ALFA S.A.B. DE C. V. May 18, 2015

Better Oil Price Perspectives Justify BUY BUY

Last Price: MP 31.76 Figures in millions of MP ALFA High Liquidity Price Target 2015: MP 36.2, Upside 14.0% 2013 2014 2015e 2016e

■ We have a new MP 36.2/sh. price target for Alfa, which implies a 14% upside, Revenues 203,456 228,886 239,518 243,446 8 percentage points above our estimate for the Mexbol Index. We are EBITDA 22,009 26,493 29,560 32,227 upgrading Alfa to BUY from HOLD. Margin 10.8% 11.6% 12.3% 13.2% Growth YoY -9.1% 20.4% 11.6% 9.0% ■ We are including in our valuation model, ´s new PT, in addition to new Net Profit 5,926 (2,259) 2,125 5,717 oil price estimates and PRE’s market price Margin 2.9% -1.0% 0.9% 2.3% EPS 1.15 (0.44) 0.41 1.11

Total Assets 165,390 232,540 224,352 222,523 New Brent´s price estimate of USD 68.0/bb. Given the recovery in the European Cash and ST Inv. 11,902 22,141 17,917 15,150 reference’s price (Jan 19th - May 18th 2015: +21%) we are increasing our year-end Total Liabilities 100,221 163,619 159,273 156,503 Brent estimate to USD 68/bbl. Net Debt 45,552 75,251 74,742 72,170 Equity 65,169 68,921 65,079 66,020 In addition to a new PT for Alpek, we are adjusting Newpek´s estimates … Majority 56,441 55,156 51,510 52,254 Federico Robinson, Actinver’s petrochemicals analyst, increased Alpek’s PT by 6.7% Multiples to MP 23.8/sh. on May 15th mainly due to a better oil price scenario. Additionally, we EV/Sales 1.2x 1.1x 1.0x 1.0x are adjusting Newpek’s operating model, raising the subsidiary’s 2016e EBITDA 16%. EV/EBITDA 11.0x 9.7x 8.5x 7.7x P/E 31.8x NA 76.8x 28.5x … and updating PRE’s market value. Finally, we are updating Alfa’s stake in PRE (19%) to USD 6.05/sh. The Canadian oil company’s value increased 29.6% after Alfa ROE 10.4% NA 5.5% 10.9% and Harbour Energy’s offer (May 5th to date). ROA 4.1% NA 1.6% 3.2% Net Debt/ EBITDA 2.1x 2.8x 2.5x 2.2x We have a new USD 36.2/sh. price target, which implies a 14% upside and is Dividend Yield 2.7% 0.1% 1.7% 0.8% derived using a sum of the parts valuation model (SOTP). Considering the above Mkt. Cap USD 10.7bn Float 45% mentioned, we upgraded Alfa to BUY.

What´s next? Nemak´s IPO and the acquisition of PRE would change Alfa´s 3mo. Avg. USD 21.4m 1yr. high-low MP 47.5-27.1 structure. Assuming a mixed (60% primary / 40% secondary) USD 1,000 million IPO for Nemak, we expect an incremental EBITDA of approx. USD 70 million per year ALFA vs. IPC (May 2014 = 100) (M&A @ 9.2x) from 2016. 130

Although, a mixed IPO could dilute Alfa´s participation in Nemak even more (up to 6 120 percentage points), we believe the conglomerate could finance the acquisition of 110 PRE´s remaining shares (USD 407 million), which will positively affect Alfa´s leverage. 100 90 Assuming a scenario in which Nemak goes public and Alfa acquires Pacific Rubiales in 80 2015 (Alfa consolidating 50% of PRE), we estimate a 45% increase in Alfa’s 70 consolidated 2016 EBITDA (vs. our current forecast) and a ND/EBITDA of 3.3x May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 (4Q15). ALFAA IPC

Pablo Abraham Peregrina [email protected] +52 (55) 1103 6600 x 1395

Mauricio Arellano Sampson [email protected] +52 (55) 1103 6600 x 4132 Actinver Corporate Headquarters Guillermo Gonzalez Camarena 1200, 11th Floor, Centro de Ciudad Santa Fe D.F., 01210 1 New PT (MP 36.2/sh.) and New Recommendation (BUY) ■ After the oil price recovery in the last few months (Brent Jan 19th to May18th: +21%), we include a new USD 68/bbl. year-end estimate. ■ We adjusted Newpek’s operational estimates, included PRE’s market value and incorporated Alpek’s new price target to reach a MP 36.2/sh. PT for Alfa (14% upside). We used a sum of the parts valuation model to estimate our new price target. We used DCF valuation models for Alpek (82% participation), Nemak, and Sigma; while using target EV/EBITDA ratios for Alestra and Newpek. We also added Alfa’s share of PRE’s market value (19% participation) and applied a 15% holding discount.

