BET index companies’ evolution in 2024 – only 0.6% rise in revenues and 1.8% fall in profits, saved by the banking sector’s performance

Analysis by Divo Pulitika, Fund Manager, InterCapital Asset Management

The 2024 financial year delivered negative results for companies within the BET index, reflecting the impact of macroeconomic pressures, sector-specific challenges, and company-level developments. Total revenues remained nearly flat, increasing by only 0.6% year-over-year, but this provides little insight into future dividends and cash flows, which are the key drivers of stock prices. EBITDA contracted by 16.6%, and net income declined by 1.8%. These figures exclude one-off events, such as Banca Transilvania’s OTP acquisition and Digi’s asset sale in Spain. Including these, net income would have increased by 15%. At current valuations, the index is trading at an adjusted P/E ratio of 9.7x, making it competitive within the region. It remains lower than NASDAQ (32x), S&P 500 (24x), DAX (17x), Polish WIG20 (15x), MSCI Emerging and Croatian CROBEX10 (both at 14x), while aligning with Slovenia’s SBITOP (9.5x). Greece and Hungary’s indices trade at lower levels of 9x and 7x, respectively.

In 2024, energy production companies, which constitute nearly half of the BET index, significantly underperformed and were the main drag on the overall index performance. This group includes OMV Petrom, Hidroelectrica, Romgaz, Nuclearelectrica, and Premier Energy. The sector saw a 10% year-over-year decline in revenues, accompanied by a 23% drop in EBITDA and a 15% decrease in net income. All five energy producers posted declines across key financial metrics, with the exceptions of Premier Energy, which had a 1.1% positive impact on the index’s total revenues, and Romgaz, which contributed 1.7% to the index’s profit due to the elimination of the solidarity contribution. However, this normalization does not fully offset broader concerns, particularly as fiscal uncertainties persist. The Romanian government continues to explore potential tax adjustments to bridge its budget deficit, and energy firms remain a likely target for sector-specific taxes.

This overall weak performance was largely driven by lower energy prices compared to 2023, compounded by suboptimal hydrological conditions that negatively impacted Hidroelectrica’s output. OMV Petrom had the most significant negative impact on the index, reducing revenues by 2.1% and EBITDA by 4.9%, while Hidroelectrica contributed the largest decline in net income, at -6.1%. Collectively, the sector dragged the BET index down by 4.5% in revenues, 15.3% in EBITDA, and 8.4% in net income.

On a positive note, the particularly challenging hydropower season in 2024 raises expectations for increased output this year, while the continued rise in European gas prices since February 2024 is expected to have a more limited effect in 2025 compared to last year. Additionally, OMV Petrom recently announced an 8% increase in its base dividend to RON 0.0444 per share, resulting in a current yield of 6%. The company is also expected to make an additional payout later in the year, reinforcing its focus on shareholder returns. Long-term, the Neptun Deep project remains a key development, though its impact will not materialize for several years. With government budget constraints persisting, potential tax increases remain a concern, particularly as energy companies and banks, which hold a significant weight in the BET index, have historically been targeted.

Energy transport and distribution companies, which represent almost 10% of the index, had a generally positive performance as their results are driven by different mechanisms compared to energy production, with distinct regulations and a stronger focus on volumes. This category includes Transgaz, Electrica and Transelectrica, whose impact on overall revenues was negligible, while they contributed to a 1.2% increase in EBITDA and a 0.6% rise in net income. Among them, Transgaz had the most significant positive impact on revenues (+0.6%), EBITDA (+1.3%) and net income (+1.3%) within the index. Electrica, however, recorded declines across all financial metrics, subtracting 1.8% from the index’s net income.

The banking sector, consisting of Banca Transilvania and BRD Groupe Société Générale, which together hold a 27% weight in the index, was the best-performing segment in 2024. Banca Transilvania’s net income rose by 31% year-over-year, even excluding the one-off gain of 815 million lei from its OTP acquisition. The banking sector contributed nearly 3% to the index’s total revenues and 7.5% to net income, with Banca Transilvania having the most significant impact on revenues (+3.5%) and net income (+6.8%), while EBITDA is not calculated for banks.

A favorable macroeconomic environment supported the sector, with relatively high interest margins and low default rates. However, potential tax hikes targeting financial institutions and Romania’s risk of a credit rating downgrade pose challenges. While the country maintains a BBB- rating, a downgrade to junk status would disproportionately impact banks due to their exposure to government securities. Although Romanian banks remain attractive in terms of growth and dividends, the associated risks, coupled with the current lack of political visibility, are causing some caution among investors.

The remaining companies in the BET index, which include both entrepreneurial firms and established corporate players across various industries, consist of Digi, MedLife, Fondul Proprietatea, One United Properties, Aquila, Antibiotice, TTS, Sphera Franchise Group, Teraplast, and Purcari, delivered a varied performance. While most companies in this segment reported revenue growth, contributing 2.2% to the BET index’s increase, TTS was the exception, registering a significant decline.

