Monthly Newsletter September 2017

1 Zlatovrah Str., Sofia, Bulgaria

www.karollbroker.bg research@karoll.bg

Market Overview

Investors on the Bulgarian Stock Exchange were quite active through September following the record-breaking August:

Turnover on the regulated market fell by 70% m-o-m to BGN 47.2 mln

compared to the record-breaking BGN 156 mln in August. On annual basis

the turnover jumped almost 3-fold or by 179%;

The number of trades executed on the regulated market increased by

more than 57% on the year to more than 8 600;

Market capitalization reached BGN 9.5 bn (9.9% of GDP) up from

BGN 7.1 bn a year earlier;

SOFIX erased 2.4% of its value in September falling below the 700

level for the first time since the end of June. Despite the monthly loss,

SOFIX have gained 17.3% since the beginning of 2017;

Among all indices on BSE only BGTR 30 finished September in green,

adding 0.6% to its value and becoming the best performing index on the

exchange with a YTD profit of 21.8%;

Among the most traded stocks for September were: Galata

Investment Company [GTH] with BGN 6.9 mln monthly turnover,

Sopharma [3JR] (BGN 5.5 mln), TK-HOLD [T24] (BGN 2.7 mln), Sirma

Group Holding [SKK] (BGN 2.5 mln) and Eurohold Bulgaria [4EH] (BGN

2.5 mln);

The biggest gainers for the month with a turnover of over BGN 100 000

were the shares of: Zenit Investment Holding [5Z2] up by 161.0%, CEZ

Razpredelenie Bulgaria [3CZ] (+18.1%) and Eurohold Bulgaria [4EH]

(+11.7%);

On the other side, the biggest losers on BSE in September among the

stock with monthly turnover over BGN 100 000 were: Sila Holding [6S5]

down by 19.0%, Solarpro Holding [0S8] (-12.5%); Sopharma Trading

[SO5] (-7.8%].

Bulgarian Stock Exchange | Trends

Value Monthly

change Year-to-date

SOFIX 688.11 -2.46% 17.34%

BGBX 40 134.34 -0.38% 20.70%

BG REIT 114.88 -0.39% 6.26%

BGTR 30 559.26 0.58% 21.79%

P/E P/B EPS growth Market capitalization Turnover

13.89 0.79 10.5% 3 737 16.477

* Annual trailing EPS growth; Market capitalization and turnover are in million BGN

Monthly Newsletter, September 2017

BSE Turnover BGN EUR

Equities (in thousand) 38 881 19 880

Bonds (in thousand) 7 016 3 587

Other (in thousand) 1 268 648

TOTAL Regulated market (in thousand) 47 165 24 115

OTC market (in thousand) 89 909 45 970

Market capitalization(in thousand) 9 517 4 866

Market capitalization/ GDP 9.9%

0

100

200

300

400

500

600

700

800

09.2010 09.2011 09.2012 09.2013 09.2014 09.2015 09.2016 09.2017

SOFIX

Consolidated sales for the first 8 months of the year increased

by 27.3% y-o-y to BGN 196.1 mln. For August alone, consolidated

sales slipped by 1.6% y-o-y to BGN 22.2 mln. Consolidated earnings

before taxes for the first 8 months of the year inched up by 5.4% on

the year to BGN 20.5 mln.

At the end of the month, the management held a conference with

investors and media where they presented their 5-year strategy for

the business. They plan to focus their efforts on maintaining organic

growth, scaling up the business, niche market diversification in

the recycling business and product diversification in the lithium-

ion batteries segment.

Stock in Focus | Monbat AD [5MB] Shares outstanding (th.) 38 989 P/S, ttm 1.4

Last price per share in BGN* 11.20 P/E, ttm 15.0

Market capitalization, BGN th. 436 677 P/B, mrq 2.2

Assets, BGN th. 343 925 ROA, ttm 9.8%

Liabilities/Equity 51.8% ROE, ttm 15.0%

Monthly Newsletter, September 2017

acquisition of foreign peers as well as penetration of new strategic markets

such as Africa, Ukraine and Russia.

