Economic, Industry & Market Research Area August, 2021 Capital Market Structuring Area

Special Report

Top Picks Our 2021 Top Picks portfolio does not show variations in names for August. Thus, the basket should maintain Cementos Argos, Nutresa, pref., and . However, we have made changes to the weightings that these assets have within the portfolio. Analysis and Strategy Overall, the catalysts that drive the choice of these assets remain present since there have been no substantial changes in the market since the time of the Jairo Julian Agudelo R recommendation and that the main value inputs, both fundamental and Head of Equity Research sentiment, still favor these assets. S.A. We believe that this portfolio presents an adequate balance of risks for a market that, although still shows uncertainty and apathy amongst foreign investors, Andres Felipe Escobar C retains a significant fundamental upside, attractive relative valuations, and a Strategist divergence in favorable performance compared to other markets in the region. Grupo Bancolombia Capital With these assets we take a little more risk, given the discounts that have been 2021 Top Picks presented in some stocks over the last month and recognizing that, due to their cyclical nature, they should respond better to a possible rise in the market, but at the same time, because of their discount, it’s less likely that they present significant corrections in case the trend goes in the opposite direction. Nutresa, 20% History of our Top Picks Cemargos, 30% During 2021, the Top Picks portfolio has presented a devaluation of 12.6%, losing 78 against the Colcap and 660 bp compared to the basket of eligible assets, including dividends. Aval, Likewise, our latest recommendation, issued on August 4, presented a loss of Ecopetrol, 30% 5.3%, performing below the Colcap and the basket of eligible assets by 252 20% and 214 bps, respectively.

Source: Grupo Bancolombia.

Top Picks follow-up Top Picks history

Colcap ex- Alpha ex - Top Picks Colcap Alpha 160 Top Picks Colcap Colcap Ex-relacionadas related related 140 2015 -14,5% -16,9% 243 -17,8% 326 2016 28,9% 17,2% 1.171 17,8% 1.103 120 2017 12,8% 12,0% 80 13,0% -20 100 2018 -17,6% -12,4% -520 -16,9% -71 2019 17,2% 26,3% -914 27,3% -1.010 80 2020 17,4% -9,8% 2.715 -2,3% 1.967 60 2021 -12,6% -11,8% -78 -6,0% -660

Último -5,3% -2,8% -252 3,2% -214

dic.-17 dic.-15 dic.-16 dic.-18 dic.-19 dic.-20

abr.-21 abr.-16 abr.-17 abr.-18 abr.-19 abr.-20

ago.-17 ago.-18 ago.-19 ago.-20 ago.-21 Total 23,9% -4,1% 2.802 6,4% 1.758 ago.-16

Source: Grupo Bancolombia, Reuters. Source: Grupo Bancolombia, Reuters. Cementos Argos – It Could Post the Best EBITDA on Record in 2Q21 It continues to be the asset with the best feeling amongst investors surveyed, which we expect will be reflected positively in the share price. We expect 2Q21 results to be very positive, despite the impact of the blockades in the Colombian operation, with an EBITDA that we believe could be the best in the history of the company, even without considering the extraordinary profit that will be recorded this quarter from the sale of the ready-mix concrete assets in Dallas, which will further boost the result. With the normalization of the operation in and the good momentum and prospects for the US market (which could also become even more positive if the Biden administration’s infrastructure plan is approved), we expect Cemargos to continue posting positive results, managing to finish 2021 fulfilling the goal of reducing financial leverage to 3.2x, without the need for additional divestments.

Grupo Nutresa – Undervalued Asset amidst Scenario of Consumer Confidence Recovery Although the 2Q20 results were negative in our view, we believe that is a company with an interesting fundamental upside. In the short term, it is key that by means of pricing strategies added to efficiencies in expenses, it can counteract the negative effect that the increase in the cost of raw materials has on profitability. The sales outlook for the second half is positive, considering an economic recovery in the different countries where the company is present, and which goes hand in hand with the improvement in consumer confidence. Additionally, at the end of this year the company will inaugurate the new multi-category plant in the Santa Marta Free Zone (C3) that will boost exports, within the organic growth strategy, and will begin to reflect Belina’s results in 3Q21. It is important to highlight that the company is currently executing the share buyback program, of which close to COP36 bn has been purchased, equivalent to 12% of the total approved by the board of directors, so there is still a significant buying flow. The cash and debt position is quite healthy (below 2x net debt/EBITDA) which allows it to carry it out and also consider acquisitions that may be strategic according to the 2030 mega.

