The weakest performers of 2012

While last week’s article reviewed the four star performers of 2012 which naturally pleased shareholders given the substantial share price gains, four other companies listed on the Malta Stock Exchange had a dismal 2012 performance with double-digit losses in their share prices.

The market is likely to be paying particular attention to these four companies especially during reporting periods- Edward Rizzo

The worst performing equity during 2012 was Lombard Bank Malta plc with a share price decline of 31 per cent. The share price dropped in each of the first three quarters of the year as it traded down from a level of €2.70 to €1.82 in September. The downward trend came on the back of the announcements by Lombard Bank reporting lower profitability levels.

However, the main factor behind the share price decline was probably the result of uncertainty surrounding their largest shareholder. Marfin Popular Bank (now renamed Cyprus Popular Bank) has a 48.9 per cent shareholding in Lombard and this Cypriot bank suffered tremendously from its significant exposure to Greece. The economic difficulties in Cyprus (the country was recently downgraded once again to ‘Caa3’ by Moody’s) also made matters worse and in fact the Government of Cyprus recently intervened and saved Cyprus Popular Bank through a bailout.

The uncertainty surrounding the fate of Cyprus Popular Bank and its intentions regarding its stake in Lombard impacted local sentiment towards the bank. On various occasions throughout the year, Lombard formally made specific announcements on its relationship with its largest shareholder. On February 29, following local press coverage on the steep losses incurred by the Cypriot bank and its liquidity requirements, Lombard Bank clarified that it holds no exposure whatsoever to any member of the group nor to any other Greek or Cypriot entity.

Lombard also clarified that it had no exposure to any form of non-Maltese sovereign or corporate securities. Similar statements were again repeated in the full-year results announcement of March 15 and the half-yearly financials of August 23. However, the share price continued to decline as the Lombard Group reported that its profitability during the first half of 2012 dropped by 36.5 per cent to €2.6 million mainly due to a drop in net interest income, the adverse tariff movements in the postal industry which impacted the financial performance of Maltapost, as well as the effect of one-off profitable transactions in 2011 which were not repeated during 2012. The share price hit a low of €1.77 in November but gradually recovered towards the final weeks of the year to a level of €1.86.

Trading activity in Lombard shares increased once the equity breached the €2.00 level possibly as a result of the fact that the shares were trading below the June 2012 net asset value per share of €2.06. The net asset value per share should rise once the 2012 full-year results are announced on March 14, although profits are expected to register a decline over the previous year. Sentiment towards Lombard could continue to be dominated by the news regarding its largest shareholder in the near future.

Meanwhile, recent developments from its postal subsidiary indicate that profits ought to start recovering as postal rates on most services that fall under the Universal Service Obligations increased in November 2012, while the single letter mail rate will rise on April 1, 2013. Further rate hikes are also planned for October 2013 and October 2014.

MIDI plc suffered a 27.6 per cent drop in its equity to €0.275 after touching an all-time low of €0.25 compared to an initial price of €0.45 at the December 2010 initial public offering. The company was impacted by the delay in the issuance of the planning permits from Mepa for the remaining phases of Tigné Point. Full development permits were finally issued on January 19, 2012, for the construction of the remaining residential blocks (totalling 102 apartments) and the business centre comprising rentable area of circa 12,000 square metres.

However, due to the two-year delay in the issue of the planning permits, MIDI reported that it will register a loss during 2012 and it will have very few apartments for sale in the coming years. Furthermore, the new apartments soon to be constructed will start coming to the market in late 2013 or early 2014 instead of 2012 as originally envisaged. Meanwhile, the Pjazza apartments launched in November 2011 have been well received by the market despite the adverse economic conditions. During 2012 MIDI reported that 17 of the 22 Pjazza apartments had been sold. In a briefing for stockbrokers shortly after the publication of the 2011 financial statements, MIDI had confirmed that 91 per cent of the 281 apartments launched on the market since October 2002 have been sold and delivered to their owners.

