The interim reporting season

Article #757 by Edward Rizzo - Published Weekly

The financial reporting season in the US commenced two weeks ago and the news from some of the large multi-nationals on the figures for the second quarter of the year as well as their guidance for the next six months are important determinants of the movements across the main equity indices in view of the fears of an imminent economic recession.

While the initial announcements by two of the large banks (JPMorgan Chase and Morgan Stanley) showed somewhat weak signals with lower investment banking revenue and higher provisions for bad debts, the banks that are more dependent on retail customers such as Bank of America and Citigroup delivered better performances and more upbeat guidance. This is indicative of the strength of consumption patterns which some economists believe are much healthier compared to the situation prior to the COVID-19 pandemic. This was also reflected in the financial statements of American Express published last Friday showing record spending by cardholders especially across travel and entertainment. In view of the strength of the consumption patterns, the CEO of American Express doubted whether the US economy will enter into a recession in the coming months.

The US reporting season carries on this week in what will prove to be a crucial time for the immediate direction across financial markets since the Federal Reserve is expected to announce another 75-basis point rate hike on Wednesday, various economic reports are due to be released and a large number of companies will be issuing their financial statements including the Big Tech companies.

In Malta, the H1 reporting season commenced last week with the publication of the interim financial results by Plaza Centres plc with other announcements by Malta International Airport plc, APS Bank plc, Mapfre Middlesea plc and Bank of Valletta plc due to be published this week.

The H1 reporting season comes at an important time for the Maltese investing public given the various ongoing economic uncertainties and follows the conclusion of the annual reporting season in April for the large majority of companies (those with a December financial year-end) as well as the June deadline for the publication of the Financial Analysis Summary by most of the bond issuers.

Moreover, in view of their different financial reporting periods, the publication of the Financial Analysis Summary by Simonds Farsons Cisk plc as well as the annual results by PG plc for the 2021/22 financial year are also important announcements to gauge the strength of the recovery of the Maltese economy.

Last week, Simonds Farsons Cisk plc published its financial forecasts for the 2022/23 financial year. During the current financial year to 31 January 2023, revenues are expected to surge to a record of €115.7 million representing a growth of 26% from the prior year and more importantly a rise of almost 12% compared to the 2019/20 financial year prior to the COVID-19 pandemic. An important observation is the expectation of improved gross profit and EBITDA margins for the Farsons Group showing the effectiveness of all operational and cost efficiency measures that were put in place during the pandemic.

The strength of consumption patterns following the end of pandemic-related restrictions and also in the light of the surge in inflation and fears of a recession will be a key determinant of the financial results and guidance by other Maltese companies such as PG plc, M&Z plc, Malta International Airport plc as well as the owners of retail complexes such as Plaza Centres plc, Main Street Complex plc and Tigné Mall plc.

The interim financial statements of Plaza Centres published last Friday indicate a growth in revenue of almost 5% on a like-for-like basis even when compared to the 2019 figures prior to the pandemic. This could be in part a result of the regular annual rental increments mainly across the office tenants but could also indicate the strong consumption patterns across the retail and catering establishments. The results of PG plc, M&Z plc, Main Street Complex plc and Tigné Mall plc and any additional information that may be provided by these companies on consumer spending patterns could shed some important light on the manner in which the local economy could continue to perform amidst the current uncertainties.

In fact, apart from the customary review of the historic financial performance, the companies that will be issuing their results in the weeks ahead should contemplate providing additional information to the market on their current business patterns and guidance for the coming months in view of the spike in inflation and other economic uncertainties. Following the sharp setback to investor sentiment as a result of the pandemic and Malta’s greylisting by the FATF and now by the war in Ukraine, public companies need to resort to more detailed and informative announcements. Moreover, companies should organise more regular meetings with financial analysts to ensure there is sufficient knowledge among the investing community of the various factors that are likely to impact their financial performance. Maltese companies should emulate the investor relations efforts of the multi-national companies listed on the major capital markets to ensure investors have sufficient information to make well-informed decisions.

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This article was produced by Edward Rizzo, Director at Rizzo Farrugia, which is a company licensed to undertake investment services in Malta by the MFSA under the Investment Services Act, Cap. 370 of the Laws of Malta and a member of the Malta Stock Exchange. The company’s registered address is at Airways House, Fourth Floor, High Street, Sliema SLM 1551, Malta.