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Piraeus Sec:Greek Companies Update

  • The key market driver in 2019 was the decline in bond yields, sending the Athens General Index 49.5% higher, with banks up 101.34%
  • The focus in 2020 should be on the corporate profitability outlook, which largely depends on the GDP growth outlook
  • The markets will be monitoring the implementation progress of the Greek govt’s pro-growth policy agenda, comprised of tax cuts and acceleration of investment projects which could lead GDP growth to 3.0% or higher

Two GDP growth scenarios for 2020:

  • The European Commission forecast for GDP growth of 2.3% implies limited upside for the market overall – Greek banks may also have downside, facing capital depletion from the planned NPE securitizations in conjunction with the end-July stress test results – under this scenario, the performance of the Greek market may be partly linked to that of foreign markets
  • A GDP growth of 3.0% or higher, even above the govt’s official budget assumption of 2.8% should create a positive base effect for 2021. Strong GDP growth should be positive for corporate earnings, real estate prices, NPL recoveries and Greek banks’ profitability. Under this scenario, Greek market could outperform foreign markets, while banks could see some further upside
  • ‘All-weather’ stock picks:
  • Dividend plays (dividend yields of >5.0%): OPAP, Motor-Oil, OTE, Aegean
  • Growth plays: Jumbo
  • Greek Energy Market plays: Mytilineos, Terna Energy
  • The ‘GDP growth overshooting’ stock picks:
  • Greek banks, with Alpha Bank being our first choice due to a) better quality of capital and b) higher profitability upside as a result of the cost of risk normalization
  • Infrastructure development related stocks such as Titan Cement and Construction stocks
  • We updated our explicit 2019-2022 forecasts for Greek banks to incorporate the planned securitizations of NPEs under the HAPS/Hercules. Given that we had largely incorporated the expected securitization losses in the adjusted equity, there was limited impact on the valuation. We raised Alpha Bank’s TP by c7.0% to Eur2.13 to account for a lower cost of risk post Galaxy securitization. We also raised Eurobank’s TP by 10.0% to Eur1.1 to account for a lower cost of risk post Cairo securitization. Finally, we raised NBG’s TP by 14% to Eur3.2 to incorporate the cEur500 mn gains realized on the GGBs associated with the ‘Titlos’ swap
  • We use the Gordon’s growth model to value Greek banks. We use a COE of 10.5% and g of 1.5%

Alpha Bank (valuation trigger is the reduction in the cost of risk) – we raised TP to Eur2.1 from Eur2.0 previously due to the increase in the ROTE assumption to 6.2% from 5.7% previously, which implies an end-2020 targeted P/TBVPS of 0.56x. The rise in ROTE is attributed to the decline in the cost of risk (provisions as % of gross loans) to 1.3% from 1.6% previously. A further decline in the cost of risk to 1.0% would raise ROTE to 8.2% and TP to Eur2.8, all else unchanged. Valuation incorporates an estimated loss of Eur2.5 bn as a result of the planned Eur12 bn securitization, which allows Alpha to reduce group NPEs to Eur7.3 bn (Eur4.3 bn in Greece) by end- 2022 from Eur22.3 bn (Eur19.2 bn in Greece) at end-Sept ’19. It also includes an estimated gain of Eur250 mn from the sale of 80% of New Cepal and an estimated  state guarantee cost of Eur400 mn

NBG (valuation trigger is the rise in income generation) – we raised TP to Eur3.2 from Eur2.8 previously, to account for bond gains of cEur600 mn, of which cEur500 mn were realized on the GGBs that NBG received in the swap with ‘Titlos’. We use ROTE assumption of 5.6%, virtually unchanged, implying a targeted 2020 P/TBVPS of 0.51x. Our valuation currently incorporates a relatively low NIM of 1.7% and fee income as % of assets of 0.5%, impacted by the deleveraging in Greece and abroad. A 10bps rise in each of the two aforementioned variables would raise ROTE to 8.0% and TP to above Eur4.0. Valuation incorporates an estimated loss of Eur0.5 bn resulting from the planned NPEs securitization of cEur6.0 bn, which allows NBG to reduce NPEs to cEur3.0 bn by end-2022 from Eur12.2 bn at end-Sept ’19. It also incorporates the Eur0.5 bn gain from the GGBs swap, an estimated loss of Eur0.2 bn from the sale of NIC and an estimated state guarantee cost of Eur200 mn

