Special Report Top Picks for 1Q20 – The perfect Mix: Value and Return Economic, Industry and Market Research November 18th, 2019 The Perfect Mix: Value and Analistas Jairo Julián Agudelo Restrepo Head of Equity Research jjagudel@.com.co return (+57) 1 640 7048

We’re updating our Top Picks for 1Q20, in which we expect a positive David Aldana performance of the Colombian stock market despite the risks at the international Head of Strategy [email protected] level. (+57) 1 746 3967

First, we believe that over the next year will continue to be one of the most dynamic economies in . Based on the advance of domestic demand, particularly household consumption and private investment, we expect the productive activity to expand again above 3% in 2020.

One of the biggest catalysts of the index is how cheaper it looks compared to the region. The expected RPG multiple shows a discount with respect to the Figure 1: Top Picks region of 13% and of 7% against the historical average of the last 3 years.

Although the local outlook is favorable, in terms of limits for shareholding there is some depletion in some local funds in assets such as , GEB; 20% Cementos Argos, Celsia and Grupo Sura. In addition there’s a possible ; 30% rebalancing of international indices that may also affect the liquidity of certain assets. Cementos Argos; COLCAP: One-Digit Return Expected for the Index in 2020 Grupo 25% Nutresa; Our strategy team expects the COLCAP to gain 8%, reaching 1,790 points at 25% the end of the year. Much of this upside potential is explained by the fundamental model, the most optimistic, and by the relative valuation model, Source: Grupo Bancolombia. which shows a growth in profits in companies, in addition to the sentiment model, although it is the most conservative it recorded a change from previous projections.

Our Top Picks

According to our asset selection methodology that weighs four variables: i) fundamental, ii) momentum, iii) liquidity, and iv) feeling, the four stocks that got the best score to be our Top Picks are: , Ecopetrol, GEB y Cementos Argos.

We excluded Celsia and Canacol, which closed above the 3.5 rating limit, because of the four-stock limit in our selection.

Track Record of our Top Picks

During 4Q19 (since August 27) our top picks portfolio lagged behind the COLCAP index by 69 , and by 246 bps vs. our recommended basket (excluding Bancolombia and Grupo Sura for being related parties). since inception, our top picks have lagged behind the COLCAP index by 257 bps but have outperformed our recommended basket by 50 bps. Despite Headwinds Colombia Will Continue Expanding in 2020 We believe that over the next year Colombia will continue to be one of the most dynamic economies in Latin America. Based on the advance of domestic demand, particularly household consumption and private investment, we expect the productive activity to expand again above 3% in 2020.

However, this dynamism will occur in a challenging global context for the emerging world, greater inflationary pressures, high current account deficits, and fiscal challenges. Therefore, 2020 will be a year in which opportunities arising from satisfactory growth should be combined with efficient risk management and measures aimed at strengthening the country's macroeconomic stability.

International Context

Global growth projections continue to be cut for next year. These revisions, for both developed and emerging economies, will imply that in 2020 Colombia's business partners will grow at an estimated rate of 1.5%, a 4-year low.

Despite this, we believe the US will avoid entering into a recession in the short term, due to the resilience of private consumption. There'll also be a contribution from the fact that the FED will continue to cut its reference rate in the remainder of this year and the next one.

Regarding oil, we consider that the average price of the Brent in 2020 will stand at USD60, below the historical average, since abundant supply and weak demand will prevail. This behavior, added to the expectation for the other commodities, will lead to a contraction of 5% in the terms of trade of our country.

Real Variables

We believe that at the moment Colombia is approaching peak growth in the current recovery cycle, because the momentum that will continue coming from domestic demand will be partially reversed by global headwinds. Thus, in our baseline scenario the variation in GDP will go from 3.2% in 2019 to 3.3% in 2020.

Domestic consumption will continue to expand in 2020, since we expect the real income of households to remain stable and financing conditions to remain favorable. On the other hand, productive investment has room for growth, although tax uncertainty may limit its progress.

Regarding sector performance for next year, we highlight that manufacturing and construction will accelerate, while activities dedicated to serving the local market, such as retail, the financial sector and services, will again record the highest growth. The boost coming from the execution of civil works will also be relevant.

