The annual financial reporting season commenced last week with the publication of the results of HSBC Bank Malta plc on February 19 followed by Malta International Airport plc the following day.
Since MIA had published its 2018 revised financial targets in July and moreover, in January 2019, the company had already announced its actual passenger numbers for 2018 together with the passenger and financial targets for 2019, the 2018 financial results published last week should not have surprised many investors.
The airport operator had announced that it registered a 13.2 per cent growth in passenger movements to 6.8 million which was exactly in line with the company’s guidance in July 2018.
Since the airport segment (mainly composed of the passenger service charge) accounts for just over 70 per cent of the company’s total revenue, the number of passenger movements is a very reliable indicator for the revenue and profitability of the airport operator.
In fact, MIA’s total revenue increased by 12 per cent in 2018 to €92.2 million which is also very much in line with the forecast provided in July 2018 of over €90 million. Likewise, the 12 per cent growth in earnings before interest, tax, depreciation and amortisation (EBITDA) to €54.4 million also compares well to the guidance provided by the company in July 2018 when it had stated that EBITDA will exceed €53 million. The other financial target published by MIA in its semi-annual forecasts (first in January and then a revision usually takes place in July) is the net profit figure. The company had estimated that net profit will exceed €29 million and the announcement last week revealed that profit after tax amounted to €30.3 million in 2018.
Some investors may be surprised that while the revenue and EBITDA both increased by 12 per cent in 2018 (very much in line with the growth in passenger numbers of 13.2 per cent), MIA’s profit after tax climbed by 25.6 per cent. This is due to the significant decline in finance costs which, in 2018, amounted to €0.16 million compared to €3.8 million in the previous year. The latter figure, however, had included a one-time early repayment fee of €2.78 million related to the early settlement of a high fixed interest rate loan. MIA repaid all bank borrowings during the first half of 2018 and therefore the company will not incur any further finance costs in the immediate years ahead unless fresh borrowings are taken. The 2018 financial statements reveal that as at December 31, 2018, the company’s cash balance amounted to €20.3 million.
Since MIA had disclosed its 2018 passenger movements last month which were exactly in line with forecasts and the company had also published its financial forecasts, the main focus of last week was undoubtedly the final dividend to be proposed for approval at the next annual general meeting scheduled for May 15.
The company announced that its directors will be recommending the payment of a final net dividend of €0.09 per share, which represents an increase of 28.6 per cent over last year’s final dividend of €0.07 per share. Moreover, given the unchanged net interim dividend of €0.03 per share which was paid in September 2018, the overall dividend for the 2018 financial year of €0.12 per share represents a 20 per cent increase over the 2017 dividend distribution.
MIA’s total revenue increased by 12 per cent in 2018 to €92.2 million which is also very much in line with the forecast provided in July 2018 of over €90 million
The hike in the final dividend may have positively surprised most investors following the static dividends in respect of the financial years between 2015 and 2017 notwithstanding the strong improvement in profitability of MIA during these three years. Despite the company’s very low leverage, it had always acted very cautiously in view of the significant investment programme underway. However, the hike in the final dividend announced last week is very much in line with the recent announcement made by Flughafen Wien AG (the operator of Vienna Airport and the largest shareholder of MIA) which in a recent presentation and conference call on the 2018 passenger traffic results and the business outlook for 2019, revealed that they will propose a 30 per cent increase in the dividend for 2018 (corresponding to a 55 per cent dividend payout ratio). Moreover, Flughafen Wien announced that their dividend payout ratio will rise to 60 per cent in 2019.
The increase in the final dividend by MIA is undoubtedly a welcome development given the very strong free cash flow of the company and a robust balance sheet with a net cash position of just over €20 million as at the end of 2018. Although overall dividends for 2018 are increasing by 20 per cent, the dividend payout ratio still eased slightly to 53.6 per cent from 56 per cent in 2017, which incidentally is very much in line with the new dividend policy of Flughafen Wien of 55 per cent.
Another metric which was mentioned in the presentation of Flughafen Wien was the net debt to EBITDA multiple. The Austrian company established a ceiling for net debt to EBITDA of 2.5 times. This is a common metric used across international financial markets to gauge the leverage of a company. It is also a ratio on which I wrote at length in my articles on various occasions mainly when discussing the financial strength of local bond issuers. It may be opportune for many Maltese equity issuers to also start quoting this metric as a measure of a company’s overall indebtedness and its ability to sustain or grow its dividends.
The ceiling being used by Flughafen Wien shows the robustness of MIA’s balance sheet and also the strength of some other Maltese equity issuers. If MIA were to also adopt such a maximum target of overall borrowings, and taking the 2019 projected EBITDA of €59 million, this would imply that MIA can today take on fresh borrowings of a maximum of almost €165 million assuming an unchanged cash balance of €20.3 million.
Although this figure would be the maximum level of indebtedness should MIA replicate the same targets of Flughafen Wien, MIA’s top management have continued to state that the company aims at continuing to fund investments related to its core operations (such as the terminal expansion project) from its own internally generated cash, while non-core investments such as the upcoming €40 million Sky Parks II will be funded via debt.
The strong growth in the profitability of MIA in 2018 translates into a return on equity (ROE) of 29 per cent. The ROE is another important ratio that should be tracked by equity investors and the ratio of almost 30 per cent generated by MIA is indeed remarkable.
MIA had announced last month that based on the current airline schedule, it expects passenger movements to grow by 5.8 per cent in 2019 to a new record high of 7.2 million. The company also said that this should translate into overall revenue of €96 million (representing an increase of 4.1 per cent over the actual revenue in 2018 of €92.2 million), EBITDA of €59 million (representing an increase of 8.5 per cent from the actual EBITDA in 2018 of €54.4 million), and a net profit of €31 million (representing an increase of 2.3 per cent from the actual net profit in 2018 of €30.3 million).
The MIA share price responded positively to the news flow in recent weeks as the equity traded up to a new record level of €6.50 on February 7, giving the company a market capitalisation of just below €880 million. MIA has been the largest capitalised company for quite a few months now as the market capitalisation of Bank of Valletta plc shrunk to below €700 million. Although MIA’s equity is trading at new record levels, interestingly robust trading activity continues on the MSE. In fact, since the start of the year, a total of 752,985 shares of MIA traded for a value of €4.75 million. MIA was the most actively traded equity so far this year and accounted for 26.6 per cent of the overall equity volume of €17.9 million. This again continues to confirm that various Maltese equities are indeed becoming more actively traded and this is a positive development for all investors.
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