In addition, the management announced that they are going to acquire the

licensed recycling plant of Piombifera Italiana S.p.A in Brescia, Italy. The Italian

company is among the top three largest recycling facilities for batteries in Italy with

a capacity of 70 000 tons per year. The recycling plant will be integrated into the

structure of Monbat Recycling AD as part of the newly established subsidiary

Monbat Italy SpA.

Monbat also plans to acquire the Tunisian ASSAD. The management

announced that they have already signed a letter of intent and are undergoing a

due diligence process which is expected to be completed by November. ASSAD is a

manufacturer of lead batteries. It owns production facilities in Tunisia and Algeria

with a capacity of 1.5 mln batteries. It also has a recycling plant in Tunisia.

Monbat will finance part of its investment program with a public issue of 7-

year convertible corporate bonds of up to EUR 30 mln. The nominal and issue

value of each bond is EUR 1 000. The interest rate is floating, equal to a 6-month

EURIBOR + 300 basis points but no less than 3% annually. The coupon payments

are due semi-annually. The loan will be redeemed in 3 instalments equal to 20%,

30% and 50% of the nominal value of the existing principal at the end of 5th, 6th

and 7th year, respectively. The conversion option can be exercised at the 48th, 66th

and 78th months of the issue term.. The loan will be considered concluded if EUR 15

mln are raised. The prospectus for the public offering is still pending the FSC’s

approval.

* as of 29.9.2017

Source: Monbat’s monthly bulletins

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

01'17 02'17 03'17 04'17 05'17 06'17 07'17 08'17

Consolidated monthly sales, EBITDA and Earnings before taxes in BGN'000

Sales EBITDA EBT

Managerial expectations are that by 2021 revenues will have

doubled and EBITDA will have tripled as the latter is forecasted to

reach EUR 69.8 mln in 2021. The key growth driver will be the

increased scale of the business which will be achieved through the

Sopharma AD [3JR] announced that revenue for the first 9 months of

the year increased by 16% y-o-y, mainly due to a 25% y-o-y increase in the

exports. Domestic sales inched up by 2% y-o-y. As a result of Medika’s

merger sales from the beginning of the year jumped by 25% as exports rose

by 29% y-o-y and domestic sales increased by 19% on the year.

August sales of Sopharma Trading AD [SO5] increased by 10% y-o-y

to BGN 57.517 mln, the monthly bulletin of the company showed.

Cumulative sales for the first 8 months of the year arrived at BGN 432.533

mln representing an annual increase of 9%. Cumulative earnings before

taxes for the same period inched up by 5% y-o-y to BGN 10.257 mln.

M+S Hydraulic AD [5MH] reported August sales of BGN 8.948 mln,

which is an annual increase of 21%, the company announced. Furthermore,

cumulative sales for the first 8 months of the year rose by 11% y-o-y to

BGN 71.842 mln. August earnings before taxes jumped by 29% y-o-y to

BGN 1.098 mln. Moreover, cumulative earnings before taxes for the first 8

months of 2017 arrived at BGN 11.081 mln, representing an annual

increase of 5%. September sales are expected to amount to BGN 9.840 mln

and forecasted cumulative sales for the first 3 quarters of 2017 are BGN

81.682. mln, which is an increase of 13.5% y-o-y.

August consolidated sales of Stara Planina Hold AD [5SR] increased by

16.7% y-o-y to BGN 15.462 mln, the monthly bulletin of the conglomerate

showed. Furthermore, cumulative consolidated revenue for the first 8

months of the year rose by 11.0% on the year to BGN 142.090 mln.

Forecasted consolidated sales for the first 3 quarters of 2017 are expected

to arrive at BGN 160.254 mln, which would be an increase of 11.8% y-o-y.

The land portfolio of Advance Terrafund REIT [6A6] increased by 158

News of the past month | Corporate sector

Monthly Newsletter, September 2017

da in August, the monthly bulletin of the fund showed. The REIT bought 190 da

agricultural land at an average acquiring price of BGN 859/da and sold 32 da.

Since the beginning of 2017, it has sold 14 397 da agricultural land at an

average selling price of BGN 1 450/da as 5 169 da have been sold on deferred

payment terms. At the end of August, the REIT owned 218 019 da agricultural

land (incl. land sold on differed payment terms until it is a property of the

fund) at an average cost price of BGN 481 per da. The average rental income

from new contracts is BGN 39.08/da for the 2016 ‐ 2017 agricultural year.

