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WEEKLY SUMMARY May 30 - June 3, 2011 Close w/w (%) 3M (%) YTD (%) y/y (%) 52W Low 52W HighPX 1,232 -0.6 0.1 0.6 #N/A 1,100 1,276CZK/EUR 24.33 0.8 0.2 3.3 6.4 23.99 26.02CZK/USD 16.63 3.0 6.5 13.8 28.1 16.27 21.81PRIBOR 6M 1.56% 0bp -1bp 0bp 3bps 1.47% 1.58%10Y GB 3.75/20 3.64% -11bps -33bps -27bps -66bps 3.23% 4.35%Prague Stock Exchange Close w/w (%)AAA Auto 25.0 -2.4CME 348 -6.3 CZK m PX IndexCEZ 900 -3.2 4,000 1,300ECM 33 -4.9Erste 843 0.9Fortuna 134 3.8 3,000 1,250KB 4,100 1.1KITD 199 -5.2NWR 240 -12.3 2,000 1,200Orco 218 -4.6Pegas 446 1.1PMCR 9,460 2.3 1,000 1,150TEF 417 1.3Unipetrol 181 0.2VIG 958 -0.4 0 1,100 Equity Bonds 6/05 13/05 20/05 27/05 3/06CZK m 9,168 9,087EUR m 374.4 371.6Source: Bloomberg, PSE, ATLANTIK FTHEADLINES ONE-WEEK OUTLOOKCEZ Given the unfavourable macroeconomic data released last- Shutdown at Temelin extended week (especially US monthly unemployment report) and the- Ex-dividend day absence of new events, we still expect to see negative- Managers sell company shares sentiment and potential profit-taking this week.Pegas Fortuna is going ex-dividend today, 6 June (EUR 0.3 per- Investment in Egypt worth EUR 55-60m share; 5.7% gross. div. yield). The situation around Sazka will be still monitored, with a potential impact on Fortuna;NWR however, that should be already priced in.- Majority owner to sell up to 16m shares In case of CEZ, there will be on external factor – German- Third closing date of share-for-share offer parliament is to decide today on the future of the nuclearFortuna energy programme.- Last cum-dividend day NWR should know the outcome of the FTSE- Offer for lottery activities of Sazka committees review of the index on Wednesday (8Economy June). The effect of potential inclusion of NWR in the index- Weaker industrial output in April should be seen on 17 June. Due to an additional supply- Trade balance surplus offset by high crude oil of shares by majority owner BXR of up to 16m piecesprices (6.1% of the companys value), we consider this factor neutral without an impact on the stock price. Concerning macroeconomic events, the upcoming week will be just the opposite of the previous week as regards the number and the importance of macroeconomic releases. Markets will probably follow FEDs Beige Book (Wednesday), which assesses the US economy and provides an economic outlook. In Europe, the ECB meets on Thursday. The interest rates are expected to be left unchanged at 1.25%. The central banks commentary will be followed. For the time being, market expects interest rates to be raised at the next meeting in July.
