market overview – july 2007
July has been an exceptional month for the Tehran Stock Exchange (TSE) since the beginning of 2007. All market indicators including the performance indices, the volume of trade, and the number of traders witnessed significant and sharp rises during the month. The main driving forces behind the recent growth were:
Relative calm in international developments surrounding Iran’s nuclear program.
Market hype and dynamism created by successful Initial Public Offerings (IPO) and the consistent share price rise of recently privatized companies
The diversion of funds from bank deposits to the stock exchange following the recent interest rate cut.
A brief analysis of some of the significant sectors on the market is provided below.
Recently Privatized Companies
The selection of these companies as a distinct group on the market has to do with their outstanding performance and liquidity over the past few months since their initial offerings. The National Iranian Copper Industries Company (NICIC) produced an overall gain of over 100% since its IPO six months ago, while shares of Mobarakeh Steel and IRALCO witnessed over 50% and 20% gains since their IPOs respectively four and two months ago. Out of the four companies offered in recent months, only one was faced with little interest in the market due to its overly regulated and restricted sector (Dashtestan Cement Company). The three above-mentioned companies however witnessed enormous demand in the market since their offerings. Their consistent share price rise and increasing demand have given the market a unipolar mode in the past few months with investors selling other holding to acquire these shares. In July, however, the growth spread to other sectors and companies supplemented by fresh funds injected into the market by institutional and private investors.
The rapid gains of the recently privatized companies created hype and dynamism in the market given the fact that many more state-owned companies are in line to be privatized and their shares slated to be offered to the market in coming months.
Petrochemical
Following the decline of petrochemical share prices in the month of June, during which this sector was the worst-performing, the demand for the shares of four listed company in this sector has increased significantly with the recent resurgence of the market. These companies experienced heavy demand queues throughout July which continued until the end of the month. The share prices and the sector index however could not gain significantly since the demand queues coupled with imposed price fluctuation cap have locked trading. These companies are therefore expected to witness a significant share price increase once their share price is freed to rise without limitation on a “free trading” day, when they announce new earnings figures.
Real Estate and Construction
After months of slow movements, there has been an upsurge in trade volume figures for companies in this sector. Two of the largest companies in this sector elevated their forecasted earnings for the year by around 50% after they sold some properties with significant gains. This news however had a limited positive impact on their share prices since this was just a one-time gain.
Iron Ore Mining
Following the price rise of Iron Ore by 10%, the two listed companies in this sector (Chadormaloo and Golegohar) halted their share trading for a recalculation of their earnings. Once reopened, they announced a 20% rise in their forecasted earnings which resulted in a rise in their share price by the same margin.
Generally, companies in this sector have shown strong resistance to occasional market declines in the past and as a result have secured the confidence of investors for long term investment. Both of these companies have also had plans to double their production capacity by the end of this year but in the case of Golegohar this has now been postponed to next July. These expansion plans however have raised investors’ expectations and increased the PE ratio of these companies to over the market average.
Leasing
Since the approval of the interest rate cut from 17 to 12 percent by the government, there has been a heavy sell off and supply queues for the leasing stocks. On average, the leasing companies are trading at PE ratios of only 2.3 however the decline and the recession of this sector has continued during July. Experts believe that given the 12% interest rate of the state-owned banks and the lack of access to foreign financing sources has made it unfeasible to continue with leasing services at the current imposed rate of 12%.
Automotives and Parts
This was one of the only sectors that witnessed an overall decline during July. Even at PE ratios of around 2, there was little interest in stocks from this sector. believe that the automobile and parts manufacturing sector is facing some fundamental problems such as lack of competitiveness, market saturation, difficulties surrounding part imports following the two sets of UN-imposed sanctions as well as gasoline rationing that was recently put in place by the government.
The recent upward trend of the market made up for the slow and declining market which was witnessed during the first few months of the Iranian year (began March 2007). During July, the TSE Price and Dividend Index (TEDPIX) grew by 6.3% to stand at 31621. This performance represented a record increase for a single month in over three years. The trade volume has also witnessed a significant rise of 20% to stand at $505 million for the same month. The following chart demonstrates the performance of two of the TSE indices during July.
Prepared by Turquoise. About Turquoise: Turquoise is a boutique investment bank based in Iran with offices in Tehran and London. Turquoise publishes Iran Investment Monthly with the aim of keeping its recipients updated on the latest macroeconomic developments in Iran, providing an in-depth analysis of the Tehran Stock Exchange as well as introducing new financial products and private equity opportunities to potential investors. For more information please visit: www.turquoisepartners.com/iraninvestment
