EUR 300.00 For Business Accounts Only

Greek Equity Strategy | The Fall and Rise… and Rise again

Divergent performance – The Athens benchmark index has returned +40% since the 2015 September elections, of which 32% is attributed to the market’s performance ytd. Despite the recent rally, the Greek equity market has lagged the outstanding performance showcased by Greek government bonds, as it is yet to fully reflect the country’s de-risking. In fact, we would argue that the recent de-risking has almost gone unnoticed. In our view, one key reason why equity investors have been hesitant to apply a lower equity premium is the fact that the overall macro backdrop has not been vibrant. Against this background, we argue that an increase in investor confidence fueled by political developments will be the overriding factor for a re-rating of Greek equities in anticipation of increased profitability in the coming years.

Banks outlook – Greek banks rebounded strongly during the last months after a multi-month period of weakness associated with extreme speculation about their potential downside risks. In terms of valuation, Greek banks' P/TBV relative to their EZ peers is now at 3yr highs; however we believe that the market is gradually pricing a scenario of the Greek banking sector taking bolder steps towards normality, which should naturally lead to gradual erosion of the valuation discount relative to EZ peers; thus a convergence to valuations similar to the one witnessed during 2011-15 (ie P/TBV relative discount at 30%) should be more relevant. Banks’ willingness to accelerate the clean-up process through more credible plans, a positive macro outlook and a potentially pro-market govt should underpin the aforementioned anticipated trend.

Greek cycle different to other markets, thus valuations could stand to re-rate – With 1-year forward earnings estimates being revised modestly higher in the last 12 months, the aforementioned positive share price performance has resulted in just a mild re-rating for our Greek non-financials universe. The latter has seen its 1-forward EV/EBITDA edge higher, at just a bit less than 7x, namely a bit lower than the average long-run valuation. On an absolute basis, although this may not look too compelling, we note that 1-year forward numbers are based on numbers which have plenty of room to grow given the stage of the Greek macroeconomic cycle.

Top picks; in search for catalysts… and yield – The domestic outlook for the rest of 2019 looks positive – especially as the general elections do not feature as a political hurdle, on the contrary – but the backdrop in Europe appears less certain. The Greek equity case incorporates significant amount of expectation and will continue to do, subject to confirmation from forthcoming policy execution and macro acceleration. As a consequence, we advise tactical rotation into stocks with concrete catalysts. We also recommend exposure in high dividend-yielding names with visible growth, as the cash angle is likely to protect the valuation multiples in case of a deterioration in risk sentiment. We have thus recalibrated our top picks portfolio to include OPAP (catalyst and yield), Jumbo (cash generative growth) and Lamda (catalyst) in our top-picks list. Among banks, we prefer Alpha given the combination of strong fundamentals and attractive valuation.