Administradora de Fondos de Pensiones-Provida SA

Guide To Administradora de Fondos de Pensiones-Provida SA

November 26th, 2013 Posted by Company Research Report No Comment yet

Company Research on Administradora de Fondos de Pensiones-Provida SA


Provida is one of the oldest private pension fund administrators operating in Chile, maintaining a leading position in the Chilean private pension industry since its incorporation. As of December 31, 2012, according to official statistics released by the Superintendency of Pensions, Provida was the largest of the six AFPs operating in Chile in terms of the number of participants, contributors, assets under management, participants’ salary base and a number of branch offices. The Chilean private pension system was created in May 1981, when Decree Law 3,500 of November 13, 1980 (the “Pension Law”) was implemented to replace the prior social security system. Subsequently, on March 11, 2008, the Pension Reform Law was promulgated in order to improve the pension system, reinforcing the solidarity character of the system, extending its coverage, increasing competitiveness in the industry and boosting gender equality.

Nature of Business

Administradora de Fondos de Pensiones Provida S.A. (AFP Provida), is a private pension fund administrator. The Company’s services include the investment and collection of its affiliates’ contributions, the management of individual capitalization accounts and the provision of life and disability benefits, as well as senior retirement pensions. Further, Provida through its subsidiary Provida Internacional S.A. (Provida Internacional) maintains equity interests in private pension fund administrators operating in Peru, Ecuador, and Mexico. Provida is also authorized to establish local related corporations that may complement its line of business or invest in pension fund administrators or entities located in other countries whose business is related to pension matters. The Company’s majority shareholder is BBVA Inversiones Chile SA, with 51.62% of its interests.

How do they make money?


The most significant source of revenues from operations for Provida is the monthly fee charged to participants in connection with deposits into his/her individual capitalization account. Under the Pension Law, an AFP is permitted to charge a fee for, collection and administration of mandatory contributions from pension payments of programmed withdrawals and temporary income, collection, and administration of voluntary savings, management, and transfer of voluntary pension savings to other entities and transfer of contribution made by voluntary participants.

Provida currently charges fees for each of the above services (as do the other AFPs, except for AFP Habitat and AFP Modelo, which do not charge fees for transferring contributions of voluntary participants).In accordance with the Pension Law, each AFP is allowed to set the fees it charges to its participants or pensioners. In connection with fees charged, the Pension Law establishes that each AFP must apply the same fee levels to each of its participants.

Management of contributions

The services provided by the AFPs in connection with collection and management of contributions include mandatory contributions and voluntary contributions made by its affiliates. Each dependent worker and an affiliate of Provida must contribute 10% of his/her taxable salary into his/her individual capitalization account. Such contributions are deducted from the affiliate’s salary and are used to purchase shares of some of the five types of funds that Provida managers. These funds are legal entities separate from Provida as Administrator.

Provida collects monthly mandatory contributions that are withheld from the salaries of Provida’s affiliates by their employers and those contributions from Provida’s self-employed affiliates and voluntary affiliates. Those monthly contributions are credited to each affiliate’s individual capitalization account.

In the case of dependent workers, each employer must provide Provida with a monthly payroll listing all its employees who are affiliates of AFP Provida, identifying the payments being made on behalf of each employee for pension contributions, both mandatory and voluntary. Self-employed workers prepare and submit their own payrolls. AFP Provida offers its affiliates the option to establish a voluntary savings account into which they may deposit additional funds to be invested in the elected pension fund.

Investment services

The general investment policy of the pension funds is determined by AFP Provida. The general objective of Provida’s investment activity is to administer the investment portfolios composed of the affiliates’ contributions in order to obtain the highest possible return for the level of risk and terms of these affiliates’ profiles.

Life and Disability Benefits

Before the Pension Reform became effective, Provida individually obtained insurance to cover its obligations to provide life and disability benefits to affiliates. If an affiliate dies or becomes disabled prior to the legal age of retirement (65 years of age for men and 60 to 65 years of age for women) and before accumulating sufficient funds in his/her individual capitalization account to finance payments to the affiliate or his/her beneficiaries regarding pension benefits required by law, the AFP has an obligation to make up the shortfall in the affiliate’s individual capitalization account. Under the law, each AFP is required to obtain an insurance policy with a licensed life insurer to provide coverage for this obligation.

Senior Pension Benefits

The Company provides specific senior pension benefits to their affiliates who meet the legal age requirement: 60 years of age for women and 65 years of age for men. At retirement, the affiliate chooses among four options for receiving his/her pension benefits: an immediate life annuity, a temporary income with deferred life annuity, a programmed withdrawal plan or an immediate life annuity with a programmed withdrawal plan.

Who is running the business?

The company needs brain and backbone to run smoothly. For AFP, let us meet and know them better.

Mr. Ricardo Rodriguez Marengo serves as Chief Executive Officer of Administradora de Fondos de Pensiones Provida SA. He was appointed to this post on February 1, 2007. He is Certified Public Accountant and holds a Bachelor’s degree in Business Administration from Pontificia Universidad Catolica de Argentina and a degree in Senior Management Program. Previously, he was the Commercial Chief Officer in AFJP BBVA Consolidar in Argentina. Mr. Marengo has 24,923 colleagues in 2,060 companies located in 110 countries and 12,744 executive movements have been recorded in the last 12 months.

