Equity abc Greece Global Research
Global macro-earnings outlook has rarely Greek equities 2009 looked more precarious strategy Greek equities’ valuations discount a lot, Our Top Picks reports in the European equities space are but not the worst plausible outcome yet designed to highlight Overweight and Underweight ideas We expect more volatility in the near term that we think are particularly worthy of attention in the to give way to a rally later in the year coming three to six months. These are not necessarily the stocks with the greatest upside or downside to target More than ever, a stock-picking market: prices on publication day. we seek cover in larger-cap, high-quality, sustainable franchises
Our top picks for 2009 (in EUR, priced as at 05 Jan 2009) Type Target Potential _ PE (x)__ EV EBITDA (x) 13 January 2009 RIC ** price return 2008e 2009e2008e 2009e Paris Mantzavras* Overweight Analyst National Bank * NBGr.AT V 20.0 42.4% 4.2 4.7 n/a n/a HSBC Pantelakis Securities OPAP OPAr.AT V 29.0 32.8% 9.3 9.1 6.1 6.3 OTE * OTEr.AT V 16.5 25.8% 9.8 9.2 5.3 5.0 +30 210 696 5210 [email protected] PPC * DEHr.AT V 17.0 35.1% nm 6.3 17.3 5.3 Jumbo * BABr.AT G 7.0 45.2% 7.1 6.3 5.3 4.9 Vangelis Karanikas* Terna Energy * TENr.AT G 5.0 29.5% 17.6 17.4 9.0 10.0 Analyst Metka * MTKr.AT G 11.8 75.1% 7.5 5.3 4.5 3.4 HSBC Pantelakis Securities Underweight +30 210 6965211 [email protected] Motor Oil MORr.AT 7.3 -6.4% 6.3 9.1 6.1 7.8 Forthnet * FORr.AT 0.75 -5.1% nm nm 23.5 5.2 Dimitris Haralabopoulos* * Ratings with volatility indicator, ** V=Value, G=Growth, In this note we have changed our TPs for PPC, Jumbo and Motor Oil and added a V flag in Jumbo’s rating (see page 6) Analyst Source: HSBC Pantelakis Securities estimates HSBC Pantelakis Securities +30 210 696 5214 [email protected] Given a synchronised deep downturn and a deflation scare, the Spiros Tsangalakis* global macro outlook has rarely looked more precarious. In this Analyst HSBC Pantelakis Securities context, the Greek economy and corporate profitability, +30 210 696 5212 [email protected] although appearing more resilient than European peers, have
Yiannis Sinapis* deteriorated markedly. Additionally, it is impossible to know Analyst when the deleveraging process (that led to such a sharp relative HSBC Pantelakis Securities de-rating for Greek stocks in 2008) will run its course and risk +30 210 696 5215 [email protected] appetite will stage a comeback. Thankfully, following a George Katsanos* tumultuous sell-off in 2008 (fully erasing gains of the past 5 Analyst HSBC Pantelakis Securities years), Greek equities appear to be pricing in a lot of the bad +30 210 696 5302 [email protected] news. Certainly not all, though: if investors apply trough multiple to trough earnings, further downside is possible.
The dual uncertainty over earnings and prospective multiples
View HSBC Global Research at: http://www.research.hsbc.com makes the range of potential outcomes particularly wide. We
*Employed by a non-US affiliate of HSBC Securities (USA) Inc, expect more near-term turbulence (amid a deluge of further and is not registered/qualified pursuant to NYSE and/or NASD bad news) and an eventual rally later in the year as Greek regulations sovereign funding concerns ease and global policy responses Issuer of report: HSBC Pantelakis Securities S.A. achieve some traction (alas for a subpar recovery). We prefer Disclaimer & Disclosures. to stay defensive for now, seeking cover in larger-cap, high- This report must be read with the quality stocks with established franchises. 2009 should mark disclosures and the analyst certifications a shift towards fundamentals-driven dispersion trades. in the Disclosure appendix, and with the Disclaimer, that form part of it.
Equity Greece abc 13 January 2009
Contents
Investment summary 3 A historic analogy 46
2008: Annus horribilis 7 Company profiles 49 National Bank of Greece 50
Participation of foreign OPAP 54 investors has declined 9 OTE 58
Greece increasingly becomes Public Power Corporation 62 a macro-play 12 Jumbo 66 Greek earnings momentum Terna Energy 70 deteriorates 17 Metka 74
Banks: themes to watch out Motor Oil Hellas 78 for in 2009 22 Forthnet 82
Valuations appear cheap 30 Disclosure appendix 88
Market outlook 35 Disclaimer 91
Top picks for 2009 40
2 Equity Greece abc 13 January 2009
Investment summary
Greek equities’ valuations discount a lot, but not the worst plausible outcome yet We expect more volatility in the near term to give way to a rally later in the year More than ever, a stock-picking market: we seek cover in larger- cap, high-quality, sustainable franchises
Deteriorating macro momentum eroding competitiveness and weak public Following a decade of strong and uninterrupted finances. These, coupled with recent political expansion, the Greek economy appears set to be fragility, have shaken investor sentiment, while facing its most severe challenge since EMU- potentially limiting future room for manoeuvring accession. The global slowdown and domestic at a critical turn. imbalances have conspired to create a tough Greek earnings profile worsens macro backdrop: we expect GDP growth to slow With their two traditional pillars appearing shaky to 1.1% in 2009e from 3.0% in 2008, still easily in the short-term (given a weakening domestic beating EU averages, though. economy and deteriorating regional outlook), GDP growth forecasts (%) Greek earnings momentum has deteriorated 2007 2008e 2009e sharply. We now expect EPS for our universe to Greece 4.0 3.0 1.1 drop 7% in 2008 (a dramatic revision vs. +22% EU-15 2.6 0.9 -1.4 expected a year ago) and stage a tepid recovery Source: HSBC, HSBC Pantelakis Securities estimates (+6%) in 2009e, still a profile slightly more resilient than that of European equities. Excluding Economic headwinds include weakening extreme gyrations in PPC’s profitability, we see consumption trends, declines in business and our universe’s EPS down 3% in each of 2008-09e. residential investment, slowing merchandise exports and a grim outlook for export services Summary of earnings projections (shipping and tourism). However, not all is 2007a 2008e 2009e gloomy: still healthy private consumption, robust Greek universe (HSBCe) 26% -7% 6% infrastructure spending and supportive policies Greek universe (consensus) 26% -9% 0% FTSEurofirst 300 (consensus) 3% -18% 0% should cushion the impact. Source: HSBC Pantelakis Securities estimates, FactSet for consensus
More importantly, though, the current crisis has painfully brought to the fore persisting longer- term challenges facing the Greek economy:
3 Equity Greece abc 13 January 2009
Risks for banks’ profitability lie to Current valuations discount a lot but the downside not the worst plausible outcome The key theme to watch out for in the Greek Following a 66% decline in 2008, Greek equities’ banking sector in 2009e is risk provisioning and valuations (6.1x 2009e PE) certainly discount a asset quality, as seen in the context of a downbeat lot. The key theme has been a sharp de-rating vs. macro outlook both in Greece and in the C&SEE European peers (now trading at 0.7x relative PE region. Our sensitivity analysis on impairment vs. 1.16x a year ago), a common fate with most charges and pre-provision profit reveals that risks emerging markets. to sector profitability and capital base are on the Although headline valuation multiples appear downside. In more detail, on our stress-tests for cheap, we stress-test our earnings assumptions impairment charges, sector EPS could be reduced and cross-check resulting valuations with trough by 13% to 25% in 2009e and by 17% to 33% in multiples over the past decade (PE low of 8.5x 2010e, yet potential reductions to Core Tier 1 over the 1998-2007 period). Assuming our current capital are not that devastating (ranging from 2% EPS forecasts turn out to be entirely correct, our to 3% in 2009e and from 3% to 7% in 2010e). universe has an aggregate 38% upside to trough Moreover, our sensitivity analysis on pre- multiples from current levels, broadly equal to the provision profit shows that sector EPS could be 38% aggregate upside implied by the respective slashed by 33% to 67% in 2009e and by 37% to price targets for our universe. 75% in 2010e, bringing also significant reductions However, were investors to apply trough to sector Core Tier 1 capital (ranging from 8% to multiples to trough earnings (and assuming a 16% in 2009e and from 11% to 23% in 2010e). typical 40% peak-to-trough cumulative earnings That said, we believe it is too early to be positive decline in 2008-09e), there appears to be further on the sector, while we recommend exposure to 17% potential price downside to our universe. If banks with 1) sound capital and liquidity base and earnings decline by more and risk aversion 2) low gearing and conservative funding profile remains high, the downside extends even more. (strong retail deposit franchise). In this context, All these uncertainties make the range of potential we view National Bank of Greece as the sector’s market outcomes particularly wide, as highlighted strongest fundamental play. in the table below.
Market upside/(downside) for various scenarios regarding target PE multiples and earnings declines Peak-to-trough earnings fall (2008-09e) -1% -11% -21% -31% -35% -40% -50% -60% Implied miss in our 2009e EPS 0% 10% 20% 30% 35% 40% 50% 60% 7.0 14% 3% -9% -20% -26% -31% -43% -54% 7.5 23% 10% -2% -14% -20% -26% -39% -51% 8.0 31% 18% 5% -9% -15% -22% -35% -48% (calculated trough) 8.5 38% 25% 11% -3% -10% -17% -31% -45% Universe 9.0 47% 32% 18% 3% -4% -12% -26% -41% Target 9.5 55% 40% 24% 9% 1% -7% -22% -38% PE(x) (March 2003 low) 10.0 63% 47% 31% 14% 6% -2% -18% -35% 10.5 72% 54% 37% 20% 11% 3% -14% -31% 11.0 80% 62% 44% 26% 17% 8% -10% -28% 11.5 88% 69% 50% 31% 22% 13% -6% -25% 12.0 96% 76% 57% 37% 27% 18% -2% -22% 12.5 104% 84% 63% 43% 33% 23% 2% -18% (2001-08 average)13.0 112% 91% 70% 49% 38% 27% 6% -15%
Source: Factset, HSBC Pantelakis Securities estimates
4 Equity Greece abc 13 January 2009
Investment flows could remain volatile stage. This upside is consistent (see table in previous Equities markets may continue to face a ‘buyers’ page) with a typical 35%-40% (peak-to-trough) strike’ in the coming months, not least due to earnings recession (as assumed for European ongoing de-leveraging trends (from proprietary equities by HSBC strategists, see Equity Insight, 4 trading desks, hedge funds and prime brokers), December 2008) and a PE multiple of c11x, i.e. redemption demands and gradual dis-engagement lower than the past cycle (2001-08) 13x average, of traditional market actors (insurers, pension assuming less growth, less risk appetite and lower funds). Such trends are particularly important for through-the-cycle ROEs (not least due to reduced the Greek market given the lack of a meaningful leverage) or earnings power going forward. domestic buying support. Hence, tracking the ebb The true wildcard for the market outlook is the and flow of international investors’ risk appetite amount of actual traction that policy (monetary- may provide useful insights for the Greek fiscal) responses will achieve. A sharp (V-shaped) market’s direction. recovery (admittedly not likely) could induce a Market outlook huge re-rating rally, given undemanding valuations and plenty of cash waiting in the Peering into an uncertain 2009 outlook, we still wings. On the other hand, persisting downturn- believe that volatility is the only relatively sure deflation fears could push investors to attach bet (as was the case in 2008), with violent rallies trough multiples to trough earnings. We present on optimism around prospective policy successes more optimistic and pessimistic scenarios and key and corrections on terrible earnings, deflation signposts to watch. scares and further financial sector turmoil. In the short-term, sentiment could remain weak amid a With Greece increasingly becoming a macro-play, deluge of further bad news both on the economics sovereign funding concerns (borrowing ability, front and the corporate profitability, with plenty funding costs) will likely loom large over the of negative surprises still lurking in the offing. domestic equities market at least in the near-term. Until such concerns are at least partly alleviated, Based on our view for a bottoming out of global any equities rallies are likely to be short-lived. economic contraction around mid-year, we expect some rally later in the year. However, given Top-picks for 2009 expectations for only an anaemic/subpar recovery, Hence, we would prefer to stay defensive for the potential upside remains capped (10-15%) at this moment, seeking cover in larger caps with well-
Our top picks for 2009 (priced as at 05 Jan 2009) Type Mcap Price TP Potential ____ PE (x) ______EV/EBITDA (x) _ __ EPS growth (%) _ RIC ** Sector (EURm) (EUR) (EUR) return 2008e 2009e 2008e 2009e 2008e2009e Overweight National Bank* NBGr.AT V Commercial Banks 6,973 14.04 20.0 42.4% 4.2 4.7 n/a n/a -7.4 -10.4 OPAP OPAr.AT V Gaming 6,967 21.84 29.0 32.8% 9.3 9.1 6.1 6.3 22.7 2.0 OTE* OTEr.AT V Diversified Telecoms 6,431 13.12 16.5 25.8% 9.8 9.2 5.3 5.0 21.9 6.7 PPC* DEHr.AT V Utilities 2,919 12.58 17.0 35.1% nm 6.3 17.3 5.3 nm nm Jumbo* BABr.AT G Specialty Retail 584 4.82 7.0 45.2% 7.1 6.3 5.3 4.9 20.8 13.1 Terna Energy* TENr.AT G Renewable Energy 422 3.86 5.0 29.5% 17.6 17.4 9.0 10.0 29.5 1.6 Metka* MTKr.AT G Machinery 350 6.74 11.8 75.1% 7.5 5.3 4.5 3.4 26.6 41.5 Underweight Motor Oil Hellas MORr.AT Oil & Gas 864 7.80 7.3 -6.4% 6.3 9.1 6.1 7.8 11.6 -31.3 Forthnet* FORr.AT Diversified Telecoms 123 0.79 0.75 -5.1% nm nm 23.5 5.2 nm nm
Note: * Ratings with volatility indicator, ** V = Value stock, G = Growth stock Source: HSBC Pantelakis Securities estimates
5 Equity Greece abc 13 January 2009
established franchises, transparent accounts, A historic analogy (page 46) strong balance sheets and a growth angle at Finally, on a rather playful note, we present a reasonable valuation. There is a significant historic analogy to the current era of excessive distinction: while the bulk of 2008 was a story of global debt burdens, but with a happy ending: a systemic risk and financial markets de-leveraging, subprime borrowers’ bailout in ancient we believe that 2009 will witness a shift back Athens (594 BC). towards fundamentals-driven dispersion trades, a trend that became evident since 4Q08 but has further to go, in our view.
Our top Overweight ideas for 2009 are: National Bank, OPAP, OTE, PPC, Jumbo, Terna Energy and Metka.
In turn, our key Underweights are Motor Oil Hellas and Forthnet.
In this report we also change our rating and/or target prices for PPC, Jumbo and Motor Oil Hellas.
Changes in ratings and target prices (EUR) RIC New rating New Old rating Old TP TP PPC DEHr.AT Overweight (V) 17.0 Overweight (V) 15.0 Jumbo BABr.AT Overweight (V) 7.0 Overweight 11.3 Motor Oil MORr.AT Underweight 7.3 Underweight 7.6
Source: HSBC Pantelakis Securities estimates
6 Equity Greece abc 13 January 2009
2008: Annus horribilis
Greek equities plunged 66% in 2008, effectively wiping out in a single year all the gains from the previous bull cycle Heavy underperformance vs. European equities on outflows from foreign institutions, amid de-leveraging and receding risk appetite Average daily turnover fell 34% to EUR316m in 2008 from EUR480m in 2007
Greek equities underperform EUR4.4bn in 2006 and EUR4.6bn in 2005. As of heavily in 2008 November 2008, foreign institutionals accounted for 47% (vs. 62% in Jan-Nov 2008 and c65% in 2007) 2008 proved to be a horrible year for Greek equities, of daily trading turnover, which averaged EUR316m which effectively gave back all the gains they had in 2008, down 34% from EUR480m in 2007. made through the previous bull cycle (i.e. since early 2003). The Athens General Index (ATG) The market’s underperformance was more plunged 66% in 2008 (wiping out EUR127bn of pronounced in the second half of the year (mainly market cap), heavily underperforming both the US September-October), as the sell-off in the all- (down 38%) and European equities (down 45%). important banking sector gathered pace amid significant earnings downgrades and the global Athens General index vs. FTSEurofirst 300 (31 Dec 07=100) financial turmoil. Were it not for the relative 100 100 strength of some heavyweights (OTE, OPAP and 90 90
80 80 PPC) in Q4, the relative underperformance of 70 70 Greek equities would have been even larger. 60 60
50 50 Performance of key indices 40 40 Overall, market losses have been widespread. The 30 30 blue chip (and heavily bank-biased) FTSE/ATHEX DJFMAMJ JASOND
ASE Composite (GR) FTSEurofirst 300 20 moved in line with the ATG, shedding 66%.
Vertical lines denote market turns Contrary to our predictions, mid-caps (down 70%) Source: Bloomberg underperformed the market, after three successive
years of outperformance, with sometimes aggressive The ATG’s poor performance was largely share buyback schemes and support from major attributable to net outflows from foreign shareholders failing to offset large outflows from institutionals due to de-leveraging and receding foreign institutions. Finally the small-cap global risk appetite. Combined outflows of FTSE/ATHEX 80, largely consisting of illiquid and EUR4.3bn in the January-November period less popular stocks, slightly outperformed (-60%). compared with net inflows of EUR5.7bn in 2007,
7 Equity Greece abc 13 January 2009
Performance of key indices in 2008 Index 31-Dec-07 31-Dec-08 change in % change Year low Date Year high Date Ch. vs. 52w Ch. vs. 52w points low high ASE General 5,178.83 1,786.51 -3,392.32 -65.5% 1,626.64 24-Oct-08 5,207.44 02-Jan-08 10% -66% FTSE/ATHEX 20 2,752.48 932.50 -1,819.98 -66.1% 859.97 24-Oct-08 2,766.21 02-Jan-08 8% -66% FTSE/ATHEX 40 6,264.66 1,900.59 -4,364.07 -69.7% 1,802.86 17-Dec-08 6,317.40 02-Jan-08 5% -70% FTSE/ATHEX 80 1,057.38 422.64 -634.74 -60.0% 361.83 27-Oct-08 1,066.60 04-Jan-08 17% -60% FTSE/ATHEX 140 6,219.28 2,090.24 -4,129.04 -66.4% 1,950.74 19-Dec-08 6,248.79 02-Jan-08 7% -67% FTSE/ATHEX Banks 7,296.42 1,899.40 -5,397.02 -74.0% 1,612.95 19-Dec-08 7,336.39 02-Jan-08 18% -74% FTSE/ATHEX Telecoms 6,937.00 3,275.56 -3,661.44 -52.8% 2,416.76 27-Oct-08 6,994.05 02-Jan-08 36% -53% FTSE/ATHEX Utilities 9,418.33 3,297.62 -6,120.71 -65.0% 2,574.63 27-Oct-08 9,581.79 04-Jan-08 28% -66% FTSE/ATHEX Food & Bev 10,109.20 3,535.64 -6,573.56 -65.0% 2,534.40 27-Oct-08 10,956.87 10-Jan-08 40% -68% FTSE/ATHEX Oil & Gas 4,476.18 2,154.71 -2,321.47 -51.9% 1,909.95 27-Oct-08 4,740.98 09-Jan-08 13% -55% FTSE/ATHEX Technology 4,037.19 945.02 -3,092.17 -76.6% 887.82 27-Oct-08 4,069.34 02-Jan-08 6% -77% FTSE/ATHEX Construction 6,015.79 2,448.16 -3,567.63 -59.3% 1,867.83 27-Oct-08 6,118.13 03-Jan-08 31% -60% FTSE/ATHEX Industrials 7,982.01 2,802.44 -5,179.57 -64.9% 2,374.51 27-Oct-08 8,070.91 03-Jan-08 18% -65%
Source: Effect Finance
In sector terms, the index-heavyweight banking to IPO proceeds of EUR0.5bn and EUR0.7bn in sector underperformed the market (-74%) on poor 2007 and 2006, respectively. Secondly, cash calls earnings momentum and weak investor sentiment. in the form of rights issues were just EUR0.5bn Technology and raw materials stocks also through the year (dominated by Forthnet’s underperformed. Outperfomers included telecoms EUR300m) vs. a whopping EUR9.8bn in 2007 (down 53% amid OTE strength in Q4), oil & gas and EUR3.3bn in 2006. (which fell 52%) and construction (down 59%). These cash calls were more than offset by capital Finally, the utilities, food & beverage and returned to the market through a series of industrial sectors performed in line with the corporate purchases and M&A transactions, market, shedding 65% in 2008. notably the acquisition by Deutsche Telecom of a A quiet year for corporate actions 25% stake in OTE (20% from MIG, 3% from the Unlike previous years, 2008 was a quiet year for state and 2% from the market) for cEUR3.1bn. corporate actions. Firstly, there was no IPO activity in the main market of the ASE compared
Key private placements and corporate purchases in 2008 Company Date Shares Price Transaction % stake Details Offered (m) (EUR) value (EURm) offered Alpha Bank 21-01-08 2.0 22.80 45.6 0.5% Mr Kostopoulos bought the shares Minoan Lines 25-01-08 18.9 5.29 100.2 26.7% Italian Grimaldi bought the shares from Sea Star Alpha Bank 14-02-08 3.0 21.00 62.8 0.7% Centaurus sold to ABP Forthnet 14-12-08 2.0 11.50 22.4 5.0% Emirates In't Telcos bought the shares from major shareholders Hellenic Postbank 28-03-08 5.6 10.50 58.3 3.9% EFG Eurobank bought the shares Marfin Investment Group 31/03&24/04/08 70.0 6.56 459.2 8.4% Dubai Investment bought the shares from MPB Hellenic Postbank 21-04-08 7.3 13.25 97.3 5.2% National Bank bought the shares Neochimiki 09-12/05/08 28.8 19.00 547.5 80.0% Carlyle Group bought the shares from major shareholders Alapis 09-05-08 137.4 1.90 261.0 14.0% Private placement by major shareholder Mr Lavrentiades OTE 15-05-08 98.0 26.00 2,548.7 20.0% DT bought the shares from MIG Marfin Popular Bank 19-05-08 23.4 5.90 138.3 2.9% MIG bought the shares Alpha Bank 27-06-08 16.5 18.00 297.4 4.0% Qatari investors bought Alpha's treasury stock Alapis 27-10-08 80.0 1.25 100.0 8.2% Gerolymatos family bought the shares OTE 05-11-08 14.9 29.00 431.1 3.0% DT bought the shares from the Greek state Rokas 04-11/12/08 2.7 14.75 39.4 11.2% Iberdrola bought the shares Total 569.5 5,406
Source: ASE, Market data
8 Equity Greece abc 13 January 2009
Participation of foreign investors has declined
Foreign institutional investors currently own 34% of Greece’s market cap, down from 40% at end-2007 In contrast, Greek institutional and retail investors appear net buyers after a long period of net selling International flows and the degree of domestic support should continue to drive Greek equities’ performance in 2009
Liquidity conditions: a key outflows aggregating EUR4.3bn in 2008 vs. performance catalyst inflows of EUR5.7bn in 2007, EUR4.4bn in 2006 and EUR4.6bn in 2005. And this was the case For yet another year in 2008, foreign institutional despite estimated inflows of cEUR4.4bn related to flows and the degree of domestic buying support the purchase of stakes in OTE, Neochimiki, Alpha remained the single most important performance Bank and Marfin Investment Group by Deutsche catalyst for Greek equities and even more so for Telecom, Carlyle Group, Qatari private investors the less liquid small & mid cap stocks. The and Dubai Investment, respectively. In our view, picture was sharply reversed compared to there seems to be a significant correlation between previous years, with net foreign institutional
Monthly flows (EURm) Foreign institutional Total flows from Domestic Total local Other flows foreign investors institutional flows investor flows Total 2005 4,595 5,211 -1,364 -5,252 40 Total 2006 4,367 5,113 -582 -5,180 132 Total 2007 5,733 5,122 -823 -5,797 -596 Jan-08 -13 10 32 -118 108 Feb-08 -271 -104 72 -7 111 Mar-08 -691 -360 155 260 100 Apr-08 191 -235 215 237 -2 May-08 * -388 2,225 56 -2,234 8 Jun-08 -693 -583 308 565 18 Jul-08 -115 110 23 -106 -3 Aug-08 -324 -262 68 249 13 Sep-08 -268 -246 82 227 19 Oct-08 -1,214 -1,176 233 986 189 Nov-08 -495 -40 43 36 4 Total YTD -4,279 -662 1,287 96 566
*Includes EUR2.5bn sale of OTE stake from MIG to DT Source: ASE/Central Securities Depository
9 Equity Greece abc 13 January 2009
average monthly market returns and monthly holdings of blue-chip FTSE/ATHEX-20 stocks foreign institutional flows. also declined to 40% in 2008 from 47% at end- 2007 and 42% in 2006. Monthly average market return vs. monthly foreign institutional flows Contrary to previous years, local investors (both 3000 15% 10% retail and institutionals) appeared net buyers 2000 5% (especially excluding MIG’s sale of a EUR2.5bn 1000 0% stake in OTE), with renewed interest from retail -5% 0 -10% investors, as depicted by significantly increased J-06 J-06 J-07 J-07 J-08 J-08 J-05 J-05 S-06 S-07 S-08 N-06 N-07 N-08 S-05 N-05 M-06 M-07 M-08 M-08 M-06 M-07 -1000 M-05 M-05 -15% numbers of new investor accounts in October and -20% -2000 November (i.e. the months of the heavy sell-off). -25% Equity investments by domestic open-end mutual -3000 -30% Foreign inst'l flows (EURm) m-o-m ch. in avg ASE General Index funds accounted for just 2.6% of total market
Source: Central Securities Depository capitalisation as of end-2008. Individual investors,
including principal shareholders of listed companies, Based on ASE data, holdings of Greek equities by held 21.1% of the market, up from 19% at the end of foreign institutions fell to 34% of total market cap 2007 and 23% at end-2006. We estimate that almost as of end-2008 (compared to c50-52% free-float) half of that or c10% is in the hands of retail vs. 40% at end-2007 and 35% at end-2006. Their investors. In terms of trading activity, domestic investors, for the first time in recent years, accounted
Greek equity holdings by investor category Participation in total market cap May 2001 Dec 2002 Dec 2003 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Nov 2008 Market cap (EURm) 110,112 65,764 84,633 92,205 123,209 158,009 196,390 72,744 Local investors 78.4% 71.3% 68.7% 63.6% 59.4% 53.1% 47.7% 50.2% Individuals (incl. owners of listed companies) 34.8% 29.2% 29.9% 26.3% 24.5% 22.6% 19.4% 21.1% Legal entities 25.0% 26.9% 23.7% 22.5% 7.6% 8.2% 10.0% 7.7% Public sector n/a n/a n/a n/a 18.0% 14.7% 12.8% 14.6% Institutional investors 18.6% 15.3% 15.1% 14.7% 9.4% 7.6% 5.6% 6.9% … of which pension funds n/a n/a 3.4% 4.1% 0.6% 0.4% 0.3% 0.4% … of which mutual funds n/a n/a n/a n/a 4.3% 3.4% 2.4% 2.4% … of which closed-end funds n/a n/a n/a n/a 0.2% 0.2% 0.1% 0.1% International investors 21.6% 28.7% 31.3% 36.4% 40.3% 46.6% 51.8% 48.7% Individuals 0.5% 0.5% 0.7% 0.6% 0.4% 0.4% 0.4% 0.5% Legal entities 8.0% 12.2% 13.4% 12.1% 11.9% 11.2% 11.6% 14.4% Institutional investors 13.2% 15.9% 17.2% 23.7% 28.0% 35.1% 39.7% 33.8% Other * - - - - 0.2% 0.3% 0.5% 1.1%
Participation in FTSE/ATHEX-20 May 2001 Dec 2002 Dec 2003 Dec 2004 Dec 2005 Dec 2006 Dec 2007 Nov 2008 Market cap (EURm) 55,243 37,279 48,977 63,957 88,821 113,071 134,078 49,557 Local investors 72.2% 63.0% 60.6% 57.8% 55.3% 47.4% 39.3% 43.2% Individuals (incl. owners of listed companies) 28.4% 18.7% 20.8% 20.2% 18.8% 17.4% 15.9% 17.3% Legal entities 25.1% 30.3% 26.4% 24.6% 6.5% 5.9% 2.8% 1.9% Public sector 22.8% 18.6% 16.5% 18.6% Institutional investors 18.7% 14.0% 13.4% 13.0% 7.2% 5.5% 4.2% 5.4% … of which pension funds n/a n/a 4.3% 4.7% 0.6% 0.4% 0.3% 0.4% … of which mutual funds n/a n/a n/a n/a 4.3% 3.0% 2.2% 2.3% … of which closed-end funds n/a n/a n/a n/a 0.1% 0.1% 0.1% 0.1% International investors 27.8% 37.0% 39.4% 42.2% 44.5% 52.3% 60.1% 55.6% Individuals 0.4% 0.3% 0.6% 0.6% 0.4% 0.4% 0.5% 0.6% Legal entities 7.3% 13.7% 15.2% 11.3% 11.0% 10.1% 12.4% 14.7% Institutional investors 20.1% 23.0% 23.6% 30.3% 33.2% 41.8% 47.2% 40.4% Other * - - - - 0.2% 0.3% 0.6% 1.2%
* Investors with unknown legal-tax jurisdiction Source: ASE/Central Securities Depository
10 Equity Greece abc 13 January 2009
Structure of the Greek mutual fund industry (EURbn) 2002 2003 y-o-y 2004 y-o-y 2005 y-o-y 2006 y-o-y 2007 y-o-y Nov-2008 y-t-d Greek equities 3.4 4.0 19% 4.3 7% 5.0 15% 5.2 4% 4.6 -11% 1.9 -59% % of total 14% 13% 14% 18% 22% 19% 18% Foreign Equities 0.3 0.6 101% 0.8 30% 1.0 20% 1.2 16% 1.4 22% 0.8 -42% % of total 1% 2% 3% 4% 5% 6% 8% Fixed Income 5.1 6.5 27% 7.6 17% 13.6 78% 6.2 -54% 5.7 -8% 3.3 -42% % of total 21% 22% 24% 49% 26% 23% 31% Money Market 10.7 15.8 47% 15.4 -2% 4.9 -68% 5.9 19% 8.0 36% 2.6 -67% % of total 44% 52% 49% 18% 25% 33% 25% Balanced 4.7 3.2 -31% 3.4 7% 2.6 -24% 2.5 -5% 2.7 9% 1.3 -54% % of total 19% 11% 11% 9% 10% 11% 12% Fund of funds - - - 0.8 n/a 3.0 267% 2.0 -31% 0.7 -67% % of total 0% 0% 0% 3% 12% 8% 6% of which: - Equities - - - 0.3 n/a 0.6 124% 0.6 9% 0.3 -57% - Bonds - - - 0.0 n/a 0.4 0.2 -52% 0.0 -79% - Balanced - - - 0.5 n/a 1.9 257% 1.2 -38% 0.3 -71% Total 24.3 30.2 24% 31.6 5% 27.9 -12% 23.9 -14% 24.5 3% 10.6 -57%
Source: Association of Greek institutional investors
for above 50% of daily trading turnover in We estimate that total equities investments by November 2008 (vs. 38% in Jan-Nov 2008 and domestic open-end funds fell 55% to just EUR3bn almost a third in 2007). in November 2008, or 1.3% of Greek GDP (vs. 2.9% in 2007), i.e. well below Eurozone averages. As a general theme in Greece in recent years, investment in equities remains low relative to Overall, the mutual fund industry contracted for a fixed income, reflecting risk aversion, lack of fourth year in a row on outflows from both equity investment sophistication and an underdeveloped and fixed-income funds. asset-management industry. The bulk of domestic Going forward, we expect liquidity conditions to private-sector liquidity is still parked in deposits continue to determine to a large degree the and money-market funds. Those asset classes market’s direction. Given the receding global risk accounted for 96% of private-sector liquidity appetite and further de-leveraging in light of the excluding direct investment in equities at end- prevailing financial crisis, we expect international October 2008. flows to continue to weigh on Greek equities, particularly for the first part of 2009.
Private sector liquidity (EURbn) 2001 % of 2002 % of 2003 % of 2004 % of 2005 % of 2006 % of 2007 % of Oct-08 % of total total total total total total total total Deposits 102.7 68% 102.9 70% 114.8 74% 127.0 75% 155.4 83% 172.3 87% 198.7 89% 224.7 94% Repos 24.2 16% 20.0 14% 10.8 7% 9.5 6% 2.7 1% 1.6 1% 0.7 0%1.1 0% Debt securities up to 2-y 0.1 0% 0.2 0% 0.5 0% 0.5 0% 0.4 0% 0.5 0% -1.6 -1% 2.2 1% Money Market Mutual Funds 9.7 6% 10.7 7% 15.7 10% 15.2 9% 4.9 3% 5.8 3% 7.9 4% 3.0 1% Non-MM Mutual Funds 14.9 10% 13.5 9% 14.4 9% 16.2 10% 23.0 12% 18.0 9% 16.5 7% 8.6 4% ….of which equity funds 5.5 4% 3.7 3% 4.7 3% 5.2 3% 6.2 3% 6.9 3% 6.6 3% 3.1 1% Total 151.6 100% 147.4 100% 156.2 100% 168.7 100% 186.4 100% 198.2 100% 222.2 100% 239.6 100% GDP 146.4 156.6 171.4 185.9 197.6 213.2 228.2 241.3 Equity funds as % of GDP 3.7% 2.4% 2.7% 2.8% 3.2% 3.2% 2.9% 1.3% Non-MM MFs as % of GDP 10.2% 8.6% 8.4% 8.7% 11.6% 8.4% 7.2% 3.6%
Source: Source: Bank of Greece, Association of Greek institutional investors
11 Equity Greece abc 13 January 2009
Greece increasingly becomes a macro-play
Greek economy to face most severe challenge since EMU-entry Long-standing fault-lines (eroding competitiveness, weak public finances) come painfully to the fore No easy way out: fiscal discipline, structural reforms needed
2009: a challenging year to create a tough macroeconomic backdrop. Our central forecast calls for 1.1% real growth in Following a decade of strong and uninterrupted 2009e, down from 3.0% in 2008, but still easily expansion (during which real GDP growth beating pan-European averages (HSBC expects averaged more than 4% pa), the Greek economy the eurozone to contract by 1.4% during 2009). appears to be facing its most severe challenge since accession into EMU. The global slowdown coupled with domestic imbalances has conspired
Key macroeconomic forecasts Real growth (% y-o-y) 2003 2004 2005 2006 2007 2008e 2009e GDP 5.6 4.9 2.9 4.5 4.0 3.0 1.1 Private consumption 3.3 3.7 4.3 4.8 3.0 2.3 1.4 Public consumption -1.0 2.9 1.2 0.0 7.7 2.2 1.8 Total consumption 2.4 3.6 3.7 3.9 3.9 2.3 1.5 Fixed Investment 13.2 1.9 -0.5 9.2 4.9 -12.6 -7.0 Total capital formation * 16.7 0.1 -3.5 8.2 9.7 -0.1 -6.0 Domestic demand 5.3 2.8 2.2 4.8 5.1 1.8 -0.1 Exports 3.5 13.9 4.2 10.9 3.1 3.4 -3.5 Imports 3.4 3.3 1.4 9.7 6.7 -0.6 -6.0 Contribution to growth (pct points) Consumption 2.2 3.2 3.3 3.5 3.4 2.0 1.3 Investment 3.0 0.5 -0.1 2.1 1.2 -3.1 -1.4 Total capital formation * 3.8 0.0 -0.8 1.8 2.3 0.0 -1.4 Domestic demand 6.0 3.2 2.4 5.3 5.7 2.0 -0.1 Net external sector -0.4 1.7 0.5 -0.8 -1.6 1.0 1.3 Harmonised CPI 3.5 3.0 3.5 3.3 3.0 4.2 2.8 Budget balance (% of GDP) -5.5 -6.0 -5.1 -2.8 -3.5 -3.3 -3.9 Public debt (% of GDP) 97.9 98.6 98.0 95.9 94.8 94.0 96.8 Private sector credit expansion (% y-o-y) 20.3 19.2 20.9 19.7 20.0 17.5 8.5 Private sector credit (% of GDP) 60.8 66.9 75.5 83.9 94.0 102.8 107.3 Credit expansion to households (% y-o-y) 28.4 30.0 31.1 24.7 21.2 13.2 10.6 Household credit (% of GDP) 23.6 28.4 34.7 40.1 45.4 47.9 51.0
* Includes fixed capital formation, inventories and balancing item (GDP is primarily calculated through production rather than expenditure method) Source: NSS, Ministry of Finance, Bank of Greece, Eurostat, HSBC Pantelakis Securities estimates
12 Equity Greece abc 13 January 2009
Economic headwinds Economic cushions-shields
The key drivers dampening the Greek economic Although the picture painted so far is rather grim, outlook during 2009 include: not all is gloomy. In particular, we believe that the economy could be cushioned by: Weakening consumption dynamics, on the back of rising unemployment (seen averaging Still healthy private consumption, 8.5% vs. 7.6% in 2008e), deteriorating supported by relatively robust real wage sentiment, rising financial uncertainty growth, continuous credit expansion (Greek stemming from the global macro turmoil, households remain underleveraged by EU negative wealth effects (from the equities and standards) and a helpful boost arising from property markets) and tightening credit CPI easing, not least due to the recent conditions (lending standards). declines in oil prices.
