Banca Comerciala Romana BCR Equity Research

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Elaine Nash
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1 Romanian Capital Market in 1H 2008 Banca Comerciala Romana BCR Equity Research June 30,

2 Indices performance (January 1 June 30, 2008) -23.8% DJ Euro Stoxx 50 (Europe) -20.4% DAX (Germany) -12.6% ATX (Austria) RTS (Russia) 0.6% -31.5% CROBEX (Croatia) -18.3% PX (Czech Republic) -26.1% WIG (Poland) -22.3% BUX (Hungary) -13.6% NTX (CEE Region) -33.8% BET (Romania) 2

3 Regional Valuation Comparison (P/E June 30, 2008) CZ HR HU PL RO SLO AT CEE TR RU JP USA DE e 2009e 2010e Source: JCF consensus data After downward trend in 2008, the Romanian market became valuated at levels comparables with Poland and Czech Republic markets with a P/E 2008 of

4 Key items about Equity Market BSE capitalization highly concentrated; Low level of free float capitalization; High interest for major IPOs; In 2009 the BSE is able to become the most demanding CEE markets, if the Romanian authorities proceed with the listing of Property Fund and few utilities companies, such as: Nuclearelectrica, Hidroelectrica, Romgaz, Aeroportul Henri Coanda BSE s 2010 targets: Market Capitalization: EUR 100bn Average Daily Turnover: EUR 100mn BCR s 2010 forecasts: Market Capitalization: EUR 70bn Average Daily Turnover: EUR 45mn Market Capitalization and Turnover (BSE and Rasdaq market) YTD 11.2 MkCap (EUR bn) Daily average turnover (EUR mn) 4

5 Market Returns Return indices (RON) Year/ Index BET BET-C BET-FI RASDAQ-C % 26.0% 33.2% 21.7% % 103.5% 115.7% 39.0% % 38.2% 175.2% -1.14% % 28.5% 32.4% 33.9% % 32.6% 24.85% 96.48% 6M % -30.4% -41.2% -8.0% Return indices (EUR) Year/ Index BET BET-C BET-FI % 7.1% 13.2% % 114.1% 127.0% % 46.2% 191.1% % 37.4% 41.6% % 30.2% 22.6% 6M % -31.7% -42.3% 5

6 Indices' evolution on a fixed base (June 30, 07) 10% 10% -10% Jun-07 A ug-07 Oct-07 Dec-07 Feb-08 A pr-08 Jun-08-10% -30% -30% -50% -50% Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 B ET B ET -C B ET -F I 6

7 Volatility Rolling Annualized Standard Deviation of BET Daily Returns (January 1, 2006 June 30, 2008) 40% 30% 20% 10% 0% Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 7

8 BSE Characteristics Many important companies from sectors such as utilities, agriculture, telecoms are missing from the market; BSE structure is different as compared with GDP structure MARKET CAPITALIZATION (BSE Regulated market, without Rasdaq) Sector Classification; June 30, 2008 Others, 13.8% SIFs, 9.4% Banks, 26.6% Oil&gas and related services, 42.2% Utilities, 6.2% Pharmaceutical s, 1.7% The floating of utilities companies (Nuclearelectrica, Hidroelectrica, Romgaz), as well as of Property Fund, would bring a very different structure of BSE starting 2009; this will continue to be different compared to GDP structure GDP STRUCTURE IN 2007 (%, current prices) Net taxes on product, 11.1% Agriculture, 6.6% Services, 49.6% Industry, 23.5% Construction s, 9.1% 8

9 BSE Characteristics BSE capitalization is highly concentrated; Petrom and BRD-GSG have weights of 31% and 16%, respectively in the total market capitalization (including BSE Rasdaq market and excluding Erste Bank); The most visible 17 companies of BSE represented 68% of total capitalization (without Erste Bank) and 69% of the 2008 total liquidity; But their free float capitalization represents 21.8% of these companies capitalization (June 30, 2008); The five SIFs have a weight of 7.5% in total BSE and Rasdaq market capitalization (excluding Erste Bank), but a weight of 35.5% in total turnover in 1H 2008 (including BSE Rasdaq market); 9