Alfa, S.A.B. DE C.V Sum of the Parts Valuation (MP million)

Valuation Implicit Alfa´s

Alpek DCF 7.9 41,336 Nemak DCF 10.9 92,319

Sigma DCF 9.7 76,975

Alestra EV/EBITDA mult. 5.0 8,493 Newpek EV/EBITDA mult. 9.0 8,788 Stake in PRE Market Value - 4,521 Enterprise Value 232,432 - Net debt (Holding) 13,993 Market Cap 218,438

Holding discount 15% PT (MP) 36.2 Source: Actinver

Price Target Composition by Subsidiary MP/sh 45 0.7 40 1.4 1.5 35 30 12.7 12.7 25 20

15 15.3 15.3 10 5 6.8 (2.3)6.8 0 -5 Alpek Nemak Sigma Alestra Newpek PRE Net debt

Source: Actinver

2 ALFA - Financial Statements (MP´000) Income Statement 2013 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E CAGR Sales 203,456 228,886 239,518 243,446 245,555 12% 5% 2% 1% 5% Cost of Sales (166,829) (187,704) (145,999) (199,029) (200,826) 13% (22%) 36% 1% 5% Gross Profit 36,627 41,181 93,519 44,417 44,728 12% 127% (53%) 1% 5% Gross Margin 18.0% 18.0% 39.0% 18.2% 18.2% (0%) 117% (53%) (0%) 0% SG&A (20,331) (24,422) (29,643) (30,266) (30,539) 20% 21% 2% 1% 11% Operating Profit 14,078 16,886 63,657 14,151 14,190 20% 277% (78%) 0% 0% Operating Margin 6.9% 7.4% 26.6% 5.8% 5.8% 7% 260% (78%) (1%) (4%) Depreciation and Amortization (7,932) (9,607) (15,229) (18,076) (18,537) 21% 59% 19% 3% 24% EBITDA 22,009 26,493 29,560 32,227 32,726 20% 12% 9% 2% 10% EBITDA Margin 10.8% 11.6% 12.3% 13.2% 13.3% 7% 7% 7% 1% 5% Interest expense (1,775) (1,644) (3,392) (2,641) (2,523) (7%) 106% (22%) (4%) 9% Other income (expense) (2,489) (17,214) (5,094) 0 0 592% (70%) (100%) NA (100%) Interest income 207 127 182 110 110 (39%) 44% (40%) 0% (15%) Pre-Tax Profit 10,021 (1,845) 55,354 11,621 11,777 (118%) (3,100%) (79%) 1% 4% Taxes 3,192 (660) 2,485 4,067 4,122 (121%) (477%) 64% 1% 7% Tax rate 31.9% 35.8% 4.5% 35.0% 35.0% 12% (87%) 680% (0%) 2% Net Profit Before Minorities 6,829 (1,186) 3,931 7,553 7,655 (117%) (432%) 92% 1% 3% Minority Interest (34) (291) (324) (329) (332) 756% 11% 2% 1% 77% Net Profit 5,926 (2,259) 2,125 5,717 5,803 (138%) (194%) 169% 1% (1%) N° of Shares 5,143 5,135 5,135 5,135 5,135 (0%) 0% 0% 0% Average N° of Shares 5,144 5,139 5,135 5,135 5,135 (0%) (0%) 0% 0% EPS 1.152 (0.440) 0.414 1.113 1 (138%) (194%) 169% 1% Balance Sheet 2013 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E CAGR TOTAL ASSETS 165,390 232,540 224,352 222,523 220,973 41% (4%) (1%) (1%) 8% Current Assets 59,651 85,219 77,911 77,814 81,635 43% (9%) (0%) 5% 8% Cash and Temporary Investments 11,902 22,141 17,917 15,150 19,061 86% (19%) (15%) 26% 12% Accounts Receivable 23,564 30,233 28,163 29,386 29,344 28% (7%) 4% (0%) 6% % of Sales 12% 13% 12% 12% 12% 14% (11%) 3% (1%) 1% Inventories 22,692 30,758 29,063 30,373 30,329 36% (6%) 5% (0%) 8% % of COGS 14% 16% 20% 15% 15% 20% 21% (23%) (1%) 3% TOTAL LIABILITIES 100,221 163,619 159,273 156,503 153,957 63% (3%) (2%) (2%) 11% Suppliers 20,934 35,167 32,662 34,432 34,382 68% (7%) 5% (0%) 13% % of COGS 13% 19% 22% 17% 17% 49% 19% (23%) (1%) 8% Long Term Liabilities 57,521 101,504 101,702 101,702 101,702 76% 0% 0% 0% 15% TOTAL DEBT 57,454 91,920 90,495 85,156 82,685 60% (2%) (6%) (3%) 10% NET DEBT 45,552 75,251 74,742 72,170 65,788 65% (1%) (3%) (9%) 10% TOTAL CAPITAL 65,169 68,921 65,079 66,020 67,016 6% (6%) 1% 2% 1% Shareholder's Equity 56,441 55,156 51,510 52,254 53,043 (2%) (7%) 1% 2% (2%) Minority Interest 8,728 13,765 13,569 13,765 13,973 58% (1%) 1% 2% 12% Cash Flow Statement 2013 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E CAGR OPERATING ACTIVITIES Net income 6,795 (1,476) 3,607 7,224 7,323 (122%) (344%) 100% 1% 2% Depreciation, amortization and depletion 7,932 9,607 15,229 18,076 18,537 21% 59% 19% 3% 24% Cash used for operating assets and liabilities (4,017) (2,187) (212) (102) 16 (46%) (90%) (52%) (115%) NA Other, net (40,475) 17,989 6,221 0 0 (144%) (65%) (100%) NA (100%) Net cash provided from operating activities (29,766) 23,932 24,846 25,198 25,875 (180%) 4% 1% 3% NA INVESTING ACTIVITIES NA NA NA NA NA Capital expenditures (13,638) (9,323) (14,405) (16,343) (13,166) (32%) 55% 13% (19%) (1%) Other, net (5,264) (19,147) (401) 0 0 264% (98%) (100%) NA (100%) Net cash used for investing activities (18,903) (28,470) (14,806) (16,343) (13,166) 51% (48%) 10% (19%) (9%) FINANCING ACTIVITIES NA NA NA NA NA Change in Debt 4,918 15,677 (2,568) (5,339) (2,471) 219% (116%) 108% (54%) NA Dividends paid (5,117) (183) (2,759) (1,284) (1,284) (96%) 1,406% (53%) 0% (29%) Distributions to non-controlling interest (3,631) (4,490) (4,919) (5,000) (5,043) 24% 10% 2% 1% 9% Common shares buyback (98) (257) 0 0 0 163% (100%) NA NA (100%) Other 1,158 (2,134) (556) 0 0 (284%) (74%) (100%) NA (100%) Net cash used for financing activities (2,770) 8,612 (10,803) (11,622) (8,798) (411%) (225%) 8% (24%) 33% Effect of exchange rate changes on cash 49,680 693 (153) 0 0 (99%) (122%) (100%) NA (100%) Increase (decrease) in cash and cash equivalents (1,759) 4,767 (916) (2,767) 3,911 (371%) (119%) 202% (241%) NA Source: Actinver