A grim outlook for export services (the Robust infrastructure spending, aided by bulk of total exports), namely tourism and the continuous inflows of EU structural funds shipping, the traditional shock absorbers of (1.5%-2% of GDP pa), market liberalisation the Greek economy. We expect tourism (telecoms, energy) and increased private receipts to fall by c4% in 2009e (vs. +6% in sector participation in infrastructure projects 2008e) amid the unfolding international crisis through PPP schemes. and fading cushion from newly emerging High elasticity of imports to demand tourist sources like SEE-Russia. In addition, dynamics, given a heavily skewed structure shipping receipts could decline by 10%, with towards investment equipment. Hence, the downturn in the global trade cycle and despite exports retrenchment, we expect the sharply lower freight rates more than net external sector to have a positive offsetting favourable effects stemming from contribution to GDP (in fact, accounting for the increasing size and improved quality of the bulk of growth). the Greek fleet. Supportive policies. Financial conditions Slowing merchandise exports, mirroring the should benefit by the recent dramatic easing contraction of the eurozone (towards which of ECB benchmark rates (expected to more than 50% of total exports are channelled), culminate during 2009), and the depreciation the deteriorating outlook for SEE economies of the EUR since mid-year. In addition, fiscal (accounting for 27% of total exports vs. 11% a policy will also loosen (amid the effective decade ago) and the real appreciation of the relaxation of EU’s Stability Pact) as EUR vs. the region’s currencies. automatic stabilisers kick-in. Declines in business-residential investment. Ever-present long-term Tightening credit conditions and weakening challenges painfully to the fore demand-profitability should curtail business investment, hence compounding the effect of However, a key question remains whether policy already shrinking residential construction actions could actually get economic traction. In (down 31% yoy in 9M08). particular, persisting credit crunch conditions and the ongoing turmoil in the financial industry may block the transmission mechanism of the monetary policy.
13 Equity Greece abc 13 January 2009
In addition, the effectiveness of the expansionary Such longer-term imbalances have now come fiscal policy stance depends on the reaction of the painfully to the fore amid receding risk appetite private sector, notably the saving behaviour of and increasing investor differentiations among EU private households and corporates. sovereign credits. Hence, the spread of Greek government debt over Bunds has recently climbed This brings us nicely to a particular conundrum back to levels not seen since EMU accession. facing the Greek economy. Strangely enough, EMU entry has made the need for reform less Not a cheerful smile: 10-year Greek spread over bunds (bps) urgent, by shielding Greece from currency 350 volatility and by tightening spreads on sovereign 300 debt. But the long-term challenges, if not 250 addressed properly, could create a painful 200 endgame for the Greek economy. 150 100 In fact, it is always during recession/downturns 50 that past mistakes, previously masked by the 0 cyclical uptrend and falling risk premia, come Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 painfully to the fore. This is the case currently for Source: Bloomberg the Greek economy, which suffers from internal imbalances, showing up in two major fault lines: Admittedly, widening spreads are not entirely Continuous erosion of economic attributed to rising creditworthiness concerns: a competitiveness, given persisting inflation rising illiquidity premium, a flight to quality differentials vs. the EU. The real exchange (German bunds) and an anticipated flood of new rate has appreciated by c17% over the past issuance by governments early this year have seven years, due to rising unit labour costs on definitely played a significant role. Tellingly, the above-productivity wage growth. This is absolute yield of Greek 10-year bonds is little highlighted by a widening current account changed since mid-2008. deficit, which, at 14% of GDP, remains the Nevertheless, such developments could make it largest in the eurozone. Admittedly, costlier for the government to fulfil public worsening oil and shipping balances borrowing requirements for 2009: the latter could combined account for almost half the total aggregate to cEUR45bn, of which EUR28bn refer deficit. Still, despite their partial unwinding in to debt maturities during the year (all of which in 2009, the overall deficit will likely remain H1), EUR12bn to central government deficit and high. This mirrors rapid growth in domestic EUR5bn (equivalent to 2% of GDP) to the banks’ investment and declining national savings. recapitalisation scheme, through preferred stock. Weak public finances, as reflected in persisting Hence, aiming to alleviate funding difficulties, we budget deficits (above 3% of GDP), a heavy expect Greece to resort to short-term funding public debt load (c95% of GDP) and significant through T-bills (easily funded at the ECB contingent liabilities in the form of an window) for an increasing portion of new underfunded pay-as-you-go public pension issuance (cEUR10bn), and employ syndicates system hit by the double whammy of an ageing (book-building) or even so-called ‘Dutch population and generous payout promises. auctions’ so as to place the remaining bonds.
14 Equity Greece abc 13 January 2009
In general, accession into EMU shields the Greek to offer blanket guarantees to banks’ depositors economy in times of turbulence, not least by and creditors. rendering Greek sovereign bonds fully fungible at Debt & deposits as % of GDP for various countries the ECB window. Even in the extreme case 0% 50% 100% 150%200% 250%300%350% 400%450%500% 550% (certainly not in our forecasts) of a persistent Iceland Switzerla buyers’ drought, EMU membership should provide Ireland Britain another cushion. Although no such explicit Germany Belgium provisions exist in EU’s institutional framework, we Austria Netherlan Spain believe that authorities (through ECB, EIB) may Italy Greece well proceed with unconventional action to buy EU Portugal Denmark government bonds (e.g. Greek, Italian) not least to United Sweden avoid a negative reflection on the EUR itself Finland Public debt Bank debt Bank deposits (currently facing its first true recession since the Source: European Banking Federation, Eurostat, FDIC, OECD adoption of the single currency). In addition, Greece has far from experienced a That said, the higher cost of debt may well feed property boom evident in other countries. True, through the entire economy and crowd-out the house price appreciation averaged c9% pa in private sector, effectively precluding an easing of 2000-07 but this was below the 15% seen in the financial conditions for Greek households and UK or Spain during the same period and largely corporates. In addition, given the state of public explained by improving fundamentals (such as finances and limited funding ability, the rapidly declining interest rates post EMU entry, government will almost certainly not be able to loosening credit conditions, rising disposable use fiscal levers as much as it should to cushion income and household formation rates). the economy. Not an immediate crisis… House price gaps (%) as at end H1 2008 35
We do not want to sound overly bearish. True, the 30
Greek economy is far from one of the worst 25 offenders among the world’s imbalanced 20 economies. Notably, despite rapid lending 15 expansion since EMU entry in 2001, the private 10 sector and households in particular remain 5 underleveraged by global standards. At end-2007, 0 UK US -5 Italy credit penetration for the private sector in total Spain Ireland Austria France Greece Finland Norway Sweden Belgium Portugal Australia Denmark stood at 80% of GDP (vs. 114% EMU average, -10 Germany Netherlands 170% for Spain and c200% for the UK) and 41% Source: IMF World Economic Outlook October 2008 for households (vs. 54% EMU average, 80% for Portugal, 90% for Spain and above 100% in the According to an IMF study, the Greek house price UK and the US). ‘gap’ (i.e. the appreciation not explained by fundamentals) stands at ‘only’ c10%, far below Moreover, Greece does not score particularly high those of Spain, Ireland or the UK. In addition, even when considering the implicit potential extra residential construction never exceeded 9% of liabilities arising from governments hurrying up GDP (vs. 17% peaks in Spain and Ireland), while
15 Equity Greece abc 13 January 2009
Greece lacks speculative property investment markets and attract FDI through a business- structures or highly leveraged real estate friendly environment, tax regime stability and a developers. Finally, headline numbers obviously highly-skilled labour force (through education and fail to account for a still large ‘grey economy’ R&D spending). (estimated at as much as 30% of GDP). Political environment: not that helpful Overall, participation in the EMU will definitely That said, the political environment does not provide a cover for the Greek economy in tough appear very promising towards such goals. times, by shielding it from currency volatility and Although the stage of the electoral cycle bodes capital flight. In addition it will cushion the impact well (next general elections are scheduled for of the adjustment process through continuous 2011), the ruling centre-right party holds a razor- inflows of EU structural funds (to aggregate to thin (151 of the 300 seats) majority in the EUR21bn over the 2007-13 period vs. EUR23bn in parliament, while it appears to trail the opposition the preceding 2000-06 timeframe). in recent opinion polls (by 3-6 percentage points).
…but no easy way out either In addition, the government has been further weakened due to widespread early-December riots However, at the same time, EMU entry has (sparked by the police shooting of a 15-year-old) as removed the easiest way out of similar past well as mounting criticism over a string of financial downturns (currency depreciation). Hence, the scandals (not least one involving an illegal adjustment process can now be implemented only government property swap carried out with a through more permanent measures, namely an monastery on Mount Athos). Hence, it has so far acceleration of structural reforms and fiscal shied away from much-needed (but unpopular) consolidation as well as a period of wage structural reforms, while fiscal discipline has slipped moderation to recover lost competitiveness. with overruns in expenditure and shortfalls in Long-run fiscal sustainability requires strict revenue collection (only partly cushioned by control of primary spending and wide-ranging recently introduced emergency tax measures). reforms of the pension and health-care systems. More importantly, recent developments have Greater administrative efficiency is critical in raised the spectre of a future hung-parliament, facilitating investments. Fostering competition in since no party appears able to secure an absolute key network industries and products-services majority in next general elections, based on the markets will be essential to maintaining strong findings of recent opinion polls. Given the lack of growth while keeping a lid on inflation. The same a track record for coalition governments, this may could be achieved by reducing labour market lead to an authority vacuum, precisely at the time rigidities such as a nationwide wage-setting when strong leadership is required. process, red tape in hiring and firing and temporary employment.
In addition, real wage growth should be constrained below productivity gains over the next years. Other shortcuts could include measures to redirect consumption to domestic production, improve the quality of exports (to achieve premium pricing), open up new export
16 Equity Greece abc 13 January 2009
Greek earnings momentum deteriorates
We expect 7% EPS decline in 2008 and 6% growth in 2009 Traditional earnings pillars appear shaky in the near-term Risks to our 2009e projections lie mostly to the downside
Momentum slows but still Eating humble pie: significant outpaces European equities downgrades to our 2008e
Following three years of strong (above 20% pa) EPS estimates growth, Greek earnings momentum deteriorated With the financial turmoil and economic sharply during 2008. For our universe, we now slowdown gradually gathering steam throughout expect recurring EPS to decline by 7% yoy in the year, our 2008e earnings expectations were 2008e, followed by a tepid recovery (+6%) in dramatically cut during the year. Tellingly, our 2009e. This earnings profile is broadly in line current projections call for an aggregate EPS with current consensus expectations. More decline of 7% yoy, compared to 22% growth importantly, despite this slowdown, earnings for forecast a year ago: a whopping 29 percentage- Greek stocks appear more resilient compared to point downward revision, testament to rapidly European equities: current consensus expectations deteriorating conditions. call for an 18% yoy decline in FTSEEurofirst 300 Downward revision activity in 2008e EPS EPS in 2008e, ahead of a flattish 2009e. 12M ago Now Change in pct points Summary of earnings projections HSBC Universe 22% -7% -29 2007a 2008e 2009e Non-banks 24% -7% -31 Greek universe (HSBCe) 26% -7% 6% Banks 19% -8% -27 Greek universe (consensus) 26% -9% 0% Telecoms 26% 22% -4 FTSEurofirst 300 (consensus) 3% -18% 0% Food & Beverages 18% 0% -18 Gaming 13% 17% 4 Source: HSBC Pantelakis Securities estimates, FactSet for consensus Utilities (i.e. PPC) 573% -343% nm Oil & Gas -28% -1% 27 Construction 64% 7% -57 That said, we warn that extreme gyrations in Building materials -1% -23% -22 PPC’s profitability (plunging into losses in 2008e ROE HSBC Universe 20% 16% before of a material turnaround in 2009e) distort Leverage (non-financials) Net debt/EBITDA 149% 212% averages, given their wide extent and increased Net debt/Equity 63% 81% weight in the universe. Excluding PPC, we expect Source: HSBC Pantelakis Securities estimates EPS for our universe to fall by 3% and 3% in 2008e and 2009e respectively.
17 Equity Greece abc 13 January 2009
We draw scant consolation from the fact that Building materials (Titan Cement) faced consensus estimates followed a similar trajectory increasing headwinds from a further deterioration throughout the year. In fact, 2009e growth in the outlook for the group’s key markets, Greece estimates have also been revised downwards, and the US, and weakening dynamics in the more despite a sharply reduced base. Tellingly, 2009e vibrant SEE and eastern Mediterranean regions. In consensus earnings projections stand a full 36% turn, construction stocks should have fared much below forecasts a year ago. better (EPS +7% yoy), courtesy of their large backlogs and increasing exposure to non- 2008e-09e consensus EPS growth (%) also heads south traditional activities such as real estate, motorway 25 concessions and renewable energy. 20
15 The broader consumer segment (although suffering a slowdown) is also poised for positive 10 earnings growth. Coca Cola Hellenic’s profits 5 should be broadly flat yoy amid a confluence of 0 slowing volume increases, adverse weather JASONDJ FMAMJ J ASOND -5 07 08 08 conditions and a tough costs environment (but
-10 also some adverse one-offs). In turn, largely FY2008 FY2009 domestic retail plays should continue to grow
Source: FactSet for consensus earnings, testament to increasing market shares in
a fragmented market backdrop, store network Turning to the sectoral outlook, pressure on expansion in Greece, inroads into the Balkans and earnings has been fairly broad-based. That said, margin gains on economies of scale. banks, being by far the largest market segment, Refineries constituted the single largest positive played a prominent role. We now forecast Greek banks recurring EPS declining 8% yoy in 2008e earnings surprise for the year. In fact, contrary to our (and consensus) view a year ago, 2008 was with a contraction of deposit spreads, rising loan- loss provisions and significantly reduced capital not a bad year for refining margins after all. markets-related commissions and trading gains Finally, as expected, gaming and telecoms were more than offsetting still healthy (albeit the two most resilient sectors. In the former, decelerating) lending growth and rising positive surprises by OPAP (on strong momentum contribution from SEE subsidiaries. for key games, even better dynamics for gross win and cost containment) should be only partially Turning to non-financials, PPC, the sole utility offset by an Intralot miss. Finally, OTE should under coverage, had a dismal year: we expect it to have benefited from strong mobile telephony plunge into heavy losses for the first time since its trends and the Cosmote minority buy-out 2001 listing. A confluence of external-internal completed in early 2008. factors has contributed to the gloom: a super-spike in fuel costs (oil, natural gas); inadequate hikes in Traditional earnings pillars regulated retail tariffs; a prolonged employee appear shaky in the near-term strike; delays in maintenance and capex We have long argued that Greek earnings programmes; limited controllable cost cutting; and momentum should outpace Europe’s in the depressed hydro generation owing to the medium-term given a positive domestic macro persistent drought.
18 Equity Greece abc 13 January 2009
backdrop and increasing exposure to SE European Deteriorating regional outlook. Although emerging markets. Although still valid in the Central and South East European (C&SEE) medium term, this proposition now appears shaky countries remained relatively immune during in the near term, due to: the initial stages of the current prolonged Weakening domestic economy. As credit crisis, the situation has now turned discussed in the previous section, we expect rather downbeat. In general, rising macro Greek GDP growth to slow to 1.1% in 2009 risks relating to widening current account vs. 3.0% in 2008 on the dampening effects of deficits, depreciating local currencies and slowing consumption, declines in investment weakening FDI inflows point now to the and a tough backdrop for the main export downside. Although proactive policies by the services. We believe this will definitely act as IMF (via the Short-Term Liquidity Facility) a drag to corporate profitability. and the EU are in the right direction to plug a
Contribution of C&SEE operations to group results (% of total, sorted by 2010e net earnings contribution) ______Sales ______EBITDA ______Net earnings______Non-banks 2007a 2008e 2009e 2010e 2007a 2008e 2009e 2010e 2007a 2008e 2009e 2010e Sarantis * 56% 60% 61% 62% 30% 49% 50% 50% 47% 60% 61% 61% Coca Cola HBC * 53% 54% 55% 57% 53% 54% 55% 57% 55% 56% 56% 58% Titan Cement 14% 18% 19% 22% 23% 28% 30% 33% 32% 39% 50% 51% Frigoglass 42% 41% 40% 40% 42% 39% 38% 39% 47% 40% 39% 41% Intralot 59% 52% 41% 38% 51% 61% 46% 45% 38% 48% 37% 38% Metka 0% 0% 20% 23% 0% 0% 19% 22% 0% 0% 20% 23% Mytilineos Group 25% 18% 24% 25% 19% 1% 14% 16% 22% -2% 23% 22% Fourlis Holdings 19% 20% 18% 18% 14% 23% 23% 20% 8% 16% 23% 20% OTE group 29% 32% 34% 35% 26% 28% 32% 33% 1% 13% 19% 19% Hellenic Petroleum Group 9% 11% 11% 11% 10% 20% 20% 20% 7% 14% 17% 18% Jumbo 9% 10% 9% 10% 9% 10% 9% 10% 11% 11% 12% 12% J&P Avax 16% 19% 18% 9% 8% 10% 10% 5% 11% 13% 14% 8% Hellenic Exchanges 1% 1% 1% 2% 1% 1% 1% 2% 1% 1% 1% 2% GEK Group * 17% 12% 10% 8% 4% 4% 4% 2% 6% 4% 3% 2% Ellaktor * 4% 2% 2% 2% 2% 1% 1% 1% 2% 1% 1% 1% OPAP 2% 2% 2% 2% 1% 1% 1% 1% 1% 1% 1% 1% Folli Follie 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% PPC 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Aegean Airlines 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Motor Oil Hellas 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Forthnet 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Hellenic Duty Free Shops 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% AB Vassilopoulos 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Terna Energy 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Lamda Development 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Total non-banks 17% 18% 19% 19% 16% 18% 19% 19% 11% 14% 17% 17%
_____ Total operating income ______Operating profit before provisions______Net earnings______Banks 2007a 2008e 2009e 2010e 2007a 2008e 2009e 2010e 2007a 2008e 2009e 2010e National Bank 35% 39% 40% 42% 38% 41% 42% 42% 37% 45% 47% 47% Piraeus Bank 19% 29% 30% 30% 17% 27% 28% 28% 13% 25% 26% 27% EFG Eurobank 23% 34% 38% 39% 11% 24% 29% 30% 9% 24% 25% 26% Alpha Bank 15% 20% 22% 23% 12% 16% 17% 16% 11% 17% 14% 11% Marfin Popular 7% 15% 15% 15% 5% 10% 9% 8% 3% 10% 7% 4% Bank of Cyprus 5% 7% 10% 11% 2% 1% 5% 5% 2% 1% -1% -3% Hellenic Postbank 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Total Banks (weighted average) 21% 27% 28% 29% 19% 24% 25% 26% 17% 25% 25% 25%
HSBC Universe (weighted average) 19% 21% 22% 23% 17% 20% 21% 22% 14% 19% 20% 20% Our estimates a year ago 22% 24% 26% n/a 20% 23% 26% n/a 18% 21% 24% n/a
Note: * denotes EBIT instead of EBITDA Source: Company data, HSBC Pantelakis Securities estimates
19 Equity Greece abc 13 January 2009
funding gap for countries facing liquidity domestic credit expansion, persisting liquidity problems and restore investors’ confidence constrains, further rises in loan-loss provisioning for the region, a significant deceleration in rates and a declining contribution from SEE growth momentum now seems inevitable. operations, with only a partial relief from asset re- Based on our forecasts, c20% of our pricing (amid less intense competition) and universe’s earnings will be derived from cost containment. C&SEE in 2009e, down from 24% expected a In fact, we believe the risks to our forecasts (as year ago, the main reason being lower detailed in the next section) lie to the downside: exposure by Greek banks (25% of 2009e further macro deterioration in Greece and the earnings vs. 29% expected a year ago). broader region, persisting credit crunch conditions, 2009e earnings outlook a failure of the government’s EUR28bn support scheme to offset liquidity headwinds (stemming Given this backdrop, we expect Greek earnings momentum to remain weak during 2009e, despite from currently gummed wholesale and interbank starting from a low base. A sharp profitability markets) and an intensifying war for deposits could turnaround in PPC flatters the overall picture imply further downside. (recurring EPS +6% yoy for our universe) but Outside financials, PPC should be the single most masks a rather grim underlying picture: we now important bright spot. 2009 is shaping up to be a factor in a 3% EPS decline for our universe ex- year of sharp profitability turnaround: we expect PPC. Overall, we forecast ROE to drop further to EBITDA to rise more than threefold and net 15.7% (from 16.3% in 2008e and an 18.4% peak income to return to the black (EUR464m, a record in 2007), amid constrained earnings and reduced high for the past decade). This boils down to a leverage. This coupled with increases in cost of substantial easing in fuel and wholesale electricity equity (driven by rising sovereign bond yield and costs, the feed-through of the July tariff increase, equity risk premium) is likely to further erode and some normalisation of the generation mix. corporate value-added (ROE-COE). Despite new automatic tariff adjustment In sectoral terms, we expect a weak earnings mechanisms for fuels (now deferred to 2010) and environment for Greek banks, amid slowing PSO costs, PPC remains geared to lower fuel
EPS growth per sector 2006a 2007a 2008e 2009e Weight in HSBC Universe HSBC Universe 19% 26% -7% 6% 100% EPS growth by key sector Non-banks 11% 13% -7% 27% 60% Banks 20% 34% -8% -6% 40% Non-banks ex-PPC 16% 10% 4% 2% 54% Telecoms 35% 17% 22% 7% 13% Food & Beverages 17% 24% 0% 7% 8% Gaming 16% 17% 17% 1% 15% Utilities (i.e. PPC) -83% 346% -343% nm (Profit from loss) 6% Oil & Gas -15% -11% -1% -17% 5% Construction -7% 31% 7%-3% 3% Building materials 23% -8% -23% -11% 3% ROE HSBC Universe 16% 18% 16% 16% 100% Leverage (non-financials) Net debt/EBITDA 146% 178% 212% 176% 60% Net debt/Equity 54% 68% 81% 70% 60%
Source: Company data, HSBC Pantelakis Securities estimates
20 Equity Greece abc 13 January 2009
prices. With oil prices now hovering around We expect the profitability of Greece’s major USD45/bbl, our USD60/bbl base-case assumption construction groups to weaken amid an implies upside risks to our profit estimates. anticipated slowdown in the domestic activity and increased competition as well as growing We still expect gaming and telecoms to remain contribution from less-lucrative international relatively resilient. We are pencilling-in flat EPS projects. In addition, poor visibility in real estate, for OPAP, with any betting weakness (closely delays in the implementation of their stated correlated to disposable income dynamics) offset business plans in RES and a higher cost of debt by strength in countercyclical numerical games may also weigh on earnings. and the (fading) benefits stemming from the new terminals rollout. We also expect 7% EPS growth Finally, the outlook for Titan should remain for OTE amid stable EBITDA and lower financial challenging given deteriorating volume in both expenses (on deleveraging). Greece and the US and weakening pricing power in the latter, only partly offset by On the other hand, we expect refineries’ earnings fuel/energy-cost easing. to eventually decline (by 17% yoy) amid falls in cracking margins (to USD3.8/tn from USD5.5/tn in 2008e) and poor conversion economics.
Reflecting a tough environment, we expect momentum for the retail sector to weaken amid slower sales and operational leverage headwinds. However, selective retail stocks (Jumbo, AB Vassilopoulos) should still post earnings growth, supported by market-share gains (reflecting increasing market concentration and rapid network expansion) as well as higher margins on scale effects, in our view.
21 Equity Greece abc 13 January 2009
Banks: themes to watch out for in 2009
The key theme to watch out for in 2009e is risk provisioning and asset quality, as seen in the context of a downbeat macro outlook both in Greece and in the C&SEE region Our sensitivity analysis on impairment charges and pre-provision profit reveals that risks to sector profitability and capital base are on the downside On our stress-test for impairment charges, sector EPS could be reduced by 13% to 25% in 2009e, and by 17% to 33% in 2010e; our analysis on pre-provision profit shows that sector EPS could be slashed by 33% to 67% in 2009e and by 37% to 75% in 2010e We recommend exposure to banks with 1) sound capital and liquidity base and 2) low gearing and conservative funding profile (strong retail deposit franchise); we view National Bank of Greece as the sector’s strongest fundamental play
Downbeat macro outlook, at Key themes for 2009e the forefront of our concerns We reiterate our previously mentioned (see our Ahead of a challenging operating environment in report Greek & Cypriot banks, dated December 8, 2009e, Greek and Cypriot banks face significant 2008) key themes that would affect Greek and challenges centred on the slowdown in the Cypriot banks’ profitability and overall region’s economic growth (Greece and the operational performance in 2009e: Central & South-eastern European region – Cost of credit and asset quality. In our view, C&SEE) and the eventual negative effect on 1) rising loan-loss charges represent the single, risk provisioning and asset quality and 2) credit largest risk factor to sector profitability. We expansion going forward. expect Greek households’ affordability to be further stretched given banks’ aggressive loan repricing since early summer 2008 (expected
22 Equity Greece abc 13 January 2009
to remain intact in H1 2009) coupled with our Based on the latest available data provided by expectation for economic growth slowdown Bank of Greece, system non-performing loans (negative impact on employment and wage (NPLs) in Greece, for the 6-month period ending growth). Our sensitivity analysis shows that June 30, 2008, stood at 4.7% of system loans (or risks on this front are largely on the some EUR11bn worth of loans), compared to downside. We believe that potential threats 4.5% by end-2007 (or some EUR9.7bn worth of are seen emanating from the following loans), solely due to rising NPLs in the unsecured product categories: 1) SMEs, 2) large household credit business. According to the corporates and 3) unsecured household credit. regulator, the coverage ratio of system NPLs in Greece, by end-June 2008, stood at 49% Capital adequacy and liquidity. Capital is compared to 53% by end-2007. necessary to absorb any losses related to the deteriorating macro environment (stemming Since provisioning has become the single most from higher impairment charges). Given that important risk factor to the sector’s profitability, credit markets remain severely dislocated and we have stress-tested Greek and Cypriot banks’ the interbank market is far from operating earnings against more drastic changes in their risk normally, funding options remain limited. provisioning levels. That said we introduced three However, increasing State intervention, via scenarios whereby loan-loss provisions increase capital injections, liquidity provisions and by 20%, 30% and 40% above our base case lending guarantees is a move in the right forecast for each bank’s regional operations. direction to restore confidence in the market. Sector EPS could be reduced by 13% At the same time, banks’ plans to further to 25% in 2009e and by 17% to 33% enhance their liquidity pools, through the in 2010e extensive use of the ECB-lending facility, give us some additional comfort. Our sensitivity analysis suggests that, ceteris paribus, the effect of an abrupt increase in impairment In this context and in an attempt to effectively charges between 20% and 40% could reduce our gauge the downside risks to sector profitability, universe EPS by between 13% and 25% in 2009e we have stress-tested banks’ 1) impairment and by between 17% and 33% in 2010e. charges, assuming a 20%, 30% and 40% increase to our 2009e and 2010e base case projections and Greek banks stress-test of risk provisioning 2) pre-provision profit, by implementing a 20%, ______EPS change ______20% increase __30% increase __40% increase _ 30% and 40% cuts to our 2009e and 2010e base 2009e 2010e 2009e 2010e 2009e 2010e case forecasts. NBG -9% -10% -13% -16% -17% -21% Eurobank -19% -28% -29% -41% -39% -55% Alpha -19% -22% -28% -33% -37% -44% What if…a) loan-loss Piraeus Bank -12% -18% -18% -27% -24% -35% provisions increase above our Bank of Cyprus -10% -14% -15% -21% -20% -27% Marfin Popular -9% -12% -13% -18% -18% -24% base case? Average -13% -17% -19% -25% -25% -33% Source: HSBC Pantelakis Securities estimates Our base case scenario on banks’ loan-loss provisioning levels has been put in place so as to Our analysis reveals that the largest downside depict our expectation for a significant slowdown risks to our EPS forecasts are for Eurobank EFG in the economic growth in the C&SEE region. and Alpha Bank, with over 20% potential reduction to our 2009e and 2010e projections
23 Equity Greece abc 13 January 2009
(even for just a 20% increase in impairment credit (including SMEs), a segment where we see charges). On the other hand, NBG stands out from major risks of deteriorating asset quality. the crowd with lower potential downside to our Sector Core Tier 1 capital could be base case EPS estimates of between 9% and 17% cut by 2% to 3% in 2009e and 3% to in 2009e and between 10% and 21% in 2010e. 7% 2010e Moreover, our analysis also shows that the Our analysis reveals that the effect from rising sector’s risk provision rate, under our scenario of impairment charges to our sector 2009e and 2010e a 40% increase in impairment charges, could Core Tier 1 capital, although not insignificant, increase between 43bps and 49bps in 2009e and would be far from devastating. 2010e, bringing the sector rate (under our scenario of a 40% increase in impairment charges) to Greek banks stress-test of risk provisioning 150bps in 2009e and 173bps in 2010e. Under the ______Core Tier 1 capital change ______20% increase__ 30% increase_ _40% increase _ three scenarios (20%, 30% and 40% increase in 2009e 2010e 2009e 2010e 2009e 2010e loan loss charges) the sector risk provision rate NBG -1.6% -3.0% -2.4% -4.5% -3.1% -6.0% Eurobank -2.3% -4.8% -3.5% -7.2% -4.7% -9.6% could stand between 129bps and 150bps in 2009e Alpha -2.1% -4.2% -3.1% -6.2% -4.2% -8.3% (vs. our base case estimate of 107bps) and Piraeus Bank -1.4% -3.0% -2.2% -4.6% -2.9% -6.1% Bank of Cyprus -1.2% -2.5% -1.8% -3.8% -2.4% -5.1% between 149bps and 173bps in 2010e (vs. our Marfin Popular -1.2% -2.4% -1.8% -3.7% -2.4% -4.9% Average -1.6% -3.3% -2.5% -5.0% -3.3% -6.7% base case projection of 124bps). Source: HSBC Pantelakis Securities estimates
On those grounds, Eurobank would report the highest charge-off rate, ranging between 176bps On our calculations, based on the aforesaid 3 and 205bps in 2009e (vs. our base case of 146bps) scenarios of rising loan loss provisions (20%, 30% and between 205bps and 240bps in 2010e (our and 40% increase) we would expect our sector Core base case at 171bps). This is however justified by Tier 1 capital to be reduced by between 2% to 3% in Eurobank’s leading position in the unsecured 2009e and by 3% to 7% in 2010e. household credit segment in Greece. Yet we All in all, even under our extreme scenario of a 40% believe that, even under our stress-test scenarios, increase in impairment charges, the sector 2009e and charge-off rates in the vicinity of 100-130bps, as 2010e Core Tier 1 capital would still stand above seen in the cases of Marfin Popular and Piraeus 7%, with NBG’s Core Tier 1 marginally above 8%, Bank, would still look low vs. Eurobank’s above further supporting our view on the stock as the 200bps rates. Hence there could be additional sector’s strongest fundamental play. downside risk for these names, especially since their loan books are skewed towards corporate
Greek banks stress-test of risk provisioning ______Core Tier 1 ratio______2009e______2010e ______Base case 20% decrease 30% decrease 40% decrease Base case 20% decrease 30% decrease 40% decrease NBG 8.3% 8.2% 8.1% 8.1% 8.9% 8.6% 8.5% 8.3% Eurobank 7.4% 7.3% 7.2% 7.1% 7.7% 7.3% 7.1% 6.9% Alpha 6.8% 6.7% 6.6% 6.5% 6.8% 6.5% 6.4% 6.3% Piraeus Bank 7.2% 7.1% 7.0% 7.0% 7.4% 7.2% 7.1% 7.0% Bank of Cyprus 7.9% 7.8% 7.7% 7.7% 7.8% 7.6% 7.5% 7.4% Marfin Popular 6.8% 6.7% 6.7% 6.6% 7.1% 6.9% 6.8% 6.7% Average 7.4% 7.3% 7.2% 7.2% 7.6% 7.4% 7.2% 7.1%
Source: HSBC Pantelakis Securities estimates
24 Equity Greece abc 13 January 2009
…b) pre-provision profit Greek banks stress-test of pre-provision profit declines below our base case? ______EPS change ______20% decrease__30% decrease _40% decrease We have also run a more simplistic stress-test on 2009e 2010e 2009e 2010e 2009e 2010e Greek and Cypriot banks’ pre-provision NBG -30% -33% -46% -49% -62% -66% Eurobank -39% -48% -59% -71% -79% -95% (operating) profit (operating income minus Alpha -39% -42% -58% -63% -77% -84% Piraeus Bank -32% -37% -48% -56% -63% -75% operating expenses). Under our analysis, we have Bank of Cyprus -31% -35% -46% -52% -62% -69% assumed that operating profit will be 20%, 30% Marfin Popular -29% -32% -43% -48% -58% -64% Average -33% -37% -50% -56% -67% -75% and 40% lower than our respective 2009e and Source: HSBC Pantelakis Securities estimates 2010e base-case forecast.
We have assumed that the aforesaid decline in Sector Core Tier 1 capital could be operating profit is expected to emanate solely cut by 8% to 16% in 2009e and by from weaker operating income generation (we 11% to 23% 2010e assume operating costs do not change and remain Our analysis reveals that the effect from a potential according to our base case projections for each reduction to our base case pre-provision profit would bank). For instance, in NBG a potential 20%, 30% sizeably reduce Greek and Cypriot banks’ capital and 40% decline to group operating profit would base, thus making recapitalisation a necessity. emanate from a 14%, 21% and 28% reduction in Greek banks stress-test of pre-provision profit operating income respectively. ______Core Tier 1 capital change ______20% decrease _30% decrease _40% decrease Sector EPS could be slashed by 2009e 2010e 2009e 2010e 2009e 2010e between 33% to 67% in 2009e and by NBG -12% -15% -18% -23% -24% -31% 37% to 75% in 2010e Eurobank -9% -13% -13% -19% -18% -26% Alpha -8% -12% -13% -18% -17% -24% Running the numbers, the analysis reveals that our Piraeus Bank -7% -10% -11% -15% -15% -20% Bank of Cyprus -4% -7% -6% -11% -8% -14% sector EPS estimates could be slashed, on average, Marfin Popular -7% -10% -11% -15% -14% -20% Average -8% -11% -12% -17% -16% -23% by 33% to 65% in 2009e and by 37% to 75% in Source: HSBC Pantelakis Securities estimates 2010e, further supporting our argument that under a scenario of economic depression, risks to sector On our sensitivity analysis, we could see sector profitability are largely on the downside. Core Tier 1 sliding even below 6% in 2010e, compared to our current 7.6% base case estimate.
