All is not dark

Maltastar

All is not dark!

Investors in the Malta Stock Exchange equities, particular those that entered the market after 1999 are quite unhappy. They have seen considerable loss in the value of their investments quite beyond what could be explained by international fluctuations in equity prices.

This applies as for investors who hold direct equity positions as much as to those who placed their investments via Collective Investment Schemes (Funds) that include local equities in their asset allocation policy.

I have said it before and I say again that the reason why the market has turned so negative is a combination of these four factors:

The market had over-priced itself in the first half of the year 2000 and therefore a market correction was not only appropriate but indeed healthy. Some new issues in the year 2000 were very aggressively priced and sold more on the basis of effective advertising than real intrinsic value. The subsequent adjustment of such equities down to their real values has added to the sombre environment on the market.` Results so pathetically different form those envisaged in the Prospectus cannot simply be explained by deterioration in the business environment. Some explanations are needed by those who took responsibility for the Prospectus.

Tax on Collective Investment Schemes has shut off, indeed reversed, an important source of demand for equities on the Exchange rendering the market highly illiquid and highly susceptible to fluctuations on the basis of small transactions.` The TWAMP mechanism on the Exchange is too complicated and psychologically the market still looks at the last price as a guide for` market value.

The economic environment in general has turned bad and the quoted companies are reporting inferior results to those that` had under-pinned the higher valuations.` This is particular applicable for the financial sector.

But it is not all dark. The low valuations provide good buying opportunities for those who can perceive them and who have the staying power to wait for the fundamental value of a stock to realize itself in the market price.

There is a particularly one stock whose market price has gone far below its fundamental value creating a` rare opportunity to buy value at a discount.

Maltacom at Lm1.20 is trading at only 13 times historical earnings. The dip in Maltacom`s earnings announced at the mid-year is clearly explained to the initial losses of their mobile operation launched only last December and building aggressively market share beyond reasonable expectations.

For those who can read beyond the superficiality of the figures Maltacom presents a bright spot among the darkness surrounding the exchange.

In circumstances like these it becomes almost an obligation of the Board of Maltacom, if they believe in the true value of the organisation they are in charge of, to launch share buy-back programmes.` Most countries have responded to the downturn in equity prices by facilitating the procedures for share buy-back programmes. Typically in Malta authorities just sit and do nothing almost happy seeing value being destroyed on the exchange forgetting that government is still 60% shareholder of Maltacom.

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