Organización Terpel S.A. (TERPEL.CL) Investment Analysis:

1. Executive Summary:

Organización Terpel S.A. (TERPEL.CL) represents a fascinating case study in the resilience of legacy infrastructure combined with a disciplined, albeit aggressive, strategic pivot toward the future of energy. As the undisputed leader in Colombia’s downstream fuel distribution market, Terpel commands a position that is both structurally entrenched and strategically vital to the national economy. With a market share exceeding 43% in liquid fuels and nearly 47% in natural gas for vehicles (GNV), the company effectively operates as the circulatory system for Colombian mobility. However, the investment narrative for Terpel in late 2025 is not merely one of static market dominance; rather, it is defined by a rigorous transformation from a traditional fuel retailer into a diversified "New Mobility" service provider. This transition is occurring against a backdrop of macroeconomic normalization in Colombia, characterized by falling interest rates and the resolution of long-standing distortions in regulated fuel pricing.

The company's operational footprint has historically spanned Panama, Ecuador, Peru, and the Dominican Republic, in addition to its Colombian core. A defining strategic development in the 2024-2025 period, however, has been the decisive optimization of this geographic portfolio. The sale of its subsidiaries in Peru and Ecuador to the Romero Group (Primax) for USD 64 million marks a pivotal moment in management’s capital allocation strategy. By exiting markets where it lacked the scale to achieve market leadership, Terpel has signaled a prioritization of Return on Invested Capital (ROIC) over blind revenue expansion. This divestment allows the organization to concentrate resources on defending its fortress balance sheet in Colombia and aggressively funding the expansion of the Terpel Voltex electric charging network, which aims to monopolize the infrastructure for the country’s energy transition.

Financially, Terpel is emerging from a period of intense pressure. The 2023-2024 era was characterized by historic inflation and high interest rates, which compressed margins and escalated the cost of servicing debt. However, the data from 2025 indicates a robust turnaround. For the first half of 2025, net income surged by 21.9% year-over-year to COP 326.4 billion, driven by a combination of operational efficiencies, the normalization of fuel prices, and, crucially, a reduction in financial expenses as the Banco de la República eased monetary policy. Revenue for the third quarter of 2025 approached COP 19.55 trillion, confirming that the top line remains healthy despite the headwinds of economic deceleration.

The company’s business model rests on several key pillars: Liquid Fuels, which generate the bulk of revenue but operate on thin, regulated margins; Lubricants, a high-margin powerhouse where Terpel’s partnership with Mobil drives significant profitability; Aviation and Marine fuels, which provide volume and industrial exposure; and the burgeoning Convenience Retail segment. The latter, comprising Altoque stores and Sbarro franchises, is critical to the company's long-term thesis of decoupling profitability from fossil fuel volatility by maximizing revenue per square meter of real estate.

Investors examining Terpel today are presented with a dual thesis. On one hand, it is a classic deep-value defensive stock, trading at valuation multiples (approx. 5.1x P/E) that suggest the market is pricing in significant distress or terminal decline, neither of which is supported by the fundamental data. On the other hand, it functions as a call option on the electrification of Latin American transport, with its Voltex network positioned to capture value in a post-oil future. With a dividend yield that leads the Colombian market—projected between 8% and 14%—Terpel offers a compelling total return profile for investors willing to navigate the complexities of the Colombian regulatory environment and the inherent volatility of the energy sector.

2. Business Drivers & Strategic Overview:

To understand the investment viability of Organización Terpel, one must dissect the complex machinery that drives its revenue. The business is not a monolith but a collection of distinct segments, each with its own economic drivers, regulatory dependencies, and competitive dynamics.

Main Revenue Drivers and Operational Architecture

The Fuel Distribution Core and the FEPC Mechanism The distribution of liquid fuels—gasoline, diesel, and jet fuel—remains the metabolic engine of the company. Terpel operates a network of over 2,000 service stations, a density that provides an almost insurmountable competitive moat in terms of logistics and brand visibility. In the fuel distribution business, geography is destiny; the player with the most convenient locations captures the volume. Terpel’s network strategy has secured this advantage.

