Intercapital: The Slovenian Capital Market is One of the Most Interesting for Investment This Year

In the Slovenian capital market, the total turnover of shares in 2022 amounted to 431 million euros, representing an increase of 13.4 percent year-on-year. This is the result, emphasizes Tea Pevec, head of the analysis department at Intercapital, of a significant increase in volatility due to geopolitical events and rising interest rates. The total turnover on the Ljubljana Stock Exchange accounts for approximately one percent of Slovenia’s GDP, which is expected to grow by about 6.2 percent in 2022.

– In 2022, the return of the Slovenian stock market was also influenced by the war in Ukraine, high inflation rates, and the increase in interest rates by the European Central Bank (ECB). To recall, at the end of 2021, the ECB’s interest rate on overnight deposits was -0.5 percent, while at the end of 2022, it was 2 percent. By deciding on these rates, the ECB influences market interest rates, which currently stand at around 2 percent for various maturities. Thus, the main index of the Slovenian stock exchange recorded a decline of 17 percent in 2022, driven by negative news for stocks as an investment class and individual news related to specific stocks that have large shares in the index.

However, it should be noted that in 2021, this same stock index achieved the best return among all regional markets, amounting to 40 percent. When we see that in 2020, SBITOP fell only by 3 percent, and in 2019, as one of the more successful years in terms of financial results, it rose by 15 percent, we can say that the Slovenian capital market is one of the better stock markets in the region. Especially when we see that with such capital returns, it was possible to achieve a dividend yield of seven percent in 2022, Pevec emphasized.

Double the Dividend Yield Compared to Croatia

Regarding the share of individual stocks in the SBITOP index, the most significant success is attributed to companies with the largest shares, such as Krka, which operates in the pharmaceutical industry and has a share in the index of as much as 30 percent. In 2022, the stock price fell by 22 percent due to Russia’s invasion of Ukraine, which are both important markets for Krka. Namely, both markets accounted for as much as 27 percent of sales revenue. In the nine months of 2022, these events did not significantly affect Krka’s financial results; on the contrary, they had a positive effect, explains Pevec, as the company achieved slightly higher sales due to increased inventories in Russia and exchange rate differences due to the stabilization of the ruble after the initial depreciation in March 2022. Significant revenue growth continued in other markets, while in the coming years, we expect, she emphasized, significant growth from Krka’s operations in the Chinese market.

– Therefore, in 2022, we expect a double-digit increase in net profit and dividends, which could exceed six euros per share and achieve a slightly higher dividend yield than the 6 percent achieved in 2022. The next largest weight in the SBITOP index, with 17 percent, is Petrol, which, along with a smaller energy business, is a fuel reseller that will experience a significant decline in profits in 2022 due to government interventions in gasoline prices in their most significant markets: Slovenia and Croatia. Therefore, the stock price also fell by 21 percent in 2022.

In the second half of 2021, Petrol acquired the Croatian Crodux for 192 million euros at a fundamentally attractive EV/EBITDA multiple of 5.6x, and the full effect of the acquisition was expected to be reflected in the overall results in 2022. This did not happen due to government interventions in fuel prices, and therefore, in the Croatian market, the Petrol Group recorded a negative profit of 3.5 million euros in the nine months of 2022. We expect a recovery in margins from mid-2023 and that the full effect of that acquisition will be visible in the financial results in 2024. In the following year, we expect the dividend to return to previous business levels of 6 percent, while in 2023, we expect a dividend of only 1.5 percent, Pevec said.

At Intercapital, this year, they expect continued significant volatility in the Slovenian stock market, which will continue until mid-year. By the end of the year, they expect stabilization of interest rates at higher levels than currently and stabilization of inflationary pressures and a recovery in the value of the reference stock index of the Slovenian capital market and double-digit growth in 2023.

– However, we expect the dividend yield to be at lower levels than in 2022. Nevertheless, it will be double the yield we expect in the Croatian capital market, and therefore we can highlight the Slovenian capital market as one of the more interesting for investment this year, concluded Pevec.