Ukraine Economy: Another small step towards a concrete recovery

Transcription

1 October 16, 2015 Ukraine Economy: Another small step towards a concrete recovery Economy Key macro data and projections Ukraine Eurobond universe NDF and CDS Ukrainian equity multiples Stock market summary

2 Economy: Another small step towards a concrete recovery Monthly industrial output and retail trade, chg. yoy 1 5% -1-15% -2-25% -3-35% Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Source: UkrStat CPI and PPI, yoy Retail trade Sources: UkrStat, SP Advisors Monthly balance of payments, USD bln Industrial production -1 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 CPI PPI Core CPI NBU policy rate 35% 3 25% 2 15% % Mar-13 Aug-13 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Source: UkrStat -4.0 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Financial account (F/A) balance Current account (C/A) balance C/A + F/A Source: NBU Mostly positive economic news materialized in small portions over the past month. A return to growth now looks just a month or two away, with nearly all of Ukraine s major industries positioned for a gradual rebound by the end of Inflation currently the key drag on real private consumption is still fairly volatile in monthly terms, but annual CPI remains firmly on a downwards trend. The hryvnia has fluctuated in an acceptable UAH 21-23/USD range and the market seems confident in a foreseeable future free from major shocks. The IMF has postponed the disbursement of the third EFF loan tranche, but for purely technical reasons. Finally, parliament s recent affirmative vote on a debt operation fits well into the broadly positive macro outlook. GDP likely touches the bottom The pace of economic decline continues to decelerate and all data suggest the economy is touching the bottom. Nearly all the major sectors are now close to launching a recovery and the first green shoots are becoming visible. We maintain our view that 4Q15 will be the first quarter of growth (in qoq terms) after 7 straight quarters of decline and that the economy will be on a steady recovery path through Annual CPI firmly decelerating Growth in consumer prices gained pace in September (+2. mom) mainly driven by seasonal apparel and footwear (+18. mom), a ripple of the deep hryvnia depreciation in 1Q15. Still, annual CPI decelerated to 51.9% from 52.8% in August. On balance, the steep disinflationary path Ukraine is currently on will continue, with weak consumer purchasing power playing the key role. We affirm our end-2015 CPI projection of 46% and expect a further drastic drop-off to 10-15% in 2H16. The continued disinflationary trend prompted a long-expected decision by the NBU to slash its key policy rate from 27% to 22% at end-september, the second cut since the NBU hiked the rate to 3 in early March. The decision was overdue, we believe, and was an important move that signals a major turnaround in the central bank s sentiment. The rate could be cut further by 3-5pp by the year-end, in our opinion, but it will take time before the NBU rate becomes a full-fledged tool of monetary policy. FX market remains in surplus, NBU continues FX purchases The latest news from the FX market is overwhelmingly encouraging. The UAH/USD market rate has remained in the NBU s implicit UAH 21-23/USD target corridor, and the central bank grew gross reserves 1.2% mom in September to USD 12.8 bln (+7 YTD). The NBU announced it has continued to purchase FX in the first half of October, which implies Ukraine s external accounts have remained in surplus for almost half a year. Notably, the NBU recently revealed that exporters currently sell on average 95% of export proceeds, well above the 75% surrender requirement. This is a clear signal that hryvnia depreciation expectations are virtually non-existent these days. The IMF program seems to be on track as the fund made broadly positive comments on Ukraine s progress following a recent visit. However, the second review and disbursement of the third USD tranche will be delayed. The fund announced it will return to Ukraine to have another look at 2016 economic policy in certain areas to complete the second review. We expect the third tranche will be disbursed no sooner than mid-november, which would shift the fourth tranche to early 2016 from the current mid- December timeframe. In that event, Ukraine s gross international reserves would end the year USD 1.7 bln short of our projection of USD 16.4 bln. We do believe the market will understand the need for any technical delay in the disbursement of new tranches and any negative effects are unlikely. 2

