BOV’s share price currently stands at €1.21, markedly less than the €1.80 per share it cost towards the beginning of 2018.

At the same time, BOV registered €163.5 million in profits in the first nine months of the year – a remarkably positive result. It also issued its highest interim dividend since 2013.

The share price arguably reflects where BOV stands after a turbulent few years that its shareholder now hope to be past it.

In fact, while far lower than its historical levels, the bank’s share price is currently at its highest point since June 2019. However, it remains considerably less than its net asset value.

Commenting following the publication of the bank’s third quarter financial results, BOV Chairman Gordon Cordina pointed out that the marked difference between the net asset value on the balance sheet and its market value is “not something that is specific to BOV”, arguing that “it holds true for most other listed equities in Malta, and also for listed equities in the banking sector more generally.”

He added that BOV’s share price must be taken in the context of a very liquid economy: “People are in no hurry to sell their assets as they are otherwise served by their more liquid holdings.”

Dr Cordina continued: “In a situation where returns on investment in the bank are very high,” – BOV registered an 18 per cent return on equity for the first 9 months of the year – “are shareholders served better by distribution or reinvestment for future growth?”

Speaking to WhosWho.mt, the BOV Chairman says that the question boils down to the need for liquidity versus the need for growth, a question of short versus long term gratification.

“Shareholders might expect that retaining profits in BOV, instead of distributing them as dividends, will yield even higher profits and higher dividends down the line.”

An investor’s preference between these two positions, he says, will depend on their personal views and circumstances.

BOV has now recommenced its policy of dividend distribution, which was on hold for a few years as the bank grappled with a number of significant issues.

During its Q3 results presentation, BOV stated that this dividend policy was devised while looking at past performance and future requirements for capital for the bank to sustain its operations, with a view to be sustainable into the foreseeable future.

“Through a policy of credible and sustained dividend distribution, I expect that BOV stock will become more attractive in the market and reach a price that more firmly reflects the values on the balance sheet,” said Dr Cordina.

The bank’s share price has certainly been moving in that direction. Writing on BusinessNow.mt, Rizzo Farrugia Director Edward Rizzo notes that BOV stock has been “a clear outperformer” in 2023, registering gains of over 50 per cent. Despite this increase, it is still trading at a 40 per cent discount to its net asset value.

When asked for a comment on BOV equity’s performance by WhosWho.mt, Finco Treasury Management Ltd Managing Director Paul Bonello makes the case that the demand among Maltese investors is primarily for interest-bearing securities providing a fixed income – that is, bonds.

“Maltese equity markets suffer from there being very little liquidity,” he says, “along with a general lack of investor education. Most investors hardly understand the risk implications equity.”

With the bulk of investors being senior people, a portfolio geared towards fixed income securities is also a sound asset allocation strategy. Besides this, Mr Bonello pointed out that even in mainland Europe, investors are much more conservative than their American counterparts: “In the US, a 70/30 split in favour of stocks is the norm, whereas in Europe it is often the other way around.”

One possible contributing factor particular to 2023 is the very strong activity on the bond markets, with there being both a healthy amount of corporate bond issues as well as a large increase in the issue of Malta Government Stock, besides the fact that the current high interest rate scenario implies much higher and attractive coupon rates than investors had gotten used to over the last decade.

“If there were less activity on the bond market, it could be that some of that stored capital would have gone into the equity markets,” says Mr Bonello, although he is wary to assign this element more importance than it might be due: “The main reason is the preference for fixed income.”

That potential for equity investment in Malta, however, has not always been met.

“The experience with Maltese equity issues has not been good at all,” says the experienced stockbroker. “Sometimes, it is not only the investor that does not understand the equity instrument, but also the company issuing the equity.”

Mr Bonello illustrates his point citing Loqus, GlobalCapital and MIDI, the consortium holding the Tigne Point and Manoel Island concession.

“MIDI is a project that has taken much, much longer than was first intimated, while dividends have been sporadic. It is really a case where sometimes companies take the public shareholders for granted.”

He continues: “MIDI’s share price was not sustained, and the length of time for the completion of the project is far beyond what was envisaged. It is very important that management satisfies the legitimate expectations of equity shareholders.”

A ‘classic example’ of Maltese companies’ share price not reflecting its profitability or net asset value is Malta International Airport. Mr Bonello compares the current share price of circa €5.50 with the pre-COVID price in 2019 of €7.50, and this in spite of the fact that the number of passengers passing through the airport is now at a record level and substantially higher than in 2019.

“MIA is probably one of the best managed companies in Malta and one of very few Maltese equities whose fundamental value I like very much,” he says, while stressing that this does not in any way constitute personalised advice.

Turning back to BOV, the issues go “a bit beyond what we’ve discussed,” he says.

“It is true that BOV is currently doing very well, but we cannot forget that it passed through a long period of negative performance, where it was plagued with issues.”

Summing it up, Mr Bonello argues that BOV’s share price reflects an investing public that is today “wary of the past, hence less enthusiastic.”