Of Eleftheria Kourtali
The strong economic (pro) performance of Greece will continue in the coming years with the support of five very important catalysts, as Optima Bank points out in its new report on the Greek market, after the strengthening of risks, especially on the geopolitical front.
According to the stock market, the big “weapons” of the country and therefore of the Greek stock market are: 1) the unprecedented fiscal support from EU funds over 80 billion euros by 2027, 2) the cyclical recovery after the 10-year crisis and Covid-19 lockdowns; 3) structural reforms of the past, which are still ongoing, improving competitiveness and attracting investment; accumulated demand and adequacy of resources (due to low rates of economic activity / capacity utilization).
The tightening of monetary and fiscal policy is not expected to derail economic growth, as the process will be slow and gradual, while the ECB will continue to support Greece, as noted by Optima. At the same time, budget support will also continue if necessary.
2022 will be a milestone year, according to the stock market. Greece 1) will fully repay the IMF, 2) will leave the Enhanced Supervision Regime, while 3) the banks will record single-digit NPE indicators. At the end of 2022 or the beginning of 2023, the economy can regain the “investment grade”.
Despite the positive outlook, the risks are higher than last year due to: 1) inflationary pressures eroding disposable income (consumption) and profit margins, 2) geopolitical tensions (Ukraine, Turkey), 3) political developments ( electoral risk) and 4) tighter fiscal and monetary policies, which, if implemented sharply, could slow the recovery.
Regarding Greek stocks in particular, Optima points out that the profitability of Greek companies has already been restored to pre-Covid-19 levels, with growth accelerating. However, the gains of the period 2022-2023 will lag behind their peak before the crisis in most cases, which shows the good upward potential.
Greek stocks also offer an exciting reward-risk proposition. The market is attractive under various indices Greek stocks are trading with an EV / EBITDA index at 7.1x over a 12-month horizon, compared to 8.6x and 8.5x for shares in the EU and Emerging Markets. This is a discount of 20%, despite the highest growth rates in Greece.
Also, on a relative basis, Greece is trading at similar discount levels in relation to EU and Emerging Markets stocks as in 2014 and 2018, when GDP outlook was much worse and bond yields much higher.
The valuations of the Greek systemic banks are also attractive, as they trade with a discount of more than 30% in relation to the European ones. Optima expects the industry to re-rating further after reducing risk and recovering profitability.
At the same time, Optima emphasizes that, compared to the high levels of valuations at the beginning of 2014, most Greek shares are trading at an increased discount, with Jumbo, Fourlis, OPAP, Titan and the shares of the refinery sector being very good examples. The shares are also more attractive than bonds, offering a 3.3% dividend yield compared to yields of 2.6% for Greek 10-year bonds.
Optima ATHEX’s top choices thus include: the entire banking sector, with NBG being the top choice, Jumbo and OPAP (both have strong balance sheets, good growth potential after the Covid restrictions), Motor Oil (demand recovery, increasing refining margins), Cenergy (exposure to the green agreement) and PPC (significant play for the second half of the year in terms of normalization of energy costs).