However, the revenue quality of this segment is inextricably linked to the Fondo de Estabilización de Precios de los Combustibles (FEPC). Colombia regulates fuel prices to buffer consumers against international oil price volatility. When international parity prices exceed the local regulated price, a deficit is created. The government technically "owes" this difference to distributors like Terpel.

• Mechanism of Impact: In 2024 and 2025, the Colombian government pursued an aggressive policy to close this deficit by raising pump prices to match international benchmarks. For Terpel, this is a double-edged sword. Higher prices dampen demand elasticity slightly, impacting volumes. However, the closing of the gap is fundamentally bullish for cash flow. It prevents the accumulation of massive accounts receivable from the government, which in previous years forced Terpel to take on debt to fund working capital while waiting for state reimbursement. The normalization of this mechanism in 2025 is a primary driver of the improved free cash flow profile.

Lubricants: The High-Margin Profit Center While fuel attracts the customer, lubricants generate the profit. Terpel manufactures and distributes Mobil-branded lubricants in Colombia, a relationship that grants it immediate premium status and pricing power.

• Strategic Divergence: Unlike fuel, which is a commodity with regulated margins, lubricants allow for brand differentiation and higher operational leverage. In 2024 and 2025, Terpel successfully gained market share in this segment, leveraging its station network as a point-of-sale advantage that competitors like Shell or Chevron struggle to match due to lower retail density. The resilience of this segment is vital; it provides a profit cushion when fuel volumes face volatility due to economic slowdowns or price hikes. The industrial application of these products further diversifies revenue away from the consumer transport cycle.

Aviation and Marine Fuels This segment serves as a barometer for the broader economy and tourism. Terpel supplies Jet A1 fuel at Colombia's major airports and marine fuel at key ports.

• Volume Volatility: The segment faced headwinds in early 2024 due to the suspension of operations by certain local airlines, creating a volume gap. However, the recovery of international tourism in 2025 has stabilized these volumes. The competitive advantage here lies in logistics; Terpel’s infrastructure at airports is difficult to replicate, creating high barriers to entry for new competitors.

Growth Initiatives: The "New Mobility" Pivot

Terpel is actively managing the existential risk of the energy transition by positioning itself not as a victim of electrification, but as its primary facilitator.

Terpel Voltex: Monopolizing the Electrified Future The Voltex strategy is the most significant growth initiative for the next decade. Terpel is deploying a comprehensive network of electric vehicle (EV) charging stations across Colombia’s "Golden Triangle" (Bogotá, Medellín, Cali) and along major highway corridors.

• Strategic Depth: The brilliance of the Voltex strategy lies in the utilization of existing real estate. While standalone EV charging startups must acquire land and permits, Terpel simply upgrades its existing 2,000+ prime locations. This drastically lowers the CAPEX per unit and accelerates deployment speed.

• The Gogoro Alliance: Recognizing that Latin American electrification will likely be led by two-wheelers rather than expensive passenger cars, Terpel launched a partnership with Gogoro to introduce battery-swapping technology for electric motorcycles. This addresses a massive addressable market—the delivery riders and urban commuters—providing a recurring revenue model (battery-as-a-service) that mimics the frequent visits of the traditional fuel business.

Non-Fuel Retail: The Convenience Transformation Management is aggressively executing a strategy to transform service stations into "travel retail hubs." The expansion of the proprietary Altoque convenience store brand and the franchising of Sbarro pizzerias are central to this.

• Unit Economics: The goal is to cover the fixed operating costs of the station entirely through non-fuel retail gross profit. This creates a business model where fuel margins flow directly to the bottom line. By 2025, the integration of these retail formats has shown early success in increasing ticket size and dwell time, particularly important as EV charging requires customers to stay on-site longer than refueling internal combustion engines.

Competitive Advantages

• Vertical Integration & Backing: Terpel is a subsidiary of Empresas Copec, a Chilean energy giant. This ownership structure provides immense stability, access to cheap capital markets, and the transfer of operational best practices from Chile, one of the most advanced retail markets in the region.