Eurobank (valuation trigger could be some further decline in the cost of risk) – we raised TP to Eur1.1 from Eur1.0 previously due to the rise in ROTE to 8.3% from 8.0% previously, implying a targeted end-2020 P/TBVPS of 0.75x. A decline in the cost of risk to 0.8% (vs 1.0% used in the valuation) could support an ROTE of c10% and a TP of Eur1.28. Valuation incorporates an estimated loss of Eur1.4 bn resulting from the Eur7.5 bn NPE securitization, which allows Eurobank to reduce NPEs to Eur4.1 bn by end-2022 from Eur13.8 bn at end-Sept ’19. It also includes the Eur250 mn gain from the sale of FPS and an estimated state guarantee cost of cEur300 mn

  • In terms of sensitivity on the expected profitability, Alpha Bank’s value could range from Eur1.4 (ROTE of 4.0%) to Eur2.8 (ROTE of 8.2%); NBG’s, from Eur2.2 (ROTE of 4.0%) to Eur4.0 (ROTE of 8.0%); and Eurobank’s, from Eur0.6 (ROTE of 4.5%) to Eur1.28 (ROTE of 10%). It seems that the NPE reduction plans of the Greek banks will be successfully executed with the help of the HAPS. The most important challenge for the banks is to restore profitability, achieving sustainable ROTEs of >5.0%, which is largely a macro call
  • Our Top Pick list includes OPAP (OPAP GA), Jumbo (BELA GA) and Mytilineos (MYTIL GA) OPAP continues to reward shareholders with lucrative dividend payments, while it should benefit from the completion of Stoiximan’s acquisition in 2020, the market leader of the online gaming market in Greece, the online launch of its existing gaming portfolio, while additional benefits may be derived from a potential decrease of the corporate tax rate in Greece in 2020. Jumbo should benefit from the improved economic environment in Greece, the increased penetration in foreign markets, where the Group targets to reach 21 stores in Romania by 2022 and its strong B/S. Mytilineos’s Power & Gas business unit is expected to gain from the transformation of the Greek electricity market while a recovery in its EPC business unit (backlog of Eur 1.2bn) is anticipated driven among others by photovoltaic projects
  • We trim our target price on OPAP (OPAP GA) to Eur12.70 vs. Eur13.00 before, while we retain OPAP to our top pick list due to: i) the lucrative dividend payments to shareholders, ii) the success of OPAP’s online business with dual strategy that includes the online launch of part of its existing gaming portfolio (currently Joker & Pame Stixima) with more games to follow in 2020 (eg KINO), as well as the completion of the acquisition of Stoiximan in 2020 and iii) OPAP’s strong FCF generation benefited by Group’s growth profile in the coming years and limited Capex needs
  • We raise our target price on Jumbo (BELA GA) to Eur21.50 vs. Eur20.00 before, while we retain Jumbo to our top pick list due to: i) improved economic environment in Greece that should allow the Group to accelerate growth in the domestic market capitalizing on last years’ market share gains, ii) strong B/S with an estimated Net Cash position of Eur376mn at the end of 2020, iii) increased dividend payments by c. 20% over the two coming years and iv) potential expansion in a new market in the Balkans
  • We retain our TP on Fourlis (FOYRK GA) to Eur6.80, thus assigning an Outperform rating on the stock, while we proceed with only small changes in our estimates. IKEA’s new international strategy could lead to the transformation of existing pick-up points into medium-sized stores resulting in increased sales in the mid-term. In addition Trade Estates REIC, Group’s real estate arm, which should be registered over the next two months could create value for Fourlis’ shareholders. We also point out that Fourlis is still in the process to identify a new retail concept that should be added to Group’s portfolio in the coming years