3 Equity, Economic, Quantitative and Fixed Income Research Departments

Equity Research

Senior Analysts Telecommunications, Media and Martín Lara (52) 55 1103-6600 x1840 [email protected] Financials

Carlos Hermosillo Bernal Consumption (52) 55 1103-6600 x4134 [email protected]

Pablo Duarte de León FIBRAs (REITs) (52) 55 1103-6600 x4334 [email protected]

Mining, Metals, Paper and Pablo Abraham Peregrina (52) 55 1103-6600 x1395 [email protected] Conglomerates

Ramón Ortiz Reyes Cement, Construction and Concessions (52) 55 1103-6600 x1835 [email protected]

Federico Robinson Bours Energy, Chemicals and Industrial (52) 55 1103-6600 x4127 [email protected] Carrillo Junior Analysts Telecommunications, Media and Juan Enrique Ponce Luiña (52) 55 1103-6600 x1693 jponce@actinver,com.mx Financials

Enrique Octavio Camargo Energy, Chemicals and Industrial (52) 55 1103-6600 x1836 [email protected] Delgado

José Antonio Cebeira Consumption (52) 55 1103-6600 x1394 [email protected] González Mining, Metals, Paper Conglomerates, Mauricio Arellano Sampson (52) 55 1103-6600 x4132 [email protected] Cement, Construction and Concessions Laura Elena Bosch Ramírez (52) 55 1103-6600 x4136 [email protected] FIBRAs (REITs) Economic and Quantitative Research

