In today’s blog we bring you a brief analysis of the total market capitalization of listed companies as a % of GDP in countries from the region. The historic GDP data was taken from the Word Bank’s latest available publications, while the market caps were taken from the statistics published by regional stock exchanges.
The Buffet Indicator
The market cap to GDP ratio, or the Buffet Indicator as it is sometimes referred to, due to the fact that it was popularized by the famous investor Warren Buffet, compares the market capitalization of all publicly-traded stocks on a single market with the country’s GDP. It was one of the indicators of the approaching storm and later the crises in 2008, which severely damaged the equity markets. As Buffett said, “The ratio has certain limitations in telling you what you need to know. Still, it is probably the best single measure of where valuations stand at any given moment ”so it is often used to determine whether the stock market is overvalued or undervalued. Note that the index considers equity investments safe as long as the ratio remains below 100%. Meanwhile, when the total market cap reaches the value of the entire economy equities are considered to be slightly overvalued, while values exceeding 100% suggest that the country’s equity market is overvalued. Note that views on this target values have been changing since the largest market in the world, the US one, has been exceeding the 100% mark for years.
Regional Markets
Regional Markets Market Cap to GDP Ratio (%)
Source: InterCapital Research
When looking at the chart one can notice that all markets in the region have recorded a high ratio in the pre-crisis year 2007. In Croatia, the market cap/GDP was as much as 109%. However, after the financial crisis struck, the ratio declined substantially as we were witnessing a lot of companies losing the bulk of their value as well as initiating squeeze out and delisting procedures. With the ratio currently standing at 36.3% it is clear that the market still has enough room for fresh investments and that the current share prices have plenty of room to increase (according to this single indicator. Turning our attention to other regional markets one can notice that all of them have been slow to recover from the crisis, with most of them barely reaching half of their pre-crisis levels. Among these markets Romania proved to be leader with a ratio of 17.3%. It is worth highlighting the way that the Romanian ratio changed within the last year. As one can notice the ratio fell by 4% at the end of 2018, caused by the announcement of new tax burdens upon some of the country’s most profitable companies which resulted in a large scale sell off. However, as the initial scare proved to be somewhat exaggerated, the market started to recover which rose the ratio value by 2% since the beginning of the year. On the flip side Serbia continued to decrease, falling as low as 10.7%. Bulgaria represents an interesting case as the country recorded a significant hike in value during 2017, caused by a SPO of a real estate investment company, Capital Concept Limited, which exited the main market at the beginning of 2018.
In H1, the Group observed an increase in net banking income of 4.9% YoY and a decrease in net income of 4.2%.
As Komercijalna Banka published their H1 2019 report, we are bringing you key takes from it. According to the report, the company recorded a slight increase in net interest income of 1.7% YoY, amounting to RSD 6.88bn. Meanwhile, net fee and commission income amounted to RSD 2.78bn, which represents an increase of 2.6%.
It is important to mention that a slight pressure on the net interest margin (NIM) has been observed in the past years, with NIM decreasing gradually since 2015 (NIM of 3.5%) and which currently stands at 3.1%.
Moving further down the P&L, the company recorded a net banking income of RSD 10.22bn, which represents an increase of 4.9% YoY. When observing the Group’s earnings before tax, one can notice a decrease of 4.2% YoY, amounting to RSD 3.63bn. The mentioned decrease could be attributed to an increase in depreciation by RSD 251.1m, which in H1 amounted to RSD 575.8m, and also to the increase in other expenses by 17.8%, which amounted to RSD 3.97bn.
It is worth noting that on the Group level, Komercijalna Banka recorded CIR of 60.5% in H1 (decrease by 1 p.p.).
In H1, the Group recorded a net profit of RSD 3.63bn, representing a decrease of 4.2% YoY.
Komercijalna Banka Performance (H1 2018 vs H1 2019) (RSD bn)
Turning our attention to the balance sheet, Komercijalna Banka recorded total assets of RSD 453.5bn, which represents a 2.7% YoY increase. Of that, the largest item was loans and receivables from customers which amounted to RSD 198.6bn (+3.7% YoY), showing strong loan growth.
On the other hand, total liabilities amounted to RSD 381.2bn, representing an increase of 3% YoY. Of that, deposits and other liabilities to customers account for 78.2% (RSD 354.6bn), which in H1 observed a slight increase of 1.1% Consequently, L/D ratio stands at a relatively low 56%, showing room for further loan growth.
As of 30 June 2019, the company’s capital adequacy ratio consists of only Tier 1 Capital, which amounts to RSD 65.86bn (+9% YoY). Consequently, CAR stands at 26.43%, showing a comfortable excess capital, as the required capital ratio stands at 13.98%.
As a reminder, recently the Government of the Republic of Serbia has announced that the deadline for the submission of non-binding bids for the purchase of the state’s stake in Komercijalna Bank has been extended from 23 August to 6 September 2019. To read more about it, click here.
In the second quarter of 2019, GDP of the Republic of Slovenia increased by 2.5% over the second quarter of 2018. As a reminder in Q1, GDP observed an increase of 3.3%.
