1. No category

WHY BULGARIA / July 31, 2014
BULGARIA IN BRIEF
•
Territory – 110 994 sq. km.
•
Population – 7.364 mln, 72.5% urban
•
Political system – Parliamentary Republic
POLITICAL AND BUSINESS STABILITY
•
Member of the EU (2007), NATO (2004) and WTO (1994)
•
Currency board arrangement, strongly supported by all institutions. The Bulgarian lev is pegged to the Euro at 1.95583
•
The only country in the EU with a credit rating upgrade by
Moody’s for the period 2010 - 2013.
•
Current credit rating: Moody’s: Baa2; S&P: BBB-; Fitch: BBBHUMAN RESOURCES
•
Well educated, highly skilled and multilingual workforce.
98% of the high school students study a foreign language
•
62.2 % 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 10%, the lowest in the EU
•
Personal income tax is 10 %, flat rate. Industries in highunemployment areas are granted 0% tax rate
•
0% 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 70% of the European average
•
Financial grants for education, R&D projects and manufacturing projects; R&D expenditure write-off; 2-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, Bulgaria 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 500M
•
CIS – still not well penetrated market with a high potential
•
Turkey - zero tariff market of near 80 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:
GDP (EUR bln.)
GDP growth (%)
2010
2011
2012
2013
2014 (f)
2015 (f)
36.1
38.5
39.9
39.9
40.4
41.4
0.4
1.8
0.6
0.9
1.4
2.5
15.6
20.3
20.8
22.2
21.1
22.6
Inflation rate (annual, %)
2.4
4.2
3
0.9
1.0
1.6
Unemployment (%)
9.2
10.4
11.4
11.8
12.0
11.6
GDP pet capita (EUR)
4785
5240
5429
5493
5500
5639
Government deficit (-) (surplus) (+)
(% of GDP)
-3.1
-2
-0.8
-1.9
-2.7
-1.8
Exports (EUR bln.)
Government debt (% of GDP)
EUR/BGN rate (fixed)
16.2
16.3
18.5
18.1
22.1
21.7
1.95583
1.95583
1.95583
1.95583
1.95583
1.95583
Source: Bulgarian National Bank, National Statistical Institute, Ministry of Finance, Eurostat, ELANA forecast
Comparison of GDP Growth of Bulgaria vs EU
8%
6.7% 6.4% 6.5% 6.4%
BG, annual growth %
6.2%
6%
4%
2%
0%
-2%
1.8%
0.4%
2.5%
0.6% 0.9%
1.4%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(f)
(f)
Bulgarian economy has performed better than EU every year since
2004 except for 2009 and 2010
•
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 2014, as companies and
households will postpone their expenditures until formation of a new
-4%
-6%
•
EU, annual growth %
-5.5%
regular government
-8%
1
WHY BULGARIA / July 31, 2014
80%
70%
74.1%
2000
2013
INCREASING INDUSTRY SHARE
•
A strong industrial basis in the country is a condition for boosting
competitiveness, sustainable growth and new jobs
•
Bulgaria 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 2013
•
In comparison – for the period 2000 – 2013 the average share of
manufacturing in EU countries declined to average 15% of GDP
60%
50%
40%
+3 pp
30%
21.6%
20%
10%
4.2%
0%
Agriculture
Industry
Services
Structure of GDP by output in 2013, annual data, percentage share
Germany
Estonia
Bulgaria
Latvia
Hungary
Romania
Italy
Lithuania
Poland
Czech Rep.
France
UK
PRESERVED FISCAL DISCIPLINE
•
Despite a challenging economic environment during the last few
years the government has kept the fiscal discipline
•
Bulgaria 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 2013, setting rules for the budget deficit, the maximum level of expenditure and the nominal consolidated debt of the
general government
Greece
Spain
-12% -10%
-8%
-6%
-4%
-2%
0%
2%
General government balance in 2013, percentage of GDP
LOW GOVERNMENT DEBT
Estonia
Bulgaria
Latvia
Romania
Lithuania
Czech Rep.
