Initial Public Offerings of equity on the Malta Stock Exchange have had a torrid time over recent years. Sadly, the experience investors have had when investing in new companies coming to the market has not been a good one. Mediocre or even negative investment performance is a primary reason for this but so is the lack of liquidity that prevents an active market developing in the shares of the newly listed entity.
This has pushed investors to shy away from investing in equities locally, possibly directing their capital to the more active international equity markets. This is unfortunate as the fostering of a capital market that can allow entrepreneurs to tap into Malta’s pool of savings is an important ingredient in promoting a strong and productive economy. One that allows for the efficient use, and allocation of capital and the creation of wealth.
Typically, Malta’s savers have focused primarily on investing in fixed income instruments. In fact, whenever an issuer of bonds with a strong track record and good credit worthiness comes to the market, its bonds are snapped up like cheesecakes. Yet when one considers the creation of wealth over the long term one should ask whether investing in bonds is the only route, or best, to take.
Statistically, over the long term, investing in equities has provided returns of between 6-8% per annum on developed markets internationally. This includes both capital return and dividends. Over a similar period, bonds on the other hand provide returns in the region of 4% p.a. This return is principally the income return from the coupons bonds pay.
This is taxed at 15% in Malta whereas any capital gains from equity investment on regulated markets is tax free (dividends are taxed at the corporate rate). On top of this one needs to also take into account inflation. The returns I quote are nominal returns, and not the real returns (after inflation).
Equity investments therefore should be a more attractive means of accumulating capital for those investors whose principal objective is to accumulate wealth over the long term. In fact, due to their long-term nature pension funds tend to invest significantly more of their assets into equities than in bonds.
Locally, the private pension market is being given another push. Momentum seems to be growing here. One hopes that the successful development of local private pensions would also bring with it demand for attractive equity options on the local market. The issue of liquidity remains a hurdle. It is critical therefore that a solution is found to this problem if we want to circulate some of the pension savings back into the local economy.
Internationally the IPO market continues to recover from its post pandemic lull. While it is still a far cry from the pre-pandemic levels, activity continues to expand across western developed markets.
In Malta the last IPO that took place occurred almost two years ago, hence the recently announced IPO of Computime Holdings plc should make an interesting addition to the list of local technology companies quoted on the Malta Stock Exchange.
Computime is a leading Maltese provider of business-to-business information and communications technology solutions that has stood the test of time. It specialises in systems integration, business software and fintech services, areas that should form an integral part of the future of Malta’s economy. As a small island economy with limited resources, it is these types of companies that we should be trying to attract to the Malta Stock Exchange.
The selling shareholders’ approach to the listing of their company provides a much-needed breath of fresh air. The long-term thinking in wanting to work with the market to find a solution to the issue of liquidity, and actually doing something about it, sits well with the strong long-term reputation of the company.
Clearly liquidity on its own does not make for a good investment experience. The company needs to deliver on its forecasts and provide the type of profits and dividend growth that will attract investors to want to be part of the story. History is on their side in this respect.
David Curmi is chief officer, business development and client relationships, at Curmi & Partners Ltd.
The information presented in this commentary is solely provided for informational purposes and is not to be interpreted as investment advice, or to be used or considered as an offer or a solicitation to sell/buy or subscribe for any financial instruments, nor to constitute any advice or recommendation with respect to such financial instruments. Curmi & Partners Ltd is acting as sponsor to the equity listing of Computime Holdings plc.
This commentary is suitable for all investors and was approved for issue by Curmi & Partners Ltd., which is licensed to conduct investment services business under the Investments Services Act (Cap 370 of the Laws of Malta) by the MFSA and is also a Member of the Malta Stock Exchange. Curmi & Partners Ltd.’s registered address is at Finance House, Princess Elizabeth Street, Ta’ Xbiex, XBX 1102.
Source: Times of Malta. (2024, December 1). Equity IPOs on the Malta Stock Exchange. Retrieved December 2, 2024, from https://www.timesofmalta.com/article/equity-ipos-malta-stock-exchange.1101746
