real estate development, including land acquisition, construction, marketing and client service. As of June 2013, Tecnisa held a land bank with a potential VGV of R$7.1 billion. Tecnisa went public in January 2007 having raised R$791 million and in February 2011 made a follow-on offer of R$360 million. The company currently has a free float of 51.5%, being controlled by the local businessman Meyer Nigri. Key Personnel: Meyer Joseph Nigri (CEO) and Vasco Barcellos (CFO and IR Officer) Web: www.tecnisa.com.br/ri

Launches (R$ billion), 2013-16E

Contracted Sales (R$ billion), 2013-16E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,795 1,681 1,688 1,563 832 727 649 513 YoY change (%) 63.0 (6.3) 0.4 (7.4) 47.6 (12.6) (10.8) (20.9)Gross Profit 678 666 689 652 314 288 265 214 YoY change (%) 148.6 (1.8) 3.6 (5.4) 125.2 (8.4) (7.9) (19.2)EBITDA 349 259 310 300 162 112 119 99 YoY change (%) n/m (25.8) 19.4 (3.0) n/m (30.7) 6.1 (17.2) As % of Revenue 19.5 15.4 18.3 19.2 19.5 15.4 18.3 19.2Operating Income 454 410 450 414 210 177 173 136 YoY change (%) n/m (9.8) 9.7 (8.0) n/m (15.8) (2.5) (21.4) As % of Revenue 25.3 24.4 26.6 26.5 25.3 24.4 26.6 26.5Financial Results (131) (120) (104) (55) (61) (52) (40) (18)Taxes (38) (35) (35) (32) (18) (15) (13) (11)Net Profit 221 191 210 220 102 83 81 72 YoY change (%) n/m (13.7) 9.8 5.0 n/m (19.5) (2.4) (10.3) As % of Revenue 12.3 11.3 12.4 14.1 12.3 11.3 12.4 14.1

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (11) (11) (11) (11) (5) (5) (4) (4)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (575) (84) 126 403 (266) (36) 48 132Operating Cash Flow (326) 133 359 646 (151) 57 138 212Capital Expenditures 2 2 (14) (13) 1 1 (5) (4)Free Cash Flow (329) 130 372 658 (152) 56 143 216Other Invest./(Divestments) 27 (29) (0) (0) 13 (13) (0) (0)Change in Debt 514 192 0 (191) 238 83 0 (63)Dividends 0 (84) (48) (52) 0 (36) (18) (17)Capital Increases/Other (29) 30 6 6 (13) 13 2 2

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 343 587 891 1,287 147 230 336 417Current Assets 3,289 3,403 3,722 3,905 1,404 1,334 1,404 1,265Fixed Assets 449 421 411 401 192 165 155 130Total Assets 4,690 4,969 5,321 5,425 2,002 1,949 2,008 1,757Current Liabilities 1,620 1,773 1,952 1,990 691 695 737 644Long-Term Liabilities 1,491 1,476 1,486 1,380 636 579 561 447Shareholders' Equity 1,412 1,515 1,672 1,837 603 594 631 595Total Financial Debt 2,273 2,466 2,466 2,274 970 967 930 736ST Debt 979 1,139 1,139 1,051 418 447 430 340LT Debt 1,294 1,326 1,326 1,223 552 520 501 396

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 2,012 1,933 1,674 1,128 859 758 632 365Capital Employed 3,206 3,281 3,158 2,756 1,368 1,287 1,192 892Net Debt/EBITDA 5.8 7.5 5.4 3.8 5.3 6.8 5.3 3.7Net Debt/Equity 1.4 1.3 1.0 0.6 1.6 1.4 1.0 0.6Capex/Revenue (%) (0.1) (0.1) 0.8 0.8 (0.1) (0.1) 0.8 0.8Int Cover (%) 1.0 0.7 0.8 0.8 1.0 0.7 0.8 0.8Dividend Payout (%) 0.0 38.0 25.0 25.0 0.0 34.8 22.0 24.8ROCE (%) 14.2 12.5 14.2 15.0 15.5 14.1 14.3 15.0ROE (%) 16.2 13.0 13.1 12.5 16.5 13.9 13.2 12.5

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 7.3 3.7 3.3 3.1 6.6 3.2 3.1 3.5P/CE 6.9 3.5 3.1 3.0 6.3 3.0 3.0 3.3FV/EBITDA 10.9 10.5 7.9 6.3 10.0 9.4 7.7 6.6FV/EBIT 8.4 6.7 5.4 4.6 7.7 6.0 5.3 4.8FV/Revenue 2.1 1.6 1.4 1.2 1.9 1.5 1.4 1.3P/BV 1.1 0.5 0.4 0.4 1.1 0.4 0.4 0.4FCF Yield (%) (20.4) 18.5 54.5 96.4 (22.3) 21.3 56.4 85.3Div Yield (%) (0.0) 12.0 7.0 7.7 (0.0) 13.8 7.2 6.8


US$R$

1.88

0.57

1.04

1.46

2013

2014

e

2015

e

2016

e

1.76

0.69

1.23

1.66

2013

2014

e

2015

e

2016

e


s54.5%

Board0.2%

Free Float45.3%

207



TEGMA BUY CURRENT PRICE: R$15.89

TARGET PRICE: R$19.00 UPGRADING RATING TO BUY FROM HOLD INTRODUCING YE2015 TARGET PRICE TO R$19.00; REPLACING YE2014 TARGET PRICE OF R$26.00

Investment Case: Our upgrade to Buy reflects our belief that the current share price, which according to our estimates implies a ~10.5x 2015 P/E, has more than priced in the major deterioration in the Brazilian auto market in 2014-15E. Moreover, the sale of Direct in 2014 for R$127 million was a major positive, in our view, as the company divested a cash-burning operation and reduced debt at a challenging time (lower free cash flow generation from the auto division and high interest rates in Brazil).

Outlook 2015: We estimate net revenue, EBITDA, and net income growth of -3%, +9%, and +24% YoY to R$1.5 billion, R$187 million, and R$98 million, respectively. We believe these results will be driven mainly by (i) stable margins in auto; (ii) the sale of Direct (which made a negative contribution); (iii) an improvement in financial results (due to the R$127 million proceeds of the Direct sale); and (iv)our estimate of no payment of dividends related to net profits reported in 2014.

Challenging environment in Brazil auto market: We estimate that the number of vehicles sold in the Brazilian domestic market fell 8% in 2014 (vs. our previous 7.5% estimate). For 2015 we now expect a 6% decline vs. flat previously. However, we highlight that Tegma should experience volume declines of 15% and 6% in 2014E and 2015E, respectively. We see the 15% fall in Tegma volumes in 2014E as due to (i) a 38% decline in exports, and (ii) a 13% fall in domestic sales (higher than the 8% market decline, due to reduced stock at car dealerships). We are cutting our sales and EBITDA estimates for the auto division in 2015 by 13% and 15%.

Auto margin stability is the positive highlight: For the auto division, we estimate declines of only 100 bps and 30 bps in the EBITDA margin in 2014 and 2015, respectively. In our view, this vindicates the strength of Tegma’s asset-light model.

Upgrade to buy: At ~10.5x and ~9.5x P/E for 2015E and 2016E and with 20% potential upside to our new YE2015 target price, we believe the stock is now cheap enough to offset the lack of visibility in the Brazilian car market.



Company Statistics



Bloomberg TGMA3 BZCurrent Price (01/02/15) R$ 15.89 / US$ 5.90Target Price (YE 2015) R$ 19.00 / US$ 7.0152-Week Range (R$) 14.71 - 21.01Market Capitalization (US$ Mn) 390Float (%) 34.53-Mth Avg. Daily Vol (US$ Mn) 0.9Shares Outstanding - Mn 66

40

50

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

TGMA3 BZ IBOVESPA

208

TEGMA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Tegma Gestão Logística S.A. is a highway-based transportation and logistics company, which provides services to several different industries, including automobiles, electronics, e-commerce, chemical products, telecommunications, and others. The company’s IPO was held on July 3, 2007, and Tegma’s stock is listed in the Novo Mercado segment Key Personnel: Fabio Murilo Costa (CEO), Luiz Otavio Pessoa (CFO) and Ian Nunes (IR Manager) Web: www.tegma.com.br


EBITDA, 2011-15E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,772 1,533 1,488 1,619 822 653 566 573 YoY change (%) 8.5 (13.5) (3.0) 8.8 (1.7) (20.5) (13.4) 1.3Gross Profit - - - - - - - - YoY change (%) - - - - - - - -EBITDA 154 172 187 213 71 73 71 75 YoY change (%) (13.7) 11.6 8.8 13.9 (21.9) 2.6 (2.9) 6.0 As % of Revenue 8.7 11.2 12.5 13.1 8.7 11.2 12.5 13.1Operating Income 127 143 161 185 59 61 61 66 YoY change (%) (12.3) 12.6 13.2 14.7 (20.5) 3.4 1.0 6.8 As % of Revenue 7.1 9.3 10.8 11.4 7.1 9.3 10.8 11.4Financial Results (33) (39) (13) (15) (15) (17) (5) (5)Taxes (34) (24) (51) (58) (16) (10) (19) (20)Net Profit 70 79 98 112 32 34 37 40 YoY change (%) (0.5) 13.9 23.5 14.1 (9.9) 4.7 10.2 6.3 As % of Revenue 3.9 5.2 6.6 6.9 3.9 5.2 6.6 6.9

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (29) (29) (25) (27) (13) (12) (10) (10)Other Noncash Items - - - - - - - -Changes in Working Capital 54 41 12 (19) 25 17 5 (7)Operating Cash Flow 162 180 144 130 75 76 55 46Capital Expenditures (40) 81 (55) (49) (19) 35 (21) (17)Free Cash Flow 101 230 81 71 47 98 31 25Other Invest./(Divestments) - - - - - - - -Change in Debt 125 (358) 15 47 58 (152) 6 17Dividends (46) 0 (98) (112) (21) 0 (37) (40)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 204 77 74 81 87 30 27 28Current Assets 610 427 404 433 260 167 149 147Fixed Assets 472 362 391 412 201 142 144 140Total Assets 1,200 908 914 965 512 356 337 328Current Liabilities 266 231 220 229 114 90 81 78Long-Term Liabilities 533 196 213 255 227 77 79 87Shareholders' Equity 402 481 481 481 171 189 177 164Total Financial Debt 528 170 185 232 225 67 68 79ST Debt 83 61 60 65 36 24 22 22LT Debt 445 109 126 167 190 43 46 57

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 324 93 111 151 138 37 41 51Capital Employed 930 651 666 713 397 255 246 243Net Debt/EBITDA 2.1 0.5 0.6 0.7 1.9 0.5 0.6 0.7Net Debt/Equity 0.8 0.2 0.2 0.3 0.9 0.2 0.2 0.3Capex/Revenue (%) 2.3 (5.3) 3.7 3.0 2.3 (5.3) 3.7 3.0Int Cover (%) 4.6 4.4 14.6 13.7 4.6 4.4 14.6 13.7Dividend Payout (%) 65.5 0.0 123.5 114.1 59.3 0.0 108.7 113.4ROCE (%) 18.5 26.9 32.5 34.8 19.8 29.8 32.6 34.8ROE (%) 16.9 18.0 20.4 23.3 17.1 19.2 20.4 23.3

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 17.0 13.2 10.7 9.4 15.6 11.7 10.4 9.8P/CE 12.0 9.7 8.5 7.5 11.0 8.5 8.3 7.9FV/EBITDA 9.8 6.7 6.2 5.6 9.0 5.9 6.1 5.9FV/EBIT 11.9 8.0 7.2 6.5 10.9 7.1 7.0 6.7FV/Revenue 0.9 0.7 0.8 0.7 0.8 0.7 0.8 0.8P/BV 3.0 2.2 2.2 2.2 2.9 2.1 2.2 2.4FCF Yield (%) 8.5 22.0 7.7 6.8 9.3 24.9 7.9 6.5Div Yield (%) 3.9 (0.0) 9.4 10.7 4.2 (0.0) 9.6 10.2

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 0.91 1.20 1.49 1.70 0.42 0.51 0.57 0.60DPS 0.70 0 1.49 1.70 0.32 0 0.57 0.60BVPS 6.08 7.29 7.29 7.29 2.60 2.86 2.69 2.48

US$R$

Auto division85.3%

Integrated logistics14.7%

206.37178.13

153.64171.52

186.62

2011

2012

2013

2014

e

2015

e

Grupo Itavema34.0%

Coimex25.4%

Free Float40.6%

209



TELEFONICA BRASIL BUY CURRENT PRICE: R$46.26


Strengthening organic consolidation: TEF Brasil and peer America Movil continue to run what we like to call an “organic consolidation” of the Brazilian telco sector, further distancing themselves from competitors, with (i) AMX growing fast on fixed-line services (+10% YoY), with TEF+GVT+AMX booking 62% of total fixed-line revenue; and (ii) TEF widening its mobile revenue share gap vs. AMX by 0.9 p.p. YoY for a solid 37% share of total mobile revenue, anchored by a 63% share in post-paid net adds in 9M14 and a 45% share of mobile data revenue.

Outlook 2015: Closing the GVT deal (and capturing the related synergies) constitutes the main short- to medium-term driver for VIVT4, in our view. TEF Brasil is icing the organic consolidation cake through an inorganic move (GVT), which yields strong inroads outside São Paulo and plausible operating/financial synergies. Our R$55.50/share YE2015 sum-of-the-parts target price for VIVT4 incorporates (i) a DCF-based FV of R$53.30/share pre-dilution (or R$37.80/share post dilution); (ii) GVT’s business valued at 6.5x EV/EBITDA 2015E (or R$10.60/share); (iii) R$11.3 billion in merger synergies (R$7.10/share); and (iv) an estimated fully diluted numberof shares (assuming a capital increase at the current stock price ofR$48.76/share). Our estimated total return of 20% includes a post-dilution dividend yield of 6.4%. We were conservative and assumed no GVT net income contribution at the outset; if that materialized, itcould provide upside to our current 2015 dividend estimate.

Additional icing: optionality on in-market consolidation: Although TEF Brasil is currently digesting the GVT acquisition, we see additional potential value creation in the event of in-market mobile consolidation, where TEF Brasil’s unleveraged balance sheet(0.2x net debt/EBITDA as of 3Q14) provides an additional leverage cushion.



Company Statistics



Bloomberg VIVT4 BZ / VIV USCurrent Price (01/02/15) R$ 46.26 / US$ 17.15Target Price (YE 2015) R$ 55.50 / US$ 20.9052-Week Range (R$) 42.00 - 52.51Market Capitalization (US$ Mn) 19,372Float (%) 26.03-Mth Avg. Daily Vol (US$ Mn) 16.1Shares Outstanding - Mn 1,127

70

80

90

100

110

120

j-13 m-13 a-13 d-13 a-14 a-14 d-14

VIVT4 BZ IBOVESPA

210

TELEFONICA BRASIL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Telefonica Brasil (TEF Brasil) is one of Brazil’s largest integrated telecom operators (in terms of revenues and RGUs). At the end of 3Q14, TEF Brasil had a total of 95.4 million RGUs, being the national leader in mobile (79.8 million subscribers, 35% being post-paid). TEF Brasil is controlled by the Telefonica Group, which holds 74% of TEF Brasil’s total capital, with the remaining capital being free float. TEF Brasil shares (voting VIVT3; non-voting VIVT4) are listed on the BM&F-Bovespa. VIVT4 shares are also listed on the NYSE. Key Personnel: Paulo Cesar Teixeira (CEO), Alberto Horcajo Aguirre (CFO) and Luis Plaster (IR Director) Web: www.telefonica.com.br/ir

Subscriber Base, 2Q14

Sales Breakdown, 2014E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 34,722 35,076 35,714 36,461 15,830 14,337 13,736 13,504 YoY change (%) 2.3 1.0 1.8 2.1 (8.6) (9.4) (4.2) (1.7)Gross Profit 21,978 22,452 23,518 24,399 10,020 9,177 9,045 9,036 YoY change (%) (0.1) 2.2 4.7 3.7 (10.7) (8.4) (1.4) (0.1)EBITDA 10,576 10,390 10,910 11,389 4,821 4,247 4,196 4,218 YoY change (%) (16.8) (1.8) 5.0 4.4 (25.6) (11.9) (1.2) 0.5 As % of Revenue 30.5 29.6 30.5 31.2 30.5 29.6 30.5 31.2Operating Income 4,933 5,244 5,617 5,919 2,249 2,144 2,160 2,192 YoY change (%) (31.6) 6.3 7.1 5.4 (38.9) (4.7) 0.8 1.5 As % of Revenue 14.2 15.0 15.7 16.2 14.2 15.0 15.7 16.2Financial Results (215) (352) (326) (509) (98) (144) (125) (189)Taxes (947) (75) (1,189) (1,245) (432) (31) (457) (461)Net Profit 3,718 4,822 4,102 4,165 1,695 1,971 1,578 1,542 YoY change (%) (24.9) 29.7 (14.9) 1.5 (32.9) 16.3 (19.9) (2.2) As % of Revenue 10.7 13.7 11.5 11.4 10.7 13.7 11.5 11.4

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (5,643) (5,146) (5,293) (5,470) (2,573) (2,103) (2,036) (2,026)Other Noncash Items - - - - - - - -Changes in Working Capital 348 (13) 52 60 158 (5) 20 22Operating Cash Flow 9,762 9,372 10,184 10,430 4,450 3,831 3,917 3,863Capital Expenditures 5,399 7,004 6,964 6,928 2,461 2,863 2,679 2,566Free Cash Flow 5,096 3,273 3,227 3,437 2,323 1,338 1,241 1,273Other Invest./(Divestments) - - - - - - - -Change in Debt 786 140 7 (66) 359 57 3 (25)Dividends (4,873) (3,585) (4,534) (3,979) (2,221) (1,465) (1,744) (1,474)Capital Increases/Other 0 0 0 0 0 0 0 0


FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 2,210 1,913 3,227 3,704 943 750 1,218 1,347Capital Employed 45,104 46,953 46,358 45,675 19,251 18,413 17,493 16,609Net Debt/EBITDA 0.2 0.2 0.3 0.3 0.2 0.2 0.3 0.3Net Debt/Equity 0.1 0.0 0.1 0.1 0.1 0.0 0.1 0.1Capex/Revenue (%) (15.5) (20.0) (19.5) (19.0) (15.5) (20.0) (19.5) (19.0)Int Cover (%) - - - - - - - -Dividend Payout (%) 98.4 96.4 94.0 97.0 89.1 88.4 82.3 96.0ROCE (%) 13.2 11.4 16.2 17.4 14.2 12.8 16.4 17.4ROE (%) 8.5 11.0 9.3 9.8 8.6 11.7 9.3 9.8



US$R$

Post-Paid33.0%

Pre-Paid67.0%

Mobile Voice39.7%Mobile Data

23.7%

Fixed Line Voice15.9%

Broadband10.6%

Other10.1%

Telefonica73.8%

Free Float26.2%

211



TOTVS BUY CURRENT PRICE: R$35.80



Investment Case: Although Totvs’s announced migration to the SaaS model was necessary, in our view, we see investors still struggling to understand the motivations. After updating our model with the new revenue model, we still consider Totvs’s main levers and execution to be resilient and we see decent potential upside to the stock, but the overhang from the SaaS migration may need a sequence of positive results in order to dissipate, in our view.

Outlook 2015: A clearer set of catalysts for the stock after the announced migration to a SaaS-based revenue model would be dictated by how fast and accurately the market understands the timing of the benefits and the side effects of the announced migration. We see margins pressured in the initial stages of the new model (we estimate that Totvs already sells ~20% of its licenses under the SaaS model), with the shape of the EBITDA margin curve steepening only gradually. During the first quarters under the new model, it will be hard to discern whether the potential deceleration in license sales will stem from the new model or from the consequences of the weak GDP growth we expect for Brazil in 2015. Thus, we believe the market will be in a wait-and-see mode.

Short-term pain should be offset by long-term gains, but we are taking a careful approach in our estimates. In our model, we now assume (1) license sales 11% and 23% lower than our previous estimates for 2015 and 2016, only gradually offset by stronger SaaS maintenance revenue (+1% and +3%, respectively); (2) significantly slower margin expansion, with 2016E EBITDA margin now at 23.6% (down from 28.8% previously) and only gradually evolving to 30% in perpetuity (which we see as conservative); and (3) value transfer to the longer term of the DCF (to 61% at perpetuity, from 50% previously). Short-term multiples are now looking richer at 22.9x P/E 2015E, even after a 16% drop from the 2014 peak.



Company Statistics



Bloomberg TOTS3 BZCurrent Price (01/02/15) R$ 35.80 / US$ 13.30Target Price (YE 2015) R$ 42.00 / US$ 15.5052-Week Range (R$) 30.98 - 41.95Market Capitalization (US$ Mn) 2,174Float (%) 67.53-Mth Avg. Daily Vol (US$ Mn) 8.5Shares Outstanding - Mn 163

70

80

90

100

110

j-13 m-13 a-13 d-13 a-14 a-14 d-14

TOTS3 BZ IBOVESPA

212

TOTVS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

TOTVS is Latin America's largest developer of application software, one of the largest ERP developers and the leader in emerging markets. It is the absolute leader in Brazil with more than 50% of market share and the leader in the small and medium enterprises (SME) segment in Latin America. Its ERP operations serve over 35,700 clients and are complemented by a broad portfolio of vertical solutions, as well as by value-added services such as consulting, infrastructure and BPO. Key Personnel: Laercio Cosentino (CEO), Alexandre Mafra Guimarães (CFO), Gilsomar Maia (IR, M&A and Planning Director) and Flavio Bongiovanni (IR Manager) Web: www.totvs.com/ri

Licenses Sold, 2014E




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,612 1,795 1,967 2,123 735 734 748 752 YoY change (%) 13.3 11.4 9.6 8.0 1.3 (0.1) 1.9 0.5Gross Profit 1,070 1,201 1,287 1,383 488 491 489 490 YoY change (%) 11.4 12.2 7.1 7.5 (0.5) 0.6 (0.3) 0.1EBITDA 402 445 457 501 183 182 174 177 YoY change (%) 6.4 10.7 2.7 9.5 (5.0) (0.7) (4.4) 1.9 As % of Revenue 24.9 24.8 23.3 23.6 24.9 24.8 23.3 23.6Operating Income 402 445 457 501 183 182 174 177 YoY change (%) 6.4 10.7 2.7 9.5 (5.0) (0.7) (4.4) 1.9 As % of Revenue 24.9 24.8 23.3 23.6 24.9 24.8 23.3 23.6Financial Results (3) 5 4 23 (1) 2 2 8Taxes (93) (98) (110) (130) (43) (40) (42) (46)Net Profit 223 263 256 303 102 108 97 107 YoY change (%) 7.8 18.0 (2.8) 18.4 (3.7) 5.8 (9.6) 10.3 As % of Revenue 13.8 14.7 13.0 14.3 13.8 14.7 13.0 14.3

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (83) (89) (96) (91) (38) (36) (37) (32)Other Noncash Items - - - - - - - -Changes in Working Capital (3) (87) (18) (16) (2) (35) (7) (6)Operating Cash Flow 303 266 334 378 138 109 127 134Capital Expenditures (112) (122) (59) (64) (51) (50) (22) (23)Free Cash Flow 272 (38) 276 321 124 (16) 105 114Other Invest./(Divestments) - - - - - - - -Change in Debt 158 (46) 0 0 72 (19) 0 0Dividends (105) (159) (158) (154) (48) (65) (60) (54)Capital Increases/Other 30 0 0 0 14 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 533 476 593 754 228 187 219 257Current Assets 942 1,037 1,208 1,418 402 407 446 482Fixed Assets 703 739 702 674 300 290 259 229Total Assets 1,849 2,029 2,176 2,371 789 796 803 806Current Liabilities 368 361 391 419 157 142 144 142Long-Term Liabilities 411 487 454 420 176 191 167 143Shareholders' Equity 1,070 1,181 1,330 1,532 457 463 491 521Total Financial Debt 411 364 364 364 175 143 134 124ST Debt 58 47 47 47 25 18 17 16LT Debt 352 317 317 317 150 124 117 108

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt (122) (112) (229) (390) (52) (44) (85) (133)Capital Employed 947 1,069 1,101 1,142 404 419 406 388Net Debt/EBITDA (0.3) (0.3) (0.5) (0.8) (0.3) (0.2) (0.5) (0.7)Net Debt/Equity (0.1) (0.1) (0.2) (0.3) (0.1) (0.1) (0.2) (0.3)Capex/Revenue (%) 7.0 6.8 3.0 3.0 7.0 6.8 3.0 3.0Int Cover (%) - - - - - - - -Dividend Payout (%) 50.6 71.4 60.0 60.0 45.8 65.5 52.8 59.6ROCE (%) 50.7 49.7 50.0 53.3 54.6 55.0 50.2 53.3ROE (%) 22.5 23.4 20.4 21.2 23.0 24.9 20.4 21.2



US$R$

967.00

4782.00

New

Clie

nts

Exis

ting

Clie

nts

License fees

20.0%

Services29.7%

Maintenance

50.3%

Board/Directors

17.7%

Bndes + Petros14.4%

Free Float67.9%

213


BRAZIL—UTILITIES

TRACTEBEL HOLD CURRENT PRICE: R$32.61



Investment Case: We continue to believe Tractebel is one of the best names under our coverage in terms of quality, returns, and management of its energy portfolio; however, the stock is trading at multiples similar to Chilean peers, while the downside risk from the hydro deficit should pressure margins for Brazilian Gencos.

Outlook 2015: In our view, the company's results will continue to be hurt by the hydro deficit in 2015. However, we expect the impact to be less significant that for AES Tiete, once Tractebel presents (1) exposure to thermal generation, and (2) energy surplus when considering energy purchased for resale.

Jirau: A potential drawback. We believe the main drawback in the investment case continues to be the lack of transparency behind the transfer of the Jirau project. The transfer continues to be postponed, with little guidance with respect to exact timetable, terms agreed, and final capex estimates, and no contract (so far) for the energy available (30% of firm energy). We believe current high spot prices might improve the final IRR of the project, but prefer to postpone thefinal NPV calculation to the moment of the transfer.

A-5 auction results: The company recently participated in the A-5 Auction, selling 293 MWm from the coal project, Pampa Sul, for a price (fixed revenue) of R$202/MWh. Tractebel also sold an additional 9.8 MWm of thermal energy (biomass), from UTE Ferrari,for a price of R$202/MWh and 82.6MWm of wind energy, from six projects, at an average price of R$135/MWh.

Estimate updates: We adjusted our target price to include a higher hydro deficit estimate for 2015 (7% vs. the previous 5%) and highershort-term energy prices.


Company Statistics



Bloomberg TBLE3 BZCurrent Price (01/02/15) R$ 32.61 / US$ 12.11Target Price (YE 2015) R$ 37.85 / US$ 14.2852-Week Range (R$) 31.20 - 38.85Market Capitalization (US$ Mn) 7,907Float (%) 21.33-Mth Avg. Daily Vol (US$ Mn) 10.7Shares Outstanding - Mn 653

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

TBLE3 BZ IBOVESPA

214

TRACTEBEL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Tractebel is the largest private generation company in Brazil, with a total annual installed capacity of 7,024 MW (firm capacity of 3,878 MW), representing 6% of Brazil’s total installed capacity. GDF SUEZ Latin America owns 40% of Jirau HPP, which is envisaged to reach a total installed capacity of 3,750 MW and is currently under construction in the state of Rondônia. The parent company stake in the project is expected to be transferred to Tractebel Energia. Tractebel originated from a spin-off of Eletrobras subsidiary Eletrosul’s generation assets (Gerasul). Gerasul was acquired by Tractebel’s current controller, the French company GDF Suez, in a privatization auction in 1998. Key Personnel: Mauricio Stolle Bahr (Chairman), Manoel Zaroni Torres (CEO), Eduardo Antonio Gori Sattamini (CFO) and Antonio Previtali Jr. (IR Manager) Web: http://www.tractebelenergia.com.br/wps/portal/internet/en/investidores Installed Capacity Source, 9M14




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 5,569 5,840 6,005 5,849 2,561 2,444 2,310 2,166 YoY change (%) 13.4 4.9 2.8 (2.6) 1.9 (4.6) (5.5) (6.2)Gross Profit 3,363 2,725 3,515 4,158 1,547 1,141 1,352 1,540 YoY change (%) (3.8) (19.0) 29.0 18.3 (13.5) (26.2) 18.5 13.9EBITDA 2,962 2,306 3,016 3,583 1,362 965 1,160 1,327 YoY change (%) (4.4) (22.1) 30.8 18.8 (14.0) (29.1) 20.2 14.4 As % of Revenue 53.2 39.5 50.2 61.3 53.2 39.5 50.2 61.3Operating Income 2,708 2,034 2,782 3,386 1,245 851 1,070 1,254 YoY change (%) (6.3) (24.9) 36.8 21.7 (15.8) (31.6) 25.7 17.2 As % of Revenue 48.6 34.8 46.3 57.9 48.6 34.8 46.3 57.9Financial Results (386) (472) (446) (324) (177) (197) (172) (120)Taxes (565) (409) (667) (908) (260) (171) (256) (336)Net Profit 1,436 793 1,294 1,762 660 332 498 653 YoY change (%) (4.3) (44.8) 63.2 36.2 (13.9) (49.8) 50.0 31.1 As % of Revenue 25.8 13.6 21.5 30.1 25.8 13.6 21.5 30.1

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (574) (603) (586) (566) (264) (252) (225) (210)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital 71 (1) (8) 8 32 (0) (3) 3Operating Cash Flow 488 (197) 1,260 1,647 224 (82) 485 610Capital Expenditures (443) (489) (309) (243) (204) (205) (119) (90)Free Cash Flow 44 (686) 951 1,404 20 (287) 366 520Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 70 0 0 0 32 0 0 0Dividends (1,474) (634) (712) (1,674) (678) (265) (274) (620)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,224 539 1,490 2,893 523 211 562 1,052Current Assets 2,338 1,648 2,622 4,004 998 646 989 1,456Fixed Assets 481 481 481 481 205 189 182 175Total Assets 12,654 11,850 12,547 13,606 5,402 4,647 4,735 4,948Current Liabilities 2,184 2,597 2,693 3,646 932 1,018 1,016 1,326Long-Term Liabilities 5,106 5,130 5,149 5,167 2,180 2,012 1,943 1,879Shareholders' Equity 5,365 4,123 4,705 4,793 2,290 1,617 1,775 1,743Total Financial Debt 3,497 3,526 3,550 3,572 1,493 1,383 1,339 1,299ST Debt 667 673 677 681 285 264 255 248LT Debt 2,830 2,854 2,873 2,891 1,208 1,119 1,084 1,051

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 2,272 2,988 2,060 679 970 1,172 777 247Capital Employed 1,200 1,613 1,691 2,653 512 633 638 965Net Debt/EBITDA 0.8 1.3 0.7 0.2 0.7 1.2 0.7 0.2Net Debt/Equity 0.4 0.7 0.4 0.1 0.5 0.8 0.4 0.1Capex/Revenue (%) 8.0 8.4 5.1 4.2 8.0 8.4 5.1 4.2Int Cover (%) 5.2 4.1 5.3 6.3 5.2 4.1 5.3 6.3Dividend Payout (%) 98.3 44.2 89.7 129.4 89.0 40.5 79.0 128.6ROCE (%) 272.6 151.4 204.0 161.8 293.5 167.6 205.0 161.8ROE (%) 26.5 16.7 29.3 37.1 26.9 17.6 29.3 37.1



US$R$

Thermal16.0%

Hydro79.0%

Alternative5.0%

Trading + Exports3.9%

Free Market48.0%


Suez Energy68.7%

Banco Classico10.0%

Free Float21.3%

215


BRAZIL—UTILITIES

TRANSMISSAO PAULISTA HOLD CURRENT PRICE: R$40.70


Investment Case: We continue to believe CTEEP has stable revenue and solid cash flow generation, and we believe the main trigger for the stock will be Aneel’s forthcoming opinion in relation to RBSE receivables. We see upside risk for our estimates if the final RBSE amount is higher than R$4.1 billion, and we believe the current stock price reflects a receivable close to our estimates. However, thestock price rally during 2014 limits the upside and IRR, and therefore, we are downgrading our rating to Hold from Buy.

Outlook 2015: We expect revenue, EBITDA, and earnings to increase as a result of tariff adjustments (inflation indexed), cost control, and the start of operations at Garanhus and the full impact of revenue from the Madeira lines.

RBSE: the big question mark. At the recent investor day, management commented on Aneel’s appraisal of RBSE (old transmission assets) and detailed some of the measures/variables used in the calculation of investments that should be reimbursed by the federal government for the renewal of concessions. Managementstated that Aneel is concluding the analysis of the physical assets and said they expect the regulator to issue a report with a final opinion by the end of January 2015.

The name of the game: efficiency. CTEEP has been focusing on measures to improve the return and profitability of its portfolio of assets instead of focusing on additional greenfield projects. The company is also working on improving costs in order to maximize gains in the O&M model.

Change in estimates. We revised our model to reflect (1) new macroeconomic estimates, (2) recent quarterly results, and (3) higherreimbursement for old concession assets (R$4.1 billion) and higher expectations of monetary adjustments for the receivables.


Company Statistics



Bloomberg TRPL4 BZCurrent Price (01/02/15) R$ 40.70 / US$ 15.12Target Price (YE 2015) R$ 39.83 / US$ 14.7052-Week Range (R$) 22.82 - 41.50Market Capitalization (US$ Mn) 2,438Float (%) 20.83-Mth Avg. Daily Vol (US$ Mn) 3.7Shares Outstanding - Mn 161

60

70

80

90

100

110

120

130

J-13 M-13 A-13 D-13 A-14 A-14 D-14

TRPL4 BZ IBOVESPA

216

TRANSMISSAO PAULISTA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

CTEEP is one of the largest pure-transmission privately owned players in Brazil. The company owns and operates 13,726 km of transmission lines, with a total of 45,587 MVA of transmission capacity. CTEEP has a presence in 16 states in Brazil, with the bulk of its revenue concentrated in the State of São Paulo. The company is controlled by ISA Capital do Brasil, a subsidiary of ISA Colombia, and Eletrobras is a major shareholder. Key Personnel: Luis Fernando Alarcón Mantilla (Chairman), Reynaldo Passanezi Filho (CEO), Reynaldo Pecchio Junior (CFO) and Thiago Lopes da Silva (IR Manager) Web: www.cteep.com.br


Revenue by Segment, 9M14



Transmission

100.0%

217



TRIUNFO HOLD CURRENT PRICE: R$7.70



Investment Case: We are reiterating our Hold rating, as our new estimates (reflecting a weaker economic environment) imply limited upside. We estimate a 15.5% IRR at the stock’s current price, which is in-line with our estimated 15.6% cost of equity. We believe that the main challenge for Triunfo will be the implementation of BR-060/153/262 (DF/GO/MG), an R$8.5 billion capex toll road concession won by Triunfo in December 2013. We estimate ~4.3x net debt/EBITDA in 2016E (in-line with the covenant) if we were to consider the recently won Concebra and Tranbrasiliana concessions, not included in our model yet.

Outlook 2015: We believe the main challenge for Triunfo will be finding a way to execute the R$8.5 billion capex plan for its new toll road (BR-060/153/262), given the company’s high indebtedness. We view the sale of a stake in one of the company’s mature assets as a possible solution. On the operational front, we expect revenue to grow by 3% and flat EBITDA as a result of the tough comparison basis in the energy division (Rio Canoas managed to start operations in 4Q13, ~1 year before initially scheduled, thereby benefitting from high spot energy prices in Brazil in 2014).

Toll roads and energy represent 66% of EV. We value Triunfo’s three mature toll roads at R$1.1 billion, the two hydroelectric plants at R$1.3 billion, and the port division at R$1.0 billion. These account for31%, 27%, and 36%, respectively, of our EV valuation. We value the airport division at R$435 million EV, implying a slightly negative equity value. We have not yet included Concebra (BR-060/153/262 DF/GO/MG), mentioned above, in our valuation model.

Valuation. We value Triunfo at R$8.00/share, implying 5% upside and 10% total-return potential. Our YE2015 target price is based on a sum-of-the-parts valuation, as Triunfo’s various businesses have very different growth profiles, margins, and capital intensities. By ourestimate, Triunfo currently trades at an equity IRR of approximately 15.5%.



Company Statistics



Bloomberg TPIS3 BZCurrent Price (01/02/15) R$ 7.70 / US$ 2.86Target Price (YE 2015) R$ 8.00 / US$ 2.9552-Week Range (R$) 5.01 - 10.38Market Capitalization (US$ Mn) 503Float (%) 34.83-Mth Avg. Daily Vol (US$ Mn) 0.4Shares Outstanding - Mn 176

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

TPIS3 BZ IBOVESPA

218

TRIUNFO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Triunfo is a Brazilian infrastructure company that has operations in highway concessions, ports, energy generation and airports. The company manages three highway concessions totaling 640km. Triunfo holds 50% control in a container terminal (south of Brazil). In energy generation, it operates two hydroelectric plants totalling 308MW. Finally in 2012, Triunfo won the bid to operate the Viracopos International Airport (9 million passenger/year estimate), close to Sao Paulo, for 30 years through a partnership with UTC and Egis. Key Personnel: Luiz Fernando Wolff de Carvalho (Chairman), Carlo Alberto Bottarelli (CEO), Sandro Antônio de Lima (CFO) and Marcos Pereira (IR Manager) Web: http://www.tpisa.com.br/


EV Breakdown, 2013A



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,067 1,241 1,277 1,337 495 529 486 473 YoY change (%) 18.2 16.3 2.9 4.7 7.1 6.8 (8.1) (2.5)Gross Profit - - - - - - - - YoY change (%) - - - - - - - -EBITDA 495 806 795 816 229 343 302 289 YoY change (%) 17.9 62.7 (1.3) 2.6 6.8 49.5 (11.8) (4.4) As % of Revenue 46.4 64.9 62.3 61.1 46.4 64.9 62.3 61.1Operating Income 257 517 481 489 119 220 183 173 YoY change (%) 21.2 100.9 (6.9) 1.8 9.8 84.6 (16.9) (5.2) As % of Revenue 24.1 41.6 37.6 36.6 24.1 41.6 37.6 36.6Financial Results (266) (268) (293) (277) (123) (114) (111) (98)Taxes (15) (99) (70) (79) (7) (42) (26) (28)Net Profit (24) 149 118 134 (11) 63 45 47 YoY change (%) (206.2) n/m (20.4) 13.1 (196.2) n/m (29.0) 5.3 As % of Revenue (2.3) 12.0 9.3 10.0 (2.3) 12.0 9.3 10.0

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (238) (289) (315) (327) (110) (123) (120) (116)Other Noncash Items - - - - - - - -Changes in Working Capital 4 0 0 0 2 0 0 0Operating Cash Flow 218 438 433 461 101 186 165 163Capital Expenditures (955) (426) (188) (180) (443) (181) (72) (64)Free Cash Flow (712) 12 245 281 (330) 5 93 99Other Invest./(Divestments) - - - - - - - -Change in Debt 499 269 (204) (224) 231 115 (78) (79)Dividends (27) (65) (96) (111) (13) (28) (36) (39)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 94 310 255 201 40 122 94 68Current Assets 245 461 406 351 104 181 150 120Fixed Assets 5,524 5,661 5,535 5,388 2,358 2,220 2,042 1,833Total Assets 5,994 6,348 6,166 5,965 2,558 2,489 2,275 2,029Current Liabilities 508 508 508 508 217 199 187 173Long-Term Liabilities 3,383 3,652 3,448 3,224 1,444 1,432 1,272 1,097Shareholders' Equity 2,103 2,187 2,210 2,233 897 858 815 759Total Financial Debt 2,451 2,721 2,516 2,292 1,046 1,067 929 780ST Debt 311 311 311 311 133 122 115 106LT Debt 2,141 2,410 2,206 1,981 914 945 814 674

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 2,358 2,410 2,261 2,092 1,006 945 834 711Capital Employed 4,554 4,908 4,726 4,525 1,944 1,925 1,744 1,539Net Debt/EBITDA 4.8 3.0 2.8 2.6 4.4 2.8 2.8 2.5Net Debt/Equity 1.1 1.1 1.0 0.9 1.2 1.2 1.0 0.9Capex/Revenue (%) 89.5 34.3 14.7 13.5 89.5 34.3 14.7 13.5Int Cover (%) 1.9 2.9 2.4 2.6 1.9 2.9 2.4 2.6Dividend Payout (%) 120.2 (266.9) 64.3 93.8 108.8 (244.7) 56.6 93.2ROCE (%) 3.7 6.9 6.7 7.1 4.2 8.3 6.8 7.1ROE (%) (1.2) 6.9 5.4 6.0 (1.3) 7.4 5.4 6.0

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E - 9.1 11.4 10.1 - 8.0 11.2 10.6P/CE 7.8 3.1 3.1 2.9 7.2 2.7 3.1 3.1FV/EBITDA 8.1 4.7 4.5 4.2 7.5 4.2 4.4 4.2FV/EBIT 15.7 7.3 7.5 7.0 14.4 6.6 7.3 7.0FV/Revenue 3.8 3.0 2.8 2.6 3.5 2.8 2.8 2.6P/BV 0.8 0.6 0.6 0.6 0.8 0.6 0.6 0.7FCF Yield (%) (42.6) 0.9 18.1 20.7 (46.6) 1.0 18.5 19.7Div Yield (%) 1.6 4.8 7.1 8.2 1.8 5.4 7.2 7.8

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS (0.14) 0.85 0.67 0.76 (0.06) 0.36 0.26 0.27DPS 0.16 0.37 0.54 0.63 0.07 0.16 0.21 0.22BVPS 11.95 12.43 12.56 12.69 5.10 4.87 4.63 4.31

US$R$

Toll Roads47.1%

Ports21.0%

Cabotage9.1%

Energy14.4%

Airport8.2%

Toll roads35.9%

Ports21.5%

Energy31.5%

Airport8.8%

Vetria2.2%

Tiunfo Holding de

Participações Ltda51.1%

BNDESPAR.

14.8%


s and Managemen

t2.8%

Free Float31.3%

219



ULTRAPAR BUY CURRENT PRICE: US$18.66


LOWERING YE2015 TO US$26.00 FROM US$29.40

Investment Case: We maintain our positive view on Ultrapar and reiterate it as our Top Pick in Brazil given its combination of: (i) strongEBITDA growth; (ii) continually improving return on capital employed; (iii) resilience (that we believe will stand out, particularly in 2015, when we expect weakness from a macro point of view); (iv) solid execution track record; (v) sound capital discipline; and (vi) strong management and corporate governance.

Outlook 2015: Despite the challenging macro outlook for 2015, we expect the company to deliver solid results, driven especially by itsvery strong fuel distribution business, which represents around 70%of Ultrapar’s EBITDA. We also expect Oxiteno to benefit from the continued depreciation of the Brazilian real, for Ultracargo and Ultragaz to generate good results, and for Extrafarma to accelerateits expansion plan.

Ipiranga: The resilience of gasoline volumes (which represent closeto half of Ipiranga’s sales), fueled by the continued growth in Brazil’s car fleet (despite falling passenger car sales), should continue in 2015. On the other hand, we expect diesel sales to post mild growth given the expected weak economic activity in Brazil, with margins continuing to grow, however, due to Ipiranga’s strategy to increase penetration on the resale front, coupled with enhancements to its convenience store strategy.

Oxiteno: We expect the depreciation of the Brazilian real to partially offset potentially weak volumes in the domestic market (resulting from the expected weak economic activity in Brazil in 2015).

Extrafarma: In 2015, we expect Ultrapar to accelerate the expansion plan for Extrafarma, opening approximately 100 new stores in the North and Northeast of Brazil; these stores should start to positively contribute to consolidated results during 2H15, according to our projections.



Company Statistics



Bloomberg UGP US / UGPA3 BZCurrent Price (01/02/15) US$ 18.66 / R$ 50.66Target Price (YE 2015) US$ 26.00 / R$ 70.0052-Week Range (US$) 17.80 - 26.18Market Capitalization (US$ Mn) 10,383Float (%) 64.03-Mth Avg. Daily Vol (US$ Mn) 10.7Shares Outstanding - Mn 556

70

80

90

100

110

120

130

J-13 M-13 A-13 D-13 A-14 A-14 D-14

Ultrapar - ADR (Rebased)

220

ULTRAPAR Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Ultrapar is engaged in fuel distribution (it is the second-largest fuel distributor in the country, operating via Ultragas and Ipiranga), the production of specialty and commodity chemicals (the largest producer of ethylene oxide and derivatives in South America, and the largest specialty chemicals producer in Brazil via Oxiteno), and integrated logistics for special bulk (through Ultracargo). The company, which went public in 1999, is controlled by the Igel family and its management team, offers full tag-along rights, and has shares listed in the Brazilian stock exchange, as well as ADRs on the NYSE. Key Personnel: Thilo Mannhardt (CEO), André Covre (CFO) and André Covre (IR Officer) Web: www.ultrapar.com.br





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 60,940 68,313 74,082 81,889 28,213 29,092 28,168 28,987 YoY change (%) 13.0 12.1 8.4 10.5 2.3 3.1 (3.2) 2.9Gross Profit 4,775 5,431 6,031 6,673 2,211 2,313 2,293 2,362 YoY change (%) 15.8 13.7 11.0 10.7 4.8 4.6 (0.9) 3.0EBITDA 2,918 3,140 3,555 3,995 1,351 1,337 1,352 1,414 YoY change (%) 21.5 7.6 13.2 12.4 10.0 (1.0) 1.1 4.6 As % of Revenue 4.8 4.6 4.8 4.9 4.8 4.6 4.8 4.9Operating Income 2,006 2,276 2,617 2,970 929 969 995 1,051 YoY change (%) 23.3 13.5 15.0 13.5 11.6 4.4 2.7 5.7 As % of Revenue 3.3 3.3 3.5 3.6 3.3 3.3 3.5 3.6Financial Results (338) (428) (522) (516) (156) (182) (199) (183)Taxes (573) (571) (678) (806) (265) (243) (258) (285)Net Profit 1,225 1,253 1,397 1,633 567 534 531 578 YoY change (%) 21.2 2.3 11.4 16.9 9.7 (5.9) (0.5) 8.8 As % of Revenue 2.0 1.8 1.9 2.0 2.0 1.8 1.9 2.0

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (779) (863) (938) (1,025) (361) (368) (357) (363)Other Noncash Items 4 10 10 5 2 4 4 2Changes in Working Capital (488) (307) (239) (326) (226) (131) (91) (115)Operating Cash Flow 1,519 1,820 2,106 2,337 703 775 801 827Capital Expenditures (1,071) (1,132) (1,288) (1,321) (496) (482) (490) (468)Free Cash Flow 1,275 1,129 1,351 1,542 590 481 514 546Other Invest./(Divestments) 6 (4) (11) (31) 3 (2) (4) (11)Change in Debt 731 0 (300) (300) 338 0 (114) (106)Dividends (711) (779) (838) (947) (329) (332) (319) (335)Capital Increases/Other 36 60 67 69 17 26 25 24

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 3,425 3,390 3,126 2,933 1,450 1,329 1,154 998Current Assets 7,904 8,409 8,564 8,944 3,346 3,297 3,160 3,042Fixed Assets 8,475 8,741 9,096 9,423 3,588 3,428 3,356 3,205Total Assets 16,379 17,150 17,660 18,367 6,934 6,725 6,517 6,247Current Liabilities 3,764 3,997 4,178 4,425 1,594 1,568 1,542 1,505Long-Term Liabilities 6,067 6,127 5,894 5,663 2,569 2,403 2,175 1,926Shareholders' Equity 6,520 6,994 7,553 8,239 2,760 2,743 2,787 2,802Total Financial Debt 6,970 6,970 6,670 6,370 2,951 2,733 2,461 2,167ST Debt 1,830 1,830 1,830 1,830 775 718 675 622LT Debt 5,140 5,140 4,840 4,540 2,176 2,016 1,786 1,544




US$R$

Brazil98.5%

Other1.5%

Ipiranga 86.8%

Ultragaz5.5%

Oxiteno5.1%

Ultracargo0.5%

Ultra S.A21.7%

Free Float60.7%

Others17.6%

221



UNICASA MÓVEIS UNDERPERFORM CURRENT PRICE: R$2.35



Investment Case: We believe Unicasa shares will remain pressured due to limited sales visibility and further negative impact from “fixing” the store network. We anticipate that market conditions for planned(i.e., tailor-made) furniture sales will remain challenging due to less credit availability and disposable income, preventing short-term sales acceleration. We maintain our Underperform rating.

Outlook 2015: We forecast sales growth to resume in 2015 (+4% YoY), following three years of negative sales performance, as the company continues to take measures to “fix” its franchise network. (We expect further marginal store closures in 2015.) Moreover, we expect some EBITDA margin recovery (+300 bps YoY), as we anticipate the own store network expansion to start gaining scale andboosting margins.

Catalysts: Management has acted to offset weak sales dynamics through cost-saving initiatives and layoffs, along with assuming greater control of its franchisees, which should eventually improve store network profitability and reduce sales volatility. Nevertheless, we continue to be skeptical about a substantial sales recovery in theshort term and do not rule out further margin pressure from weak operating leverage.

Concerns: Main risks to our investment case include (1) weaker-than-expected economic environment affecting credit availability and disposable income, (2) another round of store closing on weak sales dynamics, and (3) greater competition from planned furniture retailers.




Company Statistics



Bloomberg UCAS3 BZCurrent Price (01/02/15) R$ 2.35 / US$ 0.87Target Price (YE 2015) R$ 2.50 / US$ 0.9252-Week Range (R$) 2.35 - 5.74Market Capitalization (US$ Mn) 58Float (%) 43.33-Mth Avg. Daily Vol (US$ Mn) 0.1Shares Outstanding - Mn 66

20

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

UCAS3 BZ IBOVESPA

222

UNICASA MÓVEIS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Unicasa Móveis is one of the largest planned furniture players in Brazilian (net sales of R$258mn in 2013), operating out of a state-of-the-art industrial complex and an exclusive distribution channel consisting of 667 stores (3Q14). The company designs, creates, produces, and markets its four different consumer brands focused on different social classes—Dell Anno (focus on A and B class), Favorita (focus on B and C class), New (focus on C class), Telasul Madeira (focus on D class), which are then sold through its exclusive stores for each brand and through 695 (3Q14) multibrand retailers in the case of New and Telasul Madeira. The company also features the Unicasa Corporate brand focused on the office and hotel markets. Unicasa is controlled by the Grendene family and its shares are traded in the Novo Mercado. Key Personnel: Alexandre Grendene (Chairman), Frank Zietolie (CEO), Frank Zietolie (CFO), Frank Zietolie (IRO) and Guilherme Oliveira (Investor Relations Manager) Web: www.unicasamoveis.com.br

Sales Breakdown, 3Q14

Store Breakdown, 3Q14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 258 252 262 292 120 107 99 103 YoY change (%) (7.7) (2.5) 4.0 11.8 (16.4) (10.4) (7.2) 4.0Gross Profit 103 104 108 120 48 44 41 43 YoY change (%) (10.8) 0.6 4.0 11.8 (19.2) (7.5) (7.2) 4.0EBITDA 22 19 27 37 10 8 10 13 YoY change (%) (60.4) (15.0) 45.2 34.9 (64.1) (21.9) 29.6 25.5 As % of Revenue 8.6 7.5 10.5 12.6 8.6 7.5 10.5 12.6Operating Income 14 10 18 27 6 4 7 10 YoY change (%) (71.0) (28.3) 77.8 54.2 (73.7) (34.2) 58.8 43.6 As % of Revenue 5.4 3.9 6.8 9.3 5.4 3.9 6.8 9.3Financial Results 2 6 4 4 1 3 1 1Taxes (2) (1) (3) (9) (1) (0) (1) (3)Net Profit 14 16 18 22 6 7 7 8 YoY change (%) (67.5) 13.6 17.2 20.5 (70.5) 4.4 4.7 12.2 As % of Revenue 5.3 6.2 7.0 7.5 5.3 6.2 7.0 7.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 8 9 10 10 4 4 4 3Other Noncash Items 13 2 (11) 10 6 1 (4) 4Changes in Working Capital 9 (4) 14 (9) 4 (1) 5 (3)Operating Cash Flow 28 5 12 13 13 2 5 5Capital Expenditures (13) (8) (9) (10) (6) (3) (3) (3)Free Cash Flow 17 7 30 10 8 3 11 3Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt (5) (1) 0 0 (2) (0) 0 0Dividends (27) (3) (3) (4) (13) (1) (1) (1)Capital Increases/Other 0 0 0 0 0 0 0 0



MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 27.6 10.1 8.5 7.1 25.2 9.0 8.3 7.4P/CE n/m 23.8 18.2 12.6 n/m 21.0 17.8 13.2FV/EBITDA 16.5 8.1 5.5 4.0 15.1 7.1 5.3 4.3FV/EBIT 26.5 15.3 8.5 5.5 24.2 13.5 8.3 5.8FV/Revenue 1.4 0.6 0.6 0.5 1.3 0.5 0.6 0.5P/BV 1.8 0.7 0.8 0.7 1.8 0.7 0.8 0.8FCF Yield (%) 4.6 4.3 19.3 6.2 5.0 4.8 19.8 5.9Div Yield (%) 7.2 1.7 1.9 2.3 7.8 1.9 2.0 2.2


US$R$

Dellano / Favorita

(Exclusive)55.5%

New (Exclusive)

26.0%

New (Multi-brand) / Casa

Brasileira10.2%

Others8.3%

Dellano / Favorita

(Exclusive)41.7%

New / Casa Brasileira

(Exclusive)58.3%

Alexandre Grendene

41.0%

Frank Zietolie9.0%

Zietolie Family (exc.

Frank)6.7%

Free Float43.3%

223



USIMINAS UNDERPERFORM CURRENT PRICE: R$4.79


Investment Case: Our negative view on Usiminas’s preferred shares is based on macroeconomic and company-specific factors: the sluggish economic outlook for Brazil in 2015 and the unresolved company controller’s battle. The latter issue could potentially divert Usiminas’s focus in a tough domestic macro environment. Additionally, its operating performance could head south, raising concerns about financial leverage. We estimate Usiminas’s net debt/EBITDA will reach 4.5x in mid-2015.

Outlook 2015: We expect a challenging 2015 (25% EBITDA decline YoY). The company’s main revenue sources face unfavorable momentum: (i) our Economics team estimates 0.3% GDP growth for Brazil in 2015, driven mainly by poor industrial activity; (ii) we projecta 30% average iron ore price per ton drop in the next year (in 9M14 the iron ore division accounted for 16% of consolidated EBITDA); and (iii) the excess energy sale contribution may be cut by half given the energy spot price cap reduction (as a percentage of consolidatedEBITDA in 9M14).

Uncertainties ahead: The fight between Ternium and Nippon Steel within the controlling block will be ongoing, in our view. Both sides headed to the courts to defend their rights, and the process can takemonths to resolve. Share price volatility has resulted from this battleand we expect this situation to continue until the controlling shareholders’ issues are resolved.

Weak top line in a tough domestic scenario: The current premium for imported steel is around 12%, which does not justify a price increase in the domestic market. (We believe 15% is the breakeven that triggers more imports.) Additionally, the domestic sales mix is also deteriorating; since we estimate Usiminas is selling more to realestate clients relative to the automakers on a comparative basis, or,in other words, selling less value-added products. The bottom line: we estimate an 11.8% EBITDA margin for 2015, -4.0 p.p. YoY.



Company Statistics



Bloomberg USIM5 BZCurrent Price (01/02/15) R$ 4.79 / US$ 1.78Target Price (YE 2015) R$ 4.50 / US$ 1.7052-Week Range (R$) 4.32 - 14.08Market Capitalization (US$ Mn) 1,774Float (%) 2.63-Mth Avg. Daily Vol (US$ Mn) 13.2Shares Outstanding - Mn 997

20

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

USIM5 BZ IBOVESPA

224

USIMINAS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Usiminas is the largest Brazilian flat steel producer, with a nominal crude steel capacity of approximately 9.0 million tons per year. The company produces a wide range of products, including slabs, heavy plates, hot- and cold-rolled coils, and galvanized products. It is a leading supplier to the automotive, auto-parts, pipeline, electronic equipment, and naval industries. In Brazil, the company has a market share of nearly 45% in the flat steel segment. In 2013, 10% of total net sales were obtained in the export market. The company has two plants located in Ipatinga, State of Minas Gerais, and Cubatão, State of São Paulo (former Cosipa). Nippon Steel (29.5% of voting shares), Ternium (38.0%), and the employee’s pension fund (6.8%) currently share control of the company. The company trades in the São Paulo Stock Exchange, with an approximate 68% float. Key Personnel: Paulo Penido (Chairman), Rômel de Souza (CEO), Ronald Seckelmann (CFO) and Cristina Morgan (Head of IR) Web: www.usiminas.com

EBITDA by Division, 2013




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 12,829 11,917 11,859 12,990 5,947 5,103 4,561 4,812 YoY change (%) 0.9 (7.1) (0.5) 9.5 (8.5) (14.2) (10.6) 5.5Gross Profit 1,476 1,157 901 1,247 684 496 347 462 YoY change (%) 123.4 (21.6) (22.1) 38.3 102.5 (27.6) (30.0) 33.2EBITDA 1,806 1,906 1,436 1,787 837 816 552 662 YoY change (%) 126.3 5.5 (24.6) 24.4 105.1 (2.5) (32.3) 19.9 As % of Revenue 14.1 16.0 12.1 13.8 14.1 16.0 12.1 13.8Operating Income 520 567 96 385 241 243 37 142 YoY change (%) n/m 9.2 (83.0) 299.4 n/m 0.9 (84.8) 284.6 As % of Revenue 4.1 4.8 0.8 3.0 4.1 4.8 0.8 3.0Financial Results (895) (547) (340) (363) (415) (234) (131) (135)Taxes 211 (299) 64 0 98 (128) 24 0Net Profit (142) (192) (198) (9) (66) (82) (76) (3) YoY change (%) 77.8 (35.8) (2.9) 95.5 79.9 (25.5) 7.5 95.7 As % of Revenue (1.1) (1.6) (1.7) (0.1) (1.1) (1.6) (1.7) (0.1)

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (1,072) (1,108) (1,160) (1,203) (497) (474) (446) (446)Other Noncash Items (158) (55) (7) (8) (73) (23) (3) (3)Changes in Working Capital 122 (669) (571) 110 57 (287) (219) 41Operating Cash Flow 894 191 384 1,296 415 82 148 480Capital Expenditures (981) (1,082) (1,040) (1,080) (455) (464) (400) (400)Free Cash Flow 329 (524) (735) 163 153 (224) (283) 60Other Invest./(Divestments) (981) (1,082) (1,040) (1,080) (455) (464) (400) (400)Change in Debt 0 0 0 0 0 0 0 0Dividends 0 47 69 23 0 20 26 9Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 3,469 2,841 2,152 2,288 1,481 1,114 812 832Current Assets 9,460 8,601 9,042 8,942 4,038 3,373 3,412 3,252Fixed Assets 15,507 15,496 15,376 15,253 6,618 6,077 5,802 5,546Total Assets 31,358 30,641 31,301 31,423 13,384 12,016 11,812 11,427Current Liabilities 3,732 2,830 3,390 3,263 1,593 1,110 1,279 1,187Long-Term Liabilities 10,915 11,003 11,233 11,468 4,658 4,315 4,239 4,170Shareholders' Equity 16,712 16,807 16,678 16,692 7,133 6,591 6,294 6,070Total Financial Debt 6,903 7,024 7,127 7,230 2,946 2,754 2,689 2,629ST Debt 0 0 0 0 0 0 0 0LT Debt 6,903 7,024 7,127 7,230 2,946 2,754 2,689 2,629

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 3,434 4,183 4,975 4,942 1,466 1,640 1,877 1,797Capital Employed 17,078 17,679 17,616 17,793 7,289 6,933 6,648 6,470Net Debt/EBITDA 1.9 2.2 3.5 2.8 1.8 2.0 3.4 2.7Net Debt/Equity 0.2 0.2 0.3 0.3 0.2 0.3 0.3 0.3Capex/Revenue (%) 7.6 9.1 8.8 8.3 7.6 9.1 8.8 8.3Int Cover (%) 1.2 2.4 2.2 2.7 1.2 2.4 2.2 2.7Dividend Payout (%) 0.0 33.3 35.7 11.6 0.0 30.5 31.4 11.5ROCE (%) 1.8 4.9 0.2 2.2 2.1 5.3 0.2 2.2ROE (%) (0.9) (1.1) (1.2) (0.1) (0.9) (1.2) (1.2) (0.1)

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E - - - - - - - -P/CE 15.2 5.5 5.0 4.0 13.9 4.8 4.8 4.0FV/EBITDA 9.7 4.8 6.8 5.4 8.9 4.3 6.6 5.4FV/EBIT 33.9 16.2 n/m 25.3 31.0 14.5 n/m 25.1FV/Revenue 1.4 0.8 0.8 0.7 1.3 0.7 0.8 0.7P/BV 0.8 0.3 0.3 0.3 0.8 0.3 0.3 0.3FCF Yield (%) 2.3 (10.4) (15.4) 3.4 2.5 (11.8) (15.9) 3.4Div Yield (%) (0.0) (0.9) (1.4) (0.5) (0.0) (1.1) (1.5) (0.5)

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS (0.14) (0.19) (0.20) (0.01) (0.07) (0.08) (0.08) (0.00)DPS 0 0.05 0.07 0.02 0 0.02 0.03 0.01BVPS 16.76 16.86 16.73 16.74 7.15 6.61 6.31 6.09

US$R$

Mining30.0%

Steel64.0%

Steel Processing

5.0%

Capital Goods1.0%

Domestic90.0%

Exports10.0%

Nippon Steel

29.5%

Employee Pension

Fund6.8%

Ternium27.7%

Free Float36.1%

225



VALE HOLD CURRENT PRICE: US$7.94



Investment Case: Iron ore price estimates look to be in the midst of a downward spiral of revisions. In our view, the negative top-down outlook will continue to dictate investors’ caution with the stock, in spite of management’s good efforts to cut costs and raise extra cashby selling noncore assets, especially the potential listing of a minoritystake of the Base Metals division.

Outlook 2015: In the words of Vale’s CEO, 2015 will be a challenging year. We agree with him. Capex is still high, US$10 billion, since the company still has to deliver organic expansion, and volatility in iron ore prices should blur visibility. Indeed, we estimate Vale’s EBITDA at US$9.2 billion for the next year, which is 29% below the Bloomberg consensus.

We do not expect support for the stock price from a potential high dividend yield: Vale has the potential to unlock some US$5-10 billion in extra cash in the short/medium terms, putting together all noncore divestitures (MRS, VLOCS, MRN, etc.), JVs (coal, fertilizer), and the potential Base Metals listing. All in, these measures could lead to a potential extraordinary dividend yield of 10-20% in 2015, by our estimate. However, if all divestitures materialize, we do not expect Vale to pay extra dividends until 2H15/1H16; thus, we do not expect dividends to be offered to promote investors’ exposure to the stock. Excluding the aforementioned possible one-off events, however, we project US$1.8 billion dividend payment for 2015, -57% YoY.

Consistent new iron ore supply to keep prices under pressure: With some 280 million tons of cost-efficient iron ore still expected to hit the market in the next two years, representing supply growth of 27% from the top five global producers, iron ore prices are under pressure, in our view. Considering Vale’s numbers alone, we project volume will increase by 46% in the next five years, from 330 million tons in 2014 to 450 million tons in 2019. We estimate US$65/ton average iron ore price for 2015, but risks are to the downside.



Company Statistics



Bloomberg VALE USCurrent Price (01/02/15) US$ 7.94Target Price (YE 2015) US$ 8.0052-Week Range (US$) 6.86 - 15.07Market Capitalization (US$ Mn) 40,918Float (%) 61.73-Mth Avg. Daily Vol (US$ Mn) 255.0Shares Outstanding - Mn 5,153

20

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

VALE US IBOVESPA

226

VALE Financial Highlights: P&L, Balance Sheet and CF Statement, 2013-16E in Millions Company Description

Vale is the world’s largest producer and exporter of iron ore and nickel, and one of the largest companies in the mining and metal industries in terms of market cap. In 2013, its ferrous minerals activities (mainly iron ore and pellets) accounted for 95% of the company’s EBITDA. Vale is controlled by the Valepar consortium, which owns 53% of the voting stock and 32% of total capital. Valepar’s main shareholders are Litel (Previ), Bradespar, BNDESPar, and Mitsui. Key Personnel: Dan Conrado (Chairman), Murilo Ferreira (CEO), Luciano Siani (CFO) and Rogério Nogueira (IR Director) Web: www.vale.com


Sales by Destination, 2013



P&L ACCOUNT 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017ETotal Revenue 45,293 58,991 45,395 48,050 36,733 33,847 36,132 39,521 YoY change (%) 94.3 30.2 (23.0) 5.8 (23.6) (7.9) 6.7 9.4Gross Profit 26,479 35,417 21,103 22,573 12,098 7,834 7,506 10,146 YoY change (%) 173.3 33.8 (40.4) 7.0 (46.4) (35.2) (4.2) 35.2EBITDA 26,116 33,759 19,135 20,015 13,284 9,159 8,774 11,868 YoY change (%) 185.0 29.3 (43.3) 4.6 (33.6) (31.1) (4.2) 35.3 As % of Revenue 57.7 57.2 42.2 41.7 36.2 27.1 24.3 30.0Operating Income 21,695 28,599 13,737 14,873 7,784 4,190 3,617 6,787 YoY change (%) 258.2 31.8 (52.0) 8.3 (47.7) (46.2) (13.7) 87.6 As % of Revenue 47.9 48.5 30.3 31.0 21.2 12.4 10.0 17.2Financial Results (1,381) (3,313) (3,801) (8,334) (5,665) (2,320) (5,375) (5,950)Taxes (3,705) (5,282) 833 (6,585) (1,414) (417) 253 (225)Net Profit 17,235 22,781 5,511 584 1,352 1,889 (1,148) 1,019 YoY change (%) 222.2 32.2 (75.8) (89.4) 131.5 39.7 (160.8) n/m As % of Revenue 38.1 38.6 12.1 1.2 3.7 5.6 (3.2) 2.6

CASH FLOW 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017EDepreciation & Amortization (3,260) (4,122) (4,396) (4,308) (4,060) (4,134) (4,314) (4,246)Other Noncash Items 0 0 0 364 (1,146) (1,058) (880) (700)Changes in Working Capital (3,418) (1,230) 794 (3,307) 8,024 (207) 53 (62)Operating Cash Flow 17,077 25,673 10,701 1,949 12,290 4,757 2,338 4,503Capital Expenditures (16,899) (16,253) (14,055) (14,233) (11,927) (10,200) (7,600) (6,900)Free Cash Flow 178 9,420 (3,354) (12,284) 363 (5,443) (5,262) (2,397)Other Invest./(Divestments) (8,647) (10,000) 0 0 0 0 0 0Change in Debt 0 0 0 0 0 4,050 4,262 0Dividends (3,000) (9,000) (6,000) (4,500) (4,200) (1,832) (1,755) (2,374)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017ECash and Equivalents 9,377 3,531 6,078 5,324 4,001 1,923 1,991 173Current Assets 31,791 21,736 22,897 24,377 15,104 13,947 14,318 12,793Fixed Assets 83,096 88,895 90,744 81,665 76,296 82,362 79,043 75,139Total Assets 129,139 128,728 131,478 124,597 110,766 115,782 111,704 105,038Current Liabilities 14,941 9,502 8,910 7,837 7,912 8,625 8,982 9,212Long-Term Liabilities 42,469 39,617 46,205 51,824 48,803 54,152 57,522 56,334Shareholders' Equity 68,899 77,715 74,728 63,325 52,858 51,856 44,115 38,518Total Financial Debt 25,846 23,170 32,199 29,445 28,680 32,730 36,525 36,079ST Debt 0 0 0 0 0 0 0 0LT Debt 25,846 23,170 32,199 29,445 28,680 32,730 36,525 36,079

FINANCIAL RATIOS 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017ENet Debt 16,469 19,639 26,121 24,121 24,679 30,807 34,534 35,906Capital Employed 79,247 90,306 95,166 83,001 75,355 79,910 75,671 71,021Net Debt/EBITDA 0.6 0.6 1.4 1.2 1.9 3.4 3.9 3.0Net Debt/Equity 0.2 0.3 0.3 0.4 0.5 0.6 0.8 0.9Capex/Revenue (%) 37.3 27.6 31.0 29.6 32.5 30.1 21.0 17.5Int Cover (%) n/m n/m n/m n/m n/m n/m n/m n/mDividend Payout (%) 56.1 52.2 26.3 81.7 719.1 135.5 92.9 (206.7)ROCE (%) 32.1 37.5 13.6 25.9 12.2 5.8 4.4 9.9ROE (%) 27.4 31.1 7.2 0.8 2.3 3.6 (2.4) 2.5

MARKET RATIOS 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017EP/E 9.0 4.7 19.6 n/m 31.2 21.7 - 40.2P/CE 7.6 3.9 10.9 16.1 7.8 6.8 12.9 7.8FV/EBITDA 6.8 3.8 7.1 5.2 5.1 7.9 8.7 6.6FV/EBIT 8.2 4.5 9.9 7.0 8.7 17.3 21.1 11.5FV/Revenue 3.9 2.2 3.0 2.2 1.8 2.1 2.1 2.0P/BV 2.3 1.4 1.4 1.2 0.8 0.8 0.9 1.1FCF Yield (%) 0.1 8.9 (3.1) (15.6) 0.9 (13.3) (12.9) (5.9)Div Yield (%) 1.9 8.5 5.6 5.7 10.0 4.5 4.3 5.8

PER SHARE DATA 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017EEPS 3.34 4.42 1.07 0.11 0.26 0.37 (0.22) 0.20DPS 0.58 1.75 1.16 0.87 0.82 0.36 0.34 0.46BVPS 13.37 15.08 14.50 12.29 10.26 10.06 8.56 7.47

US$

Iron Ore70.6%

Base Metals14.9%

Fertilizers6.1%

Logistics3.1%

Other4.0%

North America

4.9%South

America19.0%

Asia54.2%

Europe18.0%

Other3.9%

Valepar32.9%

BNDESPar4.2%

ADR's30.2%

Free Float32.7%

227



VALID BUY CURRENT PRICE: R$42.20

TARGET PRICE: R$47.00 RAISING YE2015 TARGET PRICE TO R$47.00 FROM R$46.30

Investment Case: Valid is our top pick among financials in Brazil. We believe Valid will deliver increased profitability, supported by changes in portfolio mix, improving margins, and decent volumes. Additionally, we believe Valid is well positioned to benefit from some opportunities not yet operational, such as the JV with Correios, bottling seals, a new ID system in Brazil, and driver’s licenses in the U.S., which could imply additional potential upside to our target price.

Outlook 2015: In our view, the company will be able to reach a three-year (2013-15E) net income CAGR of 24%, with a slight improvement year-over-year in the net margin. We believe this should be accomplished as new businesses and segments gain ground little by little: some are high margin; others (such as Valid USA cards) have low EBITDA margins but their high volumes help bydiluting opex. Thus, we estimate 23% EPS growth YoY in 2015.

Our top pick. We value the company “as is,” considering all business lines that are tangible and up and running currently. This comprises Valid USA and new ID cards in São Paulo State. But the company has several new businesses and initiatives that are not yet in operation, such as (i) the JV with Correios; (ii) bottling seals; (iii) new ID system in Brazil; and (iv) driver’s licenses in the U.S. Other ventures, such as 4G expansion and SIM cards in the U.S., are stilltoo far in the future to be priced in.

Assessing this potential added value. We ran a valuation analysis on these new ventures, to better assess the potential value they could bring to the company if they succeed—we reached R$730 million, or a 28% increase in our YE2015 target price. However, despite Valid’s good track record in bringing its ventures to fruition,we did not add them to our valuation, as they are not yet operational.

Driving safely in the U.S. In November 2014 Valid was declared “Apparently Successful Vendor" in the competitive bidding for the driver’s license contract for Washington State. The company expectsto begin offering services in August 2015.




Company Statistics



Bloomberg VLID3 BZCurrent Price (01/02/15) R$ 42.20 / US$ 15.68Target Price (YE 2015) R$ 47.00 / US$ 18.0852-Week Range (R$) 27.90 - 42.40Market Capitalization (US$ Mn) 874Float (%) 97.63-Mth Avg. Daily Vol (US$ Mn) 3.8Shares Outstanding - Mn 56

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

VLID3 BZ IBOVESPA

228

VALID Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Valid has operated in Brazil since 1993, when American Banknote Corporation acquired the Brazilian subsidiary of Thomas de La Rue, a company engaged in providing security printing services that has operated in the Brazilian market for almost 50 years. In 2006 the company then named American BankNote held its IPO, selling 56% of its shares. In October 2010, it changed its name to Valid. Presently, Valid is engaged mainly in the printing industry, including security prints, lottery tickets and systems in general, including electronic, plastic, magnetic and inductive cards, encoding cards, and in the development, implementation and execution of electronic document management projects. Key Personnel: José Roberto Mauro (CEO), Carlos Affonso (CFO) and Rita Carvalho (IRO) Web: www.valid.com.br

Means of Payments, BZ, Units




INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ERevenue 1,321 1,367 1,572 1,779 612 582 605 678 Growth (%) 33.9 3.5 15.0 13.2 21.3 (5.0) 4.0 12.1EBITDA 223 252 279 308 103 107 107 117 Growth (%) 1.4 12.9 10.6 10.5 (8.2) 3.7 0.0 9.4Operating Profit 133 189 216 247 62 80 83 94 Growth (%) (17.1) 41.7 14.4 14.2 (24.9) 30.1 3.4 13.2Profit before Taxes 120 157 202 239 56 67 78 91Taxes (29) (36) (52) (65) (13) (15) (20) (25)Minorities 0 0 0 0 0 0 0 0Net Profit 92 121 149 174 43 52 57 66 Growth (%) (11.6) 32.1 23.3 16.5 (19.9) 21.3 11.4 15.4

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 152 214 186 161 71 91 72 61Accounts Receivable 234 240 243 244 108 102 94 93Intangible and Deferred Asse 956.0 995.8 992.9 990.7 443.1 423.7 381.9 377.4Tangible Assets 0 0 0 0 0 0 0 0Total Assets 1,173 1,265 1,235 1,205 544 538 475 459ST Debt 0 0 0 0 0 0 0 0LT Debt 0 0 0 0 0 0 0 0Equity 543 617 631 644 252 263 243 245Net Debt (Cash) 260 271 195 121 120 115 75 46

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EChanges in Working Capital 170 195 206 224 79 83 79 85Operating Cash Flow 53 57 72 83 25 24 28 32Capital Expenditures (91) (63) (63) (71) (42) (27) (24) (27)Change in Debt (120) 123 (14) (7) (56) 52 (6) (3)Free Cash Flow to Equity 2 206 91 115 1 88 35 44Cash Dividends (51) (65) (61) (75) (24) (28) (23) (28)Capital Increase (Decrease) 0 0 0 0 0 0 0 0

OPERATING RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEBITDA Margin 16.9 18.4 17.7 17.3 16.9 18.4 17.7 17.3Effective Tax Rate 23.8 22.7 26.0 27.1 23.8 22.7 26.0 27.1Net Margin 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1Net Debt / EBITDA 1.2 1.1 0.7 0.4 1.2 1.1 0.7 0.4Net Debt / Equity 0.5 0.4 0.3 0.2 0.5 0.5 0.3 0.2FCFE / Revenues 12.2 10.0 9.2 8.6 12.2 10.0 9.2 8.6ROAA 8.1 9.9 12.0 14.3 8.2 10.6 12.0 14.3ROAE 17.4 20.9 23.9 27.3 17.7 22.2 23.9 27.3Payout 49.6 70.6 50.0 50.0 44.9 64.7 44.0 49.7



US$R$

186.00

163.00

156.00

175.00 176.00

2011

A

2012

A

2013

A

2014

E

2015

E

Telecom -SIM Cards

14.5%Telecom - Others

1.6%

Means of Payments

47.2%

Id. Systems32.5%

Digital Certification

4.4%

Mgmt. / Treasury

2.4%

Free float97.6%

229



VIA VAREJO BUY CURRENT PRICE: R$19.50


Investment Case: We believe Via Varejo offers a compelling opportunity for participating in the Brazilian retail space due to its (1) pioneering large-scale multichannel platform, (2) strong cash flow generation primarily derived from operating improvements, backed by ongoing initiatives, and (3) attractive valuation. Consistent marginexpansion has been a positive surprise, and we believe there is more to come, leading us to maintain a Buy rating on the stock.

Outlook for 2015: We forecast 9% YoY top-line growth based on +70 store openings and 6% SSS, while we also expect +40-bp YoY EBITDA margin expansion owing to maturing internal initiatives. We are confident that VVAR will continue to grow and gain market sharedespite a tougher economic environment ahead, as we believe the company offers key competitive advantages over its direct competitors (i.e., scale, strong banners, multichannel platform, and unique distribution platform).

Catalysts: We recognize that investors are concerned about discretionary sales in Brazil, with the decline in consumer confidence and credit growth (which might compromise top-line growth at some point). However, we see limited downside risk to our 2015 earnings estimates (mostly from cost-cutting) strengthening our conviction that Via Varejo remains an interesting value play. We expect synergies arising from VVAR’s stake in Cnova to surface along 2015, including combined stock management and distribution (click-and-collect), which we expect to become a key competitive advantage over single-channel competitors.

Concerns: Main risks to our investment thesis include: (1) stronger-than-expected economic slowdown, affecting consumers’ disposable income and credit availability; (2) increased competition from brick-and-mortar and e-commerce players; (3) elimination of government stimulus programs (including tax exemptions on certain categories); and (4) potential block trades from controlling shareholders.




Company Statistics



Bloomberg VVAR11 BZCurrent Price (01/02/15) R$ 19.50 / US$ 7.24Target Price (YE 2015) R$ 34.00 / US$ 12.8352-Week Range (R$) 19.07 - 26.49Market Capitalization (US$ Mn) 3,117Float (%) 29.33-Mth Avg. Daily Vol (US$ Mn) 7.5Shares Outstanding - Mn 430

70

80

90

100

110

120

130

D-13 A-14 A-14 D-14

VVAR11 BZ IBOVESPA

230

VIA VAREJO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Via Varejo is currently the largest electronics and furniture retailer in Brazil, with annual gross sales of R$25 billion in 2013 and an estimated 26% market share in its core categories (19% overall market share). The company sells a wide variety of electronic goods, home appliances and furniture through a multichannel platform that includes 999 stores (YE2013) with the Casas Bahia and Ponto Frio banners along with e-commerce operations through Nova Pontocom (controlled by CBD as well). Key Personnel: Ronaldo Iabrudi (Chairman), Líbano Miranda Barroso (CEO), Vitor Fagá (CFO) and Marcelo Rizzi (Investor Relations Director) Web: http://www.viavarejo.com.br/ri

Sales Breakdown by Brand, 3Q14

Sales by Payment Type, 3Q14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 21,745 23,125 25,282 27,340 10,078 9,895 9,724 10,126 YoY change (%) 11.9 6.3 9.3 8.1 1.4 (1.8) (1.7) 4.1Gross Profit 6,690 7,158 7,874 8,515 3,101 3,063 3,028 3,154 YoY change (%) 13.3 7.0 10.0 8.1 2.7 (1.2) (1.1) 4.1EBITDA 2,423 2,144 2,444 2,672 1,123 918 940 990 YoY change (%) 87.9 (11.5) 14.0 9.3 70.2 (18.3) 2.4 5.3 As % of Revenue 11.1 9.3 9.7 9.8 11.1 9.3 9.7 9.8Operating Income 2,270 1,998 2,291 2,504 1,052 855 881 927 YoY change (%) 105.3 (12.0) 14.7 9.3 86.0 (18.7) 3.1 5.3 As % of Revenue 10.4 8.6 9.1 9.2 10.4 8.6 9.1 9.2Financial Results (558) (657) (841) (882) (259) (281) (324) (327)Taxes (514) (440) (475) (523) (238) (188) (183) (194)Net Profit 1,190 901 974 1,100 551 386 375 407 YoY change (%) 242.6 (24.2) 8.1 12.8 210.4 (30.1) (2.8) 8.6 As % of Revenue 5.5 3.9 3.9 4.0 5.5 3.9 3.9 4.0

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 153 147 153 168 71 63 59 62Other Noncash Items (1,255) 433 68 62 (582) 185 26 23Changes in Working Capital 244 (261) 10 (9) 113 (112) 4 (3)Operating Cash Flow 25 926 899 984 11 396 346 365Capital Expenditures (361) (397) (427) (451) (167) (170) (164) (167)Free Cash Flow 1,805 262 712 835 837 112 274 309Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 528 (134) 0 0 245 (57) 0 0Dividends (192) (437) (472) (533) (89) (187) (182) (197)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 3,533 2,193 2,193 2,193 1,508 860 828 797Current Assets 8,984 8,981 9,408 9,907 3,834 3,522 3,550 3,603Fixed Assets 4,474 4,642 4,916 5,199 1,910 1,820 1,855 1,891Total Assets 13,458 13,623 14,324 15,107 5,744 5,342 5,405 5,493Current Liabilities 7,809 8,977 9,414 9,904 3,333 3,520 3,552 3,601Long-Term Liabilities 1,698 1,517 1,517 1,517 725 595 572 552Shareholders' Equity 3,951 3,129 3,393 3,686 1,686 1,227 1,280 1,340Total Financial Debt 3,962 3,828 3,828 3,828 1,691 1,501 1,445 1,392ST Debt 3,055 3,147 3,147 3,147 1,304 1,234 1,188 1,144LT Debt 907 681 681 681 387 267 257 248

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 429 1,635 1,635 1,635 183 641 617 595Capital Employed 5,649 4,646 4,910 5,203 2,411 1,822 1,853 1,892Net Debt/EBITDA 0.2 0.8 0.7 0.6 0.2 0.7 0.7 0.6Net Debt/Equity 0.1 0.5 0.5 0.4 0.1 0.6 0.5 0.4Capex/Revenue (%) 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7Int Cover (%) (10.8) (5.4) (5.6) (5.9) (10.8) (5.4) (5.6) (5.9)Dividend Payout (%) 55.4 36.7 52.4 54.7 50.1 33.7 46.1 54.4ROCE (%) 49.3 52.5 56.3 58.2 53.0 58.0 56.6 58.2ROE (%) 34.4 25.5 29.9 31.1 35.3 26.8 29.9 31.1



US$R$

Casas Bahia77.7%

Pontofrio22.3%

Cash25.3%

Payment Book15.0%

Credit Cards59.7%

CBD43.3%

Klein Family27.3%

Free Float29.3%

231


LATIN AMERICAN

232


WEG HOLDCURRENT PRICE: R$31.06


Investment Case: We see WEG as a scarcity quality play on FX in

Brazil and on an energy efficiency trend. WEG has 50% of sales

related to FX and is one of the few FX-affected companies that is not

in the commodities business (its 2015E ROE is 21%). While its

multiples are slightly above the historical average, based on our

estimates we think WEG may be a good relative call among

industrials in a scenario of potential energy rationing, given that its

main long-term thesis is about energy efficiency (it sells industrial

motors that consume less energy—i.e., the payback period for

industrial motor investment, sold by WEG, is ~1 year).

Outlook 2015: We expect WEG to increase sales by 15% in 2015,

driven by a recovery in longer-cycle products (especially in the wind

energy segment), M&A, and FX on 50% sales exposure. We see the

company reaching R$8.9 billion in sales, R$1,626 million in EBITDA,

and R$1,114 million in net income in 2015.

To acquire, or not to acquire—that is the question. Despite the

company’s good execution track record, our practice is not to include

acquisitions in our long-term estimates; our organic estimates reach

R$20 billion in revenue only by 2022 (vs. R$20 billion in revenue by

2020 as guided by WEG’s 20/20 strategic plan). If we were to include

acquisitions, our YE2015 target price would be R$36/share.

What’s changed? Although our net sales estimates remain nearly

unchanged (-2%), we reduced our 2015E EBITDA and net income

by 11% and 6% to account for lower-than-expected sales in the

Brazilian domestic market. However, the more favorable FX helps

shift our medium-term estimates upward. We are in-line with 2015

consensus net income estimates.

A Brazilian leader with competitive advantages. In our strategy

report Hey Competition, Can You Jump a Wide Moat? Part 2, April 7,

2014, WEG was ranked 5th among the 16 companies with the

greatest competitive advantages (117-company Brazil coverage).

Daniel Gewehr*



Joao Noronha*, CFA



Company Statistics



Bloomberg WEGE3 BZ

Current Price (01/02/15) R$ 31.06 / US$ 11.54

Target Price (YE 2015) R$ 31.50 / US$ 11.62

52-Week Range (R$) 20.92 - 31.52


Float (%) 35.3



60

80

100

120

140

160

J-13 M-13 A-13 D-13 A-14 A-14 D-14

WEGE3 BZ IBOVESPA

WEGFinancial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

WEG is the largest manufacturer of electric motors andrelated equipment in Latin America and one of the largestin the world. With nine plants in Brazil and eight outsidethe country, the company has a global presence, currentlyselling products to more than 100 countries. With its fourbusiness areas, WEG has a diversified portfolio ofproducts, including electric motors, energy generatorsand transformers, electronic components, industrialautomation systems, and paint and varnishes. In 2013,the company reported net sales of R$6.8 billion (50%from exports and foreign subsidiaries). WEG is listed onthe Novo Mercado.

Key Personnel: Harry Schmelzer Júnior (CEO), Sérgio

Schwartz (CFO) and Luis Fernando Moran de Oliveira (IRManager)

Web: www.weg.net.br

Gross Sales by Segment, 2013



Sources for all charts and tables: Company reports and Santanderestimates.


Total Revenue 6,829 7,798 8,963 10,259 3,165 3,328 3,408 3,632

YoY change (%) 10.6 14.2 14.9 14.5 0.2 5.1 2.4 6.6

Gross Profit 2,237 2,460 2,882 3,309 1,037 1,050 1,096 1,171

YoY change (%) 18.9 10.0 17.2 14.8 7.7 1.3 4.4 6.9

EBITDA 1,255 1,350 1,626 1,860 582 576 618 658

YoY change (%) 19.1 7.5 20.5 14.4 7.9 (1.0) 7.3 6.5

As % of Revenue 18.4 17.3 18.1 18.1 18.4 17.3 18.1 18.1


YoY change (%) 25.2 7.5 24.7 15.3 13.4 (1.0) 11.1 7.4

As % of Revenue 14.8 13.9 15.1 15.3 14.8 13.9 15.1 15.3

Financial Results 73 82 84 96 34 35 32 34

Taxes (240) (253) (324) (373) (111) (108) (123) (132)

Net Profit 843 910 1,114 1,284 391 388 423 455

YoY change (%) 28.6 7.8 22.4 15.3 16.5 (0.7) 9.1 7.4

As % of Revenue 12.4 11.7 12.4 12.5 12.4 11.7 12.4 12.5


Depreciation & Amortization (218) (246) (269) (295) (101) (105) (102) (104)

Other Noncash Items 180 174 179 205 83 74 68 73

Changes in Working Capital (232) (177) (232) (242) (108) (76) (88) (86)

Operating Cash Flow 1,023 1,173 1,394 1,618 474 500 530 573

Capital Expenditures (206) (836) (475) (513) (96) (357) (181) (182)

Free Cash Flow 1,009 142 595 732 468 61 226 259


Change in Debt 537 202 0 0 249 86 0 0

Dividends (392) (437) (303) (360) (182) (186) (115) (127)

Capital Increases/Other 0 0 0 0 0 0 0 0


Cash and Equivalents 3,374 3,425 3,744 4,142 1,440 1,343 1,382 1,409

Current Assets 6,852 7,237 7,950 8,876 2,924 2,838 2,934 3,019

Fixed Assets 3,166 3,585 3,791 4,009 1,351 1,406 1,399 1,364

Total Assets 10,141 10,950 11,868 13,012 4,328 4,294 4,379 4,426

Current Liabilities 10,980 10,665 11,806 12,884 4,686 4,182 4,357 4,382

Long-Term Liabilities 2,921 3,157 3,116 3,065 1,247 1,238 1,150 1,042


Total Financial Debt 3,209 3,434 3,379 3,309 1,370 1,347 1,247 1,125

ST Debt 913 908 894 875 390 356 330 298

LT Debt 2,296 2,526 2,485 2,434 980 991 917 828


Net Debt (167) 8 (366) (834) (71) 3 (135) (284)


Net Debt/EBITDA (0.1) 0.0 (0.2) (0.4) (0.1) 0.0 (0.2) (0.4)

Net Debt/Equity (0.0) 0.0 (0.1) (0.1) (0.0) 0.0 (0.1) (0.1)

Capex/Revenue (%) 3.0 10.7 5.3 5.0 3.0 10.7 5.3 5.0

Int Cover (%) 3.7 3.1 4.9 5.5 3.7 3.1 4.9 5.5

Dividend Payout (%) 59.8 51.8 33.4 32.3 54.1 47.5 29.4 32.1

ROCE (%) 28.0 27.0 31.3 33.4 30.1 29.8 31.4 33.4

ROE (%) 19.6 19.3 21.2 21.0 20.0 20.5 21.2 21.0


P/E 17.6 27.2 22.5 19.5 16.1 23.9 22.0 20.5

P/CE 14.0 21.4 18.1 15.9 12.8 18.8 17.7 16.7

FV/EBITDA 11.9 18.6 15.4 13.2 10.9 16.4 15.1 13.9

FV/EBIT 14.8 23.1 18.5 15.7 13.5 20.4 18.1 16.5

FV/Revenue 2.2 3.2 2.8 2.4 2.0 2.8 2.7 2.5

P/BV 3.3 5.1 4.4 3.8 3.2 4.9 4.5 4.2

FCF Yield (%) 6.8 0.6 2.4 2.9 7.4 0.7 2.4 2.8

Div Yield (%) 2.6 1.8 1.2 1.4 2.9 2.0 1.2 1.4


EPS 1.36 1.13 1.38 1.59 0.63 0.48 0.52 0.56

DPS 0.74 0.59 0.69 0.80 0.34 0.25 0.26 0.28

BVPS 5.56 6.12 6.54 7.34 2.37 2.40 2.42 2.50

US$R$

233


CHILE—UTILITIES

AES GENER HOLD CURRENT PRICE: CH$316.04

TARGET PRICE: CH$360.00 DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF CH$360.00; REPLACING YE2014 TARGET PRICE OF CH$350.00

Investment Case: Although we remain positive with respect to earnings momentum in the long term, we believe the bulk of this momentum will occur in 2016, after the startup of Cochrane, which we believe to be already reflected in current valuations. In the meantime, we expect the company’s high capex, and weakened outlook for Colombia and Argentina to pressure 2015 results and financials.

