WHY BULGARIA / July 31, 2014

Transcription

1 WHY BULGARIA / July 31, 1 BULGARIA IN BRIEF Territory sq. km. Population 7.3 mln, 7.5% urban Political system Parliamentary Republic POLITICAL AND BUSINESS STABILITY Member of the EU (7), NATO () and WTO (199) Currency board arrangement, strongly supported by all institutions. The n lev is pegged to the Euro at The only country in the EU with a credit rating upgrade by Moody s for the period Current credit rating: Moody s: Baa; S&P: BBB-; Fitch: BBB- HUMAN RESOURCES Well educated, highly skilled and multilingual workforce. 98% of the high school students study a foreign language. % of the total population is in working age Most competitive cost of labor in CEE LOW COST OF DOING BUSINESS Most favorable tax regime in Europe. Corporate income tax rate is 1%, the lowest in the EU Personal income tax is 1 %, flat rate. Industries in highunemployment areas are granted % tax rate % tax on capital gains 5% withholding dividend tax One of the most competitive costs of labor in Central and Eastern Europe Favorable office rents and low cost of utilities. Cost of electricity for industrial users is 7% of the European average Financial grants for education, R&D projects and manufacturing projects; R&D expenditure write-off; -year VAT exemption for imports of equipment; Tax depreciation; Subsidies for infrastructure; Accelerated administrative services etc. (according to the Investment Promotion Act) STRATEGIC LOCATION Located at the heart of the Balkans, is a strategic logistics hub Five Pan-European corridors pass through the country ACCESS TO KEY MARKETS European Union - zero tariff market with population of 5M CIS still not well penetrated market with a high potential - zero tariff market of near 8 million population Middle East a market with high purchasing power North African market SOME ALREADY SUCCESSFUL BUSINESSES Siemens, Coca-Cola, IBM, Unicredit, ABB, HP, Aurubis, Lufthansa, Raiffeisen, Schneider, Festo, Nestle, Danone, Hyundai, Lukoil, Johnson Controls, Yazaki, Great Wall, Metro, Citi, KRAFT, BNP, IXETIC, Grammer, Kaufland etc. Macroeconomic fundaments: (f) 15 (f) GDP (EUR bln.) GDP growth (%) Exports (EUR bln.) Inflation rate (annual, %) Unemployment (%) GDP pet capita (EUR) Government deficit (-) (surplus) (+) (% of GDP) Government debt (% of GDP) EUR/BGN rate (fixed) Source: n National Bank, National Statistical Institute, Ministry of Finance, Eurostat, ELANA forecast Comparison of GDP Growth of vs EU 8%.7%.%.5%.%.% BG, annual growth % % EU, annual growth % n economy has performed better than EU every year since except for 9 and 1 % % % -% -% -% -8% -5.5%.5% 1.8%.%.%.9%1.% (f) 15 (f) Economy s performance is to follow developed markets closely on rising export orders and Europe is set to lead the global recovery The government resignation and the upcoming early elections is expected to narrow the GDP growth in 1, as companies and households will postpone their expenditures until formation of a new regular government 1

2 WHY BULGARIA / July 31, 1 8% 7% % % INCREASING INDUSTRY SHARE A strong industrial basis in the country is a condition for boosting competitiveness, sustainable growth and new jobs 5% % +3 pp 3% 1.% % 1%.% % Agriculture Industry Services Structure of GDP by output in 13, annual data, percentage share is among the few EU countries, which have increased not only the industry share, but the manufacturing share of the total GDP to around 17% in 13 In comparison for the period 13 the average share of manufacturing in EU countries declined to average 15% of GDP Spain Czech Rep. France UK PRESERVED FISCAL DISCIPLINE Despite a challenging economic environment during the last few years the government has kept the fiscal discipline continues to boast one of the lowest budget deficits in the region and the EU. In the last two years the budget deficit was even lower than the State budget target To guarantee fiscal discipline the government adopted the Public Finance Law in 13, setting rules for the budget deficit, the maximum level of expenditure and the nominal consolidated debt of the general government -1% -1% -8% -% -% -% % % General government balance in 13, percentage of GDP Czech Rep. Austria UK France Spain EU average: 87.1% of GDP % 5% 1% 15% % General government gross debt in 13 - annual data, percentage of GDP LOW GOVERNMENT DEBT Since 1999, has managed to reduce the ratio of government debt to GDP from around 8% to below % Growing economy and tight fiscal discipline contributed to low debtto-gdp ratio has the lowest debt-to-gdp ratio in EU after and is among countries with low debt-servicing costs The government is using fiscal stimulus to support consumption, including higher disposable income (gradual increase of pensions and minimum wage) 8.5% 9.% 1.% EU MAJOR TRADING PARTNER has close commercial ties with the EU, which accounts for around % of exports During the last few years there is an increase of the share of exports to countries with higher economic growth potential, such as and 8.1% There is also a shift of the geographical structure of exports towards third markets, especially in Asia 7.% Exports to China have nearly tripled % % % % 8% 1% 1% Exports to main trade partners of in 13, percentage share of total

