SEE re­gion's top 100 listed com­pa­nies boost cap­i­tal­i­sa­tion in 2013

Top 100 See - - Top 100 Listed Companies -

The market cap­i­tal­i­sa­tion of the en­trants in the 2013 edi­tion of the SEE TOP 100 listed com­pa­nies rank­ing to­taled 44.7 bil­lion euro, com­pared to 39 bil­lion euro for the firms that made the 2012 list. Most en­trants in the rank­ing – 65, saw their market cap­i­tal­i­sa­tion rise, with 30 post­ing a de­cline. In 2013, the main blue-chip stock in­dices of the bourses in South­east Europe (SEE) mostly built on the rally that had started in 2012 with all of them clos­ing out the year in green. The run­away pace-set­ter was the BET, the bluechip index of the Bucharest bourse, BVB, with the rest of its re­gional peers post­ing more mod­est gains.

On the market cap­i­tal­i­sa­tion side, the Bucharest bourse was again the front-run­ner in terms of growth in 2013 with the re­gion's other two big hubs – Za­greb and Ljubl­jana, post­ing a mixed pic­ture on the back­drop of balance sheet woes in the bank­ing sec­tor and sub­par show­ing by one-time star per­form­ers.

The market cap­i­tal­i­sa­tion of the re­gion's top 100 listed com­pa­nies rose to 44.7 bil­lion euro in 2013 from 39 bil­lion euro a year ear­lier. Most en­trants in the rank­ing – 65, saw their market cap­i­tal­i­sa­tion rise with 30 post­ing a de­cline com­pared to 2012.

All four of the Za­greb bourse's top 10 plac­ers ex­pe­ri­enced dou­ble digit drops in their market cap­i­tal­i­sa­tion as com­pe­ti­tion in their re­spec­tive sec­tors in­ten­si­fied while the re­ces­sion con­tin­ued to hurt bank­ing sec­tor port­fo­lios.

The Bucharest bourse matches its coun­ter­part in Za­greb in terms of top 10 en­tries, but the Ro­ma­nian com­pa­nies are clus­tered much closer to the top as well as claim­ing the no.1 spot it­self cour­tesy of OMV Petrom.

Al­though the sec­ond largest in the re­gion in terms of to­tal market cap­i­tal­i­sa­tion be­hind the hub in Bucharest, the Za­greb bourse boasts the largest pres­ence in the top 100 rank­ing, ac­count­ing for a third of the en­tries. The BVB is rep­re­sented by 18 com­pa­nies in the rank­ing.

The 2013 edi­tion of the top 100 rank­ing was some­what more sta­ble, fea­tur­ing 14 new­com­ers ver­sus 20 in the 2012 edi­tion.

BUL­GARIA Ge­orgi Ge­orgiev, port­fo­lio man­ager, Karoll Cap­i­tal Man­age­ment:

The last cou­ple of years have def­i­nitely seen in­ter­est­ing de­vel­op­ments on the Bul­gar­ian Stock Ex­change (BSE). The neg­a­tive trend that started at the end of 2007 even­tu­ally played it­self out and af­ter the market formed a sig­nif­i­cant bot­tom dur­ing the sum­mer of 2012, it en­tered a new pos­i­tive cy­cle.

Al­though dur­ing the first half of 2013 the fo­cus in Bul­garia was mainly on ten­sions build­ing up on the lo­cal po­lit­i­cal scene that did not dampen the mo­men­tum of the stock market rally. Af­ter a mi­nor con­sol­i­da­tion it was back to full strength and in the au­tumn ac­cel­er­ated its pace, help­ing the SOFIX push be­yond the im­por­tant tech­ni­cal level of 515 points. As a re­sult, the Bul­gar­ian stock market was recog­nised as the re­gion's top per­former in 2013 while also plac­ing among the front-run­ners world­wide with a growth of 42.28%. The traded vol­umes also in­creased con­sid­er­ably along with for­eign in­ter­est in Bul­gar­ian eq­ui­ties com­pared to the sit­u­a­tion in the pre­vi­ous five years.

Just as Bul­garia nearly lost its billing as one of the most sta­ble coun­tries in the re­gion con­sid­er­ing the po­lit­i­cal sit­u­a­tion in the be­gin­ning of 2013, for a pe­riod of 3-4 months in the sum­mer of 2014, the myth that its bank­ing sys­tem was ex­tremely sta­ble was also de­bunked. That re­flected neg­a­tively on in­vestor sen­ti­ment and af­ter the solid start to the year – the SOFIX had gained 26.5% in the pre­ced­ing three months, it col­lapsed and lost a big chunk of its gains.

