ArgentinaStrategy S 2016-06-15

LATIN AMERICAN
EQUITY RESEARCH
15 JUNE 2016 Strategy Report | Argentina
ARGENTINA STRATEGY
EMERGING FROM FRONTIER?
INTRODUCING YE2017 TARGET PRICES
Walter Chiarvesio*
Argentina: Santander Rio Valores, S.A.
+5411-4341-1564 | wchiarvesio@santanderrio.com.ar
Net/Net:: Our belief that Argentina is in a solid position to regain EM classification underpins our positive stance on the
market. We see average upside potential of 32% by year-end 2017 for the Argentine market, but we believe that it is
time to be more selective. From a fundamental point of view, the utilities sector has the strongest upside potential, in
our view, and Pampa Energia is our top pick for Argentina.
 Pampa Energia: our top pick in Argentina for several reasons: (1) The company has exposure to utilities
and so will benefit from regulatory rate normalization. (2) Its exposure to natural gas production is increasing
through Petrolera Pampa and its recent acquisition of PZE. (3) We see EBITDA growth of 60% in 2015-19
(without PZE). (4) The stock is trading at an attractive 4.0x 2017E FV/EBITDA, below the LatAm average of
6.0x. (5) Pampa is the most liquid stock in the Argentine sector, trading at an ADTV of US$7.0 million based
on the last six months.
 Play Argentina’s economic recovery through the utilities sector. . . Argentina’s positive macroeconomic
performance is strongly linked to the normalization of energy prices in the country. In our view, the current
administration is engaged in a gradual normalization program for electricity and natural gas, which should
result in utilities increasing their operating performance and investments in the upcoming years. In addition,
the sector is attractively valued compared with LatAm peers, in our view.
 . . .however: Based on valuation, banks look expensive despite our optimistic long-term scenario of credit
penetration increasing from 15% of GDP to 30% in five years and above 40% in ten years. Additionally, in
telecommunications, media and technology, we expect a high capex cycle amid a competitive environment
for 4G services.
 Top down, inflation is the key catalyst for the market in 2H16. Monthly inflation below 2.0% in 3Q16
and 1.5% in 4Q16 should have a positive impact on the market, thereby likely boosting stock prices, in our
view. We expect this slowdown in inflation to unleash investment growth as interest rates consequently fall,
improving expectations for 2017. On the country risk spread front, we expect a gradual decline in country
risks to be a catalyst for the next 24 months.
 Argentine equity regaining Emerging Market classification? MSCI recently put Argentina’s status under
review, and we believe that the country is in a good position to potentially regain EM classification in 2018 as we
expect a full lifting of capital controls in the short term, consequently supporting equity ADR valuations.
IMPORTANT DISCLOSURES/CERTIFICATIONS ARE IN THE “IMPORTANT DISCLOSURES” SECTION OF THIS REPORT.

U.S. investors’ inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629 / (212) 350-3918.
* Employed by a non-US affiliate of Santander Investment Securities, Inc. and is not registered/qualified as a research analyst under FINRA rules.
Argentina - Universe Under Coverage
Price Target PE FV/EBITDA Mkt.
Upside/
Com pany Rec. Price
Ticker 6/13/2016 Dow nside 2015 2016E 2017E 2015 2016E 2017E Cap
2017YE
Telecom Argentina* TEO US Hold 18.74 22.00 17% 8.5 10.5 7.7 3.0 4.0 3.3 3,690
Grupo Clarin GCLA LI Hold 19.80 24.00 21% 8.9 13.3 8.0 4.4 5.0 4.4 2,845
YPF* YPF US Buy 20.30 33.00 63% 17.2 15.5 9.6 3.1 3.9 3.1 7,984
Pampa Energia PAM US Buy 25.53 37.40 46% 3.7 9.1 6.3 4.4 4.3 2.2 1,731
Edenor EDN US Buy 15.30 25.00 63% 9.1 13.7 5.3 3.3 3.6 3.2 686
TGS TGS US Buy 6.45 9.70 50% NM 46.2 8.7 12.3 7.4 4.2 1,025
Siderar** ERAR AR Hold 6.96 11.50 65% 22.5 11.8 10.0 9.1 4.7 4.5 2,285
Target PE Price PBV Mkt.
Upside/
Com pany PriceRec.
Ticker 6/13/2016 Dow nside 2015 2016E 2017E 2015 2016E 2017E Cap
2017YE
Banco Macro* BMA US Underperform 69.18 76.90 11% 8.0 9.6 8.6 3.4 3.0 2.7 4,113
Banco Francés* BFR US Underperform 19.94 22.00 10% 9.7 10.6 9.8 3.5 3.2 3.0 3,568
G.F. Galicia* GGAL US Underperform 29.93 34.00 14% 8.7 10.1 9.0 3.6 3.2 2.8 3,892
Sources: Company reports and Santander estimates. Mkt Cap in US$ million. NM: not meaningful.
Averages are market cap w eighted. *ADRs ** in local currency ***PE&FV/E
MACROECONOMIC SNAPSHOT . . .
Martin Mansur*, Economist
Banco Santander Rio S.A.
+5411-4341-1096 | cmansur@santanderrio.com.ar
We estimate GDP has been contracting around 1.3% year over year from January-April, and will
start rebounding by 4Q16. Consumption (around two-thirds of GDP) is the hardest hit aggregate. Higher
inflation driven by devaluation and utility rates hikes, coupled with rising uncertainty (mostly regarding to
employment prospects), is holding back consumption, in our view. Consumer purchasing intentions for
durable goods stand close to record lows, which is affecting local demand for these goods. Consumption
is likely to show weakness for the remainder of 2016, in our opinion, until inflation comes down
substantially and the employment prospects improve.
Figure 1: Consumer Confidence, General Activity Indicators (l) and Employment Index (r)
70 25%
Consumer Confidence Activity Indez OJF 115.0
20%
60
15% 110.0
50
10%
40 105.0
5%
30 0%
100.0
-5%
20
NK -10% 95.0
10 CFK1 CFK2 MM -15%
90.0
0 -20%
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Ene-08
Source: UTDT, Orlando Ferreres, Ministry of Labor and ANSES.
On the supply side, industrial activity is showing a mixed pattern. Some manufacturers (food and
beverages, chemical products, plastics and textiles) are performing relatively well in a mildly recessionary
scenario. Other sectors such as automobiles, metals, house appliances are suffering a decline in output.
Official figures on industrial activity and construction show sharp contractions (down 6.7% year over year
2
and down 24.1% year over year, respectively) due to the one-off impact of above-average rainfall during
that month, which halted activity in many sectors (e.g., buildings, harvest, dairy products, poultry, meat).
Figure 2: Industrial Production 5M2016 versus 5M2015
Textil 14.4%
Plastics 5.1%
Printing and Editing 4.5%
Paper 4.1%
Chemical 3.5%
Food 1.5%
Tobaco -1.3%
Construction -1.5%
Average -2.4%
Oil Refining -4.8%
Metalmechanic -10.6%
Automotive -12.5%
Basic Metals -14.0%
-20% -15% -10% -5% 0% 5% 10% 15% 20%
Source: FIEL.
We expect investment (state-led investment in infrastructure in the first place) to be the main
driver of economic recovery. We might be facing the initial stages of a rebound pushed by public
investment, although this might take some more months to bear fruit. The national government is
planning expenditures of up to the equivalent of USD3.7billion between June and December
(approximately 0.8% of GDP). These will be directed mainly to infrastructure investments on roads,
housing and water services. Finally, although at lower amounts, many companies across different sectors
(agriculture, automobiles, chemicals, food & beverages, construction, real estate, banking) have recently
been rolling out investment plans to be deployed in the following quarters, in stark contrast with the recent
past.
We estimate that GDP will start rebounding materially by 4Q16, to average 0% growth during 2016,
propelled by investment expenditures (to average 10.2% annual expansion). We expect consumption to
fall 1% throughout 2016. We believe that to assess the strength and timing of economic recovery, several
indicators should be watched closely: (1) Inflation: A systematic decrease in the monthly inflation rate
(which will prompt the Central Bank to continue reducing reference interest rates) will certainly encourage
an activity pickup. (2) Public Investment: An impending resumption of public works activity (momentarily
halted by the new administration to carry on auditing inspections) will also be an important signal to watch
throughout the next months. (3) Capital goods imports: Acceleration of import growth can be taken as a
leading sign of an investment rebound. Overall, stronger numbers in industrial activity and construction
expansion in the next months could be taken as a first signal of an overall recovery in GDP growth, in our
view.
A halt in public expenses during 1H16. Since taking office, the government put a rein on public
expenses, particularly those related to subsidies and public works. In the year to April, both aggregates
3
expanded only 17% and -12% y/y, well below the 42% and 47% year-over-year increases observed in the
same period of 2015. Overall, discretionary spending grew only 8% YoY in the first four months of 2016,
well below the rate of inflation. However, current spending is expanding almost 33% yearly, not far from
the 38% observed in January–April 2015, due to a strong growth in public sector wages and pensions. As
a result, total public spending decelerated to 24% annual growth in the period, down from 41% one year
earlier. Contrastingly, government receipts expansion has remained practically stable in the period, at
around 29% YoY. This led to a decline in the last 12 months in the primary deficit to 4% of GDP in April
from 4.3% of GDP at the end of 2015.
But we expect a reversion in 2H16. We expect this trend to change significantly. During the last several
weeks the government has been outlining a number of ambitious infrastructure projects to begin soon. As
a result, a material jump in government outlays related to public works is in the pipeline, which we believe
will lead the primary deficit reduction trend to turn. In this scenario, we expect that the primary deficit
(following the new methodology used by the current Finance Ministry) will actually increase throughout
the present year, to almost 5% of GDP in 2H16 from 4.3% of GDP recorded in December.
Figure 3:Public Sector Budget Annual Growth (left)—Primary Fiscal Deficit Target (right)
50.0% 5.0%
4.5%
Revenues Expenses
40.0% 4.0%
3.3%
30.0% Primary deficit
3.0%
20.0%
2.0%
1.5%
10.0%
1.0%
0.3%
0.0%
J-06
A-06
J-09
A-11
J-12
J-13
A-13
O-07
F-10
S-10
O-14
N-11
M-07
M-08
D-08
M-14
M-15
D-15
0.0%
2016 2017 2018 2019
Source: Finance Ministry.
Public deficit rebalancing strongly related to subsidies reduction. The former government’s policy
included a significant increase in the subsidies to energy and transport bill, aiming to keep rates for
households and businesses frozen. Over time, the subsidies grew substantially, driving overall expenses
growth over income, thus enlarging the primary deficit. We believe the government will focus its effort in
reducing this burden in order to cut the fiscal deficit over the coming years. Salaries and social security
outlays are also an important driver of current expenses growth, currently accounting for 83% of growth.
However, these items are usually less flexible to adjust.
4
Figure 4:Fiscal Budget Snapshot (% of GDP)
30%
Subsidies
25%
5.8%
Capex
20%
Salaries+ Social 15%

Security
10% 14.5%
Tranference to
Provinces 5%
5.7%
Revenues 0%
S-03
S-05
S-07
S-09
S-11
S-13
S-15
M-04
M-06
M-08
M-10
M-12
M-14
J-03
J-05
J-07
J-09
J-11
J-13
J-15
Sources: Ministry of Finance and Santander estimates.
Inflation increasing in 1H, but expected to recede toward year end. Inflation has been (expectedly)
increasing during the last months due to the impact of relative prices adjustments. Peso devaluation and
utility rates hikes (necessary to put government expenses growth in check) fed into inflation, which as of
May was running at above 40% annually (up from 27.3% y/y at the end of 2015), and will likely continue
climbing in the next few months. However, there are signs of moderation at the margin. While core
inflation measures in the City of Buenos Aires (one of the gauges closely watched by the Central Bank to
set policy rates) averaged 3.8% m/m between December and March, it went down to 2.8% m/m in April.
Furthermore, weekly inflation numbers are pointing to a further reduction in monthly core inflation towards
the zone of 2.2% in June. A similar trend could be observed in other inflation measures. Nevertheless,
headline numbers could continue coming at levels above those, due to the ongoing (albeit attenuating)
relative prices adjustments. Take into account that the National Statistics Office (INDEC) will start
releasing official inflation prints in short. We believe that once these incipient signs of inflation
deceleration consolidate, we expect the Central Bank to step-up the Lebac rate easing cycle.
A tight monetary policy has been put in place by the Central Bank to tame inflation. The monetary
authority has been using the rate for the shorter term notes (auctioned on a weekly basis) as the main
policy tool. A significant rate hike (which peaked at 38% in March and April helped reduce the monetary
base growth, which went down to 24.6% y/y at the beginning of June, from 40% annual expansion at the
end of 2015. However, since late-April, the Central Bank has consistently been reducing reference
interest rates on the back of the inflation moderation at the margin and reducing inflation expectations.
The backdrop of this policy has been the increasing stock of LEBACs (Central Bank notes) outstanding,
which reached the equivalent to 80% of the monetary base in May, up from 41% in December. We also
5
note that the Central Bank has committed transfers to the Treasury, to finance the fiscal deficit, of ARS
160bn (2.5% of GDP) in 2016, of which ARS57 billion have already been channeled. We expect total
monetary expansion stand at 25% by year end.
Figure 5:Money Factor Expansion YoY (l) and Monetary Base and CB Bills Stocks (in AR$ billion) (r)
Other CB Bills 700
60.0% Repos Transfers to public sector CB Bills Oustanding
FX purchases 600 Monetary Base
40.0%
500
20.0%
0.0% 400
-20.0% 300
-40.0% 200
-60.0% 100
2016 YTD
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
0
J-14 A-14 J-14 O-14 J-15 A-15 J-15 O-15 J-16 A-16
Source: Central Bank and Santander estimates.
Figure 6:Policy Interest Rates (left) and Inflation (right)
45%
39
Lebac 1M IPC - CABA
Lebac 3M
40%
34
Lebac 8M IPC - FIEL
Badlar
35% Inflation
expectations
29
30%
24
25%
19 20%
J-14
J-14
S-14
J-15
J-15
S-15
J-16
N-14
N-15
M-14
M-14
M-15
M-15
M-16
M-16
Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16
Sources: Central Bank, FIEL, CABA, UTDT.
A new era of strengthening currency?. After a successful devaluation move back in December (and a
weakening streak until end of February), the exchange rate has been consistently strengthening owed to
excess dollar supply in the market. This comes from several sources, named the seasonal agricultural
exporters sales (typically taking place between April and July) and also growing capital inflows to take
advantage from the high local rates in a context of expected low peso depreciation going forward. We
foresee an offered exchange rate market for the next months, which will continue exerting appreciating
pressures in the very short run. We estimate that there will be an USD4.7 billion inflow in 2H16, actually
implying a cap to the weakening forces over the exchange rate. This, coupled with a still high inflation rate
(although moderating as of late) is translating into a strengthening real exchange rate. Our REER
6
measure has appreciated 16.5% between March and June alone.
Central Bank with limited scope to counter a stronger peso. The Central Bank has limited room to
counter such strengthening pressures through dollar purchases, as this would translate into accelerating
monetary base growth, in our view, which will endanger the inflation-fighting objective, mostly in a context
in which the monetary authority will have to transfer to the Treasury ARS160 billion throughout 2016. In
spite of this, the Central Bank has stepped up intervention in FX market, buying USD1.5 billion in May,
above the USD260 million bought in the previous four months combined. Also, the authorities have
loosened restrictions on several currency demand sources and lengthened the mandatory period to sell
export proceeds in the local FX market up to 1 year. Finally, the positioning in high-yielding short term
LEBACs was forbidden to foreign players, as a way to tame capital inflows and cushion the real
appreciation process. Nevertheless, we sense that this trend will continue throughout the remainder of
2016, that is, the authorities will have little scope to counter the REER strengthening. We forecast a
USD/ARS exchange rate of 15.5 by year end.
Figure 7: Real Exchange Rate Index (left) and Average wage in USD (right)
290 Multilateral REER base 2001=100 2,000 16.0
Average 1996-2015 Average wage in USD FX
270 1,800
14.0
250 1,600
12.0
230 1,400
Weak FX
10.0
210 1,200
190 1,000 8.0
170 800
6.0
150 600
4.0
130 400
2.0
110 Strong FX 200
90 - -
J-96
J-97
J-98
J-99
J-00
J-01
J-02
J-03
J-04
J-05
J-06
J-07
J-08
J-09
J-10
J-11
J-12
J-13
J-14
J-15
J-16
1Q16E
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3T15E
3T16E
Source: Central Bank and Santander estimates.
Government´s approval rating still high despite the weak economic environment. Despite a recent
drop from the peak at the time of taking the office, government enjoys a high support according to the
Government Confidence Index released by the Universidad Torcuato Di Tella (UTDT). We note that the
main electoral test for the government in the Congress will be in October 2017. We believe that an
inflation slowing and economic recovery will be key to drive the midterm elections results.
7
Figure 8: Government Confidence Index—UTDT
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
A-11
A-03
A-04
A-05
A-06
A-07
A-08
A-09
A-10
A-12
A-13
A-14
A-15
D-03
D-05
D-07
D-09
D-11
D-13
D-15
Source: UTDT.
Main economic variables incorporated in our models.
Figure 9: Main Economic Forecasts
2016 2017 2018 2019

GDP (%) 0% 5% 5% 4%
Unemployment 8% 8% 6% 6%
Inflation (year end) 33% 20% 12% 5%
Primary Fiscal surplus (% GDP) -4% -4% -2% -1%
FX (ARS/USD), eop 15.5 18.5 20.5 21.0
Current account (% GDP) -2.5% -3.1% -4.0% -3.3%
Interest rate 30% 22% 15% 7%
Source: Santander estimates.
8
EQUITY MARKET
MAIN TOP-DOWN DRIVER: INFLATION DYNAMIC
We believe the monthly reading of inflation will be the main top-down driver over the next 12
months. We expect signals of improvements in Argentina’s macro performance will be observed
gradually from now on. Looking forward, we think that the market will consolidate its upward drift once we
see convincing signs of slowing inflation: we believe that monthly inflation readings below 2.0% in 3Q16
and below 1.5% level in 4Q16 will be a catalyst for the market. We expect declining inflation to have two
correlated effects: (i) It will set lower inflation expectations for 2017 (the government target taking inflation
below 20%) and (ii) it will lead the CB to soften interest rates, improving conditions for credit and
investment growth, in our view.
Lower local rates could lead investors to mount a strong return to the equity market. LEBACs’ high
yields (35/38%) have discouraged investors from taking risks with more volatile assets like equity or long
term bonds, in our view. Equity has only been a small share of local investors’ portfolio, in our view, and
any marginal contribution in search for return to a stock market that still trades US$15million daily should
take valuations higher, in our view.
We expect a gradual country risk compression in two years. Though Argentina is finding solutions to
its long-dated credit access problems, we believe that country risk should converge gradually to LatAm
references in no less than two years. Gradual inflation and fiscal deficit reduction, leading to still high
financial needs for federal and provincial governments, set a limit for spread compression in our view. We
use a US-dollar yield of 7.0% to the build up our cost of equity (ke) and WACC for our DCF models of
Argentine stocks under coverage. This yield level is consistent with longer than 8-year-duration bonds
yields and also with EMBI levels of 500bps and risk free rate of 2.0%. Note however that if we included
shorter tenor bonds, the average US-dollar yield for Argentina would be 5.75%.
Figure 10: LatAm EMBIs (left) and Argentine US Dollar Yield Curve (right)
1600 10 %
Argentina Brazil
9% NY Disc 33
1400
8% NY Par 38 Global 46
1200 Disc 33 NY Par 38
7%
Par 38
1000 6%
800 5%
Par 38
4%
600 Bonar X
3% NY Global 17
Bonar 24
400 2%
200 1%
0%
0
0 2 4 6 8 10 12 14
J-10
S-10
J-11
S-11
J-12
S-12
J-13
S-13
J-14
S-14
J-15
S-15
J-16
M-10
M-11
M-12
M-13
M-14
M-15
M-16
Duración
Source: Bloomberg and Santander estimates.
9
Upside potential stemming from lower credit spreads. Under our base-case scenario of a 500-bp
spread incorporated in our DCF models we reach 32% upside potential from current prices, on average,
for our universe of coverage. A 100-bp contraction would imply upside potential of 45% for utilities, and
YPF is showing even stronger upside potential, in our view, followed by TMT and banks, in respective
order. Our DCF targeted P/E would increase to 12.4x from 11.2x under a compression of 100 bps in
spreads.
Figure 11: Target Price Upside Potential (left) and PE (right) Sensitivity to Country Risk Spreads
Upside Potential Target PE Current PE

