Lombard’s Cypriot shareholder has put its shares up for sale.Following the exceptional 33 per cent surge in the MSE Share Index in 2015 (the best annual performance since 2005 on the highest activity since 2006), during the first three months of 2016, the Maltese equity market advanced by a further three per cent to close the first quarter of this year at 4,563.155 points. On March 10, the Index closed just shy of the 4,600 points level – the highest since mid-April 2008.
Individual equity performances were somewhat mixed with 14 positive movers and seven share prices closing lower. Among the positive performers, it is remarkable to note that eight equities registered double-digit gains in only three months. Moreover, as I highlighted in last week’s article, trading activity across the equity market continued to improve and rose by a further 27.4 per cent to €26.5 million compared to the value of €20.8 million in Q1 2015.
Excluding Santumas Shareholdings plc – which rallied by 30 per cent on insignificant volumes and with no major impact on the MSE Share Index given the company’s miniscule market capitalisation at €4.8 million – the two IT companies registered the strongest gains.
In sterling terms, 6PM Holdings plc surged by 21.4 per cent, closing the quarter at a new record level of £0.85 although the impact of this on the overall MSE Share Index is also minimal given 6PM’s very low weighting of 0.5 per cent in view of its low market capitalisation. However, adjusting this performance for currency fluctuations is important for local investors. In fact, due to the weakening of sterling against the euro as a result of the upcoming Brexit referendum, the increase in 6PM’s equity in euro terms is reduced to 14 per cent.
In a newsletter sent to all shareholders a few weeks ago, CEO Ivan Bartolo (who also owns over 15 per cent of the company) indicated that with respect to the upcoming annual general meeting, during which shareholders will be asked to approve the 2015 financial statements and other resolutions, shareholders should be pleased with the company’s performance. This surely helped investor sentiment in recent weeks.
However, the equity also surged in the final days of March following the surprise announcement of an upcoming takeover bid for the company. 6PM informed the market that third parties have shown an interest in the acquisition of shares currently held by shareholders holding a substantial shareholding in the company and an extraordinary general meeting is being convened on April 28. Subject to a successful due diligence, the interested parties have also expressed their intention to launch a voluntary bid for the acquisition of all the issued share capital of 6PM (See also story on page 6).
Following the 116 per cent uplift during 2015, the share price of RS2 Software plc gained an additional 18.7 per cent during the first three months of 2016. By the end of the second week of March, RS2’s equity surged by 28.5 per cent from the year-end level of €3.16 to an all-time intra-day high of €4.06. In fact, the equity ended up in positive territory for 15 consecutive days.
As the equity breached the €4 level on March 9, RS2 became the fifth largest capitalised company on the MSE with its market capitalisation even surpassing that of the longer-established company GO plc. However, following the unrelentless rally, the equity staged a sharp correction and dropped to an intra-day low of €3.28 in a matter of just five trading sessions until March 18 before recovering to end the quarter at the €3.75 level.
Very surprisingly, RS2 was the most actively traded equity during the first quarter of 2016 as €6.7 million worth of shares changed hands. The volumes traded in RS2 also surpassed those seen in Bank of Valletta plc which, apart from being the largest company listed on the MSE, also has the largest number of shareholders at just under 20,000 and has nearly twice the amount of free-float (in percentage terms) compared to RS2. Following the retreat in RS2’s share price in mid-March, the company’s ranking on the MSE moved back to sixth position with a market cap of €337.5 million – still a major achievement from the level of below €20 million until a couple of years ago.
Neither IT company has yet published their 2015 financial statements. As such, market participants will be particularly attentive to the upcoming announcements in the weeks ahead to verify whether the surge in both share prices to record levels is justifiable given their financial performances.
More importantly, however, given the ambitious strategies of both companies to expand internationally, analysts will be more attentive to the information being published on the business pipeline and progress being achieved in penetrating into new markets. Senior management of both companies should be well aware of market expectations in this respect.
