Equity Research: Growth Potential in MIDI p.l.c.

The research team at Calamatta Cuschieri recently distributed an equity research report on MIDI p.l.c. (“MIDI” or “Group”) with a “Buy” recommendation and a one-year price target of €0.81, implying a capital upside of 24.6% to the current price of €0.65 as at the date of this writing.

MIDI is a leading developer and administrator within the high-end segment of the property market in Malta. The Group’s principal activity is the development, disposal and management of immovable property situated in Malta at Tigné Point, Sliema and Manoel Island, Gzira.

The Group has two major real estate projects to implement in the near and medium term – the final phase of Tigné Point development (Q3) and the Manoel Island project.

We value the Manoel Island project at €104 million today, which is equivalent to a value of €0.49 per share (based on the Group’s issued and fully paid share capital). The largest risk concerning Manoel Island project is funding risk. Given the high level of expenditure required to fund the whole project (circa €400 million), the Group’s inability to find a strategic partner might put the whole development on hold. This concern is sustained through the Group’s plan to simultaneously develop the last phase of Tigné Point (Q3), while works on Manoel Island are expected to be still ongoing. We value the Q3 development at €63 million, which is equivalent to €0.29 per share.

Moreover, the Group’s ongoing operations mainly comprise the sale of the remaining Q2 apartments and rental income derived from the leasing and management of retail space at Pjazza Tigné and the catering units situated at Tigné Point.

The value of the stock relating to the remaining Q2 apartments and the 3 commercial units as at the end of 2018 amounted to €26.5 million. Management confirmed that approximately half of these apartments, with a total resale value of €13.4 million have either been delivered to the respective owners or are subject to a promise of sale agreement and expected to be finalised during 2019.

During 2018, the Group sold a total of 132 car park spaces to Tigné Mall p.l.c. (TML) for a consideration of €4.6 million. In such regard MIDI’s latest financial statements also comprise income generated through the management of the public car park up until November 2018.

Following the sale of the parking spaces to TML, the Group decided to transfer the operations of the remaining car parking facilities to a third party operator. Given that the daily operation of the Group does not constitute the car park operation any longer, the asset comprising the whole parking facility amounting to €16.3 million was transferred from property, plant and equipment (PPE) to investment property.

Although the Group is exposed to a high degree of funding risk as highlighted above, the Board declared the payment of a final net dividend of €1,713,279 or €0.008 per share during 2018. This translate to a dividend yield of 1.25% and solidifies the Group’s stance in terms of their constant dividend distribution track record.

The proposed office block within the Q3 development is expected to provide the Group with a higher level of constant rental income receivable. Otherwise, the sale of the Q3 apartments is expected to equip the Group with a significant cash injection which might be utilised to partly finance the Manoel Island development. Moreover, the development of Manoel Island is expected to significantly boost MIDI’s profitability potential going forward.

The main variability in the value of the companies’ stock lies around the timely and on-budget finishing of the Manoel Island development. The million euro question at this stage is whether the Group will successfully execute their planned investments in line with their projected schedule of completion and the continued robustness of the property sector in Malta.