The equity research team at Calamatta Cuschieri recently issued a research analysis report on Plaza Centres plc (“PZC”), following the company’s publication of its financials for the year ended 31st December 2018.
Plaza Centres plc owns and operates ‘The Plaza Shopping Centre’ located in the heart of Sliema. The Plaza Commercial Centre is spread over an area of 10,500 sqm hosting a mix of retail, catering and office spaces that are built over nine floors. In 2017, the centre reached just under 2.2 million visitors. PZC has also acquired a business centre, by way of acquiring Tigne Place Limited, whose property (“Tigne Place”) is located in proximity to the Plaza Centres. The said property spreads over a total area of 4,001 sqm and comprises of two floors and a mezzanine level of office space and the ground floor which is occupied by retail outlets and a language school.
During 2018, the company carried out an extensive refurbishment project on both of its properties and this in turn has affected its occupancy levels. The Plaza Centres mainly saw the conversion of a number of shops on level 0 into a food hall, resulting in the average occupancy levels of PZC to decrease to 91% in 2018, compared to 94% in 2017. Moreover, the group has during 2018 completed the refurbishment exercise of its offices at Tigne Place. The decrease in the occupancy levels resulted in the group’s lower revenue generation and higher share of the marketing and maintenance costs, which compiled with some one-off admin expenses led to the group generating a net income of €1.1 million in 2018, a decrease of €0.2 million from 2017.
In our valuation we have taken into account management’s outlook of an improved occupancy level in 2019, where our model assumes a 94% occupancy at group level in 2019 compared to 88% occupancy in 2018. Our valuation also reflects the improved rental rates that are expected to be generated from the Tigne Place following the renegotiation of the expired lease contracts with rental rates aligned with that of the market. In fact, we anticipate that the group will be able to achieve an average rate of €264 per sqm in 2019 compared to last year’s rate of €250 per sqm.
Incorporating both the increase in the occupancy levels and the rental rates within our valuation we are of the opinion that the upside to our price target is limited, consequently we are of the opinion that PZC is fairly priced at its current value and as such we recommend to Hold the stock.
Reasons to hold the stock:
• PZC has for the last five years maintained a dividend distribution, with the current net dividend yield of 3.0%.
• Our model shows that in the foreseeable future, PZC will be in a position to distribute up to 70% of its earnings, which translates to a forward net dividend yield of 3.4%.
• Plaza benefits from a strategic location, which should dampen the risks from the increasing popularity of online shopping.
Our valuation accounts for a discount rate of 7.8%, which we deem to be representative of the risk profile of the business and is in line with the discount rate of local peers.
In conclusion, investors should consider to hold PZC as part of their portfolio if they are looking for exposure in the local property/retail market in addition to a reliable dividend paying stock, with limited downside risk. Nonetheless, caution should be taken as the low liquidity of the stock could play a part in your investment decision, and as it is a general theme on the Malta Stock Exchange, be wary of potentially large bid-ask spreads when attempting to trade a local stock.
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