Last week, Malta International Airport plc published its interim financial statements as at June 30. Following the significant impact on the airline and hospitality industry from the severe COVID disruptions in 2020, 2021 and 2022, the performance of the airport operator as well as companies in the hospitality and leisure industries should be compared to 2019 levels to understand the extent of the recovery taking place this year.

Since MIA publishes its traffic results on a monthly basis, one ought to have expected a positive financial performance in the first half of the year. However, the extent of the growth in revenue and profitability over 2019 levels is probably a surprise to many.

MIA had already reported its first-half traffic results, showing passenger movements rising 5.6% over 2019 levels to a total of 3.43 million. Although passenger movements grew by just under 6%, MIA generated 20% higher revenue to a record €53.6 million. Likewise, EBITDA surged 24% to €33.4 million and gross profit jumped 25% to €27.1 million.

The improvement in margins is another important aspect, with the EBITDA margin strengthening to 62.4%, from 60.5% in 2019, and net profit margin rising to 32.7% from 31.3% in H1, 2019. Likewise, the company managed to strengthen its return on equity to just above 22%, which is below the levels achieved pre-pandemic as a result of the high level of shareholder funds accumulated over the years. This will help fund the heavy investment plan over the next few years.

While the upgrade is indeed material, upon further analysis, this seems to be a conservative estimate of what may materialise in the coming months

At a meeting with financial analysts last week, MIA CEO Alan Borg provided a detailed overview of the traffic results, indicating the very strong growth from the Italian market and a continued underperformance from the UK and Germany when compared to the 2019 figures. Ryanair remains the dominant airline with a 25% growth in passengers over the 2019 levels and a 47% market share.

At the start of the year, MIA reinstated its guidance to the market by issuing traffic and financial projections for 2023. The company had announced that it expected to register total passenger movements of 6.3 million in 2023. This would have represented a 7.7% growth over 2022’s 5.85 million passenger movements and a recovery of 86% of 2019 record pre-pandemic traffic of 7.31 million passengers.

Following the sharp growth in this year's first half, last week MIA also significantly upgraded its traffic and financial forecasts for 2023. In fact, MIA increased its passenger numbers by 14% from the original projection of 6.3 million at the start of the year to 7.2 million. Likewise, revenue is now expected to reach a new record of €113 million compared to the projected €97 million at the start of 2023 and the actual revenue of €100.2 million in 2019; EBITDA is expected to rise to €70 million compared to the original 2023 forecast of €59 million and the actual figure of €63.2 million in 2019; and net profit for 2023 is now forecast at €37 million compared to the original projection of €29 million at the start of 2023 and the actual figure of €33.9 million in 2019.

While the upgrade to the traffic and financial forecasts is indeed material compared to the guidance issued at the start of the year, upon further analysis, this seems to be a conservative estimate of what may materialise in the coming months. Even if during the second half of this year one does not assume continued growth in passenger volumes over 2019, implying that the H2, 2019 passenger throughput of 4.05 million passengers is replicated, this would imply that MIA is on course to achieving a new record of 7.49 million passengers.

The monthly traffic results to be issued in the days and weeks ahead covering the Q3 period (generally the July-September quarter accounts for over 30% of annual movements) will provide a very strong indication of the likely results for the full year.

Irrespective of whether the base case scenario announced by MIA of 7.2 million passengers will be achieved or whether this is improved further to above 7.4 million, the reality is that the recovery from the pandemic across the travel sector is evidently much stronger than ever anticipated. In recent years, there have been countless articles mentioning the doomsday scenario of the likely prolonged hit to the travel industry from the pandemic, with the recovery taking as long as 2025. These recent developments are very reassuring, despite the ongoing challenges both from a macro­economic perspective and those specifically related to the aviation and travel sector.

Last week, MIA also restored its semi-annual dividend policy that had been in place ever since its initial public offering (IPO) in 2002 until the pandemic hit in 2020. While the absolute dividend of €0.03 per share may be viewed as a token amount in the context of the company’s financial strength and ongoing profitability, it represents an important decision for the investing public following the very challenging environment of recent years.

Meanwhile, should MIA maintain its dividend payout ratio at 60%, based on the projected net profit of €37 million, this would imply that the company will distribute a net dividend of €0.16 for the 2023 financial year, which would represent a 33% growth over the €0.12 per share paid in May 2023 in respect of the 2022 financial year.

While the company’s financial performance has been very positive in recent months – with an evident improvement over the 2019 figures and a stronger balance sheet with a sizeable accumulation of cash and cash equivalents totalling €67 million as of June 30, 2023 – the share price has failed to respond accordingly, as it continues to hover below €6.

As explained in the past, the hit to investor sentiment in Malta from the series of setbacks since late 2019 is still very evident indeed and this is presumably one of the main factors contributing to the market’s lack of reaction to the very strong performance of MIA, unlike the strong recovery in share prices being seen internationally across many sectors.

 

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