February 21, 2007: Croatian equities, CENT and CEDC of Eastern Europe

Pictures:
Dubrovnik, Zagreb, Zagreb(Croatia)Stock Exchange, where in the world is Croatia? and a speck of the hundreds of miles of beautiful Croatian coastline







The time has come for investors to discover Croatia. Croatian stocks have enjoyed for the most part a very under-reported bull market that shows little signs of turning bearish. Make no mistake, this is a "frontier market" with the pitfalls and lack of transparency most investor shy away from. However, the tradition of Croatia is much in tune with Western Europe - more so than her neighbors. The core of the government is encouraging investment and partnerships to assist Croatia in reaching its economic potential. Europeans have made Croatia their number one tourist destination. European industry has begun to tap her well-educated, hard working workforce to produce high quality, value added goods and services.

My choice to begin a Croatian investment journey is to visit the FIMA website (www2.fima.com/) and explore the contents of this major investment firm specializing in Croatian securities.

Probably the best known Croatian stock is the pharmaceutical company Pliva. The ADR rarely traded is PLVDF. The last trade was at $14.06/share. Pliva has expanded into western markets through product partnerships and through acquisitions such as Dominian Pharma in the UK. The strategy is to push high quality generics into the west through established sales networks. Pliva also has some interesting drugs in clinical trials that may propel forward with enhanced EU membership. The company, already up 100% since Feb 2006 is just getting started, IMO. A Dr. Reddys Labs. (Indian pharma) on steroids.

Another stock to look at is Adris Grupa, d.d. Rovinj/ Maistra d.d., one of the top five stocks in market capitalisation and the second most widely traded stock in Croatia. This is a conglomerate of the former state tobacco company and several large tourist companies. The company grows and produces its own cigarettes selling over 15 billion annually with no end in site thanks to government protection. The tourist companies hold over 5% of available beds and campsites and 22% of Isrian tourist capacities with more development and acquisitions in store.


If frontiers have limits, I recommend two stocks for research if you are moving into Central Europe:

Central European Distribution Corp. (CEDC) operates as a distributor and importer of alcoholic beverages in Poland. It is fifteen distributorships and seventy-eight satellite branches throughout Poland. It has import rights to many first quality western brands such as Jim Beam, Sauza Tequilla, Concha y Torro, etc. Through the acquisition of Bols and Polmos in 2005, the company became vertically integrated. Zubrowka vodka is exported from Poland to the rest of the world. This company will be the dominant liquor and wine behemoth in most of Europe east of France. It will be expanding into the "frontier markets" no doubt, where alcohol is needed for mental health as well as a kick on Friday nights. Trading at $28.44/share and headquartered in the US, it is enticing indeed.

Central European Media Enterprises (CETV) together with its affiliates and subsidiaries invests in, develops and operates national commercial television channels and stations in Central and Eastern Europe. The company has operations in Croatia, the Czech Republic, the Slovak Republic, Slovenia and the Ukraine. Located in Bermuda, the company is transparent and has outstanding growth prospects outside of it's present sphere. Trading at $86.00/sh, it is still inexpensive, IMO.

I like a few Hungarian companies as well which I will save for next time on this topic.

No doubt, the next wave of BRIC-type action will be from frontier markets. Doing your due diligence and using some Speculative Portfolio monies on the above securities or others you find (esp. through FIMA or examining current frontier portfolios of funds) may be financially worthwhile - and a cultural education in itself.