Poland
Austria
Germany
Hungary
UK
France
Spain
Italy
Greece
•
Since 1999, Bulgaria has managed to reduce the ratio of government debt to GDP from around 80% to below 20%
•
Growing economy and tight fiscal discipline contributed to low debtto-GDP ratio
•
Bulgaria has the lowest debt-to-GDP ratio in EU after Estonia 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)
EU average:
87.1% of GDP
0%
50%
100%
150%
200%
General government gross debt in 2013 - annual data, percentage of
GDP
EU – MAJOR TRADING PARTNER
Germany
10.2%
Turkey
9.4%
Italy
Bulgaria has close commercial ties with the EU, which accounts for
around 60% 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
Germany and Turkey
•
There is also a shift of the geographical structure of exports towards third markets, especially in Asia
•
Exports to China have nearly tripled
8.5%
Romania
8.1%
Greece
0%
•
7.2%
2%
4%
6%
8%
10%
12%
Exports to main trade partners of Bulgaria in 2013, percentage share
of total
2
WHY BULGARIA / July 31, 2014
0
4 000
8 000
Manufacturing, energy and
mining
12 000
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
•
The freeze of the main tax rates during the crisis ensured a predictable business and investment environment
•
Bulgaria 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
•
EU co-funding for Bulgaria for next programming period 2014-2020
amounts to EUR 15.9 bln. (around 5% of the forecast GDP for the
period)
11 092
Construction and real estates
10 885
Finance
7 479
Trade
7 060
Telecommunications
2 647
Other
2 663
FDI flows by industry, 1996-2013, EUR mln.
500
STABLE CDS LEVEL
400
•
Bulgarian 5-year USD CDS stands at 125 in July 2014 – one of the
lowest among Frontier/Emerging markets
•
Bulgarian 5-year USD CDS has been permanently below 150 for the
last 2 years
•
Yields on 10-year BG Government bonds have aggressively fallen
from 7.5% in 2009 to 3.54% presently
•
Yield on the newest 5-year Bulgarian Eurobond declined from
2.18% in January 2014 (when issued) to 2.16% currently (as of
end-July 2014)
300
200
100
0
Bulgaria
Romania
Turkey
Brazil
Russia
Subinvestment Investmet grade
grade
5-year CDS Levels
Moofy's
Aaa
…
Aa1
Aa2
Aa3
A1
A2
A3
Baa1
Baa2
Baa3
Ba1
Ba2
Ba3
B1
B2
B3
Caa
…
Caa
S&P
AAA
…
AA+
AA
AAA+
A
ABBB+
BBB
BBBBB+
BB
BBB+
B
BCCC+
…
D
Fitch
AAA
…
AA+
AA
AAA+
A
ABBB+
BBB
BBBBB+
BB
BBB+
B
BCCC
…
D
JCRA*
AAA
…
AA+
AA
AAA+
A
ABBB+
BBB
BBBBB+
BB
BBB+
B
BCCC
…
D
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 2011 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 2014
(3.06%) is below that on bonds denominated in national currency
of a number of EU Member States: Poland (3.22%), Portugal
(3.57%), Romania (4.15%), Hungary (4.33%), Greece (5.84%)
Jul. 2014
last change
Dec. 1996
* As of 1 July 2011 the Japan Credit Rating Agency (JCRA) withdrew its
rating due to termination of contract relations with Bulgaria
France
Germany
Russia
Turkey
Croatia
Poland
Italy
Serbia
Greece
Hungary
Slovenia
Bulgaria
Ukraine
Romania
0%
20%
40%
60%
HUGE POTENTIAL FOR INCREASE OF MARKET CAPITALIZATION TO
GDP RATIO
•
Bulgarian 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
80%
Market capitalization to GDP in 2013, %
3
BULGARIAN STOCK MARKET / July 31, 2014
Stock Market Infrastructure
Stock Market Snapshot
Market Operator
Custody
Bulgarian Stock Exchange- Sofia
Central Depository
Market Capitalization
EUR 5.2 bln.
Market Capitalization/GDP
13%
Regulator
Financial Supervision Commission
Main Index
SOFIX
Legislation
Fully EU/MIFID Harmonized
Total 2013 turnover
EUR 778 mln.
Trading platform
XETRA (provided by Deutsche Boerse)
Average daily turnover (2013)
EUR 3.2 mln.
Bulgarian stock exchange shareholder
structure
Government owns 50% (expected privatization in 2014 by a leading world market
operator)
Top 10 Average free float
0.33
Corporate governance
National code since 2007, National commission since 2009, Corporate Governance
Index (CGIX) since 2011
SOFIX P/E
7.29
SOFIX P/B
0.85
Top 5 Public Companies by Market Capitalization
in 2013, EUR mln.