3 Appendix A. Key macro data and projections E Business cycle indicators Real GDP, chg yoy 7.6% % 4.1% 5.2% 0.2% 0.2% -6.8% -12.4% Household consumption, chg yoy 17.1% 11.8% -14.9% 7.1% 15.7% 11.7% 7.7% -9.6% -20.1% Investments in fixed capital, chg yoy 23.9% 1.6% -50.5% 3.9% 7.1% 0.9% -6.7% Industrial output, chg yoy 7.6% -5.2% -21.9% 11.2% % % -17.1% Nominal GDP, UAH bln ,079 1,300 1,405 1,465 1,567 1,881 Nominal GDP, USD bln GDP per capita, USD 3,078 3,891 2,550 2,972 3,580 3,865 4,030 2,904 1,763 CPI (eop) 16.6% % 4.6% -0.2% 0.5% 24.9% 46. CPI average 12.8% 25.2% 15.9% 9.4% % % 52. Unemployment (ILO methodology, avg) 6.9% 6.9% 9.6% 8.9% 8.7% 8.2% 7.8% 9.7% 11.8% Balance of payments Current account balance, USD bln % GDP -3.7% -7.1% -1.5% -2.2% % % Financial account balance, USD bln * % GDP % -10.2% 5.9% 4.8% 5.8% 10.1% -6.1% 2.2% FDI net, USD bln % of GDP 6.5% 5.5% % % 1.8% 0.2% 3.1% Gross NBU reserves (eop), USD bln Monetary and banking indicators Monetary base, UAH bln Monetary base, chg. yoy 46% 32% 4% 16% 6% 6% 2 8% 14% Money supply (M3), UAH bln ,072 Money supply, chg. yoy 52% % 1 18% 5% 12% Monetary multiplier (eop M3/MB) Bank loans, chg. yoy 74% 72% -2% 1% 1 2% 12% 1 5% Bank deposits, chg. yoy 52% 28% -8% 26% 18% 16% 18% 6% Loan-to-deposit ratio 152% 205% 219% 175% 162% % 152% 151% Exchange rate Official UAH/USD (eop) Official UAH/USD (avg) Budget and debt indicators State budget revenues, UAH bln % of GDP % % 24.6% 23.2% 22.8% 23. State budget expenditures, UAH bln % of GDP 24.4% 25.8% 26.8% % 27.6% 27.8% 28.2% State budget balance, UAH bln % of GDP -1.4% % % -3.8% -4.4% % Public debt, UAH bln ,101 1,780 % GDP % 40.1% 36.4% 36.7% 39.9% % * This number includes exceptional financing (cash savings due to restructuring of public and Ukreximbank Eurobonds) and official funding (expected funding from IFIs and foreign governments). IMF loans are not included into F/A balance estimate. Sources: NBU, UkrStat, Ministry of Finance, Bloomberg, SP Advisors 3

4 Appendix B. Ukraine Eurobond universe (1) Ukraine Eurobond yield map* YTM 20 2,657% Avangard City of Kyiv Mriya Privatbank Metinvest 8 Ukrlandfarming-18 DTEK-18 4 Ukraine FUIB-18 Ferrexpo-19 Ukr Railway-18 Oschadbank Ukreximbank MHP *as of Oct. 14, 2015 Years to maturity 4

5 Appendix B. Ukraine Eurobond universe (2) Key parameters of Ukrainian Eurobonds* Amount YTM,% Mid. YTM change, pp Raiting Name Currency Maturity USD mln Mid Spread 1 M YTD Fitch Moody's S&P Sovereign Ukraine-09/15 USD NR WR NR Ukraine-10/15 EUR NR WR D Ukraine-12/15 USD 3, C Ca D Ukraine-06/16 USD 1, C Ca D Ukraine-11/16 USD 1, C Ca D Ukraine-07/17 USD 2, C Ca D Ukraine-11/17 USD C Ca D Ukraine-20 USD 1, C Ca D Ukraine-21 USD 1, C Ca D Ukraine-22 USD 2, C Ca D Ukraine-23 USD 1, C Ca D Infrastr. projects-11/17 USD Ca - Infrastr. projects-12/17 USD (P)Ca - Infrastr. projects-18 USD Ca - Municipal City of Kyiv-15 USD C Ca CC City of Kyiv-16 USD C Ca CC Banks Ukreximbank-22 USD CCC Ca - Ukreximbank-23 USD C Ca - Ukreximbank-25 USD CCC Ca - Oschadbank-23 USD CCC Ca - Oschadbank-25 USD CCC Ca - Privatbank-15 USD NR WR - Privatbank-16 USD Cu - Privatbank-18 USD CC Cau - FUIB-18 USD NR WR - Corporate Avangardco-15 USD WD - - MHP-20 USD CCC - CCC- DTEK-18 USD C - - DTEK-18 USD C Ca - Metinvest-16 USD NR Caa3 - Metinvest-17 USD C - - Metinvest-18 USD C Caa3 - Mriya-16 USD WD - NR Mriya-18 USD WD - NR Ferrexpo-19 USD CCC /*- Caa3 CCC+ Ukrainian Railway USD C - CC Ukrlandfarming USD WD - CC *as of Oct. 14,

