Jan Třeštík

With several stocks set to grow and some seen as reasonable hedges in case of downfalls, investors have reasons to feel confident about PSE at the end of 2009, analysts say.

Trade on PSE has been extremely low in 2009, following a brutal start of the year when the PX headline index reached the bottom at slightly above 600 basis points. The situation may change in 2010, analysts polled by CBW believe. The highest hopes are related to a few possible IPOs (see “ Rejuvenating the Prague bourse”).

The most promising is the IPO of the Belgian banking group KBC for its Czech subsidiary Československá obchodní banka (ČSOB). If accomplished, this IPO could make trade on PSE much more dynamic, analysts expect. 

Regarding ČSOB, analysts are optimistic about the perspective of its occurrence. “KBC needs to strengthen its capital,” said Petr Bártek, an equity analyst with Česká spořitelna (ČS) in Prague. “For our market, this would not only be a big happening, it would also be a very important one, after one year when no IPOs and another one with only one IPO in Prague,” he said.

Bártek argued that, even though the overall impact of the ČSOB IPO would be positive for the Prague bourse, individual stocks might resent this negatively. “Investors will need to free money to prepare for the IPO and this might lead to sales of other stocks,” Bártek said. Indeed, investors who are already active on the PSE are expected to get involved in the new issuing, rather than new investors. “We could expect new investors on PSE only in case we would have some titles listed from sectors that haven’t been listed in Prague so far,” said Josef Němý, equity analyst with Komerční banka (KB). However, even with traditional investors, new IPOs are meant to increase trade next year. For the moment, it’s impossible to quantify by how much, but the trend will be definitely upwards, Němý said. 

The Belgian media reported at the beginning of December that KBC has appointed advisors for the planned IPO of ČSOB. The business and economic newspaper De Tijd cited unnamed sources as saying that J.P. Morgan Chase & Co., Credit Suisse Group, Goldman Sachs Group, KBC Securities and UBS will advise on the IPO. The listing is expected to raise between €1.5 billion (Kč 38.6 billion) and €2.5 billion.

For the moment, it isn’t clear exactly when the ČSOB IPO would take place. Bártek said that it would be ideal for the stock development if it took place in the second half of 2010, but given the high need of cash of KBC, the IPO can actually be expected earlier next year. Bártek argued that markets in Eastern Europe are growing for the moment, but their growth path is perceived as slower than the one of Asia. Moreover, also the U.S. has been catching up pretty fast. Thus, in the first half of 2010, investors’ focus on the development of U.S. equities could influence trade and the situation of stocks in Prague, at least in the first months. The situation would be then set to change from the second quarter, when volumes should take off. This will also depend on the growth of local gross domestic products in Central Eastern European countries (CEE), Bártek said.

Investment stories remain classical

For the majority of analysts, attractive investment stories remain in the energy sector. Bártek said that the energy holding New World Resources, owner of the coal mine OKD in Ostrava, East Moravia, could make headlines if it manages to negotiate favorable prices for its coking coal production. “Competitors from the Polish market had a difficult year and had to close some mines, so that they might not have [enough] to sell in early 2010. This and [other factors] NWR in a favorable position for further development,” he said.

Another promising title remains the majority state-owned Czech energy holding ČEZ. In Němý’s view, the stock remains attractive because electricity prices have been going down for the last period on power exchanges and now the trend is upwards. “Analysts are bullish for the next one to three years in terms of power prices, which will influence the company stock development,” he said. The other two companies that should make it to the top of the list would be the tobacco producer Philip Morris ČR and the telecommunication group Telefónica O2 Czech Republic. “They’re attractively valued and, in case something happens and the market faces corrections, they can provide a good hedge for investments,” Němý said.

On the dark side of the street

A specialist on real estate equity, Bártek noted that the two major real estate developers listed in Prague, ECM Real Estate Investments and Orco Property Group will face a complex year. On the one hand, commercial property valuations will grow. Moreover, investors should rediscover their appetite for the Czech market, particularly the German investment funds. “They perceive the Czech Republic and especially Prague as a relatively safe market,” he said. While valuations should improve, rental incomes should stabilize in the second half of next year, even though a slight decline in rental incomes can still be expected for the first half of 2010. Moreover, these companies have their own internal troubles. Particularly in the case of Orco, the bond restructuring process is essential for the company’s future development. “If this is successful, the company stock should grow. However, not even growth is worth the risk posed by investing in the shares of a company such as Orco,” Bártek said.

All in all, in his view, the CEE markets will remain driven by developments on the Western markets. “These are small, export-driven economies that will continue to depend on the demand from other larger countries,” he concluded.