Seems like I’ve got some pretty important readers here. Some like me, some hate me, and some follow my advice. It seems that just one day after I announced a shift from the USA to Europe due to ECB new policies, one pretty important investor read my blog and decided to copy my advice 🙂



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.



End of year results

By now most companies on the Zagreb Stock Exchange have published their yearly results for 2014, and here I will give my opinion on the results of the companies that I have or that I find interesting. So here we go, in no particular order. This list will likely be updated as new ones come about.

1. ZVZD – A pretty good report that reduced this stock’s P/E ratio to about 13. Considering the fact that the stock is still selling for 0.3BV and that cash itself makes up around 50% of the market value, this is as strong buy as any. There is a downside, however, and it’s related to the fact that it’s a part of the larger Agrokor concern. I believe that’s what’s behind their pretty wild cash flows, since Agrokor needed a lot of money to buy the Slovenian grocery chain Mercator. Still, the stock is pretty much as solid as ever, and not much is different from 2007 when it was going for approximately 8 times the current price.

2. KOES – It seems that nobody really cares about this stock aside from me and the current owners, but it is basically the same story as with ZVZD. P/E below 10, P/B and P/S around 0.3 make this company seriously undervalued. As it has happened with another company, ZVCV, KOES also made a deal with TESCO regarding the placement of their products on foreign grocery store shelves. Unlike ZVCV, however, this stock isn’t as loudly represented in the blogosphere, and as a consequence it seems that nobody even noticed that fact. Still, one day or another someone will notice, and the company price is unlikely to linger this low when that happens. Although the company is withdrawing from the CEFTA countries because of its EU membership, the same event caused its sales to grow significantly in many EU markets such as Poland. The net result is still somewhat lower sales, but the profitability is finally up, and it is likely to expect that sales will ultimately surpass those of the pre-EU era.

3. SNBA – the end result is more or less neutral. Although there is some marginal profitability at the end of the year, it pretty much amounts to 0. What is important, however, and what has nothing to do with the annual reports, is that the company won a hugely important lawsuit yesterday, in which another bank from Serbia, Jugobanka, demanded a hefty amount of money from SNBA. With that lawsuit out of the way, SNBA seems to be a really underappreciated stock with cash/share ratio of 75% and P/B value of less than 0.2. Their real estate alone is likely to be valued higher than the whole company.

4. VPIK – Still a cheap company, but with bad results. It is still in the process of restructuring though, and if history is any guide, Mr Todoric who now owns the company (as well as ZVZD) will most likely bring it up to par with the rest of his Agrokor portfolio.

5. DDJH – Horrible results, as I have expected. Half the money gained through recapitalization 3 months ago is already lost, and to make the matters worse, the state is now the majority owner. If this company loses the APC job, it will go bankrupt within days. If it wins, it will linger on with zero profitability for a year or so and go bankrupt then. What’s even more concerning is the fact that all avalilable cash has been transfered from DDJH (holding) to DDJ SV (special vehicles). I’m not quite sure what to make of this, but it may be that the government is trying to save what’s worth (DDJ SV) by sacking DDJH. In other words, DDJH will go bankrupt, and the creditors will get their appropriate shares in the DDJ SV. DDJH shareholders will lose all their money, but the banks will be partially compensated by gaining ownership of the new company. It will also be a way to privatize it, since no one in his right mind would give any money to buy the current DDJH stock. A bankrupcy, on the other hand, will force the banks to become owners. Keep in mind that this is just one of the many possible scenarios, but it’s one that would explain many things.

6. PTKM – A bad stock with bad results. Not much else to say here. I warned of this stock when it was over 300, and when many bloggers who are way more popular than me implied that it could go to 900. Well, it didn’t go to 900. It didn’t stay at 300. It’s 15 or something like that. Close enough to 0 that I don’t really care, it’s as good as bankrupt.

7. RIVP – Hey guess what? Count Eltz doesn’t really want to share his profits with anyone. So even though the hotel business is hugely profitable for him, it’s not really that profitable for the other shareholders. Whichever way he thought of to suck the money out of the company for himself is working, and I’m doubtful the company will ever post huge profitability, meaning that the shareholders are unlikely to ever get a significant dividend. I may be wrong on this one, but that’s the way I see it.

8. SAPN – The story here is similar to KOES (it’s also owned by the same Mepas group), but the debt level is higher at 220%. Still, it’s an undervalued company with decent results.

9. BLKL – I just recently found about this stock. Although I read about it on the same blog that used to root for DDJH and PTKM, the stock seems pretty cheap and profitable by all means. It’s basically in the same category as KOES.

10. RIZO – I don’t really follow the stock that much, except for one time I wrote about it when the price skyrocketed because of media attention. However, it seems to be a fundamentally good stock. One thing to worry about, however, is the fact that there’s a big lawsuit against the company organized by former workers for allegedly unjust layoffs. The amount of money they ask is quite large, so if that lawsuit succeeds, the company might end up in big trouble.