Top 5 Public Companies by Trading Volume in
2013, EUR mln.
Company Name
Company Name
Market Capitalization
Trading Volume
Bulgartabac (57B)
314
Corporate Commercial Bank (6C9)
81
Sopharma (3JR)
301
Bulgartabac (57B)
78
Corporate Commercial Bank (6C9)
291
Petrol (5PET)
69
First Investment Bank (5F4)
240
Agro Finance REIT (6AG)
53
Petrol (5PET)
223
Sopharma (3JR)
41
10 year Bulgarian market (SOFIX) performance vs developed and emerging markets
10 year Bulgarian market (SOFIX) performance
vs European frontier markets
350
450
400
300
350
250
300
200
250
150
200
150
100
100
50
USA
Germany
Romania
Poland
Estonia
Croatia
Bulgaria
Serbia
Bulgaria
•
Bulgarian market has significant long term potential for catching up with global markets’ recovery
•
Bulgarian market dropped 87% from 2007 peaks to 2009, but
has only recovered around 30% from the 2007 peak, while all
developed world markets have already reached their peaks.
MSCI World in mid-2014 is only 3% below it’s all time 2007
high
2014
2011
2008
0
2005
2014
2011
2008
2005
0
50
Lithuania
Latvia
Bosnia and Herzegovina
•
Bulgarian 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 50% 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 (50% of
GDP)
4
BULGARIAN STOCK MARKET / July 31, 2014
01 Jan 2013 – 31 Jul 2014 performance in
USD terms
Romania
Lithuania
Greece
Slovenia
Serbia
Latvia
Slovakia
Estonia
Croatia
Poland
Macedonia
Ukraine
Hungary
Turkey
Cz. Rep.
Russia
-40%
-20%
Bulgaria
0%
20%
40%
60%
•
The recovery has already started. With a 43% growth Bulgaria outperformed all world markets in 2013 (MSCI World, S&P 500 and DAX
increased between 23-27% in 2013)
•
The main market players on the BSE remain the pension funds. We
expect at least EUR 50m (7% of 2013 BSE turnover) fresh flow in
BSE in 2014 from institutional investors
•
The trend for Bulgaria outperforming continues also in 2014 as SOFIX
posted another 19% increase for the period January - July 2014.
•
For the last 1.5 years SOFIX registered the highest increase among
the regional capital markets, rising by 58%
•
The assets of pension funds in Bulgaria increased significantly during the last two years, as in 2013 they are by 66% higher compared
to 2011
•
Pension fund assets compared to stock exchange market capitalization almost doubled for the last two years to 68%
•
As a result of the global-scale revival is expected portfolios of the
pension funds, which is invested in shares of Bulgarian, to increase
•
The turnover of the Bulgarian Stock Exchange increased by over 76
% in 2013, reaching EUR 778 mln.
•
With the same pace went up the average daily turnover to EUR 3.2
mln.
•
The number of trades increased by almost 1/3 compared to 2012
•
This speaks about the revival of the market and gives grounds to
expect an even better 2014
80%
EUR mln.
Assets of Bulgarian pension funds
4 500
4 000
+12%
3 500
+34%
3 000
+24%
2 500
3 481
2 000
2 601
1 500
1 000
3 900
2 099
500
0
2011
2012
2013
2014 f
Stock exchange turnover for some emerging
and frontier markets in 2013
Czech Republic
Romania
Bulgaria
Tunis
Sudan
Croatia
Baltic Region Market
Bosnia and Herzegovina
Slovenia
Macedonia
Montenegro
0
4 000
8 000
EUR mln.