Rental revenue is expected at BGN 6.38 mln for the entire agricultural year as

46.4% is already collected.

Shareholders of Svilosa AD [3MZ] have approved the management’s

proposal for establishing a Bulgarian joint venture with the Indian peer Sigachi

Industries Private Limited at an extraordinary general meeting held in

September. The joint venture’s main activity will be a production of

microcrystalline cellulose and cellulose products. The newly established

company will have a registered capital of EUR 25 mln, Svilosa’s stake will be

50% or EUR 12.5 mln. The production process will be at Svilosa’s site and the

expected capacity is 10 000 tons of microcrystalline cellulose per year. The new

company will strive for maximum quality as the intention is to position itself in

the high price segment of the market. Svilosa’s aim with this new initiative is to

boost its competitiveness and profitability.

Trace Group Hold [T57] announced that it has set up a joint venture in

Germany called Trace-M Invest with its German peer M Strong. TRACE’s stake

is 50%. The main activities of the new company include construction of

motorways and primary roads as well as construction of housing,

administrative and office buildings. Trace-M Invest will seek partnerships with

some of the biggest construction conglomerates such as Zueblin and W&F.

Bulgaria’s GDP growth for 2016 was revised up to 3.9% from 3.4%, data

from the National Statistics Institute showed. Corrected data showed that GDP

for 2016 amounted to BGN 94.1 bn and the main drivers for the economic

growth remained exports and final consumption. Exports’ growth was adjusted

to 8.8% y-o-y from 5.7% previously announced. Final consumption increased by

3.3% y-o-y.

Inflation in Bulgaria in August slightly accelerated to 0.7% from 0.6% in July

but remained below the annual inflation rates for the EU and the euro area, data

by Eurostat showed. Annual inflation in EU reached 1.7% in August up from

1.5%. Annual inflation rate in the euro area also accelerated to 1.5% in August

from 1.3% a month earlier.

Earnings of general insurance companies for the first six months of the year

increased 26.6% on the year to BGN 49.454 mln, data by the Financial

Supervision Commission (FSC) showed. Gross written premium (GWP) rose by

an annual 12.3% to BGN 901.221 mln for January – June 2017 as motor vehicle

insurance policies accounted for the largest share in GWP, 70%, followed by

property insurance policies with 17%. Assets of general insurance companies

increased by 34.0% YTD and amounted to BGN 3.160 bn at the end of June.

Meanwhile, net income of local life insurance companies dropped by an annual

39.6% to BGN 13.928 mln for H1’2017, data by FSC showed. GWP inched up by

2.8% y-o-y to BGN 236.345 mln for January – June 2017. Assets rose by 5.9%

YTD to BGN 1.695 bn at the end of June.

Unemployment in Bulgaria in August remained unchanged compared to July

at 6.2%, well below the average unemployment rate of the EU and the eurozone,

seasonally adjusted data by Eurostat showed. Average unemployment in EU

decreased by 0.1 p.p. m-o-m and arrived at 7.6% in August, which is the lowest

level since 2008. On a year to date basis, the average unemployment decreased

by 0.9 p.p. Average unemployment rate for the euro area remained unchanged

at 9.1% in August but on a YTD basis decreased by 0.8 p.p.

News of the past month | Economy and Politics

The Ministry of Finance announced that based on preliminary data and

estimates, expected budget balance under the consolidated fiscal program

on a cash basis for the first 9 months of 2017 is positive at the amount of

BGN 2.39 bn (2.4% of the projected GDP). In addition, the Ministry

forecasts for 2017 a GDP growth of 3.9% - 4% for 2017 and a budget deficit

below 1.4% of GDP, according to a statement by the Finance Minister,

Vladislav Goranov.