11. KOKA – Just copy and paste whatever I said for KOES here. Fundamentally, these two companies are almost exact equals.

South East Europe and ECB balance sheet

There’s one chart that stuck to my mind last year, and it’s this one:


Such a high degree of correlation is unlikely to happen by accident. What I believe we see here is that pretty much all the money that has been printed by FED has basically gone into stocks. What does that mean for the EU?

Well, first of all, the EU markets and ECB balance sheet don’t share nearly the same correlation. But then again, this correlation in the USA appeared only after the QE has been put in place. It will be interesting to see whether the current ECB balance sheet increase is about to show the same correlation. Whatever the case, ECB is about to increase its own balance sheet from the current approx. 2 trillion by 1 more trillion in the next year. Considering that this intervention is focused solely on revamping the markets, I believe it is possible that a lot of that money will ultimately flow into real economy, and ultimately into stocks, mimicking the S&P/FED correlation.

More importantly, if it doesn’t happen now, it will happen in the future. The ECB will most likely keep printing money until the economy finally picks up, whenever that may be and they’ll do, as Mario Draghi has said, whatever it takes.

Here it is interesting to see how that comment correlates with Italian stock market, as well as what happened now that the actual money printing program has been put into place:


Here I’m using the EWI Italy index fund. As we can see, when M. Draghi made his first comment, the market rose by almost 80%, based on the money printing expectation alone (falling afterwards to almost where it started after printing showed late to come about). Now that the printing has finally taken place, I think it is to be expected that the market may go up by a significant amount. And not just in Italy, but in whole of battered southern Europe.

What’s the easiest way to invest in the southern Europe? I believe the simplest way is to buy the index funds of the countries that seem interesting. On the NYSE, those are EWI for Italy, EWP for Spain, and PGAL for Portugal. What is really interesting about these funds is that their average P/E is somewhere around 6, which is pretty difficult to find elsewhere. There is also GREK for Greece, but that country is a basket case, and may well be used by Germany as an example to the other countries of what will happen if they disobey. Technically, their market in Greece is near its ATL, but may still fall by 30 or so percent before it finally reaches bottom. Considering the uncertainty of the country’s future regarding their stay in the eurozone, it is one of the countries that I personally would avoid.

Croatia, unfortunately, doesn’t have it’s index fund traded on the NYSE yet, but there is a local index fund called “OTP Indeksni” available at So although there may be some additional overhead for foreign investors, it is really not impossible to invest into that fund as well.

What has all this to do with Croatia, you may say? Well, being on the outskirts of the EU and the eurozone, and with economy not unlike that of Italy, Portugal, and Spain, I believe it is likely that whatever happens in those countries will happen in Croatia as well. Maybe there will be a slight delay, but money will likely pour into this market as well.


I think I’ve been wrong about this stock every single time, whether it was up or down, so a smart reader by now probably knows to do exactly the opposite of what I might suggest.

Still, let’s see what I can come upo wtih this time…


What’s most important here is a strong resistance band between approx. 32 and 45kn. I think the stock will have serious trouble penetrating through this zone. The final, 5th wave of the fall looks as it might yet be incomplete, which means downside risks have not disappeared.

For this stock to truly show a change of trend, it should form a W and break through the 52kn mark, which would set the target somewhere in the 60, or even 90 zone. Although the target is pretty high, a strong fundamental change such as the new APC production in UAE is a significant enough event to create such a jump.

Fundamentally, however, this company is still crap. Even such a big job is unlikely to result in any significant profitability, and once the production ceases the company will be back where it once was. Except that the percentage owned by the state has actually grown, so the long term profitability is likely to decrease even further. Still, a large short term gain is possible even when trading fundamentally bad companies, so the possibility should not be discarded. Anyway, one should keep an eye out for both scenarios, since they both have a realistic chance of occurrence.


It seems the stock has finished its H&S pattern, and is likely to resume an uptrend. There’s really not that much new info to share, but three things stand out. First of all, there’s the technical picture:


There are several things we can see here. The H&S pattern is complete, and although it went further than the first resistance zone at 5.50, it was stopped at 5.00 and quickly rebounded back. This is most likely the final phase of the 5-3 growth wave, which means a continuation of the uptrend is most likely.

Second thing that stands out is the last month’s financial report, which is quite good. Revenues are up slightly, and profits are up significantly. This is exactly what I’ve been talking about, a firm with a very low P/S ratio needs only a tiny increase in profitability for a drastic increase in P/E.

Finally, there’s the Russian crisis. I think it’s overblown. Yes, Russia is an important market for Gorenje, and this will likely decrease the profits and the revenues in the near future. However, I don’t think it will be nearly as significant an event as most people seemed to think when they were selling rubles for 70$. At worst, we’ll be back in the high sales / low profit zone for a few quarters. Considering how the stock is priced, it’s really not a singificant cause for concern.

However, if the situation seriously deteriorates and the stock bottoms out below 5.0 (which is possible however unlikely), the next downward target is the super heavy 4.0 to 4.5 resistance zone.