Croa­tia's INA ousts Ro­ma­nia's OMV Petrom as SEE top blue chip

Top 100 See - - Top 100 Listed Companies -

The to­tal cap­i­tal­i­sa­tion of the nine SEE bourses rose 3.6% in 2015 to 103.6 bil­lion euro, slow­ing from a 6.1% growth in 2014. Three-fifths of the com­pa­nies that made it into the rank­ing saw their mar­ket cap­i­tal­i­sa­tion in­crease in 2015, with the banking sec­tor shin­ing as a ma­jor gainer, while most oil and gas firms and telecom op­er­a­tors lost ground.

Once again, the rank­ing of the big­gest listed com­pa­nies in South­east Europe saw lit­tle change at the top, as the 10 largest re­gional blue chips for 2015 re­mained the same as in 2014, although with some reshuf­fling. The top three spots re­mained re­served for the oil and gas sec­tor, but af­ter three con­sec­u­tive years on the top, Ro­ma­nia's OMV Petrom ceded its lead­ing po­si­tion to Croa­t­ian peer INA, which weath­ered bet­ter the global oil price slump. While the Ro­ma­nian com­pany, ma­jor­i­ty­owned by Aus­tria's OMV, recorded a nearly 30% drop in mar­ket cap­i­tal­i­sa­tion, INA, con­trolled by Hun­gary's MOL and Croa­tia's govern­ment, posted a much smaller 19% de­cline. Ro­ma­nian nat­u­ral gas pro­ducer Romgaz kept its third spot de­spite a fall of 24%, closely fol­lowed by Slove­nian drug maker Krka, which boosted its mar­ket cap­i­tal­i­sa­tion by 9.4% and thus climbed one spot higher.

The sharp drop in oil prices and height­ened mar­ket volatility re­sulted in a net loss of 690 mil­lion lei (155 mil­lion euro) for OMV, its first neg­a­tive re­sult in 12 years, while INA re­ported a consolidated loss for the third year in a row, but man­aged to cut it by 25% from 2014 to 1.42 bil­lion kuna (189 mil­lion euro) on the back of im­proved op­er­at­ing re­sults. Both ma­jors have promised to keep on re­duc­ing costs amid the con­tin­u­ing vo­latile low price en­vi­ron­ment, with INA fo­cus­ing on in­ter­nal op­ti­mi­sa­tion, pro­duc­tiv­ity in­crease, and re­tail re­struc­tur­ing, and OMV Petrom scal­ing back investments along­side strict cost dis­ci­pline and cash man­age­ment. The Croa­t­ian com­pany slashed its staff num­bers by 10% in 2015 to 11,256, while its big­ger Ro­ma­nian ri­val cut its work­force by 5.4% to 16,038. At the same time, the to­tal hy­dro­car­bon pro­duc­tion of INA rose 6% last year to 40,900 bar­rels of oil equiv­a­lent (boe) per day, while that of OMV Petrom fell 1% to 178,600 boe.

The re­main­ing Top 10 po­si­tions were taken up by three Ro­ma­nian and as many Croa­t­ian en­trants, in­clud­ing four banks. In the wider top 100 rank­ing, Croa­tia had a clear dom­i­nance with 27 com­pa­nies, as many as in 2014, trailed by Ro­ma­nia with 20 (20 in 2014), Bulgaria with 17 (15 in 2014), Slove­nia with 11 (20 in 2012), Bos­nia with eight (10 in 2014), Mace­do­nia with five (four in 2014), and Mon­tene­gro with four (three in 2014). At the same time, the big­gest bourse in the re­gion re­mained the Ro­ma­nian one, BVB, with a mar­ket cap­i­tal­i­sa­tion of 32.3 bil­lion euro at end-2015, fol­lowed by the Za­greb Stock Ex­change (ZSE) with 27.4 bil­lion euro and the Ljubl­jana bourse (LJSE) with 24.2 bil­lion euro. The other six stock mar­kets in SEE re­mained well be­hind the lead­ers, with Bel­grade at the fourth spot with a cap­i­tal­i­sa­tion of only 5.6 bil­lion euro, equal to less than a fifth that of BVB, trailed by Sofia with 4.4 bil­lion euro.

