Sofia bourse closing another losing year
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Sofia bourse closing another losing year

Eurohold’s acquisition of CEZ Bulgaria could have buoyed the BSE, but the Commission for Protection of the Competition blocked the deal

Sofia bourse closing another losing year

Doverie United Holding was the lonely bright star in the last quarter of 2019

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Eurohold’s acquisition of CEZ Bulgaria could have buoyed the BSE, but the Commission for Protection of the Competition blocked the deal

© Nadezhda Chipeva


The Bulgarian Stock Exchange's benchmark SOFIX index which tracks the 15 biggest and most traded companies looks set to disappoint investors for a second consecutive year. After a bruising 2018, which saw the SOFIX lose over 12% of its value, the index shed a further 8% in the first 11 months of 2019 and will need a Christmas miracle to reach green territory by the end of December.

And if the most recent trend is an indication of what's to come, investors do not have much to hope for. Following its death cross in mid-September, the SOFIX saw its losses exacerbate, with the index dropping 5.9% since September 18.

SOFIX on a death cross

The so-called death cross is defined as the point when the index's short-term moving average crosses below its long-term moving average, which indicates the potential for a major selloff. Most analysts use the 200-day moving average versus the 50-day moving average when charting the death cross.

Earnings reporting deadlines - the end of April, July and October for the first three quarters, respectively - were not met with much joy by investors. The mergers and acquisitions front brought most of the positive events for investors in the review period.

Lonely winners, many losers

The acquisition of a major bank in Moldova helped propel Doverie United Holding's shares 87.3% higher at the end of November. Through its unit Doverie-Invest, the company initially acquired a 63.8865% stake in Moldindconbank in a public tender, and subsequently added 13.73% interest via a buyout bid.

Although Doverie has not yet acquired full operational control over Moldindconbank, the investment saw Doverie United Holding's shares more than double their price before losing some steam after the SOFIX death cross.

However, the SOFIX did not benefit much from the massive rise in Doverie United Holding's share price, as the company carries one of the smallest weights in the adjusted market capitalization-weighted index. At the end of November, Doverie United Holding had a weight of some 3.3% in the SOFIX.

Another group - Eurohold, also saw its share price soar nearly 30% after it inked a 335 million euro deal to acquire the Bulgarian assets of Czech energy group CEZ. However, the transaction was later banned by Bulgaria's competition regulator, which left Eurohold with a 12.4% year-to-date decrease in its share price.

Both Eurohold and CEZ have appealed the regulator's decision before the Supreme Administrative Court, but investors do not seem optimistic about the outcome of the case.

Software company Sirma Group Holding was the biggest decliner among the SOFIX members in the first 11 months of 2019, erasing 28.1% of its share price. The company's shares were hurt by a failed capital increase attempt in February. Sirma Group Holding sought to raise some 40 million levs by offering shares for subscription at a price of 1 lev apiece. The company's shares ended 2018 at 0.904 levs, leaving investors with little incentive to subscribe for shares from the new issue.

And although Sirma is seeing both revenue and profit rise steadily, it still falls short of its own forecast for 35% compound annual revenue growth in the 2018-2022 period.

Much like Doverie United Holding, Sirma Group Holding carries one of the lowest weights in the SOFIX, so its woes were not so punishing for the blue-chip index. At the end of November, Sirma Group Holding carried 2.5% weight in the SOFIX.

The two heavyweights, each of which accounts for over 10% of the SOFIX base, both saw their share prices fall in the January-November period of 2019.

Drugmaker Sopharma - the biggest Bulgarian blue-chip, fell 3.1% by the end of November, while diversified group Chimimport erased 14.2%.

Both companies posted upbeat financial reports quarter after quarter, improving both revenue and profit, but still got caught in the bearish sentiment on the Bulgarian stock market.

Overall, ten SOFIX members suffered losses in their share price in the first 11 months, while five posted gains. Half of the ten losers saw double-digit decreases in the share price, while the only company to gain over 10% was Doverie United Holding.

With the poor run of the SOFIX, it looks like investors have shifted their focus towards the relative safety of local real estate investment trusts (REITs).

The BGREIT index, which tracks seven REITs listed on the bourse, gained 7.7% by the end of November, setting dozens of record highs along the way.

Among members of the index, Roi Property Fund REIT and Super Borovets Property Fund REIT boasted gains of 57.6% and 23.1%, respectively.

Super Borovets Property Fund REIT also raised some 16 million levs through a capital increase during the review period in a further demonstration of increased investor interest.

REITs offer investors both guaranteed dividends (90% of earnings) and an easy way to diversify their portfolio in times of increased market volatility, as they typically have a low correlation to other asset classes.

No IPO's on the horizon

In addition, the Sofia market had little to offer in terms of exciting new members. There were no initial public offerings (IPOs) throughout the year, and only three share listings - of local Green Town Projects, Port Flot-Burgas, and Finance Assistance Management REIT. Software company Telelink Business Services Group is also expected to go public without an IPO in December or early 2020.

The long-awaited IPO of security solutions developer Biodit hit the rocks as its prospectus was turned down by the Financial Supervision Commission in August. The company was planning to offer 2.2 million new shares for subscription at a price in the 1.0-1.1 levs range.

The IPO drought in Sofia could possibly end in early 2020, as local investment firm Eleven Capital recently submitted a prospectus for approval by the Financial Supervision Commission. However, the prospectus was returned to the company for corrections in late November.

Eleven Capital, established in January, is the owner of the portfolio of local venture capital fund Eleven, comprising stakes in 70-80 companies.

Eleven's fund was launched in 2012 by Eleven Ventures as a 12 million euro acceleration and seed vehicle, which was fully invested in 115 startups over three years. The fund benefited from financing from the European Investment Fund under the JEREMIE program.

Eleven Capital will seek to raise up to 4 million levs through the new share offering, a company official told Bulgaria's Capital newspaper in November.

The Bulgarian Stock Exchange's benchmark SOFIX index which tracks the 15 biggest and most traded companies looks set to disappoint investors for a second consecutive year. After a bruising 2018, which saw the SOFIX lose over 12% of its value, the index shed a further 8% in the first 11 months of 2019 and will need a Christmas miracle to reach green territory by the end of December.

And if the most recent trend is an indication of what's to come, investors do not have much to hope for. Following its death cross in mid-September, the SOFIX saw its losses exacerbate, with the index dropping 5.9% since September 18.


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