Today Saxo Bank has launched stock trading on the Greek exchange, and you might think “What timing!” After all, the future of Greek sovereign debt is still an open question, and the country’s economy is in dire straits.
But for investors in strong stomachs, investing in Greece now is an opportunity to venture where others do not dare.
In my database I have in total 83 Greek stocks, and I have narrowed them down to 7 worth looking at. My process involved ignoring the Greek banks – I am adventurous but not suicidal – and shipping companies, which are too complex for a quick overview. I eliminated companies with a lot of debt: high yields can kill companies and Greece is not the place to play with leverage. I wanted to have some dividends and I matched this with Price-Earnings, Return of Equity and Pay-Out Ratio, see chart 1.
Even though I prefer to look at consensus estimates, the coverage has shrunk too much. I will look at the reported earnings and historical averages instead.
Result
The list shrinks to 7 companies given the above criteria. The debt restriction of 2 times EBITDA made a large impact and left me with 21 companies out of the 54. The demand for dividend yield took another toll on the selection and striped it down to 10 companies all shown in table 1.
I have taken some of the data and placed them into chart 2, where it becomes clearer what stands out and what not. There are some very low P/E companies which at the same time have a high ROE and secondly provide a handsome dividend.
Under normal circumstances you would see higher P/E following higher ROE, as you have to pay up for good returns, but this is not the case in Greece. That is a nice thing.
What is the catch?
Metka is tainted but the 5 year average on ROE – where the construction boom has lifted the numbers. They are probably not flying at the moment. But the two next are steady defensive stocks, so why this skew? Nationalisation risk.
If Greece is going down the tubes and worst case scenario pans out then I see a high risk of a government going for some easy assets. OPAP is a Lotto and Gambling company of a good size and makes good money – a prime target. Thessaloniki Water a utility company part of the infrastructure and likewise a prime candidate and notice that Thessaloniki Water has a substantial amount of cash!
What’s the up-side?
Now we have a view the risk so is the potential enough to compensate for risk? I will take OPAP as the example as it is the company at the biggest risk. I compare the valuation of OPAP with a group of comparable companies, see table 2. Looking at P/E shows a 200 percent upside, 2012E. The upside is a bit lower looking on P/B, but OPAP has a substantial better ROE, so a P/B premium should apply. I will set the potential upside as 200 percent.
If OPAP is nationalised then you have zero value but if the situation improves then you could have 200 in value. This implies that if you think there is a 50 percent chance of a nationalisation then you are brake-even. If you think it is lower, then you would have a risk adjusted positive return.