Greek banks stress-test of pre-provision profit ______Core Tier 1 ratio______2009e ______2010e ______Base case 20% 30% 40% Base case 20% 30% 40% decrease decrease decrease decrease decrease decrease NBG 8.3% 7.3% 6.8% 6.3% 8.9% 7.5% 6.8% 6.1% Eurobank 7.4% 6.8% 6.4% 6.1% 7.7% 6.7% 6.2% 5.7% Alpha 6.8% 6.3% 6.0% 5.7% 6.8% 6.0% 5.6% 5.2% Piraeus Bank 7.2% 6.7% 6.4% 6.2% 7.4% 6.6% 6.3% 5.9% Bank of Cyprus 7.9% 7.6% 7.4% 7.3% 7.8% 7.3% 7.0% 6.7% Marfin Popular 6.8% 6.3% 6.1% 5.8% 7.1% 6.3% 6.0% 5.6% Average 7.4% 6.8% 6.5% 6.2% 7.6% 6.7% 6.3% 5.9%
Source: HSBC Pantelakis Securities estimates
25 Equity Greece abc 13 January 2009
Conclusion Risks Too early to be positive on the sector Downside risks for the sector include:
Overall, following our stress-tests on sector A significant, beyond our forecasts, profitability and capital base, we believe it is too slowdown in Greek and Cypriot (particularly early to be positive on the sector. A severe and relevant for Bank of Cyprus and Marfin prolonged economic slowdown both in Greece Popular Bank) economic growth, which could and in the C&SEE region seems increasingly further undermine household and corporate likely, capital issuance plans, apart from State- lending growth related capital injections, are on the cards (implying potential dilution) while risks to our A substantial, beyond our expectations, earnings estimates lie to the downside. Hence, deterioration in asset quality, driven by until earnings visibility becomes clearer, we think overstretched customer debt affordability that a meaningful re-rating of the sector is A significant, further deterioration in the unlikely in the near-term. macro backdrop in SEE and Turkey, would NBG remains our strongest undermine Greek banks’ profitability growth fundamental play going forward In this context we recommend exposure to banks Upside risks for the sector include: with 1) sound capital and liquidity base and 2) Deposits growth faster than our forecasts in low gearing and conservative funding profile key markets, resulting in faster loan growth (strong retail deposit franchise) and an overall compared to our projections defensive profile. Relaxation of competition in retail deposits On those grounds, we view NBG as the sector’s (beyond our forecasts) that could lead to an strongest fundamental play combining 1) an improvement in liability spreads, especially in underleveraged balance sheet (2009e term deposits loans/deposits at 95%), 2) significant untapped liquidity in excess of EUR12bn (assets eligible for Materially cheaper funding costs (linked to repo with the ECB), 3) limited dependence on the reopening and normalisation of wholesale wholesale funding coupled with a strong retail funding markets), seen possibly in steeper deposit franchise (deposits account for 80% of curves and lower risk spreads, would be total funding and wholesale debt a mere 4%), 4) critical signs of fading systemic fears solid capital base (2009e Core Tier 1 and Tier 1 of Better understanding of the evolution of the 8.3% and 11% respectively, without accounting credit cycle, given the weak track record in for the proposed EUR350m preference share issue Greece on this front, would obviously under the EUR5bn State-funded recap scheme improve earnings visibility that could boost group 2009e Tier 1 by 50bps to 11.5%) and 5) cost restructuring potential in Greece, a key source of enhanced returns amid a weakening macro backdrop.
26 Equity Greece abc 13 January 2009
Greek banks stress-test on impairment charges – 2009e ______20% increase in impairment charges ______Greece______Turkey / Cyprus______SEE / International______Group ______Provision charge_ EAT _Provision charge_ EAT __Provision charge_ EAT Provision charge _ EAT ______EPS______Base Stress-test Chg Base Stress-test Chg Base Stress-test Chg Base Stress-test Chg Base Stress-test Chg NBG 1.10% 1.32% -10% 1.03% 1.24% -5% 1.20% 1.44% -8% 1.10% 1.32% -9% 2.93 2.68 -9% Eurobank 1.33% 1.59% -16% n/a n/a n/a 1.80% 2.16% -29% 1.46% 1.76% -19% 1.40 1.13 -19% Alpha 1.32% 1.59% -17% n/a n/a n/a 1.00% 1.27% -27% 1.21% 1.46% -19% 1.39 1.13 -19% Piraeus Bank 0.80% 0.96% -10% n/a n/a n/a 1.30% 1.56% -17% 0.92% 1.10% -12% 1.53 1.35 -12% Bank of Cyprus 1.00% 1.20% -32% 0.70% 0.84% -5% 0.90% 1.08% -136% 0.84% 1.01% -10% 0.65 0.58 -10% Marfin Popular 0.95% 1.14% -21% 0.80% 0.96% -5% 1.00% 1.20% -17% 0.90% 1.08% -9% 0.53 0.48 -9% Average 1.08% 1.30% -14% 0.84% 1.01% -5% 1.20% 1.45% -19% 1.07% 1.29% -12% 1.40 1.23 -13% ______30% increase in impairment charges ______Greece______Turkey / Cyprus______SEE / International______Group ______Provision charge_ EAT _Provision charge_ EAT _Provision charge_ EAT Provision charge _ EAT ______EPS______Base Stress-test Chg Base Stress-test Chg Base Stress-test Chg Base Stress-test Chg Base Stress-test Chg NBG 1.10% 1.43% -16% 1.03% 1.34% -8% 1.20% 1.56% -11% 1.10% 1.43% -13% 2.93 2.55 -13% Eurobank 1.33% 1.73% -24% n/a n/a n/a 1.80% 2.34% -44% 1.46% 1.90% -29% 1.40 0.99 -29% Alpha 1.32% 1.72% -26% n/a n/a n/a 1.00% 1.37% -40% 1.21% 1.58% -28% 1.39 1.00 -28% Piraeus Bank 0.80% 1.04% -16% n/a n/a n/a 1.30% 1.69% -25% 0.92% 1.19% -18% 1.53 1.25 -18% Bank of Cyprus 1.00% 1.30% -48% 0.70% 0.91% -7% 0.90% 1.17% -204% 0.84% 1.10% -15% 0.65 0.55 -15% Marfin Popular 0.95% 1.24% -32% 0.80% 1.04% -8% 1.00% 1.30% -26% 0.90% 1.17% -13% 0.53 0.46 -13% Average 1.08% 1.41% -21% 0.84% 1.10% -7% 1.20% 1.57% -28% 1.07% 1.40% -19% 1.40 1.14 -19% ______40% increase in impairment charges ______Greece______Turkey / Cyprus______SEE / International______Group ______Provision charge_ EAT __Provision charge_ EAT _Provision charge_ EAT Provision charge _ EAT ------EPS------Base Stress-test Chg Base Stress-test Chg Base Stress-test Chg Base Stress-test Chg Base Stress-test Chg NBG 1.10% 1.54% -21% 1.03% 1.45% -10% 1.20% 1.68% -15% 1.10% 1.54% -17% 2.93 2.43 -17% Eurobank 1.33% 1.86% -32% n/a n/a n/a 1.80% 2.52% -58% 1.46% 2.05% -39% 1.40 0.86 -39% Alpha 1.32% 1.85% -34% n/a n/a n/a 1.00% 1.48% -54% 1.21% 1.70% -37% 1.39 0.88 -37% Piraeus Bank 0.80% 1.12% -21% n/a n/a n/a 1.30% 1.82% -34% 0.92% 1.29% -24% 1.53 1.16 -24% Bank of Cyprus 1.00% 1.40% -64% 0.70% 0.98% -9% 0.90% 1.26% -272% 0.84% 1.18% -20% 0.65 0.52 -20% Marfin Popular 0.95% 1.33% -43% 0.80% 1.12% -10% 1.00% 1.40% -35% 0.90% 1.26% -18% 0.53 0.43 -18% Average 1.08% 1.52% -28% 0.84% 1.18% -10% 1.20% 1.69% -38% 1.07% 1.50% -25% 1.40 1.05 -25%
Source: HSBC Pantelakis Securities estimates
Greek banks group risk provisioning rate ______2009e______2010e ______2004 2005 2006 2007 4-year avg 2008e Base case Stress-test* Base case Stress-test* NBG 0.64% 0.79% 0.72% 0.66% 0.70% 0.69% 1.10% 1.54% 1.23% 1.72% Eurobank 1.02% 1.26% 1.10% 0.98% 1.09% 1.11% 1.46% 2.05% 1.71% 2.40% Alpha Bank 0.99% 0.99% 0.82% 0.59% 0.85% 0.88% 1.21% 1.70% 1.27% 1.78% Piraeus Bank 0.82% 0.55% 0.42% 0.45% 0.56% 0.54% 0.92% 1.29% 1.12% 1.57% Bank of Cyprus 1.30% 1.32% 0.71% 0.32% 0.91% 0.28% 0.84% 1.18% 1.03% 1.44% Marfin Popular 1.09% 1.32% 1.17% 0.64% 1.05% 0.54% 0.90% 1.26% 1.08% 1.51% Average 0.98% 1.04% 0.82% 0.61% 0.86% 0.67% 1.07% 1.50% 1.24% 1.73%
Note: (*) This stress-test refers to the scenario of a 40% increase in impairment charges Source: HSBC Pantelakis Securities estimates, company accounts
27 Equity Greece abc 13 January 2009
Greek banks stress-test on impairment charges – 2010e ______20% increase in impairment charges ______Greece______Turkey / Cyprus______SEE / International______Group ______Provision charge_ EAT _Provision charge_ EAT _Provision charge_ EAT Provision charge _ EAT ______EPS______Base Stress-test Chg Base Stress-test Chg Base Stress-test Chg Base Stress-test Chg Base Stress-test Chg NBG 1.20% 1.44% -13% 1.31% 1.58% -7% 1.25% 1.50% -9% 1.23% 1.48% -10% 2.90 2.60 -10% Eurobank 1.59% 1.91% -24% n/a n/a n/a 2.00% 2.40% -39% 1.71% 2.05% -28% 1.23 0.89 -28% Alpha 1.37% 1.64% -19% n/a n/a n/a 1.10% 1.38% -43% 1.27% 1.53% -22% 1.33 1.04 -22% Piraeus Bank 1.00% 1.20% -16% n/a n/a n/a 1.50% 1.80% -23% 1.12% 1.34% -18% 1.39 1.14 -18% Bank of Cyprus 1.20% 1.44% -75% 0.90% 1.08% -6% 1.00% 1.20% -72% 1.03% 1.23% -14% 0.64 0.55 -14% Marfin Popular 1.10% 1.32% -35% 1.00% 1.20% -8% 1.20% 1.44% -40% 1.08% 1.29% -12% 0.50 0.44 -12% Average 1.24% 1.49% -18% 1.07% 1.29% -7% 1.34% 1.62% -26% 1.24% 1.49% -16% 1.33 1.11 -17% ______30% increase in impairment charges ______Greece______Turkey / Cyprus______SEE / International______Group ______Provision charge_ EAT _Provision charge_ EAT _Provision charge_ EAT Provision charge _ EAT ______EPS______Base Stress-test Chg Base Stress-test Chg Base Stress-test Chg Base Stress-test Chg Base Stress-test Chg NBG 1.20% 1.56% -19% 1.31% 1.71% -11% 1.25% 1.63% -13% 1.23% 1.60% -16% 2.90 2.45 -16% Eurobank 1.59% 2.07% -35% n/a n/a n/a 2.00% 2.60% -59% 1.71% 2.22% -41% 1.23 0.72 -41% Alpha 1.37% 1.78% -29% n/a n/a n/a 1.10% 1.50% -65% 1.27% 1.65% -33% 1.33 0.89 -33% Piraeus Bank 1.00% 1.30% -24% n/a n/a n/a 1.50% 1.95% -34% 1.12% 1.45% -27% 1.39 1.02 -27% Bank of Cyprus 1.20% 1.56% -113% 0.90% 1.17% -9% 1.00% 1.30% -109% 1.03% 1.34% -21% 0.64 0.50 -21% Marfin Popular 1.10% 1.43% -53% 1.00% 1.30% -11% 1.20% 1.56% -60% 1.08% 1.40% -18% 0.50 0.41 -18% Average 1.24% 1.62% -28% 1.07% 1.39% -10% 1.34% 1.76% -39% 1.24% 1.61% -24% 1.33 1.00 -25% ______40% increase in impairment charges ______Greece______Turkey / Cyprus______SEE / International______Group ______Provision charge_ EAT _Provision charge_ EAT _Provision charge_ EAT Provision charge _ EAT ______EPS______Base Stress-test Chg Base Stress-test Chg Base Stress-test Chg Base Stress-test Chg Base Stress-test Chg NBG 1.20% 1.68% -25% 1.31% 1.84% -14% 1.25% 1.75% -18% 1.23% 1.72% -21% 2.90 2.30 -21% Eurobank 1.59% 2.23% -47% n/a n/a n/a 2.00% 2.80% -78% 1.71% 2.40% -55% 1.23 0.55 -55% Alpha 1.37% 1.92% -38% n/a n/a n/a 1.10% 1.61% -87% 1.27% 1.78% -44% 1.33 0.75 -44% Piraeus Bank 1.00% 1.40% -32% n/a n/a n/a 1.50% 2.10% -46% 1.12% 1.57% -35% 1.39 0.90 -35% Bank of Cyprus 1.20% 1.68% -151% 0.90% 1.26% -13% 1.00% 1.40% -145% 1.03% 1.44% -27% 0.64 0.46 -27% Marfin Popular 1.10% 1.54% -70% 1.00% 1.40% -15% 1.20% 1.68% -80% 1.08% 1.51% -24% 0.50 0.38 -24% Average 1.24% 1.74% -37% 1.07% 1.50% -14% 1.34% 1.89% -52% 1.24% 1.73% -33% 1.33 0.89 -33%
Source: HSBC Pantelakis Securities estimates
28 Equity Greece abc 13 January 2009
Greek banks stress-test on pre-provision profit ______20% reduction of preprovision profit______2009e ______2010e______EAT ______EPS ______EAT ______EPS ______Base Stresstest Chg Base Stresstest Chg Base Stresstest Chg Base Stresstest Chg NBG 1,454 1,011 -30% 2.93 2.04 -30% 1,441 973 -33% 2.90 1.96 -33% Eurobank 736 447 -39% 1.40 0.85 -39% 647 339 -48% 1.23 0.64 -48% Alpha 572 351 -39% 1.39 0.85 -39% 549 318 -42% 1.33 0.77 -42% Piraeus Bank 519 354 -32% 1.53 1.04 -32% 471 295 -37% 1.39 0.87 -37% Bank of Cyprus 380 262 -31% 0.65 0.45 -31% 373 243 -35% 0.64 0.41 -35% Marfin Popular 439 312 -29% 0.53 0.38 -29% 413 281 -32% 0.50 0.34 -32% Average 4,099 2,738 -33% 8.42 5.61 -33% 3,893 2,448 -37% 7.99 5.00 -37% ______30% reduction of preprovision profit______2009e ______2010e______EAT ______EPS ______EAT ______EPS ______Base Stresstest Chg Base Stresstest Chg Base Stresstest Chg Base Stresstest Chg NBG 1,454 780 -46% 2.93 1.57 -46% 1,441 728 -49% 2.90 1.47 -49% Eurobank 736 302 -59% 1.40 0.57 -59% 647 185 -71% 1.23 0.35 -71% Alpha 572 241 -58% 1.39 0.59 -58% 549 203 -63% 1.33 0.49 -63% Piraeus Bank 519 272 -48% 1.53 0.80 -48% 471 207 -56% 1.39 0.61 -56% Bank of Cyprus 380 203 -46% 0.65 0.35 -46% 373 179 -52% 0.64 0.30 -52% Marfin Popular 439 249 -43% 0.53 0.30 -43% 413 214 -48% 0.50 0.26 -48% Average 4,099 2,047 -50% 8.42 4.18 -50% 3,893 1,716 -56% 7.99 3.48 -56% ______40% reduction of preprovision profit______2009e ______2010e______EAT ______EPS ______EAT ______EPS ______Base Stresstest Chg Base Stresstest Chg Base Stresstest Chg Base Stresstest Chg NBG 1,454 549 -62% 2.93 1.11 -62% 1,441 483 -66% 2.90 0.97 -66% Eurobank 736 157 -79% 1.40 0.30 -79% 647 31 -95% 1.23 0.06 -95% Alpha 572 130 -77% 1.39 0.32 -77% 549 88 -84% 1.33 0.21 -84% Piraeus Bank 519 190 -63% 1.53 0.56 -63% 471 119 -75% 1.39 0.35 -75% Bank of Cyprus 380 145 -62% 0.65 0.25 -62% 373 114 -69% 0.64 0.19 -69% Marfin Popular 439 186 -58% 0.53 0.22 -58% 413 148 -64% 0.50 0.18 -64% Average 4,099 1,357 -67% 8.42 2.75 -67% 3,893 983 -75% 7.99 1.97 -75%
Source: HSBC Pantelakis Securities estimates
29 Equity Greece abc 13 January 2009
Valuations appear cheap
Greek relative PE: from premium to sharp discount in a blink Valuations discount a lot of potential bad news… …but not the worst plausible outcome in terms of earnings decline and multiple contraction
Sharp de-rating: from not. We have definitely been there before or, in premium to large discount fact, a bit lower (c35% discount) in mid-2000. Admittedly, the Greek equities relative PE did not The key theme for Greek equities throughout decisively break above the 1x level until mid- 2008 has been a sharp de-rating vs. European 2003, when the last bull cycle in the global peers. True, as discussed in the previous sections, the Greek market saw a large degree of consensus equities market started gathering steam. We estimates downgrades, in parallel with other believe that the recent sharp de-rating should be markets. However, it was a fast and dramatic attributed to a mix of the following factors: reduction in relative PE that led to sizeable Investment flows, i.e. a massive selling wave underperformance vs. European equities in by foreign institutionals, not least due to aggregate. Tellingly, having traded at a 16% deleveraging and positions cutting. Lacking a premium to peers as late as at end-2007, Greek credible domestic investor support, the Greek equities by now trade at a c30% discount. market appears particularly vulnerable to a Although the speed of the move was ‘squeeze at the exit’ effect. unprecedented, the actual level of PE discount is
Greek universe relative 12M forward PE (vs. Greek universe 12M forward PE evolution FTSEurofirst300)
1.4 23 21 1.2 19 1.0 17 0.8 15 0.6 13 11 0.4 9 0.2 7 0.0 5 Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08
Source: HSBC Pantelakis Securities estimates, FactSet for consensus Source: HSBC Pantelakis Securities estimates, FactSet for consensus
30 Equity Greece abc 13 January 2009
Relative valuation _____P/E (x)______Div. Yield ______EV/EBITDA (x) ______EV/Sales (x) ______ROE ______EPS Growth____ 2008e 2009e 2008e 2009e 2008e 2009e 2008e 2009e 2008e 2009e 2008e 2009e Iseq (Ireland) 18.2 15.0 2.9% 2.8% 9.0 6.2 1.3 0.8 9% 10% -17% 22% Omx 30 (Sweden) 15.9 10.6 5.4% 5.4% 7.2 6.9 1.4 1.3 8% 12% -57% 50% Smi (Switzerland) 19.7 10.3 3.3% 3.9% 8.2 7.3 2.1 1.9 9% 16% -29% 91% Kfx (Denmark) 11.6 9.9 2.1% 2.0% 7.7 7.0 1.9 1.8 11% 11% -23% 16% Hex (Finland) 9.2 10.2 6.3% 6.3% 6.0 6.2 1.4 1.4 15% 13% -12% -10% Cac 40 (France) 8.9 9.2 4.8% 5.1% 5.8 5.8 1.2 1.2 13% 12% -5% -3% Ft 100 (UK) 8.2 9.3 4.9% 4.9% 7.3 6.9 2.1 2.0 18% 15% -24% -12% Ibex 35 (Spain) 9.0 9.4 6.0% 6.1% 7.4 7.1 2.3 2.2 16% 15% -4% -4% Dax 100 (Germany) 12.2 10.7 4.0% 4.2% 6.1 5.6 1.0 1.0 10% 11% -26% 14% Mib 30 (Italy) 7.8 8.6 5.3% 6.6% 4.8 4.7 1.4 1.5 12% 10% -4% -9% Bvl 30 (Portugal) 7.5 8.1 7.1% 7.1% 7.4 7.1 2.5 2.4 14% 12% -14% -7% Aex (Netherlands) 6.5 7.8 5.4% 5.8% 5.6 6.0 0.9 0.9 17% 13% -8% -17% Bel 20 (Belgium) 10.8 9.1 4.7% 5.0% 9.7 8.2 4.1 3.4 9% 10% -33% 18% Weighted Average 10.4 9.5 4.8% 5.0% 6.8 6.4 1.7 1.6 13% 13% -18% 7%
FTSEurofirst 300 9.5 9.5 4.7% 5.0% 6.7 6.4 1.7 1.7 14% 13% -18% 0% DJ Stoxx 600 9.5 9.5 4.7% 4.9% 6.9 6.5 1.8 1.7 14% 13% -19% 0%
HSBC Greece Universe 6.5 6.1 6.6% 6.7% 6.1 5.3 0.9 0.9 16% 16% -7% 6% Premium/(discount) -32% -36% -40% -34% -8% -17% -46% -43% 17% 19%
Source: HSBC Pantelakis Securities estimates, FactSet for consensus
Market classification-investor perception. government majority and the possibility of a Being a small peripheral market, often still hung-parliament in the next general elections categorised as a high-beta emerging one, (scheduled for 2011). Greece suffered a similar fate to that of most Weak communication by listed firms, emerging markets, amid rising risk aversion which led to some painful profit warnings by foreign institutionals. (after protracted reality denial) and a series of Market composition, international guidance cuts, which further dented investor exposure. The high weighting of the banking sentiment, aggravating the impact of the sector and significant exposure to SEE aforementioned factors. economies turned quickly from a highly As a result, Greek equities now trade at sharp sought-after asset to a burden for the Greek discounts (36% in terms of 2009e PE) to other market, when the outlook for this European markets (see table above), a sharp sector/region soured abruptly. reversal of the trend during the past five years. Re-emerging country-specific concerns. As This is despite a still superior ROE and a slightly already discussed, the always-present fault- better earnings profile. Hence, we believe that, at lines of the Greek economy (eroding current levels, investors are more than competitiveness, weak public finances) compensated for the risk of holding Greek vs. recently came painfully to the fore on the European equities in general. back of increasing risk aversion, investors Dislocation barometer update differentiation and broader concerns over funding ability of sovereigns amid the credit We now update our previous work (published in crunch. In the same context, the political ‘Dislocation barometer for Greek equities’, 10 environment further aggravated concerns due November 2008) which attempts to employ an to recent social unrest (riots), a weakening unbiased tool that tries to measure ‘dislocation’
31 Equity Greece abc 13 January 2009
Dislocation barometer over the past 12 months, using both HSBC estimates and consensus for 2009e EPS ______Now______A year ago ______Change over past 12M___ HSBC Consensus Current HSBC Consensus 12M ago Consensus HSBC __ Consensus ______HSBC _____ Company EPS 2009e EPS Price EPS 2009e EPS Price EPS 2009e EPS Price Dislocation Rank Dislocation Rank Intralot 0.57 0.57 3.02 0.70 0.99 13.22 -43% -19% -77% 35% 11 58% 1 Public Power Corporation 2.00 1.76 12.58 2.17 2.31 36.00 -24% -8% -65% 41% 8 57% 2 Metka 1.27 1.11 6.74 1.27 1.60 15.14 -31% 0% -55% 25% 21 55% 3 Coca-Cola Hellenic 1.39 1.34 10.98 1.69 1.71 31.00 -22% -18% -65% 43% 6 47% 4 Sarantis 0.74 0.82 4.10 1.04 1.04 15.00 -21% -28% -73% 52% 1 44% 5 Marfin Popular Bank 0.53 0.47 1.90 0.84 0.96 8.54 -51% -37% -78% 27% 18 41% 6 Folli-Follie 2.07 2.01 6.20 3.26 2.96 24.96 -32% -37% -75% 43% 5 39% 7 Piraeus Bank 1.53 1.49 6.24 2.54 2.73 25.60 -45% -40% -76% 30% 15 36% 8 Fourlis Group 0.80 0.80 5.20 1.43 1.37 24.58 -42% -44% -79% 37% 9 34% 9 Bank of Cyprus 0.65 0.68 2.70 1.17 1.23 12.50 -45% -45% -78% 33% 12 34% 10 EFG Eurobank-Ergasias 1.40 1.22 5.64 2.48 2.45 23.00 -50% -44% -75% 25% 19 32% 11 Motor Oil Hellas 0.85 0.96 7.80 1.06 1.33 16.00 -28% -19% -51% 23% 23 32% 12 National Bank of Greece 2.97 2.73 14.04 4.86 4.61 44.65 -41% -39% -69% 28% 17 30% 13 Hellenic Petroleum Group 0.65 0.70 5.54 0.83 0.70 11.48 -1% -22% -52% 51% 2 29% 14 OTE 1.43 1.41 13.12 1.75 1.75 25.00 -19% -18% -48% 28% 16 29% 15 Alpha Bank 1.39 1.31 6.72 2.51 2.49 24.16 -47% -45% -72% 25% 20 28% 16 Ellaktor 0.52 0.59 4.20 0.77 0.65 9.70 -8% -32% -57% 49% 4 25% 17 OPAP 2.39 2.31 21.84 2.28 2.21 27.20 5% 5% -20% 24% 22 25% 18 Frigoglass 0.62 0.62 3.80 1.48 1.25 20.47 -51% -58% -81% 31% 14 23% 19 Hellenic Postbank 0.54 0.50 5.48 0.82 1.19 12.18 -57% -34% -55% -2% 29 21% 20 Titan Cement 1.94 2.07 13.50 3.10 3.20 32.00 -35% -37% -58% 22% 24 20% 21 AB Vassilopoulos 3.57 4.06 25.80 3.98 3.98 37.10 2% -10% -30% 32% 13 20% 22 Aegean Airlines 0.45 0.44 3.00 0.72 0.72 6.52 -39% -37% -54% 15% 25 17% 23 J&P Avax 0.23 0.37 2.30 0.47 0.47 6.26 -21% -50% -63% 43% 7 13% 24 Hellenic Exchanges 0.57 0.79 5.80 1.58 1.30 24.00 -39% -64% -76% 37% 10 12% 25 Hellenic Duty Free Shops 0.65 0.66 6.14 1.10 1.06 11.74 -37% -41% -48% 10% 27 7% 26 Mytilineos Group 0.42 0.55 4.40 1.29 1.24 14.98 -56% -67% -71% 15% 26 3% 27 Jumbo 0.77 0.71 4.82 1.97 0.81 12.73 -13% -61% -62% 50% 3 1%28 Gek Group 0.30 0.30 3.50 1.03 0.83 10.20 -64% -71% -66% 2% 28 -6% 29 Forthnet -0.01 0.01 0.79 0.18 0.24 7.36 -95% -104% -89% -5% 30 -15% 30 HSBC Universe -36% -34% -64% 28% 30%
Source: HSBC Pantelakis Securities estimates, FactSet for consensus
for stocks under coverage. The principle of the concerns (e.g. balance sheet, liquidity and broader barometer is easy: we compare share price macro risks) may currently rank higher than performance of stocks over the past 12 months earnings estimates in investor stock screens. with consensus EPS revisions over the same In the table above, we present the dislocation for period. We now add a second dimension, by also each stock using both HSBC and consensus comparing price declines with HSBC EPS estimates. For the universe as a whole, there revisions over the past year. appears to be a c30% dislocation: a 34% cut in The higher the dislocation in percentage terms, our 2009e EPS estimates has been matched by an the more stocks have been oversold, theoretically. average 64% decline in prices. This is another We write ‘theoretically’ as there well may be testament to the sharp de-rating of Greek equities good reasons for some stocks to have been discussed previously. heavily sold, not least being the traditional lag of Turning to specific stocks, based on HSBC revision sell-side estimates vs. the market in a downswing. activity, two of our top Overweight ideas (including This is particularly the case in the small- and mid- Metka and PPC) appear in the top-3 most dislocated cap space, i.e. for stocks with thin and haphazard (i.e. oversold) stocks. On the other hand, Forthnet coverage (that’s why we use median EPS (one of our key Underweight ideas) appears the least estimates for consensus). Moreover, other dislocated stock in our universe.
32 Equity Greece abc 13 January 2009
Stress-testing our earnings estimates by 40%: resulting upside/(downside) to historic (past decade) trough 12M forward PE HSBC Consensus Current HSBCe Consensus Stressed Stressed Trough 12M Month of Upside/ Company 2009e EPS 2009e EPS Price 2009e PE 2009e PE 2009e EPS 2009e PE forward PE trough PE (Downside) Rank Marfin Popular Bank 0.53 0.47 1.90 3.6 4.0 0.32 6.0 11.0 Jun-06 83% 1 EFG Eurobank-Ergasias 1.40 1.22 5.64 4.0 4.6 0.84 6.7 11.6 Jun-06 73% 2 Bank of Cyprus 0.65 0.68 2.70 4.2 4.0 0.39 7.0 9.8 Jul-01 42% 3 Folli-Follie 2.07 2.01 6.20 3.0 3.1 1.24 5.0 6.7 Nov-98 33% 4 Piraeus Bank 1.53 1.49 6.24 4.1 4.2 0.92 6.8 8.3 Sep-01 22% 5 Aegean Airlines 0.45 0.44 3.00 6.6 6.8 0.27 11.1 12.1 Sep-07 9% 6 National Bank of Greece 2.97 2.73 14.04 4.7 5.1 1.78 7.9 7.6 Mar-03 -3% 7 Coca-Cola Hellenic 1.39 1.34 10.98 7.9 8.2 0.83 13.2 12.6 Sep-97 -4% 8 Metka 1.27 1.11 6.74 5.3 6.1 0.76 8.9 8.3 Jun-06 -6% 9 Alpha Bank 1.39 1.31 6.72 4.8 5.1 0.84 8.0 7.1 Jan-98 -12% 10 Intralot 0.57 0.57 3.02 5.3 5.3 0.34 8.9 7.1 Sep-04 -19% 11 Hellenic Duty Free Shops 0.65 0.66 6.14 9.5 9.2 0.39 15.8 12.5 Sep-02 -21% 12 Hellenic Exchanges 0.57 0.79 5.80 10.2 7.4 0.34 17.0 12.2 Mar-02 -28% 13 Frigoglass 0.62 0.62 3.80 6.1 6.2 0.37 10.2 7.2 Sep-01 -29% 14 Public Power Corporation 2.00 1.76 12.58 6.3 7.1 1.20 10.5 7.3 Nov-02 -30% 15 AB Vassilopoulos 3.57 4.06 25.80 7.2 6.4 2.14 12.1 8.4 Oct-04 -30% 16 Titan Cement 1.94 2.07 13.50 7.0 6.5 1.17 11.6 7.9 Jun-03 -32% 17 Hellenic Postbank 0.54 0.50 5.48 10.2 10.9 0.32 16.9 11.5 Oct-07 -32% 18 Jumbo 0.77 0.71 4.82 6.3 6.8 0.46 10.5 6.9 Mar-03 -34% 19 Hellenic Petroleum Group 0.65 0.70 5.54 8.6 8.0 0.39 14.3 9.2 Mar-03 -35% 20 Sarantis 0.74 0.82 4.10 5.5 5.0 0.45 9.2 5.9 Sep-01 -36% 21 Motor Oil Hellas 0.85 0.96 7.80 9.1 8.1 0.51 15.2 9.4 Jul-04 -38% 22 OPAP 2.39 2.31 21.84 9.1 9.5 1.43 15.2 9.2 Mar-03 -39% 23 Ellaktor 0.52 0.59 4.20 8.0 7.1 0.31 13.4 7.6 Mar-04 -43% 24 OTE 1.43 1.41 13.12 9.2 9.3 0.86 15.3 7.8 Mar-03 -49% 25 Fourlis Group 0.80 0.80 5.20 6.5 6.5 0.48 10.9 5.2 Sep-02 -53% 26 J&P Avax 0.23 0.37 2.30 9.8 6.2 0.14 16.4 7.7 Sep-04 -53% 27 Gek Group 0.30 0.30 3.50 11.8 11.7 0.18 19.7 4.7 Sep-02 -76% 28 Mytilineos Group 0.42 0.55 4.40 10.5 8.1 0.25 17.5 3.9 Feb-03 -78% 29 HSBC Universe 6.1 6.4 10.2 8.5 -17%
Source: HSBC Pantelakis Securities estimates, FactSet for consensus
Valuation stress-test come in 40% below our current forecasts. In fact, such an outcome would be consistent with a 40% As a final sanity check, we stress-test our earnings peak-to-trough earnings fall (over the 2008-09 assumptions and cross-check resulting valuation period), a common ballpark figure usually levels. A usual investor refrain is that the analyst assumed by investors during recessions. We community (including ourselves) have often been present in the above table the PE of Greek stocks behind-the-earnings-curve, especially in abrupt based on a) consensus 2009e EPS, b) HSBC turning points of the economic-profitability cycle. 2009e EPS, and c) ‘stress-tested’ HSBC 2009e The market clearly does not believe the consensus EPS (standing 40% below our current forecasts). estimates, deeming them woefully optimistic. Then, we advance this analysis one step forward: In this context, aiming to get further insight, we for each stock, we compare this latter ‘stress- stress-test our earnings estimates to account for a tested’ PE with the stock’s lowest (trough) 12- more bearish scenario. In fact, for the sake of this month forward PE over the past decade (1998- analysis, we assume that actual 2009e earnings
Market upside/(downside) to trough PE multiples under various scenarios for earnings miss vs. our current 2009e estimates Miss in 2009e earnings 0% 10% 20% 30% 35% 40% 50% 60% Peak-to-trough earnings fall -1% -11% -21% -31% -35% -40% -50% -60% Market upside/(downside) 38% 25% 11% -3% -10% -17% -31% -45%
Source: HSBC Pantelakis Securities estimates, FactSet for consensus
33 Equity Greece abc 13 January 2009
2007). We then identify the stock’s upside/ evolution. First, Greece did not experience an (downside), were it to trade at a trough PE on economic slowdown in the early 2000’s, while ‘stress-tested’ earnings. Assuming that our 2009e most firms in our universe were either non-listed earnings forecasts turn out to be entirely correct, or had a completely different nature during the the market has an aggregate 38% upside potential last downturn in the 1990-93 period. Finally, we from current levels, broadly equal to a 38% believe that peering into the pre-1998 market collective upside as implied by the respective history is almost irrelevant, given a completely target prices of the stocks in our universe. different inflation-interest rates environment and market composition/investor participation. On the downside, interestingly enough, an aggregate 28% miss to our 2009e estimates would More importantly, such an analysis implicitly leave the universe trading at an aggregate 2009e prices the market (universe) by applying trough PE of 8.5x, broadly equal to the aggregate valuation multiples on trough earnings, a historical trough 12M forward PE. Hence, we seemingly unduly pessimistic stance (a double could infer that the market is currently effectively discount). That said, the prevailing extreme levels pricing in a 28% earnings recession (peak-to- of risk aversion (or a deflation scare) may induce trough decline). Were this to be a typical earnings investors to adopt a more cautious than usual recession (40% peak-to-trough implying an approach. In addition, the magnitude and globally aggregate 40% 2009e earnings miss), the universe synchronised nature of the current downturn would appear to have 17% downside to trough coupled with unprecedented financial turmoil may multiples. The downside extends even more in the lead to higher-than-usual earnings falls. case of more significant earnings declines. Aiming to complete our analysis, the table below Analysis caveats & extension highlights the extremely wide range of potential Although insightful, such an analysis does not outcomes stemming from the dual uncertainty come without important caveats. Unfortunately, over prospective earnings and multiples. The table we lack extended historical data for the majority includes scenarios for potential PEs between 7x of Greek stocks to gauge both the effect of and 13x (the average over the 2001-08 period), economic slowdown on profitability (a kind of including the trough PE of 8.5x. GDP-earnings multiplier) and trading multiples
Market upside/(downside) for various scenarios regarding target PE multiples and earnings declines Peak-to-trough earnings fall (2008-09e) -1% -11% -21% -31% -35% -40% -50% -60% Implied miss in our 2009e EPS 0% 10% 20% 30% 35% 40% 50% 60% 7.0 14% 3% -9% -20% -26% -31% -43% -54% 7.5 23% 10% -2% -14% -20% -26% -39% -51% 8.0 31% 18% 5% -9% -15% -22% -35% -48% (calculated trough) 8.5 38% 25% 11% -3% -10% -17% -31% -45% Universe 9.0 47% 32% 18% 3% -4% -12% -26% -41% Target 9.5 55% 40% 24% 9% 1% -7% -22% -38% PE(x) (March 2003 low) 10.0 63% 47% 31% 14% 6% -2% -18% -35% 10.5 72% 54% 37% 20% 11% 3% -14% -31% 11.0 80% 62% 44% 26% 17% 8% -10% -28% 11.5 88% 69% 50% 31% 22% 13% -6% -25% 12.0 96% 76% 57% 37% 27% 18% -2% -22% 12.5 104% 84% 63% 43% 33% 23% 2% -18% (2001-08 average)13.0 112% 91% 70% 49% 38% 27% 6% -15%
Source: Factset, HSBC Pantelakis Securities estimates
34 Equity Greece abc 13 January 2009
Market outlook
More volatility likely in near-term amid a deluge of more bad news Eventually, we expect a 10-15% rally as global policy responses gain some traction, alas for a subpar recovery A wide range of plausible outcomes: we present good and bad scenarios, variables to watch
Global markets backdrop while an avalanche of expansionary fiscal packages (culminating in a massive fiscal The notion of decoupling has rapidly faded away stimulus, still in the making, for the US) is about over the past months. Hence, on top of the to hit the global economy. domestic factors analysed before (flows, macros, earnings and valuation), the global Hence, the true wildcard for market outlook is the macroeconomic backdrop and investor sentiment amount of actual traction that these policy loom large over the Greek equities market. In responses will achieve. First, the effectiveness of turn, prospects have rarely looked more any expansionary fiscal stance depends on the precarious on both fronts. reaction (i.e. the saving behaviour) of the private sector. With most of the stimulus measures First, the global economy is on the verge of the advertised as a strictly temporary response to a worst synchronised downturn since the 1930s. huge emergency, it is not unlikely that they fail to Adding the spectre of deflation could make the induce the private sector to spend. Higher outlook truly dismal. Secondly, the equity markets spending by governments could be hence offset may continue to face a ‘buyers’ strike’ in the by lower private-sector spending and higher coming months, not least due to ongoing de- savings (the so-called Ricardian equivalence). The leveraging trends (from proprietary trading desks, more consumers perceive the current situation as a hedge funds and prime brokers), redemption structural crisis rather than a cyclical downturn, demands and gradual dis-engagement of the more likely they are to rethink their longer- traditional market actors (insurers, pension funds). term income prospects and attempt to rebuild their That said, on a positive note, the policy response own balance sheets/savings. In addition, the to the turmoil has also been unprecedented, with structure of any fiscal stimulus (i.e. mix of tax policymakers throwing at the crisis everything cuts and spending increases) will likely matter as they’ve got. Monetary policy has been much as its size. dramatically eased, unconventional options are In addition, with the global banking system in increasingly employed/discussed (including turmoil, the transmission mechanisms of quantitative easing and agency debt purchases), monetary policy appear for now weakened.