As it cur­rently stands, the sit­u­a­tion on the stock market does not sup­port ex­pec­ta­tions for a de­ci­sive move ei­ther up or down un­til the end of 2014. The market has al­ready ab­sorbed a ma­jor por­tion of the bad news, in­clud­ing the im­pli­ca­tions from re­cent events on the po­lit­i­cal scene and in the bank­ing sec­tor. Still, it would be un­re­al­is­tic to ex­pect that in­vestor con­fi­dence would re­cover fully very soon. The most prob­a­ble sce­nario for the mo­ment is a con­sol­i­da­tion at the cur­rent lev­els un­til the end of the year and a likely re­sump­tion of the strong up­trend in 2015. An im­por­tant sup­port level for the SOFIX is the range around 460 points - a drop to this mark would still leave the gains from the cur­rent rally in­tact.

A pos­i­tive sig­nal for the market could be the long awaited sale of the op­er­a­tor of the Sofia stock ex­change. How­ever, what is most im­por­tant for the mo­ment is the po­lit­i­cal and macroe­co­nomic sta­bil­ity of the coun­try. Both of those are cru­cial fac­tors for shap­ing sen­ti­ment among lo­cal and for­eign in­vestors. The low­er­ing of de­posit rates could also give the stock market a boost as in­vestors could be more will­ing to take risks in or­der to re­ceive higher yields for their money.

CROA­TIA Anto Au­gusti­novic,se­nior eq­uity an­a­lyst, Erste&Steier­maerkische Bank:

The be­gin­ning of 2013 on the Croa­t­ian eq­uity market seemed very promis­ing. Pos­i­tive sen­ti­ment gen­er­ated by Croa­tia's up­com­ing ac­ces­sion to the Euro­pean Union drove eq­uity bench-

marks higher and in­creased market liq­uid­ity. Dur­ing a three-month rally from its lows in De­cem­ber 2012 un­til mid-March 2013, the bench­mark CROBEX stock index surged around 20% to reach 2 000 points, a jump which was ac­com­pa­nied by sig­nif­i­cantly higher trad­ing vol­umes. How­ever, that op­ti­mism started to wane af­ter cor­po­rate results in the first quar­ter of 2013 re­minded the market that the Croa­t­ian econ­omy was still not do­ing very well.

In­deed, pro­longed weak­ness in the macroe­co­nomic en­vi­ron­ment has been the biggest bur­den for eq­uity market de­vel­op­ment for sev­eral years, and per­haps the main rea­son why Croa­t­ian eq­ui­ties missed the global rally that we have been see­ing since the bot­tom that was hit in 2009. That was again the case in the lat­ter part of 2013, when eq­uity bench­marks erased most of their ini­tial gains, pres­sured by de­te­ri­o­rat­ing fun­da­men­tals in the econ­omy and cor­po­rate earn­ings. The CROBEX ended the year with a 3.1% gain, while to­tal turnover slightly de­clined com­pared to a year ear­lier.

Still, the per­for­mance of the var­i­ous sec­tors traded on the bourse was not that ho­mo­ge­neous with sev­eral of them pac­ing the rest. This pri­mar­ily refers to tourism com­pa­nies, which were the undis­puted win­ners in 2013, with the sec­tor bench­mark CROBEX­tur­ist surg­ing 40%. Tourism was only one of a few parts of the Croa­t­ian econ­omy that per­formed well, a fact which was re­flected in the market prices of ho­tel op­er­a­tors, be­ing ad­di­tion­ally el­e­vated by con­sol­i­da­tion and M&A ac­tiv­ity in the sec­tor.

A com­pletely dif­fer­ent story played out for those com­pa­nies and sec­tors mainly re­liant on do­mes­tic de­mand, such as tele­com ser­vice providers, non-ex­port­ing com­pa­nies, or al­most the en­tire con­struc­tion sec­tor. Weak­en­ing fun­da­men­tals drove many com­pa­nies to pre-bank­ruptcy set­tle­ments, which in­cluded sub­stan­tial balance sheet re­struc­tur­ing, write-offs, debt-for-eq­uity swaps, and hence very volatile stock prices.

Merg­ers and ac­qui­si­tions have been, and re­mained, one of the biggest market driv­ers, which brought ad­di­tional ac­tiv­ity and dy­nam­ics on the market. The story con­tin­ues, with ex­pected fur­ther con­sol­i­da­tion and takeovers in the tourism sec­tor and in­ten­si­fied pri­vati­sa­tion ef­forts by the Croa­t­ian gov­ern­ment, which now cover ma­jor­ity stakes in al­ready listed com­pa­nies, but also very valu­able mi­nor­ity stakes in blue-chip com­pa­nies such as Kon­car Elek­troin­dus­trija or Hr­vatski Telekom.

