ECONOMY

Rocky road for construction stocks may be paved in gold

Construction stocks are considered by most market professionals to have the most interesting prospects for 2002. Market analysts and institutional portfolio managers claim that the many infrastructure projects under way, the acceleration of the construction of Olympic-related projects and the trend toward further concentration in the sector will be beneficial to the companies and investors. Moreover, the European Union’s Third Community Support Framework (2000-2006) earmarks enormous sums for construction projects and undoubtedly provides a boost to the sector. The first welcome signs of recovery were apparent in 2001. Most companies have ended the year with a considerable increase in turnover and profits. This increase is expected to continue, and even accelerate, during 2002. Company partnerships, with a view to creating strong and competitive groups, increase expectations further. Diversification into new activities, such as real-estate development and energy production, although to an extent overhyped, can, under certain conditions, provide considerable profits to companies with a careful and well-planned approach. The fact that, despite the continued misery prevailing on the Athens Stock Exchange (ASE) in the early days of the year, the vast majority of the 36 listed construction firms showed healthy profits, is an indicator of the expectations for the sector. Only three stocks have registered small losses during the first sessions of 2002; 17 have gained over 10 percent. But certain analysts claim that, even if the special conditions prevailing in Greece are taken into account, local construction firms remain overvalued. At the same time, there is an overall luck of suppleness in the companies’ business moves. Moves toward further mergers and partnerships that began in 1999, for example, have still not been completed and many firms have not yet decided how to proceed. Moreover, and despite any moves made toward concentration, Greek technical firms are still very small compared to their European counterparts. But it is a matter of general agreement that there is only a narrow margin of opportunity. If construction firms do not take advantage of it to become more competitive in an extremely competitive European environment, the future for most of them will dogged by uncertainty. A checkered history Until the end of 1993, the sector was very thinly represented on ASE. The only two listed companies were Michaniki and Vioter. Then, AEGEK and Actor were added, opening the floodgates. No other companies were welcomed with so much fanfare on ASE than construction companies. It would be no exaggeration to say that the sector was seen as a sort of Greek El Dorado. The big public projects, the EU funds available, Athens’s candidacy for and subsequent winning of the 2004 Olympic Games, and the promised diversification into complementary activities created a mythical picture of construction companies’ prospects. Market expectations received their first blow when company results showed a dramatic divergence from the glowing reports in their listing prospectuses. This divergence was a shock to investors and market professionals alike. Despite this, the sector continued to be central to investors. The public projects provided the rationale behind this continued interest. The decisive blow was probably struck in 1996, when construction companies failed to comply on time with a law requiring that all shares in these companies be registered in the name of the holder. The measure was aimed at providing more transparency for the ownership status of the companies, given the extent of their involvement in public projects. The owners’ failure to comply promptly led to the suspension of the whole sector from trading for almost a month. This suspension devalued the sector in the mind of investors, who lost faith in the dealings around construction companies and brought them down to the level of those speculative stocks used for quick gains. As if this blow were not enough, the case of the Flisvos Casino exacerbated matters. The decision by the government, in 1995, to award the building and operation of the casino in the seaside suburb of Palaio Faliron and the subsequent cancellation of the project gave rise to massive speculation on the ASE and further increased suspicion about the dealings of construction companies with the State. Firms such as Ergas, Technodomi and the formerly dominant ATEMKE-Parnassos group were brought to the edge of bankruptcy. The fact that these companies were artificially kept alive supposedly in order to avoid hurting the credibility of the sector is one of Greece’s worst-kept secrets. After 1996, the sector went through a period of neglect by investors and deep skepticism on the part of analysts. Having found themselves in this situation, contractors gradually began to take some initiatives to extract themselves from the morass. One of the first such initiatives was an unofficial agreement among construction companies to end the practice of offering unrealistically big discounts for public projects in order to win tenders. Another step was made through mergers and acquisitions. Hellenic Technodomiki began this by buying out TEV; it was followed by the GEK-Terna merger. The biggest move, so far, has been the Hellenic Technodomiki-Actor partnership cemented in the spring of 1999, a move whose repercussions are being felt even today. What the authorities believe