World-class investor relations closes the gap between listed companies and investors
Good investor relations are now more important than ever before, says Aprio's Julian Gwillim.
In an environment marked by tweet-driven trade and other wars, murmurs of global recession, government-led uncertainty in key markets, and a seemingly endless run of corporate scandals, many JSE stocks are under significant pressure. It can be an unnerving experience being a listed company in South Africa these days, and an equally unnerving one being an investor. Here to settle both sides of that equation are the investor relations (IR) experts.
IR is a communications function with a unique audience, and unique responsibilities. IR provides investors, shareholders, analysts, and the overall financial community with an accurate and balanced account of a company’s affairs, financial performance, governance and strategy. This helps private and institutional investors make informed buy and sell decisions.
It is very important that this is all done with proper care – research shows that buy-side analysts attribute a discount of up to 20 percent to companies that communicate poorly with investors, while they are happy to add up to a 10 percent premium to a company that provides good investor communications.
IR ensures that a company's equity valuation is fair through the dissemination of key information that allows investors to determine whether a company is a good investment for their needs, and by creating the opportunities for investors to get to know the senior management team and understand how they think about their business.
Increasing focus from investors on environmental, social and governance issues is also forcing companies to communicate more than just their numbers, and provide a fuller account of how the company adds value to key stakeholders.
Conversely, executive management at companies should also understand the views of the investment community, both about their company and the market in general. IR acts as a channel to communicate market intelligence and feedback from investors to internal management.
Key functions of IR include the drafting of earnings announcements and related presentations for regular results releases, producing the requisite annual report, organising roadshows, strategy or capital market days and site visits, attending investor conferences, engaging with sell-side analysts, and developing a targeting strategy, which is an imperative that helps engage current shareholders, as well as buy-and-sell-side analysts, and identifies prospective investors. There will also be event-driven aspects such as mergers and acquisitions, disposals and capital raisings. IR will also deal with debt investors should the company have a debt-funding programme.
Crucially, IR does not only focus on "blue sky" or good news. It provides a balanced account of the company’s opportunities as well as the challenges it faces. While the disclosure is weighted towards financial information, how the company plans to navigate challenges is in fact the most important aspect of the IR communication strategy.
In the end, good investor relations speaks to the willingness of management to engage honestly with shareholders ...... who, we must never forget, are the owners of the company.
Top tips for world-class IR:
- Be responsive to reasonable investor requests for information and be available to answer even tough questions – investors panic if they cannot get hold of the company when they have urgent questions.
- Provide good financial disclosure and disclose consistently. Investors build models and can immediately pick up if numbers are left out because they reflect badly on the performance of the company. Brokers also consistently do peer comparisons and highlight missing information in their broker reports, so it is very important to provide comprehensive and consistent information to the market in order to build trust and credibility.
- Be clear about your strategy and competitive advantages. Investors invest with a forward view and they need to understand clearly how the company intends to grow and add value. Explain your strategy and your competitive advantages and be clear about how you will measure success.
- Ensure easy access to company information. The corporate website is usually the first point of reference for any potential investor. In fact, 87 percent of investors say that an incomplete website has an unfavourable impact on their investment decision. It is therefore very important that the site is up to date and relevant from an IR point of view, that it conveys the investment case clearly and simply, and that it provides detailed answers to all of the major questions that investors might be expected to raise.
- Embrace technology. This not only aligns the company with best practice in shareholder communication, it can also reduce costs and optimise management’s time with investors. Tools such as video, teleconferencing, interactive platforms and apps are extremely useful to get your story out there.
- Most importantly: remain consistent. Even when things are tough, stay close to key stakeholders to ensure that they are kept abreast of developments. Consistent engagement is key to building trust and ensuring that the investment proposition is communicated adequately and properly understood.