  • We slightly raise our target price on TITAN CEMENT INTERNATIONAL (TITC GA) at Eur20.70 vs. Eur20.50, before, while we retain a Neutral rating on the stock. We point out that in terms of various markets performance the US and the Balkans continue to advance; despite the fly-ash shortages in the US demand remains robust; in addition, we notice strength in the Balkans, while Greece is gradually entering in a recovery path. In East Med, the outlook remains difficult due to the increased supply in Egypt by Army’s new mega plant that commenced operations in 2018; excess of supply affected pricing, while cost increases imposed by the government created additional difficulties in the market; in addition, the environment in Turkey remains difficult and despite a good tourist period in 2019, it seems that during the 2H19 volatility returned in the market
  • We retain our TP on ATHEX (EXAE GA) to Eur5.50 and our Neutral rating on the stock. We point out management’s efforts to enhance its revenues and profitability, through its participation with a 21% stake on ENEX and the acquisition of small stakes in the Kuwait stock exchange and the Lebanese Exchange that should allow the Group to leverage its trading and post-trading technical and business know-how and systems. However, the real catalyst going forward will be the stabilization of trading volumes at higher levels (our estimate calls for avg trading volume of Eur90mn for 2020). Taking into account the increased revenues and profitability due to TCI’s delisting and Lamda’s rights’ issue, we slightly raise our total DPS estimate for FY 2019 at Eur0.17/share vs. Eur0.15/share, before.
  • We retain Mytilineos (MYTIL GA) in our top pick list with an Outperform recommendation and a target price of Eur15.0. Our recommendation is based on the following: i) Mytilineos’ metallurgy assets are very competitive on a global scale, ii) in the Power & Gas segment, high SMPs and CO2 prices and Mytilineos’ ability to lock in competitive natural gas prices through its Gas Trading Business Unit by importing large quantities of LNG, are expected to boost the thermal plants’ profitability (1.2 GW in total capacity), iii) the new 826MW CCGT could contribute Eur75-85mn per year to the group’s EBITDA starting from 2022, iv) a recovery in the EPC segment is anticipated with a current backlog of Eur1.1bn driven among others by photovoltaic projects
  • We reduce our target price to Eur26.5 (from Eur28.0) for Motor Oil (MOH GA) taking a more conservative stance regarding complex refining margins in 2020. We maintain however our Outperform recommendation expecting the IMO 2020 regulation to support complex refining margins as the maritime industry drives demand for substitutes to high sulfur fuel oil (HSFO) such as gasoil or very low sulfur fuel oil (VLSFO). Furthermore, the new Naphtha treatment complex will be accretive to Motor Oil’s refining business starting from 2022 while fuel marketing should achieve further market share gains. Finally, Motor Oil offers one of the most attractive dividend yields in the sector.
  • We have an Outperform rating and a target price of Eur10.5 on Aegean Airlines (AEGN GA) based on the following: 1) we expect tourism in Greece to continue to grow on the back of investments in hospitality and infrastructure (e.g. Hellinikon), 2) Aegean’s strategic positioning (services on par with legacy airlines, competitive cost structure) should allow the company to maintain its leading market share in the Greek aviation market, 3) the upcoming fleet upgrade is expected to enhance the company’s competitiveness, 4) the use of the Athens International Airport (AIA) as a hub to route international flights to its network of regional airports gives Aegean a significant competitive advantage, 5) Aegean trades at a discount > 25% vs. its European peers on a 2020 EV/EBITDAR basis based on our estimates and offers a high dividend yield averaging 8.5% in 2019-2022.
  • We raise our TP on OTE (HTO GA) to Eur14.4 from Eur13.7 previously due to lower WACC, which values the group at 5.5x 2020E EBITDA. We have an Outperform rating on OTE on the back of a) good operating momentum driven by the successful investment programme; b) healthy balance sheet with an adjusted net debt/EBITDA of 0.6x in 2019; c) operating cash flow generation, sufficient to finance capex, dividends and buybacks; and d) generous payouts. OTE is examining the sale of its operations in Romania – we value OTE’s stake at Eur130 mn or Eur0.3 per share

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