3 WHY BULGARIA / July 31, 1 Manufacturing, energy and mining SIGNIFICANT AMOUNT OF FDI IN INDUSTRY Industry has attracted 1/3 of the total FDIs for the period, as biggest investors are supported through a priority investment scheme Construction and real estates The freeze of the main tax rates during the crisis ensured a predictable business and investment environment Finance Trade Telecommunications has significant advantages and investment potential in Chemistry and related industry; Electrical engineering and electronics; IT; Transport and logistics; Tourism; Food and agriculture; Mechanical engineering Other 3 FDI flows by industry, , EUR mln EU co-funding for for next programming period 1- amounts to EUR 15.9 bln. (around 5% of the forecast GDP for the period) STABLE CDS LEVEL n 5-year USD CDS stands at 15 in July 1 one of the lowest among Frontier/Emerging markets n 5-year USD CDS has been permanently below 15 for the last years Yields on 1-year BG Government bonds have aggressively fallen from 7.5% in 9 to 3.5% presently Investmet grade Subinvestment grade Russia Brazil 5-year CDS Levels Moofy's S&P Fitch JCRA* Aaa AAA AAA AAA Aa1 AA+ AA+ AA+ Aa AA AA AA Aa3 AA- AA- AA- A1 A+ A+ A+ A A A A A3 A- A- A- Baa1 BBB+ BBB+ BBB+ Jul. 1 Baa BBB BBB BBB last change Baa3 BBB- BBB- BBB- Ba1 BB+ BB+ BB+ Ba BB BB BB Ba3 BB- BB- BB- B1 B+ B+ B+ B B B B B3 B- B- B- Dec. 199 Caa CCC+ CCC CCC Caa D D D * As of 1 July 11 the Japan Credit Rating Agency (JCRA) withdrew its rating due to termination of contract relations with Yield on the newest 5-year n Eurobond declined from.18% in January 1 (when issued) to.1% currently (as of end-july 1) GRADUAL UPGRADING OF THE SOVEREIGN CREDIT RATING The stable fiscal position of the country in the last 17 years confirmed ability of the several governments to meet their deficit targets and to maintain public finance stability The lack of rating improvement since 11 is mainly due to slowdown of the GDP growth due to the global economic crisis and the recent political instability, which is expected to be solved with the upcoming early elections in October Nevertheless, Government Securities (GS) continue to attract significant interest from banks, pension funds, insurance companies and guarantee funds The yield of long-term GS, achieved at the last auction in June 1 (3.%) is below that on bonds denominated in national currency of a number of EU Member States: (3.%), Portugal (3.57%), (.15%), (.33%), (5.8%) Serbia Slovenia Ukraine Russia France HUGE POTENTIAL FOR INCREASE OF MARKET CAPITALIZATION TO GDP RATIO n capital market capitalization is below 15% of the GDP - significantly lower compared to developed markets With the expected better market performance in next years, new interesting IPOs are expected The government is expected to sell its stake in different state companies through the stock exchange % % % % 8% Market capitalization to GDP in 13, % 3