Among the best in­di­vid­ual per­form­ers in the rank­ings, Crnogorska Komer­ci­jalna Banka, a sub­sidiary of Hun­gary's OTP, shines as the most suc­cess­ful new­comer at the 13th spot. It is also the best placed Mon­tene­grin en­trant, ac­count­ing for more than a quar­ter of the lo­cal bourse's mar­ket cap­i­tal­i­sa­tion. Also, Bos­nia's UNICREDIT Bank out­per­formed the pack with a jump to the 24th po­si­tion from 77th, fol­low­ing a more than four­fold rise in mar­ket cap­i­tal­i­sa­tion. On the op­po­site side, Bul­gar­ian fuel trader Petrol recorded the big­gest loss - of 46 places to 95th po­si­tion with a 54% drop in cap­i­tal­i­sa­tion.

The to­tal num­ber of new­com­ers to the 2015 rank­ing was 11, down from 16 a year ear­lier, as the en­try thresh­old climbed 8% to 86 mil­lion euro.

SEE Link se­cu­ri­ties trad­ing plat­form to pro­vide more ef­fi­cient ac­cess for in­vestors, bro­kers, more vis­i­bil­ity for re­gional bourses

Low liq­uid­ity and frag­mented stock mar­kets have long been a ma­jor hur­dle to at­tract­ing big­ger cap­i­tal in­flows to the re­gion, but there is light at the end of the tun­nel. At end-March 2016, SEE Link, a re­gional plat­form for trad­ing of se­cu­ri­ties listed on eq­uity mar­kets in SEE, was launched. It was ini­ti­ated in 2014 by Bulgaria, Mace­do­nia and Croa­tia, with the help of the Euro­pean Bank for Reconstruction and

Bucharest stock ex­change re­mains big­gest bourse in SEE, ac­count­ing for nearly one third of the re­gion’s to­tal mar­ket cap­i­tal­i­sa­tion.

Devel­op­ment (EBRD), aim­ing to im­prove ac­ces­si­bil­ity and vis­i­bil­ity of se­cu­ri­ties and thus boost liq­uid­ity.

Presently, only Bul­gar­ian, Mace­do­nian and Croa­t­ian listed com­pa­nies trade via the plat­form, but the bourses of Bel­grade, Ljubl­jana, and Banja Luka are ex­pected to join it soon, fol­low­ing the com­ple­tion of cer­tain tech­ni­cal­i­ties. The Mon­tene­gro Stock Ex­change (MNSE) and the Athens Stock Ex­change - the big­gest one in the re­gion - have also agreed to join the project.

As of April 1, 2016, SEE Link started cal­cu­lat­ing two 10-share blue chip in­dices - SEELinX and SEELinX EWI – with a base level of 100 points. SEE LINX is a mar­ket cap­i­tal­i­sa­tion weighted in­dex ad­justed for the free-float of each con­stituent, while SEE Linx EWI is an equally weighted in­dex with the same con­stituents. By Septem­ber 15, SEELinX gained 10.4% to 110.01 points, while SEELinX EWI added 7.7% to 107.55.

De­spite a slow start, SEE Link is ex­pected to gather mo­men­tum and draw in­vest­ment funds' in­ter­est in the com­ing months. How­ever, it should be sup­ported by the list­ing of more liq­uid, higher qual­ity com­pa­nies on the re­gional bourses, as well as by bet­ter reg­u­la­tions, many an­a­lysts be­lieve.

