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MIDI’s Net Asset Value per share rises to €0.40

MIDI plc published its 2017 annual financial statements on April 23 and also convened a meeting for financial analysts earlier this week. The headline figures within the 2017 financial statements were not surprising and reflected the company’s expectations published in the Financial Analysis Summary over the past two years. MIDI had launched a bond issue in June 2016 and under the Listing Policies, the company has since been obliged to publish financial forecasts via a Financial Analysis Summary. MIDI had always anticipated that a low level of revenue will be generated in 2017 due to the lack of residential units available for delivery to prospective owners.

In fact, MIDI generated revenue of only €4.64 million in 2017 and reported a negative EBITDA of €2.21 million. This includes an impairment charge of €1 million related to the value of MIDI’s 100 per cent owned subsidiary Solution & Infrastructure Services Limited.

The major surprise within the 2017 financial statements was the extent of the revaluation of the company’s investment in Mid Knight Holdings Limited (MKH) in which MIDI has a 50 per cent stake with the balance being held by Mark Weingard.

MKH is the owner of The Centre, a nine-storey building at the heart of the Tigné Point development providing 15,000 square metres of office space. The centre opened its doors in October 2017 and all the floors are fully occupied. Its tenants include MeDirect Bank (Malta) plc and a number of leading gaming companies which are expanding their activities locally. MKH had sold one of the floors of the building to a third party investor for €6.85 million in July 2015. Meanwhile, in view of the demand for premium office premises and the rents being achieved, MKH decided to change the ground floor area from catering to office space, thereby increasing the rentable office space by around 1,400 square metres.

Since The Centre opened its doors during the last quarter of 2017 and was fully occupied at the financial year-end, a revaluation of MIDI’s investment in MKH was reflected in the 2017 financial statements. In fact, the financial performance was positively impacted by a €26.3 million contribution from MKH following a revaluation of ‘The Centre’ to €95 million compared to a value of €35.4 million as at the end of 2016.

The significant revaluation of this investment helped MIDI report a pre-tax profit of €21.2 million and after accounting for a tax charge of €0.47 million, the net profit for the year amounted to €20.8 million.

Moreover, the revaluation of MKH was also reflected in the Statement of Financial Position with an increase in total assets to €235.3 million and a 28.6 per cent jump in shareholders’ funds to €86.6 million giving a net asset value per share of €0.404 compared to €0.315 as at December 31, 2016. The net asset value per share is an important indicator due to the nature of the company’s business.

MIDI is at an important juncture in its life cycle. Following the completion of the major parts of the area within Tigné Point, the focus is now shifting to the Manoel Island project

The Financial Analysis Summary published annually by MIDI does not include any indication of property revaluations or impairments that may take place from one year to the next. The financial projections only include the core business performance, namely the property development nature of the company as well as the rental income from other commercial properties. In view of this, the 2017 financial statements showing the sizeable revaluation ought to have positively surprised many shareholders.

At the meeting held earlier this week, MIDI’s CEO Mark Portelli confirmed that the company is in the process of completing the Q2 residential block. Over recent years, the company always indicated that these apartments will be handed over to their owners during the course of 2018 and in fact the 2018 financial projections first published in 2016 and again in 2017 showed an expected hike in revenues to over €60 million for 2018.

MIDI’s CEO provided an update on the latest residential development and explained that the Q2 residential block comprises a total of 60 apartments. Mr Portelli confirmed that 48 units have already been the subject of a promise of sale agreement. One of the apartments had already been subject to a final deed of sale in 2016 (and therefore reflected in the 2016 financial statements), while 17 units have already been delivered to their owners since the start of the 2018 financial year and therefore the total revenue from these apartments will be reflected in the 2018 interim financial statements due to be published in August. Meanwhile, the other 30 units that are subject to a promise of sale agreement should be delivered later on this year. Mr Portelli also announced that the total revenue that will be generated from these 47 apartments should amount to €52.1 million.

The CEO also explained that the remaining stock of 12 apartments were only launched on the market recently at circa €10,000 per square metre. MIDI also expects to complete the sale of these units in the months ahead and the revenue will be reflected in the financial statements once the final deeds of sale are completed. Mr Portelli also indicated that MIDI should be generating revenues in excess of €70 million from the sale of the entire Q2 residential block which in turn should lead to a contribution in excess of €30 million. This exceeds the initial projections of the company in June 2016 when it had estimated that overall revenue from these 60 units will amount to €64.1 million and is very possibly due to the higher selling prices being achieved following the significant upturn in the property market over recent years.

MIDI’s Financial Analysis Summary which is due for publication by June 23, should include an update on the 2018 financial projections. In 2016, MIDI had estimated that the 2018 profit after tax would amount to €9.7 million and the company’s expectations improved in June 2017 when it had forecast a profit after tax for 2018 of €12.9 million. Shareholders are eager to see the latest projections for 2018 and the extent of the positive impact of the 2018 profits on the net asset value per share.

At the meeting earlier this week, MIDI’s CEO also provided an update on the Manoel Island project following the confirmation of the guardianship deed signed with the Gzira local council and the newly-established Manoel Island Foundation earlier this year. Mr Portelli explained that an Environmental Impact Assessment is being submitted this week and a hearing is expected by the end of June. The company then awaits feedback on the overall master plan towards the end of the third quarter of the year. In the event of positive feedback from the Planning Authority, MIDI expects works to start by year-end whilst vertical construction is expected to commence by the end of June 2019.

With respect to the options available to the company for the development of Manoel Island, the CEO explained that while the company is still seeking a strategic or financial partner to partake in the project, the company is considering all funding options including proceeding with the project on its own steam since the directors believe that this is manageable if the project is divided into different phases. 

MIDI is at an important juncture in its life cycle. Following the completion of the major parts of the area within Tigné Point, the focus is now shifting to the Manoel Island project. Shareholders who have patiently supported the company since its Initial Public Offering in late 2010 now await details on the upcoming business plans to gauge the potential rewards from their equity investment in MIDI plc.

Rizzo, Farrugia & Co. (Stockbrokers) Ltd (Rizzo Farrugia) 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. Rizzo Farrugia, its directors, the author of this report, other employees or Rizzo Farrugia 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 Rizzo Farrugia, 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.

© 2018 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved.

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