Analytics - 2019

Top 101 Estonia’s most valuable enterprises at the time of the ongoing crisis

In 2019, in co-operation with Nasdaq Tallinn, Prudentia began the process of evaluating Estonia’s TOP 101 most valuable enterprises. The evaluation is based on the annual reports for 2018. Although those figures and the enterprise value assessments that are based on them may seem irrelevant in light of recent events, any useful analysis is based on trends over time and being able to fix and identify the pre-crisis situation will give us exactly that. We are planning to continue the project over a longer period of time, allowing us to start analysing associations between the GDP and the total value of Estonia’s most valuable companies, as well as the dynamics of economy driving industries inside the TOP.

At the time that the TOP 101 Estonia’s most valuable enterprises is being published, an emergency situation is in force in Estonia; panic and a lack of knowledge caused by Covid-19 and the price war between oil producers is reigning supreme, and no one knows how the world or the Estonian economy will be able to cope with the crisis.

Predicting the future is a thankless task – in December 2018, the Bank of Estonia forecast economic growth to be 3.4% in 2019 and 2.3% in 2020. However, there was already a hint of crisis in the air – companies’ own assessments of their competitiveness had already deteriorated in 2019. Based on current data from Statistics Estonia, economic growth in Estonia was 4.3% in 2019, and economic growth for the fourth quarter of 2019 was 3.9%.

The labour market typically reacts to changes in the economy with a delay. The end of the previous economic cycle in 2007 showed that unemployment began to increase slightly more than six months after economic growth had decreased, with the wage growth stalled even later. Although unemployment in the third quarter of last year was 3.9%, i.e. the lowest ever, both an increase in registered unemployment as well as a decrease in the number of unfilled jobs indicated that the need for new labour was declining. The entrepreneurs confirmed the same.

The current crisis has reached Estonia much quicker than the previous one. By now, changes in the tourism and service sector labour market are a fact, while industrial enterprises shall endure a bit longer due to their production cycles before the changes reach them as well.

Certainly, all of this will have a strong impact on enterprise value, and the TOP 101 published in 2021 will see significant decreases in enterprise total value and changes in the companies present in TOP 101.

The total value of TOP 101 as compared to the GDP of Estonia

People who are interested in facts shall find a great deal of interest in the ranking compiled by Prudentia and Nasdaq Tallinn. The total value of Estonia’s 101 most expensive enterprises was EUR 21 billion. At the same time, Estonia’s GDP was EUR 26 billion, the percentage thus being 81%. The methodology of the TOP describes the total value of the 101 most expensive enterprises, the methodology of the GDP describes the total value of all products and services created in the country within a year. Therefore, these indicators cannot be compared directly but it is still interesting and useful to analyse how the total value of Estonia’s 101 most expensive enterprises and the GDP change during different economic cycles. As we can also compare the same dynamics in Latvia, the reference base is wider and also evaluates the two country’s economic history and strategy.

The percentage of TOP 101 enterprises owned by the state and privately

Private sector plays an important role in the Estonian economy – in the TOP, private companies comprise 82% of the total volume and 90% of the total number of enterprises. As such, 46% of the volume of private companies is owned by foreign capital, which is 38% of the total volume of TOP.

The Estonia state primarily owns large enterprises, such as Eesti Energia, the Port of Tallinn, Riigi Kinnisvara, Elering, and Tallinna Lennujaam. In 2018, one-third of the shares in the Port of Tallinn were publicly listed, with the issue being a success. The same has been planned for Enefit Green, which is owned by Eesti Energia. Considering the world’s climate problems, the renewable energy sector is potentially attractive for investors. Publicly listed large state enterprises stimulate Estonia’s economy and provide local investors with additional choices.

Tallinn stock exchange and the TOP 101 most valuable enterprises 

By the end of 2018, the capitalisation of the Tallinn Stock Exchange was EUR 2.6 billion, by the end of 2019 it was EUR 2.8 billion. Compared to the volumes of the Stockholm Stock Exchange, Estonia has a sufficient number of opportunities to develop its securities market. Depositors who are Estonian residents have about EUR 8 billion worth of funds stashed in banks. Larger enterprises who have issued their shares on the Tallinn Stock Exchange include the TOP winner Tallink Grupp AS; Tallinna Sadam AS; Tallinna Kaubamaja, which is owned by NG Investeeringud OÜ; Tallinna Vesi AS; Silvano Fashion Group AS; etc. The above are all successful Estonian enterprises; however, there could be more of them and they could also have the ambition to develop their business across borders.

TOP 101 distribution based on the economic sectors

Which sectors dominate the TOP? Transport, transit and logistics at 17%; real estate at 15%; and financial services at 14%, if you consider the total volume of the TOP. On the other hand, taking into account the number of enterprises, it is real estate at 21%, production-industrial products and production-consumer goods and transport at 18%, and transit and logistics both at 10%.

The TOP has a total of 12 different sectors. When focusing on the future of Estonia’s economy, the next generation of growth companies are continuously mentioned, in the case of which their success stories should not be something to be ashamed of in terms of the global view. Skype, Transferwise, and Monese, however, have not been registered in Estonia. But Bolt, Veriff, Pipedrive as well as MarkIT Holding AS and Cleveron AS are registered in Estonia. When will they be in our TOP? We discussed this among ourselves and considered the need to change the methodology of the future TOP rankings in such a way that we could also observe the progress of growth companies. Growth companies that invest in development do not often make a profit in that stage. However, the value of such enterprises does grow due to market share growth and the perfecting of technology-services.

In summary – both Estonian enterprises and the TOP 101 of Estonia’s most valuable enterprises have room to grow. At this point, the most important thing is to survive and work to ensure that companies recover and pre-crisis indicators are one day eclipsed.