35 Equity Greece abc 13 January 2009
Furthermore, even if the supply of credit is further hits in sentiment and another wave of eventually boosted, there is little guarantee that earnings downgrades. In the Greek market in demand for credit will follow suit: in fact, news of particular, y-o-y profitability comparisons will a decline in the level of US household debt in Q3 remain very challenging in H1 2009, cycling a (the first on record) suggests that the desire to rather benign 1H08 environment. rebuild balance sheets may override any In turn, liquidity conditions, although easing from improvement in credit availability. the traditional year-end squeeze, are likely to remain Finally, it is understandable to have some stressed in the near-term. More importantly, the misgivings over the longer-term efficacy of EUR28bn Greek banking sector support scheme will lowered interest rates: one could reasonably argue not fully kick off until later in Q1. that we got into the current mess precisely This brings us to another overarching concern because interest rates were too low for too long. related to Greek sovereign funding. Given Without some lasting change in the mix of global currently gummed credit markets, a widening final demand and a new growth engine spread over bunds and significant funding (potentially, the untapped consumption potential requirements (cEUR45bn in total, the bulk of of the rapidly-expanding middle-classes in which is front loaded in the year), we expect the emerging markets?), any monetary policy-induced issue to remain high in investors’ minds in the revival may be deemed to just postpone the day of short-term. Until this is resolved and credit reckoning, storing more trouble for the future (a (wholesale/interbank) markets improve, any proposition supported by the so-called Austrian rallies in equities seem likely to be short-lived. school of economics). Greek market outlook Overall, peering into an uncertain 2009 outlook, we still believe that volatility is the only relatively All these uncertainties make the range of potential sure bet (as was the case in 2008), with violent global economic-market outcomes particularly rallies on optimism around prospective policy wide. HSBC’s central economic forecast boils successes and corrections on terrible earnings, down to recessionary conditions continuing into deflation scares and further financial sector H1, ahead of a lacklustre recovery in H2, but well turmoil. Given frequent violent daily moves even below trend growth. Critical to this bottoming is in large liquid stocks, investors have become less the assumption that monetary stimulus gains at eager to take major investment decisions: in turn, least some traction and the fiscal boost partially this reduces volumes, and, hence, further kick-starts demand. However, with persisting exacerbates high volatility. We believe volatility drags from financial sector deleveraging, needs to come down substantially before we can adjustments in household savings behaviour and see a sustained rally. housing markets corrections, extrapolation from We are particularly concerned about the near-term policy-induced recoveries to sustainable growth outlook: we expect little change in sentiment at appears dangerous, capping upside at this stage. least throughout the first quarter of the year. It A deluge of more bad news is likely in the coming will definitely take some time to ease the current months: we believe that plenty of nasty surprises liquidity trap as well as for any fiscal stimulus to still lie ahead in the near-term. Economic be underway. Looking further ahead, we think indicators and corporates’ profitability in Q4 and that the prospect of some earnings stabilisation Q1 may well make grim readings, leading to
36 Equity Greece abc 13 January 2009
and low multiples could form the base for a rally However, such a substantial market multiple (10-15%). This upside is consistent with a typical expansion would require a sharp turnaround in 35%-40% (peak-to-trough) earnings recession and expectations (with investors pricing a V-shaped a PE multiple of c11x, i.e. lower than the past earnings rebound) and increasing visibility of a cycle’s 13x average, assuming less growth, less significant recovery later in the year or into 2010, risk appetite and lower through-the-cycle ROEs with growth returning fast towards trend levels. In (not least due to reduced leverage) or earnings essence, it would require a highly effective power going forward. That said, it is impossible to application of the monetary and fiscal levels date the start of such a rally with confidence, employed. In this case, being considered as a given persisting uncertainty. high-beta market, Greece could significantly outperform on the upturn. The good news is that Hence, we would prefer to stay defensive for the there is sufficient cash sitting on the sidelines to moment, seeking cover in larger caps with well- fuel sizeable rallies. established franchises, transparent accounts, strong balance sheets and a growth angle at To put things in context, a re-rating to 14x 2009e reasonable valuation. There is a significant PE (the average 12M forward multiple over the distinction: while the bulk of 2008 was a story of bull 2003-07 period), would imply 37% upside for systemic risk and financial markets deleveraging, our universe, even in the face of a 40% decline in we believe that 2009 will witness a shift back earnings during the year. As a comparison, MSCI towards fundamentals-driven dispersion trades, a Europe rose 50% in 1975, while earnings fell 40% trend that became evident since 4Q08 but has between December 1974 and April 1976. further to go, in our view. That said, we warn that it takes a lot of courage to As already said, risks to our central market view believe in such a scenario at this point. It is still abound. In particular, the dual uncertainty over too early to call the endgame in the ongoing tug- both prospective earnings and valuation multiples of-war between public sector expansion and starkly widens the range of plausible outcomes private sector retrenchment. In addition, facing the stock market. For illustrative purposes, unconventional policies are unconventional for in addition to our central case, we also present a good reason: they are hardly ever used, they are more optimistic and a more pessimistic scenario. poorly understood and they may lead to Neither of them is intended to be ‘extreme’: it is unintended and possibly undesirable not difficult to imagine a still wider range consequences, storing trouble for the future. of outcomes. In the absence of model-based predictions for the A more optimistic scenario likely effectiveness of policy responses, we highlight a number of signposts to watch for such a We think that the most important upside risk is a positive scenario to unfold. Given that this is a significant market re-rating. This will not be the global recession, key indicators are likely to be first time that equities have rallied materially global in nature, with a bias towards the US (the precisely at the time that an earnings recession first to enter the crisis). In our view, such indicators unfolded. In fact, the last two global earnings include interbank spreads, corporate bond spreads, recessions have seen investors willing to pay house prices, lending surveys, volatility, economic above-trend trailing multiples for trough earnings leading indicators and, rather more importantly, at the time. monetary metrics: so far a central banks-induced
37 Equity Greece abc 13 January 2009
HSBC Greek Universe: total, upside and downside betas per stock (2002-2008, sorted by upside beta) Company Ticker Total beta Upside beta Downside beta Mytilineos Group MYTr.AT 1.54 2.36 1.03 Hellenic Postbank GPSr.AT 1.35 2.16 1.17 Fourlis Group FRLr.AT 1.40 1.91 1.49 Aegean Airlines AGNr.AT 1.01 1.86 0.48 Hellenic Exchanges EXCr.AT 1.32 1.68 0.84 National Bank of Greece NBGr.AT 1.38 1.56 1.32 Sarantis SRSr.AT 1.13 1.55 1.24 Bank of Cyprus BOCr.AT 1.23 1.39 1.32 Lamda Development LMDr.AT 1.20 1.39 1.18 Metka MTKr.AT 1.11 1.36 0.85 Gek Group HRMr.AT 1.58 1.35 1.65 Piraeus Bank BOPr.AT 1.25 1.31 1.26 Alpha Bank ACBr.AT 1.07 1.29 0.87 EFG Eurobank-Ergasias EFGr.AT 1.15 1.17 1.12 Intralot INLr.AT 1.24 1.13 1.23 Frigoglass FRIr.AT 1.45 0.96 1.82 Jumbo BABr.AT 0.95 0.84 1.02 J&P Avax AVAr.AT 0.97 0.83 1.19 Titan Cement TTNr.AT 0.84 0.80 1.23 OPAP OPAr.AT 0.74 0.77 0.76 OTE OTEr.AT 0.79 0.76 0.60 Hellenic Petroleum Group HEPr.AT 0.75 0.74 0.64 Hellenic Duty Free Shops HDFr.AT 0.87 0.73 1.13 Coca-Cola Hellenic HLBr.AT 0.91 0.60 1.22 Marfin Popular Bank MRBr.AT 1.15 0.59 0.89 Public Power Corporation DEHr.AT 0.62 0.45 0.56 Ellaktor HELr.AT 0.91 0.31 1.09 Motor Oil Hellas MORr.AT 0.70 0.29 0.84 Forthnet FORr.AT 1.21 0.20 1.43 Folli-Follie FOLr.AT 0.95 0.14 1.11 AB Vassilopoulos ABVr.AT 0.57 0.10 0.59
Source: Bloomberg, HSBC Pantelakis Securities estimates
expansion of monetary base has been countered by Index (ATG). We use monthly stock returns for rapid contraction of money multipliers. We warn, the 2002-08 period. In addition, we then split the though, that a likely rebound (from current sample into two subsets, namely up-months (when depressed levels) of PMI-ISM surveys might just the ATG posted positive returns) and down- suggest that the accelerated pace of economic months (when the ATG fell m-o-m). Hence, we decline is drawing to a close, rather than signify a are able to calculate betas for each stock both on full-blown recovery. the upside and the downside.
Ways to play beta bounce? Finally, a word of caution for such an analysis: as Even though this is not our central scenario for widely known, beta calculations are notoriously 2009 as a whole, there have already been modest sensitive to conventions adopted regarding the “beta bounces” during Q4, and further episodes sample timeframe, starting point and frequency of can’t be ruled out (indeed, they are quite likely as returns (i.e. daily, weekly, monthly). part of the ongoing volatility we anticipate in H1 Finally, stock betas may well change over time: at least). In such a bounce, what went down by indeed, that is part of our central scenario for most might rebound more strongly. 2009 as whole, since we expect a shift to a new Aiming to provide less crude insights, we also trading regime to increasingly be evident (as we present a table with the calculated betas for the discuss later on, in our top picks section). stocks in our universe over the Athens General
38 Equity Greece abc 13 January 2009
A more pessimistic scenario We need to be clear: we believe that chances of a financial meltdown are particularly low. As Turning to the downside, negative earnings previously discussed, EU authorities (ECB, EIB) surprises are the most likely risk for the market. In may well employ unconventional action to buy a bad scenario, confidence in a 2010 recovery EU government bonds in case of a persistent could remain low, financial dislocation would stay buyers’ strike. However, this scenario is not high, deflation could be an ongoing worry and unthinkable anymore, while a lot of previously capital preservation a key investor target. As deemed impossible (so called 5- or 6-standard discussed previously, were investors to attach deviation) events have already happened during trough multiples on trough earnings, there appears the current financial turmoil. to be further downside for our universe. Tellingly, a typical 40% peak-to-trough earnings decline The key metric to watch in this context is priced at an 8.5x trough multiple implies room for Greece’s sovereign CDS spread. Although CDS a 17% decline from current levels. spreads could also reflect limited liquidity, a flight to quality or even investor hedging strategies, we That said, we feel that the biggest risk for the think that the evolution/rate of change in CDS Greek market over the next year could be a loss of will be a useful indicator for market sentiment in faith in the Greek economy and public finances this respect. (amid deteriorating underlying budget dynamics and increasing borrowing requirements). We have 5-year CDS spreads for Greece, Italy, Spain and Portugal already argued that the always-present fault lines 300 of the local economy have now come painfully to 250 the fore. Were this effect to snowball (say, by a 200 bond auction failing to attract much investor 150 interest), it could become a self-fulfilling 100 prophecy with rising cost of debt and limited 50 funding availability feeding on themselves in a vicious cycle. 0 Sep-08 Sep-08 Oct-08 Nov-08 Nov-08 Dec-08 Greece Italy Spain Portugal
Source: Bloomberg
39 Equity Greece abc 13 January 2009
Top picks for 2009
Out top Overweight ideas for 2009 are National Bank, OPAP, OTE, PPC, Jumbo, Terna Energy and Metka We prefer to stay defensive, seeking cover in larger-cap, high- quality stocks with established franchises Our key Underweight ideas for 2009 are Motor Oil Hellas and Forthnet
Our top picks for 2009 (priced as at 05 Jan 2009) Type Mcap Price TP Potential ____ PE (x) ______EV/EBITDA (x)__ _ EPS growth (%)__ RIC ** Sector (EURm) (EUR) (EUR) return 2008e 2009e 2008e 2009e 2008e 2009e Overweight National Bank* NBGr.AT V Commercial Banks 6,973 14.04 20.0 42.4% 4.2 4.7 n/a n/a -7.4 -10.4 OPAP OPAr.AT V Gaming 6,967 21.84 29.0 32.8% 9.3 9.1 6.1 6.3 22.7 2.0 OTE* OTEr.AT V Diversified Telecoms 6,431 13.12 16.5 25.8% 9.8 9.2 5.3 5.0 21.9 6.7 PPC* DEHr.AT V Utilities 2,919 12.58 17.0 35.1% nm 6.3 17.3 5.3 nm nm Jumbo* BABr.AT G Specialty Retail 584 4.82 7.0 45.2% 7.1 6.3 5.3 4.9 20.8 13.1 Terna Energy* TENr.AT G Renewable Energy 422 3.86 5.0 29.5% 17.6 17.4 9.0 10.0 29.5 1.6 Metka* MTKr.AT G Machinery 350 6.74 11.8 75.1% 7.5 5.3 4.5 3.4 26.6 41.5 Underweight Motor Oil Hellas MORr.AT Oil & Gas 864 7.80 7.3 -6.4% 6.3 9.1 6.1 7.8 11.6 -31.3 Forthnet* FORr.AT Diversified Telecoms 123 0.79 0.75 -5.1% nm nm 23.5 5.2 nm nm
Note: * Ratings with volatility indicator, ** V = Value stock, G = Growth stock Source: HSBC Pantelakis Securities estimates
Top overweight ideas for 2009 Our top-picks for 2009 are the following:
We have already argued that, more than ever, National Bank (NBGr.AT, Overweight (V), 2009 will likely prove a stock-picking market EUR14.04) with a bias towards larger caps and quality stocks, In our view, NBG is the strongest fundamental as reflected in sustainable business franchises that, play in the Greek banking sector, as it combines although severely de-rated as part of a general 1) an underleveraged balance sheet (loans/ market fall, are more likely to cement or even deposits at 95% in 2009e), 2) a significant increase industry dominance during the downturn. untapped liquidity pool in excess of EUR12bn Low earnings volatility (rather than earnings (assets eligible for repo with the ECB) coupled growth), sustainable dividends, free cash flow with limited dependence on wholesale funding generation and a healthy balance sheet are also (deposits account for c80% of total funding with important screening criteria, with an overall bias wholesale debt a mere 4%), 3) a solid capital base towards value rather than growth. (2009e Core Tier 1 and Tier 1 at 8.3% and 11% respectively, without accounting for any State-
40 Equity Greece abc 13 January 2009
related capital injection as part of the EUR5bn easing of fuel costs. PPC remains geared to lower recap scheme) and 4) restructuring potential in oil prices, implying further upside risks to our Greece which is expected to result in additional forecasts (which assume oil at USD60/bbl). True, efficiency improvements and enhanced returns PPC faces a number of uncertainties centred on going forward. commodities, funding issues and execution risks related to restructuring potential. However, these OPAP (OPAr.AT, Overweight, EUR21.84) are more than priced-in by now, while the highly- We like OPAP’s undemanding valuation and visible 2009e recovery is not, in our view. defensive qualities as highlighted by a debt-free cash-rich balance sheet, limited operating Terna Energy (TENr.AT, Overweight (V), leverage (given an almost fully-variable cost base) EUR3.86) and countercyclical attributes of key numerical Terna Energy (TE), a leading domestic wind farm games (offsetting any weakness of betting win, developer, currently operates solely in Greece, more closely tracking disposable income one of the most attractive wind markets in Europe dynamics). Most importantly, we believe that from both a regulatory and wind resource monopoly-related fears are overdone: the current standpoint. Greek law provides strong financial share price discounts the worst-possible outcome incentives, in the form of feed-in tariffs and long- for the timing of and the outlook post an EU- term (20-year) Power Purchase Agreements, induced dismantling of its exclusive gaming which guarantee off-take. In addition, state concession, in our view. In turn, significant upside subsidies amounting to c30% of total capex are to our estimates remains, while OPAP is taking all available and improve the IRRs on projects to the right steps to prepare for such eventuality. c23% for wind parks and c18% for hydro plants, on our estimates. Moreover, TE is relatively OTE (OTEr.AT, Overweight (V), EUR13.12) immune to the expected industry downturn, since We strongly believe that OTE’s attractive it has secured enough financing and wind turbines fundamentals and defensive qualities remain in to support all its new 2009e-10e installation plans. place. Firstly, the Cosmote minority buyout and On current prices, we estimate that TE trades deleveraging yield healthy EPS growth rates broadly at par with just the fair value of its (+22% y-o-y in 2008e and +7% in 2009e), hence operating assets alone: the market effectively improving its risk-return profile. Secondly, OTE’s attaches zero value to windparks pipeline, an healthy balance sheet and strong cash flow unduly pessimistic stance, in our view. generation ability (FCF yield of 12-15% in 2008- 10e) provide scope for healthy dividends (DY of Jumbo (BABr.AT, Overweight (V), EUR4.82) 6-8% in 2008-10e -1.8x covered). All in all, we Despite deteriorating market dynamics, Jumbo believe the market undervalues OTE, penalising it maintains its strong earnings growth momentum for its Balkan exposure and the structure of the (13% EPS CAGR for 2008-11e) thanks to its recent deal with DT, while we expect positive increasing exposure to the fast-moving, highly newsflow in 2009 to provide share price support. profitable home/seasonal products, at the expense of the somewhat stagnant toy lines, and continued PPC (DEHr.AT, Overweight (V), EUR12.58) network expansion, both in Greece and Bulgaria. In We think PPC is a great value play. Following a our view, the small stores that make up the local dismal year for profitability, in our view, the competition, with combined market share of c45%, market has yet to fully price-in the material are not in a position to challenge Jumbo’s turnaround expected during 2009, due to the
41 Equity Greece abc 13 January 2009
attractively priced product offering, wide product to average sector forward PE), although to some variety, extensive store network, and financial degree explained by a sector-leading dividend muscle. Additionally, we believe that with an yield, is in our view unjustified and will likely average item price of EUR5, Jumbo could benefit erode compared to peers with more-diversified from a potential softening in economic growth in and less-cyclical business models. Greece, as consumers are likely trade down. Forthnet (FORr.AT, Underweight (V), EUR0.79) Overall, with low gearing and a compelling We believe that despite Forthnet’s strong market valuation, Jumbo is a great value play, in our view. positioning in the low penetrated broadband and Metka (MTKr.AT, Overweight (V), EUR6.74) pay-TV markets in Greece, the shares are likely to In our view, Metka is a macro immunity (self- underperform in 2009 due to: a) the lack of help) idea in a volatile world; moreover, we positive FCF and dividends for yet another year in believe that its debt-free balance sheet and strong 2009e, b) execution risks regarding the ill-timed, cash flow generation ability provide scope for a expensive Nova acquisition, further exacerbated capital return of at least EUR1/share in 2009e in our view by the management’s recent strategic (15% yield). Our positive view on Metka is also choices on football rights, c) low stock liquidity, based on: a) its strong outlook; we believe that d) small size in terms of market cap (note that in Metka will be a key beneficiary of the upcoming 2009 we favour liquid, large caps vs. small caps), large expansion in Greece’s electricity generation and e) dented investor sentiment following a capacity, while its international presence is disastrous share price performance in 2008 (-84%, growing constantly, b) its solid financials; we the worst in our Greek universe). expect EPS growth of 27% y-o-y in 2008e and
41% in 2009e, mostly secured by its record high backlog of cEUR1.5bn. Key underweight ideas for 2009
Motor Oil Hellas (MORr.AT, Underweight, EUR7.80) We are negative on the prospects of Motor Oil going into 2009 on at least three different fronts which, in our view, are likely to cause both earnings and valuation multiple reductions. First, Motor Oil, being one of the most operationally leveraged refineries in Europe, will face, on our estimates, a 31% decline in 2009 ‘clean’ EPS due to falling benchmark refining margins and deteriorating conversion economics. Second, its high financial leverage (net debt/equity over 200% in 2009e) will be another source of multiple compression given an environment of deleveraging and risk aversion. Finally, the stock’s premium valuation (with c30% premium
42 Equity Greece abc 13 January 2009
HSBC Greek universe: Valuation data 05/01/2009 Price Target Mcap ______P/E (x) ______P/CF (x) ______Yield (%) ______Key company data RIC (EUR) Rating price (EUR) (EURm) 2007a 2008e 2009e 2007a 2008e 2009e 2007a 2008e 2009e Commercial Banks National Bank of Greece NBGr.AT 14.04 O/W (V) 20.0 6,973 3.9 4.2 4.7 n/a n/a n/a 10.0% 6.7% 6.3% EFG Eurobank-Ergasias EFGr.AT 5.64 O/W (V) 9.5 2,969 3.2 3.8 4.0 n/a n/a n/a 14.5% 7.9% 7.4% Alpha Bank ACBr.AT 6.72 N (V) 8.8 2,762 3.4 3.9 4.8 n/a n/a n/a 13.4% 7.6% 6.2% Piraeus Bank BOPr.AT 6.24 N (V) 8.6 2,117 3.5 3.6 4.1 n/a n/a n/a 11.5% 8.4% 7.4% Bank of Cyprus BOCr.AT 2.70 O/W (V) 4.5 1,584 3.1 3.3 4.2 n/a n/a n/a 16.3% 10.4% 8.4% Marfin Popular Bank MRBr.AT 1.90 N (V) 2.2 1,577 4.0 3.5 3.6 n/a n/a n/a 18.4% 11.1% 11.1% Hellenic Postbank GPSr.AT 5.48 N (V) 6.0 779 13.7 nm 10.2 n/a n/a n/a 4.6% 0.0% 3.4% Sector, weighted avg. 19,513 3.8 4.1 4.4 n/a n/a n/a 11.9% 7.3% 7.1% Financial Services Hellenic Exchanges EXCr.AT 5.80 O/W (V) 7.45 409 4.4 6.8 10.2 4.3 6.5 9.4 12.9% 12.9% 12.9% Telecommunications Services OTE OTEr.AT 13.12 O/W (V) 16.5 6,431 11.9 9.8 9.2 3.8 3.5 3.4 5.7% 5.7% 6.5% Forthnet FORr.AT 0.79 U/W (V) 0.75 123 nm nm nm nm 7.5 2.1 0.0% 0.0% 0.0% Sector, weighted avg. 6,554 11.9 9.8 9.2 3.8 3.5 3.4 5.7% 5.7% 6.5% Oil, Gas & Consumable Fuels Hellenic Petroleum Group HEPr.AT 5.54 N (V) 6.3 1,693 7.3 7.9 8.6 4.6 4.8 5.1 9.0% 9.0% 6.8% Motor Oil Hellas MORr.AT 7.80 U/W 7.3 864 7.0 6.3 9.1 5.0 4.6 5.9 15.4% 15.4% 10.5% Sector, weighted avg. 2,557 7.2 7.2 8.8 4.7 4.7 5.3 11.2% 11.2% 8.0% Food & Beverages Coca-Cola Hellenic HLBr.AT 10.98 O/W 19.0 4,003 8.4 8.4 7.9 4.8 4.8 4.6 2.3% 0.0% 0.0% Food Retailers AB Vassilopoulos ABVr.AT 25.80 O/W (V) 36.0 329 8.9 10.3 7.2 5.7 5.6 4.2 3.4% 3.4% 4.7% Transport Aegean Airlines AGNr.AT 3.00 N (V) 3.4 214 5.2 7.9 6.6 4.7 6.3 5.2 0.0% 4.4% 5.3% Building Materials Titan Cement TTNr.AT 13.50 N 14.5 1,114 4.8 6.2 7.0 3.4 3.9 4.0 5.6% 5.6% 4.0% Leisure, Entertainment & Hotels OPAP OPAr.AT 21.84 O/W 29.0 6,967 11.4 9.3 9.1 10.6 8.3 8.7 8.0% 10.3% 10.6% Intralot INLr.AT 3.02 N (V) 4.2 480 4.2 5.0 5.3 3.3 3.6 3.7 11.0% 8.0% 7.5% Sector, weighted avg. 7,447 10.3 8.8 8.7 9.3 7.6 8.0 8.2% 10.2% 10.4% Machinery Metka MTKr.AT 6.74 O/W (V) 11.8 350 9.5 7.5 5.3 8.4 6.8 4.9 7.4% 9.3% 13.1% Metals & Mining Mytilineos Group MYTr.AT 4.40 N (V) 5.3 515 9.2 nm 10.5 6.6 22.2 7.1 11.6% 10.2% 9.1% Packaging Frigoglass FRIr.AT 3.80 O/W (V) 7.2 153 3.3 4.7 6.1 2.3 2.7 3.1 10.0% 22.3% 5.4% Personal Care & Pharmaceuticals Sarantis SRSr.AT 4.10 N (V) 4.5 157 5.3 5.6 5.5 4.7 4.9 4.8 4.1% 3.9% 3.9% Construction & Engineering Ellaktor HELr.AT 4.20 O/W (V) 6.0 743 9.8 8.2 8.0 7.0 4.4 4.3 4.3% 4.3% 4.4% Gek Group HRMr.AT 3.50 O/W (V) 6.5 301 8.3 10.0 11.8 4.9 4.8 5.2 3.4% 3.4% 6.9% J&P Avax AVAr.AT 2.30 U/W (V) 2.2 179 8.9 9.3 9.8 4.9 4.7 4.7 5.0% 4.3% 3.6% Sector, weighted avg. 1,223 9.3 8.7 9.0 6.0 4.5 4.6 4.2% 4.1% 4.9% Utilities Public Power Corporation DEHr.AT 12.58 O/W (V) 17.0 2,919 29.6 nm 6.3 4.4 10.6 3.0 0.8% 0.0% 4.8% Renewable Energy Terna Energy TENr.AT 3.86 O/W (V) 5.0 422 22.9 17.6 17.4 17.3 14.5 13.8 4.4% 2.0% 2.0% Specialty Retailers Jumbo * BABr.AT 4.82 O/W (V) 7.0 584 8.6 7.1 6.3 7.6 6.3 5.6 3.3% 4.1% 4.7% Fourlis Group FRLr.AT 5.20 O/W (V) 7.1 265 6.3 5.9 6.5 5.3 4.8 5.1 5.8% 6.9% 4.2% Hellenic Duty Free Shops HDFr.AT 6.14 U/W 6.0 323 8.3 7.7 9.5 6.8 5.8 6.6 10.7% 8.6% 7.2% Sector, weighted avg. 1,173 7.9 6.9 7.0 6.7 5.7 5.7 5.9% 6.0% 5.3% Household & Consumer Goods Folli-Follie FOLr.AT 6.20 N 7.0 204 2.8 2.6 3.0 2.4 2.1 2.3 1.6% 2.0% 2.4% Real Estate Lamda Development LMDr.AT 4.44 O/W 7.0 195 nm 30.0 19.5 nm 22.9 16.3 0.0% 5.2% 5.2% Greek Universe 49,449 6.1 6.5 6.1 5.1 5.3 4.6 8.3% 6.6% 6.7%
Note: O/W=Overweight, N=Neutral, U/W=Underweight, (V)=volatile (please see disclosure appendix), *Jumbo’s 2008e data are actual figures (fiscal year ended June 2008) Source: Company data, HSBC Pantelakis Securities estimates
43 Equity Greece abc 13 January 2009
HSBC Greek universe: Valuation data (cont’d) 05/01/2009 ______EV/Sales (x)______EV/EBITDA (x) ______P/BV (x)______HSBC EPS (EUR) ____ Shares Key company data 2007a 2008e 2009e 2007a 2008e 2009e 2007a 2008e 2009e 2007a 2008e 2009e outstanding Commercial Banks National Bank of Greece n/a n/a n/a n/a n/a n/a 1.0 0.8 0.7 3.58 3.31 2.97 496,654,269 EFG Eurobank-Ergasias n/a n/a n/a n/a n/a n/a 0.7 0.7 0.7 1.78 1.49 1.40 526,345,638 Alpha Bank n/a n/a n/a n/a n/a n/a 0.8 0.7 0.7 1.96 1.71 1.39 410,976,652 Piraeus Bank n/a n/a n/a n/a n/a n/a 0.7 0.6 0.6 1.76 1.74 1.53 339,198,586 Bank of Cyprus n/a n/a n/a n/a n/a n/a 0.8 0.7 0.7 0.87 0.82 0.65 586,661,656 Marfin Popular Bank n/a n/a n/a n/a n/a n/a 0.4 0.4 0.4 0.48 0.54 0.53 830,125,799 Hellenic Postbank n/a n/a n/a n/a n/a n/a 1.0 1.5 1.3 0.40 -0.21 0.54 142,232,982 Sector, weighted avg. n/a n/a n/a n/a n/a n/a 0.8 0.7 0.7 Financial Services Hellenic Exchanges 1.4 2.3 3.7 1.9 3.3 6.1 2.2 2.6 2.7 1.31 0.85 0.57 70,485,563 Telecommunications Services OTE 2.0 1.9 1.8 5.6 5.3 5.0 3.2 4.4 3.5 1.10 1.34 1.43 490,150,389 Forthnet 1.0 1.9 1.1 nm 23.5 5.2 0.2 0.3 0.3 -0.84 -0.35 -0.01 155,431,324 Sector, weighted avg. 1.9 1.9 1.8 5.6 5.3 5.0 3.2 4.4 3.5 Oil, Gas & Consumable Fuels Hellenic Petroleum Group 0.3 0.3 0.4 5.0 5.5 5.5 0.7 0.7 0.6 0.76 0.70 0.65 305,635,185 Motor Oil Hellas 0.4 0.3 0.5 6.1 6.1 7.8 2.4 2.3 2.3 1.11 1.24 0.85 110,782,980 Sector, weighted avg. 0.3 0.3 0.4 5.4 5.7 6.3 0.9 0.9 0.8 Food & Beverages Coca-Cola Hellenic 0.9 0.8 0.8 5.5 5.5 5.0 1.4 1.2 1.1 1.30 1.30 1.39 364,563,189 Food Retailers AB Vassilopoulos 0.3 0.3 0.3 4.8 5.5 4.2 2.9 2.5 2.0 2.90 2.51 3.57 12,732,720 Transport Aegean Airlines 0.8 0.8 0.7 4.6 4.7 3.7 1.3 1.2 1.0 0.57 0.38 0.45 71,417,100 Building Materials Titan Cement 1.1 1.4 1.4 3.9 6.1 5.5 1.0 0.9 0.8 2.84 2.18 1.94 76,963,614 Leisure, Entertainment & Hotels OPAP 1.3 1.2 1.1 8.1 6.1 6.3 12.2 11.7 11.2 1.91 2.34 2.39 319,000,000 Intralot 1.7 1.3 1.2 5.7 7.3 8.2 1.7 1.5 1.3 0.71 0.60 0.57 158,942,093 Sector, weighted avg. 1.4 1.2 1.1 7.6 6.3 6.6 8.8 8.2 7.5 Machinery Metka 1.2 0.8 0.6 5.9 4.5 3.4 2.8 2.5 2.2 0.71 0.90 1.27 51,950,600 Metals & Mining Mytilineos Group 0.5 0.7 0.6 3.0 6.5 4.4 0.7 0.8 0.8 0.48 0.00 0.42 116,984,338 Packaging Frigoglass 0.5 0.7 0.7 2.6 3.9 3.9 0.9 1.1 1.0 1.14 0.81 0.62 40,200,610 Personal Care & Pharmaceuticals Sarantis 0.8 0.7 0.7 4.4 4.6 4.3 1.5 1.3 1.1 0.78 0.74 0.74 38,350,940 Construction & Engineering Ellaktor 0.9 0.6 0.6 8.5 3.5 3.3 0.8 0.8 0.7 0.43 0.51 0.52 177,001,313 Gek Group 0.6 0.6 0.5 2.8 3.5 3.9 0.6 0.4 0.5 0.42 0.35 0.30 65,463,360 J&P Avax 0.3 0.3 0.3 6.3 6.6 6.5 0.7 0.7 0.7 0.26 0.25 0.23 77,654,850 Sector, weighted avg. 0.6 0.5 0.5 5.8 3.8 3.8 0.7 0.7 0.7 Utilities Public Power Corporation 1.3 1.2 1.1 8.1 17.3 5.3 0.6 0.6 0.5 0.42 -1.03 2.00 232,000,000 Renewable Energy Terna Energy 3.9 3.5 4.9 9.3 9.0 10.0 1.2 1.2 1.1 0.17 0.22 0.22 109,333,400 Specialty Retailers Jumbo * 1.9 1.7 1.5 6.2 5.3 4.9 2.6 2.1 1.7 0.56 0.68 0.76 121,234,716 Fourlis Group 0.6 0.5 0.6 4.8 5.0 5.6 1.8 1.4 1.3 0.83 0.89 0.80 50,952,920 Hellenic Duty Free Shops 1.5 1.0 1.0 8.8 6.6 7.5 2.1 1.9 1.8 0.74 0.80 0.65 52,675,000 Sector, weighted avg. 1.2 1.0 1.0 6.5 5.6 5.8 2.2 1.8 1.6 Household & Consumer Goods Folli-Follie 1.4 1.1 1.0 6.0 5.2 5.6 0.9 0.7 0.6 2.21 2.40 2.07 32,946,875 Real Estate Lamda Development 6.6 7.8 6.3 24.2 20.7 16.1 0.5 0.4 0.4 -0.10 0.15 0.23 44,029,950 Greek Universe 1.0 0.9 0.9 5.9 6.1 5.3 1.1 1.1 1.0
Note: O/W=Overweight, N=Neutral, U/W=Underweight, (V)=volatile (please see disclosure appendix), *Jumbo’s 2008e data are actual figures (fiscal year ended June 2008) Source: Company data, HSBC Pantelakis Securities estimates
44 Equity Greece abc 13 January 2009
Greek stocks under coverage Company RIC Sector Analyst Telephone e-mail address National Bank of Greece NBGr.AT Commercial Banks Dimitris Haralabopoulos +30 210 696 5214 [email protected] EFG Eurobank-Ergasias EFGr.AT Commercial Banks Dimitris Haralabopoulos +30 210 696 5214 [email protected] Alpha Bank ACBr.AT Commercial Banks Dimitris Haralabopoulos +30 210 696 5214 [email protected] Piraeus Bank BOPr.AT Commercial Banks Dimitris Haralabopoulos +30 210 696 5214 [email protected] Bank of Cyprus BOCr.AT Commercial Banks Dimitris Haralabopoulos +30 210 696 5214 [email protected] Marfin Popular Bank MRBr.AT Commercial Banks Dimitris Haralabopoulos +30 210 696 5214 [email protected] Hellenic Postbank GPSr.AT Commercial Banks Joanna Telioudi +30 210 696 5209 [email protected] Hellenic Exchanges EXCr.AT Financial Services Spiros Tsangalakis +30 210 696 5212 [email protected] OTE OTEr.AT Diversified Telecoms Vangelis Karanikas +30 210 696 5211 [email protected] Forthnet FORr.AT Diversified Telecoms Vangelis Karanikas +30 210 696 5211 [email protected] Hellenic Petroleum Group HEPr.AT Oil, Gas & Consumable Fuels George Katsanos +30 210 696 5302 [email protected] Motor Oil Hellas MORr.AT Oil, Gas & Consumable Fuels George Katsanos +30 210 696 5302 [email protected] Coca-Cola Hellenic HLBr.AT Beverages Lauren Torres +1 212 525 6972 [email protected] AB Vassilopoulos ABVr.AT Food Retailers Spiros Tsangalakis +30 210 696 5212 [email protected] Aegean Airlines AGNr.AT Transport Paris Mantzavras +30 210 696 5210 [email protected] Titan Cement TTNr.AT Building Materials Joanna Telioudi +30 210 696 5209 [email protected] OPAP OPAr.AT Leisure, Entertainment & Hotels Paris Mantzavras +30 210 696 5210 [email protected] Intralot INLr.AT Leisure, Entertainment & Hotels Paris Mantzavras +30 210 696 5210 [email protected] Metka MTKr.AT Machinery Vangelis Karanikas +30 210 696 5211 [email protected] Mytilineos Group MYTr.AT Metals & Mining Vangelis Karanikas +30 210 696 5211 [email protected] Frigoglass FRIr.AT Packaging Paris Mantzavras +30 210 696 5210 [email protected] Sarantis SRSr.AT Personal Care & Pharmaceuticals Yiannis Sinapis +30 210 696 5215 [email protected] Ellaktor HELr.AT Construction & Engineering Yiannis Sinapis +30 210 696 5215 [email protected] Gek Group HRMr.AT Construction & Engineering Yiannis Sinapis +30 210 696 5215 [email protected] J&P Avax AVAr.AT Construction & Engineering Yiannis Sinapis +30 210 696 5215 [email protected] Public Power Corporation DEHr.AT Utilities Paris Mantzavras +30 210 696 5210 [email protected] Terna Energy TENr.AT Renewable Energy Yiannis Sinapis +30 210 696 5215 [email protected] Jumbo BABr.AT Specialty Retailers Spiros Tsangalakis +30 210 696 5212 [email protected] Fourlis Group FRLr.AT Specialty Retailers Spiros Tsangalakis +30 210 696 5212 [email protected] Hellenic Duty Free Shops HDFr.AT Specialty Retailers Spiros Tsangalakis +30 210 696 5212 [email protected] Folli-Follie FOLr.AT Household & Consumer Goods Paris Mantzavras +30 210 696 5210 [email protected] Lamda Development LMDr.AT Real Estate George Katsanos +30 210 696 5302 [email protected]
Source: HSBC
45 Equity Greece abc 13 January 2009
A historic analogy
A subprime borrowers’ bailout in The crisis ancient Athens: Solon’s Seisachtheia Back then, ancient Athens presented a rather sad (pronounced see-sach-thee-a) and repulsive picture, which combined political discord and private suffering. Violent dissensions The world is on the verge of the worst prevailed among the inhabitants of Attica. The synchronised global economic downturn since the Thetes (poor Athenians, the cultivating land 1930s. A crisis, with origins in the US housing tenants and small proprietors of the country), market and an obscure lending segment (subprime which formed the bulk of the population of Attica, mortgages), has rapidly morphed into an almost appeared weighed down by debts. More complete meltdown of the world’s financial importantly, their debts had the ultimate recourse: system –as it spread around the globe through the every debtor unable to fulfil his contract was toxic tentacles of a ‘shadow banking system’- liable to enslavement to his creditor, until either resulting in a global economic shock involving he could find the means of re-paying the debt or money hoarding. Against a backdrop of elevated working it out. This enslavement provision was debt levels, this provides the recipe for a limited not only to the debtor himself, but deflationary spiral. included also his minor sons and unmarried Excessive debt is indeed the key to the crisis. We daughters and sisters. The poor man thus are living through the painful end of an age of borrowed upon the security of his body and upon that of the persons in his family. So severely had leverage which saw total (public and private) debt in these oppressive contracts been enforced, that the US rise from 155% of GDP in the early 1980s to many debtors had been enslaved in Attica itself, c350% by 2008. With the average household debt many others had been sold to other cities, and rising from 75% of annual disposable income in some had preserved their own freedom only by 1990 to 130% currently, a large proportion of US selling their children. households are submerging under the weight of accumulated borrowings. More importantly, a lot of such loans had been made with the foreknowledge that the borrower It is far from the scope of this document to may be unable to repay (an indirect reminder of prescribe any solutions to this conundrum: the the moral hazard symptoms involved in the world’s top policymakers are currently dealing underwriting standards during the present US with the issue, although, as we have argued, the subprime lending bubble under the originate-to- extent of achieved policy traction remains a sell model), only in the conviction that the value wildcard for the market outlook. On a rather of the borrower as a slave will make good for the playful note, we just go back in history to describe loss. Thus, they reduced poor people to a a rather similar situation in ancient Athens with a condition of extreme misery for the purpose of happy ending: a subprime borrowers’ bailout that enriching the lender. took place in 594 BC.
