bucharest stock exchange case study

Contents

Chapter I - Introduction.............................................................................................................................2

Chapter II - Fundamental analysis.............................................................................................................3

II.1. Analysis of the Macro-Economic Context.......................................................................................3

II.2. Analysis of the Sectorial Perspectives..............................................................................................7

II.3. Analysis of Economic and Financial Performances.......................................................................11

Chapter III - Technical Analysis.............................................................................................................23

III.1. Technical Analysis based on Line Chart.......................................................................................23

III.2. Technical Analysis based on Candle Chart...................................................................................29

Chapter IV - Conclusions........................................................................................................................31

Chapter V – References...........................................................................................................................33

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Chapter I - Introduction

For our case study, we decided to choose three challenging sectors following the principle of

diversification in our portfolio. We have identified and argued our choice of companies listed on

Bucharest stock exchange market that have different sectorial activities. These companies are:

S.C. BIOFARM S.A. [BIO]- Pharmaceutics sector

S.C. FONDUL PROPRIETATEA S.A. [FP]- Financial sector

S.C. OMV PETROM S.A. [SNP]- Energetic sector

S.C. BANCA TRANSILVANIA S.A. [TLV]- Financial sector

To start with S.C. Omv Petrom S.A. is one of the biggest companies and the highest rated firm in

the Bucharest Stock Market in Romania with activities in the domains of exploration and

production, refinement and natural gases. The opportunities and challenges of the energetic

sector are numerous and problematic to say at least and the ability of the firm to sustain itself

over long periods of time are questionable. We decided that it’ll be a challenge to analyze the top

firm in the stock exchange and a sector that is constantly suffering from state intervention.

We have chosen S.C. Biofarm S.A. firstly because it’s a Tier-1 Category firm listed on the stock

market (alongside Zentiva S.A. and Antibiotice S.A.) and also because of the policies they were

showing throughout the years and their ability to withstand pressure from the environment and

the state. The instability of the pharmaceutical sector and the sector nonetheless is interesting and

we decided we should proper analyze it.

In what concerns S.C. Fondul Proprietatea S.A. and S.C. Banca Transilvania S.A. the entities are

both activating in the financial sector. It is interesting to see how they managed to regroup and

continue to prosper in the years after the economic crisis hit Romania and comparing two

companies from the same sector, but with different policies would show us an image of how they

worked out. Investigating the development to the financial sector, their main challenges (like

credit risk) and future tendencies should show us an ample image of how these institutions

operate. In the following chapters we made an elaborate analysis of our choices and their sectors

respectively taking each company separately and correlating it with the sector it operates in.

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Chapter II - Fundamental analysis

The fundamental analysis represents a method of evaluating a security that entails attempting to

measure its intrinsic value by examining related economic, financial and other qualitative and

quantitative factors. Fundamental analysts attempt to study everything that can affect the

security's value, including macro-economic factors and company-specific factors.

II.1. Analysis of the Macro-Economic Context

In the following fundamental analysis we have identified various macro-economic factors from

overall economy and different industries in order to create a perspective of the general context in

which the companies selected operate.

1. According to the National Bank of Romania release, the adjustment of the monetary policy

seeks to maintain price stability in a sustainable way. This factor will contribute to a temporary

lower inflation rate and to a healthy long-term recovery, in what regards the private sector

A lower rate leads to an increase in loan from investors and companies, thus an expansion of

investment. Also, because people have more money, consumption increases corporate profits and

their stock shares. Since the new policy encourages investments on the capital market, we expect

an increase on the BVB stock exchange market.

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2. Long-term globalization is another macro-economic factor which influences the BVB. The

capital market in Romania is directly influenced by the international context, which can have

either a positive or a negative impact on BVB.

The chart above is based on index comparison and we interpreted as follows:

Between BET/CAC40; BET/DAX; BET/FTSE 100 - we can observe a similar tendency

in the high volatility of the stocks, variation given due to the globalization effect on the

developed markets, such as France, Germany and England. On our domestic capital

market it can be observed, on a long term comparison, that it was directly influenced,

thus had the same reactions as the international speculation stocks (small, long term

increase gain).

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Between BET/Dow Jones - we can clearly notice the impact of the macro context, when

the stock market dropped after Israeli military planes struck Syria and eventually the

government shutdown, resulting in a drop on the American market. However, unlike the

previous comparisons, BET maintained its constant behavior given the fact that the

American stocks decrease was entirely influenced by the country risk factor.

3. The demand and supply on the labor market can represent another influential factor. The

daily movements of the stock market have in the basic principle the demand and supply,

including the labor market. Stock markets react positively or negatively based on the

unemployment indicator. The number of employees of an economy will go towards 4.5 million

in 2013. The state will suffer losses of approximately 200 million euro per month, which would

have been generated by half of million employees.

The National Institute of Statistics show that the number of unemployed people showed a

decrease in tendency from year to year and the rate of unemployment will be around 6.6%. If the

unemployment rate will stay high that means that companies are cutting jobs and won’t have a

positive outlook on the economy, that’s likely to have a negative impact on the stock market. But

if the unemployment is low, it signals a strong economy and a more optimistic outlook. BVB is

likely to react positively, but it may view the low unemployment as likely to cause inflation and

that will be negative.

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4. According to the study made by ANIA and IDC Romania, the Romanian software market

increase seems to gather the attention of foreign investors due to its human resources profile and

sector gain opportunities. Currently, this industry employees about 60,000 people, of which 80%

are IT specialists.

