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Presentation 3 q strategy cee (eng for release)

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Presentation 3 q strategy cee (eng for release)

  1. 1. ERSTE GROUP CEE Equity Strategy Henning Eßkuchen Co-Head CEE Equity Research Erste Group ResearchErste Group Research CEE Equity StrategyCEE Equity 1
  2. 2. DisclaimerCautionary note regarding forward-looking statements ERSTE GROUPTHE INFORMATION CONTAINED IN THIS DOCUMENT HAS NOT BEEN INDEPENDENTLY VERIFIED AND NO REPRESENTATION OR WARRANTY EXPRESSED OR IMPLIED IS MADE AS TO, AND NO RELIANCE SHOULD BE PLACED ON, THE FAIRNESS, ACCURACY,COMPLETENESS OR CORRECTNESS OF THIS INFORMATION OR OPINIONS CONTAINED HEREIN.CERTAIN STATEMENTS CONTAINED IN THIS DOCUMENT MAY BE STATEMENTS OF FUTURE EXPECTATIONS AND OTHER FORWARD-LOOKING STATEMENTS THAT ARE BASED ON MANAGEMENT’S CURRENT VIEWS AND ASSUMPTIONS AND INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS, PERFORMANCE OR EVENTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN SUCH STATEMENTS.NONE OF ERSTE BANK OR ANY OF ITS AFFILIATES, ADVISORS OR REPRESENTATIVES SHALL HAVE ANY LIABILITY WHATSOEVER (IN NEGLIGENCE OR OTHERWISE) FOR ANY LOSS HOWSOEVER ARISING FROM ANY USE OF THIS DOCUMENT OR ITS CONTENT OR OTHERWISE ARISING IN CONNECTION WITH THIS DOCUMENT.THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR INVITATION TO PURCHASE OR SUBSCRIBE FOR ANY SHARES AND NEITHER IT NOR ANY PART OF IT SHALLFORM THE BASIS OF OR BE RELIED UPON IN CONNECTION WITH ANY CONTRACT OR COMMITMENT WHATSOEVER.Erste Group Research CEE Equity StrategyCEE Equity 2
  3. 3. The debt crisis is a global crisis ERSTE GROUPGross public debt and fiscal deficit per capita (EUR ths) Bubblesize shows public debt per capita in EURths (2012e) 12,0 10,0 USA Ireland Fiscal deficit to GDP (2012e) UK AA+ BBB+ Japan AAA Greece AA- CCC 8,0 Spain BBB+ 6,0 NL Portugal SK SI France AAA BB Denmark A A+ AA+ AAA 4,0 Austria Belgium Romania AA+ AA BB+ CZ AA- PL A- Finland Italy 2,0 AAA HU BB+ BBB+ Mastricht limit Germany AAA Euro Area 2012E Sweden 0,0 AAA 0 50 100 150 200 250 Public debt to GDP (2012e)Source: Erste Group Research, European Commission, ratings by S&PSD = Selective DefaultErste Group Research CEE Equity StrategyCEE Equity 3
  4. 4. In terms of GDP, public debt is low and well below the Eurozone average ERSTE GROUP Government debt (in % of GDP, 2012e) 0 50 100 150 200 All CEE countries except Hungary Griechenland 7,3 161 have maintained their aggregate debt Italien 1,9 124 Irland 8,3 116 below 60% of GDP Portugal 4,7 114 USA 8,1 107 Hungarian debt is below the Belgien 3,1 101 Eurozone average (2012e: 76% vs. Eurozone 3,2 92Vereinigtes Königreich 8 91 90% of GDP) Frankreich 4,5 91 Deutschland 0,9 82 The share of government bonds held Spanien 6,4 81 outside the respective countries* is Ungarn 2,5 77 Österreich 3 74 relatively low in the CEE region Niederlande 4,4 70 in CEE6, it accounts for about a quarter Kroatien 4,5 67 of public debt, or 15% of GDP Polen 3,5 56 Euro Area Serbien 5,3 55 average (2012E) In Greece, the share accounts for two Slowenien 4,3 55 thirds of public debt, or 90% of GDP Finnland 1 51 Slowakei 4,5 48 *2010 data Tschechien 3,5 43 Debt (2012F, % of Rumänien 3,4 34 Maastricht GDP) Ukraine 2,5 30 limit Deficit (2012F, % Bulgarien 1,9 18 of GDP) Source: AMECO, IWF, Erste Group Research Erste Group Research CEE Equity Strategy CEE Equity 4
