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CAPITAL MARKET

Železiarne Podbrezová and Plastika had down years in '96, but Chirana Prema looks strong now

Tensions caused by the referendum chaos and downward pressure on the Slovak koruna dampened BSE floor market activity. VSŽ remained the most liquid share on the market, but its price slumped from Sk751 to Sk680 after the dividend deadline and because of a decline in investor interest, caused partially by suprisingly low 1Q97 results.
Slovnaft steadied above its par value and currently is trading in the Sk1,020-1,040 range. VÚB Kupón's share price dropped from Sk650 to Sk512, probably due to its disappointing 1996 Sk11 dividend approved at the firm's AGM, a mere 26% of 1995's dividend and a payout ratio of 23%.
Other blue chips traded in minuscule volumes. The decline in trading volumes could be seen in April's total market volume of Sk8.75bn ($261m), approximately 30% less than in March.

Tensions caused by the referendum chaos and downward pressure on the Slovak koruna dampened BSE floor market activity. VSŽ remained the most liquid share on the market, but its price slumped from Sk751 to Sk680 after the dividend deadline and because of a decline in investor interest, caused partially by suprisingly low 1Q97 results.

Slovnaft steadied above its par value and currently is trading in the Sk1,020-1,040 range. VÚB Kupón's share price dropped from Sk650 to Sk512, probably due to its disappointing 1996 Sk11 dividend approved at the firm's AGM, a mere 26% of 1995's dividend and a payout ratio of 23%.

Other blue chips traded in minuscule volumes. The decline in trading volumes could be seen in April's total market volume of Sk8.75bn ($261m), approximately 30% less than in March.

Železiarne Podbrezová (ZP) announced a net profit of Sk22.4m ($673,000) on sales of Sk2.97bn ($90m) and an EPS of Sk9.40. Sales rose 5.2% from 1995. The net profit is only 45% of what we forecast. The PER is currently 22.34x. The main reasons for the decline in profit are lower than planned sales and a 5% increase in electricity rates from 1 August 1996.

Another reason for the profit decline was a change in the fixed assets depreciation schedule. The company estimates a net profit of Sk60m ($1.8m) for this year and, according to ŽP General Manager Vladimir Sotak, the company should distribute a dividend for 1997. For the first four months of 1997, ŽP's sales were Sk1.2bn ($36m) and the gross profit was Sk51m ($1.53m).

Slovnaft's 1Q97 sales were Sk9.6bn ($290m), of which 52% was derived from exports. In the same period, Slovnaft made a pre-tax profit of Sk790.3m ($24m). This was an improvement over the same period in 1996, when it recorded a loss of Sk132.7m ($4m) mainly due to a maintenance shutdown.

The steel company VSŽ's AGM approved the distribution of a dividend of Sk40 for 1996. The payout ratio is 48.7%. This year, the company aims to increase its net income by 6% to Sk1.44bn($43m). According to VSŽ Supervisory Board Chairman Alexander Rezeš, VSZ intends to diversify into the banking and energy sectors, telecommunications, trade, services, as well as the agricultural sector.

According to VSŽ President Ján Smerek, the steel company is also interested in acquiring equity stakes in or injecting capital into certain central European metal sector companies following their privatization. VSŽ stated that it made a unconsolidated net profit of only Sk44m ($1.3m) in 1Q97 on operating revenues of Sk14bn ($420m). The company's revenues were 23.4% higher than in 1Q96, however operational costs surged 36.4% which led to an operating loss of Sk587 ($17.6m).

Nafta Gbely made a net profit of Sk204m ($6.1m) on revenues of Sk767m ($23m). The net profit is 19.3% higher than in the same period of the last year due to higher margins.

Plastika posted a minuscule net profit of Sk4m ($120,000), only 19% of 1Q96's net profit. Although the company's operating revenues grew by 9.4% YoY, increasing domestic competition and higher financial costs depressed the net profit margin to 1%.

Plastika is negotiating with the three major European plastics producers (Dutch Wawin, Austrian Pipelife, and Finnish Uponor), to acquire Plastika. These producers have taken over every plastics producer around Slovakia except for Plastika. The company's strategy for 1996-97 is to reduce its profit margin, increase its number of clients and extend its influence, mainly in the Czech market. Last year, Plastika penetrated the Italian, Russian, Ukrainian and Slovenian markets.

Chemolak's net profit declined 30% to Sk21m ($631,000). The company's operating revenues decreased 22.8% year-on-year due to lower sales to the Czech Republic caused by increased competition. The company also reduced its exposure to the Russian market in order to avoid collection problems.

Chirana Prema won two tenders financed by the World Bank to supply 708 units of equipment for ENT examination rooms in Russia worth $6.7m. The second tender was won by its subsidiary, Chiros Piešťany, to supply a mobile hospital for the Russian Interior Ministry worth $3m. Chirana also has won a public tender in Belarus to supply 100 units of anesthetic equipment worth $3m, which is expected to happen in June.

Prepared by ING Bank N.V., Bratislava branch in cooperation with ING Baring Securities (Slovakia), o.c.p.,a.s.

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