GCC earnings sentiment ‘higher than before pandemic’ despite global concerns, finds Iridium research

Earnings call sentiment across the Gulf Cooperation Council (GCC) region is trending back up to 2019 levels – despite a backdrop of equity market contractions, rising interest rates, oil price volatility and fears of recession, says Iridium Advisors in new research.

The Dubai-based firm analyzed earnings calls held by companies across the region between July 1 and August 22, 2022, with its Iridium GCC Earnings Call Sentiment index rising 5 percent to reach +35.5 points in the second quarter of the year – up from 33.8 points in the first quarter 2022. This is also a 2.7-point increase from the same period last year.

‘Second fiscal quarter 2022 sentiment is trending strongly back up to sentiment levels seen in 2019,’ says Iridium. ‘The current sentiment index level of +35.5 points is higher than before the pandemic.’

The firm notes that improvement in earnings call sentiment was seen ‘almost equally’ across all GCC countries with sentiment trends across all countries now above the average seen during 2019. Iridium details the findings in a new report titled GCC earnings calls shake off global concerns in 2Q 2022.

Positive Q&As

Interestingly, the firm finds that the rise in its GCC Sentiment Index is ‘particularly driven by an increase in sentiment for analyst and investor Q&A sessions’ across the quarter, along with a similar increase in ‘certainty’ – Iridium’s measure of certain or uncertain language.

‘This could be an indication that analysts and investors have a more positive outlook and see some upside potential in the coming quarters,’ say researchers.

As sentiment around management language remained stable (though Iridium notes a second consecutive drop in confidence in management presentations as language becomes more cautious) while sentiment for the Q&A increased, there has been a ‘narrowing of the gap’ between the traditionally more positive language used in management presentations and the more guarded language used in Q&A sessions with analysts and investors.

Using its artificial intelligence-powered natural language processing algorithms, Iridium says it analyzed 6.2 mn words from more than 1,200 historic GCC earnings calls in its research to quantify what management teams, analyst and investors are telling the market. Its research began in 2015 and covers companies listed across eight stock exchanges in the region.

Covid-19 and Ukraine

Looking at mentions of both Covid-19 and health-related terms – in both management presentations and the earnings Q&A – Iridium finds that mentions have continued a ‘steady decline’. Mentions are now back to pre-pandemic levels, it says.

It also analyzed mentions of the Russia-Ukraine War, finding that these have also continued to drop, ‘indicating that the conflict has had little to no direct impact on GCC financial results in the last two quarters, [while] other global economic concerns may be weighing on management presentation confidence, such as rising rates, inflation, and supply chain challenges.’

Correlation and corrections

‘It is worth noting that on the one hand, the positive sentiment trend continues to broadly track corporate profitability, which grew for a third consecutive quarter,’ say researchers, noting a strong correlation of 78 percent between sentiment and profitability.

On the other hand, however, Iridium also points out that ‘the sentiment trend did not track equity market performance this quarter, which has corrected subsequent to global equity market headwinds, fear of a possible recession and recent oil price declines.

‘While typically the GCC market is not immune to such fluctuations as the MSCI index and oil price sensitivities, the GCC sentiment remained resilient, underpinned by increased profitability.’

Iridium also notes that more companies beat expectations across the quarter (66 percent versus 57 percent in Q1) while there were also fewer misses (34 percent compared to 43 percent in Q1 2022).