Skip to Content

Shifting Shares: The Private Investor’s Guide to Reading RNSs (Part 2/2)

It is well known that directors of corporate boards like to, err, bend the truth, in Regulatory News Service (RNS) announcements.

Of course, they like to think we are too dumb to work it out. And maybe some of us are, which is why they do it – so I’ve created a handy reference point in order to act as a translation tool in order to decipher the directors peak.

One smart chap once told me to read RNSs from the bottom up. That way you always get the bad news first. He’s right – it’s never in the headlines.

Many a director has tried to sneak a profit warning in the last few sentences despite the headlines at the top all being super bullish. And I suspect many have gotten away with it, too.

Here are the top phrases used by management, what they want us to think, and what it really means:

What they say:

“ahead of market expectations”

What they want us to think: “We have beaten our forecasts that are in the market”

What it actually means: “We have beaten our forecasts that are in the market”

Nothing wrong there.


What they say

“ahead of board expectations”

What they want us to think

“We have beaten our forecasts that are in the market”

What it actually means

“We want to trick you into thinking we have beaten our market expectations but as nobody has a clue as to what the board expectations are this is actually a meaningless phrase”

Ahh, board expectations. I do like that one. Of course, if you ever ask for board expectations it’s classed as ‘inside information’ (even though the board has relayed their expectations to the brokers) – and the board helpfully don’t tell you what the board expectations are when they release the RNS.

So who knows?

Not PIs – that’s for certain!

What they say

“broadly in line with market expectations”

What they want us to think

“We are trading in line with our forecasts that are in the market”

What it actually means

“If we’d had profits that came in any lower this would’ve been a profit warning”

If someone says broadly when the company was a whisker away from breaching the 10% deviation that is allowed from the forecasts where management would have to announce that profits would be below expectations.

What they say

“second half weighting” / “H2 weighting”

What they want us to think

“This is normal and our second half is our strongest half”

What it actually means

“We are probably going to warn but we don’t want to admit it just yet”

Sometimes this is legitimate. Sometimes it’s not. Especially when the word “challenging” or “tough” is used.

What they say

“EBITDA is in line with expectations”

What they want us to think

“EBITDA is a normal and meaningful metric that you can rely on”

What it actually means

“We’re using EBITDA because it’s a fiddly metric where we have complete discretion over how we depreciate and amortise and if we want to use this to our advantage when reporting we can”

You might as well pick a fantasy number for expectations here. Because that’s exactly what management have done.

What they say

“The auditors consider this action to be fair and reasonable”

What they want us to think

“The auditors have scrutinised this and conclude that it is fair and reasonable”

What it actually means

“The auditors will say what we tell them because we pay their fees – if they don’t then we’ll just get someone else in who will”

What they say

“related party transaction”

What they want us to think

“It’s a related party transaction but it’s fair”

What it actually means

“It’s probably dodgy but there’s nothing you can do about it – so suck it up”

What they say

“The board have invested in margin”

What they want us to think

“This was a strategic and deliberate to increase sales”

What it actually means

“We couldn’t sell our product/service at full margin so we’ve had to discount it to get the sales over the line”

What they say

“due to institutional demand the directors have sold a large amount of stock”

What they want us to think

“We are altruistically giving away all of our upside that we wanted to keep for the benefit of institutions”

What it actually means

“We wanted out and we think you are dumb enough to believe this spin”

What they say

“The board has taken the decision to significantly strengthen the balance sheet”

What they want us to think

“This will help the company in its operations”

What it actually means

“We are over the moon because that means we have another year’s worth of exorbitant salary and bonuses – paid for by you!”

What they say

“The directors have awarded themselves nil-cost options”

What they want us to think

“The directors are now aligned with shareholders”

What it actually means

“We couldn’t give a damn about the share price – we’re getting the options for 0p and it’s free money transferred from shareholders’ pockets to ours”

What they say

“The board is pleased to announce a placing”

What they want us to think

“This will be value accretive over time”

What it actually means

“We were down to our last few quid so we collectively breathed a sigh of relief that the gravy train can continue”

What they say

“Due to factors outside of the board’s control”

What they want us to think

“We couldn’t do anything about it”

What it actually means

“We probably could’ve done something about it but don’t want to admit it”

What they say

“Due to this delay in payments the board now believes the company will not be able to meet its expectations for the current year”

What they want us to think

“There is only one contributing factor”

What it actually means

“There are probably a load of other factors that we’d rather not mention if we don’t have to”

What they say

“The board believes the outlook for FY 21 is good”

What they want us to think

“Things will get better”

What it actually means

“We have no idea if things will get better or not but we can’t exactly say anything negative”

What they say

“The board knows of no reason for the sudden and sharp decline in the stock price over the last three days”

What they want us to think

“We are definitely not doing a placing”

What it actually means

“We’ve been sounding out investors and obviously some spiv has leaked it”

What they say

“The auditors believe there may be a small threat to the company’s going concern status”

What they want us to think

“The auditors think there is a small chance the company may not be able to continue operations”

What it actually means

“Wow – are we screwed!”

What they say

“The board are fully committed to delivering shareholder value”

What they want us to think

“The board actually care about shareholders and they are doing the job they’re paid to do”

What it actually means

“We’ve got options that expire soon much higher so we’re going to ramp this up to the exercise price”

Whilst some of these are meant in jest and good humour – do be careful when listening to directorspeak.

In one instance this year, a company was undergoing a placing (I was inside on this deal) that had been leaked to the market, and the director went on a paid promotion platform and discussed it as ‘rumours’.

Whilst the director couldn’t exactly confirm it as he would have to announce it to the market – he did go as far as to give the impression that a placing would not be going ahead.

In this market, don’t believe everything you read, see, or hear.

Show me the incentive, and I’ll show you the result”

Charlie Munger

Author Michael Taylor’s website www.shiftingshares.com contains numerous tutorials on how to trade and invest as well as his free book – ‘How to Make Six Figures in Stocks’.

Valuethemarkets.com and Dynamic Investor Relations Ltd are not responsible for the content or accuracy of this article.  News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance.

  • Michael Taylor does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.
  • Michael Taylor has been paid to produce this piece by the company or companies mentioned above.
  • Dynamic Investor Relations Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

Related Articles

Headlines

teathers app screenshot

App Empowering Private Investors

Crowd Equity for Placings, IPOs and Live Market Blockbuilds, designed to give provate investors access to placements and Intial Public Offerings (IPOs), predominantly on the London Stock Exchange’s Alternative Investment Market (AIM).