An analysis of the share prices and dividends paid by companies listed on the Malta Stock Exchange have shown that the three banks gave by far the best return over the 2003 to 2007 period, with HSBC as the star performer.
The analysis was carried out by Joe Bonello of Financial Planning Services on behalf of The Times Business. It looks at 15 equities, including 6pm plc, which was only listed just over three months ago, and Grand Harbour Marina plc, which listed in the first quarter of last year.
Mr Bonello calculated the returns to investors if they had invested Lm1,000 or the equivalent currency of the share issue on January 1, 2003, showing how the share price had fluctuated over the five-years, as well as the total dividends paid out during that period.
The results (collated in the table below) include a wealth of information but also raise important questions as to why investors choose a particular equity over another.
The top three performers are the three major banks, who were in fact the first three companies to be privatised.
Number one is an investment in HSBC Bank Malta plc, which was the second equity to be listed on January 20, 1993. The capital value of a Lm1,000 investment on January 1, 2003, would today be worth Lm4,160. In addition, total gross dividends of Lm1,307.54 would bring the overall value to Lm5,467.54.
In number two position is Lombard Bank Malta plc, listed on April 13, 1994, thanks in particular to the 7 per cent gain this share enjoyed in the one day trading session of the last week of 2007.
Here the same investment would today be worth Lm3,399.79, to which would be added the Lm164.40 of gross dividends paid.
Bank of Valletta plc, the first equity to be listed on the MSE on August 26, 1992, in overall terms has seen Lm1,000 treble in value to Lm2,989. When Lm517.40 of gross dividends are added the total increases to Lm3,506.50.
Mr Bonello said the results highlight the importance of seeing share prices as a long-term investment:
"The tendency of investors to think of buying shares and then looking up the value every day to check on any growth makes as much sense as a greenfingers planting flowers and pulling then up by the roots to check whether they are growing," he said.
"Investment in properly researched shares, while obviously still requiring the attention one would give to one's flower patch in the garden, have historically proved that they not only provide an element of capital growth, but also - depending on a share issuer's progressive dividend policy - a growing yearly income, which offsets the ravages of inflation."
Mr Bonello said it was not surprising that the banks fared well as they had consistently issued good results and paid out some very attractive dividends.
"However, I think it is not just a performance issue but a psychological one too. BOV and HSBC were the first two equities to be listed and they are the most widely held investments. Plus, people view the banks as safe and reliable investments. It is a perception issue which has been re-inforced by the excellent results witnessed, and the gross yield of 7.95 per cent for HSBC and 5.79 per cent for BOV."
Of course, the flipside is that there are other companies with good long-term performance and sound fundamentals that are irrationally judged by investors. He commented on two examples:
"MSI has the lowest Price to Earnings (P/E) ratio, 12.99, of the shares listed on the official list, and a dividend yield of just 2.7 per cent. A problem here might be the comparatively low number of non-institutional, tradeable shares, but the long-term fundamentals are solid.
"GO has lost the monopoly status it enjoyed as Maltacom, and, since Tecom Investments bought government's 60 per cent shareholding in May 2006, GO has undergone, and continues to undergo, a root and branch transformation. The cash mountain in GO's balance sheet and its status as the island's only quadruple-play operator (fixed and mobile telephony, broadband and TV) make the end 2007 share price of Lm1.35, at which it yields 7.41 per cent, an attractive proposition," he said.
Of course, taking the value on one day of the year does not reflect all the fluctations of the 12 months.
"The stock market, as gauged by the Malta Stock Exchange (MSE) index bottomed on October 30, 2002 at 1,747.52. The basis price on which the investment of Lm1,000 in each share is calculated is the end of December 2002. In these two months the index had risen 7 per cent to 1,870.914. From there a 255 per cent increase saw the market peak at 6,641.87, its all time high, on March 26, 2006. It ended 2007 at 4,937.75 - down 25.65 per cent from its all time peak.
"Put another way, the index needs to increase by 34.5 per cent to regain its previous all time high; so the figures for the five-year performance chart are certainly not reflective of the best values at which one could have sold out," he commented.
Is there any way in which the local financial markets could function better? Mr Bonello agreed that there was a role for a market maker.
"There is a crying need for a reliable market maker, especially - though not exclusively - for the secondary market in corporate bonds, and to a lesser extent liquid equities. If allowed by statute, I believe that the most trusted institution that can assume the role of market maker is the Central Bank," he concluded.
