Developers flex their muscles

The global economy is growing faster and faster, which can be seen both in the US as well as in the Eurozone. Economists across the pond are seeing a revival in investment, consumer spending and employment – and everybody has forgotten about the tax reforms promised by Donald Trump (which had been fuelling the rises in the American stock exchange for many long weeks). Consumer sentiment has also been rising and it is American shoppers who are deciding what the global economy is going to be like. The economy is about to be spoilt by the unusually tragic hurricane season around the Bay of Mexico. In Europe, mature economies such as Germany and France are driving the GDP growth which is continuing despite the relatively strong euro (German GDP is largely based on exports). The industrial growth may be a harbinger of a revival in investment and consumer sentiment in the eurozone, having reached its pre-crisis levels from before 2008. Everything is happening in an environment of money remaining constantly cheap, as this has been reviving the mergers and acquisitions market as well as increasing investors’ appetite for risk. This is why the stock exchanges of emerging markets are still growing. Billions of dollars are being invested on the stock exchanges of emerging markets in Asia, South America and Europe. The Polish economy is continuing to provide good reasons for the Warsaw exchange to grow, while the political risk that results from a number of conflicts between the government and the EU has not been a factor in holding back the stock exchange up to now. Consequently, the WIG came close to 65,000 points following a rise of over 2 pct over four weeks, while the WIG20 exceeded 2,500 points (rising by 3 pct). The construction index was weaker compared to the broader market and saw a slight decline. The fall was of no concern to Budimex, which did not disappoint investors with its results – improving its net profit in Q2 (rising by PLN 6 mln y-o-y). Also the revenue of the giant increased by almost PLN 200 mln to PLN 1.7 bln. Its order portfolio also grew, reaching PLN 9.6 bln. Former heavyweight Polimex Mostostal, which following its restructuring is now controlled by a number of state power companies, has a considerably smaller order portfolio. The group recorded a revenue of PLN 1.13 bln and a net profit of PLN 34 mln in H1. The company has announced that its restructuring has been completed and the group is now aiming to improve its profitability, though maybe at the cost of its revenue. Mostostal Plock was in the green, registering a modest net profit of PLN 1 mln after suffering a loss last year. This was certainly welcome news to the company’s majority shareholder, Mostostal Warszawa, which is not going to publish its results until the end of September. Erbud also registered a profit follows a loss last year – of PLN 7 mln and also recorded revenue of almost PLN 780 mln. The company now has the largest order portfolio in its history (PLN 2.2 bln) and its record order books have persuaded it to turn to the market for funds – the company has announced a bond issue worth PLN 52 mln.

When looking at developers, Dom Development stood out with an 8 pct increase in its share price over a four-week period. The condition and results of the company show what a good time it is for developers – the market has continued to grow thanks to the booming economy (rising wages, low unemployment and low interest rates). After excluding the results of Euro Styl, a TriCity-based developer that was recently acquired by Dom Development, the company saw its sales increase by almost 50 pct. The result was a net profit of PLN 48 mln compared to PLN 23.5 mln a year ago. Atal also registered a rise in its net profit, of over 100 pct. Commercial developers also recorded rises – Echo Investment generated a profit of PLN 125 mln in H1. The company is currently developing a number of projects, including 20 office buildings and five shopping centres. One major event of the last few weeks has been the decision by Leszek Czarnecki, the owner of LC Corp, to sell a majority stake in the company in a transaction that could even exceed PLN 470 mln. The market welcomed the news of the sale after concerns about the thriving development business becoming increasingly burdened by the problems of other parts of Leszek Czarnecki’s empire. It is not yet clear who will be taking over the company, but according to analysts it is in rude health and it makes no significant difference whether it is a strategic investor or a group of financial investors (such as those who now control Robyg, which has been very successful).

Strong economy but weak PX50

The WIG20 continues to be the index that has offered the highest rate of return since the beginning of the year (with a rise of nearly 30 pct compared to 10 pct on the PX50 index and over 15 pct on the BUX). The Czech stock exchange has had the weakest indexes over the last month, which not even the very healthy figures for the national economy could remedy (GDP growth close to 5 pct), while the Budapest BUX50 remained the strongest in the region.