EQUITY MARKET – PRAGUE STOCK EXCHANGEMARKET NEWSThe first week of June was marked by weak macroeconomic data, which triggered profit-taking. The domestic market wasno exception. The PX Index closed the week at 1,232 points, down 0.6% w/w. Investors followed US macroeconomicdata and rating agencies announcements. For example, Moody´s mentioned a potential US rating downgrade if noagreement is reached on budgetary needs and gradual budget deficit cuts. The anticipated US monthly unemploymentreport came in below expectations (54 thousand jobs vs. exp. +162 thousand).The local market monitored events around Sazka, which showed up in the stock price of Fortuna. The stock almost reachedCZK 150 during the week, finishing at CZK 134 (+3.8% w/w) as the biggest gainer of the week. NWR, by contrast, wasthe most declining stock (-12.3% to CZK 240.3) after BXR (majority owner of NWR) offered up to 16m shares for sale tomeet investors demand in anticipation of potential inclusion of the stock in the FTSE 250 index. As a result, the positiveeffect of higher demand upon the potential inclusion was counterbalanced. In addition, the upcoming IPO of Polish peerJSW (end of June) could be a potentially negative factor. Index Close w/w (%) 3M (%) YTD (%) y/y (%) 52W Low 52W High PX 1,232 -0.6 0.1 0.6 8.5 1,100 1,276 Wien (ATX) 2,764 0.6 -4.3 -4.8 21.9 2,217 3,001 Warsaw (WIG 20) 2,884 0.6 7.1 4.6 22.5 2,271 2,933 Budapest (BUX) 23,076 0.1 1.5 8.4 8.4 20,221 24,451 Euro Stoxx50 2,789 -1.1 -6.5 -0.6 9.2 2,508 3,068 Dow Jones 12,151 -2.3 0.8 5.0 22.3 9,686 12,811 S&P500 1,300 -2.3 -0.5 3.4 22.1 1,023 1,364 Nasdaq 2,733 -2.3 -0.2 2.6 23.1 2,092 2,874COMPANY NEWSCEZ ndThe ongoing shut-down of the 2 unit of Temelin will be extended by two weeks vs. the original plan. The delay isdue to technical problems. We had already informed about this last week and consider the news neutral.CEZs shares went ex-dividend on 3 June. The dividend approved by the general meeting from 2010 profit is CZK50/share (5.30% gross div. yield). The dividend record day is on 7 June and the payment day falls on 1 August.According to the Czech National Bank, CEZs managers sold in aggregate 450,000 shares of the company from 27May to 1 June 2011. CEO Martin Roman was one of the sellers. Sale of shares by members of management could beperceived negatively by the market but we believe that given the significant stock price growth in the past few monthssuch sale could be expected.Pegas NonwovensPegas Nonwovens announced an investment in a new production facility in Egypt. Initial costs are estimated toreach EUR 55-60m. The investment depends on an agreement with a major customer, which is interested in thecompanys production in the Middle East. The contract should be signed within the next few months. According to a pressrelease, in the first phase, Pegas plans to build a production line with an annual capacity of 20kt, which should belaunched in 2H 2013. If markets conditions are favourable, a second line could be added (2015-2016).Details about how the acquisition will be funded were not released but the funding should be done through own sourcesor bank loans. We do not expect a share issue. The investment should not jeopardize the progressive dividend policy ofthe company, as confirmed in the 1Q11 conference call.A new production facility will be an entry point for the company to North Africa, Middle East and Asia markets. We regardthe deal as the right investment decision.NWRNWR announced that as at 1 June (4 p.m. CET), the third closing date of the share offer, it received acceptances inrespect of 2,174,475 shares. Total acceptances represent almost 99% of the issued shares. Trading in the new sharesstarted on 2 June in London and Prague and on 3 June 2011 in Warsaw. As a reminder, the offer is related to NWRsreincorporation to the UK and subsequent inclusion into the FTSE index. The news is neutral.NWR has announced that its majority owner BXR Mining will sell up to 16m shares of NWR (about 6.1% stake),reducing its stake (64.3% in NWR) in order to enhance liquidity in connection with the inclusion of NWR in the FTSEindex. The offer will be non-public and is subject to the price offered.
