Resumo Btg Pactual.pdf

2019 Brazil Strategy Outlook

2019 Brazil Equity Strategy Outlook Promising prospects December 2018 Carlos E. Sequeira, CFA [email protected] +1 646 924-2479 Bernardo Teixeira [email protected] +55 11 3383-3315 LEGAL DISCLAIMERS & DISCLOSURES: www.btgpactual.com/research/Disclaimers/Overview.aspx

Claudio Ferraz, BTG’s Brazil Chief Economist [email protected] +55 21 3262-9758

We are bullish Brazilian equities We see a combination of factors that could drive Brazilian equities up in 2019 ✓ The Ibovespa is relatively cheap – Trading below its historical average (at 11.7x 12-month forward P/E), there is clear upside potential for the Ibovespa.

✓ Earnings should continue to grow strongly in 2019 − Earnings of companies that sell basically domestically are expected to grow 23% in 2018 and 17% in 2019.

✓ Brazilians stocks are under-owned by locals and foreigners − Allocations to Brazilian equities, both by foreign and local investors, are at quite reduced levels.

✓ We expect the economic recovery to accelerate in 2019 – After a massive recession in 2015/2016 and a couple of years of mediocre growth, our economic team expects Brazil’s GDP to grow 2.8% in 2019. Privatizations, concessions and a more pro-business stance by the new government should help fuel Brazil’s economic growth.

✓ Fiscal gap needs to be addressed sooner, rather than later − The new administration must submit to congress a thorough pension reform in its early days in power and press hard to get it approved. .

3

The new administration Team & initial moves to drive markets ✓ This year’s presidential campaign was unique in the sense that the leading candidate and now president elect did not participate in most of the campaign debates and did not have to discuss its main economic proposals in details. – Bolsonaro’s strong, market friendly economic team indicates that the direction is right. A firm commitment to a deep pension reform is a necessary step to create the basis for a more sustained recovery. The initials signs are encouraging.

✓ As the new president’s economic policies are implemented, investors should feel more comfortable to invest in the country − Increased investors’ confidence in the government´s ability to deal with its fiscal problems should drive long-term real interest rates down, making stocks more attractive.

✓ Initial signs are encouraging; main question mark is on PSL’s support in congress – Bolsonaro’s PSL will have the second largest base in the lower house, with 52 congressmen (vs. 8 before). Maybe more importantly, we estimate Bolsonaro’s support base to reach some 168 congressmen, or close to 52% of the house — to reach constitutional quorum (308 votes) he would need the support of “independent” parties PSDB and MDB. – On the other hand, Bolsonaro should expect a fierce opposition from the PT party, which elected the largest base in the lower house and the most number of state governors.

4

Valuations are relatively attractive ✓ The Ibovespa is now trading at 11.7x 12-month forward P/E, below its historical average. − Trading below average (11.7x 12-month forward P/E), there is clear upside potential for the Ibovespa. We would expect it to quickly move back to its historical trading average, implying an Ibovespa close to 97,000 points and an upside of close to 10%. − The beginning of the new government and concrete moves towards privatization and the approval of a pension reform could cause the Ibovespa to trade at one-standard deviation above average, implying an Ibovespa trading close to 112,000 points and an upside close to 27%.

Brazil’s 12-month forward P/E

Brazil’s premium to hold equities

19x

10%

17x

8% 6%

15x

5.5%

4% 13x

2% 11.7

11x

1.9%

0% -2%

9x

-4% -6%

Average

+1 Std Dev

-1 Std Dev

P/E 12MF (ex-Petro & Vale)

-8% Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18

Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18

7x

Real Earnings Yield (Ex-Petro & Vale)

AVERAGE

+1 Std Dev

-1 Std Dev

Source: Economática, BTG Pactual estimates

5

Earnings should continue to grow strongly in 2019 ✓ We are modeling for 2018 & 2019 domestic earnings to growth of 23% y/y and 17% y/y, respectively. Domestic earnings and revenue growth

Net revenues Growth Net income Growth

2014 595,933 111,532

2015 674,071 13.1% 114,921 3.0%

2016 698,859 3.7% 106,548 -7.3%

2017 713,524 2.1% 114,921 7.9%

2018E 795,552 11.5% 141,529 23.2%

2019E 873,411 9.8% 164,885 16.5%

Source: BTG Pactual estimates

✓ Consolidated earnings expected to grow 27% y/y and 31% in 2019 – When we include commodity exporters, we see consolidated earnings growing 27% in 2018 and 31% in 2019. A good part of the jump can be ascribed to the impact of a stronger USD on these companies’ revenues. Consolidated earnings and revenue growth

Net revenues Growth Net income Growth

2014 872,149 120,174

2015 2016 2017 2018E 2019E 966,665 1,006,512 1,037,637 1,196,040 1,301,590 10.8% 4.1% 3.1% 15.3% 8.8% 96,586 139,722 140,328 178,642 233,723 -19.6% 44.7% 0.4% 27.3% 30.8%

Source: BTG Pactual estimates

6

Brazilian equities are under-owned ✓ In September, Global and GEM funds were close to historical lows. Exposure levels rose slightly in October, but allocations are still way off levels seen in the recent past.

✓ Local investors’ equities allocations aren’t expiring either. GEM & Global funds allocations to Brazil

Locals allocations to equities

Global

16.7%

2.40%

15.9%

1.97%

16.4%

2.24%

11.9%

1.31%

11.0%

1.07%

9.1%

1.07%

6.0% 8.6%

0.52% 0.93%

7.2%

0.60%

7.6%

0.69%

7.5%

0.62%

6.0%

0.42%

6.4%

0.37%

8.0%

0.51%

4,122 22.0%

4000

18.0% 18.3% 14.8%

2500 15.5% 11.3% 9.9% 1000

854

10.6%

717 893 11.1% 940

11.6%11.4% 1,420 981

1,651

1,500

2,246

2,362

2,557

1,950 1,858

1,167

2,104

17%

14.3% 14.0%

13%

8.7%

11.9% 9.1%

500 362

0

19%

2,803

15%

14.9%

2000 1500

21%

3,269

3000

25% 23%

3,776

3500

AuM (R$bn)

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Jan-18 Mar-18 Jun-18 Sep-18 Oct-18

G.E.M.

9.8%

8.5%

11% 9% 7%

Equity Share of Mutual Funds, Selic Rate (% )

4500

Allocation into Brazilian equities

224 334 356 311 321 331 303 255 278 330 405

97 88 80 99 113 133 221 5% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Oct-18 Fixed Income AuM (R$bn)

Equity AuM (R$bn)

Equity Share

End of Period Selic Rate

Source: EPFR and Anbima

7

Economic recovery to accelerate in 2019 ✓ All conditions are in place for the economy to accelerate in 2019 − A combination of significant idle capacity in industries, abundant human resources and improving business and consumer confidence can drive the economic recovery. − Privatizations, concessions and a more pro-business stance by the new government should help fuel Brazil’s economic growth Unemployment rate

Capacity Utilization in Industry (%)

14 13

12.1

12 11.7

11 10 9 8 7

s.a.

Jun-18

Oct-18

Feb-18

Jun-17

Oct-17

Feb-17

Jun-16

Oct-16

Feb-16

Jun-15

Oct-15

Feb-15

Jun-14

Oct-14

Feb-14

Jun-13

Oct-13

Feb-13

Jun-12

Oct-12

6

n.s.a.

Source: IBGE

Source: FGV

Real earnings (s.a.)

12-month accumulated inflation (%) 2.25

202

2.15

192

R$ thousands

R$ billions

2.20 197

2.10

187

Source: IBGE and BTG Pactual estimates

Jul-18

Nov-17

Mar-18

Jul-17

Mar-17

Jul-16

Nov-16

Mar-16

Jul-15

Wage bill

Nov-15

Nov-14

Mar-15

Jul-14

Mar-14

Nov-13

Jul-13

Mar-13

2.05

Nov-12

182

8

Average wages (rhs)

Source: Central Bank of Brazil and BTG Pactual

Households deleveraging process continues ✓ Leverage has fallen over the past years

Household debt (% of annual income)

Household debt service (% monthly income)

Source: IBGE

Source: IBGE

9

Bolsonaro’s election boosted confidence levels ✓ Both consumer and business confidence levels moved up after Bolsonaro’s election − Consumer confidence grew 7.3 points m/m in November (after +4.1 points m/m in October), standing at its highest level since the start of its recovery at the beginning of 2016. The increase was mostly driven by the expectations component of the index, which grew 10.5 points, while the component that measures the current perception grew 2.6 points. − Business confidence didn’t grow as much as the consumer confidence index, but it was the first month since the truck drivers’ strike that it moved up. The improvement was driven by the current situation component of the index (+1.3 points m/m).

Business confidence

Consumer confidence 120

120

110 110

100

100

90

90

Business confidence

Source: FGV

Expectation

Consumer confidence

Current Situation

Expectation

Source: FGV

10

Nov-18

Nov-17

May-18

Nov-16

May-17

Nov-15

May-16

May-15

Nov-14

Nov-13

May-14

Nov-12

May-13

Nov-11

May-12

Nov-10

May-11

May-10

Nov-09

Nov-08

May-09

Nov-07

May-07

Nov-18

Nov-17

May-18

May-17

Nov-16

Nov-15

May-16

Nov-14

Current Situation

May-15

Nov-13

May-14

Nov-12

May-13

Nov-11

May-12

Nov-10

May-11

Nov-09

May-10

Nov-08

May-09

60 May-08

70

Nov-07

70

May-07

80

May-08

80

A confidence boost improves the outlook for GDP growth ✓ More confidence, improved growth prospects

Business confidence trajectories

GDP growth (y/y) vs. business confidence scenarios

120

10 8

110

6 3.2% in 2019 2.8% in 2019

4

100

2

90

0 -2

80

-4

70

-6

2006

Average 2002-2006

Feb-19

Mar-18

Apr-17

May-16

Jun-15

Jul-14

Aug-13

Sep-12

Oct-11

Nov-10

Dec-09

Jan-09

Feb-08

Jul-19

Sep-18

Nov-17

Jan-17

Mar-16

May-15

Jul-14

Sep-13

Nov-12

Jan-12

Mar-11

May-10

Jul-09

Sep-08

Nov-07

Jan-07

Average 2002-2006

Mar-07

-8

60

2006

Source: IBGE, FGV and BTG Pactual

11

Top Picks, by sector ✓ Retail ￚ ￚ ￚ ￚ

B2W Lojas Renner Magazine Luiza CVC

✓ Financials, ex-banks ￚ B3

✓ Agribusiness ￚ São Martinho

✓ Banks

ￚ Banco do Brasil ￚ Bradesco

✓ Utilities

ￚ Cemig ￚ Equatorial ￚ Light

✓ Telecom, Media, Technology ￚ Linx ￚ Oi

✓ Oil & Gas ￚ Cosan

✓ Basic Materials ￚ Gerdau ￚ Suzano ￚ Vale

✓ Transportation, Infra, Capital Goods ￚ ￚ ￚ ￚ

Rumo Embraer Localiza Santos Brasil

✓ Food & Beverage ￚ JBS ￚ Marfrig

✓ Healthcare & Education ￚ Hapvida

✓ Homebuilders ￚ Even ￚ MRV

✓ Malls

ￚ Multiplan

12

BTG Pactual’s December 10SIM

Company

Ticker

Weight (%) ADTV (R$m) Mkt Cap (R$m)

Upside (%)

PE 2019E

Petrobras

PETR4

15%

2,230.6

348,276

-

-

Banco do Brasil

BBAS3

10%

615.1

126,017

15%

6.6x

B3

B3SA3

10%

293.9

58,560

12%

17.2x

BR Distribuidora

BRDT3

10%

126.6

28,496

-6%

18.6x

Lojas Renner

LREN3

10%

150.9

28,234

-11%

24.1x

Rumo

RAIL3

10%

139.5

27,439

19%

36.1x

Gerdau

GGBR4

10%

248.7

24,009

52%

7.5x

Localiza

RENT3

10%

141.8

18,414

8%

19.9x

Embraer

EMBR3

10%

68.2

15,972

15%

12.8x

Oi

OIBR3

5%

29.8

3,658

-

na.

13

BTG Pactual’s December Small Caps portfolio

Company

Ticker

Weight (%)

ADTV (R$m) Mkt Cap (R$m)

Upside (%)

PE 2019E

CVC

CVCB3

20%

64.9

8,784

-1%

23.0x

Marfrig

MRFG3

20%

23.0

3,848

37%

8.6x

Santos Brasil

STBP3

20%

5.3

2,584

18%

29.4x

Tegma

TGMA3

20%

8.6

1,627

18%

12.0x

Even

EVEN3

20%

6.7

1,128

35%

17.6x

14

Why we selected these stocks ✓ B3 ￚ With lower disbursements and banks more restrictive in corporate lending, we expect capital markets to continue to gain relevance going forward, and B3 is one of the most interesting stories to play in this environment. With a presence on all fronts – from cash equities trading to fixed income custody – the company is perfectly positioned to benefit from additional volumes in many different ways. October may be an “appetizer” of how high volumes could reach in a bull market – ADTV for cash equities was of R$17bn. Valuation is not demanding at this point, with the stock trading at ~18x P/E19. ✓ BR Distribuidora

ￚ We believe the combination of (i) improving macro outlook and sentiment, with obvious and direct impacts to the fuel market in the form of stronger volumes growth, and (ii) growing odds that BRDT could become part of a broader privatization program could easily tackle corporate governance concerns as well as lead the way for investors to be on improvements in SG&A front, which is by far the main reason BRDT margins are historically far lower than its peers. ✓ Gerdau ￚ We believe Gerdau is set to continue focusing on higher return assets, deleveraging and simplification of the business. Improving prospects for margin recovery in its US division, stronger pricing power and demand recovery in Brazil should drive the company’s EBITDA and profitability sustainably higher. We expect very strong results in the 3Q18, with the company delivering around R$2bn in EBITDA. We see leverage moving down below 1.5x by 2018YE and the stock trading at near 5.5x for 2018. However, we see fast multiple compression ahead, with numbers trending below ~5.0x EBITDA 2019. Overall, we see a very compelling case for the next 2-3 years. Reiterate our longheld Buy rating. Gerdau is our Top pick in the sector. ✓ Oi ￚ With the restructuring moving ahead as planned, Oi’s restructured debt will collapse, leaving hefty upside for equity holders. Even under our more conservative estimates for the NPV of its restructured net debt, we still see a huge upside for the stock. Our target price is based on a fair EV/EBITDA multiple of 5.5x (LatAm sector average). ✓ Embraer ￚ Following Bolsonaro’s election, we expect the Embraer-Boeing deal to be approved. We don’t believe Embraer shares are pricing-in upside from the deal. In our calculations, monetization of the Commercial Aviation stake + Embraer’s put option on the remaining 20% of Commercial Aviation would alone be worth, net of taxes, ~US$4bn, or US$22/ADR. There is also significant value from synergies. 15

Why we selected these stocks ✓ Petrobras ￚ We are adding Petrobras to the portfolio on the back of what we see as a strong top down call. In many ways, PBR risk is perceived as a Brazil sovereign risk, and we see the post-election macro environment, with an improving sentiment, as driving a Brazil de-risking as well as a PBR de-risking. ✓ Rumo ￚ Remains our Top Pick in Transportation. We see RAIL3 trading at 8x EV/EBITDA 2019, with strong earnings momentum (Q3 should be a positive catalyst), balance sheet derisking and the potential to become a strong FCF generator. The outlook remains bright, and we believe the company is well positioned to renegotiate long term contracts with clients and have its Malha Paulista concession renewed. We also believe there are relevant upside risks such as (1) the Sorriso project; (2) a strategic investment at Malha Sul and related Araucaria project; (3) improvements at Brado. ✓ Banco do Brasil ￚ Although we’ve been consistently (and positively) surprised by CEO Paulo Caffarelli's administration, which has accomplished a lot more than we initially expected, we were still cautious on BB’s ability to grow/recover ROE at a fast pace. At the end of the day, BB was deleveraging. But after Q2, with much better earnings power, we became more constructive on BB’s ability, on a fundamental basis, to keep improving profitability. ✓ Localiza ￚ The growth rates in car rental industry have been nothing short of stellar (especially Localiza, whose rent-a-car volumes grew at a 32% CAGR since 2015, accelerating year after year since then) despite a sluggish GDP scenario. ￚ With the corporate demand recovery, still low rental penetration in Brazil and potential for further market share gains, we expect strong growth rates to persist for longer. Also, given its capital intensiveness and strong growth, Localiza is one of the stocks we cover with the longest cash flow duration, which means it should outperform in a declining cost of capital scenario. ✓ Renner ￚ LREN consistent track record over a long period shows management’s execution discipline, leaving us more comfortable with the challenges ahead (push-and-pull for core and fashion items + e-commerce’s greater share of sales).

16

Why we selected these stocks ✓ CVC ￚ CVC combines a hybrid business model (franchise, own stores, independent agencies, student travel and online) with flawless execution, as well as diligent acquisitions, delivering solid numbers in recent quarters. Meanwhile, the company’s brand equity, coupled with the synergies from recent acquired assets (Trend and Visual), and a more positive economic outlook should enable CVC to cement its leadership in the coming years, while keeping ROIC at ~30%, well above the retail sector’s average. CVC currently trades at 21x PE 2018 (and 17x P/E 2019), being the cheapest premium retailer among our coverage universe. ✓ Tegma ￚ The company is highly exposed to the recovery trend of light vehicles sales in Brazil (which is still sub-normal levels). We view Tegma’s valuation as especially attractive, at only 12x P/E 2019 and a dividend yield above 5%, with improving earnings momentum: following costsaving initiatives and revenue growth, we expect profitability to reach historical highs in the near term. ✓ Santos Brasil ￚ Supply-demand has been consistently improving at the so-called Santos Cluster, with volumes improving and no (major) container capacity expansion at Port of Santos (Brazil´s #1 port). Our bullishness on this thesis is enhanced by (i) better growth prospects thanks to stronger economic activity; (ii) a better profitability outlook due to BRL appreciation (likely attracting more long-haul imported volumes, which are more valuable for terminals); (iii) stronger (longer-term) container flows on the back of potential new trade agreements and a more open economy; and (iv) more potential (international) interest in the company’s divestment process, plus better earnings momentum following the strong EBITDA recovery expected for Q3. ✓ Even ￚ In a scenario of lower long-term interest rates and rising consumer confidence, mid/high-income homebuilder Even benefits from stronger housing demand – selling its finished units in inventory faster and accelerating the pace of project launches. Even’s earnings outlook is admittedly weak, as the top line is shrinking (on less construction works) and margins are under pressure (cancellations remain high), leading us to forecast a loss in 2018. But as Even trades at a big discount to peers at 0.6x P/TBV, has comfortable leverage (39% ND/equity) and generates cash (22% FCF yield ‘19E), we see room for a re-rating, which is why the stock is joining our Small Caps 10SIM.

✓ Marfrig ￚ While we acknowledge Marfrig is far from an obvious macro call at a time investors are more likely to focus on domestic, discretionary consumer names, we believe there’s a strong argument here for investors looking for solid bottom-up names. Marfrig comes from a decadelong period of poor results, with high leverage pretty much consuming all of its cash flows, leaving little to equity holders. We believe the 17 company could e entering a new phase, underscored by the recently announced sale of Keystone, and the focus on the beef segment. The result is that Marfrig should now be the least leverage company in the sector, with pro-forma leverage ratio approaching a comfortable 2x.

BTG Pactual’s 10SIM Historical Performance 300

281.8

10SIM portfolio Ibovespa

250

IBX-50

200 172.3

150 145.5

100 50

Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18

0

Jan 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

-5.5% -2.2% 3.2% 6.1% -6.1% -6.3% -5.5% 11.2% 10.2%

Feb 0.3% 2.7% 10.3% -1.9% -0.7% 6.2% 3.2% 3.9% -0.4%

Mar 0.1% 1.6% -0.2% 1.4% 4.0% 3.6% 4.4% -5.6% 1.6%

Apr -1.1% 0.6% -0.8% 1.9% 1.5% 3.5% 7.2% 1.7% 1.5%

May -2.8% -1.4% -8.7% -2.1% 0.2% -3.1% -6.0% -4.2% -6.7%

Jun -2.4% -2.2% -0.1% -6.1% 5.6% -0.1% 6.8% -2.1% 0.1%

Jul 12.3% -4.6% 2.3% -0.5% 1.9% -5.5% 12.9% 5.7% 1.9%

Aug -1.4% -1.0% 5.1% 5.1% 6.4% -6.8% 0.9% 4.3% -2.7%

Sep

Oct

Nov

Dec

Year

Ibov.

8.6% -10.8% 6.9% 2.8% -10.8% 2.4% -0.2% 2.9% 2.5%

0.2% 4.8% 9.5% 3.0% 5.3% 6.8% 1.5% 10.9% -0.9% 5.0%

13.3% -2.4% 0.2% 2.1% -0.6% 0.8% 3.6% -6.5% -4.6% -0.7%

4.8% 2.3% 2.1% 8.1% -3.5% -8.6% -0.4% -2.5% 2.9%

19.1% 12.0% -6.5% 34.4% 7.3% -0.9% -2.4% 26.0% 14.7% 12.1%

11.5% 1.0% -18.1% 7.4% -15.5% -2.9% -13.3% 38.9% 26.9% 17.1%

Accum. Ibov Accum. 19.1% 33.4% 24.7% 67.6% 79.9% 78.3% 73.9% 119.1% 151.4% 181.8%

11.5% 12.7% -7.7% -0.9% -16.3% -18.7% -29.5% -2.1% 24.2% 45.5%

18

How high can the Ibovespa go?

Just how high can the Ibovespa go? ✓ Top-down approach to Ibovespa target price – We performed an exercise to gauge the Ibovespa’s theoretical upside potential using a top-down approach. Using a little algebra (more details below), Gordon’s Growth model and the sustainable growth rate formula, we can relate a given P/E to its Return on Equity (ROE), cost of equity (Ke) and expected growth rate

– We ran a few simulations (more details on the coming slides). In a scenario assuming key constitutional reforms are passed and the economy starts growing again, the upside could be big. Discussing real interest rates of ~3% may be a bit premature, but if the pension reform passes, the debate on how low real rates can go will take center stage.

𝑷 𝑬

=

𝑹𝑶𝑬𝒍𝒕 −𝒈𝒍𝒕 𝑹𝑶𝑬𝒍𝒕 𝑲𝒆,𝒍𝒕 −𝒈𝒍𝒕

20

One-stage model… ✓ Scenario 1 – current situation – For this scenario we are assuming a ROE of 13%, growth rate in nominal BRL of 6.5% and a Ke of 12.0%. – Under this scenario we would arrive at a target Ibov. of 66,836 points (22% of downside).

✓ Scenario 3 – slightly more positive – In this scenario we used slightly more optimistic assumptions: ROE of 15%, growth rate of 6.5% and Ke of 10%. – The implied upside potential now would be 38.4%, which would drive the Ibov. to trade at a P/E of 16.2x.

✓ Scenario 4 – if things move in the right direction the upside would be big – Assuming key constitutional reforms are passed and the economy starts growing again, the upside could be big. Discussing real interest rates of ~3% may be a bit premature, but if the pension reform passes, the debate on how low real rates can go will take center stage! – Our assumptions in this scenario: ROE of 15%, growth of 6.5% and a Ke of 9.5%, we would reach a P/E of 18.9x, implying a Ibov. trading at 138,870 points! Scenario 1

Scenario 2

Scenario 3

Scenario 4

Scenario 5

ROE

13.0%

15.0%

15.0%

15.0%

16.0%

Ke Inflation Real rates Interest Rates Premium

12.0% 4.0% 4.0% 8.0% 4.0%

11.0% 4.0% 3.5% 7.5% 3.5%

10.0% 3.5% 3.5% 7.0% 3.0%

9.5% 3.5% 3.0% 6.5% 3.0%

9.0% 3.0% 3.0% 6.0% 3.0%

Growth Inflation Real growth

6.5% 4.0% 2.5%

7.0% 4.0% 3.0%

6.5% 3.5% 3.0%

6.5% 3.5% 3.0%

6.0% 3.0% 3.0%

Target P/E Current P/E IBOV

9.1x 11.7x 86,018

13.3x 11.7x 86,018

16.2x 11.7x 86,018

18.9x 11.7x 86,018

20.8x 11.7x 86,018

IBOV Target

66,836

98,026

119,032

138,870

153,166

-22.3%

14.0%

38.4%

61.4%

78.1%

Upside

21

Two-stage model… ✓ Adding some complexity: using a two-stage model – For those willing to add some complexity to the analysis, we could move to a two-stage model. In the first stage we would use parameters closer to the current situation and in the second stage longer-term assumptions for the main variables. 𝑷 𝑹𝑶𝑬𝒔𝒕 − 𝒈𝒔𝒕 (𝟏 + 𝒈𝒔𝒕 )𝒏 𝑹𝑶𝑬𝒍𝒕 − 𝒈𝒍𝒕 (𝟏 + 𝒈𝒔𝒕 )𝒏 = 𝟏− + 𝑬 𝑹𝑶𝑬𝒔𝒕 (𝒌𝒆,𝒔𝒕 − 𝒈𝒔𝒕 ) (𝟏 + 𝒌𝒆,𝒔𝒕 )𝒏 𝑹𝑶𝑬𝒍𝒕 (𝑲𝒆,𝒍𝒕 − 𝒈𝒍𝒕 ) (𝟏 + 𝒌𝒆,𝒔𝒕 )𝒏

✓ Scenario 1 – 1st stage: current parameters & 2nd stage: key reforms approved scenario – 1st stage: ROE of 13%, growth rate in nominal BRL of 6.5%, and a Ke of 9.5% – 2nd stage: ROE of 15%, growth of 6.5% (3% real growth) and a Ke of 9.5% – Under these assumptions, the target P/E would be 18.0x, indicating a Ibovespa target of 131,969 points and an upside potential of 53.3%

✓ Scenario 2 – super bullish scenario in the second stage! – ROE of 16%, growth of 6% (3% real growth) and a Ke of 9% (real interest rates of 3%), the target P/E would reach 19.7x, indicating a target IBOV of 144,895, and an upside potential of 68.4%!

Scenario 1

Scenario 2

ROEst

13.0%

13.0%

Ke,st Inflation Real Interest Rates Premium

12.0% 4.0% 4.0% 8.0% 4.0%

12.0% 4.0% 4.0% 8.0% 4.0%

6.5% 4.0% 2.5%

6.5% 4.0% 2.5%

15.0%

16.0%

Ke,lt Inflation Real Interest Rates Premium

9.5% 3.5% 3.0% 6.5% 3.0%

9.0% 3.0% 3.0% 6.0% 3.0%

Growthlt Inflation Real

6.5% 3.5% 3.0%

6.0% 3.0% 3.0%

18.0x 11.7x 86,018

19.7x 11.7x 86,018

131,969

22 144,895

53.4%

68.4%

Growthst Inflation Real ROElt

Target P/E Current P/E IBOV IBOV Target Upside

Earnings have been growing fast; Trend to continue in 2019

Domestic-related companies’ earnings set to grow 16.5% in 2019 ✓ BTG Pactual´s equity research team is modeling for 2019 domestic earnings growth of 16.5% y/y, while revenues are forecasted to climb 9.8% in the same period Domestic earnings and revenue growth

Net revenues Growth Net income Growth

2014 595,933 111,532

2015 674,071 13.1% 114,921 3.0%

2016 698,859 3.7% 106,548 -7.3%

2017 713,524 2.1% 114,921 7.9%

2018E 795,552 11.5% 141,529 23.2%

2019E 873,411 9.8% 164,885 16.5%

Source: BTG Pactual estimates

✓ Consolidated earnings expected to grow 31% in 2019 – When we include commodity exporters, our team sees consolidated earnings growing 27.3% in 2018 and 30.8% in 2019, while revenues are forecasted to grow 15.3% and 8.8% in 2018 and 2019, respectively. – The reason behind the difference between 2019 consolidated and domestic earnings growth is the incredible growth that our team models for commodity exporters in 2019 – clearly a factor of the impact of a stronger USD vs. the BRL over these companies’ revenues. In an analysis excluding Vale, earnings would jump 23% in 2019. Consolidated earnings and revenue growth

Net revenues Growth Net income Growth

2014 872,149 120,174

2015 2016 2017 2018E 2019E 966,665 1,006,512 1,037,637 1,196,040 1,301,590 10.8% 4.1% 3.1% 15.3% 8.8% 96,586 139,722 140,328 178,642 233,723 -19.6% 44.7% 0.4% 27.3% 30.8%

Source: BTG Pactual estimates

24

Domestic-related companies’ earnings set to grow 16.5% in 2019 ✓ Net income is outgrowing revenues at a remarkable pace – We expect this trend to continue, as better operating margins, faster sales growth and better financial results (boosted by lower interest rates and deleveraging) continue to fuel earnings. – Leverage is falling fast. After net debt/EBITDA peaks at 1.7x in 2015, it fell to 1.5x in 2017 and we expect it to fall further to 1.4x in 2018 and 1.25x in 2019.

Domestic sales growth and margin

Leverage of domestic companies

14.0% 12.0%

17.8% 17.0%

15.2%

18.9%

18.0%

16.1%

16.0%

10.0%

14.0% 12.0%

8.0% 6.0%

20.0%

10.0%

13.1% 11.5% 9.8%

4.0%

8.0%

1.71 x

6.0%

1.57 x

4.0%

2.0%

3.7%

2.1%

0.0%

0.0% 2015

2016

2017 Sales growth

Source: BTG Pactual estimates

1.50 x

1.43 x

2.0% 2018E Net margin

1.32 x 1.25 x

2019E 2014

2015

2016

2017

2018E

2019E

Source: BTG Pactual estimates

25

Reduced Selic rates have a big impact on earnings ✓ Impact on earnings of lower Selic and reduced spread is big – The impact of a lower Selic rate and reduced spreads on companies’ earnings can be sizable. We ran a back-of-the-envelope calculation to show, in theory, what the impact it could have. – We considered three scenarios in our calculation, which correspond to situations from previous years (2015, 2017 and 2018E), and then simulated each scenario assuming a company with 3x Net Debt/EBITDA, a tax rate of 34%, Selic and spreads varying in line with previous years, and keeping all figures above the EBIT line constant. Lower interest rates and spreads = a potent combo!

Net Revenues COGS Gross profit SG&A EBITDA EBITDA mg.

D&A EBIT Financial result Taxes (34%) Net income Net mg.

Scenario 1 Selic - 14.25% (2015 levels) Spread - 2.3% (double A 2015) Net Debt/EBITDA - 3x 100 (40) 60 (30) 30

Scenario 2 Selic - 10% (2017 levels) Spread - 1.4% (double A 2017) Net Debt/EBITDA - 3x 100 (40) 60 (30) 30

Scenario 3 Selic - 6.75% (2018E level) Spread - 1.2% (double A 2012) Net Debt/EBITDA - 3x 100 (40) 60 (30) 30

30%

30%

30%

(10) 20 (14.9) (1.7) 3.4

(10) 20 (10.3) (3.3) 6.4

(10) 20 (7.2) (4.4) 8.5

3.4%

6.4%

8.5%

Source: BTG Pactual

26

Earnings/GDP growth multiplier consistently above average ✓ Earnings/nominal GDP growth multiplier to peak in 2018 – We estimate the domestic earnings/nominal GDP growth multiplier to peak in 2018, at 4.5x. For 2019, we expect the multiplier to drop to 2.4x, which would be in line with 2017 (at 2.0x) and still higher than the last 10-year average of 1.5x.

Domestic companies’ earnings growth / nominal GDP growth 4.5x

2.8x 2.0x 2.4x 0.7x

average: 1.5x

0.6x 0.9x

1.1x

0.3x

-0.7x 2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Source: Company reports and BTG Pactual estimates. 2015/2016 numbers adjusted for gains/losses with derivatives booked by JBS.

27

Double-digit growth expected for several sectors in 2019 ✓ Double-digit growth for a bunch of sectors in 2019 – Many sectors are expected to grow at double-digit levels in 2019. Excluding commodity exporters, we estimate relevant earnings growth for Capital Goods (+87% y/y in 2019), Car Rental & Logistics (+38%), Food & Beverage (+35%), Retail (+32%) and Agribusiness (+27%). – The banking sector, which is the main contributor to total consolidated earnings (42%) and earnings of domestic-related companies (53%), is expected to grow earnings 15% in 2019. Earnings growth by sector

Pulp & paper Capital Goods Metals & Mining Car Rental & Logistics Food & Beverage Retail Oil & Gas Agribusiness Education Commercial Properties Banks Infrastructure Utilities Financials ex-banks Healthcare Airlines & Mileage TMT Housing Source: BTG Pactual estimates

Earnings share by sector

Net Income 2018E 2019E 70.7% 151.5% -10.2% 86.5% 52.3% 77.3% 38.4% 38.1% 84.8% 34.9% 26.2% 32.4% -29.5% 29.1% 1.0% 26.7% 36.1% 17.3% n.a. 17.3% 15.3% 15.0% -5.7% 15.0% 19.6% 12.6% -2.0% 6.8% 11.7% 6.6% -13.8% 5.6% 51.5% n.a. n.a. n.a.

Banks Metals & Mining Food & Beverage Pulp & paper Utilities Financials ex-banks Retail TMT Capital Goods Infrastructure Agribusiness Healthcare Commercial Properties Car Rental & Logistics Education Oil & Gas Airlines & Mileage Housing

Net Income 2018E 2019E 41.7% 36.7% 15.6% 21.2% 9.3% 9.6% 3.4% 6.6% 7.5% 6.4% 6.0% 4.9% 3.2% 3.2% 5.2% 2.9% 1.1% 1.6% 1.6% 1.4% 1.1% 1.1% 1.3% 1.0% 0.9% 0.8% 0.6% 0.6% 0.7% 0.6% 0.6% 0.6% 0.5% 0.4% -0.5% 0.2%

Source: BTG Pactual estimates

28

Downwards earnings revisions stopped in August ✓ Weaker-than-expected economic growth drove down earnings forecasts – With economic growth falling short of initial expectations, earnings growth forecasts were inevitably cut. In the beginning of 2018, GDP growth estimates were 2.7%, but were cut down to 1.3% after May’s truckers drivers strike. – Naturally, weaker economic activity led earnings estimates to be revised down. Since the beginning of the year, our team has cut its 2018 consolidated domestic earnings estimate by 5%. Our 2019 estimates were also lowered, albeit admittedly not as much (-3%). – The good news is that domestic earnings estimates for 2018 and 2019 haven't moved the needle since August.

Real GDP growth estimate (Focus survey) 2.9%

2.7%

3.0%

3.0%

3.0%

2.9%

2.8%

2.7%

3.0%

Revisions to 2018E and 2019E earnings (domestic companies)

3.0% 2.5%

2.5%

2.5%

2.5%

2.5%

2.5%

2.8% 178,024 177,316

2.2%

1.6%

1.5%

155,780 154,633 1.4%

1.4%

1.4%

147,737 147,938

1.3%

2018 Domestic Earnings (R$ mn) 2018

Source: Central Bank

2019

174,000 172,204

1 year ago

8 months ago

2019 Domestic Earnings (R$ mn) 4 months ago

Today

Source: BTG Pactual

29

Brazilian equities look under-owned

Global and GEM investors have reduced their exposure to Brazil in 2018 ✓ In September, Global and GEM funds were close to historical lows. Exposure levels rose slightly in October, but allocation is still way off levels seen in the recent past.

✓ At the end of October, Global funds had 0.5% of their money parked in Brazil (26% lower than January allocation). Allocation into Brazilian equities

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Jan-18 Mar-18 Jun-18 Sep-18 Oct-18

G.E.M.

Global

16.7%

2.40%

15.9%

1.97%

16.4%

2.24%

11.9%

1.31%

11.0%

1.07%

9.1%

1.07%

6.0% 8.6%

0.52% 0.93%

7.2%

0.60%

7.6%

0.69%

7.5%

0.62%

6.0%

0.42%

6.4%

0.37%

8.0%

0.51%

Source: EPFR

31

Huge potential inflows from foreigners ✓ Potential inflows into Brazilian equities is huge − Although low allocation levels reveal Foreign Investors’ continued (extreme) cautiousness when it comes to investing in Brazil, we see huge potential inflows into Brazilian equities. − Assuming allocations return to October 2014 levels, i.e. just before ex-President Rousseff´s reelection, and based on the current AUM levels of all fund categories, our back-of-the envelope calculation estimates BRL193bn (USD52bn) could flow into Brazilian equities. Allocation to Brazilian Equities April 2010 April 2012 Oct/14 (Before elections) Feb 2017 Apr 2017 Jun 2017 Aug 2017 Dec 2017 Mar 2018 Jun 2018 Sep 2018 Oct 2018

Estimated inflows to Brazilian equities assuming past allocations (US$ bn) April 2010 April 2012 Oct/14 (Before elections) Feb 2017 Apr 2017 AuM @ July 2018 (US$bn)

Global

GEM

2.00% 2.33% 1.41% 1.11% 0.92% 0.75% 0.71% 0.60% 0.62% 0.42% 0.37% 0.51%

Global

49.1 60.1 29.6 19.8 13.7 3,291.9

BRIC

16.0% 16.3% 11.7% 9.1% 8.1% 7.1% 7.8% 7.2% 7.5% 6.0% 6.4% 8.0%

GEM

25.0% 31.1% 26.3% 19.1% 17.4% 16.2% 16.6% 14.7% 16.7% 13.7% 13.4% 17.0%

BRIC

48.6 50.7 22.5 6.5 0.6 608.9

0.33 0.58 0.38 0.08 0.01 4.1

LatAm

66.0% 65.5% 57.1% 57.3% 54.7% 52.6% 54.8% 56.4% 58.2% 52.3% 53.3% 60.3%

LatAm

0.8 0.7 (0.4) (0.4) (0.8) 14.1

Total USD Total BRL

99 112 52 26 13

366 415 193 96 50

# Trading days (YTD ADTV)

30.5x 34.6x 16.1x 8.0x 4.2x 32

Source: EPFR and Anbima

Local funds: potentially another R$190bn in flows from local industry ✓ Local investors’ equities allocations aren’t inspiring either (despite October’s growth), being also low at ~9.8% (vs. 12% at YE14 and an average 14% in 2011-13)

✓ With long-term rates set to fall, equities inflows from local funds are set to soar. ✓ If locals also increase their allocations to equities back to the levels seen at the end of 2014, i.e. from the current 9.8% to 11.9%, extra flows to equities would add up to BRL83.5bn (USD23bn). If equities’ weight in locals’ portfolios go back to the average seen from 2011 to 2013 (14%), then the extra flows could reach BRL187bn (USD50bn).

4,122 22.0%

4000

18.0% 18.3%

AuM (R$bn)

14.8%

2500 15.5% 11.3% 9.9% 854

10.6%

717 893 11.1% 940

11.6%11.4% 1,420 981

1,651

1,500

2,246

2,362

2,557

1,950 1,858

2,104

17%

14.3% 14.0%

1,167

13%

8.7%

11.9% 9.1%

500 362

0

19%

2,803

15%

14.9%

2000

1000

21%

3,269

3000

1500

23%

3,776

3500

25%

334

356

331

9.8%

11% 9%

8.5%

7% 330

Equity Share of Mutual Funds, Selic Rate (% )

4500

405

311 321 303 255 278 224 97 88 80 99 113 133 221 5% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Oct-18 Fixed Income AuM (R$bn)

Equity AuM (R$bn)

Equity Share

End of Period Selic Rate

33 Source: EPFR and Anbima

Lower long-term rates to drive locals’ money to equities ✓ As confidence grows, allocations to Brazilian equities should rise − As the new president’s economic policies become clear, we would expect allocations in Brazilian equities to rise. Increased investors’ confidence in the government´s ability to deal with its fiscal problems should drive long-term real interest rates down, making stocks more attractive. − In fact, long-term rates have already come down in recent months, anticipating the new government’s commitment to reducing the fiscal gap. The long-term 2035 government bond (2035 NTN-B) now pays inflation plus 5.2%, down from inflation plus 5.6% a couple of months ago. That’s still a juicy return, which should trend down as Brazil´s fiscal accounts improve. Evolution of Interest rate curve in Brazil

Evolution of NTNB-2035 coupon 6.1%

13.0%

12%

12%

12%

12%

13%

12%

12.0% 11%

12%

12%

12%

12%

11.8%

11%

11.9%

12.0%

12.1%

13%

13%

12.3%

12.4%

10.7%

10.7%

10.3%

10.4%

13%

12.2%

12.1%

11.6%

5.7%

11%

11.0%

10%

11.5% 11.4% 11.3% 11% 11.2% 11% 11.1% 11.0% 11% 10.8% 10% 10.7% 10.5%

9.9% 9.8% 9.7%9.7% 9.6% 10% 9.4% 9.8% 9.3% 9% 9.2% 9.6% 9.6% 9.5% 9.0% 9% 9.3%9.4% 8.9% 9.3% 9.3% 8.7% 9.1% 9% 9.0% 8.6% 9.0% 8.9% 8.8% 8.4% 8% 8.6% Today 8.6% 8% 8.1% 8% 8.5% 8% 8.3% 8.3% 7.9% 8% 8.1% 7.6% 8% 8.0% 7.9% 7.9% 7% 7.4% 7.7% 7% 7.7% 7.6% 7% 7.5% 7.4% 7.3% 7.2%

10.0%

10%

10.3%

10.2%

10.3%

8.0%

7.0%

10.3%

10.4%

10.6%

10.5%

10.0%

10.1%

9.0%

5.9%

9.8%

9.9%

10.0%

10.1%

10.2%

10.1%

5.47%

5.5%

9.6%

5.3% 1 week ago

1 month ago

2 months ago

5.1%

5.18%

4.9%

Source: Bloomberg

11/01/29

07/01/29

03/01/29

11/01/28

07/01/28

03/01/28

11/01/27

07/01/27

03/01/27

11/01/26

07/01/26

03/01/26

11/01/25

07/01/25

03/01/25

11/01/24

07/01/24

03/01/24

11/01/23

07/01/23

03/01/23

11/01/22

07/01/22

03/01/22

11/01/21

07/01/21

03/01/21

11/01/20

07/01/20

03/01/20

11/01/19

07/01/19

03/01/19

11/01/18

6.0%

Coupon

2018 Average

Source: Tesouro Direto 34 Source: EPFR and Anbima

Credit Market: Funding costs are plummeting

Brazil’s credit markets are well and truly back on their feet ✓ Average spread (DI+) and tenor of issuances have normalized after tough years Domestic debentures: average spread (DI+) vs. average tenor of issuances *issuers/issuances rated AA- or higher )in the Brazilian national scale)

2.50%

2016² 3,3y @ DI+2,3%

2.30% 2.10%

Avg. Spread (DI+)

1.90% 1.70%

2015 3,3y @ DI+1,8%

1.50% 1.30%

2014 4,2y @ DI+1,2%

1.10% 2018 4,2y @ DI+1,0%

0.90%

2017 4,4y @ DI+1,0%

0.70%

2013 5y @ DI+0,9%

0.50% 3.0

3.5

4.0 4.5 Avg. Tenor (years) Source: Anbima; BTG Pactual

5.0

5.5 36

Brazil’s credit markets are well and truly back on their feet ✓ In 2015-16, local capital market operations were tough to sell, and foreign markets were basically closed to Brazilian issuers – Top-quality issuers had to rely more on bank loans, and banks reduced loans to smaller (riskier) companies. – Result: the number of companies filing for bankruptcy protection in 2016 was 2.2x more than in 2014. – Now, with credit markets back to normal, the number of companies filling for bankruptcy protections are coming down (even though is still quite high in 2018).

