4q19’s investment strategy

Special Report4Q19’s Investment Strategy

August 27, 2019ANALYST CERTIFICATIONS AND REQUIRED DISCLOSURES BEGIN ON PAGE 11

We’re updating our Top Picks for 4Q19, in which we expect a positive performanceof the Colombian stock market despite the risks at the international level.

First, after the surprise in Q2 economic growth figures, we expect GDP to slightlyaccelerate its pace in the second half thanks to the stability of private consumptiontogether with a better capital formation context and higher payment of publicsector payrolls.

On the other hand, in relative terms the Colombian market still presents attractivemultiples when compared with its own history and with regional peers. This iscomplemented by a fundamental view in which most Colombian companiesoperate below their fair values.

Despite this, we cannot ignore that equity investment is subject to taking on someimportant risks such as the economic outlook of our main trading partners, thetensions of the US-China trade war, and corporate governance issues in some listedcompanies.

COLCAP: a Market in Recovery – 1,720 Points by Year End

Our strategy team expects the COLCAP to gain 11%, reaching 1,720 points at theend of the year. Much of this upside potential is explained by the fundamentalmodel, the most optimistic one, and by the relative valuation model, which recordsa growth in profits in companies part of the index; on the contrary, the feelingmodel is the most affected, since to some extent it captures the current marketsituation.

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 gotthe best score to be our Top Picks are Ecopetrol, Cementos Argos, Grupo Argos andGrupo Nutresa.

We would also like to make a special mention to Grupo Exito which got a betterrating than Grupo Nutresa, however, we decided to exclude it from the portfoliosince the potential profitability of this name will be limited by the bid that GPAprepares to make for COP18,000 a share, and which is still pending approval.

Track Record of our Top Picks

During 3Q19, our Top Picks beat the COLCAP by 53 bps and 164 bps compared toour eligible basket (excluding Bancolombia and Grupo Sura, being related parties).This positive performance is mainly explained by the behavior of the stock of Exito(+26%).

Overall, since publication, our Top Picks have lost 115 bps against the COLCAP, buthave exceeded our eligible basket by 347 bps, which shows that the selection isimportant.

Keeping the Bet

Name: Jairo Julián Agudelo RestrepoPhone: (574) 6047048E-mail: [email protected]

Name: David AldanaPhone: (571) 7463967E-mail: [email protected]

Analysts & Strategy

4Q19 Top Picks

Source: Grupo Bancolombia.

Ecopetrol;

30%

Grupo

Argos ; 30%

Cemargos;

20%

Nutresa; 20%

The release of the 2Q19 national accounts implied a significant change in themacroeconomic scenario of the country. From an economy that seemed to beexperiencing a stabilization in growth at levels below its potential in 1Q19 (2.8%),the new figures revealed a more positive dynamic for 1H19 (3%), which allowssustaining the expectation of closing the GDP gap during 2020. In this scenario, theretail, transport and accommodation sector (4.4%), together with governmentadministration, health and education (3.5%), have been the pillars of thestrengthening growth so far this year. This evolution has been possible thanks tothe momentum in domestic demand (which grew 4.3% in 1H19). The behavior ofprivate consumption in particular (4.6%) has allowed the country to face theheadwinds coming from the international economic slowdown. With the escalationin the trade war between the US and China, the international trade landscape hasprogressively weakened in recent months and, today, continues to be dominatedby uncertainty about what may happen in the coming months.

In addition, there’s the weakness of the region, which has motivated most LatinAmerican central banks to initiate easing movements in their monetary policypositions. Despite this, there are not many prospects for regional acceleration inthe remainder of the year, only until 2020 analysts’ view incorporates a moreconstructive productive activity context in the two major economies of the region(Brazil and Mexico). This set of elements has imposed a ceiling on the growth of theColombian external sector, not only from the demand for our goods, but also dueto the low international prices of commodities.

