In December 2023, the Croatian CPI growth amounted to 4.5% YoY, while it declined by 0.5% MoM, according to the flash estimate. We emphasize this is “only” the second month to note a MoM decline in CPI. We expect that inflation in the US and the Eurozone will continue to slow down and that the average inflation in these economies would amount to around 2.5% in 2024.
Last week, the Croatian Bureau of Statistics released the flash estimate of the Croatian CPI growth, for the month of December 2023. According to the estimate, the Croatian CPI increased by 4.5% YoY, but it declined by 0.5% MoM. However, one has to note that CPI was already significantly elevated in the same period last year, amounting to a 13.1% growth YoY, marking only one month after the highest point of CPI growth. As such, the 4.5% YoY increase is more due to the effect of the high base, rather than the real and continued slowdown in inflation.
Croatian CPI YoY growth (February 2013 – December 2023, %)
Source: Croatian Bureau of Statistics, InterCapital Research
However, the MoM data is more encouraging, as it demonstrates that a slowdown in inflation has started to take place. Of course, this is “only” the second month of the seen decline, and it will require several consecutive months to be able to conclude that the inflationary pressures have started cooling off.
Here we can also see a trend that has been prevalent for quite a while now. Due to the continued elevated energy prices, inflation spilled over to other categories. Inflation in Food, beverages and tobacco has been present almost from the start, while Services inflation is mostly tied to the fact that inflationary pressures on energy and food started all the way back in 2021 due to supply chain issues related to COVID-19 restriction, inflation in Services was subdued due to the lack of demand for them. This would of course mainly relate to tourism, the main service offered in Croatia, but also other affected industries by the pandemic, such as restaurants, cinemas, theatres, etc., which all recorded price hikes.
Next up, we can also look at the harmonized index of consumer prices, HICP, which allows us to compare Croatia to other European countries. In terms of overall Euro area inflation, it amounted to 2.9% YoY. However, we emphasize that the previous month’s inflation in Euro area amounted to 2.4% YoY. The jump from 2.4% in November to the current 2.9% can be attributed to the energy products during December, even though energy noted a YoY double-digit decrease overall. The jump occurred as most euro countries stopped with state subsidies for electricity and gas, leading to the jump in inflation on a YoY basis. Finally, for Croatia, annual growth amounted to 5.4%, while the monthly rate amounted to -0.3%.
Comparison of HICP change with available European countries (December 2023, YoY, %)
Source: Croatian Bureau of Statistics, InterCapital Research
As we can see in the yearly data, Croatia once again recorded the 3th largest HICP, only behind Slovakia’s 6.6% and Austria at 5.7%. Slovenia meanwhile, recorded 3.8% growth, while other European heavyweights, such as Germany, France and Spain recorded annual inflation in ethe range of 3-4%.
We expect that inflation in the US and the Eurozone will continue to slow down and that the average inflation in these economies would amount to around 2.5% in 2024. During 2024, we see three to four cut rates starting in Q2 2024. In other words, a 75bps or 100bps decline in the Fed’s reference rate, which is currently standing at 4%. Decrease in prices of food and basic goods, coupled with the removal of difficulties in supply chains should be reflected in decline of consumer goods prices growth.
Inflation has room for further decline
Source: InterCapital Asset Management, Bloomberg
In 2023, the total equity turnover recorded a 15% decrease compared to 2022, while if we were to exclude block trades, the equity turnover actually grew, by 19% YoY. Furthermore, 2023 also recorded significant growth for CROBEX and CROBEX10, as they recorded increases of 28% and 34% YoY, respectively.
Zagreb Stock Exchange, ZSE, has recently published a report on the trading activity on the Exchange, for December 2023. As December also marks the end of 2023, we included an overview of how this year’s trading activity compares to 2022.
Starting off with December only, the total equity turnover amounted to EUR 27.6m, representing an increase of 29% YoY, but a decrease of 16% YoY. What’s more, if we were to look at the equity turnover excluding block trades, it amounted to EUR 25.6m, representing an increase of 70% YoY, whilst remaining roughly the same MoM. This would mean that the average daily turnover amounted to EUR 1.35m, which is slightly above the numbers we usually see (between EUR 1.1m and EUR 1.2m).
