Citigroup sees rosy prospects for Greek construction firms

Citigroup has made highly positive valuations for listed Greek construction companies, seeing buying opportunities for investors at the launch of its coverage of the sector. In particular, it gives «buy» recommendations for Hellenic Technodomiki, Michaniki, J&P Avax and GEK, and a «hold» recommendation for Terna. According to Citigroup analysts, the Greek construction market is in the process of exiting the recession that marked the post-Olympics period and is projected to grow at an average annual rate of 4 percent from 2006-2009. In particular, the public works sector is seen as growing at a pace of 9 percent annually. Besides the recovery in the volume of construction, Citigroup sees three other factors as contributing to the attractiveness of the five listed companies. First, they have a particularly high backlog of signed contracts to execute, totaling 4.5 times their 2006 turnover, against a European average of 2.5 times. Secondly, the seven large projects planned on the basis of public/private partnerships (PPI), budgeted at a total of 8 billion euros, also boost their prospects. These are scheduled to be completed in the 2013-2015 period. Thirdly, the valuations of the five listed companies are considered attractive in relation to their other European competitors. However, their low price/earnings (P/E) may be partly explained by the pressure on profit margins (which were a multiple of the European average until recently). Hellenic Technodomiki is considered the most attractive share of the five, as Citigroup’s analysts giving credence to buyout scenarios of smaller operators, such as Pantechniki and Attikat. Such rumors, however, have been circulating for some years now. According to the report, among the pluses of Greece’s largest construction group is the fact that it has developed important activity in related sectors, such as real estate, waste management and energy. They give a price target of 10.60 euros. Michaniki’s prospects are seen to be bolstered by a significant rise in the backlog of signed contracts (from 42 million euros a year ago to about 500 million at the end of 2006), and by its presence in the real estate markets of Ukraine and Russia. Citigroup gives a price target of 5.25 euros for Michaniki’s common stock. J&P Avax and GEK are given price targets of 7.26 and 9.38 euros respectively.

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