Po­lit­i­cal crises-hit Croa­tia and Mace­do­nia lead stock mar­ket gain­ers in 2016

Look­ing at the re­gional stock mar­ket per­for­mance, mea­sured by the ma­jor bourses' blue chip in­dices, we see an over­all de­clin­ing trend in 2015, which was most ob­vi­ous in Bulgaria and Slove­nia, with the SOFIX and SBI TOP los­ing 11.7% and 11.2%, re­spec­tively dur­ing the year. Mace­do­nia's MBI10 was the best per­former, los­ing only 0.6%, de­spite the pro­tracted deep po­lit­i­cal cri­sis in the coun­try.

In the first nine months of 2016, how­ever, most ma­jor in­dices gained ground, with Croa­tia's CROBEX lead­ing the pack with an 11.3% rise by Septem­ber 15. It was backed by tourism and in­dus­try com­pa­nies and weath­ered height­ened do­mes­tic po­lit­i­cal in­sta­bil­ity as the coun­try called an early gen­eral elec­tion less than a year af­ter the pre­vi­ous one. Ac­cord­ing to lo­cal an­a­lysts, the out­come of the snap vote on Septem­ber 11, in which con­ser­va­tive HDZ party fell short of an out­right ma­jor­ity, will likely have no dra­matic im­pact on the fi­nan­cial mar­ket. Yet, the for­ma­tion of a stable govern­ment is seen as a pre­req­ui­site for the good per­for­mance of the do­mes­tic econ­omy and hence lo­cal com­pa­nies and the stock mar­ket.

The se­cond best per­former this year has been the MBI10 with a 6.5% gain till mid-Septem­ber, con­firm­ing the ten­dency that po­lit­i­cal tur­moil has lit­tle im­pact on stock mar­ket per­for­mance in SEE. Mace­do­nia, which has been mired in an al­most two-year po­lit­i­cal dead­lock, missed two sched­uled elec­tion dates in 2016 - in April and in June – and sched­uled an­other one for De­cem­ber 11.

At no. 3 and 4 in the list of grow­ing stock mar­kets came Slove­nia and Bulgaria, which erased partly their 2015 losses, climb­ing 5.8% and 2.9%, re­spec­tively. On the op­po­site end of the ta­ble, Ser­bia and Ro­ma­nia ex­tended their de­clines, with Bel­grade's BELEX shed­ding 1.4% by mid-Septem­ber on top of a 3.4% fall in 2015, and BVB's PET edg­ing down 0.4%, fol­low­ing a 1.6% de­cline last year.

In elec­tion year, Ro­ma­nia's stock mar­ket stays lack­lus­tre de­spite strong eco­nomic growth

by Catalin Chivu,

CEO of on­line broker TELETRADE Ro­ma­nia

Ro­ma­nia's stock mar­ket started 2016 with a large de­cline in line with the rest of the in­ter­na­tional eq­uity mar­kets, which were heav­ily drawn down by fears re­gard­ing China's econ­omy slow­ing that put in­vestors' nerves to test. Then, in the next two months, the lo­cal mar­ket re­cov­ered some of the losses, es­pe­cially due to some com­pa­nies sur­pris­ing in­vestors with div­i­dends.

In Jan­uary, the Bucharest Stock Ex­change (BVB) lost more than 10% in value, mark­ing the weak­est de­but year from 2011, but in­vestor mood im­proved af­ter­wards and in Fe­bru­ary and March the mar­kets re­turned to growth, help­ing the bourse post a loss of about 4 % for the first quar­ter. This devel­op­ment placed Ro­ma­nia as one of the big­gest losers in the re­gion, while the Bu­dapest and War­saw stock ex­changes had yields of 7.5%. De­vel­op­ments on the BVB were re­lated more to those on the stock mar­kets in Western

Europe, mainly Ger­many, and the U.S., rather than to the evo­lu­tion of ex­changes in Cen­tral and Eastern Europe. How­ever, most Western stock mar­kets have al­ready re­cov­ered the losses caused by the 2008 fi­nan­cial cri­sis with ma­jor stock in­dices reach­ing val­ues above the 2007 highs, while BVB's bench­mark in­dex BET should rise by about a third to reach the 10,000 points thresh­old, where it was in 2007.

