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OVER THE LAST THREE YEARSNearly 270% rise for shares of Turbomecanica

Andrei Iacomi (Translated by Cosmin Ghidoveanu)
English Section /

Nearly 270% rise for shares of Turbomecanica

Alin Brendea, Prime Transaction: "The favorable context of the defense industry in recent years has also had a positive influence on the financial results of Turbomecanica" 

Adrian Simionescu, Vienna Investment Trust: "Before the stock price started to rise, the Turbomechanica shares were heavily undervalued"

"The outlook for the stock price going up is still good, so we expect positive results in 2020", says Adrian Simionescu

Shares of Turbomechanica aircraft component manufacturer (TBM) have risen spectacularly over the last three years. Between December 30, 2016 and December 30, 2019, the share price of TBM rose from 0.0968 lei to 0.355 lei, meaning a rise of 266.7%, way higher than that of the indices on the Bucharest Stock Exchange (BSE). The BET Plus index only rose 41.56% over that period.

Moreover, when including dividends, the total return of the stock is 343.9%, among the highest delivered by the issuers listed on the BVB, within the reviewed period.

Alin Brendea, Deputy General Manager of the Prime Transaction brokerage house told us: "The context which has been favorable for the defense industry in recent years has also had a positive influence on the financial results of Turbomecanica. Between 2015 and 2018, revenues increased 62%, while the company's profit rose 645%. If we add that during the last three years the company has also paid significant dividends (for example, the dividend of 2018 had a yield of about 11%), we find sufficient explanations for the very good evolution of the TBM stock, during this period "

Adrian Simionescu, general manager of Vienna Investment Trust, told us: "First of all, it should be mentioned that, before the stock started to rise, at first tepidly and later more aggressively, the Turbomechanica shares were heavily undervalued.

That was a situation that arose as a result of the conjuncture, the attitude of investors towards the capital market in general and even more when compared with the stocks that did not give and had no clear prospect of paying dividends".

The head of Vienna Investment Trust added that later, probably after investors built their portfolios that included all major issuers for which they saw good prospects, they started looking for other investment alternatives, including Turbomechanics.

"But the moment where the price of the TBM shares started to rise more aggressively was when the negotiations began between the Ministry of National Defense and foreign partners, for the purchase of military equipment and their manufacturing in Romania, through the national defense industry", said Adrian Simionescu, who added: "This is the reason that led to the rise in the stock prices of other companies in the aeronautical industry as well, such as IAR Brasov or Aerostar. On top of that, the company also posted good financial results".

After 2016, Turbomecanica reported a steady increase in revenues and profits, whereas starting in 2017, after a ten-year break, the company began to pay dividends to shareholders, offering some of the highest returns among the issuers on the Bucharest Stock Exchange.

Regarding the factors that have the potential to influence the evolution of the TBM action over the next six - twelve months, Adrian Simionescu told us: "The company has profitable contracts, and the number of orders has increased lately. The positive results of the company are only partial, because only part of them contracts have begun to be implemented, and in the following period more consistent contracts will be started. Under these conditions, the prospects for a stock price increase is still good, so we expect positive results in 2020 as well".

Alin Brendea mentioned the financial results of the company, its dividend policy and the persistence of the favorable climate for investments in the defense sector as the elements with a medium-term impact on the stock price.

"One technical factor could be the increase in stock market liquidity, which would lead to higher interest in TBM shares", the head of Prime Transaction concluded.

Defense contracts also appear to be the main sources of growth for the company's business in the future, considering that at the end of last year, the Romanian Supreme Country Defense (CSAT) approved the beginning of the proceedings for the purchase and construction of transport helicopters. The decision of the CSAT was made as, according to the commitment made at the 2014 NATO summit, our country is required to allocate 2% of the GDP annually for defense, and 20% of it is directed at the army. This has been enacted since 2017, a year when Turbomecanica stock posted a considerable rise.

The company is the only maker and maintenance provider of aircraft gas turbine engines and mechanical helicopter assemblies in Romania. Its main customers are the National Ministry of Defense and PUMA helicopter manufacturer, IAR Brasov, which it has collaborated with in several aviation-related programs, according to the company's 2019 report.

Under the present conditions, where a state of international conflict persists, the internal market continues to present an opportunity to improve the company's turnover in 2020, through the continuation of the programs for the supplying of the Romanian Ministry of Defense. The largest shareholder of the company is CEO Radu Viehmann, who on June 30, 2019 owned 25.92% of the company's shares, while Dana Maria Ciorapciu owned 15.16%.

The market valuation of the stock is about 131.89 million lei.

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