It is Confession Season: Here is why investors need to be particularly alert in FY23

It is Confession Season in the Australian share market. Companies will commonly provide guidance towards their annual results and it may be a different picture to what it had been painting some months earlier – hence the name Confession Season.

 

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What is Confession Season?

Confession season in stock markets is an annual event when companies reveal to investors how they have been performing. This typically occurs in the last couple of months of the financial year and is called ‘confession’ because the company’s performance may be different to what it had been anticipated.

It is different to reporting season, which occurs in the new financial year and shows the actual results. But companies have to disclose in advance of the results if they are likely to be substantially different to what had been indicated beforehand. During this time, shareholders can get an understanding of how their stocks have been performing throughout the year and make more informed decisions when it comes to buying or selling stocks.

In some cases, these confessions may also include information about companies that were not previously disclosed to the public. By providing investors with more information, they are able to make more informed decisions which could potentially lead to better returns on their investments.

Confession season season serves as a way for companies to be held accountable for their actions and provide investors with transparency into how their investments are being managed. It can also be beneficial for regulators, particularly the ASX, as they are able to keep track of any potential risks or fraudulent activities that may arise from them. They may query companies about their basis for their earlier forecasts and how quick they were to disclose to investors after knowing they would fall short. This type of disclosure helps protect investors from losing money due to shady deals or mismanagement of funds by financial institutions or corporate executives.

 

Why confession season is so important this year?

Because there are so many companies that have told investors they’re immune to inflation when they actually are not.

Plenty of companies disclosed a poorer performance several months ago, such as Dominos (ASX:DMP), Baby Bunting (ASX:BBN), James Hardie (ASX:JHX) and Sims Metals Management (ASX:SGM). But others have done so more recently including Maggie Beer (ASX:MBH), Alloggio (ASX:ALO), Universal Store (ASX:UNI) and Tower (ASX:TWR).

In some instances, it will be revenues falling as the company overestimated its resilience to inflation. In other cases, it will be margins given higher company costs. In all of those instances, shares declined when the bad news was unveiled (Ahem…guidance was revised). This is why it is called confession season.

So, keep your eye out for other companies that may unveil bad news before June 30 (or perhaps just on the other side just prior to the reporting of results).

 

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