Equity Research Me xico

Company Note August 12, 2020 AXTEL www.banorte.com Is the party over? Not yet @analisis_fundam

. Axtel has resumed the search of strategic options for its Infrastructure Consumer and Telecom for telecom business unit or the entire company, which could soon unlock intrinsic value of the stock Valentín Mendoza Senior Strategist, Equity [email protected] . As we have highlighted before, said segment is attractive due to its high profitability, growth potential and higher valuation, making the Juan Barbier Analyst company a compelling acquisition target, in our view [email protected]

. With a SOTP model, considering Infrastructure’s value, we raised our

PT2020 to MXN 9.00 (vs MXN 4.50 previously), implying a BUY FV/EBITDA 2021E multiple of 7.7x. We maintain our BUY rating Current Price MXN 6.59 PT 2020 MXN 9.00 Dividend 2020e We still see value in the stock. We adjusted our projections model, reflecting Dividend Yield (%) the functional separation of the company into two strategic business units: IT Upside Potential 36.6% ADR Price US$41.57 Services for enterprises and governments and Infrastructure for telecom. The Max – Min LTM ($) 6.70 – 2.30 latter, as mentioned above, stands out due to its attractive profitability and Market Cap (US$m) 834.4 Shares Outstanding (m) 2,875 growth potential -in the face of increasing connectivity needs, the upcoming Float 22% launch of 5G, and with that, the advent of internet of things-; thus, making Axtel Daily Turnover US$m 8.7 Valuation metrics LTM a compelling acquisition target. That said, in our view, the market should be FV/EBITDA 5.1x willing to pay a higher valuation for the company. Meanwhile, Axtel recently P/E 47.7x resumed the search of strategic options for its Infrastructure segment and/or the Relative performance to Mexbol entire company, and Alfa recently confirmed that it expects to conclude either LTM of these options within the next 12 months. A such, we decided to reflect the 200% potential value behind the Infrastructure business. Using a sum-of-parts 150% valuation model, we determined a FV/EBITDA 2020E target multiple of 11.0x 100% for this segment, in line with peers’ median and precedent transactions, while 50% assuming 5.6x in Services. Therefore, we are raising our PT2020 to $9.00 0% (FV/EBITDA 2021E of 7.7x) up from $4.50, yet reiterating our BUY rating. -50% ago.-19Aug.-19 nov.-19 Nov.-19 feb.-20Feb.-20 may.-20 May.-20 ago.-20 Aug.-20

MEXBOL AXTELCPO

Financial Statements Valuation and Financial metrics 2018 2019 2020E 2021E 2018 2019 2020E 2021E Rev enue 14,876 12,784 12,811 13,387 FV/EBITDA 6.2x 7.4x 4.8x 6.2x

Operating Income 965 774 2,858 1,440 P/E 17.4x -1,355.2x 24.1x 133.6x EBITDA 5,203 4,465 6,424 4,668 P/BV 5.3x 5.5x 4.6x 4.4x EBITDA Margin 35.0% 34.9% 50.1% 34.9%

Net Income 1,095 -14 782 141 ROE 35.8% -0.4% 20.8% 3.4% Net Margin 7.4% -0.1% 6.1% 1.1% ROA 3.9% -0.1% 3.0% 0.6%

EBITDA/ interest 2.8x 3.3x 4.4x 3.2x Total Assets 28,156 24,331 26,338 25,574 Net Debt/EBITDA 2.6x 3.1x 1.9x 2.2x Cash 2,249 858 4,175 4,716 Debt/Equity 4.3x 4.4x 3.9x 3.5x

Total Liabilities 24,535 20,920 22,221 21,315 This document is provided for the reader’s convenience Debt 15,662 14,886 16,066 14,944 only. The translation from the original Spanish version Common Equity 3,621 3,411 4,117 4,258 was made by Banorte’s staff. Discrepancies may possibly arise between the original document in Spanish and its Source: Banorte English translation. For this reason, the original research paper in Spanish is the only official document. The Spanish version was released before the English translation. The original document entitled “¿Se acabó la fiesta? Todavía no” was released on August 11, 2020. Document for distribution among public 1

