24 January 2018
Investors shouldn't get distracted by the huge amounts of information that come their way during company reporting season and mustn't let market noise influence their long-term investment goals, says Stuart Fechner, head of research relationships at Bennelong Funds Management.
"Company reporting season is a bit like the stock market's version of a grand final, with the spotlight firmly pointed on those working towards the presentation of their financial results.
"However, unlike a grand final, reporting season isn't the ultimate decider of winners and losers. Companies don't get to rest on their laurels afterwards.
"It's important for investors to understand what reporting season is all about, but even more important to understand what impact, if any, these reports will have on their long-term investment strategies.
"For instance, just because a company's share price drops following its report doesn't mean there are problems with the company and investors should get out quick.
"There may be many reasons for a short-term drop in share price, which shouldn't influence investors with a sensible long-term strategy.
"Recognising a company's aims and responsibilities during reporting season will help investors better understand what impact there may be on their portfolio," Stuart says.
Common questions from investors about reporting season include:
ASX-listed companies must report their financial results to shareholders at least twice a year, within two months of the end of their balance sheet date.
As most companies have balance sheet dates of 30 June, the main reporting season takes place in August when companies release their full-year results. Half-year results are released in February.
"However, not all companies report during these periods as not all have end of June balance sheet dates," Stuart says.
"Some of these are large and well-known companies, including three of the four major banks. National Australia Bank, ANZ Banking Group and Westpac all have 30 September balance sheet dates and usually report in November."
Most companies release several documents to help shareholders and analysts in their assessment of information.
The main document is the statutory result, often called the 'preliminary final report'. Some companies release their annual report at the same time.
There is also a 'results presentation', sometimes accompanied by a real-life management presentation or conference call for analysts.
"This is the prettier document and highlights the numbers management most wants shareholders to see," Stuart says.
Stuart says the best way to gain conviction about stocks owned, both for upside potential and downside risk, is to put in the research.
"As such, reporting season is one of the few times investors get tangible feedback from the market.
"This isn't just about a company's previous performance. Understanding projections for the coming financial year is as important as the result itself. A company may report financials that are in line with market expectations, but any indication of a weak forecast will often result in a share price drop."
Stuart says investors need to avoid over-reacting to announcements made during reporting season.
"Having clear expectations for every stock is critical. As good, bad or indifferent company results are reported, there are three choices for investors: hold the current investment, buy more, or trim the holding (or sell completely)."
For most active investors, including fund managers, reporting season is part of the constant research into a company's prospects, results and outlook. Investment managers regularly meet with companies, talk to industry contacts, and keep a close eye on the related industry, macro environment and news flow. Expectations should be compared to the broader markets, as that's what sets the share price.
The word 'expect' is key. Investors need to be clear on their expectations for what a company will deliver come reporting season, says Stuart.
"There is little prospect for strong outperformance from a stock whose earnings perform in line with market expectations, however bullish they may be. To see any sort of share price increase on the back of a reported result, the result itself must typically be at a better level than the market was expecting.
"Remember, though, the key is to know and understand the individual companies. This only comes from putting in the hard work on the ground, gaining the conviction you need and sticking with it.
"After all, we may have just had the grand final, but there's no off season in investing."