300 400 500 600 700 300 400 500 600 700
Telecom Argentina 58% 36% 19% 6% -5% 12.2 10.5 9.2 8.1 7.3 6.4
Grupo Clarin 60% 38% 21% 8% -3% 12.8 11.0 9.7 8.6 7.8 4.9
YPF 118% 84% 64% 40% 26% 21.6 18.4 16.1 13.9 12.3 10.0
Pampa Energia 84% 62% 45% 31% 20% 11.4 10.1 9.0 8.2 7.5 6.2
Edenor 134% 95% 62% 36% 17% 12.5 10.4 8.7 7.3 6.3 3.2
TGS 95% 71% 52% 38% 26% 16.8 14.7 13.1 11.9 10.8 8.6
Siderar** 43% 31% 22% 15% 9% 17.6 16.2 15.1 14.2 13.5 12.5
Banco Macro 20% 14% 9% 4% 0% 10.6 10.1 9.6 9.2 8.8 8.9
BBVA Frances 25% 15% 10% 5% 0% 11.8 10.8 10.4 9.9 9.4 22.0
GF Galicia 31% 22% 14% 7% 1% 12.2 11.3 10.6 9.9 9.3 9.3
Average 67% 47% 32% 19% 9% 13.9 12.4 11.2 10.1 9.3 9.2
Source: Bloomberg and Santander estimates. Average is not weighted. ** Local Listed.
Potential inclusion of Argentina in MSCI EM . On June 14, MSCI began a 12-month consultation period
to consider the potential reclassification of Argentina to Emerging from current Frontier Market status. If a
favorable conclusion is reached, the reclassification would come into effect in another 12 months (May
2018), according to MSCI. MSCI stated that Argentina meets most of the accessibility criteria for an
Emerging Market, mentioning the reduction of capital lock-up period for investments (currently 120 days).
We think that this lock-up period will be lifted in the next 12 months, increasing significantly the potential
of Argentina being reclassified. Such an event would be positive for Argentine stocks and will give support
to prices, in our view. MSCI also stated that Argentina’s weight in the EM Index would amount to 0.4%
from a current 16.1% in the FM Index.
TIME TO BE MORE SELECTIVE IN TERMS OF SECTORS
UTILITIES
Utilities continue to be our top pick among sectors in our universe of coverage. From a top-down
perspective, we think that the Argentine equity story is strongly dependent on a successful normalization
of the country’s macroeconomy, which is largely linked to a reduced government deficit, and subsidies to
energy, consequently. A normalization of electricity prices is needed for such a process. We believe that
the government is already engaged in setting a normalized regulatory framework for the sector. For
instance, the Ministry of Energy has released resolution 55/2016 setting the timeline for an Integral Tariff
Revision for Discos to be finished by year-end 2016.
Utilities upside potential stems from re-rating and EBITDA increase as well. Taking into account the
10
companies we cover (Pampa, Edenor and TGS), the sector is trading at 4.0x FV/EBITDA 2017E vs
LatAm average of 6.0x, according to Santander estimates, implying potential upside of 50% if the sector
re-rates to LatAm average. In addition, our EBITDA 3Yrs-CAGR potential is estimated at 21% for Pampa,
1% for EDN (comparison base is high) and 41.0% for TGS until 2018.
Pampa is our top pick due to higher liquidity and broad exposure to diversified energy assets in
Argentina. We like Pampa not only because of to its exposure to utility rates’ normalization (through its
subsidiaries Edenor, Transener, TGS and several electricity generation plants), but also because of its
diversifying strategy toward hydrocarbons production. It initially diversified through the development of its
own E&P subsidiary Petrolera Pampa (PETR AR, Current Price AR$37.1, Not Rated) and recently
through the acquisition of Petrobras’s (PBR; Current Price: US$6.02; Target Price: US$3.30; Hold)
subsidiary, Petrobras Argentina (PZE, Current Price US$6.21, Not Rated). Therefore, we believe that
Pampa will benefit from the normalization of electricity and natural gas prices over the upcoming years.
OIL & GAS

Natural gas production is an attractive play, Pampa is also the name. We believe that the recent
natural gas price increase will lead companies to increase investments in the sector. Tight gas is proving
to be profitable at prices above US$6.00/Mbtu, which is currently being paid for by new gas
developments. In our view, Pampa is an attractive play in the natural gas sector.
Local crude oil prices stable and gasoline pump prices recovering. We continue to believe that local
oil price will maintain its premium to the international reference. Light oil has been priced at US$67.00/bbl
during 2016, and we think it will remain at this level unless local costs decline enough in U.S.-dollars to
make production profitable at lower prices. A weaker currency helps to dilute lifting costs in hard currency.
In parallel, pump prices have already increased by 26% in local currency during 2016, offsetting currency
devaluation (50%) since the change of government in December of last year.
We continue to like YPF. We revised our long-term estimates for YPF and reduced our YE2017 target
price to US$33.00 from US$39.00. YPF is integrated along the gasoline production chain. However, it has
a crude oil deficit of 20% in its refining segment, which means that any pump price increase benefits its
operating results ceteris paribus if crude oil remains stable and vice versa. We expect average revenue
per refined barrel to fall 12% in 2016 to US$88.00/bbl, and to recover to the same level of US$100.00/bbl
seen in 2015. This is still below the US$125.00/bbl seen in 2013-14. Our 2017 target price incorporates
conservative long-term revenue per refined barrel of US$118. Note that 30% of YPF´s sales revenues are
linked to international prices of oil (LPG, virgin gasoline) and that 20% of YPF´s revenue stems from
natural gas that has been increasing in value over the recent years. It is currently close to US$5.00/Mbtu
on average for YPF, and we expect it to converge to US$7.50/MBtu in three years.
BANKS
Banks continue to be overpriced, in our view, despite a positive long term outlook. We maintain our
long-term positive outlook incorporated in our models and released on March 22 (Argentine Banks: A
11
Bright Outlook Not Translated into Attractive Investments, Due to Valuations). In summary, we see credit
penetration going to 40-45% of GDP in ten years and to 30% in five years, from the current 15% of GDP.
Our long-term outlook assumes an economy growing at a 4.0% in steady state, with elasticity of credit to
economic growth of 3.0x.
In the short term, we reduced our expectations of credit growth for this year due to weak demand
driven by low or negative GDP growth so far, and recent measures introduced by the CB to increase legal
reserves for deposits by 4.0%. Although we have adjusted our discounted surplus capital models for
banks, we still find it difficult to justify current valuations. We believe that net income should post three-
year CAGR of 1.8% on average until 2018. In our view, higher valuations for bank stocks can only be
justified by a sustained reduction of country risk spreads. Our implied upside potential for Argentine banks
is 11% toward year-end 2017 and 25% upside potential only if country risk spread compresses by 200
bps. We do not find significant differences among banks in terms of valuations at current prices, but we
tend to favor GGAL over BMA and BBVA Frances due to upside potential and stronger growth
aggressiveness.
TELECOMMUNICATION, MEDIA AND TECHNOLOGY

The TMT sector continues to be unattractive, in our view, due to its high capex as it seeks to
increase exposure to rising 4G services consumption. We continue to observe mobile ARPU growth
lagging inflation and FX devaluation. Telecom Argentina’s mobile ARPU fell from a peak of US$14.00 in
2012 to US$8.60 in 1Q16. In our DCF model, we assume TEO’s mobile ARPU will recover from the same
levels of 2012 in 2020, due to the increasing consumption of high-value-added services. (Mobile is
approximately 73% of TEO’s consolidated revenues). Still, our DCF-implied upside potential is not
enough for a Buy rating on TEO. Grupo Clarin has been able to increase cable ARPU (87% of GCLA´s
consolidated EBITDA) over the last several years due to attractive cable offers and pricing power that led
inflation. However, GCLA has already stepped into the mobile business and carries the risk of entering
into a capex cycle to deploy its network and acquire frequencies to operate, a scenario not incorporated
in our DCF model. For both TEO and GCLA, we see limited upside potential to justify a Buy rating on the
stocks.
12
COMPANY REPORT | ARGENTINA—FINANCIAL SERVICES
BBVA FRANCES UNDERPERFORM

CURRENT PRICE: US$19.94
TARGET PRICE: US$22.00
INTRODUCING YE2017 TARGET PRICE OF US$22.00; REPLACING YE2016 TARGET PRICE OF US$21.00
Net/Net: We continue to believe that BBVA Frances’ high valuation as the most expensive bank stock in the Argentine
market is unwarranted. Despite its stronger asset quality compared to peers, which we price in through a lower beta, we do
not believe that it offers a stronger growth outlook than that of listed peers. We believe that Frances has an outlook that is
average for the Argentine banking system, with credit growth to reach penetration above 40% of GDP in 10 years,
according to our estimates.
Walter Chiarvesio*
 Loan growth: We expect loan growth to slow to 32% YoY in 2016 from Argentina: Santander Rio Valores, S.A.
36% in 2015, then average 32.7% through 2018.
 Deposits growth: We expect the bank to post total deposit growth of

25.8% in 2016, slowing from annual growth of 54% in 2015. 1Q16
showed slowing total deposits growth, driven by a sequential decline
of 9% in demand deposits, offset by saving deposits sequential growth
of 15%. In the next two years, we expect the bank to deliver 28%
deposit growth annually, with term deposits leading the curve, posting Company Statistics
Bloomberg BFR US / FRAN AR
annual growth of 31%.
Current Price (06/13/16) US$ 19.94 / Ar$ 93.15
Target Price (YE 2017) US$ 22.00 / Ar$ 136.00
 NPLs: Expected to remain low at the historical average of 0.80%,
52-Week Range (US$) 14.60 - 24.77
according to our projections. Market Capitalization (US$ Mn) 3,568
Float (%) 16.7
 ROEs: We forecast improving efficiency, as operating costs should be 3-Mth Avg. Daily Vol (US$ Mn) 2.3
Shares Outstanding - Mn 179
diluted through volume growth, offsetting a mild decline in NIM.
Price Performance (US$)
BFR US
250
Merval
Estimates & Valuation Ratios]
200
2015 2016E 2017E 2018E
P/E (x) 9.7 10.6 9.8 8.9
150
BVPADR (US$) 5.90 6.43 6.94 7.94
P/BV (x) 3.5 3.2 3.0 2.6
ROE (%) 31.4 32.0 32.4 32.4 100
Div Yield (%) 0.9 1.7 2.4 3.9

Core Tier I (%) 15.9 16.4 16.2 15.7 50
Sources: FactSet, Santander estimates and company reports. J-14 O-14 F-15 J-15 O-15 F-16 J-16
Sources: FactSet, Santander estimates and company reports.
13
BBVA FRANCES
Financial Highlights: P&L and Balance Sheet, 2015–18E in Millions Company Description
Ar$ US$ BBVA Frances S.A. is one of Argentina’s leading financial
INCOME STATEMENT 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E institutions, with a market share of 6.5% in loans to the
Net Interest Income 8,773 11,771 13,668 16,481 680 810 930 848 private sector and 6.8% in core deposits. The bank was
NPL Provisions (636) (1,027) (786) (1,501) (49) (71) (53) (77) acquired by BBVA in 1996, with the Spanish banking
Adj Net Interest Income 8,137 10,744 12,882 14,980 631 739 876 771 group currently owning approximately 75% of total capital.
The bank focuses on corporate and SME lending and
Non-Interest Income 4,469 5,375 6,551 7,928 346 370 446 408
retail operations. The shares are listed on the Buenos
Total Operating Revenue 12,606 16,119 19,432 22,908 977 1,109 1,322 1,179
Aires stock exchange and trade in ADR form in the
Non-Interest Expense (6,588) (8,323) (9,405) (10,158) (511) (573) (640) (523) NYSE.
Profit Before Taxes 5,895 7,879 10,065 12,790 457 542 685 658
Key Personnel: Jorge Carlos Bledel (Chairman),
Taxes (2,050) (2,683) (3,523) (4,476) (159) (185) (240) (230)
Martin E. Zarich (CEO), Ignacio Sanz y Arcelus (CFO)
Net Profit 3,714 5,059 6,381 8,109 288 348 434 417
and Cecilia Acuña (IRO)
Adjusted Net Profit 3,378 4,331 5,761 7,936 262 298 392 409 Web: www.bancofrances.com.ar
BALANCE SHEET 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E
Cash and Equivalents 27,970 28,520 26,848 28,209 1,856 2,037 1,743 1,386 Loan Portfolio, 2016E
Securities 14,416 20,915 19,526 25,074 957 1,494 1,268 1,232
Loans (net) 54,966 71,283 95,034 126,213 3,648 5,092 6,171 6,202
Intangible Assets 237 191 182 180 16 14 12 9 Car Loans Others
Credit
Total Assets 110,692 142,013 166,888 211,928 7,346 10,144 10,837 10,414 Card 7.8% 3.2%
Core Deposits 75,550 95,067 122,038 156,715 5,014 6,791 7,925 7,701 31.9%
Other Financial Liabilities 15,032 0 0 0 998 0 0 0
Subordinated Debt 0 0 0 0 0 0 0 0
Technical Provisions 0 0 0 0 0 0 0 0
Equity 13,716 17,859 22,995 28,891 910 1,276 1,493 1,420
Adjusted Equity 14,064 18,375 23,582 29,710 933 1,313 1,531 1,460 Personal
Loans Companies
LOAN BOOK 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E 12.1% 45.2%
Companies 22,608 32,965 46,533 65,685 1,500 2,355 3,022 3,228
Total Consumer 30,235 37,732 47,565 59,400 2,007 2,695 3,089 2,919
Mortgages 2,123 2,301 2,797 3,599 141 164 182 177
Other Loans 0 0 0 0 0 0 0 0
Revenue Breakdown, 2016E
Gross Loans 54,966 72,999 96,895 128,684 3,648 5,214 6,292 6,324
Loan Growth (%) 35.6 32.8 32.7 32.8 3.6 42.9 20.7 0.5
NPL 370 730 775 1,029 25 52 50 51 Fees Others
Provisions (1,112) (1,715) (1,860) (2,471) (74) (123) (121) (121) 26.8% 1.6%
KEY RATIOS 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E Trading
4.9%
NIM 11.02 10.63 10.07 9.96 11.02 10.63 10.07 9.96
Risk Charge 0.67 1.00 0.80 0.80 0.67 1.00 0.80 0.80
Operating Revenue / ATAs 14.29 12.88 12.65 12.23 14.29 12.88 12.65 12.23
Cost / ATAs 7.47 6.65 6.12 5.42 7.47 6.65 6.12 5.42 NII
Adj Efficiency 45.2 49.4 48.5 43.1 45.2 49.4 48.5 43.1 66.7%
Effective Taxes 34.8 34.0 35.0 35.0 34.8 34.0 35.0 35.0
Reported ROE (%) 31.4 32.1 32.3 32.3 31.4 32.1 32.3 32.3
Adj ROE (%) 43.1 40.6 42.8 44.6 43.1 40.6 42.8 44.6
Shareholder Structure, Current
NPL Ratio 0.67 1.00 0.80 0.80 0.67 1.00 0.80 0.80
Adj NPL Ratio 1.53 1.59 1.45 1.48 1.53 1.59 1.45 1.48
Loans / Total Assets 49.7 51.4 58.1 60.7 49.7 51.4 58.1 60.7
Free Float
Loans / Core Deposits 72.8 76.8 79.4 82.1 72.8 76.8 79.4 82.1 ANSES 16.7%
7.9%
RWA % Total Assets 79.8 79.3 87.2 89.3 79.8 79.3 87.2 89.3
Core Tier I Ratio (%) 15.9 16.3 16.2 15.7 15.9 16.3 16.2 15.7
Dividend Payout (%) 10.8 17.8 19.8 27.5 10.8 17.8 19.8 27.5
MARKET RATIOS 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E
Adj. P/BV 4.1 4.5 4.2 3.4 4.1 4.5 4.2 3.4 BBVA
Adj. P/E 9.0 10.3 8.9 7.5 9.0 10.3 8.9 7.5 75.4%
Div Yield (%) 0.9 1.8 2.6 4.5 0.9 1.7 2.4 3.2
PER SHARE DATA 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E Sources for all charts and tables: Company reports and Santander
EPS 29.21 26.76 28.87 31.55 2.12 1.94 2.10 2.29 estimates.
BVPS 81.15 88.62 95.61 109.20 5.90 6.44 6.95 7.93
DPS 2.56 4.72 6.70 10.95 0.19 0.34 0.49 0.80
Adj EPS 24.99 22.91 26.07 30.88 1.93 1.66 1.89 2.24
Adj BVPS 78.26 91.18 98.05 112.30 6.05 6.62 7.12 8.16
Surplus Capital per Share 22.95 39.37 42.72 44.07 1.77 2.86 3.10 3.20
Unrealized Cap. Gains/Shr 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
14
FINANCIAL STATEMENTS
Figure 12. BBVA Frances: Financial Statements, 2015–2018E (Millions of Argentine Pesos)
2015A 2016E 2017E 2018E
Income Statement
Net Interest Income 8,773 11,771 13,668 16,481
NPL Provisions (636) (1,027) (786) (1,501)
Adj. Net Interest Income 8,137 10,744 12,882 14,980
Fees 3,675 4,320 5,383 6,715
FX & Trading 595 797 832 867
Insurance 0 0 0 0
Equity Income 199 258 336 346
Other Income 0 0 0 0
Total Operating Revenue 12,606 16,119 19,432 22,908
Personnel (3,758) (4,786) (5,408) (5,840)
Administrative Expenses (2,830) (3,538) (3,997) (4,317)
Other Expenses 0 0 0 0
Operating Income 6,018 7,796 10,027 12,750
Non-Operating Results (123) 83 38 40
Earnings before Taxes 5,895 7,879 10,065 12,790
Taxes (2,050) (2,683) (3,523) (4,476)
Minority Interest (131) (137) (161) (205)
Extraordinary Items (Net) 0 0 0 0
Net Income 3,714 5,059 6,381 8,109
Adjusted Net Income 3,378 4,331 5,761 7,936
Balance Sheet
Total Assets 110,692 142,013 166,888 211,928
Cash and Equivalents 27,970 28,520 26,848 28,209
Securities 14,416 20,915 19,526 25,074
Loans (net) 54,966 71,283 95,034 126,213
Investments 364 467 549 697
Tangible Assets 914 1,036 1,123 1,265
Intangible and Deferred Assets 237 191 182 180
Liabilities 96,976 124,154 143,892 183,038
Demand Deposits 21,202 23,940 30,223 38,156
Time Deposits 31,896 41,762 54,742 71,755
Savings Deposits 22,452 29,365 37,073 46,804
Interbank Deposits 0 0 0 0
Debt and Securities 15,032 0 0 0
Subordinated Debt 0 0 0 0
Technical Provisions 0 0 0 0
Other Liabilities 6,394 29,087 21,854 26,322
Minorities 0 0 0 0
Equity 13,716 17,859 22,995 28,891
Adj. Equity 14,064 18,375 23,582 29,710
Loan Book
Loans to Companies 22,608 32,965 46,533 65,685
Corporate 22,608 32,965 46,533 65,685
SME 0 0 0 0
Personal Loans 7,344 8,798 11,425 14,424
Credit Cards 18,323 23,274 28,721 35,959
Auto Loans 4,568 5,660 7,419 9,018
Mortgages 2,123 2,301 2,797 3,599
Payroll Loans 0 0 0 0
Other Loans 0 0 0 0
Gross Loans 54,966 72,999 96,895 128,684
NPLs 370 730 775 1,029
Provisions for NPLs (1,112) (1,715) (1,860) (2,471)
Sources: FactSet, Bloomberg, Santander estimates and company reports.
15
Figure 13. BBVA Frances: Financial Statements, 2015–2018E (U.S. Dollars in Millions)
2015A 2016E 2017E 2018E
Income Statement
Net Interest Income 680 810 930 848
NPL Provisions (49) (71) (53) (77)
Adj. Net Interest Income 631 739 876 771
Fees 285 297 366 346
FX & Trading 46 55 57 45
Insurance 0 0 0 0
Total Operating Revenue 977 1,109 1,322 1,179
Personnel (291) (329) (368) (301)
Administrative Expenses (219) (243) (272) (222)
Operating Income 466 536 682 656
Earnings before Taxes 457 542 685 658
Taxes (159) (185) (240) (230)
Net Income 288 348 434 417
Adjusted Net Income 262 298 392 409
Balance Sheet
Total Assets 7,346 10,144 10,837 10,414
Securities 957 1,494 1,268 1,232
Loans (net) 3,648 5,092 6,171 6,202
Tangible Assets 61 74 73 62
Liabilities 6,436 8,868 9,344 8,994
Demand Deposits 1,407 1,710 1,963 1,875
Time Deposits 2,117 2,983 3,555 3,526
Debt and Securities 998 0 0 0
Other Liabilities 424 2,078 1,419 1,293
Minorities 0 0 0 0
Equity 910 1,276 1,493 1,420
Adj. Equity 933 1,313 1,531 1,460
Loan Book
Corporate 1,500 2,355 3,022 3,228
SME 0 0 0 0
Personal Loans 487 628 742 709
Credit Cards 1,216 1,662 1,865 1,767
Auto Loans 303 404 482 443
Mortgages 141 164 182 177
Other Loans 0 0 0 0
Gross Loans 3,648 5,214 6,292 6,324
NPLs 25 52 50 51
Provisions for NPLs (74) (123) (121) (121)
16
Figure 14. BBVA Frances — Key Ratios, 2015A–2018E
Profitability (%) 2015A 2016E 2017E 2018E
Lending Income / Interest Income 71.8 73.6 79.3 82.9
Securities Income / Interest Income 21.0 20.5 15.9 12.2
NII / Operating Revenue 64.5 66.7 66.3 65.4
Trading / Operating Revenue 4.7 4.9 4.3 3.8
Fees / Operating Revenue 29.2 26.8 27.7 29.3
Insurance / Operating Revenue 0.0 0.0 0.0 0.0
Equity Income / Operating Revenue 1.6 1.6 1.7 1.5
Other Revenue / Operating Revenue 0.0 0.0 0.0 0.0
Operating Revenue / ATAs 14.29 12.88 12.65 12.23
Cost / ATAs 7.47 6.65 6.12 5.42
Adj Efficiency 45.2 49.4 48.5 43.1
Cost / Income 52.3 51.6 48.4 44.3
Cost / Business 5.42 5.49 4.90 4.06
Fees / Costs 55.8 51.9 57.2 66.1
EBT / ATAs 6.68 6.30 6.55 6.83
Taxes / EBT 34.8 34.0 35.0 35.0
Reported ROE 31.4 32.1 32.3 32.3
ROTA 4.4 4.2 4.3 4.4
TCE/TA 13.2 12.5 12.9 13.4
Adj RORWA 4.66 4.27 4.53 4.81
Adj ROE 43.1 40.6 42.8 44.6
Payout Ratio 10.8 17.8 19.8 27.5
Margins and Asset Quality 2015A 2016E 2017E 2018E
NIM 11.02 10.63 10.07 9.96
Adj NIM 10.22 9.70 9.49 9.05
Adj NIM % Benchmark Rate 46.5 39.6 42.2 57.5
NPLs / Gross Loans 0.67 1.00 0.80 0.80
Provisions / NPLs 301 235 240 240
Provisions / Gross Loans 2.02 2.35 1.92 1.92
NPLs / Equity 1.5 1.6 1.5 1.5
NPL Charge / Avg Gross Loans 0.67 1.00 0.80 0.80
Write-Offs / Avg Gross Loans 1.02 0.70 0.76 0.80
Adj NPL Ratio 1.53 1.59 1.45 1.48
Balance Sheet and Capital 2015A 2016E 2017E 2018E
ATAs 88,194 125,140 153,561 187,266
Avg Gross Loans 46,283 62,966 83,829 111,303
AEA 79,577 110,711 135,706 165,533
Avg Core Deposits 75,550 95,067 122,038 156,715
ABL 71,740 90,315 108,024 138,696
Dividends (400) (900) (1,265) (2,233)
Cash / Deposits 36.4 30.0 22.0 18.0
Interbank loans / Total Assets 1.4 1.4 1.4 1.4
Securities / Total Assets 13.0 14.7 11.7 11.8
Loans / Total Assets 49.7 51.4 58.1 60.7
Core Deposits / Total Assets 68.3 66.9 73.1 73.9
Loans / Core Deposits 72.8 76.8 79.4 82.1
Adj RWA 88,313 112,592 145,462 189,263
RWA % Total Assets 79.8 79.3 87.2 89.3
Core Tier I (%) 15.9 16.3 16.2 15.7
Tier I 14.6 15.2 15.3 14.8
Tier II 0.9 0.7 0.6 0.4
Branches 290 300 312 324
Employees 5,463 5,676 5,900 6,128
Employees per Branch 19.1 18.9 18.9 18.9
17
BANCO MACRO UNDERPERFORM