Hereby since Romania excels at software programming, many foreign investors have located

here their R&D operational departments. This industry generates stable foreign investments in

Romanian companies, as shown by the last year’s gains, which will show a positive impact on

BVB.

5. An online newspaper has published recently an article related to the controversial issue of fuel

price. If the price of fuel will increase as stipulated, the profits of the said oil based companies

will decrease and their shares will not be as transacted as before. The new law implying that the

companies will absorb half of the costs to maintain consume will also drastically impact their

profits and the stock market.

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II.2. Analysis of the Sectorial Perspectives

A - Pharmaceutics sector

In what concerns the pharmaceutics sector there are mainly three big companies listed on the

stock market having the biggest part of the market share.

Antibiotice S.A. is a producer of generic medicine, having a portfolio of over 150

medicines ranging from therapeutically dedicated medicine to anti-inflammatory;

Biofarm S.A. was founded in 1921 is one of the leading companies in the pharmaceutical

sector, in producing and researching of medicine. It also has 7 more companies abroad;

Zentiva S.A. is an international society dedicated to development, producing and

commercializing modern brands of pharmaceutical products.

Development and challenges of the sector

The statistics revolving around the evolution of the pharmaceutical sector given by the APMGR

are only theoretical and in reality they should be seen in the larger context of the sector.

The studies showing the evolution of the pharmaceutical sector should take into

consideration the Claw-back tax, paid by the producers that consist of 14 percent of the

turnover in the first half of the year and it should exclude the exports, estimated at 15-20

percent.

The delays of over 300 days for collecting the bills of the medicine with prescription

determine coating costs for the risk of not collecting the said bills and this limits the

profitability of the producing companies

In the last six months (January-June 2013) the total value of the pharmaceutical market

was of 5,9 billion lei, growing with 3,5percent compared to the same date in the previous

year

These products offered by the pharmaceutical sector have an inelastic elasticity with

price, in the sense that when the economy goes up or down, the demand is more or less

the same. Given that the economic growth in 2013 will go up to almost 2 percent, it can

only advantage the sector.

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Tendencies

The pharmaceutical Romanian companies tend to lean towards export, this way relieving

pressure from the national market that has been affected by the increased pressure from the

Claw-back tax and the weak discipline of the market. The slow rhythm of sales in our country

and the Claw-back tax determined a decrease of the share value for Antibiotice – from 0.466

RON to 0.355 RON and for Biofarm – from 0.237 RON to 0.218 RON for each share.

B – Energetic sector

In the oil sector, more explicitly, the extraction of petrol and natural gazes, the sector is

dominated by Omv Petrom S.A. which is the biggest oil company rated at the Romanian stock

market. The company has activities in the domains of exploration and production, refinement,

natural gazes and energy. Other big energetic companies listed on the stock market that we have

identified are Rafo S.A. and Rompetrol Rafinare S.A.

Development and challenges of the sector

The energetic industry in Romania suffered a dramatic decrease in energetic resources in the last

years and the key to undoing this problem is the necessity to increase the security in the domain

from the national production and to limit the dependency for resources from import. Attention

should be given to the renewable resources and to an efficient capitalization of the European

funds. Projects for promoting the use of renewable resources should also be taken into

consideration. The need for independence and safety in the energy industry has led to the

development of the system of production by cogeneration, in order to reduce the consumption.

Opportunities in the oil industry have been marked by a new kind of oil extraction resources such

as “petrol de şist” that may have beneficial impact on the global market and also the Romanian

one.

The prices for oil will lower and will vary from country to country;

It might influence the geopolitical dynamic with an increase of the energy

independence of countries like The United States and China, but also Romania;

Real prices will be lower than the ones anticipated and it might create benefits for

companies that require petrol and similar products of energy.

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Tendencies

The energetic sector will moderately increase in the period of September-November, forecasting

an increase of the production volume (cca. 11 percent).

C – Financial sector

Companies in the financial sector listed on Bucharest Stock Exchange provide different financial

services, thus a classification is needed for differentiation. In what regards the financial services,

except insurance and pension funding we have trusts, funds and similar entities - category where

Fondul Proprietatea S.A. (FP) operates under. Another financial category is related to monetary

intermediation activity where companies such as Banca Comerciala Carpatica S.A (BCC), Banca

Transilvania S.A (TLV), BRD Groupe Societe Generale S.A (BRD) and Erste Group Bank AG

(EBS) provides their services in the sector. There are also companies that do not fall under the

latter categories of financial services. Here we meet the SIF companies from 1 to 5 which are set

up as a joint stock companies with private capital having a different objective than the other

financial companies on BVB.

Development of the financial sector in the recent years

The banking sector of Romania – made up of 40 banks at the end of December 2012 – finances

mainly the Romanian economy, providing about 92 percent of the total financing granted by the

Romanian financial system. The banking system has proven to be resilient during the crisis,

continuing to grant funding to the economy of Romania. The economic growth outlook

generated by the absorption of European funds, the level of financial and bank intermediation of

almost 40 percent and respectively 57 percent, make Romania be an attractive destination for

investors who invest in banking sectors.

The banking sector’s assets stood at €83 billion, their weight against GDP amounting to 62

percent. The weight of the assets belonging to banking institutions with foreign capital against

total assets of the Romanian banking sector advanced from 83 percent in December 2011 to 89.8

percent in December 2012. The level of financial intermediation, calculated as the weight of non-

government credit against the GDP stood at 38.4 percent in 2012, a value similar to the one

registered in 2008, before the crisis, down compared with its maximum of 40.1 percent,

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registered in 2011. The controlled disintermediation process has happened in a context of the

contraction of lending denominated in foreign currency and of consumer lending. The new credit

policy enables Romanians to take consumer loans over a shorter period of time, and enforces a

higher down-payment for housing loans in all currencies, from 15 percent in lei, up to 40 percent

in other currencies.

