As of end Q3, the market cap of the ZSE amounted to HRK 130.7bn while 106 companies were listed on the exchange.

For today we decided to look at the free float market cap of the ZSE. As of end Q3, the market capitalization of the ZSE amounted to HRK 130.7bn while 106 companies were listed on the exchange. Of that, roughly HRK 30bn is in free float, or in other words roughly 23% of the total equity market cap is in free float.  One of the reasons for such a low free float could be attributed to the fact that the highest market cap companies such as INA, ZABA and PBZ have almost no free float (all have a low single digit free float).

If we were to look at the companies with the highest free float market capitalization, HT leads the list with HRK 4.58bn or 15.5% of the total free float market cap. Adris and Podravka come next with HRK 2.68bn (or 9%) and HRK 2.5bn (or 8.4%), respectively. It is also worth noting that the top 10 companies take up for roughly two thirds of the free float market cap.

Turning our attention to the key players on the equity market, Mandatory Pension funds are by far the largest player on the market as they manage HRK 11.7bn in domestic equity or roughly 40% of the total free float. Voluntary Pensions funds account for a significantly smaller amount of roughly 3% or HRK 841m. Meanwhile, Croatian UCITS funds account for another 1.5% or HRK 446m. Such a figure could be seen as rather small compared to the total assets under management in UCITS funds of HRK 17.86bn. However, majority of these funds relate to bond holdings, while only 29% of total equity holdings are in domestic equity. Croatian Veterans Fund accounts for another 3.2% of the total free float market cap.

Meanwhile, the rest of the free float (roughly HRK 15.7bn) are allocated among foreign institutional investors, retail investors etc.

Croatian government budget deficit to GDP ratio in 2Q 2020 has amounted to 11.7% of GDP. Slovenia has achieved even higher budget deficit of 16.1% of GDP. Both were above EU budget deficit which stood at 11% of GDP marked by COVID-19 containment measures in all member states.

Croatian government deficit in 2Q 2020 stood at 11.7% GDP. This is in line with strong increase of spending for pandemic economy support measures for which the State has spent app. HRK 10bn by now. It is also due to complete absence of tourism revenues as pandemic measures were in full force and travel restriction measures were in place. On the annual level we expect public budget deficit to be around 9% since solid tourist activity was realized in July and in part of August so still a considerable amount of summer tourism revenues should have been realized. As a result of these events public debt in second quarter increased strongly by 9.4 p.p. YoY to 85.3% GDP. State spending for pandemic measures will continue while further spikes in infections rates are threating recuperation of consumer spending. We expect to see a drop in tourism activity in the last quarter of the year, so we see the public debt to remain firmly on a increasing path, and we see it growing further by the end of 2020 to 90% of GDP.

Croatia Public Debt & Public Deficit (% GDP)

Slovenia has in Q2 achieved even higher budget deficit amounting to 16.1% GDP, a decrease of 16.8 p.p YoY as last year in Q2 government budget was in surplus of 0.7% to GDP. Public debt has increased by 10.5 p.p. to 78.2% of GDP driven by strong state spending for pandemic measures and increase in nominal amount of debt for EUR 5 bn to EUR 36.8 bn. Public debt is expected to increase further and to reach 81.1% GDP by the end of 2020 while we expect downward debt trajectory to be stopped this year. But as new restrictions in the economy are again introduced from October, we expect to see more fiscal packages so deficit of budget balance will be posted next year as well.

Slovenia Public Debt & Public Deficit (% GDP)

One of HT’s main competitors, A1, published their Q3 2020 report showing a decrease in decrease in total revenues in Q3 by 2.7%.

According to A1’s report, competition in Croatia focused on convergent offers with high data allowances and TV content. In the mobile business, demand for mobile WiFi routers continued to be strong. During the summer, all operators launched special mobile data offers through self-care apps. On 24 August 24 2020, A1 launched a new portfolio for mobile and fixed-line customers with increased Internet speeds, a new TV proposition as well as new mobile tariffs with unlimited voice, SMS, and data. The company adds that the portfolio was well received by customers.

In Q3 2020, total revenues in the Croatian segment declined by 2.7%, amounting to EUR 111.8m. Such a decrease was mainly driven by roaming losses due to less travel. It was possible to compensate some of the decline by higher equipment revenues and the strong demand for mobile WiFi routers.

The fixed-line business benefited from the price increase in September 2019. There were positive one-off effects of EUR 6.5m in Q3 2019 and of EUR 2.6m in Q3 2020, both stemming from the reimbursement of frequency fee overpayments in connection with frequency fee cuts.

The company notes that the HRK depreciated by 1.7% (period average) against the EUR in Q3 2020, which led to a negative FX impact of EUR 1.8m on total revenues and EUR 0.7m on EBITDA.

Meanwhile, when observing 9M of 2020, the Croatian segment recorded a decrease of 3.5% YoY, to EUR 323.5m. ARPU in the observed period decreased by 5.8% to 10.4.

Costs and expenses excluding these one-off effects were lower YoY, as reduced sales and marketing expenses were more than able to compensate for higher bad debts. EBITDA excluding one-off and FX effects decreased by 1.5%. Meanwhile reported EBITDA amounted to EUR 44.1m which represents a decrease of 10.6% YoY. On a 9M basis, EBITDA is down by 4.1%.

Going furher down the P&L, operating profit decreased by 13.8% to EUR 20m in Q3, while on a 9M basis that decrease was 4.8% (to EUR 36.4m). Such a results puts the EBIT margin at 11.7%, which is a slight decrease of 0.18%.