AXTEL – Financial statements Revenue & EBITDA Margin MXN, Millions MXN, million

Year 2018 2019 2020E 2021E CAGR 18,000 60.0% Net Revenue 14,876 12,784 12,811 13,387 -3.5% 16,000 50.1% Costs of goods sold 7,174 6,104 6,182 5,870 -6.5% 50.0% 14,000 Gross profit 7,702 6,679 6,629 7,516 -0.8% 35.1% 35.0% 34.9% 34.9% 12,000 40.0% General expenses 6,944 5,842 5,759 6,060 -4.4% 10,000 Operating Income 965 774 2,858 1,440 14.2% 30.0% Operating Margin 6.5% 6.1% 22.3% 10.8% 18.3% 8,000 Depreciation 4,162 3,579 3,430 3,195 -8.4% 6,000 20.0% 4,000 EBITDA 5,203 4,465 6,424 4,668 -3.6% 10.0% EBITDA Margin 35.0% 34.9% 50.1% 34.9% 2,000 Interest Income (Expense) net (1,665) (1,127) (2,864) (1,303) -7.8% 0 0.0% Interest expense 1,869 1,370 1,476 1,466 -7.8% 2017 2018 2019 2020e 2021e Interest income 41 55 53 103 35.7% Other income (expense) (24) (102) (88) (127) 73.2% Revenue EBITDA Margin Foreign exchange gain (loss) 187 290 (1,352) 186 -0.1% Unconsolidated subsidiaries Income before taxes (699) (353) (5) 137 -158.1% Income taxes 118 (15) (788) (4) -133.6% Discontinued operations 1,912 324 Net Income & ROE Consolidated Net Income 1,095 (662) 782 141 -49.5% MXN, million Non-controlling interest Net Income 1,095 (14) 782 141 -49.5% Net Margin 7.4% -0.1% 6.1% 1.1% 1,200 30.2% 35.0% EPS 0.378 (0.005) 0.273 0.049 -49.3% 1,000 30.0% Balance Sheet (Million pesos) 800 19.0% 25.0% Total Current Assets 6,944 6,035 8,471 8,937 8.8% 20.0% Cash & Short Term Investments 2,249 858 4,175 4,716 28.0% 600 15.0% Long Term Assets 21,212 18,296 17,868 16,637 -7.8% 400 Property, Plant & Equipment (Net) 16,106 12,964 11,427 10,196 -14.1% -0.4% 10.0% 2.5% 3.3% Intangible Assets (Net) 986 633 947 947 -1.3% 200 5.0% Total Assets 28,156 24,331 26,338 25,574 -3.2% 0 0.0% Current Liabilities 8,778 5,178 7,354 7,506 -5.1% 2017 2018 2019 2020e 2021e Short Term Debt 505 635 2,169 2,104 60.9% (200) -5.0% Accounts Payable 7,297 3,701 4,036 4,218 -16.7% Long Term Liabilities 15,757 15,742 14,867 13,810 -4.3% Net Income ROE Long Term Debt 15,157 14,251 13,897 12,840 -5.4% Total Liabilities 24,535 20,920 22,221 21,315 -4.6% Common Stock 3,621 3,411 4,117 4,258 5.6% Non-controlling interest Total Equity 3,621 3,411 4,117 4,258 5.6% Net Debt & Net Debt to EBITDA ratio Liabilities & Equity 28,156 24,331 26,338 25,574 -3.2% MXN, million Net Debt 13,413 14,028 11,891 10,228 -8.6%

Cash Flow 2018 2019 2020e 2021e 25,000 3.5x 3.8x CF from Operating Activities 5,411 2,957 4,465 3,268 3.1x 3.4x CF from Investing Activities 2,376 (528) 775 (1,861) 20,000 3.0x CF from Financing Activities (6,812) (3,821) (2,771) (2,096) 2.6x FX difference in cash & equivalents 16 1 848 1,229 15,000 2.6x Change in Cash Balance 991 (1,391) 3,318 541 1.9x 2.2x 10,000 2.2x 1.8x 5,000 1.4x 0 1.0x 2017 2018 2019 2020e 2021e

Net Debt Net Debt to EBITDA

Source: Banorte, BMV.

