I haven’t written in a long time because, really, there wasn’t much to write about. One thing I’ve learned, though, is that prolonged periods of boredom are often followed by pretty wild turmoil.

What caught my eye is the following chart here:


It’s a picture of Crobex dating all the way back to 1998. What is quite stunning is that there is a support line that has been holding steady ever since then. We’ve hit that trend line once again, which means that some pretty wild swings could be up ahead. My opinion is that it is more likely to go up than down, because of two things. First is the EU QE which is likely to increase even further. The second is the fact that Croatia is slowly moving out of the recession phase.

Now, although I’m not a great fan of the economy’s overall health, EU and USA’s as well as Croatia’s, but we have already seen what massive amount of printed money can do to the stock market. My prediction is that similar thing will happen in the EU, and Croatia as well.

Alternatively, the index could actually penetrate the support in case Greece talks fail and all hell breaks loose. But as things stand now, it looks as if the deal will be reached.


Although this company is horribly managed, there is a substantial possibility that they may win an APC contract in the UAE. What would it mean for the stock? The chart is here


As we can see, there is a potential W forming, which is usually a very bullish pattern. However, patterns generally mean nothing until they’re complete, so what we see here is only what may happen. In case the company does get the contract, it is likely either to rise to the pattern resistance, or to break through it. The pattern resistance is at 55, which means that it’s also the first target should the company get the job. If it does, and if it breaks through, the second resistance is at 70. The job is by no means certain, however, so the bad case scenario puts the target at 20. And, consequentially, 0, considering the fundamentals of the stock.

Whatever you do here, it’s a risky gamble. Even if the company gets the job, it is still unclear whether the job will raise the price to 55 and get stuck there, or whether the stock will rise to that level beforehand and shoot up to 70 if the deal gets done. The only way to play this safely is if the stock breaks through and closes over 55 after the deal gets announced, but still far enough from 70 to make it a worthwhile investment. It is unlikely the stock will break through 70 to the next level, 90, because of strong overhead resistance and horrible fundamentals. It is much likelier to bounce back, if 70 is ever reached in the first place.


How high can it go? Pretty high, I dare say.

As I mentioned in my previous post, this bank won a significant lawsuit which severely threatened its assets. With that lawsuit out of the way, it is to be expected it will ultimately end up priced comparable to other Croatian banks. So how exactly are those banks priced?

Let’s take 3 most important parameters, P/S, E/P, and P/B. I will not include banks that are insolvent, near bankruptcy, or have incomplete financial information available. I am also using E/P instead of P/E because it’s much easier to calculate the average. Whoever invented the inverse nomenclature such as P/E is, in my humble opinion, an idiot.

Bank P/S E/P P/B
BPBA 1.4 0.075188 0.7
IKBA 1 0.084034 0.6
JDBA 0.9 -0.66667 0.6
KABA 1.4 0.038462 1.1
KBZ 0.7 0.11236 0.6
PBZ 2.3 0.084746 0.8
PDBA 0.7 0.017668 0.4
SDBA 1 0.106383 0.6
ZABA 1.4 0.095238 0.6
Average 1.2 -0.00584 0.666667

So how is SNBA compared to the average?

SNBA 0.5 0.005814 0.3

One obvious outlier here is JDBA. If we’d exclude them, the average E/P would be 0.076. Let’s therefore say that P/E (or E/P) is about average. How about other two parameters? P/S and P/B are almost twice as low as those of other banks. I believe it is safe to say that the bank is still severely undervalued. What would be the fundamental target price then? Probably a bit lower than the average would suggest, considering the fact it’s one of the smaller banks out there and the one that didn’t generate too much profit this year. All things considered, I would put the fair value of the bank somewhere around P/B of 0.6 and P/S of 1, perhaps a bit lower because of the profitability issue. That gives the target price of somewhere near 100, which is still quite a way to go from the current 60-something.

