In many ways this results season is no different to any other. We’ve had the usual mix of positive and negative company updates, and spicy share prices moves. But I’m still being asked the same old questions about share price reactions, to which my response never changes.

“What will the shares do on results day?”

Nobody can know for sure. Good news (e.g. financial results, new product) can result in a positive share price reaction, and the reverse for bad news. But it’s not quite that simple. It still depends how traders, investors, analysts and the media all decide to digest the company’s update as a whole.

“Company X made £1bn profit, but the shares are down 5%. How come?”

Financials: Were revenues, profits, margins, cash-flow, debt, impairments, product breakdown, etc, better/worse than consensus? Is the company still growing as quickly versus last quarter or last year? This is where previews allow Accendo to show its value. These offer an idea of market expectations and allow us, at 7am on the day, to gauge whether the news will be good or bad for the share price.

Quarterly revenues may rise 50% to £1bn, and profits by 20% to £400m with a 40% margin, but if consensus was for revenues +60% to £1.1bn, profits +30% to £450 and a 41% margin, the results are technically a miss. Croda jumped 5% after better than expected Q3 numbers while both BP and Shell put on 2% after theirs. Misses are thankfully rare as companies can ‘guide’ market expectations towards figures that can be beaten.

Outlook: Financials are historical data, offering no guarantee of future trend. Share price sentiment, however, is based on potential for growth and returns. This means outlook is often even more important. Hence the pain of a profits warning and benefit from upgraded guidance which can move shares 10-20% either way, respectively.

Financials may well beat consensus, but a revised outlook, suggesting no growth next quarter or a loss rather than a profit next year, means the shares are likely to react negatively. Look at Burberry this week; results fine, but no sales growth expected until 2021. The shares fell 10%. Next dropped 9% on profits guidance being pulled lower.

Dividends: Returns for shareholders are key so dividend news can be major. After all, coupled with capital growth (share price gains), income via dividends is how you make your returns. If a company offers an attractive 5% yield, the shares are likely to be sensitive to any news on the dividend. More dividends good news, less dividends bad.

Look at the positive reaction by Anglo American, Lloyds and Tesco when they reinstated their dividends after multi-year absences. Or the negative reaction when Tesco cut its dividend amid an accounting scandal, Pearson re-based its pay-out after shrinking the company and some Miners cut/suspended theirs during the 2015/16 sector downturn.

Share buybacks: It’s not only dividends that are supportive. Buybacks are another way for a company to return excess funds to shareholders. Announcing a new programme or increasing an existing one is usually welcomed, whilst decreases or cancellations are taken negatively. Pearson shares jumped when it countered the dividend re-base with a $300m buyback.

Qualitative vs. Quantitative: Whilst numbers are easy to compare, markets can focus on other issues like M&A, strategy, management changes and new products. News of an exciting new product or a change at the top of the management tree after years of stability could offer more growth but new risk, respectively, which the shares may react to accordingly.

In summary, one element of results can easily trump all others. Sometimes it’s obvious, sometimes less so or it’s a combination of many things. It depends what markets are focusing on at a given point. That’s why you need to speak to us at Accendo, to know where the market focus lies, so there are no nasty surprises on results day. After all, the devil is in the detail, companies doing their best to highlight good news whilst hiding the bad.

We’ll send you the broker previews as soon as we get them. We’ll pass on quick reaction comments from 7am on results day. We’ll let you know the opening share price indications from 7.50am. We can be with you every step of the way. If you’ll allow us the privilege.

There are plenty more companies left to report, and share price moves to capitalise on.  To whet your appetite, the big names reporting next week include Barratt Developments, ITV, Taylor Wimpey and Vodafone. For a full list, contact us. What will their shares do? You’ll probably need preview, so drop us a line.

Have a great weekend.

Mike van Dulken, Head of Research, 10 Nov 2017