One Of The Best Years Ever For Oslo Børs

Most investors were relatively nervous at the start of 2009, reflecting an uncertain world in which the impact of the financial crisis on the real economy was still some way ahead and no one was able to forecast with any certainty how long the crisis might last. After a cautious start to the year, it became increasingly apparent over the course of the spring that the emergency policy packages and other stimulus measures launched by governments around the world, together with some signs of improving access to financing, were helping to avoid the worst consequences of the crisis. As optimism slowly recovered, demand for commodities also returned, helping the oil price to almost double over the course of the year. The importance of the oil price as a driving force for the Oslo market should not be underestimated.

However, 2009 was not all easy sailing. It was a difficult year for many companies and their employees both in Norway and abroad, even if this is not immediately apparent from the performance of the stock market. The hard facts show that one in five of the companies listed on Oslo Børs suffered a fall in market capitalisation over the course of 2009.

Cautious start
There was no shortage of commentators warning that stock markets were recovering too quickly as the year progressed. Many people found it difficult to understand that a market which had seemed to be falling without limit just a few months previously could recover so quickly. This seemed particularly unexpected at a time when the news was dominated by layoffs, corporate failures and profit warnings. However, the spring months saw increasing signs that the bottom had been reached, and bond markets in particular improved as key economic indicators at first levelled off and then started to turn upwards.

A number of companies with liquidity problems were quick to take advantage of this better climate in the spring months to arrange new financing, and this not only provided a lifeline for their own investors and employees, but also went a long way to restoring confidence in the capital markets. The year as a whole outperformed all expectations, and once again one can look back with amazement at how quickly the financial markets can change direction. In the same way that most people were too slow to respond to the danger signals ahead of the financial crisis, few were able to anticipate the upturn that awaited them in 2009. But of course not everyone followed the consensus market view.

Separating the wheat from the chaff
Over the course of the autumn months, the view that the financial markets were returning to normal became all the more prevalent, as evidenced by a return of risk willingness among investors. While the return to more normal conditions applied to many companies, it did not by any means extend to all. During the course of the year seven companies listed on Oslo Børs and Oslo Axess followed the sad path to insolvency, and a number of companies are still struggling with financial challenges. A number of the companies that face financial difficulties feature high up the list of shares that have fallen most in value.

This means that 2009 will be seen as a year when investors separated the wheat from the chaff, with risk capital readily available for those companies and projects that were judged to represent an acceptable level of risk, while a number of companies with high indebtedness and weak cash flow experienced a quite different response. It will therefore be no surprise if we see more companies fail over the next few months. It is, however, important that structural change does take place, both to reduce overcapacity and to pave the way for future growth and value creation. Stock markets should naturally be the arena where such essential restructuring takes place, and 2009 again showed that the Oslo market clearly plays an appropriate role in this respect.

Winners
The list of the winning companies in 2009 is dominated by the aquaculture and pharmaceutical sectors. The pharmaceutical company Algeta is at the very top of the list, with an impressive 781% increase in its share price as the company passed a number of important milestones and kept the market happy with positive news. Clavis Pharma, also in the pharmaceutical sector, was not far behind with an increase for the year of 565%. In the aquaculture sector, the Peruvian company Copeinca enjoyed a very good year with xx% growth in share price. 2009 was also a good year for Marine Harvest, Austevoll Seafood and Grieg Seafood, with increases in share price of 303%, 228% and 209% respectively.

Among the larger companies, DnB NOR and Seadrill recovered strongly from a difficult year in 2008. Shares in these companies gained 145% and 168% respectively. The airline operator Norwegian also attracted a lot of attention in the autumn, and its share price gained 211% in 2009.

Losers
Although 2009 was a record year for the market as a whole, one in five of the companies listed on Oslo Børs saw a drop in share price, and this serves to demonstrate that the market now differentiates between companies to a greater extent. Among the companies that recorded the biggest falls in share price we find a number of companies that have disclosed major financial challenges, including Artumas Group, Oceanteam and Crew Gold Corporation. These companies saw their share prices fall by 99%, 95% and 80% over the course of the year.

Unlike its competitor Norwegian, shares in SAS experienced another difficult year and fell by more than 40%. 2009 was also difficult year for Norske Skog, which lost 30% of its market value and dropped out of the OBX index just before Christmas. The solar energy company REC saw some recovery in its share price towards the end of the year, but nonetheless reported a decline of 20% for the year as a whole.

Share issues at a good level
Listed companies raised NOK 51 billion of share capital in 2009, which is one of the highest-ever annual totals. If we add to this well over NOK 600 billion of new issues in the Oslo fixed income marketplaces (including increases in existing bond issues), we can say with confidence that most of the issuers who sought to arrange equity or debt financing were able to do so. A characteristic feature for many of the share issues carried out in 2009 was the size of the discount offered in order to attract the new capital, and it was not unusual to see new shares offered at discounts of 35-40% to the current market price.

