Business Context and Reporting Period
Company: Grupo Aval Acciones Y Valores S.A. (NYSE: AVAL)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: First Quarter 2022 (Ended March 31, 2022)
Key Event: On March 29, 2022, the company completed the spin-off of a 75% equity stake in BAC Holding International Corp (BHI). Consequently, BHI is reported as discontinued operations for 1Q22. The company retains an indirect 17.2% stake in BHI, which will be accounted for using the equity method in future periods.
Key Financial Metrics
| Metric | 1Q22 Reported | 1Q22 Pro Forma | 1Q21 Reported |
|---|---|---|---|
| Attributable Net Income | Ps 1,729.7 billion | Ps 1,729.7 billion | Ps 791.8 billion |
| Earnings Per Share (EPS) | Ps 77.6 | Ps 77.6 | Ps 35.5 |
| Return on Equity (ROAE) | 35.3% | 35.3% | 15.4% |
| Return on Assets (ROAA) | 3.8% | 3.8% | 1.8% |
| Total Assets | Ps 261.1 trillion | Ps 261.1 trillion | Ps 336.9 trillion |
| Gross Loans | Ps 158.3 trillion | Ps 158.3 trillion | Ps 145.9 trillion (Pro Forma) |
| Customer Deposits | Ps 152.7 trillion | Ps 152.7 trillion | Ps 145.9 trillion (Pro Forma) |
| Net Interest Margin (NIM) | 4.1% | 4.1% | 4.1% (Pro Forma) |
| Cost of Risk | 1.7% | 1.7% | 2.3% (Pro Forma) |
| Efficiency Ratio | 30.9% | 30.9% | 39.0% (Pro Forma) |
Note: Pro forma figures exclude BHI's contribution to allow for comparability with prior periods.
Material Changes vs. Prior Period
- Profitability Surge: Attributable net income increased 118.5% year-over-year (vs. 1Q21) and 122.7% quarter-over-quarter (vs. 4Q21). This growth is significantly driven by a one-time gain of approximately Ps 720 billion related to the realization of Other Comprehensive Income (OCI) accounts from the BHI spin-off.
- Balance Sheet Contraction: Total assets decreased by Ps 111.2 trillion, total loans by Ps 69.8 trillion, and total deposits by Ps 83.8 trillion due to the deconsolidation of BHI. Attributable equity decreased by Ps 6.64 trillion.
- Loan Quality Improvement: The ratio of loans past due 30+ days improved by 82 basis points year-over-year to 4.65%. Loans past due 90+ days improved by 59 basis points to 3.53%.
- Non-Financial Sector Growth: Income from the non-financial sector (energy, gas, infrastructure) grew 32.5% year-over-year.
- Cost Efficiency: The Cost to Assets ratio improved by 51 basis points to 2.6%, aided by a 14.5% decrease in quarterly total expenses.
Outlook, Risks, and Unusual Items
- Unusual Items: The 1Q22 results include a significant one-time gain of Ps 1,052.6 billion from the "loss of control" of BHI (spin-off). Additionally, the quarter includes full net income from BHI (Ps 545 billion) classified as discontinued operations. Future quarters will only reflect the 25% retained stake via the equity method.
- Macroeconomic Context: The Colombian economy grew 8.5% in 1Q22. However, the company notes risks related to changes in general economic conditions, interest rates, and currency rates.
- Debt Relief Programs: Active debt reliefs in Colombia represented approximately 4% of the total consolidated loan portfolio. Less than 1% of loans that have concluded relief periods are currently past due 90 days or more.
- Forward-Looking Statements: The filing contains forward-looking statements regarding future performance which may differ materially from actual results due to economic and business conditions.
Investor Verification Checklist
- Spin-Off Impact: Verify the sustainability of earnings excluding the Ps 720 billion one-time gain from the BHI spin-off.
- Pro Forma Comparability: Ensure all year-over-year comparisons utilize the provided pro forma figures to exclude BHI's historical contribution.
- Asset Quality: Monitor the performance of loans under debt relief programs (4% of portfolio) and the trend in Stage 2 and Stage 3 loan classifications.
- Non-Financial Exposure: Assess the contribution of the energy, gas, and infrastructure sectors to the 32.5% growth in non-financial income.
- Liquidity Position: Review the combined leverage and debt service coverage ratios for the holding company and Grupo Aval Limited, noting the net indebtedness of Ps 6,079.3 billion.