IC Market Espresso 23 Nov 2021

Cash Adjusted P/E of Croatian Blue Chip Companies – November 2021

For today, we decided to bring you an overview of the cash-adjusted P/E of some of the largest Croatian companies.

Cash adjusted P/E ratio is meant to show the value of a company’s operating business when we take out the net cash the company has, in order to provide a more clear view. This will single out companies that have a lot of cash at hand, and show how much of an impact that cash has on the P/E ratios.

Among the observed companies, Adris’ cash position has the largest impact out of all the observed companies, with P/E changing from 18.1x to 10x after the adjustment. In the 2nd place, we have HT, which has the 2nd largest cash position (HRK 2.8bn), and the 3rd biggest P/E change after adjustment (21x to 14.7x) among the observed companies.

Comparison of Selected Companies P/E and Cash Adjusted P/E

How Correlated were CROBEX and S&P500 in 2021?

In 2021, the coefficient of correlation between CROBEX and S&P500 was 0.11.

When looking at both the Croatian and US equity market in 2021, it is quite obvious that in comparison to 2020 (when the coefficient of correlation was 0.62), CROBEX and S&P500 are both following their own paths, although they do both see an upward trend. This can be attributed to the normalization of life after the shock of the COVID-19 pandemic of last year, and since both of these indices are different (both in composition, size, and liquidity of the underlying assets), it is expected that they do not follow a similar path.

The trend, however, is positive for both. While S&P500 has increased by over 25% YTD, CROBEX increased by 15.5%.

Performance of CROBEX and S&P500 in 2021

Even though both S&P500 and CROBEX experienced a positive trend during 2021, looking at the daily price changes shows us that the indices achieved this growth basically independent of each other, i.e. their daily price change correlation is only 0.11. Even if we were only to take into account the first 6 months of 2021, the correlation between the indices increases only slightly, to 0.16. Therefore we can say that the higher correlation in 2020 could imply that many investors in the Croatian equity market were not necessarily basing their investment decisions on fundamentals or the local news, but rather on the global sentiment. This would not surprise us as many fundamental parameters were and are still in a very unknown territory such as the end of the Covid crisis, or the impact on the macro picture across economies. Since than the situation on the Croatian market is significantly less uncertain so the lower correlation does not surprise.

Daily Change of CROBEX and S&P500 (%) in 2021