June 2020 Newsletter: 'Best Quarter in 10 years on Baltic stock market’

Baltic stock market lost 4.53% this year, which is not too bad considering COVID induced economic shock, but to what volatility and whipsaws we have been witnesses to over these 6 months! If the first quarter of 2020 was the worst one since 2009 and investors suffered epic 21.65% drawdown, then April to June quarter turned things upside down and scored as the best quarter since 2010 returning to investors 21.84%. Just to provide some context - over the same time period, namely this year, USA market (S&P 500 Gross Index, USD) performed just slightly better, year-to-date losing 3.08%. Noteworthy is the fact that in the beginning of June, S&P 500 managed to shortly break even as investors poured cash into FAANGM stocks (which weight is ~20% of the index) and went on buying down beaten stocks. Across the Atlantics, however, developed stock market (STOXX 600 Index) has been lagging behind both Baltic and USA markets, returning -11.77% in first 6 months of 2020.

Figure 1. Volatility roller coaster: Performance of Baltic, USA and European indices since the beginning of the year till 30 June 2020

Source: Alphinox, Thomson Reuters

In June, Baltic stock market recorded 2.87% gain, USA S&P 500 Gross Index returned 1.99% and European STOXX 600 Gross Index showed the best performance with 3.11% return.

Although more than one third of dividend paying companies have suspended their dividend payments, the rest proceeded with distributions as planned and those investors who received their entitlements and have ‘’put them back on the work’’ did manage to minimize their losses. When comparing OMX Baltic Benchmark GI with its Price index PI, it can be seen that in six-month period this year, investors have received the lowest dividend income over last 5 years: 2.09%, which is x3 times less than in H1’ 2019, when investors got 6.46%.

Figure 2. Dividends are ‘’easing’’ the fall for investor returns

Source: Alphinox, Thomson Reuters

Looking at the companies that did pay out dividends this year, it can be seen that in most cases dividend per share is lower than in 2019 (median of the group is 4.7% lower than in 2019) but still higher than 5 years ago. Dividend yield as of June end ranged from as low as 1.4% for LHV Group to as high as 8.8% for Tallinna Kaubamaja Grupp.

Figure 3. Historical dividend per share & dividend yield

Source: Alphinox, Thomson Reuters

30 June 2020 was the last trading day for Energijos Skirstymo Operatorius and Ignitis gamyba, which got delisted by the initiative of major shareholder (Lithuanian State) so that they could be consolidated into one and then IPO’d as a merged company. These two companies were among the largest on Baltic stock market (2nd and 6th), and their delisting caused substantial shrinkage of Baltic stock market capitalization - from EUR 7.2bn to EUR 6.03bn, making it less attractive for investors.

Putting it into perspective – current market worth of all Baltic stock companies would not even cover the costs of Rail Baltica project (EUR 7bn) and it is ~2 times less than Estonian budget for 2020, standing at EUR 11.8bn.

Figure 4. Baltic Stock Market Capitalization as of 01.07.2020

Source: Alphinox, Thomson Reuters

Baltic Main List performance

Overall, June continued the ascending trend: in 24 companies, investors managed to push prices higher, while 8 companies experienced a more determined seller activity last month. Summertime and decreasing volatility has also reduced trading action in June by ~11% (down from 48.3th to 42.9th).

Figure 5. Performance of Baltic Stock market companies & world indices as of 30.06.2020

Source: Alphinox, Thomson Reuters

June’s top performer was HansaMatrix with 15% gain and, as stock is highly illiquid, the turnover needed to reach this double-digit return was mere EUR 50th. Other top performers were coming from Lithuania – Novaturas gained 14.85% and Auga Group 10.56%. In the beginning of month, Novaturas largest shareholder (Polish Enterprise Fund VI) announced that it has sold the entire stake in Novaturas to the “triumvirate” of Estonian investors that now cumulatively hold 25.49% of total shares outstanding. In June, company also received EUR 5mn loan from Lithuanian State to improve its liquidity position.

Monthly laggards in June have been found in every Baltic country: in Lithuania - Panevėžio statybos trestas that lost 10.79%, in Estonia - Tallink Grupp, which declined by 5.85% and in Latvia - SAF Tehnika with a negative return of 5.26%. Tallink investors’ confidence gained in May (when stock price increased by 21%) was put to the test in June when company announced transport statistics for May, with passenger numbers and cargo units down 91.2% and 18.4% respectively (year over year).

Second quarter reporting season is about to start and it will give more clarity on whether the increased optimism is justified and will provide further tailwind or it will it serve as another trigger for volatility to skyrocket.

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