Reporting Season

Reporting season is always a busy time for everybody concerned with the stock market. It is the time when companies open up their books and we see the good, the bad and the ugly of the past six months of work. Companies can bask in the glory of their profits and present their thoughts on the future, or explain away the disappointment of missing past promised targets and promise to do better next time.

Under Corporate Governance regulations companies have to report their earnings for the periods ending June 30 and December 31. Traditionally companies report over a period of a few weeks in August and February (The Banks, apart from CBA, are the exception), but in reality the market, and in particular the analysts, have been under pressure to predict the figures ahead of time. There is plenty of money to be made from going long on a company that will exceed expectations or shorting a stock that disappoints the market.

Reporting Season is often characterised by high volatility

The derivatives market (e.g. Exchange Traded Options (ETO's) and CFDs) for any one share is affected as investors and speculators jockeying for position, covering existing stock positions and reacting to the buying or selling opportunities presented as markets over-react to short-term news. The market normally reacts by comparing the results with analysts' forecasts and expectations. Therefore it is not uncommon for a company that registers a 40% increase in profits to experience a sharp fall in share price if the market was expecting 50% increase in profits. Conversely a share price rise may be seen for a company that has lost less money than predicted.

An upside example: From 14th February 2007, Leighton Holdings (LEI) announced that the net profit for the six months to 31st December. rose 61% to $190 million. Additionally the company increased its interim dividend to 45 cents from 25 cents as revenue increased 22% to A$5.72 billion from A$4.70 billion and announced that full-year profit is expected to increase by around 45%. The chart above shows the stock price gapping 9% on this news.