Market Talk: Inside stories on Cyprus equity market

Biggest puzzle

The biggest puzzle in the CSE is why SFS, with a p/e of 4.6 times on 2007 forecasted profits of EUR 17.2 mln is not moving higher from its current price of EUR 1.70 per share. Logically, it should be trading at least double its current price just to take its p/e ratio to double digit.

The reason may be related with the forthcoming listing of 11.78 mln news shares that SFS issued to finance the acquisition of 18.64% of White Knight Holdings (WKH), lifting its stake to 89.51%. The new shares are set to make their debut on the CSE on July 2 and word is out on the street that many pros are waiting for possible selling interest to emerge and then to mop up the excess shares at “cheaper” levels.

There are two schools of thought on the recent successful acquisition of the additional stake in White Knight Holdings.

Looking at it from a pure CSE valuation point of view, it’s a raw deal for SFS shareholders since SFS is issuing 11.78 mln shares (value EUR 20 mln @EUR 1.70 per share) to acquire 40.4 mln WKH shares (value EUR 14.1 mln @EUR 0.35 per share).

If you look at the deal from a financial point of view however, then it’s different since when the 40.4 mln WKH shares are valued at book value of EUR 0.5870 per share, the value shoots up to EUR 23.7 mln against the same EUR 20 mln valued SFS shares.

Fortunately for SFS shareholders, the financial point of view is taken into consideration as the official method when the accounts are prepared, which means that because of the recent acquisition, SFS will look to book a negative goodwill of around EUR 3.7 mln in its books, which will head straight into the P&L account. In other words, the difference is extra profit.

Another benefit is that the minority interest will be reduced which in 2006 cost about CYP 3.5 mln in profit reductions as minority interest while in the balance sheet, the total amounted to CYP 28.2 mln.

Hopefully, after next week there will be no more excuses why this stock remains at such low levels. In our opinion, this stock is one of the best buys in the market as sooner or later, the price discrepancy will need to correct.

 

MIG

The rights of Marfin Investment Group, which started trading on Friday will trade until July 2, while all those who wish to exercise their rights have until July 6 to do so.

The 55.332.877 rights may be converted into shares in a 14:1 ratio creating 774.660.278 shares, which at the exercise price of EUR 6.70 should raise EUR 5.19 bln, in Greece’s largest capital raising exercise ever attempted.

Last week’s crazy rally on the MIG shares, which rallied from EUR 8.50 to EUR 16.50 in three sessions was cut short after a statement by Marfin CEO Andreas Vgenopoulos who described the activity as “unjustified” and after he promised that MPB would dump rights in the market and act to cool speculative activity.

The price of the rights meanwhile should continue lower towards zero since any institutional investor paying a minimum of EUR 500.000 will have the right to participate in the issue by paying only EUR 6.70 exercise price. It’s like a private placement, if you have the money, you don’t need to go through the hassle of the stock exchange and you can subscribe directly.

As it has been announced, the Dubai Financial Group will most likely contribute EUR 500 mln, with another EUR 500 mln being subscribed by Dubai Financial Group clients, giving Dubai based subscribers about 20% control.

Vgenopoulos is reported to have committed EUR 50 mln while a major chunk is expected to be contributed by shipping groups and the rest from foreign investors.
After the issue is completed, Marfin Popular Bank, which held 93% of MIG will see its holding reduced to 6.5% as it will not participate in the capital issue.

Vgenopoulos has further added that MIG will also have access to a further EUR 10 bln in debt to make investments and acquisitions in central and south-east Europe. This means that in all likelihood, MIG will become the “jewel in the crown” and this may well be the reason why many pros are likely to buy MIG shares instead of MPB, which hopefully will get the 1% investment advisory fees per year as promised by Vgenopoulos.

 

Rumours everywhere

Pandora and CAC Papantoniou raced higher amid rumours that the two are engaged in talks or that a merger of some sort will soon hit Paphos. We are skeptical of such rumours and instead stress that Pandora Investments, with its extensive land holdings in the Paphos area is a stock to own and hold for the future.

Meanwhile in Nicosia, everybody went wild over Minerva Insurance on rumours that it was the prime target of acquisition by a bank, while other investors got excited on news that Minerva will allow its name to be used in Greece in parallel to efforts to form a new insurance alliance with the participation of Greek agents.

 

Alpha Bank

There is increased talk that Alpha Bank will become the subject of a takeover bid, and despite the denial of speculation that HSBC is interested to bid for the Greek bank and Andreas Vgenopoulos of Marfin offering his services as a “White Knight” to ward off a hostile bid, a hedge fund run by former BNP Paribas people has increased its stake in the bank to 5%.

Trust the old saying of “there is no smoke without fire”. It will be an interesting summer in the Greek banking market.

 

Coffee Beanery

The new coffee franchise name in town, which plans to open another 3 stores in Nicosia and Limassol by end of August in addition to its existing store in Nicosia will probably come under the sphere of Laser Investments.

 

HB stake in Athena

Hellenic Bank announced that the revised Public Offer made to acquire up to a maximum 100% of the share capital of Athena Investments Pcl (ATH) was concluded on 21 June 2007 and the success rate reached 79.11%. HB will now treat ATH as a subsidiary and consolidate its results.

A number of investors who agreed to the takeover deal are angry at the fact that since the takeover was completed, the shares of HB, in which ATH was heavily invested have shot up, and in the process, since they have not yet received the counter-value of the shares they tendered in, they have lost dearly.

This is true but HB officials counter that they are following the CSE rules and say that since the CSE vets every acceptance form, this leads to a delay. The promise is that HB will attempt to give the money back well before the deadline of July 23.

 

Misunderstanding on Lemeco?

Elma Group issued an announcement saying that it has not agreed to tender its controlling stake in Lemeco Silvex to Aspis at EUR 0.10 per share, sending a wave of disappointment among the Aspis camp.

It appears that Elma has privately said that it will only dispose of its stake in Lemeco if a prospective buyer is willing to pay cash, for the whole of its stake and at least at book value, which is EUR 0.10 per share. The conversation apparently took place when the share price was still at EUR 0.07.

It seems somebody at Aspis decided that since they were willing to meet all the terms, then they could assume that it was a done deal, hence the use of the Elma name and the statement that it was supporting the takeover bid.

As to the delay in issuing a correction, Elma apparently immediately notified the authorities about the misunderstanding, but since it did not put “announcement” on top, the authorities did not authorise publication. Only after the term announcement was added that it was notified to the public at large.

It looks like its back to the negotiating table for Aspis and Elma on the future of Lemeco.