The annual reporting season for local companies with a December financial year-end comes to a close in 10 days’ time. At the end of March, GO plc and its two major subsidiaries published their annual financial statements.

The market was eagerly awaiting GO plc’s results mainly from a dividend perspective following its surprise announcement in August 2021 of the declaration of a net interim dividend of €0.07 per share. It was the first time since 2007 that GO distributed an interim dividend to shareholders.

On March 30, GO announced that its directors are recommending the payment of a final net dividend of €0.09 per share, which brings the total net dividend for the 2021 financial year unchanged at €0.16 per share. GO’s dividend track record in recent years must be viewed in the context of the uncertainty surrounding the COVID-19 pandemic as well as the large one-off distributions to shareholders following two major corporate actions.

In October 2015, GO declared a net interim dividend of €0.3313 per share by way of a distribution ‘in kind’ of the entire shareholding in Malta Properties Company plc to GO’s shareholders pro-rata to the number of shares held at the time. In May 2019, GO shareholders received a special net interim dividend of €0.41 per share amounting to a cash distribution of €41.5 million following the capital gains generated by GO from the sale of a 49% shareholding in BMIT Technologies plc through an IPO in January 2019. The decision in 2020 to reduce the annual dividend from €0.14 per share to €0.10 per share was driven by the significant uncertainties at the start of the COVID-19 pandemic in early 2020 as well as the sizeable cash distribution of €41.5 million just 12 months earlier.

In total, between 2015 and 2022, GO plc shareholders would have received overall cash dividends amounting to €1.38 per share net of tax (amounting to €140 million) apart from the ‘in kind’ distribution of €0.3313 per share related to the spin-off of Malta Properties Company. In addition to the annual cash dividends distributed by MPC over the years, the value of this distribution has increased to over €0.50 per share as per the latest market price of MPC shares.

Thus, if one had to work out the total returns that GO shareholders received over the past seven years, when also including the appreciation in the share prices of both GO plc and MPC, the aggregate return would amount to over €260 million (equivalent to €2.58 per share) which represents almost 81% of GO’s market cap today. In other words, an investor who would have bought GO plc shares at €2.55 per share at the end of 2014 has already got back the initial capital invested, partly through capital appreciation and partly through dividends.

An investor who would have bought GO plc shares at €2.55 per share at the end of 2014 has already got back the initial capital invested

When reviewing the elevated dividend by GO plc over the past two financial years at €0.16 per share annually, one needs to analyse the cash flow generated by the group and not compare this solely to the reported earnings per share. In fact, although the total dividend of €0.16 per share in respect of the 2021 financial year may appear aggressive from an earnings perspective, it is important to highlight that during 2021 GO generated free cash flow of €0.172 per share. Moreover, this free cash flow generation took place despite the enormous amounts the group required for capital expenditure.

GO Group’s annual financial statements show record revenues of €193.7 million (+4.6%) in 2021, with growth registered across all three operating segments. In Malta, revenues increased by 0.9% to €116.2 million largely on the back of higher demand for broadband and mobile services which offset the subdued income generated from roaming volumes and related revenues.

Meanwhile, revenues from BMIT rose 5.5% to a record of €25.3 million on the back of double-digit growth in the provision of cloud services (+13.4%) and managed services (+33.3%), and the resale of hardware and software (+23.5%). The company’s three other principal services – connectivity, power and collocation – in aggregate registered a stable performance.

Revenues generated by Cypriot company Cablenet Communication Systems plc rose by almost 14% to €53.5 million as the company continued on its path to become a full-scale quad-play telecom operator following the successful penetration in the mobile market. In 2021, Cablenet’s total mobile subscribers rose to 46,200 compared to 23,600 in 2020, thus increasing its market share to 3.5%. Revenues from mobile services more than doubled in 2021 to €4.4 million. Excluding revenues from mobile services, Cablenet’s revenues grew by over 8%. In the broadband segment, subscribers grew by 6.6% to 85,400 compared to 80,100 in 2020. Moreover, Sports TV customers also increased at a strong pace (+19%) as the company extended the broadcasting agreements covering a number of football clubs.

Despite the increase in revenues, EBITDA, when adjusted for various one-time items (voluntary retirement costs and movement in provisions for pensions) fell 2.4% to €73.8 million as the group continued to invest heavily in its infrastructural capabilities particularly in the continued roll out of the fibre network in Malta and Cyprus. Indeed, the GO Group invested close to €50 million in 2021 as it aims to complete its True Fibre programme in Malta over the next three years, and reach a coverage of approximately 80% of total households in Cyprus. In a recent meeting with financial analysts, Cablenet’s CEO revealed that the company expects its profitability and cash flow generation to improve at a steady pace in the near term as it achieves more scale in the mobile and Sports TV segment.

The GO Group’s ability to sustain its current generous dividend policy must also be seen in the context of its financial position. Following its successful €60 million bond issue in 2021, the group ended the year with a net debt position of €134.5 million when including lease liabilities amounting to €33.9 million and football rights liabilities of €12.8 million. Despite the increase in net indebtedness and the drop in adjusted EBITDA over 2020, the group’s adjusted net debt to EBITDA stood at just 1.8 times, which shows the extent of GO’s financial strength when analysed from the perspective of its cash earnings.

When the group moves past the current high levels of investments required over the coming years related to the completion of the roll-out of True Fibre and the transition to the new technology hub in Żejtun, GO’s accounts would likely show a better view of the group’s underlying profitability. This should also reinforce the group’s ability to continue to reward shareholders with attractive and sustainable dividends.

 

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.

© 2022 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved.

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