The financial reporting season is in full swing across the US, UK and eurozone financial markets with all companies providing the market with information on their financial performance during the quarter ending 31st December 2022 and more importantly disclosing details on strategic initiatives being taken to grow their business and enhance shareholder returns. In fact, while the financial performance of the past quarter is always an important determinant of the immediate reaction of the share price in any reporting season, since financial markets are forward-looking, the more important element remains the key initiatives being undertaken by management for the future of the company and comments in this respect during the periodic online meetings with financial analysts.
Meanwhile, in Malta, the financial reporting season is yet to commence. With information currently available to the market, it seems that HSBC Bank Malta plc will be starting off the reporting season next Tuesday followed by Malta International Airport plc the day after.
I cannot exclude that other companies will also publish their 2022 annual financial statements imminently since this information is not yet available. In fact, apart from HSBC and MIA, only two other companies (APS Bank plc and Mapfre Middlesea plc) have so far communicated to the market the date when their financial statements will be released. This is another remarkable shortcoming which shows the lack of effective communication and adequate focus on investor relations across the Maltese capital markets. It is common practice across the more developed financial markets overseas that the financial calendar for the entire year is already available by each company. This is easily accessible from the relevant section in each of the company’s website. In view of this disclosure, the international financial media is therefore always well-aware of those companies reporting in each particular week and the media outlets give prominence to the main companies in the run-up to the event and especially once the financial statements are released. This provides the media coverage for investors to remain well-acquainted with the financial strength of each of the companies and any noteworthy developments taking place.
The exact timing of the publication of financial statements in Malta is also not available in advance of the event contrary to international practice where it is disclosed whether the release will take place prior to the opening of the market that day or ‘after-market’. Unfortunately, it is also common practice in Malta that financial statements and other important disclosures are sometimes also released while the market is open for trading. This should not be allowed since market participants and investors need to have sufficient time to digest the contents of the announcement and react accordingly.
With investor sentiment in Malta at its lowest level in several years, the outcome of the upcoming reporting season is very important and could be a key moment for the future of the Maltese capital market. The Maltese equity market suffered tremendously over the past three years as a result of the severe headwinds that happened in quick succession starting off with the political crisis in November 2019 followed by the COVID-19 pandemic in early 2020, Malta’s FATF greylisting between June 2021 and June 2022 and the impact of the Ukraine war at the start of 2022.
In fact, it may not come as a surprise that trading activity across the equity market in 2022 was at its lowest level in 13 years. This indicates the extent of the crisis of confidence currently facing the equity market.
It is comforting that in recent weeks there was a slight improvement in sentiment and trading activity possibly as the market awaits improved results from the banking sector in line with developments across the eurozone following the sudden change in the interest rate environment during the last few months of 2022. Moreover, the Maltese economy has shown particular resilience with a strong recovery in tourism which should contribute positively to the profitability of a number of companies listed on the MSE.
Although the anticipated improvement in financial results and resumption of dividends by certain companies could hopefully lead to a gradual improvement in investor sentiment, in my view, a major weighting will be given to the manner in which companies communicate with the investing community. I feel that very little effort is made by top management and directors of most companies to explain the strategic direction of a company and how the various initiatives could lead to improved returns. Some companies in Malta even fail to organise a market briefing to provide added background on their financial results as well as their future strategy. Unfortunately, the large majority of Maltese companies simply fail to dedicate sufficient time and effort to communicating effectively with the market and this is clearly showing in the indifference by some market participants towards the entire equity market.
Maltese companies need to start adopting a similar culture to companies listed across the international financial markets and devote much more attention to investor relations. The importance of effective communications with shareholders was very clear in recent weeks across the international markets as the CEO’s of two major companies in the US clearly succumbed to investor pressure. The CEO of Meta Platforms Inc, Mark Zuckerberg, and the reinstated CEO of Walt Disney Inc, Bob Iger, delved deeply into important strategic initiatives being undertaken to improve the financial performance of their respective companies following widespread criticism in recent months. The focus on such strategic initiatives was immediately vindicated as the share prices of both companies reacted positively to the news.
Likewise, the CEOs of companies whose equity is listed on the MSE need to emulate the communications strategies used internationally to discuss the strategies being adopted and available opportunities to grow shareholder value while always highlighting the threats or challenges that are always present. This is a defining moment for the Maltese equity market. The added focus on improved shareholder communication can provide the necessary impetus for investor sentiment to improve after a particularly challenging period.
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In the current high interest rate environment, investors have many opportunities to deploy excess liquidity into positively yielding financial instruments