By Peter V O'Brien
Friday 9th June 2000
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The market usually anticipates results, assuming analysts calculated the figures reasonably accurately and investors accepted the predictions.
Modest price movements immediately after the announcements are normal, particularly if the numbers are better, or worse, than expected.
Assessing the state of the market from reaction to profit results alone is obviously flawed because the exercise looks at only one influence on share prices, ignoring other local and international economic and political factors.
The New Zealand market has had to absorb a fair number of those other factors in recent weeks but it is still worth examining what happened to prices after the announcements in the reporting round.
The table gives appropriate information for 17 companies, listed according to the date on which they issued the figures.
Percentages in the profit change column were calculated in some cases as shown in the notes. The effect of unusual, extraordinary or "non-recurring" items distorted some of the figures in the preliminary reports and could give a false impression, unless adjusted for information that would be unavailable until the release of the formal annual reports.
The best that can be said for the results is profit announcements have little effect on share prices, unless a company produces something so unexpected that investors have to make a rapid reassessment.
Share price changes among the 17 companies were minimal after the announcements, with the exception of Contact Energy and Tranz Rail, where prices rose for reasons unrelated to reported profit.
The price increases in both cases came well after the companies reported.
The last three companies in the table - Dorchester Pacific, Trustpower and Ceramco - were better examples of what happened immediately after a result because those groups reported in the week ended June 2, when the prices on which this exercise were calculated.
Any reaction should therefore have shown up in a price movement in the short period between reporting and the end of the week.
There was no reaction. The market anticipated the results and built them into the share price, had its collective mind on other things and did not care about the companies' figures, or combined the two elements with the resulting lack of price movement.
Market reactions can go "south" while a company is heading "north," as seen in the treatment of meat processor Affco.
The company went from a loss of $4.84 million in the first half of last year to a profit of $7.4 million in the six months ended March 31.
Signs of a recovery were apparent in the result for the full year ended September 1999 when the group reported a profit of $6.52 million.
Affco's first-half profit in the current term was ahead of the whole of last year, although still well behind what the market and the company would consider satisfactory, given shareholders' equity of $104 million and total assets worth $333 million at March 31.
The market reaction to Affco was a 21.1% share price cut between the May 17 reporting date and June 2.
That price change probably said more about the market's concern with wider issues and its overall assessment of the meat processing industry than its assessment of a particular group's profitability.
The way profit is reported is a problem when relating profit increases to price movements.
Carter Holt Harvey's result for the year ended March 31 was an example. The company reported a 226% increase in profit, in accordance with the requirements of the Stock Exchange but the apparent massive jump from 1999 was based on profit of $202 million in the latest year compared with $62 million.
A profit of $202 million would be received gratefully in many companies but CHH had shareholders' equity of $4.89 billion at March 31 and total assets with a book value of $8.5 billion. Relating $202 million, let alone $62 million, to such investment put the profit into perspective.
CHH seemed to accept the point. Chief executive Chris Liddell said there was still work to be done to achieve the returns the company wanted, and needed, to deliver to shareholders.
The next reporting period - for the year or six months ended June 30 - will start toward the end of July and continue until early September. On current evidence it is unlikely to produce anything that will fire up the sharemarket in the absence of dramatic changes to the economic and political outlook.
Company results/share prices
|Company||Result type||Profit change %||Price 2.6.00 (c)||Price change since result date (%)|
|Prop for Ind||3 mths||-10.2||73||Nil|
|Tranz Rail||9 mths||+31.4||333||+23.3|
(2) Adjusted for non-recurring items
(3) Calculated from previous period loss
(4) Situation pre-tax and abnormals
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