CEE Investment Opportunities 2023 Overview Part I

Today we bring you an overview of the main takeaways from the CEE Investment Opportunities conference (ZSE & LJSE Investor Days along with a few Romanian companies).


For NLB, 2022 and Q1 2023 have marked some of the best quarters for the Company, across many business lines. This growth was supported by the continual growth in new loan production, but also in the increasing interest rate environment. NLB did note, however, that the new loan production has slowed down in Q1, and this is the trend they’re seeing going forward. Despite this, the higher interest rate environment is reaping a lot of benefits, and currently, their overall net interest margin (NIM) stands at 3.1%. In the short-term, this should increase even further, especially as Slovenia is part of the EU, and thus affected by ECB’s interest rate hikes, but also other SEE countries where in general, interest rates have historically been higher. In the medium to long term, NLB pointed out that they expect that NIM should hoover between 2.5% and 3%. This in itself, is a return to “business as usual”, as NLB also pointed out that the negative interest rate environment we have witnessed over the past several years is more of an anomaly, than the current environment. As such, this is favorable for banks. On the deposit side, they do not expect to see fast increases in deposit rates, as NLB holds a significant market share across its markets, especially in Slovenia. However, they did note that their strategy in this sense is a wait-and-see one, and as such increases from competition could lead to increases by NLB. Even without this, an increase in the deposit interest rate offered to customers should be seen, albeit it shouldn’t amount to a strong increase. In terms of the overall market and macroeconomic environment, despite all the challenges we have witnessed, both for households and companies alike, NLB is well-diversified, both in terms of regional allocation and also in terms of industries. As such, they pointed out that they do not see a strong chance for deterioration of the overall situation. This is also evident if we look at the cost of risk guidance (30-40 bps). However, as all of this is hard to estimate due to the nature of the risk, a deterioration could still happen. Finally, NLB also pointed out their ambition to double the size of the bank in the next couple of years, on the back of all the organic (and inorganic, i.e. M&A, activities). Also, in order to fulfill its MREL requirement, but also leave a buffer for potential M&As, NLB is set to deliver its first green bond, of which more details should be known in the coming weeks.


Business is stabilizing after last year and business is developing within the plan they announced. They have pressure on costs, but they manage them. The risk coming from the current business is that Croatia’s regulatory agency changed the methodology according to which the pricing of natural gas as a public service for distribution is determined. The pricing has decreased from 106 euro to 47 euro and all purchases until now have been made as if the current methodology was in place. The opportunity lies in the fact that petrol prices calculation with fixed margins in Slovenia and Croatia are in place until July and if the current methodology is not prolonged the liberalization of the market will be in place again. The 2023 business plan made by the management does not foresee liberalization of the market and prolongation of fixed margins until year-end. Oil prices have decreased since the insertion of the fixed margin for gas price calculation, but it is uncertain what will governments do. Even if liberalization again comes into place, an increase in prices is not a scenario. The energy and solutions segment will grow due to different projects the company is investing in. ESG rating done by Standard and Poor’s will soon be published.


First of all, Končar emphasized its high growth in Backlog during Q1. Backlog basically represents future P&L as those are all contracted projects that will occur in the future period. Consequently, high growth in the Backlog offers a high margin of safety that a few regional companies can offer, besides Končar. The company noted that this growth was mainly driven by the Transformation segment. Further, of the new contracted jobs, around 80% come within the EU region. Consequently, we can expect for more upcoming sales to be derived in the EU, compared to the previous periods. Also, Končar noted that the region recorded a recovery (especially BiH & North Macedonia). Looking at the current sales level (with no growth assumed), Končar has contracted the agreements that should be achieved for basically the next two years. Further, as stated in the report, Končar expects high growth in CAPEX this year and it will be used for modernization and expansion of its capacities. Higher CAPEX is a direct answer to a growth in the demand for Končar’s goods and services. Currently Končar contracts scalable contracts due to the more pronounced movement on the cost side of the P&L, which offers the company to protect its margins.


The main topic discussed with Triglav was new IFRS 9 & 17 accounting changes and their current implementations & Triglav’s view on changes. First, the company introduced a new top-line measure that was already used for Q1 results – Total business volume. Total business volume is basically GWPs combined with other non-insurance income. The company said this will probably become just a new measure like GWPs have been before. But what would be the other non-insurance income that is consolidated in this line? Things like fee income and brokerage income. However, just like we noted in our Company note of Triglav’s Q1 results, the Total business volume are not a reported item in the P&L, but rather a derived number for an investor to have a general sense of development. Further, claims will also be reported in the future report. However, claims will also not be a part of P&L and will not be comparable with claims that were reported in the previous reports. In the P&L, claims will be “replaced” with Insurance service expense, also a newly introduced line. Insurance service expenses are, in the shortest possible explanation, claims along with costs connected with insurance. Finally, the Contractual service margin was discussed. CSM was introduced as a new KPI measure. CSM will show us the ongoing profitability of new sales, especially in Life. However, the company thinks new KPIs will be developed with time at the industry level.

