CAPITAL MARKET REPORT

Slovakofarma is stable, though pricey

After a correctional period, activity on the Slovak capital market increased, culminating on July 11 when the SAX index reached a year's high of 221.5 as a result of gains in Slovnaft, VSŽ and VÚB. Slovnaft again reached par value of 1,000 Sk, stabilizing slightly below this. The recently announced syndicated loan and other loans from the London branch of ING Barings and Merril Lynch should stimulate investors' interest in the refinery. The share should remain above 1,000 Sk in the long term. VSŽ firmed up at 700 Sk. But do not expect this price to rise considerably in the near future since investors currently are not paying much more than 700 Sk per share.

After a correctional period, activity on the Slovak capital market increased, culminating on July 11 when the SAX index reached a year's high of 221.5 as a result of gains in Slovnaft, VSŽ and VÚB. Slovnaft again reached par value of 1,000 Sk, stabilizing slightly below this. The recently announced syndicated loan and other loans from the London branch of ING Barings and Merril Lynch should stimulate investors' interest in the refinery. The share should remain above 1,000 Sk in the long term. VSŽ firmed up at 700 Sk. But do not expect this price to rise considerably in the near future since investors currently are not paying much more than 700 Sk per share.

Finance sector shares enjoyed further price increases after June's large increases, which occurred after the postponement of bank privatization, suggesting that several investors have begun to gradually accumulate stakes in these companies. The remaining FNM stakes will probably be divided among several companies. Since this accumulation will take time, anticipate a moderate impact on the share prices of VÚB, IRB and Slovenská Poisťovňa.

OTC market statistics were inflated by the transfer of blocks of Slovenské Lodenice shares at prices between 1,702 Sk and 2,800 Sk during the last two weeks. The highest price of 2,800 Sk was paid by an unknown domestic investor who tried to take-over the company but cancelled the deal at the last moment. About 40% of this company's equity is now probably held by Danubia Invest, the Slovak brokerage house that also holds 38% of Považské Strojárne.

A Slovenská Poisťovňa EGM agreed to distribute 150m Sk ($9.9m) net income as dividents (EPS was 203.7 Sk, PER is currently 9.82x). This means 100 Sk per share (SP is curently trading at around 2,000 Sk), providing a dividend yield of 5%.

Slovakofarma is the first central or eastern European pharmaceutical producer to obtain an FDA (American Food & Drug Administration) certificate for a substance used in drug production. This will give it access to the American market, helping sales and improving its international reputation.

The substance is Metipranonol which is used in the production of eye drops and was originally developed by Slovakofarma. The eye drops will be produced by Bausch and Lomb. Slovakofarma exported 72% of last year's 4bn Sk ($130m) production. This year, it will invest 644m Sk toward improving the quality of its production. The company remains one of best and safest investment opportunities in Slovakia especially in the long-term, despite a high price.

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

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