CE investors buy banks, ditch telecoms
"If you are a large investor there are only two sectors in Central Europe that really make an easy switch," said Roger Monson, Emerging European Strategist at CA IB Investment Bank in London. "Telecoms and banks have sufficient liquidity." Analysts said investors will be watching banks' earnings performance closely to decide to what extent the recent rally was justified and whether there is still further upside. Top lenders Bank Pekao of Poland, Ceská Sporitelna and Komercní Banka of the Czech Republic and OTP of Hungary are among the few stocks valued at more than $1 billion, big enough to attract institutional players. Together with telcos Matáv and Cesky Telecom - still the largest stocks in Budapest and Prague - and Poland's TPSA, they form a core of stocks offering ample free float for big investors. Falling bond yields as Central Europe's lead economies move along the path to convergence with the EU have been the main driving force behind a months-long rally in the banking sector, leading to a sharp drop in the cost of capital to lenders.
"The banking sector benefits more than other industries from the convergence play," said Andrzej Nowaczek, analyst at Credit Suisse First Boston in London. "Falling interest rates should also improve their asset quality and boost lending activity." Government bond yields in Poland, where official rates were cut aggressively last year, have plummeted nearly 4.5 percentage points from a peak of 12.5% in August 2001 to a low of 8.1% in January, investment bank UBS Warburg said. A buyout bid for Ceská Sporitelna launched by Erste Bank's parent firm this month prior to its delisting, also boosted valuations on expectations that funds released from the Czech Republic's second-largest bank will be reinvested. "Part of the funds will likely go to banking stocks in Hungary, Poland and Czech Komercni Banka," said Ewa Radkowska, a portfolio manager at ING Investment Management in Warsaw. Shares in Sporitelna, which has the leading position in the Czech retail market, have jumped nearly 30% this year but its smaller domestic peer Komercni Banka was the star, surging nearly 80% on an ambitious restructuring plan. Larger Polish Bank Pekao saw its stock soaring 40% to a record high of zł. 113, pushing its market value to $4.61 billion. The stock of OTP, Hungary's dominant player, posted a similar rise, setting a new record last week.
Telecoms depressed Such solid gains are only a dream for telecom investors after flagship stocks suffered from poor earnings prospects and cooler sentiment toward the sector worldwide. TPSA - the largest telecom player in the region with more than 10 million fixed-line clients in Poland - saw its market value shrink by some $9 billion since the Internet frenzy in 2000 to $4.55 billion. The stock has dipped 6% this year while its Czech peer Cesky Telecom fell 11%. Hungarian Matáv shares have gained some 12% due to the company's large exposure to the robust mobile sector, but underperformed the broader market. "Their Western peers have problems and have lost value, so there is no surprise that regional telecoms are performing no better. Besides that, local issues hit TPSA," Radkowska said. Last week TPSA suffered sharp losses after its management signaled the company may be forced to pay early as much as zł. 12.8 billion ($3.12 billion) worth of debt this year if its debt ratio rises above thresholds specified in bank agreements. The debt warning came as the former monopolist struggles to slash costs and find new sources of revenue after its core fixed-line connections business stalled. - Reuters
