Peru Equity Guide 2021 Post-Pandemic Recovery Post-Pandemic Recovery
Management
Alberto Arispe CEO (511) 630 7500 [email protected]
Corporate Finance Special Operations
Ricardo Carrión Miguel Rodriguez Manager Manager (51 1) 630 7500 (51 1) 630 7500 [email protected] [email protected]
Equity Research
Marco Contreras Marco Alemán Christian Choquecota Anthony Hawkins Head of Research Senior Analyst Analyst Assistant (51 1) 630 7528 (51 1) 630 7527 (51 1) 630 7529 (51 1) 630 7500 [email protected] [email protected] [email protected] [email protected]
Sales & Trading
Eduardo Fernandini Hernando Pastor Mayra Carrión Hilmer Calderón Rosa Torres Belon Head Trader Sales Trader Sales Trader Sales Trader Sales Trader (51 1) 630 7516 (51 1) 630 7511 (51 1) 630 7510 (51 1) 630 7533 (51 1) 630 7520 [email protected] [email protected] [email protected] [email protected] [email protected]
Walter León Blanca Pajuelo Mishell Morales Alexander Javier Giannina Pingo Sales Trader - Miraflores FX Sales FX Sales FX Sales FX Sales (51 1) 243 8024 (51 1) 630 7515 (51 1) 630 7525 (51 1) 630 7513 (51 1) 630 7518 [email protected] [email protected] [email protected] [email protected] [email protected]
Operations
Ramiro Misari Edilay Broncano María López Franklin Mujica Head of Operations & IT Operations Analyst Treasury Analyst IT Analyst (51 1) 630 7523 (51 1) 630 7500 (51 1) 630 7500 (51 1) 630 7500 [email protected] [email protected] [email protected] [email protected]
Internal Control
Lissete Cuyuche Controller (51 1) 630 7500 [email protected]
Accounting and Administration
Luz Quispe Juan Carlos Huisa Gema Torres Chief Accountant Accounting Assistant Office Manager (51 1) 630 7500 (51 1) 630 7500 (51 1) 630 7500 [email protected] [email protected] [email protected]
www.kallpasab.com Peru Equity Guide 2021 2 Post-Pandemic Recovery
Index
Presentation ………………………………………………...…………………………………………………………………………………………………………………………………………………………..4
I. Peru: Macroeconomic Outlook 2021 ………………………………………………………………………………………………………………………………………………………………………………..5
i. 2020: GDP would close with the biggest drop since 1989…………………………………………………..………………………………………………………………………………………………………………………………………………………………………..5 ii. Political Situation…………………………………………………..………………………………………………………………………………………………………………………………………………………………………..5 iii. Expectations for 2021…………………………………………………..………………………………………………………………………………………………………………………………………………………………………..6 iv. Investment boosted by the mining sector …………………………………………..………………………………………………………………………………………………………………………………………………………………………..6 v. Fiscal Situation …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..8 vi. Monetary Situation …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..9 vii. Inflation …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..9 viii. Exchange Rate …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..9
II. Metals Prices : Outlook ………………………………………………………………………………………………………………………………………………………………………………..10
i. Gold and Silver …………………………………………………..………………………………………………………………………………………………………………………………………………………………………..10 ii. Copper ………………………………………..……………………………………………………………………………………………………………………………………………………………………..11 iii. Zinc ………………………………………...…………………………………………………………………………………………………………………………………………………………………..12 iv. Tin ………………………………….……………………………………………………………………………………………………………………………………………………………………..12
III. Peruvian Equities ………………………………………………………………………………………………………………………………………………………………………………………………………13
IV. Strategy: Overweight Consumption and Mining ………………………………………………………………………………………………………………………………………………………………………………..14
V. Companies under Coverage ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..15
Financials i. Credicorp ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..16 ii. Intercorp Financial Services ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..18
Consumption iii. Alicorp ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..20 iv. InRetail ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..22
Infrastructure v. Cementos Pacasmayo ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..24 vi. Ferreycorp ………………………………………………………………………………………………………………………………………………………………………………..………………………………………………………………………………………………………………………26 vii. Aenza …...... ………………………………………………………………………………………………………………………………………………………………………………..28 viii. Unacem ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..30
Energy ix. Enel Distribución Perú ………………………………………………………………………………………………………………………………………………………………………………..32 x. Enel Generación Perú ……………………………………………………………………………………………………………………………………………………………………………………..34 xi. Engie Energía Perú …………………………………….……………………………………………………………………………………………………………………………………………………..36 xii. Refinería La Pampilla …………………………………………………………………………………………………………………………………………………………………………………..38
Mining xiii. Buenaventura ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..40 xiv. Cerro Verde ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..42 xv. Nexa Resources Perú ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..44 xvi. Minsur ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..46 xvii. Southern Copper ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..48 xviii. Trevali ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..50 xix. Volcan ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..52
www.kallpasab.com Peru Equity Guide 2021 3 Post-Pandemic Recovery
Dear Investor,
We would like to present the "Peru Equity Guide 2021" developed by Kallpa SAB's Equity Research Team. In this document you will be able to find our overview of the Peruvian market and the economy for 2021. Furthermore, we wish to share our top picks from the Lima Stock Exchange (BVL) and we also update the target prices of the 19 companies we have under coverage.
2020 was an unexpected year. COVID-19 pandemic lead to a sanitary crisis and a economic recession at a global level. Fear of contagion and social isolation measurements caused a partial standstill of several economic activities, many of which will take more than a year to fully recover. However, the crisis in the financial markets was carried out differently, since the main developed and emerging market indices close the year with positive results.
After a sharp drop in March, the S&P 500 index closed 2020 with a 16.3% rise. The main driver was the expectation that a prompt mass vaccination against the virus will generate a strong recovery of earnings in 2021. The implementation of economic stimuli also played an important role in the recovery of the markets. The US government has approved a total of USD 4 trillion in fiscal stimulus packages to date, while the Fed aggressively lowered its benchmark interest rate and initiated an asset purchase program to inject liquidity into the economy. Additionally, in November the presidential elections were held, where the Democratic candidate Joe Biden won. Despite President- Elect Biden announced in campaign that he would increase corporate taxes, the market seems to have internalized the Democratic victory, and hopes that the new government will increase fiscal stimulus and lead the US to have a better relationship with China.
Stock markets in emerging countries also had a good year. The MSCI index of emerging markets rose 15.9%, despite the fact that higher risk aversion in times of crisis usually drives investors away from this segment of the market. It should be noted that the rise was led by the Chinese market, whose economy will be one of the few that will not enter a recession in 2020 and which has recovered from the pandemic faster than expected.
In the event of Peru, the stock market closed in negative territory. The EPU fell 4.3% in 2020. Although strong fiscal and monetary stimuli were implemented in our country, the effects of the pandemic have been more devastating than in the rest of the world. The precarious health system and the high level of informality forced the government to implement a mandatory quarantine for almost three months and a slow and gradual resumption of activities. Likewise, the political crisis intensified, with the vacancy of Martín Vizcarra in November and the constant effort of Congress to pass laws that threaten the fiscal stability of the country. As a consequence, Peru's GDP would fall 12% in 2020, the biggest drop since 1989.
By 2021, we expect economic stimulus, coupled with a global economic recovery and higher metal prices (especially copper and gold) to cause a 9% rebound in GDP. In this context, we believe that the Lima Stock Exchange (BVL) may have a positive performance in 2021, supported by the recovery of the earnings of the main companies in the Peruvian market.
We recommend overweight companies linked to the consumer and mining sectors, which we believe have strong fundamentals. However, we highlight that our estimates are subject to risks that every investor must consider, such as volatility in metal prices, the severity of a second wave of COVID-19 infections, delays in mass access to vaccines and above all the political risk, since presidential elections will be held on April 2021.
Lima, January 5th, 2021
Sincerely Marco Contreras Head of Research Kallpa Securities SAB
www.kallpasab.com Peru Equity Guide 2021 4 Post-Pandemic Recovery
I. Peru: Macroeconomic Outlook 2021
i. 2020: GDP would close with the biggest drop since 1989
We expect the year 2020 to close with a 12.0% contraction in GDP, the strongest drop since 1989 (when it fell 12.3%). This figure, widely lower than the previous year (2019 grew 2.2%), responds to a pronounced drop in investment and private consumption. This, mainly explained by the rapid expansion of COVID-19 throughout the country, which implied strict measures of social confinement at the beginning of this year. As of the second semester, economic activity has been recovering from its lowest point (2Q2020 -29.8% YoY), due to a gradual relaxation of the mandatory social isolation and the exceptional measures that allowed maintaining the payment chain of the economy.
We also highlight that the health crisis has affected the prospects for the global economy, which has prejudiced the country's main trading partners.
Regarding the economic sectors, we highlight that manufacturing, commerce and construction would be the main catalysts for the contraction. This is due to: i) lower production of consumer goods and investment goods, ii) lower wholesale sales and sales of motor vehicles; and iii) lower domestic cement consumption, concentrated in the months of April and May.
Chart N° 1: GDP vs. Domestic Demand Chart N° 2: Employed Labor Force (000') 10% 5,500 GDP Domestic Demand 5% 5,000
0% 4,500
-5% 4,000
-10% 3,500
-15% 3,000
-20% 2,500
-25% 2,000
-30%
Jul-19 Jul-20
Jan-19 Jan-20
Mar-19 Mar-20
Nov-18 Nov-19 Nov-20 Sep-20
3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20 3Q20 Sep-19
May-19 May-20 Source: BCR, Kallpa SAB Source: BCR, Kallpa SAB
ii. Political Situation
During 2020, in the midst of the COVID-19 pandemic, tensions between the Legislative and the Executive power intensified. As a result of these confrontations, on November 9, Congress approved the impeachment for permanent moral incapacity against Martin Vizcarra for an alleged relationship to cases of corruption. This led the president of the Congress at that time, Manuel Merino, to assume the Presidency of the Republic. However, this caused a strong rejection in the population, which pressured a new election of president and board of directors of Congress. As a result, Merino resigned and Francisco Sagasti was elected the new president of Congress on November 16, assuming the post of President of the Republic the following day.
Although the new president has the approval of the population, this government still has great challenges ahead: i) face the health crisis caused by the COVID-19 pandemic, ii) ensure an orderly transition until a new government takes into office, which will be elected in April 2021, iii) implement measures that accelerate economic recovery without affecting the fiscal balance; and, iv) calm social conflicts.
By 2021, we consider that one of the main risks is that Congress will continue to pass populist laws that threaten the fiscal balance, as social conflicts increase. Likewise, the April 2021 elections add a greater political risk due to the uncertainty about the economic proposals of the candidates leading the polls.
www.kallpasab.com Peru Equity Guide 2021 5 Post-Pandemic Recovery
Chart N° 3: Voting Intention for President Chart N° 4: Voting Intention for Congress
Partido Morado 10% George Forsyth 12% 18% 17% Julio Guzmán Acción Popular 8% Verónika Mendoza Fuerza Popular 18% Keiko Fujimori Victoria Nacional 8% 6% Daniel Urresti 16% Frepap 6% 7% Yonhy Lescano Juntos por el Perú
Others 5% Others 7% 4% 22% Blank/Voided Blank / Voided 6% 4% 26% Not Specified Not Specified
Source: IPSOS, Kallpa SAB Source: IPSOS, Kallpa SAB
iii. Expectations for 2021
For 2021, we expect a rebound in economic activity of 9.0%, due to: i) greater economic stimuli, ii) resumption of public and private investments; and, iii) a recovery in business confidence and in the labor market. Likewise, we forecast an advance in the terms of trade, as a result of an increase in exports, given the higher prices of minerals, especially copper and gold. On the other hand, we expect that, with the new US president, Joe Biden, trade tensions with China will ease, which would create a more favorable global scenario for recovery.
Chart N° 5: GDP Variation 12% 8.5% 9.0% 9% 6.5% 6.0% 5.8% 6% 3.3% 4.0% 4.0% 4.0% 2.4% 2.5% 2.2% 3% 1.0% 0%
-3%
-6%
-9%
-12% -12.0% -15% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e
Source: BCR, Kallpa SAB
iv. Investment boosted by the mining industry
We expect private investment to present a reduction of 20.0% in 2020, as a result of the interruption of economic activities, due to the isolation measures implemented by the government to face COVID-19. However, we project a 15.0% rebound in 2021, as business confidence recovers and favorable long-term financial conditions remain. Likewise, this progress would be supported by the execution of several projects within the mining industry.
Chart N° 6: Private Investment Chart N° 7: Business Confidence 20% 75 15.0% 15% 65 10% 4.5% 4.0% 4.5% 55 5% 0.2% 0% 45
-5% -2.2% 35 -4.2% -5.4% -10% 25 -15% 15 -20% -20.0% -25% 5 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e 2013 2014 2015 2016 2017 2018 2019 2020
Source: BCR, Kallpa SAB Source: BCR, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 6 Post-Pandemic Recovery
Mining Investment: One of the main catalysts for the growth of private investment by 2021 will be the development of mining projects. Chart N ° 8 shows the high correlation between mining investment and private investment.
During 2020, the investment schedules in most mining projects have been modified by the health crisis generated by COVID-19, which has led to the construction of six projects that were scheduled for this year to be rescheduled for later years. Faced with this situation, the government had three phases (May 3, June 4 and June 30) for the economic reactivation of the mining sector, in such a way that it allowed the continuity of the projects under construction such as the expansion of the Toromocho mine in Chinalco and Anglo American's Quellaveco project, which have a total investment of USD 1,300 MM and USD 5,300 MM, respectively.
For 2021, we expect higher disbursements from the Quellaveco project and the second phase of the Toromocho Expansion, as well as better expectations for metal prices. This would trigger the construction of new projects that are currently in the portfolio of the Ministry of Energy and Mines (USD 56,158 MM). Among the next projects could be Yanacocha Sulfuros (USD 2,100 MM), San Gabriel (USD 422 MM), Corani (USD 585 MM), Coroccohuayco (USD 590 MM), among others.
Chart N° 8: Private vs. Mining Investment Growth Table N° 1: Portfolio of Main Mining Projects
15% 60% Project Company Metal CAPEX (USD MM) Private Investment Mining Investment Quellaveco Anglo American Cu 5,300 5% 40% Los Chancas Southern Copper Cu 2,800 -5% 20% Michiquillay Southern Copper Cu 2,500 -15% Pampa de Pongo Jinzhao Mining Fe 2,200 -25% 0% Yanacocha Sulfuros Minera Yanacocha Cu 2,100 -35% Haquira Antares Cu 1,860 -20% -45% Amp. Toromocho Chinalco Cu 1,355 -40% Zafranal Minera Zafranal Cu 1,263 -55% Others 36,780 -65% -60% 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20 3Q20 Portfolio Total 56,158 Source: BCR Source: MINEM
Infrastructure Projects: We expect a gradual resumption of different projects, after the partial standstill of activities in the construction sector, as a result of COVID-19. Line 2 of the Lima Metro stands out, with an investment of USD 5,700 MM and currently has an advance of 34.0%. Likewise, we expect that in 2021 the construction of the expansion of the Jorge Chávez Airport (USD 1,500 MM) will continue, as well as other projects such as the San Martín Port Terminal and the Chancay Port Terminal.
Chart N° 9: Infrastructure Gap Table N° 2: Main Infrastructure Projects Proyecto CAPEX (USD MM) Lima Metro Line 2 5,658 5% 3% Transportation 8% Expan. Jorge Chávez Airport 1,500 Energy Chancay Port Terminal 1,300 36% Telecommunications 12% Rutas Nuevas de Lima 590 Health Care Muelle Norte Modernization 370 Water and Sanitation Road Network 4 380 Hydraulic Waste Water Treatment in Lake Titicaca 270 17% Education Expansion Highway 6 300 19% San Martín Port 260 Port Terminal of Callao 150 Source: AFIN, Universidad del Pacífico Source: BCR, Kallpa SAB
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Reconstruction Works: In 2017 the country was affected by the El Niño Phenomenon, where much of the national infrastructure was deteriorated. In light of this, the government planned a budget to carry out reconstruction works for an amount of PEN 25,655 MM, which we hope will be executed in the medium term.
In 2020, a government-to-government (GTG) agreement was signed with the United Kingdom. This, in order to receive technical assistance in the execution of major prevention and reconstruction works in the affected areas. It is estimated that in the next two years, an investment of PEN 7,000 MM will be executed, which will be distributed in nine regions of the country (mainly in the north).
Chart N° 10: Public Investment Growth Table N° 3: Distribution of the Budget for Reconstruction
18% Industry Investment (S/ MM) % 12.0% 9,760 38.0% 13% Transportation Education 2,671 10.4% 8% 5.6% 4.0% Sanitation 2,041 8.0% 3% 0.3% Roads and Sidewalks 1,483 5.8% -2% Agriculture and Irrigation 1,344 5.2% -1.4% -2.7% -1.8% -7% Health Care 1,343 5.2% -6.9% -12% Housing 1,114 4.3% Investment for damaged infrastructure 19,759 77.0% -17% -18.0% Prevention Works and Others 5,896 23.0% -22% 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Total Budget 25,655 Source: BCR, Kallpa SAB Source: BCR, Kallpa SAB
Despite the above-mentioned, we highlight the risk of execution that exists in every project. Additionally, those works whose progress depends on government decisions could see greater delays due to increases in the country's political noise and the lack of experience of the authorities.
v. Fiscal Situation
We estimate that by 2020 the fiscal deficit would close at 8.6% of GDP (as of November 2020, the accumulated fiscal deficit of the last twelve months was 7.7% of GDP, after reaching 1.6% of GDP in 2019). This would be due to higher non-financial spending by the general government and lower collections of current income, as a consequence of the lower economic activity due to COVID-19.
By 2021, we expect the fiscal deficit to be reduced to 4.4% of GDP, as the income of companies and families recovers, in line with the expected recovery in economic activity. By 2022 we project that the fiscal deficit will fall to 3.0% of GDP.
We expect that public spending will bring a higher debt for the government, which will go from 26.8% (public debt / GDP) in 2019 to 35.1% in 2020. Debt levels will gradually reduce, as the effects of COVID- 19 dissipate in economic activity and tax collection.
Chart N° 11: Fiscal Deficit (% of GDP) Chart N° 12: Public Debt (% of GDP) 0% 40% -0.2% 35.1% 34.4% 34.4% -1% 35% -2% -1.6% -1.9% 30% 26.8% -3% -2.3% -2.3% 24.9% 25.8% -3.0% -3.0% 23.3% 23.9% -4% 25% 19.9% -5% -4.4% 20%
-6% 15% -7% 10% -8% 5% -9% -8.6% -10% 0% 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e
Source: BCR, Kallpa SAB Source: BCR, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 8 Post-Pandemic Recovery
vi. Monetary Situation
During 2020 the Central Bank made 2 cuts in the reference rate, which went from 2.25% to 1.25% in March and from 1.25% to 0.25% in April. This unprecedented measure responds to an expansive monetary policy that seeks to mitigate the strong economic contraction that is causing the pandemic, therefore it focuses mainly on reducing the cost of financing and the provision of liquidity to the financial system.
For 2021 we foresee that the Central Reserve Bank of Peru (BCR) will maintain the reference rate at levels close to zero, in order to favor economic recovery. This, as inflation expectations remain within the target range.
vii. Inflation
During 2020, inflation has been affected by lower aggregate demand and lower imported inflation, as a consequence of the global health crisis. However, we expect a recovery towards the end of the year, boosted by an increase in the prices of the health care and maintenance segments (+ 3.5%); and, rental of housing, fuel and electricity (+ 3.0%).
By 2021, we expect inflation to be within the target range, close to 2.0%, in line with the price increase reported in 2020.
viii. Exchange Rate
Finally, regarding the exchange rate (PEN / USD), during 2020 there was a strong accumulated increase of 8.3%. The greater strength of the dollar was due to: i) a general sell-off of financial assets in emerging markets, ii) greater demand for dollars, due to "Flight-to-Safety" strategies of investors at a global level, given the crisis caused by COVID- 19; and, iii) the local political crisis.
For 2021 we expect the exchange rate to close around 3.45. This appreciation of the Peruvian currency compared to the previous year would be the result of the economic recovery, an increase in the prices of commodities (mainly copper) and an expansionary monetary policy of the Fed.
Chart N° 13: Reference Rate vs. Inflation Chart N° 14: Exchange Rate PEN/USD 7% 3.8 Reference Rate YoY Inflation 3.6 6% 3.4 5% 3.2
4% 3.0
3% 2.8 2.6 2% 2.4 1% 2.2
0% 2.0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 e Source: BCR, Kallpa SAB Source: BCR, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 9 Post-Pandemic Recovery
II. Metals Prices: Outlook
The year 2020 began with optimism that the first phase of a trade agreement between China and the US will be signed, and thus dispel uncertainty about the performance of base metals. However, during the first half of the year, the appearance of the COVID-19 virus generated a global health crisis. This caused the governments of many countries to take strict measures of social isolation, partially paralyzing economic activities. Precious metals, such as gold and silver, benefited from the uncertainty and reached a price above USD / Oz. 2,000 and USD / Oz. 28, respectively. Base metals, on the other hand, fell sharply in the first months of 2020. However, the expectation of a strong economic recovery in 2021, especially in China, prompted the market to quickly return confidence to copper and zinc. These metals were able to close the year with increases of more than 20%, reaching a price above USD / Lb. 3.50 and USD / Lb. 1.20.
Our expectations for the prices of metals for a medium and long term, which we use in our valuation models of mining companies, are presented below.
Table N° 4: Average Metal Prices Vector Metal Vector 2020 2021e 2022e 2023e 2024e LT New 1,770 1,850 1,700 1,600 1,500 1,400 Gold USD/Oz Former 1,700 1,700 1,600 1,500 1,400 1,400 New 20.50 24.00 23.00 21.00 19.00 18.00 Silver USD/Oz Former 20.50 23.00 20.00 19.00 18.00 18.00 New 2.81 3.40 3.30 3.20 3.10 3.00 Copper USD/Lb. Former 2.69 2.90 3.00 3.00 3.00 3.00 New 1.03 1.20 1.10 1.00 1.00 1.00 Zinc USD/Lb. Former 0.97 1.00 1.00 1.00 1.00 1.00 New 0.83 0.90 0.90 0.90 0.90 0.90 Lead USD/Lb. Former 0.90 0.90 0.95 0.95 0.95 0.95 New 17,135 19,500 19,500 19,000 18,500 18,000 Tin USD/TM Former 16,700 17,000 17,500 18,000 18,000 18,000
Source: Kallpa SAB
i. Gold and Silver: Economic Uncertainty, Stimulus Package and Dollar Depreciation
Gold is considered a safe haven asset, so movements in the price of this metal are subject to expectations about economic indicators, such as inflation and monetary policy, in addition to geopolitical risk.
Throughout 2020 the price of gold registered a growth of 25.1%, while silver did so by 47.9%. Both results were mainly influenced by global economic uncertainty, given the COVID-19 pandemic. This generated a greater aversion to risk on the part of investors, causing a greater demand for precious metals. Also, in response to the recession, the US government implemented various fiscal stimulus packages that to date have reached USD 4 trillion. Monetary policy was also quite aggressive. The Fed reduced its reference rate on 2 occasions by a total of 150 bps, reaching levels of 0-0.25%, and reinstated its asset purchase program, which currently maintains a purchase rate of USD 120,000 MM per month.
All of the above stimulated the demand for gold. In addition, we also highlight the greater demand for gold as a financial instrument, to which investors have access through ETF's.
By 2021, we expect strong fiscal and monetary stimuli to increase inflation expectations. As a consequence: i) real interest rates on US bonds would remain in negative territory; and, ii) the dollar would weaken compared to the rest of the world currencies. This would lead to greater demand for gold and upward pressure on the price of precious metals in the short term. In the medium term, we expect these pressures to moderate, as the economy recovers and economic stimuli are gradually withdrawn.
