Most investors hear about a company through a news headline. But the details behind that headline are usually available first in an announcement lodged with the ASX.
Listed companies must disclose information that could materially affect their share price. These announcements can be dry and full of jargon, but they are a direct source of company information. We think it’s worth reading the original document rather than relying only on someone else’s summary.
Why announcements matter
A news article is an interpretation of what a company has said. An ASX announcement is the company’s own statement to the market.
If a headline says a company’s shares fell because of concerns about its cash position, the announcement lets you check the figures for yourself. It can also give you context that a short article may leave out, particularly in the footnotes.
The announcements investors see most often
1. Quarterly cash flow reports: Appendix 4C and 5B
Early-stage companies that are not yet profitable, including many technology and biotech businesses, report their quarterly cash flow using an Appendix 4C. Mining and oil and gas explorers lodge a similar report, called an Appendix 5B.
The main figures to check are:
- Cash at the end of the quarter: How much money does the company have?
- Operating cash flow: How much cash did it spend during the quarter?
- Funding runway: How long might its cash last at the current rate of spending?
For example, a company with $4.8 million in cash and quarterly cash outflow of $1.6 million has about three quarters of funding at that rate. That does not tell the whole story, but it raises useful questions: does the company expect to raise capital, and has management explained how it will fund its plans?
A company with only a few quarters of cash and no clear funding plan is in a different position from one with a longer runway and a funded project. If cash is running low, the company may need to issue new shares, which can reduce existing shareholders’ ownership.
2. Half-year and full-year results: Appendix 4D and 4E
These announcements contain a company’s formal financial results. For companies with a June year-end, results are often released around February and August.
Look at revenue and profit compared with the same period a year earlier. Check whether the company declared a dividend, whether it is franked, and what management expects in the period ahead.
In our view, the outlook can matter more to the share price than the results themselves. Markets are focused on what a business might earn next, not only what it earned last year.
3. Trading halts and suspensions
A trading halt temporarily pauses trading in a company’s shares. It is usually requested before important news or a capital raising, giving investors time to receive the information at the same time. A suspension also stops trading, but may last longer.
Check the reason given and when the company expects trading to resume. A halt by itself is neither good nor bad news. It means an announcement may be coming, so it’s best to wait for the details before drawing conclusions.
4. Capital raisings and new share issues
Terms such as placement, share purchase plan and entitlement offer usually mean a company is raising money by issuing shares.
Check the issue price against the recent share price and consider what the company plans to do with the funds. It’s also worth checking whether existing shareholders can participate. A large discount may be significant, but it is only one part of the announcement to consider.
5. Director and substantial holder notices
An Appendix 3Y reports a director’s share dealings. A substantial holder notice is generally required when an investor’s ownership crosses 5%.
These notices can offer clues about how company insiders and large investors view the business. But they are only one piece of information. A director might sell shares for personal reasons that have little to do with their outlook for the company.
A simple routine for reading an announcement
Start with the headline and opening paragraphs. Companies usually put the main point near the top. Then look for what has changed since the previous update, rather than considering each figure in isolation.
Read the footnotes and fine print, where assumptions, qualifications and risks may appear. Finally, consider what information is missing. If an announcement highlights progress but says little about cash, for example, check the company’s latest cash flow report.
Warning signs to look into
Vague claims without supporting figures, repeated capital raisings over a short period, and results that emphasise adjusted or underlying profit while giving less attention to reported figures are all reasons to read more carefully. An announcement released late on a Friday may also attract less immediate attention from investors.
None of these is proof that something is wrong. They are prompts to look more closely at the company’s figures, explanations and previous announcements.
Where to find announcements
ASX announcements are available on the official ASX website by searching for a company’s name or ticker code. Many broker platforms also provide them.
We think investors are better served by opening the original announcement, rather than relying only on a summary. You don’t need a finance degree to understand the key points. A little patience, familiarity with a few common terms and the habit of checking the source can make these documents much easier to read.
( Source : Market Analysis )