• Logistical Supremacy: In a mountainous country with complex geography like Colombia, logistics is the primary differentiator. Terpel’s mastery of the supply chain—from refinery gate to fuel nozzle—ensures reliability that industrial clients value over price.

• Brand Trust: Consistent recognition in the Merco rankings as a top reputable company provides a soft-power advantage that helps in securing B2B contracts and maintaining customer loyalty in a commoditized market.

3. Financial Performance & Valuation:

The financial landscape of Terpel in the 2024-2025 period tells a story of recovery and balance sheet optimization. The company has navigated a perfect storm of inflation and high debt costs and is emerging with structurally higher profitability.

Historical Performance Analysis (2024-2025)

Revenue Dynamics The top-line performance has been robust, driven primarily by the pricing effect. Cumulative revenues through the third quarter of 2025 reached COP 19.55 trillion, a significant increase from the COP 17.97 trillion recorded in the same period of 2024. This growth must be contextualized: it is largely a function of the government’s deregulation of gasoline prices rather than an explosion in liters sold. Volume growth has been modest, constrained by the economic deceleration in Colombia, but the inelastic nature of fuel demand has protected the revenue base.

Profitability and Margins The most impressive metric in the recent financial reports is the expansion of Net Income. For the first semester of 2025, Net Income rose 21.9% to COP 326.4 billion.

• EBITDA Resilience: EBITDA for Q2 2025 stood at COP 431.8 billion. While this represented a sequential contraction of 6.7% due to seasonally higher maintenance and distribution costs, the year-over-year trajectory remains positive. The contribution of the Lubricants segment has been critical here, offering higher gross margins that dilute the low-margin impact of fuel distribution.

• Financial Expense Reduction: The primary driver of the net income surge is the reduction in net financial expenses. As Colombian interest rates began their descent from double-digit peaks in 2024, Terpel’s floating-rate debt became cheaper to service. Furthermore, the use of proceeds from the Peru/Ecuador sale to pay down expensive short-term liabilities accelerated this trend.

Balance Sheet and Liquidity Terpel’s balance sheet carries high leverage, a characteristic feature of the high-volume distribution model, but it is well-managed.

• Debt Metrics: The Debt-to-Equity ratio is approximately 112.6%. More importantly, the Net Debt/EBITDA ratio has stabilized around 2.1x, a healthy level that sits comfortably below the covenants typically set at 3.0x or 3.5x. BRC Ratings has affirmed the "AAA" rating, citing this deleveraging path as a key support factor.

• Working Capital: The accounts receivable from the FEPC remain a significant asset on the balance sheet. While this represents a government credit risk, the improved payment cadence in 2025 has reduced the working capital drag. The company’s liquidity ratio (Current Ratio) is 1.33, indicating sufficient coverage of short-term liabilities.

Valuation Multiples and Market Assessment

At the current price level of approximately COP 16,560, Terpel’s valuation appears to be dislocated from its fundamental reality.

Valuation Conclusion: The market is applying a heavy "Colombia Discount" to the stock, likely due to political uncertainty under the Petro administration. However, the operational reality—record revenues, expanding margins, and strategic asset rotation—suggests that this discount is excessive. The stock offers a margin of safety rarely seen in dominant market leaders.

4. Risk Assessment & Macroeconomic Considerations:

While the valuation is compelling, the risks are non-trivial. Terpel operates at the intersection of energy policy, fiscal deficits, and macroeconomic volatility.

Macroeconomic Impact

Interest Rate Cycle (The Bullish Catalyst) Colombia is currently in an easing cycle. The Banco de la República is expected to cut rates toward 7.0% by the end of 2025 to stimulate the economy.

• Mechanism: Terpel is capital intensive. A significant portion of its debt is indexed to the IBR (Indicador Bancario de Referencia). Every 100 basis point reduction in the central bank rate translates directly into billions of pesos of interest savings, flowing straight to Net Income. This macro trend is the single strongest tailwind for the stock in the medium term.

