With the H1 2019 coming to an end, we decided to present you with an overview of some key events which occurred in the Croatian & Slovenian equity market.

CROATIA

The Croatian equity market observed a slight decrease in liquidity in H1 2019, with the average daily turnover amounting to EUR 1.16m (-2.6%). However, it is worth noting that the most of this decrease comes from the lower turnover in January (-62% YoY), while the ZSE has been observing double-digit growth in average daily turnover consecutively since March.

Since the beginning of the year, the Zagreb Stock Exchange has observed an introduction of two new indices – CROBEXprime and ADRIAprime.

CROBEXprime was launched on 18 February as a free float market capitalization weighted total return index (meaning that it takes dividends into account). The new index includes all shares listed in the Prime Market of the Zagreb Stock Exchange, while the weight of each constituent share is capped to 30%. At the introduction, the index consisted of 4 companies: AD Plastik, Atlantic Group, Arena Hospitality Group and Podravka, while Valamar joined at the end of April as the latest introduction to the index.  If we were to observe the performance of the index in H1, it observed an increase of 5.4%. To read our blog on the mentioned index click here.

On 19 June, Zagreb and Ljubljana Stock Exchanges launched a new joint equity index called ADRIAprime, which is a free float market capitalization weighted total return index. The mentioned index includes shares listed on the Prime Markets of the Zagreb and Ljubljana Stock Exchanges, whose selection will depend on the decision of each stock market. The weight of each constituent share is capped at 15%. Note that the base level was set at 1,000.00 points on 30 April 2019 and it will be calculated in Euros. To read our blog on the mentioned index click here.

Besides the introduction of two new indices, it is noteworthy that CROBEX observed a revision of the index in March. As a reminder, CROBEX started the year with 19 constituents, which reduced to 16, after the mentioned revision (Ingra, Viktor Lenac and Kraš were excluded from the index during the revision). It Is also worth mentioning that in H1 2019 (June), CROBEX passed 1,900 points for the first time in almost 2 years (last recorded in September 2017). Since than, the index has slightly decreased and ended H1 at 1883.11 points, representing a 7.7% increase.

When observing the impact of individual shares on CROBEX, one can notice that Končar had the highest impact of 37.4 points. Next comes Optima Telekom with an impact of 20 points. Adris (preferred) and Podravka follow with 19.8 points and 13.8 points respectively. On the flip side, 6 constituents which started the year in CROBEX impacted the index negatively by -13.1 points. Of those, Dalekovod accounted for -4.6 points, followed by Jadran (-3.8 points).

Impact of Individual Components on the CROBEX Performance in H1 2019

Turning our attention to the individual performance of Croatian companies in H1, one can notice that Optima Telekom leads the list of share price gainers, with an increase of 255%. Such a high increase occurred mostly in June, after the Swedish Tele2 AB announced the sale of their Croatian subsidiary Tele2 Hrvatska. This is particularly interesting as Optima Telekom, which is currently consolidated and managed by HT will be subject to sale. As a reminder, HT should dispose of their 17.4% stake in Optima Telekom until 10 July 2021. It is speculated by the media that United Group might be interested in acquiring Optima Telekom. As a result of the above mentioned, many investors have flocked to the share, resulting in such a high share price increase.  

Končar comes second with an increase of 25.2% in H1. Adris and Ericsson NT follow with an increase of 11.5% and 9.4% respectively. On the flip side, Dalekovod was the worst performer with a 35.6% decrease, as visible on the graph below.

Share Price Performance of CROBEX Components H1 2019

In H1, the constituents of CROBEX index proposed dividend payouts for FY 2018, which can be seen in the graphs below. Of those, ZABA’s dividend has the highest dividend yield of 10.2%. Ericsson NT and HT follow with a yield of 6.2% and 6.1%, respectively. Next come Adris preferred and regular with a yield of 4% and 3.5%, respectively. Of all CROBEX components, 6 have gone ex-date in H1. To read about the share price reaction of those companies on ex-date click here.

It is also important to mention that in H1, Croatia received credit rating upgrades by both S&P (in March) and Fitch (in June), which takes it to the investment grade territory. The upgrades came as a result of the country’s efforts in lowering public debt, balancing the budget, and improving economic growth. The upgrades add additional tailwind, as it might attract a new pool of investors who are seeking investments only into countries with investment grade credit rating by two or more credit rating agencies.

SLOVENIA

The Slovenian equity market observed a decrease in liquidity in H1 2019, with the average daily turnover decreasing to EUR 1.12m (-26.3%). However, it is worth noting that the decrease in liquidity partially comes as a result of the sale of Gorenje in May 2018, which was, since then, delisted.

In H1, the SBI TOP index observed an increase of 9.5% ending at 881.59 points, which can be seen in the graph above.

When observing the share price performance of individual constituents of the SBI TOP index, one can notice that 8 out of 11 observed a share price increase. Of those, KD Group observed the highest share price increase of 69.6%. Petrol and Luka Koper follow with an increase of 15.2% and 10.8%, respectively. On the flip side, 3 companies observed a share price decrease: NLB (-4.8%), Intereuropa (-2.3%) and Unior (-1.9%).

Share Price Performance of SBI TOP Components H1 2019

Turning our attention to dividends, in H1, the constituents of SBITOP index proposed dividend payouts for FY 2018, which can be seen in the graphs below. Of those, Cinkarna Celje’s dividend has the highest yield of 13%, followed by NLB with a dividend yield of 11.5%. Next come Triglav and Telekom Slovenije with a yield of 7.4% and 7%, respectively.

Of all SBI TOP components, 4 have gone ex-date in H1. To read about the share price reaction of those companies on ex-date click here.

At the end of H1, the Slovenian banking sector was in the spotlight due to its continued privatization and consolidation. In June, the Slovenian Sovereign Holding (SDH), which acts on behalf of the State, sold 1,999,999 shares of NLB (representing a 10% stake in the bank) through an accelerated book building process. The sale price for GDRs was GBP 10.95 while shares were sold at EUR 54.75 (6% discount compared to the closing price of the previous day). One of the reasons the sale was conducted was so that the Slovenian state would be in line with the restrictions made by the European Commission (EC) in relation to the EC decisions taken in connection with the state aid proceedings involving NLB capital increases in 2011, 2012 and 2013, pursuant to which the state would reduce its share towards 25% + 1 share in a set time-frame (end of 2019).

As a reminder, NLB conducted a public offering back in November of 2018 with a price of EUR 51.50 per share (EUR 10.30 per GDR, with 5 GDRs representing 1 share), putting the valuation at 0.67x P/B.

Later that month, the Slovenian Sovereign Holding, as a representative of the Republic of Slovenia, announced the signing of the Sale and Purchase Agreement pursuant to which NKBM will acquire 100% of the shares held by the Republic of Slovenia in Abanka.  

Abanka is Slovenia’s third-largest bank with around 9% of the market share by assets. The bank was valued at EUR 511m (total consideration), including a dividend in the amount of EUR 67m which was paid out to the seller in May 2019, prior to the signing of the sale and purchase agreement. This would put the transaction at P/B of 0.99 and P/E of 7.79.

NKBM is the second largest bank in Slovenia with around 15% of the market share by total assets. In 2016 NKBM was privatized, during which, Apollo Global Management, a private equity fund from the USA acquired 80% of the shares. It is noteworthy that the European Bank for Reconstruction and Development holds the other 20% stake.