1 Zlatovrah Str., Sofia, Bulgaria

www.karollbroker.bg , research@karoll.bg

Monthly Newsletter October 2019

Market Overview

October turnover on the regulated market dropped by 29% to BGN

15.9 mln compared to the previous month, while on an annual basis there

was a decline of 38.5%;

In October, the number of trades executed on the regulated market

increased by 3.1% m-o-m to 3 238. Market capitalization shrank by

2.3% to BGN 8.6 bn (7.4% of GDP) compared to September;

All indices on BSE ended the month in red with the exception of BG

REIT, which recorded 1.8% m-o-m profit in October. The weakest

performance had BGBX 40, which erased 3.2% of its value, followed by

the main index SOFIX which reported a monthly loss of 2.4% in

October. Thus, SOFIX continues to be the worst performing index on

the Bulgarian stock exchange since the beginning of 2019 with a YTD

loss of 6.3%.

The stocks from the composition of SOFIX with the most

disappointing results for the month were the shares of Eurohold

Bulgaria AD [4EH], which erased 14.0% of their value, followed by

Doverie United Holding AD [5DOV] which recorded a monthly loss of

10.3% and those of Monbat AD [5MB] which declined by 5.3% m-o-m.;

Shares of Eurohold Bulgaria AD [4EH] also came third in our monthly

ranking of the most depreciated stocks for the month with a turnover of

over BGN 100 000. The first place took the shares of Alcomet AD [6AM],

which erased 20.8% of their value. The second place was for the shares of

Yuri Gagarin AD [4PX], which recorded a monthly loss of 19.7% in

October;

On the other side, the biggest gainers on BSE for the month among

the stocks with a monthly turnover of over BGN 100 000 were the shares of

Asenova Krepost AD [6AN] which added 13.2% to their value in

October, followed by those of Trace Group Hold AD [T57], which were up

by 12.4% m-o-m. The third place took the shares of Holding Center AD

[6C8], which appreciated by 12.0% in October.

Bulgarian Stock Exchange | Trends

Value Monthly

change Year-to-date

SOFIX 556.84 -2.41% -6.33%

BGBX 40 109.83 -3.18% -5.25%

BG REIT 130.42 1.83% 7.72%

BGTR 30 499.66 -1.51% 0.71%

P/E P/B EPS growth Market capitalization Turnover

7.8 0.57 28.1% 3 221 3.2

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

Monthly Newsletter, October 2019

BSE Turnover BGN EUR

Equities (in thousand) 11 243 5 748

Bonds (in thousand) 2 907 1 487

Other (in thousand) 460 235

Government bonds 1 307 668

TOTAL Regulated market (in thousand) 15 917 8 138

Market capitalization(in thousand) 8 593 4 393

Market capitalization/ GDP 7.4% 7.4%

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Oct-13 Oct-14 Oct-15 Oct-16 Oct-17 Oct-18 Oct-19

SOFIX

Advance Terafund REIT (ATERA) reported a 26.5% increase

on annual basis in its earnings for the first 9 months of the year

which arrived at BGN 3.4 mln, the Q3 financial statements of the fund

showed. Earnings per share (EPS) came at BGN 0.04 down from

BGN 0.03 a year earlier;

Revenue for the first 9-months of the year increased by 43.3% y-

o-y to BGN 9.3 mln as revenue from sales of investment property

reached BGN 4.1 mln up from BGN 1.8 mln a year earlier. Revenue

from rents increased of 5.4% y-o-y to BGN 4.9 mln.

For the first 9 months of the year, the fund bought 736.5 ha

agricultural land at an average purchase price of BGN 10 310/ha

and sold 302.4 ha, incl. land sold on differed payment contracts at an

average selling price of BGN 14 300 per ha.

