The official SAX equity index continued to oscillate around the 75-point level and closed at 75.92 on May 3. Trading activity during the last two weeks of April decreased slightly, bringing the average daily turnover of the last month to 70.8 million Slovak crowns ($1.7 million).
Oil refiner Slovnaft posted a price decline after the official announcement of its financial results for 1998, but recent developments suggest that this stock has stabilised at a price of around 500 crowns. Investors expect a better performance from the refinery in 1999, as the prices of crude oil have increased to a very favourable level for Slovnaft after collapsing in 1998. Another factor behind the optimistic expectations for Slovnaft stock is the proposed entry of a foreign partner, which may happen even before the end of this year.
In other stock market news, pharmaceuticals company Slovakofarma profited from the continuing depreciation in the value of the Slovak crowns, and due to its export orientation gained 6.7% in the last two weeks. The VSŽ steel mill appreciated by 3.3%, while insurer Slovenská Poisťovňa and parmaecuticals firm Biotika lost 5.8% and 8.5% respectively. The rest of the SAX constituents remained unchanged.
Net profit of Nafta Gbely dropped 52% in 1998
According to unconsolidated audited results, the local gas company Nafta Gbely netted 152.1 million crowns in 1998 on 3.649 billion crowns in sales, a 52% slump in income from last year. Sales jumped 18% on a yearly basis, and production output grew 9% year-on-year to 3.786 billion crowns. Operating income shrank 8.8% to 704.7 million crowns.
Nafta's net profit per share was clipped from 98.40 crowns in 1997 to last year's 47.10 crowns. Because of a 50% growth in production costs, added value diminished by almost 25% to 1.448 billion crowns last year. Nafta's total assets grew 11% to 10.795 billion crowns, of which 75% are fixed assets. Long-term accounts receivable soared over 100% on a yearly basis and reached 99.5 million crowns. Short-term accounts receivable increased by 180% and came to 1.478 billion crowns. The company's debt expanded 30% to 3.804 billion crowns.
Nafta does not have any long-term liabilities, and short-term liabilities swelled 42% to 836.8 million crowns. Loans from banks increased by 23% to 2.809 billion, mainly because of the doubling of long-term loans to 1.287 billion. Ordinary bank loans fell 9% to 1.523 billion crowns. Three foreign investors from Canada, the United States and France are currently courting Nafta, with the most promising candidate for capital entry being the Canadian Trans Canada Pipelines.
Trade deficit not decreasing fast enough
Slovakia's foreign trade deficit was 12.647 billion crowns at the end of the first quarter, representing 7% of GDP (or 8.3% seasonally adjusted). The largest trade deficit was, as usual, in trade with Russia (10.155 billion crowns). Slovak exports reached 91.08 billion crowns in 1Q99, up 5.3% year-on-year. Exports to EU countries swelled 21.3% and now represent 61.3% of all exports. Imports were 103.727 billion and dropped 0.3% year-on-year. Imports from the EU jumped 10.1% and constitute 51.7% of all imports.
Slovak exports are dominated by basic metals (17.6 billion crowns), transport vehicles (13.7 billion) and machinery (13.3 billion). Imports included mainly machinery, electrical devices, audio and video devices (24.6 billion), followed by mineral ore (16.5 billion) and transport vehicles (12.3 billion).
The drop in the trade deficit is attributable mainly to a 42% increase in exports of transport vehicles, which is a very positive trend. Further help came from declining mineral ore imports, which was mainly a result of their decreasing prices on world markets.
It is becoming clear that the capital account surplus will not match the current account deficit in 1H99. If the deficit does not decrease faster, the current account deficit will come to 7.5% of GDP in 1999, far different from the government's target of 4-5% of GDP.
The balance of payments (BoP) deficit was an estimated $350 million in 1Q99, and an further $300 - $500 million outflow should occur in the second quarter of this year. The BoP should turn positive for 2H99 on the basis of FDI and the improved credibility of the country. It is therefore inadvisable to take long Slovak crown positions despite the interest rate differential in May.
Eurobonds will be issued after presidential elections
In April, the European Bank of Reconstruction and Development set the Slovak1 billion crown 3-year government bond at 15.7%. A more attractive prospect will be the issue of the first Slovak Eurobonds denominated in euros, worth 250 million euro (11.250 billion crowns), which are set to be released after the presidential elections. The arranging banks claimed that presidential elections would be a very important signal to the financial market, in that they should confirm Slovakia's political stability. The new Eurobond issue should help to push average yields down to around 15%.
Tomáš Kmeť is an equity analyst with investment bank ING Barings