Great expectations - Chalmers chokes them

The legendary stock picker Peter Lynch in his 1989 bestseller One Up On Wall Street says: "The price earnings (P/E) ratio of any company that is fairly priced will equal its growth rate. In general, a P/E ratio that is half the growth rate is very positive. If the P/E ratio is less than the growth rate, you may have found yourself a bargain."

By this pronouncement of Peter the Great, Bank of Valletta plc (BOV) is a definite bargain. Its results to September 30, published on October 27, show a rate of earnings growth of 47% on the previous year.

At last Friday's closing price of Lm3.70, the P/E ratio is 15.9. That is not only "half the growth rate" - but closer to a third! So doesn't that make BOV's potential spectacular?

How will chairman Roderick Chalmers deal with the verbal Lynch-ing he can expect at next month's annual general meeting? He may wish to quote Lynch's closing sentence to the above paragraph: "As to the all-important future growth rate, your guess is as good as mine."

And it is precisely Mr Chalmers' candid quoted comments about the "all-important future growth rate" that choked sentiment, sending the BOV share price plummeting a full 7.5% on the week.

Despite the release of the bank's bumper profits the previous Friday, BOV opened the week in a contained mood. The previous Friday's Lm4 mark was the order of the day, with only a handful of deals struck mid-session at Lm4.02.

Tuesday saw enthusiasm peter out as BOV traded mainly at Lm4, closing at Lm3.99. During Wednesday's apathetic session a mere 1,230 shares changed hands between 10.41 a.m. and 10.57 a.m., closing 4c lower at Lm3.95.

The reaction to media comments made by Mr Chalmers earlier on in the week on the sustainability of the bank's profits' growth filtered through to the market on Thursday. BOV opened at Lm3.94, slithered down to Lm3.90, crashed to Lm3.80 and tumbled further, falling to Lm3.70.

It recovered for a couple of deals but was back to Lm3.70 towards the end of the session, falling to the bottom of the allowable trade range of Lm3.688 in the final deal.

Friday's session, the last one to be eligible for the 11c gross (7c15 net) dividend, saw BOV trade around Lm3.68 and Lm3.70, closing the day - and the week - at this level for a rather unpleasant 7.5% drop.

BOV was the week's most active equity with 88,232 shares changing hands, which accounted for Lm336,536 - or 40% - of the week's total equity turnover. At the end of trading, the best bid was for 2,000 shares at Lm3.68, while the best offer for 140 shares stood at Lm3.75.

HSBC Bank Malta (HSB) was up almost 2% to Lm2.085 on Monday, remaining flat at Lm2.08 on Tuesday. In the first 45 minutes of trade on Wednesday HSB climbed to Lm2.10; however the momentum was not maintained and it receded to Lm2.08 to close unchanged.

An opening flurry of deals on Thursday temporarily kept HSB at Lm2.08. After more than a whole hour's silence, the equity traded again, skidding to Lm2.075, Lm2.07 and closing at Lm2.06.

The slide carried on into Friday as a deluge of sale orders sent the price crashing from a Lm2.06 open to a Lm2.01 close, ending the week 1.7% lower. Turnover for the week totalled 137,337 shares for a market value of Lm282,877.

At the close of trade best bids totalled 1,250 shares at Lm2.01, while supply for a mere 15 shares started at Lm2.02.

Only 18,322 Maltacom plc (MLC) shares were traded last week. The price was stable at Lm1.55 in the early part of Monday's session, advancing to Lm1.57 by the close.

Both Tuesday's and Wednesday's trade consisted of a single deal, one for 760 shares and the other for 250 shares, both at Lm1.58. Thursday's 5,380 shares proved a comparatively busy session as the price again lost ground, falling from Lm1.57 to Lm1.551.

In the final session of the week MLC lingered around the Lm1.55 mark, closing at Lm1.551 to end the week close to flat, just 0.1% ahead. At the end of the session, the best bid was for 313 shares at Lm1.551 and the best offer for 2,500 shares at Lm1.594.

Malta International Airport plc did not take off until 820 shares traded on Tuesday, with a further 1,500 shares on Wednesday. Both deals were effected at Lm1.38.