RO­MA­NIA Catalin Di­a­conu, Iu­liana-Si­mona Mo­canu, Alexan­dru Combei, an­a­lysts, Raif­feisen Re­search:

Af­ter Ro­ma­nia posted a GDP growth of 3.5% in 2013, Raif­feisen Re­search ex­pects a sim­i­lar per­for­mance in 2014, driven by the resur- gence of pri­vate con­sump­tion. This has trig­gered pos­i­tive sen­ti­ment to­wards Ro­ma­nia and - cou­pled with low in­fla­tion - has been re­flected in his­tor­i­cally low lev­els of yields for leu-de­nom­i­nated Trea­sury se­cu­ri­ties.

The lo­cal eq­uity market con­tin­ued to rise dur­ing the first seven months of 2014. The main lo­cal share index, the BET, has gone up by 6.0% year to date af­ter an im­pres­sive 26% re­turn in 2013, ex­clud­ing div­i­dends. The av­er­age daily liq­uid­ity for the first half of 2014 - ex­clud­ing spe­cial trans­ac­tions such as pri­vate place­ments and pub­lic of­fer­ings - climbed to 8.5 mil­lion euro com­pared to 7.3 mil­lion euro of av­er­age daily liq­uid­ity in 2013. For the rest of 2014 we do not see much ac­tiv­ity on the pri­mary market from sta­te­owned com­pa­nies as the much awaited Hidro­elec­trica IPO was post­poned af­ter the com­pany reen­tered in­sol­vency. But we ex­pect to see other place­ments from closedend in­vest­ment fund Fon­dul Pro­pri­etatea and next year we could see new SPOs as the state ap­par­ently in­tends to float ad­di­tional stakes of listed state-owned com­pa­nies.

The pos­i­tive trend in 2014 could be par­tially ex­plained with the higher weight awarded to Ro­ma­nia in the MSCI Fron­tier Mar­kets in­dices. Ro­ma­nia's weight in MSCI FM 100 index could go up to 3.4% by end-Novem­ber 2014 - based on MSCI es­ti­mates - from 2.3% presently. Since funds man­ag­ing around $14.5 bil­lion use fron­tier market in­dices as bench­mark, we ex­pect a pos­i­tive im­pact on both liq­uid­ity and prices. Look­ing fur­ther ahead, we be­lieve that there are real chances that MSCI could put Ro­ma­nia on the mon­i­tor­ing list to be­come an “emerg­ing market” as soon as next year. This could lead to an over­all rerat­ing of the Ro­ma­nian stock market.

SER­BIA

Mladen Dodig, head of re­search, Erste Bank Ser­bia:

Global eq­uity in­dices recorded an ex­cel­lent per­for­mance in 2013. Thanks to the ex­pan­sion­ary mon­e­tary poli­cies of cen­tral banks and de­clin­ing gov­ern­ment bond yields, de­vel­oped eq­uity mar­kets be­came at­trac­tive in­vest­ment des­ti­na­tions. At the same time, the per­for­mance dy­nam­ics of emerg­ing and fron­tier mar­kets were weaker, a fact which can be at­trib­uted to cer­tain spe­cific char­ac­ter­is­tics of less de­vel­oped mar­kets.

In the case of the Bel­grade Stock Ex­change, a

lack of ‘blue chips' and low liq­uid­ity in eq­uity trad­ing are the main rea­sons why large in­sti­tu­tional in­vestors are still avoid­ing ex­po­sure to this in­ter­est­ing market. De­spite the chal­leng­ing macroe­co­nomic en­vi­ron­ment, we ex­pect that this will change, as Ser­bia is in­ten­si­fy­ing re­forms and head­ing to­wards EU mem­ber­ship. The po­lit­i­cal arena is now char­ac­terised by a sig­nif­i­cant de­gree of sta­bil­ity. The do­mes­tic cur­rency is sta­ble, while in­ter­est rates fell in the last two years. The cor­po­rate gov­er­nance sit­u­a­tion, the trans­parency of listed com­pa­nies and the gen­eral re­port­ing re­quire­ments have sub­stan­tially im­proved with the adop­tion of new reg­u­la­tions.

But low trad­ing vol­umes re­main the main ob­sta­cle for ma­jor play­ers from the as­set man­age­ment in­dus­try. This could be in­stantly im­proved by the list­ing of those state-owned com­pa­nies in which Ser­bian ci­ti­zens al­ready own shares through the gov­ern­ment's free share dis­tri­bu­tion pro­gram.

