Wednesday May 25, 2022

If you want to make a profit, direct the investment to the entrance

The attractiveness of valued EZ shares or other titles traded on the stock exchange for a Czech investor is rapidly declining. Therefore, you should consider moving at least your investments beyond the Czech stock market. The best way to enter the entrance.

The hunter, who has been following the bottom in the global world for the last few years, should not fail to notice the differences in power. The land begins to pull for a short end, while the main growth takes place in developing markets. On the one hand, declining companies are desperately trying to occupy growing markets, on the other hand, some emerging market companies are absorbing their declining competitors and becoming unavoidable global games.

The development of the stock market is a very good proof of this. The stock indices of the Central and Eastern European market and thus other developing countries have added plates or hundreds of percent. When we look at it a bit, the indices of emerging markets have risen mainly because the prices of the largest representatives of these markets have risen. It is understandable that Western funds will buy exposure to a growing economy by investing huge resources in large, often traded events such as EZ, PKN or Gazprom. The thorn indicators of these companies may record large numbers and for most new investors become less attractive in the long run.

Not only giant shares are traded on the market. A detailed view of the floor into the segment of medium-sized companies shows that you can find undervalued titles here, which will probably not become a global character, but you will become a national or regional market consolidator. An example would be the Polish manufacturer of the HOOP drink, which goes through the process of connecting with Kofola with the aim of creating a significant regional game.

For simplicity, it can be stated that the average medium-sized company has a capitalization in a relatively wide range of about 500 million USD. Of course, another will be the relative importance of a company of such a size in the market as Russia, another in small Bulgaria.

In which market do such undervalued companies look for? Someone could propose to them or India, because they are talking about their economic boom. In my opinion, Russia is very interesting in this regard. Russia is a huge market with a thorn capitalization of the city stock exchange about 20 times in the stock market of the Czech Republic. In this market you can find a large number of medium-sized and smaller companies, their relative thorns are very low due to comparable companies in developing markets.

A good example of my claim is the rapidly growing construction sector and not the table of market numbers of companies engaged in the construction of roads, roads and bridges. which can interpret indicators such as P / E or EV / EBITDA (share price / earnings per share or economic value of the company / profit before the year, tax and depreciation), it is clear from the with 50% and vtm discount against companies from NY, India or Bulgaria. Is it caused by the growing perspective of Russian companies? No. Today, economically very strong Russia accumulated a huge stabilization of funds and gave the means due to the rise in oil prices in recent years. The largest share of public (and private) investment in five years will first go to the construction of new infrastructure, for example in connection with the Soi Olympic Games.

The use of the construction sector in the comparison of price levels of the emerging market is to a large extent illustrative and distorted, but the relative undervaluation of Russian stocks is also proved by the following table with an overview of P / E market indices and corporate profit growth. This table includes large companies with a high share in the index, ie those that have become a target of large stock funds. Among Russian medium-sized and small companies, you can still find a few plates, their price corresponds to less than a few times the profit (P / E = 4x).

Click on the table to enlarge

Note: The PowerFunds NewMarkets fund managed by RSJ Invest held shares in HOOP, Trace Group Hold, Mostotrest and Transstroy at the time of writing. For the sake of interest, I would like to say that the recent IPO of the Bulgarian company Trace Group Hold was a very significant 1480 times, which was not caused by excessive demand from hedge funds, but especially by domestic banks.

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