In the se­cond quar­ter, BVB in­dices fluc­tu­ated, but in gen­eral con­tin­ued to fall. BET, which tracks the 10 most liq­uid listed com­pa­nies, closed the first half at 6,487 points, down 7.4% com­pared to the be­gin­ning of the year, mark­ing the third first-half stock mar­ket de­cline over the last 20 years. But in 2016, there is one key dif­fer­ence - Ro­ma­nia has a bet­ter eco­nomic growth than most other Euro­pean Union coun­tries and the de­cline did not come af­ter a rally.

Among the fac­tors that pushed down the BVB are pes­simism re­lated to China's eco­nomic slow­down, the drop in oil prices, which hit record lows in Fe­bru­ary, fears that the U.S. Fed­eral Re­serve would em­bark on a more ag­gres­sive rate hike pol­icy, and most re­cently, the UK ref­er­en­dum re­sult that put Bri­tain on a path to exit the EU.

How­ever, in the past two months, BET man­aged to re­cover strongly, reach­ing lev­els from the start of the year, but still far from the 2007 highs. I have no great ex­pec­ta­tions for the rest of the year on new list­ings or liq­uid­ity, since it is an elec­tion year and the politi­cians, who should con­trib­ute to pro­mot­ing the Ro­ma­nian cap­i­tal mar­ket in the cat­e­gory of more de­vel­oped mar­kets glob­ally, to­wards the Emerg­ing mar­ket sta­tus*, will have other con­cerns.

*ed­i­tor’s note: In March, FTSE Rus­sell, one of the most im­por­tant in­ter­na­tional in­sti­tu­tions, which analy­ses global cap­i­tal mar­kets, sup­ported by the opin­ions of in­ter­na­tional ex­perts and in­vestors, cer­ti­fied that Ro­ma­nia’s stock mar­ket meets all but one of the nine cri­te­ria re­quired to be clas­si­fied as Emerg­ing mar­ket, with the ex­cep­tion be­ing the liq­uid­ity cri­te­rion.

Tourism re­mains key driver of Croa­tia's stock mar­ket growth, play­ers hope for big IPOs to boost liq­uid­ity by Alen Ko­vač,

Chief Econ­o­mist, Erste Bank Croa­tia

Trad­ing on the Za­greb Stock Ex­change (ZSE) this year was marked by the gen­eral re­cov­ery of stock in­dices, with a con­tin­ued neg­a­tive trend of liq­uid­ity. ZSE's wider blue chip in­dex, CROBEX, rose 5% in the first seven months, while the CROBEXtr mar­ket cap­i­tal­i­sa­tion weighted to­tal re­turn in­dex gained some 7%. It seems that pos­i­tive macroe­co­nomic de­vel­op­ments, with Croa­tia emerg­ing from a sixyear re­ces­sion in 2015, trans­ferred part of the op­ti­mism onto the cap­i­tal mar­ket.

Tourism re­mained in the fo­cus of in­vestors. In the past few years, de­spite the pro­longed re­ces­sion, tourism recorded growth in ar­rivals and overnight stays, as well as a rapid rise in stock prices. Once again, this year's geopo­lit­i­cal events and the dif­fi­cul­ties en­coun­tered by Croa­tia's main com­peti­tors in the Mediter­ranean shifted in­vestor fo­cus to that sec­tor. The tourism sec­tor in­dex has gained al­most 14% this year, af­ter a cu­mu­la­tive jump of more than three times in the last three years. One of the ma­jor win­ners, Vala­mar Riviera, was the only of the 10 most liq­uid stocks that recorded an in­crease in turnover.

This year, tourism was joined by the in­dus­try sec­tor, which, un­der­pinned by ex­porters, posted a growth of 11.5% year-to-date.

