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VÚB KUPÓN IS THE SMART BET

Diversifying your portfolio?

The floor at the Bratislava Stock Exchange (BCPB) experienced a revival in investor interest during the last fourteen days. VSŽ, Slovnaft and VÚB Kupón were the most liquid shares during this period. VSŽ penetrated the Sk700 barrier to reach Sk720. This share was transferred at Sk725 per share on the OTC market.
Slovnaft gained almost Sk100 and is on the verge of shattering its Sk1,000 ceiling, which seems to be a psychological barrier for Slovnaft buyers. Slovnaft has a dominant position in the retail petrol market in Slovakia and a strong position on the Czech market, both of which will be developing rapidly in the next 5 years. As a result, this share is a good long-term investment.
Slovakofarma is another good long-term investment. However, due to its current high price of approximately Sk4,800 and despite anticipated dividends of Sk200, it is not suitable for those looking to line their wallets for this year's holiday.

The floor at the Bratislava Stock Exchange (BCPB) experienced a revival in investor interest during the last fourteen days. VSŽ, Slovnaft and VÚB Kupón were the most liquid shares during this period. VSŽ penetrated the Sk700 barrier to reach Sk720. This share was transferred at Sk725 per share on the OTC market.

Slovnaft gained almost Sk100 and is on the verge of shattering its Sk1,000 ceiling, which seems to be a psychological barrier for Slovnaft buyers. Slovnaft has a dominant position in the retail petrol market in Slovakia and a strong position on the Czech market, both of which will be developing rapidly in the next 5 years. As a result, this share is a good long-term investment.

Slovakofarma is another good long-term investment. However, due to its current high price of approximately Sk4,800 and despite anticipated dividends of Sk200, it is not suitable for those looking to line their wallets for this year's holiday.

VÚB Kupón remained steady in the Sk620-Sk630 range. This well-managed investment fund, currently at a discount of 54%, is an attractive opportunity for those investors who want to diversify their portfolio. The fund will likely distribute dividends for 1996, which also could make this share attractive as a short-term investment. However, do not expect a dividend yield above 10%.

In other news, the PSIPS investment fund resumed trading on the BCPB. This fund could be a good deal for investors who are not risk averse, but its price has been set above its par value which we think is too high. We recommend waiting until the price declines to the Sk300-Sk400 level, at which time this share could be a good deal. The fund's portfolio contains shares of several interesting companies such as a 7.56% stake in VÚB, 20.15% of Slovenské Lodenice and 7.78% in Julius Meinl Baliarne. The fund will probably sell its stakes in companies where its share level exceeds 10%, and this will be a chance for it to diversify into debt instruments and reduce the number of companies' shares it currently holds, which is too high.

Looking at other companies, Slovenská Poisťovňa (SP) announced that it made a net profit of Sk359m ($10.8m) on revenues of Sk13.1bn ($397m) in 1996, according to preliminary results. SP's net profit is 17.7% higher than that for 1995, the EPS is Sk239.3 and the P/E ratio is currently 7.02x. Collected insurance premiums totalled Sk8.94bn ($257m), which was only a 7.7% increase from 1995 in a Slovak insurance market which is growing quickly. This year, SP is anticipating the same growth in the amount of insurance premiums collected as in 1996, with net profits static at Sk360m (10.9m), meaning that its dominant position on the Slovak insurance market is waning.

Chirana-Prema will use funds from its Sk500m ($15.2m) bond issue to finance the general reconstruction of the company's dental equipment plant, to increase the production capacity of its disposable syringe plant and to establish foreign sales offices. The investment in plant capital for dental equipment production will require Sk250m ($7.6m). The investment in the syringe plant will increase its capacity by 30% and will enable yearly sales increases from the current Sk500m to Sk800m ($24.2m). Chirana's foreign sales offices (including warehouses and maintenance centers), will initially be opened in Russia, India and Ukraine, and later in Vietnam and Romania.

Turning to currency trading, the BCPB will commence trading with Sk forex futures (against DM and the USD) and the main stock index (SAX) futures and options, probably starting in November, 1997. In the second stage, the stock exchange should introduce trading in share options but only for selected blue chips. The BCPB is not considering the introduction of these derivatives in the foreseeable future.

The Slovak bond market activity increased, following a slow down in January, but its liquidity remains low because of high money market rates. The auction of government 1-year bonds carrying a 10% coupon, which took place on 26 February, brought in an average yield of 14.66%, which is tax-free. This was contrary to expectations. We believe that the bond market will remain illiquid in 1Q97 given the uncertainty concerning future interest rate developments, but liquidity will possibly increase in April.

POSS ADDS

The privatization of the four largest financial institutions remains unclear. The NBS does not oppose the privatization but its recommendations differ from the government's intentions. According to the NBS, the state should, through the FNM privatization agency, maintain an adequate position in the banks until the end of their restructuring process and end the banks' dominant position in Slovak banking. This stake should be 51% in Slovenska Sporiteľąa and 34% in Slovenska Poisťovąa and VÚB. The banks( major debtors should not become the banks' main shareholders otherwise the capital adequacy of these banks would decline and they would never attain the minimum capital adequacy requirement of 8%. At the same time, the NBS requires an investor who will obtain funds for bank privatization from the investor's own proven free sources, which means that the funds used for privatization should not be derived from bank loans.

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