SOFIX rises to 9-year high and expands valuation 20% q/q

Bulgarian Stock Exchange

Bulgarian Stock Exchange

SOFIX P/E valuation expands 20% q/q to 11.6x earnings in Q2 2017, according to Bloomberg data. Valuation remains unchanged y/y as stock valuations advance with corporate fundamentals. Current
SOFIX P/E is only slightly above its 12M moving average signaling room for further expansion.

The index booked fourth consecutive daily rise on 10 August 2017 to 929.22 points, up 1.27% for the week so far. This is a new 9 year high. SOFIX went up 58.7% y/y on strong fundamentals.

Room for more for SOFIX

Yet the index remains at more attractive valuations vs peers with a P/E below 12x earnings vs 18x P/E for regional and world peers, according to Bloomberg estimates.

Over the past few months, however, SOFIX managed to outperform its frontier peers and currently trades at higher valuations compared to this part of the investment universe.

However, SOFIX is well below its 2007 all-time high of 1 934 points but has almost tripled from its 2009 low of 264 points.

Improvements in local capital market conditions

Sofia bourse bright days have been building up also on a consistent policy for improvements led by the regulator, bourse operator and other local institutions as well as with the strong commitment of the local investment community represented by brokers, funds, etc. The first comprehensive strategy for Bulgarian capital market improvement was designed and started implementation in the fall of 2016. It included a series of measures to reduce red tape and burdens to SMEs and other business that would like to raise capital from the market, as well as introduction of a lot of new financial instruments to be traded.

Easier access to capital market for SMEs

Changes in Public Offering of Securities Act came into force as of 1 August 2017. The legislative changes introduced new opportunities for SMEs to use the Bulgarian capital market as a source of funding. SMEs that would like to raise capital up to EUR 1 mln. on the Bulgarian Stock Exchange will not prepare the usual complicated prospectus but they can apply to the regulator via an easier procedure. On the other hand, via changes in the Commercial Act, start-ups will be allowed to look for funding on the Bulgarian Stock Exchange.

Bulgarian Ministry of Economy is also preparing a new grant scheme to motivate SMEs to get listed on the stock market. There will be vouchers of BGN 100 000 per company that will be launched for SMEs to use for IPOs.

Expanding the trading portfolio on the Bulgarian Stock Exchange

Bulgarian Stock Exchange (BSO BU) announced in July 2017 it will start government securities trading as early as October 2017. The stock exchange has received the regulatory nod as to the trading rules in July and can move on with technological implementation. By 30th September 2017 a functional connection is expected to be implemented between the stock exchange and the Bulgarian National Bank for the actual secondary trading of treasuries to begin.

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