Hrvatski Telekom

For HT, Q1 2023 marked a quarter of operations in a challenging environment, albeit one that turned out to be quite profitable, both on the top and bottom lines. This was supported by growth in mobile and fixed revenue, and on the bottom line, marked by the continued shift from pre-paid to post-paid users. HT was hit on the OPEX line pretty heavily though, mainly due to increased energy costs, as their fixed contract which had more favorable prices ran out last year. Q1 was also marked by the completion of the Spectrum auction, and HT points out that this was favorable for the Company, allowing them to either maintain or expand across many frequency bands. 2023 was also a year where a lot of news started circulating about price increases in the telecom industry, and some of the competition already increased their prices. HT thus far, is operating on a wait-and-see basis, and considering they already announced that they maintain the right to increase the prices at some point, we could expect this increase during the year. The price increase should be in line with inflation, as the prices are indexed to it. In terms of the trends in the industry, HT noted that due to the relatively smaller size of the Company (as compared to global telecom companies), they’re following trends that are happening across the industry, rather than setting them. The current trends include the increased 5G integration, increased usage, and construction of fiber networks. In this sense, HT noted that the continued switch to fiber will be quite favorable for the Company, as the maintenance costs are quite lower as compared to the older copper networks. Finally, several other trends are noted in the industry, mainly dividend payments, share buyback, and indebtedness. As the telecom industry is stable and one where fast growth should not be expected, the first two factors are a way of returning value to shareholders. Currently, HT continues its dividend payment policy and should continue it in the future, while in terms of the share buybacks, they’re one of the most active, if not the most active Company on the ZSE for this. Lastly, in terms of indebtedness, HT has an extremely strong cash position, and when compared to other companies in this industry which have a lot higher levels of indebtedness, this gives HT a distinct advantage, especially in the current interest rate environment.

Arena Hospitality Group

PPHE has revitalized and relaunched art’otel brand together with Radisson Group, and they are now opening hotels in London and Amsterdam under this relaunched brand. New brand standards must be followed so Arena is reconsidering where to insert this brand. It will be in the new Zagreb Ambruševa hotel, while the 2022 launched Hotel Brioni is from September 2022 Radisson Collection, the highest Radisson brand.  The hotel in Belgrade is now positioned as Belgrade Art Hotel, a Member of Radisson Individuals. So standard contract with PPHE stays in place but now it covers all Radisson brands. So, for the same fee Arena just gets more benefits. So Park Plaza hotels in Germany might also be rebranded. Expected occupancy for city hotels in Europe is around 72%  by some research companies and for Arena, 68% occupancy for city hotels can be expected. So in 2023 city hotels’ revenue will go up as rates are increasing but utility, labor and other costs are increasing also. A hotel in Hungary due to rebranding is not art’otel anymore but it is now a Park Plaza hotel. They have invested in it, so it is positioned better. Croatian business is looking strong as it has good pick-up and pace. Still, 40-45% of business still needs to pick up. Occupancy is slightly lower compared to 2019 but rates are up 30%. Available room capacity is somewhat down because they have exchanged 112 mobile homes in Stoja for 75 larger ones. But ADR is increasing. For this year they have invested EUR 7m into a restaurant, reception, and coffee shop. For 2024 the plan is to invest in one more camp and the next phase of Stoja camp, which is a swimming pool, bar, etc. Capex in 2024 is expected at EUR 10-15m. Until now they have invested in Pomer, Kažela, and Stoja and they are slowly investing in buildings because the concession law says that the company owns the building. And after the concession fee is finalized, they will continue investing in other camps like Runke and Tašalera.

Valamar Riviera

Northern destinations lead the way in bookings, which was also the case last year. Booking is better compared to the same date last year, which is promising. The company is satisfied with the state of bookings and the realized price is expected to increase compared to the year 2022. This is all in line with our analysis that we issued in May this year. The number of working days in the pre-season was shortened due to high energy prices. However, there was a drop in energy prices on the market, which is why it is to be expected that the sub-season will have a normal number of working days. The company will continue to invest in its own electricity production, which currently accounts for about 6% of the company’s resources, and by 2025 it is expected to be at the level of 15%. At the beginning of the year, there were pronounced pressures on the prices of raw materials, which have stabilized, and so far, the procurement of raw materials for the entire season has been agreed upon. In the last year, EBITDA profitability stood at 31%, which is according to our estimates expected to be on a similar level in this your coupled with double-digit sales growth. It is important to note that 40% of Valamar’s portfolio is still rated with 2* and 3*, which leaves room for the company to achieve profitability growth on repositioning. For this season the procurement of the workforce was successfully achieved and during high season the company will have 500 more employees. Employee salaries for the seasonal workforce were the highest for deficit occupations like waiters and chefs. Salaries paid in the peak of the season, i.e., in June, July and August for professional occupations – cooks, waiters and receptionists in Valamar hotels, camps and summer resorts will be between 1,200- and 1,800 euros net, and for maids, assistant cooks, assistant waiters, kitchen workers, server and a number of others will amount to between 1,000 and 1,200 euros net. Valamar is in 2023 investing an additional EUR 20m in workers’ salaries and, in agreement with social partners, while increasing wages in hotel operations. This brings wages in Valamar for the main tourist season in line with European wages and Valamar remains the most desirable employer in Croatian tourism.

Category : Blog

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