MIDI also reported progress with The Point shopping complex becoming fully occupied during the year and registering increases in visitors and improved sales by tenants in 2011 and also in 2012. The commercial outlets spread around Pjazza Tigné also continued to increase occupancy with nine out of the 10 Pjazza commercial outlets now leased out and almost fully operational. With respect to Manoel Island, MIDI confirmed that the development will commence once Tigné Point is completed and ahead of this, the company is working on revised plans for submission of full development permits and the necessary financing being in place.

Global Capital plc again ranked among the worst performers with a decline of a further 20 per cent. Trading activity in these shares was minimal and the equity was active on only four days during 2012. Global Capital continued to incur losses in 2011 and in the first half of 2012, although the level of losses declined to €0.75 million in H1 2012 as the company reported progress in reducing operational costs and an improved performance of its life investment portfolio. On December 30, 2011, Global Capital had announced that it was continuing to evaluate its appropriate capital and liquidity levels to ensure it meets regulatory requirements.

The company had intimated that it may resort to raising additional capital possibly during the first half of 2012. However, no further updates were announced to the market in respect of the group’s plans in this respect leaving the almost 1,500 minority shareholders completely in the dark in this respect.

Lombard’s subsidiary Maltapost plc closed the year with a decline of 15 per cent. However, the share price had dropped by as much as 37 per cent to a low of €0.63 by the end of August as the company issued a profit warning on August 17. At the time, Maltapost’s directors stated that until such time as the company agrees with the Malta Communications Authority on an upward revision in postal tariffs, the downward trend in the company’s profitability will accelerate. In May 2012, Maltapost had reported a 53 per cent drop in profits for the six months ended March 31, 2012. The sharp drop in the share price in the summer months to levels last seen in November 2009 instigated fresh buying interest, helping the equity partially recover to just above the €0.70 level by the end of October.

Maltapost issued a company announcement on October 25, indicating that its majority shareholder Lombard Bank (through the bank’s subsidiary Redbox) intended to increase its stake in the postal operator from the level at the time of 67.72 per cent to not more than 74.5 per cent. This surprise announcement had an immediate positive impact on the share price as it climbed towards the €0.75 level within a couple of days.

On November 9, Maltapost also announced that it reached an agreement with the regulator on various tariff changes and on December 4, the company issued its September 2012 full-year financials. Although profits dropped by 32.3 per cent to €2.06 million, the market expected a worse performance after the August profit warning. Furthermore, the directors also recommended an unchanged dividend of €0.04 per share, a very positive announcement which was possibly also unexpected by the market. The share price immediately responded positively and jumped by 15.4 per cent the following day to €0.90 before easing to €0.85 by the end of the year. Maltapost’s share price continued to recover during the start of 2013 hitting a high of €0.98 on January 16.

The market is likely to be paying particular attention to each of these four companies, especially at the time of their reporting periods. Three of these companies have a December year-end and will publish their 2012 financial statements by April 2013. Maltapost, which has a September year-end, will publish its half-year financials by May 2013.

Various international financial market commentators often focus on the weaker performers of a prior year and many argue in favour of an increased exposure towards such companies by investors in anticipation of a recovery in their share price.

The situation at each of the four seems very dependent on specific strategic developments within each company.

Shareholders who maintained their loyalty towards these companies despite the disappointing performance will be on the look-out for more detailed and hopefully more regular announcements. Information will help them understand ongoing developments in the hope that some positive sentiment starts to materialise possibly leading to a gradual recovery in share prices in 2013 and beyond.

2012 worst performers

Lombard Bank plc: -31.1%
MIDI plc: -27.6%
Global Capital plc: -20.0%
MaltaPost plc: -15.0%

Rizzo, Farrugia & Co. (Stockbrokers) Ltd, RFC, 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 issuer/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. RFC, its directors, the author of this report, other employees or RFC 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. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC 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.

© 2013 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved.

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Edward Rizzo is a director at Rizzo, Farrugia & Co. (Stockbrokers) Ltd.