Strong gains on the BSE, well above the appreciation of the major western markets

The indices of the Bucharest Stock Exchange (BVB) had strong increases in the second half of last year, well above the appreciations of the major western markets, especially on the background of the listing of Hidroelectrica, to which were added several factors that favored the appreciation share prices of some issuers and the prospects of a new year with strong dividends from the main companies in our market.

The BET index, of the twenty most liquid stocks on the BVB, marked a sequence of all-time highs, ending the last six months of last year with a 23.1% advance, while the BET-BK index, the fund performance benchmark of investments in shares, appreciated by 22.9%. Admittedly, the appreciations were manifested in an environment with high inflation that erodes real yields, but even so the developments are remarkable.

• Appraisals in the United States, amid decelerating inflation and expectations that the Federal Reserve will begin to cut interest rates

In the United States, after a correction during August-October, the indices have developed a vigorous upward trend, mainly on the background of decelerating inflation and expectations that the Federal Reserve will start reducing interest rates this year.

The S&P 500 rose by 7.2% in the second half of last year, while the Nasdaq Composite index, of companies active in knowledge-intensive fields, appreciated by 8.9%. At the last three monetary policy meetings, the Federal Reserve left the key interest rate unchanged, and the markets expect the central bank of the United States to operate three to four interest rate cuts this year. Earlier this week, traders saw a 43 percent chance the Fed would cut interest rates by 25 basis points at its March meeting, down from earlier estimates, according to the CME FedWatch Tool.

In Europe, where interest rate cuts are also expected this year and the economy shows signs of weakness, the Stoxx 600 index rose 3.7% in the second half of the year, a similar appreciation to that of the DAX40 from Frankfurt.

• Companies have published results for the first nine months of 2023, which outline the dividend outlook for this year

At the Bucharest Stock Exchange, Hidroelectrica's listing was the main catalyst for the increase in share prices in the last six months of last year. The energy producer and supplier conducted the largest public offering in the history of the BVB, which brought new money and investors to the market. Fondul Proprietatea, the seller in the offer, distributed all the money collected from the sale of the 20% stake in Hidro to the shareholders, the largest distribution in BVB history. In addition, Hidroelectrica's listing significantly increases the chances of our market entering the MSCI emerging markets category, which puts the Bucharest stock exchange on the radar of high-calibre institutional investors.

The release of results for the first nine months of the year gave investors and analysts an idea of what dividends companies might pay out this year. Overall, the estimates are for lower dividends than last year's, but there are also cases for which a higher dividend is taking shape, according to brokers.

• Titles Transport Trade Services, Sphera and Purcari - the best developments in BET

Shares of Transport Trade Services (TTS) had a 69.3% increase in share price in the second half of the year, as the situation in Ukraine favors the activity of the river carrier and the port operator. For the company, a year with a large increase in profitability is shaping up, given that in the first nine months the result was 84% above that of the same period of 2022, and the prospects are positive. Brokers estimate that TTS will pay a dividend with a gross yield of between 3.7% (Goldring) and 5.4% (Prime Transaction), compared to the share price on the last day of trading last year.

Shares of Sphera Franchise Group (SFG), a company active in the public catering sector, rose by 42.4% in the second half of last year, the second best performance in the BET index. Most of the growth occurred in December, and the volumes show that institutional investors were the ones buying.

"One possible reason is the positive expectations for the last quarter of the year, when the group's sales usually reach their highest values for the year," said a Prime Transaction report published this month.

Broker estimates range between a dividend yield of 3.8% (Tradeville) over last year's last share price and 7.1% (Prime Transaction).

Shares of winemaker Purcari Wineries (WINE) surged 37% in the second half of last year on a combination of factors, including rising financial results. Dividend estimates include allocations with yields between 5.4% (Goldring) and 6.8% (Prime Transaction) compared to WINE's last share price last year. Shares of distribution and logistics company Aquila (AQ) appreciated 30.3% in the second half of last year, while shares of telecom operator Digi Communications (DIGI) appreciated 28, 3%. Shares on BVB, our capital market operator, have risen by 31.2% in the last six months of 2023.

• Increases in banking shares, above the European average

During a period in which the Euro Stoxx Banks index rose by 10%, the shares of banking institutions on the BSE had much larger increases. Banca Transilvania (TLV) securities appreciated by 32% in the second half of last year, while BRD-Groupe Societe Generale (BRD) shares advanced by 35.6%. Credit institutions benefit from the high interest rates of the last period, which is reflected in profitability, and the shares of the two banks in BET are among the candidates for entry into MSCI's emerging market indices, should our market be promoted.

In the case of Transilvania Bank, the dividend estimates have yields between 4.7% (Prime Transaction) and 6.9% (Tradeville), while for BRD the yields are between 6% (Goldring) and 9% (Tradeville). In both cases, returns are based on last year's last share price.

• Appreciation of 16.4% for Hidroelectrica shares, compared to the price of the first trading day

Hidroelectrica shares ended the year with a 16.4% increase compared to the price at which the public offer ended in July 2023, the energy producer having a market capitalization of 57.6 billion lei in December 2023, the largest Romanian company at BVB. For the first nine months, Hidro reported a net profit 42% above that of the same period last year and 44% higher than the budgeted level.

Prime estimates a gross dividend yield of 9.14% for Hidro, while Tradeville and Goldring's estimates have yields of 10.77% and 9.38%, so the average broker estimate has a yield of 9.8%, compared with the last stock price in December.

OMV Petrom (SNP) shares appreciated by 14.9% in the last half of last year, while Romgaz (SNG) shares advanced by 13.2%. The two companies will deliver the first quantities of natural gas from Neptun Deep in 2027, over 80% of the value of the execution contracts related to the project having already been assigned to contractors and suppliers, according to a Petrom report from last December.

Shares of Electrica (EL) appreciated by 35% in the last half of the year, with strong growth in several sessions in December, indicating the presence of institutional investors in the market, while shares of Transelectrica (TEL) rose by 19.4%.

Overall, the BET-NG index, of energy and utility companies, advanced 16.8% in the second half of the year, the lowest appreciation among the BSE indices.

• 67% trading discounts for Lion Capital and Infinity Capital Investments compared to the December VUAN

The BET-FI index, of SIFs plus Fondul Proprietatea, rose by 21.2%, in the last six months of last year, including in the conditions in which BVB preset a reference for FP shares on the ex-dividend date related to the distribution of dividends from the sale of Hidroelectrica, so that the index did not reflect the massive correction of the fund's quotation.

FP shares ended the second quarter with a 73.1% drop, but with all the dividends paid, the total yield of the securities amounts to about 18%. The fund made a public offer through which it bought back about 30% of its capital, at the price of 0.6319 lei, well above the market price. Also, FP signed the sale-purchase agreement of its participation in Engie Romania, for 432.6 million lei, money that will be used to reduce the discount between the price and the Unit Value of the Net Asset (VUAN), if the operation receive the vote of the shareholders.

At the end of December, the SIFs traded at discounts between the price and the Net Asset Unit Value between 67% for Lion Capital and Infinity Capital Investments, while the SIF Muntenia securities had a relative difference to the net asset level of 49%. In the case of FP, the discount was 21%, slightly above administrator Franklin Templeton's goal of under 15%.

In the second half of last year, the Ministry of Finance carried out and listed three offers of Fidelis government securities, in lei and euros, the total value of the subscriptions amounting to 6.4 billion lei.