Stock Market Review - United Group's second bond issue
€10 million 8-year bonds at 6.75%
United Finance plc published a prospectus on June 27 in connection with a €10 million bond issue. This is the second bond issue by United Finance following their debut in the market in September 2000. The coupon being offered on this bond is identical to that of the previous bond issue at 6.75 per cent per annum. This new bond has a final maturity date of June 30, 2016 but may be redeemed earlier at any date between June 30, 2014 and June 30, 2016, by giving not less than 60 days' notice to bondholders.
The bond issue opens today and closes on Thursday or earlier. Applications are for a minimum of €1,000 (nominal) and in multiples of €100 thereafter. The company applied to the Malta Stock Exchange for the new bonds to be admitted to the Official List.
United Finance plc was set up in June 2000 to act as a finance company for United Group Ltd, the parent company of the United Group. The United Group is fully owned by the Gatt Baldacchino family and was established around 85 years ago as the United Motor Company, a transportation company which emerged as a major operator in the field of bus service and chauffeur-driven vehicle services.
Today the United Group operates across three main sectors:
Automotive services
This sector comprises vehicle importation and distribution operated by United Automobile Ltd, car rental and leasing operated by United Garage Ltd and towing and recovery services provided by United Motor Company Ltd. United Automobile Ltd, which was incorporated in 1982, is the sole importer and distributor of both the Opel and SAAB brands in Malta. It operates a fully-equipped service centre including the selling of car parts and accessories.
United Motor Company Ltd acquired and started operating the CAA towing and road assistance services in 2006. United Garage Ltd is a leader in the car hire rental, leasing and fleet management industry. It currently owns and operates one of the largest fleet of saloon and commercial vehicles. It is still the sole franchisee of Hertz Rent-a-Car for the Maltese Islands and is proud to be the oldest Hertz franchisee in Europe.
Fashion retail
In 2005 the Group entered the retail industry with the introduction of a new retail division made up of two companies: United Retail Ltd (which operates franchised fashion stores Oasis and Principles) and United Department Store Ltd (set up to operate the Debenhams franchise in Malta). The group's aim is to become a leading player in the retail industry in Malta.
Property development
Also in 2005 the group invested in a major property development project through a 20 per cent shareholding in Pender Ville Ltd and Pendergardens Ltd. The Pender Gardens project is a prestigious self-contained development covering an area of 26,500 sqm in St Julian's, Malta, providing both residential and commercial properties. It will offer all the amenities of a metropolitan centre in a car-free environment, including a piazza, gardens and a multi-storey car park together with a fitness centre.
The net proceeds from the bond issue shall be used by the company to refinance the redemption of the first bond of €9.3 million issued in 2000 which is due to mature on October 31, 2008; to increase the financing of United Automobile Ltd (UAL) by acquiring from it existing or future bills of exchange drawn or to be drawn by UAL on its customers with recourse to UAL and to partly finance the leasing operations conducted by United Garage Ltd (UGL).
In the event of the exercise of the over-allotment option of up to a maximum of a further €2 million, the company may apply proceeds to fund investments in new projects and refinance the existing bank borrowings drawn to fund the group's recent investments such as the 20 per cent shareholding in Pender Ville Ltd (approximately €2.2 million). Moreover, United Group will be investing a further €1.2 million in United Department Store Ltd in the months ahead.
The offer is being made to maturing bond holders whose names appear on the register as at the cut-off date of June 27, 2008, and to the public through authorised intermediaries.
Holders of maturing bonds as at June 27 who wish to subscribe for the new bond issue may settle the consideration by transferring their maturing bonds to United Finance plc at their nominal value of 100 per cent (par). Since as a result of the conversion to euro, current bondholders have amounts less than multiples of 100 (Lm1,000 nominal became €2,330 nominal), investors wishing to subscribe to the new bonds must round up their holding to the nearest €100. Those holders who do not wish to convert to the new bonds will receive their capital and will continue to receive interest on the maturing bonds until October 31. United Finance plc will be giving preferred allocation to holders of the maturing bonds.
The United Group incurred losses in each of the last five years mainly due to its over-reliance on the automotive sector. Sales of automobiles have decreased markedly in recent years and this has led the group to focus on other sectors, mainly retail and property development. The new retail and property development business initiatives commenced in 2005. The retail business comprises four stores operating the Oasis and Principles franchises which are expected to generate profits for the group from this year, while a profit contribution from the Debenhams department store (which should open for business in autumn 2009) is still some way off. The property development business centres around the group's 20 per cent equity stake in the Pender Place development which the directors state should start contributing from 2010 onwards. The group is forecast to post a marginal pre-tax profit of around €100,000 in the current financial year but the investments in retail and property development should help it achieve more meaningful profits in the years ahead. This should help the interest cover rise to more comfortable levels from those achieved in recent years. The group's net debt position as at December 31, 2007, amounted to €10.9 million. Compared to total shareholders' funds of €4.5 million, United's debt to equity ratio is of 2.4 times.
