Last week, Malta International Airport plc published its 2015 interim results showing a 6.5 per cent rise in revenue to €29.9 million and an 8.3 per cent increase in Ebitda to €15.2 million.
The company’s pre-tax profits for the first half of 2015 also climbed by 9.6 per cent to a new record of €11.4 million.
The market was undoubtedly expecting such positive financial results given the record passenger growth during the period. In fact, the airport operator announced a strong increase in passenger numbers during each of the first six months of the year with a combined rise of 6.9 per cent to just below two million passenger movements. This came about following a 3.7 per cent growth in seat capacity to over 2.55 million seats as well as a 2.3 percentage point increase in the seat load factor to 77.9 per cent. The higher seat capacity was mainly evident from the second quarter with the additional flights by Finnair, Transaero, Jet2.com and Aegean, as well as new connections by existing carriers.
Passenger throughput is a key determinant of the company’s profitability despite the significant increase in revenue from the retail and property segment over the past five years.
Income from the passenger service charge is the largest component of aviation income. Total aviation income grew by 8.2 per cent to €20.6 million during the first half of 2015, accounting for 69 per cent of overall revenue of €29.9 million.
Meanwhile, revenue from the retail and property segment edged up 4.2 per cent to €9.1 million, representing 31 per cent of total revenue during the first half of 2015. The principal component of the retail and property segment is income from the concessionaires within the air terminal which improved by 4.4 per cent to €3.8 million. The largest improvement, however, came about from rental income with a 10.5 per cent increase to €2.4 million mainly comprising revenue from the rental of various offices spaces within the air terminal as well as the contribution from the office and retail spaces within the Skyparks Business Centre.
Despite the strong increase in profitability during the first half of the year, the gross interim dividend was yet again unchanged at €0.0462 per share (net €0.03 per share). This was the eighth consecutive year that the company maintained its interim dividend at this level. MIA’s dividend policy is then adjusted once the annual financial statements are published in Q1 of the following year, with a corresponding adjustment in the final dividend based on the profitability for the year and other traditional requirements such as capital expenditure plans, the outlook for the year, etc.
The final gross dividend for the 2014 financial year had surprised many investors as it surged by 77 per cent to €0.1231 per share. This had led to a significant upturn in the company’s share price at the time. Coupled with the consistent growth in passenger numbers, the historic gross dividend yield of above four per cent per annum, in spite of the surge in the share price, is presumably one of the factors helping the equity retain its ranking among the best positive performers on the Malta Stock Exchange in recent months. In fact, the equity was the top gainer during July as it ended the month 18.6 per cent higher at €3.95 after briefly touching a new record of €4.
This was the eighth consecutive year that the company maintained its interim dividend at this level
A few days before the publication of the June 2015 financial statements, MIA announced its traffic statistics for the first half of the year and it also reviewed its passenger growth forecast. MIA explained that following the strong increase in passenger throughput during the first six months, expectations of another positive summer season together with the new routes being deployed in the winter season, it is revising upwards its passenger growth forecast for the year to +4.6 per cent compared to the initial forecast at the start of the year of +2 per cent. As a result, passenger movements at MIA are now expected to reach 4.5 million in 2015.
MIA’s CEO Alan Borg explained at last week’s meeting with financial analysts that notwithstanding the expected improvement in passenger figures in the months ahead due to the increase in seat capacity and higher load factors, the company continues with its efforts of increasing connectivity for the airport. MIA’s strategy on the aviation side comprises: (i) a focus on some untapped markets, namely Scandinavia and Eastern Europe including Russia; (ii) a recovery of the Spanish market; (iii) exploring opportunities for connectivity to Portugal; (iv) targeting regional airports around Continental Europe; (v) a continued focus on growing the ‘cruise and fly operation’ and (vi) maintaining a healthy business mix between legacy flag carriers and low-cost airlines.
Mr Borg also noted that in line with the strategy to enhance route development, the company requires continuous investment. The largest being undertaken at the moment is the expansion of the Non-Schengen area at a cost of €2 million. Despite this ongoing investment, the market eagerly awaits the more significant capital expenditure plans with respect to the continued expansion landside. MIA has submitted an application for an updated master plan for the entire 120,000 sq.m. parcel of land and also carried out an environmental impact assessment which took 12 months to complete. MIA is now in discussions with Mepa on this sizeable development and will await formal approval before any communications with the market. Earlier this year, MIA mentioned that subject to planning approvals in hand, the initial project as part of the new master plan would be the construction of Skyparks 2. At the time, the CEO had indicated that this would involve a larger investment than the €19 million for Skyparks Business Centre.
MIA is undoubtedly setting its sights on this new property investment due to the prevailing strong demand for commercial space in various parts of Malta. In fact, during the recent meeting, Mr Borg indicated that the company receives regular requests for retail and office space in the business centre, which is fully occupied.
Given the strong demand for rental space, the CEO expressed his optimism that the company could immediately replace any existing tenants vacating some of the areas within Skyparks at higher rental rates.
Given the continued importance given local investors to yield generation, the market will continue to monitor MIA’s traffic performance closely to verify whether the company can sustain or possibly improve on the generous dividend distributed in respect of the last financial year. The payout ratio had increased to 88.5 per cent in 2014 following the strong upturn in the final dividend. Should the company achieve their forecast of a +4.6 per cent increase in passenger growth this year, the payout ratio could decline to below the 85 per cent level assuming the final dividend is maintained. Barring any announcements on the new property investment, this will be the main factor affecting investor sentiment in the months ahead.
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.
© 2015 Rizzo, Farrugia & Co. (Stockbrokers)Ltd. All rights reserved.
Edward Rizzo is a director at Rizzo, Farrugia & Co (Stockbrokers) Limited.