BET index companies show 45% YoY profit growth in Q3 2024, driven by one-off gains of Digi Communciations and Banca Transilvania

The Romanian BET index is experiencing a notable year, largely driven by exceptional one-off impacts and robust organic growth in key sectors. The standout performer for 2024, in terms of index impact, remains Banca Transilvania, which has recorded significant profit surges due to a combination of organic growth and one-off financial gains, while Digi has achieved historical profit levels. At the same time, energy companies have delivered significantly weaker results than in 2023. Yet, despite this mixed performance, the BET index maintains its status as one of the most affordable stock indices globally, as reflected by its low price-to-earnings (P/E) ratio.

As of the latest data on Friday, November 15th, 2024, all member companies of the Romanian BET index, which is tracked by InterCapital BET-TRN UCITS ETF, have reported their financial results for Q3 2024. The analysis of profit evolution at the index level shows contrasting trends. The five companies with the highest growth of the net profit attributuable to the owners from July to September 2024, compared to the same period in 2023, are Digi (+2534% YoY, to RON 1.6 billion), MedLife (+339% YoY, to RON 4.7 million), Transelectrica (+227% YoY, to RON 146.8 million), Banca Transilvania (+148% YoY, to RON  1.7 billion), and Sphera Franchise Group (+82% YoY to RON 29.7). At the level of decreases, these were the most accentuated for TTS (loss of RON 8.1 million in Q3 2024, versus RON 88.2 million profit in Q3 2023), Teraplast (loss of RON 0.4 million in Q3 2024 versus RON 7.8 million in Q3 2023), Premier Energy (-49% YoY, to RON 6.6 million), Electrica (-36%, to RON 200.4 million), and Nuclearelectrica (-36%, to RON 441.6 million).

The spectacular profit increase reported by Digi was primarily driven by the sale of its FTTH network in Spain, and excluding this transaction, Digi’s underlying profits showed a decline. Similarly, Banca Transilvania’s impressive profit surge included a one-off gain of RON 807.4 million related to this year’s acquisitions, OTP Bank Romania and BCR Chisinau, although even without this impact, the bank still achieved a solid 31% organic growth rate for the quarter.

The energy sector, which traditionally represents a significant portion of the BET index, had a relatively weak third quarter. Lower energy prices and specific challenges, such as Hidroelectrica’s reduced energy production due to a weaker hydrological season, resulted in declining profits. Apart from the already mentioned Premier Energy, Electrica and Nuclearelectrica, also Hidroelectrica saw a 32% YoY profit drop for Q3 2024 (RON 841.8 million), OMV Petrom posted a 19% YoY decline (to RON 1.3 billion), and Romgaz experienced a 10% reduction in profits (to RON 436.4 million)

On an aggregated basis, the BET index reported quarterly profit growth of 45%. However, when excluding the extraordinary gains from Digi and Banca Transilvania, the normalized figure indicates a 20% decline for the companies from BET index in Q3 2024 versus Q3 2023.

It is important to consider that assessing index performance based on a single quarter can be misleading, especially given the volatile nature of industries like banking and energy. Looking at the results for the first nine months, the gap between reported and normalized figures narrows, with reported profit for BET 20 issuers increasing 25% in the nine months (including the one-offs) and 3% on the normalized basis (excluding the one-offs). For instance, OMV Petrom’s performance in the first half of the year was robust enough to balance the weaker third quarter. At the level of best performers in the first 9 months of 2024, Digi Communications leads with the 887% increase in the net profit, to RON 1.8 billion, followed by Transgaz, where net income grew 282% to RON 146.6 million, MedLife with 253% increase to RON 25.1 million, Sphera Franchise Group with 115% to RON 70.4 million, Transelectrica with 99% growth to RON 410.4 million.

At the level of biggest profit generators in the first nine months of 2024, are OMV Petrom, which generated in the period RON 3.9 billion (+54% YoY), followed by Banca Transilvania, which generated RON 3.8 billion (+70% YoY), and Hidroelectrica which noted a 32% YoY decline, to RON 3.5 billion. Only one out of 20 companies from the index did not manage to generate net profit, being Teraplast which saw a decline in net profit in 2024, having registered a net loss of RON 7 million for the nine months of 2024.

 

Source: Bloomberg, ICAM

Please note that the net income featured in this table include the profit attributable to owners of the group, which is the metric used in calculating the P/E ratio.

 

A critical metric for evaluating stock indices is the P/E ratio. Despite recent fluctuations, the BET index continues to present a compelling valuation. The latest figures indicate that the annualized normalized profit for the index has decreased by 5%, which has slightly increased the P/E ratio from 9.0x to 9.4x. This valuation remains highly competitive compared to international benchmarks: the U.S. S&P 500 trades at 25x, Nasdaq at 33x, Germany’s DAX slightly under 15x, MSCI Emerging Markets at 14x, and MSCI Frontier Markets at 10x. Within Central and Southern Europe, Croatia’s CROBEX10 trades at over 14x, Poland’s WIG20 at 13x, Slovenia’s SBITOP at 8.5x, while both Greece and Hungary maintain a P/E ratio of around 7.5x.

The significant one-off profits reported by Romanian companies are poised to impact dividend distributions positively. Banca Transilvania and Digi could leverage these profits to enhance shareholder returns or reinvest in future growth initiatives. Romania’s reputation for generous dividends is noteworthy, and even without factoring in future growth, the dividend yield stands at approximately 5.5%, outpacing most global markets, with the exception of Slovenia at 6%.

In summary, while one-off impacts have undeniably shaped the BET index’s performance this year, Romania’s stock market remains an attractive investment landscape. The index’s valuation is appealing, and its dividend yield provides a substantial cushion for investors, reinforcing Romania’s position as a compelling market despite the inherent volatility in sectors like banking and energy.

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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.