To analyze silver, it is useful to analyze the gold / silver ratio. In the last 20 years, the ratio has averaged 71.0x. In the last 5 years it has been located at 80.7x. In March 2020, the ratio reached its historical maximum (124.0x), due to the rise in gold during the first quarter of the year, a consequence of economic uncertainty, as a result of COVID-19.
www.kallpasab.com Peru Equity Guide 2021 10 Post-Pandemic Recovery
On the other hand, silver lagged relatively behind during this period. However, the expectations of a recovery in economic activity increased optimism about it, since it is also used as an industrial metal. We believe that the gold / silver ratio should range between 70x and 80x and we expect average gold and silver prices at levels of USD / Oz. 1,850 and USD / Oz. 24 in 2021.
Chart N° 15: Gold vs. 10Y T-Note Yield Chart N° 16: ETFs Gold Holding (MM of Oz.)
USD/Oz. 120 Gold (Left Axis) 10Y Yield (Right Axis) 2,200 -3% 100 2,000 -2%
1,800 -1% 80
1,600 0% 60
1,400 1% 40 1,200 2% 20 1,000 3% 0
800 4%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Bloomberg, Kallpa SAB Source: Bloomberg, Kallpa SAB
ii. Copper: Optimism to continue in 2021
Throughout 2020, the price of copper has increased 26.0% (vs. end of 2019), while compared to the average price of 2019 the price of the metal grew 3.7%, given a faster than expected recovery of the Chinese economy, and growth expectations for the coming years.
In the first months of the year, copper fell sharply, given the uncertainty about the economic impact that COVID-19 would have. However, expectations of a rapid global economic recovery, especially in China, offset the negative effects, generating a strong rise in the metal in the second half of 2020.
It is important to highlight the high correlation between the demand for copper and the growth of China, since it concentrates more than 50% of the global demand. For 2021 we expect a recovery in demand, in line with an expected growth of 8.2% for the Chinese economy (in 2020 it would grow only 2.0%, as a result of the pandemic). Regarding supply, we highlight that in 2020 world production had an adjustment due to the stoppage of operations and lower grades in some mines. In 2021, we estimate that the mines will return to their normal production levels. However, we highlight that supply is also usually affected by disruptive events, which have affected between 5% -6% of global supply in the last two decades. Protests due to social conflicts or renegotiation of labor contracts are factors to monitor, since they are always a risk that can affect the price of the metal.
Considering all the above, we expect a global supply deficit of 220,000 MT in 2022 and 238,000 MT in 2023, which would support a price of USD / Lb. 3.40 in 2021 (USD / Lb. 3.30 by 2022). In the medium term we project that this deficit will gradually reverse. Therefore, we expect copper to converge towards USD / Lb. 3.0 in the long term.
Chart Nº 17: China's Impact on Copper Price Chart Nº 18: Inventories vs. Copper's Price Var.% YoY Industrial Production YoY (Left Axis) USD/Lb. MM MT LME Copper Inventories (Left Axis) USD/Lb. Fixed Asset Investment YoY (Left Axis) 15% 4.0 0.7 Copper Price (Right Axis) 6 Copper Price (Right Axis) 10% 0.6 5 5% 3.6 0.5 0% 4 3.2 -5% 0.4 -10% 3 2.8 0.3 -15% 2 0.2 -20% 2.4 -25% 0.1 1 -30% 2.0
0.0 0
Jul-19 Jul-20
Apr-19 Oct-19 Apr-20 Oct-20
Jan-19 Jun-19 Jan-20 Jun-20
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Feb-19 Mar-19 Feb-20 Mar-20
Aug-19 Sep-19 Nov-19 Dec-19 Aug-20 Sep-20 Nov-20
May-19 May-20
Source: Bloomberg, Kallpa SAB Source: Bloomberg, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 11 Post-Pandemic Recovery
iii. Zinc: Market is gradually approaching balance
In 2020, the price of zinc had an advance of 19.7%, while the average price fell 10.9%. Like copper, zinc had a sharp fall in the first months of the year due to the impact of COVID-19, from which it was able to recover quickly due to the expectations of economic growth for 2021.
Chart Nº 19: Supply of Concentrates LTM (YoY) Chart Nº 20 : Inventories vs . Zinc Price 000' MT USD/Lb. 3.0% 2,000 Inv. LME Inv. Shanghai Zinc Spot 1.7 2.0%
1.0% 1,600 1.4 0.0% 1,200 -1.0% 1.1 -2.0% 800 -3.0% 0.8 -4.0% 400
-5.0%
0 0.5
Jul-19 Jul-20
Set-19 Set-20
Mar-19 Mar-20
Nov-18 Ene-19 Nov-19 Ene-20
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
May-19 May-20
Source: Bloomberg, Kallpa SAB Source: Bloomberg, Kallpa SAB
Uncertainty about the growth of the global economy amid the pandemic has negatively affected demand for the metal. We expect global zinc demand to fall by more than 4.0% in 2020. Supply would also have a similar decline, given the interruption in production of some mines. However, the net result would be an excess supply of approximately 520,000 MM MT in 2020, which we expect to fall significantly towards 2021, as the global economy recovers, mainly that of China.
We trust that the expectation that a strong recovery in global zinc demand will keep the market price around USD / Lb. 1.20 in the short term. However, we believe that, in the long term, the balance in the physical market for the metal would bring its price to around USD / Lb. 1.00.
iv. Tin: Price hit by supply surplus
The average price of the metal during 2020 was USD 17,149 / MT (-8.0% vs 2019). The price of the metal was affected by the greater supply from Peru and Malaysia, which caused global inventories to increase. Likewise, the standstill of economic activities in several countries, as a consequence of COVID-19, had a negative impact on global demand. However, since the end of the first quarter of 2020, the price of tin has been showing an upward trend, managing to close the year with an advance of 54.1% from its lowest point in March 2020 (USD 13,335 / MT). For 2021 we estimate that the price will be around USD / MT 19,500, given the expected recovery of the global economy.
Chart N° 21: Spot Price and Tin Inventories USD/MT 000' MT 40 LME Inventories Tin Spot 35,000
30,000 30 25,000
20,000 20 15,000
10,000 10 5,000
0 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Source: Bloomberg, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 12 Post-Pandemic Recovery
III. Peruvian Equities
We estimate that in 2021 our sample of companies under coverage will have an increase in recurring net income of 141%, as a consequence of the recovery in revenues and margins, after the impact of COVID-19 in 2020 (expected drop of 44 % in 2020).
The sector with the highest growth rate will be the financial industry, which would obtain a 500% increase in profits, since both Credicorp and IFS would benefit from lower provisions and a recovery in financial and non-financial income.
Net income of companies in the consumer sector will have an advance of 57%. It should be noted that this has been one of the sectors least hit by the crisis. However, in 2021 they will continue to report strong levels of profits. At Alicorp we expect the revenues and margins of the B2B and Aquaculture units to recover, while at InRetail we expect a recovery in the shopping malls business and the incorporation of the Makro acquisition.
The infrastructure segment would also recover dynamism (+326%), given better profits in: i) Unacem, due to the strong growth we expect in cement shipments for 2021; and, ii) Aenza, as a consequence of the recovery we expect in private investment and the construction sector, in addition to better margins in the E&C unit.
The energy industry would have a 59% increase in earnings in 2021, due to the recovery of Enel Dx's revenues and margins, while Relapasa would benefit from better refining margins and the absence of strong inventory impairments (generated by the drop in oil prices in 2020).
Mining companies would have an increase of 117%, where all the companies that we have under coverage would present important increases. We mainly highlight the contributions of: i) Southern Copper, given the higher price of copper, ii) Cerro Verde, due to higher sales volumes and metal prices; and, iii) Minsur, due to the start of operations of Mina Justa and greater deliveries of ore in San Rafael and Pucamarca.
We highlight that the net income we expect in 2021 are even 35% higher than the recurring profits reached in 2019 (pre- COVID-19). However, it should be noted that this is due to the strong impulse that the mining sector will have, whose earnings will double vs. those registered in 2019, due to the higher prices of metals. Domestic demand companies, on the other hand, will regain ground in 2021 but will still remain 19% below pre-COVID-19 profits. These would reach their pre- pandemic levels only in 2022.
Regarding the multiples valuation, the MSCI Peru Index trades at a P / E of 16.3x, 36.3% above its 10-year average of 11.9x. This high increase is mainly due to the sharp fall in profits in 2020, as a result of COVID-19. However, we expect this ratio to be below the average in 2021, considering the increase in net income that we expect for this year.
Nevertheless, we highlight that our earnings estimates are subject to various risks, such as: i) volatility in metal prices; ii) the severity of a second wave of COVID-19 infections; iii) delays in the start of a massive vaccination against COVID-19; and, iv) political risk, given that there will be elections in April and the measures taken by the new government could impact the country's recovery.
Chart N° 22: P/E Ratio of MSCI Perú Index vs. MSCI Perú 18.0 2,500 MSCI Peru (Eje Der.) P/E MSCI Peru (Eje Izq.) 16.0
14.0 2,000
12.0 Prom.: 11.9x 1,500 10.0
8.0 1,000 6.0
4.0 500 2.0
0.0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Bloomberg, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 13 Post-Pandemic Recovery
IV. Strategy: Overweight Consumption and Mining
We recommend overweight companies in the consumer and mining sectors. We see a high potential for appreciation in some companies related to domestic demand, which will have a strong earnings recovery in 2021. Likewise, we remain optimistic in the margins that mining companies will obtain with a favorable situation in metal prices.
We expect the 9% rebound in Peruvian economic growth in 2021 to support the revenues and profits of domestic demand companies. We note that some companies are still trading below their fundamentals. We prefer companies related to private consumption, due to their defensive nature and growth potential.
In mining, we are optimistic, due to the rapid recovery that the production levels of companies have had in 2020. Likewise, we expect that access to vaccines against COVID-19 and expectations of a global economic recovery will maintain metal prices at high levels in 2021.
In this scenario, we prepare a model portfolio with our 5 top picks for 2021, taking Alicorp as a starting point in the consumer sector. We complement this selection with IFS, a financial sector company focused on consumer loans. We add Minsur, which will start operations at Mina Justa this year; Ferreycorp, a company that will benefit from the mining investment cycle; and Cerro Verde, which we believe is a good vehicle to take advantage of higher copper prices.
Alicorp: Company whose main line of business is Consumer Goods Peru (CGP). This segment will continue to be the main driver of margins and profitability in 2021. In 2020, the gastronomy and aquaculture businesses would be the most affected by COVID-19. However, we expect them to recover in 2021, as the restaurant sector gradually returns to its level of activities. Taking this into account, the company's net income should grow 47.5% in 2021, given the higher generation of EBITDA and lower indebtedness.
Ferreycorp: Company that will benefit from the recovery of mining investment in 2021. The delivery of machinery to the Quellaveco project (USD 5,300 MM), would be the main driver of revenue growth. Likewise, we expect a significant recovery in all business lines, given the low comparative base due to the stoppage of activities in various sectors of the economy as a result of COVID-19. To this, an attractive generation of cash is added, which has allowed to improve the payment of dividends.
Intercorp Financial Services: Holding whose main asset is Interbank, fourth largest bank by total loans but first in credit cards. We believe that its focus on the consumer sector will allow it to continue growing in 2021. After reporting high levels of cost of risk in 2020, provision requirements should moderate in 2021, allowing the company to achieve double digit ROE.
Minsur: One of the largest tin producers globally. We expect that with the start of operations of Mina Justa in 2021, sales of copper will represent 39% of the company's revenues, and with a full year of production it will represent 51%. This would significantly increase the company's margins, given the solid fundamentals of copper and a low cash cost (USD / Lb. 1.40- 1.45). These attractive operating cash flows would generate rapid deleveraging of the company.
Cerro Verde: One of the largest copper producers in the country. The solid fundamentals of the metal would place it at levels of USD 3.40 / Lb. on average in 2021. In addition, the company has a low cash cost (USD 1.45 per pound of copper and USD 1.05 considering the credit for by-products), which would cause the EBITDA margin to be above 50%. Additionally, the company has low levels of indebtedness, which would generate an increase in the payment of dividends.
Table N° 5: Top picks 2021
Market Cap. P/E EV/EBITDA Dvd. Company Industry Price P/BV TP 2021 Upside (USD MM) 2021e 2022e 2021e 2022e Yield Alicorp Consumption PEN 7.40 1,757 12.5 10.6 7.1 6.5 1.7 3.4% PEN 10.10 36.5% Ferreycorp Machinery PEN 1.72 463 7.0 6.6 5.3 5.0 0.8 4.5% PEN 2.50 45.3% Intercorp Finan. Serv. Financial USD 31.00 3,579 11.6 8.6 n.a. n.a. 1.5 5.7% USD 41.00 32.3% Minsur Mining PEN 1.96 1,570 7.7 6.3 4.0 3.5 1.3 0.0% PEN 2.25 14.8% Cerro Verde Mining USD 21.00 7,351 8.9 8.9 4.0 4.1 1.3 0.0% USD 24.70 17.6%
Source: Bloomberg, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 14 Post-Pandemic Recovery
V. Companies under coverage
Kallpa Securities SAB has nineteen (19) companies under coverage that belong to the following industries: financial (2), consumer (2), infrastructure (4), energy (4) and mining (7). All of them are listed in the Lima Stock Exchange (BVL).
Table N° 6: Companies under Coverage
TP TP Market Cap. P/E EV/EBITDA Dvd. Industry / Company Market Price Upside Recommend. P/BV Guide 2021 Guide 2020 (USD MM) 2021 2022 2021 2022 Yield Financial Credicorp USD 157.60 172.00 9.1% Hold 241.00 12,570 14.60 10.86 n.a. n.a. 1.79 5.6% IFS USD 31.00 41.00 32.3% Buy 52.00 3,579 11.58 8.58 n.a. n.a. 1.51 5.7% Consumption Alicorp PEN 7.40 10.10 36.5% Buy 12.60 1,757 12.53 10.58 7.11 6.48 1.72 3.4% InRetail USD 39.20 43.00 9.7% Hold 45.00 3,969 24.59 20.06 9.62 8.92 3.00 1.4% Infrastructure C. Pacasmayo PEN 5.30 6.20 17.0% Hold 7.40 638 17.27 15.89 8.26 7.99 1.72 4.3% Ferreycorp PEN 1.72 2.50 45.3% buy 3.05 463 6.99 6.59 5.27 4.96 0.80 4.5% Aenza PEN 1.74 2.30 32.2% Hold 2.80 394 11.89 11.13 3.97 3.83 1.00 0.0% UNACEM PEN 1.53 2.20 43.8% Buy 3.20 773 10.67 8.86 6.21 5.79 0.63 0.9% Energy Enel Dx PEN 5.40 8.60 59.3% Buy 9.25 958 9.06 8.92 6.27 6.13 1.29 0.0% Enel Gx PEN 2.05 2.77 35.1% Buy 2.90 1,617 11.67 11.75 6.13 6.10 1.87 10.7% Engie Perú PEN 7.00 8.15 16.4% Hold 9.05 339 11.15 11.26 6.30 6.12 1.04 5.2% Relapasa PEN 0.071 0.099 39.4% Hold 0.131 164 5.30 2.62 7.73 5.91 0.32 0.0% Mining Buenaventura USD 12.40 14.00 12.9% Hold 14.50 3,409 25.30 18.66 14.03 11.06 1.20 0.0% Cerro Verde USD 21.00 24.70 17.6% Buy 25.30 7,351 8.91 8.95 4.03 4.08 1.26 0.0% Nexa Perú PEN 2.95 3.30 12.0% Hold 3.68 1,037 9.37 11.98 3.98 4.60 2.17 0.0% Minsur PEN 1.96 2.25 14.8% Buy 2.00 1,570 7.66 6.29 3.98 3.45 1.26 0.0% Southern Copper USD 67.23 44.00 -34.6% Sell 36.40 51,969 6.03 5.88 10.79 11.70 6.97 2.2% Trevali USD 0.159 0.278 74.8% Hold 0.492 157 5.09 9.24 2.65 3.31 0.49 0.0% Volcan PEN 0.55 0.55 0.0% Hold 0.62 1,680 22.51 26.32 7.67 8.00 3.24 0.0%
n.a.: does not apply
Source: Kallpa SAB
It should be noted that our pre-COVID-19 estimates (reflected in the 2020 Peru Equity Guide) have suffered significant adjustments due to the effects of the pandemic. On average, our target prices in the 2020 Guide have been reduced by 12.7% in the 2021 Guide, with the financial and infrastructure sectors being the most affected.
The financial industry has been the hardest hit by the crisis, registering an average drop of 24.9% in its target prices. The strong increase in provisions, lower non-financial income due to less traffic in agencies and the rescheduling of loans carried out in a large part of the retail portfolio have caused a drastic drop in profitability levels. We anticipate that ROE's in the sector will return to pre-pandemic levels only in 2023.
The target prices of infrastructure companies fell 20.8%. These would be affected in 2020, because they had to suspend operations during the national State of Emergency. Some of them will have a strong recovery in 2021, but others will not be able to recover their pre-COVID-19 earnings levels until 2022.
Finally, we highlight that the company with the greatest adjustment has been Trevali (-43.5%). During the first half of the year, it faced liquidity and solvency problems due to non-compliance with financial covenants, as a consequence of lower zinc prices. Although metals prices recovered in the second half of 2020, the company will still report negative operating cash flows in that year. However, Trevali was able to cut costs, renegotiate the terms of its debt and obtain funds from a private placement of shares (with a dilutive impact) to alleviate financial stress in the short term.
www.kallpasab.com Peru Equity Guide 2021 15 Post-Pandemic Recovery
Marco Contreras Financial Industry Target Price Head of Research USD 172.00 (511) 630 7528 Credicorp Ltd. [email protected] HOLD
Credicorp Ltd. (BVL: BAP) Internalized recovery Target Price (USD) 172.00 Rating Hold Kallpa Securities SAB updates the valuation of Credicorp Ltd. (Credicorp), with a Market Capitalization (USD MM) 12,570.41 recommendation to hold. Our new 2021 year-end target price (TP) of USD Market Price (USD) 157.60 172.00, is 9.1% above the market price of USD 157.60, as of closing of January Shares Outstanding (MM) 79.76 4th, 2021. Upside 9.1% ADTV - LTM (USD MM) 1.47 Fundamentals for 2021 Range 52 weeks (USD) 112.80 - 205.44 YTD Change -1.9% We expect loans to grow 15.3% in 2020, boosted by the Reactiva Peru Dividend Yield - LTM 5.6% program. In 2021, we estimate an increase of 0.6%, since that the increase Trading NYSE, BVL in loans in the bank's structural portfolio would be offset by the amortization ADTV: Average Daily Traded Volume of Reactiva loans. LTM: Last 12 Months Source: Bloomberg, Kallpa SAB The cost of risk would have a strong increase and would reach 4.7% in 2020, as a consequence of the impact of COVID-19 on the risk profile of Financial Ratios 2020e 2021e 2022e the bank's clients. In 2021, the ratio would be reduced to 2.7%, as the Loans/Deposits 1.00 1.00 1.00 quality of Credicorp's portfolio recovers. NIM 4.6% 4.4% 4.8% Efficiency 45.7% 40.4% 39.5% We estimate that the company will close 2020 with a ROE of 0.5%, given EPS (PEN) 1.56 36.84 49.54 the impact that COVID-19 has had on revenues and provisions. In 2021 the ROE 0.5% 11.9% 17.3% ROE would partially recover to 11.9%. ROA 0.1% 1.3% 2.2% P / E 345.07 14.60 10.86 Risks P / BV 1.79 1.67 1.56 NIM: Net Interest Margin Peru risk. The main risk of the company is its leverage to the Peruvian Source: SMV, Kallpa SAB economy. Political risk can also affect the development of new investments and affect the growth of bank loans. Sensitivity Analysis COK / g 2.0% 2.5% 3.0% 3.5% 4.0% Asset quality. A deterioration in asset quality could cause further increases 10.2% 190.46 193.90 197.83 202.34 207.58 in provisions, affecting profits and future ROE of Credicorp. 10.7% 178.19 180.92 184.01 187.53 191.57 11.2% 167.28 169.45 172.00 174.65 177.79 Regulatory risk. Some bills seek to increase controls to the sector and if 11.7% 157.53 159.26 161.19 163.35 165.80 they become a reality, they could affect the performance of banks. 12.2% 148.76 150.13 151.66 153.36 155.27 Source: Kallpa SAB Valuation
Chart N° 23: BAP vs. PERU SELECT We value Credicorp with a residual income model over a 10-year horizon. USD Pts. We use a discount rate (COK) of 11.2% and a perpetual growth rate of BAP PERU SELECT 210 580 3.0%.
540 190
500 Recommendation 170 460 150 We believe that the company has solid fundamentals, which fall on the low 420 penetration of the banking sector and the recovery of earnings that we 130 380 expect for 2021. However, we note that these are already internalized in the market price, which is why we recommend to hold.
110 340
Jul-20
Oct-20
Apr-20
Jan-20 Jun-20 Jan-21
Feb-20 Mar-20
Aug-20 Sep-20 Nov-20 Dec-20 May-20
Source: Bloomberg
www.kallpasab.com Peru Equity Guide 2021 16 Post-Pandemic Recovery
Credicorp: Financial Summary
INCOME STATEMENT (PEN MM) 2020e 2021e 2022e BALANCE SHEET (PEN MM) 2020e 2021e 2022e Interest Income 12,162 12,892 13,753 Funds available 45,047 45,679 41,845 Interest Expenses -3,126 -3,222 -3,401 Investments 46,269 43,640 43,833 Net Interest Income 9,036 9,670 10,353 Net Loans 127,365 128,220 127,380 Net Provisions for Loan Losses -6,408 -3,802 -2,972 Fixed Assets, Net 1,441 1,501 1,536 Net Income after Provisions 2,628 5,869 7,381 Intangibles, Net 2,716 2,864 2,992 Non-Financial Income 4,194 4,585 4,837 Other Assets 10,335 10,609 10,954 Insurance's Technical Result 367 473 510 Total Assets 233,172 232,514 228,540 Operating Expenses -7,125 -6,845 -7,207 Deposits and Obligations 137,081 137,812 140,826 Operating Income 63 4,082 5,522 Due to Banks and Correspondents 8,205 8,747 9,512 Income Tax 43 -1,123 -1,518 Reserves for Claims 32,572 26,506 14,119 Net Income 106 2,959 4,003 Bonds and Subordinated Debt 14,408 15,359 16,703 Minority Interest -18 21 52 Other Liabilities 16,545 17,792 19,150 Net Income Attributable to Credicorp 124 2,939 3,951 Total Liabilities 208,811 206,216 200,310 Shares Outstanding - Average (MM) 80 80 80 Equity Attributable to Credicorp 23,919 25,662 27,556 Earnings per Share - EPS (PEN) 1.56 36.84 49.54 Minority Interest 441 636 674 Net Equity 24,361 26,298 28,229 Liabilities + Equity 233,172 232,514 228,540
GROWTH (%) 2020e 2021e 2022e CASH FLOW (PEN MM) 2020e 2021e 2022e Loans' Growth 15.3% 0.7% -0.7% Net Income 124 2,939 3,951 Deposits' Growth 22.4% 0.5% 2.2% Non-Cash Expenses 5,338 390 -1,366 Net Interest Income's growth -0.6% 7.0% 7.1% Changes in Assets and Liabilities 18,307 -2,481 -5,796 Provisions' Growth 247.2% -40.7% -21.8% Operating Cash Flow 23,770 847 -3,211 Operating Income's Growth -98.9% 6361.9% 35.3% Investment Cash Flow -556 -598 -560 Net Income's Growth -97.1% 2263.2% 34.5% Financing Cash Flow -4,153 383 -63 Free Cash Flow 19,060 632 -3,834
FINANCIAL RATIOS 2020e 2021e 2022e CHART N° 24: SHAREHOLDERS Net Interest Margin (NIM) 4.6% 4.4% 4.8% PDL Ratio 3.6% 3.6% 3.4%
NPL Ratio 4.8% 4.7% 4.5% 16% Coverage for PDL 203.5% 204.7% 159.8% Romero Family Coverage for NPL 152.1% 155.8% 120.7% Efficiency Ratio 45.7% 40.4% 39.5% Institutional Investors Loans / Deposits 1.00 1.00 1.00 Payout Ratio 56.1% 962.1% 85.0%
Dividends per Share (PEN) 30.00 15.00 49.67 84% ROE 0.5% 11.9% 17.3% ROA 0.1% 1.3% 2.2%
VALUATION 2020e 2021e 2022e CHART N° 25: CREDICORP LOANS - 2020e P / E 345.07 14.60 10.86 Corporate P / BV 1.79 1.67 1.56 3%2% Medium-Size Companies 6% 24% Mortgage MANAGEMENT 7% SME Walter Bayly CEO 7% Mibanco César Ríos CFO Small Businesses Milagros Cigueñas IRO 9% Consumer Source: Credicorp, SMV, Kallpa SAB 18% Bolivia 12% 13% Credit Cards Others
www.kallpasab.com Peru Equity Guide 2021 17 Post-Pandemic Recovery
Marco Contreras Financial Industry Target Price Head of Research Intercorp Financial Services (511) 630 7528 USD 41.00 [email protected] Inc. BUY
Intercorp Financial Services (BVL: IFS) Lower provisions will boost recovery Target Price (USD) 41.00 Rating Buy Kallpa Securities SAB updates its valuation of Intercorp Financial Services Inc. Market Capitalization (USD MM) 3,578.88 (IFS), with a recommendation to buy. Our new 2021 year-end target price (TP) of Market Price (USD) 31.00 USD 41.00 is 32.3% above the USD 31.00 market price, as of the closing of Shares Outstanding (MM) 115.45 January 4th, 2021. Upside 32.3% ADTV - LTM (USD MM) 0.25 Fundamentals for 2021 Range 52 Weeks 20.00 - 41.36 YTD Change 0.2% We expect the net loan portfolio to grow 8.0% in 2020, boosted by loans Dividend Yield LTM 5.7% from the Reactiva Peru program. In 2021 we estimate a growth of 2.8% as Trading BVL the amortization of Reactiva's loans is offset by a recovery in loans in the ADTV: Average Daily Traded Volume retail industry.
