Market Comment – In the Spotlight – Beta Sec – Daily report 07-08-2020

  • Beta Sec – Daily report 07-08-2020

    Market Comment

Selective interest on H1:20 results readings kept the market afloat in a day that was a typical August trading session: Tight range (just 7 points) and low volume pointed to a sideways session with interest focusing at few exceptional names.

The general index, which closed 0.45% higher at 640.60 points, was buoyed by select blue chips, such as OTE – which published its second-quarter results Thursday – whose stock gained 1.98%, and Jumbo (1.37%). The blue chip index rose 0.48% to close at 1,536.93 and mid-caps settled at 858.1, a gain of 0.31%.

  • The banks index was almost unchanged at 319.97 (+0.02%), although Alpha was the only one of the “big four” retail banks to decline (-1.14%). National, which also announced its second-quarter results Thursday, gained 1.18%, Piraeus gained 0.24% and Eurobank rose 0.05%.. Terna Energy shares closed higher by 0.9% at €11.66 posting another historical record level price. Turnover amounted to €31.1m down from Thursday’s €37.4m. In total 50 stocks recorded gains, another 39 posted losses and 21 remained unchanged.

After three consecutive sessions of gains market may consolidate at current levels. This week’s €34m average turnover is indicative of what to expect next week which is practically eventless. 

  In the Spotlight 

Greece/Unemployment: Unemployment growth rate rose further in May, as the impact of the COVID-19 pandemic takes its toll on economic activity. In May, jobless rate stood at +17% from an upwardly revised reading of +15.7% in April, seasonally-adjusted data from statistics office ELSTAT showed. In May 2019, the respective rate was revised down to 17.2%.

  • The number of unemployed amounted to 765K while the number of inactive to 3.4 million. Still, ELSTAT warned that the data may be revised due to exceptional circumstances. Moreover, the statistical service said the decrease in the number of unemployed compared with the year-ago figure was due to the fact that many unemployed were classified as economically inactive, as many businesses suspended operation by government order.

The number of unemployed persons decreased by 52,396 persons compared with May 2019 but increased by 48,444 persons compared with April 2020. The number of inactive persons increased by 205,247 persons y-o-y and by 77,988 m-o-m. 

Alpha Bank: Alpha Bank said it applied for opting in to the Hercules Asset Protection Scheme for the Orion and Galaxy II securitizations with gross book value of 1.9 billion and 5.7 billion euros respectively. The application relates to the provision of a guarantee by the state on the senior notes of an amount up to 3.04 billion euros. “The application for Galaxy IV will follow soon thereafter,” the bank said. Recall, Galaxy consists of three NPE securitizations under the code names Orion, Galaxy II and Galaxy IV with a total gross book value of around 10.8 billion euros. 

  • AthEx/July stats:  During July 2020, Greek retail investors continued to exhibit high levels of participation in the total transactions value. Moreover, Greek retail investors have remained buyers not only for the duration of July, but for 2020 as a whole. In addition, during July, foreign investors had outflows of €66.11m., while Greek investors had inflows of €66.12m.

Transactions Value in July 2020 reached €1,155.94 million -18.8% m-o-m. Compared to the same month of the previous year when transactions value was €1,731.31 million there was a decrease of 33.2%.%. International investors in July 2020 accounted for 51.9% of the transactions’ value (in the previous month they realized 48.3%, while in July 2019 they had accounted for 48.7% of the transactions’ value). Foreign investors stake (Ex HFSF) in total market cap dropped to 65.86% (Ex HFSF) vs. 66.41% a month ago.

  • Greek Retail investors (households) in July 2020 accounted for 23,7% of the transactions’ value (in the previous month they realized 25,8% of the transactions’ value, while in July 2019 they had accounted for 26.9% of the transactions’ value). 

Autohellas: On August 6th the company bought 10.9K own shares at avg price of €3.49. 

MYTILINEOS: On Aug 5th , the company bought 39,931 own shares at avg. price € 8.03/share and a total consideration of € 280.9Κ. The company now controls 1,776,351 shares or 1.2431% of share capital. 

