In a normal year, the TOP 101 most valuable enterprises in Estonia would have given us an adequate picture of who and what is the foundation of the Estonian economy. In 2020 however, it became an oddity before the ranking was even published. For example, the number one placed Tallink that looked to a solid future even in February, was in need of a government bailout only a month later.
By the beginning of April, other companies in the ranking were not quite as quickly and obviously impacted by the corona pandemic, however there is a good chance that once the 2020 financial results come in, their value will be much lower and some will be on the verge of bankruptcy. One way or another – loss of demand, supply chain disruption, drop in the value of real estate, increase in amounts owed by customers etc.- the shock from the coronavirus will hit everyone this year.
What the world of business will look like, once the current extraordinary measures are lifted, is a topic we could discuss endlessly without coming to any conclusions as there is so much that is still unclear. Starting with when the restrictions might end and ending with whether the world as we know it has permanently changed once they do. Will consumers be cautious once the pandemic restrictions are lifted or will they rush to make up for lost time (provided they still have an income)? Will the travel and entertainment industries, that were impacted first, be able to restore business to pre-crisis levels or will people stay at home more – travel less, work remotely, do their shopping and consume their entertainment online more than previously? How far will companies go in revising their supply chains – preferring partners that are closer to home but more expensive over those that are cheaper but further away?
An easier question to answer is whether an assessment of enterprise value – in the case of a sale for example – can and should give greater consideration to extraordinary risks such as pandemics, national disasters, wars, climate change, etc. in the future?
It could, but in usual times one can assume without too great a “penalty” that a company’s business in the future will broadly continue as it has done until now. You calculate future cash flow whilst forecasting a higher or lower rate of growth (in extreme cases you might expect this to stall or drop slightly) and discount to present value. In reality, there is always a risk that a business might stop suddenly, however this is probably the first time it has been realised this quickly, globally and for this many companies.
During previous crises, governments have primarily helped to support banks with capital injections to keep the economy moving and, in many cases, made a profit from later selling the stakes acquired during a crisis. During the 2008 crisis the United States government also bailed out large automotives General Motors and Chrysler. Whilst the sale of those companies back to private ownership 4-5 years later may have resulted in a financial loss for the government, there were other benefits such as preserving jobs and historically important enterprises. In any case, in 2020, before the corona crisis hit, General Motors was a successful company with a solid 50-billion market value.
At the time of writing this article, it’s still unclear if, how much and to what extent the Estonian government will invest in companies important to the state. Also, at the moment there are no outside investors looking for a bargain even though they will certainly appear once the quarantine is over. It’s more likely that in the next year or two the ownership of the companies in Estonia’s TOP 101 will change rather than the companies themselves that make up the ranking (i.e. the assets behind the name, as change of ownership might also result in a change of company name).
If you were to compare the TOP 101 members to those in the 2008 Gild 100 ranking, you would see a lot of continuity (even though the numerical values of the enterprises should not be compared as they are calculated based on different principles). The ranking included then, as it does now, several large banks as well as Tallink, Eesti Energia, Tallinna Vesi, Telia, Tallinna Kaubamaja / NG Investeeringud, Rocca al Mare Shopping Centre and many others.
It’s a shame that for retail investors it’s only possible to invest in very few of Estonia’s largest enterprises as most of them are not listed. Less than ten companies in the TOP 101 are listed on Nasdaq Tallinn. Of course, right now is not a good time to encourage companies to go public, as usually the number of listed companies decreases following a crisis. Looking further ahead though, given the general growth of the Estonian economy and once the corona crisis is over, it should be possible to exceed the previous highest number of listed companies from 1997 – 28. In 2008 that number stood at 18 and is currently 19. Assuming it will take two to three years to emerge from the corona crisis, during which period there will be no new entrants to the stock market, it would be great and certainly achievable to aim for the following goal: 30 listed companies in time for the 30th anniversary of the Tallinn stock exchange in 2026. There are certainly more than ten enterprises in the TOP 101 that would be worthy of listing.
Villu Zirnask, economic journalist
