UCD research finds investors are ‘kept in dark’ on coronavirus impact
More than half of public companies’ Covid-19 profit warnings have failed to provide investors with enough information for them to assess how businesses will be affected by the pandemic, according to new research.
The study - which was headed by Niamh Brennan, a professor of management at University College Dublin - was based on 428 profit warnings issued between January and April by companies listed in London. The subjects included leading Irish stocks such as building materials giant CRH; gambling group Flutter, owner of bookmaker Paddy Power; and builders’ merchant Grafton.
The findings come while the Central Bank of Ireland is scrutinising companies and their stockbrokers over how promptly they release price-sensitive inside information, including about the impact of the pandemic on their businesses.
Companies are “regressing to silence when investors most need guidance”, according to the study, which Brennan conducted with Sean Bradley Power of UCD and Victoria Edgar of Agder University in Norway.
The study contrasted how some companies were able to quantify the impact of Covid-19 on future profits, while others claimed that there was too much uncertainty.
Bookmaker Flutter Entertainment, for example, said in March that its profits would be £90m-£110m (€97m-€118m) lower this year. By contrast, Bank of Ireland and forecourt retailer Applegreen said that Covid-19 would have a “meaningful impact” on their financial performance in 2020 but did not provide any estimates.
Others have been more coy. In a trading update this month, Grafton said that it was suspending all financial guidance for 2020 “given the continuing uncertainty in our principal markets”. The Dublin-headquartered CRH issued a similar disclaimer in April.
Hostelworld was also “unable to provide guidance on its results” for 2020, according to an update in June. However, the company then proceeded to raise €15m through a share placing immediately afterwards.
Brennan said that companies must not use the pandemic as a reason not to keep shareholders informed.
“It’s precisely because there’s such uncertainty that investors need clarity,” she said.
“Management should be able to keep investors informed, while perhaps qualifying the information by setting out the assumptions on which it is based and the risks attached to making such disclosures.”
This article was written by Niall Brady and first appeared in The Sunday Times, July 19, 2020.
COVID-19 Profit Warnings: Delivering Bad News in a Time of Crisis Niamh M. Brennan, University College Dublin, Ireland | Victoria C. Edgar, University of Agder, Norway | Sean Bradley Power, University College Dublin, Ireland.