WARSAW 2014 Marcin Przasnyski
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 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 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) 4
Bankruptcies by year 30 25 Number of filings by year 24 20 20 15 10 5 11 6 6 7 0 0 2008 2009 2010 2011 2012 2013 2014 5
Bankruptcies by top sectors 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 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 Rating Median 1996 Z -Score a Median 2006 Z -Score a Median 2013 Z -Score a 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 CC/D 0 (14) 0.84 (120) 0.05 (94) c a Sample Size in Parantheses. b Interpolated between CCC and CC/D. c Based on 94 Chapter 11 bankruptcy filings, 2010-2013. Sources: Compustat, Company Filings and S&P. 8
Example Gant Development 7,00 6,00 5,00 Altman Z"-score and Bond Rating Equivalent for Gant Development BBB BBB BBB BB BB+ BB BB+ BB+ BB+ 4,00 3,00 2,00 CCC 1,00 0,00-1,00 D D Filing: 16 October 2013 9
Altman Z -score tracking 9 7 5 3 SAFE ZONE 5.75 GREY ZONE 4.03 1-12 -11-10 -9-8 -7-6 -5-4 -3-2 -1-1 DISTRESS ZONE -3-5 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 11
Z -score migration between zones 100% Distress Zone Grey Zone Safe Zone 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 36 33 30 27 24 21 18 15 12 9 6 3 Sample of 69 companies that filed for CH7 or CH11 since 2008. Timespan 12 quarters = three years prior to bankruptcy filing 12
Z -score zones: not safe vs. distress 100% 90% 80% Percentage of companies in grey or distress zone Percentage of companies in distress zone 70% 60% 50% 40% 30% 20% months prior to bankruptcy filing 36 33 30 27 24 21 18 15 12 9 6 3 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 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? 15