Investment Summary
Musings on Greece
The local equity market is among the worst performers globally, falling approximately 40% year-to-date, even after the recent bounce. This exceeds the declines of around 30% seen in the Italian and Spanish markets, whilst both remain epicenters of the outbreak in Europe. Furthermore, many Greek mid-caps have seen even greater share price declines, despite in most instances being less materially impacted than the financials and industrials heavy index.
However, unlike much of the rest of the world, Greek companies have experience of a true depression. Their recent crisis saw 8 consecutive years of GDP erosion, amounting to a cumulative decline of around 28%, alongside unemployment soaring above 25% and the imposition of capital controls. This was in the same league as what is now forecast for much of the developed world. As such, not coming from “years of excess”, with many companies already used to operating in crisis mode, substantial de-leveraging having occurred and a population with fresh memory of hard times, Greece’s stock market may actually provide an appealing relative opportunity, given that reported Covid-19 cases currently remain “low” at ~1,200.
Companies worth considering
- TAV – Airport operator – Turkey – EUR833m Market Cap
- TAV is a Turkish, MENA & CIS Airport operator, controlled by Aéroports de Paris (ADP), with approximately E800m cash on hand and less than E500m net debt, a large part of which is to ADP- thus enough resources on hand to survive even a prolonged shutdown, with ADP likely to provide support if needed.
- Their airport mix is focused on summer tourism and Islamic pilgrimages, meaning that the shutdown has come at a period of low volumes anyway, so the impact has been far less material than for many sector peers.
- Assuming a conservative normalised EBITDA (still way below 2019 levels), the shares trade on 4-5x EV/EBITDA, suggesting an upside of 100-200%, even without being too ambitious once conditions improve.
- Mercator Medical – Medical Glove Manufacturer – Poland – EUR45m Market Cap
- Mercator Medical is a supplier of medical and protective gloves to Europe from their Polish factory and to Asia from a newly created facility in Thailand.
- Seeing an obvious demand growth, that is likely to sustain for 1-2 years post-pandemic, as everyone is building contingency supplies. Indeed, after SARS, listed Malaysian medical glove producers saw their share prices rise 100-200% after the end of the outbreak.
- Margins should increase materially, as pricing power is likely strong (nobody haggling today), whilst input prices have fallen due to the weak global economy. The company is heavily leveraged due to the debt-financed construction of its newly completed plant in Thailand, so investors benefit from substantial potential EPS growth, whilst being one of the few indebted companies not to have concerns about in the current environment. Likely trading on 2020F P/E of only 5-6x, due to its orphaned status.
- Georgia Healthcare – Medical Services Provider – Georgia – E110m Market Cap
- Georgia Healthcare is a dominant and diversified healthcare company in Georgia, with hospitals, clinics, dental surgeries, pharmacies, medical insurance and distribution units.
- For them it’s largely business as usual, with several years of double digits revenue growth ahead, and margin improvement, having just finished a multi-year capex program.
- Trading at a ~25% 2020F FcF yield, with no debt issues and a London listing.