In the labor market, we anticipate that unemployment will continue to increase until the end of this year, and that from 2020 it will tend to converge to historical parameters. This implies that the average urban unemployment rate would decrease from 11.2% in 2019 to 10.9% in 2020.

Regarding public finances, we anticipate that the positive performance of collection and control of expenses so far this year will allow meeting the deficit target for the National Government in 2019.

However, the outlook for 2020 will be challenging, due to a possible reduction in net collection, emerging from the tax benefits granted to companies. In this regard, our baseline scenario contemplates that the bill that replacing the tax reform will be approved before the end of this year without major modifications.

Finally, our outlook points to the fact that, on account of persistent risks, the fiscal adjustment path for the coming years will be softened. Despite Headwinds Colombia Will Continue Expanding in 2020 External Sector and Exchange Rate

We project that Colombia's trade deficit will expand to USD11,700 mn this year and to USD13,400 mn the next one, as a result of weakness in exports and a growth close to 5% in imports. Consequently, we expect the current account imbalance to accentuate, reaching 4.5% of GDP in 2020. However, we estimate that in the following years the external deficit will be slightly corrected, due to the adjustment in excess spending of the public sector.

As a result of a more deficient external position and international headwinds, a significant recovery of the COP against the USD is unlikely. Indeed, we believe that in the short term the upward pressures on the exchange rate will continue in force. Thus, the average exchange rate for this year would be COP3,280 and the next one COP3,310, for a nominal depreciation of 10.9% and 0.9%, respectively.

Inflation and Interest Rates

In our opinion, the balance of inflation risks for the coming months is biased upwards. Consequently, we project that average annual inflation will increase from 3.5% in 2019 to 3.8% in 2020. It is also worth noting that in 1Q20 we predict that the 12-month variation of CPI will exceed 4%.

The bullish forces that will predominate in the near future will be the transfer of currency depreciation, the pressure that indexation mechanisms and the increase in the minimum wage can generate, and shocks that can affect tariffs of utilities.

As a result, and contrary to the prevailing global trend, our monetary policy outlook contemplates a 25- increase in the repo rate in 2020, to 4.5%. This movement would take place in Q2, and would have the dual purpose of leading the policy stance near neutral ground and keeping inflation expectations under control.

Finally, in the public debt market we expect the yields of fixed-rate TES to slightly expand in 2020, in response to factors such as worldwide uncertainty, the recomposition of emerging debt indices in favor of China, and concerns about meeting fiscal targets.

Table 1: GDP growth by economic activity (annual % ch.) 10 Year 2019 2020 Sector Share 2015 2016 2017 2018 1S19 Average (F) (F) GDP Growth 100% 3.6% 3.0% 2.1% 1.4% 2.6% 3.0% 3.2% 3.3% Agriculture 6.2% 3.2% 4.3% 2.7% 5.5% 2.1% 1.7% 2.3% 1.9% Mining 5.1% 3.3% -1.1% -2.9% -5.7% -0.2% 3.2% 3.4% 2.9% Manufacturing 12.0% 1.8% 2.0% 3.2% -1.8% 1.8% 1.7% 2.4% 3.0% Energy 3.0% 2.5% -0.7% 0.0% 2.9% 2.7% 2.9% 2.8% 2.3% Building 6.8% 3.8% 6.3% 3.6% -2.0% 0.8% -2.4% 0.1% 3.0% Wholesale and retail 17.3% 3.9% 3.3% 2.7% 1.9% 3.3% 4.4% 4.0% 3.9% Information 2.9% 4.5% 1.3% -0.7% -0.2% 3.0% 4.0% 3.7% 3.4% Financial Act. 4.6% 6.5% 8.0% 3.0% 5.4% 3.3% 5.0% 4.9% 5.4% Real State Act. 8.9% 3.1% 3.2% 3.5% 3.1% 2.0% 3.1% 3.0% 3.4% Profesional Act. 7.0% 3.4% -0.2% -2.4% 1.3% 5.0% 3.6% 3.4% 3.9% Public Admin. 14.7% 4.8% 5.3% 3.7% 3.5% 4.2% 3.5% 3.7% 3.2% Enternainment 2.4% 3.7% 4.2% 5.5% 2.2% 1.7% 2.5% 2.5% 1.8% Taxes 9.1% 3.8% 1.7% 1.1% 1.1% 2.3% 3.4% 3.5% 3.2% Source: Grupo Bancolombia, DANE. COLCAP: One-Digit Return Expected for the Index in 2020