10 MARKET CAPITALIZATION and TURNOVER for TARGETED RESEARCH UNIVERSE Company BVB Ticker Sector Free float 2008 Turnover (EUR mn) 2008 Avg daily turnover (EUR mn) MkCap June 30, 08 (EUR mn) Free Float MkCap (EUR mn) SIF Banat Crisana SIF1 Investment Companies 75.4% SIF Moldova SIF2 Investment Companies 89.6% SIF Transilvania SIF3 Investment Companies 84.1% SIF Muntenia SIF4 Investment Companies 54.6% SIF Oltenia SIF5 Investment Companies 81.2% BRD-GSG BRD Banks 11.3% , Banca Transilvania TLV Banks 70.6% , Petrom SNP Oil & Gas 6.2% , Rompetrol Rafinare RRC Oil & Gas 26.7% Antibiotice ATB Pharmaceuticals 36.9% Biofarm BIO Pharmaceuticals 49.5% Transelectrica TEL Utilities 12.8% Transgaz TGN Utilities 10.0% Flamingo International FLA IT&C and electronics retaile 32.7% Impact Developer & ContractoIMP Real estate developer 52.3% Turbomecanica TBM Engineering 50.5% Albalact Alba Iulia ALBZ F&B - milk producer 36.4% Total Targeted Research Universe Total BSE and BSE-Rasdaq market Weight Targeted Research Universe Source: BCR Research , , , , n/a 69.0% 71.1% 68.2% n/a 10

11 IPOs Market Positive market sentiment regarding major IPOs in spite of the negative market context; The most important offer should be initiated by Ministry of Economy and Finance for at least 10% holding in Property Fund (Fondul Proprietatea); Potential IPOs to launched starting 2009 Company Sector Property Fund Closed End Fund Hidroelectrica Utility Nuclearelectrica Utility Romgaz Utility Romtelecom Telecom Tarom Romanian Air Transporter Aeroportul Henri Coanda Airport Operator The successful IPOs launched in 2006 and 2007 prove that an issuer can easily raise over EUR 50mn on the BSE; 11

12 IPOs (2004 1H 2008) Company IPO Period IPO's value (EUR mn) MkCap IPO price (EUR mn)* IPO results SSIF Broker oversubscribed by 3 times Vrancart Adjud oversubscribed by 1.3 times Flamingo oversubscribed by 3.7 times Transelectrica oversubscribed by 6.5 times Alumil Rom Industry oversubscribed by 16.5 times Transgaz Medias oversubscribed by 28 times Casa de Bucovina oversubscribed by 1.4 times STK Emergent subscribed 42% (EUR 5.8mn) Contor Grup Fully subscribed Teraplast Bistrita oversubscribed 3.6% *) Total number of shares after IPO 12

13 Stock price performance after IPOs Company 1 st session 7 session 1 month 3 months 6 months SSIF Broker 159% 166% 205% 63% 80% Vrancart Adjud 10% 1% -12% -21% -20% Flamingo 5% 4% 7% 18% 8% Transelectrica 36% 63% 73% 92% 276% Alumil Rom Industry 96% 80% 68% 71% 60% Transgaz Medias 54% 67% 50% 14.6% 15.5% Teraplast Bistrita -1% -9% -8%

14 Fondul Proprietatea (Property Fund) Investment vehicle in energy sector, with the most important stakes - between 10% and 30% in utilities; Three major conditions for floating: The selection of an asset management company after an international auction; The delineation of its investment policy as NON-UCITS by CNVM; The valuation of fund's assets and the increase of share capital; Other key aspects: The main listed companies from Property Fund portfolio worth over EUR 1.7bn; The floating of Fund after an SPO will substantially increase the free float market capitalization of the BSE 14

15 Property Fund portfolio The main listed companies Company Ticker MkCap (EUR mn) Weigh of Property Fund Value of Property Fund's stake (EUR mn) Petrom Bucuresti SNP 7, % 1, Alro Slatina ALR 1, % Transgaz Medias TGN % Transelectrica Bucuresti TEL % Oil Terminal Constanta OIL % 9.58 Total 1, The unlisted companies Company Sector Weight International Henri Coanda Airport Airport operator 20.00% Romgaz Natural gas producer 14.99% Hidroelectrica Hydro-power producer 19.94% Nuclearelectrica Nuclear power producer 9.49% CE Craiova Thermo power plant 25.54% CE Rovinari Thermo power plant 23.73% CE Turceni Thermo power plant 24.93% Posta Romana Postal services 25.00% Companies involved in gas and electricity distribution with stakes between 12% and 30% 15

