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Greek 2020 outlook: The Comeback v2

Relative and absolute trade – The Athens benchmark index surged c+50% during 2019, a year which brought the most impressive annual returns for Greek equities in the last 2 decades. Performance was propelled by the banking sector (+101%) but with non-financials also registering notable returns (over 30%). Underpinning the Greek equity thesis during the year were domestic political developments coupled with easing global recession fears and loose monetary policy by major central banks. Looking ahead, we expect the modest fiscal stimulus embedded in the Greek state budget (incl. the 4pps reduction in corporate tax rates) to drive double-digit EPS growth for our non-financials universe. With equity valuations (for Greek non-financials) still a bit off their long-term average and c25% below EU peers, we believe Greek stocks offer a compelling risk-reward balance, especially given the better domestic macro narrative compared with that of most developed markets.

Banks: retain a positive stance as progress accelerates – After a record 2019 market performance (albeit from a low base) we believe Greek banks will remain on a positive trend. We expect further progress in their fundamental position amid a more supportive environment (as reflected in the macro and real estate market outlook) and more decisive management actions. In addition, we believe valuation remains reasonable (2020e P/TBV at 0.4x) and we see scope for further re-rating, especially upon implementation of their strategic plans, targeting much cleaner balance sheets (NPE ratio less than 10%) and improved profitability (RoE circa 10%) by 2021-22.

Non-financials: scope for some further re-rating, this time driven by idiosyncratic factors – With most Greek non-financials trading at notable discount vs. their EU peers, we do see some scope for further multiple expansion, especially given the stage of the Greek macro cycle. We caution though that earnings multiples are more likely to expand by an upturn in fund flows driven by improving corporate fundamentals and a confidence boost rather than by a further tightening in bond yields. In our view, a further reduction in GGB yields will be either reflective of the special characteristics of Greek debt (e.g. long average maturity, official sector dominance) or the result of simmering concerns about global growth (which in its turn would lead to a higher equity risk premium).

Top picks – Against the background of accelerating cyclical momentum and a pro-growth government agenda, the domestic outlook for 2020 looks positive. With investors likely to await confirmation from forthcoming policy execution, we advise exposure in: 1) stocks with concrete catalysts (e.g. OPAP); 2) valuations that do not fully reflect growth prospects (e.g. Jumbo); 3) total return plays (e.g. OPAP). The latter is particularly important as it is likely to protect valuation multiples in case of swings in risk perception. Our 2020 top picks portfolio continues to include OPAP and Jumbo among non-financials. Within banks, we prefer Alpha given the combination of strong fundamentals and attractive valuation.