CAPITAL MARKET REPORT

SAX recovers from six-month low

Our anticipation of a further decline in Slovak share prices and volumes was only partially fulfilled over the last two weeks. The SAX index reached a six-month low on October 8, dipping below the 200 level to 198.8 because of heavy losses in Nafta, VÚB and VSŽ's price weakness. Since then, the SAX rebounded and continues to climb. This resulted from gains in Nafta, which returned to prices above 1,900 Sk, VÚB firming at 1,750 Sk and renewed interest in VSŽ, which rose to 665 Sk. Block trades of Nafta, Slovnaft, VSŽ and VÚB Kupón dominated the BSE floor and OTC markets. Several large transfers of investment fund shares (such as IF Prosperita severu, IF Zobor, Regionfond SP and IF Poľnohospodárov) bear witness to the ongoing take-overs of these funds.

Our anticipation of a further decline in Slovak share prices and volumes was only partially fulfilled over the last two weeks. The SAX index reached a six-month low on October 8, dipping below the 200 level to 198.8 because of heavy losses in Nafta, VÚB and VSŽ's price weakness. Since then, the SAX rebounded and continues to climb. This resulted from gains in Nafta, which returned to prices above 1,900 Sk, VÚB firming at 1,750 Sk and renewed interest in VSŽ, which rose to 665 Sk. Block trades of Nafta, Slovnaft, VSŽ and VÚB Kupón dominated the BSE floor and OTC markets. Several large transfers of investment fund shares (such as IF Prosperita severu, IF Zobor, Regionfond SP and IF Poľnohospodárov) bear witness to the ongoing take-overs of these funds.

VSŽ has made several acquisitions during the first 8 months of this year, increasing its debt burden by 3.8bn Sk, while the company's short-term receivables reached 18.17bn Sk. VSŽ's appetite for acquisition seems to be undiminished. According to the chairman of VSŽ's Board of Directors, Ján Smerek, VSŽ is interested in acquiring a stake in the state run Slovak Telecom. The steel company also wants to acquire ownership stakes in banks, insurance companies and investment funds. Part of the profits from these purchases will be reinvested in VSŽ's development.

Our forecast that a dramatic price increase in the Creditanstalt-Slovak investment fund's share price due to an attempted takeover of the fund has been fulfilled but not in the way we expected. The takeover was rapid. The Austrian Creditanstalt Investment Bank sold its 26% stake in Creditanstalt - Slovak IF to the J&T Securities II a.s., a brokerage company. The shares were sold for 293m Sk ($9.45m, i.e., 4,135 Sk per share). The current NAV per share is 2,461 Sk, and the share price was approximately 900 Sk, translating into a 63% discount to NAV. Total fund assets are 675m Sk ($21.8m). The new owner is trying to increase his stake in the fund (as the public offer to buy the shares at 1,018 Sk shows) to about 30% and the fund's name will be changed. Even if it gets a new name, the fund will develop similar to other acquired investment funds in Slovakia.

Former Interior Minister Ľudovít Hudek's appointment as VÚB vice president and a member of the bank's board of directors, confirms the high level of influence that the ruling party Movement for a Democratic Slovakia (HZDS) has in VÚB (see story this page).

Total September turnover on both Slovak stock markets (BSE and RM-System) was 11.54bn Sk ($372m), a decline of 3% compared to August. Nafta and VÚB Kupón were by far the most traded shares with average daily turnovers of 83m Sk and 69m Sk, respectively.

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

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