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The right strategy. Let us remember that after the integration with Alestra, during the last 4 years Axtel has been implementing a transformation strategy for the company. Such strategy was focused on the sale of non-strategic assets, deleverage and the functional separation into two business segments. Regarding the former, in 2017 the company divested 142 telecommunication towers for $56 million. Later, at the beginning of this year, it completed the sale of 3 data centers for $175 million, and recently, it transferred the 3.5Ghz spectrum to América Móvil, receiving a MXN 90 million benefit. Meanwhile, the allocation of part of these resources for debt repayment has led to a significant decrease in company’s leverage. In this regard, ND/EBITDA ratio dropped from 5.5x in 2016 to 1.9x 2020E, aligning with the median of comparable companies. As we have mentioned previously, in our opinion, the discount the stock had historically kept against its peers due to high leverage, is no longer justified. Finally, Axtel has concluded the functional separation of the company into two business units: Infrastructure for telecommunications (Axtel Networks) and value-added services in information technologies for companies and government customers (Alestra). After this, Infrastructure contribution to 2019 results (net of intercompany operations with Alestra) accounted for 20% of revenue, but 51% of recurring EBITDA due to division´s EBITDA margin of 44.2% being consistently greater than the 21.4% of Services. Revenue breakdown by business segment (2019) EBITDA contribution by business segment (2019) % %

20%

51% 49%

80%

Infrastructure Services Infrastructure Services

Source: Axtel, Banorte

Who is Axtel Networks (Infrastructure)? Axtel Networks is Mexico's largest neutral (wholesale service with no interest in the retail business) fiber optic network operator, offering last mile connectivity services, IP transit, illuminated fiber, dark fiber, fiber to the tower (FTTT), fiber to data center, among others, to operators and wholesale customers. It has the second largest optical fiber network in Mexico (~40,600 kilometers), only after América Móvil, with which its coverage exceeds 90% of the Mexican market (22,000Kms of long distance network), highlighting its high capillarity within the cities of Mexico, Monterrey and Guadalajara (18,600 km of metropolitan network). As we have discussed earlier, we consider this market attractive because of its high growth potential, due to incremental connectivity needs, earnings stability, high profitability and, consequently, its double-digit valuation.

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Axtel Networks - Fiber optic network distribution map

Source: Axtel

Positive outlook. The “new normality” has exacerbated the demand of the division’s customers for larger capacity in their fiber-to-tower and fiber-to- data center services, to meet increased data consumption due to confinement. Regarding the latter, according to June 2020 Ericsson Mobility Report, in 1Q20, mobile data traffic increased 14% q/q. We believe this has proven the segment's resilience and growth potential. Meanwhile, business growth outlook is positive in the medium-term.

Eventually, the launching of 5G -which is estimated to require the deployment of a much greater number of base stations and antennas (higher node densification) with fiber-to-the-antenna (FTTA) technology to minimize data latency- should be a catalyst for the division.

The 5G, in turn, is expected to facilitate the deployment of the Internet of Things (IoT), which is expected to be a very important catalyst for data consumption. Deloitte in its “5G Ecosystem: The Digital Heaven of Opportunities” report, projects that connected smart devices in 2025 will reach 25.2 billion (vs 9.1 billion in 2018), reflecting greater use of this technology for home applications and especially in the industrial segment. Consequently, in cited report, Ericsson estimates that mobile data traffic will five-fold by 2025, from 33 exabytes per month at the end of 2019 to 164EB at the end of 2025.

