Having said that, small cap companies were amongst the best performers in September. Food companies like dairy producers ended the month recording double digit gains based on rumors about the government allowing a 10% rise in the selling price of their regulated products.
The latest inflation rate published in September by the Iranian Central Bank (CBI) confirms a decelerating trend in the inflation rate over the last few months. According to this report, the country's monthly inflation rate stood at 0.6%. In addition, Iran's YOY inflation rate reached 11.6%, recording its lowest level in almost 6 years. Given the current ongoing trend of inflation in the country, analysts expect the average P/E of the market to move higher from its current level of 5.2. It seems reasonable to expect the Central Bank of Iran (CBI) to intervene in the money market and announce a cut in interest rates in the future. Analysts expect the rate on one year deposits which is currently standing at 20% to be reduced to around 18%.
"Sugar & by-products" has been by far the best performing sector in the past two months. This industry, despite having 14 listed companies on the TSE, makes up only 0.2% of total market capitalization. The sector is not favored by value investors due to its high volatility, fluctuations in profitability, and inadequate liquidity of stocks.
Sugar companies suffered from massive imports of low-priced sugar before 2014, which led to a 50% drop in the sugar industry's production over the past 18 months. The lack of import tariffs was the main reason behind the poor state of the sugar industry in Iran in previous years. Since 2013, with current Iranian government in charge, the trend has changed and the government has imposed strict controls over sugar imports. Based on the new regulations, the government has banned imports of sugar from October 2014 in order to support domestic producers who were suffering from vast imports of white sugar into the country. As a result, domestic sugar production is expected to rise by 50% this year which accounts for 80% of total consumption in Iran.
This month, the sugar sector appreciated by 3.7%, extending its two month rally to 20%. The P/E ratio at the end of September was more than 11, which, considering the size of this industry and the high impact of volatility in import policies, was seen as the sector's peak.
The stock prices of listed investment companies experienced a depreciation of 3% in the month of September, recording their lowest market value in the past two years. This trend also caused the price to net asset value (P/NAV) of the sector to fall below 70% for the first time in the past three years whereas, the long term average P/NAV of the sector in TSE is 80%.
Historical data shows that investment companies usually enter a period of recession with a lag with respect to the market. This is due to the fact that investment companies possess portfolios which are heavily invested in the stock market and the weak results of these investments are reflected in their financials with a lag. Having said that, the current P/NAV figure still illustrates a 30% gap to the intrinsic value of these stocks. If history repeats itself, this gap cannot continue to increase much more and stocks in this sector may have bottomed out already. This will definitely provide long term investors with good opportunities to buy a listed portfolio of already cheap Iranian companies' equity shares with 30% discount.
First government debt listing
Another major development over September was the listing of a government debt product on the Iran Fara Bourse (OTC market), the junior capital market of Iran, for the first time. This zero coupon debt product will mature in 5 months. Upon listing, the bond was traded around 10% below par value which gave it an effective interest rate of over 24%. It is worth noting that this rate is significantly higher than the banks' deposit rates, currently standing at 20%.
The first offering of these papers to contractors took place in September through the initial offering by the government, and the listing on the capital market took place in order to facilitate the secondary trades of these papers. These securities are expected to be met with strong demand in the coming months due to attractive yield and high safety as far as they are guaranteed by the Central Bank of Iran.
Market Statistics (September)
Average P/E 5.3
Trade Value ($ Billion) 0.9
Trade Value Monthly Change (%) -10.0
Market Cap ($ Billion) 88.2
Top 5 Traded by Value (September)
Rank Company Name Turnover Value ($Million) % of Total Turnover
1 Saderat Bank 43 5
2 National Iranian Copper Industries 22 2
3 Pars Khodro 20 2
4 Mellat Bank 18 2
5 Mobin Petrochemical 16 2
Top 5 Companies by Market Cap (September)
Rank Company Name Market Cap ($Million) % of Total MC
1 Persian Gulf Petrochemical Industry 8,810 10
2 Mobile Communications of Iran 3,919 4
3 Telecommunication Co. of Iran 3,388 4
4 Tamin Petrochemical Co. 2,982 3
5 Islamice Republic of Iran Shipping Lines Co. 2,921 3
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