A good half year behind us

Although many factors are still in play to guard us against unbridled optimism – such as the war, inflation and the economic slowdown – the stock markets have nonetheless been putting in a strong performance in these trying times. The largest trading floors have, since last autumn, gained a few percentage points (some by even as much as 30 pct), as they have been paying little heed to the high interest rates and the general lack of certainty. The US Federal Reserve has declared a halt to its interest rate squeeze, which some have interpreted as presaging the end of the fiscal tightening policy – and this in itself would be another boost for the markets. At the other extreme, however, are the weak data from the Chinese economy and the ongoing slump in European industry. According to the PMI index of managerial sentiment, in June the service sector, which in recent months has been holding out the promise of a soft landing for the European economy, has also been having a hard time.

Given their performance since the beginning of the year, the WIG and the WIG 20 indexes are still offering healthy rates of return as they approach their historic highs of 75,000 points, suggesting that the coming months could be hot. The same could also be signified by the difference between companies’ valuations and analysts’ recommendations, which points to rising sharing values. On the other hand, a correction to the boom of the last few months would not be unusual or unexpected, all the more so as the economy bottoms out. The low levels of consumer demand have been balanced out to a degree by investment, as it becomes necessary to employ EU funds as well as due to the investment in energy transformation, which is so attractive to the construction sector.

The housing market in Poland has frozen up as it awaits the launch of the Safe Credit programme, which is due to start in July. Sales are stabilising and the trend observed since August last year points to an upturn in the market. However, the construction of new units remains weak – according to Statistics Poland, developers launched the construction of 8,700 apartments in May, around 30 pct fewer than a year earlier, but 25 pct more than in April. Over the first five months of 2023, the number of construction launches fell by 30 pct year-on-year, as did the number of building permits issued (down 35 pct y-o-y). The market is still slowing down, and although a recovery has been taking place on the demand side, the prospect of new government support has not been encouraging developers to increase supply. Without government support, the mortgage market in May finally showed signs of growth in annual terms (an increase of 4 pct), with the situation having improved for almost three quarters, backed up by some strong economic figures (very low unemployment and a significant increase in wages, although undercut by high inflation), as well as by regulatory factors (in February, loan criteria were loosened). As a result, the market has weathered a period when mortgages were less available without too much damage. This can be seen from developers’ margins, which remain extremely high. According to a report published by ‘Parkiet’, the average gross margin in the first quarter was 32 pct, while the net margin was close to 12 pct, with both now being higher than a year ago. Among the companies with higher gross margins were Atal, Ronson and Archicom, whereas Dom Development and Wikana saw slight decreases. Not surprisingly, developers are no longer having significant problems raising financing. Echo Investment is aiming to raise PLN 300 mln for further development in the second half of the year. The company issued PLN 80 mln in bonds a few years ago, which are to mature in the second half of the year. Next year the company will have over EUR 300 mln in outstanding bonds. Financing through bond issues is now a common way for developers to raise funds – Ronson has been planning such a step, while Develia and Marvipol have already launched issue programmes. Warehouse developer MLP Group is another that is seeking to raise money from bonds. The company saw its results improve in Q1 2023, which has only whetted its appetite. MLP intends to continue its expansion into foreign markets and to benefit from the nearshoring trend. Many manufacturers are relocating their operations from Asia to Europe, which also means increasing their warehousing space here. For warehouse developers, Savills is predicting a further increase in rents, despite the rise in vacancy. It’s worth pointing out that rents in this sector have gone up by more than 20 pct in Poland since the beginning of 2022.

Torpol, which specialises in rail construction and is owned by CPK (Central Communication Port – the company set up to develop the massive airport-railway hub in central Poland), has found itself in the sights of construction giant Mirbud. At the beginning of June, it was revealed that Mirbud now holds a stake of more than 5 pct in Torpol worth almost PLN 20 mln. According to ‘Puls Biznesu’, Jerzy Mirgos, the CEO of Mirbud, estimates its road building order book to be worth almost PLN 300 bln; but despite this, the company has been casting its covetous eyes on rail construction and hydro-engineering. Mirbud intends to work together with companies from this sector or take them over.

One interesting development is Mercator Medical’s decision to enter the commercial and residential real estate sector. (The company enjoyed good results throughout the pandemic, as it also manufactures protective equipment.) Mercator Estates has announced that it will be taking shares in special purpose vehicles and financing projects, but analysts are sceptical, because even though the company has several hundred million złoty in funds available to invest, there remains the question of its know-how and knowledge of the markets that it intends to enter. (Mir)