Today, we’re bringing you the overview of the P/E as well as the cash-adjusted P/E for Croatian blue chips, based on the recent FY23 reported data.

With the release of the FY 2023 results for all CROBEX10 constituents, we bring you an updated overview of their P/E ratio as well as their cash-adjusted P/E ratio. As a reminder, cash adjusted P/E means that we take out the cash and cash equivalents (cash in the bank + short-term assets that can be turned into cash)  a company has out of its operating business, in order to give a more clear view. This is done in order to point out that some companies have a lot of cash at hand, and this does have an impact on their P/E ratios. Finally, the net profit to majority was used, while the number of shares outstanding, was adjusted for the number of treasury shares held by respective companies.

P/E of Croatian blue chip companies (FY 2023 results)

Source: Companies’ data, ZSE, InterCapital Research

Starting off with the P/E, Span recorded the largest one, at 77.9x. The group is trading for a long time at a high multiple due to a low bottom line. Span recorded a low bottom line due to the expansion cycle made during 2021, greatly enlarging its workforce in high-added-value segments materializing in the form of top-line & staff cost growth, resulting in lower profitability margins. However, seeds from the mentioned investments should be seen during 2024 & 2025. However, despite experiencing a profitability setback in 2023, this is in line with Span’s strategic objectives and we see the Group well-positioned and moving in a commendable direction with the cybersecurity segment expected to perform strongly, mainly on the NIS2 directive.

Atlantic Grupa follows Span with a high P/E of 24.7x, especially driven by the solid recent performance of stock share price on ZSE. Following Atlantic, there is Valamar Riviera, at 23.5x. Both of these companies’ bottom lines were under pressure in the previous year, leading to an increased P/E at the moment, while both of these companies noted a normalization during 2023. Next up, there is HT at a P/E of 18.1x, Podravka at 16.6x and Končar at 14.1x.

On the flip side, two companies to record a negative P/E was Atlantska Plovidba at -49.2x (N/A in other words) and AD Plastik at -21.2x. Atlantska Plovidba’s share price has been somewhat subdued, especially compared to previous years. The Company is tied to the movements in the shipping industry. While this allowed it to achieve some of the best results in its history during 2021 and partly in 2022, now that the shipping industry is under pressure due to the macroeconomic and geopolitical situation, so are the profits of the companies operating in it, including Atlantska Plovidba. As such, the results it recorded are what could be expected in the industry right now. Finally, Končar reported interesting, but relatively stable P/E multiple development. Currently, Končar Group is trading at a P/E of 14.1x, while in the prior year, it was not that much different. The group’s bottom line increased sharply this year, however, the Group’s share price did too. Ericsson NT is being traded at the lower chosen multiple from taken companies, currently standing at 12.5x.

Cash-adjusted P/E of Croatian blue chips companies (FY 2023 results)

Source: Companies’ data, ZSE, InterCapital Research

Moving on, we presented you the cash-adjusted P/E, as Croatia blue chips generally have a lot of cash & cash equivalents. The largest change can be seen by Span, Ericsson NT and Valamar Riviera with a decline to 65x, 9x and 20.6x, respectively. Končar’s cash-adjusted P/E amounts to 10.8x.

Cash & cash equivalents (FY 2023) to current market capitalization of Croatian blue chip companies (%)

Source: Companies’ data, ZSE, InterCapital Research

Of course, the amount of cash and cash equivalents available for the companies in question played a huge role here. For example, Končar’s cash accounted for 26.3% of the combined market cap, and Ericsson’s cash accounted for 27.7% of the market cap. On the flip side, Podravka’s cash and cash equivalents were the lowest as compared to their market cap, at 4.6%.

In the latest report on Croatian Tourism released by the Croatian Tourism Board, we can see that both the total number of tourist arrivals and nights recorded double-digit YoY growth, increasing by 26% and 32%, respectively. Double-digit growth was also recorded as compared to 2019, with the total arrivals increasing by 17%, while the total nights grew by 34%.

March 2024 has shown signs of solid improvement for the Croatian tourism industry, with numbers exceeding both 2023 as well as 2019. In terms of the total arrivals, they amounted to 545.7k, growing by 26% YoY, with 377k of foreign arrivals, and 168.7k of domestic arrivals, representing increases of 35% and 9% YoY, respectively. Total tourist nights on the other hand, amounted to 1.48m, growing by 32% YoY, with 1.1m of foreign tourist nights, and 375k of domestic tourist nights, representing an increase of 39% and 13% YoY, respectively.

The numbers compared to 2019 also show an improvement, with the total arrivals increasing by 17%, driven by a 15% increase in foreign arrivals, and a 24% increase in domestic arrivals. On the flip side, total nights grew by 34% compared to 2019, with a 40% increase in foreign nights, and a 19% increase in domestic nights.

Total tourist arrivals and tourist nights in Croatia (January 2019 – March 2024)

Source: HTZ, InterCapital Research

The YoY improvement would also mean that the average stay per person amounted to 2.7 nights, an increase of 4.8% YoY. If we look at the tourist nights by accommodation, 93% of nights were registered in commercial accommodation, 6% in non-commercial accommodation, and 1% went to nautical accommodation. Inside the commercial accommodation, 61% of the nights were recorded in hotels, 21% in private accommodation, 8% in camps, while 10% was recorded in other types of accommodation.

In terms of the tourist nights by origin, 25% of all nights were domestic nights, 13% came from Germany, 11% from Austria, 9% from Slovenia, 5% from Bosnia and Herzegovina, and 4% from Italy. Meanwhile, the best-performing counties with Istra with 439k nights, followed by Kvarner at 266.9k, Splitsko-dalmatinska at 172.8k, Grad Zagreb at 167.9k, and Dubrovačko-neretvanska at 111.5k.

Overall, March has shown very good signs for the Croatian tourism season also due to the fact that Easter holiday in Europe came in early this year and started in March already. While it can’t yet be considered pre-season which typically begins in April, the fact that such double-digit growth was recorded outside the main season is a quite positive development. If a similar trend continues for the remainder of the year, supported by better-than-expected economic data in Europe (e.g. lower inflation, weaker recessions if they did occur) then one could expect better sentiment from tourists. As such, if this trend continues, 2024 could end up being another record year, both in the number of arrivals/nights, but also in terms of revenue.