Ahead of the 2021 results for Romanian companies, we bring you an overview of BET index components’ financial performance and what 2021 dividend for their heavy-weights might look like.
Top Line Development of BET Components in 9M 2021 (%)
When observing the top line performance of BET components, the two clear leaders are Teraplast and Sphera with sales in 9M increasing by 46% and 45% YoY, respectively. Teraplast, one of the largest Romanian manufacturers of construction materials, was positively influenced by the increase in construction works. Its strong top line in growth was mostly driven by an increase in sales of finished goods, which reported an increase of RON 133m (EUR 27.1m). As consumption increased due to more relaxing epidemiological measures, operations of Sphera’s fast-food restaurants (KFC, Pizza Hut and Taco Bell) picked up, so Sphera’s sales surged and were 5% above 9M 2019 sales. Restaurant operations were much easier to conduct, which has translated to a higher EBITDA (+50% YoY). These two companies hold together only 3% weight in the index, so these sectors are not the main index movers. Medlife, as the main private health care services provider, is also operating in the retail segment and it is currently responsible for a 3.4% share in BET’s weight. Medlife’s sales increased 35% YoY, led by significant growth in all business lines, as well as by acquisitions completed by the group in 2021. Higher sales translated down the P&L, leading to a 53% YoY increase in EBITDA, and more than 2x increase in the bottom line.
OMW Petrom, the biggest oil and gas company in Romania and one of the heavy weights in the index with 14.6% weight (top 3) showed strong financial performance. In Romania, demand for petrol and gas broadly recovered to pre-COVID levels so the company’s total revenues in 9M 2021 reported an increase of 11% YoY. Purchases (+6% YoY) grew slower than sales and exploration expense was down significantly (-85%) which translated into more than doubling of both operating result and bottom line. Growth in sales was amortized by the negative net financial result for a small amount, but nevertheless, the company’s net result doubled.
Electrica, another important dividend player with 2.6% weight in the index, also showed improvement on top line (+5%YoY) as higher revenues from the supply segment were somewhat offset by the decrease of the distribution segment’s revenues. EBITDA fell -43% YoY, amounting to RON 475.1m. The main reason behind the drop lies in the increase of electricity costs on the supply segment, coupled with an increase in the electricity costs needed to cover NL and in the GC purchase costs, the latter having no impact on the result. Net profit was down by 82%, further hurt by a deteriorating net financial result. Therefore, deterioration of dividend yield from 2021 result is expected and weak yield in low single-digit can be expected.
EBITDA Development of BET Components in 9M 2021 (%)
Transelectrica, Romanian electricity transmission and system operator’s revenue increased by 37% YoY mainly due to the increase in the amount of electricity delivered to consumers, the increase in the average transport tariff and the increase in revenues from the balancing market. Even with the increase in sales revenues, the company reported a decrease in EBITDA of 26.2% YoY. A decrease in operating profitability is a result of highly volatile energy input prices. The company reported an increase in both system operating expenses (+ 40% YoY) and balancing market expenses, which reported a 3x increase. Due to said growth in expenses, the company’s bottom line decreased by 46.7%, amounting to RON 81m.
Purcari’s sales increased by 20% YoY fueled by a strong performance in core markets and return to pre-pandemic spending. EBITDA was up due to higher sales, which were somewhat offset by higher G&A expenses and marketing and sales costs, which rose 21% and 36% respectively. As a result, Purcari’s net profit amounted to RON 39.8m (+55% YoY).
On the flip side, leading the laggards in EBITDA was Alro whose result was greatly influenced by the rising electricity prices has a significant share in the company’s production costs.
Bottom Line Development of BET Components in 9M 2021
Fondul Proprietatea managed to turn last year’s net loss of RON 726.4m into a net profit of RON 3,097m. The main contributor to the profit was the net unrealized gain from equity investments at fair value through profit or loss, generated by the rising price of OMV Petrom’s shares. Furthermore, Net profit was also boosted by an increase in the value of unlisted holdings in the fund’s portfolio following the valuation update process (this can mainly be attributed to Hidroelectrica).
