Breaking Down CEEplus

As the Warsaw Stock Exchange launched a new equity index whose portfolio includes the largest and the most liquid companies of the CEE region, including companies from Croatia, Slovenia and Romania, we decided to present you with a brief breakdown of the index.

Last week, the Warsaw Stock Exchange launched CEEplus, a new equity index which is based on the value of the portfolio of the largest and most liquid companies listed on stock exchanges from the Central Europe region of Croatia, the Czech Republic, Poland, Romania, Slovakia, Slovenia and Hungary.

The mentioned index is a price index, meaning that it accounts only for prices of underlying shares whereas dividend income is excluded.

The index portfolio will include more than 100 of the most liquid stocks of companies listed on Central and Eastern European exchanges. Stocks participating in the index have to meet the liquidity criterion: average value of trading per session of at least EUR 90,000 in six months period. The participation of stocks in the index will depend on their free float and will be capped according to the 5/10/40 rule (i.e. participation of the biggest stock is capped at 10%, aggregate participation of stocks weighing more than 5% is capped at 40%). The participation of stocks from any single country in the index portfolio will be capped at 50% (in practice, the cap applies only to stocks listed on GPW).

The CEEplus index will include:

  • 2 Croatian companies – Valamar Riviera and HT
  • 4 Slovenian companies – Krka, NLB, Petrol and Triglav
  • 10 Romanian companies – Banca Transilvania, BRD Bank, Transelectrica, Fondul Propreitatea, OMV Petrom, Nuclearelectrica, Romgaz, Transgaz, Electrica and SIF Oltenia

Comparing CEEplus With Main Indices of Regional Stock Exchanges

wdt_ID Index P/E EV/EBITDA P/B Dividend Yield (%)
1 CEEplus 10,76 6,14 1,13 4,18
2 CROBEX 15,54 7,62 1,10 3,67
3 SBITOP 7,82 4,93 0,88 6,18
4 BET 7,92 3,47 1,11 8,74
5 WIG20 12,22 11,95 1,17 3,24
6 BUX 9,87 6,63 1,24 2,93
7 ATX 9,79 6,46 1,11 3,93
8 PX 11,76 7,42 1,35 5,08
9 AVERAGE 10,71 6,83 1,14 4,75

Source: Bloomberg, InterCapital Research

When observing the top 10 constituents by their share in the index, one can notice that the financial sector has a solid weight in the index, 48.1% (of the total shares) to be specific. The top 10 constituents by share include 5 banks and 1 insurance company which cumulatively account for 34.6%.  

Energy sector follows with 8 companies, which account for 15% of the total index. Next come the Communication Services sector and Utilities sector which account for 8.8% and 6.15% respectively.

Breakdown of the CEEplus Index by Sector

Source: Bloomberg, InterCapital Research

When breaking down the index by country, one can notice that Poland makes up for 48.03% of the index, with 75 constituents. Next comes Hungary, which accounts for 17.1% of the index, with 13 constituents. As a comparison, Slovenia accounts for 3.6%, while Croatia makes up for 1.16% of the index.

Breakdown of the CEEplus Index by Country

Source: Bloomberg, InterCapital Research

Currently the index is traded at a P/E of 10.76, P/B of 1.13 and EV/EBITDA of 6.14 which is significantly lower compared to the selected indices. A lower pricing could be partially explained, when observing the structure of the index.   

Looking at the CEEplus constituents by sector, one can notice that most of the sectors are traded at a P/E quite higher than 10. However, the constituents of the financials and energy sector, which cumulatively make up for 63.1% of the total index, are traded at a P/E of 9.87 and 7.26, respectively. This leads to an overall lower P/E of 10.76.

Selected Indices P/E

Source: Bloomberg, InterCapital Research

Selected Indices EV/EBITDA

Source: Bloomberg, InterCapital Research

As observable in the graph below, CEEplus index is trading at a P/B of 1.13 which is significantly lower compared to the average of the selected indices (2.04). Besides that, the index offers a dividend yield of 4.18%, which is above average of the selected indices. The difference could be partially attributed to the fact that the financials sector holds a solid weight in the CEEplus index, as prior mentioned. A high dependence on the mentioned sector leads to a lower P/B, as banks and other financial institutions are traditionally traded at a P/B of close to 1. Note that the financials sector in the index is traded at a P/B of 1.21. Similarly, the financials sector has historically been a solid dividend payer in the region, which leads to a higher dividend yield of the index. When observing dividends by geographical structure, it does not come as a surprise that the constituents from the Romanian market offer the highest dividend yield in the index of 8.77%, followed by the constituents from the  Slovenian market which offer a dividend yield of 7.34%.

Selected Indices P/B

Source: Bloomberg, InterCapital Research

Selected Indices Dividend Yield (%)

Source: Bloomberg, InterCapital Research

We believe that the creation of this index, as well as the overall trend of regional indices, gives investors a good benchmark for tracking a diversified portfolio which often includes constituents from more than a few countries. We hope that in the future we will also observe an index which will put a higher weight on the region of our coverage as well.

Dino Durrigl
Category : Blog

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