šŸŽ„ The New Year is approaching, and we’re excited to uphold the Baltic Stock Market Playlist traditionā€”an enjoyable way to recap the most significant events on the Baltic stock market in 2023 while listening to a relevant playlist. šŸ˜Š Despite finishing the year in the green zone, the Baltic market, known for its value bias, still lags behind global stock markets. This year will be recorded in history for the rapid development of ChatGPT and other generative AI. To mark this extraordinary progress, we turned to ChatGPT for assistance in curating the perfect soundtrack.

Disclaimer #1 (placed at the beginning for everyone’s attention): This is a humorous write-up; don’t take it personally if you are an insider, shareholder, or any other interested party.

Banking Scroogies

šŸŽ© Scroogie McDuck would be overjoyed if he owned a bank in these times, reveling in the influx of wealth due to increased interest rates. Baltic banks such as LHV, Coop, and Å iauliu Bankas stand as the primary beneficiaries of the current situation, reporting earnings increases of more than 100%. However, to be honest, we haven’t witnessed a substantial boost in their share prices this year. Nevertheless, the improved fundamental results may translate into a dividend increase next year. In this scenario, paying special attention to refinancing risk and bad credit risk is crucial.

Hunger for capital

šŸ’ø Cash burn is proceeding at full speed as Indexo strives to secure a license and disrupt the banking industry in Latvia. Over the first nine months of this year, Indexo has depleted its cash reserve, which declined from 7.2 million to 3.8 million EUR. The company is currently in the process of attracting capital through a Secondary Public Offering, aiming for over 13 million EUR after having secured 7.5 million EUR during the Initial Public Offering (IPO) conducted last year. The management has communicated plans to kickstart banking operations in April. Best of luck in attracting the capital! We eagerly anticipate the entry of fresh players in banking and the inclusion of sound companies (at FAIR valuation) on the Baltic stock exchanges!

Earning money blindfolded

Silvano seems to systematically ignore all the critics and continues to operate in Russia and Belarus having them as major markets. We are pretty sure that it wasnā€™t an easy decision (the only alternative is to close the company), but thatā€™s the perks of dealing in dictatorship countries. We really hope its biggest shareholders are donating ZSU privately, otherwise its probably hard to get some decent sleep at night. The award of the most efficient ā€˜ignoreā€™ status goes to Silvano.

Shit happens

The nomination goes to SAF Tehnika. The company’s situation began to deteriorate towards the end of last year and further expanded in 2023 across the entire region, as capital investments in the telecom industry moderated. The results for the first quarter of 2023/24 are as follows: sales down by 53%, with losses amounting to 1.5 million EUR. Apologies, dear investors; this time around, there are no dividends. And in the future, don’t forget to scrutinize cash flowsā€”these serve as early indicators of potential issues.

Nothing special

In short, this is how the market perceived substantial pressure on the earnings of utility companies in the Baltics. The extremely high electricity and gas prices have subsided this year, resulting in the normalization of earnings for electricity companies. Coupled with the strain from depreciation expenses, given the heavy investment cycles of both Enefit Green and Ignitis, this translated into lower profitability. Nevertheless, the market doesn’t appear overly concerned, particularly in the case of Ignitis, as investors anticipate lucrative dividend cash inflows, aligning with the company’s stated dividend policy.

Good but need more

In a swift and hushed manner (or perhaps it’s our Latvian bias, considering the IPO was initially intended only for Estonian investors), the largest IPO of the year was successfully executed on the Tallinn Stock Exchange. By attracting over 35 million EUR, Infortar has ascended to become the 5th largest company on Baltic stock exchanges, expanding the total market capitalization of the region. Kudos, Infortar! Here’s to anticipating more IPOs next year! Latvia, it’s time to wake upā€”investors are eagerly awaiting the inclusion of State-Owned Enterprises in the stock exchange lists!

Good and Bad Divorce

In 2023, we witnessed the departure of two companies from Baltic stock exchanges. One of these separations proved to be a profitable breakup for investors. Hansa Matrix offered a fair buyout price, experiencing a 20% surge in January-February. There remains a glimmer of hope for the company to return to the stock exchange in the future, especially considering an IPO could be a viable exit option for the private equity fund that now holds the majority of HMX shares. On the flip side, Baltika shareholders had a less pleasant experience, watching share prices nearly halve before the company bid farewell to the stock exchange.

