Earnings forecasts in securities prospectuses

Earnings forecasts are forward-looking statements in the form of estimates of the expected earnings and financial development of a company. As a component of a securities prospectus, they are a supplementary instrument of capital market communication that can serve investors as a basis for company valuation and can be used to proactively manage the expectations of investors and analysts.

There are three forms of earnings forecasts: the qualified comparative forecast, the bandwidth forecast and the point forecast, with the bandwidth forecast being the most frequently used type of forecast. This is a finding of our analysis of securities prospectuses published on equity issues on the regulated market of the Frankfurt Stock Exchange in the period January 2019 to December 2022. In addition, we were able to recognise that the design of profit forecasts sometimes varies greatly, for example with regard to the forecast profit figure as well as the presentation of the forecast figure and the underlying assumptions and factors.

We have summarised the complete results of this analysis and the recommendations of our experts in the publication "Earnings forecasts in securities prospectuses".

In the past, the inclusion of a profit forecast in the securities prospectus could mostly be avoided. However, since the new regulations for securities prospectuses according to the EU Prospectus Regulation 2017/1129 ("EU-PVO") have to be applied on a mandatory basis, profit forecasts are mostly part of the standard repertoire of an IPO prospectus. In the calendar year 2019, there were only two capital market transactions on the regulated market of the Frankfurt Stock Exchange that published earnings forecasts in the securities prospectus. Only two years later, this information was already available in twelve transactions, and thus in a good half of all transactions carried out in 2021.

Earnings forecasts have established themselves as an important marketing tool for securities. The preparation of a verifiable profit forecast will therefore increasingly become an integral part of any IPO preparation. It creates confidence among potential investors and is a good prerequisite for communicating reliably with the capital market in the future as part of regular financial reporting.

In addition, an audited profit forecast stands for the reliability of the forecast values. The careful and well-documented preparation of the forecast minimises the liability risks of the issuer and the accompanying banks. Particularly in times of geopolitical and economic uncertainty, the profit forecast gains in importance as a relevant criterion for investor decision-making.  

Our analysis, which you can download here, shows the currently observable market practice in Germany with regard to the presentation of earnings forecasts in securities prospectuses and is intended to help potential IPO candidates with their own considerations.