How the Coronavirus Affected Capital Returns for Investors on the ZSE

Written by: Vlatko Kesegić, FIMA-VRIJEDNOSNICE d.o.o.

The return of the virus, or the renewed accelerated spread of COVID-19, has refocused investors on global stock exchanges to monitor infection data. Although investors subconsciously accounted for the risk of a second wave of the pandemic, it was ‘predestined’ only for the autumn, so the assumption that economies would be fully open during the summer is now in question.

The rise in the number of new infection cases has unpleasantly surprised domestic investors, who had recently begun to optimistically buy shares that had previously been most affected by the virus. The new turn of events has certainly affected the easing of optimism, and shares from the tourism sector have once again become the target of sell-offs.

With or without a new wave of infections, the management of leading listed companies certainly anticipated a very challenging year. In addition to immediately announcing estimates of the impact of COVID-19 on their operations at the beginning of the pandemic, a good portion of companies has predictably announced savings that directly relate to their shareholders.

Aside from the damage caused by the coronavirus due to the correction of the share prices they hold, changes in decisions regarding capital returns that companies pay to their shareholders is another price that investors will have to pay this year. In this regard, in this week’s article, based on cash flow data from the financial reports of companies, we analyzed the amounts that joint-stock companies transferred to their owners last year and compared them with the amounts paid or planned to be paid this year.

When we talk about returning capital to their shareholders, domestic companies most often opt for dividend payments. The table below shows the amounts that companies paid last year and the amounts they paid or plan to pay this year. Since companies with the highest level of corporate governance are also components of the main stock index, only shares from Crobex are included.

—

Dividend Payments

photo

—

In 2019, Crobex components paid nearly 5 billion kuna into their shareholders’ accounts. Of this amount, two-thirds related to payments from the two largest domestic banks, Zagrebačka and PBZ. This year, the owners of these banks will be without several billion kuna. Namely, according to the proposals of the management and supervisory boards, and according to the order of the central bank, last year’s earnings are intended for retention. Likewise, shareholders of HPB, who did not receive a payment last year, cannot count on a dividend this year either.

Given the very challenging situation in tourism, it is not surprising that both Adris Group and Valamar have given up on payments. Both companies paid hundreds of millions of kuna in dividends to their shareholders last year, while this year, Valamar and the tourism part of Adris, Maistra, were forced to request several million kuna in support for job preservation.

Despite positive business results in the first quarter, the management and supervisory board of Ericsson Nikola Tesla decided to propose profit retention, leaving shareholders without nearly one hundred million kuna this year. Given the crisis caused by the pandemic, management believes it is difficult to predict the extent of the negative impact on future operations, so profit retention is certainly part of the cost efficiency measures the company is undertaking.

On the other hand, shareholders of Atlantic Group, Hrvatski Telekom, and Podravka should certainly be satisfied as the dividends they will receive this year will be approximately equal to last year’s payments.

In addition to dividend payments, a very important way to return capital to their investors is also the buyback of their own shares. Below is an overview of the amounts that Crobex components spent on buying back their shares.

—

Share Buybacks

photo

—

It is evident from the above that leading joint-stock companies on the Zagreb Stock Exchange spent 271 million kuna on the buyback of their own shares last year, which is significantly less than the 5 billion paid through dividends, but still positive considering that few domestic companies decide to activate their share buyback programs.

It is certainly positive for investors that Adris Group, which spent the most on share buybacks last year, has continued with intensive share buybacks this year despite giving up on dividend payments. Hrvatski Telekom also sent a positive signal to its investors as it surpassed Adris in share buyback spending in the first quarter. It is certainly interesting that the shipping company Tankerska NG, which reported solid results in the first quarter due to better conditions in the tanker freight market, has started buying shares for its treasury. On the other hand, shareholders of Valamar Riviera, who have so far enjoyed the company’s support in the market, will have to wait for better times as the company has not bought back its own shares this year.

Capital gains, or positive changes in share prices, are certainly the most important return that investors hope for by investing in certain joint-stock companies. However, additional investment motivation certainly comes from yields in the form of dividends and share buybacks that companies can undertake in the market, thus positively affecting the demand for shares and consequently the price. From the previously shown, it is evident that this year shareholders will have to come to terms with weaker returns.

{embed_digitalno_izdanje}{/embed_digitalno_izdanje}