The festive season is upon us, a time for goodwill to all men and women, party hats, turkey dinners and slobbing out in front of the telly. But some investors will be bored by Boxing Day and may be ready to return to the cut and thrust of the stock market when the London Stock Exchange (LSE) flings open the doors again for UK stock market trading.

Without wanting to sound a note of cynicism worthy of Ebenezer Scrooge himself, keep your eyes peeled as profit warnings may be lurking in the shadows. Trying to bury bad news under cover of the holiday festivities is one of the oldest tricks in the City book on the assumption that investors, journalists and analysts are too jaded to notice. Companies occasionally manage to dampen the impact of negative news.

Around a decade ago three small property companies were found out trying to pass off bad news on the quiet. Newport Holdings and London Town both issued profit warnings during the Christmas period, much to the chagrin of investors. And housebuilding tiddler Clan Homes admitted to a plunge in sales and revealed that it had sunk into the red. Boo. None of the trio survive on the stock market today.

Strategically flawed

As long as reporting rules are obeyed, it is all perfectly legal. Yet it is really irritating and sails a fine line between what is, and is not, ethical.

This myopic behaviour is doomed to failure in the long-run. A management team might buy themselves a few hours, few days, perhaps longer, of grace but they’ll get found out. Long-term damage to their reputation and that of their company will be the ultimate outcome. It’s just not cricket, and most investors will wonder what other skeletons may be buried in the closet of a company caught red-handed acting in such as shameful fashion.

Companies that want to build a deep-rooted relationship with investors do not target Christmas for bad news, experts say. Yet there have been previous reports suggesting an above-average number of company announcements on 23 and 24 December, despite average trading volumes being down about 40% on normal days.

This tactic is not restricted to Christmas. Several companies have in the past issued grim trading updates that coincided with the Budget, including ICI and Britannic Assurance.

In June this year, with financial markets closely watching the outcome of the Greece referendum, aero-engineer Rolls-Royce (RR.) released an unscheduled trading update warning that underlying pre-tax profit would be lower than previously expected. That prompted the group to suspend its £1 billion share buyback programme.

There’s no suggestion that there was any attempt to bury the announcement, as it was issued at the typical 7am time slot. But only Rolls’ senior management and their savvy PR people will know the extent to which Greece-watch was used as a smoke screen.

Recent controversies

A more recent controversy came about on 30 November when commodities and energy risk, trading and settlements solutions supplier Brady (BRY:AIM) put out a profit warning. Investors have come to expect this sort of thing from a company that has for years struggled for new business visibility. When contracts drift to the right, market expectations get cut and the share price tumbles.

But what made this particular announcement unpopular was its timing. It was issued to the stock market at 5.47pm, an hour and 17 minutes after the market closed. ‘To try and sneak it [the announcement] out after the market has closed is considered one of the lowest quality things a company can do from an investor relations perspective and, ultimately, will do nothing to moderate the impact of the warning,’ said Megabuyte’s chief analyst Ian Spence.

His irritation was clearly matched by many investors, so instead of the 20% to 30% decline in the share price that might have been expected, the stock collapsed by 50% to 38p when the market opened on the following day. It has since recovered to 48.5p, no doubt pepped up by some new contract wins on 17 December, but it’s still 37% off the pre-warning 77p.

Brady’s PR people put up the argument that the company’s adviser, Cenkos Securities, insisted the information was made public immediately. You can argue whether this was right or wrong, but I wondered out loud to Megabuyte’s Spence that perhaps Cenkos was being particularly cautious given its association with the Quindell scandal earlier this year.

There was one final point of view, garnered from another PR contact. He argued that whether to put the update out at 5.47pm or at 7am the next day was moot; what it really suggested was poor preparation on Brady’s part. Why, the PR man pondered, would this information come to light with the CEO and CFO so late? That is perhaps the more important question for Brady shareholders.

So if you do find yourself gravitating back to the stock market on 29 December for a bit of respite from all the family fun, have a spin through the news. There’s a decent chance you can spot something dodgy before any of the professionals have clocked it.