The need for quarterly updates

Article #693 by Edward Rizzo - Published Weekly

The 2020 annual reporting season for companies whose shares and/or bonds are listed on the Malta Stock Exchange finally came to an end last week with a deluge of company announcements hitting our inbox in the last few days prior to Friday’s deadline.

On the other hand, last week was also characterised by a large number of multinational companies listed on the US and European stock exchanges including some of the US tech titans Apple, Microsoft, Amazon and Facebook who were busy issuing their financial results for the first quarter of 2021. This timing difference plays an important part in the behaviour of the investing public and could possibly explain the different mindset of the Maltese investor community compared to the more proactive participation by investors across the larger and more developed capital markets.

In the past, I had clearly advocated for more regular communication flow during the year by issuers on the Malta Stock Exchange especially following the removal of the regulatory requirement for share issuers to publish Interim Directors’ Statements on a semi-annual basis. This regulatory obligation was required to provide updates on the company’s business performance during the first quarter of the year and also during the third quarter of their financial year. This enabled market participants to be in possession of more regular updates on the performance of share issuers which assisted in providing better guidance to the investing community.

However, despite its removal as an ongoing obligation in 2015, some Maltese companies continued this good practice by providing an overview of business trends. Moreover, other companies such as Malta International Airport plc and Medserv plc also publish detailed financial information on a quarterly basis. In the UK for example, these types of announcements are referred to as ‘Trading Updates’ which are issued regularly to provide additional guidance to the market.

Moreover, last week it was also good to see that one of the recent newcomers to the bond market, APS Bank plc, published various financial figures for the first quarter of 2021. This is commendable for a bond issuer and an initiative which ought to be emulated by many other companies (both share and also bond issuers) in Malta.

Such an initiative does not need to be regulatory-driven. Companies which issue shares and bonds to the public need to understand the importance of investor relations and adopt more regular communication as seen across international capital markets.

Under current circumstances, several issuers whose shares are listed on the MSE and stick to the minimum reporting requirements issue their half-year financial statements within two months from the reporting period (August deadline for the large majority of companies with a financial half year-end in June) and the annual financial statements within four months of the financial year-end (April for those companies with a December year-end).

By sticking to these timelines, it is often the case for a company to issue its half-yearly financial statements in August and the annual financial statements in April. That would imply an entire 8-month period with very little communication to the market in terms of business performance during the second half of the financial year and the first quarter of the new financial year. In some capital markets overseas, one also finds companies issuing preliminary guidance on their annual financial numbers shortly after the year-end to guide the market on expectations ahead of the formal announcement of audited financial statements at a later date.

Moreover, when taking last week’s deadline for the publication of the annual financial statements into consideration, the market was provided with the information about 2020 at a time when the market would be more interested in the current business performance since four months have already passed from the start of the new financial year especially given the current fluidity in certain industries.

The Maltese investor community is very evidently still shell-shocked by the political crisis which commenced in November 2019 closely followed by the devastating impact of COVID-19. On the other hand, investors across the international financial markets are clearly looking beyond the pandemic and showing enthusiasm about the reopening of the economy. This is what helped the share prices of many companies to recover very quickly in recent months.

Companies in Malta must emulate international best practice standards to further enhance the development of the local capital market. This is more important now as investors are clearly eager to gauge any upturn in business activity that will hopefully take place once certain sectors of the economy reopen especially the tourism industry which is such a critical driver of the Maltese economy.

Investor relations is an area which needs to be given much more importance by companies listed on the MSE should they wish to maintain a consistent level of interest and trading activity in their equity. This has surely been one of the limiting factors across the Maltese equity market in recent years.

There is very clear evidence from international capital markets that regular statements and company announcements enhance trading activity and liquidity in financial instruments. A more informed market clearly drives trading activity in a company’s shares which should be an important objective for all companies that have their equity listed on the Malta Stock Exchange.

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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.