Challenges

The main challenges to financial stability are credit risk, especially the credit risk associated to

lending denominated in foreign currency and the risk of a disorderly development of external

financing. In Romania, the recommendations of the European Systemic Risk Board to all EU

authorities concerning lending denominated in foreign currency were extended to companies

also. Higher unemployment, a significant reduction of wages and the downsizing or even the

termination of the business of some companies have contributed to the ongoing drop of the loan

reimbursement capacity with direct consequences upon the quality of banks’ loan portfolios

which at its turn led to a higher volume of provisions that credit institutions had to establish.

The Board of the Romanian Central Bank (BNR) recently decided to lower the monetary policy

rate to 4.25 percent a year from 4.5 percent as of October 1. BNR reiterated that it will closely

monitor domestic and global economic developments and adjust monetary policy accordingly so

as to ensure price stability over the medium term and financial stability.

Tendencies

Banks have changed their orientation from a fast expansion to a prudence-oriented strategy, by

adapting their branch networks and their employee number. The number of bank outlets was of

about 5,700 at the end of December 2012, while the number of employees across the sector was

adjusted to 61,700 people.

The commitment of credit institutions’ shareholders has provided for the maintenance of capital

adequacy at comfortable levels. The Romanian banking sector continues to hold solid capital

reserves, the solvency ratio standing at 14.9 percent. This calculation includes the effect of the

prudential filters.

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Banks have adapted their offerings, launching credit cards to refinance one or more existing

cards or overdrafts. Clients accessing such cards in order to refinance their existing debt may

choose to pay in a number of installments. In addition to interest, the new credit card may be

accompanied by a number of costs, such as issuance fee and administration.

II.3. Analysis of Economic and Financial Performances

A – Analysis of Banca Transilvania performances

Banca Transilvania S.A (TLV) is a banking institution with headquarters in Cluj-Napoca,

Romania. The bank was founded in 1993 in Cluj-Napoca by a local business people group, with

a capital of 2 billion RON, of which 79 percent was Romanian and 21 percent foreign. Currently

BT is on the third place among banks in Romania in terms of assets with a market share of over 8

percent. Its activity is organized into four main business lines: corporate banking, IMM, retail

banking and medical division. Bank has formed specialized teams and a comprehensive portfolio

of products and services to support the development of each segment. BT's mission is to support

business growth through innovative products and services offered with professionalism.

The bank's strategy is supported by strong shareholders such as the European Bank for

Reconstruction and Development, which owns 15 percent of the share capital, Bank of Cyprus

and the IFC - the World Bank's investment arm. BT is one of the most wanted employers in

Romania, ranking among the top 20 companies, according to the classification made in 2012 by

Catalyst Consulting and made public through the media in June this year. BT is present in all

major economic centers in the country with a network of over 560 branches, agencies and

outlets.

1. Dynamic comparison between the latest 3 available lists of financial data.

BT - Financial Trimestral Situation (mii lei)31/03/2013 30/06/2013 30/09/2013 Tendency

Turnover 623.000 733.550 1.942.344

Net profit 84.396 180.185 240.238

Total debts 27.360 27.250 27.293

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Even though the debt in the last quarter increased with 42.902 million lei compared to the second

term of this year, it still represents an encouraging, favorable financial situation for the company.

This is given by the fact that the turnover for the last period had an increase of over 1.320.000

million lei faced to the first quarter, while in the second period, the difference reduced to an

amount of 1.209.000 million lei. Also, the net profit for all the last two terms registered a

favorable growth due to the constant increases in the turnover as illustrated above. Overall, from

the last three trimestral data we have observed a positive and constant growing tendency of the

company’s financial situation.

Given the profitability indicators illustrated below in the table, we have analyzed the company

based on their ratio as follows:

Earnings per share or EPS, is the amount of money the company actually earns for each share of

stock that is outstanding. The EPS ratio is 0.15 lei. It means that every share of the common

stock earns 0.15 lei of net profit.

Price earnings ratio or PER, is one way investors use to determine how much a stock costs

compared with how much the company earns. The PER ratio is 9.61. Compared to the reference

value of ≈ 9 we conclude that Banca Transilvania is slightly an over-evaluated company.

Price per Book Value or P/ BV, is one of the most useful ratios when buying or selling company

share. The P/ BV ratio is 1.14. A PBV ratio of ≈ 1 means that the investors are paying a price for

the shares which are exactly equal to the net asset value of the shares. Since the ideal PBV ratio

should be below 1, we conclude that the company is slightly over-evaluated again.

Dividend Yield or DIVY, is the yield a company pays out to its shareholders in the form of

dividends. The DIVY is 1.62 percent. If this value is compared with the interest rate, which is 5

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IndicatorsPER 9.61P / BV 1.14DIVY 1.62EPS 0.15

percent, we can conclude that investing in shares of Banca Transilvania is not as attractive for

investors as placing money in a bank deposit.

