The equity research team at Calamatta Cuschieri recently issued a report to its clients on Plaza Centres plc, whereby it was given a “Buy” recommendation with a one-year target price of €1.14, giving a potential capital upside of 12.5% as the date of this writing. The shares are also trading on a gross dividend yield of 4.5%.

Plaza Centres plc is the owner of the Plaza Shopping Centre and the Tigné Place property both in Sliema.

The Plaza Shopping Centre opened its doors in December 1993 in Sliema, and spreads over a total area of approximately 10,500 sqm, hosting a mix of retail, catering and office spaces over nine floors built around a central atrium. The retail outlets host both local and international brands whereas the office spaces are occupied mainly by betting companies and small financial / investment firms. Rental agreements for retail tenants have a long-term nature of 15 to 20 years, whilst the agreements for the office space are much shorter with a duration of approximately 4 years.

Tigné Place

Tigné Place includes four floors of retail and office spaces located in Triq Tigné, Sliema. The property, which also includes 100 car spaces, was purchased for a total consideration of €9.5 million, financed partly by a €4.5 million bank loan and partly through a €8.5 million bond issue.

Arguments supporting our Buy recommendation on the stock

· The Dividend - The shares are trading on an attractive dividend yield of 4.5%. We don’t see the dividend at risk in the short to medium term. On the contrary, once the Tigné Place is at full occupancy, cash flows should improve sustaining the attractive dividend.

· Increase in rental rates (Plaza Shopping Centre) – Rental rates of the Plaza Shopping Centre are subject to annual increments of 4% which are well above the annual inflation.

· Room for improvement in the rental rates at Tigné Place - At the time of the acquisition, the property was fully rented out at an average rate of €148 per sqm which is well below the average rate in the Sliema area. We estimated that similar properties in the Sliema area could be rented out at a minimum of €170 - €180 per sqm.

The same applies to the car spaces of Tigné Place, which as at 2016 were being rented out at an annual rent of €660, compared to an average of €1,000 in this area. The rent agreements in force upon acquisition were mostly expected to expire between 2017 and 2018, giving the Company the opportunity to renegotiate rental rates more in line with the market.

· Increase in profitability – The growth in rental income achievable at Tigné Place would almost completely translate into an increase in operating margins and profitability since operating expenses are mostly fixed by nature within the real estate sector.

· The Property – The property of the Group is in a prime location and even if we had to see a downturn in property prices, the location should not suffer much due to its positioning.

· Online Sales – Although consumers nowadays are looking at purchasing goods online, we believe there will always be demand for retail space. The fact that the two properties are in a prime location contributes to reduce this risk.

· Risk to the business model – We attach a low risk to this business model due to its type of investments and simplicity (i.e. not a portfolio of various properties in various locations creating further subjectivity).

· The model – The valuation is not a complicated one and fairly easy to understand, and although there will always be subjectivity, we are confident in the numbers and forecasts to achieve them.

· The WACC – A discount rate of 7% is fair game for this business model.

Conclusion

In conclusion, investors should seriously consider Plaza to form part of their portfolio if they are looking for a reliable dividend paying stock, with limited downside risk and good return potential. Caution should

be taken, however, as the low liquidity of the stock could play a part in your investment decision, and as is a general theme on the Malta Stock Exchange be wary of potentially large bid-ask spreads when attempting to trade the stock.

This article was issued by Elisabetta Gaudiano, Research Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as a personal recommendation/ investment advice including tax and legal advice. Analyst views to BUY, SELL or HOLD on particular stocks or instruments are related to the stock/instrument being reviewed and are not to be treated as personal recommendations to investors, which are only issued following suitability assessment.

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