DOWNGRADING RATING TO UNDERPERFORM FROM HOLD
Net/Net: We are downgrading our rating to Underperform given the stock’s recent strong performance and resulting limited
upside potential implied by our new target price for YE2017. In addition, we adjusted our estimates for 2016 and 2017 after
incorporating a weak 1Q16 performance for the bank in terms of loan growth, as well as a recent increase in the legal
reserve requirement introduced by the Central Bank. We believe that any optimistic view of loan growth is already priced in
for Argentine banks in general. BMA is trading at 2.7x P/BV for 2017E, while we estimate a fair value multiple of 2.9x
toward YE2017.
 Loan growth: We expect the loan book to grow 22.5% in 2016 Walter Chiarvesio*
Argentina: Santander Rio Valores, S.A.
following a sequential decline of 0.3% in 1Q16. We expect weak +5411-4341-1564 | wchiarvesio@santanderrio.com.ar
demand during 1H16, due to a sluggish economy, likely to continue

through 3Q16, in our view. We expect loan demand to pick up toward
year-end 2016 and grow 33% in 2017, driven by a rebound in
economic growth.
 Deposits growth: We expect funding to grow 33% in 2016 and 30% in

2017, with an increasing share of term deposits in the funding base as
long as the interest rate remains positive in real terms going into next
year. We think that funding costs should fall faster than loan yields at
Company Statistics
the beginning of the credit expansion cycle (the next two years), but Bloomberg BMA US / BMA AR
believe higher growth for term deposits should erode NIM somewhat Current Price (06/13/16) US$ 69.18 / Ar$ 96.00
going forward. Target Price (YE 2017) US$ 76.60 / Ar$ 142.00
52-Week Range (US$) 37.15 - 73.01
 ROE expected to remain in the low thirties: The NIM decline should be Market Capitalization (US$ Mn) 4,113
offset by better efficiency ratios over the next three years, in our view. Float (%) 30.1
3-Mth Avg. Daily Vol (US$ Mn) 8.0
In the shorter term, we think that BMA’s ROE could surprise on the
upside as a result of trading gains if local assets, bonds, and equity
continue their appreciating trend. Price Performance (US$)
BMA US
250
Merval
200
Estimates & Valuation Ratios
2015 2016E 2017E 2018E 150
P/E (x) 8.0 9.6 8.6 7.9
BVPADR (US$) 20.54 22.91 25.85 30.85 100
P/BV (x) 3.4 3.0 2.7 2.2
ROE (%) 37.8 32.6 32.6 31.5 50
Div Yield (%) 0.0 1.5 1.6 1.9 J-14 O-14 F-15 J-15 O-15 F-16 J-16
Core Tier I (%) 22.0 24.7 25.9 25.7 Sources: FactSet, Santander estimates and company reports.
18
BANCO MACRO
Ar$ US$ Banco Macro S.A. is one of Argentina’s leading banks,
INCOME STATEMENT 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E with the largest distribution network (437 branches) in the
Net Interest Income 9,863 12,685 14,934 17,687 880 832 824 861 country, in addition to a strong capital base and market
NPL Provisions (877) (821) (1,214) (1,544) (78) (54) (67) (75) shares of 7.6% in loans and 6.1% in core deposits. From
Adj Net Interest Income 8,986 11,865 13,721 16,143 802 778 757 786 its origins as a wholesale bank, the company has
expanded via acquisitions of smaller regional banks in
Non-Interest Income 5,807 7,057 9,914 12,056 518 463 547 587
areas with low penetration of financial products. It focuses
Total Operating Revenue 14,793 18,922 23,635 28,199 1,320 1,241 1,304 1,372
on retail banking for low- to middle-income individuals,
Non-Interest Expense (7,227) (9,395) (11,026) (12,280) (645) (616) (608) (598) specializing in payroll lending and SMEs and servicing
Profit Before Taxes 7,530 9,601 12,645 15,959 672 630 698 777 provincial governments. Its shares trade on the Buenos
Taxes (2,486) (3,359) (4,426) (5,586) (222) (220) (244) (272) Aires Stock Exchange, and its ADRs trade on the NYSE.
Net Profit 5,009 6,194 8,156 10,293 447 406 450 501
Key Personnel: Jorge Horacio Brito (CEO and
Adjusted Net Profit 4,151 4,570 6,767 9,301 370 300 373 453 Chairman), Jorge Pablo Brito (CFO) and Jorge Scarinci
(IRO)
Cash and Equivalents 19,403 21,573 28,079 37,551 1,493 1,392 1,518 1,845
Web: www.macro.com.ar
Securities 15,391 28,139 21,975 27,755 1,184 1,815 1,188 1,364
Loans (net) 61,389 75,335 100,409 132,730 4,722 4,860 5,427 6,522 Loan Portfolio, 2016E
Intangible Assets 422 464 513 575 32 30 28 28
Total Assets 104,952 137,552 165,508 217,839 8,073 8,874 8,946 10,705
Credit
Core Deposits 64,291 90,375 118,079 158,399 4,945 5,831 6,383 7,784 Cards Other
Other Financial Liabilities 7,537 10,832 13,033 17,154 580 699 705 843 25.3% 3.9% Companies
Subordinated Debt 1,958 2,100 2,511 2,835 151 135 136 139 25.6%
Technical Provisions 0 0 0 0 0 0 0 0
Equity 15,876 21,795 29,022 38,092 1,221 1,406 1,569 1,872
Adjusted Equity 16,162 22,020 29,245 38,354 1,243 1,421 1,581 1,885
LOAN BOOK 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E Mortgages
Personal
Companies 17,591 19,700 26,802 35,132 1,353 1,271 1,449 1,726 Loans 4.7%
Total Consumer 40,178 52,861 70,257 93,408 3,091 3,410 3,798 4,590 40.5%
Mortgages 3,509 3,642 4,599 5,806 270 235 249 285
Other Loans 745 805 805 805 57 52 44 40
Gross Loans 62,885 77,009 102,463 135,150 4,837 4,968 5,539 6,641
Revenue Breakdown, 2016E
Loan Growth (%) 42.0 22.5 33.1 31.9 (7.5) 2.7 11.5 19.9
NPL 1,011 1,308 1,712 2,017 78 84 93 99
Provisions (1,496) (1,674) (2,054) (2,421) (115) (108) (111) (119)
Fees Others
KEY RATIOS 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E 31.1% 0.0%
NIM 12.07 11.41 10.72 10.08 12.07 11.41 10.72 10.08
Risk Charge 1.61 1.70 1.67 1.49 1.61 1.70 1.67 1.49 Trading
Operating Revenue / ATAs 16.66 15.61 15.63 14.80 16.66 15.61 15.63 14.80 6.2%
Cost / ATAs 8.14 7.75 7.29 6.45 8.14 7.75 7.29 6.45
Adj Efficiency 46.7 49.7 48.3 44.6 46.7 49.7 48.3 44.6
NII
Effective Taxes 33.0 35.0 35.0 35.0 33.0 35.0 35.0 35.0 62.7%
Reported ROE (%) 37.8 32.6 32.6 31.5 37.8 32.6 32.6 31.5
Adj ROE (%) 61.7 50.3 58.6 63.1 61.7 50.3 58.6 63.1
NPL Ratio 1.61 1.70 1.67 1.49 1.61 1.70 1.67 1.49
Adj NPL Ratio 2.49 2.51 2.46 2.34 2.49 2.51 2.46 2.34 Shareholder Structure, Current
Loans / Core Deposits 97.8 85.2 86.8 85.3 97.8 85.2 86.8 85.3
RWA % Total Assets 70.1 64.8 68.2 68.5 70.1 64.8 68.2 68.5 Free Float
30.9% Jorge Brito
Core Tier I Ratio (%) 22.0 24.7 25.9 25.7 22.0 24.7 25.9 25.7
19.4%
Dividend Payout (%) 0.0 14.1 11.4 11.9 0.0 14.1 11.4 11.9
Adj. P/BV 2.9 3.1 2.8 2.3 2.9 3.1 2.8 2.3
Adj. P/E 8.0 12.9 10.1 8.5 8.0 12.9 10.1 8.5 ANSES Delfin
Div Yield (%) (0.0) 1.5 1.6 2.2 (0.0) 1.4 1.2 1.4 31.0% Ezequiel
Carvallo
PER SHARE DATA 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E 18.8%
EPS 118.59 98.63 111.08 120.54 8.62 7.16 8.07 8.76

Sources for all charts and tables: Company reports and Santander
BVPS 282.73 315.37 355.88 424.64 20.54 22.91 25.85 30.85
estimates.
DPS 0.00 13.87 14.81 18.05 0.00 1.01 1.08 1.31
Adj EPS 92.43 72.77 92.15 108.91 7.14 5.29 6.69 7.91
Adj BVPS 270.68 318.62 358.61 427.56 20.91 23.15 26.05 31.06
19
Figure 15. Banco Macro: Financial Statements, 2015–2018E (Millions of Argentine Pesos)
2015A 2016E 2017E 2018E
Income Statement
NPL Provisions (877) (821) (1,214) (1,544)
Fees 4,401 5,882 7,914 9,856
FX & Trading 1,407 1,175 2,000 2,200
Insurance 0 0 0 0
Personnel (4,775) (6,296) (7,556) (8,462)
Taxes (2,486) (3,359) (4,426) (5,586)
Net Income 5,009 6,194 8,156 10,293
Balance Sheet
Total Assets 104,952 137,552 165,508 217,839
Securities 15,391 28,139 21,975 27,755
Loans (net) 61,389 75,335 100,409 132,730
Tangible Assets 1,097 1,201 1,318 1,512
Liabilities 89,076 115,757 136,486 179,747
Demand Deposits 14,063 18,842 23,342 28,917
Time Deposits 34,720 53,718 73,083 103,162
Debt and Securities 7,537 10,832 13,033 17,154
Subordinated Debt 1,958 2,100 2,511 2,835
Other Liabilities 0 0 0 0
Minorities 0 0 0 0
Equity 15,876 21,795 29,022 38,092
Adj. Equity 16,162 22,020 29,245 38,354
Loan Book
Corporate 17,591 19,700 26,802 35,132
SME 0 0 0 0
Personal Loans 23,232 31,206 40,905 53,618
Credit Cards 14,793 19,453 26,466 36,006
Auto Loans 2,153 2,202 2,886 3,783
Mortgages 3,509 3,642 4,599 5,806
Other Loans 745 805 805 805
Gross Loans 62,885 77,009 102,463 135,150
NPLs 1,011 1,308 1,712 2,017
20
Figure 16. Banco Macro: Financial Statements, 2015–2018E (U.S. Dollars in Millions)
2015A 2016E 2017E 2018E
Income Statement
Net Interest Income 880 832 824 861
NPL Provisions (78) (54) (67) (75)
Fees 393 386 437 480
FX & Trading 125 77 110 107
Insurance 0 0 0 0
Personnel (426) (413) (417) (412)
Taxes (222) (220) (244) (272)
Net Income 447 406 450 501
Balance Sheet
Total Assets 8,073 8,874 8,946 10,705
Securities 1,184 1,815 1,188 1,364
Loans (net) 4,722 4,860 5,427 6,522
Investments 1 1 1 1
Liabilities 6,852 7,468 7,378 8,833
Demand Deposits 1,082 1,216 1,262 1,421
Time Deposits 2,671 3,466 3,950 5,069
Debt and Securities 580 699 705 843
Other Liabilities 0 0 0 0
Minorities 0 0 0 0
Equity 1,221 1,406 1,569 1,872
Adj. Equity 1,243 1,421 1,581 1,885
Loan Book
Corporate 1,353 1,271 1,449 1,726
SME 0 0 0 0
Personal Loans 1,787 2,013 2,211 2,635
Credit Cards 1,138 1,255 1,431 1,769
Auto Loans 166 142 156 186
Mortgages 270 235 249 285
Other Loans 57 52 44 40
Gross Loans 4,837 4,968 5,539 6,641
NPLs 78 84 93 99
21
Figure 17. Banco Macro — Key Ratios, 2015A–2018E
Cost / ATAs 8.14 7.75 7.29 6.45
Adj Efficiency 46.7 49.7 48.3 44.6
Cost / Income 48.9 49.7 46.7 43.5
Cost / Business 6.20 6.27 5.61 4.73
Fees / Costs 60.9 62.6 71.8 80.3
EBT / ATAs 8.48 7.92 8.36 8.38
Taxes / EBT 33.0 35.0 35.0 35.0
Reported ROE 37.8 32.6 32.6 31.5
ROTA 5.8 5.2 5.5 5.5
TCE/TA 14.9 15.6 16.6 17.2
Adj RORWA 7.12 5.88 6.73 7.14
Adj ROE 61.7 50.3 58.6 63.1
Payout Ratio 0.0 14.1 11.4 11.9
NIM 12.07 11.41 10.72 10.08
Adj NIM 11.00 10.67 9.85 9.20
NPLs / Gross Loans 1.61 1.70 1.67 1.49
NPLs / Equity 2.5 2.5 2.5 2.3
Adj NPL Ratio 2.49 2.51 2.46 2.34
ATAs 88,809 121,232 151,174 190,523
Avg Gross Loans 52,478 66,673 89,160 118,092
AEA 81,685 111,192 139,289 175,437
ABL 63,454 92,061 121,698 159,485
Dividends 0 (871) (929) (1,223)
Cash / Deposits 29.0 23.0 23.0 23.0
Adj RWA 73,596 89,106 112,922 149,115
RWA % Total Assets 70.1 64.8 68.2 68.5
Core Tier I (%) 22.0 24.7 25.9 25.7
Tier I 19.9 23.4 24.9 24.9
Tier II 0.9 0.7 0.9 0.9
Branches 439 454 479 504
Employees 8,727 9,043 9,518 10,018
22
COMPANY REPORT | ARGENTINA—UTILITIES
EDENOR BUY
UPGRADING RATING TO BUY FROM HOLD
Net/Net: In the past few months, visibility on Argentina’s regulatory framework has improved. Consequently, we expect a
final regulatory rate to be determined no later than 1Q17 and applied in 2017-18. Our target price assumes this rate
normalization and EBITDA sustainability in the upcoming years.
 What has changed? We have updated our models to include: (i) new Maria Carolina Carneiro*
Brazil: Banco Santander S.A.
macroeconomic assumptions; (ii) recently released results; (iii) lower +5511-3012-6682 | macarneiro@santander.com.br
country risk; (iv) regulatory developments (including higher Andre Sampaio*

tariffs/lower subsidies as of 2016); (v) faster tariff review +5511-3553-7426 | ansampaio@santander.com.br
implementation (including a regulatory calendar); and (vi) lower
demand in 2016-17.
 Outlook improving. We have seen important improvements in the

