Last week, we attended the Slovenian and Croatian Investors Days held by Zagreb and Ljubljana Stock Exchange. During the mentioned conference, the introduction of a new regional index was announced – Adria Prime. The new index will be a total return index and include all 5 companies of the Croatian prime market and 8 companies of the Slovenian prime market (subject to change when new issuers become part of the Prime segment). As a result, for this week’s blog, we decided to bring you a brief overview of the historical total return of each component of the mentioned index.

For this week’s blog, we are bringing you a short overview of the total return and price return of the components of the future regional index – Adria Prime. Note that as the weight of each constituent is not yet known, we are bringing you the total and price return of each constituent separately in the past 5 years.  

CROATIA

From the Croatian market, the new index is going to include all components of the current prime market – AD Plastik, Arena Hospitality Group, Atlantic Group, Podravka and Valamar.

When observing the share price performance of the mentioned companies in the previous 5 years, one can notice that all of them observed an increase. Of those, Valamar observed by far the highest share price increase of 157.5%, while the total return in the same period amounted to 196.8%. In the same period, the company has been paying out dividends with an average yield of 2.5%. For 2018, the approved dividend amounted to HRK 1 per share, which translated into a dividend yield of 2.96% (based on closing price day before the announcement).

Valamar Riviera (May 2014 – May 2019)

Source: Bloomberg, InterCapital Research

AD Plastik follows with a share price increase of 63.8% in the observed period. Meanwhile, total return amounted to 112.1%, which shows that dividend payments had a significant impact on the growth. In 2015, the company did not pay out a dividend, while in the following years average yield amounted to 7.25%. The highest yield was observed in 2016, when it amounted to 11.7%. This year, the company proposed an advance dividend of HRK 3 per share (which was already approved) plus an additional dividend of HRK 9.5 per share. The total yield for this year would amount 7%.

Next comes Atlantic whose share price increased 40.8% in the past 5 years. Meanwhile, the total return for the same period amounted to 52.4%. Note that the company has not been large dividend payer however since 2015, the company’s dividend per share and dividend yield have been steadily increasing  (from a yield of 1.3% in 2015 to 2.8% in 2019).  

Furthermore, Podravka observed a share price increase of 40.8% in the past 5 years, while the total return amounted to 49%. The difference between the two shows that Podravka has also historically not been a big dividend payer with an average dividend yield of around 2%. However, this trend has been changing on the back of strong fundamentals and the company is positioning themselves as a true dividend payer.

Next comes Arena Hospitality, whose price return graph looks exactly as the total return graph, as the company has not been paying any dividends until 2019 when the company decided to pay a dividend of HRK 5 per share, translating into a yield of 1.5%. For the next year we expect that the company will aim not to reduce its dividend payment below the level of this year. Therefore, we believe that for the following years dividend of HRK 5 per share is the minimum threshold. Note that in the observed period, the company’s share price observed an increase of 25.8%.

SLOVENIA

From the Slovenian market, the new index is going to include all components of the Slovenian prime market, excluding Mercator. Those are Krka, Petrol, Triglav, Sava Re, NLB, Telekom Slovenije, Luka Koper and Intereuropa.

When observing the total return of the mentioned companies in the past 5 years, one can notice that all companies except one observed an increase.

Triglav in the mentioned period observed a share price increase of 31.6% and a total return of 102.6%. Since 2015 the company has been paying a constant dividend of EUR 2.5 per share, which would translate into an average dividend yield of 8.6% (during the same period).   In the same period, Sava Re observed a share price increase of 41.7% and a total return of 74.1%. During that period the company has been paying dividends with an average yield of 4.8%. In 2019, the company approved a dividend of EUR 0.95 per share, translating into a dividend yield of 5.6%.

When observing the share price performance of Luka Koper, the company observed an increase of 28% in the 5-year period. Meanwhile, total return amounted to 53.2%. During that period the company has been paying out a dividend with an average yield of 4.6%.

In the same period, Petrol observed a share price increase of 21.4% and a total return of 43.8%. When observing dividend payment in that period, one can notice that the company has been gradually increasing the dividend per share each year from EUR 11.7 per share to EUR 18 per share, with an average yield of 4.5%.

NLB, the newest addition to the Ljubljana Stock Exchange, held a public offering of shares in November 2018. On the day of the public offering, the share price closed at EUR 56.65, representing a 10% increase. Since then, the share price has observed an increase of 10.5% (21.6% since IPO opening). As the company did not yet pay any dividends since the public offering, the price return equals to the total return, as visible in the graph below. However, note that, in 2019, the company proposed a dividend of EUR 7.13 per share, which would translate into a high dividend yield of 11.5%. In the following years (2019 -2023) the company management is targeting a payout ratio of 70%.

When observing Krka’s share price performance in the same period, one can notice that the company observed a share price decrease of 10.9%. However total return increased by 10.5%, showing that the dividend payments were the sole driver of the growth. During the said period, Krka has been gradually increasing the dividend payment per share, while the average yield amounted to 4.78%.

Turning our attention to Intereuropa, the company’s observed a share price increase of 148.2% in the 5-year period, which is the highest of all Slovenian prime market companies. Since the Intereuropa is not a dividend paying stock, their share price return equals to total return.

The only company in the Slovenian prime market which observed both share price decrease (-59.7%) and a total return decrease (-37.1%) in the observed period was Telekom Slovenije. During the mentioned period the company has been paying dividends with an average yield of 9% (median 6.9%). In 2018 the company paid a one-off dividend of EUR 14.3 per share, translating into a dividend yield of 18%. Note that, in the following years, the company targets a 100% payout ratio.  

As it streams from the shown data, constituents of the expected index are large-caps with strong corporate governance, strong fundamentals coupled with solid dividend yields. We believe that such an index will further promote the attractiveness of both the Croatian and Slovenian capital market.