Number of companies filing for bankruptcy protection

1,863 1,420

1,287 670

252

269

312

2006

2007

2008

2009

757 475

515

2010

2011

2012

874

828

2013

2014

2015

2016

2017

1,297

Nov-18

Source: Serasa

37

Capital market deals are back ✓ In 2017, international debt markets reopened their doors to Brazilian issuers – After raising USD30bn in the international bonds market and USD13.8bn in IPOs and Follow-On transactions in 2017, Brazilian companies have raised USD14.5bn in international bonds and USD7.3bn in IPOs and Follow-Ons so far in 2018.

Number of deals in 2018 (USDmn)

Deal Type International Bonds IPO Follow-On

2017 # of issuers Money raised 23 30,071 15 7,554 13 6,222

2018 # of issuers Money raised 19 14,450 6 6,231 2 1,060

38

Lower Selic rate: Financing companies is good again ✓ Increasingly high interest for local corporate bonds – With government bonds yields down, local bond issuances skyrocketed in 2017 and 2018. The higher NTN-B real interest rates, the lower the appetite for corporate bonds

Local bond market (R$bn)

70.0

8.0% 6.7%

95.87

60.0

82.85

6.3%

36.97

30.70

2015 CRI

NP

30.0

2016 CRA

5.0%

4.2% 58.3

2017

Oct-18

61.8 3.0% 2.0%

33.2 23.3

22.5 12.9

12.6

18.8

20.2

20.4

2014

2015

2016

1.0%

0.0

0.0%

2009

FIDC

6.0%

4.0%

38.93

10.0

2014

5.5%

4.7%

20.0

2013

7.0%

6.3% 5.3%

50.0

40.0

34.93

6.3%

6.1%

6.7%

2010

Debêntures

2011

2012

2013

Debêntures - Volume (R$ bn)

2017

Oct-18

NTNB - 20 avg.

Source: ANBIMA, BTG Pactual estimates

Source: ANBIMA, BTG Pactual estimates

– While local mutual funds’ asset allocation in fixed-income instruments (ex-government bonds) is still at very low levels, it tends to increase in the next years.

Local mutual funds’ allocation in fixed income instruments (ex-government bonds)

23.2%

25.0% 20.0%

18.7%

19.7%

18.4%

16.0% 15.0%

13.9%

13.8% 9.4%

10.0% 4.9% 5.0%

4.8%

3.7%

3.0%

4.5%

0.0% Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Oct-18 Total credit Source: ANBIMA, BTG Pactual estimates

Financials

Corporates

39

Politics: The new administration

Claudio Ferraz [email protected] +55 21 3262-9758 Iana Ferrão [email protected] +55 11 3383-3453

President and Vice-president Personal

Educational Specialization: Officers enhancement (EsAO) • Specialization: Paratrooper (Parachute Infantry Brigade) • Specialization: Physical Education (Army Physical Education School) • BS: Military Sciences (Artillery) (Agulhas Negras Military Academy)

Political

• • •

63 years old Campinas - SP

Jair Bolsonaro (PSL)

• •

Congressman (Federal Representative of Rio de Janeiro) - 1991-present City councilor of Rio de Janeiro (RJ) 1989-1991

President • • • •

65 years old Porto Alegre - RS

• •

General Hamilton Mourão (PRTB) Vice-president

•

Specialization: Politics, Strategy and High Military Administration (ESG) Specialization: High Military Studies (ECEME) Specialization: Officers enhancement (EsAO) Specialization: Paratrooper and Jumpmaster (Parachute Infantry Brigade) BS: Military Sciences (Artillery) (Agulhas Negras Military Academy)

•

•

Secretary of Economy and Finance of the Brazilian Army: 2016-2017 General Commander of the Southern Army: 2014-2016

Source: Media reports, BTG Pactual Digital, BTG Pactual

41

Main Ministries

Current ministries

Finance Planning, Development and Management

Ministries of Bolsonaro

MSc and PhD: Economics (University of Chicago) • MSc: Economics (Getulio Vargas Foundation - FGV/EPGE) • BS: Economics (Federal University of Minas Gerais - UFMG) •

Economy Paulo Guedes

Industry, Trade and Services

Chief of Staff of the Presidency of the Republic

Education

Chief of Staff of the Presidency of the Republic

•

Onyx Lorenzoni

BS: Veterinary Medicine (Santa Maria Federal University)

MSc: System Engineer (Naval Postgraduate school - Monterrey, California) • BS: Aeronautic Engineer (Institute of Aeronautical Technology - ITA) • BS: Public Administration (Air Force Academy - AFA) • BS: Aeronautical Sciences (Air Force Academy - AFA)

Background • • • • • • •

Founder of Millenium Institute Founder and CEO of Bozano Investimentos Founder of BR Investimentos Founder of JGP CEO and majority shareholder of IBMEC Founder of Pactual Bank Professor at PUC-Rio, FGV and IMPA

•

Congressman (Federal Representative of Rio Grande do Sul): 2003-present State Representative of Rio Grande do Sul (RS): 19952003

•

• Ministry of Science, Technology, Innovation and Communication

Ministry of Science and Technology Marcos Pontes

• • •

• Ministry of Agriculture, Livestock and Food Supply

Ministry of Agriculture Tereza Cristina

•

BS: Agronomic Engineer (Federal University of Viçosa - UFV)

•

UN ambassador for Industrial Development: 2001-present First Brazilian astronaut - NASA Fighter pilot (Brazilian air force): +2000 hours flying

Congressman (Representative of Mato Grosso do Sul): 2015-present Secretary of Agrarian Development, Production, Industry, Commerce and Tourism of Mato Grosso do Sul: 20072014

Source: Media reports, BTG Pactual

42

Main Ministries (II) Current ministries

Ministries of Bolsonaro

Education Course: Lawyers training program (Harvard Law School) • PhD: Law (Federal University of Paraná - UFPR) • MSc: Law (Federal University of Paraná - UFPR) • BA: Law (State University of Maringá) • Specialization: Child Orthopedic Medicine (Scottish Rite Hospital for Children - Atlanta) • Major: Orthopedic Medicine (Federal University of Mato Grosso do Sul UFMS) • BS: Medicine (Gama Filho University) • Specialization: Politics, Strategy and High Military Administration (ESG) • Specialization: High Military Studies (ECEME) • Specialization: Officers enhancement (EsAO) • BS: Military Sciences (Infantry) (Agulhas Negras Military Academy) • Specialization: High Military Studies (ECEME) • Specialization: Officers enhancement (EsAO) • BS: Military Sciences (Cavalry) (Agulhas Negras Military Academy)

Background

•

Justice Public Security

Health

Defense

Institutional Security

Justice Sérgio Moro

Health Luiz H. Mandetta

Defense General Fernando Azevedo e Silva

Institutional Security General Augusto Heleno Pereira

Source: Media reports, BTG Pactual

• •

Professor at UFPR and UniCuritiba Federal Judge of the 13th Federal Criminal Court of Curitiba

• • •

Congressman (Federal Representative of Mato Grosso do Sul): 2011-present President of Unimed Campo Grande: 2001-2014 Health Secretariat of Campo Grande (MS): 2005-2010

• • • •

Army Chief of Staff: 2016-2018 General Commander of the Eastern Army Responsible for 2016 Olympic Games security President of the Olympic Public Authority: 2013-2015

•

Head of the Army’s Department of Science and Technology General Commander of the Amazon Army Secretary of Public Security of the Ministry of Justice and Public Security Commander at UN-MINUSTAH mission

• • •

43

Heads of key government entities Head

Education

Background •

• Central Bank

•

Postgraduate: Economics & Finance (University of California - UCLA) BS: Economics & Finance (University of California - UCLA)

Roberto Campos Neto

National Bank of Development (BNDES) Joaquim Levy

Secretary of the National Treasury

• • • • •

• • •

PhD: Economics (University of Chicago) MSc: Economics (Getulio Vargas Foundation - FGV/EPGE) BS: Marine Engineering (Federal University of Rio de Janeiro - UFRJ)

• • • • • • •

•

PhD: Public Policy (Massachusetts Institute of Technology MIT) – not concluded MSc: Economics (University of São Paulo) BS: Economics (Federal University of Ceará)

• •

• •

Head of Treasury & National and International Markets at Santander: 2010present Head of local trading at Santander: 2006-2010 Portfolio Manager at Santander Claritas: 2004-2006 Head of international fixed income trading at Santander: 2000-2003 Head of international fixed income trading at Bozano Simonsen Bank: 1999 Derivatives, fixed income, debt and exchange trader at Bozano Simonsen Bank: 1996-1998 World Bank Chief Financial Officer (CFO): 2016-2018 Minister of Finance: 2015 Superintendent Director at Bradesco Asset Management 2010-2014 Secretary of the National Treasury: 2003-2006 Economist - European Central Bank: 1999-2000 Economist - International Monetary Fund: 1992-1999 Professor at FGV

Secretary of the National Treasury: 2018 Economist - Institute for Applied Economic Research (IPEA)

Mansueto Almeida Source: Media reports, BTG Pactual

44

Heads of key government entities (II) Head

Education

Background

• •

Post-Doctoral: Economics (University of Chicago) PhD: Economics (Getulio Vargas Foundation - FGV/EPGE)

• • • •

Petrobras board member: 2015-2016 Investor Relations and Chief Economist at Vale: 1999-2014 Brazil Central Bank Director: 1985 Professor at FGV

•

PhD: Economics (University of Rochester)

• •

Privatization specialist - worked on Banespa’s privatization Partner at Brasil Plural

• • • •

Professor at FGV Economist at the National Development Bank (BNDES) President of the Brazilian Association Supporting Micro and Small Enterprises (Sebrae) Writer of economic books

• •

Founder and CEO of Localiza Counselor of Millenium Institute

Petrobras Roberto Castello Branco

Caixa Econômica Federal Pedro Guimarães

•

PhD: Economics (University of Chicago)

Banco do Brasil

Rubem Novaes

Secretary of Privatizations Sallim Mattar

•

BS: Business

Source: Media reports, BTG Pactual

45

Proposals of the elected President

General •

• •

Plans to maintain macroeconomic tripod (fiscal- and inflation-targeting regime plus floating exchange rate) and simplify Brazil's tax system. Plans to reduce public debt by 20% via privatizations, concessions and sale of federal government real estate. Plans to eliminate primary public deficit in first year of government and convert it into a surplus in second year.

Social Security Reform •

•

Privatizations •

•

Plans to implement a wide-sweeping privatization program. All resources from privatizations and concessions must be used to pay public debt.

Plans to gradually change pension model from distribution to capitalization. New participants would be able to choose between the two systems. Those who opt for capitalization would 'earn' the benefit of lower labor charges. Shortage of resources caused by transition from one regime to another will be remedied by creating a fund to strengthen social security financing and offset the reduction of social security contributions in the old system.

Tax Reform • •

Fiscal Policy • • • • •

Reduce the primary deficit to zero in 2019 and turn it into a surplus during the second year of government. Promote a Tax Reform to unify taxes and simplify the national system. Reduce the tax burden whilst creating room to rein in expenditures. Reduce debt via spending control and less red tape. Reduce the size of the State.

Defends simplifying and unifying federal taxes and decentralizing and 'municipalizing' taxes. Opposes taxing large fortunes and inheritances and new taxes on entrepreneurs.

Political Reform •

•

Inflation •

•

•

Will preserve inflation-targeting regime. Defends autonomy and independence of Central Bank, with 4-year regimes that do not coincide with the 4-year term of Brazil’s President. Critical of Petrobras’ daily price adjustment.

Expand government support, approving solutions to the problems of caucuses – e.g. backing ‘ruralists’ with land property issues. Reduce the number of ministries.

External Sector • • •

Defends stronger trade ties with China and US and closer ties with Chile. Reduce importance of Mercosur in international trade. Plans to promote greater openness of the economy.

Source: Bolsonaro's government program, Media reports , BTG Pactual

46

Proposals of the elected President (II)

Public Banks •

Doesn’t plan to privatize Banco do Brasil or Caixa Econômica Federal.

Infrastructure • • • •

Health • • •

Create the National Electronic Record with the aim of integrating the national health system. Establish neonatal programs (including dental check-ups) throughout the country. Include physical education professionals in family health program.

Less bureaucracy and privatization of infrastructure projects, generating low regulatory risk for investments. Integrate Northeast region with the country’s developed regions. Increase port efficiency. Promote investments in railways, waterways and improvements in the quality of highways.

Agribusiness • • •

Education • •

• • •

Defends distance learning, from basic to higher education. Militarization of education with military schools. Initially, create schools in São Paulo – Campo de Marte. Invest in university research. Against quota policy in universities. Defends schools without political influence from teachers.

Create a new federal agricultural structure, with a dedicated agricultural policy. Centralize agribusiness demands at a single ministry. Create specific policies to consolidate and open up new external markets.

Social Programs •

•

Public Security • • • • • •

Reduce minimum criminal age to 16. Ease gun ownership rules. Promises to restructure the Disarmament Statute. Provide legal backing to security officers and to anyone who reacts to a crime or property invasion. End the progression of prison sentences and temporary releases. Restructure the human rights policy. Reinforce the role of Brazil’s Armed Forces in combating organized crime.

Plans to keep social programs such as ‘Bolsa Familia’, ensuring a minimum level of subsistence for families. Defends a family planning program to control birth rates.

Additional proposals •

Plans to create Economy Ministry, covering functions currently performed by the Finance, Planning and Trade Ministries, as well as the Executive Secretariat of the PPI (Investment Partnership Program).

Source: Bolsonaro's government program, Media reports , BTG Pactual

47

Proposals defended by the Finance Minister Proposal

Definition

Delinking

Give more freedom to the Budget, which today has minimum compulsory

the budget

expenditures (inflation-adjusted) for health and education

Pension reform

Tax reform

20% income tax

Pre-salt auction

Privatizations

How to implement

Proposal provides for capitalization system (individual accounts) for new entrants

Constitutional amendment

High

Constitutional amendment

High

Substitution of employers´ payroll contribution by a contribution on financial Constitutional amendment

transactions Change income tax to 20% (no details on if there will be changes to income tax bands and brackets)

Allows other companies to operate in blocks currently controlled by Petrobras

Government is talking about privatizing or liquidating companies such as EPL (bullet train) and Valec (railroads)

Complexity level

Ordinary law

High

High

Draft bill to be voted in the Senate facilitates the auction process

Medium

Control of some state-owned companies, such as EPL, can only be sold if authorized by law

Medium

Source: Media reports, BTG Pactual

48

Proposals defended by the Finance Minister (II)

Proposal Possession and carrying of weapons

Sale of subsidiaries

Definition

Reduction in minimum age for carrying weapons from 25 to 21, and waiving the requirement to declare the need to own a gun. Carrying a weapon is authorized for those above the age of 25 who meet the gun possession criteria. Sell, for example, areas of public banks not directly related to banking, such as insurance and cards

Sale of properties

Selling federal government real estate to raise funds to reduce public debt

13th Bolsa Família extra year-

During the election campaign, Bolsonaro promised a 13th (extra monthly) salary for

end allowance

the Bolsa Família family allowance program

How to implement

Complexity level

Must be approved in congress since it requires changes in the disarmament statute.

Medium

Some experts say it needs approval via law, such as the sale of state-owned companies

Medium

Done by bidding, you also need Congressional approval

Medium

Provisional measure

Medium

Provisional measure

Medium

Government decree

Low

The new portfolio, which will coexist with the current one, will guarantee only Green and yellow wallet

constitutional rights such as paid vacations, 13th year-end bonus salary and FGTS (Workers´ Severance Fund)

Lower industry tariffs and

Cautious and negotiated trade opening, under a pro-competitive agenda; avoids a

gradual trade opening

reduction in trade tariffs with no counterpart measures

Source: Media reports, BTG Pactual

49

Procedural passage of main legislative rules

Votes required for approval

One of the main obstacles to the approval of the Social Security Reform is that the proposal requires changes in the text of the Constitution. The criteria for approval of a constitutional amendment are much stricter than for approval of statutory legislation. Constitutional Amendment (EC)

Statutory Law (LO)

Supplementary Law (LC)

Provisional Measure (MP)

3/5

Simple majority

Absolute majority

Simple majority

(308 federal deputies and 49 senators)

(more than 50% of total votes, excluding abstentions. An absolute majority must be present for the bill to be voted)

(257 federal deputies and 41 senators)

(more than 50% of total votes, excluding abstentions. An absolute majority must be present for the bill to be voted)

Thematic committees

Thematic committees

Joint congressional committee

2

(may have a conclusive nature )

2

(may have a conclusive nature )

»

»

»

»

Special Committee (CE)

Legal Committee in the House of Representatives (CCJC)1

Legal Committee of the House of Representatives (CCJC)1

1 round in House of Representatives

»

»

»

»

2 rounds in House of Representatives

1 round in House of Representatives

1 round in House of Representatives

1 round in Senate

Thematic committees

»

»

CCJ3

»

»

Processing

Legal Committee in the House of Representatives (CCJC)1

Thematic committees 2

(may have a conclusive nature )

Signed into law or vetoed by president 2

(may have a conclusive nature )

»

»

»

2 rounds in the Senate

CCJ3

CCJ3

»

»

»

Enactment

1 round in Senate

1 round in Senate

»

»

Signed into law or vetoed by president

Signed into law or vetoed by president

If rejected, one-third of deputies may call a floor vote. 2 This means that the bill would not need to be put to a floor vote. 3 If rejected, one-third of senators may call a floor vote. CCJC: Commission on Constitution, Justice and Citizenship in the House of Representatives; CE: Special Committee; and CCJ: Commission on Constitution and Justice in the Senate. 1

Source: Brazilian Constitution, Rules of Order of House of Representatives, Rules of Order of Senate, BTG Pactual

50

Constitutional amendments usually take long to get approved •

The fastest approval of a constitutional amendment occurred in 4 months, while the longest approval is 155 months. The median time is 21 months. The Social Security reform approved by the Fernando Henrique Cardoso (FHC) administration took 45 months to be approved. The reform approved by the Lula administration, which was much narrower than that of the FHC government, took 8 months.

•

The procedural passage track record of PECs suggests that approval of the Social Security reform in the first half of 2019 would be atypical. Only 8 of the 99 amendments were approved within six months

Procedural passage time (months) 155

45 37

21 8 4 Source: House of Representatives, Senate, BTG Pactual

Minimum

Social Security Reform - Lula

Median

Average

Social Security Reform - FHC

Source: House of Representatives, Senate, BTG Pactual

Maximum

51

PT and PSL will be the biggest parties in Brazil’s Lower House Party PT PSL PP MDB PSD PR PSB PRB PSDB DEM PDT SD PODE PSOL PTB PC do B PSC PPS PROS Novo AVANTE PHS PATRI PV PRP PMN PTC PPL DC REDE PSDC PRTB Total

2014 election 69 1 38 65 36 34 33 20 54 21 20 15 4 5 25 10 13 10 11 0 1 5 2 8 3 3 2 0 2 0 2 1 513

Currently 61 8 50 51 37 40 26 21 49 43 19 10 17 6 16 10 9 8 11 0 5 4 5 3 0 0 0 1 0 2 0 0 512

2018 election 56 52 37 34 34 33 32 30 29 29 28 13 11 10 10 9 8 8 8 8 7 6 5 4 4 3 2 1 1 1 0 0 513

Growth/reduction in number of seats: 2018 vs. 2014 election PSL

10 8 8 8 7 6 5 3 1 1 1 1 0 0

DEM Novo AVANTE PATRI

PRP REDE PTC PR PC do B

PRTB SD PSDC PV PT

PSDB

-25 -31

-13 -15

-1 -1 -1 -1 -1 -1 -2 -2 -2 -2 -3 -4 -5

51

Growth/reduction in number of seats: 2018 election vs. current level PSL

9 9 8 6 4 4 3 3 2 2 2 1 1 0 0 0 0 0

PDT PSB PRP PMN

PHS PV PPS PPL PRTB PSC PSD PT PTB PP MDB

-13 -14 -17 -20

44

-1 -1 -1 -3 -3 -5 -6 -6 -7

Source: Superior Electoral Court, House of Representatives, BTG Pactual

52

MDB lost most Senate seats in the upcoming legislature Party MDB PSDB DEM PT PP PSD PDT PSB REDE PSL PTB PR PPS PHS PRB SD PSC PODE PROS PRP PSOL PC do B Novo PATRI PV PTC No party Total

2014 election

Currently

2018 election

18 10 5 12 5 3 8 7 0 0 3 4 0 0 1 1 0 0 1 0 1 1 0 0 1 0 0 81

18 12 5 9 6 5 3 3 1 0 2 4 1 0 2 0 0 5 1 0 0 1 0 0 1 1 1 81

12 8 7 6 6 6 6 5 5 4 4 2 2 2 1 1 1 1 1 1 0 0 0 0 0 0 0 81

Growth/reduction in number of seats: 2018 vs. 2014 election REDE PSD PPS PP PSC PRP

0 0 0 0 0 0 0

SD Novo PTC PSOL PV PDT PR PT

-6 -6

-1 -1 -1 -2 -2 -2 -2

1 1 1 1 1

2 2 2

3

4

5

Growth/reduction in number of seats: 2018 election vs. current level REDE

PDT PSB PHS PPS PSC 0 0 0 0 0

PP PSOL PATRI PC do B PTC PR PSDB MDB

-6

-4 -4

-3

-2

1 1 1 1 1

2 2 2 2

3

4 4

-1 -1 -1 -1 -1

Source: Superior Electoral Court, House of Representatives, BTG Pactual

53

Bolsonaro’s possible base of support looks good Lower House composition after 2018 election The number of parties will remain at a high level in the next legislature (2019-22) PT PDT PSB PSOL PC do B PROS PV Rede PPL Avante PPS PSDB MDB Novo PMN PTC Patriotas PHS DC PRP PSC SD Podemos PTB PR PSD PP DEM PRB PSL

56 28 32 10 9 8 4 1 1 7 8 29 34 8 3 2 5 6 1 4 8 13 11 10 33 34 37 29 30 52

Parties which probably will support Bolsonaro’s administration

Left parties 148 in 2018 election (vs. 157 in 2014)

Left parties

Parties which will probably support Bolsonaro’s administration: 268 in 2018 election (vs. 214 in 2014)

Source: Superior Electoral Court, House of Representatives, BTG Pactual

54

Bolsonaro’s possible base of support looks good ✓ Bolsonaro may have more than 50% of the votes in the Lower House. Lower House Bolsonaro's support base Party PSL PP PSD PR DEM PRB Podemos PTB PSC PHS SD PRP DC

Opposition

Independents

# of seats

% of total

Party

# of seats

% of total

52 37 34 33 29 30 11 10 8 6 13 4 1

10.1% 7.2% 6.6% 6.4% 5.7% 5.8% 2.1% 1.9% 1.6% 1.2% 2.5% 0.8% 0.2%

PT PDT PSB PV Rede PROS PSOL PcdoB

56 28 32 4 1 8 10 9 148

10.9% 5.5% 6.2% 0.8% 0.2% 1.6% 1.9% 1.8% 28.8%

268

52.2%

Party MDB PSDB PPL PMN PTC Patriotas Avante PPS Novo Total

# of seats

% of total

34 29 1 3 2 5 7 8 8 97 513

6.6% 5.7% 0.2% 0.6% 0.4% 1.0% 1.4% 1.6% 1.6% 18.9%

55

State-owned companies: A long list of assets to sell

A big government ✓ A Finance Ministry report a few weeks ago shows that there were 148 Federal government-owned companies in Brazil at the end of 2017, 5 less than at the end of 2016 – However, since the end of 2004, i.e. in the past 13 years, 16 new state-owned companies were created. – The chart below shows the different types of stakes held by the government. It controls some companies directly, some indirectly and is a minority investor in others. Types of ownership

Equity Share

Federal Government Companies

Control Interest

Direct Control State owned companies Mixed capital companies

Minority Interest

Indirect Control

State Government Companies

Privatelyheld Companies

Stakes in other institutions

Indirectly controlled companies

Source: Finance Ministry report on Brazilian government’s ownership stakes 57

47 directly-controlled companies ✓ At the end of 2017, the government controlled 47 companies directly, including high-profile listed companies like Petrobras, Eletrobras and Banco do Brasil. Companies directly controlled by the government Controlling stake - 148 companies Direct control - 47 Companies

26 state-owned

20 mixed public-private

%

capital companies

13 Non-dependents

%

6 Listed 100.00

BANCO DO BRASIL

50.73

BNDES

100.00

ELETROBRÁS (*)

40.99

CAIXA ECONÔMICA FEDERAL

100.00

PETROBRAS (*)

28.67

CASA DA MOEDA

100.00

TELEBRAS (*)

47.39

51.00

BASA-BANCO DA AMAZÔNIA

51.00

CORREIOS ECT

100.00

BNB - BANCO DO NORDESTE

50.92

EMGEA-EMP.GEST.ATIVOS

100.00

11 Non-listed

EMGEPRON-EMP.GEST.PROJ.NAVAIS

100.00

CASEMG-CIA ARMAZ. SILOS DE MG

92.96

FINEP-FINANCIAD.ESTUDOS

100.00

CEAGESP-CIA ENTREP.ARMAZ.SP

99.68

HEMOBRAS-EMP.BR.HEMOD.BIOTEC.

100.00

CEASAMINAS-CENT.ABAST.MG

99.57

INFRAERO

100.00

CDC-CIA DOCAS DO CEARÁ

99.93

PPSA-PRÉ-SAL PETRÓLEO S.A.

100.00

CDP-CIA DOCAS DO PARÁ

100.00

13 Dependents

CDRJ-CIA DOCAS DO RJ

99.99

AMAZUL-AMAZÔNIA AZUL TEC.DEFESA

100.00

CODEBA-CIA DOCAS DA BA

98.36

CEITEC-CENT.EXCEL.TEC.ELETR.AVANÇ.

100.00

CODERN-CIA DOCAS DO RN

99.99

CODEVASF-CIA DES.VALES.FR.PARN

100.00

CODESA-CIA DOCAS DO ES

99.45

CONAB-CIA NAC.ABASTECIMENTO

100.00

CODESP-CIA DOCAS DE SP

99.97

97.33

CODOMAR-CIA DOCAS DO MA

99.97

EBC-EMP.BRASIL COMUNICAÇÃO

100.00

3 Dependents (non-listed)

EBSERH-EMP.BR.SERVIÇOS HOSPIT.

100.00

CBTU-CIA BR. TRENS URBANOS

99.99

EMBRAPA-EMP.BR.PESQUISA AGROP.

100.00

HNSC-HOSP.N.S.CONCEIÇÃO

99.99

EPE-EMP.PESQ.ENERGÉTICA

100.00

TRENSURB-EMP.TR.URB.P.ALEGRE

99.88

EPL SA-EMP.PLANEJ.LOGÍSTICA

100.00

HCPA-HOPS.CLÍNICAS PORTO ALEGRE

100.00

IMBEL-IND. MATERIAL BÉLICO DO BR

100.00

VALEC ENG.CONSTR.FERROVIAS S.A.

100.00

CPRM-CIA PESQUISA REC.MINERAIS

%

company

ABGF-AG.BR.GEST.FUND.GARANT.

DATAPREV

1 Binational

Source: Finance Ministry report on Brazilian government’s ownership stakes

ALCANTRA CYCLONE SPAC

51.18

58

Petrobras, Eletrobras and BB control 92 subsidiaries ✓ In addition to the 47 directly controlled companies, the government controls 101 companies indirectly. – Brazil’s new administration has been talking about privatizing a large number of companies but has reiterated that it doesn’t intend to privatize Petrobras or Banco do Brasil (and maybe not even Eletrobras). – However, Petrobras, Eletrobras and Banco do Brasil control together 92 subsidiaries. By selling some of these subsidiaries, the government can slash the number of state-owned companies.

✓ The government also has minority stakes in 58 companies from a range of sectors. – Of these, 27 have an equity value above R$100mn. The government also has golden shares in three privately-controlled listed companies: Vale, Embraer and IRB.

59

Broad privatization program could slash debt levels ✓ Big companies under control – The book value of the government´s stakes in the 47 companies it directly controls was R$270bn at the end of 2017. In 2014, before the write-downs at Petrobras and Caixa, the book value of these stakes was R$314bn. Book value of government´s direct stakes in 47 companies

314 270

32

168 27 13

25

179

293

281

277

270

34

36

37

15

20

66

61

229

40

62

35

205

25

18 61

52

22

66

13 28

20

24

37

33

46

53

2008

2009

30

34

31

34

63 55

33

35

29

26

96

95

98

2010

2011

2012

Petrobras

34

27

26

28

34

Eletrobras

23

100

2013 BB

BNDES

31

40

89

2014 Caixa

44

36

39

17

18

19

73

72

76

2015

2016

2017

Others

Source: Finance Ministry report on Brazilian government’s ownership stakes

60

Profits of state-owned companies have plummeted ✓ The three big listed state-owned companies were trading at or below their book values at the end of 2017. Price/Book Value: Petrobras, Eletrobras and Caixa 1.03 x

1.03 x 0.92 x 0.84 x

0.83 x 0.82 x

0.79 x 0.72 x 0.58 x 0.52 x

0.50 x

0.41 x 0.39 x 0.22 x 0.15 x

Petrobras

BB 2014

2015

2016

Eletrobras 2017

3Q18

Source: Finance Ministry report on Brazilian government’s ownership stakes

✓ The profits generated by government-controlled companies have also plummeted in recent years, as shown in the table below.

Earnings of companies directly controlled by the government (R$mn) Company Banco do Brasil BNDES Caixa Petrobras Eletrobras Other Total

2012

2013

2014

2015

2016

2017

12,310 8,136 6,066 20,895 -6,879 1,452 41,980

15,810 8,150 6,723 23,408 -6,287 -2,984 44,822

11,313 8,594 7,092 -21,692 -3,031 -3,428 -1,153

14,109 6,199 5,797 -34,836 -14,442 -9,609 -32,782

7,930 6,392 3,702 -14,824 3,426 -4,434 2,193

10,881 6,183 12,462 -446 -1,764 -3,154 24,162

Source: Finance Ministry report on Brazilian government’s ownership stakes 61

State-owned companies have been draining cash ✓ Consistent negative contributions – State-owned companies have consistently negatively contributed to the country’s fiscal accounts. In other words, the government is having to put more money into state-owned companies (capitalizations + debt financing) than it has been able to collect (dividends + interest). – The amount of money required to fund these companies’ deficits has been growing consistently, rising from R$6.5bn in 2012 to ~R$15bn in 2017.

Direct subsidies for state-owned companies (R$mn) 14,841 13,348 11,146

9,856 8,229 6,533

– In the past 5 years, except for 2014, the government has pumped more money into state-owned companies than it has taken out. In 2016 and 2017, the money-in/money-out ratio was as low as 0.2x and 0.3x, respectively. 2012

2013

2014

2015

2016

2017

Source: Finance Ministry report on Brazilian government’s ownership stakes

Costs vs. returns of state-owned companies (R$mn) Costs (R$ thousands)

Return (R$ thousands)

Year

AFCI

Hybrid Instruments

Subsidy

Total Costs

Interest Income (Hybrid Instruments)

Dividends

Total Return

Return/Costs

2012

3,285,634

21,099,997

6,531,679

30,917,310

2,391,340

27,775,051

30,166,391

0.98

2013

5,384,644

23,000,000

8,229,590

36,614,234

1,373,016

16,909,531

18,282,547

0.50

2014

5,132,002

999,999

9,856,531

15,988,532

2,779,339

18,905,531

21,684,870

1.36

2015

5,634,086

0

11,145,857

16,779,943

2,677,569

12,044,357

14,721,926

0.88

2016

8,666,265

0

13,348,536

22,014,801

1,668,075

2,835,828

4,503,903

0.20

2017

5,334,390

0

14,840,910

20,175,300

1,029,182

5,498,246

6,527,428

0.32

Total

33,437,021

45,099,996

63,953,103

142,490,120

11,918,521

83,968,544

95,887,065

0.67

Source: Finance Ministry report on Brazilian government’s ownership stakes 62

Economic recovery to accelerate in 2019

Claudio Ferraz, BTG’s Brazil Chief Economist [email protected] +55 21 3262-9758

A slow recovery and lots of slack. Watch out for a confidence boost. ✓ 3Q18 GDP came in strong as expected, but heavily driven by base-effects. – Election result may bring a confidence boost – In fact, consumer confidence has already shown positive signs (expectations component). – Preliminary exercises suggest that GDP can grow from 2.6% to 3.8% in 2019 if there is a post-elections confidence boost.

64

A slow recovery after the worse GDP performance in decades

Deviation from the peak before recession

GDP – Median market forecasts (Focus report)

Source: IBGE and Central Bank of Brazil

Source: IBGE and Central Bank of Brazil

65

Industrial activity bounced back from the strike ✓ But growth at the margin has been sluggish

Industrial Production, s.a.

Industrial Production, y/y %

Indústrial geral

Extrativa

Apr-18

Jul-17

Oct-16

Jan-16

Apr-15

Jul-14

Oct-13

Jan-13

Apr-12

Jul-11

Oct-10

Jan-10

Apr-09

Jul-08

Oct-07

Jan-07

20 15 10 5 0 -5 -10 -15 -20

Transformação

1.1 0.2

Jan-03 Nov-03 Sep-04 Jul-05 May-06 Mar-07 Jan-08 Nov-08 Sep-09 Jul-10 May-11 Mar-12 Jan-13 Nov-13 Sep-14 Jul-15 May-16 Mar-17 Jan-18

130 125 120 115 110 105 100 95 90 85 80

y/y

3-month average y/y

66

Commerce: Retail sales was also impacted by the strike ✓ And recovery has been at a much slower pace…

Retail Sales, index s.a. (2014=100)

Chart 1: Retail Sales breakdown, index s.a (3-month moving average)

105 170

100

Core retail sales Source: IBGE

Broad retail sales

Supermarkets and foodstuff Furniture and household appliances Books, magazines and stationery Vehicles

Apr-18

Jul-17

Oct-16

Jan-16

Apr-15

Jul-14

Oct-13

Jan-13

Apr-12

Jul-11

Jan-10

Jul-18

Jan-18

Jul-17

Jan-17

Jul-16

Jan-16

Jul-15

70

Jan-15

80

Jul-14

90

Jan-14

85 Jul-13

110

Jan-13

90

Jul-12

130

Jan-12

95

Oct-10

150

Apparel Pharmaceutical goods, cosmetics Office, communication and IT equip. Building material

Source: IBGE

67

Services: lagging behind in the ongoing economic recovery… Services output, index s.a

105

100 95 90

Jun-18

Nov-17

Apr-17

Sep-16

Feb-16

Jul-15

Dec-14

May-14

Oct-13

Mar-13

Aug-12

Jan-12

85

Services output

Core services

3-m av. (Services output)

3-m av. (Core services)

Source: IBGE and BTG Pactual

68

Consumption and investment show signs of recovery ✓ But remain low by historical standards, and the GDP should end 2018 5% below the 2014 peak – Consumption: 6% below the 2014 peak – Investments: 26% below the 2013 peak GDP (Consumption & Investments); Índice 1995=100

210 190

170 150 130

110 90

Consumption

Investment

Nov-17

Mar-16

Jul-14

Nov-12

Mar-11

Jul-09

Nov-07

Mar-06

Jul-04

Nov-02

Mar-01

Jul-99

Nov-97

Mar-96

70

GDP

69

Labor market: employment has improved of late… ✓ But driven by low paying, less secure, non-payroll jobs

107

93

105

92

103

91

101

90

n.s.a. Source: IBGE and BTG Pactual

s.a.

Labor force

Aug-18

Jan-18

Jun-17

Nov-16

Apr-16

Sep-15

Feb-15

Jul-14

88 Dec-13

95 May-13

89 Oct-12

97 Mar-12

Sep-18

Mar-18

Sep-17

Mar-17

Sep-16

Mar-16

Sep-15

Mar-15

Sep-14

99

Employment (rhs)

Source: IBGE and BTG Pactual

70

Millions

12.1% 11.7%

Millions

Labor force and employment, s.a.

Mar-14

Sep-13

Mar-13

Sep-12

Mar-12

Unemployment rate 14 13 12 11 10 9 8 7 6

Actual Forecast

6

Actual

Dec-20

10

May-20

12

Oct-19

13

Mar-19

-600

Aug-18

7 Jan-18

-400

Jun-17

8

Nov-16

-200

Apr-16

9

Sep-15

0

Feb-15

200

Jul-14

400

Dec-13

Net payroll jobs, s.a.

May-13

600

Oct-12

800

Mar-12

Mar-20

Mar-19

Mar-18

Mar-17

Mar-16

Mar-15

Mar-14

Mar-13

Mar-12

Mar-11

Mar-10

Mar-09

Mar-08

Mar-07

Mar-06

Mar-05

Mar-04

Thousands

...and the adjustment will take long Unemployment rate, s.a. %

14 Dec-18 11.8

11 Dec-19 11.1

Forecast

71

Credit market has shown some positive signs ✓ With momentum slowly increasing

Non-performing loans, s.a.

7.5

3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5

7.0 6.5 6.0 5.5 5.0 4.5

Total Source: IBGE

Households

Non-financial corporations

Households

Oct-18

Mar-18

Aug-17

Jan-17

Jun-16

Nov-15

Apr-15

Sep-14

Feb-14

Jul-13

Dec-12

May-12

Oct-11

Mar-11

Jan-18

Mar-17

May-16

Jul-15

Sep-14

Nov-13

Jan-13

Mar-12

May-11

Jul-10

Sep-09

Nov-08

Jan-08

4.0

Mar-07

Trillions

Total outstanding loans (s.a., current R$)

Non-financial corporations (rhs)

Source: IBGE

72

Leverage has fallen over the past years ✓ Despite worsening slightly at the margin

Household debt, % of annual income

Household debt service, % monthly income

Total Source: IBGE

Total

Ex-mortgage

Nov-17

Dec-16

Jan-16

Feb-15

Mar-14

Apr-13

Nov-17

Dec-16

Jan-16

Feb-15

Mar-14

Apr-13

May-12

Jun-11

Jul-10

Aug-09

Sep-08

Oct-07

Nov-06

Dec-05

Jan-05

15

17.6

May-12

20

Jun-11

23.7

Jul-10

25

20.0

Aug-09

30

Sep-08

35

Oct-07

40

24 23 22 21 20 19 18 17 16 15

Nov-06

42.1

Dec-05

45

Jan-05

50

Ex-mortgage

Source: IBGE

73

Business and consumer confidence have started to improve ✓ But remain below their historic average (mean=100)

Consumer confidence, s.a.