Stock in Focus | Advance Terafund REIT [6A6]

Shares outstanding (th.)* 85 110 P/S, ttm 8.7

Last price per share in BGN** 1.93 P/E, ttm 14.3

Market capitalization, BGN th. 164 262 NAV per share 2.9

Assets, BGN th. 254 434 ROA, ttm 3.9%

Liabilities/Equity 0.0% ROE, ttm 4.7%

Monthly Newsletter, October 2019

* Excluding treasury stocks; ** as of 31.10.2019

Source: Monthly bulletins of the fund

In September alone, the fund bought 104 ha agricultural land at an average

acquisition price of BGN 10 000 per ha. Also, in September the fund didn’t make any

land sales. Thus, the land portfolio of Advance Terrafund REIT at the end of

September consisted of 23 158.5 ha agricultural land (incl. land sold on

deferred payment contracts until it is a property of the fund) with an average

cost price of BGN 5 230/ha and 13.3 ha urban land.

For the first 9 months of the year the fund has rented 16 838.8 ha

agricultural land at an average rent of BGN 383.6 per ha. Expected rental

revenue for the agricultural year 2018 - 2019 is BGN 6.5 mln as 71.4% of it is

already collected.

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Land Portfolio Dynamics

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Average Prices

Average selling price, BGN per haAverage acquistion price for the year, BGN per haAverage cost of the portfolio, BGN per ha

Monbat’s AD [5MB] unconsolidated earnings for the first 9 months of

the year fell by 42.2% y-o-y to BGN 6.6 mln., the Q3 financial statements of

the company showed. Revenue increased by 3.1% y-o-y to BGN 257.0 mln

while operating expenses rose more slowly by 1.8% y-o-y to BGN 247.9

mln. Consequently, EBIT jumped by 56.4% on the year to BGN 9.1 mln.

Sopharma Trading AD [SO5] reported a 8.3% increase on annual basis

in its unconsolidated earnings for the first 9 months of 2019 which arrived

at BGN 14.1 mln, the Q3 unconsolidated financial statements of the

company showed. Revenue increased by 8.0% y-o-y to BGN 582.3 mln

while operating expenses rose by 8.0% y-o-y to BGN 566.2 mln. Thus, EBIT

arrived at BGN 16.4 mln, representing an annual increase of 8.8%.

Sopharma AD [3JR] finished the first 9 months of 2019 with a 20.9%

annual increase in its unconsolidated earnings which arrived at BGN 33.5

mln, the Q3 unconsolidated financial statement of the company showed.

Unconsolidated sales inched up by 2.2% on the year to BGN 162.2 mln,

while operating expenses slipped by 0.1% y-o-y to BGN 137.9 mln. Thus,

EBIT rose by 17.4% y-o-y to BGN 24.2 mln.

Korado-Bulgaria AD [4KX] ended the first 9 months of 2019 with a

12.9% decrease on annual basis in its earnings which came at BGN 4.8 mln,

the Q3 financial statement of the company showed. Revenues slipped by

2.4% y-o-y to BGN 33.2 mln while operating expenses decreased by 0.3% y-

o-y to BGN 28.1 mln. Thus, EBIT fell by 12.0% on the year reaching 5.2 mln.

Neochim AD [3NB] finished the first 9 months of the year with an

unconsolidated loss of BGN 9.2 mln relative to a loss of BGN 19.9 mln a year

earlier, the unconsolidated Q3 financial statements of the company showed.

Revenue jumped by 42.1% y-o-y to BGN 200.8 mln while operating

expenses increased by 30.0% y-o-y to BGN 210.0 mln.

News of the past month | Corporate sector

Monthly Newsletter, October 2019

M+S Hydraulic AD [5MH] reported an annual decrease of 22.3% in its

unconsolidated earnings for the first 9 months of 2019 which amounted to BGN

10.9 mln, the unconsolidated Q3 financial statements of the company showed.

Revenue fell by 10.1% y-o-y to BGN 85.5 mln while operating expenses

decreased more slowly by 7.7% on the year to BGN 73.4 mln. Consequently,

operating income (EBIT) dropped by 22.4% y-o-y to BGN 12.2 mln. October

sales are expected to arrive at BGN 9.3 mln, which would be a decrease of

16.8% y-o-y.

First Investment Bank AD [5F4] finished the first 9 months of 2019 with

an increase of 4.2% on an annual basis in its unconsolidated earnings which

arrived at BGN 64.7 mln, the Q3 financial statements of the bank showed. Net

interest income decreased by 8.4% on the year to BGN 173.8 mln as interest

income fell by 7.4% y-o-y to BGN 218.1 mln and interest expenses shrank by

3.2% y-o-y to BGN 44.4 mln. Also, net fee and commission income increased by

an annual 4.8% to BGN 71.9 mln. Impairment charges rose by 28.5% on the

year to BGN 89.2 mln. Net loans portfolio increased by 6.2% YTD to BGN 5.9 bn

at the end of September 2019.

