Friday 27 April 2018

Germany playing a skilful game of poker for easy Greek pickings

Thomas Molloy

Thomas Molloy

SHARESCOPE can’t help suspecting that the problems in Greece offer some easy pickings.

Whilst knowing nothing about the country beyond a few myths, the sun-soaked beaches and Ouzo, it is hard not to believe that the headline writers should be using the word farce rather than tragedy when describing what is going on in the Aegean.

Is there an investor in Europe who does not believe we are currently watching a skilful poker game which will see the Germans bail out the Greeks in the end?

Greek bonds look particularly cheap right now. Schroder ISF Global Bond fund manager Nick Gartside, who is snapping up Greek bonds, says current market pricing presents a scenario where investors in 10-year Greek bonds would only need to receive about 77pc of their coupons and principal repayment to break even versus an investment in Germanequivalents.

The problem for Irish retail investors who like a fair amount of danger is that there are not many easy ways to invest.

Greek stocks offer an easier solution, and for investors who like to buy shares when there is blood on the streets, but don’t speak Greek, there are two simple ways of taking a punt on the latest crisis.

The first is National Bank of Greece, while the second is the Coca- Cola Hellenic Bottling Company. Both are listed in Athens and New York and publish their results in English as well as Greek.

The 159-year-old National Bank of Greece's stock has fluctuated violently in recent times. The bank has been hard hit by a perfect storm familiar to many Irish shareholders; a global financial crisis, a local financial crisis and investments in neighbouring eastern European and Balkan countries which are not doing too well either.

Like most domestic banks, it also heavily invested in Greek bonds. The share price is around €13 this week, almost double its level at the height of the crisis a year ago but still well below its €42 peak and a 28pc down from the start of the year.

The bank still has a market cap of €7.9bn which is more than all the Irish banks put together. Richard Batty of global investment strategy at Standard Life Investments believes the Greek banks are “fundamentally sound” and that “the problem is with the state finances, not the companies”.

While that may be true, Irish readers will know the Greek banks still have the potential to fall a very long way, especially as they tend to be a little careless with facts and figures in that part of the world, which could cloud the real extent of NBG’s exposure to bad debts and the like.

A second, and much more cautious way into the Greek market is the Coca-Cola Hellenic Bottling Company, which distributes Coke and other drinks in Greece and in 28 Balkan and eastern European countries.

The company has a good track record with sales and profits rising steadily for years until last year. The shares are now half their pre-crisis level which leave Hellenic's pricing ratios with a profit multiple of 13-34 and enterprise value/Ebitda ratio of 7.3.

For the sake of comparison, Coca Cola trades at a profit multiple of 20 and EV/Ebitda ratio of 13. With a gap like that, there would appear to be a chance of exciting returns over the medium term for investors who like to benefit from market chaos but are prepared to hold for the long-term.

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