Outlook 2015: We forecast a 3.3% YoY EBITDA decline, for a total of US$652 million, corresponding mainly to: (1) less favorable price conditions in Colombia after the startup of large hydrological projects;and (2) the negative impact on results from the depreciation of COP and ARS against the USD. We expect results to recover by 2016, once the Cochrane 532-MW coal project launches.

Good performer in dry scenario, limited downside under El Niño: In our scenario of dry to normal hydro conditions in 2015, we believe AES Gener will take advantage of high spot prices in order tobe a net seller in the spot market by (1) using its large coal capacity and balanced contract basis in the SIC, and (2) activating its backupfacilities. Conversely, if El Niño materializes, we believe downside willbe limited, as the company could buy cheap energy in the spot market to fulfill its contracts.

Pressure on results to come from Colombia and Argentina. We expect weaker results for Colombian operations, with EBITDA falling17% YoY, stemming from the lower price outlook, due to the startup of large hydro projects (Sogamoso and Quimbo) and depreciation of the Colombian peso versus the USD. In Argentina, we see risk from further FX depreciation and continuing weak economic activity.

Considerable investment pipeline to pressure cash flow: We expect the significant investment pipeline for 2015 (Alto Maipo, Cochrane and Guacolda) to temporally pressure financial ratios, reducing the company’s financial flexibility. We expect a reduction inthe dividend policy from the current 100% to 60% and a FCF yield of -14% in 2015. Also, we estimate adjusted net debt/EBITDA (considering hybrid bond) to peak at 4.2x in 2015.

Nicolas Schild* Chile: Santander Investment Chile Limitada +5622-336-3361 | [email protected]


Company Statistics

Price Performance (Ch$)


Bloomberg AESGENER CICurrent Price (01/02/15) Ch$ 316.04 / US$ 0.51Target Price (YE 2015) Ch$ 360.00 / US$ 0.5852-Week Range (Ch$) 257.58 - 337.09Market Capitalization (US$ Mn) 4,322Float (%) 29.33-Mth Avg. Daily Vol (US$ Mn) 1.6Shares Outstanding - Mn 8,400

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

AESGENER CI IPSA

234

AES GENER Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description AES Gener is the second largest electricity generation company in Chile, with a presence in the two largest electricity grids in the country. The company has a diversified generation portfolio with 4,081 MW of installed capacity in Chile and a 1,000 MW facility in Colombia with a mix of hydro, natural gas, diesel and coal facilities. In Chile, the company operates in the central and northern grids (the SIC and the SING, respectively), while in Colombia, the company operates through Chivor. The company is controlled by the AES Group, with a 70.7% stake. Key Personnel: Andrés Gluski (Chairman), Luis Felipe Cerón (CEO), Daniel Stadelmann (CFO), Constanza López (Head of IR) and Paola Lara (IR Analyst) Web: www.aesgener.cl

EBITDA by Region, 2015E

Installed Capacity by Region, 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,112 1,349 1,295 1,285 2,245 2,360 2,067 2,090 YoY change (%) (1.9) 21.3 (4.0) (0.7) (3.6) 5.1 (12.4) 1.1Gross Profit 253 319 332 352 510 557 530 572 YoY change (%) (12.0) 26.1 4.2 6.0 (13.5) 9.3 (4.9) 8.0EBITDA 307 385 408 429 621 674 652 698 YoY change (%) (4.3) 25.3 6.0 5.1 (5.9) 8.5 (3.3) 7.1 As % of Revenue 27.7 28.5 31.5 33.4 27.7 28.5 31.5 33.4Operating Income 195 257 269 289 393 449 430 469 YoY change (%) (9.8) 31.9 4.9 7.2 (11.4) 14.3 (4.3) 9.2 As % of Revenue 17.5 19.0 20.8 22.5 17.5 19.0 20.8 22.5Financial Results (56) (102) (43) (61) (113) (178) (69) (100)Taxes (42) (49) (58) (64) (85) (86) (92) (103)Net Profit 97 106 169 164 196 185 269 266 YoY change (%) (1.8) 9.2 59.2 (2.8) (3.5) (5.3) 45.3 (1.0) As % of Revenue 8.7 7.8 13.0 12.7 8.7 7.8 13.0 12.7

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (112) (128) (139) (140) (226) (223) (222) (228)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital 23 26 (40) 39 46 45 (64) 63Operating Cash Flow 231 259 268 343 467 454 427 558Capital Expenditures (247) (486) (632) (511) (498) (850) (1,010) (830)Free Cash Flow (15) (227) (365) (168) (31) (396) (583) (272)Other Invest./(Divestments) 109 12 222 128 220 22 355 207Change in Debt 234 122 363 148 473 214 580 240Dividends (104) (132) (70) (100) (210) (231) (112) (163)Capital Increases/Other 0 86 0 0 0 150 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 385 273 426 427 733 447 687 700Current Assets 639 579 726 701 1,216 950 1,171 1,150Fixed Assets 2,560 3,354 3,898 4,202 4,872 5,498 6,287 6,889Total Assets 3,464 4,268 4,963 5,238 6,592 6,996 8,005 8,587Current Liabilities 469 498 501 533 892 817 808 874Long-Term Liabilities 1,609 2,171 2,521 2,604 3,063 3,559 4,065 4,270Shareholders' Equity 1,386 1,508 1,631 1,667 2,637 2,473 2,630 2,734Total Financial Debt 1,508 1,881 2,272 2,382 2,870 3,084 3,664 3,904ST Debt 233 186 234 253 444 305 378 414LT Debt 1,329 1,802 2,146 2,236 2,528 2,955 3,461 3,666



PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 15 14 20 19 0.03 0.02 0.03 0.03DPS 16 17 8 12 0.03 0.03 0.01 0.02BVPS 201 181 192 200 0.38 0.30 0.31 0.33

US$Ch$

SIC (Chile)39.6%SING

(Chile)23.3%

SIN (Colombia)

31.7%

SADI (Argentina)

5.4%

SIC (Chile)51.0%

SING (Chile)16.0%

SIN (Colombia)

20.0%

SADI (Argentina)

13.0%

AES Corp70.7%

Pension Funds16.4%

Others12.9%

235


CHILE—FINANCIAL SERVICES

AFP HABITAT HOLD CURRENT PRICE: CH$910.36

TARGET PRICE: CH$965.00 DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF CH$965.00; REPLACING YE2014 TARGET PRICE OF CH$820.00

Matias Duarte* Chile: Santander Investment Chile Limitada +5622-336-3423|[email protected]


Company Statistics



Investment Case: We are downgrading our rating to Hold from Buy, as we believe that after the 46.4% rally of the stock price YTD, current valuations limit potential upside. The stock currently trades at 2015E FV/EBITDA and P/E multiples of 9.9x and 10.8x, respectively, 26% and 5% premiums, respectively, to its average since 2010, when ILC acquired AFP Habitat from Citigroup. In addition, the company holds a 90% dividend yield payout, which drives a 2015E dividend yield of 7.0%, below its last-four-year average of 9.1%. We recommend investors to tender their shares on the Prudential tenderoffer.

Outlook 2015: We expect 3.1% EBITDA growth, explained by null growth in affiliates in Chile and a 2% increase in average salaries, in line with expected deterioration of the labor market in 2015, as we expect unemployment to deteriorate in from 6.4% to 7.4% in 2015. InPeru, we anticipate that commission revenue will increase 31% YoY, representing roughly 2.9% of the company’s total commission revenue, driven by an increase in Monthly Pension Holders (awarded the bid for second year in a row for 24 months) and client salaries.

Prudential to co-control: On November 28, ILC (AFP Habitat’s controller) announced that Prudential had signed an agreement to co-control the company. ILC (owns 67.5% of AFP Habitat), will launch a tender offering for up to 13.1% of Habitat’s shares at Ch$925 per share, adjusted for any dividend distributed by Habitat, with the exception of the Ch$10.00/share dividend Habitat traditionally pays in January. Once this is done, ILC will allocate half of its stake in Habitat to Prudential under the same conditions as the tender offering.

Bravo Commission: The commission has been studying possible proposals to improve the current pension fund system in Chile, such as increasing the retirement age and the monthly contribution fee in order to increase pensions. The final report will be delivered on August 2015, following postponement of the original date, January 2015.

Bloomberg HABITAT CICurrent Price (01/02/15) Ch$ 910.36 / US$ 1.48Target Price (YE 2015) Ch$ 965.00 / US$ 1.5652-Week Range (Ch$) 690.00 - 988.32Market Capitalization (US$ Mn) 1,482Float (%) 32.53-Mth Avg. Daily Vol (US$ Mn) 0.8Shares Outstanding - Mn 1,000

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

HABITAT CI IPSA

236

AFP HABITAT Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description AFP Habitat is Chile’s number two pension fund in terms of contributors and managed assets. According to September 2014 figures, AFP Habitat has more than 2.0 million affiliates and almost 1.2 million of contributors, with a market share of 21.4% and 22.9%, respectively and more than US$44 billion of assets under management (AUM). Consolidated sales and EBITDA during 2013 reached US$246 and US$154 million, respectively. The company manages mandatory savings, and also offers products to increase these savings over the mandatory level. In addition, in 2013 Habitat launched operations in Peru, after winning a bid for new entrants to the system for the next two years. The company has been listed on the Chilean stock exchange since 1981 and currently is controlled by Inversiones La Construcción (ILC), with a stake of 67.5%. Key Personnel: Juan Benavides (Chairman), Cristián Rodríguez (CEO), Cristián Costabal (CFO), Megan Callahan () and Patrick Muzard Le Minihy (CPO) Web: www.afphabitat.cl

Market Share, October 2014

Sales, 2015E

Shareholder Structure, November 2014


P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 129 139 143 147 261 244 229 240 YoY change (%) 6.7 7.7 2.7 2.9 4.8 (6.6) (6.3) 4.8Gross Profit 129 139 143 147 261 244 229 240 YoY change (%) 6.7 7.7 2.7 2.9 4.8 (6.6) (6.3) 4.8EBITDA 81 84 86 90 163 146 138 146 YoY change (%) 3.7 3.6 3.1 3.9 1.9 (10.2) (5.9) 5.9 As % of Revenue 62.4 60.0 60.3 60.9 62.4 60.0 60.3 60.9Operating Income 78 82 84 87 158 143 134 141 YoY change (%) 3.3 3.9 2.6 3.6 1.5 (10.0) (6.3) 5.5 As % of Revenue 60.7 58.5 58.5 58.9 60.7 58.5 58.5 58.9Financial Results 17 40 23 24 35 69 37 40Taxes (19) (35) (25) (27) (37) (60) (39) (44)Net Profit 79 89 85 86 160 155 135 140 YoY change (%) 6.6 11.7 (4.7) 1.8 4.7 (3.2) (13.0) 3.7 As % of Revenue 61.4 63.7 59.1 58.5 61.4 63.7 59.1 58.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (2) (2) (3) (3) (5) (4) (4) (5)Other Noncash Items - - - - - - - -Changes in Working Capital 32 7 1 1 64 13 1 1Operating Cash Flow 114 98 88 90 229 172 140 146Capital Expenditures (6) (2) (5) (5) (13) (3) (8) (9)Free Cash Flow 107 96 83 84 217 168 132 137Other Invest./(Divestments) (18) (33) (21) (22) (37) (58) (34) (37)Change in Debt (0) (0) 0 0 (1) (0) 0 0Dividends (52) (75) (61) (61) (105) (131) (97) (100)Capital Increases/Other 0 0 0 0 0 0 0 0


FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt (66) (55) (56) (57) (126) (90) (90) (93)Capital Employed 263 314 338 364 501 514 546 597Net Debt/EBITDA (0.8) (0.7) (0.6) (0.6) (0.8) (0.6) (0.7) (0.6)Net Debt/Equity (0.3) (0.2) (0.2) (0.2) (0.3) (0.2) (0.2) (0.2)Capex/Revenue (%) 4.8 1.3 3.5 3.7 4.8 1.3 3.5 3.7Int Cover (%) 2,754.4 1,418.5 1,501.6 1,560.9 2,754.4 1,418.5 1,501.6 1,560.9Dividend Payout (%) 69.7 94.4 68.5 72.4 68.5 81.9 64.0 72.0ROCE (%) 37.2 37.5 32.4 31.6 39.1 39.2 32.5 31.6ROE (%) 32.7 34.0 30.5 28.6 33.1 33.6 30.6 28.6



US$Ch$

Capital20.5%

Cuprum20.9%

Habitat25.6%

Modelo1.6%

Planvital2.8%

Provida27.5%

Chilean Monthly

commission97.8%

Perú2.2%

ILC67.5%

Inversion Union

Española3.7%

Others28.8%

237


CHILE—UTILITIES

AGUAS ANDINAS HOLD CURRENT PRICE: CH$356.92

TARGET PRICE: CH$390.00

RAISING YE2015 TARGET PRICE TO CH$390.00 FROM CH$382.00

Investment Case: We believe regulatory pressure should significantly weaken following the regulator's publication of the results of the 2015-2020 tariff revision cycle, which came in slightly better than our forecast. Also, we like Aguas's high dividend yield (5.4%) and low beta in a scenario of economic deceleration and political uncertainty in Chile. However we believe the company's valuation (17.3x 15E P/E) limits potential upside.

Outlook 2015: We expect YoY net income growth of 7.7%, for a total of Ch$127 billion, mainly owing to (1) inflation pass-through to final consumers, (2) a less negative effect of inflation on debt issued in real terms, and (3) a neutral impact from the tariff revision on results. This would be offset, in our view, by lower volume growth due to better hydrology and an increase in taxes from 21% to 22.5%.

Slightly better-than-expected tariff revision: On November 19, the regulator announced the results of the 2015-2020 tariff revision cycle, calling for zero tariff growth compared with our forecast of a 0.5% decline. We believe these results should help ease the pressure thathas been on Aguas Andinas's stock during the past year.

Defensive stock in uncertain times: We like Aguas Andinas's defensiveness in the current uncertain economic environment, based on: (1) its attractive dividend yield (5.4%), (2) no major impact from the tax reform, as the regulated return for Aguas Andinas is calculated after taxes, (3) the limited political risk, especially regarding the possible introduction of hydro royalties, and (4) the low elasticity of the water business to the economic cycle.

Valuation limits potential upside. We estimate Aguas Andinas trades at 2015E P/E and FV/EBITDA multiples of 17.3x and 11.3x, respectively, similar to its three-year average, despite our forecast of low growth in the upcoming years.



Company Statistics



Bloomberg AGUAS/A CICurrent Price (01/02/15) Ch$ 356.92 / US$ 0.58Target Price (YE 2015) Ch$ 390.00 / US$ 0.6152-Week Range (Ch$) 325.68 - 375.07Market Capitalization (US$ Mn) 3,556Float (%) 44.93-Mth Avg. Daily Vol (US$ Mn) 2.3Shares Outstanding - Mn 6,119

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

AGUAS/A CI IPSA

238

AGUAS ANDINAS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description Aguas Andinas is the largest water utility company in Chile, and one of the largest private water and sewage companies in South America. The company provides water and basic sanitation services to residential, commercial, and industrial customers in the Santiago metropolitan region, Chile’s capital, largest city, and the most populous region in the country. Aguas Andinas also has operations in Chile’s Region X through Empresa Sanitaria de los Lagos (Essal). Aguas Andinas, accounts for 43% of the water utilities industry in Chile. The company is controlled with a hold of 50.1% of the shares by Inversiones Aguas Metropolitanas (IAM), a holding company owned by Aguas Barcelona (Agbar), which is owned by Suez Environnement. Agbar and Suez Environnement are global players with extensive expertise in the sanitation and energy transportation sectors. Aguas Andinas stock trades at the Chilean stock market. Key Personnel: Felipe Larrain (Chairman), Jordi Valls (CEO), Iván Yarur (CFO) and Stephanie Baier (Head of IR) Web: www.aguasandinas.cl

EBITDA by Sector, 2015E




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 403 433 449 475 813 758 721 772 YoY change (%) 5.2 7.6 3.6 5.8 3.3 (6.7) (4.9) 7.1Gross Profit 223 247 259 274 450 432 416 446 YoY change (%) (1.0) 10.8 4.7 6.0 (2.8) (4.0) (3.9) 7.3EBITDA 247 268 280 296 499 469 450 482 YoY change (%) 2.2 8.3 4.5 5.9 0.4 (6.1) (4.1) 7.2 As % of Revenue 61.4 61.8 62.4 62.4 61.4 61.8 62.4 62.4Operating Income 183 202 213 226 369 354 342 367 YoY change (%) (2.2) 10.7 5.4 6.1 (3.9) (4.1) (3.2) 7.4 As % of Revenue 45.3 46.6 47.5 47.6 45.3 46.6 47.5 47.6Financial Results (37) (57) (49) (54) (74) (99) (78) (87)Taxes (29) (28) (38) (42) (59) (49) (60) (68)Net Profit 117 117 127 130 236 206 203 212 YoY change (%) (3.8) 0.7 7.7 2.8 (5.4) (12.7) (1.1) 4.1 As % of Revenue 29.0 27.1 28.2 27.4 29.0 27.1 28.2 27.4

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (65) (66) (67) (70) (131) (115) (107) (114)Other Noncash Items - - - - - - - -Changes in Working Capital 8 (51) (1) 9 16 (89) (2) 14Operating Cash Flow 189 133 192 209 382 232 309 340Capital Expenditures (84) (67) (125) (117) (169) (118) (200) (190)Free Cash Flow 106 65 68 92 214 114 109 150Other Invest./(Divestments) (34) 39 1 0 (69) 69 1 1Change in Debt 26 18 50 18 52 31 80 29Dividends (89) (121) (117) (127) (180) (211) (189) (206)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 39 38 39 23 74 62 61 37Current Assets 133 125 130 121 253 206 205 198Fixed Assets 1,171 1,173 1,230 1,277 2,229 1,922 1,937 2,093Total Assets 1,578 1,585 1,647 1,684 3,003 2,598 2,593 2,761Current Liabilities 220 121 155 169 419 198 244 277Long-Term Liabilities 680 750 768 787 1,294 1,230 1,210 1,290Shareholders' Equity 617 649 658 662 1,173 1,065 1,037 1,085Total Financial Debt 720 738 788 806 1,370 1,209 1,241 1,321ST Debt 94 52 84 83 178 84 132 135LT Debt 626 686 704 723 1,192 1,125 1,109 1,186

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 681 700 749 783 1,296 1,148 1,179 1,283Capital Employed 1,412 1,478 1,537 1,574 2,688 2,423 2,420 2,581Net Debt/EBITDA 2.8 2.6 2.7 2.6 2.6 2.4 2.6 2.7Net Debt/Equity 1.1 1.1 1.1 1.2 1.2 1.1 1.1 1.2Capex/Revenue (%) 20.8 15.5 27.7 24.6 20.8 15.5 27.7 24.6Int Cover (%) 8.6 8.4 8.1 8.0 8.6 8.4 8.1 8.0Dividend Payout (%) 73.7 103.6 100.0 100.0 72.3 89.9 93.5 99.4ROCE (%) 12.9 13.7 13.9 14.4 13.7 14.6 14.0 14.4ROE (%) 18.8 18.6 19.4 19.7 19.1 18.4 19.4 19.7



US$Ch$

ESSAL9.5%

Aguas90.5%

Water39.9%

Collection20.2%

Treatment20.4%

Others19.5%

IAM50.1%CORFO

5.0%

Local pension funds1.9%

Others43.0%

239


CHILE—FOOD & BEVERAGE

ANDINA HOLD CURRENT PRICE: CH$1,722

TARGET PRICE: CH$1,900 DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF CH$1,900; REPLACING YE2014 TARGET PRICE OF CH$2,560

Investment Case: We are downgrading Andina to Hold from Buy due to (1) a weak economic outlook, with our forecast of declining volume in Argentina, Chile and Paraguay; and (2) limited visibility on operating improvements in Chile and Brazil. However, in our view, the current valuation already incorporates this weak outlook, thereby limiting potential downside to the stock.

Outlook 2015: We expect revenue to grow a modest 2.9% for 2015, due to a decline in volumes of 1.6% YoY, which we believe will be more than offset by the depreciation of the Chilean peso vs. local currencies, as non-Chilean operations represent close to 75% of volume. Due to this, we estimate an EBITDA of Ch$291 billion and 4.6% YoY growth, with a 27-bp EBITDA margin increase to 15.7%.

Weak outlook for soft drink consumption: Over the past few months, 2015 consensus forecasts for 2015E have fallen. We currently forecast that private consumption will reach -2.3%, 0.5% and 2.2% for Argentina, Chile and Paraguay, respectively. In our opinion, these decreases will hurt volume in these countries; therefore, we are reducing our volume estimates in Argentina, Chile and Paraguay by 4.4%, 4.8% and 1.4%, respectively, with consolidated volume falling 1.6% for 2015.

Tax reform affecting prices: The Chilean government’s current tax reform incorporates tax increases on beverages, increasing prices ofAndinas’ products. The tax reform has led to an increase in excise taxes on soft drinks from 13% to 18% for sugary beverages, and a decline from 13% to 10% for non-sugary beverages; these changes have been passed through to consumers.

Valuation: The stock currently trades at a 2015E FV/EBITDA and P/E of 7.7x and 21.4x, respectively, and at a 38% and 14% discounts, respectively, with respect to the averages of the last four years.


Matias Duarte* Chile: Santander Investment Chile Limitada +5622-336-3423 | [email protected]

Company Statistics



Bloomberg ANDINAB CI / AKO/B USCurrent Price (01/02/15) Ch$ 1,722 / US$ 17.01Target Price (YE 2015) Ch$ 1,900 / US$ 18.7752-Week Range (Ch$) 1,717 - 2,472Market Capitalization (US$ Mn) 2,654Float (%) 35.03-Mth Avg. Daily Vol (US$ Mn) 0.9Shares Outstanding - Mn 947

50

60

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

ANDINAB CI IPSA

240

ANDINA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description Andina is the second-largest Coke bottler in Latin America and the seventh-largest globally in terms of volume sales. It has operations in Chile, Brazil, Argentina and Paraguay, serving more than 48 million inhabitants. The company also distributes fruit beverages and mineral water in all its markets, and in addition, in Brazil it distributes Kaiser beer. The Coca-Cola Company holds a 15% stake in Andina. Key Personnel: Juan Claro (Chairman), Miguel Angel Peirano (CEO), Andres Wainer (CFO) and Paula Vicuña (Head of IR) Web: www.koandina.com

EBITDA by Country, 2015E

Volumes by Segment, 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,522 1,808 1,895 1,954 3,073 3,163 3,026 3,177 YoY change (%) 29.8 18.8 4.8 3.1 27.6 2.9 (4.3) 5.0Gross Profit 607 717 770 803 1,225 1,254 1,230 1,306 YoY change (%) 28.2 18.1 7.4 4.3 26.0 2.3 (2.0) 6.2EBITDA 255 279 297 303 514 489 474 493 YoY change (%) 19.6 9.7 6.2 2.3 17.6 (5.0) (3.1) 4.1 As % of Revenue 16.7 15.4 15.6 15.5 16.7 15.4 15.6 15.5Operating Income 171 174 191 194 346 304 305 315 YoY change (%) 11.1 1.6 9.6 1.6 9.2 (12.0) 0.0 3.4 As % of Revenue 11.3 9.6 10.1 9.9 11.3 9.6 10.1 9.9Financial Results (58) (89) (78) (75) (117) (155) (125) (122)Taxes (23) (26) (25) (28) (46) (46) (40) (46)Net Profit 89 59 87 90 180 103 139 147 YoY change (%) 1.5 (33.8) 47.7 3.7 (0.2) (42.6) 34.8 5.6 As % of Revenue 5.8 3.3 4.6 4.6 5.8 3.3 4.6 4.6

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (83) (105) (106) (110) (168) (184) (169) (178)Other Noncash Items - - - - - - - -Changes in Working Capital (17) (8) 52 (3) (35) (15) 83 (4)Operating Cash Flow (12) (55) 33 (22) (23) (96) 53 (36)Capital Expenditures (116) (60) (124) (123) (235) (104) (199) (200)Free Cash Flow (33) (91) (105) (155) (66) (159) (168) (251)Other Invest./(Divestments) (337) (65) 0 0 (680) (114) 0 0Change in Debt 432 89 (14) (10) 873 155 (22) (16)Dividends (73) (57) (42) (61) (147) (100) (67) (99)Capital Increases/Other (0) 0 0 0 (0) 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 80 179 244 248 152 294 394 407Current Assets 459 581 628 641 874 952 1,012 1,052Fixed Assets 693 724 743 756 1,319 1,187 1,198 1,240Total Assets 2,083 2,293 2,358 2,385 3,964 3,759 3,803 3,911Current Liabilities 402 451 478 480 765 740 771 788Long-Term Liabilities 799 923 916 912 1,521 1,513 1,478 1,495Shareholders' Equity 861 897 943 972 1,638 1,471 1,520 1,593Total Financial Debt 712 801 787 778 1,355 1,313 1,270 1,275ST Debt 107 110 103 98 203 181 167 161LT Debt 605 691 684 679 1,152 1,132 1,103 1,114

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 632 621 543 529 1,203 1,019 875 868Capital Employed 921 974 941 957 1,753 1,598 1,518 1,569Net Debt/EBITDA 2.5 2.2 1.8 1.7 2.3 2.1 1.8 1.8Net Debt/Equity 0.7 0.7 0.6 0.5 0.8 0.7 0.6 0.5Capex/Revenue (%) 7.6 3.3 6.6 6.3 7.6 3.3 6.6 6.3Int Cover (%) 8.8 4.3 4.6 4.8 8.8 4.3 4.6 4.8Dividend Payout (%) 83.3 64.3 70.7 70.0 81.8 55.8 65.8 69.8ROCE (%) 22.8 22.2 24.9 25.1 24.0 23.4 24.9 25.1ROE (%) 10.3 6.7 9.5 9.4 10.4 6.6 9.4 9.4


PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 94 62 92 95 1.07 0.23 0.60 0.86DPS 77 60 44 64 0.88 0.59 0.42 0.61BVPS 909 948 996 1,027 10.38 9.31 9.31 9.61

US$Ch$

Argentina18.8%

Brazil38.3%

Chile29.8%

Paraguay13.2%

Argentina27.2%

Brazil37.8%

Chile27.6%

Paraguay7.4%


AFPs3.4%

Coca Cola14.7%

ADRs6.6%

Others24.8%

241



BANCO DE CHILE HOLD CURRENT PRICE: CH$70.27


INTRODUCING YE2015 TARGET PRICE OF CH$80.00; REPLACING YE2014 TARGET PRICE OF CH$85.00

Investment Case: Despite BCH having one of the highest ROEs within our universe of coverage, we remain discouraged by the weak economic outlook for Chile, due to a deceleration in investments, the impact of higher taxes, lower inflation, and potential changes coming from the upcoming labor reform.

Outlook 2015: We expect loan growth to remain weak, at 8% YoY (nominal), due to a weak investment climate and falling consumer confidence. Furthermore, we see competition intensifying in BCH’s targeted segments (high income individuals and mortgages of high value properties), as Chilean banks move away from the now less profitable mass market given higher taxes and maximum cap rate regulation. Finally, we expect lower inflation to lead to margin contraction in 1H15. Despite the weak outlook, we expect Banco de Chile to sustain an adjusted ROE close to 20% in 2015.

Subdued revenue growth: Given margins’ positive sensitivity to inflation, we expect NIM to compress ~30 bps YoY, as we forecast a deceleration in inflation to 2.6% from 5.1% accumulated through November 2014. Nonetheless, an acceleration in fee income growth should relieve some top-line pressure, thanks to slower NII growth.

Best run bank in Chile: Banco de Chile’s management has a strong track record in credit risk management. For 2015, we believe the bank will be able to navigate an economic slowdown, without compromising profitability. In 2014, the bank accumulated voluntary provisions, which it could deploy in 2015 in a weaker-than-expected economic scenario. Nonetheless, we forecast that asset quality will remain under control, with NPLs increasing +10 bps YoY.

Cost containment: We expect management to remain committed to its tight cost-control strategy, with relatively no growth in the number of branches and employees, while administrative costs and wages should grow with inflation. As a result, we expect operating expenses to come in slightly above inflation; though some deterioration in adjusted efficiency is likely, in our view, due to weak revenue generation.



Company Statistics



Bloomberg CHILE CI / BCH USCurrent Price (01/02/15) Ch$ 70.27 / US$ 68.34Target Price (YE 2015) Ch$ 80.00 / US$ 77.7552-Week Range (Ch$) 64.67 - 75.50Market Capitalization (US$ Mn) 10,781Float (%) 9.53-Mth Avg. Daily Vol (US$ Mn) 4.9Shares Outstanding - Mn 94,655

75

80

85

90

95

100

105

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

CHILE CI IPSA

242

BANCO DE CHILE Financial Highlights: P&L and Balance Sheet, 2013–16E in Billions (Ch$), Millions (US$) Company Description

Banco de Chile is the second-largest bank in Chile with an 18% market share in total loans in Chile, as of November 2014. Banco de Chile is engaged primarily in commercial banking in Chile, providing general banking services to a diverse customer base, which includes corporations, individuals and SMEs. The bank has historically grown via a combination of organic growth and acquisitions, the latest one being the purchase of Citibank’s operations in Chile in early 2008. Key Personnel: Pablo Granifo Lavín (Chairman), Arturo Tagle Quiroz (CEO), Pedro Samhan (CFO) and Pablo Mejia (IRO) Web: www.bancochile.cl

Loan Book, 2015E




INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Interest Income 1,042 1,242 1,244 1,380 2,103 2,177 2,007 2,227NPL Provisions (242) (286) (306) (345) (488) (501) (493) (557)Adj Net Interest Income 800 956 938 1,035 1,616 1,676 1,514 1,670Non-Interest Income 416 423 440 474 840 742 709 764Total Operating Revenue 1,216 1,380 1,378 1,508 2,456 2,418 2,223 2,434Non-Interest Expense (621) (672) (702) (741) (1,253) (1,178) (1,132) (1,196)Profit Before Taxes 594 706 676 767 1,198 1,237 1,091 1,238Taxes (80) (87) (108) (138) (161) (152) (175) (223)Net Profit 514 640 568 629 1,037 1,122 916 1,015Adjusted Net Profit 510 596 548 618 1,029 1,045 884 997

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,248 1,296 1,144 1,176 2,375 2,108 1,831 1,913Securities 2,442 2,690 2,555 2,800 4,647 4,376 4,090 4,555Loans (net) 20,389 21,399 23,115 25,447 38,803 34,813 36,998 41,398Intangible Assets 30 25 17 9 56 40 27 14Total Assets 25,934 26,897 28,393 31,107 49,356 43,758 45,447 50,607Core Deposits 16,387 16,375 18,146 19,909 31,187 26,640 29,045 32,389Other Financial Liabilities 4,322 4,982 4,416 4,853 8,225 8,106 7,069 7,895Subordinated Debt 747 762 823 915 1,422 1,239 1,318 1,488Technical Provisions 0 0 0 0 0 0 0 0Equity 2,284 2,614 2,822 3,167 4,347 4,252 4,517 5,153Adjusted Equity 2,548 2,895 3,128 3,504 4,850 4,710 5,007 5,700

LOAN BOOK 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECompanies 13,077 13,183 13,958 15,405 24,886 21,448 22,341 25,062Total Consumer 3,061 3,363 3,733 4,148 5,825 5,471 5,975 6,748Mortgages 4,732 5,402 6,051 6,598 9,006 8,789 9,685 10,734Other Loans 0 0 0 0 0 0 0 0Gross Loans 20,870 21,948 23,741 26,151 39,717 35,707 38,001 42,544Loan Grow th (%) 11.2 5.2 8.2 10.1 1.4 (10.1) 6.4 12.0NPL 237 286 333 371 451 465 534 603Provisions (480) (549) (627) (704) (914) (894) (1,003) (1,146)




US$Ch$

Commercial55.8%

Foreign Trade 12.7%

Mortgages4.4%

Consumer Loans27.1%

NII68.1%

Trading8.7%

Fees21.0%

Other2.2%

Quiñenco 17.4%

Citigroup 17.4%SM-Chile

Minorities6.6%

SAOS25.0%

Free Float33.6%

243



BCI UNDERPERFORM CURRENT PRICE: CH$29,932

TARGET PRICE: CH$31,000 DOWNGRADING RATING TO UNDERPERFORM FROM BUY INTRODUCING YE2015 TARGET PRICE OF CH$31,000; REPLACING YE2014 TARGET PRICE OF CH$33,500

Investment Case: We are downgrading BCI to Underperform, as we expect weak operating trends for 2015, as well as some overhang inthe shares due to the capital increase required to acquire CNB of Florida. From a top-down view, we are not encouraged about Chile’s current economic outlook, given slowdowns in both mining and non-mining investments, political uncertainty, and potential uncertainty from the upcoming labor reform.

Outlook 2015: We expect loan growth of 8%, below that of the system, given that BCI’s core customers in SMEs tend to be among the most affected during an economic slowdown. Therefore, we expect some asset quality deterioration in the segment. Furthermore,we view 2015 as likely to be challenging for top-line growth, as we expect further rate cuts and lower inflation to affect margins. Adjusted ROE should fall to 13.5%, from 18.3% in 2014, according to our estimates.

Inflation and rate cuts playing against BCI: Accumulated inflation through November 2014 reached 5.1%, while our forecast for 2015 is 2.6%. Additionally, we expect two 25-bp rate cuts in 2015, which we believe should translate into a 60-bp YoY compression in NIM.

CNB acquisition still on hold: BCI is still awaiting approval from the U.S. Fed to acquire City National Bank of Florida, after reaching an agreement to buy it in early 2013. We believe the deal will be delayed and will likely close by YE2015. We estimate that to fund the deal, BCI will issue approximately 8.3 million shares (US$400 million), which will create an overhang in the stock, in our opinion.

Building provisions for potential NPLs in 2015. For 2014, we estimate BCI has built up approximately Ch$49 billion in excess provisions, a conservative policy that could allow the bank to reduce the impact on reported earnings in 2015 should NPLs start to affect results. Our adjusted ROE measure eliminates this effect, allocatingto 2014 returns the increase in excess NPL provisions in 2014 and subtracting the drop in excess provisions in 2015.



Company Statistics



Bloomberg BCI CICurrent Price (01/02/15) Ch$ 29,932 / US$ 48.75Target Price (YE 2015) Ch$ 31,000 / US$ 50.2552-Week Range (Ch$) 26,924 - 33,755Market Capitalization (US$ Mn) 5,225Float (%) 36.23-Mth Avg. Daily Vol (US$ Mn) 2.0Shares Outstanding - Mn 107

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

BCI CI IPSA

244

BCI Financial Highlights: P&L and Balance Sheet, 2013–16E in Billions (Ch$), Millions (US$) Company Description

BCI is the third-largest private bank in Chile, with a 12.5% market share as measured in total loans in 3Q14. During 2013 the BCI announced it started a process to acquire Citi National of Florida (CNB), subject to the approval of Chilean, Spanish, and U.S. banking regulators. The bank’s business has traditionally been oriented toward small and medium-sized companies (SMEs) and lower-middle-income individuals. More recently, the bank has been targeting high-income individuals through its new business division dedicated to this segment. BCI offers a full range of banking products and services and participates in nearly all sectors in the financial industry through its business units and subsidiaries. Key Personnel: Luis Enrique Yarur (Chairman), Lionel Olavarría Leyton (CEO), José Luis Ibaibarriaga (CFO) and Cristian Rodriguez (IRO) Web: www.bci.cl

Loan Book, 2015E




INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Interest Income 643 784 730 999 1,298 1,374 1,194 1,633NPL Provisions (159) (204) (231) (286) (320) (357) (378) (468)Adj Net Interest Income 484 580 499 713 978 1,017 816 1,165Non-Interest Income 355 364 422 470 717 639 690 768Total Operating Revenue 840 944 921 1,183 1,695 1,655 1,506 1,933Non-Interest Expense (472) (509) (534) (629) (953) (892) (872) (1,027)Profit Before Taxes 362 435 388 554 732 763 633 906Taxes (62) (79) (66) (106) (125) (138) (108) (174)Net Profit 300 356 321 448 606 624 525 732Adjusted Net Profit 260 356 283 471 524 623 463 770

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,960 2,845 2,538 3,326 3,730 4,688 4,115 5,480Securities 3,246 4,333 3,387 4,210 6,178 7,139 5,491 6,938Loans (net) 14,089 15,619 16,806 21,134 26,813 25,735 27,246 34,823Intangible Assets 83 83 70 56 159 137 113 92Total Assets 20,299 24,071 24,021 30,074 38,632 39,662 38,942 49,554Core Deposits 11,628 12,789 14,277 18,996 22,130 21,073 23,146 31,300Other Financial Liabilities 3,734 5,721 3,992 4,121 7,106 9,427 6,471 6,790Subordinated Debt 743 867 774 995 1,414 1,429 1,255 1,639Technical Provisions 0 0 0 0 0 0 0 0Equity 1,582 1,812 2,013 2,600 3,011 2,985 3,264 4,283Adjusted Equity 1,517 1,734 1,921 2,567 2,887 2,857 3,113 4,231

LOAN BOOK 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECompanies 9,840 10,768 11,464 14,255 18,727 17,743 18,585 23,488Total Consumer 1,764 1,941 2,068 2,241 3,358 3,198 3,353 3,693Mortgages 2,819 3,248 3,655 5,140 5,365 5,351 5,926 8,469Other Loans 0 0 0 0 0 0 0 0Gross Loans 14,423 15,957 17,188 21,636 27,449 26,292 27,864 35,651Loan Growth (%) 10.5 10.6 7.7 25.9 0.7 (4.2) 6.0 27.9NPL 318 342 415 469 605 563 672 773Provisions (334) (338) (382) (502) (636) (557) (619) (828)



PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 2,802.00 3,323.60 2,997.07 3,883.98 5.66 5.83 4.90 6.35BVPS 14,761.90 16,904.14 18,784.60 22,530.00 28.09 27.85 30.45 37.12DPS 803.11 1,259.99 1,163.26 975.10 1.62 2.21 1.90 1.59Adj EPS 2,421.86 3,318.25 2,644.16 4,084.76 4.89 5.82 4.32 6.68Adj BVPS 14,154.88 16,177.82 17,919.55 22,251.66 26.94 26.66 29.05 36.66Surplus Capital per Share (2,591.04) (2,717.21) (2,087.51) 81.86 (4.93) (4.48) (3.38) 0.13Unrealized Cap. Gains/Shr 372.11 676.47 675.17 599.58 0.71 1.11 1.10 0.98

US$Ch$

Commercial58.3%

Foreign Trade 8.4%

Mortgages21.3%

Consumer Loans12.0%

NII54.2%

Trading15.9%

Fees24.9%

Other5.0%

Yarur Family63.8%

Free Float36.2%

245


CHILE—METALS & MINING

CAP HOLD CURRENT PRICE: CH$2,743

TARGET PRICE: CH$3,000

Investment Case: CAP’s stock price declined 73% during 2014, a reflection of the 47% LTM decline in listed iron ore prices. However, assuming an iron ore price of US$65/ton, we believe downside is limited, as we believe an overall decline in commodity prices, a depreciated currency, and a weaker labor market in Chile will have a marginally positive impact on production costs.

Outlook 2015: We expect a 43% drop in EBITDA due to (1) average effective prices 33% lower than 2014E, (2) total 2015E iron ore production to increase by 23%, reaching 16 million tons due to the ramp-up process at the Cerro Negro Norte mine, and (3) 6% lower cash cost per ton.

Valuation sensitivity: We estimate that, ceteris paribus, a US$10.00 increase/decrease in our iron ore price estimates would increase/decrease our target price by 109%. Regarding other variables, we estimate a US$10.00/bbl decline/increase in oil prices increases/decreases our target price by 9%, and assuming historical correlation of costs and the CRB index, we also estimate that a 10% decline in the CRB commodity index increases our target price by 14%.

Cash cost will likely soften the impact of lower iron ore prices: We see potential cash cost reductions due to (1) Chilean peso depreciation, as we estimate that 35% of total cash-cost is indexed to the CLP, (2) weaker commodity prices, which also reduce raw materials costs (16% of total cash cost), and (3) decelerating mining activity, which reduces labor and services costs.

Adjusting to a new reality: We are cutting our medium-term list price estimate for iron ore from US$90/ton to US$65/ton, but with a higher-than-historical discount on effective prices, due to a change in the sales mix.

Alberto Ariztia* Chile: Santander Investment Chile Limitada +5622-336-3359 | [email protected]


Company Statistics



Bloomberg CAP CICurrent Price (01/02/15) Ch$ 2,743 / US$ 4.47Target Price (YE 2015) Ch$ 3,000 / US$ 4.8452-Week Range (Ch$) 2,530 - 9,930Market Capitalization (US$ Mn) 667Float (%) 40.53-Mth Avg. Daily Vol (US$ Mn) 2.0Shares Outstanding - Mn 149

0

20

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

CAP CI IPSA

246

CAP Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description CAP is a Chilean mining and steel company engaged in the production of iron ore and long and flat steel products. Its production facilities include 13 million metric tons of annual iron ore production 700,000 tons of crude steel production and 425,000 tons of steel processing for 2014. The mining business is managed by Compañía Minera del Pacífico (CMP), from which about 87% of its production is exported and it is 75% owned by CAP and 25% owned by Mitsubishi Corporation (Japan). The company is listed on the Chilean Stock Exchange and is controlled by Invercap with a 31.3% stake, followed by Mitsubishi Corporation with a 19.3% stake, Chilean pension funds 8.9%. The remaining 40.5% is free float in the Chilean stock market. Key Personnel: Roberto de Andraca (Chairman), Fernando Reitich (CEO), Raúl Gamonal (CFO) and Eduardo Rivadeneira (Investor Relations Officer) Web: www.cap.cl

Sales by Region, 6M14




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,137 1,075 1,019 1,057 2,297 1,880 1,667 1,719 YoY change (%) (5.4) (5.5) (5.2) 3.7 (7.0) (18.1) (11.3) 3.1Gross Profit 348 186 106 110 702 325 174 178 YoY change (%) 1.0 (46.6) (42.9) 3.3 (0.8) (53.7) (46.6) 2.6EBITDA 351 233 145 146 708 407 238 238 YoY change (%) (6.1) (33.6) (37.5) 0.4 (7.7) (42.5) (41.6) (0.2) As % of Revenue 30.8 21.7 14.3 13.8 30.8 21.7 14.3 13.8Operating Income 276 120 29 29 557 211 48 46 YoY change (%) 0.7 (56.3) (75.7) (2.3) (1.1) (62.2) (77.3) (2.9) As % of Revenue 24.3 11.2 2.9 2.7 24.3 11.2 2.9 2.7Financial Results (17) (37) (41) (46) (34) (64) (67) (75)Taxes (61) (12) 11 13 (123) (21) 17 21Net Profit 91 32 (28) (30) 184 56 (46) (48) YoY change (%) (20.1) (64.7) (187.1) (5.8) (21.5) (69.4) (181.4) (5.2) As % of Revenue 8.0 3.0 (2.7) (2.8) 8.0 3.0 (2.7) (2.8)

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (75) (113) (116) (118) (151) (197) (190) (191)Other Noncash Items 0 4 19 18 0 8 31 29Changes in Working Capital (7) 57 7 (2) (15) 100 12 (3)Operating Cash Flow 158 207 114 104 320 361 187 169Capital Expenditures (504) (343) (92) (49) (1,018) (599) (150) (80)Free Cash Flow (346) (136) 23 55 (698) (238) 37 89Other Invest./(Divestments) (6) 20 0 0 (11) 35 0 0Change in Debt 105 155 0 0 213 271 0 0Dividends (148) (72) (5) 0 (299) (127) (7) 0Capital Increases/Other 195 6 0 0 393 10 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 164 159 180 231 309 261 290 379Current Assets 718 713 799 857 1,356 1,169 1,289 1,405Fixed Assets 1,815 2,336 2,349 2,243 3,427 3,829 3,789 3,678Total Assets 3,014 3,581 3,671 3,597 5,692 5,871 5,920 5,896Current Liabilities 463 597 670 674 874 978 1,081 1,105Long-Term Liabilities 836 1,061 1,078 1,061 1,578 1,739 1,739 1,739Shareholders' Equity 1,019 1,126 1,112 1,064 1,924 1,846 1,793 1,745Total Financial Debt 493 733 745 733 932 1,202 1,202 1,202ST Debt 72 170 173 170 136 278 278 278LT Debt 421 563 573 563 795 924 924 924

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 330 574 565 502 623 941 912 823Capital Employed 2,388 2,826 2,821 2,691 4,509 4,632 4,549 4,412Net Debt/EBITDA 0.9 2.5 3.9 3.4 0.9 2.3 3.8 3.5Net Debt/Equity 0.3 0.5 0.5 0.5 0.3 0.5 0.5 0.5Capex/Revenue (%) 44.3 31.9 9.0 4.7 44.3 31.9 9.0 4.7Int Cover (%) 17.5 5.2 3.0 3.0 17.5 5.2 3.0 3.0Dividend Payout (%) 130.2 79.6 14.3 0.0 128.0 69.1 13.3 0.0ROCE (%) 14.5 4.8 0.7 0.6 15.2 5.1 0.7 0.6ROE (%) 9.6 3.0 (2.5) (2.7) 9.8 3.0 (2.5) (2.7)

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 16.4 12.5 - - 15.5 11.8 - -P/CE 9.0 2.8 4.6 4.7 8.5 2.6 4.6 4.7FV/EBITDA 8.1 5.4 8.8 8.3 7.6 5.1 8.7 8.4FV/EBIT 10.3 10.4 43.6 42.7 9.7 9.8 43.2 42.8FV/Revenue 2.5 1.2 1.3 1.2 2.4 1.1 1.2 1.2P/BV 1.5 0.4 0.4 0.4 1.5 0.4 0.4 0.4FCF Yield (%) (23.1) (33.9) 5.5 13.4 (24.5) (36.0) 5.6 13.3Div Yield (%) 9.9 18.1 1.1 (0.0) 10.5 19.2 1.1 (0.0)

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 754 231 (188) (198) 1.52 0.40 (0.31) (0.32)DPS 1,229 521 31 0 2.48 0.91 0.05 0BVPS 7,909 7,589 7,370 7,172 14.94 12.44 11.89 11.76

US$Ch$

Chile9.0%

China72.0%

Other Asia9.0%

Iron Ore40.9%

Steel Production

and Processing

33.2%

Overhead & Intercompan

y Adjustments

25.9%

Invercap31.3%

Mitsubishi Corp

19.3%

Pension funds8.9%

Others40.5%

247



CCU HOLD CURRENT PRICE: CH$5,769


INTRODUCING YE2015 TARGET PRICE OF CH$6,250; REPLACING YE2014 TARGET PRICE OF CH$7,000

Investment Case: We are maintaining our Hold rating, as we believe that the stock’s current valuation is unattractive and factors in most of the negative impacts related to the fiscal reform and, to a large extent, the devaluation of the Chilean peso. However, we acknowledge that the economic outlook for Chile and Rio de la Plata remains weak. Furthermore, we see downside risk to our numbers due to more-than-expected margin pressure from the depreciation of the Chilean peso vs. the U.S. dollar, as 70% of costs are U.S.-dollar denominated.

Outlook 2015: We expect YoY revenue and EBITDA growth of 8.3% and 11.5%, respectively, attributable to: (1) weak volume growth from worse-than-expected economic conditions; and (2) higher prices from the tax reform, partly offset by weaker margins stemming from (1) the depreciation of the Chilean peso vs. the U.S. dollar; and (2) higher SG&A costs and cost of sales spurred by salaryincreases and given that approximately 70% of the company’s cost of sales are in USD, thereby pressuring margins

Weak consumption growth: Weak prospects for private consumption in Chile (2.2%) and Argentina (-2.3%), which amounts to 48% of EBITDA, hurt volume growth in the Chilean and Argentine operations.

Entry into Colombian market: On November 10, CCU announced that its intention to form a 50/50 JV with Postobon (the Colombian bottler for Pepsi) for the production and distribution of beer and malt beverages. CCU plans to invest US$400 million in the project, with disbursements of these funds made according to an unspecified but programmed schedule. The company will be named Central Cervecera de Colombia.

Valuation at unattractive levels: We estimate that CCU currently trades at a 12-month forward FV/EBITDA of 7.5x, a P/E of 13.2x, a 3% and 10% discounts to its last four-year average. We believe that the current valuation already incorporates the tax reform and the weak economic outlook, thus limiting the stock’s potential downside.



Company Statistics



Bloomberg CCU CI / CCU USCurrent Price (01/02/15) Ch$ 5,769 / US$ 18.47Target Price (YE 2015) Ch$ 6,250 / US$ 21.0052-Week Range (Ch$) 5,619 - 6,713Market Capitalization (US$ Mn) 3,470Float (%) 40.03-Mth Avg. Daily Vol (US$ Mn) 1.3Shares Outstanding - Mn 370

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

CCU CI IPSA

248

CCU Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description CCU is a diversified beverage company operating mainly in Chile and Argentina. It is the largest brewer in Chile, the second largest brewer in Argentina, and it recently acquired a small soft drink operation in Uruguay. It is also Chile’s second largest carbonated soft drink producer and the largest producer of bottled juice, as well as the largest mineral water producer through its Ecusa division. CCU participates in the Chilean wine industry, with its 65% stake in the second largest exporting Chilean winery (Viña San Pedro Tarapacá). It holds an 80% stake in Compañía Pisquera de Chile, the second largest Chilean producer of Pisco. CCU is controlled by the Luksic group (Quiñenco) and Heineken, which together own 60% of the company. Key Personnel: Andrónico Luksic (Chairman), Patricio Jottar (CEO), Felipe Dubernet (CFO) and Cristobal Escobar (Deputy IR Manager) Web: www.ccu.cl



Shareholder Structure


P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,197 1,299 1,407 1,520 2,418 2,287 2,345 2,502 YoY change (%) 11.3 8.5 8.3 8.0 9.4 (5.4) 2.5 6.7Gross Profit 661 699 753 817 1,334 1,231 1,254 1,346 YoY change (%) 13.4 5.8 7.7 8.6 11.4 (7.7) 1.9 7.3EBITDA 253 273 305 334 510 481 508 549 YoY change (%) 7.0 8.2 11.5 9.6 5.2 (5.6) 5.5 8.2 As % of Revenue 21.1 21.0 21.7 22.0 21.1 21.0 21.7 22.0Operating Income 188 206 252 276 380 363 419 455 YoY change (%) 3.9 9.4 22.2 9.8 2.1 (4.6) 15.6 8.4 As % of Revenue 15.7 15.9 17.9 18.2 15.7 15.9 17.9 18.2Financial Results (31) (32) (36) (35) (62) (56) (60) (58)Taxes (35) (49) (55) (65) (70) (86) (91) (107)Net Profit 123 125 161 176 248 221 268 290 YoY change (%) 7.5 1.8 28.6 9.2 5.7 (11.2) 21.7 7.9 As % of Revenue 10.3 9.6 11.4 11.6 10.3 9.6 11.4 11.6

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (64) (67) (53) (58) (130) (119) (89) (95)Other Noncash Items (12) 1 0 0 (24) 1 0 0Changes in Working Capital 13 (61) (6) (10) 26 (108) (11) (16)Operating Cash Flow 164 111 208 224 331 196 346 369Capital Expenditures (109) (177) (130) (128) (219) (312) (217) (211)Free Cash Flow 370 (125) 71 89 748 (221) 118 146Other Invest./(Divestments) (16) 5 10 9 (33) 8 16 15Change in Debt (1) (64) (16) (16) (2) (113) (27) (27)Dividends (64) (62) (64) (82) (129) (110) (106) (135)Capital Increases/Other 332 0 0 0 670 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 409 221 228 235 772 371 377 386Current Assets 818 709 743 778 1,546 1,191 1,228 1,276Fixed Assets 681 811 889 959 1,286 1,364 1,469 1,573Total Assets 1,728 1,767 1,879 1,985 3,263 2,970 3,106 3,254Current Liabilities 409 372 393 408 773 625 649 669Long-Term Liabilities 234 239 222 209 443 401 368 343Shareholders' Equity 989 1,054 1,151 1,245 1,867 1,771 1,903 2,042Total Financial Debt 263 199 183 167 497 334 302 273ST Debt 120 67 67 63 228 112 110 104LT Debt 143 132 116 103 270 222 192 169

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt (146) (22) (45) (69) (275) (37) (75) (113)Capital Employed 1,030 1,241 1,325 1,405 1,946 2,086 2,189 2,303Net Debt/EBITDA (0.6) (0.1) (0.1) (0.2) (0.5) (0.1) (0.1) (0.2)Net Debt/Equity (0.1) (0.0) (0.0) (0.1) (0.2) (0.0) (0.0) (0.1)Capex/Revenue (%) 9.1 13.6 9.3 8.4 9.1 13.6 9.3 8.4Int Cover (%) 10.5 11.9 17.7 22.2 10.5 11.9 17.7 22.2Dividend Payout (%) 55.6 50.7 50.7 50.7 54.6 44.1 47.2 50.6ROCE (%) 22.0 21.1 23.7 24.8 23.2 22.1 23.7 24.8ROE (%) 15.4 12.3 14.6 14.7 15.7 12.1 14.6 14.7


PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 333 339 436 476 1.34 1.17 1.41 1.56DPS 172 169 172 221 0.65 0.57 0.57 0.73BVPS 2,676 2,852 3,115 3,370 10.11 9.58 10.30 11.05

US$Ch$

Chile67.8%

Rio de la Plata

19.8%

Wine25.4%

Other-13.0%

Chile50.9%

Rio de la Plata7.6%

Wine39.6%

Other1.9%

Quiñenco30.0%

Heineken30.0%

Others27.1%

ADRs12.9%

249


CHILE—RETAIL & CONSUMER GOODS

CENCOSUD HOLD CURRENT PRICE: CH$1,496



Investment Case: We maintain our Hold rating on Cencosud, as we believe that even though its high exposure to supermarket operations should mitigate the negative impact of a worse economic scenario (75% of consolidated revenue), this will not be enough to offset the pressures on margins in the short term, based on lower than previously expected margins in Brazil. We view the deleveraging strategy the company has adopted as positive in order to reduce high debt levels; however, we see downside risk if the company is not able to make the planned improvements.

Outlook 2015: We estimate: (1) a YoY top-line marginal increase of 0.9% as a result of the deconsolidation of the financial business based on the JV with Scotiabank to be signed in 1Q15, which should be accounted for as equity income; (2) EBIT margin flat YoY at 5.0%, as financial business operations, accounted for as equity income, were one of the most profitable in terms of gross margin; and (3) 17% YoY net profit growth, with net margin expansion of 0.3 p.p. to 2.0% based on lower financial expenses.

Margin improvement in Brazil and Colombia. We expect a 26-bp recovery in EBITDA margin on improvements in the Brazilian and Colombian operations. In Brazil we expect to see this effect following the regional strategy Cencosud has adopted in the country, and after improvements in inventory management. In Colombia we believe margins will improve due to the change in sales mix, which should lead to higher margins and consolidation in operations.

Credit card business transfer to JV with Scotiabank: Scotiabank is to acquire 51% of Cencosud Administradora de Tarjetas (CAT), which implies that (1) Cencosud will no longer have to finance this working-capital-intensive business, (2) the credit business will likely be able to show higher leverage inside a bank, and (3) Cencosud will be able to reduce its leverage in-line with the company’s recently adopted strategy.

Nicolas Villarreal* Chile: Santander Investment Chile Limitada +5622-336-3358 | [email protected]

Reinaldo Santana* Mexico: Banco Santander S.A. +5255-5269-2102 | [email protected]


Company Statistics



Bloomberg CENCOSUD CI / CNCO USCurrent Price (01/02/15) Ch$ 1,496 / US$ 7.48Target Price (YE 2015) Ch$ 1,690 / US$ 8.1252-Week Range (Ch$) 1,422 - 1,969Market Capitalization (US$ Mn) 7,035Float (%) 39.53-Mth Avg. Daily Vol (US$ Mn) 4.5Shares Outstanding - Mn 2,889

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

CENCOSUD CI IPSA

250

CENCOSUD Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description Cencosud is one of the leading multiformat retailers in Chile, Argentina, Colombia, Peru and Brazil. The company’s retail formats in Chile include Jumbo hypermarkets, Santa Isabel supermarkets, Easy home improvement division, shopping centers, and department store chains, Paris and Johnson. In Argentina, Cencosud operates Jumbo hypermarkets, Disco and Vea Supermarkets, Easy home improvement, and shopping malls. In Brazil, the company has operations in three states, with GBarbosa, Bretas and Prezunic being the most important brands. In Peru, its operations include Wong hypermarkets, Metro supermarkets, and Paris department stores. Finally, Cencosud has operated its home improvement business in Colombia, and since 4Q12, Jumbo Colombia with the acquisition of Carrefour Colombia. Key Personnel: Horst Paulmann (Chairman), Jaime Soler (CEO), Juan Manuel Parada (CFO), María Soledad Fernández (Head of Investor Relations) and Natalia Nacif (IR) Web: www.cencosud.cl

Revenue by Country, 2015E

Revenue by Segment, 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 10,408 10,999 11,101 11,079 21,018 19,247 17,726 18,015 YoY change (%) 14.7 5.7 0.9 (0.2) 12.7 (8.4) (7.9) 1.6Gross Profit 3,022 3,071 3,040 3,027 6,102 5,374 4,854 4,923 YoY change (%) 18.4 1.6 (1.0) (0.4) 16.3 (11.9) (9.7) 1.4EBITDA 858 767 789 838 1,733 1,343 1,261 1,362 YoY change (%) 32.3 (10.6) 2.9 6.1 30.0 (22.5) (6.1) 8.0 As % of Revenue 8.2 7.0 7.1 7.6 8.2 7.0 7.1 7.6Operating Income 677 554 559 610 1,367 970 893 992 YoY change (%) 34.9 (18.1) 0.9 9.1 32.5 (29.0) (7.9) 11.1 As % of Revenue 6.5 5.0 5.0 5.5 6.5 5.0 5.0 5.5Financial Results (298) (291) (231) (106) (602) (510) (368) (172)Taxes (96) (74) (107) (154) (194) (129) (171) (250)Net Profit 294 189 221 350 594 331 353 569 YoY change (%) 66.0 (35.7) 17.0 58.3 63.1 (44.3) 6.8 61.2 As % of Revenue 2.8 1.7 2.0 3.2 2.8 1.7 2.0 3.2

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (189) (203) (204) (202) (382) (356) (326) (328)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (324) (352) 379 (0) (654) (616) 605 (0)Operating Cash Flow (219) (366) 396 148 (442) (640) 632 241Capital Expenditures (255) (398) (254) (288) (515) (696) (406) (468)Free Cash Flow (474) (764) 141 (140) (956) (1,337) 226 (227)Other Invest./(Divestments) - - - - - - - -Change in Debt (14) 233 (146) (146) (28) 408 (234) (237)Dividends (82) (88) (57) (66) (166) (154) (91) (108)Capital Increases/Other 638 280 (274) 0 1,288 489 (438) 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 172 125 817 868 327 206 1,318 1,423Current Assets 2,434 1,571 1,658 1,714 4,633 2,576 2,674 2,810Fixed Assets 4,670 4,865 4,915 5,002 8,888 7,975 7,928 8,200Total Assets 10,065 9,510 9,029 9,171 19,155 15,591 14,562 15,035Current Liabilities 2,952 1,831 1,752 1,913 5,617 3,002 2,825 3,136Long-Term Liabilities 2,852 3,154 2,588 2,285 5,428 5,171 4,174 3,746Shareholders' Equity 4,261 4,524 4,689 4,973 8,110 7,417 7,563 8,152Total Financial Debt 2,957 3,191 3,044 2,898 5,628 5,230 4,910 4,752ST Debt 739 787 934 1,090 1,407 1,291 1,506 1,788LT Debt 2,218 2,403 2,110 1,808 4,221 3,939 3,404 2,964


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 18.6 23.1 19.5 12.3 17.5 21.8 19.9 12.4P/CE 11.3 11.2 10.2 7.8 10.7 10.5 10.4 7.8FV/EBITDA 9.6 9.7 8.3 7.6 9.1 9.1 8.4 7.6FV/EBIT 12.2 13.4 11.7 10.4 11.5 12.6 11.9 10.5FV/Revenue 0.8 0.7 0.6 0.6 0.7 0.6 0.6 0.6P/BV 1.3 1.0 0.9 0.9 1.3 1.0 0.9 0.9FCF Yield (%) (8.7) (17.5) 3.3 (3.2) (9.2) (18.5) 3.2 (3.2)Div Yield (%) 1.5 2.0 1.3 1.5 1.6 2.1 1.3 1.5


US$Ch$

Chile36.8%

Argentina24.0%

Brazil20.2%

Peru9.4%

Colombia9.9%

Supermarkets

76.2%

Department Store9.7%

Home Improvemen

t11.6%

Real Estate1.8%

Financial Services

1.0%

Paulmann Family60.5%

AFPs18.2%

Others21.3%

251


CHILE—PULP & FOREST PRODUCTS

CMPC HOLD CURRENT PRICE: CH$1,493



Investment Case: We maintain our Hold rating on CMPC, as we believe the current P/E valuation of 18.4x for 2016E in U.S. dollars (after the Guaiba II expansion has become fully operational) fully incorporates the new pulp capacity and potential cost reductions associated with that project. CMPC is trading at a 27% premium to Copec, which we believe should narrow in the future.

Outlook 2015: We expect EBITDA of US$1.031 million, up 4.0% YoY, based on the launch in 2H15 of the Guaiba II project, which we expect will help the company expand volumes sold to third parties by 3.6% in 2015 and another 4.5% in 2016. We also assume a 5% decrease in average cash costs, due to the effect of FX depreciation, a more efficient operation (Guaiba II), and lower cost pressures from a weaker labor market in Chile in 2015E.

Guaiba II to enter production in 2H15: We assume the Guaiba II expansion will begin operations in 2H15. The US$2.1 billion capex project should contribute 32% of CMPC’s capacity and increase hardwood’s percentage of total pulp produced from 70% to 79%. The project was financed via debt and a US$250 million capital increase (June 2014).

We remain cautious on hardwood pulp: The startup of considerable low-cost BHKP capacity within a short period of time has limited a pulp price recovery, a situation that we expect to prevail in the medium to long term. Regardless of short-term price fluctuations, we see the industry cost curve continuing to shift from less efficient players to low-cost producers. In our view, this should continue not only to limit a sustainable price recovery but also to exert downward pressure on pulp prices in USD terms, since we estimate demand to grow less than capacity, and paper producers may have more bargaining power relative to the more efficient pulp producers. Consequently we assume a long-term BHKP price of US$720/ton.



Company Statistics



Bloomberg CMPC CICurrent Price (01/02/15) Ch$ 1,493 / US$ 2.43Target Price (YE 2015) Ch$ 1,700 / US$ 2.7452-Week Range (Ch$) 1,140 - 1,538Market Capitalization (US$ Mn) 6,075Float (%) 44.63-Mth Avg. Daily Vol (US$ Mn) 2.7Shares Outstanding - Mn 2,500

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

CMPC CI IPSA

252

CMPC Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description CMPC is one of the main manufacturers of forestry products in Latin America, with interests in wood, pulp, paper, tissue and packaging businesses. The company has approximately 667,000 planted hectares of eucalyptus and radiate pine in Argentina, Chile and Brazil; 1.7 million cubic meters per year of wood capacity; 2.8 million tons per year of pulp capacity; and is considered a market leader in the tissue business in Chile, Argentina, Peru and Uruguay. CMPC is also the largest packaging supplier for the export industries in Chile. The company is controlled by the Matte Group, which holds a 55.4% stake in CMPC. The stock is listed in the Santiago Stock Exchange. Key Personnel: Eliodoro Matte (Chairman), Hernán Rodríguez (CEO), Luis Llanos (CFO) and Colomba Henríquez (IR) Web: www.cmpc.cl

Sales by Geography, 6M14




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 2,463 2,765 2,943 3,259 4,974 4,838 4,786 5,299 YoY change (%) 6.4 12.2 6.4 10.7 4.5 (2.7) (1.1) 10.7Gross Profit 508 585 646 726 1,026 1,024 1,051 1,181 YoY change (%) 7.6 15.2 10.5 12.4 5.8 (0.2) 2.6 12.4EBITDA 477 567 634 718 964 992 1,031 1,167 YoY change (%) 7.3 18.7 11.9 13.1 5.4 2.9 4.0 13.1 As % of Revenue 19.4 20.5 21.5 22.0 19.4 20.5 21.5 22.0Operating Income 265 312 356 415 535 545 579 675 YoY change (%) 3.4 17.7 14.3 16.4 1.6 2.0 6.2 16.4 As % of Revenue 10.7 11.3 12.1 12.7 10.7 11.3 12.1 12.7Financial Results (66) (47) (113) (119) (134) (83) (184) (194)Taxes (88) (135) (57) (75) (178) (236) (93) (122)Net Profit 97 111 171 204 196 194 278 331 YoY change (%) (1.3) 14.6 53.8 19.2 (3.0) (0.7) 42.9 19.2 As % of Revenue 3.9 4.0 5.8 6.2 3.9 4.0 5.8 6.2

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (170) (197) (215) (250) (344) (344) (350) (406)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital 4 81 (29) (77) 9 141 (47) (126)Operating Cash Flow 272 389 357 376 549 680 581 611Capital Expenditures (290) (822) (677) (353) (585) (1,439) (1,100) (573)Free Cash Flow (18) (434) (319) 23 (36) (759) (519) 38Other Invest./(Divestments) - - - - - - - -Change in Debt 12 454 (221) (114) 24 794 (359) (185)Dividends (36) (35) (36) (51) (73) (61) (58) (83)Capital Increases/Other 248 119 0 0 500 208 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 589 858 292 147 1,113 1,406 470 240Current Assets 1,847 2,219 1,720 1,649 3,489 3,637 2,774 2,703Fixed Assets 3,606 4,822 5,366 5,382 6,811 7,905 8,655 8,822Total Assets 7,513 9,431 9,516 9,421 14,188 15,461 15,348 15,444Current Liabilities 603 817 739 735 1,138 1,339 1,191 1,204Long-Term Liabilities 2,505 3,483 3,425 3,269 4,730 5,709 5,524 5,359Shareholders' Equity 4,403 5,130 5,350 5,549 8,316 8,409 8,629 9,096Total Financial Debt 2,097 2,901 2,726 2,569 3,961 4,755 4,396 4,211ST Debt 200 356 254 237 378 583 409 389LT Debt 1,897 2,545 2,472 2,331 3,583 4,172 3,987 3,822


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 31.4 34.2 21.8 18.3 29.6 32.2 21.9 18.4P/CE 11.4 12.3 9.7 8.2 10.7 11.6 9.7 8.2FV/EBITDA 9.5 10.3 9.7 8.6 9.0 9.7 9.7 8.6FV/EBIT 17.2 18.7 17.3 14.8 16.2 17.6 17.3 14.9FV/Revenue 1.8 2.1 2.1 1.9 1.7 2.0 2.1 1.9P/BV 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7FCF Yield (%) (0.6) (11.4) (8.6) 0.6 (0.6) (12.1) (8.5) 0.6Div Yield (%) 1.2 0.9 1.0 1.4 1.3 1.0 1.0 1.4


US$Ch$

Chile26.0%

Asia16.0%

Europe12.0%

North America

3.0%

Others43.0%

Forestry11.0%

Pulp54.0%

Paper15.0%

Tissue20.0%

Matte Family

(Controller)55.4%

Pension funds11.4%

Float33.2%

253


CHILE—UTILITIES

COLBUN BUY CURRENT PRICE: CH$163.22

TARGET PRICE: CH$195.00 INTRODUCING YE2015 TARGET PRICE OF CH$195.00; REPLACING YE2014 TARGET PRICE OF CH$162.00 Investment Case: We believe that the startup of the Angostura (316

MW) hydro facility and new non-regulated contracts will continue to boost results and improve Colbun’s financial position. Also, the recent competitive LNG supply agreement should bring higher stability to results, lowering hydrological risk for the company, in our view. Colbun currently trades at a FCF yield of 9.2%, one of the highest in Chile and partly attributable to, in our view, the startup of Angostura.

Outlook 2015: We expect EBITDA to reach US$634 million, growing 17% YoY, stemming from new non-regulated contracts and a more favorable outlook for 2014-15 ice-melting season. We forecast YoY bottom-line growth of 45% YoY, due to a weaker impact of FX depreciation on deferred tax assets.

New LNG supply contract to protect results: Colbun secured an LNG supply contract for 2015-19 at a lower-than-historical price and with higher flexibility, finally closing the gap between contract basis and efficient generation under normal conditions hydrology, consequently significantly reducing volatility in results.

Sharp improvement in financial position. The startup of the Angostura (316 MW, hydro) project in 1Q14 and the maturity of low priced non-regulated contracts have substantially helped strengthen Colbun’s balance sheet. We expect the company to end 2015 at a net debt/EBITDA of 1.1x and cash of ~US$1.3 billion. Also, we highlight the 9.2% FCF yield for 2015E, one of the highest of Chilean companies.

Preparing for the next investment phase: Due to its solid cash position, we expect Colbun will announce in 2015 potential uses of these funds, which could lead to the development of green or brownfield projects or, inclusively, entering another market (Colombiaor Peru, in our view). We estimate that the announcement of the Santa Maria II (350 MW, coal) project could have a +10% positive impact on our target price.



Company Statistics



Bloomberg COLBUN CICurrent Price (01/02/15) Ch$ 163.22 / US$ 0.27Target Price (YE 2015) Ch$ 195.00 / US$ 0.3152-Week Range (Ch$) 116.54 - 166.42Market Capitalization (US$ Mn) 4,660Float (%) 41.03-Mth Avg. Daily Vol (US$ Mn) 2.4Shares Outstanding - Mn 17,536

70

80

90

100

110

120

130

J-13 M-13 A-13 D-13 A-14 A-14 D-14

COLBUN CI IPSA

254

COLBUN Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description Colbún is the third largest generator of electricity in the Central Interconnected System. The company has a total installed capacity of 3,278 MW, with all the generating facilities linked to the Chilean Central Grid (SIC). Its controller is the Matte Group, one of the largest economic groups in Chile, which also has a presence in the pulp and paper, banking, telecommunications, and real estate sectors, among others. Key Personnel: Bernardo Matte L. (Chairman), Thomas Keller (CEO), Sebastián Moraga (CFO) and Maria Elena Palma (IR) Web: www.colbun.cl

Installed Capacity by technology, 2015E

Electricity Generation Mix, 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 840 869 883 810 1,696 1,520 1,409 1,317 YoY change (%) 22.4 3.4 1.6 (8.2) 20.3 (10.4) (7.3) (6.6)Gross Profit 135 254 334 371 273 444 534 604 YoY change (%) 23.0 87.4 31.9 11.1 20.9 62.4 20.3 13.1EBITDA 174 311 397 434 352 543 634 706 YoY change (%) 24.9 78.0 27.8 9.4 22.8 54.2 16.6 11.4 As % of Revenue 20.8 35.7 45.0 53.6 20.8 35.7 45.0 53.6Operating Income 94 207 280 317 190 362 447 515 YoY change (%) 27.9 120.2 35.3 13.2 25.7 90.8 23.5 15.3 As % of Revenue 11.2 23.8 31.7 39.1 11.2 23.8 31.7 39.1Financial Results (35) (40) (48) (40) (71) (70) (77) (66)Taxes (33) (48) (52) (66) (66) (85) (83) (108)Net Profit 26 121 192 223 53 212 307 362 YoY change (%) 5.6 365.3 58.3 15.8 3.8 303.2 44.5 17.9 As % of Revenue 3.1 14.0 21.8 27.5 3.1 14.0 21.8 27.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (81) (104) (117) (117) (163) (181) (187) (190)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital 29 (6) (2) (7) 58 (10) (3) (11)Operating Cash Flow 136 219 307 333 274 383 490 541Capital Expenditures (144) (47) (38) (37) (291) (82) (60) (60)Free Cash Flow (9) 172 269 296 (18) 302 430 481Other Invest./(Divestments) 2 (123) 0 0 4 (215) 0 0Change in Debt (11) 188 (19) (43) (23) 329 (30) (70)Dividends (7) (10) (40) (57) (13) (18) (64) (92)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 137 590 808 990 260 967 1,304 1,623Current Assets 391 861 1,074 1,244 744 1,411 1,732 2,040Fixed Assets 2,645 3,009 2,980 2,853 5,033 4,933 4,807 4,677Total Assets 3,187 4,030 4,217 4,258 6,066 6,607 6,802 6,980Current Liabilities 180 201 218 201 342 330 352 330Long-Term Liabilities 1,139 1,673 1,657 1,587 2,168 2,742 2,672 2,602Shareholders' Equity 1,869 2,156 2,343 2,469 3,556 3,535 3,778 4,048Total Financial Debt 895 1,240 1,241 1,179 1,703 2,032 2,002 1,932ST Debt 79 115 142 139 149 188 228 228LT Debt 816 1,125 1,100 1,039 1,554 1,844 1,774 1,704

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 758 650 433 189 1,443 1,065 698 309Capital Employed 2,790 3,239 3,191 3,067 5,310 5,310 5,146 5,027Net Debt/EBITDA 4.3 2.1 1.1 0.4 4.1 2.0 1.1 0.4Net Debt/Equity 0.4 0.3 0.2 0.1 0.4 0.3 0.2 0.1Capex/Revenue (%) 17.2 5.4 4.3 4.6 17.2 5.4 4.3 4.6Int Cover (%) 7.0 7.1 7.4 8.4 7.0 7.1 7.4 8.4Dividend Payout (%) 26.8 39.5 32.1 30.2 26.3 34.3 30.0 30.0ROCE (%) 4.8 8.2 10.5 12.8 5.0 8.6 10.6 12.8ROE (%) 1.5 6.0 8.4 9.2 1.5 6.0 8.4 9.2

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E n/m 23.3 14.9 12.9 n/m 22.0 15.2 12.9P/CE 19.7 12.6 9.3 8.4 18.6 11.9 9.4 8.4FV/EBITDA 16.4 11.2 8.3 7.0 15.5 10.6 8.5 7.0FV/EBIT 30.4 16.8 11.8 9.6 28.7 15.8 12.0 9.6FV/Revenue 3.4 4.0 3.7 3.8 3.2 3.8 3.8 3.8P/BV 1.1 1.3 1.2 1.2 1.1 1.3 1.2 1.2FCF Yield (%) (0.4) 6.1 9.4 10.3 (0.4) 6.5 9.2 10.3Div Yield (%) 0.3 0.4 1.4 2.0 0.3 0.4 1.4 2.0


US$Ch$

Hydro48.0%

Natural Gas/Diesel

42.0%

Coal10.0%

Thermal59.2%

Hydro40.8%

Matte Group49.0%

Chilean Pension Funds17.0%

Angelini Group10.0%

Others24.0%

255



CONCHA Y TORO HOLD CURRENT PRICE: CH$1,162



Investment Case: We are maintaining our Hold rating on the stock, as we believe current valuations already incorporate a 2015E YoY EBITDA improvement of 12.7%. In our view, this increase should bedriven by a depreciation of the Chilean peso vs. the currencies of themain countries to which the company exports, coupled with similar wine costs to those of this year. In addition to valuation and pressure from COGS, we believe the main stock driver will be FX.

Outlook 2015: We expect EBITDA growth of 12.7% and an EBITDA margin of 15.5% (up merely 11 bps), mainly supported by: (1) price stability for grapes and bulk wine; and (2) the depreciation of the Chilean peso versus the U.S. dollar, the euro, and the British pound sterling; with these currencies accounting for approximately 65% of total exported volume. However, we believe these positives will be partially offset by a decrease in private consumption in Chile, which we forecast at 2.2%, declining throughout the year and thereby affecting wine consumption.

Chilean peso to depreciate further: We expect a 7.6% depreciation of the Chilean peso in 2015 (average CLP of 615/USD,compared with the FX of 571.50/USD in 2014), which would positively affect the company’s results, in our view, as some 80% of the company’s revenue is in denominated in foreign currency.

Valuation at unattractive levels: VCO currently trades at a 12-month forward P/E of 17.6x (a 12% discount vs. its last-four-year average). Due to this valuation, we believe that the future growth is already reflected in the stock price, thus limiting any potential downside risks and supporting our Hold rating.



Company Statistics



Bloomberg CONCHA CI / VCO USCurrent Price (01/02/15) Ch$ 1,162 / US$ 37.80Target Price (YE 2015) Ch$ 1,270 / US$ 41.7052-Week Range (Ch$) 948.83 - 1,200Market Capitalization (US$ Mn) 1,413Float (%) 59.93-Mth Avg. Daily Vol (US$ Mn) 1.3Shares Outstanding - Mn 747

70

80

90

100

110

120

130

J-13 M-13 A-13 D-13 A-14 A-14 D-14

CONCHA CI IPSA

256

CONCHA Y TORO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description Concha y Toro is the largest Chilean winery, with international and domestic sales, targeting the complete range of wine segments through a broad range of varieties, such as premium, varietal, varietal blends, and popular wines. The U.S., Europe, and South America are its main export markets, volume wise they represent14.4%, 50.6% (UK, Europa continental, Nordics) and 9.4%, respectively. Concha y Toro also produces wine in Argentina through its subsidiary, Viña Trivento, which is the second largest exporter in the country, and started producing in U.S.A after the acquisition of Fetzer Winery in 2011. Concha y Toro is controlled by the three families, Guilisasti Gana, Larraín Santa María and Fontecilla, which together own 38.8% of the company. Key Personnel: Alfonso Larraín (Chairman), Eduardo Guilisasti (CEO), Osvaldo Solar (CFO) and Patricio Garreton (IR) Web: www.conchaytoro.cl

Export Sales Mix, 3Q14

Sales Breakdown, 3Q14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 476 564 631 648 960 987 1,008 1,054 YoY change (%) 5.6 18.6 11.9 2.8 3.7 2.8 2.1 4.6Gross Profit 164 213 240 249 332 372 383 405 YoY change (%) 11.3 29.4 13.0 3.8 9.4 12.1 3.1 5.7EBITDA 55 87 98 103 112 152 157 168 YoY change (%) 3.2 57.2 12.7 5.3 1.4 36.2 2.8 7.2 As % of Revenue 11.6 15.4 15.5 15.9 11.6 15.4 15.5 15.9Operating Income 37 62 70 74 74 108 111 121 YoY change (%) 1.8 68.6 13.0 6.3 (0.0) 46.1 3.1 8.2 As % of Revenue 7.7 10.9 11.1 11.4 7.7 10.9 11.1 11.4Financial Results 6 (7) (5) (7) 12 (12) (9) (12)Taxes (9) (13) (15) (16) (18) (23) (24) (26)Net Profit 33 42 49 51 67 73 79 83 YoY change (%) 10.6 25.7 18.0 3.8 8.7 8.9 7.6 5.7 As % of Revenue 7.0 7.4 7.8 7.9 7.0 7.4 7.8 7.9

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortizatio (19) (25) (28) (29) (38) (44) (45) (47)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capita (26) (23) (32) (5) (53) (39) (52) (7)Operating Cash Flow 22 68 45 76 44 119 72 123Capital Expenditures (19) (125) (35) (36) (39) (219) (56) (59)Free Cash Flow (34) 59 12 54 (69) 104 19 88Other Invest./(Divestments (18) (14) 0 0 (36) (25) 0 0Change in Debt (19) 67 2 15 (39) 118 4 24Dividends (12) (21) (26) (31) (24) (36) (42) (50)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 21 59 45 68 40 97 73 112Current Assets 434 519 549 580 827 851 886 951Fixed Assets 257 257 257 257 488 421 414 421Total Assets 850 960 997 1,035 1,618 1,573 1,608 1,697Current Liabilities 197 205 246 286 375 335 397 469Long-Term Liabilities 161 129 109 90 306 211 176 147Shareholders' Equity 429 436 459 479 817 714 740 785Total Financial Debt 254 321 323 338 483 526 521 554ST Debt 68 52 82 118 130 86 133 194LT Debt 185 269 241 219 352 440 389 360

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 232 261 278 269 442 429 448 441Capital Employed 657 670 677 686 1,251 1,098 1,092 1,124Net Debt/EBITDA 4.2 3.0 2.8 2.6 4.0 2.8 2.9 2.6Net Debt/Equity 0.5 0.6 0.6 0.6 0.6 0.6 0.6 0.6Capex/Revenue (%) 4.0 22.2 5.6 5.6 4.0 22.2 5.6 5.6Int Cover (%) 5.7 9.0 10.6 10.9 5.7 9.0 10.6 10.9Dividend Payout (%) 40.1 62.7 62.7 62.7 39.4 54.4 58.3 62.5ROCE (%) 7.2 11.2 12.5 13.3 7.6 11.8 12.5 13.3ROE (%) 7.8 9.6 11.0 10.9 7.9 9.5 11.0 10.9



US$Ch$

Europe50.1%

USA13.8%

South America12.0%

Asia8.2%

Canada4.6%

Others11.3%

Exports66.0%

Domestic Market Wine19.0%

Domestic Market -

Other Products

2.0%

Argentina4.0%

Fetzer9.0%


Others55.6%

AFPs5.6%

ADRs2.5%

257


CHILE—PULP & FOREST PRODUCTS

COPEC BUY CURRENT PRICE: CH$6,888


INTRODUCING YE2015 TARGET PRICE OF CH$8,100; REPLACING YE2014 TARGET PRICE OF CH$8,200 Investment Case: Our Buy rating on Copec is based on the

following: (1) We believe valuation does not reflect the fuel distribution business potential (37% of 2014E EBITDA versus 42% for pulp). (2) During 2015, the ramp-up of the 1.3 tpy hardwood Montes del Plata project (a 50%/50% JV between Stora Enso and Copec), which will add more efficient capacity, should be completed. (3) Softwood accounts for 54% of Copec’s total pulp sales, and we believe it will continue to be sold at a US$170 per ton premium to hardwood, due to tighter supply/demand.

Outlook 2015: We expect U.S. dollar sales to decrease 7.1% based on depreciated local currencies and lower oil prices. EBITDA should reach US$2.1 billion, up 3.2% YoY, due to better pulp division margins and increased fuel volumes with stable margins. We expect5.9% YoY net income growth to US$955 million.

Opportunity in fuel distribution business: In 2010 Copec acquired Terpel; in 2012 consolidation started. We believe Copec will try to replicate its successful strategy in Chile of improving brand perception based on better service, increased number of associated services (e.g., retail stores), and new gas station openings. Moreover, we believe Copec will build flagship gas stations in newly built Colombian highways, as it did in Chile in the 1990s, bolstering consumer’s perception about the brand and service.

Softwood/hardwood spread premium to continue: The startup of considerable low-cost BHKP capacity within a short period of time has limited a pulp price recovery; this situation should prevail in the mid to long term, in our view. Regardless of short-term price fluctuations, the industry cost curve will continue to shift from less efficient players to low-cost producers. Consequently, we assume a long-term BHKP price of US$720/t. In our view, softwood, which has historically traded at a US$90 spread to hardwood, currently trades at a ~US$190/ton premium. We assume the premium will remain above historical levels, as limited options for new efficient softwood capacity exist.



Company Statistics



Bloomberg COPEC CICurrent Price (01/02/15) Ch$ 6,888 / US$ 11.21Target Price (YE 2015) Ch$ 8,100 / US$ 13.0652-Week Range (Ch$) 6,339 - 7,664Market Capitalization (US$ Mn) 14,577Float (%) 39.23-Mth Avg. Daily Vol (US$ Mn) 4.3Shares Outstanding - Mn 1,300

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

COPEC CI IPSA

258

COPEC Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description Empresas Copec, the third largest listed Chilean company in terms of market cap, is a holding company with a presence in the forest products, fuel, and fishing businesses, which according to December 2013 figures represented 57%, 41%, and 2% of consolidated EBITDA, respectively. Through its fully owned subsidiary Arauco, which is its forest business, Copec owns over 1,000,000 ha of forest in Chile, Argentina, Brazil, and Uruguay, and has 17 panel mills in the U.S., Chile, Brazil and Argentina. The company also has investments in the electricity and mining sectors. Copec’s main shareholder is Antarchile (which owns 60.8% of Copec), a listed holding company controlled by the Chilean Angelini Group, and the remaining 39.2% is listed only on the Chilean stock exchange. Key Personnel: Roberto Angelini (Chairman), Eduardo Navarro (CEO), Rodrigo Huidobro (CFO) and Cristián Palacios (Head of IR) Web: www.ec.cl

Sales Breakdown,

EBITDA Breakdown,



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 12,053 13,812 13,809 14,550 24,339 24,169 22,454 23,658 YoY change (%) 8.8 14.6 (0.0) 5.4 6.9 (0.7) (7.1) 5.4Gross Profit 1,586 1,831 1,912 2,019 3,202 3,203 3,108 3,283 YoY change (%) 27.2 15.4 4.4 5.6 25.0 0.0 (3.0) 5.6EBITDA 980 1,169 1,299 1,345 1,979 2,045 2,111 2,186 YoY change (%) 29.1 19.3 11.1 3.5 26.9 3.4 3.2 3.5 As % of Revenue 8.1 8.5 9.4 9.2 8.1 8.5 9.4 9.2Operating Income 553 660 741 787 1,116 1,154 1,205 1,280 YoY change (%) 72.2 19.3 12.3 6.2 69.2 3.4 4.4 6.2 As % of Revenue 4.6 4.8 5.4 5.4 4.6 4.8 5.4 5.4Financial Results (24) 46 81 89 (49) 81 131 145Taxes (128) (175) (218) (245) (259) (307) (354) (399)Net Profit 389 515 587 614 786 902 955 999 YoY change (%) 95.3 32.4 13.9 4.6 91.9 14.7 5.9 4.6 As % of Revenue 3.2 3.7 4.3 4.2 3.2 3.7 4.3 4.2

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (268) (529) (494) (495) (542) (926) (804) (804)Other Noncash Items (8) 1 3 0 (17) 3 4 0Changes in Working Capital 311 (306) 641 71 628 (536) 1,043 115Operating Cash Flow 960 740 1,726 1,179 1,939 1,295 2,806 1,918Capital Expenditures (629) (538) (492) (558) (1,270) (941) (800) (907)Free Cash Flow 332 202 1,234 622 669 354 2,006 1,011Other Invest./(Divestments) 42 (42) 147 1,859 85 (73) 239 3,022Change in Debt 129 65 0 (202) 261 113 0 (328)Dividends (156) (200) (235) (235) (314) (349) (382) (382)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 799 684 677 2,693 1,508 1,122 1,092 4,415Current Assets 3,116 3,407 3,584 5,321 5,884 5,585 5,780 8,723Fixed Assets 5,339 6,150 6,216 6,178 10,082 10,082 10,026 10,128Total Assets 11,845 13,463 13,769 15,405 22,368 22,070 22,209 25,254Current Liabilities 1,799 2,064 2,303 2,390 3,398 3,383 3,715 3,919Long-Term Liabilities 4,316 4,946 4,925 4,391 8,151 8,108 7,944 7,198Shareholders' Equity 5,355 6,505 6,967 7,231 10,112 10,664 11,237 11,854Total Financial Debt 3,766 4,408 4,480 4,207 7,112 7,225 7,225 6,897ST Debt 662 858 973 1,213 1,250 1,406 1,570 1,988LT Debt 3,104 3,550 3,507 2,995 5,862 5,819 5,656 4,910




US$Ch$

Forestry22.0%

Fuel77.0%

Fishing1.0%

Forestry57.0%

Fuel41.0%

Fishing2.0%

AntarChile60.8%

Pension Funds4.5%

Others34.7%

259



CORPBANCA BUY CURRENT PRICE: CH$7.07 TARGET PRICE: CH$10.00

INTRODUCING YE2015 TARGET PRICE OF CH$10.00; REPLACING YE2014 TARGET PRICE OF CH$8.50

Investment Case: We expect the merger with Itaú to close in 2H15, leading to incremental positive effects on the merged bank’s efficiency and profitability. At current prices the merged bank would be trading at close to a 25% discount to the average 2016E P/E multiple of BCH and BCI. We expect that over the medium to long term, Itaú will tender to buy out all minorities in the bank.