Business confidence - Industry Average=100 and SD=10

Average=100 and SD=10

130

125

120 115

110

105

Source: FGV

Expectations

Confidence index

Current situation

Expectation

Mar-18

May-17

Jul-16

Sep-15

Nov-14

Jan-14

Mar-13

May-12

Jul-11

Sep-10

Jan-09

Nov-09

Mar-08

May-07

Sep-05

May-18

Jul-17

Sep-16

Nov-15

Jan-15

Mar-14

May-13

Jul-12

Nov-05

Current situation

Sep-11

60

Nov-10

65

Jan-10

70

Mar-09

75

May-08

80

Jul-07

85

Sep-06

90

Jan-05

95

Jul-06

100

Consumer confidence index

Source: FGV

74

A confidence boost improves the outlook for GDP growth

Business confidence trajectories

GDP growth (y/y) vs business confidence scenarios 10

120

8

110

6 3.2% in 2019 2.8% in 2019

4

100

2

90

0 -2

80

-4

70

-6

Source: IBGE, FGV and BTG Pactual

2006

Average 2002-2006

Feb-19

Mar-18

Apr-17

May-16

Jun-15

Jul-14

Aug-13

Sep-12

Oct-11

Nov-10

Dec-09

Jan-09

Feb-08

Jul-19

Sep-18

Nov-17

Jan-17

Mar-16

May-15

Jul-14

Sep-13

Nov-12

Jan-12

Mar-11

Jul-09

May-10

Sep-08

Nov-07

Jan-07

Average 2002-2006

Mar-07

-8

60

2006

Source: IBGE, FGV and BTG Pactual

75

Mar-17

Unemployment rate, s.a. %

14

12 12.0

10 81

8

79

6

4 75

Jan-05 Oct-05 Jul-06 Apr-07 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-12 Apr-13 Jan-14 Oct-14 Jul-15 Apr-16 Jan-17 Oct-17 Jul-18

Unemployment rate - Brazil Sep-13 Jun-15

Dec-11

Jun-08 Mar-10

Sep-06

Mar-03 Dec-04

Jun-01

Dec-97 Sep-99

Jun-94 Mar-96

Sep-92

How much slack? Capacity Utilization in Industry, %

87

85

83 Avera ge 2007-2017 Avera ge 2012-2017

80.4

78.4

77 75.3

73

76

Benign inflation scenario ✓ Benign inflation scenario in the short and medium term. – In the short term, energy prices (electricity tariffs and fuels) are declining significantly. – Sizable slack in the economy favors contained inflationary pressures. – In fact, underlying inflation measures running at a weak pace for this time of year. – Medium and long-term inflation expectations remain well-anchored, amidst declining inflation targets. – Central Bank credibility will be critical to maintain inflation expectations anchored should the BRL faces a more volatile environment. – Our expectation for the IPCA is 3.8% for 2018 (target: 4.5%) and 4.2% for 2019 (target: 4.25%) IPCA 2018-2020 (12-month accumulated inflation, %)

20 15

10 5

IPCA

Monitored prices

Sep-20

Apr-20

Nov-19

Jun-19

Jan-19

Aug-18

Mar-18

Oct-17

May-17

Dec-16

Jul-16

Feb-16

Sep-15

Apr-15

Nov-14

Jun-14

Jan-14

0

Free prices

Source: IBGE and BTG Pactual

77

Benign inflation outlook in the short term ✓ Energy prices and core measures have helped...

Median

Seasonality: Gasoline

Source: IBGE and BTG Pactual

Source: IBGE and BTG Pactual

2017

2018

15-Dec

15-Nov

15-Oct

15-Sep

15-Aug

15-Jul

15-Jun

15-May

15-Apr

15-Mar

15-Feb

15-Jan

Seasonality: Headline 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 -0.4

2019

Seasonality: Electricity

Source: IBGE and BTG Pactual

78

Benign inflation outlook in the short term ✓ Energy prices and core measures have helped... Daily price of gasoline 2.60 5.00 2.40 4.80

2.20

4.60

2.00

4.40

1.80

4.20

1.60

Consumer prices - ANP

Dec-18

Nov-18

Oct-18

Oct-18

Sep-18

Aug-18

Aug-18

Jul-18

Jun-18

Jun-18

May-18

Apr-18

Mar-18

Mar-18

Feb-18

Jan-18

0.80 Jan-18

3.40 Dec-17

1.00 Nov-17

3.60

Nov-17

1.20

Oct-17

3.80

Sep-17

1.40

Sep-17

4.00

Petrobras distribution price d-20 (rhs)

Source: ANP, Petrobras and BTG Pactual

79

Benign inflation outlook in the short term ✓ With core measures trending around comfortable levels

Seasonality: core measures (average)

Seasonality: core services (as per BCB)

0.8

1.2

0.7

1.0

0.6

0.8

0.5

0.6

0.4 0.4

0.3

Source: IBGE and BTG Pactual

2017

2018

2019

2017

2019

Source: IBGE and BTG Pactual

80

28-Dec

15-Dec

15-Nov

28-Nov

15-Oct

28-Oct

15-Sep

28-Sep

15-Aug

2018

28-Aug

15-Jul

28-Jul

15-Jun

28-Jun

15-May

Median

28-May

15-Apr

28-Apr

15-Mar

28-Mar

15-Feb

28-Feb

15-Jan

15-Dec

28-Dec

15-Nov

28-Nov

15-Oct

28-Oct

15-Sep

28-Sep

28-Aug

15-Aug

15-Jul

28-Jul

15-Jun

28-Jun

15-May

Median

28-May

15-Apr

28-Apr

15-Mar

28-Mar

15-Feb

-0.2

28-Feb

0.0

15-Jan

0.0

28-Jan

0.1

28-Jan

0.2

0.2

12-month services inflation at low levels 12

10 8 6 4

Services

Services ex-air fare

Jan-18

Jan-17

Jan-16

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

Jan-03

Jan-02

2

Services BCB

Source: IIBGE, Central Bank of Brazil and BTG Pactual

81

Benign inflation outlook in the medium term ✓ Inflation expectations remain well anchored

IPCA Inflation Expectations 2018-2020 12-month accumulated inflation, %

20 15 10

5

IPCA

Monitored prices

Sep-20

Apr-20

Nov-19

Jun-19

Jan-19

Aug-18

Mar-18

Oct-17

May-17

Dec-16

Jul-16

Feb-16

Sep-15

Apr-15

Nov-14

Jun-14

Jan-14

0

2016 2017 2018F 2019F 2020F

IPCA 6.3 2.9 3.8 4.2 4.1

Monitored 6.5 1.3 3.0 3.8 4.0

Free 5.5 8.0 5.8 5.3 4.6

Free prices

Source: IBGE e BTG Pactual

82

Midpoint target and target band 4.00

jan-16

2020

6.5 6 5.5 5 4.5 4 3.5 3 2.5 2

Source: BCB

83

nov-18

set-18

jul-18

mai-18

jan-18 mar-18

nov-17

set-17

jul-17

mai-17

6.5 6 5.5 5 4.5 4 3.5 3 2.5 2 jan-17 mar-17

nov-16

set-16

jul-16

mai-16

3.94

mar-16

2019

Midpoint target and target band

2021

nov-18

set-18

jul-18

mai-18

jan-18 mar-18

nov-17

set-17

jul-17

mai-17

2018

jan-17 fev-17 mar-17 abr-17 mai-17 jun-17 jul-17 ago-17 set-17 out-17 nov-17 dez-17 jan-18 fev-18 mar-18 abr-18 mai-18 jun-18 jul-18 ago-18 set-18 out-18 nov-18

nov-18

set-18

jul-18

mai-18

jan-18 mar-18

nov-17

set-17

jul-17

6.5 6 5.5 5 4.5 4 3.5 3 2.5 2 mai-17

jan-17 mar-17

nov-16

set-16

jul-16

mai-16

jan-16 mar-16

2018 6.5 6 5.5 5 4.5 4 3.5 3 2.5 2

jan-17 mar-17

nov-16

set-16

jul-16

mai-16

jan-16 mar-16

2020

Benign inflation outlook in the medium term

✓ Inflation expectations remain well anchored

2019 Midpoint target and target band

4.12

2021 Midpoint target and target band 3.86

External accounts remain at a good shape ✓ The current account deficit will increase in 2018, owing mainly to a decline in the trade balance. We expect an increase in the current account deficit in 2019, primarily owing to more robust economic growth, which will likely increase imports and other expenditures such as remittances of profits and dividends – FDI will remain relatively stable in 2018 in comparison with 2017. However, the composition will change, with a sharp increase in intercompany loans and a decline in equity capital. The prospects of higher GDP growth in the coming years will contribute to increase the FDI in 2019. FDI will continue to finance the current account deficit comfortably in 2018 and 2019. – International reserves remain at a very high level, helping keep Brazil’s external vulnerability at a low level. – The adverse external scenario for EM economies tends to curb further BRL appreciation in 2018. The dynamic of the exchange rate in 2019 will depend on the capacity of the new administration to implement the structural reform agenda. Current account balance and foreign direct investment (US$bn) 101.2 88.5

97.2

86.6

74.7

69.7

50.7

54.1

31.5 20.1

-30.6

5.2

77.8

12.6

24.1

-23.7 -74.2

60.9

66.0

-9.8

-14.0

85.0 55.0

-7.0

-26.3

-77.0

80.0

15.3

12.4 -5.2

-75.8

70.7

-30.0

-59.5 -74.8 -104.2

2008

2009

2010

2011

2012

Current account

2013

2014

2015

2016

Foreign direct investment (FDI)

2017

2018e

2019e

Balance

Source: Central Bank of Brazil and BTG Pactual

84

Balance of Payments overview Current account Trade Balance Exports Imports Services Travel Operational leasing Other Primary income Compensation of employees Interest Profits and dividends Secondary income

Capital and financial account Capital account Investments - assets Direct investment Portfolio investments Other assets Investments – liabilities Direct investment Portfolio investments Equity and investment fund shares Debt securities Long-term loans and debt securities issued abroad Short-term loans and debt securities issued abroad Other liabilities Financial derivatives – assets and liabilities Reserve assets

Errors and omissions

2010 -75.8 18.5 201.3 182.8 -30.2 -10.7 -13.7 -5.7 -67.1 0.5 -12.0 -55.6 2.9 -76.3 0.2 71.8 26.8 -0.6 45.7 197.1 88.5 55.2 37.7 17.5 30.1 27.4 -4.1 0.1 49.1 -0.4

2011 -77.0 27.6 255.5 227.9 -37.2 -14.7 -16.7 -5.8 -70.5 0.6 -14.4 -56.6 3.0 -79.5 0.3 35.0 16.1 -5.2 24.1 172.9 101.2 12.4 7.2 5.3 47.7 -3.9 15.5 0.0 58.6 -2.5

2012 -74.2 17.4 242.3 224.9 -40.2 -15.7 -18.7 -5.8 -54.3 0.5 -16.6 -38.2 2.8 -74.2 0.2 36.5 5.2 3.8 27.5 129.3 86.6 17.0 5.6 11.4 18.7 -4.1 11.1 0.0 18.9 0.1

2013 -74.8 0.4 241.6 241.2 -46.4 -18.6 -19.1 -8.8 -32.5 0.5 -19.3 -13.7 3.7 -74.1 0.3 62.2 14.9 3.4 43.9 130.0 69.7 42.1 11.1 31.0 2.5 -0.1 15.9 -0.1 -5.9 0.7

2014 -104.2 -6.6 224.1 230.7 -48.1 -18.7 -22.6 -6.8 -52.2 0.4 -21.4 -31.2 2.7 -100.9 0.2 79.5 26.0 -1.4 54.9 192.5 97.2 38.6 11.5 27.1 21.6 24.9 10.3 1.6 10.8 3.4

2015 -59.5 17.7 190.1 172.4 -36.9 -11.5 -21.5 -3.9 -42.9 0.3 -22.5 -20.8 2.8 -55.6 0.5 53.9 13.5 -1.1 41.5 114.1 74.7 26.5 9.8 16.7 -3.6 -6.3 22.7 3.4 1.6 3.8

2016 -23.7 45.0 184.5 139.4 -30.4 -8.5 -19.5 -2.5 -41.2 0.3 -22.1 -19.4 2.9 -16.8 0.3 45.4 12.8 -1.7 34.3 70.2 77.8 -15.6 11.0 -26.7 -15.7 4.4 19.4 -1.0 9.2 6.9

2017 -9.8 64.0 217.2 153.2 -33.9 -13.2 -16.8 -3.8 -42.6 0.3 -21.9 -21.0 2.6 -6.6 0.4 62.9 6.3 -6.7 63.4 74.9 70.7 0.6 5.7 -5.1 -5.7 -5.3 14.6 0.7 5.1 3.3

2018e -15.0 54.0 239.2 185.2 -35.0 -13.0 -15.5 -6.5 -36.7 0.3 -19.0 -18.0 2.7 -9.0 0.4 50.0 2.0 0.0 48.0 84.0 80.0 -1.0 4.0 -5.0 0.0 0.0 5.0 3.0 22.4 6.0

2019e -30.0 45.0 275.0 230.0 -40.0 -15.0 -19.0 -6.0 -38.6 0.4 -14.4 -24.0 3.0 -25.0 0.5 70.0 10.0 5.0 55.0 129.0 85.0 17.0 12.0 5.0 7.0 5.0 15.0 5.0 29.5 5.0

85

Slight increase in the current account deficit in 2018 ✓ The current account deficit will increase just slightly in 2018, to 0.8% of GDP from 0.5% of GDP in 2017. The decline in the trade balance will be the main driver of the reduction in the current account deficit in the year. On the other hand, net expenditures with income fell in 2018, curbing a higher increase in the current account. – The increase in the current account deficit in 2019 will be driven mainly by an acceleration in imports, in turn reflecting higher growth in domestic demand. Current account balance 12-month accumulated (left axis: US$bn; right axis: % of GDP) 30

2.0

1.7

1.5 1.2

10

4 0.7

11

14

13

1.0

0

-8 -10

-25

-10

0.0

-24

-24

-26

-15

-0.5 -30

-1.6 -50

-1.8

-1.6

-76

-77

-74

-1.3

-75

-1.0

-1.5 -2.0

-104 -2.9 -3.0 -3.0

-70

-3.0

-3.3

-3.4 -90

-0.8

-59

-31

0.0

-30

-3.8

-4.0

-4.2

-4.2

-110

-5.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e2019e

Source: Central Bank of Brazil and BTG Pactua l

86

Higher current account deficit in 2018; Slightly worse trade balance ✓ The reduction in the trade balance in 2018 has been partially offset by the decline in net expenditures with income (remittances of profits and dividends and interest payments). Net expenditures with services (e.g. travel and equipment rental) have remained relatively stable in the year.

Breakdown of current account balance 12-month accumulated 80

60 40 20 0

-20 -40 -60 -80

-100 -120 2000

2001

2002

2003

Other services and income

2004

2005

Trade balance

2006

2007

Interest rate

2008

2009

2010

2011

Profits and dividends

2012

2013

2014

Equipment rentals

2015

2016

Transportation

2017 Travel

Source: Central Bank of Brazil and BTG Pactual

87

Trade balance remains at a high level in 2018 Trade Balance and growth of exports and imports (US$bn, %)

54

52 43

33 23 15

24 7

7

12

3

2

20 18

38 29 23

48

54

45 45

38

33

24

18

11

25

28

25

16

17

15

0

0

-3

-1

-7

-8 -17

Exports (year-on-year change) Imports (year-on-year change)

-33

-34 -45 -46

Trade balance

2001

-6

-10

-13

2000

14

18

1

2

-2

13

22

45

64

54

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

-58

2015

2016

2017

Oct-18

* Growth in exports and imports: year-to-date until October versus the same period of the previous year. Trade balance cumulative in 12 months until October.

Source: Central Bank of Brazil and BTG Pactual

88

Exports overview: countries, products and share Main destinations – Exports (%)

Exports (as % of GDP)

4

5

16

90 16

79

36

5

16

NAFTA Latin America (ex-Mexico) Asia (ex-Middle East) Other Countries

53

European Union Middle East Africa

43 38 30

29

26

25

24

Main products – Exports (%) 20

19

15

1

13

11

10

9

1

42 7 15 6

Source: The World Bank Data, Central Bank of Brazil and BTG Pactual

Non-commodities Soy Complex Iron ore

10

Other Commodities Meat Complex Steel

Sugar Complex Wood & Pulp Oil & Fuels

89

Significant growth of imports in 2018 ✓ Growth in exports in 2018 was explained by an increase in prices and quantum, while growth in the quantum was the main driver of expansion in imports.

Imports: price, quantum and value (%, y/y)

Exports: price, quantum and value (%, y/y) Value 32 17

16

23

Value 44

27 30

18 10

17

14

24

42

32

24

20

-5

0

3

-7

8

11 10 3 -3

9

5

19 11 129 13 11 3 5

-5

-13

26

-15

Price

10

-2 -11 -13

8

3 0 -5 -3

-1

-4

-15 -25

-26

21 23 3

-1

-3

-15

-23

16

-3

-7

10

7

2

3

37

Quantum

10 7 4 3

13 2 0

-2 -5

0

3

6

22 22 18 18 16 11 10 8 7 5

4

-6

-22

-3

-5 -15

-3 -4 -12

Price

14 9

Quantum

13 45 6

9 1 -2 -1

-11 -17

-20

-2-3 -9 -12 -15 -12

* Year-to-date until September. Source: MDIC, FUNCEX and BTG Pactual

Source: MDIC, FUNCEX and BTG Pactual

90

FDI may increase significantly in 2019 ✓ FDI will remain relatively stable in 2018 in comparison with 2017. However, the composition will change, with a sharp increase in intercompany loans and a decline in equity capital. – The prospects of higher GDP growth in the coming years will contribute to increase the FDI in 2019. FDI will continue to finance the current account deficit comfortably in 2018 and 2019, we believe. Foreign Direct Investment (US$bn) Equity and investment fund shares Intercompany loans 101 88

16

97 87

85

13 23

70

39

75

80

78 71

18

24

57

54

12

18 24

51 45 21

33 3

38

19 23 4

17

30 19

18

17 -1

10 1 9

19

15

4

75

64

58

12

19 15

31

85

26

15

59

67 56

31

30

20

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e2019e

Source: Central Bank of Brazil and BTG Pactual

91

Share of Brazil in EM FDI is higher than 15% ✓ Brazil’s Foreign Direct Investment (FDI) has accounted for around 15% of the total FDI received by Emerging Markets since 2011 (excluding 2014, when this share declined to 10.7%). – The share of Brazil in world FDI is around 3.5% in 2018, much higher than it was in the previous decade.

Share of Brazil in world and Emerging Markets FDI (%) 25 22.9

20

16.5

15.6

15

15.2

15.9

15.7

14.5 13.6

14.1

12.3

10.7

10

9.2 8.2

7.5 5.6

5 2.3

2.9

2.2

1.4

1.8

00

01

03

04

05

5.4

1.0

0.9

06

07

0

8.3

9.2

4.7

1.4

08

2.1

2.3

09

10

Brazil/World

11

4.4

12

5.3 4.1

13

3.3

14

15

3.1

3.2

3.6

16

17

18

Brazil/EM

Source: Central Bank of Brazil and BTG Pactual

92

Brazil was the sixth highest receptor of world FDI

Ranking of the highest receptors of FDI (US$ bn)

2005

2015

2010

United Kingdom (1)

253

Netherlands (2)

United States (1)

264

China (2)

210

United States (1)

509

China (2)

244

Brazil position in the FDI ranking

2017

242

United States (1)

355

Netherlands (2)

317

2005

21

2006

27

2007

United States (3)

142

Netherlands (3)

116

Ireland (3)

Belgium (4)

111

Hong Kong (4)

235

China (3)

21

168 2008

China (4)

104

France (5)

85

Brazil (5)

88

Netherlands (5)

Austria (6)

81

Germany (6)

86

Switzerland (6)

Germany (7) Ireland (8)

Arab World (9) Brazil (21)

60 47

46 15

181 181 116

Hong Kong (4)

122

Germany (5)

78

Brazil (6)

71

Hong Kong (7)

83

Brazil (7)

75

United Kingdom (7)

65

Arab World (8)

70

Singapore (8)

71

Singapore (8)

64

United Kingdom (9)

67

Canada (9)

62

France (9)

47

Singapore (10)

55

Germany (10)

54

Australia (10)

45

14

2009

14

2010

5

2011

5

2012

5

2013 2014

6 5

2015

7

2016

7

2017

6

Country (#), where # is position in the ranking of the highest receptors of FDI.

Source: World Bank Data and BTG Pactual

93

Foreign investments in portfolio will remain low in 2018 ✓ Foreign investments in portfolio have remained highly volatile in 2018. These investments will continue to be much lower in 2018 than what we saw up to 2015.

Foreign investment in portfolio (US$ bn)

Foreign investment in portfolio (12-month, US$ bn)

Equity and investmets fund

42.1

Debt securities issued in Brazil

38.6

Portfolio investment

26.5

10.1

10.3

6.0

6.2

31.0 17.0

0.6 0.7 -0.1

2.8

4.1

2.3

0.5

-3.0 -5.7

2.2 4.1

-4.1

-4.4

-3.7

-2.0 -6.4

-1.9 -1.2 -3.1

Dec-17

Feb-18

-0.1

-7.7

5.3 7.2

11.4

5.6

11.1

11.5

9.8

Jun-18

Aug-18

0.6 5.7 -5.1

-26.7

-2.7 -0.8 -3.5

0.7

-3.1 -2.4

Equity and investmets fund -15.6

-7.8 Apr-18

11.0

1.5 0.6

Debt securities issued in Brazil

-7.8 Oct-17

16.7

12.4

5.4 3.1 1.4

27.1

Oct-18

2011

2012

2013

2014

2015

2016

2017

Oct-18

Source: Central Bank of Brazil and BTG Pactual

94

External debt stable in the last four years ✓ Brazil's total external debt remained relatively stable in the past four years at approximately USD540bn. – The external debt of the public sector has remained relatively stable since 2012. – The external debt of the private sector increased significantly from 2009 to 2014, but since then has declined gradually. – External debt of intercompany loans increased significantly from 2005 to 2018 and has accounted for the bulk of external debt since 2016. External debt composition (US$bn) 561

540

544

545

545

206

222

228

244

207

195

184

128

127

133

487 455 208

416 352

263 226

102

108

228

235

17

20

85

125

79

69

136

132

199

190

128

123

106

95

241

220 19

278

128

174

188

199

47

79

65

196

19

27

69

83

107

114

103

100

89

86

84

96

214

173

153

104

114

139

127

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Oct-18 External Debt - Public Sector

External Debt - Private Sector

Intercompany Loans

Source: Central Bank of Brazil and BTG Pactual 95

Short-term external debt account for less than 15% of total

External debt by term composition (US$bn) External Debt - Long Term External Debt - Short Term Intercompany Loans - Long Term Intercompany Loans - Short Term

6

10

11

9

196

212

218

51

56

51

19

0 0 202

2 8

3 13 28

4 13 23

4 16 20

4 14 19

4 4 15 19

5 22 20

43 39

5

9

87

59

71

57

37

31

128

182

187

2001

2002

2003

183

2004

151

152

154

162

167

2005

2006

2007

2008

2009

40

33

295

58 33

280

295

2011

2012

2013

2014

59

284

270

266

2015

2016

2017 Jun-18*

199

2010

218

104

269 195

174

242

Source: Central Bank of Brazil and BTG Pactual

96

International Reserves still at a high level

International Reserves (US$bn, % of GDP)

US$ bn % of GDP 20

20

20 18

15

14 13

13 11 9 7

15

15

373

359

364

356

365

374

381

2012

2013

2014

2015

2016

2017

Nov-18

13 352

289 8

6

8

6

5

239 180

194

2007

2008

86 33

36

38

49

53

54

2000

2001

2002

2003

2004

2005

2006

2009

2010

2011

Source: Central Bank of Brazil and BTG Pactual

97

Brazil’s exports are higher than the net external debt

Exports (as % of GDP)

Net total external debt/Exports (ratio)

450

3.5 400

350

300

2.8

2.7 2.1

250

1.4 200

150

0.9 0.5

100

50

-0.1 -0.1 -0.4

-0.3

-0.2

-0.3

-0.2 -0.4

-0.3

-0.4

0

Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Central Bank of Brazil and BTG Pactual

98

The key challenge: Fiscal reforms ✓ Positive fiscal news in the shorth term but long-term scenario yet to be addressed. – Public accounts should outperform the 2018 target, with help from all government spheres. – But primary surpluses are still far away. Unless for significant non-recurring revenues or tax hikes, public accounts should return to positive territory only in 3-4 years. – Spending cap ceiling will be respected this year and (with strong efforts) next year. Margin of maneuver require urgent reform on mandatory expenses – Golden rule to be met this year and the following. Risks still lie ahead due to pressure to adjust via discretionary spending (investment). – Fiscal turnaround needed is large (~4% of GDP). Risk of higher tax burden increase if markets impose a frontloaded adjustment. Dependency ratio and social security expenditures % of GDP (2014-2016)

Italy France

Greece Portugal

% of GDP

Brazil

Japan

Dependency ratio (65+ / 20-64)

99

Consolidated Public Accounts - Summary In Nominal Terms (R$ Bn)

Nominal Result (C=A+B) Central Government Federal Government Central Bank Subnational Government States Municipalities Government Owned Companies Federal States Municipal Interest Payments (B) Central Government Federal Government Central Bank Subnational Government States Municipalities Government Owned Companies Federal States Municipal Primary Result (A) Central Government Federal Government Central Bank Social Security Subnational Government States Municipalities Government Owned Companies Federal States Municipal

Oct-18 -6.1 -0.2 -2.0 1.8 -6.2 -5.6 -0.6 0.4 0.6 -0.3 0.0 -13.9 -10.4 -12.6 2.1 -3.1 -2.8 -0.3 -0.3 0.1 -0.4 0.0 7.8 10.2 23.8 -0.4 -13.2 -3.1 -2.8 -0.3 0.7 0.5 0.1 0.0

Monthly Oct-17 -30.5 -24.6 -29.6 5.0 -4.7 -4.2 -0.5 -1.1 -0.4 -0.7 0.0 -35.3 -29.6 -34.5 4.9 -5.1 -4.7 -0.4 -0.6 0.0 -0.5 0.0 4.8 5.0 18.7 0.0 -13.8 0.4 0.5 -0.1 -0.6 -0.4 -0.2 0.0

∆ 24 24 28 -3 -1 -1 0 1 1 0 0 21 19 22 -3 2 2 0 0 0 0 0 3 5 5 0 1 -3 -3 0 1 1 0 0

Oct-18 -369 -326 -393 67 -41 -39 -2 -1 1 -2 0 -317 -260 -327 67 -52 -48 -4 -5 0 -5 0 -52 -66 103 -1 -168 11 9 2 4 1 2 0

YTD Oct-17 -416 -385 -418 34 -27 -27 0 -4 -1 -3 0 -338 -289 -323 34 -45 -41 -4 -5 0 -4 0 -77 -96 60 -1 -155 18 14 4 1 -1 1 0

∆ 47 58 25 33 -14 -13 -2 3 2 1 0 21 29 -4 33 -7 -7 0 0 0 0 0 26 30 43 0 -13 -7 -5 -2 3 2 1 0

Rolling 12-month Oct-18 Oct-17 -464 -601 -401 -554 -478 -584 78 30 -61 -42 -55 -39 -6 -4 -2 -5 1 -1 -3 -4 0 0 -380 -414 -312 -354 -391 -385 79 31 -62 -55 -57 -50 -5 -5 -6 -6 0 0 -6 -5 0 0 -85 -187 -89 -200 107 -18 -1 -1 -195 -181 0 12 1 11 -1 1 4 0 1 -1 2 1 0 0

∆ 137 153 106 47 -19 -16 -2 3 2 1 0 34 42 -6 47 -7 -7 0 0 0 0 0 102 111 126 0 -14 -12 -10 -2 3 2 1 0

Rolling 12-month (% of GDP) Oct-18 Sep-18 Oct-17 -6.8 -7.2 -9.2 -5.9 -6.3 -8.5 -7.0 -7.4 -9.0 1.1 1.2 0.5 -0.9 -0.9 -0.7 -0.8 -0.8 -0.6 -0.1 -0.1 -0.1 0.0 -0.1 -0.1 0.0 0.0 0.0 0.0 -0.1 -0.1 0.0 0.0 0.0 -5.6 -5.9 -6.4 -4.6 -4.9 -5.4 -5.7 -6.1 -5.9 1.1 1.2 0.5 -0.9 -0.9 -0.8 -0.8 -0.9 -0.8 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 0.0 0.0 0.0 -0.1 -0.1 -0.1 0.0 0.0 0.0 -1.2 -1.3 -2.9 -1.3 -1.4 -3.1 1.6 1.5 -0.3 0.0 0.0 0.0 -2.9 -2.9 -2.8 0.0 0.1 0.2 0.0 0.1 0.2 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Source: Central Bank of Brazil and BTG Pactual 100

The key challenge. Fiscal accounts in red ink

PSBR

Gross and Net Debt 85.0

-5.0% -3.7% -3.7% -3.2%

-3.2%

-3.3% -2.6% -1.9%

-3.0%

-2.2%

Gross debt

65.0

-1.7%

-2.0%

Net debt

75.0

-2.9%

% of GDP

-1.0% 0.0%

55.0

45.0 Central Government

0.6%

1.2%

2.5%

Jan-18

Aug-18

Jun-17

Apr-16

Nov-16

Sep-15

Feb-15

Jul-14

Dec-13

May-13

Oct-12

Aug-11

Mar-12

2018.10.

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

Jan-11

25.0

Jun-10

1.9%

3.0%

Apr-09

Primary - Total

35.0

Nov-09

2.0%

1.7%

Sep-08

Government Owned Companies

Jul-07

Subnational Government

Feb-08

1.0%

Dec-06

% of GDP - (-) = surplus

-4.0% -3.2%

Source: Central Bank of Brazil and BTG Pactual

101

Positive short term fiscal performance ✓ Strong revenue growth and contained expenditures; the recurring primary deficit measure still points to a bigger deficit

15.0

5.0% 4.0%

10.3

10.0

3.0%

2.0%

% of GDP

12-month accumulated - Real terms

Federal Government

5.0

0.0

0.0

1.0% 0.0% -1.0%

-2.0% -3.0%

Net revenues

-5.0

-4.0%

-5.0%

Total expenditures Sep-18

Jan-18

May-18

Sep-17

Jan-17

May-17

Sep-16

Jan-16

May-16

Sep-15

Jan-15

May-15

Sep-14

Jan-14

May-14

Sep-13

Jan-13

May-13

Sep-12

Jan-12

May-12

Sep-11

Jan-11

May-11

-10.0

Consolidated Primary Surplus

Primary Surplus - Adjusted

Source: Central Bank of Brazil and BTG Pactual

102

Backloaded slow fiscal adjustment ✓ But big imbalance persists; compliance with the spending cap rule is a growing challenge

28%

Expenditures

26%

2000-2016 Avg increase

24%

Source: Central Bank of Brazil and BTG Pactual

103

2027

2025

2023

2021

2019

12%

2017

13%

2015

14%

2013

14%

2011

16%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*

15%

2009

18%

2007

16%

20%

2005

17%

2011-2016 Avg increase

22%

2003

% of GDP

% of GDP

18%

2001

19%

Under the rule of the spending cap ceiling

1999

20%

Primary Expenditures Net revenues

1997

21%

Long term challenges – secular growth in expenditures

Primary Expenditures, % of GDP

Primary Expenditures, % of GDP (Breakdown)

20.0

12.0

19.0

10.0

~6% pa in real terms ~0.3% of GDP pa 18.0

Income Transfer Personnel Fed Discretionary, Soc Ministries (ex-FP) Extended Subsidies Other Current Expenditures PAC (ex-Housing Program)

8.0 % of GDP

17.0

16.0

Primary Expenditures, % of Budget (Breakdown) Other Legislative, 0.1% Executive, 4% Education, 3%

Judiciary, 0.7%

Soc Development, 3% Health, 8%

6.0

PAC, 2% 4.0

15.0

Other mandatory expenditures, 14%

2.0

14.0

Social security benefits, 43%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

0.0

13.0

Payroll, 22%

Source: Central Bank of Brazil and BTG Pactual

104

Long term challenges - High debt and high tax burden

Gross debt (% of GDP) – IMF Fiscal Monitor 0

20

40

60

Tax Burden (% of GDP) – IMF 2015 80

100

120

40 35

1

2

30 25 20

3

15 10

4

5 0

5

Developed economies

Brazil

Emerging economies

Low income countries

Source: Treasury, fiscal monitor (IMF) and BTG Pactual

105

Long term challenges – Tax breaks

Other 10%

Other 20%

Worker benefits 4%

IT & Automation 18%

"Simples Nacional" 33%

Exempt income tax and taxable 7%

North and Northeast 4%

Payroll tax break 7%

Support to cultural events 4% Boats and aircraft 5%

Basic Basket 9%

Exempt income tax and nontaxable 10%

Medicines 16%

Non-profit organizations 10%

Zona Franca de Manaus 10%

Public transportation 5% Technological Information Chemical & 6% Pharmaceutical 7%

Auto sector 8% Housing sector 7%

Source: Treasury, fiscal monitor (IMF) and BTG Pactual

106

Long Term challenges – Generous Pension system

Dependency ratio and social security expenditures % of GDP (2014-2016)

Italy France

Greece Portugal

% of GDP

Brazil

Japan

Dependency ratio (65+ / 20-64)

107

Long Term challenges – Generous Pension system ✓ Deficits everywhere…

108

Long Term challenges – Generous Pension system ✓ Deficits everywhere - breakdown RGPS (% of GDP) 1.0% 0.5%

% of GDP

0.0%

Total

Rural

9.5

9.3

120.0

-110.7

0.1%

1.8%

-1.7%

RPPS Total**

0.9

37.1

123.5

-86.3

0.6%

1.9%

-1.3%

Civil servants

0.6

33.8

82.4

-48.7

0.5%

1.3%

-0.7%

Army

0.3

3.3

41.0

-37.7

0.1%

0.6%

-0.6%

Urban

Rural

2017

-1.1%

2017

-2.8%

6.7%

2016

8.5%

5.6%

2016

5.7%

-71.7

2015

-182.4

437.2

2015

557.2

365.5

2014

374.8

20.3

2014

29.8

Urban

-3.0%

2013

RGPS - Total

-2.5%

RGPS

RPPS (% of GDP) 0.0%

-0.2% -0.4%

*Except regional government spheres (deficit of ~1%) **number of benefits as of dec/2016

% of GDP

-0.6%

-0.8% -1.0% -1.2% -1.4% -1.6%

Civil servants

2013

-4.1%

2012

10.4%

2012

6.3%

2011

-268.8

2011

680.7

2010

411.9

2010

30.7

2009

Private System - Total

-2.0%

2009

Revenues Expenditures

2008

Total

2008

Revenues Expenditures

-1.5%

2007

# of benefits

-1.0%

2007

Social security deficit*- (% of GDP) - Breakdown 2017

-0.5%

Army

RPPS

109

Gross Debt: Scenarios Debt stabilization scenarios - Required Primary surplus % Interest rate

GDP Growth

Debt T= 80% 0.0%

2.0%

4.0%

6.0%

8.0%

1.0%

-0.8

0.8

2.4

4.0

5.6

2.0%

-1.6

0.0

1.6

3.2

4.8

3.0%

-2.4

-0.8

0.8

2.4

4.0

4.0%

-3.2

-1.6

0.0

1.6

3.2

Debt stabilization scenarios - Imp. Interest rate% Primary Surplus

GDP Growth

Debt T= 80%

Source: Treasury and BTG Pactual

-2.0%

-1.0%

0.0%

1.0%

2.0%

1.0%

-1.5

-0.3

1.0

2.3

3.5

2.0%

-0.5

0.8

2.0

3.3

4.5

3.0%

0.5

1.8

3.0

4.3

5.5

4.0%

1.5

2.8

4.0

5.3

6.5

110

Exchange rate of BRL3.90/USD YE 2018 and 2019 BRL/USD exchange rate forecast 5.00

benign scenario

5.00

baseline scenario

4.50

adverse scenario

4.00

3.90 3.90

3.50

3.40

3.00

2.50

2.00

1.50

Source: Central Bank of Brazil and BTG Pactual

111

External factors curbs further BRL appreciation Brazil’s 10-year CDS spread scenarios

625

benign scenario

575

baseline scenario

525

adverse scenario

475 425 400 375 325 275

225

225

175 150

125 75

Source: Central Bank of Brazil and BTG Pactual

112

External factors curbs further BRL appreciation

10-year US Treasury rate forecast (%, p.a.) 5.25

2-year US Treasury rate forecast (%, p.a.) 6.00

benign scenario baseline scenario

4.75

5.00

adverse scenario

4.25 4.00 3.75

4.00

3.75

3.50 3.25

3.25

3.00

2.75

3.00 2.75

2.00 2.25

1.00

Dec-19

Dec-18

Dec-17

Dec-16

Dec-15

Dec-14

Dec-13

Dec-12

Dec-11

Dec-10

Dec-09

Dec-08

Dec-07

0.00 Dec-06

Dec-19

Dec-18

Dec-17

Dec-16

Dec-15

Dec-14

Dec-13

Dec-12

Dec-11

Dec-10

Dec-09

Dec-08

Dec-07

Dec-06

Dec-05

1.25

Dec-05

1.75

Source: Central Bank of Brazil and BTG Pactual

113

Macro Scenario

2011

2012

2013

2014

2015

2016

2017

2018

2019

Real Growth

4.0

1.9

3.0

0.5

-3.5

-3.5

1.0

1.3

2.8

IPCA IGPM

6.5 5.1

5.8 7.8

5.9 5.5

6.4 3.7

10.7 10.5

6.3 7.2

2.95 -0.52

3.8 8.6

4.2 3.3

R$/US$ (end of period) R$/US$ (average)

1.9 1.7

2.0 2.0

2.3 2.2

2.7 2.4

3.9 3.3

3.3 3.5

3.31 3.19

3.80 3.55

3.90 3.85

End of period Average Real / Average (IPCA)

11.00 11.71 4.89

7.25 8.46 2.47

10.00 8.44 2.39

11.75 11.02 4.33

14.25 13.58 2.63

13.75 14.15 7.39

7.00 9.83 6.69

6.50 6.6 2.7

7.50 6.7 2.4

Primary Surplus - % GDP Net Public Debt - % GDP Gross Debt - % GDP

3.1 36.5 51.3

2.2 32.2 53.7

1.7 30.5 51.5

-0.6 32.6 56.3

-1.9 35.6 65.5

-2.5 46.2 70.0

-1.7 51.6 74.0

-1.8 51.8 76.1

-1.2 55.5 78.8

GDP

Inflation

FX Rate

Interest Rates

Public Accounts

As of Dec-18

Source: Central Bank of Brazil and BTG Pactual

114

Investment Themes, by sector

Basic Materials

VALE | Risk/return profile looking attractive Simplified risk/return analysis for Vale – stock currently pricing in < US$60/t IO price Implied EBITDA/t

40 11

45 16

50 21

55 26

60 31

65 36

70 41

75 46

80 51

390

390

390

390

390

390

390

390

390

IO EBITDA - US$mn

4,290

6,240

8,190

10,140

12,090

14,040

15,990

17,940

19,890

Bmetals/others EBITDA - US$mn

3,200

3,200

3,200

3,200

3,200

3,200

3,200

3,200

3,200

TOTAL EBITDA

7,490

9,440

11,390

13,340

15,290

17,240

19,190

21,140

23,090

6.0x

6.0x

6.0x

6.0x

6.0x

6.0x

6.0x

6.0x

6.0x

Implied EV Net Debt Adjustments Asset sales

44,940 17,838 0 0

56,640 16,570 0 0

68,340 15,303 0 0

80,040 14,035 0 0

91,740 12,768 0 0

103,440 11,500 0 0

115,140 10,233 0 0

126,840 8,965 0 0

138,540 7,698 0 0

Implied Equity value

27,103

40,070

53,038

66,005

78,973

91,940

104,908

117,875

130,843

5.2 -59%

7.7 -40%

10.2 -21%

12.7 -1%

15.2 18%

17.7 38%

20.2 57%

22.7 76%

25.2 96%

(1,159) (698.00) (4,000) 1,633 2%

(1,077) (1,088) (4,000) 3,275 5%

(995) (1,478) (4,000) 4,917 7%

(912) (1,868) (4,000) 6,560 9%

(830) (2,258) (4,000) 8,202 12%

(748) (2,648) (4,000) 9,845 14%

(665) (3,038) (4,000) 11,487 16%

(583) (3,428) (4,000) 13,129 19%

(500) (3,818) (4,000) 14,772 21%

11.8x

9.2x

7.5x

6.4x

5.5x

4.8x

4.2x

3.8x

3.4x

Volumes – Mt

EV/EBITDA target

Equity value/shr Upside/downside

FCF yield potential Net Financial Expenses Taxes Capex FCFE Yield % EV/EBITDA

Source: BTG Pactual.

117

VALE | A 10% dividend yield at US$60/t IO… ✓ All these, dividend payments respect a leverage ceiling of 1.5x (max). Conservative BS. ✓ M&A unlikely. ✓ Large capex unlikely.

Dividend Potential – 2019 Scenarios Iron Ore pricing - US$/t 50

55

60

65

Dividend Potential

US$5bn

US$6bn

US$7.5bn

US$9bn

Yield (%)

7%

8%

10%

12%

Source: Vale, Bloomberg, BTG Pactual.

118

Brazilian steels ✓ All things considered, domestic demand remains resilient... 40% 30% 20% 10% 0% -10% -20% -30% -40%

Flats growth % y/y

Longs growth % y/y

Source: IABr, BTG Pactual.

119

What’s priced in? A contraction from current levels GGBR

USIM

CSN

TX

Shr Price

15.33

8.70

8.50

28.20

#shrs

1,702

1,238

1,357

196

Market Cap

26,092

10,773

11,535

5,536

Net debt - 2019 YE

9,967

3,877

22,386

1,572

Adjustments

-882

162

-2,961

510

35,177

14,812

30,959

7,618

6.0x

6.0x

6.0x

4.5x

Implied Norm. EBITDA

5,863

2,469

5,160

1,693

Recurring EBITDA 19

7,125

3,216

6,177

2,385

Implied growth

-18%

-23%

-16%

-29%

EV

Target multiple

Note: Priced as of 10/12/2018

120

Pulp S&D Outlook ✓ A tight market… and structural upside risk ahead.

