HSBC's P/E: price to earnings or price to expectations?

As the market gears itself for the release, at the close of trade next Friday, of HSBC Bank Malta plc (HSB)'s results for the year ended 2006, its share price was the week's top performer with a gain of 2.6%. At last Friday's closing price of Lm2.135, HSB's historic price to earnings (P/E) ratio stands at 25.9.

The week's second best performer, with a gain of 1.9%, was Bank of Valletta plc (BOV), whose historic P/E ratio at last Friday's Lm3.719 close, stands at 16. Although in market capitalisation terms HSB is 50% larger than BOV, the former's profits would require a stratospheric increase to bring its P/E ratio in line with the latter's.

On the other hand, a high P/E ratio reflects the expectation of increased future profitability. For the record HSB's pre-tax profits in the past two years increased by 25% and 12%, respectively. Hopefully, we will not see a local repetition of a warning issued by its parent company on Wednesday night, when HSBC warned investors of an increase in its US bad debt provisions caused by the pressure on house prices and rising repayments.

Back to the Malta Stock Exchange: it was a positive week with gainers outpacing losers 6-3, and large cap stocks regaining popularity. Equity turnover by value topped the Lm600,000 mark by a comfortable margin for the second time this year and the MSE index closed the week at 5,123.766, up 1.5%.

BoV opened the week flat at Lm3.651 but advanced steadily on sustained buying activity to close at Lm3.68. The positive mood extended into Tuesday as the price climbed further, closing at Lm3.70.

It stabilised at this level for the next two days - although Thursday saw two deals, struck mid-session, at Lm3.71 and Lm3.72. During Friday's lethargic trading only two deals were effected, at Lm3.71 and Lm3.719, for BOV to end the week 1.9% ahead.

In total, 65,418 shares changed hands for a value of Lm241,354. At 38% of the week's equity turnover by value, this makes BOV the week's most actively traded stock. At the end of trading, best bids totalled 2,000 shares at Lm3.705, while supply of 2,500 shares started at Lm3.72.

HSB started the week unchanged at Lm2.08, slipped to Lm2.07 and recovered to close almost flat at Lm2.079. On Tuesday a spurt of activity led to a Lm2.10 close.

Wednesday's Lm2.11 kick-off was not maintained, as the price retreated to Lm2.10. Thursday's activity picked up the slack with a flurry of trades taking the price back up to Lm2.11, rising to Lm2.12 and closing at Lm2.13.

Friday's more sedate pace saw HSB trade at Lm2.13, with only two deals executed at Lm2.129. The final deal, two minutes from the close, took the price up to Lm2.135 for a week-on-week gain of 2.6%.

The total volume for the week was 96,470 shares, worth Lm203,180. At the end of trading, the best bid was for 2,500 shares at Lm2.13, and the best offer for 3,040 shares stood at Lm2.135.

On Wednesday HSB announced that the board is scheduled to meet on Friday to consider and approve the final audited accounts for the year ended December 31, 2006, and to consider the declaration of a final dividend to be recommended to the bank's annual general meeting.

Maltacom plc (MLC) had a positive start to the week, advancing from Lm1.46 to Lm1.48. During Tuesday's very erratic trading, MLC opened at Lm1.46, dipped to a low of Lm1.43 and then sprang back to Lm1.48 in the final trade.

It did not trade mid-week but was back on Thursday, trading at Lm1.45 throughout. During Friday's slow session, MLC started out at Lm1.45, advancing to Lm1.48 towards the end of trading to end the week 1.4% up.

Turnover for the four days traded totalled 28,206 shares for a market value of Lm41,061. At the end of the session, the best bid was for 1,166 shares at Lm1.45 and the best offer for 5,000 shares at Lm1.48.

Malta International Airport plc (MIA) opened the week at Lm1.36 but closed unchanged at Lm1.38. It slipped to Lm1.375 on Tuesday, falling as low as Lm1.364 on Wednesday to then close 5 mils higher at Lm1.369.

A 3c per share recovery on Thursday saw the price climb 2.2% from a Lm1.369 open to a Lm1.399 close. Friday's deals were struck at Lm1.399 and Lm1.40, closing at Lm1.40 for a 1.4% advance on the week.

In total, 14,560 shares changed hands for a value of Lm20,042. At the end of the session, best bids were for 1,000 shares at Lm1.351 and offers for 5,000 shares started at Lm1.399.

FIMBank plc (FIM) was the only equity from the official list to end the week stable at US$1.74. It traded at this level on Monday, Wednesday and Friday. Turnover for the week amounted to 13,023 shares, worth Lm7,499.

International Hotels Investment plc's (IHI) positive run continued unabated, as it closed at another fresh peak for its fifth consecutive week. On Monday it started out at €1.14, rising to €1.15.

It did not trade on Tuesday but was stable at this latter level on Wednesday and Thursday, pushing ahead to an all-time peak of €1.16 on Friday. IHI ended the week 1.7% up on turnover of 57,448 shares for a value of Lm28,313.

Medserv plc started the week stable at Lm1.40, advanced to Lm1.41 on Tuesday and gained another 1c to a record Lm1.42 on Wednesday. It did not trade again to end the week up 1.4%

Lombard Bank plc had a negative week: it started at Lm5.40 on Tuesday, easing back to a Lm5.348 close. It only traded again on Thursday, tumbling a hefty 6.5% to Lm5 on two deals totalling 1,550 shares. It did not trade again, to nurse a bruising 7.4% drop on the week.

GlobalCapital plc only traded on Wednesday and Thursday, at consecutively lower prices of Lm2.10 and Lm2.05, for a drop of 3.5% on the week.

Middlesea Insurance plc (MSI) shed 3c in its opening deal on Tuesday, falling to Lm2. It traded steadily at this price on Wednesday and Thursday but had another 2c chipped off its price on Friday to end the week at Lm1.98 - down 2.5%. In total, turnover was a comparatively busy 28,192 shares for a value of Lm56,311.

On Monday MSI announced that the board of directors approved a number of changes to its top management structures: while changing Mario C. Grech's title from chairman and CEO to executive chairman, Joseph M. Rizzo was appointed chief operations officer and Anne Marie Tabone was appointed chief finance officer.

The two chief executive officers appointed are David G. Curmi at Middlesea Valletta Life Assurance Co Ltd and Stephen Gauci - at Progress Assicurazioni Spa. Marzena Formosa and Elizabeth Carbonaro have been appointed chief officer of Group Investments and Group Finance, respectively.

All these executives will become members of the Group Executive Committee. A further review of the top management structure will be undertaken within two to three years.

On the Alternative Companies List, Datatrak plc was only active on Thursday, when 1,410 shares changed hands at the unchanged price of 24c5.

The Government bond market was fairly active, with a nominal turnover of Lm1,345,000. One stock, 5.4% MGS 2010 (iv), accounted for 43% of this, as the price eased a marginal 0.2%. In one deal, a nominal Lm250,000 of 7.35% MGS 2007 was transacted at Lm102.04.

The corporate bond market was also quite busy: the newly listed HSB 4.6% 2017 Lm and euro bonds traded for the first time this week. The Lm-denominated bond closed at Lm100.11 and the euro one rose to €101. In total, 16 different issues traded for a nominal turnover of Lm193,300.

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