How to Invest in Cyprus Stocks

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On the back of the post last week presenting a potential opportunity in Cyprus equities, we’ve looked deeper into how to invest in Cyprus stocks. As a member of the European Union, Cyprus is the rare frontier market that is also backed by developed regulations and a stable currency.  In this case, that would be the Markets in Financial Instruments Directive (MiFID) and the Euro respectively. Regulation is controlled by the Cyprus Securities and Exchange Commission (CSEC), and the main exchange is the Cyprus Stock Exchange (CSE).

Opening a Brokerage Account

Step 1: Choose a Brokerage Firm

Due to its political affiliation with the rest of Europe and low taxes, Cyprus has been a target destination for brokerage firms. A quick look at the list of investment firms sanctioned by the CSEC shows over 150 firms in operation in Cyprus, the vast majority of which are FX brokerages that offer higher levels of leverage and margin compared to brokerages elsewhere. However, on the CSE website you can find a list of stockbrokers and detailed information for each. There are 19 firms listed here, but some are based in Greece and other firms we found on the CSEC list were missing here, so there are over 20 firms in total to choose from.

In the end we contacted two firms that were responsive and able to assist in English: Argus Stockbrokers and Mega Equity Securities.

Step 2: Sorting out Details for Foreign Investors

Both firms mentioned no restrictions for foreigners opening accounts. A local bank account was not required to open accounts, and any dividends could be reinvested without needing to be sent back to account holders first. We recommend that investors confirm these details with whichever brokerage is eventually chosen.

As for fees, there is a standard 0.04% stock exchange and depository fee plus 5 cents charge for every trade done. Brokerage fees vary per brokerage firm, but we saw charges of 0.5%-0.7% per transaction in the firms we contacted. Most firms offered online trading platforms, perfect for foreign investors.

Step 3: Paperwork

Most firms require proof of identification before beginning enrollment for new accounts. Notarized passport copies and address proofs are required, and the actual forms are lengthy but not out of the ordinary compared to other countries.

Investing in Cyprus Stocks

With a brokerage account set-up, decisions must be made on which stocks to invest in. As mentioned before, there are 12 companies as part of the General Index that we track on our dashboard. Here they are as of 1 March 2014:

Ticker Name Industry Market Cap (M) Avg Volume (6M)
APE ANDREOU & PARASKEVAIDES ENTE Beverages                     31.1                      7,950
ERME ERMES DEPARTMENT STORES PLC Multiline Retail                     29.9                    16,027
FWW WOOLWORTH CYPRUS PROPERTIES Real Estate Management & Devel                     33.0                      2,966
GAP GAP VASSILOPOULOS PLC Air Freight & Logistics                       5.1                         863
HB HELLENIC BANK PUBLIC CO LTD Banks                   301.1                  675,976
LHH LORDOS HOTELS HOLDINGS PLC Hotels Restaurants & Leisure                     14.5                      2,051
LOG LOGICOM PUBLIC PLC IT Services                     44.5                    30,683
LPL LORDOS UNITED PLASTICS PLC Chemicals                       3.8                    50,309
LUI LOUIS PLC Hotels Restaurants & Leisure                     21.2                  105,743
MIT MITSIDES PUBLIC CO LTD Food Products                       3.0                         125
TSH A TSOKKOS HOTELS PLC Hotels Restaurants & Leisure                     20.8                    12,866
VCW VASSILICO CEMENT WORKS LTD Construction Materials                     59.7                    12,849

The total index has a market cap of about €570 million, with Hellenic Bank representing over half the index in terms of market cap and over 70% in terms of volume. Out of the 12 stocks comprising the General Index, two of them (GAP and MIT) do not seem very liquid.