With the imminent deceleration of growth in the US, our main trading partner, webelieve that bearish pressures in the external sector could increase in the comingquarters. The good news is that we expect the purchase of goods abroad to also gothrough a moderation trend, such that the trade imbalance over the currentaccount deficit eases and its widening versus the 4.6% of the GDP in 1Q19 islimited. It should be noted that, despite international turbulence, foreign directinvestment remains and will continue to be the main financer of this deficit.

In this context, the evolution of the national economy will continue to be tied tothe momentum in domestic demand and local productive activity. In this regard,leading indicators show a horizon of mixed perspectives. Consumer confidence,which persists in pessimistic territory, and the slow labor market rise as the mainobstacles to overcome so that private consumption maintains its recent expansionrate. Meanwhile, low commercial interest rates and inflation that would remainwithin the Central Bank’s target range counterbalance the balance from the bullishside. Thanks to the expectation of monetary policy stability, which we considerslightly expansive until 2020, the process of recovery of the economy is expected tocontinue in 2H19. In this process, the balance of the bearish drivers in the dynamicsof consumption should improve, as long as political developments allow it, where itis worth highlighting the risk of the possible start of the process of a pensionreform, where media noise could affect short-term expectations of households.

Regarding government consumption, the agreement of the salary increase to publicemployees in July can boost the item in the national accounts of the second half. Inaddition, the expenses related to the regional electoral process will balance theaccounts against the presidential elections held last year, such that there shouldnot be any negative effect despite the pre-election period of the Guarantees Law.As a whole, we believe that government consumption will slightly gain traction inthe second half of the year.

What to Expect on the Macro Front?


Figure 1 – GDP evolution and forecast


Figure 2 – CPI evolution and forecast


Figure 3 – Current repo rate and forecast

Finally, in the area of investment, we believe that there may be a partial change ofits protagonists. While the larger investment in machinery and equipment wasmainly caused by the acquisition of transportation equipment in the first half of theyear, we expect the purchase of capital goods by the manufacturing industry torebound onwards. Preliminary import figures for July already reveal an activation ofthis item and would be based on the positive expectations of manufacturers inconfidence surveys.

Meanwhile, government investment will continue to lead the evolution ofconstruction activity, on account of the execution of infrastructure projects at theregional level and the reactivation of 4G road works at the national level. Webelieve the construction of buildings, particularly the housing market, will continueposting a slowdown trend in its contraction rates that will allow it to enjoy a moreconstructive context next year. The most recent figures have revealed a recovery ofthe non-low-income segment, the one with the highest value, dominated by thereturn to positive ground of sales growth for middle-income households. Once thegrowth of the economy exceeds the potential, we believe that the purchase ofhousing from the high-income segment will also return to positive values.

In short, we expect economic growth to slightly accelerate in the second half thanksto the stability of private consumption together with a better context of capitalformation and the higher payroll payment of the public sector. From the externalfront, headwinds could intensify, such that volatilities in international marketscould continue, but we believe that the net impact on national economic activitywill be limited.

. Table 1 – GDP Growth by Sector

Source: Bloomberg, Grupo Bancolombia.

Pre. Rev.

GDP growth 100% 3,5% 1,4% 2,6% 3,2% 3,1% 3,0% 3,1%

Agriculture 6,2% 2,9% 5,5% 2,1% 2,0% 2,0% 1,7% 2,2%

Mining 5,1% 3,7% -5,7% -0,2% 3,7% 3,5% 3,2% 3,8%

Industry 12,1% 1,4% -1,8% 1,8% 3,7% 3,0% 1,7% 4,2%

Energy,Gas, Water 3,0% 2,3% 2,9% 2,7% 1,7% 2,6% 2,9% 2,3%

Construction 6,8% 4,1% -2,0% 0,8% 2,8% -0,1% -2,4% 1,8%

Retail 17,2% 3,6% 1,9% 3,3% 3,0% 3,6% 4,4% 2,9%

Information and Communications 2,9% 3,7% -0,2% 3,0% 1,9% 3,1% 4,0% 2,2%

Financial and Insuranse Services 4,6% 6,8% 5,4% 3,3% 4,5% 4,7% 5,0% 4,4%

Real Estate 8,9% 3,2% 3,1% 2,0% 2,1% 2,7% 3,1% 2,4%

Professional Services 7,0% 3,4% 1,3% 5,0% 3,8% 3,7% 3,6% 3,9%

Public Administration 14,7% 4,6% 3,5% 4,2% 4,1% 3,6% 3,5% 3,6%

Entertainment 2,4% 3,7% 2,2% 1,7% 2,4% 2,3% 2,5% 2,0%

Taxes 9,1% 3,6% 1,1% 2,3% 3,3% 3,4% 3,4% 3,4%

2019 (Pr.)1S19 2S19 (Pr.)Sector Part.

