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Thursday, 25th April 2024 |
| Smurfit highlights potential gains for active investor relations in Irish companies |
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| Mark Kenny says his company's success in increasing its shareholder base in the US is evidence of the tangible rewards of an integrated investor relations unit. |
Trying to sell the idea of a dedicated investor relations function to Michael Smurfit in 1995 was not an easy task. He wasn’t convinced that it could deliver on the promises it made. But as a believer in the market he knew something had to be done to generate new buyers for his company’s stock. He hired Mark Kenny from NCB capital markets to take on the task of shifting the investor makeup. ‘In 1995 there wasn’t a dedicated investor relations role. It was done, but as in many plcs it was done on an ad hoc basis by a variety of people’, explains Kenny.
Five years later he is executive vice president of equity capital markets at Smurfit and can take some of the credit for a substantial increase in the US portion of the investor base. It has risen from 14 per cent in 1995 to over 30 per cent now - and Kenny is aiming for 50 per cent.
‘Michael Smurfit was quite skeptical of the whole thing initially but he saw what it could achieve and saw the progress relative to fairly clearly defined objectives.’
Kenny says the Smurfit’s IR function took a broad approach to its role within the company.
‘The brief I inherited was to build and develop the function and to then achieve very specific objectives.’
‘We’ve changed the titles of the function to ‘equity capital markets’ which is more a reflection on how the actual function has evolved over the years. It’s actually integrated to an extent into a planning function internally and to some extent into line management.’
Two for 65,000
At Smurfit investor relations means an interactive process, instead of just being an interface for investors it is a forum for feedback on company structure and strategy.
The Smurfit team consists of just two people directly out of the 65,000 employed internationally: Mark Kenny and his colleague Jonathan Neilan, both based in Dublin. But there is a close interaction with senior management and advisers in the US.
‘Our reporting relationship is directly to Gary McGann who is the president and chief operating officer, and then it would be a dotted line relationship to Michael Smurfit.’ As an eight per cent shareholder in the company Michael Smurfit speaks to Kenny about twice a day.
Kenny is adamant about the necessity of the investor relations for most Irish companies. Those who don’t have a serious policy will simply be left behind, he believes.
‘There is no doubt IR has an impact on the company share price and this is something that has relevance for the entire Irish market. You’ve got an Irish investor base, which is reducing its exposure to the Irish market, and very simply you have to get out and compete and get buy-interest. You have got to generate the corresponding bid-interest.’
IR is an untapped resource in many Irish companies Kenny believes. ‘It has the capacity to add huge value and I think it is an absolute necessity for Irish companies because of too much stock held here, because Irish investors have become natural sellers of the market, because it is a peripheral market and because there is a consequent need to attract capital inflows.
But beyond that you have to start looking at IR as part of your capacity to fund future growth. It can be a hugely rewarding process if it is treated as an interactive process. You are giving to the market but you are taking back so much which is ultimately going to enrich your whole strategic area... and that is extremely valuable. Your product market will create the value but your capital market will realise it.’
‘Our perception is that a lot of the issues, a lot of the discount factors that prevail in the Irish market relate to technical issues. There are many fine companies here but there are technical and structural issues, which certainly can be dealt with, and we are proof positive that you can deal with them (in an IR role). You can set yourself very identifiable objectives and you can achieve them.’
The base: Europe or US?
With Smurfit’s increasing US base what is the potential for European growth? There’s a lot of talk of Europe as a panacea and a market to absorb the capital outflow out of Ireland but Kenny says this is not the case. He says the European equity culture is only nascent by comparison with the US. ‘As we see it European investors are essentially playing an index game… the focus is on the largest most liquid names within the index. You peddle your wares were there is more appetite for your stock where there is an identified and clearly distinguished sector. For us this is the US.’
Trying to position Smurfit as a US company and its increasing US investor base means frequent flyer miles for Kenny but he is not planning to move his office stateside. ‘Institutions want guys that are head-office based. They want them close to the source of decisions and to know what is going on. If you were remote I think you would be perceived as that.’
In the US IR is about managing market expectations, according to Kenny. ‘If the performance of the company is not aligned with market expectations then you are faced with credibility issues. But the challenges of working in IR in Ireland brings other pressures. It is not just a case of managing market expectations, he says, but also about developing the overseas market for your company’s stock. ‘Any Irish IR person has really got additional responsibilities and specific tasks, which is getting the stock out of Ireland and addressing the technical and structural issues (of the company).’
For Kenny the toughest challenge is the industry he works in. ‘In effect we’re selling a ‘discretionary investment’. We are trying to solicit interest in our stock. The industry we’re in is such a tiny percentage of the overall market that the net effect is that nobody has to own paper stocks.’
Investors and analysts
Kenny divides this time to a large extent between analysts and institutional investors. The approach of both, he maintains, is quite different. And he sees the difference between them as macro and micro economics. Investors are more macro focussed relative to the analysts who, he says, are very detail-orientated. And Kenny maintains that US analysts particularly are becoming more vocal in criticising companies now and less fundamentally based.
And credibility lies at the core of any successful IR role in - investors have to believe and trust you. ‘The credibility you have relates to the company and the credibility the company has ultimately determines your ability to raise funds.’ At Smurfit, Kenny is in the front line of that credibility. |
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| Article appeared in the July 2000 issue.
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