Redefining the investment case
Sandra Novakov, Director in Citigate Dewe Rogerson’s IR practice, explains how companies are coping with communications challenges brought about by the new economic reality.
Citigate Dewe Rogerson’s fifth annual IR Survey, published this week, summarises feedback from a record 165 IROs across Europe on topics such as key communications challenges for the year ahead, disclosure and guidance, analyst coverage, investor engagement and targeting activities, and use of social media channels.
This year’s findings point to a greater focus on mid-term strategy and revenue drivers when it comes to company guidance. This is in line with rising investor interest in these areas, reflecting a willingness to look beyond the short-term challenges.
However, a record 41% of IROs have reported a decline in the quality of sell-side coverage over the past 12 months. At the same time, a smaller majority of IROs remain satisfied with the extent of analyst coverage they receive. Whilst the rise in internal buy-side research continues with more than a quarter of IROs reporting an increase over the past 12 months, most fund managers continue to use sell-side research when making investment decisions. As such, encouraging quality sell-side coverage remains a priority for companies with one-to-one meetings with the IR team and senior management among the most frequently used measures to achieve this objective.
The survey findings also show that a more proactive approach by IROs is needed to encourage investor engagement. Nearly half of IROs do not actively seek investor engagement on key issues ahead of significant events. More worryingly, only 12% state they are fully engaged in discussions with investors when it comes to executive remuneration. However, most companies find that their investors are more interested in engaging with them regarding broader issues of financial performance and corporate strategy rather than executive pay. Engagement levels are most frequently measured qualitatively using investor feedback and quantitatively by assessing frequency of contact.
In order to broaden and reshape their shareholder bases, companies are intensifying their roadshow activity – 39% plan to devote more time to meeting investors over the coming year with the overall majority setting aside between 25% and 50% of meetings for potential investors. On the whole, 43% of IROs plan to include new financial centres in roadshow programmes in 2013. More in-depth coverage of continental Europe and secondary financial centres in the US is on the cards for over a fifth of companies, whilst a significant number will also be testing investor appetite in Asia.
In addition to exploring interest levels in new financial centres, companies are also increasingly marketing to non-traditional investors. Sovereign Wealth Funds are actively targeted by 24% of companies, whilst 22% plan to include SRI investors in their roadshow schedules in 2013.
Although 57% of companies currently publish stand-alone sustainability reports and a further 7% plan to do so in the near future, in some sectors this practice is driven more by a need to be seen as a responsible citizen rather than a genuine interest in engaging with SRI investors. For example, all telecoms and 80% of oil & gas companies produce stand-alone sustainability reports but none of them plan to meet with SRI investors this year.
Whilst a growing number of IROs are planning to increase communication through social media, 78% view these channels as time consuming and offering limited value. The significant potential for compliance breaches and message distortion due to the informal nature of communication through these channels and oversimplified newsfeeds also give cause for concern to more than half of IROs.
The most popular way of using social media channels is to publicise news and events. However, only a small percentage chose to engage more actively with the investment community through these channels. Nevertheless, a growing number of IROs are starting to see the effect that conversations which take place on these platforms can have on their company share price and are actively monitoring rumours and using these for general market intelligence.
More than half of IROs have taken on additional responsibilities outside of IR including corporate affairs, capital markets, strategy, and treasury. Whilst this puts them a step closer to a future senior management role, three quarters do not regularly attend Board meetings at present.
Sandra can be reached at Sandra.Novakov@citigatedr.co.uk.
A copy of the survey can be accessed here.