Earnings of 3 companies, shares rise in unusual way based on “rumors”

Share prices of three companies soared uncharacteristically on ‘rumours’ of high earnings for the July-December period and expectations proved true but thanks to a robust return from equity investments, instead of their primary activity.

Long before their stock market filings, investors turned to Anwar Galvanizing, Sonali Paper and Fortune Shoes for high returns after word spread that the companies would make a big profit.

A senior fund manager, speaking on condition of anonymity, said that following the recent market rally, some companies have made good profits investing here.

Stating that manufacturing companies are not required to disclose information on equity investments to the market regulator, he said, taking advantage of the reach some companies were able to record strong growth in their earnings per share (EPS ).

“And this information has already been released as rumors and their stock prices have risen through manipulation. So ordinary investors should be careful about these things because such growth is temporary,” he added.

In June-September last year, Anwar Galvanising’s share price jumped 422% to Tk 483 each, according to the Dhaka Stock Exchange (DSE).

Stock brokerage officials said a message had spread among investors that the company would post robust earnings growth, which led to a sharp rise in its stock price.

Evidence of this was found in the profit statement for the 2020-21 financial year. The maker of GI fittings reported a 64% increase in profits from its core business, while the figure was well above 103% thanks to stock returns.

And in the first six months of the current fiscal year, its profit from GI fittings fell 9%, but the company saw a 380% growth in EPS to 7.63 Tk.

According to its semi-annual financial report, the company invested Tk 11.05 crore in LafargeHolcim and Eastern Housing shares.

However, without selling these shares, the company presented them as unrealized gains in the balance sheet and claimed that it had done so in accordance with international accounting standards.

Golden Paper and Fortune Shoes, active in the paper and footwear sectors respectively, did the same. In the six months to December, Sonali Paper earned Tk 17.75 crore from its core business while its earnings from equity investments were Tk 17.84 crore. As a result, the company’s total profit increased by 578%.

Fortune Shoes made profits of Tk 18 crore and Tk 19.39 crore from its core business and stock market returns respectively, pushing up its total profit by 222%.

In the previous year, Sonali Paper’s share price rose by 391% to Tk 959 and Fortune Shoes by 787% to Tk 141.

Company officials said their businesses were on a downward trajectory due to the coronavirus pandemic and the stock market has been strong ever since. So they opted for equity investments for extra profit.

The companies said this EPS growth was the result of their non-operating income, but did not provide details on the increase in their non-operating income on the stock exchange.

However, according to the Corporate Governance Code issued by the market regulator, if there is significant profit growth, companies must explain the reasons to the stock exchange.

An official from the corporate finance department of the Bangladesh Securities and Exchange Commission (BSEC) said the matter had been brought to his attention. Under current legislation, companies in the manufacturing sector are free to invest in the capital market.

“Here we need to see if there is insider trading or manipulation behind the rise in stock prices. So the BSEC monitoring department is looking into the matter,” he added.

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