Grupo Aval – Positive Results Should be Maintained throughout 2021 Grupo Aval continues to be our preferred asset in the financial sector. Thanks to its focus on commercial credit for large corporations and its investment in , it achieved resilient results during 2020, maintaining a double-digit ROE. In 1Q21 it recorded positive results, driven by the financial business, and we expect the trend to continue throughout the year, as we expect an increasingly moderate expense on provisions.

Ecopetrol – Recovery of Results due to Efficiencies and Price Ecopetrol’s 2Q21 results are positive. Revenues were above our expectation given the better sales of refined oil products in the domestic market. We highlight that for 2Q21 a barrel of Ecopetrol was sold for USD3.8 below the Brent reference, which means that the price differential remained at lows. It is relevant to note that 2Q21 results were better than 2Q19’s. In other words, Ecopetrol should be exceeding the pre-pandemic results with lower production as a result of the strong recovery in Brent prices, the exchange rate level, and good profit margins. 2Q21 production was affected by social unrest and blockades, reaching 661 kboed. Production should improve for 3Q21 and 4Q21, once the affected fields recover to previous production levels and the Castilla field, which had dumping problems that have already been solved, gradually recovers production. Thus, if the good relationship between Brent and the USDCOP is maintained, Ecopetrol could further improve results. Juan Pablo Espinosa Arango Chief Economist and Head of Economic, Industry and Market Research [email protected]

EconomicResearch Industry Research Equity Research Arturo Yesid González Peña Jhon Fredy Escobar Posada Jairo Julián Agudelo Restrepo Quantitative Specialist Head of Agroindustry Research Head of Equity Research [email protected] [email protected] [email protected]

Juan Camilo Meneses Cortes Nicolás Pineda Bernal Diego Alexander Buitrago Aguilar Macroeconomic Specialist Head of Commerce Research Utilities Analyst [email protected] [email protected] [email protected] +571 7463984 Juan Manuel Pacheco Perez Mateo Andrés Rivera Arbeláez Markets and Central Banking Analyst Commerce Industry Analyst Andrea Atuesta Meza [email protected] [email protected] Financial Sector Analyst [email protected] Santiago Espitia Pinzón Paolo Betancur Montoya Macroeconomic Analyst Agroindustry Analyst Juliana Aguilar Vargas, CFA [email protected] [email protected] Cement & Infrastructure Analyst [email protected] Bryan Hurtado Campuzano Javier David Villegas International and Regional Analyst Real Estate and Hotels Analyst Ricardo Andrés Sandoval Carrera [email protected] [email protected] Oil & Gas and Airlines Analyst [email protected] Deiby Alejandro Rojas Cano Valentina Gómez Garzón Macroindustry Analyst Commerce Sector Analyst Valentina Martínez Jaramillo [email protected] [email protected] Consumer & Industry Analyst [email protected] Julian Andrés Gómez Quintero Juan Esteban Echeverri Agudelo Intern Administrative Assistant Jairo Andrés Burgos Guerra [email protected] [email protected] Intern [email protected] José Manuel Lopera Molina Intern [email protected]

