AXIA Research
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Greece Outlook 2019: The year of the elections AXIA Research Table of Contents Start of a new era ......................................................................................................... 3 Early elections or at the end of the government’s term? ....................................................................... 3 Unexciting economic performance, while fiscal space shrinks without pro-growth ........................................... 4 Elections is the key catalyst for the markets .................................................................................... 5 Top picks ......................................................................................................................... 5 2019, the year of the elections ......................................................................................... 6 The day after the Prespa Agreement ......................................................................................................................................... 6 Timing of elections: May vs. September/October ...................................................................................................................... 7 Looking at recent polls ............................................................................................................................................................... 9 Strategies by Syriza and ND ahead and after the elections ...................................................... 13 Syriza to try to close the gap with ND as is already regrouping for the day after .................................................................... 13 New Democracy is set to win the upcoming elections but some issues remain tricky............................................................. 14 Limited prospects for a new wave of extreme populism ......................................................................................................... 16 The economy is improving but at an unexciting pace ............................................................. 17 Getting ready to exceed the 2% growth mark for 2018 ........................................................................................................... 18 Improved economic growth in the first 9–months of the year ................................................................................................ 19 Expectations for stronger growth in 2019................................................................................................................................ 22 What can adversely impact the economy in 2019 ................................................................................................................... 23 Greece’s GDP growth could surpass Eurozone average over the coming few years ................................................................ 24 Drivers of economic growth over the short to medium term .................................................................................................. 25 Budget execution ......................................................................................................... 35 2018 target to be met .............................................................................................................................................................. 35 The budget in 2019 and 2020 .................................................................................................................................................. 38 Reforms under the enhanced supervision framework............................................................ 41 Greek debt: A plus size model ......................................................................................... 43 Greek equity market outlook .......................................................................................... 47 Performance in 2018: Greece remained a weak link ............................................................................................................... 47 The bottom up approach on non-financials points to a 20% upside for 2019, but is losing momentum in 2020. ................... 49 The upside potential of the financial stocks is more than 100% but confidence is the key word ............................................ 50 The election trades .................................................................................................................................................................. 51 Top picks .................................................................................................................................................................................. 53 Outlook per sector ....................................................................................................... 56 Greek Banks ............................................................................................................................................................................. 56 Energy ...................................................................................................................................................................................... 63 Real Estate ............................................................................................................................................................................... 70 Construction ............................................................................................................................................................................ 74 Retail Sector ............................................................................................................................................................................. 77 Telecoms .................................................................................................................................................................................. 79 Gaming..................................................................................................................................................................................... 82 AXIA Universe – Screens of equities in our radar .................................................................. 85 Disclosures ............................................................................................................... 112 All prices are as of the close of Wednesday, February 20th unless otherwise noted Please see important disclosures at the end of this report Produced and disseminated: Athens February 25th 2019, 08:00am GMT+2. AXIA Research Page 2 AXIA Research Start of a new era It has been more than 6 months since Greece exited its economic adjustment program. The economy is growing (albeit at a moderate pace), the budget continues to overperform the set targets and the country has managed to tap the markets again. Despite these positive developments, overall investor interest on Greece remains minimal, for an economy that private investments is currently the main channel of funding. The Greek story does not “sell” as investors continue to question the government’s resolve to push stronger towards market-friendly reforms that will allow for significant economic growth acceleration. So, it comes down to the elections that will take place this year, in October at the latest. A possible win of New Democracy (as all polls indicate) is seen as the main catalyst that could create a positive momentum for the country that if it is backed, as expected, by firm actions by the new administration, it could be maintained over the medium term. Early elections or at the end of the government’s term? The prominent question is “when will elections be held?” The debate is mainly between early elections in May vs. the current administration running its full term in office and announcing general elections for late September/early October. A combination of factors, including i) the government accelerating efforts to present an expansionary social benefits package, ii) the hiccups in passing legislations since the administration does not have absolute majority in the Parliament (although votes of independent MPs could ensure Parliamentary majority), but mainly iii) the large hurdle of the double elections in May (elections for the European Parliament and the Municipalities), tilt in our view, the probability towards early elections in May. Exhibit 1. AXIA poll of polls* Exhibit 2. Parliament composition evolution 36.6 No of MPs Sep'15 Today Syriza 145 145 25.8 ND 75 78 Golden Dawn 18 16 Democratic Coalition/Movement 8.3 17 19 7.9 6.9 of Change (PASOK) 5.2 2.7 1.9 1.7 1.0 2.1 Communist Party (KKE) 15 15 The River 11 N/A** Independent Greeks (ANEL) 10 N/A** Centrists Union 9 5 Independent MPs 0 22 *adjusted for valid votes Source: Marc, MRB, Pulse, Kapa, Metron Analysis, AXIA Research **according to the Parliamentary rules, political parties that control below 5 seats are not able to be represented as a Parliamentary group, so their MPs are considered Independent MPs According to the polls, the main opposition party, right-wing New Democracy (ND), maintains a wide lead over the governing Syriza, and it remains to be seen if the efforts by the later, from now on, could help close the gap. The main question, at this point in time, is whether ND will be able to secure more than 151 seats in the Parliament in order to form an autonomous government. Current polls, as well as our own Poll of Polls, suggests that this is the prevailing scenario. Exhibit 3. AXIA poll of polls seat allocation