Sunrise Over El Dorado : Alianza : November 28th 2018 Edit name

DAILY THOUGHT : The country and the Government are bracing themselves for the largest street demonstrations yet however this time the students will be joined by other sectors of society who want to be heard including the agriculture workers and some public sector workers. President Duque is correct in welcoming peaceful protest as part of the democratic process and also correct in pointing out that the 2018 education budget is not his handiwork - the protesters are though be putting him on notice for 2019 and as if to react to that he made aspeech to commemorate his 111 days in power during which he pledged 47% of National Development Plan to social projects.

MARKETS

The COLCAP dropped 0.75% , closing @ 1383.27pts, total volume was USD33mn with 9% of that trading in a closing auction which was positive in nature. For once Ecopetrol did not dominate volume with the most traded stocks being GRUPOSURA (USD 4mn), BCOLOM (USD 2.6mn) and ISA (USD 2.4mn). In terms of movement we saw better days for ECOPETROL (+2.11%) , PFGRUPOARGOS (+1.36%) and EEB (+1.09) whilst MINEROS (-5.94%) , EXITO (-3.65%) and CNEC (-3.35%) all struggled. The Peso continues to weaken and yesterday gave up another 0.54% to close at 3262 on strong volume of USD1.35bn. With 3200 left behind as a support level 3300 is suddenly looming on the horizon, if oil doesn't find a significant bid we may be testing new support levels.

The bond market fell further yesterday on modest volume, the 2024 benchmark rose 4.9bps to 6.43% whilst the longer 2032 closed out the session 4.1bps weaker at 7.47%.

This tiny segment will be used for a brief update of the shenanigans of the tax reform debate :

The reform has been holed a long way below the water line, Congress members torpedoed the clause which limits the amount of VAT that companies can claw back to 90%, inflationary effects were given as the motivation - that accounts for around 42% of the total of USD4.28bn in extra revenues for the Government, the Congress has thrown back to the various committees the remaining COP7bn (around 50% of the needed amount) to discuss. Amidst the debate we had the President of the stock exchange in the press calling for the whole bill to be withdrawn, rethought and resubmitted in 2019 - at this point the sentiment of many watching events from afar.

ECOPETROL Recommendation : Underweight Price Target : COP2,800 The company announced their Capex plans for 2019 which will fall in the range of USD3.5-4bn with 92% of that investment directed towards Colombia.

• Exploration will increase from the 2018 figure of USD250mn to USD460mn (minimum) in 2019.

• There estimates are based on an oil barrel of between USD55-65.

• Break even price will be USD36.

• Production will rise to 720-730k boepd - that excludes any acquisitions, this compares with a 2018 YTD number of 715k whilst the Q3 number was 724k.

• All investments will come from cash flow.

• The two refineries at Cartagena and Barrancabermeja will handle between 350-375bpd.

The company also announced separately that on December 27th due to their handsome cash position they will pay off all of the USD1.5bn 19/7/2019 bond - this will lower their gross debt/EBITDA position form 1.4x - 1.2x. CORFICOL

Recommendation : Overweight Price Target : COP30,000 If there was one thing holders of CORFICOL & GRUPO AVAL didn't want to wake up to yesterday it was the news of another tragedy related to one of their subsidiary's's infrastructure projects which cost 5 lives. Without wishing to gloss over the human cost neither these companies nor the infrastructure sector in general can afford such headlines. ISA Recommendation : Neutral Price Target : COP16,000 For those who missed the full report yesterday : Recommendation : Neutral Price Target : COP16,000 Such was the success of ISA's 2020 plan that they finished years ahead of schedule - this led them to gather experts from the sectors they work in, as well as those they are targeting for the coming 12 years in order to launch a new strategy. This is going to be a challenging 12 years when compared to the last strategic plan - much of the low hanging fruit has been taken whilst new more aggressive competitors are appearing in many markets, that said they have a plan which is centered on diversity and sticking to what the principals that have got them this far. 1. Brazil : This has become a key component of the company's's revenues and EBITDA and whilst new players from Asia have threatened to lower margins due to their aggressive bidding it is a BIG country with lots of opportunities, this is something of a Catch 22, arguably the easiest country to grow in but the one where they are trying to limit its effect on diversity. 2. Renewables : An area they are looking at, if producers are turning to solar and wind they have to be ready to deliver it - sustainability was high on the agenda of the event in general. 3. Roads : Firstly in Chile they see big potential still however new competitors with new types of funding who accept lower returns will see margins compressed versus when they arrived. Secondly whilst they have yet to have any success in Colombia they continue to look, they also see good potential in Peru - their experience makes them better prepared. 4. EPM Sale : They won't be buying the 10%. 5. USA : A market they are looking at - 2023 is a potential date. 6. Panama Connection : This project is still alive although the pulse is weak compared with 2008 when it appeared. 7. Regulation : Whilst they are the dominant player in Colombia they still see a lot of room for development, recent issues on the coast have highlighted this fact, the bottleneck is the legislation written in the 1990's when ISA completely dominated the energy sector - times have moved on and they hoping for changes which would allow them to participate in more areas domestically. The company are set to be as big as ever on sustainability whilst via attending ever more the sustainable generation sector via entities such as their own XM. The company have had a very successful past few years and have emerged into the light once again under the stewardship of Bernardo Vargas (I will forgive the fact he has stolen my unshaven look) and whilst we have NEUTRAL rating this is essentially due to the EPM stake sale - away from that there is 22% of upside.

DISCLAIMER The information contained in this report is not based on, does not include or/and has not been structured upon privileged information. Any opinion or projection contained in this document is exclusively attributable to its authors and has been prepared in an independent and autonomous way with information that was available as of this date, any investment decisions taken should be based on a variety of criteria not uniquely the information herein contained. Future projections, estimates and previsions are subject to various risks and uncertainties, which prevent us from ensuring that the former will be correct and precise in the future, or from stating that the information, interpretations and knowledge upon which they are based will eventually prove valid. In the same token, real results may substantially differ from the projections contained herein. By making use of this document you are agreeing to adhere to the limitations set forth above.