Source: RISI, BTG Pactual

121

P&P | FCF Profile

FCF Yield 2019 sensitivity to BHKP prices -- assuming FX at spot

20% 18% 17% 15% 13% 12% 9%

9%

600

9%

10%

630

10%

660

10%

10%

690

720

Klabin

11%

750

11%

780

12%

810

Suzano

Note: Priced as of 10/12/2018.

122

Food and Beverage

Our main Food & Beverage calls In a low beta sector, we favor stocks that benefit from undemanding valuations and positive cyclical effects ✓ Proteins: time to change your diet! Lower growth, deleverage and positive cycle to drive stronger performance: − JBS: Our top pick on a combination of improving corporate governance, management professionalization, strong momentum across most relevant segments and undemanding valuation; − Marfrig: Some exposure to stronger US and Brazil beef outlook, but weaker track record of execution and lack of clarity on further deleveraging after buying assets in Argentina make it no longer our preferred vehicle to surf the sector’s new diet. − BRF: also a beneficiary of improving poultry cycle in Brazil, but we believe poor visibility on structural margins following indirect costs inflation and lost of pricing power in both Brazil and internationally leave us Neutral.

✓ Ambev (Neutral) seems unattractive on a combination of rich valuations and continued miss to consensus earnings expectations on deteriorating revenue mix and earnings quality, all of which justifies a de-rating, in our view. ✓ M.Dias Branco: our Neutral remains in place at least until we have greater visibility of when margins will rebound. MDB shares remains a “mean reversion” story, which we believe shall start to happen only later in 2019, when margins normalize, following the full implementation of 2018’s price increases and the impact of the recent drop in wheat prices on costs. That said, we admittedly like the stock more today, and believe the differentiated pricing approach in 2018 could be a strong testament that MDB’s improving commercial platform could be bearing fruits. This could mean stronger LT margins, in our view. 124

2019: Beef - positive cattle cycle is up and running Positive cattle cycle in Brazil is intensifying, which should translate into higher margins for players

Positive cycle: higher female slaughtering meaning more cattle availability and cheaper cattle

Brazil has the cheapest cattle the in world

55%

6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5

50%

Cattle prices (USD/Kg)

45% 40%

35% 30%

Brazil

US

Cow slaughtering (% of total slaughter)

Australia

Spreads are 11% above historical average

12M moving average

Brazil – Total Beef production to grow (‘000 tons)

2.200 2.00 1.800 1.600 1.400 1.200 1.00

9,951 9,675 9,723 9,425

9,307

10,150

9,550 9,284

Sep-18

Jan-18

May-17

Sep-16

Jan-16

May-15

Sep-14

Jan-14

May-13

Sep-12

Jan-12

May-11

Sep-10

Jan-10

9,024 8,935 9,115 9,030

Beef exports spread (LHS)

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

20%

2000

Sep-18

Jul-17

Feb-18

Dec-16

Oct-15

May-16

Mar-15

Jan-14

Aug-14

Jun-13

Apr-12

Nov-12

Sep-11

Jul-10

Feb-11

Dec-09

Oct-08

May-09

Mar-08

Jan-07

Aug-07

25%

Average

Source: Bloomberg / BTG Pactual / Cepea / IBGE / Secex / USDA / MAPA

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 2018E 2019E

125

JBS: Our Top Food Pick Strong momentum and attractive valuation, well positioned to benefit from positive commodity cycles 43% of JBS’ EBITDA comes from its US beef business, with growing cattle supplies… 24% 22% 20%

… which should translate into higher spreads, which already are 16% above historical average 50

15%

30

10% 5%

10

16% 14%

-5%

-30

-10%

Jan-00 Oct-00 Jul-01 Apr-02 Jan-03 Oct-03 Jul-04 Apr-05 Jan-06 Oct-06 Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11 Jan-12 Oct-12 Jul-13 Apr-14 Jan-15 Oct-15 Jul-16 Apr-17 Jan-18 Oct-18

12%

Brazil’s Seara should also improve margins as sector has historically responded to supply cuts 4.10 3.70 3.50

3.30 3.10 2.90 2.70 May-18

Jul-17

Dec-17

Feb-17

Apr-16

Sep-16

Nov-15

Jun-15

Jan-15

Aug-14

Oct-13

Mar-14

May-13

Jul-12

Dec-12

Feb-12

Apr-11

Sep-11

Jun-10

Nov-10

Jan-10

2.50

Historical avg. Tyson Beef

JBS USA

Trading at a steep discount to historical 25% 20% 15% 10% 5% 0% -5% -10% -15% -20%

3.90

Brazil's poultry production volumes y/y

US beef spread National Beef

12-month moving avg

Poultry production margin (R$/Kg)

Source: Companies data / Bloomberg / BTG Pactual / Secex / APINCO / IBGE

15x 13x

11x 9x

7x 5x

3x Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 May-17 Oct-17 Mar-18 Aug-18

Cow slaughter (% of total slaughter)

0%

-10 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18

18%

EV/EBITDA 12M Fwd

Average

Avg + Std. Dev.

Avg - Std. Dev.

126

BRF – The gross margin and asset turnover dilemma Asset turnover and operating margin seem to have suffered a downshift in recent years BRF is struggling to show improvements on both fronts

?

2.0

25%

BRF - COGS (R$mn)

20%

COGS (16,796) (19,047) (22,064) (22,953) (20,497) (22,108) (26,206) Soybean + corn (from 20-F) 22.7% 23.0% 25.0% 24.6% 27.2% 27.4% 32.5% COGS from soybean + corn (3,813) (4,381) (5,516) (5,646) (5,575) (6,058) (8,517) Depreciation + Amortization (633) (800) (856) (1,016) (1,022) (1,085) (1,296) Total Volumes (k tons) 6,064 6,202 6,337 5,863 4,722 4,726 4,688 COGS / kg (R$) (2.77) (3.07) (3.48) (3.91) (4.34) (4.68) (5.59) Soybean + corn / kg (R$) (0.63) (0.71) (0.87) (0.96) (1.18) (1.28) (1.82) Depreciation + Amortization / kg (R$) (0.10) (0.13) (0.14) (0.17) (0.22) (0.23) (0.28) COGS / Kg (ex-grains) (R$) (2.14) (2.36) (2.61) (2.95) (3.16) (3.40) (3.77) Cash COGS / Kg (ex-grains) (R$) (2.04) (2.24) (2.48) (2.78) (2.94) (3.17) (3.50) Y/Y 9.8% 10.8% 12.2% 5.9% 7.6% 10.4%

BRF's ROIC (pre-tax) %

Invested Capital turnover (x)

2019E

2018E

2017

2016

2015

-5% 2014

1.0 2013

0% 2012

1.2 2011

5%

2010

1.4

2009

10%

2008

1.6

2007

15%

2006

1.8

EBIT Margin %

Pricing has lagged below inflation for quite some time now 4%

5.0

12%

4.5

0%

10%

4.0

-2%

8%

3.5

-4%

6%

3.0

-6%

4%

2.5

-8%

2%

2.0

FPP Price vs. inflation LTM

EBIT mg in Brazil LTM

Source: Company data / Bloomberg / BTG Pactual / Secex

3Q18

2Q18

1Q18

4Q17

3Q17

2Q17

1Q17

4Q16

3Q16

2Q16

1Q16

4Q15

3Q15

2Q15

1Q15

4Q14

3Q14

2Q14

1Q14

2%

2011

2012

2013

2014

2015

2016

2017

2018E

(26,796) (28,592) 28.5% 30.5% (7,637) (8,720) (1,378) (1,470) 4,919 4,932 (5.45) (5.80) (1.55) (1.77) (0.28) (0.30) (3.89) (4.03) (3.61) (3.73) 3.4% 3.2%

International margins have decoupled from spreads

14%

More promotional prices take effect and affect margins

2010

1,600 1,400 1,200 1,000 800 600 400 200

(200) (400) (600)

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

2.2

Indirect costs are now at higher levels

BRF Int'l EBIT/ton (R$)

Secex (gross profit per ton)

127

Ambev: Good, but not necessarily great; a de-rating call Economic environment is improving but Ambev is failing to capture it; pricing power is down Beer consumption shows strong correlation with GDP

Ambev’s apparently losing share based on IBGE’s data

10.00%

70%

8.00%

68%

6.00%

66%

64%

4.00%

62%

2.00%

60%

.00%

58%

-2.00%

56%

2019 E

Margin resilience based on pricing power is under threat 60% 55%

46%

50% 45%

42%

40%

0%

50% 51% 48% 49% 50%

3% 3%

1%

-1%

35%

1%

3%

4%

56%

6%

52% 54%

30,000

2%

3% 2%

0%

2% 0%

3Q2018

1Q2018

3Q2017

1Q2017

3Q2016

1Q2016

3Q2015

1Q2015

3Q2014

1Q2014

3Q2013

1Q2013

3Q2012

1Q2012

3Q2011

CONSENSUS EBITDA REVIEW 2007 2011 2015 2019

4%

45% 45% 46%

3%

Consensus continues to revise earnings down

24,000

2008 2012 2016

2009 2013 2017

2010 2014 2018

18,000

-2%

30%

30% 30% 30% 28%

33%

31% 30%

34% 33% 33% -4% 30% 30% 29% 29% 28% -6%

12,000

Source: Company data / SICOBE / BTG Pactual / IBGE

Jan-18

Jan-17

Jan-16

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

6,000

Jan-08

2018E

2017

2016

2015

2014

2012

2013

ABV's Brazil Beer EBITDA margin

Jan-07

ABV's Brazil Beer Price VS. Inflation ABV's Brazil Beer SG&A as % of Revenues

2011

2010

2009

2008

2007

2006

2005

-6% 2004

20%

Jan-06

25%

0%

52% 53%

1Q2011

Beer consumption growth

3Q2010

2018E

2017

2016

2015

2014

2013

2012

2011

50% 1Q2010

GDP Growth

2010

2009

2008

2007

2006

2005

2004

52%

2003

54%

-6.00% 2002

-4.00%

128

Agribusiness

Agribusiness: Sugar world production could be at a turning point Sugar prices still under pressure, but we and the market are consistently revising surplus estimates down Attribute

Country

Sugar Production (1000 MT)

Total Use (1000 MT)

2006/2007 2007/2008 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018E 2018/2019E

Brazil

31,450

31,600

31,850

36,400

38,350

36,150

38,600

37,800

35,950

34,650

39,333

29,200

28,000

China

12,855

15,898

13,317

11,429

11,199

12,341

14,001

14,263

11,000

9,050

9,300

10,250

10,800

India

30,780

28,630

15,950

20,637

26,574

28,620

27,337

26,605

30,460

27,385

22,200

34,000

31,000

Thailand

6,720

7,820

7,200

6,930

9,663

10,235

10,024

11,333

10,793

9,743

10,033

13,730

14,100

European Union

17,987

15,834

14,290

16,897

15,939

18,320

16,655

16,020

18,449

14,283

16,500

21,150

19,900

Others

64,486

63,475

61,226

60,891

60,496

66,683

71,341

70,080

70,810

69,592

74,106

75,000

75,750

World

164,278

163,257

143,833

153,184

162,221

172,349

177,958

176,101

177,462

164,703

171,472

183,330

179,550

World

151,399

151,247

154,448

154,926

155,938

160,219

166,816

168,172

171,241

172,488

173,573

175,309

177,062

-0.1%

2.1%

0.3%

0.7%

2.7%

4.1%

0.8%

1.8%

0.7%

0.6%

1.0%

1.0%

% y/y

Surplus / (deficit)

World

12,879

12,010

-10,615

-1,742

6,283

12,130

11,142

7,929

6,221

-7,785

-2,101

8,021

2,488

Ending Stocks (1000 MT)

World

36,736

43,080

29,836

28,028

29,491

35,190

42,521

43,928

45,762

37,763

32,828

40,849

43,337

Stock-to-Use (% )

World

24.3%

28.5%

19.3%

18.1%

18.9%

22.0%

25.5%

26.1%

26.7%

21.9%

18.9%

23.3%

24.5%

Avg Sugar Price (USDc/lbs)

World

10.4

12.1

20.8

23.8

25.4

20.1

17.4

15.8

13.2

17.1

20.0

14.0

12.5

Average BRL/USD

Avg. Oct - Sep

2.04

1.71

2.13

1.77

1.65

1.89

2.11

2.29

3.01

3.62

3.20

3.52

3.86

Avg Sugar Price (BRLc/lbs)

World

21.1

20.8

44.4

42.1

41.8

38.0

36.6

36.0

39.7

61.9

64.1

49.3

48.3

Stock-to-Use (%)

Avg Sugar Price (USDc/lbs)

Source: BTG Pactual / USDA / Datagro

-7,785

Surplus / (deficit)

Sugar Production (1000 MT)

2018/2019E

2017/2018E

2016/2017

2015/2016

2014/2015

-10,615 2013/2014

2018/2019E

2017/2018E

2016/2017

2015/2016

2014/2015

2013/2014

2012/2013

2011/2012

2010/2011

2009/2010

2008/2009

2007/2008

2006/2007

16%

-2,101

2012/2013

18%

8,021

-1,742

2011/2012

20%

7,929 6,221

2,488

2010/2011

22%

6,283

2009/2010

24%

12,130 11,142

2008/2009

26%

190,000 12,879 12,010 185,000 180,000 175,000 170,000 165,000 160,000 155,000 150,000 145,000 140,000 2007/2008

28%

27 25 23 21 19 17 15 13 11 9

2006/2007

30%

Total Use (1000 MT)

130

Agribusiness: Ethanol market still supportive despite oil price slump Despite high ethanol inventories, our S-D model still points to a tight market by crop-end, driven by strong consumption Ethanol (m ³)

Cro p B o P

Cro p Eo P

Inventory (BoP)

Production

Net im port

Available

Consum ption

Inventory (EoP)

January-18

7,252,445

323,938

41,264

7,384,588

2,292,575

5,092,013

February-18

5,092,013

259,883

99,855

5,396,550

2,088,632

3,307,918

March-18

3,307,918

563,255

255,803

4,354,791

2,351,787

2,003,004

April-18

2,003,004

2,658,072

313,295

4,362,633

2,198,022

2,164,611

May-18

2,164,611

3,774,927

11,394

6,105,132

2,143,978

3,961,154

June-18

3,961,154

4,491,870

(63,814)

8,175,531

2,345,116

5,830,415

July-18

5,830,415

5,002,034

(37,248)

10,583,342

2,418,293

8,165,049

August-18

8,165,049

4,380,728

(178,514)

12,314,644

2,685,826

9,628,818

September-18

9,628,818

4,235,914

(170,724)

13,536,968

2,581,980

10,954,988

October-18

10,954,988

3,219,020

(213,012)

13,851,802

2,858,114

10,993,688

November-18

10,993,688

167,969

(85,145)

11,076,512

2,459,331

8,617,181

December-18

8,617,181

67,187

18,396

8,702,764

2,745,026

5,957,738

January-19

5,957,738

50,391

123,791

6,131,919

2,398,188

3,733,731

February-19

3,733,731

33,594

299,565

4,066,890

2,204,531

1,862,359

March-19

1,862,359

16,797

511,606

2,390,762

2,485,341

(94,579)

36,256,741

(94,579)

TOTAL

29,245,578

Drop in gasoline prices is a risk, but ethanol remains well below pump parity, offering upside 80%

72%

70%

63%

64% 56% 48%

May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18

40%

Source: BTG Pactual / ANP / MAPA

131

São Martinho: our Top Agri Pick – When asset quality pays off Strong FCF, even during sugar price lows. Unique ethanol storage capacity should enable better pricing

SMTO is one of the most efficient S&E producers 2.14

1.89

Low leverage ratio may trigger stronger dividends 3,000

2.50x

2,500

2.00x

2,000

0.88

1.50x

1,500 14.6

14.6

13.9

10.6

1.00x

1,000

0.50x

500 0

São Martinho

Adecoagro

Cosan

Cash Production Costs (c/lb)

0.00x 2010A 2011A 2012A 2013A 2014A 2015A 2016A 2017A 2018A 2019E

Avg. Brazil

Net Debt (R$mn)

Cogeneration

Net Debt/EBITDA

We see SMTO trading at a compelling 15% Adjusted FY2019 FCFE yield (R$mn) Net Revenues EBIT

FY2017A 3.003 850

FY2018A 3.436 1.049

FY2019E 3.740 992

FY2020E 4.091 1.120

FY2021E 4.403 1.189

EBIT Margin

28,3%

30,5%

26,5%

27,4%

27,0%

Cash net fin expenses Cash Income Tax Earnings D&A Cash Earnings CAPEX FCF Adjusted Market Cap * Adjusted FCF Yield

(273) (162) 415 739 1.154 (869) 285 5.556 5%

(169) (131) 749 896 1.644 (1.065) 579 6.276 9%

(175) (107) 709 971 1.681 (1.024) 657 5.016 13%

(155) (145) 820 1.022 1.841 (1.081) 761 5.016 15%

(111) (162) 916 1.106 2.022 (1.169) 854 5.016 17%

Source: Companies data / Bloomberg / BTG Pactual

132

Farming companies: Back to land Land market to soon show some recovery on combination of stronger farming yields and low interest rates

20%

14.000

15%

12.000 10.000

10%

8.000

5%

6.000

0%

4.000

-5%

Brazil land prices - real y/y appreciation

Aug-18

Feb-18

Aug-17

Feb-17

Aug-16

Feb-16

Aug-15

Feb-15

Aug-14

Feb-14

Aug-13

Feb-13

Aug-12

Feb-12

Aug-11

Aug-10

-10%

Feb-11

2.000

Brazil average land prices (R$/ha)

✓ SLC Agrícola and BrasilAgro have for some years now sold land more often than buying it. We believe this approach may soon have to change, as we believe land market could be on the verge of a recovery. Brazil’s soybean and cotton yields have improved over 20% in the past two years, which combined with low real rates all suggest land prices may soon show real term appreciation. Source: FNP/ IBGE / BTG Pactual

133

Fuel Distribution

Fuel Distribution Industry – A very tough macroeconomic backdrop After 11 years of sales growth, fuel volumes stagnated in the last 3-4 years. Volumes in 2019 should recover, but on a very weak comparison basis.

Diesel + Otto

Growth y/y

120,000

12% 10%

100,000

8% 6% 4%

60,000

2%

40,000

0% -2%

20,000

-4%

0

-6%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 10M18

'000 m3

80,000

135 Source: ANP / BTG Pactual

Fuel Distribution Industry – Fiercer competition Bad macro + premium to international parity = imports. Recent scenario has favored smaller distributors

Diesel imports reached record level in 2017…

… helping smaller players to gain share and….

'000 m3

(since beginning of subsidy, it has fallen sharply)…

90%

2,000

Plural

80%

Others/White Flags 73%

1,600

70%

1,200 50%

800 30%

400

20%

0

27%

10%

… sales efficiency relative to top 3 players Ipiranga

BR

Raízen

Others & White Flag

3,500 3,000 2,500 2,000 1,500 1,000 500

0 2010

2011

Source: Companies data / ANP / BTG Pactual

2012

2013

2014

2015

2016

2017

9M18

136

Cosan: our Top Fuel Distribution Pick Competition should hinder high returns from the past. CSAN’s better positioned in a scenario of increased competition

Pre-tax ROIC has trended higher for private Co’s… Ipiranga

Raizen Combustíveis

… driven mainly by higher EBIT margin

BR Distribuidora

BR Distribuidora

40%

4.0%

34%

3.6%

28%

3.2%

22%

2.8%

16%

2.4%

10%

2.0% 2011

2012

2013

2014

2015

2016

Ipiranga

Raizen Combustíveis

Raizen Combustíveis

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

2017

Asset turnover has failed to impress, with Cosan’s Raízen being the only exception

Ipiranga

Out of top 3 players, only Raízen has grown share in last 7 years (Otto cyle + diesel) Ipiranga

BR Distribuidora

BR

Raízen

35%

12.00

31%

10.80

27%

9.60

23%

8.40

19%

7.20

Jul-18

Oct-18

Apr-18

Jan-18

Jul-17

Oct-17

Apr-17

Jan-17

Jul-16

Oct-16

Apr-16

Jan-16

Jul-15

Oct-15

Apr-15

Jan-15

Jul-14

Oct-14

Apr-14

Jan-14

Jul-13

2017

Oct-13

2016

Apr-13

2015

Jan-13

2014

Jul-12

2013

Oct-12

2012

Apr-12

2011

Jan-12

15%

6.00

137 Source: Companies data / BTG Pactual

BR Distribuidora: a binary story! A ‘what if’ analysis to BRDT’s investment case

We run a DCF-based valuation for BRDT shares, using a real WACC of 8.2% and real perpetuity of 2.5% DCF, BRL mn EBIT (ex-PF) (-) Tax NOPLAT (+) Depreciation (-) NWC (-) Capex Cash Flow Cash flow (real) DCF

2019E 2,754 (936) 1,818 457 (609) (682) 984 984 984

2020E 3,226 (1,097) 2,129 490 (505) (330) 1,784 1,716 1,586

2021E 3,436 (1,168) 2,268 521 (482) (330) 1,977 1,832 1,565

BRDT could capture up to R$49/m3 in a bull case scenario if fully closes its gaps to peers

2022E 3,659 (1,244) 2,415 554 (513) (380) 2,077 1,855 1,465

2024E 4,149 (1,411) 2,739 627 (580) (380) 2,406 1,996 1,348

2025E 4,418 (1,502) 2,916 667 (616) (380) 2,586 2,069 1,291

2026E 4,705 (1,600) 3,105 709 (656) (380) 2,778 2,142 1,235

2027E 5,009 (1,703) 3,306 754 (697) (380) 2,983 2,216 1,182

2028E 5,333 (1,813) 3,520 802 (741) (380) 3,200 2,292 1,130

We estimate an significant gain of R$12/share to our current TP if all upsides materialize 40

140

125

4

17

30

100

8

25

32 R$

80

35

35

9

120

R$ / m3

2023E 3,897 (1,325) 2,572 589 (545) (380) 2,236 1,925 1,406

60

20 15

40

10

67 20

23

5 0

0 2017 Norm. Co's Adj. EBITDA

Gross Profit

SG&A

Inflation

2020 Norm. Co's Adj. EBITDA

PT w/o gap improvements

Gross Profit

SG&A

PT with gap improvements

138 Source: Company data / BTG Pactual

Ultrapar – High multiples don’t bode well with lower growth Focus in WK management and increase POS productivity is the right path in the long term, but it comes at a cost

EV/EBITDA 12M Forward

P/E 12M Forward 48.0x

18.0x

39.0x

15.0x

30.0x

9.9x 21.0x

6.0x

12.0x

Average

Avg + Std. Dev.

P/E 12M Forward

Avg - Std. Dev.

Average

Avg + Std. Dev.

2018

2017

2016

2015

2014

2013

2009

2012

3.0x

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

3.0x

EV/EBITDA 12M Fwd

22.6x

22.2x

9.0x

2011

10.1x

2010

12.0x

Avg - Std. Dev.

Company recently released its ‘19 guidance to even lower figures. Gas station conversion should slow down 2,500

R$ mn

2,000 1,500 1,000 500 0 2013

Ultragaz

2014

Oxiteno

2015

Ultracargo

2016

Ipiranga

2017

2018E

Extrafarma

19 UGP Guidance

Others

139 Source: Company data / BBG / BTG Pactual

Financials

In Financials, our top picks for Brazil are Bradesco and B3! ✓ Bradesco – After several bad years in Brazil’s economy and the acquisition of HSBC, Bradesco’s ROE (and investor’s preference) lost ground versus peers Itau and Santander. But with the help of insurance (stronger healthcare and financial results at the group due to stable/higher Selic), HSBC´s full incorporation (as of Jan/19 they will be able to adjust fees of former HSBC clients), and a stronger economy (which helps Bradesco more than peers in SMEs, countryside/north & northeast clients; and should drive another nominal decline in provisions), we expect the group´s earnings to outpace peers in the coming years, paving the way for a bigger re-rating on a relative basis.

✓ B3 – As we’ve been banging on the drum for a while, B3 is one of the most interesting stories to play as capital markets gain more relevance. With the overhang of elections now behind us, market sentiment is set to improve and B3 should benefit from additional volumes in many different ways - from cash equities trading to fixed income custody. Even though there are some risks – change in regulation for auto liens and loans and an expected new competitor in registration – the upside from higher activity in a favorable market seems much larger than such threats. If volumes remain at these levels, there is a very relevant upside risk to our (and consensus) earnings estimates.

141

B3: Capital markets to continue gaining importance in 2019 ✓ While demand for capital has been increasing Capital markets more active, particularly in fixed income

Domestic pension funds allocation in equities has a lot of room to increase…

Capital raising activity (R$bn)

AuM - Pension Funds (R$bn)

190

200 150 100 50

156148

139

188

134

102

19

14

2011

2012

176 144 135 111

115 88

173

71 40 44

24

15

18

11

2013

2014

2015

2016

7

0 BNDES

Capital Markets - Fixed Income

2017

3Q18

74% 74% 80% 72% 71% 64% 70% 61% 62% 60% 60% 50% 40% 29% 29% 30% 25% 30% 19% 18% 18% 17% 20% 11% 11% 11% 10% 9% 9% 9% 9% 10% 0% 2011 2012 2013 2014 2015 2016 2017 5M18

Fixed Income

Capital Markets - Equities

AuM - mutual funds (R$bn) 85%

86%

86%

88%

91%

91%

91%

Number of individual investors by asset class ('000)

90%

80% 60% 40% 20%

15%

14%

14%

12%

9%

9%

9%

10%

0% 2011

2012

2013

2014

Fixed Income

2015

2016

Equities

Others

With lower interest rates, more individual investors have been buying more sophisticated products

…mutual funds as well

100%

Equities

2017

5M18

1,600 1,400 1,200 1,000 800 600 400 200 0

1,466 1,043 587 484

583 482 1562

144 96

125 88

2011 REITs

589 510

2012

2013

766 620 619 564 564 557 500 505 438 438 413 341 399 204 185 237 163 119 2014

Tesouro Direto

2015 Equities

2016

2017

Hedge Funds

3Q18 142

Scenario remains positive for banks ✓ A better Brazil + HSBC full benefits + insurance improvement = BBDC’s earnings outgrow vs peers! – ROE of credit business should match CoE in the medium-to-long run. But the credit ROE destroyed value in the past few years and just very recently got above the CoE. If, on average, ROE = CoE in credit, we need to see a value generation in the next 12-18 months to compensate for the previous years destruction. – Loan growth + favorable mix (SME recovery and double digit growth in individuals) + healthy NPLs should lead to ROE expansion in 2019! – In such scenario, Bradesco is our TOP PICK among the banks.

ROE – CoE of the system continues expanding

While NPLs should fall for Bradesco and BB

Overall, loans should accelerate in 2019

18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 -

13.7% 10.6%12.0% 10.1% 10.1% 10.1% 10.0%10.4% 8.9% 8.4% 7.3% 7.1%

15.0% 10.0%

5.0% 0.0%

6.4%

6.0%

5.0%

5.3%

4.9% 4.2%

4.0%

1.3%

0.4%

7.0%

3.9%

4.4% 3.7%

3.2%

5.0%

3.7%

4.9% 4.2%

4.0%

3.7%

3.0%

2.9%

2019E

2020E

3.0% 2.0%

SELIC

Jun-18

Jun-17

Dec-17

Dec-16

Jun-16

Jun-15

Adjusted ROE for the system

Dec-15

Dec-14

Jun-14

Jun-13

Dec-13

Jun-12

Dec-12

Jun-11

Dec-11

Dec-10

-5.0%

-3.2% -5.6%

1.0% 0.0%

-10.0% 2017 Itau

Bradesco

2018E

2019E

Banco do Brasil

2020E

Santander Brasil

2017 Itau

2018E Bradesco

Banco do Brasil

Santander Brasil

143

Retail

Dynamic periodic table 2018 – our main calls Consumer & Retail main themes

Our calls

Premium Companies

Good Momentum

Exposure to Internet Secular Growth

Exposure to Lower SELIC

Turnaround stories

Short term portfolio (3-6 months)

Mid-term portfolio (1-2 years)

Long-term portfolio

LREN

B2W

B2W

B2W

NATU

B2W

B2W

B2W

RADL

MGLU

MGLU

LAME

PCAR

MGLU

MGLU

LAME

MELI

BKBR

MELI

VVAR

HGTX

LREN

LREN

MGLU

ARZZ

LAME

MGLU

VVAR

CVCB

CVCB

MELI

LAME

VVAR

LLIS

MEAL

BKBR

BKBR

LREN

LAME

RADL

CVCB

PCAR

AMAR

Premium companies should continue outperforming the overall sector

Exposure to staples segment and cheap valuation theses do not always pays-off during the economic downturn. We prefer top-notch execution!

E-commerce is a irreversible trend in Brazil, and should post a secular growth in the coming years, but only with a few potential winners

Turnaround stories, such as HGTX and PCAR should be kept on the radar screen, also benefiting from a better macro outlook

145

Brazilian e-commerce – secular growth ahead

Brazilian e-commerce sales (R$bn) to triple until 2025 CAGR 17/25E = 14.2%

200 179

CAGR17/21E = 16.5%

159

142 127

112 96

59

2016A

69

2017A

82

2018E

2019E

2020E

2021E

2022E

2023E

2024E

2025E

146

Brazilian e-commerce – market breakdown ✓ MercadoLibre as the LatAm winner with its Alibaba/Taobao-esque platform, and B2W and Magazine Luiza as the winners with an Alibaba/Tmall-esque platform

Taobao-like platform

C2C

and smaller players

B2C

Tmall-like platform

35%

65%

of the market

of the market

147 Source: e-Bit and BTG Pactual

Brazilian e-commerce – only a few potential winners

Taobao-like market

Tmall-like market

Total GMV (R$bn) 32% 48%

R$200bn

13%

68%

10% 26% 2%

2017

139,979

R$69bn

70%

2017 MELI

B2W

MGLU

MELI's Share (Taobao-like market)

VVAR

Others

Others 15%

10%

44,992 24,226

65%

13%

59,991

35%

2017 Taobao-like market

30%

28%

85%

2025 40%

Tmall-like market

8%

2025

2025 MELI

B2W

MGLU

VVAR

Others

MELI's Share (Taobao-like market)

Others

148 Source: BTG Pactual

LatAm Transportation & Capital Goods

Transportation and Capital Goods Best Ideas

150

Rumo – Still Top Pick ✓ 2018 to remain strong: market share gains, new projects ✓ Positive FCFE for the first time in several years ✓ Double digit normalized FCF yield ✓ We believe the likelihood of Malha Paulista’s renewal has not changed and is still high; we also believe investors over-quantify its value

✓ Sorriso Project is material upside risk R$mn

Comment

EBITDA

4,500

Assuming mid-point of 2020 guidance

Capex, pre expansion

(1,200)

Maintenance; in line w/ depreciation. 2020 last expansion year

Net financial expenses, cash

(500)

Avg. R$5bn adjusted net debt

Taxes

(420)

Tax rate @ 20% , Malha Norte benefit + accumulated losses

Working capital change

(50)

Assumes WK @ 5% of revenues

FCFE

2,330

Market cap

25,334

FCFE yield (early 2020s)

9.2%

P/CF

10.9x

More than 35% upside without assuming optionalities EBITDA Target fw EV/EBITDA

R$mn

Comment

4,500

Assuming mid-point of 2020 guidance

9.0

In line with forward EV/EBITDA of North American Class 1

Target EV

40,500

Net debt

6,000

Target Equity value

34,500

Implied fw P/CF Current market cap 12-month upside

14.8 25,334 36%

151

Assumes 2019 end valuation potential

Embraer – Good risk/return from Boeing outcome ✓ Since the strategic partnership with Boeing was officially announced, ERJ shares underperformed as the deal came at a lower value than investors were expecting. – But we see good upside from current levels, and believe investors are not pricing in a deal happening. – Embraer’s value is now below the monetization value announced for Embraer’s Commercial Aviation alone (cash portion net of taxes + put option), which we believe is unfair – we continue to expect a deal to ultimately happen, which should be highly accretive to ERJ. – ERJ has recently announced the golden share request notification. Strategic partership

US$mn

100% - Eq. V - Comercial aviation, gross of taxes 80% - Eq. V - Comercial aviation, gross of taxes

4,750 3,800

Book value of comercial aviation (60% of total)

2,600

Base for capital gain Tax on capital gain (34% rate)

2,150 731

Synergies, annual NPV @ 10x Pretax

150 1,500

1. Monnetization of Commercial stake, net of taxes 2. 20% of newco pre-synergies (Put option) 3. 20% of synergies 4. 20% of Commercial net debt (estimate) 5. Re-rating ERJ - Commercial all-in

3,069 950 300 0 250 4,569

Defense value (12x normalized EBIT - zero value for JV) Defense + Executive synergies @ 10x

960 375

Total value - EV

5,904

Net debt ex Commercial (estimate) Equity Equity per ADR # of ADRs

300 5,604 30.6 183

152

Real Estate

Housing: 2019 is shaping up much better Mid/high-income is getting better all the time. MCMV program remains a government priority Mortgage rates are starting to decrease, at a slow pace

mortgage conditions) and rising consumer confidence (a mandatory condition for higher demand), we believe all is set for higher home sales in 2019. Thus, we are more positive on mid/high-end homebuilders and brokers (we like Even and Lopes)

12.0%

✓ The low-income homebuilders have suffered a lot, as investors are

10.0%

skeptical on the continuity of MCMV housing program, but with a huge pent-up demand and since the government is ultra-committed with MCMV program, we expect another strong year for this segment, which is our preference in the coverage (MRV is our favorite pick)

9.5%

Launches / sales of residential units in the city of São Paulo

11.5%

Bradesco

11.0%

Itau

10.5%

BB Santander

CEF

9.0% Nov-18

Jun-18

Jan-18

Aug-17

Mar-17

Oct-16

May-16

Dec-15

Feb-15

8.5% Jul-15

✓ In a scenario of much lower interest rates (and much better

MCMV budget remains solid for the next four years

50,000

FGTS' budget

Launches

Gross Sales

Inventory

53

2021E

46

53

26

2018E

53

43

2017

53

40

51

35

48

32

2016

9

2015

9

2014

9

2013

9

2012

8

9

2011

9M18

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

-

7

11

2010

5

10,000

5

10

2020E

20,000

8

2019E

30,000

2005

UNITS

40,000

Mortgages + Construction Financing

Subsidy

154

Housing: we prefer low-income (very attractive valuation) ROEs will lackluster in the mid/high-end segment; strong growth for low-income homebuilders

✓ Valuations of mid/high-income homebuilders are already pricing-in a nice recovery of ROEs, but we think they may take much longer to materialize than market is expecting. Therefore, we prefer (i) the brokerage firm Lopes; and (ii) the discounted homebuilder Even.

Aggregate launches and sales – mid/high-end segment 24.0

20.0 16.0 12.0

✓ On the flipside, low-income homebuilders combine: (i) EPS growth; (ii) nice cashflow generation; and (iii) attractive valuation. MRV at 6x P/E and 13% FCF yield for 2019E is our favorite pick.

8.0 4.0

0.0 2009

2010

2011

2012

2013

Launches

Brazilian Housing – Valuation multiples

2015

Sales

2016

2017 2018E

Inventory

Aggregate launches and sales – low-income segment P/E

Last

Target

Upside

Rating

Price

Price

12m

P/BV

2018E

2019E

Cyrela

Buy

15.33

14.00

-9%

1.08x

NM

18.6x

MRV

Buy

12.08

18.00

49%

1.32x

6.7x

6.3x

7.5

Gafisa

Neutral

16.33

9.00

-45%

1.23x

NM

-8.6x

6.0

Tecnisa

Neutral

1.35

1.20

-11%

0.53x

NM

-6.4x

Even

Buy

5.72

5.50

-4%

0.83x

NM

21.6x

Direcional

Buy

7.65

15.20

99%

0.81x

NM

9.2x

EZTec

Neutral

24.50

18.00

-27%

1.62x

59.1x

17.6x

1.5

Helbor

Neutral

1.48

1.20

-19%

0.58x

NM

-11.2x

0.0

Company

2014

10.5

9.0

4.5

3.0

2009

2010

2011

2012

Launches

2013

2014 Sales

2015

2016

2017 2018E

Inventory

155

Malls: all set for a strong year; Offices: we would still avoid Malls should see nice SSS and SSR growth; Rents to keep falling in the office segment

30% 25% 20%

while rents should keep falling (in nominal terms), mostly in the Rio de Janeiro market.

15%

✓ The sector should benefit from low interest rates, mostly

0%

10%

Same-Store-Sales (SSS) growth of listed shopping malls

SP

2018E

2017

2016

2015

the leveraged companies, with some potential upside coming from a reduction of long-term real rates.

2014

2010

5% 2013

✓ In office spaces, we expect vacancy to remain high,

35%

2012

sales improving and (ii) easy comps. This combined with a higher IGP (LTM is 8%), we also expect companies to post nice Same-Store-Rent growth.

Office vacancy in São Paulo and Rio markets

2011

✓ We expect nice Same-Store-Sales for malls: (i) retail

RJ

Same-Store-Rents (SSR) growth of listed shopping malls

20%

20%

15%

15%

10%

10%

5%

5%

0%

3Q18

1Q18

3Q17

1Q17

Iguatemi

3Q16

1Q16

3Q15

1Q15

BR Malls

3Q14

1Q14

3Q13

1Q13

3Q12

Aliansce

1Q12

3Q11

1Q11

3Q10

1Q10

Multiplan

3Q18

1Q18

3Q17

1Q17

Iguatemi

3Q16

1Q16

3Q15

1Q15

BR Malls

3Q14

1Q14

3Q13

1Q13

3Q12

Aliansce

1Q12

3Q11

-5%

1Q11

-10% 3Q10

0% 1Q10

-5%

Multiplan

156

Properties: solid outlook for malls, with a potential re-rating Retail sales recovering + low interest rates = Buy shopping malls Brazilian Properties – Implied IRR vs. long-term interest rates

recovering, top line growth (higher sales and some reduction of discounts to tenants), adjusted Ebitda growth (lower vacancy and NPLs).

10%

✓ We prefer more premium portfolios (AAA-oriented), that

4%

6%

2%

✓ For the office companies, we still expect vacancy to remain high (Rio’s market is ~40% vacant and SP’s is ~20%), while rents should remain under pressure for a while and allowances very high.

✓ In terms of valuation, we see malls trading at attractive valuations (nice premium to long-term real interest rates). Multiplan is our favorite pick, on AAA portfolio of shopping malls and attractive valuation.

SCAR3

BRPR3

PARAUCO

ALSC3

IGTA3

0% BRML3

we believe are in better shape to surf a recovery of tenants’ sales (it should be translated into higher rents faster).

NTNB ‘35

8%

MULT3

✓ We expect a solid 2019 for shopping malls: (i) retail sales

Brazilian Properties – Valuation multiples P / FFO

Last

Target

Upside

Implied

Company

Rating

Price

Price

12m

IRR

2018E

2019E

BR Malls

Buy

13.10

15.00

15%

7.7%

19.6x

16.2x

Multiplan

Buy

23.29

26.00

12%

6.8%

19.3x

18.7x

Iguatemi

Buy

39.15

45.00

15%

8.1%

18.7x

16.8x

Aliansce

Buy

18.16

22.00

21%

9.2%

18.7x

14.2x

157

Our calls in summary Housing and Properties preferred picks

What to own? • Homebuilders focused in the low-income segment (strong top line growth + high FCF yields + attractive valuation)

• Shopping malls, focused on the more AAA portfolios (faster recovery beta) and at attractive valuation

What to avoid? • Commercial properties with high exposure to the office sector (supply glut, high vacancies and declining rents) • High-end homebuilders that would remain destroying equity value for a while and too much geared (i.e. the “turnaround” stories)

Top stock ideas • Low-end Homebuilders: MRV • Mid/high-end Homebuilders: Even and Lopes • Shopping Malls: Multiplan

158

Healthcare and Education

Education – K12 and DL in the spotlight K12 on the rise: A year for Kroton to deliver synergies and for Arco to take a toll on market leaders 15%

16%

17%

17%

18%

18%

18%

18%

13%

14%

47

47

47

46

46

46

45

45

44

44

44

6

6

7

7

7

8

8

8

8

8

8

41

41

40

39

39

38

37

37

36

36

36

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

12%

Public Students - #mn

After the acquisition of Somos by Kroton and the IPO of Arco, K12 is definitely on the radar screen. The private Basic Education market showed a ~4% 2007-17 CAGR.

Private Students - #mn

While Kroton will keep pushing its brownfield strategy and delivering the synergies promised, Arco is set to keep investing in order to take on the leaders by adding new features and supplementary products to its core business.

% of Private Students

Distance Learning: growing uncertainty about price pressure after the capacity expansion The higher flexibility in the regulatory framework for DL was the main catalyst for the recent market growth acceleration. KROT is market leader, but ESTC is closing the gap.

17.6% CAGR 1.6 1.2

In 2018 companies were in growth mode not only in the number of learning centers, but expanding its portfolio of courses. We believe that competition will deteriorate down the road and margins will likely come down. But Estácio still has ample room to grow in the segment, helping the consolidated profitability of the company.

