How political instability influenced BVB stocks

The indices of the Bucharest Stock Exchange (BVB) had an evolution marked by two distinct phases last year when, after a strong increase until the summer, the electoral period and the situation arising from the parliamentary and presidential elections sank the prices of shares in our market.

Dragoş Mesaroş, trading director of the Goldring brokerage house, told us: "The first half of the year was superb, as expected. There were highs in July, and then the political factor that influences the capital markets had its say. In the United States, the election of Donald Trump brought a significant market rally, while in our country the events on the political scene had the opposite effect.

In addition, until July we had an uninterrupted growth of one year on the Bucharest Stock Exchange, so it was normal for a decrease to occur." The BET index, of the twenty most liquid stocks on the BVB, ended the year with an appreciation of 8.8%, at 16,721 points, but 11% below the historical record of 18,749 points reached on July 18. Dividends continued to bring a significant addition to yields, so that the BET-TRN index, which reflects both the evolution of BET share prices and the reinvestment of net dividends, had an advance of 15.3%, significantly above inflation which stood in November at 5.1% in annual dynamics, according to data from the National Institute of Statistics.

• The biggest political downturn in our country in recent decades

Marcel Murgoci, the chief operating officer of the brokerage company Estinvest, says that, at the beginning of the year, expectations were that the BET index would end 2024 in positive territory, but not at the level of 2023 when the increases were exceptional, over 30%.

"In the latter part of the year, major challenges arose, amid the elections that determined very high market volatility. We expected the elections to have an impact on the stock market, but not to such an extent, because there were several surprises that determined this high market volatility", added Marcel Murgoci.

The decline began in August, triggered by the shock in foreign markets that arose amid investors' fears regarding the possible entry of the United States into recession, a correction that was quickly recovered by Western stock exchanges but not by the BVB indices. Subsequently, the approach of the elections in a period with massive deficits for our country, which generated speculations regarding the possible fiscal measures of the government that was to be formed at the end of the year, with an impact on the profitability of companies, made investors wait and see.

The result of the parliamentary elections revealed the rise of far-right parties, and then the first round of the presidential elections, which was won by Călin Georgescu, brought the greatest political instability in our country in recent decades. Georgescu stood out for his pro-Russian attitude, criticized NATO and the European Union, as well as foreign investors in our country, in an incoherent and fabricated speech, which attracted the attention of a good part of the press and Western states. Subsequently, the Constitutional Court annulled the first round of the presidential elections that are to resume this year, based on CSAT documents declassified by President Klaus Iohannis, according to which the SRI identified an aggressive promotion campaign for Georgescu, carried out outside the electoral law.

In this context, the Bucharest Stock Exchange indices recorded significant decreases, the interest rates at which Romania borrows increased and the Fitch rating agency revised our country's outlook to negative.

Even in the last days of the year, the newly formed government adopted the so-called "austerity ordinance", which provides, among other things, for the increase in the dividend tax, the elimination of tax incentives in certain areas and the reintroduction of the "pillar tax", measures harshly criticized by the business community.

• Price to Earnings ratio of 9 for BET, well below that of the indices in Poland and the Czech Republic; in the United States, the S&P 500 has a PER of 32

Florian Munteanu, an investment consultant with extensive experience in finance and energy, states that the unpredictability in our country and the lack of trust in the way certain companies are managed affect the valuations at BVB.

"The Romanian stock exchange is dominated by two areas, financial and energy, each with specific challenges. The energy sector is influenced by some decisions of the Government, which induces a certain unpredictability, which is often seen in share prices. Also, the activity of banks is influenced to a certain extent by the state. In the financial sector, we can include closed-end investment funds, i.e. the five former SIFs and Fondul Proprietatea, whose shares are traded at very large discounts compared to Net Assets, which in my opinion shows the lack of confidence of investors regarding the way these vehicles operate", the investment consultant told us.

At the end of December, the shares of Lion Capital and Infinity Capital Investments had discounts to net assets of 68%, while for the other former SIFs the relative difference between price and assets was 56% and 42%, which shows that the market is severely penalizing these companies. In the case of FP, the discount began to increase after the sale of the stake in Hidroelectrica and the exit of pension funds from the shareholders.

"Overall, the BET index has a PER ratio of around 9.5 (ed. in the last part of December), which means that the Romanian market is very cheap compared to other markets - for example, in the United States, the PER indicator is around 30. Of course, it is a different structure, the US market being dominated by technology giants with very high valuations, but I think that this massive valuation difference also reflects the lack of confidence of investors in the Romanian market", added Florian Munteanu.

