Regular followers of market news know that one of the unintended results of the COVID 19 pandemic has been a startling increase in the number of people investing in stock markets across much of the world, especially among young people.
Professional financial services providers have highlighted the need to educate newcomers with companies like CBA (Commonwealth Bank of Australia) stepping up stock trading education through their online investment platform, CommSec. Investors can go to commsec.com.au, click on the EDUCATION button to find a comprehensive introduction to market investing on CommSec Learn.
Combine this type of educational exposure with daily monitoring of the rise and fall of stock prices, which leads novice investors to learn that news drives stock prices up and down.
And within the broad category of news, the “wheat” remains announcements of financial reports, not to be confused with announcements of “glitters” of newcomers to company boards.
Financial reports include annual and semi-annual disclosures of company revenues, profits, expenses, and a host of other metrics. From time to time, companies will release trading updates on conditions that may impact future earnings reports, usually in the form of a revision to previously issued financial guidance up or down. by the company.
The first exposure for newcomers to a business update or formal financial report can be an eye opener. One would assume that positive outcomes drive up the stock price and negative outcomes drive down the stock price. From time to time, earnings “surprise” the market when analysts’ expectations are not met, with the company performing better or worse than expected. The assumption is the same, despite the surprise – positive earnings announcements will result in positive stock price appreciation.
As newcomers learn, this is not always the case. The coverage of expectations before the announcement can influence investors’ behavior after the announcement more than the results themselves.
On Feb. 9, two ASX-listed stocks that have been hit hard by the pandemic reported results.
International education service provider Internally Displaced Education (IEL) and retailer of automotive parts, supplies and services Bapcor (BAP) both reported earnings on February 9, 2022. Travel restrictions and COVID-related lockdowns impacted earnings for both companies in fiscal 2021.
PDI revenue fell from $587 million in fiscal 2020 to $527 million while net income fell from $67 million to $39 million.
In strong contrast Bapcor raised both revenue and profit, but cautioned on the outlook, saying fiscal 2022 financial performance would “at least match fiscal 2021 results.”
The caution now appears to have been warranted as restrictions and lockdowns caught up with the retailer in the first half of fiscal 2022. The February announcement showed revenue growth narrowing to a 1.9% increase, with Bapcor direction citing COVID lockdowns. Net income after tax (NPAT) fell 13.7% from the first half of fiscal 2021.
PDI the results were another study by contrast. Revenue increased by 47% while NPAT increased by 70%. The surprise for new arrivals who are waiting At Bapcor decline in the share price while that of the IDP rose? A picture is worth a thousand words. From the ASX website:
Trying to make sense of investors’ reaction to financial news is pure speculation at best, but some factors could come into play.
In PDI cases, some analysts expected more from the company, as PDI international operations were improving dramatically in countries in the northern hemisphere where the pandemic was beginning to show signs of abating. Student internships in PDI the “multi-destination” category increased by 73% over the period compared to the same period last year, while in Australia, placements fell by 5.7%.
Both companies recorded strong performances in certain segments of their business activities and both made important acquisitions. Both companies have income-generating assets outside of their core businesses.
PDI has the most widely used English language proficiency test in the world – IELTS (International English Language Testing System).
As well as retailing and wholesaling auto parts here in Australia and throughout the Asia-Pacific region, Bapcor operates over two hundred branded automotive service centers here in Australia and New Zealand.
The following table includes price movement information as well as historical earnings and dividend performance and future growth estimates for both companies.
PDI historical performance surpasses that of Bapcor and has the future benefit of the removal of travel restrictions added to the removal of lockdowns, which will benefit both companies.
the PDI The website already publishes “Welcome” notices for international students who can return to study at an Australian university.
Investors who have been in the game for a while are less likely to be surprised by seemingly contradictory price movements than newcomers. Two companies recently reported earnings and one announced revised guidance are examples.
Tech Action Megaport (MP1) flipped the traditional SaaS (software as a service) business model, creating a software-driven network as a service. The brainchild of famed Australian tech innovator Bevan Slattery, the Megaport SDN (software-defined networking) uses “cloud-based patterns” to create what the company calls “elastic interconnect services for its customers.”
For the 2022 half, the company recorded a 42% increase in revenue, with all of the company’s served markets – Asia Pacific, North America and Europe – showing positive revenue increases. Megaport reduced its net loss from $38 million in the 2021 half to $18 million this year, a 47% improvement. Profit after direct costs increased by 69%.
The stock price soared, only to tumble the day after the release as major analyst firms began to weigh in. One was tepid at best, while the other was bullish.
The following price movement chart shows the immediate “before and after” for Megaport and a big name in equities, here and in the United States – james Hardy Industries (JHX).
james Hardy manufactures fiber cement panels and liners, with operations in North America, Europe and the Asia-Pacific region, primarily here in Australia, New Zealand and the Philippines. The pandemic has hit the company hard, with revenue falling from $4.2 billion in fiscal year 2020 to $3.8 billion in fiscal year 2021, while profits fell by 391 million to $345 million.
Hardy released its financial results for the third quarter of fiscal 2022, with worldwide net sales up 22% compared to the same period of fiscal 2021. Adjusted net profit increased by 25% and profit before interest and taxes (EBIT) increased by 22%.
Hardy elected to raise its guidance for the full year 2022, ending March 31, 2022. Previous guidance called for adjusted net income of between $605 million and $625 million. Upward revisions to guidance now call for adjusted net income of $620 million and $630 million.
Hardy was sufficiently confident that growth in its operating markets was sustainable for management to also raise its guidance for fiscal 2023. Adjusted net income guidance for fiscal 2023 is between US$740 million and US$840 million.
Given the reluctance of so many companies around the world to release guidance, extending its guidance to 2023 is a testament to this management team’s confidence in its operations.
Management has warned that unforeseen changes from the COVID 19 pandemic could alter guidance.
Since the advice is based on what newcomers to investing read in the market – the future, not the past – some might expect this type of review to send the stock price on an upward trajectory. The price action chart above reinforces what experienced investors know to be true – nothing about investing in the stock market is certain. the JHX the stock price fell below its pre-announcement level.
A final announcement may reinforce this case. February 6 GrainCorp Limit (CGN) revised its guidelines. The company has been in business for over a century, providing a global supply chain to process, store and manage the distribution of grains and edible oils produced by its customers. GrainCorp handles wheat, barley, sorghum, corn, oilseeds, pulses and organics.
Given the coverage of supply chain disruptions in the business press, the upward revisions might have surprised some investors who had expected the company to revise its guidance downward. However, GrainCorp effectively managed its own supply chain and revised its fiscal 2022 guidance upwards. In fiscal 2021, the company reported an NPAT of $139 million. GrainCorp now forecasts an NPAT between $235 million and $280 million, potential gains of 69% to 101%.
Global stock markets stuttered a bit, with the tech sector down sharply. What GrainCorp fact is to make the building blocks of food available, but the course of action has followed the example set by james Hardy, and after a momentary uptick, is now trading below the pre-announcement price. Surprise Surprise!