Today, we bring you an overview of the current ratio of Croatian blue chip companies, based on the data from FY 2022 results.
Firstly, the current ratio, also known as the liquidity ratio, shows us how well a company is able to pay its short-term obligations, i.e. within one year. To calculate this ratio, one has to take the current assets of a given company and divide them by short-term liabilities. This would show us how well a company can use its current assets to pay any current debts it might have.
Of course, using this ratio to compare companies in different industries won’t yield satisfactory results, as different industries are used to operating at different levels of current assets or short-term debt. As such, only comparisons between companies in the same industries are viable. One can also look at the industrial average of a select industry, or a peer group of companies in that same industry for comparison.
The current ratio of Croatian blue chips (2022 vs. 2021)
Source: Companies’ data, InterCapital Research
As we can see in the chart above, the highest current ratio is held by Hrvatski Telekom, at 2.98x. Compared to the same period in 2021, this represents a decrease of 7.7%, mainly due to the fact that its current assets increased by 2% (to EUR 692.3m), while its short-term liabilities increased by 11%, to EUR 232.2m. Next up, we have Ericsson NT, which recorded a current ratio of 2.35x, representing a decrease of 7% YoY. Here we can see a similar story as with HT, as ERNT’s current assets increased by 7%, while their short-term liabilities grew by 15%. Following them, we have Podravka, whose current ratio amounted to 2.27x, representing a decrease of 20.2% YoY. Podravka did record a noteworthy increase in current assets, of 31% YoY, but their short-term liabilities increased by 64%, leading to a reduction in the current ratio. Podravka has deceased its exposure to buyers in Russia in Pharma segment by using factoring as a means of collecting receivable. This is one of the reasons why its current assets are growing slower than in the previous period.
Next up, we have the newest addition to the CROBEX10 index, Span. Span recorded a current ratio of 2.17x in 2022, an increase of 3.5% YoY. In fact, out of all the observed companies, Span is one of the two companies to record an increase in the current ratio. This increase came as a result of the increase in current assets, which grew by 15%, while the short-term liabilities increased by 11%.
Without going into the remaining companies in detail, we can point out a few more examples. Atlantic Grupa, which operates in the same industry as Podravka, recorded a current ratio of 1.47x, representing a decrease of only 2.6% YoY. Their current assets increased by 15%, while their short-term liabilities grew by 18%. Compared to Podravka, this is half an increase in current assets and almost a 3.5x less increase in short-term liabilities.
We can also point out the tourism blue chips, i.e. Arena Hospitality Group, Valamar Riviera, and to a large extent, Adris Grupa. In 2022, they recorded current ratios of 1.74x, 1.28x, and 1.32x, respectively. This would represent a change of 12.2%, -23%, and -3.3%, respectively. As we can see in this industry, most of the ratios are quite similar, with Arena able to increase the ratio due to the fact that its current assets grew by 30%, while its short-term liabilities grew by 16%. Valamar on the other hand, recorded a decrease in both their current assets (-28%) and short-term liabilities (-6%), leading to an overall reduction.
Having all of this in mind, one has to take several things into consideration. A decrease in the current ratio in the present period is expected, as companies increase their current assets, mainly due to several reasons. Firstly, higher inventory numbers, as the current macroeconomic situation reduces the disposable incomes of citizens, leading to longer inventory storage times. Secondly, due to the increase in cash & cash equivalents, companies increase their buffer in the situation. Lastly, higher receivables can also be expected, as both clients and other companies require longer time periods to pay the companies in question.
On the other hand, depending on the company and industry, a general increase in obligations can be expected. With higher loan interest rates, higher interest will have to be paid. This is especially true for investment & working capital loans that have to be continually balanced and renewed. In fact, this is something that we have already seen in the statistics from the Croatian National Bank, more of which you can read here.
Overall, none of the companies, whether the select few who saw an improvement or the majority who saw a decrease in the current ratios are currently under any serious threat when it comes to paying off their short-term obligations, despite the economic situation.
In April 2023, total equity turnover decreased 21.93% MoM, while CROBEX was down slightly by -0.3% during the month, ending at 2,230.85 points.
In April, we have seen a flat movement of CROBEX, noting but a slight decrease of 0.3% MoM. The total equity turnover on the exchange, however, is quite different to the previous month. In April 2023, it amounted to a total of EUR 20.33m, which is a decrease of 86.88% YoY and an decrease of 21.93% MoM. The decrease on a yearly level is evident and further amplified due to exceptionally strong trading in April last year. This month’s block turnover amounted to only EUR 1.98m, which would mean that the block turnover accounted for only 9.8% of the total equity turnover. In total, only 2 block trades were made during the month, HT contributing with EUR 1.5m and Atlantic Grupa with EUR 500k. Furthermore, this would also imply an average daily equity turnover of EUR 1.07m.
