Grupo Argos BANCOLOMBIA ANALYSIS: COLOMBIAN EQUITY RESEARCH –Company note Holding I April 17, 2015 A True Infrastructure Holding Company Grupo Argos announced yesterday their intention to acquire an additional 20%-25% of Grupo Odinsa’s shares at COP9,500/share, in addition to their current 24.8% stake purchased this week. It is important to mention that the previous transaction amounted to COP461,635mn/USD184.6mn, with an average price of COP9,495/share. In our view, this transaction makes sense for Grupo Argos’ strategic portfolio as Grupo Odinsa is one of the most active infrastructure players in the 4G concession program, being awarded with two projects: i) Conexion Pacifico 2, with an stake of 25% and a total investment of COP1,3bn/USD520mn, and ii) a private initiative project called “Malla Vial del Meta” with a stake of 51% and a total investment of COP1.26bn/USD504mn. This last project does not require government cash flows and is 100% financed with their own resources. With this in mind, we believe Grupo Argos could get important synergies among their subsidiaries as the cement company (Cementos Argos) could supply the cement required by Odinsa’s projects, bringing a double benefit for the holding company: i) higher cement volumes and ii) long-term rents and stable cash flows from the operation and maintenance of roads and other assets concessions. Becoming a True Infrastructure Holding Company In December 2014, Grupo Argos announced their intention to join Conconcreto in a new vehicle for the development of real estate assets where Conconcreto will provide a total of 405,000sqm in operation, a project inventory of COP957,000mn/USD383mn to be developed in the coming four years, and expertise in the construction and operation of such assets, while Grupo Argos will provide 32,000sqm of assets in operation, construction projects for a total of COP122,000mn/USD48.8mn, and COP365,000mn/USD146mn in cash to be disbursed in the coming four years. In addition to this transaction, we have the investment in Odinsa which brings an additional pillar to their infrastructure group of investments which will give exposure to the most ambitious infrastructure project in Colombian history. According to our calculation, Grupo Argos acquired Grupo Odinsa’s 24.8% at a multiple of 7.18x EV/EBITDA 2014 which in our view will bring value to Grupo Argos’ shareholders as the transaction was made at an attractive price. In addition, it is worth remembering the potential increase in Odinsa’s EBITDA coming from their concession projects and current investments. 2013 2014 2015E 2016E 2017E Net Sales Operating income EBITDA Net income 7,629,359 1,088,447 1,907,000 294,950 8,919,558 1,516,234 2,072,361 380,713 9,798,751 1,269,891 2,218,676 287,413 10,634,590 1,470,861 2,467,919 351,393 11,374,602 1,672,865 2,693,914 402,542 P/E EV/EBITDA P/BV Dividend Yield ord 33.3 9.6 1.1 1.2 32.9 11.4 1.2 1.2 28.4 9.3 1.1 1.4 22.9 8.6 1.1 1.5 19.9 7.9 1.1 1.6 Source: Grupo Argos, Bancolombia 1 23,255 25,590 17,960 17,860 29.5% 30.2% 52 Week Range (COP) ord 52 Week Range (COP) pref Outstanding Shares (mn) ord Outstanding Shares (mn) pref Market Cap (COPmn) Floating ord Floating pref ADV 12 months ord (COPmn) ADV 12 months pref (COPmn) Dividend Yield ord Dividend Yield pref Total Return ord Total Return pref 15,960 – 24,180 15,760 – 24,000 645.4 145.6 14,016,904 52% 100% 5,765 3,039 1.5% 1.5% 31% 31.7% GRUPOARGOS CB / PFGRUPOARG CB Bloomberg: Grupo Argos vs. COLCAP 12 Months (b. 100) 120 110 100 90 80 70 60 abr-14 Transaction Multiples – Creates Value Multiples & financials BUY Return and Trading Data Target Price (COP) Previous TP Closing Price (April 16) (COP) ord Closing Price (April 16) (COP) pref Upside ord Upside pref jun-14 ago-14 Grupo Argos ord oct-14 dic-14 Grpuo Argos pf Source: Bancolombia, Bloomberg Analysts Name: Phone: E-mail: Jairo Julián Agudelo Restrepo (574) 6047048 [email protected] Name: Phone: E-mail: German Zúñiga Saavedra (574) 6047045 [email protected] feb-15 COLCAP Grupo Argos I Holding April 17, 2015 Grupo Odinsa Company in the infrastructure sector which develop and manage large scale projects and concessions in Colombia, Latin America and the Caribbean. It has a diversified portfolio of concessions in different sectors and future projects to develop locally and internationally. Their 2025 mega is to build an infrastructure company with COP10bn/USD4bn of assets under management and a market cap of COP3bn/USD1.2bn. This mega brings in the operation of four different airport concessions with 10mn passengers a year, 300MW of additional energy