Technically speaking, there is unfortunately not much to see. But there are three resistance levels, at 70, 90, and 100. Any of these levels may prove as resistance lines. Personally, I would expect a small pause at 70, after which the levels of 90 and 100 will be tested. It would also result in a nice 5 way rising formation, and align neatly with the fundamental target.



USA on the downturn?

I believe the growth period in the US is about to end. There are two primary reasons for that – positive media frenzy on one hand, and ominous looking patterns on the other. So let’s go about the first one.

Whenever media gets crazy about investing, that means the cycle is about to end. I’ve seen many overly optimistic news stories in the last few days, as well as an occasional one warning of an imminent crash. Overall, I believe that such a combination is indicative of a downturn.

The second one is, of course, technical. But it’s composed of many different signals which all point to the same thing. They are, in no specific order, a very long growth phase, broadening top, and bearish divergence.


Now, even though the market may continue upward still, I believe the chances of it really doing so are slim. And this is precisely the reason why I believe investing in Croatian market is currently a better idea. It has never made as strong a recovery, and consequentially the stocks are much cheaper. Now, while it is true that a renewed global recession may bring it down even further, culminating in a double bottom from 2009, I don’t consider that to be the most likely scenario. The first reason for that is the fact that Croatian citizens have stored vast amounts of cash which is about to get taxed. The second reason is the fact that mutual and retirement funds are too heavy on bonds, which means that they are likely  to rearrange their portfolios as soon as they see the market starting to rise. Finally, even if the market does make a W (quite possible in case of state bankruptcy), I think it is likely to rebound soon. The reason for that is the fact that many of the stocks are quite cheap already, so it’s simply hard to believe they’ll go even cheaper and stay that way forever. Yes, some companies may falter and go bankrupt, such as the ones I’ve mentioned on occasion, but others are unlikely to experience any sort of downturn. ZVZD is, again, a great example of such a stock. It’s basically making its money on low cost food items, and those are basically the epitome of inflexible demand. Yes, the margins may suffer and the profitability may go to zero, but it’s just extremely unlikely that such a company will go bankrupt even in the worst case scenario.

So to make long story short, I believe the US market is ripe for selling, which means investors will need to find new business opportunities. And Croatian market may just be one of them.


Good and bad picks

Unlike PTKM which I mentioned earlier, ZVZD did ok on the last quarterly report. Not good, not bad, but ok. Which is exactly what I expected. Although there are some balance sheet adjustments which lowered the cash to equity ratio somewhat, the overall business seems to be going along just fine. While it would be naive to expect a sudden increase in demand for edible oils (though biodiesel may actually change that in the near future), it would also be silly to expect a significant slowdown in sales as well. Like I’ve already said, this stock is something like buying a bond or a chunk of gold at 1/3 of the actual price. It won’t bring you much in terms of dividend yield, but sooner or later you’ll be able to sell it for more than you paid for it. Especially if it grabs a chunk of biodiesel industry one day, but that option is currently on a pretty long stick.

LPLH also did fairly well, which was to be expected considering a good tourist season. However, I believe income sheets will be negative all the way up to next summer, since the company is still in the process of transition from shipping to tourism. Ultimately, I do believe the company has strong potential, but I also expect a few more bumpy years to come.

DDJH report didn’t come in yet, but I’ll go out on a limb here and say I expect the results to be similar to PTKM with somewhat equivalent price target. It’s just a badly run company which doesn’t seem to be able to do anything other than piling up debt.


This is a stock that used to show great potential back in 2007. However, years of state corporate mismanagement have made it an utterly horrible investment. Although a significant (for Croatian terms) activist investor bought the stake in the company, it seems that he hasn’t been capable of creating a turnaround, which is not surprising as the state still controls more than 50% of what’s left of the company.

The reason why I’m writing about this stock is twofold, but it is most certainly not going to be a buying recommendation. This is the stock that has been trumpeted for years as a magnificent investment, especially by the aforementioned activist, and I must admit that even I bought the story for a short period of time. The first reason is basically an illustrative example of how TA helped me identify the growth phase as well as avoid the crash in the midst of a flurry of optimism. My old readers know that they were not post hoc conclusions, but things I managed to identify in advance. The second is a nice pattern that formed afterwards which suggests some pretty gruesome targets.