2019 has been a benevolent year for the stock market amidst the volatilities Figure 2: Stock Index Expected returns presented. Tensions between China and the US were the biggest source of YTD 1M uncertainty thanks to the impact they could have on global economic growth 28 expectations. However, the US continues to present a stronger corporate 24 20 scenario compared to its peers, thus reflecting the best year-round performance 16 in the developed stock market with a 23.4% return. On the other hand, although % 12 8 the Japanese and emerging markets recorded positive returns of 13.8% and 4 9.32%, respectively, these were lower than those recorded by other stock 0 -4 exchanges in the world due to two reasons: 1) Asian markets impacted by trade disputes between China and the US, and 2) Latin American market affected by political risks in the region. Source: Grupo Bancolombia. During the year, the Colcap has not been oblivious to the volatilities presented in the international environment, however the local stock market has excelled Figure 3: Evolution of COLCAP Index with respect to its peers in the region with a 22% YTD return. In spite of the discounts recorded by the index in May and July, the local market recovered 1.750 those losses, and even broke the 1,600 points in November, a level has not 1.650 broken since 2014, and which represented an important ceiling for the Colcap. 1.550 Will this Positive Trend Continue for 2020? Although the Colcap has had a positive 2019, we believe that the current levels 1.450 in the index could be maintained thanks to the positive outlook for economic 1.350 growth in the country and therefore for profits. However, these valuations could be limited not only by an effect of risk aversion due to possible geopolitical 1.250 Nov-18 Feb-19 May-19 Aug-19 Nov-19 conflicts that may reappear, but also by limitations regarding the liquidity of Source: Grupo Bancolombia. some names and the more limited purchasing capacity of the local pension funds. Figure 4: Expected P/E ratio for One of the biggest catalysts of the index is how cheaper it looks compared to COLCAP vs Peers the region. The expected RPG multiple shows a discount with respect to the Colombia LatAm Avg Latam 3y region of 13% and of 7% against the historical average of the last 3 years. This 19 means that despite the valuations presented by the index, this effect has been offset by double-digit estimates of growth in profits for next year. 17

In terms of flows, we consider that in recent years the net purchasing position 15 that local pension funds have presented has given momentum to the market, 13 accumulating purchases for almost COP10 tn in the last 3 years. Although the local outlook is favorable, in terms of limits for shareholding there is some 11 depletion in some local funds in assets such as Grupo Argos, Cementos Argos, 9 Celsia and Grupo Sura. In addition there’s a possible rebalancing of Jan-17 Sep-17 May-18 Jan-19 Sep-19 international indices that may also affect the liquidity of certain assets. Source: Grupo Bancolombia. COLCAP 2020 Forecast: 1,790 points

Under the context explained before, it is estimated that the COLCAP can record Figure 5: Colcap Model a valuation of 8% compared to current levels, reaching 1,790 points. Much of this upside potential is explained by the fundamental model, the most optimistic, and by the relative valuation model, which shows a growth in profits in Feeling Fundamental 1.740(+5%) 1.870 (+13%) companies, in addition to the sentiment model, although it is the most conservative it recorded a change from previous projections. Colcap 1.790 Fundamental Model (+8%)

Under this model, it is assumed that all companies would release their fundamental potential at the end of 2020 according to the target prices for each Relative Valuation one, which are taken from the area of equity research or the consensus of 1.750 (+6%)

