End of the COVID-19 emergency phase

On May 5, the World Health Organisation (WHO) announced the end of the emergency phase of the COVID-19 pandemic. The WHO had declared COVID-19 as a “public health emergency of international concern” − its highest level of alert – on January 30, 2020, and began to describe it as a pandemic in March 2020.

Although the statement by the WHO marks an important new phase in the evolvement of COVID, many restrictions that we had unfortunately become accustomed to since early 2020 were lifted in most regions across the world during the first half of 2022, with the exception of China, which had prolonged measures in place and lifted these only earlier this year.

The COVID-19 pandemic was not the only development that heavily influenced investor sentiment and stock market performances in the past three years.

Unfortunately, the invasion of Ukraine at the end of February 2022, the spike in inflation and the resultant surge in interest rates globally were other major factors that heavily influenced the performances of most asset classes in this turbulent period.

Additionally, within the local context, Malta’s greylisting by the FATF between June 2021 and June 2022 was yet another development that negatively impacted investor sentiment.

In a number of my articles over the past three years, I have regularly made reference to the underperformance of the local equity market since the start of the COVID-19 pandemic and the extent of the decline in trading activity since then, despite the surge in retail deposits across local banks.

Incidentally, only recently, the share prices of the two largest retail banks in Malta (Bank of Valletta plc and HSBC Bank Malta plc) touched their highest levels in three years amid a clear sharp upturn in profitability as a result of the surge in interest rates by the European Central Bank.

While the share prices of BOV and HSBC have recovered in full, the declines suffered since early 2020 when COVID was declared a public health emergency, most other equities are still well below the levels at the start of 2020.

Among the share prices that have not yet recovered the declines since the start of COVID-19, it is worth highlighting the equity of Malta International Airport plc, which ranks among the top companies listed on the Malta Stock Exchange.

The very strong recovery in passenger traffic since the second half of 2022 has been amply evident and is leading to a sharp upturn in MIA’s profitability

The company’s financial performance was naturally hugely impacted by the pandemic in view of the virtual closure of the air terminal for large parts of 2020 and 2021, as well as the early part of 2022. In fact, the airport operator cancelled its 2019 final dividend payment in early 2020 once COVID restrictions became effective, and cash distributions to shareholders are only being resumed now. Incidentally, the net dividend of €0.12 per share announced on February 23 and approved by shareholders during last week’s annual general meeting is due to be paid by May 26.

The lack of dividend distributions in 2020, 2021 and 2022 surely contributed to the weak investor sentiment towards MIA in recent years and the lacklustre performance of the share price which is still 20 per cent below the €6.90 level of January 2020. However, the very strong recovery in passenger traffic since the second half of 2022 has been amply evident and is leading to a sharp upturn in profitability.

During 2022, MIA generated revenues of €88 million, EBITDA of €54.9 million and a net profit of €26.8 million when excluding the €12 million tax credit. Earlier this year, MIA published its traffic and financial targets for 2023. The airport operator expects passenger movements to grow by 7.7 per cent to 6.3 million, which is equivalent to an 86 per cent recovery of the record pre-pandemic traffic in 2019 of 7.3 million passengers.

Based on the traffic projections being envisaged for 2023, the company aims to generate revenues of €97 million during the current financial year ending December 31, 2023, leading to an EBITDA of €59 million and a net profit of €29 million.

Given the nature of their business, it is easy for the company to provide regular updates to the market by way of monthly traffic statistics. During the first four months of 2023, total passenger traffic of 1.95 million represents an increase of 5.3 per cent over the corresponding period in 2019.

There were countless articles across the international media from the start of the pandemic in early 2020 until the first half of 2022 debating the willingness of people to travel, attend social events, dine out, visit shopping centres, etc, once COVID-19 restrictions are fully removed. This doomsday scenario did not materialise, and on the contrary, we are now witnessing a much faster-than-expected return to ‘normality’ across many sectors such as travel, hospitality and retail. In fact, this is showing up very evidently in the financial performances across many local and international companies, including MIA.

Investors should look out for the upcoming announcements by the airport operator to verify whether the company will feel the need to issue updated traffic and financial guidance for 2023 given the very strong growth in passenger traffic being experienced. This could be an important catalyst for an improvement in investor sentiment towards the company as it makes further progress in regaining the all-important seven million passenger figure.

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.

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