  5. 5. Consolidation is imperative - but not only in theCEE countries ERSTE GROUP Ranked by GDP growth (in % of GDP, 2012e) Turkey 2,5 Poland 3,5 The growth rates in the region are Slovakia 4,5 USA 8,1 clearly above those of the developed Romania 3,4 Ukraine 2,5 GDP growth markets Finland 1 Deficit (2012F, % of Austria 3 GDP) The budget deficits differ widely among Germany 0,9 Bulgaria 1,9 the CEE and Western European countries France 4,5 UK 8 Ireland 8,3 Basically the budget deficit falls if the Serbia 5,3 economy is growing. Countries with Belgium 3,1 Eurozone 3,2 relatively high deficits (in relation to their Hungary 2,5 growth rates) are still faced with anCzech Republic 3,5 Spain 6,4 arduous consolidation process Netherlands 4,4 Croatia 4,5 Slovenia 4,3 Italy 1,9 Portugal 4,7 Greece 7,3 -6 -4 -2 0 2 4 6 8 10 Sources: Eurostat, Ameco, Erste Group ResearchErste Group Research CEE Equity StrategyCEE Equity 5
  6. 6. CEE market overviewCEE macro ERSTE GROUP Weak sentiment and IFO business cycle uncertainty biting into real economy Economic recovery in the clock region postponed Revision for CZ, HR and PL – HU, RO downside risk – SK revised up PMIs mixed Turkey and Poland remain strongest in growth – Real GDP grow th (y/y) 2010 2011f 2012f 2013f better balance of export Croatia -1.2% n.a. -1.8% 1.0% Czech Republic 2.6% 1.7% -0.8% 0.9% and domestic demand. GDP growth, Hungary 1.3% 1.7% -0.5% 1.2% Poland 3.8% 4.4% 2.6% 3.0% Hungarian stimulus Romania -1.6% 2.5% 1.2% 2.9% %y/y positive – risk remains on Serbia 1.0% 1.6% 0.0% 2.0% Slovakia 4.2% 3.3% 2.0% 2.0% the funding side Turkey 8.9% 8.5% 3.5% 4.5% Ukraine 4.2% 5.2% 1.0% 3.0% Austria 2.3% 3.0% 0.9% 2.0% Euroland 1.7% 1.5% -0.2% 1.1% CEE8 average 2.4% 3.2% 1.1% 2.3% CEE8+Turkey 4.7% 5.0% 1.9% 3.1% Source: IFO, Erste Group ResearchErste Group Research CEE Equity StrategyCEE Equity 6
  7. 7. CEE market overviewDriving forces – Sentiment/ZEW ERSTE GROUP Previous increases in Eurozone - ZEW current situation 100.0 Eurozone - ZEW economic expectations ZEW – Eurozone vs. sentiment wiped out again 80.0 CEE - ZEW current situation CEE - ZEW economic expectations 60.0 In particular expectations 40.0 decreased again 20.0 CEE 0.0 CEE still seen better than -20.0 -40.0 Eurozone in absolute terms -60.0 -80.0 Inflation seen heading -100.0 south -120.0 5/31/2007 9/30/2007 1/31/2008 5/31/2008 9/30/2008 1/31/2009 5/31/2009 9/30/2009 1/31/2010 5/31/2010 9/30/2010 1/31/2011 5/31/2011 9/30/2011 1/31/2012 5/31/2012 Appreciation trend for regional currencies 20.0 Stock market expectations current vs expectations 10.0 revised downwards 0.0 -10.0 -20.0 -30.0 ZEW/Erste – -40.0 -50.0 Nov-11 Jul-11 Jan-12 Jun-12 Aug-11 Sep-11 Oct-11 Dec-11 Feb-12 Mar-12 Apr-12 May-12 Current eco. situation Economic expectations Source: Bloomberg, ZEWErste Group Research CEE Equity StrategyCEE Equity 7
  8. 8. CEE market overviewInflation, rates and currencies ERSTE GROUP Oil price adds to weak CPI (eoy) 2010 2011f 2012f 2013f domestic demand – inflation Croatia 1.8% 2.1% 4.2% 2.8% Czech Republic 2.3% 2.4% 3.1% 1.2% currently no concern Hungary 4.7% 4.0% 5.2% 3.4% Inflation Poland 3.1% 4.7% 3.0% 2.6% Paves the way for rather Romania 8.0% 3.1% 3.7% 3.5% dovish stance of regional Serbia Slovakia 10.3% 1.3% 7.0% 4.4% 7.6% 3.5% 4.5% 3.0% central banks Turkey 6.4% 10.4% 8.0% 6.5% Ukraine 9.2% 4.6% 4.5% 14.0% The Czech National Bank has Austria 1.7% 3.6% 2.4% 1.9% Euroland 1.6% 2.7% 2.1% 1.6% already cut rates to all-time CEE8 average 4.4% 4.0% 3.7% 3.9% low (0.50%) CEE8+Turkey 5.1% 6.2% 5.2% 4.8% PLN and HUF remain the most volatile currencies in CEE Hungary moved closer to the Currency/EUR (average) 2010 2011f 2012f 2013f kick-off of formal talks with Currencies Croatia 7.3 7.4 7.6 7.5 Czech Republic 25.3 24.6 25.1 24.3 the IMF - HUF rallied 6% (vs. Hungary 275.4 279.2 295.0 279.0 euro since the beginning of Poland Romania 4.0 4.2 4.1 4.2 4.3 4.4 4.0 4.4 June) Serbia 103.1 102.0 114.0 115.0 Turkey 2.0 2.3 2.3 2.3 RON is traded in a narrow Ukraine 10.5 11.1 10.8 13.1 range due to the CB interventions Source: Erste Group ResearchErste Group Research CEE Equity StrategyCEE Equity 8