Central Cooperative Bank AD [4CF] finished the first 9 months of 2019

with a 59.3% increase on an annual basis in its earnings which amounted to

BGN 34.7 mln, the Q3 financial statements of the bank showed. Net interest

income rose by 7.5% on the year to BGN 88.9 mln, as interest income inched up

by 2.2% on the year to BGN 99.4 mln and interest expenses fell by 28.0% y-o-y

to BGN 10.4 mln. Also, net fee and commission income rose by an annual 3.2%

to BGN 34.4 mln. Impairment charges dropped by 85.1% on the year to BGN 1.2

mln. Net loans portfolio reached BGN 2.4 bn at the end of September 2019,

representing a 4.6% YTD increase.

International Monetary Fund revised its expectations for Bulgaria’s

economic growth in 2019, the latest report for the world economic outlook of

the institution showed. The new estimate is 0.4 percentage points above the

spring forecast. In 2020 the IMF expects a slowdown of the economy as GDP

growth is projected to arrive at 3.2%. The institution estimates inflation of

2.5% in 2019, which is expected to slow down to 2.3% in 2020. In term of

unemployment, it is forecasted to amount to 4.9% for 2019 and to decrease

to 4.8% in the next year.

Ministry of Finance reaffirmed its forecast for the 2019 GDP growth of

3.4%, the autumn macroeconomic forecast of the Ministry showed. The key

driver for the economic growth this year will be the domestic demand as end

consumption is forecasted to increase by 5.7% y-o-y. Regarding

unemployment, the expectation is that it will decrease to 4.4% from 5.2%

in 2018. HICP is projected to reach 2.5% down from 2.6% in 2018. For 2020

the Ministry forecasts economic growth of 3.3% while unemployment is

expected to shrink to 4.1% and the average annual inflation rate is estimated to

slow down to 2.1%.

Earnings of the Bulgarian banks for the first 9 months of 2019 increased by

4.2% y-o-y to BGN 1.3 bn, data by the central bank showed. Net interest income

inched up by an annual 2.0% to BGN 2.1 bn, while net fee and commission

income rose by 4.9% y-o-y reaching BGN 825.7 mln. Net interest margin shrank

to 3.3% from 3.6% a year earlier. Impairment charges increased by 0.5% on the

year to BGN 343.6 mln. Assets of the banking system amounted to BGN 115.5 bn

at the end of September 2019, representing an increase of 5.6% YTD. Gross

loans portfolio expanded by 9.0% YTD and reached BGN 79.5 bn (excl. loans to

the government and the central bank) as gross corporate loans inched up by

4.5% YTD to BGN 36.5 bn at the end of September 2019 and gross household

loans increased by 7.2% YTD to BGN 23.7 bn. Deposits rose by 7.8% YTD to BGN

94.5 bn as household deposits increased by 7.8% YTD, reaching BGN 55.8 bn

and accounted for 59% of all deposits in the system.

News of the past month | Economy and Politics

World Bank updated its forecast for the economic growth of

Bulgaria to 3.2% from 3.0% in the previous forecast of the institution.

The economic growth is expected to be driven by domestic consumption,

which will be supported by public sector wage increases and pensions.

Bulgaria ranks third among the EU countries with the lowest ratio

of government debt to GDP. For the second quarter of 2019, Bulgaria’s

government debt to GDP shrank to 20.4% from 20.9% in the first

quarter, which is well below the average for the EU and the euro area, data

by Eurostat showed. The average EU level of public debt to GDP for Q2 was

80.5% down from 81.1% in Q1. For the euro area, it arrived at 86.4%.

Estonia continued to be the country with the lowest ratio of 9.3% of

government debt to GDP in Q2, followed by Luxemburg with 20.3%.

