Article update on Malta Properties Company plc (“MPC” or “Group”) following the issuance of the interim results for FY2019.
We maintain our hold recommendation on MPC with one-year price target of 66c, implying a capital downside of 2.9% to the current price of 68c as at the date of this writing.
The group is a leading developer and administrator of premium commercial properties.
Following MPC’s spin-off from GO plc (GO), the group’s strategy has been to reduce significantly its dependence on GO and adopt a multi-tenant strategy.
Although this will present its own challenges, such strategy will help to diversify the group’s client base and increase its returns.
Excluding the properties which have been recently developed (The Bastions Office Complex - Floriana), those which are in the course of construction (Żejtun Exchange), those which are embarked for development going forward (Marsa Spencer Hill Exchange and Birkirkara Exchange) and those which are for sale (St George’s Exchange and St Paul’s Bay Old Exchange), the group still owns seven properties which remain underdeveloped across several locations across Malta, including Rabat, Mosta, Victoria, Birkirkara, Marsa, Sliema and St Paul’s Bay.
Of note, if MPC had to consider developing these properties, such developments might substantially increase the group’s profitability potential, both from an income and valuation perspective.
The group’s revenue is principally derived from operating lease rental income attributable to the group’s investment property. The 2019 LTM revenue figures demonstrate a further increase in revenue of 2.7% to €3.4 million.
This increase has been primarily been initiated through the commencement of operations of the Birkirkara exchange, whereby GO entered the premises in January 2019.
Following GO’s exit from the St George’s Exchange during H1 2019, MPC will be selling the property to a third party. Consequently, the group will not generate any further rental income from this site.
Of note, the 2019 LTM results demonstrate a decline in administrative expenses of 13.1% to €0.9 million. Administrative costs continued to drop during the six-month period as at 30th June 2019, in line with the group’s effort to carry out its operations in a more efficient manner.
Moreover, the drop in administrative expenses (-13.1%) followed by the increase in revenue (2.7%), led to an increase in EBIT margin from 69% in 2018 to 73.9% as per 2019 LTM results.
Due to higher levels of revenue forecasted to be generated by the Group, together with the anticipated decline in administrative expenses to be incurred going forward, we expect EBIT margin to improve to 76.6% in 2019.
Although MPC distributed their first dividend in 2018, there are still low prospects of increased dividend distribution in the short term given the high capital expenditure requirements to fund future projects. No interim dividend was declared by the group for the six months ending June 2019.
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 group’s current 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.