regulatory framework since early 2016, as the government has
decided to reduce subsidies and begun discussions on defining a
regulatory framework. According to the regulatory timetable (ENRE
Resolution 55/2016), full tariff review parameters should be released
by the end of 3Q16 (we expect the tariff review to be applied in Company Statistics
2017/2018. Consequently, our model incorporates aignificant tariff Bloomberg EDN US
increases for these units in order to cope with higher capex, a real
12% real return, cost coverage, inflation and FX depreciation. 52-Week Range (US$) 11.88 - 19.75
Market Capitalization (US$ Mn) 697
 Reasons to like Edenor? Edenor performance has been weak in Float (%) 48.5
1H16 – stock has declined 10.9% YTD - a result of lower liquidity and 3-Mth Avg. Daily Vol (US$ Mn) 0.5
concerns regarding demand decline and tariff implementation, in our
view. Although we acknowledge the risks of the tariff review Price Performance (US$)
implementation could be higher than expected, we also see stock EDN US Merval
180
trading at 1x its current asset base, which we consider excessively
160
depreciated to reflect real regulatory asset base. Consequently, we
140
believe there is significant upside potential.
120
100
(US$) 2015A 2016E 2017E 2018E
80
P/E 9.1 13.9 5.4 5.2
FV/EBITDA 3.3 3.6 3.2 3.1 60
J-14 O-14 F-15 J-15 O-15 F-16 J-16
FCF Yield (%) 15.3 1.4 (2.4) 3.8
Div Yield (%) (0.0) (0.0) 1.6 4.0
Net Debt/EBITDA 0.3 0.3 0.3 0.3
23
EDENOR
Financial Highlights: P&L, Balance Sheet and CF Statement, 2015–18E in Millions Company Description
Ar$ US$ Empresa Distribuidora y Comercializadora del Norte S.A.
P&L ACCOUNT 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E (Edenor) is an electricity distribution company in
Total Revenue 3,802 14,097 17,510 20,755 406 945 1,030 1,068 Argentina. Edenor was granted a 95-year concession to
YoY change (%) 5.7 270.8 24.2 18.5 (6.5) 132.4 9.1 3.7 distribute electricity to the northwestern Great Buenos
Gross Profit (1,373) 4,535 6,036 7,183 (147) 304 355 370 Aires area and northern City of Buenos Aires
YoY change (%) (23.1) n/m 33.1 19.0 (8.9) n/m 16.8 4.2 (approximately 7 million people). Edenor sold 21,312
EBITDA 2,439 3,109 4,062 4,784 261 208 239 246 GWh of energy in 2014.
YoY change (%) n/m 27.5 30.7 17.8 n/m (20.1) 14.7 3.1 Key Personnel: Ricardo A. Torres (Chairman), Ricardo
As % of Revenue 64.2 22.1 23.2 23.1 64.2 22.1 23.2 23.1 A. Torres (CEO), Leandro Carlos Monteiro (CFO) and
Operating Income 2,157 2,752 3,626 4,258 231 184 213 219 Lida Wang (IR)
YoY change (%) n/m 27.6 31.8 17.5 n/m (20.0) 15.7 2.8 Web: www.edenor.com
As % of Revenue 56.7 19.5 20.7 20.5 56.7 19.5 20.7 20.5
Financial Results (1,168) (1,485) (250) (261) (125) (99) (15) (13) Sales by Segment, 2015
Taxes (184) (517) (1,181) (1,399) (20) (35) (69) (72)
Net Profit 805 750 2,194 2,598 86 50 129 134
YoY change (%) n/m (6.9) 192.7 18.4 n/m (41.6) 157.0 3.6
As % of Revenue 21.2 5.3 12.5 12.5 21.2 5.3 12.5 12.5 Others
19.9%
CASH FLOW 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E Comercial
Depreciation & Amortization (282) (357) (437) (526) (30) (24) (26) (27) 17.4%
Other Noncash Items 1,035 1,556 1,000 500 111 104 59 26
Changes in Working Capital 1,095 (275) (1,366) (190) 117 (18) (80) (10)
Operating Cash Flow 3,217 2,388 2,264 3,434 344 160 133 177
Capital Expenditures (2,095) (2,237) (2,550) (2,914) (224) (150) (150) (150) Industrial
Free Cash Flow 1,122 151 (286) 520 120 10 (17) 27 17.3%
Other Invest./(Divestments) (1,008) (6) 0 0 (108) (0) 0 0
Change in Debt (173) 0 0 0 (18) 0 0 0 Residential
45.4%
Dividends 0 0 (187) (548) 0 0 (11) (28)
Capital Increases/Other 0 0 0 0 0 0 0 0
EBITDA by Business, 2015A
Cash and Equivalents 1,689 2,064 1,591 1,562 169 133 86 77
Current Assets 3,867 5,897 5,655 6,054 387 380 306 297
Fixed Assets 8,886 10,966 12,458 14,846 889 707 673 730
Total Assets 12,980 17,257 18,508 21,295 1,298 1,113 1,000 1,046
Current Liabilities 5,678 7,643 6,508 6,746 568 493 352 331
Long-Term Liabilities 5,778 6,937 6,937 6,937 578 448 375 341
Shareholders' Equity 1,525 2,677 5,063 7,613 153 173 274 374
Total Financial Debt 2,510 2,898 2,898 2,898 251 187 157 142
ST Debt 49 124 124 124 5 8 7 6
LT Debt 2,461 2,774 2,774 2,774 246 179 150 136 Distribution
100.0%
FINANCIAL RATIOS 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E
Net Debt 821 834 1,307 1,336 82 54 71 66
Capital Employed 6,589 8,506 11,827 14,813 659 549 639 728
Net Debt/EBITDA 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
Net Debt/Equity 0.5 0.3 0.3 0.2 0.8 0.3 0.3 0.2
Capex/Revenue (%) 55.1 15.9 14.6 14.0 55.1 15.9 14.6 14.0
Float
Int Cover (%) 6.3 5.8 19.5 24.4 6.3 5.8 19.5 24.4
22.2%
Dividend Payout (%) 0.0 0.0 25.0 25.0 0.0 0.0 26.0 25.0
ROCE (%) 31.4 33.3 33.9 n/m 41.5 32.4 33.9 n/m
Anses
ROE (%) 84.3 35.7 56.7 41.0 106.4 33.5 56.7 41.0 26.8%
P/E 12.6 12.8 4.4 3.7 9.1 13.9 5.4 5.2 Pampa
51.0%
P/CE 9.4 8.7 3.7 3.1 6.8 9.4 4.5 4.3
FV/EBITDA 4.5 3.4 2.7 2.3 3.3 3.6 3.2 3.1
FV/EBIT 5.1 3.8 3.0 2.6 3.8 4.1 3.6 3.5
FV/Revenue 2.9 0.7 0.6 0.5 2.1 0.8 0.7 0.7 Sources for all charts and tables: Company reports and Santander
P/BV 6.7 3.6 1.9 1.3 5.2 4.0 2.5 1.9 estimates.
FCF Yield (%) 11.0 1.6 (3.0) 5.4 15.3 1.4 (2.4) 3.8
Div Yield (%) (0.0) (0.0) 1.9 5.7 (0.0) (0.0) 1.6 4.0
PER SHARE DATA 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E
EPS 1.30 1.21 3.55 4.20 0.14 0.08 0.21 0.22
DPS 0 0 0.26 0.86 0 0 0.02 0.04
BVPS 2.46 4.33 8.18 12.30 0.25 0.28 0.44 0.60
24
Figure 18. Edenor: Financial Statements, 2015–2018E (Millions of Argentine Pesos)
2015A 2016E 2017E 2018E
Income Statement
Net Revenue 3,802 14,097 17,510 20,755
YoY Change (%) 5.7 270.8 24.2 18.5
Cost of Goods Sold (5,175) (9,561) (11,475) (13,571)
Gross Profit (1,373) 4,535 6,036 7,183
SG&A Expenses (1,540) (2,184) (2,730) (3,085)
Operating Profit 2,157 2,752 3,626 4,258
YoY Change (%) n/m 27.6 31.8 17.5
Financial Results (1,168) (1,485) (250) (261)
FX Gain/Loss 0 0 0 0
Other Financial Gains/Losses (778) (949) (42) (65)
Other Income/Expenses 5,070 400 320 160
Pre-Tax Profit 989 1,267 3,375 3,997
Taxes (184) (517) (1,181) (1,399)
Minority Interest 327 (61) 0 0
Net Profit 805 750 2,194 2,598
YoY Change (%) n/m (6.9) 192.7 18.4
Depreciation & Amortization (282) (357) (437) (526)
EBITDA 2,439 3,109 4,062 4,784
YoY Change (%) n/m 27.5 30.7 17.8
Balance Sheet
Total Assets 12,980 17,257 18,508 21,295
Accounts Receivable 963 3,056 3,118 3,696
Inventories 0 0 0 0
Other Current Assets 1,215 777 946 796
Property& Plant and Equipment 8,886 10,966 12,458 14,846
Other Long-Term Assets 395 395 395 395
Total Liabilities 11,456 14,580 13,445 13,683
Accounts Payable 4,475 6,293 4,695 4,525
Short-Term Debt 49 124 124 124
Other Current Liabilities 1,154 1,227 1,688 2,097
Long-Term Debt 2,461 2,774 2,774 2,774
Other Long-Term Liabilities 3,317 4,163 4,163 4,163
Minority Interest 0 0 0 0
Shareholders' Equity 1,525 2,677 5,063 7,613
Cash Flow
Net Profit 805 750 2,194 2,598
Other Noncash Items 1,035 1,556 1,000 500
Changes in Working Capital 1,095 (275) (1,366) (190)
Operating Cash Flow 3,217 2,388 2,264 3,434
Capital Expenditures (2,095) (2,237) (2,550) (2,914)
Other Investments/(Divestments) (1,008) (6) 0 0
Change in Debt (173) 0 0 0
Dividends 0 0 (187) (548)
Capital Increases/Other 0 0 0 0
Net Cash Flow (57) 140 (473) (29)
Free Cash Flow 1,122 151 (286) 520
25
Figure 19. Edenor: Financial Statements, 2015–2018E (U.S. Dollars in Millions)
2015A 2016E 2017E 2018E
Income Statement
Net Revenue 406 945 1,030 1,068
YoY Change (%) (6.5) 132.4 9.1 3.7
Cost of Goods Sold (553) (641) (675) (699)
Gross Profit (147) 304 355 370
SG&A Expenses (165) (146) (161) (159)
Operating Profit 231 184 213 219
YoY Change (%) n/m (20.0) 15.7 2.8
Financial Results (125) (99) (15) (13)
Other Financial Gains/Losses (83) (64) (2) (3)
Other Income/Expenses 542 27 19 8
Pre-Tax Profit 106 85 199 206
Taxes (20) (35) (69) (72)
Minority Interest 35 (4) 0 0
Net Profit 86 50 129 134
YoY Change (%) n/m (41.6) 157.0 3.6
EBITDA 261 208 239 246
YoY Change (%) n/m (20.1) 14.7 3.1
Balance Sheet
Total Assets 1,298 1,113 1,000 1,046
Cash and Equivalents 169 133 86 77
Accounts Receivable 96 197 169 182
Inventories 0 0 0 0
Other Current Assets 122 50 51 39
Property& Plant and Equipment 889 707 673 730
Total Liabilities 1,146 941 727 672
Accounts Payable 448 406 254 222
Other Current Liabilities 115 79 91 103
Long-Term Debt 246 179 150 136
Other Long-Term Liabilities 332 269 225 205
Shareholders' Equity 153 173 274 374
Cash Flow
Net Profit 86 50 129 134
Other Noncash Items 111 104 59 26
Changes in Working Capital 117 (18) (80) (10)
Operating Cash Flow 344 160 133 177
Capital Expenditures (224) (150) (150) (150)
Other Investments/(Divestments) (108) (0) 0 0
Change in Debt (18) 0 0 0
Dividends 0 0 (11) (28)
Net Cash Flow (6) 9 (28) (1)
Free Cash Flow 120 10 (17) 27
26
GF GALICIA UNDERPERFORM
Net/Net: We maintain our view that GGAL’s valuation metrics are tight and already incorporate a benign credit growth
outlook over the next ten years (loans/GDP to increase from 15% to 40%, according to our projections).
Walter Chiarvesio*
 Volume growth estimate revised downward slightly for 2016: We Argentina: Santander Rio Valores, S.A.
reduced slightly our loan growth estimate to 34% from 38%, and
reduced our estimate of deposit growth to 32% from 40%, following
the Central Bank’s recent 4% increase of legal reserves for deposits.
We think that GGAL will seek to partially offset the negative impact of
higher reserve requirements through an increase in NIM (higher loan
yields and lower term deposit rates), which ultimately should lead to
slower growth in the balance sheet, given the current loan demand
weakness and the floor for term deposit rates imposed by the CB’s bill
rates. We continue to believe that a credit expansion cycle will not be
seen before 4Q16, once clearer indications of lower inflation and
Company Statistics
stronger economic activity are observed.
Bloomberg GGAL US / GGAL AR
 Over time, we continue to see ROE being underpinned by improving
efficiency, offsetting declining NIMs. We expect ROE to decline 52-Week Range (US$) 17.15 - 31.10
slightly but remain in the low thirties for the next three years. Volume Market Capitalization (US$ Mn) 3,892
growth should dilute expenses and improve efficiency, in our view, a Float (%) 44.0
trend similar to the one we expect for the other listed banks.
Estimates & Valuation Ratios Price Performance (US$)

2015 2016E 2017E 2018E GGAL US
250
P/E (x) 8.7 10.1 9.0 8.4 Merval
BVPADR (US$) 8.17 9.43 10.79 13.03 200

P/BV (x) 3.6 3.2 2.8 2.3
ROE (%) 36.9 34.2 32.7 30.1 150
Div Yield (%) 0.2 0.3 0.6 1.0
Core Tier I (%) 12.30 12.39 12.63 13.06 100
50
J-14 O-14 F-15 J-15 O-15 F-16 J-16
27
GF GALICIA
Ar$ US$ Grupo Financiero Galicia S.A. (GGAL) is one of
INCOME STATEMENT 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E Argentina’s leading private financial groups, with market
Net Interest Income 9,994 13,719 17,585 22,708 1,022 944 1,034 1,149 shares of approximately 8.7% in loans and 8.7% in core
NPL Provisions (2,202) (2,818) (4,184) (6,150) (225) (194) (246) (311) deposits. The bank has a strong position in credit cards,
Adj Net Interest Income 7,792 10,901 13,401 16,558 797 750 788 838 which represent 52% of total loans, owing largely to its
Tarjetas Regionales subsidiary, which has a strong
Non-Interest Income 10,830 13,082 16,387 18,940 1,108 900 964 958
presence outside the Greater Buenos Aires region, where
Total Operating Revenue 19,069 24,551 30,497 36,315 1,950 1,689 1,794 1,837
the core bank franchise also has a presence. GGAL has a
Non-Interest Expense (11,348) (14,881) (17,559) (20,193) (1,161) (1,023) (1,033) (1,021) shareholding structure with dual voting rights, with the
Profit Before Taxes 7,608 9,130 11,938 14,922 778 628 702 755 Escasany, Ayerza, and Braun families controlling 32% of
Taxes (2,530) (3,123) (4,178) (5,223) (259) (215) (246) (264) the capital stock and 64% of voting rights. The bank’s
Net Profit 4,338 5,594 7,282 9,102 444 385 428 460 shares trade on the Buenos Aires Stock Exchange, and
Adjusted Net Profit 4,383 5,203 6,918 8,786 448 358 407 444 its ADRs trade on the NYSE.
Key Personnel: Eduardo J. Escasany (Chairman),
Pedro A. Richards (CEO), José Luis Gentile (CFO) and
Pablo Firvida (IRO)
Securities 15,045 10,970 28,883 28,402 1,157 708 1,561 1,396
Web: www.gfgsa.com
Loans (net) 99,322 133,208 180,783 239,824 7,640 8,594 9,772 11,785
Intangible Assets 1,996 2,048 2,123 2,201 154 132 115 108
Total Assets 160,550 197,341 259,883 333,600 12,350 12,732 14,048 16,393 Loan Portfolio Breakdown, 2016E
Core Deposits 85,866 112,102 147,646 193,418 6,605 7,232 7,981 9,505
Other Financial Liabilities 45,410 43,369 55,748 67,287 3,493 2,798 3,013 3,306
Subordinated Debt 3,301 3,653 4,368 4,932 254 236 236 242 Others
Technical Provisions 0 0 0 0 0 0 0 0 3.0%
Equity 13,812 19,006 25,952 34,472 1,062 1,226 1,403 1,694
Credit
Adjusted Equity 12,776 17,947 24,931 33,519 983 1,158 1,348 1,647 Cards
57.5%
LOAN BOOK 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E
Companies 43,621 55,557 72,708 94,369 3,355 3,584 3,930 4,637
Total Consumer 57,163 79,869 110,715 148,472 4,397 5,153 5,985 7,296 Companies
Personal 39.6%
Mortgages 2,098 2,500 3,529 5,167 161 161 191 254 Loans
Other Loans 0 0 0 0 0 0 0 0 -0.1%
Gross Loans 102,882 137,926 186,952 248,008 7,914 8,898 10,106 12,187
Loan Growth (%) 46.4 34.1 35.5 32.7 (4.6) 12.4 13.6 20.6
NPL 3,167 4,290 5,609 7,440 244 277 303 366 Revenue Breakdown, 2016E
Provisions (3,560) (4,718) (6,169) (8,184) (274) (304) (333) (402)
KEY RATIOS 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E
NIM 8.02 7.75 7.68 8.01 8.02 7.75 7.68 8.01 Other
Risk Charge 3.08 3.11 3.00 3.00 3.08 3.11 3.00 3.00 Fees 2.8%
Operating Revenue / ATAs 14.86 14.06 13.75 13.15 14.86 14.06 13.75 13.15 46.7%
Cost / ATAs 8.84 8.52 7.92 7.31 8.84 8.52 7.92 7.31
NII
Adj Efficiency 52.4 57.7 54.9 51.4 52.4 57.7 54.9 51.4 43.9%
Effective Taxes 33.3 34.2 35.0 35.0 33.3 34.2 35.0 35.0
Reported ROE (%) 36.9 34.2 32.7 30.1 36.9 34.2 32.7 30.1
Trading
Adj ROE (%) 53.8 40.6 41.0 39.7 53.8 40.6 41.0 39.7 6.6%
NPL Ratio 3.08 3.11 3.00 3.00 3.08 3.11 3.00 3.00
Adj NPL Ratio 4.20 4.25 4.40 4.59 4.20 4.25 4.40 4.59
Loans / Core Deposits 119.8 123.0 126.6 128.2 119.8 123.0 126.6 128.2
RWA % Total Assets 65.5 74.1 76.5 77.4 65.5 74.1 76.5 77.4
Core Tier I Ratio (%) 12.3 12.4 12.6 13.1 12.3 12.4 12.6 13.1
Dividend Payout (%) 2.3 3.1 4.6 6.4 2.3 3.1 4.6 6.4 EBA
Free Float
Holding
48.6%
MARKET RATIOS 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E 31.1%
Adj. P/BV 4.0 3.9 3.4 2.8 4.0 3.9 3.4 2.8
Adj. P/E 7.5 10.3 8.9 7.9 7.5 10.3 8.9 7.9
Div Yield (%) 0.2 0.3 0.6 1.1 0.3 0.3 0.5 0.8
PER SHARE DATA 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E ANSES
20.3%
EPS 46.97 40.73 45.35 48.74 3.41 2.96 3.29 3.54
BVPS 112.48 129.81 148.51 179.33 8.17 9.43 10.79 13.03
DPS 0.88 1.25 2.45 3.93 0.06 0.09 0.18 0.29 Sources for all charts and tables: Company reports and Santander
Adj EPS 44.63 37.88 43.08 47.05 3.45 2.75 3.13 3.42 estimates.
Adj BVPS 97.85 122.58 142.67 174.38 7.56 8.91 10.36 12.67
28
Figure 20. GF Galicia: Financial Statements, 2015–2018E (Millions of Argentine Pesos)
2015A 2016E 2017E 2018E
Income Statement
NPL Provisions (2,202) (2,818) (4,184) (6,150)
Fees 8,186 11,031 14,252 16,390
FX & Trading 2,486 1,937 2,000 2,400
Insurance 0 0 0 0
Personnel (7,355) (9,583) (11,308) (13,004)
Non-Operating Results (113) (541) (1,000) (1,200)
Taxes (2,530) (3,123) (4,178) (5,223)
Extraordinary Items (Net) (377) 0 0 0
Net Income 4,338 5,594 7,282 9,102
Balance Sheet
Total Assets 160,550 197,341 259,883 333,600
Securities 15,045 10,970 28,883 28,402
Loans (net) 99,322 133,208 180,783 239,824
Tangible Assets 2,842 3,136 3,599 4,078
Intangible and Deferred Assets 1,996 2,048 2,123 2,201
Liabilities 145,679 176,954 232,111 296,793
Demand Deposits 19,522 26,057 33,898 42,712
Time Deposits 47,509 64,781 89,662 123,838
Subordinated Debt 3,301 3,653 4,368 4,932
Other Liabilities 11,102 17,830 24,349 31,156
Minorities 1,059 1,381 1,819 2,335
Equity 13,812 19,006 25,952 34,472
Adj. Equity 12,776 17,947 24,931 33,519
Loan Book
Corporate 43,621 55,557 72,708 94,369
SME 0 0 0 0
Personal Loans (91) (111) (132) (151)
Credit Cards 56,260 79,327 111,057 149,927
Auto Loans 994 653 (211) (1,304)
Mortgages 2,098 2,500 3,529 5,167
Other Loans 0 0 0 0
Gross Loans 102,882 137,926 186,952 248,008
NPLs 3,167 4,290 5,609 7,440
29
Figure 21. GF Galicia: Financial Statements, 2015–2018E (U.S. Dollars in Millions)
2015A 2016E 2017E 2018E
Income Statement
Net Interest Income 1,022 944 1,034 1,149
NPL Provisions (225) (194) (246) (311)
Fees 837 759 838 829
FX & Trading 254 133 118 121
Insurance 0 0 0 0
Personnel (752) (659) (665) (658)
Non-Operating Results (12) (37) (59) (61)
Taxes (259) (215) (246) (264)
Extraordinary Items (Net) (39) 0 0 0
Net Income 444 385 428 460
Balance Sheet
Total Assets 12,350 12,732 14,048 16,393
Securities 1,157 708 1,561 1,396
Loans (net) 7,640 8,594 9,772 11,785
Liabilities 11,206 11,416 12,547 14,584
Demand Deposits 1,502 1,681 1,832 2,099
Time Deposits 3,655 4,179 4,847 6,085
Other Liabilities 854 1,150 1,316 1,531
Minorities 81 89 98 115
Equity 1,062 1,226 1,403 1,694
Adj. Equity 983 1,158 1,348 1,647
Loan Book
Corporate 3,355 3,584 3,930 4,637
SME 0 0 0 0
Personal Loans (7) (7) (7) (7)
Credit Cards 4,328 5,118 6,003 7,367
Auto Loans 76 42 (11) (64)
Mortgages 161 161 191 254
Other Loans 0 0 0 0
Gross Loans 7,914 8,898 10,106 12,187
NPLs 244 277 303 366
30
Figure 22. GF Galicia — Key Ratios, 2015A–2018E
Cost / ATAs 8.84 8.52 7.92 7.31
Adj Efficiency 52.4 57.7 54.9 51.4
Cost / Income 59.5 60.6 57.6 55.6
Cost / Business 5.33 5.53 5.10 4.49
Fees / Costs 72.1 74.1 81.2 81.2
EBT / ATAs 5.93 5.23 5.38 5.40
Taxes / EBT 33.3 34.2 35.0 35.0
Reported ROE 36.9 34.2 32.7 30.1
ROTA 3.4 3.2 3.3 3.3
TCE/TA 8.2 8.6 9.4 10.3
Adj RORWA 5.86 4.17 4.17 4.01
Adj ROE 53.8 40.6 41.0 39.7
Payout Ratio 2.3 3.1 4.6 6.4
NIM 8.02 7.75 7.68 8.01
Adj NIM 6.26 6.15 5.85 5.84
NPLs / Gross Loans 3.08 3.11 3.00 3.00
NPLs / Equity 4.2 4.2 4.4 4.6
Adj NPL Ratio 4.20 4.25 4.40 4.59
ATAs 128,333 174,679 221,756 276,230
Avg Gross Loans 83,523 115,594 156,451 207,425
AEA 124,569 176,964 228,952 283,484
ABL 90,527 121,348 156,371 204,457
Dividends (100) (174) (336) (583)
Cash / Deposits 30.7 20.6 18.9 19.0
Adj RWA 105,164 146,218 198,764 258,047
RWA % Total Assets 65.5 74.1 76.5 77.4
Core Tier I (%) 12.3 12.4 12.6 13.1
Tier I 11.2 11.5 12.2 12.9
Tier II 2.2 1.4 1.4 1.3
Branches 525 530 538 546
Employees 12,075 12,176 12,351 12,535
31
COMPANY REPORT | ARGENTINA—TELECOM, MEDIA & TECHNOLOGY
GRUPO CLARIN HOLD