Main economic indicators 2014 2015 2016 2017

GDP, in BGN, billions 83.6 88.6 92.6 24.1

GDP real annual growth rate, % 1.6% 3.6% 3.4% 3.9%

Inflation, % -1.4% -0.1% -0.8% 1.4%

Jobless, % 10.7% 10.0% 8.0% 6.7%

Fiscal balance, % GDP -5.8% -2.1% 0.0% 0.8%

Gross public debt, % GDP 27% 26.7% 29.5% 27.2%

Gross external debt, % GDP 92.1% 77.2% 73.1% 66.0%

Current account, % GDP 0.9% 1.4% 5.4% 3.1%

FDI, % GDP 3.1% 3.6% 1.4% 0.9%

Prime interest rate, % 0.01% 0.00% 0.00% 0.00%

* For 2017 latest available official data by BNB is used. GDP data is for Q2'2017. Data for inflation and unemployment are for August 2017. Fiscal balance and gross public debt data is for Q1'2017. Gross external debt, current account and FDI data is at end-July 2017. Data for the prime interest rate is for October 2017.

Monthly Newsletter, September 2017

Monthly Newsletter, August 2017

BGBX 40

Top 3 gainers* Ticker Change Top 3 losers* Ticker Change

Zenit Investment Holding 5Z2 +161.0% Sila Holding 6S5 -19.0%

CEZ Distribution Bulgaria 3CZ +18.1% Solarpro Holding 0S8 -12.5%

Eurohold Bulgaria 4EH +11.7% Sopharma Trading SO5 -7.8%

* Among all stocks with turnover of at least BGN 100 000 for the past month

DISCLAIMER: This newsletter is for informational purpose only and does not represent a proposal for buying or selling securities. The material is based on publicly available information. KAROLL accepts no liability for the content either partially or integrally in this newsletter.

Company Ticker Sector Market Price Monthly YTD Turnover P/E P/B P/S EV/ EV/

Cap end of change change (BGN'000) EBITDA Sales

(BGN'000) month

Active Properties REIT 5AX REITs 11 245 5.13 -2.1% ▼ 69.1% ▲ 106.45 neg. 0.5 24.3 -47.7 30.0

Advance Terrafund REIT 6A6 REITs 188 519 2.22 -2.2% ▼ 6.0% ▲ 2 717.96 17.2 0.9 5.3 15.8 4.8

Agria Group Holding AD A72 agribusiness 85 340 12.55 0.3% ▲ 7.3% ▲ 250.70 11 0.9 0.5 14.5 1.4

Albena AD 6AB tourism 264 809 62.56 -2.2% ▼ 1.8% ▲ 694.62 18.9 0.6 2.4 14.3 3.0

Alcomet AD 6AM industrials 285 453 15.90 2.6% ▲ 9.3% ▲ 133.81 12.8 1.7 0.8 9.0 1.1

Allterco A4L technology 33 330 2.22 -3.4% ▼ -5.1% ▼ 49.53 23.7 1.4 1.0 16.3 0.9

Billboard AD 5BP services 8 085 0.54 -2.9% ▼ -7.4% ▼ 2.48 15.4 0.4 0.2 5.8 0.2

Bulgarian Real Estate Fund REIT 5BU REITs 46 950 2.33 -2.1% ▼ 2.8% ▲ 186.24 9.0 0.7 6.0 8.8 6.2

Bulgarian Stock Exchange BSO fin.services 31 862 4.84 -5.9% ▼ 68.6% ▲ 156.99 97.7 3.2 13.6 132.0 12.9

Bulgartabac Holding AD 57B conglomerates 265 212 36.00 -6.0% ▼ -9.8% ▼ 33.60 21.3 0.9 0.5 7.1 0.5

Bulland Investments REIT 5BD REITs 12 322 0.82 -5.6% ▼ -2.3% ▼ 38.48 neg. 0.7 - -19.8 -

CB Central Cooperative Bank AD 4CF banks 202 772 1.79 -4.4% ▼ 17.1% ▲ 673.95 7.2 0.5 - - -

CB First Investment Bank AD 5F4 banks 594 000 5.40 1.5% ▲ 61.2% ▲ 508.50 16.0 0.7 - - -

CEZ Distribution Bulgaria AD 3CZ utilities 539 618 279.89 18.1% ▲ 61.5% ▲ 805.11 16 0.9 1.2 5.4 1.3

Chimimport AD 6C4 conglomerates 410 170 1.81 -4.0% ▼ 8.1% ▲ 2 778.05 7.1 0.3 0.8 -5.9 2.0

Doverie United Holding PLC 5DOV conglomerates 45 903 2.45 -4.7% ▼ 113.4% ▲ 79.63 29.3 0.6 0.3 8.8 0.4