4 BULGARIAN STOCK MARKET / July 31, 1 Stock Market Infrastructure Stock Market Snapshot Market Operator n Stock Exchange- Sofia Market Capitalization EUR 5. bln. Custody Central Depository Market Capitalization/GDP 13% Regulator Financial Supervision Commission Main Index SOFIX Legislation Fully EU/MIFID Harmonized Total 13 turnover EUR 778 mln. Trading platform XETRA (provided by Deutsche Boerse) Average daily turnover (13) EUR 3. mln. n stock exchange shareholder structure Corporate governance Government owns 5% (expected privatization in 1 by a leading world market operator) National code since 7, National commission since 9, Corporate Governance Index (CGIX) since 11 Top 1 Average free float.33 SOFIX P/E 7.9 SOFIX P/B.85 Top 5 Public Companies by Market Capitalization in 13, EUR mln. Top 5 Public Companies by Trading Volume in 13, EUR mln. Company Name Market Capitalization Company Name Trading Volume Bulgartabac (57B) 31 Corporate Commercial Bank (C9) 81 Sopharma (3JR) 31 Bulgartabac (57B) 78 Corporate Commercial Bank (C9) 91 Petrol (5PET) 9 First Investment Bank (5F) Agro Finance REIT (AG) 53 Petrol (5PET) 3 Sopharma (3JR) year n market (SOFIX) performance vs developed and emerging markets USA year n market (SOFIX) performance vs European frontier markets 5 Serbia Bosnia and Herzegovina n market has significant long term potential for catching up with global markets recovery n market dropped 87% from 7 peaks to 9, but has only recovered around 3% from the 7 peak, while all developed world markets have already reached their peaks. MSCI World in mid-1 is only 3% below it s all time 7 high n market has also strong potential to increase compared to other frontier markets, as some of attractive frontier markets, such as Baltic stock markets, have already recovered between 5% and 75% from their pre-crisis peak level The stable potential for growth is also based on the already started gradual increase of the economy and disposable personal income, as well as the high level of bank deposits of individuals (5% of GDP)

5 BULGARIAN STOCK MARKET / July 31, 1 1 Jan Jul 1 performance in USD terms Ukraine Cz. Rep. Russia Slovenia Serbia Slovakia Macedonia -% -% % % % % 8% The recovery has already started. With a 3% growth outperformed all world markets in 13 (MSCI World, S&P 5 and DAX increased between 3-7% in 13) The main market players on the BSE remain the pension funds. We expect at least EUR 5m (7% of 13 BSE turnover) fresh flow in BSE in 1 from institutional investors The trend for outperforming continues also in 1 as SOFIX posted another 19% increase for the period January - July 1. For the last 1.5 years SOFIX registered the highest increase among the regional capital markets, rising by 58% Assets of n pension funds 5 +1% % % f Stock exchange turnover for some emerging and frontier markets in 13 EUR mln. Czech Republic Tunis Sudan Baltic Region Market Bosnia and Herzegovina Slovenia Macedonia Montenegro The assets of pension funds in increased significantly during the last two years, as in 13 they are by % higher compared to 11 Pension fund assets compared to stock exchange market capitalization almost doubled for the last two years to 8% As a result of the global-scale revival is expected portfolios of the pension funds, which is invested in shares of n, to increase The turnover of the n Stock Exchange increased by over 7 % in 13, reaching EUR 778 mln. With the same pace went up the average daily turnover to EUR 3. mln. The number of trades increased by almost 1/3 compared to 1 This speaks about the revival of the market and gives grounds to expect an even better 1 8 EUR mln. n market is still cheaper than most global markets: INDICE COUNTRY P/E* P/B* SOFIX CAC France S&P5 USA WIG a ASE SHSZ3 China Brazil Ibovespa Brazil MSCI World Index World *As of 31 Jul 1, source: Bloomberg 5

