What’s new? As more and more Investors are asking about the work done so far by loan servicers on Greek NPEs, managed either on behalf of the banks or on behalf of third parties, we are compiling all available performance data in this note. The numbers available are not always straightforward or sequentially comparable. The primary source is Bank of Greece.
Although the bulk of NPEs do not belong to banks anymore, the issue remains important because a) banks have kept senior notes from NPEs securitized on their balance sheets; b) the sovereign and its debt are on the hook for those senior notes because they are guaranteed by the state under the ‘Hercules’ scheme; c) cured NPEs could find their way back to banks’ balance sheets (if regulators/authorities approve) and from there to cash NII.
Market Snapshot & Conclusions. Our main findings are outlined below…

In this note we outline the investment summaries of all Greek names we cover. We start off with a few points on macro and politics and our OI rated names, highlighting any changes compared to our previous assessment in June 2022.

Inflation, inflation, inflation
Real GDP grew by +7.8% yoy in H1 reflecting strong domestic demand (+9.5% yoy) and rebounding tourism (beating record 2019), while the inflation rate ran +12% yoy in the 12 months to September, pushing nominal GDP even higher at +16.9% yoy. This is important because it dilutes the public debt/GDP ratio (from 199% in 2021 to 170% in 2023, IMF), without increasing the financing needs of the sovereign (1.5% GDP annual), as most of the sovereign debt is fixed at low rates (76% owed to official creditors), and it allows the government to spend both during the pandemic (20% of GDP) and the energy crisis (2% of GDP).

The catalysts for 2023 include GDP growth staying in positive territory, winning back investment grade and to avoid a political turmoil from scheduled elections. This is our base case scenario for Greece. However, we cannot escape our conservative disposition. Therefore, we keep a single OI rating among GR banks (NBG) while upgrading Bank of Cyprus to OI. We stick to our OIs on OPAP (dividend yield), PPC (renewables), Motor Oil (renewables) and Jumbo (valuation).
OTE looks more attractive below E16/share and the same goes for Hellenic Exchanges below E3/share, which we consider to be a proxy for the banks, assuming you can afford to invest in a such low market cap name. We urge readers to ignore any sirens singing ‘everything is a buy’ in Greece. We believe the day of reckoning is here and fundamentals play the key role. Our GR universe (x-banks) trades 6x EBITDA and 10x earnings 2023 while on a dividend yield of 5%. These multiples are cheaper than four months ago (6.7x EBITDA and 10.9x earnings) thanks -mainly- to the market de-rating.

What’s new? Motor Oil and Hellenic Petroleum reported astonishingly strong Q2 results, with their adjusted EBITDA at E500m (each) and free cash flow at E300m (MOH) to E500m (Hellenic). The outstanding performance is attributed to the remarkable refining margins recorded in Q2 ($22/bbl for MOH and $26/bbl for Hellenic), driven by solid demand, the short squeeze caused by sanctions to Russian oil products, and the stronger dollar vs the euro. Increased contribution from power and gas segments was quite notable.
Nevertheless, investors should not expect big, special, dividends out of 2022 refining earnings. Hellenic will be paying 50% of the proceeds coming from the sale of DEPA Infrastructure (completed today) but will not be sharing its record refining earnings. Both companies want to deleverage their balance sheets and invest in renewables, which is the sector chosen to diversify away from refining.
We expect renewables to be the differentiating factor once the refining outlook normalizes. For this reason and because of MOH’s leaner structure, better cash flow management, naphtha reformer economics, and more attractive valuation, we rate MOH with an OI and (continue to) prefer it over Hellenic (DOI).

What’s new? Greek Banks have reported Q2 results and have -finally- published their IFRS reports. In this note we summarize the most notable points. Banks trade at 0.46x TBV 2022 on our estimates. Next year is less predictable and banks are not providing any guidance whatsoever. What should investors do? If you are relaxed about 2023 go with NBG and Piraeus Bank. If, like us, you prefer to be on the safe side, stick with NBG.
Conclusion. Just when banks have brought down NPE ratios to single-digit levels (securitizations), can afford to lend (RWA/capital wise) and are looking more and more like banks again…stagflation/macro/energy crises overhang is weighing down on their valuation, preventing their P/TBV from re-rating.
We are keeping only NBG with an OI rating thanks to its high coverage/high FL CET1. If stagflation concerns abate, NPEs prove manageable and NII goes up on higher interest rates, you should also consider Piraeus and Bank of Cyprus, which offer the biggest risk-reward upside under such a scenario. Eurobank and Alpha have further upside from current levels, but not big enough to compensate investors for the risk involved, in our view.

What’s new? Inspired by IMF’s recent blog, that places Greece among the 5 least affected EU countries from a full Russian gas cutoff, we outline our thoughts and arguments below as to why Greece is probably a better investment case than what is implied by the energy crisis, inflation- recession fears, and the ongoing impact from the pandemic.

Conclusion. Our base case scenario is that a) Greece can avoid a recession in 2023-2024 even if the war in Ukraine continues beyond 2022 and Russia cuts off the gas supply to Europe entirely; b) Greek banks should be net gainers from higher interest rates; c) ECB will continue to support the sovereign, lifting its chances to earn investment grade rating and d) New Democracy will win the elections whenever these take place (early or on time).

OI picks plus DOI picks at lower prices. In this context, we recommend investors own NBG, Alpha, OPAP, PPC, Jumbo and Motor Oil (our OI rated names) and consider OTE and Hellenic Exchanges below E16.0/share and E3.0/share respectively. We also reiterate our suggestions, flagged in our mid-year strategy update on June 2022 (‘War on Equities’), to switch from TEN (post M&A) and MYT to MOH and PPC; from ELPE to MOH; and from SAR and Fourlis to Jumbo.