Romania's OMV Petrom keeps lead in SEE TOP 100 listed companies ranking despite drop in market capitalisation
The market capitalisation of the SEE TOP 100 listed companies in 2014 rose to 46.08 billion euro, as compared to 44.7 billion euro of the entrants in the ranking a year earlier. Two-thirds of the companies that made it into the ranking saw their market capitalisation increase in 2014.
The ranking of the biggest listed companies in Southeast Europe (SEE), despite its inherent openness to new entrants, traditionally sees little change at the top. In 2014 Romanian and Croatian heavyweights again dominated the upper end of the table, as the top six spots remained unchanged, with oil and gas group OMV Petrom as the leader for a third year in a row despite a 13.1% drop in its market capitalisation to 5.16 billion euro.
In 2014 the Romanian company, majorityowned by Austria's OMV, posted a net profit of 409.9 million euro, down by 62%, on slightly lower revenue. For 2015, OMV Petrom has said it will reduce its investments by 20% “in light of the volatile and potentially prolonged weaker market fundamentals“. In August 2015, the company said it plans a secondary listing of its shares on the London Stock Exchange via global depository receipts.
Several other Romanian companies, including state-controlled natural gas producer Romgaz, the third biggest listed company in the region, investment fund Fondul Proprietatea, at no. 4 in the SEE TOP 100 listed companies ranking, and power distributor and supplier Electrica, a newcomer at no. 13, are also listed on the London Stock Exchange. Romanian companies occupied five of the top ten places in the ranking, followed by Croatia with four entrants but with the biggest number of representatives, 27, in the overall ranking. This is hardly a surprise, given that the Bucharest bourse remained the biggest market in the region despite a 2.86% decline in its capitalisation, followed by the Zagreb Stock Exchange (ZSE) and the Ljubljana Stock Exchange (LJSE). This situation, however, seems likely to change if the Croatian and the Slovenian bourses keep up their growth pace of 8.34% and 23.98%, respectively, in 2014. Furthermore, in July 2015 ZSE signed a deal with CEE Stock Exchange Group to take over 100% of LJSE, with the transaction expected to be completed in the last quarter of 2015.
Over the past years, as a rule, the lower half of the ranking is the scene for more dynamic developments as it is where most newcomers land.
The 2015 edition of the ranking had 16 newcomers versus 14 in last year's edition. Most of them, four, came from Slovenia, led by brewer Pivovarna Lasko, recently acquired by Heineken. Bulgaria and Croatia were tied for the second place with three new entrants each.
Whereas the Bulgarian companies that made it to the ranking operate in different sectors of the economy, their Croatian peers – Croatia Airlines, SN Holding and Arenaturist – are all involved in tourism and travel, or industries closely interlinked with them. Tourism and travel are estimated to have generated 12.5% of Croatia's gross domestic product in 2014.
The company to record the biggest jump in this year's ranking - of 45 spots to land at no. 44 – is also Croatian and a hotel operator Valamar Riviera.
The market capitalisation of the SEE TOP 100 listed companies rose to 46.08 billion euro in 2014 from 44.7 billion euro of the companies that made it into the ranking a year earlier, pushing up the threshold for entry into the ranking to 79.67 million euro from 65.5 million euro a year earlier.
Stock picking in the Balkans
by Tatyana Puncheva-Vasileva, Senior Analyst, Elana Trading
Diversity. This word describes best the region of Southeast Europe (SEE) with its small and illiquid capital markets - the Bucharest stock exchange being one notable exception - but a range of investment opportunities they offer investors.
New listings will be the key long-term market driver as investors are already well familiar with the existing entities in the regional investment universe. Stock picking will remain the best investment strategy in 2016 and im-
proving economic environment will add fuel to the engine. Unless of course the global economic picture changes drastically due to slow growth in China or any geopolitical escalation.
The numbers in the past
Over the last three years the major capital markets in SEE were moving pretty much in a pack. The main indexes in Romania, Bulgaria, Slovenia and Serbia аll advanced between 45% and 50% over that period. Croatia was the only laggard with slightly over 5% growth.