Outlook 2015: Our estimates assume the merger will close in mid-2015. We expect the merger to strengthen the CT1 capital ratio of Itaú-CorpBanca to 8.1% in 2015E under fully loaded Basel III.

The Itaú-IFC shareholders’ agreement: what’s in it? We expect Itaú and the IFC to sign a shareholders’ agreement to formalize the IFC’s consent to the merger. The agreement may enshrine several rights the IFC has in the existing IFC-CorpGroup shareholders’ agreement. If so, the IFC could keep its seat on the board and have veto power over certain issues (e.g., change of control). We do not expect changes in the terms of the merger between Itaú and CorpGroup.

No more hurdles along the way: Cartica announced on December 14, 2014, that it was dropping its legal challenges to the Itaú-CorpBanca merger, days after the IFC approved the merger. The merger still has to be approved by shareholders and the SBIF, but we do not expect any pushback.

Cost synergies in Colombia and Chile to boost adjusted ROE. The merged Itaú-CorpBanca could achieve ratios of adjusted efficiency in the mid-to-low 40s by 2016-17, allowing adjusted ROE to improve to 17% in two years’ time, from 15% in 2014E.

Tax man takes a larger cut. Previously we expected the bank to achieve adjusted ROEs close to 19-20%; however, we believe the impact of higher taxes in both Chile and Colombia will prevent the improvement in operating profitability from fully benefiting shareholders.



Company Statistics



Bloomberg CORPBANC CI / BCA USCurrent Price (01/02/15) Ch$ 7.07 / US$ 17.36Target Price (YE 2015) Ch$ 10.00 / US$ 24.2552-Week Range (Ch$) 5.68 - 7.79Market Capitalization (US$ Mn) 6,080Float (%) 39.63-Mth Avg. Daily Vol (US$ Mn) 2.6Shares Outstanding - Mn 512,407

70

80

90

100

110

120

130

J-13 M-13 A-13 D-13 A-14 A-14 D-14

CORPBANC CI IPSA

260

CORPBANCA (PRO FORMA MERGED) Financial Highlights: P&L and Balance Sheet, 2013–16E in Billions (Ch$), Millions (US$) Company Description

CorpBanca is one of the leading banks in the Chilean financial sector. CorpBanca’s strategy is based on a low cost structure and a wide array of financial products and services, and is focused mainly on middle-income individuals and large and medium-sized enterprises. In early 2014 the bank announced that its controlling shareholder Alvaro Saieh (via the CorpGroup holding company) has agreed to cede control of CorpBanca to Itaú Unibanco of Brazil as part of a merger agreement in which CorpBanca would acquire Itaú Chile in exchange for issuing a controlling stake in the merged bank to Itaú Unibanco. After the close of the merger, Itaú-CorpBanca would become the fourth banking group in Chile and the fifth in Colombia. Key Personnel: Jorge Andres Saieh Guzman (Chairman), Fernando Massú Tare (CEO), Eugenio Gigogne Miqueles (CFO) and Claudia Labbé Montevecchi (IRO) Web: www.corpbanca.cl





INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Interest Income 450 620 745 995 909 1,087 1,218 1,626NPL Provisions (101) (101) (145) (197) (205) (177) (238) (322)Adj Net Interest Income 349 520 600 798 704 911 980 1,305Non-Interest Income 237 369 429 510 479 647 701 833Total Operating Revenue 586 888 1,029 1,308 1,183 1,558 1,681 2,137Non-Interest Expense (369) (521) (592) (691) (744) (914) (968) (1,129)Profit Before Taxes 232 367 436 617 468 643 713 1,009Taxes (64) (106) (115) (159) (129) (186) (187) (261)Net Profit 155 229 299 437 313 401 488 715Adjusted Net Profit 232 314 369 516 468 550 603 844

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,024 1,193 1,825 1,971 1,949 1,966 2,958 3,247Securities 1,935 2,309 2,612 2,631 3,682 3,805 4,235 4,336Loans (net) 12,778 14,107 22,985 25,205 24,318 23,245 37,262 41,530Intangible Assets 837 876 979 910 1,593 1,444 1,587 1,499Total Assets 17,490 19,967 30,177 32,593 33,286 32,900 48,921 53,704Core Deposits 10,789 13,198 19,847 21,838 20,533 21,747 32,175 35,983Other Financial Liabilities 2,264 1,556 3,130 2,915 4,310 2,563 5,074 4,803Subordinated Debt 774 789 827 881 1,473 1,301 1,340 1,452Technical Provisions 0 0 0 0 0 0 0 0Equity 1,411 1,708 3,115 3,420 2,686 2,814 5,051 5,634Adjusted Equity 942 1,216 2,456 2,836 1,793 2,003 3,982 4,673

LOAN BOOK 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECompanies 9,402 10,341 16,469 18,041 17,893 17,038 26,699 29,727Total Consumer 1,680 1,844 2,912 3,237 3,197 3,038 4,721 5,333Mortgages 2,004 2,246 4,074 4,444 3,814 3,702 6,604 7,323Other Loans 0 0 0 0 0 0 0 0Gross Loans 13,086 14,431 23,455 25,722 24,904 23,778 38,024 42,383Loan Grow th (%) 28.8 10.3 62.5 9.7 17.4 (4.5) 59.9 11.5NPL 93 101 206 233 177 167 334 385Provisions (308) (324) (117) (126) (586) (533) (190) (207)




US$Ch$

Colombia Company

19.7%

Colombia Consumer

6.7%Colombia Mortgage

2.7%

Chile Company

50.5%

Chile Consumer

5.8%

Chile Mortgage

14.7%

NII58.3%

Trading22.3%

Fees16.5%

Other2.9%

Alvaro Saieh and

Family32.9%

Itau33.6%

IFC3.3%

Free Float30.2%

261


CHILE—UTILITIES

E-CL BUY CURRENT PRICE: CH$899.33 TARGET PRICE: CH$1,115.00

UPGRADING RATING TO BUY FROM HOLD INTRODUCING YE2015 TARGET PRICE OF CH$1,115; REPLACING YE2014 TARGET PRICE OF CH$780

Investment Case: In the last few months, the upside risks for E-CL have materialized. The new regulated contract signed by E-CL in December 2014 allows the company to build the IEM coal project, significantly increase the load factor of current gas and coal facilities, and enter the SIC market, which has the main consumption centers.

Outlook 2015: We expect flat EBITDA growth (3.5%) to US$312 million. This should come mainly from (1) renewal of the leasing of a LNG facility to another generator, and (2) a reduction of excess system costs in the SING given the sharp decrease in international oil prices. We expect this to be offset by lower contract prices due to indexation of contracts to international raw material prices.

Cracking the SIC in 2018: In the most recent tender offer in the SIC, E-CL won a 5,040 GWh/year contract; this represents 56% growth in the contract basis vs. the current portfolio. The contract contemplates15 years’ supply, starting in 2018, at US$109.48/MWh. This will allow E-CL to use a potential SIC-SING interconnection line to generate energy in the north and send it to the distribution centers in the central part of Chile (SIC).

Entering new investment phase: We believe the new regulated contract will be supplied by (1) construction of Infrastructura Energética Mejillones (375 MW, coal), which contemplates a US$1.1billion capex program for the facility and a port to unload the coal, (2) increasing gas units’ load factor, currently at 27%, by connecting the CTM-3 unit (250 MW) to the SIC, and (3) replacing nonregulated contracts in the SING with regulated contracts in the SIC.

Funding is important: We expect the expansion capex plan for 2015-18 to reach US$1.154 million, which should put pressure on E-CL’s financial ratios. Although E-CL has alternatives to fund the operations (sale of noncore transmission assets, lowering dividends,or issuing hybrid bonds), we do not dismiss the possibility of a capital increase in 2016, especially if E-CL decides to acquire Electrica Monte Redondo from its controller (GDF Suez).



Company Statistics



Bloomberg ECL CICurrent Price (01/02/15) Ch$ 899.33 / US$ 1.46Target Price (YE 2015) Ch$ 1,115 / US$ 1.8052-Week Range (Ch$) 633.64 - 929.69Market Capitalization (US$ Mn) 1,542Float (%) 48.03-Mth Avg. Daily Vol (US$ Mn) 1.2Shares Outstanding - Mn 1,053

50

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

ECL CI IPSA

262

E-CL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description E.CL is the fourth largest generator of electricity in Chile and the largest one in the Chilean Northern Interconnected System (SING). The company has a total installed capacity of 2,137 MW (including CTH), with all its generating facilities linked to the SING, representing 54% of the SING’s total installed capacity. The company also has transmission lines and natural gas pipeline, as well as operating port facilities. It is controlled by the GDF Suez Group, a major industrial player in the energy sector, with operations in more than 40 countries worldwide. Key Personnel: Juan Clavería (Chairman), Axel Leveque (CEO), Carlos Freitas (CFO) and Marcela Muñoz (IR) Web: www.e-cl.cl

SING Installed Capacity Market Share, 2014E

Installed Capacity Mix, 2014E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 600 724 769 705 1,211 1,266 1,227 1,146 YoY change (%) 3.5 20.7 6.2 (8.3) 1.8 4.6 (3.1) (6.6)Gross Profit 81 122 139 123 163 214 222 201 YoY change (%) (9.7) 51.6 13.5 (11.2) (11.3) 31.4 3.6 (9.6)EBITDA 125 172 195 180 252 301 312 292 YoY change (%) (7.4) 38.2 13.4 (7.9) (9.0) 19.8 3.5 (6.2) As % of Revenue 20.8 23.8 25.4 25.5 20.8 23.8 25.4 25.5Operating Income 58 97 111 96 118 169 178 155 YoY change (%) (9.5) 65.7 14.8 (14.0) (11.1) 43.6 4.8 (12.5) As % of Revenue 9.7 13.4 14.5 13.6 9.7 13.4 14.5 13.6Financial Results (22) (24) (33) (35) (45) (41) (52) (57)Taxes (8) (15) (17) (14) (17) (27) (27) (23)Net Profit 20 55 58 44 40 97 93 71 YoY change (%) (28.3) 182.1 5.6 (24.8) (29.6) 144.5 (3.7) (23.4) As % of Revenue 3.3 7.6 7.6 6.2 3.3 7.6 7.6 6.2

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (66) (75) (84) (84) (134) (132) (134) (137)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital 13 (39) 11 10 27 (69) 17 17Operating Cash Flow 99 91 153 138 200 160 245 225Capital Expenditures (58) (39) (253) (284) (116) (68) (404) (462)Free Cash Flow 41 52 (100) (146) 83 92 (159) (237)Other Invest./(Divestments) 12 (31) 0 0 23 (54) 0 0Change in Debt (17) 2 219 0 (33) 3 350 0Dividends (28) (38) (18) (17) (56) (67) (29) (28)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 112 138 241 75 213 227 388 123Current Assets 340 450 544 339 648 738 878 555Fixed Assets 1,022 1,147 1,333 1,510 1,944 1,881 2,151 2,476Total Assets 1,575 1,847 2,132 2,099 2,997 3,028 3,438 3,441Current Liabilities 128 154 154 127 244 253 249 208Long-Term Liabilities 497 605 832 818 945 991 1,341 1,341Shareholders' Equity 885 1,025 1,081 1,090 1,683 1,680 1,744 1,788Total Financial Debt 400 466 691 680 761 764 1,114 1,114ST Debt 11 13 13 13 21 22 22 22LT Debt 389 453 677 666 740 742 1,092 1,092


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 36.5 16.9 16.2 21.6 34.4 15.9 16.5 21.6P/CE 8.3 7.1 6.7 7.4 7.9 6.7 6.8 7.4FV/EBITDA 8.5 7.7 7.4 8.9 8.0 7.2 7.6 9.0FV/EBIT 18.1 13.6 13.1 16.8 17.0 12.8 13.3 16.9FV/Revenue 1.8 1.8 1.9 2.3 1.7 1.7 1.9 2.3P/BV 0.8 0.9 0.9 0.9 0.8 0.9 0.9 0.9FCF Yield (%) 5.8 5.6 (10.5) (15.4) 6.1 6.0 (10.3) (15.4)Div Yield (%) 3.9 4.1 1.9 1.8 4.1 4.3 1.9 1.8

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 23 56 54 42 0.05 0.10 0.09 0.07DPS 33 39 17 16 0.07 0.07 0.03 0.03BVPS 982 980 1,017 1,043 1.87 1.61 1.64 1.71

US$Ch$

E.CL52.0%

Endesa24.0%

Gener20.0%

Others4.0%

Coal83.0%

Diesel7.0%

Gas/LNG10.0%

GDF SUEZ52.8%


Foreign Institucional

Investors7.4%

Others19.2%

263


CHILE—UTILITIES

ENDESA CHILE BUY CURRENT PRICE: US$45.47



Investment Case: We believe Endesa’s strong fundamentals have remained intact and that it full potential should be reach in the next two to three years. The renewal of contracts and restart of BocaminaII should aid margins, in our view, while its flexible thermal capacity provides the company with protection against all hydro scenarios. Finally, we believe two-year forward (under normal hydrology) valuations look attractive.

Outlook 2015: We expect 12.4% YoY EBITDA growth (in Chilean pesos), mainly thanks to the recovery in Chilean operations after the startup of Bocamina II (350 MW, coal) in 2H15 and slightly better hydrology thanks to a positive 2014-15 ice-melting season. We believe that this improvement would be offset by weak results in Colombia due to the decline in prices after the startup of large hydro projects and strong COP/USD depreciation.

Contract renewal to boost earnings: The startup of 5,650 GWh regulated contracts in Chile during 2014 at an average price of US$120 per MWh, an increase of 65% from 2013’s average, should boost top-line results by US$700 million, according to our calculations. Also, 2015 will see start of the auction process for contracts to be renewed in 2022, which represents about 56% of the expected demand in Chile for the next decade. Following the raised ceiling for tender offers of the past few years, we expect more attractive prices for generators.

Good performer in all hydro scenarios: Endesa’s flexibility owing to its competitive LNG supply contract and role as an active player in hydro facilities allows it to take advantage of the spot market in all hydrological scenarios. We estimate that over the next five years, Endesa will sell 2-25% of its energy to the spot market.

Better hydrology to buffer results in upcoming quarters. In Chile, energy in water reservoirs is 38% higher than in 2013, and regulators’ forecast a 2014-15 ice-melting season that will be 48% higher than the last season, which we expect will protect margins from the halt of Bocamina (350 MW, coal) that began in December 2013.



Company Statistics



Bloomberg EOC US / ENDESA CICurrent Price (01/02/15) US$ 45.47 / Ch$ 926.73Target Price (YE 2015) US$ 53.70 / Ch$ 1,110.0052-Week Range (US$) 37.92 - 47.91Market Capitalization (US$ Mn) 12,431Float (%) 40.03-Mth Avg. Daily Vol (US$ Mn) 4.1Shares Outstanding - Mn 273

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

EOC US IPSA

264

ENDESA CHILE Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description Endesa Chile is the largest electricity generation company in Chile, and one of the largest privately held electricity generators in the region. With operations in Chile, Argentina, Colombia, Peru, and Brazil (via the 38.9% stake it owns in Endesa Brazil, consolidated by Enersis), and a total consolidated installed capacity of 15,555 MW. Endesa Chile is arguably the most regionally diversified energy-generating platform in Latin America. Key Personnel: Enrico Viale (Chairman), Valter Moro (CEO), Fernando Gardeweg (CFO), Susana Rey (IR Director) and Catalina González (Head of IR) Web: www.endesa.cl

EBITDA Breakdown per Country, 2015E

Installed Capacity by Technology, 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 2,027 2,404 2,613 2,667 4,094 4,206 4,172 4,337 YoY change (%) (12.6) 18.6 8.7 2.1 (14.1) 2.7 (0.8) 3.9Gross Profit 1,000 1,116 1,262 1,563 2,020 1,952 2,015 2,541 YoY change (%) 24.1 11.5 13.1 23.8 21.9 (3.4) 3.2 26.1EBITDA 979 1,088 1,222 1,524 1,977 1,904 1,952 2,478 YoY change (%) 21.1 11.1 12.4 24.7 19.0 (3.7) 2.5 26.9 As % of Revenue 48.3 45.3 46.8 57.1 48.3 45.3 46.8 57.1Operating Income 783 873 998 1,299 1,581 1,528 1,594 2,112 YoY change (%) 27.8 11.5 14.3 30.2 25.6 (3.4) 4.3 32.6 As % of Revenue 38.6 36.3 38.2 48.7 38.6 36.3 38.2 48.7Financial Results (224) (265) (281) (304) (452) (463) (449) (494)Taxes (205) (273) (268) (360) (414) (479) (428) (586)Net Profit 354 335 449 635 715 586 717 1,033 YoY change (%) 51.1 (5.4) 34.1 41.5 48.5 (18.0) 22.4 44.1 As % of Revenue 17.5 13.9 17.2 23.8 17.5 13.9 17.2 23.8

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (196) (215) (224) (225) (396) (376) (358) (365)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital 129 (152) 11 3 261 (265) 18 5Operating Cash Flow 673 398 685 863 1,359 696 1,093 1,403Capital Expenditures (367) (866) (495) (268) (741) (1,516) (790) (436)Free Cash Flow 306 (468) 190 594 618 (819) 303 966Other Invest./(Divestments) 95 118 0 0 191 206 0 0Change in Debt (38) 311 (177) (184) (76) 545 (282) (299)Dividends (294) (318) (167) (224) (594) (557) (267) (365)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 348 337 183 369 662 553 295 605Current Assets 965 1,023 913 1,111 1,837 1,677 1,473 1,821Fixed Assets 4,692 5,344 5,614 5,658 8,930 8,760 9,055 9,275Total Assets 6,762 7,415 7,576 7,818 12,869 12,157 12,220 12,816Current Liabilities 1,238 1,211 975 1,005 2,357 1,986 1,572 1,648Long-Term Liabilities 1,936 2,304 2,420 2,219 3,684 3,776 3,903 3,638Shareholders' Equity 2,652 2,902 3,184 3,595 5,047 4,758 5,135 5,893Total Financial Debt 1,894 2,206 2,029 1,845 3,605 3,616 3,273 3,025ST Debt 354 407 114 131 673 667 185 214LT Debt 1,541 1,799 1,915 1,715 2,932 2,949 3,089 2,811




US$Ch$

Chile43.0%

Argentina3.0%

Colombia40.0%

Perú14.0%

Thermal43.0%

Hydro57.0%

Enersis60.0%


ADR holders4.0%

Others21.0%

265


CHILE—UTILITIES

ENERSIS BUY CURRENT PRICE: US$16.10



Investment Case: We remain positive on Enersis, as we like the company’s exposure to the generation business growth story (via Endesa), and as we expect to see normalization in its distribution business (which has been affected by nonrecurring events, especially in Brazil). Finally, we believe that current valuations are attractive, particularly with respect to the implied valuation of its distribution business.

Outlook 2015: We expect Chilean operation to drive 9.1% EBITDA growth (in Chilean pesos), thanks to the ramp-up of regulated contracts and startup of Bocamina II in 2H15. However, we believe that these positives could be offset by weaker results in Colombia, due to FX depreciation, lower prices for Emgesa and the tariff revision for Codensa. In Brazil, we expect a slight recovery in the distribution business due to the pass-through of over costs to clients, though this could be jeopardized if the drought persists in 2015.

Recovery in Brazilian distribution business: We expect results to recover in the medium term, as over costs generated by involuntary exposure to spot market in 2014 should pass onto tariffs and due to recent caps on spot prices. But, negative effects from Coelce tariff revision cycle (set to be announced in the next few months) could offset this potential upside.

Enersis gains significance for controller. The recent change in control of Enersis from Endesa Spain to Enel shows, in our view, how significant Enel’s LatAm operations have become. We believe the controller could promote changes in the future, such as boosting the use of proceeds from the 2013 capital increase or even promoting new changes in the Endesa/Enersis structure.

Contract renewal in generation business to boost results: In Chile, the start-up of regulated contracts during 2014 at substantially higher prices should boost results, we believe. In 2015, the auction process to renew contracts expiring in 2021-22 will begin, and we expect these renewals to come at attractive prices for generation companies.



Company Statistics



Bloomberg ENI US / ENERSIS CICurrent Price (01/02/15) US$ 16.10 / Ch$ 197.45Target Price (YE 2015) US$ 19.20 / Ch$ 235.0052-Week Range (US$) 13.12 - 17.72Market Capitalization (US$ Mn) 15,808Float (%) 39.43-Mth Avg. Daily Vol (US$ Mn) 7.5Shares Outstanding - Mn 982

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

ENI US IPSA

266

ENERSIS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description Enersis is an integrated electricity group involved in the generation, transmission, and distribution of electrical power in Latin America. Originally a distribution company in Chile, Enersis has gradually expanded into Argentina, Brazil, Chile, Colombia, and Peru as an active player following the privatization of Latin American electricity assets in the 1990s. Controlling 14,781 MW of generating capacity through Endesa Chile and Endesa Brasil, as well as electricity distribution sales totaling 45,107 GWh during 9M2014, Enersis is the largest publicly traded electricity group in the region. The company is controlled by Enel, which owns 61% of the company, and listed on the stock exchanges of Santiago and New York. Key Personnel: Jorge Rosenblut (Chairman), Luigi Ferraris (CEO), Javier Galán (CFO), Pedro Cañamero (Director of IR) and Denisse Labarca (Head of IR) Web: www.enersis.cl

Discos EBITDA by Country, 2015E




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 6,264 7,020 7,256 7,387 12,650 12,283 11,586 12,012 YoY change (%) (3.6) 12.1 3.4 1.8 (5.2) (2.9) (5.7) 3.7Gross Profit 2,665 2,679 2,882 3,212 5,381 4,687 4,602 5,222 YoY change (%) 14.7 0.5 7.6 11.5 12.7 (12.9) (1.8) 13.5EBITDA 2,251 2,180 2,380 2,706 4,547 3,814 3,801 4,400 YoY change (%) 15.6 (3.2) 9.2 13.7 13.6 (16.1) (0.3) 15.8 As % of Revenue 35.9 31.1 32.8 36.6 35.9 31.1 32.8 36.6Operating Income 1,741 1,658 1,838 2,161 3,516 2,901 2,935 3,514 YoY change (%) 18.4 (4.8) 10.8 17.6 16.3 (17.5) 1.2 19.7 As % of Revenue 27.8 23.6 25.3 29.3 27.8 23.6 25.3 29.3Financial Results (578) (673) (675) (691) (1,168) (1,178) (1,078) (1,124)Taxes (504) (523) (476) (594) (1,018) (915) (761) (966)Net Profit 659 462 687 876 1,330 808 1,097 1,424 YoY change (%) 74.5 (29.8) 48.6 27.6 71.5 (39.2) 35.6 29.9 As % of Revenue 10.5 6.6 9.5 11.9 10.5 6.6 9.5 11.9

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (510) (522) (542) (545) (1,031) (913) (866) (886)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (429) 219 4 3 (867) 383 7 4Operating Cash Flow 665 824 1,233 1,423 1,342 1,442 1,969 2,314Capital Expenditures (819) (1,106) (974) (729) (1,655) (1,935) (1,555) (1,186)Free Cash Flow (155) (282) 259 694 (312) (493) 414 1,128Other Invest./(Divestments) (1,586) 474 0 0 (3,203) 829 0 0Change in Debt 110 285 (444) (516) 223 499 (709) (840)Dividends (482) (568) (231) (343) (973) (995) (369) (558)Capital Increases/Other 2,844 0 0 0 5,744 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 2,387 1,487 1,072 906 4,544 2,438 1,728 1,485Current Assets 3,896 3,344 2,971 2,834 7,415 5,482 4,793 4,645Fixed Assets 7,434 8,396 8,828 9,013 14,147 13,765 14,238 14,775Total Assets 15,178 15,770 15,829 15,876 28,885 25,853 25,530 26,026Current Liabilities 2,981 2,603 2,650 2,593 5,674 4,268 4,274 4,251Long-Term Liabilities 3,689 4,461 4,017 3,588 7,021 7,313 6,479 5,882Shareholders' Equity 6,169 6,472 6,927 7,460 11,740 10,609 11,173 12,229Total Financial Debt 3,697 3,982 3,538 3,022 7,036 6,528 5,706 4,953ST Debt 907 588 588 501 1,726 965 949 821LT Debt 2,790 3,393 2,950 2,521 5,310 5,563 4,757 4,132




US$Ch$

Chile23.6%

Brazil35.7%

Argentina-6.6%

Colombia34.1%

Perú13.2%

Generation59.3%

Distribution38.6%

Transmision2.1%

Endesa Latam61.0%


ADR Holders12.0%

Others13.0%

267


CHILE—TELECOM, MEDIA & TECHNOLOGY

ENTEL HOLD CURRENT PRICE: CH$6,075


LOWERING YE2015 TARGET PRICE TO CH$7,000 FROM CH$7,600

Investment Case: We maintain our Hold rating, as we believe the stock is unlikely to fully reflect the value of the Peruvian mobile business until that operation reaches breakeven, which we estimate will not occur until 2017. Moreover, the slowdown in the Chilean operation has been faster than we expected, and we believe 4Q14 results will likely show continued weakness, due to increasingly aggressive competition within the postpaid business.

Outlook 2015: We expect Entel to reach revenue, EBITDA, and net income of US$3,005 million, US$714 million, and US$147 million, reflecting growth of +0.6%, -2.4%, and +11.2%. The main drivers for these estimates are (1) markedly negative results in Peru based on commercial expansion and a high degree of competition in the new market, and (2) more modest growth in the Chilean subscriber base together with a decelerating economy.

Too soon to jump in based on Peru: We estimate the Peruvian mobile operation has a firm value of US$464 million, compared with the US$400 million Entel paid in April 2013, contributing ~10% of our target EV. Nevertheless, we do not expect the Peruvian operation to reach breakeven EBITDA until 2017 and believe it will not become cash flow positive until the end of the decade. Thus, consolidated FCF yield should remain below 5% until 2019, in our view, limiting potential increases in the dividend.

Tough postpaid competition in Chile: After the 76% decline in MTR tariffs, prepaid segment profitability decreased, and we haveseen more aggressiveness among postpaid competitors. Entel reacted by increasing subsidies but not tariffs, as competitors do. Still, we expect margins to remain low for the next few quarters.

Standby of 700 MHz-spectrum process: In February 2014, Block B was assigned to Entel, but a suit concerning the bidding process has delayed implementation. We expect the issue to be resolved in 2015; however, we do not incorporate potential gains in our model.



Company Statistics



Bloomberg ENTEL CICurrent Price (01/02/15) Ch$ 6,075 / US$ 9.89Target Price (YE 2015) Ch$ 7,000 / US$ 11.2952-Week Range (Ch$) 6,033 - 7,497Market Capitalization (US$ Mn) 2,280Float (%) 45.23-Mth Avg. Daily Vol (US$ Mn) 2.2Shares Outstanding - Mn 231

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

ENTEL CI IPSA

268

ENTEL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description Entel is the second largest telecommunication company in Chile, after Telefónica Group, with an industry revenue share of about 32%. The company offers a wide range of services, including mobile, long distance, fixed wireline services, data transmission, IT, and Internet services. As of September 2014, Entel had 10.1 million mobile subscribers in Chile, making it one of the largest mobile operators in the country, with a 38% market share (in terms of mobile subscribers). The company also has a wireline operation that is mainly focused on corporate clients. Entel has a small wireline operation in Peru and acquired Nextel, which has been recently launched as Entel Peru to develop the mobile services business. As of September 2014, Entel had 1.5 million mobile subscribers in Peru. Entel is controlled by Almendral, a listed Chilean company controlled by a group of Chilean entrepreneurs. Key Personnel: Juan Hurtado (Chairman), Antonio Buchi (CEO), Felipe Ureta (CFO) and Carmen Luz de la Cerda (IR Officer) Web: http://www.entel.cl

Revenues Breakdown, 9M14

Mobile Subscribers, 3Q14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,644 1,706 1,848 2,046 3,320 2,986 3,005 3,327 YoY change (%) 14.1 3.8 8.3 10.7 12.1 (10.1) 0.6 10.7Gross Profit 390 394 428 508 788 690 695 827 YoY change (%) 7.4 1.0 8.5 18.9 5.5 (12.5) 0.8 18.9EBITDA 481 418 439 503 971 731 714 818 YoY change (%) (10.4) (13.1) 5.1 14.5 (11.9) (24.7) (2.4) 14.5 As % of Revenue 29.3 24.5 23.8 24.6 29.3 24.5 23.8 24.6Operating Income 218 169 171 199 440 296 277 324 YoY change (%) (1.7) (22.5) 0.9 16.8 (3.4) (32.8) (6.3) 16.8 As % of Revenue 13.3 9.9 9.2 9.7 13.3 9.9 9.2 9.7Financial Results (19) (46) (49) (51) (38) (81) (79) (83)Taxes (30) (16) (26) (34) (60) (28) (43) (55)Net Profit 147 75 90 108 297 132 147 176 YoY change (%) (12.2) (48.7) 19.6 19.8 (13.7) (55.6) 11.2 19.8 As % of Revenue 8.9 4.4 4.9 5.3 8.9 4.4 4.9 5.3

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (263) (249) (269) (304) (531) (436) (437) (494)Other Noncash Items 10 11 12 13 20 19 20 21Changes in Working Capital (89) 51 3 5 (180) 89 5 8Operating Cash Flow 317 386 374 430 640 675 608 698Capital Expenditures (420) (470) (546) (567) (849) (823) (888) (922)Free Cash Flow (103) (84) (172) (137) (209) (148) (280) (223)Other Invest./(Divestments) (223) (91) 0 0 (450) (159) 0 0Change in Debt 405 583 (71) 176 817 1,020 (116) 286Dividends (89) (56) (41) (49) (180) (97) (67) (80)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 35 376 80 56 65 616 129 92Current Assets 568 875 607 633 1,073 1,434 979 1,038Fixed Assets 1,334 1,570 1,848 2,110 2,520 2,574 2,980 3,460Total Assets 2,257 2,926 2,936 3,226 4,262 4,797 4,736 5,288Current Liabilities 515 522 576 900 973 855 930 1,476Long-Term Liabilities 861 1,463 1,369 1,275 1,625 2,399 2,208 2,091Shareholders' Equity 881 942 991 1,050 1,664 1,544 1,598 1,721Total Financial Debt 840 1,423 1,352 1,528 1,587 2,334 2,181 2,505ST Debt 27 18 40 310 51 29 65 508LT Debt 813 1,406 1,312 1,218 1,536 2,305 2,116 1,997

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 806 1,048 1,272 1,472 1,522 1,717 2,052 2,413Capital Employed 1,245 1,621 1,851 2,115 2,351 2,657 2,985 3,467Net Debt/EBITDA 1.7 2.5 2.9 2.9 1.6 2.3 2.9 2.9Net Debt/Equity 0.9 1.1 1.3 1.4 1.0 1.2 1.3 1.4Capex/Revenue (%) 25.6 27.6 29.5 27.7 25.6 27.6 29.5 27.7Int Cover (%) 23.1 8.1 8.7 9.6 23.1 8.1 8.7 9.6Dividend Payout (%) 53.2 37.8 54.3 54.3 52.2 32.9 50.7 54.0ROCE (%) 17.5 10.4 9.2 9.4 18.6 11.1 9.3 9.4ROE (%) 17.3 8.3 9.3 10.6 17.6 8.2 9.3 10.6



US$Ch$

Mobile Services

Chile68.7%

Data & TI Chile8.6%

Mobile Peru9.1%

Other fixed services13.6%

Prepaid Chile54.3%

Postpaid Chile25.1%

Chile Mobile Broadband

7.9%Mobile Peru

12.8%

Almendral54.8%

Afps8.6%

Others36.6%

269



FALABELLA BUY CURRENT PRICE: CH$4,084


Investment Case: We consider Falabella’s current valuation as a good entry point into a company with a solid track record of organic growth, significant market share in its key markets/business lines, and an increasingly diversified sales mix in terms of geographies andformats. Despite decelerating GDP growth, implying a potential slowdown in SSS, we expect net income growth to remain driven by sales floor expansion and store maturity, and to be particularly focused on less mature formal retail markets such as Peru and, to alesser extent, Colombia.

Outlook 2015: We estimate YoY top-line growth of 8.8% (CLP) as a result of +7% growth in sqm in the region, with a special focus on Peru and, to lesser extent Colombia, based on the lower penetration these markets show. The EBIT margin should expand by 0.4 p.p., according to our calculations, to 10.6% due to weaker pressure on SG&A (-0.7 p.p. over sales) after the consolidation of home improvement division in Brazil and Peru (after the acquisitions of Dicico and Maestro, respectively). We forecast net profit growth to US$853 million (vs. US$797 million in 2014E), leading to 7.0% YoY growth and showing net margin expansion of 0.3 p.p., to 6.3%.

Sales growth driven by organic capex should lessen the impact of decelerating SSS. Despite decelerating consumption in Chile and an expected recovery from late 2015 onward, we believe that investments in organic growth (14% sales floor expansion expected between YE2014 and YE2016), and the consequent 18.1% growth in consolidated sales spurred by this higher sqm and store maturity, should lessen the expected impact of lower SSS. In addition, we believe the expansion plan will not be priced in. Finally, in almost all business lines/formats, we assume margins below historical levels.

Trading at a historical discount: FALAB trades at a 12-month-forward P/E of 17.8x (a 24.5% discount to its historical multiple of 23.6x), and a 12-month-forward FV/EBITDA of 11.8x (a 26.4% discount to its historical multiple of 16.1x).




Company Statistics



70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

FALAB CI IPSA

Bloomberg FALAB CICurrent Price (01/02/15) Ch$ 4,084 / US$ 6.65Target Price (YE 2015) Ch$ 5,300 / US$ 8.5552-Week Range (Ch$) 4,009 - 5,143Market Capitalization (US$ Mn) 15,998Float (%) 12.03-Mth Avg. Daily Vol (US$ Mn) 5.7Shares Outstanding - Mn 2,406

270

FALABELLA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description Falabella is one of the Chilean leading multi-format retailers in the region, with operations in Chile, Peru, Colombia, Brazil, Uruguay and Argentina. The company’s retail formats include department stores, home-improvement stores and supermarkets. It also has two other business units: financial retail and real estate. With its brands, Falabella and Sodimac, the company is the market-share leader in the department store and home improvement markets in the main four countries where it has presence (except for home improvement in Argentina and Brazil) It also leads the shopping center market with Mall Plaza both in Chile and Peru, and it recently entered the Colombian and Brazilian market in 2012 and 2013, respectively. In addition, in 1998, the company opened a bank, Banco Falabella, which has operations in Chile, Peru and Colombia, and owns the leading credit card in Chile, CMR, which also has operations in the other three countries Key Personnel: Carlo Solari (Chairman), Sandro Solari (CEO), Alejandro González (CFO), Jordi Gaju (CDO) and Lucrecia Fittipaldi (Head of IR) Web: www.falabella.cl


Gross Profit by Country, 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 6,660 7,577 8,246 8,852 13,448 13,343 13,643 14,682 YoY change (%) 12.5 13.8 8.8 7.4 10.6 (0.8) 2.3 7.6Gross Profit 2,353 2,636 2,863 3,063 4,752 4,642 4,736 5,079 YoY change (%) 17.2 12.0 8.6 7.0 15.1 (2.3) 2.0 7.2EBITDA 902 972 1,085 1,170 1,822 1,711 1,796 1,940 YoY change (%) 17.7 7.7 11.7 7.8 15.6 (6.1) 4.9 8.1 As % of Revenue 13.5 12.8 13.2 13.2 13.5 12.8 13.2 13.2Operating Income 735 773 870 938 1,484 1,361 1,440 1,556 YoY change (%) 18.3 5.2 12.6 7.8 16.3 (8.3) 5.8 8.1 As % of Revenue 11.0 10.2 10.6 10.6 11.0 10.2 10.6 10.6Financial Results (94) (137) (101) (91) (190) (242) (167) (150)Taxes (144) (153) (193) (229) (290) (269) (319) (380)Net Profit 444 453 516 556 896 797 853 923 YoY change (%) 19.0 2.0 13.9 7.9 16.9 (11.0) 7.0 8.2 As % of Revenue 6.7 6.0 6.3 6.3 6.7 6.0 6.3 6.3

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 167 199 215 232 338 350 356 384Other Noncash Items - - - - - - - -Changes in Working Capital (303) 39 (83) (27) (612) 68 (137) (44)Operating Cash Flow 308 690 648 762 623 1,216 1,072 1,263Capital Expenditures (536) (209) (390) (314) (1,082) (367) (645) (520)Free Cash Flow (20) 1,102 15 223 (41) 1,940 24 370Other Invest./(Divestments) - - - - - - - -Change in Debt 431 629 (244) (225) 871 1,107 (403) (373)Dividends (171) (214) (219) (249) (346) (378) (362) (413)Capital Increases/Other 1 3 0 0 2 5 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 748 541 541 541 1,424 909 872 893Current Assets 5,324 5,461 5,706 5,925 10,132 9,178 9,204 9,779Fixed Assets 1,707 2,156 2,330 2,412 3,249 3,623 3,759 3,982Total Assets 9,895 10,942 11,362 11,662 18,832 18,390 18,325 19,248Current Liabilities 3,475 3,457 3,823 4,042 6,614 5,810 6,167 6,670Long-Term Liabilities 2,595 3,572 3,329 3,104 4,939 6,004 5,369 5,123Shareholders' Equity 3,152 3,522 3,819 4,126 5,999 5,920 6,160 6,811Total Financial Debt 3,096 3,251 3,211 3,013 5,892 5,463 5,179 4,972ST Debt 857 456 660 686 1,631 766 1,064 1,132LT Debt 2,239 2,795 2,552 2,327 4,260 4,698 4,116 3,840




US$Ch$

Chile59.7%

Argentina and

Uruguay6.9%

Brazil2.7%

Peru23.8%

Colombia6.8%

Chile66.9%

Argentina and

Uruguay4.4%

Brazil0.3%

Peru22.7%

Colombia5.7%

Solari-Del Rio Group

88.0%

AFPs3.7%

Others8.3%

271


CHILE—UTILITIES

IAM HOLD CURRENT PRICE: CH$939.89 TARGET PRICE: CH$1,040.00

RAISING YE2015 TARGET PRICE TO CH$1,040 FROM CH$960

Investment Case: We believe the end of Aguas Andinas’ sixth tariff revision cycle, with a slightly better-than-expected outcome, should help ease the pressure we have seen on IAM’s stock during 2014. Moreover, we like IAM’s defensive nature in times of economic uncertainty. However, we believe that its 2015E P/E of 15x limits upside potential, highlighting that the holding company discount is in line with its three-year average (12%).

Outlook 2015: We expect net income growth of 7.1% YoY, to Ch$63 billion, due to: (1) the pass-through of inflation to final consumers; (2) a less negative effect from inflation on debt issued inreal terms; and (3) a neutral impact on results from the tariff revision.However, we believe lower volume growth could offset part of this upside.

Tariff revision news better than expected for IAM's only asset: In 4Q14, Aguas Andinas announced the results of its sixth tariff revisioncycle, which implied zero change in the tariff beginning March 2015. We highlight that the new tariff is slightly better than the 0.5% decline we estimated. We expect the end of the tariff process to reduce regulatory risk for IAM, offering the stock some relief.

Defensive stock in uncertain times: We like IAM's defensive nature in the current period of economic uncertainty, thanks to: (1) its attractive dividend yield (6.3%); (2) no major impact from tax reform, as regulated return in Aguas Andinas is calculated after taxes; (3) limited political risk, especially given the potential introduction of hydro royalties; and (4) the low elasticity of regulated businesses relative to the economic cycle.

Valuation limits the upside: We estimate that currently IAM trades at a holding discount in line with its 12% average in 2011-14. On the other hand, 2015E P/E and FV/EBITDA are at 15.0x and 8.2x, 4% discounts to the three-year averages. However, we do not see this as especially attractive, given the constraints on the company's growth now that Aguas Andina has reached 100% service coverage in most of its business.



Company Statistics



Bloomberg IAM CICurrent Price (01/02/15) Ch$ 939.89 / US$ 1.53Target Price (YE 2015) Ch$ 1,040 / US$ 1.6852-Week Range (Ch$) 847.01 - 963.31Market Capitalization (US$ Mn) 1,530Float (%) 43.43-Mth Avg. Daily Vol (US$ Mn) 1.7Shares Outstanding - Mn 1,000

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

IAM CI IPSA

272

IAM Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description Inversiones Aguas Metropolitanas (IAM) is a holding company with a single asset: a 50.1% stake in Aguas Andinas, the largest water utility company in Chile and one of the largest private water and sewage companies in South America. The company provides water and basic sanitation services to residential, commercial, and industrial customers in most of Santiago, Chile’s capital and largest city, as well as other locations in the metropolitan region. Aguas Andinas, which accounts for 43% of the water utilities industry in Chile, also has operations in Chile’s Tenth Region through the acquisition of its subsidiary Essal. Key Personnel: Josep Bagué Prats (Chairman), Jorge Sagnier (CEO), Iván Yarur (CFO) and Stephanie Baier (Head of IR) Web: www.iamchile.cl

EBITDA by Sector, 2015E




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 403 433 449 475 813 758 717 772 YoY change (%) 5.2 7.6 3.6 5.8 3.3 (6.8) (5.5) 7.8Gross Profit 223 247 259 274 449 432 413 446 YoY change (%) (1.0) 10.9 4.8 6.0 (2.7) (3.9) (4.3) 7.9EBITDA 246 267 279 296 498 467 446 481 YoY change (%) 2.0 8.4 4.6 5.9 0.3 (6.1) (4.5) 7.8 As % of Revenue 61.2 61.6 62.2 62.2 61.2 61.6 62.2 62.2Operating Income 182 201 212 225 367 352 339 366 YoY change (%) (2.5) 10.8 5.5 6.1 (4.2) (4.0) (3.7) 8.0 As % of Revenue 45.1 46.4 47.3 47.4 45.1 46.4 47.3 47.4Financial Results (95) (117) (116) (119) (191) (205) (186) (193)Taxes (29) (28) (34) (42) (59) (49) (54) (68)Net Profit 58 59 63 64 116 103 100 105 YoY change (%) (4.3) 1.6 7.1 2.8 (5.9) (11.9) (2.3) 4.7 As % of Revenue 14.3 13.5 14.0 13.6 14.3 13.5 14.0 13.6

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (65) (67) (68) (70) (131) (117) (109) (114)Other Noncash Items - - - - - - - -Changes in Working Capital 8 (51) (1) 12 17 (90) (2) 19Operating Cash Flow 131 74 129 147 264 130 207 238Capital Expenditures (84) (67) (125) (117) (169) (118) (199) (190)Free Cash Flow 47 7 5 30 95 12 8 48Other Invest./(Divestments) (21) 28 2 1 (42) 48 4 1Change in Debt 26 18 50 18 52 31 80 29Dividends (44) (60) (59) (63) (89) (104) (94) (103)Capital Increases/Other (0) (1) (1) 0 (0) (2) (2) 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 40 29 27 12 77 48 43 19Current Assets 135 117 118 106 256 192 190 174Fixed Assets 1,171 1,173 1,230 1,277 2,229 1,922 1,984 2,093Total Assets 1,851 1,848 1,906 1,941 3,522 3,029 3,074 3,181Current Liabilities 221 121 155 169 421 198 250 277Long-Term Liabilities 680 750 768 787 1,294 1,230 1,239 1,291Shareholders' Equity 581 597 601 602 1,106 979 969 987Total Financial Debt 720 738 788 806 1,370 1,209 1,271 1,321ST Debt 94 52 84 83 178 84 135 135LT Debt 626 686 704 723 1,192 1,125 1,136 1,186

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 680 709 761 794 1,293 1,162 1,227 1,302Capital Employed 1,683 1,749 1,808 1,770 3,203 2,867 2,916 2,901Net Debt/EBITDA 2.8 2.7 2.7 2.7 2.6 2.5 2.8 2.7Net Debt/Equity 1.2 1.2 1.3 1.3 1.2 1.3 1.3 1.3Capex/Revenue (%) 20.8 15.5 27.7 24.6 20.8 15.5 27.7 24.6Int Cover (%) 8.5 8.3 7.9 7.9 8.5 8.3 7.9 7.9Dividend Payout (%) 72.8 103.3 100.5 101.1 71.5 89.7 93.9 100.5ROCE (%) 10.8 11.5 11.8 12.7 11.5 12.2 11.8 12.7ROE (%) 9.9 9.9 10.5 10.7 10.0 9.8 10.5 10.7



US$Ch$

ESSAL9.5%

Aguas90.5%

Water39.9%

Collection20.2%

Treatment20.4%

Others19.5%

Agbar56.6%

International Investors

2.1%

Local Institutional

Investor0.5%

Others40.8%

273


CHILE—HEALTH CARE

INVERSIONES LA CONSTRUCCIÓN BUY CURRENT PRICE: CH$7,350



Investment Case: We maintain our Buy rating on ILC shares, as in our view, the recent 8.7% decline since November 30 is unjustified, considering the company’s business mix at valuations that are below historical levels. Moreover, our estimates do not assume synergies from the recently announced acquisitions.

Outlook 2015: We expect 6.6% EBITDA growth, driven by 3.3% growth in Habitat EBITDA, flat results in Red Salud (Private Health Services), partly offset by a 10% decline in Consalud, as we expect higher claim rates in 2015. Our operating income estimate does not include Corp Group Vida insurance company results; neither does it include the operations of Banco Internacional, as we await clarity on due diligence for the pending acquisition. We expect that transactionto close in 1H15.

Entering the banking business: On August 19, ILC announced that it had signed a MOU to acquire a 50.1% stake and the control of Banco Internacional, a small-sized corporate bank, with a market share in loans of 0.61%. The bank has equity of ~US$124 million; considering the postdeal capital increase, we estimate capital of ~US$158 million. For that, ILC will be paying an estimated US$112 million for 50.1% of the shares, implying a P/BV of 1.4x. Banco Internacional posted a LTM ROAE of 5.36%. While the price paid is below recent transaction/market prices in the sector, we find it justified by the bank’s relatively low profitability.

Attractive valuations and dividends: According to our estimate, ILC is trading at a 2015E P/E of 8.8 times, not considering AFP Habitat’s legal reserve, which is at a 15.3% historical discount and is delivering a 12-month-forward dividend yield of 7.4%, in-line with its average, and among the highest in our Chilean coverage in the sector.

Matias Duarte* Chile: Santander Investment Chile Limitada +5622-336-3423|[email protected]


Company Statistics



Bloomberg ILC CICurrent Price (01/02/15) Ch$ 7,350 / US$ 11.97Target Price (YE 2015) Ch$ 8,250 / US$ 13.3152-Week Range (Ch$) 6,437 - 8,580Market Capitalization (US$ Mn) 1,196Float (%) 33.03-Mth Avg. Daily Vol (US$ Mn) 1.1Shares Outstanding - Mn 100

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

ILC CI IPSA

274

INVERSIONES LA CONSTRUCCIÓN Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description ILC is a holding company controlled by the Chilean Construction Chamber (CChC). In the pension fund sector, ILC through AFP Habitat manages the money of its contributors, which, according to November 2014 data was equivalent to assets under management (AUM) of more than US$44 billion. In contrast, the company has an active participation in the insurer and healthcare provider business through Red Salud, which has one of the largest networks of private hospitals and medical centers in Chile. Also, in the healthcare sector, through Consalud, ILC provides private health insurance in Chile and is the second largest health insurance company in terms of policyholders. With respect to insurance, through Vida Camara, the company provides complementary health insurance and since October sold disability and survivorship (SIS) services to pension companies. Also, ILC has a small participation in IT services and the education sector. Key Personnel: Daniel Hurtado (Chairman), Pablo González (CEO) Web: http://www.ilcinversiones.cl/

Sales, 2015E

EBIT, 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 646 674 688 709 1,304 1,179 1,119 1,154 YoY change (%) (4.7) 4.3 2.1 3.1 (6.4) (9.6) (5.1) 3.1Gross Profit 224 242 255 263 453 424 415 427 YoY change (%) (8.8) 8.1 5.2 3.0 (10.4) (6.3) (2.2) 3.0EBITDA 102 119 127 132 206 209 207 214 YoY change (%) (21.1) 17.0 6.6 3.4 (22.5) 1.4 (0.9) 3.4 As % of Revenue 15.8 17.7 18.5 18.6 15.8 17.7 18.5 18.6Operating Income 90 107 115 119 182 186 187 194 YoY change (%) (23.7) 18.4 8.1 3.4 (25.0) 2.6 0.5 3.4 As % of Revenue 13.9 15.8 16.7 16.8 13.9 15.8 16.7 16.8Financial Results 34 (5) (3) (2) 69 (9) (6) (4)Taxes (21) (34) (31) (35) (42) (59) (51) (56)Net Profit 79 42 80 82 160 74 131 134 YoY change (%) (2.5) (46.6) 90.3 2.2 (4.2) (53.7) 76.8 2.2 As % of Revenue 12.3 6.3 11.7 11.6 12.3 6.3 11.7 11.6

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (12) (13) (12) (13) (24) (23) (20) (20)Other Noncash Items - - - - - - - -Changes in Working Capital (22) 14 6 3 (45) 24 10 5Operating Cash Flow 68 101 98 98 137 176 160 159Capital Expenditures 19 (37) (12) (13) 38 (65) (20) (20)Free Cash Flow 87 64 86 85 175 112 140 139Other Invest./(Divestments) (317) (72) (21) (22) (640) (125) (35) (37)Change in Debt 181 22 (14) 0 366 39 (22) 0Dividends (70) (46) (53) (56) (141) (80) (86) (92)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 126 124 118 125 239 203 191 204Current Assets 231 198 199 207 439 325 321 340Fixed Assets 206 231 231 231 392 379 373 379Total Assets 5,299 5,721 5,743 5,774 10,084 9,379 9,263 9,465Current Liabilities 173 190 202 207 330 312 326 340Long-Term Liabilities 418 427 413 413 796 699 666 677Shareholders' Equity 477 504 531 557 907 826 857 913Total Financial Debt 397 419 405 405 755 686 653 664ST Debt 43 51 51 51 81 84 82 84LT Debt 354 368 354 354 673 603 571 580

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 245 295 287 280 467 483 462 459Capital Employed 683 712 728 747 1,301 1,168 1,174 1,225Net Debt/EBITDA 2.4 2.5 2.3 2.1 2.3 2.3 2.2 2.1Net Debt/Equity 0.5 0.6 0.5 0.5 0.5 0.6 0.5 0.5Capex/Revenue (%) (2.9) 5.5 1.8 1.8 (2.9) 5.5 1.8 1.8Int Cover (%) 7.6 5.6 5.2 5.4 7.6 5.6 5.2 5.4Dividend Payout (%) 85.9 57.5 125.1 70.0 84.4 49.9 116.9 69.6ROCE (%) 25.1 30.4 31.4 32.8 26.4 31.8 31.5 32.8ROE (%) 17.5 8.6 15.6 15.1 17.8 8.5 15.6 15.1



US$Ch$

Habitat19.4%

Red Salud29.2%

Consalud46.8%

Vida Camara

4.5%

Habitat82.1%

Red Salud15.1%

Consalud12.1%

Vida Camara-9.4%

CChC67.0%

Mutual Funds5.9%

International14.7%

Others12.4%

275


CHILE—TRANSPORTATION

LATAM AIRLINES HOLD CURRENT PRICE: US$11.82


INTRODUCING YE2015 TARGET PRICE OF US$13.20; REPLACING YE2014 TARGET PRICE OF US$18.00

Investment thesis: We anticipate a challenging competitive scenario in almost all of the markets where LATAM operates, which should imply lower unit revenue next year and partially offset the recent significant fall in oil prices (~-50% since June). According to our calculations, the stock trades at a 2015E EV/EBITDAR of ~7x, only slightly below our target multiple of 7.5x (compared with our previous 8.5x due to a weaker revenue trend).

Outlook 2015: We estimate: (1) YoY top-line growth of -1% in US dollars, as a result of -4% RASK and +3.3% ASK (vs. -0.2% in 2013 and -1.2% in 2014E); (2) EBIT margin expansion of 2.93 p.p., to 7.1%, with RASK at -4% (mainly due to 4% decrease in yields, maintaining the downward trajectory seen in the last few quarters) and CASK at -7% (on lower jet fuel prices); and (3) net profit growth to US$435 million (vs. US$84 million losses in 2014E).

Falling revenue . . . We expect a fall in revenue of 1% YoY, after strong competition in international passenger operations, with capacity transferring to more profitable routes. Also a tougher competitive environment in Spanish speaking countries (SSC) and cargo operations should lead to a decrease in yields (-4% and -3% YoY, respectively) that would offset the increase in capacity, mostlycoming from SSC and international operations. Finally, the 12% BRL depreciation expected for 2015, up to R$2.71 per USD, should also pressure revenue.

. . . offset by lower oil prices. Oil prices (Brent) are at ~US$55/bbl (down by ~50% since June), and we believe this implies significant upside for LATAM Airlines, as 35% of costs are related to jet fuel costs. Our model assumes an average oil price of ~US$75/bbl (36% above current level) during 2015.



Company Statistics



Bloomberg LFL US / LAN CICurrent Price (01/02/15) US$ 11.82 / Ch$ 7,198.30Target Price (YE 2015) US$ 13.20 / Ch$ 8,184.0052-Week Range (US$) 10.60 - 16.36Market Capitalization (US$ Mn) 6,405Float (%) 49.93-Mth Avg. Daily Vol (US$ Mn) 6.0Shares Outstanding - Mn 542

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

LFL US IPSA

276

LATAM AIRLINES Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description LATAM Airlines (parent company of LAN Airlines, LAN Express, LAN Peru, LAN Ecuador, LAN Argentina, LAN Cargo, TAM in Brazil and Paraguay, and other affiliates) is the largest domestic and international passenger and cargo air carrier in Chile, Brazil and Latin America. LATAM operates in the international long-haul market (linking South America to North America, Europe, and South Pacific), in the regional market (within South America) and in the domestic markets of Chile, Brazil, Peru, Paraguay, Colombia, Argentina, and Ecuador. The airline currently serves a total of 150 destinations around the world, with a fleet of 320 aircraft. Key Personnel: Mauricio Amaro (Chairman), Enrique Cueto (CEO), Andres Osorio (CFO) and Gisela Escobar (Head of Investor Relations) Web: www.latamairlines.com


ASK by Country, 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 6,570 7,303 7,939 8,389 13,266 12,779 12,677 13,262 YoY change (%) 1.7 11.2 8.7 5.7 (0.0) (3.7) (0.8) 4.6Gross Profit 1,553 1,708 2,134 2,358 3,137 2,988 3,407 3,727 YoY change (%) 19.0 9.9 25.0 10.5 16.9 (4.7) 14.0 9.4EBITDA 1,053 1,173 1,546 1,732 2,127 2,053 2,468 2,738 YoY change (%) 32.3 11.4 31.7 12.1 30.0 (3.5) 20.2 11.0 As % of Revenue 16.0 16.1 19.5 20.6 16.0 16.1 19.5 20.6Operating Income 319 303 562 712 644 530 897 1,126 YoY change (%) 636.8 (5.1) 85.5 26.8 624.0 (17.7) 69.3 25.5 As % of Revenue 4.9 4.1 7.1 8.5 4.9 4.1 7.1 8.5Financial Results (459) (313) (210) (210) (928) (548) (336) (331)Taxes 10 (45) (134) (191) 20 (79) (213) (302)Net Profit (139) (48) 272 389 (281) (84) 435 615 YoY change (%) 41.8 65.5 n/m 42.9 42.8 70.1 n/m 41.5 As % of Revenue (2.1) (0.7) 3.4 4.6 (2.1) (0.7) 3.4 4.6

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (516) (572) (648) (671) (1,042) (1,001) (1,035) (1,061)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (32) (27) (93) 15 (64) (47) (148) 24Operating Cash Flow 345 497 827 1,075 696 870 1,321 1,700Capital Expenditures 408 (600) (810) (1,377) 824 (1,050) (1,294) (2,177)Free Cash Flow 753 (102) 17 (302) 1,521 (179) 27 (477)Other Invest./(Divestments) 261 0 0 0 526 0 0 0Change in Debt 76 209 0 0 154 366 0 0Dividends (15) 0 0 (83) (30) 0 0 (130)Capital Increases/Other (396) (50) (68) 52 (799) (87) (109) 83


FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 5,427 6,808 7,032 7,500 10,328 11,160 11,342 11,976Capital Employed 7,746 8,213 8,406 8,745 14,742 13,463 13,558 13,966Net Debt/EBITDA 5.2 5.8 4.6 4.3 4.9 5.4 4.6 4.4Net Debt/Equity 1.8 2.0 2.0 1.9 1.9 2.1 2.0 1.9Capex/Revenue (%) (6.2) 8.2 10.2 16.4 (6.2) 8.2 10.2 16.4Int Cover (%) 5.5 6.3 11.7 13.1 5.5 6.3 11.7 13.1Dividend Payout (%) (6.1) 0.0 0.0 30.1 (6.0) 0.0 0.0 30.0ROCE (%) 4.2 3.1 5.0 5.9 4.5 3.3 5.0 5.9ROE (%) (5.2) (1.6) 8.0 10.4 (5.3) (1.6) 8.0 10.4

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E - - 14.4 10.1 - - 14.7 10.4P/CE 10.9 7.5 4.3 3.7 10.3 7.1 4.4 3.8FV/EBITDA 9.1 9.2 7.1 6.6 8.5 8.6 7.2 6.7FV/EBIT 29.9 35.5 19.5 16.1 28.2 33.3 19.8 16.3FV/Revenue 1.5 1.5 1.4 1.4 1.4 1.4 1.4 1.4P/BV 1.5 1.2 1.1 1.0 1.5 1.2 1.1 1.0FCF Yield (%) 18.3 (2.6) 0.4 (7.7) 19.4 (2.8) 0.4 (7.4)Div Yield (%) 0.4 (0.0) (0.0) 2.1 0.4 (0.0) (0.0) 2.0

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS (360) (95) 493 698 (0.59) (0.15) 0.80 1.14 DPS 38 0 0 148 0.06 0.00 0.00 0.24 BVPS 6,817 5,942 6,435 6,985 11.10 9.67 10.48 11.37

US$Ch$

Passenger83.6%

Cargo16.4%

Argentina3.0%

Brazil36.0%

Chile6.0%

Colombia2.0%

Perú3.0%

Long Haul33.0%

Regional17.0%

Cueto Group25.9%

Amaro Group13.8%

AFPs16.5%

Others43.8%

277


CHILE—CEMENT, CONSTRUCTION, INFRA & RE

PARQUE ARAUCO BUY CURRENT PRICE: CH$1,165



Investment Case: We believe Parque Arauco is likely to continue its successful story based on: (1) a shopping mall base with low maturity, which supports revenue and margin improvement; (2) an active format and regional diversification; (3) organic and inorganic growth, supported by a pipeline of more than US$500 million, from which our valuation incorporates 60%; and (4) a US$227 million land bank that could bolster further growth from 2016 onward. Finally, our valuation does not consider the acquisition of El Quince in Peru, which is an upside risk. These factors translate into a 2014-17E 14.7% EBITDA CAGR, with limited downside risk, in our view, as 76% of total GLA is linked to contracts of two or more years.

Outlook 2015: We forecast EBITDA growth of 8.2% due to a 7.6% increase in sales, stemming from a 3% GLA increase. If El Quince project gets fully approved and consolidated on time (1Q15), we estimate sales and EBITDA might grow at a double-digit rate. We note that Parque Arauca’s EBITDA will jump 32.2% in 2016 due to the entrance of La Colima mall in Bogotá, Colombia, the largest project under construction.

Peru as a source of growth: For 2015, we estimate sales and EBITDA in Peru will grow 16.6% and 13.9%, respectively. Management has been actively looking for M&A and new projects in Peru with partners: El Quinde (inorganic growth), Parque El Golf (50% equity share with local Centenario group, incorporated in our model) and other potential projects, for some US$200 million of pipeline space not incorporated.

New tax reform—land taxes: We estimate that the end of land tax credit will lead to ~Ch$2,200 million in 2016 and Ch$4,500 million in 2017 to Parque Arauco’s bottom line; though our earnings forecast incorporates this, we have not changed our DCF projection, as our valuations have never incorporated this tax benefit of the company.


Company Statistics



Bloomberg PARAUCO CICurrent Price (01/02/15) Ch$ 1,165 / US$ 1.90Target Price (YE 2015) Ch$ 1,500 / US$ 2.4452-Week Range (Ch$) 905.02 - 1,251Market Capitalization (US$ Mn) 1,551Float (%) 57.03-Mth Avg. Daily Vol (US$ Mn) 1.2Shares Outstanding - Mn 818

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

PARAUCO CI IPSA

278

PARQUE ARAUCO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description Parque Arauco is the third largest shopping center company in Chile, developing and operating malls in Chile, Peru, and Colombia. As of 3Q14, the company held interests in eighteen malls in Chile, eleven in Peru, and two in Colombia, with owned GLA of 540,940 m2, boasting an average stake of 75.3% in its mall portfolio. The company manages over 718,000 m2 of GLA. In addition, the company has five projects currently under development. Parque Arauco is owned by the Said Somavía, Said Yarur, and Abumohor families. Key Personnel: José Said (Chairman), José Antonio Alvarez (CEO), Claudio Chamorro (CFO), Eduardo Pérez (Finance Officer) and Samantha Zerbe (Head of IR) Web: www.parauco.com

GLA by Country, 2014E




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 107 125 134 138 203 204 216 226 YoY change (%) 12.5 16.0 7.5 2.8 1.8 0.7 5.8 4.5Gross Profit 85 97 104 107 161 158 168 176 YoY change (%) 12.6 13.7 7.7 2.9 1.9 (1.3) 5.9 4.6EBITDA 74 85 92 104 141 139 148 170 YoY change (%) 11.3 13.7 8.1 13.1 0.8 (1.3) 6.3 15.0 As % of Revenue 69.4 68.0 68.3 75.2 69.4 68.0 68.3 75.2Operating Income 72 81 88 100 135 133 142 164 YoY change (%) 9.9 13.4 8.1 13.5 (0.5) (1.5) 6.4 15.4 As % of Revenue 66.8 65.3 65.6 72.5 66.8 65.3 65.6 72.5Financial Results (17) (28) (19) (24) (33) (46) (31) (39)Taxes (9) (11) (18) (19) (17) (19) (28) (32)Net Profit 55 40 47 48 104 65 75 79 YoY change (%) 51.8 (28.2) 17.4 4.0 37.4 (37.7) 15.5 5.7 As % of Revenue 51.5 31.9 34.8 35.2 51.5 31.9 34.8 35.2

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 3 3 4 4 5 6 6 6Other Noncash Items (13) (2) 0 0 (24) (3) 0 0Changes in Working Capital (0) (18) (5) (1) (1) (30) (8) (1)Operating Cash Flow 45 23 45 52 85 38 73 85Capital Expenditures (137) (167) (88) (75) (258) (275) (142) (123)Free Cash Flow (91) (144) (42) (23) (173) (237) (69) (38)Other Invest./(Divestments) (10) 76 36 32 (19) 125 59 52Change in Debt 86 17 (26) (31) 163 28 (42) (50)Dividends (19) (24) (21) (25) (37) (40) (34) (41)Capital Increases/Other 0 103 0 0 0 169 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 69 97 44 (3) 139 170 71 (5)Current Assets 117 149 103 57 236 262 168 92Fixed Assets 951 1,115 1,199 1,270 1,920 1,950 1,949 2,065Total Assets 1,202 1,413 1,451 1,475 2,427 2,472 2,359 2,399Current Liabilities 76 79 100 106 154 138 163 172Long-Term Liabilities 491 524 478 443 991 916 778 720Shareholders' Equity 510 645 670 694 1,031 1,128 1,090 1,128Total Financial Debt 441 458 433 402 891 802 704 654ST Debt 36 53 72 77 72 92 117 126LT Debt 406 406 361 325 819 710 586 528




US$Ch$

Chile55.0%

Peru35.0%

Colombia10.0%

Chile66.0%

Peru26.0%

Colombia8.0%

Controller26.0%

Said Yarur Family6.1%

Abumohor Family2.7%

Pension Funds8.3%

Others56.9%

279



RIPLEY BUY CURRENT PRICE: CH$290.03


Investment Case: We believe that Ripley’s current valuation provides a good entry point into a company that currently trades at 0.70x book value, even including its banking operation, which has a ROE of 24% (LTM 3Q14). We further note that the company’s most recent store openings in Colombia, as well as its real estate division, could be an important source of untapped value, which in our opinion, has yet to be priced in.

Outlook 2015: We estimate: (1) YoY top-line growth of 10.6%, the result of a low comparative basis, better outlook in SSS for 2015, and the positive effect of the financial division merger, bringing important synergies to the financial division (all accounted in EBITDA after the transaction); (2) EBIT margin expansion of 1.3 p.p., to 3.7%, due to weaker pressure on SG&A (-2.0 p.p. over sales) stemming from the maturity of Colombian operations; (3) net profit growth of US$52 million (vs. US$31 million in 2014E), 66.5% YoY growth, showing net margin expansion of 0.7 p.p., to 1.9%.

Maturity analysis in Colombia: Since Ripley's entrance into Colombia in 2013, the company has opened a total of seven stores in the country. Our analysis projects that each store will reach maturity after two years of operations; we expect four stores to reach maturity in 2015 and three in 2016.

Untapped value in real estate division: In our analysis, we used Parque Arauco as a comparable that trades at a 2014E P/E of 15.4x, to which we used a 30% discount factor, due to the maturity of its stores and strong operating position. This led us to US$234 million real estate division valuation, which would imply a US$620 million valuation if Ripley, which shows a ~7% ROE, is able to meet the ~13% ROE Parque Arauco has in its mature operations, implying 30% upside to our YE2015 target price of $395.00 per share.

Nonrecurring negative effects: The company was hurt by nonrecurring items in Chile and Peru in 2014 that squeezed margins—we expect margins to normalize.




Company Statistics



Bloomberg RIPLEY CICurrent Price (01/02/15) Ch$ 290.03 / US$ 0.47Target Price (YE 2015) Ch$ 395.00 / US$ 0.6452-Week Range (Ch$) 286.65 - 389.60Market Capitalization (US$ Mn) 914Float (%) 34.53-Mth Avg. Daily Vol (US$ Mn) 0.9Shares Outstanding - Mn 1,936

60

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

RIPLEY CI IPSA

280

RIPLEY Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description Ripley is the third-largest department store operator in Chile, with 43 stores as of September 2014. The company is also active in the financing business with its credit card and through Banco Ripley, which specializes in the consumer segment. Internationally, in Peru, Ripley operates 22 stores, in addition to its financial operations, while in Colombia, as of 3Q14 it has built 6 stores , based on an expansion plan of US$350 million over a three-year period. Key Personnel: Felipe Lamarca (Chairman), Lázaro Calderon (CEO), Juan Diuana (CFO) and Alberto Corona (Deputy CFO) Web: http://www.ripley.cl





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,374 1,544 1,708 1,934 2,775 2,702 2,728 3,145 YoY change (%) 5.8 12.4 10.6 13.2 4.0 (2.6) 1.0 15.3Gross Profit 530 579 629 725 1,070 1,014 1,005 1,179 YoY change (%) 10.7 9.3 8.6 15.3 8.7 (5.3) (0.9) 17.4EBITDA 105 82 105 142 211 143 168 231 YoY change (%) 13.6 (21.9) 28.9 35.0 11.6 (32.3) 17.6 37.4 As % of Revenue 7.6 5.3 6.2 7.3 7.6 5.3 6.2 7.3Operating Income 66 37 64 90 134 66 102 147 YoY change (%) 14.4 (43.5) 70.9 41.0 12.5 (51.0) 56.0 43.6 As % of Revenue 4.8 2.4 3.7 4.7 4.8 2.4 3.7 4.7Financial Results (14) (15) (21) (21) (29) (26) (34) (35)Taxes (8) (5) (10) (16) (17) (8) (15) (25)Net Profit 44 18 33 53 89 31 52 86 YoY change (%) 18.6 (59.1) 82.4 61.7 16.5 (64.5) 66.5 64.6 As % of Revenue 3.2 1.2 1.9 2.7 3.2 1.2 1.9 2.7

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (38) (44) (41) (52) (77) (77) (66) (84)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (111) (128) (36) (33) (223) (224) (58) (54)Operating Cash Flow (29) (66) 38 72 (58) (115) 60 116Capital Expenditures (64) (75) (86) (73) (130) (132) (138) (119)Free Cash Flow 87 (7) (25) 48 176 (13) (40) 78Other Invest./(Divestments) - - - - - - - -Change in Debt 77 153 52 79 156 268 83 129Dividends (11) (22) (7) (10) (22) (38) (11) (16)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 203 174 142 181 387 286 230 296Current Assets 969 1,052 1,090 1,202 1,845 1,724 1,758 1,970Fixed Assets 613 689 775 848 1,167 1,129 1,250 1,391Total Assets 1,970 2,124 2,237 2,399 3,748 3,483 3,607 3,933Current Liabilities 740 806 853 885 1,408 1,321 1,375 1,451Long-Term Liabilities 440 500 540 627 837 820 871 1,028Shareholders' Equity 789 818 844 887 1,502 1,341 1,361 1,454Total Financial Debt 795 948 1,001 1,080 1,513 1,555 1,614 1,770ST Debt 383 466 478 470 728 763 771 771LT Debt 413 483 523 610 785 792 843 1,000

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 592 774 858 899 1,127 1,269 1,384 1,474Capital Employed 934 1,110 1,192 1,247 1,777 1,820 1,923 2,044Net Debt/EBITDA 5.7 9.5 8.2 6.3 5.3 8.9 8.2 6.4Net Debt/Equity 0.7 0.9 1.0 1.0 0.8 1.0 1.0 1.0Capex/Revenue (%) 4.7 4.9 5.1 3.8 4.7 4.9 5.1 3.8Int Cover (%) 4.3 3.8 3.9 5.1 4.3 3.8 3.9 5.1Dividend Payout (%) 29.6 49.1 39.6 30.0 29.1 42.7 37.0 29.8ROCE (%) 9.8 4.5 7.3 10.0 10.3 4.8 7.4 10.0ROE (%) 5.7 2.2 3.9 6.1 5.8 2.2 3.9 6.1

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 16.8 31.7 17.1 10.6 15.8 29.8 17.5 10.6P/CE 9.0 9.2 7.6 5.4 8.4 8.6 7.7 5.4FV/EBITDA 12.7 16.5 13.5 10.3 12.0 15.5 13.7 10.3FV/EBIT 20.0 35.9 22.2 16.2 18.9 33.7 22.5 16.3FV/Revenue 1.0 0.9 0.8 0.8 0.9 0.8 0.8 0.8P/BV 0.9 0.7 0.7 0.6 0.9 0.7 0.7 0.6FCF Yield (%) 11.9 (1.3) (4.4) 8.6 12.6 (1.4) (4.3) 8.6Div Yield (%) 1.5 3.8 1.3 1.8 1.6 4.0 1.2 1.7


US$Ch$

Chile61.5%

Peru33.3%

Colombia5.6%

Retail72.0%

Credit22.4%

Bank5.5%

Calderon Group65.5%

Others13.7%

Pension Funds14.2%

Foreign Investors

4.3%Mutual Funds2.3%

281


CHILE—TELECOM, MEDIA & TECHNOLOGY

SONDA HOLD CURRENT PRICE: CH$1,439



Investment Case: We reiterate our Hold rating on Sonda, as we do not see any clear short-term catalysts for the stock. We are cautious about the consolidation of CTIS, which has led to lower-than-expected margins, and Chilean revenue, which has significantly decelerated in the last few years. Moreover, in order to be more constructive on the story, we would need to have more visibility on margin recovery in Brazil and Chile. In our opinion, the current 2015E P/E of 19.4x is not compelling enough to be more constructive on the story, unless M&A activity is announced.

Outlook 2015: We expect EBITDA growth of 19.2%, of which 75% comes from the Brazilian operation, based on: (1) 29% revenue growth in R$ terms for the Brazilian operation, due to the full year consolidation of CTIS and ~10% organic growth; and (2) 190-bp margin expansion due to margin maturity and synergies obtained from the CTIS acquisition.

Brazil consolidation: Before the CTIS acquisition, EBITDA margins in Brazil were ~13%, but the consolidation of CTIS caused margins to decline to 11%. Historically, the company has been able to consolidate acquisitions and obtain synergies, and that supports our view on potential margin expansion; however, a weak economic scenario might be a risk to that assumption.

Turnaround of Chile, another challenge: In 2014E, results were flat in terms of revenue and negative (-13%) in terms of EBITDA, mainly affected by the end of the contract with the national identity system. For 2015, we expect a recovery to 5.2% growth in sales and modest 30-bp expansion in margins.

Ready for M&A: The company has a 2013-15 investment plan that includes US$500 million in acquisitions, of which US$200 million hasbeen spent. Should economic weakness continue, we believe windows of opportunity could open, and Sonda has the financial strength (cash of US$260 million) to take advantage of such opportunities, which we believe will be the main driver of the stock.



Company Statistics



Bloomberg SONDA CICurrent Price (01/02/15) Ch$ 1,439 / US$ 2.34Target Price (YE 2015) Ch$ 1,570 / US$ 2.5352-Week Range (Ch$) 1,020 - 1,608Market Capitalization (US$ Mn) 2,197Float (%) 53.03-Mth Avg. Daily Vol (US$ Mn) 2.1Shares Outstanding - Mn 938

60

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

SONDA CI IPSA

282

SONDA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description Founded in 1974, Sonda is LatAm’s leading publicly traded technology provider, as measured by revenue. Sonda provides IT services (57% of 9M14 sales), software applications (8%), and hardware platforms (35%) in a number of LatAm countries, including Chile (44% of consolidated sales through September 2014), Brazil (32% of sales), OPLA (14% of sales) and Mexico (10% of sales). According to IDC figures, the LatAm IT industry is expected to grow 9.9% annually on average for the period 2012-2015. The company is controlled by its founder, Andrés Navarro, and his family. The company had its IPO in 2006 at a price of Ch$566 per share, and free float is currently at 53.0%. Key Personnel: Mario Pavón (Chairman), Raúl Véjar (CEO), Rafael Osorio (CFO), Rodrigo Peña (Planning and IR Officer) and Melissa Vargas (IR) Web: http://www.sonda.com

EBITDA Breakdown, 9M14

Sales Breakdown, 9M14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 672 869 1,000 1,074 1,423 1,521 1,626 1,747 YoY change (%) (1.3) 29.3 15.0 7.4 1.7 6.9 6.9 7.4Gross Profit 142 158 186 204 301 277 303 332 YoY change (%) (3.1) 11.5 17.6 9.3 (0.1) (7.8) 9.3 9.3EBITDA 114 127 151 166 241 222 246 270 YoY change (%) (2.8) 11.5 19.2 9.5 0.1 (7.8) 10.7 9.5 As % of Revenue 17.0 14.6 15.1 15.4 17.0 14.6 15.1 15.4Operating Income 84 86 102 113 177 151 166 185 YoY change (%) (2.0) 2.7 18.8 10.9 0.9 (15.1) 10.4 10.9 As % of Revenue 12.5 9.9 10.2 10.6 12.5 9.9 10.2 10.6Financial Results 2 (5) (4) (6) 4 (8) (6) (10)Taxes (19) (29) (29) (32) (41) (51) (47) (52)Net Profit 66 52 70 75 141 92 113 122 YoY change (%) 46.7 (21.1) 33.0 7.3 51.1 (34.7) 23.6 7.3 As % of Revenue 9.9 6.0 7.0 7.0 9.9 6.0 7.0 7.0

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (30) (41) (49) (52) (64) (72) (80) (85)Other Noncash Items 0 0 0 1 0 0 0 2Changes in Working Capital 26 (9) (11) (40) 56 (16) (19) (64)Operating Cash Flow 63 2 9 (16) 133 4 15 (26)Capital Expenditures (32) (47) (35) (38) (68) (81) (57) (61)Free Cash Flow 30 (45) (26) (54) 64 (78) (42) (87)Other Invest./(Divestments) 10 (42) 0 0 21 (73) 0 0Change in Debt (11) 18 0 0 (24) 32 0 0Dividends (27) (33) (26) (35) (57) (57) (42) (57)Capital Increases/Other 48 0 0 0 101 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 178 159 206 221 376 261 332 362Current Assets 393 428 515 587 832 702 831 962Fixed Assets 91 97 83 90 193 159 133 147Total Assets 744 895 968 1,025 1,574 1,468 1,562 1,681Current Liabilities 205 254 283 300 434 417 457 492Long-Term Liabilities 64 103 103 103 134 168 166 168Shareholders' Equity 470 533 577 617 994 873 930 1,011Total Financial Debt 94 113 113 113 199 184 181 184ST Debt 53 58 58 58 112 95 93 95LT Debt 41 55 55 55 87 90 88 90


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 17.8 25.8 19.4 18.0 16.0 24.3 19.4 18.1P/CE 12.2 14.5 11.3 10.6 11.0 13.6 11.4 10.6FV/EBITDA 9.7 10.4 8.4 7.6 8.7 9.8 8.4 7.6FV/EBIT 13.3 15.3 12.4 11.0 11.8 14.5 12.4 11.1FV/Revenue 1.7 1.5 1.3 1.2 1.5 1.4 1.3 1.2P/BV 2.5 2.5 2.3 2.2 2.3 2.6 2.4 2.2FCF Yield (%) 2.6 (3.3) (1.9) (4.0) 2.8 (3.5) (1.9) (4.0)Div Yield (%) 2.3 2.4 1.9 2.6 2.5 2.6 1.9 2.6


US$Ch$

Chile41.2%

Brazil30.0%

Mexico10.2%

OPLA18.6%

Chile35.7%

Brazil43.5%

Mexico7.8%

OPLA12.9%

Navarro Family47.0%

Pension Funds15.6%

Others37.4%

283


CHILE—METALS & MINING

SQM UNDERPERFORM CURRENT PRICE: US$24.41



Investment Case: We maintain our Underperform rating for SQM based on our bearish outlook for the iodine business over the next few years. This business contributes ~28% of the company’s EBITDA. SQM says it will likely implement a cost-reduction plan over the next year; however, we do not see this as an investment trigger.

Outlook 2015: We expect consolidated revenue, EBITDA, and net income to reach US$2.045 million (-2% YoY), US$833 million (-5%), and US$289 million (+1.9%). Our EBITDA estimate for 2015 is 10% above consensus. We estimate flat potassium chloride prices, with the potash product line posting a 3% price increase due to change in mix (additional potassium sulphate). We expect iodine prices to drop 33% to US$25/ton, as we continue to see weak supply/demand dynamics.

Wounded by iodine: We estimate iodine prices fell some 25% in 2014 due to new capacity from Chilean competitors and we expect a 2015 decline of 33%. We had expected SQM to reduce production to defend prices, but the company opted instead to try to regain its historical 35% market share, which we believe might further pressure prices and margins.

Waiting for certainty on Atacama Salar: In May 2014, Corfo (state-owned agency) sought to recover from SQM what it believes to be underpayment of royalty taxes and demanded the end of the concession contract on the Atacama Salar, which is leased to SQM until 2030. We expect this matter to be resolved in 2015. While the outcome is uncertain, our base case is that SQM will continue operating the asset.

Lithium quota might be reached by 2025. Atacama Salar has a maximum extraction quota for lithium carbonate, which we believe will not be reached until 2025 and this is not reflected in our 2015 P/E projection of 20x in U.S. dollars; this represents a downside risk if the contract is not renewed.



Company Statistics



Bloomberg SQM US / SQM/B CICurrent Price (01/02/15) US$ 24.41 / Ch$ 15,198.00Target Price (YE 2015) US$ 23.42 / Ch$ 14,500.0052-Week Range (US$) 21.54 - 33.10Market Capitalization (US$ Mn) 6,425Float (%) 34.03-Mth Avg. Daily Vol (US$ Mn) 8.8Shares Outstanding - Mn 263

20

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

SQM US IPSA

284

SQM Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Ch$), Millions (US$)

Company Description Sociedad Química y Minera de Chile (SQM) is an integrated producer and worldwide distributor of specialty and commodity fertilizers (mainly potassium chloride derivatives), iodine, lithium and industrial chemicals. SQM, according to 2013 figures, is the world’s largest producer of potassium nitrate (48% market share), iodine (28% market share) and lithium (27% market share). The company has two main production sites: one located in the Caliche Area, where it obtains its nitrates and iodine, and the other in the Atacama Salar, where potassium chloride and lithium are extracted. Using an inorganic chemistry process, it produces potassium nitrate using the sodium nitrate of the Caliche Area with the potassium chloride of the Atacama Salar. The company is controlled by Julio Ponce, via a series of investment companies, three of them listed in Chile (Pampa Calichera, Norte Grande and Oro Blanco). Key Personnel: Julio Ponce (Chairman), Patricio Contesse (CEO), Ricardo Ramos (CFO), Gerardo Illanes (Vice President Finance) and Kelly O'Brien (Head of Investor Relations) Web: http://www.sqm.com

Gross Margin Breakdown, 2014E

Sales by Geography, 9M14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,102 1,116 1,105 1,116 2,203 2,087 2,045 2,046 YoY change (%) (6.8) 1.3 (1.0) 1.0 (9.3) (5.3) (2.0) 0.0Gross Profit 361 313 293 296 721 586 543 543 YoY change (%) (27.9) (13.1) (6.4) 1.0 (29.9) (18.8) (7.3) 0.0EBITDA 417 469 450 451 833 877 833 826 YoY change (%) (23.5) 12.6 (4.1) 0.2 (25.5) 5.2 (5.0) (0.8) As % of Revenue 37.8 42.0 40.7 40.4 37.8 42.0 40.7 40.4Operating Income 308 262 245 248 616 490 454 455 YoY change (%) (31.3) (14.9) (6.5) 1.2 (33.2) (20.4) (7.4) 0.2 As % of Revenue 28.0 23.5 22.2 22.2 28.0 23.5 22.2 22.2Financial Results (5) (52) (40) (34) (11) (97) (73) (63)Taxes (69) (59) (50) (51) (139) (110) (92) (94)Net Profit 234 151 156 162 467 283 289 297 YoY change (%) (26.1) (35.2) 3.0 4.1 (28.0) (39.4) 1.9 3.1 As % of Revenue 21.2 13.6 14.1 14.5 21.2 13.6 14.1 14.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (108) (207) (205) (203) (217) (386) (379) (371)Other Noncash Items 1 31 0 0 2 58 0 0Changes in Working Capital (24) 62 (104) (0) (47) 116 (193) (1)Operating Cash Flow 320 451 256 364 639 844 475 668Capital Expenditures (141) (66) (95) (58) (283) (124) (176) (107)Free Cash Flow 178 385 161 306 356 720 298 561Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 110 (153) (30) (96) 220 (286) (56) (176)Dividends (140) (107) (77) (80) (280) (200) (143) (147)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 497 456 514 650 937 844 943 1,180Current Assets 1,301 1,261 1,323 1,468 2,455 2,334 2,426 2,664Fixed Assets 1,089 984 867 730 2,054 1,822 1,589 1,325Total Assets 2,527 2,385 2,332 2,341 4,768 4,416 4,276 4,249Current Liabilities 383 298 243 287 723 552 445 522Long-Term Liabilities 855 888 816 685 1,613 1,645 1,495 1,243Shareholders' Equity 1,260 1,168 1,259 1,354 2,377 2,163 2,308 2,458Total Financial Debt 964 828 806 717 1,819 1,533 1,477 1,301ST Debt 213 77 129 172 401 142 236 313LT Debt 751 751 677 545 1,417 1,391 1,241 989



PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 1,090 661 673 694 1.77 1.08 1.10 1.13DPS 653 466 335 344 1.06 0.76 0.55 0.56BVPS 5,546 5,047 5,385 5,736 9.03 8.22 8.77 9.34

US$Ch$

Specialty Fertilizers

25.0%

Iodine28.0%

Lithium15.0%

MOP and SOP

23.0%

Other9.0%

LatAm25.0%

Europe24.0%

North America27.0%

Asia & Others24.0%

Pampa Calichera,

Potasios de Chile and G

32.0%

Potash Corp32.0%

ADRs23.0%

Others Chile13.0%

285


COLOMBIA—RETAIL & CONSUMER GOODS

ALMACENES EXITO HOLD CURRENT PRICE: CO$28,800

TARGET PRICE: CO$31,000 LOWERING YE2015 TARGET PRICE TO CO$31,000 FROM CO$31,500 I 2015 T P C $31 000 D C $31 500 Investment Case: Almacenes Exito’s strategy is focused on

delivering profitable growth while protecting market share. We expectthis approach to pay off over the medium term, as competitors will beincreasingly pressured to prioritize profitability over expansion.

Exito’s unique geographical footprint combined with its growing portfolio of complementary businesses should translate into superiorlevels of profitability, in our view.

Outlook 2015: We expect Exito’s SSS to continue underperforming Colombia’s nominal GDP growth due to: the resilience of the traditional format, the relentless expansion of Exito’s competitors, and sales cannibalization from Exito’s own expansion.

While we expect the integration of SuperInter to allow the company to reach a leading position in the discount format in Colombia, we note that SuperInter’s low EBITDA margin can put pressure on Exito’s consolidated margins. Nevertheless, we expect the company to maintain its current EBITDA margin due to an increased contribution from the company’s complementary businesses (particularly real estate).

Our reduced target price reflects the approved increases in corporatetaxes in Colombia, which will not only imply higher income tax (from 34% currently to 39% in 2015), but also a temporary wealth tax that will require Exito to pay a total of 2.55% of its equity in taxes over the 2015-2017 period.

Valuation: Our target price implies an FV/EBITDA multiple of 9.7x for 2015E versus a trading multiple of 8.0x. While Exito’s valuation is not expensive (by the company’s historical standards), we see no catalysts in the short term. Moreover, we believe that, in order for investors to become more positive on the name, Exito needs to deliver (1) solid improvement in SSS, (2) significant expansion in EBITDA margin, and/or (3) more profitable use of the company’s strong financial position.