0.7

2010

0.8

2011

0.9

2012

1.3

1.4

1.0

2013

2014

2015

2016

2017

mn of DL students

160

Estácio: Our Top Pick in Education Faculty Cost: Efficiencies clearly being captured Faculty Costs per Student [R$ / Student / Month]

0%

9%

20% 5%

316 279

-1% 325

259

277

-3% 306

3%

266

-5% -22% 253

262

-6%

-5%

289 252

One of ESTC’s main objectives in 2018 was to turnaround the operation in terms of efficiency in order to start thinking about growth from 2019 onwards. The company deployed a number of initiatives (reassessing professors’ salaries, increasing the number of students per class and implementing its strategic source project). Elsewhere, ESTC is ready to accelerate consolidation, with some interesting M&A moves on the radar screen.

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Faculty Costs Per Student (Average)

y/y Growth

Distance Learning: Accelerating… If the onsite business is proving to be a big growth challenge (ESTC has been suffering with double digit intake drops recently), DL is doing better than expected. The company continues to fine tune its products and increase the offer of courses.

ESTC is doubling the efforts in the sector, reaching 506 active LCs by 3Q18, 81% up y/y. To keep growing, the company wants to have 85 courses available in the DL business, 38 more than in 2Q18.

206

117 59

61

128

133

154

170

171

146

79

1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 DL Students - 000s

161

Healthcare – Vertical players still outperforming Vertical players will keep consolidating the market Average MLR in Brazil [%] 83%

83%

58%

79%

81%

76%

83% 66%

78%

74%

72%

80%

73%

82%

It’s no news that vertical players are outperforming, even when operating in tough market conditions. In 2018, Hapvida and GNDI IPOed and the sector experienced several M&As. GNDI was responsible for the largest moves: GreenLine, Mediplan and Samed. At the same time, Hapvida acquired Uniplam and Free Life. The vertical players will keep on leveraging on inefficient providers and operators to increase their footprint.

*2017 Data, except Vitallis, São Francisco and Plena = 2016 Data (last available)

Pay-for-performance will impose challenges for providers – consolidation to accelerate In 2018 we finally saw the pay-for-performance model gaining room. Bolstered by operators and premium providers, new payment models are gaining traction and are set to change the hospital and the diagnostic markets in the years to come. However, there are other moving parts (such as population aging) that will keep pushing up the “per capita” HC expenditure.

4 3

3 2

Smaller players tend to have less control over its costs, so we expect consolidation moves to keep gaining traction in the years to come.

Sabin

Fleury

Pardini

São Marcos

# of acquisitions

162

Hapvida: Our Top Pick in Healthcare Growing organically, but the market expects M&A moves from 1H19 on

Year

2017

2016

2017*

2017*

2017

2016

State

SP

MG

SP

RJ

SP

SP

Net Revenues

2,329

487

1,071

772

169

74

MLR (ex-IBNR)

79%

81%

70%

78%

74%

80%

Gross Margin

21%

16%

29%

26%

24%

19%

EBIT Margin

9%

0%

6%

4%

-1%

0%

EBITDA Margin

10%

1%

7%

4%

0%

1%

Net Margin

7%

0%

6%

4%

1%

3%

Average Ticket [R$/month]

554.4

122.4

156.1

139.0

123.4

132.1

Members ['000]

374.0

331.4

571.8

463.1

114.2

46.6

With R$3bn in cash available for acquisitions, investors are already anticipating potential targets and awaiting for bold M&A moves in 2019, mostly after GNDI’s recent acquisitions. In addition to the most obvious N/NE regions, HAPV is clearly looking for targets in the S, SE and MW regions – after GNDI’s acquisition of GreenLine, we believe it’s less likely to see HAPV coming to SP soon.

Lower price caps for Individual health plans -> ST negative, but LT positive for HAPV ANS is working on the new methodology for the calculation of max price hikes for Individual health plans, and we believe it will come down, closer to the 7-8% range. While ST negative for all the operators, it’ll certainly accelerate consolidation moves. Good for those better prepared to capture that, like Hapvida.

2017 VDA

17.4%

Age Adjustment

1.8%

Adj VDA

15.3%

FGE

3.7%

IVDA

11.6%

Adjusted CPI

2.9%

IVDA Weight

80%

IPCA* Weight

20%

Readjustment

9.8% 163

Telecom and Technology

Sector consolidation I: Oi is a unique strategic asset ✓ Once Oi’s debt restructuring is concluded, it would be natural to expect M&A talks to resurface. - The company will be a full corporation with 71% of its capital in the hands of former bondholders and distressed debt investors. - We believe these investors may favor a sale to a strategic player, assuming a reasonable offer is made.

✓ Oi is also a unique strategic asset. - With integrated operations and scale, it is probably the best (if not the only) alternative for newcomers looking to enter Brazil’s telecom market.

- It is also attractive for existing players looking to expand and complement their operations in the country. - Equally important, by buying Oi current players would prevent a new, large telecom player from entering Brazil´s already competitive telecom market.

- When a unique asset is up for sale and there is demand, M&A is the logical outcome.

✓ A strategic asset and a few possibilities. - Infrastructure-wise, no one has Oi’s reach and size, as the company is present with copper and fiber fixed infrastructure in 26 of Brazil’s 27 states, whilst also operating a nationwide mobile network.

- It provides all types of services (fixed and mobile voice telephony, broadband and pay-TV) and serves all types of clients (residential fixed and mobile, small- and medium-size businesses, large businesses and the government). Oi ended October with 58.5 million clients.

- A potential merger between Oi and TIM has been speculated countless times by the media in the past. And the reason for this is that they have extremely synergic network and services. While TIM has strong mobile operations, Oi controls extensive copper and fiber infrastructure across the country. We believe synergies could reach as much as R$30bn, the bulk of it coming from lower capex.

165

Sector consolidation II: Nextel has valuable spectrum & clients ✓ Nextel is the other attractive asset which is up for sale - Nextel Brazil is an interesting target for any of the big three mobile operators in Brazil: TIM, Vivo and Claro. With the new spectrum cap regulation having been recently approved by Anatel, we believe the company should be sold in the near future.

- Nextel Brazil is the 5th largest wireless carrier in Brazil, with 3.1mn subscribers and 1.3% overall market share. Its subscriber base mostly comprises postpaid users (96% of its customers, or 3mn subscribers) with an ARPU of R$56 in 2Q18 (vs. R$28 for Vivo, R$22 for TIM and R$17 for Claro). Its share of the postpaid market is 3%. TIM has 20%, Vivo 41% and Claro 23%.

✓ The company’s spectrum portfolio has a lot of value for all telco’s (especially TIM) - The company’s spectrum portfolio includes 20Mhz of national spectrum in the 1.9/2.1GHz frequency band, 30MHz in the 1.8GHz frequency band in SP & another 20MHz in the 1.8GHz frequency band in RJ, ES, MG and the North & Northeast regions.

- Nextel’s 1.8MHz frequency (formerly used for 2G services) has a lot of value for companies looking to increase their 4G/LTE coverage (all other telcos are refarming their 1.8GHz frequency for 4G use) and its 1.9/2.1GHz frequency can be used for 3G services.

166

Sector consolidation II: Nextel has valuable spectrum & clients ✓ Spectrum alone is likely worth at least R$2.7bn - In December 2010, Nextel paid R$1.2bn for 20Mhz national spectrum in the 1.9/2.1Ghz frequency band, and then forked out an additional R$200mn for 20Mhz spectrum in the 1.8Ghz band in part of the Southeast, North and Northeast regions.

- At the end of 2015, it paid another R$455mn for 30Mhz spectrum in the 1.8Ghz band in São Paulo, for a total investment of R$1.9bn in 3G and 4G spectrum in a five-year window.

- If we adjust these payments by past inflation, this spectrum is worth at least R$2.7bn.

✓ Clientbase is also valuable for current players - Nextel Brasil has 3.1mn 3G/4G subscribers, 96% of them postpaid. Its client base generated R$2.6bn in sales in 2017 and R$1.15bn in 1H18 (R$2.3bn annualized). Full-year 2017 EBITDA was -R$74mn, improving to +R$2mn in 1H18.

- The incremental margin of Nextel’s clients when plugged into the operations of existing telecom providers should be very high. These companies probably won’t have to make any important adjustments to their structures to absorb Nextel’s 3mn clients (Vivo has 75mn clients, Claro 59mn, TIM 56mn). The commercial structure, networks, support overhead, systems are all in place and operating.

- The incremental margin of Nextel’s clients when plugged into the operations of existing telecom providers should be very high. These companies probably won’t have to make any important adjustments to their structures to absorb Nextel’s 3mn clients (Vivo has 75mn clients, Claro 59mn, TIM 56mn). The commercial structure, networks, support overhead, systems are all in place and operating.

✓ Nextel Brazil seems more attractive for TIM - TIM has less spectrum than its competitors and a weaker position in postpaid. Claro could also be a strong bidder. At a June event in New York, senior management openly expressed their interest in the asset. Claro´s share in the postpaid segment is a relatively small at 23%.

- Vivo, on the other hand, may face some regulatory/anti-trust constraints as its share of Brazil´s postpaid market is a sizable 41% and it is particularly strong in São Paulo, home to most of Nextel Brasil’s 3mn clients

167

Regulatory environment: Important pipeline, but uncertain timeline ✓

After being approved in the Lower House and by the Senate's thematic commission, the Telecom Bill (PL#79), that changes fixedline concessions to authorizations, got bogged down in the Senate in a dispute involving Senate leaders, opposition parties and the Supreme Court.

✓ ✓ ✓

Recently, in a surprising turn of events, the bill was approved in the Senate’s Cience & Technology commission.

✓

In our base case scenario: the bill will most probably only be voted next year, once the new government takes office and a new President is elected for the Senate. Having said this, there is still a 2-week window before Congress enters its end of year recess where we could see positive surprises

At this point, the only thing that is needed for the Bill to be sanctioned is the approval of the Senate’s plenary (by simple majority). While this looks like a simple task, for unknown reasons, the Senate’s President, Eunício de Oliveira hasn’t been putting it up for voting in plenary.

Telefonica estimated savings if concession rules change

Oi estimated savings if concession rules change In BRL mn

1) End of concession fees (1% of concession revenues)

85

In BRL mn 1) End of concession fees (1% of concession revenues)

151

2) Savings with public phones

100

2) Savings with public phones

300

3) Savings from less harsh requirements

150

3) Savings from less harsh requirements

300

4) Rental gains from real estate assets under concession Estimated market value of real estate assets % of the value of the assets effectively rented Value of assets rented rental fee per year rental gains 6) Total estimated gains from change in regulation

4) Rental gains from real estate assets under concession 7.294 70% 5.106 6% 306 641

Estimated market value of real estate assets % of the value of the assets effectively rented Value of assets rented rental fee per year rental gains 6) Total estimated gains from change in regulation

Contribution to EBITDA margin (based on 2015 net revenues)

+1,5%

Contribution to EBITDA margin (based on 2015 net revenues)

Contribution to overall EBITDA (based on 2015 EBITDA)

+5,0%

Contribution to overall EBITDA (based on 2015 EBITDA)

Contribution to overall OpFCF (2015 EBITDA - Capex)

Source: BTG Pactual estimates

18.235 50% 9.118 6% 547 1.298 +4,8% +18,5%

+14,6%

Source: BTG Pactual estimates

168

Linx is our top pick ✓ Omni-platform is a reality; This is where the next leap will come from ￚ Linx has been investing heavily in its Omni platform since its IPO in 2013. A platform designed to help retailers improve their customers' shopping experience with seamless integration between physical stores, virtual sales channels, retailers’ headquarters and tax authorities. ￚ And it seems that the company is finally in a position to start selling these solutions to the market in a competitive way. The 2 most important solutions OMS & E-commerce (website & marketplace integration) are already attracting relevant retailers.

ￚ Linx has already been hired to deploy its OMS or E-commerce solutions for the following big retailers: Centauro, Hering, Drogarias São Paulo, Restoque, Boticário, Ri-Happy. ￚ Given the complexity of the solutions, we could be talking about relevant contracts for Linx. At this point, contribution to topline is still small (the solutions are still being deployed), but we believe they can grow to become relevant revenue generators for the company in the future.

✓ Payments: taking advantage of unique position as Brazil’s leading software management company for retailers ￚ Being the largest technology player when it comes to management software for Retail in Brazil, Linx processes a relatively large amount of payments transactions for retailers using the company’s POS solutions. ￚ The company is looking for alternatives to monetize the payments transactions processed within its client base. This is the goal of the partnership with REDE. ￚ Linx basically helps REDE convert a retailer that uses some other acquirer into becoming a REDE client and receives a % of the MDR charged by REDE from this client. ￚ The second strategy, which is more incipient, and similar to what we have been seeing in more developed countries, Linx and REDE are developing a model so that they can access micro retailers and micro service providers and offer an integrated solution that combines acquiring and technology for business management (POS + simplified ERP). ￚ Last but not least, there seems to be an incipient discussion inside the company on the possibility of becoming a sub-acquirer. 169

The reasons why we like Linx… ✓ There’s still room to grow on the Traditional Business (POS/ERP + Cross-selling initiatives): ￚ Even though Brazil’s macroeconomic scenario has been extremely challenging for some time (with retailers closing stores, no new clients being added, etc), the company has grown organically some 9/10% per year (down from mid-teens some years ago). ￚ As economic activity picks up, store openings should accelerate and new clients should be added. In addition, one specific crossselling initiative (electronic invoicing – NFC-e) should prove a strong tailwind for the business in the coming years. ￚ Until the end of 2019, all retailers will be required to have electronic invoicing (this is a regulatory obligation). Linx sells the solution for R$50 per store and its clients own 120,000 stores. Since only ~30,000 stores already have NFC-e, we would expect some R$50mn of incremental revenues (some 8% of revenues) in the next years. Margins of the solution are very high (probably close to 100%), which makes it even more relevant in terms of incremental EBITDA generation. ￚ We expect organic revenue growth to accelerate in the coming years as the traditional businesses improve.

✓ M&A’s: there’s room for more! ￚ Since its follow-on in October 2016, the company acquired 7 companies, deploying R$320mn in this transactions - the average multiple paid on average was 3.4x EV/Sales. In addition to addition to growing the company, these acquisitions brought in new technology to Linx, reinforcing their portfolio of solutions. ￚ Linx is still sitting on a net cash position of R$217mn, which it could deploy in more acquisitions, generating more value through M&A’s for shareholders

170

Utilities

Highlights for 2019 ✓ After relevant M&A deals during 2018 (Eletropaulo, Cesp, Eletrobras’ discos) and general elections, we expect advances on the regulatory agenda in 2019 with a new structure for the sector coming sooner than expected.

Coverage SANEPAR SABESP AES TIETE EDP DO BRASIL COPEL LIGHT OMEGA COPASA ALUPAR ENGIE BRASIL TRANSMISSÃO PAULISTA CESP TAESA EQUATORIAL ENERGISA CEMIG

Relevant topics Conclusion of GSF Proposal Better hydrology, leading to lower spot prices: GSF still expected @ 88% Potential privatizations ahead Consolidation of the distribution segment CP33 to boost the free market State elections: a positive trigger or a non-event?

172

IRR & Utilities ERP ✓ IRR

✓ Utilities ERP

– After the elections period, the Utilities Average IRR is now close to 8%, reflecting the decrease on Brazilian 10y Real Rates, which dropped to 4.5%.

– We see the Utilities ERP now close to 4%, with a small volatility during the year on the Top 5 IRR – Bottom 5 IRR, always varying between 6.0% and 4.5%.

16%

8.0%

14%

7.0%

12%

6.0%

10%

5.0%

8%

4.0%

6%

3.0%

4%

2.0%

2%

1.0%

0% Oct-12 Apr-13

Oct-13 Apr-14

Oct-14 Apr-15

Average IRR

Oct-15 Apr-16 Median IRR

Oct-16 Apr-17 10y Real Rates

Oct-17 Apr-18

Oct-18

0.0% Oct-12 Apr-13

Oct-13 Apr-14

Oct-14 Apr-15 Utility ERP

Oct-15 Apr-16

Oct-16 Apr-17

Oct-17 Apr-18

Oct-18

Top 5 IRR - Bottom 5 IRR

173

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19

Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Southeast

Northeast

Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19

Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19

Reservoir Levels – Historical

✓ After five years of intense draught the reservoirs seems to be recovering their seasonal regularity.

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

South

North

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

174

Reservoir Levels 2019 According to the most recent forecast made by CCEE (Energy Trading Chamber), we can expect a strong recovery in the Northeast region reservoirs, allowing not only the Southeast region to regain storable energy, but also the whole system to improve the metabolism of reservoirs depletion during the dry months.

Southeast

South

Northeast

North

We expect a return to the historical regular steadiness for the region, with a consistent recovery in important reservoirs such as Furnas, Nova Ponte and Emborcação.

With an almost unanimous scenario of El Niño we expect precipitations above the long term average on the main southern watersheds, leaving the region with a secondary role of energy exporter.

After years with recurrent difficulties on recovering its reservoirs we expect a decent improvement, also the profile of generation complementarity between hydro and wind was a key factor to this recovery.

We expect an enlargement on the region role as main exporter of energy with the evolution of Belo Monte and the full availability of Madeira’s hydro generation transmission lines.

175

Dec-19

Oct-19

Nov-19

Sep-19

Jul-19

Aug-19

Jun-19

Apr-19

May-19

Mar-19

Jan-19

Feb-19

Dec-18

Dec-19

Oct-19

Nov-19

Sep-19

Jul-19

Aug-19

Jun-19

Apr-19

May-19

Mar-19

Jan-19

Feb-19

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Dec-18

Dec-19

Oct-19

Nov-19

Sep-19

Jul-19

Aug-19

Jun-19

Apr-19

May-19

Mar-19

Jan-19

Feb-19

Dec-19

Oct-19

Nov-19

Sep-19

Jul-19

Aug-19

Jun-19

Apr-19

May-19

Mar-19

Jan-19

Feb-19

Dec-18

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Dec-18

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Top Picks: Equatorial ✓ Incorporating Cepisa – After incorporating Cepisa in our model, we’ve updated our TP to R$79/share for YE19. – We incorporate its extraordinary tariff review in 2019 and assume EQTL will be able to implement its full turnaround.

✓ Celpa’s tariff review – We see Celpa’s tariff review as a potential upside for EQTL. – The tariff review will help reset volumes and we model for a RAB of R$4.9bn.

✓ Valuation – We see EQTL trading at 2.2x EV/RAB, but we still see it as one of the best carry names in the sector

176

Top Picks: Cemig ✓ Political upside – We believe Cemig still has significant upside considering the current political scenario – While a privatization may still be a long shot, the nomination of a pro-market CEO could be the next trigger for Cemig. – Tackling costs and implementing its full divestment plan could are the next milestones.

✓ What if the privatization is succesfull? – In a scenario where Cemig is privatized, we believe is disco could be sold above 2x EV/RAB, which would translate into a R$19/share TP.

– The current fiscal deficit in the State of Minas Gerais poses as an incentive for the Governor to pursue the sale of Cemig

177

Top Picks: Light ✓ An offer around the corner? – We still see a high probability that it’ll be sold. – Due to its high leveraged profile, any significant improvement in operations can have a big impact on equity.

✓ Crucial timing – We acknowledge that we’d rather see the deal coming back sooner than later, as Light’s deteriorating Operations could lead to potential value destruction.

✓ Valuation – Assuming the same deal structure with GP, if Light is valued at 1.3x EV/RAB, post the R$2bn capital increase, it could be worth ~R$26/share.

178

Brazil Follow the Money: Allocations are low

180

G.E.M Weighted Funds AuM and and Allocations Allocations - GEM Weighted AuM Weighted Funds Funds 700.000 700.000

16% 16%

14% 14% 12% 12%

600.000 600.000 500.000 500.000

10% 10% 8%8%

400.000 400.000 300.000 300.000

6%6% 4%4%

200.000 200.000 100.000 100.000

00 13-Dec-11 6-Dec-11

Allocation in Brazil (%) Allocation in Brazil (%)

18% 18%

Equity AuM (USD mn) Equity AuM (USD mn)

800.000 800.000

13-Dec-12 6-Dec-12

13-Dec-13 6-Dec-13

13-Dec-14 6-Dec-14 AuM AuM

13-Dec-15 6-Dec-15

13-Dec-16 6-Dec-16

13-Dec-17 6-Dec-17

2%2% 0%0% 13-Dec-18 6-Dec-18

Allocation Allocation in in Brazil Brazil

Evolution of allocations among the main G.E.M economies G.E.M Dez-09 Dez-10 Dez-11 Dez-12 Dez-13 Dez-14 Dez-15 Dec-16 May-17 Dec-17 May-18 Oct-18

China 15.3% 14.6% 15.6% 15.4% 17.3% 19.5% 21.9% 20.6% 22.5% 24.1% 27.7% 25.2%

India 7.6% 8.1% 6.1% 7.6% 7.7% 10.8% 11.3% 10.3% 10.0% 9.8% 9.3% 9.3%

Brazil 16.7% 15.9% 16.4% 11.9% 11.0% 9.1% 6.0% 8.6% 7.5% 7.2% 6.5% 8.0%

South Korea 10.6% 11.7% 12.9% 12.6% 12.8% 10.2% 10.0% 10.5% 11.8% 11.2% 11.6% 10.9%

Taiwan 9.2% 8.9% 8.0% 7.4% 8.5% 9.6% 9.7% 9.7% 10.2% 9.2% 9.5% 10.0%

South Africa 6.3% 6.3% 7.1% 6.4% 6.1% 6.9% 6.4% 6.9% 6.2% 7.0% 6.1% 5.4%

Russia 7.2% 6.9% 6.5% 6.9% 7.2% 3.2% 4.0% 5.9% 4.7% 4.9% 4.8% 5.3%

Mexico 5.0% 4.9% 3.9% 5.0% 4.5% 4.0% 4.4% 3.6% 3.5% 3.1% 2.7% 2.9%

Turkey 2.9% 2.7% 2.0% 3.0% 1.9% 2.4% 2.0% 1.7% 1.8% 1.7% 1.5% 1.2%

Indonesia 2.3% 2.8% 3.0% 2.5% 1.6% 2.9% 2.9% 3.1% 2.8% 2.7% 2.3% 2.4%

Source: EPFR, BTG Pactual Estimates

180

181

Global Weighted Funds AuM and and Allocations Allocations - Global Weighted AuM Weighted Funds Funds 3.500.000 3.500.000

1,4% 1,4%

Allocation in Brazil (%) Allocation in Brazil (%)

1,6% 1,6%

Equity AuM (USD mn) Equity AuM (USD mn)

4.000.000 4.000.000

3.000.000 3.000.000

1,2% 1,2%

2.500.000 2.500.000

1,0% 1,0%

2.000.000 2.000.000

0,8% 0,8%

1.500.000 1.500.000 1.000.000 1.000.000

0,6% 0,6%

500.000 500.000 00 13-Aug-15 13-Jan-16 13-Jun-16 6-Aug-15 6-Dec-15 6-Apr-16 6-Aug-16 13-Nov-16 6-Dec-16 AuM AuM

0,4% 0,4% 0,2% 0,2%

13-Apr-17 6-Apr-17

0,0% 0,0% 13-Sep-17 13-Feb-18 13-Jul-18 13-Dec-18 6-Aug-17 6-Dec-17 6-Apr-18 6-Aug-18 6-Dec-18

Allocation in Brazil Allocation in Brazil

Evolution of allocations among continents (Global funds ex-USA) Global Latin America Dez-09 4.6% Dez-10 3.8% Dez-11 3.7% Dez-12 3.1% Dez-13 2.4% Dez-14 1.9% Dez-15 1.4% Nov-16 2.8% Jan-17 2.7% May-17 2.6% Oct-17 2.1% Dec-17 2.1% May-18 1.6% Oct-18 1.4%

Emerging Asia 8.5% 9.1% 8.3% 8.0% 7.0% 7.6% 7.7% 9.7% 9.2% 9.3% 8.1% 8.4% 8.0% 7.3%

Developed Asia 22.8% 23.6% 23.1% 22.8% 23.6% 23.4% 25.1% 25.7% 25.6% 24.4% 26.2% 26.3% 26.8% 26.7%

Emerging Europe 1.4% 0.8% 0.9% 1.0% 1.2% 0.7% 0.5% 0.9% 1.1% 1.0% 0.9% 0.9% 0.7% 0.7%

Developed Europe 55.8% 55.1% 55.6% 55.4% 57.1% 57.5% 56.3% 50.9% 52.5% 53.9% 54.3% 54.1% 53.9% 54.6%

Middle East 0.6% 0.5% 0.9% 1.1% 1.1% 1.0% 1.4% 1.3% 1.1% 1.1% 0.9% 0.9% 0.8% 0.7%

Africa 0.8% 0.8% 0.9% 0.7% 0.6% 0.6% 0.5% 0.6% 0.5% 0.5% 0.4% 0.4% 0.5% 0.4%

North America 3.1% 4.4% 3.7% 4.6% 4.7% 5.5% 5.3% 6.3% 5.7% 4.6% 4.5% 4.6% 4.9% 5.2%

Source: EPFR, BTG Pactual Estimates

181

182

LatAm Weighted Funds

35.000 35.000

70% 70%

30.000 30.000

65% 65%

25.000 25.000

60% 60%

20.000 20.000

55% 55% 15.000 15.000

50% 50%

10.000 10.000

45% 45%

5.000 5.000 00 13-Dec-11 6-Dec-11

13-Dec-12 6-Dec-12

13-Dec-13 6-Dec-13

13-Dec-14 6-Dec-14 AuM

13-Dec-15 6-Dec-15

13-Dec-16 6-Dec-16

13-Dec-17 6-Dec-17

Allocation (%) Brazil (%) in Brazil Allocation in

Equity mn) (USD mn) AuM (USD Equity AuM

AuM and Allocations - LatAm Weighted Funds

40% 40% 13-Dec-18 6-Dec-18

Allocation in Brazil

Evolution of allocations among Latin America countries LatAm Dez-09 Dez-10 Dez-11 Dez-12 Dez-13 Dez-14 Dez-15 Dec-16 May-17 Dec-17 Apr-18 May-18 Sep-18 Oct-18

Argentina 1.0% 1.1% 0.9% 0.9% 1.3% 1.3% 1.1% 1.5% 2.5% 3.5% 3.6% 3.2% 2.7% 2.5%

Brazil 67.2% 65.5% 65.4% 57.8% 53.6% 50.5% 43.1% 56.0% 53.7% 56.4% 56.5% 54.6% 53.3% 60.3%

Chile 4.4% 5.3% 6.5% 7.8% 8.4% 8.9% 9.8% 8.0% 8.4% 8.8% 7.1% 7.8% 7.3% 6.5%

Colombia 0.6% 1.0% 1.9% 2.7% 3.9% 3.8% 2.3% 2.0% 2.3% 1.8% 1.8% 2.0% 1.9% 1.6%

Mexico 20.2% 20.0% 17.9% 22.2% 23.6% 25.8% 35.9% 23.9% 25.4% 22.0% 22.9% 23.6% 26.7% 21.1%

Panama 0.6% 0.5% 0.7% 1.0% 1.2% 0.7% 0.4% 0.5% 0.4% 0.4% 0.4% 0.4% 0.3% 0.2%

Peru 2.1% 2.7% 2.9% 4.0% 4.2% 4.6% 3.5% 4.1% 3.1% 3.4% 3.3% 3.6% 3.7% 3.6% Source: EPFR, BTG Pactual Estimates

182

183

BRIC Weighted Funds AuM and Allocations - BRIC Weighted Funds 40%

35%

25.000

30% 20.000

25%

15.000

20% 15%

10.000

10% 5.000 0 6-Dec-12 13-Dec-12

5% 6-Dec-13 13-Dec-13

6-Dec-14 13-Dec-14

6-Dec-15 13-Dec-15 AuM (mn)

6-Dec-16 13-Dec-16

6-Dec-17 13-Dec-17

Allocation in Brazil (%)

Equity AuM (USD mn)

30.000

0% 6-Dec-18 13-Dec-18

Allocation in Brazil

Evolution of allocations among BRIC countries BRIC Dez-09 Dez-10 Dez-11 Dez-12 Dez-13 Dez-14 Dez-15 Dec-16 May-17 Dec-17 Apr-18 May-18 Sep-18 Oct-18

China 30.6% 32.0% 35.1% 37.3% 36.3% 43.8% 53.2% 44.8% 50.8% 50.9% 49.9% 51.5% 56.6% 52.2%

India 16.5% 16.3% 12.0% 14.9% 16.6% 19.9% 19.0% 17.2% 17.8% 18.0% 17.0% 16.7% 15.1% 15.4%

Russia 16.2% 14.8% 15.6% 16.2% 18.8% 9.1% 10.5% 14.4% 12.5% 13.5% 13.9% 13.9% 10.7% 11.0%

Brazil 31.4% 35.0% 33.3% 27.6% 22.5% 20.7% 12.6% 17.5% 16.5% 14.7% 16.5% 13.9% 13.4% 17.0%

Source: EPFR, BTG Pactual Estimates

183

184

Domestic inflow into equities Equity Evolution in the Brazilian Mutual Fund Industry vs. Domestic Interest Rates

4,122 22.0%

4000

18.0% 18.3%

AuM (R$bn)

14.8%

2500 15.5% 11.3% 9.9% 854

10.6%

717 893 11.1% 940

11.6%11.4% 1,420 981

1,651

1,500

2,246

2,362

2,557

1,950 1,858

2,104

17%

14.3% 14.0%

1,167

13%

8.7%

11.9% 9.1%

500 362

0

19%

2,803

15%

14.9%

2000

1000

21%

3,269

3000

1500

23%

3,776

3500

25%

334

356

311

321

331

303

9.8%

11% 9%

8.5%

7% 330

Equity Share of Mutual Funds, Selic Rate (% )

4500

405

255 278 224 88 97 113 133 221 80 99 5% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Oct-18 Fixed Income AuM (R$bn)

Equity AuM (R$bn)

Equity Share

End of Period Selic Rate

Source: Anbima, BTG Pactual estimates * One-off launchings: Oct/05 – launching of PIBB (IBrX50) rising R$1.3bn; Jan/06 – launching of FIA Fundamentalista with R$1.0bn.

184

185

Ibovespa ADTV ✓ So far in December, daily Bovespa volumes averaged R$15.8bn, 63% above December 2017.

18.0 18,0 16.0 16,0 14.0 14,0 12.0 12,0 10.0 10,0 8.0 8,0 6.0 6,0 4.0 4,0 2.0 2,0 0.0 0,0 Jul-11 Aug-11

Mar-12 Apr-12

Nov-12 Dec-12

Jul-13 Aug-13

Mar-14 Apr-14

Nov-14 Dec-14

Jul-15 Aug-15

Mar-16 Apr-16

Nov-16 Dec-16

Jul-17 Aug-17

Mar-18 Apr-18

Nov-18 Dec-18

Source: Bovespa, Bloomberg, BTG Pactual

185

Ibovespa: Looks attractive, and under-owned

Ibovespa trading below its historical average ✓ The Ibovespa is now trading at 11.7x 12-month forward P/E, below its historical average.

19x

Brazil’s 12-month forward P/E

17x 15x 13x 11.7

11x 9x

Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18

7x

Average

+1 Std Dev

-1 Std Dev

Source: Economática, BTG Pactual estimates

P/E 12MF (ex-Petro & Vale)

187

The premium to hold equities should grow, as interest rates fall ✓ The premium to hold equities stands at 5.5%, above its historical average, with real interest rates hovering around 3%.

Brazil’s premium to hold equities 10% 8% 6%

5.5%

4% 2%

1.9%

0% -2% -4% -6% Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18

-8%

Real Earnings Yield (Ex-Petro & Vale)

AVERAGE

Source: Economática, BTG Pactual estimates

+1 Std Dev

-1 Std Dev

188

The Ibovespa looks cheap in USD terms ✓ In spite of last two years rally, in USD terms the Ibovespa is trading at quite depressed levels.

4.50 78000

4.00

68000

3.50 3.00

58000

2.50 48000

29,000

4.4

27,000

4.2

4

25,000

3.8 23,000 3.6

2.00 38000

1.50

28000

1.00

18000

0.50

8000

0.00

IBOV Index (USD)

IBOV Index (BRL)

USD/BRL

21,000

3.4

19,000

3.2

17,000

3

IBOV Index (USD)

USD/BRL

189

Long positive cycles can yield outstanding performances ✓ We looked at an Ibovespa series (in USD) dating back to the 1980s (chart 1 below) and identified lengthy rallies, usually triggered by key political events that drove the Ibovespa to post outstanding performances.

✓ The impeachment of President Dilma may have started a new cycle. 100,000

+19x

10,000

+30x

Impeachment of President Dilma

Election of President Lula + Letter to Brazilians

+16x 1,000

Impeachment of President Collor End of Dictatorship+ Plano Cruzado

Source: BTG Pactual and Bloomberg

01/01/2018

01/01/2017

01/01/2016

01/01/2015

01/01/2014

01/01/2013

01/01/2012

01/01/2011

01/01/2010

01/01/2009

01/01/2008

01/01/2007

01/01/2006

01/01/2005

01/01/2004

01/01/2003

01/01/2002

01/01/2001

01/01/2000

01/01/1999

01/01/1998

01/01/1997

01/01/1996

01/01/1995

01/01/1994

01/01/1993

01/01/1992

01/01/1991

01/01/1990

01/01/1989

01/01/1988

01/01/1987

01/01/1986

01/01/1985

01/01/1984

01/01/1983

01/01/1982

01/01/1981

01/01/1980

100

190

Ibovespa recent performance

In 2018, IBOV performed better than other LatAm indexes Ibovespa performance 2018 29,000

Stock market performance YTD (in US$)

Dow Jones

-2.4%

27,000

S&P 500

-2.5%

25,000

IBOV

-2.7%

23,000

Colombia IGBC

21,000

Peru SPBLPGPT

19,000

Chile IPSA MEXBOL

17,000

-6.0% -7.5% -16.6% -18.3%

Argentina MERVAL -49.5%

-60% -50% -40% -30% -20% -10% Ibovespa performance (2008 – 2018)

0%

Stock market performance in 2017 (in US$)

S&P 500

7.7%

40,000

Dow Jones

7.1%

35,000

Colombia IGBC

6.2%

30,000

MEXBOL

50,000 45,000

25,000

IBOV

20,000 15,000 10,000 5,000 0

1.3%

Peru SPBLPGPT Chile IPSA

-0.8% -5.6% -13.3%

Argentina MERVAL-49.2%

-60% -50% -40% -30% -20% -10% 0% 10% 20% Source: BTG Pactual, Bloomberg and Economatica

192

Source: BTG Pactual, Bloomberg and Economatica

Education

Healthcare

-30.0

Airlines & Mileage

-20.0

Food & Beverage

-1.7

Real Estate

-0.1

Telco & Tech

-10.0

Infrastructure

4.9

Agribusiness

10.0

Capital Goods

15.0

Retail

50.0

Steel

18.6

Ibrx-50

20.0

IBOV

23.1

Oil, Gas & Chemicals

24.4

Utilities

30.0

Financials ex-Banks

39.1

Mining

40.4

Car Rental & Logistics

40.0

Banks

Pulp, Paper & Wood

Performance by sector YTD in 2018 YTD (%)

37.8 30.8

14.5 9.8

4.3

0.0

-5.6 -11.8

-21.5 -23.7

-40.0 -30.0

-50.0 -39.8

193

Brazilian stocks performances YTD in 2018 Name Irbbrasil Re Magaz Luiza Eletropaulo Suzano Papel Cemig SLC Agricola B2W Digital Locamerica Banrisul Cesp Sul America Petrobras Celesc Porto Seguro Fibria Gol Direcional Somos Educa Linx Petrobras Brasil Santander BR Petrobras BR CPFL Energia Tegma Copasa Copel ItauUnibanco Natura Engie Brasil Brasilagro Vale Duratex Randon Part

Ticker YTD Performance (%) IRBR3 134.5 MGLU3 109.4 ELPL3 104.3 SUZB3 102 CMIG4 97.7 SLCE3 82.9 BTOW3 81.2 LCAM3 79.1 BRSR6 66 CESP6 59.4 SULA11 58.9 PETR3 58.1 CLSC4 57.7 PSSA3 57.6 FIBR3 50.9 GOLL4 50.7 DIRR3 49.4 SEDU3 47.6 LINX3 47.1 PETR4 46.3 BBAS3 44.5 SANB11 43.6 BRDT3 42.6 CPFE3 41.6 TGMA3 37.8 CSMG3 36.1 CPLE6 35.7 ITUB4 34.5 NATU3 34.4 EGIE3 33.1 AGRO3 30.9 VALE3 30.8 DTEX3 29.9 RAPT4 29.6

Name Cvc Brasil Bradesco Localiza Tupy Gerdau Met Gerdau Rumo S.A. Taesa Santos Brp B3 JBS Tran Paulist Cyrela Realt Qgep Part Braskem Lojas Americ Eztec Ibovespa Ibrx 50 Eneva Lojas Renner Movida Equatorial Cia Hering Usiminas Sid Nacional BBSeguridade Usiminas P.Acucar-Cbd Telef Brasil Even Wilson Sons Abc Brasil CPFL Renovav

Ticker YTD Performance (%) CVCB3 28.2 BBDC4 28 RENT3 27.7 TUPY3 27.2 GOAU4 27 GGBR4 26.9 RAIL3 26.4 TAEE11 24.6 STBP3 24.6 B3SA3 24.4 JBSS3 23 TRPL4 21.5 CYRE3 19.7 QGEP3 18.6 BRKM5 18.4 LAME4 17.6 EZTC3 17 IBOV 15 IBXL 14.5 ENEV3 13.7 LREN3 13 MOVI3 11.6 EQTL3 11.4 HGTX3 9.8 USIM3 9.8 CSNA3 8.2 BBSE3 7.3 USIM5 6.5 PCAR4 6.4 VIVT4 6.3 EVEN3 5.9 WSON33 5.8 ABCB4 5.2 CPRE3 4.9

Name Bk Brasil Embraer Aliansce Energias BR Marcopolo Iochp-Maxion BR Malls Par Alupar Multiplan Iguatemi Valid Sao Martinho Arezzo Co Klabin S/A Sanepar Weg Light S/A Klabin S/A Omega Ger Totvs Tim Part S/A Sabesp Hypera Mills Le Lis Blanc Lopes Brasil Alliar AES Tiete E Odontoprev MRV Ecorodovias BR Propert M.Diasbranco Cosan

Source: BTG Pactual, Bloomberg and Economatica

Ticker YTD Performance (%) BKBR3 4.9 EMBR3 4.6 ALSC3 4.2 ENBR3 4 POMO4 4 MYPK3 4 BRML3 3.9 ALUP11 3.2 MULT3 2.4 IGTA3 2.3 VLID3 0.4 SMTO3 -0.1 ARZZ3 -1 KLBN4 -2.6 SAPR4 -3.6 WEGE3 -5 LIGT3 -5.2 KLBN11 -5.2 OMGE3 -5.5 TOTS3 -5.6 TIMP3 -6.2 SBSP3 -6.4 HYPE3 -8.3 MILS3 -9.2 LLIS3 -10.6 LPSB3 -11.8 AALR3 -12.2 TIET11 -12.7 ODPV3 -13.7 MRVE3 -16.4 ECOR3 -16.5 BRPR3 -16.7 MDIA3 -16.9 CSAN3 -17.2

Name Cosan Helbor CCR SA Estacio Part Marfrig Imc S/A Gafisa Ambev S/A Multiplus Lojas Marisa JSL Vulcabras Biosev BR Brokers Rossi Resid Fleury RaiaDrogasil Sao Carlos Ultrapar Tecnisa Technos Wiz S.A BRF SA Smiles Anima Oi Kroton Ser Educa Oi Minerva Qualicorp Cielo Biotoscana

Ticker YTD Performance (%) CSAN3 -17.2 HBOR3 -18.9 CCRO3 -20.2 ESTC3 -20.6 MRFG3 -20.6 MEAL3 -20.7 GFSA3 -20.8 ABEV3 -22.4 MPLU3 -23.7 AMAR3 -25.1 JSLG3 -25.6 VULC3 -27.4 BSEV3 -27.9 BBRK3 -29.3 RSID3 -29.5 FLRY3 -30 RADL3 -30.8 SCAR3 -30.9 UGPA3 -32.6 TCSA3 -33.5 TECN3 -35.2 WIZS3 -36.3 BRFS3 -38 SMLS3 -39.6 ANIM3 -39.8 OIBR4 -46.3 KROT3 -46.3 SEER3 -47.3 OIBR3 -51.3 BEEF3 -51.7 QUAL3 -53.4 CIEL3 -57.9 GBIO33 -59.6

194

Source: BTG Pactual, Bloomberg and Economatica

20.0 14.2 8.2

Utilities

0.0 8.3

Oil, Gas & Chemicals

11.6

Food & Beverage

21.1

Agribusiness

26.8

Financials ex-Banks

26.9

Steel

29.1

Ibrx-50

32.1

IBOV

36.8

Telco & Tech

37.2

Banks

41.2

Pulp, Paper & Wood

40.0

Real Estate

Infrastructure

60.0

Retail

63.7

Capital Goods

69.0

Mining

Healthcare

80.0

Education

120.0

Airlines & Mileage

180.0

Car Rental & Logistics

Performance by sector in 2017 2017 (%)

165.7

160.0

140.0

114.7

100.0

79.5 61.0

51.3

0.4

195

Brazilian stocks performances in 2017 Name

Ticker

2017 Performance (%)

Name

Ticker

2017 Performance (%)

Ticker

2017 Performance (%)

Name

Ticker

2017 Performance (%)

Magaz Luiza

MGLU3

511

Even

EVEN3

55.1

Name Embraer

EMBR3

27.3

Engie Brasil

EGIE3

9.6

Locamerica

LCAM3

230.8

Hypermarcas

HYPE3

54.8

Ibovespa

IBOV

26.9

Petrobras

PETR4

8.3

Gol

GOLL4

216

Oi

OIBR4

54.2

Ibrx 50

IBXL

26.8

Tran Paulist

TRPL4

8.2

Rossi Resid

RSID3

166.3

Fibria

FIBR3

53.7

Totvs

TOTS3

25.8

BBSeguridade

BBSE3

6.9

Tegma

TGMA3

165.7

RaiaDrogasil

RADL3

51.3

Linx

LINX3

25

Energias BR

ENBR3

5.4

Arezzo Co

ARZZ3

129.8

Banrisul

BRSR6

51.1

Copasa

CSMG3

25

Mills

MILS3

5.4

Usiminas

USIM5

122

Iguatemi

IGTA3

50.7

Wilson Sons

WSON33

24.9

Cielo

CIEL3

4.9

Estacio Part

ESTC3

111.3

Terra Santa

TESA3

48.9

Aliansce

ALSC3

24.8

CCR SA

CCRO3

4.8

Rumo S.A.