Bloomberg analysts. At the current levels of the index, the fundamental Source: Grupo Bancolombia. methodology shows an upside potential of 13%, to 1,870 points, this high potential is mainly derived from the upward revisions of the target prices of the Figure 6: Relative model stocks of the financial sector and other assets such as ISA and Canacol. Avg 3y P/E 1 DS -1DS 19 Relative Valuation Model 18 17 The result of this methodology yields a target level of 1,750 points, hinting at a 16 6% recovery. The theory behind this valuation method assumes that the level of 15 the index at the end of 2020 will be determined by i) estimated EPS, and ii) 14 13 average of the last year of the expected RPG (FWD P/E). From a corporate 12 perspective, it is important to highlight that double-digit growth in the Colcap’s 11 EPS is estimated, mainly driven by positive estimates on the profits of the 10 9 financial and consumer sector. In addition, there’s an expected RPG multiple in Feb-16 Nov-16 Aug-17 May-18 Feb-19 Nov-19 which its historical 12-m average is 10.5x. Source: Grupo Bancolombia.

Feeling Model

Finally, this model suggests a year-end level of 1,740 points, with an upside of Figure 7: Feeling model 5%. This model had been showing a clear upward trend in line with the 1.850 optimism presented by the market since the end of 2018, for 2020 projections this new level increased 7%, being the model that presents the largest positive 1.750 1.740 variation. 1.650 1.636 1.630 1.630 1.627 1.550 1.579 Amongst the catalysts for the Colcap in 2020, market agents highlight: lower 1.547 1.561 1.514 prices in Colombia with respect to regional peers, remarkable economic growth 1.450 1.484 1.416 compared to the region, and an expansive monetary policy by the Fed. On the 1.350 other hand within the main risks they note: international geopolitical tensions 1.250 and the impeachment of Donald Trump, political instability in the region, and extended valuations, especially in the US. Source: Grupo Bancolombia. COLCAP 2020 Forecast: 1,790 points

Table 2: Fundamental model

Target Price Part. Colcap Company Weight (COP) % PF Bancolombia* 43.775 13,61% 0,50% Grupo Sura* 39.476 7,65% 0,37% Ecopetrol 3.370 13,87% 7,37% Nutresa 34.000 6,06% 0,38% Grupo Argos 22.000 5,33% 0,47% Bancolombia* 42.440 6,39% 0,25% Cemargos 9.750 3,44% 0,75% PF Aval* 1.445 5,05% 6,21% PF Grupo Sura* 39.333 3,06% 0,17% ISA 20.500 8,69% 0,71% EEB 2.550 5,96% 4,44% PF Grupo Argos 22.000 2,69% 0,31% 35.600 2,35% 0,13% Grupo Éxito 21.890 1,74% 0,16% Banco Bogotá 86.200 3,06% 0,06% 45.300 3,55% 0,13% PF Cemargos 9.750 1,15% 0,31% Latam holdings 9.200 0,59% 0,21% Celsia 5.500 2,11% 0,79% 3.230 0,57% 0,51% Canacol 15.380 1,14% 0,16% Mineros* 3.500 0,37% 0,17% Promigas 7.510 1,33% 0,27% BVC* 14.000 0,24% 0,03% COLCAP Fundamental 1.870 Upside potential 13% *Companies without coverage

Source: Grupo Bancolombia. Performance of our Top Picks Portfolio

Adjustments to our Top Picks Methodology With the intention of improving our Top Picks methodology to a more strategic recommendation we decided to take the following steps in our momentum variable:

• Dividend yield: we included a new parameter that measures our expected dividend yield of the company in comparison to our expected 3.4% dividend yield for the COLAP Index for 2020, bringing additional points to the companies that pay a higher dividend.

• Limits for local pension funds: local pension funds have been the main buyer of the Colombian equity market during the last 3 years. For this reason, it is very important to include their investment limits per company in order to calculate the potential buying power in each company, which in the end, can create a short-term in the stock. The other three variables, Fundamental, Liquidity and Feeling remain the same.

A Look Back to our Recommendations

During 4Q19 (since August 27) our top picks portfolio lagged behind the COLCAP index by 69 bps, and by 246 bps vs. our recommended basket (excluding Bancolombia and Grupo Sura for being related parties).

