The reason why fifth month in a year is called May is probably because of the weather conditions – it may rain, it may snow, and sometimes it may even be sunny… Sentiments on the bond market are changing in a lockstep – for instance, Slovenian bonds that were auctioned on a rainy April day were first showered by the dealers’ supply, going through spread widening in the process, but by now the sun is shining on them all over again because Slovenian banks have started to buy the paper for their own treasuries. What else can we learn from the recent bond placements? Find out in this brief article.
Recent weeks were marked by a heavy supply of European government bonds as countries use fixed income markets propped up by ECB’s PSPP/PEPP to access relatively cheap funding. Just last week Slovakia placed it’s largest syndicated deal ever through dual-tranche transaction, scooping up 4bn EUR in the process. The orderbook was equally split between the two bonds with 5Y SLOVGB receiving more than 7.6bn EUR of orders (210 accounts), while the 12Y orderbook landed north of 7.4bn EUR figure (250 accounts). Since 2bn EUR of each was issued, bid-to-cover could be calculated at 3.8x (5Y) and 3.6x (12Y). The real money orders were particularly heavy on this placement – about half of each paper was bought by fund managers, while central banks bought 20% of 5Y and 8% of the 12Y. Speaking about the pricing, IPTs were wired early in the morning at MS+75bps/MS+120bps (respectively), but naturally as the book was building the spread tightened to MS+65bps/MS+110bps. The interesting part is the grey market – the transactions settle today and the spreads have already tightened significantly to MS+37bps/MS+88bps, respectively.
Regarding the Slovenian bonds, the spreads have recently started to tighten, so for instance SLOREP 0.875 07/15/2030 is now traded @ Bund+129bps. This is still wider than the primary market, but at least this is comparable to Spain (MS+126.5bps); Portugal trades at Bund+137.1bps, so Slovenia comes in closer to Spain than to Portugal in terms of risk premium. Information from the market tells us that the dealers were left with significant inventory of SLOREP 2030 on their books after the primary market had ended, but most of the lead managers managed to get rid of the excess inventory. This might be the reason why last week we have seen unusually large buying orders on both of the SLOREP 30s (scarcity of the paper kicks in once the leads have emptied their inventories) and we assumed that local Slovenian banks are now starting to buy their own sovereign paper since it has substantially better fundamentals than Spain, coupled with significantly higher yield than Lithuania/Latvia/Slovakia (the two Baltic countries are traded at Bund+80bps, while the Slovak Republic is traded at Bund+115bps).
Also, it’s worth bearing in mind that last month the ECB bought about 93m EUR of Slovenian paper through PSPP facility (some 40m EUR below the monthly level implied by the capital key if we exclude the supranationals). In other words, once we exclude the supranationals, Slovenia is underbought – but on the other hand so are Lithuania, Latvia, Portugal and (probably) Slovakia. Last month the PSPP favoured Italy (6.3bn EUR of purchases above the capital key) and France (2.7bn EUR above the key). The average weighted maturity of the purchased Slovenian paper was 10.04 years, which almost perfectly fits the duration of the new SLOREP 2030. Still, the ECB buys a mix of durations, so don’t hold too tightly to this duration figure since you might be misled.
Finally, the Republic of Serbia placed it’s 7Y EUR paper on the market this Monday, after a short delay caused by the need to collect some of the key documentation. Once the orderbook was open early Monday morning, a couple of eyebrows were raised when IPTs arrived at buccaneering 3.875%! As the orderbook was getting filled, the intention of the leads became apparent: since Serbia is not purchased by the ECB, the first step would be to build the book, and the tightening of the spread came about later. Around 13.00 CET the first follow up crossed the wires and we learned that 2bn EUR is in the cards, the book was just barely south of the 5bn EUR mark and YTM is being indicated at 3.625%. Finally, the yield ended up at 3.375% once the 6.5bn EUR heavy orderbook was closed (3.25x bid-to-cover). It’s worth mentioning that Serbian Ministry of Finance planned a total fiscal stimulus in size of 5.1bn EUR for this year alone, meaning that this issuance covers about 40% of funding needs. Reoffer price of the issuance landed at 98.464 and as of this morning we see Street dealers paying as much as 100.25 (3.085% YTM) for the standard 1mm EUR lot. Interestingly enough, this is still above the SERBIA 2029’s yield, so at this moment the price on the 27s has still room to go up since it’s quite unlikely that this inversion would hold up since investors might be motivated to sell the 29s and buy the 27s, picking up extra premium and trimming down the duration.