Andres Soto New York: Santander Investment Securities Inc. +1-212-407-0976 | [email protected]


Company Statistics

Price Performance (Co$)


Bloomberg EXITO CBCurrent Price (01/02/15) Co$ 28,800 / US$ 12.13Target Price (YE 2015) Co$ 31,000 / US$ 12.7452-Week Range (Co$) 24,640 - 33,200Market Capitalization (US$ Mn) 5,429Float (%) 26.53-Mth Avg. Daily Vol (US$ Mn) 1.8Shares Outstanding - Mn 448

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

EXITO CB COLCAP

286

ALMACENES EXITO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Co$), Millions (US$)

Company Description Almacenes Exito is the leading retailer in Colombia and Uruguay in terms of sales and number of stores. The company operates 538 stores in total (September 2014), most of them under the hypermarket, supermarket, convenience store and bodega formats. The company is further developing a shopping mall business and offers financial services through a joint venture with Bancolombia. Key Personnel: Nicanor Restrepo (Chairman), Carlos Mario Giraldo (CEO), Filipe Da Silva (CFO) and Maria Fernanda Moreno (IR) Web: http://www.grupoexito.com.co/

Sales Mix, 9M14

Selling Area per Country, 3Q14A

Shareholder Structure, September 30, 2014


P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 10,697 11,278 12,500 13,390 5,701 5,571 5,170 5,468 YoY change (%) 4.6 5.4 10.8 7.1 0.1 (2.3) (7.2) 5.8Gross Profit 2,842 3,001 3,264 3,515 1,515 1,483 1,350 1,435 YoY change (%) 6.5 5.6 8.8 7.7 2.0 (2.1) (9.0) 6.3EBITDA 932 980 1,082 1,181 497 484 447 482 YoY change (%) 8.5 5.1 10.5 9.2 3.9 (2.6) (7.5) 7.8 As % of Revenue 8.7 8.7 8.7 8.8 8.7 8.7 8.7 8.8Operating Income 545 583 623 691 290 288 258 282 YoY change (%) 10.3 7.1 6.8 11.0 5.6 (0.8) (10.6) 9.6 As % of Revenue 5.1 5.2 5.0 5.2 5.1 5.2 5.0 5.2Financial Results 80 96 100 87 42 48 42 36Taxes (116) (161) (275) (296) (62) (80) (114) (121)Net Profit 432 483 448 482 230 239 185 197 YoY change (%) (9.1) 11.7 (7.2) 7.6 (12.9) 3.6 (22.3) 6.3 As % of Revenue 4.0 4.3 3.6 3.6 4.0 4.3 3.6 3.6

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (387) (396) (459) (490) (206) (196) (190) (200)Other Noncash Items (76) 0 0 0 (40) 0 0 0Changes in Working Capital 136 (37) 62 45 72 (18) 26 18Operating Cash Flow 880 869 970 1,017 469 429 401 415Capital Expenditures (344) (771) (1,043) (510) (183) (381) (431) (208)Free Cash Flow 430 26 (135) 454 229 13 (56) 185Other Invest./(Divestments) (138) 0 0 0 (74) 0 0 0Change in Debt 25 0 0 0 13 0 0 0Dividends (238) (238) (241) (224) (127) (117) (100) (92)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 2,754 2,697 2,392 2,682 1,429 1,123 983 1,088Current Assets 4,353 4,533 4,432 4,861 2,259 1,886 1,821 1,973Fixed Assets 6,432 6,780 7,364 7,383 3,338 2,822 3,026 2,996Total Assets 10,785 11,313 11,796 12,244 5,597 4,708 4,847 4,968Current Liabilities 2,677 2,943 3,219 3,409 1,389 1,225 1,323 1,383Long-Term Liabilities 233 250 250 250 121 104 103 101Shareholders' Equity 7,861 8,106 8,313 8,571 4,080 3,374 3,416 3,478Total Financial Debt 252 252 252 252 131 105 104 102ST Debt 102 86 86 86 53 36 35 35LT Debt 150 166 166 166 78 69 68 68

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt (2,502) (2,445) (2,140) (2,430) (1,298) (1,017) (879) (986)Capital Employed 8,211 8,456 8,663 8,921 4,261 3,519 3,560 3,620Net Debt/EBITDA (2.7) (2.5) (2.0) (2.1) (2.6) (2.1) (2.0) (2.0)Net Debt/Equity (0.3) (0.3) (0.3) (0.3) (0.3) (0.4) (0.3) (0.3)Capex/Revenue (%) 3.2 6.8 8.3 3.8 3.2 6.8 8.3 3.8Int Cover (%) 11.4 11.1 12.3 14.7 11.4 11.1 12.3 14.7Dividend Payout (%) 50.0 55.0 50.0 50.0 48.1 51.3 42.2 50.0ROCE (%) 5.2 5.2 4.5 4.8 5.5 6.5 4.5 4.8ROE (%) 5.6 6.0 5.5 5.7 5.5 6.4 5.5 5.7

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 31.1 27.1 28.8 26.7 30.2 23.1 29.3 27.6P/CE 16.4 14.9 14.2 13.3 15.9 12.7 14.5 13.7FV/EBITDA 11.7 10.9 10.0 8.9 11.4 9.3 10.2 9.2FV/EBIT 20.1 18.3 17.3 15.2 19.5 15.6 17.7 15.8FV/Revenue 1.0 0.9 0.9 0.8 1.0 0.8 0.9 0.8P/BV 1.7 1.6 1.6 1.5 1.7 1.6 1.6 1.6FCF Yield (%) 3.2 0.2 (1.0) 3.5 3.3 0.2 (1.0) 3.4Div Yield (%) 1.8 1.8 1.9 1.7 1.8 2.1 1.8 1.7

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 965 1,079 1,001 1,077 0.51 0.53 0.41 0.44DPS 531 531 539 501 0.28 0.26 0.22 0.20BVPS 17,562 18,109 18,571 19,148 9.11 7.54 7.63 7.77

US$Co$

Food72.0%

Non Food28.0%

Colombia91.1%

Uruguay8.9%

Free Float26.5%

Colombian pension funds18.7%

Casino54.8%

287


COLOMBIA—FINANCIAL SERVICES

BANCOLOMBIA HOLD CURRENT PRICE: CO$28,640

TARGET PRICE: CO$31,000 DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF CO$31,000; REPLACING YE2014 TARGET PRICE CO$30,700

Investment Case: We have downgraded our recommendation on Bancolombia due to the impact of the recently enacted tax reform ongrowth, as well as the profitability of the bank. We expect the tax burden to persist over time, given the fiscal headwinds from lower oil prices, infrastructure investment needs and the potential costs of the peace with FARC.

Outlook 2015: We expect loan growth of 11% YoY, driven by mortgage and commercial lending, with sluggish growth in consumer lending, as the bank remains cautious due to relatively high household indebtedness. Adjusted ROE should be flat, at 16%, according to our forecast, as we expect higher corporate taxes to offset margin expansion and improvements in efficiency.

Total tax burden. We estimate that the tax reform will reduce net income by 11% in 2015. We anticipate that Bancolombia’s total tax burden, including equity and other taxes (reported in the costs line) and income taxes, should rise from a 32% average over the prior sixyears to 41% in the next four years.

DTF catching up with interest rate hikes? We expect NIMs to bottom out in late 2014, as the spread between the DTF rate and the policy rate should recover in 1H15. We forecast NIM to expand 20 bps YoY, negatively affected by a change in mix with faster growth in corporate lending, thanks to infrastructure lending in late 2015.

Improvement in efficiency: Operating expenses should normalize following a surge in IT investments and integration costs related to Banistmo, in Panama. We forecast a 200-bp YoY improvement in efficiency due to slower growth in personnel and administrative costs.

Switching to IFRS in 2015. The main impact from the accounting change is that goodwill will no longer be amortized. Nevertheless, we do not expect this to affect our adjusted net income, as we already excluded intangible asset amortization in our model, as intangible assets are deducted from capital; therefore; the amortization or impairment of intangibles have no impact on the capital position of the bank.



Company Statistics



Bloomberg PFBCOLO CB / CIB USCurrent Price (01/02/15) Co$ 28,640 / US$ 47.90Target Price (YE 2015) Co$ 31,000 / US$ 54.4052-Week Range (Co$) 22,100 - 31,000Market Capitalization (US$ Mn) 11,601Float (%) 70.03-Mth Avg. Daily Vol (US$ Mn) 7.4Shares Outstanding - Mn 962

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

PFBCOLO CB COLCAP

288

BANCOLOMBIA Financial Highlights: P&L and Balance Sheet, 2013–16E in Billions (Co$), Millions (US$) Company Description

Bancolombia one of Colombia’s leading financial institutions, with a market share of 23.3% of gross loans as of September 2014. The bank is controlled by Grupo Sura, a group of industrial and financial corporations with headquarters in Medellin, which owns the majority of its voting ordinary shares. It distributes a wide variety of financial services and products in the main cities and towns in Colombia. The company is in the midst of an international expansion plan that has led it so far to acquire banks in El Salvador, Guatemala and Panama. The bank's preferred non-voting shares trade in the Bogota stock exchange and in ADR format in the NYSE. Key Personnel: David Bojanini (Chairman), Carlos Raul Yepes (CEO), Jose Humberto Acosta (CFO) and Alejandro Mejia (IRO) Web: www.grupobancolombia.com

Loan Book, 2015E




INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Interest Income 5,220 6,201 7,205 8,340 2,793 3,099 3,096 3,623NPL Provisions (1,163) (1,403) (1,631) (2,408) (622) (701) (701) (1,046)Adj Net Interest Income 4,057 4,798 5,575 5,932 2,171 2,398 2,396 2,577Non-Interest Income 2,630 3,217 3,527 3,839 1,407 1,608 1,516 1,668Total Operating Revenue 6,687 8,016 9,102 9,771 3,578 4,005 3,911 4,244Non-Interest Expense (4,792) (5,371) (5,844) (6,299) (2,564) (2,684) (2,511) (2,736)Profit Before Taxes 1,950 2,660 3,307 3,522 1,043 1,329 1,421 1,530Taxes (417) (758) (1,071) (1,168) (223) (379) (460) (507)Net Profit 1,515 1,846 2,225 2,342 811 922 956 1,017Adjusted Net Profit 1,249 2,035 2,392 2,644 668 1,017 1,028 1,148

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 15,409 13,050 14,676 15,798 8,013 5,491 6,444 6,789Securities 13,806 14,062 15,482 17,549 7,179 5,917 6,798 7,542Loans (net) 85,330 98,879 109,303 126,007 44,374 41,606 47,993 54,150Intangible Assets 4,280 4,119 3,935 3,761 2,226 1,733 1,728 1,616Total Assets 130,816 140,617 154,817 175,493 68,027 59,169 67,976 75,415Core Deposits 86,557 93,212 104,830 117,021 45,011 39,222 46,028 50,288Other Financial Liabilities 7,314 6,950 7,413 8,123 3,804 2,925 3,255 3,491Subordinated Debt 5,014 5,617 5,395 5,183 2,607 2,363 2,369 2,227Technical Provisions 0 0 0 0 0 0 0 0Equity 12,493 16,448 17,994 19,632 6,497 6,921 7,901 8,437Adjusted Equity 10,222 14,424 16,346 18,602 5,315 6,070 7,177 7,994

LOAN BOOK 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECompanies 41,311 48,423 53,752 61,993 21,483 20,375 23,601 26,641Total Consumer 28,171 31,753 34,618 40,301 14,649 13,361 15,200 17,319Mortgages 10,296 12,420 13,988 16,131 5,354 5,226 6,142 6,932Other Loans 9,681 10,965 12,187 13,944 5,035 4,614 5,351 5,992Gross Loans 89,460 103,562 114,544 132,369 46,521 43,577 50,294 56,883Loan Grow th (%) 27.8 15.8 10.6 15.6 17.5 (6.3) 15.4 13.1NPL 1,378 1,801 1,872 2,232 716 758 822 959Provisions (4,066) (4,683) (5,241) (6,361) (2,114) (1,970) (2,301) (2,734)



PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 1,778.68 1,963.28 2,313.09 2,434.80 3.81 3.92 3.98 4.23BVPS 14,665.94 17,101.03 18,707.82 20,411.37 30.51 28.78 32.86 35.09DPS 742.50 889.21 732.29 746.84 1.59 1.79 1.24 1.31Adj EPS 1,466.52 2,164.97 2,487.11 2,748.46 3.14 4.33 4.28 4.78Adj BVPS 11,999.63 14,996.97 16,995.23 19,340.70 24.96 25.24 29.85 33.25Surplus Capital per Share (3,772.61) (739.82) (555.41) (1,051.89) (7.85) (1.25) (0.98) (1.81)Unrealized Cap. Gains/Shr 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

US$Co$

Corporate46.9%

Retail and SME

30.2%

Mortgage12.2%

Leases10.6%

NII61.2%

Trading0.7%

Fees27.5%

Other10.5%

Grupo Sura26.6%

Argos 3.4%Float ADR

22.1%

Float Loc47.8%

289


COLOMBIA—CEMENT, CONSTRUCTION, INFRA & RE

CEMENTOS ARGOS HOLD CURRENT PRICE: CO$9,650 TARGET PRICE: CO$10,500

LOWERING YE2015 TARGET PRICE TO CO$10,500 FROM CO$11,000

Investment Case: We see Cementos Argos as a play on the continued recovery of construction activity in the U.S.’s Southeast, and expected infrastructure-driven cement-demand in Colombia in the next few years.

We believe that Argos’s geographical footprint in Colombia enables it to take advantage of the expected demand for cement and ready mixfrom large-scale road infrastructure projects in Colombia. Meanwhile, the company’s international production-and-logistics network, enables it to deliver smooth results through a combination of assets at different points in the demand cycle, in our view.

Outlook 2015: In Colombia, we expect housing development to be the main demand drivers of cement and ready mix in 2015, while in the U.S. we expect a sustained volume recovery and continued price increases in the states in which the company operates. In the Caribbean, we expect a flattish performance, as we expect the cement volume decrease resulting from the conclusion of the Canal project to be offset by increased demand from other projects in Panama and the rest of Argos’s markets.

In terms of profitability, we expect Argos’s EBITDA margin to improve at each individual segment: Colombia’s cement and ready mix (due to Rioclaro expansion), U.S. (due to operating leverage), and Caribbean (due to substitution of Canal demand). Nevertheless, we expect this margin improvement to be toned down at the consolidated level due to the company’s ongoing changes in product mix (concrete outgrowing cement) and geographical footprint (U.S. outgrowing Colombia).

Our reduced target price reflects the effect of Colombia’s tax reform (see our December 9 note: Colombia Strategy: An Updated Version of the Tax Reform Bill).

Valuation: Our YE2015E target price is based on a discounted cash flow analysis using a 10% discount rate and a 3.3% terminal growth rate. Our target price implies a 2015E FV/EBITDA multiple of 12.5x, which, in our view, is justified by the EBITDA growth that we expect in the next few years (14.5% CAGR 2014-18).


Company Statistics



Bloomberg PFCEMARG CBCurrent Price (01/02/15) Co$ 9,650 / US$ 4.06Target Price (YE 2015) Co$ 10,500 / US$ 4.9152-Week Range (Co$) 8,280 - 12,100Market Capitalization (US$ Mn) 5,789Float (%) 29.63-Mth Avg. Daily Vol (US$ Mn) 1.4Shares Outstanding - Mn 1,424

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

PFCEMARG CB COLCAP

290

CEMENTOS ARGOS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Co$), Millions (US$)

Company Description Cementos Argos is the leading cement and concrete producer in Colombia and one of the five largest cement producers in Latin America. In Latin America, the company also has operations in Panama, Honduras, Haiti, the Dominican Republic, the Lesser Antilles, Surinam and French Guiana. In the United States, Cementos Argos is the seventh-largest cement company in terms of installed capacity and the second-largest one in the southwest region. Grupo Empresarial Antioqueño, through Grupo Argos, is the company’s largest shareholder. Key Personnel: José Alberto Vélez (Chairman), Jorge Mario Velasquez (CEO), Carlos Horacio Yusty (CFO) and Gustavo Uribe (IRO) Web: www.argos.com.co/





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 4,968 5,765 6,595 7,522 2,622 2,901 3,131 3,468 YoY change (%) 13.4 16.0 14.4 14.1 7.6 10.6 7.9 10.8Gross Profit 1,108 1,300 1,437 1,751 585 654 682 807 YoY change (%) 21.5 17.3 10.5 21.9 15.3 11.9 4.3 18.4EBITDA 978 1,092 1,262 1,509 516 550 599 696 YoY change (%) 23.7 11.7 15.5 19.7 17.3 6.5 9.0 16.2 As % of Revenue 19.7 18.9 19.1 20.1 19.7 18.9 19.1 20.1Operating Income 581 688 737 953 307 346 350 439 YoY change (%) 40.2 18.4 7.1 29.3 33.0 12.9 1.1 25.6 As % of Revenue 11.7 11.9 11.2 12.7 11.7 11.9 11.2 12.7Financial Results (74) (119) (215) (205) (39) (60) (102) (95)Taxes (212) (179) (203) (282) (112) (90) (97) (130)Net Profit 221 343 297 444 117 173 141 204 YoY change (%) (42.7) 55.0 (13.6) 49.6 (45.7) 47.8 (18.4) 45.2 As % of Revenue 4.5 6.0 4.5 5.9 4.5 6.0 4.5 5.9

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (397) (404) (524) (556) (209) (203) (249) (257)Other Noncash Items (63) 0 (68) (59) (33) 0 (32) (27)Changes in Working Capital 276 (147) (103) (116) 146 (74) (49) (54)Operating Cash Flow 794 571 650 825 419 287 309 380Capital Expenditures (857) (2,008) (646) (685) (452) (1,011) (307) (316)Free Cash Flow 71 (1,290) 240 362 37 (649) 114 167Other Invest./(Divestments) 951 0 0 0 502 0 0 0Change in Debt (587) 1,578 (215) 112 (310) 794 (102) 51Dividends (206) (221) (236) (253) (109) (111) (112) (117)Capital Increases/Other 1,611 0 0 0 850 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 367 447 1 0 190 216 0 0Current Assets 1,624 2,211 1,749 1,976 843 1,065 818 898Fixed Assets 9,847 11,451 11,572 11,701 5,110 5,519 5,414 5,318Total Assets 11,632 13,662 13,322 13,677 6,037 6,584 6,232 6,217Current Liabilities 1,722 2,404 2,243 2,589 894 1,159 1,049 1,177Long-Term Liabilities 2,298 3,553 3,381 3,258 1,192 1,712 1,582 1,481Shareholders' Equity 7,243 7,335 7,328 7,460 3,759 3,535 3,428 3,391Total Financial Debt 2,444 4,021 3,807 3,918 1,268 1,938 1,781 1,781ST Debt 482 804 761 996 250 388 356 453LT Debt 1,962 3,217 3,045 2,922 1,018 1,550 1,425 1,328


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E n/m 40.1 46.4 31.0 n/m 33.5 41.1 28.3P/CE 22.6 18.4 16.7 13.7 22.1 15.4 14.9 12.6FV/EBITDA 17.1 16.5 14.5 12.2 16.8 14.2 13.1 11.3FV/EBIT 28.8 26.2 24.8 19.2 28.3 22.5 22.5 17.9FV/Revenue 3.4 3.1 2.8 2.4 3.3 2.7 2.5 2.3P/BV 1.9 1.9 1.9 1.8 1.9 1.6 1.7 1.7FCF Yield (%) 0.5 (9.4) 1.7 2.6 0.5 (11.2) 2.0 2.9Div Yield (%) 1.5 1.6 1.7 1.8 1.5 1.9 1.9 2.0


US$Co$

Colombia42.9%

USA37.8%

Central America & Caribbean

19.4%

Cement55.9%

Ready mix44.1%

Grupo Argos

(60.7% of common shares)51.4%

Pension funds14.4%

Treasury stock4.7%

Float29.6%

291


COLOMBIA—CEMENT, CONSTRUCTION, INFRA & RE

CEMEX LATAM HOLDINGS HOLD CURRENT PRICE: CO$16,000

TARGET PRICE: CO$19,500

Investment Case: We believe that the company offers an attractive combination of: (1) a positive outlook for cement demand in the countries in which it operates; (2) a strategic focus on value-added initiatives; (3) continuous operating improvement; and (4) a disciplined approach to capital deployment.

While CLH’s profitability has been recently hurt by an aggressive pricing environment in Colombia, we expect the company to maintain above-peers margins and free-cash-flow conversion in the next few years.

Outlook 2015: In Colombia, CLH’s plans to act as a developer in the construction of 12,000 homes (through 2016) under the government’s housing subsidies program (VIPA); and it has stated its intention to participate (also as a developer) in the second phase of the government’s free home program (cien mil viviendas gratis). We therefore expect housing development to be a major revenue driver for CLH in 2015 and 2016. While the housing development program represents incremental revenue and EBITDA for the company, the business’ margins are substantially lower than those of the cement business. Therefore, we expect this effect, combined with the new pricing scenario, to further deteriorate CLH’s EBITDA margin in 2015.

In the rest of CLH’s markets, we expect mixed performance in 2015, with Panama and Nicaragua outperforming Costa Rica and Guatemala.

CLH plans to add a 1.0 m ton/year capacity in the center of Colombia by 2Q15 (initially with a grinding mill) and to have a full cement plantin the second half of 2016. We believe that the plant’s location is a sound complement to CLH’s current footprint in the country, which we expect to result in increased efficiency, once the full cement plant is completed, due to efficient production and reduced transportation costs.

Valuation: Our target price implies a 2015E FV/EBITDA multiple of 9.7x versus a trading multiple of 8.3x. While we are confident in CLH management’s ability to continue delivering strong results, we believethat the stock’s valuation offers limited upside at current levels.


Company Statistics



Bloomberg CLH CBCurrent Price (01/02/15) Co$ 16,000 / US$ 6.74Target Price (YE 2015) Co$ 19,500 / US$ 8.0952-Week Range (Co$) 12,760 - 19,820Market Capitalization (US$ Mn) 3,897Float (%) 22.63-Mth Avg. Daily Vol (US$ Mn) 2.7Shares Outstanding - Mn 578

60

80

100

120

140

160

180

J-13 M-13 A-13 D-13 A-14 A-14 D-14

CLH CB COLCAP

292

CEMEX LATAM HOLDINGS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Co$), Millions (US$)

Company Description Cemex Latam Holdings SA (CLH) is a holding company engaged in the production, distribution, marketing and sale of cement, ready-mix concrete and aggregates in Colombia, Panama, Costa Rica and Nicaragua, as well as of cement and ready-mix concrete in Guatemala through its operating subsidiaries. Additionally, CLH maintains a commercial sales office in El Salvador and own a river terminal located on the Amazon River, near Manaus, Brazil. CLH is a subsidiary of CEMEX, S.A.B. de C.V., one of the largest cement companies in the world based on annual installed cement production capacity. CLH shares are listed on the Colombian stock exchange. Key Personnel: Jaime Elizondo (Chairman), Carlos Jacks (CEO), Josué González (CFO) and Patricio Trevino (IR) Web: http://www.cemexlatam.com/



Shareholder Structure, September 30 2014


P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 3,317 3,768 4,304 4,611 1,750 1,752 1,800 1,905 YoY change (%) 15.9 13.6 14.2 7.2 10.0 0.1 2.7 5.9Gross Profit 1,702 1,833 2,029 2,162 898 853 848 893 YoY change (%) 15.5 7.7 10.6 6.6 9.6 (5.1) (0.5) 5.3EBITDA 1,200 1,273 1,401 1,499 633 592 586 619 YoY change (%) 21.8 6.1 10.0 7.0 15.6 (6.5) (1.0) 5.7 As % of Revenue 36.2 33.8 32.5 32.5 36.2 33.8 32.5 32.5Operating Income 1,014 1,052 1,137 1,206 535 489 475 498 YoY change (%) 17.7 3.7 8.0 6.1 11.6 (8.6) (2.9) 4.8 As % of Revenue 30.6 27.9 26.4 26.2 30.6 27.9 26.4 26.2Financial Results (222) (215) (219) (202) (117) (100) (92) (83)Taxes (261) (241) (291) (322) (138) (112) (122) (133)Net Profit 501 561 616 671 264 261 258 277 YoY change (%) 5.3 12.1 9.7 9.0 (0.1) (1.2) (1.3) 7.7 As % of Revenue 15.1 14.9 14.3 14.6 15.1 14.9 14.3 14.6

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 185 220 264 293 97 102 110 121Other Noncash Items 48 0 0 0 25 0 0 0Changes in Working Capital 253 430 430 583 133 200 180 241Operating Cash Flow 617 771 782 962 325 359 327 397Capital Expenditures (178) (371) (498) (453) (94) (173) (208) (187)Free Cash Flow 438 400 285 509 231 186 119 210Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt (418) (252) (281) (284) (220) (117) (117) (117)Dividends 0 0 0 0 0 0 0 0Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 148 345 354 583 77 145 147 240Current Assets 867 1,257 1,396 1,660 450 529 580 682Fixed Assets 7,392 9,463 9,958 10,467 3,836 3,986 4,134 4,303Total Assets 7,392 9,463 9,958 10,467 3,836 3,986 4,134 4,303Current Liabilities 1,237 1,801 1,846 1,886 642 759 766 776Long-Term Liabilities 3,539 3,819 3,592 3,342 1,836 1,609 1,491 1,374Shareholders' Equity 2,588 3,808 4,484 5,203 1,343 1,604 1,861 2,139Total Financial Debt 2,181 2,408 2,161 1,897 1,132 1,014 897 780ST Debt 13 279 283 286 7 117 117 117LT Debt 2,168 2,130 1,878 1,611 1,125 897 780 662

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 2,033 2,063 1,807 1,314 1,055 869 750 540Capital Employed 6,168 7,941 8,395 8,866 3,201 3,345 3,485 3,645Net Debt/EBITDA 1.7 1.6 1.3 0.9 1.7 1.5 1.3 0.9Net Debt/Equity 0.8 0.5 0.4 0.3 0.8 0.5 0.4 0.3Capex/Revenue (%) 5.4 9.8 11.6 9.8 5.4 9.8 11.6 9.8Int Cover (%) 5.5 6.0 6.5 7.5 5.5 6.0 6.5 7.5Dividend Payout (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0ROCE (%) 11.8 7.9 9.1 9.3 12.3 10.2 9.3 9.3ROE (%) 20.8 16.2 14.8 13.9 20.6 17.7 14.9 13.9

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 17.1 16.5 15.0 13.8 16.8 14.9 15.1 14.1P/CE 27.1 27.1 26.3 24.4 26.6 24.6 26.5 24.9FV/EBITDA 8.9 9.0 7.9 7.1 8.7 8.1 8.0 7.2FV/EBIT 10.5 10.8 9.8 8.8 10.3 9.8 9.8 9.0FV/Revenue 3.2 3.0 2.6 2.3 3.2 2.7 2.6 2.3P/BV 3.3 2.4 2.1 1.8 3.3 2.4 2.1 1.8FCF Yield (%) 5.1 4.3 3.1 5.5 5.2 4.8 3.1 5.4Div Yield (%) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0)

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 1,104,794 1,091,657 1,077,224 1,159,976 582.94 507.65 450.45 479.19DPS 0 0 0 0 0 0 0 0BVPS 5,617,987 6,709,643 7,786,867 8,946,844 2,915.66 2,826.30 3,232.52 3,678.00

US$Co$

Colombia56.2%

Panama21.0%

Costa Rica10.9%

Other countries

11.9%

Cement66.3%

Ready-mix and

aggregates33.7%

Cemex70.5%

Local Pension

funds3.0%

Treasury stock3.8%

Float22.6%

EPS 866 970 1,065 1,161 0.46 0.45 0.45 0.48DPS 0 0 0 0 0 0 0 0BVPS 4,401 5,965 7,698 8,953 2.32 2.77 3.22 3.70

293



DAVIVIENDA BUY CURRENT PRICE: CO$28,100


INTRODUCING YE2015 TARGET PRICE OF CO$33,500; REPLACING YE2014 TARGET PRICE OF CO$29,000

Investment Case: Davivienda is our new top pick among Colombian banks, as we expect it to post the fastest loan growth over the next three years, mainly driven by mortgages, where the bank has a strong presence in the mass market. Given a more adverse macro scenario, we expect the government to continue promoting housing construction subsidies as a way to sustain growth. Although we view infrastructure projects as a solid source of growth for Aval and Bancolombia, we believe investments could face fiscal headwinds in 2016. Furthermore, we highlight that mortgages have higher spreadsthan those of infrastructure projects, benefiting margins at Davivienda.

Outlook 2015: According to our estimates, loan growth should reach14%, driven by mortgages and payroll. We expect margins to compress slightly given funding pressures and strong competition butstill remain higher than peers. In addition, we expect Daviplata to become a growth engine and expect the efficiency ratio to improve. Adjusted ROE should reach 16.1%, affected by the new tax reform.

“Temporary” tax impact: We estimate the impact of the new tax structure to be 10% of earnings in 2015. We believe DVV will have the lowest total tax burden among Colombian banks we cover, at 37% in 2018E, up from 33% in 2014E.

A capital increase in 2016? We estimate a 2015E CT1 ratio of 7.0%, below peers. If asset growth is higher than expected or if Davivienda acquires any of the assets that Citi is selling in LatAm (possibly in Nicaragua), we expect Davivienda to raise capital early in 2016, via ADRs on the NYSE. In the meantime, we believe the bankcould release provisions, given its high coverage ratio of approximately 240%, which could add 30-40 bps to the CT1 ratio.

Switching to IFRS: Davivienda expects to release 1Q15 consolidated financial statements in May, delaying the usual reporting date. The change in accounting will eliminate the goodwill amortization charge valid in Colombian-GAAP.



Company Statistics



Bloomberg PFDAVVND CBCurrent Price (01/02/15) Co$ 28,100 / US$ 11.83Target Price (YE 2015) Co$ 33,500 / US$ 14.7152-Week Range (Co$) 21,180 - 32,400Market Capitalization (US$ Mn) 5,257Float (%) 21.63-Mth Avg. Daily Vol (US$ Mn) 2.1Shares Outstanding - Mn 444

60

80

100

120

140

J-13 M-13 A-13 D-13 A-14 A-14 D-14

PFDAVVND CB COLCAP

294

DAVIVIENDA Financial Highlights: P&L and Balance Sheet, 2013–16E in Billions (Co$), Millions (US$) Company Description

Davivienda is Colombia’s third largest bank, with a loan market share of 13% as of 3Q14, a strong franchise in mortgage and consumer finance, as well as a solid foothold in the middle class retail banking market dating from its origins as a savings and loans institution. The bank successfully diversified into a full-fledged commercial bank via acquisitions over the past years. The acquisition of Bancafe in 2007 gave it a solid platform in corporate, commercial and SME banking. In addition, the bank acquired HSBC's operations in Central America (El Salvador, Honduras and Costa Rica). The bank is part of Grupo Empresarial Bolivar, a real estate, construction and insurance group based in Colombia. The bank has a dual shareholding structure, with control of the bank held largely by the Bolivar group via voting ordinary shares. Key Personnel: Carlos Arango Uribe (Chairman), Efrain Forero Fonseca (CEO), Ricardo Leon (CFO) and Julian Naranjo (IRO) Web: www.davivienda.com





INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Interest Income 3,102 3,450 3,961 4,598 1,660 1,724 1,702 1,997NPL Provisions (940) (960) (1,060) (1,153) (503) (480) (455) (501)Adj Net Interest Income 2,163 2,490 2,901 3,445 1,157 1,244 1,247 1,496Non-Interest Income 1,222 1,362 1,481 1,642 654 681 636 713Total Operating Revenue 3,384 3,852 4,381 5,087 1,811 1,925 1,883 2,210Non-Interest Expense (2,341) (2,538) (2,766) (3,076) (1,253) (1,268) (1,189) (1,336)Profit Before Taxes 1,090 1,346 1,665 2,067 583 672 715 898Taxes (233) (334) (487) (623) (125) (167) (209) (270)Net Profit 851 1,004 1,164 1,427 455 502 500 620Adjusted Net Profit 922 1,039 1,251 1,431 493 519 538 622

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 4,551 5,147 5,615 6,403 2,366 2,166 2,465 2,751Securities 7,925 7,811 8,792 10,201 4,121 3,287 3,861 4,384Loans (net) 39,427 47,941 54,522 63,846 20,503 20,173 23,939 27,437Intangible Assets 1,864 1,763 1,696 1,634 969 742 745 702Total Assets 56,374 65,093 73,271 85,006 29,316 27,390 32,171 36,530Core Deposits 36,286 42,891 46,791 53,356 18,870 18,048 20,545 22,929Other Financial Liabilities 4,374 4,840 5,267 6,109 2,274 2,036 2,313 2,625Subordinated Debt 2,278 2,056 2,298 2,681 1,184 865 1,009 1,152Technical Provisions 0 0 0 0 0 0 0 0Equity 6,059 6,806 7,792 9,009 3,151 2,864 3,421 3,871Adjusted Equity 4,958 5,877 7,051 8,448 2,578 2,473 3,096 3,630

LOAN BOOK 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECompanies 16,635 19,432 22,240 26,499 8,650 8,177 9,765 11,388Total Consumer 9,723 11,292 12,739 14,410 5,056 4,751 5,594 6,193Mortgages 7,701 9,222 10,900 12,811 4,004 3,880 4,786 5,505Other Loans 7,074 9,979 11,051 12,896 3,679 4,199 4,852 5,542Gross Loans 41,132 49,925 56,931 66,616 21,390 21,008 24,997 28,627Loan Growth (%) 19.4 21.4 14.0 17.0 9.8 (1.8) 19.0 14.5NPL 670 831 988 1,145 349 350 434 492Provisions (1,705) (1,985) (2,409) (2,770) (886) (835) (1,058) (1,191)



PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 1,915.98 2,261.21 2,619.58 3,213.42 1.03 1.13 1.13 1.40BVPS 13,639.43 15,321.69 17,540.09 20,280.65 7.09 6.45 7.70 8.72DPS 560.00 630.00 452.24 523.92 0.30 0.31 0.19 0.23Adj EPS 2,075.60 2,338.10 2,816.97 3,221.17 1.11 1.17 1.21 1.40Adj BVPS 11,160.71 13,229.68 15,872.77 19,017.82 5.80 5.57 6.97 8.17Surplus Capital per Share (2,815.26) (4,261.49) (4,373.79) (4,968.65) (1.46) (1.79) (1.92) (2.14)Unrealized Cap. Gains/Shr 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

US$Co$

Company39.1%

Mortgage22.4%

Consumer19.1%

Abroad19.4%

NII66.2%

FX/Trad2.7%

Fees25.7%

Others5.4%

Grupo Bolivar54.2%

Cúsezar17.2%

IFC8.1%

Free Float20.5%

295


COLOMBIA—OIL, GAS & PETROCHEMICALS

ECOPETROL HOLD CURRENT PRICE: US$16.50



Investment Case: Our cautious view on the name is based on the challenges faced by the company in terms of growing reserves as well as production at an attractive, sustainable basis. The difficult, current environment of significant lower oil prices does not help, as the company has already had to curtail its 2015 capex, in order to maintain its financial healthy.

Outlook 2015: We expect the difficult oil price environment to present a significant challenge for Ecopetrol, with lackluster production growth for 2015, in our view. With 2015 capex having been reduced YoY, the likelihood of significant exploratory successeshas to also be tempered, we believe. In addition, we expect the company to complete the modernization of the Cartagena refinery bymidyear.

Lackluster production growth: Ecopetrol‘s production growth continues to disappoint, and we now expect 2015 growth of only 2%,after an uninspiring 2014. Some of the challenges that may precludeproduction from growing more include: attacks on infrastructure, delays in securing environmental licenses, and the impact from community demonstrations.

Path to ambitious reserve growth target remains unclear: Ecopetrol has not changed its goal of reaching 1.3 mbpd by 2020. In our view, achieving this goal will require significant additions of 1P reserves, whose outlook remains uncertain at this point.



Company Statistics



Bloomberg EC US / ECOPETL CBCurrent Price (01/02/15) US$ 16.50 / Co$ 1,955.00Target Price (YE 2015) US$ 20.00 / Co$ 2,220.0052-Week Range (US$) 14.77 - 41.16Market Capitalization (US$ Mn) 33,947Float (%) 10.03-Mth Avg. Daily Vol (US$ Mn) 19.9Shares Outstanding - Mn 2,057

20

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

Ecopetrol - ADR (Rebased)

296

ECOPETROL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Co$), Millions (US$)

Company Description Ecopetrol is Colombia’s integrated oil and gas company created in 1951 as a wholly owned government entity responsible for all hydrocarbon activities in the country. The company’s operations include exploration and production, refining, transportation, marketing, gas and energy, as well as growing international upstream activities. The company has proven reserves of 1,878 million boe. Ecopetrol held its IPO in 2007, and is controlled (88.5%) by the Colombian Government. The company’s ordinary shares are listed locally in the Colombian market and were listed on the NYSE as of September 2008. Key Personnel: Gonzalo Restrepo (Chairman), Javier Gutierrez Pemberthy (CEO), Gonzalo Restrepo (CFO) and Alejandro Giraldo (IR Officer) Web: www.ecopetrol.co


Volume by Segment, 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 62,514 53,942 43,156 49,234 33,456 25,872 20,143 22,268 YoY change (%) 5.0 (13.7) (20.0) 14.1 1.0 (22.7) (22.1) 10.5Gross Profit 24,079 18,947 12,034 15,805 12,886 9,087 5,617 7,148 YoY change (%) (6.3) (21.3) (36.5) 31.3 (9.9) (29.5) (38.2) 27.3EBITDA 28,498 22,155 15,869 19,486 15,251 10,626 7,407 8,813 YoY change (%) 3.4 (22.3) (28.4) 22.8 (0.6) (30.3) (30.3) 19.0 As % of Revenue 45.6 41.1 36.8 39.6 45.6 41.1 36.8 39.6Operating Income 19,627 15,473 9,506 13,040 10,504 7,421 4,437 5,898 YoY change (%) (14.1) (21.2) (38.6) 37.2 (17.4) (29.3) (40.2) 32.9 As % of Revenue 31.4 28.7 22.0 26.5 31.4 28.7 22.0 26.5Financial Results 340 1,004 (691) (676) 182 482 (323) (306)Taxes (7,023) (5,022) (3,611) (4,989) (3,759) (2,409) (1,685) (2,256)Net Profit 13,353 10,196 5,416 7,483 7,146 4,890 2,528 3,384 YoY change (%) (10.8) (23.6) (46.9) 38.2 (14.2) (31.6) (48.3) 33.9 As % of Revenue 21.4 18.9 12.5 15.2 21.4 18.9 12.5 15.2

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (4,916) (5,482) (5,163) (5,246) (2,631) (2,629) (2,410) (2,373)Other Noncash Items 17,551 0 0 0 9,393 0 0 0Changes in Working Capital (5,821) (667) (740) 444 (3,115) (320) (345) 201Operating Cash Flow 29,999 15,010 9,839 13,173 16,054 7,199 4,592 5,958Capital Expenditures (8,852) (7,092) (5,066) (8,507) (4,737) (3,401) (2,365) (3,848)Free Cash Flow (1,359) (406) (888) (3,524) (727) (195) (414) (1,594)Other Invest./(Divestments) (16,669) 450 450 450 (8,921) 216 210 204Change in Debt 6,724 4,000 3,000 2,000 3,599 1,918 1,400 905Dividends (14,570) (7,137) (3,791) (5,238) (7,798) (3,423) (1,769) (2,369)Capital Increases/Other 6,925 (156) (156) (156) 3,706 (75) (73) (71)

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 5,371 4,964 4,077 553 2,783 2,381 1,853 249Current Assets 21,687 20,355 17,872 15,247 11,240 9,763 8,123 6,862Fixed Assets 73,023 79,664 84,280 92,338 37,845 38,208 38,309 41,556Total Assets 114,041 119,132 120,990 126,577 59,104 57,138 54,995 56,965Current Liabilities 18,630 16,929 14,401 15,956 9,655 8,120 6,546 7,181Long-Term Liabilities 23,617 27,349 30,110 31,899 12,240 13,117 13,686 14,356Shareholders' Equity 71,795 74,853 76,478 78,723 37,209 35,901 34,763 35,429Total Financial Debt 12,320 16,320 19,320 21,320 6,385 7,827 8,782 9,595ST Debt 342 454 537 593 177 218 244 267LT Debt 11,978 15,867 18,783 20,728 6,208 7,610 8,538 9,328



PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 325 248 132 182 3 2 1 2DPS 354 173 92 127 3 1 1 1BVPS 1,745 1,819 1,859 1,913 14 15 15 16

US$Co$

Colombia42.8%

Other57.2%

Oil49.8%Natural Gas

10.6%

Others39.6%

Colombia Government

88.5%

Free Float11.5%

297


COLOMBIA—CONGLOMERATES & INDUSTRIALS

GRUPO ARGOS HOLD CURRENT PRICE: CO$19,820



Investment Case: Grupo Argos is an investment vehicle that provides exposure to the infrastructure and financial sectors in Colombia. Although most of its NAV (more than 80%, according to our estimate) comprises assets that are already listed on the stock market, Grupo Argos also provides exposure to real estate and other non-listed assets.

On November 10, the company announced a capital increase (50 m shares), which it decided to put on the backburner on December 17, due to adverse market conditions. According to our estimates, this capital increase would have amounted to 3x the company’s EBITDA; we believe that such funding cannot be covered entirely with debt, according to the company’s leverage targets. We therefore conclude that an equity offering is still likely in 2015.

Outlook 2015: Grupo Argos entered into a JV with Conconcreto (CONCONC CB | Current Price; Co$1,450 | NR) to further develop both companies’ income property businesses. As part of this partnership, Grupo Argos will contribute some real estate assets, andhas committed to provide Co$365,000 m in cash in the next four years. According to the company, this JV (in which Grupo Argos will have 50% stake), combines 430,000 sqm in real estate assets and it is expected to add some 300,000 sqm more in the next four years.

We believe that this transaction is consistent with Grupo Argos’ goal to diversify its asset base within its core businesses; nevertheless we note that this transaction puts additional pressure in the company’s cash flow in the next four years, which, in our view, represents an overhang risk for both Grupo Argos shares and those of the companies in its investment portfolio.

Valuation: We value Grupo Argos using a sum-of-the-parts model, applying our YE2015 target price to its stakes in Cementos Argos, Grupo Sura, Grupo Nutresa and Bancolombia. We assume market values for Celsia and non-listed assets (according to company’s reports). We apply a 10% holding discount to this sum-of-the-parts to calculate our target price.


Company Statistics



Bloomberg GRUPOARG CBCurrent Price (01/02/15) Co$ 19,820 / US$ 8.35Target Price (YE 2014) Co$ 23,200 / US$ 9.7752-Week Range (Co$) 17,000 - 24,100Market Capitalization (US$ Mn) 6,832Float (%) 40.63-Mth Avg. Daily Vol (US$ Mn) 2.4Shares Outstanding - Mn 818

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

GRUPOARG CB COLCAP

298

GRUPO ARGOS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Co$), Millions (US$)

Company Description Grupo Argos is an investment holding company with controlling stakes in cement and power companies. The company also owns minority stakes in other listed companies in the food, financial services, and insurance sectors. Grupo Argos’s asset portfolio also includes nonlisted instruments, mainly real estate, port, and coal assets. Key Personnel: Esteban Giraldo (Chairman), José Alberto Vélez (CEO), Ricardo Andrés Sierra (CFO) and Sebastian Velásquez (IR) Web: inversionistas.grupoargos.com/

NAV Composition, 2015E

Target Price Upside Composition

Shareholder Structure, September 30 2014


P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 517 733 550 650 281 342 230 268 YoY change (%) (14.1) 41.7 (25.0) 18.3 (17.5) 21.6 (32.8) 16.6Gross Profit 448 476 467 553 244 222 195 228 YoY change (%) (15.9) 6.4 (1.9) 18.3 (19.2) (8.7) (12.1) 16.6EBITDA 360 384 373 456 196 179 156 188 YoY change (%) (17.2) 6.7 (2.9) 22.3 (20.4) (8.4) (13.0) 20.5 As % of Revenue 69.5 52.4 67.8 70.1 69.5 52.4 67.8 70.1Operating Income 358 384 373 456 194 179 156 188 YoY change (%) (17.7) 7.4 (2.9) 22.3 (20.9) (7.8) (13.0) 20.5 As % of Revenue 69.1 52.4 67.8 70.1 69.1 52.4 67.8 70.1Financial Results (8,390) (8,383) (8,391) (8,393) (4,563) (3,913) (3,509) (3,459)Taxes (16) (16) (21) (27) (9) (7) (9) (11)Net Profit 295 302 278 353 160 141 116 146 YoY change (%) (14.2) 2.5 (8.2) 27.3 (17.6) (12.0) (17.7) 25.4 As % of Revenue 57.0 41.3 50.5 54.3 57.0 41.3 50.5 54.3

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 2 0 0 0 1 0 0 0Other Noncash Items (162) (218) (238) (318) (88) (102) (99) (131)Changes in Working Capital (67) 73 65 (36) (36) 34 27 (15)Operating Cash Flow 64 158 105 (0) 35 74 44 (0)Capital Expenditures 0 0 0 0 0 0 0 0Free Cash Flow 45 139 79 (32) 25 65 33 (13)Other Invest./(Divestments) 6,576 (12) 0 0 3,577 (6) 0 0Change in Debt (283) 200 0 0 (154) 93 0 0Dividends (171) (203) (210) (217) (93) (95) (88) (90)Capital Increases/Other 0 130 0 0 0 61 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 92 365 260 43 48 154 108 17Current Assets 353 668 498 316 185 281 207 129Fixed Assets 15,116 15,397 15,848 16,391 7,914 6,486 6,579 6,706Total Assets 15,469 16,065 16,346 16,706 8,099 6,767 6,786 6,835Current Liabilities 556 442 442 442 291 186 184 181Long-Term Liabilities 501 929 929 929 262 391 386 380Shareholders' Equity 14,413 14,694 14,975 15,335 7,546 6,189 6,216 6,274Total Financial Debt 818 1,018 1,018 1,018 428 429 423 417ST Debt 373 145 145 145 195 61 60 59LT Debt 445 873 873 873 233 368 363 357


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E n/m n/m n/m 45.9 n/m n/m n/m 46.9P/CE n/m n/m n/m 45.9 n/m n/m n/m 46.9FV/EBITDA 46.3 45.4 45.6 37.7 44.0 40.9 45.9 38.5FV/EBIT 46.5 45.4 45.6 37.7 44.3 40.9 45.9 38.5FV/Revenue 32.2 23.8 30.9 26.4 30.6 21.4 31.1 27.0P/BV 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1FCF Yield (%) 0.3 0.8 0.5 (0.2) 0.3 0.9 0.5 (0.2)Div Yield (%) 1.1 1.2 1.3 1.3 1.1 1.3 1.3 1.3


US$Co$

Cementos Argos33.7%

Celsia + EPSA11.0%

Grupo Sura30.4%

Grupo Nutresa

6.2%

Real estate assets16.3%

Other assets2.4%

From asset portfolio's

TP12.5%

From discount to

NAV87.5%

Grupo Sura

29.0%

Grupo Nutresa10.1%

Pension Funds20.3%

Float40.6%

299



GRUPO AVAL HOLD CURRENT PRICE: CO$1,265

TARGET PRICE: CO$1,400 DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF CO$1,400; REPLACING YE2014 TARGET PRICE OF CO$1,550

Investment Case: We are cutting our earnings estimates for 2015 and 2016 by around 15% due to higher taxation, expectations of only one rate increase in Colombia toward the end of 2015, still strong competitive pressures in the Colombian banking industry and slowerloan growth estimates.

Outlook 2015: We have cut our loan growth expectation from 15% to 11%, as we do not expect the effect of loan demand from infrastructure investments until 2016. Also, we believe that Aval could take a more cautious stance toward consumer credit and mortgagegrowth, with a focus on defending margins; regardless we forecast only a modest 10-bp NIM expansion. While we expect efficiency to continue improving, we project that adjusted ROE will expand only 80bps, to 15.5%, as higher taxation offsets the impact of improved efficiency.

We estimate Aval’s total tax burden should increase to 48% by 2018, a 700-bp increase from the average 41.7% in the four years leading to 2014. The total tax burden includes corporate income tax,financial transaction taxes and taxes on equity (reported in opex).

IFRS Transition. We expect the transition to IFRS to lower operating expenses related to goodwill amortization and lead to lower intangible asset amortization from the write-off of software development costs incurred in recent years. We assume that taxes on equity will be reflected in administrative costs.

Corporate restructuring may lead to capital challenges. We estimate Aval’s fully loaded 2014E Basel III CT1 capital ratio at 6.1%, due to deductions for intangibles and equity investments at Corficolombiana. Aval’s holding company will acquire the 14% stake in Corficolombiana held by Banco de Occidente. The group has stated that it may eventually acquire the remaining 44% stake that is currently in the hands of Banco de Bogota and Banco Popular in order to release capital at operating units. This, and the potential acquisition of minority staked at the operating units could lead to additional capital requirements at the group level.



Company Statistics



Bloomberg PFAVAL CB / AVAL USCurrent Price (01/02/15) Co$ 1,265 / US$ 10.30Target Price (YE 2015) Co$ 1,400 / US$ 12.3052-Week Range (Co$) 1,093 - 1,455Market Capitalization (US$ Mn) 11,879Float (%) 19.43-Mth Avg. Daily Vol (US$ Mn) 4.5Shares Outstanding - Mn 22,037

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

PFAVAL CB COLCAP

300

GRUPO AVAL Financial Highlights: P&L and Balance Sheet, 2013–16E in Billions (Co$), Millions (US$) Company Description

Grupo Aval is Colombia’s leading banking group with approximately a 27% market share in loans and 30% in deposits in Colombia. Aval is active in most segments of the financial industry in Colombia, with strong positions in corporate and investment banking, private pension funds, commercial banking and payroll loans, among others. The group operates four banks in Colombia, each with a particular strategic focus, with central risk management and general oversight. Aval is also the leading Central American banking group via BAC Credomatic. The group has a dual shareholding structure, with ordinary voting and non-voting preferred shares, both of which are listed in the Colombian stock exchange. The group's non-voting shares trade in ADR format in U.S. markets. The group is controlled by Mr. Luis Sarmiento Angulo, who owns most of the outstanding ordinary and preferred shares. Key Personnel: Luis Sarmiento A. (Chairman), Luis Sarmiento G. (CEO), Diego Solano (CFO) and Tatiana Uribe (IRO) Web: www.grupoaval.com

Loan Book, 2015E




INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Interest Income 6,840 7,405 8,620 10,083 3,660 3,700 3,704 4,379NPL Provisions (1,269) (1,405) (1,785) (2,220) (679) (702) (767) (964)Adj Net Interest Income 5,571 6,000 6,835 7,863 2,981 2,998 2,937 3,415Non-Interest Income 4,298 4,323 4,704 5,336 2,300 2,160 2,022 2,318Total Operating Revenue 9,869 10,323 11,539 13,199 5,281 5,159 4,959 5,733Non-Interest Expense (6,078) (6,579) (7,153) (7,916) (3,252) (3,288) (3,074) (3,438)Profit Before Taxes 4,027 3,951 4,533 5,441 2,155 1,974 1,948 2,363Taxes (1,415) (1,396) (1,744) (2,136) (757) (698) (749) (928)Net Profit 1,601 1,664 1,858 2,251 857 831 799 978Adjusted Net Profit 2,070 1,990 2,409 2,822 1,108 994 1,035 1,226

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 13,310 14,558 16,396 16,434 6,921 6,126 7,199 7,062Securities 30,086 28,758 33,976 37,886 15,645 12,101 14,918 16,281Loans (net) 93,441 108,317 119,775 138,687 48,591 45,578 52,590 59,598Intangible Assets 4,968 4,995 4,831 4,667 2,583 2,102 2,121 2,006Total Assets 154,287 168,870 188,353 212,202 80,233 71,057 82,701 91,190Core Deposits 101,190 111,981 124,753 139,503 52,621 47,120 54,776 59,949Other Financial Liabilities 21,088 22,327 25,395 28,783 10,966 9,395 11,150 12,369Subordinated Debt 2,046 1,949 1,929 1,970 1,064 820 847 847Technical Provisions 0 0 0 0 0 0 0 0Equity 11,728 12,941 13,996 15,171 6,099 5,446 6,145 6,520Adjusted Equity 8,155 10,178 11,222 12,499 4,241 4,283 4,927 5,371

LOAN BOOK 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECompanies 53,309 57,885 64,239 74,812 27,722 24,357 28,206 32,149Total Consumer 20,671 23,543 26,436 30,366 10,749 9,906 11,607 13,050Mortgages 1,880 2,836 3,647 4,328 978 1,193 1,601 1,860Other Loans 20,654 27,339 29,311 33,805 10,741 11,504 12,870 14,527Gross Loans 96,514 111,603 123,632 143,312 50,189 46,960 54,284 61,586Loan Grow th (%) 20.6 15.6 10.8 15.9 10.8 (6.4) 15.6 13.5NPL 1,473 2,053 2,411 2,838 766 864 1,059 1,219Provisions (3,073) (3,286) (3,857) (4,625) (1,598) (1,383) (1,694) (1,988)

KEY RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENIM 5.50 5.01 5.11 5.33 5.50 5.01 5.11 5.33Risk Charge 1.48 1.37 1.53 1.68 1.48 1.37 1.53 1.68Operating Revenue / ATAs 7.21 6.33 6.31 6.48 7.21 6.33 6.31 6.48Cost / ATAs 4.44 4.04 3.91 3.89 4.44 4.04 3.91 3.89Adj Eff iciency 55.8 55.3 52.5 50.1 55.8 55.3 52.5 50.1Effective Taxes 35.1 35.3 38.5 39.3 35.1 35.3 38.5 39.3Reported ROE (%) 17.0 13.0 13.8 15.4 17.0 13.0 13.8 15.4Adj ROE (%) 17.6 14.7 15.5 15.9 17.6 14.7 15.5 15.9NPL Ratio 1.62 1.96 2.05 2.08 1.62 1.96 2.05 2.08Adj NPL Ratio 2.70 3.17 3.05 3.14 2.70 3.17 3.05 3.14Loans / Total Assets 62.6 66.1 65.6 67.5 62.6 66.1 65.6 67.5Loans / Core Deposits 95.4 99.7 99.1 102.7 95.4 99.7 99.1 102.7RWA % Total Assets 81.8 82.5 81.9 84.4 81.8 82.5 81.9 84.4Core Tier I Ratio (%) 5.2 6.0 6.3 6.4 5.2 6.0 6.3 6.4Dividend Payout (%) 64.7 55.0 50.0 50.0 64.7 55.0 50.0 50.0

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EAdj. P/BV 2.2 2.1 2.0 1.8 - 2.0 1.8 1.7Adj. P/E 14.1 15.8 14.3 12.7 - 13.2 13.6 11.8Div Yield (%) 4.4 3.7 3.4 4.2 - 4.7 3.5 4.3


US$Co$

Company52.0%Mortgage

2.9%

Consumer21.4%

Foreign23.7%

NII59.2%

Trading3.2%

Fees30.9%

Equity Income3.0%

Other3.6%

Luis Carlos Sarmiento

Angulo80.6%

Free Float19.4%

301


COLOMBIA—FOOD & BEVERAGE

GRUPO NUTRESA HOLD CURRENT PRICE: CO$28,000


Investment Case: Nutresa offers a top-notch portfolio of brands and a powerful sales and distribution network, which, in the context of a resilient traditional market (grocery stores) in Colombia implies sustainable “pricing power,” in our view.

A significant investment portfolio (approximately a third of Nutresa’s market cap) distorts the company’s valuation and drives low levels of ROE and relatively low liquidity (vs. its market cap). On the flip side, this investment portfolio provides Nutresa with enhanced financial flexibility to continue the company’s inorganic expansion strategy.

Outlook 2015: We expect Nutresa’s defensive product portfolio to allow the company to post positive top-line results despite recent uncertainties in Colombia’s macro scenario. Meanwhile, El Corral’s acquisition will, in our view, provide Nutresa with a powerful platform to tap the fast-growing dine-out-of-home category in Colombia, which we expect to result in accelerated revenue growth and an improved EBITDA margin at the company’s consolidated level. At the same time, we expect the company’s new accounting policies for its operations in Venezuela to reflect poor top-line performance in the company’s cold cut segment until mid-2015.

In terms of profitability, we expect recent currency depreciation to produce mixed effects in Nutresa’s results. In the short term, it drives the EBITDA margin lower as a result of higher costs in its U.S. dollar-denominated inputs, while over the medium to long term, we believe that currency depreciation represents an opportunity for Nutresa to gain market share and/or recoup margins via prices.

Valuation: Our target price implies an adjusted FV/EBITDA multiple of 11.7x for 2015 (versus a trading multiple of 11.3x), which is consistent with our target multiple for other food companies under ourcoverage in Latin America. While we believe that the current stock valuation is unattractive, we see limited downside risk at current levels, as we expect Nutresa’s strategy to deliver improved profitability and growth.



Company Statistics



Bloomberg NUTRESA CBCurrent Price (01/02/15) Co$ 28,000 / US$ 11.79Target Price (YE 2015) Co$ 30,000 / US$ 12.9252-Week Range (Co$) 23,400 - 29,500Market Capitalization (US$ Mn) 5,426Float (%) 40.53-Mth Avg. Daily Vol (US$ Mn) 1.8Shares Outstanding - Mn 460

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

NUTRESA CB COLCAP

302

GRUPO NUTRESA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Billions (Co$), Millions (US$)

Company Description Nutresa is the largest publicly listed food company in the Andean region and the fourth largest in Latin America in terms of market capitalization. Nutresa’s products span cold cuts, chocolates, biscuits, coffee, powdered drinks, ice cream and pasta categories. Colombia, Chile and Central America and the Caribbean are the company’s main markets. Nutresa has equity stakes in publicly listed Colombian companies, including Grupo Sura and Grupo Argos, which account for approximately 30% of its market capitalization. Key Personnel: Antonio Celia (Chairman), Carlos I. Gallego (CEO), Jose D. Penagos (CFO) and Alejandro Jimenez (IR) Web: www.nutresa.com.co

Sales by Country, 3Q14




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 5,898 6,444 7,384 8,105 3,193 3,253 3,195 3,473 YoY change (%) 11.2 9.2 14.6 9.8 8.4 1.9 (1.8) 8.7Gross Profit 2,637 2,874 3,280 3,610 1,428 1,450 1,419 1,547 YoY change (%) 17.7 9.0 14.1 10.1 14.7 1.6 (2.2) 9.0EBITDA 833 879 994 1,101 451 444 430 472 YoY change (%) 24.1 5.5 13.1 10.8 21.0 (1.6) (3.1) 9.7 As % of Revenue 14.1 13.6 13.5 13.6 14.1 13.6 13.5 13.6Operating Income 650 657 748 789 352 332 323 338 YoY change (%) 24.8 1.0 13.8 5.5 21.7 (5.8) (2.5) 4.5 As % of Revenue 11.0 10.2 10.1 9.7 11.0 10.2 10.1 9.7Financial Results (41) (100) (108) (134) (22) (50) (47) (58)Taxes (174) (150) (197) (202) (94) (76) (85) (86)Net Profit 380 362 397 407 206 183 172 174 YoY change (%) 10.1 (4.8) 9.6 2.5 7.3 (11.3) (6.1) 1.5 As % of Revenue 6.4 5.6 5.4 5.0 6.4 5.6 5.4 5.0

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (183) (222) (246) (312) (99) (112) (107) (134)Other Noncash Items (18) (29) (5) (4) (10) (15) (2) (2)Changes in Working Capital (101) (101) (81) (88) (55) (51) (35) (38)Operating Cash Flow 444 454 557 628 240 229 241 269Capital Expenditures (1,164) (387) (1,182) (283) (630) (195) (512) (121)Free Cash Flow (720) 67 (625) 345 (390) 34 (271) 148Other Invest./(Divestments) 1,164 0 0 0 630 0 0 0Change in Debt 0 0 830 0 0 0 359 0Dividends (182) (190) (199) (218) (99) (96) (86) (93)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 415 293 298 425 216 127 128 181Current Assets 2,018 2,054 2,308 2,618 1,047 893 994 1,116Fixed Assets 8,562 8,731 9,672 9,646 4,443 3,796 4,164 4,113Total Assets 10,580 10,786 11,980 12,263 5,491 4,690 5,158 5,229Current Liabilities 1,348 1,374 1,706 1,801 700 597 735 768Long-Term Liabilities 1,802 1,810 2,474 2,474 935 787 1,065 1,055Shareholders' Equity 7,411 7,583 7,780 7,969 3,846 3,297 3,350 3,398Total Financial Debt 1,997 1,997 2,827 2,827 1,036 868 1,217 1,205ST Debt 408 399 565 565 212 174 243 241LT Debt 1,589 1,597 2,261 2,261 825 695 974 964

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 1,581 1,704 2,528 2,402 821 741 1,089 1,024Capital Employed 9,640 9,812 10,839 11,028 5,002 4,266 4,667 4,702Net Debt/EBITDA 1.9 1.9 2.5 2.2 1.8 1.7 2.5 2.2Net Debt/Equity 0.2 0.2 0.3 0.3 0.2 0.3 0.3 0.3Capex/Revenue (%) 19.7 6.0 16.0 3.5 19.7 6.0 16.0 3.5Int Cover (%) 8.2 5.6 5.9 5.6 8.2 5.6 5.9 5.6Dividend Payout (%) 52.7 50.0 55.0 55.0 50.7 46.7 46.4 55.0ROCE (%) 12.4 12.2 11.9 12.2 12.7 14.2 11.9 12.2ROE (%) 5.1 4.8 5.2 5.2 5.1 5.1 5.2 5.2

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 32.0 36.4 32.5 31.7 30.6 30.3 31.6 31.1P/CE 21.6 22.5 20.0 17.9 20.7 18.8 19.5 17.6FV/EBITDA 16.5 16.9 15.5 13.9 15.8 14.2 15.2 13.7FV/EBIT 21.2 22.7 20.7 19.4 20.3 19.0 20.2 19.1FV/Revenue 2.3 2.3 2.1 1.9 2.2 1.9 2.0 1.9P/BV 1.6 1.7 1.7 1.6 1.6 1.7 1.6 1.6FCF Yield (%) (5.9) 0.5 (4.9) 2.7 (6.2) 0.6 (5.0) 2.7Div Yield (%) 1.5 1.4 1.5 1.7 1.6 1.7 1.6 1.7


US$Co$

Colombia65.8%


8.7%

Chile7.8%

USA7.0%

Mexico3.9%

Others6.8%

Cold Cuts

27.8%

Biscuits21.0%

Coffee17.4%

Chocolates15.9%

Ice Cream11.2%

TMLUC3.5%

Others3.2%

Suramericana

35.2%

Inversiones Argos9.8%

Pension funds14.5%

Float40.5%

303


COLOMBIA—INSURANCE SERVICES

GRUPO SURA BUY CURRENT PRICE: CO$39,500



Investment Case: The advent of IFRS should close the gap between reported earnings and our estimate of the economic earnings of the Group, in our view, greatly enhancing the attractiveness of Sura as a diversified play on the growth in the Colombian economy. Currently, the stock trades at a 10% discount to NAV (at the bottom of its one-year range), while we estimate a 2015 financial services P/E of 11.8x (stripping out Nutresa and Argos at market values).

Outlook 2015: We expect Sura AM to post net earnings of US$250 million, up from US$220 million in 2014; while for Suramericana (Insurance) we expect Ch$375 billion. For the group, we expect look-through earnings (assuming equity income accounting for all units) topost 13.2% growth prior to the impact of equity taxes.

Equity taxes: We believe that it is feasible that under IFRS, Grupo Sura and its operating units may record a onetime charge for the three-year impact of the tax. We expect a small impact at the holding company level, as most equity investments in Colombia are deductible form the capital base taxed, at Co$6-8 billion. On the other hand, we believe that Sura Asset Management will see the largest hit, as the taxable equity is high, at Co$120-150 billion. Finally, we forecast that the insurance operations will see a smaller Co$60-80 billion impact. We incorporate the consolidated impact of these taxes as a one-off charge of Co$212 billion in 2015.

Diversified sources of upside to our 2015E Target NAV: we expect Sura to enjoy diversified sources of performance, with 76% ofthe upside driven by our target prices for Bancolombia, Grupo Argos and Sura AM (in roughly equal parts), with an additional 10% from the current discount to NAV and an additional 13% from changes in the net debt position and others.

Cash Building up: We expect that Grupo Sura’s net debt position may improve by as much as US$1.0 billion over the next three to four years, largely from the retention of dividend payments in excess of debt service. We expect excess cash to be eventually deployed in international acquisitions.



Company Statistics



Bloomberg PFGRUPSU CBCurrent Price (01/02/15) Co$ 39,500 / US$ 16.64Target Price (YE 2015) Co$ 47,250 / US$ 20.7552-Week Range (Co$) 30,620 - 43,600Market Capitalization (US$ Mn) 9,571Float (%) 58.83-Mth Avg. Daily Vol (US$ Mn) 1.9Shares Outstanding - Mn 575

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

PFGRUPSU CB COLCAP

304

GRUPO SURA Financial Highlights: P&L and Balance Sheet, 2013–16E in Billions (Co$), Millions (US$) Company Description

Grupo Sura is one of Colombia’s leading corporate groups. Its origins date back to the 1970’s when businessmen from Medellin grouped under what was then known as the Grupo Empresarial Antioqueño, with the aim of fending off hostile takeovers. The group consolidated its holdings in 1997 into what today is Grupo Sura. The group acquired in late 2011 ING’s pension, insurance, and asset management business in Latin America for a total of US$3.6 billion. The group’s strategy is to grow in Latin American financial services via acquisitions in banking and insurance in countries where it is already present with pension fund management. Key Personnel: Armando Montenegro Trujillo (Chairman), David Bojanini (CEO), Ignacio Calle (CFO) and Luis E. Martinez (IRO) Web: www.gruposuramericana.com

Target NAV Breakdown, 2015E

Pro-Forma Equity Income Breakdown, 2015E



INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ERevenue 1,205 1,384 1,515 1,603 645 692 651 696 Growth (%) (1.9) 14.9 9.4 5.9 (5.6) 7.3 (5.9) 7.0EBITDA 1,159 1,341 1,470 1,557 620 670 632 676 Growth (%) 5.0 15.7 9.6 5.9 1.0 8.0 (5.7) 7.1Operating Profit 1,159 1,341 1,470 1,557 620 670 632 676 Growth (%) 5.0 15.7 9.6 5.9 1.0 8.0 (5.7) 7.1Profit before Taxes 1,112 1,299 1,462 1,397 595 649 628 607Taxes (51) (48) (29) (26) (27) (24) (12) (11)Minorities 0 0 0 0 0 0 0 0Net Profit 1,062 1,251 1,221 1,371 568 625 525 596 Growth (%) 7.3 17.9 (2.4) 12.3 3.2 10.1 (16.1) 13.5

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 211 226 712 1,365 110 95 312 586Accounts Receivable 141 119 128 132 73 50 56 57Intangible and Deferred Asse - - - - - - - -Tangible Assets 1 1 1 1 1 1 1 1Total Assets 21,050 24,108 26,446 26,623 10,947 10,144 11,612 11,441ST Debt 313 0 0 90 163 0 0 39LT Debt 250 900 900 900 130 379 395 387Equity 20,288 22,990 25,316 25,395 10,550 9,674 11,116 10,913Net Debt (Cash) 928 1,387 872 323 483 584 383 139

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EChanges in Working Capital (9) 68 35 37 (5) 34 15 16Operating Cash Flow 247 245 42 116 132 122 18 51Capital Expenditures 298 (224) 702 735 160 (112) 302 319Change in Debt (159) 337 0 90 (85) 168 0 39Free Cash Flow to Equity 382 411 751 948 204 206 323 412Cash Dividends 259 277 238 267 139 138 102 116Capital Increase (Decrease) 0 0 0 0 0 0 0 0

OPERATING RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEBITDA Margin 96.2 96.9 97.1 97.1 96.2 96.9 97.1 97.1Effective Tax Rate 4.6 3.7 2.0 1.8 4.6 3.7 2.0 1.8Net Margin - - - - - - - -Net Debt / EBITDA 0.8 1.0 0.6 0.2 0.8 1.0 0.6 0.2Net Debt / Equity 0.0 0.1 0.0 0.0 0.0 0.1 0.0 0.0FCFE / Revenues - - - - - - - -ROAA 5.0 5.5 4.8 5.2 4.9 5.9 4.8 5.2ROAE 5.2 5.8 5.1 5.4 5.1 6.2 5.1 5.4Payout (26.2) (26.1) (19.0) (21.8) (25.2) (24.4) (16.0) (21.8)

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 19.0 18.2 18.6 16.6 18.3 15.3 18.2 16.1P/CE - - - - - - - -FV/EBITDA 18.2 18.0 16.1 14.8 17.6 15.1 15.8 14.4FCFE Yield (%) - - - - - - - -P/BV 1.0 1.0 0.9 0.9 1.0 1.0 0.9 0.9Div Yield (%) (1.3) (1.2) (1.0) (1.2) (1.3) (1.4) (1.1) (1.2)

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 1,359 1,329 1,264 1,449 0.73 0.66 0.54 0.63CEPS 445 308 11 138 0.24 0.15 0.00 0.06FCFPS 664 715 1,305 1,648 0.35 0.30 0.57 0.71BVPS 35,260 39,956 43,999 44,137 18.34 16.81 19.32 18.97DPS 975 975 414 464 0.52 0.49 0.18 0.20

US$Co$

Nutresa17.1%

Grupo Argos19.0%

CIB27.6%

Sura AM21.6%

Insurance14.5%

Other (Net)0.2%

Nutresa9.2%

Grupo Argos5.2%

CIB39.2%

Insurance20.1%

Sura AM25.6%

Other (Net)0.7%

Grupo Argos 24.3%

Nutresa10.3%Cementos

Argos 4.8%Other

1.8%

Free Float58.8%

305


COLOMBIA—OIL, GAS & PETROCHEMICALS

PACIFIC RUBIALES HOLD CURRENT PRICE: CA$7.36

TARGET PRICE: CA$8.60

LOWERING YE2015 TARGET PRICE TO CA$8.60 FROM CA$11.00

Investment Case: We believe that the combination of modest production growth, a significant drop in oil prices and the resulting rationalization of capex (and potentially negative implications for reserve and production growth in the future), and the uncertainty surrounding Alfa’s interests in the company will continue to weigh on the stock in 2015 and thus, support our cautious view. Although the company’s entry and potential participation in Mexico is attractive, more details are needed in order to properly quantify potential upside for the stock, in our view

Outlook 2015: The company recently revised downward its 2015 guidance for net production to155-160 kbpd, a level that may still be ambitious, given some of the continually challenging factors that affected Colombian production in 2014, namely attacks on infrastructure, delays in securing environmental licenses, and in some cases, community demonstrations that disrupted some operations. Additionally, in response to the rapid fall in oil prices, thecompany announced a 2015 capex reduction to US$1.5 billion, below 2014’s level of around US$2.3 billion.

Conclusion of sale of midstream assets: At the end of December, Pacific Rubiales concluded the sale of a 43% stake in midstream assets for IFC; with this agreement, the company will immediately receive US$240 million in cash: US$80 million in 1Q15, plus a commitment for an additional US$60 million in cash to develop futureinfrastructure projects.

Limited visibility, quantification of upside for JV with Alfa: The company recently announced a 50/50 JV with Alfa, with the main goals being: (i) the joint study of and bidding on, assets in Mexico’s “First Bid Round”; (ii) the acquisition of services contracts with a view to migrate them to E&P contracts; (iii) the development or petroleum and natural gas assets in Mexico; and (iv) the development of any business related to oil in Mexico. Although we view this news positively, more details are needed in order to better assess and quantify the upside for the company.



Company Statistics

Price Performance (CA$)


Bloomberg PRE CN / PREC CBCurrent Price (01/02/15) CA$ 7.36 / Co$ 15,100.00Target Price (YE 2015) CA$ 8.60 / Co$ 17,248.6752-Week Range (CA$) 5.17 - 23.80Market Capitalization (US$ Mn) 1,975Float (%) 90.03-Mth Avg. Daily Vol (US$ Mn) 28.3Shares Outstanding - Mn 314

20

40

60

80

100

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

Pacific Rubiales - ORD (Rebased)

306

PACIFIC RUBIALES Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Pacific Rubiales is the largest independent E&P company in Colombia, with an exploration portfolio comprising 35 blocks in Colombia, 3 blocks in Peru, and 2 blocks in Guatemala. Its net reserves and risked prospective resources comprise 445 million boe of proved reserves (2P) according to the latest reports issued by Petrotech, RPS, and the company’s estimates. Pacific Rubiales's stock trades on the Colombian and Toronto stock exchanges. It has no controlling shareholders, and management holds roughly 10% of shares. Key Personnel: Serafino Iacono / Miguel de la Campa (Chairman), Ronald Pantin (CEO), Carlos Perez (CFO) and Roberto Puente (IR Officer) Web: www.pacificrubiales.com

EV by Resources, 2015E

Revenues by Basin, 2015E



Management10.0%

Capital Research

8.0%Carmignac Gestion

5.0%

Other77.0%

307


MEXICO—CONGLOMERATES & INDUSTRIALS

ALFA BUY CURRENT PRICE: M$32.03

TARGET PRICE: M$40.00 UPGRADING RATING TO BUY FROM HOLD INTRODUCING YE2015 TARGET PRICE OF M$40.00; REPLACING YE2014 TARGET PRICE OF M$42.00

Investment Case: We believe that Alfa’s weak performance at the end of 2014 was based primarily on the oil price decline and dilution expected from the announced follow-on. These factors have set the company’s valuation at attractive levels, which prompts our rating upgrade to Buy. We do not expect a short-term catalyst, but we believe that current prices offer an attractive entry point and that value from the expected IPO of Sigma and Nemak could be unlocked. Additionally, the stock could benefit from the energy reformin the medium term, albeit at a more moderate speed due to lower-than-expected oil prices.

Outlook 2015: We expect Sigma and Nemak to be the key growth drivers in 2015, which would more than offset the expected slowdown in the petrochemical and natural gas operations (Alpek and Newpek) due to lower prices of oil, especially during the first half of 2015. At the consolidated level, we estimate that the company could deliver top-line growth of 7.3% in U.S. dollar terms, mainly driven by the positive impact of the consolidation of Campo Frio in Sigma and resilient results at Nemak. At the EBITDA level, we estimate 7.4% growth in USD, driven by growth in all the divisions, but still moderate growth in Alpek.

Valuation: After the recent price correction, we see value in Alfa’s portfolio. We estimate that it trades at an approximately 27% discountto its NAV, which in our view offers attractive potential upside. We believe that upside to this valuation is possible when we are able to see the market value of Sigma and Nemak as stand-alone companies. However, the timing of these offerings is not clear.

Key themes 2015: (1) Oil and energy projects based on the current outlook for oil prices; (2) expected follow-on of ALFA for up to 8.3% of shares outstanding (timing not defined); (3) potential IPO of Nemak and Sigma; (4) impact of lower oil prices on sales and profitability for Alpek and Newpek; and (5) integration process of Campo Frio and potential expansion in the region.


Jens Spiess*, CFA Mexico: Banco Santander S.A. +5255-5269-1931 | [email protected]

Company Statistics

Price Performance (M$)


Bloomberg ALFAA MMCurrent Price (01/02/15) M$ 32.03 / US$ 2.16Target Price (YE 2015) M$ 40.00 / US$ 2.9452-Week Range (M$) 30.02 - 46.87Market Capitalization (US$ Mn) 11,104Float (%) 45.03-Mth Avg. Daily Vol (US$ Mn) 30.8Shares Outstanding - Mn 5,143

80

100

120

140

160

180

e-13 m-13 a-13 d-13 a-14 a-14 d-14

ALFAA MM MEXBOL

308

ALFA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Alfa is a Mexican conglomerate with exposure to the petrochemicals sector (Alpek—42% of sales and 29% of EBITDA in 2014), high-technology aluminum casting, mainly auto parts—engine heads and blocks (Nemak—30% of sales and 31% of EBITDA for 2014), refrigerated food—cold cuts, yogurt, cheese, and prepared food (Sigma—24% of sales and 28% of 2014 EBITDA), telecommunications (Alestra—2% of sales and 7% of 2014 EBITDA), and natural gas and hydrocarbons (Newpek—1% of sales and 6% of 2014 EBITDA). With the last acquisitions of Eastman Chemical and Wellman assets, ALFA has become the largest producer of purified terephthalic acid (PTA) in NAFTA. Also, ALFA is the largest manufacturer of aluminum engine heads and blocks worldwide. It is also a market leader in the production of cold cuts and cheeses in Mexico. Key Personnel: Armando Garza Sada (Chairman), Alvaro Fernández Garza (CEO), Ramón Leal (CFO), Enrique Flores Rodriguez (Vice President of Corporate Communications), Luis Ochoa (IRO) and Raúl González (IR Director) Web: www.alfa.com.mx

Sales by Division, 2015E

EBITDA by Division, 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 203,456 221,799 252,215 269,316 15,951 17,176 19,751 21,090 YoY change (%) 1.6 9.0 13.7 6.8 4.8 7.7 15.0 6.8Gross Profit 36,627 40,736 47,219 50,421 2,872 3,154 3,698 3,948 YoY change (%) 3.0 11.2 15.9 6.8 6.2 9.9 17.2 6.8EBITDA 24,511 26,613 30,100 32,372 1,922 2,061 2,357 2,535 YoY change (%) 1.2 8.6 13.1 7.5 4.4 7.2 14.4 7.5 As % of Revenue 12.0 12.0 11.9 12.0 12.0 12.0 11.9 12.0Operating Income 14,078 17,163 19,986 22,023 1,104 1,329 1,565 1,725 YoY change (%) (13.3) 21.9 16.5 10.2 (10.6) 20.4 17.8 10.2 As % of Revenue 6.9 7.7 7.9 8.2 6.9 7.7 7.9 8.2Financial Results (3,733) (6,149) (1,190) (1,856) (293) (476) (93) (145)Taxes (3,192) (3,825) (6,015) (6,453) (250) (296) (471) (505)Net Profit 6,249 5,758 9,343 10,024 490 446 732 785 YoY change (%) (34.7) (7.9) 62.3 7.3 (32.7) (9.0) 64.1 7.3 As % of Revenue 3.1 2.6 3.7 3.7 3.1 2.6 3.7 3.7

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (10,434) (9,451) (10,114) (10,349) (818) (732) (792) (810)Other Noncash Items 365 (1,845) 553 (432) 29 (143) 43 (34)Changes in Working Capital 215 2,038 (5,010) (3,543) 17 158 (392) (277)Operating Cash Flow 16,533 19,091 13,894 17,263 1,296 1,478 1,088 1,352Capital Expenditures (19,879) (10,628) (11,205) (11,253) (1,559) (823) (877) (881)Free Cash Flow (3,346) 8,463 2,689 6,010 (262) 655 211 471Other Invest./(Divestments) (1,025) (18,128) 1,930 4,443 (80) (1,404) 151 348Change in Debt 6,178 26,779 (2,267) (897) 484 2,074 (178) (70)Dividends (3,566) 0 (2,235) (2,527) (280) 0 (175) (198)Capital Increases/Other - - - - - - - -

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 11,902 29,016 29,133 36,162 910 2,043 2,142 2,572Current Assets 59,651 91,109 100,559 113,641 4,559 6,416 7,394 8,081Fixed Assets 73,974 85,205 86,296 87,200 5,654 6,000 6,345 6,201Total Assets 165,390 224,890 235,431 249,416 12,640 15,837 17,311 17,736Current Liabilities 42,700 56,494 60,644 63,288 3,263 3,978 4,459 4,500Long-Term Liabilities 57,521 92,265 89,728 88,479 4,396 6,498 6,598 6,292Shareholders' Equity 56,441 60,615 67,724 77,748 4,314 4,269 4,980 5,529Total Financial Debt 57,454 84,232 81,966 81,069 4,391 5,932 6,027 5,765ST Debt 10,522 8,100 7,927 8,060 804 570 583 573LT Debt 46,932 76,132 74,039 73,008 3,587 5,361 5,444 5,192


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 30.1 29.4 17.6 16.4 29.3 25.7 15.2 14.1P/CE 11.3 11.1 8.5 8.1 11.0 9.7 7.3 6.9FV/EBITDA 10.7 10.1 8.6 7.8 10.5 8.9 7.6 6.8FV/EBIT 18.7 15.6 13.0 11.4 18.2 13.8 11.4 9.9FV/Revenue 1.3 1.2 1.0 0.9 1.3 1.1 0.9 0.8P/BV 3.3 2.8 2.4 2.1 3.3 2.7 2.2 2.0FCF Yield (%) (1.8) 5.0 1.6 3.7 (1.8) 5.7 1.9 4.2Div Yield (%) 1.9 (0.0) 1.4 1.5 1.9 (0.0) 1.6 1.8


US$M$

Alpek32.1%

Nemak28.1%

Sigma35.2%

Alestra2.5%

Newpek1.0%

Others1.0%

Alpek21.6%

Nemak33.5%

Sigma32.3%

Alestra7.2%

Newpek5.4%

Others0.0%

Garza Family40.0%Related

Parties15.0%

Free Float45.0%

309


MEXICO—RETAIL & CONSUMER GOODS

ALSEA BUY CURRENT PRICE: M$39.90

TARGET PRICE: M$52.00

Investment Case: We reiterate our Buy rating on more attractive valuation ratios—an 8% discount to global peers—especially considering Alsea’s solid EBITDA CAGR of 30.9% for 2015-16E. We believe a faster-than anticipated Vips integration (back office and distribution) and lower input costs than we previously expected bode well for margins in 2015E onward. We view Alsea as a solid holding in Mexico, where we continue to favor discretionary consumption.

Outlook 2015: We expect management to focus on assuring a smooth transition for Vips and on growing organically in its successful Starbucks and casual dining brands. We expect Alsea’s revenue to increase by 36.0% and its EBITDA to grow by 44.1% in 2015 in US$, fueled by the consolidation of Vips and Grupo Zena.

Faster integration of Vips than anticipated: The full integration of the Vips acquisition, nearly seven months after Alsea assumed control, is happening faster than we initially expected. Once this integration is completed, we believe it should translate into lower operating expenses for Alsea from 1Q15 onward.

Incorporating the recent acquisition in Spain: We are now incorporating the Zena acquisition in our model (representing 17% oftotal sales by YE2015), and we think the company’s benefits from market share gains for Domino’s Pizza in Spain could potentially exceed our expectations.

Valuation makes sense to us: Alsea trades at a 10.0x EV/EBITDA for 2015E, which represents an 8% discount to its international peers. We see this as compelling, considering Alsea’s superior EBITDA growth outlook of 30.9% CAGR compared with only 11.2% for comparable peers globally. Moreover, Alsea’s EV/EBITDA to growth is attractive at 0.3x.




Company Statistics



Bloomberg ALSEA* MMCurrent Price (01/02/15) M$ 39.90 / US$ 2.69Target Price (YE 2015) M$ 52.00 / US$ 4.0652-Week Range (M$) 37.86 - 48.00Market Capitalization (US$ Mn) 2,256Float (%) 57.03-Mth Avg. Daily Vol (US$ Mn) 6.3Shares Outstanding - Mn 839

80

100

120

140

160

180

e-13 m-13 a-13 d-13 a-14 a-14 d-14

ALSEA* MM MEXBOL

310

ALSEA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Alsea is the leading operator within the quick service restaurant industry in Mexico and it is becoming a pan-Latin American operator. In Mexico, it operates Domino’s Pizza, Burger King, Starbucks, California Pizza Kitchen, PF Chang’s, Italianni’s, The Cheesecake Factory, and Chili’s, and also runs a distribution business. Alsea operates Burger King in Argentina, Chile, and Colombia, Domino’s Pizza in Colombia, and Starbucks in Argentina, Colombia and Chile. It also has a majority stake in Grupo Zena, Spanish leading restaurant player that operates Domino's and Foster Hollywood. In 2013, total revenue, EBITDA, and net profit amounted to M$15.7 billion, M$2.0 billion, and M$681 million, respectively. The Torrado family holds 43% of the outstanding shares while the free float is 57%. Key Personnel: Alberto Torrado (Chairman), Fabian Gosselin (CEO), Diego Gaxiola (CFO) and Salvador Villaseñor (IRO) Web: www.alsea.com.mx

Sales by Region, 2014E




Free Float57.0%

Torrado

Family

42.9%

Other Shareholders

0.1%

311


MEXICO—TELECOM, MEDIA & TECHNOLOGY

AMERICA MOVIL HOLD CURRENT PRICE: M$16.20


INTRODUCING YE2015 TARGET PRICE OF M$18.00; REPLACING YE2014 TARGET PRICE OF M$15.50

Investment Case: With the stock trading at an inexpensive 2015E P/E of 12.5x, improving operating metrics/potential fiscal gains from asset integration in Brazil and potential cash inflow from asset sale inMexico, we believe the main barrier behind a more positive stance on AMX remains a clearer definition of how quick (and if) AMX could have its dominant regulatory remedies lifted.

Outlook 2015: In our view, the timing (and the real possibility) of Ifetel lifting AMX’s dominant player ruling is the single most important driver in determining key aspects of the competitive landscape in Mexico in terms of both M&A possibilities and pricing dynamics. Yet, it is still unclear whether the lifting of the restrictions would be decidedupon either (i) a nationwide or on a regional market-share basis and/or; (ii) a per telecom service basis or on a consolidated basis. In our view, the regulator tends to have a more thorough reading on the effects of asset sales and the real benefits from competition relative to what the current news flow may offer. We believe that most AMX competitors have not yet begun to fully explore the benefits of the dominant remedies, even though some reference infrastructure prices have just been defined, which, for the time being is a positive for AMX, but sooner rather than later, the net negative side-effects of dominant ruling could become more evident, in our view. Telecom Transitory Article #9, Televisa-AT&T relations at Sky Mexico, and the fate of Nextel LatAm are some key elements that we believe govern M&A decisions.

Side-effects in LatAm and Europe: We note that divesting part of its Mexican assets may free up cash for AMX to deploy elsewhere in LatAm and/or Europe. We further highlight that potential changes in regulations in Brazil (on fixed line concessions and mobile spectrum re-farming) and financially distressed players could open the door to important consolidation moves, attracting both existing players and newcomers. Lastly, we point to the possibility of a harsher economic environment and government measures to tackle fiscal imbalances potentially leading to a buyers’ market in Brazil.