Main economic indicators 2016 2017 2018 2019

GDP, in BGN, billions 94.1 98.6 107.9 28.1

GDP real annual growth rate, % 3.9% 3.5% 3.1% 3.3%

Inflation, % -0.8% 2.8% 2.3% 1.6%

Unemployment, % 7.6% 6.2% 5.2% 4.1%

Fiscal balance, % GDP 0.1% 1.2% 2.0% 1.7%

Gross public debt, % GDP 29.6% 25.6% 22.6% 20.3%

Gross external debt, % GDP 71.1% 65.6% 60.4% 57.8%

Current account, % GDP 2.6% 3.1% 4.6% 8.2%

FDI, % GDP 2.1% 4.5% 3.2% 1.2%

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

* For 2019 latest available official data by the Central bank and Eurostat is used. GDP data is for Q2 of 2019. Data for inflation and unemployment is for September. Fiscal balance and gross public debt data is for Q2 of 2019. Gross external debt is for September 2019, current account and FDI data is at the end of September 2019. Data for the prime interest rate is for November 2019.

Monthly Newsletter, October 2019

Monthly Newsletter, October 2019

BGBX 40

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

Asenova Krepost AD 6AN +13.2% Alcomet AD 6AM -20.8%

Trace Group Hold AD T57 +12.4% Yuri Gagarin AD 4PX -19.7%

Holding Center AD 6C8 +12.0% Eurohold Bulgaria AD 4EH -14.0%

* 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

Advance Terrafund REIT 6A6 REITs 164 262 1.93 -0.3% ▼ -3.0% ▼ 364.2 14.3 0.7 8.7 13.6 7.8

Agria Group Holding AD A72 agribusiness 50 320 7.40 -6.9% ▼ -26.0% ▼ 77.8 4.2 0.3 0.2 8.7 0.8

Albena AD 6AB tourism 176 082 41.60 -2.8% ▼ -9.2% ▼ 83.9 20.9 0.4 1.4 8.1 2.1

Alcomet AD 6AM industrials 143 624 8.00 -20.8% ▼ -32.8% ▼ 188.2 14.6 0.6 0.4 9.0 0.7

Allterco A4L technology 51 600 3.44 -1.1% ▼ 63.8% ▲ 34.3 13.6 1.8 1.0 9.1 1.1

Bravo Property Fund REIT BPY REITs 38 168 1.04 0.0% - 1.0% ▲ 10.3 1122.6 1.0 33.5 103.1 55.2

Bulgarian Real Estate Fund REIT 5BU REITs 71 362 2.06 3.0% ▲ 8.4% ▲ 133.9 10.4 0.7 6.9 7.6 5.2

Bulgarian Stock Exchange BSO fin.services 32 783 4.98 -3.3% ▼ -7.8% ▼ 18.5 8.6 2.1 3.0 - -

CB Central Cooperative Bank AD 4CF banks 200 865 1.58 -1.3% ▼ 12.1% ▲ 134.0 4.4 0.4 - - -

CB First Investment Bank AD 5F4 banks 336 600 3.06 -4.4% ▼ -9.2% ▼ 146.4 2.0 0.4 - - -

CEZ Distribution Bulgaria AD 3CZ utilities 376 155 195.00 -10.6% ▼ -2.5% ▼ 474.1 35.8 0.6 1.0 4.9 1.3

Chimimport AD 6C4 conglomerates 383 552 1.69 -0.9% ▼ -15.3% ▼ 277.1 5.3 0.3 0.8 -9.7 2.9

Doverie United Holding PLC 5DOV conglomerates 55 459 2.96 -10.3% ▼ 87.3% ▲ 291.4 6 0.7 0.3 9.3 1.3

Elana Agrocredit AD 0EA fin.services 40 660 1.11 -3.5% ▼ -3.5% ▼ 151.6 15.4 1.0 - - -

Eurohold Bulgaria AD 4EH conglomerates 315 570 1.60 -14.0% ▼ -0.6% ▼ 228.8 21.0 1.9 0.2 12.2 0.4

Gradus AD GR6 poultry 412 917 1.70 -1.5% ▼ -0.6% ▼ 110.0 24 1.3 2.3 15.0 2.2

Holding Nov Vek AD 6N3 conglomerates 94 248 16.80 -1.2% ▼ 1.2% ▲ 78.3 6.1 1.9 2.0 37.0 3.9

