IN THE LAST FOUR YEARS Compa has underperformed the BET-XT index

• Marcel Murgoci, Estinvest: "The 2016 results probably fueled some expectations among investors that it would pay dividends, a fact which ultimately did not happen"

Marcel Murgoci, Estinvest: "The results of 2016 probably fueled some expectations among investors regarding the payment of dividends, which ultimately did not happen"

• Goldring: " it is unlikely that the company will pay dividends in the near future, which is an essential factor when it comes to the rise of the stock"

• "Regardless of the moves in its price, CMP shares have low liquidity, which involves a high risk for investors", Goldring says

For the last four years, shares of the auto parts manufacturer Compa Sibiu (CMP) have gone through two distinct periods, namely, a rise up until the summer of 2017, marked by a high of 1,335 lei, followed by a downward trend that is ongoing, and overall, the company's stock has underperformed the BET-XT index, which it is a part of.

Marcel Murgoci, operations director of brokerage company Estinvest, told us: "In 2016 the company posted good financial results, which supported the rise of the stock price, and probably fueled some expectations among investors that it would pay out dividends, a fact which ultimately did not happen."

The broker's statement of comes as the actual report for the first quarter of 2016 announced a net profit of 23.36 million lei, 175.3% up over the whole year of 2015, an increase owed mainly to the financial activity profits of 12.7 million lei, which was subsequently revealed to come from the sale of the 26.91% stake in ThyssenKrupp Bilstein.

The increase in profitability was carried over throughout 2016, meaning that at the end of the whole year Compa reported a net profit of almost 51.63 million lei, 90% over that of 2015.

Still, in the notice to attend posted on March 20 2017, the management of the auto parts maker proposed to shareholders that the entire profit be used for supporting the company's growth, which caused the CMP stock to drop 7.2%, to 1.16 lei, on that day.

On the other hand, another element likely to support the price of the Compa share in 2017 was the Sovereign Fund of Norway becoming a shareholder in the company, which reported at the end of the year a 2.24% stake in the car part manufacturer.

Marcel Murgoci added: "Subsequently (ed. note: after the summer of 2017), Compa has faced a steady decline in its profit, coupled with the lack of dividend payments, may represent elements that contribute to the downward trend that the share price has been on since the second half of 2017".

This is a statement that comes as, in 2017, the company's earnings decreased by 26.2%, compared to 2016, to about 38.1 million lei, while in 2018 the drop went further to 35.43 million lei lei, a 7% YOY drop.

In addition, Compa has not paid dividends to its shareholders since 2004.

Referring to the evolution of the share price in 2019, the director of Estinvest stated: "At the beginning of last year, the Employee Shareholder Program Association (PAS) Association was shutdown and, while that event doesn't seem to have had a clear impact on the price of the stock, the volumes seem to have been influenced, it seems to have affected turnover upwards, as it was higher in 2019, compared to previous years".

Regarding the factors with potential influence on the price of CMP shares for the next six to twelve months, Marcel Murgoci mentioned first and foremost the financial results that the company will report.

Referring to the evolution of stock prices in 2019, the head of Estinvest stated: "In the beginning of last year, the PAS Association was abolished and if there is no clear impact of this fact on the share price, the volumes seem to have been influenced upwards in 2019, compared to previous years".

"Also, another factor that could influence the CMP stock price would be significant changes of the shareholder structures, especially now that the PAS Association no longer exists", the Estinvest broker concluded.

Dragoş Mesaroş, chief trading officer of the Goldring brokerage firm, told us that, in his opinion, Compa is a decent company in terms of financial ratios, but that he sees no potential for a major rise in its stock in the medium term.

Goldring argues that, from the point of view of the most important market multiples, CMP shares are undervalued in terms of its most important ratios.

"However, the company has always been in that situation", an analysis by brokers further shows. "In the absence of a dividend policy that will attract investors and having had the PAS Association as a majority shareholder, until recently, Compa was not a very liquid company".

According to the Goldring team, even if no longer controlled by the PAS, Compa still has its CEO and Chief Economic Officer as its shareholders, who will most likely continue with the current strategy when it comes to the distribution of dividends, a situation that is likely to persist until other major shareholders appear, who would change that approach.

"Given the increasingly slow growth in turnover, the need for investments to remain competitive and the low level of cash and cash equivalents available, it is unlikely that the company will pay dividends in the near future, which is an essential factor when it comes to the rise of the stock", the report states.

Analysts also point out that, regardless of the moves in its price, CMP stock has low liquidity, which involves a high risk for investors.

At the end of last week, the Compa stock closed at 0.85 lei, placing the capitalization at nearly 186 million lei.

In mid-2019, Ioan Deac (chairman and general manager) owned 19% of Compa, while Ioan Miclea (economic director) owned 18.75% of the manufacturer of auto parts based in Sibiu. Shareholders of the company also included Private Pillar II Pension Fund managed by NN Group.

Between December 30, 2015 and January 17, 2020 the price of CMP shares rose 24.27%, less than the BET-XT index, which rose 45.75%, over the same period.