The earnings season

Last week was the deadline for the publication of annual financial statements for those companies whose securities are listed on the Malta Stock Exchange and which have a December financial year-end. Since most companies have a December year-end and many report just ahead of the deadline, there were numerous company announcements that were published last week.

In the midst of the annual report season, APS Bank plc published a detailed update to the market by disclosing key financial figures for the first quarter of the year. This is very much in-tandem with the timing of the much-larger companies listed internationally as several companies across the US, UK and the eurozone have disclosed their quarterly financial highlights in recent days and many others will follow this week. In most cases, the results were better than expected given the economic backdrop leading to sharp upturns in share prices of several companies including LVMH, Microsoft and Meta.

APS was the first company on the MSE to publish its Q1 highlights. The figures were probably what most analysts and shareholders expected following recent trends across the banking sector and the specific dynamics of APS Bank in particular. Net interest income improved considerably compared to the first quarter of last year as a result of the continued strong growth in the loan book and the higher interest rate environment. An important factor positively affecting the Q1 2023 figures was the fair value gains arising from the partial recovery across local and international bond markets following the considerable adverse movements across financial markets which had negatively impacted the performance of the APS Funds SICAV during most of 2022.

In a separate announcement earlier last week, APS issued the agenda for its Annual General Meeting taking place on 16th May. Apart from the customary resolutions, the Directors are seeking approval from shareholders “to issue up to €150,000,000 in nominal value of bonds, debentures or other debt securities” in order to support the bank’s “capital and financial requirements”. While this should not come as a major surprise given the strong growth trajectory of the bank in recent years, as well as similar issuances by other local banks, it is an interesting and welcome development for Malta’s capital market following the weaker issuance of new securities over recent months following the jump in interest rates by the European Central Bank.

Some of the other larger companies in Malta such as Bank of Valletta plc, HSBC Bank Malta plc and Malta International Airport plc are also expected to report their Q1 figures very shortly. Hopefully, most of the other companies will issue similar updates to ensure the market is adequately provided with regular newsflow ahead of the statutory publication of interim financial statements by the end of August.

Among the companies that published their annual financial statements last week, it may be worth highlighting that Lombard Bank Malta plc announced a record financial performance in 2022.

While the pre-tax profitability of €27.7 million was significantly boosted by the favourable resolution of a large non-performing loan that had been fully provided for in previous years, the other main driver was a strong increase in net interest income. In the light of the growth registered over the past few years and the recent increase in the branch network, Lombard had planned to raise fresh equity via a rights issue and an Extraordinary General Meeting was convened to obtain shareholder approval in November 2022. In the Annual Report, Lombard’s Chairman stated that “the Bank’s plans for growth have been obstructed due to the Qualifying Shareholder exercising such control over the Bank’s operations. In such circumstances, the conservation of capital must take precedence and therefore the Board has reluctantly decided not to recommend the payment of a dividend”. Moreover, Lombard’s CEO stated “One looks forward to having this issue resolved, sooner rather than later, thereby allowing the Bank to proceed with its plans for growth”. Further developments with respect to Lombard’s planned rights issue could be another interesting corporate action coming to the local capital market during the second half of the year.

The sheer number of announcements published in quick succession last week makes it difficult for the investing public to find the time to review and digest the main highlights of the various companies reporting their financial statements. In view of the large number of companies all reporting in the final days of the month, perhaps a number of companies ought to consider reporting earlier in April to ensure that they attract the right amount of attention from retail and institutional investors.

In the meantime, the Annual General Meeting season has already commenced and this will intensify in the coming weeks ahead of the deadline of the end of June. Following the absence of in-person meetings due to the COVID-19 restrictions over the past three years, these shareholder meetings ought to become popular once again. These meetings are the only opportunity for shareholders to question directors and management officials on a company’s financial performance, strategic initiatives and other matters of interest. Hopefully, shareholders will avail themselves of the opportunity to pose the right questions that could provide them with the necessary assurances and insight on the future direction of a company.

As I mentioned a few weeks ago, during the current AGM season, all companies should also take the initiative to provide ample details on their key financial performance indicators for the first quarter of the year. After all, given that we are already almost mid-way into the new year, shareholders would be more interested to learn about the current-year performance rather than only looking back at the historical performance for 2022.

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

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