46 Equity Greece abc 13 January 2009
The remedy standard of the drachma, so that 100 drachmas of Such was the condition of things through mutiny the new currency contained no more silver than of the poor Thetes and uneasiness of the middling 73 of the old. Through this change, the creditors citizens, that the governing oligarchy, unable of these less-poor debtors were obliged to submit either to enforce their private debts or to maintain to a loss, while the debtors effectively enjoyed a their political power, were obliged to invoke the 27% debt reduction in real terms. well-known wisdom and integrity of Solon, one of Conclusion Seven Wise Men of ancient Greece. He was The Seisachtheia must have exasperated the appointed archon, with almost dictatorial powers. feelings and diminished the fortunes of many The first measure Solon enacted was the persons. However, we can definitely argue that memorable Seisachtheia, or lifting of burdens. the injustice inflicted was an indispensable price Even to date, there is considerable debate about the paid for the maintenance of the peace of society exact provisions of the new law. However, it seems and for the final ban of a disastrous system plausible to say that it included a complete debt regarding insolvency. Indeed, significant evidence cancellation for poor Athenians. It annulled at once exists that this one-off policy change did not all those contracts in which the poor debtor had irrecoverably damage the integrity of private borrowed on the security of either his personal contracts: mortgage lending, albeit on a more freedom or of his land; it forbade all future loans or sound footing, quickly resumed and the creditor- contracts in which the person of the debtor was debtor legislation never again disturbed Athenian pledged as security; it deprived the creditor of all tranquillity. In fact, it can be reasonably argued powers to imprison, enslave, or extort work, from that Solon’s reforms (including Seisachtheia) his debtor, effectively confining legitimate future formed the base for the subsequent emergence of claims only to the seizure of property. Athenian democracy, while the resulting internal social harmony was a prelude to Athens’ golden More importantly, it liberated and restored to their age during the 5th century BC. full rights all debtors actually in slavery under previous legal contracts and it even provided for Obviously, we can draw limited parallels to the the means of repurchasing (and bringing back to a present state: it is hard to imagine a generalised debt renewed life of liberty in Attica) many insolvents cancellation in a sophisticated and larger-scale who had been sold to other cities. society like today’s. If we also exclude currency debasement (potentially opening Pandora’s box), By this extensive measure, the poor debtors then another potential option is a conversion of together with their families were rescued from debts: e.g. existing mortgage debts could wholly or suffering and peril. But these were not the only partially be converted into long-term (30-year), low debtors in the state: the creditors of the exonerated (2%) and fixed-interest loans, as has recently been Thetes were doubtless in their turn debtors to suggested by some scholars. Such radical steps others, and were less able to repay their would naturally represent a haircut for creditors (like obligations in consequence of the loss inflicted the 27% enacted by Solon), notably the holders of upon them by the Seisachtheia. It was to assist mortgage-backed securities and banks (or the these wealthier debtors, whose bodies were in no government, were it to assume the burden). Yet, this danger - yet without exonerating them entirely - could be preferable to the alternative of widespread that Solon resorted to the additional measure of defaults and misery. debasing the money standard. He lowered the
47 Equity Greece abc 13 January 2009
That said, we stop here: we would not want to get entangled in the specifics of any potential solution to the current crisis. Rather more importantly, if anything, the overriding message from this historic perspective is this: human ingenuity remains our greatest asset in attempting to escape from the present hardship. If only present day policymakers could rival Solon’s wisdom.
48 Equity Greece abc 13 January 2009
Company profiles National Bank of Greece OPAP OTE Public Power Corporation Jumbo Terna Energy Metka Motor Oil Hellas Forthnet
49 Equity Greece abc 13 January 2009
National Bank of Greece
NBG is our strongest fundamental play among Greek & Cypriot banks; a defensive case combining liquid balance sheet, huge liquidity position and solid capital base We believe valuation de-rating has gone too far, more than discounting expectations for a weakening macroeconomic outlook both in Greece and the SEE region We have an Overweight (V) rating with a target price of EUR20 per share (42% potential total return)
Investment case sheet (loans/deposits at 95% in 2009e), 2) Dimitris Haralabopoulos * Analyst significant, untapped liquidity pool in excess of Based on our expectation that the region’s HSBC Pantelakis Securities S.A. EUR12bn (assets eligible for repo with the ECB) + 30 210 6965 214 (Greece and the SEE) macro outlook has turned [email protected] coupled with limited dependence on wholesale downbeat, posing higher execution risks for Greek *Employed by a non-US affiliate of funding (on our estimates deposits account for HSBC Securities (USA) Inc, and is not and Cypriot banks, we have introduced a set of c80% of total 2009e funding with wholesale debt registered/ qualified pursuant to conservative, fundamental criteria in order to NYSE and/ or NASD regulations a mere 4%), 3) solid capital base (2009e Core Tier assess our stock-picks in the banking sector. We 1 and Tier 1 at 8.3% and 11.0% respectively, now recommend exposure to banks with 1) strong without accounting for the proposed EUR350m capital and liquidity base and 2) low gearing preference share issue as part of the EUR5bn coupled with a conservative funding profile State-funded recap scheme that could boost 2009e (limited exposure to wholesale funding). Tier 1 ratio by c50bps to 11.5%) and 4) a That said, we have a relative preference for NBG, restructuring potential in Greece which is the sector’s strongest fundamental play in our view, expected to result in additional efficiency on the grounds of its 1) underleveraged balance improvements going forward.
Financial summary (EURm) Valuation summary Key data
Year to 12/2007a 12/2008e 12/2009e 12/2010e Year to 12/2007a 12/2008e 12/2009e 12/2010e RIC NBGr.AT NII 3,051 3,509 3,712 3,905 Dividend yield (%) 10.0 6.7 6.3 6.2 Bloomberg ETE GA Operating Income 4,451 4,695 4,983 5,288 ROE (%) 24.9 21.2 16.2 13.9 Rating Overweight (V) Pre-provision profit 2,162 2,429 2,622 2,769 ROA (%) 2.0 1.7 1.5 1.4 Share (EUR) 14.04 HSBC net profit 1,701 1,616 1,474 1,458 HSBC PE (x) 3.9 4.2 4.7 4.8 Target (EUR) 20.0 HSBC EPS (EUR) 3.58 3.31 2.97 2.94 HSBC PBV (x) 1.0 0.8 0.7 0.6 Market cap (EURm) 6,973 HSBC EPS growth (%) 41.5 -7.4 -10.4 -1.1 HSBC PTBV (x) 1.9 1.3 1.0 0.9 Free float (%) 67.5
Source: Company information, HSBC estimates Source: Company information, HSBC estimates
50 Equity Greece abc 13 January 2009
Company profile – at a glance oriented deposit franchise (conservative funding structure with limited exposure to wholesale National Bank of Greece (NBG) is Greece’s oldest funding). On this front, NBG is attractively placed and largest financial institution (as of end-2007 its with group 2009e loans-to-deposits at 95%. market share in system assets, loans and deposits stood at 20%, 20% and 24% respectively), offering a Furthermore, near-term refinancing is not an issue wide range of integrated financial services. The for NBG (2009e wholesale debt maturities group’s core focus outside Greece is in Turkey and amount to just EUR1.5bn), especially when the SEE region (Bulgaria, Serbia, Romania, Albania, considering its EUR12bn untapped liquidity pool Cyprus and FYROM). In Q3 2008, the group held a (assets eligible for repo with the ECB) as well as network of 1,700 branches (579 in Greece, 421 in State-related support in the form of Greek Turkey and 700 in SEE). Government Bonds provided to Greek banks (to Significant EM exposure be eventually used as collateral for either ECB- bearing sizeable FX risks related or interbank financing purposes). On our calculations, we forecast NBG’s 2009e funding NBG has a sizeable exposure to Emerging Markets needs to be largely covered (82%) by its ample (EM), since the Turkish and SEE operations deposit base, with wholesale funding to account generated c40% of group 9M 2008 earnings (38% of for a mere 4% of group funding structure. group RWAs). In particular, Turkey (Finansbank) Economic performance and SEE accounted for 26% and 14% of group 9M 2008 profitability respectively. In 2009e, we forecast Our estimates call for group recurring EPS 2007- Greek, Turkish and SEE operations will represent 2010e CAGR at -6%, largely affected by rising 56%, 28% and 14% of group recurring net profit impairment charges, due to weakening asset respectively, which more than clearly shows that quality (group loan loss charges 2007-2010e NBG’s EM exposure bears significant risks to group CAGR at 41%). That said, group recurring net profitability. Strong headwinds to group profitability profit 2007-2010e CAGR is seen at -5%. could potentially emanate from devaluation of EM However, we project pre-provision profit 2007- currencies (in the countries where NBG operates) 2010e CAGR at 9%, buoyed by cost-efficiency with subsequent negative impact on customer asset improvements (a key theme going forward). quality and debt affordability. In more detail, we forecast group core income However, based on management stress-tests under (NII plus fees) 2007-2010e CAGR at 8%, as loan extreme scenarios of Turkish lira (TRY) growth is expected to slow down due to a devaluation, the negative impact to Group Tier 1 weakening macro backdrop (group loans 2007- capital would be manageable, with an estimated 2010e CAGR at 12%). Operating income is potential reduction to group Tier 1 capital at 50- expected to grow on average 6% per annum in 60bps for the unhedged position and 20bps for the 2007-2010e, adversely impacted by weak trading hedged capital position. income generation. On the other hand, cost Funding risks/Liquidity issues restructuring is more evidently shown by our expectation for a 3% average annual growth in Given that the credit and interbank markets group expenses between 2007 and 2010e. remain severely dislocated, funding options have On a regional basis, we estimate Greece’s net remained scarce. In this context, we favour banks profit 2007-2010e CAGR at -11%, hit by rising with liquid balance sheets (loans-to-deposits ratio impairment charges (2007-2010e CAGR at 34%). below 100%) coupled with a traditional, retail- In Turkey, we project net profit 2007-2010e
51 Equity Greece abc 13 January 2009
CAGR at -1%, masking a 67% average annual Albania), a sustainable RoE of 19% and a long- increase in loan loss provisions. On the flip side, term growth rate of 2.9% (weighted average of we forecast SEE net profit 2007-2010e CAGR at Greece: 2%, Turkey: 4% and SEE:5%). 18%, fuelled by strong income generation (2007- Our Target P/NAV valuation returns a fair value of 2010e CAGR at 21%) and normalised cost EUR19.8/share, by using a weighted average COE inflation (2007-2010e CAGR at 16% vs. 2004- of 13.8%, a sustainable normalised RoE of 20% 2007 CAGR of 42%). and a NAV multiple of 2.0x. HSBC vs. consensus median forecasts (FactSet) Our SOTP valuation yields EUR25.2/share but __ 2008e______2009e ______2010e ____ EPS EAT EPS EAT EPS EAT after applying a 20% discount, justified by the HSBCe 3.19 1,558 2.93 1,454 2.90 1,441 poor earnings visibility, we arrive at a fair value Consensus 3.16 1,555 2.77 1,418 2.99 1,483 of EUR20.2/share. Before applying the 20% Difference 1% 0% 6% 3% -3% -3% discount, Greece accounts for 70% of our fair Source: HSBC Pantelakis Securities estimates, FactSet value (EUR17.6/share), Turkey 17% Catalysts (EUR4.2/share), SEE for 12% (EUR3.0/share) and excess capital for EUR0.4/share. In our view, NBG’s key short-term catalysts are: Shares have underperformed the DJ Euro Stoxx Less negative news on the macro front: in our Banks index (down 69% y-o-y vs. 62% for the DJ view, any signs of a stabilisation of the macro Euro Stoxx Banks index), fuelled largely by a) outlook in the region and any less negative news investors’ macro jitters for certain emerging on the political and macro front (an agreement countries (particularly Turkey and Romania) and with the IMF is a key catalyst) in Turkey (a key b) investors’ risk aversion towards both the drag, so far, to stock price performance), would banking sector and emerging markets. Trading drive the shares to outperform. multiples now stand at historic lows, with shares now trading, on P/BV multiples, at a discount to a Better understanding of the evolution of the selected group of Central Eastern European banks credit cycle: given the weak track record in and domestic Spanish banks. Shares now trade at Greece on the all-important asset quality issue, we 0.7x and 1.0x 2009e P/BV and P/TBV, which, in believe any less negative news on this front would our view, does not reflect the group’s strong largely relieve investors’ concerns and provide 2009e RoE of 16%. better visibility on group profitability outlook. Risks to our rating Valuation & rating The main downside risks include: 1) a sharper We assign an Overweight (V) rating with a target than expected slowdown in Greece’s economic price of EUR20 per share, implying a 42% growth, which could hold back credit expansion potential total return (from the 5 January price of and stretch asset quality beyond our forecasts, 2) a EUR14.04). Our target price is derived as the larger than expected weakening in Turkey’s average of three valuation methodologies used macro backdrop, which could materially impact (rounded up), namely a three-stage DDM, a Finansbank’s profitability (28% of 2009e group Target P/NAV and a Sum-of-the-Parts (SOTP). net profit) and 3) execution risks, given weak For the DDM, which returns EUR19.5/share, we track record in the credit cycle, under a scenario use a weighted average COE of 13.7% to capture of severe economic recession and 4) management NBG’s exposure in various emerging markets capacity constraints to run and monitor operations (Turkey, Bulgaria, Romania, Serbia, FYROM and in many countries.
52 Equity Greece abc 13 January 2009
Financials & valuation: National Bank of Greece Overweight (V)
Financial statements Core profitability (% RWAs) and leverage Year to 12/2007 12/2008e 12/2009e 12/2010e Year to 12/2007 12/2008e 12/2009e 12/2010e P&L summary (EURm) Net interest income 5.8 5.7 5.6 5.5 Trading profits 0.2 0.2 0.2 0.2 Net interest income 3,051 3,509 3,712 3,905 Other income 1.5 1.2 1.3 1.3 Net fees/commissions 773 760 829 911 Operating expense -4.3 -3.7 -3.6 -3.5 Trading profits 372 70 71 70 Pre-provision profit 4.1 4.0 4.0 3.9 Other income 256 357 371 403 Bad debt charge -0.6 -0.7 -1.2 -1.3 Total income 4,451 4,695 4,983 5,288 HSBC attributable profit 3.2 2.6 2.2 2.0 Operating expense -2,191 -2,266 -2,361 -2,520 Leverage (x) 7.4 7.8 7.1 6.6 Bad debt charge -330 -421 -764 -929 Return on average tier 1 31.7 27.6 21.3 18.8 Other 17 1 1 1 HSBC PBT 1,947 2,009 1,859 1,841 Sustainable profitability Exceptionals -76 -58 -20 -17 PBT 1,871 1,951 1,839 1,824 Return on core tier 1 (%) 19.0 Taxation -227 -364 -354 -351 Cost of equity (%) 13.8 Minorities + preferences -19 -29 -30 -32 Sustainable growth (%) 2.9 Attributable profit 1,625 1,558 1,454 1,441 Price/book (x) 1.5 HSBC attributable profit 1,701 1,616 1,474 1,458 Sensitivity analysis Balance sheet summary (EURm) COE (%) RoE (%) 17 18 19 20 Ordinary equity 6,470 8,235 9,685 11,126 12.8 20.45 20.85 21.24 21.64 HSBC ordinary equity 6,470 8,235 9,685 11,126 13.3 19.59 19.95 20.31 20.67 Customer loans 54,693 64,335 69,576 75,095 13.8 18.80 19.13 19.46 19.79 Debt securities holdings 16,766 17,666 17,266 16,866 14.3 18.07 18.37 18.67 18.98 Customer deposits 60,530 70,569 76,435 82,236 14.8 17.39 17.67 17.95 18.23 Interest earning assets 75,005 85,448 91,770 96,780 Total assets 90,386 98,364 103,684 109,593 Issuer information Capital (%) Share price(EUR) 14.0 Target price (EUR) 20.00 Potent'l tot rtn (%) 42.4 RWA (EURm) 52,961 61,313 66,184 71,457 Reuters (Equity) NBGr.AT Bloomberg (Equity) ETE GA Core tier 1 7.0 7.6 8.3 8.9 Market cap (EURm) 6,973 Free float (%) 67.5% Total tier 1 9.2 10.5 11.0 11.3 Analyst Dimitris Haralabopoulos Contact +30 210 6965 214 Total capital 10.2 11.0 11.4 11.8 Valuation data
Ratio, growth & per share analysis Year to 12/2007 12/2008e 12/2009e 12/2010e Year to 12/2007 12/2008e 12/2009e 12/2010e PE* 3.9 4.2 4.7 4.8 Pre-provision multiple 3.2 2.9 2.7 2.5 Year-on-year % change P/NAV 1.0 0.8 0.7 0.6 Total income 42.0 5.5 6.1 6.1 Equity cash flow yield (%) 10.8 9.6 5.6 6.0 Operating expense 40.8 -1.0 4.2 6.7 Dividend yield (%) 10.0 6.7 6.3 6.2 Pre-provision profit 43.2 12.3 7.9 5.6 Note: * = Based on HSBC EPS (fully diluted) EPS 40.2 -6.6 -8.3 -0.9 HSBC EPS 41.5 -7.4 -10.4 -1.1 Price relative DPS 40.0 -32.8 -6.6 -0.9 52 52 NAV (including goodwill) -1.9 27.3 17.6 14.9 47 47 Ratios (%) 42 42 37 37 Cost/income ratio 51.4 48.3 47.4 47.6 32 32 Bad debt charge 0.66 0.69 1.10 1.23 27 27 Customer loans/deposits 92.9 94.0 94.6 95.8 22 22 NPL/loan 4.3 4.2 4 4 17 17 NPL/RWA 4.6 4.5 4.4 4.4 12 12 Provision to risk assets/RWA 2.9 3.2 4.1 5.1 7 7 Net write-off/RWA 1.03 1.05 1.05 1.05 2007 2008 2009 2010 Coverage 64.4 71.1 94.8 116.6 National Bank of Greece Rel to ATHENS SE ROE (including goodwill) 24.9 21.2 16.2 13.9 Source: HSBC Per share data (EUR) Note: price at close of January 5 2009 EPS reported (fully diluted) 3.42 3.19 2.93 2.90 HSBC EPS (fully diluted) 3.58 3.31 2.97 2.94 DPS 1.40 0.94 0.88 0.87 NAV 7.44 11.21 13.72 16.22 NAV (including goodwill) 13.60 16.58 19.50 22.40
53 Equity Greece abc 13 January 2009
OPAP
2008 should prove another strong year; product mix and low operating gearing enhance resilience to economic slowdown Monopoly-related fears overdone: in our view, the current price implies the worst possible scenario; risks lie to the upside We have an Overweight rating and a EUR29 target price
Investment case Commission make it unlikely in near future) or Paris Mantzavras * Analyst turned supportive (positive read-across from OPAP’s fundamentals remain in rude health. After HSBC Pantelakis Securities S.A. Portuguese case). At the domestic level, both the + 30 210 6965 210 underlying EPS growth of 19% in 2007, we expect [email protected] government and local courts strenuously defend another particularly strong year (FY2008e EPS *Employed by a non-US affiliate of OPAP’s legal stance. HSBC Securities (USA) Inc, and is +23% yoy): not a small feat for a ‘mature’ operator. not registered/ qualified pursuant to We expect flattish 2009e EPS, and a return to high In any case, we believe that even a full EU-wide NYSE and/ or NASD regulations single-digit growth in 2010e aided by the football market liberalisation is not an unequivocally bad World Cup in that year. On our 2009e estimates, outcome for OPAP given its strong brand name, OPAP trades at 9x 2009e EPS, while offering cash-rich debt-free balance sheet and sheer size in dividend and FCF yields of c10.5%. the gaming sector. OPAP has proved so far that it can effectively face competition (from illegal but We have repeatedly argued that the market fears ever-present internet bookmakers) and is taking over potential market liberalisation are all the right steps to prepare for an eventual overblown: our modelling work shows that the deregulation, not least by restructuring, tightening current share price implies immediate market its grip on its distribution network and shifting to opening with OPAP losing its entire sports-betting a variable agents’ fee structure for betting games. EBITDA, an unduly pessimistic stance. If anything, EU regulatory noises have either Overall, given undemanding valuation and highly subsided (no country has been referred to the ECJ defensive qualities, we have an Overweight rating on gaming yet, while the internal workings of the with a target price of EUR29.
Financial summary (EURm) Valuation summary (x) Key data
Year to 12/2007a 12/2008e 12/2009e 12/2010e Year to 12/2007a 12/2008e 12/2009e 12/2010e RIC OPAr.AT Revenue 5,066 5,605 5,932 6,497 Dividend yield (%) 8.0 10.3 10.6 11.5 Bloomberg OPAP GA EBITDA 810 1,085 1,046 1,141 EV/EBITDA 8.1 6.1 6.3 5.8 Rating Overweight EBIT margin (%) 15.0 17.6 17.0 16.9 EV/Sales 1.3 1.2 1.1 1.0 Share (EUR) 21.84 HSBC net profit 609 747 762 828 HSBC PE 11.4 9.3 9.1 8.4 Target (EUR) 29.00 HSBC EPS (EUR) 1.91 2.34 2.39 2.60 ROIC (%) 354.3 357.1 324.8 312.1 Market cap (EURm) 6,967 HSBC EPS growth (%) 19.4 22.7 2.0 8.6 Net debt/EBITDA -0.4 -0.3 -0.3 -0.3 Free float (%) 66
Source: Company information, HSBC estimates Source: Company information, HSBC estimates
54 Equity Greece abc 13 January 2009
OPAP sales and profitability breakdown EURm 2007 of total 2008e of total yoy 2009e of total yoy 2010e of total yoy Kino 2,418 48% 2,831 51% 17% 3,068 52% 8% 3,191 49% 4% Stihima (betting) 2,146 42% 2,294 41% 7% 2,363 40% 3% 2,793 43% 18% Joker 257 5% 249 4% -3% 262 4% 5% 270 4% 3% Other 245 5% 231 4% -6% 239 4% 3% 244 4% 2% Total sales 5,066 5,605 11% 5,932 6% 6,497 10% Kino 725 45% 866 46% 19% 921 49% 6% 957 47% 4% Stihima (betting) 622 39% 761 41% 22% 709 38% -7% 838 41% 18% Joker 128 8% 125 7% -3% 131 7% 5% 135 7% 3% Other 121 8% 113 6% -7% 117 6% 4% 120 6% 2% Total gross win 1,597 1,864 17% 1,877 1% 2,050 9% Group winners payout 68.5% 66.7% 68.3% 68.4% EBITDA * 860 1,085 26% 1,046 -4% 1,141 9% EBITDA margin 17.0% 19.4% 17.6% 17.6% Net income * 609 747 23% 762 2% 828 9% EPS (EUR) * 1.91 2.34 23% 2.39 2% 2.60 9%
*Excluding EUR50m one-off pre-tax donation in 2007 Source: OPAP, HSBC Pantelakis Securities estimates
Company profile – at a glance 7% y-o-y as the latter is more closely linked to disposable income dynamics). OPAP holds an exclusive 20-year (up to 2020) concession to run its existing lottery and sports Finally, OPAP’s defensive qualities are further betting games. In addition, OPAP holds a right of enhanced by its almost fully-variable cost base, first refusal to operate any future lottery games, and absence of FX risks and a debt-free cash-rich the exclusive right to operate any future sports balance sheet. In fact, the latter may represent a betting game. Out of its 9 current games (3 sports- key competitive edge in the current liquidity- betting and 6 numerical lotteries), Kino, Stihima restrained environment. (betting) and Joker account for the bulk of group Our estimates stand only marginally above consensus sales (51%, 41% and 4% in 2008e respectively). EUR 2008e 2009e 2010e Economic performance HSBC 2.34 2.39 2.60 Consensus 2.34 2.35 2.52 After underlying EPS growth of 19% in 2007, we Difference 0% 2% 3% Source: HSBC Pantelakis Securities estimates, FactSet for consensus expect another particularly strong year, with 2008e EPS +23% y-o-y driven by a mix of robust Catalysts momentum in key games (Kino and Stihima), even stronger gross win dynamics (on restrained On the upside, continuous gaming innovation and payout) and cost containment. product enrichment could constitute major positive catalysts for the stock. However, we Peering into an uncertain 2009 outlook, we believe believe that OPAP will need to tread a very fine OPAP’s product mix enhances earnings resilience in line between seeking growth opportunities and the face of an economic slowdown. We forecast EPS presenting a ‘socially responsible’ image, which is up just 2% yoy on flattish gross win as we expect necessary to defend its monopoly status. strength in numerical games such as Kino (due to OPAP’s bidding vehicle (a 50/50 joint venture their countercyclical attributes and continuous with Turkish partners Dogus, FIBA and Alarko) is benefits from the gradual roll-out of new lottery still evaluating whether to participate in the terminals until August 2008) to largely offset any forthcoming Turkish tender for a 10-year betting weakness (we see Stihima gross win down numerical lotteries licence (originally, expression
55 Equity Greece abc 13 January 2009
of interest due by 15 January, binding bids by 27 base case, this implies a EUR29.5 ‘fair’ value. February, but likely to face further delays). Such Aiming to more precisely capture the liberalisation expansion could gear up its balance sheet, but risks, our alternative valuation tool is a second DCF entails execution-pricing risks. Thankfully, OPAP model, where we keep the medium-term (2011e- has pledged to show discipline when bidding in 20e) growth fixed at 3% pa, terminal growth at 0% Turkey, potentially keeping its powder dry for and discount rate at 9.5%, but vary the year of other opportunities in the gaming sector. potential market opening and the portion of OPAP’s We expect no significant news flow from a EBITDA retained post-liberalisation. Note that hearing (postponed to February 2009) by Greece’s sports-betting EBITDA (at risk after market Higher Administrative Court (State Council) of a opening) accounts for 40% of group total. Stanleybet legal challenge against OPAP’s Obviously, EBITDA losses could result from both exclusive concession. We believe that Greek market share losses and margin erosion, not least due courts are unlikely to be sympathetic to such to a higher winners’ payout. Prudently enough in our overtures, with prolonged delays in the process. view, our base case fair value from our second Finally, we believe the signing (in early 2009) of valuation methodology (EUR28.3 per share) implies a new legally-binding contract with agents would that the sports betting market opens up in Jan-2011 further benefit sentiment, as will a new (based on (two years from now), OPAP retains a 70% market gross-win rather than sales currently) commission share but its sports betting margin is eroded by 40% structure for Stihima. The latter will give OPAP (i.e. to c10% vs. 17% in 2009e), hence approaching greater flexibility of cost base, especially in the that of UK bookmakers. case of eventual market liberalisation (when the Risks to our rating payout will likely trend higher). The key risk to our rating remains an EU-enforced Valuation & rating regulatory change. However, our modelling work Our first valuation approach is a three-stage DCF indicates that the current share price implies that the model using a WACC of 9.5%, explicit forecasts market opens up now (January 2009) and OPAP for 2008-10e, an intermediate period to the end of immediately loses its entire sports betting EBITDA the exclusive concession (assuming EBITDA (on market share losses and margin erosion). Given CAGR of 3.5%) and a terminal value post-2020e. how unlikely we deem such an outcome, we believe Post-2020e cash flows (calculated at 3% growth that valuation downside from current levels appears pa) have been discounted by 66%, before being limited. Finally, a sharper than expected slowdown brought to present value terms, to reflect potential of the Greek economy could imply downside risks to competition from third parties, the probable cost our 2009e estimates. of a new licence or a combination of both. At our
Value sensitivity (EUR per share) to assumptions for sports betting market liberalisation ______Post market liberalisation ______EUR/share ______Stihima Stihima EBITDA __ % of EBITDA retained ______Year of market opening ______market share margin erosion Stihima Total 2009e 2010e 2011e 2012e 2013e 2014e 2015e 0% 90% 0% 60% 21.9 21.4 23.4 24.2 25.0 25.8 26.5 60% 60% 24% 70% 25.2 24.3 26.2 26.8 27.4 28.0 28.5 65% 50% 33% 73% 26.3 25.3 27.2 27.8 28.3 28.8 29.3 70% 40% 42% 77% 27.6 26.5 28.3 28.8 29.3 29.7 30.1 75% 30% 53% 81% 29.1 27.7 29.6 30.0 30.3 30.7 31.0
Source: HSBC Pantelakis Securities estimates
56 Equity Greece abc 13 January 2009
Financials & valuation: OPAP Overweight
Financial statements Valuation data Year to 12/2007a 12/2008e 12/2009e 12/2010e Year to 12/2007a 12/2008e 12/2009e 12/2010e Profit & loss summary (EURm) EV/sales 1.3 1.2 1.1 1.0 EV/EBITDA 8.1 6.1 6.3 5.8 Revenue 5,066 5,605 5,932 6,497 EV/IC 32.8 31.8 26.1 24.6 EBITDA 810 1,085 1,046 1,141 PE* 11.4 9.3 9.1 8.4 Depreciation & amortisation (48) (97) (40) (45) P/NAV 12.2 11.7 11.2 10.7 Operating profit/EBIT 762 989 1,007 1,096 FCF yield (%) 9.1 10.6 10.3 11.7 Net interest 15 26 24 23 Dividend yield (%) 8.0 10.3 10.6 11.5 PBT 777 1,015 1,030 1,119 HSBC PBT 827 1,015 1,030 1,119 Note: * = Based on HSBC EPS (fully diluted) Taxation (205) (268) (268) (291) Net profit 571 747 762 828 HSBC net profit 609 747 762 828 Issuer information Cash flow summary (EURm) Share price (EUR) 21.84 Target price (EUR) 29.00 Potent'l tot rtn (%) 32.8 Reuters (Equity) OPAr.AT Bloomberg (Equity) OPAP GA Cash flow from operations 716 822 797 866 Market cap (USDm) 9,502 Market cap (EURm) 6,967 Capex (80) (82) (82) (54) Free float (%) 66 Enterprise value (EURm) 6,570 Cash flow from investment (80) (82) (82) (54) Country Greece Sector Gaming Dividends (555) (721) (736) (799) Analyst Paris Mantzavras Contact +30 210 6965 210 Change in net debt 37 (20) 20 (13) FCF equity 636 741 716 812 Price relative Balance sheet summary (EURm) 57 57 Intangible fixed assets 194 178 161 145 52 52 Tangible fixed assets 258 259 316 341 47 47 Current assets 193 221 232 247 42 42 Cash & others 522 513 474 468 37 37 Total assets 1,167 1,170 1,184 1,201 32 32 Operating liabilities 444 450 457 465 27 27 22 22 Gross debt 146 116 96 76 17 17 Net debt -347 -367 -347 -360 12 12 Shareholders funds 569 595 622 651 2007 2008 2009 2010 Invested capital 201 207 252 268 OPAP Rel to ATHENS SE
Source: HSBC Ratio, growth and per share analysis
Year to 12/2007a 12/2008e 12/2009e 12/2010e Note: price at close of 5 January 2009 Stated accounts as of 31 Dec 2004 are IFRS compliant Y-o-y % change Revenue 9.3 10.6 5.8 9.5 EBITDA 9.7 34.0 -3.6 9.0 Operating profit 6.9 29.7 1.8 8.9 PBT 7.0 30.7 1.5 8.6 HSBC EPS 19.4 22.7 2.0 8.6 Ratios (%) Revenue/IC (x) 32.0 27.5 25.9 25.0 ROIC 354.3 357.1 324.8 312.1 ROE 112.1 128.3 125.3 130.1 ROA 53.7 63.9 64.8 69.5 EBITDA margin 16.0 19.4 17.6 17.6 Operating profit margin 15.0 17.6 17.0 16.9 EBITDA/net interest (x) -55.7 -41.0 -44.4 -49.8 Net debt/equity -61.0 -61.7 -55.8 -55.4 Net debt/EBITDA (x) -0.4 -0.3 -0.3 -0.3 CF from operations/net debt -206.3 -224.0 -229.6 -240.3 Per share data (EUR) EPS Rep (fully diluted) 1.79 2.34 2.39 2.60 HSBC EPS (fully diluted) 1.91 2.34 2.39 2.60 DPS 1.74 2.26 2.31 2.50 NAV 1.78 1.87 1.95 2.04
57 Equity Greece abc 13 January 2009
OTE
In our view, OTE’s attractive fundamentals and defensive qualities remain in place (2007-10e EPS CAGR of 12.3%) Solid balance sheet and strong cash-flow generation ability ensure high, well-covered dividends (6-7% yield) We have an O/W (V) rating with EUR16.5 TP (26% potential return); relative valuation provides support to investment case
Cosmote minority buyout) and strong cash flow Vangelis Karanikas * Investment case Analyst generation ability (FCF yield of 12-15% in 2008- HSBC Pantelakis Securities S.A. We believe OTE’s attractive fundamentals and 10e). Moreover, we believe there is strong scope + 30 210 6965 211 defensive qualities, which drove Deutsche [email protected] for healthy dividends going forward, as both DT Telecom to pay more than EUR25/share (almost *Employed by a non-US affiliate of and the Greek state are keen on dividends (DY of HSBC Securities (USA) Inc, and is double the current price) for a 25% stake, plus the 6-7% in 2008e-10e, 1.8x covered). not registered/ qualified pursuant to management, remain in place, despite the share NYSE and/ or NASD regulations price weakness in 2008 (-53%). All in all, we believe that the market undervalues OTE, penalising it for its Balkan exposure and the Firstly, although OTE has lost much of its organic structure of the recent deal with DT. Based on our growth profile on higher competition in Greece and estimates, OTE bears no FX risk, while we the Balkans (we expect flattish sales and EBITDA believe that the recent strategic alliance between growth in 2009e), the Cosmote minority buyout and the Greek state and DT should overall increase deleveraging yield healthy EPS growth (+22% y-o-y OTE’s know-how and competitive position, and in 2008e and +7% in 2009e) hence improving its rationalise its costs. Finally, OTE’s relative risk-return profile. OTE’s 2007-10e EPS CAGR of valuation remains attractive in our view, hence 12.3% is the second highest in our European providing support to our investment case. wireline universe behind Telefonica. Secondly, OTE boasts a healthy balance sheet (with net debt/EBITDA falling to 1.35x in 2010e from a temporary high of 2x in 2008e due to the
Key data Financial summary (EURm) Valuation summary (x) Year to 12/2007a 12/2008e 12/2009e 12/2010e Year to 12/2007a 12/2008e 12/2009e 12/2010e RIC OTEr.AT Bloomberg HTO GA Revenue 6,317 6,405 6,489 6,591 Dividend yield (%) 5.7 5.7 6.5 6.9 Rating Overweight (V) EBITDA (HSBC) 2,228 2,357 2,371 2,427 EV/EBITDA 5.6 5.3 5.0 4.6 Share (EUR) 13.12 EBIT margin (%) 16.6 17.7 18.8 18.6 EV/Sales 2.0 1.9 1.8 1.7 Target (EUR) 16.50 HSBC net profit 540 658 702 764 HSBC PE 11.9 9.8 9.2 8.4 Market cap (EURm) 6,431 HSBC EPS (EUR) 1.10 1.34 1.43 1.56 ROIC (%) 16.5 16.5 18.2 19.2 Free float (%) 50 HSBC EPS growth (%) 16.9 21.9 6.7 8.8 Net debt/EBITDA 1.89 1.97 1.68 1.35
Source: Company information, HSBC estimates Source: Company information, HSBC estimates
58 Equity Greece abc 13 January 2009
Company profile – at a glance All in all, we believe that OTE has a healthy balance sheet, with ample liquidity and no funding risks. OTE is the incumbent fixed-line operator in Greece, Moreover, we expect OTE’s FCF generation to also controlling the No.1 mobile operator Cosmote remain strong, thus leading to substantial debt (41% market share). Cosmote operates in four reduction in coming years; based on our estimates, countries outside Greece, namely Bulgaria (Globul, OTE’s net debt to EBITDA will fall to a below No2 player, c39% market share), Romania (Cosmote sector average of 1.35x in 2010e from a temporary Romania, 70%-owned, c20% market share), Albania high of 1.97x in 2008, due to the acquisition of (AMC, 82.5%-owned, c52% market share) and Cosmote minorities. Our estimates exclude the FYROM (Cosmofon, c31% market share). OTE also future sale of Cosmofon in FYROM, which should controls 54% of Romtelecom, Romania’s fixed-line further enhance OTE’s cash position. incumbent and 20% of Srbija Telecom, Serbia’s fixed-line incumbent (equity consolidated). Economic performance Macro immunity: significant We expect OTE’s 2008 underlying EPS (excluding EM exposure but no FX risk VRS-related provisions) to rise by 22% y-o-y to EUR1.34, on sales growth of 1% to EUR6.4bn. In OTE has a significant exposure to emerging 2009, we forecast flattish sales and EBITDA growth markets (EM). In 2008, we expect EM to account (spot on consensus), but 7% y-o-y EPS growth (to for 32.4% of consolidated sales (57% mobile, EUR1.43), 2% above Factset consensus estimates, 43% fixed line), due to increase to 35% in 2010e. on lower financial expenses and tax rates. We also forecast EM to account for 28.5% of group EBITDA (due to increase to 32.8% in To sum-up, we forecast a 1.4% CAGR in 2007- 2010e). The main EM operations are Romania 10e group sales and 2.9% for EBITDA driven (20% of sales), and Bulgaria (8% of sales). largely by mobile, which should more than offset the domestic fixed-line weakness. We also expect Despite its significant EM exposure, OTE has OTE’s underlying EPS to grow by a 2007-10e minimal FX risk; the Bulgarian Lev is pegged to the CAGR of 12.3% (mainly due to the recent EUR, while all operations in Romania are priced in Cosmote minority buyout but also on the back of EUR. That said, AMC in Albania is small (just 3% declining financial expenses) and OTE’s cash- of sales), while we expect OTE to have sold flow generation ability to remain strong (we Cosmofon in FYROM (1% of sales) by Q1 2009. expect OTE’s FCFE ratio to range between 12- Funding risks/Liquidity issues 15% in 2008-10e). Note that our estimates do not include any DT-related synergies. OTE’s net debt as of end-September 2008 stood at EUR4.79bn. Out of OTE’s total indebtedness of HSBC vs. consensus (Factset) EUR6.05bn (100% of which is long-term, since Our 2009e-10e sales and EBITDA estimates are OTE has no short-term debt), 80% is fixed- spot on consensus. coupon (average coupon of c5%), the balance being floating rate (average interest rate of c5%). Catalysts
More importantly, OTE’s short-term refinancing In our view, OTE’s key short-term catalysts are: needs are minimal, with only EUR0.6bn of The release of a new 3-year business plan: this outstanding debt obligations maturing in late should increase overall visibility on OTE’s future 2009e, which we expect OTE to repay out of its operations. We expect OTE’s management, in co- rich cash balances. operation with DT, to release its new 3-year business plan in early 2009.
