Executive Summary
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Global firms reported strong profits during Q2 earnings season despite Delta variant fears cascading around the world.
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We highlight an earnings outlier from a U.S. financing company that rebranded and shook up its management team.
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An Australian employee management services firm listed on the ASX 300 revised its earnings date—should investors be worried?
Global Earnings Update
Reporting season is wrapping up around the world. Many U.S. firms across the market cap spectrum have beaten analysts’ expectations, while corporate profit expectations in ex-U.S. developed and Emerging Markets are nearing their 2018 highs, according to FactSet data. Businesses have been able to weather the COVID storm with remarkable strength and endurance. With just a small portion of firms yet to report, the focus will soon shift to the busy fourth quarter.
Figure 1: Q2 Global Earnings Announcement Schedule (Wall Street Horizon)
Earnings Outlier
One earnings outlier is under the spotlight this week. By using the Z-score, clients can gauge how statistically unusual a company’s earnings date is relative to normal. We analyze five years of earnings trends to develop a normal earnings date. Wall Street Horizon clients are alerted when a firm has an earnings date Z-score greater than 3.0.
Logan Ridge Finance Corp (NASDAQ:LRFC) is a micro-cap U.S. financing company in the financials sector headquartered in New York City. The firm recently underwent a corporate restructuring in which its investment adviser changed to Mount Logan Management LLC. Along with the new adviser, the firm was renamed from “Capitala Finance Corp” to “Logan Ridge Finance Corporation.” The ticker is now “LRFC,” and a new executive team was put in charge. The new management group has a lot to live up to as shares of the LRFC (“Capitala” before July 2) surged in the last year—jumping from the single-digits last October to nearly $30 in early August. Private equity financing has been a busy niche of the investing environment this year.
Financing Operations
LRFC is a business development investment company that issues loans and takes equity stakes in lower middle-market companies. It targets well-established businesses across a spectrum of industries. LRFC’s current portfolio consists of 69% debt financing and 31% equity holdings in mainly industrial, government, health care, software and specialty finance sectors. As an alternative asset manager, the company is considered a closed-end fund (CEF). Investors hungry for high-yield funds often purchase shares of CEFs. LRFC has not paid a dividend since August of last year, however, but does issue special dividends periodically.
Boom In Private Equity Activity
While not paying a dividend in nearly a year, LRFC has capitalized on tremendous growth in private equity. Many startups launched during and in the wake of the worst of the pandemic, and with immense fiscal support for small businesses, many survived and are now going public. Public companies are also being taken private by firms like Logan. It’s a busy time for private equity.
Figure 2: LRFC Stock Price History (1-Year)
Outlier Analysis
LRFC and its former entity have a history of reporting Q2 results between Aug. 2 and Aug. 7 with a Monday trend.
- May 4 - Wall Street Horizon set an unconfirmed Q2 2021 earnings date of Aug. 2 after market based on its reporting trends.
- Aug. 2 - LRFC still had not preannounced, Wall Street Horizon began pushing out the earnings date.
- Aug. 9 - Wall street Horizon confirmed the firm’s Q2 earnings date of Aug. 16 before market.
The later-than-usual earnings date created a high Z-score of 3.81. Included in our alert to clients was a link to LRFC’s press release detailing its name change.
Earnings Revision
One company with an earnings revision is profiled this week. WSH gathers and tracks firms from around the world that publicly declare an earnings date, but then publicly change it. By moving a reporting date, a firm indicates there might soon be unusual news that could draw stock price volatility.
Smartgroup Corporation Ltd (ASX:SIQ) is an employee benefits services company in Australia’s accounting sector. With a market cap at nearly $1 billion (AUD), the Sydney-based small cap is listed on the ASX 300 index. SIQ can be seen as a potential recovery and reopening play as firms hire more people in wake of the pandemic, but recent Delta variant case counts have been on the rise in the land down under. Just last week, Australia enacted lockdown measures for parts of the country. Nevertheless, investors seem to be looking past the negative headlines—SIQ has jumped from $6 in mid-March to above $7 in August.
Business Segments And Client Mix
Smartgroup has other business segments, including vehicles services (VS) and software, distribution and group services in addition to outsourced administration. The company has a strong presence in government and non-profit industries, providing services to many stable clients, like schools, hospitals and parts of the government.
Figure 3: SIQ Stock Price History (1-Year)
Revision Analysis
SIQ has a history of reporting first-half results between Aug. 16 and Aug. 24.
- July 23 - Wall Street Horizon updated SIQ's H1 2021 earnings date to Aug. 26 per company correspondence.
- Aug. 10 - Wall Street Horizon received a follow-up from SIQ stating they would be moving up their earnings date to August 20 because they've made good progress on their half year audit.
Conclusion
Corporate event activity is high this year amid a shifting and uncertain global economic backdrop. COVID fears continue while corporate earnings are strong. Many new businesses have formed, partly financed by private equity companies with large amounts of dry powder. The volume of IPOs has been another significant theme this year, which we detailed in a research blog post last week. As news breaks and companies shake-up, traders must be on top of events that bring about volatility. Wall Street Horizon is the event data authority on managing risk.