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Internet of Things (IoT) connections in the world Global mobile data traffic Billions of smart devices Exabytes

Source: Deloitte “5G Ecosystem: The digital heaven of opportunities” (Sep. 2019), Banorte Source: Ericsson Mobility Report (Jun. 2020) A higher valuation for Infrastructure and we think also for Axtel. As we have previously emphasized, higher margins (47.4% 202020E for Axtel Networks) and earnings predictability of the Infrastructure for Telecom sector, given its contracts structure with long-term recurring revenue, justify higher valuations for the segment. According to Bloomberg, the FV/EBITDA 2021E median for this segment is 11.7x, while that of Services is 5.4x. On the other hand, according to Refinitiv Eikon, the industry's most recent precedent transaction was Zayo Group Holdings’ acquisition by Digital Colony Partners and EQT Infrastructure back in May 2019 at a 12.1x multiple, confirming that there is appetite for this type of business at double-digit valuations. Consequently, we continue to believe that the market should be willing to pay higher valuations for Axtel, reflecting that in 2020, 55% of the company's recurring EBITDA would come from Infrastructure and the remaining 45% from Services.

We raised our PT2020 to $9.00, reiterating our BUY rating. Regardless that from January (when we introduced our previous PT2020) up to date, the CPO accumulates a return close to 120%, we believe there is still value in the stock. With a sum-of-the-parts (SOTP) valuation modelo, recognizing Infrastructure’s intrinsic value, we raised our PT2020 to $9.00, expecting a potential return of more than 35%. Therefore, we reiterate our BUY rating. To calculate this, we use the divisions’ recurring EBITDA (excluding extraordinary gains from the sale of 3 data centers to Equinix and the transfer of the 3.5Ghz spectrum to América Móvil, totaling MXN 2.115 billion this year). Likewise, we assumed a 11.0x FV/EBITDA target multiple for Axtel Networks (Infrastructure), slightly below the median of Infrastructure for Telecom companies in 2021 of 11.7x and similar to precedent transactions in the sector. As for Alestra (Services), we determined a 5.6x target multiple, in line with that of telecommunications services companies of 5.4x. Thus, implicit FV/EBITDA 2020E multiple for Axtel would be 8.6x, above current valuation of 5.1x.

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In our PT2020 Axtel would trade at 7.7x FV/EBITDA 2021E, above the current level and the last-year average, both at 5.1x, justified based on the aforementioned positive outlook, and the strengthening of the capital structure the company has managed to achieve as part of its deleveraging strategy.

It is also worth mentioning that Axtel has resumed its search of strategic options for Infrastructure or the entire company, which in our opinion should soon favor acknowledging division’s value. In this sense, last week Alfa commented it estimates to conclude either of these alternatives for Axtel within the next 12 months and is expecting to receive larger proceeds than Nemak’s dividends for the past ten years (~$600 million). Therefore, considering that Alfa owns 52.8% of Axtel, the valuation the conglomerate aspires for its telecom division is around at least $1.136 billion, in line with our PT2020 and 36% above current’s market capitalization of $834 million. However, the company could be subject to an acquisition premium. In that sense, if we assume an additional 15% for this concept, then the price per CPO could even exceed MXN 10.00, should the transaction be realized for the whole company. That said, Alfa could receive between $600 million and $688 million for its shareholding in Axtel.

Sum-of-the-Parts Valuation MXN, million

Segment EBITDA 2020E FV/EBITDA Participation EV $/share Infrastructure 2,398 11.0x 100% 26,380 $ 9.21 Services 1,925 5.6x 100% 10,782 $ 3.76 SOTP Value 4,323 8.6x 37,162 $ 12.97 (-) Net Debt (11,891)-$ 4.15 (=) Axtel Equity Value 25,271 CPOs outstanding 2,865

PT2020$ 8.82 Current Price $ 6.59 Upside Potential 33.8% Source: Banorte

Concept/Segment Infrastructure Services

2019 2020E Variation 2019 2020E Variation Gross Revenues 5,171 5,055 -2.2% 10,177 10,202 0.2%

Eliminations -2,564 -2,446 -4.6% EBITDA 2,287 2,398 4.9% 2,179 1,925 -11.6% EBITDA margin 44.2% 47.4% 3.2pp 21.4% 18.9% -2.5pp Source: Banorte

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Concept 2020E 2021E Anterior Actual Variation Anterior Actual Variation Revenues 12,589 12,811 +1.8% 13,474 13,387 -0.6% EBITDA 6,317 6,424 +1.7% 4,678 4,668 -0.2% EBITDA margin 50.2% 50.1% -0.1pp 34.7% 34.9% +0.2pp Net Income 641 782 +22.0% 79 141 +78.5% Source: Banorte