EQUITY MARKET – PRAGUE STOCK EXCHANGEThe announced transaction is neutralizing the positive effect (in terms of higher demand) related to potentialinclusion of the stock in the FTSE index. Please note that NWR expects to be included in the FTSE 250 index duringthe next quarterly review (scheduled for 8 June 2011), effective from 17 June. The inclusion is subject to approval by theFTSE committee.In addition, the stock could potentially face certain pressure in connection with investors freeing funds for the IPOof Polish miner JSW (book-building period: 13-28 June; trading on the WSE will commence on 6 July).The announced sale does not change our fundamental view of the stock and we therefore maintain our target price.However, the higher supply is of course felt on the market.Nevertheless, increasing the free float could lead to potentially higher weighting of NWR in the FTSE 250 index. Havingsaid that, the potential positive effect (higher demand) of inclusion in the index will be muted at least in the short term and,moreover, the stock could potentially remain under pressure due to the anticipated IPO of JSW.FortunaFortunas shares are going ex-dividend today, 6 June (EUR 0.3 per share). At the present currency rate, this meansabout 5.7% gross dividend yield. The dividend payment day is on 24 June.Penta (majority owner of Fortuna) and E-invest submitted a joint offer for lottery activities of Sazka, which wasofficially declared bankrupt last Monday. The offer price is CZK 3.5bn and the companies also offer to pay CZK 300mannually from lottery earnings to sports clubs. Penta intends to take advantage of the synergy of Sazka and Fortuna tocreate a dominant player on the Czech lottery market. There are more companies interested in acquiring Sazka(Fortuna itself had earlier submitted an independent offer worth CZK 2 – 2.5bn) and negotiations may be expected to belengthy. This is positive for Fortuna even if the acquisition fails. In the second half of July, Fortuna is launching its ownlottery and the unresolved problems regarding Sazka would make it much easier for Fortuna to start the lottery andacquire a market share faster. Pentas strategy will be to seek Sazkas acquisition or at least try to delay the finalresolution of Sazkas situation.
EQUITY MARKET – BRATISLAVA STOCK EXCHANGE Weekly volume Close w/w (%) 3M (%) y/y(%) 52W Low 52W High (EUR ths) VUB 81.0 -0.6 -11.2 15.7 67.0 95.0 7 SES Tlmače 7.0 -50.0 -50.0 -58.8 7.0 17.0 0 OTP 4.00 0.0 81.0 33.3 2.01 4.10 0 Biotika 21.0 0.0 -2.3 130.6 9.1 23.2 5 Slovnaft 50.0 0.0 0.0 -7.5 40.0 58.3 0 BHP 11.2 0.1 1.0 8.2 10.3 11.2 334 TMR 42.0 -0.2 1.4 5.5 39.7 42.5 416 SAX Index 230.34 -2.5 0.8 11.2 204 248.53 762 MARKET COMMENT After a previous long pause following the 2010 results, SES Tlmače traded at EUR 7, down 50% last week. VÚBs shares stayed at EUR 81.50 almost all week, eventually falling to EUR 81 and closing down 0.6%. TMR traded SAX Index within a narrow range of EUR 42 – 42.28 and closed 255 down about 0.2% at EUR 42. Slovnaft first fell to EUR 250 47.50 before rebounding to EUR 50, i.e. flat w/w. Biotika closed also flat at EUR 21.01. The only growing stock in 245 the SAX Index was BHP, which finished up 0.1% at EUR 240 11.20. 235 The SAX Index posted a loss of 2.5% to 230.34 points. Traded volumes reached about EUR 750 thousand, with 230 half of the volumes traded in TMR. Of stocks not included in the SAX Index, Zentiva is worth mentioning. The shares 225 were traded within EUR 131.03 – 131.27 and they gained 220 about 64% YTD. 6/05 13/05 20/05 27/05 3/06EUR TMR - Tatry Mountain Resorts EUR BHP - Best Hotel Properties 11.2442.442.2 11.2042.041.8 11.1641.6 11.1241.441.2 11.08 6/05 13/05 20/05 27/05 3/06 6/05 13/05 20/05 27/05 3/06