LTM: Last 12 Months Source: Bloomberg, Kallpa SAB After having a strong increase in 2020, we expect provision requirements to moderate in 2021. The cost of risk would go from 5.8% in 2020 to 3.3% Financial Ratios 2020e 2021e 2022e in 2021. Loans / Deposits 0.89 0.91 0.93 NIM 5.2% 5.2% 5.5% The level of efficiency would remain stable, around 33.4% in 2021. Efficiency Ratio 33.2% 33.4% 32.9% EPS (PEN) 3.17 9.62 12.98 ROE would close 2020 at 4.2%, affected by the impact that COVID-19 had ROE 4.2% 12.5% 15.5% on revenues and provisions. In 2021, ROE would reach 12.5%, as the ROA 0.5% 1.3% 1.8% bank's profits recover. P / E 35.19 11.58 8.58 P / BV 1.51 1.38 1.29 Risks NIM: Net Interest Margin Source: SMV, IFS, Kallpa SAB Peru risk. The main risk of the company is its leverage to the Peruvian economy. Political risk can also delay investments and affect consumption Sensitivity Analysis decisions, causing a negative impact on the growth of the loan portfolio. COK / g 2.0% 2.5% 3.0% 3.5% 4.0% 10.2% 45.42 46.18 47.05 48.04 49.20 Regulatory risk. Several bills that seek to increase controls and restrictions 10.7% 42.55 43.15 43.83 44.60 45.49 on the banking sector could affect the future profits of IFS. 11.2% 39.99 40.47 41.00 41.60 42.28 11.7% 37.71 38.08 38.50 38.97 39.49 Valuation 12.2% 35.66 35.95 36.27 36.64 37.04 Source: Kallpa SAB We value IFS with a residual income model over a 10-year horizon. We use a discount rate (COK) of 11.2% and a perpetual growth rate of 3.0%. Chart N° 26: IFS vs. PERU SELECT USD Pts. Recommendation 42 IFS PERU SELECT 580
38 540 Despite the risks faced by the banking sector, we believe IFS has strong fundamentals that lie in the recovery of earnings that we expect in 2021 34 500 and the bank's solid liquidity and solvency position. Considering the above, 30 460 our recommendation is to buy. 26 420
22 380
18 340
Jul-20
Apr-20 Oct-20
Jan-20 Jun-20 Jan-21
Feb-20 Mar-20
Aug-20 Sep-20 Nov-20 Dec-20 May-20
Source: Bloomberg
www.kallpasab.com Peru Equity Guide 2021 18 Post-Pandemic Recovery
Intercorp Financial Services: Financial Summary
INCOME STATEMENT (PEN MM) 2020e 2021e 2022e BALANCE SHEET (PEN MM) 2020e 2021e 2022e Interest Income 4,893 5,268 5,568 Funds available 17,947 17,586 16,121 Interest Expenses -1,243 -1,348 -1,416 Investments 21,657 20,982 20,982 Net Interest Income 3,650 3,920 4,152 Net Loans 40,094 41,224 42,615 Net Provisions for Loan Losses -2,539 -1,472 -1,155 Investment Properties 981 1,043 1,127 Net Income after Provisions 1,111 2,448 2,997 Fixed Assets, Net 949 951 957 Non-Financial Income 1,370 1,366 1,467 Other Assets 2,260 2,300 2,134 Premium Less Claims -253 -272 -289 Total Assets 83,887 84,085 83,936 Operating Expenses -1,872 -2,021 -2,124 Deposits and Obligations 44,876 45,226 46,004 Operating Income 355 1,521 2,051 Due to Banks and Correspondents 9,683 8,729 6,632 Translation Result -52 - - Bonds, Notes and Other Obligations 7,195 6,740 6,740 Income Tax 64 -403 -544 Insurance Contract Liabilities 11,208 11,698 12,144 Net Income 367 1,118 1,508 Other Liabilities 2,357 2,357 2,357 Minority Interest 1 7 9 Total Liabilities 75,319 74,750 73,876 Net Income Attributable to IFS 365 1,111 1,498 Equity Attributable to IFS 8,524 9,286 10,007 Shares Outstanding (MM) 115 115 115 Minority Interest 44 49 54 Earnings per share - EPS (PEN) 3.17 9.62 12.98 Net Equity 8,568 9,335 10,060 Liabilities + Equity 83,887 84,085 83,936
GROWTH (%) 2020e 2021e 2022e CASH FLOW (PEN MM) 2020e 2021e 2022e Loans' Growth 8.0% 2.8% 3.4% Net Income 365 1,111 1,498 Deposits' Growth 17.8% 0.8% 1.7% Non-Cash Expenses 1,960 301 -331 Net Interest Income's growth 6.1% 7.4% 5.9% Changes in Assets and Liabilities 7,697 -1,279 -1,457 Provisions' Growth 235.1% -42.0% -21.5% Operating Cash Flow 10,022 133 -291 Operating Income's Growth -81.6% 328.3% 34.9% Investment Cash Flow -2,808 304 -400 Net Income's Growth -74.6% 204.0% 34.9% Financing Cash Flow -397 -798 -773 Free Cash Flow 6,818 -361 -1,464
FINANCIAL RATIOS 2020e 2021e 2022e CHART N° 27: SHAREHOLDERS Net Interest Margin (NIM) 5.2% 5.2% 5.5% PDL Ratio 3.9% 3.6% 3.0% 16% 4.9% 4.4% 3.7% NPL Ratio Intercorp Peru and related Coverage for PDL 209.4% 215.7% 193.1% companies
Coverage for NPL 166.7% 176.5% 158.7% 14% Pension Funds Efficiency Ratio 33.2% 33.4% 32.9% Others Loans / Deposits 89.3% 91.2% 92.6% 71% Payout Ratio 48.4% 95.5% 70.0% Dividends per Share (PEN) 6.05 3.02 6.74 ROE 4.2% 12.5% 15.5% ROA 0.5% 1.3% 1.8%
VALUATION 2020e 2021e 2022e CHART N° 28: IFS LOANS BY SEGMENT- 2020e P / E 35.19 11.58 8.58 P / BV 1.51 1.38 1.29 2%
18% Commercial MANAGEMENT Luis Felipe Castellanos CEO Consumer Michela Casassa CFO 51% Mortgage Ernesto Ferrero IRO 29% Source: IFS, SMV, Kallpa SAB SME
www.kallpasab.com Peru Equity Guide 2021 19 Post-Pandemic Recovery
Marco Contreras Consumer Staples Industry Target Price Head of Research PEN 10.10 (511) 630 7528 Alicorp S.A.A. [email protected] BUY
Alicorp S.A.A. (BVL: ALICORC1) Consumer Goods and B2B will lead recovery in 2021 Target Price (PEN) 10.10 Rating Buy Kallpa Securities SAB updates its valuation of Alicorp S.A.A. (Alicorp), with a Market Capitalization (PEN MM) 6,323.89 recommendation to buy. Our new 2021 year-end target price (TP) of PEN 10.10 Market Price (PEN) 7.40 is 36.5% above the PEN 7.40 market price, as of the closing of January 4th, Shares Outstanding* (MM) 854.58 2021. Upside 36.5% ADTV - LTM (PEN MM) 3.00 Fundamentals for 2021 Range 52 weeks 6.58 - 9.00 YTD Change 3.5% We expect a 0.9% growth in 2020 sales, affected by the impact of COVID- Dividend Yield - LTM 3.4% 19. In 2021, sales would increase by 6.3%, boosted by the following Trading BVL segments: i) Consumer Goods Peru (CGP), given the recovery we * Includes 7.39 MM of investment shares (ALICORI1) estimate in private consumption and a favorable base effect (due to the
ADTV: Average Daily Traded Volume restrictions in the use of capacity during the first semester of 2020); and, ii)
LTM: Last 12 months B2B, as restaurant activity in the country recovers.
Source: Bloomberg, Kallpa SAB The company continues to have a solid market position, with more than Financial Ratios 2020e 2021e 2022e 50% market share in various categories. P / E 18.49 12.53 10.58 P / BV 1.72 1.59 1.49 We expect an EBITDA margin of 11.3% in 2020 and 12.5% in 2021, as EV / EBITDA 8.38 7.11 6.48 margins in the B2B segment recover. Within this context, we also project a Net Debt / EBITDA 2.68 2.40 2.14 gradual reduction in the company's leverage. EPS (PEN) 0.386 0.570 0.675 ROE 9.5% 13.2% 14.6% Risks ROA 2.9% 4.2% 4.9% Source: SMV, Kallpa SAB Latam economies risk. Exposure to economic performance and political risk in Peru, Bolivia, Chile, Ecuador, Brazil and Argentina. Sensitivity Analysis WACC / g 2.0% 2.5% 3.0% 3.5% 4.0% Commodities risk. Around 50% of the cost of sales is made up of the 8.0% 11.08 11.90 12.88 14.07 15.56 purchase of commodities. The volatility in their prices could affect Alicorp's 8.5% 9.92 10.59 11.37 12.31 13.46 margins. 9.0% 8.93 9.48 10.10 10.87 11.77 9.5% 8.07 8.53 9.05 9.66 10.39 Climate risk. The Aquafeed segment depends on the performance of the 10.0% 7.32 7.70 8.14 8.65 9.23 fishing sector in Ecuador and Chile, which is sensitive to climatic Source: Kallpa SAB phenomena that can affect its profitability.
Chart N° 29: ALICORC1 vs. PERU SELECT M&A risk. Risk that an M&A operation will not achieve the profitability PEN Pts. expected by management. 9.4 ALICORC1 PERU SELECT 580
8.9 540 Valuation
8.4 500 We value Alicorp with a Free Cash Flow to the Firm (FCFF) model in a 10- 7.9 460 year horizon. We use a discount rate (WACC) of 9.0% and a perpetual 7.4 420 growth rate of 3.0%. 6.9 380
6.4 340 Recommendation
Jul-20
Apr-20 Oct-20
Jan-20 Jun-20 Jan-21
Feb-20 Mar-20
Nov-20 Dec-20
Aug-20 Sep-20 May-20 We expect a strong earnings recovery in 2021, hand in hand with greater Source: Bloomberg efficiencies and the economic recovery of the main Latin American economies. Considering this our recommendation is to buy.
www.kallpasab.com Peru Equity Guide 2021 20 Post-Pandemic Recovery
Alicorp: Financial Summary
INCOME STATEMENT (PEN MM) 2020e 2021e 2022e BALANCE SHEET ( PEN MM) 2020e 2021e 2022e Net Sales 9,957 10,582 11,127 Cash and Cash Equivalents 1,053 738 714 Cost of Sales -7,552 -7,962 -8,318 Accounts Receivable 1,500 1,711 1,860 Gross Income 2,405 2,620 2,809 Inventory 1,966 1,963 1,937 Sales Expenses -870 -897 -928 Other Short Term Assets 300 351 405 Administrative Expenses -683 -718 -747 Current Assets 4,819 4,762 4,915 Other Expenses -63 -21 -22 Fixed Assets, Net 3,338 3,346 3,355 Operating Income 789 984 1,112 Other Long Term Assets 3,539 3,542 3,551 Financial Income 59 44 41 Non Current Assets 6,877 6,888 6,906 Financial Expenses -321 -312 -305 Total Assets 11,696 11,651 11,822 FX Gains (Losses) -9 - - Short Term Debt 336 287 431 Stake in Associates -1 - - Accounts Payable 2,793 2,618 2,621 Income Before Taxes 518 716 848 Other Short Term Liabilities 360 360 360 Income Tax -185 -229 -271 Current Liabilities 3,489 3,266 3,413 Net Income 333 487 577 Long Term Debt 3,725 3,622 3,386 Minority Interest 3 - - Other Long Term Liabilities 898 898 898 Net Income Attributable to Alicorp 330 487 577 Non Current Liabilities 4,623 4,520 4,284 Shares Outstanding - Average (MM) 855 855 855 Equity Attributable to Alicorp 3,551 3,833 4,093 Earnings per Share - EPS (PEN) 0.386 0.570 0.675 Minority Interest 32 32 32 Depreciation and Amortization 333 338 338 Net Equity 3,583 3,865 4,125 EBITDA 1,122 1,322 1,450 Liabilities + Equity 11,696 11,651 11,822
MARGINS AND GROWTH (%) 2020e 2021e 2022e CASH FLOW (PEN MM) 2020e 2021e 2022e Gross Margin 24.2% 24.8% 25.2% Net Income 330 487 577 Operating Margin 7.9% 9.3% 10.0% Depreciation and Amortization 333 338 338 EBITDA Margin 11.3% 12.5% 13.0% Changes in Working Capital 342 -434 -174 Net Margin 3.3% 4.6% 5.2% Others 330 312 305 Sales Growth 0.9% 6.3% 5.1% Operating Cash Flow 1,334 703 1,046 Operating Income Growth -16.8% 24.7% 13.0% Investment Cash Flow -458 -349 -356 EBITDA Growth -13.4% 17.8% 9.7% Financing Cash Flow -673 -669 -714 Net Income Growth -30.7% 47.5% 18.5% Free Cash Flow 203 -315 -24
FINANCIAL RATIOS 2020e 2021e 2022e CHART N° 30: SHAREHOLDERS Current Assets / Current Liabilities 1.38 1.46 1.44 Average Days of Inventory 95.00 90.00 85.00 10% Debt / Equity 1.14 1.02 0.93 Romero Group Net Debt / EBITDA 2.68 2.40 2.14 15% Pension Funds EBITDA / Financial Expenses 3.50 4.23 4.75 46% Payout Ratio 43.1% 62.2% 55.0% Mutual Funds Dividends per Share (PEN) 0.240 0.240 0.371
ROE 9.5% 13.2% 14.6% 29% Others ROA 2.9% 4.2% 4.9% ROIC 7.5% 9.7% 10.5%
VALUATION 2020e 2021e 2022e CHART N° 31: SALES BY SEGMENT - 2020e EV / Sales 0.94 0.89 0.85 P / E 18.49 12.53 10.58 11% EV / EBIT 11.92 9.56 8.45 Consumer Goods Peru
EV / EBITDA 8.38 7.11 6.48 36% Consumer Goods International 19% P / BV 1.72 1.59 1.49 B2B
MANAGEMENT Aquafeed 15% Alfredo Perez CEO Crushing 19% Juan Moreyra CFO Gisele Remy IRO Source: Alicorp, SMV, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 21 Post-Pandemic Recovery
Marco Contreras Retail Industry Target Price Head of Research USD 43.00 (511) 630 7528 InRetail Perú Corp. [email protected] HOLD
InRetail Perú Corp. (BVL: INRETC1) Food Retail will be the growth driver with the integration of Makro Target Price (USD) 43.00 Rating Hold Kallpa Securities SAB updates its valuation of InRetail Perú Corp. (InRetail), with Market Capitalization (USD MM) 3,968.55 a recommendation to hold. Our new 2021 year-end target price (TP) of USD Market Price (USD) 39.20 43.00 is 9.7% above the USD 39.20 market price, as of the closing of January Shares Outstanding (MM) 101.24 4th, 2021. Upside 9.7% ADTV - LTM (USD MM) 1.05 Fundamentals for 2021 Range 52 weeks 27.00 - 39.20 YTD Change 0.0% We expect revenue growth of 9.3% in 2020, which will be boosted by the Dividend Yield - LTM 1.4% advancement of the food retail segment. It has benefited from a higher Trading BVL demand for consumer goods during the pandemic. In 2021, revenues ADTV: Average Daily Traded Volume would increase by 18.2%, due to the acquisition of Makro (acquired in
LTM: Last 12 Months December 2020).
Source: Bloomberg, Kallpa SAB The integration of Makro into InRetail would create value through the Financial Ratios 2020e 2021e 2022e generation of synergies and boost the growth of the cash & carry format. P / E 41.00 24.59 20.06 P / BV 3.00 2.77 2.56 The EBITDA margin would remain stable at 12.7% in 2021, since the EV / EBITDA 11.32 9.62 8.92 recovery in the margins of the shopping malls segment would be offset by Net Debt / EBITDA 4.03 3.08 2.71 the normalization of margins in food retail and the incorporation of Makro EPS (PEN) 3.44 5.74 7.03 (which has lower margins than InRetail at a consolidated level). ROE 7.4% 11.7% 13.3% ROA 2.1% 3.3% 4.0% The net debt / EBITDA ratio would reach 4.0x in 2020 due to the debt Source: SMV, Kallpa SAB taken to finance the acquisition of Makro. However, we expect this ratio to decline rapidly to 3.1x in 2021, as earnings recover and Makro's results are Sensitivity Analysis incorporated into InRetail. WACC / g 2.0% 2.5% 3.0% 3.5% 4.0% 7.2% 47.73 52.65 58.72 66.43 76.52 Risks 7.7% 41.40 45.29 50.00 55.83 63.22 8.2% 36.09 39.23 43.00 47.47 53.06 Peru risk. An adverse macroeconomic or political situation could have 8.7% 31.58 34.13 37.14 40.72 45.05 negative impacts on the growth of the economy and local consumption, 9.2% 27.68 29.80 32.25 35.13 38.57 affecting the company's business. Source: Kallpa SAB M&A risk. The company may not achieve the integration and synergy Chart N° 32: INRETC1 vs. PERU SELECT objectives of its acquisitions. USD Pts. INRETC1 PERU SELECT 40 580 Valuation 38 540 36 500 We value InRetail with a Free Cash Flow to the Firm (FCFF) model in a 10- 34 year horizon. We use a discount rate (WACC) of 8.2% and a perpetual 460 32 growth rate of 3.0%. 420 30
28 380 Recommendation
26 340
InRetail's leadership and high growth potential in the segments where it
Jul-20
Apr-20 Oct-20
Jan-20 Jun-20 Jan-21
Feb-20 Mar-20
Aug-20 Sep-20 Nov-20 Dec-20 May-20 operates are the main fundamentals of the company. Likewise, net income Source: Bloomberg should present a notable improvement in the medium term, due to the incorporation of Makro and the recovery of margins in the shopping malls segment. However, we see that this is already internalized in the stock price, for which our recommendation is to hold.