This negative performance was mainly explained by the behavior of Cemargos (-9.6%) and Nutresa (+0.6%), which represented 40% of our portfolio, while the COLCAP recorded a positive behavior of +6.8%. Our recommendation on Cementos Argos was based on the fact that we expected a recovery on the asset after Harbor finished its sales. However, this return didn’t came mainly because the pension funds, which have been the latest buyers in the market, are close to their limits on the stock. Additionally, other assets such as ISA have presented extraordinary results (+16%) during the quarter, which were not part of our 4Q19 top picks.

Looking at a bigger picture, since inception, our top picks have lagged behind the COLCAP index by 257 bps but have outperformed our recommended basket by 50 bps.

Table 3: Evolution of Top Picks by Period Figure 8: Evolution of Top Picks

Alfa Colcap Ex Alfa(bps) Portfolio Colcap (bps) Related Ex Related 140 Top Picks COLCAP COLCAP Ex Relacionadas 1H15 -13,6% -8,5% -515 -10,9% -270 2H15 -4,2% -12,5% 830 -11,4% 720 130 1H16 20,7% 17,5% 325 20,3% 46 120 2H16 3,9% -1,3% 520 -1,3% 522

1H17 10,6% 14,0% -342 10,1% 47 110 2H17 6,8% 0,6% 625 3,8% 307 1H18 0,0% 8,0% -803 7,3% -728 100 2H18 -16,8% -11,1% -563 -14,4% -242 90 1Q19 13,9% 13,4% 54 11,9% 206 2Q19 -8,5% -6,2% -231 -6,0% -252 80 3Q19 5,2% 3,5% 169 2,5% 263 70 4Q19 6,1% 6,8% -69 8,5% -246 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Aug-17 Jan-18 Jun-18 Nov-18 Apr-19 Sep-19 Total 15,2% 17,8% -257 14,7% 50

Source: Bancolombia Source: Bancolombia, Bloomberg Updating our Top Picks Methodology

GEB to replace Grupo Argos; Nutresa, Cemargos, and Ecopetrol Stay

As mentioned in previous reports, the minimum rating required to be part of our top picks is 3.5, with a maximum of four stocks. In this case, the four stocks that ended up Figure 9: 1Q20 Top Picks with the best rating are Grupo Nutresa, Ecopetrol, GEB, and Cementos Argos.

We believe, this portfolio is made up of companies that have lagged behind the performance of the Colcap Index in GEB; 20% the case of Grupo Nutresa and Cementos Argos, which we Ecopetrol; expect to present a recovery in the price of their shares 30% since their fundamental value is high. Cementos In addition, the selection of GEB and Ecopetrol obey to the Argos; Grupo inclusion of high dividend yield in our momentum variable, 25% Nutresa; since these two companies rank among the top dividend 25% yield performers of our universe. We expect both companies to maintain a high dividend yield for 2020, which we expect to help the performance of the stock. Source: Grupo Bancolombia.

Finally, we excluded Celsia and Canacol, which closed above the 3.5 rating limit, because of the four-stock limit in our selection.

Table 4: Top picks methodology

Fundamental Momentum Liquidity Feeling Total Nutresa 5,0 3,8 3,1 3,8 3,9 Ecopetrol 2,0 3,0 5,0 4,3 3,7 GEB 4,0 3,4 3,8 3,5 3,6 Cemargos 5,0 2,6 4,4 2,9 3,6 Celsia 5,0 2,4 3,0 4,0 3,5 Canacol 5,0 4,6 1,5 3,4 3,5 Grupo Argos 4,0 2,3 4,0 3,5 3,4 Avianca 5,0 3,2 2,9 2,9 3,4 Cemex Latam Holdings 5,0 3,2 2,1 3,2 3,3 Corficolombiana 4,0 3,5 2,2 3,4 3,3 Enka 5,0 3,6 1,6 2,6 3,1 Promigas 5,0 3,4 1,7 2,7 3,1 Exito 4,0 4,0 3,3 1,4 3,1 Terpel 5,0 4,4 0,5 2,4 2,9 ETB 5,0 3,2 1,9 2,0 2,9 ISA 1,0 2,2 4,5 2,9 2,7 Davivienda 1,0 2,6 3,2 3,7 2,7 Bogotá 1,0 2,4 1,5 3,1 2,1 Conconcreto 1,0 2,8 1,6 1,9 1,8 El Condor 1,0 2,0 1,0 2,5 1,7 Source: Grupo Bancolombia. Our Top Picks: Grupo Nutresa, Ecopetrol, GEB, and Cementos Argos

Grupo Nutresa – Betting on Colombian Consumption

Nutresa is an asset that offers portfolios exposure to the recovery of consumption in Colombia and offers three major advantages: i) low level of leverage that allows them to assess inorganic growth alternatives, ii) income and cost diversification, with presence in 14 countries and, iii) if the complex economic situation in Venezuela is resolved, the company could take advantage of its local presence as a long-term opportunity.

