GO plc - Interim Results

Maltacom plc published its Half-Yearly Results to 30 June 2007 following a Board of Directors’ meeting held on 30 August 2007. The Directors did not declare the payment of an interim dividend. In 2006 a net interim dividend of 1c5 per share was distributed to all shareholders.

Maltacom Group’s turnover during the six months ended 30 June 2007 amounted to Lm27.1 million, a rise of 2% from the first six months of last year. The continued decline in fixed-line revenue was compensated by improved revenue from mobile services, broadband Internet, Digital Terrestrial TV and call centre activity. The Half-Yearly Report noted that while there was a net decline of 3,000 fixed-line connections, the mobile customer base increased by 2.8% (approx. 4,600 subscribers) and broadband customers showed a 5.2% rise. Meanwhile, DTTV subscribers increased by more than 90% since the start of the year to 16,000. Group cost of sales decreased by 1.9% in the first half of the year resulting in a 6.8% growth in gross profit to Lm12.7 million.

Administrative and distribution expenses increased by 15% to Lm6.7 million. These include various one-time fees related to the Group re-branding exercise. This should improve efficiency and maximise synergies in future reporting periods. Depreciation and amortisation remained marginally unchanged at Lm4.5 million.

The Group operating profit before exceptional items and net financing income amounted to Lm5.9 million, representing a decline of 4% from the first half of 2006. Costs related to the voluntary early retirement scheme amounted to a further Lm0.7 million while a Lm0.15 million goodwill impairment was realised. This resulted in a Group operating profit of Lm5 million. During the period under review, net financial income increased to Lm0.36 million from Lm0.17 million in the comparative period mainly due to lower finance expenses resulting from the continued drop in the outstanding level of borrowings.

The Group’s profit before tax during the first half of the year of Lm5.4 million represents a 14.5% decline from the first six months of 2006. After providing for a tax charge of Lm1.8 million, the Group profit during the period under review amounted to Lm3.5 million. Earnings per share declined by 15.6% from 4c1 to 3c5 in June 2007.

Total assets as at 30 June 2007 of Lm116 million include financial investments of Lm14.6 million and cash balances amounting to a further Lm14.3 million, resulting in total cash and cash equivalents of Lm28.9 million. Given the Group’s strong operational cash flow generation, total debt continued to decrease to only Lm8.6 million as at 30 June 2007. Compared to total cash of Lm28.9 million, the surplus cash over the total Group borrowings is of Lm20.3 million. Maltacom’s Directors should take advantage of this enviable position and begin the process of returning a large part of this excess cash to shareholders through a serious of special dividends. Shareholders’ funds as at 30 June 2007 of Lm86.7 million include retained earnings of Lm59.6 million accumulated over the years. A large part of these accumulated reserves should also be distributed to shareholders since it is very evident that the Maltacom Group does not require such a large capital base. Moreover, the Maltacom Group also owns a number of properties which could easily be sold at a substantial profit for shareholders.

In February 2007, Maltacom plc acquired the entire share capital of Multiplus Limited. The Directors reported in the 2007 Half-Yearly Report that the cost of the acquisition amounted to Lm1,020,002. As at 31 December 2006, the net asset value of the DTTV operator was of Lm427,168. This implies that Maltacom acquired Multiplus Limited at a price to book value multiple of 2.4 times, while Maltacom’s equity trades at a multiple of only 1.6 times its book value.

At the current share price of Lm1.40, Maltacom’s EV/EBITDA multiple (the most common relative valuation multiple used in the telecoms sector) is only 5.2 times. This is substantially lower than the valuation of global telecommunications companies which trade at 6.6 times as well as the multiple of 10.3 times recently paid by a European private equity firm for Melita Cable plc. A report published on 18 July by one of Europe’s leading investment banks recommends an investment in telecom operators since the sector has the highest dividend yield, it is attractively valued and the possibilities of mergers and acquisitions (M&A) within the sector should lead to more transparency of the value of telecom companies. The acquisition of Melita Cable plc by a European company at 10.3 times EBITDA should have impacted positively on Maltacom’s valuation but this seems to have been ignored by the market.

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