www.kallpasab.com Peru Equity Guide 2021 22 Post-Pandemic Recovery
InRetail: Financial Summary
INCOME STATEMENT (PEN MM) 2020e 2021e 2022e BALANCE SHEET (PEN MM) 2020e 2021e 2022e Net Sales 14,279 16,874 17,788 Cash and Cash Equivalents 834 757 715 Cost of sales -10,139 -12,003 -12,604 Accounts Receivable 861 888 853 Gross Income 4,140 4,870 5,184 Inventory 2,111 2,401 2,486 Sales Expenses -2,462 -2,908 -3,044 Other Short Term Assets 117 119 120 Administrative Expenses -455 -518 -546 Current Assets 3,922 4,164 4,174 Other Income, Net -51 -5 -5 Fixed Assets, Net 4,370 4,434 4,682 Operating Income 1,171 1,441 1,589 Investment Properties 3,900 3,940 3,940 Financial Income 9 16 16 Intangibles, Net 3,750 3,778 3,807 Financial Expenses -465 -543 -485 Other Long Term Assets 1,677 1,694 1,725 FX Gains (Losses) -107 - - Non Current Assets 13,696 13,845 14,153 Income Before Taxes 608 914 1,120 Total Assets 17,618 18,009 18,327 Income Tax -225 -292 -358 Short Term Debt 2,594 821 2,093 Net Income 383 621 762 Accounts Payable 3,648 4,444 4,699 Minority Interest 34 40 50 Other Short Term Liabilities 32 32 32 Attributable to InRetail 348 581 712 Current Liabilities 6,275 5,297 6,824 Shares Outstanding (MM) 101 101 101 Long Term Debt 5,543 6,507 4,867 Earnings per share - EPS (PEN) 3.44 5.74 7.03 Other Long Term Liabilities 898 898 898 Depreciation and Amortization 612 694 713 Non Current Liabilities 6,441 7,405 5,765 EBITDA 1,814 2,135 2,302 Equity Attributable to InRetail 4,768 5,152 5,574 Minority Interest 134 155 164 Liabilities + Equity 17,618 18,009 18,327
MARGINS AND GROWTH (%) 2020e 2021e 2022e CASH FLOW (PEN MM) 2020e 2021e 2022e Gross Margin 29.0% 28.9% 29.1% Net Income 348 581 712 Operating Margin 8.2% 8.5% 8.9% Depreciation and Amortization 612 694 713 EBITDA Margin 12.7% 12.7% 12.9% Changes in Working Capital -228 476 203 Net Margin 2.7% 3.7% 4.3% Others 456 527 469 Sales Growth 9.3% 18.2% 5.4% Operating Cash Flow 1,188 2,278 2,097 Operating Income Growth -12.9% 23.0% 10.3% Investment Cash Flow -1,983 -843 -1,020 EBITDA Growth 2.2% 17.7% 7.8% Financing Cash Flow 866 -1,512 -1,119 Net Income Growth -35.8% 62.3% 22.6% Free Cash Flow 71 -77 -42
FINANCIAL RATIOS 2020e 2021e 2022e CHART N° 33: SHAREHOLDERS Current Assets / Current Liabilities 0.63 0.79 0.61 Average Days of Inventory 76.00 73.00 72.00 12% Debt / Equity 1.66 1.38 1.21 Net Debt / EBITDA 4.03 3.08 2.71 Intercorp and subsidiaries EBITDA / Financial Expenses 3.90 3.93 4.74 17% Pension Funds Payout Ratio 35.3% 56.5% 50.0% 1.946 1.946 2.869 Dividends per Share (PEN) Others ROE 7.4% 11.7% 13.3% 71% ROA 2.1% 3.3% 4.0% ROIC 6.1% 7.7% 8.6%
VALUATION 2020e 2021e 2022e CHART N° 34: EBITDA BY SEGMENT - 2021e EV / Sales 1.44 1.22 1.15 P / E 41.00 24.59 20.06 EV / EBIT 17.53 14.26 12.92 14%
EV / EBITDA 11.32 9.62 8.92 Food Retail 38% P / BV 3.00 2.77 2.56 InRetail Pharma
MANAGEMENT InRetail Shopping Malls Juan Carlos Vallejo CEO 49% Gonzalo Rosell CFO Vanessa Dañino IRO Source: InRetail, SMV, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 23 Post-Pandemic Recovery
Marco Contreras Cement Industry Target Price Head of Research PEN 6.20 (511) 630 7528 Cementos Pacasmayo S.A.A. [email protected] HOLD
Cementos Pacasmayo (BVL: CPACASC1) Results will improve with economic recovery and reconstruction TP per Share / ADR (PEN / USD) 6.20 / 8.99 Rating Hold Kallpa Securities SAB updates its valuation of Cementos Pacasmayo S.A.A. Market Capitalization (PEN MM) 2,295.03 (Pacasmayo), with a recommendation to hold. Our new 2021 year-end target Market Price (PEN / USD) 5.30 / 7.47 price (TP) of PEN 6.20 is 17.0% above the PEN 5.30 market price, as of the Shares Outstanding* (MM) 423.87 closing of January 4th, 2021. Upside 17.0% ADTV - LTM (PEN MM) 0.75 Fundamentals for 2021 Range 52 weeks 3.80 - 6.00 YTD Change 0.0% Despite the notable recovery in cement shipments in recent months, Dividend Yield - LTM 4.3% Pacasmayo's revenues would fall 11.3% in 2020, as a result of the impact Trading BVL, NYSE of COVID-19, especially in the first half of the year. For 2021, we expect a * Includes 13.2 MM of investment shares (CPACASI1) 19.7% increase in sales, due to: i) a favorable base effect, given the low
ADTV: Average Daily Traded Volume level of activity in 2Q2020, as a consequence of the suspension of
LTM: Last 12 Months operations during the mandatory quarantine; ii) the recovery of private
Source: Bloomberg, Kallpa SAB investment, given the better indicators of business confidence; and, iii) the execution of reconstruction works, which will benefit from the government- to-government agreement signed with the United Kingdom. Financial Ratios 2020e 2021e 2022e P / E 45.84 17.27 15.89 P / BV 1.72 1.67 1.66 EBITDA margin would be 24.5% in 2020, affected by the suspension of EV / EBITDA 11.02 8.26 7.99 operations during the quarantine, mainly in the months of April and May. In Net Debt / EBITDA 3.12 2.32 2.14 2021, we estimate that the EBITDA margin will recover to 27.3%, as EPS (PEN) 0.120 0.319 0.347 revenues increase. ROE 3.7% 9.8% 10.5% ROA 1.7% 4.6% 5.1% Risks Source: SMV, Kallpa SAB Geographic concentration in the north of the country. Sensitivity Analysis WACC / g 2.0% 2.5% 3.0% 3.5% 4.0% Execution risk of reconstruction works in the north of the country, which 8.2% 6.73 7.18 7.72 8.37 9.18 depend on the execution capacity of the Government. 8.7% 6.09 6.46 6.89 7.41 8.03 9.2% 5.55 5.85 6.20 6.61 7.11 An adverse political situation can delay the progress of investment projects 9.7% 5.07 5.32 5.61 5.95 6.35 and affect the demand for cement, especially during election periods such 10.2% 4.65 4.86 5.11 5.39 5.71 as the one that will take place this year. Source: Kallpa SAB Valuation Chart N° 35: CPACASC1 vs. PERU SELECT PEN Pts. We value Pacasmayo with a Free Cash Flow to the Firm (FCFF) model in CPACASC1 PERU SELECT 6.4 580 a 10- year horizon. We use a discount rate (WACC) of 9.2% and a 6.0 540 perpetual growth rate of 3.0%. 5.6 500 5.2 Recommendation 460 4.8 420 4.4 We expect that the dynamism of the reconstruction works will boost the
4.0 380 company's sales and margins in 2021. We also highlight that despite the lower profits to be reported in 2020, Pacasmayo has maintained good 3.6 340
solvency and liquidity indicators. However, we see that the fundamentals of
Jul-20
Apr-20 Oct-20
Jan-20 Jun-20 Jan-21
Feb-20 Mar-20
Sep-20 Nov-20 Dec-20
Aug-20 the company are already internalized in the market price, for which our May-20
Source: Bloomberg recommendation is to hold.
www.kallpasab.com Peru Equity Guide 2021 24 Post-Pandemic Recovery
Pacasmayo: Financial Summary
INCOME STATEMENT (PEN MM) 2020e 2021e 2022e BALANCE SHEET (PEN MM) 2020e 2021e 2022e Net Sales 1,231 1,474 1,467 Cash and Cash Equivalents 309 219 233 Cost of Sales -878 -990 -967 Accounts Receivable 84 101 100 Gross Income 353 484 500 Inventory 433 515 530 Administrative Expenses -147 -172 -171 Other Short Term Assets 57 62 59 Sales Expenses -41 -40 -42 Current Assets 883 897 922 Other Income, Net -0 - - Fixed Assets, Net 2,005 1,957 1,911 Operating Income 164 272 287 Intangibles, Net 52 52 52 Financial Income 9 8 6 Other Long Term Assets 36 34 32 Financial Expenses -91 -86 -82 Non Current Assets 2,094 2,043 1,995 FX Gains (Losses) -8 - - Total Assets 2,977 2,940 2,918 Income Before Taxes 74 194 211 Short Term Debt 250 30 464 Income Tax -22 -57 -62 Accounts Payable 82 95 93 Net Income 52 137 149 Other Short Term Liabilities 113 125 123 Minority Interest - - - Current Liabilities 445 250 680 Attributable to Pacasmayo 52 137 149 Long Term Debt 1,003 1,123 659 Shares Outstanding (MM) 428 428 428 Other Long Term Liabilities 154 154 154 Earnings per Share - EPS (PEN) 0.120 0.319 0.347 Non Current Liabilities 1,157 1,277 813 Depreciation and Amortization -138 -131 -129 Equity Attributable to Pacasmayo 1,375 1,413 1,425 EBITDA 302 403 416 Liabilities + Equity 2,977 2,940 2,918
MARGINS AND GROWTH (%) 2020e 2021e 2022e FLUJO DE CAJA (S/ MM) 2020e 2021e 2022e Gross Margin 28.7% 32.9% 34.1% Net Income 52 137 149 Operating Margin 13.3% 18.5% 19.6% Depreciation and Amortization 138 131 129 EBITDA Margin 24.5% 27.3% 28.4% Changes in Working Capital 47 -79 -16 Net Margin 4.2% 9.3% 10.1% Others 77 80 78 Sales Growth -11.6% 19.7% -0.5% Operating Cash Flow 313 269 340 Operating Income Growth -39.3% 65.7% 5.5% Investment Cash Flow -43 -83 -83 EBITDA Growth -24.5% 33.4% 3.3% Financing Cash Flow -29 -277 -243 Net Income Growth -61.0% 165.4% 8.7% Free Cash Flow 241 -90 14
FINANCIAL RATIOS 2020e 2021e 2022e CHART N° 36: SHAREHOLDERS Current Assets / Current Liabilities 1.99 3.59 1.36 Average Days of Inventory 180.00 190.00 200.00 13% Debt / Equity 0.91 0.82 0.79 Inversiones ASPI Net Debt / EBITDA 3.12 2.32 2.14 EBITDA / Financial Expenses 3.33 4.69 5.08 16% Pension Funds Payout Ratio 74.6% 191.0% 100.0% 50% Programa de ADR Dividends per Share (PEN) 0.230 0.230 0.319 Others ROE 3.7% 9.8% 10.5% 21% ROA 1.7% 4.6% 5.1% ROIC 4.6% 8.0% 8.5%
VALUATION 2020e 2021e 2022e CHART N° 37: CEMENT PRODUCTION BY PLANT - 2020e EV / Sales 2.70 2.26 2.27 P / E 45.84 17.27 15.89 13% EV / EBIT 20.26 12.23 11.59 EV / EBITDA 11.02 8.26 7.99 Pacasmayo P / BV 1.72 1.67 1.66 Piura 48%
Rioja MANAGEMENT 40% Humberto Nadal CEO Manuel Ferreyros CFO Claudia Bustamante IRO Source: Pacasmayo, SMV, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 25 Post-Pandemic Recovery
Marco Contreras Marco Alemán Capital Goods Industry Target Price Head of Research Senior Analyst PEN 2.50 (511) 630 7528 (511) 630 7527 Ferreycorp S.A.A. [email protected] [email protected] BUY
Ferreycorp S.A.A. (BVL: FERREYC1) COVID-19 is in the past Target Price (PEN) 2.50 Rating Buy Kallpa Securities SAB updates its valuation of Ferreycorp S.A.A. (Ferreycorp), Market Capitalization (PEN MM) 1,668.32 with a recommendation to buy. Our new 2021 year-end target price (TP) of PEN Market Price (PEN) 1.72 2.50 is 45.3% above the PEN 1.72 market price, as of the closing of January 4th, Shares Outstanding (MM) 969.95 2021. Upside 45.3% ADTV - LTM (PEN MM) 1.32 Fundamentals for 2021 Range 52 weeks 1.02 - 2.00 YTD Change -1.1% We expect Ferreycorp's sales growth of 27.1% in 2021 (vs. -22.5% for Dividend Yield - LTM 4.5% 2020). The greater dynamism would come from the line of delivery of new Trading BVL machinery (+39.5%), given the contracts closed in previous years. This line ADTV: Average Daily Traded Volume would represent 12.3% of revenues in 2021 (vs. 8.7% in 2019). The spare
LTM: Last 12 Months parts and services segment would recover significantly (+ 26.7%) and we
Source: Bloomberg, Kallpa SAB estimate that it will return to its pre-COVID-19 levels in 2022.
Financial Ratios 2020e 2021e 2022e The significant increase in the delivery of new Caterpillar machinery to the P / E 17.19 6.99 6.59 large mining segment would cause a drop in the gross margin from 25.1% P / BV 0.80 0.77 0.74 in 2020 to 23.4% in 2021. EV / EBITDA 6.50 5.27 4.96 Net Debt/EBITDA 3.67 3.36 3.19 The estimated portfolio of mining projects according to the Ministry of EPS (PEN) 0.100 0.245 0.260 Energy and Mines (MEM) exceeds USD 56,000 MM for the next few years. ROE 11.5% 11.4% 11.9% Of these, 68% correspond to copper projects, a metal that represents a ROA 4.3% 4.4% 4.7% large part of Peru's exports, and with solid fundamentals in the medium- Source: SMV, Kallpa SAB long term. Likewise, gold is the second most representative metal in the portfolio with 14%.
Sensitivity Analysis WACC / g 2.0% 2.5% 3.0% 3.5% 4.0% Ferreycorp is trading at a 2021 EV / EBITDA of 5.3x, below the 8.0x 8.6% 2.81 3.04 3.31 3.64 4.04 median of its peers; and at a 2021 P / E of 7.0x, below the 15.5x median of 9.1% 2.46 2.65 2.87 3.14 3.45 similar companies. 9.6% 2.16 2.31 2.50 2.71 2.96 10.1% 1.89 2.02 2.18 2.35 2.56 Risks 10.6% 1.65 1.77 1.90 2.04 2.21 Source: Kallpa SAB Lower execution of projects, mainly mining (55% of revenues), due to a slower than expected recovery of private investment, political risk, social Chart N° 38: FERREYC1 vs. PERU SELECT conflicts and volatility of commodities.
PEN Pts. FERREYC1 PERU SELECT 2.0 580 A second wave of infections that restricts the various economic activities of 1.9 540 the country. 1.7 500 1.6 Valuation 460 1.4 420 1.3 We value Ferreycorp with a Free Cash Flow to the Firm (FCFF) model in a
1.1 380 10-year horizon. We use a discount rate (WACC) of 9.6% and a perpetual growth rate of 3.0%.
1.0 340
Jul-20
Oct-20
Apr-20
Jan-20 Jun-20 Jan-21
Feb-20 Mar-20
Aug-20 Sep-20 Nov-20 Dec-20 May-20 Recommendation Source: Bloomberg All in all and considering the attractive dividend yield, we reaffirm our buy recommendation of FERREYC1. We will be aware of the average inventory days of the company.
www.kallpasab.com Peru Equity Guide 2021 26 Post-Pandemic Recovery
Ferreycorp: Financial Summary
INCOME STATEMENT (PEN MM) 2020e 2021e 2022e BALANCE SHEET (PEN MM) 2020e 2021e 2022e Net Sales 4,514 5,735 5,680 Cash and Cash Equivalents 254 211 208 Cost of Sales -3,379 -4,394 -4,321 Accounts Receivable 1,360 1,414 1,385 Gross Income 1,135 1,342 1,359 Inventory 1,944 1,806 1,776 Sales Expenses -517 -595 -589 Other Short Term Assets 103 103 103 Administrative Expenses -296 -322 -314 Current Assets 3,661 3,533 3,472 Other Income, Net 15 -6 -6 Fixed Assets, Net 1,642 1,673 1,696 Operating Income 337 419 450 Other Long Term Assets 702 750 786 Financial Income 21 28 28 Non Current Assets 2,344 2,423 2,482 Financial Expenses -96 -97 -105 Total Assets 6,005 5,956 5,953 FX Gains (Losses) -109 - - Short Term Debt 447 573 691 Stake in Associates 2 4 4 Accounts Payable 1,618 1,300 1,184 Income Before Taxes 155 355 377 Other Short Term Liabilities 8 8 8 Income Tax -57 -114 -121 Current Liabilities 2,073 1,881 1,883 Net Income 98 241 256 Long Term Debt 1,562 1,619 1,517 Shares Outstanding - Average (MM) 987 985 986 Other Long Term Liabilities 268 268 268 Earnings per Share - EPS (PEN) 0.100 0.245 0.260 Non Current Liabilities 1,830 1,887 1,785 Depreciation and Amortization 121 143 149 Net Equity 2,102 2,188 2,285 EBITDA 478 590 627 Liabilities + Equity 6,005 5,956 5,953
MARGINS AND GROWTH (%) 2020e 2021e 2022e CASH FLOW (PEN MM) 2020e 2021e 2022e Gross Margin 25.1% 23.4% 23.9% Net Income 98 241 256 Operating Margin 7.5% 7.3% 7.9% Depreciation and Amortization 121 143 149 EBITDA Margin 10.6% 10.3% 11.0% Changes in Working Capital 450 -233 -57 Net Margin 2.2% 4.2% 4.5% Others 94 64 86 Sales Growth -22.5% 27.1% -1.0% Operating Cash Flow 763 215 434 Operating Income Growth -26.9% 24.6% 7.4% Investment Cash Flow -225 -218 -216 EBITDA Growth -23.3% 23.0% 5.9% Financing Cash Flow -368 -41 -221 Net Income Growth -60.2% 145.8% 6.1% Free Cash Flow 170 -43 -2
FINANCIAL RATIOS 2020e 2021e 2022e CHART N° 39: SHAREHOLDERS Current Assets / Current Liabilities 1.77 1.88 1.84 Average Days of Inventory 210.00 150.00 150.00 7% Debt / Equity 0.96 1.00 0.97 Onyx Latin America Equity Fund Net Debt / EBITDA 3.67 3.36 3.19 LP EBITDA / Financial Expenses 4.99 6.11 5.95 35% Pension Funds Payout Ratio 61.0% 157.7% 66.1% 58% Dividends per Share (PEN) 0.155 0.160 0.164 Others ROE 11.5% 11.4% 11.9% ROA 4.3% 4.4% 4.7% ROIC 7.1% 7.3% 7.7%
VALUATION 2020e 2021e 2022e CHART N° 40: VENTAS POR UNIDAD DE NEGOCIO 2021e EV / Sales 0.69 0.54 0.55 P / E 17.19 6.99 6.59 12% EV / EBIT 9.25 7.42 6.91 Spare Parts and Services 6% EV / EBITDA 6.50 5.27 4.96 CAT Machinery for Other Industries
P / BV 0.80 0.77 0.74 8% 48% Allied Equipment
Rental and Used Equipment MANAGEMENT 11% Other Lines Mariela García CEO Patricia Gastelumendi CFO 14% CAT Machinery for Mining Elizabeth Tamayo IRO Source: Ferreycorp, SMV, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 27 Post-Pandemic Recovery
Marco Contreras Marco Alemán Construction Industry Target Price Head of Research Senior Analyst (511) 630 7528 (511) 630 7527 PEN 2.30 [email protected] [email protected] Aenza S.A.A. HOLD
Aenza S.A.A. (BVL: AENZAC1) Better scenario for E&C. Backlog generation pending. TP per Share / ADR (PEN / USD) 2.30 / 3.33 Rating Hold Kallpa Securities SAB updates its valuation of Aenza S.A.A. (former Graña y Market Capitalization (PEN MM) 1,417.97 Montero), with a recommendation to hold. Our new 2021 year-end target price Market Price (PEN / USD) 1.74 / 2.36 (TP) of PEN 2.30 is 32.2% above the PEN 1.74 market price, as of the closing of Shares Outstanding (MM) 814.92 January 4th, 2021. Upside 32.2% ADTV - LTM (S/ MM) 0.67 Fundamentals for 2021 Range 52 weeks 1.06 - 1.84 YTD Change 0.0% We expect sales to register a growth of 10.3% in 2021, led by the growth of Dividend Yield - LTM 0.0% the real estate segment, given the low comparative base of 2020. We Trading NYSE, BVL expect the Backlog to be at levels of USD 1,900 - 2,200 MM. ADTV: Average Daily Traded Volume LTM: Last 12 Months We highlight that the EBITDA margin of the E&C area would be 6.0% in * Exchange Rate USD/PEN: 3.45 2021, higher than 3.8% in 2020. This, given the company's objective of Source: Bloomberg, Kallpa SAB seeking projects with more efficient schemes. This would boost the adjusted EBITDA margin, at a consolidated level, which would amount to Financial Ratios 2020e 2021e 2022e 16.3% in 2021 (13.1% expected for 2020). P / E n.s. 11.89 11.13 P / BV 1.00 0.92 0.87 We trust that in 2021 the tender offer announced by the Brazilian fund IG4 EV / EBITDA 5.47 3.97 3.83 Capital will close. This would be conditional on the decision of the Peruvian Net Debt/EBITDA 1.99 1.28 1.14 justice to release the shares of the Graña family and relatives, which EPS (PEN) -0.031 0.150 0.160 amount to 20% of the company's capital stock. ROE -1.7% 8.1% 8.0% ROA -0.4% 2.0% 2.1% The net debt / EBITDA ratio for 2021 would be 1.3x, below the 2.0x in Source: SMV, Kallpa SAB 2020, as a result of an 11.0% reduction in net debt levels and a 37.8% increase in EBITDA. Sensitivity Analysis WACC / g 2.0% 2.5% 3.0% 3.5% 4.0% Risks 8.8% 2.51 2.65 2.80 2.99 3.22 9.3% 2.29 2.41 2.54 2.69 2.87 Execution risk in E&C projects, both in terms of maturity and costs that the 9.8% 2.10 2.20 2.30 2.43 2.58 company would incur. 10.3% 1.94 2.01 2.10 2.21 2.33 10.8% 1.79 1.85 1.93 2.02 2.11 Lower than expected generation from Backlog given macroeconomic, Source: Kallpa SAB political and commercial factors.
Chart N° 41: AENZAC1 vs. PERU SELECT Fines or civil compensations related to investigations in which the company PEN Pts. is involved. AENZAC1 PERU SELECT 580 2.0
1.9 540 Failing to reorganize short-term financial obligations with favorable
1.7 500 conditions. 1.6 460 1.4 Valuation 420 1.3
1.1 380 We value Aenza with a Free Cash Flow to the Firm (FCFF) model in a 10-
1.0 340 year horizon. We use a discount rate (WACC) of 9.8% and a perpetual
growth rate of 3.0%.
Jul-20
Apr-20 Oct-20
Jan-20 Jun-20 Jan-21
Feb-20 Mar-20
Aug-20 Sep-20 Nov-20 Dec-20 May-20 Source: Bloomberg Recommendation
Despite the attractive upside, our recommendation is to hold. We emphasize that this is a high-risk investment due to the current situation and the competitive environment faced by the company.
www.kallpasab.com Peru Equity Guide 2021 28 Post-Pandemic Recovery
Aenza: Financial Summary
INCOME STATEMENT (PEN MM) 2020e 2021e 2022e BALANCE SHEET (PEN MM) 2020e 2021e 2022e Net Sales 3,397 3,748 4,034 Cash and Cash Equivalents 825 901 987 Cost of Sales -3,036 -3,254 -3,509 Accounts Receivable 1,228 1,304 1,370 Gross Income 361 495 525 Inventory 624 624 654 Administrative Expenses -157 -177 -190 Other Short Term Assets 236 239 242 Other Income -49 - - Current Assets 2,913 3,069 3,253 Operating Income 154 318 335 Fixed Assets, Net 444 461 505 Financial Income 18 23 23 Intangibles, Net 841 841 844 Financial Expenses -135 -135 -135 Other Long Term Assets 2,094 2,103 2,087 FX Gains (Losses) 2 - - Non Current Assets 3,379 3,405 3,435 Stake in Associates 3 3 3 Total Assets 6,292 6,474 6,689 Income Before Taxes 42 209 225 Short Term Debt 568 523 534 Income Tax -48 -67 -72 Accounts Payable 1,705 1,756 1,817 Net Income -7 142 153 Other Short Term Liabilities 372 372 372 Minority Interest 19 20 23 Current Liabilities 2,645 2,650 2,722 Attributable to Aenza -26 122 130 Long Term Debt 1,138 1,162 1,176 Shares Outstanding - Average (MM) 815 815 815 Other Long Term Liabilities 640 662 688 Earnings per Share - EPS (PEN) -0.031 0.150 0.160 Non Current Liabilities 1,777 1,824 1,864 Depreciation and Amortization 186 189 195 Equity Attributable to Aenza 1,452 1,574 1,668 EBITDA 443 611 633 Minority Interest 417 424 434 Total Liabilities + Equity 6,292 6,474 6,689
MARGINS AND GROWTH (%) 2020e 2021e 2022e CASH FLOW (PEN MM) 2020e 2021e 2022e Gross Margin 10.6% 13.2% 13.0% Net Income -26 122 130 Operating Margin 4.5% 8.5% 8.3% Depreciation and Amortization 186 189 195 EBITDA Margin 13.1% 16.3% 15.7% Changes in Working Capital -113 -15 5 Net Margin -0.8% 3.3% 3.2% Others 118 112 112 Sales Growth -16.8% 10.3% 7.6% Operating Cash Flow 165 408 442 Operating Income Growth n.s. 106.0% 5.3% Investment Cash Flow -173 -206 -242 EBITDA Growth n.s. 37.8% 3.7% Financing Cash Flow -116 -126 -114 Net Income Growth n.s. n.s. 6.7% Free Cash Flow -124 76 86
FINANCIAL RATIOS 2020e 2021e 2022e CHART N° 42: SHAREHOLDERS Current Assets / Current Liabilities 1.10 1.16 1.20
Collection Period 85.00 82.00 80.00 Pension Funds
Debt / Equity 1.17 1.07 1.03 25% Original Family Net Debt / EBITDA 1.99 1.28 1.14 31% EBITDA / Financial Expenses 3.27 4.54 4.69 Pacifico Corp. S.A. 0.0% 0.0% 30.0% Payout Ratio Megeve Dividends per Share (PEN) - - 0.055 4% Aberdeen ROE -1.7% 8.1% 8.0% 19% ROA -0.4% 2.0% 2.1% 10% Others 10% ROIC -0.8% 6.7% 6.7%
VALUATION 2020e 2021e 2022e CHART N° 43: BACKLOG BY INDUSTRY EV / Sales 0.71 0.65 0.60 P / E n.s. 11.89 11.13 4% 3% Mining Projects EV / EBIT 15.72 7.63 7.25 31% EV / EBITDA 5.47 3.97 3.83 Oil & Gas P / BV 1.00 0.92 0.87 32% Transport
MANAGEMENT Real Estate Luis Díaz CEO Others Dennis Gray CFO 30% Paola Pastor Investor Relations Source: Aenza, SMV, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 29 Post-Pandemic Recovery
Marco Contreras Marco Alemán Cement Industry Target Price Head of Research Senior Analyst PEN 2.20 (511) 630 7528 (511) 630 7527 UNACEM S.A.A. [email protected] [email protected] BUY
UNACEM S.A.A. (BVL: UNACEMC1) Operations would recover significantly in 2021 Target Price (PEN) 2.20 Rating Buy Kallpa Securities SAB updates its valuation of Unión Andina de Cementos Market Capitalization (PEN MM) 2,781.74 S.A.A. (UNACEM), with a recommendation to buy. Our new 2021 year-end target Market Price (PEN) 1.53 price (TP) of PEN 2.20 is 43.8% above the PEN 1.53 market price, as of the Shares Outstanding (MM) 1,818.13 closing of January 4th, 2021. Upside 43.8% ADTV - LTM (PEN MM) 0.75 Fundamentals for 2021 Range 52 weeks 1.14 - 1.99 YTD Change -1.3% We expect the company's revenues to register a growth of 14.8% in 2021, Dividend Yield - LTM 0.9% after presenting a fall of 13.8% in 2020. This, due to the recovery of the Trading BVL cement and concrete businesses in Peru, after the stoppage of operations ADTV: Average Daily Traded Volume during part of 2020, a product of COVID-19.
