BVB shares reached a PER of over 100, ahead of the elections for a new Council

The shares of the Bucharest Stock Exchange (BVB) rose strongly in the last month, and from the beginning of the year until the end of last week, the price of the securities of our capital market operator doubled, the stock market valuation of the BVB reaching 563 million lei, a historical record.

On the other hand, the company's financial results deteriorated massively, the issuer's net profit for the first six months of the year being 3.72 million lei, 59% below that of the first half of last year. Admittedly, it is a cyclical decline - on the one hand, the reporting base is high (in the first half of last year BVB benefited from the volatility created by the war in Ukraine), and on the other hand, the results do not include the Hidroelectrica offer and post-listing trading. So, after the first nine months the picture will be completely different, only the Hidro offer generating revenues of 12.5 million lei for the stock market, which will be reflected in the results of the third quarter, according to a BVB report.

The massive increase in capitalization and the sharp drop in profitability caused the BVB share to reach a Price to Earnings Ratio (PER) of 113 at the end of last week (according to Prime Transaction and Tradeville data, which take into account the profit of the last four quarters), which means that an investor had to pay 113 lei for one lei of the current profit of our capital market operator. It is a level that cannot be justified in any way by the listing of Hidroelectrica or the perspective of the operationalization of the Central Counterparty, which is entering its fourth year of delay.

The approach of the elections for the BVB Council, which will take place on November 22, is probably the main reason that explains the increase in the stock price of the stock exchange, which has been on a strong upward trend since 2022. Reports show that institutional investors were buying Romanians, who probably purchased in order to have a greater voting power in the elections. In August of this year, Romanian institutional investors held 81% of BVB, compared to 76% in December 2021 and 72% in December 2020. During the same period, the holdings of all other types of investors decreased, according to reports.

At the end of August, five of the seven Pillar II funds together had 20.5% of the BVB (Aripi and AZT Viitorul Tău did not hold stock exchange shares). The fund managed by NN Pensii had almost 7% of our capital market operator, at the time Vital, managed by Aegon, owned 5.4% of BVB. The fund managed by Metropolitan Life had 3.9% of the stock market capital, that of BCR Pensii 3.3%, and the fund managed by BRD Pensii 0.8%. In the last two and a half years, with a small exception (NN Pensii whose holding is slightly below that of December 2021), the Pilon II pension funds have not traded BVB shares, as can be seen from the reports.

The SIFs had, at the end of June this year, approximately 30.2% of the shares of the Bucharest Stock Exchange, as follows: Lion Capital (former SIF Banat-Crişana) - 5.1%, Evergent Investments (former SIF Moldova) - 4.3%, Transilvania Investments (formerly SIF Transilvania) - 7.7%, SIF Muntenia - 4.5% and Infinity Capital Investments (formerly SIF Oltenia) - 8.6%, according to reports.

Compared to the end of 2021, when BVB shares started to rise, Evergent Investments and SIF Muntenia kept their holdings in the capital of the market operator, while Transilvania Investments sold 0.78% of BVB. Instead, Lion Capital increased its holding by 0.47% (38,285 shares) and Infinity Capital Investments by 3.35% (269,993 shares), according to our calculations based on company reports.

Lion Capital acts in concert with SIF Muntenia, but in reality also with Infinity Capital Investments, even if the concertation is not declared by the Financial Supervisory Authority.

BVB's shareholders also include brokerage companies, investment funds, Pillar III pension funds and individual investors, who at the end of August held 18.7% of the stock exchange's capital. The Bucharest Stock Exchange has a holding limit of 20%.

Currently, the BVB Council is composed of the president Radu Hanga, the vice-presidents Dan Paul and Robert-Cosmin Pană and the members: Claudia Ionescu, Mihaela Bîciu, Octavian Molnăr, Dragoş Neacşu, Răzvan Rat and Ştefan Szitas. The members of the Council will be elected by the cumulative voting method, for a four-year term, starting from the date of approval by the Financial Supervisory Authority (ASF) and the contracting of professional liability insurance, but not earlier than February 13, 2024, the date of expiry of the mandate to the current members of the BVB Council, according to the convener.