Equity volumes decline on weak sentiment

During the last full week of the third quarter of the year, the Malta Stock Exchange Share Index edged 0.97% higher to 3,832.285 points, but volumes declined substantially to a value of only €0.5 million on poor sentiment following last week's announcement of the bankruptcy of US investment bank Lehman Brothers.

Moreover, local investors turned their focus to the bond market as seen by the massive take-up of the HSBC Bank Malta bond issue which closed minutes after the general public offer opened on Wednesday morning.

Following last week's preplacement which was over-subscribed 2.54 times as total demand exceeded €38 million, there was also a strong response from the public, and as a result HSBC exercised its over-allotment option to increase the issue by a further €5 million to a total value of €30 million. HSBC is expected to announce its allocation policy in the coming days.

Fourteen equities traded during the week with seven losers, five gainers and two unchanged. The worst performers were Global Capital as it slid 10% to reach a new multi-year low of €2.20, Simonds Farsons Cisk which lost 7% to its 'limit down' price of €2.632 and Go which dipped by 4.7% to €2.201. Malta International Airport, Fimbank, Lombard Bank and RS2 also closed the week lower but the losses were minimal.

On the other hand, the best performer of the week was Maltapost with a 3.8% rise to €0.82, followed by Bank of Valletta which inched higher by 3.1% this week to close at €4.31. The other large caps also ended higher with International Hotel Investments recovering 2.5% from last week's decline and HSBC rising by 1.9% to €3.26. Meanwhile, Crimsonwing closed unchanged at its €0.50 IPO level, while Middlesea remained at its multi-year low of €2.95.

BoV's share price gained a further 3.1% on Monday following last Friday's 10% rally which helped the equity recover a large part of the previous day's decline when the share price slumped by 17.4%. This sharp drop followed the announcement made by the bank that the adverse international market conditions will have a material negative effect on its financial results during the last quarter of its financial year to September 30, since the bank records any movements in the value of its portfolio directly in its income statement. BoV also stated in its September 15 announcement that it holds senior (non-subordinated) paper (bond) of Lehman Brothers.

Following Monday's increase to the €4.311 level, the equity eased slightly lower on Tuesday and Wednesday to end the mid-week session at €4.30 on lower volumes of activity. A report on Thursday's media claimed that the exposure to Lehman Brothers amounts to circa 0.5% of the investment portfolio which, as at March 31, totalled over €2 billion. The equity remained inactive on the day as investors eagerly await the publication of BoV's full-year results due on October 31. During Friday's session, the share price edged 0.23% higher to close the week at €4.31 after touching an intra-day low of €4.275 on volumes of 15,001 shares.

Last week's 4.25% drop enticed fresh demand for shares in IHI, helping the equity gain 2.46% to close the week at the €1.04 level. Although the current international economic downturn could create short-term weakness for some of the group's current hotel operations, it presents an outstanding opportunity for companies like IHI which aim to benefit from the drop in property prices and pursue further hotel acquisitions with the help of its strategic partners Nakheel of Dubai and LFICO.

The share price of newly-listed RS2 Software edged 0.97% lower this week to €0.821 on lack of support in the market and increasing levels of supply despite the strong half-year results. The first set of financials since the company's recent listing on the Malta Stock Exchange showed total revenues of €5.3 million during the first half of 2008 and a 167.1% increase in pre-tax profits to €2.6 million. At the time of the initial public offering, the directors had estimated a profit after tax of €3 million for the year, and although the company explained that its performance during the second half of the year is not anticipated to match those achieved in the first half, the directors are confident of achieving the full-year forecasts.

SFC's equity sank during Friday's session as it traded at the bottom of the permitted trade range of €2.632, 7% lower than its last traded price of July 17; 5,000 shares changed hands on Friday with further offers at this level ahead of next week's publication of the group's interim results due on Tuesday.

The interim results are expected to reveal the effect of parallel importation in the soft-drinks sector. However, in the interim statement issued on May 30, the directors noted their satisfaction at the overall performance of all the group's business segments, especially the operation of the franchised food retailing establishments.

CW's equity continued to trade at its IPO price of €0.50 this week, with further offers in the market at this level. Although the company's IPO last December was heavily over-subscribed, the momentum for Crimsonwing shares did not follow through on the secondary market (as in other equity and bond issues) despite the group's recent acquisition of a Dutch company which will help it reduce its exposure to sterling-based revenues. Crimsonwing is expected to hold its first AGM as a public company on Wednesday.

Go's share price is approaching its multi-year low of €2.18 as it closed the week 4.7% lower at €2.201. Following the decline in the share price on August 27, fresh demand helped the equity immediately regain the €2.30 level during the first week of September. However, lack of further bidding at this level left the increasing amount of sellers no option but to push the share price down towards the €2.20 level. Go recently announced that Forgendo Limited (the joint venture company between Go and Emirates International Telecommunications) continued to acquire further shares in Greek company Forthnet.

GHM's equity traded on Wednesday when a mere 1,500 shares helped push the share price up 2.38% to €2.15 to recover last week's decline. This increase was possibly a result of the news that the company concluded the sale of another 30-metre super-yacht berth for €0.5 million. This information was made available by GHM's majority shareholder Camper and Nicholsons Marina Investments Limited, when it issued its June 2008 interim results via the London Stock Exchange. This is the second long-term lease of a 30-metre yacht berth by GHM this year following that conducted in the first half of the year also for €0.5 million. GHM's equity remains supported in the market with unsatisfied bids totalling 2,200 shares at the last trade price of €2.15.

Mr Rizzo is director of Rizzo, Farrugia & Co. (Stockbrokers) Ltd. RFC are members of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. 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. 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.