Sure bets on 2007’s stock market

“SIFs are serious candidates for a good performance in 2007. The annual BET-FI yield surpassed that of BET [the index of the general performance of stocks on the Bucharest Stock Exchange, BVB] every year. There is no reason for this to stop happening in 2007, especially since there is a clear growth potential as a result of the undervaluation of Banca Comerciala Romana (BCR) stocks in their portfolios,” said Pasol.
He added that SIF shares will remain highly volatile, as decisions from BCR’s majority shareholder, Erste Bank, will be expected with major interest. Aside from volatility-related risks, there is yet another to be considered.
“Risks might occur from changes in regulations regarding SIF stake caps, but financial investment companies continue to be visibly undervalued and will remain winning bets,” said Cristian Tudorescu, Senior Analyst at Vanguard.
Analyst Paul Brendea from Prime Transaction is of the same mind. “SIFs still have some elements that will raise investors’ hopes. The ace up their sleeve is the stake cap, to which we must add their 6 percent share in BCR. The stock is very important and will eventually reach its full potential,” said Brendea.
Analysts have opposing opinions about what the future has in store for oil and gas companies. Petrom might offer some interesting surprises this year, said Pasol. “The company has shown that it can become a profitable and modern company, but the price of its shares is influenced by the uncertainty surrounding the sale of shares to employees,” he said.
Tudorescu disagreed. “The oil and gas sector might drop in profitability in 2007. Petrom already has record profits and the company might also be affected if the price for the oil barrel remains unchanged,” the Vanguard specialist said. “Petrom (SNP) is one of the companies that seem to have lost momentum, while Rompetrol Rafinare (RRC) remains one of the riskiest stocks on the BVB; the evolution of Rompetrol Rafinare shares is difficult to asses,” Tudorescu concluded.
Blue chips this year will be less profitable, but safer bets, said the analysts.
“Betting on blue chips is being conservative. Yields for these shares will gradually decrease and investors will have to be satisfied with 15-20 percent earnings in 2007,” said Tudorescu.
Brendea of Prime Transaction expressed a more positive outlook. “In any country blue chips are funds’ favorites and we still have blue chips that have yet to have exhausted their growth potential,” he said.
Banks are still worth investors’ attention and money, agreed the analysts.
“BRD is one of the most solid banks in Romania and remains among any investors’ top options. Banca Transilvania is expanding more aggressively and it is important that it does not disappoint when it comes to the growth rate of its profits,” said Tudorescu.
Pasol said another way for investors to make up their minds about what to include in their portfolios is to keep their eyes on companies that might be targets for acquisitions.
“Biofarm (BIO) might make for a nice surprise if it continues to have good financial results and maybe turn into a target for takeover at some point. Other companies that are potential targets are construction contractor and developer Impact (IMP), Banca Carpatica (BCC), manufacturer of components for turbojets Turbomecanica (TBM) and even Banca Transilvania (TLV), although the latter not in the near future,” said Pasol.
“Small companies are easy targets for bigger European investors, but they are also more exposed to competition. On the other hand, big Romanian companies must not be neglected as they will grow more open to making acquisitions outside our borders, as is the case of Rompetrol,” said Brendea.
Speaking of big companies, utilities might fill investors’ pockets this year, if they finally come to be listed.
“The Romanian state announced a list of companies that might be listed, mostly utilities, but I would not hold my breath for it this year, unless the state decides to surprise us as it did with Transelectrica (TEL). All of them are very likely to bring in massive profits, as they are large companies with large gains and some have monopolies,” said Brendea.
“What we know now is that another IPO is advanced, Transgaz, and they were trying to choose the intermediaries for this IPO. Very soon they will decide – it could be in the first half of 2007. Then, Romgaz and two subsidiaries of Transelectrica were scheduled, Constanta airport, that in Bucharest, etc.,” BVB president Septimiu Stoica said in a December interview for Business Review.

Losers and winners in 2006
Analysts’ opinions as to which companies ruled at the BVB and which were shamed in 2006 differ.
“Definitely, Transelectrica (TEL) was last year’s winner. The state doubled the value of its stocks in a few months’ time by simply listing the company. If this example does not lead to further listings, then there is a serious problem somewhere,” said Brendea of Prime Transaction.
Last year’s loser was the Proprietatea Fund, according to Brendea. “Actually, not the fund itself, but the entities managing it.” Tudorescu’s charts tell a different story.
“In the blue chips category, Antibiotice Iasi (ATB) stands apart, with an increase in share value of more than 70 percent. Last year’s loser could be Rompetrol Rafinare (RRC). Aside from psychological elements surrounding the company, there has also been a drop in financial results,” said Tudorescu.

BVB headed for makeover
With European accession now achieved, the Romanian stock market is in for a makeover this year. International operators will increase competition, pension funds will add to their capitalization, other utilities will hopefully follow Transelectrica’s steps and start off with record-breaking IPOs and derivative instruments will enlarge investors’ choice list by March, according to Stoica.
“Undoubtedly, accession represents a big step for the capital market, as it increases its visibility and credibility. In the first two years after the Czech Republic, Hungary and Poland entered the European Union, capitalization on these markets increased by an average of 48 percent and the transaction value went up 77 percent,” said Pasol.
Pasol added that effects will not be immediate, but will result from an increase in both foreign and local investments. “The pension funds legislation that has finally been passed will create the basis for the formation of strong institutional investors, which will enter the capital market,” said the Intercapital Invest specialist.
“Funds managing third pillar pensions will start being active on the market in 2007, while funds for the second pillar will appear in 2007-2008,” said Septimiu Stoica.
Overall, analysts predict modest changes in BVB’s performance this year against 2006.
“I expect moderate increases in the stock transaction value, of about 40 percent compared to 2006,” said Pasol.
“Last year, we witnessed a change and investors have grown more mature. There was not increased enthusiasm; neither were there moments of intense panic, which is why the growth in the level of indexes was moderate. I expect this to also be the case for 2007,” said Brendea.
“By year-end, I expect a capitalization of EUR 25-27 billion and an average daily volume of EUR 12-14 million. Liquidity can go up significantly only if the promised instruments are actually implemented,” said Tudorescu of Vanguard.

Ana Maria David

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