Stockbroker maintains MIA Hold recommendation, revises price target to €5.87, down from €7.18

Because of the ramifications brought about by the Coronavirus, investment advisors and stockbrokers Calamatta Cuschieri have reviewed their coverage on Malta International Airport plc and maintain their Hold recommendation, with an updated price target of €5.87 from their previous target of €7.18.

During the local sell-off experienced in March, MIA’s shares dropped to a low price of €3.52 per share.

Airport activity was brought to a complete halt as from 21 March, the date when the local Government banned all commercial flights as part of the strict measures enacted to contain the virus spread.

In fact, the airport handled less than 10,000 passengers during Q2 2020, a significant drop compared to the same quarter last year, where the airport recorded north of two million passengers.

This significant drop in business activity led MIA to shelve its €100m masterplan, although the airport will continue on its €20m multi-storey car park investment, which is expected to be finalised by end of 2020.

In view of these factors, Calamatta Cuschieri excluded the masterplan project from its valuation, including the anticipated future growth that was expected from this investment and delayed the completion of the multi-storey car park by six months (previous expected completion date was mid-2020).

Signs of recovery started to emerge with MIA re-opening its doors on 1 July, in line with the easing of lockdowns around most European countries.

Additionally, the EU has now started to open its borders to non-EU countries, accepting incoming passengers from 15 countries outside the EU27.

Despite the easing of restrictions, passenger numbers are well below pre-pandemic levels, with MIA’s CEO predicting that, “under a best case scenario, tourist passenger numbers will not return to pre-pandemic levels until at least 2023.” This is in line with expectations of the EU as published in its tourism quarter review, European Tourism: Trends & Prospects (Q1/2020).

Calamatta Cuschieri assumed passenger numbers to start recovering from 2021, and gradually reach pre-pandemic levels in 2023. This reasoning was also applied to the retail and property segment, which is also dependent on the Airport’s activity.

Downside risks to Calamatta Cuschieri’s price target include further deterioration in activity due to the resurgence of coronavirus cases, including a potential second wave over autumn and winter. This includes the possible reimposition of lockdown measures around the world, which will further hamper the current economic recoverability.

Additionally, a delay in the development of a COVID-19 vaccine will drag further the current unprecedented situation and interrupt the recovery process.

Furthermore, passenger traffic might take longer than 2023 to recover to pre-pandemic levels, coupled with the consequences brought about by an economic recession should the current economic activity deteriorate further.

This might potentially result in a lower number of expats and business trips, which will decrease both passenger traffic and business generated from the Airport’s retail and property segment.

Despite the downside risks to its valuation, Calamatta Cuschiri expects MIA to positively benefit from its monopolistic position when it is compared to its European peers.

Furthermore, it anticipates that the negative consequence ensuing from this outbreak will reverse in the short to medium term, accordingly it expects the demand for the aviation industry to recover once the current situation stabilises.

Based on this, the company opted to maintain its terminal growth rate of 3% post-2025, with a 7.3% discount rate.

At the current price level, Calamatta Cuachieri is of the opinion that all the accentuating factors mentioned, together with the fact that the Airport entered this pandemic from a strong point including a healthy cash position and debt-free balance sheet, justify a Hold recommendation on MIA’s shares.