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Investors continue to sell on BVB

Investors continue to sell on the Bucharest Stock Exchange, although the fundamental indicators show they should be buying.

The main indicators - the price to earnings ratio, the price to book value and the dividend yield have reached very low levels, making shares increasingly more attractive.

The price-per-earning ratio is the ratio of the market value of a share and the earnings recorded by the issuing company. Under normal market conditions, a PER ratio of between 10 and 17 can be deemed normal, while any level below 10 could suggest that the shares in such a company are undervalued or the profit of the issuer is dropping.

For instance, Petrom (SNP), the largest Romanian company floated on the BVB, has a price-per-earning ratio of 3,28 currently, down from 15.32 in December 2007. Given the circumstances, a decline by almost five times of this indicator may say investors are expecting a drastic decline in the company's profit in the period immediately ahead, or that SNP shares are undervalued.

In 2007, Petrom reported a net profit of RON 2.1 billion (nearly 600 million euros), while the company's HI 2008 profit stood at RON 2 billion (nearly 571 million euros), which may suggest the profit could rise in 2008 year on year.

Another example is Transelectrica (TEL), an electricity utility. Transelectrica reported a 2007 profit of RON 76 million (21.7 million euros), and a profit of RON 145 million (41.4 million euros) for the first seven months of 2008, almost double the 2007 figures. At the same time, the PER in December 2007 was 20, while now the same indicator is 7.57.

The price-to-book value ratio is the ratio of the market value of a company and its book value. The ratio can be easily computed by dividing the company capitalisation to equity. Thus, a company with a P/VB less than 1 can be seen as attractive, because the price paid for the net asset is smaller than the asset value.

For instance, Petrom's current capitalisation is nearly RON 8.4 billion (2.4 billion euros) and the value of its equity is nearly RON 13.2 billion (3.7 billion euros). Given these values, the P/BV indicator is 0.64, which means that for RON 1 of the net assets of the company it takes RON 0.64 to buy. The same indicator in December 2007 was 2.28.

In the case of Transelectrica, the indicator was 1.3 in December 2007 and it is currently 0.36.

Another indicator worth considering is dividend yielding, computed as a ratio of the annual dividend to the market price of the share.

For instance, buyers of Petrom shares for RON 0.132 apiece, as recorded on Monday, could gain next spring 14.4 percent, while the gross dividend paid by the company will be similar to the one paid for the 2007 profit.

In the case of the financial investment companies (SIFs), dividend yields near 14-15 percent for the dividend levels of 2007, which means more than the per annum interest rates paid by banks on RON deposits.

Analysts say investors are not paying attention to the fundamental indicators now, because they fear the general panic that has seized the market.

'With the declines of the past weeks, there are now fewer investors looking at the indicators. Pressure on sales determines investors eyeing the indicators to not buy now, but to wait for better prices. Moreover, anyone considering the fundamental indicators are considering opportunity costs that are as small as possible,' says Broker Cluj analyst Adrain Danciu.

Analysts are also arguing that, despite attractive evaluations, there are no sectors or companies on the BVB sheltered against general declines because when panic is on shares sell, irrespective of indicators. On the other hand, they say the companies recording good assessment indicators will be the first to bounce back when the market gets calmer.

 

Sursa: http://www.rompress.ro

Tags: profit company indicator billion euros million market shares indicators bvb price ratio dividend value investors

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