LTM: Last 12 Months Source: Bloomberg, Kallpa SAB For 2021, we expect the net debt / EBITDA ratio to be 3.4x, while for 2020 we expect it to reach 4.6x. This is the result of a 7.1% drop in net debt Financial Ratios 2020e 2021e 2022e levels and a 26.8% growth in EBITDA. This would allow the company to P / E 51.05 10.67 8.86 resume the payment of dividends in the medium term, in the event that P / BV 0.63 0.60 0.58 large disbursements are not generated for inorganic growth. EV / EBITDA 7.92 6.21 5.79 Net Debt/EBITDA 4.63 3.37 2.88 We expect the EBITDA margin to be 27.4% in 2021 (vs. 24.7% in 2020). EPS (PEN) 0.030 0.145 0.175 We highlight the higher margins in the Peruvian operations (mainly cement ROE 1.2% 5.8% 6.7% and concrete), given that the increase in production would generate ROA 0.5% 2.5% 3.0% economies of scale. Source: SMV, Kallpa SAB Risks Sensitivity Analysis WACC / g 2.0% 2.5% 3.0% 3.5% 4.0% Political / social conflicts that affect the performance of the operations of 8.6% 2.52 2.72 2.95 3.22 3.56 subsidiaries abroad (Ecuador, Chile, Colombia, etc.). This could reduce the 9.1% 2.20 2.36 2.55 2.77 3.03 levels of private investment and public budget in the following periods. 9.6% 1.92 2.05 2.20 2.38 2.59 10.1% 1.67 1.78 1.91 2.06 2.23 Less than expected growth in private investment, as well as the standstill 10.6% 1.45 1.55 1.65 1.78 1.92 and slowdown of large infrastructure projects in the company's area of Source: Kallpa SAB influence.
Chart N° 44: UNACEMC1 vs. PERU SELECT Greater competition in the area of influence could affect the margins of the PEN Pts. company. UNACEMC1 PERU SELECT 2.1 580
1.9 540 Valuation 1.8 500 1.6 We value UNACEM with a Free Cash Flow to the Firm (FCFF) model in a 460 1.5 10-year horizon. We use a discount rate (WACC) of 9.6% and a perpetual 420 1.3 growth rate of 3.0%.
1.2 380
1.0 340 Recommendation
Jul-20
Apr-20 Oct-20
Jan-20 Jun-20 Jan-21
Mar-20
Feb-20
Aug-20 Sep-20 Nov-20 Dec-20 May-20 Given the aforementioned, our recommendation is to buy UNACEMC1, in Source: Bloomberg the expectation of a strong recovery of the company's profits in 2021.
www.kallpasab.com Peru Equity Guide 2021 30 Post-Pandemic Recovery
UNACEM: Financial Summary
INCOME STATEMENT (PEN MM) 2020e 2021e 2022e BALANCE SHEET (PEN MM) 2020e 2021e 2022e Net Sales 3,532 4,056 4,279 Cash and Cash Equivalents 369 246 225 Cost of Sales -2,723 -3,006 -3,132 Accounts Receivable 467 533 563 Gross Income 809 1,051 1,147 Inventory 680 733 764 Administrative Expenses -251 -291 -302 Other Short Term Assets 21 22 23 Sales Expenses -90 -122 -127 Current Assets 1,537 1,535 1,574 Other Income, Net -54 -5 -5 Fixed Assets, Net 7,288 7,183 7,028 Operating Income 414 632 713 Intangibles, Net 1,384 1,393 1,403 Stake in Associates 2 2 2 Other Long Term Assets 391 383 386 Financial Income 7 17 12 Non Current Assets 9,063 8,960 8,818 Financial Expenses -237 -226 -215 Total Assets 10,600 10,495 10,392 FX Gains (Losses) -62 - - Short Term Debt 858 778 928 Income Before Taxes 125 425 512 Accounts Payable 555 663 691 Income Tax -43 -132 -159 Other Short Term Liabilities 140 143 144 Net Income 83 293 354 Current Liabilities 1,553 1,583 1,762 Minority Interest 27 29 35 Long Term Debt 3,540 3,212 2,735 Attributable to UNACEM 55 264 318 Other Long Term Liabilities 808 801 803 Shares Outstanding - Average (MM) 1,818 1,818 1,818 Non Current Liabilities 4,348 4,014 3,537 Earnings per Share - EPS (PEN) 0.030 0.145 0.175 Equity Attributable to UNACEM 4,505 4,675 4,835 Depreciation and Amortization 447 460 464 Minority Interest 193 223 258 EBITDA 871 1,111 1,192 Total Liabilities + Equity 10,600 10,495 10,392
MARGINS AND GROWTH (%) 2020e 2021e 2022e CASH FLOW (PEN MM) 2020e 2021e 2022e Gross Margin 22.9% 25.9% 26.8% Net Income 55 264 318 Operating Margin 11.7% 15.6% 16.7% Depreciation and Amortization 447 460 464 EBITDA Margin 24.7% 27.4% 27.8% Changes in Working Capital -16 -11 -32 Net Margin 2.3% 7.2% 8.3% Others 221 210 201 Sales Growth -13.8% 14.8% 5.5% Operating Cash Flow 708 923 952 Operating Income Growth -44.6% 52.6% 12.8% Investment Cash Flow -492 -365 -319 EBITDA Growth -28.4% 26.8% 7.8% Financing Cash Flow 29 -682 -653 Net Income Growth -84.3% 378.5% 20.5% Free Cash Flow 245 -123 -21
FINANCIAL RATIOS 2020e 2021e 2022e CHART N° 45: SHAREHOLDERS Current Assets / Current Liabilities 0.99 0.97 0.89 Average Days of Inventory 91.10 89.00 89.00 Debt / Equity 0.94 0.81 0.72 26% 25% Nuevas Inversiones S.A Net Debt / EBITDA 4.63 3.37 2.88
EBITDA / Financial Expenses 3.68 4.92 5.55 Inversiones JRPR S.A. Payout Ratio 6.7% n.s. 60.0% Dividends per Share (PEN) 0.013 0.052 0.087 Pension Funds ROE 1.2% 5.8% 6.7% 23% 25% Others ROA 0.5% 2.5% 3.0% ROIC 3.0% 4.9% 5.6%
VALUATION 2020e 2021e 2022e CHART N° 46: EBITDA BY SUBSIDIARY - 2021e EV / Sales 1.95 1.70 1.61 P / E 51.05 10.67 8.86 14% EV / EBIT 16.65 10.91 9.67 UNACEM Perú EV / EBITDA 7.92 6.21 5.79 7% UNACEM Ecuador P / BV 0.63 0.60 0.58 45% UNICON y CONCREMAX
MANAGEMENT Celepsa Carlos Ugás CEO 24% Others Álvaro Morales CFO 9% Francisco Barúa CIO Source: UNACEM, SMV, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 31 Post-Pandemic Recovery
Marco Contreras Christian Choquecota Electricity Industry Target Price Head of Research Analyst PEN 8.60 (511) 630 7528 (511) 630 7522 Enel Distribución Perú S.A.A. [email protected] [email protected] BUY
Enel Distribución Perú S.A.A. (BVL: ENDISPC1) Commercial and industrial segment would sustain recovery in 2021 Target Price (PEN) 8.60 Rating Buy Kallpa Securities SAB updates its valuation of Enel Distribución Perú S.A.A. Market Capitalization (PEN MM) 3,448.25 (Enel Dx), with a recommendation to buy. Our new 2021 year-end target price Market Price (PEN) 5.40 (TP) of PEN 8.60 is 59.3% above the PEN 5.40 market price, as of the closing of Shares Outstanding (MM) 638.56 January 4th, 2021. Upside 59.3% ADTV - LTM (PEN MM) 0.27 Fundamentals for 2021 Range 52 weeks 4.92 - 7.20 YTD Change 0.0% We expect the company's revenues to register a contraction of 2.5% for Dividend Yield - LTM 0.0% 2020. This, as the sharp drop in energy demand during the first half, Trading BVL caused by COVID-19, was offset by: i) a rapid economic reactivation; and, ADTV: Average Daily Traded Volume ii) a higher average energy sale price. For 2021 we expect an advance of
LTM: Last 12 Months 6.1%, as a result of a higher volume of energy sold (+ 9.3%), mainly
Source: Bloomberg, Kallpa SAB explained by a recovery in demand from the commercial and industrial segments. In this way, we expect energy sales to return to pre-COVID-19
Financial Ratios 2020e 2021e 2022e levels by the end of 2021. P / E 11.70 9.06 8.92 P / BV 1.29 1.18 1.14 We estimate a strong deterioration in collection days in 2020 (90 days vs EV / EBITDA 7.07 6.27 6.13 24 days in 2019). This, as a result of a lower disposable income of people Net Debt/EBITDA 2.41 1.82 1.65 during the recession, which would cause an increase in the level of EPS (PEN) 0.461 0.596 0.606 delinquencies of the company's clients. This level would decrease in 2021 ROE 11.6% 13.6% 13.0% and would be normalized towards the end of 2022. ROA 5.7% 6.9% 6.9% Source: SMV, Kallpa SAB We expect the EBITDA margin to stand at 23.6% in 2020, and then grow to 25.0% in 2021. This, as the company's operating cash flows recover from Sensitivity Analysis the COVID-19 effect. WACC / g 2.5% 2.8% 3.0% 3.3% 3.5% 5.8% 10.78 11.61 12.59 13.76 15.19 Risks 6.3% 9.01 9.61 10.29 11.09 12.03 6.8% 7.66 8.10 8.60 9.17 9.83 The company is exposed to changes in the regulatory framework of the 7.3% 6.59 6.93 7.31 7.73 8.21 industry. A reduction in the regulatory hurdle (200 KW), which differentiates 7.8% 5.73 5.99 6.29 6.61 6.97 a free user from a regulated one, could generate loss of customers. Source: Kallpa SAB A decrease in the regulated IRR for the sector, which is currently 12.0%, is Chart N° 47: ENDISPC1 vs. PERU SELECT under evaluation. This could negatively impact the profits of the distribution PEN Pts. companies. ENDISPC1 PERU SELECT 7.5 580
540 Valuation 6.9 500 6.4 We value Enel Distribución Perú S.A.A. with a Free Cash Flow to the Firm 460 (FCFF) model in a 10-year horizon. We use a discount rate (WACC) of 5.8 420 6.8% and a perpetual growth rate of 3.0%.
5.3 380 Recommendation
4.7 340
Jul-20
Oct-20
Apr-20
Jan-20 Jun-20 Jan-21
Feb-20 Mar-20
Aug-20 Sep-20 Nov-20 Dec-20 May-20 Given the aforementioned, and the expectation of a recovery in revenue in Source: Bloomberg 2021, after the impact of COVID-19, we consider that the company's fundamentals are not yet internalized in the market price. Therefore, we maintain our recommendation to buy.
www.kallpasab.com Peru Equity Guide 2021 32 Post-Pandemic Recovery
Enel Dx: Financial Summary
INCOME STATEMENT (PEN MM) 2020e 2021e 2022e BALANCE SHEET (PEN MM) 2020e 2021e 2022e Net Sales 3,066 3,262 3,381 Cash and Cash Equivalents 93 143 171 Cost of Sales -2,332 -2,447 -2,558 Accounts Receivable 827 563 353 Gross Income 734 815 823 Inventory 102 80 60 Administrative Expenses -100 -105 -104 Other Short Term Assets 4 4 4 Sales Expenses -133 -130 -132 Current Assets 1,027 791 588 Other Income (Expenses), Net 19 31 32 Fixed Assets, Net 4,396 4,626 4,862 Operating Income 519 611 619 Other Long Term Assets 127 135 142 Financial Income 13 23 16 Non Current Assets 4,523 4,761 5,003 Financial Expenses -94 -95 -87 Total Assets 5,550 5,551 5,592 FX Gain (Loss) -3 - - Short Term Debt 293 224 224 Income Before Taxes 435 540 549 Accounts Payable 799 778 771 Income Tax -140 -159 -162 Other Short Term Liabilities 71 73 74 Net Income 295 380 387 Current Liabilities 1,163 1,075 1,069 Shares Outstanding (MM) 639 639 639 Long Term Debt 1,544 1,400 1,326 Earnings per Share - EPS (PEN) 0.461 0.596 0.606 Other Long Term Liabilities 165 165 165 Depreciation and Amortization 204 204 215 Non Current Liabilities 1,709 1,565 1,491 EBITDA 723 815 834 Equity 2,678 2,912 3,032 Liabilities + Equity 5,550 5,551 5,592
MARGINS AND GROWTH (%) 2020e 2021e 2022e CASH FLOW (PEN MM) 2020e 2021e 2022e Gross Margin 23.9% 25.0% 24.3% Net Income 295 380 387 Operating Margin 16.9% 18.7% 18.3% Depreciation and Amortization 204 204 215 EBITDA Margin 23.6% 25.0% 24.7% Changes in Working Capital -451 267 224 Net Margin 9.6% 11.7% 11.4% Others 81 72 71 Sales' Growth -2.5% 6.4% 3.6% Operating Cash low 128 923 896 Operating Income's Growth -24.8% 17.7% 1.3% Investment Cash Flow -396 -442 -458 EBITDA's Growth -17.8% 12.7% 2.3% Financing Cash Flow 190 -432 -411 Net Income's Growth -31.3% 29.1% 1.6% Free Cash Flow -78 50 28
FINANCIAL RATIOS 2020e 2021e 2022e CHART N° 48: SHAREHOLDERS Current Assets / Current Liabilities 0.88 0.74 0.55 Collection Period 90.00 55.00 30.00 9% Debt / Equity 0.69 0.56 0.51 8% Enel Perú S.A.C. Net Debt / EBITDA 2.41 1.82 1.65 EBITDA / Financial Expenses 7.65 8.62 9.63 Payout Ratio 0.0% 50.0% 70.0% Pension Funds Dividends per Share (PEN) - 0.23 0.42 ROE 11.6% 13.6% 13.0% Others ROA 5.7% 6.9% 6.9% 83% ROIC 7.9% 9.7% 9.8%
VALUATION 2020e 2021e 2022e CHART N° 49: SALES BY CLIENT TYPE - 2020e EV / Sales 1.67 1.57 1.51 P / E 11.70 9.06 8.92 EV / EBIT 9.84 8.36 8.25 15% Residential EV / EBITDA 7.07 6.27 6.13
P / BV 1.29 1.18 1.14 Commercial 18% 57% Industrial MANAGEMENT Simone Botton CEO Others 10% Guillermo Lozada CFO Pilar Cano Finance and Investor Relations Source: Enel Dx, SMV, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 33 Post-Pandemic Recovery
Marco Contreras Christian Choquecota Electricity Industry Target Price Head of Research Analyst PEN 2.77 (511) 630 7500 (511) 630 7522 Enel Generación Perú S.A.A. [email protected] [email protected] BUY
Enel Generación Perú S.A.A. (BVL: ENGEPEC1) Higher energy sales price would compensate lower demand Target Price (PEN) 2.77 Rating Buy Kallpa Securities SAB updates its valuation of Enel Generación Perú S.A.A. Market Capitalization (PEN MM) 5,819.44 (Enel Gx), with a recommendation to buy. Our new 2021 year-end target price Market Price (PEN) 2.05 (TP) of PEN 2.77 is 35.1% above the PEN 2.05 market price, as of the closing of Shares Outstanding (MM) 2,838.75 January 4th, 2021. Upside 35.1% ADTV - LTM (PEN MM) 0.29 Fundamentals for 2021 Range 52 weeks 1.62 - 2.24 YTD Change 2.5% We expect the company's revenues to show a 7.6% drop for 2020, as a Dividend Yield - LTM 10.7% consequence of lower energy and capacity sales, due to lower demand Trading BVL from free (-19.3% YoY) and regulated (-9.9 % A / A) customers, product of ADTV: Average Daily Traded Volume COVID-19. This would be partially compensate by: i) a rapid reactivation of
LTM: Last 12 Months the main economic activities; and, ii) a higher implicit sale price. Although
Source: Bloomberg, Kallpa SAB demand from the free segment would only recover in 2022, we expect energy sales to return to pre-COVID-19 levels by the end of 2021.
Financial Ratios 2020e 2021e 2022e P / E 11.62 11.67 11.75 We estimate a deterioration in the collection days from related companies P / BV 1.87 1.81 1.82 in 2020 (115 days vs. 46 days in 2019). We expect it to normalize by 2022. EV / EBITDA 6.27 6.13 6.10 Net Debt/EBITDA -0.15 -0.32 -0.38 We expect the company to maintain regular dividend payments due to EPS (PEN) 0.171 0.170 0.169 good cash generation and low indebtedness. We project the payout to ROE 15.8% 15.8% 15.5% reach 80% and 100% in 2021 and 2022, respectively. ROA 10.9% 10.9% 10.6% Source: SMV, Kallpa SAB Risks
Sensitivity Analysis A possible regulatory change in the declaration of natural gas prices is WACC / g 2.0% 2.5% 3.0% 3.5% 4.0% currently under review. An increase in the spot price of energy may affect 6.6% 2.96 3.19 3.48 3.86 4.39 the margins of the company in the future, since the company is a net buyer 7.1% 2.69 2.86 3.08 3.36 3.73 within the wholesale market. 7.6% 2.46 2.60 2.77 2.98 3.25 8.1% 2.27 2.39 2.52 2.68 2.88 Much of the company's generation capacity corresponds to hydroelectric 8.6% 2.11 2.21 2.31 2.44 2.59 plants (47.4%), so the climatic factor (lack of rain) could make costs more Source: Kallpa SAB expensive and reduce margins.
Chart N° 50: ENGEPEC1 vs. PERU SELECT Valuation PEN Pts. ENGEPEC1 PERU SELECT 2.3 580 We value the company with a Free Cash Flow to the Firm (FCFF) model in
2.2 540 a 10-year horizon. We use a discount rate (WACC) of 7.6% and a perpetual growth rate of 3.0%. 2.1 500
460 1.9 Recommendation 1.8 420
1.7 380 Considering that the company would maintain its solid financial position and that there is a prospect of recovery in energy demand in the coming 1.6 340
years, we maintain our recommendation to buy.
Jul-20
Oct-20
Apr-20
Jan-20 Jun-20 Jan-21
Feb-20 Mar-20
Aug-20 Sep-20 Nov-20 Dec-20 May-20 Source: Bloomberg
www.kallpasab.com Peru Equity Guide 2021 34 Post-Pandemic Recovery
Enel Generación Perú: Financial Summary
INCOME STATEMENT (PEN MM) 2020e 2021e 2022e BALANCE SHEET (PEN MM) 2020e 2021e 2022e Net Sales 1,541 1,698 1,768 Cash and Cash Equivalents 253 414 468 Cost of Sales -799 -947 -1,009 Accounts Receivable 743 698 605 Gross Income 743 751 759 Inventory 70 77 82 Administrative Expenses -81 -78 -81 Other Short Term Assets 15 15 15 Other Income (Expenses), Net 19 21 13 Current Assets 1,081 1,204 1,171 Operating Income 680 694 691 Fixed Assets, Net 3,210 3,223 3,254 Financial Income 17 24 23 Intangibles 95 107 120 Financial Expenses -10 -13 -13 Other Long Term Assets 106.848 106.848 106.848 FX gain (loss) 31 - - Non Current Assets 3,412 3,437 3,481 Income Before Taxes 718 704 700 Total Assets 4,493 4,641 4,652 Income Tax -219 -208 -206 Short Term Debt 45 22 37 Net Income 499 497 493 Accounts Payable 348 390 407 Minority Interest 13 13 13 Other Short Term Liabilities 165 165 165 Net Income Attributable to Enel Gx 486 484 481 Current Liabilities 558 577 609 Shares Outstanding (MM) 2,839 2,839 2,839 Long Term Debt 82 116 98 Earnings per Share - EPS (PEN) 0.171 0.170 0.169 Other Long Term Liabilities 760 760 760 Depreciation and Amortization 175 181 188 Non Current Liabilities 842 876 858 EBITDA 855 875 879 Equity Attributable to Enel Gx 3,018 3,113 3,110 Minority Interest 75 75 75 Liabilities + Equity 4,493 4,641 4,652
MARGINS AND GROWTH (%) 2020e 2021e 2022e CASH FLOW (PEN MM) 2020e 2021e 2022e Gross Margin 48.2% 44.2% 42.9% Net Income 486 484 481 Operating Margin 44.1% 40.9% 39.1% Depreciation and Amortization 175 181 188 EBITDA Margin 55.5% 51.5% 49.7% Changes in Working Capital -267 80 105 Net Margin 32.4% 29.3% 27.9% Others -7 -11 -9 Sales' Growth -7.6% 10.1% 4.1% Operating Cash low 387 734 765 Operating Income's Growth -8.1% 2.0% -0.4% Investment Cash Flow -151 -206 -232 EBITDA's Growth -7.2% 2.3% 0.5% Financing Cash Flow -603 -367 -478 Net Income's Growth -9.1% -0.4% -0.7% Free Cash Flow -366 161 55
FINANCIAL RATIOS 2020e 2021e 2022e CHART N° 51: SHAREHOLDERS Current Assets / Current Liabilities 1.94 2.09 1.92 Collection Period 176.0 150.0 124.9 10% Debt / Equity 0.04 0.04 0.04 6% Net Debt / EBITDA -0.15 -0.32 -0.38 Enel Perú S.A.C. EBITDA / Financial Expenses 85.98 68.05 65.39 Payout Ratio 113.8% 80.0% 100.0% Pension Funds Dividends per Share (PEN) 0.220 0.137 0.170 Others ROE 15.8% 15.8% 15.5% ROA 10.9% 10.9% 10.6% 84% ROIC 27.1% 15.0% 14.7%
VALUATION 2020e 2021e 2022e CHART N° 52: SALES BY PRODUCT - 2020e EV / Sales 3.48 3.16 3.03 1% P / E 11.62 11.67 11.75 EV / EBIT 7.88 7.73 7.76 25% EV / EBITDA 6.27 6.13 6.10 Energy P / BV 1.87 1.81 1.82 Power
MANAGEMENT Others Rigoberto Novoa Velásquez CEO 74% Guillermo Lozada Pozo CFO Pilar Cano Finance and Investor Relations Source: Enel Gx, SMV, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 35 Post-Pandemic Recovery
Marco Contreras Christian Choquecota Electricity Industry Target Price Head of Research Analyst PEN 8.15 (511) 630 7528 (511) 630 7522 Engie Energía Perú S.A. [email protected] [email protected] HOLD
Engie Energía Perú S.A. (BVL: ENGIEC1) Natural gas price statement is in the crosshairs Target Price (PEN) 8.15 Rating Hold Kallpa Securities SAB updates its valuation of Engie Energía Perú S.A.A. (Engie Market Capitalization (PEN MM) 1,220.17 Perú), with a recommendation to hold. Our new 2021 year-end target price (TP) Market Price (PEN) 7.00 of PEN 8.15 is 16.4% above the PEN 7.00 market price, as of the closing of Shares Outstanding (MM) 601.37 January 4th, 2021. Upside 16.4% ADTV - LTM (PEN MM) 0.41 Fundamentals for 2021 Range 52 weeks 5.69 - 7.59 YTD Change 0.0% We expect a contraction of 8.9% YoY in Engie Peru's revenues for 2020, Dividend Yield - LTM 5.2% mainly influenced by the drop in energy sales, given a lower demand from Trading BVL free (-18.2% YoY) and regulated customers, product of the impact of ADTV: Average Daily Traded Volume COVID-19. This would be partially compensate by a higher implicit energy
LTM: Last 12 Months sale price. We project energy sales to be close to pre-COVID-19 levels by
Source: Bloomberg, Kallpa SAB the end of 2021.