In tourism, merg­ers and ac­qui­si­tions con­tin­ued this year, with PPHE Ho­tel Group fully ac­quir­ing Are­na­tur­ist and a num­ber of pri­vati­sa­tions, in­clud­ing the ten­ders for state shares in ho­tel op­er­a­tors Im­pe­rial, Sun­cani Hvar, Kor­cula and HTP Ho­tel Maes­tral, of which the first three were suc­cess­fully com­pleted, while the last at­tracted no bid­ders. Although Croa­tia took eight com­pa­nies out of its ‘strate­gic list' in May with the in­ten­tion of pri­vatis­ing them, the col­lapse of the govern­ment in June re­sulted in the sale only of a 20.5% stake in Kon­car Elek­troin dus­trija through a block trans­ac­tion on the ZSE. Those trans­ac­tions, val­ued at some 50 mil­lion euro, slightly im­proved ZSE's liq­uid­ity, while at the same time reg­u­lar stock turnover en­tered its ninth con­sec­u­tive year of de­cline.

Bourse turnover was dom­i­nated by the food, travel, and telecom sec­tors, which to­gether with hold­ing com­pany Adris make up nearly 70% of the turnover. Reg­u­lar stock turnover on the bourse in the first seven months of 2016 was about 30% lower year-on-year, while at the same time there was an in­crease in block trans­ac­tions and on the OTC mar­ket. Block turnover was only 15% lower than reg­u­lar turnover this year, a re­sult of poor reg­u­lar turnover and a growth in block trans­ac­tions, pri­mar­ily in Kon­car, Ledo and Hr­vatski Telekom, which were quite ac­tive in block trad­ing.

The lack of new is­sues on the stock mar­ket is one of the rea­sons for the low liq­uid­ity in reg­u­lar trad­ing, while on the de­mand side, the num­ber and struc­ture of in­vestors is to blame. An in­creas­ingly smaller num­ber of ma­jor play­ers have a grow­ing im­por­tance on the mar­ket. Among them are the main do­mes­tic pen­sion funds, which have longer in­vest­ment hori­zon and share­hold­ing pe­riod. From 2009 to 2016, their do­mes­tic eq­uity investments rose 3%, reach­ing 7.5% of the to­tal stock mar­ket cap­i­tal­i­sa­tion. How­ever, if we look at the free shares in cir­cu­la­tion, this pro­por­tion is as high as 30%.

On the sup­ply side, af­ter a seven-year pause in ini­tial public of­fer­ings (IPOs), agri­cul­tural com­pany Gra­no­lio made a suc­cess­ful place­ment of new shares and listed on the bourse in late 2014, fol­lowed by shipping com­pany Tanker­ska Next Gen­er­a­tion in early 2015. How­ever, big­ger list­ings, like for ex­am­ple HEP, Agrokor or Hr­vatske Au­to­ceste (HAC), are still ab­sent. These trends led to a con­cen­tra­tion of trad­ing in the most liq­uid stocks, so the 10 most traded is­sues this year made up al­most 70% of to­tal turnover, com­pared to 60% last year.

Fur­ther de­vel­op­ments on the stock mar­ket will largely de­pend on the sus­tain­abil­ity of macroe­co­nomic growth, while the re­vival of stock turnover re­quires new is­sues, public of­fer­ings and pri­vati­sa­tions to boost the num­ber of shares in cir­cu­la­tion. Also, if the pace of merg­ers and ac­qui­si­tions in­ten­si­fies, it might push in­di­vid­ual stocks to the fore­front, and thereby con­trib­ute to the boost of the over­all stock mar­ket liq­uid­ity.

De­spite a slow start, SEE

Link is ex­pected to gather mo­men­tum and draw in­vest­ment funds' in­ter­est in the com­ing months, but needs new list­ings - of more liq­uid, higher qual­ity com­pa­nies, and im­proved reg­u­la­tions.

