Market maintains course; Elektrim takes gasp from sell off of its shares
The market held steady during a shortened last week despite an early selling storm with Elektrim's shares. The all-share WIG index rose marginally 0.13% to close at 14,492.2 on Wednesday, when the Warsaw Stock Exchange (WSE) shut down for the week to commemorate Independence Day. Trading was above average for the three-day week, with volume at zl. 326.90 million ($76.2 million), as compared to zl. 401.29 million ($100.3 million) over five days the previous week.
But the shortened trading week brought only slight relief for Elektrim, which plummeted 14% Monday in the wake of news the previous week of heavy debt burdens and "sell" recommendations by brokers. Buoyed by rumors of deals with deep-pocketed suitors, the stock recovered some losses and closed at zl. 27.5, up 4% from Monday's low of zl. 25.9. That was the big news, analysts said.
"Everything else is peanuts," said Dariusz Gorski, an equity analyst with Flemings.
In addition to Elektrim, analysts noted other stocks to watch this week because of strong performance.
One of last week's side shows was the successful bid by BIG Bank Gdanski (BIG BG) and Eureko for 30% in state-owned insurer Powszechny Zaklad Ubezpieczen (PZU). But BIG BG has to come up with zl. 1 billion ($238 million) for its 10% stake, Gorski said. "Where are they going to get the money?" he said.
The answer would likely come this week, Gorski said, and probably in the form of external funding, possibly a syndicated loan for half the amount, he said. "It's zl. 1 billion in spending, you'd expect them to inform the shareholders what they are doing," Gorski said. In his opinion, it will be two to three years before BIG BG sees any benefit from the investment, as any increased revenue from the insurance business will be cancelled out by loan repayments, he said.
BIG BG shares were up 8% over the three days to close Wednesday at zl. 9.3. Analysts attributed the rise to speculation that Deutsche Bank had bought a further 3% stake in the bank.
This week the market will be watching for the October inflation and industrial production figures. Analysts are expecting year-on-year inflation to hit 8.7% with the release of the October figures. The government's year-end target is 8.2%, said Mariusz Pawlak, an analyst at SG Securities.
Another cloud on the horizon is the tax bill now under parliamentary review. Stuck in committee for several weeks because of political wrangling within the ruling government coalition, Finance Minister Leszek Balcerowicz broke the stalemate more than a week ago when he threatened to resign from his post. That threat sent interest rates soaring and the zloty falling with modest recovery last week after party officials settled differences. But Balcerowicz's threat remains if Parliament fails to pass the tax bill by month's end.
"Until the tax bill is approved by Parliament, the zloty will be volatile and weak," said Andrzej Kasperek, an analyst at Centrum Operacji Kapitalowych Banku Handlowego. While that hurts companies with large foreign currency debt (again, Elektrim), it brings with it an upside for large exporters, such as KGHM Polska Miedz, Irena and Krosno, Gorski said.