  9. 9. CEE market overviewDeficits and imbalances ERSTE GROUP C/A deficit – consumption 2010 2011f 2012f 2013f 2.0% C/A deficit (%of GDP) an ambiguous argument 0.0% Turkey the usual suspect – energy driven, consumption -2.0% part declining -4.0% Ukraine shows strong -6.0% increases of household consumption (4Q11 75% in -8.0% GDP) -10.0% Serbia high, but improving Serbia Turkey Ukraine CEE8 average -12.0% FDI 2010 2011f 2012f 2013f Consolidation efforts show Fiscal deficit (% of GDP 0.0% effect on fiscal deficit -1.0% Turkey increasing due to -2.0% lower growth -3.0% HR, SR, SK to be above 4% -4.0% in 2012 -5.0% PL, HU to be below 3% in -6.0% 2012 -7.0% Poland Romania CEE8 average Romania is to slightly -8.0% overshoot its deficit target for -9.0% this year due to elections Source: national statistics, Erste Group ResearchErste Group Research CEE Equity StrategyCEE Equity 9
  10. 10. CEE market overviewDeleveraging ERSTE GROUP Banks in EURO-periphery were in the center of cross- Change in foreign liabilities of banks border deleveraging (Mar-2012 vs Mar-2011 as % of GDP2011) The low level of public debt 29 put CEE economies at lower risk compared to 5.1 many highly-leveraged euro area economies 5.2 No substantial outflow of -46.9 20 9.1 -0.3 foreign funding in CEE -13.5 8.2 banks 0.7 -1.6 1.9 Hungary is an outlier in -8.4 -1.6 -5.8 -0.6 -6.7 1.3 CEE due to unorthodox -1.8 policy measures resulted in -5.7 a reduction of Hungarian -14.5 -6.3 1.8 -12.5 banks’ balance sheets Legend less than -2 between -2 and 0 between 0 and 2 more than 2 Source: ECB, Erste Group ResearchErste Group Research CEE Equity StrategyCEE Equity 10
  11. 11. CEE market overviewDriving forces – Liquidity ERSTE GROUP emerging market equity USD mn Fund flows – dedicated 25,000 Until March inflows added 20,000 up to USD 25bn 15,000 April/May wiped out USD 10,000 funds 9.6bn by redemptions for 5,000 all dedicated emerging 0 market equity funds -5,000 -10,000 Global emerging market 01/31/12 02/29/12 03/31/12 04/30/12 05/31/12 06/30/12 07/31/12 08/31/12 09/30/12 10/31/12 11/30/12 12/31/12 ytd equity funds holding up Global Emerging Markets Asia ex-Japan best Latin America EMEA Pacific All dedicated Emerging Market Stock exchange turnover Stock exchange turnover 20% still down by some 30% y/y 11% 11% 9% 10% 4% 6% M/m some moderate 2% 4% 2% 0% increases (CEE 8: +16%) 0% -10% -20% -19% -30% -26% -33%-34%-34% -40% -50% Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May CEE 8 Deutsche Börse NYSE Euronext Turkey Source: Emerging Portfolio Research FESEErste Group Research CEE Equity StrategyCEE Equity 11
  12. 12. CEE market overviewDriving forces – Growth ERSTE GROUP 0 Earnings revisions CEE Growth remains the key concern -50 Revision rates started to -100 bite into earnings outlook -150 Earnings growth for 2012 at -200 mere 7.8% (EUR) 2012 2013 2014 In particular 2013 and 2014 -250 Sep-11 Nov-11 Feb-12 May-12 Aug-11 Dec-11 Jan-12 Mar-12 Apr-12 Jun-11 Jul-11 Oct-11 Jun-12 estimates are being revised down Potential turning point Earnings revision 2012 (rhs) Earnings revision 2013 (rhs) Forward P/E (lhs) Earnings growth (lhs, %) identified early 2012 did not 25 50 work. Turning point missed 0 20 1 2 0 11 11 1 00 00 11 11 12 12 -1 r-1 r-1 -1 g- c- n- n- n- n- b- b- ec ct -50 Ap Ap De Au Fe Fe Ja Ja Ju Ju O D 15 -100 10 -150 5 -200 0 -250 Source: Factset, Erste Group ResearchErste Group Research CEE Equity StrategyCEE Equity 12