Serbian paper was hence traded under the maxim “buy in May, before the price moves away“. Well, the price has moved far away and the remaining upside looks limited if you account for the bid-ask spread you have to pay to get in-get out. Nevertheless, other countries May be issuing in the remaining two weeks before the turn of the month. So watch out for the opportunities that May spring up on the bond market….
In Q1, the company recorded a decrease in sales of 2% YoY, flat EBITDA and an increase in net profit of 12%.
Earlier today Telekom Slovenije published their Q1 report. The Group was affected in the second half of March 2020 by events linked to measures to prevent the spread of Covid-19. During the first weeks of the crisis, measures adopted at the national level affected the company’s net sales revenue in the retail segment (primarily in the mobile and fixed segment, IT services and merchandise) and in the wholesale segment (international operations), as well as the revenues of certain Group subsidiaries due to the stagnation of transactions on the market.
During this period Telekom Slovenije faced high network loads and an increase in traffic in voice, data and video services, with traffic rates 50% above regular levels. The Group also notes that between 13 March and 23 April sales centers were closes. During the period users switched to digital channels, with the sales of products through the e-commerce growing by 38 % YoY.
In Q1, Telekom Slovenije recorded a decrease in sales of 2% YoY, amounting to EUR 168.6m. The mentioned decrease could be attributed to lower revenues in the mobile and fixed segments of the end-user market (mainly due to lower revenues from mobile merchandise, IT services and licenses). Other revenues, revenues from other merchandise, new revenue sources and revenues on the wholesale market were all up compared to the to the same period last year. Meanwhile, operating revenues amounted to EUR 173.6m, representing a decrease of 1% YoY.
When observing operating expenses, they amounted to EUR 159.2m, which represents a decrease of 1% YoY. As a result of the above mentioned, EBITDA remained relatively flat, amounting to EUR 56.4m. Such a result puts the EBITDA margin to 33.4% (+0.5 p.p. YoY). According to first estimates, the company notes that the epidemic will negatively affect Group’s EBITDA to the extent of approximately 3%, compared to the 2020 plan. Operating profit in Q1 amounted to EUR 14.5m, representing an increase of 23% YoY.
In the first quarter of 2020, the company recorded a net profit of 11.33m, representing an increase of 12% YoY.
Key objectives of the Telekom Slovenije Group for 2020
Operating revenues – EUR 676.0m
EBITDA – EUR 210.6 m
Net operating profit- EUR 27.5m
CAPEX – EUR 209.7m
In Q1 the company recorded a 5% increase in sales, decrease in EBITDA of 9.7% and a decrease in net profit of 12%.
In Q1 of 2020, Cinkarnca Celje recorded sales revenues of EUR 47.8 million, which is an increase of 5% YoY and 10% higher compared to the plan. The total value of exports in the period considered reached EUR 43.1 million, which is 6% YoY higher 11% more than planned. The company notes that the absence of Chinese manufacturers in the European market at the beginning of the year increased demand for the company’s carrier product.
Cinkarna adds that the situation on the international titanium dioxide pigment market has not changed significantly compared to the last quarter of 2019.Based on their evaluation of the current market situation, they estimate that there will be no major price corrections this year. Also, no increases in the prices of titanium-bearing raw materials are expected.
When observing operating expenses, the company recorded an increase of 9.7%, amounting to EUR 39.3m. As a result of the higher operating expenses, EBITDA amounted to EUR 11.4m, representing a decrease of 9.8% YoY. This puts EBITDA margin at 24% (-3.9 p.p. YoY). Operating profit stood at EUR 8.4m (-12.8% YoY).
