During the previous year, SBITOP decreased by 16.9%, which was in line with global equity sentiment during 2022 with S&P 500 decreasing by 19.4%. However, looking at this year so far, one can notice SBITOP’s much stronger recovery with 17.5% growth, compared to the S&P 500’s of „only“ 7.8%. Naturally, one must ask oneself: did the train leave the station already? Consequently, we decided to present you with a broader valuation picture for SBITOP and put it in comparison with global equity.

If we look at equity markets worldwide during 2022, the picture seems pretty “in line” and gives clear sentiment during the year. The most talked-about index, S&P 500, fell by 19.5% during the year. SBITOP also noted a double-digit decrease of 17.5%. However, divergence can be noted if we were to look at their development during this year, as the 1st quarter has already ended. On a YTD basis, S&P 500 recovered with high single-digit growth of 7.8%, while Slovenian SBITOP noted a strong 17.5% growth. Naturally, a question arises – does SBITOP have more space for growth?

Source: Bloomberg, InterCapital Research

If we look at equity markets worldwide during 2022, the picture seems pretty “in line” and gives clear sentiment during the year. The most talked-about index, S&P 500, fell by 19.5% during the year. SBITOP also noted a double-digit decrease of 17.5%. However, divergence can be noted if we were to look at their development during this year, as the 1st quarter has already ended. On a YTD basis, S&P 500 recovered with high single-digit growth of 8%, while Slovenian SBITOP noted a strong 17.5% growth. Naturally, a question arises – does SBITOP have more space for growth?

Looking at SBITOP’s development in more detail, we can see that (almost) all constituents noted a YTD positive share price development (besides Equinox with <1% weight in the index). The growth came on the back of the index’s heavyweights. The biggest impact on SBITOP was noted by Krka with 20.7% YTD growth and >30% weight in the index. Further, both Petrol and NLB, the biggest heavyweights in the index to follow, also noted a double-digit YTD growth of 18% and 17%, respectively. Finally, if we were to look at other financials, besides NLB, both Sava Re and Triglav increased by 15.2% and 14.5%, respectively. With that said, the companies above make up for >80% of SBITOP weight, which makes it clear where the 2023 recovery was noted.

So if you are now considering investing in the Slovenian equity market you might ask yourself a question: Is SBITOP “still” fundamentally undervalued?

To answer this question, we need to look at the market in more detail. Firstly, according to Bloomberg, SBITOP is currently traded at a (trailing 12m) EV/EBITDA of 3.1x, which is by far the lowest multiple of the observed European indices.

EV/EBITDA (trailing 12m) of European Indices

Source: Bloomberg, InterCapital Research

Meanwhile, looking at the historical development of SBITOP’s multiples, one can notice that the index is currently traded at one of the lowest multiples, quite lower than the 10-year median EV/EBITDA of 5.3x.  Of course, based solely on this information we cannot conclude that SBITOP is cheap.

EV/EBITDA (trailing 12m) of SBITOP Index

Source: Bloomberg, InterCapital Research

After putting SBITOP in the context of the global equity market, we finally decided to present you with a forward SBITOP forward P/E. As each company within SBITOP has published its 2023 Outlook/Plan and market participants are aware of the mentioned information, we decided to calculate what the P/E would be if the companies were to achieve exactly the same results as planned, using the current market prices. We note that only Equinox did not publish its outlook for 2023 and we excluded the company from the calculation (again, the company has <1% in weight).

However, before everything is said – disclosure must be emphasized, even though it is common sense. Forward P/E relies on estimated future earnings and is, consequently, subject to miscalculation. Further, companies might underestimate or misstate earnings to beat the consensus estimate P/E in the earnings report. Other companies may overestimate the earnings and later update them in their next earnings announcement. Finally, analysts may provide their independent estimates, which may also diverge from the company estimates. Again, in this case, we use estimates given by each company for itself.

Forward P/E of SBITOP constituents and weighted P/E for SBITOP

Source: Bloomberg, InterCapital Research

Treating the expected outlook numbers as given, would imply a forward P/E of SBITOP at 10.4x, while according to Bloomberg, it is currently trading at 8.7x. Even with this slightly higher forward P/E, this still gives us a lot of space for growth in the context of the discount to global indices.

And finally, without going into further details, let’s just not forget the dividend yield offered by all constituents and, consequently, the index as a whole – which is quite elevated when compared to other regional and global indices!

Conclusion

To start concluding, one has to be aware of the market which, for some, has a complex shareholding structure and bears the problem of relatively low liquidity. Besides that, every equity market, as well as the Slovenian market, currently has looming selling pressure. However, Slovenia still seems to offer quite an attractive story for investors.

With the whole previously mentioned context given, each participant has to decide for himself before owning any assets. So, is SBITOP fundamentally undervalued? I will let you be the judge of that. 😊