Takeover spec­u­la­tions, pri­vati­sa­tions to keep driv­ing Slove­nia's bourse

by Sašo Stanovnik,

Head of Re­search and Chief Econ­o­mist, ALTA In­vest

So far, till mid-Au­gust 2016, the main Ljubl­jana Stock Ex­change (LJSE) in­dex SBITOP hasn't moved much as it is up by a mea­gre 2.8%. How­ever, it should be noted that most com­pa­nies in­cluded in the in­dex paid out a very gen­er­ous div­i­dend yield, on av­er­age stand­ing at roughly 4.7% gross for the in­dex. There­fore, the to­tal re­turn should be quite sat­is­fac­tory for in­vestors in Slove­nia. Hefty div­i­dends were also one of the key cat­a­lysts that moved the mar­ket in spring months, only to be ad­justed af­ter ex-div­i­dend dates.

An­other cat­a­lyst was the ru­mour, re­gard­ing Gorenje ac­qui­si­tion by Pana­sonic. Con­se­quently, Gorenje is so far a star of LJSE with its price up by more than 55% year-to-date. Note that Pana­sonic owns 10.7% of Gorenje and that Gorenje an­nounced Pana­sonic will per­form a due dili­gence of Gorenje Group till end-Septem­ber with no de­ci­sion yet made re­gard­ing any trans­ac­tion. Any pend­ing de­ci­sion from Pana­sonic will there­fore in­flu­ence Gorenje share price se­verely in the au­tumn and con­se­quently also in­flu­ence the mood on LJSE in the fol­low­ing months. Presently, Gorenje trades at 6.7 times EBITDA with trail­ing earn­ings still be­ing neg­a­tive, while man­age­ment strate­gic goals re­main am­bi­tious.

Oth­er­wise the big­gest year-to-date in­crease in LJSE prime mar­ket was recorded by lo­gis­tic provider In­tereu­ropa, with its share price up 75%. While di­vest­ment of ma­jor­ity stake by a bank con­sor­tium fal­tered, bet­ter re­sults prob­a­bly con­trib­uted to an im­proved sen­ti­ment.

Sig­nif­i­cantly trail­ing Gorenje's se­cond place was in­sur­ance group Sava Re, where again sen­ti­ment is slightly driven by takeover spec­u­la­tions. Namely, Adris Group has been rais­ing its stake in the in­surer, while a reg­u­la­tory ap­proval for boost­ing stake to 30% is still awaited. On the other side of the spec­trum, port op­er­a­tor Luka Koper recorded a stagnation of its share price year-to-date while phar­ma­ceu­ti­cal com­pany Krka ex­pe­ri­enced a 10% drop. Luka Koper re­ported ex­cel­lent re­sults and through­put growth, so the main cul­prit could be a small free float or cor­po­rate gov­er­nance is­sues that were quite ev­i­dent in June, when a labour strike ham­pered op­er­a­tions for sev­eral days. Krka, on the other hand, re­ported re­sults mostly in line with an­a­lyst ex­pec­ta­tions; how­ever these were bur­dened by cur­rency weak­nesses in Rus­sia and price ero­sions in Western Europe. Note Krka now trades at 6x EBITDA while Luka Koper at 5x.

We be­lieve the rest of 2016 will de­pend much on how the above men­tioned takeover spec­u­la­tions ma­te­ri­alise. Also any change in state as­set strat­egy, which would move a com­pany more to­ward port­fo­lio clas­si­fi­ca­tion, could be ben­e­fi­cial to the over­all mar­ket sen­ti­ment. In the ab­sence of this, a con­tin­u­a­tion of stagnation is en­vi­sioned, as earn­ings growth pro­jec­tions are pos­i­tive but far from spec­tac­u­lar. It's true how­ever that spring 2017 should again bring a more pos­i­tive dy­nam­ics, as the 2016 div­i­dend lev­els are likely to re­peat in 2017 as well, de­liv­er­ing a very gen­er­ous div­i­dend yield. A ma­jor story could be a list­ing and pri­vati­sa­tion of the big­gest Slove­nian

Elec­tions in Ro­ma­nia, sched­uled for De­cem­ber, weigh on stock mar­ket per­for­mance de­spite ro­bust eco­nomic growth.

bank, NLB, al­beit news about this process are still vague.