Company Statistics



Bloomberg AMXL MM / AMX USCurrent Price (01/02/15) M$ 16.20 / US$ 21.71Target Price (YE 2015) M$ 18.00 / US$ 26.5052-Week Range (M$) 12.43 - 17.51Market Capitalization (US$ Mn) 72,693Float (%) 67.93-Mth Avg. Daily Vol (US$ Mn) 66.6Shares Outstanding - Mn 66,560

70

80

90

100

110

120

j-13 m-13 a-13 d-13 a-14 a-14 d-14

AMXL MM MEXBOL

312

AMERICA MOVIL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

América Móvil (AMX) is Latin America’s largest integrated telecom company, which, at the end of 3Q14, had 364 million accesses, 287 million of which being mobile subscribers (in over 20 countries, including non-controlling interests in Europe), making it one of the world's top five largest mobile operators. AMX also provides fixed-line, broadband and internet services, digital television, IT and network services throughout the region under the brands of Telcel and Telmex (Mexico), Claro (in most of the Americas), Embratel (Brazil), Net Serviços (Brazil), Tracfone (United States), amongst others. AMX is also present in Europe, holding non-controlling economic interests in telecom companies KPN (29.8% stake) and Telekom Austria (59.7% stake). AMX is controlled by the Slim Group in Mexico, holding 51.7% of the total capital. Key Personnel: Patrick Slim Domit (Chairman), Daniel Hajj Aboumrad (CEO), Carlos Garcia Moreno (CFO) and Daniela Lecuona (Investor Relations Office) Web: www.americamovil.com

Sales breakdown per Country, 2013

EBITDA breakdown per Country, 2013



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 786,100 843,026 886,666 873,367 61,570 63,415 63,333 64,154 YoY change (%) 1.4 7.2 5.2 (1.5) 4.5 3.0 (0.1) 1.3Gross Profit 427,771 457,952 472,987 460,861 33,505 34,449 33,785 33,853 YoY change (%) (0.9) 7.1 3.3 (2.6) 2.1 2.8 (1.9) 0.2EBITDA 255,698 268,569 273,800 264,662 20,027 20,203 19,557 19,441 YoY change (%) (2.0) 5.0 1.9 (3.3) 1.0 0.9 (3.2) (0.6) As % of Revenue 32.5 31.9 30.9 30.3 32.5 31.9 30.9 30.3Operating Income 427,771 457,952 472,987 460,861 33,505 34,449 33,785 33,853 YoY change (%) (0.9) 7.1 3.3 (2.6) 2.1 2.8 (1.9) 0.2 As % of Revenue 54.4 54.3 53.3 52.8 54.4 54.3 53.3 52.8Financial Results (48,072) (34,908) (31,023) (31,715) (3,765) (2,626) (2,216) (2,330)Taxes (31,488) (47,553) (38,559) (34,624) (2,466) (3,577) (2,754) (2,543)Net Profit 74,621 66,272 85,714 76,967 5,845 4,985 6,122 5,654 YoY change (%) (18.3) (11.2) 29.3 (10.2) (15.9) (14.7) 22.8 (7.7) As % of Revenue 9.5 7.9 9.7 8.8 9.5 7.9 9.7 8.8

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (101,535) (116,207) (114,247) (117,533) (7,953) (8,741) (8,161) (8,633)Other Noncash Items - - - - - - - -Changes in Working Capital (8,497) 9,679 3,974 (1,211) (666) 728 284 (89)Operating Cash Flow 187,252 201,584 208,193 197,112 14,666 15,164 14,871 14,479Capital Expenditures 129,600 169,107 168,466 157,206 10,151 12,721 12,033 11,548Free Cash Flow 110,339 72,062 48,332 19,962 8,642 5,421 3,452 1,466Other Invest./(Divestments) 31,900 1,400 0 0 2,499 105 0 0Change in Debt 72,648 46,818 10,463 (18,276) 5,690 3,522 747 (1,342)Dividends (15,800) (16,536) (21,428) (19,242) (1,238) (1,244) (1,531) (1,413)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 48,164 63,385 61,666 32,051 3,682 4,464 4,534 2,347Current Assets 236,699 232,902 239,959 207,670 18,096 16,402 17,644 15,209Fixed Assets 501,107 492,445 546,664 586,338 38,311 34,679 40,196 42,941Total Assets 1,035,158 1,033,002 1,105,095 1,123,837 79,141 72,747 81,257 82,306Current Liabilities 281,471 316,246 336,935 334,387 21,519 22,271 24,775 24,489Long-Term Liabilities 544,675 495,874 513,473 509,040 41,642 34,921 37,755 37,280Shareholders' Equity 209,012 220,882 254,688 280,410 15,980 15,555 18,727 20,536Total Financial Debt 490,319 537,137 547,600 529,324 37,486 37,827 40,265 38,766ST Debt 25,841 28,308 28,860 27,897 1,976 1,994 2,122 2,043LT Debt 464,478 508,829 518,741 501,428 35,511 35,833 38,143 36,723

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 442,155 473,752 485,934 497,273 33,804 33,363 35,730 36,418Capital Employed 651,167 694,634 740,622 777,683 49,783 48,918 54,457 56,955Net Debt/EBITDA 1.7 1.8 1.8 1.9 1.7 1.7 1.8 1.9Net Debt/Equity 2.1 2.1 1.9 1.8 2.2 2.4 1.9 1.8Capex/Revenue (%) (16.5) (20.1) (19.0) (18.0) (16.5) (20.1) (19.0) (18.0)Int Cover (%) - - - - - - - -Dividend Payout (%) 17.3 22.2 32.3 22.4 17.8 21.3 29.1 22.4ROCE (%) 72.7 74.8 70.3 64.9 74.4 81.9 70.5 64.9ROE (%) 28.6 30.8 36.0 28.8 29.2 32.2 36.1 28.8



US$M$

Mexico35.4%

Argentina, Uruguay & Paraguay

5.2%

Brazil24.9%

Chile2.6%

Colombia &

Panama9.6%

Ecuador2.8%

Perú3.0%


6.4%USA

10.0%

Mexico46.4%

Argentina, Uruguay & Paraguay

5.2%

Brazil19.4%

Chile0.1%

Colombia & Panama12.6%

Ecuador3.8%

Perú3.4%


6.6%USA2.4%

Slim Trust + Inmobiliaria

Carso51.7%

Free Float48.3%

313


B

MEXICO—FOOD & BEVERAGE

ARCA CONTINENTAL HOLD CURRENT PRICE: M$91.62 TARGET PRICE: M$102.00


Investment Case: We see AC as an attractive consumer play in LatAm, with high exposure to Mexico (more than 70% of its EBITDA) and attractive potential medium-term growth, driven by its solid soft drink operations, which we believe should benefit from moderate volume increases in 2015 and from price recovery (moderately below inflation). Additionally, we believe that the company will continue to grow its snack and dairy operations organically and via M&A. However, in our view, the stock is fairly priced at a 2015E P/E of 20.7, which in our view limits potential upside.

Outlook 2015: We expect some volume recovery, but management has stated that they intend to focus on profitable growth, not only on volume. We estimate 2% volume growth in Mexico, with price increases of 3%, slightly below inflation. At the EBITDA level, we estimate flat margins, as the expected benefit from lower prices of raw materials and packaging should be offset by weaker FX. We estimate consolidated sales growth for 2015 of 6% and EBITDA growth of 6%.

Valuation a concern: During 2014, AC was the best-performing stock in the beverages sector in LatAm. In our view, this was partiallydue to the company’s high exposure to Mexico’s north, a region that has benefited from strong manufacturing and exports to the U.S. However, this strong stock price performance sets a tough comparison base for 2015, which limits potential upside, in our view.

Key themes for 2015: (1) Impact on volumes of price increases in Mexico instituted at the end of 2014; (2) potential to increase prices in Argentina in-line with real inflation; (3) evolution of Tonicorp and snack operations in Ecuador and in the territories, respectively; (4) evolution of refranchising initiatives in the U.S.; and (5) evolution of FX, especially in Mexico, and its impact on AC’s cost structure.



Company Statistics



Bloomberg AC* MMCurrent Price (01/02/15) M$ 91.62 / US$ 6.18Target Price (YE 2015) M$ 102.00 / US$ 7.5052-Week Range (M$) 67.25 - 98.07Market Capitalization (US$ Mn) 9,952Float (%) 23.63-Mth Avg. Daily Vol (US$ Mn) 7.4Shares Outstanding - Mn 1,611

60

70

80

90

100

110

e-13 m-13 a-13 d-13 a-14 a-14 d-14

AC* MM MEXBOL

314

ARCA CONTINENTAL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Arca Continental (AC) produces and distributes nonalcoholic beverages under the Coca-Cola brand. It is the second largest independent bottler in the Coca-Cola system in Latin America and fourth largest in the world, with an estimated 2015 volume of 1,355 MUC (close to 70% in Mexico, 15% in Ecuador and 15% in Argentina). AC entered Argentina (in the northeast) in 2008, and in 2010, the company bought a stake from EBC to start operations in Ecuador. AC also produces and distributes salty snacks under the Bokados (Mexico), Wise (U.S.), Inalecsa (Ecuador) and Señor Snacks (U.S.) brands. In October 2013, the company acquired Tonicorp, a leader producer and distributor of dairy foods in Ecuador. Key Personnel: Francisco Garza Egloff (CEO), Emilio Marcos Charur (CFO), Ulises Fernández de Lara (IRO) and Juan Hawach (IRO) Web: www.arcacontal.com.mx

Volume by Region, 2015E




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 60,359 61,486 65,420 68,780 4,728 4,628 4,671 4,890 YoY change (%) 7.3 1.9 6.4 5.1 10.6 (2.1) 0.9 4.7Gross Profit 29,016 30,525 32,600 34,278 2,273 2,298 2,328 2,437 YoY change (%) 11.5 5.2 6.8 5.1 14.9 1.1 1.3 4.7EBITDA 12,449 13,545 14,417 15,296 975 1,020 1,029 1,087 YoY change (%) 14.4 8.8 6.4 6.1 17.9 4.5 1.0 5.6 As % of Revenue 20.6 22.0 22.0 22.2 20.6 22.0 22.0 22.2Operating Income 9,922 10,946 11,722 12,463 777 824 837 886 YoY change (%) 16.9 10.3 7.1 6.3 20.5 6.0 1.6 5.9 As % of Revenue 16.4 17.8 17.9 18.1 16.4 17.8 17.9 18.1Financial Results (971) (928) (793) (583) (76) (70) (57) (41)Taxes (2,775) (3,193) (3,497) (3,801) (217) (240) (250) (270)Net Profit 5,973 6,618 7,147 7,768 468 498 510 552 YoY change (%) 18.4 10.8 8.0 8.7 22.0 6.5 2.4 8.2 As % of Revenue 9.9 10.8 10.9 11.3 9.9 10.8 10.9 11.3

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (2,528) (2,599) (2,695) (2,833) (198) (196) (192) (201)Other Noncash Items (611) 82 (14) 11 (48) 6 (1) 1Changes in Working Capital (1,009) 1,572 (221) (187) (79) 118 (16) (13)Operating Cash Flow 8,102 10,707 9,634 10,403 635 806 688 740Capital Expenditures (5,098) (4,000) (5,200) (4,127) (399) (301) (371) (293)Free Cash Flow 3,004 6,707 4,434 6,276 235 505 317 446Other Invest./(Divestments) (3,333) (1,535) 617 (1,208) (261) (116) 44 (86)Change in Debt 2,635 3,097 (6) 5 206 233 (0) 0Dividends (4,834) 0 (3,971) (4,288) (379) 0 (283) (305)Capital Increases/Other - - - - - - - -

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 2,566 10,835 11,909 12,694 196 763 876 903Current Assets 8,240 17,672 19,155 20,297 630 1,245 1,408 1,443Fixed Assets 58,109 61,664 63,746 66,487 4,441 4,343 4,687 4,728Total Assets 66,349 79,336 82,901 86,784 5,071 5,587 6,096 6,171Current Liabilities 8,049 11,299 11,481 11,655 615 796 844 829Long-Term Liabilities 17,116 19,901 19,901 19,901 1,308 1,401 1,463 1,415Shareholders' Equity 38,352 45,171 48,347 51,827 2,931 3,181 3,555 3,686Total Financial Debt 14,078 17,175 17,168 17,173 1,076 1,209 1,262 1,221ST Debt 2,376 2,891 2,885 2,890 182 204 212 205LT Debt 11,701 14,283 14,283 14,283 894 1,006 1,050 1,016




US$M$

S. America22.0%

Mexico78.0%

S. America23.6%

Mexico76.4%

Free Float16.5%

Control Group74.9%

Coca Cola Co.

8.6%

315


3

MEXICO—TRANSPORTATION

ASUR HOLD CURRENT PRICE: M$191.42


RAISING YE2015 TARGET PRICE TO M$217.00 FROM M$197.00

Investment Case: We believe Asur will be the underperformer in terms of passenger (PAX) traffic growth in 2015, at 7.6% by our estimate (vs. 10.4% for GAP and 9.9% for OMA). Our view is based on (i) difficult comps (as impaired operations in Los Cabos caused extraordinary growth for Cancun in 4Q14), and (ii) tight capacity in Cancun. Although we have a positive view on the sector overall, ASUR remains our least favorite among the airport groups, with thelowest spread between estimated equity IRR and cost, margins capped by significant capex commitments for 2015, and a subpar dividend yield of ~1%.

PAX outlook 2015: We believe outstanding PAX performance during 4Q14 (+15% YoY) was mainly caused by leisure travel intended for Los Cabos being redirected to Cancun (+16% YoY in the quarter) after Hurricane Odile (September 2014).Thus, we expect PAX growth to decelerate from 10% in 2014 to 7% in 2015.

Operating outlook: solid but subpar. In addition to Asur’s weaker PAX outlook vs. its peers, we expect commercial revenue growth to be limited by near saturation conditions in Cancun. In addition, we expect no margin expansion to result from significant construction work in Cancun (which is causing increased fixed expenses with no revenue to offset it until 2017, according to our estimates).

Dividends also below peers: Finally, if we assume the company will not take on new debt (which is current guidance) to finance its M$2.8 billion 2015 capex program, excess cash flow available to paydividends would result in a ~1% yield. This compares unfavorably with our estimates of 4.6% and 5.1% for OMA and GAP, respectively.

Ana Gabriela Reynal*, CFA Mexico: Banco Santander S.A. +5255-5269-1900 | [email protected]



Company Statistics



Bloomberg ASURB MM / ASR USCurrent Price (01/02/15) M$ 191.42 / US$ 129.23Target Price (YE 2015) M$ 217.00 / US$ 159.6052-Week Range (M$) 142.48 - 199.43Market Capitalization (US$ Mn) 3,871Float (%) 40.43-Mth Avg. Daily Vol (US$ Mn) 3.6Shares Outstanding - Mn 300

80

90

100

110

120

130

140

e-13 m-13 a-13 d-13 a-14 a-14 d-14

ASURB MM MEXBOL

316

ASUR Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Grupo Aeroportuario del Sureste (ASUR) owns a 50-year concession to operate, maintain, and develop nine airports in the southeastern region of Mexico. The concession was initially granted in November 1998 and includes the operation of Cancun´s International Airport, Mexico’s number one tourist destination, and the second busiest airport in Mexico in terms of passenger traffic. ASUR’s other airports are in Cozumel, Mérida, Oaxaca, Veracruz, Huatulco, Villahermosa, Tapachula, and Minatitlan. During 2010, the group’s airports handled 16.7 million PAX. Key Personnel: Fernando Chico Pardo (Chairman) and Adolfo Castro (CEO) Web: www.asur.com.mx

Passengers by Origin, 2013

Revenues by Segment, 2013



Internat’l55.5%

Domestic

44.5%

317


MEXICO—FINANCIAL SERVICES

BANORTE HOLD CURRENT PRICE: M$78.83

TARGET PRICE: M$90.00 DOWNGRADING RATING TO HOLD FROM BUY INTRODUCING YE2015 TARGET PRICE OF M$90.00; REPLACING YE2014 TARGET PRICE OF M$107.50

Investment Case: We believe that recent changes in the leadership of Banorte increase corporate governance and execution risks; as such, we prefer to remain cautious on the stock.

Outlook 2015: We are cutting our earnings estimates by 15%, as wenow forecast that Banorte will deliver 2015 earnings at the bottom of its guidance range, given: (1) a late start to the rate increase cycle inMexico; (2) potentially lower trading income; and (3) lower pension fund management fees, among others. We expect loan growth to accelerate to 13%, with NIM expansion driven by sustained growth inconsumer lending.

Merger with Interacciones? Never say never. While the bank has stated several times that there are no plans to merge with Interacciones, we believe that the risk continues to affect the stock.

April shareholder meeting not to be missed. While we expect a fair degree of institutional shareholder opposition to the nomination of a new chairman, we believe Carlos Hank Gonzalez’s appointment is likely to pass. We expect the new management team to actively engage institutional investors to provide reassurances regarding the continuity of the group’s strategy. We believe an offer for large institutional shareholders to propose potential replacements for Guillermo Ortiz’s seat on the board would go a long way in defusing shareholder concerns.

“Key man” risk. After the recent departures at the top management level introduced execution risks related to the rollout of the bank’s new retail-banking model and the ongoing upgrade of its IT platform, we believe the bulk of the responsibility for the execution of this planwas and still remains with Rafael Arana, COO and temporary CFO. We do not expect Mr. Arana to leave the bank, however, such a departure could represent a significant blow to the organization, in our view.



Company Statistics



Bloomberg GFNORTEO MMCurrent Price (01/02/15) M$ 78.83 / US$ 5.33Target Price (YE 2015) M$ 90.00 / US$ 6.3552-Week Range (M$) 75.05 - 95.63Market Capitalization (US$ Mn) 14,784Float (%) 88.23-Mth Avg. Daily Vol (US$ Mn) 57.5Shares Outstanding - Mn 2,774

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

GFNORTEO MM MEXBOL

318

BANORTE Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Grupo Financiero Banorte is Mexico’s third-largest financial institution, with M$1102 billion (US$74.7 billion) in total assets and a market share of approximately 14% of total assets among Mexican financial groups as of 4Q14E. The bank is active in commercial banking for medium and small enterprises and in retail banking for individuals. Historically, the bank has grown through acquisitions, the most recent transactions are the acquisition of Ixe, a corporate and investment banking group, the merger of its pension fund unit with Afore XXI and Bancomer's Afore and the buyout of minorities in its banking, insurance and annuities operations. After the passing of the bank's largest shareholder, the late Roberto González Barrera, the bank's control has passed to his heirs who proposed his grandson be appointed as Chairman of the group in early 2015. Key Personnel: Guillermo Ortiz (Chairman), Marcos Ramirez (CEO), Rafael Arana (CFO), Ursula Wilhelm (IRO), Carlos Hank Gonzalez (Chairman Designate) and Rafael Arana (COO) Web: www.banorte.com

Loan Book, 2015E




INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Interest Income 36,340 38,875 44,794 51,651 2,848 2,921 3,103 3,617NPL Provisions (8,941) (11,310) (11,946) (14,820) (701) (850) (828) (1,038)Adj Net Interest Income 27,399 27,564 32,847 36,830 2,147 2,071 2,275 2,579Non-Interest Income 19,990 25,294 23,916 26,162 1,566 1,901 1,657 1,832Total Operating Revenue 47,389 52,858 56,763 62,992 3,713 3,972 3,932 4,411Non-Interest Expense (29,892) (30,994) (32,481) (35,958) (2,342) (2,329) (2,250) (2,518)Profit Before Taxes 17,836 21,864 24,282 27,034 1,398 1,643 1,682 1,893Taxes (3,556) (6,081) (7,066) (7,786) (279) (457) (489) (545)Net Profit 13,508 15,548 16,958 18,959 1,059 1,168 1,175 1,328Adjusted Net Profit 4,582 15,499 17,517 18,941 359 1,165 1,213 1,326


LOAN BOOK 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECompanies 199,960 199,771 221,712 261,878 15,268 13,546 15,697 18,141Total Consumer 59,959 73,506 90,629 109,514 4,578 4,984 6,416 7,586Mortgages 83,120 90,410 102,351 118,531 6,347 6,131 7,246 8,211Other Loans 95,654 110,250 121,695 132,697 7,304 7,476 8,616 9,192Gross Loans 438,693 473,937 536,387 622,620 33,497 32,137 37,976 43,130Loan Grow th (%) 7.0 8.0 13.2 16.1 5.6 (4.1) 18.2 13.6NPL 13,655 14,429 13,157 13,406 1,043 978 932 929Provisions (14,289) (16,411) (17,245) (19,352) (1,091) (1,113) (1,221) (1,341)



PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 5.34 5.61 6.11 6.84 0.42 0.42 0.42 0.48BVPS 38.45 43.79 49.00 54.49 2.94 2.97 3.47 3.77DPS 1.15 0.84 0.92 1.37 0.09 0.06 0.06 0.10Adj EPS 1.81 5.59 6.32 6.83 0.14 0.42 0.44 0.48Adj BVPS 30.62 35.32 41.06 47.01 2.34 2.40 2.91 3.26Surplus Capital per Share 5.04 10.10 12.77 13.29 0.38 0.69 0.90 0.92Unrealized Cap. Gains/Shr (1.34) (1.37) (1.37) (1.37) (0.10) (0.09) (0.09) (0.09)

US$M$

Corporate/MM

33.9%

SMEs6.7%

Mortgage19.1%

Consumer16.9%

Public Sector22.7%

Other0.7%

NII57.9%

Trading6.5%

Fees16.4%

Insurance9.0%

Other10.2%

Heirs to Don Roberto

Gonzalez11.8%

Free Float88.2%

319



BANREGIO BUY CURRENT PRICE: M$71.82

TARGET PRICE: M$86.00 UPGRADING RATING TO BUY FROM UNDERPERFORM INTRODUCING YE2015 TARGET PRICE OF M$86.00; REPLACING YE2014 TARGET PRICE OF M$70.00

Investment Case: We view current valuation levels as an attractive entry point. We believe Banregio’s underperformance should come to an end as a turnaround in rates should boost margins and profitability. Furthermore, we believe that middle-market companies, followed by SMEs, could be among the first to increase credit demand to participate in the value chains related to the infrastructure and energy investment cycle that are expected in Mexico in 2015.

Outlook 2015: We expect loan growth to accelerate to 22% YoY, mainly driven by the SMEs as the Mexican economy reactivates withinvestments in infrastructure and energy. Meanwhile, we estimate that toward year end, we could see a turnaround after three years of margin compression, translating into earnings growth acceleration and improvement in profitability into 2016. We expect adjusted ROE to reach 23.8% in 2015, above our 2014 estimate of 19.7%.

Relaunching growth in Mexico City: Banregio’s growth story requires a successful expansion the Mexico D.F region, in our view;however, the bank’s regional managers and account officers have not delivered as we expected. Now, Banregio has hired new key executives with relevant experience to improve productivity across the branches and revamp its growth in the city.

Expanding leasing business: Banregio’s acquisition of equipment financing of CIT Group (subject to approval) could add approximatelyM$3.0 billion in the loan book and contribute nearly M$50 million in 2015, according to our estimates. The new business offers cross-selling opportunities for middle-market companies and potential to add new clients from CIT’s existing lease portfolio.

Reaping the benefits of the financial reform: Banregio started offering mortgage refinancing now that mortgage portability from onebank to another is simpler and less expensive process. We believe that Banregio could benefit from this, as it provides an avenue to grow the bank’s loan book while improving customer loyalty.



Company Statistics



Bloomberg GFREGIO MMCurrent Price (01/02/15) M$ 71.82 / US$ 4.84Target Price (YE 2015) M$ 86.00 / US$ 6.0952-Week Range (M$) 68.04 - 80.48Market Capitalization (US$ Mn) 1,588Float (%) 18.53-Mth Avg. Daily Vol (US$ Mn) 3.0Shares Outstanding - Mn 328

80

90

100

110

120

130

140

150

J-13 M-13 A-13 D-13 A-14 A-14 D-14

GFREGIO MM MEXBOL

320

BANREGIO Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Grupo Financiero Banregio is a regional bank, which focuses on SME and middle market lending. The bank started operations in the northern states of Mexico (Nuevo Leon) in 1994, and it has since expanded organically into other adjacent states in northern and central Mexico, including gaining a foothold in the Mexico City market. In 2011, the bank listed 18.4% of its shares in the Mexican stock market, in a transaction that included a capital increase of M$1,350 million (US$110 million). Key Personnel: Jaime Alberto Rivero Santos (Chairman), Manuel Gerardo Rivero Santos (CEO), Alejandro de Lascurrain Morhan (CFO) and Enrique Navarro (IRO) Web: www.banregio.com





INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Interest Income 3,393 3,821 4,507 5,174 266 287 312 362NPL Provisions (211) (433) (643) (721) (17) (33) (45) (50)Adj Net Interest Income 3,182 3,388 3,864 4,453 249 255 268 312Non-Interest Income 693 807 1,014 1,173 54 61 70 82Total Operating Revenue 3,875 4,195 4,877 5,626 304 315 338 394Non-Interest Expense (1,991) (2,081) (2,261) (2,651) (156) (156) (157) (186)Profit Before Taxes 1,884 2,115 2,616 2,975 148 159 181 208Taxes (451) (581) (732) (863) (35) (44) (51) (60)Net Profit 1,433 1,673 1,884 2,113 112 126 130 148Adjusted Net Profit 1,272 1,281 1,801 2,064 100 96 125 145

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 2,712 2,628 2,591 3,029 207 178 183 210Securities 43,148 47,729 55,089 62,425 3,295 3,236 3,900 4,324Loans (net) 44,179 52,344 63,974 76,022 3,373 3,549 4,529 5,266Intangible Assets 276 392 392 392 21 27 28 27Total Assets 94,924 108,475 128,115 148,630 7,248 7,355 9,070 10,296Core Deposits 36,453 43,795 51,810 60,587 2,783 2,970 3,668 4,197Other Financial Liabilities 45,975 50,738 59,089 67,373 3,511 3,440 4,183 4,667Subordinated Debt 0 0 0 0 0 0 0 0Technical Provisions 0 0 0 0 0 0 0 0Equity 7,922 9,538 11,116 12,861 605 647 787 891Adjusted Equity 8,299 9,510 11,176 13,017 634 645 791 902

LOAN BOOK 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECompanies 31,933 42,351 53,141 64,170 2,438 2,872 3,762 4,445Total Consumer 1,023 1,283 1,480 1,637 78 87 105 113Mortgages 4,476 4,824 5,298 5,735 342 327 375 397Other Loans 8,313 5,295 5,780 6,512 635 359 409 451Gross Loans 45,745 53,754 65,699 78,054 3,493 3,645 4,651 5,407Loan Growth (%) 22.5 17.5 22.2 18.8 20.9 4.4 27.6 16.2NPL 703 909 1,150 1,355 54 62 81 94Provisions (1,566) (1,409) (1,726) (2,032) (120) (96) (122) (141)


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EAdj. P/BV 3.9 3.2 2.5 2.1 3.8 2.8 2.5 2.0Adj. P/E 18.1 16.8 11.4 9.8 17.6 15.1 11.0 9.4Div Yield (%) 1.7 (0.0) 1.3 1.6 1.8 (0.0) 1.3 1.7


US$M$

Companies80.9%

Consumer2.3%

Mortgages8.1%

Others8.8%

NII79.2%

Trading3.7%

Fees6.5%

Others10.6%

Rivero Santos Family28.0%

Other 3 controlling

families20.0%

Other minority

shareholders

33.5%

Free Float18.5%

321



BOLSA MEXICANA DE VALORES HOLD CURRENT PRICE: M$25.35


LOWERING YE2015 TARGET PRICE TO M$28.00 FROM M$32.00

Investment Case: We expect a slow recovery in trading volumes in both equities and derivatives and a ramp-up in technology investments, which could pressure EBITDA margins, in our view. Furthermore, following the year-end 2014 correction, we expect the stock to trade more in-line with its historical P/E average of 19.0x.

Outlook 2015: We forecast limited adjusted net income growth (+5% YoY) during 2015, mainly due to rising expenses stemming from (1) investments in data sales and post-trade services IT platforms; (2) regulatory pressures; (3) financial expenses on the debt assumed to buy Indeval; (4) lower mutual fund listing income; and (5) weak growth in equity and derivatives volumes. On the positive side, we expect a recovery in capital markets activity driven by infrastructure, real estate and energy investments.

New Chairman and CEO: Following the resignation of Luis Tellez, Jaime Ruiz Sacristan and José Oriol Bosch Par, were elected Chairman and CEO, respectively, both bringing over 60 years of combined experience in the financial industry. We view these appointments positively: the company has now split of these roles in accordance to best corporate governance practices. In addition, Mr. Bosch, former CEO of JP Morgan Casa de Bolsa, has extensive experience as a user of Bolsa’s services, which should provide practical knowledge of the areas in need of improvement, in our view.

Will volumes return? We expect a partial recovery in both equities and derivatives volumes in 2015, as the economy reactivates; however, we expect revenue growth to be driven by other “non-core” segments such as custody and information services.

Potential acquisition target? Not really. Edimir Pinto, CEO of BM&FBovespa, announced in late November that Bovespa will try to acquire a minority stake in Bolsa to gain a seat on the Board. We do not believe that BMVF’s intentions provide upside risks, as we expectit to run into resistance as such an acquisition would need the approval of both Bolsa’s board and the Mexican government.



Company Statistics



Bloomberg BOLSAA MMCurrent Price (01/02/15) M$ 25.35 / US$ 1.71Target Price (YE 2015) M$ 28.00 / US$ 1.9852-Week Range (M$) 22.99 - 30.52Market Capitalization (US$ Mn) 1,013Float (%) 60.73-Mth Avg. Daily Vol (US$ Mn) 2.3Shares Outstanding - Mn 593

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

BOLSAA MM MEXBOL

322

BOLSA MEXICANA DE VALORES Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Bolsa Mexicana de Valores (BMV) is a vertically integrated exchange that operates in the Mexican financial markets. The company was formed through the consolidation of the main market infrastructure via a series of acquisitions funded with the proceeds of its June 2008 IPO. The company operates the trading platforms for listed equities and derivatives, as well as OTC trading marketplaces for fixed income and derivative instruments. BMV also provides central counterparty services for equities and derivatives, clearing and settlement services, and is the sole authorized depository institution in Mexico for all the securities registered in the national securities registry. The company has an order routing agreement with the Chicago Mercantile Exchange for its derivatives products. The exchange is controlled by the main brokers in the Mexican market via a trust that controls around 35% of the shares in the company. Key Personnel: Jaime Ruíz Sacristán (Chairman), José Oriol Bosch Par (CEO), Ramon Guemez (CFO) and Miriam Kai (IRM) Web: www.bmv.com.mx

Total Revenue, 2015E

Valuation Breakdown, 2015E



INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEquities 719 679 707 794 56 51 49 56Derivatives 530 625 684 719 42 47 47 50Other 1,016 1,087 1,181 1,303 80 82 82 91Revenue 2,265 2,391 2,572 2,816 178 180 178 197 Growth (%) 9.8 5.5 7.6 9.5 13.2 1.2 (0.8) 10.7EBITDA 1,070 1,144 1,203 1,353 84 86 83 95 Growth (%) 4.7 6.9 5.2 12.5 8.0 2.5 (3.0) 13.7Operating Profit 1,013 1,087 1,146 1,294 79 82 79 91 Growth (%) 3.7 7.2 5.5 12.9 6.9 2.8 (2.8) 14.2Profit Before Taxes 1,100 1,149 1,177 1,313 86 86 82 92Taxes (286) (339) (341) (381) (22) (25) (24) (27)Net Profit 768 770 796 888 60 58 55 62 Growth (%) 12.5 0.2 3.4 11.6 16.0 (3.9) (4.7) 12.8

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 2,092 1,798 1,812 1,842 160 122 128 128Accounts Receivable 512 597 661 768 39 41 47 53Intangible and Deferred Asse 1,464 2,751 2,806 2,867 112 187 199 199Tangible Assets 439 565 826 817 34 38 58 57Total Assets 6,072 7,011 7,413 7,609 464 475 525 527ST Debt 21 15 4 4 2 1 0 0LT Debt 20 650 951 947 2 44 67 66Equity 5,555 5,676 5,741 5,873 424 385 406 407Net Debt (Cash) (2,051) (1,133) (857) (891) (157) (77) (61) (62)

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EChanges in Working Capital (256) (398) (64) (91) (20) (30) (4) (6)Operating Cash Flow 826 822 829 900 65 62 57 63Capital Expenditures (20) (732) (318) (50) (2) (55) (22) (4)Change in Debt 0 687 290 (4) 0 52 20 (0)Free Cash Flow to Equity 514 67 714 755 40 5 49 53Cash Dividends (696) (711) (731) (756) (55) (53) (51) (53)Capital Increase (Decrease) (13) (43) 0 0 (1) (3) 0 0

OPERATING RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EADTV 14,816 12,089 13,314 15,578 14,816 12,089 13,314 15,578ADTC 27 30 34 35 27 30 34 35EBITDA Margin 47.2 47.8 46.8 48.0 47.2 47.8 46.8 48.0Effective Tax Rate 26.0 29.5 29.0 29.0 26.0 29.5 29.0 29.0Net Margin 33.9 32.2 31.0 31.5 33.9 32.2 31.0 31.5Net Debt / EBITDA (1.9) (1.0) (0.7) (0.7) (1.9) (1.0) (0.7) (0.7)Net Debt / Equity (0.4) (0.2) (0.1) (0.2) (0.4) (0.2) (0.1) (0.2)FCFE / Revenues 22.7 2.8 27.8 26.8 22.7 2.8 27.8 26.8ROAA 12.8 11.8 11.0 11.8 13.1 12.3 11.0 11.8ROAE 14.0 13.7 13.9 15.3 14.3 14.3 13.9 15.3Payout 102.0 92.5 95.0 95.0 105.2 88.7 85.5 94.7



US$M$

Cash Equities20.1%

Derivatives8.0%OTC (SIF

Icap)15.4%

Issuers22.7%

Custody20.1%

Others13.7%

NPV FCFE54.8%

Terminal Value NPV

40.0%

Net Debt5.2%

Control Trust36.4%

BME1.0%

CME1.9%

Free Float60.7%

323


MEXICO—CEMENT, CONSTRUCTION, INFRA & RE

CEMEX BUY CURRENT PRICE: US$9.86 TARGET PRICE: US$15.50

Toe Matsumura* Mexico: Banco Santander S.A. +5255-5257-8172 | [email protected]

Company Statistics



Investment Case: Cemex currently trades at a 2015E FV/EBITDA multiple of 9.0x, which compares favorably to the 9.5x of Holcim and 10.4x of Lafarge. We see a potential price appreciation of 57%, fueled by good prospects for improved profitability, mostly driven by a recovery in the U.S. economy and higher growth in Mexico.

Outlook 2015: We expect an 8% increase in net sales, operating EBITDA growth of 17%, and net losses of 85%. We forecast net debt to EBITDA reaching 4.6x, a significant improvement compared to the 6.2x at YE2013.

Growth in the U.S. economy should be a major driver: GDP in the U.S. has been growing, and this growth has brought a turnaround in construction activity. We believe this could drive an increase in cement sales, which should benefit Cemex, especially in light of its operating leverage advantage, which we expect to amplify the growthof EBITDA. For 2015, we expect sales in the U.S. to increase by 17% and represent 25% of consolidated net sales. We also expect U.S. EBITDA to grow by 74% and to represent 21% of consolidated EBITDA.

Buffers against the effect of falling oil prices on Mexico: The recent fall in oil prices has created concerns about possible delays in infrastructure spending and lower GDP growth in Mexico. But we seegrowth in construction being driven by sources other than infrastructure. The recovery in the U.S. has and should continue to increase industrial activity in Mexico in sectors like automotive, aerospace and electronics, in our view. So, Cemex should benefit from this economic revival, in our view, with increased sales in all its product lines. For 2015, we expect Mexico sales to grow 11% and to represent 20% of consolidated. We also expect Mexico EBITDA to grow 14% and represent 32% of consolidated EBITDA.

Discipline with debt: Cemex has been able to continue its path towards returning to investment grade, and is fully committed to achieving this goal in the next few years.

Bloomberg CX US / CEMEXCPO MMCurrent Price (01/02/15) US$ 9.86 / M$ 14.68Target Price (YE 2015) US$ 15.50 / M$ 22.9952-Week Range (US$) 9.86 - 13.59Market Capitalization (US$ Mn) 12,264Float (%) 97.03-Mth Avg. Daily Vol (US$ Mn) 129.3Shares Outstanding - Mn 1,244

80

90

100

110

120

130

140

150

e-13 m-13 a-13 d-13 a-14 a-14 d-14

CX US MEXBOL

324

CEMEX Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Cemex is the third largest cement producer in the world, with 96 million metric tonnes per year of cement production capacity. The company is engaged in the production, distribution, marketing, and sale of cement, ready-mix concrete, aggregates, and clinker. Cemex has operations and is the market leader in Mexico, the U.S., Spain, the Philippines, Colombia, Puerto Rico, and Egypt. It also has a significant presence in Central America and the Caribbean, as well as in Thailand, the United Kingdom, Germany, France, and Eastern Europe. Cemex’s most widely known shareholders are the Zambrano family, as well as Cemex senior management and employees, who hold an estimated 3% of Cemex’s outstanding shares. Stock trades on the Mexican Stock Exchange and the NYSE in the form of ADRs. Key Personnel: Rogelio Zambrano (Chairman), Fernando A. González (CEO), José Antonio González (CFO) and Maher Al-Haffar (Executive VP Investor Relations, Communications and PR) Web: www.cemex.com

Sales by Region, 2013A

EBITDA by Region, 2013A



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 204,338 218,149 234,825 252,982 15,219 16,247 17,489 18,842 YoY change (%) 1.6 6.8 7.6 7.7 1.6 6.8 7.6 7.7Gross Profit 63,543 67,082 73,970 81,019 4,733 4,996 5,509 6,034 YoY change (%) 6.8 5.6 10.3 9.5 6.8 5.6 10.3 9.5EBITDA 35,458 38,819 45,304 53,173 2,641 2,891 3,374 3,960 YoY change (%) 0.8 9.5 16.7 17.4 0.8 9.5 16.7 17.4 As % of Revenue 17.4 17.8 19.3 21.0 17.4 17.8 19.3 21.0Operating Income 15,255 17,184 23,483 25,429 1,136 1,280 1,749 1,894 YoY change (%) 30.8 12.6 36.7 8.3 30.8 12.6 36.7 8.3 As % of Revenue 7.5 7.9 10.0 10.1 7.5 7.9 10.0 10.1Financial Results (18,807) (16,749) (16,139) (15,408) (1,401) (1,247) (1,202) (1,148)Taxes (6,502) (5,281) (8,080) (8,145) (484) (393) (602) (607)Net Profit (10,054) (4,846) (736) 1,875 (749) (361) (55) 140 YoY change (%) 13.2 51.8 84.8 n/m 13.2 51.8 84.8 n/m As % of Revenue (4.9) (2.2) (0.3) 0.7 (4.9) (2.2) (0.3) 0.7

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 15,110 16,546 17,125 22,685 1,125 1,232 1,275 1,690Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital 2,739 3,031 3,335 3,350 204 226 248 249Operating Cash Flow 7,795 14,731 19,723 27,909 581 1,097 1,469 2,079Capital Expenditures 1,558 2,215 2,417 2,215 116 165 180 165Free Cash Flow 4,644 304 334 6,598 346 23 25 491Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt - - (680) (680) - - (51) (51)Dividends 0 0 0 0 0 0 0 0Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 15,615 11,643 7,137 10,928 1,163 867 532 814Current Assets 71,042 70,326 69,077 76,137 5,291 5,238 5,145 5,671Fixed Assets 439,412 435,420 432,208 423,749 32,727 32,429 32,190 31,560Total Assets 510,454 505,745 501,284 499,886 38,018 37,667 37,335 37,231Current Liabilities 61,282 65,343 64,990 64,636 4,564 4,867 4,840 4,814Long-Term Liabilities 296,572 286,174 282,802 279,882 22,088 21,314 21,063 20,845Shareholders' Equity 152,600 154,229 153,493 155,368 11,365 11,487 11,432 11,572Total Financial Debt 234,566 226,237 217,106 207,976 17,470 16,850 16,170 15,490ST Debt 4,563 6,595 6,321 6,048 340 491 471 450LT Debt 230,002 219,641 210,785 201,929 17,130 16,358 15,699 15,039

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 218,951 214,594 209,969 197,048 16,307 15,983 15,638 14,676Capital Employed 449,172 440,403 436,295 435,250 33,453 32,800 32,494 32,417Net Debt/EBITDA 6.2 5.5 4.6 3.7 6.2 5.5 4.6 3.7Net Debt/Equity 1.4 1.4 1.4 1.3 1.5 1.5 1.4 1.3Capex/Revenue (%) (0.8) (1.0) (1.0) (0.9) (0.8) (1.0) (1.0) (0.9)Int Cover (%) 1.7 2.0 2.6 3.1 1.7 2.0 2.6 3.1Dividend Payout (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0ROCE (%) 4.8 5.1 7.2 7.7 4.9 5.5 7.3 7.7ROE (%) (6.4) (3.2) (0.5) 1.2 (6.5) (3.3) (0.5) 1.2

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E - - - n/m - - - n/mP/CE - - - - - - - -FV/EBITDA 11.5 10.8 9.0 7.5 11.6 10.3 8.6 7.1FV/EBIT 20.0 18.8 14.5 13.0 20.2 18.0 13.9 12.4FV/Revenue 2.0 1.9 1.7 1.6 2.0 1.8 1.7 1.5P/BV 1.1 1.2 1.2 1.2 1.1 1.1 1.1 1.1FCF Yield (%) 2.7 0.2 0.2 3.6 2.7 0.2 0.2 4.0Div Yield (%) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0)

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS (9.60) (4.37) (0.59) 1.51 (6.47) (2.95) (0.40) 1.02DPS 0 0 0 0 0 0 0 0BVPS 101.67 94.83 94.38 95.53 9.01 8.40 8.36 8.46

US$M$

Mexico21.4%

USA22.2%

Northern Europe27.4%

Mediterranean

10.2%

South CA & Caribbean

15.0%Asia3.9%

Mexico35.5%

USA9.0%

Northern Europe11.7%

Mediterranean

11.4%

South CA & Caribbean

27.9%Asia4.6%

Free Float97.0%

Zambrano Family and controlling

group3.0%

325



CHEDRAUI HOLD CURRENT PRICE: M$41.18



Investment Case: We remain positive on the company’s long-term outlook, and we are encouraged by its recent market share gains. However, we see risk from potential dilutive acquisitions, while its premium valuation relative to peers suggests more limited upside from current levels.

Outlook 2015: We expect SSS to increase by 3.5% in Mexico in 2015, reflecting further market share gains and a better consumptionoutlook in Mexico. We now assume very little selling space growth forChedraui in Mexico (up only 2.2% YoY), not offset by higher-than-anticipated new unit expansion in the U.S. We expect revenue to grow by 6.5% and EBITDA to increase by 6.8% in 2015; thus we assume stable operating margins.

Potential M&A activity: We see increasing risk of dilutive acquisitions for Chedraui, as the company plans to participate in the consolidation of the food retail sector in Mexico. Despite a weak consumption environment, valuations remain high for the players potentially for sale, which could translate into dilutive acquisitions for Chedraui.

Lowering our target price to M$48.00: We are reducing our target price by M$3.00 to M$48.00, as we made minor downward adjustments to our estimates, especially on the company’s limited selling space growth in 2015E.

Premium valuations suggest limited upside: Chedraui trades at a 21x P/E for 2015E, which represents a premium to LatAm retail peers. Our target price of M$48 is based on a DCF analysis assuming a WACC of 8.5% and perpetuity growth of 3.5%. This target price considers more limited upside potential and a more conservative EPS forecast.




Company Statistics



Bloomberg CHDRAUIB MMCurrent Price (01/02/15) M$ 41.18 / US$ 2.78Target Price (YE 2015) M$ 48.00 / US$ 3.7552-Week Range (M$) 35.33 - 48.65Market Capitalization (US$ Mn) 2,676Float (%) 16.03-Mth Avg. Daily Vol (US$ Mn) 1.4Shares Outstanding - Mn 964

80

90

100

110

120

e-13 m-13 a-13 d-13 a-14 a-14 d-14

CHDRAUIB MM MEXBOL

326

CHEDRAUI Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Chedraui is the third largest food retailer in Mexico, with a market share that we estimate was 8% in 2013. While the Mexican retail operation represents the bulk of the business (77% of sales and 76% of EBITDA), it also has a food retail operation in the U.S. (22% of sales and 15% of the EBITDA) as well as a real estate business in Mexico (1% of sales and 9% of EBITDA). The company ended Q3 2014 with 261 stores and 1,413,749 square meters. Key Personnel: Antonio Chedraui (CEO), Rafael Contreras (CFO) and Arturo Velázquez (IRO) Web: www.chedraui.com.mx


Market Share Food Retailers, 2013A



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 66,364 70,555 75,111 81,526 5,199 5,351 5,696 6,235 YoY change (%) 3.8 6.3 6.5 8.5 7.0 2.9 6.4 9.5Gross Profit 13,402 14,249 15,170 16,464 1,050 1,081 1,150 1,259 YoY change (%) 6.5 6.3 6.5 8.5 9.7 2.9 6.4 9.5EBITDA 4,438 4,667 4,984 5,408 348 354 378 414 YoY change (%) 4.4 5.1 6.8 8.5 7.6 1.8 6.8 9.5 As % of Revenue 6.7 6.6 6.6 6.6 6.7 6.6 6.6 6.6Operating Income 3,106 3,405 3,700 4,095 243 258 281 313 YoY change (%) 5.0 9.6 8.7 10.7 8.2 6.1 8.7 11.6 As % of Revenue 4.7 4.8 4.9 5.0 4.7 4.8 4.9 5.0Financial Results (916) (847) (837) (747) (72) (64) (63) (57)Taxes 482 786 916 1,071 38 60 69 82Net Profit 1,645 1,729 1,927 2,253 129 131 146 172 YoY change (%) 9.5 5.1 11.4 16.9 12.9 1.8 11.4 17.9 As % of Revenue 2.5 2.5 2.6 2.8 2.5 2.5 2.6 2.8

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (1,332) (1,262) (1,284) (1,313) (104) (96) (97) (100)Other Noncash Items - - - - - - - -Changes in Working Capital 613 (293) 268 180 48 (22) 20 14Operating Cash Flow 3,590 2,698 3,479 3,747 281 205 264 287Capital Expenditures (2,464) (1,730) (1,869) (2,149) (193) (131) (142) (164)Free Cash Flow 1,674 158 655 1,191 131 12 50 91Other Invest./(Divestments) - - - - - - - -Change in Debt (1,160) 983 (1,104) (552) (91) 75 (84) (42)Dividends (472) 0 (251) (289) (37) 0 (19) (22)Capital Increases/Other - - - - - - - -

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 443 957 258 607 34 73 20 47Current Assets 10,653 11,892 11,706 12,986 814 901 915 1,015Fixed Assets 31,425 31,964 32,549 33,384 2,402 2,422 2,543 2,608Total Assets 45,479 47,138 47,650 49,882 3,476 3,571 3,723 3,897Current Liabilities 14,506 16,855 17,606 18,684 1,109 1,277 1,375 1,460Long-Term Liabilities 9,323 6,805 4,438 3,254 713 516 347 254Shareholders' Equity 21,650 23,478 25,607 27,945 1,655 1,779 2,001 2,183Total Financial Debt 5,078 6,061 4,957 4,405 388 459 387 344ST Debt 640 2,749 2,749 2,749 49 208 215 215LT Debt 3,971 3,000 2,000 1,500 303 227 156 117




US$M$

Mexico76.9%

USA22.2%

RE0.9%

Walmex54.0%

Soriana15.9%

Comerci6.9%

Chedraui7.6%

Ley3.4%

Others12.2%

Free Float16.0%

Control Trust53.0%

Chedraui Family /

Management

31.0%

327



COCA-COLA FEMSA HOLD CURRENT PRICE: M$126.69



Investment Case: We see 2015 as a very challenging year for KOF. On the positive side, Mexico (51% of volume) should post healthy results, with volume recovering after the decline we expect in 2014 due to the excise tax on sugar-added drinks. Additionally, despite the weak outlook for the Brazilian economy (21% of volume), we expect the new plant to allow the company to continue growing with a higherpresence in returnables. This should lead to margin expansion in thecompany’s key markets, in our view. However, on the negative side, KOF is highly exposed to Venezuela (close to 18% of EBITDA), where inflationary and devaluation risks are accelerating. The company has been able to deliver strong, profitable results, but we believe that in the short to medium term such results are unsustainable. Therefore, we maintain a cautious view on the stock until we have clearer visibility on the outlook for the Venezuelan operation.

Outlook 2015: We estimate a lackluster consolidated 2015 for the company, as we are working with an exchange rate for Venezuela operations of 25 Venezuelan bolivars/USD, which basically eliminates 10% of the company’s EBITDA. We consolidated sales growth of 4.8% with EBITDA growth of 2% in peso terms. However, in the medium term, we expect a 2013-16E CAGR for EBITDA and net income of 7.9% and 6.9% in peso terms.

Venezuela: As noted above, we expect that Venezuela’s operating results will become less important in the short to medium term, due tothe impact of a potential devaluation of the bolivar on KOF’s financials.

Key themes for 2015: (1) Venezuela: impact of currency outlook for KOF financials and potential recovery after recognition of devaluation; (2) volume recovery in Mexico after impact of excise taxes in 2014; (3) volume recovery in Brazil due to stronger penetration in returnables; (4) evolution of Philippines operations; and (5) evolution of Colombia’s volume as penetration strategy continues.



Company Statistics



Bloomberg KOFL MM / KOF USCurrent Price (01/02/15) M$ 126.69 / US$ 85.46Target Price (YE 2015) M$ 148.00 / US$ 109.0052-Week Range (M$) 124.12 - 156.98Market Capitalization (US$ Mn) 17,705Float (%) 20.63-Mth Avg. Daily Vol (US$ Mn) 7.3Shares Outstanding - Mn 2,073

60

70

80

90

100

110

120

e-13 m-13 a-13 d-13 a-14 a-14 d-14

KOFL MM MEXBOL

328

COCA-COLA FEMSA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Coca-Cola FEMSA is the largest publicly traded bottler outside the U.S. for the Coca-Cola Company, accounting for almost 10% of the Coca-Cola Company’s global sales volume. It produces, distributes, and markets proprietary Coke brands, including non-carbonated beverages, along with bottled water and other beverages. KOF operates across Latin America through two divisions: Mexico and Central America (55% of volume for 2014E including Mexico, Guatemala, Nicaragua, Costa Rica, and Panama), and South America, 45% of volume (23% from Brazil, 9% from Colombia, 7% from Argentina, and 7% from Venezuela). Additionally, the company recognizes through the equity method their 51% exposure to the Philippines. Key Personnel: José Antonio Fernández Carbajal (Chairman), John Santa Maria Otazua (CEO), Héctor Treviño (CFO) and Roland Karig (IR Director) Web: www.coca-colafemsa.com

Sales Volume by Division, 2015E




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 150,556 166,470 174,468 185,286 11,794 12,531 12,457 13,173 YoY change (%) 1.9 10.6 4.8 6.2 5.0 6.2 (0.6) 5.7Gross Profit 70,226 77,890 82,105 87,963 5,501 5,863 5,862 6,254 YoY change (%) 2.3 10.9 5.4 7.1 5.5 6.6 (0.0) 6.7EBITDA 27,784 31,576 32,206 34,933 2,177 2,377 2,299 2,483 YoY change (%) 1.5 13.6 2.0 8.5 4.6 9.2 (3.3) 8.0 As % of Revenue 18.5 19.0 18.5 18.9 18.5 19.0 18.5 18.9Operating Income 20,724 23,216 23,122 25,344 1,623 1,748 1,651 1,802 YoY change (%) (3.2) 12.0 (0.4) 9.6 (0.3) 7.6 (5.5) 9.1 As % of Revenue 13.8 13.9 13.3 13.7 13.8 13.9 13.3 13.7Financial Results 3,694 6,475 6,134 4,377 289 487 438 311Taxes (5,530) (4,765) (5,266) (6,500) (433) (359) (376) (462)Net Profit 11,262 11,558 11,155 13,768 882 870 796 979 YoY change (%) (16.0) 2.6 (3.5) 23.4 (13.4) (1.4) (8.5) 22.9 As % of Revenue 7.5 6.9 6.4 7.4 7.5 6.9 6.4 7.4

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (7,027) (8,385) (9,084) (9,589) (550) (631) (649) (682)Other Noncash Items (582) 406 (1,361) (411) (46) 31 (97) (29)Changes in Working Capital (861) 7,910 (90) (136) (67) 595 (6) (10)Operating Cash Flow 18,009 27,446 21,511 23,633 1,411 2,066 1,536 1,680Capital Expenditures (11,463) (11,292) (9,104) (8,440) (898) (850) (650) (600)Free Cash Flow 6,546 16,154 12,407 15,193 513 1,216 886 1,080Other Invest./(Divestments) (42,049) (4,976) (628) (742) (3,294) (375) (45) (53)Change in Debt 30,548 1,801 (1,373) (192) 2,393 136 (98) (14)Dividends (3,006) (9,017) (6,628) (6,959) (235) (679) (473) (495)Capital Increases/Other - - - - - - - -





US$M$

Mexico & CA

44.0%

South America56.0%

Mexico & CA

57.5%

South America47.7%

The Coca Cola

Company29.4%

Free Float21.7%

Femsa48.9%

329



COMERCI UNDERPERFORM CURRENT PRICE: M$49.80



Investment Case: We maintain our Underperform rating on Comerci due to what we consider its unsustainably high valuation ratios.

Outlook 2015: We are incorporating a noteworthy recovery in comp sales in 2015E (up 4.0% YoY) due to a consumption recovery in Mexico and market share gains, especially in Comerci’s neighborhood supermarket formats. However, we do not expect the company to accelerate its organic growth expansion, and we are not assuming any gains in operating margins, as most supply chain efficiencies have already been achieved, in our view. We expect EBITDA to increase by only 5.3% and EPS to rise 5.4% in 2015.

No news on the M&A front: Roughly one year has passed since Comerci announced it was seeking M&A alternatives that included selling the company or forming an association, but there has been nonews. Although we think Comerci is solidly differentiated from peers commercially, with positive results, we believe the longer it takes to accomplish such a deal, the worse for Comerci’s pending growth and strategic plans.

Slight reduction in our target price: We lowered our target price by 4% to M$50, as we have reduced our estimates to reflect weaker-than-anticipated SSS and selling space growth in 2014-16E.

Premium valuation incorporates a possible sale: Even after the recent correction, Comerci trades at a hefty valuation, at a 22.3x P/E for 2015E in U.S. dollars. This represents a premium to LatAm peers, and it incorporates a possible M&A transaction, in our view.




Company Statistics



Bloomberg COMERUBC MMCurrent Price (01/02/15) M$ 49.80 / US$ 3.36Target Price (YE 2015) M$ 50.00 / US$ 3.9152-Week Range (M$) 45.91 - 55.67Market Capitalization (US$ Mn) 3,648Float (%) 41.03-Mth Avg. Daily Vol (US$ Mn) 2.5Shares Outstanding - Mn 1,087

80

90

100

110

120

130

e-13 m-13 a-13 d-13 a-14 a-14 d-14

COMERUBC MM MEXBOL

330

COMERCI Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Comerci is the fourth largest player in the Mexican formal food retailing industry. With 1.3 million square meters in retail space, Comerci has a nationwide presence (stronger in central Mexico), operating supermarkets, hypermarkets, and bodega store concepts, in addition to restaurants. Following a problem with derivatives in 2008, which brought the company to the brink of bankruptcy, in August 2010 an agreement was reached with most creditors for a financial restructuring, making the company viable from an operating perspective. In July 2012, Comerci sold its 50% stake in Costco Mexico to pay down more liabilities. The Gonzalez family holds 59% of the outstanding shares, while 41% are free float. Key Personnel: Carlos González Nova (Chairman), Carlos González Zabalegui (CEO), José Calvillo (CFO), Jonathan Rangel (IRO) and Santiago García (COO) Web: www.comerci.com.mx

Sales by Format, 2013A

Market Share Food Retailers, 2013A



Mega53.8%

Bodega13.9%

C.M.22.8%

Supermarkets7.3%

Others2.1%

331



FEMSA BUY CURRENT PRICE: M$126.82



Investment Case: We maintain a positive view on FEMSA, as we believe that the company offers a solid portfolio with a compelling mixof defensiveness and a strong position for the recovery we expect for consumption in Mexico. We expect that OXXO will continue expanding at a pace of more than 1,000 stores per year and continue its growth in the drugstore format. For KOF, although we expect marginal growth at the consolidated level, as we are factoring in much weaker FX at the Venezuelan operations, we estimate an attractive 2013-16 EBITDA CAGR of 7.9%. We also expect that in the medium term, the company will accelerate its growth in the drugstore format and in April 2015 will also reach the milestone of theend of the lock-up period for its stake in Heineken.

Outlook 2015: We estimate consolidated sales and EBITDA growth of 5.4% and 4.4%, respectively, for 2015. For OXXO, we estimate sales growth of 8.3% YoY with EBITDA growth of 11.4% (EBITDA margin of 11.4% in 2015E, +20 bps YoY). For 2013-16, we estimate FEMSA consolidated CAGR of 8.3% in sales and 7.9% in EBITDA. (Please refer to Coca-Cola FEMSA snapshot for details on specific outlook and drivers for FEMSA.)

Growth and management changes: In April 2015, Daniel Rodriguez will assume the role of chief financial and corporate officer, replacing Javier Astaburuaga, who will become vice presidentof corporate development. We believe these changes should sharpen the company’s focus on the retail operations ex OXXO and ex Mexico.

Key themes for 2015: (1) April 2015: end of lock-up period for 20% stake in Heineken; (2) April 2015: change in CFO; (3) evolution of Venezuela contribution to KOF; (4) ongoing expansion (organic and M&A) in drugstores; and (5) evolution of traffic recovery in OXXO.



Company Statistics



Bloomberg FEMSAUBD MM / FMX USCurrent Price (01/02/15) M$ 126.82 / US$ 85.40Target Price (YE 2015) M$ 150.00 / US$ 105.6052-Week Range (M$) 109.62 - 134.71Market Capitalization (US$ Mn) 30,593Float (%) 32.93-Mth Avg. Daily Vol (US$ Mn) 19.4Shares Outstanding - Mn 3,578

80

90

100

110

120

e-13 m-13 a-13 d-13 a-14 a-14 d-14

FEMSAUBD MM MEXBOL

332

FEMSA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

FEMSA is Latin America´s leading consumer company, with a presence in nine countries. It controls an integrated platform comprising: (1) Coca-Cola FEMSA, the largest Coca-Cola bottler in the region, in which the company holds a 47.9% stake; (2) OXXO, the largest and fastest-growing operated store chain in the Americas, with almost 12,800 stores in 2014E and 13,830 in 2015E; and (3) the second-largest holding in Heineken Group with a 20% economic interest. Key Personnel: José Antonio Fernández Carbajal (Chairman), Carlos Salazar (CEO), Javier Astaburuaga Sanjines (CFO), Juan Fonseca (IRO) and Gerardo Lozoya (IR.) Web: www.femsa.com.mx





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 252,717 281,462 296,779 320,810 19,797 21,187 21,189 22,807 YoY change (%) 6.9 11.4 5.4 8.1 10.2 7.0 0.0 7.6Gross Profit 106,964 119,159 126,580 137,353 8,379 8,970 9,038 9,765 YoY change (%) 6.6 11.4 6.2 8.5 9.8 7.0 0.8 8.0EBITDA 38,746 44,590 46,544 51,115 3,035 3,356 3,323 3,634 YoY change (%) 2.5 15.1 4.4 9.8 5.7 10.6 (1.0) 9.4 As % of Revenue 15.3 15.8 15.7 15.9 15.3 15.8 15.7 15.9Operating Income 28,980 33,084 36,271 40,145 2,270 2,490 2,590 2,854 YoY change (%) (1.4) 14.2 9.6 10.7 1.6 9.7 4.0 10.2 As % of Revenue 11.5 11.8 12.2 12.5 11.5 11.8 12.2 12.5Financial Results (4,540) (7,183) (4,611) (3,888) (356) (541) (329) (276)Taxes (7,559) (7,891) (9,498) (10,877) (592) (594) (678) (773)Net Profit 15,276 15,742 19,204 21,667 1,197 1,185 1,371 1,540 YoY change (%) (25.8) 3.1 22.0 12.8 (23.6) (1.0) 15.7 12.3 As % of Revenue 6.0 5.6 6.5 6.8 6.0 5.6 6.5 6.8

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (9,766) (11,506) (10,273) (10,970) (765) (866) (733) (780)Other Noncash Items (1,038) 153 181 (140) (81) 11 13 (10)Changes in Working Capital (3,587) 10,658 (159) (389) (281) 802 (11) (28)Operating Cash Flow 22,492 37,754 29,137 32,388 1,762 2,842 2,080 2,303Capital Expenditures (17,565) (16,606) (14,706) (14,706) (1,376) (1,250) (1,050) (1,046)Free Cash Flow 4,927 21,148 14,431 17,682 386 1,592 1,030 1,257Other Invest./(Divestments) (41,681) 7,540 14,794 14,986 (3,265) 568 1,056 1,065Change in Debt 39,391 1,451 (2,025) (940) 3,086 109 (145) (67)Dividends (13,368) 0 (6,721) (7,583) (1,047) 0 (480) (539)Capital Increases/Other - - - - - - - -


FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 49,363 20,676 (1,828) (26,912) 3,773 1,456 (134) (1,914)Capital Employed 310,324 334,885 358,769 387,359 23,717 23,583 26,380 27,546Net Debt/EBITDA 1.3 0.5 (0.0) (0.5) 1.2 0.4 (0.0) (0.5)Net Debt/Equity 0.3 0.1 (0.0) (0.1) 0.3 0.1 (0.0) (0.1)Capex/Revenue (%) 7.0 5.9 5.0 4.6 7.0 5.9 5.0 4.6Int Cover (%) 9.0 6.5 6.4 7.2 9.0 6.5 6.4 7.2Dividend Payout (%) 64.9 0.0 42.7 39.5 66.9 0.0 38.4 39.4ROCE (%) 2.4 3.6 3.9 3.8 2.6 4.7 4.0 3.8ROE (%) 9.7 9.5 10.6 10.8 9.9 9.9 10.6 10.8



US$M$

Oxxo43.9%

Coca Cola Femsa56.1%

Oxxo28.8%

Coca Cola Femsa71.2%

Free Float32.9%

Family Trust38.7%

Cascade A.M.

12.9%

Aberdeen A.M.

15.5%

333



FIBRA INN BUY CURRENT PRICE: M$15.70

TARGET PRICE: M$22.00 RAISING YE2015 TARGET PRICE TO M$22.00 FROM M$21.00

Investment Case: Fibra Inn is trading at a 2015E cap rate of 9.1%, above the average of 6.3% for the rest of the Mexican Fibras. This is driven by the expectation of an 84% YoY increase in net operating income (NOI), which should be fueled by the addition of 2,250 rooms and a 7% increase in revenue per available room (RevPAR), according to our projections. For 2015, we estimate that price appreciation potential of 40%, with a dividend yield of 5.8%. We reiterate our Buy rating.

Outlook 2015: We forecast revenue growth of 83%, EBITDA growth of 83%. For net income and funds from operations (FFO), we projectfor each increases of 59%, while dividend distributions should grow 74%.

Access to liquidity to fund growth: Fibra Inn raised M$2.8 billion via its rights offering, and now is taking advantage of leverage, having negotiated a revolving credit line of M$2.3 billion. We believe that this should allow FINN to accelerate its growth plans, by adding to its portfolio 15 properties in 2015 and another 15 hotels in 2016, through a mix of 80% acquisition and 20% development.

Room to increase leverage: In addition, we note that Fibra Inn has even more room for leverage since its only has 22% loan to value (LTV) with this level of debt, which leaves more purchasing power before it reaches its target of 33% LTV. We estimate Fibra Inn could borrow up to M$3.6 billion and still be within its targeted leverage.

Possible exchange rate benefits: We believe that the recent depreciation of the Mexican peso relative to the U.S. dollar could be beneficial for FINN. Most of FINN’s hotel brands are international, soeven if the actual payment of the daily rate is disbursed in Mexican pesos, the rates are actually negotiated in U.S. dollars, especially in channels like online reservations, corporate deals and call centers, which represent about 60% of FINN’s clients. So, a strong U.S. dollar should translate into higher revenues for FINN, in our view.


Company Statistics



Bloomberg FINN13 MMCurrent Price (01/02/15) M$ 15.70 / US$ 1.06Target Price (YE 2015) M$ 22.00 / US$ 1.4852-Week Range (M$) 14.92 - 18.34Market Capitalization (US$ Mn) 463Float (%) 83.33-Mth Avg. Daily Vol (US$ Mn) 0.6Shares Outstanding - Mn 437

70

80

90

100

110

120

m-13 j-13 n-13 m-14 j-14 n-14

FINN13 MM MEXBOL

334

FIBRA INN Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Fibra Inn is a Mexican FIBRA headquartered in Monterrey, formed primarily to acquire, own, develop and rent hotel properties in Mexico. Fibra Inn’s properties are focused on the business traveler. To date, Fibra Inn has a portfolio of 31 hotels in service and 3 hotels in development. Fibra Inn operates hotels under 14 global brands and 1 Mexican brand and has presence in 14 states of Mexico. Fibra Inn participates in in three business hotel formats, which are Select Service, Limited Service and Full Service. Key Personnel: Victor Zorrilla (Chairman), Victor Zorrilla (CEO), Oscar Calvillo (CFO), Lizette Chang (IRO) and Joel Zorrilla (COO) Web: http://www.fibrainn.mx/

Revenue by Type, 3Q14

Hotel Portfolio by Segment, 3Q14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 203 416 762 1,238 14 28 51 83 YoY change (%) n/m 104.9 83.3 62.4 n/m 104.9 83.3 62.4Gross Profit 181 368 677 1,077 12 25 46 73 YoY change (%) n/m 103.7 84.0 59.1 n/m 103.7 84.0 59.1EBITDA 150 276 505 817 10 19 34 55 YoY change (%) n/m 84.4 82.8 61.6 n/m 84.4 82.8 61.6 As % of Revenue 73.9 66.5 66.3 66.0 73.9 66.5 66.3 66.0Operating Income 178 364 669 1,063 12 25 45 72 YoY change (%) n/m 104.9 84.0 58.8 n/m 104.9 84.0 58.8 As % of Revenue 87.5 87.5 87.8 85.9 87.5 87.5 87.8 85.9Financial Results 60 (3) (70) (188) 4 (0) (5) (13)Taxes 0 0 0 0 0 0 0 0Net Profit 159 214 341 500 11 14 23 34 YoY change (%) n/m 34.6 59.4 46.9 n/m 34.6 59.4 46.9 As % of Revenue 78.2 51.4 44.7 40.4 78.2 51.4 44.7 40.4

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 36 42 76 124 2 3 5 8Other Noncash Items 15 30 56 91 1 2 4 6Changes in Working Capital 104 (375) 176 (113) 7 (25) 12 (8)Operating Cash Flow 314 (89) 649 601 21 (6) 44 41Capital Expenditures (4,347) (2,054) (1,563) (1,650) (293) (138) (105) (111)Free Cash Flow 254 (119) 643 641 17 (8) 43 43Other Invest./(Divestments) (4,347) (2,076) (1,600) (1,710) (293) (140) (108) (115)Change in Debt 0 100 635 1,665 0 7 43 112Dividends (183) (227) (395) (542) (12) (15) (27) (37)Capital Increases/Other 4,542 2,832 0 0 306 191 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 386 926 215 229 26 62 14 15Current Assets 586 1,332 952 1,492 39 90 64 101Fixed Assets 4,296 6,330 7,855 9,444 290 427 529 636Total Assets 4,882 7,662 8,807 10,935 329 516 594 737Current Liabilities 302 133 714 1,292 20 9 48 87Long-Term Liabilities 2 102 665 2,166 0 7 45 146Shareholders' Equity 4,578 7,427 7,428 7,477 309 501 501 504Total Financial Debt 0 100 735 2,400 0 7 50 162ST Debt 0 0 74 240 0 0 5 16LT Debt 0 100 662 2,160 0 7 45 146

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt (386) (826) 520 2,171 (26) (56) 35 146Capital Employed 4,580 7,529 8,094 9,643 309 507 546 650Net Debt/EBITDA (2.6) (3.0) 1.0 2.7 (2.6) (3.0) 1.0 2.7Net Debt/Equity (0.1) (0.1) 0.1 0.3 (0.1) (0.1) 0.1 0.3Capex/Revenue (%) 2,142.2 494.1 205.1 133.3 2,142.2 494.1 205.1 133.3Int Cover (%) - - - - - - - -Dividend Payout (%) n/m 143.0 185.0 159.2 n/m 137.1 166.6 158.7ROCE (%) 3.9 4.8 8.3 11.0 4.0 5.3 8.3 11.0ROE (%) 6.9 3.6 4.6 6.7 7.1 3.8 4.6 6.7


PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 0.61 0.70 0.78 1.14 0.04 0.05 0.05 0.08DPS (0.71) (0.75) (0.90) (1.23) (0.05) (0.05) (0.06) (0.08)BVPS - 97.92 67.99 67.97 - 6.60 4.58 4.58

US$M$

Room Revenue

93.7%

Rental Revenue

6.3%

Selected-Service24.2%

Limited-Service30.3%

Developments

9.1%

Full-Service36.4%

Free Float83.3%

Control Shareholder

s16.7%

335



FIBRA UNO BUY CURRENT PRICE: M$42.83


Investment Case: Fibra Uno currently trades at a 2015E cap rate of 7.0%, above the average of 6.6% for the rest of the Mexican Fibras that we keep track of. This premium is based on our forecast of a 40% YoY increase in net operating income (NOI), a 224% increase vs 2013. We expect NOI growth to be fueled by acquisitions, occupancy increases and rental rates. We forecast a price appreciation of 31%, plus a dividend yield of 4.7%.

Outlook 2015: We anticipate revenue growth of 38%, EBITDA growth of 36%, net income growth of 17%, with funds from operations (FFO) and dividend distributions growing 55% and 34%, respectively.

Occupancy to continue increasing: As of 3Q14, Fibra Uno had overall occupancy of 94.6%. We believe that this occupancy could still increase, especially in the office sector. Fibra Uno’s office portfolio had occupancy of 92% in 3Q14, which we forecast to approach 95%, as demand for office space in Mexico increases. Retail and industrial were close to 95% in the same period, and should, in our view, remain stable in spite of major increases in grossleasable area (GLA).

Competitive rental rates: Rental rates in the three sectors where Fibra Uno participates are competitive and tend to grow at 50 bps over Mexican inflation. We see potential for this spread to widen, due to the dynamics of each of the markets where Fibra Uno is present.

Additional purchasing power: In June, Fibra Uno raised M$33 billion in its third follow-on offering. We believe that FUNO also had access to additional resources of ~M$39 billion, for a total of M$72 billion. This figure results from combining the authorized additional CBFIs in treasury to be issued for acquisitions, plus a potential increase in debt that would take their loan to value (LTV) from 25% to 37%. We believe Fibra Uno already spent ~M$37 billion in acquisitions that include Mazaryk, and some R15 properties, leaving~M$35 billion that could be used to acquire value-creating properties in 2015, in our view.


Company Statistics



Bloomberg FUNO11 MMCurrent Price (01/02/15) M$ 42.83 / US$ 2.89Target Price (YE 2015) M$ 56.00 / US$ 4.2752-Week Range (M$) 39.31 - 47.89Market Capitalization (US$ Mn) 8,311Float (%) 68.13-Mth Avg. Daily Vol (US$ Mn) 21.4Shares Outstanding - Mn 2,878

80

90

100

110

120

130

e-13 m-13 a-13 d-13 a-14 a-14 d-14

FUNO11 MM MEXBOL

336

FIBRA UNO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Fibra Uno is a Mexican real estate investment trust (FIBRA) that was formed in March 2011 primarily to acquire, own, develop and operate a broad range of commercial real estate in Mexico, including industrial, retail, office, mixed-use and other properties. Fibra Uno is mainly managed by F1 Management S.C. and externally advised by Fibra Uno Administracion S.A. de C.V., a Mexican real estate operator whose management has more than 30 years of experience in the Mexican real estate market. The El-Mann and Attié families are the majority shareholders of FUNO. Key Personnel: Moises El-Mann (Chairman), Andre El-Mann (CEO), Gerardo Vargas (CFO) and Jorge Pigeon (Vice President of Financial Markets and Investor Relations) Web: www.fibra-uno.com

Rental Income by Source, 2013A

Rental Income by Property Type, 1Q14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 3,904 8,911 12,292 14,199 298 680 938 1,084 YoY change (%) 143.1 128.2 37.9 15.5 143.1 128.2 37.9 15.5Gross Profit 3,268 7,538 10,575 12,315 249 575 807 940 YoY change (%) 158.8 130.7 40.3 16.4 158.8 130.7 40.3 16.4EBITDA 2,940 5,640 7,684 8,948 224 431 587 683 YoY change (%) 162.3 91.9 36.2 16.4 162.3 91.9 36.2 16.4 As % of Revenue 75.3 63.3 62.5 63.0 75.3 63.3 62.5 63.0Operating Income 3,268 7,538 10,575 12,315 249 575 807 940 YoY change (%) 158.8 130.7 40.3 16.4 158.8 130.7 40.3 16.4 As % of Revenue 83.7 84.6 86.0 86.7 83.7 84.6 86.0 86.7Financial Results (53) 36 (1,046) (1,354) (4) 3 (80) (103)Taxes 0 0 0 0 0 0 0 0Net Profit 2,886 5,676 6,638 7,594 220 433 507 580 YoY change (%) 150.8 96.7 16.9 14.4 150.8 96.7 16.9 14.4 As % of Revenue 73.9 63.7 54.0 53.5 73.9 63.7 54.0 53.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 0 0 0 0 0 0 0 0Other Noncash Items 0 694 0 (25) 0 53 0 (2)Changes in Working Capital 83 (5,132) 3,583 (11) 6 (392) 273 (1)Operating Cash Flow 2,970 (149) 10,221 7,607 227 (11) 780 581Capital Expenditures (61,941) (24,821) (1,863) (7,262) (4,728) (1,895) (142) (554)Free Cash Flow (39,003) 2,759 14,058 12,203 (2,977) 211 1,073 932Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 25,377 8,318 (600) (1,670) 1,937 635 (46) (128)Dividends (3,002) (4,689) (6,306) (7,214) (229) (358) (481) (551)Capital Increases/Other 34,190 10,781 0 0 2,610 823 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 2,088 21,355 22,848 14,329 159 1,630 1,744 1,094Current Assets 6,700 27,604 25,465 16,910 511 2,107 1,944 1,291Fixed Assets 94,438 128,473 130,396 137,743 7,209 9,807 9,954 10,515Total Assets 101,138 156,077 155,862 154,653 7,720 11,914 11,898 11,806Current Liabilities 15,138 6,281 5,632 6,078 1,156 479 430 464Long-Term Liabilities 27,786 38,506 38,608 36,574 2,121 2,939 2,947 2,792Shareholders' Equity 58,214 111,290 111,622 112,002 4,444 8,495 8,521 8,550Total Financial Debt 34,302 40,606 40,006 38,336 2,619 3,100 3,054 2,926ST Debt 7,032 2,880 2,280 2,775 537 220 174 212LT Debt 27,270 37,726 37,726 35,561 2,082 2,880 2,880 2,715

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 32,214 19,252 17,159 24,007 2,459 1,470 1,310 1,833Capital Employed 86,000 149,797 150,230 148,575 6,565 11,435 11,468 11,342Net Debt/EBITDA 11.0 3.4 2.2 2.7 11.0 3.4 2.2 2.7Net Debt/Equity 0.6 0.2 0.2 0.2 0.6 0.2 0.2 0.2Capex/Revenue (%) 1,586.6 278.5 15.2 51.1 1,586.6 278.5 15.2 51.1Int Cover (%) 3.9 2.4 3.2 3.8 3.9 2.4 3.2 3.8Dividend Payout (%) 260.9 162.5 111.1 108.7 268.9 155.8 100.0 108.3ROCE (%) 3.8 5.0 7.0 8.3 3.9 5.6 7.1 8.3ROE (%) 7.0 6.7 6.0 6.8 7.2 7.1 6.0 6.8



US$M$

Rental Income92.9%

Other Income7.1%

Industrial25.5%

Retail57.9%

Office16.6%

Free Float68.1%

Control Group31.9%

337



GAP BUY CURRENT PRICE: M$91.24 TARGET PRICE: M$112.00


Investment Case: We believe GAP’s recent weakness in terms of passenger (PAX) traffic is mainly explained by two one-offs: Hurricane Odile’s impact in September 2014 (and its rollover effect during the rest of the year), and domestic airlines moving capacity away from Tijuana. Thus, we see a combination of (i) a strong growth outlook for 2015E together with a reasonable valuation (0.5-p.p. spread between equity IRR and cost), and (ii) an attractive expected dividend yield, which in our view is of more importance than potentially short-lived overhang risk from Grupo Mexico.

PAX outlook: We estimate GAP’s PAX will grow 10.4% in 2015 to reach 27.4 million, which was our estimate before the aforementioned one-offs hit in 4Q14. Additionally, we believe growth will be supported by cheap jet fuel prices and higher GDP growth next year.

Commercial revenue: We estimate non-aeronautical revenue growth of 19.3% for 2015, resulting in 8.1% growth in non-aeronautical revenue per passenger, as the company further develops its convenience store and VIP lounge network.

GAP vs. GMexico: still relevant? Now that the Mexican partner (CMA) holds a majority stake in GAP’s controlling shareholder, if GMexico is able to and decides to continue pursuing a hostile takeover attempt, we see two options: (i) it acquires one third of AMP from AENA but with CMA retaining control; or (ii) it buys CMA’s two thirds of AMP, gets control, and goes for 100% of GAP (at a premiumprice). Thus, potential disputes between (equally voting) controlling shareholders seem highly unlikely, in our view.

Overhang risk: If GAP wins the battle, GMexico would have to sell an 11% stake in the company. Such an overhang would cause a negative reaction in the stock price that, in our view, would be short-lived.




Company Statistics



Bloomberg GAPB MM / PAC USCurrent Price (01/02/15) M$ 91.24 / US$ 61.63Target Price (YE 2015) M$ 112.00 / US$ 82.4052-Week Range (M$) 63.37 - 98.75Market Capitalization (US$ Mn) 3,451Float (%) 63.83-Mth Avg. Daily Vol (US$ Mn) 5.7Shares Outstanding - Mn 561

70

80

90

100

110

120

130

e-13 m-13 a-13 d-13 a-14 a-14 d-14

GAPB MM MEXBOL

338

GAP Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Grupo Aeroportuario del Pacífico (GAP) has a 50-year renewable concession to operate 12 airports in Northwestern Mexico. GAP operates airports in two large metropolitan cities (Guadalajara and Tijuana), four tourist destinations (Puerto Vallarta, Los Cabos, La Paz, and Manzanillo), and six medium-sized cities (Hermosillo, Bajío region, Morelia, Mexicalí, Aguascalientes, and Los Mochis). Six of GAP’s airports are among the top 10 busiest airports in Mexico in terms of PAX traffic, with Guadalajara being the third largest and Tijuana the fifth largest. During full year 2012, GAP handled over 21 million passengers. Key Personnel: Fernando Bosque (CEO), Raúl Revuelta (CFO) and Miguel Aliaga (IRO) Web: www.aeropuertosgap.com.mx


Revenue by Segment, 2013



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 5,228 5,556 6,437 7,489 405 414 462 537 YoY change (%) 5.7 6.3 15.9 16.4 6.6 2.3 11.6 16.2Gross Profit 5,228 5,556 6,437 7,489 405 414 462 537 YoY change (%) 5.7 6.3 15.9 16.4 6.6 2.3 11.6 16.2EBITDA 3,256 3,631 4,149 4,655 252 271 298 334 YoY change (%) 10.7 11.5 14.3 12.2 11.6 7.3 10.1 12.0 As % of Revenue 62.3 65.4 64.5 62.2 62.3 65.4 64.5 62.2Operating Income 2,373 2,742 3,289 3,791 184 204 236 272 YoY change (%) 12.3 15.5 20.0 15.3 13.2 11.2 15.6 15.1 As % of Revenue 45.4 49.4 51.1 50.6 45.4 49.4 51.1 50.6Financial Results (51) 5 (20) (29) (4) 0 (1) (2)Taxes 76 686 915 1,091 6 51 66 78Net Profit 2,246 2,061 2,354 2,671 174 154 169 191 YoY change (%) 26.8 (8.3) 14.2 13.5 27.8 (11.7) 10.0 13.3 As % of Revenue 43.0 37.1 36.6 35.7 43.0 37.1 36.6 35.7

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (883) (889) (860) (864) (68) (66) (62) (62)Other Noncash Items - - - - - - - -Changes in Working Capital 21 (3) (12) (6) 2 (0) (1) (0)Operating Cash Flow 3,151 2,947 3,201 3,529 244 220 230 253Capital Expenditures (646) (518) (942) (1,693) (50) (39) (68) (121)Free Cash Flow 1,964 2,561 2,471 2,008 152 191 177 144Other Invest./(Divestments) - - - - - - - -Change in Debt 158 (745) (323) (1,241) 12 (56) (23) (89)Dividends (1,202) (3,100) (2,473) (2,589) (93) (231) (178) (186)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 2,168 2,385 2,687 3,327 166 168 198 239Current Assets 2,872 3,120 3,464 4,146 220 220 255 297Fixed Assets 874 874 874 874 67 62 64 63Total Assets 25,235 25,105 25,534 27,044 1,929 1,768 1,878 1,940Current Liabilities 1,212 1,240 1,269 1,305 93 87 93 94Long-Term Liabilities 1,810 2,692 3,211 4,602 138 190 236 330Shareholders' Equity 22,213 21,173 21,054 21,136 1,698 1,491 1,548 1,516Total Financial Debt 2,081 2,826 3,149 4,390 159 199 232 315ST Debt 864 864 864 864 66 61 64 62LT Debt 1,217 1,962 2,285 3,526 93 138 168 253

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt (87) 441 462 1,063 (7) 31 34 76Capital Employed 24,022 23,865 24,265 25,738 1,836 1,681 1,784 1,846Net Debt/EBITDA (0.0) 0.1 0.1 0.2 (0.0) 0.1 0.1 0.2Net Debt/Equity (0.0) 0.0 0.0 0.1 (0.0) 0.0 0.0 0.1Capex/Revenue (%) 12.4 9.3 14.6 22.6 12.4 9.3 14.6 22.6Int Cover (%) 18.2 28.0 22.8 22.8 18.2 28.0 22.8 22.8Dividend Payout (%) 67.8 138.0 120.0 110.0 69.9 132.4 108.0 109.7ROCE (%) 23.5 29.1 32.7 33.5 24.3 33.0 32.8 33.5ROE (%) 10.3 9.5 11.1 12.7 10.5 9.9 11.1 12.7



US$M$

InternationaL

33.7%Domestic

66.3%

Aeronautical75.5%

Non-Aeronautical

24.5%

AMP15.0%

Grupo Mexico21.2%

Free Float63.8%

339


MEXICO—HEALTH CARE

GENOMMA LAB BUY CURRENT PRICE: M$26.19

TARGET PRICE: M$40.00 LOWERING YE2015 TARGET PRICE TO M$40.00 FROM M$50.00 Investment Case: Our Buy rating is based mainly on Genomma’s

attractive valuation, as the company trades at a 20% discount to international peers. We also believe Genomma’s new commercial strategies should translate into gradually improving volumes from 2015 onward, particularly in Mexico.

Outlook 2015: After a difficult 2014, we expect a recovery in Genomma’s sales and EBITDA based on a gradual consumption recovery in Mexico, continuing solid growth in its international markets, and the positive initial impact of its new commercial strategies. We expect total revenue to increase 14.4%, EBITDA to rise 16.0% to M$3.7 billion—assuming a conservative EBITDA margin of 26.1%—and EPS to reach M$2.05.

New commercial strategy: The strategies to enhance the company’s execution at points of sale and penetrate other channels include: (i) improved understanding of the shopper; (ii) better in-store vision (i.e., better shelf positioning with existing clients); (iii) expansion into new channels (the traditional sector in Mexico through wholesalers, food retailers in LatAm and the U.S.); and (iv) more trade marketing. We believe these initiatives could begin to boost sales in 2015, but more importantly, from 2016 onward.

Reducing our target price to M$40/share: We decreased our YE2015 target price by 20% to M$40.00 per share mainly on lower estimates reflecting slower consumption growth and higher FX volatility than previously expected. In addition, we increased our WACC assumption to 9.0% from 8.7% to capture a higher risk profile. We expect further noise regarding Genomma’s temporary majority stake in Marzam in the short term given its overall low margins.

Attractive valuations: Although we believe that Genomma’s higher risk profile is not well suited to the current economic environment, its valuation ratio is attractive, with a 2015E P/E of 12.8x, a 20% discount to peers. Our YE2015 target price is based on a DCF model, using a WACC of 9.0% and perpetuity growth of 3.5%.




Company Statistics



Bloomberg LABB MMCurrent Price (01/02/15) M$ 26.19 / US$ 1.77Target Price (YE 2015) M$ 40.00 / US$ 3.1952-Week Range (M$) 24.07 - 37.02Market Capitalization (US$ Mn) 1,852Float (%) 70.03-Mth Avg. Daily Vol (US$ Mn) 6.2Shares Outstanding - Mn 1,049

80

100

120

140

160

e-13 m-13 a-13 d-13 a-14 a-14 d-14

LABB MM MEXBOL

340

GENOMMA LAB Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Genomma Lab Internacional develops, advertises, and sells OTC medicines, interchangeable generic prescription drugs and personal-care products in Mexico; as well as personal care products and OTC medicine in other Latin American countries and in the U.S. through a JV with Televisa. The group of controlling shareholders owns 30% of the company while 70% free floats on the Mexican Stock Exchange. Key Personnel: Rodrigo Herrera (CEO), Oscar Villalobos (CFO), Ana M. Ybarra (IR) and Maximo Juda (COO) Web: http://www.genommalab.com/


Mexico Sales by Industry, 2014E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 11,361 12,440 14,237 16,873 892 972 1,088 1,248 YoY change (%) 15.9 9.5 14.4 18.5 19.7 9.0 12.0 14.6Gross Profit 7,944 8,640 9,902 11,735 624 675 757 868 YoY change (%) 17.9 8.8 14.6 18.5 21.8 8.3 12.1 14.6EBITDA 3,001 3,204 3,718 4,412 236 250 284 326 YoY change (%) 17.3 6.8 16.0 18.7 21.1 6.3 13.5 14.8 As % of Revenue 26.4 25.8 26.1 26.2 26.4 25.8 26.1 26.2Operating Income 2,937 3,114 3,624 4,315 231 243 277 319 YoY change (%) 17.8 6.0 16.4 19.1 21.7 5.6 13.9 15.1 As % of Revenue 25.9 25.0 25.5 25.6 25.9 25.0 25.5 25.6Financial Results (343) (420) (363) (317) (27) (33) (28) (23)Taxes 795 852 1,060 1,299 62 67 81 96Net Profit 1,752 1,764 2,154 2,641 138 138 165 195 YoY change (%) 12.0 0.6 22.1 22.6 15.6 0.2 19.5 18.6 As % of Revenue 15.4 14.2 15.1 15.7 15.4 14.2 15.1 15.7

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (64) (90) (94) (97) (5) (7) (7) (7)Other Noncash Items 57 69 (2) (14) 4 5 (0) (1)Changes in Working Capital (411) (206) (550) (1,010) (32) (16) (42) (75)Operating Cash Flow 1,349 1,579 1,701 1,742 106 123 130 129Capital Expenditures (41) (123) (111) (115) (3) (10) (9) (9)Free Cash Flow 1,855 1,597 1,648 1,677 146 125 126 124Other Invest./(Divestments) - - - - - - - -Change in Debt 1,997 727 (287) (797) 157 57 (22) (59)Dividends 0 0 (199) (199) 0 0 (15) (15)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,767 1,857 2,406 2,453 134 147 192 189Current Assets 9,987 10,452 11,868 13,342 758 829 946 1,029Fixed Assets 7,366 9,457 10,398 11,391 559 751 829 879Total Assets 17,353 19,909 22,266 24,733 1,317 1,580 1,776 1,908Current Liabilities 3,154 2,875 3,192 3,609 239 228 255 278Long-Term Liabilities 5,363 6,566 6,292 5,509 407 521 502 425Shareholders' Equity 8,835 10,468 12,782 15,616 671 831 1,019 1,204Total Financial Debt 5,456 6,183 5,895 5,098 414 491 470 393ST Debt 805 343 355 367 61 27 28 28LT Debt 4,651 5,839 5,540 4,731 353 463 442 365


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 21.9 16.7 12.8 10.4 21.3 14.5 11.2 9.5P/CE 21.1 15.9 12.2 10.0 20.6 13.8 10.8 9.1FV/EBITDA 14.2 10.7 8.5 7.0 13.8 9.5 7.6 6.4FV/EBIT 14.5 11.0 8.7 7.1 14.1 9.8 7.8 6.6FV/Revenue 3.8 2.8 2.2 1.8 3.6 2.4 2.0 1.7P/BV 4.3 2.8 2.1 1.8 4.4 2.4 1.8 1.5FCF Yield (%) 4.8 5.4 6.0 6.1 5.0 6.2 6.8 6.7Div Yield (%) (0.0) (0.0) 0.7 0.7 (0.0) (0.0) 0.8 0.8

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 1.67 1.68 2.05 2.52 0.13 0.13 0.16 0.19DPS 0 0 0.19 0.19 0 0 0.01 0.01BVPS 8.39 9.98 12.18 14.89 0.64 0.79 0.97 1.15

US$M$

Mexico56.1%

Int'l43.9%

OTC62.6%

Personal Care

37.4%

Free Float70.0%

Controlling group30.0%

341



GENTERA BUY CURRENT PRICE: M$28.57



Investment Case: Gentera continues to be one of our Top Picks in the region, as we believe that the bank is well-positioned to capture Mexico’s increasing banking penetration in lower-income segments of the population. Furthermore, profitability should improve, in our view, as the bank begins to reap the benefits from its IT investments.

Outlook 2015: We expect loan growth of 13%, mainly driven by group lending in Mexico, while loan growth abroad should remain on hold, as Gentera focuses on improving asset quality. In addition, we estimate efficiency gains as decelerating operating expenses offset margins pressures and increasing provision charges due to changesin the loan mix. As a result, we estimate return on capital employed (adjusted ROE) to reach 53.0%, above 46.5% in 2014.

Complementing its business: We are optimistic about Gentera’s diversification efforts announced in late 2014, including the acquisition of Pagos InterMex (subject to approval) and the investment in MiMoni. The former offers an opportunity to increase customer reach, across Mexico and the U.S., and its cross-selling opportunities between the remittances business and Yastas. Meanwhile, MiMoni, an internet-based unsecured consumer credit lender, offers a platform to explore and understand the business model before making a final decision whether to expand in this segment, in our view.

System migration to conclude: With SAP costs peaking in 2014, we expect to see operating expenses grow slower than revenues, leading to efficiency gains. Under the new SAP platform, Gentera is able to convert its Yastas point of sale network to a functional banking correspondent’s and launch deposits-taking product, improving its funding mix.

International operations: Asset quality was negatively affected by increasing NPLs in both Guatemala and Peru during 2014. For this year, we expect Gentera to be more strict in credit origination and highly focused in retaining top-quality clients.



