Recently we have issued an equity research report on MaltaPost plc (“MaltaPost”) with a Sell recommendation and a price target of €1.03, which reflects a downside of 14% from the current price of €1.20 (closing price as of 22nd January 2019).

MaltaPost has experienced declining profit margins in the last four years despite the increase in revenues reported for the same years. The company’s revenues were positively affected from the growth in the eCommerce activity of Malta. Nonetheless, the restriction of MaltaPost by the Malta Communications Authority on its price determination due to the company being the sole universal service provider, has resulted in the increase of operating costs to outweigh the increase in revenue.

MaltaPost’s weakness is in identifying additional revenue streams, which will enable the company to grow further. This is substantiated with the fact that MaltaPost has marginally increased it dividends in spite of the declining net income recognised in the last four years, which indicates that the company has no intention of building up reserves for future capital investments. Thus, MaltaPost’s growth is restrained by the growth of the local market.

Our model assumes that MaltaPost will be positively impacted by the upward change in tariffs on registered mail that went into effect from the beginning of this year.

This change will also see MaltaPost reduce its delivery attempts to one delivery from the previous two delivery attempts, which should see the company save on costs. Even though our valuation accounts for an increase in the profitability of MaltaPost as a result of the price change discussed above, coupled with a fair cost of equity of 8.1% our model returned a price of €1.03 per share.

MaltaPost is currently trading at 26.1x earnings with a net dividend yield of 3.3%. In our opinion, such price to earnings ratio is excessive for a company with limited growth prospects. This substantiates our view that MaltaPost is currently overvalued.

Should the company share price be trading at our recommended price target of €1.03 this would result in a forward net dividend yield of 4.6%, which in my view would be more attractive for a company with a narrow growth potential.

 

This article was issued by Rowen Bonello, research analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.

Sign up to our free newsletters

Get the best updates straight to your inbox:
Please select at least one mailing list.

You can unsubscribe at any time by clicking the link in the footer of our emails. We use Mailchimp as our marketing platform. By subscribing, you acknowledge that your information will be transferred to Mailchimp for processing.