Financial Ratios 2020e 2021e 2022e We forecast that the construction of the Punta Lomitas wind project (260 P / E 12.96 11.15 11.26 MW) will begin in 2021, after the Environmental Impact Study was P / BV 1.04 1.00 0.98 approved. Consequently, we expect that this new plant will operate EV / EBITDA 6.98 6.30 6.12 commercially in 2023, which would allow diversifying the generation Net Debt/EBITDA 1.90 1.93 2.20 portfolio and increasing the company's installed capacity. EPS (USD) 0.157 0.182 0.180 ROE 8.2% 9.2% 8.8% We estimate a deterioration in collection days in 2020, due to lower ROA 5.0% 5.8% 5.4% disposable income from clients during the recession. We expect it to Source: SMV, Kallpa SAB normalize by 2022.
Sensitivity Analysis Risks WACC / g 0.50% 1.00% 1.50% 2.00% 2.50% 5.3% 9.00 9.98 11.23 12.85 15.06 A possible regulatory change in the declaration of natural gas prices is 5.8% 7.80 8.56 9.51 10.70 12.25 currently under review. As the company is a net buyer in the wholesale 6.3% 6.81 7.42 8.15 9.05 10.19 market, its cost structure would be affected by an increase in the spot price 6.8% 5.98 6.47 7.05 7.75 8.61 of energy purchase. 7.3% 5.28 5.67 6.14 6.69 7.37 Source: Kallpa SAB Significant increase in the price of oil, which would imply an increase in the price of inputs for generation, such as fuel (diesel), and would affect the Chart N° 53: ENGIEC1 vs. PERU SELECT company's margins.
Pts. PEN ENGIEC1 PERU SELECT 580 7.9 Valuation 540 7.5 We value the company with a Free Cash Flow to the Firm (FCFF) model in 7.1 500 a 10-year horizon. We use a discount rate (WACC) of 6.3% and a 6.7 460 perpetual growth rate of 1.5%. 6.3 420
5.9 380 Recommendation
5.5 340
Despite the prospect of recovery in energy demand in the coming years,
Jul-20
Oct-20
Apr-20
Jan-20 Jun-20 Jan-21
Feb-20 Mar-20
Aug-20 Sep-20 Nov-20 Dec-20
May-20 our recommendation is to hold, considering the risk of possible changes in Source: Bloomberg the regulatory framework of the sector.
www.kallpasab.com Peru Equity Guide 2021 36 Post-Pandemic Recovery
Engie Energía Perú: Financial Summary
INCOME STATEMENT (USD MM) 2020e 2021e 2022e BALANCE SHEET (USD MM) 2020e 2021e 2022e Net Sales 489 535 551 Cash and Cash Equivalents 82 85 86 Cost of Sales -302 -332 -347 Accounts Receivable 112 109 100 Gross Income 187 203 204 Inventory 74 76 85 Administrative Expenses -20 -23 -23 Other Short Term Assets 51 51 51 Other Income (Expenses), Net -5 1 1 Current Assets 320 322 322 Operating Income 162 181 182 Fixed Assets, Net 1,713 1,821 1,939 Financial Income 4 6 6 Intangibles, Net 47 46 46 Financial Expenses -31 -32 -34 Other Long Term Assets 88 88 88 FX gain (loss) -7 - - Non Current Assets 1,848 1,956 2,073 Others 5 - - Total Assets 2,168 2,277 2,395 Income Before Taxes 134 155 154 Short Term Debt 77 46 209 Income Tax -39 -46 -45 Accounts Payable 71 76 72 Net Income 94 109 108 Other Short Term Liabilities 13 13 13 Shares Outstanding (MM) 601 601 601 Current Liabilities 161 135 294 Earnings per Share - EPS (USD) 0.157 0.182 0.180 Long Term Debt 458 549 476 Depreciation and Amortization 76 83 90 Other Long Term Liabilities 378 378 378 EBITDA 238 264 272 Non Current Liabilities 836 927 854 Equity 1,170 1,215 1,247 Liabilities + Equity 2,168 2,277 2,395
MARGINS AND GROWTH (%) 2020e 2021e 2022e CASH FLOW (USD MM) 2020e 2021e 2022e Gross Margin 38.3% 37.9% 37.0% Net Income 94 109 108 Operating Margin 33.2% 33.8% 33.0% Depreciation and Amortization 76 83 90 EBITDA Margin 48.8% 49.4% 49.3% Changes in Working Capital -19 5 -3 Net Margin 19.3% 20.5% 19.7% Others 52 26 28 Sales' Growth -8.9% 9.5% 3.0% Operating Cash low 203 223 224 Operating Income's Growth -2.7% 11.7% 0.4% Investment Cash Flow -30 -190 -207 EBITDA's Growth -4.9% 10.8% 3.0% Financing Cash Flow -182 -30 -16 Net Income's Growth -9.7% 16.3% -1.0% Free Cash Flow -9 3 1
FINANCIAL RATIOS 2020e 2021e 2022e CHART N° 54: SHAREHOLDERS Current Assets / Current Liabilities 1.98 2.38 1.09 Collection Period 83.7 74.6 66.4 10% Debt / Equity 0.46 0.49 0.55 International Power S.A. Net Debt / EBITDA 1.90 1.93 2.20 EBITDA / Financial Expenses 7.64 8.34 7.97 Pension Funds Payout Ratio 58.6% 68.9% 70.0% 28% Dividends per Share (USD) 0.102 0.108 0.127 62% Others ROE 8.2% 9.2% 8.8% ROA 5.0% 5.8% 5.4% ROIC 6.6% 7.3% 6.9%
VALUATION 2020e 2021e 2022e CHART N° 55: VENTAS POR PRODUCTO - 2020e EV / Sales 3.40 3.11 3.02 P / E 12.96 11.15 11.26 EV / EBIT 10.26 9.19 9.15 3% Energy EV / EBITDA 6.98 6.30 6.12 1.04 1.00 0.98 P / BV 34% Power MANAGEMENT 63% Hendrik De Buyserie CEO Others Marcelo Fernandes CFO Adriana Burneo IRO Source: Engie Energía Perú, SMV, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 37 Post-Pandemic Recovery
Marco Contreras Christian Choquecota Oil & Gas Industry Target Price Head of Research Analyst PEN 0.099 (511) 630 7528 (511) 630 7522 Refinería La Pampilla S.A.A. [email protected] [email protected] HOLD
Refinería La Pampilla S.A.A. (BVL: RELAPAC1) COVID-19 effect impacts fuel demand Target Price (PEN) 0.099 Rating Hold Kallpa Securities SAB updates its valuation of Refinería La Pampilla S.A.A. Market Capitalization (PEN MM) 590.66 (Relapasa), with a recommendation to hold. Our new 2021 year-end target price Market Price (PEN) 0.071 (TP) of PEN 0.099 is 39.4% above the PEN 0.071 market price, as of the closing Shares Outstanding (MM) 8,319.18 of January 4th, 2021. Upside 39.4% ADTV - LTM (PEN MM) 0.07 Fundamentals for 2021 Range 52 weeks 0.051 - 0.128 YTD Change 2.9% We expect the company's revenues to register a 49.2% contraction for Dividend Yield - LTM 0.0% 2020, given a lower price of Brent crude (-33.5%) and a lower volume of Trading BVL sold barrels (-37.0%). This, as a consequence of the COVID-19 pandemic, ADTV: Average Daily Traded Volume which has generated a global economic recession. For 2021 we project a
LTM: Last 12 Months rebound of 55.8%, due to a recovery in fuel demand, in line with a gradual
Exchange Rate USD/PEN: 3.45 reactivation of economic activities in the national and international market.
Source: Bloomberg, Kallpa SAB Nonetheless, we expect revenues to converge to pre-COVID-19 levels by the end of 2023.
Financial Ratios 2020e 2021e 2022e P / E n.s. 5.30 2.62 We estimate that the refining margin will close at USD / bbl 2.9 in 2020, to P / BV 0.32 0.29 0.26 subsequently reach USD / bbl 6.2 in 2021. We forecast that this margin will EV / EBITDA n.s. 7.73 5.91 increase in the coming years, as the company continues to produce Net Debt/EBITDA -46.36 6.17 4.68 residuals with low content of sulfur. EPS (USD) -0.010 0.004 0.007 ROE -15.5% 5.7% 10.6% Risks ROA -5.0% 1.8% 3.5% Source: SMV, Kallpa SAB Volatility of the price of crude oil. The company is affected because the refining margin does not adjust at the same time as the price of crude oil. Sensitivity Analysis Sudden changes in the price of crude oil or in refining margins at an WACC / g 0.5% 1.0% 1.5% 2.0% 2.5% international level can significantly affect the company. The trade war or 9.0% 0.125 0.139 0.155 0.173 0.193 disagreements from the OPEC countries could affect the price of crude. 9.5% 0.100 0.112 0.125 0.140 0.157 10.0% 0.078 0.088 0.099 0.112 0.126 Unexpected regulatory changes in the sector 10.5% 0.058 0.066 0.076 0.087 0.099 11.0% 0.039 0.047 0.056 0.065 0.075 High leverage Source: Kallpa SAB Valuation Chart N° 56: RELAPAC1 vs. PERU SELECT PEN Pts. We value Relapasa with a Free Cash Flow to the Firm (FCFF) model in a RELAPAC1 PERU SELECT 0.14 580 10-year horizon. We use a discount rate (WACC) of 10.0% and a perpetual 0.12 540 growth rate of 1.5%.
0.11 500 Recommendation 0.09 460
0.08 420 Despite the potential for appreciation, we consider that there are latent
0.06 380 risks that could negatively impact the development of business operations. In light of this, we reaffirm our recommendation to hold.
0.05 340
Jul-20
Apr-20 Oct-20
Jan-20 Jun-20 Jan-21
Mar-20
Feb-20
Nov-20 Dec-20
Aug-20 Sep-20 May-20 Source: Bloomberg
Peru Equity Guide 2021 38 Post-Pandemic Recovery
Relapasa: Financial Summary
INCOME STATEMENT (USD MM) 2020e 2021e 2022e BALANCE SHEET (USD MM) 2020e 2021e 2022e Net Sales 1,572 2,448 2,950 Cash and Cash Equivalents 26 25 23 Cost of Sales -1,549 -2,266 -2,721 Accounts Receivable 156 268 346 Gross Income 23 182 230 Inventory 277 273 291 Sales Expenses -67 -76 -82 Other Short Term Assets 39 39 39 Administrative Expenses -26 -28 -30 Current Assets 498 606 698 Other Income, Net 1 -1 -1 Fixed Assets, Net 946 937 937 Operating Income -69 77 117 Intangibles, Net 4 3 3 Financial Income 5 0 0 Other Long Term Assets 112 113 114 Financial Expenses -36 -41 -41 Non Current Assets 1,063 1,054 1,053 FX Gains (Losses) -1 - - Total Assets 1,561 1,659 1,751 Income from Subsidiary - 5 8 Short Term Debt 173 190 226 Income Before Taxes -101 41 84 Accounts Payable 130 186 231 Income Tax 17 -12 -25 Other Short Term Liabilities 19 19 19 Net Income -84 29 59 Current Liabilities 323 395 476 Shares Outstanding - Average (MM) 8,319 8,319 8,319 Long Term Debt 631 631 585 Earnings per Share - EPS (USD) -0.010 0.004 0.007 Other Long Term Liabilities 108 105 103 Depreciation and Amortization -53 -52 -51 Non Current Liabilities 739 736 689 EBITDA -17 129 169 Net Equity 499 528 587 Total Liabilities + Equity 1,561 1,659 1,751
MARGINS AND GROWTH (%) 2020e 2021e 2022e CASH FLOW (USD MM) 2020e 2021e 2022e Gross Margin 1.4% 7.4% 7.8% Net Income -84 29 59 Operating Margin -4.4% 3.1% 4.0% Depreciation and Amortization 53 52 51 EBITDA Margin -1.1% 5.3% 5.7% Changes in Working Capital 93 -53 -50 Net Margin -5.3% 1.2% 2.0% Others 37 41 41 Sales Growth -49.2% 55.8% 20.5% Operating Cash Flow 98 69 102 Operating Income Growth n.s. n.s. 51.9% Investment Cash Flow -30 -42 -51 EBITDA Growth n.s. n.s. 30.8% Financing Cash Flow -42 -28 -54 Net Income Growth n.s. n.s. 102.5% Free Cash Flow 26 -1 -3
FINANCIAL RATIOS 2020e 2021e 2022e CHART N° 57: SHAREHOLDERS Current Assets / Current Liabilities 1.54 1.53 1.47 Average Days of Inventory 65.33 44.00 39.00 8% Debt / Equity 1.61 1.55 1.38
Net Debt / EBITDA -46.36 6.17 4.68 Repsol Perú B.V. EBITDA / Financial Expenses -0.46 3.14 4.06 Payout ratio 0.0% 0.0% 0.0% Others Dividends per Share (USD) - - - ROE -15.5% 5.7% 10.6% ROA -5.0% 1.8% 3.5% 92% ROIC -3.6% 4.1% 6.0%
VALUATION 2020e 2021e 2022e CHART N° 58: SALES BY PRODUCT - 2020e EV / Sales 0.63 0.41 0.34 P / E n.s. 5.30 2.62 1% EV / EBIT n.s. 12.93 8.51 15% Destilates EV / EBITDA n.s. 7.73 5.91 P / BV 0.32 0.29 0.26 Gasolines
21% Residuals MANAGEMENT 63% Dante Blotte CFO Others Liliana Bazán IRO Source: Relapasa, SMV, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 39 Post-Pandemic Recovery
Marco Contreras Marco Alemán Mining Industry Target Price Head of Research Senior Analyst (511) 630 7528 (511) 630 7527 Compañía de Minas USD 14.00 [email protected] [email protected] Buenaventura S.A.A. HOLD
Buenaventura (BVL, NYSE: BVN) Favorable metal situation and uncertainty in production Target Price (USD) 14.00 Rating Hold Kallpa Securities SAB updates its valuation of Compañía de Minas Market Capitalization (USD MM) 3,408.64 Buenaventura S.A.A. (BVN), with a recommendation to hold. Our new 2021 Market Price (USD) 12.40 year-end target price (TP) of USD 14.00 is 12.9% above the USD 12.40 market Shares Outstanding (MM) 274.89 price, as of the closing of January 4th, 2021. Upside 12.9% Range 52 weeks 0.47 Fundamentals for 2021 YTD Change 6.10 - 14.95 ADTV - LTM (USD MM) 3.3% We estimate a 50.0% increase in sales for 2021, which will be boosted by Dividend Yield - LTM 0.0% higher production of gold, silver, copper and zinc from direct operations. Trading NYSE, BVL Likewise, a higher average price of these metals would be reported. ADTV: Average Daily Traded Volume LTM: Last 12 Months We expect the company to present a gold production cash cost of USD / Source: Bloomberg, Kallpa SAB Oz 900.0 and a silver cash cost of USD / Oz. 14.0. We also expect a greater impact from the De-Bottlenecking program. Financial Ratios 2020e 2021e 2022e P / E n.s. 25.30 18.66 We forecast a higher contribution from the associated companies in light of P / BV 1.20 1.14 1.07 the higher profits from Cerro Verde, given a higher copper price. EV / EBITDA 39.64 14.03 11.06 Net Debt/EBITDA 2.68 0.90 0.74 Risks EPS (USD) -0.25 0.53 0.72 ROE -1.5% 5.8% 7.2% Volatility in the prices of the metals that the company produces (gold, silver, ROA -1.1% 4.4% 5.6% copper and zinc). Source: SMV, Kallpa SAB Uncertainty in production levels given the lower grades in direct operations Sensitivity Analysis and the delay in the search for high grade zones and implementation of Cu / Au 1,200 1,300 1,400 1,500 1,600 efficiency programs. 2.50 10.48 11.15 11.81 12.46 13.10 2.75 11.59 12.25 12.92 13.56 14.20 Average mine life of own operations including reserves and resources of 3.00 12.68 13.34 14.00 14.65 15.29 five years, which increases uncertainty regarding the growth of the 3.25 13.76 14.42 15.09 15.73 16.37 company. However, the company's record track in renewing reserves and 3.50 14.83 15.50 16.16 16.81 17.45 resources is a critical factor in the future performance of mining operations.
Source: Kallpa SAB Valuation Chart N° 59: BVN vs. Gold Spot USD USD/Oz. We value Buenaventura using the Sum of Parts methodology considering BVN Gold Spot 16.0 2,100 the direct operations (WACC @ 9.8%) subsidiaries and associates. Each 14.0 1,960 part was valued using the methodology of Free Cash Flow to the Firm
12.0 (FCFF). 1,820 10.0 1,680 Recommendation 8.0
1,540 6.0 Given the above, we consider that the fundamentals are already
4.0 1,400 internalized in the stock price. Moreover, due to the limited upside and
uncertainty regarding its production levels, we reiterate our
Jul-20
Apr-20 Oct-20
Jan-20 Jun-20 Jan-21
Mar-20
Feb-20
Aug-20 Sep-20 Nov-20 Dec-20
May-20 recommendation to hold.
Source: Bloomberg
www.kallpasab.com Peru Equity Guide 2021 40 Post-Pandemic Recovery
Buenaventura: Financial Summary
INCOME STATEMENT (USD MM) 2020e 2021e 2022e BALANCE SHEET (USD MM) 2020e 2021e 2022e Net Sales 676 1,015 1,167 Cash and Cash Equivalents 304 309 316 Cost of Sales -616 -768 -848 Accounts Receivable 275 284 298 Gross Income 61 247 319 Inventory 166 178 197 Administrative and Sales Expenses -95 -112 -105 Other Short Term Assets 31 31 31 Exploration Expenses - Greenfield -33 -31 -30 Current Assets 777 803 842 Other Income, Net -18 8 8 Fixed Assets, Net 1,618 1,694 1,822 Operating Income -85 112 192 Other Long Term Assets 1,598 1,621 1,661 Financial Income, Net -20 -18 -14 Non Current Assets 3,216 3,315 3,484 FX Gains (Losses) - - - Total Assets 3,992 4,118 4,326 Stake in Associates 78 141 136 Short Term Debt 158 163 167 Income Before Taxes -26 235 314 Accounts Payable 38 25 13 Income Tax -22 -82 -110 Other Short Term Liabilities 68 68 68 Net Income -48 152 204 Current Liabilities 265 256 247 Minority Interest 15 18 21 Long Term Debt 443 430 443 Attributable to Buenaventura -63 135 183 Other Long Term Liabilities 222 222 222 Shares Outstanding - Average (MM) 254 254 254 Non Current Liabilities 665 652 665 Earnings per Share - EPS (USD) -0.25 0.53 0.72 Equity Attributable to Buenaventura 2,836 2,985 3,188 Depreciation and Amortization 195 201 205 Minority Interest 226 226 226 EBITDA (Exc. Associates) 111 313 397 Total Liabilities + Equity 3,992 4,118 4,326
MARGINS AND GROWTH (%) 2020e 2021e 2022e CASH FLOW (USD MM) 2020e 2021e 2022e Gross Margin 9.0% 24.3% 27.3% Net Income -53 152 204 Operating Margin -12.5% 11.0% 16.4% Depreciation and Amortization 195 201 205 EBITDA Margin 16.4% 30.9% 34.1% Changes in Working Capital -31 -35 -42 Net Margin -9.3% 13.3% 15.7% Others - - - Sales Growth -30.0% 50.0% 15.0% Operating Cash Flow 112 319 368 Operating Income Growth n.s. n.s. 71.5% Investment Cash Flow -105 -283 -355 EBITDA Growth -38.3% 182.5% 26.8% Financing Cash Flow -43 -31 -5 Net Income Growth n.s. n.s. 32.7% Free Cash Flow -36 5 7
FINANCIAL RATIOS 2020e 2021e 2022e CHART N° 60: SHAREHOLDERS Current Assets / Current Liabilities 2.93 3.14 3.40 Average Days of Inventory 42.02 44.89 48.24
Debt / Equity 0.20 0.18 0.18 27% Net Debt / EBITDA 2.68 0.90 0.74 Others EBITDA / Financial Expenses 3.13 8.84 11.22 Payout Ratio 27.9% 52.5% -13.1% Benavides Family Dividends per Share (USD) 0.08 0.08 0.08 ROE -1.5% 5.8% 7.2% 73% ROA -1.1% 4.4% 5.6% ROIC -0.1% 5.0% 6.2%
VALUATION 2020e 2021e 2022e CHART N° 61: TARGET PRICE BREAKDOWN EV / Sales 5.58 3.72 3.24 P / E n.s. 25.30 18.66 5% Cerro Verde EV / EBIT n.s. 33.76 19.68 12% EV / EBITDA 39.64 14.03 11.06 Direct P / BV 1.20 1.14 1.07 Operations 49% Yanacocha MANAGEMENT 34% Leandro García CEO Tantahuatay Daniel Dominguez CFO Rodrigo Echecopar Investor Relations Source: Buenaventura
www.kallpasab.com Peru Equity Guide 2021 41 Post-Pandemic Recovery
Marco Contreras Marco Alemán Mining Industry Target Price Head of Research Senior Analyst (511) 630 7528 (511) 630 7527 Sociedad Minera USD 24.70 [email protected] [email protected] Cerro Verde S.A.A. BUY
Cerro Verde (BVL: CVERDEC1) Attractive dividends for the next fiscal years Target Price (USD) 24.70 Rating Buy Kallpa Securities SAB updates its valuation of Sociedad Minera Cerro Verde Market Capitalization (USD MM) 7,351.18 S.A.A. (CVERDEC1), with a recommendation to buy. Our new 2021 year-end Market Price (USD) 21.00 target price (TP) of USD 24.70 is 17.6% above the USD 21.00 market price, as of Shares Outstanding (MM) 350.06 the closing of January 4th, 2021. Upside 17.6% Range 52 weeks 0.12 Fundamentals for 2021 YTD Change 13.00 - 21.50 ADTV - LTM (USD MM) 0.4% We project that revenues will present an increase of 39.9% in 2021 due to Dividend Yield - LTM 0.0% the increase in the average realized price of copper (+ 19.3%) and a higher Trading BVL volume sold (+ 19.8%). We expect the copper production level to rise to ADTV: Average Daily Traded Volume 450,000 MT. Likewise, we expect the copper price during 2021 to be USD
LTM: Last 12 Months 3.40 / Lb., above the 2020 average.