RAIL3

109.8

Le Lis Blanc

LLIS3

46.9

Direcional

DIRR3

23.9

Sao Martinho

SMTO3

0.6

Randon Part

RAPT4

109.6

Marcopolo

POMO4

46.3

Sabesp

SBSP3

23.8

Cesp

CESP6

0.5

Cvc Brasil

CVCB3

107

Natura

NATU3

45.2

BR Malls Par

BRML3

23.1

Lojas Americ

LAME4

0.4

Qgep Part

QGEP3

106.8

P.Acucar-Cbd

PCAR4

44.8

Multiplan

MULT3

22.1

Unicasa

UCAS3

0

Localiza

RENT3

106.1

MRV

MRVE3

43.7

Equatorial

EQTL3

21.9

Petrobras

PETR3

-0.2

B2W Digital

BTOW3

105.8

Lopes Brasil

LPSB3

43.3

Lojas Marisa

AMAR3

21.6

Technos

TECN3

-1.4

SLC Agricola

SLCE3

102.7

Kroton

KROT3

41.8

Sul America

SULA11

21.4

Copel

CPLE6

-2.3

Iochp-Maxion

MYPK3

101.7

BR Propert

BRPR3

41.7

Gerdau Met

GOAU4

21.1

AES Tiete E

TIET11

-3.3

PDG Realt

PDGR3

90.8

Porto Seguro

PSSA3

41.3

Telef Brasil

VIVT4

17.5

Light S/A

LIGT3

-3.9

Cia Hering

HGTX3

81.6

Santos Brp

STBP3

41.2

Brasil

BBAS3

16.8

Tecnisa

TCSA3

-4

Imc S/A

MEAL3

80.1

B3

BVMF3

41

Eneva

ENEV3

16.8

Cemig

CMIG4

-5.6

Sao Carlos

SCAR3

75.1

Oi

OIBR3

38

Sanepar

SAPR4

15.6

JSL

JSLG3

-8.1

Ser Educa

SEER3

71

M.Diasbranco

MDIA3

37.5

Brasilagro

AGRO3

15.4

Profarma

PFRM3

-9.1

Lojas Renner

LREN3

70.8

Duratex

DTEX3

36.8

Gerdau

GGBR4

15.2

Wiz S.A

WIZS3

-9.6

Celesc

CLSC4

70.5

Abc Brasil

ABCB4

34.7

Klabin S/A

KLBN4

14.4

Minerva

BEEF3

-9.9

Tim Part S/A

TIMP3

69.5

Bradesco

BBDC4

33.5

Santander BR

SANB11

14.3

JBS

JBSS3

-13.7

Qualicorp

QUAL3

69.3

Ambev S/A

ABEV3

33.4

CPFL Renovav

CPRE3

14.2

Valid

VLID3

-15.6

Fleury

FLRY3

69

Helbor

HBOR3

32.7

Multiplus

MPLU3

13.4

CPFL Energia

CPFE3

-22.6

Eztec

EZTC3

64.4

Odontoprev

ODPV3

31.5

Ultrapar

UGPA3

12.4

Sid Nacional

CSNA3

-22.8

Vale

VALE3

63.7

Usiminas

USIM3

31.1

Positivo Tec

POSI3

12.3

BRF SA

BRFS3

-24.1

Tupy

TUPY3

63.4

Gafisa

GFSA3

30.7

Cosan

CSAN3

11.6

OGX Petroleo

OGXP3

-28.4

Weg

WEGE3

58.5

ItauUnibanco

ITUB4

30.6

Taesa

TAEE11

11.5

BR Brokers

BBRK3

-32.9

Dasa

DASA3

56.1

Cyrela Realt

CYRE3

29.6

Alupar

ALUP11

10.8

BR Insurance

BRIN3

-39.3

Ecorodovias

ECOR3

55.5

Braskem

BRKM5

28.7

Marfrig

MRFG3

10.7

Biosev

BSEV3

-39.4

Source: BTG Pactual, Bloomberg and Economatica

196

Valuation maps

Valuation Summary

Company Company Company

Ticker Ticker

Ticker Rating Rating ShareShare Rating ShareShareShare TargetTarget Upside ShareUpsideMkt Cap Target Mkt CapADTV Upside ADTV Performance MktPerformance Capin USD inADTV USD Currency Currency PricePrice Currency

Price

EV/EBITDAEV/EBITDA EV/EBITDA

(USD bn) (USD bn) (USD mn) (USD mn)1day 1day (USD 1month bn)1month(USD YTD mn) YTD2018E 2018E 2018E 2019E

P/E

P/E P/E Div. Yield Div. Yield Div.P/BV Yield

P/BV Net Debt (USDP/BV bn) Net Debt (USD Net bn) Debt/EBITDA Net Debt/EBITDA Net Debt/EBITDA Origin

2019E 2019E 2018E

2018E 2019E 2018E 2019E 2018E2019E2018E 2019E 2018E 2018E 2019E

2019E 2019E 2018E

2018E 2019E 2018E 2019E 2018E2019E2018E 2019E 2018E 2019E2018E

2019E 2019E

Oil Oil YPF YPF

YPFYPFUSUS YPF NeutUS Neutral ral

USDUSD Neutral 14,3614,36 USD18,5 18,5 14,36 29% 29% 5,6 18,55,6 14,46 14,46 29% 0%

0% 5,6 -7%

-7% -36%14,46-36%3,4x 3,4x 3,4x3,7x

3,7x 3,7x 21,0x

21,0x n.a. 21,0x

n.a. 0,8% n.a. 0,8% 0,8%

0,8%0,8% 0,7x

0,8x 0,8% 0,7x

7,90,8x0,7x

8,17,9 0,8x 2,0x8,1

2,0x 2,2x2,0x

Argent 2,2x 2,2x ina

Ecopetrol Ecopetrol Ecopetrol

ECECUSUS

USDUSDSell 18,6918,69 USD14,5 14,5 18,69 -22% -22% 38,4 14,5 38,4 30,85 30,85 -22%-2%

-2%38,4 -8%

-8% 34%30,8534%4,4x 4,4x 4,4x4,8x

4,8x 4,8x 9,1x

9,1x 10,0x9,1x 10,0x 3,3% 10,0x 3,3% 7,6%

3,3%7,6% 2,0x

1,9x 7,6% 2,0x

9,81,9x2,0x

9,09,8 1,9x 0,9x9,0

0,9x 0,9x0,9x

Col0,9x ombi 0,9xa

Canacol CanacolEnergy Energy Energy

CNECNECNCN CNEBuyCN Buy

CADCAD Buy 4,16 4,16 CAD5,5 5,5

0% 0,5 5%

5% -13%0,86 -13%5,8x 5,8x 5,8x3,9x

3,9x 3,9x 13,2x

13,2x 6,5x 13,2x

0,0%0,0% 1,9x

1,5x 0,0% 1,9x

0,31,5x1,9x

0,30,3 1,5x 2,0x0,3

2,0x 1,3x2,0x

Col1,3x ombi 1,3xa

-0,3% -0,3%-7,5% -7,5%-12,6% -12,6%4,4x 4,4x 4,4x3,9x

3,9x 3,9x 13,2x

13,2x 8,3x 13,2x 8,3x 8,3x

1,9x

1,5x 1,9x

1,5x1,9x

2,0x 1,3x2,0x

1,3x 1,3x

ECSelUSlSell

32% 4,16 32% 0,5 5,50,5 0,86 0,86 32% 0%

Median Median Median

6,5x 0,0% 6,5x 0,0% 0,0%

1,5x 2,0x

Chemicals Chemicals Chemicals Ultrapar Ultrapar Alpek Alpek MEXICHEM MEXICHEM MEXICHEM

UGPA3 SellSell

BRLBRLSell 49,3049,30 BRL44,0 44,0 49,30 -11% -11% 7,1 44,07,1 30,37 30,37 -11%-2%

-2% 7,1 16%

16% -43%30,37-43%12,2x 12,2x 12,2x9,9x

9,9x 9,9x 28,4x

28,4x 22,6x 28,4x 22,6x 1,1% 22,6x 1,1% 2,2%

1,1%2,2% 2,8x

2,6x 2,2% 2,8x

2,32,6x2,8x

2,42,3 2,6x 3,0x2,4

3,0x 2,5x3,0x

Brazi 2,5x 2,5xl

ALPEKA ALPEKAMMMMALPEKA BuyBuy MM

UGPA3 UGPA3

MXNMXN Buy 23,9923,99MXN37,0 37,0 23,99 54% 54% 2,5 37,02,5 3,38 3,38 54% 1%

1% 2,5 -10% -10% 1%3,38 1% 5,6x 5,6x 5,6x6,0x

6,0x 6,0x 8,1x

8,1x 10,8x8,1x 10,8x 1,0% 10,8x 1,0% 3,0%

1,0%3,0% 1,6x

1,5x 3,0% 1,6x

1,51,5x1,6x

1,21,5 1,5x 2,0x1,2

2,0x 1,8x2,0x

Mexi 1,8x 1,8x co

1% 5,3 0%

0% 3%11,11 3% 6,8x 6,8x 6,8x6,3x

6,3x 6,3x 21,8x

21,8x 13,0x 21,8x 13,0x 3,9% 13,0x 3,9% 7,9%

3,9%7,9% 2,0x

2,0x 7,9% 2,0x

2,52,0x2,0x

2,32,5 2,0x 1,9x2,3

1,9x 1,7x1,9x

Mexi 1,7x 1,7x co

-0,8% -0,8%2,7% 2,7%-20,9% -20,9%8,9x 8,9x 8,9x7,9x

7,9x 7,9x 18,3x

18,3x 16,7x 18,3x 16,7x 16,7x

2,2x

2,1x 2,2x

2,1x2,2x

2,5x 2,2x2,5x

2,2x 2,2x

MEXCHEM* MEXCHEM*MMMEXCHEM* MM BuyBuyMM MXNMXN Buy 51,5851,58MXN75,7 75,7 51,58 47% 47% 5,3 75,75,3 11,11 11,11 47% 1%

Median Median Median

2,1x 2,5x

Agribusiness Agribusiness Agribusiness SLC SLCAgrícola Agrícola Agrícola

SLCE3 SLCE3

SLCE3 NeutNeutral ral

BRLBRL Neutral 46,4646,46 BRL52,0 52,0 46,46 12% 12% 1,1 52,01,1 9,95 9,95 12% -5%

-5% 1,1 -15% -15%56%9,95 56%9,2x 9,2x 9,2x7,2x

7,2x 7,2x 11,5x

11,5x 11,1x 11,5x 11,1x 4,6% 11,1x 4,6% 5,4%

4,6%5,4% 1,7x

1,6x 5,4% 1,7x

0,21,6x1,7x

0,20,2 1,6x 1,2x0,2

1,2x 1,0x1,2x

Brazi 1,0x 1,0xl

São SãoMartinho Martinho Martinho

SMTO3 SMTO3

SMTO3 BuyBuy

BRLBRLBuy 18,8018,80 BRL27,0 27,0 18,80 44% 44% 1,7 27,01,7 4,22 4,22 44% -1%

-1% 1,7 -4%

-4% -15%4,22 -15%5,3x 5,3x 5,3x4,6x

4,6x 4,6x 13,2x

13,2x 9,7x 13,2x

9,7x 2,2% 9,7x 2,2% 5,7%

2,2%5,7% 2,0x

1,8x 5,7% 2,0x

0,61,8x2,0x

0,50,6 1,8x 1,4x0,5

1,4x 1,1x1,4x

Brazi 1,1x 1,1xl

Cosan Cosan

CSAN3 CSAN3

CSAN3 BuyBuy

BRLBRLBuy 33,4233,42 BRL54,0 54,0 33,42 62% 62% 3,5 54,03,5 14,84 14,84 62% 0%

0% 3,5 -3%

-3% -29%14,84-29%6,1x 6,1x 6,1x4,9x

4,9x 4,9x 12,4x

12,4x 9,9x 12,4x

9,9x -5,0% 9,9x -5,0% 7,5%

-5,0% 7,5% 0,6x

0,6x 7,5% 0,6x

3,60,6x0,6x

3,43,6 0,6x 3,1x3,4

3,1x 2,4x3,1x

Brazi 2,4x 2,4xl

Adecoagro Adecoagro Adecoagro

AGRO AGROUSUS AGRO BuyUS Buy

USDUSD Buy 7,09 7,09 USD12,0 12,0 69% 7,09 69% 0,8 12,00,8 3,17 3,17 69% -1%

-1% 0,8 -1%

-1% -32%3,17 -32%4,9x 4,9x 4,9x4,8x

4,8x 4,8x 13,9x

13,9x 10,3x 13,9x 10,3x n.a. 10,3x n.a. n.a.

n.a.1,2x n.a.

1,1x n.a. 1,2x

0,61,1x1,2x

0,60,6 1,1x 2,1x0,6

2,1x 2,1x2,1x

Argent 2,1x 2,1x ina

BRLBRLBuy 3,25 3,25 BRL17,0 17,0 423% 3,25 423% 0,2 17,00,2

-2% 0,2 -14% -14%-39%

-25,2% 0,4x 0,7x

1,00,4x0,7x

0,91,0 0,4x 1,9x0,9

1,9x 1,6x1,9x

Brazi 1,6x 1,6xl

1,1x 1,2x

1,1x1,2x

1,9x 1,6x1,9x

1,6x 1,6x

Biosev Biosev Median Median Median

BSEV3 BSEV3

BSEV3 BuyBuy

423%-2%

-39%2,2x 2,2x 2,2x1,9x

1,9x 1,9x 1,3x

1,3x1,0x1,3x

-1,0% -1,0%-4,1% -4,1%-29,5% -29,5%5,3x 5,3x 5,3x4,8x

4,8x 4,8x 12,4x

12,4x 9,9x 12,4x 9,9x 9,9x

Source: BTG Pactual estimates

1,0x -19,3% 1,0x -19,3% -25,2% -19,3% -25,2% 0,7x 1,2x

1,1x 1,9x

198

Valuation Summary

Company Company Company

Ticker Ticker

Ticker Rating Rating

Share Share Rating ShareShareShare TargetTarget Upside Share UpsideMkt Cap Target Mkt CapADTV Upside ADTV Currency Currency PricePrice Currency

Price

(USD bn) (USD bn) (USD mn) (USD mn)1day

Performance MktPerformance Capin USD inADTV USD

EV/EBITDA EV/EBITDA EV/EBITDA

1day (USD 1month bn)1month (USD YTD mn) YTD2018E 2018E 2018E 2019E

2019E 2019E 2018E

P/E

P/E P/E Div. Yield

Div. Yield Div.P/BV Yield

2018E 2019E 2018E 2019E 2018E2019E2018E 2019E

2018E 2018E 2019E

2019E 2019E 2018E

P/BV Net Debt (USDP/BV bn) Net Debt (USD Net bn) Debt/EBITDA Net Debt/EBITDA Net Debt/EBITDA Origin 2018E 2019E 2018E 2019E 2018E2019E2018E 2019E 2018E 2019E 2018E

2019E 2019E

Utilities Utilities Utilities TRPL TRPL

TRPL4 TRPL4

TRPL4 BuyBuy

BRL BRL Buy 67,8767,87 BRL70,0 70,0

67,87 3% 3%

2,9 70,0 2,9

11,70 11,70 3% 0%

0% 2,9 4%

4% 3%11,70 3% 7,1x

7,1x 7,1x7,7x

7,7x 7,7x 9,8x

9,8x 9,8x 9,8x

9,8x 16,7% 9,8x 16,7% 10,2%

16,7% 10,2% 1,1x

10,2% 1,1x 1,1x

0,3 1,1x1,1x

0,20,3 1,1x 0,6x0,2

0,6x 0,6x0,6x

Brazil 0,6x 0,6x

Engie Engie

EGIE3 EGIE3

EGIE3 Neutral Neutral

BRL BRL Neutral 34,2534,25 BRL37,0 37,0

34,25 8% 8%

5,7 37,0 5,7

12,25 12,25 8% -1%

-1% 5,7 2%

2% 13%12,2513%7,4x

7,4x 7,4x6,5x

6,5x 6,5x 10,6x

10,6x 10,0x 10,6x

10,0x 17,9% 10,0x 17,9% 10,5%

17,9% 10,5% 4,5x

10,5% 4,6x 4,5x

2,2 4,6x4,5x

2,32,2 4,6x 2,1x2,3

2,1x 1,9x2,1x

Brazil 1,9x 1,9x

Taesa Taesa

TAEE11 TAEE11

TAEE11 BuyBuy

BRL BRL Buy 23,7123,71 BRL24,0 24,0

23,71 1% 1%

2,1 24,0 2,1

12,68 12,68 1% 0%

0% 2,1 3%

3% 6%12,68 6%10,7x 10,7x 10,7x 11,1x

11,1x 11,1x 9,2x

9,2x 11,8x 9,2x

11,8x 10,4% 11,8x 10,4% 7,7%

10,4% 7,7% 1,8x

1,8x 7,7% 1,8x

0,6 1,8x1,8x

0,70,6 1,8x 2,5x0,7

2,5x 2,8x2,5x

Brazil 2,8x 2,8x

Sabesp Sabesp Sabesp

SBSP3 SBSP3

SBSP3 BuyBuy

BRL BRL Buy 31,2231,22 BRL36,0 36,0

31,22 15% 15%

5,5 36,0 5,5

17,82 17,82 15% 0%

0% 5,5 10%

10% -20%17,82-20%5,0x

5,0x 5,0x4,5x

4,5x 4,5x 8,2x

8,2x 6,0x 8,2x

6,0x 3,1% 6,0x 3,1% 4,1%

3,1% 4,1% 1,1x

1,0x 4,1% 1,1x

2,0 1,0x1,1x

1,92,0 1,0x 1,4x1,9

1,4x 1,2x1,4x

Brazil 1,2x 1,2x

Light Light

LIGT3 LIGT3

LIGT3 BuyBuy

BRL BRL Buy 15,7015,70 BRL18,0 18,0

15,70 15% 15%

0,8 18,0 0,8

6,43

6,43 15% 1%

1% 0,8 -2%

-2% -19%6,43 -19%6,5x

6,5x 6,5x5,1x

5,1x 5,1x 15,3x

15,3x 6,3x 15,3x

6,3x 1,6% 6,3x 1,6% 4,0%

1,6% 4,0% 0,9x

0,8x 4,0% 0,9x

2,0 0,8x0,9x

1,92,0 0,8x 4,6x1,9

4,6x 3,6x4,6x

Brazil 3,6x 3,6x

MXNMXN Buy 73,2973,29MXN 107,0 107,0

73,29 46% 46%

5,6107,0 5,6

7,97

7,97 46% -1%

-1% 5,6 -3%

-3% -23%7,97 -23%10,8x 10,8x 10,8x 10,4x

10,4x 10,4x 12,8x

12,8x 11,6x 12,8x

11,6x 0,0% 11,6x 0,0% 0,0%

0,0% 0,0% 1,2x

1,1x 0,0% 1,2x

2,5 1,1x1,2x

2,72,5 1,1x 3,4x2,7

3,4x 3,4x3,4x

Mexico 3,4x 3,4x

IEnova IEnova IEnova

IENOVA* IENOVA* MMMM IENOVA* BuyBuy MM

Equatorial Equatorial Equatorial

EQTL3 EQTL3

EQTL3 BuyBuy

BRL BRL Buy 71,9171,91 BRL71,0 71,0

71,91 -1% -1%

3,7 71,0 3,7

20,76 20,76 -1% 0%

0% 3,7 0%

0% -5%20,76 -5%11,6x 11,6x 11,6x 12,3x

12,3x 12,3x 21,1x

21,1x 18,7x 21,1x

18,7x 1,2% 18,7x 1,2% 1,3%

1,2% 1,3% 2,7x

2,4x 1,3% 2,7x

1,1 2,4x2,7x

1,81,1 2,4x 2,6x1,8

2,6x 3,8x2,6x

Brazil 3,8x 3,8x

Energias Energias Energias do dodo Brasil Brasil Brasil

ENBR3 ENBR3

ENBR3 BuyBuy

BRL BRL Buy 14,0314,03 BRL16,0 16,0

14,03 14% 14%

2,2 16,0 2,2

15,07 15,07 14% 2%

2% 2,2 1%

1% -11%15,07-11%5,9x

5,9x 5,9x6,7x

6,7x 6,7x 9,2x

9,2x 14,8x 9,2x

14,8x n.a. 14,8x n.a. n.a.

n.a.1,1x n.a.

1,1x n.a. 1,1x

1,2 1,1x1,1x

1,31,2 1,1x 1,9x1,3

1,9x 2,2x1,9x

Brazil 2,2x 2,2x

Eletropaulo Eletropaulo Eletropaulo

ELPL3 ELPL3

ELPL3 BuyBuy

BRL BRL Buy 33,4033,40 BRL25,0 25,0

33,40 -25% -25%

1,4 25,0 1,4

0,16

0,16 -25%-4%

-4% 1,4 2%

2% 74%0,16 74%13,9x 13,9x 13,9x 11,4x

11,4x 11,4x n.a.

n.a. n.a.n.a.

n.a. 0,0% n.a. 0,0% 0,0%

0,0% 0,0% 3,3x

3,3x 0,0% 3,3x

1,9 3,3x3,3x

1,91,9 3,3x 7,8x1,9

7,8x 6,5x7,8x

Brazil 6,5x 6,5x

Sanepar Sanepar Sanepar

SAPR11 SAPR11

SAPR11 BuyBuy

BRL BRL Buy 56,6556,65 BRL86,0 86,0

56,65 52% 52%

1,5 86,0 1,5

6,28

6,28 52% -2%

-2% 1,5 3%

3% -14%6,28 -14%5,9x

5,9x 5,9x5,3x

5,3x 5,3x 6,8x

6,8x 5,7x 6,8x

5,7x 10,2% 5,7x 10,2% 8,8%

10,2% 8,8% 1,1x

1,0x 8,8% 1,1x

0,9 1,0x1,1x

1,00,9 1,0x 2,3x1,0

2,3x 2,1x2,3x

Brazil 2,1x 2,1x

Inversiones Inversiones Inversiones Aguas Aguas Aguas Metropolitanas Metropolitanas Metropolitanas

IAMIAM CI CI

IAM Neutral Neutral CI

CLP CLP Neutral1010,00 1010,00CLP 1.059,01.059,0 1010,00 5% 5%

1,51.059,0 1,5 1,34

1,34 5% -1%

-1% 1,5 2%

2% -17%1,34 -17%6,2x

6,2x 6,2x5,9x

5,9x 5,9x 13,2x

13,2x 12,3x 13,2x

12,3x 7,6% 12,3x 7,6% 8,2%

7,6% 8,2% 1,7x

1,7x 8,2% 1,7x

1,4 1,7x1,7x

1,41,4 1,7x 3,0x1,4

3,0x 2,9x3,0x

Chile 2,9x 2,9x

Copel Copel Copel

CPLE6 CPLE6

CPLE6 Neutral Neutral

BRL BRL Neutral 32,3432,34 BRL34,0 34,0

32,34 5% 5%

2,3 34,0 2,3

6,78

6,78 5% 2%

2% 2,3 12%

12% 16%6,78 16%6,0x

6,0x 6,0x4,7x

4,7x 4,7x 6,7x

6,7x 4,3x 6,7x

4,3x 7,4% 4,3x 11,7% 7,4%

7,4% 11,7% 0,6x

11,7% 0,5x 0,6x

2,2 0,5x0,6x

2,12,2 0,5x 2,9x2,1

2,9x 2,2x2,9x

Brazil 2,2x 2,2x

CSMG3 CSMG3

CSMG3 BuyBuy

BRL BRL Buy 54,1754,17 BRL51,0 51,0

Brazil 1,9x 1,9x

Copasa Copasa Copasa Colbun Colbun Colbun CESP CESP

54,17 -6% -6%

1,8 51,0 1,8

8,91

8,91 -6% -2%

-2% 1,8 5%

5% 16%8,91 16%6,6x

6,6x 6,6x5,8x

5,8x 5,8x 12,4x

12,4x 10,1x 12,4x

10,1x 8,5% 10,1x 8,5% 9,9%

8,5% 9,9% 1,1x

1,1x 9,9% 1,1x

0,8 1,1x1,1x

0,80,8 1,1x 2,1x0,8

2,1x 1,9x2,1x

CLP CLP Neutral140,94140,94CLP 163,0 163,0 140,94 16% 16%

3,6163,0 3,6

1,80

1,80 16% 2%

2% 3,6 4%

4% -3%1,80 -3%7,4x

7,4x 7,4x6,3x

6,3x 6,3x 17,2x

17,2x 15,6x 17,2x

15,6x 5,8% 15,6x 5,8% 2,9%

5,8% 2,9% 1,0x

0,9x 2,9% 1,0x

0,7 0,9x1,0x

0,40,7 0,9x 1,2x0,4

1,2x 0,7x1,2x

Chile 0,7x 0,7x

CESP6 BuyBuy

BRL BRL Buy 21,0021,00 BRL20,0 20,0

21,00 -5% -5%

1,8 20,0 1,8

8,16

8,16 -5% -1%

-1% 1,8 10%

10% 36%8,16 36%10,3x 10,3x 10,3x7,7x

7,7x 7,7x 20,0x

20,0x 21,0x 20,0x

21,0x 1,3% 21,0x 1,3% 1,2%

1,3% 1,2% 0,9x

0,9x 1,2% 0,9x

(0,0) 0,9x0,9x

(0,2) (0,0) 0,9x -0,1x(0,2)

-0,1x -0,8x-0,1x

-0,8x Brazil -0,8x

COLBUN COLBUN CI CICOLBUN Neutral Neutral CI CESP6 CESP6

Cemig Cemig Cemig

CMIG4 CMIG4

CMIG4 BuyBuy

BRL BRL Buy 12,7812,78 BRL10,0 10,0

12,78 -22% -22%

4,8 10,0 4,8

49,40 49,40 -22% 1%

1% 4,8 9%

9% 68%49,4068%10,5x 10,5x 10,5x9,1x

9,1x 9,1x 12,0x

12,0x 9,3x 12,0x

9,3x 2,1% 9,3x 2,1% 2,7%

2,1% 2,7% 1,2x

1,1x 2,7% 1,2x

4,4 1,1x1,2x

4,14,4 1,1x 5,0x4,1

5,0x 4,2x5,0x

Brazil 4,2x 4,2x

Alupar Alupar Alupar

ALUP11 ALUP11

ALUP11 BuyBuy

BRL BRL Buy 18,3018,30 BRL20,0 20,0

18,30 9% 9%

1,4 20,0 1,4

3,21

3,21 9% -1%

-1% 1,4 -1%

-1% -12%3,21 -12%n.a.

n.a. n.a.n.a.

n.a. n.a. n.a.

n.a. n.a.n.a.

n.a. 2,9% n.a. 2,9% 7,8%

2,9% 7,8% 1,3x

1,2x 7,8% 1,3x

0,8 1,2x1,3x

0,90,8 1,2x 2,6x0,9

2,6x 2,6x2,6x

Brazil 2,6x 2,6x

Aes AesTiete Tiete Tiete

TIET11 TIET11

TIET11 Neutral Neutral

BRL BRL Neutral 10,3410,34 BRL12,0 12,0

10,34 16% 16%

1,0 12,0 1,0

2,69

2,69 16% -1%

-1% 1,0 0%

0% -26%2,69 -26%6,9x

6,9x 6,9x4,8x

4,8x 4,8x 14,8x

14,8x 9,1x 14,8x

9,1x 7,6% 9,1x 10,9% 7,6%

7,6% 10,9% 2,7x

10,9% 2,7x 2,7x

0,8 2,7x2,7x

0,70,8 2,7x 3,0x0,7

3,0x 1,9x3,0x

Brazil 1,9x 1,9x

CLP CLP Neutral186,73186,73CLP 221,7 221,7 186,73 19% 19%

2,2221,7 2,2

1,80

1,80 19% 0%

0% 2,2 2%

2% -11%1,80 -11%7,1x

7,1x 7,1x7,8x

7,8x 7,8x 6,6x

6,6x 8,6x 6,6x

8,6x 8,0% 8,6x 8,0% 5,4%

8,0% 5,4% 0,9x

0,8x 5,4% 0,9x

3,5 0,8x0,9x

3,63,5 0,8x 4,3x3,6

4,3x 4,7x4,3x

Chile 4,7x 4,7x

AES AESGENER GENER GENER Eneva Eneva Eneva

AESGENER AESGENER CIAESGENER CI Neutral Neutral CI ENEV3 ENEV3

ENEV3 BuyBuy

BRL BRL Buy 15,8015,80 BRL16,0 16,0

15,80 1% 1%

1,3 16,0 1,3

1,87

1,87 1% 0%

0% 1,3 9%

9% -3%1,87 -3%5,1x

5,1x 5,1x5,7x

5,7x 5,7x 8,0x

8,0x 11,2x 8,0x

11,2x 0,0% 11,2x 0,0% 0,0%

0,0% 0,0% 0,8x

0,8x 0,0% 0,8x

1,0 0,8x0,8x

0,91,0 0,8x 2,3x0,9

2,3x 2,4x2,3x

Brazil 2,4x 2,4x

Omega Omega OmegaEnergia Energia Energia

OMGE3 OMGE3

OMGE3 BuyBuy

BRL BRL Buy 16,4516,45 BRL20,0 20,0

16,45 22% 22%

0,5 20,0 0,5

1,07

1,07 22% -1%

-1% 0,5 1%

1% -20%1,07 -20%8,2x

8,2x 8,2x8,9x

8,9x 8,9x 29,8x

29,8x 19,6x 29,8x

19,6x 3,2% 19,6x 3,2% 5,1%

3,2% 5,1% 1,1x

1,0x 5,1% 1,1x

0,4 1,0x1,1x

0,30,4 1,0x 3,5x0,3

3,5x 3,5x3,5x

Brazil 3,5x 3,5x

Enel EnelChile Chile Chile

ENIC ENIC USUS ENIC Neutral Neutral US

USDUSD Neutral 4,84 4,84 USD6,0 6,0

24% 4,84 24%

4,8 6,04,8

2,52

2,52 24% 0%

0% 4,8 8%

8% -13%2,52 -13%8,0x

8,0x 8,0x7,1x

7,1x 7,1x 12,9x

12,9x 10,7x 12,9x

10,7x 4,6% 10,7x 4,6% 5,0%

4,6% 5,0% 1,3x

1,2x 5,0% 1,3x

0,0 1,2x1,3x

0,00,0 1,2x 2,3x0,0

2,3x 1,9x2,3x

Chile 1,9x 1,9x

Engie EngieEnergia Energia Energia Chile Chile Chile

ECLECL CI CI

CLP CLP Buy 1293,80 1293,80CLP 1.328,01.328,0 1293,80 3% 3%

2,01.328,0 2,0 2,54

2,54 3% -1%

-1% 2,0 3%

3% -10%2,54 -10%8,3x

8,3x 8,3x5,7x

5,7x 5,7x 13,3x

13,3x 8,8x 13,3x

8,8x 3,0% 8,8x 3,0% 4,5%

3,0% 4,5% 1,0x

0,9x 4,5% 1,0x

0,9 0,9x1,0x

0,70,9 0,9x 2,5x0,7

2,5x 1,5x2,5x

Chile 1,5x 1,5x

CLP CLP Neutral377,76377,76CLP 482,0 482,0 377,76 28% 28%

3,4482,0 3,4

2,82

2,82 28% -1%

-1% 3,4 2%

2% -11%2,82 -11%9,9x

9,9x 9,9x9,6x

9,6x 9,6x 15,4x

15,4x 15,1x 15,4x

15,1x 6,5% 15,1x 6,5% 6,6%

6,5% 6,6% 3,6x

3,6x 6,6% 3,6x

1,3 3,6x3,6x

1,41,3 3,6x 2,8x1,4

2,8x 2,8x2,8x

Chile 2,8x 2,8x

3,3 35,0 3,3

6,61

6,61 -6% -1%

-1% 3,3 2%

2% 19%6,61 19%5,3x

5,3x 5,3x5,3x

5,3x 5,3x 20,4x

20,4x 18,3x 20,4x

18,3x 2,5% 18,3x 2,5% 2,7%

2,5% 2,7% 3,1x

2,9x 2,7% 3,1x

0,2 2,9x3,1x

0,20,2 2,9x 0,3x0,2

0,3x 0,4x0,3x

Brazil 0,4x 0,4x

4,8 17.700,0 4,8 1,17

1,17 28% 0%

0% 4,8 7%

7% -5%1,17 -5%8,6x

8,6x 8,6x8,1x

8,1x 8,1x 10,8x

10,8x 9,8x 10,8x

9,8x 3,9% 9,8x 3,9% 6,5%

3,9% 6,5% 1,4x

1,4x 6,5% 1,4x

0,0 1,4x1,4x

0,00,0 1,4x 3,3x0,0

3,3x 3,0x3,3x

Colombia 3,0x 3,0x

2,4%-9,9%

7,2x 7,2x6,6x

6,6x 6,6x 12,8x

12,8x 10,7x 12,8x

10,7x 10,7x

1,1x 1,1x

1,1x1,1x

2,5x 2,2x2,5x

2,2x 2,2x

Aguas Aguas AguasAndinas Andinas Andinas

ECL BuyCI Buy

AGUAS/A AGUAS/A CI CIAGUAS/A Neutral Neutral CI

Energisa Energisa Energisa

ENGI11 ENGI11

ENGI11 BuyBuy

BRL BRL Buy 37,2437,24 BRL35,0 35,0

Interconexión Interconexión Interconexión Eléctrica Eléctrica Eléctrica

ISAISA CBCB

ISABuy CB Buy

COPCOP Buy 13780,00 13780,00COP 17.700,0 17.700,013780,00 28% 28%

Median Median Median

37,24 -6% -6%

-0,5% -0,5% 2,4%

-9,9%7,2x

Source: BTG Pactual estimates

1,1x

1,1x 2,5x

199

Valuation Summary

Company Company Company

Ticker Ticker

Ticker Rating Rating

ShareShare Rating ShareShareShare TargetTarget Upside Share UpsideMkt Cap Target Mkt CapADTV Upside ADTV Currency Currency PricePrice Currency

Price

Performance MktPerformance Capin USD inADTV USD

EV/EBITDA EV/EBITDA EV/EBITDA

(USD bn) (USD bn) (USD mn) (USD mn)1day 1day (USD 1month bn)1month(USD YTD mn) YTD2018E 2018E 2018E 2019E

P/E

P/E P/E Div. Yield Div. Yield Div.P/BV Yield

2019E 2019E 2018E

2018E 2019E 2018E 2019E 2018E2019E2018E 2019E

2018E 2018E 2019E

2019E 2019E 2018E

P/BV Net Debt (USDP/BV bn) Net Debt (USD Net bn) Debt/EBITDA Net Debt/EBITDA Net Debt/EBITDA Origin 2018E 2019E 2018E 2019E 2018E2019E2018E 2019E 2018E 2019E 2018E

2019E 2019E

Mining Mining Mining Volcan Volcan Volcan

VOLCABC1 VOLCABC1 PEVOLCABC1 PE BuyBuyPE

PENPEN Buy 0,77 0,77 PEN1,6 1,6

113% 0,77 113% 0,9 1,60,9

0,48 0,48 113% 2%

2% 0,9 8%

8% -42%0,48 -42%5,2x

5,2x 5,2x4,3x

4,3x 4,3x 15,5x

15,5x 8,6x 15,5x

8,6x 2,7% 8,6x 2,7% 3,0%

2,7% 3,0% 1,4x

1,3x 3,0% 1,4x

0,7 1,3x1,4x

0,70,7 1,3x 2,3x0,7

2,3x 1,8x2,3x

1,8x Peru 1,8x

VALE VALE USUS VALEBuyUS Buy

USDUSD Buy 13,0413,04 USD 20,0 20,0

13,04 53% 53% 67,8 20,0 67,8 336,78 336,78 53% 0%

0% 67,8 -10%

-10%11% 336,7811%4,9x

4,9x 4,9x4,2x

4,2x 4,2x 8,5x

8,5x 5,7x8,5x

5,7x 5,1% 5,7x 11,8% 5,1%

5,1% 11,8% 1,5x

11,8% 1,4x 1,5x

14,5 1,4x1,5x

12,1 14,5 1,4x 0,9x12,1

0,9x 0,6x0,9x

Brazil 0,6x 0,6x

SQM SQM

SQM SQM USUS SQMBuyUS Buy

USDUSD Buy 43,3443,34 USD 57,1 57,1

43,34 32% 32% 11,4 57,1 11,4 32,70 32,70 32% 0%

0% 11,4 -1%

-1% -21%32,70-21%12,5x 12,5x 12,5x 11,2x

11,2x 11,2x 23,4x

23,4x 20,3x 23,4x

20,3x 4,2% 20,3x 4,2% 2,4%

4,2% 2,4% 5,2x

4,6x 2,4% 5,2x

0,4 4,6x5,2x

0,20,4 4,6x 0,4x0,2

0,4x 0,2x0,4x

Chile 0,2x 0,2x

Southern Southern Southern Copper Copper Copper

SCCO SCCO USUS SCCO SellUS Sell

USDUSD Sell 32,0832,08 USD 30,0 30,0

32,08 -6% -6% 24,8 30,0 24,8 37,87 37,87 -6% 0%

0% 24,8 -13%

-13%-31%37,87-31%8,1x

8,1x 8,1x8,6x

8,6x 8,6x 14,8x

14,8x 16,3x 14,8x

16,3x 3,7% 16,3x 3,7% 1,8%

3,7% 1,8% 3,7x

3,2x 1,8% 3,7x

4,9 3,2x3,7x

5,04,9 3,2x 1,3x5,0

1,3x 1,5x1,3x

1,5x Peru 1,5x

6,1x 6,1x 11,6x

11,6x 9,1x 11,6x

9,1x 6,4% 9,1x 6,4% 4,4%

6,4% 4,4% 1,3x

1,2x 4,4% 1,3x

8,4 1,2x1,3x

8,18,4 1,2x 1,7x8,1

1,7x 1,6x1,7x

Mexico 1,6x 1,6x 0,1x Peru 0,1x

Vale Vale

Grupo GrupoMexico Mexico Mexico

GMEXICOB GMEXICOB MMGMEXICOB MM Neutral Neutral MM MXNMXN Neutral 40,7840,78MXN 43,0 43,0

40,78 5% 5%

15,7 43,0 15,7 21,91 21,91 5% -1%

-1%15,7 -6%

-6% -34%21,91-34%6,1x

6,1x 6,1x6,1x

Cerro CerroVerde Verde Verde

CVERDEC1 CVERDEC1 PECVERDEC1 PE Neutral Neutral PE

USDUSD Neutral 21,3021,30 USD 31,0 31,0

21,30 46% 46%

7,5 31,0 7,5

0,06 0,06 46% 0%

0% 7,5 -1%

-1% -27%0,06 -27%5,5x

5,5x 5,5x4,5x

4,5x 4,5x 13,1x

13,1x 9,8x 13,1x

9,8x 3,8% 9,8x 3,8% 8,1%

3,8% 8,1% 1,4x

1,3x 8,1% 1,4x

0,6 1,3x1,4x

0,20,6 1,3x 0,4x0,2

0,4x 0,1x0,4x

Buenaventura Buenaventura Buenaventura

BVNBVN USUS

BVNBuyUS Buy

USDUSD Buy 15,1915,19 USD 16,9 16,9

15,19 11% 11%

3,9 16,9 3,9 17,10 17,10 11% 0%

0% 3,9 9%

9% 9%17,10 9%14,3x 14,3x 14,3x 12,4x

12,4x 12,4x 44,6x

44,6x 19,9x 44,6x

19,9x 0,4% 19,9x 0,4% 0,3%

0,4% 0,3% 1,3x

1,2x 0,3% 1,3x

0,3 1,2x1,3x

0,20,3 1,2x 1,0x0,2

1,0x 0,5x1,0x

0,5x Peru 0,5x

Bradespar Bradespar Bradespar

BRAP4 BRAP4

BRAP4 Neutral Neutral

BRL BRL Neutral 30,0030,00 BRL12,0 12,0

30,00 -60% -60% n.a. 12,0 n.a. 20,60 20,60 -60%-1%

-1% n.a. -14%

-14% -8%20,60 -8% n.a.

n.a. n.a.n.a.

n.a. n.a. n.a.

n.a.n.a.n.a.

n.a. n.a. n.a. n.a. n.a.

n.a.n.a.

n.a. n.a. n.a.

n.a. n.a.n.a.

n.a.n.a. n.a. n.a.n.a.

n.a. n.a. n.a.

Brazil n.a. n.a.