2. Comparison with other companies from the same sector and on the same period of time.

Return on equity (ROE) is a measure of profitability that calculates how many dollars of profit a

company generates with each dollar of shareholders' equity. The formula for ROE is:

ROE= net income*100/ shareholder’s equity

BT S.A. Return on Equity31/03/2013 30/06/2013 30/09/2013

Net income 84.396.000 180.185.000 240.238.000Shareholder's Equity 2.872.177 2.817.452 2.993.549ROE % 2.93 6.39 8.02

For the last trimester, Banca Transilvania generated 80.25 lei of profit for every 1 lei of

shareholders' equity, giving the stock an ROE of 8 percent. Comparing with the last two periods

of time, we notice a rising ROE suggesting that a company is increasing its ability to

generate profit without needing as much capital. It also indicates how well a company's

management is deploying the shareholders' capital. Giving the constant growth from 3 percent to

8 percent and if these values are compared with the interest rate, which is 5 percent, we can

conclude that investing in shares of Banca Transilvania is more attractive for investors that

placing money in a bank deposit for the third trimester.

ROE % Q3 2013Banca Transilvania 8.02%BRD Groupe Societe Generale 9.04%Banca Comerciala Carpatica 4.62%Erste Group Bank AG 11.23%

In comparison with the other financial institutions in the same field, Banca Transilvania has the

smallest ROE (8 percent) while Erste Group Bank has a ROE of 11 percent, which shows the

fact that the latter is more appreciated by the investors, probably due to the fact that is one of the

largest financial services providers in Central and Eastern Europe.

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3. Comparison with the mean of the sector and also with the mean on the market.

Banca Transilvania activates in the financial intermediation sector. The PER indicator of the

company is 10.19 compared to ≈9 results that TLV is over-evaluated. On the market level the

PER has a ratio of 9.38 which means that the company is slightly over-evaluated in comparison

with other companies from the same market field such as BRD OR BCR. In what regards the

sectorial level, we can underline that the financial intermediation field is over-evaluated in

comparison with other companies from different sectors, having a P/BV of 1.09, while for

instance the construction sector has only registered a ratio of 0.25.

B – Analysis of Fondul Proprietatea performances

Fondul Proprietatea SA (FP) is a joint stock company operating as a closed–end investment fund

without a set lifetime, incorporated in Romania, trading on the Bucharest stock exchange (BVB)

since 2011. The Fund’s Investment Objective is long-term capital appreciation via investment

primarily in Romanian equities with strict adherence to the principles of value investing.

The Sole Administrator of the Fund is Franklin Templeton Investment Management Limited

United Kingdom, Bucharest Branch (the so-called FTIML or Fund Manager), effective since 29

September 2010. Its specificity lies in the fact that its purpose and its operations are governed by

special legislation. The private fund was established by the Romanian government in December

2005 in order to assure the financial resources necessary to compensate the persons abusively

expropriated.

The compensation is made in shares, representing the actual value of the real estates which are

not given back in kind. Restitution is totally independent of the Fund being managed by the

National Authority for Property Restitution- a legal entity specialized in the central

administration.

The nominal value of a shares issued by Fondul Proprietatea is 1 RON. Property Fund shares are

traded by their holders, freely, to BVB (symbol FP), either by leveraging actions or by selling

them or by obtaining annual dividend resulting from the work of the Fund.

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FP S.A. Financial Trimestral Situation (mii lei)31/03/2013 30/06/2013 30/09/2013 Tendency

Turnover 11.911.903 874.883.978 924.586.980 Net profit (5.571.232) 514.633.081 535.202.815 Total debts 19.891.282 955.413.584 32.784.630

For the first quarter we noticed a financial loss in the net income of the company. This negative

result can shake investor confidence and greatly affect the company's ability to distribute profits

as a return on equity (ROE) to shareholders. In Fondul Proprietatea’s case, given the positive

earnings for the next two periods of time, we can say that the company took the necessarily

measures to recover the losses and to gain investors’ trust again by the end of the third quarter.

The debts increased in the second semester as the company invested in recovering their previous

losses and redirect the company on the right track and by the end of the third quarter of 2013, we

can notice that the debt has decreased given by the proper management of the fund. Overall, the

company has shown favorable tendencies as turnover and new profit had a constant growth and

debts have decreased compared to the previous term.

As previously in the BT’s case we have made an analysis of the given profitability indicators as

illustrated below.


Earnings per share or EPS, is the amount of money the company actually earns for each share of

stock that is outstanding. The EPS ratio is 0.04 lei. It means that every share of the common

stock earns 0.04 lei of net profit.

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Price earnings ratio or PER, is one way investors use to determine how much a stock costs

compared with how much the company earns. The PER ratio is 21.99. Compared to the reference

value of ≈ 9 we conclude that Fondul Proprietatea is an over-evaluated company.

Price per Book Value or P/ BV, is one of the most useful ratios when buying or selling company

share. The P/ BV ratio is 0.94. A PBV ratio of ≈ 1 means that the investors are paying a price for

the shares which are exactly equal to the net asset value of the shares. Because the PBV ratio is

below 1, we consider that the company is slightly under-evaluated and the rate of 0.94 is a sign

that it’s running well.

Dividend Yield or DIVY, is the yield a company pays out to its shareholders in the form of

dividends. The DIVY is 4.82 percent. If this value is compared with the interest rate, which is 5

percent, we can conclude that investing in shares of FP is as attractive for investors as placing

money in a bank deposit.


Return on equity (ROE) is a measure of profitability that calculates how many dollars of profit a

company generates with each dollar of shareholders' equity. The formula for ROE is:

ROE= net income*100/ shareholder’s equity

FP S.A. Return on Equity31/03/2013 30/06/2013 30/09/2013

Net income (5.571.232) 514.633.081 535.202.815Shareholder's Equity 12.075.638 11.613.100 11.488.160ROE % (46,136) 4.431 4.658

For the first quarter the company lost almost half of total shareholder equity given by the

negative net income which subsequently led to a negative ROE. It’s not an encouraging sight as

investors likely lose money because the business has no cash left over to pay them.