Company Statistics



Bloomberg GENTERA* MMCurrent Price (01/02/15) M$ 28.57 / US$ 1.93Target Price (YE 2015) M$ 35.00 / US$ 2.4852-Week Range (M$) 21.04 - 30.32Market Capitalization (US$ Mn) 3,175Float (%) 62.83-Mth Avg. Daily Vol (US$ Mn) 5.2Shares Outstanding - Mn 1,648

80

100

120

140

160

J-13 M-13 A-13 D-13 A-14 A-14 D-14

GENTERA* MM MEXBOL

342

GENTERA Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Gentera is Latin America’s leading microcredit institution, with more than 2.9 million clients. Since its creation as a non-governmental organization (NGO) in 1990, the company has specialized in providing working-capital loans for micro-businesses in the lower-income segments of the Mexican population, located largely in rural and ex-urban areas. In 2006, it was incorporated as a bank and is currently designing retail deposit-gathering products and developing an alternative distribution network based on banking correspondents. Gentera operates Banco Compartamos in Mexico, an urban microfinance institution in Peru (CREAR) and is organically expanding into Guatemala. The company is controlled by a core group of shareholders led by its co-founders and co-presidents, Carlos Labarthe and Carlos Danel. Key Personnel: Carlos Danel (Chairman), Carlos Labarthe (CEO), Patricio Diez de Bonilla (CFO), Enrique Barrera Flores (IRO) and Enrique Majós (CEO Compartamos Mexico) Web: www.gentera.com.mx

Loan Book, 2015E

Funding, 2015E



INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Interest Income 11,772 13,547 15,319 17,286 922 1,018 1,061 1,210NPL Provisions (1,608) (1,625) (1,868) (2,064) (126) (122) (129) (145)Adj Net Interest Income 10,164 11,922 13,452 15,222 796 896 932 1,066Non-Interest Income 78 196 231 271 6 15 16 19Total Operating Revenue 10,242 12,118 13,683 15,493 803 911 948 1,085Non-Interest Expense (6,763) (7,723) (8,506) (9,462) (530) (580) (589) (663)Profit Before Taxes 3,479 4,394 5,177 6,031 273 330 359 422Taxes (1,208) (1,767) (1,827) (2,040) (95) (133) (127) (143)Net Profit 2,264 3,128 3,308 3,943 177 235 229 276Adjusted Net Profit 2,454 3,019 3,571 4,106 192 227 247 288

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 2,169 5,051 5,306 5,668 166 342 376 393Securities 364 312 519 785 28 21 37 54Loans (net) 19,478 22,105 25,033 28,927 1,487 1,499 1,772 2,004Intangible Assets 715 713 713 713 55 48 50 49Total Assets 25,362 31,181 34,625 39,248 1,937 2,114 2,451 2,719Core Deposits 704 983 1,272 2,431 54 67 90 168Other Financial Liabilities 8,537 9,918 10,594 11,164 652 673 750 773Subordinated Debt 0 0 0 0 0 0 0 0Technical Provisions 0 0 0 0 0 0 0 0Equity 8,772 11,778 13,835 16,455 670 799 980 1,140Adjusted Equity 7,273 9,856 11,967 14,655 555 668 847 1,015

LOAN BOOK 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECompanies 0 0 0 0 0 0 0 0Total Consumer 20,706 23,372 26,504 30,665 1,581 1,585 1,876 2,124Mortgages - - - - - - - -Other Loans 0 0 0 0 0 0 0 0Gross Loans 20,706 23,372 26,504 30,665 1,581 1,585 1,876 2,124Loan Growth (%) 14.0 12.9 13.4 15.7 12.5 0.2 18.4 13.2NPL 645 710 809 951 49 48 57 66Provisions (1,228) (1,267) (1,471) (1,739) (94) (86) (104) (120)

KEY RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENIM 51.39 52.50 50.38 49.99 51.39 52.50 50.38 49.99Risk Charge 8.02 7.28 7.52 7.25 8.02 7.28 7.52 7.25Operating Revenue / ATAs 41.45 43.04 41.74 42.11 41.45 43.04 41.74 42.11Cost / ATAs 27.37 27.43 25.94 25.72 27.37 27.43 25.94 25.72Adj Efficiency 56.9 55.9 54.7 53.9 56.9 55.9 54.7 53.9Effective Taxes 34.7 40.2 35.3 33.8 34.7 40.2 35.3 33.8Reported ROE (%) 25.8 30.8 26.3 26.4 25.8 30.8 26.3 26.4Adj ROE (%) 41.8 46.5 53.0 54.5 41.8 46.5 53.0 54.5NPL Ratio 3.12 3.04 3.05 3.10 3.12 3.04 3.05 3.10Adj NPL Ratio 9.95 10.30 9.58 9.39 9.95 10.30 9.58 9.39Loans / Total Assets 76.8 70.9 72.3 73.7 76.8 70.9 72.3 73.7Loans / Core Deposits 2,766.8 2,249.0 1,967.9 1,189.9 2,766.8 2,249.0 1,967.9 1,189.9RWA % Total Assets 101.8 97.9 97.5 98.6 101.8 97.9 97.5 98.6Core Tier I Ratio (%) 28.2 32.3 35.5 37.9 28.2 32.3 35.5 37.9Dividend Payout (%) 75.6 0.0 37.8 33.6 75.6 0.0 37.8 33.6

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EAdj. P/BV 6.3 7.1 6.0 5.0 6.1 6.1 5.9 4.8Adj. P/E 16.0 15.1 11.8 9.9 15.6 13.6 11.4 9.5Div Yield (%) 4.2 (0.0) 2.7 2.8 4.4 (0.0) 2.7 2.9


US$M$

Mujer43.0%Comerciant

e20.1%

Individual4.9%

Other1.2%

Crece y Mejora12.2%

Fin CREAR18.6%

Total Deposits

6.6%

Bonds55.2%

Interbank and other

loans38.2%

Promotora Social Mexico31.8%

Accion Gateway

Fund5.4%

Free Float62.8%

343



GF INBURSA BUY CURRENT PRICE: M$37.15

TARGET PRICE: M$43.00 UPGRADING RATING TO BUY FROM UNDERPERFORM INTRODUCING YE2015 TARGET PRICE OF M$43.00; REPLACING YE2014 TARGET PRICE OF M$26.00

Investment Case: Inbursa’s entry into retail banking should kick into high gear with the new JV with Walmex, in our view. We believe that the deal will allow Inbursa to overcome its key strategic disadvantage (lack of distribution points) by multiplying the capacity of Inbursa’s sales force to reach potential new clients. We believe that the shift inthe business mix toward retail banking will allow Inbursa to start to deploy its surplus capital at higher rates of return on capital, which wenow expect to increase to the low 20s% from our previous estimate of ~17%.

Outlook 2015: We expect Inbursa to deliver approximately 16% loan growth driven by approximately 30% growth in retail loans, thanks to the initial boost from the acquisition of Walmex’s Banco Walmart. We expect reported earnings to be boosted by strong provisions reversals, which should lead to sustained strong dividendsin the year, in our view. Finally, we expect to see a rebound in Inbursa’s commercial loan portfolio, thanks to disbursements for infrastructure and energy investments.

Joint venture with Walmex: On December 19, Inbursa announced that it had entered a joint venture with Walmex to distribute retail banking products in Mexico’s leading retail chain. The deal involves the acquisition of Banco Walmex, with the incorporation of 1.5 millionnew clients, allowing Inbursa access to Walmex’s customer base in exchange for profit sharing and fee-based compensation for the retail chain.

We expect weak 4Q14 results on trading income, as mark-to-market losses from interest rate swaps and potential losses in its stake in Argentina’s YPF due to lower oil prices. Any weakness in the stock on the back of these results should be considered a buying opportunity, in our view.

Provision reversals to peak in 2015: We expect a total of M$16.0 billion in provision reversals to take place in 2015, as the group should conclude the release of excess NPL provisions (M$6-7 billion) and reverse an additional M$7-8 billion in insurance technical provisions from the implementation of IFRS accounting.



Company Statistics



Bloomberg GFINBURO MMCurrent Price (01/02/15) M$ 37.15 / US$ 2.50Target Price (YE 2015) M$ 43.00 / US$ 3.0452-Week Range (M$) 29.10 - 42.39Market Capitalization (US$ Mn) 16,698Float (%) 27.93-Mth Avg. Daily Vol (US$ Mn) 6.7Shares Outstanding - Mn 6,667

60

70

80

90

100

110

J-13 M-13 A-13 D-13 A-14 A-14 D-14

GFINBURO MM MEXBOL

344

GF INBURSA Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Inbursa is a leading Mexican financial group with a strong presence in banking, insurance, annuities, brokerage, corporate finance, and asset management. In recent years, it has entered the consumer finance and retail banking markets. The company incorporated Spain’s La Caixa as a strategic investor in 2008 and implemented a new retail banking business model, which involves an ambitious branch expansion plan. The group has distribution agreements with Chrysler (to finance auto dealers and car loans), Telmex (for SME and personal loans) and has entered into a joint venture with Walmex for the distribution of retail banking and insurance products. Over the years, Inbursa provided corporate and investment banking services for companies controlled by its largest shareholder, Mr. Carlos Slim Helú. Key Personnel: Marco Antonio Slim (Chairman), Javier Foncerrada (CEO), Raul Reynal (CFO), Juan Ignacio Gonzalez (IRO) and Frank Aguado (Chief Credit Officer) Web: www.inbursa.com

Loan Book, 2015E

Net Income Breakdown, 2015E



INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Interest Income 10,915 12,647 17,029 20,543 855 950 1,180 1,439NPL Provisions (3,199) (2,282) (2,427) (1,028) (251) (171) (168) (72)Adj Net Interest Income 7,716 10,366 14,603 19,515 605 779 1,012 1,367Non-Interest Income 21,516 19,214 26,141 10,925 1,686 1,444 1,811 765Total Operating Revenue 29,232 29,579 40,743 30,440 2,291 2,223 2,822 2,132Non-Interest Expense (7,385) (8,025) (8,882) (9,958) (579) (603) (615) (697)Profit Before Taxes 21,847 21,554 31,862 20,482 1,712 1,620 2,207 1,434Taxes (5,531) (3,692) (7,999) (5,708) (433) (277) (554) (400)Net Profit 16,292 17,833 23,778 14,708 1,277 1,340 1,647 1,030Adjusted Net Profit 13,668 6,941 11,470 13,287 1,071 522 795 930

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 18,744 16,817 17,747 18,905 1,431 1,140 1,257 1,310Securities 115,951 117,475 124,499 130,469 8,854 7,966 8,814 9,038Loans (net) 172,077 181,766 218,991 259,400 13,139 12,325 15,505 17,969Intangible Assets 2,387 2,788 2,889 2,991 182 189 205 207Total Assets 360,195 373,733 426,605 475,677 27,503 25,342 30,203 32,951Core Deposits 89,879 84,087 98,597 118,155 6,863 5,702 6,981 8,185Other Financial Liabilities 74,719 99,242 110,791 123,210 5,705 6,729 7,844 8,535Subordinated Debt 0 0 0 0 0 0 0 0Technical Provisions 71,501 67,471 68,184 72,412 5,460 4,575 4,827 5,016Equity 82,071 85,516 97,761 105,115 6,267 5,799 6,921 7,281Adjusted Equity 83,912 80,178 88,787 95,854 6,407 5,437 6,286 6,640

LOAN BOOK 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECompanies 143,130 137,193 150,777 169,005 10,929 9,303 10,675 11,707Total Consumer 21,903 29,356 43,878 63,924 1,672 1,991 3,107 4,428Mortgages 1,372 1,967 6,377 14,066 105 133 451 974Other Loans 34,362 30,163 32,619 35,693 2,624 2,045 2,309 2,472Gross Loans 199,079 196,711 227,274 268,621 15,201 13,339 16,091 18,608Loan Growth (%) 12.4 (1.2) 15.5 18.2 11.0 (12.3) 20.6 15.6NPL 8,752 6,820 5,207 6,410 668 462 369 444Provisions (27,002) (14,863) (8,200) (9,139) (2,062) (1,008) (581) (633)




US$M$

Corporate59.9%

SMEs6.4%

Other14.4%

Mortgage2.8%

Consumer16.5%

Bank54.6%

Asset Mngt.2.8%

Insurance32.1%

Real Estate2.8%

Other7.7%

Slim63.1%

La Caixa9.0%

Free Float27.9%

345



GRUMA HOLD CURRENT PRICE: M$152.71



Investment Case: Gruma will continue to benefit from catalysts—further deleveraging, operating improvements, and operating momentum—in the short to medium terms, in our view. But improvements should be only moderate compared with those associated with the company’s past restructuring process. This should help the company maintain current valuation levels. We believe that operating improvements, which rely on execution at the point of sales and strict discipline for capital allocation, will be moredifficult to achieve.

Outlook 2015: The year should be crucial for Gruma’s management. The financial and operating turnarounds have largely concluded, and the challenge will be to continue improving profitability via a more profitable sales mix, mainly in the U.S. market. Additionally, we believe the company’s growth will resume, with a key focus on profitability.

Lower raw material prices and improved profitability: In 2015, top-line growth should be modest due to lower grain price. However, this should help Gruma defend profitability despite the price declines we expect due to lower prices of grains. We expect a 2013-16 net sales CAGR of only 0.3%, but an EBITDA CAGR of 8.6% in the same period (both in Mexican pesos). We adjusted our net income estimate for a lower tax rate (to 27% from 32%), as the company expects to maintain a lower corporate tax rate in the coming years. We estimate EBITDA margins of 15.1% in 2015 and 15.3% in 2016.

Key themes for 2015: (1) Competition in the U.S. market due to lower grain prices; (2) volume recovery in the U.S. and U.K. markets; (3) sales mix evolution in the U.S. market; (4) margin evolution in Mexico due to lower grain prices; (5) improved growth both organically and through M&A; and (6) potential increase of dividends (both regular and extraordinary).



Company Statistics



Bloomberg GRUMAB MM / GMK USCurrent Price (01/02/15) M$ 152.71 / US$ 41.39Target Price (YE 2015) M$ 173.00 / US$ 51.0052-Week Range (M$) 101.19 - 157.32Market Capitalization (US$ Mn) 4,455Float (%) 40.03-Mth Avg. Daily Vol (US$ Mn) 7.7Shares Outstanding - Mn 433

0

100

200

300

400

e-13 m-13 a-13 d-13 a-14 a-14 d-14

GRUMAB MM MEXBOL

346

GRUMA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Gruma is the largest producer of branded tortillas in the world, with operations in the United States, Mexico, Central America, Europe, and Asia. In the U.S., the company is the leader in the tortilla market, with an estimated 35% market share with its Mission and Guerrero brands. In Mexico, Gruma is the leading producer of corn flour, with its Maseca brand. It trades on the NYSE and Mexican Bolsa. It is controlled by the Gonzalez family. Key Personnel: Juan Antonio Gónzalez Moreno (Chairman), Juan Antonio Gónzalez Moreno (CEO), Raúl Cavazos (CFO), Lili Gómez (IRO) and Rogelio Sánchez (VP of Finance) Web: www.gruma.com.mx





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 51,732 50,600 51,252 53,444 4,053 3,812 3,659 3,800 YoY change (%) (4.9) (2.2) 1.3 4.3 (2.0) (5.9) (4.0) 3.8Gross Profit 17,174 18,054 18,204 18,903 1,345 1,360 1,300 1,344 YoY change (%) 3.7 5.1 0.8 3.8 6.9 1.1 (4.4) 3.4EBITDA 6,366 7,258 7,734 8,174 499 547 552 581 YoY change (%) 43.2 14.0 6.6 5.7 47.6 9.6 1.0 5.3 As % of Revenue 12.3 14.3 15.1 15.3 12.3 14.3 15.1 15.3Operating Income 4,715 5,857 6,055 6,345 369 441 432 451 YoY change (%) 67.5 24.2 3.4 4.8 72.7 19.5 (2.0) 4.4 As % of Revenue 9.1 11.6 11.8 11.9 9.1 11.6 11.8 11.9Financial Results (1,002) (1,154) (856) (417) (79) (87) (61) (30)Taxes (197) (1,100) (1,404) (1,601) (15) (83) (100) (114)Net Profit 3,163 3,540 3,440 4,070 248 267 246 289 YoY change (%) 183.6 11.9 (2.8) 18.3 192.3 7.6 (7.9) 17.8 As % of Revenue 6.1 7.0 6.7 7.6 6.1 7.0 6.7 7.6

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (1,651) (1,401) (1,679) (1,829) (129) (106) (120) (130)Other Noncash Items 1,791 16 (201) 141 140 1 (14) 10Changes in Working Capital 3,898 (626) 474 (411) 305 (47) 34 (29)Operating Cash Flow 6,922 4,299 5,794 5,346 542 324 414 380Capital Expenditures (1,380) (1,890) (2,560) (2,590) (108) (142) (183) (184)Free Cash Flow 5,541 2,409 3,234 2,756 434 181 231 196Other Invest./(Divestments) (1,991) 3,811 (347) (1,075) (156) 287 (25) (76)Change in Debt (3,499) (5,006) (1,360) (1,452) (274) (377) (97) (103)Dividends 0 (649) (885) (860) 0 (49) (63) (61)Capital Increases/Other - - - - - - - -

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,339 1,903 2,544 2,773 102 134 187 197Current Assets 18,336 19,784 20,172 20,987 1,401 1,393 1,483 1,492Fixed Assets 17,905 16,023 16,572 17,715 1,368 1,128 1,219 1,260Total Assets 42,609 42,381 43,318 45,276 3,256 2,985 3,185 3,220Current Liabilities 11,350 10,298 10,520 10,694 867 725 773 760Long-Term Liabilities 16,831 13,261 11,901 10,449 1,286 934 875 743Shareholders' Equity 12,973 17,082 19,434 22,444 991 1,203 1,429 1,596Total Financial Debt 16,372 11,367 10,007 8,554 1,251 800 736 608ST Debt 3,276 1,966 1,966 1,966 250 138 145 140LT Debt 13,096 9,400 8,040 6,588 1,001 662 591 468

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 15,034 9,464 7,462 5,781 1,149 666 549 411Capital Employed 31,258 32,083 32,799 34,582 2,389 2,259 2,412 2,459Net Debt/EBITDA 2.4 1.3 1.0 0.7 2.3 1.2 1.0 0.7Net Debt/Equity 1.2 0.6 0.4 0.3 1.2 0.6 0.4 0.3Capex/Revenue (%) 2.7 3.7 5.0 4.8 2.7 3.7 5.0 4.8Int Cover (%) 6.6 9.0 10.4 12.4 6.6 9.0 10.4 12.4Dividend Payout (%) 0.0 20.5 25.0 25.0 0.0 19.7 22.5 24.9ROCE (%) 21.3 22.6 22.7 23.0 21.7 24.5 22.8 23.0ROE (%) 26.1 23.6 18.8 19.4 26.6 24.7 18.8 19.4


PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 7.31 8.18 7.95 9.41 4.58 4.93 4.54 5.35DPS 0 (1.50) (2.04) (1.99) 0 (0.90) (1.17) (1.13)BVPS 29.98 39.47 44.91 51.86 18.33 22.24 26.42 29.50

US$M$

Central America

7.9%

Gruma Corp61.3%

Gimsa30.8%

Central America

6.7%

Gruma Corp55.3%

Gimsa38.1%

Gonzalez Family60.0%

Free Float40.0%

347



GRUPO BIMBO HOLD CURRENT PRICE: M$39.77



Investment Case: Bimbo should continue posting healthy EBITDA growth in 2015, mainly driven by the consolidation of Canada Bread (2Q14), ongoing synergies from the manufacturing upgrade in the U.S., and lower extraordinary charges. We also note that the company is highly exposed to the U.S. economy, which is delivering attractive growth rates. However, we believe that this is already reflected in the stock price, as it currently trades at 22.4x our 2015 P/E estimate. In addition, we remain concerned about the strong competition and limited growth in the U.S. and Canada bakery industry.

Outlook 2015: We estimate healthy sales and EBITDA growth in 2015, driven by the consolidation of Canada Bread, high exposure to the U.S. and Canadian markets (favorable FX), and moderate recovery in the Mexican operations after a tough 2014, which was affected by new taxes on high-energy-content food. We estimate sales growth of 9% in peso terms in 2015 and 18% EBITDA growth. For the 2013-16E period, we estimate a CAGR of 6.6% and 13.1% in terms of sales and EBITDA, respectively.

Valuation improving: The integration process for the Sara Lee assets in the U.S., as well as the reorganization of the Brazilian operations, led to several restructuring charges during 2013 and 2014. These charges have declined significantly, and thus we expectEPS to post more normalized results. Despite this improvement, we still see limited upside in the name, as we see the valuation as fair.

Key themes for 2015: (1) Evolution of integration, synergies, and profitability of the U.S. and Canada operations; (2) we expect a recovery in volumes in Mexico after a decline resulting from the 8% excise tax on high-energy-content food implemented in 2014; (3) evolution of grain prices and FX, which could have an impact on the profitability of the Mexican operations; and (4) improvement in the profitability of the South America (mainly Brazil) and European operations.



Company Statistics



Bloomberg BIMBOA MMCurrent Price (01/02/15) M$ 39.77 / US$ 2.68Target Price (YE 2015) M$ 44.00 / US$ 3.2452-Week Range (M$) 32.53 - 43.17Market Capitalization (US$ Mn) 12,610Float (%) 24.03-Mth Avg. Daily Vol (US$ Mn) 4.1Shares Outstanding - Mn 4,703

80

90

100

110

120

130

140

e-13 m-13 a-13 d-13 a-14 a-14 d-14

BIMBOA MM MEXBOL

348

GRUPO BIMBO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Grupo Bimbo is the largest baked goods producer in the world. The last acquisition was Canada Bread in 2Q14, after Sara Lee North America Fresh Bakery and Sara Lee Spain and Portugal (4Q11). Agreement to acquire Saputo Bakery in Canada was announced on December 2014. With these acquisitions the company has a presence in 22 countries in the Americas, Asia, and Europe. It manages over 100 brands and 10,000 SKUs encompassing products such as sliced bread, cookies, snack cakes, prepackaged foods, tortillas, salty snacks, and confectionery. The Mexican operations would represent 35% of consolidated sales, the U.S. & Canada 50%, LatAm 12%, and Europe 3%. The controlling families (Servitje, Jorba, Sendra, and Mata) hold close to 76% of the outstanding shares, while the free float is roughly 20%. Key Personnel: Roberto Servitje (Chairman), Daniel Servitje (CEO), Guillermo Quiroz (CFO), Marcos Camacho (IRO) and Roberto Cejudo (Treasurer) Web: www.grupobimbo.com.mx





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 176,041 190,947 208,345 212,972 13,791 14,373 14,875 15,141 YoY change (%) 1.7 8.5 9.1 2.2 4.8 4.2 3.5 1.8Gross Profit 92,099 100,686 104,712 106,560 7,215 7,579 7,476 7,576 YoY change (%) 4.9 9.3 4.0 1.8 8.1 5.0 (1.4) 1.3EBITDA 15,742 19,750 23,298 25,036 1,233 1,487 1,663 1,780 YoY change (%) 14.3 25.5 18.0 7.5 17.8 20.6 11.9 7.0 As % of Revenue 8.9 10.3 11.2 11.8 8.9 10.3 11.2 11.8Operating Income 10,490 13,739 16,758 18,348 822 1,034 1,196 1,304 YoY change (%) 42.0 31.0 22.0 9.5 46.3 25.8 15.7 9.0 As % of Revenue 6.0 7.2 8.0 8.6 6.0 7.2 8.0 8.6Financial Results (2,788) (3,740) (3,144) (3,535) (218) (282) (224) (251)Taxes (2,878) (3,689) (5,173) (5,629) (225) (278) (369) (400)Net Profit 4,412 6,058 8,337 9,071 346 456 595 645 YoY change (%) 117.5 37.3 37.6 8.8 124.2 31.9 30.5 8.3 As % of Revenue 2.5 3.2 4.0 4.3 2.5 3.2 4.0 4.3

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (5,252) (6,011) (6,540) (6,688) (411) (452) (467) (475)Other Noncash Items (131) (466) 520 (376) (10) (35) 37 (27)Changes in Working Capital 1,916 777 (6,174) (3,395) 150 58 (441) (241)Operating Cash Flow 11,711 13,311 8,182 12,739 917 1,002 584 906Capital Expenditures (6,743) (28,773) (7,703) (7,736) (528) (2,166) (550) (550)Free Cash Flow 4,968 (15,462) 479 5,003 389 (1,164) 34 356Other Invest./(Divestments) (4,460) (819) 8,800 5,916 (349) (62) 628 421Change in Debt (1,643) 18,509 (2,586) (7,539) (129) 1,393 (185) (536)Dividends (638) (1,277) (700) (703) (50) (96) (50) (50)Capital Increases/Other - - - - - - - -

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 2,504 3,456 9,449 12,125 191 243 695 862Current Assets 24,741 30,661 42,110 48,451 1,891 2,159 3,096 3,445Fixed Assets 42,684 47,663 40,239 34,415 3,262 3,357 2,959 2,447Total Assets 134,727 165,490 169,515 170,032 10,297 11,654 12,464 12,091Current Liabilities 33,278 31,852 31,123 31,401 2,543 2,243 2,288 2,233Long-Term Liabilities 53,666 80,927 78,351 69,964 4,102 5,699 5,761 4,975Shareholders' Equity 45,619 50,604 58,240 66,607 3,487 3,564 4,282 4,737Total Financial Debt 40,329 58,838 56,252 48,713 3,082 4,143 4,136 3,464ST Debt 7,997 826 816 824 611 58 60 59LT Debt 32,332 58,012 55,436 47,889 2,471 4,085 4,076 3,405




US$M$

Latam11.6%

Mexico35.0%

U.S.50.2%

Europe3.2%

LatAm5.5%

Mexico51.8%

U.S.41.8%

Europe0.9%

Free Float20.0%

Controlling Families80.0%

349



GRUPO FAMSA HOLD CURRENT PRICE: M$11.67


LOWERING YE2015 TARGET PRICE TO M$13.00 FROM M$19.00 Investment Case: We reiterate our cautious view on Grupo Famsa

based on a more gradual recovery than previously anticipated after the challenging 2014. We prefer to remain on the sidelines until we have more visibility on earnings, including healthier NPLs.

Outlook 2015: We expect total revenue to increase by 7.4% and EBITDA to rise by 9.9% to M$1.8 billion in 2015. Our forecast accounts for the opening of 15 stores in Mexico, with SSS expanding 3%. We estimate the EBITDA margin expands 30 bps to 11.0%.

Gradual recovery in credit sales: We expect Grupo Famsa’s credit operations to recover gradually; they were negatively affected by an increase in cash payments from consumers in 1H14 as a result of the fiscal reform. However, we do not expect a significant uptick in the loan growth given the moderate recovery in personal loans due to high NPLs, which remain above 15%.

Reducing our target price, taking a conservative approach: We reduced our YE2015 target price to M$13 from M$19 to reflect lower estimates in 2014-16 on all fronts. We have turned more cautious on the company’s comp sales and operating margins, while we also increased our estimates on interest expenses to reflect the current FX environment.

Higher risk profile: Although the company trades at a discount to peers in most valuation multiples, its risk profile is also higher even after the recent share subscription to pay down debt, specifically regarding high loan uncollectables, high leverage, low returns, and lack of free cash flow generation.




Company Statistics



Bloomberg GFAMSAA MMCurrent Price (01/02/15) M$ 11.67 / US$ 0.79Target Price (YE 2015) M$ 13.00 / US$ 1.0252-Week Range (M$) 11.24 - 22.60Market Capitalization (US$ Mn) 346Float (%) 36.03-Mth Avg. Daily Vol (US$ Mn) 0.5Shares Outstanding - Mn 439

60

80

100

120

140

160

180

e-13 m-13 a-13 d-13 a-14 a-14 d-14

GFAMSAA MM MEXBOL

350

GRUPO FAMSA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Famsa is one of the largest Mexican retail companies focused on providing credit to low-income consumers. Sales in 2013 totaled M$15.0 billion. Besides Mexico, Famsa has operations in Texas (in the U.S.), focusing on the Hispanic population. The Garza González family owns 64% of the outstanding shares and the remaining 36% is free float. There is only one series of shares. Key Personnel: Humberto Garza González (Chairman), Humberto Garza Valdéz (CEO), Abelardo García Lozano (CFO) and Paloma Arellano (IRO) Web: www.grupofamsa.com


Product Sales Breakdown, 2013



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 15,040 15,008 16,114 17,460 1,178 1,138 1,222 1,329 YoY change (%) 7.4 (0.2) 7.4 8.4 9.1 (3.4) 7.4 8.7Gross Profit 6,967 6,898 7,437 8,092 546 523 564 616 YoY change (%) (1.4) (1.0) 7.8 8.8 0.2 (4.2) 7.8 9.2EBITDA 1,754 1,611 1,771 1,969 137 122 134 150 YoY change (%) (21.5) (8.2) 9.9 11.2 (20.3) (11.1) 9.9 11.6 As % of Revenue 11.7 10.7 11.0 11.3 11.7 10.7 11.0 11.3Operating Income 1,471 1,281 1,440 1,630 115 97 109 124 YoY change (%) (23.4) (12.9) 12.4 13.2 (22.2) (15.7) 12.4 13.6 As % of Revenue 9.8 8.5 8.9 9.3 9.8 8.5 8.9 9.3Financial Results (985) (938) (784) (808) (77) (71) (59) (62)Taxes (205) (100) 164 206 (16) (8) 12 16Net Profit 689 442 491 615 54 33 37 47 YoY change (%) 93.6 (35.9) 11.1 25.3 96.6 (38.0) 11.1 25.8 As % of Revenue 4.6 2.9 3.0 3.5 4.6 2.9 3.0 3.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (283) (330) (331) (338) (22) (25) (25) (26)Other Noncash Items - - - - - - - -Changes in Working Capital 3,581 2,105 1,947 0 281 160 148 0Operating Cash Flow 4,554 2,876 2,769 953 357 218 210 73Capital Expenditures (526) (241) (395) (394) (41) (18) (30) (30)Free Cash Flow (4,025) 821 (174) (441) (315) 62 (13) (34)Other Invest./(Divestments) - - - - - - - -Change in Debt 4,318 2,134 873 132 338 162 66 10Dividends 0 (2) 0 0 0 (0) 0 0Capital Increases/Other - - - - - - - -

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,510 3,223 3,922 3,721 115 244 306 283Current Assets 27,759 29,117 30,965 31,961 2,122 2,206 2,419 2,432Fixed Assets 5,318 6,664 6,871 7,074 406 505 537 538Total Assets 33,077 35,781 37,836 39,035 2,528 2,711 2,956 2,971Current Liabilities 15,190 16,664 18,085 18,532 1,161 1,262 1,413 1,410Long-Term Liabilities 8,916 9,684 9,684 9,684 681 734 757 737Shareholders' Equity 8,971 9,433 10,067 10,820 686 715 786 823Total Financial Debt 16,766 19,287 20,160 20,292 1,281 1,461 1,575 1,544ST Debt 4,310 4,217 4,720 4,470 329 319 369 340LT Debt 3,177 4,332 4,332 4,332 243 328 338 330


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 14.4 12.1 10.5 8.3 14.0 10.8 9.3 7.4P/CE 10.2 6.9 6.2 5.4 10.0 6.2 5.6 4.8FV/EBITDA 14.4 13.3 12.1 11.0 14.0 12.9 12.0 10.7FV/EBIT 17.1 16.7 14.8 13.3 16.7 16.3 14.8 13.0FV/Revenue 1.7 1.4 1.3 1.2 1.6 1.4 1.3 1.2P/BV 1.1 0.6 0.5 0.5 1.1 0.5 0.4 0.4FCF Yield (%) (40.5) 15.3 (3.4) (8.6) (41.6) 17.2 (3.8) (9.7)Div Yield (%) (0.0) 0.0 (0.0) (0.0) (0.0) 0.0 (0.0) (0.0)

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 1.57 1.00 1.12 1.40 0.12 0.08 0.08 0.11DPS 0 2.38 0 0 0 0.18 0 0BVPS 20.43 21.47 22.91 24.62 1.56 1.63 1.79 1.87

US$M$

Mexico88.0%

USA11.5% Others

0.5%

Personal loans21.6%

Furniture16.9%

Electronics13.0%

Appliances12.1%

Mobile Phones9.2%

Free Float36.0%

Humberto Garza64.0%

351



GRUPO HERDEZ HOLD CURRENT PRICE: M$34.08



Investment Case: We reiterate our Hold rating on Herdez based on what we believe is its fair valuation that already reflects attractive, solid, long-term growth, with the risk related to higher COGS due to a weaker FX during 2015. On the positive side, we see recovery in the domestic market and a good dynamic in the U.S. market, where exports represent 8% of sales. Additionally, we expect healthier growth in Nutrisa, after the restructuring process implemented in 2014. On the negative side, note that close to 50% of the company’s COGS are linked to the USD; thus, we expect margins to be negatively affected in 2015.

Outlook 2015: We believe that the company will recover salesgrowth in 2015, driven by a modest improvement in the consumer environment in Mexico and to a lesser degree, the solid dynamic of the U.S. economy. We estimate top-line growth of 9.1% in peso terms, driven by 8.3% growth in the domestic market and 20% growth in the export market. At the EBITDA level, we estimate 6.2% growth, as we expect pressure from a weaker currency. We anticipate a 40-bp margin contraction at the EBITDA level to 15.2% from an estimated 15.6% in 2014.

Stable CAGR ahead: We believe that valuation is fair at a 17.7x P/E for 2015E, but in our view this is supported by the company’s solid market position and brand equity. We estimate that this will allow the company to grow at a CAGR for 2013-16 of 8.5% in sales, 9.6% in EBITDA, and 15.4% in net income.

Key themes 2015: (1) Evolution of volumes and prices in the domestic market, which was highly promotional during 2014; (2) expansion and restructure plans for Nutrisa; (3) penetration into the U.S. market as well as further M&A to continue strengthening the portfolio; (4) outlook for soft commodities and FX; and (5) approval of acquisition of Nestle’s ice cream operations in Mexico.



Company Statistics



Bloomberg HERDEZ* MMCurrent Price (01/02/15) M$ 34.08 / US$ 2.30Target Price (YE 2015) M$ 40.00 / US$ 2.9452-Week Range (M$) 32.52 - 47.50Market Capitalization (US$ Mn) 992Float (%) 28.03-Mth Avg. Daily Vol (US$ Mn) 1.3Shares Outstanding - Mn 432

70

80

90

100

110

120

e-13 m-13 a-13 d-13 a-14 a-14 d-14

HERDEZ* MM MEXBOL

352

GRUPO HERDEZ Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Grupo Herdez is one of the leading companies in Mexico’s processed food industry, with operations in the U.S. and Canada as well. The company manufactures and distributes over 1,000 products, delivering 600 SKUs, under a number of brands, including Herdez, Del Fuerte, Barilla, Búfalo, Chi-Chi’s, Doña María, Embasa, La Victoria, McCormick, Nair, and Yemina, among others. It also has distribution agreements with Kikkoman and Ocean Spray. The company holds 25% stake in MegaMex Foods in the U.S. and in 2013 acquired Nutrisa in Mexico. Key Personnel: Héctor Hernández-Pons Torres (Chairman), Gerardo F. Canavati Miguel (CFO), Andrea Amozurrutia (Financial Planning & IRO) and Grecia Dominguez (IR) Web: www.grupoherdez.com.mx


Sales Mix by Distribution Channel, 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 13,180 14,315 15,676 16,916 1,033 1,078 1,119 1,203 YoY change (%) 15.2 8.6 9.5 7.9 18.7 4.4 3.9 7.5Gross Profit 4,639 5,460 5,847 6,448 363 411 417 458 YoY change (%) 21.5 17.7 7.1 10.3 25.3 13.1 1.6 9.8EBITDA 2,050 2,242 2,447 2,776 161 169 175 197 YoY change (%) 16.6 9.4 9.1 13.4 20.1 5.1 3.5 13.0 As % of Revenue 15.6 15.7 15.6 16.4 15.6 15.7 15.6 16.4Operating Income 1,757 1,923 2,097 2,399 138 145 150 171 YoY change (%) 12.1 9.4 9.1 14.4 15.5 5.1 3.5 13.9 As % of Revenue 13.3 13.4 13.4 14.2 13.3 13.4 13.4 14.2Financial Results (259) (309) (257) (210) (20) (23) (18) (15)Taxes (536) (554) (589) (701) (42) (42) (42) (50)Net Profit 608 733 830 963 48 55 59 68 YoY change (%) (23.1) 20.6 13.2 16.0 (20.7) 15.9 7.4 15.5 As % of Revenue 4.6 5.1 5.3 5.7 4.6 5.1 5.3 5.7

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (293) (319) (350) (377) (23) (24) (25) (27)Other Noncash Items 42 222 181 229 3 17 13 16Changes in Working Capital (85) (78) (371) (140) (7) (6) (26) (10)Operating Cash Flow 774 753 628 971 61 57 45 69Capital Expenditures (735) (703) (551) (570) (58) (53) (39) (41)Free Cash Flow 39 50 77 401 3 4 5 29Other Invest./(Divestments) (2,911) 1,467 925 1,024 (228) 110 66 73Change in Debt 2,815 41 450 483 220 3 32 34Dividends (367) 0 (387) (387) (29) 0 (28) (27)Capital Increases/Other - - - - - - - -

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 887 2,445 3,510 5,031 68 172 258 358Current Assets 5,318 6,898 8,456 10,251 406 486 622 729Fixed Assets 4,111 4,281 4,426 4,664 314 301 325 332Total Assets 20,837 22,913 24,616 26,649 1,593 1,614 1,810 1,895Current Liabilities 1,590 2,348 2,460 2,601 122 165 181 185Long-Term Liabilities 7,117 6,298 6,857 7,432 544 444 504 528Shareholders' Equity 5,665 6,244 6,687 7,264 433 440 492 517Total Financial Debt 5,969 6,010 6,460 6,943 456 423 475 494ST Debt 0 814 803 811 0 57 59 58LT Debt 5,969 5,196 5,657 6,131 456 366 416 436




US$M$

Exports8.0%

Domestic92.0%

Supermarkets

42.0%Other11.0%

Foreign Sales17.0%

Wholesalers30.0%

Free Float28.0%

Alfredo Harp Helú

21.0%

Hernández-Pons Family

51.0%

353

http://www.grupoherdez.com.mx/



GRUPO LALA BUY CURRENT PRICE: M$27.60


Investment Case: Although we expect a lackluster 2014 due to a weak consumer environment, we continue to see Lala as an attractive consumer play in Mexico for 2015. Our positive view is based on the expected economic recovery in Mexico, where we still see private consumption growing 2.5% in 2015, while the company’sstrategy to grow the functional dairy category (leveraging it on the company’s cold storage distribution chain — the largest in Mexico), is feasible, in our view. Additionally, we expect Lala to start development of the cold cut category, via a greenfield or M&A.

Outlook 2015: We anticipate a lackluster performance, with sales growth of 2.1% YoY and a marginal decline in EBITDA. However, we estimate sales and EBITDA growth of 6.9% and 13.9%, respectively, with EBITDA growth benefiting from a weak comparison base in 2014 (namely, higher expenses due to the restructuring of the company’s manufacturing arm, the integration of Nestle assets and a very weak start to that year, thanks to higher taxes in Mexico). Our estimates consider only organic growth and no M&A.

New categories: Lala’s strategy to enter into new categories has taken longer than expected. The company is currently working on a test market for mainstream and value segments in the cold cut category. In 2015, we expect the company to decide whether to roll out the project or increase its efforts to grow via M&A.

Key themes for 2015: Volume growth in Mexico remains a concern due to low visibility on an economic recovery. We also expect price increases on the back of ongoing stiff competition. Investors should also keep an eye on (1) initiatives to enter the bulk market in Mexico;(2) the evolution of the Nutriline cold cut initiative; (3) the deployment of cash from the October 2013 IPO; and (4) management’s willingness to improve disclosure of the company’s performance at the operating level.



Company Statistics



Bloomberg LALAB MMCurrent Price (01/02/15) M$ 27.60 / US$ 1.86Target Price (YE 2015) M$ 37.00 / US$ 2.8952-Week Range (M$) 26.34 - 34.95Market Capitalization (US$ Mn) 4,604Float (%) 20.63-Mth Avg. Daily Vol (US$ Mn) 4.1Shares Outstanding - Mn 2,474

85

90

95

100

105

110

115

120

o-13 f-14 j-14 o-14

LALAB MM MEXBOL

354

GRUPO LALA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Grupo Lala is a leading company in the food and beverages industry in Mexico with over 60 years of experience in the production, innovation and selling of milk and other dairy products. The company operates 17 production plants and 161 distribution centers in Mexico and Central America, with a headcount of over 31,000 employees. Grupo Lala operates a fleet of over 7,300 vehicles to distribute over 600 SKUs that reach nearly 500,000 POS. The company offers a wide portfolio of products, mainly under the LALA and NUTRILECHE brands. Key Personnel: Eduardo Tricio (Chairman), Arquímedes Celis (CEO), Antonio Zamora (CFO) and Enrique González (IRO) Web: www.grupolala.com

Sales by Category, 2015E




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 43,846 44,775 47,859 51,687 3,435 3,399 3,630 3,894 YoY change (%) 8.7 2.1 6.9 8.0 12.0 (1.0) 6.8 7.3Gross Profit 15,828 16,224 17,700 19,271 1,240 1,232 1,343 1,452 YoY change (%) 11.4 2.5 9.1 8.9 14.8 (0.7) 9.0 8.1EBITDA 5,416 5,405 6,154 6,872 424 410 467 518 YoY change (%) 13.7 (0.2) 13.9 11.7 17.2 (3.3) 13.8 10.9 As % of Revenue 12.4 12.1 12.9 13.3 12.4 12.1 12.9 13.3Operating Income 4,351 4,413 5,092 5,725 341 335 386 431 YoY change (%) 13.0 1.4 15.4 12.4 16.5 (1.7) 15.3 11.7 As % of Revenue 9.9 9.9 10.6 11.1 9.9 9.9 10.6 11.1Financial Results 329 281 375 368 26 21 28 28Taxes (1,427) (1,493) (1,833) (2,043) (112) (113) (139) (154)Net Profit 3,130 3,170 3,602 4,014 245 241 273 302 YoY change (%) 152.3 1.3 13.6 11.4 160.0 (1.8) 13.5 10.7 As % of Revenue 7.1 7.1 7.5 7.8 7.1 7.1 7.5 7.8

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (1,066) (992) (1,062) (1,147) (83) (75) (81) (86)Other Noncash Items 227 140 14 (15) 18 11 1 (1)Changes in Working Capital (2,921) 1,032 (300) (374) (229) 78 (23) (28)Operating Cash Flow 1,047 5,055 4,350 4,802 82 384 330 362Capital Expenditures (1,265) (2,634) (2,900) (2,970) (99) (200) (220) (224)Free Cash Flow (218) 2,420 1,450 1,832 (17) 184 110 138Other Invest./(Divestments) 191 (890) 150 (90) 15 (68) 11 (7)Change in Debt (3,222) (551) (1) 1 (252) (42) (0) 0Dividends (2,972) 0 (1,221) (1,221) (233) 0 (93) (92)Capital Increases/Other 14,056 0 0 0 1,101 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 8,442 9,421 9,800 10,322 645 714 766 780Current Assets 15,076 16,739 17,565 18,668 1,152 1,268 1,372 1,410Fixed Assets 9,934 11,560 13,232 15,183 759 876 1,034 1,147Total Assets 26,333 30,047 32,545 35,600 2,013 2,276 2,543 2,690Current Liabilities 4,197 5,327 5,474 5,682 321 404 428 429Long-Term Liabilities 1,931 1,374 1,465 1,577 148 104 114 119Shareholders' Equity 19,930 23,039 25,270 27,968 1,523 1,745 1,974 2,113Total Financial Debt 727 176 176 176 56 13 14 13ST Debt 646 61 60 61 49 5 5 5LT Debt 81 115 115 115 6 9 9 9

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt (7,715) (9,245) (9,624) (10,146) (590) (700) (752) (767)Capital Employed 22,136 24,720 27,071 29,918 1,692 1,873 2,115 2,260Net Debt/EBITDA (1.4) (1.7) (1.6) (1.5) (1.4) (1.7) (1.6) (1.5)Net Debt/Equity (0.4) (0.4) (0.4) (0.4) (0.4) (0.4) (0.4) (0.4)Capex/Revenue (%) 2.9 5.9 6.1 5.7 2.9 5.9 6.1 5.7Int Cover (%) 31.5 259.5 6,259.7 6,519.2 31.5 259.5 6,259.7 6,519.2Dividend Payout (%) 239.6 0.0 38.5 33.9 246.9 0.0 34.7 33.8ROCE (%) 40.9 39.4 40.1 39.6 41.7 42.5 40.2 39.6ROE (%) 18.8 14.8 14.9 15.1 19.2 15.4 14.9 15.1

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 22.9 22.2 19.0 17.0 22.3 19.8 16.9 15.2P/CE 17.1 16.9 14.6 13.2 16.6 15.1 13.0 11.8FV/EBITDA 12.0 11.5 9.7 8.6 11.7 10.1 8.4 7.5FV/EBIT 14.9 14.1 11.7 10.3 14.5 12.3 10.1 9.0FV/Revenue 1.5 1.4 1.2 1.1 1.4 1.2 1.1 1.0P/BV 3.6 3.1 2.7 2.4 3.6 2.7 2.3 2.2FCF Yield (%) (0.3) 3.4 2.1 2.7 (0.3) 3.9 2.4 3.0Div Yield (%) 4.2 (0.0) 1.8 1.8 4.3 (0.0) 2.0 2.0


US$M$

Milk50.7%

Functional49.3%

Central America*

2.0%

Mexico98.0%

Free Float20.6%

Control Trust55.3%

Underwriting Trust23.6%

355



GRUPO SANBORNS UNDERPERFORM CURRENT PRICE: M$22.70


Investment Case: We maintain our Underperform rating, as we remain cautious about a recovery in the company’s SSS (and operating margins) after recent market share losses in its main formats.

Outlook 2015: After a disappointing 2014, we expect a recovery in Grupo Sanborns’ sales and EBITDA in 2015E due to very easy comps and a gradual consumption recovery in Mexico. However, weare not assuming the company can retake lost market share in the short to medium term. We expect Grupo Sanborns’ EBITDA to increase by 9.8% in 2015, assuming SSS growth of 4.5% for Sears and 3.0% for Sanborns.

Losing confidence in the turnaround: Although we view as positive the company’s efforts to accelerate store remodeling for Sears and Sanborns, SSS continue to disappoint vs. comparable peers, and we believe the turnaround in comp sales will take longer to materialize than previously expected. We are skeptical on the company’s execution in clothing, where competitors have been better at seizing opportunities in the local market due to the reduction in import tariffs.

A brighter outlook for its credit card division: We are more optimistic on Grupo Sanborns’ credit card division as a result of a slight improvement in loan growth in 2015E (up 7% YoY) and lower NPLs. In addition, the participation of the company’s private label credit card in Sears’s total sales stood at around 59% at YE2014, better than we expected. This could bode well for the productivity levels of Grupo Sanborns’ credit card division in 2015E.

Justified discount to peers: In our view, GSanborns trades at a justified discount to its LatAm counterparts due to its higher execution risks under its current market positioning. Our YE2015 target price is based on a DCF analysis assuming a WACC of 7.9% and perpetuity growth of 3.5%.




Company Statistics



Bloomberg GSANBOB1 MMCurrent Price (01/02/15) M$ 22.70 / US$ 1.53Target Price (YE 2015) M$ 24.00 / US$ 1.8852-Week Range (M$) 20.88 - 27.55Market Capitalization (US$ Mn) 3,604Float (%) 17.23-Mth Avg. Daily Vol (US$ Mn) 1.3Shares Outstanding - Mn 2,355

70

80

90

100

110

120

f-13 j-13 o-13 f-14 j-14 o-14

GSANBOB1 MM MEXBOL

356

GRUPO SANBORNS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Grupo Sanborns is a leading company in the Mexican retail market. The company has a multi-format portfolio, which includes department, specialized, electronic and entertainment, convenience and luxury stores as well as restaurants, with highly recognized brands such as Sears, Sanborns, Sanborns Café, iShop-Mixup, Saks Fifth Avenue, eduMac and DAX. The group of controlling shareholders owns 83% of the company while 17% free float is on the Mexican Stock Exchange. Key Personnel: Patrick Slim (CEO), Mario Enrique Bermudez (CFO) and Angélica Piña (IR) Web: http://www.gsanborns.com.mx/

Sales by Format, 2014E

Market Share of Main Department Stores, 2013A



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 40,514 41,338 44,566 48,790 3,174 3,135 3,379 3,713 YoY change (%) 2.8 2.0 7.8 9.5 5.9 (1.2) 7.8 9.9Gross Profit 16,088 16,419 17,765 19,595 1,260 1,245 1,347 1,491 YoY change (%) 3.2 2.1 8.2 10.3 6.3 (1.2) 8.2 10.7EBITDA 5,500 5,179 5,689 6,331 431 393 431 482 YoY change (%) 5.3 (5.8) 9.8 11.3 8.5 (8.8) 9.8 11.7 As % of Revenue 13.6 12.5 12.8 13.0 13.6 12.5 12.8 13.0Operating Income 4,796 4,375 4,817 5,315 376 332 365 404 YoY change (%) 5.1 (8.8) 10.1 10.3 8.3 (11.7) 10.1 10.7 As % of Revenue 11.8 10.6 10.8 10.9 11.8 10.6 10.8 10.9Financial Results 251 175 132 85 20 13 10 6Taxes 1,710 1,492 1,584 1,674 134 113 120 127Net Profit 3,023 2,830 3,163 3,501 237 215 240 266 YoY change (%) 1.8 (6.4) 11.7 10.7 4.9 (9.3) 11.7 11.1 As % of Revenue 7.5 6.8 7.1 7.2 7.5 6.8 7.1 7.2

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (704) (804) (872) (1,016) (55) (61) (66) (77)Other Noncash Items (3) 11 7 (4) (0) 1 1 (0)Changes in Working Capital (739) (699) (899) (1,238) (58) (53) (68) (94)Operating Cash Flow 2,991 2,924 3,128 3,282 234 222 237 250Capital Expenditures (1,675) (2,470) (3,297) (3,462) (131) (187) (250) (263)Free Cash Flow 1,981 376 49 38 155 28 4 3Other Invest./(Divestments) - - - - - - - -Change in Debt (5,274) 0 0 0 (413) 0 0 0Dividends (1,942) (1,956) (1,878) (1,925) (152) (148) (142) (147)Capital Increases/Other 11,162 (5) 0 0 874 (0) 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 7,715 6,302 4,473 2,585 590 477 349 197Current Assets 26,524 26,059 25,695 25,755 2,027 1,974 2,007 1,960Fixed Assets 12,239 14,060 16,517 18,995 935 1,065 1,290 1,446Total Assets 38,763 40,119 42,212 44,750 2,963 3,039 3,298 3,406Current Liabilities 9,476 10,865 11,575 12,431 724 823 904 946Long-Term Liabilities 1,276 1,169 1,210 1,251 97 89 95 95Shareholders' Equity 26,394 26,389 27,651 29,192 2,017 1,999 2,160 2,222Total Financial Debt 0 0 0 0 0 0 0 0ST Debt 0 0 0 0 0 0 0 0LT Debt 0 0 0 0 0 0 0 0

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt (7,715) (6,302) (4,473) (2,585) (590) (477) (349) (197)Capital Employed 29,287 29,254 30,637 32,319 2,238 2,216 2,394 2,460Net Debt/EBITDA (1.4) (1.2) (0.8) (0.4) (1.4) (1.2) (0.8) (0.4)Net Debt/Equity (0.3) (0.2) (0.2) (0.1) (0.3) (0.3) (0.2) (0.1)Capex/Revenue (%) 4.1 6.0 7.4 7.1 4.1 6.0 7.4 7.1Int Cover (%) 45.2 62.1 n/m n/m 45.2 62.1 n/m n/mDividend Payout (%) 65.4 64.7 66.4 60.9 67.4 62.1 59.7 60.7ROCE (%) 10.5 9.9 10.6 11.3 11.0 11.5 10.6 11.3ROE (%) 15.0 10.7 11.7 12.3 15.4 11.2 11.7 12.3



US$M$

Sears52.6%

Sanborns30.4%

Promousa11.1%

Others5.8%

Liverpool64.0%

Sears19.0%

Palacio17.0%

Free Float17.2%

Grupo Carso82.8%

357


ICA BUY CURRENT PRICE: M$17.88



Investment Case: A vehicle to invest in the Mexican infrastructure revival. ICA is trading at a 2015E P/E multiple of 10.2x, well below the 21.2x of the Mexican market. In our view, the uncertain macroeconomic expectations and industry talk about possible delays in the bidding process caused ICA’s stock price to decline 49% in 2014. However, ICA has focused on diversifying income sources and reducing leverage, and we expect 79% price appreciation.

Outlook 2015: We expect a 12% increase in consolidated revenue, 13% adjusted EBITDA growth, and a 112% jump in net income in 2015. Net debt to EBITDA should reach 4.9x in 2015E, a significant improvement compared with 7.0x at YE2013.

Diversifying sources of revenue: ICA’s revenue will be driven by concessions, projects derived from the energy reform, and the continued good performance in airports, in our opinion. ICA has become diversified and less dependent on civil construction projects: construction accounted for 72% of sales in 3Q14, but contributed only 30% of EBITDA for the same period. We estimate that over 30% of ICA’s revenue will be derived from other countries in 2015, which should buffer the impact of exchange rate volatility on its U.S. dollar-denominated debt (~43% of total debt at YE2013, 51% for 3Q14).

Expecting successful bidding activity in Mexico: We estimate ICA’s success ratio in the 2015 bidding process at ~10% in Mexico. Subsidiary ICA Fluor should be the vehicle through which projects resulting from the energy reform in Mexico can be assigned.

Financing projects without compromising balance sheet: To avoid liquidity shortages from its new projects, ICA could focus on projects with payments that are received in advances at different stages (i.e., a portion at the beginning, and different installments at completion of pre-negotiated goals of each project). We believe ICA will maintain its asset recycling strategy for debt reduction. We do not expect ICA to announce new foreign acquisitions.


Company Statistics



Bloomberg ICA* MM / ICA USCurrent Price (01/02/15) M$ 17.88 / US$ 4.79Target Price (YE 2015) M$ 32.00 / US$ 8.6552-Week Range (M$) 16.40 - 27.18Market Capitalization (US$ Mn) 735Float (%) 84.53-Mth Avg. Daily Vol (US$ Mn) 4.7Shares Outstanding - Mn 610

40

60

80

100

120

140

e-13 m-13 a-13 d-13 a-14 a-14 d-14

ICA* MM MEXBOL

358


ICA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Empresas ICA (ICA) is the largest infrastructure and construction company in Mexico, specializing in projects, that include power plants, roads, bridges, subways, suburban trains, airports, and industrial projects. It also participates in the maintenance and operation of highways, bridges, ports, airports, water treatment and distribution and tunnels through concession schemes. ICA has operations in Mexico, Panama and Colombia. ICA holds a controlling stake in Grupo Aeroportuario Centro Norte (OMA), which has a concession to manage and operate 13 airports in Mexico, including Monterrey and Acapulco. ICA has a joint venture with U.S. company Fluor Daniel (ICA – Fluor) to participate in industrial construction projects in Mexico. Key Personnel: Bernardo Quintana (Chairman), Alonso Quintana (CEO), Victor Bravo (CFO) and Elena García (IRO) Web: www.ica.com.mx

Revenue by Type, 3Q14

Adjusted EBITDA by Type, 3Q14



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 29,556 35,367 39,634 44,571 2,315 2,657 2,680 3,005 YoY change (%) (22.5) 19.7 12.1 12.5 (20.1) 14.8 0.9 12.1Gross Profit 6,083 7,095 7,927 8,914 477 533 536 601 YoY change (%) 23.5 16.6 11.7 12.5 27.3 11.8 0.6 12.1EBITDA 4,735 6,338 7,140 7,551 371 476 483 509 YoY change (%) 26.6 33.8 12.7 5.7 30.5 28.4 1.4 5.4 As % of Revenue 16.0 17.9 18.0 16.9 16.0 17.9 18.0 16.9Operating Income 3,133 4,512 5,075 5,589 245 339 343 377 YoY change (%) 86.6 44.0 12.5 10.1 92.4 38.1 1.3 9.8 As % of Revenue 10.6 12.8 12.8 12.5 10.6 12.8 12.8 12.5Financial Results (3,379) (4,488) (3,991) (4,276) (265) (337) (270) (288)Taxes 596 200 (200) (200) 47 15 (14) (13)Net Profit 1,422 503 1,064 1,243 111 38 72 84 YoY change (%) (7.0) (64.6) 111.5 16.8 (4.1) (66.1) 90.4 16.4 As % of Revenue 4.8 1.4 2.7 2.8 4.8 1.4 2.7 2.8

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 1,022 1,626 1,865 1,762 80 122 126 119Other Noncash Items 4,312 2,000 2,000 3,000 338 150 135 202Changes in Working Capital (5,992) 2,157 1,214 1,587 (469) 162 82 107Operating Cash Flow 168 6,086 6,343 7,792 13 457 429 525Capital Expenditures (5,314) (3,400) (3,400) (6,400) (416) (255) (230) (431)Free Cash Flow (1,852) 8,295 8,554 9,337 (145) 623 578 629Other Invest./(Divestments) (1,183) 5,272 2,791 1,058 (93) 396 189 71Change in Debt 610 3,000 1,000 1,000 48 225 68 67Dividends 0 0 0 0 0 0 0 0Capital Increases/Other 1,281 0 0 0 100 0 0 0



MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 11.6 21.8 10.2 8.8 11.3 19.7 10.2 8.8P/CE 41.1 - - - 40.1 - - -FV/EBITDA 10.5 6.9 6.4 6.2 10.4 6.7 6.4 6.2FV/EBIT 15.8 9.7 9.0 8.4 15.7 9.5 9.0 8.4FV/Revenue 1.7 1.2 1.2 1.0 1.7 1.2 1.2 1.0P/BV 0.7 0.4 0.5 0.4 0.7 0.4 0.5 0.4FCF Yield (%) (11.3) 75.5 78.4 85.6 (11.6) 83.6 78.7 85.6Div Yield (%) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0)


US$M$

Construction

72.6%

Concessions

14.8%

Airports12.6%

Construction

30.3%

Concessions

35.9%

Airports33.8%

Free Float84.5%

Quintana Family10.4%

Management and ICA

Foundation Trusts5.2%

359


MEXICO—OIL, GAS & PETROCHEMICALS

IENOVA BUY CURRENT PRICE: M$74.27



Investment Case: IEnova’s strong growth outlook, attractive returns, defensiveness (to FX and GDP in Mexico, and also largely to commodity prices), solid execution track record, and robust capital discipline makes it—once again—our Top Pick in the Mexico’s energy space.

Outlook 2015: Despite the downward trend in oil prices, we believe natural gas infrastructure projects in Mexico will continue to move forward (as the country desperately needs them in order to lower electricity prices by accessing cheaper natural gas), not to mention other potential opportunities related to the Energy Reform that may arise for IEnova in 2015. Additionally, we expect the company to benefit from the start-up/ramping up of its new projects, which will strengthen its cash flow generation, in our view, and thus open space for the company to add around US$1 billion in new projects in 2015, and another US$600- 700 million in 2016.

Strong pipeline of growth opportunities: We believe that in addition to numerous opportunities resulting from the country’s massive infrastructure program (natural gas pipelines, electricity transmission and generation), IEnova is also well positioned to take advantage of the wave of potential new projects resulting from the energy reform in Mexico, ranging from liquids pipeline and storage, togathering and processing, to power generation.

Attractive return outlook: IEnova has been able to build an attractive portfolio of assets with high returns. In our view, the company will be able to maintain this capital discipline going forward,by pursuing projects able to generate an IRR of around 8-10% unlevered, in nominal terms. This implies an attractive spread between potential levered returns and the company’s cost of capital.



Company Statistics



Bloomberg IENOVA* MMCurrent Price (01/02/15) M$ 74.27 / US$ 5.01Target Price (YE 2015) M$ 90.00 / US$ 7.1852-Week Range (M$) 51.50 - 85.90Market Capitalization (US$ Mn) 5,778Float (%) 19.03-Mth Avg. Daily Vol (US$ Mn) 6.0Shares Outstanding - Mn 1,154

50

100

150

200

250

M-13 J-13 N-13 M-14 J-14 N-14

IEnova - ON (Rebased) MEXBOL (Rebased)

360

IENOVA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

IEnova is one of the biggest energy companies in Mexico. It is controlled by the global group Sempra Energy and is dedicated to the development, construction and operation of gas-related infrastructure. The company’s assets are distributed in two main business segments: 1) Gas segment, which includes pipelines, LNG storage, and natural gas distribution; and 2) Electricity segment, with power generation from natural gas plants, and also from a wind farm (currently under development). These assets generate revenues mainly through long-term contracts linked to the US dollar. Key Personnel: Carlos Ruiz Sacristán (Chairman), Carlos Ruiz Sacristán (CEO), Arturo Infanzón Favela (CFO) and Mike Adams (IR Officer) Web: www.ienova.com.mx

Revenues by Segment, 2015E




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 8,649 10,253 10,765 11,409 678 789 844 891 YoY change (%) 8.2 18.5 5.0 6.0 11.6 16.4 7.0 5.7Gross Profit 4,453 5,006 5,265 5,721 349 385 413 447 YoY change (%) (4.5) 12.4 5.2 8.7 (1.5) 10.3 7.2 8.3EBITDA 3,867 4,489 5,789 6,933 303 345 454 542 YoY change (%) (10.9) 16.1 29.0 19.8 (8.2) 13.9 31.4 19.4 As % of Revenue 44.7 43.8 53.8 60.8 44.7 43.8 53.8 60.8Operating Income 3,087 3,579 4,714 5,759 242 275 369 450 YoY change (%) (12.7) 15.9 31.7 22.2 (10.0) 13.8 34.2 21.8 As % of Revenue 35.7 34.9 43.8 50.5 35.7 34.9 43.8 50.5Financial Results (47) (187) (207) (412) (4) (14) (16) (32)Taxes (1,069) (749) (785) (837) (84) (58) (62) (65)Net Profit 1,817 2,600 2,952 3,270 142 200 231 255 YoY change (%) (31.9) 43.1 13.5 10.8 (29.8) 40.5 15.7 10.5 As % of Revenue 21.0 25.4 27.4 28.7 21.0 25.4 27.4 28.7

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (780) (824) (912) (931) (61) (63) (72) (73)Other Noncash Items 1,263 (466) (933) (1,118) 99 (36) (73) (87)Changes in Working Capital (3,694) 10 (14) (32) (289) 1 (1) (2)Operating Cash Flow 658 2,968 2,917 3,051 52 228 229 238Capital Expenditures (7,358) (6,035) (8,767) (10,402) (577) (464) (687) (813)Free Cash Flow (9,838) (3,816) (7,171) (5,829) (771) (294) (562) (455)Other Invest./(Divestments) (780) 0 0 0 (61) 0 0 0Change in Debt 802 2,600 7,656 6,400 63 200 600 500Dividends (1,990) (2,132) (2,199) (2,319) (156) (164) (172) (181)Capital Increases/Other 11,556 0 9,570 0 906 0 750 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 4,053 1,399 10,410 7,436 311 111 830 575Current Assets 6,519 3,925 12,994 10,162 500 311 1,036 785Fixed Assets 28,861 32,945 40,507 51,374 2,214 2,615 3,230 3,970Total Assets 41,571 43,304 60,822 70,222 3,189 3,437 4,850 5,427Current Liabilities 2,002 2,087 2,133 2,229 154 166 170 172Long-Term Liabilities 9,371 11,577 19,046 26,123 719 919 1,519 2,019Shareholders' Equity 30,198 29,640 39,643 41,870 2,316 2,352 3,161 3,236Total Financial Debt 5,145 7,493 14,981 21,929 395 595 1,195 1,695ST Debt 0 0 0 0 0 0 0 0LT Debt 5,145 7,493 14,981 21,929 395 595 1,195 1,695

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 1,092 6,094 4,571 14,493 84 484 364 1,120Capital Employed 35,343 37,133 54,624 63,799 2,711 2,947 4,356 4,930Net Debt/EBITDA 0.3 1.4 0.8 2.1 0.3 1.4 0.8 2.1Net Debt/Equity 0.0 0.2 0.1 0.3 0.0 0.2 0.1 0.3Capex/Revenue (%) 85.1 58.9 81.4 91.2 85.1 58.9 81.4 91.2Int Cover (%) (303.1) (548.1) (673.7) (101.8) (303.1) (548.1) (673.7) (101.8)Dividend Payout (%) 74.6 120.1 96.2 78.3 76.9 115.2 86.2 78.3ROCE (%) 4.8 5.8 6.1 6.6 5.0 6.7 6.1 6.6ROE (%) 6.8 8.2 8.4 8.0 7.0 8.6 8.4 8.0



US$M$

Power27.9%Gas

71.9%

Other0.2%

Power8.7%

Gas88.5%

Other2.8%

Sempra Energy81.0%

Free Float19.0%

361


KIMBERLY CLARK UNDERPERFORM CURRENT PRICE: M$30.74



Investment Case: Kimber continues to be a key consumer play in the Mexican consumer universe and market leader in the tissue market. However, we maintain a cautious view on the company, as we believe that top-line growth continues to be as issue, especially during the first half of 2015, due to a weak consumer environment. Additionally, in our view, operating results could remain under pressure, due to a weaker-than-expected FX, which affects more than 60% of the company’s COGS either directly or indirectly.

Outlook 2015: We expect the company’s EBITDA growth to resume in 2015, after declining 21% YoY in pesos in 2014E. Sales could grow close to 5% in peso terms, with a stronger second half of the year, as we expect above-average promotional activity to continue through the first part of the year due to strong competition (as the company continues to defend its market share). We also expect EBITDA to grow at the same level, benefiting from expected appreciation of the Mexican peso during the second half of the year. We believe that lower prices of oil and favorable prices of soft commodities could also help the company deliver slightly healthier EBITDA growth.

Searching for growth: We expect the company to continue looking for alternatives for growth beyond the tissue market, and we expect that it could enter an additional category in the consumer market in 2015, potentially via an acquisition in Mexico. This could give the company entrance into a new market, and help to expand its footprint, improving its portfolio.

Key themes for 2015: (1) Competition and pricing in the consumer division (close to 80% of sales); (2) evolution of FX (key driver for COGS); (3) potential acquisition of or development of a new category; and (4) acceleration of share-buyback program.


Jens Spiess*, CFA Mexico: Banco Santander S.A. +5255-5269-1931

Company Statistics



Bloomberg KIMBERA MMCurrent Price (01/02/15) M$ 30.74 / US$ 2.07Target Price (YE 2015) M$ 33.00 / US$ 2.4352-Week Range (M$) 28.05 - 37.51Market Capitalization (US$ Mn) 6,521Float (%) 35.03-Mth Avg. Daily Vol (US$ Mn) 8.1Shares Outstanding - Mn 3,147

80

90

100

110

120

130

140

e-13 m-13 a-13 d-13 a-14 a-14 d-14

KIMBERA MM MEXBOL

362


KIMBERLY CLARK Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Kimberly Clark de Mexico (“Kimber”) is the largest Mexican manufacturer and distributor of consumer and institutional tissue. For 2015, sales, EBITDA, and net profit are expected to be M$30 billion, M$7.8 billion, and M$4.0 billion, respectively. Domestic sales amount to 94% of the total, while 6% are accounted for by exports. The Kimberly Clark Corporation holds 48% of the total outstanding shares. The free float is 35%. Key Personnel: Claudio González Laporte (Chairman), Pablo González Guajardo (CEO), Xavier Cortés Lascurain (CFO) and Sergio Camacho Carmona (Treasurer) Web: www.kimberly-clark.com.mx


Distribution Channels, 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 29,678 28,603 29,980 31,549 2,325 2,153 2,140 2,243 YoY change (%) 1.3 (3.6) 4.8 5.2 4.4 (7.4) (0.6) 4.8Gross Profit 11,918 10,676 11,190 11,776 934 804 799 837 YoY change (%) 5.2 (10.4) 4.8 5.2 8.4 (13.9) (0.6) 4.8EBITDA 8,725 7,405 7,755 8,311 683 557 554 591 YoY change (%) 7.4 (15.1) 4.7 7.2 10.6 (18.4) (0.7) 6.7 As % of Revenue 29.4 25.9 25.9 26.3 29.4 25.9 25.9 26.3Operating Income 7,208 6,045 6,418 6,754 565 455 458 480 YoY change (%) 8.7 (16.1) 6.2 5.2 12.1 (19.4) 0.7 4.8 As % of Revenue 24.3 21.1 21.4 21.4 24.3 21.1 21.4 21.4Financial Results (599) (802) (593) (659) (47) (60) (42) (47)Taxes (1,990) (1,609) (1,864) (1,950) (156) (121) (133) (139)Net Profit 4,619 3,634 3,961 4,144 362 274 283 295 YoY change (%) 11.6 (21.3) 9.0 4.6 15.0 (24.4) 3.4 4.2 As % of Revenue 15.6 12.7 13.2 13.1 15.6 12.7 13.2 13.1

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (1,517) (1,360) (1,338) (1,558) (119) (102) (96) (111)Other Noncash Items 159 (106) 60 (47) 12 (8) 4 (3)Changes in Working Capital 1,078 1,332 (12) (31) 84 100 (1) (2)Operating Cash Flow 7,054 6,432 5,227 5,718 553 484 373 407Capital Expenditures (1,637) (2,068) (2,067) (2,138) (128) (156) (148) (152)Free Cash Flow 5,417 4,364 3,159 3,580 424 328 226 255Other Invest./(Divestments) (613) 229 775 282 (48) 17 55 20Change in Debt 1,249 4,143 (51) 40 98 312 (4) 3Dividends (4,128) (4,348) (4,565) (4,794) (323) (327) (326) (341)Capital Increases/Other - - - - - - - -

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 5,390 9,778 9,096 8,204 412 689 669 583Current Assets 12,181 17,003 16,659 16,154 931 1,197 1,225 1,149Fixed Assets 17,359 18,024 18,539 19,290 1,327 1,269 1,363 1,372Total Assets 29,540 35,027 35,198 35,444 2,258 2,467 2,588 2,520Current Liabilities 8,757 10,588 10,864 11,259 669 746 799 801Long-Term Liabilities 12,196 16,261 16,261 16,261 932 1,145 1,196 1,156Shareholders' Equity 8,587 6,173 6,069 5,919 656 435 446 421Total Financial Debt 12,478 16,621 16,570 16,609 954 1,170 1,218 1,181ST Debt 2,300 2,366 2,314 2,354 176 167 170 167LT Debt 10,178 14,255 14,255 14,255 778 1,004 1,048 1,014




US$M$

Consumer Products87.5%

Professional8.5%

Exports4.2%

Wholesalers50.0%

Retailers50.0%

Kimberly-Clark Corp

48.0%

Others17.0%

Free Float35.0%

363


LIVERPOOL BUY CURRENT PRICE: M$144.01



Investment Case: We maintain our Buy rating on Liverpool, as we continue to like the company’s fundamentals in terms of market share gains, organic expansion, and enhanced productivity of its loanportfolio and a gradual reduction in its NPLs given an expected consumption recovery in Mexico.

Outlook 2015: We are optimistic about Liverpool’s outlook for 2015, based on above-average selling space growth of 5% coupled with a more robust SSS outlook (+7.0% versus +5.5% in 2014E). Furthermore, we expect minor operating margin improvements given lower provisions for bad loans and more comparable expenses regarding online and personnel investments. We expect EBITDA to increase by 15% to M$14.9 billion in 2015.

New avenues for growth: Liverpool has gained considerable share in the Mexican department store market in 2014, at least 3 percentage points against its closest competitor. In addition, we view as positive Liverpool’s new ventures in fashion boutiques, in the online platform, and in the new Fabricas de Francia line targeting lower-income segments, as we see these as long-term growth opportunities. We expect Liverpool to end 2015 with 200 boutiques, 7 new Fábricas, and close to 200,000 SKUs available on its website.

Slight reduction in our target price: We reduced our target price for YE2015 by 3% to M$190, mainly as a result of lower operating margins for 2014-16E than we initially expected.

Justified premium valuations: Liverpool trades at a premium valuation to its LatAm peers, at a 22.1x P/E for 2015E, though we find this premium justified given the company’s increasing market share, low credit risk portfolio, 2015-16E EPS CAGR of 16%, and higher profitability and returns compared with peers.




Company Statistics



Bloomberg LIVEPOLC MMCurrent Price (01/02/15) M$ 144.01 / US$ 9.71Target Price (YE 2015) M$ 190.00 / US$ 14.8452-Week Range (M$) 129.97 - 159.88Market Capitalization (US$ Mn) 13,031Float (%) 14.03-Mth Avg. Daily Vol (US$ Mn) 3.2Shares Outstanding - Mn 1,342

80

90

100

110

120

130

e-13 m-13 a-13 d-13 a-14 a-14 d-14

LIVEPOLC MM MEXBOL

364


LIVERPOOL Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Liverpool is Mexico’s largest department store chain, with a market share of over 64% in 2013 if considering the three largest industry players. Liverpool operates three divisions: retailing (86% of sales), credit (11% of sales) and real estate (3% of sales). The Michel, David, Guichard and Bremond families hold 77% of the total outstanding shares, while Bancomer and Banamex hold about 9%. The remaining 14% could be considered as free float. There are two series of shares: LIVEPOL1 with voting rights encompassing 85% of the outstanding shares and LIVEPOLC1 without voting rights encompassing the remaining 14%. Key Personnel: Max David (Chairman), Jorge Salgado (CEO), Enrique Güijosa (CFO), Joao de Moura (IRO) and Jose Antonio Diego (Corporate Treasurer) Web: www.liverpool.com.mx


Retail Sales Mix, 2013A



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 74,105 80,832 90,626 102,321 5,805 6,130 6,872 7,832 YoY change (%) 11.9 9.1 12.1 12.9 15.3 5.6 12.1 14.0Gross Profit 29,971 32,644 36,782 41,835 2,348 2,476 2,789 3,202 YoY change (%) 12.2 8.9 12.7 13.7 15.6 5.4 12.7 14.8EBITDA 12,536 12,905 14,853 17,219 982 979 1,126 1,318 YoY change (%) 6.5 2.9 15.1 15.9 9.8 (0.3) 15.1 17.0 As % of Revenue 16.9 16.0 16.4 16.8 16.9 16.0 16.4 16.8Operating Income 10,836 11,001 12,774 14,934 849 834 969 1,143 YoY change (%) 5.1 1.5 16.1 16.9 8.4 (1.7) 16.1 18.0 As % of Revenue 14.6 13.6 14.1 14.6 14.6 13.6 14.1 14.6Financial Results (945) (926) (865) (816) (74) (70) (66) (62)Taxes 2,699 2,968 3,745 4,425 211 225 284 339Net Profit 7,701 7,603 8,737 10,323 603 577 663 790 YoY change (%) 7.0 (1.3) 14.9 18.2 10.3 (4.4) 14.9 19.3 As % of Revenue 10.4 9.4 9.6 10.1 10.4 9.4 9.6 10.1

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (1,700) (1,904) (2,079) (2,284) (133) (144) (158) (175)Other Noncash Items 589 510 572 630 46 39 43 48Changes in Working Capital 5,956 7,770 9,868 0 467 589 748 0Operating Cash Flow 10,186 9,401 11,349 13,714 798 713 861 1,050Capital Expenditures (5,956) (6,436) (7,045) (7,300) (467) (488) (534) (559)Free Cash Flow 194 1,512 1,204 9,542 15 115 91 730Other Invest./(Divestments) - - - - - - - -Change in Debt 2,011 (2,021) (500) 0 158 (153) (38) 0Dividends (2,590) (0) (532) (1,311) (203) (0) (40) (100)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,618 (416) (244) (305) 124 (32) (19) (23)Current Assets 37,140 38,109 42,113 47,393 2,839 2,887 3,290 3,627Fixed Assets 57,442 63,220 68,186 73,201 4,390 4,789 5,327 5,603Total Assets 94,581 101,329 110,298 120,594 7,229 7,676 8,617 9,230Current Liabilities 25,626 23,335 25,171 27,084 1,959 1,768 1,967 2,073Long-Term Liabilities 14,128 15,566 15,066 15,066 1,080 1,179 1,177 1,153Shareholders' Equity 54,827 62,428 70,061 78,445 4,190 4,729 5,473 6,004Total Financial Debt 14,933 12,911 12,411 12,411 1,141 978 970 950ST Debt 6,011 2,990 2,990 2,990 459 227 234 229LT Debt 8,921 9,921 9,421 9,421 682 752 736 721


MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 26.0 26.1 22.1 18.7 25.3 23.3 19.7 16.5P/CE 21.3 20.9 17.9 15.3 20.7 18.7 15.9 13.5FV/EBITDA 17.0 16.4 13.9 12.0 16.6 14.8 12.4 10.6FV/EBIT 19.7 19.3 16.1 - 19.2 17.3 14.5 -FV/Revenue 2.9 2.6 2.3 2.0 2.8 2.4 2.0 1.8P/BV 3.6 3.2 2.8 2.5 3.6 2.8 2.4 2.2FCF Yield (%) 0.1 0.8 0.6 4.9 0.1 0.9 0.7 5.6Div Yield (%) 1.3 0.0 0.3 0.7 1.3 0.0 0.3 0.8

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 5.74 5.66 6.51 7.69 0.45 0.43 0.49 0.59DPS 1.93 0.00 0.40 0.98 0.15 0 0.03 0.07BVPS 40.85 46.51 52.20 58.45 3.12 3.52 4.08 4.47

US$M$

Retail86.0%

Credit10.6%

RE3.4%

Electronics & Home

Appliances26.0%

Women21.0%

Men & Sports17.0%

Kids13.0%

Others23.0%


Non Controlling

Group9.0%

Free Float14.0%

365

MEXICO—PETROCHEMICALS

MEXICHEM BUY CURRENT PRICE: M$42.82



Investment Case: We maintain a positive view on Mexichem for 2015, as we believe the company will resume growing organically and see benefits from the integration of DuraLine and Vestolit (acquired during 2014). Thus, we expect the disappointing performance—with the company negatively affected by extraordinary charges, devaluation in Venezuela, investment in PMV (JV with Pemex), and lower prices of fluorspar—to end. We also believe that the company will be a clear beneficiary of the energy reform in Mexico, with the impact, however, reflected only in long-term results.

Outlook 2015: After a disappointing 2014, we expect the company’s EBITDA growth to resume. On the organic front, the key driver will bethe recovery in prices of fluorspar due to contract renegotiations. We also expect a more normalized 2015 in terms of extraordinary charges (Wavin restructure, devaluation in Venezuela, and ramp-up of PMV). Based on our estimates, the acquisition made in 2014 could add 11% EBITDA growth in 2015.

Organic versus acquisitions: During 2015, we expect that both organic and M&A increases will be material growth drivers. Although organic growth will face a challenging environment due to lower oil prices, this should be partially offset by a weak base of comparison in 2014. For M&A, we expect the company will focus on integrating the companies acquired in 2014, which would strengthen its position in the chlorine vinyl and integrated solution divisions.

Key themes for 2015: (1) Evolution of prices for fluorspar (average and contract prices); (2) availability and prices of VCM and PVC under current oil price scenario; (3) evolution of PMV output (VCM) and profitability of the ethylene cracker project; (4) integration and synergies of DuraLine and Vestolit; and (5) outlook for its operations in Venezuela.




Company Statistics



Bloomberg MEXCHEM* MMCurrent Price (01/02/15) M$ 42.82 / US$ 2.89Target Price (YE 2015) M$ 60.00 / US$ 4.4152-Week Range (M$) 41.40 - 58.14Market Capitalization (US$ Mn) 6,062Float (%) 43.03-Mth Avg. Daily Vol (US$ Mn) 9.6Shares Outstanding - Mn 2,100

50

60

70

80

90

100

110

d-12 a-13 a-13 d-13 a-14 a-14 d-14

MEXCHEM* MM MEXBOL

366


MEXICHEM Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Mexichem is a leading producer of PVC products and pipes, as well as metallurgic and acid grades of fluorite. It is a market leader in the PVC pipe business in Latin America, with an installed capacity of close to 1.4 million tonnes per year and the largest fluorite mine in the world, with an annual production of 1.0 million tonnes. The company operates three business units: (1) the chlorine-vinyl chain; (2) fluorite chain; and (3) transformed products. The company has one of the first JV with Pemex for the production of VCM in Mexico and also has a JV with Oxychem in the U.S. for the construction of a natural gas-based ethylene cracker (2017). It is also investing in cogeneration projects for internal consumption and sale to the public grid. Key Personnel: Juan Pablo del Valle (Chairman), Antonio Carrillo (CEO), Rodrigo Guzmán (CFO) and Bernice Muñoz (IRO) Web: www.mexichem.com.mx





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 66,086 75,022 91,342 104,528 5,177 5,647 6,522 7,431 YoY change (%) 5.0 13.5 21.8 14.4 8.2 9.1 15.5 13.9Gross Profit 19,534 19,280 22,506 25,755 1,530 1,451 1,607 1,831 YoY change (%) (5.8) (1.3) 16.7 14.4 (2.9) (5.2) 10.7 13.9EBITDA 11,475 11,266 13,880 16,237 899 848 991 1,154 YoY change (%) (13.4) (1.8) 23.2 17.0 (10.7) (5.7) 16.9 16.5 As % of Revenue 17.4 15.0 15.2 15.5 17.4 15.0 15.2 15.5Operating Income 7,178 6,299 7,764 9,930 562 474 554 706 YoY change (%) (20.1) (12.2) 23.3 27.9 (17.6) (15.7) 16.9 27.4 As % of Revenue 10.9 8.4 8.5 9.5 10.9 8.4 8.5 9.5Financial Results 2,409 3,275 2,541 2,678 189 247 181 190Taxes (2,002) (865) (1,732) (2,382) (157) (65) (124) (169)Net Profit 833 2,243 3,676 5,057 65 169 262 360 YoY change (%) (78.2) 169.2 63.9 37.5 (77.5) 158.7 55.5 37.0 As % of Revenue 1.3 3.0 4.0 4.8 1.3 3.0 4.0 4.8

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (4,297) (5,490) (6,230) (6,257) (337) (413) (445) (445)Other Noncash Items (909) (707) 152 (65) (71) (53) 11 (5)Changes in Working Capital 617 (1,174) 285 (1,507) 48 (88) 20 (107)Operating Cash Flow 6,655 7,266 10,040 9,872 521 547 717 702Capital Expenditures (23,098) (16,261) (17,143) (7,033) (1,809) (1,224) (1,224) (500)Free Cash Flow (16,444) (8,995) (7,104) 2,839 (1,288) (677) (507) 202Other Invest./(Divestments) 23,468 36,659 14,315 3,269 1,838 2,759 1,022 232Change in Debt (2,110) 5,036 (326) 252 (165) 379 (23) 18Dividends (10,182) (21,193) 0 0 (798) (1,595) 0 0Capital Increases/Other - - - - - - - -


FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 12,203 6,326 (942) (7,081) 933 446 (69) (504)Capital Employed 87,231 116,057 117,896 130,155 6,667 8,173 8,669 9,255Net Debt/EBITDA 1.1 0.6 (0.1) (0.4) 1.0 0.5 (0.1) (0.4)Net Debt/Equity 0.3 0.1 (0.0) (0.1) 0.3 0.1 (0.0) (0.1)Capex/Revenue (%) 35.0 21.7 18.8 6.7 35.0 21.7 18.8 6.7Int Cover (%) 5.7 5.0 5.4 6.5 5.7 5.0 5.4 6.5Dividend Payout (%) 266.8 n/m 0.0 0.0 274.9 n/m 0.0 0.0ROCE (%) 11.2 7.1 9.2 11.4 11.4 7.8 9.2 11.4ROE (%) 2.0 4.8 7.4 9.3 2.0 5.0 7.4 9.3

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E n/m 41.9 25.6 18.6 n/m 37.9 24.4 17.8P/CE 22.0 12.2 9.5 8.3 21.5 11.0 9.0 7.9FV/EBITDA 11.8 9.9 7.5 6.1 11.5 9.0 7.2 5.8FV/EBIT 18.8 17.7 13.4 9.9 18.3 16.1 12.8 9.4FV/Revenue 2.0 1.5 1.1 0.9 2.0 1.3 1.1 0.9P/BV 2.6 1.9 1.9 1.7 2.6 1.9 1.7 1.6FCF Yield (%) (14.6) (9.6) (7.6) 3.0 (14.9) (10.6) (7.9) 3.2Div Yield (%) 9.0 22.6 (0.0) (0.0) 9.3 25.0 (0.0) (0.0)

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 0.46 1.18 1.84 2.52 0.04 0.09 0.13 0.18DPS 5.58 11.17 0 0 0.44 0.84 0 0BVPS 23.09 23.91 25.74 28.26 1.76 1.68 1.89 2.01

US$M$

Vinyl-Chlorine51.0%

Fluorine32.6%

Integrated Solutions

32.9%

Vinyl-Chlorine29.7%

Fluorine33.4%

Integrated Solutions

49.1%

Free Float43.0%

Del Valle Family57.0%

367


OHL MEXICO BUY CURRENT PRICE: M$25.81


Investment Case: In the last 30 days, OHLMEX’s share price has fallen 40%. According to our sensitivity analysis, the current share price already reflects the sale of Conmex at a significant discount. We maintain our Buy rating while we continue to highlight two strong risks: (i) EBITDA cash below financing costs; and (ii) the potential conflict of interest between OHL Spain and OHLMEX.

Conmex sale: Our base-case scenario is OHLMEX selling 49% of Conmex at a 30% discount to our valuation, which is reflected in our YE2015 target price of M$32.00. This high discount assumption is based on (i) the market’s perception that both OHLMEX and its parent company are distressed sellers; and (ii) this being a minority stake sale.

Our sensitivity analysis includes scenarios ranging from the sale of a 0-49% stake in Conmex at a 0-50% discount to our estimated fair equity value. In each scenario, we take into account both the decrease in the company’s ownership of Conmex and the cash that would be received for the sale (post taxes), while valuing the remaining stake in the asset at a fair level.

Conclusion: Even if the company sells 49% of Conmex at a 50% discount to our valuation, upside potential would be ~16%. Although we continue to see significant risks to the investment case, the current share price supports our Buy rating.

Outlook 2015: Solid operating outlook . . . We expect 16% toll revenue growth in 2015 based on double-digit traffic growth in V. Bicentenario and AUNorte and above-inflation tariff increases in Conmex, V. Bicentenario, and AUNorte. We also expect a 2.5-p.p. expansion in the EBITDA cash margin as toll roads continue maturing.

. . . however, cash EBITDA is still below financing costs, despite a 24% YoY increase in the former.




