Are you comparing apples with apples? Peer comparisons draw increased focus from ASX Compliance

It does not take much effort to find examples of ASX-listed entities being pulled up by ASX Compliance for their peer comparisons, most of the time due to inadequate or objectionable disclosure. 

Certain market participants seem to relish the opportunity to present their data in a glossy spreadsheet or table, comparing their project to that of their “peers”, or potentially “non-peers”. Although these graphs and pictorial representations can pique interest, listed entities need to carefully consider whether those comparisons actually offer the market any meaningful information or if they are merely a red rag to a bull?

ASX seems keen on the fruit analogies and prefers it when companies “compare apples with apples”.^[1] So, when it comes to peer comparisons, careful selection of peers is crucial – and ASX wants to see like for like comparisons and nothing short of that.

ASX Compliance Update 08/18 (CU 08/18) is the starting point for peer comparisons. It suggests (in bullet point four) that, with proper disclosure, a company could compare its metrics to another company at a different stage of development, provided the comparison points are the same and the difference in the stage of development is disclosed. This implies that an explorer/developer could (technically) compare itself to a producer if the comparison point is relevant and the disclosure is adequate.

The exact wording of bullet point four in CU 08/18 is as follows:

Examples of potentially misleading disclosure include… Failing to disclose differences in the stage of development of peer’s projects, such as an entity with a scoping study comparing itself to an entity with a definitive feasibility study, or an explorer comparing itself to a producer;

Our view is that bullet point four certainly contemplates situations where the comparators are not like-for-like; however, in our experience, ASX appears to interpret this differently.

In any event (and consistent with ASX’s overriding discretion), if ASX forms the view that a peer comparison is potentially misleading due to the way it is presented or because of the comparators chosen, ASX will require the information to be withdrawn or retracted. This was made clear in ASX Compliance Update 08/24 (CU 08/24). Peer comparisons are considered on a case-by-case basis.

Recently, we have seen explorers or mining companies at the development stage come under the scrutiny of ASX Compliance for comparing their future production target forecasts (or predicted future enterprise value) to that of actual producers. The comparison metrics here are the same, however one set of metrics is a forward looking estimate and the other reflects actual figures.

In these circumstances, even if a company in the development stage goes to great lengths to disclose all relevant information to distinguish itself from the comparator producing entity (or entities) and provides extensive disclosures to clarify that it is not yet in production and still requires funding, it may not be enough to avoid ASX scrutiny. In such situations, ASX may treat those entities as “non-peers” (or maybe bananas?) and require the company to include in its announcement all underlying assumptions underpinning its potential transition from being an explorer to a producer (and even then, we are not sure that would satisfy ASX).

If ASX takes issue with a peer comparison, it will most likely reach out. However, the problem is that peer comparisons in an announcement can sometimes initially get through the keeper and be released onto the market announcements platform, with the scrutiny coming days or weeks later. At best, ASX will raise a concern but not require any action. In more severe cases, companies may be required to either clarify their comparison with further disclosure or, (embarrassingly) retract the announcement and inform the market not to place any reliance on that information (ouch!). 

As ASX advised in CU 08/24, the best way to avoid this situation is to not publish peer comparisons at all. We are inclined to agree with this advice as an ordinary peer comparison is unlikely to do anything more than focus unnecessary regulatory attention on the company and potentially draw the ire of some of the comparator 
entities who may take issue with being named in that context. 

If the market actually believes that an emerging producer will become the next BHP it would likely have already factored that into the share price – a peer comparison chart is unlikely to expedite that process. But, if you feel that your announcement is just not complete without an eye-catchy comparison chart, our best advice is to give fulsome disclosure (including appropriate references) and to then consult with your ASX listings officer before you push the button on the announcement – that way ASX can consider upfront whether you are comparing apples with apples or whether you have a fruit salad of a problem! 

[1] ASX uses the phrase “compare apples with apples” in ASX Guidance Note 21 (which relates to the issue of securities).