Bulgarian blue-chip stock index nears mid-March lows, TBS Group listing signals hope

During the third quarter, the index was largely dragged down by First Investment Bank (Fibank), which erased 25.59% of its share price

Bulgarian blue-chip stock index nears mid-March lows, TBS Group listing signals hope

Despite some early signs of improvement in Bulgaria’s main economic indicators in the third quarter, the biggest companies listed on the stock exchange in Sofia saw the outflow of investors continue.

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During the third quarter, the index was largely dragged down by First Investment Bank (Fibank), which erased 25.59% of its share price

© Nadezhda Chipeva


As Bulgaria reported the first cases of the novel coronavirus pandemic in mid-March and the country entered into a state of emergency, the local stock market indices spiralled down to historic lows. The blue-chip SOFIX index, which tracks the fifteen largest and most traded companies listed on the Bulgarian Stock Exchange, dropped to a seven-year low of 405.8 points on March 19.

The index recouped part of its losses by June but then plunged again in the third quarter of the year. The SOFIX suffered bruising for three months, losing 5.67% to 427.55 points by the end of September, and now sits uncomfortably close to its March lows. In the first nine months of 2020, the SOFIX registered an overall decrease of 24.75%. During the third quarter, the index was largely dragged down by First Investment Bank (Fibank), which erased 25.59% of its share price.

Fibank raised nearly 150 million levs (76.7 million euro) in July via a controversial capital increase, which saw state-owned Bulgarian Development Bank acquire shares in the company at roughly double their price on the stock exchange at the time. Bulgarian Development Bank acquired 18.35% interest in Fibank at a price of 5 levs per share as part of the capital increase. The other investor in the capital hike was Liechtenstein-registered Valea Foundation, which bought 7.87%.

The state-owned lender's participation drew heavy criticism from both opposition political parties and the general public and resulted in the establishment of a parliamentary committee of inquiry which was tasked with looking into the transaction. Fibank shares ended September at a price of 1.89 levs, casting further doubt on the validity of Bulgarian Development Bank's actions.

Fibank's share price was also affected by a major drop in profit, to 26.6 million levs in the first half of 2020, from 98.3 million levs in the same period of last year. The lender's income from banking operations also fell, to 179.7 million levs from 187.4 million levs a year earlier.

Although no other SOFIX member recorded a double-digit decrease in its share price, a notable decline was posted by another heavyweight - diversified group Chimimport. The company saw its share price drop 9.52% during the third quarter, as investors weighed in the effects of the coronavirus pandemic on its portfolio.

The group is active in a number of sectors of the economy affected by the pandemic, but it is likely that its air transport business in the face of flag carrier Bulgaria Air suffered the toughest blow. Overall, Chimimport reported a decrease in its consolidated net profit after minority interest, to 22.5 million levs in the first half of this year from 56.2 million levs in the first six months of 2019.

Despite the overall bleak performance of Sofia blue chips, a few managed to book enviable gains in the third quarter of the year.

Lightweight software developer Sirma Group Holding outshined its peers and erased almost all of its losses so far this year. Sirma Group Holding's share price jumped by 52.5% in the third quarter of the year, leaving the company with a decrease of just 2.4% in the first nine months.

The software group's share price jumped in the trading sessions immediately after the release of its first-half consolidated financial statement, which showed a slight increase in both profit and revenue. The company grew its operations in North America and the UK, offsetting a decrease in revenue on its main market - mainland Europe. Sirma Group Holding also reported improved performance in its two main lines of business - software services and IT equipment sales.

Other positive news for investors included the announcement of a 20 million levs share repurchase programme, targeting up to 32% interest in the company.

The other notable gainer during the third quarter was financial and insurance group Eurohold Bulgaria, which saw its share price grow 20.9%. Investors in the company were likely tempted by the renewed hope for the completion of the 335 million euro deal for the acquisition of the Bulgarian assets of Czech energy group CEZ.

