Reporting season wrap-up

Article #659 by Edward Rizzo - Published Weekly

In early August, I had published an article providing details on the June 2020 financial statements of a number of companies at the start of the interim reporting season. I had stated that the figures provided by most companies gave a clearer picture to the investing community of the brutal impact of the pandemic.

The interim reporting season is now over as the majority of companies have a December financial year-end and are therefore obliged to publish their June interim financial statements by the end of August. Moreover, by the end of August, PG plc was also obliged to publish its annual financial statements since the company’s financial year ends in April.

The large number of announcements over recent weeks not only gives valuable information on the sizeable negative impact of the pandemic but also reveals how COVID-19 has affected companies in different ways.

In the article in early August, I had provided details of the negative impact from the pandemic on some of the larger capitalised companies listed on the Malta Stock Exchange. Malta International Airport plc reported a loss after tax of €2 million during the first half of 2020 and both Bank of Valletta plc and HSBC Bank Malta plc suffered a significant decline in profits in H1 2020.

On the other hand, last week I published an article on PG plc which gave a good indication on the manner in which COVID-19 impacted this company. While the outbreak of coronavirus was only felt during the last two months of the April 2020 financial year, the results show both the relatively sizeable impact of the pandemic on the retail segment within the overall Group’s results but also the resilience of the entire business model. In fact, during the current financial year to 30 April 2021, PG is targeting to generate once again circa €9.6 million in net profits which would be exactly in line with the performance in the last financial year. A sustainable performance during the current financial year which would again translate into a return on equity in excess of 20% is a commendable performance at the height of a pandemic which proves the soundness of the Group’s business model.

PG is not the only company that seems to be weathering the pandemic in an encouraging manner. Within this context, it is also worth highlighting the financial performance of GO plc and its subsidiary BMIT Technologies plc.

During the first six months of 2020, BMIT’s revenues increased by 4.9% to €11.7 million as the strong growth registered in cloud (+47%) and connectivity services (+13%) offset the weaker demand for managed services due to the restrictions in the provision of on-premise support services to customers. BMIT’s EBITDA remained stable during H1 2020 at €5.1 million translating into an EBITDA margin of 43.6%. BMIT reported a 4.5% increase in pre-tax profits to €3.88 million and the net profit generated by BMIT in the first six months of 2020 of €2.54 million (H1 2019: €2.34 million) translates into an annualised return on average equity of 27.2%. During a recent virtual meeting with financial analysts, BMIT’s senior management team claimed that the company’s performance so far remains in line with the overall targets for 2020. At the time of the IPO, BMIT had forecast that it will achieve revenues of €24.6 million in 2020 (+9.6% over the revenues generated in 2019) and an    EBITDA of €11.4 million (+13.5% over 2019) which should enable the company to distribute a net dividend of circa €0.024 per share compared to €0.02157 per share earlier this year. BMIT’s senior management team also highlighted that the company ended June with a cash balance of €3.6 million despite the payment of a dividend of €4.4 million in early June 2020 in respect of the 2019 financial year.

On its part, GO plc announced record revenues during the first half of the year to €91.6 million (+7.8%). Apart from the 4.9% increase in BMIT’s revenues to €11.7 million, most of the increase in GO’s overall revenue was generated by Cablenet Communication Systems plc – GO’s telecoms subsidiary in Cyprus. Revenue in Cyprus jumped by almost 32% to €23.2 million largely on the back of the higher penetration across the telecoms market including the premium sports segment.

Meanwhile, it is interesting that despite the impact of the pandemic across the Maltese economy, GO’s core business operations in Malta recorded an increase of 1.4% in revenues to €58.1 million. GO’s financial performance was dented by a significant increase of €3.77 million in higher depreciation and amortisation charges related to the significant investments in infrastructural capabilities (including the continued rollout of the FTTH network) as well as new sports content in Cyprus. Excluding depreciation and amortisation charges, EBITDA eased slightly lower to €35.5 million (H1 2019: €35.7 million) whilst the EBITDA margin fell to 38.8%.

Elsewhere, there were contrasting indications from companies within the commercial property sector which are important to highlight to the investing community. In the article in early August, I had mentioned that Plaza Centres plc registered a decline of almost 16% in revenue to €1.44 million and it was immediately evident that the lower revenue emanated from the Plaza Commercial Centre while Tigné Place, which is primarily an office rental complex, actually registered higher revenue figures. The different impact from the pandemic between the office leasing sector compared to retail space can be seen from the results of Plaza Centres plc as opposed to Tigné Mall plc and Main Street Complex plc. While Plaza saw its revenue decline by only 16% in the first half of the year given that the majority of the overall rentable space of both Plaza’s properties relates to office leasing, the decline in revenue suffered by both Tigné Mall and Main Street Complex was significantly higher. Tigné Mall plc suffered a drop of almost 37% in revenues to €2.09 million with profits after tax amounting to a mere €0.2 million compared to €1.19 million in H1 2019. Likewise, Main Street Complex plc saw its revenues contract by 45% to €0.22 million and the company’s net profit amounted to only €65,000 compared to €196,000 in the first half of last year.

The results of Malta Properties Company plc also demonstrate the different impact felt by office leasing as opposed to the retail segment. Although revenues dropped by 7.4% to €1.61 million, this represents the lost income from the properties which have been vacated or sold since the comparative period in H1 2019 or are subject to promise of sale agreements. In fact, MPC explained that COVID-19 has not resulted in any impact on the company’s operations and financial performance and the lease agreements in place with its tenants represent a secure revenue stream for the foreseeable future. Moreover, revenues are expected to increase once the redevelopment of the former Zejtun Exchange is completed in 2021, as well as once the acquisition of the HSBC Contact Centre located in Swatar is also concluded in the coming months.

Over the next two weeks, both Trident Estates plc and Simonds Farsons Cisk plc will be publishing their July 2020 interim financial statements. Moreover, Farsons will also be publishing its updated Financial Analysis Summary providing its financial forecasts for the current financial year to 31 January 2021. Farsons had already indicated that revenue dropped by close to 55% in April 2020 so it would be interesting to understand how the company performed in subsequent months once the lockdown measures started to ease as from mid-June.

The approval of a vaccine against COVID-19 and subsequent availability of the initial doses currently expected by the end of 2020 could start to improve the performance of different economic sectors and wider investor sentiment. Within this context, as indicated in my article in early August, it is important for companies to provide as much information as is reasonably possible in the months ahead to help investors gauge the strength of any financial recovery. Companies should resort to additional guidance to help the investing community in understanding whether the trends evident in the first half of the 2020 financial year have improved. Hopefully, the availability of a vaccine in the months ahead could start to help the gradual economic recovery across different sectors.

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Rizzo, Farrugia & Co. (Stockbrokers) Ltd, “RFC”, is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the company/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon.

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