Maltese investors have some good reasons to be happy these days. After a relatively slow start of the year, particularly compared to the European and US equity markets, a strong earnings season has fuelled a significant run-up in the Maltese stock market during the month of March.
Indeed, the Malta Stock Exchange price index has closed the month of March at 4,709 points, which represents a remarkable monthly gain in excess of 4.3 per cent. This magnitude of positive performance in a one-month time window is indeed quite a rare incidence.
The last time the Maltese equity market returned a similar performance was almost four years ago when back in June 2015, the monthly return on the exchange was close to5.5 per cent.
From a pure market perspective, it is worth noting that trading was registered in all of the 24 listed equities in the main market along with Loqus Holdings, which is listed on the alternative list. Only nine of these equities registered negative, albeit modest, performance. While this spread in trading activity is not uncommon, it does illustrate the fact that the positive performance was not concentrated on few large companies, but indeed, it was widespread across different companies with different market capitalisation, representing different sectors of our economy.
Volume traded was also significant as 6.5 million shares worth more than €8.2 million were negotiated during the month. This figure might verge on the irrelevance when associated with trading in international markets but it is noteworthy when taken in the Maltese context.
By comparison, the monthly average volume during 2018 was worth €7.2 million, making the volume traded in March almost 14 per cent higher than the monthly average of the previous year. From a technical perspective, positive price moves supported by higher volumes are often a reflection of improving sentiment and an increased buying interest.
What reinvigorated interest in the local market during March was the string of positive financial results announced by Maltese companies
On a more fundamental aspect, what has reinvigorated the interest in the local market during the month of March was the string of positive financial results announced by Maltese companies which was further reinforced by the distributions of special dividends. Indeed, in the first week of March, Mapfre Middlesea had announced that it would distribute a special dividend out of the retained earnings of its life insurance arm. A week later, it was Go’s turn to announce a one-off dividend distribution of €0.41c per share in relation to the part-disposal of BMIT Technologies, its data service subsidiary which was floated back in February. Given the sensitivity of the Maltese investor to dividends, it should not come as a surprise that these companies were among the leading performers during the month.
Nevertheless, dividend distributions were not the only driver of performance for local equities. Despite not announcing any profit distribution, both Bank of Valletta and International Hotels Investments experienced a strong run-up in their respective share prices. BOV’s share price soared immediately after the publication of the 2018 financial results which showed a strong core-business performance.
Operating profits before litigation provision reached almost €138 million and the bank also announced a bonus issue of one share for every 10 already held. During the same period, IHI managed to successfully place a €20 million bond issue which proceeds will be used for the development of the Corinthia Hotel in Brussels and to finance a real-estate project in Moscow.
Although to different degrees, encouraging revenue and profitability growth has been booked by smaller companies such as Grand Harbour Marina, Malta Properties and Malita Investments along with financial institutions such as Fimbank and Lombard Bank Malta.
In essence, this positive trend is a natural reflection of the economic growth and the strong momentum being experienced in all the major sectors of the local economy. This is having a positive impact on the share of profits being registered in relation to the country’s GDP.
What provides confidence in my view is the fact that shareholders returns are becoming ever more twofold. Shareholders tend to focus on today’s dividend distributions because of their tangibility which of course is very important.
Nonetheless, some local entities are successfully implementing long-term investments in projects which will generate future growth and eventual profits to be distributed in the years to come.
The higher profits being generated is simply allowing for these capital investments to be made without reducing the ability to distribute the much loved cash dividends to shareholders.
Steve Ellul is a chartered financial analyst, a visiting lecturer at the University of Malta and unit head at BOV Asset Management.
BOV Asset Management Ltd is licensed to conduct investment services business by the Malta Financial Services Authority.