Ave. 10

years2017 2018

COLCAP: Market with Potential but Limited by International Risks

This year has been challenging for the stock market, although there is still ascenario where different geographies worldwide show profit growth and economicexpansion, the consequences of the trade tensions between the US and China beginto materialize, generating downward revisions in the projections of globaleconomic growth and therefore in the estimates of profits. Although during theyear most markets have recorded valuations, trade tensions between the US andChina, the political risks in Argentina, the high probabilities of a Brexit without anagreement, and Germany and its economic slowdown left investors in a state ofcaution and greater risk aversion that resulted in volatility at some points duringthe year with generalized corrections.

Regarding the Colcap, although it has also been affected by challenginginternational scenarios, the local stock market has excelled over its regionalcounterparts thanks to the positive returns recorded. The largest discounts in theindex so far this year were recorded between April and June, months in which thevolatility due to trade tensions between China and the US returned; additionally,corporate governance issues such as Avianca’s also generated some distrustamongst investors. However, a scenario that estimates double-digit growth inColcap companies, economic growth data of the country that stand out against theregion, and a relative discount against peers are the main catalysts in theColombian stock market.

Is the Local Market still Attractive?

Although the Colcap has had a positive year, we believe that several factors couldhelp it maintain the valuations recorded in recent months or present additionalvaluations driven by certain assets that still look cheap. However, these additionalvaluations could be limited by risk aversion scenarios amongst investors due to thechallenging international context.

In terms of relative valuation, the current multiple that relates the market price toexpected earnings (11.7x) shows a contraction and reaches levels below thehistorical average of the last three years, standing 1 SD below its historical average.This proves that although the Colcap has presented positive returns during the yearwith respect to its own history, there is still some cheapening, together with thepositive scenario that is estimated for profits.

Regarding the region and in terms of expected P/E, high valuations are observed inthe main markets, and even countries such as Peru, Mexico and Chile are abovetheir historical average of the last three years. Colombia, on the other hand, offersa discount of -7% compared to the historical average of emerging countries, lookingattractive compared to the historical average of the aggregate of the region and itspeers, unlike Argentina, which presents an important discount associated withpolitical risks, not well seen by investors.

The above shows that in relative terms the Colombian market still looks attractive,however, a responsible selection of assets that helps facing possible volatilities thatmay arise in the future is increasingly relevant.

Figure 7 - P/E Colombia vs. peers

Figure 6 - Colcap’s P/E multiple

Figure 4 - Main indexes returns

Figure 5 - Colcap’s YTD evolution

*Calculations with prices as of August 16, 2019.

1,200

1,300

1,400

1,500

1,600

1,700

Jan-19 Mar-19 May-19 Jul-19

-16

-12

-8

-4

0

4

8

12

16

20

%

YTD 1M

10

11

12

13

14

15

16

17

18

19

20

Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Aug-18 Feb-19 Aug-19

Avg 3Y FWD P/E

0

4

8

12

16

20

EM LatAm Col Bra Méx Arg Per Chil

FWD PE EM Avg 3 y





Under the context explained above, the COLCAP index is estimated to post arecovery of 11% compared to current levels, reaching 1,720 points. Much of thispotential upside is explained by the fundamental model, the most optimistic, andby the relative valuation model, which records a growth in profits in the companiespart of the index; on the contrary, the sentiment model is the most affected, sinceit somehow captures the current market situation.