Inflation and Consumer Demand Inflation in Colombia has been stubborn but is trending down toward the 4-5% range. Lower inflation supports real wage growth, which is critical for gasoline demand. However, the cumulative effect of fuel price hikes over the last two years has reduced the disposable income of vehicle owners. A recessionary environment could dampen volumes, though fuel demand is historically inelastic.

Major Risk Factors

1. Regulatory and Political Risk (High) The administration of President Petro has an explicit agenda to decarbonize the Colombian economy. This manifests in two ways:

• Fuel Pricing: While the government has responsibly raised prices to close the FEPC deficit, there is always a political temptation to freeze prices if inflation spikes again. A freeze would re-widen the deficit and blow out Terpel’s working capital requirements.

• Carbon Taxes: Future tax reforms could increase the tax burden on fossil fuels, potentially squeezing margins if pass-through to the consumer is restricted by regulation or elasticity.

2. FEPC Liquidity Risk (Medium) The receivable balance from the FEPC is a "sovereign risk" asset. While the government has never defaulted on these obligations, delays in payment force Terpel to borrow from banks to pay Ecopetrol for the fuel it distributes. If the government delays payments significantly (e.g., beyond 12 months), Terpel’s interest expenses rise, and its liquidity tightens. The recent normalization of prices mitigates this, but it remains a structural vulnerability.

3. The Energy Transition "Valley of Death" (Long-Term) The shift to EVs is inevitable. The risk for Terpel is the timing. If gasoline volumes decline faster than Voltex charging revenues ramp up, the company could face a "valley of death" where cash flows contract before the new business model matures.

• Mitigation: The company’s focus on lubricants (which EVs do not need in the engine, but still need for other parts, though volume is lower) and convenience retail (which is fuel-agnostic) are the primary hedges against this risk.

4. Security Risks (Medium) Operating in Colombia involves physical security risks. Pipeline attacks or social unrest (blockades) can disrupt the supply of fuel to service stations. Terpel’s ubiquity makes it vulnerable to regional disruptions, though its diversified footprint mitigates the impact of any single localized event.

5. 5-Year Scenario Analysis:

This scenario analysis projects the total return potential for Terpel shareholders through 2030. The modeling assumes the company successfully completes its divestment program and redeploys capital into debt reduction and the Voltex expansion.

Model Inputs & Assumptions:

• Current Share Price: COP 16,560.

• Outstanding Shares: 181.42 million.

• Dividend Payout Ratio: Assumed between 50% and 70% of Net Income.

• Risk-Free Rate: Trending to 6.5% by 2026.

• Fuel Volumes: Flat to slightly declining (-1% CAGR) in base case due to EV adoption.

• Non-Fuel Revenue: Growing at 8% CAGR (Sbarro/Altoque expansion).

Scenario 1: Base Case (The "Cash Cow" Normalization)

• Probability: 50%

• Fundamentals: The Colombian economy stabilizes with 3% GDP growth. The FEPC deficit is resolved, and payments become regular (90-day lag). Fuel volumes remain flat as fleet growth offsets early EV adoption. The Voltex network reaches break-even by 2027 but does not yet generate significant profit. The Lubricants business grows at GDP.

• Financials: Revenue grows at inflation (3-4%). Net Income margins expand to 2.2% driven by lower interest costs. The company maintains a 60% dividend payout ratio.

• Valuation: The market recognizes the stability and re-rates the stock to a conservative 7.5x P/E, still a discount to regional peers but an improvement from distress levels.

• Outcome: Moderate capital appreciation supported by a high, consistent dividend yield.

Scenario 2: High Case (The "New Mobility" Leader)

• Probability: 20%

• Fundamentals: Interest rates drop aggressively to 5%, spurring a consumption boom. The Gogoro partnership leads to massive adoption of electric motorcycle swapping, where Terpel captures a monopoly. The Convenience segment outperforms, with Sbarro becoming a major fast-food player in Colombia. The FEPC surplus allows the government to improve infrastructure, aiding logistics.