The overriding theme over this past threeyear horizon was the recovery from the crisis. The conflict in Russia and Ukraine, however, added significant pressure on the fundamentals at the end of 2014 and the beginning of 2015, as the two countries are an important export markets for many SEE companies. Consequently, this was reflected in the market valuations. Year-to-date (data as of August 19, 2015), the blue-chip SOFIX index of the bourse in Sofia was losing 10% of its value, followed by the SBITOP of the Ljubljana stock exchange with 6% decline. The BELEX15 of the Belgrade bourse was slightly below zero, while the CROBEX of the Zagreb bourse and the BET of the Bucharest stock exchange were offering gains of 3.1% and 6%, respectively. All markets were basically in a consolidation mode over the past year, with Russia and Ukraine as one of the reasons behind the lack of a strong upward or downward trend.
Romania - the flagship of state listings
The Romanian market has been the outperformer and ”the market of first choice” for most global frontier investors over the past few years, largely thanks to the Romanian government's efforts to that end. The government raised millions of euro via the privatisation of state companies through the stock exchange, in line with its agreement with the International Monetary Fund. It also attracted a global emerging markets expert, Franklin Templeton, to run one of its most undervalued assets - Fondul Proprietatea. Big names attract more big names. Thus, Fondul Proprietatea has been on investors' radars during the last couple of years. Surely, part of the upside there has already been consumed. Nevertheless, it is a door opener for more investors to come in Romania and in the region and for more companies to raise funding for growth.
Fondul Proprietatea, alongside other big Romanian companies, has debuted on the London Stock Exchange to get additional visibility. A few more big listings in Bucharest and some further work on the stock market infrastructure, and Romania may end up being upgraded from an MSCI Frontier to an MSCI Emerging market ranking, which would increase significantly its visibility. This upgrade, projected to happen in 2016, has been on the local institutions' agenda for a year now and investors have started pricing it in. Nevertheless, if it becomes a fact, it will be a huge step forth not only for Romania, but for the whole region.
Bulgaria - the private listings flagship
Expected new state listings in Bucharest will keep the market hot for both global and regional investors. However, once state support for the Romanian stock market diminishes, which is bound to happen at some point, it will have to start generating interest on its own - something the Bulgarian capital market has been struggling to do for years now.
The end of 2015 and the beginning of 2016, however, may bring in a game changer as one of the biggest software developing groups in the country - Sirma group holding - will be debuting on the Bulgarian stock exchange in the autumn of 2015. Sirma's IPO has been one of the most anticipated events on the market in 2015 both as an investment opportunity in one of the fastest growing industries and as an incentive for other IT, fast growing and good corporate governance companies to list. It is also a fairly large IPO, with an expected 26.4 million levs to be raised, tapping the markets' ability to fund well-run and growing businesses – indications of which have been visible in other smaller listings on the Sofia bourse over the last two years.
In 2013, a start-up leasing company - Elana Agrocredit - debuted on the market. Initially, it raised some 5 million levs from local pension funds and sophisticated investors and in the spring of 2015 it tripled its capital by raising a further 14 million levs. In 2014, the biggest courier company in Bulgaria – Speedy - raised fresh 20 million levs via both the market and a strategic investor, proving that investors' appetite is strong for companies with good corporate governance, lean expansion strategy and transparent and well seasoned management.
The examples mentioned above are the first seeds of returning investor confidence in the regional markets. Bringing big names in to help develop the Sofia bourse like the Bucharest one, or getting well-run private companies to list is bound to boost confidence sooner or later, hopefully at the end of 2015 and the beginning of 2016. Such investment opportunities will attract additional investor attention as everyone is on the lookout for returns as interest rates are to remain on the zero to negative side for some time yet. Economic uncertainty is also pressing investors to be picky.
The macro drive
Economic data as of the second quarter of 2015 has been a nice surprise for countries like Slovenia and Bulgaria, neutral for Romania and disappointing for Croatia. This will drive macro-focused investors to the markets that show positive performance if good news persists for some time. Though valuations have gone up considerably over the past few years, they still lag behind recovering fundamentals in the region. Moreover, they remain below frontier market averages, with the Bulgarian market currently being the cheapest from a price-to-earnings perspective and the Croatian being the most expensive.