It would be very dif­fi­cult for any of these listings to oc­cur in 2014, as the macro out­look be­came more blurry af­ter both growth and fis­cal prospects de­te­ri­o­rated re­cently. We have re­vised our 2014 growth fore­cast to mi­nus 0.5% from 1.0%, af­ter dis­as­trous floods in May took a strong bite out of agri­cul­tural and en­ergy pro­duc­tion. Also, more re­served tones from the author­i­ties in­di­cate a milder con­sol­i­da­tion and re­form agenda than had been hoped for. How­ever, the strat­egy for the cap­i­tal market de­vel­op­ment is quite clear – big­ger com­pa­nies on the bourse, more re­port­ing and trans­parency, more vis­i­bil­ity of the market – and will be re­warded by in­vestors.

SLOVE­NIA

Saso Stanovnik, head of re­search, Alta In­vest:

At first glance, the Slove­nian stock market had a rel­a­tively weak year in 2013. Namely, the main stock index, the SBI TOP, de­liv­ered only 3.2% growth in 2013 and was still roughly 20% down from the March 2009 lev­els when de­vel­oped mar­kets bot­tomed out. How­ever a de­tailed view shows a big dis­crep­ancy be­tween re­turns from com­pa­nies on the gov­ern­ment's pri­vati­sa­tion list and com­pa­nies still strug­gling with ex­ces­sive fi­nan­cial gear­ing.

Namely, the stock price of air­port op­er­a­tor Aero­drom Ljubl­jana surged by an as­ton­ish­ing 130% in 2013, the price of in­cum­bent telecom­mu­ni­ca­tions com­pany Telekom Slovenije jumped 27% and the stock prices of food pro­ducer Zito and ti­ta­nium diox­ide pro­ducer Cinkarna Celje in­creased by 14% each. All of them found them­selves on the pri­vati­sa­tion list in May 2013.

On the other hand, food re­tailer Mer­ca­tor ex­pe­ri­enced a 28% de­crease in its stock price in 2013 while brewer Lasko was down 43% de­spite hold­ing on to a dom­i­nant do­mes­tic market share. The most liq­uid share was as al­ways generic phar­ma­ceu­ti­cal com­pany Krka with 20% stock price in­crease for the year. There­fore we can say that stock market re­turns in 2013 were mostly dic­tated by a pri­vati­sa­tion process, how­ever val­u­a­tions also played a role. Namely, as 2013 started on a de­pressed in­vestor sen­ti­ment level and ex­ces­sive non-ad­justed ag­gre­gate val­u­a­tion, sev­eral com­pa­nies with sound balance sheets and oper­a­tions had a price to earn­ings ra­tio of be­low 10. This in most cases started to pos­i­tively ad­just dur­ing 2013 as in­vestors searched for value.

On ag­gre­gate level, earn­ings stag­nated in 2013 ver­sus 2012, bur­dened by ad­verse do­mes­tic and re­gional eco­nomic en­vi­ron­ment and im­pair­ments tied to bad in­vest­ments. We should note that the long-awaited re­cap­i­tal­iza­tion of the lo­cal banks hap­pened only to­wards the end of 2013, there­fore the sit­u­a­tion in the sec­tor did not get a chance to be­gin to sta­bi­lize that year. How­ever, we should also note div­i­dend pay­out ra­tios mostly in­creased as not only the state but also pri­vate in­vestors of­ten de­manded higher div­i­dends than man­age­ments pro­posed. Again, the stock market wit­nessed a stark con­trast be­tween com­pa­nies not be­ing able to pay out even sym­bolic div­i­dends as balance sheets were over­stretched by debt and com­pa­nies that had a sound balance sheet and sta­ble cash flows and con­se­quently paid div­i­dend yields north of 5.0%.

In 2014, the main theme will re­main the pri­vati­sa­tion drive, namely whether the on­go­ing sell-off pro­ce­dures would end suc­cess­fully and if new names will be picked for gov­ern­ment di­vest­ments. How­ever, the po­lit­i­cal tur­moil in the spring of 2014 that ended with a com­pletely new party se­cur­ing most par­lia­ment seats in a snap vote added to the com­plex­ity of mak­ing cap­i­tal market and pri­vati­sa­tion fore­casts. Earn­ings should start to grow al­beit at low pace while in­vestors will need to put ever more ef­forts into stock pick­ing to find value amid pri­va­ti­za­tion spec­u­la­tions on a shal­low market. All in all, high re­turns are still plau­si­ble due to this but, on the other hand, risks are build­ing up.

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