When an ASX-listed company has something good to tell you, there's usually no mistaking it. The announcement headline will include words like 'positive', 'upgrade', or 'transformational'.
Bad news, however, rarely attracts such a clear summation. Sirtex's 'Preliminary SIRFLOX Study Results', for example, sent the share price down more than 50% yesterday.
After reading thousands of releases, however, there are several seemingly innocuous headlines that send chills down our spines before we even open the announcement.
Starting with the bad and moving to the worst, here are the 13 announcements you don’t want to see from your company – and what they really mean.
13. Announces Non-cash Impairment
The company paid real cash for something and now it’s not worth that real cash. Either the acquisition was a mistake from the start or the acquired company has unravelled badly under new management. If the company is a serial acquirer this is often the first sign of rot in the business model.
12. Strategic Review and Market Update
Results are deteriorating. The company doesn’t know why, nor how to fix it. Note the use of the phrase ‘update’ exclusively for bad things. Things that are good get a different term like ‘upgrade’, ‘improves’ or ‘exceeds’.
11. Will Vigorously Defend Class Action
The company has not just lost money, but it’s stuffed up its disclosure too. Whatever you think of the class action funders, they pick their targets well and this is an indictment on board and management competence.
10. Appointment of new CFO
Okay, this one can sometimes be innocuous but, in combination with other unfavourable announcements, it’s often toxic. The person who knows the company’s financial situation best is out of here. Is it something they refuse to be a part of, something they did, or something they can see coming?
9. Invites expression of interest
The banks protecting themselves by forcing a desperate fire sale of assets at low, low prices. Shareholder value destruction ensues.
8. Continues to comply with Banking Covenants
Like saying the coach has full support of the football club. Only said when it’s unlikely to be true for long.
7. Recapitalisation Update
Centro had one like this. A mysterious ‘update’ (there’s that word again…) between a recapitalisation being announced and being finalised is never a good sign. The company is scrambling desperately and new investment can only be attracted with huge dilution to existing investors.
6. [ASIC/ACCC/TGA] Alleges …
Oh dear. At best the regulator is picking up on general sloppiness, but often this relates fundamentally to the business model – anti-competitive behaviour, inappropriate selling of products. Aside from the specific regulatory issue, general reputational damage can be catastrophic.
5. Accounting Irregularities
Sends a shiver up my spine. At best someone has been misrepresenting the accounts to score a bonus, but this can be outright fraud. A sign of serious cultural problems and a board that isn’t in control of the company.
4. Agrees Stabilisation Plan with Financiers
It’s hard to miss the conclusion the company is heavily indebted and unstable? Financiers are calling the shots and shareholder value has been hammered.
3. Interim Financing Extension Update
Like a stay of execution. Interim funding is already a deadline extension, and the company still hasn’t been able to reach a stable footing. Watch also for an extension of existing facilities to a date less than 12 months away, a sure sign the banks aren’t happy.
2. Extension of Voluntary Suspension
A trading halt itself is bad news, and a voluntary extension usually occurs when there are issues that cannot be resolved or properly announced in a few days. An extension to the suspension is very grim. If it concerns discussions with banks the company often never trades again.
1. Appointment of Receivers and Managers
No mistaking this. Game, set, match.
Did we miss any zingers or get the order wrong? Let us know below.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.