Relative valuation- Infrastructure Times P/E FV/EBITDA

Stock P/BV Dividend Yield LTM 2020E 2021E LTM 2020E 2021E

COMMSCOPE HOLDING CO INC 7.0x 8.3x 5.6x 34.3x 11.1x 9.6x UBIQUITI INC 34.0x 32.7x 30.0x 26.8x 27.5x 26.7x 0.6% MOTOROLA SOLUTIONS INC 21.5x 19.0x 16.6x 14.4x 13.6x 11.9x 1.8% INFINERA CORP 4.6x 26.4x 11.8x ANTERIX INC 3.4x PAGERDUTY INC 7.2x TELESITES SAB DE CV 4.8x 63.2x 12.0x 11.3x 10.4x UNITI GROUP INC 502.0x 25.7x 9.3x 8.7x 8.4x 6.0% SARANA MENARA NUSANTARA PT 5.9x 20.5x 19.0x 12.3x 11.9x 11.6x 3.3% TOWER BERSAMA INFRASTRUCTURE 4.9x 28.3x 26.1x 22.1x 12.6x 12.1x 11.2x 2.2% INFRASTRUTTURE WIRELESS ITAL 1.8x 40.2x 35.9x 31.9x 27.9x 21.2x 18.0x 1.5% CHANGSHU FENGFAN POWER EQU-A 2.7x CROWN CASTLE INTL CORP 8.5x 90.1x 84.0x 73.8x 27.5x 27.7x 25.7x 2.9% AMERICAN TOWER CORP 31.0x 57.8x 61.1x 51.2x 24.2x 29.0x 26.9x 1.7% COMSYS HOLDINGS CORP 1.3x 15.6x 14.3x 13.5x 8.0x 7.6x 7.3x 2.6% CELLNEX TELECOM SA 5.3x 622.1x 204.1x 32.5x 23.4x 19.5x EUSKALTEL SA 1.4x 18.6x 19.0x 17.5x 8.9x 8.5x 8.3x 4.4%

PromedioTelecommunications Infraestructura Infrastructure de Telecomunicaciones Average 6.4x 38.2x 120.4x 44.2x 19.3x 17.2x 14.8x 2.7% MedianaTelecommunications Infraestructura Infrastructure de Telecomunicaciones Median 4.8x 31.1x 29.4x 25.7x 14.4x 12.9x 11.7x 2.4%

AXTEL SAB DE CV - CPO 4.6x 47.7x 24.1x 133.6x 5.1x 4.8x 6.2x Premium/DiscountPremio/Descuento vs vs Mediana Median -4.2% 53.1% -18.0% 419.0% -64.9% -62.8% -46.8% Source: Bloomberg, Banorte

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Relative valuation- Telecommunications Times P/E FV/EBITDA