Disclaimer: The au­thor of this ar­ti­cle is owner of Petrol and Krka shares. ALTA In­vest and re­lated en­ti­ties can be own­ers of men­tioned shares.

Ser­bia sees dif­fi­cult year with old pain from lack of blue chips, but at­trac­tive val­u­a­tions

by Mladen Dodig,

Head of Re­search, Erste Bank Ser­bia

2016 will prove par­tic­u­larly dif­fi­cult for the Bel­grade Stock Ex­change (BSE). Not only has liq­uid­ity not im­proved, but some of the pre­vi­ously most traded stocks will be delisted af­ter takeovers and squeeze-outs. The reg­u­lar trad­ing value (ex­clud­ing ar­ranged block trans­ac­tions) halved in Jan­uary-Septem­ber as com­pared to the same pe­riod of 2015 and the liq­uid­ity weak­ness has even caused the main bench­mark BELEX15 to shed two more com­po­nents in 2016, with one more ex­pected to leave the in­dex by the end of the year. Con­se­quently, the muted trad­ing has smoothed the in­dex's move­ments, bring­ing its per­for­mance slightly above the ma­jor re­gional bench­marks, but far be­low emerg­ing mar­kets. So, his­tor­i­cal events such as Brexit are barely vis­i­ble on the BELEX15 12-month chart. How­ever, the val­u­a­tions for many listed com­pa­nies re­main very invit­ing.

Let us look at the pos­i­tive de­vel­op­ments. The new gen­eral man­ager of the BSE has man­aged to in­clude the state-is­sued fixed in­come se­cu­ri­ties in the Prime List­ing, bring­ing some fresh vol­ume to the mar­ket. This move was also sig­nif­i­cant as in­vestors have been given an in­di­ca­tor of the yield curve, with ma­tu­ri­ties rang­ing from two to 10 years, both in di­nars and in euro. In to­day's world of pos­i­tive yield scarcity, Ser­bian bills and bonds are very at­trac­tive to both in­sti­tu­tional and in­di­vid­ual in­vestors. Fur­ther­more, the BSE man­age­ment has ini­ti­ated ed­u­ca­tion of at­trac­tive big lo­cal com­pa­nies that are in pri­vate own­er­ship, in­form­ing them about all the ben­e­fits of IPO launch­ing and (dual) list­ing(s). Some of these com­pa­nies have ex­pressed in­ter­est in rais­ing cap­i­tal this way, so it is fair to say that 2017 might bring the first IPO on the Ser­bian mar­ket. If that hap­pens, many oth­ers would fol­low, and that would be a sig­nif­i­cant boost to the BSE.

Fa­vor­able winds are also com­ing from the macroe­co­nomic side, as plenty of the in­di­ca­tors point to re­stored real growth of over 2%, ex­cel­lent fis­cal per­for­mance, re­vived do­mes­tic con­sump­tion and solid ex­port per­for­mance. Ser­bia re­mains on the EU path and some ma­jor mile­stones in mem­ber­ship ne­go­ti­a­tions were reached. The credit rat­ing of the coun­try is stable and with the cur­rent dy­nam­ics a pos­i­tive re­vi­sion might be ex­pected in the fore­see­able fu­ture. How­ever, the main chal­lenges re­main in the form of nec­es­sary re­forms, par­tic­u­larly in the do­mains of SOE, le­gal frame­work and public ad­min­is­tra­tion right­siz­ing.

