April & May 2020 - Volume 14, No 159 Summary Equity Markets The TEDPIX index and junior Farabourse (IFB) market continue to expand 74% and 57% in IRR terms over the past two months ending April 2020, respectively. Based on the unofficial exchange rate, the month-on-month gain in dollar terms accelerate by 61% in TSE and 46% in Farabourse market. This was mainly due to 8% depreciation of IRR exchange rate over the month. Debt Markets For the start of the Iranian calendar year 1399 (March 2020) to end April, total issuance on the fixed income market reached 0.2 billion US$ based on the unofficial exchange rate. Yield to maturity (YTM) remained stable at 16% at the end of April. Economic Review This issue reviews the updates on housing market and the recent inflation targeting announcement published by the CBI. In addition, we have included a separate report covering the latest macroeconomic data published by relevant organizations and senior macroeconomic strategists in a fact-sheet summary, as well as an economic calendar released by local and international statistics centres. North of Iran Photo: Kourosh Odouli 1 Iran Investment Monthly Table of Contents 3 Market Overview 3 Market Update 6 Performance & Updates 8 Historic Trends & Sector Insight 9 Industry at a Glance 10 Market Snapshot 12 TSE & Junior Market Performance 14 Top Ranked Companies 16 Iran’s Fixed Income Market 19 Economic Review 19 Latest Updates 21 Macroeconomic Data 22 News & Views 22 Recent Brokerage Reports 22 Turquoise News 2 Iran Investment Monthly Market Overview April & May 2020 - Volume 14, No 159 Market Update The Tehran stock exchange (TSE) markedly continued its recent upward trend and grew by 66% in Euro terms in April 2020. Furthermore, the market’s average P/E ratio exceeded 18.2 by the end of month, which is around 183% higher than its historic average. Due to the prevalence of negative sentiment towards parallel investment classes, the stock market was swamped with a continuous inflow of fresh liquidity predominately by retail investors over the course of the past few months. Meanwhile, stock prices showed continuous growth leaving no room for the expected and appropriate price corrections. Another important factor was the debate surrounding the increase in bank’s interest rates on deposits in late April. This eliminated the possibility of higher free Shervin Shahriari risk rates and encouraged investors to inject new monies into the stock Chief Investment Officer market. A council of Banks announced that the one-year interest rate or deposits would be 15%, substantially lower than the range of 18% to 20% prior to the announcement The market also experienced unprecedented daily trade volumes, averaging at USD 441 million per day during April. Buyers were particularly enthusiastic about shares of some of the larger companies. The increase of 492 % in trade volumes compared to the same period last year is indicative of investor interest towards the stock market. Monthly TSE Volumes 8.8 Average : 3.1 Billion USD Source: TSE 3 Iran Investment Monthly Market Overview April & May 2020 - Volume 14, No 159 Among the main contributors to this increase are individual investors, who carried out more than 80% of purchases in the market. In addition, 70% of the number of trades carried out online, indicating the increased presence of individual buyers in the market. This positive atmosphere and increased trade volumes have resulted in large price movements. A clear example of this trend was in trading of smaller companies such as tile makers, automotive and rubber manufacturers. Given the influx of individual investors and the reluctance of larger shareholders to sell, the stocks of these companies experienced a 5-10x increase in value over the past year without any clear fundamental justification. To keep up with the increasing demand, major shareholders started to offer their shares heavily at market value, yet, they did not succeed to respond to the buyers’ demand. To temporarily balance against the share price increases and the heavy influx of liquidity, the stock exchange officials have been trying to encourage the government and semi-governmental entities to increase their offerings of shares to the market. Historic P/E 2007 – 2020 20 April-20 18.2 18 16 14 12 10 8 6 4 2 P/E 0 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Source: TSE The average P/E of the market reached the vicinity of 18.2 by the end of April. We have not experienced such valuation in the history of the TSE. 4 Iran Investment Monthly Market Overview April & May 2020 - Volume 14, No 159 The last highest average P/E was observed in 2004, which reached a high of 10.8x when the economy was robust