Romanian Capital Market 2010 wrap-up
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Mai 2011 |
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ALEXANDRU NEAGU - Junior Analyst, Research Department
RAIFFEISEN CAPITAL & INVESTMENT S.A. |
Adresa
Piaţa Charles de Gaulle, Nr. 15
Etaj 4
Bucureşti, Sector 1
Telefon
+40-21-306.12.31/33
Fax
+40-21-230.06.84
Website
www.rciro.ro
ALEXANDRU NEAGU
Junior Analyst, Research Department
RAIFFEISEN CAPITAL & INVESTMENT S.A.
Awakening after recession
The uptrend that began in the second quarter of 2009 continued into 2010, on expectations of a recovery of the economy and as optimism prevailed on foreign markets. The trend reversed in 2Q 2010, when the Greek crisis generated a severe correction on the market and wiped out the gains registered in the first part of the year. As worries receded and new measures were implemented to increase liquidity, both in US and Europe, foreign markets thrived.
The recovery of the local economy was slower than expected over 1Q 2010 and the measures designed to curb the budget deficit (VAT raise, cut in budgetary personnel salaries) implemented mid-year dragged the GDP even lower. The deteriorating macroeconomic environment fed investors’ negative sentiment and the local stock market decoupled over 2H 2010 from the positive evolution of the international markets and indices remained close to the level of July until mid-December, on low liquidity levels. In December the market began to rise and kept climbing into 2011. On the whole, BET went up by 12.3% in 2010.
Over 2010 the GDP fell by 1.2% yoy while in 4Q it came in 0.1% higher qoq. The local economy is expected to revive in 2011 and the GDP is seen to rise between 1% and 2%. Following the latest IMF and EC review missions, Romania will not need to draw the final tranche worth EUR 1 bn from IMF. Romania will enter a two year precautionary agreement, with access to EUR 5.9 bn safety funds for emergency situations, intended to support the fiscal consolidation process and bolster investors’ confidence in the Romanian economy. Meanwhile, the political arena seems stable.
The listing of Fondul Proprietatea improved markedly the liquidity on the local stock exchange. Even more, the state is expected to bring to the market this year additional stakes in Petrom, Transgaz and Transelectrica, and to start procedures for Romgaz IPO. This should make 2011 one of the best years ever in terms of new offerings, especially given the size of the offers.
Overall, we see the market trending higher in 1H 2011. In the case of most of the listed companies we estimate higher sales in 2011 and we anticipate costs growth to remain subdued which should be reflected into higher profits. We favour the newly listed Fondul Proprietatea, which trades at an attractive discount to NAV, the SIFs and the largest of the covered banks, BRD-GSG, where we see lower risk costs translating into higher profits in 2011. We also like Petrom, which should benefit from rising oil prices, and Teraplast, which was successful in boosting sales while construction market continued to dive.
Market Developments
BET INDEX OVERALL ROSE BY 12% IN 2010
First quarter of 2010 saw the upward trend started in 2009 continue. BET gained momentum and increased by 27% over 1Q 2010 in correlation with the positive evolution of the main international markets. The trend reversed in 2Q 2010, when the Greek crisis generated a severe correction on the market and wiped out the gains registered in the first part of the year.
Over 2H 2010 the local market slightly decoupled from the positive evolution of the international markets and indices remained close to the level of July until mid-December, on low liquidity levels. The sluggish performance was mainly due to the deteriorating macro environment which fed investors’ negative sentiment and kept them at bay. In December the market started to rise and the trend continued into 2011. On the whole, BET went up by 12.3% in 2010.
The SIFs experienced higher volatility than the BET index, as BET-FI climbed by 24% in 1Q 2010, but then corrected by more than 40% over 2Q. In the second half of 2010, BET-FI increased by 9% and BET-FI ended the year 8% lower yoy.
FONDUL PROPRIETATEA FINALLY LISTED
Fondul Proprietatea (FP) made significant steps towards the listing in 2010. After several delays, the shareholders finally approved the nomination of Franklin Templeton at the helm of the fund in the GSM at the beginning of September. Romanian National Securities Commission approved the listing prospectus for FP in December and the Fund’s shares started trading on January 25th, 2011. FP brought significant liquidity to the market and we expect it will also bring a widening in the base of investors.
BUCHAREST STOCK EXCHANGE, NEWCOMER ON THE MARKET
In June 2010, the Bucharest Stock Exchange (BSE) was listed through a technical listing, in an attempt to offer its investors the possibility to cash-in their participations and maybe also to set an example for other companies who would consider listing as an alternative method of financing.
Over 2010, daily volumes climbed by approximately 9% compared with 2009, but remained at modest levels reaching only EUR 5.3 mn.
SMALL CAPS CONTINUE TO UNDERPERFORM
Small caps performance remained weak and Rasdaq composite dropped by 25% over 2010, reflecting the cautious approach of the investors towards the local market. Daily average liquidity remained poor at EUR 0.57 mn, in line with volumes registered last year. Transfers from Rasdaq to the regulated market of the Bucharest Stock Exchange continued in 2010 with five companies being transferred to the main market (e.g. Cemacon, Boromir Prod, Prefab, Electroarges and Ropharma). The number of listed companies on Rasdaq continued to decrease, reaching 1,300 at the end of 2010, compared with roughly 1,500 at the end of the previous year. Since the most liquid stocks are slowly moving or have already transferred on BVB main market, we believe that the low liquidity on the Rasdaq market will persist.
