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VSŽ keeps position as most liquid share, while demand remains steady for Slovnaft stock

The BCPB floor market was quiet during the first half of May.
VSŽ maintained its position as the most liquid share, its price rising Sk10 to Sk750 due to dividend expectations. These were triggered by VSŽ management's announcement that it will propose a dividend payment of Sk40 per share from its 1996 net profit of Sk1.35bn ($42.5m), implying a payout ratio of 49%. Last year, VSŽ paid a dividend of Sk20, but its net profit was 9% higher than in 1996(5?).
According to VSŽ President Jan Smerek, reports of a car production joint venture with Toyota are preliminary, he said, adding that Nomura was asked to evaluate the feasibility of VSŽ's offer. He also stated that VSŽ has a strategic goal of acquiring Hungarian and Czech metals sector companies.

The BCPB floor market was quiet during the first half of May.

VSŽ maintained its position as the most liquid share, its price rising Sk10 to Sk750 due to dividend expectations. These were triggered by VSŽ management's announcement that it will propose a dividend payment of Sk40 per share from its 1996 net profit of Sk1.35bn ($42.5m), implying a payout ratio of 49%. Last year, VSŽ paid a dividend of Sk20, but its net profit was 9% higher than in 1996(5?).

According to VSŽ President Jan Smerek, reports of a car production joint venture with Toyota are preliminary, he said, adding that Nomura was asked to evaluate the feasibility of VSŽ's offer. He also stated that VSŽ has a strategic goal of acquiring Hungarian and Czech metals sector companies.

However, the steel company confirmed that it was not successful in its bid for the Hungarian steel mill in Ózda. We expect that VSŽ's share price will ease over the next several days since it is now in a post-dividend state. Steady demand for Slovnaft shares kept its price above the par value of Sk1,000 and it dominated the OTC market, where more than 500,000 shares of Slovnaft were transacted at prices close to listed.

VÚB Kup-n dropped from Sk650 to Sk615 and Chemolak fell to Sk1,100, a 20% drop. This may be driven by low 1997 earnings expectations of Sk64m ($1.9m) - Sk127 per share compared to 1996 earnings of Sk78m ($2.5m) or Sk155 per share.

Another factor which fueled Chemolak's share price decline was news about radical changes in its shareholder structure. At this price, Chemolak's PER is 8.3x.

Transactions involving a large number of Slov Coupon investment fund shares indicate that this fund has been taken over. This process pushed its share price up to a high of Sk847. According to the Securities Registry, the fund's portfolio should still contain a 15.8% stake in the packaging company Grafobal, a 58.35% stake in the construction material producer Ľahké Stavebné Hmoty, 11.9% in the construction company Sibamac and 5-10% stakes in textile companies Merina and Ozeta, the spring producer PSB, telephone producer Tesla Liptovský Hrádok and the tile company Novoker.

However, Slov Coupon fund shareholders should capitalize on selling their share at the recent high prices.

The VÚB AGM approved the decision not to distribute dividends for 1996.

As of year-end 1996, total assets of Slovakia's largest commercial bank were Sk181.5bn ($5.4bn), which is approximately 25% of total Slovak banking sector assets. VÚB currently holds almost 35% of the loans extended in Slovakia.

The Považské Strojárne plant - which produces pistols, bullets as well as extinguishers and heaters - will be transformed into an independent j.s.c., of which the state will retain a 25-35% stake. After the change, the new company expects to negotiate with foreign partners regarding equity involvement. This is the second plant to split from Považské Strojárne - the first one was the Letecke Motory plant producing jet engines.

Wire producer Drôtovňa announced that it made a 1996 net profit of Sk62m ($1.85m), 26% lower than for 1995. Drôtovňa will not distribute a dividend for 1996. The EPS is Sk70.9 and PER is currently 8.04x, based on revenues of Sk2.3bn ($69m) last year.

The profit decline was caused by a recession in the construction sector and several management changes. The company's exports constitute 50% of total sales, with the main export market being the Czech Republic, which accounted for more than 50% of last year's foreign sales.

Drôtovňa should produce net profits of approximately Sk50m ($1.5m) this year. The forecast decline in 1997 net profits may be partially attributed to costs related to mandatory deposits for exports to the Czech Republic.

Slovakofarma made a consolidated net profit of Sk554m ($16.8m) in 1996 on sales worth Sk4.06bn ($123m), which is 15% higher than in 1995.

The EPS is Sk367.9 and current PER is 11.68. The company considers sales to Russia, Ukraine and China as the main source of future growth. The Slovak government approved an amendment to the Securities Law allowing for the trading of foreign securities in the Slovak market. The amendment still has to be passed by parliament.

The bond market was dominated by government bonds with short maturities. The Ministry of finance bond 20, redeemable in September 1997 ( with a residual maturity of 4 months) was traded on the BCPB floor markets with yields above 15%. The one year government bond 25 traded with yields at the 14% level.

This has increased the average government bonds yield, which is calculated as a part of the SDX index, to 10.1%. We would expect additional significant changes in the SDX index but longer maturity government bonds have not been traded since the beginning of the year and therefore bias the index negatively.

The largest corporate debt issuer, Slovenske Elektrarne (SE) was traded only in small volumes but its three issues have produced a very steep inverted yield curve with '99 SEP yielding 16.5%, '00 SE02 yielding 15.1% and '02 SE03 yielding 12.7%.

The corporate bond SDX index has an average yield of 12.2% and the duration of the portfolio is 2.8 years. The value of the index has risen by 2.9% since the beginning of the year implying an annualised return of 8%.

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

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