Monthly equity turnover on ZSE (January 2022 – December 2023, EURm)
Source: ZSE, InterCapital Research
Turning our attention to the yearly data, 2023 recorded a total equity turnover of EUR 320.9m, representing a decrease of 15% compared to 2022. However, 2023 was a year in which there was reduced block trade activity as more trades were done over the normal trading system. As such, excluding block trades, the equity turnover in 2023 was actually 19% higher than it was in 2022. As such, it could be said that even though the overall turnover was lower, more trades were done directly over the Exchange instead of through blocks, which could imply higher liquidity and lower need for block trades, a positive news for ZSE.
Turning our attention to the most traded stocks, Podravka was by far the most traded stock during December, at EUR 5.9m, or 23% of the total equity turnover. Following it there is Adris Grupa (pref.) at 11%, or EUR 2.87m, Valamar Riviera, at EUR 2.3m, or 9%, Ericsson NT, at EUR 1.8m, or 7%, and HT, at EUR 1.37m, or 5%. Combined, the top 5 most traded stocks accounted for 56% of the total equity turnover, while if we looked at the top 10 most traded stocks, the numbers increased to 74% of the total equity turnover.
Croatian blue chips December 2023 performance (MoM, %)
Source: ZSE, InterCapital Research
In terms of the performance of the Croatian blue chips, December marked another month of growth for all of them, with the largest increase recorded by Valamar Riviera at 10%. Following them there is Podravka at 9%, Adris (pref.) at 4%, as well as Atlantic Grupa, Hrvatski Telekom, and Ericsson NT, at 3%, respectively.
Croatian blue chips 2023 performance (YoY, %)
Source: ZSE, InterCapital Research
Meanwhile, during 2023, 9 out of 10 Croatian blue chips recorded growth, with only Ericsson NT recording a 12% decline. Of the top performers, Podravka recorded an increase of 94%, almost doubling its share price this year, followed by HPB at 71%, Končar at 63%, and Span, at 41%. As such, this year could be described as not only a year of recovery but also of growth for the Croatian blue chips, as significant returns could be recorded if one started investing at the beginning of 2023. This was in stark contrast to 2022, during which the ongoing war in Ukraine, the possibility of further geopolitical escalations, as well as the beginning of interest rate hikes across the world, but especially in the US and EU contributed significantly to the negative sentiment.
The turn to the positive sentiment is also reflected in the main indices, as CROBEX recorded a 4.1% increase MoM and 28% YoY, while CROBEX10 recorded a 4.5% increase MoM, and a 34% increase YoY. For reference sake, S&P500 recorded an increase of app. 24% during 2023.
After the IPO in mid-2023, Hidroelectrica [H2O RO Equity] currently trades at ATH. We decided to bring you a brief overview of the IPO of Hidroelectrica’s share price and its further impact on the Romanian stock exchange.
After being probably the hottest topic on the regional equity market, Hidroelectrica [H2O RO Equity] was listed in mid-2023 at the IPO share price of RON 104 on the Bucharest Stock Exchange (BVB). Since then, the company’s share price reached c. RON 128 near the end of 2023. With the start of this year, the company breached the mentioned levels and is currently trading at ATH of around RON 132 per share.
Hidroelectrica’s share price [in RON, since IPO]
Source: Bloomberg, InterCapital Research
H2O’s IPO resulted in oversubscription multiple times at the Offer Price, with strong investor demand from investors globally, including from Romania. During its 1st trading day, app. EUR 153m of the stock was traded, and the share price increased by 5.8%.
Soon after, Hidroelectrica announced that it would be included in several new indices. During mid-July already, Hidroelectrica was included in the FTSE Global All-World Index, FTSE Global Large Cap Index, and FTSE Emerging Index. Secondly, MSCI announced that also during July 2023, Hidroelectrica’s shares would be included in the MSCI Frontier and MSCI Romania indices. Finally, Romania should become an emerging market with Hidroelectrica being the tipping point needed for Romania to be classified as “Emerging” by MSCI.
Currently, the company is traded at ATH with a strong 9M 2023 reported with top-line growth amounting to 32%, EBITDA increase of 35%, and bottom line of RON 5.2bn (42% YoY increase with comparable period). Results were driven by strong performance across power generation and electricity supply business segments. Further, the analyst coverage of Hidroelectrica is overall positive with target prices around the current valuation.
Hidroelectrica key financials (9M 2023 vs. 9M 2022, RONm)
Source: Hidroelectrica, InterCapital Research