In 2023, a sluggish economy was raining on the parade for nearly 40% of companies listed on Baltic stock exchanges, putting a dent in sales and profitability. But here’s the surprise: despite the gloomy forecast, corporate revenues actually grew by an average of 6%, which blew past the GDP growth of all three Baltic countries! The real stars of the show? The banks! They cashed in big time, thanks to some loose economic policies that padded their profits. High interest income and bigger loan portfolios kept the three major Baltic banks in the green. And get this: dairy companies joined the winners’ circle, too. Against all odds, they squeezed out higher margins and reported some impressive earnings growth. So while the broader economy was a bit of a drag, a few industries definitely found ways to turn things around!
The companies sitting at the very top of corporate quality in the Baltics are highlighted within our Corporate Excellence Award initiative. We conduct this evaluation globally, identifying the best corporate quality providers worldwide, including in the Baltics. Our assessment considers financial results and the quality of business models, using both current annual and historical data from companies listed on Baltic exchanges. This evaluation focuses on companies that have been publicly listed for over three years and applies a basic ESG filter.
Those who follow our award initiative know that corporate quality is highly stable, which means there is usually little change in the top companies. However, external factors can sometimes put the strength of these companies to the test, as we have seen with Tallinna Kaubamaja, a long-standing member of our top rankings. This year, however, it has dropped out of the top tier due to weak macroeconomic conditions prompting consumers to save more and shift toward lower-price segments, where competition has intensified with Lidl’s entry into the retail market.
Companies with less than three years data history are not included in the evaluation
Source: Alphinox, Reuters
As boring as it gets, Telia Lietuva again is the winner of the Baltic Corporate Excellence Award 2024, safeguarding its top position from last year. Moderate and stable growth every period, being extremely resilient as a typical well-managed telecom and keeping its high margins regardless of the macroeconomic setback. To add, Telia is also one of the highly valued companies according to the PE ratios of companies on the Baltic stock exchanges. Intensive investment cycle caused by the 5G installation is over, helping the company to lift profitability further. The market in which Telia operates is extremely competitive and offers limited growth opportunities, but the management, supported by the main shareholder, obviously navigates the environment well.
In the TOP 3 this year, the 2nd place is taken by the construction company Merko, which showed solid results in a challenging market. Revenue increased in 2023 largely due to a boost in construction service demand across its Baltic markets, especially in Estonia and Lithuania. The operating profit margin rose, reflecting better cost management and a shift towards indexed contracts that mitigate inflation-related risks. Merko’s order book grew by approximately 60% compared to 2022, bolstering its future revenue pipeline. Looking forward, Merko expects stable demand in public sector projects, particularly in defense and renewable energy infrastructure, which will help offset slower real estate development. The company plans to be selective in new projects, maintaining profitability and financial stability while closely monitoring economic trends. Despite a challenging market, Merko’s solid order book and diversified project base support a positive outlook for sustained growth in 2024.
This year, Apranga slipped from second to third place in the Baltic Corporate Excellence ranking. The company has skillfully navigated numerous challenges over the years, bouncing back from the COVID-19 pandemic to reach new revenue records. However, growth is now showing signs of slowing, and rising wages are putting pressure on margins. Despite these challenges, Apranga continues to expand its sales base. Recently, it added two new brands to its portfolio—Vero Moda and Jack & Jones—introducing a fresh range of styles and pricing options. Apranga’s resilience in overcoming market obstacles suggests it will keep finding ways to strengthen its position, even in a tough environment.
The valuation multiples of these companies are higher than the market average, indicating that the market recognizes their corporate quality. Overall, the valuation of the Baltic market remains significantly lower compared to global peers, while dividend yield at the same time is lower. The PE ratio of MSCI World companies is 20.1 while that of Baltic companies is 6.4. These valuation ratios have been depressed due to geopolitical tensions deterring investors and the post-COVID normalization impacting inflated earnings. For investors, this creates an opportunity to find bargain-priced, dividend-rich options (Baltic Div. yield 5,6% vs. MSCI World 2,2%) —particularly appealing to those who enjoy seeing cash in their investment accounts.
Baltic Corporate Excellence Award: Since 2008 on a yearly basis Riga-based financial research company Alphinox, in cooperation with its partner, Hérens Quality Asset Management (Switzerland) and its academic partner, Riga Technical University (Latvia), evaluates the quality of the companies quoted on the Baltic stock exchanges. Both qualitative and quantitative assessment is applied to determine the best companies listed in the Baltic States, considering the companies included in the Baltic main list with trading history of at least three years. The quantitative screen contributes 50% to the overall assessment. It considers main fundamental ratios allowing to make a judgment on the strength of the balance sheet, profitability, capital efficiency, operating efficiency, earnings momentum. Another 50% of the decision is based on the qualitative assessment, which covers business model, corporate governance, social responsibility, quality of financial management and market environment. The Corporate Excellence Award recognizes historical fundamental performances (based on the result of FY 2023 and earlier) and ignores companies’ valuation. The results of the Baltic Corporate Excellence Award are not a stock recommendation.
https://www.alphinox.com/awards/
Disclaimer: This press release 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 press release. Alphinox Quality AS accepts no liability claims that might arise from the use or non-use of the content of this press release. Alphinox Quality AS employee has Telia Lietuva and Šiauliu Bankas in personal investment portfolio.
