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Greek Equity Strategy – 2024 outlook | Junk no more

2023: Reclaiming investor spotlight – Greek equities had another year of stellar performance, with the ASE index popping >40%, eclipsing the Stoxx 600 by >25ppts. Strong fundamentals (mid-teens EBITDA growth for non-financials, >50% NII growth for banks) were coupled with falling risk premia thanks to crystallized domestic political stability and expectations for Greece’s return to investment grade (IG), further propelled by the generic risk-on rally in Q4 and low positioning. Financials (+66%) outshone other sectors, with the successful placement of HFSF’s stake in NBG and Alpha proving a key catalyst, dispelling concerns about overhang risk while pushing investors to chase banking stocks higher.

2024: The Year of the Dragon – Following the strong returns of 2023, one hotly debated question has emerged recently, namely what can drive the next leg higher. In our view, 2024 is poised to be a year of “strength and good fortune” (aka Year of the Dragon) for Greek equities, underpinned by: 1) A healthy macro backdrop, with Greek GDP set to increase >2%, a superior growth profile vs the rest of Europe; 2) Ongoing fiscal discipline (primary surplus >2%); 3) favourable debt dynamics (bulk of public debt fixed, no significant redemptions in the coming years, gross financing needs 20% discount vs EU non-financials) and GR banks at 5-6x PE and 0.7x P/TBV, c15% discount vs periphery peers.

Potential market reclassification to developed: investing in anticipation – 2023 was dominated by Greece’s return to IG. In 2024 the dominant theme is likely to be the potential placement of ATHEX on a “watchlist” for reclassification to developed markets (reviews usually take place in June). Greece has cleared the first hurdle (IG rating), while making progress on size requirements (e.g. float), especially post recent placements and IPOs. The final decision will take into account consultation with investors, and as such, the actual reclassification is a 2025 event at the earliest. From a trading/valuation viewpoint though, we expect investors to start positioning themselves in 2024. Although the reclassification presents a nuanced perspective, with the end result in the medium term depending on the balance between potential active inflows and passive outflows, we believe that the short-term read-through in the run-up to the event will be positive, having in mind that Greek stocks still incorporate a yield gap >2.5pps higher than their European peers. This corresponds to re-pricing optionality up to c30%, on our numbers, thereby underpinning the next leg higher as Greek stocks re-rate to levels closer to developed market peers.

21% 12m upside for the ASE; how to position – Our bottom-up valuation indicates 21% upside for the ASE (1,622 12m target), driven by a mix of re-rating and profit growth (EBITDA +9% for our ex-refineries universe). With Greek stocks not only closing the ROE differential vs their EU peers but now offering premium returns, we believe re-rating is warranted and will amp up the effect of incremental flows. Our ASE target corresponds to an ERP of 6.2%, still higher than the current ERP embedded in EU stocks (c5.5%). From an allocation perspective, we advocate for a tilt to banks, where we feel there is the best risk-reward skew, with Piraeus being our top pick (solid delivery, capital build-up, cheap valuation). We also argue for an overweight position on PPC (good operating execution, value-accretive M&A), Jumbo (strong momentum, compelling risk-reward), Mytilineos (re-set profit levels, rising RES exposure), and Titan (cheap exposure in US infrastructure spending, cyclical recovery of construction activity in Greece).