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Greek Equity Strategy | From hope to growth?

Stuck between opposite forces… – Greek stocks have returned c12% year-to-date (total return) but are stuck within a tight trading range since May, underperforming their EU peers (Stoxx 600 +4% since then). On the one hand, concerns about the fallout from the delta variant and signs of a deceleration in global growth – coupled with monetary policy concerns – have been weighing on the broad market mood. Capital raisings and significant issuance activity on the credit side have also drained liquidity, being an additional idiosyncratic headwind for the Greek equity market. On the other hand, corporate earnings momentum looks strong (upward revisions following Q2) while valuations are quite attractive (c7% equity risk premium embedded in Greek non-financials at current price levels) and Greek stocks are yet to fully retrace their COVID-induced losses (benchmark index -3% vs Feb’20 levels, non- financials -2%).

Relative case looks very compelling – Notwithstanding the short-term uncertainty around the delta variant, in our view the relative investment case for Greek stocks – vis a vis their international peers – remains quite compelling: 1) The Greek economy is experiencing stronger economic momentum (Q2 GDP +16%) than the EU (Q2 GDP 13%), 2) excess savings (€30bn accumulated since March 2020) are likely to underpin consumer spending in the coming quarters; 3) the PMI/economic sentiment momentum looks more robust than in Europe (both indices near recent/multi-year highs); 4) the Greek economy is early-cycle (rather than mid-cycle); 5) Greek stocks trade, on average, at c30-35% discount vs their EU peers; 6) besides the COVID-related normalization, the domestic economy will be further propelled by the inflow of EU-related funds from the RRF (€31bn over 2021-26, to mobilize total resources of €57.5bn, namely 31% of pre-pandemic GDP). We present an overview of Greece’s National Recovery and Resilience Plan “Greece 2.0” in this note.

Reiterating OPAP, PPC, Mytilineos and NBG as top picks – Against a somewhat less conducive international backdrop given the peak growth/liquidity concerns, we do not see much room for a positive overshooting in the near term but we advocate that any correction should be seen as offering a compelling entry point given the improving long-term outlook that is yet to be priced in. We are also quite constructive for 2022, as equity premia compress and the macro recovery solidifies. From a tactical perspective, we advocate a balanced exposure in the Greek equity universe, focusing on idiosyncratic stories with catalysts (PPC, OPAP), strong yield support (OPAP) and strong profit momentum (Mytilineos). We reiterate OPAP, PPC and Mytilineos as our top picks while removing ATHEX as trading activity momentum seems to have stalled. Within our covered bank universe, we keep our preference for NBG, given its strong balance sheet offering a clear way to earnings recovery, coupled with an attractive valuation.

Banks: re-rating to continue – The completion of the balance sheet clean-up, which is now visible (to be completed by mid-2022) should underpin banks’ further re-rating in the coming months, albeit at a more gradual pace we reckon, as this ought to have been partly priced in. As we move closer to 2022, we expect investors to focus more on profitability prospects, which will determine the extent to which Greek banks will be priced for normality and will narrow the valuation gap vs EU periphery peers.