We are yet again entering the major annual reporting season when majority of listed companies release their full year financial results. The bulk of listed companies have their year ends on 31st December, and ordinarily publish them around this time.

What seems to happen in financial theory is that the market anticipates the likely outcome of financial results of each listed company and prices it into the prevailing market price. In deed a stock's market price is supposed to be the sum total of the discounted "expected" future net earnings of the underlying business starting with the immediate next results (in our case, the anticipated results).

For that reason, the market does not change dramatically, if the reported results confirm the general market expectations, even if they are so spectacular. Again for this theory to hold, the underlying assumption is that there must have been an above average general market consensus on the level of the anticipated financial results for that particular stock.

This is true of market staples which everybody is looking at, and about which there is a broad understanding of the business they conduct and the dynamics therein and for which there is rigorous disclosure regimes. Banks are classic candidates for this kind of characterisation, and though they continue to make vaulting earnings improvements, they do not surprise many because they are already expected to.

Of interest therefore would be those stocks whose earning outcomes completely blow investors out of water either because there was no general consensus on the outcomes; their businesses are not fully and clearly understood and therefore analysed; or their businesses went through certain upheaval (i.e. a flop in penetrating a new market, new constraining regulation, entry of a major competitor) which has been harshly discounted by the market or over-blown by analysts on its potential bottom-line impact. These tend to create a depressing view of the stocks of the affected companies and price stagnation or rollback.

These stocks, when their financial results refuse to uphold the market wisdom, have the potential to come back big time and rally beyond all expectations. Now, these are the true surprises of the reporting season, and can lift those who ride them to pleasantly dizzying heights.

I would want to wager on two surprises that I anticipate for the forthcoming report season, with the respective rationale.

First, BAT (Kenya) Limited. Sometime last year, the Ministry of Health slapped a blanket ban on smoking in public in the city of Nairobi and several other major towns in the country. The market instantly reacted by discounting BAT share price by over half.

I am persuaded this reaction was misguided and overdone, for the following reasons. A ban on smoking in public has nothing to do with people's lifestyles. Smokers would still find places to smoke (commercial smoking rooms have been established), alter their smoking schedules to coincide with when they are out of town; limit their visits to town to absolute necessities etc.

Plus, BAT's new export markets more than compensated for any marginal losses, and the upsurge in tourism with its effects on ancillary industries in 2007 was exceptional. I expect BAT to confound the markets and prove its resilience against adverse regulation.

Second, Scan Group. I am betting on this stock not because its recent developments have not been understood, but because they've not reflected on the stock price.

Its buy out of Redsky, which exclusively holds the Safaricom account, should have tremendous immediate bottom-line effect; its entry into the massive Nigerian market holds out the promise of exponential business doubling. By all accounts an undervalued, growth stock.

Mataen is corporate finance director, Faida Investment Bank.