with the growth rate of around 6% and inflation below 15%, none of them exist now. In our view, there is the risk to the downside for the P/Es to fall towards their previous means, if the current increase in share prices does not translate into profit for companies. With the banks’ annual deposit interest of 15%, the 9.5 percentage point gap between yields and the average cash returns of the market must be compensated for through increasing future profits. YTM vs. Bank Deposit Rate April-20 16.2% April-20 15% Source: CBI, IFB With the Warren Buffet ratio of market cap to GDP around 161%, we think we are overdue for a correction and will probably get a severe one in the months to come. 5 Iran Investment Monthly Market Overview April & May 2020 - Volume 14, No 159 Performance & Updates 11 - Year Average (2008-2020)1 Market Capitalization (billion US$) 2 113 TSE & Farabourse Junior Market P/E 7.0 x TSE Dividend Yield (%) 11 % TSE Market Cap / GDP 39 % TSE & Farabourse Dividend Growth Rate 22 % TSE Total Turnover (million US$), Average Annual 15 TSE TSE Overall Index Average Annual Growth (US$) 20 % TSE 1 Annual data from 2008 to March 2020 2 Calculated based on unofficial IRR per US$ exchange rates. Summary - March 2020 Market Capitalization (billion US$) 165 TSE & Farabourse Junior Market Free Float 22% TSE & Farabourse Junior Market Number of Listed Companies1 629 TSE & Farabourse Junior Market TSE Index Performance (US$)2,4 -4.4% (MTD) 13.8% (YTD) TSE Total Turnover (million US$)2 6,688 TSE & Farabourse Junior Market Dividend Yield (%) 3 7.1% TSE P/E 10.9 x 1 172 companies are listed in Over-The-Counter (OTC) or off-exchange market named as “Base Market” in Farabourse junior market which trading of these companies are done directly between two parties. 2 Calculated based on unofficial IRR per US$ exchange rates. 3 Calculated based on the latest market data 4 TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index) Tehran Stock Exchange & Junior Market Trade by Value1 - March 2020 Iran Farabourse (Junior Market) Trade Volume (million US$) Since the beginning 2020, the market has expanded to the Tehran Stock Exchange (Main Market)Trade Volume (million US$) upside recording the YTD performance of the TSE and IFB to 42% in IRR terms respectively. The gain in hard currency terms was 14% on the TSE and the IFB on a year to date basis. In March 2020, the TSE equity trade value expanded to 5,293 million US$ from the 3,024 million US$ historic 12-month average. The total number of shares traded on the TSE expanded by 19% compared to the one-year historic average of 94 billion shares. US$ Million Source: Tehran Stock Exchange Iran Farabourse Company All figures in US$ are converted from IRR at the free market rate 1 Trading volume month on month in US$ term - TSE includes mainly equity while Farabourse has more fixed income instruments and smaller equities. 6 Iran Investment Monthly Market Overview April & May 2020 - Volume 14, No 159 Performance & Updates 11 - Year Average (2008-2020)1 Market Capitalization (billion US$) 2 120 TSE & Farabourse Junior Market P/E 7.8 x TSE Dividend Yield (%) 11 % TSE Market Cap / GDP 44 % TSE & Farabourse Dividend Growth Rate 22 % TSE Total Turnover (billion US$), Average Annual 15 TSE TSE Overall Index Average Annual Growth (US$) 34 % TSE 1 Annual data from 2008 to April 2020 2 Calculated based on unofficial IRR per US$ exchange rates. Summary - April 2020 Market Capitalization (billion US$) 267 TSE & Farabourse Junior Market Free Float 22% TSE & Farabourse Junior Market Number of Listed Companies1 632 TSE & Farabourse Junior Market TSE Index Performance (US$)2,4 68.6% (MTD) 91.9% (YTD) TSE Total Turnover (million US$)2 11,859 TSE & Farabourse Junior Market Dividend Yield (%) 3 4.4% TSE P/E 18.2 x 1 173 companies are listed in Over-The-Counter (OTC) or off-exchange market named as “Base Market” in Farabourse junior market which trading of these companies are done directly between two parties. 2 Calculated based on unofficial IRR per US$ exchange rates. 3 Calculated based on the latest market data 4 TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index) Tehran Stock Exchange & Junior Market Trade by Value1 - April 2020 Iran Farabourse (Junior Market) Trade Volume (million US$) Tehran Stock Exchange (Main Market)Trade Volume (million US$) Since the beginning 2020, the market has expanded to the upside recording the YTD performance of the TSE and IFB to 134% and 108% in IRR terms respectively. The gain in hard currency terms is 92% on the TSE and 71% on the IFB on a year to date basis. In April 2020, the TSE equity trade value expanded to 8,827 million US$ from the 3,664 million US$ historic 12-month average.