The research team at Calamatta Cuschieri recently distributed an equity research report on Malta Properties Company (MPC) with a “hold” recommendation and a one-year price target of €0.60, implying no capital upside or downside potential to the current price of €0.60 as at the date of writing.

MPC is a leading developer and administrator of premium commercial properties. Established in 2011, it was initially a fully-owned subsidiary of GO, tasked with managing the latter’s commercial premises. MPC was spun off from GO in 2015, in order to further focus on the management and development on properties.

Following MPC’s spin-off from GO, the group’s business strategy has been to reduce significantly its dependence on GO, develop the rest of the properties and rent them out to third parties as retail and office spaces at market rates.

However, while retaining GO as an anchor tenant at various sites, MPC is now also undertaking three major developments in Żejtun, Marsa and Birkirkara. In furtherance, the developments of such sites are expected to generate higher levels of rental income going forward.

Of note, the group is successful in identifying appropriate sites for development and in applying its know-how of the property industry to develop them. For instance, MPC’s Floriana property has been redeveloped into The Bastions office complex with all the space available for leasing taken up by third parties. In this regard, the commencement of operations of this office complex contributed to a growth in revenue of 6.4% in 2018.

The group’s rental income streams are secured through long-term rental agreements, primarily with anchor tenant GO. However, despite the growth potential associated with the redevelopment of the Żejtun Exchange, Birkirkara Exchange and the Marsa Spencer Hill Exchange, we believe the current stock price already reflects these growth opportunities and the related risks.

Apart from the Żejtun, Marsa and Birkirkara proposed developments, the group is also currently in the process of drafting a business plan relating to the development of the Naxxar Exchange. This property is currently occupied by GO under contractual agreement terms until 2021. As the planning process is still at the initial stages, it is still not clear what the development will comprise.

MPC distributed its first ever dividend in 2018. However, there are still low prospects of an increase in dividend distribution in the short term given the high capital expenditure requirements to fund future projects.

In 2018, MPC announced that it had started negotiations with SmartCity Dubai to purchase its majority shareholding in SmartCity Malta. If successful, this transaction would significantly transform MPC’s profitability potential and would take the group to a completely different level.

Although we like the business model of the group, we believe the current market price fully reflects the rental income to be generated from the hroup’s projects which are expected to be completed within two or three years, and therefore, at this stage, we rate these shares a "hold".

This article was issued by Andrew Fenech, 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. 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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