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Movements across stock market

Last Friday was the last trading day for the third quarter of the year. While reviewing the movements across the different asset classes as well some of the main market movers within each asset class, some surprising details emerge.

The equity market performed positively with an increase of 0.5 per cent in the MSE Equity Price Index following declines in the previous two quarters. The upward movement during the summer season helped trim the decline during the first nine months of the year to -2.8 per cent. On the other hand, the MSE Total Return Index which also incorporates the reinvestment of dividends distributed during the period, advanced by 1.04 per cent during Q3 and is currently in positive territory since the start of the year with a rise of 0.67 per cent highlighting the importance of dividends to overall shareholder returns. Trading activity across the local equity market amounted to €21.8 million during the summer months representing a decrease of 11 per cent compared to the corresponding period last year but an increase of 17 per cent over the second quarter of 2018.

Few investors may be aware that the top performer during the summer months was FIMBank plc, whose US Dollar denominated equity rallied by 24.75 per cent to $0.63. The recovery in the share price came about following the publication of the 2018 interim financial statements on August 14 when the FIMBank Group reported a significant improvement in pre-tax profits to $7 million. Despite the strong recovery in the share price during the past three months, the equity is still among the negative performers since the start of the year with a decline of 8.7 per cent. It is also worth noting that the share price has gained 14.5 per cent from the price of $0.55 at which the recent rights issue was conducted.

Malta International Airport plc was the second best performer during the third quarter of the year with an increase of 21.5 per cent as the equity consistently reached new record levels in recent weeks following the publication of the interim financial statements on July 25, the upgraded passenger and financial forecast for 2018 as well as the recent announcement by Ryanair of an additional ten routes for Summer 2019. MIA is also the second best performing equity this year with an increase of 28.7 per cent. This helped lift the company to the top ranking in terms of the largest capitalised company on the Malta Stock Exchange.

The other two equities which registered double-digit gains during the third quarter of the year were MIDI plc (+18.7 per cent) and Simonds Farsons Cisk plc (+11.6 per cent). The share price of the property development company also reached fresh record levels over the past three months on continued positive sentiment following the announcement on June 21 of the initial interest shown by Tumas Group Company Limited for the development of Manoel Island as well as the publication of MIDI’s interim financial statements showing a profit of €14.1 million reflecting the delivery of various Q2 apartments to their respective owners. MIDI’s equity is by far the best performer this year with a share price appreciation of 61.4 per cent.

The share price of Simonds Farsons Cisk suffered a decline of 19 per cent during the first half of the year due to a delayed share price reaction to reflect the spin-off of the property company Trident Estates plc in December 2017. The equity has since partially recovered during the summer months as it advanced by 11.6 per cent helping the equity to trim its negative performance this year to -9.6 per cent. The renewed upturn in the share price of Farsons in recent months follows from the positive sentiment arising from the publication on 16 May of the annual financial statements as at 31 January 2018 showing a record financial performance for the year with a profit after tax of €13.8 million. Moreover, on September 19, Farsons reported another record financial performance at the interim stage with a profit after tax of €6.1 million.

On the other hand, the worst performer during Q3 2018 was Bank of Valletta plc with a decline in its share price of 16.2 per cent as the market reacted negatively to the announcement on July 31 of the litigation provision of €75 million and the decision to suspend dividend payments to shareholders for the current financial year. BOV’s equity is now not only trading at its lowest level in six years but has also very recently lost its ranking as the largest capitalised company on the MSE to MIA.

Equity market performed positively

The only other equity that registered a double-digit decline during the summer months was GlobalCapital plc with a drop of 11.7 per cent to a fresh all-time low of €0.256. The company had indicated earlier this year that it will be conducting a €6 million rights issue but this has yet to be approved by the regulator.

While the overall equity market performed positively during the summer period, as I reported in last week’s article, the Malta Government Stock market fared negatively and the RF MGS Index shed 1.5 per cent during the past three months amid a marked slowdown in trading activity to only €47.2 million. The RF MGS Index is now showing a decline of 2.57 per cent during the first nine months of the year and is at its lowest level in over four years following the initial recovery in yields from the unprecedented low levels in recent years.

In the corporate bond market, trading activity surged to €27.4 million (the busiest quarter ever) on continued strong appetite from various investors as a result of the increase in the number of issuers coupled with the slowdown in the sovereign bond market. During Q3 2018, another two corporate bond issues were launched on the Regulated Main Market – namely the €40 million bond of Hili Finance Company plc and the €15 million bond of Exalco Finance plc. These bonds were presumably included in the indicative listing calendar published by the MSE last February. At the time, a number of other issuers were indicated to have been earmarked for a listing in the first half of the year and hopefully some of these will materialise during the last three months of 2018.

Since the large majority of companies have a December financial year-end, only PG plc, MaltaPost plc and Santumas Shareholdings plc will be publishing their financial results during the final quarter of the year. Hopefully, many of the companies that have a December year-end and recently issued their half-year financial statements will also issue trading updates in the coming months to keep the market abreast on their performance and any other noteworthy developments. This was a mandatory obligation in the past and some companies maintained this important initiative. Meanwhile, a number of other important announcements may take place by the end of the year, potentially those involving Lombard Bank Malta plc, Bank of Valletta plc, MIDI plc, Malta Properties Company plc and Medserv plc.

The most notable development during the summer months related to the confirmation on August 10 that the National Development and Social Fund acquired 21,651,746 shares in Lombard Bank Malta plc from the Special Administrator of the defunct Cyprus Popular Bank Public Co. Ltd (equivalent to just over 49 per cent of the share capital of Lombard Bank) following the completion of all the conditions contained in the Share Purchase Agreement including the approval of the Malta Financial Services Authority and the European Central Bank. In an article published on May 21 in the local media following the agreement signed on March 16 between the National Development and Social Fund and the Special Administrator, the NDSF had stated that following the acquisition of the shareholding in Lombard Bank, it would then begin the process of the resale of these shares. This “was likely to be through a combination of an institutional pre-placement and a public offer”. An update on the timing and the likely procedure that will be followed may take place by the end of the year.

Bank of Valletta plc is expected to announce the much-awaited results of the stress tests being conducted by the European Banking Authority while MIDI plc may provide further updates on any progress with respect to discussions taking place with Tumas Group Company Limited as well as from the planning process with respect to Manoel Island. Moreover, Malta Properties Company plc had reported on May 17 of the possible acquisition of Dubai Holding’s majority stake in SmartCity (Malta) Limited and an update in this respect should be forthcoming in the weeks ahead. Another major development that the market is looking forward to relates to the sourcing of a strategic buyer for the majority shareholding in Medserv plc which was made available by the two substantial shareholders earlier this year.

While the Maltese equity market has seen a number of share prices register record levels or multi-year highs amid robust trading activity reflecting increased investor appetite for certain companies, the MGS market is reflecting the downward trend across international sovereign bond markets. The increased participation by various investors as well as market players in the equity and corporate bond markets is a positive development which could lead to a growing number of companies utilising the market for their financing or succession planning requirements in the months and years ahead.

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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