A number of local institutional as well as retail investors claim that due to the limited growth opportunities in Malta, they prefer having a larger proportion of their investment portfolios exposed to foreign companies listed on the more liquid overseas stock exchanges than to Maltese listed securities.
However, how many of these investors realise that a number of companies listed on the Malta Stock Exchange have little exposure to Malta, mainly carrying out their respective operations in international markets?
The announcement on October 8 by Medserv plc which spoke about the way it entered into a conditional share purchase agreement for the acquisition of three companies in the Middle East for $46 million, is the latest example of the internationalisation strategy of publicly-traded Maltese companies.
Medserv just concluded the dual funding programme to carry out this acquisition which effectively doubles the size of the company. Medserv is not new to operating outside Malta. Although it has had a logistical base in Malta throughout its 43-year history (mainly to assist international oil companies and their subcontractors for work offshore Libya), Medserv also set up shop in Misurata, Libya some years ago and more recently opened a similar facility in Cyprus after being awarded a lucrative contract by ENI.
The upcoming acquisition of METS in the Middle East will enable Medserv to make substantial progress in its long-term plan of increasing its geographic presence, strengthening its portfolio of services and expanding its customer base with additional international oil and gas companies and subcontractors. Apart from Malta, Cyprus and now the Middle East, Medserv is also tendering for work in Egypt, Portugal and as far as Trinidad & Tobago. As such, this seems to be just the start of more rapid international expansion.
Probably the company regarded as the pioneer in adopting a successful internationalisation strategy is International Hotel Investments plc, the subsidiary of the Corinthia Group. Most local investors are surely well versed with the humble origins of Corinthia and its success in expanding to foreign jurisdictions in the 1990s. The setting up of IHI and the listing of the company’s shares on the MSE in 2000 was intended to pursue this expansion strategy in a more structured manner, including the addition of important international shareholders. Although last year IHI made a significant acquisition in Malta which contributed to it becoming more dependent on hotel and property development locally, the bulk of its sizable asset base is still international with a portfolio of owned-hotels and other real estate in London, Lisbon, Budapest, St Petersburg, Prague and Libya. Moreover, following last year’s acquisition of Island Hotels Group, IHI is also exposed to the Spanish market through the Costa Coffee franchise. The ambitions of IHI and its hotel management arm CHI are to seek further international expansion and chairman Alfred Pisani has been speaking about various other international projects in the pipeline.
A number of companies listed on the Malta Stock Exchange have little exposure to Malta
Another company that was given little importance by local investors at first but which has grown exponentially over the past five years, winning significant international contracts, is RS2 Software plc. This IT company set up in Malta over 25 years ago to service its Maltese customers. It then expanded internationally across a variety of markets. The more notable develoments came in recent years when Barclays Bank entered into a licence agreement for £8.5 million to utilise RS2’s card management software and quickly followed this by an acquisition of an equity stake of 18.25 per cent. Another larger contract by a global processing company amounting to €16.5 million was awarded to RS2 in 2014 and the 10-fold increase in the value of the company over the past five years makes this the best performing equity, by far, on the MSE. Although RS2 can be regarded as a Maltese company and is still listed on the MSE, it should surely be regarded as an international company given its shareholder structure, its client base and its target of continuing to expand internationally, especially in Asia and the US.
Other companies that are very much dependent on their overseas operations include 6pm Holdings plc, which was always very much focused on the UK market – in fact, its reporting currency is sterling. In more recent years, while remaining very much focused on work from Britain’s NHS, the company also set its sights on other regions, namely Macedonia and Ireland.
Grand Harbour Marina plc, which would not normally be placed within the same league as the above companies, also expanded internationally. Its acquisition of a 45 per cent stake in a Turkish marina some years ago also makes this company dependent on international markets.
Furthermore, while many of the companies above achieved significant success internationally and all have further very ambitious goals in new markets, we also had sour experiences with companies that suffered significantly as a result of ill-timed investments and unfortunate circumstances.
Two that immediately come to mind are Middlesea Insurance plc and the failure of Progress Assicurazioni SpA, as well as the difficulties faced by GO plc in the Greek market.
The significant losses faced by Middlesea Insurance (now Mapfre Middlesea) from the bankruptcy of its sizeable operation in Italy is not easily forgotten as it wiped out a large amount of reserves and a rights issue was needed to shore up the company’s finances.
Likewise, the write-off of the Greek investment of GO plc was also a sour experience for the company’s numerous shareholders and the market at large. However, while Forthnet is still operational (and some value could be recovered if it is taken over by international suitors who expressed an interest), GO rightly did not lose its appetite for international expansion. In fact, only last week, GO confirmed that it exercised its option to increase its stake in Cypriot telecoms company Cablenet from 25 to 51 per cent. Cablenet is a private telecoms company and we never had access to its financial statements, but GO’s executives claim that the Cypriot company is profitable and growing at double-digit figures. In an interview last May, GO’s CEO Yiannos Michaelides claimed that the size of this company could eventually surpass that of the GO Group. Following the acquisition of the additional stake, GO’s chairman Deepak Padmanabhan again confirmed that Cablenet is performing strongly, delivering “steady, double-digit growth in both revenue and Ebitda over recent years”. He also stated that Cablenet offers significant potential for GO. This is a very interesting development for shareholders, especially in view of the fact that GO’s board is seeking potential investors following the decision by the majority shareholder to dispose of its investment.
Another Malta-listed company that transacted its business mainly internationally is Fimbank plc. The initial years of its international expansion were very successful and led to the sale of its stake in GTF in India for a very sizeable profit. However, in more recent years, its subsequent ventures in India and Russia led to significant losses for shareholders. Hopefully, a new consolidation strategy, including the downsizing of some of its international operations, will now start bearing some positive results as indicated by the directors of Fimbank last November when announcing that the third quarter of their 2015 financial year was a profitable one.
Local companies need to depart from customary practice and disclose more information to the investing community, including financial forecasts and projections of key financial figures and performance indicators
In addition to the above companies, which have equity listed on the MSE, some only have bonds listed but are nevertheless very involved across international markets.
In this category, apart from some affiliated to the Corinthia Group, Mariner Finance plc, Premier Capital plc, PTL Holdings plc and Hili Properties plc feature, the three latter ones ultimately owned by Hili Ventures Ltd. Premier Capital, this week also announced that it had made a $65 million acquisition of the development licensee of the 66 McDonald’s restaurants in Romania.
Companies operating and expanding internationally are more prone to being taken over either by competitors or instutional investors. Local investors experienced this recently with Crimsonwing plc.
It would be surprising if some of these companies did not feature on the radar screens of possible buyers as takeover targets given their recent successes and ambituious strategies of entering new markets.
In view of their growth strategies, these local companies need to depart from customary practice and disclose more information to the investing community, including financial forecasts and projections of key financial figures and performance indicators. The disclosure of such information may encourage both local and foreign retail and institutional investors to gain a small exposure to these companies as part of their overall investment portfolios.
Edward Rizzo is a director at Rizzo, Farrugia & Co. (Stockbrokers) Ltd.
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