Roller coaster in Alt market

Those, who are being bored when investing in Baltic main list, you are welcome to the alternative list First North. The alternative market this year has been a rollercoaster, akin to navigating a minefield with its abrupt declines and swift increases. Feast your eyes on these daily movements: -20% for TextMagic, -21% for Hagen Bikes, and a whopping +22% for J. Molner. Adrenaline lovers, the trading floor is yours! šŸ˜Š

Happy trading to you next year!



Disclaimer #2: This article is for information purposes only and constitutes neither an offer nor a recommendation to undertake any type of transaction or to buy or sell securities or financial products in the broadest sense. Alphinox Quality AS offers no guarantee of the completeness, correctness or security of this article. Alphinox Quality AS accepts no liability claims that might arise from the use or non-use of the content of this article. Alphinox Quality AS employees might have shares of the mentioned companies in personal investment portfolio.

With food inflation skyrocketing, there has been a surge in consumer criticism directed towards retail store chains in the Baltics. Indeed, when we examine the raw material prices for basic food products, we observe that the majority have declined to the levels seen in 2020-2021. Are retail companies like Selver (accounting for 80% of Tallinna Kaubamaja Grupp sales) and Maxima, reaping additional profits? We sought to investigate this claim by comparing the profit margins of these companies across Baltic countries and analyzing their capital returns. Additionally, we examined the market landscape to identify who is gaining market share and who is falling behind.

Profit margins

It would be inaccurate to assert that Baltic retail chains are earning excess profits, with a few exceptions. The average gross profitability (profits after accounting for product and material costs) in the retail store segment is akin to what we see in Europe and globally, standing at 24%. Net margins are also comparable to European and US retail store chains. On a global scale, the average profitability of food retail, based on earnings before taxes relative to sales, hovers at 3-4%, mirroring the figures exhibited by supermarkets in Latvia and Lithuania.

Source: Corporate annual reports

Notes: Madara 89 ā€“ the largest retail company operating under Top! Brand; Maxima gross margins are not calculated due to different reporting structure.

However, Estonia presents a markedly different scenario compared to Latvia and Lithuania. It appears to host a highly competitive retail market, with the top position held by the non-profit organization Coop, which maintains essentially a 0% profitability, fostering intense competition. Consequently, Estonia exhibits the lowest gross margins and lowest pre-tax profit margins.

Regarding margin trends in the Baltic retail space in 2022, it can be concluded that retail chains did not alter their pricing policies significantly, as evidenced by stable gross margins. Net margins, on the other hand, witnessed a decline across the board, attributed to rising labor and energy costs.

Where can you get the highest profit?

To ensure consistency in evaluating whether any of the retail chains can command higher prices in the Baltic retail space, we compared the margins of the same store chains in all Baltic countries, specifically focusing on Rimi and Maxima. Examining the gross margins of the Swedish Ica-owned Rimi chain, we find they are highest in Lithuania (28-29%), followed by Latvia (20%), with Estonia recording the lowest margin level at 15%. Net margins for Rimi consistently outperform in Latvia (3.6-4.4%), significantly surpassing what the company earns in Estonia and Lithuania, where it averages at 1% (and even dips into negative territory in Lithuania in 2022).

Maxima, a Lithuanian retail giant, enjoys the highest margins in Lithuania at 5%, well above the usual levels in the retail industry. In Latvia, their net margins hover around 3.6%, making them the second least profitable retail chain. Conversely, Maxima’s margins in Estonia struggle at around 0%, which is unsurprising given the fierce competition in the Estonian market.

Lidl’s expansion in the Baltic countries is a positive development for consumers and market competitiveness, albeit a cause for concern for shareholders. Surprisingly, Lidl has managed to achieve commendable margins in Lithuania, where it established itself several years ago.

Capital Returns

Returns on assets (ROA) in the retail space are highest in Latvia, where the leaders in terms of capital profitability are Rimi and the locally-owned Madara89 (the largest company operating under the brand Tops!). Estonia, predictably, displays substantially lower ROA figures, with Selver, a part of the stock exchange-listed Tallinna Kaubamaja Grupp, leading in terms of asset management efficiency. To put these figures into context, global retail chains typically exhibit profitability in the range of 5-6%, making the ROA levels above 9% observed in Latvia and Lithuania appear rather exceptional.

Source: Corporate annual reports

Notes: Madara 89 ā€“ the largest retail company operating under Top! Brand

Comparing the return on assets of store chains present in all three Baltic countries, namely Maxima and Rimi, reveals that Rimi excels in Latvia with an ROA exceeding 20%, while achieving more moderate ROA levels in Estonia and Lithuania. Maxima effectively manages its assets to generate profit in its domestic market, Lithuania, but lags behind in Estonia, where its ROA stands at a modest 7%.

