Earnings season ahead

The earnings season is well-underway across the international financial markets with all the major news portals and financial journalists providing in-depth coverage of the important developments across the larger companies.

Meanwhile, the financial reporting season in Malta is yet to commence. Unfortunately, Maltese companies do not replicate the investor relations strategy of their international counterparts and only alert the market of upcoming approvals of financial statements shortly before the actual publication date. Internationally, companies issue their financial calendars several months in advance thereby assisting financial analysts and investors with clear visibility of the scheduled dates of the publication of financial statements as well as the dates of Annual General Meetings and other announcements such as trading updates. Companies listed on the Malta Stock Exchange should have a better-structured line of communication with the market similar to that adopted overseas.

With no formal communications to date, it seems that the earnings season in Malta will commence with HSBC Bank Malta plc on 21st February and Malta International Airport plc will follow by 28 February. The dates quoted were taken from the financial calendars of the respective parent companies overseas which are easily available online. Since these companies are subsidiaries of their parent companies listed on international stock exchanges, they would need to publish their own financial statements either concurrently with their parent (as is customary for HSBC Malta) or a few days in advance of the issuance of the annual report of the parent company (as is customary for MIA and Vienna Airport).

Companies listed on the Malta Stock Exchange with a December financial-year are obliged to publish their Annual Report by the end of April. While some companies will be issuing their results between end February and mid-March similar to previous years, invariably, many other companies publish their results shortly before the deadline or in some cases even on the final day to respect the 30 April deadline. With four months into the new financial year, investors would be more interested in the performance of the current financial year and the outlook for the months ahead rather than in reviewing the financial performance of the prior year.

I have mentioned this timing issue in some of my articles in the past and advocated regularly for an increased flow of communications to the market. With interim financial statements published in August, an 8-month timeframe between the half-year report and the annual financial statements is far too long. In order to bridge this long time lag, companies should publish an announcement of their Q3 figures in October or November and issue a subsequent announcement by mid-February providing highlights of their full-year financial performance and other key developments to ensure that the market is kept regularly updated. This is common practice especially in the UK and also in various European capital markets. Meanwhile, in the US, the situation is somewhat different with regular quarterly reporting by public companies issued only a few weeks after the quarter-end. In fact, although it is only six weeks from the start of 2024, the large majority of companies in the US already published their Q4 figures and their 2023 annual results.

Incidentally, when I started drafting today’s article, a similar announcement by Medservregis plc was issued providing an insight into the company’s financial performance during 2023 and some highlights of industry developments. Medserv’s announcement was a short but, in my view, an effective announcement that helps to provide a high-level feel of the situation within the company. I feel that such an announcement can be easily replicated by most of the companies in Malta especially those that do not publish their annual financial statements to the market during the month of February or early March. If Maltese companies want to attract investor attention and have a more active market in their shares (one of the main reasons for a listing on a stock exchange in the first place), then they need to improve their communication efforts.

One of the main focal points for local investors in the upcoming earnings season will be on the banking industry. As a result of the sharp upward movement in interest rates by the European Central Bank since the end of 2022, there was a clear boost to the profitability levels of the two largest retail banks in Malta. Between the end of October and early November, Bank of Valletta plc and HSBC Bank Malta plc published key highlights of their financial performance until September 2023 confirming the clear trend visible in the first half of 2023. As such, while the evident upward movement in net interest income will boost profitability levels, the key focus of attention in the upcoming announcements will be on the extent of the dividend distributions by both banks following a bumper year. Incidentally, earlier this week, the Italian bank Unicredit Spa published buoyant profitability levels and announced that it would return €8.6 billion to shareholders through a combination of share buybacks and dividends which helped its share price jumped to the highest level since 2015.

The upcoming earnings season could also shed light on some other important developments across specific companies that have long been in the pipeline. As such, market observers will be on the look-out for any further progress on the execution of each company’s business plan apart from analysing the actual financial performance and key financial metrics. Companies listed on the MSE must emulate their foreign counterparts and provide ongoing detailed updates at each opportunity when such communications to the market take place.

Investor sentiment across the Maltese capital market remains very fragile indeed and this is evident from the weak trading activity in most equities listed on the MSE despite evident progress across some companies of strong financial performances and dividend distributions. Concrete details on company-specific developments including specific corporate actions being undertaken to unlock shareholder value, similar to what takes place very often overseas, could possibly be the only catalysts that could revive enthusiasm for Maltese equities in the near term.

Read more of Mr Rizzo’s insights at Rizzo Farrugia (Stockbrokers).

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