Head of Economic and Quantitative Ismael Capistrán Bolio [email protected] Research (52) 55 1103-6600 x6636

Jaime Ascencio Aguirre Economy and Markets (52) 55 1103-6600 x1100 [email protected]

Santiago Hernández Morales Quantitative Research (52) 55 1103-6600 x4133 [email protected]

Roberto Galvan González Technical Research (52) 55 1103-6600 x1837 [email protected]

Fixed Income Research

Araceli Espinosa Elguea Head of Fixed Income Research (52) 55 1103-6600 x6641 [email protected]

Roberto Ramírez Ramírez Fixed Income Research (52) 55 1103-6600 x1672 [email protected]

Jesús Viveros Hernández Fixed Income Research (52) 55 1103-6600 x6649 [email protected]

Raúl Márquez Pardinas Fixed Income Research (52) 55 1103 6600 x1110 [email protected]

4 Disclaimer

Guide for recommendations on investment in the companies under coverage included or not, in the main Price Index (IPC)

 Buy. The stock’s total return is expected to exceed the total return of the IPC index in the current year.  Neutral. The stock’s total return is expected to be in line with the total return of the IPC index in the current year.  Sell. The stock’s total return is expected to be below the total return of the IPC index in the current year.

Important Statements a) Of theAnalysts:

“The analysts in charge of producing the Analysis Reports: Jaime Ascencio Aguirre; Mauricio Arellano Sampson; Laura Elena Bosch Ramírez; Enrique Octavio Camargo Delgado; Ismael Capistrán Bolio; José Antonio Cebeira González, Pablo Enrique Duarte de León; Araceli Espinosa Elguea; Roberto Galván González; Carlos Hermosillo Bernal; Santiago Hernández Morales; Martín Roberto Lara Poo; Raúl Márquez Pardinas; Ramón Ortiz Reyes; Pablo Abraham Peregrina; Juan Enrique Ponce Luiña; Federico Robinson Bours Carrillo; Jesús Viveros Hernández, declare”:

1. "All points of view about the issuers under coverage correspond exclusively to the responsible analyst and authentically reflect his vision. All recommendations made by analysts are prepared independently of any institution, including the institution where the services are provided or companies belonging to the same financial or business group. The compensation scheme is not based or related, directly or indirectly, with any specific recommendation and the remunerationis only received from the entity which the analysts provide their services. 2. "None of the analysts with coverage of the issuers mentioned in this report holds any office, position or commission at issuer’s under his coverage, or any of the people who are part of the Business Group or consortium to which they belong. They have neither held any position during the twelve months prior to the preparation of this report. " 3. "Recommendations on issuers, made by the analyst who covers them, are based on public information and there is no guarantee of their assertiveness regarding the performance that is actually observed in the values object of the recommendation" 4. "Analysts maintain investments subject to their analysis reports on the following issuers: AC, ACTINVR, ALFA, ALPEK, ALSEA, AMX, AZTECA, , CHDRAUI, FEMSA, FIBRAMQ, FINDEP, FUNO, GENTERA, GFREGIO, , ICA, IENOVA, KOF, LAB, LIVEPOL, MEXCHEM, OHLMEX, PEÑOLES, POCHTEC, TLEVISA, SORIANA, SPORTS, VESTA, and WALMEX.

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2. All Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver business units can explore and do business with any company mentioned in documents of analysis. All compensation for services given in the past or in the future, received by Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver by any company mentioned in this report has not had and will not have any effect on the compensation paid to the analysts. However, just like any other employee of Actinver Group and its subsidiaries, the compensation being enjoyed by our analysts will be affected by the profitability gained by Actinver Group and its subsidiaries. 3. At the end of each of the previous three months, Actinver Casa de Bolsa, SA de C.V. Actinver Financial Group, has not held any investments directly or indirectly in securities or financial derivatives, whose underlying are Securities subject of the analysis reports, representing one percent or more of its portfolio of securities, investment portfolio, outstanding of the Securities or the underlying value of the question, except for the following: * AEROMEX, AXML, BOLSA A, FINN 13, FSHOP 13, SMARTRC14. 4. Certain directors and officers of Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver occupy a similar position at the following issuers: AEROMEX, MASECA, AZTECA, ALSEA, FINN, MAXCOM, SPORTS, FSHOP, and FUNO. This report will be distributed to all persons who meet the profile to acquire the type of values that is recommended in its content.

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