Jefferies upgrades Greek equities to 'modestly bullish'

Jefferies upgraded its view on Greek equities to ‘modestly bullish’ on Friday.

The bank noted the Greek equity market trades on a 13.71x forward price to earnings, 0.71x forward price to book, 5.43% forward return on equity and 3.42% forward dividend yield.

“After much recrimination, Greece's PM Alexis Tsipras of Syriza was able to secure the necessary support to implement tax increases (around US$2bn) including a VAT hike on a broad range of goods. Although the May 22nd vote goes a long way toward satisfying Greece's creditors, there is still a long way to go in getting agreement from its creditors to reduce (forgive) its debt burden to a more sustainable level.

“In essence, the May 25th deal with EU finance ministers to disburse €10.3bn in funds to cover Greece's debt repayments for 2016 is an 'extend and pretend'. There is unlikely to be any major discussion on debt forgiveness until 2018, conveniently after Germany's election in the same year.”

In terms of individual stocks, Jefferies noted Coca-Cola HBC has produced positive cash flow for the past five years, while returns on equity have been around 10% on stable asset turnover.

Meanwhile, it pointed out that Titan Cement obtains the bulk of revenue from overseas, mainly North America.

“In reality, the equity market is a proxy for the solvency of the banking system. All four banks trade below book while the rest of the market is above 1.25 times. Jumbo and Motor Oil both scored well on earnings and target price revisions and good free cash flow,” the bank said.

It said Jumbo’s ROEs are still in the mid-teens although well below its 2006 levels. The leverage ratio has dropped while operating margins have been relatively stable and the company has generated positive free cash flow for over eight years.

Jefferies said Motor Oil is highly geared and has had only one year of negative free cash flow in the last eight.

Greece’s ASE Composite was up 1.5% in afternoon trading at 648.47.