Stock P/BV Dividend Yield LTM 2020E 2021E LTM 2020E 2021E

VERIZON COMMUNICATIONS INC 3.9x 11.0x 12.4x 12.0x 7.8x 8.0x 7.7x 4.2% AT&T INC 1.2x 13.0x 9.5x 9.3x 7.0x 7.4x 7.3x 6.9% DEUTSCHE TELEKOM AG-REG 2.3x 18.2x 14.1x 12.8x 5.9x 5.2x 4.9x 4.0% VODAFONE GROUP PLC 0.6x 21.6x 16.0x 4.4x 6.3x 6.0x 6.8% TELEFONICA SA 1.5x 7.8x 7.5x 5.1x 4.6x 4.6x 11.3% ORANGE 1.0x 9.9x 9.6x 8.8x 4.6x 5.2x 5.0x 5.1% BCE INC 3.1x 17.1x 18.7x 16.7x 8.4x 8.5x 8.1x 5.9% VIVENDI 1.6x 15.1x 22.2x 18.4x 14.4x 14.5x 12.8x 2.6% BT GROUP PLC 0.7x 6.1x 5.9x 5.6x 4.0x 4.0x 4.0x 4.3% TELENOR ASA 7.3x 37.2x 15.6x 13.2x 6.7x 6.3x 6.1x 5.9% ROGERS COMMUNICATIONS INC-B 2.8x 15.7x 18.7x 14.7x 8.2x 8.7x 7.9x 3.6% TELEFONICA BRASIL S.A.-PREF 1.3x 19.4x 17.8x 15.4x 5.1x 5.2x 5.1x 5.2% KONINKLIJKE KPN NV 3.6x 13.9x 18.4x 15.5x 5.9x 6.6x 6.5x 5.9% TELECOM ITALIA SPA 0.4x 7.9x 9.1x 8.9x 5.2x 5.4x 5.4x PROXIMUS 1.9x 13.8x 10.8x 10.7x 5.0x 4.6x 4.6x 8.9% TELE2 AB-B SHS 2.5x 24.5x 20.8x 19.4x 11.2x 11.5x 11.1x 4.5% TIM PARTICIPACOES SA 1.7x 20.1x 27.1x 19.6x 5.5x 5.6x 5.3x MILLICOM INTL CELLULAR S.A. 1.4x 18.8x 5.2x 3.7x 3.5x TELECOM ARGENTINA S.A.-B 1.4x 49.2x 7.8x 7.2x 6.7x 3.7% TURKCELL ILETISIM HIZMET AS 1.8x 11.3x 8.8x 6.9x 3.9x 3.6x 3.2x NOS SGPS 2.1x 23.3x 17.1x 12.0x 5.5x 5.1x 4.9x 7.7% OI SA-PREFERENCE 1.3x 8.3x 7.8x AMERICA MOVIL SAB DE C-SER L 5.7x 37.9x 27.6x 10.2x 5.7x 5.7x 5.3x 2.7%

PromedioTelecommunications Telecomunicaciones Average 2.2x 17.5x 15.7x 14.6x 6.5x 6.6x 6.2x 5.5% MedianaTelecommunications Telecomunicaciones Median 1.7x 15.4x 16.3x 13.0x 5.6x 5.7x 5.4x 5.1%

AXTEL SAB DE CV - CPO 4.6x 47.7x 24.1x 133.6x 5.1x 4.8x 6.2x Premium/DiscountPremio/Descuento vs vs Median Mediana 176.7% 209.8% 47.8% 928.0% -9.5% -15.7% 16.4% Source: Bloomberg, Banorte

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Certification of Analysts. We, Gabriel Casillas Olvera, Alejandro Padilla Santana, Delia María Paredes Mier, Juan Carlos Alderete Macal, Manuel Jiménez Zaldívar, Marissa Garza Ostos, Tania Abdul Massih Jacobo, Francisco José Flores Serrano, Katia Celina Goya Ostos, Santiago Leal Singer, José Itzamna Espitia Hernández, Valentín III Mendoza Balderas, Víctor Hugo Cortes Castro, Hugo Armando Gómez Solís, Miguel Alejandro Calvo Domínguez, Luis Leopoldo López Salinas, Leslie Thalía Orozco Vélez, Gerardo Daniel Valle Trujillo, Eridani Ruibal Ortega and Juan Barbier Arizmendi, certify that the points of view expressed in this document are a faithful reflection of our personal opinion on the company (s) or firm (s) within this report, along with its affiliates and/or securities issued. Moreover, we also state that we have not received, nor receive, or will receive compensation other than that of Grupo Financiero Banorte S.A.B. of C.V for the provision of our services.

Relevant statements. In accordance with current laws and internal procedures manuals, analysts are allowed to hold long or short positions in shares or securities issued by companies that are listed on the Mexican Stock Exchange and may be the subject of this report; nonetheless, equity analysts have to adhere to certain rules that regulate their participation in the market in order to prevent, among other things, the use of private information for their benefit and to avoid conflicts of interest. Analysts shall refrain from investing and holding transactions with securities or derivative instruments directly or through an intermediary person, with Securities subject to research reports, from 30 calendar days prior to the issuance date of the report in question, and up to 10 calendar days after its distribution date.