16 SWOT (Strengths/Opportunities) Positive market sentiment for public offering on the BSE launched by major stateowned companies; Successful IPOs launched by Transelectrica and Transgaz encourage Romanian authorities to float other utilities companies (Nuclearelectrica, Hidroelectrica, Romgaz) in order to finance their huge CAPEX plan; Increasing number of small and medium sized companies that have expressed their interest in becoming public; The floating of Property Fund will have a huge impact on the investability of Romanian capital market which has a free float capitalization less than EUR 7bn; The listing of Erste Bank opens the way for attracting new companies which are already listed on other markets (AD Pharma); Pillar II pension funds will strength the Romanian institutional investors segment, encouraging IPOs launched by private companies starting The compulsory pension fund became operational in May this year, having 4.1mn adherents who contribute with 2% of their gross wage 16

17 SWOT (Strengths/Opportunities) Property Fund could become, starting 2009, the major institutional investor on the Romanian capital market after National Securities Commission will approve the fund s investment policy, with its NAV a few times greater than the NAV of all pension funds in the coming 5-7 years; More and more listed companies have decided to finance through capital market via preemption rights exercised during share capital increases; this pattern of funding was very successfully, an amount of over EUR 250mn being raised in 2007; The improvement of eligible candidates for MidCaps and SmallCaps segments of the market as a result of significant increase in the visibility of a few dozen companies listed on the Rasdaq in the last 1-2 years; The corporate growth potential of main Romanian companies is at least comparable with CEE peers within EU convergence scenario in a stable macroeconomic environment 17

18 SWOT (Weaknesses/Threats) Low depth of the market even related to the current listed companies (free float capitalization less than 30% of the total market capitalization); Sectors like telecom, agriculture are not well represented on the market; Romanian institutional investors have a weak presence on the share demand of BSE and this situation will be substantially improved starting 2009 when Property Fund should be fully operational as well as the assets of pillar II pension funds and mutual funds will have critical size; a significant influence on the transactions from the BSE is not possible earlier than 2010 when pensions NAVs will reach EUR 1.5bn; it is also the current case of the mutual funds with a industry s NAV of only EUR 247mn at the end of May 2008; Retail segment is represented by at most 50,000 individuals, the BSE s target of 300,000 individuals in 2010 being optimistic; Significant risks related to investments in new discovered companies from Rasdaq consisting in the lack of information due to reduced transparency standards 18

19 BSE Equity Annual Turnover ( ) EUR mn e 2009e 2010e The increase of annual BSE turnover due to favorable events (1) ,697.2 The increase of BSE liquidity without taking into account favorable events (%) % 50% 30% The annual BSE turnover without the influence of favorable events (2) 3, , , , ,425.8 The BSE and Rasdaq turnover (1)+(2) 3, , , , ,123.0 Average daily liquidity The increase of BSE turnover (inclusively Rasdaq market) (%) - 79% -26% 62% 70% 19

20 Favorable events: The increasing of Petrom free-float by 8pps (starting 2010); The increase of Transelectrica s free float by 2.7pps (starting March 2008); The floating of Transgaz (starting January 2008); The floating of Erste Bank (starting February 2008); The floating of Property Fund (starting 4Q 2009); daily average turnover of EUR 8mn in 2010; New companies listed after IPOs in 2009, the major candidates being Nuclearelectrica, Hidroelectrica, Romgaz and Romtelecon; daily average turnover of EUR 4mn in 2010 generated by new issuers (excepting Property Fund); 20

Romania Market Daily

Romania Market Daily 19-10-11 FX, Money & Fixed Income Market Capital Market NBR BRD BRD (EUR) MarCap RON,m EUR,m Turnover RON,m EUR,m 3.3 4.35 19-Oct Buy Sell Buy Sell BSE 74,048.80 17,011.37 BSE 14.05