In Q1, Cinkarna record a net profit of EUR 6.89 million which was 12% YoY lower. The company notes that for Q1 they planed a net profit of EUR 3.52 million, which means that they exceeded the plan by 95%.
Turning our attention to CAPEX, in Q1 Cinkarna invested EUR 3.4 million in fixed assets, which is an increase of 122% YoY and 31% less than a quarter of the investment plan for 2020. Investment activities in the first quarter of the year they were focused mainly on the continuation of modernization, intensification and rise energy efficiency and ensuring the environmental acceptability of titanium pigment production dioxide.
Dividend Proposal
Cinkarna also proposed the distribution of 2019 net profit. The company’s management board announced a dividend proposal of EUR 10.51m, which translates to a dividend of EUR 13.2 per share.
Such a dividend is 53.3% lower compared to the one paid in 2019. At the current share price, dividend yield is 8.3%. Note that the dividend payment is subject to approval at the GSM, while the ex-date is 3 July 2020.
In the graphs below, we are bringing you a historical overview of the company’s dividend per share and dividend yield.
Dividend per Share (EUR) and Dividend Yield (%) (2012 – 2020)
In Q1, the company recorded a decrease in operating revenues of 6.1%, a decrease in EBITDA of 10% and a decrease in net profit of 1.9%.
In the first quarter of 2020 Nuclearelectrica recorded a decrease in income from electricity of 6.1%, amounting to RON 636.8m. Meanwhile operating income amounted to RON 636.8m (-6.1%). Such a result came on the back of the 9.3% decrease in the weighted average price of the electricity sold in the Q1 of 2020, considering the sale of a total quantity of electricity that was higher by 3.7%. During Q1, the Company sold approximately 24.6% of energy on the regulated market at a regulated price.
According to the ANRE Decision no. 2213/23.12.2019, the quantity assigned to SNN for the first semester of 2020 on regulated contracts is 1,087 GWh, out of which 701.4 GWh for the Q1 of 2020. For the Q1 of 2020, ANRE established for SNN a regulated price of 188.47 lei/MWh (without Tg), and for the first quarter of 2019 a regulated price of 188.33 lei/MWh (without Tg).
Operating expenses in Q1 amounted to RON 394.2m, representing a slight decrease of 0.6% YoY. The increase came on the back of nuclear fuel expenses, repair and maintenance expenses, electricity transport expenses and other operating expenses.
As a result of the lower sales, EBITDA witnessed a decrease of 10% YoY, amounting to RON 380.2m. Such a result puts the EBITDA margin at 59.7% (-2.6 p.p. YoY). Meanwhile, operating profit amounted to RON 242.6m, representing a decrease of 15.3%.
Going further down the P&L, the company recorded a net financial result of RON 16.87m compared to RON -17.5m, which boosted the bottom line to a certain extent. Such a result came on the back of a net FX gain in Q1.
In Q1, Nuclearelectrica recorded a net profit of RON 215.1m, representing a decrease of 1.9% YoY. Such a result puts the profit margin at 33.8% (+1.4 p.p. YoY).
In March 2020, GWPs rose by 4.4% YoY. GWPs in non-life insurances grew 8% YoY, while life insurance decreased by 4.5% YoY.
Yesterday, Croatian Insurance Bureau published the GWP development in March 2020.
In March 2020, GWP’s rose by 4.4% compared to the same period last year. The total amount of GWPs collected reached HRK 3.12bn (includes insurers located in Croatia and insurers operating in Croatia but based in another EU country). Such an increase came on the back of in non-life segment (+8% YoY to HRK 2.31bn), which traditionally account for the biggest portion of total GWPs. Meanwhile, life segment observed a decrease of 4.5%, to HRK 808.3m.
When observing GWPs by structure, insurance against civil liability in respect of the use of motor vehicles (which accounts for 19.5% of GWPs) recorded a strong increase of 10% YoY. Next, vehicle insurance (casco policy) which accounts for 11.4% of total GWPs recorded a strong increase of 14.4%. Health insurance observed also a solid performance of 5.9%.
Croatia Osiguranje accounted for 27% of the market, showing a 2.7 p.p. YoY decrease.