Friday's session picked up the slack as just over 10,000 shares changed hands, also at Lm1.38, to close the week flat. At the end of the week, best bids were for 400 shares at Lm1.36, and offers for 2,931 shares started at Lm1.38.

In small cap stocks, Medserv plc (MDS) had a prosperous second trading week, ahead at Lm1.36 on Wednesday, and propelled to Lm1.40 by Thursday's close. It stayed put on Friday to end the week 6.1% ahead, making it the week's best performer.

Simonds Farsons Cisk plc (SFC) was in good spirits last week, gaining 2c to 78c on Tuesday and a further 2c to 80c on Thursday to end the week up a fizzy 5.3%.

Middlesea Insurance plc's positive streak ran into its third week: the price gained ground from session to session, starting at Lm2.15 on Monday, progressing to Lm2.22 by Friday to post a 4.2% gain on the week.

International Hotel Investments plc (IHI) was one of the week's most active stocks: it started on Monday by climbing aggressively from €0.98 to €1, sweeping up accumulated supply as 81,378 shares changed hands.

Tuesday's more sedate session saw IHI advance to an all-time high of €1.02 - the price at which most of Wednesday's deals were also effected. It did not trade on Thursday and was active again on Friday when it closed at €1 for a weekly gain of 3.09%.

On Wednesday IHI announced that the agreements signed on August 10 involving Wyndham Hotel Group International Inc (WHGI), Corinthia Palace Hotel Co Ltd and CHI Ltd were successfully concluded. CHI is now 70% owned by IHI and 30% by WHGI.

Lombard Bank plc was active on three of the five trading days, rising from Lm4.81 to Lm4.83 to close the week 0.6% ahead. Turnover was a modest 4,541 shares for a market value of Lm21,851.

Plaza Centres plc was stable at 68c, trading only on Monday and Friday, with a turnover of just 11,300 shares for a market value of Lm7,684.

GlobalCapital plc was off its record high on Monday, trading at Lm2.31 and Lm2.319. It only traded again, dropping 1c9 to Lm2.30, on Thursday, when all of 60 shares changed hands.

Fimbank plc (FIM) only traded on Tuesday (closing practically flat at US$1.70), the day it announced that with effect from last October 19 they had been granted a licence by the Dubai Financial Services Authority to operate as an authorised firm within the Dubai International Financial Centre.

Last Monday Suncrest Hotels plc (SCR) announced that its parent company had applied to the listing authority seeking approval of an offer to be made to the shareholders of SCR for the purchase of Suncrest shares either for cash, or by conversion of their shares into bonds to be issued by AX Investments plc and guaranteed by its parent company, AX Holdings Ltd.

Consequently approval was sought from the listing authority for the suspension of trading in the company shares pending the approval of the terms of the offer by the listing authority, until such time as the full terms of the offer are disclosed to the public. Trading in SCR shares was suspended in the middle of last Monday's session.

Datatrak plc (DTK) was down to 30c on Tuesday but recovered to 31c on Thursday, the level it traded at on Friday, to close the week static on a turnover of 9,012 shares.

The market in Malta Government stocks slowed down last week, with turnover by value of just over Lm581,000, spread over 54 deals. The most active were the short-dated bonds 7.35% and the 5.6% (III), both maturing next year, which accounted for over 60% of the week's turnover.

The corporate bond market was much more active last week, with 50 deals completed for a turnover by value of Lm99,727.52. On Thursday the Lm2 million 6.25% Simonds Farsons Cisk Bond 2006-2008 was redeemed.

On the same day trading in the 6.7% Tumas Investments plc Secured Notes 2006 ceased as this is due for redemption on November 22.

Financial Planning Services Limited is licensed by the MFSA to provide investment services, including stockbroking (IS/3608). The company is involved in acting as sponsoring stockbroker and corporate stockbroker. The directors or related parties, including the company, and their clients, are likely to have an interest in securities mentioned.

Report by Financial Planning Services Ltd., tel: 2134-4244, fax 2134-1202, e-mail matthew@bonellofinancial.com, elaine@bonellofinancial.com