Turning our attention to the top 10 most traded stocks, in total, they recorded a turnover of EUR 13.6m, accounting for 67% of the equity turnover during the month. The highest turnover was recorded by SPAN, at EUR 4.2m, or 20.5% of the total, followed by Valamar Riviera, at EUR 1.7m, or 8.2% of the total. ZABA and HT are following the list with 7% and 6.2% of total equity turnover, respectively. This would also mean that the top 5 most traded stocks accounted for 46.8% of the total turnover. Overall, we note that Span continued to be the most attractive stock on ZSE, after leading the list for the whole Q1 2023.
Looking at the largest index on ZSE, CROBEX, we note that it recorded just a slight decrease of 0.3% during the month and ended at 2,230.85 points. On the other hand, CROBEX10 experienced a 0.6% increase and ended at 1,281.93 points.
Performance of CROBEX10 constituents (April 2023, %)
Source: ZSE, InterCapital Research
Looking at the CROBEX10 constituents during the month, the largest increases were recorded by Span, with its share price double-digit growth of 13%. It is followed by Adris with 4% Končar with 1.6%. The positive sentiment that lasted throughout the whole first quarter has shrunk slightly. The sentiment during Q1 was driven by warmer-than-expected winter, inflation stabilization, as well as the general macroeconomic outlook being less bleak than it seemed a couple of months ago. However, the recent bank uncertainties with the balance sheets of banks have appeared and shaken the sentiment recovery.
Performance of CROBEX10 constituents (YTD, %)
Source: ZSE, InterCapital Research
Looking at the YTD performance, one can notice a more pronounced positive sentiment. We had 9 out of 10 CROBEX10 constituents in green, with the majority of them noting a solid double-digit return. Span’s share price development, without the doubt, leads the list with an increase of as much 62.6%, which is in line with mentioned Span’s price development during April (+13.2%). Span is followed by Atlantska Plovidba and Adris (pref.) with 21% and 20.1% increase, respectively. Arena Hospitality is to follow with 17.1% increase, Končar with 12.1%, Podravka with 11% and Atlantic Grupa with 10.2%. Finally, also HT and Valamar Riviera noted a high single-digit increase of 8.7% and 8.2%, respectively. Ericsson NT is the only company do note a negative share price development of shy 1.5% decline. This resulted in CROBEX growth of 13.% and slightly lower return of CROBEX10, which amounted to 11.6%.
By the end of March 2023, the NAV of the Croatian pension funds amounted to a total of EUR 18.2bn, which would imply an increase of 4.2% YoY and 1% MoM.
The latest report on the developments and changes in the Croatian financial markets has been published by HANFA. In the report, we can see that the total NAV of Croatian pension funds amounted to EUR 18.2bn, which would mean it grew by 1% MoM, and 4.2% YoY. At the same time, the net contributions into the funds amounted to EUR 98.6m during the month, while since the beginning of 2023, they amounted to EUR 284.4m.
Croatian mandatory pension funds AUM structure change (January 2018 – March 2023, EURm)
Source: HANFA, InterCapital Research
Moving on to the changes recorded by the individual asset holdings, on a monthly basis, the largest increase was recorded by bond holdings, which grew by EUR 397.2m, or 3.5%. This increase is to be expected, as the retail bonds issued by the Croatian government (more of which you can read here). The next largest absolute increase was recorded by shares, which grew by EUR 59.3m, or 1.5%, and investment funds, which increased by EUR 20.1m, or 1%. On the other hand, deposits and cash decreased by EUR 233.9m or 36.5%. Again, the influence of the retail bond issuance can be seen here; not only were the new contributions (at least the majority of them) invested in bond holdings, but there was also a reduction in deposit & cash holdings to increase bond, share, and investment fund holdings.
This move can be seen as a prudent one as deposits and cash, even though they carry almost no inherent risk, also yield very little, especially as compared to bond holdings (and especially the retail govt. bonds) but also shares, which have also recorded positive returns since the beginning of the year.
Meanwhile, on a yearly basis, the largest absolute increase was also recorded by bond holdings, which grew by EUR 592.9m, or 5.4%. Following them, we have shares, which increased by EUR 248m, or 6.8%, and money market holdings, which increased by EUR 112.8m, or 129% YoY. On the other hand, deposits and cash decreased by EUR 142.8m or 26% YoY.
Looking at the current asset structure of the pension funds, we can see that bond holdings have the largest majority, holding 64.1% of the total assets, which is an increase of 1.59 p.p. MoM, and 0.69 p.p. YoY. Shareholdings are the next largest category, accounting for 21.5% of the total, an increase of 0.12 p.p. MoM, and 0.51 p.p. YoY. The only other notable category, with over 10% of the total asset holdings, is investment funds, which accounted for 11.4% of the total, remaining unchanged MoM, but decreasing by 0.48 p.p. YoY.
Current AUM of Croatian mandatory pension funds (March 2023, % of the total)
Source: HANFA, InterCapital Research