IC Market Espresso 11 Feb 2019

How Much Do Individual Components Impact CROBEX Movement

The Zagreb Stock Exchange’s main index, CROBEX, has ended yet another year in the red. To find the root of the problem we decided to see what the individual contribution of each component in a period was, spanning from 2013 up until today.

In one of our previous publication we brought to you an overview of CROBEXprime, the latest equity index on the Zagreb Stock Exchange, and in it we stated several objections to CROBEX (the current major index). Among the objections stated was the one regarding the index’s broad size which led to the inclusion of poor-quality shares. Therefore, today we decided to bring you an overview of just how much each CROBEX component impacted the index’s performance since 2013 up until today. Note that this method is more precise than showing the simple price changes in each individual share as it takes into account the share’s weight and the period it was part of the index.

Market indices are supposed to serve as proxies for investor which would allow them to easily follow the direction in which the observed market is moving. However, in order to function properly the index must be comprised out of shares that attract enough turnover to actually represent the current market movement and not be exposed to frequent price fluctuations. Meanwhile, CROBEX is currently not that type of index as it consists of a large number of shares which many fund managers would not even include in their investment universe (due to extremely low liquidity, poor corporate governance, going in and out of pre-bankruptcy procedures etc).

By merely looking at the CROBEX value in our observed period (Mar 2013- Feb 2019) it seems as that the Croatian market is a dangerous place for any investor with the main market index dropping by 12% to 1,756.88 points. However, when looking at the individual share performance on the chart below one can notice that this is not necessarily the case.

Individual Impact of Shares on CROBEX Movement in the Observed Period (in %)
Source: InterCapital Research

As one can notice, shares such as Valamar, Atlantic Grupa and Podravka all had a positive impact on the index’s performance. Considering that these shares are among the most popular shares for investors, the sharp decrease seems a bit misleading. On the flip side, the shares which dragged the index down were mostly poor performing companies from the industrial sector which are prone to share price fluctuations due to their low liquidity and poor corporate governance which puts off many institutional investors from buying those shares. Furthermore, the index was hit hard by the Agrokor crisis with Ledo accounting for a 7% decrease in value. An exception from this group would clearly be HT and Arena Hospitality who, despite the strong interest from investors, were some of the leading contributors to CROBEX’s negative performance.

To conclude, the Croatian market has certainly been through a rough patch over the past couple of years. However, we believe that the performance of the main market index is slightly exaggerated as its broad size led to the inclusion of shares which unjustifiably dragged it further down. Therefore, we believe that despite the negative performance of index, the Croatian market still offers some gems hidden in the pile.

CROBEX Movement From 2013-2018
Source: Bloomberg, InterCapital Research

Croatian Tourism in December 2018
Croatia observed 18.6m tourists in 2018, which represents an increase of 7% YoY.

Croatian Bureau of Statistics published a document about tourism in December 2018.

According to the report, Croatia observed 18.6m tourists in 2018, which represents an increase of 7% YoY.  Note that the number of foreign tourists increased by 7% YoY, and they made for 89.2% of the total tourists.

Furthermore, total tourist nights in 2018 increased by 4% YoY, amounting to 89.6m.

When observing solely December 2018, Croatia observed 0.35m tourist arrivals, which is an increase of 11.4% YoY. Meanwhile, 0.73m tourist nights occurred in December, which is an increase of 13.7% YoY.  Also, the number of foreign tourists increased by 14.9% YoY, while foreign tourist nights increased by 16.2% in December. On the other hand, domestic tourists observed a 5.6% increase in arrivals and 8.9% more nights YoY.

Austrian tourists accounted for 14.1% of the total foreign tourist nights, followed by Slovenian tourists who accounted for 13%. Next follow tourists from Italy (11.3%), Germany (10.9%), Bosnia and Herzegovina (6.7%) and Korea, Republic of (3.5%).

Zagreb traditionally observed the most tourists in December (0.12m), who recorded 0.23m tourist nights. When observing Zagreb, number of tourists increased by 10%, while tourist nights increased by 15.6%.

The most tourist nights in December 2018 were spent in hotels, as much as 458 thousand, which was 62.4% of the total nights. Note that hotels recorded a 9.5% increase in tourist arrivals YoY and a 10.1% increase in tourist nights YoY.

Digi Successfully Priced EUR 200m of Additional Notes
The Additional Notes are expected to settle on 12 February 2019 and have a yield to maturity of 4.57%.

Following up on Digi’s offer of Additional Notes, the company published a document in which it states that on 7 February 2019 they successfully priced EUR 200m 5.0% senior secured notes due 2023  to be consolidated and treated as a single class with the existing EUR 350m 5.0% senior secured notes due 2023.

The Additional Notes are expected to settle on 12 February 2019 and have a yield to maturity of 4.57%, while the gross proceeds of the Offering are EUR 203.5m plus interest deemed to have accrued from 15 October 2018 (the last date on which interest on the Original Notes was paid) to 12 February 2019 (the settlement date).

The proceeds of the issue of the Additional Notes will be used to prepay an approximate equivalent of EUR 52.6m under the Facility A1 and A2 2016 Senior Facilities Agreement. It will be also used to repay EUR 25m under Facility B of the 2016 Senior Facilities Agreement and to prepay EUR 100m under the 2018 Senior Facilities Agreement. Further, it will be used to pay costs, expenses and fees in relation to the Offering and for general corporate purposes.

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