The most re­cent re­views of Ser­bia's eco­nomic per­for­mance un­der the on­go­ing standby ar­range­ment with the IMF re­veal many de­tails on re­forms and the re­struc­tur­ing of the SOEs, as well as po­ten­tial mod­els of pri­vati­sa­tion for banks and ma­jor com­pa­nies. Bring­ing those com­pa­nies to the bourse af­ter their trans­for­ma­tion would erase the BSE's ma­jor dis­ad­van­tage – its lack of blue chips with large cap­i­tal­i­sa­tions (and free floats). Tele­coms provider Telekom Sr­bija, power util­ity EPS, postal and rail­way op­er­a­tors, etc., would at­tract even the big­gest play­ers from the as­set man­age­ment in­dus­try, bring­ing new life to the BSE.

Low liq­uid­ity con­tin­ues to weigh on Bulgaria's stock mar­ket, big new list­ings needed to boost at­trac­tive­ness by Na­dia Nedelcheva,

Port­fo­lio Man­ager, Karoll Cap­i­tal Man­age­ment

The Bul­gar­ian stock mar­ket has been among the worst per­form­ers in the past

The out­come of Croa­tia’s se­cond vote in less than a year, in which HDZ fell short of out­right ma­jor­ity, is seen hav­ing no dra­matic im­pact on the fi­nan­cial mar­ket, although the for­ma­tion of a stable govern­ment is con­sid­ered es­sen­tial for the good per­for­mance of lo­cal com­pa­nies and the stock mar­ket.

years, with the blue chip SOFIX in­dex still stand­ing around 75% be­low its pre-cri­sis peak. From this per­spec­tive it of­fers solid catch-up po­ten­tial as at the same time other mar­kets per­formed far bet­ter. Gen­er­ally, the lo­cal mar­ket has al­most no cor­re­la­tion with the de­vel­oped ones. In the past weeks we have seen some pos­i­tive signs as it fi­nally man­aged to erase yearto-date losses.

Com­pared even to the re­gional mar­kets, the Bul­gar­ian one is among the smallest ones and low liq­uid­ity is one of the most se­ri­ous is­sues. While low liq­uid­ity may ac­cel­er­ate a neg­a­tive move­ment, the mar­ket can also rise quickly as a con­se­quence of poor – so, fast move­ments can be ob­served on mar­kets like the Bul­gar­ian one. Still, liq­uid­ity is an is­sue when it comes to al­lo­ca­tion by for­eign in­vestors in the re­gion as few com­pa­nies from the lo­cal stock ex­change can pass the liq­uid­ity fil­ters of for­eign in­sti­tu­tional in­vestors.

From a fun­da­men­tal per­spec­tive, the out­look for the Bul­gar­ian mar­ket is rel­a­tively promis­ing – the macroe­co­nomic sta­tus of the econ­omy is pretty solid – just like most of the re­gional economies, the Bul­gar­ian one is far­ing quite well as do­mes­tic con­sump­tion is com­pen­sat­ing the fairly milder ex­ter­nal con­di­tions – GDP was up by 3% year-on-year in the se­cond quar­ter, which was much higher than the EU av­er­age – the same is ac­tu­ally valid for other economies in the re­gion. Thus, many com­pa­nies posted strong re­sults for the first half of 2016, with val­u­a­tion ra­tios sug­gest­ing sig­nif­i­cant up­side. The av­er­age P/E for the mar­ket is be­low 8x (on a ttm ba­sis) which is among the low­est not only in the re­gion but also glob­ally. Of course, liq­uid­ity is a strong im­ped­i­ment and that is the ma­jor rea­son why such lev­els of val­u­a­tion ra­tios do not look too com­pelling for the big in­vestors. Still, we be­lieve that SOFIX will fin­ish the year higher.

In the next months we ex­pect an­other IT com­pany to de­but on the lo­cal stock ex­change – the size of the is­sue how­ever is too small to at­tract se­ri­ous in­ter­est from abroad, but it is ex­pected to serve as a test for the cap­i­tal mar­ket. If suc­cess­ful, the IPO may con­vince other com­pa­nies to go public. How­ever, the mar­ket needs re­ally many more and big­ger com­pa­nies to be­come more at­trac­tive.

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