MIA Malta International Airport

Following the publication of the annual financial statements of HSBC Bank Malta plc on 21st February, the earnings season continued in Malta last week with an announcement by Malta International Airport plc.

Given the nature of the business and the excellent communications strategy of the company, the 2023 financial results of the airport operator published last week should not have surprised anyone.

For the past few years, with the exception of the turbulent environment during the COVID pandemic, MIA has now consistently followed a similar pattern by providing an initial traffic and financial forecast at the start of the year followed by an update in the summer months in conjunction with the publication of the interim financial statements. Moreover, apart from the statutory semi-annual financial statements, MIA also publishes its Q1 key financial highlights in May and the Q3 financial highlights in November. This provides very strong visibility to the investing community on an ongoing basis on the financial performance and forecasts of the company.

Additionally, during the past two years, due to the faster than expected recovery from the pandemic, MIA issued additional updates to its traffic and financial forecasts in November 2022 and November 2023.

The results announced last week should therefore be monitored against the latest forecasts for 2023 published in November 2023. In fact, while the actual passenger movements in 2023 of 7.8 million were exactly in line with the estimates provided in November, the financial performance was slightly better than anticipated.

Revenue generated by MIA during 2023 of €120.2 million was above the November 2023 estimate of €118 million and more importantly 20 per cent higher than the previous record of €100.2 million achieved in 2019 when passenger movements amounted to 7.31 million.

Likewise, the actual EBITDA of €75.2 million in 2023 was slightly higher than the November forecast of €74 million and 19 per cent above the €63.2 million generated in 2019.

The other financial highlight mentioned in the regular forecasts of the company is the net profit which at €40.3 million for 2023 is a minimal improvement from the November estimate of €40 million but 19 per cent above the 2019 figure of €33.9 million.

In essence, while the 2023 passenger movements increased by 6.8 per cent from the prior record before COVID, the airport’s profitability improved by 19 per cent. This is one of the main takeouts that the investing public should be focusing on when reviewing the recent financial statements of MIA and the company’s future potential especially in the light of the significant expansion to the terminal and other property investments within the vicinity of the terminal. This is a key growth driver for MIA going forward as a result of the significant increase in the footprint of the terminal in the years ahead. MIA is a natural catchment area as evidenced by the growth in passenger volumes which augurs well in terms of the demand for the considerable amount of new commercial space available for rent from the terminal expansion and the construction of SkyParks 2. Once these sizeable investments are completed, the Retail & Property segment (non-aviation) will show a more meaningful contribution to overall revenue from the present level of 31 per cent.

The other main highlight for shareholders last week was the extent of the dividend distribution being recommended at the upcoming Annual General Meeting.

MIA announced that it will be recommending the payment of a final net dividend of €0.12 per share.

malta international

In August 2023, MIA had resumed its semi-annual dividend policy (which had been suspended due to the pandemic) with a net interim dividend of €0.03 per share. As such, the total dividend of €0.15 per share in respect of the 2023 financial year represents a new record level in the history of MIA.

However, given the sharp increase in profits in 2023 when comparing these to the adjusted profits in 2022 as a result of the one-off tax credit of €12 million, the dividend payout ratio works out at just above 50 per cent compared to 60 per cent in 2022 and higher payout ratios in previous years. This may have been a surprise given the strong cash flow and debt-free balance sheet.

Earlier this year, MIA had already announced that it is expecting another record performance in 2024. At the time, the company had issued traffic projections at 8 million passenger movements (+2.5 per cent over the 2023 passenger volumes) translating into revenues of €126 million (+4.8 per cent over the actual figure of 2023), EBITDA of €79 million (+5 per cent over the actual figure of 2023) and a projected net profit of €42 million (+4.2 per cent over the actual figure of 2023).

Since then, however, MIA’s largest carrier Ryanair announced additional seat capacity being deployed to Malta. The airline indicated that its foot traffic in Malta can potentially reach 4.5 million passengers between April 2024 and March 2025 representing a very material 22 per cent increase when compared to the last calendar year. With this significant increase coming from the largest carrier to Malta, it is becoming amply evident that MIA is very well-placed this year to easily surpass the 8 million passenger forecast announced at the start of the year. This will become clearer via the publication of the monthly traffic results over the coming months and should be confirmed by MIA once it upgrades its traffic and financial forecasts in summer.

The financial strength of the company is so remarkable that despite the heavy investment plan ahead spread over a number of years, the only criticism from minority shareholders could possibly be centred around the extent of dividend distributions by the airport operator. Given the strong cash generation and in view of the fact that the company has no debt on its balance sheet, MIA can either distribute higher dividends to shareholders (incidentally last week MIA’s parent company announced an increase in its dividend payout ratio from 60 per cent to 66 per cent) and/or initiate a share buyback programme. The latter corporate action could be greatly beneficial to MIA shareholders with the share price still 25 per cent below the record high of almost €8.00 pre-COVID notwithstanding the company reporting much higher profitability levels. The company should consider various actions to accelerate shareholder returns going forward.

Read more of Mr Rizzo’s insights at Rizzo Farrugia (Stockbrokers).

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