59 Equity Greece abc 13 January 2009
The detailed breakdown of the targeted estimates, OTE trades at a discount versus its peers EUR2.2bn of synergies guided by DT, calculated on most 2008e-10e multiples, while offering at the as the NPV of future cost and capex savings of same time a better growth outlook (three-year EPS cEUR220m pa. CAGR of 12.3% versus the peer group’s average of 2.1%) and a less geared balance sheet. New fixed-line voluntary redundancies (on top of the mini-VRS of 630 employees): we expect Risks to our rating OTE to address headcount in the domestic fixed- We believe that OTE’s greatest negative risks are a line operations, targeting mainly non-productive prolonged period of management succession, delays segments of personnel. in the announcement of a new 3-year business plan Valuation & rating and details of the planned synergies. OTE’s EGM in late January will be called to approve changes in its We have an Overweight (V) rating on OTE with a BoD composition (to allow for new DT-appointed target price of EUR16.5 per share (26% potential members). That said, we expect the current chairman upside from the 5 January price of EUR13.12) and CEO, Mr Vourloumis, to retain his posts in the based on a sum-of-parts valuation, in which we short-term (i.e. at least until OTE’s AGM sometime value OTE’s fixed-line division, Cosmote and in June-July 2009). Romtelecom using DCFs with WACCs of 8.4%, 10.8% and 11.8% and long-term growth rates of - Investors should also consider the following 1%, 2.2% and -1% respectively. We also value downside risks: a) poorer-than-expected fixed-line OTE’s 20% stake in Telecom Srbija at EUR400m performance, b) regulatory risks regarding the and OTE’s other participations, namely OTE domestic business, Romtelecom and Cosmote, c) Estate, OTEGlobe and HellasCom at EUR0.74bn. a potential structural (network) separation forced by the domestic regulator; d) large capex as a Having lost 53% in 2008 (underperforming the result of the government’s planned FTTH project. FTSEurofirst 300 Telecoms index), OTE’s relative valuation appears less demanding, hence providing support to our investment case. Based on our
OTE’s sum-of-parts valuation ______Target EV______Implied 2009e Subsidiary/division EURm EUR per share % of total EV Valuation details EV/EBITDA Fixed-line business (100%-owned) 3,906 7.97 29.2% DCF, WACC 8.4%, LTG -1% 4.9 Cosmote (100%-owned), of which 7,294 14.88 54.5% DCF, WACC 10.8%, LTG 2.2% 5.8 -Cosmote Greece (100%) 5,572 11.37 41.6% DCF, WACC 9.9%, LTG 2% 7.2 -AMC (82.45%) 672 1.37 5.0% DCF, WACC 10.8%, LTG 2% 6.5 -Globul (100%) 1,024 2.09 7.6% DCF, WACC 10.8%, LTG 2% 5.4 -Cosmofon (100%) 183 0.37 1.4% DCF, WACC 10.8%, LTG 2% 10.3 -Cosmote Romania (70%) 715 1.46 5.3% DCF, WACC 11.8%, LTG 3% 11.4 -Germanos (90%) 116 0.24 0.9% DCF, WACC 9.4%, LTG 1% 4.1 Romtelecom (54.01%-owned) 861 1.76 6.4% DCF WACC 11.8%, LTG -1% 5.2 Telecom Srbija (20%-owned) 400 0.82 3.0% 2.5x 2007a book value n/a OTE Estate (100%-owned) 540 1.10 4.0% 1x 2007a book value n/a Other (OTEGlobe, HellasCom) 200 0.41 1.5% Target multiples n/a State contribution for VRS 183 0.37 1.4% NPV @ 10% of EUR220m cash outflows n/a Implied OTE group EV 13,383 27.30 100.0% DCF, WACC 9.9%, LTG 0.9% 5.8 Plus: -Net Debt (4,641) -9.47 Proportionate, 2008e -Staff retirements & youth (514) -1.05 2008e -Mini-VRS provision (139) -0.28 630 employees at EUR220k cost/employee Implied group market capitalisation 8,089 16.50
Source: HSBC estimates
60 Equity Greece abc 13 January 2009
Financials & valuation: OTE Overweight (V)
Financial statements Key forecast drivers (EURm) Year to 12/2007a 12/2008e 12/2009e 12/2010e Year to 12/2007a 12/2008e 12/2009e 12/2010e Profit & loss summary (EURm) OTE fixed line revenues 2,657 2,544 2,411 2,334 Cosmote group revenues 3,058 3,304 3,550 3,742 Revenue 6,317 6,405 6,489 6,591 Romtelecom revenues 872 889 906 905 EBITDA (underlying) 2,228 2,357 2,371 2,427 OTE fixed line EBITDA (underlying) 822 795 701 676 Depreciation & amortisation 1,172 1,176 1,193 1,199 Cosmote group EBITDA 986 1,153 1,261 1,332 Operating profit/EBIT 1,047 1,133 1,221 1,228 Romtelecom EBITDA (underlying) 300 307 316 325 Net interest 108 (209) (200) (166)
PBT 1,155 924 1,021 1,062 HSBC PBT 907 940 977 1,062 Taxation (382) (272) (274) (281) Sensitivity and valuation range (EUR/share) Net profit 663 647 735 764 Long-term growth vs. WACC 9.5% 9.9% 10.5% HSBC net profit 540 658 702 764 0.0% 16.1 15.3 13.8 Cash flow summary (EURm) 0.4% 16.7 15.9 14.3 Cash flow from operations 1,793 1,758 1,881 1,909 0.9% 17.4 16.5 14.8 Capex (1,101) (896) (863) (838) 1.4% 18.3 17.4 15.5 Cash flow from investment (1,151) (950) (844) (807) 1.9% 19.3 18.2 16.2 Dividends (368) (368) (417) (441) Change in net debt 1,664 430 (669) (685) FCF equity 392 784 916 963 Valuation data Balance sheet summary (EURm) Year to 12/2007a 12/2008e 12/2009e 12/2010e Intangible fixed assets 1,315 1,305 1,305 1,305 EV/sales 2.0 1.9 1.8 1.7 Tangible fixed assets 6,371 6,091 5,761 5,400 EV/EBITDA 5.6 5.3 5.0 4.6 Current assets 1,746 1,826 1,902 1,995 EV/IC 1.4 1.5 1.4 1.4 Cash & others 1,316 1,407 1,401 2,053 PE* 11.9 9.8 9.2 8.4 Total assets 11,533 11,371 11,092 11,455 P/NAV 3.2 4.4 3.5 2.9 Operating liabilities 1,996 1,958 1,982 2,011 FCF yield (%) 6.1 12.2 14.2 15.0 Gross debt 5,528 6,048 5,373 5,340 Dividend yield (%) 5.7 5.7 6.5 6.9 Net debt 4,212 4,641 3,972 3,287 Shareholders funds 2,032 1,469 1,837 2,184 Note: * = Based on HSBC EPS (fully diluted) Invested capital 8,683 8,507 8,197 7,859 Issuer information
Ratio, growth and per share analysis Share price (EUR) 13.12 Target price (EUR) 16.50 Potent'l tot rtn (%) 25.8 Year to 12/2007a 12/2008e 12/2009e 12/2010e Reuters (Equity) OTEr.AT Bloomberg (Equity) HTO GA Market cap (USDm) 12,386 Market cap (EURm) 6,431 Y-o-y % change Free float (%) 50 Enterprise value (EURm) 8,900 Country Greece Sector Diversified Telecoms Revenue 7.2 1.4 1.3 1.6 Analyst Vangelis Karanikas Contact +30 210 6965 211 EBITDA 0.1 4.1 4.6 0.5 Operating profit -3.8 8.3 7.8 0.5 Price relative PBT 6.6 -20.0 10.5 4.0 HSBC EPS 16.9 21.9 6.7 8.8 40 40 Ratios (%) 35 35 30 30 Revenue/IC (x) 0.7 0.8 0.8 0.8 25 25 ROIC 16.5 16.5 18.2 19.2 ROE 23.3 37.0 44.5 38.0 20 20 ROA 7.7 7.8 9.2 10.1 15 15 EBITDA margin 35.3 36.8 36.5 36.8 10 10 Operating profit margin 16.6 17.7 18.8 18.6 5 5 EBITDA/net interest (x) -20.6 11.3 11.8 14.6 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Net debt/equity 207.3 316.0 216.3 150.5 OTE Rel to ATHENS SE Net debt/EBITDA (x) 1.89 1.97 1.68 1.35 CF from operations/net debt 42.6 37.9 47.4 58.1 Source: HSBC
Per share data Note: price at close of 5 January 2009 Stated accounts as of 31 Dec 2004 are IFRS compliant EPS Rep (fully diluted) 1.35 1.32 1.50 1.56 HSBC EPS (fully diluted) 1.10 1.34 1.43 1.56 DPS 0.75 0.75 0.85 0.90 NAV 4.14 3.00 3.75 4.46
61 Equity Greece abc 13 January 2009
Public Power Corporation
Highly-visible 2009e profitability turnaround not fully priced in We now apply a 20% (vs. 30% before) valuation discount to capture commodities, funding and execution risks Reiterate Overweight (V) rating; TP raised to EUR17 (EUR15)
Investment case and highlights the haphazard nature of the Greek Paris Mantzavras * Analyst regulatory regime. 2008 has been a dismal year for profitability: on HSBC Pantelakis Securities S.A. + 30 210 6965 210 our estimates, PPC plunged into losses amid a We believe that this profitability turnaround is not [email protected] super-spike in fuel costs, inadequate hikes in fully priced in: at our base case (oil at *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is regulated retail tariffs, a prolonged employee USD60/bbl), PPC trades at a 2009e PE of 6.3x not registered/ qualified pursuant to strike, delays in maintenance and capex and EV/EBITDA of 5.3x – sharp discounts to peer NYSE and/ or NASD regulations programmes, limited controllable cost cutting, and levels of 11.5x and 7.2x, respectively. More depressed hydro generation. However, we have importantly, significant upside risks to our argued that 2009 is shaping up to be a year of estimates remain with oil hovering around sharp profitability turnaround, with EBITDA USD45/bbl. Even after the introduction of a rising more than threefold to EUR1,365m, and net partial fuel pass-through mechanism in 2010, PPC income returning to the black (EUR464m, a will remain geared to lower fuel prices, albeit less record high for the past decade). so than in the past.
This boils down to a substantial easing in fuel (oil Our revamped valuation (DCF, SOTP) supports a -natural gas) and wholesale electricity costs, the EUR21 fair value. Given increasing upside risks, feed-through of the July tariff increase, and some we now reduce to 20% from 30% the valuation normalisation of the generation mix. We have discount we apply to reflect uncertainty over factored in just a 1% tariff hike arising from the future fuel prices, regulation and funding. Hence, PSO-costs compensation mechanism. The recent we reiterate our Overweight (V) rating and raise postponement (to 2010) in the introduction of our TP to EUR17 (from EUR15). partial fuel pass-through has no impact on our base-case estimates, but increases gearing to oil
Financial summary (EURm) Valuation summary (x) Key data
Year to 12/2007a 12/2008e 12/2009e 12/2010e Year to 12/2007a 12/2008e 12/2009e 12/2010e RIC DEHr.AT Revenue 5,154 5,891 6,330 6,444 Dividend yield (%) 0.8 0.0 4.8 4.8 Bloomberg PPC GA EBITDA 819 409 1,365 1,406 EV/EBITDA 8.1 17.3 5.3 5.5 Rating Overweight (V) EBIT margin (%) 4.8 -1.8 13.3 13.6 EV/Sales 1.3 1.2 1.1 1.2 Share (EUR) 12.58 HSBC net profit 99 -239 464 473 HSBC PE 29.6 na 6.3 6.2 Target (EUR) 17.00 HSBC EPS (EUR) 0.42 -1.03 2.00 2.04 ROIC (%) 2.1 -0.9 6.2 6.0 Market cap (EURm) 2,919 HSBC EPS growth (%) 346.3 1.9 Net debt/EBITDA 4.5 10.3 3.2 3.4 Free float (%) 49
Source: Company information, HSBC estimates Source: Company information, HSBC estimates
62 Equity Greece abc 13 January 2009
Company profile – at a glance PSO-mechanism (designed to adjust prices for fuel costs incurred by PPC for non-interconnected PPC is Greece’s former electricity monopoly. In islands in the preceding year) should result in a headline terms, the domestic market has been minor (1%) tariff hike. liberalised since 2001, albeit in a piecemeal and haphazard way, leading to a number of It is important to note that, at best, the two tariff distortions. More importantly, liberalised adjustment mechanisms (fuel clause and PSOs) in wholesale generation tariffs are too high aggregate apply to 100% of natural gas needs, but compared to low and fully-regulated end- only c60% of oil needs and 0% of electricity consumer tariffs, rendering the supply function purchase needs. Hence, the cover by the two loss-making. Unsurprisingly, PPC retains an mechanisms is only partial at best and PPC’s almost 100% market share in supply, while it earnings remain geared to lower fuel prices. This generates 86% of total electricity. is more pronounced in 2009, since the fuels clause Economic performance will now take effect only in 2010.
After plunging into losses in 2008e, we expect Sensitivity of our 2009e forecast to crude oil levels (USD/bbl) PPC to stage a significant recovery in 2009. EURm 40 50 60 70 80 90 ------With partial fuels pass-through clause------Breakdown on EBITDA recovery in 2009e Sales 6,116 6,223 6,330 6,436 6,543 6,650 EBITDA 1,551 1,458 1,365 1,272 1,180 1,087 1,600 EPS (EURm) 2.60 2.30 2.00 1.70 1.40 1.10 1,400 ------Without partial fuels pass-through clause------Sales 6,330 6,330 6,330 6,330 6,330 6,330 1,200 EBITDA 1,759 1,562 1,365 1,168 972 775 1,000 EPS 3.27 2.64 2.00 1.36 0.73 0.09
800 Source: HSBC Pantelakis Securities estimates 600 1,365 400 In addition, any extra 1% tariff increase would 200 369 add cEUR60m to EBITDA, while a 1TWh 0 2008e Extra Payroll Fuel Energy Other 2009e shortfall in lignite-fired or hydro generation EBITDA revenues costs purchases costs EBITDA would, ceteris paribus, trim EBITDA by Source: HSBC Pantelakis Securities estimates cEUR40m and cEUR60m, respectively. A USD10 The key drivers should be the following: a) easing rise in oil is fully offset by a c2% tariff hike. of fuel prices (our base case calls for Brent at Funding/liquidity concerns USD60/bbl vs. cUSD98 in 2008), b) the feed- through of the c7.5% July 2008 tariff hike, c) PPC has just announced a heavy capex lower electricity purchase prices (on lower fuel programme for the next 6 years, primarily aiming costs), d) some improvement in generation mix at building more fuel efficient, less polluting (i.e. a normalisation of lignite-fired and a tepid plants, upgrading grids and beefing up exposure recovery in depressed hydro generation), and e) in renewables. Given already high-gearing (net limited adjustment in tariffs, on the back of the debt/EBITDA to remain in the 3-4x range), deferral until 2010 in the introduction of a fuel regulated tariffs and the current credit crunch, pass-through clause (in any case, we expected significant concerns remain over future funding. zero impact in 2009, with average fuel levels not Given that the government is unlikely to commit deviating much from benchmarks, EUR290/t for to a future tariff path in advance, we expect PPC fuel oil and EUR25.5/MWh for natural gas). The to adopt a flexible (spend-as-you-go) approach to
63 Equity Greece abc 13 January 2009
Sum of the parts (SOTP) valuation EURm Discount EURm EUR/sh Comments Mainland Transmission RAB 1,318 20% 1,054 4.5 2007a Mainland Distribution RAB 1,731 20% 1,385 6.0 2007a Islands RAB (Generation-T&D) 1,157 20% 926 4.0 2007a Mainland Generation 6,761 20% 5,409 23.3 12.3GW installed, valued at EUR0.6m/MW Mainland supply 500 50% 250 1.1 EUR100/customer Enterprise value 11,467 9,023 38.9 Plus: non-core assets 611 611 2.6 Real-estate, Larco, DEPA option Less: net debt & provisions 4,705 4,705 20.3 2008e net debt, employee-litigation provisions Appraisal equity value 7,372 4,929 21.2
Source: HSBC Pantelakis Securities estimates
its capex commitments. We suspect it may have reflect persisting uncertainties regarding actually inflated capex plans to push the commodities, future tariff path and government into approving higher tariffs. If these funding/liquidity concerns. Notably, we have now fail to materialise, PPC will consider deferring- reduced this discount (from 30%) to reflect upside cancelling/sharing investments, as well as further risks to our estimates from the recent slide of oil cost-cutting. As a last resort, it could also consider prices (now hovering around USD45/bbl). asset disposals (unspecified) or a capital increase Relative valuation is strongly supportive: PPC (obviously the least-preferred option). still trades at sharp discounts to peers (which trade Catalysts at 2009e PE and EV/EBITDA of 11.5x and 7.2x respectively), while risks appear tilted to the Apart from further easing of the oil price, the positive side (given current low oil prices). single most important catalyst will be the execution of its capex programme as well as 2009e valuation sensitivity (no fuels pass-through clause) delivery on targets to achieve annual cost savings Brent (US$/bbl) 40 50 60 70 80 of EUR500m by 2014. The bulk of these savings PE (x) 3.8 4.8 6.3 9.2 17.3 relates to reduced personnel (through natural EV/EBITDA (x) 4.1 4.6 5.3 6.2 7.5 attrition) and is back-loaded (just EUR60m in Source: HSBC Pantelakis Securities estimates
2009e). Given a poor track record so far investors are unlikely to give PPC the full benefit of the Risks to our rating doubt before tangible cost-cutting signs. PPC remains exposed to two longer-term Valuation & rating downside risks stemming from EU initiatives. First, the Commission has urged Greece to grant We value PPC through a sum-of-parts valuation IPPs fairer access to domestic lignite reserves, so method, presented above. We use published RAB as to ensure a ‘level playing field’ in electricity figures for regulated businesses (mainland generation (PPC has filed an appeal against this transmission-distribution and non-interconnected decision). Secondly, PPC could face a significant islands) and industry benchmarks for generation cost burden for carbon permits under a full- assets and the supply function. Additionally, we auctioning regime post-2012. Given the murky apply a 20% discount to account for subpar returns domestic regulatory regime, it is impossible to (6% ROIC vs. 7.2% WACC) for all divisions and forecast at this stage how much of these extra 50% for supply (the last to turn profitable). costs could be passed on to consumers through higher prices. Although we believe this will However, we set our price target at EUR17, i.e. a eventually be the case, the timing of convergence 20% discount to our EUR21.2 SOTP valuation to is highly uncertain.
64 Equity Greece abc 13 January 2009
Financials & valuation: Public Power Corporation Overweight (V)
Financial statements Valuation data Year to 12/2007a 12/2008e 12/2009e 12/2010e Year to 12/2007a 12/2008e 12/2009e 12/2010e Profit & loss summary (EURm) EV/sales 1.3 1.2 1.1 1.2 EV/EBITDA 8.1 17.3 5.3 5.5 Revenue 5,154 5,891 6,330 6,444 EV/IC 0.7 0.7 0.7 0.7 EBITDA 819 409 1,365 1,406 PE* 29.6 nm 6.3 6.2 Depreciation & amortisation (572) (513) (523) (533) P/NAV 0.6 0.6 0.5 0.5 Operating profit/EBIT 247 -104 843 874 FCF yield (%) 1.5 -16.7 -1.5 -10.0 Net interest -155 -177 -224 -244 Dividend yield (%) 0.8 0.0 4.8 4.8 PBT 276 -272 618 630 HSBC PBT 111 -272 618 630 Note: * = Based on HSBC EPS (fully diluted) Taxation (54) 33 (155)(158) Net profit 222 -239 464 473 HSBC net profit 99 -239 464 473 Issuer information Cash flow summary (EURm) Share price (EUR) 12.58 Target price (EUR) 17.00 Potent'l tot rtn (%) 35.1 Reuters (Equity) DEHr.AT Bloomberg (Equity) PPC GA Cash flow from operations 519 203 1,180 1,046 Market cap (USDm) 3,980 Market cap (EURm) 2,919 Capex (650) (690) (1,225) (1,337) Free float (%) 49 Enterprise value (EURm) 7,081 Cash flow from investment (477) (690) (1,225) (1,337) Country Greece Sector Electricity Dividends (23) 0 (139)(142) Analyst Paris Mantzavras Contact +30 210 6965 210 Change in net debt (31) 477 184 432 FCF equity 42 -487 -45 -290 Price relative Balance sheet summary (EURm) 40 40 Intangible fixed assets 21 21 21 21 35 35 Tangible fixed assets 11,433 11,747 12,714 13,851 30 30 Current assets 1,678 1,921 1,990 2,035 Cash & others 308 369 404 472 25 25 Total assets 13,440 14,058 15,129 16,378 20 20 Operating liabilities 3,389 3,683 4,184 4,575 15 15 Gross debt 3,993 4,532 4,750 5,250 10 10 Net debt 3,724 4,201 4,385 4,817 5 5 Shareholders funds 5,280 5,041 5,365 5,696 2007 2008 2009 2010 Invested capital 9,743 10,006 10,541 11,331 Public Power Corporation Rel to ATHENS SE
Source: HSBC Ratio, growth and per share analysis
Year to 12/2007a 12/2008e 12/2009e 12/2010e Note: price at close of 5 January 2009 Stated accounts as of 31 Dec 2004 are IFRS compliant Y-o-y % change Revenue 7.7 14.3 7.4 1.8 EBITDA 10.7 -50.1 234.1 3.0 Operating profit 51.2 3.7 PBT 558.1 1.9 HSBC EPS 346.3 1.9 Ratios (%) Revenue/IC (x) 0.5 0.6 0.6 0.6 ROIC 2.1 -0.9 6.2 6.0 ROE 1.9 -4.6 8.9 8.5 ROA 2.8 -0.4 4.5 4.3 EBITDA margin 15.9 6.9 21.6 21.8 Operating profit margin 4.8 -1.8 13.3 13.6 EBITDA/net interest (x) 5.3 2.3 6.1 5.8 Net debt/equity 70.5 83.3 81.7 84.6 Net debt/EBITDA (x) 4.5 10.3 3.2 3.4 CF from operations/net debt 13.9 4.8 26.9 21.7 Per share data (EUR) EPS Rep (fully diluted) 0.96 -1.03 2.00 2.04 HSBC EPS (fully diluted) 0.42 -1.03 2.00 2.04 DPS 0.10 0.00 0.60 0.61 NAV 22.76 21.73 23.13 24.55
65 Equity Greece abc 13 January 2009
Jumbo
Jumbo appears well placed to weather the current stormy conditions; we expect 13% y-o-y EPS growth for 2009e-10e We cut our EPS estimates by 6% for 2009e and 7% for 2010e, on rising macro concerns in Greece; sharp de-rating (now at 6.3x 2009e EPS), however, seems overly excessive, in our view We reduce our target price to EUR7.0 (from EUR11.25), largely due to a higher COE (11.7% vs. 10.1% previously) and a 15% discount, adding a volatility indicator to our Overweight rating
Investment case net debt/EBITDA standing at 0.8x in 2009e (vs. 0.7x Spiros Tsangalakis* in 2008a), gearing should remain at low levels. Analyst Amid rapidly deteriorating market dynamics, Jumbo HSBC Pantelakis Securities S.A. + 30 210 6965 212 maintains its strong earnings growth momentum 1Q09 results were solid, with EPS up 18% y-o-y [email protected] thanks to its increasing exposure to the fast-moving, to EUR16m, on a 13% y-o-y LFL sales growth *Employed by a non-US affiliate of highly profitable home/seasonal products, at the and higher margins. More good news came on HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to expense of the somewhat stagnant toy lines, and January 5 as Jumbo said that 1H09 sales rose by NYSE and/ or NASD regulations continued network expansion, both in Greece and 15% y-o-y (up 13% y-o-y in Q2). This robust top- Bulgaria. In our view, the small stores that largely line performance demonstrates Jumbo’s ability to make up the local competition, with combined post strong growth rates despite a worsening market share of c45%, are not in a position to Greek macro environment and the December challenge Jumbo’s attractive product offering, wide riots. Moreover, on December 3 Jumbo reaffirmed product variety, unique procurement strength, guidance for 15% y-o-y sales and EPS growth pa extensive store network, and financial muscle. In over the next 3 years. Jumbo seems well-placed to addition, we believe that with an average item price weather the current stormy conditions, looking at of EUR5, Jumbo could benefit from a potential 13% EPS growth in 2009e-10e. With Jumbo now softening in economic growth in Greece, as trading at 6.3x 2009e EPS, we remain OW, consumers are likely to trade down. With Jumbo’s adding a volatility flag to our rating.
Financial summary (EURm) Valuation summary (x) Key data
Year to 6/2008a 6/2009e 6/2010e 6/2011e Year to 6/2008a 6/2009e 6/2010e 6/2011e RIC BABr.AT Revenue 404.0 467.7 529.5 597.4 Dividend yield (%) 4.1 4.7 5.4 6.2 Bloomberg BELA GA EBITDA 125.8 139.7 154.9 169.4 EV/EBITDA 5.3 4.9 4.5 3.9 Rating Overweight (V) EBIT margin (%) 28.7 27.6 27.0 26.2 EV/Sales 1.7 1.5 1.3 1.1 Share (EUR) 4.82 HSBC net profit 82.0 92.7 104.9 117.8 HSBC PE 7.1 6.3 5.6 5.0 Target (EUR) 7.00 HSBC EPS (EUR) 0.68 0.76 0.87 0.97 ROIC (%) 22.5 21.3 20.9 21.0 Market cap (EURm) 584.4 HSBC EPS growth (%) 20.8 13.1 13.1 12.3 Net debt/EBITDA 0.7 0.8 0.7 0.5 Free float (%) 68
Source: Company information, HSBC estimates Source: Company information, HSBC estimates
66 Equity Greece abc 13 January 2009
Company profile – at a glance 2008, due to heavy stocking for new store rollouts at the time). Jumbo, set up in 1986, is Greece’s largest specialty mass-market retailer of toys (accounted for 32% of With net debt/EBITDA standing at 0.8x in 2009e total sales in fiscal 2008a), baby apparel (21%), and 0.7x in 2010e (vs. 0.7x in 2008a), gearing books (11%), and home/seasonal products (36%), should remain at low levels. All in all, we believe with a network of 44 outlets (41 in Greece, two in Jumbo has a healthy balance sheet, with ample Cyprus and one in Bulgaria), and an average selling liquidity (having already secured a EUR145m space of c5,400 sq m per store. bond loan at a particularly low interest rate) and no funding risks. The Greek retail sector is undergoing consolidation – large players are growing at the Forecast revisions/Economic expense of small stores, which are gradually being performance forced out. The domestic toy market is highly With the Greek economy slowing down in 2H08, seasonal, generating 60% of sales in just three while consumer confidence takes a hit from a occasions: Christmas (40%), Easter (10%) and the deepening crisis and a credit crunch, we now follow September – back-to-school season (10%). a more conservative line regarding Jumbo’s outlook.