Holding Sveta Sofia AD 4HS conglomerates 38 770 3.90 7.1% ▲ -2.5% ▼ 18.9 7.3 1.1 1.7 40.8 4.6

Holding Varna AD 5V2 conglomerates 255 588 39.40 4.8% ▲ -6.6% ▼ 956.4 66.9 1.3 3.6 36.7 6.4

Hydraulic Elements and Systems AD 4HE machinery 83 692 4.60 -3.8% ▼ -4.2% ▼ 13.9 16.9 2.3 1.3 8.7 1.2

Industrial Capital Holding AD 4I8 conglomerates 32 673 2.08 -12.6% ▼ -15.4% ▼ 35.1 19.2 0.6 0.1 - 0.0

Industrial Holding Bulgaria PLC 4ID conglomerates 102 575 1.00 -3.8% ▼ -2.9% ▼ 137.8 10.1 0.3 0.9 5.4 1.4

Korado Bulgaria 4KX tools and appliances 85 605 6.50 -1.5% ▼ -9.1% ▼ 133.6 18.8 3.8 2.0 13.7 2.0

M+S Hydraulic AD 5MH machinery 232 655 5.90 -6.3% ▼ -22.9% ▼ 593.8 20.3 3.0 2.0 10.9 1.9

Monbat AD 5MB industrials 243 681 6.25 -5.3% ▼ -20.9% ▼ 99.3 41.8 1.0 0.8 13.0 1.2

Neochim AD 3NB chemicals 48 358 18.70 -15.0% ▼ -42.3% ▼ 12.9 neg. 0.5 0.2 -9.9 0.2

Odessos Shiprepear Yard AD 5ODE transportation 41 090 70.00 6.1% ▲ -3.4% ▼ 115.6 8.8 0.7 1.0 5.6 1.0

Severcoop Gamza Holding AD 6S4 conglomerates 39 575 3.70 1.1% ▲ -11.9% ▼ 42.1 - - - - -

Sirma Group Holding AD SKK conglomerates 39 748 0.68 -4.9% ▼ -25.3% ▼ 114.1 5.0 0.4 0.7 3.8 0.9

Sofia Commerce-Pawn Shops AD 6SOA fin.services 12 163 5.60 8.7% ▲ 60.0% ▲ 55.2 9.0 1.3 1.7 6.0 1.4

Sopharma AD 3JR pharmaceuticals 421 819 3.35 -0.6% ▼ -4.8% ▼ 159.9 14 0.8 0.3 10.1 0.6

Sopharma Properties REIT 6S6 REITs 135 992 6.35 0.0% - 0.0% - 120.0 94.8 2.1 12.0 20.2 13.2

Sopharma Trading AD SO5 pharma trading 192 494 5.85 -8.6% ▼ -16.4% ▼ 283.1 21.1 3.1 0.2 17.9 0.4

Speedy AD 0SP transportation 266 749 49.60 0.8% ▲ 12.2% ▲ 32.0 23.0 5.7 1.3 8.8 1.5

Stara Planina Hold AD 5SR conglomerates 109 351 5.25 -1.9% ▼ -19.8% ▼ 551.1 16.1 1.1 0.5 2.2 0.3

Synergon Holding AD 6S7 conglomerates 17 074 0.93 -10.6% ▼ -8.8% ▼ 38.1 neg. 0.1 0.0 4.8 0.1

Tchaikapharma High Quality Medicines AD7TH pharmaceuticals 846 660 10.30 3.5% ▲ 14.4% ▲ 95.2 95.4 8.6 21.6 62.4 21.9

Trace Group Hold AD T57 infrastructure 78 873 3.26 12.4% ▲ 14.8% ▲ 152.8 7.4 0.7 0.2 4.1 0.2

Yuri Gagarin AD 4PX packaging 6 124 6.10 -19.7% ▼ -68.6% ▼ 105.1 neg. 0.1 0.1 5.6 0.4

Zarneni Hrani Bulgaria AD T43 crops 41 480 0.21 -6.2% ▼ -17.2% ▼ 20.8 7.3 0.2 0.5 5.0 1.0