However, for the two last quarters we noticed a positive net income and thus a rising constant

ROE. For the latter quarter, Fondul Proprietatea has generated 46.58 lei of profit for every 1 lei

of shareholders' equity, giving the stock an ROE of 5 percent. If this value is compared to

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interest rate, we can conclude that investing in shares at Fondul Proprietatea is as attractive as

placing money in a bank deposit for investors.

ROE % Q3/2013Fondul Proprietatea 4.65%SIF Banat Crisana S.A. 3.66 %SIF Moldova S.A 15.32%SIF Transilvania S.A 25.44%SIF Muntenia S.A 14.21%SIF Oltenia S.A. 16.92%

In comparison with other financial institutions, Fondul Proprietatea and SIF Banat-Crisana have

recorder the smallest ratios among all the other intermediaries. This means that investors find the

other SIF companies to be more attractive than Fondul Proprietatea, given the high ROE ratios.


Fondul Proprietatea is an active entity in the financial intermediation sector. The P/BV ratio of

the company is 0.94 compared to ≈1 denotes the fact that FP is slightly under-evaluated on the

market level (P/BV ratio is 0.96).

In what regards the sectorial level, we can underline that the financial intermediation field is

over-evaluated in comparison with other companies from different sectors, having a P/BV of

1.09, while for instance the construction sector has only a ratio of 0.25.

C – Analysis of Biofarm performances

Biofarm S.A. (BIO) is a pharmaceutical company located in Bucharest with its main domain

activity being the fabrication of pharmaceutical products (CAEN Code 2120). Biofarm is also

one of the main pharmaceutical companies coted at the stock market (the other two being

Antibiotice S.A. and Zentiva S.A.) and one of the main leaders in the internal market.

Its strategy is to develop around 10 new products every ear and to try and extend in the

international market.

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Biofarm S.A. Financial Trimestral Situation (mii lei)31/03/2013 30/06/2013 30/09/2013 Tendency

Turnover 33,443,588 58,440,133 85,570,856

Net profit 8,739,670 13,537,643 18,559,757

Total debts (ST+LT) 28,050,765 44,668,811 29,451,629

The turnover has increased in the third semester with almost 44 million compared to the first.

The net profit also showed a tendency in increase reaching 17,356,009 million. The total debts

increased as well in the second semester, but then decreased reaching 29,451,629 million, a little

over the level that was established in the first trimester. All this will lead to an increase in the

price of the stock and the stock holders will appreciate.

It represents an encouraging, favorable financial situation for the company and the continue

increase of the turnover and the net profit, as well as the decrease of the total debts shows

constant growth and attractiveness to the investors.

Return on equity (ROE) = (Net Profit/Shareholders Equity)*100

Biofarm S.A. Return on Equity (mii lei)31/03/2013 30/06/2013 30/09/2013 Tendency

Net profit 8,739,670 13,537,643 17,356,009Shareholders’ Equity 163,843,701 164,539,257 168,865,815Return on Equity (%) 5.334 8.228 10.278

It can be observed that in the last three trimesters the tendency for the return on equity has been

steadily increasing reaching 10.278 percent, meaning that the investments in shares is attractive

for the investors. A rising ROE suggests that a company is increasing its ability to generate profit

without needing as much capital given by the rise in both the shareholders equity and the net

profit throughout the three trimesters of 2013.

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Given the profitability indicators illustrated below in the table, we have analyzed the company

based on their ratio as follows:


The price earnings ratio or PER is 15.3, compared to the reference value of ≈ 9 we conclude that

Biofarm is an over-evaluated company.

The price per book value or P/ BV is a financial ratio used to compare a company's current

market price to its book value. A P/BV ratio of ≈ 1 means that the investors are paying a price

for the shares which are exactly equal to the net asset value of the shares. The P/BV is over 1

(1.96), thus meaning that the company is slightly over-valuated.

Earnings per share or EPS is 0.02, meaning that every share of the common stock earns 0.02 lei

of net profit.

Dividend Yield or DIVY is 4.42, which shows that compared with the interest rate, investing in

shares of Biofarm is as attractive for investors as placing money in a bank deposit.

2. Comparison with other companies from the same sector and on the same period of time

We have compared Biofarm with another two similar companies such as Antibiotice and Zentiva

based on the Return on Equity indicator.

Antibiotice S.A. Financial Situation (lei)31/03/2013 30/06/2013 30/09/2013 Tendency

Net profit 5,073,973 16,124,703 26,700,182 Shareholders’ Equity 351,528,867 342,007,046 346,548,451 Return on Equity (%) 1.44 4.71 7.70

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Zentiva S.A. Financial Situation (Lei)31/03/2013 30/06/2013 30/09/2013 Tendency

Net profit 13,896,082 28,351,169 37,223,304 Shareholders’ Equity 265,753,462 260,208,549 269,080,684 Return on Equity (%) 5.23 10.90 13.83

The tables illustrated above regarding the ROE ratio shows that the highest ROE is found at

Zentiva S.A. (13.83 percent at the last trimester). This also shows that the shareholders from

Zentiva and Biofarm have obtained the best profit from the pharmaceutical sector.


Biofarm S.A. is an active entity in the Manufacturing sector (more importantly in the

pharmaceutical part). The P/BV ratio of the company is 1.94, compared to ≈1 shows that the

company is over-valuated on the market level (P/BV ratio is 0.96). At the sectorial level, the

Manufacturing sector, as in the case of Biofarm is also under-valuated having a 0.78 ratio.

