Breaking through – 10 tips for small caps looking to get on the radar
With small cap funds continuing to deliver stellar returns the investment capital heading towards the sector is gaining momentum every day. New funds – like Manny Pohl’s Barrack St Investments – are raising plenty of capital and won’t be content to see it sit in the bank.
With an investment universe of more than 1,000 stocks on the ASX, the culling process by investors like Pohl and his larger colleagues can be harsh. For Boards and CEOs of small and micro cap companies the challenge to attract institutional capital is becoming increasingly difficult. Getting on the radar is always the first challenge. Below are a few things you can do to break out from the crowd.
1. Your credibility comes first
Management credibility is the most important element when professional investors evaluate a listed company. Credibility is only established over time by building a track record of honesty and transparency. Good news is easy to deliver, bad news not so much. The style in which you deliver the bad news is one of the most powerful ways to build credibility.
2. What’s your strategy?
A clearly articulated strategy with sound financial projections is fundamental to engaging new investors. This is the ‘story’, the narrative that tells people who you are and where you are going. To help communicate this, create an Investor Relations message sheet for your spokespeople containing a one-paragraph value proposition and listing no more than five key messages about the business.
3. Have a great IR kit
Investors need easy access to information from a number of sources. The minimum components of an adequate investor relations kit are:
- An annual report
- Earnings releases
- Your investor presentation (long and short versions)
- The investor section of your company’s website
- Regular investor updates
- Investor conferences
4. Know your investors
Know who your investors are and why they own your stock. Research who you should be targeting to be on the register. Set goals and targets for your shareholder base and build an IR and roadshow programme to achieve these goals.
5. Be pro-active
The ‘build it and they will come’ approach to investor relations is the most common mistake made by small caps. Don’t wait for an investor to stumble across you. Put your name out there, meet all the analysts, brokers and investors time will allow. Being proactive sends a strong message to the market that you are ready to deliver on your promise by growing shareholder wealth.
6. Become a Great Presenter
Presentation and speaking skills are important for both the CEO and CFO and should be developed through formal training.
7. Take the easy wins
Sometimes just a few basic initiatives can deliver big results. Consider the following;
- Host results conference calls or meetings (even if nobody shows, because they will eventually).
- Use audio and video webcast services like Boardroom Radio. They are highly effective and relatively cost efficient.
- Undertake an investor day for existing shareholders (they will always be your biggest advocates).
- Develop a comprehensive and informative IR website.
- Pre-announce and keep updated a calendar of events (results dates, conferences, AGM).
8. Don’t let your good work go unnoticed
Have an active media program to alert journalists about your successes even when they are not material to your share price. Most business activities will be interesting to specialist trade publications, while mainstream press will often seize on initiatives that are consistent with topical themes.
9. Go beyond compliance
The requirements of ASX-listing make it easy to fall into a “compliance first” mentality that precludes active investor relations. However, the company’s objective should be to give investors the information needed to make accurate projections about the company’s future, not merely to comply with disclosure regulations.
10. Know your competitors
Many investors are attracted to sectors of the market, not individual companies. Once they have identified a sector which suits their investment needs they then go about finding the best company in that sector. Knowing what your competitors are doing as part of their investor relations programme can provide valuable insight. Using standard performance metrics and making peer comparisons is an important tool in ranking yourself in the industry.