Thrace Plastics: On Aug 6th, the company bought 4,500 own shares at avg. price € 2.08/share and a total consideration of € 9.4Κ. 

QUEST: On Aug 5th, Mrs. Papageorgiou, person affiliated with chairman of BoD bought 16,848 shares for a total consideration of €134.5K 

HTO (Q2/H1:20 Results review): OTE reported solid Q2:20 results broadly in line with consensus estimates despite the challenging economic environment in Greece and Romania. OTE reported a 20% increase in its second quarter recurring profits largely due to sharp containment in operating expenses, Still, revenues came in weaker as the lockdown sent mobile service revenues down 8.8% nearly half of which due to roaming. In more details:

Adjusted EBITDA (After Leasing) came at €321.3 m (+0.8% y-o-y), along with strong adjusted FCF of €184.8 m while adjusted net profit came at €118.4 m. Revenues in Greece were down 3.8% y-o-y partly due to lower roaming, while EBITDA declined by just 1.7% y-o-y thanks to cost control. Romania continued the recovery path, with revenues down by just 1.0% y-o-y and EBITDA increased by 25.7%.

§  In Greece, Q2:20revenues were down 3.8% to €692.3m. Retail fixed service revenues were down 0.9%. The drop was in part due to pressure on the TV segment, as OTE extended rebates to certain businesses (cafés, hotels, betting shops) that were either shut down or had no sporting events to feature. Wholesale revenues were up 0.6% in the quarter due to increased adoption of fiber services by other operators. ICT revenues were up 5. In Mobile, service revenues were down 8.8% as mobility and traveling restrictions had a negative impact on both visitors roaming and outbound roaming revenues.

  • Post-paid and pre-paid revenues were down 3.3% and 6.9%, respectively, partly reflecting extra data offers during the COVID-19 crisis that weighed on out-of-bundle revenues. Excluding roaming, mobile service revenues would have been down less than 5%. Data revenues grew by 18%, continuing its positive performance, fueled by attractive offers under the more f or-more concept. Adjusted EBITDA After Lease (AL) in Greece was down 1.7% in the quarter at €285.1m, yielding a strong margin of 41.2%.

§  Romania Q2:20 revenues were down 1.0% to €228.9m, as growth in ICT-related projects and higher wholesale revenues nearly offsets the negative impacts of the COVID-19 pandemic on service revenues. Revenues from Retail Fixed Services totaled €55.4m, down 6.6%. Continuing strong broadband performance from the company’s higher-speed offerings and pricing initiatives was offset by pressure on the voice and TV segment. Mobile service revenues totaled €72.9m, down 7.5%, largely due to the negative impact from the health crisis. The decline was primarily related to roaming; excluding roaming, mobile service revenues were down 4%. In addition, the prepaid segment was affected by lower usage due to mobility restrictions.

  • The positive momentum in ARPU evolution is continuing, mainly due to pricing and upselling initiatives. The FMC customer base grew by 9.4% to 881k, reaffirming Telekom Romania’s competitive advantage and market leadership in this segment. FMC mobile service revenues were up 5.6% compared to Q2:19.
  • In addition, FMS (Fixed Mobile Substitution) services continue to gain acceptance, having reached 71k customers at the end of the quarter. Revenues from Wholesale Services were up 21.0% from Q2:19, mainly due to higher international transit traffic. Other revenues were stable in the quarter as the increase in revenues from ICT projects was largely offset by lower handset sales due to COVID-19.

The Company continues to adopt initiatives aimed at reducing indirect costs across all business areas, as part of its ongoing cost-transformation process. In the quarter, it outsourced its TV business, and plans to implement similar measures in segments such as IT in coming quarters. Personnel costs were down nearly 15% from Q2:19. Adjusted EBITDA After Leases (AL) grew 25.7% to €36.2m in Q2:20. In addition to a low base in Q2:19, which will be reversed in coming quarters, disciplined cost programs mitigated the impact from COVID-19 on revenues, driving the profitability improvement.

