The investor relations efforts of Maltese companies

Financial Article 474 by Edward Rizzo - Feb 23, 2017

A few weeks ago I published an article about Malta International Airport plc in which I gave prominence to the fact that, very unexpectedly, the company took the liberty of publishing its financial targets for 2017.

I acknowledged the fact that this was an excellent initiative which shows the evident change in the investor relations strategy of the airport operator. I also stated that MIA is now the only Maltese company that is not only publishing its financial statements on a quarterly basis, but also providing key targets for the upcoming financial year.

This also made me reflect on the status of the investor relations efforts of other Maltese companies.

Only four companies whose equity is listed of the Malta Stock Exchange issue financial forecasts, namely International Hotel Investments plc, Medserv plc, MIDI plc and GlobalCapital plc. The financial information provided by these companies is more detailed compared to the financial highlights and key performance indicators published by MIA last month. However, this is a statutory obligation since these companies had offered bonds for subscription by the general public.

Indeed, it is rather strange that nowadays investors have access to more information from bond issuers rather than equity issuers. This diverging level of information will become more evident this year as various new bond issuers are likely to tap the market in the coming months and they will also be obliged to issue financial forecasts and continue to do so on an annual basis.

While the level of information being provided by bond issuers is indeed very positive as an investor has a right to have access to such important financial information so as to always be in a position to assess the creditworthiness of an issuer, equity investors should also have the same level of information.

In fact, equity investors should have a greater interest on the extent of the profitability expectations of a company since the return for equity investors is dependent on potential capital growth and dividend declarations. It is worth highlighting that dividends to shareholders are not fixed from one year to the next as in the case of interest on bonds but very much impacted by the level of profits achieved and future investment requirements. As such, it is even more important that an effective investor relations programme is put in place by equity issuers in Malta to ensure that the investing public has sufficient information to make informed decisions when considering equity investments.

Apart from the need for equity issuers to start publishing financial forecasts on an annual basis similar to what MIA disclosed last month and also similar to bond issuers in their annual Financial Analysis Summary (FAS), in recent years I also touched upon the need for a more transparent and effective investor relations strategy with the publication of detailed information and quarterly financials as part of the publication of the Interim Directors’ Statements.

Unfortunately, the European Commission amended the Transparency Directive and removed the obligation for companies to issue Interim Directors’ Statements. EU member states were required to implement this change by November 2015 and the Listing Rules of the MFSA were amended to remove this obligation towards the end of 2015. In an article in November 2015, I had explained that the rationale for the removal of the Interim Directors’ Statements was that companies should not publish such information only twice a year (generally May and November for companies with a December year-end), but regularly during the year when the information becomes available.

Over the past 14 months, it became clear which of the equity issuers on the MSE continued publishing Interim Directors’ Statements and which companies stopped the issuance of such regular and important company updates.

While it is reassuring that nine companies continued to issue such statements last year, it is very disappointing that eleven companies failed to continue with this important initiative. Furthermore, three of these eleven companies are among the larger capitalised companies and also the ones with the largest number of shareholders.

Bank of Valletta plc currently has a market capitalisation of €920 million (by far the largest company on the MSE with a market weighting of almost 20%) and has over 19,500 shareholders. Information similar to what was being disclosed in their semi-annual Interim Directors’ Statements prior to November 2015 would surely be essential for these numerous investors and the market at large. Nowadays, such an initiative is even more important in view of the current challenging environment for banks as a result of the impact of very stringent regulatory obligations, the negative repercussions from the historically low interest rate environment and, in BOV’s case, the urgent need for the raising of between €150 and €200 million in fresh capital as indicated by the outgoing Chairman during the last Annual General Meeting in December 2016. The most recent report by the international credit rating agency Fitch Ratings, in which it downgraded BOV’s long-term rating and, among other items, highlighted that the Bank’s risk controls “continue to lack the depth required for the risks it faces in its operating environment” would also call for more regular information to shareholders to update them on the progress achieved in addressing the shortcomings mentioned in this important report.

HSBC Bank Malta plc is the second largest company on the MSE with a market capitalisation of €738 million and has around 10,000 shareholders. Here again, HSBC did not issue any Interim Directors’ Statement in May and November 2016. This becomes even more surprising given the fact that the parent company, HSBC Holdings plc, is listed on various stock exchanges worldwide and publishes detailed financial information on a quarterly basis as part of a comprehensive investor relations campaign.

GO plc also failed to issue an Interim Directors’ Statement in November 2016 despite the fact that it had continued to do so in May 2016 after the obligation was removed in November 2015. GO plc also has a very large shareholder base and the information that it was previously providing to the market via such announcements was important for all shareholders. The other companies that also failed to publish Interim Directors Statements last year after the obligation was removed are Lombard Bank Malta plc, MaltaPost plc, Malta Properties Company plc, GlobalCapital plc, Grand Harbour Marina plc, MIDI plc, Santumas Shareholdings plc and also Simonds Farsons Cisk plc.

In my opinion, many equity issuers on the MSE therefore need to reconsider their investor relations strategy. The companies which have continued to publish their Interim Directors’ Statements on a semi-annual basis (namely, FIMBank plc, Malita Investments plc, Mapfre Middlesea plc, Plaza Centres plc, RS2 Software plc and Tigne Mall plc) ought to consider also issuing financial guidance on an annual basis similar to what MIA did last month.

On the other hand, the eleven companies which did not continue publishing Interim Directors’ Statements would need to implement two major changes to their investor relations strategy to become more in line with international best practice. Ideally, these companies should first re-introduce the publication of Interim Directors’ Statements and include quarterly financial figures as well as other key performance indicators within such announcements. Moreover, these companies also ought to consider publishing financial guidance on an annual basis.

Incidentally, two of the companies that have bonds in issue which have an early repayment option during 2017 are also equity issuers. In the event that these issuers, namely Simonds Farsons Cisk plc and Grand Harbour Marina plc, opt for an early redemption and an immediate roll-over by way of a bond exchange programme, they will henceforth be obliged to also publish financial forecasts as part of a Financial Analysis Summary and publish such forecasts on an annual basis.

Companies listed on the MSE should seriously contemplate adopting a more effective communications strategy for shareholders in line with customary procedures adopted by companies listed across international stock exchanges. Equity investors deserve having access to at least the same level of information that is being provided to bond investors.

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