13 NOVEMBER 2002
By Matthew Vella
The much-awaited second phase of the Malta International Airports privatisation will be commencing tomorrow as 20 per cent of government-owned shares (13,530,000) will be offered for public sale.
Having maintained a relatively stable pattern of earnings during the last decade, MIAs positive performance is expected to continue. By 2004, the company is predicting a substantial increase in revenues and consequently profitability.
Buyers are also aware the companys monopoly is complementary to one of the countrys most important and vital of industries tourism. MIAs unique position in this regard is set to make this one of the most attractive share issues.
Despite the recent downturn in the aviation industry following the 11 September attacks, the share issue has been given positive marks, not least through MIAs confident forecasts. Capital expenditure projects and diversification of revenue sources will be part of MIAs mission to recover from its recent marginal drop in earnings.
Such a scenario has prompted investment companies to tell prospective buyers to buy for the long-term.
Mark Scicluna from BOV Stockbrokers Ltd said that in due time, current industry lows should pick up. MIAs plans for major infrastructural projects should ultimately enable the company to benefit from a potential aviation upturn in the near future.
"Passenger traffic has been on the decline for the past two years and is not expected to recover until late in 2003. This has evidenced the companys overall reliance on tourism and the need to diversify its existing revenue base.
"Whilst the shares are being floated at a time when global aviation is still recovering from 11 September, local stock market conditions have continued to deteriorate, with major listed companies valued at historically low levels.
"In this scenario, we strongly advise investors to buy only for the long-term. Notwithstanding these short-term considerations, we clearly believe the companys market position, growth prospects and future strategy clearly warrants investors consideration."
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Also see editorial on page 9
Ruth Stivala from Globe Financial Stockbrokers Ltd said the company is also considering MIA shares as a long-term opportunity, as long as MIA's forecasts come to fruition.
MIA is predicting that as from 2003 onwards, the use of MIA's facilities will increase by an average of 3.5% p.a. over five years, especially when considering potential EU membership and expertise pumped in from Vienna International Airport.
"Local market sentiment has been beaten to the extent that there are several good opportunities in the market due to established companies such as Maltacom, HSBC, BOV and Lombard, but also very few buyers.
"If sentiment towards the market is lacking, as the thin volume during recent months clearly shows, then it would be very difficult to predict a successful outcome on the MIA shares.
"The reason for the lack of sentiment has been also marked by a shift towards fixed income securities (bonds) away from equities. This shows a preference towards income-paying securities."
Other pertinent risk considerations related to global tourism and industry concerns will be setting important precedents for prospective buyers.
9/11 remains overarching as a determinant in the way MIA shares will perform. MIAs marginal drop in revenues following 9/11 is a clear indicator that a repeat of the attacks will be undeniably detrimental to the companys revenues and profits. The risk of terrorist attacks can only drive revenue flows downwards.
Impending war on Iraq is also expected to make markets more volatile. A prolonged war and extensive UK/US military spending could possibly exacerbate market deterioration. A brief battle on the other hand, would be ideal if market sentiment is to be restored faster.
Main risk factors have also included the fear of negative affects resulting from court decisions or industrial action, which could lead to additional costs or the reduction of income opportunities. Environmental legislation is also being seen as a potential risk, due to costs which may be incurred for noise abatement or changes in MEPA permits.
Ruth Stivala from Globe also said the company was considering MIA's share price at 73 cents per share to be high when comparing financial ratios such as Price Earnings ratio to other airports quoted on foreign stock exchanges.
"Considering the number of shares in circulation and the EPS (earnings per share), a 73c price tag to a 20c nominal share price equates to a massive PE ratio of 36. In 2004, if MIA forecasts are proved right, the ratio will fall to a more respectable 19, in line with PE ratios for foreign airports."
MIAs directors are banking on Maltas geographical location and reputation as a tourist destination to increase revenues. They will also be seeking to ensure costs remain low in the hope of improving profitability.
To transform Malta into a regional Mediterranean hub, MIA is expected to increase the airports air-lift capacity through the addition of new airlines, servicing new routes and destinations and create the necessary platform for Malta to evolve into a regional Mediterranean hub.
MIAs future plans include a Lm20 million investment programme which should enable it to increase traffic movements at the airport. If MIA is unable to obtain such financing at acceptable costs, it may have to postpone this investment or down-size it.
With tourism experiencing a severe blow in the recent wake of terrorist attacks, MIA will also be seeking to diversify its revenue base and reduce its over-reliance on tourism. This will be developing the commercial activities at the terminal building and the creation of profitable synergies with the cruise liner industry through its strategic investment in the Sea Passenger Terminal operator Viset Malta p.l.c.
Following this sale, Governments share in MIA will be of 40 per cent. However, through the exercise of its rights as shareholder and its powers as regulator, Government will still have a significant ability to affect the MIA operations and the implementation of its strategies.
MIA shares, at 73 cents per share, are being offered at a premium of 53 cents to their nominal value. Shares will be available from all commercial banks, licensed stockbrokers and financial intermediaries. Subscriptions will be starting tomorrow, and will close on 22 November.