Stock Market Review - Pavi registers improved turnover and profitability
On December 30, 2008, Pavi Shopping Complex plc issued its interim results as at October 31, 2008. Pavi's financial year commences on May 1 and this is the first set of financial results since the opening of the LIDL chain in Malta, widely considered as Pavi's main competitor.
Pavi Shopping Complex plc is the group holding company with two fully-owned subsidiaries: Pavi Supermarkets Ltd and Pavi Bakery Ltd. The principle business activities of the Pavi Group are the retailing of food and non-food products from the Pavi Supermarket; income sharing arrangements with third party operators in respect of certain specialist activities (such as the butcher shop, delicatessen counter, fruit and vegetable counter, and fish shop) carried out from within designated areas of the Pavi Supermarket; and the letting of other retail and commercial outlets within the Pavi Shopping Complex. Existing outlets currently include a telecommunications outlet, a newsagent, a florist, a bank outlet and a car wash with the main tenants including Go plc, Bank of Valletta plc, Agenda Bookshop, Atlas Insurance PCC Ltd and Banif Bank (Malta) plc.
Pavi Shopping Complex plc has an issued share capital of €8.4 million and is equally owned by PG Holding Ltd (Paul Gauci) and Yvonvi Ltd (Victor and Yvonne Grech). The company owns the land in Qormi measuring circa 29,000 sqm which was acquired for a total sum of €19.6 million.
During the six months ended October 30, 2008, the Pavi Group generated total revenue (excluding rental income from the retail outlets) of €11.8 million, a 1.4 per cent increase over the previous period despite the onset of the competition from the LIDL chain around Malta. The Group's gross profit climbed by almost €0.4 million or 18.8 per cent to €2.4 million, with the gross profit margin improving to over 20 per cent. This performance is reportedly very much in line with the Group's forecasts and one has to take into consideration the seasonality factor of this business.
The period under review excludes the busiest times of the year - around the Easter period and in the run-up to the Christmas and New Year festivities. Pavi have reportedly generated a strong increase in turnover in December and this should show up in the Group's full-year results as at April 30, 2009. In fact, during the second half of the previous financial year between November 1, 2007 and April 30, 2008, the Pavi Group reported a much higher profitability compared to the first half as the increased turnover mainly filtered straight to the "bottom line" since certain expenses are fixed and incurred irrespective of the revenue generated.
Pavi's operating profit surged from just €0.22 million in the six months to October 31, 2007 to over €0.6 million in the last interim period, greatly helped by the strong contribution from rental income. The Group's operating profit after including the depreciation charge of circa €0.3 million amounted to €0.62 million, and compared to net interest payable on outstanding borrowings of €0.42 million, the bond interest is covered 1.5 times by the Group's profitability. This should be considered an encouraging indicator especially in view of the possibility of higher profitability levels in the second half of the year. The condensed balance sheet as at October 31, 2008 does not enable one to extract the figures for total borrowings.
However, the balance sheet as at April 30, 2008 showed total borrowings of €11.9 million and compared to total equity of €8.5 million, Pavi's debt to equity ratio is of 1.4 times.
Pavi successfully tapped the bond market in October 2007 with an €11.6 million issue. The bonds carry an annual interest of seven per cent and are due for redemption on October 26, 2017 at the latest. The bonds are currently listed on the Alternative List of the Malta Stock Exchange and last traded at 98 per cent, giving a yield to maturity of 7.3 per cent. The bonds are secured by virtue of a first general hypothec against the issuer of the bonds (i.e. Pavi Shopping Complex plc) and a first special hypothec over the shopping complex. Hence in the eventuality of default, bondholders rank with priority and preference to all other present and future obligations of the Group.
With effect from the current financial year until the maturity date in 2017, Pavi have committed to start a Reserve Account from the available free cash flows arising from the operations of the Pavi Group in order to partly-fund the repayment of the bonds. Until maturity of the bonds in 2017, Pavi should be setting aside at least 50 per cent of the value of the bonds, amounting to €5.8 million.
Apart from revenue from the supermarket, the company aims to create additional income from the retail outlets within the complex. It seems to have successfully added a number of prestigious names enabling a steady source of income. Further outlets could be added in future years given the area available on its large site and sustained demand from prospective tenants. This is underpinned by the success of the complex to date which attracts circa 30,000 customers per week.
The interim results published by Pavi are very reassuring for the 2,000 (circa) bondholders who had entrusted part of their savings with the Pavi Group. In the half-year report, the directors stated that the Group's performance improved over the previous year's interim results and further stated that they are confident that with continuing effective management, the company's results should continue to improve in the foreseeable future, this notwithstanding the increased competition within the supermarket industry.
In Malta, many bonds were issued through vehicles known as special purpose finance companies and therefore, the announcements issued by such companies with respect to their financial results are not sufficient to gauge the performance of the Group. In such circumstances, one would need to analyse the financial statements of the parent or of the Group.
In the case where the bonds issued by finance companies are guaranteed, financial statements of the said issuer (finance company) and the guarantor must be published by way of a Malta Stock Exchange Announcement within four months from their year-end.
On the other hand, where the bonds issued by finance companies are not guaranteed, consolidated accounts of the group of which the finance vehicle forms part, would normally be published within the standard 10-month time frame. Therefore those Group companies having a December financial year-end normally publish their results by October, which is inadequate and far too lengthy for any timely analysis to take place.
All bond issuers should thus seek to keep the market and their bondholders adequately informed via regular communications and meetings to keep abreast of the company's performance and developments. This will help bondholders gauge the likelihood of their continued assurance of timely interest payments and eventual capital repayments of the bond upon maturity.
http://www.rfstockbrokers.com
Mr Rizzo is director of Rizzo, Farrugia & Co. (Stockbrokers) Ltd.
