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SEE: South East Europe
Slovenia: EU Member 2004
Romania: EU Member 2004
Bulgaria: EU Member 2004
Croatia: EU Candidate 2003, EU Member 2013
Macedonia: EU Candidate 2004
Serbia: EU Candidate 2012
Bosnia & Herzegovina: n.a.
CEE: Central & Eastern Europe
Poland: EU Member 2004
Czech Rep.: EU Member 2004
Hungary: EU Member 2004
Core Region Narrow Strategic Region Broad Strategic Region
Uniqueness of the EU convergence process in the region combined with relatively low correlation presents attractive opportunities for investors.
We are SEE asset manager with focus on Emerging European Union
Our ideas are tested from different angels
Analytics
Analytics
TOP-DOWN
BOTTOM UP
Analytics Portfolio construction Portfolio revision
3
Macro-economics & strategy
Risk matrix Cycle & earnings potential
Relative money flow
Global allocation guidelines
Initial screening Investible universe
Idea generation Approved stock
list
Even though GDP growth is higher than in developed countries, markets were hit badly
SLOVENIA
SERBIA
ROMANIA
BULGARIA CROATIA
UAE
QATAR
LEBANON
PAKISTAN
JORDAN
BAHRAIN
TUNISIA
KUWAIT
OMAN
ARGENTINA
UKRAINE
LITHUANIA
ESTONIA
SRI LANKA
VIETNAM
KAZAKHSTAN
MAURITIUS
BANGLADESH
NIGERIA
KENYA
0%
5%
10%
15%
20%
25%
30%
35%
20% 30% 40% 50% 60% 70% 80% 90% 100%
Re
qu
ire
d R
etu
rn
Maximum Drawdown
Implied Cost of Equity and Maximum Cycle Drawdown
and investors in a way ignored the region for the last few years
0
50
100
150
200
250
okt.2007 okt.2008 okt.2009 okt.2010 okt.2011 okt.2012 okt.2013 okt.2014 okt.2015 okt.2016
I
n
d
e
x
e
d
V
a
l
u
e
E
U
R
Local high before crisis = 100
Crisis composite index MSCI World AC
MSCI Emerging Markets Lower band - historical volatility (2std. Dev.)
Upper band - historical volatility (2std. Dev.) STOXX Balkan ex-Greece & Turkey
Recent versus current post peak crisis development
What makes us different?
Keeping a tight grip on the top down factors – Spliting of the factors
0,00%
2,00%
4,00%
6,00%
8,00%
10,00%
12,00%
14,00%
16,00%
18,00%
0
2.000
4.000
6.000
8.000
10.000
12.000
Romanian Equity Index BET and Total Risk Premium vs. 10 Year Bund YTM
BET Index Romanian risk premium
0,00%
2,00%
4,00%
6,00%
8,00% Romania Macro Credit Risk Premium
0,00%
2,00%
4,00%
6,00%
8,00%
10,00%
12,00%
2007 2008 2009 2010 2011
Romania Pure Equity Risk Add-ON Premium
Playing the Top Down Factor – Increasing Romania Country Weighting on Macro Credit Premium Contraction and Rewarding Equity Risk Premium Component
0,00%
2,00%
4,00%
6,00%
8,00%
10,00%
12,00%
14,00%
16,00%
18,00%
0
2.000
4.000
6.000
8.000
10.000
12.000
Romanian Equity Index BET and Total Risk Premium vs. 10 Year Bund YTM
BET Index Romanian risk premium
0,00%
2,00%
4,00%
6,00%
8,00% Romania Macro Credit Risk Premium
0,00%
2,00%
4,00%
6,00%
8,00%
10,00%
12,00%
2007 2008 2009 2010 2011
Romania Pure Equity Risk Add-ON Premium
Rally fuelled only by contraction of macro premium , equity premium contraction still in the cards .
3) Stabilisation and decline in premium
4) Pure premium for equity still hovering round record highs
1) Premium escalation Loosing steam
2) Reversal
0
20
40
60
80
100
120
140
10 12,5 15 Price 17,5 20
- €
1 €
2 €
3 €
4 €
5 €
6 €
6,0%
7,0%
8,0%
9,0%
10,0%
11,0%
12,0%
13,0%
14,0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
How we hunt for value? Krka -A core blue-chip case
Share price and normalized earnings bands
Evolution of earnings per share potential
Share price implied equity risk premium
0
20
40
60
80
100
120
140
10 12,5 15 Price 17,5 20
- €
1 €
2 €
3 €
4 €
5 €
6 €
6,0%
7,0%
8,0%
9,0%
10,0%
11,0%
12,0%
13,0%
14,0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
How we hunt for value? Krka -A core blue-chip case
1) Keeping and eye on continuity of management decisions and follow through¸with regular one –on-one meetings and on the field information gathering to make sure we understand the underlying factors and get a sustainibilty appraisal
2) Waiting for the margin of safety, when the market sentiment hits gloom and normalized P/E moves towards low end of the range
3) We use secondary indicators like equity risk premiums on indidivdual shares to complement our valuation models and soft factors analysis
Share price and normalized earnings bands
Evolution of earnings per share potential
Share price implied equity risk premium
Name Weight Country Sector eP/E e P/B e EV/EBITDA
Krka 8.9% Slovenia Health Care 9,8 1,34 5,8
BRD 7.2% Romania Financials 7,7 1,02 -
OMV Petrom 7.1% Romania Energy 5,6 0,95 3,7
Mercator 4.5% Slovenia Consumer Staples 30,6 0,63 9,7
Banca Transilvania
4.3% Romania Financials 8,8 0,70 -
Petrol 4.2% Slovenia Consumer Discretionary 6,2 0,85 7,0
AIK Banka 4.1% Serbia Financials 4,0 0,36 -
NIS 3.8% Serbia Energy 3,1 1,11 2,5
Zavarovalnica Triglav
2,2% Slovenia Financials 5,4 0,56 -
Telekom Slovenije
2.0% Slovenia Telecommunications Services
8,1 0,53 3,11
KD Balkans Top 10 holdings as of 29.2.2012
The easiest way to get an exposure to the SEE region
So there is a reason to invest.
Disclaimer
This presentation is provided for information purposes only and does not constitute financial or investment advice or
form part of an offer, subscription, recommendation or solicitation to buy or sell any financial instrument, nor should it be relied on in connection with any contract or commitment. Returns are not guaranteed and investment returns tend to fluctuate. Past performance does not guarantee future results.
KD Funds – Management Company LLC (KD Skladi, družba za upravljanje, d. o. o.), Dunajska 63, Ljubljana, Slovenia, manages the KD Umbrella Fund and its subfunds KD Galileo, Flexible Asset Structure; KD Rastko, Equity; KD Bond; KD MM, Money Market; KD First Selection, Fund of Equity Funds; KD Balkans, Equity; KD New Markets, Equity; KD North America, Equity; KD Raw Materials and Energy, Equity; KD Technology, Equity; KD New Energy, Equity; KD Vitality, Equity; KD India – China, Equity; KD EM Infrastructure and Construction, Equity; KD Financials, Equity; KD Latin America, Equity; and KD Eastern Europe, Equity, as well as the KD Equity Income Mutual Fund (KD Delniški dohodkovni). The investor is entitled to request a free copy of the simplified prospectus, the prospectus including the fund rules and the latest published audited annual and semi-annual reports (in Slovenian language). These and other documents as well as data and information referring to the funds are available to investors free of charge during business hours at the Management Company’s headquarters and subscription offices, and in e-format on the website www.kd-skladi.si, along with a list of subscription offices. KD Funds is registered in Slovenia.