CAPITAL MARKET REPORT

Battle brewing for VÚB Kupón

During the last two weeks, the SAX index reached several new year highs in spite of thin trading. The index increases were mainly a result of gains in VÚB, which increased by 300 Sk to a high of 2,300 Sk. The OTC market reported the transfer of 12.7% of shareholders' equity of the retail bank between two subsidiaries of the VÚB group. This stake was originally owned by the VÚB Kupón fund, and these transactions could signal a battle for control of VÚB Kupón. Recently, large blocks of the share have been traded on the BCPB floor. However, there was an effort to depress the average price of 800 Sk by means of a number of low priced block trades. These attempts may be linked to the recently announced offer to buy VÚB shares at a price of 725 Sk. There is a danger that such an unrealistic average price could negatively affect trading and discourage potential new buyers.

During the last two weeks, the SAX index reached several new year highs in spite of thin trading. The index increases were mainly a result of gains in VÚB, which increased by 300 Sk to a high of 2,300 Sk. The OTC market reported the transfer of 12.7% of shareholders' equity of the retail bank between two subsidiaries of the VÚB group. This stake was originally owned by the VÚB Kupón fund, and these transactions could signal a battle for control of VÚB Kupón. Recently, large blocks of the share have been traded on the BCPB floor. However, there was an effort to depress the average price of 800 Sk by means of a number of low priced block trades. These attempts may be linked to the recently announced offer to buy VÚB shares at a price of 725 Sk. There is a danger that such an unrealistic average price could negatively affect trading and discourage potential new buyers.

Blocks of Nafta shares were sold on the floor and OTC markets, possibly by foreign investors who were put off by the unclear situation in the company resulting from the privatization of a 45.9% FNM stake. The share price slumped to its year low of Sk1,940. We think that the very low price of this stake (500m Sk - $16.4m) could be beneficial for institutional investors because the strategic owner will not be burdened by exorbitant financial costs which are usually exacted from acquired companies.

Medical equipment manufacturer Chirana-Prema and Chirana Export-Import acquired 3 of the 9 seats on the supervisory board of shipbuilder Slovenské Lodenice during the recent EGM. The companies have a combined 19 39% stake in Lodenice. The EGM did not, however, discuss the planned equity increase and the two planned loans from EBRD worth a total of DM65m. According to Chirana-Prema's director, the firm does not intend to interfere with Lodenice's management, but the main goal will be to harmonize the strategies of the companies in the group owned by Chirana. The acquisition of a strategic stake in Slovenské Lodenice was very costly and the purchase of the shares (at prices up to Sk2,200) was leveraged. High financial costs will now burden both companies.

BCPB listed companies published their 1H96 results. Slovnaft made a net profit of 174.8m Sk ($5.75m) on revenues of 16.2bn Sk ($532m). The company's net profit slumped 87% and revenues 5.5% when compared to the same period last year. The results were adversely affected by the planned closure of production facilities for maintenance purposes. The June pre-tax profit was approximately 30m Sk ($9.86m). Therefore, a significant increase in earnings for 2H96 is anticipated. The total annual net profit should be in the range of 1.75bn Sk ($57.5m).

Nafta announced a net profit of 409.1m Sk ($13.4m) on revenues 1.96bn Sk ($64.4m). Net profit decreased 19% from the same period last year in spite of revenues increasing slightly. The results reflect the fact that the company is operating in a regulated environment. This situation is not likely to change in the near future. A net profit of 510m Sk ($1.7m) to 49.7m Sk ($1.63m). Demand for the company's corrugated large diameter pipes far exceeds Plastika's present output. It will invest in a new production line for this production in 2H96. The company's strategy for 2H96 is to expand sales by investing in marketing activities and creating new sales offices. This year the company expects pre-tax profit of Sk115m (x3.8m). JCP made a net profit of 64m Sk ($2.1m) on revenues of 1.53bn Sk ($50.3m). The net profit was only 47%, and revenues 78%, of 1H95xs figures. 62.9% of sales were exports. Fluting was responsible for 35.6% of the company's sales, cardboard for 35.5% and asphalt products for 28.9%. The decline in the European fluting market, plus a late start by the construction industry due to bad weather significantly impacted JPC's sales.

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

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