Best to invest
It's been another stellar year for the Warsaw Stock Exchange (WSE) - a proliferation of IPOs including long-awaited privatizations, the WIG20 reaching record highs and an average 20 percent plus return on shares translates into a third consecutive year of strong market performance. Does that mean that in 2006 the bull is finally going to be pushed out by the bear? The WBJ asks analysts from the top brokerage houses to have a look into their crystal balls and come up with investment predictions for our readers. Here's how they size up the market for the year to come.
The total value of IPO offerings in 2004 and 2005 were some zł.11 and zł.7 billion respectively. This was due to large privatizations such as PKO BP, Lotos and PGNiG. This year on European bourses, only the London Stock Exchange registered more debuts. It is difficult to predict what the future will bring however, mainly because of uncertainty regarding the privatization policy adopted by the current government and the Treasury Minister's intention to postpone the privatization of the power sector.
IPOs to watch
Analysts are reluctant to point to the most promising IPOs for 2006 as nothing in this world is certain. A few names did come up though, including private television station Polsat, whose CEO, Zygmunt Solorz-Żak, has been planning the debut for a while now, and Atlas, a construction chemicals producer and exporter. It would certainly be a big event if PZU - the state-controlled insurance company - appeared on the bourse, but this seems unlikely before the conflict between Dutch insurance company Eureko and the Polish government comes to a definite end. PZU's IPO was originally to take place in 2001, but controversy erupted over the privatization process and the IPO has been suspended ever since.
Future gold mines
Predicting share prices is not easy either and we found that there were almost as many favorites as there were analysts. Only Barlinek, a floorboard producer, emerged as a clear leader. The company debuted on the WSE in September 2005 with an opening share price of zł.8.30, over 13 percent higher than the issue price.
According to Piotr Kaczmarek, an analyst for BISE bank brokerage house, Barlinek is also a good investment target for 2006: "One of the company's main competitive advantages is its owner, Michał Sołowow, known for his 'golden touch' in business. Barlinek has solid foundations and good prospects - a weakening of the Polish currency will enable its profits to rise significantly. Among the threats one has to point to are the already-high stock price and big expectations among investors. However, Sołowow has already proven he could even surpass those expectations."
Dariusz Górski, an analyst at Deutsche Bank Securities, stresses that in 2006 the company is planning to increase its production capacity and that he can see no direct threats to Barlinek's further prosperity.
Michał Sołowow also holds a majority of shares in listed companies such as bathroom ceramics producer Cersanit and real estate developer Echo. Recently, he caused a stir in the media market when his newspaper Życie Warszawy announced its plans to go national.
Constructing capital
Michał Marczak, a DI BRE Bank analyst, points to the construction and IT sectors as potential profit-makers. He is not the only one to think so. "The construction sector has gone through two years of crisis and now it should rebound thanks to EU subsidies and easier access to mortgage loans," says Marczak "Thus the shares of the majority of construction companies should generate good profit, Budimex being an exception as it is still struggling with the aftermath of unfavorable contracts."
The new government's promise to build three million new flats within the next eight years also bodes well for the industry.
Analysts also have much faith in Polish IT enterprises such as Prokom and Softbank, Comarch or Comp. Adam Zajler, an analyst at Millennium brokerage house, says: "The influx of EU funds and a number of planned IT projects will enable all companies in the Prokom Group to increase their incomes. The dominant entity from the group, Prokom Software, can also count on big orders from Poczta Polska, aside from projects it has already implemented in ZUS [the national pension fund] and insurer PZU."
Krauze empire
The pick from Andrzej Knigawka, an ING Securities analyst, is Softbank, also a member of the Prokom group. The company is currently working on a Car and Driver Registration project (CEPiK) and PKO BP's new transaction system. Millennium's Zajler predicts that these contracts will assure profits for Softbank in the coming years.
Prokom is yet another case of a company with an outstanding majority shareholder - Ryszard Krauze. Having created the Prokom empire that made a fortune from IT contracts with state institutions, the famous investor has now turned to the biochemical sector.
His company Bioton, a human insulin producer, made it in to the blue-chip WIG20 after only a couple of months on the WSE. The company is developing at an impressive pace and is expanding its area of operations - it is targeting the Asian markets where it bought stakes in the Singapore-based SciGen. Bioton now controls 44.78 percent of SciGen and through its intermediary sells human insulin - registered as Gensulin - in India, Vietnam, Pakistan and the Philippines. It is soon expected to be available in China and South Korea.
Sweet prospects
According to Piotr Her analyst at Millennium brokerage house, the reform of the European sugar market which will create a 36-percent decrease in sugar prices could turn into a great advantage for confectionery producers. "One should keep an eye on Wedel, a company that is improving its margins in a very consistent manner and developing steadily. Jutrzenka is still benefitting from its takeover of Goplana and very good Q4 results are expected. Mieszko is back in the growth lane and again managed to post positive results in spite of takeover costs. What's more, we believe WSE listed companies from this sector are undervalued."
On the other hand Bogna Sikorska, a BGŻ brokerage house analyst, claims that 2006 will belong to companies benefiting from the strong position of the Polish złoty. "This means that importers such as Kruk and Artman can count on good results," she says.
Whatever the truth turns out to be, there is a plethora of interesting companies to invest in on the Warsaw Stock Exchange. The companies pointed to by analysts are surely among the favorites for 2006 but fortunately there's always an element of surprise, when it comes to the stock market. The final decision will be up to you.