In Colombia, household spending has recorded a very positive dynamic, up 7.18% YoY in reterms in September according to Raddar and averaging 6.36% in 3Q19. This would be the highest positive variation since January 2016. We expect the recent strengthening trend to continue from now on and this will be reflected in the sales volumes of Grupo Nutresa in Colombia, being the most representative region in terms of revenues for the company (62.3%). al With this in mind, and the strong volume growth in Colombia, we expect Nutresa to start touching prices up in order to regain profitability, something that will improve EBITDA margin and cash flow from 4Q19 onwards.

The recent acquisition of Cameron’s Coffee in the US is a sample of what we expect in Nutresa’s future inorganic growth. Small transactions with key strategic advantages that help to improve and divesify the footprint of the company in specific areas with strong growth potential.

Ecopetrol - International Expansion will Help Improve Reserves Ratio The main strength will continue to be the management which has made valuable decisions in 2019: i) a new efficiency goal with a savings target of COP8 tn between 2019-2023, ii) acquisitions in countries such as the US and Brazil, which would positively impact reserves in the short and long term, iii) the beginning of operations in unconventional deposits, and iv) the start of fracking pilot tests in Colombia.

In addition, we expect a strong dividend yield of around 5,5% for 2020, being the third ranked company in our coverage universe. Moreover, we expect a positive performance in reserves reports at the beginning of 2020, given the transaction made in the Permian basin in the US and efficiencies achieved in Colombia.

Cementos Argos – Still Looks Attractive

We still see an attractive upside potential on the stock, as well as the good fundamentals of the US market, which is still consuming under 100mn tons of cement/year, well below the near 130mn before the recession. Additionally, the company is engaged in making this regional more efficient through its BEST 2.0 program, under which it has identified USD71mn in savings for 2021 (USD11mn executed as of 1H19).

As stated by the CEO during the 3Q19 results conference call, they have not seen a demand like this in Colombia in the last years, meaning that Colombian construction is in the recovery path, something that will help to improve margins and results in the short term. However, the entrance of Ecocementos probably means Cemargos will lose some market share during 2020. Our Selection – Grupo Nutresa, Ecopetrol, GEB and Cementos Argos

GEB – High Dividend in a Stable and Diversified Company

Our fundamental view of the company’s asset portfolio is positive since it is made out of businesses with low demand risk and regulated tariffs, most denominated in USD and indexed to inflation. We highlight GEB’s high degree of sustainable cash generation, mainly due to the contribution of TGI’s operations and the dividends it receives from Emgesa and Codensa, which together represent ~70% of consolidated EBITDA.

In the short term, the natural gas supply plan in Colombia poses an attractive opportunity for GEB, since it includes the project of the regasification plant in the Pacific (~USD450 mn), on which its subsidiary TGI has expressed interest, being a complement for the current transport network.

In addition, taking into account the budget needs of GEB’s main shareholder (City of Bogota), we believe that the trade-off between reinvesting earnings or distributing dividends is tilted towards the latter. Regarding that, the outstanding dividend yield of GEB (6.4%) is positive compared to the Colcap’s average (3.4%). We expect the dividend policy to be sustainable, unless GEB finds a large-scale project to invest in Economic, Industry and Market Research Juan Pablo Espinosa Arango Chief Economist and Head of Economic, Industry and Market Research [email protected] +571 7463991 ext. 37313

