A few weeks ago I published my 400th article, and this milestone made me reflect on whether my financial journalism has achieved the required objectives.
It was eight years ago, in 2007, when I penned my first article. I clearly remember having decided to do so after reading a rather short but misleading and incorrect analysis of a company’s financial statements in the local Press. It was then that I understood the need to fill a void in financial journalism in Malta.
My aim was to provide Maltese investors with regular and detailed information to help them understand the mechanics of the market and developments across the companies listed on the Malta Stock Exchange. Although my main intention was to cover topics on local investments, at times I also tackled international deve-lopments as well as some interesting events across multi-national companies.
I must admit that choosing a topic to write about every week is not easy, and I have on numerous occasions over the past months – also as a result of work pressure – thought of giving up this weekly task. But on further reflection and as a result of the very frequent messages and enquiries I receive, as well as the questions that are asked by shareholders attending annual general meetings of listed companies, I continue to feel that there is still a need for such regular articles to assist some investors to improve their financial literacy.
The feedback received following my recent contribution titled Challenging Times For Maltese Savers, especially from individuals whom I did not expect to be regular readers of my articles, again proved that my weekly contributions are regularly read by a wide cross-section of people who do so to keep track of financial matters.
When drafting today’s article and reflecting on this milestone of my 400th publication, I recalled that just over two years ago for my 300th contribution I wrote an article titled Six Years of Financial Journalism. The article highlighted the objectives of my weekly contributions and how these had evolved over time.
I mentioned that my articles aimed to provide an unbiased view on the financial situation across many local companies and an insight into various developments impacting global financial markets.
At times I criticised certain companies because in my opinion certain developments needed to be highlighted for the benefit of the retail investor, who may not have the know-how to analyse certain figures found in the financial statements or prospectus.
From the regular feedback I have been receiving over the years, it is clear that many readers appreciated the unbiased comments made because these assisted them in their deliberations. On the other hand, some companies that were on the receiving end of my critical analysis did express their disappointment at my comments.
Although this is unfortunate, I continued providing a transparent analysis to assist my readers, and I am pleased to say that a number of companies have since been including more information in their public announcements.
Some of my recent articles tackled a review of the annually-updated Financial Analysis Summaries (FAS) of a few of the bond issuers. The requirement by some listed companies to publish such financial information annually, including financial projections, is a relatively-new development which came into force in March 2013.
The unbiased comments made … assisted them in their deliberations
Ironically, it is only bond issuers that are required to publish FASs. Equity issuers do not. But in my opinion, investors who acquire equities (which by their nature carry a higher level of risk than bonds) actually need to have such information too.
Equity investors need to closely monitor the company’s financial performance as well as its strategic developments and future prospects, at least annually in my view, since any potential capital growth or loss in the value of an equity, as well as the extent of any dividend distribution, is dependent on such developments.
On the other hand, bond issuers are obliged to pay their annual interest, which is fixed throughout the lifetime of the bond, irrespective of the amount of profits generated. Having said this, however, the projections of bond issuers are still very useful since they provide regular guidance to investors as to whether the company can easily honour its commitments or whether other financing is required due to a deterior-ating financial situation.
Although equity issuers are not obliged to publish financial projections, directors and senior management executives should understand that this level of information is key to assisting financial analysts in their duties towards investors, and this will ultimately help retail investors obtain a clearer understanding of future developments.
This is standard practice across inter-national financial markets, and should also become common practice among companies whose equity is listed at MSE.
While it may be true that it is difficult for certain companies to project financial developments for the upcoming financial year, certain assumptions should be taken to provide a base case scenario for investors.
The publication of an annual Financial Analysis Summary which includes a company’s financial projections is proving to be very beneficial to the few companies that have recently issued bonds and also have their equities listed on the MSE.
Hopefully, new policies will be considered which will oblige all equity issuers to also prepare this detailed information on an annual basis. This will assist in the analysis of a company’s financial prospects and should enable retail investors to take a more informed decision. This can also ultimately lead to improved trading activity across the local equity market for the benefit of investors and market participants.
In essence, more regular and detailed announcements, as is the norm overseas, are necessary to enable financial analysts to perform their duties and continue assisting the investing community.
Edward Rizzo is a director at Rizzo, Farrugia & Co (Stockbrokers) Limited.
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