The analysis was carried out by Joe Bonello of Financial Planning Services on behalf of The Times Business. It looks at 15 equities, including 6pm plc, which was only listed just over three months ago, and Grand Harbour Marina plc, which listed in the first quarter of last year.
Mr Bonello calculated the returns to investors if they had invested Lm1,000 or the equivalent currency of the share issue on January 1, 2003, showing how the share price had fluctuated over the five-years, as well as the total dividends paid out during that period.
The results (collated in the table below) include a wealth of information but also raise important questions as to why investors choose a particular equity over another.
The top three performers are the three major banks, who were in fact the first three companies to be privatised.
Number one is an investment in HSBC Bank Malta plc, which was the second equity to be listed on January 20, 1993. The capital value of a Lm1,000 investment on January 1, 2003, would today be worth Lm4,160. In addition, total gross dividends of Lm1,307.54 would bring the overall value to Lm5,467.54.
In number two position is Lombard Bank Malta plc, listed on April 13, 1994, thanks in particular to the 7 per cent gain this share enjoyed in the one day trading session of the last week of 2007.
Here the same investment would today be worth Lm3,399.79, to which would be added the Lm164.40 of gross dividends paid.
Bank of Valletta plc, the first equity to be listed on the MSE on August 26, 1992, in overall terms has seen Lm1,000 treble in value to Lm2,989. When Lm517.40 of gross dividends are added the total increases to Lm3,506.50.
Mr Bonello said the results highlight the importance of seeing share prices as a long-term investment:
"The tendency of investors to think of buying shares and then looking up the value every day to check on any growth makes as much sense as a greenfingers planting flowers and pulling then up by the roots to check whether they are growing," he said.
"Investment in properly researched shares, while obviously still requiring the attention one would give to one's flower patch in the garden, have historically proved that they not only provide an element of capital growth, but also - depending on a share issuer's progressive dividend policy - a growing yearly income, which offsets the ravages of inflation."
Mr Bonello said it was not surprising that the banks fared well as they had consistently issued good results and paid out some very attractive dividends.
"However, I think it is not just a performance issue but a psychological one too. BOV and HSBC were the first two equities to be listed and they are the most widely held investments. Plus, people view the banks as safe and reliable investments. It is a perception issue which has been re-inforced by the excellent results witnessed, and the gross yield of 7.95 per cent for HSBC and 5.79 per cent for BOV."
Of course, the flipside is that there are other companies with good long-term performance and sound fundamentals that are irrationally judged by investors. He commented on two examples:
"MSI has the lowest Price to Earnings (P/E) ratio, 12.99, of the shares listed on the official list, and a dividend yield of just 2.7 per cent. A problem here might be the comparatively low number of non-institutional, tradeable shares, but the long-term fundamentals are solid.
"GO has lost the monopoly status it enjoyed as Maltacom, and, since Tecom Investments bought government's 60 per cent shareholding in May 2006, GO has undergone, and continues to undergo, a root and branch transformation. The cash mountain in GO's balance sheet and its status as the island's only quadruple-play operator (fixed and mobile telephony, broadband and TV) make the end 2007 share price of Lm1.35, at which it yields 7.41 per cent, an attractive proposition," he said.
Of course, taking the value on one day of the year does not reflect all the fluctations of the 12 months.
"The stock market, as gauged by the Malta Stock Exchange (MSE) index bottomed on October 30, 2002 at 1,747.52. The basis price on which the investment of Lm1,000 in each share is calculated is the end of December 2002. In these two months the index had risen 7 per cent to 1,870.914. From there a 255 per cent increase saw the market peak at 6,641.87, its all time high, on March 26, 2006. It ended 2007 at 4,937.75 - down 25.65 per cent from its all time peak.
"Put another way, the index needs to increase by 34.5 per cent to regain its previous all time high; so the figures for the five-year performance chart are certainly not reflective of the best values at which one could have sold out," he commented.
Is there any way in which the local financial markets could function better? Mr Bonello agreed that there was a role for a market maker.
"There is a crying need for a reliable market maker, especially - though not exclusively - for the secondary market in corporate bonds, and to a lesser extent liquid equities. If allowed by statute, I believe that the most trusted institution that can assume the role of market maker is the Central Bank," he concluded.