In terms of EBITDA contribution to the index, TTS (-1.9%) and Digi (-1.7%) had the most significant negative impact, partially offset by MedLife (+0.7%), resulting in a total contribution of -2.5% to the BET index. Regarding net income, Digi, MedLife, Antibiotice, and Sphera reported gains, though these were insufficient to offset TTS’ decline, which subtracted 2.7% from the index’s net income. However, due to the relatively low weight of this segment, which stands at 15.3% in the BET index, the overall contribution from this group to the BET index was -1.5%.

From the perspective of their impact on the index, three companies stand out as particularly relevant. Digi Communications added 1.1% to the index’s revenues and profit, excluding the one-off gain from its Spanish asset disposal, capital that could be used for shareholder returns or further expansion. MedLife had a standout year, delivering strong revenue and profit growth. TTS suffered from declining demand for transportation services, largely due to the geopolitical situation in Ukraine.

Fondul Proprietatea, now representing only 1.5% of the index following Hidroelectrica’s IPO, remains an important BET component. However, as a fund, it was excluded from the calculation of earnings for the index. In 2024, its estimated net asset value (NAV) per unit increased from 0.6608 lei to 0.7029 lei, marking a 6% gain, driven by the revaluation of some unlisted holdings in the fund. The largest changes were in the case of Aeroporturi București (+18%, or +156 million lei) and Administrația Porturilor Maritime (+13%, or +43 million lei), while the most significant negative impact came from CE Oltenia (-33%, or -22 million lei). Including the 0.06 lei per unit dividend distributed during the year, the total return reached 15%. Nevertheless, Fondul Proprietatea continues to trade at a nearly 50% discount to NAV, mainly due to the illiquid nature of its remaining holdings. Accelerating asset listings at valuations closer to NAV could help narrow this discount, unlocking further value for investors.

The 2024 financial year highlighted sectoral imbalances in the BET index. While banking stocks provided much-needed resilience and energy transport companies remained stable, the poor performance of energy producers weighed heavily on the overall market. Looking ahead, key factors to monitor include energy price developments, government fiscal policies, and Romania’s credit rating outlook, all of which could be further influenced by the presidential elections set to take place in May 2025.

Despite these challenges, Romanian equities remain attractive due to their relatively low valuations and strong dividend distributions. If macroeconomic conditions stabilize and key sectors recover, 2025 could offer upside potential. However, shifts in local and global monetary policy, along with broader economic and geopolitical developments, will continue to influence market sentiment and liquidity, making a flexible and adaptive approach essential.

The data used in this analysis is based on the preliminary unaudited financial results for 2024 published by the respective companies. In some cases, these results are not consolidated, and in others, only total net profit figures are provided, rather than the portion attributable to majority shareholders. While this does not significantly impact the overall conclusions, it may lead to slight differences when compared to the final audited consolidated results. The analysis primarily reflects reported figures, ensuring comparability across companies. However, adjustments were made in a few cases where the reported results did not accurately reflect the underlying financial performance or future development potential. These include Banca Transilvania (adjusting for the gain from the OTP acquisition), Digi (reflecting the asset disposal in Spain), Transelectrica (considering only profits from allowed activities), and MedLife (where only the net income attributable to shareholders was taken into account due to a notable discrepancy with total net income).

Source: Company data, ICAM calculation

____________________ 

About Đivo Pulitika

Đivo Pulitika is a portfolio manager at InterCapital Asset Management, Croatia’s leading asset management company. Pulitika began his career in the financial industry while studying at the Faculty of Economics and Business in Zagreb, initially joining Intercapital’s analysis department. Over time, he became the head of this department, where he focused on promoting investments in regional capital markets, conducting stock valuations, and organizing roadshows and conferences for clients. In 2019, he transitioned to InterCapital Asset Management, where he led the equity analysis department. Pulitika is also responsible for preparing and implementing policies on responsible and sustainable investing. His expertise and leadership have significantly contributed to the firm’s success in managing investment funds and individual portfolios for a wide range of clients.

About InterCapital Asset Management

With nearly 20 years of experience and a portfolio that includes 19 classic funds and 5 ETFs, InterCapital is the largest independent asset management company in Croatia, managing EUR 500 million. Over the years, InterCapital has demonstrated expertise and innovation in investment fund management with multiple products and services launched. Namely, InterCapital is 1st SEE asset manager that has pivoted from classic UCITS funds into ETFs and digital robo-advisory space with its APP Genius. InterCapital has a clear path to offer cost-effective and attractive products across the SEE region, following its mission to develop regional capital markets by implementing the best global standards and practices.