Briefing rule casts shadow
The Australian Securities and Investments Commission has been roundly criticised for its response to the Newcrest selective briefing scandal.
The consensus is that undertaking spot checks of meetings between companies and analysts will either force get-togethers underground or interrupt the useful and legal flow of information between companies and shareholders.
In the upper echelons of big business, a reaction has already started to emerge. In the week before announcing its results, BHP Billiton normally sends out an update of where the analysts' consensus is sitting. But this year, BHP departed from the procedure.
It is the Newcrest hangover.
In the same vein, BHP is enforcing a strict blackout period - avoiding any conversations with analysts or the media in the weeks leading up to its results - even if the talks are not earnings-related.
Several top-20 companies, including at least one of the major banks, have also been spooked by the corporate regulator's post-Newcrest comments into distancing themselves from market conduits such as analysts and the media.
Coincidentally, BHP delivered a result this week that was out of kilter with market expectations. However, this would have been the case regardless of ASIC's heightened vigilance about disclosure. BHP's profit number was affected by a higher tax rate, some higher interest costs and a bunch of exceptional items.
(The higher tax charges were in large part a result of the imposition of the new minerals resource rent tax, the application of which produces outcomes that are so inconsistent that even the most diligent expert could not reliably predict the outcome.)
But the underlying issue is whether this new shadow jumping stemming from ASIC's comments is actually improving transparency for investors.
Not having an accurate read on what analysts expect about future profits is anything but illuminating for investors.
The whole idea is to measure corporate profits against what the experts think. There is a big difference between telling analysts the profit outcome ahead of time and informing the rest of the market about analyst consensus. The former is insider trading, while the latter is improving transparency.
There will always be some companies that go too far in an attempt to manage expectations, and in doing so cross the line between (let's say) correcting misinformation and giving away too much.
On another note, BHP did disappoint the market this week despite the fact that the underlying earnings were in line with consensus. New chief executive Andrew Mackenzie did not do anything wrong - indeed, former CEO Marius Kloppers can claim ownership of this result.
The focus was on the decision to spend a further $US2.6 billion on its Canadian potash project, Jansen. It is a long-term and potentially capital-heavy project, which is being considered (or at least kept alive) at a time when there is serious competition between the company and its investors for the profit spoils. Management wants to invest in projects that will ultimately provide their earnings legacy, but investors want dividends.
By contrast, Woodside Petroleum cemented its status as the shareholder's best friend by confirming that its dividend payout ratio would remain at 80 per cent for the forseeable future, it having already announced a special dividend of US63¢ a share.
Thanks to a big kicker from a contribution from Pluto, it boasted a 22.5 per cent increase in production and a 7.6 per cent improvement in operating revenue.
The result was capped off with a reduction in exploration expenditure and capital expenditure.
Woodside is essentially swimming in cash - at a point in its capex cycle where it can funnel cash flow into its bank vault.
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