29 June 2022

Evaluating Your IR Program

ROWAN CLARKE, Investor Relations

As we enter a new financial year, it is worth reflecting on the effectiveness of your Company’s IR program. This was a topic at the 2022 National Investor Relations Institute’s (NIRI) Conference held in Boston. FIRST Advisers attended the conference in June and we summarise some of the key recommendations.

Recommendation 1:

Share price performance is not a good measure of quality IR

Most CFOs would like to see their share price perform consistently well. However, this is not an entirely appropriate way to measure the success of your IR program. Any assessment of an IR program should focus on factors within the Company’s control, which share price performance is not.

The goal of investor relations is to ensure that share price reflects a fair valuation of your Company’s shares (generally taken to equal the discounted future stream of dividends). While a quality IR program can move the needle above this fair valuation, it will not ensure the sustained superior performance of your share price.

Better market-based measures to assess IR effectiveness would include (i) lower share price volatility, or (ii) measuring share price performance relative to close industry peers.

Recommendation 2:

Be realistic when assessing sell-side coverage and investor targeting exercises

An effective IR strategy will involve interacting with sell-side analysts, along with current and targeted investors. In assessing these activities, always set yourself realistic expectations of what can be achieved in one year.

When targeting new investors, multiple meetings over an extended time period may be required, perhaps as many as 5 meetings during the course of a year, before any noticeable buying starts. Some useful measures of investor targeting performance may be (i) the number of new investor contacts made, or (ii) the change in frequency of contact with targeted investors.

Like investor targeting, if you haven’t had a sell-side analyst in two years, it is unlikely that you will get two new analysts in one year. Consequently, it is important to assess your analyst targeting achievements within an historical context.

As you interact with analysts, always keep in mind they no longer have complete autonomy over their research coverage. For this reason, look beyond the number of analysts that provide research coverage of your Company. Ultimately, the aim of building a relationship with analysts is to get access to their client/investor network. Ask yourself, are we getting more speaking opportunities at conferences or webcast events hosted by analysts? These forums provide valuable opportunities to present your investment thesis to a new investor network. Participation in these events should be considered as part of your IR program’s review.

Recommendation 3:

Credibility is paramount to the IR function, and should be reviewed

IR should ultimately serve to build a trusted relationship between the Company and the wider investment community. Building trust involves being honest and consistent in your messaging to the investment community, and responsive to questions or requests for information. An IR function’s ability to act as a credible source of information from a company is key to building that trust.

There are aspects of credibility which can be hard to measure, but it is essential to have some way to gauge credibility when evaluating your IR program. It may be useful to ask yourself the following questions when attempting to assess your Company’s credibility in the wider investment community:

  • Regarding sell-side analysts, do they capture all the key messages that you wanted them to communicate? You cannot control if an analyst believes a Company to be fairly valued. What is important is that key messages are received and repeated in research reports.
  • Do you have a plan in place that ensures your largest shareholders are contacted on a regular basis? This may be as simple as ensuring that those shareholders participate in a 1-on-1 with the CEO and CFO, following results and material announcements.

To get a more in depth understanding of the credibility of an IR function, it may be worth conducting an Investor Perception Study. FIRST Advisers offers this service, which can help to uncover investor sentiments towards a company and how credible investors believe a Company’s market communications to be. Investor Perception Studies can be included as part of a formal review of your IR program.

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