At the end of May 2022, the NAV of Croatian Mandatory Pension Funds amounted to HRK 130.9bn, representing a decrease of -0.4% MoM, but an increase of 4.4% YoY.

The Croatian Financial Services Supervisory Agency (HANFA) has published a monthly report on the changes recorded by the Croatian mandatory pension funds. As some of the largest (institutional) investors in the Croatian capital market, looking at how well they perform can give us an overview of the general trend the market is going towards.

The NAV of the pension funds in May amounted to HRK 130.9bn (EUR 17.4bn), representing a decrease of -0.4% MoM, -1.6% YTD, but an increase of 4.4% YoY. Net contributions into the funds also amounted to HRK 670.6m during the month, or HRK 3.26bn since the beginning of the year.

On an MoM basis, most of the types of holdings decreased in value in May, with bonds losing the most at -1.1% (or HRK -900.4m), followed by investment funds at -5% (or HRK -762.4m), and receivables, which lost -39.4% (or HRK -310.9m). Finally, shares lost HRK -56m, or -0.2% of their value. On the flip side, the only asset class to increased on an MoM basis were the deposits and cash, which gained almost HRK 1bn (or 22.5%) during the month.

On a YoY basis, the story is still quite different. Considering the long time horizon that pension funds have, changes to their investment portfolio come slowly, especially when we consider the fact that pension funds are quite risk averse. As such, even though bonds decreased on an MoM basis, on a YoY basis, they increased by HRK 3.7bn (or 4.6%). The same story can be seen with shares and bonds, which grew by HRK 2.3bn (or 9.3%), and HRK 1bn (or 7.5%), respectively.

Mandatory pension funds AUM structure change (HRKbn, January 2018 – May 2022, %)

Looking at the asset structure of the pension funds, bond holdings still hold the vast majority of the total holdings, at 63.8% (or HRK 83.5bn), which is a decrease of 0.44 p.p. MoM, but an overall increase of 1% YoY. Next up, we have share holdings, which currently amount to 20.7% of the total (or HRK 27.1bn), representing a slight 0.04 p.p. increase MoM, but an increase of 1% YoY. The next largest category, investments funds, stood at 11.1% (or HRK 14.6bn) of the total, representing a decrease of -0.54% MoM, but an increase of 0.4% YoY. Overall, the only asset class which experienced an increase on an MoM basis are the deposits and cash, which increased their share of the total to 4.2% (or HRK 5.4bn), representing an increase of 0.77 p.p. MoM, but a decrease of -0.4% YoY.

Current mandatory pension funds AUM (May 2022, %)

Considering the current geopolitical and inflationary pressures, the higher investments into deposits and cash, which are perceived as some of the least risky assets (and also some of the most liquid) are to be expected, while investments into riskier assets like shares or investments funds are currently hard to justify investing in for the pension funds.

Finally, dividing the holdings by place of origin, we can see that currently, domestic bond holdings account for 94% of the total bond holdings a decrease of 0.4 p.p, MoM, while foreign bond holdings account for the remaining 6%. At the same time, domestic equity holdings account for 60.6% of the total equity holdings, a decrease of 0.1 p.p. MoM, while foreign equity holdings account for the remaining 39.4%.

For today we decided to present you with ROE and capital structure of selected SBITOP constituents.

For this analysis, we used Q1 2022 balance sheet numbers with trailing P&L items to get to the most consistent conclusions. One thing that is important to point out is that comparing the ROE or capital structure across the selected companies is not necessarily the best way to do the comparison, considering that many companies operate in different industries. Even so, it is worth seeing which Slovenian companies are more profitable and therefore have a better position in managing their prices and services (reducing costs, increasing prices of goods/services) thus increasing their ROE – and which are not. It should also be noted that financials (Triglav, Sava Re, and NLB) were excluded from the comparison regarding capital structure due to the nature of financial companies and their balance sheet.

ROE of Selected Companies (Q1 2022)

Among the selected companies, Krka recorded the highest ROE of 20.8%, which is particularly interesting as the company is majority equity funded. Also, consequently, the company operates with negative net debt. Krka’s Q1 2022 results boosted the company’s ROE as sales grew 9.3% YoY, due to higher sales in almost all of its markets. Higher sales resulted in higher profitability, further increasing the company’s ROE. Cinkarna Celje comes next with a ROE of 20.1%, while Cinkarna is 100% equity funded. Cinkarna’s ROE was also boosted by Q1 2022 results, achieving an above-average return on equity compared to the company’s history. Growth in ROE was boosted by higher profitability achieved by Cinkarna, which came on the back of higher sales. Sales were purely driven by supporting the economic situation regarding the Titanium Dioxide segment. At the bottom of the line, Telekom Slovenije reported a ROE of 6.6%, followed by Luka Koper with ROE amounting to 8.3%.

Capital Structure of Selected SBITOP Constituents

We also took a look at the capital structure of the observed companies. Financials were excluded for the sake of comparison, due to the nature of their balance sheet and financing structure. Cinkarna Celje leads the way with 100% equity. Company, besides operating with a high operating profitability, has a strong financial position – the company virtually operates debt-free. Cinkarna is followed by Krka with 99.2%, Luka Koper with 87%, Salus with 85.3% and Petrol and Telekom Slovenije with both companies financing through capital with 59.5%.