Analytics - 2020

The uncertainty caused by COVID-19 and changes in consumer behavior has a major impact on the value of the TOP 101 companies. As the real extent and duration of the crisis is difficult to predict, in many cases expansion plans have been replaced by a struggle for survival. At the same time, in the process of change, someone always wins - technology companies and e-commerce, for example, have gained positive momentum.

In December last year, Eesti Pank forecast economic growth of 2.3% in 2020. A few months later, COVID-19 began to spread rapidly around the world, and countries, including Estonia, closed their borders and declared a state of emergency. There was panic in the markets, the major indices: S&P500, DJI, and Nikkei 225, fell by 30-40% as of March 2020. By the end of June, Eesti Pank predicted in its press release that the economy would contract by about 10% due to the pandemic.

In October / November, stock market indices had recovered and reached new records. Compared to the previous economic crisis of 2007/2008, the recovery of indices was very fast – back then it took 3-5 years. Euro area output also showed an 11.8% recovery in the third quarter of 2020. Faster economic growth was down to hopes that a vaccine against COVID-19 would shortly be available and central bank support programs (the ECB plans to continue its emergency asset purchase program totaling 1,350 billion euros).

In September 2020, Eesti Pank forecast a decline in GDP of -3.8% this year and 0.2% in 2021. The main economic recovery would take place in 2022 with 5.4%. The European Commission and the IMF expect a faster recovery next year, at 6.2% and 7.8% respectively.

The Estonian economy also started to recover, but not in all areas. The service sector, and especially the tourism sector, will still be going through difficult times. The second wave of COVID-19, which gained momentum in October 2020, threatens to close many companies. Unemployment is rising rapidly, mainly due to redundancies in the service sector. In mid-November, the unemployment rate rose to 7.9% and the number of unemployed exceeded 51,200, the highest figure since 2013.

On the one hand, the rapid recovery of the stock market index and the European Central Bank's support programs have a positive effect on the values of TOP 101 companies. On the other, the second wave of COVID-19 brought uncertainty about the duration of the virus to our economy and businesses. How quickly will the registered vaccines against COVID-19 (Pfizer / BioNTech) actually reach the people? How soon will people start traveling again and consumer confidence be restored?

The effects of the pandemic will also be delayed in some sectors, as in the spring the government of the Republic of Estonia developed a wage compensation scheme, which was intended to mitigate the effects of the emergency. At present, the government has no plans to repeat similar large-scale measures, and the payment holidays granted by banks will soon end, which in turn may affect a company's value in the future.


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

Compared to last year, the total value of the TOP 101 has remained at the same level. Without going into further detail, it could be assumed that the effect of COVID-19 on the values is not yet clear from the table. However, on closer inspection, it does exist. For example, in addition to the total value of the ranking, a good indicator is the value of the company ranked 101st. If in 2019 the value of a company had to be at least 67.1 million euros to be eligible for the TOP, then in 2020 it was 58.7 million. In the TOP of 2020, Covid will still primarily affect companies closely related to the tourism sector, the crisis has not spread to the retail, real estate, or manufacturing sectors.

TOP 101 distribution by economic sectors and the biggest rises and falls

Whilst the total value of TOP remained the same, there are more changes in individual areas. Real estate became the sector with the largest share, accounting for 20% of the total volume of the TOP. Companies in the utilities and financial services sectors are joint second and third with 14%.

Last year's largest sector, transport, transit, and logistics, fell to 4th place. This is one of the areas hardest hit by the pandemic - borders were closed and passenger numbers fell sharply. Companies in the sector are priced lower in the market compared to the period before COVID-19, which in turn has led to a decline in corporate values. For example, the three companies that have lost the most value all operate in the fields of transport, transit and logistics: Lennuliiklusteeninduse AS, Tallink and Tallinn Airport.

The company with the largest increase in value is Luminor Bank. This is the result of a corporate restructuring - at the beginning of 2019, a cross-border merger was completed, as a result of which all assets, rights and liabilities of Luminor Bank AS (Latvia) and Luminor Bank AB (Lithuania) were transferred to Luminor Bank AS in Estonia. In Latvia and Lithuania, operations will continue through local branches.

Luminor Bank aside, other major companies in the financial sector have lost value. During the quarantine period, the risk increased that companies would have difficulties in servicing loans and the number of non-performing loans would rise significantly, which in turn would negatively affect the banks' financial results. In this regard, the market rated companies operating in the financial sector much lower than a year ago.

The other biggest gainers are Riigi Kinnisvara and Summus Capital, which operate in the real estate sector. Changes in real estate prices take a little longer than elsewhere, so the impact of the crisis is not yet noticeable.

The increase in the value of the winner of TOP 2020, Eesti Energia, by 28% is also significant. This is primarily due to the increase in the share of green energy in total electricity production, which was the result of the takeover of Nelja Energia at the end of 2018.