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Greece – Thoughts on the go: Summer bounce, time to take some chips off the table

Greek stocks have bounced c11% since June lows, mirroring a slightly lower advance for Stoxx 600 (8%) triggered by a “peak inflation” narrative across equity markets and dovish signals by the Fed (or at least interpreted so by some investors/traders). Short covering, low positioning and light volumes are likely to have amplified the effect, helping the ASE erase its ytd losses (now flattish ytd). From a sector perspective, banks have led the gainers registering a c16% rally since mid-June, outperforming EU banks by a whopping c14% over the same period propelled by ultra-low valuations and solid Q2 results accompanied by guidance upgrades.
What to do now? Stay defensive, take some chips off the table
Although signs of peak inflation have indeed emerged, macro fundamentals are likely to become far more challenging in Q4’22 and Q1’23, especially given the uncertainty around the developments related to gas flows. Until then, if inflation proves sticky, the market will remain prone to swings in risk perception stemming from hawkish surprises by the Fed/ECB. On that basis, we expect a renewed downturn in sentiment and stick with our view that investors should take advantage of the recent rally trimming their exposure. We retain our preference for short duration stocks with dividend support (OPAP, Motor Oil) and stocks with positive earnings momentum (Mytilineos, refineries) or with limited downside earnings risk (OPAP).
- On OPAP, we argue that the 2-digit dividend yield (with limited downside risk) makes up a compelling proposition further underpinned by optionality from licence renewals (extra >€4 per share value).
- On Mytilineos, since April the shares started to fall in tandem with the retreat of the LME price (25% rally since the trough in early May. We reiterate that given hedges for both 2022 and 2023, profitability in Metallurgy will be very robust (and in fact, the shares had not fully reflected the upward march of LME in Q1’22). Furthermore, Power & Gas dynamics are very strong (limited effect from recent regulatory amendments), and on that basis Mytilineos is facing positive earnings momentum. In addition, the RSD segment is set to be in the limelight in the following years, with the backlog of 6GW leading to significant rebasement of profitability (c€90m swing in 2022e vs 2021 numbers). Updating our numbers for commodity price movements, latest regulatory amendments and RSD dynamics, we recently raised our 2022-23e EBITDA by 20%-14% respectively, now envisaging EBITDA €590m in 2022 and >€660m in 2023.
- On Motor Oil, the story around refining margins is well telegraphed (also explained here) and is set to lead to bumper profits in Q2 (we forecast quarterly EBITDA c€400m, namely higher than last year’s annual number) propelled by Golden Age refining margins. Although refining margins have entered on a downward trajectory sequentially since late June, they remain 2x vs the levels in Q1’2022 and more than 3x the levels before the pandemic. Although the demand-supply balance ought to soften from Q4’22 onwards, valuations levels are very compelling as they are yet to price in the positive refining set-up for the next 12 months.

Valuation is compelling – albeit less so after the summer rally; further downside assuming recession
- On an absolute basis, non-financials’ valuation stands near 6x EV/EBITDA, c15% discount vs the long-term average and at the low end of the historic trading range (±1 st. dev.). Greek banks’ valuation has edged slightly higher after the latest bounce but remains subdued (c0.46x P/TBV vs c0.6x prior to the war).
- On a relative basis, Greek non financials are trading at c25% EV/EBITDA discount vs their EU peers, wider than the long-term average of c20%. Greek banks’ relative P/BV discount has narrowed to