ATX still on the rise

With a total gain of more than 16%, the ATX performed remarkably well last year and also managed to fare well in comparison with international markets. Its strong performance, which was fully achieved in the second half of the year, was mainly the result of higher than expected economic growth. In fact, the Austrian economy continued to recover in 3Q and 4Q 2010, leading to GDP growth of at least 1.9% for 2010, which is relatively strong in European comparison.

Leading economic indicators point to a continuation of the high production activity in Austria and its major trading partners in spring 2011. The relatively low public debt and deficit levels as well as the high structural competitiveness of the Austrian economy are creating strong conditions for growth. Both in terms of the economy and on the international financial markets, Austria is considered part of the solid core of Europe around Germany The latter represents the undisputed driving force behind economic growth in the EU and is expected to report a robust GDP growth rate of 2.5% for this year, following 3.6% in 2010. The dynamic in Eastern Europe is also gaining momentum and may have a positive impact on Austria’s economic performance in 2011, in particular thanks to strong trade relations and the high level of activity of Austrian companies in the region.

The volume of Austrian exports increased by 16.8% from 3Q 2009 to 3Q 2010. Despite rising production and full order books, however, domestic companies have been hesitant about investment for a relatively long time. Following a continuous decline over eight consecutive quarters, Q3 marked the first increase in investment activity. At 83.4%, production capacities in Austria are now not only running at higher levels than the long-term average, but Austria is also the country with the highest level of capacity utilisation in the euro area. We therefore expect Austrian companies to invest strongly in the quarters ahead, a trend that is also indicated by the low level of interest rates, high holdings of cash reserves and the solid earnings outlook. For 2011, we see a very good chance that the Austrian GDP growth will come in well above potential. With a rate of 2.5% yoy, Austria is likely to be among the leaders in the euro area.

Our forecasts for higher earnings for this year reflect the fundamentally good situation of domestic companies, which we were already able to see in the last reporting season. According to our estimates, earnings are going to increase by nearly 20% in 2011. With this, the ATX companies may be able to beat the performance of their peers in the DAX or the Euro Stoxx 50. Despite the positive share price performances last year, valuations have not suffered too much and are seen quite moderate based on both earnings and book values. With an estimated P/E ratio of 12.6 for 2011, the ATX is keeping good company with other Western European markets, though it does show a small premium compared to Eastern Europe.

Last but not least, the ATX is benefiting from the relative attractiveness of the equity markets versus the bond markets. We expect the ATX to rise to 3,200 points by mid-2011 and to 3,300 points by the end of the year. While there may be temporary setbacks as long as a permanent solution to the problems of the peripheral euro area countries cannot be found, we do not expect them to prevent the ATX from heading for higher price levels.

At the beginning of the year we are bullish on cyclical stocks. In the construction sector we recommend STRABAG, based on the surprising outlook provided by the company for the period 2010 to 2012, which exceeded market expectations. In addition, the stock still appears undervalued in comparison to its peers. The utilities sector, which has been quite unpopular for some time, is finally showing vigorous signs of life, boosted by the recovery of electricity prices in Central Europe as well as firm energy and oil prices. In the industrial sector, which generally benefits from improved economic dynamics, we particularly like Rosenbauer. Not only has the manufacturer of fire fighting vehicles recently surprised analysts with its continuously strong order intake, but its entry into the Russian market is also viewed positively.


Author:
Birgit Kuras
Head of Department Company Research
Raiffeisen Centrobank 
13 January 2011