Sunrise Over El Dorado : Alianza : February 8th 2019

DAILY THOUGHT : The constitutional court ruled late on Wednesday that in a years time there will beno place in Colombia for the 21 hunting clubs and 10,000 people registered to hunt, good news of course as the Environmental Minister announce he wants a new 'Animal Friendly Country' . However just two weeks ago the Government sanctioned the farming and export of Caymens and bulls are still chased around arenas in the name of tradition - a clear disconnect when it comes to animal treatment.

The COLCAP had been overdue for a reversal and on a day when the region as well as the US was well in the red this was an obvious result yesterday - the concern for those following technicals is that we have dropped below the 200 day SMAVG, it is only a number but it would be better to be above it.

At the end of the day the index was down 1.13% , closing @ 1472.11pts. Pre MOC, the Colcap was ending -0.99% losing 0.14%, during the last 5 minutes of trading with USD 1.5mn (4% of total vol) . Today's volume was USD 34.5mn. The day's best performers were CONCONCRETO (+10.29%) & GRUPOAVAL (+1.34%) whilst suffering were PROMIGAS (-5.36%) ,CLH (-3.65%) and CNEC (-2.31%). The PESO fell on Thursday, no tremendous surprise and very much in line with the region, the final close was 3118.20 a decline of 0.42% on volume of USD1.3bn.

The Bond market had a reversal, having almost reached out short term target of 5.95% the 2024 benchmark slipped to close 4.3bps higher at 6.01% - likewise the 2032 was 4.6bps higher at 7.05%.

As is now traditional CLH kicked off the results season and overall we consider the results of Cemex Latam Holdings to be negative. Although Colombia shows stability, Central America presented lower volumes due to falls in domestic demand in the countries of Costa Rica, Nicaragua and Panama. We still do not yet see a fundamental purchase trigger. The decrease in sales is due to lower volumes of ready-mix concrete and aggregates.

• In Colombia, improved economic trends and domestic cement demand led to a 7% increase in cement volumes in the fourth quarter compared to 3Q18 and a 4% increase compared to 4Q17. In Panama, the decline was 8% in the fourth quarter compared to 4Q17 due to lower domestic cement demand. The rest of the markets for the fourth quarter of 2018 presented a negative impact from Costa Rica (-16% A/A) and Nicaragua; however, they were offset by higher volumes in Guatemala and El Salvador.

• While the volume effect is what punished the company's sales, the price effect is still weak. At a consolidated level, gray cement prices stabilized annually, while ready-mix and aggregates prices decreased 7% A/A and 16% A/A, respectively. The countries that pushed prices up were Colombia and Costa Rica, but the negative effect was greater for the rest of the markets.

• In terms of outlook the company is only slightly optimistic in the medium term, for Colombia, it expects industry volumes to increase in low single digits during 2019, driven mainly by a higher transportation investment budget and royalties related to mining activities.

• In terms of 2019 guidance the company projects : i) an increase in consolidated volumes of cement, ready-mix and aggregates of 2% each, ii) a Capex of USD850 MM, iii) working capital investments of USD50 MM, iv) an increase in taxes of USD250 MM to USD300 MM and v) a reduction in the cost of debt to 2018 levels.

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The Central Bank released their minutes related to what was a fairly uneventful meeting at the end of January when rates were once again left at 4.25%.

• Whilst the board see productivity recovering it is still a work in progress - they still see the 4.25% rate as expansionary which will help that recovery.

• Over recent months they have seen a rebound in investment coupled with better industrial production data - retail sales are doing well and consumer confidence has picked up after the recent slide.

• They are more than happy with the inflation situation.

• They are concerned about the effect of minimum wage increases on inflation but conversely El Niño seem to be mild still and the Peso strength is helping.

Beyond that and keeping with the meeting itself there was little to add.