Contrarian investors are also offered a good choice in the SEE as stock picking in such consolidating markets will add value in the mid- to long term. Long awaited listings will be one option. Oversold industries will be another. The pharma sector is one example. At the end of 2014 and early 2015 Ukraine-Russia woes were major sell drivers for the stock of SEE pharmaceutical companies, bringing valuations well below the decline in fundamentals. With Russia showing signs of stabilization and Ukraine already shrinking substantially to a very low base, good buying opportunities in the pharma sector may have already arrived. Any positive signs in both countries shall be a buying signal for the oversold sector's stocks in Slovenia and Bulgaria, for example. Banks, on the other hand, will still have to undergo assets and efficiency improvement before the sector is lucrative again. Thus, bank stocks are unlikely to attract much attention, the more so that the fate of Greek banks is still unclear. Improving economic conditions will surely whet private companies' appetite for expansion, new investments and listings. This adds diversity. The rest is a matter of valuation. Disclaimer: Ms Vasileva’s comments, opinions and analyses are personal views and are intended to be for informational purposes only. They should not be construed as an individual investment advice or recommendation, nor should they be a solicitation for any investment decisions or for the adoption of any investment strategies.
Big institutional investors still looking for liquidity, large capitalisations on Belgrade Stock Exchange
by Mladen Dodig
Head of Research, Erste Bank Serbia
The Belgrade Stock Exchange indices look like smoothed averages of the global emerging (or frontier, if you wish) markets, indicating that Serbian equities did not have the huge swings caused by developments in Greece, the China economic slowdown, the collapse in commodity prices, the anticipation of Federal Reserve lift-off cycle, etc. Over the last twelve months, the BELEX15 and BELEXline recorded gains of 2% and 5%, respectively. However, the problem remains the same – liquidity. Turnover on the Belgrade Stock Exchange in the January-August 2015 period totalled 124.3 million euro, down 7% year-on-year, while trading volume in regular trading (excluding block trades, one-off trades and bonds) plunged 17% year-on-year in the review period. Liquidity is scarce on a vast majority of markets, but the Belgrade bourse is further disadvantaged by the lack of blue chips, as big institutional investors have access to only two or three companies with bigger capitalisation.
The macroeconomic environment is favourable, as official data points largely to a successful fiscal policy. The central bank has cut the key reference rate by 250bp in 2015 to 5.5%. The yields on treasury securities have also shrunk significantly over the last 12 months. The local currency – the dinar - has entered a rather stable period, appreciating 0.6% versus the euro so far in 2015. The country's economic growth outlook has been recently reversed from negative to a range from 0.2% to 1.2%, depending on the source. As far as Serbia's EU prospects are concerned, a major breakthrough has been achieved this summer and the path is now clearly open for membership negotiations.
In terms of corporate governance, much could be desired but the listed companies' transparency and general reporting requirements have substantially improved with the adoption of new regulations.
What might become a jumpstart for the Serbian equity market is the upcoming privatisation of Telekom Srbija, the state owned telecom provider. The sale is back on the table after an unsuccessful tender in May 2011. The government is yet to come up with a decision about the exact privatisation model but a potential listing would seriously improve the visibility of the Serbian market on the radar of big European and global players in the asset management industry. Furthermore, listings of other state-owned companies, such as the electric utility company, or many of the socially-owned enterprises that could emerge as a result of restructuring processes, would give an additional boost to the Serbian market. One way or another, the market weighted valuation of 5.2 times 2014 earnings and 0.6 book value for the BELEX15 components looks very attractive.
Above-average dividend yield, ongoing privatisation main storylines on Ljubljana bourse
by Saso Stanovnik,
Head of Research and Chief Economist, ALTA Invest
After a generous 2013 from individual stock return perspective, 2014 followed up with a hefty 19.6% return of the main index SBI TOP. It came against the backdrop of an
The privatisation of Telekom Srbija could be a jumpstart for the Serbian bourse
ongoing privatisation process, namely the divestment of several blue-chip companies by state entities. The highest individual returns were recorded by companies acting as targets in merger and acquisition (M&A) processes, such as Pivovarna Lasko, whose share price surged by 486%, airport operator Aerodrom Ljubljana, which jumped 114% and titanium dioxide producer Cinkarna Celje, which appreciated 97%. Telekom Slovenije shares, spearheading the privatisation process, also increased by 19%. These developments lifted other shares, as well, by improving overall investor sentiment, domestic and foreign. Hefty dividends and dividend yields of several companies also helped raise investors' demand for Slovenian companies. The shares of port operator Luka Koper, whose price rose by 139% in 2014, were another positive surprise which came on the back of economic improvement, throughput growth and valuation adjustment. The share price of Sava RE Group also surged as conditions in the insurance industry were beneficial from investments point of view. The consolidation and synergy effects from Zavarovalnica Maribor's acquisition did not go unnoticed by them, either.
