Erste analysts pick Romania favorite in CEE, highlight planned 2012 stock exchange listings

Erste Group analysts recommend investors to increase exposure on Romania, as its valuation is the lowest in the region, according to a recent investments report. “Its valuation is the lowest in the region and growth is still at attractive 15 percent [...]. The market could become quite active in terms of new listings during 2012. Liquidity remains the main concern. With SEE at neutral, analysts would move Romania more towards Overweight,” reads Erste Group's report.

Investors could take advantage of the planned Romgaz Initial Public Offering (IPO), scheduled for June or September, as well as Transelectica and Transgaz' listings.

Romgaz' listing will be the most important event of the year, analysts predict, "with the 15 percent stake to be sold worth over EUR 300 million, making this IPO the largest launched so far on the Bucharest Stock Exchange (BSE)," according to Erste. The sale of a 15 percent stake in Transelectrica should happen end-February, while the Transgaz sale, in March or April. On the other hand, analysts don't believe that Hidroelectrica and Nuclearelectrica will be ready for 2012 listing. The Romanian Government also plans to list telecom company Romtelecom and airline Tarom, "but we do not see any chance that these companies are prepared for IPOs earlier than 2013."

Investors will find equities in Central and Eastern Europe more attractive than those in eurozone countries in 2012 compared to 2011, Erste Group analysts predict. Investors are also more likely to focus on stable companies, with high debt coverage ratios and net cash companies. When it comes to geographical distribution, Romania remains a favorite in the region. Oil and gas companies will become most appealing, while insurance and telecom will be more attractive, Erste Group analysts predict. They are also positive about CEE utilities companies, while real estate will be less of a focus. “Analysts expect housing sales and the automotive market to contract in 2012, but white goods demand should continue its growth in 2012, in line with GDP growth (especially true for Turkey). Food retail is one of the most defensive sectors in a climate of economic slowdown,” according to the report. Banks and insurance would still be on the watch list however. “In economically hard times, one should concentrate on companies that still manage to achieve high profitability, while also reporting stable financial figures. This is true for all of our Austrian top picks. An attractive dividend yield is also a key element in an investment decision. In our view, investors will prefer stable companies, high debt coverage ratios, net cash companies and defensives in 2012,” said Henning Esskuchen, Co-Head of CEE Equity Research (in picture).