Market share trends

Considering the overall development in the Baltic retail space, it is noteworthy that the turnover growth of the majority of store chains has struggled to keep pace with food inflation. Evidently, consumers have significantly altered their consumption habits to curb expenditure growth.

Market share distribution among the largest players in all three Baltic countries has fluctuated. In 2022, market share was understandably seized by discount stores, while higher-end segment player Rimi lagged behind in Latvia and Lithuania. Additionally, the newcomer in the retail space, Lidl, has substantially disrupted the established positions of all market players in Lithuania, and it is likely to have a similar impact in Latvia and Estonia. However, the competitive landscape in Estonia may see fewer drastic changes.

Source: Corporate annual reports

Notes: Madara 89 ā€“ the largest retail company operating under Top! Brand

Main takeaways:

Lietuvas enerÄ£ijas gigants, Ignitis, jau pērn piesaistÄ«ja 450 milj. EUR no akciju investoriem atjaunÄ«gās enerÄ£ijas kapacitātes palielināŔanai. Savukārt tagad otrais pretendents Enefit Green ir no Igaunijas, un Tallinas biržā plāno piesaistÄ«t 115 milj. EUR lielu kapitālu, lai aktÄ«vāk attÄ«stÄ«tu zaļās enerÄ£ijas ražoÅ”anu gan Baltijas valstÄ«s, gan arÄ« Polijā un Somijā. Enefit Green ir valsts kapitāla sabiedrÄ«bas Eesti Energia meitas uzņēmums, un veiksmÄ«ga sākotnējā publiskā piedāvājuma (IPO) gadÄ«jumā esoŔā Ä«paÅ”nieka dalÄ«ba kapitālā samazināsies no 100% lÄ«dz 83%, kas nozÄ«mē ka Enefit Green darbÄ«ba arÄ« turpmāk tiks koordinēta no Eesti Energia puses, arÄ« jaunizveidotajā padomē 3 no 5 locekļiem pārstāvēs lielāko akcionāru.

Enefit Green 87% no jaudas sastāda vēja parki un uzņēmums ir lÄ«deris Baltijā vēja enerÄ£ijas ražoÅ”anā. Uzņēmumam ir ambiciozi attÄ«stÄ«bas plāni ā€“ tas plāno palielināt atjaunojamās enerÄ£ijas ražoÅ”anas jaudu 2.3 reizes, no esoÅ”ajiem 457MW lÄ«dz 1100MW 2025.gadā, ieguldot ap 600 milj. EUR,Ā  aktÄ«vi bÅ«vējot vēja un saules parkus. Tā kā brÄ«vais kapitāls bilancē ir tikai 11 milj. EUR, uzņēmums aktÄ«vi meklē iespējas piesaistÄ«t kapitālu ā€“ gan biržā (ir plānots, ka ā€˜tÄ«raisā€™ piesaistÄ«tais kapitāls sasniegs 92 milj. EUR), gan plāno piesaistÄ«t arÄ« banku finansējumu. Enefit Green bilance izskatās ļoti stabila, kas arÄ« ļauj agresÄ«vāk palielināt uzņēmuma finanÅ”u sviru: paÅ”u kapitāls sastāda ap 70% no kopējiem aktÄ«viem, kamēr Eiropas uzņēmumu finanÅ”u neatkarÄ«bas rādÄ«tājs ir tikaiĀ  26%. Veicot salÄ«dzinājumu pēc paÅ”u kapitāla rentabilitātes rādÄ«tāja, ir redzams, ka Enefit neatpaliek no uzņēmumiem, kas darbojas Eiropā, pat neskatoties uz to, ka tam ir lielākā paÅ”u kapitāla bāze ā€“ Eiropas uzņēmumiem rentabilitātes rādÄ«tājs irĀ  10.5%, Enefit Green ā€“ 9%.

Enefit Green var saukt par izaugsmes stāstu lēni augoŔā sektorā, jo zaļā enerÄ£ija, kas ir uzņēmuma fokuss, strauji attÄ«stās, pateicoties gan globālajām tendencēm, gan arÄ« no likumdevēju puses ES lÄ«menÄ«, lai sasniegtu nospraustos klimata mērÄ·us. Pateicoties tik apjomÄ«gam atbalstam, Enefit Green intensÄ«vi izmanto ES grantus un citus atbalsta mehānismus: 2020. gadā granti sasniedza lÄ«dz pat 40% no uzņēmuma pārdoÅ”anas apjoma.