However, it was clearly not the case that all issuers were able to access new capital, and it has to be said that investors were much more selective than was the case in the years before the financial crisis. This was reflected in unavoidable, but nonetheless challenging, restructuring in a number of areas, which resulted in a number of company failures – the first on Oslo Børs since 2002. Tandberg Data and Tandberg Storage, both listed on Oslo Børs, failed in 2009, as did the Oslo Axess listed companies Exense, PetroProd, PetroMena, Ability Drilling and Scan Geophysical. There are good reasons to believe that as we move into 2010 investors will continue to be more risk averse than used to be the case, and we should be prepared for a situation in which companies that have persistent liquidity problems prove unable to resolve their financing needs.

Better results
After a period of decline in revenue and earnings, in some cases on quite a dramatic scale, companies across the board tightened their belts and focused on sizeable cost cutting in order to improve their results. Corporate earnings started to grow again in 2009, and in the third quarter companies around the world delivered earnings that were, on average, comfortably in excess of expectations. One of the most pleasing features of this trend was that earnings were higher not simply as a result of cost savings but also reflected renewed revenue growth. This will be an important driver for many investors’ views on future prospects.

Higher expectations
Many investment analysts and fund managers take the view that shares are no longer particularly cheap. While the market is around 40% down from the level the Oslo Børs Benchmark Index achieved in spring 2008, many commentators believe that today’s pricing is perhaps better anchored in reality. For those who could see the long-term outlook, almost all shares were cheap earlier this year when expectations were at unusually low levels. It seems very likely that 2010 will see greater variability in the pricing of shares against the background of generally higher expectations for corporate earnings, not least in the likely scale of the impact of bad news on a company’s share price. The market is now looking to see earnings growth that is based more on growth and less on cost cutting.

Lower turnover, but market activity still at an acceptable level
Average daily turnover in the equities market fell from NOK 9.9 billion in 2008 to NOK 6.1 billion in 2009. On the other hand, the number of trades fell by only around 5% to a daily average of appr. 63,000. The fall in the value of turnover can be explained to a large extent by share prices being significantly lower in 2009 than in the previous year, which not surprisingly causes lower reported turnover.

Dearth of new listings
Not a single new company was admitted to listing on Oslo Børs in 2009, but 15 companies were removed from listing. New listings can be seen as a delayed indicator of economic conditions and expectations, and it was therefore scarcely surprising that there was no queue at the doors of Oslo Børs in 2009. This picture was repeated in other markets. As we move into 2010, we can mention that between 5 and 10 companies are in discussions on the possibility of listing on Oslo Børs and Oslo Axess, and in addition two companies have already filed applications for listing. As the economic outlook continues to improve both in Norway and internationally, more applications for admission to listing can be expected over the coming months.

Oslo Axess
The market value of shares listed on Oslo Axess gained 28% in 2009, which is in line with the performance of many international markets, but falls well short of the improvement seen for the Oslo Børs marketplace. Three companies were admitted to listing, while eight companies were removed from listing. Oslo Axess saw some decline in the level of activity in 2009, and average daily turnover in shares listed on Oslo Axess was NOK 11.3 million.

International recovery
Oslo Børs was one of the best performing stock markets in the world in 2009, but it should be remembered that it was one of the worst affected markets in the previous year. Despite the record improvement in 2009, Oslo Børs is still among the markets that have furthest to go to regain their previous all-time highs. This is due not least to the much stronger relative performance seen for Oslo Børs over the period 2003-2007, reflecting the strength of the Norwegian economy and historically high commodity prices.

In the European markets, the FTSE 100 index in London gained 22% while the DAX index in Germany gained 25%. In America, the Dow Jones and S&P500 rose by 20% and 24% respectively, while in Asia the Japanese Nikkei 225 was up by 19% and the Hang Seng index in Hong Kong gained 49%. On a global basis, the shares in the MSCI World index gained 30%.

And what of 2010?
The outlook for stock markets is very dependent on the prospects for the global economy and the state of the labour market, as well as a complete return to stable conditions in the credit markets. While the employment figures for the USA showed a positive trend towards the end of 2009, it should be remembered that 15 million Americans are still unemployed in a situation that does not hold much promise of increased demand for labour in the near future. Unemployment rates of between 10% and 20% in the USA and other countries will obviously hold back growth, and this in turn will limit the scope for growth in revenue and earnings for some companies. This will be particularly evident in economies such as the USA that typically rely on consumer-driven demand.

However, the autumn months of 2009 saw a steady increase in pointers to a return to economic growth as early as 2010, not least because most western countries have emerged from recession earlier than was both feared and expected. Growth expectations are supported by the trend for an increase in investors’ risk willingness over recent months, which shows that the majority of market participants have a positive view of the prospects for 2010. A combination of good underlying liquidity in the stock markets and rising share prices should play an appreciable role in helping to stimulate economic growth.

In summary, many people now expect to see a continuing rise in share prices, albeit at a much more cautious pace than in 2009. The outlook for the Oslo market will, as always, be particularly dependent on commodity prices. Given the prospects for economic growth both in Norway and internationally, there are encouraging signs of another good year for investors in the Oslo market in 2010.