6 BULGARIAN STOCK MARKET / July 31, 1 Stocks we like BSE TICKER COMPANY NAME PRICE AS OF 31 MARCH 1 (BGN) 13 EPS 1 EPS * AB Albena CF Central Cooperative Bank C Chimimport F First Investment Bank MH M+S Hydrualic MB Monbat NB Neochim JR Sopharma..3.3 SO5 Sopharma Trading SP Speedy...1 Earning per share forecasts Chimimport (C) chart CHIMIMPORT (BLOOMBERG: C BU) Large-scale holding company, with leading positions in strategic sectors of the n economy - banking sector, insurance, pension insurance, air, river and maritime transport, trade with oil and natural gas products. Ranked th in Deloitt s top 5 for CEE companies for 13 Over 5 successful in their scope of business subsidiaries. Strong opportunities for cross-selling The most liquid stock on the market. Lowest multiples among blue chips P/E 3.7 and P/B.3 Sopharma (3JR BU) chart SOPHARMA (BLOOMBERG: 3JR BU) The second largest pharmaceutical company in with % market share by value and 13% by units sold. Vertical integration in distribution of medicines..5% revenue CAGR for the last decade 15 modernized factories in, two in Serbia, and one in Ukraine, to provide full-scale coverage on EE and SEE markets Domestic distribution market leader with 3% market share. Provides turnkey solutions for hospital construction, as well as complete logistics solutions for import, storage and distribution of goods to end customers Monbat (5MB BU) chart Portfolio consists of generic medicines as well as original phytobased products MONBAT (BLOOMBERG: 5MB BU) The largest producer of lead-acid batteries in with - year history. One of the best managed among listed companies in. 3.% revenue CAGR for the last decade Own recycling facilities in and, reducing the risk of lead price volatility Good market diversification, as the company exports to over countries all over the world. Revenues from exports represents near 9 % Continuous development and introduction of innovative products to the market, developed in the own R&D laboratory Portfolio consists also of production of Light-Emitting Diode (LED), which given the new EU regulatory requirements will be secured with availability of sufficiently good domestic and international markets

7 BULGARIAN STOCK MARKET / July 31, 1 Speedy (SP) chart SPEEDY (BLOOMBERG: SP BU) Leading n courier company with 5% market share and 1% coverage of the country. Extremely high brand recognition Member of the one of the largest road networks in Europe - Dynamic Parcel Service DPD, which provides to Speedy fast land and air transportation services to over countries all over the word Focus on corporate clients, which generate the majority of the orders. Expanding operations in by acquisition of local company. Large investments in vehicle and warehouses to increase efficiency. Most advanced IT infrastructure and very well-trained and motivated staff 1% growth of revenues in the domestic market and 3% in the international segment Privatization plan of the government for 1, capital market events and our expectations: The local Stock exchange and the depository institution. They will be sold to another market operator, as the government stake (5.5%) will not be available to the general public. The process is expected to resume after early elections in October. However, other shares of the stock exchange are traded at the moment and could be buying opportunity with possible exit after the privatization (the ticket of the company is BSO BU) 3% share in n Maritime Fleet. The company is privately owned and the majority shareholder did not use the option to acquire the rest of the company. There is no indication yet that the shares will be sold via the stock market, although the government could look for portfolio investors in attempt to attract more capitals. Nevertheless, the probability of this privatization happening soon is quite low, as there have been no news about it at all. This will hardly by a good investment case, as currently the sector is in crisis 9% of International Fair Plovdiv. The company is organizing industrial and trade fairs in the second largest city in - Plovdiv. There is no specific information about the deal, so we do not expect anything to happen in the next months. However, this privatization has the potential to be a very interesting one and could attract large interest If priced adequately Capital increase of Speedy (SP) - the leading courier company in, as the company will expand operations in by acquisition of local company. Forthcoming entry of big strategic investor Geopost, part of La Poste Group, which will buy 5% of the capital of Speedy. The entry of large foreign investor is very positive for both stock price and fundamental performance of the company. We expect a solid growth of revenues and increased trading volumes SPO of ELANA Agrocredit (AE) - ELANA recently established the first leasing company offering leasing for purchases land to agricultural producers. This is very low-risk investment with a 1-1% approx. annual return. The company is expected to raise capital in H 1 expected size is EUR 7.5 mln. More information about the company is available at Possible IPO of tech company and football club CSKA. It will be closely watched by market players and it will be a good sign for n stock market revival and future tech stocks demand Now you know Why, find us at: DIMITAR GEORGIEV Head of Trading direct: dept: mobile: fax: mail: georgievd@elana.net TATYANA PUNCHEVA-VASSILEVA Senior Analyst direct: dept: fax: mail: vasileva@elana.net Research reports on : ELANA Trading 5, Lachezar Stanchev St., Sopharma Business Towers, Tower B, Floor Sofia, 7