Source: Bloomberg, Kallpa SAB We expect Cerro Verde to remain in the first quartile of the copper Financial Ratios 2020e 2021e 2022e producer cost curve with a cash cost net of by-products of USD / Lb. 1.05 P / E 21.80 8.91 8.95 in 2021. P / BV 1.26 1.14 1.09 EV / EBITDA 6.97 4.03 4.08 We expect the unit's CAPEX (without considering the costs for clearing) to Net Debt/EBITDA 0.01 -0.30 -0.57 be at levels of USD 200 MM. EPS (USD) 0.94 2.30 2.29 ROE 6.0% 13.5% 12.4% Risks ROA 4.2% 10.0% 9.7% Source: SMV, Kallpa SAB Copper price volatility, given that it represents more than 90% of the company's sales Sensitivity Analysis COK / Cu 2.50 2.75 3.00 3.25 3.50 Increase in commercial discounts, which would affect the profitability of the 7.7% 20.95 24.08 27.11 30.06 32.99 company. We estimate an average commercial discount of 8.0% for the 8.2% 20.07 23.00 25.86 28.64 31.39 next 5 years for the sale of concentrates. 8.7% 19.23 22.00 24.70 27.31 29.90 9.2% 18.46 21.07 23.61 26.07 28.52 Valuation 9.7% 17.73 20.19 22.59 24.92 27.22 Source: Kallpa SAB We value Cerro Verde with a Free Cash Flow to the Firm (FCFF) model in a 25-year finite horizon. We use a discount rate (WACC) of 8.7%. Chart N° 62: CVERDEC1 vs. Copper Spot USD USD/Lb. Recommendation CVERDEC1 Copper Spot 23 3.8
21 3.5 We remain positive in copper companies due to the new international
20 3.3 outlook for the price of commodities, especially the price of copper,
18 3.0 because of the expected supply deficit at the global level for 2022. In
17 2.8 addition to the solid fundamentals in the price of copper, the company has an attractive generation of operating cash flows, which would lead to an 15 2.5 increase in the payment of dividends from 2022. In view of this, we reaffirm 14 2.3 our recommendation to buy.
12 2.0
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Source: Bloomberg
www.kallpasab.com Peru Equity Guide 2021 42 Post-Pandemic Recovery
Cerro Verde: Financial Summary
INCOME STATEMENT (USD MM) 2020e 2021e 2022e BALANCE SHEET (USD MM) 2020e 2021e 2022e Net Sales 2,485 3,475 3,433 Cash and Cash Equivalents 589 1,159 1,135 Cost of Sales -1,775 -1,965 -1,955 Accounts Receivable 465 574 548 Gross Income 709 1,511 1,478 Inventory 516 560 546 Sales Expenses -99 -116 -116 Other Short Term Assets 124 129 129 Other Operating Income -13 -30 -30 Current Assets 1,693 2,421 2,358 Operating Income 598 1,364 1,332 Fixed Assets, Net 5,552 5,447 5,321 Financial Income 5 9 17 Other Long Term Assets 516 534 522 Financial Expenses -85 -67 -52 Non Current Assets 6,068 5,981 5,842 FX Gain (Losses) 35 - - Total Assets 7,761 8,402 8,200 Income Before Taxes 552 1,306 1,298 Short Term Debt - 525 - Income Tax -223 -500 -496 Accounts Payable 170 194 198 Net Income 329 805 802 Other Short Term Liabilities 178 188 187 Shares Outstanding - Average (MM) 350 350 350 Current Liabilities 348 906 385 Earnings per Share - EPS (USD) 0.941 2.301 2.292 Long Term Debt 598 73 73 Depreciation and Amortization 484 508 516 Other Long Term Liabilities 1,137 1,137 1,137 EBITDA 1,082 1,873 1,848 Non Current Liabilities 1,734 1,209 1,209 Net Equity 5,679 6,286 6,606 Total Liabilities + Equity 7,761 8,402 8,200
MARGINS AND GROWTH (%) 2020e 2021e 2022e CASH FLOW (USD MM) 2020e 2021e 2022e Gross Margin 28.5% 43.5% 43.0% Net Income 329 805 802 Operating Margin 24.1% 39.3% 38.8% Depreciation and Amortization 484 508 516 EBITDA Margin 43.6% 53.9% 53.8% Changes in Working Capital -48 -142 55 Net Margin 13.3% 23.2% 23.4% Others 81 58 34 Sales Growth -14.0% 39.9% -1.2% Operating Cash Flow 847 1,231 1,407 Operating Income Growth -24.2% 128.2% -2.4% Investment Cash Flow -345 -404 -389 EBITDA Growth -17.5% 73.0% -1.3% Financing Cash Flow -394 -256 -1,042 Net Income Growth -15.6% 144.5% -0.4% Free Cash Flow 107 570 -24
FINANCIAL RATIOS 2020e 2021e 2022e CHART N° 63: SHAREHOLDERS Current Assets / Current Liabilities 4.87 2.67 6.12
Average Days of Inventory 106.00 104.00 102.00 6% Debt / Equity 0.11 0.10 0.01 Cyprus Climax Metals Company (Freeport) 20% Net Debt / EBITDA 0.01 -0.30 -0.57 SMM Cerro Verde Netherlands B.V. EBITDA / Financial Expenses 12.67 27.84 35.87 (Sumitomo) Payout Ratio 0.0% 60.0% 60.0% 53% Compañía de Minas Buenaventura Dividends per Share (USD) - 0.56 1.38 S.A.A. ROE 21% 6.0% 13.5% 12.4% Others ROA 4.2% 10.0% 9.7% ROIC 5.7% 12.8% 11.1%
VALUATION 2020e 2021e 2022e CHART N° 64: SALES BY PRODUCT EV / Sales 3.04 2.17 2.20
P / E 21.80 8.91 8.95 9% EV / EBIT 12.62 5.53 5.66 10% Copper Concentrates EV / EBITDA 6.97 4.03 4.08 P / BV 1.26 1.14 1.09 Copper Cathodes
Others (silver and molybdenum) MANAGEMENT Derek Cooke CEO 82% Rohn Householder Administration Manager Source: Cerro Verde, SMV, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 43 Post-Pandemic Recovery
Marco Contreras Mining Industry Target Price Head of Research (511) 630 7528 Nexa Resources Perú PEN 3.30 [email protected] S.A.A. HOLD
Nexa Resources Perú S.A.A. (BVL: NEXAPEC1) Profitability will return in 2021 Target Price (PEN) 3.30 Rating Hold Kallpa Securities SAB updates its valuation of Nexa Resources Perú S.A.A. Market Capitalization (PEN MM) 3,733.34 (CVERDEC1), with a recommendation to hold. Our new 2021 year-end target Market Price (PEN) 2.95 price (TP) of PEN 3.30 is 12.0% above the PEN 2.95 market price, as of the Shares Outstanding* (MM) 1,272.11 closing of January 4th, 2021. Upside 12.0% ADTV - LTM (PEN MM) 0.09 Fundamentals for 2021 Range 52 weeks 1.75 - 3.60 YTD Change 4.2% We estimate that in 2020 sales will decline 28.7%, due to the suspension Dividend Yield - LTM 0.0% and gradual resumption of operations suffered by the company, as a result Trading BVL of the State of Emergency. We expect the Atocha underground mine to remain suspended in the short term. (*) 1,257.7 MM common shares and 14.4 MM investment shares.
ADTV: Average Daily Traded Volume In 2021, we forecast a 43.4% increase in Nexa Peru's revenues, given the LTM: Last 12 Months recovery of production levels and the increase in the average prices of zinc, Source: Bloomberg, Kallpa SAB copper and silver.
Financial Ratios 2020e 2021e 2022e The company's EBITDA margin would go from 18.7% in 2020 to 32.4% in P / E n.s. 9.37 11.98 2021. This is due to the higher production levels that we expect this year P / BV 2.17 1.76 1.84 and to a favorable situation in metal prices. EV / EBITDA 10.29 3.98 4.60 Net Debt/EBITDA -0.30 -0.47 -0.59 Risks EPS (USD) -0.095 0.083 0.065 ROE -19.0% 20.8% 15.0% Volatility in the price of base metals such as zinc, copper and silver, where ROA -7.7% 7.4% 9.5% the company concentrates more than 85% of total sales. Source: SMV, Kallpa SAB More than 30% of our value is represented by company projects. The Sensitivity Analysis present value of the projects may vary due to delays, CAPEX variation, Cu / Zn 0.70 0.85 1.00 1.15 1.30 costs, among other factors. 2.50 1.79 2.31 2.83 3.32 3.83 2.75 2.04 2.56 3.06 3.57 4.08 Valuation 3.00 2.29 2.80 3.30 3.82 4.32 3.25 2.54 3.03 3.55 4.06 4.57 We value Nexa with a Free Cash Flow to the Firm (FCFF) model in a 10- 3.50 2.79 3.28 3.79 4.30 4.81 year finite horizon. We use a discount rate (WACC) of 9.3%. Source: Kallpa SAB Recommendation Chart N° 65: NEXAPEC1 vs. Zinc Spot PEN USD/Lb. We expect the company to benefit from better metal prices and maintain its 3.8 NEXAPEC1 Zinc Spot 1.4 cost efficiency. However, we believe that the fundamentals of the company 3.4 1.3 are already internalized in the stock price, for which our recommendation is 1.2 to hold. 3.0 1.1 2.6 1.0 2.2 0.9
1.8 0.8
1.4 0.7
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Source: Bloomberg
www.kallpasab.com Peru Equity Guide 2021 44 Post-Pandemic Recovery
Nexa Perú: Financial Summary
INCOME STATEMENT (USD MM) 2020e 2021e 2022e BALANCE SHEET (USD MM) 2020e 2021e 2022e Net Sales 531 772 743 Cash and Cash Equivalents 263 351 361 Cos of Sales -431 -504 -511 Accounts Receivable 204 265 224 Gross Income 100 268 232 Inventory 30 35 35 Amortization -26 -44 -45 Other Short Term Assets 59 60 61 Sales Expenses -3 -4 -4 Current Assets 556 711 681 Administrative Expenses -25 -34 -34 Fixed Assets, Net 300 312 321 Other Income, Net -111 -5 -6 Other Long Term Assets 274 272 270 Operating Income -65 181 144 Non Current Assets 573 584 592 Financial Income, Net -34 -11 -9 Total Assets 1,129 1,295 1,273 Income Before Taxes -99 170 135 Short Term Debt 9 10 230 Income Tax -22 -63 -51 Accounts Payable 115 147 155 Net Income -121 106 83 Other Short Term Liabilities 51 65 65 Minority Interest -24 - - Current Liabilities 174 222 450 Net Income Attributable to Nexa Perú -97 106 83 Long Term Debt 225 224 3 Shares Outstanding - Average (MM) 1,272 1,272 1,272 Other Long Term Liabilities 269 282 276 Earnings per Share - EPS (USD) -0.095 0.083 0.065 Non Current Liabilities 494 507 279 Depreciation and Amortization 69 69 72 Equity Attributable to Nexa Perú 458 565 541 EBITDA 99 250 216 Minority Interest 2 2 2 Total Liabilities + Equity 1,129 1,295 1,273
MARGINS AND GROWTH (%) 2020e 2021e 2022e CASH FLOW (USD MM) 2020e 2021e 2022e Gross Margin 18.9% 34.7% 31.3% Net Income -97 106 83 Operating Margin -12.1% 23.4% 19.4% Depreciation and Amortization 69 69 72 EBITDA Margin 18.7% 32.4% 29.1% Changes in Working Capital -48 -7 42 Net Margin -18.3% 13.8% 11.2% Others 54 11 9 Sales' Growth -28.7% 45.4% -3.8% Operating Cash Flow -22 180 207 Operating Income's Growth n.s. n.s. -20.5% Investment Cash Flow 48 -81 -81 EBITDA's Growth -35.9% 151.8% -13.6% Financing Cash Flow -176 -11 -116 Net Income's Growth n.s. n.s. -21.8% Free Cash Flow -150 88 10
FINANCIAL RATIOS 2020e 2021e 2022e CHART N° 66: SHAREHOLDERS Current Assets / Current Liabilities 3.19 3.21 1.51 Average Days of Inventory 25.00 25.00 25.00 8% Debt / Equity 0.51 0.41 0.43 12% Nexa Resources Net Debt / Equity -0.30 -0.47 -0.59 EBITDA / Financial Expenses 2.91 22.11 23.24 Pension Funds Dividends per Share (USD) - - 0.083
Payout Ratio 0.0% 0.0% 100.0% Others ROE -19.0% 20.8% 15.0% ROA -7.7% 7.4% 9.5% 80% ROIC -16.6% 25.7% 20.5%
VALUATION 2020e 2021e 2022e CHART N° 67: SALES BY MINING UNIT - 2021e EV / Sales 1.92 1.29 1.34 P / E n.s. 9.37 11.98 10% EV / EBIT n.s. 5.50 6.92 EV / EBITDA 10.29 3.98 4.60 Cerro Lindo P / BV 2.17 1.76 1.84 26% El Porvenir
MANAGEMENT 64% Ricardo Porto CEO Atacocha Claudia Torres CFO Henry Aragón IRO Source: Nexa Perú, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 45 Post-Pandemic Recovery
Marco Contreras Marco Alemán Mining Industry Target Price Head of Research Senior Analyst PEN 2.25 (511) 630 7528 (511) 630 7527 Minsur S.A. [email protected] [email protected] BUY
Minsur S.A. (BVL: MINSURI1) Mina Justa would be the main driver of growth Target Price (PEN) 2.25 Rating Buy Kallpa Securities SAB updates its valuation of Minsur S.A. (MINSURI1), with a Market Capitalization (PEN MM) 5,650.68 recommendation to buy. Our new 2021 year-end target price (TP) of PEN 2.25 is Market Price (PEN) 1.96 14.8% above the PEN 1.96 market price, as of the closing of January 4th, 2021. Shares Outstanding* (MM) 980.22 Upside 14.8% Fundamentals for 2021 ADTV - LTM (PEN MM) 0.71 Range 52 weeks 1.20 - 1.96 We expect a significant increase in revenues due to the following factors: i) YTD Change 5.9% the start of operations of Mina Justa, ii) higher sales volumes of tin Dividend Yield - LTM 0.0% (+14.7%) and gold (+25.7%); and, iii) higher average prices of tin and gold. Trading BVL The higher sales volumes would be the result of the low comparative base (*) 19.2 MM in common shares with a face value of PEN 100.0 in 2020, given the stoppage of operations due to COVID-19. and 960.9 MM in investment shares with a face value of PEN 1.0. ADTV: Average Daily Traded Volume We estimate that the company will produce 27,200 TMF of tin (including LTM: Last 12 Months B2) and 92,000 Oz. of gold in 2020. Likewise, we forecast that Mina Justa Source: Bloomberg, Kallpa SAB will start operations in 1H2021 and reach a production of 66,917 MT of copper in that year. Financial Ratios 2020e 2021e 2022e P / E n.s. 7.66 6.29 We project that the cash cost of San Rafael - Pisco will be USD / MT P / BV 1.26 1.11 1.00 8,600, the cash cost of Pucamarca will amount to USD / Oz. 460 and that EV / EBITDA 9.88 3.98 3.45 of Pitinga (considering the credit for by-products) at USD / MT 9,500. Net Debt/EBITDA 3.97 1.55 1.10 EPS (USD) -0.015 0.097 0.118 We estimate that the maintenance CAPEX in 2021 will be around USD 100 ROE -3.3% 14.5% 16.0% million. ROA -1.1% 5.0% 5.7% Source: SMV, Kallpa SAB Risks
Sensitivity Analysis Volatility in the price of tin and copper, metals that represent 43.0% and Cu / Sn 14,000 16,000 18,000 20,000 22,000 39.0% of the company's total sales for 2021, respectively. 2.50 1.33 1.60 1.84 2.07 2.30 2.75 1.58 1.82 2.05 2.28 2.51 Mina Justa execution risk. Likewise, changes in cost estimates, CAPEX 3.00 1.79 2.02 2.25 2.48 2.71 and time to start operations may affect future activities. 3.25 1.99 2.22 2.45 2.68 2.91 3.50 2.19 2.42 2.65 2.88 3.11 Valuation Source: Kallpa SAB We value Minsur with a Free Cash Flow to the Firm (FCFF) model in a 18- Chart N° 68: MINSURI1 vs. Tin Spot year finite horizon. We use a discount rate (WACC) of 9.3%. PEN USD/TM 2.0 MINSURI1 Tin Spot 21,000 Recommendation
1.8 19,500 When Mina Justa reaches full-capacity in 2022, Minsur's consolidated 18,000 1.6 sales revenue share will be 51%. We emphasize that these additional cash 16,500 1.4 flows will serve for the rapid deleveraging of the company. Given the 15,000 above, we reiterate our recommendation to buy. 1.2 13,500
1.0 12,000
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Source: Bloomberg
www.kallpasab.com Peru Equity Guide 2021 46 Post-Pandemic Recovery
Minsur: Financial Summary
INCOME STATEMENT (USD MM) 2020e 2021e 2022e BALANCE SHEET (USD MM) 2020e 2021e 2022e Net Sales 645 1,430 1,727 Cash and Cash Equivalents 218 262 364 Cost of Sales -424 -803 -980 Accounts Receivable 186 313 355 Gross Income 221 627 747 Inventory 105 176 215 Administrative Expenses -45 -79 -95 Other Short Term Assets 9 9 9 Sales Expenses -8 -14 -17 Current Assets 518 761 943 Other Income, Net -18 -36 -43 Fixed Assets, Net 1,880 1,912 1,888 Operating Income 150 499 591 Intangibles, Net 674 684 697 Financial Income, Net -57 -66 -66 Investments in Associates 252 252 252 Stake in Associates -2 4 6 Other Long Term Assets 338 502 592 FX Gain (Losses) -50 - - Non Current Assets 3,144 3,350 3,429 Other Income (Expenses), Net - - - Total Assets 3,661 4,110 4,372 Income Before Taxes 41 437 531 Short Term Debt 65 65 65 Income Tax -85 -152 -185 Accounts Payable 221 396 483 Net Income -44 284 347 Other Short Term Liabilities 71 71 71 Minority Interest -3 80 97 Current Liabilities 357 532 619 Net Attributable Income -40 205 250 Long Term Debt 1,192 1,207 1,122 Shares Outstanding - Average 980 980 980 Other Long Term Liabilities 358 366 381 Earnings per Share - EPS (USD) -0.015 0.097 0.118 Non Current Liabilities 1,550 1,573 1,503 Depreciation and Amortization 112 151 157 Equity Attributable to Minsur 1,243 1,415 1,563 EBITDA 262 650 749 Minority Interest 511 590 687 Total Liabilities + Equity 3,661 4,110 4,372
MARGINS AND GROWTH (%) 2020e 2021e 2022e CASH FLOW (USD MM) 2020e 2021e 2022e Gross Margin 34.2% 43.9% 43.2% Net Income -40 205 250 Operating Margin 23.2% 34.9% 34.2% Depreciation and Amortization 112 151 157 EBITDA Margin 40.6% 45.4% 43.4% Changes in Working Capital -98 -180 -68 Net Margin -6.3% 14.3% 14.5% Others 57 66 66 Sales Growth -9.4% 121.7% 20.8% Operating Cash Flow 31 242 405 Operating Income Growth -5.3% 233.2% 18.6% Investment Cash Flow -512 -193 -147 EBITDA Growth 5.7% 148.4% 15.3% Financing Cash Flow 243 -5 -156 Net Income Growth n.s. n.s. 21.9% Free Cash Flow -239 44 102
FINANCIAL RATIOS 2020e 2021e 2022e CHART N° 69: SHAREHOLDERS - MINSURI1 Current Assets / Current Liabilities 1.45 1.43 1.52 Average Days of Inventory 90.00 80.00 80.00 AFP Prima Debt / Equity 1.01 0.90 0.76 Net Debt / EBITDA 3.97 1.55 1.10 33% 36% AFP Integra EBITDA / Financial Expenses 3.80 8.86 10.50 0.0% -81.6% 50.0% Payout Ratio AFP Profuturo Dividends per Share (USD) - 0.010 0.031
ROE -3.3% 14.5% 16.0% Others 17% ROA -1.1% 5.0% 5.7% 14% ROIC 3.9% 12.2% 14.2%
VALUATION 2020e 2021e 2022e CHART N° 70: SALES BY METAL - 2021e EV / Sales 4.01 1.81 1.50
P / E n.s. 7.66 6.29 5% EV / EBIT 17.27 5.18 4.37 14% EV / EBITDA 9.88 3.98 3.45 Tin 42% P / BV 1.26 1.11 1.00 Copper
Gold MANAGEMENT Juan Kruger Sayán CEO Others 39% Joaquín Larrea Gubbins CFO Source: Minsur, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 47 Post-Pandemic Recovery
Marco Contreras Marco Alemán Mining Industry Target Price Head of Research Senior Analyst (511) 630 7528 (511) 630 7527 Southern Copper USD 44.00 [email protected] [email protected] Corporation SELL
Southern Copper (BVL, NYSE: SCCO) Attractive copper prices and expansion Target Price (USD) 44.00 Rating Sell Kallpa Securities SAB updates its valuation of Southern Copper Corp (SCCO), Market Capitalization (USD MM) 51,968.79 with a recommendation to sell. Our new 2021 year-end target price (TP) of USD Market Price (USD) 67.23 44.0 is 34.6% below the USD 67.23 market price, as of the closing of January 4th, Shares Outstanding (MM)* 773.00 2021. Upside -34.6% Range 52 weeks 0.09 Fundamentals for 2021 YTD Change 23.71 - 67.23 ADTV - LTM (USD 000') 2.0% We expect sales to register a growth of 17.6% in 2021, given an advance Dividend Yield - LTM 2.2% in the average price of copper (+21.0%). We highlight that the by-products Trading BVL, NYSE would present an increase to a lesser extent (silver +16.9% and zinc ADTV: Average Daily Traded Volume +16.6%). We expect copper sales volumes to reach 1.04 MM MT.