DOWNGRADING RATING TO HOLD FROM BUY
INTRODUCING YE2016E TARGET PRICE OF US$25.00; REPLACING YE2016 TARGET PRICE OF US$22.00
Net/Net: We are downgrading our rating as we believe that the current price of the stock already incorporates the
company’s solid operating performance. Despite our constructive view on the company’s ability to generate cash flow, we
think that there is a risk of increasing capex to gain exposure in mobile telephony, with uncertain profitability in the
investment, which is not yet incorporated in our DCF model.
 Cable ARPU sustained by HD TV bundle: GCLA has successfully Walter Chiarvesio*

delivered ARPU growth on the back of high-definition TV bundles. Argentina: Santander Rio Valores, S.A.
Though we think that in 2016 it could be difficult to maintain U.S. dollar
Valder Nogueira*
ARPU in an environment of currency depreciation and potentially Brazil: Banco Santander S.A.
+5511-3012-5747 | jvalder@santander.com.br
weak consumer demand due to rate increases in public services, we
think that the company could resume an upward trend in 2017. We
model ARPU to decline to US$44.00 in 2016 (-6.0% YoY), followed by
a gradual recovery to US$54.00 in 2019. Other segments that we
believe are likely to improve: Although the Cable segment constitutes
87% of GCLA’s EBITDA, we think that Printing and Media may deliver
positive surprises due to business improvement in a friendlier political
environment.
Company Statistics
 Undefined strategy toward technological convergence: GCLA has
Bloomberg GCLA LI / GCLA AR
already stepped into the telecom industry through the acquisition of Current Price (06/13/16) US$ 19.80 / Ar$ 140.00
local Nextel operations last year. However, the company has not yet Target Price (YE 2016E) US$ 25.00 / Ar$ 230.83
52-Week Range (US$) 10.50 - 20.00
defined the strategy to offer mobile services to its customers going
Market Capitalization (US$ Mn) 2,845
forward—in particular, 4G. We believe that such a strategy may entail
Float (%) 20.3
deploying its own network or partnering with an existing carrier. In 3-Mth Avg. Daily Vol (US$ Mn) 0.3
either case, we see the risk of overinvestment in a segment that so far Shares Outstanding - Mn 144
has proved to be overcrowded, in our view. We have not incorporated

any scenario of capex in network deployment, which could negatively GCLA LI
300
affect our target price. Merval
Estimates & Valuation Ratios 250
(US$) 2015A 2016E 2017E 2018E 200

P/E 8.9 13.3 8.0 6.8
150
FV/EBITDA 4.4 5.0 4.4 3.7
FCF Yield (%) 8.4 3.0 4.3 11.9 100
Div Yield (%) 1.0 (0.0) 2.6 4.4

50
Net Debt/EBITDA 0.3 0.2 0.1 (0.1) J-14 O-14 F-15 J-15 O-15 F-16 J-16
Sources: FactSet, Santander estimates and company reports. Sources: FactSet, Santander estimates and company reports.
32
GRUPO CLARIN
Ar$ US$ Grupo Clarin S.A. is one of the most important media
P&L ACCOUNT 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E companies in Argentina, with four lines of business: (1)
Total Revenue 27,791 38,501 47,496 55,726 2,750 2,580 2,794 2,869 cable and internet through its subsidiaries Cablevisión
YoY change (%) 41.7 38.5 23.4 17.3 16.0 (6.2) 8.3 2.7 and Fibertel, respectively, with 7.4 million homes passed,
Gross Profit 13,874 19,024 22,719 26,308 1,373 1,275 1,336 1,354 3.5 million cable subscribers and 2.0 million internet
subscribers; (2) printing and publishing, which includes
YoY change (%) 60.3 37.1 19.4 15.8 31.3 (7.2) 4.8 1.3
one of the main newspapers in Argentina, Diario Clarin;
EBITDA 8,519 11,545 13,959 17,496 843 774 821 901
(3) broadcasting and programming; and (4) digital
YoY change (%) 69.4 35.5 20.9 25.3 38.7 (8.2) 6.1 9.7 content. GCLA is listed on the London Stock Exchange
As % of Revenue 30.7 30.0 29.4 31.4 30.7 30.0 29.4 31.4 and Buenos Aires Stock Exchange.
Operating Income 6,723 8,852 10,524 12,893 665 593 619 664
Key Personnel: Jorge Rendo (Chairman), Jorge
YoY change (%) 87.3 31.7 18.9 22.5 53.3 (10.9) 4.4 7.2
Rendo (CEO), Alejandro Urricelqui (CFO) and Agustin
As % of Revenue 24.2 23.0 22.2 23.1 24.2 23.0 22.2 23.1 Medina Manson (IR Director)
Financial Results (2,578) (4,012) (1,220) (479) (255) (269) (72) (25) Web: www.grupoclarin.com
Taxes (1,230) (1,657) (3,256) (4,345) (122) (111) (192) (224)
Net Profit 2,936 3,183 6,047 8,069 291 213 356 415
Revenues Breakdown 2015
YoY change (%) 122.2 8.4 90.0 33.4 81.9 (26.6) 66.8 16.8
As % of Revenue 10.6 8.3 12.7 14.5 10.6 8.3 12.7 14.5
Content&Di
CASH FLOW 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E gital
Depreciation & Amortization 1,795 2,694 3,436 4,603 178 180 202 237 Printing 11.9%
15.5%
Other Noncash Items 723 2,416 0 0 72 162 0 0
Changes in Working Capital 1,056 (547) 235 689 105 (37) 14 35
Capital Expenditures (4,307) (6,485) (7,650) (6,799) (426) (435) (450) (350)
Free Cash Flow 2,204 1,260 2,068 6,562 218 84 122 338
Other Invest./(Divestments) (1,206) (430) 0 0 (119) (29) 0 0
Cable&Inter
Change in Debt 180 (480) 0 0 18 (32) 0 0 net
Dividends (250) 0 (1,273) (2,419) (25) 0 (75) (125) 72.6%
Capital Increases/Other (375) (312) 0 0 (37) (21) 0 0
EBITDA Breakdown 2015
Current Assets 8,455 12,776 14,812 20,629 650 824 801 1,014
Fixed Assets 9,027 13,439 17,654 19,849 694 867 954 975 Content&Di
Total Assets 24,701 31,540 38,057 46,349 1,900 2,035 2,057 2,278 Printing gital
1.3% 11.1%
Long-Term Liabilities 475 661 827 992 37 43 45 49
Shareholders' Equity 10,408 13,941 18,981 24,911 801 899 1,026 1,224
ST Debt 2,902 4,192 4,192 4,192 223 270 227 206
LT Debt 4,033 2,966 2,966 2,966 310 191 160 146
Cable&Inter
FINANCIAL RATIOS 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E net
87.5%
Net Debt 3,723 2,799 2,004 (2,140) 286 181 108 (105)
Capital Employed 8,255 12,774 17,155 18,948 635 824 927 931
Net Debt/EBITDA 0.4 0.2 0.1 (0.1) 0.3 0.2 0.1 (0.1)
Net Debt/Equity 0.4 0.2 0.1 (0.1) 0.5 0.2 0.1 (0.1)
Capex/Revenue (%) 15.5 16.8 16.1 12.2 15.5 16.8 16.1 12.2
Int Cover (%) - - - - - - - -
Dividend Payout (%) 18.9 0.0 40.0 40.0 16.6 0.0 41.7 40.0 Float
ROCE (%) 96.3 82.3 80.3 91.0 128.6 79.5 80.3 91.0 49.0%
ROE (%) 32.3 26.1 36.7 36.8 36.8 24.4 36.7 36.8
P/E 11.4 12.3 6.5 4.9 8.9 13.3 8.0 6.8
Government
P/CE 29.3 n/m 15.0 11.3 22.9 n/m 18.5 15.9 51.0%
FV/EBITDA 5.7 4.7 3.6 2.6 4.4 5.0 4.4 3.7
FV/EBIT 7.2 6.1 4.8 3.5 5.6 6.5 5.9 5.0
FV/Revenue 1.7 1.4 1.1 0.8 1.4 1.5 1.3 1.2
P/BV 3.2 2.8 2.1 1.6 3.2 3.2 2.8 2.3 estimates.
FCF Yield (%) 6.6 3.2 5.3 16.7 8.4 3.0 4.3 11.9
Div Yield (%) 0.7 (0.0) 3.2 6.2 1.0 (0.0) 2.6 4.4
EPS 27.84 20.43 34.07 39.79 2.02 1.48 2.48 2.89
DPS 1.74 0 8.86 16.83 0.13 0 0.64 1.22
BVPS 98.66 89.47 106.95 122.84 7.17 6.50 7.77 8.92
33
Figure 23. Grupo Clarin: Financial Statements, 2015–2018E (Millions of Argentine Pesos)
2015A 2016E 2017E 2018E
Income Statement
Net Revenue 27,791 38,501 47,496 55,726
YoY Change (%) 41.7 38.5 23.4 17.3
Gross Profit 13,874 19,024 22,719 26,308
SG&A Expenses (7,249) (10,180) (12,216) (13,438)
YoY Change (%) 87.3 31.7 18.9 22.5
Financial Results (2,578) (4,012) (1,220) (479)
FX Gain/Loss (2,309) (743) (542) (200)
Other Financial Gains/Losses 2,400 1,048 21 22
Other Income/Expenses - - - -
Equity Income - - - -
Pre-Tax Profit 4,145 4,840 9,303 12,414
Taxes (1,230) (1,657) (3,256) (4,345)
Minority Interest - - - -
Net Profit 2,936 3,183 6,047 8,069
YoY Change (%) 122.2 8.4 90.0 33.4
Depreciation & Amortization 1,795 2,694 3,436 4,603
EBITDA 8,519 11,545 13,959 17,496
YoY Change (%) 69.4 35.5 20.9 25.3
Balance Sheet
Total Assets 24,701 31,540 38,057 46,349
Accounts Receivable 3,791 5,227 6,743 7,819
Inventories 491 814 836 997
Other Current Assets 961 2,376 2,080 2,516
Other Long-Term Assets 7,220 5,325 5,591 5,871
Short-Term Debt 2,902 4,192 4,192 4,192
Long-Term Debt 4,033 2,966 2,966 2,966
Other Long-Term Liabilities 685 1,141 1,141 1,141
Minority Interest 3,410 4,198 4,551 5,114
Cash Flow
Net Profit 2,936 3,183 6,047 8,069
Depreciation & Amortization 1,795 2,694 3,436 4,603
Other Noncash Items 723 2,416 0 0
Changes in Working Capital 1,056 (547) 235 689
Other Investments/(Divestments) (1,206) (430) 0 0
Change in Debt 180 (480) 0 0
Dividends (250) 0 (1,273) (2,419)
Capital Increases/Other (375) (312) 0 0
Net Cash Flow 552 38 795 4,144
Free Cash Flow 2,204 1,260 2,068 6,562
34
Figure 24. Grupo Clarin: Financial Statements, 2015–2018E (U.S. Dollars in Millions)
2015A 2016E 2017E 2018E
Income Statement
Net Revenue 2,750 2,580 2,794 2,869
YoY Change (%) 16.0 (6.2) 8.3 2.7
Gross Profit 1,373 1,275 1,336 1,354
SG&A Expenses (717) (682) (719) (692)
YoY Change (%) 53.3 (10.9) 4.4 7.2
FX Gain/Loss (229) (50) (32) (10)
Other Financial Gains/Losses 238 70 1 1
Other Income/Expenses - - - -
Taxes (122) (111) (192) (224)
Net Profit 291 213 356 415
YoY Change (%) 81.9 (26.6) 66.8 16.8
Depreciation & Amortization 178 180 202 237
EBITDA 843 774 821 901
YoY Change (%) 38.7 (8.2) 6.1 9.7
Balance Sheet
Total Assets 1,900 2,035 2,057 2,278
Shareholders' Equity 801 899 1,026 1,224
Cash Flow
Net Profit 291 213 356 415
Changes in Working Capital 105 (37) 14 35
Other Investments/(Divestments) (119) (29) 0 0
Change in Debt 18 (32) 0 0
Dividends (25) 0 (75) (125)
Capital Increases/Other (37) (21) 0 0
Net Cash Flow 55 3 47 213
Free Cash Flow 218 84 122 338
35
PAMPA ENERGIA BUY

Net/Net: We believe that a final regulatory rate is likely to be determined no later than 1Q17. Our target price for Pampa
relies on rate normalization for all its units with minimal regulatory returns that should allow for EBITDA sustainability in
next years.
 What has changed? We updated our models to include: (i) new Maria Carolina Carneiro*
macroeconomic assumptions; (ii) recently released results; (iii) lower +5511-3012-6682 | macarneiro@santander.com.br
country risk; (iv) potential impacts on Pampa’s fair value from it recent Andre Sampaio*
acquisition of PZE; (v) regulatory developments (including higher +5511-3553-7426 | ansampaio@santander.com.br
tariffs/lower subsidies in the shorter term, versus our previous
expectation of tariff review implementation in 2017-18; (vi) lower
demand in the Disco unit; and (v)an increased contribution from the
Petrolera unit.
 Outlook remains positive: We anticipate important improvements in

the regulatory framework, as the government has decided to maintain
subsidies and the regulator has begun discussions on defining a
regulatory framework for Pampa’s Disco unit. Moreover, we have Company Statistics
seen improvements in gas transportation. Consequently, we expect Bloomberg PAM US / PAMP AR
investor attention to turn to further potential regulatory developments
and improvement in the existing tariff mechanism. Our model 52-Week Range (US$) 13.00 - 26.22
incorporates significant tariff increases for these units to cope with Market Capitalization (US$ Mn) 1,770
Float (%) 85.2
higher capex, cost coverage and a reasonable regulatory return.
 Why we like Pampa? Pampa is the largest integrated utility in Shares Outstanding - Mn 68
Argentina and one of the most discounted utilities in LatAm, in our Price Performance (US$)
view. In the past few months, visibility on the regulatory framework in PAM US Merval
300
Argentina has improved and the regulatory agency has released a
250
timetable for tariff implementation in the Disco unit, as well as the main
200
guidelines for this process. We also see growth potential in the form of
new projects in Argentina.. 150

(US$) 2015A 2016E 2017E 2018E
50
P/E 3.7 9.1 6.3 5.2 J-14 O-14 F-15 J-15 O-15 F-16 J-16
FV/EBITDA 4.4 4.3 3.2 2.5 Sources: FactSet, Santander estimates and company reports.
FCF Yield (%) (1.5) 26.4 8.0 12.5
Div Yield (%) (0.0) (0.0) (0.0) (0.0)
Net Debt/EBITDA 0.6 (0.0) (0.1) (0.4)
36
PAMPA ENERGIA
Ar$ US$ Pampa Energía S.A. is the largest fully integrated
P&L ACCOUNT 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E electricity company in Argentina. Through its subsidiaries,
Total Revenue 7,161 20,049 26,301 33,295 709 1,343 1,547 1,714 they are engaged in the generation, transmission and
YoY change (%) 15.4 180.0 31.2 26.6 (5.5) 89.5 15.2 10.8 distribution of electricity, as well as the production and
Gross Profit 69 7,295 10,774 14,655 7 489 634 754 transportation of natural gas and gas fluids. Current key
YoY change (%) (60.4) 10,426.2 47.7 36.0 (67.6) 7,026.8 29.7 19.0 assets include (1) participation in generation facilities with
EBITDA 4,365 6,711 9,688 12,635 432 450 570 650 a current consolidated capacity of 2,217 MW, (2) a 26.3%
YoY change (%) 223.8 53.7 44.4 30.4 165.2 4.1 26.7 14.1 indirect stake in Transener, the high-voltage electricity
As % of Revenue 61.0 33.5 36.8 37.9 61.0 33.5 36.8 37.9 transmission company, and (3) a 51,54% stake in Edenor,
the electricity distribution company, 4) 49.8% stake in
Petrolera Pampa, 5) 25.5% indirect stake in TGS, the
YoY change (%) 313.8 54.2 53.8 33.2 238.8 4.4 35.0 16.6
natural gas and NGL producer company, through CIESA.
As % of Revenue 50.9 28.0 32.9 34.6 50.9 28.0 32.9 34.6
Pampa’s controlling group includes participations of
Financial Results 790 (1,138) (1,303) (1,258) 78 (76) (77) (65)
Grupo Dolphin, Pampa Holding, and management
Taxes (586) (1,570) (2,571) (3,592) (58) (105) (151) (185) executives. Pampa has issued warrants due on 2021 to
Net Profit 3,849 2,915 4,774 6,672 381 195 281 343 grant 15.3mn ADRs to its managementat a strike price of
YoY change (%) 626.6 (24.3) 63.8 39.7 495.0 (48.7) 43.8 22.3 US$0.27/ADR. Its stock currently trades on the Buenos
As % of Revenue 53.7 14.5 18.2 20.0 53.7 14.5 18.2 20.0 Aires Stock Exchange and the New York Stock
Exchange.
CASH FLOW 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E
Depreciation & Amortization (720) (1,088) (1,041) (1,113) (71) (73) (61) (57) Key Personnel: Gustavo Mariani (Chairman), Marcos
Other Noncash Items (68) 1,672 (198) (197) (7) 112 (12) (10) Marcelo Mindlin (CEO), Gabriel Cohen (CFO) and
Changes in Working Capital 79 1,753 (1,195) (1,197) 8 117 (70) (62) Mariano Batistella (IRO)
Operating Cash Flow 4,580 7,429 4,422 6,391 453 498 260 329 Web: www.pampaenergia.com
Capital Expenditures (4,797) (456) (2,005) (2,091) (475) (31) (118) (108)
Free Cash Flow (217) 6,973 2,417 4,300 (21) 467 142 221 Revenues by Segment, 2015A
Other Invest./(Divestments) (6,293) 300 0 0 (623) 20 0 0
Change in Debt 2,512 375 0 0 249 25 0 0 Transmissio
Dividends 0 0 0 0 0 0 0 0 n and
Others
Capital Increases/Other 0 0 0 0 0 0 0 0 17.3%
Generation
BALANCE SHEET 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E 22.4%
Current Assets 9,758 9,405 13,017 18,397 751 607 704 904
Fixed Assets 14,506 13,874 14,839 15,816 1,116 895 802 777
Total Assets 29,149 28,164 32,740 39,098 2,242 1,817 1,770 1,921
Current Liabilities 9,593 3,830 4,237 4,938 738 247 229 243 Distribution
Long-Term Liabilities 11,176 9,256 10,119 10,432 860 597 547 513 60.4%
Shareholders' Equity 8,380 15,078 18,384 23,728 645 973 994 1,166
ST Debt 1,308 421 436 511 101 27 24 25
LT Debt 6,685 4,765 5,628 5,941 514 307 304 292 Sales by Segment (DisCo), 2015A
Net Debt 3,396 (18) (1,549) (5,075) 261 (1) (84) (249)
Capital Employed 17,673 20,325 22,101 23,920 1,359 1,311 1,195 1,175 Industrial
16.4%
Net Debt/EBITDA 0.8 (0.0) (0.2) (0.4) 0.6 (0.0) (0.1) (0.4)
Net Debt/Equity 0.4 (0.0) (0.1) (0.2) 0.6 (0.0) (0.1) (0.2)
Capex/Revenue (%) 67.0 2.3 7.6 6.3 67.0 2.3 7.6 6.3
Int Cover (%) 4.8 6.8 16.0 32.5 4.8 6.8 16.0 32.5
Dividend Payout (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
ROCE (%) 20.6 27.7 39.1 48.2 28.8 26.6 39.1 48.2
Residential
ROE (%) 64.5 24.9 28.5 31.7 77.8 23.4 28.5 31.7 43.2%
P/E 4.7 8.4 5.1 3.7 3.7 9.1 6.3 5.2
P/CE 3.9 6.1 4.2 3.1 3.1 6.6 5.2 4.4 Shareholder Structure, Current
FV/EBITDA 5.6 4.0 2.6 1.6 4.4 4.3 3.2 2.5
FV/EBIT 6.7 4.7 2.9 1.8 5.2 5.1 3.6 2.7
FV/Revenue 3.4 1.3 0.9 0.6 2.7 1.4 1.2 0.9
Managemen
P/BV 2.2 1.6 1.3 1.0 2.2 1.8 1.8 1.5 t
FCF Yield (%) (1.2) 28.6 9.9 17.6 (1.5) 26.4 8.0 12.5 18.4%
Div Yield (%) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0)
EPS 5.62 2.88 4.14 5.07 0.41 0.21 0.30 0.37 Float
DPS 0 0 0 0 0 0 0 0 81.6%
BVPS 9.51 14.35 14.66 17.20 0.69 1.04 1.06 1.25
estimates.
37
Figure 25. Pampa Energia: Financial Statements, 2015–2018E (Millions of Argentine Pesos)
2015A 2016E 2017E 2018E
Income Statement
Net Revenue 7,161 20,049 26,301 33,295
YoY Change (%) 15.4 180.0 31.2 26.6
Gross Profit 69 7,295 10,774 14,655
SG&A Expenses (2,212) (3,246) (4,142) (4,921)
YoY Change (%) 313.8 54.2 53.8 33.2
Financial Results 790 (1,138) (1,303) (1,258)
Other Financial Gains/Losses 1,703 (153) (698) (869)
Other Income/Expenses 5,789 1,473 1,295 182
Equity Income (1) 101 721 1,606
Pre-Tax Profit 4,435 4,485 7,345 10,264
Taxes (586) (1,570) (2,571) (3,592)
Minority Interest 783 166 1,325 1,375
Net Profit 3,849 2,915 4,774 6,672
YoY Change (%) 626.6 (24.3) 63.8 39.7
Depreciation & Amortization (720) (1,088) (1,041) (1,113)
EBITDA 4,365 6,711 9,688 12,635
YoY Change (%) 223.8 53.7 44.4 30.4
Balance Sheet
Total Assets 29,149 28,164 32,740 39,098
Inventories 0 0 0 0
Short-Term Debt 1,308 421 436 511
Long-Term Debt 6,685 4,765 5,628 5,941
Minority Interest 1,391 1,405 1,419 1,433
Cash Flow
Net Profit 3,849 2,915 4,774 6,672
Depreciation & Amortization (720) (1,088) (1,041) (1,113)
Other Noncash Items (68) 1,672 (198) (197)
Changes in Working Capital 79 1,753 (1,195) (1,197)
Capital Expenditures (4,797) (456) (2,005) (2,091)
Other Investments/(Divestments) (6,293) 300 0 0
Change in Debt 2,512 375 0 0
Dividends 0 0 0 0
Net Cash Flow (3,873) 7,838 6,739 10,591
Free Cash Flow (217) 6,973 2,417 4,300
38
Figure 26. Pampa Energia: Financial Statements, 2015–2018E (U.S. Dollars in Millions)
2015A 2016E 2017E 2018E
Income Statement
Net Revenue 709 1,343 1,547 1,714
YoY Change (%) (5.5) 89.5 15.2 10.8
Gross Profit 7 489 634 754
SG&A Expenses (219) (217) (244) (253)
YoY Change (%) 238.8 4.4 35.0 16.6
Financial Results 78 (76) (77) (65)
Other Financial Gains/Losses 169 (10) (41) (45)
Equity Income (0) 7 42 83
Taxes (58) (105) (151) (185)
Net Profit 381 195 281 343
YoY Change (%) 495.0 (48.7) 43.8 22.3
EBITDA 432 450 570 650
YoY Change (%) 165.2 4.1 26.7 14.1
Balance Sheet
Total Assets 2,242 1,817 1,770 1,921
Inventories 0 0 0 0
Property& Plant and Equipment 1,116 895 802 777
Total Liabilities 1,598 844 776 755
Shareholders' Equity 645 973 994 1,166
Cash Flow
Net Profit 381 195 281 343
Other Noncash Items (7) 112 (12) (10)
Changes in Working Capital 8 117 (70) (62)
Other Investments/(Divestments) (623) 20 0 0
Change in Debt 249 25 0 0
Dividends 0 0 0 0
Net Cash Flow (383) 525 396 545
Free Cash Flow (21) 467 142 221
39
COMPANY REPORT | ARGENTINA—METALS & MINING
SIDERAR HOLD
CURRENT PRICE: AR$6.96
TARGET PRICE: AR$11.50
UPGRADING RATING TO HOLD FROM UNDERPERFORM
INTRODUCING YE2016 TARGET PRICE OF AR$11.50; REPLACING YE2016 TARGET PRICE OF AR$7.10
Net/Net: We are upgrading the stock given its recent underperformance. However, our DCF-implied upside potential is not
sufficient to warrant a Buy recommendation, in our view.
Walter Chiarvesio*
 Steel volumes slowing this year, but are they bottoming? We expect Argentina: Santander Rio Valores, S.A.
Argentine volumes to decline 9.0% this year to 2.35 mn tonnes but
recover next year to 2.6 mn tonnes as economic growth rebounds.
Construction and automotive industry demand weakness is leading
the volume decline in 2016, while agricultural machinery production is
underpinning sales. We believe that infrastructure investment
promoted by the government should boost sales in 2017 as well.
 Stable pricing, lagging international price references. We assume

