Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

Fundamental trends at <a href="https://www.smartkarma.com/entities/27801" target="_blank" data-smartkarma-citation="entities:27801:1">Banco de Bogota SA (BOGOTA CB)</a> are benign and stand out within LATAM’s banking universe. Key metrics/signals at 9M18 underline positive fundamental momentum embodied in a high PH Score™. Asset quality is the thorny issue (as elsewhere) but seems to be at least stabilizing.
We are mindful of some accounting adjustments (related to retroactive income from IFRS 15 treatment of infrastructure assets and a share issue at Corficolombiana) plus “other” operating income (mainly management of FX movements in Central America) that boosted the bottom-line. However, the “underlying” trend is of gradually improving profitability and efficiency.
Banco de Bogota can benefit from the relatively sound macro backdrop (by regional standards) under the market-oriented stewardship of President Duque and Finance Minister, Carrasquilla.
The bank is part of the AVAL Group, managed by the pioneering conservative Sarmiento family. While Banco de Bogota is an iconic brand in Colombia, the bank is today active in Central America. Costa Rica (despite its very acute fiscal and FX issues) and Guatemala are reporting quite strong growth while Panama exhibits a moderation in activity and Nicaragua is fraught with political-economic challenges. Honduras and El Salvador loan growth is vibrant across segments.
The bank strategy is based on digitalization (buoyant growth of digital savings account openings and digital credit cards in Colombia); on fee generation from Porvenir pensions and severance funds; on higher-margin consumer lending and corporate credit across Central America; on mortgages and retail product in Colombia, balanced by a solid CASA deposit base; and on strictly fortifying its capital base in order to comply with Basel 111 (did not participate in Corficolombiana share issue). A plus at Banco de Bogota is that a third of Income is derived from non-interest income.
Shares of Banco de Bogota rate good value on earnings yield (11.7%) and total return ratio (1.3x) though valuation is flattered somewhat as noted previously. Franchise value of the holding <a href="https://www.smartkarma.com/entities/27802" target="_blank" data-smartkarma-citation="entities:27802:1">Grupo Aval Acciones y Valores (AVAL CB)</a> (that includes Bogota as well as Occidente and Popular) is attractive by LATAM standards. Shares of Banco de Bogota carry a tailwind of a quintile 1 PH Score™. A RSI of 29 intimates that shares are oversold, mainly due to a recent plunge related to an Odebrecht probe relating to the problematic Ruta del Sur concession. We see this episode as more damaging than fatal. Lessons can be learnt from the noise and greater clarity will evolve.

Fundamental trends at Banco de Bogota SA (BOGOTA CB) are benign and stand out within LATAM’s banking universe. Key metrics/signals at 9M18 underline positive fundamental momentum embodied in a high PH Score™. Asset quality is the thorny issue (as elsewhere) but seems to be at least stabilizing.
We are mindful of some accounting adjustments (related to retroactive income from IFRS 15 treatment of infrastructure assets and a share issue at Corficolombiana) plus “other” operating income (mainly management of FX movements in Central America) that boosted the bottom-line. However, the “underlying” trend is of gradually improving profitability and efficiency.
Banco de Bogota can benefit from the relatively sound macro backdrop (by regional standards) under the market-oriented stewardship of President Duque and Finance Minister, Carrasquilla.
The bank is part of the AVAL Group, managed by the pioneering conservative Sarmiento family. While Banco de Bogota is an iconic brand in Colombia, the bank is today active in Central America. Costa Rica (despite its very acute fiscal and FX issues) and Guatemala are reporting quite strong growth while Panama exhibits a moderation in activity and Nicaragua is fraught with political-economic challenges. Honduras and El Salvador loan growth is vibrant across segments.
The bank strategy is based on digitalization (buoyant growth of digital savings account openings and digital credit cards in Colombia); on fee generation from Porvenir pensions and severance funds; on higher-margin consumer lending and corporate credit across Central America; on mortgages and retail product in Colombia, balanced by a solid CASA deposit base; and on strictly fortifying its capital base in order to comply with Basel 111 (did not participate in Corficolombiana share issue). A plus at Banco de Bogota is that a third of Income is derived from non-interest income.
Shares of Banco de Bogota rate good value on earnings yield (11.7%) and total return ratio (1.3x) though valuation is flattered somewhat as noted previously. Franchise value of the holding Grupo Aval Acciones y Valores (AVAL CB) (that includes Bogota as well as Occidente and Popular) is attractive by LATAM standards. Shares of Banco de Bogota carry a tailwind of a quintile 1 PH Score™. A RSI of 29 intimates that shares are oversold, mainly due to a recent plunge related to an Odebrecht probe relating to the problematic Ruta del Sur concession. We see this episode as more damaging than fatal. Lessons can be learnt from the noise and greater clarity will evolve.

Grupo Aval Acciones y Valores (PFAVAL CB)

Banco De Bogota: Value Colombia. Buy on the Negative Noise.