3 firms’ profits, shares rise unusually based on ‘rumours’

Share prices of three companies soared unusually on "rumours" of high profits for the July-December period and the expectations turned out to be true but on the back of a robust return from stock investments, instead of their core business.

Much before their stock exchange filings, investors turned to Anwar Galvanising, Sonali Paper, and Fortune Shoes for high returns after a message had spread that the companies would come up with a hefty profit.

A top official at a fund manager, speaking on condition of anonymity, said following the recent rise in the market, some companies have made good profits by investing here.

Saying manufacturing companies need not disclose stock investment information to the market regulator, he said cashing in on the scope, some companies have been able to report big growth in their earnings per shares (EPS).

"And this information has already been spread in the form of rumours and their share prices have increased by manipulation. So ordinary investors must be careful about these things because such growth is temporary," he added.

In June-September last year, Anwar Galvanising's share price jumped by 422% to Tk483 each, according to the Dhaka Stock Exchange (DSE).

Officials at stockbrokers said a message had spread among investors that the company was going to post a robust profit growth, which led to a steep rise in its share prices.

The evidence of this was found in the profit declaration for fiscal 2020-21. The GI fittings manufacturer reported a 64% profit rise from its core business while the figure was way higher at 103% from stock returns.

And in the first six months of the current fiscal year, its profit from GI fittings fell 9%, still, the company reported a 380% growth in its EPS to Tk7.63.

According to its half-yearly financial report, the company invested Tk11.05 crore in the LafargeHolcim and Eastern Housing shares.

However, without selling these shares, the company has shown them as unrealised gains in the balance sheet and claimed that it has done this in compliance with international accounting standards.

Sonali Paper and Fortune Shoes, engaged in the paper and footwear business respectively, have done the same. In the six months through December, Sonali Paper earned Tk17.75 crore from its core business while its gains from stock investments were Tk17.84 crore. As a result, the company's total profit increased by 578%.

Fortune Shoes had earnings of Tk18 crore and Tk19.39 from its core business and stock market returns, respectively, which drove its total profit up by 222%. 

In the previous year, Sonali Paper's share price rose by 391% to Tk959 and Fortune Shoes' by 787% to Tk141.

Officials at the companies said their business was on a downward trajectory because of the coronavirus pandemic and the stock market has been strong since. So they opted for stock investments for an additional profit.

The firms said such growth in EPS was the result of their non-operating income but did not provide details of the increase in their non-operating income to the stock exchange.

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

An official of the corporate finance department at the Bangladesh Securities and Exchange Commission (BSEC) said the matter had come to its notice. Under the existing law, companies in the manufacturing sector have the freedom to invest in the capital market.

"Here we have to see if there is insider trading or manipulation behind the rise in share prices. So the BSEC's surveillance department is looking into the matter," he added.