Results day ‘surprises’ that move the market come under the ASX’s microscope

The ASX is cracking down on companies over their disclosure obligations during results season – particularly those which make market-moving announcements.

The market operator has confirmed it is going after companies that experience big price moves on results day. Picture: Gaye Gerard

The ASX is targeting companies that come out with earnings surprises on results day, with Bendigo Bank, IAG and MinRes all on the market operator’s hit list in the past month.

Eight listed companies so far have come forward with their responses to “aware letters”, also known as “please explain” letters, from the ASX after substantial share price moves on the day they reported earnings.

But there could be more, with plumbing supplies giant Reece, health insurer NIB and fintech Iress among those that had big market reactions on results day in a highly volatile earnings season.

“Over the past few reporting seasons, ASX has had a focus on earnings surprises. Our activity this February is a continuation of that,” ASX’s general manager for listings compliance Garth Riddell told The Australian.

“The role of ASX is to monitor and enforce compliance with the ASX Listing Rules, including continuous disclosure, which is an ongoing focus for us.”

The trigger for looking into a potential earnings surprise is a material price movement on results day that cannot be readily explained, Mr Riddell said. “We also conduct thematic reviews of compliance with various aspects of the listing rules. Our focus areas, and the targeted actions that we take in relation to them, will continue to evolve over time.”

The market operator’s heightened focus has triggered a jump in “please explain” letters. In August, nine companies, including Insignia Financial and Tabcorp, were targeted by the ASX. There is a good chance even more will have been issued this season, with responses still trickling in.

Mexican-themed fast food chain Guzman y Gomez was the latest to defend the disclosure of its expected earnings after its stock crumpled 14 per cent following disappointing interim results on February 21.

In response to a “please explain” from the ASX about the company’s earnings guidance and analyst expectations, the restaurant group on Wednesday said it did not publish earnings guidance for the half year and did not believe its statutory profit result was materially different to the market’s expectations.

“In the following weeks prior to the results announcement, Guzman y Gomez continued to hold the view that its expected earnings were materially in line with the market’s expectations,” the company said in its response.

The ASX wrote to Guzman y Gomez on February 25, four days after the fast food chain’s share price tumbled from $44.99 to $38.58 – a 14 per cent drop – on the same day it released its earnings.

Regional lender Bendigo Bank was hit twice in one week after the bank revealed a shock margin plunge that tore into its earnings for the first half of the year.

The first please explain was sent the day it reported its earnings, with the bank promptly issuing a reply, but the ASX followed up days later to get more answers.

“Bendigo Bank considers that margin performance, in isolation of other factors which influence Bendigo’s earnings, is not information that a reasonable person would expect to have a material effect on the price or value of its securities,” the company said in its second response to the ASX.

Forager Funds’ Steve Johnson questioned the point of “please explains”, saying nothing ever came of them. “ASX puts out these letters, and the company just says ‘We did everything right’ and the ASX goes ‘OK’.”

Mr Johnson said the market had reacted “viciously” to some earnings results during this reporting season.

“There were some companies where the results weren’t particularly bad, or in some cases, particularly good, and the share price was up or down 20 per cent, on some fairly innocuous things,” he said.

“I think if you’re running a company and (earnings) were going to be 2 or 3 per cent different from consensus, you’d be well within your rights to say, well, that’s not enough for me to worry about putting out an announcement. But we’ve seen the market react pretty viciously to some of these things.”

Originally published as Results day ‘surprises’ that move the market come under the ASX’s microscope