Economic research Industry Research Equity Research Diego Fernando Zamora Díaz Jhon Fredy Escobar Posada Jairo Julián Agudelo Restrepo Head of Economic Research Head of Agroindustry Research Head of Equity Research [email protected] [email protected] [email protected] +571 7463997 ext. 37319 +574 4044649 ext 44649 +574 6047048 Arturo Yesid González Peña Nicolás Pineda Bernal Diego Alexander Buitrago Aguilar Quantitative Analyst Head of Commerce Research Energy Analyst [email protected] [email protected] [email protected] +571 7463980 ext 37385 +574 4042985 ext 42985 +571 7463984 Santiago Espitia Pinzón Juan Sebastián Neira Orozco Andrea Atuesta Meza Macroeconomic Analyst Commerce Industry Analyst Financial Sector Analyst [email protected] [email protected] [email protected] + 571 7463988 ext. 37315 +571 7464329 Paolo Betancur Montoya Bryan Hurtado Campuzano Agroindustry Analyst Juliana Aguilar Vargas, CFA International and Regional Analyst [email protected] Cement & Infrastructure Analyst [email protected] [email protected] +571 7463980 ext. 37303 Javier David Villegas +574 6047045 Juan Manuel Pacheco Perez Real Estate and Hotels Analyst Ricardo Andrés Sandoval Carrera International and Markets Analyst [email protected] Oil & Gas & Airlines Analyst [email protected] [email protected] +571 7464322 ext. 37380 +571 7464596 Research Assistant Juan Camilo Meneses Cortes Valentina Martinez Jaramillo Central Banking and Financial System Alejandro Quiceno Rendón Junior Analyst Analyst Research Editor [email protected] [email protected] [email protected] +574 6048906 +571 7463994 ext. 37316 +574 6048904 Ana María Núñez Buriticá Karen Stefanny Correa Castaño Intern Interrn [email protected] [email protected] +571 7464318 +571 7463988 ext. 37310 Terms of use This report has been prepared by Analysis Bancolombia a research and analysis department at Grupo Bancolombia. It shall not to be distributed, copied, sold, or altered in any way without the express permission of Grupo Bancolombia, nor be used for any purpose other than to serve as background material which does not constitute an offer, advice, recommendation, or suggestion by Grupo Bancolombia for making investment decisions or conducting any transactions or business. The use of the information provided is solely the responsibility of the recipient.

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The information contained in this report is not based, does not include nor has been structured based on privileged or confidential information. Any opinions or projections contained herein are solely attributable to the author and have been prepared independently and autonomously in the light of the information available at the time.

The content of this message does not constitute a professional recommendation to make investments according to the terms of article 2.39.1.1.2 of the Decree 2555 of 2010 or the regulations that modify, replace or complement it.

Rating System The investment recommendation on the issuers under coverage by Analysis Bancolombia is governed by the rating system presented below, subject to the following criteria:

The upside potential is the percentage difference between the target price of securities issued by a particular issuer and their market price. The target price is not a forecast of the price of a stock, but a fundamental independent valuation made by Analysis Bancolombia, which seeks to reflect the fair price the market should pay for the shares on a given date.

Based on an analysis of the relative upside potential amongst the securities of companies under coverage and the COLCAP index, the ratings of the assets are determined as follows:

Overweight: when the upside potential of a stock exceeds by 5% or more the return potential of the COLCAP index. Market Weight: when the upside potential of a stock does not differ by more than 5% from the return potential of the COLCAP index. Underweight: when the upside potential of a stock is 5% or more below the return potential of the COLCAP index. Under Review: the company’s coverage is under review and therefore there’s no rating or target price.

Additionally, at the discretion of the analyst, the speculative qualification that complements the recommendation will continue to be used, taking into account the risks seen in the performance of the asset, its future development and the volatility the movement of the stock may show.

The fundamental potential of the index is determined based on the methodology established by the BVC for the calculation of the COLCAP index, considering the target prices published by Analysis Bancolombia. This will be made with the Colcap basket on the dates of calculation May and November of every year. For the companies part of the index but not covered, the consensus of market analysts will be used.

Currently, Analysis Bancolombia has 20 companies under coverage, distributed as follows:

Overweight Market Weight Underweight Under Review Number of issuers with ratings of: 11 3 4 2 Percentage of issuers with ratings of: 55% 15% 20% 10%