Undervalued shares offer opportunities for investors

The Athens Stock Exchange’s spring rally, which has continued into the summer, may have changed valuations significantly, thus helping several stocks of dubious quality. But about a third of active stocks are still undervalued. To determine whether a stock is fairly valued or not, market experts use the valuation index, which divides the price per share by a company’s book value. It is often referred to, in shorthand, as «the P/BV index.» The P/BV index shows that, despite the great rise since April 1, valuations of shares remain attractive in many cases. Indeed, if we add up the undervalued companies with those that are fairly valued, we end up with some 200 stocks out of the 370-odd traded each day. Of course, the rise, more than 30 percent in three-and-a-half months, has led to excesses, increasing the value of companies which have shown no significant new activity, or, in some cases, no activity at all to justify having doubled or tripled in value during such a short period. Many managers of institutional portfolios point at the dangers of excessive valuations. There is even talk of a new «bubble market» as in 1999 and of investors in danger of being stuck with shares they bought at high prices. On the other hand, managers also point to the great number of shares with attractive prices. They underline that the P/BV index is a fairly effective «filter» separating undervalued from overvalued stocks. However, investors should refrain from using the ratio of capitalization to equity to blindly make decisions. There are cases where very low valuation, even well below book value, is the result of the problems faced by several listed companies. Markets in this way often punish companies thought to be in financial difficulties or with no visible bright prospects or whose management is considered under par. Investors should pay special attention to the small print in financial statements. Often remarks by accountants give a picture of the company directly opposite to the one presented by financial results. The introduction of International Accounting Standards – obligatory for listed companies beginning in 2004 – will eliminate a great deal of the need to look at the small print, because it will present a more accurate picture of the companies. Some of the most unwanted shares – in terms of low quality, although sometimes they trade in surprisingly high volumes – on the Athens Stock Exchange are low-valuation firms, such as Xifias Fisheries, Seafarm Ionian, Plias, Keranis, Stabilton, Intersat, Ergas, Minoan Lines, ANEK, NEL, Datamedia, Parnassos and Technodomi. Other companies with a low P/BV rate are hidden gems: companies with a healthy amount of capital whose share prices remain at low levels. These include listed companies such as Lavipharm, EGEK, GEK, the Athens Water Company, Albio, Michaniki, Edrasi-Psallidas, Sarantis, Naoussa Spinning Mills, Altec, Delta Holdings, Pantechniki, Elval, Mytilineos, Pouliadis, Alpha Leasing, the Thessaloniki Port Authority, Petrola, Hellenic Stock Exchanges, the Public Power Corporation, Kathimerini and Themeliodomi. On the other hand, over 100 stocks are being traded at levels double their book value. These include, among others, Mouriades, Dionic, PC Systems, Intracom Construction, Creta Farm, Allatini Ceramics, Karelias, Unibrain, LogicData, Space Hellas, Ethniki Real Estate, Kanakis, Iktinos, Nikos Gallis, Compucon, Rainbow, Euroconsultants and Multirama.