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August 2013 No. 83, Volume 7

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August 2013 No. 83, Volume 7 ran nvestment TURQUOISE Monthly PARTNERS August 2013 - Volume 7, No 83 Latoon Waterfall, Gilan, Iran Market Overview 2 In July, the Tehran Stock Exchange (TSE) continued its upward trend following the release of the [rst quarter earnings reports. The 2013 year to date performance of the TSE has been its best performance since 2010. The average P/E of the market increased to 7 at the end of July. Following the recent share price gains, traders are now waiting to see if the current investment environment will continue its bullish trend in the coming months. Country Overview 6 Recent developments of the new government will be discussed in this section. Economy 8 Iran’s foreign trade outlook in the [rst four months of 1392, its steel output in the month of June and an overview of the country’s in\ation rate are covered in this section. Iran Investment Monthly is produced by Turquoise Partners Turquoise Partners, No. 17 East Gord Alley, Bidar St., Fayyazi (Fereshteh) Ave. and distributed electronically by exclusive subscription. Tel : +98 21 220 35 830 Fax : +98 21 220 49 260 Chief Editor: Ramin Rabii Email : [email protected] Authors: Shervin Shahriari To nd out more about Turquoise Partners, visit our website at: Sanam Mahoozi www.turquoisepartners.com. Elham Fotovat © 2013 All rights reserved Radman Rabii Market Overview Volume 7, No. 83 Following the release of the [rst quarter earnings 38% and experienced a price increase of nearly reports in the month of July, the Tehran Stock 19.3%. Zob Ahan (iron smelting) Isfahan Co, Exchange (TSE) continued its upward trek, with Iran’s third largest steel producer, published its the market’s main index rallying by 9.4%. The best seasonal report in two years and achieved 2013 year to date performance of the TSE stood at 30% of its revised annual target in the [rst quarter above 50%, recording its best performance since alone. Meanwhile, the weighted average price 2010. Following the victory of Rowhani as Iran’s to earnings ratio (P/E) of the sector stood at 5 in next president, more liquidity entered the market July, almost 2 below the market’s average P/E and there was an increasing demand for equities. of 7. The pro[tability prospects and the low P/E However, investors have greeted the market’s ratios of the companies in this sector have led recent performance with mixed emotions. While investors to believe that further positive earnings investors are optimistic about a more economically adjustments are likely. Despite the industry outlook liberal and moderate administration, some which suggests continuous growth for this sector, analysts are concerned about the sustainability of this industry has two main risks that were not the current growth in the market. They believe that incorporated in recent earning forecasts. A less speculative trades are the main cause of price publicized yet important risk relating to this sector gains, rather than fundamental reasons. Following involves rising energy costs, particularly gas and the substantial share-price gains over the past electricity. In addition, Iranian MPs have reportedly few months, traders are now waiting to see if the forced the country’s iron ore producers to transfer current investment environment will remain the at least 5% of the average steel sales prices in status quo in the coming months. The stability of each quarter to the state treasury as a licensing foreign exchange prices on the one hand and the fee. Both developments, if true, could increase the unlikelihood of further growth potential for listed overhead costs of such companies to way above industrial companies in the short term on the other their forecasts. Therefore, one could expect the hand serve as a harbinger that the continuation sector to continue its positive performance only of the upward movement of the TSE is unlikely to if the current conditions remain unchanged. follow. As a result, analysts believe that if the major Otherwise, the previously mentioned risks could economic factors (such as the foreign exchange tumble down the sector pro[ts dramatically. The value) remain unchanged, the stock market will steel sector index gained nearly 11.7% in value experience a smooth and steady climate in the in July. second half of 2013. Some of the industrial sectors and market Edible Oil Manufacturers developments are examined in more detail The edible oil industry proved to be the best below: performing sector of the TSE in July. Strong price rallies across the listed edible oil companies pushed the sector index up by 50.2%. Behshahr Steel Makers Industrial Company, with an exceptional share In July, stocks of steel companies were among price increase of 153%, was the prime example the star performers of the market, as shown by a of the sector’s outstanding performance. Financial series of positive [rst quarter corporate earnings reports of companies in this sector indicate a [ve- announcements from listed giants in this sector. fold increase in their pro[tability compared to the Mobarakeh Steel, the largest steel producer in the previous year. In addition, leading companies in Middle East, revised its earnings forecast upwards this sector announced a positive pro[t forecast by 50% for the current Iranian calendar [scal revision of nearly 200% for the current Iranian year. Correspondingly, stock prices of this steel [scal year. The recent price rallies in this sector giant surged by 10% this month. In addition, the can be justi[ed due to two main reasons. Firstly, second largest steel producer in Iran (Khuzestan manufacturers’ competitive ability has boosted Steel) announced a positive earnings revision of dramatically (domestically and internationally) Iran Investment Monthly 2 Market Overview Volume 7, No. 83 as a direct result of the steep devaluation of the on the petrochemical industry in July, despite the Rial (by more than 70%) over the past two years, risks which remain with regards to gas feedstock resulting in a more attractive revenue stream for prices. This has increased the stock prices of such companies. Secondly, companies in this Urea and Ammonia producers by an average of sector took advantage of the increased in\ation 14.2%. that has swept over the country during the past few years. The cheap raw materials that were purchased previously by manufacturers were hit Banking by the in\ationary wave and their value surged Shares of the banking sector witnessed an signi[cantly, leading to high pro[ts in this sector. average growth of 11.8% in July, continuing its However, the above mentioned factors (both previous positive trend. Analysts believe that the foreign currency leap and in\ation) are one- there are two main reasons that contributed to time events and analysts should be cautious in this growth. Firstly, there is the market’s general assuming they will be repeated when they make optimism towards the improvement of conditions investment decisions. Some analysts now see in the banking sector with the coming of the new this sector as overvalued due to speculation. government. The second factor is related to the The average P/E of the edible oil sector stood at foreign currency balance of the banks relating around 6 during the month of July. to their banking activities with international currencies. The market expects the banks with a positive foreign currency balance to adjust their Petrochemicals pro[ts favorably since the of[cial reference rate of In July, the price of domestically produced Urea the dollar was increased by about a factor of 2 in fertilizer was increased by nearly 75% due to a the second half of July. Unof[cial reports suggest government decree. This had been a subject that two banks, Mellat and Tejarat, are in a better that petrochemical producers had lobbied for in position than the others. The Central Bank is recent years. Petrochemical companies which however unlikely to authorize this adjustment, produce Urea re\ected the effect of this new especially in the case of semi-governmental decision on their reported budget projections; their banks. In addition, a portion of the banks’ positive average Earnings per Share (EPS) is expected adjustments come from customers holding dollar to be positively adjusted by 10% to 15% with the denominated loans, debt holders who have made implementation of this ruling. These projections a loss as a direct result of the appreciation of the were however based on old gas feedstock prices of[cial rate of foreign currencies. In their three before the government decided to increase month corporate earnings reports, the banks the price of the natural gas it supplies to these averagely covered 23% of their annual projected companies by a factor of [ve. This indicates that budget, an ordinary performance that does not petrochemical companies are trying to negotiate justify the current positive market sentiment the price of their feedstock with the government towards this sector. in order to decrease it from what was passed before. Previously, petrochemical companies announced that they would only accept the Investment Companies increase in gas price if the government agrees to The stock price of listed investment companies a price increase in domestically supplied Urea. experienced an exceptional growth of 24.3% in These companies have refrained from accepting the month of July, its best monthly performance the feedstock price increase even as this demand in 2013. This trend also caused the investment has been met. Nonetheless, the government’s sector to end up as the most traded sector for the policy of increasing the price of gas feedstock is month. In addition, the price to net asset value an important factor that should not be overlooked (P/NAV) of this sector surpassed the average of in assumptions.
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