Fundamental Model

Under this model, it is assumed that all companies would release their fundamentalpotential at the end of 2019, according to the target prices for each one, which aretaken from the area of equity research or the consensus of Bloomberg analysts. Atthe current levels of the index, the fundamental methodology shows a potentialupside of 18%, up to 1,826 points, this high potential derives not only from thediscounts presented during the year by some assets, but also from the increases intarget prices of the stocks of the financial sector (largest sector of the index with a43% share) and other assets such as ISA and Grupo Exito.

Although the return under this model looks very attractive, the rest of the modelssuggest other downside risks that could be limiting the materialization of thispotential.

Relative Valuation Model

The result of this methodology yields a target level of 1,720 points, suggesting arecovery of 11%. The theory behind this valuation method assumes that the level ofthe index at the end of 2019 will be determined by i) earnings per share (EPS 2020E)and ii) the expected P/E (FWD P/E). From a corporate perspective, it is important tohighlight that double-digit growth in the Colcap’s EPS is estimated, mainly driven bypositive estimates of the financial sector’s earnings. In addition, there’s an expectedP/E multiple in which its 12m historical average stands at a level of 10.4 times.

Feeling Model

Finally, this model suggests a year-end level of 1,627 points, with a potential upsideof 5% for the market. This model had been showing a clear upward trend in linewith market optimism since the end of 2018, however, some stability has begun tobe seen since mid-year, in line with the volatilities of international markets andwith a more perceived negative product of the current situation.

Although market agents are more conservative, they do not neglect some catalyststhat could support the market for what remains of 2019, among which we highlight:a cheaper Colombia compared to regional peers, remarkable economic recovery incomparison with the region, and an expansive monetary policy by the FED thatcould give the market more liquidity. On the other hand, the main risks would be:international geopolitical tensions and trade war, down revisions of globaleconomic projections, and concerns about corporate governance for somecompanies.

Figure 10 – Feeling model

Figure 9 - EPS 12m estimates

Figure 8 - Colcap model

Tabla 2 - Fundamental model

Colcap Projected for 2019: 1,720 points

*Calculations with prices as of August 16, 2019.

1,416

1,484 1,514

1,579

1,636 1,630

1,547 1,561

1,630

1,627

1,250

1,350

1,450

1,550

1,650

1,750

Feeling 1.627(+5%)

Colcap 1.720

(+11%)

Fundamental 1.826 (+18%)

RelativeValuation

1.720 (+11%)

5%

7%

9%

11%

13%

15%

17%

19%

Brazil Colombia Chile Mexico MSCI LatAm

Target Price (COP) Colcap Part. % Weighting

PF Bancolombia 40.663 14,71 0,52%

Grupo Sura 39.825 7,78 0,37%

Ecopetrol 3.460 13,42 7,53%

Nutresa 31.300 6,26 0,38%

Grupo Argos 22.600 4,77 0,47%

Bancolombia 41.280 6,86 0,26%

Cemargos 11.000 3,55 0,75%

PF Aval 1.391 4,93 6,16%

PF Grupo Sura 40.900 3,28 0,17%

ISA 18.500 7,97 0,68%

EEB 2.340 6,06 4,41%

PF Grupo Argos 22.600 2,72 0,31%

Corficolombiana 32.300 2,26 0,13%

Grupo Éxito 20.850 3,46 0,31%

Banco Bogotá 76.800 2,72 0,06%

Davivienda 39.300 3,65 0,13%

PF Cemargos 11.000 1,29 0,31%

Cemex Latam holdings 10.950 0,58 0,20%

Celsia 5.310 2,27 0,79%

Avianca Holdings 2.193 0,48 0,51%

Canacol 12.020 0,49 0,06%

Conconcreto 1.540 0,11 0,42%

ETB 525 0,08 0,50%

BVC 13.300 0,26 0,03%

COLCAP Fundamental 1826

COLCAP market price 1.543

Upside Valuation 18%





Top Picks Methodology1. Fundamental (20%): this variable takes into account the upside of each asset for 2019, taking into account our target

price on the companies in our coverage universe and the market consensus on the rest of the companies.

