BBVA Provida: Attractive Chilean Pension Fund Stock

It took me half the day just to figure out what to call this company. The actual company name is Administradora de Fondo de Pensiones Provida (PVD). It is a pension fund administrator, known in the Spanish speaking world as an AFP. The company is majority owned by the Spanish banking giant ($85 billion market cap) BBVA (BBV), so the name gets condensed into BBVA Provida . BBVA has banks and AFPs in at least nine Latin American countries and as far as I can tell PVD is the only subsidiary trading as a separate stock and ADR.

BBVA Provida is the largest of the six major AFP’s in Chile. In 1981 Chile privatized their social security pension plan system, so now all employees have mandatory payroll deduction pension deposits that go to an AFP such as BBVA Provida. Almost 70% of Chilean workers pay a mandatory 10% of their pay into their individual social security accounts. They can voluntarily increase the contribution by another 10% of wages. An additional 2.4% of wages is taken to cover the administrative costs of the plan.

The 2.4% cut is the primary revenue stream for the AFPs. About 0.65% is for life and disability insurance, the rest is administrative charges, i.e. revenue for the AFP. From my research, it appears the company gets an additional 0.50% management fee on the assets under management.

BBVA Provida, as the largest AFP in Chile, has approximately $36 billion under management. The company has a market capitalization of about $800 million. Stock in BBVA Provida trades in the U.S. as an ADR with the symbol PVD. I like the stock for a couple of reasons:

• Assets, revenues, and net profits have been growing at a 20%+ rate for the last 3 years. The shares currently trade at a 7.7 trailing PE. This is near the bottom of the historical PE range for PVD.
• Healthy, if somewhat variable, dividends are paid twice a year. Averaging the last 3 years dividend into the current share price shows a 3.2% yield.
• The company gives a broad exposure to the growth of the Chilean economy. The revenue streams are constant and profit margins should stay firm.

Negatives would be recent market down turns reducing assets under management and possible contribution levels. A remote possibility is that social security laws are changed in Chile that negatively impact profit margins.

Note: I currently do not have a position in PVD.