Company Statistics



Bloomberg OHLMEX* MMCurrent Price (01/02/15) M$ 25.81 / US$ 1.74Target Price (YE 2015) M$ 32.00 / US$ 2.3552-Week Range (M$) 25.20 - 42.87Market Capitalization (US$ Mn) 8,605Float (%) 43.93-Mth Avg. Daily Vol (US$ Mn) 9.3Shares Outstanding - Mn 4,945

80

100

120

140

160

e-13 m-13 a-13 d-13 a-14 a-14 d-14

OHLMEX* MM MEXBOL

368


OHL MEXICO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

OHL Mexico is a pure-concession infrastructure company controlled by OHL Spain, a construction company. OHLMEX’s portfolio comprises 7 toll road concessions in Mexico (Conmex, Viaducto Bicentenario, GANA, Urbana Norte, Atizapán – Atlacomulco, Mexico – Puebla bypass and 50% of Poetas). Currently, all of OHLMEX’s highways are fully operational, except for Atizapán – Atlacomulco and Mexico – Puebla bypass, which were recently awarded to OHLMEX. All toll road concessions are located within the Mexico City metropolitan area and the states of Mexico and Puebla. In addition, OHL Mexico holds 49% of AMAIT, the concession holder of Toluca Airport. Key Personnel: José Andrés de Oteyza (Chairman), Sergio Hidalgo (CEO) and Alberto Guajardo (IRO) Web: www.ohlmexico.com.mx

Cash EBITDA by Concession, 2014E

SOTP valuation, 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 19,692 18,183 23,640 28,038 1,543 1,371 1,693 2,003 YoY change (%) 8.0 (7.7) 30.0 18.6 11.3 (11.1) 23.5 18.3Gross Profit 0 0 0 0 0 0 0 0 YoY change (%) n/m n/m n/m n/m n/m n/m n/m n/mEBITDA 15,404 14,105 15,179 20,424 1,207 1,064 1,087 1,459 YoY change (%) 43.6 (8.4) 7.6 34.6 48.0 (11.9) 2.2 34.2 As % of Revenue 78.2 77.6 64.2 72.8 78.2 77.6 64.2 72.8Operating Income 14,673 13,077 14,001 19,096 1,149 986 1,003 1,364 YoY change (%) 50.9 (10.9) 7.1 36.4 55.6 (14.2) 1.7 36.1 As % of Revenue 74.5 71.9 59.2 68.1 74.5 71.9 59.2 68.1Financial Results 5,377 4,593 3,758 4,221 421 346 269 301Taxes 3,255 2,717 3,272 4,693 255 205 234 335Net Profit 6,674 6,317 7,607 10,911 523 476 545 779 YoY change (%) 29.4 (5.4) 20.4 43.4 33.4 (8.9) 14.4 43.1 As % of Revenue 33.9 34.7 32.2 38.9 33.9 34.7 32.2 38.9

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 730 1,028 1,178 1,328 57 78 84 95Other Noncash Items (4,437) (3,351) (4,059) (6,625) (348) (253) (291) (473)Changes in Working Capital 0 0 0 0 0 0 0 0Operating Cash Flow 1,507 1,938 2,371 2,959 118 146 170 211Capital Expenditures (2,927) (2,646) (7,050) (5,300) (229) (199) (505) (379)Free Cash Flow (1,421) (708) (4,679) (2,341) (111) (53) (335) (167)Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 4,839 6,604 6,384 2,224 379 498 457 159Dividends (14) 0 0 0 (1) 0 0 0Capital Increases/Other (900) 287 (2,181) (5,870) (70) 22 (156) (419)

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 5,155 8,046 8,345 5,273 394 579 614 378Current Assets 6,081 8,972 9,271 6,199 465 645 682 445Fixed Assets 80,760 90,569 104,931 120,539 6,172 6,516 7,716 8,647Total Assets 90,567 103,457 118,583 131,657 6,922 7,443 8,719 9,445Current Liabilities 2,105 2,105 2,105 2,105 161 151 155 151Long-Term Liabilities 40,390 46,994 53,378 55,602 3,087 3,381 3,925 3,989Shareholders' Equity 47,940 54,204 62,918 73,730 3,664 3,900 4,626 5,289Total Financial Debt 31,423 38,027 44,411 46,635 2,402 2,736 3,266 3,345ST Debt 522 522 522 522 40 38 38 37LT Debt 30,901 37,505 43,889 46,113 2,362 2,698 3,227 3,308

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 27,781 31,494 37,579 42,874 2,123 2,266 2,763 3,076Capital Employed 88,462 101,352 116,478 129,552 6,761 7,292 8,565 9,294Net Debt/EBITDA 1.8 2.2 2.5 2.1 1.8 2.1 2.5 2.1Net Debt/Equity 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6Capex/Revenue (%) 14.9 14.5 29.8 18.9 14.9 14.5 29.8 18.9Int Cover (%) (2.8) (3.7) (3.9) (4.8) (2.8) (3.7) (3.9) (4.8)Dividend Payout (%) 0.3 0.0 0.0 0.0 0.3 0.0 0.0 0.0ROCE (%) 16.6 12.9 12.0 14.7 17.0 14.3 12.0 14.7ROE (%) 16.6 12.4 13.0 16.0 16.9 12.9 13.0 16.0

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 8.7 7.5 5.9 4.1 8.5 6.7 5.5 3.9P/CE 9.7 9.0 7.0 4.7 9.5 8.1 6.5 4.4FV/EBITDA 5.6 5.6 5.4 4.3 5.4 5.2 5.3 4.2FV/EBIT 5.9 6.0 5.9 4.6 5.7 5.6 5.8 4.5FV/Revenue 4.4 4.3 3.5 3.1 4.3 4.0 3.4 3.0P/BV 1.2 0.9 0.7 0.6 1.2 0.8 0.7 0.6FCF Yield (%) (2.5) (1.5) (10.5) (5.2) (2.5) (1.7) (11.1) (5.5)Div Yield (%) 0.0 (0.0) (0.0) (0.0) 0.0 (0.0) (0.0) (0.0)

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 3.85 3.65 4.39 6.30 0.30 0.27 0.31 0.45DPS 0.01 0 0 0 0.00 0 0 0BVPS 27.68 31.29 36.32 42.56 2.12 2.25 2.67 3.05

US$M$

Conmex77.7%

GANA14.0%

V. Bicentenario

9.1%

Urbana Norte-0.8%

CONMEX56.0%

Viaducto Bicentenario

12.0%

Urbana Norte18.9%

Gana3.0%

Atizapan -Atlacomulco

7.1%

POETAS2.4%

Toluca0.8%

Puebla-0.1%

OHL Spain56.1%

Free Float43.9%

369


OMA BUY CURRENT PRICE: M$65.61



Investment Case: With OMA’s implied spread between equity IRR and cost of equity of 1.2 p.p., high dividend yield, and strong outlook, the company remains our top pick among Mexican airports and in the LatAm infrastructure sector. We expect the company’s traffic growth to outperform its peers in 2016-18E, mainly due to its exposure to shale gas zones: Monterrey, Reynosa, Tampico, and Chihuahua (62% of total traffic).

2015 PAX outlook: We estimate OMA’s PAX will grow 10% in 2015 (with 10.0% growth in 2014E vs. our former 8.3% estimate). In our view, such an increase will be supported by (i) domestic airlines’ increased interest in Monterrey (e.g., new hubs by Aeromexico and Volaris, new operations by TAR), (ii) cheap jet fuel prices, and (iii) potential traffic related to the energy reform, in our view. These airports have already been growth drivers in October and November.

Commercial revenue: We estimate nonaeronautical revenue growth of 16.6% for 2015, on the back of 7.0% growth in nonaeronautical revenue (ex hotels) per PAX, as the new Hilton Garden Inn Monterrey starts operations and the first industrial park is opened (both estimated for 1Q15).

2015 estimate revisions: Our estimates reflect above-consensus positive operating results in 2014. Thus, our new EBITDA and net income forecasts for 2015 are 10.6% and 12.5% above consensus, respectively.

Attractive dividend yield: Management plans to pay M$1.2 billion in dividends, or M$3.01 per share, for a 2015E yield of 4.7%.




Company Statistics



Bloomberg OMAB MM / OMAB USCurrent Price (01/02/15) M$ 65.61 / US$ 35.50Target Price (YE 2015) M$ 82.00 / US$ 48.2052-Week Range (M$) 40.43 - 68.82Market Capitalization (US$ Mn) 1,763Float (%) 31.03-Mth Avg. Daily Vol (US$ Mn) 3.5Shares Outstanding - Mn 399

80

100

120

140

160

180

200

e-13 m-13 a-13 d-13 a-14 a-14 d-14

OMAB MM MEXBOL

370


OMA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Grupo Aeroportuario del Centro Norte (OMA) has a concession from the Mexican government ending in 2048, which allows it to operate 13 airports. OMA's airports are located in Mexico’s central and northern regions and fall into four categories: (1) those serving large metropolitan cities (e.g., Monterrey); (2) three tourist destinations on the Pacific Coast (Acapulco, Mazatlán, and Zihuatanejo); (3) seven medium-sized cities in Northern Mexico (Chihuahua, Culiacán, Durango, San Luis Potosí, Tampico, Torreón, and Zacatecas); and (4) two cities on the border with the U.S. (Ciudad Juárez and Reynosa). It also operates a hotel and commercial area inside Terminal 2 of the Mexico City airport. During full year 2013, OMA handled 13.3 million passengers. Key Personnel: Diego Quintana (Chairman), Porfirio González (CEO), José Luis Guerrero (CFO) and Vicsaly Torres (IRO) Web: www.oma.aero


Revenues by Segment, 2013



Internat’l’l13.3%

Domestic86.7%

371

MEXICO—INFRASTRUCTURE

PINFRA BUY CURRENT PRICE: M$172.06


LOWERING YE2015 TARGET PRICE TO M$214.00/M$205.00 FROM M$219.00/M$210.00

Investment Case: PINFRA, which we believe has the strongest investment capabilities in the toll road sector, continues to be the bestway to play Mexico’s infrastructure plan, in our view. This, along withthe attractive price-appreciation potential based on the company’s current portfolio (+30.5% to year-end 2015, +1.1 p.p. spread between equity IRR and cost) and upside risk to our estimates in the medium term (both from new projects and roads near the new Mexico City airport), support a Buy rating.

Outlook 2015: We expect consolidated traffic growth of 10%, mainly boosted by the opening of the Mexico-Toluca bypass. We estimate revenue from toll roads will grow 16.7% and EBITDA toll margin expansion of 1.3 p.p. We expect total top line, EBITDA, and net income growth of 16%, 17%, and 40% (the latter benefiting from a high comp base in financing costs).

Investment capabilities (cash + potential leverage): PINFRA is currently in a position to invest M$20.6 billion, assuming the companyleverages investments at 50%. Its current pipeline accounts for M$10.0 billion, which is already reflected in our model. If we assume the remaining M$10.6 billion are invested at a 10% real IRR, our estimate of fair equity value becomes M$105.1 billion, implying additional 20.0% capital-appreciation potential (or 51.2% total).

New Mexico City airport and PINFRA: The project is slated to be developed in government-owned land in the Texcoco area, and to be surrounded by two of PINFRA’s toll roads: Peñón–Texcoco and Ecatepec–Peñon (the latter expected to start operations in 2015). Considering the airport will start off with a 50 million annual PAX capacity, we believe that stabilizing traffic in Peñon–Texcoco and Ecatepec–Peñón just below 80,000 and 38,000 vehicles, respectively, in 2026 is a conservative estimate.

Changes in estimates: Our target price decrease reflects weaker-than-expected performance, mainly from Paquete Michoacán.




Company Statistics



Bloomberg NFRA* MM / PINFRAL MMCurrent Price (01/02/15) M$ 172.06 / M$ 155.83Target Price (YE 2015) M$ 214.00 / M$ 205.0052-Week Range (M$) 151.19 - 189.59Market Capitalization (US$ Mn) 4,409Float (%) 59.43-Mth Avg. Daily Vol (US$ Mn) 7.4Shares Outstanding - Mn 380

50

100

150

200

250

e-13 m-13 a-13 d-13 a-14 a-14 d-14

PINFRA* MM MEXBOL

372


PINFRA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

PINFRA is a concession, construction, materials and infrastructure operating company that controls a portfolio of 15 toll road concessions in Mexico, which implies the operation of 24 toll roads (being their most important the Mexico - Toluca toll-road) and the Altamira Port concession. Currently, 16 of PINFRA’s highways are fully operational, and 8 are under construction. The concessions are located in Mexico City and the Estates of México, Morelos, Puebla, Guerrero, Tlaxcala, Michoacán, Colima, Sonora, Tamaulipas, and Veracruz. Key Personnel: David Peñaloza Alanis (Chairman), David Peñaloza Alanis (CEO), Carlos Cesarman Kolteniuk (CFO) and Carlos Cesarman Kolteniuk (CFO) Web: www.pinfra.com.mx

EBITDA by Concession/Line of Business, 2014E

SOTP Valuation, 2015E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 5,732 6,305 7,282 7,699 449 475 521 550 YoY change (%) 24.8 10.0 15.5 5.7 28.6 5.9 9.7 5.5Gross Profit 0 0 0 0 0 0 0 0 YoY change (%) n/m n/m n/m n/m n/m n/m n/m n/mEBITDA 3,714 4,027 4,725 4,906 291 304 338 350 YoY change (%) 20.9 8.4 17.3 3.8 24.6 4.4 11.4 3.6 As % of Revenue 64.8 63.9 64.9 63.7 64.8 63.9 64.9 63.7Operating Income 3,370 3,703 4,256 4,306 264 279 305 308 YoY change (%) 21.3 9.9 14.9 1.2 25.1 5.8 9.2 0.9 As % of Revenue 58.8 58.7 58.4 55.9 58.8 58.7 58.4 55.9Financial Results (947) (845) 117 (107) (74) (64) 8 (8)Taxes 311 381 889 1,196 24 29 64 85Net Profit 2,195 2,553 3,557 3,075 172 192 255 220 YoY change (%) 20.2 16.3 39.3 (13.6) 23.9 11.9 32.3 (13.8) As % of Revenue 38.3 40.5 48.8 39.9 38.3 40.5 48.8 39.9

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortizatio (344) (324) (468) (601) (27) (24) (34) (43)Other Noncash Items 221 (239) (93) (16) 17 (18) (7) (1)Changes in Working Capita 0 0 0 0 0 0 0 0Operating Cash Flow 2,760 2,638 3,932 3,659 216 199 282 261Capital Expenditures (693) (3,339) (4,094) (2,925) (54) (252) (293) (209)Free Cash Flow 2,606 206 (221) 776 204 16 (16) 55Other Invest./(Divestments 0 0 0 0 0 0 0 0Change in Debt (659) (592) (1,061) 4,093 (52) (45) (76) 292Dividends 0 0 0 (3,557) 0 0 0 (254)Capital Increases/Other (145) 8,172 0 0 (11) 616 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 3,084 9,962 8,738 10,009 236 717 643 718Current Assets 3,808 10,686 9,462 10,733 291 769 696 770Fixed Assets 11,913 14,927 18,553 20,878 910 1,074 1,364 1,498Total Assets 18,718 28,850 31,346 34,957 1,431 2,076 2,305 2,508Current Liabilities 1,656 1,656 1,656 1,656 127 119 122 119Long-Term Liabilities 8,322 7,730 6,668 10,761 636 556 490 772Shareholders' Equity 8,737 19,461 23,018 22,536 668 1,400 1,693 1,617Total Financial Debt 8,122 7,530 6,468 10,561 621 542 476 758ST Debt 0 0 0 0 0 0 0 0LT Debt 8,122 7,530 6,468 10,561 621 542 476 758

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 4,278 (3,192) (3,029) (207) 327 (230) (223) (15)Capital Employed 17,063 27,195 29,690 33,301 1,304 1,956 2,183 2,389Net Debt/EBITDA 1.2 (0.8) (0.6) (0.0) 1.1 (0.8) (0.7) (0.0)Net Debt/Equity 0.5 (0.2) (0.1) (0.0) 0.5 (0.2) (0.1) (0.0)Capex/Revenue (%) 12.1 53.0 56.2 38.0 12.1 53.0 56.2 38.0Int Cover (%) 5.5 6.2 10.0 8.4 5.5 6.2 10.0 8.4Dividend Payout (%) 0.0 0.0 0.0 100.0 0.0 0.0 0.0 99.7ROCE (%) 18.5 12.7 12.3 10.5 19.0 14.1 12.3 10.5ROE (%) 28.7 18.1 16.7 13.5 29.4 19.3 16.7 13.5

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 27.0 29.1 20.3 23.5 26.3 26.2 19.1 22.1P/CE 23.4 25.8 17.9 19.6 22.8 23.2 16.9 18.5FV/EBITDA 17.1 17.7 14.6 14.7 16.7 15.8 13.7 13.8FV/EBIT 18.9 19.2 16.2 16.7 18.4 17.2 15.2 15.8FV/Revenue 11.1 11.3 9.5 9.3 10.8 10.1 8.9 8.8P/BV 6.8 3.8 3.1 3.2 6.8 3.6 2.9 3.0FCF Yield (%) 4.4 0.3 (0.3) 1.1 4.5 0.3 (0.3) 1.1Div Yield (%) (0.0) (0.0) (0.0) 4.9 (0.0) (0.0) (0.0) 5.2

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 5.77 6.03 8.41 7.27 0.45 0.91 1.20 1.04DPS 0 0 0 8.41 0 0 0 1.20BVPS 22.99 48.46 54.40 53.26 1.76 6.97 8.00 7.64

US$M$

Mexico -Toluca33.0%

Pirámides -Ecatepec -

Peñon10.5%

Other Toll Roads38.6%

Altamira5.6%

Materials3.0%

Construct.8.3%

Other Bussiness

1.1%

Mexico -Toluca28.1%Pirámides -

Ecatepec -Peñon12.9%

Armería -Manzanillo

9.6%

Peñon -Texcoco14.1%

Other Toll Roads24.1%

Altamira2.4% Materials

1.7%Construct.

6.5% Opervite0.6%

Peñaloza -Alanis Family40.6%

Free Float59.4%

373


SORIANA HOLD CURRENT PRICE: M$38.03


LOWERING YE2015 TARGET PRICE OF M$44.00 FROM M$48.00

Investment Case: We maintain our Hold rating based on lower earnings visibility given market share losses and the company’s initiatives to implement changes in its IT systems and commercial strategy, as well as remodel stores as we believe that that these factors could increase execution risk in the short to medium term.

Outlook 2015: We expect Soriana’s selling space to increase by 4.2% in 2015, below the company’s historical growth of 8-10%. We are factoring in a recovery in comp sales (up 3%YoY) fueled by a consumption recovery in Mexico and easy comps. However, we highlight the risks stemming from recent market share losses and changes in the company’s structure. We expect EBITDA to increase 8.3%, to M$7.4 billion.

Tough landscape and higher risk of dilutive acquisitions: The food retail market in Mexico remains fiercely competitive, making it harder for Soriana to convince customers of its new value proposition. In addition, we see increased risks that players like Soriana could pay high valuation multiples to participate in the potential consolidation of the food retail industry.

We are reducing our year-end target price by 9% due to lower estimates, based on a more gradual consumption recovery in Mexico, and market share losses.

Attractive valuation is not a catalyst: Soriana trades at a 2015E P/E of 15.1x, which suggests some upside from current levels, though with lower earnings visibility. Our YE2015 target price is based on a DCF analysis assuming a WACC of 8.2% and a perpetuity growth of 3.5%.




Company Statistics



Bloomberg SORIANAB MMCurrent Price (01/02/15) M$ 38.03 / US$ 2.56Target Price (YE 2015) M$ 44.00 / US$ 3.4452-Week Range (M$) 36.00 - 48.62Market Capitalization (US$ Mn) 4,615Float (%) 13.83-Mth Avg. Daily Vol (US$ Mn) 1.1Shares Outstanding - Mn 1,800

70

80

90

100

110

e-13 m-13 a-13 d-13 a-14 a-14 d-14

SORIANAB MM MEXBOL

374


SORIANA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Soriana is the second largest food retailer in Mexico, with a market share that we estimate was 18% in 2013. The company ended 2013 with 659 stores and 3,220,697 square meters. The Martin Bringas and Martin Soberon families hold 86% of the outstanding shares, while the free float is 14%. Key Personnel: Ricardo Martin Bringas (CEO), Aurelio Adan (CFO), Rodrigo Benet (IRO) and Arturo Ledesma (IR) Web: www.soriana.com.mx

Sales by Division 2013A

Market Share Food Retailers 2013A



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 105,028 101,609 107,358 117,097 8,228 7,706 8,141 8,963 YoY change (%) 0.4 (3.3) 5.7 9.1 2.3 (6.3) 5.6 10.1Gross Profit 22,229 22,223 23,586 25,840 1,741 1,685 1,789 1,978 YoY change (%) 3.1 (0.0) 6.1 9.6 5.1 (3.2) 6.1 10.6EBITDA 7,534 7,152 7,742 8,599 590 542 587 658 YoY change (%) 1.7 (5.1) 8.3 11.1 3.7 (8.1) 8.2 12.1 As % of Revenue 7.2 7.0 7.2 7.3 7.2 7.0 7.2 7.3Operating Income 5,558 5,082 5,586 6,329 435 385 424 484 YoY change (%) 2.4 (8.6) 9.9 13.3 4.4 (11.5) 9.9 14.4 As % of Revenue 5.3 5.0 5.2 5.4 5.3 5.0 5.2 5.4Financial Results (276) (198) (15) 39 (22) (15) (1) 3Taxes 2,209 1,329 1,671 1,910 173 101 127 146Net Profit 3,117 3,724 4,414 5,164 244 282 335 395 YoY change (%) (13.7) 19.5 18.5 17.0 (12.0) 15.6 18.5 18.1 As % of Revenue 3.0 3.7 4.1 4.4 3.0 3.7 4.1 4.4

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (1,976) (2,069) (2,156) (2,270) (155) (157) (163) (174)Other Noncash Items - - - - - - - -Changes in Working Capital (1,540) (455) (151) (151) (121) (35) (11) (12)Operating Cash Flow 3,553 5,337 6,419 7,282 278 405 487 557Capital Expenditures (3,617) (3,169) (4,220) (4,965) (283) (240) (320) (380)Free Cash Flow 1,126 2,245 1,937 1,937 88 170 147 148Other Invest./(Divestments) - - - - - - - -Change in Debt (796) (1,494) (455) (2) (62) (113) (34) (0)Dividends 0 (700) 0 (1,324) 0 (53) 0 (101)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 1,666 1,224 2,705 3,350 127 93 211 256Current Assets 23,709 22,705 25,608 28,049 1,812 1,720 2,001 2,147Fixed Assets 55,302 56,503 58,984 62,111 4,227 4,281 4,608 4,754Total Assets 79,010 79,208 84,593 90,161 6,039 6,001 6,609 6,901Current Liabilities 23,634 20,416 21,299 23,085 1,806 1,547 1,664 1,767Long-Term Liabilities 11,988 12,460 12,889 13,333 916 944 1,007 1,020Shareholders' Equity 43,387 46,333 50,405 53,743 3,316 3,510 3,938 4,113Total Financial Debt 1,948 454 (0) (2) 149 34 (0) (0)ST Debt 1,948 454 (0) (2) 149 34 (0) (0)LT Debt 0 0 0 0 0 0 0 0

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 282 (769) (2,706) (3,352) 22 (58) (211) (257)Capital Employed 55,376 58,792 63,294 67,075 4,232 4,454 4,945 5,134Net Debt/EBITDA 0.0 (0.1) (0.3) (0.4) 0.0 (0.1) (0.4) (0.4)Net Debt/Equity 0.0 (0.0) (0.1) (0.1) 0.0 (0.0) (0.1) (0.1)Capex/Revenue (%) 3.4 3.1 3.9 4.2 3.4 3.1 3.9 4.2Int Cover (%) 16.7 26.1 274.7 n/m 16.7 26.1 274.7 n/mDividend Payout (%) 0.0 22.4 0.0 30.0 0.0 21.5 0.0 29.9ROCE (%) 8.4 6.8 6.7 7.1 8.7 7.8 6.7 7.1ROE (%) 7.4 8.3 9.1 9.9 7.6 8.7 9.1 9.9

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 26.9 19.5 15.5 13.3 26.2 17.4 13.8 11.7P/CE 16.4 12.5 10.4 9.2 16.0 11.2 9.3 8.1FV/EBITDA 11.2 10.0 8.5 7.6 10.9 9.0 7.5 6.6FV/EBIT 15.1 14.1 11.8 10.3 14.7 12.6 10.4 9.0FV/Revenue 0.8 0.7 0.6 0.6 0.8 0.6 0.5 0.5P/BV 1.9 1.6 1.4 1.3 1.9 1.4 1.2 1.1FCF Yield (%) 1.3 3.1 2.8 2.8 1.4 3.5 3.2 3.2Div Yield (%) (0.0) 1.0 (0.0) 1.9 (0.0) 1.1 (0.0) 2.2

PER SHARE DATA 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EEPS 1.73 2.07 2.45 2.87 0.14 0.16 0.19 0.22DPS 0 0.39 0 0.74 0 0.03 0 0.06BVPS 24.10 25.74 28.00 29.86 1.84 1.95 2.19 2.29

US$M$

Hiper59.4%

Super8.3%

Mercado19.6%

Express4.5%

City Club8.3%

Walmex54.0%

Soriana15.9%

Chedraui6.9%

Comerci7.6%

Casa Ley3.4%

Others12.2%

Free Float13.8%

Control Trust83.8%

Management

2.4%

375


SPORTS WORLD BUY CURRENT PRICE: M$25.77



Investment Case: We believe Sports World’s strong top-line growth and margin improvement in 2013-14 despite Mexico’s weak consumption environment during both years offer proof of the resilience of the company’s business model. We reiterate our positivestance on the name based on: (i) a healthier macro outlook for 2015, which in our view, should translate into stronger same-club sales and lower churn rates; (ii) strong organic expansion plans; and (iii) continuing operating leverage from corporate expense dilution.

Outlook 2015: We expect 17.7% growth in revenue, boosted by six openings and the maturation of clubs opened in 2H13 and 2014 (10 units). We expect EBITDA margin expansion of 100 bps, as pre-operating and corporate expenses are now diluted by a significantly larger club base (45 vs. 38 in 2014 in average).

We highlight some upside risk to our estimates, derived mainly from the company’s incursion into new ventures that require lower investment compared with current formats. However, we prefer to wait until there is more evidence of revenue and profitability from these ventures before including them in our model.

Valuation: We believe Sports World continues to trade at attractive levels (2015E EV/EBITDA of 7.7x), especially compared to Mexican consumer names (averaging 11.8x). Our YE2015 target price is based on a 10-year DCF model, using a WACC of 10.05% and perpetuity growth of 3.0%.

Changes in management: After the corporate restructuring of the past couple of years, we anticipated more stability in Sports World’s management. In November 2014, however, the company announced a new CFO; nonetheless, we believe that with all other key executive positions unchanged, the company will continue implementing the successful strategies we have been witnessing since 2013.



Company Statistics



Bloomberg SPORTS MMCurrent Price (01/02/15) M$ 25.77 / US$ 1.74Target Price (YE 2015) M$ 30.50 / US$ 2.2452-Week Range (M$) 18.70 - 26.05Market Capitalization (US$ Mn) 143Float (%) 70.03-Mth Avg. Daily Vol (US$ Mn) 0.4Shares Outstanding - Mn 82

80

100

120

140

160

e-13 m-13 a-13 d-13 a-14 a-14 d-14

SPORTS MM MEXBOL

376


SPORTS WORLD Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Sports World is one of Mexico’s leading fitness brands. Founded in 2000 and going public in 2010, the company began an accelerated expansion—going from 12 gyms in operation pre-IPO to 40 units as of December 2014. The company is present in Mexico City, Mexico State, Veracruz, Puebla and Tijuana through fully owned gyms (no franchises). Historically, Sports World has served the highest end of the income segment, competing mainly with Sport City, but is currently developing a low-cost business model to expand its target clientele. The company's main focus and differentiator is customer service. Key Personnel: Fabian Bifaretti (CEO), Jose Antonio Pastrana (CFO) and Begoña Orgambide (IRO) Web: www.sportsworld.com.mx

Revenue per Item, 2014E

Number of Clubs, 2010A-15E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 892 1,054 1,238 1,460 70 79 88 105 YoY change (%) 28.0 18.1 17.5 17.9 31.9 13.5 11.4 18.6Gross Profit 892 1,054 1,238 1,460 70 79 88 105 YoY change (%) 28.0 18.1 17.5 17.9 31.9 13.5 11.4 18.6EBITDA 173 207 256 313 14 16 18 23 YoY change (%) 47.0 19.5 23.8 22.3 51.6 14.8 17.5 23.1 As % of Revenue 19.4 19.6 20.7 21.5 19.4 19.6 20.7 21.5Operating Income 76 92 122 156 6 7 9 11 YoY change (%) 55.8 20.9 33.0 27.2 60.6 16.2 26.1 27.9 As % of Revenue 8.5 8.7 9.9 10.7 8.5 8.7 9.9 10.7Financial Results (7) (7) (10) (16) (1) (1) (1) (1)Taxes 5 18 26 34 0 1 2 2Net Profit 78 68 89 109 6 5 6 8 YoY change (%) 94.6 (12.4) 30.7 22.8 100.5 (15.9) 23.9 23.6 As % of Revenue 8.7 6.4 7.2 7.5 8.7 6.4 7.2 7.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 97 115 134 158 8 9 10 11Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (17) 9 11 13 (1) 1 1 1Operating Cash Flow 157 192 233 280 12 14 17 20Capital Expenditures 240 257 264 277 19 19 19 20Free Cash Flow (89) (60) (23) 15 (7) (4) (2) 1Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 46 29 51 19 4 2 4 1Dividends 0 0 0 0 0 0 0 0Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 143 105 124 146 11 7 9 11Current Assets 166 129 149 173 13 9 11 12Fixed Assets 883 1,025 1,155 1,274 67 72 85 92Total Assets 1,228 1,335 1,487 1,629 94 94 109 117Current Liabilities 267 277 289 304 20 20 21 22Long-Term Liabilities 152 181 232 251 12 13 17 18Shareholders' Equity 802 870 959 1,068 61 61 71 77Total Financial Debt 193 222 274 293 15 16 20 21ST Debt 41 41 41 41 3 3 3 3LT Debt 123 152 203 222 9 11 15 16

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 50 117 150 147 4 8 11 11Capital Employed 961 1,058 1,198 1,326 73 74 88 95Net Debt/EBITDA 0.3 0.6 0.6 0.5 0.3 0.5 0.6 0.5Net Debt/Equity 0.1 0.1 0.2 0.1 0.1 0.1 0.2 0.1Capex/Revenue (%) (26.9) (24.4) (21.3) (19.0) (26.9) (24.4) (21.3) (19.0)Int Cover (%) (13.2) (15.3) (16.0) (16.1) (13.2) (15.3) (16.0) (16.1)Dividend Payout (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0ROCE (%) 7.4 7.5 8.8 10.2 7.6 8.4 8.8 10.2ROE (%) 10.1 8.1 9.7 10.8 10.3 8.5 9.7 10.8

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E 19.9 31.2 23.9 19.4 19.4 28.1 22.5 18.2P/CE - - - - - - - -FV/EBITDA 9.2 10.8 8.8 7.2 9.0 9.8 8.4 6.8FV/EBIT 20.9 24.3 18.5 14.5 20.4 21.9 17.6 13.7FV/Revenue 1.8 2.1 1.8 1.5 1.7 1.9 1.7 1.5P/BV 1.9 2.4 2.2 2.0 1.9 2.3 2.0 1.9FCF Yield (%) (5.8) (2.8) (1.1) 0.7 (5.9) (3.1) (1.1) 0.8Div Yield (%) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0)


US$M$

Membership Sales4.4%

Monthly Dues84.1%

Other (sponsorshi

ps)11.5%

19.00

29.0034.00

40.0046.00

2011

A

2012

A

2013

A

2014

E

2015

E

Free Float70.0%

Founders + Nexxus Partners30.0%

377

MEXICO—TELECOM, MEDIA & TECHNOLOGY

TELEVISA HOLD CURRENT PRICE: M$99.94 TARGET PRICE: M$105.00

INTRODUCING YE2015 TARGET PRICE OF M$105.00; REPLACING YE2014 TARGET PRICE OF M$83.00 Investment Case: Although we still see Televisa growing its top line

by high-single digits (based on a good blend of telecom/Sky/royalties revenue) and acknowledge the benefits of a stronger U.S. dollar (for content sold in the U.S. and the US$-denominated sale of its 50% stake in Iusacell), the performance of the core content business (including the negative impact of the must-carry/must-offer ruling) and advertising dynamics in Mexico remain challenging. We see the current 29.3x P/E for 2015E as stretched and do not see major upside at current levels, even when valuing the stake in Univision at 17x EV/EBITDA.

Outlook 2015: In our view, the main key drivers for the stock in 2015, following the Iusacell divestment, will be (1) the fate of the ongoing discussions (on both legal and regulatory grounds) regarding a ruling on Televisa’s market dominance, (2) the potential monetization of Univision, and (3) the auctioning, in 1Q15, of new open-TV licenses, which are also set to be telecom-convergent (Televisa may be forced to share open-TV infrastructure as part of anti-dominance regulatory remedies). Another key factor to watch is M&A, in light of (i) the fate of DirecTV-AT&T’s noncontrolling stake in Sky Mexico (controlled by Televisa), (ii) AT&T’s recently announced intention to have a mobile footprint in Mexico (by acquiring 100% of Iusacell from Grupo Salinas), and (iii) additional M&A opportunities arising from AMX’s announced intention to divest telecom assets and infrastructure.



Company Statistics



Bloomberg TLEVICPO MM / TV USCurrent Price (01/02/15) M$ 99.94 / US$ 33.71Target Price (YE 2015) M$ 105.00 / US$ 36.2052-Week Range (M$) 74.24 - 104.73Market Capitalization (US$ Mn) 19,320Float (%) 85.03-Mth Avg. Daily Vol (US$ Mn) 19.1Shares Outstanding - Mn 2,868

80

100

120

140

160

j-13 m-13 a-13 d-13 a-14 a-14 d-14

TLEVICPO MM MEXBOL

378


TELEVISA Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Grupo Televisa, S.A.B., is the largest media company in the Spanish-speaking world based on its market capitalization and a major participant in the international entertainment business. It has interests in television production and broadcasting, pay-television networks, international distribution of TV programming, cable television and telecommunication services, magazine publishing and distribution, among other media services. Televisa is controlled by the Azcárraga family, which holds 15% of Televisa's total capital. The rest is free float. Key Personnel: Emilio Azcárraga Jean (Chairman), Emilio Azcárraga Jean (CEO), Salvi Rafael Folch Viadero (CFO), Carlos Madrazo (IRO) and Eduardo Nestel (IR Manager) Web: http://www.televisa.com/inversionistas-ingles/





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 73,791 78,794 85,238 90,174 5,922 6,292 5,855 6,145 YoY change (%) 6.5 6.8 8.2 5.8 12.4 6.3 (6.9) 4.9Gross Profit 26,908 31,233 42,677 45,123 2,159 2,494 2,931 3,075 YoY change (%) (4.2) 16.1 36.6 5.7 1.2 15.5 17.5 4.9EBITDA 28,504 25,548 32,246 34,088 2,287 2,040 2,215 2,323 YoY change (%) (1.4) (10.4) 26.2 5.7 4.1 (10.8) 8.6 4.9 As % of Revenue 38.6 32.4 37.8 37.8 38.6 32.4 37.8 37.8Operating Income 26,908 31,233 42,677 45,123 2,159 2,494 2,931 3,075 YoY change (%) (4.2) 16.1 36.6 5.7 1.2 15.5 17.5 4.9 As % of Revenue 36.5 39.6 50.1 50.0 36.5 39.6 50.1 50.0Financial Results 533 (3,777) (5,217) (4,697) 43 (302) (358) (320)Taxes (3,729) (3,018) (4,357) (5,007) (299) (241) (299) (341)Net Profit 7,397 6,263 9,803 11,267 594 500 673 768 YoY change (%) (31.0) (15.3) 56.5 14.9 (27.1) (15.7) 34.6 14.0 As % of Revenue 10.0 7.9 11.5 12.5 10.0 7.9 11.5 12.5

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (9,765) (11,256) (12,524) (12,587) (784) (899) (860) (858)Other Noncash Items - - - - - - - -Changes in Working Capital 2,782 (2,639) 41 33 223 (211) 3 2Operating Cash Flow 28,725 16,713 22,712 24,417 2,305 1,335 1,560 1,664Capital Expenditures 21,508 14,128 12,822 12,710 1,726 1,128 881 866Free Cash Flow 11,160 18,834 8,490 8,636 896 1,504 583 589Other Invest./(Divestments) - - - - - - - -Change in Debt 7,064 18,446 0 (1,461) 567 1,473 0 (100)Dividends (1,084) (1,779) (2,451) (2,817) (87) (142) (168) (192)Capital Increases/Other 0 0 0 0 0 0 0 0


FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 43,364 49,606 42,167 33,277 3,614 3,421 2,885 2,259Capital Employed 122,272 136,415 136,328 135,888 10,189 9,408 9,327 9,223Net Debt/EBITDA 1.5 1.9 1.3 1.0 1.6 1.7 1.3 1.0Net Debt/Equity 0.5 0.6 0.4 0.3 0.6 0.6 0.4 0.3Capex/Revenue (%) (29.1) (17.9) (15.0) (14.1) (29.1) (17.9) (15.0) (14.1)Int Cover (%) - - - - - - - -Dividend Payout (%) 10.1 24.0 39.1 28.7 10.4 23.1 35.2 28.6ROCE (%) 26.2 25.8 35.4 37.6 26.8 28.3 35.5 37.6ROE (%) 10.0 7.6 10.8 11.5 10.3 7.9 10.8 11.5



US$M$

Content44.7%Other

Businesses (including

Publishing)10.7%

Sky21.3%

Cable and Telecom23.3%

Content51.9%Other

Businesses (including

Publishing)2.7%

Sky24.5%

Cable and Telecom20.4%

Azcárraga Family15.0%

Free Float85.0%

379


VOLARIS BUY CURRENT PRICE: US$8.83 TARGET PRICE: US$12.00


Investment Case: We believe momentum is improving for Volaris based on: (i) a deceleration of the price war, with clear signs of increasing capacity rationality from Aeromexico and Volaris; and (ii) a significant decrease in jet fuel prices (-35% in USD in the last two months). We expect a strong 4Q14 (EBIT margin of 6.5% vs. -6.2% in 4Q13) and a much stronger 2015 vs. 2013-14. With the stock trading at a 2015E EV/EBITDAR of ~7.5x, we believe the shares are attractive, with 33.4% price-appreciation potential.

Decelerating price war with Aeromexico: In June 2014, Aeromexico became significantly more cautious by decelerating domestic capacity growth, with Volaris following suit a couple of months later. Since October, we have seen capacity fall for both players, which together account for 60% of the domestic air PAX market in Mexico. In fact, in 3Q14 Volaris posted a flat yield after four consecutive quarters of significant cuts (-10%, -15%, -21%, and -10% YoY in 3Q13, 4Q13, 1Q14, and 2Q14, respectively).

Going abroad in search of demand: While posting a contraction in domestic ASMs, both Aeromexico and Volaris’s supply grew by double digits in the international market in November (11.4% and 10.2%, respectively). According to Volaris’s management, yields are not being pressured to accommodate this increase in supply.

Outlook 2015: We believe a more rational competitive landscape, improving load factors and strong focus on ancillary revenue will result in 14% YoY top-line growth.

Additionally, we see a 5.8 p.p. increase in EBIT margin (to 5.9%) given (i) cheap jet fuel (-10% YoY in MXN FY2015, even considering it increases and stabilizes at an average of 14% above current levels); (ii) Volaris’ fleet modernization, which implies further jet fuel cost efficiencies; (iii) capacity management; and (iv) better margins from ancillary vs. PAX revenue.




Company Statistics



Bloomberg VLRS US / VOLARA MMCurrent Price (01/02/15) US$ 8.83 / M$ 13.03Target Price (YE 2015) US$ 12.00 / M$ 16.3052-Week Range (US$) 6.92 - 13.97Market Capitalization (US$ Mn) 893Float (%) 25.03-Mth Avg. Daily Vol (US$ Mn) 1.3Shares Outstanding - Mn 101

40

60

80

100

120

s-13 e-14 m-14 s-14

VLRS US MEXBOL

380


VOLARIS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Volaris is the largest ultra low-cost carrier (“ULCC”) in Mexico, providing passenger and cargo services in 30 cities in Mexico and 10 in the U.S. through its subsidiary Volaris Opco. The company aims to stimulate demand by offering low base fares while providing high quality customer service and generating ancillary revenues from other services. In 2013, Volaris booked 8.9 million passengers. Key Personnel: Gilberto Perezalonso (Chairman), Enrique Beltranena (CEO), Fernando Suárez (CFO) and Andrés Pliego (IRO) Web: www.volaris.mx

Cost Breakdown, 2013A

Revenue Structure, 2013A



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 13,002 13,650 15,595 16,856 1,046 1,038 1,222 1,269 YoY change (%) 11.3 5.0 14.3 8.1 13.1 (0.8) 17.8 3.9Gross Profit 13,002 13,650 15,595 16,856 1,046 1,038 1,222 1,269 YoY change (%) 11.3 5.0 14.3 8.1 13.1 (0.8) 17.8 3.9EBITDAR 2,805 2,803 4,130 4,644 226 213 324 350 YoY change (%) 13.3 (0.1) 47.4 12.5 15.2 (5.6) 51.9 8.0 As % of Revenue 21.6 20.5 26.5 27.6 21.6 20.5 26.5 27.6Operating Income 316 13 913 1,054 25 1 72 79 YoY change (%) (16.5) (96.0) 7,035.4 15.5 (15.1) (96.2) 7,254.1 10.9 As % of Revenue 2.4 0.1 5.9 6.3 2.4 0.1 5.9 6.3Financial Results (35) 130 (12) (10) (3) 10 (1) (1)Taxes 18 9 90 157 1 1 7 12Net Profit 263 134 811 888 21 10 64 67 YoY change (%) 29.2 (48.9) 503.4 9.4 31.3 (51.7) 521.9 5.1 As % of Revenue 2.0 1.0 5.2 5.3 2.0 1.0 5.2 5.3

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (302) (289) (342) (359) (24) (22) (27) (27)Other Noncash Items - - - - - - - -Changes in Working Capital (407) (405) (328) (418) (33) (31) (26) (31)Operating Cash Flow 158 19 825 829 13 1 65 62Capital Expenditures (312) (603) (600) (500) (25) (46) (47) (38)Free Cash Flow (2,108) (1,007) 447 654 (170) (77) 35 49Other Invest./(Divestments) (358) (360) (400) (500) (29) (27) (31) (38)Change in Debt (598) 350 0 0 (48) 27 0 0Dividends 0 0 0 0 0 0 0 0Capital Increases/Other 2,377 37 0 0 191 3 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 2,451 2,113 2,324 2,114 176 163 178 149Current Assets 4,000 3,557 3,850 3,700 287 274 294 261Fixed Assets 1,341 1,655 1,913 2,053 96 128 146 145Total Assets 8,378 8,713 9,677 10,180 601 672 740 717Current Liabilities 3,872 3,722 3,875 4,017 278 287 296 283Long-Term Liabilities 544 894 894 894 39 69 68 63Shareholders' Equity 3,962 4,097 4,908 5,269 284 316 375 371Total Financial Debt 562 912 912 912 40 70 70 64ST Debt 268 268 268 268 19 21 21 19LT Debt 294 644 644 644 21 50 49 45

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt 13,421 16,304 18,712 21,415 962 1,257 1,430 1,508Capital Employed 4,506 4,991 5,802 6,163 323 385 443 434Net Debt/EBITDAR 4.8 5.8 4.5 4.6 4.3 5.9 4.4 4.3Net Debt/Equity 3.4 4.0 3.8 4.1 3.5 4.4 3.8 4.1Capex/Revenue (%) 2.4 4.4 3.8 3.0 2.4 4.4 3.8 3.0Int Cover (%) (72.3) (71.2) (90.5) (101.8) (72.3) (71.2) (90.5) (101.8)Dividend Payout (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0ROCE (%) 6.6 0.1 14.2 14.6 6.8 0.1 14.2 14.6ROE (%) 10.5 3.3 18.0 17.4 10.7 3.5 18.0 17.4

MARKET RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EP/E n/m n/m 16.3 14.9 n/m n/m 14.1 13.4P/CE 31.8 31.7 11.5 10.6 30.2 28.3 9.9 9.5FV/EBITDAR 11.2 10.6 7.7 7.5 10.3 10.2 7.2 6.9FV/EBIT n/m n/m 35.0 32.9 n/m n/m 32.5 30.3FV/Revenue 2.4 2.2 2.0 2.1 2.2 2.1 1.9 1.9P/BV 4.5 3.3 2.7 2.5 4.8 2.9 2.4 2.4FCF Yield (%) (11.7) (7.5) 3.4 4.9 (12.4) (8.4) 3.9 5.5Div Yield (%) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0)


US$M$

Fuel40.1%

Aircraft rent17.2%

Labor12.3%

Airport and navigation

15.2%

Marketing5.5%

Mainten.4.5%

Other2.7%

D&A2.4%

Passenger85.5%

Non ticket14.5%

Free Float25.0%

Discovery Air

22.0%

Kriete/ Caoba19.0%

Indigo19.0%

Mexican Investors

12.0%Mngmnt

3.0%

381


WALMEX HOLD CURRENT PRICE: M$30.76



Investment Case: We reiterate our Hold rating on Walmex given the overall weak growth outlook based on more gradual-than-anticipated SSS in addition to internal execution issues that continue to affect Sam’s Club. Therefore, we remain on the sidelines until we see better-than-anticipated traffic growth and/or a revitalization of its credit offering to consumers.

Outlook 2015: We expect selling space to grow by only 6% in 2015, still short of the 11% average organic growth expansion before the bribery allegations surfaced in 2011. We expect SSS to increase 3.0% in 2015, which factors in a gradual consumption recovery in Mexico. We forecast 10% EBITDA growth led by margin gains in its operations in Central America, and 7% EPS growth YoY, excluding the extraordinary income from the sale of Vips in 2014.

Cautious on turnaround at Sam’s Club: We remain cautious on the turnaround of Sam’s in the short term due to (i) heightened competition from other wholesalers and department stores, (ii) recent management changes while the team has yet to decide what works best and what does not, and (iii) relaunching of product categories over the next 12 months under the new commercial strategy.

Lowering YE2015 target price to M$35.00 due to lower estimated earnings: The 10% reduction in our target price reflects lowerearnings in all lines in the difficult 2014 and lower selling space growth than previously anticipated for 2015-16.

Premium valuation despite underperformance: Walmex trades at a 2015E P/E of 22.5x, and has limited upside potential despite its underperformance, in our view, considering uninspiring EPS growth of 7.0% in 2015 (excluding extraordinary items). Catalysts could include revitalization of its credit offering or higher-than-anticipated comp sales traffic, but we remain neutral until some of these expected drivers materialize.




Company Statistics



Bloomberg WALMEXV MMCurrent Price (01/02/15) M$ 30.76 / US$ 2.07Target Price (YE 2015) M$ 35.00 / US$ 2.6852-Week Range (M$) 28.06 - 35.67Market Capitalization (US$ Mn) 36,534Float (%) 31.03-Mth Avg. Daily Vol (US$ Mn) 41.5Shares Outstanding - Mn 17,618

60

70

80

90

100

110

e-13 m-13 a-13 d-13 a-14 a-14 d-14

WALMEXV MM MEXBOL

382


WALMEX Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Walmart de México y Centroamérica (Walmex) is a major retail chain in Mexico and Central America. As of September 30, 2014 it operates 2,904 units throughout 6 countries (Mexico, Guatemala, Costa Rica, Honduras, El Salvador and Nicaragua), including self-service stores, membership wholesale clubs, and apparel stores. It is the leading food retailer in Mexico with a market share close to 54% of the formal sector. Key Personnel: Scot Rank (CEO), Rafael Matute (CFO), Mariana Rodriguez (IRO) and Renzo Casillo (COO) Web: www.walmex.mx





P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 425,161 442,608 475,489 515,530 33,100 33,621 36,107 39,318 YoY change (%) 1.7 4.1 7.4 8.4 4.2 1.6 7.4 8.9Gross Profit 93,624 97,297 105,360 114,314 7,289 7,391 8,001 8,718 YoY change (%) (1.0) 3.9 8.3 8.5 1.4 1.4 8.3 9.0EBITDA 40,221 41,651 45,804 50,167 3,131 3,164 3,478 3,826 YoY change (%) (2.3) 3.6 10.0 9.5 0.1 1.0 9.9 10.0 As % of Revenue 9.5 9.4 9.6 9.7 9.5 9.4 9.6 9.7Operating Income 31,532 32,364 35,870 39,655 2,455 2,458 2,724 3,024 YoY change (%) (2.7) 2.6 10.8 10.6 (0.3) 0.1 10.8 11.0 As % of Revenue 7.4 7.3 7.5 7.7 7.4 7.3 7.5 7.7Financial Results (15) (337) (1,493) (2,179) (1) (26) (113) (166)Taxes 9,517 9,623 10,313 11,243 741 731 783 857Net Profit 22,717 22,403 24,061 26,231 1,769 1,702 1,827 2,001 YoY change (%) (2.4) (1.4) 7.4 9.0 (0.0) (3.8) 7.4 9.5 As % of Revenue 5.3 5.1 5.1 5.1 5.3 5.1 5.1 5.1

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (8,690) (9,287) (9,934) (10,511) (677) (705) (754) (802)Other Noncash Items - - - - - - - -Changes in Working Capital (4,265) (1,645) (2,007) (2,007) (332) (125) (152) (153)Operating Cash Flow 27,141 30,045 31,987 34,734 2,113 2,282 2,429 2,649Capital Expenditures (13,987) (13,431) (15,862) (16,666) (1,089) (1,020) (1,204) (1,271)Free Cash Flow 12,734 16,040 16,125 16,125 991 1,218 1,224 1,230Other Invest./(Divestments) - - - - - - - -Change in Debt 0 0 0 0 0 0 0 0Dividends (16,056) (21,754) (20,768) (18,282) (1,250) (1,652) (1,577) (1,394)Capital Increases/Other - - - - - - - -

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 21,129 21,153 16,510 17,341 1,619 1,615 1,264 1,309Current Assets 82,649 81,703 82,436 88,773 6,331 6,237 6,310 6,700Fixed Assets 147,613 152,674 161,013 169,696 11,307 11,655 12,324 12,807Total Assets 230,262 234,378 243,449 258,469 17,638 17,891 18,634 19,507Current Liabilities 65,721 74,974 79,204 84,654 5,034 5,723 6,062 6,389Long-Term Liabilities 21,590 21,507 21,507 21,507 1,654 1,642 1,646 1,623Shareholders' Equity 142,930 137,882 142,722 152,291 10,948 10,525 10,924 11,494Total Financial Debt 0 0 0 0 0 0 0 0ST Debt 0 0 0 0 0 0 0 0LT Debt 0 0 0 0 0 0 0 0

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt (21,129) (21,153) (16,510) (17,341) (1,619) (1,615) (1,264) (1,309)Capital Employed 164,541 159,404 164,245 173,815 12,604 12,168 12,571 13,118Net Debt/EBITDA (0.5) (0.5) (0.4) (0.3) (0.5) (0.5) (0.4) (0.3)Net Debt/Equity (0.1) (0.2) (0.1) (0.1) (0.2) (0.2) (0.1) (0.1)Capex/Revenue (%) 3.3 3.0 3.3 3.2 3.3 3.0 3.3 3.2Int Cover (%) 34.8 32.5 24.2 19.6 34.8 32.5 24.2 19.6Dividend Payout (%) 69.0 95.8 92.7 76.0 71.1 91.8 83.5 75.7ROCE (%) 16.0 16.6 18.4 19.1 16.6 19.1 18.5 19.1ROE (%) 16.1 16.0 17.1 17.8 16.4 16.6 17.2 17.8



US$M$

Central America13.9%

Mexico86.1%

Central America

9.2%

Mexico90.8%

Free Float31.0%

Walmart Stores, Inc.

69.0%

383


PERU—FOOD & BEVERAGE

ALICORP BUY CURRENT PRICE: S/.7.11

TARGET PRICE: S/.8.90 INTRODUCING YE2015 TARGET PRICE OF S/.8.90; REPLACING YE2014 TARGET PRICE OF S/.9.80

Investment Case: We believe that the company is well positioned to benefit from the expected acceleration in the Peruvian economy in 2015, based on Alicorp’s leading brand portfolio, the degree of integration in its operations, and its effective distribution model, which, we believe, results in attractive and sustainable levels of profitability and cash flow generation.

Alicorp still has substantial opportunities to grow, in our view, despite the company’s high market shares, as a result of the relatively low penetration of its products in the Peruvian provinces compared with Lima. Moreover, some of the product categories with the highest growth potential are also some of the most attractive ones from an EBITDA generation point of view.

We expect Alicorp’s cash flow generation to improve after the conclusion of the company’s strategic capex plan, which should result in a deleveraging of the company in the next few years.

Outlook 2015: We expect the Peruvian economy to accelerate in 2015 driven by: (1) large mining projects coming on stream; (2) starting of large-scale infrastructure projects; and (3) Peruvian government stimulus measures. We believe that these drivers will result in a recovery of domestic demand in Peru, which would increase demand for Alicorp’s products. In the company’s international operations, we expect a continuation of the scenario in which a positive performance in Alicorp’s Animal Nutrition segment will continue offsetting poor performance in Argentina.

We are decreasing our EBITDA margin estimates to reflect ongoing trends in revenue mix (i.e., Animal Nutrition outgrowing Consumer Goods Peru) and also our expectation of a less supportive FX performance, which we anticipate to offset some of the margin improvement that we expected to see as a result of the company’s product launches in 2014.

Valuation: Alicorp’s stock currently trades at a 2015E FV/EBITDA of 10.1x, which compares favorably with other food companies in the region.



Company Statistics

Price Performance (S/.)


Bloomberg ALICORC1 PECurrent Price (01/02/15) S/. 7.11 / US$ 2.39Target Price (YE 2015) S/. 8.90 / US$ 2.9252-Week Range (S/.) 7.01 - 9.40Market Capitalization (US$ Mn) 2,022Float (%) 26.33-Mth Avg. Daily Vol (US$ Mn) 0.9Shares Outstanding - Mn 847

60

70

80

90

100

110

120

130

J-13 M-13 A-13 D-13 A-14 A-14 D-14

ALICORC1 PE IGBVL

384

ALICORP Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Alicorp is the largest consumer goods company in Peru, with operations in other Latin American countries, including: Brazil, Argentina, Colombia, Ecuador and Central America, and exports to 23 other countries. The company is focused in three core businesses: (1) Consumer Products (food, personal and home care products), (2) Industrial Food Products (industrial flour, industrial lard, pre-mix and food service products), and (3) Animal Nutrition (fish and shrimp feeding). The company is controlled by Grupo Romero, one of the largest business groups in Peru with investments across different sectors including: financial (Credicorp), logistics, infrastructure, trading and services. Key Personnel: Dionisio Romero Paoletti (Chairman), Paolo Sacchi (CEO), Diego Rosado (CFO) and Alexander Pendavis (IR and Head of Corporate Development) Web: http://www.alicorp.com.pe/

Revenue by Country, 3Q14




P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 5,822 6,341 6,729 7,108 2,154 2,188 2,224 2,319 YoY change (%) 30.1 8.9 6.1 5.6 27.0 1.6 1.7 4.3Gross Profit 1,598 1,662 1,791 1,901 591 573 592 620 YoY change (%) 31.0 4.0 7.8 6.2 27.9 (3.0) 3.2 4.8EBITDA 767 751 821 886 284 259 271 289 YoY change (%) 36.7 (2.1) 9.4 8.0 33.5 (8.7) 4.8 6.5 As % of Revenue 13.2 11.8 12.2 12.5 13.2 11.8 12.2 12.5Operating Income 660 640 706 756 244 221 234 247 YoY change (%) 35.0 (3.0) 10.4 7.0 31.8 (9.5) 5.8 5.6 As % of Revenue 11.3 10.1 10.5 10.6 11.3 10.1 10.5 10.6Financial Results (213) (214) (220) (220) (79) (74) (73) (72)Taxes (123) (91) (114) (126) (46) (31) (38) (41)Net Profit 368 272 371 409 136 94 123 133 YoY change (%) 5.0 (26.1) 36.4 10.1 2.5 (31.1) 30.7 8.7 As % of Revenue 6.3 4.3 5.5 5.7 6.3 4.3 5.5 5.7

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization (107) (111) (114) (130) (40) (38) (38) (42)Other Noncash Items 0 0 0 0 0 0 0 0Changes in Working Capital (95) (289) (19) (71) (35) (100) (6) (23)Operating Cash Flow 380 94 466 468 141 32 154 153Capital Expenditures (762) (618) (370) (213) (282) (213) (122) (70)Free Cash Flow (256) (316) 265 424 (95) (109) 88 138Other Invest./(Divestments) - - - - - - - -Change in Debt 344 563 0 0 127 194 0 0Dividends (103) (103) (82) (111) (38) (35) (27) (36)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 93 30 44 187 33 10 14 61Current Assets 2,132 2,463 2,547 2,813 762 821 835 913Fixed Assets 3,763 4,270 4,526 4,609 1,345 1,423 1,484 1,496Total Assets 5,894 6,733 7,073 7,422 2,108 2,244 2,319 2,410Current Liabilities 1,191 1,398 1,448 1,500 426 466 475 487Long-Term Liabilities 2,337 2,800 2,800 2,800 836 933 918 909Shareholders' Equity 2,357 2,527 2,816 3,114 843 842 923 1,011Total Financial Debt 2,054 2,618 2,618 2,618 760 873 858 850ST Debt 292 393 393 393 108 131 129 127LT Debt 1,762 2,225 2,225 2,225 652 742 729 722




US$S/.

Peru62.2%

Brazil8.9%

Argentina7.9%

Ecuador9.5%

Chile8.3%

Others3.2%

Consumer Goods56.5%

B2B22.6%

Animal Nutrition20.8%

Grupo Romero45.3%

Peruvian pension funds28.4%

Float26.3%

385


PERU—CEMENT, CONSTRUCTION, INFRA & RE

CEMENTOS PACASMAYO BUY CURRENT PRICE: US$8.69 TARGET PRICE: US$10.50

UPGRADING RATING TO BUY FROM HOLD

Investment Case: We believe that the company is well positioned to benefit from the development of infrastructure projects in Peru and,more broadly speaking, from the expected acceleration in the Peruvian economy in 2015.

Profitability in Peru’s cement industry is supported by this market’s structure, which is highly concentrated on the offer side (only three large producers in the country), and dispersed on the demand side (DIY segment represents 55% of company sales). This helps Cementos Pacasmayo’s sustain pricing power, translating into superior levels of profitability, in our view.

In addition to its cement business, Cementos Pacasmayo is currentlyinvolved in a project to develop some phosphate deposits in partnership with Mitsibishi Corp. We believe that additional news on this project could represent a positive catalyst for the stock.

Outlook 2015: We expect the Peruvian economy to accelerate in 2015 driven by: (1) large mining projects coming on stream; (2) the startup of large-scale infrastructure projects; and (3) Peruvian government stimulus measures. We believe that these drivers will result in a recovery of cement demand in Pacasmayo’s markets. In addition to this, we expect key infrastructure projects in Peru’s northern region (e.g., the Talara refinery, the Chavimochic irrigation project and Olmos’ urban development) to provide incremental demand for cement next year.

In addition to a recovery in top-line results, we expect the company to increase EBITDA generation in 2015 as a result of the startup of its new Piura plant (in the second half). This margin improvement, in ourview, will be driven by the substitution of imported clinker, as well as more efficient logistics given the plant’s location.

Valuation: Cementos Pacasmayo’s stock currently trades at a 2015E FV/EBITDA of 8.6x, which compares favorably to other cement companies in the region. While part of this discount may be justified by CPAC’s lower liquidity, we also highlight that the company delivers similar levels of profitability and expected growth in the medium term.


Company Statistics



Bloomberg CPAC US / CPACASC1 PECurrent Price (01/02/15) US$ 8.69 / S/. 5.30Target Price (YE 2015) US$ 10.50 / S/. 6.2052-Week Range (US$) 8.21 - 11.60Market Capitalization (US$ Mn) 924Float (%) 30.03-Mth Avg. Daily Vol (US$ Mn) 0.2Shares Outstanding - Mn 106

60

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

CPAC US IGBVL

386

CEMENTOS PACASMAYO Financial Highlights: P&L, Balance Sheet and CF Statement, 2013–16E in Millions Company Description

Cementos Pacasmayo is one of the leading cement producers in Peru, with a market share of about 21% in cement. The company is the only cement producer in the northern region of Peru where it also produces distributes and sells cement-related materials, such as concrete blocks and ready-mix concrete. The company owns two cement plants with an annual installed capacity of about 3.3 million tons of cement per year. Hochschild Group is the company’s largest shareholder. " Key Personnel: Eduardo Hochschild (Chairman), Humberto Nadal (CEO), Manuel Ferreyros (CFO) and Claudia Bustamante (IR) Web: www.cementospacasmayo.com.pe


Sales by Type of Consumer, 2014E



P&L ACCOUNT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ETotal Revenue 1,240 1,229 1,330 1,456 459 432 448 488 YoY change (%) 6.0 (0.8) 8.2 9.5 3.4 (5.8) 3.7 9.0Gross Profit 523 500 568 656 194 176 192 220 YoY change (%) 14.6 (4.6) 13.8 15.4 11.8 (9.3) 9.1 14.9EBITDA 349 328 384 455 129 115 129 153 YoY change (%) 25.1 (5.8) 17.0 18.6 22.1 (10.5) 12.1 18.0 As % of Revenue 28.1 26.7 28.9 31.3 28.1 26.7 28.9 31.3Operating Income 293 262 327 387 108 92 110 130 YoY change (%) 27.1 (10.5) 24.7 18.3 24.0 (15.0) 19.6 17.7 As % of Revenue 23.6 21.3 24.6 26.6 23.6 21.3 24.6 26.6Financial Results (58) (38) (34) (34) (22) (13) (11) (11)Taxes (82) (71) (88) (106) (30) (25) (30) (36)Net Profit 152 153 205 247 56 54 69 83 YoY change (%) (2.1) 0.5 34.1 20.4 (4.5) (4.5) 28.6 19.8 As % of Revenue 12.3 12.4 15.4 17.0 12.3 12.4 15.4 17.0

CASH FLOW 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016EDepreciation & Amortization 55 66 57 68 20 23 19 23Other Noncash Items (7) 2 (4) (5) (3) 1 (1) (2)Changes in Working Capital (72) 135 (168) (40) (26) 47 (57) (13)Operating Cash Flow 129 356 90 271 48 125 30 91Capital Expenditures (205) (808) (58) (63) (76) (284) (20) (21)Free Cash Flow (31) (428) 59 236 (11) (150) 20 79Other Invest./(Divestments) 0 0 0 0 0 0 0 0Change in Debt 609 0 0 0 225 0 0 0Dividends (58) (61) (61) (82) (22) (21) (21) (28)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 977 464 464 590 349 157 156 197Current Assets 1,419 769 940 1,108 508 260 316 371Fixed Assets 1,695 2,441 2,449 2,453 606 825 823 821Total Assets 3,115 3,210 3,389 3,561 1,114 1,084 1,139 1,191Current Liabilities 158 161 196 203 56 54 66 68Long-Term Liabilities 947 947 947 947 339 320 319 317Shareholders' Equity 2,009 2,102 2,246 2,411 719 710 755 807Total Financial Debt 824 824 854 854 295 278 287 286ST Debt 0 0 30 30 0 0 10 10LT Debt 824 824 824 824 295 278 277 276

FINANCIAL RATIOS 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Debt (153) 360 390 264 (55) 122 131 88Capital Employed 2,957 3,049 3,223 3,388 1,058 1,030 1,084 1,134Net Debt/EBITDA (0.4) 1.1 1.0 0.6 (0.4) 1.1 1.0 0.6Net Debt/Equity (0.1) 0.2 0.2 0.1 (0.1) 0.2 0.2 0.1Capex/Revenue (%) 16.5 65.7 4.4 4.3 16.5 65.7 4.4 4.3Int Cover (%) 9.4 10.6 8.5 10.0 9.4 10.6 8.5 10.0Dividend Payout (%) 37.4 40.0 40.0 40.0 36.5 38.1 38.1 40.0ROCE (%) 6.4 5.9 7.1 8.0 6.8 6.3 7.1 8.0ROE (%) 7.8 7.4 9.4 10.6 7.7 7.6 9.4 10.6



US$S/.

Cement and blocks77.8%

Concrete9.9%

Construction materials

7.6%Quicklime

4.7%

DIY55.0%

Private construction

22.0%

Public construction

23.0%

Hochschild Group51.0%

Pension Funds19.0%

Free float30.0%

387


PERU—FINANCIAL SERVICES

CREDICORP BUY CURRENT PRICE: US$159.35



Investment Case: Our Buy rating is driven by the expectation that the Peruvian economy should rebound from a weak 2014, due to a recovery in investment and tax cuts, which should both support domestic demand. As such, we expect loan growth to recover amid still-high NIMs, improving asset quality and efficiency.

Outlook 2015: We expect loan growth (ex MiBanco) to accelerate from 9.8% YoY in 3Q14 to 14.3% by YE15. MiBanco should deliver loan growth of 24% YoY, according to our calculations, as the integration of the bank is scheduled to conclude in early 2015, with the group recovering lost market share in microlending in Peru. We expect recurrent tangible net income to grow 31%, leading to an improvement in ROTE to 23.9%, from 22.1% in 2014E.

Credicorp not undercapitalized. While headline capital ratios under Peruvian regulations may look weak, we believe they are misleading, as local regulations are tougher than international standards. We estimate that ~27% of BAP’s consolidated group RWA can be attributed to punitive regulations. As such, RWA as a percentage of total assets exceeds 100% (an anomaly by LatAm standards) despite loans at only 55% of total assets, with cash, securities and reserve requirements representing ~40%. Nevertheless, the bank will need to re-invest most of the earnings in its core banking operation in Peru to meet strict local capital requirements, potentially leading to lower dividend payouts in the medium term.

BCRP to support domestic credit demand. Peruvian banks, including BCP, will need to continue relying on liquidity support from the central bank to meet rising credit demand, both in the form of lower reserve requirements and reverse-repo operations, as mismatches between deposit and loan growth (by currency) should persist into 2015, in our view.

Turning the page on NPL issues. We expect the economic recovery to lead to improving NPLs at BAP, ending the bank’s current credit cycle.



Company Statistics



Bloomberg BAP USCurrent Price (01/02/15) US$ 159.35 / S/. 474.75Target Price (YE 2015) US$ 188.00 / S/. 579.0152-Week Range (US$) 125.14 - 169.97Market Capitalization (US$ Mn) 12,710Float (%) 69.43-Mth Avg. Daily Vol (US$ Mn) 36.6Shares Outstanding - Mn 80

60

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

BAP US IGBVL

388

CREDICORP Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Credicorp is Peru's leading diversified financial services group. Its main asset is Banco de Credito del Peru (BCP), Peru’s largest bank in terms of both loans and deposits, with a market share of approximately 34%. The group also operates an insurance operation (Pacifico Grupo Asegurador), pension funds (AFP Prima), asset management (Atlantic Security), a microfinance unit (MiBanco) and a Pan-Andean investment banking operation. The bank is controlled by the Romero family. Key Personnel: Dionisio Romero (Chairman), Dionisio Romero Paoletti (CEO), Fernando Dasso (CFO), Aida Kleffmann (IRO) and Walter Bayly (COO) Web: www.credicorpnet.com

Loan Book, 2015E




INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Interest Income 4,632 6,102 7,103 8,235 1,714 2,150 2,344 2,631NPL Provisions (1,238) (1,733) (1,767) (2,213) (458) (610) (583) (707)Adj Net Interest Income 3,393 4,369 5,336 6,022 1,256 1,539 1,761 1,924Non-Interest Income 3,763 4,348 4,745 5,219 1,393 1,532 1,566 1,668Total Operating Revenue 7,157 8,718 10,081 11,241 2,648 3,071 3,327 3,592Non-Interest Expense (4,537) (5,256) (5,690) (6,108) (1,679) (1,852) (1,878) (1,952)Profit Before Taxes 2,335 3,465 4,465 5,218 864 1,221 1,474 1,667Taxes (778) (911) (1,085) (1,242) (288) (321) (358) (397)Net Profit 1,539 2,549 3,313 3,896 569 898 1,093 1,245Adjusted Net Profit 1,177 2,927 3,357 3,886 435 1,031 1,108 1,242

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 21,922 24,438 27,281 29,616 7,839 8,199 8,858 9,316Securities 20,798 23,437 26,637 30,064 7,437 7,863 8,649 9,456Loans (net) 62,031 74,837 86,514 99,227 22,180 25,109 28,090 31,211Intangible Assets 2,050 2,319 2,127 1,925 733 778 691 605Total Assets 114,543 138,013 157,218 177,552 40,957 46,305 51,047 55,848Core Deposits 64,572 72,907 82,807 94,608 23,089 24,461 26,887 29,759Other Financial Liabilities 10,851 14,830 16,987 17,572 3,880 4,976 5,516 5,527Subordinated Debt 3,420 4,735 4,977 5,170 1,223 1,589 1,616 1,626Technical Provisions 4,985 5,495 6,199 6,982 1,782 1,844 2,013 2,196Equity 11,832 13,992 16,856 20,240 4,231 4,694 5,473 6,366Adjusted Equity 10,311 12,422 15,430 19,067 3,687 4,168 5,010 5,998

LOAN BOOK 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECompanies 29,053 34,132 38,829 44,257 10,388 11,452 12,608 13,921Total Consumer 17,948 19,081 21,970 25,045 6,418 6,402 7,134 7,878Mortgages 9,741 10,819 12,899 15,088 3,483 3,630 4,188 4,746Other Loans 1,485 6,216 6,994 7,910 531 2,086 2,271 2,488Gross Loans 64,294 78,037 89,906 103,111 22,989 26,182 29,192 32,433Loan Grow th (%) 17.4 21.4 15.2 14.7 7.1 13.9 11.5 11.1NPL 1,437 1,987 2,120 2,412 514 667 688 759Provisions (2,264) (3,200) (3,392) (3,884) (809) (1,074) (1,101) (1,222)




US$S/.

Corp27.0%

MM16.2%

SMEs13.1%

Mortgage14.3%

Consumer7.5%

C. Card3.8%

MyBanco10.1%

Other8.0%

NII52.9%

Trading9.0%

Fees27.9%

Insurance8.5%

Other1.7%

Romero Family13.3%

Atlantic Security15.5%

BCI1.9%

Free Float69.4%

389


PERU—FINANCIAL SERVICES

INTERCORP HOLD CURRENT PRICE: US$30.40



Investment Case: We believe that Intercorp should continue to trade at a discounted valuation relative to Credicorp as long as liquidity remains low. In our view, the secondary offering could create an opportunity to enter the shares at an attractive valuation; however, we maintain our Hold rating, as the timing of the transaction and the urgency of the controlling shareholder to sell the shares remain uncertain.

Outlook 2015: We expect loan growth of 15%, mainly driven by commercial lending and credit cards. In our view, margins should be relatively flat, given the low interest rate environment, but fee incomeis likely to accelerate, given the full-year accounting of Inteligo, a fee-generating business. Furthermore, we expect efficiency to improve 100 bps due to the increased use of alternative distribution channels,such as, smart ATMs, telephone and mobile banking. Adjusted ROE should increase to 21.4%, from 17.9% in 2014E, according to our estimates.

Gaining market share: Intercorp is focused on growing in corporate and middle-market companies lending, where we see ample room togrow as the bank has a small market share of only 9% compared toits stake in consumer lending of 21% as of September 2014.

Secondary offering opens new play in Peruvian banks: Intercorp filed to list a US$400 secondary offering on the NYSE, which is likely to close in 1H15. We estimate free float to increase from 22% to 35%, which should address the issue of low liquidity, offering investors an alternative to play Peru’s low credit penetration story.

Cross-selling opportunities: Interbank has invested in a client-centric IT platform, which, in our view, should help Interbank improved its low cross selling ratio of 1.7x as of 3Q14. We believe the bank can leverage its subsidiaries, Interseguros and Inteligo, and offer targeted products in annuities, bankasssurance, and wealth management.



Company Statistics



Bloomberg IFS PECurrent Price (01/02/15) US$ 30.40 / S/. 90.57Target Price (YE 2015) US$ 33.00 / S/. 101.6452-Week Range (US$) 28.17 - 33.14Market Capitalization (US$ Mn) 3,439Float (%) 22.33-Mth Avg. Daily Vol (US$ Mn) 0.7Shares Outstanding - Mn 113

60

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

IFS PE IGBVL

390

INTERCORP Financial Highlights: P&L and Balance Sheet, 2013–16E in Millions Company Description

Intercorp is a Peruvian financial services holding company that operates through three subsidiaries: Interbank, Inteligo, and Interseguro. Interbank is the fourth largest bank in Peru, with a market share of approximately 12% in terms of gross loans. It is a full-service bank focused mainly on the consumer segment. Inteligo is a fast growing provider of wealth management services, catering to Peruvian high net worth individuals. Interseguro is the fourth largest insurance company in Peru in terms of total assets. It provides annuities, life insurance, disability insurance, and survivor benefits, as well as traffic accident insurance. Intergroup launched its IPO in June 2007, and its shares trade in U.S. dollars on the Lima Stock Exchange; currently in the process of listing its shares in the NYSE via ADRs. Key Personnel: Carlos Rodriguez-Pastor (Chairman), Luis Felipe Castellanos (CEO), Michela Casassa (CFO) and Ernesto Ferrero (IRO) Web: www.ifs.com.pe

Loan Book, 2015E

Funding Structure, 2015E



INCOME STATEMENT 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ENet Interest Income 1,660 1,893 2,087 2,277 614 667 689 727NPL Provisions (377) (423) (471) (547) (140) (149) (156) (175)Adj Net Interest Income 1,283 1,470 1,616 1,729 475 518 533 553Non-Interest Income 1,409 1,303 1,407 1,532 521 459 464 490Total Operating Revenue 2,691 2,773 3,023 3,261 996 977 998 1,042Non-Interest Expense (1,451) (1,529) (1,618) (1,705) (537) (539) (534) (545)Profit Before Taxes 1,240 1,244 1,405 1,557 459 438 464 497Taxes (266) (272) (279) (302) (98) (96) (92) (96)Net Profit 970 967 1,120 1,249 359 341 370 399Adjusted Net Profit 846 843 1,123 1,224 313 297 371 391

BALANCE SHEET 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECash and Equivalents 7,606 4,932 5,537 6,097 2,720 1,655 1,798 1,918Securities 5,678 7,969 8,525 9,523 2,030 2,674 2,768 2,995Loans (net) 20,662 23,484 26,889 30,814 7,388 7,879 8,731 9,692Intangible Assets 158 139 139 139 57 47 45 44Total Assets 36,179 38,987 43,822 49,634 12,936 13,081 14,229 15,612Core Deposits 19,176 23,486 27,683 30,483 6,857 7,880 8,988 9,588Other Financial Liabilities 2,988 3,088 2,189 3,592 1,068 1,036 711 1,130Subordinated Debt 559 596 616 636 200 200 200 200Technical Provisions 3,137 3,680 4,143 4,560 1,122 1,235 1,345 1,434Equity 3,712 4,134 4,796 5,500 1,327 1,387 1,557 1,730Adjusted Equity 3,702 4,159 4,892 5,662 1,324 1,395 1,588 1,781

LOAN BOOK 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016ECompanies 10,031 10,860 12,334 14,148 3,587 3,644 4,005 4,450Total Consumer 6,005 7,295 8,479 9,730 2,147 2,448 2,753 3,061Mortgages 3,743 4,253 4,810 5,466 1,338 1,427 1,562 1,719Other Loans 1,383 1,670 2,005 2,363 495 560 651 743Gross Loans 21,162 24,078 27,628 31,707 7,567 8,078 8,971 9,973Loan Grow th (%) 33.6 13.8 14.7 14.8 22.0 6.8 11.0 11.2NPL 347 453 542 646 124 152 176 203Provisions (694) (824) (1,002) (1,195) (248) (277) (325) (376)




US$S/.

Revolving16.2%

Non-Revolving

14.0%Mortgages

17.4%

Corporate28.0%

SME16.7%

Demand Dep.

29.0%

Savings Dep.

19.8%

Time Dep.33.0%

Interbank9.9%

Bonds & Notes8.3%

Carlos Rodriguez-

Pastor77.7%

Free Float22.3%

391


MULTINATIONAL—TRANSPORTATION

COPA HOLDINGS BUY CURRENT PRICE: US$103.62



Investment Case: We reiterate our Buy rating on Copa despite the problems in Venezuela, which imply lack of momentum, as (i) the business model remains intact (hub-based model, with very limited competition), (ii) high profitability (17-18% EBIT margin) and strong balance sheet (rated investment grade by S&P and Moody’s), (iii) lower oil prices should partially offset the reduction of operationsin Venezuela, and (iv) valuation is attractive at 2015E P/E of 11.5x.

Outlook 2015: We estimate: (1) YoY top-line growth of -2% due to -8% RASM and +7% ASM YoY (a deceleration in capacity growth this year vs. +14% in 2013 and +9% in 2014E); (2) EBIT margin contraction of 1.3 p.p. to 17.7% (vs. guidance of 15-17%), with RASM -8% (mainly due to Venezuela) and CASM -7% (on lower jet fuel prices); and (3) net profit decline of 9% YoY, to US$400 million.

Venezuela update: Copa has redeployed ~50% of capacity out of Venezuela, which implies that Copa is no longer accumulating cash in bolivars. The current cash position in bolivars is ~US$520 million.

Oil prices: Oil price (Brent) is at US$64/bbl (down ~45% since June), which we believe implies significant upside for Copa, as 38% of costs are related to jet fuel costs. In our model we assumed an average oil price of ~US$75/bbl (17% above current level) for 2015.

Consistent and successful strategy: Over the past 17 years, Copa has consistently implemented its business model (i.e., it serves markets that need a hub). Facing a low level of competition, Copa has consistently been able to pass through fully to clients changes inoil costs, leading to relatively stable margins over the years. Panama, where Copa and its hub are based, is the fastest-growing country in LatAm, according to the IMF (~50% of Copa’s passengers have Panama as their final destination or origin). Latin America, although decelerating, delivered the third-highest growth rate in air traffic of any region in the world in 2013, according to IATA.

25% upside to target price: Our target price of US$130/share implies a 12-month-forward P/E of ~13x at the end of 2015.



Company Statistics



Bloomberg CPA USCurrent Price (12/09/14) US$ 103.62Target Price (YE 2015) US$ 130.0052-Week Range (US$) 97.84 - 161.11Market Capitalization (US$ Mn) 4,601Float (%) 70.03-Mth Avg. Daily Vol (US$ Mn) 86.5Shares Outstanding - Mn 44

80

100

120

140

160

180

D-12 A-13 A-13 D-13 A-14 A-14 N-14

CPA US MSCI LatAm

392

COPA HOLDINGS Financial Highlights: P&L, Balance Sheet and CF Statement, 2012-15E in Millions Company Description

Copa Holdings (Copa) is the parent company of Copa Airlines, the largest airline in Central America and the Caribbean, and Copa Airlines Colombia, the second-largest airline in Colombia. Copa Airlines provides international passenger and cargo transportation throughout the Americas and the Caribbean, using the Tucumen International Airport (Panama City) as its hub. Copa Holdings listed its shares on the NYSE in 2005, and it offers 100% tag-along rights to minority shareholders. Key Personnel: Pedro Heilbron (CEO) and Joseph Putaturo (IR Director) Web: www.copaair.com


RPM Breakdown, 2013E



P&L ACCOUNT 2009A 2010A 2011A 2012A 2013E 2014E 2015E 2016ETotal Revenue 1,253 1,411 1,833 2,249 2,608 2,701 2,645 2,819 YoY change (%) (2.8) 12.6 29.9 22.7 16.0 3.6 (2.1) 6.6Gross Profit - - - - - - - - YoY change (%) - - - - - - - -EBITDAR 317 380 511 564 714 737 710 767 YoY change (%) 2.3 19.8 34.7 10.3 26.6 3.2 (3.7) 8.1 As % of Revenue 25.3 26.9 27.9 25.1 27.4 27.3 26.8 27.2Operating Income 223 280 385 403 518 514 468 504 YoY change (%) (0.3) 25.4 37.3 4.6 28.8 (0.8) (8.9) 7.5 As % of Revenue 17.8 19.8 21.0 17.9 19.9 19.0 17.7 17.9Financial Results (23) (25) (26) (21) (18) (13) (14) (15)Taxes (20) (21) (36) (40) (60) (53) (55) (59)Net Profit 176 233 316 336 441 441 400 430 YoY change (%) 3.4 32.9 35.3 6.3 31.3 0.1 (9.4) 7.6 As % of Revenue 14.0 16.5 17.2 14.9 16.9 16.3 15.1 15.3

CASH FLOW 2009A 2010A 2011A 2012A 2013E 2014E 2015E 2016EDepreciation & Amortization (47) (53) (75) (89) (105) (112) (122) (136)Other Noncash Items - - - - - - - -Changes in Working Capital (36) 67 88 114 250 (174) 25 42Operating Cash Flow 214 375 514 569 827 406 573 636Capital Expenditures (187) (348) (299) (370) (162) (320) (319) (416)Free Cash Flow (39) 91 267 209 613 19 428 392Other Invest./(Divestments) (32) (38) 14 (88) 127 (130) 0 0Change in Debt (71) 144 78 138 (136) 114 200 200Dividends (16) (48) (73) (107) (170) (167) (160) (215)Capital Increases/Other 5 8 8 7 6 - - -

BALANCE SHEET 2009A 2010A 2011A 2012A 2013E 2014E 2015E 2016ECash and Equivalents 358 409 611 721 1,169 1,025 1,293 1,470Current Assets 509 600 860 987 1,442 1,307 1,584 1,775Fixed Assets 1,541 1,841 2,072 2,372 2,402 2,624 2,821 3,101Total Assets 2,093 2,556 3,066 3,480 3,952 4,040 4,514 4,985Current Liabilities 447 498 658 789 1,041 881 937 1,013Long-Term Liabilities 781 948 1,017 1,154 1,010 1,128 1,305 1,485Shareholders' Equity 866 1,110 1,391 1,537 1,902 2,031 2,271 2,487Total Financial Debt 1,171 1,314 1,427 1,713 1,702 1,958 2,218 2,477ST Debt 95 101 131 136 156 159 186 213LT Debt 751 889 937 1,070 914 1,025 1,199 1,372

FINANCIAL RATIOS 2009A 2010A 2011A 2012A 2013E 2014E 2015E 2016ENet Debt 813 905 816 993 532 933 925 1,008Capital Employed 1,542 1,820 2,008 2,334 2,416 2,645 2,830 3,111Net Debt/EBITDAR 2.6 2.4 1.6 1.8 0.7 1.3 1.3 1.3Net Debt/Equity 0.9 0.8 0.6 0.6 0.3 0.5 0.4 0.4Capex/Revenue (%) 14.9 24.6 16.3 16.5 6.2 11.9 12.1 14.8Int Cover (%) 4.0 5.0 6.1 5.4 5.9 5.3 4.7 4.7Dividend Payout (%) 9.6 27.3 31.1 33.7 50.8 37.8 36.2 53.8ROCE (%) 13.0 13.8 17.2 15.5 19.3 17.5 14.9 14.6ROE (%) 23.5 23.6 25.3 22.9 25.6 22.4 18.6 18.1

MARKET RATIOS 2009A 2010A 2011A 2012A 2013E 2014E 2015E 2016EP/E 13.3 11.1 8.2 13.2 16.1 10.4 11.5 10.7P/CE 10.5 9.0 6.6 10.4 13.0 8.3 8.8 8.1FV/EBITDAR 9.9 9.2 6.7 9.6 10.7 7.5 7.8 7.3FV/EBIT 14.1 12.5 8.9 13.4 14.7 10.8 11.8 11.1FV/Revenue 2.5 2.5 1.9 2.4 2.9 2.0 2.1 2.0P/BV 2.7 2.3 1.9 2.9 3.7 2.3 2.0 1.9FCF Yield (%) (1.7) 3.5 10.3 4.7 8.6 0.4 9.3 8.5Div Yield (%) 0.7 1.9 2.8 2.4 2.4 3.6 3.5 4.7


US$

Passenger Revenues

96.6%

Cargo, mail and other

3.4%

Copa Airlines96.5%

Copa Airlines

Colombia3.5%

Ameriprise Financial

7.6%Fidelity9.3%

Other83.1%

393


MULTINATIONAL—OIL, GAS & PETROCHEMICALS

TENARIS HOLD CURRENT PRICE: US$29.91

TARGET PRICE: US$35.00 DOWNGRADING RATING TO HOLD FROM BUY LOWERING YE2015 TARGET PRICE TO US$35.00 FROM US$56.50

Investment Case: Despite our belief that Tenaris is well positioned globally (particularly in the high-end seamless segment of the market), the rapid drop in oil prices is already and should continue toforce integrated as well as exploration and production companies that Tenaris services to cut their capex plans, thus pressuring both Tenaris’s prices and volume. Notwithstanding the healthy financial position of the company’s balance sheet, the lack of catalysts shouldcontinue to weigh on the performance of the stock, in our view.

Outlook 2015: We believe the positive outcome of the ITC’s decision to impose antidumping measures on OCTG imports into the U.S. from five countries (including Korea) in 2014 has been completely offset by concerns about the impact of lower oil prices on Tenaris’s volume and prices across all its global operations.

Implications from premium product strategy: We believe that Tenaris’s trademark expertise in premium products has served it well over the past few years and should continue to do so going forward. However, in the current environment of severe oil price corrections, investment in more complex and thus more expensive projects that Tenaris’s high-end products require are among the first ones to be postponed by integrated oil companies.

Strong financial position remains key: With a net cash position of more than US$1.5 billion at the end of 3Q14, we see the company as well positioned to weather the ongoing “falling oil price” storm.



Company Statistics



Bloomberg TS USCurrent Price (01/02/15) US$ 29.91Target Price (YE 2015) US$ 35.0052-Week Range (US$) 28.18 - 47.83Market Capitalization (US$ Mn) 17,655Float (%) 34.53-Mth Avg. Daily Vol (US$ Mn) 67.7Shares Outstanding - Mn 590

60

70

80

90

100

110

120

J-13 M-13 A-13 D-13 A-14 A-14 D-14

Tenaris - ADR (Rebased)

394

TENARIS Financial Highlights: P&L, Balance Sheet and CF Statement, 2013-16E in Millions Company Description

Tenaris is a leading global manufacturer and supplier of OCTG (oil country tubular goods), premium connections, line pipe, and other products and services associated with the oil and gas, energy, and other industries. The company has a seamless production capacity of approximately 3.3 million tons in its manufacturing facilities located in Italy, Argentina, Mexico, Japan, Canada, and Romania, and Venezuela, as well as welded operations in Brazil, the U.S., and Canada, among other countries. The Techint group is Tenaris’s controlling shareholder, with a 60.5% stake. Key Personnel: Paolo Rocca (Chairman), Paolo Rocca (CEO), Ricardo Soler (CFO) and Giovanni Sardagna (IR Officer) Web: www.tenaris.com

Tubes EBITDA by Country, 2015E




P&L ACCOUNT 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017ETotal Revenue 7,712 9,973 10,834 10,596 10,104 10,054 10,082 10,315 YoY change (%) (5.4) 29.3 8.6 (2.2) (4.6) (0.5) 0.3 2.3Gross Profit 3,205 3,723 4,271 4,402 4,080 3,878 3,886 3,975 YoY change (%) (1.9) 16.2 14.7 3.1 (7.3) (5.0) 0.2 2.3EBITDA 2,013 2,449 2,875 2,797 2,641 2,649 2,784 2,998 YoY change (%) (13.2) 21.7 17.4 (2.7) (5.6) 0.3 5.1 7.7 As % of Revenue 26.1 24.6 26.5 26.4 26.1 26.4 27.6 29.1Operating Income 1,574 1,895 2,283 2,187 2,028 1,990 2,069 2,255 YoY change (%) (13.2) 20.4 20.5 (4.2) (7.3) (1.9) 4.0 9.0 As % of Revenue 20.4 19.0 21.1 20.6 20.1 19.8 20.5 21.9Financial Results (53) (10) (50) (29) 39 175 177 180Taxes (450) (525) (542) (628) (615) (624) (648) (702)Net Profit 1,141 1,331 1,630 1,600 1,475 1,583 1,647 1,789 YoY change (%) (5.5) 16.7 22.5 (1.9) (7.8) 7.3 4.1 8.7 As % of Revenue 14.8 13.3 15.0 15.1 14.6 15.7 16.3 17.3

CASH FLOW 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017EDepreciation & Amortizatio (507) (554) (568) (610) (613) (659) (715) (743)Other Noncash Items (83) (151) 63 (69) (81) (85) (86) (88)Changes in Working Capita (857) (190) (594) (335) (520) (515) 93 (216)Operating Cash Flow 29 339 (937) 245 (242) (49) (50) (51)Capital Expenditures (847) (863) (790) (753) (1,004) (1,200) (960) (920)Free Cash Flow (673) (20) 5 (214) 407 (177) 864 722Other Invest./(Divestments 0 0 0 0 426 0 0 0Change in Debt (202) (314) 813 (813) 171 0 0 0Dividends (401) (559) (564) (507) (442) (570) (494) (537)Capital Increases/Other 84 (168) (256) (144) 12 0 0 0

BALANCE SHEET 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017ECash and Equivalents 1,542 1,276 1,494 1,863 3,214 3,081 3,991 4,759Current Assets 5,956 6,393 6,987 6,925 8,203 8,705 9,487 10,507Fixed Assets 8,078 8,102 8,621 8,656 8,740 9,404 9,778 10,090Total Assets 14,364 14,864 15,964 15,931 17,435 18,611 19,778 21,119Current Liabilities 2,379 2,404 2,829 2,120 2,880 3,044 3,055 3,137Long-Term Liabilities 1,215 1,137 1,042 1,095 1,065 1,086 1,108 1,130Shareholders' Equity 9,902 10,506 11,388 12,290 13,335 14,348 15,500 16,753Total Financial Debt 1,244 931 1,744 931 1,102 1,102 1,102 1,102ST Debt 1,024 781 1,212 685 1,096 1,096 1,096 1,096LT Debt 221 150 532 246 7 7 7 7

FINANCIAL RATIOS 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017ENet Debt (297) (345) 250 (932) (2,112) (1,979) (2,889) (3,656)Capital Employed 9,443 9,295 10,801 11,018 12,449 13,237 14,443 15,595Net Debt/EBITDA (0.1) (0.1) 0.1 (0.3) (0.8) (0.7) (1.0) (1.2)Net Debt/Equity (0.0) (0.0) 0.0 (0.1) (0.2) (0.1) (0.2) (0.2)Capex/Revenue (%) 11.0 8.7 7.3 7.1 9.9 11.9 9.5 8.9Int Cover (%) 31.4 46.7 51.8 39.7 53.8 52.6 55.3 59.5Dividend Payout (%) 33.2 49.0 42.3 31.1 27.7 38.6 31.2 32.6ROCE (%) 12.0 14.9 15.9 14.2 11.6 10.8 10.3 10.4ROE (%) 12.5 13.0 14.9 13.5 11.5 11.4 11.0 11.1

MARKET RATIOS 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017EP/E 25.3 16.5 15.2 16.1 12.1 11.2 10.7 9.9P/CE 17.5 11.6 11.3 11.7 8.5 7.9 7.5 7.0FV/EBITDA 15.2 9.4 8.8 9.0 6.0 6.0 5.3 4.7FV/EBIT 19.4 12.1 11.1 11.5 7.8 8.0 7.2 6.3FV/Revenue 4.0 2.3 2.3 2.4 1.6 1.6 1.5 1.4P/BV 2.9 2.1 2.2 2.1 1.3 1.2 1.1 1.1FCF Yield (%) (2.3) (0.1) 0.0 (0.8) 2.3 (1.0) 4.9 4.1Div Yield (%) 1.4 2.5 2.3 2.0 2.5 3.2 2.8 3.0


US$

North America46.8%

Europe10.0%

Middle East & Africa20.1%

Far East & Oceania

4.1%

South America18.9%

Tubes92.3%

Projects0.0%

Other7.7%

Techint Group60.5%

Aberdeen Asset Mgmt.