According to the Statistical Office of Slovenia, domestic expenditure showed its strength increasing by 4.2% YoY and confirming that slowdown of domestic demand observed in the first quarter was a one-off event. Namely, households’ consumption increased by 3.4% YoY while investment growth once again came close to double digits (+9.2% YoY), the trend which we expect to continue at least throughout 2019. Government expenditure growth was very modest, rising only 1.0% YoY, compared to an average growth of above 3.0% in the last several quarters, suggesting another surplus of Slovenian budget for 2019. Exports of goods and services jumped by 9.4% YoY, accelerating by 1.5 pp compared to Q1. However, on the other side, imports surged by 12.3% YoY driven by strong domestic demand resulting in negative contribution from external trade balance which is the one to blame for deceleration of GDP in the second quarter.
Looking at other CEE GDP data that were published this week, Slovenia was not an exemption in a sense that domestic demand keeps rising at strong pace due to solid rise of employment and wages, loose monetary policy and strong investment cycle. However, external demand decelerated and due to several geo-political challenges, we don’t expect this to reverse any time soon. It remains to be seen can domestic demand keep the pace and for how long.
| wdt_ID | Slovenian GDP | Q2 2018 | Q1 2019 | Q2 2019 |
|---|---|---|---|---|
| 1 | Domestic expenditure | 3,5 | 2,7 | 4,2 |
| 2 | Final consumption expenditure | 3,2 | 2,7 | 2,7 |
| 3 | -Households | 3,3 | 2,3 | 3,4 |
| 4 | -NPISH | 2,5 | 1,2 | 0,1 |
| 5 | -General government | 3,1 | 3,9 | 1,0 |
| 6 | Gross capital formation | 4,2 | 2,5 | 9,2 |
| 7 | -Gross fixed capital formation | 9,1 | 10,0 | 6,9 |
| 8 | -Changes in inventories and valuables | 0,8 | -1,3 | 0,6 |
| 9 | External trade balance | 0,6 | 0,8 | -1,3 |
| 10 | Exports of goods and services | 8,2 | 7,9 | 9,4 |
| 11 | -Goods | 8,4 | 8,2 | 10,0 |
| 12 | -Services | 7,2 | 6,6 | 6,7 |
| 13 | Imports of goods and services | 8,4 | 7,7 | 12,3 |
| 14 | -Goods | 8,7 | 7,9 | 13,8 |
| 15 | -Services | 6,8 | 5,8 | 2,8 |
| 16 | GDP | 3,7 | 3,3 | 2,5 |
Source: Statistical Office of Slovenia
At the current share price, the dividend yield is 7%. Note that the ex-date is 25 October 2019.
Telekom Slovenije held the General meeting in which the shareholders approved the proposal to use the distributable profit, which amounts to EUR 38.99m for 2018, to pay out dividends in the amount of EUR 29.27m, translating to EUR 4.50 per share and a payout ratio of 75%. Note that the approved dividend is in line with the initially proposed divided payment. The remainder in the amount of EUR 9.7m shall be carried over to the following year. As a comparison, the approved dividend is significantly lower than the one paid in 2018 (for the year 2017) which amounted to EUR 14.3 DPS. However, note that the mentioned dividend was a one-off payment relating to the sale of assets in Macedonia.
At the current share price, the dividend yield is 7%. Note that the ex-date is 25 October 2019.
In the graph below, we are bringing you historical overview of the company’s dividends.
Telekom Slovenije Dividend per Share (EUR) & Dividend Yield (%) (2010 – 2019)
When observing the company’s share price performance since 2015, one can notice that the share recorded a decrease of 56.6%. Meanwhile total return recorded a decrease of 36.4% in the same period.
Share Price Performance vs Total Return (2015 – 30.8.2019)
In H1 the company observed an increase in sales of 4.9% YoY, increase in EBITDA of 2.2% and a decrease in net profit of 4.1%.
As Unior Group published their H1 2019 report, we are bringing you key takes from it. According to the report, the company reported sales of EUR 132.1m, representing an increase of 4.9% YoY. However, the mentioned result is 2% lower than the planned one. The sales were lower than planned as the forgings segment, which supplies almost exclusively to the automotive industry, faced a slightly lower order level over the whole of the first half of the year, more pronounced in the first quarter as a result of a 7% decline in car sales worldwide.
Unior Sales (H1 2019 vs H1 2018) (EUR m)
When observing the operating expenses, they amounted to EUR 137.5m, representing an increase of 4.1%. The mentioned increase could mostly be attributed to the rise in material costs by EUR 4.3m (+5.6% YoY).
In H1, Unior Group recorded EBITDA of EUR 19m, which is an increase of 2.2% YoY. Meanwhile, EBIT reached EUR 11.2m, which is 1.2% less than in the same period last year, with depreciation of EUR 0.76m higher than last year.
Moving further down the P&L, net profit of the Unior Group in in H1 amounted to EUR 9.4m, which is a decrease of 4.1% YoY, mostly due to slightly lower results of operations of associates. They contributed EUR 0.59m less in financial revenues from the shares in these companies than in the first half of last year.
Unior Performance (H1 2019 vs H1 2018)
It is noteworthy that in H1 2019, Unior Group made investments in new fixed assets of EUR 6.8m. The EUR 1.2m was invested in the modernization of production facilities and EUR 3.9m was invested in new equipment to increase and modernize production facilities, the most important of which is the installation of the first fully robotic blacksmith line.