Hotter and hotter

With the vaccination programme now well underway, together with an economy reinvigorated by consumer spending, the resumption of tourism and the reopening of restaurants and many other services, the current circumstances should be ideal for the stock exchanges, especially given that interest rates are still very low. Despite all that good news, investors have begun to fret about the prospect of inflation, which is starting to take off in many parts of the world. In the US, consumer and industrial prices rose faster than expected in April, which immediately raised fears that The Fed could tighten monetary policy and even of a rise in interest rates. Although the situation is rather better in Europe (except for Poland and Hungary, where prices are rising fastest), people are still anxious about the risk of inflation.

Nevertheless, at the moment the US indexes are heading inexorably towards new heights (both the Dow Jones and the S&P 500 have risen for the last four months in a row), and Americans are now keeping almost half of their savings in shares. This investment in the stock exchange is being supported by low interest rates, as well as the substantial support from the Biden administration for average Americans and the healthy prospects for the economy. The last few months in Europe have seen rises on the Paris, London and Frankfurt exchanges, while in Poland the WIG and the WIG 20 gained more than 10 pct in a single month, with the WIG now approaching its own historic high. The data for the first quarter show that Polish companies are feeling the benefits of the vaccination programme and the lifting of the restrictions. As a result, they are feeling bolder when it comes to decisions to invest. The PMI’s leading indicator for industry reached its highest ever point in May, which bodes very well for the strength of that sector. The indexes for construction and real estate also rose, but not quite as dramatically. The last few weeks have seen the publication of company results for the first quarter. And though not all the figures are in yet, such firms as Budimex have already posted theirs – and in its case can boast a consolidated profit for Q1 that was up by 196 pct on the previous year. Meanwhile, former giant Polimex, after a long struggle back to good health, has announced that at the end of Q1 it had projects worth more than PLN 5 bln on its order books, with the vast majority of these being from the energy sector, but also some from the petrochemical, gas and chemical industries. The group saw its revenues rise by 16 pct and its operating profit by 8.5 pct. For the entire year, Polimex is targeting revenues of PLN 2 bln and is now looking to develop other business lines (beyond petrochemicals and energy), such as civil engineering and building construction projects.

Budimex, in the meantime, has sold its development arm (to private equity fund Cornerstone and Czech developer Crestyl), with the newly divested business now set to concentrate on the institutional private rental sector. It has signed a deal with the fund to sell 2,500 apartments for PLN 1.4 bln to Heimstaden, which will function as a rental portfolio. A few months ago the Swedish company also bought a portfolio of 700 flats from Marvipol and 640 from Eiffage Immobilier Polska. Clearly, the PRS market in Poland is starting to hot up, as the analysts, pointing to the low number of apartments per capita in Poland, predict further growth. Perhaps unsurprisingly, the most successful residential developers have been generating net sales margins of around 30 pct – in spite of rising prices of labour and material. This is all the result of the current high demand fuelled by easy access to credit. The market temperature also rose at the announcement by the Polish government of its plans to provide more support for home buyers, including state guarantees for mortgage deposits and loan subsidies for those who decide to have more children. The biggest reaction to this was seen in the share prices of developers as the WIG Nieruchomości broke the 3,000-point barrier at the end of May – the highest it’s been for over eleven years.

The prospects for the future seem just as rosy for Dom Development, the largest residential developer in Poland, which is aiming to sell 1,000 apartments each quarter. The company has been busy buying up plots in Warsaw and Wrocław, and with its takeover of Sento is expanding into Kraków. In the first quarter of the year, its apartment sales were up by 30 pct y-o-y, while its margin was one of the highest for a developer on the Warsaw Stock Exchange. Atal is also targeting sales of up to 4,000 apartments this year – the company posted its best ever results for March and April, when it sold over 400 apartments in each month. The company’s margin is not as big as that of Dom Development (in 2020 it was more than a fifth lower), but it says it is well prepared for material and labour costs to go up. A lot has been happening for commercial developers, too. GTC has sold its Serbian portfolio for almost EUR 270 mln and is to use the proceeds from the sale of what was a relatively old portfolio to pursue other projects across the CEE region. After a Q1 2020 loss of EUR 71 mln, the company has turned things around this year to turn in a first quarter profit of close to EUR 9 mln. (Mir)

Budding and blossoming in May

In Budapest and Prague, the stock market indices have been behaving rather similarly to the WIG 20 in Warsaw. They both put in a strong performance in May, rising by 8 pct and 6 pct respectively. The rate of return since the beginning of the year for the WIG 20 overtook that of the BUX (13 pct compared to 11 pct), but the PX50 continues to hold a slight lead in this regard (14 pct).