D – Analysis of Omv Petrom performances

Omv Petrom S.A. (SNP) is the leading company in the energy sector with its main domain of

activity being the extraction of unprocessed petrol (CAEN Code 0610). They are specialized in

the energy sector, more explicitly in the petrochemical sector, but also in the Exploration and

Production, Refinement and Natural Gases (being the second supplier of natural gases after

Romgaz S.A.).

In the petrol sector, PETROM detains a market share of almost 50 percent or above, followed by

Rompetrol S.A. and Lukoil S.A.

20


Omv Petrom S.A. Financial Trimestral Situation (mil lei)31/03/2013 30/06/2013 30/09/2013 Tendency

Turnover 5.789 5.787 6.574

Net Profit 1.332 1.061 1.273

Total Debts (LT+ST) 1.079 1.692 568

Return on Equity (%) 17.2 18.5 19.6

The turnover increased to almost one billion in the third trimester compared to the first, making a

favorable situation, the tendency being on the rise. The net profit has decreased in the second

trimester, making a decrease of the price of the stock, but increased in the third. The decrease of

the net profit is a result of paying part of the debts, showing the huge decrease of the total debts

in the third semester. It can be observed that in the last three trimesters the tendency for the

return on equity has been steadily increasing reaching 19.6 percent, meaning that the investments

in shares is attractive for the investors and the situation of the company is favorable.

Given the profitability indicators illustrated below in the table, likewise the latter companies, we

have analyzed the company based on their ratio as follows:

Indicators

PER 6.69P / BV 1.12DIVY 6.16EPS 0.07

The price earnings ratio or PER is 6.69 meaning that the ratio is considered a fair value, but

compared to the reference value of ≈ 9 we conclude that OMV PETROM is an under-valuated

company.

The price per book value or P/ BV is a financial ratio used to compare a company's current

market price to its book value. A P/BV ratio of ≈ 1 means that the investors are paying a price

for the shares which are exactly equal to the net asset value of the shares. The P/BV is over 1,

(1.12), thus meaning that the company is over-valuated.

21

Earnings per share or EPS is 0.07, meaning that every share of the common stock earns 0.07 lei

of net profit.

Dividend Yield or DIVY is 6.16, which shows that compared with the interest rate, investing in

shares of SNP is more attractive for investors that placing money in a bank deposit.


S.N.G.N. Romgaz S.A. Financial Data (lei)30/06/2013 30/09/2013 Tendency

Net profit 771,402,488 410,665,587 Shareholders’ Equity 9,654,807,056 9,272,914,169 ROE (%) 7.99 4.43

Romgaz is Omv Petrom’s biggest rival. Compared to the ROE of Petrom, Romgaz has a steadily

decreasing ROE, going in the second to the third trimester to only 4.43 percent. Given that

Petrom’s, ROE is 19.6 percent in the third trimester, it shows that the shareholders from Petrom

have obtained the best profit from the energy and oil sector.

3. Comparison with the mean of the sector and also with the mean on the market

Omv Petrom is the most important company in the Mining and Quarrying sector. Their PER is

6.74 compared with ≈9, it demonstrates that their PER is under-valuated. At the level of the

market, the PER is 9.38, which is over-valuated compared to PETROM, which is below 9. At the

sectorial level, the PER is of 6.73 showing that it is also under-valuated as it is with the company

itself.

Chapter III - Technical Analysis

22

Technical analysis is a method of evaluating securities by analyzing statistics generated by

market activity, such as past prices and volume. Technical analysts do not attempt to measure a

security's intrinsic value, but instead use charts and other tools to identify patterns that can

suggest future activity.

III.1. Technical Analysis based on Line Chart

A – Technical analysis of Banca Transilvania

The technical analysis of the company is conducted on a period of 12 months, taking as

reference two moments: the present one 30.11.2013 and the middle of May, where a

modification of the tendency took place. The indices taken into consideration are: Simple

Moving Average - SMA, Exponential Moving Average - EMA, Bollinger Bands – BB and

Moving Average Convergence Divergence – MACD.

Chart source: KTD.ro

1. [SMA] is computed as the average closing prices for a number of periods. As it can be

observed, at the middle of May, due to the company’s stock price suddenly drop, the shares of

BANCA TRANSILVANIA were under-evaluated, following in the next period a constant slow

23

growth. Regarding the current period, the closing price is above SMA which means that the

company’s stock is over-evaluated.

2. [EMA] emphasizes the recent dynamics of the price, in the detriment of last periods, thus the

most recent days have a greater weight in the average structure than distant ones. As we can

observe in the chart above, the shares of the company decreased in May, the EMA being situated

below the SMA indicator due to the sudden drop.

3. [BB] is a band plotted two standard deviations away from a SMA. It defines the volatility of

the stock price. Taking the first reference moment into consideration, we observe a broader band

area than the closing price which emphasizes a high volatility and also the correlated high risk of

the price stock along with it. Moreover, the upper margin has intersected the band resulting thus

is a sudden reversed trend, from an increasing to an abrupt decreasing one. Still, the lower

margin has also been touched by the Bollinger band line which caused again a slowly constant

increase in the price dynamics.

4. [MACD] is a trend-following momentum indicator that shows the relationship between two

moving averages of prices. At the first reference period in May, the MACD line crossed the

trigger line from the bottom to the upper side which made the price to go up. However, the price

decreased shortly after when the MACD line reversed and went crossed the trigger line from up

to down. Currently, the MACD line forecasts a future price stock increase of the company.

