During the third quarter of the year, the equity market benchmark closed 1.1 per cent higher at 3,333.187 points. Although the summer months are generally a quieter period for market activity on the Stock Exchange, trading activity across the equity market increased by 14.8 per cent when compared to the volumes in the previous quarter.
During the three-month period from July 1 to September 30, 2014, a total of €12.7 million in equity trades took place. Bank of Valletta plc was once again the most liquid security with €3.4 million worth of shares changing hands, representing 26.5 per cent of the total value traded.
Among the 21 companies listed on the Malta Stock Exchange, the performances were mixed with five equities showing double-digit gains and another seven registering milder price improvements. On the other hand, eight equities closed in negative territory during the summer months and one closed the period unchanged.
The best performing equity during the three-month period from July 1 to September 30, 2014 was Go plc with a share price appreciation of 27.5 per cent. Go was the second most actively traded equity during the summer with a value of €2 million worth of trades, equivalent to 16 per cent of overall equity volumes. This strong performance helped the equity maintain its ranking at best performer in 2014 with a year-to-date gain of 42.5 per cent. The continued upturn during the summer months came amid increased expectations from the investing community on the value of the possible disposal of the group’s indirect investment in Forthnet (Greece). In recent months, Forthnet issued a number of announcements confirming that the Greek incumbent operator OTE (partly owned by Deutsche Telekom) offered to acquire Forthnet’s Nova Pay-TV business for an undisclosed amount. Another announcement was issued in mid-July confirming that Vodafone Group and Wind Hellas Telecommunications SA submitted a joint non-binding indicative proposal to Forthnet, for the possible acquisition of all the shares of Forthnet which are not owned by them. Wind and Vodafone currently hold 39.50 per cent while Forgendo (jointly owned by Go and Emirates International Telecommunications) is the largest shareholder with a stake of 44.96 per cent. The announcement indicated an offer price ranging between €1.70 and €1.90 per Forthnet share. Apart from speculation on the possible amount that may be recovered by Go should this sale materialise, the positive sentiment towards Go’s equity was also helped by the publication of interim financial statements showing a 3.1 per cent increase in pre-tax profits to €8.5 million.
GlobalCapital plc ranks as the second best performer during Q3 as the equity reversed its decline in the second quarter of the year and climbed by 21.4 per cent to the €0.80 level. However, this upturn materialised on very weak activity of a mere 34,927 shares.
The third best performer was Lombard Bank Malta plc with a share price rise of 16 per cent during the summer months to €1.699. The equity is still down 1.4 per cent year-to-date and the recovery is possibly a result of renewed hopes that the long-awaited sale of the significant equity stake held by Cyprus Popular Bank will finally materialise. Meanwhile, the financial performance of Lombard Bank during the first half of 2014 was again characterised by further pressure on net interest income as interest margins tightened, largely attributable to softer loan demand and a higher level of deposits. Pre-tax profits of the Lombard Group of €3.3 million during the first half of the year represent a decline of 22 per cent over the comparative period.
RS2 Software plc continued to perform positively and the share price traded up to new highs during the summer. The equity advanced by 10.7 per cent to €2.934 after touching a new record level of €2.95. Trading activity was strong with over 760,000 shares changing hands for a value of €2 million. RS2 is the second best performer since the start of 2014 with an increase of 36.3 per cent as the market capitalisation of this IT company surged to €132 million. RS2 now ranks as the seventh largest company listed on the Malta Stock Exchange.
Bank of Valletta plc was also among the positive performers during Q3 with an increase of 10.4 per cent. Despite the summer recovery, BOV’s equity is still down 7.4 per cent year-to-date following the 16.1 per cent decline in the first six months. Also in the banking sector, HSBC Bank Malta plc continued to underperform and edged 1.8 per cent lower during the summer with the year-to-date loss increasing to 15.1 per cent
However, the worst performer during Q3 was International Hotel Investments plc with a decline of 20.5 per cent to a fresh all-time low of €0.60 as sentiment worsened following the developments in Libya and Russia which are impacting the company’s financial performance. The properties in these two countries were among the strongest contributors to overall performance in recent years. The directors of IHI warned that instability in both Russia and Libya will continue to impact hotel operations going forward and they do not exclude the possibility that these events could have a negative impact on the value of the property at the end of the current financial year. This would naturally negatively impact the entire group performance despite the improved operations across the other hotels in Budapest, Lisbon, Malta, Prague and London.
Probably, Q3 2014 will mostly be remembered for the rally across the bond market. In fact, Malta Government Stock prices surged to all-time highs (the Rizzo Farrugia MGS Index increased by 3 per cent) as eurozone yields sunk to fresh lows on worsening statistics across the eurozone economies and the response from the European Central Bank.
A number of interesting developments are likely to characterise the market during the final quarter. On the bond market, a couple of new corporate bonds as well as the final Malta Government Stock issue are expected to come on offer. One of the key events for equity investors will be the publication of BOV’s financial statements towards the end of October and the publication of the Asset Quality Review and stress tests being conducted by the ECB. Both BOV and HSBC Bank Malta have been undergoing these audits.
During the final quarter, additional announcements should also be forthcoming from Go and Forthnet in Greece on recent discussions regarding the possible takeover of the Greek company by Vodafone and Wind. Should this materialise, Go shareholders will then be anxious to hear from the management team on how it intends to use the resultant cash inflow and whether a special dividend would also be distributed.
Another company that should hit the headlines is Crimsonwing following the approval granted by shareholders at the annual general meeting in August for the dissemination of price sensitive information to prospective bidders that have shown an interest in the company. The circular distributed to shareholders ahead of the AGM explains that some bidders “have intimated an interest in acquiring a substantial shareholding in the company and in some cases in making an offer for the total issued share capital of the vompany”. Investors now await confirmation that the due diligence exercise has been completed and whether any of the interested parties has made a binding offer for the company.
The local equity market is therefore expected to remain responsive to the individual company news-flow as well as to the audit findings of the ECB on the two major banks. Meanwhile, the bond market continues to be characterised by significant liquidity chasing limited fixed interest opportunities.
Edward Rizzo is a director at Rizzo, Farrugia & Co (Stockbrokers) Ltd.
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 company/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, and may also have other business relationships with the company/s. 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.
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