stable average revenue/tonne in U.S. dollars for Siderar this year and
next, vs. the reported level of US$886/tonne in 1Q16 (-12% QoQ).
Bear in mind that local steel prices usually show less volatility than Company Statistics
international references, which means that there could be a delay Bloomberg ERAR AR
Current Price (06/13/16) Ar$ 6.96 / US$ 0.50
before the recent rally in international steel prices (+35% QoQ
Target Price (YE 2016) Ar$ 11.50 / US$ 0.74
weighted by Siderar’s value-added mix) is transmitted to local prices. 52-Week Range (Ar$) 4.96 - 10.30
Nevertheless, we still need to see if the recent increase can be Market Capitalization (US$ Mn) 2,279
sustained in order to incorporate it in our DCF model. Float (%) 11.0
Shares Outstanding - Mn 4,517
 No expansion priced in: Siderar could be working at full capacity in the
short term, in our view, and we think that the company could consider Price Performance (Ar$)
some expansion in high-value-added steel (coated and galvanized), ERAR AR
250
Merval
but we have not incorporated that in our model.
200
(Ar$) 2015A 2016E 2017E 2018E

100
P/E 22.5 11.8 10.0 7.9
FV/EBITDA 9.1 4.7 4.5 3.8 50
FCF Yield (%) 4.5 13.3 (1.4) 4.7 J-14 O-14 F-15 J-15 O-15 F-16 J-16
Div Yield (%) 1.9 5.5 5.0 6.3
Net Debt/EBITDA (0.3) (0.5) (0.2) (0.1)
40
SIDERAR
Ar$ US$ Siderar is Argentina’s largest steel company and has an
P&L ACCOUNT 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E installed capacity of 3.0 million tons per year. Siderar
Total Revenue 23,563 31,001 38,901 48,065 2,332 2,102 2,288 2,474 manufactures hot-rolled, cold-rolled, hot-dip galvanized,
YoY change (%) 9.9 31.6 25.5 23.6 (10.0) (9.9) 8.9 8.1 electrogalvanized, pre-painted, and tinplate steel sheet
Gross Profit 6,048 8,304 9,869 11,955 599 563 581 615 products. Siderar is part of Ternium (a Luxembourg
holding company that encompasses Siderar in Argentina
YoY change (%) (11.0) 37.3 18.9 21.1 (27.1) (5.9) 3.1 6.0
and Ternium Mexico). Ternium holds 61% of Siderar,
EBITDA 4,117 6,075 6,742 8,087 407 412 397 416
employees hold a 2.0% stake in the company,
YoY change (%) (27.3) 47.6 11.0 19.9 (40.4) 1.1 (3.7) 5.0 Government Social Security Agency (ANSES) holds 26%,
As % of Revenue 17.5 19.6 17.3 16.8 17.5 19.6 17.3 16.8 and 11% is traded on the stock market. In addition,
Operating Income 3,362 4,748 5,408 6,443 333 322 318 332 Siderar directly owns 28.7% of Ternium Mexico. The
YoY change (%) (32.0) 41.2 13.9 19.1 (44.3) (3.2) (1.2) 4.3 company is listed on the Buenos Aires Stock Exchange.
As % of Revenue 14.3 15.3 13.9 13.4 14.3 15.3 13.9 13.4 Key Personnel: Daniel Novegil (Chairman), Martín
Financial Results (534) (4,358) (498) (265) (53) (295) (29) (14) Berardi (CEO), Silvia Sanchez (CFO) and Guillermo
Taxes (650) (1,429) (1,768) (2,227) (64) (97) (104) (115) Etchepareborda (IR)
Net Profit 1,721 2,659 3,158 3,989 170 180 186 205 Web: www.ternium.com/siderar
YoY change (%) (47.4) 54.6 18.7 26.3 (56.9) 5.9 3.0 10.6
As % of Revenue 7.3 8.6 8.1 8.3 7.3 8.6 8.1 8.3 Sales Volumes by Products, 2014
Depreciation & Amortization 755 1,327 1,334 1,644 75 90 78 85
Coated &
Other Noncash Items (677) (831) 0 0 (67) (56) 0 0
Others
Changes in Working Capital 1,707 2,547 (2,378) (1,256) 169 173 (140) (65) 38.3%
Free Cash Flow 1,739 4,191 (436) 1,464 172 284 (26) 75
Other Invest./(Divestments) (974) 279 0 0 (96) 19 0 0
Change in Debt (266) 555 (170) (194) (26) 38 (10) (10)
Dividends (738) (1,740) (1,579) (1,994) (73) (118) (93) (103) Cold Rolled Hot Rolled
Capital Increases/Other - - - - - - - - 21.9% 39.8%
Current Assets 9,616 17,542 21,418 23,992 740 1,132 1,158 1,179 Sales by Region, 2014
Fixed Assets 8,734 14,163 18,228 21,380 672 914 985 1,051
Total Assets 30,578 47,569 58,619 66,555 2,352 3,069 3,169 3,271
Exports
Long-Term Liabilities 725 741 791 769 56 48 43 38
11.4%
Shareholders' Equity 23,646 34,924 43,200 49,922 1,819 2,253 2,335 2,453
ST Debt 2,419 4,300 5,039 5,441 186 277 272 267
LT Debt 8 28 (59) (167) 1 2 (3) (8)
Net Debt (1,146) (2,842) (1,200) (763) (88) (183) (65) (38) Domestic
88.6%
Capital Employed 23,867 35,301 46,323 53,913 1,836 2,277 2,504 2,649
Net Debt/EBITDA (0.3) (0.5) (0.2) (0.1) (0.2) (0.4) (0.2) (0.1)
Net Debt/Equity (0.0) (0.1) (0.0) (0.0) (0.1) (0.1) (0.0) (0.0)
Capex/Revenue (%) 7.5 4.9 6.6 6.1 7.5 4.9 6.6 6.1 Shareholder Structure, Current
Int Cover (%) 7.6 1.3 9.6 15.8 7.6 1.3 9.6 15.8
Dividend Payout (%) 22.6 101.1 59.4 63.2 19.8 65.4 61.8 63.2
ROCE (%) 16.8 17.5 15.5 16.1 22.4 17.0 15.5 16.1 Free Float
ANSES 11.0%
ROE (%) 8.1 9.1 8.1 8.6 9.1 8.5 8.1 8.6 26.0%
P/E 22.5 11.8 10.0 7.9 17.6 12.6 12.3 11.1
P/CE 40.1 23.6 17.2 13.4 31.3 25.2 21.2 18.9
Employees
FV/EBITDA 9.1 4.7 4.5 3.8 7.1 5.1 5.6 5.4 Ternium
2.0%
FV/EBIT 11.2 6.0 5.6 4.8 8.7 6.5 7.0 6.8 61.0%
FV/Revenue 1.6 0.9 0.8 0.6 1.2 1.0 1.0 0.9
P/BV 1.6 0.9 0.7 0.6 1.6 1.0 1.0 0.9
FCF Yield (%) 4.5 13.3 (1.4) 4.7 5.8 12.5 (1.1) 3.3 Sources for all charts and tables: Company reports and Santander
Div Yield (%) 1.9 5.5 5.0 6.3 2.4 5.2 4.1 4.5 estimates.
EPS 0.38 0.59 0.70 0.88 0.04 0.04 0.04 0.05
DPS 0.16 0.39 0.35 0.44 0.02 0.03 0.02 0.02
BVPS 5.23 7.73 9.56 11.05 0.40 0.50 0.52 0.54
41
Figure 27. Siderar: Financial Statements, 2015–2018E (Millions of Argentine Pesos)
2015A 2016E 2017E 2018E
Income Statement
Net Revenue 23,563 31,001 38,901 48,065
YoY Change (%) 9.9 31.6 25.5 23.6
Gross Profit 6,048 8,304 9,869 11,955
SG&A Expenses (2,683) (3,555) (4,461) (5,512)
YoY Change (%) (32.0) 41.2 13.9 19.1
Financial Results (534) (4,358) (498) (265)
Other Financial Gains/Losses - - - -
Other Income/Expenses (590) 239 0 0
Equity Income 48 (9) (52) (59)
Pre-Tax Profit 2,371 3,953 4,858 6,119
Taxes (650) (1,429) (1,768) (2,227)
Net Profit 1,721 2,659 3,158 3,989
YoY Change (%) (47.4) 54.6 18.7 26.3
Depreciation & Amortization 755 1,327 1,334 1,644
EBITDA 4,117 6,075 6,742 8,087
YoY Change (%) (27.3) 47.6 11.0 19.9
Balance Sheet
Total Assets 30,578 47,569 58,619 66,555
Accounts Receivable 371 548 1,508 1,793
Inventories 5,351 8,997 12,984 15,339
Short-Term Debt 2,419 4,300 5,039 5,441
Long-Term Debt 8 28 (59) (167)
Cash Flow
Net Profit 1,721 2,659 3,158 3,989
Depreciation & Amortization 755 1,327 1,334 1,644
Other Noncash Items (677) (831) 0 0
Changes in Working Capital 1,707 2,547 (2,378) (1,256)
Change in Debt (266) 555 (170) (194)
Dividends (738) (1,740) (1,579) (1,994)
Capital Increases/Other - - - -
Net Cash Flow 33 3,298 (2,185) (725)
Free Cash Flow 1,739 4,191 (436) 1,464
42
Figure 28. Siderar: Financial Statements, 2015–2018E (U.S. Dollars in Millions)
2015A 2016E 2017E 2018E
Income Statement
Net Revenue 2,332 2,102 2,288 2,474
YoY Change (%) (10.0) (9.9) 8.9 8.1
Gross Profit 599 563 581 615
SG&A Expenses (266) (241) (262) (284)
YoY Change (%) (44.3) (3.2) (1.2) 4.3
Equity Income 5 (1) (3) (3)
Taxes (64) (97) (104) (115)
Net Profit 170 180 186 205
YoY Change (%) (56.9) 5.9 3.0 10.6
EBITDA 407 412 397 416
YoY Change (%) (40.4) 1.1 (3.7) 5.0
Balance Sheet
Total Assets 2,352 3,069 3,169 3,271
Property& Plant and Equipment 672 914 985 1,051
Total Liabilities 533 816 833 817
Long-Term Debt 1 2 (3) (8)
Cash Flow
Net Profit 170 180 186 205
Changes in Working Capital 169 173 (140) (65)
Change in Debt (26) 38 (10) (10)
Dividends (73) (118) (93) (103)
Net Cash Flow 3 224 (129) (37)
Free Cash Flow 172 284 (26) 75
43
COMPANY REPORT | ARGENTINA—TELECOM, MEDIA & TECHNOLOGY
TELECOM ARGENTINA HOLD

DOWNGRADING RATING TO HOLD FROM BUY
Net/Net: We are downgrading our rating as we see limited upside potential from the current stock price. We believe that
the telecom sector will struggle to increase revenue and profitability in a strong competitive environment. Furthermore, we
believe that the short-term unfavorable macroeconomic environment, due to public service rate adjustments, is taking a toll
on consumers’ wallets. Our increased target price is largely explained by a reduction of 100 bps in the cost of equity.
Walter Chiarvesio*
 Still waiting for 4G services consumption to drive mobile ARPU up: Argentina: Santander Rio Valores, S.A.
The main factor behind our YE2017 target price continues to be
Valder Nogueira*
potential mobile ARPU growth in the upcoming years, driven by
increased consumption of 4G services. Though we are incorporating +5511-3012-5747 | jvalder@santander.com.br
an optimistic upward trend in our model (CAGR of 8%, to US$13.00 in

2021 from US$8.60 in 1Q16), we note that we have so far not seen
signs of a turnaround from the downward trend that started in 4Q12.
 EBITDA growth: We forecast a 5Y CAGR of 8% through 2010, with

margins reaching 30% in 2017, up from a 26% average in the last two
years.
Company Statistics
 Capex to remain high in 2016 and 2017, mainly to expand 4G network Bloomberg TEO US / TECO2 AR
capacity. We forecast 2016 capex at 19% of sales revenue, declining Current Price (06/13/16) US$ 18.74 / Ar$ 51.90
to 15.6% in 2019.
52-Week Range (US$) 13.85 - 19.99
Market Capitalization (US$ Mn) 3,690
 Discount to LatAm: TEO is trading at 3.3x FV/EBITDA, while LatAm Float (%) 44.6
telcos trade at 4.2x. We think that if country risk declined 150 bps, 3-Mth Avg. Daily Vol (US$ Mn) 1.5
TEO could be justified in trading at LatAm levels. Shares Outstanding - Mn 197

