Thursday, June 01, 2006

Bancolombia: Attractive at Current P/E

Over the weekend, Álvaro Uribe was re-elected as Colombia’s president with 62% of the vote. We're not the least bit surprised: under Uribe's tutelage, Colombia has pulled itself up out of the cacaphony of violence and political subterfuge it once was. Today, the warzones are less intense, foreign investment's picking up, and the economy's improving, thanks to gravity-defying commodity prices and Venezuela's homerun economy.

This could be a great time to pick up some Bancolombia (CIB). Bancolombia is the largest bank in Colombia in terms of assets and market share and it's the only Colombian company listed on the Big Board.

The stock has gotten hammerred recently because of interest rate sensitivity. Loan growth at the bank, however, remains robust at 15% and net interest margins are far from ugly at roughly 8%. Lastly, the bank's operating structure is lean, which means sizable returns on equity (40% for trailing 12 months). There's even talk that Bancolombia is being too conserviative with its books (meaning its loan loss provisions are too high). If any of you remember Wells Fargo (WFC) in the 90s, you'll know that a bank's stock price can zoom once the Street wakes up to a company's "true" condition. At less than 12 x current earnings, Bancolombia is worth looking into.

If you decide to pick up shares, make sure you know what you're getting yourself into: CIB is not for the faint of heart. Bancolombia is controlled by a conglomerate, Grupo Empresarial Antioqueno, which snaps up banks voraciously. We tend to be wary of trigger-happy, acquisitve growth. Also, Bancolombia's loans all originate in Colombia, so if the economy there tailspins, Bancolombia could go down with it. As with any bank, further rate hikes may impinge negatively on shares.

If you can stomach the inflationary risks and a slower 2006 GDP forecast for the land of flowers and coffee, Bancolombia may be for you.

Disclosure: The author is Colombian and drinks Colombian coffee everyday. Don't forget that you can also enjoy our work at, a must-read according to The New York Times, Barron's, and Forbes.

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