Until recently, the company’s focal point was toys As a result, we lower our group EPS forecasts by 6% and baby apparel. However, over the past four years, for fiscal 2009e to EUR0.76 (up 13% y-o-y) and 7% Jumbo has been rapidly expanding its product for 2010e and EUR0.87 (up 13% y-o-y). We slightly portfolio, offering new lines outside the toy range. cut our group sales estimates by 1% to EUR468m Minimal exposure in Bulgaria (up 16% y-o-y) for 2009e, and 2% to EUR529m (up with no FX risk 13%) for 2010e. We have assumed cautious LFL sales growth of 7.1% for 2009e and 6.6% for 2010e Jumbo has a limited exposure to emerging (on continued product enrichment and powerful markets, namely only in Bulgaria. For fiscal brand equity), compared with 13.5% in 1Q09 and 2009e and 2010e, we forecast Bulgarian 10.9% in 2008a. Overall, we now forecast fiscal operations to represent 2-3% of total group sales 2008-11e group EPS CAGR of 13% (vs. 16% and 3% of net earnings. Since the Bulgarian Lev previously), driven by continued market share gains. is pegged to the EUR, Jumbo faces no FX risk. HSBC vs. consensus Funding risks/Liquidity issues Our fiscal 2009e and 2010e group EPS forecasts On our estimates, capex should remain high over rest 3% and 5% above consensus (Factset), the next 2 years, mirroring the rapid organic standing 2% and 3% lower vs. Jumbo’s guidance. growth home and abroad. We expect capex to Catalysts amount to EUR60m in fiscal 2009e, falling to EUR51m in fiscal 2010e (vs. EUR52m in 2008a). As we have argued all along, we believe that the two key catalysts behind Jumbo’s strong earnings We forecast net debt to peak in fiscal 2009e to performance are: (a) its highly successful product EUR105m (vs. EUR88m in 2008a), remaining mix shift towards the fast moving, lucrative stable the following year, before assuming a home/seasonal products, away from toys, and (b) downtrend in fiscal 2011e (to EUR82m, on our strong organic growth in Greece and Bulgaria. forecasts), on strong free cash flow generation. We estimate FCF to reach EUR11m and EUR31m This continuous diversification should boost in fiscal 2009e and fiscal 2010e (vs. EUR1m in home/seasonal product sales to EUR184m (up 26% y-o-y) in fiscal 2009e and to EUR221m (up 20% y-
67 Equity Greece abc 13 January 2009
o-y) in fiscal 2010e from EUR145m in 2008. On cash flows are modelled on a semi-explicit basis for our estimates, this highly profitable segment should a 10-year period to 2021e, followed by a 5-year account for 39% and 42% of 2009e and 2010e total fade period. We use a risk-free rate of 6.1% (from group sales, respectively, compared with 36% in 5.3% previously), an equity-risk premium of 5.6% 2008. In this way, on top of further expanding its (from 4.8%), and a sector asset beta of 1.00. As a client base, Jumbo reduces the seasonality result, Jumbo’s COE is set at 11.7% (from 10.1%). associated with its toys range. We now use a 10.5% COE for Greek and Cypriot Moving to the second catalyst, Jumbo plans to operations (from 9.5%) and 16.5% for Bulgaria further expand its retail network, both in Athens (from 12.5%) Our DCF now returns a fair value of and the Greek provinces. In our model, we have EUR8.24, down from EUR11.25. Next, we now pencilled in seven new store rollouts by end-fiscal introduce a 15% discount, to account for rising 2011e. Specifically, we factor in two new uncertainties over consumer spending in Greece metropolitan hyperstores in Athens and two store and potential execution pitfalls in store rollouts. additions in the Greek province (Preveza and Thus, we arrive at our final TP of EUR7.0, Larissa) over the next two years. We also allow mirroring also mild (6-7%) cuts to our 2009e-10e for one new store opening in Cyprus and another EPS forecasts. As the c45%potential return (from two in Bulgaria (both in Sofia). Overall, we the 5 January price of EUR4.82) implied by our expect Jumbo to count 51 stores by June 2011e. new TP for Jumbo shares exceeds the 18.5% threshold for volatile European stocks, we reiterate On December 3, 2008, Mr. Vakakis (Chairman- our OW rating, adding a volatility indicator, based CEO) stated that Jumbo’s business plan calls for the on recent stock price moves. opening of 12 new stores in Bulgaria over the next eight years. Clearly, given Jumbo’s cautious and Having lost 65% in 2008 (in what we see as clear conservative profile, the actual figure (12 outlets) exaggeration) Jumbo appears compellingly priced in confirms Jumbo’s commitment to expanding our view, now trading at 6.3x 2009e EPS. On 2009e- abroad, highlighting Bulgaria’s strong growth 10e PE multiples, Jumbo trades at a 52% discount to potential. We believe Jumbo is well placed to HSBC Specialty Retail Sector (i.e. Douglas, HMV, migrate its successful business model to Fielmann, H&M etc). This is not justified in our neighbouring Bulgaria, capitalising on its know- view, given that Jumbo offers at the same time a how and expertise built in the Greek market. The stronger EPS growth outlook and a higher ROE. key arguments supporting our view are: (a) Jumbo’s low-ticket product range, with an average product Risks to our rating price of less than EUR5; and (b) its strong track Downside risks, we believe, include: (a) a record of optimising its product offering. In reduction in disposable income in any of the addition, Jumbo stands to benefit from the absence countries of operation (b) delays in the execution of an organised retail toy chain in Bulgaria. of new store rollouts, (c) declining LFL sales Meanwhile, the release of strong 2Q09 results, on growth and a gross margin erosion (beyond what resilient gross margins (including the all- we have already built into our model) on rising important Xmas season) in late February could competition, (d) a significant appreciation in the lead to a significant re-rating. Chinese currency (which could hit gross margins Valuation & rating since 80% of products come from China), and (e) unfavourable domestic demographics denting toy We continue to value Jumbo using a 3-stage DCF. and baby apparel segment growth outlook. We use explicit forecasts to 2011e, after which
68 Equity Greece abc 13 January 2009
Financials & valuation: Jumbo Overweight (V)
Financial statements Key forecast drivers (EURm) Year to 6/2008a 6/2009e 6/2010e 6/2011e Year to 6/2008a 6/2009e 6/2010e 62011e Profit & loss summary (EURm) Jumbo stores in greater Athens area 18 20 21 22 Jumbo stores in rest of Greece 20 21 22 23 Revenue 404.0 467.7 529.5 597.4 Jumbo stores in Cyprus 2 2 3 3 EBITDA 125.8 139.7 154.9 169.4 Jumbo stores in Bulgaria 1 1 2 3 Depreciation & amortisation (9.7) (10.8) (11.8) (12.7) Total Jumbo stores network 41 44 48 51 Operating profit/EBIT 116.1 128.9 143.2 156.7 Group L-F-L sales growth (%) 10.9 7.1 6.6 6.3 Net interest (5.9) (6.7) (6.5) (5.4) PBT 110.2 122.3 136.6 151.2 HSBC PBT 110.2 122.3 136.6 151.2 Sensitivity and valuation range (EUR/share) before applying a 15% discount Taxation 28.2 29.5 31.8 33.4 Net profit 82.0 92.7 104.9 117.8 COE vs years of fade 1 5 9 HSBC net profit 82.0 92.7 104.9 117.8 10.7% 9.17 9.39 9.60 Cash flow summary (EURm) 11.2% 8.59 8.79 8.97 11.7% 8.07 8.24 8.40 Cash flow from operations 48.1 71.3 81.9 104.4 12.2% 7.59 7.74 7.88 Capex (52.1) (60.3) (50.9) (44.6) 12.7% 7.15 7.29 7.41 Cash flow from investment (47.0) (60.3) (50.9) (44.6)
Dividends 24.2 27.3 31.5 36.4 Change in net debt 21.9 16.7 0.6 (23.4) Valuation data FCF equity 1.1 11.1 30.9 59.7 Year to 6/2008a 6/2009e 6/2010e 6/2011e Balance sheet summary (EURm) EV/sales 1.7 1.5 1.3 1.1 Intangible fixed assets 0.0 0.0 0.0 0.0 EV/EBITDA 5.3 4.9 4.5 3.9 Tangible fixed assets 302.5 362.6 413.4 457.9 Current assets 275.8 303.9 343.3 376.3 EV/IC 1.7 1.5 1.3 1.1 Cash & others 30.5 15.5 9.8 3.0 PE* 7.1 6.3 5.6 5.0 P/NAV 2.1 1.7 1.4 1.2 Total assets 524.8 602.4 680.9 745.9 FCF yield (%) 0.2 1.9 5.3 10.2 Operating liabilities 115.4 126.3 136.6 150.2 Gross debt 124.8 126.6 121.4 91.3 Dividend yield (%) 4.1 4.7 5.4 6.2 Net debt 88.2 104.9 105.5 82.2 Note: * = Based on HSBC EPS (fully diluted) Shareholders funds 284.6 349.6 423.0 504.4 Invested capital 390.4 465.7 533.4 585.8 Issuer information Share price (EUR) 4.82 Target price (EUR) 7.00 Potent'l tot rtn (%) 45.2 Ratio, growth and per share analysis Reuters (Equity) BABr.AT Bloomberg (Equity) BELA GA Year to 6/2008a 6/2009e 6/2010e 6/2011e Market cap (USDm) 814.9 Market cap (EURm) 584.4 Free float (%) 68 Enterprise value (EURm) 689.3 Y-o-y % change Country Greece Sector Specialty Retail Analyst Spiros Tsangalakis Contact +30 210 6965 212 Revenue 17.9 15.8 13.2 12.8 EBITDA 19.2 11.0 10.9 9.3 Operating profit 20.0 11.0 11.0 9.4 Price relative PBT 20.1 10.9 11.8 10.7 HSBC EPS 20.8 13.1 13.1 12.3 14 14 12 12 Ratios (%) 10 10 Revenue/IC (x) 1.0 1.0 1.0 1.0 ROIC 22.5 21.3 21.0 20.6 8 8 ROE 32.4 29.2 27.2 25.4 6 6 ROA 17.1 16.5 16.4 16.6 EBITDA margin 31.1 29.9 29.3 28.4 4 4 Operating profit margin 28.7 27.6 27.0 26.2 2 2 EBITDA/net interest (x) 21.4 21.0 23.8 31.2 D-06 F-07 A-07 J-07 A-07 O-07 D-07 F-08 A-08 J-08 A-08 O-08 D-08 Net debt/equity 31.0 30.0 25.0 16.3 Jumbo Rel to ASE General Index Net debt/EBITDA (x) 0.7 0.8 0.7 0.5 Source: HSBC CF from operations/net debt 93.2 102.4 113.9 174.4
Per share data (EUR) Note: price at close of 5 January 2009 Stated accounts as of 31 Dec 2004 are IFRS compliant EPS Rep (fully diluted) 0.68 0.76 0.87 0.97 HSBC EPS (fully diluted) 0.68 0.76 0.87 0.97 DPS 0.20 0.23 0.26 0.30 NAV 2.35 2.88 3.49 4.16
69 Equity Greece abc 13 January 2009
Terna Energy
Strong market position in Greece, which has among the most favourable regulatory regimes and best wind resources in the world No exposure to credit freeze: TE has secured project finance for all 2009e-10e projects We have an Overweight (V) rating, with TP of EUR5.0 per share
Investment case supply of 265MW in wind turbines, to be delivered Yiannis Sinapis * Analyst during 2009, which covers c85% of its needs for Terna Energy (TE), 47% owned by GEK, is a HSBC Pantelakis Securities S.A. 2010e. Unlike most of its peers, the company also + 30 210 6965 215 leading domestic wind farm developer with [email protected] enjoys a net cash position of EUR165m as of 142MW of installed capacity. TE currently *Employed by a non-US affiliate of 9M2008. All in all, we expect 2007-10e CAGRs of HSBC Securities (USA) Inc, and is operates solely in Greece, one of the most attractive 24% and 28% for TE’s sales and EPS, respectively. not registered/ qualified pursuant to wind markets in Europe from both a regulatory and NYSE and/ or NASD regulations wind resource standpoint. Greek law provides At the 5 January level of EUR3.86, we estimate strong financial incentives, in the form of feed-in that TE trades broadly at par with the fair value of tariffs and long-term (20-year) Power Purchase its active (operating plus construction) assets; Agreements (PPA), which guarantee off-take. In future wind industry growth is therefore not fully addition, state subsidies amounting to c30% of total priced in at these levels. Furthermore, we believe capex are available and improve the IRRs on the stock has some downside protection, since the projects to c23% for wind parks and c18% for return on wind farm assets is fairly predictable. hydro plants, on our estimates. We have an Overweight (V) rating on TE with TP of EUR5/share (30% potential upside), based on a Although there is uncertainty prevailing in the SOTP, in which we assume that TE installs 54% global wind sector for 2009 due to weak project (625MW) of its targeted 1.2GW capacity (central finance markets, TE is relatively immune to the case) for Greece. expected industry downturn, since it has secured enough financing to support all its new 2009e-10e installation plans. In addition, TE has secured the
Financial summary (EURm) Valuation summary (x) Key data
Year to 12/2007a 12/2008e 12/2009e 12/2010e Year to 12/2007a 12/2008e 12/2009e 12/2010e RIC TENr.AT Revenue 60.2 74.0 77.5 114.4 Dividend yield (%) 4.4 2.0 2.0 3.2 Bloomberg TENERGY GA EBITDA 25.2 28.8 37.5 73.0 EV/EBITDA 9.3 9.0 10.0 6.1 Rating Overweight (V) EBIT margin (%) 34.2 32.0 40.4 49.2 EV/Sales 3.9 3.5 4.9 3.9 Share (EUR) 3.86 HSBC net profit 14.6 23.9 24.3 39.1 HSBC PE 22.9 17.6 17.4 10.8 Target (EUR) 5.00 HSBC EPS (EUR) 0.17 0.22 0.22 0.36 ROIC (%) 22.9 11.4 9.7 12.0 Market cap (EURm) 422 HSBC EPS growth (%) 87.0 29.5 1.6 60.9 Net debt/EBITDA (7.4) (5.7) (1.2) 0.3 Free float (%) 26
Source: Company information, HSBC estimates Source: Company information, HSBC estimates
70 Equity Greece abc 13 January 2009
Company profile – at a glance financing needs for the supply of turbines until 2010e. Moreover, as of September 2008, TE had a TE is a renewable energy power generation net cash position of EUR165m, largely due to the company. Its main business is the development, EUR300m IPO back in November 2007. ownership and operation of wind farms. It operates Additionally, as already mentioned, state a pure “build to keep” model, which means it keeps subsidies of 30% (30% equity, project finance all wind farms that it develops, rather than selling 40%) also partly alleviate future project funding some of them. This is the optimum business model concerns. Hence, in our view, TE has ample for a wind farm developer in our view, since TE liquidity/funding to finance its aggressive maximises NPV on its projects. business plan. Based on our estimates, TE will As one of the first entrants in the Greek RES turn to a net debt position of EUR25m in 2010e generation market, TE has been able to secure (0.3x EBITDA). some of the most favourable sites in Greece, in Economic performance: strong terms of wind power potential, with an average sales and earnings visibility load factor of c30%. With 142MW of installed MW in wind parks, TE is currently the second- Overall, in our view, Greece’s favourable largest producer of electricity from RES in Greece, regulatory regime and TE’s strong market with a 16% market share, behind the sector leader positioning significantly enhance TE’s sales and Iberdrola/Rokas (210MW installed in wind parks – earnings visibility and propel growth. On our 24% of the market). forecasts, TE will record 2007-10e CAGRs for Clear strategy & aggressive sales, EBITDA and EPS of 24%, 43% and 28%, targets respectively, driven by new capacity additions. Erring on the conservative side, we expect TE to TE is pursuing a clear strategy, namely a profitable have 367MW of installed capacity in wind parks by growth model focused on wind energy. TE has set end-2009e compared to TE’s target of 450MW. a target of becoming the number one RES player What’s the market pricing in? in Greece. The company aims at 1.2GW of installed capacity in renewables by the end of We believe that the market undervalues TE, since 2012, of which 1GW will be in wind parks, the stock currently trades at EUR3.86, which is 150MW in hydro plants, 30MW in biomass and broadly at par with the fair value of TE’s installed 20MW in solar. Finally, TE is exploring capacity in wind parks and construction assets, opportunities to expand its renewables business in which we calculate at EUR3.52 per share. Hence, the Balkans (Bulgaria and Romania), Asia (China) the downside from current levels is reasonably and South America (Brazil), aiming at 400MW of protected in our view, since the return on wind installed capacity in wind parks by end-2012. farm assets is fairly predictable: the revenue Immunity from credit freeze; stream is determined largely from state incentivised feed-in tariffs (adjusted upwards pa), No liquidity issues PPAs over the life of the wind farm of (10+10 Despite the gloomy economic environment, which years with the producer holding the renewal has put on the brakes in project financing for wind option) and wind conditions, which can be farms, TE has managed to secure a cEUR170m predicted within reasonable error bounds. credit facility, which we believe will cover all its
71 Equity Greece abc 13 January 2009
Catalysts January price of EUR3.86). We have an Overweight (V) rating on TE. Overall, we believe that TE is the In our view, TE’s key future potential catalyst is best way to play the strong growth momentum in the the expansion of its wind park operations abroad. attractive renewables sector in Greece. Moreover, higher than expected installation rates in wind parks would positively affect TE’s TE trades at 16x 2009e recurring earnings, which is financials and valuation. We are currently adopting a c36% discount to the large utility developers a conservative stance on new installations, (average PE of 25x for 2009e). That said, peer pencilling in just 54% of TE’s 2012 target. comparisons amongst developers are difficult due Valuation & rating to size gap between the large utility spin-offs (Iberdrola Renovables, EDP Renovaveis, and EDF In arriving at our target price for TE we take the Energies Nouvelles) and the remaining smaller average of two SOTP-based valuation wind farm developers. methodologies: (a) a “near-term” SOTP method, which assumes zero value for the company’s Risks to our rating pipeline, and (b) a basic SOTP method, which Although the new RES law in Greece provides includes a value for the company’s pipeline, financial incentives and reduces the red tape in discounted for the timing of future new installations the licensing process, TE may still encounter but assuming no new installations beyond the delays in the execution of its business plan, probability-weighted size of the pipeline. Finally, we calling for 450MW and 1GW of newly have assigned zero value on the group’s pipeline in installed capacity in wind parks by end-2009 solar and biomass on low visibility. and end-2012, respectively, in Greece
In our base case valuation, construction (i.e. The wind resource at the company’s sites may development of wind parks for third parties) valued not be as good as previously thought. In our at 4.5x 2008e EBIT accounts for 11% of total estimates for TE, we have assumed that wind appraised EV, and RES for 89%. parks will operate at an average load factor of 29%. Our forecasts and rating are sensitive to To summarise, our base-case SOTP model, which this assumption. assumes 625MW of installed capacity in RES in 2012, or 54% of TE’s aggressive target of 1.2GW for Greece, returns a target price of EUR5 per share, which implies 30% potential total return (from the 5
TE SOTP summary valuation table ______Bear case ______Base case ______Bull case ______Business segments/Subsidiaries TE target HSBCe % of TE EV (EURm) HSBCe % of TE EV (EURm) HSBCe % of TE EV (EURm) (MW) (MW) target (MW) target (MW) target -RES total of which: 1,150 314 27% 279.1 625 54% 341.6 1,051 91% 424.4 -Wind parks 1,000 299 30% 246.2 600 60% 306.0 1,000 100% 382.9 -Hydroelectric plants 150 15 10% 32.9 25 17% 35.6 51 34% 41.5 -Construction 42.8 42.8 42.8 Target EV for TE business segments 321.8 384.4 467.1 - Net cash in 2008e 163.8 163.8 163.8 Target group market capitalisation 485.7 548.2 631.0 Value per share 4.4 5.0 5.8 Potential total return 15% 30% 50%
Source: Company data, HSBC estimates
72 Equity Greece abc 13 January 2009
Financials & valuation: Terna Energy Overweight (V)
Financial statements Valuation data Year to 12/2007a 12/2008e 12/2009e 12/2010e Year to 12/2007a 12/2008e 12/2009e 12/2010e Profit & loss summary (EURm) EV/sales 3.9 3.5 4.9 3.9 EV/EBITDA 9.3 9.0 10.0 6.1 Revenue 60.2 74.0 77.5 114.4 EV/IC 1.7 1.5 1.2 1.1 EBITDA 25.2 28.8 37.5 73.0 PE* 22.9 17.6 17.4 10.8 Depreciation & amortisation (4.7) (5.1) (6.2) (16.7) P/NAV 1.2 1.2 1.1 1.0 Operating profit/EBIT 20.6 23.7 31.3 56.2 FCF yield (%) (12.3) (10.2) (41.2) (13.6) Net interest (1.7) 8.2 1.1 (4.8) Dividend yield (%) 4.4 2.0 2.0 3.2 PBT 18.9 31.9 32.4 51.5 HSBC PBT 18.9 31.9 32.4 51.5 Note: * = Based on HSBC EPS (fully diluted) Taxation (4.6) (8.0) (8.1) (12.3) Net profit 14.6 23.9 24.3 39.1 HSBC net profit 14.6 23.9 24.3 39.1 Issuer information Cash flow summary (EURm) Share price (EUR) 3.86 Target price (EUR) 5.00 Potent'l tot rtn (%) 30 Reuters (Equity) TENr.AT Bloomberg (Equity) TENERGY GA Cash flow from operations 16.5 14.0 21.3 50.3 Market cap (USDm) 584 Market cap (EURm) 422 Capex (51.5) (57.1) (195.3) (107.8) Free float (%) 26 Enterprise value (EURm) 377 Cash flow from investment (68.5) (57.1) (195.3) (107.8) Country Greece Sector Alternative Energy Dividends 18.5 8.4 8.5 13.7 Analyst Yiannis Sinapis Contact +30 210 6965 215 Change in net debt 187.0 (23.1) (118.5) (70.1) FCF equity (52.0) (43.1) (173.9) (57.5) Price relative Balance sheet summary (EURm) 13 13 Intangible fixed assets 0.0 0.0 0.0 0.0 11 11 Tangible fixed assets 163.4 215.4 404.5 495.5 Current assets 37.3 39.5 52.9 93.9 9 9 Cash & others 322.1 311.2 199.1 169.4 7 7 Total assets 522.8 566.0 656.5 758.9 Operating liabilities 64.6 80.0 148.2 184.7 5 5 Gross debt 108.2 120.3 126.8 167.2 3 3 Net debt (187.0) (163.9) (45.4) 24.7 1 1 Shareholders funds 348.7 364.2 380.0 405.4 2007 2008 2009 2010 Invested capital 136.1 174.8 309.2 404.7 Terna Energy SA Rel to ATHENS SE
Source: HSBC Ratio, growth and per share analysis
Year to 12/2007a 12/2008e 12/2009e 12/2010e Note: price at close of 5 January 2009 Stated accounts as of 31 Dec 2004 are IFRS compliant Y-o-y % change Revenue 44.5 22.9 4.7 47.7 EBITDA 51.9 14.2 30.1 94.7 Operating profit 60.9 15.1 32.2 79.6 PBT 100.3 68.7 1.6 58.8 HSBC EPS 87.0 29.5 1.6 60.9 Ratios (%) Revenue/IC (x) 0.9 0.5 0.3 0.3 ROIC 22.9 11.4 9.7 12.0 ROE 8.4 6.7 6.5 10.0 ROA 6.7 5.3 5.0 6.6 EBITDA margin 41.9 38.9 48.4 63.8 Operating profit margin 34.2 32.0 40.4 49.2 EBITDA/net interest (x) 15.1 (3.5) (34.2) 15.3 Net debt/equity (53.6) (45.0) (11.9) 6.1 Net debt/EBITDA (x) (7.4) (5.7) (1.2) 0.3 CF from operations/net debt (8.8) (8.5) (47.0) 203.7 Per share data (EUR) EPS Rep (fully diluted) 0.17 0.22 0.22 0.36 HSBC EPS (fully diluted) 0.17 0.22 0.22 0.36 DPS 0.17 0.08 0.08 0.13 NAV 3.2 3.3 3.5 3.7
73 Equity Greece abc 13 January 2009
Metka
Macro immunity (self-help) idea in a volatile world plus debt-free balance sheet and high dividend yield Record-high backlog (3.7x 2008e sales) and positive outlook point to strong but, more importantly, relatively solid earnings growth (25% 2007-10e EPS CAGR) We have an O/W (V) rating with EUR11.8 target price (75% potential return); potential capital return in 2009 is a key catalyst
Investment case 2008e sales), which, in our view, highlights Vangelis Karanikas * Analyst Metka’s high earnings visibility. Bear in mind, In our view, Metka is a promising vehicle with HSBC Pantelakis Securities S.A. however, that due to the very nature of the EPC + 30 210 6965 211 which to play the upcoming large expansion in [email protected] (engineering-procurement-construction) business, Greece’s electricity generation capacity, while its *Employed by a non-US affiliate of inherent delays in certain phases of a project may HSBC Securities (USA) Inc, and is international presence is growing constantly. lead to variations in the amount billed during a not registered/ qualified pursuant to Metka’s business model therefore currently seems NYSE and/ or NASD regulations specific timeframe (i.e. over a year, quarter, etc). relatively immune to concerns over interest rates, slowing global economic growth, inflation and oil Our positive view on Metka is based on: (a) our prices. Metka also has a strong debt-free balance confidence that it will be a key beneficiary of the sheet and offers a DY of above 9% (1.4x cover). large expansion in Greece’s electricity generation capacity, given its excellent track record and Based on our estimates, we expect both 2008 and expertise, (b) Endesa Hellas’ stated strategic focus 2009 to be strong years (EPS up 27% and 41% y- on energy, which should provide a steady flow of o-y, respectively), but we now expect 2010 to be business in the medium term, and (c) its growing solid as well (EPS up 10% y-o-y). More than two- international presence, which we expect to thirds of our 2009e-10e sales forecasts are secured contribute materially to financials post-2008. by Metka’s current backlog (cEUR1.5bn, or 3.7x
Financial summary (EURm) Valuation summary (x) Key data
Year to 12/2007a 12/2008e 12/2009e 12/2010e Year to 12/2007a 12/2008e 12/2009e 12/2010e RIC MTKr.AT Revenue 284.2 395.5 569.6 657.6 Dividend yield (%) 7.4 9.3 13.1 14.8 Bloomberg METTK GA EBITDA 57.2 73.7 95.5 103.2 EV/EBITDA 5.9 4.5 3.4 3.1 Rating Overweight (V) EBIT margin (%) 18.4 17.3 15.9 14.9 EV/Sales 1.2 0.8 0.6 0.5 Share (EUR) 6.74 HSBC net profit 36.8 46.6 65.9 72.8 HSBC PE 9.5 7.5 5.3 4.8 Target (EUR) 11.80 HSBC EPS (EUR) 0.71 0.90 1.27 1.40 ROIC (%) 32.6 38.9 46.8 46.3 Market cap (EURm) 350 HSBC EPS growth (%) (9.4) 26.6 41.5 10.5 Net debt/EBITDA -0.2 -0.2 -0.2 -0.3 Free float (%) 44
Source: Company information, HSBC estimates Source: Company information, HSBC estimates
74 Equity Greece abc 13 January 2009
Company profile – at a glance full-year 2008 dividend of EUR0.63 (up 26% y-o-y), which implies a DY of 9.3% at current prices. Metka, 56%-owned by Mytilineos Group (MG), is involved mainly in the EPC of power plants, while it For 2009, we prefer to err on the conservative side is also present in the defence (co-production of and account for execution delays in certain defence systems in co-operation with foreign projects; that said we still expect EPS to jump manufacturers) and infrastructure (manufacturing of 41% to EUR1.27 on sales growth of 44% y-o-y to heavy steel constructions and integrated EUR570m, with 85% of our sales estimate electromechanical equipment) sectors. secured by the current order backlog. We think our 2009 estimates may even prove conservative Macro immunity business given the plethora of projects in the backlog. Bear model in mind, however, that due to the very nature of Metka’s project pipeline, and hence financial the EPC business, it is becoming an increasingly performance, will largely depend on investment in difficult exercise to try to forecast the amount of new plants by Endesa Hellas (EH, MG’s JV with revenues that an EPC company will generate the Spanish Endesa in the domestic electricity within a specific timeframe (i.e. over one year, production sector), the domestic electricity quarter, etc), let alone margins (as margins may incumbent PPC, and the independent power vary depending on the various works, i.e. producers, which we believe will have to be made engineering, procurement, erection, etc). due to Greece’s low electricity reserve margin. HSBC vs. consensus Moreover, Metka has recently won a decent Our 2008e forecasts stand broadly in line with number of large projects outside Greece. Metka’s consensus (Factset median estimates). However, in business model therefore seems to have been 2009 our estimates lie above consensus by a good relatively immune so far to concerns over interest margin (8-12%). MG’s CEO Mr Mytilineos said rates, slowing global economic growth, inflation during the nine-month results conference call that and oil prices. management would issue new 2009 guidance Debt-free balance sheet and ‘soon’ (Metka’s previous guidance called for sales high dividend yield of EUR500-600m and EBITDA of EUR82-100m). In our view, Metka has a strong debt-free balance Catalysts sheet and offers a dividend yield of 9-15% (1.4x Metka’s key catalysts, in our view, are a potential covered). We believe that Metka could afford to capital return of at least EUR1/share (15% yield at distribute a special dividend (capital return) of at current prices) and potential new project awards least EUR1 per share (15% yield) some time in outside Greece (i.e. Turkey).We also see two 2009, due to its strong cash flow generation potential pockets of value that could lead us to capacity and absence of large capex requirements. increase our target price for the stock by a Economic performance probability-adjusted EUR1.0 per share. These Metka won two projects in 2008, one for EUR650m include the construction of EH’s 600MW coal- in Syria (in a JV with Ansaldo) and one for fired and 330MW lignite-fired power plants. EUR285m in Greece. We expect 2008e sales, EBITDA and net profits to grow by 39%, 29% and 27% y-o-y to EUR396m, EUR74m and EUR47m, respectively. We also expect Metka to distribute a
75 Equity Greece abc 13 January 2009
Valuation & rating Finally, Metka’s relative valuation seems In addition to our primary DCF model (assuming a reasonable. Metka currently trades at a discount WACC of 10% and long-term growth rate of 2%), on 2008e-10e PE and EV/EBITDA, while which we give 60% weight, we also use a P/E- offering a significantly higher dividend yield and based valuation which we give 40% weight. The a stronger growth outlook (2007-10e EPS CAGR P/E-based valuation accounts for unprecedented of 25.5% versus 4.3% for peers). Note that volatility as well as the current financial crisis. Our Metka’s average 2008e-10e EBITDA margin of methodology produces a target price of 17.0% is considerably higher than the peer EUR11.8/share, which implies 75% potential return group’s average of 11.0%. from the 5 January price of EUR6.74. We have an Risks to our rating Overweight (V) rating on Metka. The key negative risks to our forecasts and rating Target price sensitivity on LT sales and EBITDA margin (EUR/sh) are weaker-than-anticipated margins, delays in the 2011-20e average sales (EURm) implementation of EH’s investment programme, 639 668 700 733 768 ineffective cost control and human resources 12.0% 10.3 10.5 10.7 10.8 11.0 capacity constraints (i.e., a failure to secure an Long-term 13.0% 10.8 11.0 11.2 11.5 11.7 EBITDA % 14.0% 11.3 11.5 11.8 12.1 12.3 adequate amount of skilled engineers). The latter after mgt fees 15.0% 11.8 12.1 12.4 12.7 13.0 could result in Metka turning down potential new 16.0% 12.3 12.6 12.9 13.3 13.6 projects, especially outside Greece. Note: DCF-driven fair value accounts for 60% of target price; the remaining 40% stems from target valuation multiples Source: HSBC estimates Other negative risks include a below 33% success rate in PPC’s future plant recycling programme,
possible delays in investments by PPC and IPPs, and reductions in government defence spending.
Metka’s current order book and future potential pipeline Project MW Budget (EURm) Project status Existing orderbook of EPC projects Pakistan OCGT plant (Pakistan) 220 110 Already under construction, delivered in 2008 EH 2nd CCGT plant (St. Nicholas, Greece) 430 235 Already under construction, delivered in Q3 2009 PPC Aliveri CCGT plant (Greece) 417 219 Already under construction, delivered by mid-2010 OMV CCGT plant (Romania) 850 210 Already under construction, project delivered in late-2010 EH 3rd CCGT plant (Volos, Greece) 445 280 Construction to begin in 2009, project delivered in early 2011 PEEGT CCGT plant (Syria) 700 650 Construction to begin in 2009, delivery in 36 months EH-MOH CCGT plant (Korinthos, Greece) 395 285 Construction to begin in Jan 2009, delivery April 2011 Total existing order book of EPC projects 3,457 1,989 Potential future pipeline of EPC projects EON CCGT plant (Turkey) 860 550 Construction to begin in 2009, subject to licence by Turkish authorities PPC replacement plant -CCGT (Megalopolis, Greece) 800 570 Tender was launched on 25 November 2008 Nuon CCGT plant (Germany) 440 280 Preferred bidder to be announced in Q1 2009 EAOC CCGT plant (Cyprus) 440 250 Tender launched in September 2008, outcome due in Q1 2009 EH 4th CCGT plant (Greece) 450 280 Final award by EH expected in 2009 EH coal-fired plant (Greece) 600 890 Subject to licence by Development ministry EH-HT Vevi lignite-fired plant (Greece) 330 550 Subject to win tender for lignite mine PPC replacement plant -lignite (Florina, Greece) 450 600 Tender to be launched in 2009 PPC replacement plant -lignite (Ptolemaida, Greece) 450 600 Tender to be launched in 2010 Total potential future pipeline 4,820 4,570 Grand Total 8,277 6,559
Source: Company data, HSBC estimates
76 Equity Greece abc 13 January 2009
Financials & valuation: Metka Overweight (V)
Financial statements (IFRS) Key forecast drivers Year to 12/2007a 12/2008e 12/2009e 12/2010e Year to 12/2007a 12/2008e 12/2009e 12/2010e Profit & loss summary (EURm) Sales secured by backlog 248.8 350.5 475.7 448.9 Sales from new projects 0.0 0.0 44.4 158.7 Revenue 284.2 395.5 569.6 657.6 Subsidiaries’ net contribution 35.4 45.0 49.5 50.0 EBITDA 57.2 73.7 95.5 103.2 Total group sales 284.2 395.5 569.6 657.6 Depreciation & amortisation (5.0) (5.2) (5.2) (5.1) of which foreign 86.8 33.2 175.1 284.6 Operating profit/EBIT 52.2 68.5 90.3 98.1 EBITDA margin ex-mgt fees 21.6% 20.6% 19.3% 18.7% Net interest (1.9) (2.7) 0.1 0.7
PBT 50.5 65.8 90.4 98.8 HSBC PBT 50.5 65.8 90.4 98.8 Taxation (13.2) (17.3) (23.5) (25.0) Sensitivity and valuation range (EUR/share) Net profit 36.8 46.6 65.9 72.8 Long-term growth vs. WACC 8.9% 10.0% 10.9% HSBC net profit 36.8 46.6 65.9 72.8 1.0% 11.8 11.4 10.6 Cash flow summary (EURm) 1.5% 12.1 11.6 10.7 Cash flow from operations 20.0 29.4 43.8 56.5 2.0% 12.3 11.8 10.9 Capex (9.3) (3.0) (4.0) (4.0) 2.5% 12.6 12.1 11.1 Cash flow from investment (8.8) (1.5) (3.3) (3.6) 3.0% 13.0 12.3 11.3 Dividends (26.0) (32.7) (45.7) (52.0) Change in net debt (6.3) (4.2) (5.8) (5.2) FCF equity 10.7 26.4 39.8 52.5 Valuation data Balance sheet summary (EURm) Year to 12/2007a 12/2008e 12/2009e 12/2010e Intangible fixed assets 11.9 11.9 11.9 11.9 EV/sales 1.2 0.8 0.6 0.5 Tangible fixed assets 68.4 66.2 65.0 63.9 EV/EBITDA 5.9 4.5 3.4 3.1 Current assets 239.8 228.9 271.6 298.7 EV/IC 2.7 2.5 2.2 1.9 Cash & others 31.1 17.0 22.8 27.9 PE* 9.5 7.5 5.3 4.8 Total assets 353.5 326.3 373.7 404.9 P/NAV 2.8 2.5 2.2 1.9 Operating liabilities 196.0 171.8 198.2 208.1 FCF yield (%) 3.1 7.5 11.4 15.0 Gross debt 18.3 0.0 0.0 0.0 Dividend yield (%) 7.4 9.3 13.1 14.8 Net debt (12.8) (17.0) (22.8) (27.9) Shareholders funds 127.1 140.9 161.2 182.0 Note: * = Based on HSBC EPS (fully diluted) Invested capital 124.1 135.3 150.4 166.5 Issuer information
Ratio, growth and per share analysis Share price (EUR) 6.74 Target price (EUR) 11.80 Potent'l tot rtn (%) 75.1 Year to 12/2007a 12/2008e 12/2009e 12/2010e Reuters (Equity) MTKr.AT Bloomberg (Equity) METTK GA Market cap (USDm) 485 Market cap (EURm) 350 Y-o-y % change Free float (%) 44 Enterprise value (EURm) 333 Country Greece Sector Machinery Revenue (3.4) 39.1 44.0 15.5 Analyst Vangelis Karanikas Contact +30 210 6965 211 EBITDA (6.0) 28.9 29.6 8.0 Operating profit (6.6) 31.3 31.9 8.6 Price relative PBT (8.0) 30.4 37.4 9.3 HSBC EPS (9.4) 26.6 41.5 10.5 21 21 19 19 Ratios (%) 17 17 Revenue/IC (x) 2.4 3.0 4.0 4.2 15 15 13 13 ROIC 32.6 38.9 46.8 46.3 11 11 ROE 30.9 34.8 43.6 42.4 9 9 ROA 13.4 15.0 19.2 19.0 7 7 EBITDA margin 20.1 18.6 16.8 15.7 5 5 Operating profit margin 18.4 17.3 15.9 14.9 3 3 EBITDA/net interest (x) 29.9 27.3 n/m n/m Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Net debt/equity (9.2) (11.0) (13.0) (14.2) Metka Rel to ATHENS SE Net debt/EBITDA (x) -0.2 -0.2 -0.2 -0.3 CF from operations/net debt -156 -173 -192 -202 Source: HSBC
Per share data (EUR) Note: price at close of 05 January 2009 Stated accounts as of 31 Dec 2004 are IFRS compliant EPS reported (fully diluted) 0.71 0.90 1.27 1.40 HSBC EPS (fully diluted) 0.71 0.90 1.27 1.40 DPS 0.50 0.63 0.88 1.00 NAV 2.45 2.71 3.10 3.50
77 Equity Greece abc 13 January 2009
Motor Oil Hellas
In our view, 2009 will be a challenging year for Motor Oil. High leverage to declining refining margins and deteriorating conversion economics result in a 2009e y-o-y ‘clean’ net profits retreat of 31% Our basic thesis calls for a cyclical bear market in refining margins. We expect 2009e Med-Urals cracking margin to decline to USD3.8/bbl (versus USD5.5/bbl in 2008e) We reiterate our Underweight rating and downgrade our TP to EUR7.3/share (vs. EUR7.6 previously) to reflect the current EUR/USD exchange rate.