generation, and 20% of assets under management in sectors other than roads, airports and ports concessions. Pipeline of Current Concessions Road Concessions: Autopistas del Café, Autopista de los llanos, Santa Marta Paraguachon, Hatovial, Conexion Pacifico 2, Malla Vial del Meta, Via de las Americas, Autopistas del Nordeste (the Dominican Republic), Boulevard Turistico del Atlantico (the Dominican Republic) and the Green Corridor (Aruba). Table 1 –4G concession shortlisted projects It is worth bearing in mind that the average life of road concessions is 18 years. In addition, Grupo Odinsa has been shortlisted for the allocation of 6 more 4G concession projects from public initiative with a potential backlog of COP2.6bn/USD1.04bn. Furthermore, the company has also presented 5 projects of private initiative, one of them already allocated to the company, Malla Vial del Meta, one more in the feasibility stage, La Paila Cajamarca, with an estimated investment of COP1.06bn/USD425mn where the company has a 100% stake. Pasto - Rumichaca Santa ana - Mocoa Santander de Quilichao - Popayan Autopista al mar 2 Autopista al Rio Magdalena 1 Autopista al mar 1 ODINSA potential backlog Airport Concessions: Opain, which managed the El Dorado International Airport in Bogota, the largest airport in the region in terms of cargo and the second most important in passengers. It also has investments in the expansion of the Tocumen airport in Panama. Ports Concession: Sociedad Portuaria de Santa Marta has a 24% market share in Colombia, is the second most important public port in the Atlantic coast. This concession goes until 2033. Energy Concessions: GENPAC (Chile). Grupo Odinsa has a stake of 51%, located in the third region with a total capacity of 96MW which is equivalent to 1% of system capacity in Chile. GENA (Panamá). With a stake of 59.7% this thermal plant is located in the city of Colon. Its capacity rose to 150MW which represents 5.4% of total system capacity. 1. . 2 2 Source: Bancolombia, Grupo Odinsa Contract value Odinsa (COPbn) stake 1.58 35% 1.2 30% 1.2 1.56 2.13 35% 30% 17.3% 1.537 30% 2.6 Grupo Argos I Holding April 17, 2015 Financials Table 2 – Odinsa’s Revenues by Division (COPmn) Segregate Revenues 2014 Weights Road Concessions Energy Concessions Operation 252,678 379,267 83,867 27.5% 41.2% 9.1% construction Other services Total 170,293 33,800 919,905 18.5% 3.7% Source: Bancolombia, Grupo Odinsa Table 3 – Income Statement Summary (COPmn) Income Statement (COPmn) 2014 2013 Var% . Revenues Gross profit Operating profit 919,906 429,763 196,724 873,978 410,332 125,071 5.3% 4.7% 57.3% EBITDA Net profit 323,070 102,200 275,914 91,696 17.1% 11.5% 46.7% 21.4% 35.1% 11.1% 46.9% 14.3% 31.6% 10.5% -23.18 707.47 355.00 61.80 Gross margin Operating margin EBITDA margin Net margin Source: Bancolombia, Grupo Odinsa Table 4 – Balance Sheet Summary (COPmn) Balance Sheet (COPmn) 2014 2013 Assets Liabilities 2,697,017 1,631,047 2,507,653 1,606,651 Var% . Equity 875,455 741,129 18.1% Cash Financial Obligations 172,687 439,405 198,655 446,762 -13.1% -1.6% 7.6% 1.5% Minority Interest 190515 159873 19.2% Net debt 266,718 248,107 7.5% Source: Bancolombia, Grupo Odinsa Table 5 – Profitability Ratios ROA ROE Net Debt / EBITDA 2014 3.79% 11.67% 2013 3.66% 12.37% 0.45 0.9 Source: Bancolombia, Grupo Odinsa 1. . 3 3 Grupo Argos I Holding April 17, 2015 Equity Sales Equity Research Rupert Stebbings Jairo Agudelo Equity Markets Vice President Head of equity research [email protected] [email protected] +574 6045138 +574 6047048 Natalia Agudelo Parra Juan Camilo Dauder Sánchez Equity Sales Head Energy Analyst [email protected] [email protected] +574 6046498 +574 6049821 Juan Diego Mejia Mendez , CFA, CAIA Fixed Income Head Financial & Small Cap Pablo Caicedo [email protected] VP International Business +571 353 6600 ext. 15237 [email protected] Diego Buitrago +571 488 6000 Energy Analyst [email protected] Economic Research +571 7463984 ext. 37307 Juan Pablo Espinosa German Zuñiga Head of Economic Research Infrastructure and Industry Analyst [email protected] [email protected] +571 7463991 ext. 37313 +574 6047045 Alexander Riveros Senior Economist Federico Perez Garcia [email protected] Oil & Gas Junior Analyst +571 7463980 ext. 37303 [email protected] +574 6048172 Research Assistant Claudia Restrepo Research Editor [email protected] +574 404 3809 4 Grupo Argos I Holding April 17, 2015 TERMS OF USE This report has been prepared by the Research Department at Bancolombia and its affiliates (“Grupo Bancolombia”). 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