At the end of last year, the BET index had a PER ratio of 9, which means that the stock market valuation of the companies in the main basket of shares of our market was around nine times higher than the profit of the last twelve months, according to Simply Wall Street data. For the WIG index in Poland, the PER ratio was 18.8, for the PX in the Czech Republic the multiple was 16.8, and in Hungary the BUX had a PER of 8.7. In Germany, the DAX indicator level was 19.8, in London the FTSE had a PER of 19.4, while for the S&P 500, the US market benchmark, the indicator was 32.2, which shows that investors are willing to pay much more for US companies.

• Antibiotice, Sphera and Digi - among the highest returns in BET-BK

Antibiotice Iaşi, Sphera Franchise Group, Digi Communications, MedLife and Aquila are among the stocks with the highest returns recorded last year in the BET-BK index, the benchmark for the return of equity investment funds in our country.

The drug manufacturer's stocks had a total return of 90%, given almost entirely by the appreciation of the quotation, due to the exceptional financial results in the first part of the year and the prospects of the company expanding and diversifying, a development for which it will also benefit from funds from the European Commission. The rise in the company's share price brought the issuer back to BET, after many years of absence.

Sphera shares, which bring together the KFC, Pizza Hit and Taco Bell brands under its umbrella, recorded a total return of 65%, largely driven by price appreciation, amid strong profitability growth, restaurant network expansion and dividend policy, elements that attracted shareholders including Pillar II pension funds.

Digi shares' total return amounted to 48%, mainly facilitated by Digi Spain's sale of a fiber optic network for a price of up to 750 million euros and the inclusion of the shares in the MSCI indices. The company is about to take over Telekom Mobile's assets and expanded into Belgium and Portugal last year. MedLife shares had an increase of 46%, given that the healthcare provider returned to profit, has growing margins and continues its development campaign through acquisitions. Aquila shares had a total return of 33%, the distribution and logistics company for the consumer goods market being, along with Digi and MedLife, on the radars of private pension funds.

• High returns for OMV Petrom, Transgaz and Transelectrica shares

The BET-NG energy index appreciated by 7% last year, to 1,199 points, supported by the performance of oil and gas producers and utilities.

OMV Petrom shares had a total return of 35.8%, even though the price of oil fell in 2024, the performance being supported by generous dividends that include a special distribution, improved financial results due to the lack of a "solidarity contribution" and entering the period with the largest investments in the company's history, which also includes the Neptun Deep project. The annual average of investments amounts to eight million lei, but at the same time the company will pay a progressive dividend, according to the statements of the CEO, Christina Verchere. Romgaz shares, OMV Petrom's partner in Neptun Deep, had a rather sideways evolution, ending the year with a total return of 5.4%, given that the distributed and expected dividends are much lower than in other years. The company attracted 500 million euros through a bond issue, money that will be used, primarily, for investments.

Shares of the energy producer and supplier Hidroelectrica ended the year at a price close to that of the beginning of 2024, given that the company's profitability decreased due to the lower quantities sold and the lower price, but the total return of the shares was positive, thanks to the large dividend granted. In fact, the company of strategic importance for our country and controlled by the state, is one of the main dividend issuers on the BVB. Nuclearelectrica shares have been on a downward trend, ending last year with a negative total return, as the company reported declining profitability, mainly due to lower prices for electricity sold. Nuclearelectrica has significant investments to make, so analysts are estimating lower dividend distribution rates compared to the last few years.

Transelectrica shares had a return of 26.2%, almost entirely due to the increase in the share price between May and July, a period in which the company reported an increase in profitability and analysts considered that the issuer had favorable prospects, given the increasing regulated tariffs and the lower costs of its own technological consumption. Subsequently, even though the issuer had massive increases in profitability, the share price fell, a relevant image of the shock produced in the market by the political situation in the country. Electrica shares posted a total return of 16%, due to the increase in the quotation in the first half of the year, when the company's results were significantly improved, and its shares were included in the FTSE Russell indices.

Shares of natural gas transporter Transgaz had a total return of 26.2%, amid the increase in the quotation in the May-June period, given that the company had reported a double profitability for the first quarter, a significant impact on the results having the increase in regulated transmission tariffs.

• Significant growth for Banca Transilvania shares; dividends provided most of the return on BRD shares

In a year in which the EuroStoxx Banks index appreciated by about 21%, the European Central Bank and the National Bank of Romania reduced reference interest rates several times, the shares of the main banks on the BVB had positive total returns. For Banca Transilvania shares, the total return amounted to 33.7%, of which the appreciation of the quotation was 27.8%, while the return on BRD shares amounted to 15.7%, most of which came from the dividend.