6 Hundreds Ukraine Economic Overview October 2015 Appendix C. NDF and CDS 5Y CDS vs. Fitch long-term rating* 5Y CDS * data as of Oct. 14, 2015 Украина 400 Казахстан Россия Турция 200 Польша Венгрия Румыния 0 A BBB BB B 16 17CCC C21 22 Fitch long-term rating 5Y CDS, 6-m development 4,000 3,500 3,000 2,500 2,000 1,500 1, Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Ukraine Russia Poland Ukraine sovereign Eurobond yields, 6-m development Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Ukraine-09/15 Ukraine-04/23 Hryvnia spot and NDF rates, 6-m development Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 NDF, 3 months NDF, 6 months NDF, 12 months UAH/USD 6

7 Appendix D. Ukrainian equity multiples Ukrainian stock multiples* MCap, EV/EBITDA EV/Sales P/B P/E Net Debt / Book Value Sector / Company Ticker USD mln 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E Agriculture Kernel KER PW 1, MHP MHPC LI Astarta AST PW IMC IMC PW KSG Agro KSG PW Median Food Avangard AVGR LI Ovostar OVO PW Milkiland MLK PW UkrProduct UKR LN Median Oil & Gas JKX Oil & Gas JKX LN Kulczyk Oil SEN PW Regal Petroleum RPT LN Cadogan Petroleum CAD LN Median Mining Coal Energy CLE PW Metals & Mining Ferrexpo FXPO LN Real Estate TMM TR61 GR Transportation KDM Shipping KDM PW * as of Oct. 14,

8 Appendix E. Stock market summary Ukraine indexes (UX, WIG Ukraine) vs. global majors WIG Ukraine RTS HANG SENG Dow Jones Ind. FTSE 100 CAC 40 S&P 500 NASDAQ 100 NIKKEI 225 WIG Bovespa DAX UX -4 Data as of Oct. 14, % - -1% -1% -12% 7% 9% 4% 2% 2% 1% 15% 48% -5-25% 25% 5 1M Change YTD WIG Ukraine, 6-month development Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 WIG Ukraine Index turnover, USD mln, rhs WIG Ukraine WIG Ukrainian stock price change, mom* JKX Oil & Gas Milkiland IMC Kernel UkrProduct Agroton Astarta KSG Agro Kulczyk Oil Ovostar Coal Energy MHP Regal Petroleum Cadogan Petroleum TMM Ferrexpo WIG Ukraine * as of Oct. 14, 2015 Avangard % -11% -24% -3 35% 3 18% 18% 15% 14% 11% 4% 2% 1% 15% Average daily trading in Ukrainian stocks, USD 000* Kernel Ferrexpo MHP JKX Oil & Gas Astarta Kulczyk Oil Milkiland Ovostar Avangard Agroton ,501 * Only top-10 stocks are shown, data are for Sept. 14, 2014 Oct. 14,

9 Contacts CEO Nick Piazza Sales and Trading Oleksandr Tsapin Research Danylo Spolsky Commodities Trading and Risk Management Alexey Yeremin Public Relations Olga Dzhelebova SP Advisors spadvisors.eu 8 Pankivska St., 1 st floor, office 14 Kyiv 01033, Ukraine research@spadvisors.eu Bloomberg homepage SPEU <GO> Facebook facebook.com/spadvisors LinkedIn linkedin.com/company/sp-advisors Disclaimer This report has been prepared by SP Advisors solely for information purposes and independently of the respective companies mentioned herein. It should not be construed as an offer or solicitation of an offer to buy or sell any securities and should not be considered as a recommendation to any such actions. SP Advisors makes no warranty, express or implied, of this report s usefulness in predicting the future performance, or in estimating the current or future value, of any security. This document should not be considered as a complete description of the securities or markets referred to herein. Any investment decision made on the basis of this document shall be made at the investor s sole discretion, and under no circumstances shall SP Advisors, any of it its employees or related parties be liable in any way for any action, or failure to act, by any party, on the basis of this document. Nor shall SP Advisors or any of its employees or related parties be liable in any way for any loss or damages arising from such action or failure to act. This document is confidential to clients of SP Advisors. Unauthorized copying, distribution or publication of all or any part of this document is strictly prohibited. 9