10 years of financial journalism

Financial Article 500 by Edward Rizzo - Aug 24, 2017

My first contribution in the media as part of my part-time financial journalism duties was in early 2007 when I had decided to publish a review of a company’s financial statements after reading a misleading article in the press.

When contemplating a topic for my 500th article, I thought of looking back at some of the topics that I published over the past 10 years. The ultimate overriding objective of my media contributions was of improving investor education in Malta.

Invariably every year, many of my articles involved a review of a company’s financial statements to ensure that investors keep abreast of developments. Due to the fact that many retail investors possibly do not read through an entire company announcement or annual report, my aim was to provide a summary of the financial highlights and the main developments within a company. Although my initial contributions revolved around equity issuers on the Malta Stock Exchange, following a change in legislation and the requirement for bond issuers to ironically publish more detailed information than equity issuers (including financial forecasts), I also felt the need to publish important information on some bond issuers for the benefit of the ever-growing investor population. Through these company reviews, I also highlighted the more important financial indicators that investors should monitor to gauge the strength of equity issuers as well as bond issuers. As a result of my regular interventions, I hope that many investors are now better equipped to distinguish between the more profitable equity issuers which are generating higher shareholder returns and others. On the bond market, investors should now be in a better position to gauge the credit worthiness of an issuer and whether the company should indeed be included in an investment portfolio.

Other articles included topics of general interest for the investing public by explaining certain concepts generally discussed across international financial markets. From the feedback that had been received at the time, I recall that a very popular article was that published in October 2012 entitled ‘Lifestyling an investment portfolio’ in which I had discussed a general rule advocated by some academics that the bond allocation in an investment portfolio should generally equal the age of the investor. Although this is always subject to a review of an investors financial background and other personal requirements, a higher allocation to shares, which normally generate better returns over an extended period of time, is more suitable for younger people who are not dependent on their investment portfolio for income and can easily ride out the wide fluctuations in share prices that can take place over a period of time. On the other hand, as an investor approaches retirement age, an increased allocation to bonds is generally recommended as many retired people become more dependent on the income generation of their portfolio to supplement other sources of income such as their pension. The process of increasing the bond allocation in a portfolio as an investor ages is normally referred to as ‘lifestyling’. Thankfully, in more recent years, the bond market has presented investors with various new offerings which have helped to diversify one’s portfolio and not concentrate too much exposure to a single company or group of companies. New bond issuers rumoured to be in the pipeline should continue to assist investors accordingly. However, this lifestyling concept should also take market cycles into consideration and one may question the timing of a change in asset allocation depending on market circumstances. As an example, it would have been highly detrimental for any type of investor to reduce their equity exposure several years ago when share prices had dropped heavily in the aftermath of the international financial crisis since they would have missed out on the strong rally in share prices that followed some years later.

Another topic that I had written about was the cost averaging strategy which may be particularly useful at a time of subdued investor sentiment since panic selling normally results in high quality companies becoming available at compelling valuations. Some investors may remember a time when certain share prices of some of the largest companies in Malta had fallen below their net asset value per share or when the share price of the IT companies had also dropped to historic lows.

The strategy of a share buyback is another topic I had written about many years ago wherein I had explained that the purchase by a company of its own shares is very popular across international financial markets but never took place in Malta. Share buybacks are used as an alternative or in conjunction with cash dividends to distribute excess cash to shareholders. Since the number of shares in issue declines as a result of a buyback and a subsequent cancellation of shares, the profit or earnings per share rises for the benefit of all investors who maintained their stake in the company.

I have also written some articles on certain concepts which ought to be considered by companies listed on the MSE. This ‘activist’ approach is highly lacking by institutional investors in Malta although it is very popular in more developed markets overseas. While I can air my views and publish topics for consideration, institutional investors for example can help by recommending companies to consider certain changes to their financial structure and support valid recommendations from market operators as well as minority shareholders.

Throughout the years, I also presented some views in my articles to assist in the further development of the local financial services industry as well as the Malta Stock Exchange. The lack of new offerings in the bond market between 2010 and 2013 as a result of radical changes in local regulation was very unfortunate. This eventually led to new policies being enacted leading to the requirement of a Financial Analysis Summary. The revised regulation immediately led to a more active bond market and also one which provides much more detailed information for the benefit of all investors. On numerous occasions, I also opined about the need for the Malta Stock Exchange to be privatised via a strategic partner which will then help in spear-heading other initiatives which may be instrumental in attracting foreign companies as well as foreign institutional investors to the local bourse. The Government of Malta as a 100% shareholder in Malta Stock Exchange plc should also offer investors the opportunity to participate in this growing institution via an offer of shares to the public. Many international stock exchanges in Europe have indeed listed their shares on their own market. If the MSE is actively approaching companies to consider an equity listing, then it must lead by example and also be listed on the same market.

A subject that I also regularly mentioned in some of my articles as a means of attracting more companies to seek a listing on the MSE is the regulation around the ‘free float’ issue. I have advocated in the past how in my view certain changes should be enacted to take into account the size of issuers and the profile of local investors including the overall size of the market. I had also proposed that the current restriction of a 25% free float is maintained for companies of a market capitalisation of up to €100 million but this should decrease to 20% if the applicant’s market capitalisation exceeds this threshold. Moreover, this may reduce further to 15% if an applicant has a market capitalisation of €300 million or over. This would also ensure that the larger companies can indeed seek a listing given the limitations of the local investing community. If a company with a market capitalisation of €500 million were to consider an equity listing, an IPO of a minimum of €125 million (25%) may be too large for the market to absorb at one go. The Parliamentary Secretariat for Financial Services, Digital Economy and Innovation recently issued a Consultation document for the strengthening of the Malta Financial Services Authority urging operators, stakeholders and the general public to forward their views. Hopefully the issue of the free float restriction will be among the recommendations raised and will then be tackled by the Government authorities. Although the Government is rightly expecting the MFSA to be well positioned for new challenges including Fintech and Blockchain, certain basic principles such as enacting policies to ensure that the local financial market achieves further depth should not be overlooked.

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