Aussie sharemarket: AGM avalanche

• Beginning yesterday, Aussie-listed companies are expected to host around 290 Annual General Meetings (AGMs), Extraordinary General Meetings and Investor Days through to the end of November 2022. Investors often call this period the “AGM season” – which typically falls after the August corporate profit reporting season.
• Under the Australian Corporations Act, a publicly listed company on the Australian Stock Exchange (ASX) is legally obliged to hold a meeting once a year within five months of the end of its financial year, according to the Governance Institute of Australia.
• These AGMs typically take place in either October or November of each calendar year. Attendees at the meeting typically include shareholders and the company’s directors, senior management and secretary. Also, the company’s legal and audit representatives must be present at the AGM to answer shareholder questions.
• Usually, at least 21 days’ notice must be provided to a company’s shareholders prior to its AGM, including the location, date and time of the meeting. The notice must also include details of the business matters and special resolutions to be proposed at the meeting, alongside proxy details for those shareholders unable to attend the AGM in person.
• AGM’s typically assess each of the company’s annual financial, directors and auditors reports. Company directors are typically nominated and elected, the appointment of an external auditor is made, and voting on the adoption of the company’s remuneration report is undertaken. The company’s chair allows shareholders to pose questions to the management team during the meeting.

Why do AGMs matter for shareholders and companies?

• AGMs provide an important opportunity for shareholders – including individual and institutional/professional investors – to express their views on the company’s operational and financial performance to its Board. Questions around balance sheet risks and corporate social responsibility are regularly posed to the company’s Chief Executive Officer (CEO), Chief Financial Officer (CFO) and Chair.
• Shareholders are also encouraged to participate in AGMs by casting their votes on the election of directors and remuneration reports, which in-turn can influence company policies.
• Companies often use the meetings to actively engage with investors, taking the opportunity to explain and communicate their decision-making and plans at the annual forum. Significant strategic changes, reviews or growth opportunities enable the management team to outline and set longer-term expectations to shareholders.
• Alongside the release of its annual report, a company’s Board frequently uses its AGM to engage and educate potential investors, many of whom will assess the management team’s performance and investment plans before deciding to invest in the company.

What can investors expect during the 2022 AGM season?

• The 2022 AGM season is expected to be challenging for both investors and company management teams. Companies will be hosting meetings at a time when the global economic outlook is deteriorating due to aggressive policy tightening by central banks, as they attempt to rein in the strongest annual inflation rates in around four decades. At the same time, governments are winding back large Covid-19 emergency spending measures, provided to support household incomes and business cashflows at the height of Covid-19 pandemic lockdowns in 2020 and 2021.
• The Reserve Bank of Australia (RBA) has increased the cash rate target by a rapid 250 basis points to a 9-year of 2.6 per cent over the past six months. The full impact of the most aggressive monetary policy tightening campaign since 1994 is yet to show up in backward-looking retail spending, business turnover and national accounts (GDP) reports from the Australian Bureau of Statistics (ABS).
• But timelier and higher frequency sentiment surveys are already signalling that an economic slowdown is underway. Aussie consumer confidence surveys are near recessionary levels and services sector activity contracted in September, according to the Australian Industry Group. And in a tentative sign that higher interest rates and skills shortages are constraining businesses, the National Skills Commission yesterday reported that job vacancies fell by 5.9 per cent in September, the biggest monthly decline since Covid-19 Delta virus lockdowns around 13 months ago.
• Given this highly uncertain economic backdrop, companies will likely encounter increased scrutiny and activism at upcoming AGMs, with in-person events resuming after pandemic restrictions. In particular, shareholders are likely to focus their attention on how companies are managing their balance sheets, remuneration packages and dividend policies. Dividend sustainability in particular, is likely to dominate headlines following AGMs.
• While the performance of many companies will be uncertain and difficult to predict over the next 12 months, shareholders will be looking to company directors to provide guidance on their expected performance, plans and strategies through the predicted economic slowdown in 2023.
• Aussie investors are likely to scour through company commentaries, assessing the impact of the RBA’s aggressive monetary policy tightening, while elevated input costs could weigh on profit margins and operating performances.
• Earnings prospects are also expected to be influenced by higher labour costs, staff shortages, supply chain disruptions, the weaker Aussie dollar against the greenback, inventory oversupply and slowing consumer demand.
• While macroeconomic influences are anticipated to drive investor sentiment and share prices in the final few months of 2022, an even higher level of scrutiny is likely to be applied to company earnings updates and outlooks in the upcoming AGM season. During the recent August profit reporting season, companies that provided limited, opaque or poor guidance were often punished by investors.
• Overall, the unofficial reporting season is likely to see investors increase their attention on key share price and earnings multiples. The S&P/ASX 200 index 12-month forward price to earnings (P/E) ratio currently stands near 13 times, retracing from recent peaks near 19 times. And while shares have become ‘cheaper’ due to 2022’s global sell-off, a sharp slowdown in annual consensus earnings per share (EPS) is underway. EPS growth is predicted to slow from around 23 per cent in financial year 2022 to 5 per cent in financial year 2023, according to estimates from RIMES, IBES and Morgan Stanley.