| How brokers bridge company and investor IR objectives |
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By: Linda Hickey, Linda Hickey
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| Linda Hickey reviews the role corporate brokers play in helping firms achieve their investor relations needs. |
‘There’s no glamour in it’. This is the glum conclusion reached by every new CEO or CFO after his first investor road show. Seven cities in eight days, - airport security queues, - sandwiches for every meal, - six meetings a day with inscrutable institutional investors.
And yet this grind is unavoidable. Irish companies are owned primarily by international institutional investors, often making up as much as 60 per cent of the total shareholder base. (This is typically reversed in UK or continental companies where as much as 60 per cent is often held by domestic fund managers). Twice a year key, shareholders have to be visited, and contact with a pipeline of non-holders needs to be constantly invigorated.
‘There’s no glamour in it.’ This is the equally glum conclusion reached by a portfolio manager sitting at her desk after a few weeks in the job, staring at an email inbox of several thousand unopened mails and a blinking telephone light telling her that she has 240 unheard voicemails. She needs to find less than a hundred good ideas from the thousands she is presented with, but the job of filtering is a very laborious one. The so-called information revolution has made the transmission of information a much easier process, however this has naturally led to a lack of discrimination on the part of senders, and many fund managers and analysts are bombarded all day with information which is not necessarily useful or screened for their purposes.
Enter the broker. We can’t make either job glamorous, but we can make the process more efficient for each.
The first role is screening. For corporate executives, we provide a critical targeting service to ensure that they are put in front of investors with a real prospect of buying and holding stock. For example, within the hedge fund universe there are some funds that only invest in ‘event driven’ stocks, such as take-over candidates. Too many of these fellows on the register can unbalance a shareholding structure and pressure management to shift too much focus on the short term. However, some trading-oriented holders are always needed to create liquidity.
For investors, we provide an equally important screening service to only present them with ideas that meet their investment criteria. The job of the equity sales desk is to build detailed profiles of its clients and to understand the investment triggers for each. Fund managers gain an edge by having a differentiated investment style from the pack. A good broker will understand the investment style of each investor and sift through myriad company information to find the ideas that will connect.
The second key role is communication. Just as PR advisors help a company to shape its message to the press, it is the job of the broker to help shape a company’s message to the market. Daily interaction with investors informs the broker as to what the key issues are for specific companies. Filtering this information into pre-results preparations can help to shape presentations in a way which address these issues up front.
Equally, while stock-market participants don’t have their own language, they certainly share a common understanding about meaning. Certain words and phrases which are neutral to the broader business community can be loaded with negative meaning for investors. Such miscommunication can be easily avoided by a timely review of presentation materials by the company’s broker. The senior members of the corporate broking team in Goodbody Stockbrokers have backgrounds in institutional sales and investor relations. This puts us in a good position to bridge any communication gap.
Communication obviously works both ways. It is vital for a chief executive or finance director to be fully briefed after a road show with feedback from investor meetings….particularly if that feedback is negative. During the results season, a busy fund manager will meet as many as 6 companies a day for up to three weeks. The broker’s role is to persist to the brink of annoyance in asking clients to deliver feedback. Brokers are the only participants in the process with an ‘open line’ to investors, and so despite the difficulties in chasing down feedback, we are nonetheless best placed to deliver this crucial service. This ‘open line’ also facilitates the gathering of market intelligence of all kinds.
Apart from the twice yearly formal periods of investor contact around results, it is important for executives to be kept apprised of changing views in the market throughout the year. The corporate broking team plays a role in filtering general market sentiment and informal feedback to company executives, not just about their own stock but also about sectoral information which may change investor thinking towards all stocks in the sector.
So, is there any glamour in it? None whatsoever, but a good broker can help to make the job of investor relations as painless as possible for all participants. |
Linda Hickey is head of corporate broking at Goodbody Stockbrokers.
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