Two weeks ago I published an article stating that since the company went public in June 1998, GO plc shareholders have had an average annual return from owning their shares of just over 8%. However, shareholders can expect higher returns from investing in equities. Nevertheless, this return justifies an allocation to equities in investment portfolios for all investor categories. Incidentally, a financial journalist explained a few days ago that the total return on the DAX index in Germany has also averaged 8% per year since the mid-1980s.
Among the various stocks in Malta, there are some companies that have produced better returns than GO plc, while others have unfortunately fared much worse and are actually in negative territory since going public.
One of the most recent success stories for Maltese investors was the IPO of PG plc in the first half of 2017. The share offering was priced at €1 per share and since then the company has been paying semi-annual dividends to shareholders regularly throughout the course of the pandemic. Overall, a dividend of €0.29 per share (including the dividend paid this week) would have been paid to shareholders who have held their shares since the company’s IPO six years ago, a dividend yield of 29%. Additionally, the share price is up 90% since then, despite falling from its all-time high of €2.52 in October 2021. This equates to a total return of 119%, which translates to an average annual return of 20% per year.
The increase in the company’s share price since the IPO mainly reflects the strong increase in profitability over the years, with the return on equity consistently exceeding 20% per year. The company’s fiscal year ends on April 30 and the IPO took place towards the end of the 2016/17 fiscal year. At that time, total sales amounted to EUR 91.7 million, the operating result to EUR 11.4 million and profit after tax to EUR 7.4 million.
PG’s core business is the operation of the PAVI and PAMA supermarkets and the leasing of retail and commercial space in the PAVI Shopping Complex and PAMA Shopping Village. The income from the supermarkets and the associated retail businesses has consistently generated over 80% of sales in recent years. PG plc is now also a franchisee of Zara and Zara Home stores across Malta.
As the company has not yet released its annual financial results for the most recent fiscal year ended April 30, for the purposes of today’s article, the results for the prior fiscal year ended April 30, 2022 will be used as a point of reference. In the 2021/22 financial year, total sales reached a record level of EUR 147 million, the operating result was EUR 18.1 million and profit after tax was also at a record level of EUR 12 million.
In the five-year period from 2017 to 2022, total revenue grew 60%, operating profit increased 59%, and profit after tax increased 62%. This is exactly the kind of performance that shareholders hope for when they take a minority stake in a company. That trend will almost certainly be repeated in its most recent fiscal year ended April 2023, as the company reported revenue growth of 14% to over €80 million in the first half of the fiscal year ended October 2022.
Strong financial performance has allowed the company not only to increase its dividend payout almost annually, but also to have sufficient cash flow for further investment purposes as well as to pay down its bank debt. In fact, it’s notable that the company managed to stay debt-free in recent years, as it reported in October 2022 that its cash holdings exceeded bank loans. This gives the company considerable capacity to make further investments in the future.
Meanwhile, since the IPO, the company’s biggest investment involved the major expansion and refurbishment of Zara and Zara Home’s flagship store on Tower Road Sliema, which took place during FY 2018/19.
Recently, PG acquired a site in Qormi, in close proximity to the PAVI shopping complex, for EUR 7 million, with the original intention of moving warehousing and storage facilities from the former noodle factory site, also acquired after the IPO.
In addition, the Company signed a 50-year concession for land adjacent to the PAMA shopping complex. Pending planning permission, it will allow the company to expand its retail space and parking facilities.
In recent years, the local stock market has experienced one of the most difficult periods since the incorporation of the domestic capital market in 1992. Investor sentiment has been severely affected by the severe setbacks that have happened in quick succession recently, namely the political crisis caused by The COVID -19 pandemic, the cancellation of dividends by a number of companies, Malta’s greylisting between June 2021 and June 2022 and the Ukraine war.
PG plc’s consistent performance and dividend payout, as well as the total return to PG shareholders since going public, is a success story that often goes unnoticed. We hope that the strong recovery from the COVID crisis that is currently taking place in the tourism and leisure sectors, together with the expected record results from banks, will continue to help boost investor sentiment across the investment community.
Rizzo, Farrugia & Co. (Stockbrokers) Ltd, “Rizzo Farrugia”, is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report was prepared in accordance with legal requirements. It was not communicated to the company(s) mentioned here prior to its publication. They are based solely on public information and are published for informational purposes only. They are not to be construed as a solicitation or offer to buy or sell any securities or related financial instruments. The author and other relevant persons are not permitted to trade in the securities to which this report relates (other than to execute unsolicited client orders) until the recipients of this report have had a reasonable opportunity to trade accordingly. Rizzo Farrugia, its directors, the author of this report, other employees or Rizzo Farrugia on behalf of its clients hold interests in the securities referred to herein and may at any time, as principal or agent, make purchases and/or sales in such securities and other business relationships with the entertain companies. Stock markets are volatile and subject to fluctuations that cannot reasonably be predicted. Past performance is not necessarily indicative of future results. Neither Rizzo Farrugia nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is made as to the reliability of the information contained in this report.
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