Taču Enefit Green gadÄ«jumā jārēķinās ar noteiktiem riskiem, kas varbÅ«t ir mazāk izteikti pārējiem nozares uzņēmumiem, jo Å”obrÄ«d tas atrodas izaugsmes stadijā pirms nozÄ«mÄ«gu investÄ«ciju veikÅ”anas, kas varētu novest pie zemākās peļņas, ņemot vērā, ka Ŕī sektora Ä«patnÄ«ba ir augstā kapitāla intensitāte un to, ka pēdējos divos gados uzņēmums veica kapitāla ieguldÄ«jumus tikai par 8-11 milj. EUR.

Tomēr neskatoties uz apjomÄ«giem ieguldÄ«jumiem, uzņēmums dividendēs plāno sadalÄ«t 50% peļņas, kas protams uzrunā daudzus dividendes mÄ«loÅ”us investorus. Pie IPO cenas dividenžu ienesÄ«gums ir diezgan cienÄ«gs, kaut tas ir zemāks kā konkurentiem, bet atkal tas skaidrojas ar to, ka Enefit Green atrodas attÄ«stÄ«bas un ieguldÄ«Å”anas fāzē.

Eiropas komunālo pakalpojumu sniedzēju un Enefit finanÅ”u un novērtējuma rādÄ«tāju salÄ«dzinājums

Avots: Enefit Green prospekts, Thomson Reuters, Alphinox aprēķini

SalÄ«dzinot Enefit Green sākotnējo piedāvājuma cenu ar lÄ«dzÄ«giem Eiropas uzņēmumiem pēc PE (cena/peļņa) rādÄ«tāja, var secināt, ka IPO piedāvāta cena izskatās diezgan pievilcÄ«ga. Savukārt Baltijas mērogā Enefit Green lÄ«dzÄ«gu uzņēmumu fonā pēc Ŕī paÅ”a rādÄ«tāja nebÅ«t neizskatās pārāk lēts. ArÄ« dividenžu ienesÄ«gums ir nedaudz zemāks, bet arÄ« izaugsmes potenciāls Enefit Green ir salÄ«dzinoÅ”i augstāks, pateicoties ambicioziem vadÄ«bas plāniem.

Baltijas komunālo pakalpojumu sniedzēju dividenžu ienesīgums un cena/peļņa rādītājs

Avots: Enefit Green prospekts, Thomson Reuters, Alphinox aprēķini

Vērtējot Enefit Green IPO pievilcÄ«gumu, investoriem bÅ«tu arÄ« jārēķinās ar noteiktiem operacionāliem riskiem, tādiem kā neprognozējami laika apstākļi vēja un saules enerÄ£ijas ražoÅ”anai, elektrÄ«bas cenu svārstÄ«gums, kā arÄ« nestabila peļņa apjomÄ«gu ieguldÄ«jumu dēļ. Jāsecina, ka investoriem IPO piedāvātā cena izskatās diezgan samērÄ«ga, ņemot vērā uzņēmuma attÄ«stÄ«bas plānus, tā finanÅ”u stāvokli un esoŔās globālās tendences zaļās enerÄ£ijas jomā.

Atruna:Ā Å is viedoklis ir paredzēts tikai informatÄ«viem nolÅ«kiem, un tas nav nedz piedāvājums, nedz ieteikums veikt jebkāda veida darÄ«jumus vai pirkt vai pārdot vērtspapÄ«rus vai finanÅ”u produktus visplaŔākajā nozÄ«mē. ā€œEnefit Greenā€ sākotnējā publiskā piedāvājuma (IPO) novērtÄ“Å”ana tiek veikta neatkarÄ«gi. AS ā€œAlphinox Qualityā€ un tās darbinieki nepiedalās ā€ Enefit Greenā€ IPO. AS ā€œAlphinox Qualityā€ neuzņemas atbildÄ«bu par publicētā viedokļa satura izmantoÅ”anas vai neizmantoÅ”anas sekām.

It is our pride and joy to announce that Alphinox has received Investment Firm licenseĀ and will offer a variety of asset management solutions to private and institutional investors, who value transparent and sustainable investment services.

Investing in corporate excellence, in companies that are financially strong, are leaders in their industries and are being led by strong management teams is at the heart of our investment philosophy. Investment decisions are based on high-quality research provided by one of the largest analyst teams in the Baltics, experienced in creating alpha returns.