In August, Bulgaria's Commission for Protection of Competition reopened its in-depth probe of the deal after its initial ban was cancelled by a local court. In its initial decision, the regulator said that combining the experience, the economic resources and market positions of the two groups in the electricity and insurance sector creates prerequisites for the notified deal to lead to the establishment or strengthening of dominant position. However, the regulator has not followed the proper administrative procedure when taking its decision, according to the court ruling.

REITs keep shining

Bulgaria's biggest agricultural land-focused real estate investment trust - Advance Terrafund REIT, was the only member of the SOFIX to register an increase in its share price in the first nine months of the year, gaining 7.92%.

Much like their blue-chip peer, Sofia-listed real estate investment trusts continued to fly high. The BGREIT, which tracks seven REITs, was the best performing stock index on the Sofia bourse in the third quarter, adding 2.09%. While other indices struggled, the BGREIT closed September at 135.30 points, less than two points short of setting an all-time high.

As investors looked to cut their losses, many focused on the guaranteed payout from REITs, which are obliged by law to distribute most of their earnings as dividend. With the reporting deadlines pushed back due to the coronavirus pandemic, many REITs had their shareholders' meetings approve the payout for 2019 during the third quarter of 2020, which supported the performance of the BGREIT members.

Although most of the BGREIT's members saw an increase in their share price in the third quarter, Aktiv Properties REIT outpaced its peers with a 14.26% share price rise. During the review period, the company pleased investors with its first dividend payout since 2012. Aktiv Properties REIT distributed a gross dividend per share of 0.49 levs, representing a dividend yield of over 5%.

TBS Group enjoys strong investor appetite

Bulgaria's Telelink Business Services Group (TBS Group) has been enjoying life as a publicly-traded company, as its major investors successfully placed two tranches of TBS Group shares on the Bulgarian Stock Exchange (BSE) since the company was listed in June.

Lyubomir Minchev, Ivo Evgeniev and Spas Shopov sold roughly 8% interest in the company during the first tranche of the public offering in June, which was priced at 7.6 levs per share. The second tranche of slightly over 6% interest was placed in September, with investors paying 11.1 levs per share, which represents a 46% jump as compared to the June price.

UK-based Utilico Emerging Markets Trust (UEM Trust) acquired a large portion of the two tranches of the offering. UEM Trust acquired 4.2% interest in June followed by a further 5.8% stake in the second tranche. The TBS Group shares offered on the stock exchange in Sofia were acquired by around 250 local and foreign investors.

Following the successful second tranche, Minchev, Evgeniev and Shopov announced that they intend to offer further tranches of shares in TBS Group if there is enough investor interest. The price however will be equal to the 11.1 levs per share set in the latest round of the offering or higher, depending on TBS Group's performance.

TBS Group was spun off from local company Telelink Bulgaria in 2019, becoming the sole owner of IT infrastructure, information security and digital transformation solutions provider Telelink Business Services and several other units of Telelink engaged in similar activities.

Unlike TBS Group, the other recent landmark listing - of investment firm Eleven Capital, did not enjoy the same investor interest. Eleven Capital raised 2.1 million levs in an initial public offering (IPO) on the BSE earlier this year but has since struggled to reach its IPO price of 7 levs per share.

Shares in Eleven Capital, which acquired the portfolio of local venture capital fund Eleven, closed September at a price of 6.9 levs, 1.43% down compared to their IPO price.

Author: Kapital
Author: Kapital
Author: Kapital
Author: Kapital

As Bulgaria reported the first cases of the novel coronavirus pandemic in mid-March and the country entered into a state of emergency, the local stock market indices spiralled down to historic lows. The blue-chip SOFIX index, which tracks the fifteen largest and most traded companies listed on the Bulgarian Stock Exchange, dropped to a seven-year low of 405.8 points on March 19.

The index recouped part of its losses by June but then plunged again in the third quarter of the year. The SOFIX suffered bruising for three months, losing 5.67% to 427.55 points by the end of September, and now sits uncomfortably close to its March lows. In the first nine months of 2020, the SOFIX registered an overall decrease of 24.75%. During the third quarter, the index was largely dragged down by First Investment Bank (Fibank), which erased 25.59% of its share price.

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