Research Assistant

Alejandro Quiceno Rendón Research Editor [email protected] Terms of Use: This report has been prepared by Analysis Bancolombia a research and analysis department at Grupo Bancolombia. It shall not to be distributed, copied, sold, or altered in any way without the express permission of Grupo Bancolombia, nor be used for any purpose other than to serve as background material which does not constitute an offer, advice, recommendation, or suggestion by Grupo Bancolombia for making investment decisions or conducting any transactions or business. The use of the information provided is solely the responsibility of the recipient. Before making an investment decision, you should assess multiple factors such as the risks of each instrument, your risk profile, your liquidity needs, among others. This report is only one of many elements that you should consider in making your investment decisions. In order to extend the content of this information, we ask you to contact your business manager. We recommend you not to make any investment decision until fully understanding all factors involved in such decisions. Fixed income and equity securities, interest rates, and other information found here are purely informational and are not an offer or firm demand to perform transactions. Also, according to the applicable regulations, our opinions or recommendations do not constitute a commitment or guarantee of return for the investor. The information and opinions in this research report constitute a judgment as of the date indicated and are subject to change without notice. The information may therefore not be accurate or current. Future projections, estimates, and forecasts are subject to several risks and uncertainties that prevent us from ensuring that they will prove correct or accurate, or that the information, interpretations, and knowledge on which they are based will be valid. In that sense, actual results may substantially differ from the forward-looking statements contained here. You should be aware of the fact that investments in securities or other financial instruments involve risks. Past results do not guarantee future performance. The entities that are part of Grupo Bancolombia may have acquired and maintain at the time of preparation, delivery or publication of this report, for their own position or that of their clients, the securities or financial assets to which the reports refers. Grupo Bancolombia has risk policies to avoid a concentration in their own positions and those of their clients, which contributes to avoid conflicts of interest. As regards to conflicts of interest, we declare that (i) Valores Bancolombia S.A. Comisionista de Bolsa and/or Banca de Inversión Bancolombia S.A. Corporación Financiera have participated in structuring or underwriting/placing equity securities for Bancolombia S.A., (ii) Grupo Bancolombia is the beneficial owner of 10% or more of the shares issued by Valores Simesa S.A., and Proteccion S.A., (iii) Bancolombia is one of the biggest shareholders of Fondo Inmobiliario Colombia – FIC, and (iv) Valores Bancolombia S.A. Comisionista de Bolsa is a wholly owned subsidiary of Bancolombia S.A. Nevertheless, it has been prepared by our Analysis Bancolombia department team based on strict internal policies that require from us objectivity and neutrality, as well as independence from our areas of brokerage and investment banking. The information contained in this report is not based, does not include nor has been structured based on privileged or confidential information. Any opinions or projections contained herein are solely attributable to the author and have been prepared independently and autonomously in the light of the information available at the time. The content of this message does not constitute a professional recommendation to make investments according to the terms of article 2.39.1.1.2 of the Decree 2555 of 2010 or the regulations that modify, replace or complement it.

Rating System: The investment recommendation on the issuers under coverage by Analysis Bancolombia is governed by the rating system presented below, subject to the following criteria: The upside potential is the percentage difference between the target price of securities issued by a particular issuer and their market price. The target price is not a forecast of the price of a stock, but a fundamental independent valuation made by Analysis Bancolombia, which seeks to reflect the fair price the market should pay for the shares on a given date. Based on an analysis of the relative upside potential amongst the securities of companies under coverage and the COLCAP index, the ratings of the assets are determined as follows: •Overweight: when the upside potential of a stock exceeds by 5% or more the return potential of the COLCAP index. •Market Weight: when the upside potential of a stock does not differ by more than 5% from the return potential of the COLCAP index. •Underweight: when the upside potential of a stock is 5% or more below the return potential of the COLCAP index. •Under Review: the company’s coverage is under review and therefore there’s no rating or target price. Additionally, at the discretion of the analyst, the speculative qualification that complements the recommendation will continue to be used, taking into account the risks seen in the performance of the asset, its future development and the volatility the movement of the stock may show. The fundamental potential of the index is determined based on the methodology established by the BVC for the calculation of the COLCAP index, considering the target prices published by Analysis Bancolombia. This will be made with the Colcap basket on the dates of calculation May and November of every year. For the companies part of the index but not covered, the consensus of market analysts will be used.

Currently, Analysis Bancolombia has 18 companies under coverage, distributed as follows:

Overweight Market Weight Underweight Under Review Restricted

Number of issuers with ratings of: 9 2 5 1 1

Percentage of issuers with ratings of: 50% 11% 28% 5.5% 5.5%