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 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.
Pavi Shopping Complex plc is the group holding company with two fully-owned subsidiaries: Pavi Supermarkets Ltd and Pavi Bakery Ltd. The principle business activities of the Pavi Group are the retailing of food and non-food products from the Pavi Supermarket; income sharing arrangements with third party operators in respect of certain specialist activities (such as the butcher shop, delicatessen counter, fruit and vegetable counter, and fish shop) carried out from within designated areas of the Pavi Supermarket; and the letting of other retail and commercial outlets within the Pavi Shopping Complex. Existing outlets currently include a telecommunications outlet, a newsagent, a florist, a bank outlet and a car wash with the main tenants including Go plc, Bank of Valletta plc, Agenda Bookshop, Atlas Insurance PCC Ltd and Banif Bank (Malta) plc.
Pavi Shopping Complex plc has an issued share capital of €8.4 million and is equally owned by PG Holding Ltd (Paul Gauci) and Yvonvi Ltd (Victor and Yvonne Grech). The company owns the land in Qormi measuring circa 29,000 sqm which was acquired for a total sum of €19.6 million.
During the six months ended October 30, 2008, the Pavi Group generated total revenue (excluding rental income from the retail outlets) of €11.8 million, a 1.4 per cent increase over the previous period despite the onset of the competition from the LIDL chain around Malta. The Group's gross profit climbed by almost €0.4 million or 18.8 per cent to €2.4 million, with the gross profit margin improving to over 20 per cent. This performance is reportedly very much in line with the Group's forecasts and one has to take into consideration the seasonality factor of this business.
The period under review excludes the busiest times of the year - around the Easter period and in the run-up to the Christmas and New Year festivities. Pavi have reportedly generated a strong increase in turnover in December and this should show up in the Group's full-year results as at April 30, 2009. In fact, during the second half of the previous financial year between November 1, 2007 and April 30, 2008, the Pavi Group reported a much higher profitability compared to the first half as the increased turnover mainly filtered straight to the "bottom line" since certain expenses are fixed and incurred irrespective of the revenue generated.
Pavi's operating profit surged from just €0.22 million in the six months to October 31, 2007 to over €0.6 million in the last interim period, greatly helped by the strong contribution from rental income. The Group's operating profit after including the depreciation charge of circa €0.3 million amounted to €0.62 million, and compared to net interest payable on outstanding borrowings of €0.42 million, the bond interest is covered 1.5 times by the Group's profitability. This should be considered an encouraging indicator especially in view of the possibility of higher profitability levels in the second half of the year. The condensed balance sheet as at October 31, 2008 does not enable one to extract the figures for total borrowings.
However, the balance sheet as at April 30, 2008 showed total borrowings of €11.9 million and compared to total equity of €8.5 million, Pavi's debt to equity ratio is of 1.4 times.
Pavi successfully tapped the bond market in October 2007 with an €11.6 million issue. The bonds carry an annual interest of seven per cent and are due for redemption on October 26, 2017 at the latest. The bonds are currently listed on the Alternative List of the Malta Stock Exchange and last traded at 98 per cent, giving a yield to maturity of 7.3 per cent. The bonds are secured by virtue of a first general hypothec against the issuer of the bonds (i.e. Pavi Shopping Complex plc) and a first special hypothec over the shopping complex. Hence in the eventuality of default, bondholders rank with priority and preference to all other present and future obligations of the Group.
With effect from the current financial year until the maturity date in 2017, Pavi have committed to start a Reserve Account from the available free cash flows arising from the operations of the Pavi Group in order to partly-fund the repayment of the bonds. Until maturity of the bonds in 2017, Pavi should be setting aside at least 50 per cent of the value of the bonds, amounting to €5.8 million.
Apart from revenue from the supermarket, the company aims to create additional income from the retail outlets within the complex. It seems to have successfully added a number of prestigious names enabling a steady source of income. Further outlets could be added in future years given the area available on its large site and sustained demand from prospective tenants. This is underpinned by the success of the complex to date which attracts circa 30,000 customers per week.
The interim results published by Pavi are very reassuring for the 2,000 (circa) bondholders who had entrusted part of their savings with the Pavi Group. In the half-year report, the directors stated that the Group's performance improved over the previous year's interim results and further stated that they are confident that with continuing effective management, the company's results should continue to improve in the foreseeable future, this notwithstanding the increased competition within the supermarket industry.
In Malta, many bonds were issued through vehicles known as special purpose finance companies and therefore, the announcements issued by such companies with respect to their financial results are not sufficient to gauge the performance of the Group. In such circumstances, one would need to analyse the financial statements of the parent or of the Group.
In the case where the bonds issued by finance companies are guaranteed, financial statements of the said issuer (finance company) and the guarantor must be published by way of a Malta Stock Exchange Announcement within four months from their year-end.
On the other hand, where the bonds issued by finance companies are not guaranteed, consolidated accounts of the group of which the finance vehicle forms part, would normally be published within the standard 10-month time frame. Therefore those Group companies having a December financial year-end normally publish their results by October, which is inadequate and far too lengthy for any timely analysis to take place.
All bond issuers should thus seek to keep the market and their bondholders adequately informed via regular communications and meetings to keep abreast of the company's performance and developments. This will help bondholders gauge the likelihood of their continued assurance of timely interest payments and eventual capital repayments of the bond upon maturity.
http://www.rfstockbrokers.com
Mr Rizzo is director of Rizzo, Farrugia & Co. (Stockbrokers) Ltd.
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 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.
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