Although 15 out of the 22 equities listed on the Malta Stock Exchange performed positively during 2014, the MSE Share Index still closed the year with a decline of 9.6 per cent. The performance of the local equity benchmark is mainly dependent on the two large banks which account for 43 per cent of the total market capitalisation. In fact, both these banks feature among the six equities that performed negatively during the past 12 months.
Trading activity amounted to €50.8 million representing a decline of 4.4 per cent over the volumes in 2013. Bank of Valletta plc remained the most liquid security with a total of 3,239 trades during the year for a value of €17.5 million, representing over 34 per cent of total equity volumes.
The best performers during 2014 were Go plc and RS2 Software plc with gains of 39.7 per cent and 35.6 per cent respectively. This is the third consecutive annual gain for the equity of the telecoms operator following the steep decline in its share price between 2007 and March 2012. Go’s equity continued to recover during 2014 on evidence of an improved operational performance from its local business units and speculation on the sale of its shareholding in the Greek telecoms company Forthnet. Articles in the Greek press recently confirmed that Vodafone and Wind Hellas (which together already own almost 40 per cent of Forthnet) are set to launch a binding bid for the remaining shares in Forthnet SA after the Christmas holidays. Meanwhile while the Greek incumbent OTE is expected to lodge its bid for Nova (the pay-TV arm of Forthnet) also in the early part of 2015. Further developments on a possible bidding war for Forthnet are therefore expected in the next few weeks and these are likely to be reflected in the share price of Go.
RS2 Software has also been a consistent strong performer in recent years and the equity advanced by a further 35.6 per cent during 2014 to yet another record level. This renewed upturn must be seen in the light of the 212 per cent rally in the equity in 2013. RS2’s operational and strategic performance was equally positive with a number of new agreements confirmed including a licence agreement with a global payment processing company for a total value of €12 million and a services agreement with the same licensee with an annual minimum spend of €1.5 million for the first three years of the agreement. More recently, RS2 claimed that it has a very strong pipeline of potential clients and it is in the process of negotiating yet another new licence deal with a client in Europe. This is expected to be concluded during the first quarter of 2015. Furthermore, it is negotiating new letters of intent to provide services to clients within Europe and North America reflecting the increasing demand for RS2’s managed services.
The three property-related equities that provide attractive dividends to shareholders, namely Malita Investments plc, Tigné Mall plc and Plaza Centres plc, all feature among the eight equities with positive double-digit returns during 2014. Malita and Tigné Mall advanced by 20.8 per cent and 16.5 per cent to fresh record levels of €0.64 and €0.60 respectively with the share price of Plaza gaining 13 per cent to a new multi-year high of €0.65. Such a positive performance by all three equities is understandable given the very low interest rate environment as this leads to higher demand for such securities.
Medserv plc closed the year with an increase of 13.3 per cent despite the 6.3 per cent decline of the equity in the first half. The share price recovery materialised after the company re-iterated its forecasts of a pre-tax profit of €2.2 million for 2014 as contracts with two international oil companies using the Malta base and the ENI (Cyprus) contract for the exclusive use of the base in Larnaca have all commenced. In its latest Interim Directors’ Statement, Medserv announced that it had signed a tripartite agreement with a leading international oil company and a leading rig operator to support activity offshore Libya and further agreements were signed with other leading international service companies, representing supply vessel support, mud mixing, procurement and local representation.
Another consistently positive performer in recent years has been Malta International Airport plc with the share price mirroring the strong growth in passenger numbers.
During 2014, the share price advanced by a further 8.8 per cent to €2.35 after having reaching a new record of €2.40. MIA is expected to register its fifth consecutive record in annual passenger movements with a growth rate in the region of 6 per cent during 2014.
The confirmation on September 17 that Simonds Farsons Cisk plc will be convening an extraordinary general meeting during the last quarter of 2015 asking shareholders to approve a reorganisation of the corporate structure of the Farsons Group helped the equity rally by 10.5 per cent during the past three months and rank among the positive equity performers also in 2014. As part of the Farsons Business Park development, the board will be proposing to spin-off the group’s non-core property interests into a separate and distinct public limited company while the core properties used in its beverage business will be held by the parent company.
In the IT sector, apart from the significant upturn in the share price of RS2, the performances of the other two equities was more subdued, with the sterling denominated equity of 6PM Holdings plc up a mere 1 per cent to £0.68, and Crimsonwing plc with a gain of 1.2 per cent to €0.86.
In April 2014, Crimsonwing’s equity advanced towards its December 2013 all-time high of €0.88 following the strong operational performance by the company amid new contract wins but trading activity dwindled since the end of June after the company confirmed that a number of potential bidders had shown interest in acquiring the company.
On November 28, Crimsonwing confirmed that it had received a voluntary bid from KPMG Investments Malta Ltd with the intention of acquiring the entire issued share capital of the company at a price of €0.8327 per share. Both David Walsh (42.98 per cent) and Philip Crawford (21.03 per cent), the two largest shareholders holding 64.01 per cent of the total issued share capital, will be accepting the offer.
The acceptance period closes on January 20, 2015 unless it is extended by the offeror in line with the Listing Rules. Should KPMG manage to achieve acceptances totaling 90 per cent, it can then squeeze out the remaining shareholders and Crimsonwing shares will unfortunately be delisted from the Malta Stock Exchange.The banking equities had a disappointing year with the share prices of the two major banks both closing lower, sending the MSE Share Index into negative territory. Bank of Valletta plc dropped by 7 per cent and HSBC Bank Malta plc shed 16.7 per cent. Banks are facing challenging conditions given the low interest rate environment coupled with a strong increase in deposits and low demand for loans. Moreover, regulatory challenges are also taking their toll, with higher costs to comply with additional reporting obligations, pressure to increase impairment provisions as well as to reduce dividend payments to shareholders, thereby retaining additional capital resources. While Lombard’s operational performance is also reflecting these tough circumstances, the equity rallied by 22.8 per cent during the second half of the year and closed in positive territory with a rise of 4.4 per cent. The share price recovery from the multi-year low of €1.419 in May 2014 was possibly due to speculation on progress being made by the largest shareholder of the bank to dispose of its 48.9 per cent stake.
The worst performer of the year was International Hotel Investments plc with a share price decline of 39.1 per cent to €0.579. As a result of the steep decline in the equity, IHI lost its ranking as the third largest equity on the MSE to Malta International Airport plc. Despite the successful conclusion of the sale of the residences in London, sentiment was impacted by the failure of the company to disclose the sum raised from this long-awaited transaction but more importantly from developments in Libya and Russia.
In mid-December, IHI reported that the lower performances by the properties located in Tripoli and St Petersburg during 2014 were partially mitigated by record Ebitda results in the properties in Malta, Budapest, Lisbon and London as well as the improving profits in the hotel in Prague.
IHI is therefore expecting to achieve an Ebitda of €33.8 million for 2014 (based on actual data up to November and a forecast for December) which although a 19.5 per cent drop from 2013, is marginally higher than that achieved in 2009 (€33.3 million) – the first year of the international financial crises. IHI also provided an update on the strategies for each of the markets in which they are present and confirmed that in Malta, the group is evaluating the possibility of developing a six-star hotel and maximising the use of the remaining area currently occupied by the two hotels in St George’s Bay. Local investors will now turn their attention to the financial reporting season which will commence in February.
While the publication of financial statements always impacts sentiment and share prices, other company announcements detailing specific developments will also continue to impact share price movements and trading activity in particular companies.
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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Edward Rizzo is a director at Rizzo, Farrugia & Co (Stockbrokers) Limited.