Bulgarian market is still cheaper than most global markets:
INDICE
COUNTRY
P/E*
P/B*
SOFIX
Bulgaria
9.87
0.82
CAC 40
France
25.26
1.46
S&P500
USA
17.97
2.71
WIG 20
Poland
21.44
1.32a
ASE
Greece
-
1.07
SHSZ300
China
10.76
1.53
Brazil Ibovespa
Brazil
17.30
1.45
MSCI World Index
World
18.47
2.16
*As of 31 Jul 2014, source: Bloomberg
5
BULGARIAN STOCK MARKET / July 31, 2014
Stocks we like
BSE TICKER
PRICE AS OF 31 MARCH 2014 (BGN)
2013 EPS
2014 EPS *
6AB
Albena
COMPANY NAME
53.00
4.42
4.63
4C F
C entral C ooperative Bank
1.48
0.10
0.11
6C 4
C himimport
2.16
0.36
0.39
5F4
First Investment Bank
4.13
0.24
0.22
5MH
M+S Hydrualic
14.50
0.82
1.04
5MB
Monbat
8.81
0.70
0.85
3NB
Neochim
52.00
-2.07
-0.48
3JR
Sopharma
4.60
0.23
0.34
SO5
Sopharma Trading
4.51
0.31
0.41
0SP
Speedy
24.00
2.00
2.41
Earning per share forecasts
Chimimport (6C4) chart
20
18
16
14
12
10
8
6
4
2
0
Sopharma (3JR BU) chart
10
9
8
7
6
5
4
3
2
1
0
Monbat (5MB BU) chart
18
16
14
12
10
8
6
4
2
0
CHIMIMPORT (BLOOMBERG: 6C4 BU)
•
Large-scale holding company, with leading positions in strategic
sectors of the Bulgarian economy - banking sector, insurance,
pension insurance, air, river and maritime transport, trade with
oil and natural gas products.
•
Ranked 40th in Deloitt’s top 500 for CEE companies for 2013
•
Over 65 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 3.47 and P/B 0.23
SOPHARMA (BLOOMBERG: 3JR BU)
•
The second largest pharmaceutical company in Bulgaria with 4%
market share by value and 13% by units sold. Vertical integration in distribution of medicines. 24.5% revenue CAGR for the
last decade
•
15 modernized factories in Bulgaria, two in Serbia, and one in
Ukraine, to provide full-scale coverage on EE and SEE markets
•
Domestic distribution market leader with 23% market share.
Provides turnkey solutions for hospital construction, as well as
complete logistics solutions for import, storage and distribution of
goods to end customers
•
Portfolio consists of generic medicines as well as original phytobased products
MONBAT (BLOOMBERG: 5MB BU)
•
The largest producer of lead-acid batteries in Bulgaria with 60year history. One of the best managed among listed companies
in Bulgaria. 30.6% revenue CAGR for the last decade
•
Own recycling facilities in Bulgaria and Romania, reducing the
risk of lead price volatility
•
Good market diversification, as the company exports to over 20
countries all over the world. Revenues from exports represents
near 90 %
•
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
6
BULGARIAN STOCK MARKET / July 31, 2014
Speedy (0SP) chart
SPEEDY (BLOOMBERG: 0SP BU)
30
•
Leading Bulgarian courier company with 25% market share and
100% 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 200 countries all over
the word
•
Focus on corporate clients, which generate the majority of the
orders. Expanding operations in Romania 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
•
14% growth of revenues in the domestic market and 43% in the
international segment
25
20
15
10
5
0
Privatization plan of the government for 2014, 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 (50.5%) 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)
•
30% share in Bulgarian 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
•
49% of International Fair – Plovdiv. The company is organizing industrial and trade fairs in the second largest city in Bulgaria - 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 (0SP) - the leading courier company in Bulgaria, as the company will expand operations in Romania by acquisition of local company. Forthcoming entry of big
strategic investor – Geopost, part of La Poste Group, which will
buy 25% 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 (0AE) - ELANA recently established
the first leasing company offering leasing for purchases land to
agricultural producers. This is very low-risk investment with a
10-12% approx. annual return. The company is expected to
raise capital in H2 2014 – expected size is EUR 7.5 mln. More
information about the company is available at
http://agrocredit.elana.net/en/
•
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 Bulgarian stock market revival and future tech stocks
demand
Now you know Why Bulgaria, find us at:
DIMITAR GEORGIEV
Head of Trading
TATYANA PUNCHEVA-VASSILEVA
Senior Analyst
direct: +359 2 81 000 25
dept: +359 2 81 000 20
mobile: +359 887 695 745
fax: +359 2 958 15 23
direct: +359 2 81 000 24
dept: +359 2 81 000 20
fax: +359 2 958 15 23
mail: georgievd@elana.net
ELANA Trading
www.elana.net/trading
mail: vasileva@elana.net
Research reports on Bulgaria:
http://analysis.elana.net/
5, Lachezar Stanchev St., Sopharma Business Towers, Tower B, Floor 12-13
1756 Sofia, Bulgaria
7