Cloudy ’08 outlook wipes EUR 6 bln in market cap
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Companies listed on the Cyprus Stock Exchange increased their combined profits for 2007 by 62.5% to EUR 1.57 bln (CYP 922 mln) compared to EUR 969.5 mln (CYP 567 mln) in 2006, according to Financial Mirror data, but fears that companies will not be in a position to maintain the double digit gains in 2008 has forced equity prices sharply lower.
The 62.5% profit growth of the CSE companies adequately justifies the 24% gain registered by the CSE Index in 2007, which saw the total market capitalization of the CSE climb to EUR 20.5 bln.
Since then however, equity prices have been sliding lower amid fears that the profit growth in 2008 will not be maintained at the robust pace seen in 2006 and 2007, which was instrumental in pushing equity prices higher.
The decline in the pace of profit growth was confirmed by Bank of Cyprus, which is promising only 11% increase in 2008 profit growth while Hellenic Bank is forecasting a 15% decline in profits.
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Market cap below GDP
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The more than 30% decline in equity prices since the start of the year has also corrected to a large extent the over-valuation of the CSE. By the end of February, the total market cap of the CSE had declined by EUR 6 bln to EUR 14.5 bln, as investors dumped stocks.
Measured another way, the decline has brought the total CSE market cap below Cyprus’ gross domestic product (GDP), which according to the Statistics Department, Cystat, climbed 4.4% in 2007 to EUR 15.5 bln.
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Market p/e at 11.2x
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The significant decline in equity prices has also corrected the price to earnings (p/e) ratio of the CSE, which according to Financial Mirror calculations has declined to a more manageable 9.5x on gross calculation basis. When adjusted for the weighted market cap of the profit reporting companies, the 2007 p/e is 11.2x.
The Financial Mirror method of calculating the p/e takes the market cap and results of the profit reporting companies and excludes all loss making, investment and special category companies.
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Profit growth
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The Main Market reported a 91% YoY increase in total profits to EUR 1.1 bln with the 15 stocks listed in this category accounting for 75% of total profits of EUR 1.5 bln.
The Parallel Market, listing a total of 16 titles lifted combined profits by 215% to EUR 54.5 mln, while the Alternative Market, which includes the results of 72 stocks boosted profit by 134% to EUR 203 mln.
The investment companies sector, hosting a total of 16 companies reported the worst performance, with combined profits declining 39% to EUR 143 mln from EUR 234 mln in 2006. The Shipping sector, with only one title had EUR 2.5 mln profit while the Special Category sector reported a loss of EUR 13.4 mln for 2007.
