WARSAW 2014 What is An independent stock market information company - PowerPoint PPT Presentation

Marcin Przasnyski WARSAW 2014

What is  An independent stock market information company  Publishing a portal and a weekly newspaper  Approved by Polish Financial Supervision Authority  Targetted to individual investors  Monthly reach 120k users, daily reach 20k users  Premium services: advanced analytical tools  Newspaper circulation: 10k print, 50k digital  Supporting IPOs, SPOs, investor relations  Providing data solutions to corporate clients  Cooperating with TVs, radios, newspapers and online media as a source of stock market data and opinions warsaw 2014 2

and predicting bankruptcy  Evangelizing the use of Altman Z” -score since 2008  Providing calculation of Z” -score and its bond rating equivalent for all listed companies, based on constantly updated and verified fundamentals  Regular updates, comments, interpretation of Z” -score, and in-depth analyzes of financial situation and financial performance of companies listed on stock and bond markets warsaw 2014 3

Bankruptcies on WSE  74 public companies filed for bankruptcy since 2008  11 continue to operate under restructuring  35 are still traded on exchange [6 months legacy rule] Out of total as of 10th of June, 2014  456 stocks listed on regulated exchange  440 stocks in alternative system  497 bonds of 194 companies on bond exchange(s) warsaw 2014 4

Bankruptcies by year Number of filings by year 30 24 25 20 20 15 11 10 7 6 6 5 0 0 2008 2009 2010 2011 2012 2013 2014 warsaw 2014 5

Bankruptcies by top sectors warsaw 2014 6

Z” -score analysis 2008-2014  Quarterly consolidated financial reports of 69 companies that filed for bankruptcy  Updated with restatements and audits  Calculation of Altman Z” -score for every period  Applying a Bond Rating Equivalent based on 2013 matrix warsaw 2014 7

US Bond Rating Equivalents Based on Z” -Score Model Z ” =3.25+6.56X 1 +3.26X 2 +6.72X 3 +1.05X 4 Median 1996 Z” -Score a Median 2006 Z” -Score a Median 2013 Z” -Score a Rating AAA/AA+ 8.15 (8) 7.51 (14) 8.80 (15) AA/AA- 7.16 (33) 7.78 (20) 8.40 (17) A+ 6.85 (24) 7.76 (26) 8.22 (23) A 6.65 (42) 7.53 (61) 6.94 (48) A- 6.40 (38) 7.10 (65) 6.12 (52) BBB+ 6.25 (38) 6.47 (74) 5.80 (70) BBB 5.85 (59) 6.41 (99) 5.75 (127) BBB- 5.65 (52) 6.36 (76) 5.70 (96) BB+ 5.25 (34) 6.25 (68) 5.65 (71) BB 4.95 (25) 6.17 (114) 5.52 (100) BB- 4.75 (65) 5.65 (173) 5.07 (121) B+ 4.50 (78) 5.05 (164) 4.81 (93) B 4.15 (115) 4.29 (139) 4.03 (100) B- 3.75 (95) 3.68 (62) 3.74 (37) CCC+ 3.20 (23) 2.98 (16) 2.84 (13) CCC 2.50 (10) 2.20 (8) 2.57(3) CCC- 1.75 (6) 1.62 (-) b 1.72 (-) b 0.05 (94) c CC/D 0 (14) 0.84 (120) a Sample Size in Parantheses. b Interpolated between CCC and CC/D. c Based on 94 Chapter 11 bankruptcy filings, 2010-2013. 8 Sources: Compustat, Company Filings and S&P.

Example – Gant Development Altman Z"-score and Bond Rating Equivalent for Gant Development 7,00 BBB BB+ BB+ 6,00 BB+ BBB BBB BB+ 5,00 BB BB 4,00 3,00 CCC 2,00 1,00 D D 0,00 Filing: -1,00 16 October 2013 warsaw 2014 9

Altman Z” -score tracking 9 SAFE ZONE 7 5.75 5 GREY ZONE 3 4.03 1 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 DISTRESS -1 ZONE -3 -5 warsaw 2014 10

Z” -score accuracy in Poland Analysis of ’not safe ’ scoring prior to filing  39 companies 36 months prior  57%  49 companies 24 months prior  71%  58 companies 12 months prior  84% accuracy  68 companies less than one quarter prior to filing warsaw 2014 11

Z” -score migration between zones Distress Zone Grey Zone Safe Zone 100% 90% 80% 70% 60% Sample of 69 companies that 50% filed for CH7 or CH11 since 2008. 40% 30% Timespan 12 quarters = 20% three years prior to bankruptcy 10% filing 0% 36 33 30 27 24 21 18 15 12 9 6 3 warsaw 2014 12

Z” -score zones: not safe vs. distress 100% Percentage of companies in grey or distress zone 90% Percentage of companies in distress zone 80% 70% 60% 50% 40% 30% months prior to bankruptcy filing 20% 36 33 30 27 24 21 18 15 12 9 6 3 warsaw 2014 13

Type I and Type II errors  Type I – false positive  11 companies (16%) one year prior  1 company (< 2%) one quarter prior  Type II – false negative *  34% one year prior  3% three years prior  2% five years prior * sample of 391 stock listed companies on main market warsaw 2014 14

Takeaways  Altman Z” -score proved a successful tool to differentiate companies listed in Poland in regard to their financial situation  Mechanical calculations overreact to distress signals, and need adjustments for sector and company-specific circumstances  Democratic tool, available to everyone for free  Perfect in avoiding financially stressed companies  Not sufficient for definite investment decisions  Next step – time for a model for Poland? warsaw 2014 15