When investors think of emerging markets they generally consider the likes of China and Brazil, but Romania shares many of the early-stage characteristics of one.
Fondul Proprietatea is a closed-end company – in effect a holding company – listed on the Bucharest exchange, with a portfolio comprising key power and energy assets, including oil and gas firm OMV Petrom, Romgaz and Hidroelectrica.
The underlying assets are benefiting from liberalisation in these sectors in Romania. Gas prices for industrial consumers, for example, are only 45 per cent of those of neighbouring Bulgaria, itself one of the lowest in the EU.
As industrial consumption is 80 per cent of total consumption, this will be very positive for Romgaz and, to a lesser extent, Petrom.
While the average London-listed emerging markets investment trust trades at a discount to its net asset value of less than 10 per cent, Fondul Proprietatea’s shares trade at a discount of roughly 50 per cent meaning investors can buy Petrom at an effective price-to-earnings ratio of only 2.5x.
Romgaz should be listed later this year, Fondul Proprietatea is being listed in Warsaw, and investors are receiving a dividend yield of more than 7 per cent. We believe a 30 per cent discount is a fairer level, which suggests 40 per cent upside.
Julian Mayo is co-chief investment officer of Charlemagne Capital