IC Market Espresso 20 May 2019

Beta vs. Share Price Performance of Regional Companies
When searching for opportunities to invest, many investors who are looking for growth and have a high tolerance towards risk may be interested in looking at high-beta stocks. High-beta stocks can be used for generating high returns, but they also have significant downside risk when markets fall. Therefore, understanding beta and its uses can be important for growth investors seeking to identify the best performing stocks at large.

By definition, the market has a beta of 1.0, and individual shares are ranked according to how much they deviate from the market. In general, a beta less than 1 indicates that the investment is less volatile than the market, while a beta value which is greater than 1 indicates that the investment is more volatile than the market. High-beta companies are supposed to be riskier but provide a potential for higher returns, while low-beta stocks pose less risk but also lower returns.

One should keep in mind that one of the main disadvantages in our region is low liquidity of some of the listed shares, which significantly lowers the values and blurs risk. Also, while beta does say something about price risk, it has its limits for investors looking for fundamental risk factors. It’s important for investors to make the distinction between short-term risk – where beta and price volatility are useful-and longer-term, fundamental risk, where big-picture risk factors are more telling.

CROBEX Components Betas & 12M Share Price Change (%)
Source: Bloomberg, InterCapital Research

Among the observed companies, Valamar recorded the highest beta of 1.4, while their share price decreased by 6% in the past twelve months. This does not seem to be fully in line with our theoretical hypothesis explained earlier. However, when looking at the top five companies with the highest beta value, one can notice that most of them posted exceptionally high returns or losses. For example, Optima Telekom posted the second highest beta and also recorded the second highest price increase. Meanwhile Podravka recorded the highest price increase in the observed period. On the flip side, Atlantska Plovidba and Dalekovod witnessed a decrease in value of 39.4% and 61%, respectively.

SBITOP Components Betas & 12M Share Price Change (%)
Source: Bloomberg, InterCapital Research

As evident from the chart above, theoretical principles have proven to be right in Slovenia with Telekom Slovenije recording both the highest beta and strongest price decrease in the last 12 months. Meanwhile, the company with the lowest beta, Unior, recorded a 6.25% share price decrease. It is worth noting that the largest share price increase was recorded by Intereuropa who posted a beta of 0.91, however this can be attributed to the takeover process through which the company is currently undergoing. One should also note that we removed KD Group from the analysis as the company experienced a strong one-off price hikes due to takeover activity. Furthermore, as NLB has been listed on the LJSE for a short period of time we decided to exclude them from the analysis as well.

BET Components Betas & 12M Share Price Change (%)

Source: Bloomberg, InterCapital Research

Unlike Croatian and Slovenian index components, the BET components seem to have volatility evenly dispersed among them, with most companies ranging between a beta of 0.6 and 0.9. The leaders in terms of beta are the two local banks, Banca Transilvania and BRD with a beta of 1.3 and 1.2, respectively. However, note that the share price of these banks recently went through a roller-coaster ride after the Government introduced new tax legislation targeting the financial and energy sector.

TNG Secures a Profitable 6 to 12-Month Charter

The tanker will be chartered out to a prominent charterer at approximately USD 17,000 per day under regular market terms.

Tankerska Next Generation published a document stating that they have secured 6 to 12-month time charter employment in charterers’ option for one of the ECO class product tankers.

The tanker will be chartered out to a prominent charterer at approximately USD 17,000 per day under regular market terms. The contracted employment is with immediate effect.

Earlier this year, TNG secured two 12-month time charter employment for product tankers which will be charted at approximately USD 16,000 per day and USD 15,500 per day. Besides that, last year the company contracted USD 14,500 a day for the ship Vinjerac, expiring in Q2 2019.

Our view on the new charter

We are happy to see another vessel contracted at a favorable rate, as it might signal market improvement in 2019. A quick calculation based on 2018 results (so assuming daily opex of USD 6,755 per ship, G&A of USD 903k, D&A slightly below USD 8m and interest expense slightly below USD 4m) makes us conclude the following:

  • TNG records EBITDA breakeven at average TCE of roughly USD 7,200
  • TNG records net income breakeven at average TCE of roughly USD 12,600 per day
  • An average TCE of 14,500 a day could earn EBITDA of USD 16m and net profit of USD 4m (HRK 3.1 EPS).

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