Things looking rosy in Warsaw

Due to the strengthening of the dollar, the performance of the American stock exchanges was not so impressive in Q1 2015. In Europe the capital markets are being helped by an influx of cash in the form of the quantitative easing of monetary policy (the buying up of treasury bonds by the European Central Bank), which was so successful for the stock exchanges across the ocean. Combined with the ever improving indexes of the most important economies in Europe, this has created a very good mix for continuing growth on the Old Continent. The only threat is the relatively long growth period on these markets. So a purely technical correction seems natural, even more so because according to the historical data, the period between March and June has been the weakest for the global stock exchanges in the last three to four years. Meanwhile, it is the weaker euro (resulting from the ECB’s activities) that is driving the European economy, in terms of the boost to exports, and it will be this that improves the health of companies, even though structural problems, such as the festering situation in Greece, should not be forgotten.

The situation on the markets of Western Europe and first of all the particularly good foundations of the German economy, have created favourable conditions for the Warsaw trading floor. The Polish stock exchange is still attractive for investors compared to developed markets, as can be seen by looking at the key indexes and the price/profit and the rate of dividend on shares. The strong influxes to share investment funds (almost PLN 2 bln in March) has been driving purchases. On the other hand, open pension funds are being topped up with shares in relation to the required minimums, which has cast a shadow on these institutions’ buying prospects; furthermore, this has increased the probability of selling – as has a price correction on developed markets. Fundamentally, the Polish economy looks strong. In March, industrial production increased by almost 9 pct (compared to a 5 pct growth in February and expectations of around 6 pct). Retail sales were also higher than expected and the combination of the macro data indicates that GDP growth increased in Q1 – and according to some economists could even accelerate to 4 pct by the end of the year. The beginning of the year was also good for construction and assembly production, which increased by 3.5 pct y-o-y in the first three months of 2015.

The construction sector became slightly short of breath on the WSE over the period. The WIG-Construction index increased, but by just under 4 pct, while the WIG and WIG20 grew by 5 and 6.5 pct respectively. Budimex has been gaining in value, reaching almost PLN 180 per share. The company recently won a contract for the construction of the Ostróda ring road worth PLN 1.1 bln, while shareholders will receive a dividend of PLN 156 mln for 2014. According to many analysts, 2015 is to be a successful year for Budimex and the contractor has even better prospects for 2016. For other construction companies with slightly smaller scales of operation, such as Unibep and Erbud, some movement is evident in terms of securing contracts, which has an impact on the way investors perceive them. Elektrobudowa, which significantly went down in value at the beginning of 2014 due to the situation in Ukraine, has now returned to over PLN 100 per share in a more durable way. The end of last year was successful for the company – an increase in revenue of 30 pct and a net profit higher than expected. The share price of Mostostal Warszawa continues to grow – the company has gained almost 50 pct in value over the course of half a year. In Q4 its revenue increased by 170 pct, even though there was a loss of consolidated profit, which, however, is a result of the sales results of its subsidiaries and the impact of currency exchange fluctuations. Analysts are praising Mostostal Warszawa for its decreasing debt and its financial liquidity. According to the forecasts, the company will definitely be in the green in 2015. The railway companies are also doing great – both Torpol and Trakcja have been able to show their investors a growth in revenue, a high margin (in the case of Trakcja) and good profits. The segment’s prospects are excellent, as PKP Polskie Linie Kolejowe is planning substantial investment (PLN 50 bln by 2023) and tenders for contracts worth PLN 11 bln are to be launched in 2015 alone.

WIG-Developers had the weakest growth dynamics. However, it is worth pointing out the growth in the prices of such companies as J.W. Construction, despite its weaker results in 2014. The takeover bid for GTC announced by the Lone Star fund has also pushed up the price of the securities. Lone Star wants to buy a controlling stake in the company in May and June, paying PLN 6.1 per share on the first five days and PLN 5.5 following that.

Hungarian rally

The beginning of the year has been good for investors in Budapest. Over the last three months the BUX index increased by nearly 30 pct and the period between March 20th and April 20th saw double the rate of return compared to the Warsaw indexes (13 pct). Meanwhile, the stock exchange in Prague ended the period in a worse position, losing nearly 1 pct over the last month. The quarterly balance is better and close to what the Warsaw indexes have managed to achieve, with the PX50 growing by 8 pct, only slightly less than the WIG20.