Compensation of Analysts. Analysts’ compensation is based on activities and services that are aimed at benefiting the investment clients of Casa de Bolsa Banorte and its subsidiaries. Such compensation is determined based on the general profitability of the Brokerage House and the Financial Group and on the individual performance of each analyst. However, investors should note that analysts do not receive direct payment or compensation for any specific transaction in investment banking or in other business areas.

Last-twelve-month activities of the business areas. Grupo Financiero Banorte S.A.B. de C.V., through its business areas, provides services that include, among others, those corresponding to investment banking and corporate banking, to a large number of companies in Mexico and abroad. It may have provided, is providing or, in the future, will provide a service such as those mentioned to the companies or firms that are the subject of this report. Casa de Bolsa Banorte or its affiliates receive compensation from such corporations in consideration of the aforementioned services.

Over the course of the last twelve months, Grupo Financiero Banorte S.A.B. C.V., has not obtained compensation for services rendered by the investment bank or by any of its other business areas of the following companies or their subsidiaries, some of which could be analyzed within this report.

Activities of the business areas during the next three months. Casa de Bolsa Banorte, Grupo Financiero Banorte or its subsidiaries expect to receive or intend to obtain revenue from the services provided by investment banking or any other of its business areas, by issuers or their subsidiaries, some of which could be analyzed in this report.

Securities holdings and other disclosures. As of the end of last quarter, Grupo Financiero Banorte S.A.B. of C.V. has not held investments, directly or indirectly, in securities or derivative financial instruments, whose underlying securities are the subject of recommendations, representing 1% or more of its investment portfolio of outstanding securities or 1 % of the issuance or underlying of the securities issued.

None of the members of the Board of Grupo Financiero Banorte and Casa de Bolsa Banorte, along general managers and executives of an immediately below level, have any charges in the issuers that may be analyzed in this document.

The Analysts of Grupo Financiero Banorte S.A.B. of C.V. do not maintain direct investments or through an intermediary person, in the securities or derivative instruments object of this analysis report.

Guide for investment recommendations.

Reference

BUY When the share expected performance is greater than the MEXBOL estimated performance. HOLD When the share expected performance is similar to the MEXBOL estimated performance. SELL When the share expected performance is lower than the MEXBOL estimated performance. Even though this document offers a general criterion of investment, we urge readers to seek advice from their own Consultants or Financial Advisors, in order to consider whether any of the values mentioned in this report are in line with their investment goals, risk and financial position.

Determination of Target Prices For the calculation of estimated target prices for securities, analysts use a combination of methodologies generally accepted among financial analysts, including, but not limited to, multiples analysis, discounted cash flows, sum-of-the-parts or any other method that could be applicable in each specific case according to the current regulation. No guarantee can be given that the target prices calculated for the securities will be achieved by the analysts of Grupo Financiero Banorte S.A.B. C.V, since this depends on a large number of various endogenous and exogenous factors that affect the performance of the issuing company, the environment in which it performs, along with the influence of trends of the stock market, in which it is listed. Moreover, the investor must consider that the price of the securities or instruments can fluctuate against their interest and cause the partial and even total loss of the invested capital.

The information contained hereby has been obtained from sources that we consider to be reliable, but we make no representation as to its accuracy or completeness. The information, estimations and recommendations included in this document are valid as of the issue date, but are subject to modifications and changes without prior notice; Grupo Financiero Banorte S.A.B. of C.V. does not commit to communicate the changes and also to keep the content of this document updated. Grupo Financiero Banorte S.A.B. of C.V. takes no responsibility for any loss arising from the use of this report or its content. This document may not be photocopied, quoted, disclosed, used, or reproduced in whole or in part without prior written authorization from Grupo Financiero Banorte S.A.B. of C.V. History of PT and ratings Stock Date Recommendation PT Axtel CPO 11/08/2020 Buy $9.00 Axtel CPO 15/01/2020 Buy $4.50 Axtel CPO 17/04/2019 Buy $3.15 Axtel CPO 24/04/2019 Buy $3.59

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GRUPO FINANCIERO BANORTE S.A.B. de C.V.