Investment case Second, MOH’s high gearing (with net debt/equity George Katsanos * Analyst over 200% for 2009e), although posing no In our view, Motor Oil (and other major European HSBC Pantelakis Securities S.A. liquidity/solvency threat, will in our view become + 30 210 6965 302 refiners for that matter) will face a double- [email protected] another source of perceived risk for which whammy going into 2009. *Employed by a non-US affiliate of investors will expect to be compensated, leading to HSBC Securities (USA) Inc, and is First the company’s pure downstream nature, with not registered/ qualified pursuant to multiple contraction in the marketplace. NYSE and/ or NASD regulations c.95% of net profits coming from refining, leaves Finally, our UW rating on the stock is supported, earnings expectations (still high in our view, with in our view, by relative valuation considerations. median consensus 2009e EPS decline of 23%) With a c. 30% premium to average peer forward open to disappointment. Indeed, under our basic PE, MOH’s valuation appears rich and more than thesis of a cyclical bear market in refining margins prices-in a sector leading dividend yield. and deteriorating conversion economics, the company’s high operating leverage and lack of diversification to other segments of the energy chain results in a 31% y-o-y ‘clean’ EPS decline.
Financial summary (EURm) Valuation summary (x) Key data
Year to 12/2007a 12/2008e 12/2009e 12/2010e Year to 12/2007a 12/2008e 12/2009e 12/2010e RIC MORr.AT Revenue 4,070 5,335 3,362 4,546 Dividend yield (%) 15.4 15.4 10.5 15.6 Bloomberg MOH GA EBITDA 296 273 216 292 EV/’clean’ EBITDA 6.1 6.1 7.8 5.7 Rating Underweight ‘Clean’ EBITDA 257 263 211 287 EV/Sales 0.4 0.3 0.5 0.4 Share (EUR) 7.8 HSBC net profit 123 138 95 148 HSBC PE 7.0 6.3 9.1 5.8 Target (EUR) 7.3 HSBC EPS (EUR) 1.11 1.24 0.85 1.33 ROIC (%) 15.9 14.7 10.5 14.4 Market cap (EURm) 864 HSBC EPS growth (%) -22.7 11.6 -31.3 56.2 Net debt/EBITDA 2.4 2.7 3.6 2.7 Free float (%) 38
Source: Company information, HSBC Pantelakis Securities SA estimates Source: Company information, HSBC Pantelakis Securities SA estimates
78 Equity Greece abc 13 January 2009
Company profile – at a glance leaves the dividend open to significant cuts in 2009, commensurate with EPS declines. For 2009 Motor Oil (Hellas) operates the 114kbpd Aghi we forecast DPS to decline by 32% y-o-y to Theodori coastal refinery in Greece. With a Nelson EUR0.82. That said, even on our reduced Complexity Index of 11.95, the refinery is one of the estimates the stock still offers a 10.5% yield, most complex in Europe and the sole lubricants which is c.500bps above the yield of the 10 year producer in Greece. The company is also active in Greek sovereign bond, although significant the domestic oil marketing business, through its potential downside exists. wholly-owned subsidiary AVIN, operating a network of 560 retail gas stations. Motor Oil sensitivity matrix to MED-URALS cracking margins MED-URALS (USD/bbl) 2.8 3.30 3.80 4.30 4.80 Pure-downstream play in a vs. base case (%) -26% -13% 0% 13% 26% falling refining margin 'Clean' net income 64.6 79.6 94.6 109.6 124.6 'Clean' EPS (EUR) 0.58 0.72 0.85 0.99 1.13 environment vs base case (%) -32% -15% 0% 16% 33% HSBC P/E (x) 13.4 10.8 9.1 7.9 6.9 We believe that MOH’s high leverage to refining DPS (EUR) 0.57 0.69 0.82 0.94 1.07 Dividend yield (%) 7.3 8.9 10.5 12.1 13.7 margin assumptions, coupled with a lack of any Source: HSBC Pantelakis Securities estimates meaningful earnings diversification, bode ill for the earnings outlook of the company, at least for 2009. Liquidity/Financing issues Our main industry thesis calls for a cyclical bear market in refining margins, with the Med-Urals Motor Oil is one of the most financially geared cracking margin seen retreating by 31% y-o-y to names in the European downstream sector, with its net debt/equity ratio hovering around 200% since USD3.80/bbl, before rebounding to a long-term 2006 (in 2005 the company raised EUR250m to sustainable level of USD4.50/bbl by 2011. Under finance its hydrocracker investment, while the 9M this scenario, 2009 is shaping up to be a particularly 2008 figure stood at 210%). That notwithstanding, bad year for earnings, for which we forecast a 31% we believe that there exists no meaningful decline y-o-y. financing risk for the company. MOH has How sustainable is the committed credit lines (through evergreen contracts dividend? from around 15 leading financial institutions) in excess of EUR600m equivalent (at very attractive One of the key attractive features of MOH has spreads) while annual debt repayments amount to always been its high dividend yield (routinely EUR30m (on top of EUR370m of short term debt) around 7%), a key attractive feature for income with no imminent major refinancing needs. investors, in our view. That said, we believe there However, given an environment of deleveraging, exists some confusion among investors regarding tight credit and risk aversion, we believe that the MOH’s dividends. The company’s stated policy company’s high gearing will be perceived as an pertains to a stable and high dividend payout additional risk factor for which investors will be (under Greek law a percentage of the profits of the required to be compensated. On a ceteris paribus parent company). On the other hand, the company basis, this should lead to lower valuation multiples has made no promises regarding the actual in the marketplace. amount of dividends. While it has so happened that DPS has grown by a CAGR of 19% over the Economic performance last five years (a testament to shareholder value Contrary to popular market belief, just about a creation, in our view) the low dividend cover year ago, 2008 was not a bad year for refining (EPS/DPS ratio typically around 100-110%)
79 Equity Greece abc 13 January 2009
margins, with the Med-Urals (Reuters) cracking by 120bps to 9.20%. Further, we incorporate a margin up 3.6% y-o-y. Furthermore, for complex P/E-based valuation methodology based on what refineries at least, the record high middle distillate we believe is a fair (target) 10% premium to prices up until Q2 and heavy discounts of fuel oil peers. Our final valuation pillar comprises a to benchmark crudes created bullish conversion replacement cost exercise with a target economics boosting the performance of complex, USD2,000/EDC discounted by 60% consistent diesel-biased refineries with excess conversion with bottom of the cycle valuations. We update capacity, such as MOH. This resulted in earnings this metric to reflect the current EUR/USD rate. upgrades from the end of Q1 up until Q3, one of Motor Oil target price calculation the few sectors to experience such upgrades in a EUR/share dismal 2008. All in all, our forecasts call for Replacement cost 4.1 2008e ‘clean’ EPS of EUR1.24, up 12% y-o-y (vs. 7.5x P/E 6.4 EUR1.25 median Factset consensus). DCF model 11.5 Average 7.3 HSBC vs. consensus for 2009 Source: HSBC Pantelakis Securities estimates
Median (Factset) consensus estimates for MOH Our overall price target is based on a simple average have been coming down fast in recent weeks. of the three individual valuation approaches, While we had been 26% below consensus yielding a price target of EUR7.3/share (down from estimates in our December 9th report on Greek EUR7.6/share to account for the recent weakness of refiners, the market has caught up with the negative the USD). This offers a 6.4% negative potential refining fundamentals putting our EUR0.85 2009e return (from the 5 January price of EUR7.80), EPS estimate now just 12% below consensus. That consistent with an UW rating. said, we believe that the negative broker revision activity has yet to be completed. Risks to our rating
HSBC versus consensus estimates (‘clean’ 2009e EPS) The main risk common to all (European) refiners (both on the upside and downside) is a deviation 1.90 1.70 of the refining margin and EUR/USD exchange 1.50 rate assumptions from our base-case scenario. In 1.30 particular, refining margins could be above 1.10 0.90 (below) our base-case scenario, leading to upward 0.70 (downward) earnings and rating revisions. 0.50 Similarly a further strengthening (weakening) of the USD versus the EUR may also lead to upward 31/07/2007 30/04/2008 31/01/2007 30/04/2007 31/10/2007 31/01/2008 31/07/2008 31/10/2008 (downward) revisions. consenus HSBCe Source: Factset, HSBC Pantelakis Securities estimates Company-specific risks for MOH arise from the
single-asset nature of the company (Korinth Valuation & rating refinery), which in the event of an accident could We value Motor Oil using a DCF model with lead to significant production outages. The main explicit forecasts out to 2012, applying a zero upside risk could originate from better than terminal growth rate in perpetuity. In addition, to assumed conversion economics, which could lead account for an environment of higher-than-usual to earnings and rating upgrades. Currently, under volatility and conditions of increased business and our base case scenario, MOH’s configuration financial risk, we increase our WACC assumption uplift is estimated at USD1/bbl for 2009e.
80 Equity Greece abc 13 January 2009
Financials & valuation: Motor Oil Hellas Underweight
Financial statements (IFRS) Key forecast drivers Year to 12/2007a 12/2008e 12/2009e 12/2010e Year to 12/2007a 12/2008e 12/2009e 12/2010e Profit & loss summary (EURm) Oil price (Brent, FOB, USD/bbl) 72.5 98.0 50.0 65.0 Average EUR/USD 1.37 1.49 1.30 1.35 Revenue 4,070 5,335 3,362 4,546 MOH ‘clean’ refining margin (USD/MT) 63.9 88.0 55.5 64.2 EBITDA 296 273 216 292 MOH ‘clean’ trading margin (USD/MT) -3.4 30.0 15.0 10.0 Depreciation & amortisation -50 -51 -52 -62 MOH ‘clean’ blended margin (USD/MT) 55.4 71.8 46.3 54.0 Operating profit/EBIT 246 222 165 231 MOH total volume sales (Ktn) 8,313 9,019 9,275 10,550 Net interest -40 -39 -39 -36
PBT 206 184 126 195 HSBC PBT 167 174 121 190 Taxation -54 -46 -32 -47 Motor Oil DCF sensitivity matrix (EUR/share) Net profit 150 145 98 152 ______EUR/USD______HSBC net profit 123 138 95 148 1.25 1.30 1.35 1.40 1.45 Cash flow summary (EURm) 3.8 9.8 9.4 9.0 8.6 8.3 Long-term Med. 4.3 11.2 10.7 10.3 9.8 9.5 Cash flow from operations 205 190 140 224 cracking refining 4.8 12.6 12.0 11.5 11.1 10.6 Capex -56 -85 -105 -75 margin (USD/bbl) 5.3 13.9 13.4 12.8 12.3 11.8 Cash flow from investment -56 -85 -105 -75 5.8 15.3 14.7 14.1 13.5 13.0 Dividends -133 -133 -91 -135 Change in net debt -22 28 42 -2 Source: HSBC Pantelakis Securities estimates FCF equity 138 109 43 130
Balance sheet summary (EURm) Valuation data Intangible fixed assets 21 21 21 21 Year to 12/2007a 12/2008e 12/2009e 12/2010e Tangible fixed assets 731 765 818 831 Current assets 742 737 591 663 EV/sales 0.4 0.3 0.5 0.4 Cash & others 14 16 45 40 EV/’clean’ EBITDA 6.1 6.1 7.8 5.7 Total assets 1,558 1,495 1,575 1,548 EV/IC 1.4 1.4 1.4 1.4 Operating liabilities 371 370 229 300 PE* 7.0 6.3 9.1 5.8 Gross debt 722 753 823 816 P/NAV 2.4 2.3 2.3 2.2 Net debt 708 736 778 776 FCF yield (%) 16.0 12.6 5.0 15.0 Shareholders funds 364 376 384 400 Dividend yield (%) 15.4 15.4 10.5 15.6 Invested capital 1,122 1,152 1,201 1,214 Note: * = Based on HSBC EPS (fully diluted)
Ratio, growth and per share analysis Issuer information Year to 12/2007a 12/2008e 12/2009e 12/2010e Share price (EUR) 7.8 Target price (EUR) 7.3 Potent'l tot rtn (%) -6.4 Y-o-y % change Reuters (Equity) MORr.AT Bloomberg (Equity) MOH GA Market cap (USDm) 1,201 Market cap (EURm) 864 Revenue 2.3 31.1 -37.0 35.2 Free float (%) 38 Enterprise value (EURm) 1,642 EBITDA 9.8 -7.8 -20.9 35.3 Country Greece Sector Oil & Gas Operating profit 10.5 -9.8 -25.9 40.1 Analyst George Katsanos Contact +30 210 6965 302 PBT 7.8 -11.0 -31.3 54.5 HSBC EPS -22.7 11.6 -31.3 56.2 Price relative
Ratios (%) 29 29
Revenue/IC (x) 3.6 4.7 2.9 3.8 24 24 ROIC 15.9 14.7 10.5 14.4 ROE 35.0 37.2 24.9 37.7 19 19 ROA 12.8 10.9 8.2 11.6 EBITDA margin 7.3 5.1 6.4 6.4 14 14 Operating profit margin 6.0 4.2 4.9 5.1 9 9 EBITDA/net interest (x) 7.4 7.1 5.6 8.2 Net debt/equity 194.6 195.8 202.7 193.7 4 4 Net debt/EBITDA (x) 2.4 2.7 3.7 2.7 2006 2007 2008 2009 CF from operations/net debt 29.0 25.9 18.0 28.8 Motor Oil Hellas Rel to ATHENS SE
Per share data (EUR) Source: HSBC
EPS reported (fully diluted) 1.35 1.31 0.89 1.37 HSBC EPS (fully diluted) 1.11 1.24 0.85 1.33 Note: price at close of 5 January 2009 Stated accounts as of 31 Dec 2004 are IFRS compliant DPS 1.20 1.20 0.82 1.22 NAV 3.28 3.39 3.46 3.61
81 Equity Greece abc 13 January 2009
Forthnet
We believe the ill-timed, value destroying Nova acquisition entails high execution risks; we are more positive on the telecoms business Based on our estimates, Forthnet group will turn net income and FCFE positive in 2010 and distribute its first dividends in 2012 We have an Underweight (V) rating with EUR0.75 target price (5% negative potential return)
Investment case choice to opt for the 2009-12 Greek football Vangelis Karanikas * Analyst League’s TV rights (instead of the UEFA Forthnet is a leading domestic altnet, well placed, HSBC Pantelakis Securities S.A. Champions League ones). We also believe that + 30 210 6965 211 in our view, to benefit from the rapidly growing [email protected] Greece’s weakening macro backdrop bodes ill for broadband (BB) penetration in Greece. However, *Employed by a non-US affiliate of Nova’s future pay-TV subscriber growth. HSBC Securities (USA) Inc, and is we believe that the acquisition of Nova (Greece’s not registered/ qualified pursuant to sole satellite pay-TV platform) for EUR492m in To summarize, despite Forthnet’s strong market NYSE and/ or NASD regulations cash in August 2008 –vs Forthnet’s current positioning in the low penetrated BB and pay-TV market cap of EUR123m- has materially changed markets in Greece, we believe that the shares are Forthnet’s business scope and risk profile. likely to underperform in 2009 due to: a) low Although it made sense strategically, in our view, share liquidity, b) small size in terms of market the consideration paid was more than dear cap (note that in 2009 we favour liquid, large caps (historic 2007a EV/EBITDA of 12.0x and PE of vs small caps), c) the absence of positive FCF and 16.4x) even before the current financial crisis, dividends for yet another year in 2009, d) which has plunged valuations to multi-year lows. execution risks regarding the Nova acquisition, and e) dented investor sentiment following a In our view, Nova will soon face competition disastrous share price performance in 2008 (-84%, from the incumbent OTE and IPTV, while already the worst in our Greek universe). high execution/integration risks were further enhanced by the recent management strategic
Financial summary (EURm) Valuation summary (x) Key data
Year to 12/2007a 12/2008e 12/2009e 12/2010e Year to 12/2007a 12/2008e 12/2009e 12/2010e RIC FORr.AT Revenue 118.8 210.8 382.6 413.0 Dividend yield (%) 0.0 0.0 0.0 0.0 Bloomberg FORTH GA EBITDA (pre-TC) (20.1) 16.6 82.5 104.8 EV/EBITDA nm 23.5 5.2 3.7 Rating Underweight (V) EBIT margin (%) -33.8 -11.0 6.2 9.4 EV/Sales 1.0 1.9 1.1 0.9 Share (EUR) 0.79 HSBC net profit (32.5) (30.6) (1.2) 14.6 HSBC PE nm nm nm 8.4 Target (EUR) 0.75 HSBC EPS (EUR) (0.84) (0.35) (0.01) 0.09 ROIC (%) (34.1) (5.5) 4.5 7.7 Market cap (EURm) 123 HSBC EPS growth (%) nm nm nm nm Net debt/EBITDA 0.1 16.1 3.7 2.5 Free float (%) 33.7
Source: Company information, HSBC estimates Source: Company information, HSBC estimates
82 Equity Greece abc 13 January 2009
Company profile – at a glance negative note, albeit partly seasonal, 2Play ARPU fell by more than expected to EUR40.3 in Q3, Forthnet is the second-largest altnet in Greece, posting a 11.4% y-o-y decline. Going forward, we offering internet, fixed telephony and data services expect Forthnet stand-alone to turn net income to both residential and business users. More and FCFE positive in 2010e. importantly, Forthnet is the leading ULL player in Greece, with more than 200k ULL subscribers in Turning to Nova, we expect top-line and margins mid-December (of which 74% are high-margin in 2009-10e to come under pressure as we expect 2Play customers), consistently commanding a more the decline in disposable income to take its toll on than 30% market share (and above 33% in net new new subscriptions. Moreover, it remains to be additions in the past few quarters). seen whether Nova management’s strategic choice to opt for the Greek football League’s exclusive On 27 August 2008, Forthnet officially completed TV rights rather than the UEFA Champions the acquisition of Nova, the sole provider of pay- League’s ones, will manage to increase (or not) TV services in Greece, for a total cash the appeal of its pay-TV package to Greek consideration of EUR492m. As of end-September, football fans. All in all, we expect Nova to post Nova had 360k subscribers, which includes 2007-10e sales and EBITDA (pre transponder individuals but also bars, pubs and cafes that costs) of +1.4% and -2.4%, respectively. broadcast Nova content to large audiences. Regarding consolidated accounts, we expect Funding risks/Liquidity issues Forthnet group to record sales, EBITDA and net On 1 August 2008, Forthnet completed its losses of EUR383m, EUR83m and EUR1m in EUR300m rights issue (1.66x oversubscribed), to 2009e, respectively. On balance, we expect Forthnet partly finance the Nova acquisition (we believe group to turn net income and FCFE (after Nova that Forthnet deserves some credit for funding costs) positive in 2010e. Note that our successfully completing the largest rights issue in estimates do not include any Nova-related synergies. Greece in 2008, despite the market turmoil). Catalysts All in all, we believe that Forthnet has no Forthnet’s key downside catalysts in our view liquidity/funding issues, since a) early in 2008, the include: a) the potential earlier-than-expected entry company signed a EUR245m 9-year secured of a new player in the domestic satellite pay-TV common bond loan for the acquisition of Nova, market, b) the government's initiative to potentially with no maturities during 2009e, b) post the proceed with the build out of a FTTH network in capital increase, Forthnet appears well-capitalised, Athens and Thessaloniki for a total cost of with a 2008e net debt/equity of 68%, based on EUR1.3bn, by end-2013; we believe this network to our estimates. potentially be a large threat for Forthnet, as it would Economic performance provide an alternative means of offering high-speed entertainment / data services to the majority of Greek Forthnet’s core telephony business delivered on households, and c) intensifying competition in the promises in 2008. In Q3, it turned EBITDA domestic ULL market and increased customer churn, positive, in line with company guidance, while which could potentially lead to a faster-than- subscriber acquisition was overall decent given expected decline in ARPU levels, the key earnings the intensified competition in the domestic and value driver in Forthnet’s core telecoms market, brought forward by smaller altnets (some business; note also that competition in fixed-line of which face difficulties at the moment). On a could arise from mobile operators.
83 Equity Greece abc 13 January 2009
Valuation & rating Risks to our rating In our DCF models, we use WACCs of 9.8% and In our view, the key upside risks to our 10.4% for Forthnet stand-alone and Nova, and Underweight rating include: a) operating long-term growth rates of 1% and 0%, synergies arising from the Nova acquisition: in respectively. In addition to our DCF (60% weight), our view, the Nova acquisition could potentially we also apply a second valuation pillar, namely offer synergies on the revenue front (cross-selling, target 2009e EV/EBITDA multiples (HSBC reduce churn potential, maximisation of retail universe averages), so as to reflect the current distribution channels) but also on the cost side financial crisis and the unprecedented market (cost savings arising from call centres, marketing, volatility. Finally, we calculate the NPV of the tax head office centralisation and other administrative benefits from the Nova acquisition at EUR39m. functions). To put things into perspective, assuming EUR6m of cost savings pa post 2008e To sum-up, our DCF-based sum-of-parts model (equivalent to 8% of 2009e EBITDA or 5% of a returns a fair value of EUR1.07/share, to which EUR113m cost-pool, identified by the we assign a 30% discount so as to account for management on which potential synergies could Forthnet’s small size, low share liquidity, be extracted), Forthnet’s target price could execution risks, the absence of positive FCF and increase by EUR0.30/share or 27% before the dividends and dented investor sentiment. Hence valuation discount, b) a lower than expected we set our target price at EUR0.75, implying decline in ARPU levels, in both the telecoms and negative potential return of 5% from the 5 January media businesses. This could be achieved through price of EUR0.79. Under our research model, the successful price tiering strategies, significant Neutral band is 10ppt above and below the hurdle content improvement, etc, and c) no new entry in rate of 8.5% for developed European stocks with a the domestic pay-TV market: OTE’s decision volatility indicator, translating into a band of -1.5- not to launch a satellite pay-TV service in Greece 18.5% around the current share price. Hence, we would definitely be positive for Forthnet as it have an Underweight (V) rating on Forthnet. would leave Nova the only player. Given Nova’s Our sensitivity analysis, in which we flex our high operating gearing (almost 2/3 of costs are ARPU and pay-TV penetration assumptions in fixed), the reiteration of Nova’s monopoly status 2008-15e, yields a bear case of EUR0.53 (33% together with an increase in pay-TV penetration downside potential) and a bull case of EUR1.09 closer to European levels, could lead to significant (38% potential upside), after the 30% discount. earnings and valuation upgrades.
Forthnet target price sensitivity analysis Bear case Central case Bull case ULL telephony ARPU CAGR -6% -5% -4% 2Play ARPU CAGR -6% -5% -4% Digital pay-TV ARPU CAGR -5% -4% -3% LT pay-TV penetration (in population) 6.4% 6.6% 7.0% Fair equity value (EURm) 118 167 242 Discount for small size, low share liquidity, etc 30% 30% 30% Fair value after discount (EURm) 83 117 169 Target price (EUR/share) 0.53 0.75 1.09 Upside/(downside) from central case -29% 0% 45% Upside/(downside) from current levels -33% -5% 38%
Source: HSBC estimates
84 Equity Greece abc 13 January 2009
Financials & valuation: Forthnet Underweight (V)
Financial statements Key forecast drivers (EURm) Year to 12/2007a 12/2008e 12/2009e 12/2010e Year to 12/2007a 12/2008e 12/2009e 12/2010e Profit & loss summary (EURm) Telecom-related revenues 118.8 142.6 176.3 204.6 Media-related revenues 0.0 68.2 206.4 208.3 Revenue 118.8 210.8 382.6 413.0 Total group revenues 118.8 210.8 382.6 413.0 EBITDA (clean, pre TC) (20.1) 16.6 82.5 104.8 Telecoms-related EBITDA -20.1 -1.3 31.1 56.5 Depreciation & amortisation (20.0) (36.1) (46.4) (52.2) Media-related EBITDA (pre TC) 0.0 17.9 51.4 48.3 Operating profit/EBIT (40.1) (23.2) 23.7 39.0 Total group EBITDA (pre TC) -20.1 16.6 82.5 104.8 Net interest (0.3) (6.8) (25.2) (23.7) EBITDA margin -16.9% 7.9% 21.6% 25.4% PBT (40.4) (29.9) (1.5) 15.4
HSBC PBT (40.4) (29.9) (1.5) 15.4 Taxation 7.9 (0.8) 0.3 (0.8) Net profit (32.5) (30.6) (1.2) 14.6 Valuation data HSBC net profit (32.5) (30.6) (1.2) 14.6 Year to 12/2007a 12/2008e 12/2009e 12/2010e Cash flow summary (EURm) EV/sales 1.0 1.9 1.1 0.9 Cash flow from operations 19.0 24.7 33.6 84.4 EV/EBITDA nm 23.5 5.2 3.7 Capex (63.9) (58.7) (51.8) (34.5) EV/IC 1.2 0.6 0.6 0.6 Cash flow from investment (63.9) (82.7) (62.2) (35.5) PE* nm nm nm8.4 Dividends 0.0 0.0 0.0 0.0 P/NAV 0.2 0.3 0.3 0.3 Change in net debt 52.6 50.5 35.0 (39.2) FCF yield (%) nm nm nm 28.2 FCF equity (20.3) (39.7) (32.1) 34.7 Dividend yield (%) 0.0 0.0 0.0 0.0 Balance sheet summary (EURm) Note: * = Based on HSBC EPS (fully diluted)
Intangible fixed assets 17.6 495.8 495.8 495.8 Tangible fixed assets 122.9 177.2 182.6 165.0 Issuer information Current assets 52.1 144.8 155.2 157.5 Share price (EUR) 0.79 Target price (EUR) 0.75 Potent'l tot rtn (%) -5.1 Cash & others 56.1 30.6 10.5 (0.3) Total assets 248.7 848.4 844.1 818.0 Reuters (Equity) FORr.AT Bloomberg (Equity) FORTH GA Operating liabilities 89.7 190.4 170.8 175.7 Market cap (USDm) 169.9 Market cap (EURm) 122.8 Gross debt 53.2 298.5 313.5 263.5 Free float (%) 33.7 Enterprise value (EURm) 390.7 Net debt (2.9) 267.9 303.0 263.8 Country Greece Sector Diversified Telecoms Shareholders funds 123.5 389.8 394.5 413.1 Analyst Vangelis Karanikas Contact +30 210 6965 211 Invested capital 102.9 627.4 662.8 642.6 Price relative
Ratio, growth and per share analysis 10 10 9 9 Year to 12/2007a 12/2008e 12/2009e 12/2010e 8 8 7 7 Y-o-y % change 6 6 5 5 Revenue 21.8 77.4 81.5 7.9 4 4 3 3 EBITDA nm nm 396.0 27.0 2 2 Operating profit nm nm nm 64.9 1 1 PBT nm nm nm nm 0 0 HSBC EPS nm nm nm nm Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Forthnet Sa Rel to ATHENS SE Ratios (%) Revenue/IC (x) 1.3 0.6 0.6 0.6 Source: HSBC
ROIC (34.1) (5.5) 4.5 7.7 ROE (23.7) (11.9) (0.3) 3.6 Note: price at close of 5 January 2009 Stated accounts as of 31 Dec 2004 are IFRS compliant ROA (12.0) (3.8) 2.3 4.4 EBITDA margin (16.9) 7.9 21.6 25.4 Operating profit margin (33.8) (11.0) 6.2 9.4 EBITDA/net interest (x) 64.9 -2.5 -3.3 -4.4 Net debt/equity (2.4) 68.4 76.4 63.5 Net debt/EBITDA (x) 0.1 16.1 3.7 2.5 CF from operations/net debt -652.8 9.2 11.1 32.0 Per share data EPS Rep (fully diluted) (0.84) (0.35) (0.01) 0.09 HSBC EPS (fully diluted) (0.84) (0.35) (0.01) 0.09 DPS 0.00 0.00 0.00 0.00 NAV 3.20 2.51 2.54 2.66
85 Equity Greece abc 13 January 2009
Notes
86 Equity Greece abc 13 January 2009
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87 Equity Greece abc 13 January 2009
Disclosure appendix
Analyst certification The following analyst(s), who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Paris Mantzavras, Vangelis Karanikas, Spiros Tsangalakis, Georgios Katsanos, Yiannis Sinapis and Dimitris Haralabopoulos Important disclosures Stock ratings and basis for financial analysis HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon; and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating. HSBC has assigned ratings for its long-term investment opportunities as described below.
This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this website.
HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research report. In addition, because research reports contain more complete information concerning the analysts' views, investors should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not be used or relied on in isolation as investment advice. Rating definitions for long-term investment opportunities Stock ratings HSBC assigns ratings to its stocks in this sector on the following basis:
For each stock we set a required rate of return calculated from the risk free rate for that stock's domestic, or as appropriate, regional market and the relevant equity risk premium established by our strategy team. The price target for a stock represents the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the implied return must exceed the required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands are classified as Neutral.
Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily triggering a rating change.
88 Equity Greece abc 13 January 2009
*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12 months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However, stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.
Prior to this, from 7 June 2005 HSBC applied a ratings structure which ranked the stocks according to their notional target price vs current market price and then categorised (approximately) the top 40% as Overweight, the next 40% as Neutral and the last 20% as Underweight. The performance horizon is 2 years. The notional target price was defined as the mid-point of the analysts' valuation for a stock.
From 15 November 2004 to 7 June 2005, HSBC carried no ratings and concentrated on long-term thematic reports which identified themes and trends in industries, but did not make a conclusion as to the investment action that potential investors should take.
Prior to 15 November 2004, HSBC's ratings system was based upon a two-stage recommendation structure: a combination of the analysts' view on the stock relative to its sector and the sector call relative to the market, together giving a view on the stock relative to the market. The sector call was the responsibility of the strategy team, set in co-operation with the analysts. For other companies, HSBC showed a recommendation relative to the market. The performance horizon was 6-12 months. The target price was the level the stock should have traded at if the market accepted the analysts' view of the stock. Rating distribution for long-term investment opportunities As of 08 January 2009, the distribution of all ratings published is as follows: Overweight (Buy) 43% (30% of these provided with Investment Banking Services) Neutral (Hold) 37% (33% of these provided with Investment Banking Services) Underweight (Sell) 20% (22% of these provided with Investment Banking Services)
Information regarding company share price performance and history of HSBC ratings and price targets in respect of its long- term investment opportunities for the companies the subject of this report,is available from www.hsbcnet.com/research.
89 Equity Greece abc 13 January 2009
HSBC & Analyst disclosures Disclosure checklist Company Ticker Recent price Price Date Disclosure JUMBO BABr.AT 5.00 07-Jan-2009 6, 7 METKA MTKr.AT 6.86 07-Jan-2009 2, 5, 6, 7 MOTOR OIL HELLAS MORr.AT 7.94 07-Jan-2009 6, 7 NATIONAL BANK OF GREECE NBGr.AT 15.10 07-Jan-2009 2, 6, 7 OPAP OPAr.AT 20.98 07-Jan-2009 6, 7 OTE(HELLENIC TLCM) OTEr.AT 13.14 07-Jan-2009 2, 4, 6, 7 PUBLIC POWER CORPORATION DEHr.AT 13.26 07-Jan-2009 2, 5, 6, 7, 11 TERNA ENERGY SA TENr.AT 3.98 07-Jan-2009 7
Source: HSBC
1 HSBC* has managed or co-managed a public offering of securities for this company within the past 12 months. 2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. 3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this company. 4 As of 31 December 2008 HSBC beneficially owned 1% or more of a class of common equity securities of this company. 5 As of 30 November 2008, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of investment banking services. 6 As of 30 November 2008, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-investment banking-securities related services. 7 As of 30 November 2008, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-securities services. 8 A covering analyst/s has received compensation from this company in the past 12 months. 9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as detailed below. 10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this company, as detailed below. 11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in securities in respect of this company
Analysts are paid in part by reference to the profitability of HSBC which includes investment banking revenues.
For disclosures in respect of any company, please see the most recently published report on that company available at www.hsbcnet.com/research.
* HSBC Legal Entities are listed in the Disclaimer below. Additional disclosures 1 This report is dated as at 13 January 2009. 2 All market data included in this report are dated as at close 05 January 2009, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Chinese Wall procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
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Disclaimer
* Legal entities as at 22 August 2007 Issuer of report 'UAE' HSBC Bank Middle East Limited, Dubai; 'HK' The Hongkong and Shanghai Banking HSBC Pantelakis Securities S.A. Corporation Limited, Hong Kong; 'TW' HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Securities (Canada) Inc, Toronto; HSBC Bank, Paris branch; HSBC France; 'DE' HSBC Trinkaus & 109-111 Messoghion Avenue Burkhardt AG, Dusseldorf; 000 HSBC Bank (RR), Moscow; 'IN' HSBC Securities and Capital Markets 115 26 Athens, Greece (India) Private Limited, Mumbai; 'JP' HSBC Securities (Japan) Limited, Tokyo; 'EG' HSBC Securities Telephone: +30 210 69 65 000 Egypt S.A.E., Cairo; 'CN' HSBC Investment Bank Asia Limited, Beijing Representative Office; The Fax: +30 210 69 29 587 Hongkong and Shanghai Banking Corporation Limited, Singapore branch; The Hongkong and Website: www.research.hsbc.com Shanghai Banking Corporation Limited, Seoul Securities Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; 'GR' HSBC Pantelakis Securities S.A., Athens; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv, 'US' HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler A.S., Istanbul; HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, HSBC Bank Brasil S.A. - Banco Múltiplo, HSBC Bank Australia Limited, HSBC Bank Argentina S.A., HSBC Saudi Arabia Limited. This document has been issued by HSBC Pantelakis Securities SA (“HSBC”) for the information of its customers only. If it is received by a customer of an affiliate of HSBC, its provision to the recipient is subject to the terms of business in place between the recipient and such affiliate. HSBC Securities (USA) Inc. accepts responsibility for the content of this research report prepared by its non-US foreign affiliate. All U.S. persons receiving and/or accessing this report and wishing to effect transactions in any security discussed herein should do so with HSBC Securities (USA) Inc. in the United States and not with its non-US foreign affiliate, the issuer of this report. In the UK this document is for the information of its Clients (as defined in the Rules of FSA) and those of its affiliates only. It is not intended for Retail Clients in the UK. The protections afforded by the UK regulatory regime are available only to those dealing with a representative of HSBC Bank plc in the UK. 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The value of any investment or income may go down as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of investments for which there is no recognised market it may be difficult for investors to sell their investments or to obtain reliable information about its value or the extent of the risk to which it is exposed. HSBC Pantelakis Securities SA (registered in Greece No 23572/06/B/91/14) is regulated by the Capital Markets Commission and is a member of the Athens Exchange and the Athens Derivatives Exchange (“market maker type A”). © Copyright. HSBC Pantelakis Securities S.A 2009, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Pantelakis Securities S.A. MICA (P) 258/09/2008 [232983]
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Greece Research Team
Joanna Telioudi Spiros Tsangalakis Analyst, Head of research Analyst +30 210 6965 209 joanna.telioudi@ hsbc.com +30 210 6965 212 [email protected] Paris Mantzavras Yiannis Sinapis Analyst Analyst +30 210 6965 210 [email protected] +30 210 6965 215 [email protected] Vangelis Karanikas Dimitris Haralabopoulos Analyst Greek Banks Analyst +30 210 6965 211 [email protected] +30 210 6965 214 [email protected] George Katsanos Analyst +30 210 6965 302 [email protected]
Specialist Sales Thanassis Drogossis Head of institutional equities +30 210 6965 129 [email protected] Philip Dragoumis Specialist sales Greek equities +30 210 6965 128 [email protected]