  13. 13. CEE market overviewDriving forces – Valuation ERSTE GROUP Valuations are still 17.0 comfortably below 12M forward P/E 15.0 historical levels 13.0 Relative to weaker growth 11.0 Average 11.6 outlook, however, valuation 9.0 argument looses some 7.0 8.9 appeal 5.0 11/30/2000 11/30/2001 11/30/2002 11/30/2003 11/30/2004 11/30/2005 11/30/2006 11/30/2007 11/30/2008 11/30/2009 11/30/2010 11/30/2011 1.2 1.1 Valuation vs growth, 1.0 0.9 12M forward 0.8 0.7 0.6 0.5 0.4 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Source: Factset, Erste Group ResearchErste Group Research CEE Equity StrategyCEE Equity 13
  14. 14. CEE market overviewDriving forces – Risk aversion ERSTE GROUP Apart from fundamental Spread – CLI to stock 75.0 OECD - Europe OECD Eastern Europe Major Five Asia market performance outlook just any lasting 55.0 change in sentiment is still 35.0 able to provide decent 15.0 performance -5.0 -25.0 Equity market performance -45.0 is still significantly below of -65.0 what economic outlook ar 7 M 008 M 009 M 011 M 011 N 008 N 009 N 010 N 011 Ju 08 Ju 09 Ju 10 Ju 11 2 00 01 0 0 0 0 would justify -2 -2 -2 -2 -2 l- 2 l- 2 l- 2 l- 2 -2 -2 -2 -2 -2 ov ov ov ov ov ar ar ar ar M N Equity risk premia are elevated again, reaching 10.0 2,500 670bps vs average of 9.0 8.0 2,000 Equity risk premia 350bps 7.0 6.0 1,500 5.0 4.0 1,000 3.0 2.0 500 1.0 0.0 0 2/28/2002 10/31/200 6/30/2003 2/29/2004 10/31/200 6/30/2005 2/28/2006 10/31/200 6/30/2007 2/29/2008 10/31/200 6/30/2009 2/28/2010 10/31/201 6/30/2011 2/29/2012 Average Earnings yield - 10yr Gov Historical average NTX OECD stopped providing a sample for Eastern Europe, figures shown are averaged numbers based on individual countries Source: OECD, Bloomberg, FactsetErste Group Research CEE Equity StrategyCEE Equity 14
  15. 15. CEE market overviewRelative view – markets ERSTE GROUP discount to implied fair Suffering from high risk 70.0 60.0 Relative view incl. Bubble size aversion Romania, but also EPS growth (forward, 12M, %) PX indicates discount to 50.0 Austria stand out 40.0 implied fair value ATX Regional outperformer value 30.0 Turkey should still have 20.0 Bux Turkey 10.0 most potential Romania Croatia 0.0 Growth outlook remains -10.0 Poland WIG 20 broad distorted by some base -20.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 effects. P/E (foreward, 12M) 70 Bubble size indicates 60 EPS growth (forward, 12M, %) ytd performance in PX 50 EUR 40 Relative view incl. ytd performance 30 ATX 20 BUX Turkey 10 Romania Slovenia 0 Russia Croatia Poland -10 WIG 20 -20 -30 4.5 5.5 6.5 7.5 8.5 9.5 10.5 P/E (forward, 12M) Source: Factset, Erste Group ResearchErste Group Research CEE Equity StrategyCEE Equity 15
  16. 16. CEE market overviewAllocation proposal CEE Equity 3Q 2012 ERSTE GROUP 10.00 % 8.00 Turkey – remains best 6.00 choice for growth, Expected returns 4.00 concerns on C/A easing 2.00 0.00 Poland – growth, size -2.00 -4.00 Austria – regional play, -6.00 but dependent on banks -8.00 RO&BG CEE SEE Austria Turkey Russia Ukraine Poland CEE / Hungary – recovery from low base, political Profitability Growth Valuation Momentum & analyst view Risk Size risk,Czech Republic – stable, defensive, Underweight Neutral Overweight Slovenia – liquidity Allocation proposal Austria SEE – liquidity CEE RO & BG – transactions Poland delayed RO & BG Russia – whatever Russia happens to the oil price SEE Turkey Ukraine Source: Erste Group ResearchErste Group Research CEE Equity StrategyCEE Equity 16
