Share undervaluation and the big picture

The investor is a fickle friend to the companies they invest in and perhaps none is more so than the Maltese investor. Testimony to this fact lies in the undervaluations of equities listed on the Malta Stock Exchange.

Admittedly, a good deal of the time such complaints of undervaluation normally stem from overzealous corporate heads looking to boost their share price. But from time to time a real example crops up and highlights the fact that perhaps the local investor is missing out on the bigger picture in the investment gallery.

One such example is the valuation of International Hotel Investment shares, whose business is represented by traditional bricks and mortar – a welcome sight after witnessing so many drastic falls in ‘new economy’ equities on foreign markets - and a finely-tuned acumen for expanding overseas.

Furthermore, the company is currently busy with a number of new expansions. Taking the Group’s Lisbon hotel as a case in point, the establishment had cost the Group approximately EUR40 million while a recent bank valuation of the property had cautiously gauged its value at close to EUR75 million. Given such a profit margin immediately on acquisition, it is difficult to understand how IHI’s share price still lingers at 92c – eight cents under its June 2000 price of Lm1 in its launch month, a figure that has not been surpassed once.

Bear in mind that this is but one example of one equity listed on the Exchange. Certainly there is still a great deal more room for manoeuvering on the equity market.

It has been said that investor confidence is affected by each and every piece of information seen, read or heard. But on the other hand and turning back to our case study, this does not appear to have been the case with IHI shares, despite the Group’s extensive media campaigns that accompany each new development of the company.

A new vision for Malta and the euro

The Prime Minister’s comments last weekend that Malta intends to keep the period in which it is a member of the EU's Exchange Rate Mechanism as short as possible before joining the euro is welcome news to many, as this would indicate that Malta would be signing on to the euro in the shortest time-span possible following EU membership.

The statement does come as something of a surprise, as the authorities have been somewhat reluctant to let their feelings on the matter be known.

However, the government still needs to convince a substantial section of the population that European Union membership in itself is the right path to follow. One must crawl before one walks.

Membership of the EMU, over and above EU membership, holds its inherent advantages. Local companies would greatly benefit from the facilitated trading mechanisms offered and from plying the same currency as our main trading partners.

Plus, countless economic benefits would be derived from forming part of a currency designed to and capable of matching and perhaps bettering the strength of the US dollar - in fiscal terms, in terms of production and in terms of population.

Moreover, Malta would witness what others that have already adopted the euro have seen – millions in ‘black money’ coming out of the woodwork and being once again placed into circulation.