B – Technical analysis of Fondul Proprietatea

The technical analysis of the company is conducted on a period of 12 months, taking as reference

two moments: the present one 20.11.2013 and the beginning of July, where a modification of the

tendency took place. The indices taken into consideration are: Simple Moving Average - SMA,

Exponential Moving Average - EMA, Relative Strand Index - RSI and Bollinger Bands – BB.

24



observed, at the beginning of July, the shares of FONDUL PROPRIETATEA were under-

evaluated, following in the next period a constant slow growth. Regarding the current period, the

closing price follows the SMA indicator which means that the company’s stock is neither under

or over-evaluated.



observe in the chart, the shares of the company decreased at the ending of June and beginning of

July, the EMA being situated initially below the SMA indicator, afterwards regaining a higher

position than SMA.


the stock price. Taking the first reference moment into account, at the beginning of July, we can

notice a broader band than the closing price which emphasizes a high volatility and also the

correlated high risk of the stock price associated with it. Moreover, the bottom margin limit has

intersected the band resulting thus in a reversed trend, from a decreasing to an increasing one.

However, the higher margin limit has also been intersected by the Bollinger band line which

25

caused again a decrease in the price dynamics. Regarding the current period, we expect a

decrease in the price since the upper limit margin has been intersected by the band.

4. [RSI] generally gives an insight of the moment when stock is either over-sold or over-bought.

At the beginning of July it can be noticed how the price reached lower and extreme lower limits

of 30.00, subsequently 20.00 which denotes that the price was under-evaluated and the market

over-sold. As expected, a rise in price was followed soon afterwards. Currently, the price has

reached extreme limits of over 80.00 which mean that the price is over-valuated and the market

is over- bought. Therefore, we expect in the future a decrease in the stock price.

C – Technical analysis of Omv Petrom


two moments: the present one 20.11.2013 and the ending of May, where a modification of the




26


observed, at the ending of May, the shares of OMV PETROM were under-evaluated, following

in the next period a constant slow growth. Regarding the current period, the SMA indicator is

situated below the closing price of the stock, which means that the shares are over-evaluated. We

can predict that in the following period the stock price will decrease.



observe in the chart above, the shares of OMV PETROM were increasing at the ending of June,

the EMA being situated over the SMA indicator.


the stock price. Taking the first reference moment into consideration, we observe a broader band

area than the closing price which emphasizes a high volatility and also the correlated high risk of

the price stock along with it. Moreover, the lower margin has intersected the band resulting thus

is a sudden reversed trend, from a decreasing to an abrupt increasing one. Still, soon after, the

upper margin has also been touched by the Bollinger band line which caused again a slowly

constant decrease in the price dynamics.

4. [MACD] is a trend-following momentum indicator that shows the relationship between two

moving averages of prices. At the first reference period in May, the MACD line crossed the

trigger line from the upper to the bottom side which made the price to go down. However, the

price increased shortly after when the MACD line reversed and went crossed the trigger line

from down to up. Currently, the MACD line forecasts a future price stock decrease of the

company.

D- Technical analysis of Biofarm


two moments: the present one 30.11.2013 and the middle of May, where a modification of the



27



observed in May, the company’s shares were under-evaluated, following in the next period a

constant slow growth. Regarding the current period, the closing price is under SMA which

means that the company’s stock is under-evaluated.



observe in the chart above, the shares of BIOFARM were increasing at the middle of May (given

the higher EMA), the EMA being initially situated below the SMA indicator due to the sudden

drop.


the stock price. Taking the first reference moment into account, in May we can notice a broader

band than the closing price which emphasizes a high volatility and also the correlated high risk

of the stock price associated with it. Moreover, the bottom margin limit has intersected the band

resulting thus in a reversed trend, from a decreasing to an increasing one. Regarding the current

period, we expect an increase in the stock price since the upper limit margin has been intersected

by the band.

28

4. [RSI] generally gives an insight of the moment when stock is either over-sold or over-bought.

At the middle of May it can be noticed how the price reached lower and extreme lower limits of

30.00, subsequently over 20.00 which denotes that the price was under-evaluated and the market

over-sold. As expected, a rise in price was followed soon afterwards. Currently, the price is

under-valuated and the market is over- bought. Therefore, we expect in the future an increase in

the stock price.

III.2. Technical Analysis based on Candle Chart

Given the candle charts situation we could only analyze Biofarm and Banca Transilvania as the

other companies’ charts didn’t present as much relevant information as these ones.

A- Technical analysis of Biofarm

The technical analysis of the company is conducted on the last trimester of 2013, taking as a

reference point the month of October when a group of several speculative green candlesticks, as

illustrated in the chart above, registered a high intra-day variation in the trend.


Overall the trend presents a closely tight pressure on the stock prices, given either by the buyers’

or the sellers’ power’, that debuted in the first half of the month with an explosive increase. After

the trend reached its peak, we are met with another intensive trade session which closed with a

great amount of indecision in the market, as illustrated by the cross-shaped candlestick.

29

This candle is actually the key candle of the identified trend as it predicts a future reverse trend

to the current one. Soon after, as expected, by the end of the month, the price dropped as sellers

had little dominance on the market.

B - Technical analysis of Banca Transilvania

The technical analysis of the company is conducted on the last trimester of 2013, taking as a

reference point the end of October when a group of several speculative green candlesticks, as

illustrated in the chart above, registered a high intra-day variation in the trend.