  • §  Group’s Adjusted Net Debt stood at €847.7m at June 30, 2020, down 16.3% compared to June 30, 2019. The Group’s ratio of Adjusted Net Debt to 12-month Adjusted EBITDA (AL) stood at 0.6x.

§  OTE said that the COVID-19 pandemic is expected to continue negatively impacting revenues in Greece and Romania in the second half of the year. In particular, trends in such areas as B2B, mobile services, handset sales, and roaming are expected to remain affected. However, the Company intends to continue implementing stringent cost-reduction measures across all areas, to maintain its profitability and cash flow generation in 2020.  Management reiterated its 2020 objectives: Adjusted CAPEX of €600m, Adjusted Free Cash Flow of approximately €610m, and reported FCF of €350m. Shareholder remuneration for 2020 is planned to reach €400m.

All in all a satisfactory quarter in line with FY:20 guidance. 

The following table summarise reported results: 

HTO

2019

2020

Y-o-Y

2019

2020

Y-o-Y

EUR thous.

Η1

Η1

(%)

Q2

Q2

(%)

Sales

1,855,500

1,859,300

0.2% 

946,900 

918,300 

-3.0% 

EBITDA

625,400

628,500

0.5% 

292,200 

314,500 

7.6% 

EBITDA Mrg

33.7% 

33.8% 

+10 bps 

30.9% 

34.2% 

+339 bps 

Net Income

104,800

181,000

72.7% 

42,900 

77,800 

81.4% 

Net Mrg

5.6% 

9.7% 

+409 bps 

4.5% 

8.5% 

+394 bps 

 

National Bank (Results Q2:20 review): National Bank posted a net profit of €58m coming in line with our estimates across the board. In more details: 

§  Core pre-provision income reached €131m (-4.4% q-o-q), impacted by the 13.6% q-o-q decline in fees. However, management expects PPI in H2:20 to bounce on the back of increased NII and recovered fees. Note that as of end July 2020 new production was c.€2.8b, with a solid pipeline of over €2b for 2H20 also supported by Covid19 related State schemes. NII was down 1.8% q-o-q at €273m while fees dropped by 13.6% q-o-q.

§  Operating costs declined by 3.9% q-o-q, reflecting the benefit of recent VRS (c1,200 employees in 2019 and Q1:20). NBG said that will launch another VES of up to 1,000 people in 2020, for which the bank booked a cost of €90m in Q1:20.

§  Total Capital ratio increased by 50 bps q-o-q to 16.9%, creating a capital buffer against an Overall Capital Requirement (OCR) of 11.0% equivalent to c€2.1 bn of capital. NBG plans to finalize the c€6.0 bn NPE securitization in H1 ’21, with any extra provisions to be covered by PPI (including unrealized gains on bonds).

§  Bank NPE stock edges lower to €10.1b in Q2:20. NPE reduction continued in Q2:20 (-€0.3b q-o-q), driven by organic actions, despite the temporary stop in liquidations. Inflows into the NPE bucket abated q-o-q, reflecting the application of payment moratoria measures and State support schemes, while curing flows improved vs Q1:20 levels; NPE coverage stood at 57%.

§  The agreement in June to sell a €1.6b secured portfolio of large corporates, SMEs & SBs (Project Icon) completes a series of successful NPE disposals in Greece of c.6b in total size, driving NPE stock to near the €10b mark

§  Key preparatory steps for large securitization of more than €6b GBV (Project Frontier) have already been taken, with the transaction expected to be completed in H1:21

§  Domestic deposits grew by €1b or 2% ytd to €43.3b, driven solely by private deposit inflows; LCR & NSFR ratios at levels well above 100%, far exceeding regulatory thresholds

§  Eurosystem funding at €10.5b in Q2:20 from €5.0b in May 2020, reflecting the full use of the ECB’s LTRO/TLTRO funding facilities; the Bank’s blended funding cost at 14bps

§  CET1 settled at 15.93% up by 40bps qoq and is net of the total anticipated Covid19 charge offs of €426m incurred in H1:20. On a fully loaded basis, CET1 stands at 13.0%, 40bps higher vs Q1:20

§  o Total capital ratio at 16.9%3 provides a capital cushion of c.540bps compared to the 11.5% 2020 Covid19 revised minimum regulatory levels, without factoring in the additional capital relief of 50bps from the O-SII buffer, as per ECBs recent communication regarding supervisory response to the Covid crisis

§  NBG trades 0.21x its TBV. 

