In last week’s article I explained the need for companies whose equity is listed on the Malta Stock Exchange to start adopting a similar communications culture to companies that are publicly-quoted across the international financial markets and devote much more attention to investor relations.
While this improved form of communication will undoubtedly help investors gauge progress within the various companies on a more regular basis and take better-informed investment decisions, there are other catalysts that could help to stimulate much-needed enthusiasm for the equity market.
Following three very difficult years as a result of the severe challenges faced by many companies, the new interest rate environment across the eurozone, with the highest levels of rates by the European Central Bank since 2008, will provide an automatic boost to the core business of Malta’s retail banks during 2023. For the first twenty years since the inception of Malta’s capital market in 1992, the banking sector proved to be the most popular and rewarding for the investing community and this anticipated tailwind for the banking sector should reverberate across the entire capital market. Currently, circa 31% of the overall market cap in Malta is concentrated across the banking sector so an upturn across the banks will positively impact the local equity benchmark index.
With most retail investors in Malta primarily interested in seeking a regular income stream, the resumption of more meaningful dividends by the banks on the back of the positive interest rate environment coupled with the resumption and/or confirmation of dividends by several other companies, should also assist in stimulating a change in investor sentiment.
However, there are other initiatives and catalysts that most companies need to consider in order to attract the attention of the investing community and unlock shareholder value which should be among the core strategic goals of any publicly-listed company.
On a regular basis, it would be best practice for companies to formally present to the public a well-articulated strategic plan to explain the main pillars upon which any company seeks to grow its business and generate added value to shareholders. Incidentally, last week, on the same day of the publication of their 2022 annual financial statements, the telecom operator Orange SA issued a separate detailed announcement of the company’s new strategic plan. Within the plan, Orange SA also documented a number of financial and key performance indicators for 2025 including a new and higher dividend payout for the next two financial years.
A very common initiative used by a large number of companies internationally to generate added shareholder value is via share buy-backs. This is however almost non-existent in Malta. Possibly, the shallowness of the capital market is one of the stumbling blocks in this respect. On the other hand, across international financial markets, companies announce share buy-backs almost on a weekly basis. More recently, a number of European banks have also launched share buy-backs as a result of the improvement in profitability and excess levels of capital. The Italian bank UniCredit SpA, the second largest shareholder of Bank of Valletta plc, announced a new share buyback program of over €3 billion during 2023 as part of the bank’s intention, subject to regulatory and shareholder approvals, of an overall return (including cash dividends) of €5.25 billion following the record profits generated in 2022. This news helped the bank’s share price to continue to recover sharply from the recent lows in line with the widespread re-rating of the overall eurozone banking sector.
The large US and European companies listed on international stock exchanges have a widespread following by various investment banks and financial analysts. The regular reviews and price targets given by these analysts play an important role in share price movements overseas. This is very much lacking in Malta due to the small community of market players and the few sizeable companies listed on the MSE. In view of the importance of gauging a fair value of a company for the benefit of the investing community, it would be good practice for public companies to engage professionals to provide an indicative fair value of their business. Ideally, this would be carried out by international players who have vast experience in the field and who would possibly command a better recognition in Malta rather than if such valuations were prepared by local financial analysts. The outcome of such an annual review could assist many local investors to better appreciate the true worth of a company.
An active capital market is a prerequisite for a dynamic and growing economy. Increased efforts need to be made by the decision-makers and regulators to enhance the credibility and attractiveness of the local capital market. This will be important to continue to attract the many family-owned companies in Malta to manage their succession plan through the sale of a minority stake and a listing on the Malta Stock Exchange.
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'European banking sector is fundamentally very strong with much healthier balance sheets compared to the time of the 2008/9'
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Net interest income was more than 30% higher during the second half of 2022 than the first half