The role of reach in ‘superb’ investor relations
The importance of high quality investor relations to increasing shareholder value has been proven over many years. Rivel Research Group’s landmark study on the effectiveness of investor relations showed that investor relations – done well or not so well – may account for as much as a 25 per cent variance in a company’s share price. The research, based on in-depth interviews of buy-side investment professionals, showed companies that engage in ‘superb’ investor relations trade at a median premium of about 10 per cent. A median discount of 15 percent is associated with “poor” IR. That means investor relations, all things being equal, has the potential to lift your market capitalisation from $85 million to $110 million. So what is the difference between ‘superb’ and ‘poor’ investor relations? Without wanting to go all Anthony Robbins, in most cases the difference is simply attitude. The requirements of ASX-listing and the proliferation of class-actions against companies make it easy to fall into a “compliance only” mentality that is fundamentally risk averse. In this approach the key priority is to minimise communication to the bare essentials required to meet a company’s obligations to the ASX, ASIC, APRA and other officious overlords. This approach is the very definition of poor investor relations and provides a gross disservice to the shareholders who have invested in a company and the people who work for the company, particularly an effective and motivated management team. Compliance, particularly as it relates to Continuous Disclosure, should of course be the first priority. But for many company secretaries and CFO’s, mainly those in smaller companies with multiple responsibilities, that is where the investor relations function starts and finishes. Reach and transparency The Revel research identifies a number of key areas that characterise ‘superb’ investor relations.
“What we discovered was while “superb” IR rests on the usual tenets of good disclosure and responsiveness and ample access to senior management, the one standout was transparency. Investment professionals define transparency as clear, unambiguous information through which companies articulate definitive strategic goals, why they are important and the drivers by which they will be achieved. In essence, it’s the clarity of message that brings forward key challenges, how they are being addressed and frank, forthright discussions of the company’s prospects.” Brian Revel, President, Revel Research Group.These tenets apply to companies of all sizes but are most relevant to those with a captive audience of institutional investors and analysts. For smaller companies I would add to the list the important factor of reach. For many small caps, getting ‘on the radar’ and building a large, captive audience is the greatest challenge of all. Being responsive and transparent are all well and good but if nobody is asking about your strategy, being transparent about it doesn’t really matter. As the saying goes, if a tree falls in the forest and nobody hears it, does it make a sound? In an investor relations industry focused primarily on the big end of town, the importance of reach is rarely discussed. It is where investor relations crosses the void between compliance and marketing. The intuitive nature of marketing means those with focus and skills in compliance often struggle to see sense or value. Reaching out to new investors, rather than waiting for them to stumble across you, does not mean ‘ramping’ the share price. It is about proactively taking your story to a wider audience while maintaining the foundations of ‘superb’ investor relations. There are three easy ways for any company to improve their reach in the investment community:
- Media publicity Use the media to tell your story by embarking on a consistent, proactive media publicity campaign. The Rivel survey revealed that articles in general business and trade publications rank second only to in-house research in their value to buy-side professionals seeking to identify equity investment opportunities. Eighty-three percent of respondents said companies come to their attention through the media.
- Strong databases Starting building a target list of analysts and investors you want to engage with. Find out who the most influential analysts are and arrange a meeting. Stocks with limited coverage are often mispriced and provide terrific opportunities for value-based investors.
- Present at conferences There are numerous broker-sponsored and paid/commercial conferences held every year. Find the organisers and volunteer to present. Make a strong case why their audience should hear your story. In many instances you can reach hundreds of potential investors in one presentation.