The following table summarise results vs. our Q2:20 estimates: 

 

NBG

Act.

Act.

Act.

Latest read

Overview

Est.

 

(In Million Euro)

2Q19

1Q20

2Q:20

QoQ

YoY

2Q20

vs Est.

NII

309

277

273

-1.6%

-11.8%

273

-0.2%

Fee income

61

66

57

-13.6%

-6.6%

54

5.6%

Trading Income

27

788

23

-97.1%

-15.2%

7

227.1%

Insurance/Other Income

24

-12

-11

 

 

4

 

Total income

421.0

1,119.0

341.9

-69.4%

-18.8%

338

1.2%

Operating costs

-204

-207

-199

3.9%

2.5%

-202

1.5%

Pre-provision-profits

217.0

912.0

142.9

-84.3%

-34.1%

136

5.1%

Provisions

-101

-486

-76

84.3%

24.4%

-82

6.8%

Other results

11

-117

-18

85.0%

-262.0%

-2

 

PBT

126.8

309.0

49.0

-84.1%

-61.4%

52

-5.8%

Corporate taxes

5

4

3

-25.0%

-40.0%

2

50.0%

Net profit (continued)

122

305

46

-84.9%

-62.2%

50

-8.0%

Discontinued operations

82

0

10

 

 

0

 

Net profit

204

305

56

-81.6%

-72.5%

50

12.0%

Minorities

-12

1

0

 

 

1

 

Attributable net profit

192

306

56

-81.7%

-70.8%

51

9.8%

 

Inform Lycos (Results H1:20): The Group maintained its sales at € 34m excluding the one-off project of the production of security ballots for the Nigerian elections of € 4.7m in H1:19. Operating profitability reduced by € 0.4m and amounted to € 3.5m vs. € 3.9m in H1:19 due to a) the development of digital transformation solutions in Greece and Romania and b) the new services of document management provided to existing and new customers by the companies acquired in Romania last year which contributed € 0.5m to the profitability of the Group.

Inform Lycos is also active in sectors directly affected by the current COVID-19 situation, and thus in core activity there is a decrease in turnover of -15% in H1:20, which comes mainly from the product categories addressed to the organizations whose operation was on lockdown by the government during the COVID-19 pandemic restriction period, thus the consumption was significantly reduced and consequently the start of contracts was delayed by our customers.

  • EBITDA reached € 3.5m decreased by € 0.4m or -10%, as in the EBITDA of the corresponding half of 2019 included profitability of € 1.1m from the one-off project of the production of the security ballots for the presidential elections in Nigeria. Excluding this one-off project, EBITDA increased by + 27% vs. H1:19

Group EBIT, reached € 1.4m decreased by € 0.8m, impacted by € 0.4m from the higher depreciation compared to the corresponding period of 2019 due to the acquisitions that took place in Romania within last year, and the impact of the Nigeria project,

  • Consolidated earnings after taxes (EAT) of the Group, reached to € 0.4m compared to € 1.4m in the corresponding half of 2019.

Net debt of the Group amounted to € 20.6m in the first half of 2020 from € 19.5m in the corresponding period of 2019, increased by € 1.1m, mainly due to the acquisitions in Romania that took place within last year.

Manos Chatzidakis

Head of research29 Alexandras Avenue

11473 Athens,Greece

Tel: +30 210 6478755/754

Fax:+30 210 6410139

Email: [email protected]

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