Do you trust this person are they competent?

Yes, I trust company’s CEO because of his excellent records and length of service. On the other hand, there is no CFO data found for the company.

Value Investing Guide

Balance Sheet

The exact accounts on a balance sheet will differ by company and by industry, as there is no one set template that accurately accommodates for the differences between different types of businesses. The table below tells us the 5 years averages of Administradora de Fondos de Pensiones balance sheet.

Solvency ratios measure the ability of a company to pay its long-term debt and the interest on that debt. a part of financial ratio analysis, it helps the business owner determine the chances of the firm’s long-term survival. Solvency ratio varies from industry to industry but generally, a solvency ratio of greater than 20% is considered financially healthy.

Liquidity is a business firm’s ability to repay its short-term debts and obligations on time. Short-term usually means one year or less. It is also characterized by a high level of trading activity.

Current Ratio is mainly used to give an idea of the company’s ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. The quick ratio, on the other hand, measures a company’s ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the company’s liquidity position.

Leverage used of various financial instruments or borrowed capital, such as margin to increase the potential return of an investment. It is also the amount of debt used to finance a firm’s assets. A firm with significantly more debt than equity is considered to be highly leveraged.


Administradora de Fondos de Pensiones SA PVD’s current ratio has an average of 1.44 the rule of thumb is 2.0 it means that the company may fell a little short in paying its short-term debt and will need to collect its receivables in order to meet its payment. Quick ratio averaging 1.33 and the rule of thumb is 1.0, therefore, the company has the ability to pay its short-term debt using cash and near cash. In other words, PVD has sufficient cash to meet short-term debt. Solvency ratio averaging 15.23 and the rule of thumb is 20% considerable, and financial firms are subject to varying state and national regulations that stipulate solvency ratios. There are no records for the company’s debt which resulted in a zero (0) Leverage which represents a good standing of the company.

Income Statement

Gross margin is a company’s total sales revenue minus its cost of goods sold, divided by the total sales revenue and expressed as a percentage. Net margin is the ratio of net profits to revenues for a company or business segment – typically expressed as a percentage – that shows how much of each dollar earned by the company is translated into profits.


The above table shows that PVD’s Gross margin has an average of 100 percent, which represents a good standing. Net margin has an average of 46.77 percent. This represents how much of each dollar earned by the company is translated into profits.

Cash Flow Statement

Cash flow margin is a measure of the money a company generates from its core operations per dollar of sales. The operating cash flow can be found on the company’s cash flow statement, and the revenue can be found on the income statement. A high operating cash flow margin can indicate that a company is efficient at converting sales to cash, and may also be an indication of high earnings quality.

Free cash flow (FCF) is a measure of financial performance calculated as operating cash flow minus capital expenditures. It represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base.


Cash flow margin was averaging of 0.41 or 41 percent, which represents a high operating cash flow margin; an indication that a company is efficient at converting sales to cash. Free cash flow has an average of Ch. $ 108.33 or $21 million, which represents that the company is able to pay dividends, or expands its asset base.

Investment Valuation

The totem Investment model in the valuation of equity adopts the investment style of Benjamin Graham; this model adopts the investment style of Benjamin Graham, the father of Value Investing. The essence of Graham’s Value Investing is that any investment should be worth substantially more than an investor has to pay for it. He believed in thorough analysis, which we call fundamental analysis. He was looking for companies with a strong balance sheet or those with little debt, above average profit margin and ample cash flow. His valuation seeks out undervalued companies whose stock price is temporarily down, but whose fundamentals are sound in the end. His philosophy was to buy wisely when prices fall and to sell wisely when the price rises a great deal.


The sustainable growth rate was averaging 15.23 percent. This measure how much a firm can grow without borrowing more money. Furthermore, the margin of safety using the Benjamin Graham method was averaging 0.84 or 84 percent which passed Graham’s requirement of at least 40 percent. The market price as of November 26, 2013, is 86.90 with 1.9 billion market capitalization.

Relative Valuation Method

The relative valuation method for valuing a stock is to compare the market values of the stock with the fundamentals (earnings, book value, growth multiples, cash flow, and other metrics) of the stocks.


The above table tells us that return on equity or ROE has an average of 29.89 this is the amount of net income returned as a percentage of shareholders equity. Book value per share was averaging 24.10 while Price to earnings ratio was averaging 6.96. This is the price that investors are willing to pay. The earnings per share were averaging $ 7.55. This is the company’s net earnings allocated to each share of common stocks.

The Warren Buffet Method

Totem also adopts the Warren Buffet method using the financial calculator in the equity selection. The table below shows my calculation.


The idea behind this method is when the total value is greater than the market price, the stock then is trading at an undervalued price. As shown in the table above, the total value is $173.48 and the market price used as of November 17, 2013, is 87.


The overall company’s valuation shows that PVD is financially stable. The margin of safety passed the criteria based on the Benjamin Graham method. The Warren Buffet method shows that the stock was undervalued, so therefore Administradora de Fondos de Pensiones is a good BUY.


Researched and Written by Meriam

Edited by Cris

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