Slovenia

[BK]

I've noticed Slovenian market has not yet been mentioned in this post. Makes sense, since it's a very small market with a decreasing number of blue chips (being taken over by strategic investors) and a rather consolidated ownership structure of those that remain.

However, this structure makes it quite interesting to observe, because the market doesn't behave in the way that most markets do. Neither does it react to global trends, such as the recent subprime crisis. A few things to notice about the market is:

- Very high valuation multiples (see http://www.ljse.si/ for stock prices or http://slo-market.blogspot.com/ for some data on multiples).
- Low level of foreign ownership.
- Steep increase in stock prices: 82% YTD.

So, what brings about such prices and multiples? There are a few factors to consider:
- more and more money is flowing into mutual funds; some of them focus only on Slovenian stock market, which drives the prices up;
- not many opportunities to invest: therefore, not many investors are selling since they have nowhere else to invest; so, the supply is low; besided, mutual funds (who dictate the events on the stock market) have no interest to sell also because this would cause prices to fall, their returns to diminish and cash-inflow to decrease;
- low level of foreign ownership means that when foreign funds sell their assets (e.g. in times of crises, such as subprime), this doesn't affect the market much, since there's enough willing buyers for the few shares they have to sell.

This situation of course may have a few consequences: Everybody expects a strategic owner to pay a premium at the time of the acquisition. But what if this premium is already included in the market price? And what if the strategic owner is not willing to pay the price that the market expects - will this result in the market crash? This may all be clear quite soon, since at the moment there's a privatisation of Telekom Slovenia going on; with EV/EBITDA close to 12 no-one knows which way this will turn.

If anybody has some views on this situation, it would be welcome.
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http://slo-market.blogspot.com/

[BK]

To add a further comment: as expected, market has started to realise that market valuations are too high. Last week most stocks dropped considerably and even Telekom Slovenija (ongoing privatisation) has dropped to 400 EUR for a while. Bids for Telekom are now in and are supposed to range from below 300 EUR per share up to 460 EUR (but this bid is not taken seriously). Strategic bidders (Deutsche Telekome, Skipti) are rumoured to offer 300-350 EUR - I think this gives quite a sensible indication of the intrinsic value....

BK
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http://slo-market.blogspot.com/

[BK]

Hi, thanks for the comment. I get the market data from the web-page of Ljubljana stock exchange (www.ljse.si); financials for individual companies are available at companies' web-pages and also published via http://seonet.ljse.si/menu/default.asp.

Best,

Bojan
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http://slo-market.blogspot.com/

[HenryTo]

BK,

Thanks for the review and your thoughts on the Slovenian market. I have bookmarked your site and will be going through it over the next few days.

By the way, where are you getting your data on the Slovenian market?

Thanks again.

Henry