LTM: Last 12 Months Source: Bloomberg, Kallpa SAB We expect the company to remain in the first quartile of the copper producer cost curve. Cash cost net of by-products would be USD/Lb. 0.90 for 2021, below the USD/Lb. 0.94 that we expect for 2020. Financial Ratios 2020e 2021e 2022e P / E 31.79 21.15 23.72 We estimate that CAPEX for 2021 will amount to USD 1,362 MM, of which P / BV 6.97 6.03 5.88 USD 550 MM would correspond to maintaining the company's operations. EV / EBITDA 14.60 10.79 11.70 Net Debt/EBITDA 1.18 0.86 1.06 Risks EPS (USD) 2.07 3.12 2.78 ROE 22.7% 30.7% 25.2% Copper price volatility, since it represents more than 80% of the company's ROA 9.8% 14.2% 12.3% sales. Source: Southern Copper, Kallpa SAB Political risk and social conflicts can affect operations and projects in Peru Sensitivity Analysis and Mexico. WACC / Cu 2.50 2.75 3.00 3.25 3.50 8.4% 38.81 45.73 52.64 59.56 66.48 Suspension of operations in the face of a new wave of COVID-19 8.9% 35.41 41.71 48.01 54.30 60.60 infections. 9.4% 32.48 38.24 44.00 49.76 55.53 9.9% 29.93 35.22 40.52 45.82 51.11 Valuation 10.4% 27.69 32.58 37.47 42.36 47.24 Source: Kallpa SAB We value Southern Copper with a Free Cash Flow to the Firm (FCFF) model in a 30-year horizon. We use a discount rate (WACC) of 9.4%. Chart Nº 71: SCCO vs. Copper Spot USD USD/Lb. Recommendation 68 SCCO Copper Spot 4.0
60 3.6 We highlight the company's expansion plans towards the medium-long
52 term, as well as the expected efficiency in these projects. We believe that 3.2 the market price far exceeded the fundamentals that we expose for the 44 2.8 company, so our recommendation is to sell. 36
2.4 28
20 2.0
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Source: Bloomberg
www.kallpasab.com Peru Equity Guide 2021 48 Post-Pandemic Recovery
Southern Copper: Financial Summary
INCOME STATEMENT (USD MM) 2020e 2021e 2022e BALANCE SHEET (USD MM) 2020e 2021e 2022e Net Sales 7,773 9,139 8,711 Cash and Cash Equivalents 2,024 2,063 1,173 Cost of Sales -4,590 -4,583 -4,604 Short Term Investments 81 81 81 Gross Income 3,183 4,556 4,107 Accounts Receivable 1,001 1,177 1,122 SG&A Expenses -132 -164 -157 Inventory 981 979 984 Exploration Expenses -31 -37 -35 Other Short Term Assets 287 338 322 Operating Income 3,020 4,355 3,915 Current Assets 4,373 4,638 3,681 Financial Income, Net -344 -331 -327 Fixed Assets, net 9,125 9,722 10,606 Other Income, Net -15 -17 -16 Other Long Term Assets 2,982 3,254 3,172 Income Before Taxes 2,662 4,006 3,572 Non Current Assets 12,106 12,976 13,778 Income Tax -1,065 -1,603 -1,429 Total Assets 16,480 17,613 17,460 Net Income 1,597 2,404 2,143 Short Term Debt 200 200 - Result. By affiliates, net of taxes 12 12 12 Accounts Payable 566 565 568 Results for Minority Interest 7 8 7 Other Short Term Liabilities 502 501 503 Net Income Attributable to SCCO 1,603 2,408 2,148 Current Liabilities 1,267 1,266 1,070 Shares Outstanding - Average (MM) 773 773 773 Long Term Debt 6,363 6,364 6,265 Earnings per Share - EPS (USD) 2.07 3.12 2.78 Other Long Term Liabilities 1,542 1,542 1,455 Depreciation and Amortization 768 770 811 Non Current Liabilities 7,905 7,906 7,720 EBITDA 3,788 5,125 4,726 Net Equity 7,308 8,441 8,670 Total Liabilities + Equity 16,480 17,613 17,460
MARGINS AND GROWTH (%) 2020e 2021e 2022e CASH FLOW (USD MM) 2020e 2021e 2022e Gross Margin 41.0% 49.9% 47.1% Net Income 1,603 2,408 2,148 Operating Margin 38.9% 47.7% 44.9% Depreciation and Amortization 768 770 811 EBITDA Margin 48.7% 56.1% 54.3% Changes in Working Capital -221 -496 67 Net Margin 20.5% 26.3% 24.6% Others 344 331 327 Sales' Growth 6.7% 17.6% -4.7% Operating Cash Flow 2,494 3,013 3,353 Operating Income's Growth 9.7% 44.2% -10.1% Investment Cash Flow -520 -1,370 -1,698 EBITDA's Growth 7.7% 35.3% -7.8% Financing Cash Flow -1,875 -1,604 -2,545 Net Income's Growth 7.9% 50.3% -10.8% Free Cash Flow 98 39 -890
FINANCIAL RATIOS 2020e 2021e 2022e CHART N° 72: SHAREHOLDERS Current Assets / Current Liabilities 3.45 3.66 3.44 Average Days of Inventory 81.49 78.06 77.82 Debt / Equity 0.90 0.78 0.72 11%
Net Debt / EBITDA 1.18 0.86 1.06 Grupo México S.A.B. EBITDA / Financial Expenses 11.03 15.48 14.46 Others Payout Ratio 78.0% 80.0% 80.0% Dividends per Share (USD) 1.50 2.22 1.43 ROE 22.7% 30.7% 25.2% ROA 9.8% 14.2% 12.3% 89% ROIC 30.6% 42.2% 36.6%
VALUATION 2020e 2021e 2022e CHART N° 73: SALES BY METAL EV / Sales 7.12 6.05 6.35
P / E 31.79 21.15 23.72 3% 2% 6% Copper EV / EBIT 18.31 12.70 14.13 5% EV / EBITDA 14.60 10.79 11.70 Molybdenum P / BV 6.97 6.03 5.88 Silver
MANAGEMENT Zinc Óscar González CEO Raúl Jacob CFO 84% Others Víctor Pedraglio Financial Planning Manager Source: Southern Copper Corporation
www.kallpasab.com Peru Equity Guide 2021 49 Post-Pandemic Recovery
Marco Contreras Mining Industry Target Price Head of Research (511) 630 7528 USD 0.278 [email protected] Trevali Mining Corp. HOLD
Trevali Mining Corp. (BVL, TSX: TV) Latest placement and high zinc price reduce financial stress Target Price (USD) 0.278 Rating Hold Kallpa Securities SAB updates its valuation of Trevali Mining Corp (TV), with a Market Capitalization (USD MM) 157.27 recommendation to hold. Our new 2021 year-end target price (TP) of USD 0.278 Market Price (USD) 0.159 is 74.8% above the USD 0.159 market price, as of the closing of January 4th, Shares Outstanding (MM) 989.09 2021. Upside 74.8% ADTV - LTM (USD MM) 0.04 Fundamentals for 2021 Range 52 weeks 0.05 - 0.20 YTD Change 8.2% We expect sales to decline 45.2% in 2020, due to the suspension of Dividend Yield - LTM 0.0% operations of Caribou, the temporary suspension of Santander and delays Trading TSX, BVL in the delivery of ore in the African mines. We estimate that in 2021 ADTV: Average Daily Traded Volume revenues will rise by 29.6%, given the higher price of zinc.
LTM: Last 12 Months Source: Bloomberg, Kallpa SAB We believe that the company will be able to complete its T90 efficiency plan and achieve an AISC of USD / Lb. 0.90 in 2021, which will allow it to Financial Ratios 2020e 2021e 2022e obtain better margins. P / E n.s. 5.09 9.24 P / BV 0.49 0.45 0.43 After the difficulties it faced in the first months of the pandemic, Trevali EV / EBITDA 10.16 2.65 3.31 would close 2020 with stable liquidity and solvency levels, given the Net Debt/EBITDA 2.31 0.25 -0.14 renegotiation obtained on its credit line and the funds collected in the EPS (USD) -0.221 0.029 0.016 placement of shares for CAD 34.5 MM. ROE -49.3% 9.6% 4.9% ROA -26.8% 4.8% 2.7% Risks Source: SMV, Kallpa SAB Volatility in the price of zinc, where more than 80% of the company's Sensitivity Analysis income comes from. WACC / Zn 0.70 0.85 1.00 1.15 1.30 10.7% 0.210 0.251 0.292 0.334 0.375 42% of our target price corresponds to projects. Delays in their execution, 11.7% 0.208 0.246 0.285 0.323 0.362 changes in the investment required or in the financing conditions could 12.7% 0.206 0.242 0.278 0.314 0.350 affect future profits. 13.7% 0.204 0.238 0.271 0.305 0.339 14.7% 0.202 0.234 0.265 0.297 0.328 Valuation Source: Kallpa SAB We value Trevali Mining Corp with a Free Cash Flow to the Firm (FCFF) model in an 18-year finite horizon. We use a discount rate (WACC) of Chart N° 74: TV vs. Zinc Spot 12.7%. USD USD/Lb. TV Zinc Spot 0.22 1.4 Recommendation 1.3 0.18 1.2 We highlight the efforts made to reduce leverage. With the current price of 0.14 1.1 zinc above USD/Lb. 1.20 the company should report a notable improvement in earnings and should no longer have solvency problems in 0.10 1.0 0.9 the short term. Despite the high potential for appreciation, our 0.06 recommendation is to hold, as we expect the T90 program to materialize 0.8 on a sustained basis and for the company to continue to reduce debt. We
0.02 0.7 emphasize that Trevali is a very high-risk investment.
Jul-20
Oct-20
Apr-20
Jan-20 Jun-20 Jan-21
Feb-20 Mar-20
Aug-20 Sep-20 Nov-20 Dec-20 May-20 Source: Bloomberg
www.kallpasab.com Peru Equity Guide 2021 50 Post-Pandemic Recovery
Trevali: Financial Summary
INCOME STATEMENT (USD MM) 2020e 2021e 2022e BALANCE SHEET (USD MM) 2020e 2021e 2022e Net Sales 211.6 274.4 251.9 Cash and Cash Equivalents 52.3 50.5 50.3 Cost of Sales -226.8 -217.0 -216.4 Accounts Receivable 52.2 52.6 41.4 Gross Income -15.2 57.3 35.6 Inventory 40.4 37.5 37.3 General and Administrative Expenses -9.4 -5.3 -5.3 Other Short Term Assets 2.9 2.4 2.4 Other Expenses, Net - - - Current Assets 147.8 143.0 131.5 Operating Income -24.6 52.1 30.3 Fixed Assets, Net 405.7 393.7 380.9 Financial Income, Net -9.8 -8.1 -4.9 Exploration and Evaluation Assets 28.3 28.3 28.3 Other Income, Net -158.5 1.0 1.0 Other Long Term Assets 20.4 20.1 19.2 Income Before Taxes -192.9 44.9 26.4 Non Current Assets 454.4 442.1 428.4 Income Tax 7.0 -15.5 -10.2 Total Assets 602.2 585.1 559.9 Net Income -185.9 29.4 16.2 Short Term Debt 38.3 38.3 38.3 Minority Interest -5.5 0.9 0.5 Accounts Payable 52.9 44.7 41.6 Net Income Attributable to Trevali -180.4 28.6 15.7 Current Liabilities 91.2 83.0 79.9 Shares Outstanding - Average (MM) 818.1 989.1 989.1 Long Term Debt 76.7 38.3 - Earnings per Share - EPS (USD) -0.221 0.029 0.016 Other Long Term Liabilities 150.4 150.4 150.4 Depreciation and Amortization 51.7 52.0 52.7 Non Current Liabilities 227.1 188.8 150.4 EBITDA 27.1 104.1 83.0 Equity Attributable to Trevali 296.4 324.9 340.7 Minority Interest -12.5 -11.6 -11.1 Total Liabilities + Equity 602.2 585.1 559.9
MARGINS AND GROWTH (%) 2020e 2021e 2022e CASH FLOW (USD MM) 2020e 2021e 2022e Gross Margin -7.2% 20.9% 14.1% Net Income -180.4 28.6 15.7 Operating Margin -11.6% 19.0% 12.0% Depreciation and Amortization 51.7 52.0 52.7 EBITDA Margin 12.8% 37.9% 33.0% Changes in Working Capital -5.7 -4.9 9.1 Net Margin -85.2% 10.4% 6.2% Others 9.8 8.1 4.9 Sales' Growth -45.2% 29.6% -8.2% Operating Cash Flow -124.6 83.8 82.5 Operating Income's Growth n.s. n.s. -41.8% Investment Cash Flow 110.0 -40.0 -40.0 EBITDA's Growth -74.7% 284.3% -20.2% Financing Cash Flow 42.5 -45.6 -42.7 Net Income's Growth n.s. n.s. -44.9% Free Cash Flow 27.9 -1.8 -0.2
FINANCIAL RATIOS 2020e 2021e 2022e CHART N° 75: SHAREHOLDERS Current Assets / Current Liabilities 1.62 1.72 1.65 Average Days of Inventory 65.00 63.00 63.00 Debt / Equity 0.39 0.24 0.11 Institutional Investors Net Debt / EBITDA 2.31 0.25 -0.14 33% 35%
EBITDA / Financial Expenses 2.77 12.77 16.99 Glencore PLC Payout ratio 0.0% 0.0% 0.0% Dividends per Share (USD) - - - Blackrock ROE -49.3% 9.6% 4.9% 6% Others ROA -26.8% 4.8% 2.7% 26% ROIC -5.6% 9.9% 5.7%
VALUATION 2020e 2021e 2022e CHART N° 76: SALES BY MINE - 2021e EV / Sales 1.30 1.00 1.09 P / E n.s. 5.09 9.24 EV / EBIT n.s. 5.29 9.08 25% Perkoa EV / EBITDA 10.16 2.65 3.31 P / BV 0.49 0.45 0.43 47% Rosh Pinah
MANAGEMENT Ricus Grimbeek CEO Santander 28% Brendan Creaney CFO Source: Trevali, Kallpa SAB
www.kallpasab.com Peru Equity Guide 2021 51 Post-Pandemic Recovery
Marco Contreras Mining Industry Target Price Head of Research (511) 630 7528 Volcan Compañía Minera PEN 0.55 [email protected] S.A.A. HOLD
Volcan Cia Minera (BVL: VOLCABC1) Waiting for debt refinancing Target Price (PEN) 0.55 Rating Hold Kallpa Securities SAB updates its valuation of Volcan Cía Minera S.A.A. Market Capitalization (PEN MM) 6,048.59 (VOLCABC1), with a recommendation to hold. Our new 2021 year-end target Market Price (PEN) 0.55 price (TP) of PEN 0.55 is in line with the PEN 0.55 market price, as of the closing Shares Outstanding (MM)* 3,858.68 of January 4th, 2021. Upside 0.0% ADTV - LTM (PEN MM) 1.04 Fundamentals for 2021 Range 52 weeks 0.25 - 0.59 YTD Change 5.8% We expect a 23.4% drop in sales for 2020, due to lower production, as a Dividend Yield - LTM 0.0% consequence of lower activity in the first months of the State of Emergency. Trading BVL In 2021, revenues would have a strong rebound of 35.2%. Although we do (*) Includes 1,427 MM type A shares not expect production to recover 100% from the pre-pandemic level, better
ADTV: Average Daily Traded Volume silver and zinc prices would benefit results this year.
LTM: Last 12 Months Source: Bloomberg, Kallpa SAB In 2021, the EBITDA margin would exceed 40%, also due to better metals prices and higher operating efficiencies.
Financial Ratios 2020e 2021e 2022e With a more favorable price situation, indebtedness should be reduced until P / E n.s. 22.51 26.32 reaching a net debt / EBITDA ratio of 2.2x in 2021. However, debt P / BV 3.24 2.83 2.56 refinancing will be key this year, since more than USD 800 MM of debt will EV / EBITDA 15.53 7.67 8.00 mature in early 2022. We expect the company to issue new debt and also Net Debt/EBITDA 4.43 2.20 2.13 to obtain new funds from the sale of non-strategic assets. EPS (USD) -0.013 0.019 0.017 ROE -6.5% 13.7% 10.6% Risks ROA -1.7% 3.7% 3.2% Source: SMV, Kallpa SAB Volatility in the price of zinc and silver, metals that represent more than 80% of Volcan's sales. Sensitivity Analysis Ag / Zn 0.70 0.85 1.00 1.15 1.30 Refinancing risk. Changes in market conditions could result in the company 14.00 0.22 0.34 0.45 0.57 0.68 not being able to refinance its debt on favorable terms. 16.00 0.27 0.38 0.50 0.62 0.74 18.00 0.36 0.44 0.55 0.67 0.79 Portfolio of projects that are still in early stages of development. Production 20.00 0.35 0.49 0.60 0.72 0.84 growth (excluding Romina) in the medium term will depend on positive 22.00 0.42 0.54 0.66 0.77 0.89 exploration results.
Source: Kallpa SAB Valuation Chart Nº 77: VOLCABC1 vs. Zinc Spot PEN USD/Lb. We value Volcan with a Free Cash Flow to the Firm (FCFF) model in a 16- VOLCABC1 Zinc Spot 0.60 1.40 year finite horizon. We use a discount rate (WACC) of 9.0%. 0.55 1.30 0.50 1.20 Recommendation 0.45 1.10 0.40 1.00 The increase in metal prices and the expectation of a strong increase in 0.35 0.90 profits in 2021 are the main drivers of value for the company. We expect 0.30 that leverage will be reduced and that with the sale of non-strategic assets 0.25 0.80 the company will be able to refinance its debt in the short term. However, 0.20 0.70
we see that these factors are already internalized in the stock price,
Jul-20 Oct-20
Apr-20 considering that it has had a rise of more than 30% in the last 3 months.
Jan-20 Jun-20 Jan-21
Feb-20 Mar-20
Aug-20 Sep-20 Nov-20 Dec-20 May-20 Source: Bloomberg Therefore, our recommendation is to hold.
www.kallpasab.com Peru Equity Guide 2021 52 Post-Pandemic Recovery
Volcan: Financial Summary
INCOME STATEMENT (USD MM) 2020e 2021e 2022e BALANCE SHEET (USD MM) 2020e 2021e 2022e Net Sales 569 770 784 Cash and Cash Equivalents 131 116 60 Cost of Sales -433 -522 -546 Accounts Receivable 25 38 43 Gross Income 136 248 238 Inventory 47 57 60 Sales Expenses -17 -20 -21 Other Short Term Assets 99 132 145 Administrative Expenses -39 -49 -51 Current Assets 302 343 308 Other Operating Income, Net -62 -12 -13 Fixed Assets, Net 800 787 777 Impairment of Non-Financial Assets - - - Intangibles, Net 774 782 791 Operating Income 18 167 154 Other Long Term Assets 211 215 217 Financial Income 2 1 1 Non Current Assets 1,785 1,784 1,784 Financial Expenses -53 -49 -52 Total Assets 2,087 2,128 2,092 FX Gain (Loss) -5 - - Short Term Debt 75 871 167 Income Before Taxes -38 118 102 Accounts Payable 160 179 187 Income Tax -14 -44 -38 Other Short Term Liabilities 113 118 113 Net Income -52 75 64 Current Liabilities 347 1,168 467 Shares Outstanding - Average (MM) 3,858 3,858 3,858 Long Term Debt 858 4 605 Earnings per Share - EPS (USD) -0.013 0.019 0.017 Other Long Term Liabilities 362 362 362 Depreciation and Amortization 145 164 163 Non Current Liabilities 1,221 366 967 EBITDA 163 330 316 Net Equity 519 594 657 Total Liabilities + Equity 2,087 2,128 2,092
MARGINS AND GROWTH (%) 2020e 2021e 2022e CASH FLOW (USD MM) 2020e 2021e 2022e Gross Margin 23.9% 32.2% 30.4% Net Income -52 75 64 Operating Margin 3.2% 21.7% 19.6% Depreciation and Amortization 145 164 163 EBITDA Margin 28.6% 42.9% 40.4% Changes in Working Capital -42 -32 -17 Net Margin -9.1% 9.7% 8.1% Others 97 46 51 Sales Growth -23.4% 35.2% 1.8% Operating Cash Flow 149 252 261 Operating Income Growth -36.4% 817.1% -7.9% Investment Cash Flow -119 -161 -162 EBITDA Growth -29.1% 102.6% -4.2% Financing Cash Flow 68 -106 -155 Net Income Growth n.s. n.s. -14.5% Free Cash Flow 97 -15 -56
FINANCIAL RATIOS 2020e 2021e 2022e CHART N° 78: SHAREHOLDERS - VOLCAAC1 Current Assets / Current Liabilities 0.91 0.31 0.71 Glencore International Average Days of Inventory 40.0 40.0 40.0 11% Debt / Equity 1.74 1.43 1.13 Empresa Minera Paragsha 8% Net Debt / EBITDA 4.43 2.20 2.13 José Ignacio de Romaña Letts EBITDA / Financial Expenses 3.38 6.87 6.18 42% 8% Irene Florencia Letts Payout Ratio 0.0% 0.0% 0.0% Colmenares Dividends per Share (USD) - - - Blue Streak International 10% ROE -6.5% 13.7% 10.6% Sandown Resources ROA -1.7% 3.7% 3.2% 10% Others 11% ROIC 1.6% 6.6% 6.6%
VALUATION 2020e 2021e 2022e CHART N° 79: TARGET PRICE BREAKDOWN EV / Sales 4.45 3.29 3.23 P / E n.s. 22.51 26.32 EV / EBIT 139.29 15.19 16.49 Mining Operations 22% EV / EBITDA 15.53 7.67 8.00 3.24 2.83 2.56 P / BV Mining Projects
6% 50% MANAGEMENT Cemento Polpaico Juan Ignacio Rosado CEO Jorge Murillo CFO 22% Source: Volcan, SMV, Kallpa SAB Chancay Port
www.kallpasab.com Peru Equity Guide 2021 53 Post-Pandemic Recovery
Appendix – Disclaimer
Analyst certification
The analyst that prepared this report hereby certifies that: i) the opinions and views expressed in this valuation report, in regard with the issuer and with the company’s overview, reflected his/her personal opinion and ii) No part of his/her salary compensation was, is or will be related directly or indirectly to the recommendations expressed in this report.
The economic compensation of the analyst that prepared this report is based in several factors, including but not limited to Kallpa Securities SAB’s profitability and the profits generated by its different areas, including investment banking. In addition, the analyst does not receive any kind of economic compensation from the companies he/she covers.
This valuation report was prepared by Kallpa Securities SAB’s employees that maintain the position of Analyst. Persons involved in the elaboration of this report are authorized to maintain shares.
Share prices in this report are based on market prices as of closing of the day prior to the publication of this report, unless it is strictly stated.
General statement
This document is for informative purposes only. Under no circumstances it should be used / be considered as an offer of sale or an application of purchase of shares or any other securities mentioned in this document. The information herein has been obtained from sources which are believed to be reliable, but Kallpa Securities SAB does not guarantee the trustfulness or accuracy of the content of this report, or the future market values of shares or other securities mentioned in this document. The views and opinions expressed in this document constitute our opinion at the time of this report and are subject to change without any notice. Kallpa Securities SAB does not guarantee analysis updates before any change in the circumstances of the market. The products referred in this document may not be available for purchase in some countries.
Kallpa Securities SAB has reasonably designed policies to prevent or to control the exchange of non-public information used by areas such Research and Investment, Capital Markets, among others.
Definition of qualification ranges
Kallpa Securities SAB has 4 qualification ranges: Buy +, Buy, Hold and Sell. The analyst will assign the coverage one of these ranges.
Recommendation Upside Buy + > +30% Buy +15% - +30% Hold -15% - +15% Sell < -15% Under Review (U.R.) -
The range assigned to each company covered by the analyst in these reports is based on the analysis/monitoring Kallpa Securities SAB has been developing for the company. In some cases, the analyst can express his/her short-term points of view to traders, vendors and some Kallpa Securities SAB’s clients but this point of view may differ in time by market volatility and other factors.
The fair value calculated by Kallpa SAB is based in one or more valuation methodologies commonly used by financial analysts, including but not limited to discounted cash flows, In Situ valuations or any other applicable methodology. It should be noted that the publication of a fair value does not imply any guarantee that the value will be achieved.
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