  17. 17. CEE market overviewRelative view – sectors ERSTE GROUP 40 Turkey contributes strongly Jun-12 May-12 Earnings revision rates by 30 to any sector performance 20 10 Despite concerns on sector – 2012e 0 growth cyclicals ahead -10 Basic resources remain -20 -30 most fragile in terms of Construction & Materials Personal & Household Goods Healthcare Travel & Tourism Banks Technology Industrial Goods & Services Insurance Real Estate Media Automobiles & Parts Food & Beverages Chemicals Basic Resources Oil & Gas Utilities Telecom Retail growth recovery Food and beverage suffers from its SEE listings (liquidity) 120.0 Automobiles receive their Valuation, growth and Bubble size indicates ytd performance in EUR 100.0 push equally from Turkey Real Estate Forward EPS growth (12M) ytd performance 80.0 and Poland 60.0 Healthcare Construction to earlier yet 40.0 Insurance Technology Personal 20.0 Banks Construction Industrial Retail Healthcare as defensive Telecom Utilities 0.0 Autos Chemicals Food Oil anchor Basic -20.0 Resources -40.0 -60.0 -1 4 9 14 19 Forward P/E (12M) Source: Factset, Erste Group ResearchErste Group Research CEE Equity StrategyCEE Equity 17
  18. 18. CEE market overviewTop picks ERSTE GROUP Austria Poland Turkey Central Europe* SEE & Other** Banks + Raiffeisen Bank Int. + Isbank + Yapi Kredi + Halkbank Basic resources / + Semperit + Bogdanka + Pegas Chemicals + RHI + voestalpine + Lenzing ( ) - KGHM Construction / Constr. materials Real estate / + Im m ofinanz + Torunlar REIT + Fondul Propr. Holdings + CA IMMO + Em lak Konut REIT Health care + Selcuk + Richter Gedeon + Krka + Egis Industrial goods + Polytec + Tofas & services / Autos + Dogus Otomotive (new ) - Ford Otosan Insurance + Vienna Ins. Group + PZU - UNIQA Oil & gas + OMV + Aygaz + MOL + Petrom + Tupras - PKN - Unipetrol Personal goods / + Turkish Airlines + Fortuna ( ) Food / Travel Retail / Wholesale + Migros Ticaret - BIM Telcos & Technology + Kapsch TrafficCom + TPSA + Turkcell Utilities / Media + Cyfrow y Polsat + CEZ + Transgaz + Transelectrica * Czech Republic, Hungary, ** Romania, Ukraine, Blue: Top 10 Pick , Red: Expected underperformers Source: Erste Group ResearchErste Group Research CEE Equity StrategyCEE Equity 18
  19. 19. CEE market overviewConclusions ERSTE GROUP Macro • Uncertainty biting into real economy, recovery delayed Risk aversion and • Sentiment went sour again, equity risk premia almost sentiment at all-time highs Fundamentals • Growth outlook deteriorated, makes valuation a bit less an argument Sectors and companies • Selective focus on financials and cyclicals Markets •Turkey and Poland ahead, Russia depending on oil price. CEE driven by Hungary, SEE waiting for liquidity.Erste Group Research CEE Equity StrategyCEE Equity 19
  20. 20. AppendixErste Group Website ERSTE GROUP− www.erstegroup.com / Capital Markets / Research Center− Whole research package available via registration.− Increased efficiency for any sales distribution channel.− PDF downloads are possible.Erste Group Research CEE Equity StrategyCEE Equity 20
  21. 21. AppendixResearch Center ERSTE GROUP− www.research.erstegroup. com− Register and − receive latest reports according to your specifications (mail notification) − find reports on macro, equity, special themes, etc − includes archive − view latest reports presented in video format − design your own start page − set alerts − screen charts −…Erste Group Research CEE Equity StrategyCEE Equity 21

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