October 2020 Newsletter: Best Baltic companies in the resilient market

The financial markets become itchy and volatile as COVID-19 rages across the world, but we continue with our initiative of determining the best companies listed on Baltic stock exchanges. The goal of this research is to examine and recognize companies based on their historical performance (as of FY 2019) and encourage their further development and that of the market as a whole. The best company ideally should have an excellent track record in financial results – above average capital returns and strong solvency position, good corporate governance and plausible investment strategy. Interestingly, the Top of this year’s Corporate Excellence award consists of the most generous dividend payers, though the amount of dividends is not included in our assessment methodology.

Source: Alphinox

Telia Lietuva, a leading telecom company in Lithuania, wins back long lost laurels of #1 company as a result of the consistently improving capital structure over the years, which has substantially weakened after the 2016 merger with Omnitel, a mobile communications provider. At that point, risk levels of the company’s balance sheet did not allow it to qualify for the top three, but the newly formed company gradually worked its way up thanks to well-planned capital management. Additionally, Telia also benefits from the overall digitalization trend by further expanding its revenues base and offering superior service quality to its customers.

Tallinna Kaubamaja AS deserves a prize for constantly winning 2nd best position among Baltic-listed companies. Despite higher balance sheet leverage, which is driven by the company’s expansion, TKM managed to stay fit for the top three. Its businesses include one of the largest supermarket chains in Estonia - Selver, department stores as well as a dealership of KIA and Peugeot cars in Estonia and Latvia. The company exploits another mega-trend, which is automatization (e.g. self-service cashiers), by making its operations more efficient. Additionally, exponential growth in online services represents one more opportunity for the company.

Last year’s winner, LHV Group, gave up the number one position and finished as #3 this time. The major reason behind the decline in the rank was a substantial deterioration in capital profitability. But despite the uncertain market environment company continues to heavily invest in new product offerings – currently applying for an activity license for its new non-life insurance business and plans to establish a new fintech-focused bank in the UK.

Frightening pandemic development around the globe will most likely change corporate excellence ranking in Baltics. However, it is worth noticing that companies qualifying as the best in Baltics this year are relatively resilient to the economic turbulence and are good at seizing new opportunities for further development.

Baltic market resilience

Meanwhile, Baltic investors should be happy as October in the respective market ended positively (+0.85%), unlike the major US and European stock indices: S&P 500 declined by 2.7% and Stoxx 600 was down by 5.1% as during that month most of the countries entered 2nd wave of the pandemic with exponential growth in a number of cases. Since the beginning of the year, the Baltic stock market lost 5.0%, Europe was most heavily hit being down by 15.7%, while the US stock market is slightly above the equilibrium, with a 2.8% gain.

Figure 1. Performance of Baltic, USA, and European indices since the beginning of the year until 31 October 2020

Source: Alphinox, Thomson Reuters, NASDAQ Baltic

Baltic Main List performance

September’s diversity in stock price movements of Baltic companies also transferred to October. General market mood, imposed by the external factors and events unfolding on global equity markets, was coupled with the beginning of the 3Q reporting season. In general, we haven’t seen any significant surprises in the financial results - COVID-19 has had a great impact on trends in consumer behavior, on the environment, and means of conducting business. All those changes that have started in spring, continue also now and, obviously will do so until there is a vaccine solution found.

Figure 2. Performance of Baltic Stock market companies & world indices as of 31.10.2020

Source: Alphinox, Thomson Reuters


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