Generally, the trend presents the sellers’ pressures in order to increase the stock price which was

met as illustrated by the long upper shadowed candlestick, with a high buyer power. Also a

green candlestick without any shadows was formed since the session resulted in the open

equaling the low and the close equaling the high.

We can claim that the long-upper shadowed candlestick is the key candle of the trend as the

sellers initially tried to push up the price, however in the end the buyer power was stronger and

resulted soon as expected in a decrease given by the red short shadowed candlestick.

30

Chapter IV - Conclusions

In what regards the technical analysis of the analyzed stocks on the short term, we have selected

only two companies out of the existing four. Namely, Biofarm and Banca Transilvania, the main

reasons for selecting only these two is the fact that both companies operate in attractive

industries and present safe investments for future stock investors of the companies. The energetic

sector for Omv Petrom and the second financial sector for Fondul Proprietatea present too many

challenges and face huge fluctuations which may attract only risk taking investors for the

companies. In what concern the fundamental analysis of the companies, investment predictions

on the long run involve different pattern thus all companies are attractive options due to the

different sectorial challenges. We have summarized below our selected companies from both

fundamental and technical analysis point of view.

In Biofarm’s case, the tendency for the turnover and net profit in the three semesters of the

current year has increased from one to the other exponentially. If we would be to extrapolate this

to the end of the year we can say that the price of the stock will increase as well, thus the

investors will find an encouraging and favorable situation for the company. The constant growth

of the company as well as a large decrease in the debts in the last trimester will be attractive to

investors. The continued increase of the return on equity also shows the attractiveness of the

shares for the investors suggesting that the company is increasing its ability to generate profit.

Comparing with the return on equity on Biofarm’s biggest competitors we deduced that Biofarm

has obtained the best profit from the pharmaceutical sector. Also the Dividend Yield is 4.42,

which shows that compared with the interest rate, investing in shares of Biofarm is as attractive

for investors as placing money in a bank deposit which suggests a safe investment. In the

pharmaceutical sector there are some issues that have effects on the company in the long term

period. In the macro-economic context, long term globalization influences the stock market: the

capital market in Romania is directly influenced by the international context which can lead to

either a positive impact on the stock market or a negative one. In the sectorial context there are

numerous threats that may hinder the stock market. The products in this sector have an inelastic

elasticity with price; companies tend to lean towards exports to relieve pressure from the national

31

market that it’s impaired by the Claw back tax that together with the slow rhythm of the sales

determined a decrease of the share value.

Furthermore we can forecast the next period of time using the technical analysis based on Line

and Candle Charts taking into consideration the present moment. As seen in the graphs, we can

say that the company’s stock is under-evaluated (because the closing price is under the Simple

Moving Average) and that the stock price will likely increase due to volatility and because the

price is under-valuated and the market over-bought. The candlestick chart is currently displaying

a positive trend given by the green candles and confirms the line chart future prediction of the

stock price.

From the financial analysis of Banca Transilvania resulted an encouraging and favorable

financial situation due to the positive tendency of the turnover and net profit in regards to the last

trimesters and the fact that the short-term debts remained constant and without a huge deviation.

The price earnings ratio and the price per book value are both considered slightly over-

evaluated, however, the dividend yield standing at 1.62 percent is not an attractive sight to

investors. Still, the return on equity has shown a positive increase (in the last semester it reached

8.02) suggesting that the company is increasing its ability to generate profit without needing as

much capital. Compared with the interest rate of 5 percent we can deduce that investing in shares

is more attractive for investors than placing money in a bank deposit. As far as it concerns the

macro-economic context, Banca Transilvania can be affected from the recent adjustment of the

monetary policy since this factor encourages investments on the capital market. This, hereby, can

represent an increased interest for the company. Furthermore, the globalization is another macro-

economic factor that can have a long term effect on the Romanian capital market as it can have a

direct influence. Thus the international context can either boost or diminish the stock market of

the company. From a sectorial point of view, the banking segment places Romania in a favorable

light, making it an attractive destination for investors. However, this context faces some

challenges such as credit risk and the strict observation of the Romanian National Bank in order

to maintain a financial stability within the market. The financial sector is thus in a permanent

adaption given the recent tendency of the banks from a fast expansion to a prudence-oriented

strategy, given their modification of the branch networks, maintenance of capital adequacy at

comfortable levels and the new credit cards which the banks adjusted in order to cope with the

32

rapid changes in the market. From a sectorial point of view, the banking segment places

Romania in a favorable light, making it an attractive destination for investors. However, this

context faces some challenges such as credit risk and the strict observation of the Romanian

National Bank in order to maintain a financial stability within the market. The financial sector is

thus in a permanent adaption given the recent tendency of the banks from a fast expansion to a

prudence-oriented strategy, given their modification of the branch networks, maintenance of

capital adequacy at comfortable levels and the new credit cards which the banks adjusted in

order to cope with the rapid changes in the market.

In what regards the future periods, we can notice from the technical analysis of the different

indicators that the company’s stock is over-evaluated (given that the closing price being above

the Simple Moving Average line) the price is under-valuated and the market is over- bought

(Bollinger Bands and RSI). Therefore, we expect in the future an increase in the stock price. The

candlestick chart is currently displaying a positive trend given by the green candles and confirms

the line chart future prediction of the stock price.

Chapter V – References

www.bvb.ro www.tradeville.ro www.ktd.ro www.onlinebroker.ro www.zf.ro

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http://www.zf.ro/

http://www.onlinebroker.ro/

http://www.ktd.ro/

http://www.tradeville.ro/

http://www.bvb.ro/

bucharest stock exchange case study

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