5.0%

Free Float34.5%

395


MULTINATIONAL—METALS & MINING

TERNIUM BUY CURRENT PRICE: US$17.53


Investment Case: We see Ternium as a positive outlier in a problematic sector, factoring in its unique robustness in operating performance and attractive valuation (3.7x FV/EBITDA). In our view,the stock is excessively discounted amid a wave of commodity stocksell-offs and the Usiminas drama. We recognize the Usiminas imbroglio as a risk, but even in the worst-case scenario we still model significant value for Ternium.

Outlook 2015: Unlike its Brazilian peers that became self-sufficient with respect iron ore, Ternium acquires most of its raw materials (iron ore and slabs) at market prices, which are declining. We expect this to offset the potential decline in TX’s steel prices in the U.S. (where steel prices have been very resilient so far, though unlikely to maintain this resilience, in our view). We forecast EBITDA of US$1.5 billion, -7% YoY, an impressive 17% FCFE yield.

Exposed to the best steel market in the world: NAFTA. With 55% of its sales in NAFTA, Ternium is exposed to the only market enjoyingpositive trends for economic growth in 2015. Also, Mexico’s rise as a key global exporter of autos is poised to continue, in our view, benefitting Ternium, whose strategy is to increasingly supply galvanized coils to automakers (now reinforced by its recent investments in Pesquería).

Current stock price more than discounts Usiminas risk. If Ternium is forced to carry out a tender offer to acquire USIM3 free float, we estimate that it can destroy some US$345 million in value for TX (US$1.76 per share). This is not our base case, but even if we write off this amount from our YE2015 target price, Ternium would still offer 38% total return potential.

Cash ROE (approximately 11%) is close to matching company’s costof equity (12%), according to our estimate. Nonetheless, the stock is trading at 0.6x book value, which, in our view, provides evidences of a distortion between Ternium’s ability to create value and market perception of value.




Company Statistics



Bloomberg TX USCurrent Price (01/02/15) US$ 17.53Target Price (YE 2015) US$ 25.0052-Week Range (US$) 16.22 - 32.24Market Capitalization (US$ Mn) 3,441Float (%) 25.03-Mth Avg. Daily Vol (US$ Mn) 7.4Shares Outstanding - Mn 196

60

80

100

120

140

J-13 M-13 A-13 D-13 A-14 A-14 D-14

TX US MSCI LatAm

396

TERNIUM Financial Highlights: P&L, Balance Sheet and CF Statement, 2013-16E in Millions Company Description

Ternium is one of the main steel producers in LatAm, with main manufacturing facilities in Argentina and Mexico. It has total crude steel and rolling capacity of approximately 7.5 million and 10.5 million tonnes per year, respectively. Ternium owns 191 million common shares of Usiminas, giving it a 37% economic stake in the company. Ternium is incorporated in Luxembourg and listed at NYSE only. Key Personnel: Paulo Rocca (Chairman), Daniel Novegil (CEO), Pablo Brizzio (CFO) and Sebastian Marti (IR Director) Web: www.ternium.com

Sales by Segment, 2013A

Sales by Destination, 2013A



P&L ACCOUNT 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017ETotal Revenue 7,382 9,157 8,608 8,531 8,842 8,686 8,567 8,604 YoY change (%) 48.9 24.1 (6.0) (0.9) 3.6 (1.8) (1.4) 0.4Gross Profit 1,717 2,063 1,726 1,930 1,920 1,853 1,789 1,860 YoY change (%) 102.3 20.2 (16.3) 11.8 (0.5) (3.5) (3.5) 3.9EBITDA 1,476 1,812 1,304 1,580 1,612 1,504 1,472 1,557 YoY change (%) 110.1 22.8 (28.0) 21.2 2.0 (6.7) (2.1) 5.7 As % of Revenue 20.0 19.8 15.1 18.5 18.2 17.3 17.2 18.1Operating Income 1,054 1,265 916 1,109 1,157 1,031 977 1,044 YoY change (%) 232.4 20.0 (27.6) 21.0 4.3 (10.9) (5.2) 6.9 As % of Revenue 14.3 13.8 10.6 13.0 13.1 11.9 11.4 12.1Financial Results 131 (301) (125) (136) (91) (127) (85) (66)Taxes (407) (316) (257) (349) (331) (265) (261) (287)Net Profit 622 513 140 454 539 455 451 495 YoY change (%) 273.0 (17.5) (72.7) 224.8 18.7 (15.6) (1.0) 9.7 As % of Revenue 8.4 5.6 1.6 5.3 6.1 5.2 5.3 5.7

CASH FLOW 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017EDepreciation & Amortizatio (383) (406) (371) (378) (406) (420) (443) (460)Other Noncash Items 0 0 0 0 (256) 0 0 0Changes in Working Capita 419 (604) 377 266 (445) 13 29 (9)Operating Cash Flow 1,424 315 888 1,098 244 888 922 946Capital Expenditures (350) (601) (3,200) (883) (485) (500) (500) (500)Free Cash Flow 1,074 (286) (2,312) 215 (241) 388 422 446Other Invest./(Divestments 0 0 0 0 0 0 0 0Change in Debt 0 0 0 0 0 0 0 0Dividends (150) (150) (130) (150) (147) (120) (118) (125)Capital Increases/Other 0 0 0 0 0 0 0 0

BALANCE SHEET 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017ECash and Equivalents 2,628 2,158 560 307 230 810 1,377 1,978Current Assets 5,523 5,554 3,644 3,189 3,531 4,072 4,595 5,200Fixed Assets 4,263 4,033 4,438 4,708 4,459 4,648 4,704 4,743Total Assets 11,112 10,746 10,867 10,373 10,326 11,017 11,532 12,112Current Liabilities 1,043 939 1,004 1,069 1,043 1,016 1,001 996Long-Term Liabilities 3,054 2,966 3,367 2,966 3,085 3,142 3,176 3,212Shareholders' Equity 5,881 5,756 5,421 5,340 5,171 5,634 5,965 6,334Total Financial Debt 1,940 1,991 2,424 2,003 2,122 2,122 2,122 2,122ST Debt 0 0 0 0 0 0 0 0LT Debt 1,940 1,991 2,424 2,003 2,122 2,122 2,122 2,122

FINANCIAL RATIOS 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017ENet Debt (688) (167) 1,864 1,696 1,891 1,312 745 143Capital Employed 4,299 4,480 6,387 6,178 5,802 5,914 5,891 5,842Net Debt/EBITDA (0.5) (0.1) 1.4 1.1 1.2 0.9 0.5 0.1Net Debt/Equity (0.1) (0.0) 0.3 0.3 0.4 0.2 0.1 0.0Capex/Revenue (%) 4.7 6.6 37.2 10.4 5.5 5.8 5.8 5.8Int Cover (%) n/m n/m n/m n/m n/m n/m n/m n/mDividend Payout (%) 90.1 24.2 25.4 107.5 32.4 22.3 25.9 27.6ROCE (%) 34.0 35.3 18.4 23.6 25.6 21.9 21.0 22.8ROE (%) 11.1 8.8 2.5 8.4 10.3 8.4 7.8 8.0

MARKET RATIOS 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017EP/E 13.4 7.0 33.1 13.5 6.4 7.2 7.3 6.6P/CE 8.3 3.9 9.0 7.4 3.7 3.7 3.7 3.4FV/EBITDA 6.3 2.3 5.7 5.7 3.7 3.5 3.2 2.7FV/EBIT 8.8 3.3 8.1 8.1 5.2 5.1 4.9 4.0FV/Revenue 1.3 0.5 0.9 1.1 0.7 0.6 0.6 0.5P/BV 1.4 0.6 0.9 1.2 0.7 0.6 0.5 0.5FCF Yield (%) 12.9 (7.9) (50.0) 3.5 (6.9) 11.9 12.9 13.6Div Yield (%) 1.8 4.2 2.8 2.4 4.3 3.7 3.6 3.8


US$

Steel99.0%

Iron Ore1.0%

Mexico50.0%

Southern Region35.0%

Other Markets 15.0%

Techint Group62.0%

Tenaris11.0%

Treasury Shares2.0%

Free Float25.0%

397

398

IMPORTANT DISCLOSURES

AES Gener – Valuation & Risks

Our YE2015 target price is based on a sum-of-the parts analysis, which values the operations in Chile and Colombia with a different WACC per country: 7.4% in Chile and 8.4% in Colombia. Risks include environmental concerns about the construction of coal-fired facilities in Chile, execution risk of the company’s expansion program, hydrological risk and introduction of “green taxes.”

AES Tiete – Valuation & Risks

Our target price is based on a DCF valuation using a WACC of 10.9% in R$ nominal terms. Risks include: (1) no tag-along rights for GETI4 shareholders; (2) lower-than-expected generation prices; (3) uncertainties regarding the fulfillment of the expansion requirement; and (4) harsher concession renewal parameters.

AFP Habitat – Valuation & Risks

Our YE2015 target price is based on a DCF analysis, assuming a 9.6% cost of equity and a 2.5% nominal perpetuity growth rate (in U.S. dollars). Risks include: (1) changes in commission tariff; (2) a different-than-expected scenario for the Chilean macro figures; (3) changes in regulation; and (4) a different competitive scenario.

ALL – Valuation & Risks

For our DCF-based YE2015 target price, we discounted the company’s estimated cash flow by a WACC of 13.4% (in local currency). Risks include uncertainties related to potential changes in the Brazilian railroad regulatory framework, uncertainties related to the return of new projects in which ALL might become involved, uncertainties related to the merger with Rumo, unfavorable government intervention, and potential increases in Brazilian interest rates affecting ALL’s bottom line.

Aguas Andinas – Valuation & Risks

Our YE2015 target price is based on a DCF valuation with a WACC of 6.9% and a perpetuity growth rate of 2%. Risks include: (1) regulatory risk; (2) a reduction in the dividend policy; (3) weather conditions; (4) M&A activity.

Alfa – Valuation & Risks

Our year-end 2015 target price is based on a NAV model and estimating a fair value to our sum of the parts. This considers a valuation premium of its core operations. Risks include stronger-than-expected growth in the U.S. and Mexican economies, stronger recovery in the global demand for vehicles, lower-than-expected prices of key raw materials and stronger recovery on the petrochemical cycle and higher material benefits from the energy reform in Mexico.

Alicorp – Valuation & Risks

Our YE2015 target price is based on a DCF analysis using an 8.3% discount rate, and a 3% terminal growth rate. It implies an adjusted target FV/EBITDA multiple of 12x for 2015. Main risks include weaker-than-expected revenue growth, higher-than-expected commodity prices, political risk (mainly in Argentina), increased competition (including expansion of supermarket chains), execution risk in recent acquisitions and relatively low stock liquidity.

Almacenes Exito – Valuation & Risks

Our YE2015 target price is based on a DCF analysis using a 10% discount rate, and a 3.3% terminal growth rate. It implies a target FV/EBITDA multiple of 9.7x for 2015. Risks include weaker-than-anticipated SSS, fiercer-than-expected competition, delays in company’s expansion plan and bleaker-than-anticipated working capital.

Alsea – Valuation & Risks

Our YE2015 target price is based on our DCF model, which assumes a WACC of 7.8%: cost of equity of 9.6%, a risk-free rate of 3.0%, an equity risk premium of 5.5%, a blended country risk premium of 160 bps, and a beta of 0.9. The after-tax cost of debt is estimated at 5.8%, and the equity/debt structure considered is 52% - 48%. The perpetuity growth rate considered is 3.5%, in-line with other retailers. Main risks: weaker-than-expected SSS, higher expenses coming from the integration of past acquisitions, and weaker-than-anticipated FX as 30% of input costs are U.S.-dollar based.

Alupar – Valuation & Risks

Our YE2015 target price is based on a DCF valuation using an average WACC of 9.71% and no perpetual growth. Risks include: (1) regulatory risk; (2) related party risk; and (3) execution risk for greenfield projects.

399

Ambev – Valuation & Risks

Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a Ke of 8.7% and a perpetuity growth rate of 3.5%. Main risks include deteriorating wages, lower consumption growth, price increases and an overall lower economic activity.

America Movil – Valuation & Risks

Our year-end 2015 target price is based on a DCF valuation, discounted at a WACC of 7.3% (in US$ terms) and using a 3.0% perpetual growth rate. Risks include regulatory environment in Mexico, competition, economic environment, FX exposure and execution in Europe.

Andina – Valuation & Risks

Our YE2015 price target is based on a sum-of-the-parts approach to value each of the company’s operations in Chile, Brazil, Argentina and Paraguay, through a DCF analysis. Risks include slower-than-expected consumption growth in LatAm countries, changes in corporate taxes, foreign exchange risk, and M&A risk.

Anima Educação – Valuation & Risks

Our YE2015 target price is based on our DCF model, and implies a WACC of 12.8% in reais and a perpetuity growth rate of 5%. Main risks include execution and acquisition risk, competitive environment, dependence on macroeconomics, government regulation and related-party transactions.

Arca Continental – Valuation & Risks

Our YE2015 target price is based on a DCF model, using a WACC of 8.2% and perpetuity growth of 2.5%. Main risks include: weaker economic growth; potential increase in taxes, volatility in the price of raw materials and currencies, exposure to Argentina, competition, and execution risk.

Arteris – Valuation & Risks

Our YE2015 target price of R$14 is based on a DCF valuation of Arteris’ existing concessions. We do not consider any value of potential new concessions or projects. Also, we do not include a perpetuity value. We discount Arteris’s free cash flow by a WACC of 10.9% in local currency. Risks include a deceleration in Brazilian economic momentum, leading to a slowdown in cargo transport by road and traffic volume in general; increase in long term bond yields in Brazil; adverse government interference in the sector; stepped-up competition; and lower returns on new projects.

Asur – Valuation & Risks

Our YE2015 target price is based on a finite DCF model ending in 2048, using a WACC of 10.1%. We estimate implied equity IRR at 10.2%, for a -17 bps spread vs. cost of equity. Main risks include: (1) a further deterioration in growth for the U.S. and Mexican economies, (2) the relaunching of the bidding process for the Mayan Riviera airport could negatively affect long-term traffic figures at Cancun airport, (3) natural disasters (such as hurricanes) and terrorist threats could affect the tourism industry, (4) increases in operating costs and insurance are possible, and (5) volatility and sudden increase in oil prices could negatively affect the operations of airlines.

B2W Digital – Valuation & Risks

Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a Ke of 10.6% and a perpetuity growth rate of 4.0%. Main risks include an economic slowdown, the competitive environment, and limited earnings visibility.

BB Seguridade – Valuation & Risks

We valued the company using a SOTP - sum of the parts valuation model, combining each one of the main companies which integrate BB Seguridade: SH1, SH2, BrasilPrev, Brasilcap, BB Corretora and IRB. For the valuation of each one of these companies, we use a DDM-dividend discount model with three stages. Main risks are related to regulatory and political issues. We also note the Banco do Brasil-BB Corretora contract renegotiation risk, as well as risk to our growth estimates and Solvency II requirements.

400

BBVA Frances – Valuation & Risks

We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 15.3% and a 15-year RWA CAGR of 18.0%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 5.0% and a sustainable ROE of 21.4%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include the risk of a deterioration in the country risk, risk of slower-than-expected growth, higher-than-expected NPLs, and slower-than-expected deposit growth.

BCI – Valuation & Risks

We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 9.4% and a 15-year RWA CAGR of 8.2%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 2.5% and a sustainable ROE of 12.2%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Downside risks include: deterioration in asset quality, weaker-than-expected loan growth and margins due to stronger competition from the company’s larger domestic competitors. Upside risk include: better-than-expected economic performance and higher-than-expected inflation.

BM&F Bovespa – Valuation & Risks

Our valuation is based on a two-stage DDM. Risks to the company include trading volume being significantly different than our estimates, competition from foreign exchanges and other trading platforms, as well as regulatory and pricing policy.

BR Malls – Valuation & Risks

We arrived at our YE2015 target price based on a free cash flow to firm analysis, using a WACC of 13.3% in reais, and nominal terminal growth of 5.8%. Risks include (1) profitability deterioration as a result of excessive industry expansion, (2) an increase in vacancy rates, (3) lack of funding for the industry, and (4) overpayment for acquisitions.

BR Properties – Valuation & Risks

Our YE2015 target price was derived from a free cash flow to the firm analysis, using a WACC of 14.7% in reais and a nominal terminal growth of 5.8%. Risks include: (1) further increase in vacancy rates, which could reduce rental revenues and increase expenses simultaneously, thus negatively affecting margins; (2) lower-than-expected leasing spreads, driving rental revenue downward and pressuring margins; (3) execution risk of completing and renting at attractive terms the projects under development; (4) a slower-than-expected recovery in economic activity; and (5) scarcity of suitable and value-accretive targets for acquisitions, potentially limiting the company’s growth potential.

Banco Macro – Valuation & Risks

We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 14.8% and a 15-year RWA CAGR of 18.8%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 5.0% and a sustainable ROE of 21.5%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include upside potential from lower cost of equity due to lower country risk or lower inflation; risk of stronger-than-expected GDP from higher commodity prices. There are upside risks, from stronger-than-expected loan growth or weaker-than-expected competition in the banking industry. Risks include upside potential from lower cost of equity due to lower country risk or lower inflation; risk of stronger-than-expected GDP from higher commodity prices. There are upside risks, from stronger-than-expected loan growth or weaker-than-expected competition in the banking industry.

Banco Pine – Valuation & Risks

We use a discounted surplus capital model to value the banking operations, applying a 2013E P/BV of 1.0x to the stock of surplus capital and a net present value to value the bank’s tax credits. Risks include higher-than-expected NPLs, lower-than-expected loan growth, margin compression from stronger competition, and regulatory risk from tougher capital requirements.

40

Banco de Chile – Valuation & Risks

We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 9.7% and a 15-year RWA CAGR of 6.6%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 2.5% and a sustainable ROE of 16.4%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Upside risk include: improvement in stock liquidity and weightings in market indices, better-than-expected results in recent expansion into riskier loan portfolio (SME and consumer finance) in the form of higher margins and asset quality.

Banco do Brasil – Valuation & Risks

We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 15.4% and a 15-year RWA CAGR of 9.2%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.0% and a sustainable ROE of 15.4%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. We add the mark to market gains and losses to adjusted earnings. Risks include stronger-than-expected margin contraction from stronger-than-expected competitive influence on loan rates; slower-than-expected improvements in efficiency and higher-than-expected NPLs from potential weakening of the Brazilian economy given the current high household leverage ratios in the country. Other risks include stock overhang risk from a potential capital increase in the medium term; risk of lower dividend payout ratios, high effective leverage due to low capitalization of the bank, downside risk from its public sector ownership and control, high exposure volatile weather and commodity prices affecting its agricultural loan book.

Bancolombia – Valuation & Risks

We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 10.9% and a 15-year RWA CAGR of 10.1%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.5% and a sustainable ROE of 14.1%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include regulatory risk from the convergence to Basel III, weaker-than-expected loan demand, particularly in commercial lending and consumer lending from slower-than-expected GDP growth, lower-than-expected benchmark rates, slower-than-expected improvement in efficiency from the end of the IT upgrade program; and execution risks from the integration of Banistmo in Panama.

Banorte – Valuation & Risks

We value Banorte using a discounted surplus capital model, which estimates the present value of capital generated by the company in the long term. We use a cost of equity of 12.6%, a sustainable ROE of 17.7%, and a terminal growth rate of 4.5%. We applied a 1.0x P/BV multiple to the company’s stock of surplus capital. We apply a 50% haircut to Banorte’s M$10.0 billion real estate exposure via Solida. Risks include: execution risk in the deployment of the new retail banking model; execution risks in the development of its new IT platform; risks from a weaker-than-expected Mexican and global economy which could lead to lower interest rates and lower margins, slower loan growth and higher NPLs; among others.

Banregio – Valuation & Risks

We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 13.3% and a 15-year RWA CAGR of 12.8%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.5% and a sustainable ROE of 23.3%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Downside risks include: an increase in prepayments of corporate loans, lower-than-expected performance in the Mexican economy leading to weaker credit demand, and higher-than-expected integration costs from recent acquisitions.

Bolsa Mexicana de Valores – Valuation & Risks

We value BMV with a 15-year DCF and a Gordon Growth Model for its perpetuity value, using a cost of equity of 12.4% and a growth factor of 4.5%. Risks include: risk of weaker-than-expected traded volumes, increased competition, regulatory risks, and potential conflicts of interest between controlling and minority shareholders.

402

Bradesco – Valuation & Risks

We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 13.3% and a 15-year RWA CAGR of 9.7%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.0% and a sustainable ROE of 17.3%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include regulatory risks, risk of lower lending rates and spreads due to ongoing government intervention in the industry, macroeconomic risks related to commodity prices and country risk. Risk of lower-than-expected loan growth due to a weaker than expected economic recovery as well as risks of higher-than-expected NPLs from high household indebtedness in Brazil. Also, there are risks inherent to investing in preferred shares with no-voting rights.

Brasil Foods – Valuation & Risks

Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a ke of 8% and a perpetuity growth rate of 3.5%. Main risks include (1) volatility in grain prices, (2) stronger competition in the domestic market, and (3) sanitary/commercial barriers in the export market.

Brasil Insurance – Valuation & Risks

Our valuation is based on a two-stage DCF model, with a Gordon Growth Model at perpetuity. Risks are mainly related to regulatory risks, economic slowdown affecting the insurance business with collateral effect on brokerage fees, execution risk on acquisitions, and overhang risk due to the end of lock-up periods.

Braskem – Valuation & Risks

Our year-end 2015 target price is based on a DCF valuation. Risks include a sharp and sustained drop in chemical prices, a significant and long-lasting increase in oil/naphtha prices, and the appreciation of the Brazilian real.

CAP – Valuation & Risks

Our 2015 target price is based on a sum-of-the-parts analysis, with different DCFs for the three main businesses of CAP: iron ore, steel and steel processing into different DCFs, together with another DCF of the overhead. Risks include a lower-than-expected reduction in cash costs/iron ore prices, higher-than-expected capex, different-than-expected impact from tax reform, higher-than-expected debt levels, potential findings on their exploration concessions.

CBD – Valuation & Risks

Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a ke of 9.2% and a perpetuity growth rate of 2.5%. Risks include deterioration in the credit environment, deterioration in working capital and an overall economic slowdown.

CCR – Valuation & Risks

Our YE2015 target price for CCR is based on a DCF valuation of the estimated cash flow from its current concessions until the end of each concession contract. We consider a residual value only for STP. We discounted CCR’s estimated cash flow by a WACC of 11.7% (in BRL terms). Risks include unexpected deceleration in Brazilian economic activity, leading to a slowdown in traffic volume in general, adverse government interference in the sector, stepped-up competition and lower returns on new projects.

CCU – Valuation & Risks

Our YE2015 target price is based on a sum-of-the-parts DCF analysis approach to value each of the company’s operations in Chile, Rio de la Plata and Wines. Risks include different-than-expected macro figures in Argentina, volatility in raw material prices (malt, sugar, PET resin), introduction of proprietary bottles in Argentina, possible tax hike in Chile, and possible tax hike on alcoholic beverages.

CMPC – Valuation & Risks

Our YE2015 target price is based on our DCF analysis, with a 8.4% WACC and a 3.0% perpetuity growth rate. Risks include lower-than-expected pulp and tissue prices, new energy supply contracts and project delays or announcements.

CPFL Energia – Valuation & Risks

Our YE2015 price target is based on a DCF valuation using a WACC of 9.9% and perpetual growth rate of 5.0% per year. Risks include (1) lower GDP driving energy consumption down, (2) overpayment in potential M&A opportunities, and (3) change in regulatory parameters.

403

CSN – Valuation & Risks

Our YE2015 price target is based on a DCF analysis using a WACC of 14.5% and a 6% nominal growth rate in perpetuity. Main risks include higher-than-estimated growth in iron ore output, higher-than-expected iron ore and steel prices, higher-than-expected GDP growth in Brazil, and lower raw material prices.

Cementos Argos – Valuation & Risks

Our YE2015 target price is based on a DCF analysis for the cement business using a 9.4% discount rate, and a 3% terminal growth rate, plus a SOTP for the company’s investments in Bancolombia and Grupo Sura (at our target price). It implies a target FV/EBITDA multiple of 11.7x for 2015. Main risks include a slowdown in economic growth in Colombia, a delay in Colombia’s infrastructure programs, a later-than-expected recovery in the U.S. market, and execution risk in the company’s inorganic expansion.

Cementos Pacasmayo – Valuation & Risks

Our YE2015 target price is based on a DCF analysis using a 10.2% discount rate, a 2.8% terminal growth rate, and assuming no value in the company’s mining projects. It implies a target FV/EBITDA multiple of 10x for 2015. Main risks include increased competition or regulation, economic slowdown and political risks in Peru, and execution risk in company’s mining projects.

Cemex – Valuation & Risks

Our YE2015 target price is based on our DCF model, which assumes a WACC of 10.1%: cost of equity of 14.5%, and a beta of 1.5. The after-tax cost of debt is estimated at 6.6%, and the debt/equity structure considered is 56% - 44%. The perpetuity growth rate considered is 2.0%. Risks include lower cement demand in key regions like Latin America; a slower-than-expected recovery in the U.S; continued weakness in the formal residential construction sector in Mexico; negative impact from the fiscal reform in Mexico.

Cemex LatAm Holdings – Valuation & Risks

Our YE2015 target price is based on a DCF analysis using a 9.8% discount rate, and a 3.5% terminal growth rate. It implies a target FV/EBITDA multiple of 9.7x for 2015. Main risks include increased competition or regulation, economic slowdown and political risks in the countries where the company operates, and some risk derived from the relationship with the controlling shareholder and with the company’s complex corporate structure.

Cemig – Valuation & Risks

Our target price is based on a DCF valuation using a WACC of 11.2% and perpetual growth rate of 5% per year. Risks include (1) lower-than-expected generation prices, (2) concession renewal risks, and (3) expensive acquisitions.

Cencosud – Valuation & Risks

Our YE2015 target price was determined through a SOTP valuation in which the Chilean, Argentinean, Colombian, Peruvian, and Brazilian operations are valued using a DCF analysis. Main risks include: execution risks in capex plan and integration; worse-than-expected economic performance of the countries in which Cencosud operates; and Argentinean exposure.

Cesp – Valuation & Risks

Our target price is based on a DCF valuation using a WACC of 13.9% and no perpetuity. Risks include (1) concession renewal risks, (2) risk of indemnification lower-than-expected, (3) earnings volatility due to US$-denominated debt, and (4) provisions off-balance-sheet.

Cetip – Valuation & Risks

Our valuation is based on a two-stage DCF model, with a Gordon Growth Model at perpetuity. Risks include potential competition from existing and new players, regulatory risk for GRV contracts, and execution risk in business segments such as GRV contracts and real estate.

Chedraui – Valuation & Risks

Our YE2015 target price is based on a DCF model, using a WACC of 8.3% and perpetuity growth of 3.5%. Main risks include slower-than-anticipated organic growth, higher competitive pressures, and dilutive acquisitions. To the upside, main risk includes a faster recovery of SSS than expected.

404

Cia Hering – Valuation & Risks

Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a ke of 10% and a perpetuity growth rate of 3.0%. Risks include declining profitability in the franchise network, misses in product collections, full elimination of tax incentives, cotton price volatility, deterioration in working capital and an overall economic slowdown.

Cielo – Valuation & Risks

Our valuation is based on a two-stage DCF model, with a Gordon Growth Model at perpetuity. Risks are mainly related to ongoing regulatory and legislative initiatives that could affect the profitability of the industry, stronger competition from new entrants and/or existing competitors, and the execution risk related to its prepayment business.

Coca-Cola FEMSA – Valuation & Risks

Valuation: Our year-end 2015 target price is based on a DCF methodology in which we used a WACC of 8.5% and growth in perpetuity of 2.5%. Main risks include: (1) lower-than-expected growth in LatAm economies; (2) additional taxes on the company’s market towards sugar added beverages, (3) higher-than-expected raw material prices (sweetener-packaging); (4) currency volatility; (5) political risks related to the company’s geographical footprint; and (6) unfavorable weather.

Colbun – Valuation & Risks

Our YE2015 target price is based on a DCF valuation with a WACC of 8.6% and a perpetuity growth rate of 2.5%. Risks include different-than-expected hydro conditions in the central regions of Chile, execution risk of the company’s current expansion plan, unexpected failures at its efficient facilities, changes in price indexation of non-regulated contracts, increase in corporate tax rate and changes in the local regulation and the introduction of “green taxes.”

Comerci – Valuation & Risks

Our YE2015 target price is based on our DCF model, which assumes a WACC of 7.6%: cost of equity of 8.7%, a risk-free rate of 3.0%, an equity risk premium of 5.5%, a blended country risk premium of 140 bps, and a beta of 0.8. The after-tax cost of debt is estimated at 5.2%, and the equity/debt structure considered is 75% - 25%. The perpetuity growth rate considered is 3.5%, in-line with other retailers. Upside risks include Comerci’s potential to become an M&A target within the food retail segment in Mexico, faster-than-anticipated organic growth, and more operating efficiencies regarding inventories and distribution than expected.

Comgas – Valuation & Risks

Our YE2015 target price is based on a DCF valuation using a WACC of 10.6% and growth in perpetuity of 5%. Main risks include worse regulatory parameters for upcoming revision cycles, lower growth in gas demand, and natural gas supply shortages.

Concha y Toro – Valuation & Risks

Our YE2015 price target is based on a DCF analysis. We are assuming a WACC of 7.1% and a nominal growth rate in perpetuity of 3.0%. Risks include a different international competitive environment, agricultural risks related to wine business, and a decrease of internal prices.

Copa Holdings – Valuation & Risks

Our YE2015 target price for Copa’s ADS is based on a DCF valuation where we have discounted our estimated cash flow for the airline by a WACC of 9.2% (in U.S. dollars). Risks include higher-than-expected volatility in jet fuel prices, stronger-than-expected competition and deterioration of the macroeconomic scenario in Latin America.

Copasa – Valuation & Risks

Our YE2015 price target is based on a 10-year DCF model. We assumed a WACC of 11% and used a growth in perpetuity rate of 5%. Risks include uncertainty on rate methodology, political interference, provisions, lower volume curve, reduced stock liquidity, and capex delays.

Copec – Valuation & Risks

Our YE2015 target price is based on our DCF analysis, with an 8.1% WACC and a 3.0% perpetuity growth rate. Main risks include different-than-expected scenario for pulp prices and a higher support from Chilean mutual funds investment, given its low current exposure to equity.

404

Copel – Valuation & Risks

Our YE2015 target price is based on a DCF valuation using a WACC of 12.2% and perpetual growth rate of 5% per year. Risks include (1) lower-than-expected generation prices; and (2) investment in new ventures at lower-than-expected return.

CorpBanca – Valuation & Risks

We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 9.8% and a 15-year RWA CAGR of 7.6%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 3.3% and a sustainable ROE of 15.3%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks: execution risk due to the simultaneous mergers in Colombia and Chile, risks of a larger-than-expected regulatory pressure from the implementation of Basel III in Chile, narrower spreads in corporate loans in Colombia and Chile. Risks of gradual squeeze out of minorities by Itaú. Risks of lower-than-expected dividend payments from the still relatively weak capital position of the merged bank relative to its Chilean peers under fully loaded Basel III standards.

Cosan Energia – Valuation & Risks

Our YE2015 target price is based on the SOTP of the company. Main risks include: (1) declining sugar and ethanol prices; (2) capital discipline; and (3) acquisition strategy.

Cosan Limited – Valuation & Risks

Our YE2015 target price is based on our CSAN3 valuation Main risks include: (1) declining sugar and ethanol prices; (2) the company’s hedging strategy; (3) capital discipline; and (4) acquisition strategy.

Credicorp – Valuation & Risks

We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 9.7% and a 15-year RWA CAGR of 10.9%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.8% and a sustainable ROE of 14.5%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Downside risk includes execution risk in its organic growth in retail banking especially in the form of deterioration in asset quality (higher-than-expected NPL and greater-than-expected NPL provisions) as well as greater-than-expected cost growth. Also, execution risk from the integration of its investment banking operations in Chile and Colombia, as well as execution risks in the integration and management of MiBanco.

Cresud – Valuation & Risks

Our valuation is based on a sum-of-the-parts approach. Risks include: decline in local consumption, stronger-than-expected depreciation of the currency, regulatory changes, and increasing country risk.

Cyrela Brazil Realty – Valuation & Risks

Our YE2015 target price is based on a FCFF analysis, using a WACC of 15.4% in reais and nominal terminal growth rate of 4.0%. Risks include: (1) macroeconomic risks, (2) potential margin disappointment, (3) increased competition in the Southeast region, (4) working capital management, and (5) construction cost pressures.

DASA – Valuation & Risks

Our YE2015 target price is based on a DCF analysis, assuming a 13.7% WACC and a 5% nominal perpetuity growth rate (in Brazilian reais). Risks include: execution risk, customers with strong bargaining power, stiffer competition and related-party transactions.

Davivienda – Valuation & Risks

We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 10.6% and a 15-year RWA CAGR of 10.6%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.5% and a sustainable ROE of 14.3%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include: regulatory risks, macroeconomic risks related to slower growth and potentially higher NPLs due its larger exposure to consumer credit, overhang risks due to potential share offering.

406

Duratex – Valuation & Risks

Our YE2015 price target is based on a DCF analysis using a WACC of 14.4% and a 6.0% nominal growth rate in perpetuity. Main risks include slower-than-expected growth in domestic economic activity, stiffer competition, cost pressures and overpayment for acquisitions.

E-CL – Valuation & Risks

Our YE2015 target price is based on a DCF valuation with a WACC of 8.0% and a perpetuity growth rate of 2%. Risks include higher spot prices, increase in natural gas prices, changes in the environmental laws, failure in generation units, postponement of mining projects, lower-than-expected decrease in SING over cost, delay in expansion plan, possibility of capital increase to finance expansion plan.

EZTec – Valuation & Risks

Our YE2015 target price is based on a FCFF analysis, using a WACC of 15.6% in reais and nominal terminal growth rate of 4.0%. Risks include: (1) an economic downturn, (2) an unexpected decrease in profitability, (3) execution on an eventual geographic diversification, (4) the terms and conditions of the sale of EZ Tower, and (5) construction financing for commercial Towers.

Ecopetrol – Valuation & Risks

Our year-end 2015 target price is based on a DCF valuation. Main risks include declining oil prices, delays in the start-up and ramp-up of platforms, and capital allocation.

Ecorodovias – Valuation & Risks

Valuation: Our YE2015 target price is based on a DCF valuation of Ecorodovias, including a perpetuity value only for the logistics business. We discount the company’s free cash flow by a WACC of 12.0%, in BRL terms. Risks include: Low visibility on the premature logistic business, an unfavorable outcome of the dry port logistics regulatory framework still under development, a macroeconomic downturn, stepped-up competition, and adverse government interference in the highways concession sector.

Eletrobras – Valuation & Risks

Our YE2015 target price is an average of a DCF valuation (US$-based cost of equity of 11%/perpetuity growth: 2.0%) and a SOTP valuation for each of Eletrobras’s subsidiaries. Risks include: (1) concession renewal; (2) political interference.

Eletropaulo – Valuation & Risks

Our YE2015 target price is based on a DCF valuation using a WACC of 11.1% and a perpetual growth rate of 5.0% per year. Risks include (1) off-balance-sheet contingencies; and (2) a better-than-expected third cycle of tariff revisions.

Embraer – Valuation & Risks

Our YE2015 target price for Embraer is based on a DCF valuation where we have discounted our estimated cash flow for the airline by a WACC of 10.9% (in U.S. dollars). Risks include higher-than-expected competition; downturn in the global economic activity; appreciation of the BRL; delays in the development of the E2.

Endesa Chile – Valuation & Risks

Our YE2015 target price is derived from a sum-of-the-parts methodology, with the cost of capital differing for each country. We use a 2% perpetuity growth rate. Risks include volumes and FX risks in Brazil, different scenario for water supply, taxes changes for generation in Chile, unexpected halt of power plants, increase in raw material prices, exposure to spot market or rationing in Brazil and changes in the structure of Enersis or Endesa.

Energias do Brasil – Valuation & Risks

Our YE2015 target price is based on a DCF model using a nominal WACC of 11.4% and perpetuity growth of 5%. Risks include overbidding for projects, third fourth revision cycle, delays/higher-than-expected project capex, and weak industrial activity.

Enersis – Valuation & Risks

We value Enersis using a SOTP methodology to price in the various country risks. Risks include potential changes in distribution business ROE, further delay in minorities acquisition plan, volumes and FX risks in Brazil, different scenario for water supply, taxes changes for generation in Chile, unexpected halt of power plants, increase in raw material prices, exposure to spot market or rationing in Brazil and changes in the structure of Enersis or Endesa.

407

Entel – Valuation & Risks

Our YE2015 target price is based on a 10-year forward SOTP analysis, which values the mobile operation in Peru and the rest of the business with different DCF. In the case of Peru we use a WACC of 7.97% in Peru, and in Chile of 7.50-7.58% (depending on the year). We use a perpetuity growth rate of 2.0% in Chile and 4.0% in Peru. Risks include better-than-expected results of the Peruvian operation, lower-than-expected capex needs, different-than-expected impact of tax reform in Chile and higher-than-expected penetration rates.

Equatorial – Valuation & Risks

Our YE2015 target price is based on a DCF model using a WACC of 10.8% and a perpetual growth of 5%. Risks include: (1) weaker-than-expected GDP driving electricity consumption down, and (2) low stock liquidity.

Estácio – Valuation & Risks

Our YE2015 target price is based on our DCF model, and implies a WACC of 12.5% in reais and a perpetuity growth rate of 5%. Main risks include execution and acquisition, potential off-balance-sheet liabilities, competitive environment, dependence on positive macroeconomics and government regulation.

Even – Valuation & Risks

Our YE2015 target price is based on a FCFF analysis, using a WACC of 15.4% in reais and nominal terminal growth rate of 4.0%. Risks include: (1) high exposure to land price appreciation due to the maintenance of a short-term land bank, (2) potential margin disappointment attributable to an increase in competition and changes in product mix, (3) working capital management, (4) construction cost pressures, and (5) macro risks.

FEMSA – Valuation & Risks

Our year-end 2015 target price is based on a SOTP model, which implies that the stock would be trading at a 5% discount to its SOTP. Main risks include: portfolio and geographical diversification, capacity to continue identifying successful location sites for OXXO’s expansion program, volatility in raw materials, higher-than-expected impact of fiscal changes, and lower-than-expected economic growth.

Falabella – Valuation & Risks

We used a SOTP approach to value each of the company’s operations in Chile, Peru, Colombia, Brazil, Uruguay and Argentina, through a DCF analysis. Main risks include a different-than-expected economic scenario, higher credit risk, execution risks in the investment plan, and margin improvements.

Fibra Inn – Valuation & Risks

Our YE2015 target price is based on our DCF model, which assumes a WACC of 8.2%: cost of equity of 9.0%, a country adjusted risk-free rate of 5.0%, an equity risk premium of 5.5%, and a beta of 0.73. The cost of debt is estimated at 5.5%, and the equity/debt structure considered is 23.7% debt and 76.3% equity per our 2015 projection. The perpetuity growth rate considered is 2.0%. Exit multiple considered is 13.0x. Risks include: Continued volatility in interest rates. Adverse changes in national or international economic conditions could result in a general decline in business travel. Fibra Inn’s business would be adversely affected if general hotel occupancy levels in Mexico were affected, as well as daily rates, due to natural or economic disasters.

Fibra Uno – Valuation & Risks

Our YE2015 target price is based on our DCF model, which assumes a WACC of 7.3%: cost of equity of 7.7%, a country adjusted risk-free rate of 4.8%, an equity risk premium of 6.5%, and a beta of 0.4. The cost of debt is estimated at 6.0%, and the equity/debt structure considered is 25% debt and 75% equity per our 2015 projection. The perpetuity growth rate considered is 1.0%. Risks include: Continued volatility in interest rates. Adverse changes in national or international economic conditions could result in a general decline in rents or less favorable terms of renewed leases, occupancy rates or an increased incidence of defaults under existing leases. Fibra Uno’s business would be adversely affected if a significant number of tenants were unable to meet their lease obligations or if Fibra Uno were unable to renew existing leases or to lease vacant space, or unable to lease properties above existing rental rates.

408

Fibria – Valuation & Risks

Our YE2015 price target is based on a FCF analysis using a WACC of 13% in R$ and a 6.0% nominal growth rate in perpetuity. Main risks include (1) stronger-than-expected pulp prices, (2) BRL depreciation; (3) delays/withdrawals in new capacities.

Fleury – Valuation & Risks

Our YE2015 target price is based on a DCF analysis, assuming a WACC of 11.4% and a 5% nominal perpetuity growth rate (in Brazilian reais). Risks include: execution risk; acquisition risk; customers with bargaining power; stiffer competition.

Fras-le – Valuation & Risks

Our YE2015 target price is based on a DCF model with a WACC of 12.47% and a growth in perpetuity of 5%. Main risks include: challenges in international expansion; higher-than-expected prices of key raw materials; increasing competition; and low share liquidity.

GAP – Valuation & Risks

Our YE2015 target price is based on a finite DCF model ending in 2048, using a WACC of 9.9%. We estimate implied equity IRR at 10.3%, for a -23 bps spread vs. cost of equity. Risks include: overhang risk of at least 19.7% of the company’s shares currently held by GMexico, weaker-than-expected economic growth, lower-than-expected passenger traffic at GAP’s airports, changes in regulations that imply lower tariffs or higher capital expenditures, changes in travel preferences, industry consolidation, terrorism or natural disasters, and volatility in oil prices that could negatively affect the airline’s operations.

GF Galicia – Valuation & Risks

We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 15.9% and a 15-year RWA CAGR of 20.0%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 5.0% and a sustainable ROE of 20.7%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include the risk of a deterioration in the country risk, risk of slower-than-expected growth, weaker-than-expected deposit growth, and worse-than-expected asset quality in Galicia’s consumer loan portfolio.

GF Inbursa – Valuation & Risks

Our target price values Inbursa using a discounted surplus capital model, which estimates the present value of capital generated by the bank in excess of the capital required to fund growth in the long term. We applied a 1.0x P/BV multiple to the company’s stock of surplus capital and unrealized capital gains in principal investments. Risks include risk of weaker-than-expected loan growth, funding risks associated with its wholesale-funded business model, execution risks from its branch expansion plan, and the risk of higher-than-expected NPLs from the growing retail loan portfolio.

Genomma Lab – Valuation & Risks

Our YE2015 target price is based on a DCF model, using a WACC of 9.0% and perpetuity growth of 3.5%. Main risks: lower-than-expected sales of base brands, less success than expected from new launches, market share losses from the new working capital focus, not obtaining registration renewal of some products, and fiscal changes involving VAT.

Gentera – Valuation & Risks

We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 12.0% and a 15-year RWA CAGR of 14.5%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.5% and a sustainable RORWA of 4.1%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include higher-than-expected NPLs in its growth in urban lending products, higher-than-expected competitive pressures in its main market Credito Mujer, higher-than-expected cost growth especially from the investments in pilot programs (e.g., banking correspondent network, insurance, technology platform), and regulatory risks.

409

Gerdau – Valuation & Risks

Our YE2015 price target is based on our DCF analysis, using a WACC of 13.9% and a 6.0% nominal growth rate in perpetuity. Main risks include (1) lower-than-expected steel prices, (2) stronger-than-estimated economic slowdown in the U.S., and (3) higher-than-estimated increases in raw material prices.

Gol – Valuation & Risks

Our YE2015 target price for Gol implies a 12-month forward .FV/EBITDAR multiple of 8x. Risks include: stronger-than-expected competition from Latam Airlines, leading to a potential new pricing war and lower-than-estimated profitability; fuel price and FX volatility could lead to lower-than-expected earnings; and infrastructure bottlenecks could limit Gol’s growth in the long term.

Gruma – Valuation & Risks

Our target price is based on our DCF analysis, with FV/EBITDA multiple as a cross reference. Our DCF analysis is based on a blended WACC of 7.2% which considers different country risks and betas for the U.S., Mexico and Latam operations. Our target price implies the stock would be trading at a forward FV/EBITDA multiple of 10.7x 2015E. Main risks include: (1) weaker-than-expected economic growth in the Americas; (2) volatility in the prices of corn and wheat; (3) currency and political risk; (4) higher-than-expected competition in the U.S.; and (5) aggressive growth and M&A.

Grupo Argos – Valuation & Risks

We value Grupo Argos using a sum-of-the-parts model, applying our YE2015 target price to its stakes in Cementos Argos, Grupo Sura, Grupo Nutresa and Bancolombia. We assume market values for Celsia and 1.0 P/BV multiple for non-listed assets. We apply a 10% holding discount to this sum-of-the-parts to calculate our target price. Finally, we assume that Grupo Argos’s mandatorily converted bonds are totally converted for all per share data calculations, including our target price. Risks include analysts’ rating changes of Cementos Argos, Grupo Sura, Grupo Nutresa and Bancolombia; potential changes in portfolio composition; and relatively high level of indebtedness (compared to company’s cash flow generation) that creates an overhang risk and limits company’s capacity to redistribute dividends from its subsidiaries.

Grupo Aval – Valuation & Risks

We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 10.1% and a 15-year RWA CAGR of 10.2%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.5% and a sustainable ROE of 15.2%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include: downside risks from later-than-expected consolidation of its operations in Colombia, investment risk in in its large stock of equity investments, risk of an additional capital increase and higher-than-expected prices in the potential acquisition of minorities. Upside risks include: potentially faster-than-expected increase in NIMs, lower-than-expected taxes in the medium term from a structural tax reform in Colombia.

Grupo Bimbo – Valuation & Risks

Our YE2015 target price is based on our DCF analysis, using a WACC of 7.5% and growth in perpetuity of 2.0%. Our target price implies trailing FV/EBITDA target multiples of 10.7x. Main risks include: (1) volatility in the price of raw materials (wheat, oils, packaging, etc.) and on currencies; (2) weaker-than-expected growth, especially in the U.S. and Mexican economies, (3) pension plans in the U.S., (4) higher competition in the U.S. market, and (5) additional taxes to high energy food.

Grupo Famsa – Valuation & Risks

Our YE2015 target price is based on a DCF model, using a WACC of 9.3% and perpetuity growth of 3.5%. Main risks include slower-than-anticipated organic growth, lower-than-expected demand for durable goods, and rising nonperforming loans.

Grupo Herdez – Valuation & Risks

Our YE2015 target price is based on a DCF analysis for which we consider a WACC of 8% and a perpetuity growth rate of 2.5%. Risks include lower-than-expected prices of raw materials, a stronger-than-expected recovery in private consumption in Mexico and the U.S., weaker-than-anticipated working capital structure, a tougher-than-projected competitive environment, and FX volatility.

410

Grupo Lala – Valuation & Risks

Our YE2015 target price is based on our DCF analysis, using a WACC of 8.2% and growth in perpetuity of 3.0%. Our target price implies forward FV/EBITDA target multiples of 11.5x. Main risks include: (1) stronger-than-expected competition; (2) lower-than-expected growth in Mexico; (3) raw materials and FX; (4) execution and M&A risk; (5) pressure from private labels; (6) concentration of clients; and (7) limited disclosure.

Grupo Nutresa – Valuation & Risks

Our YE2015 target price is based on a DCF analysis for the food business using an 8.4% discount rate, and a 2.5% terminal growth rate, plus a SOTP for the company’s investments in Grupo Sura and Grupo Argos (at our target price). It implies an adjusted target FV/EBITDA multiple of 11.9x for 2015. Main risks include weaker-than-expected revenue growth, higher-than-expected commodity prices, political risk (mainly in Venezuela), volatility in company’s investment portfolio, increased competition (including expansion of supermarket chains), execution risk in recent acquisitions and relatively low stock liquidity.

Grupo Sanborns – Valuation & Risks

Our YE2015 target price is based on a DCF model, using a WACC of 7.9% and perpetuity growth of 3.5%. Main risks: higher competitive pressures from other department stores and specialty retailers, rising NPLs on its credit card business, dilutive acquisitions, and lower organic growth.

Grupo Sura – Valuation & Risks

We value the company with a sum-of-the-parts model, using year-end 2015 target prices for those companies in the group under coverage, and target multiples for the un-listed asset management and insurance operations. We deduct the net present value of the group’s cash opex and the net debt expected as of the valuation date. Risks to our investment thesis include: downside risk from a weaker-than-expected domestic economy affecting cement and processed food demand; risk of higher-than-expected NPLs, risk from lower-than-expected interest rates and margins at Bancolombia; market risk associated in the pension fund management industry and in general market risks associated with the underlying market values of Grupo Sura’s investment portfolio.

HRT – Valuation & Risks

Our year-end 2015 target price is based on a DCF valuation. Main risks include: (1) declining oil prices; (2) capital discipline; and (3) exploratory and production execution risks.

Helbor – Valuation & Risks

Our YE2015 target price was derived from a free cash flow to firm analysis, using a WACC of 15.6% in reais and a nominal terminal growth of 4.0%. Risks include: (1) an unexpected decrease in profitability, (2) eventual cost pressures, (3) increased competition in the mainstream markets, (4) land price appreciation, (5) working capital and cash burning management, and (6) macro risks.

Hypermarcas – Valuation & Risks

Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a ke of 10% and a perpetuity growth rate of 3.5%. Main risks include (1) deterioration in the economic and competitive environment, (2) regulatory environment, (3) concentration of production in a few sites concentrates risk, (4) elimination of tax incentives, (5) prohibition of tax planning, and (6) block trades.

IAM – Valuation & Risks

Our YE2015 target price is based on a holding company discount methodology. We estimated IAM’s NAV using our target valuation of Aguas Andinas (DCF with a WACC of 8.1%) and IAM’s cash at the holding company level. We applied a 10% holding company discount to arrive to IAM’s target price. Risks include regulatory risk, a reduction in the dividend policy, weather conditions that cause blockages in the treatment plants and M&A activity.

411

ICA – Valuation & Risks

Our YE2015 target price is based on our DCF model, which assumes a WACC of 10.4%: cost of equity of 11.2%, a country adjusted risk-free rate of 4.6%, an equity risk premium of 6.6%, and a beta of 1.20. The cost of debt is estimated at 9.0%, and the equity/debt structure considered is 38.2% debt and 61.8% equity per our 2015 projection. The perpetuity growth rate considered is 2.0%. Risks: ICA could incur cost overruns, which would imply lower margins or losses. Higher-than-expected working capital requirements could imply additional debt. Delays in the delivery of projects could imply delays in collections and lower-than-expected cash flow generation. For the concessions, lower-than-expected traffic on the roads could imply lower revenue and profitability.

IEnova – Valuation & Risks

Our year-end 2015 target price is based on a DCF valuation. Main risks include: (1) low Mexican GDP growth; (2) capital discipline; and (3) project execution risks.

IMC – Valuation & Risks

Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a ke of 11.4% and a perpetuity growth rate of 3.0%. Risks include a slower-than-expected expansion plan, higher-than-expected food inflation, regulation changes, a tougher-than-anticipated competitive environment, and overall weaker-than-projected macroeconomic dynamics.

Iguatemi – Valuation & Risks

Our YE2015 target was derived from a FCF to firm analysis, using a WACC of 13.5% in reais and a nominal terminal growth of 5.8%. Risks include: (1) competition increase in oversupplied regions; (2) profitability deterioration; (3) a downturn in retail sales; and (4) lack of funding to support future growth.

Intercorp – Valuation & Risks

We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 11.6% and a 15-year RWA CAGR of 11.3%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.8% and a sustainable ROE of 15.7%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include: upside risk from faster-than-expected loan growth, stronger-than-expected margin expansion and faster-than-expected efficiency improvements. Downside risks include stronger deterioration in asset quality, higher-than-expected funding cost and slower-than-expected loan growth. Finally, there are risks of conflicts of interest in related party transactions and agreements.

Inversiones La Construcción – Valuation & Risks

We used a SOTP approach for each of the company’s operations in the insurance business, pension funds business, health provider business, education and IT. Risks include potential changes in the health regulation, the unexpected risk of the insurance business and a different-than-expected scenario for the Chilean macro figures.

Iochpe Maxion – Valuation & Risks

Our YE2015 target price is based on a DCF analysis, assuming a 12.7% WACC and nominal perpetuity growth of 4.0%. Risks include: execution risk (acquisition integration); lower-than-expected growth in the GDP in Brazil, Europe, and the United States; higher-than-expected prices of key raw materials; and sharp interest-rate and currency fluctuations.

Irsa – Valuation & Risks

We reached our YE2015YE target price based on a sum-of-the-part valuation. Risks Include: worse-than-expected macroeconomic performance in Argentina, and increasing country risk.

Itausa – Valuation & Risks

We value Itausa with a sum-of-the-parts model, applying our latest target prices for Itaú and Duratex, to value Itausa’ stakes in these companies. We use current market values for other listed investments and a 1.0x P/BV multiple for non-listed assets. Risks include Santander rating changes for Itaú and Duratex, the lower value of non-voting shares in the event of a change in control at Itausa, reinvestment risk in case of portfolio sales, potential changes in the company’s portfolio mix, a significant widening in the discount to Itausa’s NAV driven by long/short trading activity, and overhang risk.

412

Itaú Unibanco – Valuation & Risks

We valued the bank with a discounted surplus capital model, with a terminal cost of equity of 13.4% and a 15-year RWA CAGR of 9.9%. The perpetuity value is derived from a Gordon Growth Model, with a terminal growth rate of 4.0% and a sustainable ROE of 20.1%. We valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries, if any, at the after-tax unrealized capital gain. Risks include risks from higher-than-expected costs, weaker-than-expected margins, weaker-than-expected asset quality from a more protracted-than-expected economic slump. Risk associated with investing in non-voting shares, which limit minority shareholders’ voting rights, and risks of lower margins and spreads from a resumption of government intervention in the industry.

JSL – Valuation & Risks

Our YE2015 target price for JSL’s shares is based on a DCF valuation for which we have discounted our estimated cash flows by a WACC of 11.4% (in BRL). Risk include: loss of bargaining power with the OEMs, decrease in prices of used vehicles, thus increasing the spread between prices of new and used vehicles and loss of market share to other large competitors.

Kimberly Clark – Valuation & Risks

Our YE2015 target price is based on a DCF methodology, using a WACC of 7.5% and growth in perpetuity of 2.0%. Main risks include: (1) weaker-than-expected economic growth in Mexico; (2) higher than expected exchange rate or FX volatility; (4) dilutive acquisitions; and (5) stronger competition.

Klabin – Valuation & Risks

Our YE2015 price target is based on a DCF analysis using a WACC of 13.4% and a 6% nominal growth rate in perpetuity. Main risks include (1) weaker-than-expected economic growth in Brazil; (2) domestic currency appreciation; and (3) successful implementation of the Puma project.

Kroton – Valuation & Risks

Our YE2015 target price is based on our DCF model, and implies a WACC of 5% in reais and a perpetuity growth rate of 5%. Main risks include execution and acquisition risk, competitive environment, dependence on macroeconomics and government regulation.

LATAM Airlines – Valuation & Risks

Our YE2015 target price for LATAM’s ADR is based on a multiple analysis by a FV/EBITDAR 2015E objective of 7.5 times. Risks include any issues affecting the materialization of synergies, volatility of jet fuel prices, impact on capacity and/or yields due to the entrance to new markets, delays in upcoming aircraft deliveries and FX depreciation.

Light – Valuation & Risks

Our YE2015 price target is based on a DCF valuation using a WACC of 10.5% and perpetual growth rate of 5.0% per year. Risks include (1) lower GDP driving energy consumption downward; (2) overpayment in potential M&A opportunities; (3) non-achievement of the loss reduction target; and (4) a worse-than-expected tariff review process.

Linx – Valuation & Risks

Our YE2015 target price is DCF-based and assumes a 14.5% WACC in R$ terms and an 8.0% perpetuity growth rate (in R$ nominal terms). Risks include: M&A execution, economic activity and its impact on the retail market, tax benefits and software obsolescence.

Liverpool – Valuation & Risks

Our YE2015 TP is based on a DCF analysis assuming a WACC of 7.2% and a perpetuity growth rate of 3.5%. Main risks: weaker-than-expected SSS, deceleration in the organic expansion plan, higher competition from fast fashion players, and higher-than-expected NPLs.

413

Localiza – Valuation & Risks

Our YE2015 target price is based on a DCF valuation in which we discount Localiza’s free cash flow by a WACC of 12.7% in nominal Brazilian reais. Risks include an unexpected strong deceleration in Brazil’s economic momentum, a higher-than-expected increase in Brazilian interest rates, an unexpected downturn in the financing market, and an increase in the spread between the cost of a new car for Localiza and the price it receives for its used cars.

Lojas Americanas – Valuation & Risks

Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a Ke of 9.9% and a perpetuity growth rate of 3.5%. Main risks include (1) an economic slowdown, (2) the high uncertainty related to the turnaround at B2W, and (3) risks in executing its fast store openings targets.

Lojas Renner – Valuation & Risks

Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a Ke of 10% and a perpetuity growth rate of 3.5%. Main risks include (1) economic slowdown, (2) the total elimination of tax incentives on imports, (3) currency volatility, (4) lower interest rates could negatively impact the profitability of its financial business, (5) stiff competition, and (6) shortage of cheap locations to deliver its organic expansion plan.

MRV Engenharia – Valuation & Risks

Our YE2015 target price was derived from a free cash flow to firm analysis, using a WACC of 15.6% in reais and a nominal terminal growth of 4.0%. Risk include (1) lack of funding for the real estate sector, (2) deterioration in earnings momentum due to cost run-up or lower-than-expected sales speed, (3) working capital management, and (4) macroeconomic risks.

Magnesita – Valuation & Risks

Our YE2015 target price is based on a DCF valuation, using a WACC of 13.8% and 6.0% nominal growth in perpetuity. Risks include a slowdown in the Brazil, Europe, and U.S economies, exposure to the steel industry cycle, cost pressures, M&A activity, and substitutes for graphite in the production of battery cells.

Mahle Metal Leve – Valuation & Risks

Our year-end 2015 target price is based on our DCF model, which assumes a WACC of 13.3% and a nominal growth rate in perpetuity of 5% per year in Brazilian reais. Risks include: increasing competition, higher-than-expected prices of key raw materials, and stronger-than-expected slowdown in the global economy.

Marcopolo – Valuation & Risks

Our YE2015 target price is based on a DCF model with a WACC of 11.9% and a growth in perpetuity of 5%. Main risks include: challenges in international expansion; exporting sector exposed to currency fluctuations and dependent on long-term interest rates and financing; higher-than-expected prices of key raw materials; increasing competition; and contingencies and growth in air travel.

Mexichem – Valuation & Risks

Our YE2015 target price is based on a DCF methodology, using a WACC of 7.9%, a cost of equity of 10.1%, debt to capitalization of 40%, and growth in perpetuity of 2.0%. Main risks include (1) slower-than-expected organic growth, (2) execution risk on M&A activity, (3) volatility in commodity prices, (4) diversification into other related businesses, and (5) geographic diversification.

Multiplan – Valuation & Risks

Our YE2015 target price was derived from a free cash flow to firm analysis, using a WACC of 12.8% in reais and a nominal terminal growth rate of 5.8%. Risks include: (1) competition increase in oversupplied regions; (2) profitability deterioration; (3) a downturn in retail sales; and (4) lack of funding to support future growth.

Multiplus – Valuation & Risks

Our valuation is based on a two-stage dividend discount model (DDM), with a Gordon Growth Model at perpetuity. Risks are mainly related to the breakage rate level in the long term; competition in both loyalty services and airlines intensifying; pricing pressure from banks; its relationship/dependence on Tam - conflicts of interest risks; FX; and execution risk on acquisitions.

414

Natura – Valuation & Risks

Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a ke of 9.4% and a perpetuity growth rate of 3.0%. Main risks include (1) an economic slowdown, (2) competition from players in the direct channel, traditional channel and franchise channel, (3) increases in taxation (over the last few years the government has tried at least twice to implement measures to curb tax planning in the industry), (4) changes in working capital requirements, (5) raw material cost pressure, and (6) currency volatility in international operations.

OHL Mexico – Valuation & Risks

Our YE2015 target price is based on sum of the parts analysis of OHLMEX’s stakes in its concessions. Valuation of each concession is based on a finite DCF model for the term of the concession, using a WACC of 8.9% and does not take into account guaranteed returns. We are assuming 49% of Conmex is sold at a 30% discount. Main risks include: (1) political risk as governments (especially state authorities) could try to expropriate OHLMEX’s concessions or become unable or unwilling to compensate for guaranteed returns, (2) toll road traffic risk (especially for those roads lacking a guaranteed return clause), (3) slower-than-expected execution of infrastructure plans and increasing competition in bidding processes that could affect the company’s pipeline, (4) a further deterioration in growth for the U.S. and Mexican economies, (5) natural disasters, and (6) a potential conflict of interest between OHL Spain and OHLMEX.

OMA – Valuation & Risks

Our YE2015 target price is based on a finite DCF model ending in 2048, using a WACC of 9.5%. We estimate implied equity IRR at 11.6%, for a 120 bps spread vs. cost of equity. Main risks include: further economic slowdown in Mexico, which could negatively affect air traffic (especially in the case of OMA, with mostly domestic PAX); industry consolidation (reduction in flights and frequencies); natural disasters or terrorist acts; security concerns; and volatility in oil prices that could negatively affect airline operations.

OdontoPrev – Valuation & Risks

Our YE2015 target price is based on a DCF analysis with a cost of equity of 13.0% and a nominal perpetuity growth of 5% (in Brazilian reais). Main risks include stronger competition, execution risk, heavy reliance on domestic demand, higher costs for acquisitions and regulatory issues.

PDG Realty – Valuation & Risks

Our YE2015 target price is based on a FCFF analysis, using a WACC of 15.6% in reais and nominal terminal growth rate of 4.0%. Risks include: (1) delays in delivery of projects under construction, (2) lower-than-expected sales performance of finished inventory, (3) higher exposure to different segments and regions, and (4) macroeconomic risks.

PINFRA – Valuation & Risks

Our YE2015 target price is based on sum of the parts analysis of PINFRA’s stakes in its concessions. Valuation of each concession is based on a finite DCF model for the term of the concession, using a WACC of 9.6%. All in, we estimate implied equity IRR at 10.62%, for a 460 bps spread vs. Mexican risk-free rate. Main risks include: (1) political risk as governments (specially state authorities) could try to expropriate PINFRA’s concessions, (2) toll road traffic risk , (3) slower-than-expected execution of infrastructure plans and increasing competition in bidding processes that could affect the company’s pipeline, (4) a further deterioration in growth for the U.S. and Mexican economies, and (5) natural disasters.

Pacific Rubiales – Valuation & Risks


Parque Arauco – Valuation & Risks

We used a SOTP approach for each of the company’s operations in Chile, Peru, and Colombia through a DCF analysis. Risks include slower consumption growth, delays in the maturity and releases of new projects, new announcements and developments of greenfield or brownfield projects and the overhang of the capital increase.

415

Petrobras – Valuation & Risks

Our YE2015 target price is based on a DCF valuation using a nominal WACC of 9.6%. Main risks include: oil prices, execution, and capital discipline.

Porto Seguro – Valuation & Risks

We value Porto Seguro using a discounted surplus capital model, which discounts to the present the capital generated in excess of the capital required to fund expected growth. Risks include: increasing competition, execution risk in the integration of Itaú’s insurance portfolio, a change in mix in the company’s noninsurance divisions, and the commoditization of insurance products.

Positivo Informatica – Valuation & Risks

Our target price is based on a DCF model, assuming a WACC of 15.5% in R$ terms and a 4.0% perpetuity growth rate (in R$ nominal terms). Risks include changes in the Brazilian tax regulation (benefits for PC makers), competition from international peers and from the grey market. Risks also include FX exposure, slowdown in credit availability for consumers, and sales concentration on specialty retailers.

Qualicorp – Valuation & Risks

Our YE2015 target price is based on a DCF analysis with a WACC of 12.5% and a nominal perpetuity growth of 5% (in Brazilian reais). Main risks include execution risk, exposure to macroeconomics, antitrust activity, competitive environment and regulation issues.

Queiroz Galvão E&P – Valuation & Risks


Raia Drogasil – Valuation & Risks

Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a ke of 8.6% and a perpetuity growth rate of 3.5%. Main risks include (1) an economic slowdown, (2) stronger competition from local and foreign chains, (3) industry regulation changes, and (4) changes in taxation (ICMS).

Randon – Valuation & Risks

Our year-end 2015 target price is based on our DCF model, which assumes a WACC of 13.0% and a nominal growth rate in perpetuity of 5% per year in Brazilian reais. Risks include lower-than-expected growth in the agricultural and industrial sectors, higher-than-expected prices of key raw materials, and sharp increases in interest rates.

Renova Energia – Valuation & Risks

Our YE2015 target price is based on a SoTP valuation using a U.S. dollar CoE of 13.4% and no perpetuity. Risks include environmental licenses, civil works, financing, capex overrun, energy sale, funding, and wind risk.

Ripley – Valuation & Risks

We arrived at our YE2015 target price through a SOTP valuation using a DCF analysis. Risks include a worse-than-expected economic outlook, expansion projects announcements or delays, a different retail margin scenario and higher-than-expected credit risk.

Rodobens – Valuation & Risks

Our YE2015 target price is based on a FCFF analysis, using a WACC of 15.2% in reais and nominal terminal growth rate of 4.0%. Risks include (1) fiercer competition for middle-income customers, (2) limited track record in the allotment and malls segments, (3) working capital management, (4) construction cost pressures, and (5) macro risks.

Romi – Valuation & Risks

Our YE2015 target price is based on our DCF model, which assumes a WACC of 15% and a nominal growth rate in perpetuity of 5% per year in Brazilian reais. Risks include increasing competition, execution risk (margins) and macroeconomic volatility.

SER Educacional – Valuation & Risks

Our YE2015 target price is based on our DCF model, and implies a WACC of 12.9% in reais and a perpetuity growth rate of 5%. Main risks include execution and acquisition risk, competitive environment, dependence on macroeconomics, government regulation and related-party transactions.

416

SQM – Valuation & Risks

Our YE2015 target price is based on a DCF analysis, using a WACC of 8.9%, and assuming a long-term growth of 3% in nominal dollar terms. Risks include a different-than-expected scenario from the decision from Uralkali to end the commercial agreement pressuring prices down and risks related to the Atacama Salar concession and the lithium concession renewal with Corfo (state-owned agency).

Sabesp – Valuation & Risks

Our target price is based on a DCF valuation using a WACC of 11.5% and terminal value as an average of 5.0% growth perpetual rate and value of asset base in last year of estimate. Risks include (1) tariff revision methodology and application, (2) political interference, (3) capex related to water production, (4) reservoir levels, (5) U.S. dollar debt and refinancing needs, and (6) provisions.

Santos Brasil – Valuation & Risks

Our YE2015 target price for SB’s units is based on a DCF valuation for which we have discounted our estimated cash flows by a WACC of 13.5% (in BRL). Risk include: the expected performance of the Brazilian foreign trade not materializing; uncertainties about volume performance in SB’s terminal at the Port of Santos; and high operating leverage increasing margin volatility.

Saraiva – Valuation & Risks

Our YE2015 target price is based on our DCF analysis, using a WACC of 12.9% and a nominal perpetuity growth rate of 5% in Brazilian reais. Main risks include competition, acquisition and execution risk, and dependence on government book purchasing.

Siderar – Valuation & Risks

Our valuation of Siderar is based on a DCF model using a WACC of 12.3%. Risks include lower-than-expected economic growth, increasing regulatory risk, and higher-than-expected increases in iron ore and coal costs.

Smiles – Valuation & Risks

Our valuation is based on a two-stage dividend discount model (DDM), with a Gordon Growth Model at perpetuity. Risks are mainly related to banks pressuring for lower unit prices, competition with banks and peers loyalty programs intensifying, breakage ratio level in the long term, and the evolution of its relationship/dependence on Gol—as well as conflicts of interest risks.

Sonda – Valuation & Risks

Our YE2015 target price is based on our SOTP analysis, with a 3.0% perpetuity growth rate. Risks include: a delay in potential acquisitions, stronger-than-expected competition and changes in taxes affecting our valuation.

Soriana – Valuation & Risks

Our YE2015 target price is based on a DCF model, using a WACC of 8.2% and perpetuity growth of 3.5%. Main risks include slower-than-anticipated organic growth, higher competitive pressures, disruptive sales from the change in IT systems, and dilutive acquisitions. To the upside, main risks are better operating margins than expected from the implementation of a new IT platform, and higher SSS expansion.

Sports World – Valuation & Risks

Our YE2015 target price is based on a DCF model, using a WACC of 9.8% and perpetuity growth of 3%. Main risks: longer-than-expected maturation periods, higher-than-expected desertion rates, more negative-than-expected consumer trends and lower-than-expected EBIT margins.

Sul America – Valuation & Risks

We valued Sul America using a discounted surplus capital model, which discounts to the present the capital generated by the company in excess of the capital required to fund the growth we expect. Risks: the company could engage in a strategy to grow via acquisitions; other risks include lower-than-expected growth; regulatory risks in the individual health segment; increasing competition; and market overhang.

417

Telefonica Brasil – Valuation & Risks

Our year-end 2015 target price is based on a sum-of-the-parts combination of (i) a DCF-based FV of R$53.30/share pre-dilution (or R$37.80/share post dilution); (ii) GVT’s business valued at 6.5x EV/EBITDA 2015E (or R$10.60/share); (iii) R$11.3 billion in merger synergies (R$7.10/share); and (iv) an estimated fully diluted number of shares (assuming a capital increase at the current stock price of R$48.76/share). The DCF part of our target is discounted at a WACC of 13.3% and using a 5.0% perpetual growth rate (in nominal R$). Risks include lower synergies from the GVT merger, executions risks (including M&A) and stricter regulatory and/or fiscal rules.

Suzano – Valuation & Risks

Our YE2015 price target for Suzano’s PNA shares is based on a DCF analysis, using a WACC of 13.8% and a 6.0% nominal growth rate in perpetuity in BRL terms. Main risks include (1) stronger-than-expected pulp and paper prices, (2) domestic currency depreciation, (3) sale of assets and other liquidity events, and (4) tax barriers and government incentives.

São Martinho – Valuation & Risks

Our YE2015 target price is based on a DCF valuation. Main risks include: (1) declining sugar and ethanol prices; (2) the company’s hedging strategy; (3) capital discipline; and (4) acquisition/growth strategy.

TAESA – Valuation & Risks

Our YE2015 target price is based on a DCF valuation using a WACC of 10.1% until the end of the concession contracts. Main risks include leverage, acquisitions, regulatory risk, and greenfield projects’ risk.

Tecnisa – Valuation & Risks

Our YE2015 target price is based on a FCFF analysis, using a WACC of 15.4% in reais and nominal terminal growth rate of 4.0%. Risks include: (1) an unexpected decrease in profitability, (2) its presence in the mainstream markets exposes it to cost pressures and price wars, (3) becoming overleveraged if collection problems are encountered, and (4) macro risks.

Tegma – Valuation & Risks

Our YE2015 target price is based on a DCF valuation, for which we discounted the company’s estimated cash flow by a WACC of 13.8%, in BRL terms. Risks include high dependency on the automotive sector, some client concentration, execution risk when operating in nonautomotive markets, and low stock liquidity.

Telecom Argentina – Valuation & Risks

We valued TEO based on a DCF model assuming a WACC of 12.1%. Our YE2015 target price implies upside potential of 1.9%, including a dividend yield of 3%. Risks include: weaker-than-expected currency, worse-than-expect operating performance, adverse regulatory changes and country risk increase.

Televisa – Valuation & Risks

Our year-end 2015 target price is based on a DCF valuation, discounted at a WACC of 8.1% (in USD terms) and using a 3.0% perpetual growth rate. Risks include: regulatory risks, new spectrum auctions for open-air TV may increase competition, economic environment.

Tenaris – Valuation & Risks

Our year-end 2015 target price is based on a DCF analysis. Risks include a sharp and sustained drop in oil and natural gas prices, a severe slowdown in global GDP growth, and increased competition.

Ternium – Valuation & Risks

Our YE2015 target price is based on a DCF analysis, using a WACC of 10.1% and a 2.0% nominal growth rate in perpetuity. Main risks include a worse-than-expected macroeconomic environment, lower-than-expected steel prices, and increases in raw material costs above our estimates.

418

Totvs – Valuation & Risks

Our YE2015 target price is DCF-based and assumes a 13.5% WACC in R$ terms and a 7.0% perpetuity growth rate (in nominal R$ terms). Risks include: a major economic slowdown in Brazil, the implementation of SaaS model, software obsolescence and tax benefits.

Tractebel – Valuation & Risks

Our target price is based on a DCF valuation using a WACC of 11.5% nominal in R$. Risks include lower-than-expected generation prices, losses in electricity trading, and related-party transactions.

Transmissao Paulista – Valuation & Risks

Our YE2015 target price is based on a DCF valuation using a WACC of 11.1% until the end of CTEEP’s concession contracts. Main risks include worse regulatory parameters for revision cycles, the contingency with Eletrobras and worse-than-expected reimbursement for transmission assets.

Triunfo – Valuation & Risks

Our YE2015 target price for Triunfo is based on a DCF valuation for which we have discounted our estimated cash flows by a WACC of 13.3% (in BRL). Risks include: the expected performance of the Brazilian foreign trade not materializing; unexpected deceleration in Brazilian economic activity, leading to a slowdown in traffic volume in general, adverse government interference in the sectors; stepped-up competition and lower returns on new projects; include lower-than-expected generation prices, losses in electricity trading, and related-party transactions.

Ultrapar – Valuation & Risks

Our year-end 2015 target price is based on a DCF valuation. Main risks include: (1) a decline in the growth of the Brazilian economy; (2) a sharp and sustained drop in chemical product prices; and (3) the potential impact of a consolidation strategy on the company’s balance sheet and working capital.

Unicasa Móveis – Valuation & Risks

Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a ke of 11.4% and a perpetuity growth rate of 3.0%. Main risks include (1) a stronger-than-expected economic slowdown, (2) competitive environment, (3) “control” of distribution network, and (4) relatively low share liquidity.

Usiminas – Valuation & Risks

Our YE2015 price target is based on a DCF analysis using a WACC of 17.8% and a 6.0% nominal growth rate in BRL terms. Main risks include (1) lower-than-expected steel prices and/or demand, (2) lower-than-expected economic growth in Brazil, and (3) higher-than-expected raw material prices.

Vale – Valuation & Risks

Our YE2015 target price is based on a DCF analysis, using a WACC of 9.8% and a 3.5% nominal growth rate in perpetuity. Risks include: political risk and higher royalties in Brazil, decline in iron ore and nickel prices, weaker-than-expected macroeconomic growth in Asia, and FX appreciation.

Valid – Valuation & Risks

Our valuation is based on a two-stage DCF, with a Gordon Growth Model at perpetuity. Main risks are related to execution risk on new acquisitions.

Via Varejo – Valuation & Risks

Our YE2015 target price is based on a DCF analysis (in US$) for which we consider a ke of 10.6% and a perpetuity growth rate of 2.5%. Main risks include (1) economic slowdown, (2) elimination of government stimulus programs, (3) currency volatility, (4) increased competition, and (5) potential block trades.

419

Volaris – Valuation & Risks

Our YE2015 target price is based on a multiple analysis by a FV/EBITDAR 2015E objective of 8.5x. Main risks include: stronger-than-expected competition from other domestic carriers could cause the ongoing pricing war to carry on or even intensify, leading to lower-than-estimated profitability; fuel price and FX volatility could lead to lower-than-expected earnings, especially considering jet fuel represents 40% of Volaris’s costs; further deterioration in the Mexican economy.

WEG – Valuation & Risks

Our year-end 2015 target price is based on our DCF model, which assumes a WACC of 12.3% and a nominal growth rate in perpetuity of 5% per year in Brazilian reais. Risks include: increasing competition, higher-than-expected prices of key raw materials, challenges in international expansion and stronger-than-expected slowdown in the global economy.

Walmex – Valuation & Risks

Our YE2015 target price is based on a DCF model, using a WACC of 7.9% and perpetuity growth of 3.5%. Main risks: Main risks include adverse legal consequences of the current bribery investigation, management changes, weaker-than-expected SSS, a more intense competitive environment, rise in food inflation, and a narrower-than-anticipated gross margin.

YPF SA – Valuation & Risks

We valued YPF based on a DCF model using a WACC of 10.9% and perpetuity of 2.5%. Main risks include: regulatory risks; sensitivity of earnings to changes in crude oil prices and related products; steeper-than-expected depreciation of the local currency against the U.S. dollar; and poorer-than-expected production growth and reserve replacement ratios.

6

IMPORTANT DISCLOSURES

Rating Definition

% of

Companies

Covered with

This Rating

% of Companies Provided

Investment Banking

Services in the Past 12

Months

Buy (B) Expected to outperform the local market benchmark by more than 10%. 47.79 9.19

Hold (H) Expected to perform within a range of 0% to 10% above the local market

benchmark.43.75 6.62

Underperform Expected to underperform the local market benchmark. 8.46 0.74

Under Review (U/R) 0.00 0.00

Key to Investment Codes

The numbers above reflect our Latin American universe as of Tuesday, January 06, 2015. For a discussion, if applicable, of the valuation methods used to determine the price targets included in this report and the risks to achieving these targets, please refer to the latest published research on these stocks. Research is available through your sales representative and other electronic systems.

Target prices are year-end 2015 unless otherwise specified. Recommendations are based on a total return basis (expected share price appreciation + prospective dividend yield) unless otherwise specified.

Stock price charts and rating histories for companies discussed in this report are also available by written request to Santander Investment Securities Inc., 45 East 53rd Street, 17th Floor (Attn: Research Disclosures), New York, NY 10022 USA.

Ratings are established when the firm sets a target price and/or when maintaining or reiterating the rating. Ratings may not coincide with the above methodology due to price volatility. Management reserves the right to maintain or to modify ratings on any specific stock and will disclose this in the report when it occurs. Valuation methodologies vary from stock to stock, analyst to analyst, and country to country. Any investment in Latin American equities is, by its nature, risky. A full discussion of valuation methodology and risks related to achieving the target price of the subject security is included in the body of this report.

The benchmark used for local market performance is the country risk of each country plus the 1-year U.S. Treasury yield plus 5.5% of equity risk premium, unless otherwise specified. The benchmark plus the 10.0% differential used to determine the rating is time adjusted to make it comparable with the total return of the stock over the same period. For additional information about our rating methodology, please call (212) 350 3974.

This research report (“report”) has been prepared by Santander Investment Securities Inc. (“SIS”; SIS is a subsidiary of Santander Investment I, S.A. which is wholly owned by Banco Santander, S.A. “Santander”]) on behalf of itself and its affiliates (collectively, Grupo Santander) and is provided for information purposes only. This report must not be considered as an offer to sell or a solicitation of an offer to buy any relevant securities (i.e., securities mentioned herein or of the same issuer and/or options, warrants, or rights with respect to or interests in any such securities).

Any decision by the recipient to buy or to sell should be based on publicly available information on the related security and, where appropriate, should take into account the content of the related prospectus filed with and available from the entity governing the related market and the company issuing the security. This report is issued in Spain by Santander Investment Bolsa, Sociedad de Valores, S.A. (“Santander Investment Bolsa”) and in the United Kingdom by Banco Santander, S.A., London Branch. Santander London is authorized by the Bank of Spain. This report is not being issued to private customers. SIS, Santander London and Santander Investment Bolsa are members of Grupo Santander.

The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed, that their recommendations reflect solely and exclusively their personal opinions, and that such opinions were prepared in an independent and autonomous manner, including as regards the institution to which they are linked, and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report, since their compensation and the compensation system applying to Grupo Santander and any of its affiliates is not pegged to the pricing of any of the securities issued by the companies evaluated in the report, or to the income arising from the businesses and financial transactions carried out by Grupo Santander and any of its affiliates: Jesus Gomez, Christian Audi, Walter Chiarvesio*, Joao Noronha*, CFA, Daniel Gewehr*, João Mamede*, Jens Spiess*, CFA, Reinaldo Santana*, Pedro Balcão Reis*, Ana Gabriela Reynal*, CFA, Jessica Bessa*, Ronaldo Kasinsky*, Toe Matsumura*, Renata Cabral*, Boris Molina, Henrique Navarro*, Renato Maruichi*, CFA, Felipe Reis*, Gustavo Allevato*, CFA, Bruno Amorim*, CFA, Maria Carolina Carneiro*, Bruno Mendonca*, Valder Nogueira*, Renan Manda*, Alberto Ariztia*, Bruno Giardino*, CFA, Nicolas Villarreal*, Luis Miranda*, CFA, Matias Duarte*, Catalina Araya, Nicolas Schild*, Stefano Rizzi, and Andres Soto.

As per the requirements of the Brazilian CVM, the following analysts hereby certify that we do not maintain a relationship with any individual working for the companies whose securities were evaluated in the disclosed report. That we do not own, directly or indirectly, securities issued by the company evaluated. That we are not involved in the acquisition, disposal and intermediation of such securities on the market: Bruno Giardino, Renan Manda, Valder Nogueira, Bruno Mendonca, Maria Carolina Carneiro, Bruno Amorim, Gustavo Allevato, Felipe Reis, Renato Maruichi, Henrique Navarro, Renata Cabral, Ronaldo Kasinsky, Jessica Bessa, Pedro Balcão Reis, João Mamede, Daniel Gewehr, and Joao Noronha.

Continued on the next page.

2013

IMPORTANT DISCLOSURES (CONTINUED)

Grupo Santander receives non-investment banking revenue from Alfa, Alicorp, Alsea, Alupar, Ambev, America Movil, Arca Continental, Asur, B2W Digital, Banco de Chile, Banco do Brasil, Banco Pine, Banorte, Banregio, BM&F Bovespa, Bolsa Mexicana de Valores, BR Malls, BR Properties, Bradesco, Brasil Foods, Brasil Insurance, Braskem, CBD, CCR, Cemex, Cemig, Cencosud, Cesp, Cetip, Chedraui, Cia Hering, Cielo, CMPC, Coca-Cola FEMSA, Comerci, Comgas, Copasa, Copel, Cosan Energia, Cosan Limited, CPFL Energia, Credicorp, CSN, Cyrela Brazil Realty, DASA, Davivienda, Duratex, Eletrobras, Eletropaulo, Embraer, Endesa Chile, Equatorial, Falabella, FEMSA, Fibra Uno, Fleury, GAP, Genomma Lab, Gentera, Gerdau, GF Inbursa, Gol, Gruma, Grupo Bimbo, Grupo Famsa, Grupo Herdez, Helbor, HRT, Hypermarcas, ICA, IEnova, Iguatemi, IMC, Intercorp, Iochpe Maxion, Itausa, Itaú Unibanco, Kimberly Clark, Klabin, LATAM Airlines, Light, Liverpool, Localiza, Lojas Americanas, Lojas Renner, Magnesita, Mahle Metal Leve, Marcopolo, Mexichem, MRV Engenharia, Multiplan, Natura, OdontoPrev, OHL Mexico, PDG Realty, Petrobras, Porto Seguro, Positivo Informatica, Qualicorp, Raia Drogasil, Randon, Renova Energia, Rodobens, Romi, Sabesp, Santos Brasil, Saraiva, Sonda, Soriana, Sports World, Sul America, Suzano, São Martinho, TAESA, Tecnisa, Tegma, Televisa, Totvs, Tractebel, Triunfo, Ultrapar, Unicasa Móveis, Usiminas, Vale, Valid, Volaris, Walmex, and WEG.

Within the past 12 months, Grupo Santander has managed or co-managed a public offering of securities of Arteris, Banco do Brasil, Banco Pine, Brasil Foods, Cemex, Cetip, Copel, Fibra Uno, Genomma Lab, Gerdau, Gol, ICA, JSL, Liverpool, Lojas Renner, Mexichem, Multiplan, Petrobras, Positivo Informatica, Sabesp, Usiminas, Via Varejo, and Volaris.

Within the past 12 months, Grupo Santander has received compensation for investment banking services from Alfa, ALL, Anima Educação, Arteris, Banco do Brasil, Banco Pine, Banorte, Brasil Foods, Braskem, Cemex, Cemig, Cetip, Copel, Eletrobras, Enersis, Estácio, Fibra Uno, Genomma Lab, Gerdau, Gol, ICA, IMC, JSL, Liverpool, Lojas Renner, Mexichem, Multiplan, Positivo Informatica, Sabesp, São Martinho, Usiminas, Via Varejo, and Volaris.

In the next three months, Grupo Santander expects to receive or intends to seek compensation for investment banking services from Braskem, Cosan Energia, Genomma Lab, Gruma, ICA, Renova Energia, Telefonica Brasil, Vale, and Via Varejo.

Grupo Santander or its affiliates beneficially own 1% or more of any class of common equity securities of Bolsa Mexicana de Valores, BR Properties, Cesp, Renova Energia, and TAESA.

Santander or its affiliates and the securities investment clubs, portfolios and funds managed by them do not have any direct or indirect ownership interest equal to or higher than one percent (1%) of the capital stock of any of the companies whose securities were evaluated in this report (with the exception of Bolsa Mexicana de Valores, BR Properties, Cesp, Renova Energia, and TAESA) and are not involved in the acquisition, disposal and intermediation of such securities on the market.

The information contained within this report has been compiled from sources believed to be reliable. Although all reasonable care has been taken to ensure the information contained within these reports is not untrue or misleading, we make no representation that such information is accurate or complete and it should not be relied upon as such. All opinions and estimates included within this report constitute our judgment as of the date of the report and are subject to change without notice.

From time to time, Grupo Santander and/or any of its officers or directors may have a long or short position in, or otherwise be directly or indirectly interested in, the securities, options, rights or warrants of companies mentioned herein.

Any U.S. recipient of this report (other than a registered broker-dealer or a bank acting in a broker-dealer capacity) that would like to effect any transaction in any security discussed herein should contact and place orders in the United States with SIS, which, without in any way limiting the foregoing, accepts responsibility (solely for purposes of and within the meaning of Rule 15a-6 under the U.S. Securities Exchange Act of 1934) for this report and its dissemination in the United States.

© 2015 by Santander Investment Securities Inc. All Rights Reserved.

L AM UNIVERSE BOOK - Pessoa Física - Santander LATAM TEAM Ignacio Mendive Jesus Gomez Head of LatAm...

Documents

Transcript of L AM UNIVERSE BOOK - Pessoa Física - Santander LATAM TEAM Ignacio Mendive Jesus Gomez Head of LatAm...