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 issuer/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. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.
© 2008 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved.
• Mr Rizzo is director of Rizzo, Farrugia & Co. (Stockbrokers) Limited.
The bond issue opens today and closes on Thursday or earlier. Applications are for a minimum of €1,000 (nominal) and in multiples of €100 thereafter. The company applied to the Malta Stock Exchange for the new bonds to be admitted to the Official List.
United Finance plc was set up in June 2000 to act as a finance company for United Group Ltd, the parent company of the United Group. The United Group is fully owned by the Gatt Baldacchino family and was established around 85 years ago as the United Motor Company, a transportation company which emerged as a major operator in the field of bus service and chauffeur-driven vehicle services.
Today the United Group operates across three main sectors:
Automotive services
This sector comprises vehicle importation and distribution operated by United Automobile Ltd, car rental and leasing operated by United Garage Ltd and towing and recovery services provided by United Motor Company Ltd. United Automobile Ltd, which was incorporated in 1982, is the sole importer and distributor of both the Opel and SAAB brands in Malta. It operates a fully-equipped service centre including the selling of car parts and accessories.
United Motor Company Ltd acquired and started operating the CAA towing and road assistance services in 2006. United Garage Ltd is a leader in the car hire rental, leasing and fleet management industry. It currently owns and operates one of the largest fleet of saloon and commercial vehicles. It is still the sole franchisee of Hertz Rent-a-Car for the Maltese Islands and is proud to be the oldest Hertz franchisee in Europe.
Fashion retail
In 2005 the Group entered the retail industry with the introduction of a new retail division made up of two companies: United Retail Ltd (which operates franchised fashion stores Oasis and Principles) and United Department Store Ltd (set up to operate the Debenhams franchise in Malta). The group's aim is to become a leading player in the retail industry in Malta.
Property development
Also in 2005 the group invested in a major property development project through a 20 per cent shareholding in Pender Ville Ltd and Pendergardens Ltd. The Pender Gardens project is a prestigious self-contained development covering an area of 26,500 sqm in St Julian's, Malta, providing both residential and commercial properties. It will offer all the amenities of a metropolitan centre in a car-free environment, including a piazza, gardens and a multi-storey car park together with a fitness centre.
The net proceeds from the bond issue shall be used by the company to refinance the redemption of the first bond of €9.3 million issued in 2000 which is due to mature on October 31, 2008; to increase the financing of United Automobile Ltd (UAL) by acquiring from it existing or future bills of exchange drawn or to be drawn by UAL on its customers with recourse to UAL and to partly finance the leasing operations conducted by United Garage Ltd (UGL).
In the event of the exercise of the over-allotment option of up to a maximum of a further €2 million, the company may apply proceeds to fund investments in new projects and refinance the existing bank borrowings drawn to fund the group's recent investments such as the 20 per cent shareholding in Pender Ville Ltd (approximately €2.2 million). Moreover, United Group will be investing a further €1.2 million in United Department Store Ltd in the months ahead.
The offer is being made to maturing bond holders whose names appear on the register as at the cut-off date of June 27, 2008, and to the public through authorised intermediaries.
Holders of maturing bonds as at June 27 who wish to subscribe for the new bond issue may settle the consideration by transferring their maturing bonds to United Finance plc at their nominal value of 100 per cent (par). Since as a result of the conversion to euro, current bondholders have amounts less than multiples of 100 (Lm1,000 nominal became €2,330 nominal), investors wishing to subscribe to the new bonds must round up their holding to the nearest €100. Those holders who do not wish to convert to the new bonds will receive their capital and will continue to receive interest on the maturing bonds until October 31. United Finance plc will be giving preferred allocation to holders of the maturing bonds.
The United Group incurred losses in each of the last five years mainly due to its over-reliance on the automotive sector. Sales of automobiles have decreased markedly in recent years and this has led the group to focus on other sectors, mainly retail and property development. The new retail and property development business initiatives commenced in 2005. The retail business comprises four stores operating the Oasis and Principles franchises which are expected to generate profits for the group from this year, while a profit contribution from the Debenhams department store (which should open for business in autumn 2009) is still some way off. The property development business centres around the group's 20 per cent equity stake in the Pender Place development which the directors state should start contributing from 2010 onwards. The group is forecast to post a marginal pre-tax profit of around €100,000 in the current financial year but the investments in retail and property development should help it achieve more meaningful profits in the years ahead. This should help the interest cover rise to more comfortable levels from those achieved in recent years. The group's net debt position as at December 31, 2007, amounted to €10.9 million. Compared to total shareholders' funds of €4.5 million, United's debt to equity ratio is of 2.4 times.
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 issuer/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. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.
© 2008 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved.
• Mr Rizzo is director of Rizzo, Farrugia & Co. (Stockbrokers) Limited.