What Jumps Out : The Wise Men are Here (Time To Get Back To Work)

So finally having trekked 1,600km from Iran the wise men finally arrived in Bethlehem last week – now after a long weekend to celebrate the fact, Colombia is finally set to get back to work today. This time-honored tradition is surely now outdated. Perhaps we could switch it up for the New Year’s Day holiday instead?

Anyway, I digress. Holidays are over, schools are back and there is work to do, in fact there was work to do since last week but ‘c’est la vie’.

Homework 1 : Finalize the GEA tenders and clarify the situation.

Today at 1pm the Grupo Sura tender will close and 24 hours later it will be Grupo Nutresa‘s turn.

In terms of Nutresa by Friday a total of 71 million shares had been tendered, which represents ~15.5% of the total shares in circulation. This is a long way below the Gilinski family’s initial minimum of just over 50% and with the main shareholders (Grupo Argos & Grupo Sura) having publicly rejected the bid due to valuation, it is now a question of how many more acceptances appear. The press has been reporting that the bidders will now remove the minimum and instead settle for the board seat that the shares bring.

With Grupo Sura the acceptances thus far stand at 64 million shares (~13.84% of outstanding shares) with Grupo Argos, Cementos Argos and Grupo Nutresa having formally voted against the proposal – again the next 24 hours will bring finality to the process.

The important thing is for some closure in the process, it has caused upheaval in the stock market, consternation on both sides and for the first time in my experience, instability around the GEA group. That is not to say it is necessarily a bad thing, capital markets globally are constantly in flux, as are corporations, however after two months of uncertainty it would be good for all shareholders to see the executives get back to the business of creating value.

Rupert’s opinions & analysis as an independent expert contributor are his own and not necessarily those of Finance Colombia or the BVC.

There have been various discussions about the ‘value’ of the shares in the group, something that to me is always decided by the market and unfortunately over the past 2-3 years the Colombian market has struggled somewhat to make itself heard itself in the zeitgeist of global markets – there is a lot competition for the world’s capital and a multitude of reasons why this country hasn’t received as much as some others, but little of it is down to individual companies.

Both of these companies are facing challenges, here in Colombia the economy is booming but as per all entities globally there are a lot of adjustments in working practices to be made. Additionally, both corporations have sizable investments in Chile where Gabriel Boric will take office in precisely two month – that will require the close attention of the respective executives.

Depending on the decision the Gilinski family takes regarding whether to take the lower acceptances and the board positions, there will also be an impact on liquidity for both shares – at this juncture there are 135 million shares now going out of circulation and this will reduce the tradable number of shares.

Homework 2 : Inflation

Rates need to go up and most likely in a hurry. As per the rest of the planet, the transient inflation caused by COVID, is turning into something far more concerning. CPI for December came in at 0.73% versus the 0.53% expected and this drove the 12m figure up to 5.62%. That will now be the number that suppliers and unions use to adjust every price for the next year. On top of that the government had already agreed to a 10% increase in the minimum wage, taking the Central Bank by surprise. It remains to see what the impact of this will be in the January inflation data.

The Central Bank will sit down on January 28 and surely, we are looking at 0.5%-0.75% on top of the current 3% rates. There has been a mixed response globally to inflation (Brazil gapping rates up, Turkey trying to re-invent monetary theory and widely criticized inaction in the US) but Colombia will need to get on top of the situation.

Homework 3 : The Peso

This dovetails into the former point about interest rates. A forex of $4,000 cannot become the new norm when you have such a huge trade deficit – the cost of importing is going up and up which cannot be helpful to anyone. Not for businesses who need equipment nor end consumers.

An increase in rates will help but clearly the dual problems of forthcoming elections and the loss of investment grade are difficult to counter-balance, this despite one of the fastest growing economies in the region.

Homework 4 : Omicron

The Government in Colombia has adopted what appears to be the US/UK model – cases are certainly well up as Omicron takes hold, however, fortunately, deaths are still stable versus a month ago.

The Government has long since struggled with testing (ranked 110 globally per capita) and has now adjusted the policy to a simple – if you think you have COVID, stay at home.

In reality there is no alternative but to cross our fingers and hope the OMICRON wave washes over the country without too much damage.

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That is about it for today – remember these are just themes that jump out at me – please refer to your local analyst, economist, salesperson or soothsayer for more details.

 My regards to all,

 Roops