TEO US
160
Merval
(US$) 2015A 2016E 2017E 2018E

120
P/E 8.5 10.5 7.7 6.4
FV/EBITDA 3.0 4.0 3.3 2.9 100
FCF Yield (%) (6.6) 1.8 6.8 8.2 80

Div Yield (%) 5.7 2.8 4.1 6.8
60
Net Debt/EBITDA 0.2 0.3 0.1 0.1 J-14 O-14 F-15 J-15 O-15 F-16 J-16
44
TELECOM ARGENTINA
Ar$ US$ Telecom Argentina S.A. is one of the three main players
P&L ACCOUNT 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E in Argentina’s telecommunications industry. Telecom
Total Revenue 40,540 54,122 67,639 83,132 4,349 3,704 3,979 4,280 offers fixed telephony, internet ADSL, and mobile
YoY change (%) 21.4 33.5 25.0 22.9 6.4 (14.8) 7.4 7.6 telephony in the country. The main shareholder of the firm
Gross Profit 6,629 9,062 13,302 17,316 711 620 782 891 is Nortel Inversora (with 54.74% ownership), a holding
company controlled by Sofora (78%), which is owned by
YoY change (%) 21.8 36.7 46.8 30.2 6.7 (12.8) 26.2 13.9
Fintech Telecom LLC (68%) and the local W de Argentina
EBITDA 10,667 14,591 19,890 25,173 1,144 999 1,170 1,296
Group (32%).
YoY change (%) 22.8 36.8 36.3 26.6 7.6 (12.7) 17.2 10.8
As % of Revenue 26.3 27.0 29.4 30.3 26.3 27.0 29.4 30.3 Key Personnel: Mariano Marcelo Ibañez (Chairman),
German Horacio Vidal (CEO), Ignacio Cruz Moran (CFO),
Solange Barthe Dennin (IR) and Pedro Insusarry
YoY change (%) 14.4 45.5 46.8 30.2 0.3 (7.2) 26.2 13.9
(Finance Director)
As % of Revenue 15.4 16.7 19.7 20.8 15.4 16.7 19.7 20.8 Web: www.telecom.com.ar
Financial Results (1,102) (1,273) (946) (395) (118) (87) (56) (20)
Taxes (1,692) (2,732) (4,333) (5,934) (182) (187) (255) (305)
Sales by Segment, 2015E
Net Profit 3,435 5,057 8,023 10,987 369 346 472 566
YoY change (%) (7.9) 47.2 58.6 36.9 (19.3) (6.1) 36.4 19.9
As % of Revenue 8.5 9.3 11.9 13.2 8.5 9.3 11.9 13.2
Internet Fixed
CASH FLOW 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E 15.6% Telephony
Depreciation & Amortization (4,438) (5,530) (6,588) (7,857) (476) (378) (388) (404) 10.7%
Other Noncash Items (1,851) (380) 0 0 (199) (26) 0 0
Changes in Working Capital 790 (212) 1,507 759 85 (15) 89 39
Operating Cash Flow 6,812 9,995 16,118 19,602 731 684 948 1,009
Free Cash Flow (1,902) 957 4,213 5,802 (204) 65 248 299
Mobile
Other Invest./(Divestments) - - - - - - - - 73.6%
Change in Debt 4,467 23 0 0 479 2 0 0
Dividends (1,648) (1,500) (2,529) (4,814) (177) (103) (149) (248)
Capital Increases/Other - - - - - - - -
EBITDA By Segment, 2015E
Cash and Equivalents 2,300 760 2,445 3,433 177 49 132 169
Fixed
Current Assets 11,492 13,942 17,862 22,382 884 899 966 1,100 Telephony
Fixed Assets 17,963 23,708 29,749 36,202 1,382 1,530 1,608 1,779 & Internet
25.0%
Total Assets 38,465 46,086 55,755 66,713 2,959 2,973 3,014 3,278
Current Liabilities 16,914 20,906 25,275 30,283 1,301 1,349 1,366 1,488
Long-Term Liabilities 2,029 2,451 3,941 4,399 156 158 213 216
Shareholders' Equity 17,194 20,197 24,629 29,586 1,323 1,303 1,331 1,454
ST Debt 3,451 3,412 3,412 3,412 265 220 184 168
LT Debt 1,449 1,511 1,511 1,511 111 97 82 74 Mobile
75.0%
Net Debt 2,600 4,163 2,478 1,490 200 269 134 73
Net Debt/EBITDA 0.2 0.3 0.1 0.1 0.2 0.3 0.1 0.1
Net Debt/Equity 0.2 0.2 0.1 0.1 0.2 0.2 0.1 0.1
Capex/Revenue (%) 21.5 16.7 17.6 16.6 21.5 16.7 17.6 16.6
Int Cover (%) 4.8 7.3 18.4 42.6 4.8 7.3 18.4 42.6 Free Float
Dividend Payout (%) 44.2 43.7 50.0 60.0 38.7 28.2 52.1 60.0 44.6%
ROCE (%) 33.6 41.2 54.4 61.8 44.0 40.0 54.4 61.8
ROE (%) 21.7 27.1 35.8 40.5 24.4 25.2 35.8 40.5
ESOP NORTEL
P/E 11.7 9.9 6.2 4.6 8.5 10.5 7.7 6.4 Program 54.7%
P/CE 5.1 4.7 3.4 2.7 3.7 5.0 4.2 3.7 0.6%
FV/EBITDA 4.1 3.8 2.7 2.1 3.0 4.0 3.3 2.9
FV/EBIT 7.0 6.1 4.1 3.1 5.1 6.5 5.0 4.3
FV/Revenue 1.1 1.0 0.8 0.6 0.8 1.1 1.0 0.9
estimates.
P/BV 2.3 2.5 2.0 1.7 2.4 2.8 2.7 2.5
FCF Yield (%) (4.7) 1.9 8.4 11.6 (6.6) 1.8 6.8 8.2
Div Yield (%) 4.1 3.0 5.0 9.6 5.7 2.8 4.1 6.8
EPS 1.90 1.79 2.44 2.92 0.14 0.13 0.18 0.21
DPS 0.91 0.53 0.77 1.28 0.07 0.04 0.06 0.09
BVPS 6.82 6.72 6.87 7.50 0.50 0.49 0.50 0.54
45
Figure 29. Telecom Argentina: Financial Statements, 2015–2018E (Millions of Argentine
Pesos)
2015A 2016E 2017E 2018E
Income Statement
Net Revenue 40,540 54,122 67,639 83,132
YoY Change (%) 21.4 33.5 25.0 22.9
Gross Profit 6,629 9,062 13,302 17,316
SG&A Expenses - - - -
YoY Change (%) 14.4 45.5 46.8 30.2
Financial Results (1,102) (1,273) (946) (395)
FX Gain/Loss - - - -
Pre-Tax Profit 5,127 7,789 12,356 16,921
Taxes (1,692) (2,732) (4,333) (5,934)
Net Profit 3,435 5,057 8,023 10,987
YoY Change (%) (7.9) 47.2 58.6 36.9
Depreciation & Amortization (4,438) (5,530) (6,588) (7,857)
EBITDA 10,667 14,591 19,890 25,173
YoY Change (%) 22.8 36.8 36.3 26.6
Balance Sheet
Total Assets 38,465 46,086 55,755 66,713
Cash and Equivalents 2,300 760 2,445 3,433
Inventories 2,193 3,324 3,098 3,807
Other Current Assets 1,336 1,634 2,042 2,510
Short-Term Debt 3,451 3,412 3,412 3,412
Long-Term Debt 1,449 1,511 1,511 1,511
Cash Flow
Net Profit 3,435 5,057 8,023 10,987
Other Noncash Items (1,851) (380) 0 0
Changes in Working Capital 790 (212) 1,507 759
Other Investments/(Divestments) - - - -
Change in Debt 4,467 23 0 0
Dividends (1,648) (1,500) (2,529) (4,814)
Net Cash Flow 299 (988) 1,685 989
Free Cash Flow (1,902) 957 4,213 5,802
46
Figure 30. Telecom Argentina: Financial Statements, 2015–2018E (U.S. Dollars in Millions)
2015A 2016E 2017E 2018E
Income Statement
Net Revenue 4,349 3,704 3,979 4,280
YoY Change (%) 6.4 (14.8) 7.4 7.6
Gross Profit 711 620 782 891
SG&A Expenses - - - -
YoY Change (%) 0.3 (7.2) 26.2 13.9
FX Gain/Loss - - - -
Taxes (182) (187) (255) (305)
Net Profit 369 346 472 566
YoY Change (%) (19.3) (6.1) 36.4 19.9
EBITDA 1,144 999 1,170 1,296
YoY Change (%) 7.6 (12.7) 17.2 10.8
Balance Sheet
Total Assets 2,959 2,973 3,014 3,278
Accounts Payable 759 861 902 1,008
Cash Flow
Net Profit 369 346 472 566
Changes in Working Capital 85 (15) 89 39
Operating Cash Flow 731 684 948 1,009
Change in Debt 479 2 0 0
Dividends (177) (103) (149) (248)
Net Cash Flow 32 (68) 99 51
Free Cash Flow (204) 65 248 299
47
TRANSPORTADORA DE GAS DEL SUR BUY

Net/Net: We believe that a final regulatory rate is likely to be determined no later than 1Q17. Our year-end 2017 target
price for TGS relies on a rate increase scenario of 200%, accumulated in U.S. dollars until 2018.
Walter Chiarvesio*
 Getting into the process of tariff normalization. Though the exact Argentina: Santander Rio Valores, S.A.
methodology has yet to be defined by the regulator, the government is
Maria Carolina Carneiro*
moving ahead with the tariff and full regulatory revision. In our view,
the main task is to determine the rate of return and asset base to +5511-3012-6682 | macarneiro@santander.com.br
define the tariff adjustment for utilities. Based on conversations with

company management and the process already launched for discos,
we believe that the asset base will be determined by either a historical
inflation adjustment of fixed assets in the balance sheets or by an
independent assessment of the assets replacement value, with the
former the most likely, in our view. We also expect that the rate of
return will be defined in local currency but in real terms. More
Company Statistics
uncertainty remains on how the regulation will treat expansion and
Bloomberg TGS US
maintenance capex.
 Tariff adjustment assumption: Although the final rate normalization 52-Week Range (US$) 3.82 - 6.99
remains uncertain, we are incorporating the recent temporary increase Market Capitalization (US$ Mn) 1,022
of 200% in gas transport rates, plus an additional 100% in 2017. After Float (%) 51.0
this, we expect increases in line with inflation in order to maintain a
stable regulatory asset base (RAB) over time until a new integral tariff
revision takes place in five years. Thus, we expect EBITDA to Price Performance (US$)
TGS US
normalize at US$290 million in three years, with margin expansion to 250
Merval
45% from 30% (last three-year average).
200
150
100
(US$) 2015A 2016E 2017E 2018E 50
J-14 O-14 F-15 J-15 O-15 F-16 J-16
P/E - 46.1 8.7 5.7
FV/EBITDA 12.3 7.4 4.2 3.3
FCF Yield (%) (2.2) 4.4 6.9 12.4
Div Yield (%) (0.0) 0.7 1.0 6.0
48
TRANSPORTADORA DE GAS DEL SUR
Ar$ US$ Transportadora de Gas del Sur has two main business in
P&L ACCOUNT 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E Argentina: 1) Gas transportation, it controls the southern
Total Revenue 4,237 6,787 10,204 11,675 419 455 600 601 country gas transport, with firm capacity of around
YoY change (%) (1.3) 60.2 50.4 14.4 (19.2) 8.5 32.0 0.1 80MM3/day, transports nearly 60% of the gas consumed
Gross Profit 1,478 2,529 4,549 5,278 146 169 268 272 in Argentina through 8,042 km of pipeline, and it is a
direct provider to distributors, power stations, and
YoY change (%) (14.5) 71.2 79.9 16.0 (30.0) 15.9 57.9 1.6
industries. 2) General Cerri NGL processing complex,
EBITDA 950 2,367 4,375 5,114 94 159 257 263
with 1.1million tons capacity (Etane, butane, propane and
YoY change (%) (20.0) 149.2 84.8 16.9 (34.5) 68.7 62.3 2.3 virgin gasoline). Pampa and Petrobras Argentina controls
As % of Revenue 22.4 34.9 42.9 43.8 22.4 34.9 42.9 43.8 50% stake in CIESA, the holding company that controls
Operating Income 689 2,128 4,091 4,788 68 143 241 246 TGS with 51% stake.
YoY change (%) (26.2) 209.1 92.2 17.0 (39.5) 109.3 68.7 2.4
Key Personnel: Carlos Seijo (Chairman), Carlos Seijo
As % of Revenue 16.3 31.4 40.1 41.0 16.3 31.4 40.1 41.0 (CEO), Gonzalo Castro Olivera (CFO), Leandro Perez
Financial Results (974) (1,660) (1,019) (306) (96) (111) (60) (16) Castaño (Finance and IR Manager) and Carlos Almagro
Taxes 113 (137) (1,075) (1,569) 11 (9) (63) (81) (Investor Relation)
Net Profit (172) 331 1,996 2,913 (17) 22 117 150 Web: www.tgs.com.ar
YoY change (%) (264.2) n/m 503.5 45.9 (234.5) n/m 429.8 27.7
As % of Revenue (4.1) 4.9 19.6 25.0 (4.1) 4.9 19.6 25.0 Revenues Breakdown, 2014
Depreciation & Amortization (261) (239) (284) (326) (26) (16) (17) (17) Other Gas
Other Noncash Items 1,075 546 0 0 106 37 0 0 services transportati
Changes in Working Capital (674) (50) (128) (98) (67) (3) (8) (5) 7.1% on
Operating Cash Flow 489 1,065 2,153 3,141 48 71 127 162 17.4%
Capital Expenditures (707) (390) (954) (1,090) (70) (26) (56) (56)
Free Cash Flow (218) 675 1,199 2,051 (22) 45 71 106
Other Invest./(Divestments) 303 3 0 0 30 0 0 0
Change in Debt (586) (3) 0 0 (58) (0) 0 0 Gas
Dividends 0 (100) (165) (998) 0 (7) (10) (51) processing
Capital Increases/Other (271) 0 0 0 (27) 0 0 0 75.5%
Cash and Equivalents 872 1,498 2,532 3,585 67 97 137 176
Current Assets 2,230 3,568 5,395 6,753 172 230 292 332 EBITDA Breakdown, 2014
Fixed Assets 4,220 4,367 5,234 5,998 325 282 283 295
Total Assets 6,647 8,089 10,780 12,903 511 522 583 634
Current Liabilities 1,321 2,121 2,788 2,994 102 137 151 147 Other Gas
services transportati
Long-Term Liabilities 3,631 3,965 3,965 3,965 279 256 214 195 on
14.7%
Shareholders' Equity 1,695 2,003 4,028 5,944 130 129 218 292 12.4%
ST Debt 447 586 586 586 34 38 32 29
LT Debt 2,888 3,258 3,258 3,258 222 210 176 160
Net Debt 2,463 2,346 1,312 259 189 151 71 13 Gas
processing
Capital Employed 4,591 4,706 5,693 6,625 353 304 308 326 72.9%
Net Debt/EBITDA 2.6 1.0 0.3 0.1 2.0 1.0 0.3 0.0
Net Debt/Equity 1.5 1.2 0.3 0.0 2.0 1.1 0.3 0.0
Capex/Revenue (%) 16.7 5.7 9.3 9.3 16.7 5.7 9.3 9.3 Shareholder Structure, Current
Int Cover (%) 1.0 1.5 7.5 26.0 1.0 1.5 7.5 26.0
Dividend Payout (%) 0.0 (58.0) 50.0 50.0 0.0 (37.5) 52.1 50.0
ROCE (%) 17.5 42.3 53.0 48.6 23.4 40.5 53.0 48.6
ROE (%) (9.7) 17.9 66.2 58.4 (10.6) 16.7 66.2 58.4 Float
49.0%
P/E - 42.6 7.1 4.0 - 46.1 8.7 5.7
P/CE n/m 24.8 6.2 3.6 n/m 26.8 7.6 5.1
FV/EBITDA 15.8 6.9 3.5 2.3 12.3 7.4 4.2 3.3 CIESA
51.0%
FV/EBIT 21.8 7.7 3.8 2.5 17.0 8.2 4.5 3.5
FV/Revenue 3.5 2.4 1.5 1.0 2.8 2.6 1.8 1.4
P/BV 7.4 7.0 3.5 2.0 7.4 7.9 4.7 2.9
FCF Yield (%) (1.7) 4.8 8.5 17.5 (2.2) 4.4 6.9 12.4 Sources for all charts and tables: Company reports and Santander
Div Yield (%) (0.0) 0.7 1.2 8.5 (0.0) 0.7 1.0 6.0 estimates.
EPS (0.11) 0.14 0.74 1.13 (0.01) 0.01 0.05 0.08
DPS 0 0.04 0.06 0.39 0 0.00 0.00 0.03
BVPS 0.82 0.81 1.37 2.21 0.06 0.06 0.10 0.16
49
Figure 31. Transportadora de Gas del Sur: Financial Statements, 2015–2018E (Millions of
Argentine Pesos)
2015A 2016E 2017E 2018E
Income Statement
Net Revenue 4,237 6,787 10,204 11,675
YoY Change (%) (1.3) 60.2 50.4 14.4
Gross Profit 1,478 2,529 4,549 5,278
SG&A Expenses (448) (382) (458) (490)
Operating Profit 689 2,128 4,091 4,788
YoY Change (%) (26.2) 209.1 92.2 17.0
Financial Results (974) (1,660) (1,019) (306)
FX Gain/Loss (83) (130) (454) (131)
Other Income/Expenses (341) (19) 0 0
Pre-Tax Profit (286) 468 3,071 4,482
Taxes 113 (137) (1,075) (1,569)
Net Profit (172) 331 1,996 2,913
YoY Change (%) (264.2) n/m 503.5 45.9
EBITDA 950 2,367 4,375 5,114
YoY Change (%) (20.0) 149.2 84.8 16.9
Balance Sheet
Total Assets 6,647 8,089 10,780 12,903
Cash and Equivalents 872 1,498 2,532 3,585
Accounts Receivable 805 1,120 1,591 1,849
Other Current Assets 545 886 1,225 1,259
Accounts Payable 443 845 1,180 1,282
Other Current Liabilities 431 690 1,022 1,126
Long-Term Debt 2,888 3,258 3,258 3,258
Cash Flow
Net Profit (172) 331 1,996 2,913
Other Noncash Items 1,075 546 0 0
Changes in Working Capital (674) (50) (128) (98)
Operating Cash Flow 489 1,065 2,153 3,141
Capital Expenditures (707) (390) (954) (1,090)
Other Investments/(Divestments) 303 3 0 0
Change in Debt (586) (3) 0 0
Dividends 0 (100) (165) (998)
Capital Increases/Other (271) 0 0 0
Net Cash Flow (772) 575 1,033 1,053
Free Cash Flow (218) 675 1,199 2,051
50
Figure 32. Transportadora de Gas del Sur: Financial Statements, 2015–2018E (U.S. Dollars
in Millions)
2015A 2016E 2017E 2018E
Income Statement
Net Revenue 419 455 600 601
YoY Change (%) (19.2) 8.5 32.0 0.1
Gross Profit 146 169 268 272
SG&A Expenses (44) (26) (27) (25)
YoY Change (%) (39.5) 109.3 68.7 2.4
FX Gain/Loss (8) (9) (27) (7)
Other Income/Expenses (34) (1) 0 0
Pre-Tax Profit (28) 31 181 231
Taxes 11 (9) (63) (81)
Net Profit (17) 22 117 150
YoY Change (%) (234.5) n/m 429.8 27.7
EBITDA 94 159 257 263
YoY Change (%) (34.5) 68.7 62.3 2.3
Balance Sheet
Total Assets 511 522 583 634
Inventories 1 4 3 3
Total Liabilities 381 393 365 342
Shareholders' Equity 130 129 218 292
Cash Flow
Net Profit (17) 22 117 150
Changes in Working Capital (67) (3) (8) (5)
Other Investments/(Divestments) 30 0 0 0
Change in Debt (58) (0) 0 0
Dividends 0 (7) (10) (51)
Capital Increases/Other (27) 0 0 0
Net Cash Flow (76) 39 61 54
Free Cash Flow (22) 45 71 106
51
COMPANY REPORT | ARGENTINA—OIL, GAS & PETROCHEMICALS
YPF SA BUY
Net/Net: We have reduced our target price following the company’s recent new guidance for production and capex.
Nonetheless, the stock’s upside potential from its current price is enough to warrant a Buy recommendation, in our view.
Walter Chiarvesio*
 Slowing growth and capex: Though we need to see if the company´s Argentina: Santander Rio Valores, S.A.
new management will change strategy (a new CEO is expected to
Christian Audi
start in July 2016), our model incorporates YPF’s investment and
New York: Santander Investment Securities Inc.
capex guidance. We expect natural gas production to grow 1.9% in +1-212-350-3991 | caudi@santander.us
2016 and 5% in 2017, driven by tight gas production growth. We

assume crude oil production to remain flat in the upcoming years, at
250 bbld. We expect refining production to remain flat as well, at full
capacity of 320 kbbld. With capex guidance also reduced, we believe
that the probability of positive free cash flow toward year-end is
increasing.
 Price curve: We expect crude oil to remain in the range of US$67/bbl Company Statistics
(light), maintaining a premium (vs. international prices) before Bloomberg YPF US / YPFD AR
converging to US$75/bbl in five years (vs. international prices at
Target Price (YE 2017E) US$ 33.00 / Ar$ 633.60
US$65/bbl). We expect prices at the pump, the key to YPF’s operating 52-Week Range (US$) 12.83 - 28.00
results, in our view, to decline 12%, to US$88/bbl (refined) in 2016, Market Capitalization (US$ Mn) 7,984
before gradually recovering to US$120/bbl (our previous assumption Float (%) 37.0
was US$130/bbl long term).
 Natural gas: We think that the government will promote investments in Price Performance (US$)
natural gas production by setting the price to US$7.50/MBTU in the YPF US
160
Merval
medium term, from US$4.80/MBTU currently. Tight gas is already 140
showing solid results in terms of growth, with YPF’s production at 9.0 120
Mm3 in 1Q16 from 1.9 Mm3 in 4Q13. 100
80
60
40
20
(US$) 2015A 2016E 2017E 2018E J-14 O-14 F-15 J-15 O-15 F-16 J-16
P/E 13.6 16.3 10.2 7.3 Sources: FactSet, Santander estimates and company reports.
FV/EBITDA 3.1 3.9 3.1 2.8