Research and Strategy Gabriel Casillas Olvera IRO and Chief Economist [email protected] (55) 4433 - 4695 Raquel Vázquez Godinez Assistant [email protected] (55) 1670 - 2967 Lourdes Calvo Fernández Analyst (Edition) [email protected] (55) 1103 - 4000 x 2611

Economic Research and Financial Market Strategy Executive Director of Economic Research and Financial Alejandro Padilla Santana [email protected] (55) 1103 - 4043 Markets Strategy Itzel Martínez Rojas Analyst [email protected] (55) 1670 - 2251

Economic Research Juan Carlos Alderete Macal, CFA Director of Economic Research [email protected] (55) 1103 - 4046 Francisco José Flores Serrano Senior Economist, Mexico [email protected] (55) 1670 - 2957 Katia Celina Goya Ostos Senior Economist, Global [email protected] (55) 1670 - 1821 Luis Leopoldo López Salinas Economist, Global [email protected] (55) 1103 - 4000 x 2707

Market Strategy Manuel Jiménez Zaldívar Director of Market Strategy [email protected] (55) 5268 - 1671

Fixed income and FX Strategy Santiago Leal Singer Senior Strategist, Fixed Income and FX [email protected] (55) 1670 - 2144 Leslie Thalía Orozco Vélez Strategist, Fixed Income and FX [email protected] (55) 5268 - 1698

Equity Strategy Marissa Garza Ostos Director of Equity Strategy [email protected] (55) 1670 - 1719 José Itzamna Espitia Hernández Senior Strategist, Equity [email protected] (55) 1670 - 2249 Valentín III Mendoza Balderas Senior Strategist, Equity [email protected] (55) 1670 - 2250 Víctor Hugo Cortes Castro Senior Strategist, Technical [email protected] (55) 1670 - 1800 Eridani Ruibal Ortega Analyst [email protected] (55) 1103 - 4000 x 2755 Juan Barbier Arizmendi Analyst [email protected] (55) 1670 - 1746

Corporate Debt Tania Abdul Massih Jacobo Director of Corporate Debt [email protected] (55) 5268 - 1672 Hugo Armando Gómez Solís Senior Analyst, Corporate Debt [email protected] (55) 1670 - 2247 Gerardo Daniel Valle Trujillo Analyst, Corporate Debt [email protected] (55) 1670 - 2248

Economic Studies Delia María Paredes Mier Executive Director of Economic Studies [email protected] (55) 5268 - 1694 Miguel Alejandro Calvo Domínguez Senior Analyst, Economic Studies [email protected] (55) 1670 - 2220

Wholesale Banking Armando Rodal Espinosa Head of Wholesale Banking [email protected] (81) 8319 - 6895 Alejandro Aguilar Ceballos Head of Asset Management [email protected] (55) 5268 - 9996 Alejandro Eric Faesi Puente Head of Global Markets and Institutional Sales [email protected] (55) 5268 - 1640

Alejandro Frigolet Vázquez Vela Head of Sólida Banorte [email protected] (55) 5268 - 1656 Arturo Monroy Ballesteros Head of Investment Banking and Structured Finance [email protected] (55) 5004 - 1002 Carlos Alberto Arciniega Navarro Head of Treasury Services [email protected] (81) 1103 - 4091 Gerardo Zamora Nanez Head of Transactional Banking, Leasing and Factoring [email protected] (81) 8318 - 5071

Jorge de la Vega Grajales Head of Government Banking [email protected] (55) 5004 - 5121 Luis Pietrini Sheridan Head of Private Banking [email protected] (55) 5004 - 1453 Lizza Velarde Torres Executive Director of Wholesale Banking [email protected] (55) 4433 - 4676 Osvaldo Brondo Menchaca Head of Specialized Banking Services [email protected] (55) 5004 - 1423 Raúl Alejandro Arauzo Romero Head of Transactional Banking [email protected] (55) 5261 - 4910 René Gerardo Pimentel Ibarrola Head of Corporate Banking [email protected] (55) 5268 - 9004 Ricardo Velázquez Rodríguez Head of International Banking [email protected] (55) 5004 - 5279 Víctor Antonio Roldan Ferrer Head of Commercial Banking [email protected] (55) 5004 - 1454

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