Positive start to interim reporting season

Financial Article 394 by Edward Rizzo - Jul 30, 2015

The interim reporting season commenced last week with the publication of the half-year financial statements of Plaza Centres plc and Mapfre Middlesea plc. Most of the companies that have their equity listed on the Malta Stock Exchange have a December year-end and according to the Listing Rules these companies have until the end of August to publish their financial statements for the six months to 30 June.

As such in the coming days and weeks, a further 14 companies will be publishing their interim financial statements and this will provide an opportunity for analysts and investors to review the performance of these companies and hopefully gain further insight into the outlook for the full financial year.

Plaza kicked-off the reporting season on Tuesday 21 July revealing a 6.7% increase in revenues to €1.23 million and an 8.7% growth in profits before tax to a record of €0.78 million during the first half of 2015. The improved financial performance largely reflected the higher rental rates achieved from the recent new lease agreements. Plaza reported that it signed new agreements with Subway, Havaianas and Scholl Foothealth Centre and these outlets opened during the period under review. During the first half of 2015, average occupancy remain unchanged at the 93% level as these new tenants replaced other tenants which vacated the complex in earlier months. Plaza’s financial performance was also positively impacted by a decline in finance costs following the partial repayment of bank borrowings.

Plaza also gave a brief commentary on the company’s immediate outlook. The company reported that average occupancy within the complex is expected to be maintained at 93% during the third and fourth quarters of this year. Moreover, in addition to the new lease agreements mentioned above, Just Burger Food Co. commenced operations in July 2015 replacing the McDonalds operation on Level 0 and F&F International fashion retailer is scheduled to open in September 2015. The Directors of Plaza reported that they do not anticipate a significant change in the company’s performance in the second half of their financial year. Given the profitability growth in the first half of the year, Plaza should register another record financial performance during 2015. However, no mention was made in the announcement of any expansion plans being contemplated. Earlier this year, CEO Mr Lionel Lapira had informed financial analysts that discussions are ongoing with the owners of a large site in close proximity to the complex as well as with the authorities with a view to addressing the parking shortage. Market participants expect companies to provide regular updates on developments of such a nature from one reporting period to the next.

The second company to issue its interim financial statements was Mapfre Middlesea plc last Thursday. Total income from insurance activities generated by the Mapfre Middlesea Group increased substantially to €14.7 million compared to just over €6 million in the previous comparable period. Furthermore, the Group’s investment portfolios registered higher returns during the period under review compared to the first six months of 2014 especially those of MSV life plc. Additionally, the positive performance of the MSE Share Index during the first half of 2015 resulted in positive movements on the portfolio of the holding company which had registered losses during the same period of 2014. Mapfre Middlesea’s performance was also boosted by a one-off saving from the renegotiation of the reinsurance treaty which led to a 12.2% reduction in administrative expenses to €1.2 million. As a result of these various factors, Mapfre Middlesea positively surprised the market with a significant increase of 85.2% in pre-tax profits to €15.2 million.

While this is valuable news for Mapfre’s shareholders, it is also very important for the larger number of shareholders of Bank of Valletta plc. BOV owns 31% of Mapfre Middlesea and 50% of MSV Life plc and therefore the Mapfre Middlesea results will positively impact the BOV financial statements for the current financial year ending 30 September 2015. However, investor sentiment towards BOV is likely to continue to be clouded by the current political controversies hitting the headlines on a regular basis as well as the pending court case in Italy which was first communicated to the market in early April 2015.

Meanwhile, earlier this week, Mapfre Middlesea confirmed that following the preliminary agreement signed with Allcare Insurance Limited in May 2015, it entered into a Sale of Business Agreement on 24 July by virtue of which Allcare agreed to transfer and sell to Mapfre its economic activity constituting a business as a going concern operated on a stand-alone basis with effect from 31 July 2015. The two companies also entered into a Portfolio Transfer Agreement pursuant to which Allcare is to transfer to Mapfre its general insurance business portfolio as at 1 July 2015 on a going-concern basis. The total consideration is of €1.1 million together with a deferred payment of up to a maximum of €0.5 million payable over a three year transitory period. Mapfre’s equity is by far the strongest performer this year with a significant hike of 81%. After reaching a new multi-year high of €1.86, the share price retreated to €1.64 but recovered to €1.80 earlier this week following the strong financial results and the announcement of its acquisition of Allcare.

By the time of writing, Malta International Airport plc had not yet published their interim financial statements following the board meeting held yesterday. MIA should be reporting an improved profit figure based on last week’s half-year traffic results. The interim reporting season will continue with the results of Malita Investments plc being published tomorrow. At the start of next week, HSBC Bank Malta plc will be issuing its interim financial statements and all the other companies should comply with their obligation by the end of August. To date only Tigné Mall plc, Lombard Bank Malta plc and MIDI plc have announced the date of their respective board meetings to approve their half-year financial results.

The reporting season is an important time as it assists analysts and investors to review individual company performances in detail and to obtain an update from the company on its immediate outlook as well as the strategy going forward.

While the semi-annual publication of financial results, especially from the larger capitalized companies, normally leads to an immediate impact on investor sentiment as such announcements provide direction to individual equities and the market in general, GO plc’s unexpected announcement last week could somewhat overshadow any newsflow of a financial nature. Local investors are likely to give added weighting to this unforeseen development and although GO replicated a press release issued by Emirates International Telecommunications on Sunday afternoon (providing some further information following the very brief announcement of Thursday morning), investors will keenly await other announcements in due course on the expected timeframe of the disposal of shares by the majority shareholder; the likely course of action including any further Extraordinary General Meetings required and more importantly the identity of the buyer/s interested in this controlling stake together with the indicative price range of any non-binding offers received.

Although the summer months are normally characterized by weakening trading volumes across the equity market, such material developments in GO plc and possibly also in other companies could lead to heightened activity in the weeks and months ahead as investors increasingly speculate on the likely outcome.

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