28 Jul TOP TIPS FOR COMPANIES PREPARING RESULTS THIS AUGUST
Recently, I sat down with Alex Clarke from Ellerston Capital and Conor O’Prey from Canaccord Genuity, for our On The Coach podcast, to discuss what they will be focused on in company results this August reporting season and their tips for companies preparing their results material.
Here are some insights from the discussion.
KEY FOCUS AREAS THIS RESULTS SEASON
- Cost Inflation
As global markets continue to grapple with the pandemic, investors have turned their attention to how companies are managing their costs. With a shortage of skilled labour, investors are looking closely at how companies are managing increased wages, as well as how they are managing rises in input costs due to a shortage of key inputs such as chip supplies. This will be of focus in mining and mining services companies and tech companies.
- Supply Chain Pressures
The pandemic has exposed vulnerabilities in supply chains for companies around the world. Investors will be analysing how companies are re-thinking their production and distribution strategies to operate more efficiently and with greater resilience as the pandemic continues.
- The Australian Dollar (AUD)
With the AUD depreciating against the USD to levels not seen since the Global Financial Crisis, investors will be observing both the beneficiaries and losers of the fluctuating AUD including how companies are hedging their currency risk.
With uncertainty creeping back into the market due to the latest lockdowns, there was agreement that companies should not be pressured to provide guidance statements where they are genuinely unsure of the outlook. Investors will understand it is difficult for some companies, particularly those in cyclical industries or with less recurring revenue, to provide an outlook statement while they continue to manage uncertainty due to the pandemic. Like last year, it is expected that many companies will leave their guidance until their AGMs, allowing for additional months of trading.
As such, the market’s primary focus will be on qualitative, forward-looking statements provided by companies regarding their cost base and break-even points, and on recent trading trends since the end of the financial year.
TOP TIPS FOR COMPANIES PREPARING RESULTS THIS SEASON:
- Make your key messages stick.
Results materials are ultimately promotional and marketing documents for companies as they relate to their proposition as investments. Therefore, the objective for any presentation is to emphasize key metrics it wants the market to focus on and impart that information clearly and quickly. Make it as simple as possible for investors and analysts to understand your business’s proposition and where its growth is coming from to make it easy to understand how earnings will increase and how to value the company.
- Provide a clear picture of your business’s underlying growth.
Investors are eager to understand the moving parts of a business, including acquisitions or divestments, and how it aims to drive future growth. However, to more easily compare a company’s performance over time and understand the quality of its results, the market also requires a solid understanding of how a company is performing on an underlying basis. Revenue and earnings bridges are a visual and simple way to impart a lot of information about the underlying growth of a business quickly and easily.
- Be Consistent
Fund managers and investors are particularly time poor in reporting season. By consistently providing the same metrics, it is easier for investors and analysts to examine data, update their models and provide a better view on a company’s like-for-like performance.
- For newly listed companies, first impressions matter.
For newly listed companies, the reporting season is the first broad based exposure to the market – the first earnings call and first results presentation. Investors and analysts will be focusing on how these companies present data and metrics and how it compares with information provided in their prospectus. Consistency is key.
The prospectus has a wealth of information, and this needs to be distilled to the most important messages.
REPORTING SEASON ROADSHOW
While investors prefer engaging with companies face to face, there is a strong likelihood that meetings in the upcoming reporting season roadshow will be via video conference. A significant amount of discipline is required by analysts and fund managers during this period as they engage with dozens of companies during and after reporting season. We recommend reducing meeting length to 30 or 45 minutes this reporting season.
For our tips on engaging the virtual room, see here.