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12.01.2023

 

2023 Outlook for the Economy, Financial Markets & Vienna Stock Exchange:

Austria’s blue-chips offer upside potential due to historically favourable valuations

  • Growth potential in CEE region remains attractive
  • Companies‘ margins clearly above historical averages
  • Highly attractive valuations and dividend yields compared to other international indices

Despite the record results posted by many Austrian companies, the firms listed on the Vienna Stock Exchange’s blue-chip ATX index came under strong pressure this past year. The ATX index proved to be more volatile than other markets due to the geographical proximity of its firms to the war in Ukraine, as well as the index’s composition and its overall size. However, on balance, the combination of strong corporate results and fallen share prices now offers investors historically favourable valuations and attractive dividend yields. A continued focus on value stocks should favour the performance of the ATX in 2023.

Shares remain attractive

All-dominant and strongly interrelated issues such as the war in Ukraine, inflation and rising interest rates weighed heavily on the stock markets in 2022. After strong interest rate hikes at the beginning and middle of last year, both the Fed and the ECB switched to lower rate hikes in December 2022. Erste Group analysts assume that the interest rate hikes will end this March (in the USA) and May (in the Eurozone) and that normalcy should return to the financial markets once the inflation peaks have been realized.

"In this environment, particular attention must be paid to earnings strength and balance sheet quality. And that’s where we see Austrian companies as being well positioned. Even though yields on 10-year Austrian government bonds have in the meantime risen to almost 3%, we consider equities to be much more attractive, especially in the long term," says Fritz Mostböck, Head of Group Research. At its current valuation, the ATX offers upside potential in the lower double-digit percentage range, with the Austrian benchmark index possibly reaching 3,700 points. 

Positive outlook for banking sector and favourable valuations

The ATX is currently trading at a significant discount when viewed both from an international and historical perspective. In terms of projected earnings for 2022, the ATX reaches a P/E ratio of 6x, which is significantly below the long-term average of 13x. "Even if the earnings level of 2022 probably cannot be maintained, we see the P/E ratios expected for 2023 and 2024 – namely, 7.1x and 7.5x -- as clearly too cheap," says Christoph Schultes, Chief Equity Analyst Austria. A combination of undervaluation and positive earnings development makes European  bank stocks particularly interesting, a development that should ultimately also benefit the ATX, given the prominent role that banks stocks play in the index. "In general, we tend to favour 'value' stocks over 'growth' and 'cyclicals' over 'defensive stocks' when taking a year-long perspective. We see OMV, Andritz, Wienerberger and DO & CO as particularly interesting individual stocks," adds Schultes. 

Price declines offer entry opportunities

According to Erste Group analysts, the ATX underperformed during the past year. This development has led to a historically cheap valuation, Mostböck concludes: "We think that Austria's leading index should outperform international indices this year. Even our target price of 3,700 points for the ATX implies a P/E ratio of 8x based on forecast 2023 results and in principle leaves further room for improvement."