ECONOMYIndustrial output – AprilGrowth in industrial output slowed down to 4.7% y/y (vs. 12.9% on average in 1Q), falling short of expectations(8.0%). Seasonally adjusted production increased by 0.3% m/m. Although the year-on-year comparison was negativelyimpacted by a calendar effect (-1 working day), the adjusted result (7.7%) is still worse than expected and indicates anongoing slow-down, which started in February. The data fit into the weaker results of the German industry (in particular adecline in orders). Apart from the overall result, detailed figures do not reveal any major surprises.Exports remain the decisive factor; total sales grew by 6.5% y/y, of which export sales grew by 13% y/y and domesticsales by less than 1%. Industrial production growth could continue, albeit at a slower pace, which is indicated by a solidincrease in new orders (9%, of which new orders from abroad: 9%). Main growth drivers include car manufacturing (17%),machinery (10%) and metallurgy (7%). This year we expect an increase of 7%.Trade balance – AprilTrade balance in April ended with a surplus of CZK 12.6bn (CZK 14.1bn in April 2010), in line with our expectations(CZK 12bn) but slightly below market consensus (CZK 15bn). Exports continued to grow at a strong pace (15% y/y) intraditional categories. Car and machinery exports rose by 20%. Imports continued to grow too (17%), supported by arecovery in investment demand along with growing prices of commodities, crude oil in particular. The value of importedcrude oil, gas and fuels rose by 25% but the volume of crude oil and gas fell by 13% and 2%, respectively. The tradedeficit in energies increased by CZK 3.2bn, erasing a part of the 6.5bn higher surplus from trade in machinery and cars.According to the national methodology of balance of payments, foreign trade posted a surplus of CZK 0.9bn.The results passed without any reaction on the part of the FX market and the koruna stayed at 24.32 per euro.Indicators Last Figure Period 2009 2010 2011eGDP (real) %, y/y (real) 2.9 4Q/10 -4.0 2.2 2.0Industrial output %, y/y (real) 16.9 02/11 -13.4 10.5 7.5CPI %, y/y 1.8 02/11 1.0 1.5 2.2Trade balance bn CZK 1.0 12/10 151.7 124.5 105.2Current account % of GDP -1.0 2009 -1.0 -3.3 -1.8Unemployment % 9.7 01/11 8.1 9.0 8.1
FOREXCZK/EUR USD Koruna EUR 16.0 23.0The koruna stagnated against the euro all week around24.50 but firmed to 24.33 at the end of the week. Thefirming was triggered by the weakening of the dollar against 16.4 23.5the euro, which was subsequently reflected in other regionalcurrencies. 24.0We still expect rather calm and stable trading, and the koruna 16.8could firm further in the short term (24.2). By the end of the 24.5summer the koruna could get stabilized around 24.2-24.6. The 17.2long-term outlook remains unchanged and we expect to see USDthe Czech currency firm to 23.8. EUR 25.0 17.6 6/05 13/05 20/05 27/05 3/06CZK/USDThe koruna was firming against the dollar all week,moving from 17.20 to a month high of CZK 16.60/USD. The firming accelerated toward the end of the week, when thedollar weakened against the euro and the koruna firmed against the euro.Higher volatility will probably continue and the dollar could continue weakening (16.50?) in the short term. In the longterm (months) rather than a clear trend we expect to see higher volatility within CZK 16-20 per USD.USD/EURThe euro was steadily firming against the dollar. After moving from USD 1.43/EUR to 1.45/EUR, it jumped to a monthhigh of 1.463, as another loan by the EU to Greece is becoming a possibility. Moreover, US macroeconomic data,especially the unemployment report, were weak.The dollar got under a strong selling pressure and besides a technical correction there are not many events that wouldsupport the dollar in the short term. The ECB meets on Thursday. Interest rates are expected to be kept unchanged butat the same time the central bank is expected to indicate their raise in July. If expectations are not met, the euro couldsignificantly weaken. Exchange Rates Close w/w 3M YTD y/y 52W Forward Forward (%) (%) (%) (%) Low High 1M 6M CZK/EUR 24.33 0.8 0.2 3.3 6.4 24.0 26.0 24.3 24.3 CZK/USD 16.63 3.0 6.5 13.8 28.1 16.3 21.8 16.6 16.7 CZK/GBP 27.30 3.6 5.4 6.9 14.0 26.9 31.9 27.3 27.3 USD/EUR 1.464 -2.2 -5.9 -9.2 -16.9 1.19 1.48 1.46 1.46