Market Monitor - Manos Chatzidakis

Market Comment

October is yet to see a bourse session with gains for the benchmark, due to the domestic political climate and despite the better-than-expected course of talks between the government and creditor representatives. Athens’s intention to emerge from the strict troika monitoring is continuing to concern investors. General index ended to a new 12-month low at 1.007,94 down by 0.41% on a sixth straight day o losses.

A bounce is expected today on improving trends in foreign markets and strong short term technical oversold price levels in most large caps. T A bounce is expected today on improving trends in foreign markets and strong short term technical oversold price levels in most large caps. The extent and the duration of the bounce much depends on volumes as offers remain significant.

¢           In the Spotlight

Greece/Exports: Greek exports and imports fell in August, Hellenic Statistical Authority said on Wednesday. The value of import-arrivals in the country totaled 3.283 billion euros in August, from 3.927 billion in August 2013, for a decline of 16.4 pct (excluding oil products the value of imports fell by 13 pct). The value of export-deliveries totaled 2.053 billion euros, from 2.181 billion euros in August 2013, for a decline of 5.9 pct (excluding oil products the value of exports fell 6.1 pct).

Greece/26-Week T-Bills: Greece sold 1.1375 billion euros of 26-week Treasury Bills with uniform yield of 2% and coverage ratio of 2.67. Recall that the yield at previous 26-week Treasury Bills auction on September 2nd, was 2% and the coverage ratio was 2.5.

Sarantis: On October 7 Sarantis announced the acquisition of Noxzema business in Greece from Procter & Gamble for a consideration of EUR8.7m. Aforementioned deal, which involves production as well as distribution of Noxzema products at a local level, is expected to close on October 31, 2014.  Noxzema is a well-established brand in Greece enjoying a strong presence in the categories of deodorants/antiperspirants, shower gel/body wash and shave foam (market leader in DEOs for the past 11 years).

Having said that, Sarantis refrained to disclose any financial data (ie sales, earnings outlook etc) regarding Noxzema Greece, waiting instead for the deal to be completed.

From a strategic point of view, this latest move makes perfect sense as it enhances Sarantis international brand portfolio and strengthens further its dominant position in the domestic consumer products market.

We remain Overweight on Sarantis with a TP of EUR10 per share, implying a potential upside of c32% from current levels.

In 2014e, we expect Sarantis group sales, EBITDA and net earnings to rise 8%, 15% and 19% y-o-y to EUR256m (EUR257m at constant FX rates), EUR26m and EUR18m, respectively.

Next year, we see group sales, EBITDA and net earnings at EUR277m, EUR31m and EUR22m, up 8%, 18% and 21% y-o-y, respectively.

On our forecasts, Greece should account for 34% and 55% of 2014e group sales (+4% y-o-y to EUR88m) and EBIT (+13% y-o-y EUR14m), respectively.

Valuation data:

¡  P/E (x): 2014e 14.3x, 2015e 11.8x

¡  EV/EBITDA (x): 2014e 9.0x, 2015e 7.4x

¡  2013a-16e EPS CAGR of 19%

¡  Net cash: At end-2014a EUR2.1m, 2015e EUR6.6m

Mytilineos: Aluminium SA, unit of Mytilineos Holdings, won a European Union court appeal to overturn an unfavourable EU state aid decision. EU regulator in 2011 ruled Greek aid given to Aluminium in the form of lower electricity tariffs by Public Power Corp.  was unlawful. The state aid figure was €17.5m (plus interest €3.8m). Regarding this decision we note the following:

¡  For Mytilineos Group  is  a non event regarding P/L statement as the company has not taken any provisions in 6M ‘14 results. However we note that the Group paid the relevant figure to PPC and thus now is expected to refund this amount (or offset it with electricity bill) affecting cash flow and group net debt.

¡  On the other hand PPC in 6M results has taken provision which need to be reversed affecting both P/L statement and cash flow. PPC can appeal against this decision to a higher court.

Fourlis: As of October 3, JP Morgan stake in Fourlis dropped to 3.9% (1,987,959 shares) from 5.16% previously.