FCF Yield (%) (29.6) (13.7) (4.5) 1.2
Div Yield (%) (0.0) (0.0) 0.1 0.2
52
YPF SA
Ar$ US$ YPF S.A. is an integrated company engaged in oil and
P&L ACCOUNT 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E gas exploration and production, refining, chemicals, and
Total Revenue 156,136 228,897 306,001 378,560 15,451 14,961 17,386 18,778 petrochemicals. It operates mainly in Argentina, and has
YoY change (%) 10.0 46.6 33.7 23.7 (9.9) (3.2) 16.2 8.0 a production of 85 million barrels of crude oil, 17 million
Gross Profit 36,599 46,095 69,799 90,671 3,622 3,013 3,966 4,498 barrels of NGL and 393 billion of cubic feet of natural gas
as of 2013. The company also has a refining capacity of
YoY change (%) (2.3) 25.9 51.4 29.9 (20.0) (16.8) 31.6 13.4
320,000 barrels per day, with over 3,000 km of oil pipeline
EBITDA 43,273 63,139 88,826 112,317 4,282 4,127 5,047 5,571
and a multiproduct pipeline network. This makes it the
YoY change (%) 9.1 45.9 40.7 26.4 (10.7) (3.6) 22.3 10.4 leader in terms of market share, with more than 1,500
As % of Revenue 27.7 27.6 29.0 29.7 27.7 27.6 29.0 29.7 service stations. Moreover, the company operates in the
Operating Income 16,588 21,759 37,478 50,716 1,642 1,422 2,129 2,516 petrochemical business, which is fully integrated with E&P
YoY change (%) (16.0) 31.2 72.2 35.3 (31.2) (13.4) 49.7 18.1 and Refining, plus some stakes in different related
As % of Revenue 10.6 9.5 12.2 13.4 10.6 9.5 12.2 13.4 companies. YPF is controlled by the Argentine
Financial Results 12,157 (5,937) (16,181) (16,580) 1,203 (388) (919) (822) Government with a 51.1% stake. Respsol holds 11.9%
Taxes (24,637) (8,443) (7,454) (11,948) (2,438) (552) (424) (593) The remaining 37% floats freely in the Buenos Aires
Net Profit 4,579 7,476 13,843 22,189 453 489 787 1,101
Stock Exchange (YPFD) and the New York Stock
Exchange (YPF).
YoY change (%) (49.1) 63.3 85.2 60.3 (58.3) 7.8 61.0 39.9
As % of Revenue 2.9 3.3 4.5 5.9 2.9 3.3 4.5 5.9 Key Personnel: Miguel Galuccio (Chairman), Miguel
Galuccio (CEO), Daniel Gonzalez (CFO) and Diego Celaa
CASH FLOW 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E (Investor Relations)
Depreciation & Amortization (26,685) (41,380) (51,348) (61,601) (2,641) (2,705) (2,917) (3,056) Web: www.ypf.com
Other Noncash Items (1,328) 34,556 9,452 8,597 (131) 2,259 537 426
Changes in Working Capital 11,468 (33,620) (9,452) (8,597) 1,135 (2,197) (537) (426) EBITDA Breakdown 2015
Operating Cash Flow 41,404 49,792 65,191 83,790 4,097 3,254 3,704 4,156
Capital Expenditures (59,880) (66,528) (71,528) (81,932) (5,926) (4,348) (4,064) (4,064)
Free Cash Flow (18,476) (16,736) (6,337) 1,858 (1,828) (1,094) (360) 92
R&M
Other Invest./(Divestments) - - - - - - - - 27.5%
Change in Debt 31,068 28,300 28,300 28,300 3,075 1,850 1,608 1,404
Dividends 0 0 (201) (373) 0 0 (11) (18)
Capital Increases/Other 0 0 0 0 0 0 0 0
Current Assets 56,756 112,396 162,862 219,878 4,366 7,025 8,482 10,411 E&P
Fixed Assets 270,905 340,914 365,096 389,430 20,839 21,307 19,015 18,439 72.5%
Total Assets 343,236 471,131 546,135 627,849 26,403 29,446 28,445 29,728
Current Liabilities 79,791 110,914 143,156 173,181 6,138 6,932 7,456 8,200
Long-Term Liabilities 40,455 50,082 51,584 53,132 3,112 3,130 2,687 2,516
Shareholders' Equity 100,244 205,113 216,060 239,625 7,711 12,820 11,253 11,346 Reserves Composition, 2015
Total Financial Debt 105,751 150,032 193,336 231,302 8,135 9,377 10,070 10,952
ST Debt 27,817 45,010 58,001 69,391 2,140 2,813 3,021 3,286
LT Debt 77,934 105,023 135,335 161,912 5,995 6,564 7,049 7,666
Natural Gas
FINANCIAL RATIOS 2015A 2016E 2017E 2018E 2015A 2016E 2017E 2018E 44.6%
Net Debt 90,364 126,556 148,097 156,279 6,951 7,910 7,713 7,400
Net Debt/EBITDA 2.1 2.0 1.7 1.4 1.6 1.9 1.5 1.3
Net Debt/Equity 0.9 0.6 0.7 0.7 1.3 0.6 0.7 0.7 Crude Oil
Capex/Revenue (%) 38.4 29.1 23.4 21.6 38.4 29.1 23.4 21.6 55.4%
Int Cover (%) 2.7 2.3 2.5 3.9 2.7 2.3 2.5 3.9
Dividend Payout (%) 0.0 0.0 2.7 2.7 0.0 0.0 2.8 2.7
ROCE (%) 15.9 8.4 11.9 16.0 18.4 8.2 11.9 16.0
ROE (%) 5.3 4.9 6.6 9.7 6.0 4.6 6.6 9.7 Shareholder Structure, Current
P/E 17.5 14.7 8.0 5.0 13.6 16.3 10.2 7.3
P/CE 2.6 2.3 1.7 1.3 2.0 2.5 2.2 1.9 Float
FV/EBITDA 3.9 3.7 2.9 2.4 3.1 3.9 3.1 2.8 49.0%
FV/EBIT 10.3 10.9 6.9 5.3 8.0 11.2 7.4 6.1
FV/Revenue 1.1 1.0 0.8 0.7 0.9 1.1 0.9 0.8
P/BV 0.8 0.5 0.5 0.5 0.8 0.6 0.7 0.7
FCF Yield (%) (23.1) (15.2) (5.8) 1.7 (29.6) (13.7) (4.5) 1.2 Government
Div Yield (%) (0.0) (0.0) 0.2 0.3 (0.0) (0.0) 0.1 0.2 51.0%
EPS 15.86 17.10 27.53 38.52 1.15 1.24 2.00 2.80
DPS 0 0 0.51 0.95 0 0 0.04 0.07
estimates.
BVPS 347.18 469.18 429.63 415.99 25.22 34.08 31.21 30.22
53
Figure 33. YPF SA: Financial Statements, 2015–2018E (Millions of Argentine Pesos)
2015A 2016E 2017E 2018E
Income Statement
Net Revenue 156,136 228,897 306,001 378,560
YoY Change (%) 10.0 46.6 33.7 23.7
Gross Profit 36,599 46,095 69,799 90,671
SG&A Expenses (16,685) (22,098) (29,541) (36,546)
YoY Change (%) (16.0) 31.2 72.2 35.3
Financial Results 12,157 (5,937) (16,181) (16,580)
FX Gain/Loss 910 6,991 14,427 6,540
Equity Income 4,579 7,476 13,843 22,189
Pre-Tax Profit 29,063 15,918 21,297 34,136
Taxes (24,637) (8,443) (7,454) (11,948)
Net Profit 4,579 7,476 13,843 22,189
YoY Change (%) (49.1) 63.3 85.2 60.3
EBITDA 43,273 63,139 88,826 112,317
YoY Change (%) 9.1 45.9 40.7 26.4
Balance Sheet
Total Assets 343,236 471,131 546,135 627,849
Inventories 19,258 27,909 36,061 43,952
Other Current Assets - - - -
Short-Term Debt 27,817 45,010 58,001 69,391
Long-Term Debt 77,934 105,023 135,335 161,912
Cash Flow
Net Profit 4,579 7,476 13,843 22,189
Other Noncash Items (1,328) 34,556 9,452 8,597
Changes in Working Capital 11,468 (33,620) (9,452) (8,597)
Change in Debt 31,068 28,300 28,300 28,300
Dividends 0 0 (201) (373)
Net Cash Flow 1,020 6,003 21,762 29,785
Free Cash Flow (18,476) (16,736) (6,337) 1,858
54
Figure 34. YPF SA: Financial Statements, 2015–2018E (U.S. Dollars in Millions)
2015A 2016E 2017E 2018E
Income Statement
Net Revenue 15,451 14,961 17,386 18,778
YoY Change (%) (9.9) (3.2) 16.2 8.0
Gross Profit 3,622 3,013 3,966 4,498
SG&A Expenses (1,651) (1,444) (1,678) (1,813)
YoY Change (%) (31.2) (13.4) 49.7 18.1
Financial Results 1,203 (388) (919) (822)
FX Gain/Loss 90 457 820 324
Equity Income 453 489 787 1,101
Pre-Tax Profit 2,876 1,040 1,210 1,693
Taxes (2,438) (552) (424) (593)
Net Profit 453 489 787 1,101
YoY Change (%) (58.3) 7.8 61.0 39.9
EBITDA 4,282 4,127 5,047 5,571
YoY Change (%) (10.7) (3.6) 22.3 10.4
Balance Sheet
Total Assets 26,403 29,446 28,445 29,728
Inventories 1,481 1,744 1,878 2,081
Other Current Assets - - - -
Other Long-Term Assets 1,198 1,114 947 878
Short-Term Debt 2,140 2,813 3,021 3,286
Long-Term Debt 5,995 6,564 7,049 7,666
Cash Flow
Net Profit 453 489 787 1,101
Other Noncash Items (131) 2,259 537 426
Changes in Working Capital 1,135 (2,197) (537) (426)
Change in Debt 3,075 1,850 1,608 1,404
Dividends 0 0 (11) (18)
Net Cash Flow 101 392 1,236 1,477
Free Cash Flow (1,828) (1,094) (360) 92
55
BBVA Frances – Valuation & Risks
We valued the bank with a discounted surplus capital model, with a terminal cost of equity of
13.1% and a 15 year RWA CAGR of 0.0% in US-dollars. The perpetuity value is derived from a
Gordon Growth Model, with a terminal growth rate of 0.0% and a sustainable ROE of 0.0%. We
valued the bank’s stock of surplus capital (deficit) at 1.0x P/BV.
Risks include the risk of a deterioration in the country risk, risk of slower-than-expected growth,
higher-than-expected NPLs, and slower-than-expected deposit growth.
Banco Macro – Valuation & Risks
We valued the bank with a discounted surplus capital model, with a terminal cost of equity of
0.0% and a 15 year RWA CAGR of 0.0%. The perpetuity value is derived from a Gordon Growth
Model, with a terminal growth rate of 0.0% and a sustainable ROE of 0.0%. We valued the bank’s
stock of surplus capital (deficit) at 1.0x P/BV. We value investments in non-banking subsidiaries,
if any, at the after-tax unrealized capital gain.
Upside risks include potential from lower cost of equity due to lower country risk or lower inflation;
risk of stronger-than-expected GDP from from higher commodity prices. Downside risks include a
weaker-than-expected economy.There are upside risks, from stronger-than-expected loan growth
or weaker-than-expected competition in the banking industry.
Edenor – Valuation & Risks
We valued Edenor based on a DCF model, using a WACC of 11.0% and a long-term growth rate
of 2.5%.
Risks include: (1) regulatory risk, (2) sensitivity of earnings to volumes, (3) a sharp depreciation of
the local currency, and (4) potential electricity supply constraints.
GF Galicia – Valuation & Risks
We valued the bank with a discounted surplus capital model, with a cost of equity of 13.6% and a
15 year RWA CAGR of 0.0%. The perpetuity value is derived from a Gordon Growth Model, with
a terminal growth rate of 0.0% and a sustainable ROE of 0.0%. We valued the bank’s stock of
surplus capital (deficit) at 1.0x P/BV.
Risks include the risk of a deteriortin in the country risk, risk of slower-than-expected growth,
weaker-than-expected deposit growth, and worse-than-expected asset quality in Galicia’s
consumer loan portfolio.
Grupo Clarin – Valuation & Risks
We valued GCLA based on a DCF model using a WACC of 9.9% and perpetuity of 2.5%.
Main risks include: regulatory risks, commercial risk and macroeconomic risk.
Ternium (TX; Buy; Current Price: US$18.98; Target Price: US$24.00) – Valuation & Risks
Our YE2016 target price is based on a DCF analysis, using a WACC of 9.5% and a 2.0% nominal
growth rate in perpetuity.
Main risks include (1) lower-than expected steel prices, (2) stronger -than-estimated economic
slowdown in the U.S., and (3) higher–than-estimated increases in raw material prices.
Pampa Energia – Valuation & Risks
We value Pampa Energía based on a sum-of-the-parts analysis consisting primarily of DCF
valuations for transmission, distribution and generation using WACC of 10.3%. Non-core assets
were assessed at market value/book value. Risks include: (1) regulatory risks; (2) sensitivity of
earnings to changes in tariff; (3) potential natural gas shortfalls; (4) geological risk om its E&P
segment; and (5) the potential depreciation of the local currency.
Siderar – Valuation & Risks
Our valuation of Siderar is based on a DCF model using a WACC of 12.3%. Our new price target
implies total-return potential of 74.6% in local curency, enough to support a Buy rating. Risks
include lower-than-expected economic growth, increasing regulatory risk, and higher-than-
expected increases in iron ore and coal costs.
Telecom Argentina – Valuation & Risks
We valued TEO based on a DCF model assuming a WACC of 10.2%. Risks include: weaker-
than-expected currency, worse-than-expect operating performance, adverse regulatory changes
and country risk increase.
We valued TEO based on a DCF model assuming a WACC of 10.2%. Risks include: weaker-
than-expected currency, worse-than-expect operating performance, adverse regulatory changes
and country risk increase.
Petrobras – Valuation & Risks
Our YE2016 target price is based on a DCF valuation using a nominal WACC of 10.1%. Main
risks include: oil prices, execution, and capital discipline.
56
Transportadora de Gas del Sur – Valuation & Risks
We valued TGS based on a DCF model, using a WACC of 10.3% and a long-term growth rate of
2%.
Main risks include regulatory risk, sensitivity of earnings to changes in regulated tariffs and crude
oil prices, and the current gas supply restrictions.
YPF SA – Valuation & Risks
We valued YPF based on a DCF model using a WACC of 10.3% and perpetuity of 2.5%.
Main risks include: regulatory risks; sensitivity of earnings to changes in crude oil prices and
related products; a steeper-than-expected depreciation of the local currency against the U.S.
dollar; and poorer-than-expected production growth and reserve replacement ratios.
57
IMPORTANT DISCLOSURES
Key to Investment Codes

% of % of Companies Provided
Companies Investment Banking
Covered with Services in the Past 12
Rating Definition This Rating Months
Buy (B) Expected to outperform the local market benchmark by more than 10%. 49.07 5.20
Hold (H) Expected to perform within a range of 0% to 10% above the local market
40.15 3.72
benchmark.
Underperform Expected to underperform the local market benchmark. 10.78 1.49
Under Review (U/R) 0.00 0.00
The numbers above reflect our Latin American universe as of Wednesday, June 15, 2016.
For a discussion, if applicable, of the valuation methods used to determine the price targets included in this report and the risks to achieving
these targets, please refer to the latest published research on these stocks. Research is available through your sales representative and other
electronic systems.
Target prices are year-end 2016 unless otherwise specified. Recommendations are based on a total return basis (expected share price
appreciation + prospective dividend yield) unless otherwise specified.
Stock price charts and rating histories for companies discussed in this report are also available by written request to Santander Investment
Securities Inc., 45 East 53rd Street, 17th Floor (Attn: Research Disclosures), New York, NY 10022 USA.
Ratings are established when the firm sets a target price and/or when maintaining or reiterating the rating. Ratings may not coincide with the above
methodology due to price volatility. Management reserves the right to maintain or to modify ratings on any specific stock and will disclose this in the
report when it occurs. Valuation methodologies vary from stock to stock, analyst to analyst, and country to country. Any investment in Latin American
equities is, by its nature, risky. A full discussion of valuation methodology and risks related to achieving the target price of the subject security is included
in the body of this report.
The benchmark used for local market performance is the country risk of each country plus the 1-year U.S. Treasury yield plus 5.5% of equity risk
premium, unless otherwise specified. The benchmark plus the 10.0% differential used to determine the rating is time adjusted to make it comparable
with the total return of the stock over the same period. For additional information about our rating methodology, please call (212) 350 3974.
This research report (“report”) has been prepared by Santander Investment Securities Inc. ("SIS"; SIS is a subsidiary of Santander Investment I, S.A.
which is wholly owned by Banco Santander, S.A. "Santander"]) on behalf of itself and its affiliates (collectively, Grupo Santander) and is provided for
information purposes only. This report must not be considered as an offer to sell or a solicitation of an offer to buy any relevant securities (i.e., securities
mentioned herein or of the same issuer and/or options, warrants, or rights with respect to or interests in any such securities).
Any decision by the recipient to buy or to sell should be based on publicly available information on the related security and, where appropriate, should
take into account the content of the related prospectus filed with and available from the entity governing the related market and the company issuing the
security. This report is issued in Spain by Santander Investment Bolsa, Sociedad de Valores, S.A. (“Santander Investment Bolsa”) and in the United
Kingdom by Banco Santander, S.A., London Branch. Santander London is authorized by the Bank of Spain. This report is not being issued to private
customers. SIS, Santander London and Santander Investment Bolsa are members of Grupo Santander.
The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed, that
their recommendations reflect solely and exclusively their personal opinions, and that such opinions were prepared in an independent and autonomous
manner, including as regards the institution to which they are linked, and that they have not received and will not receive direct or indirect compensation
in exchange for expressing specific recommendations or views in this report, since their compensation and the compensation system applying to Grupo
Santander and any of its affiliates is not pegged to the pricing of any of the securities issued by the companies evaluated in the report, or to the income
arising from the businesses and financial transactions carried out by Grupo Santander and any of its affiliates: Walter Chiarvesio*, Valder Nogueira*,
Martin Mansur*, Maria Carolina Carneiro*, Andre Sampaio*, Christian Audi.
*Employed by a non-US affiliate of Santander Investment Securities Inc. and is not registered/qualified as a research analyst under FINRA rules and is
not an associated person of the member firm, and, therefore, may not be subject to FINRA Rule 2241 and Incorporated NYSE Rule 472 restrictions on
communications with a subject company, public appearances, and trading securities held by a research analyst account.
As per the requirements of the Brazilian CVM, the following analysts hereby certify that we do not maintain a relationship with any individual working for
the companies whose securities were evaluated in the disclosed report. That we do not own, directly or indirectly, securities issued by the company
evaluated. That we are not involved in the acquisition, disposal and intermediation of such securities on the market: Maria Carolina Carneiro, Andre
Sampaio, and Valder Nogueira*
Grupo Santander receives non-investment banking revenue from BBVA Frances, GF Galicia. Siderar, Telecom Argentina, YPF, Petrobras, and
Ternium.
Within the past 12 months, Grupo Santander has received compensation for investment banking services from YPF.
In the next three months, Grupo Santander expects to receive or intends to seek compensation for investment banking services from Pampa Energia.
Santander or its affiliates and the securities investment clubs, portfolios and funds managed by them do not have any direct or indirect ownership
interest equal to or higher than one percent (1%) of the capital stock of any of the companies whose securities were evaluated in this report and are not
involved in the acquisition, disposal and intermediation of such securities on the market
The information contained within this report has been compiled from sources believed to be reliable. Although all reasonable care has been taken to
ensure the information contained within these reports is not untrue or misleading, we make no representation that such information is accurate or
complete and it should not be relied upon as such. All opinions and estimates included within this report constitute our judgment as of the date of the
report and are subject to change without notice.
From time to time, Grupo Santander and/or any of its officers or directors may have a long or short position in, or otherwise be directly or indirectly
interested in, the securities, options, rights or warrants of companies mentioned herein.
Any U.S. recipient of this report (other than a registered broker-dealer or a bank acting in a broker-dealer capacity) that would like to effect any
transaction in any security discussed herein should contact and place orders in the United States with SIS, which, without in any way limiting the
foregoing, accepts responsibility (solely for purposes of and within the meaning of Rule 15a-6 under the U.S. Securities Exchange Act of 1934) for this
report and its dissemination in the United States.
© 2016 by Santander Investment Securities Inc. All Rights Reserved.
2016 58

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LATIN AMERICAN

IMPORTANT DISCLOSURES/CERTIFICATIONS ARE IN THE “IMPORTANT DISCLOSURES” SECTION OF THIS REPORT.

Source: UTDT, Orlando Ferreres, Ministry of Labor and ANSES.

Figure 2: Industrial Production 5M2016 versus 5M2015

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

Source: Finance Ministry.

Salaries+ Social 15%

Source: Central Bank and Santander estimates.

Figure 6:Policy Interest Rates (left) and Inflation (right)

Sources: Central Bank, FIEL, CABA, UTDT.

190 1,000 8.0

Main economic variables incorporated in our models.

Figure 9: Main Economic Forecasts

2016 2017 2018 2019

Source: Bloomberg and Santander estimates.

Upside Potential Target PE Current PE

TIME TO BE MORE SELECTIVE IN TERMS OF SECTORS

OIL & GAS

TELECOMMUNICATION, MEDIA AND TECHNOLOGY

BBVA FRANCES UNDERPERFORM

 Deposits growth: We expect the bank to post total deposit growth of

Div Yield (%) 0.9 1.7 2.4 3.9

BANCO MACRO UNDERPERFORM

demand during 1H16, due to a sluggish economy, likely to continue

 Deposits growth: We expect funding to grow 33% in 2016 and 30% in

EPS 118.59 98.63 111.08 120.54 8.62 7.16 8.07 8.76

country risk; (iv) regulatory developments (including higher Andre Sampaio*

 Outlook improving. We have seen important improvements in the

Estimates & Valuation Ratios Price Performance (US$)

BVPADR (US$) 8.17 9.43 10.79 13.03 200

GRUPO CLARIN HOLD

 Cable ARPU sustained by HD TV bundle: GCLA has successfully Walter Chiarvesio*

has proved to be overcrowded, in our view. We have not incorporated

Estimates & Valuation Ratios 250

(US$) 2015A 2016E 2017E 2018E 200

Div Yield (%) 1.0 (0.0) 2.6 4.4

PAMPA ENERGIA BUY

 Outlook remains positive: We anticipate important improvements in

Estimates & Valuation Ratios 100

 Stable pricing, lagging international price references. We assume

Estimates & Valuation Ratios 150

(Ar$) 2015A 2016E 2017E 2018E

TELECOM ARGENTINA HOLD

an optimistic upward trend in our model (CAGR of 8%, to US$13.00 in

 EBITDA growth: We forecast a 5Y CAGR of 8% through 2010, with

Price Performance (US$)

Estimates & Valuation Ratios 140

(US$) 2015A 2016E 2017E 2018E

FCF Yield (%) (6.6) 1.8 6.8 8.2 80

TRANSPORTADORA DE GAS DEL SUR BUY

define the tariff adjustment for utilities. Based on conversations with

2016 and 5% in 2017, driven by tight gas production growth. We

Mm3 in 1Q16 from 1.9 Mm3 in 4Q13. 100

FV/EBITDA 3.1 3.9 3.1 2.8

Key to Investment Codes

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