• Financials: Revenue grows at 5% CAGR driven by Retail and Voltex. Margins expand to 3.0% (historic highs) as non-fuel contribution rises. Payout ratio increases to 75% as CAPEX intensity falls post-Voltex rollout.

• Valuation: The market re-classifies Terpel from a "dying oil retailer" to an "energy infrastructure utility," awarding a 9.5x P/E multiple.

• Outcome: Massive total return driven by multiple expansion and double-digit dividend yield.

Scenario 3: Low Case (The "Regulation & Stagflation" Trap)

• Probability: 30%

• Fundamentals: Inflation spikes again, forcing the central bank to hike rates back to 10%+. The government freezes fuel prices to quell unrest, blowing out the FEPC deficit. Payments are delayed >18 months, crushing liquidity. Security situations worsen, impacting supply chains. EV adoption accelerates due to subsidies, but utilities (not Terpel) capture the charging market.

• Financials: Revenue flat. Margins compress to 0.8% due to soaring financial costs. Dividend is cut to preserve cash for debt service.

• Valuation: Multiple contracts to a distressed 4.0x P/E.

• Outcome: Significant share price erosion. Returns depend entirely on dividends paid before the cut.

Projected Share Price Trajectory (2030)

The table below outlines the potential share price outcomes based on the EPS generation in 2030 and the assigned valuation multiples.

Probability Weighted Price Target (2030): COP 21,790 (Price Only) Total Return Target (with Dividends): ~COP 30,800 Value Equivalent.

Summary: ASYMMETRIC UPSIDE POTENTIAL

6. Qualitative Scorecard:

This scorecard provides a granular assessment of Terpel’s quality, moving beyond the numbers to evaluate the intangible strengths and weaknesses of the enterprise.

Overall Blended Score: 8.1 / 10

Summary: INSTITUTIONAL GRADE QUALITY

7. Conclusion & Investment Thesis:

Organización Terpel S.A. presents a classic market inefficiency: a high-quality infrastructure monopoly trading at a distressed valuation due to macro-political noise. The investment thesis is grounded in the reality that while the "death of fossil fuels" is a popular narrative, the cash flows from their distribution will remain robust in Colombia for decades. Terpel is using this cash cow to finance a smart, disciplined transition into the future of mobility.

The sale of the Andean subsidiaries (Peru/Ecuador) acts as a powerful catalyst. It simplifies the investment story, reduces debt, and focuses management attention on the most profitable market: Colombia. Investors buying at COP 16,500 are effectively paying 5 times earnings for a market leader with a ~10% dividend yield, getting the optionality of the Voltex electric network for free.

Key Catalysts:

1. Monetary Policy: Continued interest rate cuts by the Central Bank will act as a direct subsidy to Terpel's bottom line.

2. FEPC Normalization: Consistent government payments will de-risk the balance sheet.

3. Voltex Break-Even: When the EV segment reports positive EBITDA, the market will re-rate the stock.

Risks:

1. Regulatory Caprice: A freeze in fuel prices by the Petro administration.

2. Commodity Shock: A spike in oil prices widening the FEPC deficit.

Thesis Summary: YIELD PLUS TRANSITION

8. Technical Analysis, Price Action & Short-Term Outlook:

The stock is currently exhibiting a bullish technical setup. Price action has reclaimed the 200-day moving average (approx. COP 13,333) and the 50-day moving average (approx. COP 15,973), signaling a definitive trend reversal from the bearishness of 2023. The "Golden Cross" formation suggests increasing institutional accumulation. In the short term, the stock is consolidating in the COP 16,400–16,600 range. A breakout above COP 17,000 would likely trigger a rapid move toward the COP 18,500 resistance level as technical buyers chase the momentum. The RSI is neutral, indicating the rally has room to run before becoming overextended.

Outlook: BULLISH TREND CONTINUATION

Disclaimer: This report is for informational purposes only and does not constitute financial advice. All analysis is based on data available as of November 2025.