Business Forum • 28 January, 2025 at 11:40 AM
The BET-TRN index, which recorded a total return of 15.5% in 2024, reflects a year shaped by both substantial individual contributions and notable underperformances. The first half of the year saw general growth for the index and the Bucharest Stock Exchange, driven by strong corporate earnings and positive sentiment across multiple sectors.
However, the second half of the year was much more negative, influenced by energy market volatilities which drove weaker results for the sector, as well as political shakedown stemming from Romania's mega-election year and the surprises the results brought. The analysis of individual company contributions reveals a significant variance in impact, driven by their respective performances and index weightings.
The 15.5% return can be split into several categories, noting that equity prices can generally be described as the formula: earnings (EPS) x earnings multiple (P/E). A general earnings decline would have pushed the index down, while a multiple expansion helped counter-balance the effect, meaning that investors recognized more value within the BET components. At the end of 2023 investors paid in average 7.6x earnings, while at the end of 2024 this multiple increased to 9.4x. The earnings contribution to the index growth was -11.6%, while the multiple expansion added +20.4%. On top of all that, there was the 6.7% effect of dividends. These values are adjusted for the one-off positive earnings by Banca Transilvania (takeover of OTP) and Digi (disposal of assets in Spain). It is important to mention that these values are based on the annualized reported earnings known to investors at the end of the calendar year, meaning 12 months ending in September, and are not comparable to the fiscal year.
Leading the index growth were Banca Transilvania and OMV Petrom, with contributions of 6.37% and 6.02%, respectively. These two heavyweights were the backbone of the index's double-digit increase. Banca Transilvania's rise was fueled by strong organic growth complemented by acquisitions, which added both immediate and long-term value. Similarly, OMV Petrom's performance was bolstered by its operational efficiency and favorable pricing dynamics earlier in the year, despite the challenges faced by the energy sector in later quarters.
Digi Communications, which added 1.34% to the index, was another standout performer. Its growth was driven by the strong performance in Spain and the launch of operations in Portugal and Belgium at the year-end, paired with a sale of its Spanish FTTH network in Q3 2024, marking a pivotal transaction that significantly boosted its financial results. BRD Groupe Société Générale also performed well, contributing 1.19%, reflecting a stable banking environment and its role as one of the key players in the Romanian financial sector.
The healthcare sector was represented by MedLife, which contributed 1.06%. Its robust growth, driven by an expanding portfolio of medical services and facilities, underscores the resilience of the healthcare industry in Romania. Energy companies, such as Hidroelectrica and Transgaz, also played pivotal roles, contributing 0.95% and 0.73%, respectively. Hidroelectrica's gains came despite a weaker hydrological season, while Transgaz benefited from stable demand and improved operational efficiency. Electrica, with a 0.43% contribution, and Sphera Franchise Group, adding 0.42%, further bolstered the index, showcasing the diversity of sectors contributing to the index's performance. Romgaz and Transelectrica also made smaller but notable contributions of 0.39% and 0.36%, respectively, underlining the stable performance of utilities within the index.
On the smaller side of positive contributions were companies like Aquila (0.24%) and Purcari Wineries (0.04%), which showed modest but steady growth. These companies, while having smaller weightings, reflect the potential for niche sectors and entrepreneurial companies to play a supportive role in broader market performance.
On the negative side, several companies dragged the index down. The most significant detractor was One United Properties, with a contribution of -1.21%. The company faced a challenging year, marked by market volatility due to the share capital increase operation announced in April and finalized in September 2024. Fondul Proprietatea (-0.86%) and TTS (-0.81%) also weighed heavily on the index. Fondul Proprietatea's underperformance reflected broader market challenges and the changes at the level of fund management following the decision by Franklin Templeton to not apply for another mandate at the helm of the fund, while TTS faced headwinds following declines in the financial results reported.
Nuclearelectrica, with a negative contribution of -0.42%, struggled due to weaker energy prices. Antibiotice, despite its impressive gains earlier in the year, ended up detracting -0.29% due to a significant decline after its inclusion in the index. Bursa de Valori București (-0.14%), Teraplast (-0.13%), and Premier Energy (-0.11%) also posted negative contributions, reflecting sector-specific struggles and broader market pressures. Conpet, with a minimal negative impact of -0.02%, rounded out the list of detractors.
Thirteen companies out of the 22 in the BET-TRN index had a positive impact on its 2024 performance, while nine companies contributed negatively. Although the BET index typically comprises 20 components, the inclusion of Premier Energy and Antibiotice on September 23rd, 2024, temporarily increased the number of companies reflected in the index's performance to 22. This shift resulted from the exclusion of Conpet and Bursa de Valori București, both of which were replaced during the September reshuffle. Notably, all four of these companies: Premier Energy, Antibiotice, Conpet, and Bursa de Valori București, recorded a negative contribution to the index in 2024.
The overall performance of the index, coupled with these individual contributions, highlights the dynamic nature of the Romanian market in 2024. While key players like Banca Transilvania and OMV Petrom drove the majority of gains, underperformers such as One United Properties and TTS showcased the challenges faced by real estate and logistics sectors that were favored in prior years. This intricate balance between strong performers and weaker components and how they evolve from one year to another, underscores the importance of diversification and strategic weighting in achieving overall market growth. Despite the drag from certain sectors, the overall performance showcases the strength and diversity of the Romanian stock market, providing a compelling case for continued investment.
The InterCapital BET-TRN UCITS ETF, which closely mirrors the index, delivered a strong return of 14.2% for the year. The slight difference from the index performance can be attributed to fund expenses (0.81%) and the timing of dividend reinvestments (0.55%). The ETF's results demonstrate its effectiveness in capturing the broader trends of the Romanian market while navigating the complexities of individual stock performances.
As of the end of 2024, the InterCapital BET-TRN UCITS ETF had 17 million euros in assets under management. This value includes the capital invested by retail and institutional investors on the Zagreb, Ljubljana, and Bucharest Stock Exchanges. In Romania, the Net Asset Value (NAV) of the ETF tradeable on the Bucharest Stock Exchange reached €6 million. The number of investors in the ETF as of year-end amounted to 2,048 individual and institutional investors who purchased BET-TRN UCITS ETF via the Bucharest Stock Exchange authorized brokers.