Even if the central bank reduces the cost of money, interest rates are still high, which represents a source of profit for commercial banks, a fact that is seen in the reported results. Banca Transilvania, which in addition to dividends rewards its shareholders with free shares, bought OTP Bank Romania, which is already reflected in the reports and probably has the largest free-float among the large companies on the BVB. BRD's results were weaker than Banca Transilvania's, also due to the cost of risks that eroded profitability, which probably explains the difference between the yields of the two shares.

• Bittnet Systems, One and TTS - among the biggest decliners last year, in BET-BK

Bittnet Systems, One United Properties, the Bucharest Stock Exchange and Transport Trade Services were among the stocks with the biggest declines last year, in the BET-BK index.

Bittnet shares have been on a clear downward trend since 2021, with the company's profitability worsening significantly in recent years. For the first nine months of 2024, the IT&C solutions integrator and IT training services provider reported a larger loss than in the same period of the previous year, due to the revaluation of holdings, while operating results remained at about the same level. The shares of the real estate developer One United Properties also had a downward trend last year, in a context marked by declining financial results, the Nordis scandal that probably had an impact on the entire real estate sector in our country and a certain uncertainty regarding the fiscal framework in 2025, which may affect the company's operations. In addition, it is possible that some corporate operations of the issuer have brought a certain distrust among investors, and a series of unfavorable articles about One Unite Properties have appeared in the online environment.

After a strong price increase in 2023, amid the acquisitions of some institutions that wanted to have greater voting power in the elections for the new Council and the listing of Hidroelectrica, the shares of the Bucharest Stock Exchange had a 31% correction in the quotation this year. The decline occurs in the conditions in which the share had become very expensive, the results suffered a negative base effect caused by the Hidroelectrica factor, and the operationalization of the Central Counterparty is delayed. Shares of Danube freight forwarder Transport Trade Services fell 34% last year as the company's financial results fell sharply, also due to a negative base effect. The issuer benefited from the outbreak of the conflict in Ukraine, which massively increased the company's revenues and profits, but activity is now normalizing, returning to near pre-war levels.

Fondul Proprietatea lost importance after the sale of its 20% stake in Hidroelectrica, so that pension funds are massively reducing their holdings in the company. In addition, the Ministry of Finance has started to put pressure on the fund to preserve its portfolio, which makes it more difficult to list FP's most important holdings. Franklin Templeton recently announced that it will not participate in the selection process for a new mandate as administrator of FP, a fund it has been managing since 2010.

• Premier Energy made the largest IPO of a private company in the last five years on BVB

Premier Energy, a company in the energy industry, debuted last year on the BVB Main Market, following an initial public offering through which it raised 695 million lei - the largest IPO of a private company in the last five years.

InterCapital Asset Management listed the first ETF (Exchange Traded Fund) on the Bucharest Stock Exchange that tracks the performance of the BET-TRN index, the total net return variant of the BET index, which reflects both the evolution of the prices of the most important Romanian companies listed on the stock exchange and the reinvestment of the net dividends offered by them.

The Cluj County Council listed bonds worth 76 million euros, while the Municipality of Reşiţa listed green bonds worth 8.8 million euros. CEC Bank came up with a bond issue worth 300 million euros, while Unicredit listed another issue worth 750 million lei.

The companies JT Grup Oil, Glissando Garden Center, Fort and Immo Guru debuted on the AeRO Market. Also, at the end of December, the offer of Green Tech International, a group that deals with the supply of ecological heat for various types of clients, took place, which is about to debut on the BVB.

• Finance attracted 16.4 billion lei from the population with Fidelis government bonds

The Ministry of Finance carried out six offers of Fidelis government bonds last year, through which it attracted a record amount of 16.4 billion lei (almost 3.3 billion euros) from the population, about 40% of the cumulative value of all 20 Fidelis issues carried out from August 2020 to the present.

At the end of the third quarter of 2024, BVB investors had almost 215,000 accounts, 20% more than the number at the end of 2023, according to data from the Investor Compensation Fund. The capitalization of all companies listed on the Main Market amounted to 350 billion lei at the end of last year, 19% above that of 2023, but the average value of daily transactions decreased to 65.8 million lei, compared to 97.4 million lei the previous year, when Hidroelectrica was listed, which massively pushed the average up, as shown by BVB data.