2. Liquidity (25%): we are using the selection function from the Colcap index (70%) that takes into consideration dailyaverage volume, frequency and rotation, and float (30%).

3. Momentum (25%): we are using three different variables: i) EBITDA growth for industrial companies and earnings andROAE growth for financial companies for the next quarter (30%), ii) current EV/EBITDA multiple vs. 3-year average forindustrial companies, and P/BV for financial companies (30%), and iii) EV/EBITDA multiple vs. peers for industrialcompanies, and P/BV for financial companies (40%).

4. Feeling (30%): we are using the average of results from a survey answered by several teams at Grupo Bancolombia, allof them with a wide knowledge in the stock market. We asked: i) the equity research team, ii) the equity strategy team,and iii) the equity sales team. Thus, we were able to complement the view from different angles.

A Look Back at our Recommendations

During 3Q19 our top picks portfolio beat the COLCAP index by 53 bps and 164 bps vs. our eligible basket (excludingBancolombia and Grupo Sura for being related parties).

This positive performance was mainly explained by the behavior of Exito (+26%), which benefited from the restructuring ofCasino, and its parent company Rallye, under the umbrella of GPA in Brazil. As a result, GPA’s board of directors approved anall-cash tender offer to buy Grupo Exito for COP18,000 per share, boosting the stock price.

Looking at the bigger picture, since inception, our top picks have lagged behind the COLCAP index by 115 bps, but haveoutperformed our eligible basket by 347 bps, showing that selection matters.

Table 3 – Biannual top picks follow-up

Portfolio ColcapAlpha (bps)

Colcap ex

related parties

Alpha

(bps)

1H15 -13,6% -8,5% -515 -10,9% -270

2H15 -4,2% -12,5% 830 -11,4% 720

1H16 20,7% 17,5% 325 20,3% 46

2H16 3,9% -1,3% 520 -1,3% 522

1H17 10,6% 14,0% -342 10,1% 47

2H17 6,8% 0,6% 625 3,8% 307

1H18 0,0% 8,0% -803 7,3% -728

2H18 -16,8% -11,1% -563 -14,4% -242

1Q19 13,9% 13,4% 53 11,9% 205

2Q19 -8,4% -6,2% -223 -6,0% -244

3Q19 3,2% 2,6% 53 1,5% 164

Total return 8,2% 9,4% -115 4,7% 347


Figure 11 – Top picks’ performance track record


70

80

90

100

110

120

130

140

Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19

Top Picks COLCAP COLCAP Ex Relacionadas

Updating our Top Picks for 4Q19

As mentioned in previous reports, the minimum rating required to be part of ourtop picks is 3.5, with a maximum of four stocks. In this case, the four stocks thatyielded the best ratings are Ecopetrol, Cementos Argos, Grupo Argos and GrupoNutresa.

As seen in table 3, Grupo Exito got a better rating than Grupo Nutresa, however, wedecided to exclude it from the portfolio since we believe the trade paid off whenCasino reported its Latam restructure strategy, and the potential profitability onExito will be limited in the public offering that GPA is preparing to make atCOP18,000 per share, and that is still pending approvals.

Table 4 – Results of Grupo Bancolombia’s top picks valuation model


Fundamental Momentum Liquidity Feeling Total Rating

Ecopetrol 5.00 3.20 5.00 3.77 4.18

Cemargos 5.00 3.00 4.53 3.53 3.94

Grupo Argos 5.00 2.50 3.70 3.52 3.60

Exito 4.00 3.50 3.65 3.21 3.55

Grupo Nutresa 4.00 3.10 3.03 3.99 3.53

Cemex Latam Holdings 5.00 3.50 2.28 3.01 3.35

Enka 5.00 4.10 1.60 2.85 3.28

ISA 2.00 2.40 4.28 3.90 3.24

Celsia 4.00 2.40 2.85 3.70 3.22

Avianca 5.00 2.40 2.98 2.35 3.05

ETB 5.00 3.50 1.85 2.17 2.99

Corficolombiana 4.00 2.00 2.40 3.30 2.89

Davivienda 1.00 3.10 3.00 3.48 2.77

GEB 3.00 1.30 3.80 2.89 2.74

Bogotá 3.00 1.60 1.55 3.09 2.32

Canacol 1.00 2.50 1.30 3.43 2.18

Terpel 2.00 3.10 0.58 2.42 2.04

Promigas 1.00 2.50 1.30 2.71 1.96

El Condor N/A

Conconcreto N/A

Weight 25% 25% 25% 25% 100%

Figure 12 – 4Q19 Top Picks


Ecopetrol;

