With the reporting cycle for FQ4 2022 drawing to a close, Iridium Advisors’ AI-aided analysis of earnings calls hosted by GCC companies shows that overall management sentiment declined. After dropping by 12% quarter-on-quarter in FQ3 2022, the Iridium GCC Earnings Call Sentiment Index continued on its downward trend, decreasing a further 4% in the most recent quarter.
“This reiterates our view that despite relative resilience during the first half of 2022, the GCC markets are not immune to equity market contractions in emerging and developed markets, rising interest rates, inflationary pressures, oil price volatility, and fears of recession”, said Oliver Schutzmann, CEO, Iridium Advisors. “Having said that, if we look at the long-term sentiment trends (since FQ4 2014), the latest Sentiment Index reading is still 22% above the historical average, suggesting that market participants’ overall attitude remains relatively positive.”
Interestingly, the trend in earnings call sentiment remains strongly correlated to the MSCI GCC Index, which also declined over the final quarter of last year. Moreover, in the long-term perspective, Sentiment Bias — the gap between the traditionally more positive language used in management presentations and the more guarded language used in the question-and-answer sessions of earnings calls — has been in a downward trend, decreasing more than two-fold since FQ4 2014.
“Taken together, these two findings speak to the growing maturity of the Investor Relations function across GCC companies and the increasing quality of earnings calls. It is clear that leading organizations now recognize that quarterly earnings calls are not merely an investor relations requirement but a highly efficient tool to build and maintain trusted relationships with capital market participants.”
Sentiment Trend Varies Across GCC
The decline in earnings call sentiment was most evident in Qatar, while sentiment increased in Kuwait and Saudi Arabia. Despite some pressure on the UAE Sentiment Index in FQ4 2022, it still remains close to the upper level of the country’s historical average, reaffirming the above-average performance of the country’s equity markets.
Financial Sector
Deep diving into earnings calls of financial institutions, Iridium Advisors found that the overall Sentiment Index for the sector remained above pre-pandemic levels during 2022 despite some pressure on the indicator coming from the analyst and investor community during the Q&A sessions in FQ4 2022. The strength of the Sentiment Index was reflective of the robust performance of FY 2022, as well as healthy sector fundamentals and elevated expectations for 2023. On average, GCC banks distributed slightly more than 50% of their earnings to shareholders in the form of dividends.
Among UAE banks, Sentiment for ENBD and FAB increased in FQ4 2022. Going forward, GCC banks and financial sector companies expect 2022 momentum to sustain in 2023, with UAE and Saudi banks guiding to continued improvement in profitability and ROE of 17.8% and 16.4%, respectively, despite some moderation of expected loan growth. This is driven by the prevailing interest rates environment, with the outlook for asset quality and capital adequacy remaining solid.
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