IC Market Espresso 17 Aug 2022

ZABA Q2 2022 Results

In Q2 2022, ZABA recorded an increase in operating income of HRK 2.58bn (+7.5% YoY) and a net profit of HRK 1.04bn (+26.9% YoY).

In Q2 2022, ZABA’s net interest income amounted to HRK 1,41bn, decreased by HRK 20m (-1.4%) YoY, mainly due to lower interest margins, following the market developments. Net fee and commission income amounted to HRK 759m, an increase of HRK 103m (+15.7%). Net trading and other income and expenses segment recorded an increase of HRK 97m, amounting to HRK 408m (+31.2%) due to a higher trading result.

In total, ZABA’s operating income amounted to HRK 2.58bn, an increase of HRK 180m (+7.5%) YoY, carried by the already mentioned net fee and commission income, and trading results. On the other side, their operating expenses remained at the same level at 1,13bn with a cost-to-income ratio of 43.82%.

Going further down the P&L statement, profit before impairment and other provisions amounted to HRK 1.38bn which is an increase of HRK 185m (+15.5%) YoY, directly influenced by movements in operating income and operating expenses. Lastly, ZABA’s net profit amounted to a total of 1.04bn which is a 26.9% increase YoY.

Moving onto the balance sheet, total assets have increased to HRK 163.64bn, an increase of 3.2% since the beginning of the year. Breaking it down, we can see that the largest absolute increase comes from financial assets at amortised cost, which grew by HRK 12.75bn (13.4%) and amounted to HRK 108.1bn. Within the segment, we can see that debt securities grew from HRK3.5bn to HRK 7.08bn (102.3%), loans and advances to credit institutions grew from HRK 10.18bn to HRK 13.9bn (36.5%), and lastly, loans and advances to customers grew from HRK 81.67bn to HRK 87.12bn (6.7%).

Another notable factor in relative terms was the growth of financial assets held for trading from HRK 1.09bn to HRK 2.06bn (88.6%). Cash, cash balances at central banks, and other demand deposits contributed negatively with a decrease of HRK 4.39bn from HRK 38.7bn to HRK 34.3bn, and financial assets at fair value through other comprehensive income which declined from HRK 12.85bn to HRK 9bn since the beginning of the year.

Looking at the liabilities side, total liabilities have increased from HRK 137.17bn to HRK 143.97bn (5%) driven mostly by financial liabilities measured at amortised cost which grew by 4.5% since the beginning of the year. Deposits from credit institutions increased by HRK 3.06bn (61.1%) while deposits from customers increased by HRK 2.8bn (2.2%). Another notable increase is from financial liabilities held for trading which grew from HRK 0.87bn to HRK 1.78bn. Lastly, equity has declined from HRK 21.33bn to HRK 19.66bn since the beginning of the year.

ZABA key financials (Q2 2022 vs. Q2 2021, HRKm)

Impact of COVID-19 and the Russia-Ukraine conflict

The markets remained affected by the uncertainty of the pandemic and the extent of the economic recovery throughout the first half of the year, and still existing on 30 June 2022. ZABA’s assets were not significantly directly impacted by the conflict, however, the operations remain indirectly affected and the Group is continuously monitoring the situation for further developments.

ZSE Trading Activity – July 2022

In July 2022, CROBEX declined by 2.15%, ending the month at 1,968.96 points.

The total equity turnover on the Zagreb Stock Exchange amounted to EUR 18.8m (HRK 141.4m), which represents a decrease of 1.07% MoM, but an increase of 12.5% YoY. This would also mean that during the month, the average daily turnover amounted to EUR 0.89m (HRK 6.73m).

If we were to exclude the block transactions from this turnover, then the total turnover amounted to EUR 13.6m (HRK 101.9m) which is a decrease of 15.9% YoY and 21.5% MoM. Looking at the top 10 most traded stocks, they had a turnover of EUR 9.1m (HRK 68.4m), which would account for 66% of the total turnover. Breaking this down further, Atlantska Plovidba had the highest turnover, at HRK 12.2m (or 8.6%), followed by HT with HRK 12.7m (or 6.1%), Valamar Riviera with 5.5%, Ericsson NT with 5.5%, and Span, with 4.9%. This would also mean that the top 5 most traded companies accounted for 34.3% of the total turnover on the exchange.

Meanwhile, the largest index on the ZSE, CROBEX, decreased by 2.2% during the month and ended it at 1,968.96 points. At the same time, CROBEX10 decreased by 1.9% and ended the month at 1,169.33 points.

Looking at the CROBEX10 constituents’ performance during the month, HT is the only company to record an increase, at 1.2% while the remaining 9 companies declined. The largest decline was recorded by Ericsson NT with 12.9%, followed by Atlantska Plovidba with 6.9%, Arena Hospitality Group with 6.8%, Atlantic Grupa with 5.6%, and Končar with 4%. Considering the current situation in the market does not favor investments in equity (high inflation rates, current geopolitical situation, ECB’s 0.5% interest rate hike, the first after 11 years) the decline is expected. However, if we were to combine this with the H1 2022 results for most of the companies not being that positive (as higher operating expenses stemming from energy, material, and staff costs hit companies across the market), this only exacerbated the decline.

Performance of CROBEX10 constituents (July 2022, %)

Looking at the YTD performance, we can see that these trends are even more prominent. Again, we had 9 companies recording an overall decline, with Atlantska Plovidba being the only one to record an increase (+16%), owing to the huge demand for shipping in the period (something that continues to this day, but under higher costs and under higher risks of falling commodity prices due to recession fears, something that influenced ATPL’s performance in July despite good results). On the other hand, AD Plastik recorded the largest YTD decrease, declining by 46.4%, mostly due to the semiconductor shortage which affected the automotive industry during much of 2021, and is still currently affecting the industry, to a somewhat smaller extent. Combined with the fact that AD Plastik has substantial exposure in the Russian market, after Russia’s invasion of Ukraine, the Company recorded some of the largest declines in the Croatia market, something that it still hasn’t recovered from. Following them, we have Arena, which posted solid top-line results in H1 2022, but is still reeling from lower profitability due to higher OPEX, Ericsson NT, which again, had a somewhat positive top line but negative profitability results, and Podravka, which was also affected by the rising OPEX costs.

Performance of CROBEX10 constituents (Beginning of 2022 – end of July, %)