30%

Grupo

Argos ; 30%

Cemargos;

20%

Nutresa; 20%

Our Top Picks

Ecopetrol – Good Mix of FX and Oil Prices

In view of the current situation, we highlight that the exchange rate has offset partof the fall in oil prices, leading Ecopetrol to show resilient results in 2019. The JVsigned between Ecopetrol and OXY is positive and goes beyond impacts on reservesand production. We believe this is the first step for the development ofunconventional deposits in Colombia since for the first time there will be Ecopetrolpersonnel directly involved in the operation of these wells and a learning curve willbegin for the correct development of the pilots in the Magdalena Medio basinwhich are meant to start at the end of 2020. On several occasions, we’ve statedthat if the viability of fracking in Colombia materielizes, it would have a positiveeffect on our target price and probably on the market price of the stock. Forward,we expect an improvement in profitability margins compared to 1H19, since nomore maintenance is expected at the Barrancabermeja or Reficar refineries.

Cementos Argos – US Market Continues with Strong Fundamentals

We believe Cemargos continues offering a very attractive upside potential, giventhe excessive discount the market has placed on the asset over the last year.Despite the recent weakness of the Central American market, we believe thecompany´s fundamentals are still strong, specially in the US market, whereCemargos makes half of its revenues and EBITDA.

As in the case of Grupo Argos, Cemargos will also be included in the FTSE EmergingIndex and should also post important buying volumes in the following weeks(around 25 days of trade to buy the entire position).

Grupo Argos – Attractive Upside Potential

We maintain our positive view on Grupo Argos; in our opinion, all its strategicinvestments (Cemargos, Celsia and Odinsa) are currently undervalued by themarket, making Grupo Argos an attractive vehicle for those who want to bet on thedevelopment of the infrastructure sector in Colombia.

Additionally, FTSE announced that Grupo Argos will be added to the FTSE EmergingIndex, effective at the close of September 20, which should represent verysignificant buying volumes for the stock in the coming weeks (calculations estimatearound 35 days of trade to buy the entire position).

Grupo Nutresa – Colombian Domestic Consumption Should Recover in 2019

Nutresa is an option to get exposure to the consumer sector in Colombia, ageography that represents 62.7% of the company’s sales. According to the mostrecent figures published by Raddar on household spending, there has been anaverage annual growth of 4.62% YTD, accentuated in recent months, and we expectthe positive behavior of the sector to continue in 4Q19. The company has alsoannounced to be assessing possible M&A transactions given its low level ofleverage, closing 2Q19 with a net debt/EBITDA indicator of 2.25x. On the otherhand, it is an asset that has a low beta, which makes it attractive to face a scenarioof high market volatility.

A Bargain for Long-Term Investors

ENKA – A Bet on Sustainability

For investors with a long-term horizon, we believe ENKA is a company that couldbring them positive returns as the turn-around story is positive from every angle.

On the one hand, its bet on sustainability will be supported and expanded by thegrowth of its PET-to-PET plant that is in the last step of financial planning and whichshould start construction in 2020. In addition, the “extended producerresponsibility” that Congress passed in 2018 will help to improve recycling rates,something that will allow ENKA to get the raw material for its plants (recycled PETbottles), eliminating the bottleneck.

On the other hand, the divisions of high tenacity yarns and textiles yarns have beenchanging their goals to focus on value-added products, which has helped ENKA toopen new markets, such as the US and Canada. With this decision, ENKAdifferentiates itself from commodity products coming mainly from Asia, which hashelped them improve profitability.

