Stocks are currently traded at earnings multiples corresponding to the last four quarters of around 9.1, which compares with 11.7 – the aggregate PER (Price-Earnings Ratio or earnings multiple) in the market three months ago, reveal data published on the stock exchange.
In the same interval, the BET-C index lost around 15% of its value and PERs declined significantly amid the rising profits reported by companies in the second quarter of this year. The PER indicates the length of time required to recover a stock investment from the company’s annual profits. This indicator is generally calculated using the net profit of the last four quarters for which data are available.
For instance, the shares of OMV Petrom (SNP.RO) is 32% cheaper than three months ago, as they are currently trading at an earnings multiple of 7.2 (based on results reported according to International Financial Reporting Standards), with the company’s net profit accelerating its growth to 26% in the second quarter.
Transelectrica (TEL.RO) shares currently have a PER of 5.76, while three months ago the earnings multiple was 12.7. The company increased its second-quarter profit 2.3 times against the similar period of 2010.
Fertilizer producer Azomures Targu-Mures (AZO.RO), which reported a 157% boost in second-quarter profit, has a PER of 1.79, compared to 2.11 three months ago, with the company’s shares rising 21% in the interval.
The shares of BRD Societe-Generale (BRD.RO) are currently trading at a 19.3 earnings multiple, compared to a PER of 24 three months ago, although the bank’s profit fell 5% in the second quarter. But the recent corrections have compensated for the bank’s lower profitability.
Analysts believe the cheaper shares are not fully explained through the more pessimistic forecasts on the trend of the world’s economies and believe the recent declines have been excessive.
“I believe the PER decline is justified to a certain extent by the revisions that economic analysts are making and will make on the trend of the world’s economy. However, I think the response of stock exchanges in the past two weeks has been excessive, investors did panic selling because declines of 7% to 8% of the S&P500 index cannot be explained otherwise,” says Dragos Darabut, analyst at Tradeville brokerage.
“An average PER of 9.1 on the Bucharest stock exchange is attractive for investors if compared against the multiples of other international markets. In fact, before and after the latest correction, part of the Bucharest-listed shares were considered undervalued compared with European sectors,” he adds.
Iulian Panait, president of investment consultancy KTD Invest, shares this opinion, saying investors have not met with such attractive prices on the stock exchange in seven or eight years.
“A PER of 9 is attractive for investments. I think we had such stock exchange opportunities in 2003-2004, when the economy was performing well and we had economic growth. We all know what followed after 2004, there were three years of significant growth for shares. An earnings multiple of less than 10 means an annual yield of well over 10%, even close to 15%, which is not bad, it is much higher than bank interests,” says Panait.
(English version by Daniela Stoican; Editing by Radu Bostan)