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Analyst: Baltic shares overpriced

  • 2003-09-25
  • Baltic Business News
TALLINN - Aadu Oja, an analyst at Trigon Capital, has said that prices of Baltic stocks such as Merko, the Estonian construction company, are overpriced.
"Share prices of several companies listed in the Baltic states have nothing to do with the economic performance of these enterprises," said Oja.
"I claim that Merko is the world's most expensive construction group according to its share price," said Oja.
"The same could be said about Lietuvos Telekomas."
Equity prices have soared in the Baltics over the past year. In September 2002 the Baltic Index hovered around 160 points. Just two weeks ago it peaked at 297, signifying a staggering 85 percent annual gain.
Oja said that Merko, for instance, which just a few weeks ago was trading at 201 kroons (13 euros) per share, has only 1 billion kroons in annual revenues, although according to its share price it should be posting 6 billion kroons to 7 billion kroons on the top line.
"This is not to say that Merko is not a successful company – [it's just that] such share prices are unsustainable," said Oja.
Only a few years ago Merko was trading at 10 kroons - 28 kroons per share, the analyst added.
"Today, I would buy Merko at 80 kroons per share," said Oja.
According to the analyst, a similar case exists with Lietuvos Telekomas. The Lithuanian telecommunication company's share price has doubled in six months, although the company has lost a significant part of its revenues and client base.
"Frankly, the Lithuanian Stock Exchange reminds me of the Tallinn Stock Exchange before its latest crash in 1997," he added.
While traditionally Estonian and Baltic stocks have been trading at around 20 percent lower levels than similar companies in Central Europe, prices today are the same as in the Czech Republic and way above those in Hungary.
In terms of expensiveness, Estonian share prices are second only to Poland, where deregulated local pension funds have been pumping money into shares.
The rocketing equity prices represent a dangerous trend, explained Oja, at a time when the Estonian current-account deficit is reaching new records. The Central Bank of Estonia expects the current-account deficit to reach 16 percent of GDP by year-end.