Delayed earnings announcements triggers negative investor sentiment

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  • Companies have delayed publication of results to conform with IAS 29 guidelines
  • The impact reflects more on the wider market than it reflects on individual companies
  • Studies show that sentiment is a key variable in the prices of stocks traded on stock markets, although it is subject to change influenced by a number of variables

One of the common listing requirements on stock exchanges around the world is that companies report earnings on stipulated periods which could be quarterly, half year and full year results publications.

Generally, if a company schedules its earnings much earlier than normal, then earnings are often better than expected and share price gains typically follow. Conversely, when a company delays its reporting, that can be a bad sign.

Zimbabwe currently going through a period of hyperinflation forced most companies to delay publication of financial results in order to “conform with the requirement that the Financial Statements are adjusted for hyper-inflation so as to comply with International Accounting Standard (IAS) 29 – Financial Reporting in Hyperinflationary Economies,” Nampak Zimbabwe Limited said on Monday as it joins a bandwagon of other companies which have delayed earnings release for the same reason.

In its announcement, the packaging company said it is anticipated that these results will now be published before 29 February 2020, until which time an extension has been granted by the Zimbabwe Stock Exchange.

The issue has become more common such that it can be easily overlooked, but the implications warrant more attention. Last year we reported that the shift to hyperinflationary accounting will trigger market-wide losses in what will be a reversal of the previous period where companies enjoyed “misleading” top line earnings driven by upward price reviews and other once off gains such as revaluations and foreign currency exchange gains, which are all related to the economic environment.

It is worth noting that impact of these moves can be quite significant on investor’s confidence in the current trade environment.

On a micro-level, moves in the timing of the earnings announcement signal how well the company believes it is doing. But if the shift is experienced on a larger scale, that reflects largely on the performance of the economy and its attractiveness as an investment ground.

Therefore, it is very likely that as many companies are delaying the release of their earnings, the main question in every investor’s mind is, “what will be the final return to their investment and what percentage will be eroded after the hyperinflation adjustment.”

Studies show that sentiment is a key variable in the prices of stocks traded on stock markets, although it is subject to change influenced by a number of variables.

This can be witnessed through the current stocks performance on the Zimbabwe Stock Exchange. Since the turn of year, most stocks listed on the local bourse are exhibiting significant upside.

According to analysts at Equity Axis, the sharp gains being witnessed demonstrates that investors are catching up and exploiting opportunities that were missed in 2019.

“We are therefore projecting that a sizeable number of stocks will likely beat the exchange rate in terms of adjusted yields by year end.”

This comes as the stock market closed in gains on successive basis since the beginning of the year (3 weeks period) as the ZSE All Share Index rose by 6% to settle at 251.26 which is so far its biggest weekly jump since October 2019.

Equity Axis News

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