Additionally, the current market juncture is positive for its financial results. 96% ofEnka’s sales are USD denominated, which is why the current Colombian FXdevaluation has a positive impact on profitability, something we saw in 2Q19results and which should be maintained during the second half of the year.

In summary, Enka is a long-term bet on sustainability and profitability, changes thathave started to support financial results and that should keep their positiveperformance in coming quarters. The risk lies on liquidity, as it is a small capcompany with no controller.

For further information check out our report A Bet on Sustainability with all theinformation on Enka’s fundamental valuation.

https://connections.grupobancolombia.com/files/form/anonymous/api/library/d79759b7-d193-4c70-9fbd-063f6c641d89/document/b1c58dbd-9ab4-4674-a4c2-4e03808df8cb/media/Enka - Initiating coverage TP COP14.1.pdf

Fixed Income

Manuel Rey Ayala MD - International [email protected]+571 353 5205

Economic Research

Juan Pablo Espinosa ArangoHead of Economic [email protected]+571 7463991 ext. 37313

Diego Fernando Zamora DíazSenior [email protected]+571 7463997 ext. 37319

Arturo González PeñaQuantitative [email protected]+571 7463980 ext 37385

Santiago Espitia PinzónMacroeconomic [email protected]+ 571 7463988 ext. 37315

Bryan Hurtado CampuzanoInternational and Regional [email protected]+571 7463980 ext. 37303

Juan Manuel Pacheco PerezInternational and Markets [email protected]+571 7464322 ext. 37380

Juan Camilo Meneses CortesCentral Banking and Financial [email protected]+571 7463994 ext. 37316

Karen Stefanny Correa Castañ[email protected]+571 7463988 ext. 37310

Equity Research

Jairo Agudelo RestrepoHead of Equity [email protected] +574 6047048

Diego Buitrago AguilarEnergy [email protected] +571 7463984

Federico Perez Garcia Consumption & Industry [email protected] +574 6048172

Andrea Atuesta Meza Financial Sector [email protected]+571 7464329

Juliana Aguilar Vargas, CFACement & Infrastructure [email protected]+574 6047045

Ricardo Andrés Sandoval CarreraOil & Gas [email protected]+571 7464596

Valentina Martinez JaramilloJunior [email protected]+574 6048906

Research Assistant

Alejandro Quiceno RendónResearch Editor [email protected]+574 6048904

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Before making an investment decision, you should assess multiple factors such as the risks of each instrument, your risk profile, your liquidity needs, among others.This report is only one of many elements that you should consider in making your investment decisions. In order to extend the content of this information, we ask youto contact your business manager. We recommend you not to make any investment decision until fully understanding all factors involved in such decisions. Fixedincome and equity securities, interest rates, and other information found here are purely informational and are not an offer or firm demand to perform transactions.Also, according to the applicable regulations, our opinions or recommendations do not constitute a commitment or guarantee of return for the investor.

The information and opinions in this research report constitute a judgment as of the date indicated and are subject to change without notice. The information maytherefore not be accurate or current. Future projections, estimates, and forecasts are subject to several risks and uncertainties that prevent us from ensuring thatthey will prove correct or accurate, or that the information, interpretations, and knowledge on which they are based will be valid. In that sense, actual results maysubstantially differ from the forward-looking statements contained here. You should be aware of the fact that investments in securities or other financial instrumentsinvolve risks. Past results do not guarantee future performance.

The entities that are part of Grupo Bancolombia may have acquired and maintain at the time of preparation, delivery or publication of this report, for their ownposition or that of their clients, the securities or financial assets to which the reports refers. Grupo Bancolombia has risk policies to avoid a concentration in their ownpositions and those of their clients, which contributes to avoid conflicts of interest.

