Prime Transaction: "Market multiples of BSE issuers have had an upward trend in recent months"

English Section / 1 decembrie 2023

Prime Transaction: "Market multiples of BSE issuers have had an upward trend in recent months"

Versiunea în limba română

The dynamics are based on the evolution of share prices and the declining results of several issuers, according to Prime Transaction

The market multiples of the issuers listed on the Bucharest Stock Exchange (BVB) had a general upward trend, compared to March, based on, on the one hand, the evolution of share prices, and on the other hand, the decreasing results of several issuers, according to the latest analysis material published by the Prime Transaction, brokerage company.

According to the analysis, the weaker year experienced by mainly energy issuers and some in the utilities sector pushed their multiples up from spring levels.

At the international level, the energy and banking sectors have remained at low market multiples, which means that some BSE issuers have low multiples compared to other Romanian issuers, but high by the international standards of the sector in which they operate, they also say those from Prime.

Romcarbon, Impact and Nuclearelectrica - the stocks with the lowest P/E

Romcarbon (ROCE) is the BSE main market issuer with the lowest P/E (price per share/earnings per share), according to the criteria set by the Prime Transaction team, with the issuer's share having a multiple value of just 2.01 at closing the November 21 trading session.

"The company has a very large profit for the last twelve months, influenced by the sale in the fourth quarter of 2024 of Romgreen Universal LTD (Green Group), the non-recurring profit obtained on this occasion representing about 45% of the capitalization at this moment. Since it was not a profit from the core activity, it did not influence the market value in the same way as a profit generated by a better evolution of the business would have done, even if it involved a significant cash inflow", it is stated in the report of al Prime.

In second place, with a P/E ratio of 4.2, is Impact Developer & Contractor (IMP), whose net profit was influenced by several non-recurring items, such as real estate investment gains recorded both at the end last year as well as in the middle of this year, and in the third quarter of 2023 by a non-recurring deferred income tax, according to the document.

According to Prime Transaction, in the following positions are Nuclearelectrica with a P/E ratio of 5.2 and Transport Trade Services with 5.6.

"The P/E multiple is the most relevant for evaluating an issuer, but also the most volatile, being exposed to the influence of non-recurring elements on financial results", the report states.

According to the analysis, the median P/E for all 44 issuers considered increased from March, from 8.08 (for 37 issuers) to 10.47. The median for the top ten issuers also rose from 4.58 to 5.83, and the median for the top twenty issuers from 5.55 to 7.90.

"The evolution was determined, mainly, by the weaker financial results reported by some of the issuers, the year 2022 being exceptional especially in the energy and utilities fields, on top of this, a general increase in share prices was also superimposed" , the report states.

Compa, Transelectrica and Electrica - the stocks with the lowest P/BV

Compa, Transelectrica and Electrica have the lowest P/BV (price per share/equity per share) values, according to Prime Transaction.

"P/BV is much more stable than P/E, but may become irrelevant if profitability declines and equity remains artificially inflated by past profits," the brokerage firm's analysis material says. And in this case, the median P/BV for all 44 issuers rose from March's level, from 1.04 (for 37 issuers) to 1.26. The median of the top ten issuers rose from 0.58 to 0.66, while the median of the top twenty issuers remained flat at 0.78, according to Prime.

Romcarbon, Impact and Transelectrica - the first in the top twenty undervalued companies according to the Graham Number

In the top twenty undervalued companies according to the Graham Number are Romcarbon, Impact Developer & Contractor, Transelectrica and Electrica, according to the analysis report.

"Graham's number, launched by the "father" of Value Investing, Benjamin Graham, is calculated as the root of the product of three numbers: 22.5, earnings per share and net assets per share. 22.5 is actually in turn the product of two other numbers, 15 and 1.5. Specifically, a maximum P/E ratio of 15 and a maximum P/BV of 1.5, above which the stock became unattractive, according to Graham's theory. The number can also be seen as the geometric mean of the prices that the share would have at a P/E of 15 and respectively at a P/BV of 1.5, being close to the classic calculation of the value of a share based on market multiples ," the Prime report said.

The first two issuers in this top are the same as those in the top according to the P/E multiple, and the next two are those in the second and third places in the top of the issuers according to P/BV, according to the assessment made by the analysis team of the company brokerage.

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