Investor interest returning as economies start to stabilize

TALLINN - Eastern European investment firm East Capital Group says that now’s the time to buy, as assets in Estonia, Latvia and Lithuania are undervalued and are poised to benefit from an economic recovery in Russia, reports Bloomberg. “At the moment, with the type of valuations that you have in the Baltics, I would be buying everything. As a long-term investor, this is a time to invest,” remarked Chairman Peter Elam Hakansson from Stockholm.
The Stockholm-based fund has about 3 billion euros under management, and owns stakes in Lithuanian dairy foods maker Pieno Zvaigzdes, telephone operator TEO LT and Estonian retailer Tallinna Kaubamaja. Referring to the relative undervaluation of company shares, TEO currently trades at about eight times estimated earnings, compared with about 16 for the Dow Jones Stoxx 600 Index, an index of leading European companies.

As the Baltic region suffers the worst recession in the European Union, signs of stabilization are starting to lure investors back. Finland’s Pohjola Bank said in October that it will open Baltic offices and that it plans to buy local insurers. Latvia is talking to possible buyers of state-owned Parex Bank, or at least parts of it. Sweden’s Swedbank and SEB, the largest lenders in the Baltics, said last month that growth in bad loans in the region has peaked.
Hakansson noted that investor interest in the region surged after Sweden’s largest telecommunications operator, TeliaSonera, offered to buy out minority shareholders of its Estonian and Lithuanian subsidiaries, Eesti Telekom and TEO, in August. East Capital temporarily turned away potential investors in its Baltic fund earlier this year, citing strong demand but a lack of securities that could be readily bought or sold.

The OMX Baltic All-Share index has delivered a 23 percent return this year. Lithuania’s benchmark OMX Vilnius Index has risen 51 percent this year, Latvia’s OMX Riga Index is up 12 percent and Estonia’s OMX Tallinn Index also increased 51 percent. All three have underperformed the MSCI EM Eastern Europe Index, which has jumped 88 percent.
Baltic governments may sell more state-owned businesses, says Hakansson. Poland is offering stakes in power, oil, copper, phone and insurance companies to help plug a budget deficit.
“The Baltics have to catch up there,” he said, adding that utilities may be the first to be auctioned. “There are plenty of assets left to be sold.” Latvia’s state-run electric utility Latvenergo has recently been the center of discussions concerning the possible sale of 20 percent of its shares in a stock market listing. The company needs money to invest in new power-generation capacity.

Lithuania’s economy contracted at a slower pace in the third quarter, shrinking at an annual rate of 14.3 percent, as the country showed the first signs of recovering from its deep recession. Estonia’s economic decline slowed in the same quarter for the first time since the end of 2007, as improving demand abroad helped compensate for weak consumer spending.
Hakansson said Baltic consumer goods companies will benefit from a return to growth in Russia as well as recovery in home markets. “What I have always loved about the Baltics, which is a bit of the same thing as in the Nordics, is that you have small countries with small home markets having to look outside,” he said.