GBPGBP Buy 8,41 8,41 GBP12,4 12,4

47% 8,41 47%

2% 7,8 0%

0% -42%18,73-42%7,0x

7,0x 7,0x6,2x

6,2x 6,2x 17,2x

17,2x 15,1x 17,2x

15,1x 3,8% 15,1x 3,8% 1,9%

3,8% 1,9% 2,5x

2,2x 1,9% 2,5x

(0,1) 2,2x2,5x

(0,3) (0,1) 2,2x -0,1x(0,3)

-0,1x -0,2x-0,1x

Mexico -0,2x -0,2x

0,2% 0,2%-0,9% -0,9%-27,2% -27,2%6,6x

6,6x 6,6x6,2x

6,2x 6,2x 15,2x

15,2x 12,4x 15,2x

12,4x 12,4x

1,5x

1,3x 1,5x

1,3x1,5x

1,1x 1,0x1,1x

1,0x 1,0x

Fresnillo Fresnillo Fresnillo

FRES FRES LN LN FRES BuyLN Buy

7,8 12,4 7,8 18,73 18,73 47% 2%

Median Median Median

1,3x 1,1x

Metals Metals Usiminas Usiminas Usiminas

USIM5 USIM5

USIM5 BuyBuy

BRL BRL Buy 9,65 9,65 BRL14,0 14,0

45% 9,65 45%

3,1 14,0 3,1 44,49 44,49 45% 2%

2% 3,1 3%

3% -9%44,49 -9%5,4x

5,4x 5,4x4,5x

4,5x 4,5x 15,3x

15,3x 10,9x 15,3x

10,9x 0,0% 10,9x 0,0% 0,0%

0,0% 0,0% 0,8x

0,8x 0,0% 0,8x

0,8 0,8x0,8x

0,60,8 0,8x 1,3x0,6

1,3x 0,8x1,3x

Brazil 0,8x 0,8x

Ternium Ternium Ternium

TXTX USUS

TXBuy USBuy

USDUSD Buy 28,6828,68 USD 36,0 36,0

28,68 26% 26%

5,6 36,0 5,6 14,50 14,50 26% 3%

3% 5,6 -6%

-6% -6%14,50 -6%2,9x

2,9x 2,9x3,6x

3,6x 3,6x 4,4x

4,4x 5,7x4,4x

5,7x 0,0% 5,7x 0,0% 4,4%

0,0% 4,4% 1,0x

0,9x 4,4% 1,0x

2,0 0,9x1,0x

1,82,0 0,9x 0,7x1,8

0,7x 0,8x0,7x

Argentina 0,8x 0,8x

Gerdau Gerdau Gerdau

GGBR4 GGBR4

GGBR4 BuyBuy

BRL BRL Buy 15,3415,34 BRL23,0 23,0

15,34 50% 50%

6,7 23,0 6,7 59,78 59,78 50% -1%

-1% 6,7 -1%

-1% 8%59,78 8% 5,1x

5,1x 5,1x4,4x

4,4x 4,4x 10,4x

10,4x 7,6x 10,4x

7,6x 2,0% 7,6x 2,0% 1,9%

2,0% 1,9% 1,0x

0,9x 1,9% 1,0x

2,5 0,9x1,0x

1,72,5 0,9x 1,5x1,7

1,5x 0,9x1,5x

Brazil 0,9x 0,9x

CSN CSN

CSNA3 CSNA3

CSNA3 Neutral Neutral

BRL BRL Neutral 9,07 9,07 BRL11,0 11,0

21% 9,07 21%

3,2 11,0 3,2 18,66 18,66 21% -1%

-1% 3,2 -4%

-4% -8%18,66 -8%5,0x

5,0x 5,0x6,4x

6,4x 6,4x 4,5x

4,5x 5,6x4,5x

5,6x 0,0% 5,6x 0,0% 0,0%

0,0% 0,0% 1,6x

1,2x 0,0% 1,6x

6,7 1,2x1,6x

6,06,7 1,2x 3,3x6,0

3,3x 4,0x3,3x

Brazil 4,0x 4,0x

-7,0%5,1x

5,1x 5,1x4,5x

4,5x 4,5x 7,5x

7,5x 6,7x 7,5x

6,7x 6,7x

1,0x

0,9x 1,0x

0,9x1,0x

1,4x 0,9x1,4x

0,9x 0,9x

Median Median Median

0,4% 0,4%-2,5% -2,5%-7,0%

0,9x 1,4x

Pulp Pulpand and and paper paper paper &&Forestry Forestry & Forestry Suzano Suzano SuzanoPapel Papel Papel eeCelulose Celulose e Celulose

SUZB3 SUZB3

SUZB3 BuyBuy

BRL BRL Buy 37,5737,57 BRL65,0 65,0

37,57 73% 73% 13,0 65,0 13,0 59,57 59,57 73% 3%

3% 13,0 -7%

-7% 72%59,5772%8,2x

8,2x 8,2x3,8x

3,8x 3,8x 46,0x

46,0x 3,5x 46,0x

3,5x 1,3% 3,5x 1,3% 1,3%

1,3% 1,3% 4,0x

1,9x 1,3% 4,0x

2,3 1,9x4,0x

9,02,3 1,9x 1,3x9,0

1,3x 1,6x1,3x

Brazil 1,6x 1,6x

Klabin Klabin

KLBN11 KLBN11

KLBN11 BuyBuy

BRL BRL Buy 16,0016,00 BRL27,0 27,0

16,00 69% 69%

4,4 27,0 4,4 20,37 20,37 69% 0%

0% 4,4 -12%

-12%-19%20,37-19%7,5x

7,5x 7,5x6,0x

6,0x 6,0x n.a.

n.a. 8,4xn.a.

8,4x 4,2% 8,4x 4,2% 4,6%

4,2% 4,6% 2,8x

2,3x 4,6% 2,8x

3,2 2,3x2,8x

2,83,2 2,3x 3,1x2,8

3,1x 2,3x3,1x

Brazil 2,3x 2,3x

Fibria Fibria

FIBR3 FIBR3

FIBR3 BuyBuy

BRL BRL Buy 66,8466,84 BRL71,0 71,0

66,84 6% 6%

9,5 71,0 9,5 33,66 33,66 6% 0%

0% 9,5 -3%

-3% 29%33,6629%6,1x

6,1x 6,1x5,3x

5,3x 5,3x 7,3x

7,3x 7,6x7,3x

7,6x 0,0% 7,6x 0,0% 0,0%

0,0% 0,0% 1,9x

1,7x 0,0% 1,9x

2,5 1,7x1,9x

1,82,5 1,7x 1,3x1,8

1,3x 0,9x1,3x

Brazil 0,9x 0,9x

Duratex Duratex Duratex

DTEX3 DTEX3

DTEX3 BuyBuy

BRL BRL Buy 11,9511,95 BRL13,0 13,0

11,95 9% 9%

2,1 13,0 2,1

4,45 4,45 9% 2%

2% 2,1 -6%

-6% 11%4,45 11%8,4x

8,4x 8,4x8,2x

8,2x 8,2x 24,4x

24,4x 17,1x 24,4x

17,1x 1,5% 17,1x 1,5% 2,0%

1,5% 2,0% 1,6x

1,5x 2,0% 1,6x

0,4 1,5x1,6x

0,30,4 1,5x 1,3x0,3

1,3x 0,8x1,3x

Brazil 0,8x 0,8x

Copec Copec

COPEC COPEC CI CI COPEC BuyBuy CI

CLP CLP Buy 8848,90 8848,90CLP 12.000,0 12.000,0 8848,90 36% 36% 16,9 12.000,0 16,9 9,22 9,22 36% 1%

1% 16,9 -8%

-8% -17%9,22 -17%7,9x

7,9x 7,9x7,2x

7,2x 7,2x 13,4x

13,4x 11,7x 13,4x

11,7x 2,4% 11,7x 2,4% 3,1%

2,4% 3,1% 1,5x

1,4x 3,1% 1,5x

6,4 1,4x1,5x

6,46,4 1,4x 2,1x6,4

2,1x 1,9x2,1x

Chile 1,9x 1,9x

CMPC CMPC

CMPC CMPC CCCC CMPC Neutral Neutral CC

CLP CLP Neutral2256,40 2256,40CLP 2.786,02.786,0 2256,40 23% 23%

1% 8,3 -7%

-7% -1%6,71 -1%6,0x

6,0x 6,0x5,9x

5,9x 5,9x 14,8x

14,8x 11,9x 14,8x

11,9x 2,6% 11,9x 2,6% 2,4%

2,6% 2,4% 1,0x

0,9x 2,4% 1,0x

2,8 0,9x1,0x

2,22,8 0,9x 1,5x2,2

1,5x 1,2x1,5x

Chile 1,2x 1,2x

7,7x 7,7x6,0x

6,0x 6,0x 14,8x

14,8x 10,1x 14,8x

10,1x 10,1x

1,8x

1,6x 1,8x

1,6x1,8x

1,4x 1,4x1,4x

1,4x 1,4x

Median Median Median

8,32.786,0 8,3 6,71 6,71 23% 1%

1,0% 1,0%-6,9% -6,9%4,9%

4,9%7,7x

Source: BTG Pactual estimates

1,6x 1,4x

200

Valuation Summary Company Company Company

Ticker Ticker

Ticker Rating Rating

Share Share Rating ShareShareShare TargetTarget Upside Share UpsideMkt Cap Target Mkt CapADTV Upside ADTV Currency Currency PricePrice Currency

Price

(USD bn) (USD bn) (USD mn) (USD mn)1day

Performance MktPerformance Capin USD inADTV USD

EV/EBITDA EV/EBITDA EV/EBITDA

P/E

P/E P/E Div. Yield

Div. Yield Div.P/BV Yield

1day (USD 1month bn)1month (USD YTD mn) YTD2018E 2018E 2018E 2019E

2019E 2019E 2018E

2018E 2019E 2018E 2019E 2018E2019E2018E 2019E

2018E 2018E 2019E

2019E 2019E 2018E

P/BV Net Debt (USDP/BV bn) Net Debt (USD Net bn) Debt/EBITDA Net Debt/EBITDA Net Debt/EBITDA Origin 2018E 2019E 2018E 2019E 2018E2019E2018E 2019E 2018E 2019E 2018E

2019E 2019E

Industrials, Industrials, Industrials, Cement Cement Cement and andHeavy Heavy and Contruction Heavy Contruction Contruction Grupo Grupo GrupoArgos Argos Argos

GRUPOARG GRUPOARG CB GRUPOARG CB Neutral NeutralCB COPCOP Neutral16440,00 16440,00COP 19.900,0 19.900,016440,00 21% 21%

Cemex Cemex CemexLatAm LatAm LatAm Holdings Holdings Holdings

CLHCLH CBCB

CLHBuyCB Buy

COPCOP Buy 4000,00 4000,00COP 7.000,07.000,0 4000,00 75% 75%

Cemex Cemex Cemex

CXCX USUS

CXBuy USBuy

USDUSD Buy 4,62 4,62 USD9,5 9,5

Cementos Cementos Cementos Argos Argos Argos Graña Grañayy Montero yMontero Montero

USDUSD Buy 3,13 3,13 USD7,4 7,4

2,97 21% 0%

0% 4,4 6%

6% -25%2,97 -25%8,8x

8,8x 8,8x7,1x

7,1x 7,1x 15,0x

15,0x 9,3x 15,0x

9,3x 2,1% 9,3x 2,1% 2,2%

2,1% 2,2% 0,8x

0,8x 2,2% 0,8x

4,2 0,8x0,8x

3,94,2 0,8x 3,3x3,9

3,3x 2,8x3,3x

Colombia 2,8x 2,8x

0,77.000,0 0,7 0,57

0,57 75% -4%

-4% 0,7 -26%

-26%-66%0,57 -66%5,9x

5,9x 5,9x5,6x

5,6x 5,6x 8,7x

8,7x 9,4x 8,7x

9,4x n.a. 9,4x n.a. n.a.

n.a.0,4x n.a.

0,4x n.a. 0,4x

0,8 0,4x0,4x

0,80,8 0,4x 3,1x0,8

3,1x 3,0x3,1x

Colombia 3,0x 3,0x

52,23 52,23 106%-2%

-2% 6,8 -7%

-7% -38%52,23-38%5,6x

5,6x 5,6x4,7x

4,7x 4,7x 8,1x

8,1x 7,0x 8,1x

7,0x 0,0% 7,0x 0,0% 2,1%

0,0% 2,1% 0,7x

0,6x 2,1% 0,7x

9,6 0,6x0,7x

8,69,6 0,6x 3,6x8,6

3,6x 2,9x3,6x

Mexico 2,9x 2,9x

1,21 43% -1%

-1% 3,0 0%

0% -42%1,21 -42%11,1x 11,1x 11,1x9,1x

9,1x 9,1x 70,2x

70,2x 26,0x 70,2x

26,0x 3,8% 26,0x 3,8% 1,3%

3,8% 1,3% 1,3x

1,2x 1,3% 1,3x

2,1 1,2x1,3x

2,02,1 1,2x 4,4x2,0

4,4x 3,4x4,4x

Colombia 3,4x 3,4x

0,33 136%-2%

-2% 0,4 2%

1,9% 0,4% 0,6x

0,6x 0,4% 0,6x

0,5 0,6x0,6x

0,50,5 0,6x 2,2x0,5

2,2x 3,0x2,2x

3,0x Peru 3,0x

0,7x 0,8x

0,7x0,8x

3,4x 2,9x3,4x

2,9x 2,9x Brazil 1,0x 1,0x

106% 4,62 106% 6,8 9,56,8

CEMARGOS CEMARGOS CB CEMARGOS CB Neutral NeutralCB COPCOP Neutral6980,00 6980,00COP 10.000,0 10.000,0 6980,00 43% 43% GRAM GRAM USUS GRAM BuyUS Buy

4,4 19.900,0 4,4 2,97

3,0 10.000,0 3,0 1,21

136% 3,13 136% 0,4 7,40,4

0,33

Median Median Median

-1,2% -1,2%-3,4%

2% 13%0,33 13%4,7x

4,7x 4,7x6,1x

6,1x 6,1x 22,8x

22,8x 8,1x 22,8x

8,1x 1,9% 8,1x 1,9% 0,4%

-3,4%-40,0% -40,0% 7,4x

7,4x 7,4x6,4x

6,4x 6,4x 11,8x

11,8x 9,4x 11,8x

9,4x 9,4x

0,8x

0,7x 3,4x

Telecom Telecom Telecom and andand media media media Valid Valid

VLID3 VLID3

VLID3 BuyBuy

BRL BRL Buy 18,1218,12 BRL26,0 26,0

18,12 43% 43%

0,3 26,0 0,3

2,28

2,28 43% -1%

-1% 0,3 10%

10% -15%2,28 -15%5,4x

5,4x 5,4x5,1x

5,1x 5,1x 12,9x

12,9x 9,0x 12,9x

9,0x 3,2% 9,0x 3,2% 6,4%

3,2% 6,4% 1,2x

1,2x 6,4% 1,2x

0,1 1,2x1,2x

0,10,1 1,2x 1,3x0,1

1,3x 1,0x1,3x

Totvs Totvs

TOTS3 TOTS3

TOTS3 Neutral Neutral

BRL BRL Neutral 28,0028,00 BRL30,0 30,0

28,00 7% 7%

1,2 30,0 1,2

5,04

5,04 7% -3%

-3% 1,2 8%

8% -20%5,04 -20%13,1x 13,1x 13,1x 11,8x

11,8x 11,8x 21,7x

21,7x 18,4x 21,7x

18,4x 1,1% 18,4x 1,1% 2,3%

1,1% 2,3% 3,3x

3,1x 2,3% 3,3x

0,0 3,1x3,3x

0,00,0 3,1x 0,4x0,0

0,4x 0,1x0,4x

Brazil 0,1x 0,1x

Time TimeFor For For Fun FunFun (T4F) (T4F)(T4F)

SHOW3 SHOW3

SHOW3 BuyBuy

BRL BRL Buy 7,00 7,00 BRL15,0 15,0

114% 7,00 114% 0,1 15,0 0,1

0,31

0,31 114%-1%

-1% 0,1 1%

1% -16%0,31 -16%2,8x

2,8x 2,8x2,0x

2,0x 2,0x 7,2x

7,2x 6,3x 7,2x

6,3x 0,0% 6,3x 0,0% 0,0%

0,0% 0,0% 1,3x

1,1x 0,0% 1,3x

(0,1) 1,1x1,3x

(0,1) (0,1) 1,1x -2,5x(0,1)

-2,5x -2,8x-2,5x

-2,8x Brazil -2,8x

TIM TIMPart Part Part

TIMP3 TIMP3

TIMP3 BuyBuy

BRL BRL Buy 12,0812,08 BRL16,0 16,0

12,08 32% 32%

14,79 14,79 32% 0%

0% 7,5 -1%

-1% -20%14,79-20%4,7x

4,7x 4,7x4,3x

4,3x 4,3x 16,8x

16,8x 12,6x 16,8x

12,6x 0,4% 12,6x 0,4% 3,6%

0,4% 3,6% 1,5x

1,4x 3,6% 1,5x

0,3 1,4x1,5x

0,00,3 1,4x 0,2x0,0

0,2x 0,0x0,2x

Brazil 0,0x 0,0x

Oi OiS.A. S.A. S.A.

OIBR3 OIBR3

OIBR3 BuyBuy

BRL BRL Buy 1,32 1,32 BRL3,9 3,9

195% 1,32 195% 0,2 3,90,2

6,04

6,04 195%-2%

-2% 0,2 -24%

-24%-59%6,04 -59%3,5x

3,5x 3,5x3,8x

3,8x 3,8x n.a.

n.a. n.a.n.a.

n.a. n.a. n.a. n.a. n.a.

n.a.0,1x n.a.

0,2x n.a. 0,1x

5,0 0,2x0,1x

4,55,0 0,2x 3,0x4,5

3,0x 2,6x3,0x

Brazil 2,6x 2,6x

Telefonica Telefonica Telefonica Brasil Brasil Brasil

VIVT4 VIVT4

VIVT4 BuyBuy

BRL BRL Buy 47,9047,90 BRL60,0 60,0

47,90 25% 25%

20,8 60,0 20,8 22,28 22,28 25% 1%

1% 20,8 4%

4% -9%22,28 -9%5,5x

5,5x 5,5x5,3x

5,3x 5,3x 16,1x

16,1x 15,3x 16,1x

15,3x 5,6% 15,3x 5,6% 6,1%

5,6% 6,1% 1,2x

1,2x 6,1% 1,2x

1,3 1,2x1,2x

1,21,3 1,2x 0,3x1,2

0,3x 0,3x0,3x

Brazil 0,3x 0,3x

AXTELCPO AXTELCPO MMAXTELCPO MM Neutral Neutral MM MXNMXN Neutral n/a n/a MXN4,0 4,0

n.a. n/a n.a.

n.a. 4,0n.a.

n.a. n.a.

n.a. n.a. n.a.

n.a. n.a.

n.a. n.a.n.a.

n.a. n.a. n.a.

n.a. n.a.n.a.

n.a. n.a. n.a. n.a. n.a.

n.a.n.a. n.a.

n.a. n.a. n.a.

0,3n.a.n.a.

n.a.0,3 n.a. 2,1xn.a.

2,1x n.a.2,1x

Mexico n.a. n.a.

31,14 16% 16%

1,3 36,0 1,3

10,07 10,07 16% -3%

-1,5x Brazil -1,5x

Axtel*** Axtel*** Axtel*** Linx Linx

-3% 1,3 22%

22% 25%10,07 25%29,9x 29,9x 29,9x 25,3x

25,3x 25,3x 42,0x

42,0x 43,4x 42,0x

43,4x 0,4% 43,4x 0,4% 0,8%

0,4% 0,8% 4,3x

4,1x 0,8% 4,3x

(0,1) 4,1x4,3x

(0,1) (0,1) 4,1x -1,4x(0,1)

-1,4x -1,5x-1,4x

SONDA SONDA CI CI SONDA Neutral Neutral CI

CLP CLP Neutral1074,00 1074,00CLP 1.341,01.341,0 1074,00 25% 25%

1,41.341,0 1,4 1,42

1,42 25% -2%

-2% 1,4 5%

5% -18%1,42 -18%8,3x

8,3x 8,3x7,4x

7,4x 7,4x 18,0x

18,0x 15,5x 18,0x

15,5x 2,6% 15,5x 2,6% 3,1%

2,6% 3,1% 1,7x

1,6x 3,1% 1,7x

0,1 1,6x1,7x

0,00,1 1,6x 0,4x0,0

0,4x 0,1x0,4x

Chile 0,1x 0,1x

America America America Movil Movil Movil

AMXL AMXL MMMM AMXL Neutral Neutral MM

MXNMXN Neutral 14,3714,37MXN 13,5 13,5

46,7 13,5 46,7 32,73 32,73 -6% 4%

4% 46,7 6%

6% -16%32,73-16%5,1x

5,1x 5,1x4,8x

4,8x 4,8x 16,8x

16,8x 14,1x 16,8x

14,1x 2,2% 14,1x 2,2% 2,4%

2,2% 2,4% 2,8x

2,6x 2,4% 2,8x

27,0 2,6x2,8x

25,4 27,0 2,6x 1,9x25,4

1,9x 1,8x1,9x

Mexico 1,8x 1,8x

CLP CLP Neutral5576,20 5576,20CLP 7.300,07.300,0 5576,20 31% 31%

2,57.300,0 2,5 2,10

2,10 31% 0%

0% 2,5 2%

2% -27%2,10 -27%6,6x

6,6x 6,6x5,6x

5,6x 5,6x 34,9x

34,9x 16,7x 34,9x

16,7x 0,6% 16,7x 0,6% 0,6%

0,6% 0,6% 1,2x

1,2x 0,6% 1,2x

2,4 1,2x1,2x

2,42,4 1,2x 3,3x2,4

3,3x 2,8x3,3x

Chile 2,8x 2,8x

MXNMXN Neutral 54,1154,11MXN 75,0 75,0

7,8 75,0 7,8

9,97 39% 3%

3% 7,8 -6%

-6% -28%9,97 -28%6,5x

6,5x 6,5x6,1x

6,1x 6,1x 25,3x

25,3x 27,4x 25,3x

27,4x 1,0% 27,4x 1,0% 0,6%

1,0% 0,6% 1,7x

1,6x 0,6% 1,7x

4,1 1,6x1,7x

3,74,1 1,6x 2,3x3,7

2,3x 2,0x2,3x

Mexico 2,0x 2,0x

-1,0% -1,0% 4,2%

4,2%-18,5% -18,5% 5,5x

5,5x 5,5x5,3x

5,3x 5,3x 17,4x

17,4x 15,4x 17,4x

15,4x 15,4x

1,4x 1,5x

1,4x1,5x

0,9x 0,3x0,9x

0,3x 0,3x

Televisa Televisa Televisa

LINX3 BuyBuy

ENTEL ENTEL CI CI ENTEL Neutral Neutral CI TLEVICPO TLEVICPO MMMM TLEVICPO Neutral Neutral MM

BRL BRL Buy 31,1431,14 BRL36,0 36,0

n.a. n.a.

SONDA SONDA SONDA Entel Entel

LINX3 LINX3

7,5 16,0 7,5

14,37 -6% -6% 54,11 39% 39%

9,97

Median Median Median

1,5x

1,4x 0,9x

Airlines Airlines Airlines && Mileage & Mileage Mileage Multiplus Multiplus Multiplus

MPLU3 MPLU3

MPLU3 No No Rating Rating

BRLNo BRLRating24,8624,86 BRLn/a n/a

24,86 n.a. n.a.

1,0 n/a1,0

2,54

2,54 n.a. -1%

-1% 1,0 -3%

-3% -35%2,54 -35%5,0x

5,0x 5,0x5,0x

5,0x 5,0x 11,1x

11,1x 11,2x 11,1x

11,2x 9,4% 11,2x 9,4% 8,9%

9,4% 18,6x 8,9%

18,6x 8,9% 18,6x

(0,5) 18,6x 18,6x

(0,5) (0,5) 18,6x-3,9x(0,5)

-3,9x -4,4x-3,9x

-4,4x Brazil -4,4x

Smiles Smiles Smiles

SMLS3 SMLS3

SMLS3 Neutral Neutral

BRL BRL Neutral 43,5543,55 BRL50,0 50,0

43,55 15% 15%

1,4 50,0 1,4

13,79 13,79 15% -2%

-2% 1,4 15%

15% -49%13,79-49%5,9x

5,9x 5,9x4,5x

4,5x 4,5x 9,2x

9,2x 8,2x 9,2x

8,2x 2,7% 8,2x 2,7% 3,1%

2,7% 3,1% 5,3x

3,6x 3,1% 5,3x

(0,5) 3,6x5,3x

(0,6) (0,5) 3,6x -2,5x(0,6)

-2,5x -2,7x-2,5x

-2,7x Brazil -2,7x

LATAM** LATAM** LATAM**

LTMLTM USUS

LTMBuyUS Buy

USDUSD Buy 10,4310,43 USD 14,0 14,0

10,43 34% 34%

6,4 14,0 6,4

5,07

5,07 34% 1%

1% 6,4 13%

13% -25%5,07 -25%7,0x

7,0x 7,0x5,9x

5,9x 5,9x 30,7x

30,7x 14,2x 30,7x

14,2x 2,1% 14,2x 2,1% 2,1%

2,1% 2,1% 1,7x

1,6x 2,1% 1,7x

9,6 1,6x1,7x

9,49,6 1,6x 4,2x9,4

4,2x 3,7x4,2x

Chile 3,7x 3,7x

GOL** GOL** GOL**

GOLL4 GOLL4

GOLL4 BuyBuy

BRL BRL Buy 22,0022,00 BRL24,0 24,0

22,00 9% 9%

2,0 24,0 2,0

31,38 31,38 9% 4%

4% 2,0 6%

6% 28%31,38 28%9,1x

9,1x 9,1x6,4x

6,4x 6,4x n.a.

n.a. 15,5x n.a.

15,5x 0,0% 15,5x 0,0% 0,0%

0,0% -1,5x 0,0%

-1,7x 0,0% -1,5x

3,6 -1,7x -1,5x

3,53,6 -1,7x 5,2x3,5

5,2x 4,2x5,2x

Brazil 4,2x 4,2x

Copa** Copa** Copa**

CPA CPA USUS

CPABuyUS Buy

USDUSD Buy 77,4077,40 USD 125,0 125,0

77,40 61% 61%

3,3125,0 3,3

43,40 43,40 61% -3%

-3% 3,3 -4%

-4% -41%43,40-41%6,5x

6,5x 6,5x5,6x

5,6x 5,6x 8,8x

8,8x 8,2x 8,8x

8,2x 4,5% 8,2x 4,5% 4,9%

4,5% 4,9% 1,4x

1,3x 4,9% 1,4x

1,1 1,3x1,4x

0,91,1 1,3x 1,5x0,9

1,5x 1,2x1,5x

1,2x Peru 1,2x

Avianca Avianca Avianca Holdings Holdings Holdings

AVHAVH USUS

AVHBuyUS Buy

USDUSD Buy 4,47 4,47 USD 10,0 10,0

124% 4,47 124% 0,6 10,0 0,6

0,42

-7% 0,6 -15%

-15%-41%0,42 -41%7,5x

7,5x 7,5x7,8x

7,8x 7,8x n.a.

n.a. 5,7xn.a.

5,7x 1,0% 5,7x 1,0% 2,6%

1,0% 2,6% 0,5x

0,4x 2,6% 0,5x

4,0 0,4x0,5x

4,34,0 0,4x 4,6x4,3

4,6x 4,8x4,6x

Colombia 4,8x 4,8x

-1,3% -1,3% 1,5%

1,5%-37,9% -37,9% 6,7x

6,7x 6,7x5,8x

5,8x 5,8x 10,1x

10,1x 9,7x 10,1x

9,7x 9,7x

1,4x 1,5x

1,4x1,5x

2,8x 2,4x2,8x

2,4x 2,4x

Median Median Median

0,42 124%-7%

1,5x

1,4x 2,8x

Capital Capital CapitalGoods Goods Goods Randon Randon Randon

RAPT4 RAPT4

RAPT4 Neutral Neutral

BRL BRL Neutral 9,17 9,17 BRL9,0 9,0

9,17 -2% -2%

0,8 9,00,8

5,01

5,01 -2% -2%

-2% 0,8 4%

4% 10%5,01 10%10,9x 10,9x 10,9x9,3x

9,3x 9,3x 19,9x

19,9x 13,4x 19,9x

13,4x 1,1% 13,4x 1,1% 3,4%

1,1% 3,4% 2,1x

1,9x 3,4% 2,1x

0,3 1,9x2,1x

0,20,3 1,9x 2,3x0,2

2,3x 1,9x2,3x

Brazil 1,9x 1,9x

Marcopolo Marcopolo Marcopolo

POMO4 POMO4

POMO4 BuyBuy

BRL BRL Buy 4,13 4,13 BRL5,5 5,5

33% 4,13 33%

1,0 5,51,0

2,83

2,83 33% -2%

-2% 1,0 -1%

-1% -11%2,83 -11%18,5x 18,5x 18,5x 13,2x

13,2x 13,2x 25,8x

25,8x 14,0x 25,8x

14,0x 1,1% 14,0x 1,1% 3,6%

1,1% 3,6% 1,8x

1,7x 3,6% 1,8x

0,1 1,7x1,8x

0,10,1 1,7x 2,0x0,1

2,0x 1,1x2,0x

Brazil 1,1x 1,1x

Iochpe-Maxion Iochpe-Maxion Iochpe-Maxion

MYPK3 MYPK3

MYPK3 BuyBuy

BRL BRL Buy 22,8722,87 BRL33,0 33,0

22,87 44% 44%

0,9 33,0 0,9

5,28

5,28 44% -4%

-4% 0,9 0%

0% -11%5,28 -11%5,0x

5,0x 5,0x4,1x

4,1x 4,1x 19,8x

19,8x 8,7x 19,8x

8,7x 2,0% 8,7x 2,0% 2,0%

2,0% 2,0% 1,3x

1,1x 2,0% 1,3x

0,5 1,1x1,3x

0,40,5 1,1x 1,7x0,4

1,7x 1,3x1,7x

Brazil 1,3x 1,3x

Embraer Embraer Embraer

ERJERJ USUS

ERJBuyUS Buy

USDUSD Buy 21,3321,33 USD 26,0 26,0

21,33 22% 22%

3,9 26,0 3,9

21,24 21,24 22% -2%

-2% 3,9 -1%

-1% -11%21,24-11%6,2x

6,2x 6,2x5,1x

5,1x 5,1x 19,1x

19,1x 12,1x 19,1x

12,1x 2,2% 12,1x 2,2% 3,5%

2,2% 3,5% 0,9x

0,9x 3,5% 0,9x

1,3 0,9x0,9x

1,21,3 0,9x 1,9x1,2

1,9x 1,4x1,9x

Brazil 1,4x 1,4x

TUPY TUPY

TUPY3 TUPY3

TUPY3 BuyBuy

BRL BRL Buy 21,8021,80 BRL25,0 25,0

21,80 15% 15%

0,8 25,0 0,8

3,10

3,10 15% -1%

-1% 0,8 5%

5% 8%3,10 8% 5,9x

5,9x 5,9x5,3x

5,3x 5,3x 10,8x

10,8x 8,9x 10,8x

8,9x 6,2% 8,9x 10,2% 6,2%

6,2% 10,2% 1,7x

10,2% 1,8x 1,7x

0,2 1,8x1,7x

0,30,2 1,8x 1,4x0,3

1,4x 1,4x1,4x

Brazil 1,4x 1,4x

WEG WEG

WEGE3 WEGE3

WEGE3 Neutral Neutral

BRL BRL Neutral 17,3717,37 BRL21,0 21,0

17,37 21% 21%

9,4 21,0 9,4

15,54 15,54 21% -1%

-1% 9,4 -8%

-8% -19%15,54-19%20,4x 20,4x 20,4x 17,6x

17,6x 17,6x 27,7x

27,7x 24,5x 27,7x

24,5x 1,8% 24,5x 1,8% 2,0%

1,8% 2,0% 5,0x

4,5x 2,0% 5,0x

(0,1) 4,5x5,0x

(0,1) (0,1) 4,5x -0,2x(0,1)

-0,2x -0,1x-0,2x

-0,1x Brazil -0,1x

0,2%-11,3% -11,3% 6,2x

5,3x 5,3x 19,8x

19,8x 12,1x 19,8x

12,1x 12,1x

1,7x 1,7x

1,7x1,7x

1,9x 1,4x1,9x

1,4x 1,4x

Median Median Median

-1,9% -1,9% 0,2%

Source: BTG Pactual estimates

6,2x 6,2x5,3x

1,7x

1,7x 1,9x

201

Valuation Summary Com pany

Ticker

Rating

Share

Share

Currency

Price

Target

Upside

Mkt Cap

ADTV

(USD bn)

(USD m n)

EV/EBITDA 2018E

P/E

Div. Yield

P/BV

Net Debt/EBITDA

2019E

2018E

2019E

2018E

2019E

2018E

2019E

2018E

2019E

Car Rental & Logistics Tegm a

TGMA3

Buy

BRL

24.80 25,92

29.0 29,0

17% 12%

0.4 0,4

2.19 2,33

8.9x 9,2x

7.8x 8,1x

14.8x 15,4x

12.8x 13,4x

4.7% 4,5%

5.4% 5,1%

3.3x 3,5x

3.1x 3,2x

0.2x 0,2x

0.5x 0,5x

Localiza

RENT3

Buy

BRL

27.83 27,95

30.0 35,0

25% 8%

4.9 4,8

33.31 36,52

14.6x 14,9x

12.5x 12,7x

26.1x 28,7x

19.9x 21,8x

0.7% 0,9%

1.1% 1,0%

5.8x 6,0x

4.8x 5,0x

2.6x 3,0x

2.6x 3,2x

Unidas

LCAM3

Buy

BRL

29.25 33,40

38.0 38,0

30% 14%

0.9 1,0

1.06 1,43

7.1x 7,6x

6.2x 6,6x

17.6x 20,1x

10.6x 12,1x

1.4% 1,2%

1.4% 1,2%

2.1x 2,3x

1.8x 2,0x

3.4x 3,4x

3.3x 3,3x

Movida

MOVI3

Buy

BRL

8.03 7,62

8.0 8,0

0% 5%

0.6 0,5

1.36 1,75

7.6x 7,3x

6.8x 6,6x

20.9x 19,8x

14.7x 13,9x

1.2% 1,3%

1.7% 1,8%

1.6x 1,5x

1.5x 1,4x

n.a.

n.a.

11.7x 12,1x

10.2x 10,4x

20.4x 22,0x

16.4x 17,6x

4.6x 4,8x

3.9x 4,1x

1.4x 1,6x

1.5x 1,8x n.a.

Median Infrastructure RUMO

RAIL3

Buy

BRL

17.74 16,40

21.0 21,0

18% 28%

7.3 6,6

28.87 34,51

11.2x 10,6x

9.4x 8,8x

n.a.

36.4x 33,7x

0.0% 0,0%

0.0% 0,0%

3.4x 3,1x

3.2x 2,9x

n.a.

Mills

MILS3

Neutral

BRL

3.25 3,74

7.0 7,0

115% 87%

0.2 0,2

0.71 0,86

3.6x 4,1x

2.8x 3,2x

26.5x 30,5x

10,5x 9.1x

-2.3% -2,0%

2.3% 2,0%

0.5x 0,6x

0.5x 0,6x

n.a.

n.a.

Ferreycorp

FERREYC1 PE

Buy

PEN

2.38 2,30

3.1 3,1

30% 35%

0.7 0,7

0.52 0,55

5.8x 6,7x

5.2x 5,1x

8.2x 8,9x

7.2x 6,9x

5.6% 5,8%

4.9% 4,5%

1.0x 1,0x

1.0x 0,9x

1.9x 2,8x

1.6x 1,6x

EcoRodovias

ECOR3

Buy

BRL

9.14 9,52

12.0 12,0

31% 26%

1.3 1,4

6.87 7,44

4.8x 4,9x

4.4x 4,5x

9.1x 9,5x

7.1x 7,4x

6.6% 6,3%

14.2% 13,6%

5.0x 5,2x

5.0x 5,2x

2.2x 2,2x

2.0x 2,0x

CCR

CCRO3

Buy

BRL

11.22 12,22

21.0 21,0

87% 72%

6.0 6,3

21.63 25,72

5.4x 5,8x

4.5x 4,8x

10,7x 9.8x

8.0x 8,7x

7.1% 6,5%

10.0% 9,2%

2.3x 2,5x

2.2x 2,4x

1.6x 1,6x

1.3x 1,3x

5.4x 5,8x

4.5x 4,8x

10,1x 9.5x

8.0x 8,7x

2.3x 2,5x

2.2x 2,4x

1.9x 2,2x

1.6x 1,6x

16.4x 17,9x

10,8x 9.9x

n.a.

29.2x 31,8x

-0.1% -0,1%

0.9% 0,8%

1.9x 2,1x

1.8x 2,0x

0.3x 0,3x

0.2x 0,2x

6.4x 5,7x

5.9x 5,3x

12.8x 11,2x

10.8x 9,5x

3.9% 4,5%

4.6% 5,3%

1.5x 1,3x

1.4x 1,2x

-1.3x -1,3x

-1.2x -1,2x

4.6x 4,5x

4.3x 4,3x

16.1x 15,9x

15.0x 14,8x

3.1% 3,1%

3.3% 3,4%

0.8x 0,8x

0.8x 0,8x

-1.1x -1,1x

-0.9x -0,9x

5.4x 5,8x

4.5x 4,8x

11.3x 11,0x

10.8x 9,5x

1.9x 2,1x

1.8x 2,0x

0.3x 0,3x

0.2x 0,2x

3.5x 3,5x

2.7x 2,6x

7.0x 7,0x

5.8x 5,7x

5.3% 5,3%

7.8% 7,9%

1.2x 1,2x

1.1x 1,1x

-1.5x -1,5x

-1.5x -1,5x

Median Ports Santos Brasil Wilson Sons

STBP3

Buy

BRL

3.88 4,22

4.6 4,6

19% 9%

0.7 0,7

1.00 1,18

WSON33

Buy

BRL

44.99 40,25

47.0 47,0

17% 4%

0.8 0,7

SMSAAM CI

Neutral

CLP

57.60 58,00

67.0 67,0

16%

0.8 0,8

0.35 0,34

SER

SEER3

Buy

BRL

16.15 16,07

36.5 36,5

126% 127%

0.5 0,5

2.98 3,13

Qualicorp

QUAL3

Neutral

BRL

13.90 13,95

17.0 17,0

22%

1.0 1,0

13.78 13,75

3.0x 3,0x

2.7x 2,7x

5.9x 5,9x

5.4x 5,4x

15.1% 15,0%

16.8% 16,7%

1.7x 1,7x

1.7x 1,7x

-1.2x -1,2x

-1.2x -1,2x

OdontoPrev

ODPV3

Neutral

BRL

14.64 13,58

15.0 15,0

10% 2%

2.0 1,9

5.22 8,13

17.7x 16,3x

15.4x 14,2x

28.0x 25,9x

22.3x 20,7x

3.4% 3,7%

4.6% 5,0%

7.4x 6,9x

8.0x 7,4x

-1.1x -1,1x

-0.8x -0,8x

Hapvida

HAPV3

Buy

BRL

27.00 29,63

32.0 32,0

19% 8%

4.8 5,1

7.87 8,68

18.5x 20,3x

16.1x 17,7x

22.6x 24,8x

19.6x 21,5x

1.2% 1,1%

1.2% 1,1%

5.0x 5,5x

4.2x 4,6x

0.0x 0,0x

0.0x 0,0x -1.0x -1,0x

SAAM Median Healthcare and Education

Kroton

KROT3

Neutral

BRL

10.86 9,54

17.5 17,5

61% 83%

4.6 4,0

22.73 26,86

6.9x 5,9x

6.6x 5,7x

9.4x 8,3x

9.2x 8,0x

n.a.

n.a.

1.1x 0,9x

1.0x 0,9x

-0.9x -0,9x

LABB MM

Neutral

MXN

11.71 11,62

23.4 23,4

100% 101%

0.6 0,6

2.47 2,34

5.7x 5,7x

5.2x 5,2x

7.4x 7,3x

7.1x 7,0x

0.0% 0,0%

0.0% 0,0%

1.5x 1,5x

1.3x 1,3x

1.4x 1,4x

Fleury

FLRY3

Buy

BRL

20.23 20,03

29.0 29,0

43% 45%

1.7 1,6

10.60 10,43

9.9x 9,8x

9.0x 8,9x

17.4x 17,2x

16.6x 16,4x

n.a.

n.a.

3.7x 3,7x

3.7x 3,7x

0.8x 0,8x

0.8x 0,8x

Estácio

ESTC3

Buy

BRL

23.36 24,32

41.0 41,0

76% 69%

1.9 1,9

21.04 22,22

6.1x 6,4x

5.1x 5,4x

8.6x 9,0x

7.3x 7,6x

2.1% 2,1%

2.9% 2,8%

2.1x 2,2x

1.7x 1,8x

-0.5x -0,5x

-1.0x -1,0x

Ânim a Educação

ANIM3

Neutral

BRL

17.50 16,85

29.0 29,0

66% 72%

0.4 0,4

1.20 1,21

6.6x 6,4x

5.5x 5,3x

10.0x 9,6x

8.3x 8,0x

6.9% 7,2%

8.0% 8,3%

1.9x 1,8x

1.8x 1,7x

0.5x 0,5x

Alliar

AALR3

Buy

BRL

11.93 13,00

19.5 19,5

63% 50%

0.4 0,4

0.72 0,78

6.8x 7,3x

5.9x 6,3x

15.3x 16,7x

11.9x 13,0x

n.a.

n.a.