As regards to conflicts of interest, we declare that (i) Valores Bancolombia S.A. Comisionista de Bolsa and/or Banca de Inversión Bancolombia S.A. CorporaciónFinanciera have participated in structuring or underwriting/placing equity securities for Bancolombia S.A., (ii) Grupo Bancolombia is the beneficial owner of 10% ormore of the shares issued by Valores Simesa S.A., and Proteccion S.A., (iii) Bancolombia is one of the biggest shareholders of Fondo Inmobiliario Colombia – FIC, and(iv) Valores Bancolombia S.A. Comisionista de Bolsa is a wholly owned subsidiary of Bancolombia S.A. Nevertheless, it has been prepared by our Analysis Bancolombiadepartment team based on strict internal policies that require from us objectivity and neutrality, as well as independence from our areas of brokerage and investmentbanking.

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

NOTICE TO US INVESTORS

This report was prepared, approved, published and distributed by Valores Bancolombia company located outside of the United States (a “non-US Group Company”).This report is distributed in the U.S. by LXM LLP USA, a U.S. registered broker dealer, on behalf of Valores Bancolombia only to major U.S. institutional investors (asdefined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”)) pursuant to the exemption in Rule 15a-6 and any transaction effected by aU.S. customer in the securities described in this report must be effected through LXM LLP USA.

Neither the report nor any analyst who prepared or approved the report is subject to U.S. legal requirements or the Financial Industry Regulatory Authority, Inc.(“FINRA”) or other regulatory requirements pertaining to research reports or research analysts. No non-US Group Company is registered as a broker-dealer under theExchange Act or is a member of the Financial Industry Regulatory Authority, Inc. or any other U.S. self-regulatory organization.

Analyst Certification. Each of the analysts identified in this report certifies, with respect to the companies or securities that the individual analyses, that (1) the viewsexpressed in this report reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will bedirectly or indirectly dependent on the specific recommendations or views expressed in this report. Please bear in mind that (i) Valores Bancolombia is the employerof the research analyst(s) responsible for the content of this report and (ii) research analysts preparing this report are resident outside the United States and are notassociated persons of any US regulated broker-dealer and that therefore the analyst(s) is/are not subject to supervision by a US broker-dealer, and are not required tosatisfy the regulatory licensing requirements of FINRA or required to otherwise comply with US rules or regulations regarding, among other things, communicationswith a subject company, public appearances and trading securities held by a research analyst account.

Important US Regulatory Disclosures on Subject Companies. This material was produced by Analysis Bancolombia solely for information purposes and for the use ofthe recipient. It is not to be reproduced under any circumstances and is not to be copied or made available to any person other than the recipient. It is distributed inthe United States of America by LXM LLP USA and elsewhere in the world by Valores Bancolombia or an authorized affiliate of Valores Bancolombia. This documentdoes not constitute an offer of, or an invitation by or on behalf of Valores Bancolombia or its affiliates or any other company to any person, to buy or sell any security.The information contained herein has been obtained from published information and other sources, which Valores Bancolombia or its Affiliates consider to bereliable. None of Valores Bancolombia accepts any liability or responsibility whatsoever for the accuracy or completeness of any such information. All estimates,expressions of opinion and other subjective judgments contained herein are made as of the date of this document. Emerging securities markets may be subject torisks significantly higher than more established markets. In particular, the political and economic environment, company practices and market prices and volumes maybe subject to significant variations. The ability to assess such risks may also be limited due to significantly lower information quantity and quality. By accepting thisdocument, you agree to be bound by all the foregoing provisions.

LXM LLP USA assumes responsibility for the research reports content in regards to research distributed in the U.S. LXM LLP USA or its affiliates has not managed orco-managed a public offering of securities for the subject company in the past 12 months, has not received compensation for investment banking services from thesubject company in the past 12 months, does not expect to receive and does not intend to seek compensation for investment banking services from the subjectcompany in the next 3 months. LXM LLP USA has never owned any class of equity securities of the subject company. There are not any other actual, material conflictsof interest of LXM LLP USA at the time of the publication of this research report. As of the publication of this report LXM LLP USA, does not make a market in thesubject securities.

TERMS OF USE

RATING SYSTEM:

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

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 aforecast 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 payfor 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 aredetermined 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 therisks 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 thetarget 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 thecompanies 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 6 1 2

Percentage of issuers with ratings of: 55% 30% 5% 10%

4q19’s investment strategy

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