BG MBA Seminar – How to get into top MBA schools for Bulgarians by Bulgarians - seminar June 2008

Dear reader,

Theo Vachovsky, class of 2008 (Chicago GSB) and I are organizing a seminar “BG MBA Seminar – How to get into top MBA schools for Bulgarians by Bulgarians” that will hold place on 28 June 2008 in Sofia. You can expect from the seminar:

• In person meeting in Sofia with applicants and several MBA alumni /students
• Web conference with MBA alumni in the US
• BG applicants from across the US will conference via phone/ internet
• Going out for drinks after the event in Sofia.

For those interested in the event and those who would like to be kept updated on the details and developments of the organization of the event, please subscribe at: http://www.facebook.com/group.php?gid=8236605671

Thanks to everyone and I look forward to meeting you soon.

Cheers,

Valentina

The effects of Short & Margin trade/ Bulgaria

With regards to the non-functioning margin & short trade any reduction in the requirements for margin trade would certainly pump more liquidity on the capital market. Thence, ceteris paribus, the higher liquidity would become a catalyst for higher prices and price multiples.

Any regulatory decision in this field should initially measure the influence of the REPO-contracts and the extent to which they have already satisfied the liquidity needs and whether it is actually the REPOs that have already augmented the current price levels undeservedly. On the other hand one should think of the same requirements regarding the short sales, (e.g. as in the current regulation 16 of the FSC), in order to balance the excess liquidity, caused by the lower margin criteria.

Additionally, any decline in those requirements will foster the performance of the more advanced intermediaries with more sophisticated software and risk solutions, such as the banks. Bearing in mind the widely spread, archaic trading systems in the market, any decrease in the short & margin requirements would definitely result in a liquidity flush and most probably cause significant price volatility.

Some thoughts on Regulation/US, Gobal markets

The world capital markets crisis, caused by the US exuberant consumerist, deepened by the low-quality mortgages is hard to be called recently originated. The US economy has been signaling weakness since the beginning of 2006. The crisis genesis lies in the diminishing loan requirements reflected in the so called no docs, NINJA, etc. loans. It is the financial markets regulations that have failed, not the capital market ones… this time.

The regulatory bodies risk understandings lie on the academic obsolete standard normal distribution (SND) of the returns. On the same SND are based the regulatory risk requirements. Some contemporary research papers have shown that in periods of crisis the return distribution follows actually the so called Power Distribution. If I may paraphrase: During crisis the markets forget the SND, the standard deviation, the variance and all the Markowiz related ratios. In a liquidity crisis, the international diversification of a portfolio, when correlations reach one, is futile.

While discussing the restrictive regulation, one should not forget the reactive Sarbanes – Oxley Act, designed to answer the Enron’s fraud scandal. As of today there is little doubt that it offers more difficulties than solutions.

What the markets need, not only in hard times, but at any time is a practically working regulation, which is clearly understandable by market participants and regulators, rather than stricter regulation.

H1 08 Reports Expectations/Bulgaria

Bearing in mind the US stagflation, the rising inflation in the Euro zone and Bulgaria, we should expect more of contrasting monetary policies on the both sides of the Atlantic – restrictive in Europe and Bulgaria, and liberal in the USA.

With this macro piece of expectations in mind, we need to further differentiate the companies on the basis of several important financial factors and be more precise in our industry and company-specific expectations: the degree of leverage of the public companies and their financial stability, represented by the external financing risk premiums; the companies ability to transfer inflation to its clients in order to generate higher real returns for its shareholders; the skill to generate and retain earnings in order to fund internally its development; last but not least diligently analyze the dependence on energy and mineral resources, as well as any FX influence on the revenues and expenses.
If we ignore the seasonality in some of the reports and take into account the time lag of the above mentioned macro factors influence, my personal expectations are for better cash flows from operations, my personal hopes are for higher real free cash flows YoY.

Investor Relations Managers and their misunderstood role/Bulgaria

The communication and the adequacy of the Investor Relation Managers (IRM) of the Bulgarian public companies is significantly polarized. The BSE has its top performers in corporate governance with pretty collaborative IRMs, who inform the market for significant company events on a regular basis. Much to my regret this type of companies are rarity.

The predominant part of the IRMs if any indeed, are indifferent to the minority shareholders and serve primarily the major shareholders and the regulators. The idea of a strong relationship contact with analysts and investment consultants representing the investors is represented by a polite request to re-visit the already published reports and press releases, which are implemented in the analysts’ models just minutes after their release.

What the Bulgarian public companies miss is the understanding of the information necessary for a construction of a proper valuation model, which goes beyond the regulatory reporting and includes:

• understanding of the business;
• understanding of the business environment;
• the managements’ vision for development of the company;
• the production process and technologies involved.

The capital market does appreciate the depth in the transparency of any company and more and more often assign a premium for that transparency. Any public company with “transparency” close to the regulatory one, do not only exhibit negligence towards the capital market, but deepen the negative trend towards insider info trade, due to the lack of sufficient amount of public info.

Currency Board and the Capital Market in Bulgaria

The stability of the Bulgarian lev driven by the nominally pegged rate to the Euro is a solid ground for direct and portfolio investments in public and private companies in the country. When analyzing the macro-data, the current account deficit and the external debt in particular, the pros and cons of the fixed-rate are pretty much debatable. From the point of view of the capital market, however, the fixed rate means one and only one thing to the foreign investors – minimum foreign currency risk.

The admission of Bulgaria in the Eurozone is a small step, but one that will take the business and the government along a long and thorny road. The benefits for the capital markets would be more sensible in the scope of stable government and central bank policy through fulfilled political engagements, which thence would be reflected in the market via a premium or / and lower discount rate.

Practically, the only difference should be focused on the change of the degree of trust of the foreign investors, not any expectations of shifts in the fixed nominal rate.

It is the market crisis that makes us better analysts

The basis of the fundamental analysis lies into the professional financial results estimation. The intrinsic value of a company is a function of three major components: positive relation with the (1) cash-flows, (2) growth expectations and negative relation with (3) required rate of return.
Any time the expectations for a growth of a company does not meet the expectations of the market, especially when those expectations are part of the IPO prospectus, both worldwide and in Bulgaria, the investors recalculate the intrinsic value of the company. What brings a second revaluation impact on the company is the amount of trust the investors have credited to the management of the public company, which appears to be of crucial importance in every contemporary valuation model.
In its gradual development our capital market develops more and more sophisticated sensitivity towards the public companies and sharpens its models’ precision. The public companies should not abandon their forecasts and projections used in the capital hunting process to attract the investors’ attention. Since the capital attracted from the market is attracted due to the expected business development and the consequent return on this development, capitalized in dividends or earnings based share price growth.