1.0x 1,1x

1.0x 1,1x

1.9x 1,9x

1.6x 1,6x

Grupo Biotoscana

GBIO33

Buy

BRL

9.06 8,33

33.0 33,0

264% 296%

0.3 0,2

0.57 0,58

3.7x 3,4x

2.8x 2,5x

6.2x 5,7x

4.9x 4,5x

n.a.

n.a.

1.2x 1,1x

1.0x 1,0x

-0.1x -0,1x

-0.4x -0,4x

6.6x 6,4x

5.5x 5,4x

9.4x 9,0x

8.3x 8,0x

1.9x 1,8x

1.7x 1,7x

-0.5x -0,5x

-0.8x -0,8x -0.1x -0,1x

Genom m a Lab

Median

1.3x 1,3x

0.4x 0,4x

Retail Walm ex

WALMEX* MM

Neutral

MXN

50.77 50,00

49.0 49,0

-3% -2%

43.7 43,1

37.29 41,91

14.3x 14,1x

13.4x 13,2x

25.9x 25,5x

24.0x 23,7x

3.2% 3,2%

2.6% 2,7%

5.3x 5,3x

4.9x 4,9x

-0.2x -0,2x

VVAR11

Neutral

BRL

14.75 14,58

25.0 25,0

69% 71%

1.7 1,6

17.95 19,35

6.6x 6,5x

5.1x 5,1x

97.7x 96,6x

21.6x 21,3x

0.0% 0,0%

0.0% 0,0%

2.2x 2,2x

2.0x 2,0x

1.4x 1,4x

Technos

TECN3

Neutral

BRL

2.21 2,30

6.0 6,0

171% 161%

0.0 0,0

0.05 0,06

6.8x 7,0x

6.0x 6,1x

9.3x 9,6x

9.5x 9,9x

0.0% 0,0%

0.0% 0,0%

0.4x 0,4x

0.3x 0,4x

3.1x 3,1x

2.7x 2,7x

Soriana

SORIANAB MM

Neutral

MXN

n/a

46.0 46,0

n.a.

n.a.

0.15 0,15

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

-0.7x -0,7x

-0.8x -0,8x

RADL3

Buy

BRL

63.20 63,14

80.0 80,0

27%

5.5 5,4

23.20 24,26

17.0x 17,0x

14.1x 14,1x

36.4x 36,3x

28.2x 28,2x

1.1% 1,1%

1.2% 1,2%

6.0x 6,0x

5.3x 5,3x

0.4x 0,4x

0.3x 0,3x

NATU3

Neutral

BRL

38.37 43,99

29.0 29,0

-24% -34%

4.3 4,9

16.68 19,67

10.8x 12,2x

10,2x 9.0x

23.1x 26,4x

16.9x 19,4x

3.0% 2,6%

4.1% 3,6%

11.5x 13,2x

10,9x 9.5x

1.3x 1,3x

1.0x 1,0x

MELI US

Buy

USD

319.00 333,51

390.0 390,0

22% 17%

14.1 14,7

256.19 233,14

n.a.

n.a.

n.a.

n.a.

0.0% 0,0%

0.0% 0,0%

100,3x 95.9x

111.4x 116,5x

-4.4x -4,4x

Via Varejo

Raia Drogasil Natura MercadoLibre

1.3x 1,3x

2.6x 2,6x

Marisa

AMAR3

Sell

BRL

5.89 5,43

8.0 8,0

36% 47%

0.3 0,3

1.21 1,36

7.3x 6,9x

5.4x 5,1x

n.a.

23.8x 21,9x

0.0% 0,0%

0.0% 0,0%

1.3x 1,2x

1.2x 1,1x

2.1x 2,1x

1.4x 1,4x

Magazine Luiza

MGLU3

Buy

BRL

160.00 167,50

151.0 151,0

-10% -6%

8.0 8,2

57.11 58,67

22.9x 24,0x

19.4x 20,3x

49.8x 52,1x

42.3x 44,3x

0.7% 0,7%

0.9% 0,8%

12.8x 13,4x

10.7x 11,2x

-0.8x -0,8x

-1.0x -1,0x

Lojas Renner

LREN3

Buy

BRL

38.80 39,66

35.0 35,0

-10% -12%

7.3 7,3

34.53 38,70

17.1x 17,5x

13.7x 14,0x

30.3x 31,0x

23.7x 24,2x

1.0% 1,0%

1.6% 1,6%

7.2x 7,4x

6.1x 6,2x

0.4x 0,4x

0.2x 0,2x 1.3x 1,3x

Lojas Am ericanas Liverpool Le Lis Blanc SMU InRetail

LAME4

Buy

BRL

18.13 19,95

23.0 23,0

27% 15%

7.6 8,2

20.80 22,62

10.8x 11,8x

8.1x 8,8x

40.7x 44,8x

23.0x 25,3x

0.4% 0,4%

1.2% 1,1%

5.5x 6,1x

4.7x 5,2x

1.8x 1,8x

LIVEPOLC MM

Neutral

MXN

127.36 124,98

155.0 155,0

22% 24%

n.a.

3.53 3,64

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

LLIS3

Buy

BRL

27.18 27,26

44.0 44,0

62% 61%

0.4 0,4

0.03 0,04

5.0x 5,0x

4.1x 4,1x

10.7x 10,7x

9.7x 9,7x

1.1% 1,1%

3.5% 3,5%

0.6x 0,6x

0.6x 0,6x

1.2x 1,2x

0.7x 0,7x

SMU CI

Buy

CLP

186.90 189,90

209.0 230,0

12% 21%

1.5 1,5

0.68 0,62

11.1x 10,9x

9.7x 9,9x

41.1x 29,5x

23.3x 22,8x

0.0% 0,0%

0.0% 0,0%

1.6x 1,5x

1.5x 1,5x

3.7x 3,8x

3.0x 3,2x

0.77 0,79

12.3x 12,2x

INRETC1 PE

Buy

USD

28.32 28,90

26.0 35,0

21% -8%

2.9 3,0

11.3x 10,3x

28.8x 41,8x

22.6x 19,2x

-0.7% 0,0%

-0.9% -0,8%

2.2x 2,3x

2.1x 2,1x

3.9x 3,9x

3.6x 3,3x

IMC

MEAL3

Buy

BRL

7.27 6,89

13.0 13,0

79% 89%

0.3 0,3

1.91 1,90

6.5x 6,1x

4.9x 4,6x

17.2x 16,3x

11.6x 11,0x

1.5% 1,5%

2.2% 2,3%

1.1x 1,0x

1.0x 1,0x

-1.0x -1,0x

-1.3x -1,3x

Hyperm arcas

HYPE3

Buy

BRL

30.56 31,53

29.0 29,0

-5% -8%

5.1 5,1

12.72 14,84

12.3x 12,8x

10.5x 10,9x

18.0x 18,5x

15.5x 16,0x

1.8% 1,7%

2.0% 2,0%

1.7x 1,8x

1.6x 1,7x

-1.1x -1,1x

-1.4x -1,4x

HGTX3

7.91 9,53

14.0x 15,0x

12.5x 13,4x

15.5x 16,6x

14.1x 15,1x

5.8% 5,4%

6.4% 6,0%

3.3x 3,5x

3.2x 3,4x

-0.5x -0,5x

-0.4x -0,4x

Hering Grupo Sanborns Grupo Pão de Açúcar Forus Falabella

Neutral

BRL

25.31 27,15

26.0 26,0

-4% 3%

1.1 1,1

GSANBOB1 MM

Sell

MXN

n/a

22.0 22,0

n.a.

n.a.

0.04 0,04

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

PCAR4

Buy

BRL

81.39 82,50

80.0 80,0

-2% -3%

5.7 5,6

31.63 34,73

8.2x 8,3x

7.2x 7,3x

29.3x 29,7x

23.7x 24,0x

0.9% 0,8%

2.1% 2,1%

2.0x 2,0x

1.9x 2,0x

-0.1x -0,1x

-0.3x -0,3x

FORUS CI

Neutral

CLP

1880.20 1880,00

2,300.0 2.300,0

22%

0.7 0,7

0.87 0,78

12.0x 12,0x

10.8x 10,8x

18.2x 18,2x

16.0x 16,0x

2.1% 2,1%

2.3% 2,3%

2.2x 2,2x

2.0x 2,0x

0.1x 0,1x

0.1x 0,1x

CLP

5221.70 5060,70

5,300.0 5.300,0

1% 5%

19.0 18,1

23.00 24,35

13.9x 13,6x

12.8x 12,5x

25.6x 24,9x

21.5x 20,8x

1.0% 1,0%

1.2% 1,2%

2.8x 2,7x

2.6x 2,5x

CVCB3

Buy

BRL

57.76 61,65

60.0 60,0

-3% 4%

2.2 2,3

15.28 16,93

13.4x 14,3x

10.5x 11,1x

28.9x 30,9x

20.1x 21,4x

0.8% 0,8%

1.7% 1,6%

8.2x 8,7x

6.5x 6,9x

0.9x 0,9x

0.5x 0,5x

Chedraui

CHDRAUIB MM

No Rating

MXN

39.01 37,39

n/a

n.a.

1.9 1,8

0.82 0,70

2.6x 2,5x

1.9x 1,8x

6.0x 5,7x

5.1x 4,9x

0.0% 0,0%

0.0% 0,0%

0.8x 0,8x

0.7x 0,7x

-0.9x -0,9x

-1.1x -1,1x

Cencosud

CENCOSUD CI

Neutral

CLP

1338.20 1231,00

1,850.0 1.850,0

38% 50%

5.7 5,1

6.44 6,26

8.1x 7,8x

7.8x 7,4x

16.3x 15,0x

14.9x 13,7x

3.0% 3,2%

3.0% 3,2%

0.9x 0,9x

0.9x 0,8x

3.4x 3,4x

3.2x 3,2x

B2W Digital

BTOW3

Buy

BRL

36.08 37,15

34.0 34,0

-6% -8%

4.3 4,3

23.77 30,12

40.0x 41,1x

25.1x 25,8x

n.a.

n.a.

0.0% 0,0%

0.0% 0,0%

4.5x 4,6x

4.6x 4,7x

4.1x 4,1x

2.2x 2,2x

Arezzo

ARZZ3

Buy

BRL

49.59 52,89

58.0 58,0

17% 10%

1.2 1,2

3.67 4,24

18.6x 19,9x

15.3x 16,4x

26.6x 28,4x

21.8x 23,2x

1.6% 1,5%

2.3% 2,1%

5.8x 6,2x

5.1x 5,4x

-1.0x -1,0x

-1.1x -1,1x

Burger King Brasil

BKBR3

Buy

BRL

17.97 18,35

21.0 21,0

17% 14%

1.0 1,0

3.89 4,61

11.1x 11,4x

8.5x 8,7x

38.2x 39,0x

21.7x 22,2x

0.5% 0,5%

1.2% 1,1%

2.4x 2,4x

2.2x 2,3x

-0.7x -0,7x

-0.6x -0,6x

VULC3

Buy

BRL

6.60 6,61

14.0 14,0

112%

0.4 0,4

0.78 0,84

EXITO CB

Buy

COP

13760.00 12200,00

17,000.0 17.000,0

24% 39%

1.9 1,7

1.13 1,56

CVC

Vulcabras Alm acenes Exito

FALAB CI

Neutral

Median

Source: BTG Pactual estimates

4.8x 4,8x

2.7x 2,7x

2.6x 2,6x

4.1x 4,1x

7.4x 7,4x

6.0x 6,0x

0.0% 0,0%

4.2% 4,2%

1.6x 1,6x

1.3x 1,3x

-0.5x -0,5x

-0.6x -0,6x

7.0x 6,8x

7.2x 7,0x

19.2x 17,1x

15.2x 13,4x

1.8% 2,0%

2.6% 2,9%

1.2x 1,1x

1.5x 1,3x

1.4x 1,4x

1.3x 1,3x

11.1x 11,9x

10,0x 9.4x

25.8x 26,0x

21.5x 20,8x

2.2x 2,3x

2.1x 2,1x

0.4x 0,4x

0.4x 0,4x

202

Valuation Summary

Company

Ticker

Rating

Share

Share

Currency

Price

Target

Upside

Mkt Cap

ADTV

(USD bn)

(USD mn)

2018E

EV/EBITDA 2019E

2018E

P/E 2019E

2018E

Div. Yield 2019E

2018E

P/BV 2019E

2018E

Net Debt/EBITDA 2019E

Food and Beverage Vina Concha y Toro

CONCHA CI

Buy

CLP

1331.30 1372,90

1,500.0 1.500,0

13% 9%

1.5 1,5

1.60 1,70

13.8x 14,1x

10.7x 10,9x

21.6x 22,3x

15.4x 15,9x

1.9% 1,8%

2.6% 2,5%

1.8x 1,9x

1.8x 1,8x

2.8x 2,8x

2.1x 2,1x

Arca Continental

AC* MM

Buy

MXN

105.24 104,84

145.0 145,0

38%

9.1 9,0

6.37 6,73

8.5x 8,9x

7.8x 7,6x

14.5x 20,7x

13.1x 16,0x

2.6% 2,1%

3.3% 2,3%

2.0x 1,7x

1.8x 1,6x

0.9x 1,3x

0.7x 1,0x

Minerva

BEEF3

Buy

BRL

5.71 5,14

14.0 14,0

145% 172%

0.3 0,3

3.23 3,01

5.0x 5,0x

4.7x 4,7x

4.2x 3,8x

4.6x 4,1x

0.8% 0,9%

3.7% 4,1%

13.8x 12,4x

12.8x 11,5x

4.1x 4,1x

3.9x 3,9x

Marfrig

MRFG3

Buy

BRL

6.38 5,81

8.5 8,5

33% 46%

1.0 0,9

5.93 5,29

5.9x 5,8x

2.9x 3,1x

n.a.

6.4x 8,1x

-2.4% -4,1%

3.8% 2,4%

3.8x 7,0x

2.4x 4,2x

3.8x 4,0x

1.8x 2,1x

M. Dias Branco

MDIA3

Neutral

BRL

43.00 43,30

45.0 45,0

5% 4%

3.8 3,8

5.54 6,11

15.3x 15,4x

11.1x 11,2x

25.2x 25,5x

19.3x 19,5x

1.1% 1,1%

1.3% 1,3%

2.5x 2,6x

2.4x 2,5x

0.7x 0,7x

0.6x 0,6x

JBS

JBSS3

Neutral Buy

BRL

11.15 12,00

10.0 15,0

-10% 25%

8.0 8,2

25.26 27,39

5.6x 5,4x

5.8x 5,0x

8.6x 6,6x

9.2x 5,9x

2.9% 3,8%

2.7% 4,2%

1.0x 1,1x

1.0x 1,1x

3.0x 3,2x

3.1x 3,0x

HERDEZ* MM

Buy

MXN

39.65 41,33

46.0 46,0

16% 11%

0.8 0,9

0.72 0,74

4.9x 5,1x

8.6x 8,9x

14.3x 14,9x

11.9x 12,4x

4.6% 4,4%

2.5% 2,4%

2.0x 2,1x

1.1x 1,1x

2.5x 2,5x

-2.6x -2,6x

Grupo Bimbo

BIMBOA MM

Buy

MXN

38.12 38,45

55.0 55,0

44% 43%

8.8 8,9

5.46 5,70

7.7x 7,7x

n.a.

18.8x 18,9x

16.3x 16,4x

5.3% 5,3%

6.1% 6,1%

2.4x 2,5x

2.2x 2,2x

2.2x 2,2x

n.a.

Gruma

GRUMAB MM

Buy

MXN

229.37 217,90

305.0 305,0

33% 40%

4.9 4,7

8.57 8,94

9.6x 9,2x

9.1x 8,7x

17.6x 16,7x

16.5x 15,7x

2.2% 2,4%

2.6% 2,8%

3.6x 3,4x

3.2x 3,0x

1.5x 1,5x

1.3x 1,3x

FEMSA

FMX US

No Rating

USD

86.80 84,61

n/a

n.a.

n.a.

38.61 44,22

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

Coca-Cola FEMSA

KOF US

Neutral

USD

60.58 60,63

90.0 90,0

49% 48%

126.4 126,5

6.79 6,72

63.3x 63,3x

60.4x 60,3x

n.a.

n.a.

-0.3% -0,3%

-0.3% -0,3%

19.9x 19,9x

18.7x 18,7x

1.4x 1,4x

1.2x 1,2x

CCU

CCU CI

Sell

CLP

8800.00 8762,40

9,000.0 9.000,0

2% 3%

4.9 4,7

5.42 4,81

5.8x 5,8x

8.7x 8,7x

10.9x 10,8x

18.4x 18,3x

4.6% 4,6%

2.7% 2,7%

2.6x 2,6x

2.4x 2,4x

-0.1x -0,1x

-0.1x -0,1x

BRF

BRFS3

Neutral

BRL

22.50 22,68

21.0 25,0

10% -7%

4.8 4,7

27.37 32,06

17,1x 9.9x

8.0x 7,6x

n.a.

52,4x n.a.

-2.2% -2,8%

0.2% 0,5%

1.9x 2,0x

1.9x 2,0x

3.6x 6,5x

2.9x 2,9x

Andina

ANDINAB CI

Neutral

CLP

2357.20 2552,10

3,400.0 3.400,0

44% 33%

3.3 3,5

2.48 3,09

8.1x 8,7x

7.2x 7,7x

17.3x 18,7x

14.8x 16,0x

3.5% 3,2%

4.0% 3,7%

2.8x 3,0x

2.8x 3,0x

1.6x 1,6x

1.4x 1,4x

Ambev

ABEV3

Neutral

BRL

16.50 16,32

17.0 17,0

3% 4%

68.2 65,9

79.58 84,39

11.6x 11,4x

10.7x 10,6x

20.1x 19,9x

17.4x 17,2x

4.5% 4,5%

6.1% 6,2%

4.8x 4,7x

4.9x 4,8x

-0.3x -0,3x

-0.3x -0,3x

Nutresa

NUTRESA CB

Neutral

COP

23400.00 23500,00

29,000.0 29.000,0

24% 23%

3.4 3,4

0.75 0,70

11.7x 11,7x

10.2x 10,2x

21.2x 21,3x

18.1x 18,2x

2.4% 2,4%

2.5% 2,5%

1.2x 1,2x

1.1x 1,1x

2.2x 2,2x

1.7x 1,7x

Alicorp

ALICORC1 PE

Buy

PEN

n/a

13.0 13,0

n.a.

n.a.

1.14 1,15

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

2.1x 2,1x

1.6x 1,6x

Andina

ANDINAB CI

Neutral

CLP

2357.20 2552,10

3,400.0 3.400,0

44% 33%

3.3 3,5

2.48 3,09

8.1x 8,7x

7.2x 7,7x

17.3x 18,7x

14.8x 16,0x

3.5% 3,2%

4.0% 3,7%

2.8x 3,0x

2.8x 3,0x

1.6x 1,6x

1.4x 1,4x

Alsea

ALSEA* MM

Buy

MXN

48.96 51,21

70.0 70,0

43% 37%

2.0 2,1

7.47 8,05

9.1x 9,4x

8.2x 8,5x

37.2x 38,9x

28.5x 29,8x

0.9% 0,8%

2.0% 1,9%

3.7x 3,9x

3.5x 3,7x

2.6x 2,6x

2.3x 2,3x

Lala

LALAB MM

Neutral

MXN

17.00 20,18

24.5 24,5

44% 21%

2.1 2,5

1.36 1,39

8.0x 8,9x

7.0x 7,8x

19.6x 23,3x

14.0x 16,6x

3.6% 3,0%

3.6% 3,0%

1.6x 1,9x

1.5x 1,8x

3.2x 3,2x

2.7x 2,7x

8.5x 8,9x

8.4x 8,6x

17.4x 18,8x

15.4x 16,0x

2.6x 2,6x

2.4x 2,5x

2.1x 2,1x

1.4x 1,4x

Herdez

Median

Source: BTG Pactual estimates

203

Valuation Summary

Company

Ticker

Rating

Share

Share

Currency

Price

Target

Upside

Mkt Cap

ADTV

(USD bn)

(USD mn)

2018E

EV/EBITDA 2019E

P/E 2018E

Div. Yield

P/BV

Net Debt/EBITDA

2019E

2018E

2019E

2018E

2019E

2018E

2019E

Banks Santander Mexico

BSMXB MM

Buy

MXN

24.62 25,32

39.0 31,0

58% 22%

8.2 8,5

7.81 9,25

n.a.

n.a.

8.5x 8,8x

8.7x 8,9x

5.5% 5,4%

5.8% 5,6%

1.4x 1,4x

1.3x 1,3x

n.a.

n.a.

Santander Chile

BSAN CI

Neutral

CLP

51.43 52,44

52.0 52,0

-1% 1%

14.5 14,5

7.79 7,77

n.a.

n.a.

15.8x 16,2x

14.8x 15,1x

4.1% 4,0%

4.4% 4,3%

3.0x 3,0x

2.8x 2,8x

n.a.

n.a.

Santander Brasil

SANB11

Neutral

BRL

41.78 43,42

37.5 47,0

-10% 8%

41.5 42,2

17.52 18,69

n.a.

n.a.

12.8x 13,3x

11.6x 12,1x

3.0% 2,9%

3.2% 3,1%

1881.6x 1917,1x

1665.9x 1697,4x

n.a.

n.a.

Itau Unibanco

ITUB4

Buy

BRL

34.61 35,78

52.0 42,0

50% 17%

59.2 89,7

171.06 184,99

n.a.

n.a.

13,7x 8.8x

11,9x 7.7x

7.9% 5,1%

7.8% 5,0%

2.1x 3,3x

2.1x 3,3x

n.a.

n.a.

Intercorp Financial Services

IFS PE

Buy

USD

39.00 41,36

48.0 48,0

23% 16%

4.4 4,7

0.58 0,70

n.a.

n.a.

12.2x 12,9x

10,3x 9.7x

3.6% 3,4%

4.1% 3,8%

2.0x 2,2x

1.8x 1,9x

n.a.

n.a.

GFINBURO MM

Neutral

MXN

26.67 27,01

35.0 28,0

31% 4%

8.8 8,9

4.69 4,84

n.a.

n.a.

10.5x 10,6x

10,0x 9.9x

1.8% 1,8%

2.0% 1,9%

1.2x 1,2x

1.1x 1,1x

n.a.

n.a.

GGAL AR

Buy

ARS

104,85 93.20

163.0 163,0

75% 55%

3.7 4,0

4.60 4,05

n.a.

n.a.

11.1x 12,5x

8.6x 9,7x

0.3% 0,3%

0.9% 0,8%

2.5x 2,8x

2.0x 2,2x

n.a.

n.a.

Gentera

GENTERA* MM

Buy

MXN

13.87 14,14

24.0 19,0

73% 34%

1.1 1,1

3.34 3,67

n.a.

n.a.

7.7x 7,9x

7.1x 7,2x

6.4% 6,3%

7.4% 7,3%

1.3x 1,4x

1.2x 1,3x

n.a.

n.a.

Davivienda

PFDAVVND CB

Buy

COP

32780.00 33400,00

38,000.0 38.000,0

16% 14%

4.7 4,8

1.14 0,89

n.a.

n.a.

10,0x 9.8x

8.3x 8,5x

2.4% 2,4%

3.1% 3,0%

1.3x 1,4x

1.2x 1,2x

n.a.

n.a.

Credicorp

BAP US

Buy

USD

223.67 218,54

238.0 238,0

6% 9%

17.8 17,4

37.22 37,08

n.a.

n.a.

14.0x 13,7x

12.2x 11,9x

2.0% 2,0%

2.5% 2,6%

2.4x 2,4x

2.1x 2,1x

n.a.

n.a.

ITAUCORP CI

Neutral

CLP

6.32 6,46

7.5 7,5

19% 16%

4.8 4,9

3.69 3,50

n.a.

n.a.

16.5x 16,9x

13.3x 13,6x

0.7% 0,7%

2.4% 2,4%

1.0x 1,0x

0.9x 0,9x

n.a.

n.a.

Bradesco

BBDC4

Buy

BRL

36.80 38,84

38.0 48,0

24% 3%

64.8 66,8

131.15 145,01

n.a.

n.a.

12.8x 13,5x

10.5x 11,1x

3.8% 3,6%

4.4% 4,2%

2.1x 2,2x

1.9x 2,0x

n.a.

n.a.

Banrisul

BRSR6

Neutral

BRL

20.90 22,05

19.0 23,0

-9% 4%

2.2 2,3

6.24 7,81

n.a.

n.a.

8.1x 8,2x

7.3x 7,5x

4.9% 8,8%

5.5% 5,4%

1.2x 1,3x

1.1x 1,2x

n.a.

n.a.

Regional

RA MM

Neutral

MXN

88.88 87,60

134.0 109,0

51% 24%

1.4 1,4

3.12 3,09

n.a.

n.a.

9.3x 9,2x

8.4x 8,3x

1.9% 1,9%

3.2% 3,3%

1.7x 1,6x

1.5x 1,4x

n.a.

n.a.

BanBajio

BBAJIOO MM

Buy

MXN

38.04 36,92

51.0 43,0

34% 16%

2.2 2,2

5.34 5,52

n.a.

n.a.

9.0x 8,8x

8.7x 8,4x

1.7% 1,8%

3.3% 3,4%

1.6x 1,5x

1.4x 1,4x

n.a.

n.a.

Banorte

GFNORTEO MM

Buy

MXN

97.00 91,68

163.0 122,0

68% 33%

13.3 12,6

56.18 62,94

n.a.

n.a.

8.8x 8,4x

7.3x 6,9x

4.5% 4,8%

5.7% 6,0%

1.6x 1,5x

1.4x 1,3x

n.a.

n.a.

PFBCOLO CB

Neutral

COP

33320.00 32420,00

32,500.0 32.500,0

-2% 0%

10.0 9,8

5.50 4,79

n.a.

n.a.

11.1x 10,8x

8.8x 8,6x

3.1% 3,2%

3.6% 3,7%

1.3x 1,3x

1.2x 1,2x

n.a.

n.a.

PINE4

Neutral

BRL

2.45 2,30

4.0 4,0

63% 74%

0.1 0,1

0.03 0,04

n.a.

n.a.

3.3x 3,1x

n.a.

16.9% 18,0%

n.a.

0.2x 0,2x

n.a.

n.a.

n.a.

Banco Macro

BMA AR

Buy

ARS

170.00 159,25

312.0 312,0

84% 96%

3.1 2,8

2.62 1,59

n.a.

n.a.

8.4x 7,9x

6.7x 6,2x

1.5% 1,6%

2.4% 2,5%

1.9x 1,8x

1.6x 1,5x

n.a.

n.a.

Banco do Brasil

BBAS3

Neutral

BRL

44.45 44,08

39.0 52,0

-12% 18%

33.1 32,1

138.56 148,97

n.a.

n.a.

9.3x 9,3x

6.4x 6,4x

4.1% 4,1%

5.2% 5,2%

1.2x 1,2x

1.1x 1,1x

n.a.

n.a.

Banco ABC

ABCB4

Buy

BRL

16.00 16,64

19.0 22,0

19% 32%

0.8 0,8

1.31 1,67

n.a.

n.a.

6.8x 7,0x

6.1x 6,0x

6.6% 6,4%

7.4% 7,5%

0.9x 0,9x

0.8x 0,8x

n.a.

n.a.

10,0x 9.3x

8.6x 8,7x

1.6x 1,5x

1.4x 1,4x n.a.

Inbursa Grupo Galicia

ItauCorpbanca

Bancolombia Banco Pine

Median Financials ex-banks SulAmerica

SULA11

Neutral

BRL

25.38 28,86

24.5 30,0

-3% 4%

2.6 2,9

7.54 9,93

n.a.

n.a.

11.4x 12,2x

10.0x 11,1x

2.2% 2,1%

2.5% 2,2%

1.6x 1,8x

1.4x 1,6x

n.a.

Porto Seguro

PSSA3

Neutral

BRL

53.58 52,50

52.0 52,0

-3% -1%

4.6 4,4

11.01 10,87

n.a.

n.a.

14.4x 14,1x

12.6x 12,3x

6.4% 6,5%

4.8% 4,9%

2.4x 2,3x

2.2x 2,2x

n.a.

n.a.

Cielo

CIEL3

Neutral

BRL

9.27 9,26

11.0 11,0

19%

6.6 6,5

32.01 38,13

4.6x 4,6x

5.7x 5,7x

7.1x 7,1x

9.4x 9,4x

13.9% 13,9%

9.9% 9,9%

1.6x 1,6x

1.6x 1,6x

0.6x 0,6x

0.6x 0,6x

Grupo Aval

PFAVAL CB

Neutral

COP

1060.00 1000,00

1,260.0 1.260,0

19% 26%

7.4 7,0

1.77 1,87

n.a.

n.a.

11.0x 10,4x

9.4x 8,8x

5.3% 5,6%

5.9% 6,2%

1.4x 1,3x

1.3x 1,2x

n.a.

n.a.

Grupo Sura

GRUPOSUR CB

Neutral

COP

32500.00 32880,00

41,900.0 41.900,0

29% 27%

5.9 6,0

5.58 5,53

n.a.

n.a.

10,0x 9.9x

8.2x 8,3x

1.6% 1,6%

1.7% 1,7%

0.7x 0,7x

0.7x 0,7x

n.a.

n.a.

B3SA3

Buy

BRL

26.59 27,70

27.0 32,0

16% 2%

14.3 14,5

66.04 72,84

16.0x 16,1x

14.0x 14,5x

17.6x 18,6x

16.3x 16,6x

2.9% 2,9%

3.7% 3,6%

2.2x 2,3x

2.1x 2,2x

-0.7x -0,7x

-0.8x -0,8x

IRB Brasil RE

IRBR3

Neutral

BRL

73.89 76,00

65.0 72,0

-12% -5%

6.1 6,1

14.30 16,10

n.a.

n.a.

20.0x 19,7x

16.9x 16,4x

3.7% 3,8%

4.4% 4,6%

7.1x 7,2x

6.4x 6,5x

n.a.

n.a.

BB Seguridade

BBSE3

Buy

BRL

26.83 27,29

33.0 33,0

23% 21%

14.1 14,0

25.61 30,83

n.a.

n.a.

13.5x 13,9x

13.3x 13,7x

10,1% 5.7%

6.1% 6,0%

5.5x 7,6x

5.1x 6,9x

n.a.

n.a.

Wiz

WIZS3

Neutral

BRL

7.30 7,11

10.0 10,0

37% 41%

0.3 0,3

1.21 1,23

0.0x 0,0x

0.0x 0,0x

0.0x 0,0x

0.0x 0,0x

13.7% 14,0%

14.2% 14,5%

31.6x 30,8x

26.6x 25,9x

n.a.

n.a.

4.6x 4,6x

5.7x 5,7x

11.4x 12,2x

10.0x 11,1x

2.2x 2,3x

2.1x 2,2x

-0.1x 0,0x

-0.1x -0,1x

B3

Median

Source: BTG Pactual estimates

204

Valuation Summary

Company

Ticker

Rating

Share

Share

Currency

Price

Target

Upside

Mkt Cap

ADTV

(USD bn)

(USD mn)

EV/EBITDA 2018E

2019E

P/E 2018E

Div. Yield 2019E

2018E

P/BV

Net Debt/EBITDA

2019E

2018E

2019E

2018E

2019E -5.7x -5,7x

Housing Tecnisa

TCSA3

Neutral

BRL

1.26 1,37

2.1 2,1

67% 53%

0.1 0,1

0.63 0,77

n.a.

n.a.

n.a.

n.a.

0.0% 0,0%

0.0% 0,0%

0.5x 0,5x

0.5x 0,6x

-2.8x -2,8x

MRV

MRVE3

Buy

BRL

12.25 11,96

18.0 18,0

47% 51%

1.4 1,4

13.57 15,02

7.9x 7,7x

5.8x 5,7x

7.9x 7,7x

5.7x 5,6x

6.3% 6,5%

12.3% 12,6%

0.9x 0,9x

0.9x 0,9x

0.5x 0,5x

0.0x 0,0x

Lopes

LPSB3

Neutral Buy

BRL

4.29 4,93

3.6 6,7

-16% 36%

0.1 0,2

0.40 0,48

3.5x n.a.

14,0x 2.8x

17.4x n.a.

11.2x n.a.

-0.3% 0,0%

6.1% 0,0%

10,2x 0.7x

0.7x 8,9x

-0.8x -2,2x

-0.9x -0,5x

Helbor

HBOR3

Neutral

BRL

1.36 1,59

2.0 2,0

47% 26%

0.2 0,2

0.48 0,69

n.a.

33.5x 35,2x

n.a.

25.1x 29,4x

0.0% 0,0%

0.0% 0,0%

0.5x 0,6x

0.5x 0,5x

-35.4x -35,4x

17.8x 17,8x

Javer

JAVER* MM

Buy

MXN

16.90 16,90

20.2 20,2

19%

0.2 0,2

0.02 0,03

6.7x 6,7x

5.7x 5,7x

12.1x 12,1x

9.1x 9,1x

0.0% 0,0%

3.4% 3,4%

2.1x 2,1x

1.8x 1,8x

2.1x 2,1x

1.6x 1,6x

Gafisa

GFSA3

Neutral

BRL

13.96 16,20

17.0 17,0

22% 5%

0.2 0,2

4.24 5,13

n.a.

14.3x 15,5x

n.a.

24.8x 28,7x

0.0% 0,0%

0.0% 0,0%

0.5x 0,6x

0.5x 0,6x

-17.5x -17,5x

7.1x 7,1x

Eztec

EZTC3

Neutral

BRL

23.46 24,69

23.0 23,0

-2% -7%

1.0 1,0

2.71 3,02

n.a.

21.7x 23,1x

31.5x 33,2x

15.4x 16,2x

4.8% 4,6%

7.1% 6,8%

1.5x 1,6x

1.5x 1,6x

-16.4x -16,4x

-4.8x -4,8x

Even

EVEN3

Buy

BRL

5.37 6,08

7.0 7,0

30% 15%

0.3 0,3

1.06 1,45

n.a.

45.2x 48,6x

n.a.

18.2x 20,6x

0.0% 0,0%

3.9% 3,4%

0.6x 0,7x

0.6x 0,7x

-14.5x -14,5x

13.1x 13,1x

Direcional

DIRR3

Buy

BRL

7.31 7,68

7.5 7,5

-2% 3%

0.3 0,3

1.53 1,75

59.5x 61,6x

14.6x 15,2x

n.a.

13.4x 14,1x

3.9% 3,7%

5.2% 5,0%

0.7x 0,8x

0.7x 0,7x

13.4x 13,4x

2.5x 2,5x

Cyrela

CYRE3

Buy

BRL

14.34 15,21

16.0 16,0

12% 5%

1.4 1,5

11.04 12,82

37.2x 39,1x

12.9x 13,6x

29.5x 31,2x

10.5x 11,2x

8.0% 7,5%

16.8% 15,8%

1.0x 1,0x

1.1x 1,1x

4.8x 4,8x

1.1x 1,1x

Consorcio ARA

ARA* MM

Neutral

MXN

n/a

7.0 7,0

n.a.

n.a.

0.25 0,25

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

-0.1x -0,1x

0.0x 0,0x

Brasil Brokers

BBRK3

Neutral

BRL

5.40 7,00

2.1 2,1

-61% -70%

0.3 0,3

0.35 0,32

12.4x 16,4x

12,8x 9.7x

24.8x 32,1x

17.4x 22,6x

2.9% 2,3%

5.0% 3,8%

1.9x 2,4x

1.8x 2,4x

-1.5x -1,5x

-1.3x -1,3x

10.1x 16,4x

13.6x 14,6x

21.1x 31,2x

14.4x 16,2x

0.7x 0,9x

0.7x 0,9x

-1.2x -1,9x

0.5x 0,5x

Median Commercial Properties Parque Arauco

PARAUCO CI

Buy

CLP

1565.10 1602,40

n.a

n.a.

2.1 2,1

1.71 1,73

16.9x 17,2x

15.2x 15,4x

17.7x 18,1x

15.7x 16,0x

1.4% 1,4%

3.2% 3,1%

1.6x 1,7x

1.6x 1,6x

5.6x 5,6x

4.9x 4,9x

Multiplan

MULT3

Buy

BRL

23.05 23,79

23.3 23,3

-2% 1%

1.2 1,2

13.59 15,74

5.6x 5,8x

4.9x 5,0x

10.0x 10,3x

8.8x 9,1x

5.0% 4,9%

5.7% 5,5%

0.8x 0,9x

0.8x 0,8x

0.7x 0,7x

0.3x 0,3x

Iguatemi

IGTA3

Buy

BRL

39.36 39,55

42.0 42,0

7% 6%

1.8 1,8

10.81 12,62

15.3x 15,4x

13.5x 13,5x

25.8x 25,9x

22.3x 22,4x

1.7% 1,7%

2.1% 2,1%

2.4x 2,4x

2.3x 2,3x

2.6x 2,6x

2.0x 2,0x

Fibra Uno

FUNO11 MM

Buy

MXN

21.36 21,94

36.5 36,5

71% 66%

4.0 4,1

14.50 14,00

10.8x 11,0x

10.1x 10,2x

10.1x 10,3x

9.0x 9,2x

10.3% 10,0%

11.9% 11,6%

0.6x 0,6x

0.6x 0,6x

4.6x 4,6x

4.3x 4,3x

IRSA IyR

IRS US

Buy

USD

12.99 13,04

27.7 27,7

113% 112%

0.0 0,0

1.64 1,41

5.5x 5,5x

3.4x 3,4x

0.0x 0,0x

0.0x 0,0x

0.4% 0,4%

0.4% 0,4%

1.0x 1,1x

0.8x 0,9x

6.9x 6,9x

4.5x 4,5x

IRSA Propiedades Comerciales

IRCP US

Buy

USD

20.80 19,47

47.0 47,0

126% 141%

0.7 0,6

0.19 0,18

43.7x 42,4x

25.7x 25,0x

36.1x 35,0x

52.4x 50,9x

0.1% 0,1%

0.1% 0,1%

2.6x 2,6x

2.2x 2,2x

2.9x 2,9x

2.1x 2,1x

FIBRAMQ MM

Buy

MXN

19.12 17,61

30.0 30,0

57% 70%

0.5 0,5

1.42 1,50

8.7x 8,4x

8.3x 8,0x

4.0x 3,7x

7.0x 6,4x

8.4% 9,1%

8.9% 9,7%

0.4x 0,4x

0.4x 0,4x

5.0x 5,0x

4.7x 4,7x

CCPR3

Neutral

BRL

8.90 8,43

15.0 15,0

69% 78%

0.2 0,2

0.11 0,15

9.6x 9,5x

8.8x 8,7x

12.1x 11,4x

8.3x 7,8x

2.1% 2,2%

2.8% 2,9%

0.8x 0,8x

0.8x 0,7x

5.5x 5,5x

5.0x 5,0x

Terrafina

TERRA13 MM

Buy

MXN

24.13 25,41

n.a

n.a.

0.7 0,8

1.78 1,82

11.8x 12,3x

n.a.

n.a.

n.a.

9.2% 8,7%

n.a.

0.7x 0,8x

n.a.

3.3x 3,3x

n.a.

BR Malls

BRML3

Buy

BRL

12.22 13,14

13.0 13,0

-1% 6%

2.7 2,9

19.67 23,13

13.0x 13,9x

11.9x 12,6x

18.0x 19,4x

15.6x 16,8x

1.4% 1,3%

3.0% 2,8%

1.0x 1,1x

1.0x 1,0x

1.8x 1,8x

1.5x 1,5x

CELSIA CB

Neutral

COP

4000.00 3930,00

5,050.0 5.050,0

26% 28%

0.9 0,9

0.44 0,36

7.8x 7,7x

7.8x 7,7x

23.6x 23,1x

23.7x 23,3x

4.3% 4,3%

4.6% 4,7%

0.9x 0,9x

0.9x 0,9x

2.7x 2,7x

2.7x 2,7x

ALSC3

Buy

BRL

17.55 18,67

19.0 19,0

8% 2%

0.9 1,0

2.51 2,75

13.3x 13,9x

12.0x 12,6x

30.8x 32,8x

22.4x 23,8x

1.5% 1,4%

2.2% 2,1%

1.4x 1,5x

1.4x 1,4x

3.8x 3,8x

3.2x 3,2x

Fibra Shop

FSHOP13 MM

Buy

MXN

8.45 8,32

16.0 16,0

89% 92%

0.2 0,2

0.17 0,14

12.5x 12,5x

12.0x 12,0x

9.5x 9,3x

8.2x 8,1x

10.7% 10,8%

11.7% 11,9%

0.4x 0,4x

0.4x 0,4x

8.0x 8,0x

7.8x 7,8x

Vesta

VESTA* MM

Buy

MXN

24.49 26,33

33.0 33,0

35% 25%

0.7 0,8

2.11 2,12

13.5x 14,1x

13.0x 13,5x

n.a.

n.a.

4.6% 4,3%

5.7% 5,3%

0.7x 0,8x

0.7x 0,8x

5.6x 5,6x

6.1x 6,1x

11.8x 12,3x

11.0x 11,1x

14.9x 14,8x

12.3x 12,6x

0.9x 0,9x

0.9x 0,9x

3.8x 3,8x

3.7x 3,7x

Fibra MQ CCP

Celsia Aliansce

Median

Source: BTG Pactual estimates

205

Disclaimer

206