Six down, Six to go

Article by David Curmi

With the first half of the year already behind us, a review of the winners and the laggards is appropriate, and provides some interesting insights, especially given the diversity of returns across the equities listed on the Malta Stock Exchange (MSE).

As an equity market, the MSE was one of the laggards when compared to the performance of European markets.  In fact our local market rose just 1.4% in the six months to 30 June.  This compares to a 6.2% rise in the German DAX, 5.3% in the CAC 40 and 2.4% in the FTSE 100.  The Spanish IBEX 35 was the leader of the major European markets with a healthy 11.7% increase over this period.

As the table below indicates, the divergence in returns is large with the winner over this period being  SanTumas Shareholdings plc which rose almost 43%.  The interesting performance however came from the newcomer to the block, PG  plc which rose almost 30%.  PG, the owner of the Pama shopping centre and Zara brand in Malta,  was listed on the 3rd May after conducting a very successful IPO at a price of €1 per share.  Demand has remained encouraging and the price sustained at around the €1.30 level, indicating that this share has found its natural level for the time being.  Being a new equity on the market, investors will be thirsty for information on the performance of the underlying business.

Simonds Farsons continues to power ahead, up another 8.6% this year. The shares have been on a tremendous run since Jan 2015, rising almost 250% since then.  Only last week shareholders approved the proposed plan to spin off the property division from the manufacturing side of the business.  This offers investors the opportunity to split out the operations of the business, i.e. the brewing, soft drinks and food business, from the significant property interests of the company thereby providing greater focus.  As the local economy continues to perform well and tourist arrivals continue to grow, so has the underlying profitability of one of Malta’s oldest businesses.

HSBC has also managed to clock in an attractive 7% return this year.  Banks generally continue to face a difficult regulatory environment but HSBC appears best placed to weather the storm having the luxury of a big parent behind it, and also having taken some smart decisions early on to clean up some of its loan book.  In contrast BOV faces a more challenging environment and given its announcement earlier this year that it needs to raise some €150m in new equity it is not surprising that the shares have not done very much so far this year.  Meanwhile Lombard, registered a small rise of 1.5%.  Lombard remains in play as its largest shareholder is actively looking to sell its stake in the bank and has put in place a sale process.  After the bank’s AGM earlier this year, news of the sale process has gone quiet but the need to sell by its Cypriot shareholder should mean that news should not be too far away on this front.  Fimbank, the other bank with its equity quoted, suffered a 15.4% fall in its share price.  After a strong run in 2016 and the reporting of difficult numbers, this was not totally surprising.  2017 still looks like it will be a challenging year for the bank but progress on the recovery of some bad debts written off should help improve the bottom line.

Looking to the bottom of the league table, it is surprising to see some large moves downwards especially with a few of the quality names.  Medserv sits at the bottom with a fall of 18.7%.  The company has, quite naturally, gone through a tough time on the back of the oil price slide in 2016 and the reporting of results which clearly reflected the impact this fall had on their revenues.  Management though is optimistic that the action they have taken combined with a pick up in the oil price this year should lead to a better operating environment in the last half of this year.

The other surprising candidate in the lower half of the table is Malita Investments.  Malita is really just a landlord that owns some of the best real estate on the island and seeing a fall of 14% in its shares is a little surprising.  One can argue that as yields start to rise Malita’s share price should suffer as its ability to garner growth is limited by its contractual arrangements.  This is true but unless the company is about to cut its dividend, the yield remains attractive.

Whilst it is natural to have lists of winners and losers, and often the losers become winners and vice versa, it is encouraging to see that trading volumes remain at respectable levels indicating that the MSE has reached a new level of maturity.  This together with the new listings, primarily of new corporate bonds, coming to the market continue to augur well for our exchange. 

The information presented in this commentary is solely provided for informational purposes and is not to be interpreted as investment advice, or to be used or considered as an offer or a solicitation to sell/buy or subscribe for any financial instruments, nor to constitute any advice or recommendation with respect to such financial instruments. Curmi and Partners Ltd. is a member of the Malta Stock Exchange, and is licensed by the MFSA to conduct investment services business