Start of Malta’s interim reporting season

Article #706 by Edward Rizzo - Published Weekly

The interim reporting season in Malta started last week and over recent days, 6 equity issuers published their interim financial statements for the 6-month period ended 30 June 2021. A number of bond issuers also began issuing their interim financial statements.

The reporting season is always a very important time for the financial markets, both in Malta and more so overseas (where companies report on a quarterly basis) since it allows investors to gauge the financial performance and prospects of a company or a particular sector. Moreover, the reporting season allows companies to explain the key business initiatives being undertaken to grow shareholder value. Invariably at times, share prices become particularly volatile during the reporting season as the market reacts to the announcement and to the guidance provided by companies. For instance, last Friday’s 7% decline in the share price of Amazon.com in response to the publication of the results and forecast the prior day, is a very good example of the volatility experienced at times during the reporting season.

The 2021 interim reporting season in Malta is also hugely important since it will enable investors and financial analysts to assess the extent of any recovery being seen by certain companies and sectors following the sharp downturn in some industries last year due to the pandemic.

The financial statements published over recent days provide some important information on the Maltese retail banking sector in particular as APS Bank plc, Bank of Valletta plc and HSBC Bank Malta plc all issued their interim results. It is evident from the results of all three banks that the performance is starting to improve across the sector following the weak profitability in 2020 as a result of the hugely challenging conditions caused by the pandemic. Apart from the higher levels of income for all three banks, one of the main reasons for the improved performance across the industry is the low level of impairments compared to last year. This is an important indicator since it implies that in the main, most customers are honouring their obligations. On the other hand, the upward pressure on costs in view of the regulatory requirements is also a common theme across the sector which has also been evident over recent years. In addition, the negative interest scenario in the euro area continues to be a lingering drag on their performance despite the efforts to mitigate this headwind.

All banks continued to retain high levels of capital and both BOV and HSBC Bank Malta failed to declare an interim dividend. BOV stated that “a return to a stable and predictable dividend is not advisable at this stage given the risks in the overall economic environment, the litigation risks BOV is facing, and the need for capital to support the ongoing transformation strategy over the coming months”. On the other hand, HSBC Malta said that no interim dividend is being declared due to ongoing uncertainty and also since “the European Central Bank continues to recommend extreme prudence with regard to dividend distributions”. The restrictions imposed by the ECB on capital distributions will end after 30 September 2021 and it would be interesting to gauge whether the Maltese banks would be announcing any dividend distributions during Q4 2021 or in the following months.

Another company that issued its interim financial statements last week was Malta International Airport plc which is the largest company on the Malta Stock Exchange when taking into consideration the entire issued share capital of the company with a market capitalisation of €852 million. The company registered another loss during the first half of the year and the bleak performance of the airport operator should not have surprised any investor or analyst since the company publishes its traffic statistics on a monthly basis and the dynamics of the industry are known to many in view of the major restrictions imposed by the health authorities.

The company yet again did not declare a dividend to shareholders in order to “preserve the company’s liquidity and maintain its financial stability”. Since the end of the interim reporting period in June, travel restrictions were initially eased in early July but then as the number of COVID-cases spiked in mid-July, the new measures introduced by the Government of Malta for unvaccinated travellers “constituted a major setback to the industry’s recovery progress”. In fact, MIA’s CEO Alan Borg separately announced last week that the traffic results for the month of August are very likely to be below those registered in July as various airlines reported a large number of cancellations following the strict rules adopted by the Government.

The first company to report on its interim financial performance was Mapfre Middlesea plc with the insurance company generating a slight improvement in net profit attributable to shareholders of €4.93 million as conditions across financial markets improved.

Plaza Centres plc also published its interim financial statements on 28 July. The results however must be analysed in the context of the sale of the ‘Tigné Place’ property in September 2020. As such, the Group revenue for the first half of 2021 does not take into consideration any revenue from this property while the comparative results reflect a contribution for the entire 6-month period. In fact, when reviewing the results on a Company level, it transpires that revenue generated from the Plaza Commercial Centre increased by 11.3% reflecting the lower level of support provided to retail tenants (in the form of rental discounts and higher absorption of common area costs) during the past six months compared to the higher level of support in 2020 following the outbreak of the pandemic. This helped Plaza register a pre-tax profit of €0.44 million compared to €0.61 million in H1 2020 when including the contribution of the other property which has since been sold. Overall shareholder funds of €26.5 million translate into a net asset value per share of €1.0413.

Earlier this week, one of the companies within the technology sector and the latest entrant into the financial market, Harvest Technology plc, also issued its interim financial statements. The company has surpassed its financial projections last year and the positive dynamics in underlying profitability remained strong in the first six months of 2021. Although revenues slipped by 12.4%, the company reported higher profitability which exceeded expectations on the back of improved margins. Moreover, Harvest maintained its upwardly revised target of a pre-tax profit of €4 million for the full year compared to the projected figure of €3.4 million at the time of the IPO in November 2019. In line with the commitment at the time of the November 2019 IPO, the company distributed dividends on a regular basis and so far a total of four dividends were paid amounting to €0.078 per share (net of tax). The net dividend of €0.06 per share distributed for 2020 equates to a yield of 4% on the €1.50 IPO price. The regular dividend distribution is set to continue as the company declared an unchanged interim dividend of €0.024 this week.

Other companies will be issuing their financial statements in the coming days while many others normally do so just before the deadline of the interim reporting season at the end of August. By then, PG plc will also be required to publish the annual financial statements as at 30 April 2021. Companies listed on the MSE should increase their efforts to communicate their strategic initiatives to the investing community and place increased focus on seeking options to unlock and deliver improved value to shareholders.

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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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