There are quite a few things we can see on this chart. First of all, we can see a rising wedge (blue) from 2009 to 2012 which had a significant breakout with almost doubling in price. What we can also see, however, is that the peak resistance of 360 showed to be a strong barrier that wasn’t breached (except for one or two intraday trades). Now, remember, this was a time when the activist investor (I’m intentionally avoiding his name because I don’t want personal conflict, but everyone knows who he is) constantly implied the value of around 900kn between the lines, based on several year old market data. I believe it wasn’t an unintentional mistake, because when I warned of the drastic price fall in the fertilizer price and the resulting price mismatch, he erased my comments and banned me from commenting on his blog. Whether that was wishful thinking or price manipulation, I don’t really know or care, but in retrospect it was actually good thing, as it was one of the reasons that caused me to think more with my own head and focus on a blog of my own.

Anyway, what happened afterwards was something I warned of, and something not many people in the optimist crowd realized. Basically, the stock broke two supporting trendlines (the wedge trendline and another one colored green) and stared a dramatic downfall. Fundamentally, the fall was more than justified, as it turned out the company earnings were horrible without any realistic chance of improvement.

What’s nice about this whole situation is that we can see two totally different mechanisms (media hype and fundamental weakness) appearing in the charts one after another. The company wasn’t really that much better in 2011 than it was in 2012, but the hype made it seem so. If an investor went by fundamentals only, he’d never be able to gain on the initial price growth. If he based his actions on media hype and activist writing, he’d lose a pretty significant sum of money. TA is a great tool that helps us pinpoint when the change between the two trends might occur.

That being said, what’s the future of the stock in mention? Not too good I’m afraid. What we can see is a huge double top, starting its way all the way back in 2004 and lasting whole 10 years. This year it briefly stuck at the 60kn mark, which was the formation resistance line. After the resistance was breached, there was really no other way to go but down. Now, even though the target price of such a top looks to be somewhere between zero and a number too small to measure, I believe the line at the 15kn mark could be an interesting support point.

I do not believe the company has any serious chance of making it if it were left to market devices only, but since the state holds a significant share, I think it is likely that it may step in at one point and make yet another bailout (I believe it would be the third in the last few years). Now, if it manages to pack that with a company sale, I believe the investors who buy at slightly above 15 may stand to gain a significant profit, depending on the terms of the sales agreement. On the other hand, if the terms are unfavorable or if no buyers show up, it may as well go down to 0.

The fundamentals can be seen here , and they’re downright horrible. I won’t even bother with translation, because numbers speak for themselves. Just one hint – red is bad.

GRVG momentum building up

I’m not sure whether this analysis is influenced by my writings, or whether it’s a case of “great minds think alike” scenario. Whichever the case, the authors of a renowned investment firm seem to share the same sentiment about Gorenje as I do. This is highly relevant, as it indicates that the stock in question seems to be coming into investor focus. Such events are important for stocks and markets with low liquidity, as they can generate strong buying pressure and push the price high. Or in other words, they generate price discovery by “unlocking underlying value” (I hate to use such a trashy term but I believe it really does happen on occasion, such as this one). After bouncing off the 6.00 line (the second resistance level, after the 6.50 I mentioned was breached), it looks like it may well be on the uptrend. Anyway, without further ado, I’ll post a screenshot of the first two pages of the review. The rest is pretty much what I already said, although I have to give credit to the author as it is explained in more detail than I ever bothered (though he is getting paid for it 🙂 ). Should anyone require the complete analysis, I suggest contacting the company to see whether it’s public data or available for purchase. Whatever the case, the expected P/E ratio of 4, supported by positive cash flow, is something that should most certainly be taken into consideration.

Just remember, you saw it here first!