Here are their performance and basic ratios as of 1 Mar 2014:

Ticker Price (€) YTD Chg (%)  1Y Chg (%)  P/E Ratio EV / EBITDA P / Sales P / Book
APE      0.170 3.0% 1.2%             –                1.7         1.04            0.61
ERME      0.171 17.1% 58.3%          19.0                  –         0.14            0.48
FWW      0.288 28.8% 10.8%             –                  –             –            0.16
GAP      0.132 13.2% 1.5%          12.0                4.5         0.07            0.34
HB      0.112 11.2% -32.9%             –                  –         0.42            0.17
LHH      0.415 41.5% 277.3%        103.7              17.9         1.51            0.25
LOG      0.601 60.1% 109.4%          10.9                8.6         0.09            0.81
LPL      0.079 7.9% 41.1%             –              10.2         0.22            0.14
LUI      0.046 4.6% 142.1%             –              16.6         0.10            0.21
MIT      0.369 36.9% -26.2%             –              11.3         0.08            0.12
TSH      0.083 8.3% 80.4%          20.7              24.9         0.48            0.15
VCW      0.830 83.0% 84.4%             –                5.7         0.75            0.26

The data is from Bloomberg but is incomplete for some companies. Most companies do not even have P/E ratios since earnings have been negative. Also, while the P/B ratios for all of these stocks are sub 1.0, this could be more of a case of book values not being written down enough yet. However, on average these stocks are up 26% YTD and about 60% in the past year.

There are another 13 companies listed on the FTSE/CySE 20 Index that are not included in the General Index. We’ve omitted three investment companies with insufficient data, but the rest are listed here:

Ticker Name Industry Market Cap (M) Avg Volume (6M)
ATL ATLANTIC INSURANCE CO PLC Insurance                     45.0                      2,646
CCC CYPRUS CEMENT CO PLC Hotels Restaurants & Leisure                     49.8                    15,933
DEM DEMETRA INVESTMENTS LTD Capital Markets                     77.2                    64,326
KG K+G COMPLEX PCL Real Estate Management & Devel                     28.2                      2,238
LCH LEPTOS CALYPSO HOTELS PLC Hotels Restaurants & Leisure                       6.4                      2,476
MPT MALLOUPAS & PAPACOSTAS PUB Specialty Retail                     10.8                           21
PHL PETROLINA HOLDINGS LTD Oil, Gas & Consumable Fuels                   105.0                      8,276
PND PANDORA INVESTMENTS PUBLIC Real Estate Management & Devel                     25.9                      6,343
SFS SFS GROUP PUBLIC CO LTD Capital Markets                       3.3                      4,884
VCW VASSILICO CEMENT WORKS LTD Construction Materials                     59.7                    12,849

These stocks account for another €410 million of market capitalization with many of these companies larger than companies on the general index. They all seem quite liquid with the exception of MPT.

Ticker Price (€) YTD Chg (%)  1Y Chg (%)  P/E Ratio EV / EBITDA P / Sales P / Book
ATL      1.150 27.9% 91.7%          15.3                  –         2.38        1.50
CCC      0.361 38.8% 142.3%             –                  –         3.02        0.18
DEM      0.386 10.9% 53.2%            9.2                  –             –        0.54
KG      0.218 2.3% 161.1%             –                  –             –        0.32
LCH      0.063 10.5% 18.9%             –                  –         0.29        0.14
MPT      0.250 0.0% 40.4%             –                8.0         0.31        0.40
PHL      1.200 30.2% 50.4%          12.7                8.9         0.24        0.91
PND      0.061 -24.7% -24.7%             –                  –         0.78        0.33
SFS      0.050 0.0% 42.9%             –                  –         0.15        0.03
VCW      0.830 53.7% 84.4%             –                5.7         0.75        0.26

Similar caveats about the data apply here, but these stocks are up an average of 16% YTD and 66% in the past year.

Final Thoughts

Cyprus represents a frontier market without the usual issues; regulation and currency risk is relatively limited, and both brokers and trading systems seem sophisticated. However, as a market that is trading 98% below the highs in a country with a small population, almost all the equities are trading as penny-stocks. In many ways, the companies on this exchange are much less stable than companies trading in much “riskier” countries, with most of the stocks on these indices are still reporting negative earnings. There is certainly some value to be found in investing in Cyprus stocks, but caution should continue to reign supreme for anyone looking to enter.

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