Banca Transilvania’s net interest income amounted to RON 1,634m, representing a 5.2% YoY increase, driven by lower interest expense. Meanwhile, net fees and commissions amounted to RON 446.9m (+27.0% YoY). Moving further down the P&L, operating expenses are down -4.2% YoY, standing at RON 1,245m. The drop in expenses came from lower impairments which were sliced in half to RON 113m (-50.7% YoY). As a result, net profit amounted to RON 1,015.5m (+47.2% YoY).
What’s the look ahead?
Looking at the graph above, we saw the present market pricing of companies. Now, let’s take a look forward ahead and talk about expected dividend yields in the future. Fondul Proprietatea as the highest heavy weight in BET index (21.1% weight index weight) reported exceptional results. As said, the company managed to turn a 9M2020 loss of RON 726.4m into a RON 3,097m profit for the same period in 2021. This was achieved on the back of the net unrealized gain from equity investments at fair value through profit or loss, generated by the rising price of OMV Petrom’s shares. In December 2021 Fondul announced a special dividend of RON 0.06 per share and its 13th buyback program, size up to 800k shares with a price up to RON 2.5 per share. Fondul’s dividend yield in 2019 was 10.6%, which decreased to 4.8% in 2020. With said dividend policy, dividend yield currently stands at 11.73% and expectations about dividend payout should not be concerning.
OMW Petrom also reported positive results. As previously said, total revenues reported an increase of 11% YoY, doubling bottom line. On the back of recovery and growth in both top & bottom line, the company announced its business plan to become a competitive dividend policy payer. The Company announced a stronger commitment to dividend growth, namely by increasing the base dividend per share by 5-10% per year on average by 2030. Special dividends may also be distributed if the market favors it and the CAPEX is fully funded. Total dividends are estimated to represent approx. 40% of the Company’s operating cash flows for 2022-2030. OMW is to publish preliminary results on Thursday – meanwhile, you can read more about dividend payout policy here.
In the period from 22 Feb 2021 till 30 Jan 2022 the value of taxable invoices increased by 25.2% YoY amounting to HRK 197.8bn. The spending amount is 5.4% higher than spending in a comparable period in 2019, yet again indicating positive sentiment. The value of last week’s taxable invoices is up 15.3% YoY while compared to the week before it was down 3%.
By looking at the latest announcements from the Tax Administration of the Republic of Croatia, in the period from 22 Feb 2021 till 30 Jan 2022, the value of taxable invoices increased by 25.2% YoY amounting to 197.8bn. This growth in taxable invoices represents positive sentiment in consumption, especially taking into consideration that consumption is yet again, 5.4% higher in the 2019 comparable period (25 Feb 2019 – 2 Feb 2020). Taxable invoices in wholesale and retail trade in the period from 22 Feb 2021 till 31 Jan 2022 grew by HRK 18.3bn YoY (an increase of 16%) and it is also 7.2% above the value of spending level in this segment in the same period in 2019.
The value of taxable invoices in all segments in the week from 24 Jan to 30 Jan 2022 witnessed double-digit growth of 15.3% YoY. Compared to the same week in 2020 consumption witnessed an increase of 11% beating pre-pandemic spending. In the last week (24 Jan to 30 Jan) the spending in wholesale and retail trade picked up 7.9% YoY. Meanwhile, it is important to note that the value of taxable invoices in accommodation and food in a given week increased threefold – an increase of HRK 163.7m (amounting to HRK 221.7m) when compared to the same week in 2021. Compared to the same week in 2020, which is considered a pre-pandemic period, taxable invoices in accommodation and food are still down by 4.7%.
The value of taxable invoices in all segments in the week from 24 Jan to 30 Jan 2022, compared to the week before (17 Jan 2022 to 23 Jan 2022) was down 3%, mostly driven by the value in wholesale and retail in the same period which decreased 3.1%. When looking at the value of taxable invoices in accommodation and food service, it increased slightly by 2.2% compared to the week before.