Retail sector in focus

In last week’s article I made reference to the faster-than-expected return to ‘normality’ across many sectors including the retail industry. PG plc is the company that is mostly exposed to the retail industry. However, since the large majority of PG’s revenue is derived from the supermarket business, the financial performance of the companies owning three of the shopping malls also provides a good indication of the health of the overall retail sector.

All three companies owning the shopping malls, namely Tigne Mall plc, Plaza Centres plc and Main Street Complex plc, have a December financial year-end and therefore the recent publication of their annual reports can be used as a good comparison against the performance prior to the major disruptions to their operations in 2020 and 2021 due to the COVID-19 restrictions.

Tigne Mall plc is the owner and operator of The Point shopping mall in Sliema. During 2022, the company generated record revenues of €8.17 million which represents an increase of 16.9 per cent from the previous record revenue figure of just under €7.0 million in 2019. The company’s operating profit also surpassed the previous all-time high in 2019. In fact, the operating profit of €5.25 million was 19.6 per cent above the previous record of €4.4 million in 2019. Despite the COVID-19 restrictions during 2020 and 2021 which negatively impacted footfall to the complex, Tigne Mall remained a profitable company and continued to reduce its bank borrowings which helped to ease the annual burden of finance costs over the years.

In fact, in 2021, although the company’s revenue was still below the 2019 level, Tigne Mall generated record pre-tax profits. As such, the profit before tax of €4.78 million in 2022 was 33.4 per cent above the 2021 record level. In view of the healthy cash flow and the reduction in bank borrowings to just below €9 million, the company maintained its semi-annual dividend policy for financial year 2022 which had been briefly interrupted during 2020 and early 2021 due to the pandemic. The total dividend in respect of the 2022 financial year translates into a dividend payout ratio of 40.3 per cent and represents the highest dividend payment by the company since its initial public offering (IPO) in 2013. The Point shopping complex remains entirely leased out to a mix of tenants. The strong demand for space within this complex was evident when the previous anchor tenant vacated in June 2021 and was immediately replaced with a new tenant concurrently.

Since Plaza Centres plc disposed of its commercial property Tigne Place towards the end of 2020, a comparison of the financial performance of the company over recent years needs to take this property disposal into consideration. In fact, the ‘company’ results as opposed to the ‘group’ results for 2019 should be used for such a comparison. In 2022, Plaza generated revenues of €2.87 million which exceeds the ‘company’ revenue of €2.76 million in 2019.

However, the operating profit of €1.43 million in 2022 is well-below the figure of €1.73 million in 2019 (at ‘company’ level) as a result of the higher level of operating costs. Plaza maintained regular dividends to shareholders over the years despite the pandemic. As opposed to Tigne Mall, Plaza also distributed dividends in 2020 on the strength of the sizeable inflow from the sale of Tigne Place. Plaza Centres is a mixed-use destination with both offices as well as retail areas for rent. The company recently reported that it has vacant spaces available in both the office as well as the retail areas.

Main Street Complex plc owns a much smaller complex compared to the other two companies. In fact, the revenue in 2022 amounted to €0.78 million compared to much higher levels for Plaza at €2.87 million and Tigne Mall at €8.17 million. While Tigne Mall had a record revenue in 2022, Plaza and also Main Street fell-short of their previous record level reached in 2019. Main Street resumed its semi-annual dividend policy during the 2022 financial year and the dividend for financial year 2022 represents a record dividend for the company. The company reported that the complex remains fully leased out.

In the case of PG plc, the company’s financial year-end is April and the latest results cover the six-month period until October 2022. In the interim results published in December 2022, PG reported record revenue of €13.6 million (+9 per cent) from the Zara® and Zara Home® franchise operations for the first half of their financial year confirming the continued success of the Zara brand.

The strength in consumption patterns among the local community coupled with the continued recovery across the tourism sector augurs well for retail operators and the companies operating the shopping malls. It would be interesting to monitor any further improvements registered in recent months once the interim financial statements are published in August. Meanwhile, it would also be interesting to gauge the occupancy levels and footfall across all three locations as well as the Zara flagship store in Sliema in the months and years ahead in view of the opening of large new shopping malls in different locations across the Maltese islands. In view of the increased competition on the horizon, more detailed and regular updates from all companies are necessary to keep the market abreast with any important changes that may be impacting the overall financial performance and outlook of these companies.

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

The article contains public information only and is published solely for informational purposes. It should not be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in this article. Rizzo, Farrugia & Co. (Stockbrokers) Ltd (“Rizzo Farrugia”) is under no obligation to update or keep current the information contained herein. Since the buying and selling of securities by any person is dependent on that person’s financial situation and an assessment of the suitability and appropriateness of the proposed transaction, no person should act upon any recommendation in this article without first obtaining investment advice. Rizzo Farrugia, its directors, the author of this article, other employees or clients may have or have had interests in the securities referred to herein and may at any time make purchases and/or sales in them as principal or agent. Furthermore, Rizzo Farrugia may have or have had a relationship with or may provide or has provided other services of a corporate nature to companies herein mentioned. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security mentioned in this article. Neither Rizzo Farrugia, nor any of its directors or employees accepts any liability for any loss or damage arising out of the use of all or any part of this article.