Another major challenge… is the potential delistings that may unfortunately take place
GO plc was also among the top performers during the first quarter of 2016 with a share price increase of 14.2 per cent. The telecoms company published a positive set of financial statements for 2015 and the directors recommended the payment of a final net dividend of €0.10 per share, representing an increase of 43 per cent over the previous year’s dividend.
On February 12, GO announced that it received a number of non-binding bids from interested parties. The market is now eagerly awaiting the conclusion of the due-diligence process and news on the identities of the interested bidders as well as the valuation attributed to GO. As such, the next few weeks and months will be particularly interesting for GO shareholders and the market in general given the possibility that the company may be delisted if a large percentage of the free-float shareholders were to accept the terms of the chosen bidder.
Another four companies registered double-digit gains during the first three months of 2016, namely, Malta Properties Company plc (+12.9 per cent), Malta International Airport plc (+11.6 per cent), Tigné Mall plc (+11.6 per cent) and Fimbank plc with a gain of 11.4 per cent in dollar terms. However, similar to 6PM, given the strengthening of the euro also against the dollar in the past three months, the adjusted return of Fimbank’s share price in euro terms diminishes to +7.5 per cent.
Among the three retail banking equities, Bank of Valletta plc edged 3.7 per cent higher amid continued strong trading activity of nearly 2.5 million shares for a value of just over €5.5 million, while both HSBC Bank Malta plc and Lombard Bank Malta plc suffered double-digit declines of 10.3 per cent and 11.5 per cent respectively.
The most notable development for BOV over the past three months was the issue of the second tranche of their subordinated bond issue programme. Unfortunately, the bank failed to raise the entire €50 million on offer. While this may be the first time in several years that an issuer was unsuccessful in obtaining the entire amount, the reason for this is undoubtedly not as a result of the credit risk of the bank but surely due to the lengthy and complex application procedure.
The change in the application procedure as I had explained in detail in my article on November 19, 2015, at the time of the first tranche of BOV’s subordinated programme, was due to the fact that it was the first time that a subordinated bond issue was offered to Maltese retail investors following the change in legislation in July 2014 regarding the bail-in procedures across the eurozone. In the coming weeks, BOV will be publishing its interim financial statements for the six-month period to March 31, 2016 – an important event for the Maltese stockmarket since BOV is the largest company on the MSE.
The share price of HSBC Malta dropped to its lowest level in 12 years amid more challenging conditions for the European banking sector in general and as the bank reported a 10.3 per cent decline in pre-tax profits during 2015 (after taking into consideration the effect of the non-recurring expenses related to the early voluntary retirement provision of €14.7 million).
Meanwhile, the decline in Lombard’s share price over the past three months should be seen in the light of the 36.5 per cent rally during the previous six months. On March 22, a long-awaited announcement was issued by Lombard Bank as it informed the market that the special administrator of Cyprus Popular Bank Public Co. Ltd (CPB), the largest shareholder of the bank, notified Lombard that it had approved the disposal of its holding of 21,396,558 ordinary shares (or 48.9 per cent of Lombard’s entire share capital) held in the bank. This is another important upcoming development for the Maltese banking sector as well as the stockmarket.
Following the amendment of the Transparency Directive by the European Commission and the removal of the obligation for companies to issue interim statements, it will be interesting to see how Maltese listed companies will ensure that consistent newsflow is forthcoming to enable market participants to make better informed judgements when investing in local equities. There is very clear evidence that regular statements and company announcements enhance trading activity and liquidity in financial instruments. In addition to this possible limitation of newsflow in the immediate future, another major challenge for the Maltese stock market is the potential delistings that may unfortunately take place should a number of takeover bids succeed on some of the companies being launched soon.
Given the significant improvement in liquidity across the local equity market and the concrete evidence of the interest by Maltese retail and institutional investors in investing principally in their domestic market, it is imperative that other companies come to the market to replace the ones that were delisted last year (namely Crimsonwing plc and Island Hotels Group Holdings plc) and others that may follow in the months ahead. This will ensure sufficient investment options for investors who may end up with additional liquidity as a result of the takeover bids.
Edward Rizzo is a director at Rizzo, Farrugia & Co. (Stockbrokers) Ltd.
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