Elana Agrocredit AD 0EA fin.services 26 141 1.38 -2.6% ▼ -1.1% ▼ 100.16 14.4 1.3 - - -

EMKA AD 57E industrials 67 335 3.13 1.0% ▲ 49.1% ▲ 79.63 21.8 1.8 0.7 9.2 0.7

Eurohold Bulgaria AD 4EH conglomerates 209 841 1.39 11.7% ▲ 112.1% ▲ 246.05 neg. 2.1 0.2 94.6 0.4

Holding Varna AD 5V2 conglomerates 175 668 33.55 -2.8% ▼ 1.7% ▲ 29.68 900.9 1.1 3.3 41.8 6.7

Hydraulic Elements and Systems AD 4HE machinery 99 248 5.46 -0.9% ▼ 27.9% ▲ 31.91 23.3 3.1 2.0 12.5 1.8

Industrial Capital Holding AD 4I8 conglomerates 55 365 3.56 2.6% ▲ -18.6% ▼ 57.16 14.4 1.3 0.3 0.8 0.1

Industrial Holding Bulgaria PLC 4ID conglomerates 78 889 1.03 -2.3% ▼ 1.1% ▲ 56.72 neg. 0.3 0.9 9.1 2.1

Insurance Company Euro Ins 5IC insurance 17 541 1.07 -11.7% ▼ 36.5% ▲ 99.77 32.8 1.8 - - -

Korado Bulgaria 4KX tools and appliances 71 110 8.10 -8.5% ▼ 130.1% ▲ 1 249.48 5.5 0.7 0.6 4.4 0.6

M+S Hydraulic AD 5MH machinery 318 200 8.15 2.0% ▲ 22.6% ▲ 76.18 24.8 4.8 3.3 13.9 3.0

Monbat AD 5MB industrials 436 677 11.20 0.2% ▲ 15.9% ▲ 540.50 15.0 2.2 1.4 10.8 1.7

Neochim AD 3NB chemicals 144 847 56.01 5.5% ▲ -6.0% ▼ 707.60 10.3 1.2 0.6 4.2 0.6

Oil and Gas Exploration and Production AD4O1 industrials 92 933 7.60 12.9% ▲ -9.5% ▼ 43.41 32.6 0.9 2.3 11.3 2.4

Sirma Group Holding AD SKK conglomerates 66 089 1.12 -3.5% ▼ -5.9% ▼ 44.96 23.7 0.8 1.4 4.4 1.4

Sopharma AD 3JR pharmaceuticals 561 068 4.36 -5.8% ▼ 46.1% ▲ 1 604.14 11 1.2 0.6 9.1 0.8

Sopharma Properties REIT 6S6 REITs 125 363 6.51 0.2% ▲ 20.9% ▲ 90.48 157.8 2.4 11.3 20.5 13.7

Sopharma Trading AD SO5 pharma trading 245 109 7.45 -7.8% ▼ 18.2% ▲ 51.75 21.8 4.0 0.4 23.7 0.5

Sparky Eltos AD SL9 tools and appliances 8 033 0.48 -12.7% ▼ 10.3% ▲ 2.80 neg. 0.5 0.4 -7.8 3.9

Stara Planina Hold AD 5SR conglomerates 168 713 8.10 -3.6% ▼ 24.8% ▲ 226.51 20.8 1.9 0.9 4.0 0.7

Svilosa AD 3MZ industrials 149 217 4.70 3.6% ▲ 80.7% ▲ 40.49 9.9 1.3 1.3 7.0 1.4

Synergon Holding AD 6S7 conglomerates 23 500 1.28 4.9% ▲ 5.3% ▲ 24.87 neg. 0.1 0.1 13.3 0.3

Trace Group Hold AD T57 infrastructure 110 836 4.58 -6.4% ▼ -12.9% ▼ 192.89 neg. 1.2 0.4 -25.2 0.4

Yuri Gagarin PLC 4PX industrials 39 958 39.80 9.7% ▲ 11.6% ▲ 30.12 6.4 0.5 0.3 3.7 0.4

Zarneni Hrani Bulgaria AD T43 commerce 74 351 0.38 -5.0% ▼ -2.6% ▼ 82.28 104.7 0.3 0.7 9.4 1.3