Hold recommendation on Malta Properties Company p.l.c.

The research team at Calamatta Cuschieri recently distributed an equity research report on Malta Properties Company p.l.c. (MPC) with a “Hold” recommendation and a one-year price target of €0.60, implying no capital upside or downside potential to the current price of €0.60 as at the date of this writing.

MPC is a leading developer and administrator of premium commercial properties.

Established in 2011, MPC was initially a fully owned subsidiary of GO p.l.c. (GO), and tasked with managing the latter’s commercial premises. MPC was spun off from GO in 2015, in order to further focus on the management and development on properties.

Following MPC’s spin-off from GO, the Group’s business strategy has been to reduce significantly its dependence on GO, develop the rest of the properties and rent them out to third parties as retail and office spaces at market rates. However, while retaining GO as an anchor tenant at various sites, MPC is now also undertaking three major developments in Zejtun, Marsa and Birkirkara. In furtherance, the developments of such sites are expected to generate higher levels of rental income going forward.

Of note, the Group is successful in identifying appropriate sites for development and in applying its know-how of the property industry to develop such sites. For instance, MPC’s Floriana property has been redeveloped into The Bastions office complex whereby the space available for leasing has been fully leased out to third parties. In this regard, the commencement of operations of this office complex, has contributed to a growth in revenue of 6.4% in 2018.

The Group’s rental income streams are secured through long-term rental agreements primarily with anchor tenant GO. However, despite the growth potential associated with the redevelopment of the Zejtun Exchange, Birkirkara Exchange and the Marsa Spencer Hill Exchange, we believe that the current stock price already reflects these growth opportunities and the related risks.

Apart from the Zejtun, Marsa and Birkirkara proposed developments, the Group is also currently in the process of drafting a business plan relating to the development of the Naxxar Exchange. This property is currently occupied by GO and have contractual agreement terms until 2021. Due to the fact that the planning process is still at initial stages, it is still not clear as to what such development will comprise of.

MPC distributed their first ever dividend in 2018. However, there are still low prospects of an increase in dividend distribution in the short term given the high capital expenditure requirements to fund future projects.

In 2018 MPC announced that it had entered negotiations with SmartCity Dubai to purchase its majority shareholding in SmartCity Malta. If successfully completed, this transaction would significantly transform MPC’s profitability potential and would take the Group to a completely different level.

Although we like the business model of the Group, we believe the current market price fully reflects the rental income to be generated from the Group’s projects which are expected to be completed within two or three years, and therefore, at this stage, we rate these shares a Hold.