The biggest disappointment in terms of stock price return came from Krka, which has the highest weight in the SBI TOP index. The generic pharmaceutical company delivered a negative return of 0.7%, possibly due to its exposure to Russia and the Russian ruble and East Europe and investors' close focus on privatisation-bound companies, which clearly do not include Krka. Furthermore, investors were getting nervous by the long privatisation processes and occasional political bumps. We should note that even though the early elections had little effect on returns, the SBI TOP's full-year return was generated in first six months of 2014, before the political turmoil. Therefore, we could say the second half of 2014 was a disappointment regarding returns and news flow.
2015 should again be viewed in light of the main storylines: above-average dividend yield and continuing privatisation process. Dividend yields were expected to be generous and above- average in 2015 as well, but as most ex-dates are expected in the second quarter of the year, this story can drive positive return only in the first half of the year. As for privatisation, the expectations about the finalisation of several deals, the most prominent one being Telekom Slovenije, were high at the end of 2014. Therefore, a possible disappointment, which seems increasingly likely, will inevitably lead to stock price corrections. The shallow market is of little help in this respect, but it does pose interesting investment opportunities. The mid-year unsuccessful privatisation of Telekom Slovenije put a significant dent in the second story and while the rest of the market surprisingly avoided a severe correction, it does limit potential return.
From a valuation and growth potential perspective the top picks remain Luka Koper and Sava RE, while Petrol, Krka and Zavarovalnica Triglav remain interesting in terms of valuation and dividend potential. Disclaimer: The author of this article is owner of Krka, Gorenje and Petrol shares.
ALTA Invest d.d. and related entities can be owners of mentioned shares.
ALTA Invest, investicijske storitve, d.d. is supervised by the Slovenian security and exchange commission (Agencija za trg vrednostnih papirjev), Poljanski Nasip 6, 1000 Ljubljana, Slovenia. Further information is available at: www.alta.si/ razkritja
Tourism sector, companies' successful restructuring to continue to drive Zagreb bourse
by Nada Harambasic Nereau, Raiffeisen Croatia analyst
The Zagreb stock exchange put up a mixed performance in 2014 – the CROBEX fell 2.7% while CROBEX10 went up by 1.2%. However, the majority of the liquid shares saw a dramatic move during the year, which was closely related - in a positive way - to the performance of companies operating in the tourism sector. The CROBEXturist index surged as much as 79% in 2014 while the shares of construction companies fell by 37%. The driver behind the positive figures was in many cases an operational or financial restructuring that led to improved results, as well as speculation on the market. However, as the tourism season is likely to be an all-time best, shares of tourism companies continued to rise in 2015. Construction and industrial shares in 2014 were on the downside due to shrinking volume of orders and balance sheet restructuring via administrative settlement procedure (a pre-bankruptcy settlement). Since most of these processes are completed, we expect the companies to continue to operate in a more stable fashion.
In the last few months of 2015 we expect a more positive development than what we saw in the past couple of weeks as companies are expected to improve their performance and the economy is showing signs of recovery. In the second quarter of 2015 the country's GDP climbed by 1.2% year-on-year supported by export and household consumption; industrial production recorded 3.9% year-on-year growth in July, and retail increased by an annual 4.5% in July. In our view, companies that have completed their restructuring, as well as ones which are focused on expansion outside the region and reporting on new contracts could be in the spotlight of investors. Also, takeover activities in tourism could continue to stir up the sector. Regarding the IPO potential, there are no pending issues currently and the announced listing of some state companies will probably be postponed as 2015 is an election year.
From a valuation and growth potential perspective the top picks remain Luka Koper and Sava RE
Disclaimer: This personal opinion of aforementioned analyst is for information purposes only. Analysis is based on generally available information and does not constitute any kind of recommendation to buy, hold or sell financial instruments. Raiffeisenbank Austria d.d. is registered in Zagreb, Croatia, supervised by Croatian Financial Services Supervisory Agency Miramarska 24b, 10 000 Zagreb and Croatian national bank, Trg hrvatskih velikana 3, 10 002 Zagreb, Republic of Croatia. Raiffeisenbank Austria d.d. can have interest or business relationship with analyzed companies or industries. Further information is available at www.rba.hr. Analyst investment portfolio is disclosed at www.limun.hr.